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- Why I Am Short Gold: 5 Reasons
- CFTC - Managed Money Short Positioning High for Gold, Silver
- Gold 'Players' Signal Possible Up-Turn
- Gold Demand In India Supported By ETFs
- Jamie Dimon: Born-Again Banker?
- Finding a Floor for Silver & Silver Miners
- The Gold/Greenspan Convergence
- Feedback, Unintended Consequences and Global Markets
- Gold bushwhacks bears
- Betting $1 Million On Gold Hitting $2,000 Before $1,000
- Why is the Post Office Using SDRs?
- Gold Daily and Silver Weekly Charts - Something Wicked This Way Comes
- German politicians face searching questions about gold
- Perth Mint’s first silver coin
- JPM, Facebook, Gold … And The Potential of A Titanic Financial Market Event
- Currency collapse dynamics
- Why Has Gold Fallen In Price And What Is The Outlook?
- Deflation or Inflation? How About Neither?
- US Dollar as invoicing currency
- Vietnam Gold certificate extension evokes mixed response
- Recovery or Collapse? Bet on Collapse
- Missouri lawmakers debate U.S. gold, silver coins use as legal tender
- Gold Faces ‘Significant Upside’ from Euro Debt & US Fiscal Crisis
- Marshall Auerback: Today Germany Is the Big Loser, Not Greece
- Trading Comments, 21 May 2012 (posted 13h45 CET):
- John Williams: The Recovery Is an Illusion
| Why I Am Short Gold: 5 Reasons Posted: 21 May 2012 05:08 AM PDT By Eric Goebert: Gold has developed many diehard supporters over the past 10 or 12 years, due in large part to GLD and the other ETFs and funds that made it easy make gold a part of your portfolio. In fact, there has been an explosion in gold funds after State Street introduced GLD. According to the Investment Company Institute's 2012 fact book, money going into commodity ETFs grew from $1 billion in 2001 to over $109 billion in 2011, and it has been going up from there. People buy gold for a few reasons. Most people I talk to think of it as an alternative currency, the ultimate hard currency, to hedge exposure to all fiat currencies, especially now that euros, dollars and yen all look increasing weak. People have used gold as a currency for thousands of years and despite the attempts of alchemists shysters to debase it, gold has proven Complete Story » |
| CFTC - Managed Money Short Positioning High for Gold, Silver Posted: 21 May 2012 04:30 AM PDT
SOUTHEAST TEXAS – Taking a break from the grueling, demanding and intense quest for things with fins and scales for a half day* today, we thought we would share with everyone a couple of the more interesting charts which surfaced in the latest Commodity Futures Trading Commission (CFTC) commitments of traders report (COT). The report was released Friday, May 18, with data as of Tuesday, May 15. According to the CFTC, as of Tuesday of last week, large traders the CFTC classes as Managed Money ("MMs," hedge funds, commodity trading advisors and other funds that trade futures on behalf of others), increased their short positions in gold futures by 9,837 contracts to show 32,822 contracts short. That is the highest pure short position for the "funds" since September 16, 2008, during the height of the 2008 panic with gold then in the $770s. One week later, on September 23, gold closed at $891.90, about $122 higher as the MMs covered or offset more than 20,000 of those short positions (not a misprint). Source for all graphs CFTC for COT data, Cash market for gold and silver. Continued… Very high pure short positions for the usually net long Managed Money traders very often correspond with important turning lows for gold. To confirm that notion simply look at the graph above and note that the spikes to the upside for the blue line (short positions) often correspond closely with bottoms in the pink price of gold. The graph above is in part why we say that large MM short positions are "100-octane rally fuel" for the price of gold. The typically long side of the battlefield likely uses short positions to temporarily "hedge" existing long positions they do not wish to close. Their short positions are just like any other shorts, they have to be covered (bought back) at some point prior to expiry. Higher short positions are "buying pressure in a bottle" more or less. Remember that the positioning above was on Tuesday with gold then trading in the $1,540s. Gold has indeed advanced since then and is currently trading in the $1,590 region as we write on Monday, May 21, 2012. That high short position is in part why the Managed Money no-spread net position shows the lowest net long positioning (80,098 contracts) since December 16 of 2008 (73,332 contracts net long then with $858 gold). On Tuesday Managed Money traders were the least net long gold futures since the global panic of 2008 in other words. So, to conclude this brief look at the Managed Money gold futures positioning, it's pretty clear that "the funds" decided to "hedge" their long trades by adding shorts up to last Tuesday. With gold moving back to the upside, we can expect with little doubt, that the MM's pure short positioning will be considerably lower and their net long positioning will therefore be higher in the next COT report. The only question is by how much. That is, of course, unless gold