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Saturday, September 14, 2013

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Mass Delusion and the Myth of Deleveraging

Posted: 14 Sep 2013 11:48 AM PDT

Prudent Bear's Doug Noland marks the fifth anniversary of the collapse of Lehman Brothers — and the near-collapse of the global financial system — by asking whether the system’s flaws have been fixed.

Blinder, Summers and Monetary Policy
Next Wednesday the Fed will reveal its much-anticipated "tapering" plans. Japan's Nikkei news service Friday reported that the Administration "was set to name" Larry Summers to replace the retiring chairman Bernanke. And Sunday marks the five-year anniversary of the failure of Lehman Brothers. Well, it does seem "a good time to ponder how the U.S. economy was nearly brought to ruin" as well as an appropriate juncture to focus again on the role of monetary policy.

The following quote is from Alan Blinder, Princeton University professor and former vice-chairman of the Federal Reserve, writing in the Wall Street Journal, September 11, 2013:

"Next Sunday marks the fifth anniversary of the fateful day that investment bank Lehman Brothers filed for bankruptcy, signaling the start of a frightening financial meltdown. It's a good time to ponder how the U.S. economy was nearly brought to ruin. But will we? Or are we already forgetting? Consider the stark historical contrast between the 1930s and this decade: Years of financial shenanigans in the 1920s, some illegal but many just immoral, conspired with a variety of other villains to bring on the Great Depression. Congress and President Roosevelt reacted strongly, virtually remaking the dysfunctional U.S. financial system, including establishing the Securities and Exchange Commission to protect investors, the Federal Deposit Insurance Corp. to protect bank depositors, and much else. The financial beast was comparatively tamed for almost 75 years. Years of disgraceful financial shenanigans in the 2000s, some illegal but many just immoral, brought on the Great Recession with virtually no help from any co-conspirators…Far from being tamed, the financial beast has gotten its mojo back—and is winning. The people have forgotten—and are losing."

Blinder then laments the lack of reform in "mortgages and securitization," derivatives, the rating agencies and proprietary trading. "In sum, the Dodd-Frank Act is taking on water fast. What can be done to help Americans remember the horrors that led to its passage?"

With stock prices near all-time highs and home price inflation back on track, who is keen to "remember the horrors"? Why would anyone today be willing to upset the applecart? With Washington fiscal and monetary stimulus having reflated the asset markets, what limited appetite that existed for so-called "financial reform" has virtually disappeared. It would be laughable if it weren't so maddening. The GSEs still completely dominate mortgage finance, which implies ongoing market distortions. They are basically as big – and as thinly capitalized – as ever. The nation's goliath banks have grown only more dominant.

With the Fed such a massive buyer of Treasuries, there has been no market discipline imposed upon a spendthrift Washington. A more than doubling of outstanding federal debt in five years (issued at record low market yields) implies broad market distortions and economic maladjustment. At a record (ballpark) $2.4 TN in assets, the historic inflation of hedge fund industry assets runs unabated. This has propelled the number of billionaires, along with skyrocketing prices for art, collectibles and trophy properties. And at $632 TN (from BIS data), the global derivatives marketplace is as unfathomably monstrous as ever. As for the rating agencies, truth be told, they have little impact on the global Credit Bubble.

Mr. Blinder and others would like to believe that we've been persevering through a post-Bubble "Great Recession" with parallels to the Great Depression – but with, thankfully, the benefit of wonderfully enlightened policymaking. Former Treasury Secretary Hank Paulson, discussing the 2008 crisis during a Friday morning CNBC appearance, referred to a "massive Credit Bubble that went bust" – "a 100-year flood with excesses building for years and years."

At risk of sounding "lunatic fringe," the reality of the matter is we're suffering these days from a period of mass delusion. U.S. and world GDP have never been greater. Fueled by record securities prices, U.S. household Net Worth stands today at a record level. U.S. total income in rather short order recovered from 2009's modest decline. Real estate prices around much of the world are at or near record highs. Total outstanding Credit – in the U.S. and globally – is at a record high and inflating.

From a systemic standpoint, the notion of "de-leveraging" has been a myth. And for five years now unprecedented global imbalances have worsened. Chinese and EM Credit Bubbles and attendant Bubble economies have inflated to historic proportions. Indeed, there is a fine line between "frightening financial meltdown" and unleashing history's greatest inflation of global securities prices. The only justification for the "100-year flood" thesis is wishful thinking.

To be sure, the backdrop has virtually nothing in common with the 1930s. As I've written previously, if one is searching for parallels, I would look to the 1920's. Replaying errors at key junctures during the "Roaring Twenties," current monetary policymaking would be more appropriately focused on restraining Bubble excess. Instead, it's the polar opposite approach with ongoing massive experimental inflationary measures.

I'm not a fan of Alan Blinder's framework, and I am averse to historical revisionism: "The financial beast was comparatively tamed for almost 75 years. Years of disgraceful financial shenanigans in the 2000s, some illegal but many just immoral, brought on the Great Recession with virtually no help from any co-conspirators."

Seeds for the 2008/09 crisis were being planted many years prior to the "shenanigans in the 2000s." Vulnerabilities associated with unbridled global Credit, "activist" monetary management and speculative excess go back to Greenspan's aggressive post-1987 stock market crash reflationary measures. There were the resulting junk bond, M&A and real estate booms and busts that left a deeply impaired U.S. banking system in the early-nineties. There were the (post-reflation) bond market and derivative Bubbles that faltered in 1994. And we cannot forget the spectacular 1990s booms and busts in Mexico, SE Asia, Russia, Brazil and Argentina (to name only a few). The 1998 LTCM collapse exposed egregious leverage and derivative speculations. And then the decade concluded with a wild speculative Bubble in technology stocks and telecom debt. Somehow, in the face of increasingly apparent shortcomings, monetary policy became only more "activist" and experimental.

It's not credible to look at "2000s" (mortgage finance Bubble) excesses in isolation. "No help from any co-conspirators"? Did not Bernanke's "government printing press" and "helicopter money" monetary ideologies play prominently in the 2002-2007 doubling of mortgage debt? Clearly, loose "money" and monetary policy "activism" were fundamental to the previous 25-year period of serial booms and busts. And each bust provoked aggressive reflationary measures in the name of warding off the "scourge of deflation." Every reflationary cycle further emboldened and inflated the "global leveraged speculating community," a dynamic that ensured the scope of subsequent booms became bigger and more systemic. Has contemporary inflationist monetary policy not already proven itself immoral?

The most important unlearned lesson is that Federal Reserve (and global central bank) monetary inflation and market interventions carry great risks. For 25 years the Fed has repeatedly employed post-Bubble reflationary measures while inflating the greatest Credit Bubble in history. Back in the 1960s, it was said that Alan Greenspan associated the severity of the Great Depression with the Federal Reserve repeatedly placing "Coins in the Fusebox" throughout the Roaring Twenties Bubble period.

The latest talk is that the FOMC may be considering adding a lower bound inflation rate target to its list of factors for setting monetary policy. The experimental Fed last year employed the use of an unemployment rate target. So, the Fed could now perhaps state its intention of sticking with aggressive monetary accommodation so long as either unemployment is above a certain rate or inflation remained below a targeted level. The Fed continues its stroll down a very slippery slope.

Some thoughts
This is just an excerpt from a longer article that should be read in its entirety. I left out a lot of good stuff to make this post manageable.

Noland gets it right: nothing was fixed after 2008, just as nothing was fixed after the housing, tech stock and junk bond bubbles burst. The response has been the same each time, only progressively more aggressive and experimental. That the financial, economic and political mainstream think that the system has been reset to "normal" because asset prices are back where they were just before the 2008 crash is, well, crazy. With financial imbalances bigger than ever before – and continuing to expand – the only possible outcome is an even bigger crash.

Each of the previous bubbles in this cycle have been unique so there's no reason to expect this one to look like the others, but there is reason to believe that this one, centering on government bonds, will be more far-reaching when it bursts. The tech stock crash mainly impacted speculators, while the housing bust primarily hit the financial sector. But the bursting of the government bond bubble will push up interest rates, which means everyone's cost of money will rise, maybe dramatically. And with about $400 trillion of interest rate swaps outstanding, sudden interest rate volatility will do to that part of the casino what the mortgage bust did to credit default swaps: blow it up.

Sen. Rand Paul: Face of anti-war opposition

Posted: 14 Sep 2013 10:00 AM PDT

Sen. Rand Paul: Face of anti-war opposition

One of the more interesting developments with the Obama Administration's campaign for war has been the rise of Senator Rand Paul as a key anti-war voice.  No surprise.  Observers of Rand Paul have expected him to be even more vocal than his father, Ron Paul.  The media is looking for a "face" of the opposition.  [...]

The post Sen. Rand Paul: Face of anti-war opposition appeared first on Silver Doctors.

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Pretium Resources: Current Valuation Offers Acquirers An Accretive Transaction Even At A 40% Premium

Posted: 14 Sep 2013 09:59 AM PDT

Executive Summary

The Pretium Resources' Brucejack project looks to be one of the few projects worldwide that is extremely high grade, contains a moderate to large amount of gold reserves, and has initial capital costs that are extremely low. One of the handful of projects that would offer good returns even at sub-$1000 gold. Additionally, the company is run by Robert Quartermain, the man who was involved with building Silver Standard Resources from a $2 million dollar exploration company into a billion dollar silver miner - so it is led by a man with experience unlocking the value of an exploration project and bringing it into development.

Based on the estimated economics of the Brucejack project, Pretium Resources is undervalued and using a conservative $700 per gold-equivalent ounce life-of-mine cost, this company should be valued closer to $11.00 per share rather than its current $7.50 valuation. If bulk-sampling results verify

Win a Free Promotional Silver Round Compliments of DNA Precious Metals!

Posted: 14 Sep 2013 09:46 AM PDT

Win a Free Promotional Silver Round Compliments of DNA Precious Metals!

SilverDoctors.com is pleased to announce a marketing deal with DNA Precious Metals to reward our readers with PHYSICAL silver.  Over the next four months, we will be giving away 4-one ounce silver coins per month through contests found on the website.  For the month of September, The Doc has selected 4 Silver Bullet Silver Shield [...]

The post Win a Free Promotional Silver Round Compliments of DNA Precious Metals! appeared first on Silver Doctors.

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Gold & Silver Weekly Recap: Reasons for Hope After A Painful Retracement

Posted: 14 Sep 2013 08:16 AM PDT

PMs have been in a 3 week retracement during this 10-week move off the June lows.  It is possible this retracement is now over, and we have put in a short term cycle low.  While the moving averages are starting to turn down because of the retracement, futures positioning is still supportive of the uptrend, as is the physical demand situation.  Miner hedging should slowly come off as panic in the mining industry subsides; that’s supportive also.  The wildcard remains the Fed.  Even so, the relief of uncertainty regarding tapering might well prove bullish for PMs.  We could end up replacing the ominous Sword of Damocles with a much less threatening Light Club of Tapering.

Read full report

DAMAGED WEEKLY CHARTS

Posted: 14 Sep 2013 08:03 AM PDT

As I mentioned in my last post there is a disturbing possibility that gold's intermediate cycle has topped, and done so in a left translated manner. For clarification, left translated cycles often lead to lower lows. In this case if gold did top on week 9 and the intermediate cycle is now in decline, then the odds are high we are going to see the June low of $1179 tested and broken before the next intermediate bottom. 

Whenever I'm not sure about direction the first thing I do is go to the weekly charts. You can see in the three charts below that the Thursday premarket hit did serious damage to the entire sector.




Just based on those three charts the sector is screaming that an intermediate top has formed. At the very least I think one has to wait until these three weekly charts are repaired before risking further long exposure to the sector. Keep in mind I'm not recommending selling short, the daily cycle is due to bounce soon, probably on the FOMC statement. But there is a strong possibility that bounce will be a fakeout to drawn in another round of buyers only to reverse and head back down again.

