Gold World News Flash

A Response to de Soto's 'Defense of the Euro'
Australian Dollar: 'Still Surging'-- Why, Again?
Nigel Farage – If This Happens In Europe Frankly It’s Meltdown
House to vote Tuesday on Paul's Fed audit bill
By the Numbers for the Week Ending July 20
Guest Post: Falling Interest Rates Destroy Capital
The Gold Price Seasonal Weakness and Correction Rapidly Coming to an End Stay Calm and Buy on Retreats
Gold Q2, 2012 – Investment Statistics and Commentary
How to Buy Gold Bars
Economic Countdown To The Olympics 3: A Winning FX Strategy
Making A Gold Nugget From Electronic Waste
Profiting from Europe’s New Gold Rush
The Return of Food Riots
Greyerz: $1.5 Quadrillion Bubble & Gold Into The Stratosphere
Gold market cited in speculation on where next financial scandal will come from
Weekly Chart Porn - Uber-Bullish Silver Signals
How to Best a Bureaucrat
Financials FUBAR As S&P/NASDAAPL Close Unch For The Month
Gold Seeker Weekly Wrap-Up: Gold and Silver End Mixed on the Week
Gold and Silver Disaggregated COT Report (DCOT) for July 20
Gold Daily and Silver Weekly Charts - Coiling for an Imminent Move
The Great Demise: EUR at Two-Year Low
Weekly Bull/Bear Recap
“We are talking here about a run on the bullion bank. As this unfolds there will be a failure. These people will only receive the fixed price before trading is halted. This will not be called a default. Then there will be a massive gap in the price o
COT Gold, Silver and US Dollar Index Report - July 20, 2012
MineWeb notes Jim Sinclair's call to arms against market manipulation
Why Won't Fine Art Collapse?
The Weaponization of Economic Theory
LBMA's gold price fixing scheme about to collapse, London trader tells KWN
How to Minimize Risk and Increase Returns on Juniors: Joe Mazumdar

A Response to de Soto's 'Defense of the Euro'

Posted: 20 Jul 2012 09:21 PM PDT

The reason we have brought up this debate is because it is directly influencing the trade in gold. The dollar has been given a vacation by media these days. And whether de Soto is right and the eurosystem forces the nation states into ... Read More...

Australian Dollar: 'Still Surging'-- Why, Again?

Posted: 20 Jul 2012 09:17 PM PDT

We are proud to say that we don't follow the herd off the cliff each time they head that way -- because we have the right forecasting tools. On June 1, our Senior Currency Strategist Jim Martens published this bullish AUD/USD forecast ... Read More...

Nigel Farage – If This Happens In Europe Frankly It’s Meltdown

Posted: 20 Jul 2012 08:15 PM PDT

from KingWorldNews:

On the heels of German lawmakers backing the European bailout of Spanish banks, today MEP (Member European Parliament) Nigel Farage told King World News, "All I can say with absolute confidence is that this crisis will roll on." Farage also said, "If Spain needs a full bailout, and if it even looks like Italy needs a bailout, well, then frankly the game is up."

Farage also discussed gold, but first, here is what he had to say about the fear in Europe: "The reality is there are now tens of millions of people in Europe who feel absolutely desperate and without hope. And I still feel if they stay trapped inside this eurozone, in the end this could have disastrous social consequences."

Nigel Farage continues @ KingWorldNews.com

House to vote Tuesday on Paul's Fed audit bill

Posted: 20 Jul 2012 07:18 PM PDT

By Donna Smith and Tim Ahmann
Reuters
Friday, July 20, 2012

http://www.reuters.com/article/2012/07/20/us-usa-fed-audit-idUSBRE86J1CI...

WASHINGTON -- The House of Representatives is expected to vote on Tuesday on a bill that would allow for a congressional audit of Federal Reserve monetary policy decisions, a senior House aide said on Friday.

The legislation proposed by Republican Rep. Ron Paul, a long-time critic of the U.S. central bank and author of the book "End the Fed," has already gathered 274 co-sponsors, virtually guaranteeing passage.

The Republican-led House will consider the bill under a fast-track procedure that requires a two-thirds majority, but nearly two-thirds of the House has already signed onto the bill.

Paul's son, Republican Sen. Rand Paul, has introduced a companion bill in the Democrat-controlled Senate, but chances of success there are remote given a less critical view of the central bank in that chamber and a tight legislative calendar before congressional elections in November.

... Dispatch continues below ...

Fed Chairman Ben Bernanke told House lawmakers on Wednesday that the legislation would open the door to a "nightmare scenario" of political meddling in monetary policy.

"That is very concerning because there's a lot of evidence that an independent central bank that makes decisions based strictly on economic considerations and not based on political pressure will deliver lower inflation and better economic results in the longer term," Bernanke said.

Paul's bill would direct the Government Accountability Office, an independent, nonpartisan congressional agency, to conduct a Fed review and would remove an exemption that monetary policy has enjoyed.

The central bank's political standing has suffered since the financial crisis struck in 2007. Critics claim Fed policies benefited Wall Street more than Main Street, and many Republicans charge that the central bank is courting inflation with its efforts to lift the economy.

The Fed cut overnight interest rates to near zero in December 2008 and has held them there since. It has also bought $2.3 trillion in government and mortgage-related bonds in a further effort to press down borrowing costs.

Despite the Fed's aggressive and unconventional monetary policy, the economic recovery is only limping along.

Growth slowed to just a 1.9 percent annual rate in the first three months of this year, and economists expect a report next Friday will show it slowed further to a 1.5 percent pace in the second quarter.

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Prophecy Platinum Announces Wellgreen Preliminary Economic Assessment:
38% Pre-Tax IRR, $3.0 Billion NPV, and a 37-Year Mine Life

Company Press Release

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) reports the results of an independent NI 43-101-compliant preliminary economic assessment for its fully owned Wellgreen nickel-copper-platinum group metals project in the Yukon Territory.

The independent assessment, prepared by Tetra Tech, evaluated a base case of an open-pit mine (with a mining rate of 111,500 tonnes per day), an on-site concentrator (with a milling rate of 32,000 tonnes per day), and an initial capital cost of $863 million. The project is expected to produce (in concentrate) 1.959 billion pounds of nickel, 2.058 billion pounds of copper, and 7.119 million ounces of platinum, palladium, and gold during a mine life of 37 years with an average strip ratio of 2.57.

The financial highlights of the preliminary economic assessment, shown in U.S. dollars, are as follows:

Payback period: 3.55 years
Initial capital investment: $863 million
IRR pre-tax (100% equity): 38 percent
NPV pre-tax (8% discount): $3 billion
Mine life: 37 years
Total mill feed: 405.3 million tonnes
Mill throughput: 32,000 tonnes per day

Prophecy Chairman John Lee says: "We are pleased with the preliminary economic assessment results. The numbers indicate that Wellgreen is one of most exciting mineral projects in the Yukon. The company is drilling to upgrade and expand the resource base. The infrastructure is excellent as the project is only 1,400 meters in altitude and 14 kilometers from the paved Alaska Highway, which leads to the Haines deep seaport. Discussions are under way with support from local stakeholders regarding permitting and logistics."

For the complete press release, please visit:

http://prophecyplat.com/news_2012_june18_prophecy_platinum_announces_res...

By the Numbers for the Week Ending July 20

Posted: 20 Jul 2012 07:09 PM PDT

This week's closing table is just below.

If the image is too small click on it for a larger version.

Guest Post: Falling Interest Rates Destroy Capital

Posted: 20 Jul 2012 06:08 PM PDT

Submitted by Keith Weiner of 'Gold and Silver and Money and Credit' blog,

I have written other pieces on the topic of fractional reserve banking (http://keithweiner.posterous.com/61391483 and http://keithweiner.posterous.com/fractional-reserve-is-not-the-problem) duration mismatch, which is when someone borrows short-term money to lend long-term and how falling interest rates actually encourages duration mismatch (http://keithweiner.posterous.com/falling-interest-rates-and-duration-mis...).

Falling interest rates are a feature of our current monetary regime, so central that any look at a graph of 10-year Treasury yields shows that it is a ratchet (and a racket, but that is a topic for another day!). There are corrections, but over 31 years the rate of interest has been falling too steadily and for too long to be the product of random chance. It is a salient, if not the central fact, of life in the irredeemable US dollar system, as I have written (http://keithweiner.posterous.com/irredeemable-paper-money-feature-451).

Here is a graph of the interest rate on the 10-year US Treasury bond. The graph begins in the second half of July 1981. This was the peak of the parabolic rise interest rates, with the rate at around 16%. Today, the rate is 1.6%.

Pathological Falling Interest Rates

Professor Antal Fekete introduced the proposition that a falling interest rate (as opposed to a low and stable rate) causes capital destruction. But all other economists, commentators, and observers miss the point. It is no less a phenomenon for being unseen. In early 2008, a question was left begging: how could a company like Bear Stearns which had strong and growing net income collapse so suddenly?

Here is Bear's five-year net income and total shareholder's equity

Year	2003	2004	2005	2006	2007
Income	$1.156B	$1.345B	$1.462B	$2.054B	$0.233
Equity	$7.47B	$8.99B	$10.8B	$12.1B	$11.8B

Isn't that odd? Even in 2007, Bear shows a profit. And they show robust growth in shareholder equity, with only a minor setback in 2007.

And yet, by early 2008 Bear experienced what I will call Sudden Capital Death Syndrome. JP Morgan bought them on Mar 16, for just over $1B. But the deal hinged on the Fed taking on $29B of Bear's liabilities, so the real enterprise value was closer to $-19B.

Obviously, Bear's reported "profit" was not real. And neither was their "shareholder's equity". I think it something much more serious than just a simple case of fraud. Simple fraud could not explain why almost the entire banking industry ran out of capital at the same time, after years of reporting good earnings and paying dividends and bonuses to management.

Also, other prominent companies were going bankrupt in 2008 and 2009 as well. These included Nortel Networks, General Growth Partners, AIG, two big automakers.

I place the blame for Sudden Capital Death Syndrome on falling interest rates. The key to understanding this is to look at a bond as a security. This security has a market price that can go up and down. It is not controversial to say that when the rate of interest falls, the price of a bond rises. This is a simple and rigid mathematical relationship, like a teeter-totter.

A bond issuer is short a bond. Unlike a homeowner who takes out a mortgage on his house, a bond issuer cannot simply "refinance". If it wants to pay off the debt, it must buy the bonds back in the market, at the current market price.

Let's repeat that. Anyone who issues a bond is short a security and that security can go up in price as well as go down in price.

Everyone understands that if a bond goes up, the bondholder gets a capital gain. This is not controversial at all. Nor is it controversial to say that there are two sides to every trade. And yet it is highly controversial—to the point of being rejected with scorn—that the other side of the trade from the bondholder incurs the capital loss. It is the bond issuer's capital that flows to the bondholder. To reject this is to say that money grows on trees.

We won't explore that any further; money does not grow on trees! Instead, we will look at this phenomenon of the capital loss of the bond issuer from several angles: (1) Hold Until Maturity; (2) Mark to Market; (3) Two Borrowers, Same Amount; (4) Two Borrowers, Different Amounts; (5) Net Present Value; (6) Capitalizing an Income; (7) Amortization of Plant; and (8) Real Meaning of an Interest Rate.

Hold Until Maturity

There is an argument that the bond issuer can just keep paying until maturity. While that may be true in some circumstances, it misses the point. When one enters into a position in a financial market, one must mark one's losses as they occur, no matter than one may intend to hold the position until maturity. How would a broker respond in the case of a client who shorted a stock and the stock rose in price subsequently? Would the broker demand that the client post more margin? Or would the broker be sympathetic if the client explained how the company had poor prospects and that the client intended to hold the short position until the company's share price reflected the truth?

Mark to Market

The guiding principle of accounting is that it must paint an accurate and conservative picture of the current state of one's finances. It is not the consideration of the accountant that things may improve. If things improve, then in the future the financial statement will look better! In the meantime, the standard in accounting (notwithstanding the outrageous FASB decision in 2009 to suspend "mark to market") is to mark assets at the lower of: (A) the original acquisition price, or (B) the current market price.

There ought to be a corresponding rule for liabilities: mark liabilities at the higher of (A) original sale price, or (B) current market price. Unfortunately, the field of accounting developed its principles in an era where a fall in the rate of interest from 16% to 1.6% would have been inconceivable. And so today, liabilities are not marked up as the rate of interest falls down.

Refusing to put ink on paper does not change the reality, however. Closing one's eyes does not prevent one from falling into a pit on the path in front of one's feet. The capital loss is very real, as we will explore further below.

Two Borrowers, Same Amount

Let's look at two hypothetical companies in the same industry, pencil manufacturing. Smithwick Pen sells a 20-year $10M bond at 8% interest. It uses the proceeds to buy pencil-manufacturing equipment. To fully amortize the $10M over 20 years, Smithwick must pay $83,644 per month.

The rate of interest now falls to half its previous rate. Barnaby Crayon sells a 20-year $10M bond at 4%. Barnaby buys the same equipment as Smithwick and becomes Smithwick's competitor. Barnaby pays $60,598 per month to amortize the same $10M debt. Is it correct to say that both companies have identical balance sheets? Obviously Barnaby will have a better income statement. This is because it has a superior capital position, and this should be reflected on the balance sheets. It certainly is not because of its superior product, management, or marketing.