does something weird by the close tomorrow, Tuesday, the cutoff for the next COT report. Similar Story for Silver Turning to an interesting graph for silver futures, take a close look at the graph below and, given what we just shared about gold futures, answer the question: What does this high pure short positioning by the usually net long "funds" mean? Well, what it usually means is that silver is getting close to a bottom if history is any guide. To quantify the chart above, Managed Money reported an increase of about 3,700 new contracts short over the past two reporting weeks, to show a relatively high 12,518 lots short, with 3,334 contracts of that increase coming in the May 8 reporting week with silver then closing at $29.43. That is actually the highest pure short positioning for the "funds" since the September 16, 2008 report (arrow), when they showed 13,171 short contracts with silver then at $10.48. One week later, on September 23 silver closed at $13.26, but the funds only covered 1,538 of those short contracts. That was an ill omen that the funds did not cover more of that short position then and indeed silver was not yet done with its waterfall panic, rush to liquidity plunge. By late October silver was back under $10 and did not forge a sure-enough bottom until the beginning of December, 2008. Interestingly, by the time silver did indeed make its seminal turning low in December, the MMs had pared their pure short positions down to just 5,384 lots on December 9. ) The high short position for Managed Money traders is in part the reason that their collective net long futures positioning was so low in this May 15 report. As shown in the chart below traders the CFTC classes as Managed Money reported holding a combined net long position of just 5,703 lots – not very much higher than the 4,752 contacts net long they reported at the end of 2011 in the December 27 COT report with silver then at $28.67. As should be clear from the chart above, when the combined net long position for Managed Money traders (blue line) reaches the lower limits of the chart it often corresponds with lows in the price of silver. Sure enough, since Tuesday silver briefly tested a $26 handle before catching a bit of a bounce. Silver is currently trading in the $28.30s as we write (a little above the May 15 cutoff of $27.69) and it will be extremely interesting to see if the "funds" have seen fit to begin covering some of those "temporary hedges," and if so, how many of them. Silver is testing "The Green" or the area we have been looking for support to show. We strongly suspect the MMs are covering some of their shorts, opportunistically, but we, like everyone else, will have to wait until the Friday release of the COT for confirmation of that notion. Meanwhile, in a contrary sense, the COT data suggests that gold and silver are very close to a bottom, if one has not already been put in last week. In part because of the data shown above, yes, but also because of the positioning of the usual Big Hedgers, but that story will have to wait for another time. We have run out of "break time" and have to get back to our grueling, demanding and intense quest for things with fins and scales… As we send this off to be posted we note that the AMEX Gold Bugs Index or HUI is up about 2.5% to the 405 level, and there has been little in the way of meaningful retreat for the precious metals on an up day for the Big Markets. That just might be some continued short covering underway – into dips. If so, it ought to be visible in the next COT report and would be an unmistakable signal to traders and speculators who follow the COT data consistently. Hold down the fort, help is on the way… *We are between fishing events, but on relatively "low power" personally. |
| Gold 'Players' Signal Possible Up-Turn Posted: 21 May 2012 04:13 AM PDT By Chris Ridder: Who are the "players" in the gold market? Well, each week the U.S. CFTC releases figures for futures contracts traded in the U.S. and regulated by this government watchdog. The reports are released each Friday at 4 p.m. EST and provide a snapshot of the market's composition as of the close the previous Tuesday. Categories are reported as follows: (Click to enlarge) The CFTC reports how much in each category is long, short or spreading. For my analysis of the gold market I took the net percentage reported in each category. I find this more meaningful then saying, "X is net long 10,000 contracts," since the open interest of futures contracts changes over time. As an example, if hedgers were 10% long and 25% short, then I would report the net being at negative 15%. Here is a chart from June 2006 to last week showing the net positions of Complete Story » |
| Gold Demand In India Supported By ETFs Posted: 21 May 2012 03:52 AM PDT By Tom Lydon: According to the Word Gold Council, demand in India for gold through exchange traded funds is likely to double this year. The Indian gold market is expected to exhibit the greatest growth in the near future. "The investment demand for gold under exchange traded funds continues to be very very strong. In future, the total tonnes of gold investments made under ETFs (in India) may double," Ajay Mitr,WGC Managing Director India and Middle Eastern region, said in a report. In 2007, the gold market in India was about 5 metric tons and rose to 15 tons last year. Total gold demand in India for 2011 was 963 tons, as investors were drawn to the metal because of the low inventory costs, reports Economic Times. Gold jewelers also add to the total gold demand in India, and some are using ETFs to purchase their gold. The overall gold demand at the Complete Story » |
