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Monday, July 16, 2012

Gold World News Flash

Gold World News Flash

“Yellow dog still on a short leash”

Posted: 16 Jul 2012 12:45 AM PDT

When bankers get nervous, watch out As economies worldwide weaken, the pressure is rising on the world's central bankers for dramatic action that will ultimately do more damage. When that happens, the gold rally is on.


Traders from banks, oil companies or hedge funds have an “incentive” to distort the market and are likely to try to report false prices (interest rates, oil, and oh yea, gold and silver)

Posted: 16 Jul 2012 12:30 AM PDT

Was the petrol price rigged too?


12 astonishing things about gold

Posted: 16 Jul 2012 12:00 AM PDT

Perth Mint Blog


Does QE Really Work? The Evidence To Date

Posted: 15 Jul 2012 11:08 PM PDT

from Zero Hedge:

The market's hopes and dreams for the next LSAP remain high. As gold inches higher, tail-risks priced out (expectations for extreme FX moves are considerably lower than sentiment would suggest), and US equity vol expectations (and put skews) are crushed; the equity market clearly remains 'at a premium' in its notional indices given what is sheer lunacy in earnings expectations going forward. The question every investor should be asking is not when QE or even if QE, but so-what-QE? As Credit Suisse notes, given the deterioration in US economic activity (and the extension of Operation Twist) the FOMC will probably wait until its September meeting (and remember the trigger for further pure QE is a long way off for now). The most critical question remains, will additional QE work? After all, few would argue that US interest rates are too high or that banks in the US need still more excess reserves. Two things stand out in their analysis of how QE is supposed to work (transmission mechanisms) and its results to date: QE1 was more effective than QE2, and it's easier to find QE's effect on Treasury yields than on real economic performance. Perhaps more concerning is that the potential negative effects of such unconventional monetary policy has received little attention (aside from at fringe blogs here and here).

Read More @ Zero Hedge.com

In The News Today

Posted: 15 Jul 2012 10:39 PM PDT

Jim Sinclair's Commentary

It isn't only majors that will be acquiring gold assets that are offered at the discounted rate of juniors.

Egyptian tycoon Sawiris bids $500m for Canadian gold firm signaling gold stock revaluation Posted on 15 July 2012

Egypt's second richest man Naguib Sawiris has made a $500 million bid

Continue reading In The News Today

Jim's Mailbox

Posted: 15 Jul 2012 10:38 PM PDT

Jim,

I predict the price of gold is about to cease being a fairy tale number.

CIGA Anastasia

Like a lamb London surrenders London Metal Exchange Hong Kong Exchange & Clearing has paid £1.4bn for the London Metal Exchange, a company which makes £11.2m operating profit – a multiple of more than 124 times.

Continue reading Jim's Mailbox

Silver Update 7/15/12 CAFR Caper

Posted: 15 Jul 2012 09:42 PM PDT

Emerging market central banks the biggest official buyers of gold but will buy much more

Posted: 15 Jul 2012 09:30 PM PDT

by Arabian Money:

Emerging market central banks have been the biggest official buyers of gold over the past year or so with total net central bank purchases the largest since 1964 last year at 445 tonnes. Central banks know that the only protection for their deposits against their own money printing is to buy gold.

But the emerging markets really get it. Russia added 15.5 tonnes in May raising its reserves to 911.3 tonnes, the highest since 1993; Thailand has almost doubled its reserves in two years; Mexico has bought over 100 tonnes since February 2011; and Turkey has stashed 123 tonnes since last October.

Rising gold purchases

Over the past 12 months net purchases of gold by the central banks have averaged 20 per cent of annual supply, according to the World Gold Council. Yet gold buying by central banks is most likely still not in top gear.

Read More @ ArabianMoney.com

WAR AGAINST GOLD, WHY IT WILL SKYROCKET & MORE – Egon von Greyerz:

Posted: 15 Jul 2012 08:15 PM PDT

from KingWorldNews:

"The printing of money will lead to collapsing currencies, and investors buying gold at any price.

Of course the banks don't have the physical gold to satisfy their commitments. Central banks, and most probably the Fed, don't have the gold they say they have. The 8,000 tons the US government is supposed to hold is probably not there.

The IMF's 3,000 tons is probably double-counted and not there either. And banks don't even have the allocated gold they say they have. We have proof of that, and I know you talked to Stephen Leeb the other day and he said the same thing.

LISTEN NOW @ KingWorldNews.com

Gold Stocks: Bottom, Re-Test, Launch?

Posted: 15 Jul 2012 06:59 PM PDT

Though I favor physical Gold held outside the banking system that can't get MF Global'd over those paper Gold derivatives known as Gold stocks, there are times when a speculative opportunity presents itself that cannot be ignored ... Read More...



U.S. Dollar: Breakout or Failure?

Posted: 15 Jul 2012 05:38 PM PDT

The greenback is meeting strong resistance at current levels. It could contract and the British pound should outperform most majors. Let us look at why. Read More...



Interview: Unusual Pre-9-11 Currency Movements; an Ex-Federal Reserve Employee Talks to Robert Wenzel

Posted: 15 Jul 2012 04:49 PM PDT

Submitted by EconomicPolicyJournal.com

Bill Bergman-a former Federal Reserve (Chicago branch) economist and policy analyst, who has raised concerns about unusual currency transactions pre- 9-11----including billions in one hundred dollar bills, is the guest this week on the Robert Wenzel Show. 

Bergman worked at the Chicago Federal Reserve for over 13 years as an economist and financial markets policy analyst, until he started asking questions about unusual currency movements before 9-11. On the show we talk about what happened to him, after he started his investigation.