I continue to think this is a high stakes game where big money insiders are trying to lower the starting point before the bubble phase of the gold bull begins. As I've noted before if one can artificially lower the beginning of the bubble phase to let's say $1000 instead of where it naturally occurred last summer at $1550, then the profit potential once the bubble phase begins is dramatically magnified.

I'm convinced the force behind this is trying to drive gold back down to the prior C-wave top at $1030 before reversing course and riding the bubble phase of gold into a top somewhere above $5000. It remains to be seen if they will accomplish their goal, but they did succeed in forcing gold back below the critical $1350 support level on Thursday's premarket hit.


At this point the bulls are back on the defensive. They have to at the very least recover that $1350 level before they have any chance at repairing those weekly charts.

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Scandal Brewing as Metals Manipulation Cover-Up Nears Crital Point of Mainstream Awareness!

Posted: 14 Sep 2013 07:16 AM PDT

Metals and MarketsPodcast: Play in new window | Download

In this week's Metals & Markets, Ronald Mann, CEO of DNA Precious Metals joins Eric Dubin & The Doc to discuss:

  • Gold & silver's anticipated correction likely largely over- look for the metals to rally after the initial cartel smash on next week's FOMC statement
  • Poland nationalizes retirement funds- a preview of things to come in the US & Canada?
  • Ronald Mann gives an inside view to the relationships between gold & silver miners and the large refiners like Johnson Matthey and Heraeus.
  • The first tailings mine in North America scheduled to come on-line in early 2014- how the tailings method differs from traditional
  • Andrew Maguire reveals CFTC has been sitting on metals manipulation evidence for over 1 year, is the gold and silver market manipulation story about to reach a critical point and go mainstream like Libor manipulation in early 2012, as JP Morgan announces $2.5 B in new litigation reserves?

Click here for the latest SD Weekly Metals & Markets!

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

Rationale For Owning Gold In The Coming Deflationary Bust

Posted: 14 Sep 2013 05:44 AM PDT

People mostly think that gold protects purchasing power during periods of inflation. While that is true, it is not the only truth. The investment narrative does not consider gold’s value during deflationary periods.

Why should anyone be concerned about deflation when the monetary base of key Western economies is inflating like never before in history of mankind? The short answer is that deflationary and inflationary forces are currently working simulataneously in our economy. At the basis of this phenomenon are boom-and-bust cycles, which are driven by central banks (prohibiting the proper working of free market forces). Loose monetary policies of central banks do not allow a recession to clean out the inefficient resources and investments in the economy, resulting in intensifying deflationary forces.

Jim Rickards recently has explained deflation and inflation this way:

“You have deflation which is perfectly natural and what you would expect in a depression. A depression means among other things that people are deleveraging; when you deleverage you sell assets; selling assets pushes prices down; that makes things worse and prices go down more. Against that, we have inflation from the Fed money printing. These two forces are pushing against each other: deflation and inflation at the same time. It has been possible to estimate precisely, but in rough numbers we might have 4% deflation and 5% inflation at the same time which net out to about 1% inflation in the CPI.”

Investor and economic scholar Marc Faber takes the deflationary idea one step further. In a recent interview (see video below) he appears convinced that a deflationary bust is inevitable. The only uncertaintly appears to be timing. In his own words: “It could happen tomorrow, in five or ten years time.”

“In a collapse, over time, everything goes down but some assets go down more [in price] than others. Traditionally, it is best to hold cash. The key question is: what kind of cash and in which form? For instance, one could hold its cash in bank deposits, but not all cash will be repaid. Cyprus is a good example. You will get your cash on a bank deposit back in some sovereign countries but not in others, depending on the quality of banking system (although in a collapse, most likely, all banks would suffer). Moreover, one needs to make a choice of the currency. The dollar could look good for the time being, but eventually it could become the worse currency (which is what I expect). The question here is the meaning of “weakness” … a currency is weak against what exactly? As all central banks are printing money, their value all go down simultaneously. In such an environment, gold is a good solution. This is the rationale to hold some money in the form of [physical] gold. Cash is not necessary the best investment.

There you have the rationale on owning gold and even accumulate it when the signs of a deflationary collapse would pop up.

Although  Faber did not mention it explicitly, it is interesting to see how his view is in line with Exeter’s inverted pyramid (also, Exeter’s golden pyramid). The pyramid visualizes the organization of financial asset classes in terms of risk and size. Gold forms the small base of most reliable value, and asset classes on progressively higher levels are more risky. Wikipedia notes that while Exter’s original pyramid placed Third World debt at the top, today derivatives hold this dubious honor.

Professor Fekete provided an explanatory note back in 2007:

“The grand old man of the New York Federal Reserve bank's gold department, the last Mohican, John Exter explained the devolution of money using the model of an inverted pyramid, delicately balanced on its apex at the bottom consisting of pure gold. The pyramid has many other layers of asset classes graded according to safety, from the safest and least prolific at bottom to the least safe and most prolific asset layer, electronic dollar credits on top. (When Exter developed his model, electronic dollars had not yet existed; he talked about FR deposits.) In between you find, in decreasing order of safety, as you pass from the lower to the higher layer: silver, FR notes, T-bills, T-bonds, agency paper, other loans and liabilities denominated in dollars. In times of financial crisis people scramble downwards in the pyramid trying to get to the next and nearest safer and less prolific layer underneath. But down there the pyramid gets narrower. There is not enough of the safer and less prolific kind of assets to accommodate all who want to devolve. Devolution is also called flight to safety.”

exeter inveter pyramid investing

The scramble for safety in the form of physical (!) gold is not new, although people in the West mostly do not recognize gold’s monetary value. Sound money expert Claudio Grass from Global Gold Switzerland points out that throughout monetary history the investment focus has always shifted from capital growth to capital preservation during periods of profound deflation. “Deflation thus always comes with falling confidence in the (perceived) root cause of the crisis (governments, banks, speculators, etc.) and their rating. Therefore the purchasing power of Gold gains also within a deflationary scenario.”

Goldman Sees Risk of Gold Below $1,000…HSBC Disagrees

Posted: 14 Sep 2013 05:11 AM PDT

"But until we hear the FOMC news, I suggest one blue pill a day might be necessary."

¤ Yesterday In Gold & Silver

As I mentioned in The Wrap yesterday, the smallish rally in gold in early Far East trading ran into a not-for-profit seller about thirty minutes before the London open, and it was more by good luck than by good management that I manged to file Friday's column at the precise low of the day, which came at 10:15 a.m. BST, which was 5:15 a.m. EDT.  With the benefit of 20/20 hindsight, this might have been an early a.m. London gold fix.

After that, the gold price recovered into the Comex open, but once the London p.m. gold fix was in, gold got sold down again, hitting its New York low of $1,306.60 at 2 p.m. EDT in electronic trading.  The subsequent rally ended on its high of the day at the 5:15 p.m. close, which is a chart pattern I don't ever recall seeing on a Friday.

Gold finished the day at $1,327.90 spot, up $6.90 from Thursday's close.  Net volume was around 175,000 contracts.

It was virtually the same chart pattern in silver, with the only difference being the timing of the New York low price tick.  That came just minutes before the 1:30 p.m. EDT Comex close.  Then, like gold, it was up, up and way into the 5:15 p.m. electronic close.

Silver finished the Friday session on its high tick as well, at $22.265 spot, up 53 cents on the day.  Net volume was way up there at around 51,000 contracts.

The price patterns for platinum and palladium were very similar to gold and silver.  Their respective low ticks were at 10:15 a.m. in London, with their subsequent rallies also lasting until around 9 a.m. in New York, where they got capped until Zurich closed for the day.  The rallies after that lasted right into the New York electronic close as well.  Here are the charts.

The dollar index closed in New York on Thursday afternoon at 81.52.  It's high at around 1:30 p.m. Hong Kong time was 81.73.  After that it traded in a broad 40 basis point range, closing on Friday at 81.50, basically unchanged from it started the day.  The dollar index  also closed unchanged on Thursday as well.

The gold stocks opened unchanged, rallied a bit into the London p.m.  gold fix, and then got sold down into negative territory at the New York low tick.  But as soon as gold began to rally at 2 p.m. EDT in electronic trading, the shares followed suit.  The HUI finished up 1.37% on the day.

The silver stocks mirrored their golden brethren almost exactly, but the Nick Laird's Intraday Silver Sentiment Index closed up only 0.66%.

(Click on image to enlarge)

Undoubtedly the shares would have done better on the day, but the equity market closed well before trading ended in the precious metals market in New York.

The CME's Daily Delivery Report showed that 6 gold and 17 silver contracts were posted for delivery within the Comex-approved depositories on Tuesday.  The link to the Issuers and Stoppers Report is here.

There were big withdrawals from both GLD and SLV yesterday, most likely a direct response from the hammering that the two precious metals took on Thursday.  An authorized participant withdrew 193,116 troy ounces from GLD, and an AP withdrew 2,210,826 troy ounces of silver out of SLV.

The U.S. Mint had a tiny sales report.  They sold 32,000 silver eagles, and that was it.

There wasn't much activity in gold over at the Comex-approved depositories on Thursday.  They didn't report receiving any, and only shipped out 6,318 troy ounces of the stuff.  The link to that activity is here.

It was a bit busier in silver, as nothing was reported received, and 636,040 troy ounces were shipped out the door.  The link to that action is here.

I was certainly happy with the Commitment of Traders Report that came out yesterday, as there was real decent improvement in the Commercial net short position in silver, and the Commercial net short position in gold decreased by as well.

In silver, the Commercial net short position declined by 19.3 million ounces and currently sits at 117.5 million ounces.  According to Ted Butler, the Big 4 traders improved their position by 13.0 million ounces out of the total 19.3 million ounces.  Ted pegs JPMorgan's short position around 75 million ounces, which is a hair under 16% of the entire Comex futures market in silver on a net basis basis.

In gold, the Commercial net short position improved  by a bit over 12,200 contracts, or 1.22 million ounces, and is now down to 8.02 million ounces.  Of that improvement, Ted said that JPMorgan appears to have added 2,000 contracts to their long-side corner, which now sits at just under 19% of the entire Comex futures market in gold on a net basis.

The amazing thing about yesterday's report was the fact that of all the selling done by the technical funds and small traders in both gold and silver, only 1,041 silver contracts of the total amount [5.2 million ounces] was added by the way of fresh shorting by the technical funds, and none in gold at all.  As silver analyst Ted Butler said in his quote in Friday's column:

If the commercials succeed in causing technical traders and other momentum type traders to sell, then the commercials will likely continue to rig prices lower so that they (the commercials) can continue to buy. In retrospect, this was why we fell so steeply in the first half, namely, the technical funds not only sold and liquidated long positions, they established record or near record new short positions as well on the dramatic decline in price. Throw in the massive liquidation in GLD and that’s why we dropped so much in gold (and silver). Since the technical funds kept selling, the commercials kept lowering the price and kept buying. This is how JPMorgan came to hold a long market corner in COMEX gold futures.

The reason I’m narrowing it down to a question of new short selling by technical funds is because data from the Commitments of Traders Report indicates that there has been virtually no build up of technical fund or other speculative new long positions on the rally in gold and silver prices to over $1,400 in gold and $24 in silver.  There can be no selling of new long positions that don’t exist. Of course, there could be some selling from old long positions, but logic would hold not massive amounts.

As for the price action since the Tuesday cut off, it's impossible to tell how much of the price decline in both gold and silver was caused by long liquidation versus new short selling by the technical funds and small traders.   The one thing that we do know with absolute certainty is that the Commercial traders continued doing what they did during the last reporting week; gobbling up every long that was being sold, and also taking the long side of every short sale that was being transacted.  Unfortunately, none of this will be known to us until next Friday's Commitment of Traders Report.

