Gold World News Flash |
- If anyone hasnt noticed...
- The UK: A Free Nation Deep in Debt
- In The News Today
- QE-Cating
- Exposing Silver Mythology, Part I
- Don Coxe Update – Jan 20th
- Sprott Silver Trust (PSLV) Premium Collapse Costly
- Buy Gold NOW Ahead of Further QE ? Here?s Why
- Gold-Market Rigging Has Many Whistleblowers; They're Just Always Ignored
- Gold-market rigging has many whistleblowers; they're just always ignored
- Interactive Visual History Of Financial Crises Since 1810 - Note Where The Fed Arrives
- More On Ron Paul
- Buckle Up
- Why Isn’t Illinois A Bigger Story Than Greece?
- Arensberg laments PSLV premium; new Gold Standard Institute letter is published
- Guest Post: Looking Back On A Century Of The Fed's BS
- Fed would admit devaluation is policy, then keep underestimating it
- Sprott Silver Trust (PSLV) Premium Collapse Costly
- The CDS Market And Anti-Trust Considerations
- Q&A On The Greek Restructuring, And Why It's All For Nothing
- Commodities: gold equities could finally start to perform
- Mike Maloney only Gold & Silver are money everything else is Currency
- Gold Confiscation, a Reality? Part III
- Gold And Gold Mining Analysis Through Visualisation
- Bullish Set Up on US Dollar
- Max & Stacy beat 99% of Wall Street's Finest
- Sprott Bearish on Base Metals, Positive on Gold, Oil
- Gerald Celente on Trend Forecasting and the Crisis of Western Civilization
- Michael Pento: Money Supply to Hit $24 Trillion, More Bubbles & Higher Gold
| Posted: 22 Jan 2012 06:18 PM PST Gold being being held at 1666 like Ive never seen before.
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| The UK: A Free Nation Deep in Debt Posted: 22 Jan 2012 06:11 PM PST Bullion Vault
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| Posted: 22 Jan 2012 06:02 PM PST Jim Sinclair's Commentary The move away from the dollar started subtly. That subtle move is now becoming more visible. Before 2012 is out the stampede will start. China tiptoes to petrodollar recycling The currency swap agreement between China and the United Arab Emirates [UAE] signed during Premier Wen Jiabao's tour of the Persian Gulf Continue reading In The News Today
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| Posted: 22 Jan 2012 05:43 PM PST QE-CatingExcerpts from this week's Stock World Weekly Good week for the bulls - the major indexes were all up between 2.0% and 2.8%, capping the third consecutive week of gains. Investors saw some powerful signs of positive activity in the economy. For example, initial unemployment claims dropped a stunning 50k in one week. Conversely, the fact that this earnings season has seen the lowest percentage of companies beating expectations since Q3 2008 supplied some powerful ammunition for the bears, although the bulls still had it. (Earnings beats falling behind previous quarters) We ended last week's newsletter, "Cracks in the Facade" discussing the possibility of additional easing by the Fed, which would likely prove bullish for the markets. Quoting Phil,
The indexes we track finished this week above Phil's targets, and XLF finished this week at $14.14. This would normally be very bullish if it wasn't for the notable lack of volume, which is a warning sign. As the old saying goes, "volume equals validity" in the markets. Without volume a rally becomes difficult to believe in, as thetechnicaltake observed.
A possible explanation for this week's bullish run would be heightened expectations of an additional round of quantitative easing from the Fed. Rumors this week were pegging the size of the program to be as large as $1Tn. (Fed's Latest Easing Could Cost $1 Trillion: Economists)... But perhaps most importantly, liquidity flows are positive. According to Lee Adler of the Wall Street Examiner:
Greece was back in the news, as Moritz Kraemer, head of S&P's European sovereign ratings unit, was on Bloomberg TV this Monday claiming, "Greece will default very shortly. Whether there will be a solution at the end of the current rocky negotiations, I cannot say." (Europe: They Are Actually Going To Let Greece Default?) Negotiations continued all week, with negotiators for Greece's private creditors leaving Athens this Saturday without a deal being made. This makes it very unlikely that an agreement will be completed before the meeting of eurozone finance ministers on Monday. (Greece's creditors leave Athens, talks to continue) This week also saw last-minute reversals in a major news story and the (QE) rumor. The news story was reversed when Iran backed down from its earlier threats against U.S. naval forces in the Persian Gulf. The rumor was undermined when Jon Hilsenrath of the Wall Street Journal stated on Friday that the Fed is not planning additional easing. If true, then so much for the one trillion Dollar gift to the banksters that stock market participants may have been looking forward to. Phil expressed skepticism about the current rally in Wednesday's article: "Last week I noted that almost half the companies were missing estimates, and yesterday 5 out of 10 reporting companies missed. How is the market up over 20% since the last earnings on these reports? It's because INVESTORS are not playing this market. SPECULATORS are betting on the Fed, the IMF, the ECB, the BOJ, the SNB and the PBOC to flood the World with cash. On that basis alone – they are overlooking overwhelming evidence that the Global Economy is still mired in Recession." We'll be watching next week's FOMC meeting. Fed-watchers Bruce Krasting, Lee Adler of the Wall Street Examiner and Jon Hilsenrath (with his direct line to Bernanke) have argued that additional QE is not coming anytime soon. Bruce Krasting discussed the Fed's new policy of providing information to the public regarding the direction of US interest rates and his thoughts on additional easing in "Will the Fed Bring Clarity or Confusion?" He wrote,
Lee Adler of the Wall Street Examiner discussed how the situation in Europe is affecting U.S. stocks. The European Central Bank's (ECB) pumping activities have caused money to flow into the US, and Lee is uncharacteristically bullish based on that trend. In his Professional Edition and in personal communication, he wrote,
Note: Russ Winter of Winter Watch, Aaron Krowne of ML-Implode.com, and Lee Adler of the Wall Street Examiner discuss their take on the recent market melt-up, the possible reasons behind it, and the Fed's false transparency in "Fed Transparency Lies and Market Melt-Up Mean No QE Coming." (Click this link to visit Radio Wall St. and listen to their free podcast.) We have a few buy-write ideas from Phil and Pharmboy, click here to sign up to try Stock World Weekly. For more from PSW on using buy-write strategies, including recent ones, visit me here. Have a great week!
p.s. We shared a number of trade ideas in Stock World Weekly, January 8, 2012, from Sabrient's "Baker's Dozen" list. Scott of Sabrient gave us some buy-write ideas with the stocks WNR, STX, GSM and DAN. All four buy-writes have gains from 9% to 15%... Sabrient's report on the Baker's Dozen 2012 is now available: Download the free, 25-page report here.
