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Saturday, August 18, 2012

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Greg Weldon Provides Macro Update, incl Gold & Silver

Posted: 18 Aug 2012 11:18 AM PDT

Greg Weldon

Weldon Financial was founded by Gregory Weldon in 1997, and is recognized within the industry as one of the top macro-research firms in the world.

Greg Weldon started his Wall Street career working in the Comex Gold and Silver Pits after graduating Colgate University. He progressed as an institutional sales broker at Lehman and Prudential before joining Moore Capital as a proprietary trader. At Moore, Greg honed his systematic trading methodology and risk management discipline before joining Commodity Corporation where he became one of their top risk-adjusted money managers.

Today, he publishes Weldon's Money Monitor, The Metal Monitor and The ETF Playbook in addition to operating his Managed Futures Account Program as a CTA. He has a unique ability to define and forecast the market's direction through his proprietary dissection of fundamental and technical market data. Few publications offer the wide scope offered within the macro-perspective presented by Greg, and few newsletters so fluidly combine fundamentals, technical analysis, inter-market examinations, psychology, and intuitive insights as does Weldon's Money Monitor… stacking macro-trends against the micro-evolution taking place. Weldon Financial is now a highly regarded and profitable publishing company, having garnered some of the world's most respected fund managers as loyal and daily readers.

Greg has been featured on CNBC Power Lunch and Fast Money, Moneytalks on the Corus Radio Network, Bloomberg radio and has been featured, as a global macro speaker, at several international financial conferences and mentioned in several articles and investment websites. Greg published, Gold Trading Boot Camp, How to Master the Basics and Become a Successful Commodities Investor, in late 2006 in which he predicted the current global credit crisis and discussed the impact on GOLD from intensified central bank debt monetization.

Click Here for a Free Trial

TDG Discusses Gold & Silver

Posted: 18 Aug 2012 11:16 AM PDT

We were interviewed by Rahul of Alt-Investors Hangout. Check out his other interviews here.  Our interview follows….

what happened with the platinum group Friday?

Posted: 18 Aug 2012 10:57 AM PDT

Book Review: Bailout, By Neil Barofsky

Posted: 18 Aug 2012 07:15 AM PDT

Costco: A Value Proposition For Investors And Customers Alike

Posted: 18 Aug 2012 05:47 AM PDT

By Justin Weinstein:

In a world where retail is constantly changing and external factors like the internet are impacting how consumers shop, the top five retailers in America must fight for every dollar in order to keep Wall Street satisfied. Over the past several years, retail in America has changed dramatically. Target Corporation (TGT) and Wal-Mart Stores, Inc. (WMT) have entered the field of food through PFresh and the Supercenter, respectively, and Costco Wholesale Corporation (COST) has continued to grow market share and loyalty within its markets, while simultaneously increasing its geographic footprint.

In this changing landscape, retailers like Kroger Co. (KR) have faced a difficult challenge of maintaining market share in the face of competition from Amazon.com, Inc. (AMZN), TGT, WMT, and COST - all which were not the threat they are today only three years ago. Though in a different vein than the aforementioned, Home Depot, Inc. (HD) has had to


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HFT Tail Wagging The Silver Price Dog

Posted: 18 Aug 2012 05:34 AM PDT

By Jeffrey Lewis:

The use of High Frequency Trading (HFT) computer systems to execute large deals rapidly in electronic markets typically allows their users to take advantage of short-lived pricing disparities in large size.

Furthermore, the growth of HFT in the silver derivatives market is exerting an ever-increasing influence on the price of physical silver. Unfortunately, the hedge fund crowd is now often mindless, relying on computers to do their thinking for them.

These imperfect but rapid trading systems evolved to exploit markets that were originally intended to create a fair place to discover price and generate capital and funding for business. Now that the human element is increasingly being replaced by computer programs, the HFT process has morphed into the game of picking up pennies in front of a steam roller.

Another highly undesirable result of HFT is that it can cause and exacerbate mini flash crashes, which can increase volatility by


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Central Bankers Continue To Control Markets; Time To Audit The Fed

Posted: 18 Aug 2012 05:27 AM PDT

By Thomas J. Feeney:

Spending time in Italy provides me with an interesting perspective on the unfolding eurozone drama. Anecdotal discussions with Italians uncover a firm conviction that the Euro will survive, because it has to. Since the collapse of the Euro would be catastrophic, it won't be allowed to happen. Such thinking indicates a profound belief in the power of governments and central bankers to control policy and to overcome deteriorating fundamentals.

Central bankers are doing their utmost to justify and encourage that belief. Having shot all of their traditional policy arrows, they have resorted to non-traditional approaches and are relying heavily on a carefully timed and coordinated program of jawboning.

News releases and speculation on the part of such columnists and commentators as Jon Hilsenrath and Steve Leisman serve the purpose of supplying the public with desired information or innuendo between actual Federal Reserve announcements. European and Chinese leaders have also raised


Complete Story »

Treasury Forces Fannie And Freddie Portfolio Reduction

Posted: 18 Aug 2012 04:45 AM PDT

By Michael Terry:

Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) are the two largest outstanding issues from the housing collapse and subsequent financial bailouts.

