Tuesday, November 26, 2013

Gold World News Flash

Gold World News Flash


Don Coxe: “The Inflationary Potential Is There And It Will Assert Itself”

Posted: 26 Nov 2013 01:00 AM PST

by Tekoa Da Silva, Bull Market Thinking:

Don Coxe, Chairman of Coxe Advisors LLP, has issued a powerful new weekly review of global capital markets, entitled, "Seeds of Deflation." 

In this updated conference call, Don spoke to a potential impetus behind ongoing taper-talk, inflationary kindling remaining within the economy, and of great interest to our readers–an updated comment on gold.

Beginning at the 17:75 mark, Don noted that, "With all this talk about tapering, I'm cynical enough to believe that what they're doing is talking about that to prevent the 10 year treasury yields from breaking through 3%, without them [actually] doing anything about it. This is the case where talk is cheap, and it's better than having to print even more money to buy more and more [assets]."

Read More @ BullMarketThinking.com

Jim’s Mailbox

Posted: 26 Nov 2013 12:21 AM PST

My Dear Extended Family, When you hear talk of paying the banks to have dollars on deposit, remember you are not the holder of an asset, dollars in the bank, but rather a unsecured lender to the bank paying the banksters for the privilege of being at risk to the dollar, and at risk to... Read more »

The post Jim’s Mailbox appeared first on Jim Sinclair's Mineset.

American Politics, Monetary Policy, and the Price of Gold

Posted: 25 Nov 2013 11:00 PM PST

Nichols on Gold

The Gold Price Closed Down at $1,241.20

Posted: 25 Nov 2013 09:36 PM PST

Gold Price Close Today : 1241.20
Change : -2.90 or -0.23%

Silver Price Close Today : 19.88
Change : 0.02 or 0.10%

Gold Silver Ratio Today : 62.43
Change : -0.21 or -0.33%

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

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

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2013, 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 or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

WARNING AND DISCLAIMER. 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 short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

Bonds & Gold Will Eventually Rally OR Stocks Will Crash – Here’s Why

Posted: 25 Nov 2013 09:16 PM PST

While the stock market is the only game in town – for now -  stocks will not continue to out perform all other assetinvesting-0 classes indefinitely. Eventually either bonds and gold will rally or stocks will crash very hard. It is one, the other, or even more likely, a mixture of both.

 So says Tiho Brkar (theshortsideoflong.com) in edited excerpts from his original article* entitled Stock Market Only Game In Town… For Now!

[The following is presented by Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com and www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here – register here). The excerpts may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]

Brkar goes on to say in further edited excerpts:

As Chart 1 below shows perfectly well, all assets take turns whether they are outperforming or under-performing, as liquidity constantly shifts from overvalued to undervalued assets. Contrarians tend to buy value in anticipation of a trend change, while trend followers chase momentum. Contrarians are usually early to the game, while trend followers are late leaving it.

Chart 1: US stocks outperform Bonds and Gold by a large margin in 2013

Source: Short Side of Long

The chart above tries to do a decent job at presenting the basic returns in the global macro investment world of finance. S&P 500 represents equities, 30 Year Treasuries represent bonds and Gold represents commodities / hard assets.

A simple conclusion one can make is that on a three-asset preferred basis, equities have vastly outperformed bonds and commodities over the last 12 to 24 months. On an annualised basis, SPY ETF is up over 28%, while TLT ETF and GLD ETF are down 16% and 29% respectively.

Chart 2: Gold vs. Stocks Mispricing

Things become even more interesting when we compare these three assets on the relative basis. The ratio below in Chart 2 is between Gold and Stocks. When the price is rising, Gold is outperforming and when the price is falling Stocks are outperforming.

The chart shows that the current relative under performance by Gold against Stocks is a huge 45% on annualised basis. This is the worst performance Gold has posted during a stock market rally since the early 1980s. It is not only Gold but also Silver down 53% relative to S&P, Corn down 56% relative to S&P, Coffee down 45% relative to S&P, Wheat down 40% relative to S&P, Copper down 40% relative to S&P and so forth! The whole commodity sector is extremely oversold.

 
Source: Stock Charts (edited by Short Side of Long)

Chart 3: Bond vs. Stocks Mispricing

As can be seen in Chart 3 below, which shows the data going back to early 1980, a very similar condition is also present in the Treasury bond market too.

 
Source: Stock Charts (edited by Short Side of Long)

Bonds have under performed stocks by almost 32% over the last 12 months. There has been only a handful of times over the past 30 years that bonds have done even worse and here’s what happened during those dates:

  • In 1981 bonds became extremely oversold and rallied from their secular low
  • In 1987 bonds outperformed as the global stock markets crashed
  • In 2000 bond rallied but even more importantly stock markets crashed
  • In 2010 bonds rallied while the stock market went through a flash crash

Conclusion

All assets take turns whether they are outperforming or under-performing, as liquidity constantly shifts from overvalued to undervalued assets so, as they frequently say in my favourite bar, “Pick you poison!”

[Editor's Note: The author's views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.] 

*http://theshortsideoflong.blogspot.ca/2013/11/stock-market-only-game-in-town-for-now.html

Related Articles:

1. These Charts Show That Any Fed Tapering WILL Cause Stock Markets to Collapse

Whenever the Fed has decided to reduce the extent of their purchases of “agency” debt products, the SP500 also declined in a dramatic way. [As such,]… it makes it extremely important to contemplate a "tapering" off in the rate of growth of Fed assets, or even an outright end to quantitative easing (QE). [Indeed, if you own stocks you may well want the Fed QEternity program to be just that - to eternity - in spite of the inflation that will surely follow.]

2. Grantham: No Market Bubble for a While – But It's Coming!

I would think that we are probably in the slow build-up to something interesting – a badly overpriced market and bubble conditions. My personal guess is that the U.S. market, especially the non-blue chips, will work its way higher, perhaps by 20% to 30% in the next year or, more likely, two years, with the rest of the world including emerging market equities covering even more ground in at least a partial catch-up.

3. HELP! I'm Long Government Bonds!

One look at the chart below clearly illustrates that owners of Government bonds need all the help they can get right now!

4. Sustained Rise in Gold Price Likely – Here's Why

Many events moved the market this month which are all very bullish for gold. In addition, gold's leading indicator is currently at a major low area all of which strongly reinforce the likelihood of an upcoming sustained rise. Let us explain.

The post Bonds & Gold Will Eventually Rally OR Stocks Will Crash – Here’s Why appeared first on munKNEE dot.com.

Harsh Changes Are Coming For Global Markets & Mankind

Posted: 25 Nov 2013 09:02 PM PST

With continued chaos around the world and uncertainty in global markets, today KWN is publishing a powerful piece that was written by a 60-year market veteran. The Godfather of newsletter writers, Richard Russell, predicted that "harsh" changes are coming for mankind. Russell also discussed stocks, gold, and what investors should be doing in the face of these historic events and radical changes. He also included a fantastic chart.

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

Gold bars pay for a new Bentley in China

Posted: 25 Nov 2013 08:36 PM PST

11:31p Monday, November 25, 2013

Dear Friend of GATA and Gold:

Who says gold isn't still money?

The photos and text at the link below appear to show one of China's fabled gold "aunties" using gold bars to purchase a new Bentley sedan at this month's auto show in Nanchang:

http://bbs1.people.com.cn/post/26/1/2/135276194.html

Your secretary/treasurer went grocery shopping this evening and while the U.S. government insists that there's no inflation, at the deli counter it seemed that gold bars are already needed to purchase the makings of a mere ham sandwich.