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| Exposing Silver Mythology, Part I Posted: 22 Jan 2012 04:12 PM PST Advanced economic analysis involves high-level mathematics at least as complex as the realms of physics or engineering, accompanied by equally convoluted jargon. As a result, it is virtually incomprehensible to the ordinary person. Conversely, the basic principles of economics are very straightforward. Indeed they could be summarized as little more than a combination of common sense and simple arithmetic. As a result, fundamental economic analysis is highly accessible to the ordinary person – because of its relative simplicity. What then are we to make of the fact that the self-described (mainstream) "experts" on the silver market; the quasi-official sources for data on the silver market; and the primary regulator of the silver market all regularly and consistently demonstrate complete ignorance of even the most elementary of economic principles? Are we to attribute this to gross incompetence, inherent bias, or an intentional attempt to deceive? I will leave it up to readers to reach their own conclusions. This piece will simply lay out the positions of these individuals and entities (past and present), lay out what little reliable data is available to us; and then apply the simple, common sense principles of economics to this data. It will focus on the three most basic aspects of any market: supply, demand, and inventories. First, however, I will refer readers to some previous, elementary economic analysis. As I established with simple numbers (and logic), in any market shorting always "consumes" while investing always "conserves". In other words, in any market which is dominated by shorting we will see a substantial increase in consumption, and (over time) a radical decline in inventories/stockpiles. On the other hand, in any market dominated by investors (who are invariably mis-labeled as "speculators"), we will see consumption decline and inventories swell – due to the rising prices generated by increased investor-buying. Meanwhile, the entities/individuals mentioned previously do not merely regularly engage in analysis which is wildly erroneous, but in many cases is totally perverse. It is with respect to this last point where it becomes more difficult to ascribe this behavior to mere incompetence and rather more likely that there is some degree of malice involved. In order to show how the inaccuracy of this analysis is not only extreme but consistent, I will refer primarily to the most up-to-date opinions on the silver market today; along with an "open letter" from the CFTC from 2004, and the GFMS "World Silver Survey 2003" – which primarily covers developments in the silver market during 2002, one decade ago. Readers must first understand that there are two ways of characterizing "supply and demand". It can be described as current orders versus total stocks, or it can be described in terms of production versus consumption. It is the latter definition which is exclusively taught in our educational institutions, and for a very good reason: it is only by examining supply and demand in terms of production versus consumption where we can obtain any useful information about the future direction of any market. Conversely, the mainstream "experts", the CFTC, and the quasi-official record-keepers for the silver market never use the latter definition. Instead, they always use the much less useful former characterization – and then reach one absurd conclusion after another through relying upon this inherently flawed data. Why is production versus consumption the only valid basis for analyzing supply and demand? Obviously the entire purpose of analyzing any market is to determine whether it is in balance, or whether it is out of balance – either through over-supply or excess demand (in order to correctly price the market). Examining production versus consumption data instantly provides us with the answer to that question. Noted silver researcher Ted Butler has concluded that the silver market has been out of balance (in the form of excess demand) for more than fifty years, with total global stockpiles of silver declining by well in excess of 80% over that period. More recently, data supplied by the other quasi-official source of data for the silver market (the CME Group) shows that silver inventories plummeted by approximately 90% just from 1990 through 2005 – during which time the price of silver fell to a 600-year low (in real dollars). | ||||
| Don Coxe Update – Jan 20th Posted: 22 Jan 2012 04:04 PM PST General Update
Gold Update
Greece Update
Agri Update
Conclusion Remarks
Q+A 1. Comment on if there is gold political risk? If they were to use SDRs etc?
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| Sprott Silver Trust (PSLV) Premium Collapse Costly Posted: 22 Jan 2012 02:43 PM PST from GotGoldReport.com: HOUSTON — Just below is a good reason to pay attention to the premium over net asset value a metals trading vehicle is carrying BEFORE buying it. On January 16 when we issued our last full Got Gold Report, we warned in clear and unambiguous terms that the premium then extant for the Sprott Physical Silver Trust (NYSE:PSLV, more than 24% over net asset value then) "could evaporate at the drop of a hat." Failure to pay attention to overly high premiums can be disappointing and costly. We went further in that Subscriber update, saying: "If we held any PSLV at the moment we would immediately trade it for a vehicle with little or no premium. Or, we would buy an equivalent amount of physical metal and then cash in the bloated shares of Mr. Sprott's vehicle." Anyone following the action in silver could have predicted that a new offering for PSLV was coming. Recall in our public offering on January 8, entitled, "Silver, You Ain't Seen Nothin' Yet," we said then that: "Mr. Sprott can see and smell the same imbalance we are talking about and has moved into position for it in a very big way. Indeed, with his recent shelf offering, we think Mr. Sprott's next very large purchase of silver metal is more or less imminent. Mr. Sprott can see the same chart we do."
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| Buy Gold NOW Ahead of Further QE ? Here?s Why Posted: 22 Jan 2012 02:37 PM PST So says Bear Fight (pseudonym)*in edited excerpts from the original article* as posted at [url]www.SeekingAlpha.com[/url]. [INDENT]Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. [/INDENT]The articles goes on to say, in part: Further QE to Cause Higher Inflation and Rise in Gold Price The chart below [of] the U.S. monetary base, the price of gold and the U.S. consumer price index [clearly] shows [that]*gold prices and the consumer price index hav...
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| Gold-Market Rigging Has Many Whistleblowers; They're Just Always Ignored Posted: 22 Jan 2012 02:33 PM PST by Chris Powell, GATA: Many people ask why, if there really is a gold price suppression scheme — a scheme of currency market intervention to support the dollar and other currencies against the true international reserve currency, gold — some whistleblowers haven't come forward to expose it. In fact, the whistle has been blown on the gold price suppression scheme many times over the years, and by the highest authorities. They just haven't yet been recognized as whistleblowers by the news media and financial analysts. Many of you may have heard of Federal Reserve Chairman Alan Greenspan's famous remark about gold in his testimony to Congress in July 1998: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan contradicted the usual central bank explanation for leasing gold — supposedly to earn a little interest on a dead asset — and admitted that gold leasing is all about suppressing the price. Greenspan's admission is still posted at the Fed's Internet site:
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| Gold-market rigging has many whistleblowers; they're just always ignored Posted: 22 Jan 2012 12:45 PM PST Remarks by Chris Powell Many people ask why, if there really is a gold price suppression scheme -- a scheme of currency market intervention to support the dollar and other currencies against the true international reserve currency, gold -- some whistleblowers haven't come forward to expose it. In fact, the whistle has been blown on the gold price suppression scheme many times over the years, and by the highest authorities. They just haven't yet been recognized as whistleblowers by the news media and financial analysts. Many of you may have heard of Federal Reserve Chairman Alan Greenspan's famous remark about gold in his testimony to Congress in July 1998: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan contradicted the usual central bank explanation for leasing gold -- supposedly to earn a little interest on a dead asset -- and admitted that gold leasing is all about suppressing the price. Greenspan's admission is still posted at the Fed's Internet site: http://www.federalreserve.gov/boarddocs/testimony/1998/19980724.htm And at GATA's: http://www.gata.org/files/GreenspanTestimony-07-24-1998.htm_.txt ... Dispatch continues below ... ADVERTISEMENT Be Part of a Chance to Discover Northaven Resources Corp. (TSX-V:NTV) is advancing five gold and silver projects in highly prospective and politically stable British Columbia, Canada. Check out the exploration program on our Allco gold/silver project : -- A large (13,000 hectare) property, covering more than 15 square kilometers of a regional mineralized trend just 3km from a recently announced 1.2-million-ounce gold and 15-million-ounce silver deposit. -- The property hosts historic high-grade silver workings and many mineral showings as well as former mines at the property's northern