Investors might recall that at the time the agencies were ushered into conservatorship, the plan was to shrink the balance sheets of these mortgage goliaths to reasonable levels and transfer some of the mortgage business back to the private sector. Since that time, we have seen the balance sheets of these giants continue to grow and encompass more of the total mortgage market in the United States. On Friday (8/17), the Treasury put its foot down and changed the terms of the bailout. Specifically, they changed the definition of dividend and the agencies portfolio reduction.

From the Treasury's release:

Accelerated Wind Down of the Retained Mortgage Investment Portfolios at Fannie Mae and Freddie Mac: The agreements require an accelerated reduction of Fannie Mae and Freddie Mac's investment portfolios. Those

Complete Story »

Resurrect Your Income Portfolio With 10.25% StoneMor Bonds

Posted: 18 Aug 2012 04:40 AM PDT

By Randy Durig:

Resurrect your income portfolio with these high yielding bonds from StoneMor Partners L.P. (STON), an owner and operator of cemeteries and funeral homes in the United States and Puerto Rico. Each week, we search for what we believe to currently be the best corporate bond for investors needing or seeking higher yields with the least amount of risk as possible relative to its projected return. The following is our review showing why we believe this about 5-year, 10.25% yielding, US dollar bond passes the criteria for our clients, and why we have selected it for addition to other high yielding corporate bonds in their investment portfolios.

A look at the issuer

StoneMor Partners L.P., together with its subsidiaries, engages in the ownership and operation of cemeteries in the southeast, northeast, and west regions of the United States. It offers funeral and cemetery products and services in the death care industry,


Complete Story »

Platinum Mine Violence Impact - Could it Spread to Gold Mines Too?

Posted: 18 Aug 2012 04:31 AM PDT

¤ Yesterday in Gold and Silver

As I mentioned in 'The Wrap' section of Friday's column, there was no price activity worthy of the name during the Far East trading day...and very little during London trading, either.

The usual rally that began shortly before the Comex open, was dispatched in the usual way by what I would suspect would be the usual group of not-for-profit sellers.

The high tick of the day [$1,622.00 spot] came at 8:50 a.m. in New York...and immediately got sold down from there.

Gold closed the Friday electronic trading session at $1,615.80 spot, up $1.10 from Thursday's close.  Net volume was a tiny 82,000 contracts.

Silver didn't do much in Far East trading, either...and the several attempts it made to move higher during the London session didn't get far.  Beginning shortly after 10:00 a.m. BST, silver got sold down to its London low, which came about fifteen minutes before the Comex open...1:15 p.m. BST.

Like, gold it rallied higher before meeting the same 8:50 a.m. fate as gold.  It's high tick at that point was $28.46 spot. From there, it got sold down to its absolute low of the day...$27.94 spot...which came around 12:10 a.m. in New York.  The price rebounded a hair from there...and then traded sideways into the close.

Silver closed at $28.09 spot...down 13 cents on the day.  Net volume was a very small 19,000 contracts.

Platinum and palladium were on fire yesterday for obvious reasons.  Platinum was up 2.37%...and palladium was up 3.95%.  Gold was up only 0.07%...and silver was down 0.46%.

The dollar index opened just under the 82.40 mark...and chopped around until it set its low of the day [82.34 spot] at precisely 10:00 a.m. in London.  From there it rallied to is high...82.74...just shortly before 11:00 a.m. in New York.  Then it got sold down to its closing price of 82.54 at 5:15 p.m. in New York.  The index closed up a smallish 17 basis points when all was said and done.

The rallies for both gold and silver that began before the Comex open in New York had nothing to do with any currency movements, which is obvious from the chart below.  But the rallies ended at the same moment that the dollar index began to rally...as if someone had hit the 'buy the dollar/sell gold and silver button'.

The gold stocks opened in slightly positive territory, but got sold off almost right away as it became apparent that the underlying metal was getting sold down as well.  The low for the stocks came at 10:50 a.m...the same instant that the rally in the dollar index topped out and gold hit its nadir.  The HUI finished down 0.85% on the day.

The silver stocks finished mixed...and Nick Laird's Silver Sentiment Index closed down a smallish 0.27%.

(Click on image to enlarge)

The CME's Daily Delivery Report showed that 182 gold contracts were posted for delivery within the Comex-approved depositories on Tuesday.  Morgan Stanley was the big short/issuer with 178 contracts...and the long/stoppers were the Bank of Nova Scotia, HSBC USA...and Deutsche Bank.  On Tuesday, they will have 80, 66 and 36 contracts worth of gold delivered to them.  The link to yesterday's Issuers and Stoppers Report is here.

The GLD ETF had another pile of good delivery bars delivered by an authorized participant yesterday.  This time it was 358,833 troy ounces worth.  In the last two days alone, GLD has received about 534,000 ounces of gold.  There were no reported changes in SLV.

Over at Switzerland's Zürcher Kantonalbank, they updated their gold and silver ETF inventories as of the close of business on Thursday.  They added a smallish 8,657 troy ounces of gold...but showed a decline of 140,756 troy ounces in silver.