| Jamie Dimon: Born-Again Banker? Posted: 21 May 2012 03:51 AM PDT As we watch the absurd melodrama surrounding JP Morgan's multi-billion dollar "trading loss" unfold before us, there are many things we still don't know. However there is one thing we do know: that the truth is totally different than what is being depicted by JP Morgan and the talking-heads of the mainstream media. To understand that this is pure financial farce requires putting numbers into perspective. Let's start with this one: JP Morgan's derivatives portfolio alone amounts to more than $70 trillion in highly-leveraged, ultra-risky bets. That is the amount JP Morgan admits to. Thus whether we are talking about a "$2 billion" trading loss or the $4-5 billion figure now being rumored is irrelevant. These are trivial numbers. Even if we assume a $5 billion loss that would be equal to less than 1/10,000th of its derivatives portfolio. If the media Chicken Littles wanted to really stoke some fear they would be talking about the imminent risk of JP Morgan (and its Wall Street cronies) being forced to make good on $trillions of (ultra highly-leveraged) credit default swap contracts – should one of Europe's other (larger) Deadbeat Debtors "go Greek" and default. So we can now conclude this is a totally staged event. If there were any doubts about this, Jamie Dimon himself has put an end to them with his poor job of acting. For nearly four years Wall Street has fought even the tiniest bit of re-regulation of their sector, simply restoring a small portion of the banking regulation regime which used to be in place. This fanatical obstructionism – led by Jamie Dimon and JP Morgan – has occurred despite the $15+ trillion bail-out package heaped upon the (surviving) Wall Street Oligarchs after they had completely wiped-out their own sector (and themselves) with $100's of billions of bad bets which had all detonated simultaneously in 2008. Thus what we are to believe is that despite the fact that JP Morgan saw no need at all for any regulation following the Crash of '08 that this tiny "$2 billion" trading loss has caused JP Morgan to do a 180-degree turn on the subject of regulation. Jamie Dimon has suddenly been born again, and now he "sees the Light": the bankers need some regulation. It is about as plausible as a bull volunteering for castration. Knowing that this event has absolutely nothing to do with how it's being depicted in the mainstream media (and by JP Morgan itself), we must now speculate on what is really going on here. I've formulated several viable theories which are consistent with the facts as we know them: 1) This is nothing but a sleazy political ploy by JP Morgan to skewer the Republican Party, and ensure the re-election of Barack Obama. 2) Knowing that some re-regulation is inevitable, Wall Street's new strategy is to support that re-regulation, but as a "club" to be used to kill off its remaining smaller competitors. 3) The trading loss is much, much larger than what JP Morgan admits. Taking these possible scenarios in order, (1) would seem to be the most plausible scenario, unless further facts should emerge which lend additional credence to one of the other two theories. As Wall Street has spent the last four years saying "no" to any and every piece of proposed re-regulation, a large group of sycophants were nodding their heads in agreement every step of the way: the Republican Party. Indeed, it is only Republican obstructionism which has prevented even some minimal level of re-regulation from taking place to date. While the Democrat Party has shown itself to be extremely reluctant to engage in any re-regulation (after all, it was Wall Street campaign donations which elected Barack Obama in 2008), they were prepared to pass all of the Dodd-Frank window-dressing – simply out of shame and embarrassment. Conversely, when it comes to serving their banker Masters, Republicans are totally immune to shame. |
| Finding a Floor for Silver & Silver Miners Posted: 21 May 2012 03:22 AM PDT Since silver reached our target of $50 last year it has been in a treacherous downhill descent. The depth of the decline in precious metals is approaching 2008 levels, and many mining stocks are at 2009 price levels. |
| The Gold/Greenspan Convergence Posted: 21 May 2012 03:11 AM PDT |
| Feedback, Unintended Consequences and Global Markets Posted: 21 May 2012 03:10 AM PDT