As I've said a few times in the past, it always seems like I'm waiting for the next COT Report.

I have quite a number of stories for a Saturday column, and some of them I've been saving for today for content reasons.  I hope you can find the time over what's left of the weekend to read the ones that interest you the most.

¤ Critical Reads

Consumer Confidence Collapses - Biggest Miss on Record

This is the first consecutive monthly drop in 14 months and the largest miss vs. expectations on record. Printing at 76.8 (against an expectation of 82.0), this is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and soaring gas prices amid stagnant incomes.

As Citi notes below, this is the exact same pattern we have seen play out in the last two cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since January.

This Zero Hedge piece from yesterday contains a lot of charts, and not too much text.  It's worth reading...and I thank Manitoba reader Ulrike Marx for today's first story.

BofA: If The American Economy Doesn't Accelerate Soon, It NEVER Will

BofA Merrill Lynch chief investment strategist Michael Hartnett – the one who coined the term "Great Rotation" – takes a gloomy view of the future in his latest note to clients: The Next 5 Years: Curb Your Enthusiasm

Significant monetary stimulus, the end of fiscal austerity, a booming housing market, a cheap dollar, record corporate cash balances...if the US economy does not significantly accelerate in coming quarters, it never will. We assume it will, and favor assets (e.g. equities), sectors (e.g. banks) and markets (e.g. Europe) that have lagged in the “High Liquidity-Low Growth” world of recent years.

Asset price will not do as well in the next 5 years, no matter what the “nouveau bulls” say. Central banks will be less generous, corporations less selfish. And when excess liquidity is removed it will get “CRASHy”. The dollar and (temporarily) volatility will be the last assets to surge as De-leveraging ends and an era of Normalization begins.

This very brief article was posted on the businessinsider.com Internet site yesterday morning EDT...and it's the first contribution of the day from Roy Stephens.

Report: Consumers Are Saving Less Again

Consumers appear back to their spendthrift ways just a few years after the financial crisis exposed their irresponsible savings habits, according to SaveUp's U.S. Consumer Savings and Debt Report.

The savings rate was just 3.8 percent in August 2008. From there, it increased, going as high as 8.7 percent in December 2012, according to Commerce Department data cited by CNBC.

But with the financial crisis and recession evidently fading from memories, Americans began saving less.

Since December of last year, savings rates have declined to near pre-recession rates, below 5 percent, SaveUp notes. As of July, it stood at 4.4 percent.

This news item appeared on the moneynews.com Internet site early Friday morning EDT...and I thank West Virginia reader Elliot Simon for sending it.

Jonathan Weil: Why Fraudsters Should Applaud the SEC

Mary Jo White began her tenure as chairman of the Securities and Exchange Commission this year with a promise: The agency would require more fraudsters to confess what they did, as opposed to the SEC’s usual practice of letting them pay fines without admitting anything.

Judging from the case of Ebrahim Shabudin, the fulfillment of that pledge is off to a poor start.

Shabudin, 65, is one of the few high-ranking bankers to be indicted over conduct related to the financial crisis. The San Francisco lender where he served as chief operating officer and chief credit officer, United Commercial Bank, failed in 2009, costing the Federal Deposit Insurance Corp. about $1.2 billion. Shabudin held the same positions at the bank’s publicly traded parent company, UCBH Holdings Inc. The government says he and other senior executives deliberately delayed recognizing loan losses.

Before it filed for bankruptcy, UCBH received almost $300 million in bailout cash from the Treasury Department’s Troubled Asset Relief Program -- all of which was lost. In 2011, a federal grand jury in San Francisco indicted Shabudin on charges of fraud, conspiracy, falsifying records and lying to the company’s auditor, KPMG LLP. He and a co-defendant have pleaded not guilty, and prosecutors are on track to bring the criminal case to trial.

That's the good news!  You can read the rest of this ugly Bloomberg op-ed piece which was posted on their website Thursday afternoon MDT.  I thank Ulrike Marx for her second offering in today's column.

MSN Money's Mirhaydari: 'Fed Is Dancing With the Devil of Inflation'

The Federal Reserve's decision on tapering — whether large, small or not at all — is bound to spark a stock market sel-loff because Wall Street has such a wide gulf of expectations of what the Fed is going to do, predicts MSN Money columnist Anthony Mirhaydari.

The uncertainty means the only prudent course of action is to take profits before the Fed's Sept. 18 announcement, he said.

"With expectations all over the map, the Fed has done a terrible job of managing sentiment heading into its announcement. That raises the risk of a negative market reaction that could rattle confidence and short-circuit the improvement we've seen."

Mirhaydari, owner of Mirhaydari Capital Management, noted that recent conflicting economic data, such as strong purchasing manager reports followed by weak payroll and home sales, only amplifies the confusion.

This short news item was posted on the moneynews.com Internet site early Friday morning EDT...and it's another contribution from Elliot Simon.

Doug Noland: Blinder, Summers and Monetary Policy

And with the Fed prepared to ever gingerly pull back on QE, there is new-found focus on the efficacy of “forward guidance.”  The Fed is determined to avoid the 1994 scenario whereby a 25 bps rate boost incited a problematic spike in yields all along the yield curve.  The thinking today is that assurances of a low Fed funds rate target for the foreseeable future will work to anchor longer-term market yields.  There has even been Federal Reserve research concluding that Fed QE purchases haven’t had a major impact on market yields.

Well, I would counter that QE has had enormous market impact.  U.S. stocks have returned about 30% since the Fed began ballooning its balance sheet this past November.  Junk bond issuance is poised for a record year, with likely the strongest expansion of business borrowings since 2007.  Housing prices have jumped double-digits, with overheated conditions returning across many markets.  Globally, a strong inflationary bias has propelled asset prices generally.

Returning back to “forward guidance,” I expect the market to take little comfort from the promise of ongoing near-zero short-term rates.  Generally, faith in a persistently low “fed funds” target would place a ceiling on long-term market yields.  And, indeed, this dynamic has been in play for years now, in the process fostering major financial leveraging and other speculative excess.  And especially after the past year’s broad-based risk market excesses, what really worries the markets these days is a bout of problematic “risk off” de-risking/de-leveraging.  The markets are comfortable with and fully leveraged for a Fed that won’t be hiking rates anytime soon.  Major questions remain, however, as to the availability of a sufficient marketplace liquidity backstop in the event of market turmoil.

Doug's Credit Bubble Bulletin posted on the prudentbear.com Internet site every Friday evening, is always a must read over the weekend.  I thank reader U.D. for bringing this week's edition to my attention.

Iceland dissolves E.U. accession team

The Icelandic government has dissolved its E.U. accession team after deciding to give up on talks to join the Union.

"We have dissolved our task force and negotiation teams, and there won't be any other summits," foreign minister Gunnar Bragi Sveinsson told the Icelandic parliament, the Althing, on Thursday (12 September).

"The government is in agreement on this subject. The process has been suspended. But nothing has been closed down, and we will improve our communication and strengthen our ties with the EU without actually joining," he added.

Personally, I'm delighted by this decision.  This short article, filed from Berlin, appeared on the euobserver.com Internet site yesterday morning...and my thanks go out to Roy Stephens for finding it.

Global warming? No, actually we're cooling, claim scientists

There has been a 60 per cent increase in the amount of ocean covered with ice compared to this time last year, the equivalent of almost a million square miles.

In a rebound from 2012's record low, an unbroken ice sheet more than half the size of Europe already stretches from the Canadian islands to Russia's northern shores, days before the annual re-freeze is even set to begin.

The Northwest Passage from the Atlantic to the Pacific has remained blocked by pack-ice all year, forcing some ships to change their routes.

A leaked report to the UN Intergovernmental Panel on Climate Change seen by the Mail on Sunday, has led some scientists to claim that the world is heading for a period of cooling that will not end until the middle of this century.

I spent seven years of my life in Canada's arctic and high arctic...and this is a subject that I understand fully.  This is an absolute must read for anyone remotely interested in the world's climate.  This story was posted on the telegraph.co.uk Internet site this past Sunday, and it's one of the articles I've been saving for today's column.  I thank reader B

BofA: If The American Economy Doesn't Accelerate Soon, It NEVER Will

Posted: 14 Sep 2013 05:11 AM PDT

BofA: If The American Economy Doesn't Accelerate Soon, It NEVER Will

BofA Merrill Lynch chief investment strategist Michael Hartnett – the one who coined the term "Great Rotation" – takes a gloomy view of the future in his latest note to clients: The Next 5 Years: Curb Your Enthusiasm

Significant monetary stimulus, the end of fiscal austerity, a booming housing market, a cheap dollar, record corporate cash balances...if the US economy does not significantly accelerate in coming quarters, it never will. We assume it will, and favor assets (e.g. equities), sectors (e.g. banks) and markets (e.g. Europe) that have lagged in the “High Liquidity-Low Growth” world of recent years.

Asset price will not do as well in the next 5 years, no matter what the “nouveau bulls” say. Central banks will be less generous, corporations less selfish. And when excess liquidity is removed it will get “CRASHy”. The dollar and (temporarily) volatility will be the last assets to surge as De-leveraging ends and an era of Normalization begins.

This very brief article was posted on the businessinsider.com Internet site yesterday morning EDT...and it's the first contribution of the day from Roy Stephens.

Two King World News Blogs

Posted: 14 Sep 2013 05:11 AM PDT

Two King World News Blogs

The first interview is with Andrew Maguire...and it's headlined "Morgan Whistle Blowers Confess Bank Manipulates Gold and Silver".  The second and final commentary is with Egon von Greyerz.  It's entitled "Historic JP Morgan Whistle Blower Interview Moves Markets".

[Although I post all of Eric King's interviews, I wish to go on the record as saying that I don't necessarily agree with everything that's said by some of his guests. - Ed]
 

Goldman Sees Risk of Gold Below $1,000 on U.S. Economy

Posted: 14 Sep 2013 05:11 AM PDT

Goldman Sees Risk of Gold Below $1,000 on U.S. Economy

Gold is poised to extend declines as the U.S. Federal Reserve withdraws stimulus and economic data improve, according to Goldman Sachs Group Inc., which says that there’s a risk that bullion may drop below $1,000 an ounce. Futures retreated in New York.

While debt-ceiling discussions in the U.S. and the Syrian crisis may support bullion in the near term, gold will resume its decline into next year, Jeffrey Currie, head of commodities research, said in an interview on Bloomberg Television today. The bank’s target for 2014 is $1,050, and the commodity may overshoot to the downside, Currie said in Singapore. Gold futures haven’t traded below $1,000 since October 2009.

“While we agree with the mid-cycle price somewhere around $1,200, we believe that at least near term it can overshoot to the downside, which is why we have $1,050” as a target, Currie said. “It clearly could trade below $1,000.”

If you're prepared to believe this, dear reader, than I really do have a bridge to sell you.  This news item, if you wish to dignify it with that name, was filed from Singapore and posted on the Bloomberg website yesterday morning MDT.  Ken Hurt was the first reader to slide this story into my in-box shortly after I filed Friday's column.

HSBC lifts 2013 gold price forecast on higher physical demand

Posted: 14 Sep 2013 05:11 AM PDT

HSBC lifts 2013 gold price forecast on higher physical demand

HSBC Global Research raised its 2013 gold price forecast and said physical demand is becoming a major driver for the yellow metal.

The bank lifted its gold price outlook for this year to $1,446 per ounce from $1,396, and kept its 2014 forecast unchanged at $1,435 an ounce. Spot gold was trading at $1,330.66 at 17:36 GMT on Thursday.