Let's look at this from the perspective of the capital position: the present value of a stream of payments. Obviously, at 4% interest the monthly payment of $60,598 has a present value of $10M (otherwise we made a mistake in the math somewhere). But what is the value of an $83,644 monthly payment at the new, lower rate of 4%? It is $13.8M. Smithwick's has just experienced the erosion of $3.8M of capital! This is reflected in reality, by the uncontroversial statement that it has a permanent competitive disadvantage compared to Barnaby. Barnaby can undercut Smithwick and set prices wherever it wishes. Smithwick is helpless. Most likely, Barnaby will eke out a subsistence living, until the rate of interest falls further. When Cromwell Writing Instruments borrows money at 2%, then Smithwick will be put out of its misery. And Barnaby will be forced into the untenable position it had previously placed Smithwick.

It should be noted that the longer the bond maturity, the bigger this problem becomes. For example, if this were a 30-year bond, then Smithwick would take a $5.4M hit to its capital if interest rates were 8% when it issued the bond and then fell to 4%.

Two Borrowers, Different Amounts

This is not the only way that a competitor can exploit the capital loss of a company who made the mistake of borrowing at a too-high interest rate. Let's look at the case of Poddy Hoddy Hotel and Casino. Poddy sells a 20-year $100M bond at 8%, and has a monthly payment of $836K. It builds a nice hotel and casino with bars, a restaurant, a pool, and a few jewelry stores.

A short while later, Xtreme Hotels sells a $138M bond at 4%, and has the same monthly payments. The extra $38M goes into a second pool with a swim-up bar, another restaurant that is themed based on the Galapagos Islands, bigger and more opulent retail stores, and a spiral glass elevator to take guests up to their rooms while enjoying the breathtaking 270-degree views of the city.

Which hotel will consumers prefer?

The Poddy Hoddy Hotel may have been planned based on accurate market research that showed real demand for such a hotel in that location. Unfortunately, the falling interest rate has undermined it. Its investors will likely lose money.

The Xtreme Hotel, on the other hand, is probably a mal-investment. It is likely a project for which there is no real demand. But the falling interest rate gives a false signal to the entrepreneur to build it. Of course, the Xtreme won't be the one to experience Sudden Capital Death Syndrome first. That fate will befall Poddy. Xtreme's turn will come later, at a lower interest rate.

With Smithwick, one might argue that it can pay off its bond in the 20 years it originally expected, so it has not experienced a loss. But in fact, there is a loss even from this angle. Smithwick is paying off its 8% bond at $83,644 per month. But the rate of interest is now 4%, which should be a payment of $60,598. The accurate way to look at this is that Smithwick is paying off a market-rate bond plus a penalty of $23,046 for every month remaining before the bond is fully amortized.

With Poddy Hoddy, one might similarly argue that it can pay off its bond as planned, so it has not taken a loss. But the loss here is even clearer. By borrowing $100M at a rate that was too high, it has effectively dissipated the extra $38M that its competitor, Xtreme, put to good use. It will pay for this waste every month for 20 years (or until it goes bankrupt).

By not marking the losses at Smithwick and Poddy, the accountants are not doing these companies or their investors any favors. In the short run, these companies may declare "profits" and based on that pay dividends to investors and bonuses to management. But sooner or later, they will meet Barnaby and Xtreme who will deal the coup de grace of Sudden Capital Death Syndrome.

Net Present Value

As alluded above, one can calculate the Net Present Value (NPV) of a stream of payments. First, let's look at the formula to calculate the present value of a single payment is:

It should be obvious that the present value of a payment is lower the farther into the future it is to be made. One does not value a payment due in 2042 the same as a payment to be made next year. What is not so glaring is that the value is lower for higher rates of interest. A $1000 payment due next year is worth $909 if the rate of interest is 10%, but $990 at 1%. This difference is amplified due to compounding. At 10 years, the payment is worth $385 at 10% versus $905 at 1%.

The NPV of a stream of payments is the sum of the value of each payment. The value of a $1000 payment made annually for 20 years is $9818 at 8% interest. That same payment at 4% has an NPV of $13,590, a 38% increase.

It is important to emphasize that while the bond issuer's monthly payment is fixed based on the amount of capital raised and the interest rate at the time, the NPV of its liability must be calculated at the current rate of interest. The market (and the universe) does not know nor care what bond issuer's entry point was. Objectively, all streams of payments of $1000 per month have the same value at a given maturity and current interest rate, regardless of the original rate.

Capitalizing an Income

Let's look at this from yet another angle. An income can be capitalized, and the purpose of capital is to produce an income. Professor Antal Fekete wrote[3]:

"Suppose you are a worker taking home $50,000 a year in wages. When your income-flow is capitalized at the current rate of interest of, say, 5 percent, you arrive at the figure of $1,000,000. The sum of one million dollars or its equivalent in physical capital must exist somewhere, in some form, the yield of which will continue paying your wages. Capital has been accumulated and turned into plant and equipment to support you at work. Part of your employer's capital is the wage fund that backs your employment. Assuming, of course, that no one is allowed to tamper with the rate of interest." [Emphasis in the original]

"Suppose for the sake of argument that the rate of interest is cut in half to 2½ percent. Nothing could be clearer than the fact that the $1,000,000 wage fund is no longer adequate to support your payroll, as its annual yield has been reduced to $25,000. This can be described by saying that every time the rate of interest is cut by half, capital is being destroyed, wiping out half of the wage fund. Unless compensation is made by adding more capital, your employment is no longer supported by a full slate of capital as before. Since productivity is nothing but the result of combining labor and capital, the productivity of your job has been impaired. You are in danger of being laid off ? or forced to take a wage cut of $25,000."

Without capital, human productivity is barely enough to produce a subsistence living. Without tools, one is obliged to work long hours at back-breaking tasks in order to have a meager meal, some sort of clothing, and something to keep the rain off one's head. Capital destruction is the process of moving backwards towards a time where one worked harder to obtain less.

As described earlier, when the rate of interest falls, it erodes the capital of every bond issuer. If one looks at this capital as being the wage fund (or part of it is the wage fund), then the bond issuer can no longer afford to pay its employees the same wage. If it does continue the same wage anyway, it will eventually suffer the consequences of running out of capital.

Amortization of Plant

Now let's consider the concept of amortizing equipment and plant at Smithwick Pen. Smithwick borrows $10M to buy equipment. Out of its revenues, it must set aside something to amortize this over the useful life of the equipment, which is 20 years in our example. This set-aside reduces net income; it is not profit but capital maintenance assuming the company intends to remain in business after the current generation of equipment and plant wears out.

How much should it set aside every month? This is the inverse of the NPV calculation. We are now interested in the current monthly payment to arrive at a fixed sum at a future point in time (as opposed to the present value of a stream of fixed payments). The lower the rate of interest, the more Smithwick must set aside every month in order to reach the goal by the deadline. To understand this, just look at what Smithwick must do. Each month, it puts some money into an interest-bearing account or bond. Even if it chooses the longest possible maturity for each payment (i.e. the first payment is put into a 20-year bond, the next into a 19-year 11-month bond, etc.) it is clear that if interest rates are falling then each payment must increase to compensate. Smithwick's profits are falling with the rate of interest!

If Smithwick persists in setting aside every month what it initially calculated when it purchased the pencil-making equipment, it will have a shortfall at the end, when it needs to replace the equipment.

Real Meaning of an Interest Rate

Let's consider what it really means to have a high or a low rate of interest. I propose to do reductio ad absurdum. We will look at two cases (which would be pathological if they occurred) to make the point clearer.

The first case is if the rate of interest is 100%. This means that a $1000 payment one year from today is worth ½ of the nominal value, or $500 today. A payment due in two years is worth $250 today, etc. At this rate of interest, for whatever reason, "future money" is worth very little present money. In other words, the burden experienced by the debtor is a small fraction of the nominal value of the debt.

The second case is if the rate of interest is zero. This means that a $1000 payment due one year from today or 100 years from today is worth $1000 today. At this rate of interest, for whatever reason, future money is worth every penny of its nominal value today. There is no discount at all, not for the loss of use of the money in the meantime, not for the risk, not for currency debasement. In other words, the burden experienced by the debtor is the full nominal value of the debt.

Again, to emphasize, one must use the current market rate of interest not the rate of interest contracted by the borrower at the time of the bond issuance.

The lower the rate of interest, the more highly one values a future payment. The higher the rate of interest, the more highly one discounts a future payment. These statements are true whether one is the payer or the payee. The payer and payee are just parties on opposite sides of the same trade.

Irving Fisher, writing about falling prices (I shall address the connection between falling prices and falling interest rates in a forthcoming paper) proposed a paradox[4]:

"The more the debtors pay, the more they owe."

Debtors slowly pay down their debts and reduce the principle owed. This would reduce the NPV of their debts in a normal environment. But in a falling-interest-rate environment, the NPV of outstanding debt is rising due to the falling interest rate at a pace much faster than it is falling due to debtors' payments. The debtors are on a treadmill and they are going backwards at an accelerating rate.

How apropos is Fisher's eloquent sentence summarizing the problem!

[1] http://www.wikinvest.com/stock/Bear_Stearns_Companies_(BSC)#History

[2] http://www.wikinvest.com/stock/Bear_Stearns_Companies_(BSC)/Data/Balance_Sheet#Balance_Sheet

[3] http://www.professorfekete.com/articles/AEFLaborLeaders.pdf

[4] http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf

The Gold Price Seasonal Weakness and Correction Rapidly Coming to an End Stay Calm and Buy on Retreats

Posted: 20 Jul 2012 05:46 PM PDT

Gold Price Close Today : 1,582.50
Gold Price Close 13-Jul : 1,591.60
Change : -9.10 or -0.6%

Silver Price Close Today : 2727.9
Silver Price Close 13-Jul : 2734.4
Change : -6.50 or -0.2%

Gold Silver Ratio Today : 58.012
Gold Silver Ratio 13-Jul : 58.207
Change : -0.19 or -0.3%

Silver Gold Ratio : 0.01724
Silver Gold Ratio 13-Jul : 0.01718
Change : 0.00006 or 0.3%

Dow in Gold Dollars : $ 167.50
Dow in Gold Dollars 13-Jul : $ 165.95
Change : $ 1.55 or 0.9%

Dow in Gold Ounces : 8.103
Dow in Gold Ounces 13-Jul : 8.028
Change : 0.07 or 0.9%

Dow in Silver Ounces : 470.05
Dow in Silver Ounces 13-Jul : 467.27
Change : 2.78 or 0.6%

Dow Industrial : 12,822.57
Dow Industrial 13-Jul : 12,777.09
Change : 45.48 or 0.4%

S&P 500 : 1,362.66
S&P 500 13-Jul : 1,356.28
Change : 6.38 or 0.5%

US Dollar Index : 83.462
US Dollar Index 13-Jul : 83.384
Change : 0.078 or 0.1%

Platinum Price Close Today : 1,412.10
Platinum Price Close 13-Jul : 1,432.50
Change : -20.40 or -1.4%

Palladium Price Close Today : 574.85
Palladium Price Close 13-Jul : 584.50
Change : -9.65 or -1.7%

The GOLD PRICE mounted by $2.40 today to rest at $1,582.50. Silver waxed 8.5 cents to 2727.9 when the closing bell rang at Comex.

GOLD PRICE was beaten up but not dismayed this week. On the 5 day chart it scratched out a kind of rounding bottom, with a low at $1,568. Clearly at $1,575 lurk plenteous buyers. But that only offers us a floor. Up above, gold must break out of this jail by closing above $1,600.

GOLD tradeth still within an ambiguous even-sided triangle. Next week the bottom of that triangle stands about $1,560 and rising, the top boundary at $1,610 and falling. Today's close left gold below its 20 day moving average ($1,583.10) and its 50 DMA ($1,586.94), but barely. It's trading sideways into a tighter and tighter range, but we'll see some fun if it breaks $1,600 or $1,560.

This is not failure, only gold working out the last of its correction from last August's $1,927 high. Be patient, and buy gold whenever it has a bad day and falls. Autumn will reveal that all this sidewise trading amounted to no more than base building for a rally.

In the last fortnight's trading the SILVER PRICE has built a flat topped rising triangle within a falling wedge. These patterns usually break out upside.

Until SILVER punches through 2760c, nothing much will happen. Down below it needs to hold 2610c. As with gold, buy on any retreats.

Premiums on silver and gold physicals still indicate strong physical demand.

If you haven't yet traded gold for silver, now's about your time. Ratio stands at 58.012 today, and surely won't linger there for long.

I sing the same song as last week: summer seasonal weakness for silver and gold and a correction rapidly coming to its end. Be calm, keep your eyes on the horizon, not the bumpy ground in front of you, and don't listen to anybody who works on Wall Street or in Washington or the mainstream media..

If markets get any flatter, we'll need to hold a mirror under their nose to see if they're still breathing.

This week silver gave up a empty 6.5 cents, dollar a piddlin' $9.10, Dow escalated a nugatory 0.4%, S&P500 a hollow 0.5%, while the almighty US dollar (index) levitated a feckless 0.1%.

Look at that US Dollar index 5 day chart. (You can view it yourself at www.ino.com, using symbol "NYBOT:DX".) These tea leaves present two warring interpretations. First, the dollar made a correction this week with a rounding bottom and next week will burst through 83.60 to greater highs. On the other hand, the dollar may have broken and today jumped up for a final kiss good bye before falling through 82.75 next week headed for the earth's core.