from oftwominds.com: We cannot know that unintended consequences will always be destructive. Neither models nor projections have accurate track records in predicting the future. It seems an appropriate time to re-examine why our ability to predict the future of complex systems is so poor. A significant number of well-informed, smart people believe the Euro Experiment is unraveling in a positive feedback (i.e. self-reinforcing) death spiral. In the case of global markets, these forces include technical support/resistance, market intervention by The Powers That Be (TPTB) and the large number of people and instituions with stakes in the survival of the Status Quo: politicos, pension funds, wealthy Elites, government employees, and so on. These people stand to lose sufficient wealth and financial security to motivate them to "fight to the death," so to speak, to support the Status Quo. All models of non-linear complex systems are crude because they attempt to model millions of interactions with a handful of variables. When it comes to global weather or global markets, our ability to predict non-linear complex systems with what amounts to mathematical tricks (algorithms, etc.) is proscribed by the fundamental limits of the tricks. Keep on reading @ oftwominds.com |
| Posted: 21 May 2012 03:08 AM PDT
from marketwatch.com: Gold bushwhacked the bears last week. It's even got gold bugs talking about gold stocks … again. After breaking gold bugs' hearts by plunging to a new low for the year on Thursday, gold violently reversed. Measured by the CME floor close, the benchmark gold contract GCM2 -0.06% gained $38.30 on the day. It followed up on Friday by adding another $17, for a two-day gain of 3.31%. The NYSE Arca Gold Bugs Index XX:HUI +2.35% jumped 5.29% in these two days. Gold stocks' outperforming the metal is significant, because they have been atrocious this year. As of Friday's close, HUI was down 20.5% on the year, while gold was actually up 1.4% on the year. Just a restoration of late 2011's multiples could produce serious gains. If gold's reversal sticks, it will be a triumph for the contrary opinion sentiment indicators. Nothing else had been offering any comfort. Keep on reading @ marketwatch.com |
| Betting $1 Million On Gold Hitting $2,000 Before $1,000 Posted: 21 May 2012 03:08 AM PDT |
| Why is the Post Office Using SDRs? Posted: 21 May 2012 03:05 AM PDT
from libertyblitzkrieg.com: Ah the U.S. Postal Service. This shining example of American efficiency that just announced a $3.2 billion loss in the second quarter and employed six hundred thousand people in order to achieve this feat, has brilliantly decided we need to use SDRs when sending internationally insured parcels. Yep, glad to see our pride and joy is leading the charge to global fiat feudalism. I mean you've got to be kidding me… The accepting clerk must do the following: Indicate on PS Form 2976-A the amount for which the parcel is insured. Write the amount in U.S. dollars in ink in the "Insured Amount (U.S.) block." Keep on reading @ libertyblitzkrieg.com |
| Gold Daily and Silver Weekly Charts - Something Wicked This Way Comes Posted: 21 May 2012 02:58 AM PDT Jesse's Café |
| German politicians face searching questions about gold Posted: 21 May 2012 02:39 AM PDT Goldmoney |
| Perth Mint’s first silver coin Posted: 21 May 2012 02:30 AM PDT |
| JPM, Facebook, Gold … And The Potential of A Titanic Financial Market Event Posted: 21 May 2012 02:03 AM PDT |
| Posted: 21 May 2012 01:46 AM PDT GoldMoney |
| Why Has Gold Fallen In Price And What Is The Outlook? Posted: 21 May 2012 01:46 AM PDT gold.ie |
| Deflation or Inflation? How About Neither? Posted: 21 May 2012 01:16 AM PDT Precious metals started the trading week in mixed fashion with initial spot bids showing gold and silver prices marginally lower while platinum and palladium moved higher. The US dollar resumed its upward course this morning after the brief pause on Friday. |
| US Dollar as invoicing currency Posted: 21 May 2012 12:58 AM PDT |
| Vietnam Gold certificate extension evokes mixed response Posted: 21 May 2012 12:38 AM PDT
from bullionstreet.com: Vietnam central bank's decision to extend deadline for short term gold certificate issuance by credit institutions evokes mixed responses. Many observers feel that the extension would only give more time to commercial banks and the Saigon Jewelry Company to balance their working capital and push up the finalization of transactions. They said Vietnam should set up different ways of mobilizing capital in gold which would replace the service of keeping gold for clients. The amount of gold kept by the public is really huge, which is a huge capital source that commercial banks should not ignore, they added. However, others said the decision is helpful to avoid the gold mobilization interruption as Vietnam still does not have a new legal framework on mobilizing gold from the public. Keep on reading @ bullionstreet.com |
| Recovery or Collapse? Bet on Collapse Posted: 21 May 2012 12:35 AM PDT
