Friday, October 25, 2013

Gold World News Flash

Gold World News Flash


So much for China concerns

Posted: 25 Oct 2013 12:30 AM PDT

from Dan Norcini:

Yesterday the focus was on concerns about a potential slowing of Chinese growth as officials there let it be known that they were attempting to throttle back a housing market that is showing serious signs of price inflation. That led to widespread selling of growth related commodities across the board as evidenced by the sharp selloff in crude oil ( a good deal of this was related to the increase in crude oil stocks as well) and in copper, a particularly growth sensitive metal. It also tripped up gold.

Talk about a change in sentiment in one day! Today the tone was set by more abysmal economic data coming out of the US. Factory activity showed the slowest gains in a year.

Read More @ TraderDanNorcini.Blogspot.com

Williams, Fitzpatrick, Ing interviewed by King World News

Posted: 24 Oct 2013 11:57 PM PDT

2p ICT Friday, October 25, 2013

Dear Friend of GATA and Gold:

King World News today has gold-related interviews with Singapore fund manager Grant Williams --

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/25_T...

-- Citigroup analyst Tom Fitzpatrick --

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/24_3...

-- and Canadian market analyst John Ing:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/24_S...

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



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3 Fantastic Charts Showing Gold & Silver To Continue Surge

Posted: 24 Oct 2013 11:00 PM PDT

from KingWorldNews:

Gold is breaking through resistance around $1,343 and should move towards the $1,430. We continue to be of the bias that Gold is setting up for a multi-year rally and a break above the $1,522-$1,532 area would solidify this view. In periods in which Gold does well, Silver actually outperforms.

It is already setting up a double-bottom which targets $24.40 and an overshoot of that area could take Silver towards $26 in the near-term.

Tom Fitzpatrick continues @ KingWorldNews.com

While Bernanke May Not Understand Gold, It Seems Gold Certainly Understands Bernanke

Posted: 24 Oct 2013 10:30 PM PDT

from Zero Hedge:

“We see upside surprise risks on gold and silver in the years ahead,” is how UBS commodity strategy team begins a deep dive into a multi-factor valuation perspective of the precious metals. The key to their expectation, intriguingly, that new regulation will put substantial pressure on banks to deleverage – raising the onus on the Fed to reflate much harder in 2014 than markets are pricing in. In this view UBS commodity team is also more cautious on US macro…

 

Via UBS,

In testimony in front of the Senate banking committee in July, Ben Bernanke made an unusual comment; ‘nobody really understands gold prices and I don't pretend to understand them either’. That’s a surprising admission, because, as head of the central bank that controls the word’s reserve currency, we think Bernanke should understand gold. Because gold, in our view, is a critical barometer of the state of global credit.

Many clients have asked us whether gold is an inflation hedge. The chart below suggests not.

Read More @ ZeroHedge.com

The Ongoing War In The Gold Market Continues To Rage

Posted: 24 Oct 2013 10:29 PM PDT

Today one of the most highly respected fund managers in Singapore spoke with King World News about the ongoing war in the gold market which continues to rage. Grant Williams, who is portfolio manager of the Vulpes Precious Metals Fund, noted, "I think the Goldman Sachs 'Slam Dunk' sell call on gold was a crazy one at the time, and the subsequent price action in gold has left them with egg on their face." Williams also spoke about what to expect going forward in this timely and powerful interview below.

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

TIME TO SIT ON THE SIDELINES

Posted: 24 Oct 2013 10:07 PM PDT

Stocks:
My best guess continues to be that stocks will extend this consolidation on Friday and then deliver one more push higher into the FOMC meeting next week. I expect the Fed will confirm no tapering which will likely trigger a big rally and probably reversal as smart money traders sell into the emotional move. Barring an immediate Fed intervention, that should give us the drop down into the half cycle low.
At that point one could enter long positions and use the half cycle low as your stop.
Dollar:
We should be coming down to the final few days in this yearly cycle decline. As you can see in the following chart the dollar is rapidly approaching that major support zone we talked about between 78.90 and 78.60.
Again I think the FOMC meeting next week will be the trigger to put in this bottom. As I said earlier I expect the Fed will confirm no taper this year. That would likely cause a final spike down in the dollar where smart money traders will cover shorts on the news and reverse position to go long, leaving emotional retail traders holding the bag again.
Most bear markets will make one final test of the 200 day moving average before really starting to accelerate to the downside. I think this is probably what is in store for the dollar index over the next 4 to 6 weeks. A final counter trend move back up to test the underside of the 200 day moving average along with a resurgence of taper talk as traders try to rationalize some reason for the rally.
Gold:
I'm going to start off today by revisiting the one-year gold chart. As I have noted on the chart, there are several key levels where we saw blatant manipulation in the gold market. Back in late May and early June gold was clearly capped at the $1425 level to set up the final June crash. Not surprisingly this intermediate rally was also capped at that exact same level even though the dollar still had a long way to fall in its intermediate cycle low.
The next blatant manipulation came almost immediately after the September FOMC meeting where it was confirmed that tapering was off the table for the rest of this year.
With the dollar rapidly approaching an YCL, and gold chewing through a lot of days in this daily cycle I suspect we are going to see a concerted effort made to hold gold at or below that FOMC top over the next week. If one is holding long positions I think that is the level where I would sell.
If on the other hand gold can manage to break through that $1375 manipulation zone, there is very little chance it is going to make it past the $1425 level and 200 day moving average before this daily cycle tops. At that point gold will almost certainly drop down into a daily cycle low that will retest the $1350-$1375 level before making another attempt at penetrating the $1425 zone.
What I'm trying to say, is that there is no compelling reason to risk capital right now under the assumption that we are moving higher, because we will almost certainly make this same trip twice.  With a major dollar bottom probably only 3 to 4 days away, and manipulation likely to return at $1375 level, it doesn't make a lot of sense to roll the dice right here and hope the rally continues.
If it does continue, then great, it will confirm an intermediate cycle bottom occurred at $1250. But the buy point will still be at the next daily cycle low, which will likely be at about the same level as we're at today.
I know it's hard for many people to sit on the sidelines, but there are times when that is the correct investment strategy. I suspect more money has been lost in the markets due to impatience than just anything else. With the multiple threats of the $1375 manipulation level, and impending dollar rally hanging over this market, I think it's important to not let emotions force one to make a mistake that one logically knows doesn't have to be made at this point.
This market isn't going to runaway from us. Runaway moves occur during a third or fourth daily cycle, not a first. Sentiment is still too depressed during a first daily cycle to generate a runaway type move. And after the kind of bear market we've seen, the bears aren't going to roll over and die easily. They most certainly aren't ready to give up yet. I expect they are going to return in force at the $1375 level while at the same time a lot of savvy longs are going to take profit at that level.

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Media Gets It Wrong — Debt Ceiling Suspended (Permanently), Not Raised

Posted: 24 Oct 2013 10:00 PM PDT

from Wealth Cycles:

1: A common misperception, which mainstream media editors carefully present (read any debt ceiling article over the past four weeks), and gold commentators quickly parrot, is that "the debt ceiling is raised."

This is untrue. The debt ceiling is suspended, in our view, permanently. Those who understand U.S. legislative procedure are acquiring gold, and this is why monetary metals prices jumped one day after Credit Suisse's Tom Kendall opined that "when you've got other asset classes, equities in particular, doing so well, then it's hard to divert investments out of them and into something like gold, which is falling." So far Signal's Strong That Metals Bottom Is Here has proven out a grand opportunity for accumulation of precious metals and getting rid of excess dollar exposures, gold never returning near the dollar’s high, at $1,180 per troy ounce.

Read More @ WealthCycles.com

Central banks drop tightening talk as easy money goes on

Posted: 24 Oct 2013 09:40 PM PDT

By Simon Kennedy and Jeff Kearns
Bloomberg News
Friday, October 25, 2013

http://www.bloomberg.com/news/2013-10-23/central-banks-drop-tightening-t...

The era of easy money is shaping up to keep going into 2014.

The Bank of Canada's dropping of language about the need for future interest-rate increases and today's decisions by central banks in Norway, Sweden, and the Philippines to leave their rates on hold unite them with counterparts in reinforcing rather than retracting loose monetary policy. The Federal Reserve delayed a pullback in asset purchases, while emerging markets from Hungary to Chile cut borrowing costs in the past two months.

"We are at the cusp of another round of global monetary easing," said Joachim Fels, co-chief global economist at Morgan Stanley in London.

... Dispatch continues below ...



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Policy makers are reacting to another cooling of global growth, led this time by weakening in developing nations while inflation and job growth remain stagnant in much of the industrial world. The risk is that continued stimulus will inflate asset bubbles central bankers will have to deal with later. Already talk of unsustainable home-price increases is spreading from Germany to New Zealand, while the MSCI World Index of developed-world stock markets is near its highest level since 2007.

"We are undoubtedly seeing these central bankers go wild," said Richard Gilhooly, an interest-rate strategist at TD Securities Inc. in New York. They "are just pumping liquidity hand over fist and promising to keep rates down. It's not normal."

Normal or not, that's been the environment now for five years after monetary authorities fought to protect the world economy from deflation and to hasten its recovery. In the advanced world, central banks drove interest rates close to zero and ballooned their balance sheets beyond $20 trillion through repeated rounds of bond purchases, a policy known as quantitative easing.

The economic payoff has been limited. The International Monetary Fund this month lopped its forecast for global economic growth to 2.9 percent in 2013 and 3.6 percent in 2014, from July's projected rates of 3.1 percent this year and 3.8 percent next year. It also sees inflation across rich countries already short of the 2 percent rate favored by most central banks.

Central bankers are on guard to keep low inflation from turning into deflation, a broad-based decline in prices that leads households to hold off purchases and companies to postpone investment and hiring.

"There is a concern at central banks that what we're seeing is another false start in their economies," said Michala Marcussen, global head of economics at Societe Generale SA in London. "We now need to see two to three months of better numbers before they're willing to contemplate an exit again."

After flirting for months with the idea of curtailing stimulus, the Fed said in September it would continue purchasing $85 billion of bonds a month, citing the need to see more evidence that the U.S. economy will improve.

That came less than two weeks before a 16-day U.S. government shutdown that postponed releases of key data the Fed is relying on to guide its policy decisions. The Fed's strategy also took a hit from this week's news that employers added fewer workers to payrolls than projected in September.

The Fed will wait until March before slowing the pace of its third round of quantitative easing, according to the median estimate of economists in an Oct. 17-18 Bloomberg survey.

"If you look at where we are economically versus where we were a year ago, we're virtually in the exact same place," Gary D. Cohn, president of Goldman Sachs Group Inc., said yesterday in a Bloomberg Television interview with Stephanie Ruhle. "So if quantitative easing made sense a year ago, it probably still makes sense today."

That leaves central banks elsewhere likely to maintain a bias toward easing. Moving to tighten before the Fed is ready to do so would drive up currencies against the dollar, to the detriment of exports, said Derek Holt, vice president of economics at Bank of Nova Scotia in Toronto.

The Bank of Canada, citing "uncertain global and domestic economic conditions," yesterday omitted language it used in previous decisions referring to the expected "gradual normalization" of its benchmark rate, now at 1 percent.

The Riksbank kept its rate at 1 percent today and said it sees it at 1.15 percent in the fourth quarter next year, versus 1.25 percent in September. "The repo rate needs to remain at this low level until economic activity is stronger and inflation rises," it said. Norway left its benchmark rate at 1.5 percent today, a month after signaling it will move toward tighter policy as house prices and consumer debt hover at record levels.

The Philippines also held its rate at a record low 3.5 percent to support Southeast Asia's fastest growing economy as inflation stays within the central bank's targeted range.

"There's an easy-money bias across global central banks that probably will persist until about March or April," said Holt. "The Fed's decisions complicated the exit strategies for a lot of central banks."

If the Fed's delay extends the decline in the dollar, then the Bank of Japan and the European Central Bank also are more likely to add fresh stimulus, Fels said in an Oct. 20 report. The ECB is likely to offer banks another round of cheap, long-term loans in the first quarter, while the BOJ may ease more to offset a 2014 consumption tax increase, Citigroup Inc. economists said in a report yesterday.

The dollar has declined 1.1 percent against a basket of 10 leading global currencies in the last month, according to the Bloomberg U.S. dollar index.

Some central banks in emerging markets are already acting. Chile unexpectedly lowered its benchmark rate by a quarter point to 4.75 percent on Oct. 17, pointing to weaker growth, inflation and the global outlook. Israel surprised analysts on Sept. 23 when it cut its key rate a quarter point to 1 percent, the lowest in almost four years.

"With the dollar much weaker in recent days and weeks, you'll see central banks that were reluctant to ease start to do that now," said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group Ltd. in New York. "They can be less worried about capital flight if the Fed isn't tightening policy, and the strength in their currencies is probably imparting some disinflation into their economies, giving them a window to cut rates."

Hungary, Latvia, Romania, Serbia, Sri Lanka, Egypt, and Mexico have also eased since the start of September although Indonesia, Pakistan, Uganda, and India tightened, with the latter softening the blow by relaxing liquidity curbs in the banking system at the same time. Chinese policy makers have also been draining cash from the financial system.

