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Sunday, November 18, 2012

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Gold Demand Is Stronger Than You May Have Heard

Posted: 18 Nov 2012 09:59 AM PST

By Tim Iacono:

Precious metals fell for the fifth time in the last six weeks as a host of short-term factors have emerged to pressure gold and silver prices, notably a renewed "flight to safety" that has sent the trade-weighted dollar sharply higher over the last month (precious metals usually move opposite of the dollar), uncertainty over how the U.S. "fiscal cliff" will be resolved, and gold liquidation by leveraged traders to cover losses elsewhere as the broad stock market continues to fall.

But, as has been the case for more than a decade now, the long-term picture for precious metals remains quite bullish as central banks with free-floating currencies in Japan, mainland Europe, the U.K., and the U.S. are likely to launch new rounds of money printing in the months ahead. Also, investment demand from hedge funds, ETFs, China, and elsewhere in the world remains strong, the latest report from the World


Complete Story »

Real Estate As A Hedge For Inflation

Posted: 18 Nov 2012 08:03 AM PST

By Lamarcus R. Coleman:

Over the past few years, real estate has been one of the most depressed sectors. The financial crisis of 2008 resulted in record foreclosures, driving the value of real estate down. The residential sector was at the core of this debacle. Some time thereafter I began recommending multifamily homes, and commercial property or REITS containing such. In the wake of a residential housing meltdown, high foreclosures, plummeting prices, I felt that past home owners were going to find refuge in apartments, and other multifamily homes. To date, we have experienced a tremendous improvement in the housing sector relative to three years ago. I now feel its time to move back into the residential sector.

Sales of new and existing homes have been up. Housing starts have improved as well. Interest rates are at record lows, which is an incentive to purchase homes. The Federal Reserve expressed a desire to maintain


Complete Story »

Understanding Asian gold demand

Posted: 18 Nov 2012 06:00 AM PST

There is growing awareness that gold is accumulating in Asia. Indians have for a long time been the largest buyers of gold and have a tradition of giving gold as gifts at auspicious times. This gold ...

S7: Silver Dump – 192 Million Ounces

Posted: 18 Nov 2012 05:52 AM PST

Silver dump, 192 million ounces in ten minutes on Friday, 11.2.2012, while the entire YEARLY GLOBAL demand or supply is 1,060 million ounces. Can we say blatant manipulation with absolutely no room for error in our judgement.

from syyenergy7:

~TVR

Silver: My Suspicions Were Correct

Posted: 18 Nov 2012 05:51 AM PST

Silver: My Suspicions Were Correct

from jsnip4:

~TVR

Blazer Metals Report: When to Leave Gold & Silver?

Posted: 18 Nov 2012 05:47 AM PST

Blazer Metals Report: When to Leave Gold/Silver?

from radocracytv:

~TVR

Silver Update: Exploring Apmex 11.17.12

Posted: 18 Nov 2012 05:41 AM PST

brotherjohnf: Silver Update 11.17.12 Exploring Apmex

from brotherjohnf:

~TVR

Why You Should Be Bullish On BHP Now

Posted: 18 Nov 2012 03:50 AM PST

By Cris Frangold:

BHP Billiton (BHP) is an outstanding diversified mining company. Mining stocks have taken a hit due in large part to the decline in gold and copper prices, and the bears are strong in the sector. But I am still bullish on BHP and the following will show why.

When I compare BHP to some of its core competitors I begin to see how attractive its stock is. BHP has seen its stock drop from around $76 per share at this time last year to about $69 today, with a 52 week high around $82, and a low around $60. Rio Tinto (RIO) has seen its stock drop from around $54 at this time last year to around $47 at the present. It has a 52 week high around $63 and a low of $41. While Fortescue Metals Group (FSUMF) has seen little volatility, being at just under $5 per share


Complete Story »

Moving gold in/out/around Australia

Posted: 18 Nov 2012 01:50 AM PST

The question of the need to declare movements of gold/silver in/out of Australia (as well on domestic flights) pops up frequently, most recently on silverstackers. I left the following comment to that forum thread below.

I think we need to distinguish between the security screening and customs functions (international flights only), which have different purposes.

Domestically there are no customs - something to do with the Australian Constitution i think :) So the screening is just for security reasons so I see no reasons why you can't carry as much as you want on a flight within Australia unless the security people think you are going to clobber someone over the head with your PMs.

There possibly is some thing for the security people about looking out for potential criminal activity but I suspect they are just trained to look for anything out of the ordinary, which would account for the request to check what those discs or blobs of metal are in your luggage.

For international flights/customs, there isn't anything in the Migration Act 1958 about gold. In Division 3.1 (Information to be given by arriving persons) of the Migration Regulations 1994 there is nothing about the interpretation of the wording on the passenger card, which says:

"AUD$10,000 or more in Australian or foreign currency equivalent? Note: If a customs or police officer asks, you must report travellers cheques, cheques, money orders or other bearer negotiable instruments of any amount."