"Physical demand for jewelry, coins, and bars from China, especially, are supportive and becoming a key driver," HSBC said in a note on Thursday.

The bank said investment demand for gold will remain weak as gold's use as a safe haven ebbs.

This Reuters piece, filed from Bangalore, was posted on their website just before lunch on Friday IST.

Investment guru favours diversity, physical gold amid U.S.-fuelled volatility

Posted: 14 Sep 2013 05:11 AM PDT

Investment guru favours diversity, physical gold amid U.S.-fuelled volatility

"The [US Federal Reserve's] goal is to lower long-term interest rates via the massive asset-purchase programmes called quantitative easing [QE], but it seems it has lost control of the interest-rate direction" after bond yields shot up, pointing towards a higher long-term rate, whereas short-term rates remain at or near zero.

Regarding the September 17-18 meeting of the Federal Open Market Committee on QE tapering, "I think maybe they will taper 5 or 10 or 20 billion dollars off the current $85-billion monthly purchase of assets, and they would say they will reassess the situation depending on economic and market conditions.

"I believe the US economy is weakening, and if it gets worse they will have to even increase the purchases, maybe even to $150 billion a month.

"In terms of investment, there is nothing safe any more. The US money-printing has distorted all asset prices while cash in the bank has not given you any return when inflation is adjusted. Inflation in Thailand is running at 10 per cent per annum. I don't look at the government's statistics. All governments around the world lie" about inflation.

"My investment strategy during this time is that you have to diversify and minimise your risks from economic, political, geopolitical and other factors. Your portfolio should include properties, stocks and equities, corporate bonds, gold and silver, plus cash. It should be 25 per cent of each, or 125 per cent - just to mimic the US accounting standard where things now do not add up.

One of these days Marc will tell us what he really thinks.  This story was filed from Thailand...and was posted on the nationalmultimedia.com Internet site.  I thank reader Ken Hurt for his second contribution to today's column.

The Best And Worst Performing Assets Since Lehman Are...

Posted: 14 Sep 2013 05:11 AM PDT

The Best And Worst Performing Assets Since Lehman Are...

As one might have expected, on a total return basis (all in U.S. dollar terms), Silver (100%) and Gold (73%) were the top two performers followed by European HY (60%), US HY (58%) and the S&P 500 (50%).

At the other end of the performance spectrum, Greek equities, down -66% since the Lehman bankruptcy to rank as the worst performer in our sample, are clearly still bearing the brunt of the European sovereign crisis. This is followed by the Stoxx600 Banks index (-30%), the FTSEMIB (-30%), and the Bovespa (-20%).

This short piece was posted on the Zero Hedge website yesterday...and is definitely worth reading.  I thank Ulrike Marx for the last story in today's column.

Fed’s Potential QE3-Tapering Impact On Precious Metals Prices

Posted: 14 Sep 2013 05:06 AM PDT

The Federal Reserve's upcoming decision on whether to slow its third quantitative-easing campaign's debt monetizations has to be this year's most-highly-anticipated market event. Traders have been trying to game the odds of QE3 tapering literally all year long, driving some sharp market moves. So the Federal Open Market Committee's decision due out next Wednesday is likely to be a major market-moving event.

The focus on this imminent FOMC meeting is so hyper-intense that its impact should be considerable no matter what the Fed decides. The QE3 taper (or lack thereof), its size, and what the FOMC implies for future tapering will almost certainly spark sharp price reactions in the bond markets, currency markets, stock markets, and precious metals. All have moved violently this year on mere QE3-taper anticipation.

There are strong arguments on both sides of the Fed starting slowing down QE3 next week or waiting until later. With Fed Chairman Ben Bernanke due to retire on January 31st, most believe he really wants to start unwinding his unprecedented quantitative-easing programs on his own watch. He is worried about his legacy, how history will view the largest debt monetizations ever that were his brainchild.

Bernanke has spent months painstakingly telegraphing to traders that he'd like to start slowing QE3 at this September FOMC meeting. If the Fed doesn't taper after setting expectations so high, it is going to take a big credibility hit with the markets. Not tapering will likely also be interpreted by traders as the Fed viewing the US economy as deteriorating, which could spark a big stock-market selloff from lofty heights.

Tapering QE3 is probably less risky at the FOMC's September 18th meeting than its next October 30th one because the former is one of the four per year (out of eight) that are followed by a Bernanke press conference. So if the market reaction is adverse to the taper, Bernanke will have a chance to explain the FOMC's thought process soon after the decision. Thus most traders believe tapering begins next week.

But this decision is far more complicated than Bernanke's comfort and the Fed's credibility. Between the FOMC's May 1st meeting and last week, mere QE3-tapering fears have catapulted the benchmark 10-year US Treasury yield from 1.66% to 2.98%! This epic 4/5ths rally in yields is the result of a massive bond rout. Bond investors are fleeing Treasuries, worried that the dominating buyer (Fed) is pulling back.

Higher bond yields wreak havoc on the economy, driving up all borrowing costs. This is particularly important in the mortgage markets, since the housing recovery is absolutely essential to US jobs growth. Since the mere threat of the Fed slowing its QE3 Treasury buying sparked a colossal bond selloff, can it risk the actual event driving yields even higher? Unemployment will surge again if house buying slows.

Higher interest rates are a huge threat to the US government too. Under Obama the national debt has exploded higher, yet the Fed's record-low interest rates still led to very low debt-servicing costs. If yields on Treasuries merely return to their 40-year average before Obama, the total federal interest costs alone on today's debt would skyrocket by 5x! This would consume most discretionary spending, sinking the government.

Higher yields also risk triggering a bear market in stocks. One of the Fed's goals through manipulating yields down as low as possible was to force investors into risky assets like stocks. As rates rise, bonds become far more attractive again for new buyers. So higher yields could ignite an exodus out of the stock markets by investors worried about the risks posed by the very tired and overextended cyclical stock bull.

The FOMC has foolishly painted itself into a very dangerous corner. It is probably damned no matter when it starts tapering QE3, with serious market disruptions likely. While bonds are ground zero, and currencies will closely follow, my primary interest as a speculator is in the American stock markets and precious metals. Whatever the Fed chooses to do next week is likely to have major impacts on them.

To better understand their potential, we have to consider how the FOMC and all its QE3-tapering talk have affected them so far this year. This chart looks at the flagship S&P 500 stock index (SPX) and gold. All 2013 FOMC-meeting decisions are highlighted in black, with their subsequent minutes noted in yellow. Most of the biggest and fastest moves in stocks and gold this year are highly correlated to the FOMC.

SP500 vs Gold Price 2012 2013 economy

Before QE3's birth last September, the US stock markets' tired cyclical bull had been topping. Despite multiple attempts, there hadn't been a single new high for over 5 months. But first on a European Central Bank decision to monetize bonds a week earlier, and then on the Fed's QE3 announcement, the SPX finally broke out to new bull highs. It was the Fed's first-ever open-ended quantitative-easing campaign.

The timing of this decision was highly suspect politically. It was less than 8 weeks before the critical 2012 US elections. And throughout US presidential-election history, the results have had a very high correlation with the stock-market action in the Septembers and Octobers leading into them. When the SPX is up over that final 2-month span, the incumbent party has won 94% of the time. If down, it has lost 83% of the time.

So Bernanke goosing the stock markets right ahead of a major election, greatly raising the odds they would be higher (and they were), almost certainly gave it to Obama. Remember that Republican lawmakers had been aggressively attacking the Fed for its QE2 debt monetizations, so the Fed faced serious political risks if the Republicans regained power. QE3 was shrouded in controversy from its birth.

At its mid-December meeting, the FOMC decided to expand QE3 to include monthly Treasury buying on top of the original mortgage-backed-security buying. The minutes for that meeting were released several weeks afterwards as usual, in early January. Incredibly at the very meeting where the FOMC launched its QE3 expansion, there was already much internal dissent. Thus 2013's QE3-tapering debate began.

Literally since January 3rd, when the Fed would start slowing QE3's rate of purchases has probably been the dominant driver of global financial-market sentiment. Ever since every FOMC meeting, all their minutes subsequently released, and even each speech by individual Fed officials have been carefully scrutinized for QE3-tapering implications. Whenever QE3 tapering seemed more likely, big selloffs arose.

This is especially true in bonds, but our focus here is on the stock markets and gold. While other factors were at play, primarily the levitating SPX sucking capital out of the American GLD gold ETF, gold suffered its first sharp selloff in February soon after the late-January FOMC meeting. The subsequent minutes in late February saw the SPX sell off sharply. Then gold's next selloff started cascading at the mid-March meeting.

Both the SPX and especially gold then plummeted when its minutes were released in mid-April. Some of the FOMC members thought QE3 tapering would start by mid-year and finish by year-end. Unfortunately for gold, these very minutes drove the metal right down to its critical $1550 support line. That soon failed, unleashing an ultra-rare futures forced liquidation that crushed the gold price in an unprecedented way.

Gold's subsequent bounce from this panic-like plummet was cut short by the FOMC's next meeting in early May. And the minutes of that meeting released in late May started the biggest pullback in the SPX's levitation so far. Then both the SPX and gold plunged dramatically at the FOMC's next meeting in mid-June, which happened to be followed by the press conference where Bernanke laid out his QE3-tapering plan.

Then again the SPX topped soon after the FOMC's latest late-July meeting. As you can see above, the great majority of this year's biggest and fastest moves in the SPX and gold were highly correlated with either FOMC meetings or their subsequent minutes. Charts of bond yields and the US Dollar Index show similar strong reactions to the odds of QE3 tapering rising and falling. It has dominated global markets this year!

Seeing how the stock markets and gold reacted to the mere idea of QE3 tapering, how will they react next week (or later) at the actual event? There is a universal assumption among traders today that QE3 tapering is fully priced in for stocks, so the price impact will be minimal. Everyone also assumes that gold is going to get obliterated by QE3 tapering, which is understandable given its horrendous Fed reactions this year.

This popular consensus may certainly be right, after the Fed starts slowing QE3 the SPX will keep on climbing higher forever and gold will plunge to zero. But ever the contrarian, I always want to take the opposite side when nearly everyone is convinced of certain outcomes. What if the levitating stock markets have not priced in a QE3 taper, but gold far more than has after being pummeled so mercilessly?

Despite QE3-tapering fears driving periodic pullbacks, there is no arguing that QE3 has been exceedingly good for the SPX. Between the day before it launched and this week, this flagship stock index has soared 17.6% in exactly one year. This extended its already-old-and-big cyclical bull born in March 2009 to an astounding 152.7% gain. It also pushed its span since a correction to 22 months.

These metrics far exceed healthy averages. The average cyclical stock bull in a secular bear doubles in 35 months, our current specimen is up 152.7% in 53 months! Healthy bull markets see full-blown corrections (selloffs in the high-teen percentages) once a year or so, now we are up to nearly two without one. There's a strong case to be made that QE3 was the primary driver of 2013's extraordinary SPX levitation.

If QE3 was so great for stocks, how can its slowing and eventual stopping also be great for stocks? How can the QE3 taper be already priced into the SPX when this index has kept powering higher all year long even despite periodic QE3-tapering fears? With the mere threat of QE3 tapering spawning sharp pullbacks, won't the actual event also trigger a big selloff? This QE3 tapering is hyper-risky for stock markets.

Gold on the other hand has already been annihilated on futures traders' intense obsession with QE3 tapering. In the year since QE3 launched, it has been pummeled down 21.2%. The second quarter in particular was monstrously brutal, gold's worst in something like a century. The gold selling triggered by and exacerbated by Fed QE3-tapering fears was wildly unprecedented on virtually every possible front.

Gold's incredible selloff during QE3 is a mind-boggling anomaly. Quantitative easing is a happy-sounding euphemism for debt monetization, the highest-octane form of monetary inflation there is. When the Fed buys bonds, it simply creates the money to do so out of thin air. And in the case of Treasuries, the federal government spends this new money almost instantly which directly injects it into the real economy.