and southern boundaries. -- A deep-penetrating airborne geophysics survey has just been completed on the entire property and neighboring deposits and its results are eagerly awaited. To learn more about the Allco property or Northaven's other gold and silver projects, please visit: http://www.northavenresources.com Or call Northaven CEO Allen Leschert at 604-696-3600. But the official whistleblowing goes far beyond that. A few years ago a sensational memorandum was discovered in the archives of William McChesney Martin, the longest-serving chairman of the Fed, from 1951 to 1970. His archives are in the possession of the Missouri Historical Society and material from them is posted on the Internet site of the Federal Reserve Bank of St. Louis. The sensational memorandum is dated April 5, 1961, and is titled "U.S. Foreign Exchange Operations: Needs and Methods." It is a detailed plan of surreptitious intervention by the U.S. government to rig the currency and gold markets to support the dollar and to conceal, obscure, or even falsify U.S. government records and reports so that the rigging might not be discovered. We don't know if the plan was ever fully implemented but the memo proves that at least such surreptitious market rigging was contemplated by the U.S. government in the greatest detail: Paul Volcker was the U.S. Treasury Department's undersecretary for international monetary affairs from 1969 to 1974 and became Fed chairman in 1979. He lately has been an adviser to President Obama. Volcker has written some memoirs that as far as we can tell have been published only in excerpts by The Nikkei Weekly in Japan. On November 15, 2004, The Nikkei Weekly published the following excerpt from Volcker's memiors about the U.S. dollar revaluation that took place on February 12, 1973. Volcker writes: "That day the United States announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake." Got that? A former Federal Reserve chairman, the one credited for wringing inflation out of the U.S. dollar in the late 1970s and early 1980s, now a presidential adviser, says that for the U.S. government not to rig the gold market was a mistake. Volcker is still around to answer questions, but as far as we know, no financial journalist has ever asked him why not rigging the gold market was a mistake. Arthur Burns was Fed chairman from 1970 to 1978. On June 3, 1975, Burns wrote a letter to President Ford about surreptitious efforts by the Fed to suppress the gold price. This letter is available from various sources of declassified U.S. government records and is posted at GATA's Internet site: http://www.gata.org/files/FedArthurBurnsOnGold-6-03-1975.pdf Burns told the president: "I have a secret understanding in writing with the Bundesbank, concurred in by Mr. Schmidt" -- that's Helmut Schmidt, West Germany's chancellor at the time -- "that Germany will not buy gold, either from the market or from another government, at a price above the official price of $42.22 per ounce." Burns added, "I am convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price." That is, the chairman of the Fed in 1975, four years after the dollar was disconnected from any formal convertibility into gold, told the president that the U.S. government should discourage market pricing of gold. A few weeks ago the German freelance journalist Lars Schall contacted Schmidt's office about the Burns letter. Schmidt replied through a secretary that he could not remember the secret understanding the letter described, but he did not deny it. The whistleblowing about gold price suppression by former Fed Chairmen Greenspan, Martin, Volcker, and Burns may seem a bit like history. But there was similar whistleblowing two years ago. Evaluating GATA's freedom-of-information request for access to the Fed's gold documents, a member of the Fed's Board of Governors, Kevin M. Warsh, replied to GATA's lawyer in September 2009 that among the gold records the Fed insisted on keeping secret were records of the Fed's gold swap arrangements with foreign banks: http://www.gata.org/files/GATAFedResponse-09-17-2009.pdf Of course the only purpose of gold swap arrangements is market intervention. Fed Governor Warsh did not write that those gold swap arrangements had actually been implemented. But our German freelance journalist friend Schall and others have gotten the Bundesbank to make statements that come close to confirming that the Bundesbank has undertaken gold swaps with the United States to pursue what the Bundesbank calls its "strategic" activities in the market: And just last month Warsh, having resigned from the Fed's board, wrote an essay in The Wall Street Journal about the increasingly popular topic of "financial repression" -- that is, government intervention against markets. Warsh wrote that "policy makers are finding it tempting to pursue 'financial repression' -- suppressing market prices that they don't like": http://www.gata.org/node/10839 A few weeks later a columnist for the Financial Times cited Warsh's commentary in her own column in the FT: http://www.gata.org/node/10828 But neither she nor anyone else, as far as GATA has been able to determine, went back to Warsh to ask the obvious and compelling questions: -- Which policy makers are trying to suppress market prices? -- Which prices are they trying to suppress? -- Exactly how do you know about these efforts to suppress certain prices? Do you know from the experience of your five years as a member of the Fed's Board of Governors? -- In a democratic country do the public and the markets have the right to know plainly and specifically the public policy of "financial repression" here, so they might understand which markets are being targeted, which markets really aren't markets anymore at all? Since the news media and financial writers do not seem inclined to ask Warsh the obvious and compelling questions raised by his essay, GATA sought to do so. We reached Warsh through the Hoover Institution at Stanford University in California, where he has become a visiting fellow, and asked if we could interview him about his essay in the Wall Street Journal about "financial repression." Warsh was slow to respond but he did respond after a couple of weeks, very cordially and apologizing for the delay. While not answering the request for an interview, Warsh replied that this coming Thursday at Stanford he plans to make his first public comments since leaving the Fed, that these comments will elaborate on "financial repression," and that the university will make his comments widely available. Warsh even had a university publicist contact me so that I would have quick access to his comments. They may be of the greatest interest to advocates of free markets and democracy. Will Warsh's comments be of any interest to the financial news media? I wouldn't count on it. But I mention these incidents of whistleblowing about the gold market, all of which are described in the "Documentation" section at GATA's Internet site -- http://www.gata.org/taxonomy/term/21 -- just to show that the question isn't why isn't there any whistleblowing in the gold market but rather why it isn't reported. Join GATA here: Vancouver Resource Investment Conference http://cambridgehouse.com/conference-details/vancouver-resource-investme... California Investment Conference http://cambridgehouse.com/conference-details/california-investment-confe... Support GATA by purchasing a silver commemorative coin: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Golden Phoenix Receives Inferred Gold Resource Estimate Company Press Release Golden Phoenix Minerals Inc. (OTC: GPXM) reports that on behalf of Golden Phoenix Panama S.A., the joint venture entity that owns and operates the Santa Rosa gold mine in Panama, it has received from SRK Consulting (U.S.) an initial resource estimate for Mina Santa Rosa. The Santa Rosa project is a volcanic-hosted epithermal gold-silver deposit previously operated as an open pit-heap leach operation. Production ceased in 1999 in part because of low gold prices. SRK Consulting reports an in-situ inferred resource at the former Santa Rosa and ADLM pits totaling 23.1 million metric tonnes at 0.90 grams/tonne gold, for a contained 669,000 ounces of gold at a 0.30 g/t gold cutoff. The resource also contains an average grade of 2.87 g/t silver for a contained 2.1 million ounces of silver. John Bolanos, Golden Phoenix's vice president of exploration, remarks: "In addition to SRK's inferred resource estimate of 669,000 contained ounces of For the company's full statement, including a table detailing the resources at Santa Rose, please visit: http://goldenphoenix.us/press-release/golden-phoenix-receives-initial-ni...
This posting includes an audio/video/photo media file: Download Now | ||||
| Interactive Visual History Of Financial Crises Since 1810 - Note Where The Fed Arrives Posted: 22 Jan 2012 12:45 PM PST As the name implies. What is funny is how only after the advent of the Federal Reserve in 1913 did Financial crises expose increasingly more of world GDP to a crisis state. But at least the Fed and ECB tell us all they do is enforce price stabeeletee. Could they be lying!? We thought it was all the gold standard's fault for causing unprecedented economic volatility... Guess not. From History Shots: "The giant wave in the top section of the graphic depicts the percentage of world GDP by region in crisis during the 200 year period. It includes the four major financial crisis types (sovereign default, banking, currency, and inflation) along with stock market crashes. The bottom section provides a detailed chart of all sovereign defaults by country, region and year. It shows the repeating nature of sovereign default, a central theme of Reinhart and Rogoff's book." Full chronology after the jump.