Even those central banks with limited room to act are using so-called forward guidance to deter investors from betting on an imminent increase in rates. The ECB vows to keep its main rate at 0.5 percent for an "extended period" and the Bank of England is pledging to maintain its benchmark at the same level at least until unemployment falls to 7 percent, which it doesn't expect to happen for three years.

The Bank of Japan is trying to expand its monetary base by 60 trillion to 70 trillion yen ($720 billion) to bring inflation up to 2 percent.

The Fed also depends on forward guidance as a policy tool. Officials have repeated in every policy statement since December that their target interest rate will remain near zero "at least as long as" unemployment exceeds 6.5 percent, so long as the outlook for inflation is no higher than 2.5 percent.

"It's hard to look around and see much changing on the rate front," said David Hensley, director of global economic coordination at JPMorgan Chase & Co. in New York, who forecasts the average interest rate in developed economies to hold close to the current 0.40 percent for another year.

The cheap cash may come at a price that policy makers will have to pay later if it inflates asset bubbles. Germany's Bundesbank said this week that apartments in the country's largest cities may be overvalued by as much as 20 percent. In the U.K., Band of England officials are rebutting suggestions of a housing bubble. Asking prices in London jumped 10.2 percent in October from the prior month, Rightmove Plc said Oct. 21.

Bank of England Governor Mark Carney today unveiled a revamp of the central bank's money-market operations to widen access and cut the cost of liquidity insurance to the financial system. The BOE will expand the range of collateral it accepts in its facilities and offer money for longer periods on cheaper terms, Carney said in a speech in London.

Swedish and Norwegian property markets are also proving a concern to their central bankers, and policy makers in New Zealand and Singapore have already sought to cool demand. Meantime, U.S. stocks are heading toward the best year in a decade with about $4 trillion added to U.S. share values this year.

"The bubble conditions are going to remain in place," Michael Ingram, a market strategist at BGC Partners LP in London, told Bloomberg Radio's Bob Moon yesterday. "We could well see further stimulus."

For now, such concerns are being overridden by a need to enhance economic expansion. The U.S. unemployment rate, at 7.2 percent in September, is still only the lowest since November 2008 and joblessness is 12 percent in the 17-nation euro area.

"Whatever their official mandates, central bankers are supposed to safeguard a nation's real income," Karen Ward, senior global economist at HSBC Holdings Plc in London, said in an Oct. 21 report. Labor markets from the U.S. to U.K. suggest "we shouldn't fear a rapid withdrawal of global liquidity any time soon.'

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US Dollar Valued In Gold Since 1718

Posted: 24 Oct 2013 09:00 PM PDT

Le Cafe Américain

A Giant I Told You So!

Posted: 24 Oct 2013 08:00 PM PDT

by Kerry Lutz, FinancialSurvivalNetwork.com:

I've been telling you since April of this year that Obamacare was going to be an epic fail. How much of a fail surprised even me. What I never expected was the administration's headlong rush to release the website armed with the knowledge of certain failure. Imagine Apple or IBM doing such a thing. Sure they release products with bugs all the time, but they're still usable. They would never release a product that wasn't functional. The administration knew exactly what was going to happen and yet they chose to release Healthcare.gov anyway. That is scary. Rational leaders, who really want the best for their country, just don't do things like that. I'm not going to speculate on their deeper motivations, but rather I simply am observing that nothing going on right now makes any sense. Please draw your own conclusions.

It's what will happen next that needs your immediate attention and concern. If this were a normal situation and a normal administration, the program would be scrapped and/or delayed. Since it's not, you must prepare for utter chaos and a complete healthcare meltdown.

Read More @ FinancialSurvivalNetwork.com

John Manfreda - Gold Manipulation Is Over?

Posted: 24 Oct 2013 07:29 PM PDT

John Manfreda, via Wall St For Main St, discusses: (1) How he believes that Gold Manipulation may be over (2) How the oil market may be rigged and sees oil around 95 (3) His views on Nat gas...

[[ This is a content summary only. Visit http://goldbasics.blogspot.com or http://www.newsbooze.com or http://www.figanews.com for full links, other content, and more! ]]

A Tale of Two Charts: Are We 2007 America or 2006 Zimbabwe?

Posted: 24 Oct 2013 07:11 PM PDT

The US equity markets are back in record territory, at least in nominal terms.

The last two times they spiked this way, the following year was pretty brutal. See the next chart, which tracks the S&P 500 and margin debt, the amount of money investors are borrowing against their shares of stock to buy more stock. The chart seems to show that when investors are optimistic enough to use leverage to invest in already-risky stocks, then the good times have pretty much run their course and something nasty is imminent. If recent history is our guide, it is now time to either take some money off the table or short the hell out of the big indexes – or whatever else you like to do when the market looks overbought.

Margin debt oct 13

But this conclusion is only valid if we're in the same stage of the credit bubble as during those two previous sentiment peaks. In 2000 and 2007, to take just one measure of financial stability, the federal government's debt was $6 trillion and $8 trillion, respectively, versus $17 trillion today. Plenty of other leverage metrics are also way up, indicating that the US is much further down the path of currency debasement than it was just a few years ago. So the question becomes: at what point does a quantitative difference become qualitative? When does the phase change occur? The next chart shows why this question is more than academic. In the early stages of Zimbabwe's epic hyperinflation its stock market rose from 2,000 to over 40,000 in one year. Presumably a lot of indicators similar to margin debt were by then pointing to a blow-off top and screaming "sell" to students of history.

Zimbabwe

Then the market proceeded to run up to 4,000,000. What happened? The country ran its printing press flat-out and inflated away its currency, so the price of pretty much every tangible asset, when measured in Zimbabwean dollars, went parabolic. Since equities represent part ownership of companies, and most non-financial companies own tangible assets, their value went up as well. Not enough to increase in real terms (versus gold, for instance) but enough to make shorting that market a really bad idea.

So are we 2007 America or 2006 Zimbabwe? A lot is riding on the answer.

Guest Post: The Growing Rift With Saudi Arabia Threatens To Severely Damage The Petrodollar

Posted: 24 Oct 2013 05:25 PM PDT

Submitted by Michael Snyder of The Economic Collapse blog,

The number one American export is U.S. dollars.  It is paper currency that is backed up by absolutely nothing, but the rest of the world has been using it to trade with one another and so there is tremendous global demand for our dollars.  The linchpin of this system is the petrodollar.  For decades, if you have wanted to buy oil virtually anywhere in the world you have had to do so with U.S. dollars.  But if one of the biggest oil exporters on the planet, such as Saudi Arabia, decided to start accepting other currencies as payment for oil, the petrodollar monopoly would disintegrate very rapidly.  For years, everyone assumed that nothing like that would happen any time soon, but now Saudi officials are warning of a "major shift" in relations with the United States.  In fact, the Saudis are so upset at the Obama administration that "all options" are reportedly "on the table".  If it gets to the point where the Saudis decide to make a major move away from the petrodollar monopoly, it will be absolutely catastrophic for the U.S. economy.

The biggest reason why having good relations with Saudi Arabia is so important to the United States is because the petrodollar monopoly will not work without them.  For decades, Washington D.C. has gone to extraordinary lengths to keep the Saudis happy.  But now the Saudis are becoming increasingly frustrated that the U.S. military is not being used to fight their wars for them.  The following is from a recent Daily Mail report...

Upset at President Barack Obama's policies on Iran and Syria, members of Saudi Arabia's ruling family are threatening a rift with the United States that could take the alliance between Washington and the kingdom to its lowest point in years.

 

Saudi Arabia's intelligence chief is vowing that the kingdom will make a 'major shift' in relations with the United States to protest perceived American inaction over Syria's civil war as well as recent U.S. overtures to Iran, a source close to Saudi policy said on Tuesday.

 

Prince Bandar bin Sultan told European diplomats that the United States had failed to act effectively against Syrian President Bashar al-Assad and the Israeli-Palestinian conflict, was growing closer to Tehran, and had failed to back Saudi support for Bahrain when it crushed an anti-government revolt in 2011, the source said.

Saudi Arabia desperately wants the U.S. military to intervene in the Syrian civil war on the side of the "rebels".  This has not happened yet, and the Saudis are very upset about that.

Of course the Saudis could always go and fight their own war, but that is not the way that the Saudis do things.

So since the Saudis are not getting their way, they are threatening to punish the U.S. for their inaction.  According to Reuters, the Saudis are saying that "all options are on the table now"...

Saudi Arabia, the world's biggest oil exporter, ploughs much of its earnings back into U.S. assets. Most of the Saudi central bank's net foreign assets of $690 billion are thought to be denominated in dollars, much of them in U.S. Treasury bonds.

 

"All options are on the table now, and for sure there will be some impact," the Saudi source said.

Sadly, most Americans have absolutely no idea how important all of this is.  If the Saudis break the petrodollar monopoly, it would severely damage the U.S. economy.  For those that do not fully understand the importance of the petrodollar, the following is a good summary of how the petrodollar works from an article by Christopher Doran...

In a nutshell, any country that wants to purchase oil from an oil producing country has to do so in U.S. dollars. This is a long standing agreement within all oil exporting nations, aka OPEC, the Organization of Petroleum Exporting Countries. The UK for example, cannot simply buy oil from Saudi Arabia by exchanging British pounds. Instead, the UK must exchange its pounds for U.S. dollars. The major exception at present is, of course, Iran.

 

This means that every country in the world that imports oil—which is the vast majority of the world's nations—has to have immense quantities of dollars in reserve.

 

These dollars of course are not hidden under the proverbial national mattress. They are invested. And because they are U.S. dollars, they are invested in U.S. Treasury bills and other interest bearing securities that can be easily converted to purchase dollar-priced commodities like oil. This is what has allowed the U.S. to run up trillions of dollars of debt: the rest of the world simply buys up that debt in the form of U.S. interest bearing securities.

This arrangement works out very well for the United States because we can wildly print money and run up gigantic amounts of debt and the rest of the world gobbles it all up.

In 2012, the United States ran a trade deficit of about $540,000,000,000 with the rest of the planet.  In other words, about half a trillion more dollars left the country than came into the country.  These dollars represent the number one "product" that the U.S. exports.  We make dollars and exchange them for the things that we need.  Major exporting countries (such as Saudi Arabia) take many of those dollars and "invest" them in our debt at ultra-low interest rates.  It is this system that makes our massively inflated standard of living possible.

When this system ends, the era of cheap imports and super low interest rates will be over and the "adjustment" to our standard of living will be excruciatingly painful.

And without a doubt, the day is rapidly approaching when the petrodollar monopoly will end.

Today, Russia is the number one exporter of oil in the world.

China is now the number one importer of oil in the world, and at this point they are actually importing more oil from Saudi Arabia than the United States is.

So why should Russia, China and virtually everyone else continue to be forced to use U.S. dollars to trade oil?

That is a very good question.

In fact, China has been making a whole lot of noise recently about the fact that it is time to start becoming less dependent on the U.S. dollar.  The following comes from a recent CNBC article authored by Michael Pento...

Our addictions to debt and cheap money have finally caused our major international creditors to call for an end to dollar hegemony and to push for a "de-Americanized" world.

 

China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated."

For much more on all of this, please see my previous article entitled "9 Signs That China Is Making A Move Against The U.S. Dollar".

But you very rarely hear anything about this on the evening news, and most Americans do not understand these things at all.  The fact that the U.S. produces the de facto reserve currency of the planet is an absolutely massive advantage for us.  According to John Mauldin, this advantage allows us to consume far more wealth than we actually produce...

What that means in practical terms is that the United States can purchase more with its currency than it produces and sells. In theory those accounts should balance.

 

But the world's reserve currency, for all intent and purposes, becomes a product. The world needs dollars in order to conduct its trade. Today, if someone in Peru wants to buy something from Thailand, they first convert their local currency into US dollars and then purchase the product with those dollars. Those dollars eventually wind up at the Central Bank of Thailand, which includes them in its reserve balance. When someone in Thailand wants to purchase an imported product, their bank accesses those dollars, which may go anywhere in the world that will take the US dollar, which is to say pretty much anywhere.

And as Mauldin went on to explain in that same article, a significant amount of the money that we ship out to the rest of the globe ends up getting reinvested in U.S. government debt...

That privilege allows US citizens to purchase goods and services at prices somewhat lower than those people in the rest of the world must pay. We can produce electronic fiat dollars, and the rest of the world accepts them because they need them to in order to trade with each other. And they do so because they trust the dollar more than they do any other currency that is readily available. You can take those dollars and come to the United States and purchase all manner of goods, including real estate and stocks. Just this week a Chinese company spent $600 million to buy a building in New York City. Such transactions happen all the time.

 

And there is one other item those dollars are used to pay for: US Treasury bonds. We buy oil and all manner of goods with our electronic dollars, and those dollars typically end up on the reserve balance sheets of other central banks, which buy our government bonds. It's hard to quantify the exact amount, but these transactions significantly lower the cost of borrowing for the US government. On a $16 trillion debt, every basis point (1/10 of 1%) means a saving of $16 billion annually. So 5 basis points would be $80 billion a year. There are credible estimates that the savings are well in excess of $100 billion a year. Thus, as the debt grows, the savings also grow! That also means the total debt compounds at a lower rate.