We also talk about how the Fed's Biege Book is assembled, the trillion plus dollars sitting at the Fed as excess reserves, the LIBOR "scandal", Warren Buffet and much more...

YouTube and podcast versions may be found here:

http://www.economicpolicyjournal.com/2012/07/find-out-what-happened-when-federal_15.html

* * *

EB:  On the same topic, see this April 2011 report at ZeroHedge regarding Mr. Bergman's termination written by one Jr. Deputy Accountant (who, apparently, was not picked up in a chauffered black helicopter and still writes to this day here).

Finally, we crunched the numbers, and indeed found a material spike in currency during the ten weeks preceding 9-11 when compared to the previous five years.  All the more compelling, considering the average includes the cash dump prior to the Y2K event in 2000.  See here:

* * *

The Robert Wenzel Show is broadcast every Sunday morning at 7:00 am.  Previous guests include Robert Morrow (on the JFK assassination), Peter Schiff, libertarian candidate Gary Johnson (worth it for the fireworks), James Altucher (how he lost $15 million dollars), Derek Pilecki (inside Goldman Sacks asset management division) and many more.

Selected non-Gold/Silver Articles from munKNEE.com?s FREE ?Your Daily Intelligence Report?

Posted: 15 Jul 2012 04:00 PM PDT

You nolonger need to spend time surfing the internet looking for financial, economic and investment articles of substance. The editor of munKNEE.com reads 100s of articles daily searching for such articles which are then posted in an ‘edited excerpts” format*for the sake of clarity and brevity to ensure a fast and easy read. Here*are samples of some financial and economic*articles that were included in*the latest Your Daily Intelligence Report which you can sign up to receive – and its free. Check it out! You won't be disappointed. So says Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds). For the latest articles on the gold[COLOR=#000000] & silver[/COLOR] market go HERE. [COLOR=#000000]To receive your*free Your Daily Intelligence Report go HERE.[/COLOR] We provide an easy "unsubscribe" feature should you decide to opt out at any time. * 1. How NOT ...


In Shocking Development, ECB Demands Impairment For Senior Spanish Bondholders; Eurocrats Resist

Posted: 15 Jul 2012 03:53 PM PDT

In a landmark shift in its bank "impairment" stance, the WSJ reports that "in a sharp turnaround" the ECB has advocated the imposition of losses on senior bondholders at the most "damaged" Spanish savings banks, "though finance ministers have for now rejected the approach, according to people familiar with discussions." The WSJ continues: "The ECB's new position was made clear by its president, Mario Draghi, to a meeting of euro-zone finance ministers discussing a euro-zone rescue for Spain's struggling local lenders in Brussels the evening of July 9. It marks a contrast from the position the central bank adopted during the 2010 bailout of Irish banks--which, like Spain's, were victims of a property meltdown--when it prevailed in its insistence that senior bondholders in bailed-out banks shouldn't suffer losses." Needless to say, if indeed the fulcrum impairment security is no longer the Sub debt, but Senior debt, as the ECB suggests, it is only a matter of time before wholesale European bank liquidations commence as the ECB would only encourage this shift if it knew the level of asset impairment is far too great to be papered over by mere pooling of liabilities (think shared deposits, the creation of TBTF banks, and all those other gimmicks tried in 2010 when as a result of Caja failure we got such sterling example of financial viability as Bankia, which lasted all of 18 months). It also means the European crisis is likely about to take a big turn for the worse as suddenly bank failures become all too real. Why? Senior debt impairment means deposits are now at full risk of loss as even the main European bank admits there is no way banks will have enough assets to grow into their balance sheet.

Obviously, the ECB's 'revolutionary' suggestion will be met by harsh criticism at the FinMin level across Europe because if taken seriously it would mean the threat of wholesale bank runs. Sure enough, as the WSJ reports:

The ministers rejected the advice out of concern that financial markets would react badly to the decision. A draft of the rescue agreement, which will provide as much as EUR100 billion ($122.5 billion) for the Spanish banking system, requires Madrid to force losses only on shareholders and junior bondholders in banks receiving bailout money, and doesn't mention creditors higher up in the pecking order.

 

A spokesman for the European Commission, the EU's executive arm, said: "It is clear that senior bondholders won't be involved in burden sharing."

 

The ministers' decision confirmed a pattern in the euro zone for dealing with bank troubles, in which senior bondholders have been spared even in the most brutal failures. But the ECB's shift may also be a sign that the tides are turning on the issue, as the euro zone embarks on a fundamental overhaul of the way bank failures are dealt with within the currency union.

 

During the July 9 meeting, Mr. Draghi argued in favor of including senior bank creditors in burden sharing between taxpayers and investors in the case of Spain, three people familiar with the discussions said. Two said Mr. Draghi favored forcing losses on senior bondholders only when a bank was pushed into liquidation.

Of course, if Senior bondholders are impaired, even in one-off instances, revisionism, primarily out of Ireland will hit a fever pitch, where everyone will demand an answer why Ireland had to bailout Senior debt holders, while Spain, and soon Italy, will get away with bank impairment.

But a chief reason ministers decided not to make more privileged bondholders take losses was the Irish precedent, two people said. Dublin has had to pump more than EUR60 billion, equivalent to around 40% of its annual gross domestic product, into several struggling lenders, forcing it to request a EUR67.5 billion bailout from other European countries and the International Monetary Fund in 2010.

 

Forcing senior creditors to take losses in Spain would raise more questions in Ireland about why taxpayers were forced by the EU to take on the huge burden of repaying high-ranked bondholders.