My outlook for the dollar is strongly colored by central bankers' needs. Those needy fellers right now need stability more than anything else, and neither the European criminals (ECB) nor the US racketeers (Fed) want the dollar to run moonward while the euro plumbs the Marianas trench. They want to keep the whole system together, not preside over its demise. Therefore expect the dollar to remain BELOW the last 83.83 high, but above the 81.52 last low.

But the stability plan isn't panning out. Surprise. Euro gapped down and made another new low for the move today -- $1.2144, lowest since May, 2010. None of that is liable to make Mario Draghi or Angela Ferkel or Bloviating Ben sleep well tonight. Closed down 0.94% at $1.2164. As grounds for this tumble media tout a request from the heavily indebted Valencia region asking Madrid for financial aid. That hints that Spain itself needs rescuing. That sucked all optimism out of stocks and the euro and sent it hurtling into the black hole of outer space.

Note, dear readers, how the Central Bank criminals have been applying the "slow burn" technique to European problems. In their book, if it doesn't flare up into a full-blown panic with lines outside the banks and blood running by gallons in the street, they are still winning. If they get to 5:00 p.m. and the financial system hasn't exploded, they win. Today. I could almost guarantee that they already have a target for the new $/Euro exchange rate, somewhere around $1.1800 - $1.2000, and when it reaches that level they'll all start intervening to set a new rate. In other words, they are devaluing the euro like a kid slowly hissing the air out of a balloon.

I'm telling y'all, as I have told y'all, this is past saving, past reforming, and you are smoking meth if you believe the measures tried so far will resuscitate severely debt-poisoned and debt-addicted economies.

Ain't no central bankers going to let that yen run away, either. Today it gained 0.11% to end at 127.36c (Y78.47), but that just edged it sidewise and didn't rise through the downtrend line. Remains, however, above the 200 DMA (126.68), a sure botheration for the Japanese Nice Government Men.

Stocks this week hit their top Bollinger Band (a measure of current range) and, unable to penetrate, bounced down, losing most of the weeks' gains today.

S&P 500 dipped 1.01% today (13.85) to close 1,362.66. Dow slipped 0.93% (120.79) and ended 12,822.57.

A bear market likes to lure investors into its den where it can maul them and gnaw their bones at leisure. 'Twouldn't surprise me to see the Dow reach 13,000 to universal jubilation before it plunges again. Y'all just remember that when the jubilation breaks out, so you don't get mangled in the bear's cave.

Y'all enjoy your weekend.

Gold Q2, 2012 – Investment Statistics and Commentary

Posted: 20 Jul 2012 05:15 PM PDT

from GoldCore:

Today's AM fix was USD 1,583.00, EUR 1,291.30, and GBP 1,007.83 per ounce.
Yesterday's AM fix was USD 1,580.00, EUR 1,287.06 and GBP 1,009.33 per ounce.

Silver is trading at $27.07/oz, €22.22/oz and £17.32/oz. Platinum is trading at $1,418.25/oz, palladium at $577.80/oz and rhodium at $1,190/oz.

Gold rose $3.70 or 0.23% in New York yesterday and closed at $1,581.00/oz. It rose as high as $1,590/oz prior to determined selling which saw gold fall. Gold ticked higher in Asia prior to falling soon after the European open.

Gold has been trading in a range between $1,530/oz and $1,630/oz for nearly 2 months despite the Eurozone debt crisis entering its 3rd year and looking set to escalate and despite signs that the US economy is on the verge of a sharp recession.

Read More @ GoldCore.com

How to Buy Gold Bars

Posted: 20 Jul 2012 04:29 PM PDT

GoldSilver

Economic Countdown To The Olympics 3: A Winning FX Strategy

Posted: 20 Jul 2012 04:28 PM PDT

In part three of our five-part series tying the Olympics to economics (previously here and here), we note that in a rather surprising coincidence, the Olympics' host nation has been a rather simple tool to pick long-term 'winners' in the FX market. As Goldman points out, while we doubt that the Olympics directly affects the FX market, it has provided excellent long-term appreciation potential. We assume this means that the BoE will stop QE or we really don't see cable extending this performance record, though the findings suggest that systematically picking the 'next' host tends to pick winners more than losers.

Goldman Sachs: The Olympics As A Winning FX Strategy

Is it possible that the Olympics affect foreign exchange markets? At first glance, this may seem unlikely as the Olympics are a relatively small event when compared to the size of the Global FX market, which turns over several trillion Dollars every single day. However, from an economic point of view, the question does make some sense. In a standard open economy model, government spending such as constructing the Olympic sites and improving the infrastructure typically leads to real appreciation. Also, a country hosting the Olympics is likely to see an influx of visitors during the actual Games. This would be recorded as a services export in the balance of payments and, all else equal, it would increase the demand for local currency.

To investigate whether the Games do affect FX markets, we constructed a real effective exchange rate for the Olympics, by combining the Goldman Sachs Real Trade Weighted FX Indices (GS RTWI) of the host countries starting after the Moscow Olympics in 1980. For example, the GS RTWI for the Chinese Yuan is used between August 29, 2004 (the closing date of the Athens Olympics) and August 24, 2008 (the closing ceremony of the Beijing Olympics). For host cities in the Euro area, we use the Euro RTWI.

The Olympic RTWI has appreciated by around 90% since the end of the Moscow Olympics in 1980, which is vastly more than any other individual currency (apart from a few hyperinflation cases with highly unstable exchange rates).

The table shows that the currency with the second strongest real appreciation was the Japanese Yen: it has appreciated by around 54% since 1980, and remains substantially below the appreciation of our synthetic Olympic index. This suggests that individual currencies do tend to appreciate more than usual in the run-up to hosting the Olympics. By systematically picking the next hosting currency, the Olympic FX Index tends to pick 'winning' currencies more often than 'losers'.

However, there are a few important caveats. First, the four-year periods preceding the Seoul 1988, Sydney 2000 and London 2012 Olympics saw the host currency depreciate. In other words, the Olympic FX Index is not guaranteed an FX Gold Medal. Second, real effective exchange rates can appreciate because of high inflation rather than nominal appreciation. Carry may be higher as well, meaning that investors may still be able to benefit, but Olympic currencies are not guaranteed to appreciate in nominal terms.

To check the performance of the Olympic currency, we calculated the return to date on an initial investment of $100 in the Olympic currency at the end of the Moscow Games, including carry. Following the host country rules laid out above, this would mean that at the end of the Beijing Olympics the investment would have been shifted out of Renminbi and into Sterling. Starting with $100 in 1980, this Olympic investment would currently be held in Sterling and worth about $1,020. In comparison, investing $100 in rolling 1-year USD investments would have returned only about $700.

In summary, the empirical results suggest that a synthetic Olympic currency would outperform over time. Even though Olympic investment spending is a relatively small share of GDP (for example, around 0.8% for the UK 2012 Games), one potential explanation is that there is a positive selection bias in picking the host city. For example, countries with strong growth in the years before a decision would be able to invest more in their Olympics bid, increasing the chances of winning the Games. This is even more so if growth is supported by a structural story that lasts longer than just one business cycle. The Beijing Olympics are an obvious recent example.

Overall, we continue to doubt that the Olympics directly affect the foreign exchange market. However, the Olympics may be a rather simple tool to pick long-term 'winners' in the FX market with good long-term appreciation potential.

Thomas Stolper and Constantin Burgi

Making A Gold Nugget From Electronic Waste

Posted: 20 Jul 2012 04:08 PM PDT

Perth Mint Blog

Profiting from Europe’s New Gold Rush

Posted: 20 Jul 2012 03:47 PM PDT

Europe owns a sizable chunk of the world's natural resources. Over the past few decades, however, EU countries have mostly imported their resources. Outlandish? Maybe. But it was simply easier, cheaper, and most importantly it ... Read More...

The Return of Food Riots

Posted: 20 Jul 2012 03:44 PM PDT

Dave Gonigam – July 20, 2012

U.S. drought zone expands, crops shrivel: Dan Amoss identifies who gains and who loses
Marc Faber, Rick Rule and Frank Holmes — each with his own reason not to give up on commodities
"Wishful thinking": Ritholtz unpacks housing numbers… "Absolute frontier of monetary policy": Dan Denning on this week's Fed testimony
Couple redefines "ostentatious," nearly loses it all in the 2008 panic, now resorts to a lawsuit
The corruption of a once-noble word… more scorn and invective traded over the "you didn't build that" speech… and more!

The "Arab Spring" might become a long, hot summer.

This morning is a good time to recall what set off the riots that swept away authoritarian regimes in Tunisia, then Egypt, then Libya and perhaps now Syria. "Much of this," Addison wrote here 18 months ago, "is backlash against corrupt and/or authoritarian regimes. But it took empty bellies to finally bring the rage to the surface."

Corn and soybean prices hit record highs yesterday. Higher than during the Arab Spring. Higher than even the records set in 2008, when food riots raged in more than 30 countries.

The situation today is "not even comparable to 2007-08," a veteran trader tells the Financial Times.

"A land mass the size of Montana fell into severe drought this week," notes our macro strategist, Dan Amoss.

The National Drought Mitigation Center reckons 42% of the continental United States is in severe, extreme or exceptional drought — up from 37% only last week:

"The corn and soybean crops are at risk," says Dan, scanning the landscape for winners and losers. "Yields will likely fall to multi-year lows. This is tragic for crop farmers devastated by the drought."

"But farmers with the good fortune of water resources will see a much-deserved windfall of high corn and soy prices paid by food companies and consumers. This windfall will bolster the financial strength of the U.S. farm sector, so it can remain world-class in its productivity and technology (to mitigate supply damage from future droughts). A lot is riding on their shoulders."

On the other hand, "Large food processors relying on steady supplies of farm products at low prices will struggle."

Agriculture aside, "Among investors these days, a fellow commodity bull is about as rare as finding a positive story in the media," says U.S. Global chief and Vancouver favorite Frank Holmes.

"Fears of slowing global growth and how it will affect commodities have caused many investors to dig their heels in the ground and resist owning natural resources."

But Mr. Holmes says the demand for resources is nowhere near played out. He cites Jeremy Grantham, the legendary strategist from GMO, who says, "in the long run, you can't afford to miss this opportunity":

"The past decade shows a clear tipping point for resources," Frank says, referring to the above chart. But a decade into the broad resource rally, it becomes more important to pick your targets: "Smart investors look past the rampant negativity in the media to see these patterns and anomalies to determine where the opportunities and threats lie."

"There's always an ebb and flow of commodities, both seasonal and cyclical. It's important to anticipate these global trends to know how to participate." At this stage of the game, Mr. Holmes is partial to dividend-paying resource stocks.

Natural resource markets "are as bad as they've ever been, and for me, that's as good as it gets," adds the incomparable Rick Rule.

Laissez Faire Books senior editor Doug French sums up Mr. Rule's recent appearance at FreedomFest in Las Vegas: "The opportunity in resource markets is that millions of people around the world are enjoying a higher standard of living. As these people climb out from under the thumb of oppressive governments, their living standards rise — not to buy iPads, but to buy stuff requiring natural resources."

Meanwhile, "the stock prices of companies that have secured natural resource deposits are unloved and may get more so, setting up what Rule thinks will be the 'best resources M&A [mergers and acquisitions] market ever.'"

No doubt Mr. Rule will rattle off dozens of names and ticker symbols next week during the Agora Financial Investment Symposium. If you can't join us, there's always the next best thing — which this year is even better.

"It takes a lot of courage to be short" commodities, says the Gloom, Boom & Doom Report's Marc Faber — who will also join us in Vancouver next week.

Despite the slowdown in China, he too believes there are still opportunities in the resource sector.

"I don't want to be short copper," he tells CNBC, "because copper can, like other markets, be manipulated because there are not that many players in the copper market, so we could see a rally in copper prices, we could see a rally in gold prices and so forth and so on."

Precious metals are a snooze today: Gold has barely budged at $1,583. Silver's showing a little more life, at $27.40.

Stocks are slumping as the week comes to a close; financials are dragging the Dow down three-quarters of a percent. But overall, the week should end in the green for the major indexes.

"The housing recovery is awesome — until you actually look at the sales data," says Fusion IQ chief and Big Picture blogger Barry Ritholtz.

Count Mr. Ritholtz as unimpressed — especially after the existing home sales numbers yesterday from the National Association of Realtors. Fully 25% of June sales were foreclosures or short sales sold at deep discount. The NAR makes a big deal of the fact this is down from 30% a year ago.

"Hence," writes Barry, "a huge drop in distressed sales pressuring prices (which would have caused even more distressed sales) is an artificial benefit of the voluntary foreclosure abatements — which have now ended."

"The present residential real estate situation can be best described as massive Fed stimulus + government-induced foreclosure abatements = some stabilization."

"Anything beyond that statement falls between wishful thinking and a guess."

"We are at the absolute frontier of monetary policy," says Dan Denning, keeper of the Australian Daily Reckoning. Mr. Denning is exhausted after subjecting himself to Fed chief Ben Bernanke's testimony to Congress this week.

"Bernanke still subscribes to the view that if you make credit cheaper, you'll boost economic growth. As far as we could tell, he provided absolutely no proof that the Fed's purchase of U.S. Treasury bonds and mortgage bonds in QE1 and QE2 did anything to promote growth in the real economy. All he's done is boost stock prices and make it easier for the U.S. government to finance its deficits."