Unfortunately, this system only works if the rest of the planet has faith in it, and right now the United States is systematically destroying the faith that the rest of the world has in our financial system.

One way that this is being done is by our reckless accumulation of debt.  The U.S. national debt is now 37 times larger than it was 40 years ago, and we are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in U.S. history combined.  The rest of the world is watching this and they are beginning to wonder if we are going to be able to pay them back the money that we owe them.

Quantitative easing is another factor that is severely damaging worldwide faith in the U.S. financial system.  The rest of the globe is watching as the Federal Reserve wildly prints up money and monetizes our debt.  They are beginning to wonder why they should continue to loan us gobs of money at super low interest rates when we are beginning to resemble the Weimar Republic.

The long-term damage that we are doing to the "U.S. brand" far, far outweighs any short-term benefits of quantitative easing.

And as Richard Koo has brilliantly demonstrated, quantitative easing is going to cause long-term interest rates to eventually rise much higher than they normally should have.

What all of this means is that the U.S. government and the Federal Reserve are systematically destroying the financial system that has enabled us to enjoy such a high standard of living for the past several decades.

Yes, the U.S. economy is not doing well at the moment, but we haven't seen anything yet.  When the monopoly of the petrodollar is broken, it is going to be absolutely devastating.

And as I wrote about the other day, when the next great economic crisis strikes it is going to pull back the curtain and reveal the rot and decay that have been eating away at the social fabric of America for a very long time.

Just check out what happened in Detroit recently.  The new police chief was almost carjacked while he was sitting in a clearly marked police vehicle...

Just four months on the job, Detroit’s new police chief got an early taste of the city’s hardscrabble streets.

 

While in his patrol car at an intersection on Jefferson two weeks ago, Police Chief James Craig was nearly carjacked, police spokeswoman Kelly Miner confirmed today.

Craig said he was in a marked police car with mounted lights when a man quickly tried to approach the side of his car. Craig, who became police chief in June, retold the story Monday during a program designed to crack down on carjackings.

Isn't that crazy?

These days, the criminals are not even afraid to go after the police while they are sitting in their own vehicles.

And this is just the beginning.  Things are going to get much, much worse than this.

So let us hope that this period of relative stability that we are enjoying right now will last for as long as possible.

The times ahead are going to be extremely challenging, and I hope that you are getting ready for them.

Gold in India Sells for $100 or More Over Spot on Black Market (If You Can Find It)

Posted: 24 Oct 2013 05:00 PM PDT

Global Economic Analysis

Head Of Fortress Recommends Investing In Bitcoin

Posted: 24 Oct 2013 04:51 PM PDT

At first glance, when the CIO of Fortress Investment Group says:

"Put a little money in Bitcoin...Come back in a few years and it's going to be worth a lot."

One might think, the firm that manages $54.6 billion is advocating the end of the USD as we know it... Or is this more muppetry at work?

Via Bloomberg:

"Put a little money in Bitcoin," Novogratz, principal and co-chief investment officer of macro funds at Fortress, said at a conference held today in New York by UBS AG's chief investment office. "Come back in a few years and it's going to be worth a lot."

 

Novogratz said he sees Bitcoin growing as a payment system, especially in developing nations. Novogratz said he has put his own money in the virtual currency, without specifying how much. He has not invested in Bitcoin on behalf of Fortress, which managed $54.6 billion as of June 30.

 

"I have a nice little Bitcoin position," Novogratz said. "Enough that I'm smiling that it doubled."

 

However, color us a little skeptical at his advice...

Given that Bitcoin may ultimately make firms like Fortress - that rely on fiat specie - redundant, then doesn't the endorsement of Bitcoin by one of the world's largest Private Equity firms reek of the ultimate failure of BTC as a monetary construct, and seem much more to be merely an attempt by the firm to herd even more momentum chasers into a trade (ostensibly one for Novogratz P.A.) that will be then unwound with Bitcoins ultimately converted into the same dollar they are supposed to replace?

While Bernanke May Not Understand Gold, It Seems Gold Certainly Understands Bernanke

Posted: 24 Oct 2013 04:11 PM PDT

"We see upside surprise risks on gold and silver in the years ahead," is how UBS commodity strategy team begins a deep dive into a multi-factor valuation perspective of the precious metals. The key to their expectation, intriguingly, that new regulation will put substantial pressure on banks to deleverage – raising the onus on the Fed to reflate much harder in 2014 than markets are pricing in. In this view UBS commodity team is also more cautious on US macro...

 

Via UBS,

In testimony in front of the Senate banking committee in July, Ben Bernanke made an unusual comment; 'nobody really understands gold prices and I don’t pretend to understand them either'. That's a surprising admission, because, as head of the central bank that controls the word's reserve currency, we think Bernanke should understand gold. Because gold, in our view, is a critical barometer of the state of global credit.

Many clients have asked us whether gold is an inflation hedge. The chart below suggests not.

But we believe that gold is in fact an inflation hedge - but the inflation it is hedging is not inflation as most people commonly understand it.

Friedrich Hayek said that inflation is not a change in the consumer price index, it is an increase in money and credit. To this he added near money - any asset that could be quickly and easily swapped for traditional money or credit. (For ease of writing - I'll refer to money, near money and credit combined as 'credit'). For Hayek, neutral inflation was when credit expanded in line with the productive potential of the economy.

Whether Hayek's inflation leads to traditional CPI inflation depends on the nature of the economy. If it is sclerotic - bound up by unions, capital controls and excessive state spending as it was in the 1970s - then you get CPI inflation. In a globalised world characterised by industrial overcapacity in China, a large global under-utilised workforce, and exceptionally low rates, the impact is asset price inflation.

Hayek had a lot to say about an environment where 'inflation' or credit expanded too fast and asset prices rose. He argued that it accelerated growth, because there was a large incentive for companies that service or build assets (from estate agents and investment banks, to property developers) to expand, to build, and to transact more asset sales.

Hayek's problem; this causes a major misallocation of capital - because the returns from servicing and building assets are available only when credit is expanding.

When credit stops accelerating (not even declining) asset prices start to fall.

Returns in these areas decline precipitously, and value is destroyed. When credit grows in line with the productive potential of the economy, a very different incentive structure emerges. Assets as a group tend to rise in line with incomes. So the incentive is to boost income and wealth through building businesses that create sustainable returns above the cost of capital.

So how does gold fit into this? In commodity strategy, we see gold as a barometer of global credit inflation. The best way to understand this is to highlight the Bretton Woods II system of global capital flows that drove gold through a 12 year bull market up to 2011.

We highlighted this mechanism in the note 'Reverse Bretton Woods' (3 September 2013) and depicted in Figure 3 below. It starts in the central oval with the Fed running easy money, and with the commercial banks expanding their balance sheets. In the 2000s and under QE1 and QE2, a key feature of this was the use of repo and the purchase of credit with CDS insurance. This balance sheet expansion neatly avoided raising risk weighted capital ratios - which allowed the banks to progress towards their Basle III targets. (More on the regulator backlash later).

This immediately suggests the first two things to track to measure the expansion of global money and credit - measure the change in the size of the Fed's balance sheet and the change in banks domestic lending. Those two neatly add up to M2 - notes and coins in circulation and deposits with commercial banks.

But that misses out 'near money' - assets that can be swapped for cash and used to buy more assets.

The Treasury borrowing advisory committee have estimated this - at US$43trn at the start of the year. But the data is very slow coming out. One way to proxy developments is to follow the amount of liquid assets that the US banks hold that can be used for collateral in repo transactions. That's shown in the chart below.

That's not perfect, as it doesn't take account of rehypothecation - the reuse of capital (which is like the velocity of money in the repo market). We are not aware how we track this in a timely manner - but any suggestions, please get in touch. What we do know is that new regulations - notably central clearing rules, are sharply reducing the reuse of collateral for repo and other trades.

But then there is the global aspect - the right side oval in figure 3 shows that when capital flows into emerging markets, central banks print their own currency to buy the incoming dollars. This sets off a chain reaction of credit growth - first deposits rise, then banks lend to consumers and corporates. That raises growth and inflation, lowering real rates and inducing more savings into the system (from consumers who need to save more to build a nest egg) and more demand for loans from corporates, and consumers who want to gear up speculate on property or fixed capital formation. Which causes even more credit expansion.

So the initial capital flows into the rest of the world are multiplied up first by the emerging market central banks, and then by the commercial banks, and by the incentives that a combination of strong liquidity growth, rising inflation and sticky nominal rates then induce.

Again, the data on this is slow and partial (as a chunk of emerging market lending occurs off balance sheet). So, out of expediency we take the change in foreign central bank treasury holdings held at the Fed, as a timely proxy, and we multiply it up five times - as a proxy of the impact of the fractional and shadow banking multiplier in emerging markets.

This gives us four metrics.

Of these - we believe that a necessary condition for gold to rally is the expectation that 1) capital will flow into emerging markets, 2) the combination of the fed's balance sheet and the banks marketable securities holdings rises.

The banks' vanilla lending at home in the US has little positive impact, and probably a negative impact on gold prices. Why? Because it doesn't deliver capital lows overseas, and it induces expectations of tightening monetary policy from the Fed.

So we have created a weighted indicator made up of foreign central bank treasury holdings with the Fed, Fed balance sheet expansion and the US banks liquid security holdings.

It is potentially more revealing to show the change in liquidity vs the gold price.

In commodity strategy, our view is that US combined central bank and commercial bank asset purchases are the key driver of yield compression - which makes gold a relatively more attractive asset to hold - and the global reach for yield, that induces flows into emerging markets. Those flows then start a very bullish gold dynamic;

  • The falling dollar raises dollar denominated gold prices. Rising FX reserves induce central banks to buy gold to maintain the gold ratio in reserves.
  • The liquidity boost in emerging markets raises income among consumers who tend to invest in gold. Rising commodity prices and commodity currencies raise dollar based gold costs, and reduce revenues in local currency terms – constraining supply.

But when the Fed started QE3 last October, the improving growth outlook and rising stock market had gold anticipating the threat of tapering (first mentioned by the Fed three months later on Jan 4th), anticipating capital outflows from emerging markets (which began in Jan/February and which accelerated in May). And anticipating commercial bank liquid asset sales - which also began in May. All considered negative for gold.

So while Bernanke may not understand gold, it would appear that gold certainly understands Bernanke.

Perhaps the most significant aspect of the tapering debate was that the Fed became increasingly hawkish on tapering in 1H13, despite the fact that growth was modest and inflation subdued. Our interpretation of this was that the Fed started to become highly concerned about credit market overheating.

Governer Jeremy Stein raised the issue in the December 2012 meeting, and his speech in February 2013 outlined research that showed not just tight spreads, but outsized low quality credit issuance - the classic signals of an overheated credit market, with the clear rider that this could lead to a bust. Soon after Stein presented his results, the tone from Bernanke et al became much more hawkish on QE.

The most revealing aspect of the market reaction to Bernanke in 2013 is that it was the diametric opposite to the market reaction to Greenspan in 2004, even though their communication appeared identical. Back in February 2004, Greenspan stated that, if growth continued along the lines the Fed anticipated, then it would start to remove accommodation gradually. Greenspan then started raising rates by 25bps a meeting from June. Capital flowed into emerging markets, banks bought liquid assets, and the Bretton woods 2 system of flows kicked in so powerfully that treasury yields actually fell while rates rose. Something Greenspan dubbed 'a conundrum'.

Then Bernanke repeated the same communication procedure in 2013, announcing in June that, providing growth met the Fed's expectations, it would, in due course, gradually remove accommodation. The market response; capital flowed out of emerging markets, banks sold their liquid assets, treasury yields blew out 100 points and mortgage yields blew out more.

In our view in commodity strategy, that is a clear expression of the fact that the global liquidity dynamic of the 2000s, and under QE1 & QE2 is now set to run in reverse.

It is worth noting that Fig 12 shows that foreign treasury holdings have bounced since the Fed announced a delay to its tapering programme in September. EM currencies & equities have also jumped. We expect these trends to reverse as bank deleveraging takes hold, and as bullish positioning in broader risk assets unwinds. Asset price developments indicate that the pool of available liquidity has narrowed dramatically. The majority of major asset classes are well off their tops. None are confirming the near high in the S&P.

Within the US market, banks have started to underperform.

And a narrowing group of stocks is driving the market - led by a group of growth/concept companies on largely triple digit multiples - Tesla, Netflix, Netsuite, 3D systems corp etc.. We have created a basket of these names in the chart below. We are using this index as an indicator for when a decline in liquidity reduces investors’ appetites for highly valued issues.

We've highlighted that regulation will now likely drive a new wave of deleveraging by the banks.

What we're worried about is the interaction of several simultaneous strands of legislation - all acting to reduce liquidity – on the amount of money or near money available to buy assets. And the ease with which financial players can trade those assets.

Before we go into the details, one of the main questions we get asked is why would the regulators continue with a process that seems to cause market dislocation?