So while Europe vacillates, there is still not definitive method to restructure failed and failing banks:

"We have general company law [on bankruptcy cases], but we have so far no bank-specific law," said Karel Lannoo, chief executive of the Brussels-based Centre for European Policy Studies.

 

The EU is now trying to rectify this situation and in June proposed a new legal framework for dealing with failing banks, which is cited in the Spanish bailout accord as a model. Crucially, the new rules would force national authorities to force losses on--or "bail in"--all creditors, for instance by converting debt into shares, when a bank has to be recapitalized by its governments.

Yet the question of why the ECB would even propose this revolutionary shift to all out impairment remains: after all, as anyone who had done even one Chapter 11 corporate case knows, at the end a company's assets must be just greater than its liabilities for fresh start restructuring: something that the banking sector has not seen once since the Lehman collapse.

And while such a return to reality would mean the potential to actually fix the situation, it would also mean the possibility of not only continent-wide bank runs, but all out balance sheet impairments courtesy of daisy-chained balance sheets, where one bank's liabilities are rehypothecated as another banks' assets in a virtually infinite loop, and where even the tiniest impairment causes the house of cards to fall.

Draghi is well aware of this, and the only reason he could bring it up is if he knows that absent full loss recognition, initially at selected venues, but gradually everywhere, there is simply not enough cash-good assets for the European financial system to "grow into its balance sheet."

The only question is how long until depositors, whose €10 trillion in cash makes the backbone of European bank liabilities, also figure out that their cash is backed by worthless assets, and then how long until they decided to, well, simply withdraw it...

This Major Fed Move Is About To Create An Explosion In Gold

Posted: 15 Jul 2012 03:06 PM PDT

King World News is continuing to receive extraordinary levels of interest in what has turned into a series of Michael Pento pieces. Today Pento reports more stunning news, "Last week the ECB reported that overnight deposits parked at the central bank plunged by the most on record, or €484 billion in just one session. It now seems my theory that banks would deploy their reserves was proven correct in a matter of days."

Pento also predicted, "I believe the cyclical period of deflation that I warned about several months ago is now close to an end." Pento is now calling for another significant move, and he noted, "If the Fed does indeed go down that road, I would expect to see U.S money supply growth increase significantly. This will cause gold and commodity prices to soar."

Today Michael Pento, of Pento Portfolio Strategies, writes exclusively for King World News to put global readers ahead of the curve, once again, on what is unfolding as a result of the major unprecedented moves by central banks. Here is Pento's piece: "Could it be that world governments and central banks are now taking drastic measures to re-inflate their economies because they don't believe their own economic statistics? For example, China reported that GDP growth came in at 7.6% last quarter. That's slower growth, but still not so bad."


This posting includes an audio/video/photo media file: Download Now

VB Update Notes for July - August 2012 – No Help Yet

Posted: 15 Jul 2012 02:39 PM PDT

HOUSTON – It's a good thing that bear markets do not last forever, but darn if they don't feel like they do in real time or in the heat of battle so to speak. The chart below ought to be familiar with Vultures. And it just hit a new bear market milestone. 

20120715-CDNX

As of July 13 the Canadian Venture Exchange Index or CDNX has retreated even further, to levels first reached way back a decade ago, in 2002. That's right. Back when gold was struggling to hit $350 and silver was well under $5 the ounce.

Is that ridiculous with gold showing a $1,500 handle? ... Well, yes, it is. Last time we said:

The worst bear markets can last far longer and do more damage than all but the most grizzled veteran Vulture traders are mentally prepared for. That applies to even the Big Miners as we have all seen, but smaller, less liquid and more speculative issue bear markets can take that same idea to wild extremes.

Welcome to "Wild Extreme-ville." And it may not yet be over if the usual seasonal influences we see in July and early August, heaped on top of a protracted buyer's strike, are in play. 

The negative action is not merely confined to The Little Guys, however. Last month, with an apparent "V" shaped bottom looking formation evident in the much larger, Big Cap Miners that populate the AMEX Gold Bugs Index or HUI we were fairly optimistic that miners of all stripes, big, medium and small, may have shown us a May bottom. This was the graph we shared of the HUI a month ago. Below it is the same graph updated through July 13. 

20120715-HUI-1
20120715-HUI-2

We may still have seen a May bottom. The HUI has not cut a new lower low. Not yet at least, but the Big Miner index is at least giving the bears another good time in July so far. Our hopes for the kind of "help" we have been expecting to arrive were apparently premature as that bearish looking chart looks more likely to test the lows than to run hog wild to the upside just yet.

Recall that we also looked at the CDNX's 'larger' cousin, the Market Vectors Junior Gold Miners Index ETF or GDXJ which was also then showing a promising "V Bottom" looking formation following a cascade style historic sell down. The 56.9%, 14-month drubbing for the small and mid-tier miner ETF, (GDXJ), is so far the largest ever bear market for the young ETF. Just below was the chart of the GDXJ a month ago followed by the same chart updated through July 13. 

  20120715-GDXJ-1

20120715-GDXJ-2

Well, so much for a "V Bottom." At best now we are looking for a higher turning low for the balance of July as this Little Guy bear grinds on. We actually said a month ago: We haven't overlooked the fact that this is June which is typically a month of poor price action and even poorer liquidity for The Little Guys ... We haven't overlooked the fact that volume for the CDNX remains abysmal, more in keeping with a buyer's strike than a more friendly volume reversal. But we do try to keep in mind that buyer's strikes and extended periods of very low volume are when some of the best buying ops arrive.

Yep, June, and at least early July ran true to form and we remain smack dab in the middle of either the best or the second best buying op of all of our trading careers when it comes to the small, less liquid and more speculative junior miners and explorers.