QE3 is a massive open-ended inflationary event unparalleled in history. And gold thrives in inflationary times, it is the ultimate inflation hedge. During the lifespans of QE1 and QE2, gold powered higher by 50.8% and 24.7% respectively. So to see it down 21.2% so far during QE3 utterly defies belief. It makes no sense at all, absurdly illogical. And like all market anomalies, this one is super-overdue to reverse.

Gold plummeted 26.4% in the first half of 2013, with QE3-tapering fears playing a major role. They helped shape the psychological backdrop that led to the mass exodus from GLD. With such a wildly unprecedented gold selloff, isn't it highly likely that QE3 tapering is long since priced in? Will this critical investment class keep plunging forever simply on fears about how fast the Fed will wind down QE3?

Gold-futures traders, who are excessively fixated on the QE3 taper, are totally looking at the wrong side of it. What they should be paying attention to is the Fed's mammoth balance sheet! Every dollar of bonds the Fed purchases is a direct injection of monetary inflation. And as long as QE3 exists at all, this metric is going to keep growing. This next chart takes a look at the incredible inflation quantitative easing has baked in.

This chart is stacked, showing the Fed's holdings of Treasuries (red) and mortgage-backed securities (yellow) within its total balance sheet (orange). Across it are noted key dates of FOMC meetings where major policy changes were made including quantitative easing. This gigantic and growing balance sheet is what gold-futures traders should be focusing on, not a trivial change to the rate of QE3's growth.

Before uber-inflationist Ben Bernanke launched the original QE1 and forced interest rates to zero in late 2008, the Fed's balance sheet was around $890b. It has ballooned monstrously since thanks to the bond-buying campaigns of QE1, QE2, and QE3. All three of these were launched initially and then soon expanded. Between these debt-monetization sprees, the Fed's bond holdings slowly shrunk through maturing.

fed balance sheet 2008 september 2013 economy

Before QE3 was launched last September, the Fed's balance sheet was sitting at $2798b. Last week nearly a year later (the Fed's data lags by a week), it had soared to $3607b! This is a colossal 28.9% increase in the Fed's total bond holdings in merely a year, incredible amounts of inflation unleashed from an already very-high base. Does it make any sense at all for gold to fall by over a fifth during such an event?

It wasn't like gold was overbought in September 2012 when QE3 was born, which could explain poor subsequent performance. This metal had peaked 13 months earlier and was stuck in a high consolidation ever since by the time QE3 launched. Over that span it was already down 8.5%. So there was no reason at all for gold to get hammered during an epic inflationary explosion of QE3's magnitude.

Back at his press conference right after the FOMC's mid-June meeting, Bernanke rocked the markets by laying out a very specific best-case QE3-tapering plan. It proposed starting the taper later this year (which was interpreted as the September FOMC meeting) and ending it entirely by mid-2014. He took great pains to emphasize this was data-dependent, that QE3's pace could still increase if economic conditions worsen.

But let's assume QE3 plays out like Bernanke hopes. This month will still have $85b of purchases that will be added on to the balance sheet. Assuming an even taper, the average monthly monetizations between now and the end of June will be half that or $42.5b. Multiply those 9 months by $42.5b and you get another $383b of bond buying on top of September's $85b. That means QE3 has $468b of buying left!

So far as of the end of August, QE3 is at $440b in mortgage-backed-securities buying and $360b of Treasuries buying. The total is already $800b, which is much larger than QE2's $600b of new buying. But add the additional $468b of buying on top of that in a best-case taper scenario, and QE3 is still destined to grow over half-again as large as it is today. It will propel the Fed's balance sheet over $4050b!

Thus even in Bernanke's best-case QE3-tapering scenario, there is vast monetary inflation left to come. With QE3 all but guaranteed to ultimately exceed $1250b, and go much higher if there are any economic hitches, is it reasonable to expect gold to keep falling forever? No way. Beyond futures traders' paranoid gut reaction, QE3 tapering shouldn't be bearish for gold. This metal should soon soar on the rest of QE3!

I suspect the probability nears certainty that gold will be considerably higher when QE3 ends than it was when it begun. It's hard to believe, but the day before QE3 was born this metal was near $1733. For all of human history, inflation has been very bullish for gold. 2013's selloff, the psychological groundwork of which was laid by QE3-tapering fears, was a wildly unprecedented anomaly. And all anomalies reverse.

The contrarian view on next week everyone thinks is crazy is that QE3 tapering will be bad for stocks and good for gold after the initial reactions. It's hard to fight the crowd and think differently, but that is the only way to consistently buy low and sell high. At Zeal our contrarian approach has driven big gains. As of the end of June, all 655 of our stock trades recommended to our newsletter subscribers since 2001 have averaged annualized realized gains of +28.6%!

We have long published acclaimed weekly and monthly newsletters to help speculators and investors cultivate an essential contrarian worldview. In them I draw on our decades of hard-won experience, knowledge, wisdom, and ongoing research to explain what is going on in the markets, why, and how to trade them with specific stocks as opportunities arise. Join us today, we're buying dirt-cheap elite gold stocks due to soar as gold recovers!

The bottom line is the Fed's coming QE3 tapering is likely to have a major market impact. The hyper-overextended stock-market levitation is unlikely to survive the Fed reducing its debt monetizations and resulting interest-rate manipulations. Less Fed bond demand means higher yields, giving investors forced into stocks by the Fed a chance to earn yield income again. Their stock selling should snowball.

And despite gold's merciless hammering this year on QE3-tapering fears, that anomaly doesn't change the fact that QE3 is massive and growing. Just like during QE1 and QE2, sooner or later gold will react to the enormous inflationary growth in the Fed's balance sheet. Even if Bernanke's best-case ideal timeline for tapering QE3 is followed, there is still colossal bond buying coming between now and next summer.

Links 9/14/13

Posted: 13 Sep 2013 11:49 PM PDT

Excerpts From The Mad Scientist's Handbook: So You're Ready to Vaporize a Human Scientific American

Meet ‘Titstare,’ the Tech World’s Latest ‘Joke’ from the Minds of Brogrammers Atlantic (Chuck L)

Crying Kids on Planes Spawn Child-Free Zones, Flight Nannies Bloomberg. Lambert: “Finally!”

Apple's Fingerprint ID May Mean You Can't 'Take the Fifth' Wired (Chuck L). I’m prepared not to buy a single Apple product in the future over this. Appalling. Maybe someone should point out this innovation might also produce a black market in dead people’s index fingers (see the Liam Neeson “Under Suspicion” for a fictional precursor)

Julia Gillard: losing power ‘hits you like a fist’ – exclusive Guardian

Teachers and police clash in Mexico BBC

Germany’s Bismarck temptation and secret pacts with Russia Ambrose Evans-Pritchard, Telegraph

Egypt pursues crackdown on Sinai militants as protests held Reuters

Syria:

Saudis Sending Death Row Prisoners to Fight With Rebels in Syria DS Wright, Firedoglake

Rewarding 'Group Think' on Syria Consortium News (zygmuntFRAUDbernier)

Who Benefits From America’s State of Perpetual War? Chuck Spinney, Counterpunch

Buck Up, America! We Must Have More War! Kevin Drum. Lambert: “When you’ve lost Kevin Drum..”

Syrian Chemical Attack: More Evidence Only Leads to More Questions Global Research (Doug Terpstra). Holy moley.

Obama senior adviser hospitalized twice last week Reuters. Lambert: “At 37?? Sure seems like WH stressed out.”

Texans in Dark on Obamacare as Enrollment Startup Looms Bloomberg

Taft-Hartley Plans Have No Legal Way To Be Eligible For Obamacare Subsidies: White House Official Huffington Post. Lambert: “Obama to unions: drop dead.”

The Pentagon Helped Pay for Gas on These Billionaires’ Private Jets Gawker

Big Brother is Watching You Watch:

Time to tame the NSA behemoth trampling our rights Guardian

Greenwald to testify at spy probe BBC. Brazil. But still…

Fed Message Muddled as Misunderstood Taper Meets Slowing Growth Bloomberg

A Generation ‘Lost’ in the Job Hunt Wall Street Journal

Baltic Dry misfiring again MacroBusiness

Lehman collapse: blame capitalism? Guardian

Senate hurdles increase for Summers Financial Times

Language barriers? The impact of non-native English speakers in the classroom VoxEU

Antidote du jour. Tawal’s cat Smokey is 14!

photo

James Gabraith, Neil Barofsky, and John Coffee Discuss Lessons from Lehman Meltdown

Posted: 13 Sep 2013 11:39 PM PDT

I have to confess that given the length of this panel discussion presented by Better Markets, I’ve looked only at the start, which is quite promising. Given the caliber of the participants, I’m hoping to get to it over the weekend, since it will be a departure from the bromides the MSM seems to be serving up on this anniversary of the Lehman collapse. This talk is oriented towards a discerning audience and offer more insider detail.

COMEX Deliverable Gold Bullion Plunged By 78% in 2013 - Claim Per Ounce Highest On Record

Posted: 13 Sep 2013 11:00 PM PDT

Le Café Américain

Scandal Brewing as Metals Manipulation Cover-Up Nears Crital Point of Mainstream Awareness!

Posted: 13 Sep 2013 10:59 PM PDT

Scandal Brewing as Metals Manipulation Cover-Up Nears Crital Point of Mainstream Awareness!

In this week’s Metals & Markets, Ronald Mann, CEO of DNA Precious Metals joins Eric Dubin & The Doc to discuss: Gold & silver’s anticipated correction likely largely over- look for the metals to rally after the initial cartel smash on next week’s FOMC statement Poland nationalizes retirement funds- a preview of things to come [...]

The post Scandal Brewing as Metals Manipulation Cover-Up Nears Crital Point of Mainstream Awareness! appeared first on Silver Doctors.

Check out these similar articles:
  1. SD Weekly Metals & Markets: JPMorgan Fumbles the Gold!
  2. SD Metals & Markets: Traders Throw Out the Kitchen Sink on Threat of Fed Taper!
  3. Metals & Markets: US Wants War! How Will it Affect the Metals?

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Buy gold and silver and sell stocks says top Wall Street guru Charles Nenner

Posted: 13 Sep 2013 10:26 PM PDT

Charles Nenner has a fine record on Wall Street for accurate, contrarian calls in financial markets. You can visit his website for his roll call (click here). What is he predicting now?

Basically he thinks stocks have already put in a top and will now disappoint and frustrate US investors for many years. The dollar is also about to make a major top before falling back next year along with bonds, and continuing on a downward path for years.

Gold and silver bottoming out

The standout winners will be precious metals as the dollar declines and investors look to preserve their wealth. Look how Indians have won out against a falling rupee with gold that is now at a record price in rupees. It will be the same thing with the US dollar.

Mr. Nenner is a great follower of cycles in commodities and other indicators. He’s presently noting poor readings in the Baltic Dry Index as indicating a downturn in global trade and sickness in Dr. Copper, the king of industrial commodities.

Longer term the trend in global interest rates is now definitely back up so that is bad for bond investors. Pimco’s Bill Gross is not going to be alone in losing big time on bonds. So where does that leave smart investors?

According to Mr. Nenner they should be using a choppy market in precious metals over the next few months to take the contrarian view and stock up on gold and silver.

Presumably a stock market crash will be the last hurrah for the dollar which rises as stocks fall because the liquidation of shares automatically increases demand for dollars. That could also be the $1,100 bottom for gold that Charles Nenner Research has in its sights as a rising dollar is usually bad for gold.

Yet investors need to look further forward than the next month or two. Where will the cycles turn next? If you are a contrarian then you simply hold that when markets change direction they usually go into reverse.