"The Fed can't 'promote growth' when households are reducing debt. It's telling that Bernanke said the government needs to get fiscal policy in order (spending), in order for consumers and businesses to be more confident about taking risk."

The greenback is set to end the week lower than it began. But at last check, the dollar index was up for the day, at 83.4. It takes $1.217 to equal one euro.

"The German parliament voted and passed the resolution to have the ESM [European Stability Mechanism] recapitalize the troubled Spanish banks," says EverBank's Chuck Butler. "But remember, this is still the final decision of the German Constitutional Court, and they have stated that they will not have a decision on this until September. That's a long time to go with uncertainty hanging over the euro like the Sword of Damocles — and another reason that I just don't like the euro this summer."

Meanwhile, it takes 78.576 Japanese yen to equal one U.S. dollar this morning — good news for Abe Cofnas' "mock trade" of the week.

Recall from Monday's episode that Abe expected the yen to end the week below 80.25. Barring a major market dislocation after we go to press… the trade is good for a 7% gain in four days.

[Ed. note: We have to go back and count: Eight experts cited in today's 5 will appear next week at the Agora Financial Investment Symposium.

And that doesn't count historian/author/documentarian Niall Ferguson... or perennial favorite Doug Casey... or the stable of Agora Financial editors like Byron King, Chris Mayer and Patrick Cox... or Agora Inc. founder Bill Bonner. (The Symposium is the only event in which he speaks every year.)

Right now, you can lock in the lowest price on recordings of this year's event. And because so many people have asked for it, we're making a video option available too. That's right: Whether you want to watch at your desk or listen on the go, we have you covered. Act now for your best value.

What do you do after building the biggest (almost) and gaudiest (for sure) mansion in America... then coming face to face with foreclosure... and you can't unload the place?

You sue the documentarian who made a film about your experience because she made you look bad.

Windermere, Fla., is home to Versailles, a mansion inspired by the French original and, in the words of colleague Chris Campbell, "the Godzilla footprint of the American delusion."

Consisting of 90,000 square feet of 13 bedrooms, 22 bathrooms, a 20-car garage, three pools, two movie theaters, a bowling alley, a ballroom...

(pausing for breath...)

... a banquet kitchen, 10 'satellite' kitchens, a two-story wine cellar, a two-story library, full spa, a bar and game room, a fitness center, an arcade, and an indoor roller-skating rink...

(haaaaa..)

... with Italian white marble outlining throughout... and that's just the interior:

"I built it because I can," says David Siegel...

Two-thirds of the way through building this monstrosity, time share tycoon David Siegel was caught up in the market meltdown of 2009 and nearly ended up in foreclosure.

He tried to sell, cutting the price from $100 million (finished) or $75 million (as is) to $65 million (as is).

Producer Lauren Greenfield figured it was the stuff of a documentary... so she made one called Queen of Versailles, featuring the 76-year-old Siegel and his 46-year-old wife, Jackie.

(Jackie seems like a fine sort: Nightline recently caught her making snarky comments about piddly 99%ers jealous of their elite status... and one of their eight children complaining that one of the movie theatres isn't big enough...)

David and Jackie Siegel in their element...

The Siegels are now suing Greenfield for defamation, saying the film puts them — get this — in a bad light.

At the very least, David Siegel says she should update the film — now in limited release — to reflect the fact that he's recovered his footing and managed to secure a $25 million loan to finish construction and hang onto the place himself.

If that's something he's actually proud of...

"I'm writing today from Rancho Santana, Nicaragua," a reader informs us. "We arrived today, and it is beautiful on the Pacific Frontier. I enjoy The 5 Min. Forecast."

[We've been at this long enough to know there's a "but" coming...]

"However, can you please stop destroying the concept of capitalism and free markets by using the term 'crony' as a modifier of capitalism? Since when is a franchise enabled and protected by government force capitalistic or free market? It is neither. Call a spade a spade. It is fascism, mercantilism, socialism, Marxism, monarchy or any other authoritarian system. It is not capitalism."

The 5: You mean yesterday's 5? That was professor Niall Ferguson's choice of words, not ours.

We hear your complaint loud and clear… but we fear the damage to those once-noble terms was done long ago.

"I must disagree with Jeffrey Tucker's comparison of government to ticks on a dog," writes another.

"Ticks will eventually drop off a dog. More appropriate would be comparing government to a tapeworm. You seem to be getting weaker and weaker, but can't see the reason why until it eventually kill its host."

"Mr. Tucker can take his political druel [sic] and shove it," reads another hostile reaction to his take on the president's "you didn't build that" speech.

"In actuality, this country is in the financial mess we are in for a number of reasons, ONE of which is because the Republican Party was extremely complicit in helping the corporate structure of America export most of our manufacturing job to defund the unions that supported the Democratic Party. So please stop with your Republican BULL; what this country needs are policies that will benefit the general welfare, and not just the welfare of the corporations and wealthy elite. If the middle class does well, all levels of society will do well."

The 5: "Republican bull"? You must be fairly new 'round these parts. Heh…

"Having done my graduate work in linguistics," writes a reader, "your correspondent who writes about that Obama quote, 'Somebody invested in roads and bridges. If you've got a business, you didn't build that. Somebody else made that happen,' may himself want to take a course in linguistics."

"The use of person (perhaps social or place?) deixis — on which I did a graduate paper — seems to indicate that indeed Obama was referring to the business builder. Unfortunately, Obama ham-hands language just as much as Bush, so it is a bit unclear. However, it appears relatively clear Obama was talking about the business creator."

"In any event, I humbly suggest your Obamaphile correspondent stop reading your newsletters on how to make money, and get busy scouring the IRS manuals to find out how new and creative ways to pay more taxes to support… well… whatever."

"It seems to me the 'who built that' discussion has a little bit of the old 'chicken and egg' flavor about it."

"In the not so distant past (and even right now sometimes), child development experts were divided into two rather polarized camps: 'nature' (you will do well if you inherited good genes — upbringing is secondary) and 'nurture' (you will do well if you were raised well — good genes are secondary). Most students of child development now agree that the values of nature and nurture are equally important and totally intertwined."

"I suspect this is true with regard to the evolution of societies, as well. In America today, we increasingly burden our emerging entrepreneurs with oppressive regulations (the equivalent of otherwise healthy children being born with club feet)… and then… if they succeed in running a good foot race, anyway, we take much of their prize away from them (the equivalent of children being beaten the hardest when they succeed the most)."

"Thankfully for the future of America, many entrepreneurs are like the best race horses: They don't care if they die racing… they just love to run."

The 5: Amen…

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. Our final correspondent's comment gets to the heart of the theme of this year's Agora Financial Investment Symposium. It's "Innovate or Die: Empire at a Turning Point."

As Niall Ferguson pointed out in yesterday's 5, the United States — and developed nations in general — can break out of their economic funk by either fixing fouled-up laws and institutions… or by technological innovation.

The latter seems like a far better bet… and Ferguson leads a cavalcade of speakers who will address that very issue. Politicians and central banks will always muck up the works, but there's still a world of profit opportunities our expert lineup will identify.

If you can't join us in Vancouver next week, you can always get the high-quality audio — and now video — recordings of the event. Sign up here to secure the best price.

Greyerz: $1.5 Quadrillion Bubble & Gold Into The Stratosphere

Posted: 20 Jul 2012 03:44 PM PDT

Today Egon von Greyerz told King World News, "The world is simply drowning in debt." Greyerz, who is founder and managing partner at Matterhorn Asset Management out of Switzerland, also said, "This is why it is guaranteed that governments will print money," and that "Prices of hard assets will go into the stratosphere."

But first, here is what Greyerz had to say about the ongoing financial crisis and where we are headed: "Spanish rates have broken back above the 7% level once again, but in reality we know that many European countries will never be able to repay these debts. You now have a total worldwide debt of around $150 trillion. If you add to that contingent liabilities, unfunded liabilities, pension funds, etc., you are talking about $500 trillion."

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

Gold market cited in speculation on where next financial scandal will come from

Posted: 20 Jul 2012 03:27 PM PDT

After Libor, Where Will the Next Scandal Be?

By James Moore
The Independent, London
Tuesday, July 17, 2012

http://www.independent.co.uk/news/business/analysis-and-features/special...

No one would have believed Libor interest rates could generate the biggest scandal in financial services since Fred Goodwin waltzed off into the sunset with a L500,000 annual pension.

That was until a journalist on the Wall Street Journal noticed there was something odd about the numbers banks were submitting during the financial crisis, prompting a multi-million-pound transatlantic investigation.

Its findings shone an unflattering light into one of the City's dark corners that resulted in Barclays paying L290 million in fines and saw the resignations of its chief executive, chief operating officer, and chairman.

... Dispatch continues below ...

Here we shine a light into a few more of the City's dark corners. The professionals dismiss talk of a scandal coming from any of them. But they used to say that about Libor interest rates.

Gold fixing

Twice a day the price of the precious metal is set -- or (and it's a rather unfortunate term) fixed -- by five banks: Bank of Nova Scotia, Deutsche Bank, HSBC, Societe Generale, and (wait for it) Barclays.

The leader of the fix begins by proposing a price and the five then simulate trading, by looking at their own and client's buy and sell orders, around it until the price is set.

All transactions in gold in London are based on this price. It's an arcane process to say the least and until 2004 used to be done in conditions of high secrecy at the offices of NM Rothschild in St Swithin's Lane. The price was only set when all five members lowered little Union Jack flags.

Since Rothschild sold its interest in the market (to Barclays) a teleconference has been set up and members simply call out "flag" to indicate a change in position or "flag down" when they are ready to complete. Seriously.

The market itself is not regulated as such. It's done under the auspices of the London Bullion Market Association and follows a code of conduct.

There are also silver and platinum fixes.

The FTSE 100

Britain's premier stock market index. But did you know it's not even made up of the 100 biggest companies? To get in you have to be better than 90th place in terms of market capitalisation (the value of all your shares put together). And to get booted out you need to be below 111th (the index is reviewed every three months).

You also have to be a British company. Sort of. Kazakhmys, for example, is headquartered in London and its shares are listed here. But it's a bit of a stretch to call it British. WPP, the advertising and media group, is headquartered in Dublin but because its shares have a primary listing in London it gets in. Ryanair, however (to the chagrin of its boss, Michael O'Leary), is out. Even though it has an operating base here, the primary listing of its shares is not in London. What that shows is the FTSE Committee is scrupulously honest. It obeys the somewhat quixotic rules to the letter.

Being in the FTSE 100 is a big deal. It gets you noticed, brings in analysts to write about you, and forces tracker funds to invest in you. Indices can also be traded and there are innumerable derivatives contracts linked to them.

If there's to be a scandal it's more likely to involve traders trying to influence who gets in (or is booted out). Trading in stocks and shares is, of course, tightly regulated. The formation of the index, though, is not.

The Foreign Exchange Market

Or the Forex market in City-speak. It's hard to call this a dark corner. It's the biggest market in London, and in the world, in terms of the sheer volumes of money changing hands -- $4 trillion (L 2.6 trillion) daily. Not that this stops people from trying to manipulate it.

Central banks such as the Bank of England, the US Federal Reserve, and lots of others are always at it, either trying to push their currencies higher (when they fear a forced devaluation and inflation) or lower (to make exports more competitive). Their efforts tend to meet with very limited success.

Speculators, particularly hedge funds, are very active and their role can also prove highly controversial.

Of more concern right now are the games being played by so called "high-frequency traders" who use black boxes to place blistering numbers of currency trades in nano-seconds.

Lots of influential people question their activities and want the hammer brought down. They might have a point.

Over-the-Counter Derivatives

No, this is not a strange new product at Waitrose.

It is a contract between two parties and usually involves a bank either as a broker or on one side or another of the deal.

Let's say you produce animal feed and you're worried the price of lysine (an additive) will go up. For a fee, you can ask an investment bank to produce a contract that will allow you to buy the stuff at a fixed price in, say, six months' time. Thus you are protected.

A supplier of lysine (worried that the price might fall) might also sign a deal to sell at a similar, fixed price. The bank sits in the middle.

These contracts can be highly complex. The consequences of a big bank having a lot of nasties that could blow up in the event of the economy doing something unexpected keeps watchdogs awake at night.

They want to regulate the whole thing more tightly, standardise contracts and make them tradeable over exchanges. Which might help a bit.

Oil markets

This one could be a real nasty.

Derivatives based on oil prices are, of course, regulated. But the "spot" crude price is not. And a report for the G20 has found -- guess what -- that the market is open to manipulation.

The price at the pump is (in part) dependent on oil price benchmarks which retailers use to work out the price for future supplies. The rates are calculated based on submissions from firms which trade oil daily. So -- guess what -- it rather depends on how honest banks and hedge funds that do this trading are. Oh dear.

Price-reporting agencies point out that they employ journalists to weed out false submissions from those with an incentive to push prices one way or another. But the Libor affair has set alarm bells ringing about markets based on the submissions of people who participate in those markets.

* * *

Weekly Chart Porn - Uber-Bullish Silver Signals

Posted: 20 Jul 2012 03:11 PM PDT

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

How to Best a Bureaucrat

Posted: 20 Jul 2012 03:01 PM PDT

Synopsis:

How a group of Amish took a page from the Gandhi playbook to triumph over state and federal bureaucrats

Dear Reader,

Due to one thing and another, I am only just now beginning today's missive. "Now" being 10 AM. Normally, I would be starting closer to 7:00 or even 6:00 AM – so I will have to hurry along or be responsible for causing our always patient production team to work into Friday evening, after an already long and very busy week.