Source: HistoryShots
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| Posted: 22 Jan 2012 10:38 AM PST by Dr. Paul Craig Roberts, PaulCraigRoberts.org:
Here are some suggestions. Ron Paul should be making the point that Social Security and Medicare are threatened by multi-trillion dollar wars that are funded by debt, by bailouts of a deregulated banking system, and by money creation to keep the banks afloat. Libertarians support deregulation, but their position has always been that deregulated industries must not be bailed out with public subsidies, much less subsidies that are so extensive that they threaten government solvency and the value of the currency. Instead of hitting hard on the serious threat to Social Security and Medicare posed by Obama and Republican candidates for the nomination, all of whom serve Wall Street, the military/security complex, and the Israel Lobby, Ron Paul has been positioned both by his supporters and his opponents as the danger to Social Security and Medicare. This is an amazing strategic mistake by the Ron Paul campaign. Read More @ PaulCraigRoberts.org
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| Posted: 22 Jan 2012 10:31 AM PST from TFMetalsReport.com:
First things first. Since December, many have commented and emailed looking for me to call another "Turd's Bottom". In a way, I did. After the breakdown last September, I kept trying to warn everyone that gold and silver could fall all of the way to their long-term trendlines, projected to be near 1550 and 25. As we now know, they came pretty close. Gold got to about 1535 in the last week of December, silver reached down and double-tapped 26 and that was that. I could have rolled out another grandiose bottom call but I chose, instead, to use it as a teaching moment. Judging by the emails I received, only a few of you seemed to notice what I was doing. To recap, here is the path upon which I was trying to lead you: Read More @ TFMetalsReport.com
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| Why Isn’t Illinois A Bigger Story Than Greece? Posted: 22 Jan 2012 09:47 AM PST As the Greek default (and it is a default no matter what they end up calling it) is finalized this week, the consensus seems to be that failure to reach a deal would cause a global financial apocalypse. That may be true. And if it is, why aren't we more worried about Illinois? It's more or less the same size as Greece, its finances are in the same generally catastrophic shape, and its leaders are just as feckless and dishonest. It owes tens of billions of dollars to various investors and stakeholders and will clearly have to stiff many of them at some point. The following article captures the "failed state" dilemma perfectly:
To summarize, even after a massive tax increase Illinois is looking at a half a billion dollar deficit. That actually sounds manageable in the scheme of things — not even a billion dollars, chump change in this inflation-ravaged world. But the annual deficit is less of a threat than all those accumulated liabilities: "Looking at the bigger picture, the state has a backlog of about $8.5 billion in unpaid bills and owes about $27 billion in outstanding bonds. And then there's the roughly $80 billion owed to the state's public employee pension funds." The reported deficit, in other words, doesn't include all the stuff that should have appeared in past budgets but was hidden in order to get through the next election. How a state with a constitutional mandate to balance its budget can do this in the first place — and how an "unpaid bill" can be excluded from the annual budget — is a question for future prosecutors. But for investors it's a clear sign that some sort of default is coming. Why then would anyone buy an Illinois municipal bond, or accept a state contract that required future payments, or move a business to the state, or keep a business in the state, or do anything else that required faith in the willingness or ability of the state to pay its bills? The only possible answer is that Illinois isn't Greece; it's Spain or Italy, an entity so big and important that its failure is inconceivable. When it hits the wall, Washington will have no choice but to step in and cover its unfunded pensions and teacher salaries and muni bond interest. In the same way that a Spanish bond is really a German bond because Germany has no choice but to make good on them, the big insolvent US states are wards of the central government. The bottom line effect of all this stepping up and bailing out is to exchange a solvency/debt crisis for a currency crisis in which the markets at some point figure out that failed states are so numerous and their needs so great that the printing presses will never stop.
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| Arensberg laments PSLV premium; new Gold Standard Institute letter is published Posted: 22 Jan 2012 09:34 AM PST 2:31p PT Sunday, January 22, 2012 Dear Friend of GATA and Gold (and Silver): At the Got Gold Report, Gene Arensberg today wishes that Sprott Asset Management wouldn't let the premium on its silver fund (PSLV) get so high before doing another share offering: http://www.gotgoldreport.com/2012/01/sprott-silver-trust-pslv-premium-co... The rest of us may hope that the new Sprott offering takes the last bar off the Comex. Meanwhile, the January edition of the Gold Standard Institute's newsletter has been posted here: http://www.goldstandardinstitute.net/GSI/wp-content/uploads/2010/06/TheG... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Prophecy Coal (TSX: PCY) Wins Positive Feasibility Study Company Press Release VANCOUVER, British Columbia, Canada -- Prophecy Coal Corp. (TSX: PCY, OTCQX: PRPCF, Frankfurt: 1P2) has received a positive feasibility study for the company's 600-megawatt Chandgana Mine-Mouth Power Project in central Mongolia. The report was independently prepared by Ralf Thomsen, project manager at Steag, a German firm specializing in the planning, financing, construction, and operation of highly efficient thermal power plants for fossil fuels. The study covers technical specifications, deployment, and financial analysis of a 4x150-mw thermal power plant to be built adjacent to Prophecy's Chandgana Tal coal deposit, which contains 140 million tonnes of measured coal. Last year the power plant received a construction license and the coal deposit received a mining license. Engineering, procurement, and construction management selection and project financing discussion have begun and are expected to be concluded this year. Construction is planned to start in April 2013, with the first 150-mw unit being commissioned in October 2015 and subsequent units to start in April 2016, October 2016, and April 2017. With proper maintenance the project will have 30 years of commercial operation. For the complete statement from the company, including maps and charts, please visit: http://www.prophecycoal.com/news_2011_jan17_prophecy_receives_power_plan... Join GATA here: Vancouver Resource Investment Conference http://cambridgehouse.com/conference-details/vancouver-resource-investme... California Investment Conference http://cambridgehouse.com/conference-details/california-investment-confe... Support GATA by purchasing gold and silver commemorative coins: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Sona Discovers Potential High-Grade Gold Mineralization From a Company Press Release VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling. "We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company." Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered. For the company's complete press release, please visit: http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf
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| Guest Post: Looking Back On A Century Of The Fed's BS Posted: 22 Jan 2012 09:33 AM PST Submitted by Thomas Gresham of Gresham's Law, After almost a century of the centrally planned dollar we're delighted to present a timeline of the most amusingly disturbing speeches delivered by the Federal Reserve & Co.