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



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Join GATA here:

Vancouver Resource Investment Conference
Vancouver Convention Centre West
Sunday-Monday, January 19-20, 2014
Vancouver, British Columbia, Canada

http://www.cambridgehouse.com/event/vancouver-resource-investment-confer...

* * *

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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How to profit with silver --
and which stocks to buy now

Future Money Trends is offering a special 16-page silver report with our forecast for 2013 that includes profiles of nine companies and technical analysis of their stock performance. Six of the companies have market capitalizations of less than $800 million and one company has a market cap of only $30 million. The most exciting of these companies will begin production in a few weeks and has a market cap of just $150 million.

Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.

To learn about this report, please visit:

http://www.futuremoneytrends.com/index.php?option=com_content&id=376&tmp...


Gold Bullion ETF and Fund Drains From the Beginning of 2013 - Comex Registered at 69 to 1

Posted: 25 Nov 2013 08:29 PM PST

Gold Bullion ETF and Fund Drains From the Beginning of 2013 - Comex Registered at 69 to 1

Posted: 25 Nov 2013 08:29 PM PST

Bob Moriarty: For whom the bell tolls

Posted: 25 Nov 2013 08:16 PM PST

11:12p ET Monday, November 25, 2013

Dear Friend of GATA and Gold:

They do ring a bell at the top of market cycles, 321Gold's Bob Moriarty writes today, but then most people are having too much fun to listen. Moriarty's commentary, "For Whom the Bell Tolls," is a bit risque but incisive and hilarious. It's posted at 321Gold here:

http://www.321gold.com/editorials/moriarty/moriarty112513.html

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



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Jim Sinclair Plans Seminar in Boston on Dec. 7

Gold advocate and mining entrepreneur Jim Sinclair will hold his next seminar from 1 to 5 p.m. on Saturday, December 7, in the Boston suburb of Cambridge, Mass., at the Boston Marriott Cambridge at 50 Broadway in Cambridge. The admission fee will be $50. Details are posted at Sinclair's Internet site, JSMineSet, here:

http://www.jsmineset.com/2013/11/14/boston-qa-session-announced/



Join GATA here:

Vancouver Resource Investment Conference
Vancouver Convention Centre West
Sunday-Monday, January 19-20, 2014
Vancouver, British Columbia, Canada

http://www.cambridgehouse.com/event/vancouver-resource-investment-confer...

* * *

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

The Morgan Report EXCLUSIVE SILVER Webinar

Posted: 25 Nov 2013 07:40 PM PST

The Gold Price Closed Down at $1,241.20

Posted: 25 Nov 2013 07:00 PM PST

Gold Price Close Today : 1241.20
Change : -2.90 or -0.23%

Silver Price Close Today : 19.88
Change : 0.02 or 0.10%

Gold Silver Ratio Today : 62.43
Change : -0.21 or -0.33%

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

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

- Franklin Sanders, The Moneychanger
The-MoneyChanger.com

© 2013, 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 or 18 ounces of silver. or 18 ounces of silver. US $ and US$-denominated assets, primary trend down; real estate bubble has burst, primary trend down.

WARNING AND DISCLAIMER. 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 short term trading outlook. I write them for long-term investors in physical metals. Take them as entertainment, but not as a timing service for futures.

NOR do I recommend investing in gold or silver Exchange Trade Funds (ETFs). Those are NOT physical metal and I fear one day one or another may go up in smoke. Unless you can breathe smoke, stay away. Call me paranoid, but the surviving rabbit is wary of traps.

NOR do I recommend trading futures options or other leveraged paper gold and silver products. These are not for the inexperienced.

NOR do I recommend buying gold and silver on margin or with debt.

What DO I recommend? Physical gold and silver coins and bars in your own hands.

One final warning: NEVER insert a 747 Jumbo Jet up your nose.

How Gold Price Is Manipulated During The "London Fix"

Posted: 25 Nov 2013 06:42 PM PST

There was a time when the merest mention of gold manipulation in "reputable" media was enough to have one branded a perpetual conspiracy theorist with a tinfoil farm out back. That was roughly coincident with a time when Libor, FX, mortgage, and bond market manipulation was also considered unthinkable, when High Frequency Traders were believed to "provide liquidity", or when the stock market was said to not be manipulated by the Fed, and when the ever-confused media, always eager to take "complicated" financial concepts at the face value set by a self-serving establishment, never dared to question anything. Luckily, all that changed in the past several years, and it has gotten to the point where even the bastions of "serious", if 3-5 years delayed, investigation are finally not only asking how is the gold market being manipulated, but are actually providing answers.

Such as Bloomberg.

The topic of gold market manipulation during the London AM fix is not new to Zero Hedge: in fact we have discussed both the historical basis and the raison d'etre of the London gold fix, as well as the curious arbitrage available to those who merely traded the AM-PM spread, for years. Which is why we are delighted that none other than Bloomberg has decided to break it down for everyone, as well as summarize all the ways in which just this one facet of gold trading is being manipulated.

Bloomberg begins:

Every business day in London, five banks meet to set the price of gold in a ritual that dates back to 1919. Now, dealers and economists say knowledge gleaned on those calls could give some traders an unfair advantage when buying and selling the precious metal. The London fix, the benchmark rate used by mining companies, jewelers and central banks to buy, sell and value the metal, is published twice daily after a telephone call involving Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc and Societe Generale SA.

 

The fix dates back to September 1919, less than a year after the end of World War I, when representatives from five dealers met at Rothschild's office on St. Swithin's Lane in London's financial district. It was suspended for 15 years, starting in 1939. While Rothschild pulled out in 2004 and the discussions now take place by telephone instead of in a wood-paneled room at the bank, the process remains much the same.

That much is known. What is certainly known is that any process that involves five banks sitting down (until recently literally) and exchanging information using arcane methods (such as a telephone), on a set schedule that involves a private information blackout phase, even if temporary, and that does not involve instant market feedback, can and will be gamed. "Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people's knowledge," said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. "That is the great flaw of the London gold-fixing."

There are other flaws.

Participants on the London call can tell whether the price of gold is rising or falling within a minute or so, based on whether there are a large number of net buyers or sellers after the first round, according to gold traders, academics and investors interviewed by Bloomberg News. It's this feature that could allow dealers and others in receipt of the information to bet on the direction of the market with a high degree of certainty minutes before the fix is made public, they said.

Yes, the broader momentum creation and ignition perspective is also known to most. At least most who never believed the boilerplate that unlike all other asset classes, gold is somehow immune from manipulation.

"Information trickles down from the five banks, through to their clients and finally to the broader market," Andrew Caminschi, a lecturer at the University of Western Australia in Perth and co-author of a Sept. 2 paper on trading spikes around the London gold fix published online in the Journal of Futures Markets, said by phone. "In a world where trading advantage is measured in milliseconds, that has some value."

Ah, hypothetical - smart. One mustn't ruffle feathers before, like in the case of Libor, it becomes fact that everyone was in on it.

There's no evidence that gold dealers sought to manipulate the London fix or worked together to rig prices, as traders did with Libor. Even so, economists and academics say the way the benchmark is set is outdated, vulnerable to abuse and lacking any direct regulatory oversight. "This is one of the most concerning fixings I have seen," said Rosa Abrantes-Metz, a professor at New York University's Stern School of Business whose 2008 paper, "Libor Manipulation?" helped spark a global probe. "It's controlled by a handful of firms with a direct financial interest in where it's set, and there is virtually no oversight -- and it's based on information exchanged among them during undisclosed calls."