The U.S. Mint had a smallish sales report yesterday.  They sold 3,000 ounces of gold eagles...and 193,500 silver eagles.  Month-to-date the mint has sold 12,000 ounces of gold eagles...3,500 one-ounce 24K gold buffaloes...and 1,583,500 silver eagles.  Based on these figures, silver eagles sales are selling at a ratio of 102:1 to gold eagle/buffalo sales. That's very high ratio.

It was a big day over at the Comex-approved depositories on Thursday, as they reported receiving 2,391,780 troy ounces of silver...and only shipped 205,947 ounces of the stuff out the door.  Virtually all the action was at the Scotia Mocatta and JPMorgan warehouses.  The link to this activity is here...and it's worth a peek.

The Commitment of Traders report showed that the Commercial net short position in silver increased by 1,550 contracts...and if I'm reading reader E.F.'s charts right, it was a combination of the 'big 4' increasing their short position...and Ted Butler's raptors selling long positions.  These weren't the sort of numbers I was hoping for, but they are what they are.

The Commercial net short position in silver increased by 7,750,000 ounces during the reporting week, which ended at the Comex close on Tuesday.  The Commercial net short position is now up to 117.0 million ounces...still bullish, but creeping ever higher...and a long way off its lows of earlier this year.

The four largest traders on the short side in silver are short 171.6 million ounces of silver...33.7% of the entire Comex futures market on a net basis.  The '5 through 8' largest traders are short an additional 36.7 million ounces...7.2% of the entire Comex futures market on a net basis.  So the eight largest traders are short 40.9% of the Comex silver market on a net basis...and those are minimum numbers.  If we could see [and subtract] the spreads from the Commercial category of the COT, I'd bet serious money that the '8 or less' traders would be shown to be short well over 50% of the silver market on a net basis...and that's precisely the reason that they don't show them in the report.  Because if they did, you could figure out in a flash just how concentrated their actual short positions are...and what we can see is bad enough.

With both JPMorgan and HSBC USA holding the lion's share of that total amount, please explain to me how this is not a short-side corner on the market.

There was another improvement in the short position in gold, albeit a small one.  The Commercial net short position declined by a very modest 2,478 contracts.  The Commercial net short position in gold is now down to 14.39 million ounces...and according to reader E.F...this is the smallest that the Commercial net short position has been since October 24, 2006 when gold was $578 the ounce...over $1,000 per ounce lower than it closed at on Friday.  It does appear that the JPMorgan et al may be edging towards the exit in gold.

The short position of the four largest traders in gold currently sits at 8.15 million ounces...22.5% of the Comex futures market on a net basis...and the '5 through 8' largest short holders are short an additional 4.62 million ounces...which is 12.7% of the Comex futures market on a net basis.  These eight largest traders are short 35.2% of the entire Comex gold market...and that's a minimum number as well.

Looking at it another way, the eight largest short holders in gold are short 12.77 million ounces of the stuff, or 88.7% of the Commercial net short position of 14.39 million ounces.  In silver, the eight largest short holders are short 208.3 million ounces of silver, which represents 178% of the Commercial net short position, which currently sits at 117.0 million ounces.  As I said last week in this space, the gold market is free and fair when stacked up against the obscene short position in silver.

And as Ted Butler has said just about every week for the last ten years, the Comex futures market in all the precious metals are all controlled by a handful of traders working collusively.  It's as simple as that.

Here's Nick Laird's "Concentration of Traders in the CFTC COT Report"...which has been converted to 'Days of world Production to cover Short Contracts'.  The red bar in the gold chart, the short positions of the four largest traders, is the smallest it has been since October 24, 2006 when gold was $578 an ounce.

(Click on image to enlarge)

Here's a pretty picture I stole from a marketwatch.com story that reader Scott Pluschau was kind enough to send me in the wee hours of yesterday morning...and I thought that eye candy like this was worth sharing.

(Click on image to enlarge)

I have the usual number of stories again today, a few of which I've been saving for Saturdays' column...and I hope you can find the time in what's left of your weekend to read through the ones that interest you.

I wouldn't want to be caught short in the precious metal markets for all the tea in China...and I'm still 'all in'.
CME Clearing Europe will take gold as collateral. Doug Hornig: Big Changes Ahead: Gold Just Became Money Again. GLD adds 534,000 ounces in two days. U.S. considers intervening in the oil market.

¤ Critical Reads

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Top 50 Safest Global Banks

For banking safely, global citizens had better go to the local government. And pretty much avoid the U.S.

No U.S. bank cracks the list until No. 29 with Bank of New York Mellon, the trust bank that last year threatened to start charging for deposits when customers flooded it with cash.

The top three U.S. banks by assets, J.P. Morgan, Bank of America and Citigroup, miss the cut altogether. Wells Fargo, the fourth-biggest U.S. bank comes in at 48th, just ahead of the Standard Chartered in the U.K.  J.P. Morgan had been No. 34 last year.

But those on the list had better not rest on their supposedly safe laurels.

This story was posted on The Wall Street Journal Internet site early Thursday evening...and I thank Donald Sinclair for sending it.  The link is here.

View full GSD edition

The End of Reason: What Potatoes Say about the State of US Democracy

He has climbed the highest peaks in the Rocky Mountains, he is in excellent physical condition, and he could easily serve as the face of a marketing campaign to promote healthy living. In his 14th year in the US Congress, Colorado Senator Mark Udall is standing in front of his seat in the Senate, in the second-to-last row on the Democratic side of the aisle, talking about pizza and French fries. "Let's be honest," says Udall. "Anything can be fried or drowned in any number of fats."