Same wording on outgoing declaration:

"Are you taking out of Australia AUD$10,000 or more in Australian or foreign currency equivalent? If answered 'Yes' you must complete a Cross Border Movement – Physical Cash (AUD$10,000 or more) Report to present with this card. Note: If a customs or police officer asks, you must report travellers cheques, cheques, money orders or other bearer negotiable instruments of any amount."

The above requirements come from the AUSTRAC Act 2006, Section 53:

"53 Reports about movements of physical currency into or out of Australia
(1) A person commits an offence if:
(a) either:
(i) the person moves physical currency into Australia; or
(ii) the person moves physical currency out of Australia; and
(b) the total amount of the physical currency is not less than $10,000; and
(c) a report in respect of the movement has not been given in accordance with this section."

The definitions section in the AUSTRAC Act 2006 defines physical currency such:

"physical currency means the coin and printed money (whether of Australia or of a foreign country) that: (a) is designated as legal tender; and (b) circulates as, and is customarily used and accepted as, a medium of exchange in the country of issue."

would seem to exclude Perth Mint coins and bars as they don't circulate as money. That is, precious metals are not reportable at all, and face value has no bearing. To back up this view, see this interesting article by the Australian Institute of Criminology where the whole focus is on cash money laundering (includes great examples of how people try to smuggle cash and stats on the number of cash reports). I just don't think money laundering in/out of the country via bullion is a big risk that AUSTRAC are interested in - I mean, it is going to show up on the security scanners so can't actually be smuggled. See the AUSTRAC Typologies page where I can't find anything relating to gold.

FYI, note that moving cash in/out of the country is allowed, you just have to report it, see this Customs PR release:

"A 44-year-old Stirling man was detained for allegedly attempting to export over AUD$182,000 cash out of Australia via Perth International Airport. ... On his Outgoing Passenger Card the man had declared he was not taking over AUD$10,000 in cash out of Australia. ... There is no limit to the amount of currency you can bring in or out of Australia, however, under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 you must declare amounts of AUD$10,000 or more in Australian currency or foreign equivalent."

However, note that in the article it says that "Customs officers subsequently referred the matter to the Australian Federal Police (AFP) and the large amount of cash has been seized by AFP officers and investigations are continuing." While there is no law against such cash movements (just on not reporting it), keep in mind that the police can seize it if they think something dodgy is going on (proceeds of crime etc).

End result is, in my humble and non-legal advice opinion, while you don't need to report bullion, it will get picked up in the scanners and on the basis that such activity is not normal. Questions will be asked, so good to have proof of ownership so the AFP doesn't have cause to think it is proceeds of crime and want to "investigate" it further.

Links for 2012-11-17 [del.icio.us]

Posted: 18 Nov 2012 12:00 AM PST

Occupy Wall Street’s Debt Jubilee: A Gimmick with Tax Risk

Posted: 17 Nov 2012 09:07 PM PST

This is Naked Capitalism fundraising week. 766 donors have already invested in our efforts to shed light on the dark and seamy corners of finance. Join us and participate via our Tip Jar or WePay in the right column or read about why we're doing this fundraiser and other ways to donate, such as by check, or our current target.

It's not exactly pleasant being a nay-sayer about a popular Occupy Wall Street initiative launched by a working group called Strike Debt, that of buying consumer debt at a discount and forgiving it, particularly when the movement generally is demonstrating its effectiveness and relevance. Recent accomplishments include Occupy Sandy proving more competent at disaster relief than either the Red Cross or FEMA, and Strike Debt publishing , the Debt Resistors' Operations Manual.

If you stand far enough away, the Strike Debt debt cancellation initiative, called Rolling Jubilee, looks like a simple and clever way to beat banks at their own game. So it's not surprising that it has attracted a roster of celebrity supporters. But like most things in finance, the devil lies in the details, and the Rolling Jubilee plan, on closer inspection, is wanting. It suffers from three flaws: it enriches the participants in a seedy backwater and may wind up leading banks to try to foist clearly unenforceable debt onto the new chump buyer, OWS. Second, the OWS effort is likely to be trivial relative to the scale of the problem, thus diverting energy and attention from broader scale remedies. Third, tax risks in the plan mean it could wind up doing far more harm than good.

The first two problems seem obvious, yet have been ignored by many. Debt collection is a shakedown operation. And I'm puzzled at the lack of instinctive revulsion to a plan that perpetuates and enriches the participants in abusive practices. I don't think you'd see such enthusiasm, say, for a plan to deal with trafficking in women by raising funds to buy a few of the victims from the sex slave traders and free them. But the economic relationship to a predatory system is similar.