Unless we are wrong, there was no evidence of Libor manipulative collusion before there was evidence either. And since the cabal of the London gold fix is far smaller than the member banks of Libor, it is exponentially easier to confine intent within an even smaller group of people. But all that is also known to most.

As is the fact that when asked for comments, 'spokesmen for Barclays, Deutsche Bank, HSBC and Societe Generale declined to comment about the London fix or the regulatory probes, as did Chris Hamilton, a spokesman for the FCA, and Steve Adamske at the CFTC. Joe Konecny, a spokesman for Bank of Nova Scotia, wrote in an e-mail that the Toronto-based company has "a deeply rooted compliance culture and a drive to continually look toward ways to improve our existing processes and practices."

Next, Bloomberg conveniently goes into the specifics of just how the gold price is manipulated first by the fixing banks, then by their "friends and neighbors" as news of the fixing process unfolds.

At the start of the call, the designated chairman -- the job rotates annually among the five banks -- gives a figure close to the current spot price in dollars for an ounce of gold. The firms then declare how many bars of the metal they wish to buy or sell at that price, based on orders from clients as well as their own account.

 

If there are more buyers than sellers, the starting price is raised and the process begins again. The talks continue until the buy and sell amounts are within 50 bars, or about 620 kilograms, of each other. The procedure is carried out twice a day, at 10:30 a.m. and 3 p.m. in London. Prices are set in dollars, pounds and euros. Similar gauges exist for silver, platinum and palladium.

 

The traders relay shifts in supply and demand to clients during the calls and take fresh orders to buy or sell as the price changes, according to the website of London Gold Market Fixing, which publishes the results of the fix.

.. only this time the manipulation is no longer confined to a purely theoretical plane and instead empirical evidence of the fixing leak is presented based on academic research:

Caminschi and Richard Heaney, a professor of accounting and finance at the University of Western Australia, analyzed two of the most widely traded gold derivatives: gold futures on Comex and State Street Corp.'s SPDR Gold Trust, the largest bullion-backed exchange-traded product, from 2007 through 2012.

 

At 3:01 p.m., after the start of the call, trading surged to 47.8 percent above the average for the 20-minute period preceding the start of the fix and remained 20 percent higher for the next six minutes, Caminschi and Heaney found. By comparison, trading was 8.7 percent higher than the average a minute after publication of the price. The results showed a similar pattern for the SPDR Gold Trust.

 

"Intuitively, we expect volumes to spike following the introduction of information to the market" when the final result is published, Caminschi and Heaney wrote in "Fixing a Leaky Fixing: Short-Term Market Reactions to the London P.M. Gold Price Fixing." "What we observe in our analysis is a clustering of trades immediately following the fixing start."

 

The researchers also assessed how accurate movements in gold derivatives were in predicting the final fix. Between 2:59 p.m. and 3 p.m., the direction of futures contracts matched the direction of the fix about half the time.

 

From 3:01 p.m., the success rate jumped to 69.9 percent, and within five minutes it had climbed to 80 percent, Caminschi and Heaney wrote. On days when the gold price per ounce moved by more than $3, gold futures successfully predicted the outcome in more than nine out of 10 occasions. "Not only are the trades quite accurate in predicting the fixing direction, the more money that is made by way of a larger price change, the more accurate the trade becomes," Caminschi and Heaney wrote. "This is highly suggestive of information leaking from the fixing to these public markets."

Oh please, 9 out of 10 times is hardly indicative of any wrongdoing. After all, JPM lost money on, well, zero trading days in all of 2013, and nobody cares. So if a coin landing heads about 200 times in a row is considered normal by regulators, then surely the CTFC will find nothing wrong with a little gold manipulation here and there. Manipulation, which it itself previously said did not exist. But everyone already knew that too.

Cynicism aside, to claim that this clearly gamed process is not in fact gamed, not to say criminally manipulated (because it is never manipulation unless one is caught in the act by enforcers who are actually not in on the scheme) is the height of idiocy. Which is why we are certain that regulators will go precisely this route. That too is also largely known. Also known are the benefits for traders who abuse the London fix:

For derivatives traders, the benefits are clear: A dealer who bought 500 gold futures contracts at 3 p.m. and knew the fix was going higher could make $200,000 for his firm if the price moved by $4, the average move in the sample. While the value of 500 contracts totals about $60 million, traders may buy on margin, a process that involves borrowing and requires placing less capital for the bet. On a typical day, about 4,500 futures contracts are traded between 3 p.m. and 3:15 p.m., according to Caminschi and Heaney.

Finally what is certainly known is that the "London fixing" fix would be very simple in our day and age of ultramodern technology, and require a few minutes of actual implementation.

Abrantes-Metz, who helped Iosco formulate its guidelines, said the gold fix's shortcomings may stretch beyond giving firms and clients access to privileged information. "There is a huge incentive for these banks to try and influence where the benchmark is set depending on their trading positions, and there is almost no scrutiny," she said.

 

Abrantes-Metz said the gold fix should be replaced with a benchmark calculated by taking a snapshot of trading in a market where $19.6 trillion of the precious metal circulated last year, according to CPM Group, a New York-based research company. "There's no reason why data cannot be collected from actual prices of spot gold based on floor or electronic trading," she said. "There's more than enough data."

Which is precisely why nothing will change. Sadly, that is also widely known.

So did Bloomberg put together an exhaustive article in which virtually everything was known a priori? it turns out the answer is no: we learned one thing.

London Gold Market Fixing Ltd., a company controlled by the five banks that administers the benchmark, has no permanent employees. A call from Bloomberg News was referred to Douglas Beadle, 68, a former Rothschild banker, who acts as a consultant to the company from his home in Caterham, a small commuter town 45 minutes south of London by train. Beadle declined to comment on the benchmark-setting process.

You learn something new every day (incidentally, the same Douglas Beadle who acted as a consultant to the LBMA until March 2010 and was involved from the outset in the project to find a suitable scale for the electronic weighing of gold as documented in "Electronic Weighing of Gold - A Success Story").

Guest Post: Paul Krugman's Fallacies

Posted: 25 Nov 2013 06:28 PM PST

Submitted by Pater Tenebrarum of Acting-Man blog,

Krugman, Summers and the First Keynesian

Paul Krugman has used the occasion of Larry Summers' speech at the IMF to lay out his economic views, or let us rather say, his economic fallacies. As we already mentioned, the fact that Krugman liked Summers' speech proves ipso facto that it was a bunch of arrant nonsense. Krugman has subsequently proved us right beyond a shadow of doubt. A great many long refuted Keynesian shibboleths keep being resurrected in Krugman's fantasy-land, where economic laws are magically suspended, virtue becomes vice and bubbles and the expropriation of savers the best ways to grow the economy. It is important to keep in mind in this context that most of what Keynes wrote in the General Theory wasn't original – it was mainly a rehashing of the underconsumption and inflationist fallacies propagated by his less famous predecessors. As Henry Hazlitt remarked in his detailed refutation of Keynes (“The Failure of the New Economics”):

“I have analyzed Keynes's General Theory in the following pages theorem by theorem, chapter by chapter, and sometimes even sentence by sentence, to what to some readers may appear a tedious length, and I have been unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original. In fact, as we shall find, even much that is fallacious in the book is not original, but can be found in a score of previous writers.”

If one looks back at the history of economic thought, the earliest proponent of what we know as Keynesian errors today was probably John Law, the infamous Scotsman who almost single-handedly managed to ruin the economy of France (in fact, all of Europe was thrown into a depression lasting decades as a result of Law's monetary experiment). He was convinced that what the economy lacked was 'spending' and so endeavored to provide it with the necessary means – in spades. The result was a giant asset bubble and crack-up boom that left the economy in utter ruins when it ended.