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| Fed would admit devaluation is policy, then keep underestimating it Posted: 22 Jan 2012 09:26 AM PST Bernanke Near Inflation Target Prize, but Jobs a Concern By Mark Felsenthal http://www.reuters.com/article/2012/01/22/us-usa-fed-target-idUSTRE80L0N... WASHINGTON -- The Federal Reserve could take the historic step this week of announcing an explicit target for inflation, a move that would fulfill a multi-year quest of the central bank's chairman, Ben Bernanke. An inflation target would be the capstone of Bernanke's crusade to improve the Fed's communications, an initiative aimed at making the central bank more effective at controlling growth and inflation. It would, at long last, bring the Fed into line with a policy framework used by most other major central banks. Bernanke has made clearer communications a hallmark of his leadership, and bit by bit, he has worked to cast light on what for years had been purposefully opaque and secretive deliberations. ... Dispatch continues below ... ADVERTISEMENT Be Part of a Chance to Discover Northaven Resources Corp. (TSX-V:NTV) is advancing five gold and silver projects in highly prospective and politically stable British Columbia, Canada. Check out the exploration program on our Allco gold/silver project : -- A large (13,000 hectare) property, covering more than 15 square kilometers of a regional mineralized trend just 3km from a recently announced 1.2-million-ounce gold and 15-million-ounce silver deposit. -- The property hosts historic high-grade silver workings and many mineral showings as well as former mines at the property's northern and southern boundaries. -- A deep-penetrating airborne geophysics survey has just been completed on the entire property and neighboring deposits and its results are eagerly awaited. To learn more about the Allco property or Northaven's other gold and silver projects, please visit: http://www.northavenresources.com Or call Northaven CEO Allen Leschert at 604-696-3600. He has even given the campaign a personal stamp, contrasting his plainspoken and unaffected persona with that of his predecessor, Alan Greenspan, whose ruminations were notoriously oblique and who was associated with an aloof cadre of policy mandarins. While Bernanke has touted a numerical inflation goal as a cornerstone of central bank best practices for years, the idea has become timely because it could help quell nagging doubts that the Fed's unprecedented easy money policies are setting the stage for a nasty bout of inflation. The U.S. economy strengthened toward the end of last year, with job growth accelerating and the unemployment rate dropping to a near three-year low of 8.5 percent. But the recovery is not expected to retain the momentum. By announcing a target, the Fed could smooth the path to another round of bond buying should the recovery falter. "It's a good idea whose time has come," said Marvin Goodfriend, a professor at the Tepper School of Business at Carnegie Mellon University in Pittsburgh and a former senior Fed policy adviser. In the eyes of Goodfriend and some policymakers, laying out an agreed inflation goal would squelch the idea that the Fed might allow for a faster pace of price gains as it tries to drive unemployment lower. It would also put the brakes on any notion that the central bank could resort to quicker inflation to ease debt burdens, as some academic economists have suggested as the needed salve for the painfully slow U.S. recovery. "One of the reasons to announce a formal inflation objective is to indicate that the Fed does not believe it needs to stimulate inflation in order to stimulate the economy," Goodfriend said. Some question whether the change would be little more than an academic exercise, since the central bank already publishes quarterly forecasts that show most officials believe consumer prices should rise between 1.7 percent and 2 percent a year. This long-term forecast is viewed as an ersatz target, and the Fed seems likely to simply formally enshrine it or a similar formulation. While food and energy costs drove consumer prices well above the central bank's desired levels last year, inflation is receding quickly and "core" prices and financial market expectations of future inflation have been largely contained. The Fed's preferred core price gauge was up just 1.7 percent in the 12 months through November, while bond markets see inflation of just 2.1 percent 10 years out. Explicit targeting has eluded U.S. proponents in part because skeptics, particularly among congressional Democrats, worried it would relegate the Fed's other congressionally set mandate -- full employment -- to the back burner. "Discussions of inflation targeting in the American media remind me of the way some Americans deal with the metric system: They don't really know what it is, but they think of it as foreign, impenetrable, and possibly slightly subversive," Bernanke said in 2003. However, the political climate has shifted. The Fed has drawn fire from Republican lawmakers and presidential hopefuls for risking inflation with its efforts to spur stronger job growth. The central bank cut interest rates to near zero more than three years ago and has vacuumed up $2.3 trillion worth of bonds to pump cash into the financial system and energize growth. Still, the Fed will need to tread carefully and accompany any inflation target with a description of what it views as constituting full employment. Officials say that while monetary policy ultimately determines the rate of inflation, labor markets are often affected by structural issues beyond the central bank's control. Because of that, they are hesitant to put a fixed number on the level of unemployment that can be achieved without generating a self-defeating inflation. As part of a communications review, officials in December debated a draft statement on their longer-run goals and policy strategy. Policymakers are set to discuss a refined draft at a policy meeting on Tuesday and Wednesday. It is this statement that is widely expected to include an explicit inflation target. "We are very close to having inflation targeting in the U.S.," James Bullard, president of the St. Louis Federal Reserve Bank, told Bloomberg Radio in an interview on January 5. Although there is no guarantee the Fed will announce a target this week, the communications review has already led to another innovation. For the first time ever, the Fed on Wednesday will release forecasts for the path of interest rates. Officials argue an explicit target would be an improvement on the longer-run inflation forecasts they now provide because it would strengthen the central bank's commitment to low inflation, even as it casts about for ways to coax the economy into a higher gear. Also, the long-range forecasts are simply an amalgamation of the individual views of all 17 Fed policymakers. An explicit target would be an agreed-upon common goal that could help bolster the central bank's already high anti-inflation credibility in financial markets. It could also help the Fed politically and strategically. The central bank has taken lumps, mostly from congressional Republicans, who saw its second round of bond buying as an egregious episode of big government overreach. The concerns of these Republican lawmakers, some of whom have broached the idea of narrowing the Fed's mandate to only price stability, might be mollified, potentially offering some political cover to an institution that has had few friends in the public arena since the financial crisis and recession of 2007-2009. A target could also help Bernanke keep a critical mass of support behind his policy decisions within the central bank, where at any given time, three or four of the current roster of policymakers are known to object to the Fed's ultra-easy stance. "Having an inflation target is central banking 101," said Philadelphia Fed President Charles Plosser, one of the Fed's top inflation hawks. "It's what most major central banks do." Join GATA here: Vancouver Resource Investment Conference http://cambridgehouse.com/conference-details/vancouver-resource-investme... California Investment Conference http://cambridgehouse.com/conference-details/california-investment-confe... Support GATA by purchasing a silver commemorative coin: https://www.amsterdamgold.eu/gata/index.asp?BiD=12 Or by purchasing a colorful GATA T-shirt: Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009: http://gata.org/node/wallstreetjournal Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon: Help keep GATA going GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at: To contribute to GATA, please visit: ADVERTISEMENT Golden Phoenix Receives Inferred Gold Resource Estimate Company Press Release Golden Phoenix Minerals Inc. (OTC: GPXM) reports that on behalf of Golden Phoenix Panama S.A., the joint venture entity that owns and operates the Santa Rosa gold mine in Panama, it has received from SRK Consulting (U.S.) an initial resource estimate for Mina Santa Rosa. The Santa Rosa project is a volcanic-hosted epithermal gold-silver deposit previously operated as an open pit-heap leach operation. Production ceased in 1999 in part because of low gold prices. SRK Consulting reports an in-situ inferred resource at the former Santa Rosa and ADLM pits totaling 23.1 million metric tonnes at 0.90 grams/tonne gold, for a contained 669,000 ounces of gold at a 0.30 g/t gold cutoff. The resource also contains an average grade of 2.87 g/t silver for a contained 2.1 million ounces of silver. John Bolanos, Golden Phoenix's vice president of exploration, remarks: "In addition to SRK's inferred resource estimate of 669,000 contained ounces of For the company's full statement, including a table detailing the resources at Santa Rose, please visit: http://goldenphoenix.us/press-release/golden-phoenix-receives-initial-ni...
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| Sprott Silver Trust (PSLV) Premium Collapse Costly Posted: 22 Jan 2012 08:17 AM PST HOUSTON -- Just below is a good reason to pay attention to the premium over net asset value a metals trading vehicle is carrying BEFORE buying it. On January 16 when we issued our last full Got Gold Report, we warned in clear and unambiguous terms that the premium then extent for the Sprott Physical Silver Trust (NYSE:PSLV, more than 24% over net asset value then) "could evaporate at the drop of a hat." Failure to pay attention to overly high premiums can be disappointing and costly. We went further in that Subscriber update, saying: "If we held any PSLV at the moment we would immediately trade it for a vehicle with little or no premium. Or, we would buy an equivalent amount of physical metal and then cash in the bloated shares of Mr. Sprott's vehicle." Anyone following the action in silver could have predicted that a new offering for PSLV was coming. Recall in our public offering on January 8, entitled, "Silver, You Ain't Seen Nothin' Yet," we said then that: "Mr. Sprott can see and smell the same imbalance we are talking about and has moved into position for it in a very big way. Indeed, with his recent shelf offering, we think Mr. Sprott's next very large purchase of silver metal is more or less imminent. Mr. Sprott can see the same chart we do." So on January 8 we gave our Subscribers a warning that a new offering for the PSLV trust was likely imminent, and on January 16 we strongly urged converting the then very high premium vehicle into something with less premium, either an ETF that tracks closely with and trades in lock-step with the underlying metal or in the alternative, physical metal, preferably the kind one takes delivery of and keeps close by. Both warnings turned out to be prophetic, because on January 18, just two days following the full GGR, Sprott Physical Silver Trust announced – you guessed it – a 23-million unit follow-on offering priced at $13.20 per unit (then about $1.30 or 9% below the price PSLV was changing hands for). Ouch for the faithful PSLV buyers/holders and shame upon the managers of PSLV for allowing the premium to get so out of whack to the upside. The graph below captures the action well enough. Is shows the instantaneous premium evaporation in PSLV.