So where we have seen rising stock markets, a stronger dollar, falling gold prices and a weakening bond market there should be a bear market for equities, a falling dollar and rising precious metal prices.

Bearish on bonds

Whether that means the bond market will pick up and interest rates fall is a more difficult call. Mr. Nenner reckons bonds have just come out of a 30-year bull cycle and will go into a long-term bear market with interest rates on a long uptrend.

We have to admit this reading is very close to the ArabianMoney investment newsletter’s viewpoint (subscribe here). Our unique selling proposition is to translate this into the investment perspective of the Gulf States and how it affects investment classes here.

Curiously Mr. Nenner also supports our view that the outlook for high oil prices is good. That means our local asset prices – mainly stock markets and real estate – could continue to inflate in value while those in other parts of the world decline.

This could be quite a rarity if Mr. Nenner’s world view is correct. Imagine what that would mean for local IPOs and house prices. Still Dubai already has the world’s hottest stock market and house prices this year.

Perhaps that’s why we are so confident this website and newsletter also have a great future ahead!

The G20 St. Petersburg Summit: Bubbles, Casinos, and Inactivity

Posted: 13 Sep 2013 09:50 PM PDT

By Sameer Dossani, an advocacy coordinator at ActionAid International, a development NGO dedicated to ending poverty. Cross posted from Triple Crisis

While much of the media coverage around the G20 leaders summit has been about the failure of international diplomacy in Syria, the formal agenda was around one issue: growth. Growth through jobs, growth through transparency, and growth through effective regulation—these were the three themes the Russian government prioritized for this year's summit.

One could perhaps argue that the obsession with growth is appropriate. The US economy—the source of the largest financial crisis since the Great Depression—is again growing, but when compared with previous economic recoveries the pace of growth has been extremely sluggish. Economists estimate that at current rates of growth and job creation, the US will not achieve anything close to full employment before 2022. Most G8 economies—especially in Europe—are in worse shape and even China and India are seeing growth expectations slow down.

But focusing on growth is a bit like treating strep throat with asprin. You may alleviate some of the symptoms, but you're not treating the source of the problem.

Whatever cure the global economy needs must address the structural problems which have led to the current crisis. Diverse as they may be, those structural problems all have the same root—an economic system that prioritizes the interests of global capital over the needs and rights of ordinary people.

Despite the overemphasis on growth, G20 governments have considered reforms—such as ending "too big to fail," substantial reform of the international monetary system, and cracking down on corporate tax dodgers—that could address the root causes of crisis. But to date, there has been little or no implementation of those reforms.

The Bubble Casino's Latest Bust

In the absence of any change in the underlying structure, investors have been playing a game with free money, largely provide by governments engaged in monetary stimulus (Quantitative Easing or QE in the United States). Instead of passing on the gains from free money to consumers, investors have been looking for bets that will ensure both security (investors know that another crisis could be around the corner) and high returns. When they thought that commodity markets fit the bill in 2008-2010, the inflow of money caused havoc for consumers, especially poor consumers who found themselves paying more for food without any increase in wages. Bread riots not seen for a generation returned.

When that bubble deflated in 2010, money flowed out of commodities and towards the emerging markets of Brazil, South Africa, India, China, Indonesia, Turkey, and a few others. But now that QE is winding down, money has already started moving back to Northern markets where investments can again be profitable without the risks involved in developing countries.

We don't yet know the full effect of this latest shift. Currency markets in South Africa, Brazil, India, Turkey and Indonesia seem to be stabilizing after losing as much as 25% of their value against the U.S. dollar over the past year. A replay of the 1997 Asian financial crisis is unlikely. Many countries are in a good situation because they have stockpiled foreign-currency reserves and taken out few foreign-currency-denominated loans. But in an integrated global market, falling currency values mean rising prices; in some countries, food, fuel and other essential items are already more expensive than they were a few weeks ago.

If the G20 really were a "board of directors" of the global economy, they would have left St. Petersburg with a solution to this latest crisis, if not the underlying trend. But the G20 isn't that. It's a forum for discussions, not a rapid-response mechanism (nor even, really, a slow response mechanism most of the time). Except in times of deep crisis, it requests studies, deliberates through its finance ministries, and sometimes reaches sufficient consensus to recommend policy changes or new processes to get agreement on policy changes. Instead of decisive change, the St. Petersburg communiqué refers to a perceived need to "carefully calibrate and clearly communicate" economic policy between countries. The outcome is particularly unsatisfactory given that the G20 has been obsessed with this issue—sometimes under the misleading label "currency wars"—since 2010.

And there are solutions on the table. From the UN Conference on Trade and Development (UNCTAD) proposal to peg exchange rates to inflation, to proposals related to use of a neutral currency, such as International Monetary Fund (IMF) Special Drawing Rights, there are a range of options which would address at least one aspect of this problem—namely, the global over-reliance on the U.S. dollar.

While these solutions would not stop the bubble casino from operating, they might at least slow it down a little.

Taxation and Ending the Reign of the Robber Banker

Over the past few years, our economic system has punished the innocent and rewarded the guilty. But believe it or not, that's not its most troubling feature.

Globally the richest 0.6% of the population controls a little less than 40% of global wealth, meaning that the Occupy Wall Street movement was being optimistic when they coined the slogan "We Are The 99%."

Of the reforms on the table, there are a few that might actually work in terms of taking power away from the tiny elite who continue to profit from this unsustainable system. Many of these relate to taxation.

Taxation gets a bad name for obvious reasons, but at its core, it is one idea that might get us out of our global predicament. It goes after wealth—in a progressive system, the wealthy pay a greater share—and uses it to pay for "public goods" or things that everybody needs. Bridges, highways, airports, not to mention schools, hospitals, clean water—there's no limit to what taxes can pay for. And politicians who don't use taxpayer money to fund better infrastructure, social services, and jobs are likely to find themselves out of work after the next election cycle. A little bit in increased tax revenue can go a long way to addressing a lack of social services and an inability to implement a strong strategy for universal and good-quality employment..

But too many avoid paying taxes. Through a complex network of treaties, companies list income generated in one country as income generated in another, thereby allowing themselves to pay taxes (or not) in places that have little or no corporate taxation and where they don't have to disclose financial information.

To its credit, this year's G20 summit endorsed a plan drafted by the Organization for Economic Cooperation and Development (OECD) to address the issue of Base Erosion and Profit Shifting (BEPS). The summit communiqué includes strong language on the need to address the interests of developing countries in the next steps. But developing countries need to be at the table and it's not clear whether or not they will be.

Potentially, BEPS is a once-in-a-lifetime opportunity. A single process could alter thousands of tax treaties, and political pressure to adhere to stronger regulations could become the norm. Together with new initiatives on "automatic exchange of tax information," these measures could finally compel companies to pay what they owe in countries that they work in, and everyone could at last reap some benefit (not just the banksters).

But even these measures do not go far enough, considering the extremes of poverty and wealth that pervade the global economy. Another proposal that's gotten a lot of attention over the past few years is the Robin Hood Tax. A re-branding of what was once called the Tobin Tax or the Financial Transactions Tax, the Robin Hood Tax would impose a small fee on the international transactions that make up the vast majority of commerce in today's world. The money generated would be significant—hundreds of billions of dollars. Eleven European Union (EU) countries are considering going forward with such a tax, despite recent controversy regarding the legality of such a move. If those countries are bold, they will suggest a higher rate—at least the 0.5% that economist James Tobin originally suggested. At lower rates, the tax would still generate a lot of revenue, but it's not clear that it would do anything to slow down the casino.

Goldman Sachs actually still positive on gold for the longer term

Posted: 13 Sep 2013 09:32 PM PDT

Last week’s headlines focused on the Goldman Sachs statement that it saw a risk of gold falling below $1,000 in the near term, but that is not the whole story. Goldman is still recommending gold as a long term buy for its clients and sees a significant recovery in the price ahead.

Listen to Jeffrey Currie, the head of commodities research at Goldman Sachs talking about the outlook for commodities including gold in Singapore with Haslinda Amin on Bloomberg Television’s ‘Asia Edge’…

Egon von Greyerz: Todays report of confession of JPMs rigging moved gold

Posted: 13 Sep 2013 08:01 PM PDT

GATA

Battered equities lure investors after April bullion rout

Posted: 13 Sep 2013 04:36 PM PDT

Drive to gold equities surges as moves by management to cut costs and rising gold price provide comfort, analysts say.

Nevada Gold & Casinos Management Discusses Q1 2014 Results - Earnings Call Transcript

Posted: 13 Sep 2013 03:10 PM PDT

Nevada Gold & Casinos (UWN)

Q1 2014 Earnings Call

September 13, 2013 4:30 pm ET

Executives

Kenneth Maciora

Michael P. Shaunnessy - Chief Executive Officer and President

James J. Kohn - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Secretary and Treasurer

Analysts

Vincent Staunton - WEDBUSH

Presentation

Operator

Good day, everyone, and welcome to the Nevada Gold First Quarter Fiscal 2014 Earnings Conference. As a reminder, today's presentation is being recorded. At this time, I would like to turn the conference over to Mr. Ken Maciora of Empire Relations Group. Please go ahead, sir.

Kenneth Maciora

Good afternoon, everyone, and thank you for joining Nevada Gold & Casino's Fiscal 2014 First Quarter Financial Results Conference Call. With us today from management are Michael Shaunnessy, President and Chief Executive Officer; and Jim Kohn, Executive Vice President and Chief Financial Officer. Before we begin, I would like to remind you

Goldman warns gold could fall to $1,000 or lower. HSBC disagrees

Posted: 13 Sep 2013 03:09 PM PDT

Mega investment bank Goldman Sachs' senior commodity analyst, Jeff Currie, warns that gold could even drop below $1,000 an ounce, but HSBC has raised its 2013 forecast to $1,446.

Week In FX Asia: Abenomics - Investors' Reckoning Fueled By Hope

Posted: 13 Sep 2013 02:36 PM PDT

At present the dollar bulls may be in control, but in yen translation, the bear has awoken from its slumber as the greenback acquaints itself once again with the coveted ¥100 handle this week. Experienced investors have taken their time revisiting this familiar territory for many reasons. If not for geopolitical or event risk topping the yen's barrier list to medium-term weakness, it was probably the deathly quiet trading month of August that silenced capital markets to the point of near paralysis that pushed traders to the sidelines.

With seasonality excuses all but forgotten, both the EUR and USD bulls are now within striking distance of last May's yen lows. The danger here is that too many market participants are holding the same position and thinking the same thing. Investors are banking on a lot of reckoning. Is Prime Minister Shinzo Abe's proposed consumption tax a fait accompli? Current

Surprise Late Session Rally in Gold

Posted: 13 Sep 2013 02:23 PM PDT

I just completed my weekend interview with Eric King over at King World News for the Metals Wrap. We were discussing the very late in the session price action in gold and talking about the impact of the news story that he broke with Andrew Maguire about the whistleblowers from Morgan and the gold price manipulation scheme.

I remarked at how unexpected the late-in-the-day rally was to me and was wondering what might have caused the surge in volume late on a Friday to produce it.

It certainly appears that as the story made the rounds, a lot of interest was generated in buying both from fresh longs now looking for a bottom as a result and some nervous bears who were unsure how the market would react to it.

We now await the open of trade in Asia Sunday evening to see how traders over there will react to the story and whether or not gold can at least clear the $1330 level to signal whether or not another short term bottom is in the market.

I am putting up a THREE HOUR CHART, to show you the spike upward during the last three hours of trading. I also noticed that for a Friday afternoon, the volume was unusually high. Normally, we see hardly any volume whatsoever that time of the day on a Friday as most traders are long gone for the weekend.

Should be interesting Sunday night - just not sure what we are going to get....