Although Law's scheme involved speculation in the shares of what turned out to be a company that was worth much less than advertised, at the heart of the operation was a monetary scheme based on his previously developed theories. The plan involved the printing of oodles of unbacked paper money which Law thought would spur a revival of France's moribund economy and concurrently fix the government's tattered finances. As is almost always the case with inflationary schemes, it appeared to work initially. In fact, it seemed to work almost too well (if Tonto had been around, he would have noticed that something was wrong). The world's first 'millionaires' were created, for a brief time at least (most of them ended up as paupers, similar to Law himself).

The problem with all such schemes is essentially that scarce resources end up being invested unwisely, as inflation makes it appear as though they were more plentiful than they really are. Once the inevitable collapse comes, these unwise investments are unmasked and it become obvious to all that capital has been squandered.

 


 



john-law
John Law – the world's first Keynesian

(Image via Wikimedia Commons)

 


 

John Law 50 Livres Tournois_500x345

One of the ultimately worthless paper promises issued by Law's Banque Générale

(Image via Wikimedia Commons)

 


 

The 'Logic' of Nonsense

What we noted above regarding 'wise' and 'unwise' investment is an important point to keep in mind when considering Krugman's rehashing of Keynesian fallacies. Krugman writes:

“Larry’s formulation of our current economic situation is the same as my own. Although he doesn’t use the words “liquidity trap”, he works from the understanding that we are an economy in which monetary policy is de facto constrained by the zero lower bound (even if you think central banks could be doing more), and that this corresponds to a situation in which the “natural” rate of interest – the rate at which desired savings and desired investment would be equal at full employment – is negative.

 

And as he also notes, in this situation the normal rules of economic policy don’t apply. As I like to put it, virtue becomes vice and prudence becomes folly. Saving hurts the economy – it even hurts investment, thanks to the paradox of thrift. Fixating on debt and deficits deepens the depression. And so on down the line.”

(emphasis added)

We already discussed that the idea that the natural interest rate can become negative is a fallacy (see “Meet Larry Summers, Social Engineer” for more color on this). To briefly summarize, for the natural rate to go negative, time preferences would have to go negative too, as interest rates are merely the ratio between present and future goods. However, a situation in which human beings value attaining the same satisfaction in a more remote future more highly than attaining it in a nearer future is simply unthinkable (capitalistic saving, i.e., abstaining from present consumption, always aims at obtaining more goods and/or services in the future).

All this 'liquidity trap' and 'paradox of thrift' stuff makes no sense whatsoever. Savings are not 'lost' to the economy, they are the sine qua non without which capital accumulation and production are not possible. Virtue doesn't become vice in an economic downturn and economic laws don't change. As William Anderson points out in a recent article, the problem with this thinking is that it ignores capital theory. Attempts to revive the economy with deficit spending and inflation will never stimulate all factors of production simultaneously and to the same extent. The moment one considers the heterogeneity of capital it becomes clear that such interventions must lead to distortions which result in the boom-bust cycle (the housing bubble that expired in 2007/8 provides us with an excellent recent example for this).

Krugman elaborates further, once again invoking space aliens in the process:

“This is the kind of environment in which Keynes’s hypothetical policy of burying currency in coalmines and letting the private sector dig it up – or my version, which involves faking a threat from nonexistent space aliens – becomes a good thing; spending is good, and while productive spending is best, unproductive spending is still better than nothing.”

It is simply incorrect that 'unproductive spending is better than nothing'. Recall what we said above about 'wise and unwise investment'. Deploying scarce resources in unproductive fashion is not 'better than nothing', it will simply consume capital and destroy wealth. Krugman continues along these lines, seemingly eager to enlist everyone in his plan to waste as much capital as possible:

“Larry also indirectly states an important corollary: this isn’t just true of public spending. Private spending that is wholly or partially wasteful is also a good thing, unless it somehow stores up trouble for the future. That last bit is an important qualification. But suppose that U.S. corporations, which are currently sitting on a huge hoard of cash, were somehow to become convinced that it would be a great idea to fit out all their employees as cyborgs, with Google Glass and smart wristwatches everywhere. And suppose that three years later they realized that there wasn’t really much payoff to all that spending. Nonetheless, the resulting investment boom would have given us several years of much higher employment, with no real waste, since the resources employed would otherwise have been idle.

 

OK, this is still mostly standard, although a lot of people hate, just hate, this kind of logic – they want economics to be a morality play, and they don’t care how many people have to suffer in the process.”

(emphasis added)

So 'wasteful spending is a good thing unless it stores up trouble for the future' – Krugman says that this is an 'important qualification', only to proceed to show us in the next breath that he actually does not feel constrained by any such 'qualification' at all. Presumably he put that filler sentence in there so that when people in the future take a look at what he recommended in the past, he can claim to have 'qualified' his demand for wasteful spending (recall his vocal demand for a housing bubble before housing bubbles turned out to be uncool, which continues to cause him well-deserved embarrassment). When the latest scheme to 'rescue' the economy by inflation and deficit spending fails, he will be able to dig up this 'important qualification' (as if there could be any wasteful spending that doesn't store up trouble for the future).

The idea that 'idle resources' need to be pressed into service is also due to Krugman having no inkling of capital theory. In the Keynesian view of the world, capital is a self-replicating homogeneous blob, some portions of which are currently accidentally 'idled' and only need to be prodded back into action with the help of  government spending. This is not so. Capital is not only heterogeneous, much of it is highly specific and inconvertible. What appears to be unnecessarily 'idle' are simply the remnants of previous malinvestments. It may no longer make economic sense to employ the capital concerned. Workers who used to be employed in lines of production the products of which are no longer in demand may be holding out, hoping for the sector to 'come back' rather than accepting a lower wage in a different occupation.

As an example, consider the housing sector that was at the center of the previous boom. If building companies have invested in enough machinery to erect two million houses per year, but I has turned out that there is only demand for 400,000 houses, it wouldn't make sense to employ the superfluous machinery and construct two million houses per year anyway. People that were employed in construction may need to retrain or move and be willing to accept less remunerative work. It is certain that e.g. far fewer roofers are needed today than during the building boom. Renewed credit expansion is likely to affect different sectors of the economy, but if it leads to another artificial boom in the same sector, it will merely prolong the life of malinvested capital and delay the necessary adjustments. Krugman argues along Keynesian lines that  'stuff the government has dropped into coal mines should be dug up', but neglects that this activity doesn't come without costs (or rather, erroneously argues that the costs don't matter).

Krugman avers that this 'logic' is hated because people are informed by a warped sense of morality. The problem has nothing to do with morals though, the problem is that there is simply no 'logic' discernible. Krugman offers the most illogical ideas and then proceeds to call them 'logic' as if that could somehow dignify them and mitigate the fact that they are offending common sense.

 

More Bubbles Please

Believe it or not, it gets still more absurd. Not only does Krugman conclude that it is supposedly advisable to engage in unproductive spending because it is 'better than nothing', he also believes that Summers' speech contains an unspoken demand for more bubbles. And why not? After all, he has already concluded that 'prudence is folly', so why not throw prudence overboard, lock, stock and barrel? Never mind that this is what policy makers are already doing, so there hardly seems a great need to egg them on. According to Krugman:

“We now know that the economic expansion of 2003-2007 was driven by a bubble. You can say the same about the latter part of the 90s expansion; and you can in fact say the same about the later years of the Reagan expansion, which was driven at that point by runaway thrift institutions and a large bubble in commercial real estate.