How did they do up until Friday, January 20? Well, silver did indeed advance since the 10th, considerably so. Indeed silver closed in New York January 10 at $29.87 and at $32.03 Friday the 20th, a net gain of $2.16 close-to-close or a gain of about 7.2%. But because in the mean time the PSLV trust did a secondary offering, wiping out a big chunk of the overheated premium, our buyer of the closed end fund takes an unexpected (to him/her) hit. Sprott's PSLV closed on Friday, January 20 at $13.90, DOWN $1.47 or 9.6% even though silver advanced in a big way since the 10th. As of Friday, SLV closed at $31.22 up $2.05 or up 7% from the 10th. Both of our theoretical Silver trading vehicle buyers correctly bet that silver was about to move higher in price, but only one of them was rewarded for that correct assessment, the buyer of the continuous offering ETF. Had our theoretical PSLV buyer first checked to see what the premium was at the time, and upon finding that it was then IN EXCESS OF 24%, he/she might have then looked for a vehicle with a lot less premium before putting his/her money to work. And if he/she had chosen one of the ETF products that track in lock step with silver, such as SLV or SIVR, our PSLV buyer would not be in the hole to the tune of nearly 10% even though silver has advanced more than 7%. Moral of the story? Before buying any closed end fund, no matter how good one thinks it is, it pays to see what the premium is BEFORE making the trade. If investors have bid up a metals trading vehicle to an unreasonable premium, then it's time to look elsewhere for a vehicle to trade. As much as we are glad to see the new demand upon the physical silver market that the new purchase of physical metal by PSLV represents; and although we have the highest respect for Mr. Eric Sprott and the Sprott Asset Management Team, we can only hope that the PSLV management team takes a lesson themselves and doesn't wait so long between new offerings, allowing the premium for their too-popular trading vehicle to get unconscionably high. And, given this sample illustration as a reinforcement, we hope our readers continue to carefully check the premium of any trading vehicle prior to hitting the green button, every time. It just might help to avoid a nasty, but unnecessary surprise some day. That is all for now, but there is more to come.
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| The CDS Market And Anti-Trust Considerations Posted: 22 Jan 2012 08:14 AM PST The CDS index market remains one of the most liquid sources of hedges and positioning available (despite occasional waxing and waning in volumes) and is often used by us as indications of relative flows and sophisticated investor risk appetite. However, as Kamakura Corporation has so diligently quantified, the broad CDS market (specifically including single-names) remains massively concentrated. This concentration, evidenced by the Honolulu-based credit guru's findings that three institutions: JPMorgan Chase, Bank of America, and Citibank
Kamakura Corp. - The Credit Default Swap Market and Anti-Trust Considerations Donald van Deventer __ 1/19/2012 3:22 AM This is the seventh in a series of blogs on trading volume and the degree of competitiveness in the credit derivatives market. In this post, we use credit derivatives data from the Office of the Comptroller of the Currency from June 30, 1998 to September 30, 2011 to measure the degree of concentration among commercial bank dealers in the credit derivatives market. We conclude that the credit derivatives market is very highly concentrated, which increases the probability of collusion and monopoly pricing power. The first six blogs in our series on trading volume in the credit default swap market focused on the share of dealer-dealer trading, trading volume in all 1,090 reference names reported by DTCC, trading volume and its implications among banking companies, and trading volume in sovereign, municipal and sub-sovereign entities: van Deventer, Donald R. "Collusion and CDS Dealer Volume," Kamakura blog, www.kamakuraco.com, January 4, 2012. van Deventer, Donald R. "CDS Trading Volume for 1,090 Reference Names," Kamakura blog, www.kamakuraco.com, January 9, 2012. van Deventer, Donald R. "Credit Default Swaps and Deposit Insurance," Kamakura blog, www.kamakuraco.com, January 10, 2012. van Deventer, Donald R. "Municipal Credit Default Swap Trading Volume," Kamakura blog, www.kamakuraco.com, January 11, 2012. van Deventer, Donald R. "Sovereign Credit Default Swap Trading Volume," Kamakura blog, www.kamakuraco.com, January 12, 2012. van Deventer, Donald R. "International Bank Credit Default Swap Trading Volume," Kamakura blog, www.kamakuraco.com, January 18, 2012. The data used in the first six blogs in this series is from the Depository Trust & Clearing Corporation, downloaded from www.dtcc.com. In studying the degree of competitiveness in the credit default swap market, we need the share of each dealer in the market place. Ideally, we would have this data both for all credit default swap transactions outstanding and for all credit default swaps traded over a specific time interval, such as the most recent week. This data exists in the DTCC credit default swap warehouse, but it has not been disclosed to the public. As a result, we are forced to use an alternative source. We use instead the quarterly report from the Office of the Comptroller of the Currency entitled "Quarterly Report on Bank Trading and Derivatives Activities." Historical copies of these reports are available at this link: http://www.occ.gov/topics/capital-markets/financial-markets/trading/deri... Total derivatives outstanding are compiled for all commercial banks in the United States from the Quarterly Report of Condition and Income ("call reports") filed by each commercial bank in the United States, including U.S. bank subsidiaries of foreign banks. In this blog, we use the notional amount of "credit derivatives (over the counter)" to measure the degree of concentration in the U.S. banking market for credit derivatives. This measure is an approximation to the full data maintained by DTCC because (a) we are measuring notional principal only for transactions booked in U.S. banking entities, not all entities world-wide, and because (b) we have excluded other types of legal entities dealing in the credit derivatives market like Lehman Brothers and Bear Stearns. We look forward to repeating this analysis once DTCC makes disclosure that parallels that provided by the OCC. The OCC Quarterly Report on Bank Trading and Derivatives Activities lists notional principal outstanding both for the top 25 commercial banks in the United States (Table 1) and for the top 25 bank holding companies in the United States (Table 2). This blog focuses on commercial bank data in Table 1. A similar analysis can be done using data from Table 2. Measuring the Degree of Competitiveness in the Credit Derivatives Market The U.S. Department of Justice website www.justice.gov summarizes the calculation and use of the Herfindahl-Hirschman Index ("HHI") to measure the concentration in a given market as follows:
Note that a perfectly competitive market place with thousands of competitors with very small market shares would have an HHI index value of 0. A complete monopoly would have an index value of 100 x 100 =10,000. We now calculate the HHI for the U.S. commercial bank market in credit derivatives. Herfindahl-Hirschman Index for September 30, 2011 The quarterly OCC report ranks the top 25 commercial banks by derivatives volume. Only 21 commercial banks in the United States had credit derivatives outstanding in the September 30, 2011 listing. They were ranked by notional principal in credit derivatives as follows by dollar amounts in millions:
The total amount of credit derivatives outstanding was $15.659 trillion dollars. We calculate the market share of the participants in credit derivatives among U.S. banks as follows:
Three institutions, JPMorgan Chase, Bank of America, and Citibank National Association, have market shares in excess of 19% each. The HHI is the sum of squared market shares (expressed as a percent). The HHI for September 30, 2011 is 3,014. This is a very large excess over the 1,800 level at which the Department of Justice considers a market to be concentrated. Measuring the HHI from 1998 to 2011 We now measure the HHI for each quarter beginning June 30, 1998 until September 30, 2011 to see how the degree of market concentration has varied over time, remembering that we are including only credit derivatives booked at commercial banks. During this period, the following commercial banks were listed as having credit derivatives outstanding. As is typical of U.S. banking regulatory reports, alternative spellings for the same legal entities were used. This did not affect the calculations that follow, however. ALLY BANK The value of the HHI from June 30, 1998 to September 30, 2011 is shown in this graph:
Somewhat surprisingly, at a commercial bank level, the HHI index history shows that the index was extremely high in the period from 1998 to 2003, in the early stages of the credit derivatives market. It is not surprising that a few pioneers dominated the market for credit derivatives at that time, but the peak of the index near 5,000 is an astonishing degree of concentration. If Lehman Brothers and Bear Stearns had been included in the calculation, obviously the measured HHI would have shown an increase as the number of competitors in the CDS market decreased. During the last several years, the index has been fairly stable but at a level that still shows a highly concentrated market. Implications for Regulators and the Department of Justice
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| Q&A On The Greek Restructuring, And Why It's All For Nothing Posted: 22 Jan 2012 07:09 AM PST Lots of questions, and unfortunately, answers, from Credit Suisse in this Q&A on the Greek default/restructuring, much of it already covered previously, but the only one that matters is this: "Would the restructuring make the Greek situation sustainable? No. Sorry, but no is the answer. Even with full repudiation of the Greek debt, the situation would not be sustainable. In that event, the deficit would move to the primary balance, 5-6% last year. Not sustainable. And the current account deficit would be in the high single digits. Not sustainable either." So you're telling me there's a chance? Q&A on the Greek debt restructuring The IIF and Greece are approaching agreement on the Greek PSI, according to latest reports. We believe collective action clauses will be used to force a high participation rate, which means that credit default swaps will be triggered, but also that the ECB could be forced to take a loss. We look at the implications. When? 20 March is the deadline. The next major debt repayment Greece faces is a €14.5bn bond redemption on 20 March. In all likelihood, the Greek government will not have the cash to repay the bond, which means this is in effect the deadline for restructuring the country's debt. There are two scenarios in which talks could nonetheless carry on after that date. First, if our above hypothesis is wrong and Greece does in fact have the cash to repay the maturing bond – we doubt this is the case. Second, if Greece receives external support from the IMF and/or other European countries. This would be akin to the Fund and/or European states bailing out investors – again, we doubt this will happen. So, if the debt is not restructured before 20 March, Greece is very likely to default. Is Greece on an IMF programme? No, it is not. The IMF adjustment programme launched in April 2010 was formally terminated in December 2011 with the payment of an €8bn tranche. Greece is therefore no longer under an IMF programme at present. A second programme will commence after Greece's debt has been restructured. One key reason for the timing is that two-thirds of the money from the first IMF bailout was used to repay existing bonds maturing; only one-third was actually used to support Greece. Restructuring Greek debt will reduce the proportion of the bailout package used to repay maturing bonds. The IMF actually has an incentive to back a solution in which the new bonds are very long (no redemption in the near future) and carry very low coupons, at least in the first few years (no debt service). What haircut? About 70%. In our view, a simple haircut – just reducing the value of the debt – will not work, as it would result in an insufficient reduction of the debt (please see our note "Why a 50% haircut on Greek debt will not work", 14 October 2011) Rather, we think the debt will be restructured with existing bonds exchanged against new bonds with much longer maturities. Sources close to the discussions are talking about 30-year bonds, whereas the initial offering in September proposed 15- and 20-year bonds. The new bonds could also offer a lower coupon, and potentially step up later, or the coupon could be indexed to Greek GDP. Assuming the usual 9% discount rate, which was used in the first version of the PSI, we would assume a haircut in the neighbourhood of 70%. Will it be indeed "voluntary"? We doubt it. We think CAC clauses will be imposed. The current talks between the IIF and Greece seem to be nearing agreement. But even if an agreement is reached, we very much doubt that the participation rate of investors in a "voluntary" haircut will be high. In the first PSI deal, the Greek government wanted at least an 80% participation rate, and this would indeed be necessary to be consistent with the opening of a second IMF package – hence the likely need to force investors to participate. Although there are a number of ways to force a higher participation rate, we believe the most likely option will be to use collective action clauses (CACs). Because more than 90% of Greek debt is under Greek jurisdiction, these CACs would retroactively apply to existing bonds, and hence drive the participation rate up to 100%. Will CDS be triggered? Yes, if CACs are imposed. If CAC clauses are indeed imposed, the exchange of bonds becomes coercive for a number of investors. This would almost inevitably trigger credit default swaps. According to the ISDA, net open positions in CDSs are about €3.3bn currently, and we do not see that as a major risk. By contrast, not triggering the CDSs would wipe out the credibility of this market, which would be very detrimental, in our view. Triggering the CDSs is the right decision. Will the ECB participate in the haircut? If CAC clauses are used, we think the ECB will li kely have to participate and take losses. The official narrative for the time being is that the ECB will not be involved in the PSI. However, if CAC clauses are used, we think it will be difficult for the ECB to avoid involvement. There are several ways of doing so. For instance, the ECB could exchange its portfolio of bonds against a new Greek bond, then Greece could propose a coercive PSI on all bonds except the one held by the ECB. This would, however, be very questionable from a legal point of view and would almost certainly be challenged in court by investors. Another option would be to transfer the ECB's portfolio to the EFSF or some other European entity, which then would be involved in the exchange. This option again is fraught with legal complications. A further legal consideration is that the ECB might be forbidden to participate in a haircut as this could be seen as a breach of the Lisbon Treaty, specifically the clause preventing money financing of government. We do not think this is a valid argument, however. What are the potential losses for the ECB? Could it cope? About €22bn. And yes, it could cope with that. We estimate the ECB holds close to €55bn of Greek bonds. So a haircut of 70% would reduce the value of the bonds by €38.5bn, to €16.5bn. However, the ECB did not buy these bonds at par; we believe the average cost was around 70 cents, hence the ECB spent €38.5bn on buying the bonds. After any exchange it would receive bonds worth €16.5bn – a €22bn loss. This looks like a lot of money, but actually the P&L of the ECB is likely to look much better. Firstly, because the ECB's Securities Markets Programme (SMP) will generate a large carry trade. Assume that the SMP ex-Greece averages €200bn this year. This is a conservative assumption; indeed, the SMP currently amounts to about €180bn (the official €220bn minus our estimate of €38.5bn in Greek bonds). Now assume this portfolio yields 6% – again, arguably a conservative hypothesis – then the ECB would gain €12bn this year. And that is not all. Repo operations currently amount to about €900bn, and banks are paying 1% on those funds – a €9bn profit for the ECB this year. This number should be lowered, though, because the ECB deposit facility of about €500bn receives a 0.25% return, which costs the ECB €1.25bn a year. So the real profit would actually be €9bn minus €1.25bn, i.e. €7.75bn. We again stress that these are extremely conservative assumptions. Expectations for the next three-year repo operations are for several hundred billions of euros, which would boost the ECB P&L. But using our numbers, the ECB's P&L from monetary operations would be a €22bn loss on Greece, minus the €12bn profit on the SMP portfolio, minus the €7.75bn from repo operations, leaving a €2.25bn loss – ten times lower than the original number.