Yep, we have been presented with buying ops out the "wazoo," and, as our DJ friends might say, "the hits just keep on coming!"

No question about it. This is the "Second Coming of the Market From Hell," as we said in June. It is a sure-enough world class Negative Liquidity Event (NLE) – the kind that eats and digests even the more stalwart of Little Guy traders -- outlasting even many grizzled Vancouver veterans, but not Vulture Speculators. At least not this Vulture Speculator.

High Volatility = High Risk = High Opportunity

As we said last time: We do try to keep in mind at all times that The Little Guys are some of the most volatile, most dangerous stocks to trade there are. But, having done this Vulture Bargain Hunting gig for longer than we care to admit, we can hunker down and weather protracted, brutal, wicked, seemingly insane bear market Negative Liquidity Events (NLE's) with the best of them.

Vultures are not run off or beaten by mere bear markets. Not even the second worst one of all time (so far). Oh, we are hunkered down all right. We are in our figurative bunkers, but we are not idle in them. We lay in wait for what we believe are Stupid Cheap (SC), Ridiculous Cheap (RC) and now "Idiot Cheap" (IC) prices, as they are offered to us from time to time.

As Long as it Takes

We buy the FEAR and PANIC of others, building meaningful-sized positions in our Faves in preparation for when the Market From Hell is over. For the time when small resource company (SRC) gamers are buying today because they fear that prices will be HIGHER tomorrow, not selling today because they FEAR prices will be lower tomorrow. (Remember when it was like that a couple years back?)

And in case we haven't mentioned it enough so that it has become rote, our timing for our Little Guy positions is simply as long as it takes.

We Vultures are convinced that there is tremendous value and opportunity in the companies we attempt to game – at the prices we build our positions. Companies which have been mistreated to extremes by a fearful, uncertain market... and so on. By now everyone reading this knows the drill. Everyone knows that these super bear opportunities are rare and we may only get a few of them to work with during our trading careers. We simply have to make the best of them with the amount of capital we have devoted to this high risk, high reward space.

From 'All In' to Back in the Game

From a Vulture point of view, it doesn't get very much better than this, in terms of volatile opportunity. But with all the many opportunities coming our way and most of our dedicated resources already deployed, we faced the prospect of not having enough ammunition if this fantastic buyer's strike continued to grind on for an even longer period than all past NLE's. (This one is already the second longest since the Great Gold Bull began in 2001.) What if this one is bear granddaddy of them all?

Recall in our June Vulture Bargain (VB) Update we had then decided that we were for all intents and purposes "all-in" for smaller companies we call The Little Guys. We said specifically then, after selling a little of our gold in the $1,640s in May to increase our Little Guy ammunition for the second time since December: We are unlikely to increase our firepower again for this space, unless the buying gets so incredibly cheap that we just cannot resist it and then we'll think long and hard before we sell any more metal or sell something else to add more of the miners or explorers.

Since then we have changed our mind and have already sold a little more of our gold over the past month and intend to sell a bit more in the coming week, as we mentioned in some of the Subscriber charts and on the welcome page of the Subscriber web site. We did think long and hard about it and we didn't like the prospect of not being able to add shares of our most interesting Faves -- in the event they get driven down to Idiot Cheap by another kamikaze seller coming in hot and heavy into a weak bid with too many shares too fast.

Right, wrong, win or lose, we have made the decision to take on a bit more risk in exchange for being able to pounce if and when we are presented with what we view as one of the best opportunities we have ever seen (a high bar to reach before we use these precious bullets) -- in companies like Riverstone Resources (RVS.V), Timberline Resources (TLR), Millrock Resources (MRO.V), Mega Precious Metals (MGP.V), Guyana Goldfields (GUY.T) and too many other beaten up and bloody issuers to name them all.

In making this turnabout we reason that if it turns out that the gold funds are not needed, then we can always buy gold with them in the future. And, having the ammunition on hand sure will make the Vulture Bargain Hunting a lot more fun.

We have already increased the amount we devote to The Little Guys by a fairly large amount by our own standards, but goodness, we didn't expect to be given so many delicious buying ops. We have to marvel that some of the company market caps have actually been trading down to below cash equivalent resources in their respective treasuries. It would be no fun at all to see that unfold on our Faves and not be able to at least put on a modest, but respectable stake.

We figure that even if the world plunges into another 2008 abyss, it will want gold and silver above all other assets. By extension then, sooner or later the people of the world are also going to want the promising companies that are looking for, developing and producing precious metals too. Won't they?

Sure they will. We will count on it. It's a good thing that bear markets don't last forever even if they seem like they do in the heat of battle, in real time.

Let's pause here and move directly into the Vulture Bargain (VB) Roundup update for July- August, 2012.

***

As always, the first place to look for new commentary is directly in the charts themselves (available to Subscribers). As we have been saying frequently in these reports, moving forward the charts will become more and more the focus and these formerly too-long written reports less and less the focus. 

To continue reading, please log in or click here to subscribe to a Got Gold Report Membership

Soak Wealth, Not Income?

Posted: 15 Jul 2012 02:07 PM PDT

Two big problems America faces are that there is not enough tax revenue, and income is skewed to the top 10%. These issues will define the 2012 election. Obama wants to lower the taxes that middle-income earners pay at the expense of those bastards who are in the lofty top 10% of income. Romney wants to lower taxes across the board, but his plan heavily favors the shit heels that are at the top of the pile. This chart compares the two candidate's proposals: .

 

  .

The Congressional Budget Office (CBO) wrote on this topic last week, presenting the following chart to describe what is happening:

.

.