 

So you might be tempted to say that monetary policy has consistently been too loose. After all, haven’t low interest rates been encouraging repeated bubbles? But as Larry emphasizes, there’s a big problem with the claim that monetary policy has been too loose: where’s the inflation? Where has the overheated economy been visible?

 

So how can you reconcile repeated bubbles with an economy showing no sign of inflationary pressures? Summers’ answer is that we may be an economy that needs bubbles just to achieve something near full employment – that in the absence of bubbles the economy has a negative natural rate of interest.”

(emphasis added)

The seemingly insoluble questions Krugman grapples with are not as difficult as he makes them out to be. The problem is that what he calls 'inflation' is only one of its many possible effects. Where the effects of inflation on prices first appear is a matter of the specific historical circumstances. Given strongly rising economic productivity, a huge expansion in international trade (and let us not forget, the transformation of the former communist command economies into market economies), it should be no great surprise that the effects of the huge credit expansion and money supply inflation of recent decades showed up in asset prices rather than consumer prices (incidentally, a very similar thing happened during the boom of he 1920s, during which economists also ignored a major credit and money supply expansion because consumer prices were tame due to strong increases in productivity).

This does not mean that other negative effects of these inflationary credit bubbles didn't put in an appearance. They all caused a distortion of relative prices and were thus all marked by massive capital malinvestment. Successive credit expansions led temporarily to higher employment even as capital was misallocted, but a steadily worsening underlying structural situation has become evident as these booms have inevitably turned into busts. So what solution does Krugman have to offer? He evidently thinks coercion and theft are the best way forward:

“Of course, the underlying problem in all of this

GOLD: BRIEF PAUSE, OR FINAL BOTTOM?

Posted: 25 Nov 2013 06:17 PM PST

Something may have changed today in the gold market. For one I think gold probably formed a minor daily cycle bottom today. But what I'm really talking about is the complete recovery from another middle of the night attack. For most of the last year these late night attacks have worked wonders for sending gold crashing through technical levels and triggering stops. Today however it simply didn't work for the first time. 

It's been my opinion for months now that the forces behind these take downs were trying to push gold back down to the 2007 C-wave top at $1030. At which point I expected they would flip sides and go long for the bubble phase of the bull market. After watching gold fight off the manipulation today I'm starting to wonder if gold has been pushed as far as it's going to go. 

At some point all artificial markets finally say "enough is enough" and the fundamentals regain control and take the market back in the direction it was meant to go. Usually more aggressively than would have happened naturally. We saw this in spades in 2008/09.



If gold is finally ready to break free of the year long manipulation then we may have printed a final bottom today. The next couple of days should tell the tale. If gold can rally $40-$50 tomorrow or Wednesday, and the miners 5% - 10% on heavy volume that would in my opinion be a strong signal that today was more than just a minor daily cycle low. If gold can deliver a powerful follow through surge off of this reversal then we may just have a final intermediate bottom, and maybe, just maybe, the bubble phase of the bull market is ready to begin. 

I told my subscribers this afternoon, miners have the potential to form a 2b reversal (a technical signal that sometimes spots an exact bottom or top of a trend). One could take a long position at the open tomorrow and put a stop right below today's intraday low. If the 2b reversal is valid then the low will hold and the stops will not get triggered. If nothing else it's a low risk setup with a minimal loss but huge upside potential if we did print a bottom today.



If the manipulation is going to continue it will probably try to regain control tonight. If we see another premarket hit tomorrow then step aside and wait to see if gold can fend off the attack again.

The $1 two day trial is still active. Click here to sign up for the trial and read the latest daily report.  

Academics see likelihood of exploitation by banks in London gold fixing

Posted: 25 Nov 2013 05:45 PM PST

Gold Fix Drawing Scrutiny Amid Knowledge Tied to Eruption

By Liam Vaughan, Nicholas Larkin, and Suzi Ring
Bloomberg News
Monday, November 25, 2013

http://www.bloomberg.com/news/2013-11-26/gold-fix-drawing-scrutiny-amid-...

Every business day in London, five banks meet to set the price of gold in a ritual that dates back to 1919. Now, dealers and economists say knowledge gleaned on those calls could give some traders an unfair advantage when buying and selling the precious metal.

The U.K. Financial Conduct Authority is scrutinizing how prices are set in the $20 trillion gold market, according to a person with knowledge of the review who asked not to be identified because the matter isn't public. The London fix, the benchmark rate used by mining companies, jewelers, and central banks to buy, sell, and value the metal, is published twice daily after a telephone call involving Barclays Plc, Deutsche Bank AG, Bank of Nova Scotia, HSBC Holdings Plc, and Societe Generale SA.

... Dispatch continues below ...



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The process, during which gold is bought and sold, can take from a few minutes to more than an hour. The participants also can trade the metal and its derivatives on the spot market and exchanges during the calls. Just after the fixing begins, trading erupts in gold derivatives, according to research published in September. Four traders interviewed by Bloomberg News said that's because dealers and their clients are using information from the talks to bet on the outcome.

"Traders involved in this price-determining process have knowledge which, even for a short time, is superior to other people's knowledge," said Thorsten Polleit, chief economist at Frankfurt-based precious-metals broker Degussa Goldhandel GmbH and a former economist at Barclays. "That is the great flaw of the London gold fixing."

The U.K. capital is the biggest center for gold trading in the world, according to the London Bullion Market Association, which said more than $33 billion changed hands there each day in 2012, exceeding the $29 billion of futures traded on Comex, the New York commodities exchange, data compiled by Bloomberg show. Financial instruments including cash-settled swaps and options are priced off the London fix, according to the LBMA website.

In private meetings this year, the U.S. Commodity Futures Trading Commission, which regulates derivatives, discussed reviewing how gold prices are set, according to a person with knowledge of the talks. The FCA review is preliminary and not a formal investigation, another person said. The people wouldn't say what's being looked at or if regulators suspect wrongdoing.

Participants on the London call can tell whether the price of gold is rising or falling within a minute or so, based on whether there are a large number of net buyers or sellers after the first round, according to gold traders, academics, and investors interviewed by Bloomberg News. It's this feature that could allow dealers and others in receipt of the information to bet on the direction of the market with a high degree of certainty minutes before the fix is made public, they said.

"Information trickles down from the five banks, through to their clients and finally to the broader market," Andrew Caminschi, a lecturer at the University of Western Australia in Perth and co-author of a Sept. 2 paper on trading spikes around the London gold fix published online in the Journal of Futures Markets, said by phone. "In a world where trading advantage is measured in milliseconds, that has some value."

Pat McFadden, an opposition Labour lawmaker who sits on Parliament's Treasury Select Committee, said British regulators need to probe any possible abuses by dealers.

"The gold market is hugely influential, and there needs to be public trust in the gold price," McFadden said in an interview. "Question marks have been raised about the benchmark price of gold, and it's important that regulators investigate."

Scrutiny of the gold market is taking place as the price of the metal has fallen 27 percent this year, heading for the first annual drop since 2000. Barrick Gold Corp., the world's biggest gold producer, plans to sell, close, or curb production at almost half of its mines, and billionaire John Paulson's PFR Gold Fund lost $630 million since the end of December, according to a person briefed on the returns.

The price of gold at the London afternoon fix on Nov. 25 was $1,243 an ounce, down from $1,693.75 on Jan. 2.