To speed things along, it is my intention not to engage in long essaying but rather to fly through some snippets that caught my eye this week, as well as to share with you a couple of contributions from colleagues and one from a dear reader.

As we set off on today's adventure in musing, I have the music turned up loud on a song titled Angel by Massive Attack, a largely overlooked English group that is now defunct. You may recognize the song from Guy Ritchie's excellent movie Snatch, featuring a terrific English cast along with Brad Pitt in a stellar role as a gypsy boxer.

Later on, I plan on telling you about two other movies I've seen recently that appear to have been seen by almost no one – but which I enjoyed quite a bit and hope you will, too (at least if you have a somewhat warped sense of humor!).

But first, on with the musing...

Roads Blocked

The primary reason I'm running late today has to do with my needing to help out with some kid delivery chores this morning.

As I drove about, I discovered that one of the roads I would normally use in fulfilling my mission was closed by roadblocks due, I imagine, to road repair work. Upon hitting the road block, I had to reverse course and take a substantial detour.

Turning around, I wondered why the road crew hadn't put up a sign indicating the road was closed back at the main intersection leading to it, but I shrugged and muttered something along the lines of, "Typical government operation."

Driving back home, this idea of roadblocks took root in my mind. You see, only governmental entities can set up roadblocks – at least legally.

Obviously, there are times when such roadblocks are entirely appropriate. For example, when a bridge is found to be near collapse, or has actually collapsed. In that case, putting up a roadblock to let drivers know that the road is a no-go makes perfect sense. (We could debate whether or not this function could be delegated to private enterprise, as it almost certainly could, but for the sake of argument, let's just assume that putting up such a roadblock falls within the purview of the "night watchman" model for government.)

Outside of cases where the road is actually damaged to the point where driving is either impossible or ill advised, there should be almost no roadblocks set up. Sure, one might drop a temporary warning sign down to let people know that there is a road crew fixing potholes ahead and that sort of thing, but an actual roadblock should be a relatively rare thing.

Now consider a world where government officials, as often as not operating hundreds or even thousands of miles away, dictate that permanent roadblocks are to be constructed here, there and everywhere – based not upon the specific condition that a road is out, but rather based on political expediency, cronyism, imaginary threats and donations by influential lobbyists.

In a world like that, where roadblocks are set up all over the place and without any real thought to the consequences, imagine how difficult it could be to get from Point A to Point B. In fact, it would not be out of the question that the single road leading to your house could be blocked, leaving you no way out.

While that seems rather extreme, I would contend that it is a valid metaphor for the world we now live in.

To make the point, a couple of weeks ago, I discussed my recent travels to Ireland and Portugal and the devastating consequences the actions of the European central planners have had on those economies.

Before the European Commission, the Portuguese fishermen did quite well, thank you. Not long after Portugal's admission into the Eurozone, however, they woke up one morning to discover a regulatory roadblock requiring them to destroy their fishing boats, thereby preventing them from earning their livelihoods. In effect, the single road leading to their houses had been blocked.

Another example can be seen in energy policy here in the US. The politicians bray about the need for energy independence, but then kowtow to the environoids and special interests by littering the landscape with roadblocks that prevent energy companies from achieving that independence.

Now, some among you will argue that such roadblocks are essential in steering the sheep – er, the populace – towards greener pastures. But were the roadblocks in front of nuclear-power generation really required? Was the technology, now in use for over 50 years, really the equivalent of a road out ahead?

What if, rather than roadblocks, the US government had simply put up a warning sign and let the insurance companies and the builders of the nuclear plants work together to make the plants essentially bombproof, and therefore warranting insurance at affordable rates?

On the topic of affordable rates, the government has set up another sizable roadblock in the path of savers. By meddling in the market in order to allow the debt-bloated government to continue its out-of-control spending, the Fed has suppressed interest rates to the lowest levels in US history. Almost overnight, retirees and others who counted on the yields earned on savings to cover living costs have come to a dead stop in front of a roadblock placed in the way of their most pressing needs. Their finances now in tatters, even people in their 70s who have worked hard and saved all their lives are being reduced to serving up French fries at fast-food joints.

Want another? Look no further than Obamacare. Check out this article from Reason.com that shows the sort of convoluted logic that has gone into creating a series of related roadblocks. As one wit put it, if you think healthcare is expensive today, wait until it's free.

One of those roadblocks has to do with the considerably higher taxes embedded in the law that will shift yet more funding from the private sector to the public. Here's the text from an email sent to Doug Casey by a financial professional friend of his this week.

You may have had only a casual interest in the debate over the Obama Health Care bill, and even if you followed it closely, the headline discussion seemed to be more on the inclusion of millions of uninsured citizens, the penalties for not being insured, etc., vs. the fact that this is a noticeable income tax increase on investment income.

For those who have an adjusted gross income of $200k ($250k for joint returns) or more, the number on the bottom of the first page of your 1040, which comes before itemized deductions, charitable gifts, or personal exemptions, there is a +3.8% uncapped tax applied on all investment income (capital gains, interest, dividends, etc.), plus an obscure provision of the code known as the Pease, which reduces the value of itemized deductions, adding another +1.2% to the tax rate.

Be aware that if the current "Bush tax cuts" are not extended, the current long-term capital gains tax rate of 15% will go up by two-thirds to 25% beginning 1/1/2013. The top rate on dividends will nearly triple from 15% to 44.6%!! Ouch.

Unlike Social Security taxes, which are capped, the Health Care tax is uncapped. The mouthy Warren Buffett is finally getting his wish – paying more than a 15% tax rate. Instead of just writing a check for more, which he is certainly welcome to do, as an advisor to the administration, he probably had some influence on getting it applied to all higher-income Americans.

As you know, I am not a tax attorney nor an accountant, so am sending this as a heads-up, and if it is relevant to you, you should confirm the details with your tax advisors.

On the topic of throwing up more tax roadblocks, here's one from overseas… sent along in an email from our own Vedran Vuk. In Vedran's own words…

"Most of the time when we think about raising taxes, it's the threat of millionaires leaving. We don't usually think about them not coming to a country. Here's an interesting case of Zlatan Ibrahimovic signing a soccer contract for 14 million euro per year. If the new tax goes through in France, he will be taxed for 75% over the first million euros. If the tax does go through, good luck attracting multi-million-earning players to France. A lot of people in the 99% will be pretty unhappy when all of their sports teams become horrible as a result of the tax.

"Here's the link to the story on Bloomberg."

My favorite quote from the article is…

"Ibrahimovic will earn 14 million euros annually, sports daily L'Equipe reported. Sports Minister Valerie Fourneyron said that indicates that European football needs more regulation."

Yes, just what the world needs – more roadblocks, this time to block decisions that the football team's management believes it needs to make in order to win (and therefore attract fans, sell tickets and raise rates to sponsors).

Earlier this week, I ran into a public-high-school English teacher and asked how the education business was going these days. His response was, "Do you have four days for me to tell you all that's wrong?"

When I assured him that I did not, and that my attention span was rather limited in regards to such subjects, he foreshortened the discussion by telling me that it seems almost every month now some team or another shows up from the government in order to introduce a new teaching program or methodology.

"And the really frustrating thing," the English teacher told me, "is that none of these people has ever taught school. In fact, it becomes very clear, very quickly, that they really have no idea what they're talking about and that the new protocol was conceived by some bureaucrat with no teaching experience either."

It was rather eye-opening for me to hear such language emanating from the mouth of a public-high-school teacher – in my experience, most of the people who choose that profession are largely on board with the whole big-government thing.

Yet, it seems that more and more people are beginning to catch on to the idea that central planning is not such a great idea. It's how you end up with roadblocks where roadblocks don't belong.

It is almost a certainty that, in time, the bureaucrats and their many roadblocks will be shoved aside. I say that because there really is a limit to how long people will put up with being denied access to their fundamental rights of life, liberty and the pursuit of happiness. There is only so long that entrepreneurs will put up with having to navigate around more and more roadblocks in order to provide a product or service to consumers, when such roadblocks serve absolutely no useful purpose.

Unfortunately, the length of time required to move back towards a free market is likely to be vast. That's because there is still a considerable swath of the voting public who actually buys into the idea that government is a force for good and that without it, equality and justice would go by the wayside.

And so it is that the US and virtually all of the large economies around the world are still firmly in the grip of the notion that central planning is the only way to get to the green pastures that surely must be just over the next hill. Or, more specifically, the next round of legislation and policy machinations (read "roadblocks").

If there has ever been a starker example of the mindset of the current administration and its many followers than a comment made by President Obama this week, I can't recall it. You have probably heard this comment, but it bears repeating.

"If you've got a business, you didn't build that. Somebody else made that happen."

His point is that essentially that all human progress is due to the good work of governments. That without governments, there would be no roads to set up roadblocks on. There would be no Internet. There would be no body of case law, nor a judicial system to enforce that law. There would be no telephones.

I contend that this view of the world is essentially the opposite of the tenets of the capitalist/free-market model. In the view of Mr. Obama and his ilk, We the Sheeple are all but helpless without the government to lead us forward.

That the US government's activities as a share of GDP have gone from well under 10% at the beginning of the last century to over 40% today – and will go over 50% by the time Obamacare is fully implemented – makes it clear that this country is now operating on principles that run completely contrary to those that promote success and economic well-being.

The consequence of continuing to operate on this model will be a steady decline in the quality of life for most Americans, while favoring a ruling elite that produces nothing… except more roadblocks.

Ayn Rand will someday be celebrated as a futurist.

But how does one fight back? Grab a gun? Don't even think about it: the Second Amendment may have been intended to protect against a tyrannical government, but the actual truth is that the weaponry of the US government is so incredibly advanced at this point that even the most well-armed militia wouldn't last a minute.

Besides, shoot-ups and wars are terribly destructive and no fun to anyone except psychopaths.

So, what's the solution? On that topic, here's the first of our two guest commentaries today… from a Casey's Club member with whom I enjoy corresponding because of his shining intellect and his rare command of the English language. For his own reasons, he wishes to remain anonymous.

How to Best the Bureaucrats

By Anonymous (a Casey's Club member)

You again stimulated me to scribble when you related in the Daily Dispatch of Friday, July 13, Thomas Ricks' mad proposal to draft America's children into a kind of mind-mashing concentration camp worthy of Hitler's Germany or Meiji Japan. Just as you crisply summarize, some of the ideas of America's contemporary Left are so outré as to appear facetious, while others are already insidiously at work, with or without parental approval or knowledge. But we ignore them and their madness at our own peril and the peril of the Republic.

I thought you would like to know of or be reminded of some people who, as stealth freedom fighters of the twentieth century, have resoundingly bested both their crypto-Nazi federal and state governments. In their pilgrimage from liberty to imprisonment and back to liberty again, they endured arduous stress under nearly irresistible force that threatened the very existence of their families and way of life.

Not some kind of allegory, rather, this is a true account right out of American history, and one that every leader who is concerned to restore liberty should know by heart, whether he copies its example or not.

Because, you see, the people who triumphed did so as completely as people can in this mortal life, not as it is so often portrayed, and has been in the relatively recent mythology-iconography of Star Wars. In that fable created out of the mind of a single man (supported by a creative staff of hundreds, if not thousands), the great Death Star was destroyed (twice? In six films?) by a "lucky shot" by the series' Good Guys.

In the real, gritty, sweaty, body-odor life of the mid-twentieth century, the Death Star of overweening government was flatly nullified by men – as backed up by their families – whose decision-making was principial, not accidental, not "lucky." Morally determined to preserve what they reckoned God had given them, they persevered and eventually prevailed.

Today, this kind of behavior bemuses the public – it amazes. And well it should, given that David had a better chance of winning against Goliath, considering that he at least had a slingshot and some smooth stones. The simple folk who won against their self-declared implacable enemies of state and federal governments had no weapon but their principles and their discipline.

This, then, is the account of the education (and tax) war of the Amish of Pennsylvania against the dual Sith Lords of state and federal governments.

A peaceable people – a society in which the bearded men refuse to wear moustaches because such were worn by the military men of Switzerland (and the Netherlands) hundreds of years ago when these sects reared up and began to be noticed – the Amish refused to pay either state tax or federal Social Security, or to permit their children to be trained in government schools.

The government, in turn, ordained that these were among the worst of social Fifth Columns, undermining the very basis of statist sovereignty. Why, what would the Emperor Meiji have done had some flaky subjects of one of His Imperial Majesty's daimyos decided to reject the Education Department's latest approved textbook? HAR! No difference: Heads were decreed to roll.

Yet, in this event, the miraculous overcame the mundane; the cosmic, the banal: The Amish appeared in court, stated their disbelief and disapproval of statist education, taxation and welfare, and declared that the State of Pennsylvania and the US government were simply, flatly, wrong to demand compliance with any such ungodly nonsense. They insisted that training children would remain the family's duty and right, and that the poisonous dogmas of overweening American government would have no part in it.

Easy to say.

But of course, the court ordered government schooling and tax-paying to commence at once; the Amish said that they would in no wise comply. End of discussion.

They were, in the manner of good old American jurisprudence, found guilty as charged and sentenced to serve time in the Federal Penitentiary – presumably to become penitent for their intemperate insubordination. In an act calculated to incite flight and afford an opportunity to act with the deadly force for which both Pennsylvania's and the federal government were renowned, the prime defendants were released upon their own recognizance. They simply promised to present themselves to begin their sentences on the required dates.