In our view it is because they believe in the morality of their actions - that banks that are too big to fail should shed assets or raise equity to the point where it's much harder for them to fail, to prevent a repeat of the financial crisis and the heavy burden on taxpayers that ensued. Fed Governor Jeremy Stein’s speech last week (‘Lean or clean?), and Governor Tarullo’s speech from May (Evaluating Progress in Regulatory Reforms to Promote Financial Stability) highlight that desire.

That, in our view in commodity strategy, is a laudable aim. The difficulty, as the old joke has it, is that to get there, you don't want to start from here.

Second, to many regulators, the banks have raised their exposure levels, and raised counterparty risk in the system, in order to raise net interest margin and equity value. So while the systemic banks reduced risk weighted assets by a third from the financial crisis, total leverage has risen 10%. This is precisely the opposite of what the regulators intended when they negotiated the Basle III capital requirements with the banks. The regulators apparently believe that the banks acted in bad faith. The regulators are now fighting back. The clearest comments on this were from Thomas Hoenig, deputy Chairman of FDIC, the US regulator.

Third, the regulators believe that the fact that the markets have rallied for five years gives them scope to act without causing too much damage.

And finally, regulators don't follow an Austrian view of the world. They may not perceive the degree to which credit markets have become overheated. And they are unlikely to recognise that the credit boom of the past five years has induced a massive misallocation of capital globally, and has created the potential for Hayek's 'recessionary symptoms' to show up as liquidity is drained from the system.

So what are the key regulatory actions?

  • Central clearing house trading to replace OTC - the key issue is that this raises collateral requirements, making the trades more expensive, and it makes it impossible to rehypothecate the collateral - which reduces system liquidity. The Treasury Borrowing Advisory Committee estimated that there was around us$4.5trn of rehypothecated in the US assets at the start of 2013.
  • US requirements for foreign owned banks to hold separate ring-fenced collateral to their parents. Oliver Wyman, the consultants, estimate that this will force foreign owned banks to reduce repo by US$300bn in the US.
  • Leverage ratios which do not allow the netting of repo, or credit against CDS - proposed at a minimum of 3% by the BIS, the US Comptroller of the currency has proposed 5-6%. European and UK regulators yet to decide
  • Capital requirements behind trading - including market risk capital changes, stressed value at risk, and incremental risk charges. Stephane Deo, UBS head of asset allocation, believes that these will reduce liquidity and raise volatility across several asset classes
  • Multiple additional measures under Dodd-Frank, etc

The problems with the regulation are fourfold.

  1. First, they make it much more expensive for banks to hold assets and carry out repo, or buy credit with a CDs insurance wrapper
  2. They tie up collateral, reducing the velocity of collateral.
  3. They make it less attractive for banks to originate credit, and to offer securities inventory holding/trade facilitation.
  4. They reduce liquidity and raise volatility across multiple asset classes.

And the problem with repo is that it is highly pro-cyclical. Rising values for high quality collateral used in repo reduce the amount of collateral you need to post to secure funding, and allow you to buy more assets. It can also reduce the haircuts for some lower quality collateral.

And a point Jeremy Stein highlighted in his speech on 'credit overheating' was that the more the cost of capital falls as a result of banks expanding their repo operations, the more financial institutions are induced to reach for yield - further accelerating the Bretton Woods II liquidity cycle.

But falling collateral values do the opposite. They reduce the capacity of firms to carry out repo and use the funds for credit transactions and for funding credit warehousing etc. and it reduces the tendency of financial companies to reach for yield. All this, in our view in commodity strategy, causes Bretton Woods II to go in reverse.

A key observation of the Bretton Woods II process of capital flows is that the risk free rate – the yield on 10-year treasuries – is no longer risk free. It is subject to a pro-cyclical and speculative expansion of leverage on the upside. The implication is that, when risk aversion rises, the normal safe haven bid for treasuries may be offset by selling from domestic commercial banks and foreign central banks. So yields may rise, or not fall as much as would be typical. This removes a natural stabilisation mechanism in markets. The higher cost of capital (than usual) may make the impact of risk aversion on markets and macro more severe than we are used to.

And just as the Bretton Woods process was highly reflationary and bullish for all assets, reverse Bretton Woods is considered bearish for everything, except gold and silver. And that's because of the capital misallocation generated during the credit inflation will unwind, destroying value and precipitating what Hayek called 'recessionary symptoms'. Hayek said all it took to start the unwind was a deceleration in credit expansion. Our description of the impact of QE on growth is shown in the following two charts

A rising cost of capital and shrinking liquidity, for any given rate of growth, does not only de-rate asset prices. It hurts growth in all the asset related businesses from financial services through to construction. And then it hurts growth via the reduced supply and higher cost of credit - which included from 2009-13 consumer spending (via mortgage refinancing, or cheap and plentiful car loans), or small companies (via tighter high yield spreads).

So far, this set up appears very similar to 1937. Back then the US was into a fourth year of recovery from the depression. The Roosevelt administration scaled back deficit spending and the Fed raised reserve requirements (not thought of as a problem at the time, due to bank’s excess reserves) and started sterilising gold inflows. Manufacturing declined 37% & the Dow halved. The difference, though, is that this time the Fed is likely to move earlier.

In our view in commodity strategy, as the private sector takes away leverage and reduces liquid asset holdings, the Fed will be forced into providing the heavy lifting to keep total asset purchases up. On that basis, the Fed will be doing much more QE in 2014 than the market anticipates.

And with gold and silver acting as a barometer of whether the Fed will be reflationary or deflating the global economy in 6-12 months time, we anticipate hem to rally as soon as the deflationary process becomes visi

Guest Post: Buying Stocks On Margin At The Top - They Never Learn

Posted: 24 Oct 2013 02:57 PM PDT

Submitted by Jim Quinn of The Burning Platform blog,

It’s like the movie Groundhog Day. Greed and hubris are the downfall of the mighty. Believing it is different this time is the mistake of the feeble minded. Watching the ensuing carnage will be a laugh riot. Seeing the blubbering of the bubble headed bimbos, pinhead pundits and Wall Street shysters when the inevitable collapse occurs will be worth the price of admission. If you think we're wrong, pony up to the trough, borrow some money and buy Twitter on IPO day. You can’t lose.

 

 

Of course, "this time is different..."

Gold Prices Still Dependent On The US Dollar

Posted: 24 Oct 2013 02:47 PM PDT

We are all aware that the world is in a chaotic state at the moment with a number of friction points that could spark and get of hand at any time. The debt ceiling has been raised in the United States paving the way for more government spending. Bond buying programs remain in place and currency creation by a number of governments continues unabated as each nation attempts to boost exports by debasing their own currency. The production of gold from mining activities is slowing. The demand, especially from China appears to be in overdrive. On a seasonality basis the fall is usually a time when gold does very well, but that is not happening this year, at least not just yet.

The list of positive factors that support higher gold prices goes on and on, however, as the chart below shows, gold is now trading at around $1300/oz which is long way down from the heady days of $1900/oz, achieved in 2011.

The Gold Chart

gold price 24 october 2013 price

The gold chart shows that over the last 6 months gold has tried to rally and failed. The best it could do was a large jump on the news that 'tapering' had been deferred and that lasted for just two days before all those gains were lost. We would also draw your attention to the formation of a pattern of lower highs and lower lows which suggests weakness and further losses in value.

Gold also has an inverse relationship with the US Dollar so it's important that we monitor the dollars progress and performance.

The US Dollar Chart

dollar 24 october 2013 price

The dollar has been sold off recently as evidenced by the US Dollar Index which depicts the dollar falling from '85' to '79' over the last 4 months. If the dollar can hold at this level then there is a possibility of a rally, which would in turn put a lid on gold's progress. A lot depends on the Feds assessment of the inflation and the employment figures, the latest of which were released earlier this week. The consensus was for around 180,000 new jobs so the figure of 148,000 is low but sufficient for the Fed to assume that they have in place the correct course of action.

We doubt that we will see tapering this year and we expect the current level of QE to be maintained. This should have a negative impact on the dollar, although this level of stimulus is becoming the 'norm' and so the Law of Diminishing returns comes into play. Should QE be increased then the dollar would weaken and gold would be the beneficiary.

Conclusion

The tensions that exist in the world today are a known quantity and are therefore included in the price of gold.

The creation of more and more money has become the rule rather than the exception and so gold largely ignores it.

China is now the second largest economy in the world so it is reasonable to expect that they should be acquiring more hard assets such as gold. To facilitate China's purchases of gold someone else must be selling and so the transfer of wealth from the west to east continues. A change in ownership does not necessarily equate to a new bull market in precious metals.

The bear trend within the gold bull market is still in place so why not wait until you are sure that this phase has exhausted itself and a new bull phase has commenced. Sure you will miss the beginning of the move but you will have more certainty of generating a decent profit.

Should gold manage to form a new near term high; say a close above $1400/oz, then we might get a decent rally, but don't hold your breath, it could be months away.

The cost to produce gold is now closing in on the gold price which means that it is doubly important to select good quality gold producers, as they should survive any downturn in prices and live to fight another day, even pay a decent dividend one day, now there's a novel idea.

In a nutshell it's a time for patience, a time to do the due diligence that is necessary before embarking on the acquisition trail.

 

Bob Kirtley, bob@gold-prices.biz

www.skoptionstrading.com  |  www.gold-prices.biz

Silver and Gold Prices Rose with the Gold Price Closing at $1,350.20

Posted: 24 Oct 2013 02:44 PM PDT

Gold Price Close Today : 1350.20
Change : 16.30 or 1.22%

Silver Price Close Today : 22.786
Change : 0.204 or 0.90%

Gold Silver Ratio Today : 59.256
Change : 0.187 or 0.32%

Silver Gold Ratio Today : 0.01688
Change : -0.000053 or -0.31%

Platinum Price Close Today : 1448.90
Change : -18.10 or -1.23%

Palladium Price Close Today : 745.80
Change : -2.05 or -0.27%

S&P 500 : 1,752.07
Change : 5.69 or 0.33%

Dow In GOLD$ : $237.45
Change : $ (1.42) or -0.59%

Dow in GOLD oz : 11.487
Change : -0.068 or -0.59%

Dow in SILVER oz : 680.65
Change : -1.90 or -0.28%

Dow Industrial : 15,509.21
Change : 95.88 or 0.62%

US Dollar Index : 79.634
Change : -0.051 or -0.06%

Franklin didn't post commentary today, if he posts later it will be available here.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2011, The Moneychanger. May not be republished in any form, including electronically, without our express permission.

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't.

Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

Silver and Gold Prices Rose with the Gold Price Closing at $1,350.20

Posted: 24 Oct 2013 02:44 PM PDT

Gold Price Close Today : 1350.20
Change : 16.30 or 1.22%

Silver Price Close Today : 22.786
Change : 0.204 or 0.90%

Gold Silver Ratio Today : 59.256
Change : 0.187 or 0.32%

Silver Gold Ratio Today : 0.01688
Change : -0.000053 or -0.31%

Platinum Price Close Today : 1448.90
Change : -18.10 or -1.23%

Palladium Price Close Today : 745.80
Change : -2.05 or -0.27%

S&P 500 : 1,752.07
Change : 5.69 or 0.33%

Dow In GOLD$ : $237.45
Change : $ (1.42) or -0.59%

Dow in GOLD oz : 11.487
Change : -0.068 or -0.59%

Dow in SILVER oz : 680.65
Change : -1.90 or -0.28%

Dow Industrial : 15,509.21
Change : 95.88 or 0.62%

US Dollar Index : 79.634
Change : -0.051 or -0.06%

Franklin didn't post commentary today, if he posts later it will be available here.

Argentum et aurum comparenda sunt -- -- Gold and silver must be bought.

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2011, The Moneychanger. May not be republished in any form, including electronically, without our express permission.

To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down. Whenever I write "Stay out of stocks" readers inevitably ask, "Do you mean precious metals mining stocks, too?" No, I don't.

Be advised and warned: Do NOT use these commentaries to trade futures contracts. I don't intend them for that or write them with that outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

Are Gold Advocates Gold Bulls at Any Price?

Posted: 24 Oct 2013 02:07 PM PDT

Smart Knowledge U

3 Fantastic Charts Showing Gold & Silver To Continue Surge

Posted: 24 Oct 2013 01:52 PM PDT

On the heels of some wild trading in global markets and with gold and silver also on the move, today top Citi analyst Tom Fitzpatrick sent King World News 3 fantastic gold and silver charts, along with some tremendous commentary. Below is what Fitzpatrick had to say, along with 3 incredible charts:

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

Gold Daily and Silver Weekly Charts - Straining at the Leash

Posted: 24 Oct 2013 01:33 PM PDT

Gold Daily and Silver Weekly Charts - Straining at the Leash

Posted: 24 Oct 2013 01:33 PM PDT

World Gold Council responds to Sprott's criticism of demand data

Posted: 24 Oct 2013 12:42 PM PDT

2:40a ICT Friday, October 25, 2013

Dear Friend of GATA and Gold:

Brendan Conway of Barron's reports today on what seems like a rather restrained response by the World Gold Council to the open letter from Sprott Asset Management CEO Eric Sprott criticizing the council's gold demand data:

http://blogs.barrons.com/focusonfunds/2013/10/24/world-gold-council-stan...