Regulators are looking into how benchmarks are set and governed across the financial system after five firms including Barclays and Royal Bank of Scotland Group Plc were fined a combined $3.7 billion for rigging the London interbank offered rate, or Libor. Investigators from Switzerland to Hong Kong are probing currency markets after Bloomberg News reported in June that traders communicated with each other and timed trades to influence foreign-exchange benchmarks and maximize profits.

There's no evidence that gold dealers sought to manipulate the London fix or worked together to rig prices, as traders did with Libor. Even so, economists and academics say the way the benchmark is set is outdated, vulnerable to abuse, and lacking any direct regulatory oversight.

"This is one of the most concerning fixings I have seen," said Rosa Abrantes-Metz, a professor at New York University's Stern School of Business whose 2008 paper, "Libor Manipulation?," helped spark a global probe. "It's controlled by a handful of firms with a direct financial interest in where it's set, and there is virtually no oversight -- and it's based on information exchanged among them during undisclosed calls."

London Gold Market Fixing Ltd., a company controlled by the five banks that administers the benchmark, has no permanent employees. A call from Bloomberg News was referred to Douglas Beadle, 68, a former Rothschild banker who acts as a consultant to the company from his home in Caterham, a small commuter town 45 minutes south of London by train. Beadle declined to comment on the benchmark-setting process.

Spokesmen for Barclays, Deutsche Bank, HSBC, and Societe Generale declined to comment about the London fix or the regulatory probes, as did Chris Hamilton, a spokesman for the FCA, and Steve Adamske at the CFTC.

Joe Konecny, a spokesman for Bank of Nova Scotia, wrote in an e-mail that the Toronto-based company has "a deeply rooted compliance culture and a drive to continually look toward ways to improve our existing processes and practices."

Stewart Murray, chief executive officer of LBMA, which represents the gold and silver markets and publishes the results of the fix on its website, declined to comment, saying the group has "no jurisdiction or responsibility" for the process or its administration.

A spokesman for the association, Aelred Connelly, said Nov. 22 that the group is reviewing its own benchmarks to see whether they conform to guidelines set by the International Organization of Securities Commissions in July. Those include making prices based on "observable" deals where possible. The LBMA oversees gold forward offered rates, which reflect bullion borrowing costs for different durations and are used in loan agreements.

The fix dates back to September 1919, less than a year after the end of World War I, when representatives from five dealers met at Rothschild's office on St. Swithin's Lane in London's financial district. It was suspended for 15 years, starting in 1939. While Rothschild pulled out in 2004 and the discussions now take place by telephone instead of in a wood-paneled room at the bank, the process remains much the same.

At the start of the call, the designated chairman -- the job rotates annually among the five banks -- gives a figure close to the current spot price in dollars for an ounce of gold. The firms then declare how many bars of the metal they wish to buy or sell at that price, based on orders from clients as well as their own account.

If there are more buyers than sellers, the starting price is raised and the process begins again. The talks continue until the buy and sell amounts are within 50 bars, or about 620 kilograms, of each other. The procedure is carried out twice a day, at 10:30 a.m. and 3 p.m. in London. Prices are set in dollars, pounds, and euros. Similar gauges exist for silver, platinum, and palladium.

The traders relay shifts in supply and demand to clients during the calls and take fresh orders to buy or sell as the price changes, according to the website of London Gold Market Fixing, which publishes the results of the fix.

Bank of Nova Scotia provides clients with updates as the fixing proceeds through a page distributed by Thomson Reuters Corp. Caminschi, the University of Western Australia professor, said the information on the feed is delayed and often incomplete. Konecny, the Nova Scotia spokesman, didn't provide any details about the service, and Kate Reid, a spokeswoman at Thomson Reuters, didn't respond to a request for comment.

Bloomberg LP, the parent company of Bloomberg News, competes with Reuters in providing news and information as well as currency-trading systems.

David Govett, head of precious metals at Marex Spectron Group Ltd., a closely held commodity broker in London, said the benchmark gives clients an opportunity to buy or sell large amounts of gold in a single transaction anonymously, without having to turn to the futures market.

"The fix is a very efficient way of doing it," he said. "It's very open, it's very transparent, and it's a good thing."

A trader at one of the banks that sets the price defended the process, saying it's structured to minimize opportunities to exploit the difference between the spot and fixing price of gold. He asked that neither he nor his firm be identified because he wasn't authorized to speak publicly.

Caminschi and Richard Heaney, a professor of accounting and finance at the University of Western Australia, analyzed two of the most widely traded gold derivatives: gold futures on Comex and State Street Corp.'s SPDR Gold Trust, the largest bullion-backed exchange-traded product, from 2007 through 2012.

At 3:01 p.m., after the start of the call, trading surged to 47.8 percent above the average for the 20-minute period preceding the start of the fix and remained 20 percent higher for the next six minutes, Caminschi and Heaney found. By comparison, trading was 8.7 percent higher than the average a minute after publication of the price. The results showed a similar pattern for the SPDR Gold Trust.

"Intuitively, we expect volumes to spike following the introduction of information to the market" when the final result is published, Caminschi and Heaney wrote in "Fixing a Leaky Fixing: Short-Term Market Reactions to the London P.M. Gold Price Fixing." "What we observe in our analysis is a clustering of trades immediately following the fixing start."

The researchers also assessed how accurate movements in gold derivatives were in predicting the final fix. Between 2:59 p.m. and 3 p.m., the direction of futures contracts matched the direction of the fix about half the time.

From 3:01 p.m., the success rate jumped to 69.9 percent, and within five minutes it had climbed to 80 percent, Caminschi and Heaney wrote. On days when the gold price per ounce moved by more than $3, gold futures successfully predicted the outcome in more than nine out of 10 occasions.

"Not only are the trades quite accurate in predicting the fixing direction, the more money that is made by way of a larger price change, the more accurate the trade becomes," Caminschi and Heaney wrote. "This is highly suggestive of information leaking from the fixing to these public markets."

For derivatives traders, the benefits are clear: A dealer who bought 500 gold futures contracts at 3 p.m. and knew the fix was going higher could make $200,000 for his firm if the price moved by $4, the average move in the sample. While the value of 500 contracts totals about $60 million, traders may buy on margin, a process that involves borrowing and requires placing less capital for the bet. On a typical day, about 4,500 futures contracts are traded between 3 p.m. and 3:15 p.m., according to Caminschi and Heaney.

The trader at a fixing bank said there's little money to be made from buying and selling gold derivatives during the process because information from the call is disseminated into the wider market so quickly. Arbitrage opportunities also are limited because the chairman will adjust the price during the call if there are moves in the spot and futures markets, he said.

Govett, at Marex Spectron, said it's common for people to try to exploit the difference between the current price of gold derivatives and the final fix.

In terms of timing and money available from such arbitrage, "it is quite small, but you'd be amazed at the amount of people who try to do it," said Govett, a trader for 30 years.

Abrantes-Metz, who helped Iosco formulate its guidelines, said the gold fix's shortcomings may stretch beyond giving firms and clients access to privileged information.

"There is a huge incentive for these banks to try to influence where the benchmark is set depending on their trading positions, and there is almost no scrutiny," she said.

Abrantes-Metz said the gold fix should be replaced with a benchmark calculated by taking a snapshot of trading in a market where $19.6 trillion of the precious metal circulated last year, according to CPM Group, a New York-based research company.

"There's no reason why data cannot be collected from actual prices of spot gold based on floor or electronic trading," she said. "There's more than enough data."