Sept 13.2013/Comex gold inventories decline again/JPMorgan customer gold inventory declines

Posted: 13 Sep 2013 02:13 PM PDT

T. Ferguson & Max Keiser on JP Morgan’s Rogue Commodities Desk Cornering Gold

Posted: 13 Sep 2013 01:30 PM PDT

T. Ferguson & Max Keiser on JP Morgan's Rogue Commodities Desk Cornering Gold

In the latest Keiser Report, Max Keiser and Stacy Herbert discuss America's curse: dollar printing or JP Morgan? They also examine the truth about the fact that despite a mere $4 extra to manufacture a smartphone in America rather than in China, production will remain overseas. In the second half, Max travels upriver to interview [...]

The post T. Ferguson & Max Keiser on JP Morgan’s Rogue Commodities Desk Cornering Gold appeared first on Silver Doctors.

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Gold: a volatile and changeable market ahead

Posted: 13 Sep 2013 01:07 PM PDT

The current low gold prices will encourage further buying of physical metal, but expect the overall picture to remain volatile.

Seabridge buys more of junior with Oregon gold project

Posted: 13 Sep 2013 01:01 PM PDT

As Calico Resources moves the Grassy Mountain project through permitting, Seabridge buys up more shares.

Gold predictions of $2,000 or $5,000 are absurd

Posted: 13 Sep 2013 12:48 PM PDT

From USAWatchdog:
 
Precious metals expert Mike Maloney says, "According to dividend yields, we've never been in a bubble as big as we are today. So, I wouldn't get involved in stocks at these levels. I think they're insane." Maloney wrote the bestselling book, Guide to Investing in Gold and Silver.
 
Maloney says real estate and bonds are also overvalued. The only things undervalued are precious metals. Maloney contends, "I think you are going to see a day when the gold price is double the Dow because…"
 
Read full article…
 
More on gold:
 
Doug Casey: Three stocks to own when gold recovers
 
"Dr. Doom" Marc Faber: The gold crash is over
 
A detailed look at one of the most important numbers for gold stocks now

Gold and Silver Disaggregated COT Report (DCOT) for September 13

Posted: 13 Sep 2013 12:42 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.  As we have done for some time now, this week we are also adding in the net positioning of traders the CFTC classes as "Commercial" in the Legacy COT report.  (DCOT Table for September 13 and Legacy COT commercial positioning for data as of the close on Tuesday, September 10.   Source CFTC for COT data, Cash Market for gold and silver.)  Please note: Data auto retrieved and unverified until this note removed.  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. We also focus on the Legacy COT positioning of traders deemed "Commercial" by the CFTC, which includes Producers, Merchants, Processors and Users, plus Swap Dealers in a single category.  The Legacy COT report preceded the Disaggregated COT report and we have tracked and charted it for many years, focusing on the movement and positioning of commercial traders – The "Big Hedgers."   

SA gold output rises first time in 27 months in July

Posted: 13 Sep 2013 12:42 PM PDT

Data by Statistics South Africa shows that the country's gold production increased for the first time in 27 months in July.

India gold imports seen at $38bn-$40bn in 2013/14

Posted: 13 Sep 2013 12:27 PM PDT

Gold imports are likely to be around $38 to $40 billion in the current fiscal year to March 31, 2014, says the economic adviser to the prime minister.

David Morgan on Hyperinflation, the Dollar, & How Syria Will Affect Gold & Silver

Posted: 13 Sep 2013 12:15 PM PDT

David Morgan on Hyperinflation, the Dollar, & How Syria Will Affect Gold & Silver

In this interview David Morgan and Ellis Martin discuss the geopolitical implications of a new war in the Middle East with regard to Syria and the players both behind the scenes and in full view. Who really is calling the shots? And what effect does any of this have on the price of gold and [...]

The post David Morgan on Hyperinflation, the Dollar, & How Syria Will Affect Gold & Silver appeared first on Silver Doctors.

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Same Play; Different Act for Gold

Posted: 13 Sep 2013 12:13 PM PDT

Nothing has changed in the least iota for gold - it continues to drop through one support level after another as traders/investors simply have no incentive/desire to chase this market higher. If anything, they are shorting it.

This is why I have been trying to publicly rebut that nonsense out there that gold is in backwardation and is therefore wildly bullish. Guess what? The market action tells me that it could care less about that sort of claptrap. You will get some who should recant this stuff but instead they will blame it on the nefarious bullion banks instead.

Also, while JP Morgan was the big buyer/stopper during last month's gold delivery process, this month they have been issuers/sellers out of their House account, albeit not to the same extent that they were buying last month.

Look, I agree that the feds have a vested interest in keeping the gold price under wraps as it competes directly with the  US Dollar but we have a proven track record of the Commitment of Traders for over 12 years now detailing that the nasty bullion banks are always selling DURING UP MOVES... if they do anything while price is breaking lower, they are covering shorts or buying. The current wave of selling that has been occurring in the gold market this week is largely due to hedge funds, not the bullion banks.

We will get this week's  report later on today and I can analyze it then but it should be noted that it will not include the price action from Wednesday through today and I can tell you fairly confidently that it was not bullion bank selling that took the market down through $1360 - $1350 and again through $1320. It was hedge funds... what the bullion banks were doing was selling up near $1400 as the remaining vestiges of hedge fund shorts who were exiting were buying. They provide the cap and then let the hedge fund computers take over but they DO NOT CHASE PRICE LOWER. PERIOD!

Arguing against the price action is a fool's errand and is the last refuge for those who are wrong and cannot admit it. As I have said many times, there is nothing to be ashamed at when one is wrong about a market's direction. We all have been there ( I surely have many times) as we are all mere mortals and are not omniscient (there is only one Being that is). The key is to quickly admit that the market does not agree with you and take corrective action if you are a trader so as to avoid suffering serious losses. Doggedly refusing to acknowledge the obvious however is a recipe for disaster especially in the futures markets where the extreme leverage can inflict such carnage in such a short period of time.

What I am taking away from the recent price action is that gold is back to experiencing "Tapering" jitters. Hedge funds apparently are more and more losing their concerns about the degree or extent of any Fed tapering and thus are becoming emboldened to play gold from the short side as there is yet no solid evidence of widespread inflation issues. Just today Goldman came out with a recommendation for investors to use any bouts of weakness in the equity markets to accumulate stocks as they see a "dovish" tapering of only $10 billion per month if the Fed moves in that direction.

While that may be good for stocks in Goldman's view, apparently gold is getting increasingly nervous about it.

Incidentally, one has to marvel at how the Dow people included Goldman and Visa in the Dow "INDUSTRIALS". My suggestion is that they just scrap the entire term and replace it with "those stocks which go up". I am waiting for them to throw out another one of the Dow 30 and replace it with Tesla.

There is a mixed signal coming from the food sector where the grain markets have become a two-sided affair. On the one hand, the corn market finally experienced an epiphany today as it comes to terms with what looks like a record breaking corn crop. Corn prices scored a THREE YEAR LOW today. Corn is such an integral part of the protein side of our diets as it is the main feed ingredient for cattle, hogs and poultry. With falling corn prices hopefully comes cheaper meat/poultry over the longer term although near terms issues will dictate current price levels. That will tend to keep food prices a bit tamer than they would have otherwise been thus pulling away a key part of the inflation picture.

On the other hand, soybeans have been on a tear of late as the recent bout of hot/dry weather over large parts of the Midwest have turned what at one time looked like a record breaking crop into a much lower than originally expected national yield. This will impact poultry producers and hog producers to a certain extent but not nearly as much as corn will impact them in the other direction in my view.

All in all, I do not see the same upward price pressures in the food sector looking out as I did at this time last year. It could be some of the eagerness to press gold lower is coming from this concern. For whatever the reason, the gold market is simply not attracting sufficient buying interest from Western investors to drive it higher at the current time.

About the only positive that I could see in the gold sector today was the fact that the HUI did not implode even though it remains lower as I type these comments.

The yield on the Ten Year remains just shy of the 3% level having backed off from that key point this week. Still, when one considers that at the first of May the yield was 1.6%, that is rather stunning for the degree of increase in less than 5 months. After all, it has almost doubled!

As far as the gold chart goes - it is the same from yesterday except the price is lower. Gold is perched quite precariously right at a chart support level, which if it does not hold, will allow the market to fall through psychological support at the $1300 level. It barely held on today moving to within less than $5 before rebounding somewhat. It is trying to hold here in the afternoon which is constructive but I need to see this market push back above $1330 before I would be a bit more comfortable or optimistic about it.

The thing that gets my attention is the fact that the ADX line is continuing to rise as the price moves lower. This is indicative of a market that is entering a trending phase but as I stated yesterday, I generally like to see the ADX ABOVE the 20 level to confirm that. The indicator does however show the bears currently in control of the market with the market unable to stay above the 50 day moving average as it did yesterday. The prognosis near term is for further weakness unless the bulls can come out swinging Sunday evening and force some sort of abrupt turnaround.

MineWebs Lawrence Williams remarks on how obvious gold market manipulation is

Posted: 13 Sep 2013 12:02 PM PDT

GATA

Sprott: Gold knocked down now to prepare for scuttling of Feds bond taper?

Posted: 13 Sep 2013 12:02 PM PDT

GATA

ASX smallcaps in boisterous form after Abbott's election victory

Posted: 13 Sep 2013 12:00 PM PDT

Ramelius taps shareholders for its Vivien gold development, Toro Energy hits high uranium grades at Wiluna and Investigator Resources intersects shallow silver at Alexander.

The Hard Lesson of Lehmans for a Gold Bear

Posted: 13 Sep 2013 11:42 AM PDT

Think only emerging markets need gold and silver? This ex-bear did before Lehmans...
 
THIS SUNDAY, September 15, marks the five-year anniversary of the collapse of Lehman Brothers, writes Miguel Perez-Santalla at BullionVault.
 
Lehman Brothers was large international bank based out of New York. They were well-respected. In fact, they were considered a rock in the marketplace.
 
The week before it happened I recall receiving a telephone call from a customer, way down in Colombia. He asked me if I had heard that Lehman Brothers was in financial difficulty and on the verge of bankruptcy. I was incredulous at the time. Sure, all the banks were in trouble. But I hadn't heard any concrete news from sources about LEH in my market – physical precious metals. Knowing Lehmans reputation (if not its balancesheet; they weren't a counterparty to my activity), I just couldn't imagine it.
 
Yet my customer was right. A few short days later Lehman Brothers declared bankruptcy. The weekend prior they had been trying to get funding or support from the Federal Reserve and any other banking organizations. Having failed to get funding they defaulted on transactions. This collapse would have a domino effect.
 
Of course, all this was preceded by Fannie Mae and Freddie Mac having to be bailed out by the Federal Reserve. Other groups such as AIG, Bear Stearns, Merrill Lynch and the like found homes or benefactors and in essence were rescued. Lehman was allowed to collapse. Why?
 
Some say it's because Lehman held a great proportion of foreign assets. So it was not as necessary to the US economy. Others say it was banking politics. But whatever the true reason, it is water under the bridge now, just like the Lehmans brand.
 
At that time gold was trading near the $900 per ounce level. I believed that to be on the high side, actually expecting gold to trade down to around $700. In fact I was a bear in the marketplace and was often quoted as such in periodicals while I was working for Heraeus Precious Metals in New York. Even though the injection of capital through Tarp coming down the pike should have given me a tip to what was possible from our central banking construct. I couldn't imagine what was about to begin.
 
When Lehman collapsed they had to liquidate positions. Gold was one of many commodities to be affected. The price of gold traded as low as $680 in the coming days. But it started to rise when central bank activity became clear. First we had huge injections of instant liquidity with central bank loans. Then interest rates were cut almost to zero to help ease pressure in the financial marketplace. But this was not enough, as the mortgage crisis was not an insulated event. It was an event of international magnitude.
 