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



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Jim Sinclair Plans Seminar in Florida

Gold mining entrepreneur and gold advocate Jim Sinclair plans to hold his next financial seminar in Kissimmee, Florida, near Orlando, on Saturday, November 2. Details can be found at his Internet site, JSMineSet, here:

http://www.jsmineset.com/2013/10/22/florida-qa-session-announced/



Join GATA here:

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Davenport Hotel, Spokane, Washington
Thursday-Friday, October 24-25, 2013

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Tuesday, October 29-Friday, November 1, 2013

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Sunday-Wednesday, November 10-13, 2013
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Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

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US Dollar Valued In Gold Since 1718

Posted: 24 Oct 2013 12:37 PM PDT

How many ounces of gold can $1000 buy? The answer over time is instructive. Here is some knowledge about money. It is remarkable how few economists really understand this, and what it means, what it implies.

TF Metals Report: More deception at the Comex

Posted: 24 Oct 2013 12:23 PM PDT

2:15a ICT Friday, October 25, 2013

Dear Friend of GATA and Gold:

The TF Metals Report's Turd Ferguson notes this week that CME Group's most recent reports of deposits of gold to JPMorgan's vault of Comex-eligible gold add up to perfectly round numbers, which is virtually impossible given the small variations in weight of standard gold bars. Ferguson concludes that the JPMorgan gold deposit reports are "either completely fabricated and falsified or simple paper claims," part of a broad scheme of deception to conceal the vulnerability of the Comex gold market to a short squeeze. Ferguson's analysis is headlined "More Deception at the Comex" and it's posted at the TF Metals Report's Internet site here:

http://www.tfmetalsreport.com/blog/5182/more-deception-comex

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



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Join GATA here:

The Silver Summit
Davenport Hotel, Spokane, Washington
Thursday-Friday, October 24-25, 2013

http://www.cambridgehouse.com/event/silver-summit-2013

Mines and Money Australia
Melbourne Conference and Exhibition Centre
Tuesday, October 29-Friday, November 1, 2013

http://www.minesandmoney.com/

New Orleans Investment Conference
Sunday-Wednesday, November 10-13, 2013
Hilton New Orleans Riverside Hotel
New Orleans, Louisiana

https://jeffersoncompanies.com/landing/speakers?IDPromotion=613011610080...

* * *

Support GATA by purchasing DVDs of our London conference in August 2011 or our Dawson City conference in August 2006:

http://www.goldrush21.com/order.html

Or by purchasing a colorful GATA T-shirt:

http://gata.org/tshirts

Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:

http://gata.org/node/wallstreetjournal

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16



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Technicians Turn "Gold Bulls" as SocGen's Edwards Warns of "Financial Bubbles"

Posted: 24 Oct 2013 12:15 PM PDT

The PRICE of gold gained $10 per ounce in London trade Thursday morning, gaining 2.2% for the week so far to trade at $1346 as several analysts said they were "turning bullish". World stock markets ticked higher, while the Euro slipped from 2-year highs vs. the Dollar after weaker-than-expected PMI economic data, led by a sharp in services sector growth.

U.S. Hyperinflation and Cultural Insanity

Posted: 24 Oct 2013 11:25 AM PDT

Hyperinflation is an insidious, economic killer. It inevitably (but insanely) creeps up on its Victims in plain sight, before decimating them with an always unexpected ambush. How can one of the most-obvious of all economic phenomena always end up as a "surprise"?

Because none of the Victims ever believe that hyperinflation is possible. Point out that the U.S. dollar has lost 98% of its value in the 100 years that the Federal Reserve has been responsible for preserving its value, and people will yawn – it's old news. But then assert that it is about to lose the last 2% of that value, and (amazingly) the response will be laughter and/or derision.

Look at a chart showing a 98% decline in anything, and the expectation will be that the last 2% is also about to be lost. Or, in market vernacular; "the Trend is your friend." It is irrational, bordering on insane to expect such a chart to reverse itself, or even stabilize. Indeed, it is charts of this nature which spawned the expression "past the point of no return."

Yet when people look at charts of currencies, in this case worthless paper currencies; the mere suggestion that a currency could go to zero is a concept literally beyond the comprehension of nearly all of our populations. If a person finds it impossible to conceptually conceive of lions, then a lion could simply walk up and eat that person.

We will not/cannot protect ourselves from a "risk" which we do not believe to be within the realm of possibility. One does not take precautions to protect themselves from the "risk" of man-eating butterflies, or killer-bunnies. Thus is hyperinflation perceived by the masses: the Threat of the Killer-Bunnie.

In less-extreme forms; the inability to acknowledge/accept (obvious) reality could be described as "normalcy bias". Because almost all Change (even large changes) is impossible to perceive in real-time; it is a common human intellectual flaw to expect tomorrow to be like today (or yesterday). A tomorrow which is not like either today or yesterday is not perceived to be within the realm of possibility.

However, with respect to hyperinflation we are not dealing with mere Normalcy Bias, but rather its substantially more-extreme cousin: Cultural Insanity. There are several empirical reasons for reaching this more dramatic diagnosis.

Obviously hyperinflation is not a Killer-Bunnie. There are numerous, documented historical examples of this economic killer. There is a very recent historical example (the Zimbabwe dollar), and there are several extremely obvious examples of hyperinflation currently in progress (Western, paper currencies).

It is normal/sane not to believe in the existence of Killer-Bunnies, unless one has read about people being devoured by Killer-Bunnies, has watched Killer-Bunnies devouring people, and is watching Killer-Bunnies devouring people. In such a reality; it would be insane not to believe in something which can (easily) be empirically perceived.

Regular readers have seen the chart below on the U.S. dollar on numerous occasions. It clearly and unequivocally depicts a hyperinflation-in-progress: a vertical line as supply (of U.S. dollars) goes to infinity. It is a fact of mathematics/economics that as the supply of anything goes to infinity its price must go to zero.

But readers will no longer see this chart in the future (unless one chooses to use an older version), because it no longer exists. Meet the new-and-improved version of this chart of the U.S. monetary base from the Federal Reserve.

Staggering Physical Gold Demand Now Overrunning Shorts

Posted: 24 Oct 2013 11:19 AM PDT

On the heels of another surge in gold and silver, today Canadian legend John Ing told King World News that "staggering" physical gold demand is now overrunning shorts in the gold market. Ing, who has been in the business for 43 years, also spoke about the stunning demand for gold around the world, and the numbers involved will shock KWN readers around the world.

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

2014: The Year the Chickens Come Home to Roost

Posted: 24 Oct 2013 11:00 AM PDT

The year 2014 could be shaping up as the year that the chickens come home to roost.

Americans, even well-informed ones, don't know all of the mistakes made by neoconized and corrupted Washington in the past two decades. However, enough is known to see that the US has lost economic and political power, and that the loss is irreversible.

The economic cost of this lost will be born by what remains of the middle class and the increasingly poverty-stricken lower class. The one percent will have offshore gold holdings and large sums of money in foreign currencies and other foreign assets to see them through.

In the political arena, the collapse of the Soviet Union presented Washington with the grand opportunity to reallocate the Pentagon budget to other uses. Part of the reduction could have been returned to taxpayers for their own use. Another part could have been used to improve worn out infrastructure. And another part could have been used to repair and improve the social safety net, thus insuring domestic tranquility. A final, but perhaps most important part, could have been used to begin repaying the Treasury IOUs in the Social Security Trust Fund from which Washington has borrowed and spent $2 trillion, leaving non-marketable IOUs in the place of the Social Security payroll tax revenues that Washington raided in order to fund its wars and current operations.

Instead, influenced by neoconservative warmongers who advocated America using its "sole superpower" status to establish hegemony over the world, Washington let hubris and arrogance run away with it. The consequence was that Washington destroyed its soft power with lies and war crimes, only to find that its military power was insufficient to support its occupation of Iraq, its conquest of Afghanistan, and its financial imperialism.

Now seen universally as a lawless warmonger and a nuisance, Washington's soft power has been squandered. With its influence on the wane, Washington has become more of a bully. In response, the rest of the world is isolating Washington.

The prime minister of India, Manmohan Singh, recently declared China and Russia to be India's "most important partners" with whom India shares "common strategic interests." Prime Minister Singh said: " India and Russia have always had a convergence of views on global and regional issues, and we value Russia's perspective on international developments of mutual interest."

India joined China in expressing concerns about the Federal Reserve's practice of printing money in order to cover Washington's vast red ink. The BRICS (Brazil, Russia, India, China, South Africa) are taking steps to create their own method of settling trade accounts in order to protect themselves from the looming dollar implosion,

China has forcefully called for a "de-Americanized world." After watching the "superpower" offshore a large part of its GDP to China and then add to the diminished tax base the burden of $6 trillion in wars that brought no booty and served no US interest, China has concluded that American power is spent. The London Telegraph thinks "it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources."

The Obama regime attempted to attack Syria based on the sort of lies that the Bush regime used to invade Iraq, only to be slapped down by the British Parliament and Russian government. This rebuke was followed by the childishness of the government shutdown and threat of default. Consequently, the Washington morons have lost their monopoly on economic and political leadership. A few days ago the British government announced a historic agreement that permits British investors direct access to China's markets and allows Chinese banks to expand their operations in Great Britain.

In Australia, the US dollar will no longer be used as the currency in which to settle the Australian trade accounts with China. Instead of dollars, trade will be settled in the Chinese currency.

Washington served as cheerleader, as did most economists and libertarians, while US corporations, greedy for short-term profits and executive bonuses, offshored US industry and manufacturing, calling it free trade. The obvious and predicted result is that China's demand for resources needed to fuel its industrial and manufacturing power now dominates markets. This means that the US dollar is being displaced as world currency. The only market that America dominates is the market for financial fraud.

When industrial, manufacturing, and tradeable professional service jobs are offshored, they take US GDP and tax base with them. The foreign country gets the benefit of the relocated economic activity. Due to the revenues lost from jobs offshoring, there is a large gap between federal revenues and federal expenditures. As Washington's irresponsible behavior has raised so many doubts about the dollar's value and the government's commitment to stand behind its massive debt, foreign countries with trade surpluses with the US are less and less willing to recycle those surpluses into the purchase of US Treasury debt.

Today the two largest holders of US Treasury debt are not investors or even foreign central banks. The two largest holders are the Federal Reserve and the Social Security Trust Fund.

As for those $6 trillion wars, that's to pay for national defense to protect us from women, children, and village elders in far away countries devoid of air forces and navies, and to provide those recycled taxpayer monies from the military/security complex that find their way into political contributions.

The Wall Street gangsters sighed for relief over the last minute debt ceiling agreement. This shows how short-term Wall Street's outlook is. All the October agreement did was to push off the crisis to January and February. The "debt ceiling agreement" did not produce a new debt ceiling that would last beyond February, and it did not resolve the large difference between federal revenues and expenditures. In other words, the can was again kicked down the road. A repeat of the October fiasco won't play well.

Obamacare is causing the premiums on private insurance polices to rise substantially, almost doubling in some situations unless people move to the uncertain exchanges, and Obamacare's raid on Medicare payroll tax revenues has resulted in a cut in Medicare payments to health care providers. The result is a further reduction in consumer discretionary income and a further drop in the economy.

This in turn means a larger federal budget deficit and the need for the Federal Reserve to purchase more debt.

Another reason the Federal Reserve is faced with increasing, not tapering, quantitative easing (money printing) is the decline in foreign purchases of US Treasury bills, notes, and bonds. As the instruments pay interest that is less than the rate of inflation, holding Treasury debt makes no sense when the dollar's value and the potential of default are open questions.

According to reports, not only are foreign governments, such as China, ceasing to buy US Treasury debt, China has started to sell off its holdings, substituting gold in the place of US Treasury debt.

This means that the bonds must be purchased by the Fed or interest rates will rise as the increased supply of bonds on the market drives down bond prices. The only way the Fed can purchase a larger supply of bonds is by printing more money, that is, by more quantitative easing.

With the world moving away from using the dollar to settle international accounts, as the Fed prints more dollars the rate at which foreign holders of dollar assets sell off their holdings will rise.

To get out of dollars requires that the dollar proceeds from selling Treasuries, US stocks and US real estate be sold in the currency markets. The selling of dollars drives down the exchange value of the US dollar and results in rising US inflation. The Fed can print money with which to purchase Treasury debt, but it cannot print foreign currencies with which to purchase dollars.

The decline in the dollar's exchange value and the domestic inflation that results will force the Fed to stop printing. What then covers the gap between revenues and expenditures? The likely answer is private pensions and any other asset that Washington can get its hands on.

Initially, private pensions will be taxed at a rate to recover the tax-free accumulation in the pensions. The second year a national emergency will be used to confiscate some share of pensions. Those relying on the pensions will find themselves with less income. Consumer spending will decline. The economy will worsen. The deficit will widen.