The CBO used the actual IRS tax data from 2009, so this info is an accurate description of who made what and what taxes were paid. The results confirm the problem. The top 20% of income earners make 51% of all income. This same group pays fully 68% of all Federal tax dollars. So who are these “fat cats” who are on top of the income pile and how much are they making? The results are surprising, the following shows the incomes for those in the top 20%:

81st to 90th percentile = $137,500
 
91st to 95th percentile = $175,800
 
96th to 99th percentile = $271,800
 
Top 1 percent = $1,219,700
.

So who are these "wealthy" people in America?

Nearly half of those “rich folks” are a husband and wife who each make $65,000 a year. I understand that there are plenty of folks who don’t earn this much, but if those same people think that the households that bring in $132k a year are “rich”, they are wrong.

The people in this group are not fat cats, they are not rich and they are not bastards. This is your Dr., Dentist, accountant, small business owner. This group is what fuels the economy. Take half their income away and you have a big fall.

If you’re wondering who fits into this income group (91st to 95th percentile) consider that every Senator and Congressman is in this bracket.

We get up to the stratosphere of income when household income averages $272,000 a year (96 -99%). The folks in this group have nothing to complain about; they are doing fine. But I ask the question, “Are they truly getting rich?”

Then you get to the top of the pile. The average salary for the top 1% is a whopping $1,220,000. So the reality is that the top 1% includes:

- Damn near every pro athlete.

- Any face that you see on the silver screen.

- The bozos you see on TV every day (including the “names” on CNBC).

- Paul Krugman (His book sales this year will make him a 1%er.)

- Mitt Romney. But we shouldn’t forget that Obama is also in the 1% group. In 2010 the Prez made nearly five times the average income of those top 1% earners.

.

Now lets see who is paying federal income taxes. This chart from the CBO report includes transfers from the federal government: .

 

.

- The negative tax rates for the bottom 40% (minus 9.3% for the lowest quintile, and minus 2.6% for the second lowest quintile) includes payments of Social Security, Medicare/Medicaid and other government transfers.

- The middle 20% has an average income of $64,000 but pays only an average of 1.3% in Federal taxes.

- Those who make $93.5k (the fourth highest quintile) are still only paying 4.6% of their income in federal taxes, on average.

- The highest 20% of income earners pay 13.4% of their income on average. The breakdown of tax rates among this group are:

.

.

Many people are advocating raising taxes on people who are making the "big bucks". What would happen if there was a giant increase in taxes? Assume that those "fat cats" that earned more than $250k had to pay 50% in income taxes and the “super rich” (top 1%) had to pay 75% of their income in Federal taxes.

Would that solve the problem? The answer is yes and no.

If taxes had been 50% for the 96-99% group and 75% for the top 1% in 2009, it would have generated addition tax revenues of $770B. A very big chunk of change. Projected deficits as far as the eye can see are in excess of $1 Trillion. Raising taxes on the top 5% would eliminate three-quarters of the shortfall. This result would be close enough to a balanced approach to take most of the budget pressure off of the table.

If we truly sock it to those with high current incomes, we can solve one problem. But another one is created. If we raise income taxes to levels that now exist in France, the result will be that 5% of the working population will be paying 80% of all income taxes! A large percentage of American’s might like an outcome like this. A manageable deficit; paid for by soaking the rich. I’m sorry to tell them that it won’t work. A plan where 5% pay 80% is not going to work. A plan that sucked $3/4 of a trillion of income out of the economy would result in a near immediate depression.

I look at the information provided by the CBO and conclude that there is no way out of the revenue hole the country is in by raising income taxes. While tax increases are part of the fix, cutting expenses has to provide the heavy lifting. But that is a joke, as there are very few places to cut expenses without also cutting entitlements. So cutting expenses is another political dead end.

There is no combination of cutting expenses and raising income taxes that would actually be effective. There is an additional option.

The only alternative is a wealth tax. Anyone who has a net worth over $5m (or $20m, or chose a number) has to pay 1% (or 2%) of that amount, every year. It would be like a death tax, except you paid it while you were alive. Think - pre-paid estate taxes.

Warren Buffett is always complaining that he doesn’t pay enough in taxes. The guy has a net worth of about $40b. If there was a 2% wealth tax he would have to cough up an extra $800m a year. That would shut him up quick; it would also solve all the fiscal problems.

Bill Gates would be forced to come up with an extra $1.2B. The Walton family would have to pony up $1.6B. And the good old Koch brothers would toss in a $1b.

If a 2% wealth tax was applied to everyone who had a net worth in excess of $5m it would add up to about $700B a year. That’s just about the right amount to get the budget to where it starts to make sense. This tax increase would not come out of current income, therefore the consequences to the economy would be muted versus a similar sized income tax increase.

Hopefully, I've convinced some readers that raising income taxes is a dead end. It may sound like a politically “smart” thing to say, but it doesn’t mean spit when shown in the light. Taxing income does not get the job done without too many adverse consequences. Only a wealth tax can make a dent.

I’m amazed that Team Obama has not proposed a tax on America’s wealthy. They must have concluded that there is no other option to balance the books. Maybe Buffett is blowing smoke in Obama’s ears. He should be. Buffett is going to get fleeced if something like this were to happen.

Note: I doubt we will hear talk of a wealth tax before the election. It would be very bad for Obama’s fund raising efforts if he brought it up. That does not mean he will not propose this if he is re-elected. I don’t see another away around the budget problems.

.