from paulcraigroberts.org: he US financial system and, probably, the financial system of Europe, like the police, no longer serves a useful social purpose. In the US the police have proven themselves to be a greater threat to public safety than private sector criminals. I just googled "police brutality" and up came 183,000,000 results. (Here are two recent brutal assaults, one deadly, by police on hapless individuals: http://latimesblogs.latimes.com/lanow/2012/05/kelly-thomas-video-dad-they-are-killing-me-.html and http://www.informationclearinghouse.info/article31364.htm ) The cost to society of the private financial system is even higher. Writing in CounterPunch (May 18), Rob Urie reports that two years ago Andrew Haldane, executive Director for Financial Stability at the Bank of England (the UK's version of the Federal Reserve) said that the financial crisis, now four years old, will in the end cost the world economy between $60 trillion and $200 trillion in lost GDP. If Urie's report is correct, this is an astonishing admission from a member of the ruling elite. http://www.counterpunch.org/2012/05/18/the-true-costs-of-bank-crises/print Try to get your mind around these figures. The US GDP, the largest in the world, is about 15 trillion. What Haldane is telling us is that the financial crisis will end up costing the world lost real income between 4 and 13 times the size of the current Gross Domestic Product of the United States. This could turn out to be an optimistic forecast. Keep on reading @ paulcraigroberts.org |
| Missouri lawmakers debate U.S. gold, silver coins use as legal tender Posted: 20 May 2012 11:55 PM PDT  Missouri lawmakers debate U.S. gold, silver coins use as legal tender Missouri may be the second state, after Utah, to authorize the use of gold and silver coins or special "sound-money depositories" to pay debts to state government. Author: Dorothy Kosich Posted: Monday , 21 May 2012 RENO (MINEWEB) - As the Missouri General Assembly pushes toward adjournment, a bill that originally aimed at exempting gold investors from capital gains taxes has now transformed into the Missouri Sound Money Act of 2012, which would make gold and silver legal tender within the state. The legislation would also eliminate several state taxes on gold and silver, including capital gains and sales taxes. House Bill 1637 would allow the establishment of sound-money depositories that would allow citizens to deposit precious metals and use debit cards to pay bills out of those accounts. The depositories would be regulated by Missouri's Secretary of State. It also directs the state to accept the gold and silver coins issued by the U.S. government for payment of debts. However, the measure would not compel any other person to accept gold and silver coins as tender. The method of establishing the value of gold and silver to be accepted by the state would be based on the London PM fix for that day's transaction. The measure has generated controversy in both houses of the Missouri General Assembly as lawmakers claimed the legislation was focused on establishing a gold standard and circumventing the Federal Reserve. These charges were dismissed by HB 1637 Senate sponsor Chuck Purgason, R-Caulfield. However, among the measure's chief proponents is the organization American Principles in Action, whose Gold Standard 2012 Project "works to advance reform efforts that promote the gold standard," according to the group's website. The state of Utah enacted a similar law in 2011, allowing tax breaks for gold and silver coins, as well as directing the state to allow payment of debts using U.S. gold and silver coins Meanwhile, Mike Lee, Republican U.S. Senator from Utah, and Rep. Kevin Brady, R-Texas, have recently introduced the Sound Dollar/Federal Reserve Modernization Act in the U.S. Congress, which directs the Federal Reserve to monitor the prices of major asset classes including gold and the value of the dollar relative to gold. http://www.mineweb.com/mineweb/view/...ail&id=110649 |
| Gold Faces ‘Significant Upside’ from Euro Debt & US Fiscal Crisis Posted: 20 May 2012 11:46 PM PDT Spot gold prices touched a seven-session high just shy of $1,600 per ounce in London's wholesale market early Monday, falling back to last week's finish at $1,593 as European stock markets rose for the first time in 10 days. |
| Marshall Auerback: Today Germany Is the Big Loser, Not Greece Posted: 20 May 2012 11:00 PM PDT By Marshall Auerback, a hedge fund manager and portfolio strategist. Cross posted from New Economic Perspectives Given the German electorate's long standing aversion to "fiscal profligacy" and soft currency economics (said to lead inexorably to Weimar style hyperinflation), one wonders why on earth Germany actually acceded to a "big and broad" European Monetary Union which included countries such as Greece, Portugal, Spain and Italy. Clearly, this can be better understood by viewing the country through the prism of the Three Germanys, which we've discussed before:Germany 1 is the Germany of the Bundesbank: the segment of the country which to this day retains huge phobias about the recurrence of Weimar-style inflation, and an almost theological belief in sound money and a corresponding hatred of inflation. It is the Germany of "sound finances" and "monetary discipline". In many respects, these Germans are Austrian School style economists to the core. In their heart of hearts, many would probably love to be back on an international gold standard system. Germany 2 is the internationalist wing of the country, led by Helmut Kohl. Kohl and his successors are probably the foremost exponents of the idea that Europe can rid itself of the "German problem" once and for all if Germany firmly binds itself to a "United States of Europe" and continues