You can see where this is going, and there seems to be no way out. Policymakers, economists, and corporation executives are in denial about the adverse effects of offshoring, which they still, despite all the evidence, maintain is good for the economy. So nothing will be done about offshoring. Republicans will blame the budget deficit on welfare and entitlements, and if those are cut consumer spending will decline further, widening the budget deficit. Inflation will rise as incomes fall, and social cohesion will break down.

Now you know why Homeland Security purchased 1.6 billion rounds of ammunition, enough ammunition to fight the Iraq war for 12 years, has its own para-military force and 2,700 tanks. If you think the "terrorist threat" in America warrants a domestic armed force of this size, you are out of your mind. This force has been assembled to deal with starving and homeless people in the streets of America.

Paul Craig Roberts

For The Daily Reckoning

Note: This was excerpted from ‘As Ye Sow, so Shall Ye Reap’ over at the Institute for Political Economy.

P.S. The future is uncertain, and there are signs out there that things might get worse in the coming years. When markets take a nose dive, most will lose money. That's why The Daily Reckoning email is delivered every single day to over half a million readers from all over the world. It's designed specifically to keep you informed on all the most important investment stories currently facing the markets… and offers you several chances to discover real, actionable profit opportunities for yourself. Signing up is completely free, and comes with absolutely no obligation. So you've got nothing to lose. Click here now to sign up for FREE.

Cybersecurity: The NSA’s Big Budget Action Movie

Posted: 24 Oct 2013 10:15 AM PDT

The exercise had an awesome name, inspired by the movies: “Quantum Dawn 2.”

On July 18, scads of U.S. banks, stock exchanges and government agencies took part in a digital fire drill — a practice run in the event all of Wall Street came under massive cyberattack.

We’ve documented before how banks regularly come under attack — the harmless sort in which a bank’s servers are bombarded with traffic, shutting down the website for a time. We’ve also documented the “glitch” that shut down the Nasdaq for three hours one day last summer — an event still unexplained.

The July 18 drill was something else altogether.

The scope of this exercise was systemwide, full-on meltdown. And to make it as realistic as possible, each participant had only a piece of the puzzle.

“In some cases,” reads a new account of the exercise from Reuters, “a blue chip stock started to plummet inexplicably. Soon, shocking news about the company hit the market, but unbeknownst to the participant, the news was fake. For others, trading systems were on the fritz, or government websites stopped functioning.”

The lessons learned? The story is frustratingly short on detail: “One key lesson from the drill was that the private sector and government authorities must share information more freely and quickly, said Ed Powers, the national managing principal of Deloitte & Touche LLP’s security and privacy practice, which was an independent observer of Quantum Dawn 2.”

If nothing else, the war game was widespread: “In addition to big banks such as Bank of America Corp. and Goldman Sachs Group Inc., there were 50 participants, including major exchanges, clearinghouses, the U.S. Treasury Department, the Securities and Exchange Commission, the Department of Homeland Security and the Federal Bureau of Investigation.”

Gee, where was the NSA? Shut out, evidently.

"The NSA's aggressive pursuit of Big Data has not only invaded our privacy, but also left us more vulnerable to cyberattack."

Which might be why NSA chief Gen. Keith Alexander declared his intent on Oct. 8 for a hostile takeover of Wall Street.

Lost amid the noise of the shutdown-debt ceiling this month, Alexander gave a talk hosted by Politico and the defense giant Raytheon. He said at some time — likely during a crisis — “policymakers” will have to decide under what conditions the NSA can act to stop a major cyberattack on a crucial sector of the economy.

Tellingly, the example he used was financial services: “That’s where we’re going to end up at some point,” he said. “You have to have the rules set up so you can defend Wall Street.”

Alexander said just as the military can detect an incoming missile with radar, the NSA needs the ability to spot “a cyberpacket that’s about to destroy Wall Street.”

“The analogy was a stretch,” writes Shane Harris at Foreign Policy. “What’s a ‘cyberpacket’? Presumably, Alexander meant a sophisticated computer worm or virus designed to disrupt a computer or destroy the data inside it. But the idea that a single tiny packet could wipe out Wall Street is laughable. That’s like saying a paintball can take out a tank.

“The general is one of the most technologically knowledgeable officials in the intelligence community,” Harris continues. “So should we conclude that Wall Street really is at risk of a catastrophic cyberattack? Or that Alexander is engaging in a little old-fashioned fear-mongering to drum up support for his policies?”

Nor was this the first time Alexander made such an attempt. Several years ago, he met with leaders of the financial industry about cyberthreats.

A Washington Post story from last summer describes his proposed solution: “Private companies should give the government access to their networks so it could screen out the harmful software. The NSA chief was offering to serve as an all-knowing virus-protection service, but at the cost, industry officials felt, of an unprecedented intrusion into the financial institutions’ databases.”

It was a bridge too far: According to one person in the room who spoke to the Post anonymously, “Folks in the room looked at each other like, ‘Wow. That’s kind of wild.’”

And this was years before Edward Snowden made legions of Americans suspicious of the NSA.

“The NSA’s aggressive pursuit of Big Data,” writes Marcy Wheeler at The Guardian, “has not only invaded our privacy, but also left us more vulnerable to cyberattack.”

The problem is that the NSA, like the Federal Reserve, has a contradictory “dual mandate.”

NSA headquarters in Fort Meade, Maryland, houses two agencies under one roof, described in a 2010 Wired article: “There’s the signals-intelligence directorate, the Big Brothers who, it is said, can tap into any electronic communication. And there’s the information-assurance directorate, the cybersecurity nerds who make sure our government’s computers and telecommunications systems are hacker- and eavesdropper-free.”

Throw in Gen. Alexander’s other hat — as chief of the military’s Cyber Command — and the objectives become even more muddy.

And so you get results like the NSA colluding with technology companies to purposely degrade the firms’ encryption protocols, so the NSA can more easily monitor “secure” Web traffic — including the times you log in to check your bank or brokerage account.

Of course, if it’s easier for the U.S. government to crack encryption codes, it’s also easier for foreign governments. Or terrorists. Or run-of-the-mill cybercriminals.

“In short,” Wheeler writes, “because the NSA has prioritized collecting vast amounts of information… it has taken actions that increase our exposure to network attacks, all while insisting cyberattacks are the biggest threat to the country. And that has enabled it to demand new authorities to protect against the attacks it has made easier.”

Ms. Wheeler’s suggested remedy is splitting the NSA’s competing functions into separate agencies. We, on the other hand, have no faith in reforms. In the end, we’re left, as always, to follow the money — billions of which are flooding into the cybersecurity industry.

Regards,

Dave Gonigam
for The Daily Reckoning

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The Markets Are Rigged! How to Opt Out and Still Profit

Posted: 24 Oct 2013 10:09 AM PDT

"A weak jobs report sent stock futures soaring this morning, as it became clear the Fed won't be tapering any time soon."

Call me nostalgic, but I remember a time when a bad jobs outlook sent the large-cap companies down, not up. The economy is weak, so a company's profit expectations suffer. The logic makes sense.

Today, however, we live in the topsy-turvy world of government-manipulated markets, where such asinine statements make complete sense… until they don't. The problem with a market that lives at the teat of Washington's policies is that it can be reversed in mere moments. One election. One popular news story. One social media outcry. One back-channel policy. One bloody coup d'état. That's all it takes.

I'm not just talking about quantitative easing and similar marketwide meddling. Even an individual company can be caught in the crosshairs of the ever-increasing political in- and out-fighting.

No Democracy, No Software

Take the continually escalating best-frenemies slap fight with China… in the last few months its government has closed the doors to American technology companies in a big way. Just look at the recent revenue shortfall for data-warehousing giant Teradata, whose Asian revenues fell 21% last quarter, sending shares tumbling, in the wake of an unofficial "Buy Chinese" campaign led by its politburo.

This same policy is likely to have big follow-on effects for many other large consulting and infrastructure vendors, from IBM to Cisco to Microsoft, if it's not nipped in the bud (which will likely not happen by suddenly discovering mutual trust, but instead by the US levying some other threat behind closed doors, like a tariff, thereby adding to the resentment but effectively forestalling the problem for the next electorate to deal with).

It's also completely understandable on China's part. I hold no ill will toward the Chinese for their nationalism, as they wholly embraced American tech—heck, they manufactured most of the hardware parts for us, so why wouldn't they embrace it?—until we started slapping them in the face.

It's been almost exactly a year since Congress called to ban China's largest network-equipment maker, Huawei, from providing equipment to the world's biggest buyer—the US military complex—for fear it might contain snooping software.

Even though it was never made official (just as China's new policy won't be), the net effect was the loss of Huawei's business for anyone—including the major telcos which were its top customers—that might want to do business with the military down the road. And it came with lots of very public posturing from politicians about the importance of protecting ourselves from the China threat…

As the saying goes, however, "He who smelt it dealt it." We were worried about them using their equipment to spy on us because we were doing it to them at every turn. Nothing personal: we were doing it to everyone. But to a country that so values its separation from Western political meddling, for it to go from widely suspected to outright confirmed publicly was to add insult to injury from its "ally."

We've seen this kind of nationalism creep up before, with the pushes to "Buy USA" in clothing and American cars. In the end, it's always settled out in the marketplace naturally, over time. Never—so far—has it come down to the foreign trading partners being wiped from the scene.

But never before have so-called national security interests been so intertwined with economic matters. This could be a new chapter in nationalism that finds its way into law, cutting off important growth markets for homegrown companies on either side of the debate.

Pushing It Under the Private Sector's Rug

The political wrangling is far from a cross-national phenomenon, of course.

Here at home, this summer IBM found itself in the political fray after failing to deliver a workable unemployment benefits system for the state of Pennsylvania.

The project, originally projected to cost $106.9 million, had run 42 months past deadline and more than $60 million over budget when it was canceled by Pennsylvania's Secretary of Labor and Industry (DLI), the department working on the project with IBM.

The cancelation came complete with a press release foisting blame on IBM—an exercise in political butt-covering, of course, as why else issue a press release about having wasted millions of tax dollars? Like most fights that go public, it quickly turned into a tit-for-tat finger-pointing match.

IBM fired back that it had been meeting weekly with the department to keep it apprised of how far off the rails the project had gotten; that the budget overruns had been approved right up to the top; and that the reason it all went on so long was that in four years' time no project leader had ever been assigned. Per a report from Carnegie Mellon commissioned by the DLI:

"From the start, DLI was not able to provide adequate resources to staff its planned management and governance approach. Further, DLI made no formal delegation of roles, responsibilities, and authority for management of the program. DLI's approach to managing the UCMS [unemployment compensation] program from contract award to early 2011, led to a situation in which no one in DLI was accountable and responsible for the administration of the program. As a result, there was no effective oversight or timely action to make definitive decisions to mitigate the systemic risks that were continually highlighted by the IV & V contractor."

Blame, of course, cuts both ways in such a debacle. So IBM was equally taken to task for its own practices, including a high employee turnover:

"The size and churn within the Contractor's workforce has also contributed to program discontinuity. Since the start of the project, 638 different contractor staff members have worked on the project with the majority of the workforce having less than one year on the project and 75 percent having less than two years."

No project owner assigned and no oversight provided? Who could blame talented developers from recognizing the extent of the problem and jumping ship quickly?

The truth is, neither party in such a contract is incentivized to succeed, let alone early or under budget.

On its side, if DLI staff managed to finish the project for $50 million, a year early, and saved the state another few million in labor costs from the efficiencies the software was to provide… what would they get for putting in more hours and working harder? Maybe a token bonus… certainly not the type of reward the private sector could pony up directly.

IBM would have made half the revenue and, given that it's selling services, less than half the profit—because all the costs of selling are amortized over less revenue to fulfill, reducing net margins.

As if to make my point for me, the Pennsylvania dustup came right on the heels of a similar incident where the Queensland, Australia government publicly hung IBM out to dry. A projected $1.2-billion cost overrun for its health payroll system had the government engaging in the usual pointing of fingers. It did so at IBM, whose project billings actually comprised less than 2% of the projected total.

With all this bad publicity, there is probably no one happier that Healthcare.gov crashed so thoroughly than IBM, which had nothing to do with that particular spectacle…

Speaking of the recent Healthcare.gov fiasco, it is itself a gentle reminder of how easily and quickly these things turn sour. I won't belabor a topic that is being covered to death in the mass media, except to point out one universal irony of working with government that the situation demonstrates so perfectly.

In his apology to the nation over the state of the website at launch, President Obama vowed to bring in outsiders—from the private sector of all places—to help solve the problems with the site. Sounds like a great solution, until…

You consider that the website was already built by the private sector, sort of. The Frankenstein monster was stitched together by a half-dozen different federal contractors, including:

  • Canada's CGI Group (GIB), which is of course suddenly infamous for its missteps with huge government contracts;
  • Quality Software Services Inc., a private outfit whose clients are dominated by Medicare/Medicaid centers, National Institutes of Health, Department of Health and Human Services, and so on;
  • National Government Services Inc., a division of WellPoint (WLP);
  • Terremark Federal Group, a unit of Verizon (VZ);
  • MITRE Corp., a $1.5 billion/year "not-for-profit" which works almost exclusively with the government and is known for compensating its mostly ex-government executives very well despite the charity-like moniker;
  • Genova Technology, a privately held business with a $16 million contract, despite which the Iowa state government ironically certifies as a "disadvantaged business"… a status complete with tax breaks, since it is female owned.