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Chart Of The Day: How China's Stunning $15 Trillion In New Liquidity Blew Bernanke's QE Out Of The Water

Posted: 25 Nov 2013 05:25 PM PST

Much has been said about the Fed's attempt to stimulate inflation (instead of just the stock market) by injecting a record $2.5 trillion in reserves into the US banking system since the collapse of Lehman (the same goes for the ECB, BOE, BOJ, etc). Even more has been said about why this money has not been able to make its way into the broader economy, and instead of forcing inflation - at least as calculated by the BLS' CPI calculation - to rise above 2% has, by monetizing a record amount of US debt issuance, merely succeeded in pushing capital markets to unseen risk levels as every single dollar of reserves has instead ended up as assets (and excess deposits as a matched liability) on bank balance sheets.

Much less has been said that of the roughly $2 trillion increase in US bank assets, $2.5 trillion of this has come from the Fed's reserve injections as absent the Fed, US banks have delevered by just under half a trillion dollars in the past 5 years. Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects. Naturally, the Fed would be delighted if instead of banks being addicted to its zero-cost liquidity, they would instead obtain the capital in the old-fashioned way: through private loans. However, since there is essentially no risk when chasing yield and return and allocating reserves to various markets (see JPM CIO and our prior explanation on this topic), whereas there is substantial risk of loss in issuing loans to consumers in an economy that is in a depressionary state when one peels away the propaganda and the curtain of the stock market, banks will always pick the former option when deciding how to allocated the Fed's reserves, even if merely as initial margin on marginable securities.

However, what virtually nothing has been said about, is how China stacks up to the US banking system when one looks at the growth of total Chinese bank assets (on Bloomberg: CNAABTV Index) since the collapse of Lehman.

The answer, shown on the chart below, is nothing short of stunning.

 

Here is just the change in the past five years:

You read that right: in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion - some two and a half times the GDP of China!

 Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!

Here is how Diapason's Sean Corrigan observed this epic imbalance in liquidity creation:

Total Chinese banking assets currently stand at some CNY147 trillion, around 2 ½ times GDP. As such, they have doubled in the past four years of increasingly misplaced investment and frantic real estate speculation, adding the equivalent of 140% of average GDP – or, in dollars, $12.5 trillion - to the books. For comparison, over the same period, US banks have added just less than $700 billion, 4.4% of average GDP, 18 times less than their Chinese counterparts – and this in a period when the predominant trend has been for the latter to do whatever it takes to keep commitments off their balance sheets and lurking in the 'shadows'!

 

Indeed, the increase in Chinese bank assets during that breakneck quadrennium is equal to no less than seven-eighths of the total outstanding assets of all FDIC-insured institutions! It also compares to 30% of Eurozone bank assets.

Truly epic flow numbers, and just as unsustainable in the longer-run.

But what does this mean for the bigger picture? Well, a few things.

For a start, prepare for many more headlines like these: "Chinese buying up California housing", "Hot Money's Hurried Exit from China", "Following the herd of foreign money into US real estate markets" and many more like these. Because while the world focuses and frets about the Fed's great reflation experiment (which is only set to become bigger not smaller, now that the Fed has thrown all caution about collateral shortage to the wind and will openly pursue NGDP targeting next), China has been quietly injecting nearly three times in liquidity into its own economy (and markets, and foreign economies and markets) as the Fed and the Bank of Japan combined!

To be sure, due to China's still firm control over the exchange of renminbi into USD, the capital flight out of China has not been as dramatic as it would be in a freely CNY-convertible world, although in recent months many stories have emerged showing that enterprising locals from the mainland have found effective ways to circumvent the PBOC's capital controls. And all it would take is for less than 10% of China's new credit creation to "escape" aboard from the Chinese banking system, the bulk of which is quasi nationalized and thus any distinction between prive and public loan creation is immaterial, for the liquidity effect to be as large as one entire year of QE. Needless to say, the more effectively China becomes at depositing all this newly created liquidity, the faster prices of US real estate, the US stock market, and US goods and services in general will rise (something the Fed would be delighted with).

However, while the Fed certainly welcomes this breakneck credit creation in China, the reality is that the bulk of these "assets" are of increasingly lower quality and generate ever lass cash flows, something we covered recently in "Big Trouble In Massive China: "The Nation Might Face Credit Losses Of As Much As $3 Trillion." It is also the reason why China attempted one, promptly aborted, tapering in the summer of 2013, and why the entire third plenum was geared toward economic reform particularly focusing on the country's unsustainable credit (and liquidity) creation machine.

The implications of the above are staggering. If the US stock, and especially bond, market nearly blew a gasket in the summer over tapering fears when just a $10-20 billion reduction in the amount of flow was being thrown about, and the Chinese interbank system almost froze when overnight repo rates exploded to 25% on even more vague speculation of a CNY1 trillion in PBOC tightening, then the world is now fully addicted to about $5 trillion in annual liquidity creation between just the US, Japan and China alone!

Throw in the ECB and BOE as many speculate will happen eventually, and it gets downright surreal.

But more importantly, as with all communicating vessels, global liquidity is now in a constant state of laminar flow - out of central banks: either unadulterated as in the US, Japan, Europe and the UK, or implicit, when Chinese government-backstopped banks create nearly $4 trillion in loans every year. If one issuer of liquidity "tapers", others have to step in. Indeed, as we suggested a few weeks ago, any possibility of a Fed taper would likely involve incremental QE by the Bank of Japan, and vice versa.

However, the biggest workhorse behind the scenes, is neither: it is China. And if something happens to the great Chinese credit-creation dynamo, then we see no way that the rest of the world's central banks will be able to step in with low-powered money creation, to offset the loss of China's liquidity momentum.

Finally, when you lose out on that purchase of a home to a Chinese buyer who bid 50% over asking sight unseen, with no intentions to ever move in, you will finally know why this is happening.

The Dumb Bell Rally

Posted: 25 Nov 2013 05:09 PM PST

The best precious metals bull markets are defined by gold and silver shares outperforming bullion prices, however history has taught us this is not necessarily a prerequisite, at least not if you are looking for a runaway. Read More...

Gold market rigging is intense at options expiration, Turk tells KWN

Posted: 25 Nov 2013 05:04 PM PST

8p ET Monday, November 25, 2013

Dear Friend of GATA and Gold:

Gold price suppression is especially intense around options expirations, GoldMoney founder and GATA consultant James Turk tells King World News today, but now that options expiration is past, Turk expects a relief rally as central banks keep struggling to find real metal with which to meet Asian demand. An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/25_H...

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



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Peter Schiff Bashes "Ben's Rocket To Nowhere"

Posted: 25 Nov 2013 05:03 PM PST

Submitted by Peter Schiff via Euro Pacific Capital,

Herd mentality can be as frustrating as it is inexplicable. Once a crowd starts moving, momentum can be all that matters and clear signs and warnings are often totally ignored. Financial markets are currently following this pattern with respect to the unshakable belief that the Federal Reserve is ready, willing, and most importantly, able, to immediately execute a wind down of its quantitative easing program. How this notion became so deeply entrenched is a mystery, but the stampede it has sparked is getting more violent, and irrational, by the day.

The release last week of the minutes of the October Fed policy meeting was a case study in dangerous collective delusion. Although the report did not contain a shred of hard information about the certainty or timing of a "tapering" campaign, most observers read into it definitive proof that the Fed would jump into action by December or March at the latest.

But while the Fed was gaining much attention by saying nothing, the Chinese made a blockbuster statement that was summarily ignored. Last week, a deputy governor of the People's Bank of China said that buying foreign exchange reserves was now no longer in China's national interest. The implication that China may no longer be accumulating U.S. government debt would amount to the "mother of all tapers" and could create a clear and present danger to the American economy. But the story barely rated a mention in the American media.