to construct institutions that broadly move the EU in this direction. It is questionable whether this vision has survived significantly beyond the tenure of Helmut Kohl himself. One can see the inherent tension between these two Germanys. Bundesbank Germany would never allow vague, internationalist aspirations to dilute the goal of sound money, low inflation and fiscal discipline. One could envisage most looking askance at the Treaty of Maastricht and the corresponding threats to these ideals. Which brings us to the key third variable in German politics: Germany 3, Industrial Germany, the Germany of Siemens, Daimler, Volkswagen, the great steel and chemical companies, the capital goods manufacturers. Clearly, these companies benefited substantially from the economic stewardship provided by institutions such as the Bundesbank, along with the broad adherence to Erhard's social market economy. But they also recognized the benefits entailed by a completely open and integrated European market (still the largest component of their sales). Currency union, even if it meant admission of fiscal profligates such as Italy and Spain, also minimized the threat of competitive currency devaluation, given the implementation of a European wide euro (as opposed to the narrow currency zone which represented the limits of the Bundesbank's internationalism). Industrial Germany rightly perceived that a broadly based euro zone which incorporated chronic currency devaluers such as Italy, permanently entrenched their competitive advantage. And with the support of this key component of German society, Chancellor Kohl, was able to embark on the huge institutional transformation embodied in the Maastricht Treaty. One could argue that "Germany #3″ made a bad bet, but is this really so? A few months ago it appeared that the German sentiment data taken in aggregate showed that German domestic demand was turning up and the risk of a German recession was behind us. This was corroborated by truly powerful increases in total German employment, which now stands at a 20 year low. To be sure, since then we received some weak data on industrial production and real retail sales. This coupled with the big down-tick in the manufacturing PMI rekindled recession fears. But the previous worrying data about the German economy appears to have been removed with the latest round of positive data with upward revisions. We now have much better data on factory orders and real retail sales. A few weeks ago Germany's March industrial production was released. It showed industrial production rising a large 2.8% in March; additionally, there was more than a one percentage point upward revision to prior months. Taking the constellation of German economic data in aggregate – real retail sales, factory orders, industrial production, total employment and the services PMI (which remains well above 50) – it is unsurprising that Germany's preliminary 1st quarter GDP subsequently came in at 2%.Yes, the periphery remains a disaster, but Germany is still growing. It is also the case that the slowdown in Europe could eventually reach the core and China's worrying loss of economic momentum and dent Germany's growth momentum in the future. But for now, there is no significant fiscal restriction to speak of (unlike, say, Spain or Greece), domestic interest rates are super low, employment has been expanding rapidly. In short, it appears that, having absorbed a trade related and sentiment shock emanating from the European periphery, a domestic demand led expansion has probably resumed. The point is not to celebrate the German economic model per se, but merely to highlight that for all of the gnashing of teeth and whining about "the cost" to Berlin of perpetually "bailing out" the "profligate periphery", the reality is that Germany has done exceptionally well out of the euro zone and continues to do so. "Germany #3″ in effect placed the right bet: by locking in chronic devaluers to a currency union (thereby precluding the traditional expedient of currency devaluation to regain export competitiveness), Berlin in effect entrenched Germany's mercantilist model and consolidated the country's dominance as the trade superpower of Europe. The benefits are self-evident, given the contrasting data between Germany and the PIIGS. Of course, one can already hear Germany's apologists proclaiming that this success is the product of taking "hard decisions" in the earlier part of this century, in particular, the so-called "Hartz reforms". The Germans have always been obsessed with export competitiveness. In the period before the euro, they would devalue the Deutschmark so that they could increase the sales of their products to their neighbors. Once the Germans lost control of the exchange rate by signing up to the Economic and Monetary Union (EMU), they couldn't perform this trick anymore. They had to manipulate other "cost" variables in order to sell goods cheaply. So starting in 2002, they focused on wage suppression and cutting into the social safety net for workers through something called the Hartz package of "welfare reforms," named after Peter Hartz, a key executive from German car manufacturer Volkswagen. Unlike the American