Came the date, the men were all present and accounted for, each with his neighbor who had driven him and accompanied him as a spiritual and emotional bulwark in what appeared to be the beginning of bleak, lengthy imprisonments. The convicted men were indeed incarcerated.

Then came the miracle: After a relatively short while, the inimitable geniuses in the uppermost ivory towers of government began to feel a dull, gnawing anguish that what they had done was not only wrong, it was obviously wrong, and even each of the most common dolts to whom the elective franchise had been given could see this without the least reflection or hesitation.

How, in fact, could the all-knowing, beneficial, father-like (uncle Joe-like) government justify incarcerating the men folk of a community that was, above all, peaceable and harmless?

In this event, the governments could not, and the governments caved, starting with the federales. They sent craven lackeys to the incarcerated with a "deal" that had been cooked up in Washington, DC, in which these folks were provided with a "get home free" card, courtesy of the IRS and the then-nanny-state's equivalent of today's Department of Education.

At this remove – and this is certainly not any kind of "scholastic" interest of mine, nor am I able to remember all of the details after laying the subject down twenty-plus years ago – I cannot recall whether the first concession was that the Amish could legally avoid paying FICA and income tax, or whether their children could be "educated" in local one-room schoolhouses in which eighth grade would fulfill their duty to government, if not to God.

In these eight grades, the children were expected, in the case of boys, to come out knowing how to do the math to frame up a timber barn; the girls were expected to know how to figure recipes, scaling ingredients from between two to fourteen (!). They all were expected to learn the German of their fathers (Pennsylvania Deitsch) and the English they would need to go about in the world of the "English." (Their cash crops were not their grain crops – a third of which went to feed the horses and oxen used to till, plant and harvest – not the fecundity of their kitchen garden vegetables, but their livestock, the raison d'être of the Amish farm. Bartering with each other, they demanded from the English cash on the barrel head.)

The Amish one-room schoolhouse provides pretty good "training," and radically above the scandalous non-standard of modern American "education."

Absolution had been granted from FICA and federal tax based on the fiction that all the Amish did day in, day out amounted to "charity," voluntary service, and not "work." Only a government apparatchik could devise such an Animal Farm reversal of the plain truth. Therefore, no income tax could be levied on all this charity work (nor Social Security, already long since pronounced by the Supreme Court to be nothing but a tax).

Indeed, if you venture into the environs of Lancaster, Pennsylvania, today, you will find men selling fine oak dining sets, travel trailers, horse harnesses, and plant air and diesel engine repair services, all for a "donation."

Am I, in extolling the approach of these godly folk, being a goody-two-shoes, or a baddy-one-shoe?

First of all, there is a venomous point embedded in the idea that Mr. Ricks floats, namely that the American family is incompetent to say how its young shall be raised. There is considerable evidence to support such a view. But even when children are allowed to grow up like Topsy, brains turned to mush and morals turned to selfish consumerism, they are better off, and America is better off having them, than if they were to be converted into cadres of Hitler-Jungen, swarming forth to enforce the next busy-body scheme of the government power-mongers who would warm our bodies by setting our pants on fire.

Perhaps you think me holier-than-thou in extolling the moral superiority of those who forced their governments to blink by peacefully shaming them. It surely is a hard path to tread. By way of telling you a little more about me, let me remind you of a cartoon I bet you have seen many times:

In the torrid Arizona desert, a blazing sun has made a veritable inferno, flat sandy reaches, searing heat, mountains in the distance not promising anything cooler than hell itself. In the foreground, a blasted tree, so long dead as to be nearly petrified; on its single anguished limb, a pair of vultures.

The morning sears upon them unto high noon, and one turns reflectively to his partner: "Patience?! Hell! Let's KILL somethin'!"

Ah, I betray my inherently violent Scots Borderer roots – it was not for nothing that the English King's Royal (pain-in-the-arse) Uncle Duke So-and-So and the whole English army sedulously avoided my ancestral homeland, since he was well advised our folk would have whittled his force down to a nubbin… La Guerra Fría was going on elsewhere besides España. It dies hard, this yearning to live free.

David again. I've always said that we have best clients in the world, and that article again provides the proof. Do you have something you'd like to contribute? Send it my way at david@caseyresearch.com and I'll read it, though I won't always have time to respond.

War Words

Speaking of just killing something, this week the US Secretary of State, Hillary Clinton, has been wandering the world making it clear that the US has green lighted an attack on Iran. Here's just one of many references… from Ynetnews.com.

WASHINGTON – US Secretary of State Hillary Clinton discussed on Wednesday the top priorities of US diplomacy around the world, saying that Iran wants to be attacked by somebody because it would unify the Iranian public and legitimize the Islamic regime.

However, Clinton clarified in an interview with Charlie Rose and Former Secretary of State James Baker, that the US is "serious that they (Iran) cannot be allowed to have a nuclear weapon."

The Iranians can't wait to be attacked? You just can't make this stuff up. As a follow-up, the martial Mrs. Clinton told a news conference that America would "use all elements of American power" to prevent Iran from getting a nuclear weapon. I wonder why the Canadians aren't rattling their swords at the Iranians? Or the Brazilians? Or pretty much anyone? I mean, who died and made the US the Sith Lords?

Playing its part, within just minutes of learning of a suicide bomb targeting Israeli tourists in Bulgaria, the Israeli government had fingered the Iranians as the culprits. An amazing bit of forensic work, given that the attack was the work of a suicide bomber, operating in a faraway country.

Please, don't misunderstand. If I were in charge of protecting Israel, which is in a very bad neighborhood, I wouldn't hesitate a moment in trying to turn the world – and especially the world's largest military power – against my sworn enemies.

My only point is that it is clear, at least to me, that the neo-con agenda of trying to clear the Middle East of all threats to Israel is still in full gear. With Syria within a few days of regime change, Iran is pretty much on its own in the Parthenon of Evil (as the US and Israel see it).

War is, therefore, almost inevitable – because the regime there will not be allowed to stand, and there is no way they are going to go quietly into the night.

As the military planners and state department no doubt see it, once Iran is brought to heel, clearing the way to flush out the nests of recalcitrants (Hezbollah, etc.), then the Middle East will settle down into happy little clans of goat farmers.

I suspect that it won't be quite so easy,

Financials FUBAR As S&P/NASDAAPL Close Unch For The Month

Posted: 20 Jul 2012 02:28 PM PDT

Oh the exuberance. CRAAPL led the NASDAQ down heavily today as its high-beta ebullience reverted back to 'normal' and the S&P 500 and NASDAQ are closing practically unchanged for the month of July. The Dow Industrials are down 0.4% but the Dow Transports are down 2.65% - near their lows of the month. Financials have been monkey-hammered as today's offer-a-thon dragged them dramatically lower (MS/BAC -13% for the month). A late-day OPEX-inspired activity burst dragged volume up from near year lows and likely inspired the surge lower in VIX into the close (even as stocks went sideways to lower) - but still ended up 0.75vols back above 16%. Treasuries end the week down 2-3bps at the long-end and 4-5bps at the short-end with a decent rally today. The USD is up a modest 0.25% on the week - thanks to notable weakness today in EURUSD (which broke its pattern of reverting today) though dispersion was broad with AUD stronger by 1.5% and EUR weaker by 0.75% on the week. Gold and Silver are practically unchanged on the week, Copper down around 1.5% and WTI up over 5% - but only WTI is up for the month. Cross asset class correlation picked up towards the end of the day as ES caught-down to broad risk asset's less sanguine view of the world. ES ended the week up around 7pts, VIX down around 0.5 vols with financials -2.25% and Energy +3%.

The major US equity indices are unch for the month...with the Trannies lagging badly...

but Treasuries are very significantly lower in yield...

as the major financials have been pummeled this month...

With some very considerable dispersion among the sectors this week...

and for the month...

and on the week, equities remain modest winners relative to the Friday close as the rest of the QE-sensitive assets converge lower...

Correlation rose notably (more systemic risk off flows) as ES converged lower to where broad risk assets were (please ignore the gap in the data - there was a data center error)...

But Oil was the big mover on the week (and month so far) especially compared to the rest of the economically sensitive commodities...

Charts: Bloomberg and Capital Context

Bonus Chart: While all eyes were focused on Kayak's IPO - which ended well off its highs, we note that Palo Alto Networks - while well above its IPO price - ended at the lows of the day, 15% off its highs of the day, oops!

Bonus Bonus Chart: The scary echo chart....another perfectly correlated failed retest of the latest swing high to continue the correlation with last year...

Gold Seeker Weekly Wrap-Up: Gold and Silver End Mixed on the Week

Posted: 20 Jul 2012 02:17 PM PDT

Gold climbed $5.79 to $1586.79 in Asia before it fell back to $1573.80 by a little before 8:30AM EST, but it then rallied back higher in New York and ended near its new afternoon high of $1587.10 with a gain of 0.18%. Silver slipped to as low as $26.82 before it also rallied back higher and ended near its new afternoon high of $27.437 with a gain of 0.22%.

Gold and Silver Disaggregated COT Report (DCOT) for July 20

Posted: 20 Jul 2012 02:12 PM PDT

HOUSTON -- This week's Commodity Futures Trading Commission (CFTC) disaggregated commitments of traders (DCOT) report was released at 15:30 ET Friday. Our recap of the changes in weekly positioning by the disaggregated trader classes, as compiled by the CFTC, is just below.

(DCOT Table for Friday, July 20, 2012, for data as of the close on Tuesday, July 17. Source CFTC for COT data, Cash Market for gold and silver.)

In the DCOT table above a net short position shows as a negative figure in red. A net long position shows in black. In the Change column, a negative number indicates either an increase to an existing net short position or a reduction of a net long position. A black figure in the Change column indicates an increase to an existing long position or a reduction of an existing net short position. The way to think of it is that black figures in the Change column are traders getting "longer" and red figures are traders getting less long or shorter.

All of the trader's positions are calculated net of spreading contracts as of the Tuesday disaggregated COT report.

Vultures, (Got Gold Report Subscribers) please note that updates to our linked technical charts, including our comments about the COT reports and the week's technical changes, should be completed by the usual time on Sunday (18:00 ET).

As a reminder, the linked charts for gold, silver, mining shares indexes and important ratios are located in the subscriber pages. In addition Vultures have access anytime to all 30-something Vulture Bargain (VB) and Vulture Bargain Candidates of Interest (VBCI) tracking charts – the small resource-related companies that we attempt to game here at Got Gold Report.   Continue to look for new commentary directly in the charts often.

That is all for now.

Gold Daily and Silver Weekly Charts - Coiling for an Imminent Move

Posted: 20 Jul 2012 02:09 PM PDT

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

The Great Demise: EUR at Two-Year Low

Posted: 20 Jul 2012 01:55 PM PDT

The Great Demise: EUR at Two-Year Low
Justin Burkhardt | July 19, 2012

Strength is fading. Parity is visible. Reform is the only option. European markets are tumbling and the euro has slipped to record lows against several major currencies. The market is in reaction mode responding Spain and Greece in the headlines.

Investors have cast their doubts that the debt-ridden nation of Spain can avoid another full-blown bailout after Valencia, the third largest city in Spain, called out for aid from Madrid. Spain continues to march towards its fiscal demise, while Greece stands perched at the edge of its own fiscal cliff – Which country will be the first domino?

The European Central Bank's have announced that they are suspending the eligibility of Greek bonds as collateral.

After a brief respite, Spain's borrowing costs have once again breached the unsustainable level of 7 percent; and there are not signs of relief any time soon. Meanwhile, the country's credit rating is being pushed further into "junk territory" as Egan-Jones aggressively downgraded Spain for the sixth time since mid-April. Egan-Jones's newly adjusted rate is a double-C-plus which is a downgrade from a triple-C-plus. According to Egan-Jones, Spain's probability of default in the next year is 35%.

The ECB's decision to suspend Greek bond eligibility resulted from the upcoming expiration of a Greek bond swap that was launched earlier this year. Greek sovereign bonds "will become, for the time-being, ineligible for use as collateral in euro-system monetary policy operations," said the ECB. This decision may not be permanent, as the ECB has stated that they will reassess bond eligibility once experts have reviewed Greece's progress in meeting the conditions set within their bailout program.

These events have set fire to the streets and investors are quickly fleeing the scene.

The euro plummeted to record lows against the Australian, Canadian and New Zealand dollar; and is falling fast against the U.S. dollar reaching a low of $1.2143 this morning.

This move should not come as a surprise to any of my readers. I have been short on the EUR.USD since its consolidation back in May of 2012 at $1.31 and have projected that the first leg of this decline would send it to the $1.19 region.

Your on point currency analyst,

Justin Burkhardt
Editor & Currency Strategist
FXFocus.com | @JDBurkhardt

Dislaimer: I have not position in any stocks listed above and do not plan on entering the market within the next 48 hours.

Weekly Bull/Bear Recap

Posted: 20 Jul 2012 01:40 PM PDT

Via Rational Capitalist Speculator,

Weekly Bull/Bear Recap: Jul. 16-20, 2012

Bull

+ Housing continues to show signs that the worst is finally over and that the recovery is slowly gaining strength. Improvement on the margin is becoming clear. The NAHB Housing index rises by the most since 2002 to its highest reading since 2007. Housing starts rise to their highest since October 2008 and are up 40% over the past 18 months (permits remain in an uptrend). Higher starts than completions signal that job creation is coming soon as the latter catches up. Meanwhile, refinancing through the HARP program is gaining momentum, leading to improved income streams for many consumers.