Soon following it became evident that the proportions of the credit expansion – and its collapse – exceeded US borders. It reached into faraway economies such as Iceland, one of many nations to be devastated by the credit crunch. The United Kingdom followed suit, having emulated our business model in the housing and credit markets. The financial world was a shambles, and the banking sector seemed doomed to collapse.
 
This alone should have been enough for me to become a bull for gold and silver. Yet, I thought the lack of cash in people's pockets would actually be a negative factor depressing the precious metals prices. Which it would, perhaps, if the politicians and central banks hadn't decided the only way to save the whole system was to pump cash into bank balance sheets, maintain their liquidity, and avoid further Lehmans-style defaults at all costs.
 
I remember it like yesterday; my older brother swearing that the Fed would pump cash to plug the holes – like giant potholes – in our economy. In this world of fiat currencies, this would enable our country to continue to keep on trucking. But the central banks would need to do more than just fill the potholes. To try and generate growth they wanted to increase liquidity. Greasing the gears meant printing more money again.
 
The Federal Reserve Bank had to create new ways to inject capital into the system, such as buying asset-backed commercial paper, increasing credit lines, adding new swap lines, buying back troubled assets and having the FDIC increase the deposit insurance on bank accounts. These were all precursors to Quantitative Easing, which is a similar construct, but creates money directly to buy government bonds.
 
Many people, much smarter than I and fearing runaway inflation, began to buy gold. Gold had already broken the $1000 an ounce mark in March 2008 and was to do it again in February 2009. At first I still did not get caught up chasing the price. I'd seen gold nearly as low as $250 an ounce less than 10 years ago; it seemed preposterous to me for the public to buy widely at these high prices.
 
Yes, I always understood the safe-haven mechanism of gold and silver. I had been in the business long enough to see the need that exists for solid insurance, especially in what we used to call Third World and now emerging markets. But I confess – I never imagined that it could happen in the United States of America.
 
Once Quantitative Easing began, it became apparent that saving the banks and the economic system was more urgent than either saving the jobs of the average citizen or protecting their welfare by avoiding inflation. It finally started to click with me, too. The new issuance of money was in reality a form of taxation to pay for the iniquities of the financial system.  It was also, in so small a way, due to the incredible push of the US government – through legislation – to lend money to the poorest of the poor to buy homes which they couldn't afford. Rescuing the banks which had made those bad loans meant settling the banks' own debts with their creditors. So the 2008 bailouts were also tantamount to giving away our tax money directly to Wall Street.
 
Understanding this, I realized the urgency of gold and silver investment as insurance right here in the US. Previously, as I said, such thinking seemed alien in the world's most developed economy. I used to think of precious metals – such as my wife's jewelry – only as a last line of defense, the final asset to sell as a last resort in really bad times. But since the Lehman collapse 5 years ago, I am convinced that everyone who has any savings or assets should also hold gold and silver, simply in case our financial system hits another wall. Because it can, and it did.
 
We are still not out of the woods; the US GDP is anemic at best. The US is underemployed, although the statistics keep getting massaged to show otherwise. College kids are not able to find employment , even after having spent untold amounts of money for education they may never be able to pay for. So not only has the government vastly increased personal debt with the idea of home ownership for everyone. They've put the same weight tied around the necks of our young generation, through the idea of college for everyone.
 
Five years out from September 2008 we have not seen the people responsible held accountable either. The problem? Many of the culprits are in government themselves. Barney Frank, for instance, was an integral proponent of the loose money-lending prior to the mortgage collapse. Then we have those that weakened the laws and methods surrounding mortgage applications and bank leverage ratios. Where are they now? Heading for the chairmanship of the Federal Reserve, apparently.
 
Will we ever see real justice? Will the middle class regain their position and jobs? In my view the current structure of our government, the antibusiness environment, and the over-regulation of what some laughably call "free market capitalism" is all driving away many of the better jobs that used to exist in this country.
 
I love my country, but we sure make a lot of blunders. The collapse of Lehman Brothers may have been a critical moment in US history. But instead of learning and improving how we arrange our society, our governing bodies have decided to choke off business instead. I see firsthand how many productive industries are now leaving our shores.
 
Maybe through some miracle the trend may be reversed, and we can once again regain our position as the center of financial power and productivity. But meantime, and accepting that the US today looks too much like those Third World countries I used to believe were so different, the only sure protection afforded us remains those assets that never lose their intrinsic value, whatever the price today: gold and silver.

Gold Price In India: Did Gold Stop to Respond to the Rupee Price Moves?

Posted: 13 Sep 2013 11:07 AM PDT

SunshineProfits

JP Morgan Going Long? This is a Sucker’s Play! – Bill Murphy

Posted: 13 Sep 2013 10:50 AM PDT

JP Morgan Going Long? This is a Sucker's Play! - Bill Murphy

While the Federal Reserve continues flooding the financial system with newly printed dollars and discussion of war between the U.S. and Syria continues, the only investments that have never gone to zero and have proven throughout history to preserve wealth through times of economic and political turmoil ironically continue to fall! In this exclusive interview*,  [...]

The post JP Morgan Going Long? This is a Sucker’s Play! – Bill Murphy appeared first on Silver Doctors.

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Nigel Farage on Global Warming: It is Time to Stop the Stupidity!

Posted: 13 Sep 2013 10:45 AM PDT

Nigel Farage on Global Warming: It is Time to Stop the Stupidity!

Our favorite member of the European Parliament Nigel Farage has unleashed another epic rant on Van Rompuy and Barroso, destroying the climate change carbon tax agenda of the globalists by informing the European Parliament that new NASA photographs of the polar ice-caps reveal an astonishing 60% growth in the northern icecaps in the past 12 [...]

The post Nigel Farage on Global Warming: It is Time to Stop the Stupidity! appeared first on Silver Doctors.

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Polish Pension Bail-In is a Preview: Your Wealth Will be Seized!

Posted: 13 Sep 2013 10:40 AM PDT

Polish Pension Bail-In is a Preview: Your Wealth Will be Seized!

Andy Hoffman and Jeff Nielson join the SGTReport for an in-depth precious metals and monetary Ponzi update. At the front of mind is the Polish government's announcement that it has seized 50% of privately-owned pension funds from its citizens to shore up government fiscal shortfalls. It's a BAIL-IN, though the mockingbird media has refused to [...]

The post Polish Pension Bail-In is a Preview: Your Wealth Will be Seized! appeared first on Silver Doctors.

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  3. Cyprus Parliament Set to Vote Today AGAINST Bail-In

Zero Hedge: Make That A Pink Hello Kitty Vibrator, Please

Posted: 13 Sep 2013 10:30 AM PDT

Zero Hedge: Make That A Pink Hello Kitty Vibrator, Please

Zero Hedge has become the go-to blog covering general finance.  With multiple editors working under the pen name "Tyler Durden," a reference to the movie Fight Club, the site consistently cranks-out leading-edge analysis and commentary on the financial markets. But just how did they become as big as they are?  Perusing their site, one story [...]

The post Zero Hedge: Make That A Pink Hello Kitty Vibrator, Please appeared first on Silver Doctors.

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Jewelry Stocks – a Turnaround Gem and a Vulnerable Short

Posted: 13 Sep 2013 10:18 AM PDT

In the jewelry store space, Zale Corp (ZLC) is a surprisingly attractive growth play, while Blue Nile (NILE) is a compelling short.

The names considered here are:

  • Blue Nile (NILE) – Online retailer of mid-level diamonds and other jewelry
  • Signet Jewelers (SIG) – US / UK jewelry & watch retailer with solid growth metrics
  • Zale Corp (ZLC) – US retailer with significant turnaround transition in play
  • Tiffany & Co. (TIF) – Luxury bellwether with an international customer base

Blue Nile is the most vulnerable of the four, due to heavy competition (specifically from Amazon.com) and contracting profit margins. While NILE has been successful in growing revenue, the company has not been able to convert revenues to profit growth. 

NILE currently sports the lowest gross profit margins of the group (18.8% versus a range of 40% to 57% for competitors), and these margins have been declining over recent quarters.

There are a number of serious concerns surrounding Blue Nile’s ability to remain competitive:

• NILE places a heavy emphasis on not having the costs of brick and mortar stores. But we have already seen B&M stores aggressively undercut online only retailers.

• Amazon.com represents a fierce competitor in that Amazon is willing to compete on price alone (and historically has been willing to sustain losses to capture market share).

• A large part of NILE’s competitive advantage could evaporate if online state sales tax measures are passed.

• NILE has difficulty moving high-end merchandise ($25K plus rings etc.) which are the items that represent the highest profit margins for competitors.

• Alexa traffic rankings indicate that NILE web traffic recently hit some of the lowest levels seen in years.

Given the company’s premium growth valuation (36 times 2014 EPS expectations) and potential for investor disappointment, NILE could fall significantly while still maintaining a growth multiple. A 40% price decline would leave the stock near $23 where it found support last year, and would still represent a respectable PE ratio of 20 times 2014 expectations.

If analysts were to revise projected EPS lower based on shrinking profit margins and increasing competition, NILE could fall much farther as valuation multiples collapse in-line with shrinking estimates.

Zale Corp, on the other hand could represent significant blue-sky opportunity as the company’s turnaround progresses. Zale Corp recently reported its first full-year profit following five straight years of losses.

During the recession, Zale Corp struggled with high inventory levels and a heavy debt load. Falling revenue and high costs of maintaining retail locations compounded with debt servicing costs to nearly put the company out of business. The stock traded below $1.00 per share in 2009 and has languished with a single digit stock price since the financial crisis began in 2008.

In early 2010, Theo Killion took over the CEO position following a disappointing Christmas season. The new CEO negotiated a $150 million capital infusion from private equity firm Golden Gate Capital which has been instrumental turning the company around.

For the July quarter, Zale Corp boasted comp store sales growth of 5.6% and a gross margin at 53.1%. Zale Corp is aggressively cutting expenses by closing non-performing stores, while growing sales aggressively at existing locations.

While the advance in ZLC’s stock price has been tremendous (a 200% run since mid-May), there is still significant blue-sky opportunity for additional gains. The stock is rallying following years of terrible sentiment, and it is still unclear just how quickly the company could grow earnings.

Analysts are currently forecasting annual EPS of $0.73 in two years. This leaves ZLC trading at 20 times July 2015 expectations; a healthy growth multiple but by no means an excessive valuation. Analysts have been revising earnings targets higher (increasing next year’s estimates by 24% over the past 60 days), a trend that could very well continue as Zale Corp continues to cut costs, grow comp-store sales, and reduce its debt-to-equity ratio.

It is difficult to determine exactly how high earnings estimates could climb, given how early it is in the recovery stage for Zale Corp. Considering the dramatic turnaround in profitability, it would not be surprising to see analysts continuing to adjust expectations higher as Zale Corp executes on its recovery process.

With potential for continued acceleration of earnings expectations, ZLC could represent a moonshot growth opportunity (although we would like to see some consolidation or a pullback before allocating capital).

Both Signet Jewelers and Tiffany appear to be relatively fairly valued with no material trade opportunity on the horizon. Tiffany could become interesting as a growth candidate, with the key question being how well the company can generate growth in China.

The next two reporting periods (with Q4 covering the key holiday period) should help to clarify Tiffany’s long-term growth prospects.

We’ve got ZLC on our radar as a long-term turnaround / growth play, and NILE as a vulnerable short candidate.

Silver demand: When investment trumps industrial

Posted: 13 Sep 2013 09:16 AM PDT

A slackening U.S. economy typically means that a slowdown in industrial demand for silver will soon be forthcoming. Nevertheless, the re-monetization of silver would more than take care of any such slump in demand.
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