Henry Ford, who created good, well-paying jobs because he knew that having a secure middle class was essential to having a market for his cars, Peter Hartz regarded the relationship between wages and the economy very differently. In his view, squeezing workers was the way to keep a country "competitive", which is precisely what his "reforms" did. And it had disastrous consequences for the rest of the eurozone – (See here - http://www.slideshare.net/ [As an aside, the other inconvenient little truth is that the much vaunted Hartz "reforms" themselves are really devoid of any kind of democratic legitimacy. It was subsequently discovered that Peter Hartz himself had only secured the acquiescence of Germany's workers by sanctioning illegal payments to Germany's powerful works council (see here - http://news.bbc.co.uk/2/hi/ The Hartz measures have been extremely far reaching in terms of the labor market policy that had been stable for several decades. Bill Mitchell and Ricardo Welters noted (http://e1.newcastle.edu.au/ More to the point, Germany benefited from "first mover advantage": they initiated these reforms in the context of a growing global economy. Demanding such wage repression in the context of a global recession makes such "reform" virtually impossible, to say nothing of the fallacy of composition problems, when all other countries seek to deflate their wages in order to gain the elusive export competitiveness. All of this is now coming under threat, given the renewed perturbations afflicting the euro zone. Greece's inconvenient outbreak of democracy has created a new wild card: a new Greek party, Syriza, head of the coalition of the radical left, has vaulted to prominence. Its new leader Alexis Tsipras, a previously obscure left-wing member of Parliament. led his grouping to second place in the recent national elections with the promise of repudiating the loan agreement Greece's previous leaders signed in February. From the birthplace of democracy, then, comes this horrible outbreak of genuine democracy. Naturally, in typical Brussels fashion, eurocrats are decrying this development. They are once again whipping up the "Greece to exit" frenzy and wheeling out all manner of mainstream economists who are issuing the most strident warnings that Greece needs the Euro and will walk the plank if it exits. Their earnest hope is that the new elections will result in the emergence of a new Greek Quisling, who will happily implement the Troika's incredibly destructive austerity package, reforms which provide no hope of recovery for Athens or the rest of the euro zone. By contrast, Syriza represents a real threat to the current thrust of fiscal policy. Alexis Tsipras is a good man. At least he's a very good poker player. He hasn't yet capitulated to this massive orchestrated pressure and made it clear up front in the Wall Street Journal Germany that there are options for the Greek people which the Germans won't like: He is, in short, the first Greek politician to use the his country's leverage over creditors. Rule #1 in negotiations: You must demonstrate to your counter-party that you have credible options to walk away from the table/deal. He has, amongst other things, simply pointed out that the Greek state is quite close to a primary surplus. All that is needed are a few small reductions wages and pensions, and the Greek public sector could finance itself for the foreseeable future. Were it to exit the euro, all of a sudden Athens's problem becomes the eurozone's problem. Yes, Greece only constitutes a mere 2% of Europe's GDP. And yes, the eurozone authorities are said to be "making preparations" in the event of a "Grexit". But then again, Lehman was a tiny investment bank which almost brought down the entire global banking system when it was allowed to go bust. And recall that Lehman's bankruptcy occurred several months after the rescue of Bear Stearns. In theory, the authorities had ample time to construct back-stops to prepare for this eventuality, as is now being said in regard to Greece's potential exit from the euro zone. Would a firewall today be any more effective in "cauterising" the Greek wound and preventing the contagion from extending to Portugal, Spain, Italy and then to the core? Tsipras clearly understands this, and he could well be Greece's next Prime Minister. It would entail massive firepower from the ECB, a "bazooka" that the ECB has hitherto been loath to supply. In the meantime, the Greek election result has resulted in an acceleration of massive bank runs within the eurozone. There has been a steady flight of deposit funds from the PIIGS into German and other northern European banks (and perhaps to some banks outside Europe) for some time now. Data on the Target 2 financing of these deposit runs by the recipient countries apparently accelerated in the first four months of this year prior to the French and Greek elections. A recent statement by the Greek authorities suggests that the deposit run from Greek banks has accelerated, perhaps hugely, since the Greek elections. This has been denied, but under such circumstances one should never believe official denials. Indeed, late last week, El Mundo reported that depositors had