+ Manufacturing remains a sturdy sector for the U.S. recovery. Despite a negative reading in the ISM's latest survey, the hard data tells a different story. Total output rises 0.4% in June, led by a 0.7% rebound in manufacturing, to a new post-recovery high and more than reversing a decline of 0.2% in the prior period. Output has expanded for 29 consecutive months. YoY rates for Industrial and Manufacturing Production are 4.7% and 5.6% respectably, still reasonably healthy. Production of business equipment remains in solid growth territory.

+ Global economic activity is stabilizing and growth is set to resume in the coming months. China has begun preparations for additional spending/stimulus and copper is starting to sniff this strengthening development (3-Mth chart view is best). The country's housing market is already heating up. Meanwhile, Italian Industrial Orders are stabilizing, rising by 1.7% in May, offsetting a 1.8% drop in the prior month. Moreover, Spanish Industrial New Orders also came in better than expected; the country's OECD leading indicator shows stabilization in the coming months.

+ The U.S. economy is dynamic and is transforming before our very eyes. Exports, shale gas/oil investments, and oil discoveries are new fountains of growth. Consumer deleveraging has come far and home prices are enticing for long-term investment. Furthermore, China is finally embarking on the path towards becoming the next world's consumer. This is undoubtably bullish.

+ Risk assets are holding up well, even as investors are concluding that QE3 may not be forthcoming. Furthermore, short-interest is at levels preceding powerful bullish moves, such as in Q3 2011: "To the extent people have gone short U.S. domestic equities, I think they're kind of wasting their time" — Michael Shaoul. Continued bearishness means there's a wall of worry to climb…

+ …Furthermore, earnings reports from international companies have surpass expectations. Continued signs of stabilization in global economic conditions will lead to higher stock prices. Tech has been buoyant even in the face of all the sour macro news. The market's reaction to the news is more telling than the news itself.

Bear

- In Spain, home prices are absolutely imploding, bad loans are mushrooming, and bank deposits are dwindling. Valencia signals distress and taps assistance from the government. The results? A Spanish Treasury official says there's "no money left to pay services" and sovereign bond prices collapse (so much for the summit); 100 billion euros will not be enough to shore up Spain's banking system. Meanwhile the ECB reverses its position and now advocates imposing losses on senior bondholders of slumping financial companies. The threat of losses is the pin to pop the "Moral Hazard Bubble." Meantime, Germany says sovereigns will still be responsible for bailout money; the country's economic sentiment report falls for the 3rd consecutive month; and Deutsche-marks are making a comeback. Moreover, 13 Italian banks are downgraded by Moody's. The Eurozone has already split according to intra-bank capital flows.

- The U.S. economy is entering a recession. The consumer is faltering, evident by the third consecutive drop in headline and core retail sales, both falling for the third consecutive month, the first time that's happened since the dark days of 2008 (weekly consumer metrics don't point to a rebound in the immediate term). Meanwhile, the job market looks to be headed south as per a plunging employment sub-index in the Philly Fed's manufacturing report as well as the National Association's for Business Economic report on hiring trends. These trends are confirmed by both the Gallup Poll's U.S. Economic Confidence Indicator and the Conference Board's U.S. Leading Indicator. Continued suffering in the middle to lower-class is slowly creeping to its breaking point.

- Bernanke warns on the assumption that funny money will cure all ills (in fact, the "unintended consequences" of ZIRP are clearly making things worse). The looming fiscal cliff as well as weakness in Europe are together critically damaging confidence. Both must be resolved he says. Unfortunately, "it's out of our hands," which means that the Fed would be powerless to stop the oncoming contagion from a Eurozone implosion or a crisis of confidence from continued political bickering —likely to lead right up to the final hours. Meanwhile, how on earth can the bulls say there's high bearishness out there when the VIX just recently leaked under 16? This sticks of complacency — there's continued misplaced hope that Europe will get things done and that China will stimulate the global economy back into recovery.

- Continued uncertainty in Europe is negatively affecting global business sentiment. The IMF slashes its global growth forecast, while foreign investment in China falls almost 7% YoY in June. Premier Wen sure sounds more worried than bullish analysts banking on a second-half rebound. Global bellwethers are sounding the alarm of a slowing business environment.

- Geopolitics continues to cast its shadow over the faltering global economy. Syria is now officially in a "non-international armed conflict," or civil war; Russia reaffirms its support for al-Assad. Meanwhile, the Middle East is fast turning into a proxy war among the mightiest. Israel vows a response against "a global campaign of terror carried out by Iran and Hezbollah" after 5 Israelis are killed in a bus explosion in Bulgaria. Finally, the thinly covered South China Sea dispute isn't going away.

- Housing prices have not bottomed, not when you have rising shadow inventory, stagnant purchase applications, and an unclogging foreclosure pipeline. But keep on building those houses .

————————————————————-

Tons of info. Want to know how I see things? Check out my macro and market outlooks.

“We are talking here about a run on the bullion bank. As this unfolds there will be a failure. These people will only receive the fixed price before trading is halted. This will not be called a default. Then there will be a massive gap in the price o

Posted: 20 Jul 2012 01:38 PM PDT

London Trader – The LBMA Gold Price Fixing Scheme Is Over

COT Gold, Silver and US Dollar Index Report - July 20, 2012

Posted: 20 Jul 2012 01:32 PM PDT

COT Gold, Silver and US Dollar Index Report - July 20, 2012

MineWeb notes Jim Sinclair's call to arms against market manipulation

Posted: 20 Jul 2012 01:32 PM PDT

3:30p ET Friday, July 20, 2012

Dear Friend of GATA and Gold:

Jim Sinclair's call this week to gold and silver investors to fight back against market manipulation (http://www.jsmineset.com/2012/07/19/a-call-for-an-international-real-inv...) is noted today in commentary by MineWeb's Lawrence Williams, who mentions GATA's role in the fight. Williams' commentary is headlined "Jim Sinclair's Call to Arms against the Organised Criminals Who Manipulate Global Markets" and it's posted at MineWeb here:

http://www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=155494&sn=D...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Sona Discovers Potential High-Grade Gold Mineralization
at Blackdome in British Columbia -- 13.6g over 1.5 Meters

From a Company Press Release
November 22, 2011

VANCOUVER, British Columbia -- With its latest surface diamond drilling program at its 100-percent-owned, formerly producing Blackdome gold mine in southern British Columbia, Sona Resources Corp. has discovered a potentially high-grade gold-mineralized area, with one hole intersecting 13.6 grams of gold in 1.5 meters of core drilling.

"We intersected a promising new mineralized zone, and we feel optimistic about the assay results," says Sona's president and CEO, John P. Thompson. "We have undertaken an aggressive exploration program that has tested a number of target zones. Our discovery of this new gold-bearing structure is significant, and it represents a positive development for the company."

Sona aims to bring its permitted Blackdome mill back into production over the next year and a half, at a rate of 200 tonnes per day, with feed from the formerly producing Blackdome mine and the nearby Elizabeth gold deposit property. A positive preliminary economic assessment by Micon International Ltd., based on a gold price of $950 per ounce over eight years, has estimated a cash cost of $208 per tonne milled, or $686 per gold ounce recovered.

For the company's complete press release, please visit:

http://www.sonaresources.com/_resources/news/SONA_NR18_2011-opt.pdf

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Thursday-Friday, September 27-28, 2012
Toronto Sheraton Centre Hotel
Toronto, Ontario, Canada
http://www.cambridgehouse.com/event/toronto-resource-investment-conferen...

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Wednesday-Saturday, October 24-27, 2012
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http://www.neworleansconference.com/

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Prophecy Platinum Announces Wellgreen Preliminary Economic Assessment:
38% Pre-Tax IRR, $3.0 Billion NPV, and a 37-Year Mine Life

Company Press Release

VANCOUVER, British Columbia, Canada -- Prophecy Platinum Corp. (TSX-V: NKL, OTC-QX: PNIKF, Frankfurt: P94P) reports the results of an independent NI 43-101-compliant preliminary economic assessment for its fully owned Wellgreen nickel-copper-platinum group metals project in the Yukon Territory.

The independent assessment, prepared by Tetra Tech, evaluated a base case of an open-pit mine (with a mining rate of 111,500 tonnes per day), an on-site concentrator (with a milling rate of 32,000 tonnes per day), and an initial capital cost of $863 million. The project is expected to produce (in concentrate) 1.959 billion pounds of nickel, 2.058 billion pounds of copper, and 7.119 million ounces of platinum, palladium, and gold during a mine life of 37 years with an average strip ratio of 2.57.

The financial highlights of the preliminary economic assessment, shown in U.S. dollars, are as follows:

Payback period: 3.55 years
Initial capital investment: $863 million
IRR pre-tax (100% equity): 38 percent
NPV pre-tax (8% discount): $3 billion
Mine life: 37 years
Total mill feed: 405.3 million tonnes
Mill throughput: 32,000 tonnes per day

Prophecy Chairman John Lee says: "We are pleased with the preliminary economic assessment results. The numbers indicate that Wellgreen is one of most exciting mineral projects in the Yukon. The company is drilling to upgrade and expand the resource base. The infrastructure is excellent as the project is only 1,400 meters in altitude and 14 kilometers from the paved Alaska Highway, which leads to the Haines deep seaport. Discussions are under way with support from local stakeholders regarding permitting and logistics."

For the complete press release, please visit:

http://prophecyplat.com/news_2012_june18_prophecy_platinum_announces_res...

Why Won't Fine Art Collapse?

Posted: 20 Jul 2012 01:31 PM PDT

What were once merely baubles are now being touted as investment necessity. The oddest thing about today's Great Depression? asks Adrian Ash at BullionVault. The lack of a collapse in the art market. Read More...

The Weaponization of Economic Theory

Posted: 20 Jul 2012 01:23 PM PDT

This is an excellent article by Michael Hudson. The very end is a powerful commentary on the neoliberal ideology, defined in Wiki as "based on the advocacy of economic liberalizations, free trade, and open markets. Neoliberalism supports privatization of state-owned enterprises, deregulation of markets, and promotion of the private sector's role in society. In the 1980s, much of neoliberal theory was incorporated into mainstream economics."

This doctrine has been used to shift power, money and other resources to the members at the very top of our society, with great support from the non-top who have been successfully misled into thinking they are supporting an equitable system. It's not, at the very foundations. If you read nothing else, read the final section in which Michael explains why neoliberalism is a weaponization of economic theory - a "doctrine of power and autocracy combined with deregulation and dismantling of democratic law" - aimed at replacing the government's power to protect the people with an oligarchic power to oppress them. It is not about free markets and free trade, as the terms were traditionally used by economists. It is about central planning by financial centers, and it requires deregulation and a tax structure favoring banking and financial institutions, and their major customers, real estate interests and monopolies. We have that now.

Michael argues that "the result is a doctrine of financial war not only against labor but also against industry and government. Gaining the financial power to indebt economies at increasing speed, the banking and financial sector is siphoning resources away from the real economy. Its business plan is not based on employing labor to expand output, but simply to transfer as much of the existing flow of revenue as possible into its own hands, by capitalizing all such revenue into interest payments, on loans collateralized and pledged to creditors." In his conclusion, Michael compares our state to the economic polarization characterizing ancient Rome before its ruin. ~ Ilene

The Weaponization of Economic Theory

Courtesy of Michael Hudson

Europe's three needs: a debt write-down, a real central bank, and a more efficient tax system

Brussels Talk, Madariaga College, Governing Globalisation in a World Economy in Transition, June 27, 2012

What can Europe learn from the United States?

First, the United States – like Canada, England and China – have central banks that do what central banks outside of Europe were created to do: finance the budget deficit directly.

I have found that it is hard to explain to continental Europe just how different the English-speaking countries are in this respect. There is a prejudice here that central bank financing of a domestic spending deficit by government is inflationary. This is nonsense, as demonstrated by recent U.S. experience: the largest money creation in American history has gone hand in hand with debt deflation.

It is the commercial banks that have created the Bubble Economy's inflation, from North America to Europe. They have recklessly lent mortgage credit and other credit far beyond the ability of domestic economies to pay. A real central bank can create credit on its electronic keyboards just as easily as commercial banks can do. But central banks do not create credit for speculative purposes. They do not make junk mortgages based on "liars' loans" (the liars are the banks, not the borrowers), based on fictitious evaluations by crooked appraisers, and sold fraudulently to investment banks to package and sell to gullible Europeans, pension funds and other customers.

In short, there is no need for the present austerity. If Europe acted like the United States, it could bail out the banks.

But would this be a good thing? My second point is that there are good reasons not to fund a dysfunctional debt overhead, financial and tax system. It is preferable to change these systems.

In the United States, Paul Krugman has urged the Federal Reserve to simply lend banks an amount equal to their bad loans and negative equity (debts in excess of the market price of assets). He urges a "Keynesian" program of spending to re-inflate the economy back to bubble levels. This is the liberal answer: to throw money at the problem, without seeking structural reform.

The Bank for International Settlements (BIS) disagreed last week in its annual report. It said – and I believe that it is right – that monetary policy alone cannot solve an insolvency problem. And that is what Europe has now: not merely illiquidity for government bonds and corporate debt, but insolvency when it comes to the ability to pay.