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COMEX Swap Dealers Net Long Gold for Third Time Ever

Posted: 15 Jul 2012 01:07 PM PDT

Got Gold Report HOUSTON -- For only the third time in the six years of Commodity Futures Trading Commission (CFTC) disaggregated trader data, commercial futures traders the CFTC classes as Swap Dealers reported a net long position in gold futures on the COMEX bourse in New York. Source: CFTC for COT data, Cash Market for gold. Chart covers the entire disaggregated COT dataset for Swap Dealer gold futures net positions excluding spreading contracts. A 2-year chart is shown below. Swap Dealers are commercial derivatives traders who primarily trade in the form of swaps in other markets and then hedge those sophisticated positions using futures contracts. The CFTC requires all large traders to report their open positions as of the close on Tuesday each week and then releases that Commitments of Traders (COT) data to the public, usually the following Friday. As of Tuesday, July 10, as gold closed on the Cash Market in New York at $1,567.16, Swap Dealer commer...


Some Thoughts On Government And "Wealth Creation"

Posted: 15 Jul 2012 01:05 PM PDT

All courtesy of The Privateer author Bill Buckler

The Essence

"What I was looking at was a tussle between two groups of mass-men, one large and poor, the other small and rich. As judged by the standards of a civilised society, neither of them any more meritorious or promising than the other. The object of the tussle was the material gains accruing from control of the State's machinery. It is easier to seize wealth than to produce it; and as long as the State makes the seizure of wealth a matter of legalised privilege, so long will the squabble for that privilege go on."

 

Alfred Jay Nock - Memoirs Of A Superfluous Man - 1943

Mr Nock published his memoirs after a lifetime of watching the state enhance and widen its means of making "the seizure of wealth a matter of legalised privilege." He recognised the process as being exactly what it was far better than the vast majority of his fellow Americans and described it better still. Were he alive today, he would not be surprised at the state of the world. Nor would he be surprised at the degree of gullibility shown by the fact that most people still cling to the hope that the perpetrators of the mess can "fix" it if only the necessary power is invoked. He would, perhaps, be surprised that the entire structure has not yet fallen down around the ears of those who constructed it.

A Declining Power?

Here is a quote from the other "sophisticate" who runs the US financial system. A few days before Mr Bernanke's speech, Treasury Secretary Tim Geithner was speaking at the Economic Club of Chicago. Among many other things, he said this: "Cutting government investments in education and infrastructure and basic science is not a growth strategy. Cutting deeply into the safety net for low-income Americans is not financially necessary and cannot plausibly help strengthen economic growth."

Government investment is a contradiction in terms. Since a government produces no real wealth but merely expropriates it from those who do, it has nothing to invest. To buy the concept that government spending is "investment" you must also buy the concepts that taxes are "contributions" and that money created by edict out of thin air is "wealth". But Mr Geithner goes on to talk about a "growth strategy". It is true that any move to curtail the government's ability to expropriate and inflate will curtail "growth". It will in fact curtail the growth of government, a "strategy" that Mr Geithner does NOT approve.

As for the assertion that cutting into the welfare state is "not financially necessary", the unasked question is - TO WHOM? Cutting very deeply indeed into the welfare state is a necessary pre-requisite to ANY progress towards genuine prosperity. But again, doing so would curtail the growth of government.

The crowning glory of Mr Geithner's latest contribution to the debate goes like this: "This strategy is a recipe to make us a declining power." If the "us" here refers to Mr Geithner, Mr Bernanke, Mr Obama and all the rest, we couldn't agree more. And the sooner the better!

The Reason For The Fix

By its nature, government intervention in an economy cannot take place to any great extent until the government gains monopoly control over what is used as money in that economy. Next year will see the centennial of the US government putting itself in that position - the Fed was created in 1913. Once the government DOES control the money, the intervention always increases. The size and rapidity of that increase is inversely proportional to the REAL wealth generating capacity of that economy. The more the government (which produces NOTHING) interferes, the less is left over for those who do produce.

The US government passed a law prohibiting its citizens from owning Gold in 1933. Shortly after that, it passed a series of laws which created the US welfare state. By the time Americans were again allowed to own Gold in early1975, the government's stranglehold on the circulating money was complete. The US Dollar was redeemable in NOTHING. In the meantime, the US welfare state had pushed funded and UNFUNDED government debt into the $US TRILLIONS. In the US and everywhere in the world, we are witnessing a long delayed but always inevitable phenomenon. The welfare state can no longer be sustained by the dwindling wealth-creating capacity of the economy. The jig is up.

 

* * *

And this simple visual addition from Zero Hedge:

Finally, one chart which shows the precise moment when US welfare spending (fell free to check what the biggest "Fiscal Year To Date" expenditure categories are in the Daily Treasury Statement Table 2: Social Security and Medicare/Medicaid) shifted to totally out of control: the date - 1973, and the event was the Nixonian edict ending the gold standard, resulting in the complete break of the linkage between the US Dollar and hard asset backing. The rest is history.

Until that point, there would be consequence for profligate government spending, and the country ran a balanced budget for decades: the key events keeping the size of government in check.

Afterwards, there were no consequences at all, as the US government could run up any deficit it wanted and just issue any amount of meaningless paper (full faith and credit dollar bills via the Fed matched by full faith and credit US "obligations" via the Treasury) it had to.

Which brings us to where we are today, and where the government, now at epic, gargantuan proportions, is being preached as the best thing since sliced bread. Kinda like the Kolhoz.

Libor Perp Walks Before the Election, but No Perp Walks for Rate Manipulation by Central Banks

Posted: 15 Jul 2012 12:34 PM PDT

Wolf Richter   www.testosteronepit.com

I’m shocked and appalled that the Libor fiasco could even occur in our modern, highly ethical, and transparent financial sector. Banks misreporting anything.... unheard of. Nevertheless, it occurred. Not just once, but from get-go. And everyone and his dog, even Treasury Secretary Timothy Geithner, back in 2008 when he was still President of the New York Fed, knew about it.