It's the core of his argument against the new guidelines that President Barack Obama wants to see enacted for school cafeterias. Obama had tried to separate healthy from unhealthy food in school cafeterias and have more vegetables served to students instead of just pizza and French fries.

Every French fry and every Tater Tot, the 61-year-old politician argues, was once a potato, which makes it a vegetable, just like broccoli, green beans, spinach or carrots. Banning French fries, he says, is basically discriminating against potatoes just because they're sometimes dipped in oil. At issue, says Udall, is the equal treatment of vegetables, and the fact that even a potato has vitamins, as does pizza -- because of the tomato sauce.

This comes from the top drawer of the "You-can't-make-this-stuff-up" filing cabinet.  It was posted on the German website spiegel.de yesterday...and is Roy Stephens first offering of the day.  The link is here.

View full GSD edition

Dollar Tree Suffers Two-Second Flash Crash

Dollar Tree, the discount retailer that sells everything for $1 or less, suffered a mini "flash crash" in the first two seconds after the open Thursday.

The stock plunged 18 percent before snapping back to more normal levels less than two seconds later.

"That's definitely the machines," said Keith McCullough, CEO of Hedgeye Risk Management and CNBC Contributor, on CNBC's "Fast Money Halftime Report." "Somebody had a fat finger or dumb finger."

"At the end of the day, this kind of stuff is going to be ongoing because the machines are contributing the only margin that's really left in the broker-dealer community," he said. "You saw this issue with Knight Capital."

This story was posted on the cnbc.com website mid-afternoon on Thursday...and I thank West Virginia reader Elliot Simon for sending it along.  The link is here.

View full GSD edition

Government's Foreign Debt Hits Record $5.29 Trillion

The U.S. government's debt held by foreign entities hit a record $5.2923 trillion in June, CNSNews.com reported, citing Treasury Department data.

The government's indebtedness to foreign entities has shot up 72.3 percent since President Barack Obama took office.

In January 2009 the U.S. government owed $3.0717 trillion to foreigners entities, the news service added.

China was the top creditor to the U.S. government, though Japanese entities were a close second.

"Although the Chinese maintained their place as the top foreign owners of U.S. debt in June, they are not the top owners of U.S. debt in the world," CNSNews.com reported. "That distinction belongs to the U.S. Federal Reserve, which according to its July monthly report, owned $1.667 trillion in U.S. government debt in June."

This story was posted on the moneynews.com Internet site on Thursday afternoon...and I thank Elliot Simon for his second offering in a row in today's column.  The link is here.

View full GSD edition

U.S. considers intervening in oil market

The White House is "dusting off old plans" for a potential release of oil reserves to dampen prices and prevent high energy costs from undermining sanctions against Iran, a source with knowledge of the situation said on Thursday.

U.S. officials will monitor market conditions over the next few weeks, watching whether gasoline prices fall after the September 3 Labor Day holiday, as they historically do, the source said.

It was too early to detail the size of any release from the U.S. Strategic Petroleum Reserve and other international stockpiles if a decision to proceed was taken, the source said.

I'm not sure if this is petty...or just childish.  It's hard to believe that grown 'men' would act like this.  I found this Reuters story in a GATA release...and the link is here.

View full GSD edition

The World from Berlin: Assange Case Exposes 'International Hypocrisy'

Ecuador may have granted WikiLeaks founder Julian Assange asylum, but it seems unlikely that he will ever make it to the South American country. More to the point, say German commentators, is the fact that both Ecuador and Britain have granted Assange an even larger soap box.

For almost two years, WikiLeaks founder Julian Assange has wiggled out of efforts to have him extradited to Sweden where he faces sexual assault charges. Now with the decision of the Ecuadorian government to grant him asylum at its London embassy, Assange got another reprieve. What happens next is far from clear.

The British government has retaliated by threatening to invoke a little used law to remove the embassy's diplomatic status so that it can ship Assange to Sweden. The law was enacted in 1987 after a British police officer was shot outside a Libyan embassy. In doing so it would be violating the principles behind the 1961 Vienna Convention which deemed embassies as extra territorial areas so that diplomats could work undisturbed in foreign countries. Furthermore, London has promised to arrest Assange as soon as he sets foot on British soil, something he would have to do should he wish to travel to Ecuador.

Here's another story from the spi

Investor Alert: Love Trade Cools as Central Banks' Gold Demand Heats Up

Posted: 18 Aug 2012 04:31 AM PDT

Investor Alert: Love Trade Cools as Central Banks' Gold Demand Heats Up

The first part of Frank Holmes weekly Investor Alert deals exclusively with gold...and is a must read.  The last two graphs regarding gold are more than worthy of your attention.

This commentary was posted over at the usfunds.com Internet site yesterday...and I thank Elliot Simon for his last offering in Saturday's column.  The link is here.