The vow to bring in outsiders is little more than political-speak for, "You guys failed to make our unorganized mess look organized. You're fired. Next!"

I've learned from personal experience that for a government or nonprofit project to be successful, there must be strong leadership at the helm. And the cause must be championed for reasons other than financial reward.

It is solely the responsibility of government or the NGO seeking the contract to ensure that a project be successful. If a vendor is not performing, it should be let go 42 months before deadline, not 42 months after.

In the private sector, it's simple: fiduciary responsibility and financial reward provide a compelling push in the right direction. That's an advantage the public sector does not enjoy.

Its decisions are driven by wholly different, often opposing, motivations.

Worse, those decisions can flip around overnight with no real benefit for the end consumers of the work.

Nor for the shareholders who so often find themselves victims in the unending struggle between companies living off government largess and the fickle ambitions of political types.

Step Out of the Fray

How then, short of bribing a few politicians, is one to profit in the face of such a complex and changing relationship?

Big or small, there's no legal or ethical way to know how government policy may swing fortunes in one direction or another. What you can do, however, is recognize the risk and how to avoid it. And occasionally, leverage it to your advantage as well.

The former is the easier half of the mix. The first thing to watch out for is companies that have become addicted to government revenues. As an executive or a middle manager at a public company or the owner of a smaller private one, the revenues available from the government (especially the massive federal one in the US) are tempting fruit. The first time a $50 million/year company nabs a $25 million contract from the feds, it finds itself caught between two irresistible forces:

  1. With just one contract, even if it were a little slow to happen as is typical, revenue jumps big-time.
  2. Once certified to work with the government (which places all sorts of compliance hoops in front of would-be contractors), doors begin opening. Get accepted by one agency, and it's like being invited into the old boys' club. The next bid or contract is much easier to land.

Next thing you know, you have a dedicated federal government business, raking in huge revenues… like CGI Group, the top-billed culprit of the Healthcare.gov fiasco. It's a company that has grown revenues over the past 15 years from $230 million to $5.2 billion, with half its business dedicated to government contracts. Most of the rest derives from highly regulated business as well, with a quarter from finance and over ten percent from utilities and telcos.

At the beginning of that period, it earned less than $30 million from government contracts. Now it's a few billion.

As a large owner of a smaller company, the bait is tempting.

It's enough growth to power huge profits, and can make you fabulously wealthy off of one client instead of thousands.

As a small owner of a large company—which all of us public-market investors are—it's dangerous territory.

Navigating the minefield well can create huge growth, no doubt. But it also adds monumental political risk, which is not accountable anywhere on a balance sheet.

As you evaluate investments, you have to factor in exposure to such risks as part of your due diligence. Not a simple matter, since it changes every day with the political winds. In the case of Teradata, the new China reality may pass, opening the market back up. Or it may be here for some time to come. Either way, the company will have to adapt.

For a company like CGI, the picture is cloudier. What if its failures today shut it out of large numbers of future government contracts? What does that mean to a company that lives and dies by political whims?

The world's governments have pushed debt and spending to new heights as a share of the global economy. How much more growth can come out of that sector? Maybe instead, we're seeing signs of the first punctures in the government spending bubble…

At the end of the day, the surest way to insulate yourself from ANY market risk is to invest in great, well-run companies with products that are in demand. And hopefully, in demand from a large variety of customers, not just one with really shaky finances.

Invest in Undiscovered Growth

The growth to be found from companies that are producing value—be that in inventing the next medical diagnostics breakthrough, mining a huge platinum deposit in Africa, or saving Europe from Russia's energy hegemony with American-style shale drilling—is always rewarded by the market.

You can profit from the winds of change in the government's policy du jour, yes. But it's going to be a wild ride.

Yes, you can clean up in the wake of those messes, as my colleagues at The Casey Report have been demonstrating for quite some time.

But it's growth that will ultimately insulate a company from the shifts of any one customer base. And when the market is discounting the future prospects of the next generation of growth companies in favor of established large caps feeding off of government, that creates a situation to be taken advantage of.

Never before in Casey Research's history have there been so many strong growth opportunities in our collective portfolios—with valuations at stupidly low levels for companies already producing huge value.

David Galland recently wrote a letter to our readers highlighting exactly that.

Let me explain just what kind of ridiculous valuations we are talking about. One company from the Extraordinary Technology portfolio has invented a remarkable new machine. It's about the size of a desktop computer of yore, and in a few hours' time—with no test tubes or microscopes required—it can diagnose sepsis… a disease which is the tenth leading cause of death and one of the most expensive reasons for hospitalization in the US.

Before this machine was developed, it took from 2-7 days and cost more than $2,000 to properly test for and diagnose sepsis. That delay pushed the fatality rate off the charts.

Now, with one simple 2.5-hour test, hospital stays are reduced on average 2.3 days, and each early diagnosis saves more than $20,000. Not to mention the lives saved from the proven 99%+ accuracy rate in prescribing the toughest specialized antibiotics for rare strains of the infection.

It's no wonder, then, that the company is growing revenues rapidly. In 2012, they were up 60%. They're on pace to top 100% growth in 2013.

Moreover, the company is just now bringing a rash of new tests to the market:

  • One to detect a deadly genetic risk from taking a popular blood thinner, a condition that 10% of patients have and rarely know about until too late
  • A test to locate rare proteins circulating in the bloodstream that are a precursor to imminent heart attack
  • Another to detect C. diff infections, which can become a nightmare if the bacterium is antibiotic resistant

And there are many others to follow in their wake, including blood tests to detect various cancers.

How can the company do this so rapidly? Its unique technologies, called spherical nucleic acids, use a gold nanoparticle bound to a reactive biological marker. A unique marker can be found to test for virtually any genetic, protein, lipid, or other biological marker with incredible sensitivity. It has the patents to make it happen, and the machine to allow any doctor or hospital to cut out the mail-away lab test…

Imagine a doctor's office where, instead of swabbing your throat and telling you they'll call you in four days to tell you if you have strep throat, you can be tested right there in the office for a fraction of the cost and time.

Imagine too our surprise when we discovered, vetted, and invested in this company while Wall Street was completely ignorant of its potential. But they'll catch on. They always notice the growth once it starts materializing. It's already begun; and November 1 brings the next report on what we see happening on the street—big growth.

Which is why I'm telling every subscriber I have about the potential behind this excellent long-term investment.

It's opportunities like this—and our energy team's discovery of the potential "Next Bakken," which we've told you about over the last few weeks—that make for real investing success.

Not inching a few points above the S&P, mind you. I am talking about tech's 39-10 track record at selecting winners and an average 42% gain, 4 TIMES the S&P's benchmark. Or the remarkable returns of mining portfolios in 2009 and subsequent years, with 100%+ average returns per position thanks to the panic bottoms.

Our portfolios are literally dripping with small-cap opportunity right now. The stars are aligned after brutal valuation fallouts in energy a few years ago and mining last year. Today, these markets are providing a time machine-like opportunity… s chance to go back to the 2008-'09 market-crash-level valuations and scoop up bargains.

That's why we've decided to open up a unique new program to all of our readers for the first time ever. A chance to get all the buys from all of our newsletters, with no risk. Click here to read the critical letter David Galland just wrote to subscribers.

If you've already seen it and you haven't acted… what are you waiting for? Try it today, and you can find out about this amazing diagnostics investment, the Next Bakken, our top three screaming values in mining, and much, much more. For far less than you ever could before.Try it now.

BofA/Merrill Lynch Turns Bullish On Gold

Posted: 24 Oct 2013 09:47 AM PDT

23-Oct (ZeroHedge) — BofAML’s MacNeil Curry is changing his view on gold from bearish to bullish. The impulsive gains from the 1251 low of Oct-15 and break of the two-month downtrend (confirmed on the break of 1330) tells him that a medium-term base and bullish turn is unfolding. BoFAML looks for an ultimate break of the 1433 highs of Aug-28, with potential for a push to 1500/1533 long term resistance. In the next several sessions Curry suggest buying dips into 1309, cautioning that this bullish view is “wrong” if gold breaks below 1251. For those awaiting additional confirmation of a turn, Curry notes you need to see a break of 1375 (Sep-19 high & right shoulder off a multi-month Head and Shoulders Top).

[source]

Gold climbs over 1% after China manufacturing data

Posted: 24 Oct 2013 09:32 AM PDT

24-Oct (MarketWatch) — Gold futures tacked on more than 1% on Thursday, poised for their highest close in five weeks, as a gauge of manufacturing in China, one of the world's biggest gold buyers, climbed to a seven-month high in October.

…Chinese manufacturing data showed that "the economic recovery is getting better in the country," said Naeem Aslam, chief market analyst at AvaTrade. "This is definitely a positive sentiment for gold demand, given that China is one the biggest consumers of gold."

[source]

The Daily Market Report

Posted: 24 Oct 2013 09:25 AM PDT

Gold Hits Five-Week High as Dollar Trends Lower


24-Oct (USAGOLD) — Gold rebounded from Wednesday’s mildly corrective tone to achieve new five-week highs as the dollar resumed its downtrend. The greenback fell to nearly a two-year low against the euro as the dollar index set fresh eight-month lows and threatened to push below 79.00.

Gold is up more than 5% since the deal to reopen the government and suspend the debt ceiling was inked last week. Not surprisingly, that ink wasn’t even dry yet before we saw a record one day expansion of the debt of $328 bln. With nearly three-months ahead of us without the nuisance of a debt-ceiling, who’s to say how much debt we might wrack up in that period of time.

The rest of the market is now coming to grips with the reality that it is the Fed that will have to step up and buy a good portion of that new debt. Speculation that the taper would begin in October or December has faded away and most analysts now think March is the next best bet for the central bank to start scaling back on asset purchases. I remain doubtful about the taper through next year.

Gold got an additional boost from strong Chinese manufacturing data. The HSBC/Markit flash PMI reading climbed again in October, reaching a seven-month high of 50.9. Good economic data out of the world’s largest gold consumer bodes well for the price of the yellow metal.

Gold Stocks Continue Bottoming Pattern

Posted: 24 Oct 2013 09:09 AM PDT

A month ago we noted that the gold stocks were headed lower and to a potential double bottom that would create another great buying opportunity. After seven straight weeks of price declines, the gold stocks rebounded last week and are off to a good start this week. We can't be sure if a double bottom or some complex head and shoulders pattern is developing. Regardless of the specific pattern, a bottom seems to be developing and another great buying opportunity could be at hand.

Gold Prices Still Dependent On The US Dollar

Posted: 24 Oct 2013 09:00 AM PDT

Background We will begin by taking a look at some of the factors that usually drive investors into the arms of ‘safe haven’ gold and other precious metals. We are all aware that the world is in a chaotic state at the moment with a number of friction points that could spark and get of hand at any time. The debt ceiling has been raised in the United States paving the way for more government spending. Bond buying programs remain in place and currency creation by a number of governments continues unabated as each nation attempts to boost exports by debasing their own currency. The production of gold from mining activities is slowing. The demand, especially from China appears to be in overdrive. On a seasonality basis the fall is usually a time when gold does very well, but that is not happening this year, at least not just yet.

Here Is The Surprising Reason Gold Is Soaring Again Today

Posted: 24 Oct 2013 08:46 AM PDT

On the heels of gold and silver moving solidly higher today, today a man out of Europe who has been extremely accurate with his calls on the gold market sent King World News two fantastic charts and powerful commentary which explain why gold is on the move once again. KWN was given exclusive distribution rights to the outstanding piece below by Ronald-Peter Stoferle of Incrementum AG out of Lichtenstein.

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

Gold Markets Are Not Efficient, Don't Reflect Fundamentals and Understate Gold's Market Value - Part V

Posted: 24 Oct 2013 07:30 AM PDT

We feel it important to raise this topic once more in this series because Societe Generale, the French bank has stated that if the Indian government does not handle this matter well there could be a run on the Indian Rupee. Read More...

Why $110 is Like Kryptonite for the Oil Price

Posted: 24 Oct 2013 07:21 AM PDT

Crude's getting slapped back into double-digits.

After briefly topping $110 just last month, the big oil rally faded fast. Monday marked crude's first visit below $100 since July. And it didn't stop there…

By yesterday afternoon, crude pushed as low as $96. That's a 4% drop so far this week. And it brings us one step closer to my $90 target I set on Sept. 18.

WTIC Light Crude Oil - Spot Price, July 2011-Present

Since 2011, crude has sharply reversed every time it made a run toward $110. This year is no different. You can see on the chart where crude failed just above $110 in early 2011 and early 2012. We’re seeing very similar action this week after yet another go at the highs with no follow-through…

Here's where we stand now:

Crude is hitting four-month lows as oil inventories hit their highest levels since June at 5.2 million barrels (that's a rise of nearly 20 million barrels over the last month, according to The Wall Street Journal).