In such circumstances, the BIS explains, it is necessary to write down the debt to the amount that can be paid – and to undertake structural reforms to prevent the Bubble Economy from recurring.

The Canadian postal workers union has an informal slogan: "A job that's not worth doing is not worth doing well." I might apply this to Europe by saying that a badly structured economy is not worth subsidizing or saving. It should be made well.

This entails, for starters, writing down the debt overhead. That is what created the German Economic Miracle of 1948: the Allied Monetary Reform that wiped out debts over and above minimum working balances, and wages debts owed by employers to employees. It was easy to write down debts that were owed to Nazis. It is much harder to do so when the debts are owed to powerful and entrenched institutions – especially to banks.

Take the case of a Greek debt writedown. This would hurt the Greek banks first and foremost, and also more innocent German insurance companies and banks.I have a modest suggestion as to how to handle this. First, let the Greek banks go under. They helped stymie the Greek government's attempt to stop tax evasion and money laundering. They have been described as co-conspirators and corrupt. Of course their depositors should be made whole by a standardized, public bank insurance scheme. But bank bondholders and stockholders, and even non-insured depositors, are another matter.

As for the German institutions, if a Greek Clean Slate pushes them into insolvency, the German Government should do what the U.S. Federal Deposit Insurance Corp. (FDIC) is empowered to do: take them over, make all the depositors and policy holders whole, and operate these institutions as a public option – either temporarily or permanently.

The alternative is austerity and debt deflation that will leave European markets shrinking, living standards falling, and turn Europe into what U.S. Defense Secretary Rumsfeld has said so often: "Old Europe," as if it is too late to be saved. Any discussion of the U.S. economy necessarily involves the global context. So it is necessary to discuss not only domestic U.S. developments, but also relations with Europe and the BRICS countries.

The most important dynamic is financial. A continued decline in real estate prices, coupled with local government debts, has led to debt deflation. As personal and corporate income are diverted to pay debt service, spending on new consumption and investment goods is cut back. Sales and employment opportunities are falling off, especially for new entrants into the labor force. Major categories of debt cannot be repaid in Europe and the United States, except by foreclosures transferring property to creditors. Short-term financial aims overshadow the long-term adjustments that ultimately will be needed: debt writedowns in the public and private sectors. The alternative to this "business as usual" scenario is for the U.S. and European economies to look increasingly like the Baltics – austerity aggravating economic shrinkage.

The U.S. Government as well as European governments have taken bad bank debts onto the public balance sheet. This is not a problem for the United States, whose Federal Reserve can simply create the credit to roll over its debt. But for Europe, public debts simply cannot be paid under current central bank constraints. Instead of changing the central bank rules, the European Union is willing to plunge the continent into depression and economic shrinkage.

U.S. Austerity and deeper Negative Equity

The U.S. economy is free of the monetary constraint that Europeans impose on themselves. The Federal Reserve does what central banks are supposed to do: monetize government deficit spending by buying public debt. However, the increase in new government debt creation has not been mainly to finance deficit spending to increase economic activity and employment, to invest in rebuilding the nation's infrastructure or providing states and cities with the revenue sharing that in the past enabled them to balance their local budgets. Instead, the government has created debt in an attempt to re-inflate real estate markets back toward Bubble Economy levels. The idea was for the economy to "borrow its way out of debt."

In practice, there was not much hope of success. The banks sent the $800 billion of Federal Reserve's Quantitative Easing (QE2) in 2012 abroad, mainly to the BRICS economies in the form of interest rate and currency arbitrage. The banks' idea was to earn their way out of their own negative equity, but not by lending to a real estate market whose prices continue to decline. This is forcing more properties into negative equity – and that leaves the banks themselves in a negative equity position. So there is little new lending for real estate, to consumers, or to business. Markets are being shrunk by debt deflation.

States and cities also face a shrinking tax base, and many are subject to constitutional requirements for balanced budgets. The path of least resistance has been to underfund their pension plans – which have fallen far behind, especially inasmuch as most plans assume an 8% annual rate of return. This rate – assuming a savings doubling time of just nine years – has become even more fictitious today than it was a decade ago. So some localities have taken risks and lost – with their loss being the counterpart to earnings by the largest banks on derivatives.

The bottom line here is that the U.S. economy is not in a position to "borrow its way out of debt." The outlook thus is for a similar austerity to that of Europe.

Financial fraud has been effectively decriminalized in the United States. In a nutshell, people have lost trust in the banks – and the financial sector itself mistrusts its fellow institutions. So the non-bank money market funding has dried up for business, and individuals are afraid to invest in the stock market.

President Obama retains his progressive rhetoric, but actually is neoliberal. (His Senate mentor was Joe Lieberman who helped him go for the money and choose Rubinomics advisors.) Mitt Romney pretends to be a right-wing extremist, but seems reasonable on economic policy. However, he may feel under pressure to support right-wing Republican lobbyists in the Congressional leadership. Even if he does, there will not be much difference from the Obama administration. The U.S. situation thus is much like that of Britain under Labour party leadership in recent years: centrist or even left-wing rhetoric on social policies, but neoliberal financial policy favoring the banks.

BOTTOM LINE: Neither the U.S. nor European economies can "grow their way out of debt." Their debt deflation will worsen, and their budget deficits will widen.

The U.S. Political Outlook

As in Europe, there is little alternative from the ostensible left – from the Democratic Party, the labor unions and allied interests. President Obama seems likely to win this November's presidential elections, and he is a neoliberal – probably more so than the Republican candidate Mitt Romney.

The common backers of the Republican and Democratic Parties – mainly, Wall Street and real estate interests – realize that a Democratic President is in a better position than a Republican to neutralize Congressional or Senate opposition to scaling back and privatizing Social Security and Medicare. Democratic politicians are more likely to counter Republican proposals along these lines than proposals put forth by their party's own president. The situation is much like Tony Blair out-Thatchering Britain's Conservatives in trying to privatize British rail and tube infrastructure and promoting the Public-Private Partnership plan. This is essentially the Rubinomics position supported by the Democratic leadership.

Many voters simply will stay home, so Mr. Romney may have a chance to win, based on support in the South and the West – and even perhaps some Midwestern swing states. In either case, the 2013-16 administration looks like it will be a bipartisan neoliberal austerity.

From the U.S. vantage point, Europe is a dead zone. It looks to me like financial and fiscal self-destruction.

There would be some hope for progress if the financial crisis was used to clean up bureaucracy and shift the tax system off the cost of living and doing business to a land tax on economic rent. This would prevent a new real estate bubble from developing, by holding down the "free" site value that could be capitalized into bank loans. This would lower the cost of housing, and also free employment from taxation. And it could go hand in hand with reducing the size of the Greek bureaucracy, for instance.

But I don't see this happening in Europe. So financial austerity is likely to aggravate the budget deficits rather than help them. European economies are likely to grow "surprisingly" less than forecasts suggest, and news media will report this as "unanticipated slowdown" "to everyone's surprise" and so forth.

The likely political reaction in Europe is likely to be a nationalistic opposition to relinquishing government power. But this opposition is likely to come more from the right than from the left of the political spectrum. This is what is so striking about today's political situation both in Europe and the United States: the failure of the left to provide an economic alternative, and of the right to reform the tax system and corruption.

BOTTOM LINE: The U.S. trade balance may improve as consumer budgets are squeezed, limiting imports, and as domestic shale gas cuts import demand. But capital inflows are unlikely to increase. And until interest rates begin to rise, capital outflows will continue (much as was the case in Japan after 1990). The U.S. is thus suffering a "Japan syndrome."

Increasing global fracture into regional blocks

Instead of international "cooperation," I see a regional rivalry among blocs polarizing between the U.S.-centered NATO bloc and the BRICS, expanding their influence. Europe looks pretty much left out, as its markets are not growing and it is not a prime investment area. The BRICS countries are likely to start erecting capital controls against easy-credit policies in the United States funding a takeover of their assets.

Financial flows and capital flight are putting upward currency pressure on the BRICS at the expense of the euro and the dollar. If the euro does not decline against the dollar, it is largely because both currencies are equally weak together and share similar problems. Both economies will shrink, leading to more insolvency for real estate and also for government budgets. This Euro-American shrinkage is likely to spur moves in China and other BRICS to rely more on growth of their internal market. China's wage levels are likely to rise, prompting production to aim more to satisfy domestic consumer demand than foreign export demand.

The main problem for China is that one of the first expenditures of families with rising revenue is to buy autos. The government's response is to invest more in public transportation, and is likely to impose an environmental tax. More dispersion of urban centers is likely in order to minimize transportation costs – and more infrastructure spending in general.

Capital controls are likely, and also a denomination of foreign trade and investment in BRICS currencies rather than the U.S. dollar or euro. This tendency will accelerate if U.S. and European military policy continues to expand into Asia and other regions. As matters look at present, U.S. military diplomacy will focus more on trying to recover influence in Latin America, including privatization of key infrastructure to buyers (on credit) who will engage in rent extraction, adding to the price level. The result of debt deflation is thus to raise the cost of living and doing business for much of the economy, squeezing labor and commerce alike.

These policies are likely to be characterized as "muddling through." This means postponing what looks like the inevitable end game: a large write-down of government debt, a shift away from the dollar as global currency (quite possibly with a re-introduction of gold to settle balance-of-payments deficits). Diplomatically, these changes will constrain U.S. military spending, while pressuring Europe to re-orient its geographic focus if it is to resume economic growth and pull itself out of a feedback of debt deflation, unemployment and even emigration.

The neoliberal challenge

The term "neoliberalism" misrepresents and even inverts the classical liberal idea of free markets. It is a weaponization of economic theory, kidnapping the original liberal ethic that sought to defend against special privilege and unearned income. To classical economists, a free market meant one free of unearned income, defined as land rent, natural resource rent, monopoly rent and rent-extracting privilege. But to neoliberals a free market is one free from taxes or regulation of such rentier income, and indeed gives it tax favoritism over wages and profits.

Neoliberalism and neo-conservatism are complementary doctrines of power and autocracy combined with deregulation and dismantling of democratic law. The aim is to replace government power as used to protect the people with an oligarchic power to oppress the people.

Today, the neoliberal aim is to cripple government power, enabling a free-for-all for the financial sector. Protecting civil freedoms are also heavily signposted, but the high price of legal representation is a barrier for most. A doctrine primarily of the financial sector, the aim is to un-tax banks and financial institutions and their major customers: real estate and monopolies.

Neoliberalism is a doctrine of central planning, which is to be shifted from governments to the more highly centralized financial centers. This requires disabling public power to regulate and tax banking and finance. As a transition, ideological deregulators such as Alan Greenspan and Tim Geithner have been appointed to the key regulatory positions in the United States.

The result is a doctrine of financial war not only against labor but also against industry and government. Gaining the financial power to indebt economies at increasing speed, the banking and financial sector is siphoning resources away from the real economy. Its business plan is not based on employing labor to expand output, but simply to transfer as much of the existing flow of revenue as possible into its own hands, by capitalizing all such revenue into interest payments, on loans collateralized and pledged to creditors.

The effect is no more democratic than the Roman democracy, which arranged voting by "centuries" headed by the largest landowners – essentially an acre-per-vote, to make an analogy. In the U.S. case, votes are bought not by land as such, but by dollars – mainly from the financial sector. In the end, to be sure, most dollars come from rent extraction.

The result must be economic polarization, above all between creditors and debtors as in Rome. So the end stage of neoliberalism threatens a Dark Age of poverty/immiseration – most characteristically, one of debt peonage. And just as Rome's creditor class and its predatory imperial expansion brought down the Roman Empire and reduced it to mere subsistence, so the combination of neoliberalism and neo-conservatism today seeks to globalize itself, spreading austerity even as it brings technological progress to sovereign debtors.

LBMA's gold price fixing scheme about to collapse, London trader tells KWN

Posted: 20 Jul 2012 01:07 PM PDT

3p ET Friday, July 20, 2012

Dear Friend of GATA and Gold:

The London trader source of King World News reports today that the nakedness of unallocated and even some supposedly allocated positions in the London bullion market now is being discussed openly and he expects defaults resulting in cash settlement as the prices of gold and silver vault higher. He adds that demand from China is steady and that China has accumulated far more metal than is being reported. An excerpt from the interview is headlined "The LBMA Gold Price Fixing Scheme Is Over" and it's posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/7/20_Lo...

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

How to Minimize Risk and Increase Returns on Juniors: Joe Mazumdar

Posted: 20 Jul 2012 12:50 PM PDT

The Gold Report: Let's cut to the chase, Joe. With the stock prices of gold mining companies in free fall during the past year, why should gold investors stay the course? Joe Mazumdar: One of the underlying fundamentals driving the gold equity market is what investors believe about the future supply and demand for gold. With respect to supply, global gold production has grown at a compound annual growth rate (CAGR) of 3% over the past four years despite a 15 –17% CAGR increase in the gold price over the same period. We note the risk of constraints on future production, which include the paucity of large deposits for majors to replete their reserve base, operating and capital cost escalation, skill set shortage and increasing geopolitical risk, not to mention the current financing environment. [INDENT] Related Articles: Gold Juniors Poised to Rebound: Joe Mazumdar Gold Producers in the Catbird Seat: Jay Taylor Mining Equity Bargains Abound, But Buy with Care: Ivan Lo [/INDENT]...

Save Your ASSets First

Saturday, July 21, 2012