James Turk on metals' prospects, government intervention, and need for diversification

Posted: 18 Aug 2012 04:31 AM PDT

James Turk on metals' prospects, government intervention, and need for diversification

Interviewed by GoldMoney's followers on Facebook and LinkedIn, GoldMoney founder and GATA consultant James Turk covers his outlook for the monetary metals markets, manipulation of those markets, and government intervention against gold and silver investors. He advises investors to diversify their gold and silver holdings in form and location. He also cites GATA's work.

I found this interview imbedded in a GATA release yesterday.  It's posted at GoldMoney's Internet site...and the link is here.

Doug Hornig: Big Changes Ahead: Gold Just Became Money Again

Posted: 18 Aug 2012 04:31 AM PDT

Doug Hornig: Big Changes Ahead: Gold Just Became Money Again

On June 18, the Federal Reserve and FDIC circulated a letter to banks that proposes to harmonize US regulatory capital rules with Basel III.

BASEL III is an accord that tells a bank how much capital it must hold to safeguard its solvency and overall economic stability. It's a global standard on bank capital adequacy, stress testing, and market liquidity risk...but here's the important bit:

At the top of the proposed changes is the new list of "zero-percent risk weighted items," which now includes "gold bullion," right after "cash."

That's the part to take notice of.

If the proposals are approved by regulators – and that seems likely since adoption of Basel III will be – then this is a momentous change for the gold market.

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CME Clearing Europe will take gold as collateral

Posted: 18 Aug 2012 04:31 AM PDT

CME Clearing Europe will take gold as collateral

Over two years ago, the US Clearing house of the CME, the world's largest derivatives marketplace, had no choice but to allow gold as collateral.

As of minutes ago, the European arm of CME Clearing has folded too, and has released a press release stating that it too "has extended the range of eligible collateral types to include gold bullion." Of course, this is the same gold bullion that Germany will be seeking to "repo" in exchange for sovereign bail outs as Europe's periphery continues to run out of endogenous money and has to increasingly rely on the benevolence of the Bundesbank.

For now all we need to know is that another exchange just threw in the towel and admitted that contrary to Bernanke's stern position, gold is, indeed money.

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Three King World News Blogs/Interviews

Posted: 18 Aug 2012 04:31 AM PDT

Three King World News Blogs/Interviews

The first blog is with Ben Davies...and it's headlined "This Could Ignite The Gold Market On Monday".  The second is with Greg Weldon.  It's entitled "Expect Major Silver Price Spike As COMEX Silver Inventories Decline".  Lastly is this audio interview with Egon von Greyerz.

Great Expectations For Silver Prices In An Inflationary World

Posted: 18 Aug 2012 03:45 AM PDT

By Jeffrey Lewis:

Many observers currently expect the Chinese economy to land softly, perhaps relying on domestic stimulus measures alone. Nevertheless, while the inflationary bias in the developed world made it easier to accept more economic stimulus plans in 2008, the situation is now different.

This means that China and other developing Asian countries are now being faced with increased de-leveraging and other fear-based financial concerns, much like Western countries have experienced in recent years.

Furthermore, both the economic trend and investor psychology is now moving against these nations. This means that either much more stimulus will be needed than anticipated or these emerging economies will collapse, thereby creating massive ripples throughout the global economic system.

Similarly, the Western return on investment bias underlies the assumption that investors will re-enter equities and other assets this time around. That bias is changing, although it may not appear that way from the news published by


Complete Story »

Silver: The King Of Monetary Stimulus

Posted: 18 Aug 2012 03:33 AM PDT

By Eric Parnell:

The stock market is boldly signaling that a new round of balance sheet expanding monetary stimulus may soon be on its way. Having advanced virtually uninterrupted since the day after the latest ECB meeting in early August, stocks as measured by the S&P 500 Index (SPY) are already demonstrating that daily melt up pattern that we have come to know all too well from past rounds of stimulus. Whether this next round of stimulus actually arrives is still subject to extensive debate, as many other key asset classes such as gold (GLD) are not yet confirming this outcome in any meaningful way. But given that the stock market has already begun aggressively pricing in more stimulus, this implies that better opportunities to capitalize likely reside elsewhere if this potential outcome were to come to pass. And nowhere is the possible upside more attractive than in silver, the undisputed king of


Complete Story »

Top 5 Insider Buys Filed On August 17

Posted: 18 Aug 2012 03:14 AM PDT

By Markus Aarnio:

Insider buying is often a sign of potential positive developments within a company, particularly if the insiders who are buying have a good track record with respect to their own buying. This is, however, only a secondary indicator and should not be relied upon solely when making the decision on whether to purchase a security. Insider buying in and by itself will not make a stock move higher, but can provide a further clue if all the other pieces of the puzzle - e.g., earnings, sales, return on equity, profit margins, etc. - are in place.

I screened for companies where at least one insider made a buy filed on August 17. I chose the top five companies with insider buying in dollar terms. Here are the five stocks:

1. Sirius XM Radio (SIRI) is the world's largest radio broadcaster measured by revenue and has nearly 23 million subscribers. SiriusXM


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Links for 2012-08-17 [del.icio.us]

Posted: 18 Aug 2012 12:00 AM PDT

“Gold Ponzi Schemes” Revealed - Physical Gold Favored Over Derivatives

Posted: 17 Aug 2012 11:34 PM PDT

gold.ie

Yanis Varoufakis: How the ECB is Complicit in a Macro-Financial Debacle

Posted: 17 Aug 2012 10:04 PM PDT

By Yanis Varoufakis, Professor of Economics at the University of Athens. Cross posted from his blog

Ponzi growth happens when unsustainable capital flows, wilfully predicated upon funding schemes that Reason knows to be fraudulent, give rise to large spurts of economic activity.