Meanwhile, U.S. crude imports have fallen off a cliff. This is where your opportunity lies. While the big, multinational oil companies continue to slip, domestic producers are setting up beautifully. Even with oil tanking, I'm still seeing constructive setups in these names.

After all, states like North Dakota and Texas have become the oil production giants of the world. In North Dakota, daily oil production has jumped 700% within five years — actually doubling between 2011 and 2012.

Regards,

Greg Guenthner
for The Daily Reckoning

P.S. One expert I know believes that America's oil boom is about to enter an even more lucrative phase. This morning I gave readers of my Rude Awakening email edition a chance to access a free report that details all of his incredible research. If you didn’t get it, not to worry. Tomorrow’s issue is just a few hours away and will contain another chance to discover profit opportunities just like this one. Make sure you don’t miss out. Sign up for free, right here.

Gold Stocks Continue Bottoming Pattern

Posted: 24 Oct 2013 07:16 AM PDT

A month ago we noted that the gold stocks were headed lower and to a potential double bottom that would create another great buying opportunity. After seven straight weeks of price declines, the gold stocks rebounded last week and ... Read More...

Gold jumps to new 5-week high of 1348.91 as dollar slumps to nearly 2-yr lows against euro. DX at 8-mo lows, threatening 79.00 level.

Posted: 24 Oct 2013 06:02 AM PDT

The Investment Hidden By Layers of Chinese Smog

Posted: 24 Oct 2013 06:00 AM PDT

Greetings from chilly Pittsburgh. Oh well. It’s getting cold, but at least the air here is clean and breathable, which is a far cry from what’s going on in China.

Have you seen the news reports about the awful air pollution across China? Yes, I know. With all its breakneck growth over the past 25 years or so, the words “air pollution” and China are almost one and the same. Still, right now, the air in China is unusually bad — even for China!

Beijing recorded an astonishing 755-reading for air pollution…

…according to the U.S. Environmental Protection Agency, the “safe” limit for air on this same scale is 25!

Chinese growth has created huge investment opportunities, in recent years. But now we’re at a critical point in the “China story,” where Chinese air pollution is investable, too. I’ll discuss this in a moment. First, however, let’s take a look at how bad things are in air of the Middle Kingdom.

Bad means BAD! For example, earlier this year the giant city of Beijing was lost in a thick, “pea soup” of smog which reduces visibility to just a few feet, in many instances. Traffic accidents were common, because drivers can’t see where they’re going. Beijing’s nearly new, world-class airport delayed flights due to low visibility from pollution.

Back then, an air monitor atop the U.S. Embassy in Beijing recorded an astonishing 755-reading for air pollution, on a scale that the usually goes no higher than 500. Indeed, according to the U.S. Environmental Protection Agency, the “safe” limit for air on this same scale is 25! So a reading of 755 is almost apocalyptical, certainly if you need to breathe air in order to live.

Today a similar story is unfolding in the city of Harbin, China.

Visibility this week, for instance, is down to 50 meters in some parts of the city – that's like standing on the 50-yard line of a football field and not being able to see the goal posts! Tough week to be a field goal kicker, I guess. All jokes aside, this is a serious situation.

Along these lines, I've heard similar stories to what we saw in Beijing, hospitals have been inundated with people complaining about lung ailments. Schools cancelled outdoor activities. Stores sold out of face-masks, and even industrial-grade gas-masks and filters. It’s been just as bad, or worse, in a multitude of other cities across China.

This year air pollution is so bad, in fact, that the usually taciturn Chinese leadership is permitting public discussion about the issue, in that “we’ve got to do something” sort of way.

No less than the hard-line, Communist party mouthpiece People’s Daily newspaper asked, in a front page editorial, “How can we get out of this suffocating siege of pollution?”

The one-party, Chinese political system has another, intriguing, yet characteristic, manner of spurring debate. The big-shots trot out retired “gray hairs” to make certain points.

For example, in an interview earlier this year with the South China Morning Post, Qu Geping, China’s Minister of Environmental Protection between 1987 and 1993, stated “I have to admit that (national and local) governments have done far from enough to rein in the wild pursuit of economic growth, and failed to avoid some of the worst pollution scenarios we, as policymakers, had predicted.”

This is about as close to admitting a mistake as China’s top-down government will ever come. So… are we looking at a sort of “Silent Spring” moment in Beijing and Harbin? What does this mean to outsiders, as well as to investors?

Let’s peer just a bit further behind the Great Wall. Why, exactly, is the air so bad in China? Well the wind isn’t blowing the air pollution out to sea, and over towards Korea and Japan, which is the usual pathway of nature. And don’t chuckle at that idea.

Chinese air pollution casts a “global shadow,” according to several years’ worth of science reporting in the New York Times. Here in North America, air monitoring stations up and down the west coast — California to British Columbia — routinely trigger alarms when clouds of Chinese pollution arrive, essentially intact, after a trans-Pacific journey.

At least 30% of the air pollution on the U.S. west coast is attributable directly to “imported” Chinese clouds of gunk, according to Chemical & Engineering News.

But blowing China’s air pollution out to sea, and over to California, is a “non-solution” to a critical problem — and a temporary one, at that. The key is to find the origins of China’s air pollution problem. China needs to go to the source.

The worst of China’s air pollution, just now, is comprised of fine particulates. It’s the small stuff that forms into smog, gets into peoples’ lungs and causes all manner of other health and safety problems.

What’s the origin? While some of it stems from coal-fired power plants, a lot of the really bad material in China’s air comes from uncontrolled diesel exhaust. This exhaust spews from the tailpipes of literally millions of trucks and other diesel vehicles that ply China’s roads, as well as innumerable electrical generators that back-up China’s unreliable power grid.

As I dug into the news accounts of the air pollution crisis in China, earlier this year, I found a few (very few!) references to the widespread lack of catalytic converters on most Chinese trucks and stationary diesel generators.

According to one account, from the Associated Press, emission control devices can add up to $3,200 to the price of a truck or large generator. According to John Zeng, of the research firm LMC Automotive, Ltd., “It’s not a problem of technology. It’s more about consumer affordability. Increasing the emissions standard greatly increases the cost.”

Look back over the past quarter century of development in China. China was a “poor” country, in that its economic starting point was very low on the development ladder. It’s no wonder that vehicle and generator buyers didn’t want to spend what they consider “extra” money, up front, for pollution control equipment.

This kind of micro-economic choice may have made sense for the individual buyer, over the past 25 years or so. But when you add it all up, and calculate the long-term, macro-effect? Now China has millions of vehicles that lack catalytic controls. It’s no wonder that China’s air is so fouled.

China has reached its pollution tipping point. The Chinese are going to have to do something before they choke to death.

If you’re a long time reader of The Daily Resource Hunter, then you likely have an idea where this is going. What’s the key part of that $3,200 “extra” price for emission control? It’s the catalytic converter. In particular, it’s the cost of platinum and/or palladium metal that catalyzes the chemical reactions that dramatically reduce exhaust emissions.

For this write-up, we won't look for ways to invest in diesel engine builders, or catalytic converter manufacturers. Heck, we already have a big part of the answer right in front of us.

That is, they key to success is to invest in the basic resource — platinum and palladium. Without these scarce metals, no one can manufacture a catalytic converter. So platinum and palladium are essential metals for these attachments to diesel engines.

There’s reason to believe that the Chinese will start requiring more emission control devices on all new trucks and generators, if not requiring retro-fit to older models. And what will this do to demand for platinum and palladium? It’s going to rise, and prices will strengthen.

The bottom line is that we’re looking at an entire nation — China — awakening to the problems of air pollution. The engineering solution is that China must solve its problems by increasing the use of catalytic converters on its fleet of diesel engines. This can only be good for platinum and palladium demand and pricing, going forward.

Invest in emission control by investing in platinum and palladium.

That’s all for now. Best wishes…

Byron W. King
for The Daily Reckoning

P.S. Along with platinum and palladium plays, I gave readers of yesterday’s Daily Resource Hunter the ability to access a free report about the latest run up in gold — detailing specifically where it stands to go from here and how you can profit in the process. If you didn’t get it, you missed out. Click here now to make sure you don’t let that happen again.

Original article posted on Daily Resource Hunter

Gold Analysts "Turn Bullish" as "Financial Bubble Signs Abound" Says SocGen, China's Money-Market Rates Jump

Posted: 24 Oct 2013 05:43 AM PDT

GOLD PRICES rose $10 per ounce in London trade Thursday morning, gaining 2.2% for the week so far to trade at $1346 as several analysts said they were "turning bullish".
 
World stock markets ticked higher, while the Euro slipped from 2-year highs vs. the Dollar after weaker-than-expected PMI economic data, led by a sharp in services sector growth.
 
China's manufacturing PMI from Markit/HSBC meantime ticked higher to a 7-month high, beating forecasts at 50.9.
 
A reading of 50 would indicate no change in the level of activity reported by those businesses surveyed.
 
New data however showed China's biggest banks tripling their write-downs of bad debt on Wednesday.
 
Today money-market interest rates in Shanghai jumped more than one percentage point to stand above 5%, the highest level since June's sudden double-digit costs.
 
"Here we go again, and once again no-one is listening," says SocGen strategist Albert Edwards in his Alternative View today.
 
"Signs of bubbles abound, the most visible one being house prices" in China, the UK and even Germany.
 
"We all know how this story ends," the FT this week quoted leverage finance manager Matt Toms at ING Investment Management. "The question is trying to figure out exactly when."
 
"We're in the third year of the greatest leveraged finance markets of all time," the paper also quotes Craig Packer at investment bank Goldman Sachs, who cites the "the efforts by the Fed, and all the central banks around the world, to keep rates at zero."
 
Chart analysis of the gold price now points to a move higher, said technical strategist MacNeil Curry at Bank of America-Merrill Lynch in New York on Wednesday, changing his formerly bearish view and looking for a break above resistance at $1433 back to $1500 and then $1533 – the level from which gold crashed this spring.
 
"Overall we are [now] bullish gold," agrees technical analysis from ScotiaBank, "looking for a move to $1400 while the metal holds above $1300."
 
"Gold might need to simmer and consolidate before making the next move," cautions the trading desk at Japanese conglomerate Mitsui in Singapore.
 
"[Even] we acknowledge," says analysis from Swiss investment bank Credit Suisse, repeating its long-term call for lower gold prices nevertheless, "that the technical picture has become less overtly bearish in the short term."
 
"The general feeling seems to be bullish," says a note from Marex Spectron's brokers in London, "which is so often the way when precious metals are near their highs."
 
Overnight in the gold market, "Physical demand remains soft," said an Asian dealer, "though we are seeing good turnover in silver, mainly from Indian counterparts."
 
Gold holdings at the giant New York-listed SPDR Gold Trust (ticker: GLD) were unchanged last night near four-and-a-half-year lows.
 
The $7.5 billion iShares Silver Trust, in contrast, added 75 tonnes of silver to the holdings needed to back its exchange-traded shares (ticker: SLV).
 
The largest 1-day addition in more than a month, that put the SLV's total holdings at 10,442 tonnes of silver bullion – down 300 tonnes from May's all-time peak but still equal to more than 40% of last year's silver mining output worldwide.
 
Silver scrap supplies have "fallen 20-30%" meantime from the record levels of 2011, says Bloomberg, quoting a presentation by refiner Johnson Matthey at yesterday's Silver Industry Conference in Washington.
 
Silver prices today touched $22.80 per ounce for the third time this week, moving 4.0% from last Friday's close.
 

Gold higher at 1348.00 (+16.10). Silver 22.76 (+0.213). Dollar slides. Euro higher. Stocks called higher. US 10yr 2.49 (-2 bps).

Posted: 24 Oct 2013 05:33 AM PDT

Measured Against Gold, US Dollar Purchasing Power Drops By 99.9%

Posted: 24 Oct 2013 05:22 AM PDT

Shared by Nick Laird at Sharelynx.com, is an updated chart illustrating the long-term decline of the US dollar's purchasing power when compared to gold. Over this nearly 300 year period, $1,000, which initially purchased nearly 52 oz.'s of gold---finished the period with a purchasing power rate of .76 ounces, or roughly 23 grams of gold

Buying Gold as a Mouthguard

Posted: 24 Oct 2013 05:05 AM PDT

Bullion Vault

Money Printing: Not What It Was

Posted: 24 Oct 2013 01:03 AM PDT

There are lots of reasons why QE hasn't yet created inflation in the rich West... SO HEADLINE writers everywhere got to say money really does grow on trees today. Gold, in fact, has been found in minute quantities in eucalyptus trees in Australia. Analyzing tree leaves and bark could now unearth gold deposits up to 30 metres below ground elsewhere in the world, geochemists say.

Oversold Gold Does The Trick, Bulls Get The Treat

Posted: 24 Oct 2013 12:56 AM PDT

In what started as a depressing month for gold investors has turned positive with metals and mining stocks posting their best performances since August. Investors may have dreaded October heading into the month for various reasons - not the least of which was the U.S. government shutdown and debt ceiling showdown. But the "scariest month" is turning out to be nothing more than a phantasm heading down the final stretch. In this commentary we'll examine where gold is likely headed thanks to a historic technical condition mentioned in previous commentaries.

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