Not convinced yet? Let's look at the ECB's balance sheet. Strictly speaking we should be referring here not to the "ECB" but to the "Eurosystem"; indeed, the SMP has been implemented by the ECB at about 8%, the rest is implemented by the national central banks pro rata, in line with their share of ECB capital. So the loss proceeding from a Greek restructuring will be borne not by the ECB alone but by the entire Eurosystem. The table below summarises the Eurosystem's balance sheet. This is important, firstly because of the last line at the bottom of the liability side, "capital and reserves". Many commentators compare the potential losses with the capital of the ECB, which is €6bn, while it should actually be compared with the Eurosystem capital, which is €81bn. Also, the line just above "Revaluation Accounts" is also interesting. This account is used to book the capital gains from assets; for instance, gold is marked to market regularly, and any increase in gold value on the asset side will be compensated by an increase in the "Revaluation Accounts" line. So this account should be regarded as latent profits, and can be used to offset losses. The number on this line is a far from negligible €383bn, considerably more than any estimates of potential losses from a Greek restructuring. We would note an important detail, though: the accounting rules are complex and not all of the losses can be offset by latent profits, so only part of the Greek losses might be absorbed by this account. We do not have sufficient granularity on this account to push our analysis any further.
Should the ECB participate in restructuring? If the ECB participates, it would be a bad decision. If the ECB does not participate, it would be a bad decision. On balance, we think the ECB should participate. If the ECB participates it will lose money together with the national central banks. This might be politically difficult to sell to voters, especially in some countries. It could then reduce the appetite of the ECB to use the SMP, or it could increase public pressure in some countries to avoid putting central banks further at risk. The second risk is more legal: if the Bundesbank loses money on the SMP, it is ultimately taxpayers' money. This is where a legal problem could arise. In September, the German constitutional court clearly ruled that any taxpayer involvement has to be approved by parliament. This has not hitherto been the case for the SMP, as its use is decided on by the ECB board. Hence the SMP could be considered to be in breach of the constitutional court's ruling. Needless to say, this would be unsettling for markets. If the ECB does not participate, then the bonds held are senior to the market. This means that almost €200bn of Italian and Spanish bonds purchased via the SMP would be senior to the market: in effect, the market would have just been downgraded. This is clearly not a message that should be sent out while Italy and Spain are facing heavy issuance schedules. Additionally, if the ECB indeed avoids involvement in the PSI, we think there is a high probability that this would be challenged in court – which would put the ECB in an unpleasant position. On balance, we think the ECB should take a haircut. The constitutional argument is not compelling, in our view, and the losses, as explained above, are not that large. By contrast, downgrading the market to junior to the ECB could cause considerable damage and would make any SMP intervention selfdefeating. Would the restructuring make the Greek situation sustainable? No. Sorry, but no is the answer. Even with full repudiation of the Greek debt, the situation would not be sustainable. In that event, the deficit would move to the primary balance, 5-6% last year. Not sustainable. And the current account deficit would be in the high single digits. Not sustainable either.
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| Commodities: gold equities could finally start to perform Posted: 22 Jan 2012 06:33 AM PST Gold equities have underperformed for more than a year despite the gold price hitting a series of new all-time highs. But things could be about to change. 
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| Mike Maloney only Gold & Silver are money everything else is Currency Posted: 22 Jan 2012 06:15 AM PST Mike Maloney : "Money has to be a store of value... [[ This is a content summary only. Visit my website http://goldbasics.blogspot.com for full Content ]] 
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| Gold Confiscation, a Reality? Part III Posted: 22 Jan 2012 05:07 AM PST To get the issue in perspective, gold as a financial asset -- providing liquidity as cash should do but doing so globally -- is strongly on the rise, irrespective of its price. Read More...
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| Gold And Gold Mining Analysis Through Visualisation Posted: 22 Jan 2012 05:04 AM PST If the current gold bull market was to follow the timing and extent of the 70s bull market, the gold price would reach $6000 before 2014. Read More...
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| Posted: 22 Jan 2012 05:02 AM PST At the moment cycles are confused (cycles are bullish on FXE), but we think below is the dominant cycle leading intermarket relationships and has done since 2006. The US Dollar 83 period weekly cycle. Read More...
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| Max & Stacy beat 99% of Wall Street's Finest Posted: 22 Jan 2012 04:45 AM PST Gold & Silver Beat 99.8% of Wall Street's Finest
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| Sprott Bearish on Base Metals, Positive on Gold, Oil Posted: 22 Jan 2012 04:24 AM PST Prominent Canadian fund manager Eric Sprott said on Wednesday he was bearish on cyclical commodities such as industrial metals because of the economic slowdown, though he remained positive on gold and crude oil. Sprott, a long-time gold bull who last week filed to launch a platinum and palladium product allowing investors to redeem the physical metals, said he expects that business to grow in the wake of MF Global's collapse. "I am not bullish on cyclical commodities such as iron ore, coal, steel, lead and zinc because I am worried about this economic contraction that everybody is talking about," Sprott told Reuters in a phone interview from his Toronto office. He expects gold to hit a record above $2,000 an ounce this year, with silver also rallying to an all-time high at more than $50 an ounce. On Wednesday, gold traded at $1,660 an ounce and silver at $30.50. Sprott, whose parent company Sprott Inc (SII.TO) manages around C$9 billion in assets, has been bearish on cyclical commodities since the 2008 global economic crisis, and has maintained the gold and silver forecasts throughout last year. "I think there is more upside to the gold-mining stocks. Last year, the stocks were absolutely crushed when the price of gold went down. But when gold goes back up, the stocks will provide a better return."
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| Gerald Celente on Trend Forecasting and the Crisis of Western Civilization Posted: 22 Jan 2012 03:30 AM PST from The Daily Bell:
Introduction: Forecasting trends since 1980, Mr. Gerald Celente, Founder/Director of the Trends Research Institute, is author of the highly acclaimed and best selling books, Trend Tracking and Trends 2000 (Warner Books) and publisher of the Trends Journal. Using his unique perspectives on current events forming future trends, Gerald Celente developed the Globalnomic® methodology which is used to identify, track, forecast and manage trends. His on-time trend forecasts, vibrant style, articulate delivery and vivid public presence makes him a favorite of major media. The Trends Research Institute has earned the reputation as "today's must trusted name in trends" for accurate and timely predictions. On the geopolitical and economic fronts, Celente and The Trends Research Institute are credited with predicting the collapse of the Soviet Union, the last two economic recessions, the dot-com meltdown, the 1997 Asian currency crisis, the 1987 world stock market crash, increased terrorism against America, "Crusades 2000," the quagmire in Iraq … before war began and much more. Daily Bell: Give us some background on yourself and how you have come to your current success. Gerald Celente: My background is such that after graduate school and I got my Masters in Public Administration, I started running political campaigns in Westchester County in New York, which is a very affluent area. I was very successful at it so they sent me up to Albany, where I became the assistant to the secretary of the New York State Senate; Albany, of course, is the capital of New York State. It was there that I really started learning about the political game. It was probably the worst job I ever had because it was watching grown men suck up and bow down all day to get to the top.
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| Michael Pento: Money Supply to Hit $24 Trillion, More Bubbles & Higher Gold Posted: 22 Jan 2012 03:27 AM PST from King World News:
Michael Pento continues: Read More @ KingWorldNews.com
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If Ron Paul's libertarian handlers and support base could escape their ideology, Ron Paul could be much better positioned to win the Republican nomination.
As Barney Fife would say: "Boy ohboy ohboy ohboy ohboy ohboy ohboy ohboy". Do we ever have a humdinger of a week ahead of us. So, to get our heads screwed on straight and prepare, I thought it best to roll out a little Sunday afternoon warm up.
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