Ponzi austerity, in contrast, is what happens when unsustainable spending cuts, wilfully predicated upon funding schemes that Reason knows to be fraudulent, cause significant drops in economic activity. (Click here for my original piece on Ponzi Growth and how it led to Ponzi Austerity.)

It is an incontestable fact that Europe's Periphery shifted from Ponzi growth to Ponzi austerity some time after the Crash of 2008. Before the Crash, tsunamis of toxic money, minted and multiplied by US, UK and German banks, flooded the Periphery, causing bubbles in the real estate and public sectors. When that toxic money fizzled out, and capital receded from the Periphery like a vicious tide going out on a grim shore, the Periphery's states and banks sunk deeply in the mud of irreversible insolvency. So as to delay the inevitable defaults that would strike huge blows on the tittering northern banks, so-called bailouts were arranged on condition of austerity policies that were as unsustainable as the growth whose collapse led to them.

The European Central Bank (ECB) is the only serious institution that the Eurozone has. It was meant to be the guardian of the euro's credibility but, alas, during both periods (Ponzi growth and Ponzi austerity), the ECB proved incapable of playing this role. When toxic capital flowed disastrously into the Periphery, the ECB whistled in the wind. When it flowed out, causing the collapse that then gave rise to the Ponzi austerity, the ECB was part and parcel of this crime against the peoples and the spirit of Europe. Now that the chickens are coming home to roost, the ECB is pledging to do "all it takes" to save the euro, but fails to back up such strong words with deeds.

The reason for the ECB's failure is that its most powerful constituent part, the Bundesbank, is refusing to contemplate the two 'normal' operations that would stabilise the euro: (a) capping Peripheral spreads via unlimited bond purchases, and (b) a banking license for the EFSF-ESM in conjunction with a commitment to recapitalising banks directly. German opposition to (a) is predicated upon moral hazard arguments (i.e. the fear that, if Italy's spreads are capped at a sustainable interest rate level, the Italian governments of the future will have no incentive to 'pull itself together'). As for Germany's opposition to (b), it is due to private German banks' point-blank refusal to submit themselves to ECB (or non-German government) scrutiny; a development that is inevitable if an ECB-leveraged EFSF-ESM steps in to re-capitalise the banks.

The ECB's Short-Term Part in Perpetuating Ponzi Austerity

In the short-term, Mr Draghi's ECB is an active participant in Ponzi austerity. Here is a typical example. In July the ECB deemed that Greek banks are insolvent and that the ECB will, therefore, not accept collateral from them. It directed them to the ELA program which has the Central Bank of Greece provide liquidity to the Greek banks (at a higher interest rate than the ECB would) in the context of the ECB system's ELA. To facilitate this, the ECB permits the Central Bank of Greece to… treble the amount of euros that its lends the Greek banks and to accept worthless collateral from them in return; collateral that the ECB itself would not touch with a bargepole. In effect, the ECB pretends that it is cutting off the Greek banks when, in reality, it is simply increasing these insolvent banks' costs of borrowing without limiting the quantity of money that they borrow from the ECB's broader system. In effect, it is causing, wilfully, the Greek banks to plunge deeper into insolvency.

Why is Mr Draghi allowing this to happen? Because the ECB wants its money back from the Greek state on 20th August! Some of you may recall that, in the heady days of the summer of 2010, the ECB stepped into the secondary bond market to purchase Greek, Portuguese and Irish bonds in a failed bid to shore them up. Now, some of these bonds are maturing. While the tranches held by individuals and banks were haircut ruthlessly (54% in face value and 75% in present value terms) last March, the ECB insisted that its Greek bonds will not be touched by the haircut (or PSI as it was called euphemistically). To maintain this façade of super-seniority, with a view to imposing it on Italy and Spain later (now that Mr Draghi has promised to step in and buy Italian and Spanish bonds), the ECB presently demands from the Greek government full repayment. Last May, the Greek state borrowed 4.2 billion from the EFSF and passed every cent to the ECB. The same was meant to happen on 20th August. However, Berlin insisted that the bailout tranches for the months of July and August be withheld from Greece until the Greek government dances to the prescribed tune. But if the Greek government was to be denied the new EFSF instalments, how could it pay the 3.2 billion due to the ECB on 20th August?

Here is where the ECB chose to become a central player in the saddest and meanest form of Ponzi austerity: While Berlin is pushing Athens to implement a huge cut in the government's budget (given the shrinking rate of the social economy) of 11.5 billion euros, at the same time, the ECB makes three related moves: First, it declines the Greek government's request for a one month delay in the repayment of the 3.2 billion it owes the ECB. Secondly, as mentioned above, it cuts Greek banks off ECB liquidity and turns them toward the Greek Central Bank's ELA program; thus increasing their borrowing costs. Third, it permits the Greek Central Bank to provide to the Greek banks liquidity that the latter then pass to the Greek state so that the Greek state can, in theory, repay the ECB the 3.2 billion due. Indeed, on 14th August, while most Europeans, and Greeks, were on holiday, the insolvent Greek government issued around 4 billion euros of T-bills for the purpose of pretending to pay off a debt of 3.2 billion to the ECB. Why pretending? Because these T-bills were snapped up by the insolvent Greek banks for the purpose of posting them as collateral with the European System of Central Banks (via Central Bank of Greece and in the context of the ELA) so as to gain access to much needed liquidity. In a full and ridiculous circle, the ECB system financed the Greek state's repayment to the… ECB guaranteeing, in the process, that the insolvent Greek state's debt and the insolvent Greek banks' debt grew.