Most of the debt that winds up in the hands of debt collectors is unenforceable. Some of the time credit that was extinguished in bankruptcy, disputed by the borrower but somehow not erased from lender records, or past the statute of limitations. [check Chase]. Even when the borrower did incur the debt, it often is not enforceable if challenged. The lender needs to provide evidence both that the borrower incurred the obligation (such as the signed credit card agreement and any related amendments to substantiate interest rate charges; records of the specific charge and the payment history to show the amount is still outstanding). But many borrowers are afraid of debt collectors (who often engage in abusive and illegal strategies, like calling more than once a day and harassing borrowers at work) and ignore letters and court summons. In addition, some lenders also engage in "sewer service" as in never letting the borrower know they are scheduled for a hearing before a judge. As a result, even if the debt isn't valid, if a debt collector goes to court and the borrower does not contest his filing, the collector will get a default judgment and can garnish wages or have the borrower's bank account debited. That's the reason this sort of debt trades for pennies on the dollar; the original lender probably would have secured payment if the borrower had the means of paying and the debt was legitimate.

The effect of Occupy Wall Street entering as a buyer if they operate on any scale (which remains to be seen) would be to increase the price of this junk debt. Given that banks like Chase have been found to knowingly sell clearly invalid debt to debt collectors, the presence of another bidder in the market is almost certain to raise the price of debt sent to collection. And it has the potential to increase gaming via banks selling more debt that they know is invalid but would take work for a third party to ascertain that (such as debt discharged in bankruptcy).

The second failing is that the scale of this effort is likely to be too small to have much impact. That reduces the risk of OWS's operation leading to much in the way of price increases of junk debt, but it renders the activity more like handing $5 bills to homeless people: it provided random relief but doesn't address root causes. Doug Henwood does some calculations:

So far, both Rolling Jubilee and the commentators have been rather light with numbers. As I'm writing this, RJ has raised $137,688. Since they figure they can buy bad debt for about five cents on the dollar, that means they could "abolish" (the evocation of the anti-slavery movement is no accident) $2,758,584 in debt. Though they don't say, it's almost certain that the debt they aim to buy is the credit card kind. Student debt, even if delinquent, isn't sold into the secondary market. Debt backed by things—as auto loans are by vehicles and mortgages by houses—aren't generally sold that way either, because lenders can seize the underlying assets. Though there are other kinds of unsecured personal loans (those backed by pledges only, and not things), the bulk of them are credit cards, so we'll do the math on them.

According to the FDIC, there was $664.3 billion credit card debt outstanding in the second quarter of 2012. Of that, $16.5 billion was 30 days or more past due. Banks had charged off $8.5 billion. They're required by regulators to do that once an account is 180 days past due, but that doesn't mean the debt is extinguished. Though the bank removes the asset from its balance sheet and takes a (tax-deductible) loss, the debt still exists. The bank can try to collect it on its own, or sell the bad debt to the vultures described above.

Let's think about that $8.5 billion. The people who owe that money are probably getting threatening communications from the banks or whoever now holds the claims. If RJ could raise $1 million—they're more than 1/8th of the way there now—they could buy $20 million in debt, or 0.2% of what's been charged off. To buy all the charged-off debt at five cents on the dollar, they'd need to raise $423 million. But of course if any more than notional amounts of money were put to this task, the price of the debt would rise dramatically. To buy a tenth of it at ten cents on the dollar they'd need $85 million. In other words, given those sums, the monetary angle for RJ is purely symbolic.

Strike Debt had a fundraiser on Friday and is up to be able to forgive $5 million, which they claim will be medical debt. But as you can see, this is a drop in the bucket.

The third issue, which the promoters of this idea are glossing over, is that this scheme has tax risks. Normally, forgiveness of debt is taxable income to the borrower and the party writing off the debt is required to notify the IRS. Strike Debt cheerily asserts in its FAQ that they can treat the forgiveness as a gift and escape this obligation. They also claim to have gotten "advice" but query the caliber of this advice; the people who come up with tax avoidance devices that are stricken down by the IRS are also professionals and gave advice that their program would pass muster.

The reading I have gotten from recognized tax experts is that this issue really is grey. The applicable law is binary: debt forgiveness = income in the amount of the debt, unless it's a gift. And even if it is a gift, there could be gift tax payable by the donor. The usual limit for the gift tax exclusion is $13,000 per donee per year. OWS does not appear to have allowed for its exposure to gift taxes in its calculations of how much debt it can extinguish.

The problem here is the application of this law to Strike Debt facts. No one can be sure until a court issues a ruling. Whether something is a gift is a factual question. The IRS will not give a ruling on whether something is a gift. That's why there can be no definitive answer.

Moreover, it's problematic when the giver of the gift is the holder of the debt, standing in the shoes of the lender. That makes it look a lot like straight-up debt forgiveness. And the "abolish" language that Strike Debt has used in its literature is consistent with that characterization.