And it’s not just some theoretical thing. Libor, or the London interbank offered rate, is figured daily in London when banks submit their estimated costs of borrowing from other banks—not actual costs, by design so that they could submit whatever. It is used to set interest rates on $800 trillion (not billion) worth of financial instruments, from student loans to interest rate derivatives (by comparison, US GDP is about $15 trillion). As Libor gets manipulated, so does the cost of loans, interest income of lenders, the outcome of all sorts of trades, and the apparent health of banks that are judged by it.

The world’s largest banks—among them Barclays, HSBC, RBS, Lloyds, Credit Suisse, UBS, Deutsche Bank, Rabobank, Dexia, Citigroup, Bank of America, JPMorgan Chase, Goldman Sachs, Royal Bank of Canada, and Mitsubishi Bank—are under investigation or have been named in lawsuits alleging that they’d rigged Libor, and the list will likely get longer. In June, Barclays agreed to pay $453 million (not billion) in fines. Peanuts, given the magnitude and duration of the scam. Bob Diamond, Barclay’s CEO, and some other folks at the bank, lost their jobs. The US Department of Justice is expected to file criminal charges against a number of banks and bankers later this year—with perp walks perhaps before the election in November.

“You know, Libor is being set too low anyway,” a banker at Barclays told an analyst at the NY Fed on December 17, 2007, according to a transcript in the NY Fed’s data dump on Friday. “We know that we’re not posting um, an honest Libor,” another banker at Barclays told a Fed analyst on April 11, 2008.

Geithner, as President of the NY Fed, was informed—as must have been just about everyone at the Fed. So, according to emails in the data dump, he hounded the Bank of England to do something about it. Well, not exactly hounded. In June 2008, he sent an email with recommendations on how to preserve Libor’s credibility to BoE Governor Mervyn King, who passed it on to the British Bankers Association (BBA)—the banking group in charge of Libor—but obviously not much has been fixed since then.

Bankers regulating bankers—who would have thought that it could lead the industry astray? Just shocking and appalling.

“The revelations broadly are another episode that is damaging to people’s confidence in the financial services industry and that’s a shame,” Richmond Fed President Jeffrey Lacker admitted in an interview.

Because “confidence” is what this really is all about ... a con game ... and people have started to open their eyes a bit and don’t buy it anymore, not lock, stock, and barrel like they used to before the financial crisis and before the multi-trillion-dollar bailouts that were bestowed upon banks and other central-bank cronies around the world, including companies like GE and our very favorite Uncle Warren Buffett.

Maybe they (the Fed, the BoE, the BBA, etc.) didn’t know how to replace Libor, which clearly was beyond repair, but they could have let some sunshine hit the process, by announcing, for example, that the rate was rigged, and that people shouldn’t rely on it. But sunshine is anathema in banking as it destroys “confidence” and brings banks to the brink of collapse, where they’re bailed out again—a nasty distraction from the game.

But collusion and interest rate manipulation, the very misdeeds that the Libor players are being accused of, are standard practice and, in fact, public policy with central banks. Driving rates to absurd lows, and into the negative even—a form of confiscation where investors are made to lend money to governments at a guaranteed loss—is often the stated goal of all major central banks, as is printing money and buying up debt to control and manipulate the credit markets.

The consequences of these actions are far deeper and broader than Libor manipulation. They destroy the functioning of the capital markets, contaminate price discovery, lead to massive misallocation of capital, and undermine a large segment of market participants. They create this silly notion of a policy put in both credit and equity markets. And they allow elected officials to believe that they can run up deficits ad infinitum. But it’s unlikely that central bankers will ever be held to account for these activities—and perp walks are even more unlikely. Those will be reserved for a few sacrificial lambs in the Libor scam.

But enough is enough. This is a weekend, and we need to have some serious fun ... driving like a maniac—a phenomenally skilled maniac—in a rally car through the stunning San Francisco urban scenery with smoking tires, airborne stunts, and donuts around moving cable cars. An adrenaline-charged video of the awesomest ride ever.

San Bernadino: A Cautionary Tale

Posted: 15 Jul 2012 11:58 AM PDT

It's a simple matter of not paying out more than you take in, but many people, cities, states and governments just can't seem to do it. It takes time for the end result of collapse, but it DOES eventually happen. Case in point: The city of San Bernadino in Southern California. It resides in a county [...]


Global Collapse In Auto Sales Coming Up

Posted: 15 Jul 2012 11:05 AM PDT

In response to my post Plunging New Orders Suggest Global Recession Has Arrived I received a couple of interesting emails from readers, one from the US, the other from an employee of the world's largest automotive parts manufacturer.

Small US Distributor Responds

Dear Mish,

I am a small distributor and sell mostly to online stores. In the past 3 weeks, our business has dropped off a cliff.

Our retail store that usually has 5 orders a day, has had 1 in the past week. I also have a customer with an Amazon store and he has gone from 10 orders a day to a total of 1 order all this week.

Moreover, I have spoken with a number of other distributors and they are all begging for business. There is a dead silence in the buyers right now.

Something is definitely happening and it isn't good. The numbers are not showing the real depth of this. I think we may see them fall off hard in the next 90 days.

Tom

Read more....


This posting includes an audio/video/photo media file: Download Now

Managed money positions on US Futures Markets

Posted: 15 Jul 2012 10:56 AM PDT

The following article has been posted at GoldMoney, here.