While this is an extreme example of the ECB's complicity in a macro-financial debacle (if not scandal), it is not unique. At the very same time, the Central Banks of Italy and Spain are forced to make use of precisely the same provisions to their insolvent banks so that they can purchase expensive short-term T-bills in order to finance their governments, to the tune of tens of billions of euros. It is a 'trick' that was first tried and tested in Ireland, as part of the operations that caused the Emerald Isle to slip into Greece's wake, on the way to Bailoutistan.

To recap, in the short-run, Mr Draghi's ECB is participating, knowingly, in a huge game of deception that, to all intents and purposes, constitutes a vicious system that can only be described adequately as Ponzi austerity. Mr Draghi surely knows this and is keen to break out of this deadlock. He has, in fact, promised to do precisely this in the medium term. But what exactly are the options that he is considering?

The ECB's Medium Term Plans

Mr Draghi has signalled a readiness to sidestep the Bundesbank's objections, with the tacit support of the German chancellor, and re-start the program of ECB-purchases of Italian and Spanish debt (bonds, that is) in the secondary market as long as (i) the EFSF-ESM does likewise and (ii) Rome and Madrid agree, explicitly or implicitly, with a deepening of austerity policies and a broadening of so-called reforms (for which one should read: attacks on any regulation that shores up labour's bargaining power over capital). The trouble with this plan is that it is bound to fail. The reasons are not hard to imagine:

The fact is that the ECB Board, even if it overrules the Bundesbank's objections to this plan, will never authorise Mr Draghi to announce unlimited bond purchases. Consider the bond purchases of the past (i.e. the purchases of Italian, Portuguese and Irish bonds in the summer of 2010 and winter of 2011). They failed miserably because it was common knowledge that the ECB had only a couple of hundred billion euros to play with. This gave a splendid opportunity to speculators to bet that this (commonly known) sum would not be enough to shore up these bonds and lower their spreads in the medium term. They placed their bets against the ECB and won. Similarly now, given that the EFSF-ESM's available sums are a pittance (and, to boot, it is still unclear whether they can be released in a flexible manner for this kind of use in the secondary markets) if the firepower available to Mr Draghi (stemming from the ECB's printing presses), to fight the war on behalf of Italy and Spain, is also circumscribed, the markets will bet against him and will win hands down.

This is the reason why everyone keeps proposing that either the ECB should declare (like the Central Bank of Switzerland in its fight to cap the franc) that it will print and allocate unlimited euros to cap Italian and Spanish spreads or, equivalently, that the EFSF-ESM should be given a banking licence; i.e. the right to use the ECB's printing presses and asset book as a lever that accomplishes the same purpose.

To sum up, what would buy the Eurozone a good five years during which to redesign the Eurozone and avert the euro's long term disintegration is either an unlimited power to print (so as to cap spreads) or a banking licence for the EFSF-ESM, coupled with a proper delinking of bank recapitalisations from the national governments (i.e. taking the capital injected into the banks off the national accounts of governments). Trouble is that Berlin is not willing to countenance either of these measures. Thus, the hapless Mr Draghi is forced to choose between a walk-on part in the unfolding tragi-comedy of Ponzi austerity and a bond purchasing scheme whose failure is foretold.

Is There an Alternative? How Mr Draghi Could Adopt Part of our Modest Proposal to Break the Vicious Circle vis-à-vis Italy and Spain Tomorrow Morning

Imagine a press conference tomorrow morning in which Mr Draghi makes the following announcement:

"Henceforth the ECB will undertake a Debt Conversion Program for Italy and Spain. It will service (as opposed to purchase) a portion of every maturing Italo-Spanish government bond corresponding to the percentage of each country's public debt that is allowed by the Maastricht Treaty."

[In effect, it will be servicing 100[(D-E)/D% of each maturing bond, where D is the national government's debt-to-GDP ratio (in %) and E is the difference between D and 60% (the Maastricht-compliant level). Assuming Italian and Spanish debt-toGDP ratios to equal 120% and 90% respectively, then the ECB would be servicing 50% of each Italian government maturing bond and 66.7% of each Spanish government maturing bond.]

"To fund these redemptions on behalf of Italy and Spain", Mr Draghi will go on to say," the ECB will issue bonds in its own name, guaranteed solely by the ECB but repaid, in full, by the respective member-state: Upon the issue of ECB bonds, the ECB will simultaneously open debit accounts for Italy and Spain into which the two countries will be legally bound to make deposits to cover the ECB-bonds' coupons and principal. These new debts of Italy and Spain to the ECB shall enjoy super-seniority status and shall be insured by the EFSF-ESM against the risk of a hard default. Since the cost to the EFSF-ESM of offering this insurance will be minuscule (compared to the cost of purchasing, in association with the ECB, hundreds of billions of Italo-Spanish bonds), the EFSF-ESM will now have significant funds to devote to the task of directly recapitalising Italian and Spanish banks."