There was a temporary mortgage relief provision enacted in 2007 that expires in 2013. The existence of that exception reinforces the view that debt cancellation = income unless a specific exception applies (section 108(a)(1)(E)). Especially since many mortgages are held by investors who are not the original lender.

Here is what the IRS says about debt cancellation by gift (1995 Market Segment Specialization paper for grain farmers):

Cancellation by Gift (IRC section 102)

Gifts or bequests are excluded from gross income. Congress recognized that the presence of donative intent on the part of the creditor is difficult (if not impossible) to establish in a business setting. The committee reports accompanying the Bankruptcy Tax Act of 1980 state: "*** it is intended that there will not be any gift exception in a commercial context (such as, a shareholder-corporation relationship) to the general rule that income is realized on discharge of indebtedness." Thus, the gift exception generally applies only in noncommercial contexts.

OWS is relying on the notion that they are organized as a not for profit and is not making money as a lender, hence this make their activity noncommericial. The sale of debt is a commercial activity. When OWS purchases debt, it enters into a commercial relationship with the debtor. OWS would have to overcome the IRS interpetation of legislative intent that there can be no gift in a commercial context. Case law requires detached and disinterested generosity on the part of the donor for a gift. Moreover, middle class borrowers are not considered a proper charitable class under the tax law.

Even if OWS can prove forgiveness is a gift, gift tax may be owed. The donor owes gift tax on a transfer unless it is $13,000 or less per donee per year. The medical expense exception to the taxable gift statute requires direct payment to the provider of medical services. Reimbursement of medical expenses is subject to gift tax.

Now you might say, but who would raise this issue? The IRS might decide to go after Strike Debt directly, either for failure to report debt cancellations or for gift taxes due. Or the issue might come up on an individual level (for instance, people who are going through ugly divorces can have their ex report them to the IRS out of a desire for vengeance and in the hope of collecting a whistleblower award if the IRS pursues their lead and prevails). OWS risks making a test case out of an effort to help a hapless middle class borrower.

I wish Strike Debt had gone about this in a way that would address the problem of abusive debt collection more broadly. For instance, in the mortgage space, counsellors and Legal Aid have been enormously helpful to stressed homeowners. The debt collectors often have weak enough cases that an adequately represented individual could defeat in court.

Strike Debt might also be able to use its debt purchases to develop legal theories for suing the debt sellers (as in they are engaging in fraud by selling debts that are invalid) or suing debt collectors for harassment. Strike Debt also might want to work to get debtor/creditor laws changed. The problem is that really making a dent on this issue is a hard slog, and doesn't lend itself to the appearance of quick and easy victories that make for good solicitation pitches.

I hope the tax issue does not blow up on Strike Debt and the people it is trying to help. The Rolling Jubilee program has helped raise the profile of the issue of abusive debt collection and helps demonstrate that OWS is not a flash in the pan. But, sadly, beating banks at their own game is unlikely to be an easy proposition.


Gold and Silver: How Much to Own?

Posted: 17 Nov 2012 02:15 PM PST

This week, Chris talks with Jeff Clark, Senior Precious Metals Analyst at Casey Research, where he serves as editor of their Big Gold newsletter.

from chrismartensondotcom:

They tackle head-on many of the questions weary precious metals investors are wondering after enduing the volatile yet range-bound price action of gold and silver over the past year.

~TVR

Niall Ferguson: Global Politics and China

Posted: 17 Nov 2012 02:12 PM PST

Harvard Professor Niall Ferguson talks to Alasdair Macleod about global politics, with special emphasis on China's prospects and challenges in the years ahead.

from goldmoneynews:

They discuss the political and economic situation in China, and the need for the Chinese government to start privatising state enterprises, reshape the country's rule of law and globalise the renminbi. For Ferguson, the key question is whether or not Beijing will introduce reliable private property rights so that the rising middle class can feel secure.

China fears that its large dollar claims will be worth much less in the future. Besides complaining about this, they are looking for ways to diversify their wealth and revenue stream. Ferguson points out though that there are limits to their ability to secure hard assets. They also discuss China's relationship with Russia and its role in the Shanghai Cooperation Organisation.

Ferguson states that the gold flow from "the West to the Rest" is reflective of declining Western power. The world's centre of gravity is shifting east — a shift that is going to continue, and that is taking place at an extremely fast pace when looked at in a historical context. Though China's economic expansion could slow, Ferguson expects another 20 years of solid growth before demographic problems force the country's economy to stall.

Finally they talk about Japan's debt problems and the faulty design of the European currency union. Though Ferguson expects the eurozone to stay together, he expects a Japanese-style "lost decade" — and one sadly lacking in Japanese-style social harmony.

This podcast was recorded on 14 November 2012.

~TVR
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