withdrawn one billion euros from the Spanish bank Bankia since its takeover by the government on May 9th. The odds are that this deposit run may have as much to do – or more to do – with a flight out of Spanish bank deposits in general that it has to do with any fears about holding deposits in a bank taken over by the Spanish government. In other words, this may be a sign that a deposit run caused by fears about euro exit has now spread in a significant way to Spain. Of course, the authorities are denying such, but under such circumstances one can never believe such denials. Paradoxically, the very existence of a monetary union facilitates bank runs. If you're a depositor at a Spanish bank in Barcelona, there is nothing stopping you from withdrawing that money and re-depositing it in at a local German bank down the street. There are no capital controls or border controls in effect. With no exchange rate risk! Bank depositors in all of the periphery countries now fear they will wind up with the old currencies which will be worth much less than the euro. These deposit funds go into German and other core European banks who then recycle the funds through the ECB and the national central banks back into the banks of the PIIGS that are experiencing the deposit runs. Apparently this deposit run and its reflux back into the imperiled banks on the periphery accelerated in the early months of this year before the French and Greek elections. It apparently has accelerated further since. In effect, the System of European Central Banks is involved in an ever growing and massive bailout exercise which they are not publicly acknowledging. The German response so far? "Oops. This guy is blackmailing us. What shall we do?" Because Germany as a creditor nation faces huge losses if the entire banking system starts to come under pressure, to say nothing of the end of their vaunted "wirtschaftwunder" as the entire eurozone implodes. Greece, by contrast, has already experienced 5 years of unremitting economic austerity. The country has been virtually reduced to the state of a barter economy. What has it got to lose at this juncture by refusing to roll over to the Troika? To be sure, the Germans might well say, "Enough is enough" and leave the euro zone (which would probably destroy the currency union). The likely result of a German exit would be a huge surge in the value of the newly reconstituted DM. In effect, then, everybody would devalue against Berlin, shifting the onus for fiscal reflation on to the most vociferous opponent of fiscal activism. Germany would likely have to bail out its banks (particularly the Landesbanken). This might well be more politically palatable than, say, bailing out the Greek banks (at least from the perspective of the German populace), but it would not be without significant short term economic cost for Berlin. And in the interim, the likely currency shock would put an immediate halt to its export machine, as the built-in conferred by the euro zone would be dissipated in the event that Germany reverts to a newly reconstituted DM. By accounting identity, a fall in Germany's external surplus would mean a large increase in the budget deficit (unless the private sector begins to expand rapidly, which is doubtful under the scenario described above), so Germany will find itself experiencing much larger budget deficits. It will become a 'profligate' if it wishes to mitigate the effects of a collapse in its current account surplus. Quite a reversal in fortune. So who holds the gun now?
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| Trading Comments, 21 May 2012 (posted 13h45 CET): Posted: 20 May 2012 11:00 PM PDT I was a few days too early in trying to pick a bottom. The strong bounce in both precious metals at the end of the week makes it even more likely that we have a low-risk entry point. Gold 1) |
| John Williams: The Recovery Is an Illusion Posted: 20 May 2012 10:21 PM PDT
from theaureport.com: John Williams, author of the ShadowStats.com newsletter, shines light on his interpretations of the GDP, CPI, unemployment and other government statistics in this exclusive Gold Report interview from the recent Recovery Reality Check conference. Highlights include what the money supply measures tell him and why QE3 will be a hard sell. The Gold Report: John, at the recent Casey Research Recovery Reality Check conference you described the economic recovery heralded by the Obama administration as an illusion based largely on skewed inflation data. Can you walk us through why, based on your calculations, a recovery is impossible? John Williams: We can start with the gross domestic product (GDP), which like most economic reports is adjusted for inflation. If you take inflation out of it, what is left should be changes in economic activity, as opposed to changes from prices going up or down. Reported GDP activity for Q3/11, Q4/11 and Q1/12 was above where it had been going into the recession. Formally, that is a recovery. The problem is that no other major economic series shows that same pattern, which is a physical impossibility if the GDP numbers are accurate. Keep on reading @ theaureport.com |
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