Managed money positions hint at bullish turns for gold and silver

2012-JUL-15

Image001
I have recently written about the breakdown of disaggregated data from the futures markets into producers and swap dealers for gold and silver futures, as reported in the Commitment of Traders reports issued by the US government’s Commodity Futures Trading Commission (CFTC). There is a further category of trader to consider, and that is Managed Money.

According to the CTFC, “A ‘money manager’ is a registered commodity trading advisor (CTA); a registered commodity pool operator (CPO); or an unregistered fund identified by CFTC. These traders are engaged in managing and conducting organized futures trading on behalf of clients.” So it ranges from the advisory and discretionary clients of brokers and investment managers, to mutual and hedge funds. These are the users of the market who effectively represent the general public.

Managed money is often regarded as a contrary indicator, with good reason: the public is usually late on the scene, buying at the top and selling at the bottom, so a bullish chart would be one with a generally low level of long positions and a high level of short interest. Happily this is confirmed for both gold and silver in the charts below. First up is gold.

Image006

Extreme bullishness in the past was reflected in long positions (blue line) exceeding 200,000 contracts, while shorts (red line) remained very low. This has changed over the last year, with longs well under 150,000 contracts, and shorts at historically high levels. Contrarians will be pleased by these numbers, especially with the net long position (green line valued in USD – right-hand scale) at less than $15bn in value, having peaked at $38bn last August, indicating the market is oversold. What is not shown is that the number of money managers who are long has approximately halved from as high as 120 when the market was over-bought, to the current level of 67. Realistically, a level of 60 or 70 traders with long positions represents an unshakable hard core. Confirmation is to be found in the number of traders who are short, which is close to highs at 35, the all-time recorded high being 48 on June 26th , compared with a normal range of 15-20. In summary, this contrarian indicator is very bullish.

Now silver.

Image007

Long contract positions (blue line) have fallen from an extreme high of 52,960 contracts in September 2010 to current levels of about 20,000. Meanwhile, shorts (red line) have risen from a normal range with an upper bound of 7,500 contracts to current levels of about twice that. Adjusting the net figure for its dollar value (green line, right-hand scale) gives a total outstanding position of less than $1bn compared with previous bullish levels five times that. Furthermore, the number of traders with long positions has fallen from bullish levels of 50+ to half that today; and shorts have risen from less than 10 to nearly 30.

As a contrarian indicator, the managed money statistics for gold and silver as reported in the CTFC’s disaggregated data are the most bullish they have been since this data first became available in September 2009. As the wise old traders used to say, there are few sellers left to sell, just many buyers to buy.

Tags: Comex, gold price, silver price

Author: Alasdair Macleod

Gold Under the Gun

Posted: 15 Jul 2012 09:56 AM PDT

No matter how hard global central bankers try to inflate away the intractable debt-bomb that continues to explode in slow motion, they just cannot seem to make any headway. The folly of QE-1 and QE-2 have done nothing but exacerbate the contrived bubble in monopoly bonds, which is the only fuel known to financial alchemists that enables a fraudulent debt-based Wall Street-Washington-Centric and global economy to function.


Gold Under The Gun

Posted: 15 Jul 2012 08:00 AM PDT

No matter how hard global central bankers try to inflate away the intractable debt-bomb that continues to explode in slow motion, they just cannot seem to make any headway. Read More...



Managed money positions hint at bullish turns for gold and silver

Posted: 15 Jul 2012 08:00 AM PDT

I have recently written about the breakdown of disaggregated data from the futures markets into producers and swap dealers for gold and silver futures, as reported in the Commitment of Traders ...


Fleckenstein: Central Banks Will Try to Inflate Debts Away ? Got Gold?

Posted: 15 Jul 2012 01:50 AM PDT

…[A]t some point they [the central banks]*will all start printing money. At some point they will recognize we are not going to have a deflationary collapse, that we are not going to have a deflationary debt liquidation…. If we get some serious stock market weakness, on top of the economic deterioration, then I think the central banks of the world, and in particular the Fed, are going to panic and do something big….They are going to print money and try to inflate the debts away….[As a result, there] is going to be this big, unridable phase of the bull market in gold that's going to take place. That's in front of us. It's probably closer than most people think. So says Bill Fleckenstein in edited excerpts from his most recent interview with Eric King of King World News brought to you by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds). This paragraph must ...


Leeb: Lack of Gold On Deposit to Eventually Result in Panic, Massive Turmoil & Total Chaos! Here?s Why

Posted: 15 Jul 2012 01:50 AM PDT

The banks don't have the gold the customers are paying them to have on deposit…and eventually there will be panic because…[of that]….I just see massive turmoil when people finally realize the banks don't have their gold….You will see governments frantically trying to substitute fiat money for gold because this is going to feed on itself….The banks take in customers gold and charge them fees for storing the gold as allocated, but then they turn right around and lease it out to the market to aid in price suppression.*This is the kind of thing that*will end in catastrophe. So says Dr. Stephen Leeb of Leeb Capital Management in edited excerpts from his most recent interview with Eric King of King World News brought to you by Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!) and www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds). This paragraph must be included in any article re-posting to avoid copyright in...


Egyptian tycoon Sawiris bids $500m for Canadian gold firm signaling gold stock revaluation

Posted: 15 Jul 2012 01:00 AM PDT

Egypt's second richest man Naguib Sawiris has made a $500 million bid for the Canadian gold mining group Mancha Resources, the most spectacular move yet into the yellow metal by an Arabian businessman.


Take The Power Back

Posted: 15 Jul 2012 12:00 AM PDT

Gold rose 0.15% this past week but remains trapped within this triangle pattern for now with the upper end right at the key $1,600 level and the lower end at $1,560. We look set to break it in the next week or so and of course I'm hoping for an upside breakout but I can accept it if we break lower as well.


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