Is there any doubt that such an announcement would spell the current crisis' end? Moreover, do note dear reader that there is nothing in this Debt Conversion Program that violates the principle of no monetisation of the Periphery's debt, no issues of moral hazard (since Italy and Spain will still have to service, on their own, the past of their debt that exceeded Maastricht limits) and no increase whatsoever in German, Dutch, Finnish or Austrian liabilities. Italy and Spain will enjoy large interest rate reductions without any concomitant rise in the long term interest rates that Germany pays (since Germany is not guaranteeing the Program), without any bond purchases by the ECB (funded by money printing), without a banking licence for the EFSF-ESM. And if this Program succeeds, it can be quickly extended to the rest of the Eurozone, thus creating a new, liquid market for proper Eurobonds (ECB-bonds) that will both stabilise the Eurozone and draw idle savings into it from the rest of the world.

Concluding Remark

I submit it to you, dear reader, that this plan would work. So, why is Mr Draghi not announcing it, insisting instead on measures that will ultimately fail? Because of a combination of reasons. Some of them have to do with the inability of our central bankers (and politicians) to embrace original thinking (i.e. thinking that does not just replicate the practices of Goldman Sachs and the various outfits in which they cut their teeth before moving to their current jobs). However the most telling reason is that Berlin, and the other capitals of the surplus nations (Finland, Austria and the Netherlands), will not approve of any move or policy that binds them irreversibly to the euro. The Debt Conversion Program suggested here, while it requires no loan guarantees from German and Dutch taxpayers, creates a new type of bond that makes it impossible for the surplus nations to leave the Eurozone. It is not that they want to leave that causes them to veto ideas like this one. It is that they do not want to give up the relative bargaining power (vis-à-vis France and other member-states) that is afforded to them courtesy of the capacity to leave the euro. Alas, the preservation of that capacity may force all of us to bid adieu to the common currency; with tragic consequences for all.

Germany Current Account Surplus a "Threat to the Continent" Says; Solution is Gold

Posted: 17 Aug 2012 10:00 PM PDT

The Mystery Of The Discount Rate

Posted: 17 Aug 2012 10:00 PM PDT

Gold University

Greg Weldon: Premium Analysis on Gold & Silver

Posted: 17 Aug 2012 08:05 PM PDT

The following video is an excerpt of Greg Weldon's work from his Metal Monitor service. He's been kind enough to allow me to pass it along to my readers and viewers.

Greg offers a free, one-time, 30-day trial of three different research publications:
1)  Weldon's Money Monitor (global macro);  2) The Metal Monitor (precious metals markets) and 3) The ETF Playbook.

Click here to sign up for a free trial and gain immediate access to Greg's latest Macro-Market Metal Monitor which covers Silver, Global Central Bank Balance Sheets, and this week's release of the World Gold Council's 2Q Report on Gold Demand

By the Numbers for the Week Ending August 17

Posted: 17 Aug 2012 07:17 PM PDT

This week's closing table is just below. 

20120817-Table

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

Peter Baxter: The Kondratieff Winter

Posted: 17 Aug 2012 05:29 PM PDT

The Federal Reserve hawks are speaking out against the central bank taking more action, according to the Wall Street Journal. Why is so much attention given to the whims of central banks around the world? Is it because perception of central bank power is what matters most to markets? We talk to Peter Baxter, author of KondratieffWinter.com, if power of perception is enough to keep the economy going…and what happens if it runs out.

from capitalaccount:

And even though it is the peak of summer, today we talk about winter, a Kondratieff Winter to be exact. Kondratieff Winters historically feature high volatility, slow to negative growth, de-levering (by consumers, corporations, and governments,) hoarding of cash by banks, asset deflation, and economic depressions due to bursting of unsustainable credit bubbles. Does this sound familiar? Peter Baxter, President of Baxter Capital Advisors, will explain why he thinks we are in a Kondratieff Winter and where the economy is headed based on this theory.

Kondratieff Wave theory details how global and regional capitalist economies experience a recurring cycle pattern of boom and bust of around 60 years that coincides with a peak in credit. We talk to Peter Baxter about the components of each of the four cycle seasons (Winter, Spring, Summer, Fall), and how each season exhibits the same unique characteristics. Once credit has peaked in the cycle, it must be choked off so that the excesses from the previous cycle can be removed. We will talk about how he foresees the Winter cycle playing out, as well as why the mainstream media has largely ignored Kondratieff Wave theory.

Plus, the end of a moratorium on the sale of Facebook shares went into effect today, sending the price down to new lows. Despite disasters like this, the broader trend shows stocks rising and treasury yields declining. These are contradicting signals, and Peter Baxter will tell us what he thinks the bond market knows that equities don't.

Correction: During the show when describing the ideally-performing asset class during a Kondratieff Winter, Lauren misspoke. They are gold, cash, and bonds (after the credit crunch). Not gold, cash, and stocks.

~TVR
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