Instead, the current environment is all about the imminent Fed taper: the process of winding down the Fed's monthly purchases of $85 billion of treasury debt and mortgage-backed securities. However, the crowd fails to grasp that the Fed has embarked on an impossible mission. The herd is blissfully unaware that the Fed may not be able to reverse, or even slow, the course of QE without immediately sending the economy back into recession.

In an interview this week, outgoing Fed Chairman Ben Bernanke likened the QE program to the first stage in a multiple stage rocket that gets the spacecraft off the ground and accelerates it to the point where it is close to achieving permanent orbit. Like a first stage that has spent its fuel and has become dead weight, Bernanke seems to concede that QE is no longer capable of providing positive thrust, and as a result can now be jettisoned (like a first stage) so that the remainder of the spacecraft/economy can now move higher and faster. The Chairman's nifty metaphor provides some inspiring visuals, but is completely flawed in just about every way imaginable.

In real rocketry, when the first stage separates, it falls back to earth and is no longer a burden to the remainder of the ship. Subsequent booster rockets (which in economic terms Bernanke imagines would be continuation of zero interest rate policies) build on the gains made by the first stage. But the almost $4 trillion in assets that the Fed has accumulated as a result of the QE program will not simply vaporize into the stratosphere like a discarded rocket engine. In fact it will remain tethered to the rest of the economy with chains of solid lead.

In the process of accumulating the world's largest cache of Treasuries, the Fed has become the most important player in that market. I believe the Fed can't stop accumulating and dispose of its inventory without creating major market disruptions that will drag the economy down.

This would be true even if the economic rocket were actually approaching escape velocity. In reality, we are still sitting on the launch pad. By keeping interest rates far below market levels and by channeling newly created dollars directly into the financial markets, the QE program has resulted in major gains in the stock, real estate, and bond markets. Many have argued that all three are currently in bubble territory. Yet to the casual observer, these gains are proof of America's surging economic vitality.

But things look very different on Main Street, where the employment picture has not kept pace with the rising prices of financial assets. The work force participation rate continues to shrink (recently falling back to levels last seen in 1978),real wages have declined, and since the end of 2009 the temporary workforce has grown at a pace that is 14 times faster than those with permanent jobs. Americans are driving less, vacationing less, and switching to lower quality products and services in order to deal with falling purchasing power.

But the herd is closely watching the Fed's rocket show and does not understand that stocks and housing will likely fall, and bond yields rise steeply, once the QE is removed. The crowd is similarly ignoring the significance of the Chinese announcement.

Over the past decade or so, the People's Bank of China has been one of the largest buyers of U.S. Treasuries (after various U.S. government entities that are essentially nationalizing U.S. debt). China currently sits on $1 trillion or more in U.S. bond obligations.

So, just as many expect that the #1 buyer of Treasuries (the Fed) will soon begin paring back its purchases, the top foreign holder may cease buying, thereby opening a second front in the taper campaign. This should cause any level-headed observer to conclude that the market for such bonds will fall dramatically, causing severe upward pressure on interest rates. But the possibility is not widely discussed.

Also left out of the discussion is the degree to which remaining private demand for Treasuries is a function of the Fed's backstop (the Greenspan put, renewed by Bernanke, and expected to be maintained by Yellen). The ultra-low yields currently offered by long-term Treasuries are only acceptable to investors so long as the Fed removes the risk of significant price declines. If the private buyers, the Fed, China (and other central banks that may likely follow China's lead) refuse to buy Treasuries, who will take on the slack?  Absent the Fed's backstop, prices will likely have to fall considerably to offer an acceptable risk/reward dynamic to investors. The problem is that any yield high enough to satisfy investors may be too high for the government or the economy to afford.

Little thought seems to be given to how the economy would react to 5% yields on 10 year Treasuries (a modest number in historical standards). The herd assumes that our stronger economy could handle such levels. In reality, 5% rates would likely deeply impact the financial sector, prick the bubbles in housing and stocks, blow a hole in the federal budget, and cause sizable losses in the value of the Fed's bond holdings. These developments would require the Fed to devise a rocket with even more power than the one it is now thinking of discarding.

That is why when it comes to tapering, the Fed is all bark and no bite. In fact, toward the end of last week, Dennis Lockhart, President of the Federal Reserve Bank of Atlanta, said that the Fed "won't taper its bond-buying until the economy is ready."He must know that the economy will never be ready. It's like a drug addict claiming that he'll stop using when he no longer needs them to stay high.

But the market understands none of this. Instead it is operating under dangerous delusions that are creating sky-high valuations for the latest social media craze, undermining the investment case for gold and other inflation hedges, and encouraging people to ignore growing risks that are hiding in plain sight.

This is not unusual in market history. When the spell is finally broken and markets wake up to reality, we will scratch our heads and wonder how we could ever have been so misguided.

Filling the China Closet

Posted: 25 Nov 2013 05:00 PM PST

Nichols on Gold

It's 10 o'clock somewhere -- do you know where your bitcoins are?

Posted: 25 Nov 2013 04:58 PM PST

Million-Dollar Robbery Rocks Bitcoin Exchange

By Jon Gold
Network World, Framingham, Mass.
Monday, November 25, 2013

http://www.networkworld.com/news/2013/112513-bitcoin-robbery-276352.html

Bitcoin Internet Payment Services, a Denmark-based exchange billing itself as Europe's biggest, was robbed of bitcoins worth more than $1 million in a theft that took place over the course of the past several days.

Bitcoins are a decentralized digital currency generated by computers "mining" for the solutions to complex math problems, and authenticated on a peer-to-peer basis -- not by a central banking authority.

This is the third major heist this month. About $1.4 million worth was stolen several weeks ago from an anonymous Australian who ran an online wallet service known as Inputs.io, and a Chinese exchange abruptly vanished two weeks ago, taking more than $4 million with it.

Smaller thefts, which affected consumer exchanges in the Czech Republic and Poland, have also taken place this month.

... Dispatch continues below ...



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In the latest incident, BIPS was apparently targeted by a distributed denial-of-service attack this month. A follow-up attack, according to bitcoin news site Coindesk, subsequently knocked out key security systems and allowed the thieves to make off with 1,295 BTC.

In response to the incident, BIPS said in a statement that it was forced to pull the consumer payments functionality of its services off-line, and warned users that they would have to transfer any balances to a different wallet service.

"BIPS will temporarily close down the wallet initiative to focus on real-time merchant processing business which does not include storing of Bitcoins," the statement said, adding that BIPS will attempt to re-open its consumer wallet service with improved security measures in the future.

BIPS customers aren't happy with the exchange's response to the incident. Many have taken to the Bitcointalk forums to accuse BIPS' leadership of carelessness -- and, in several cases, hinted at actual malfeasance. One user, who says he or she lost 90 BTC (about $71,000 at the time of this writing), has created an online form so that others can sign up to be part of possible legal action against BIPS.

Bitcoins, thanks to their general anonymity and lack of centralized regulation, have become popular among illegal users, who can use it as a convenient medium of exchange for illicit goods or services. Huge price spikes have driven the value of a bitcoin to more than $750, making the crypto-currency an attractive target for unscrupulous hackers.

* * *

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Vancouver Convention Centre West
Sunday-Monday, January 19-20, 2014
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http://www.cambridgehouse.com/event/vancouver-resource-investment-confer...

* * *

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:

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To contribute to GATA, please visit:

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



ADVERTISEMENT

How to profit with silver --
and which stocks to buy now

Future Money Trends is offering a special 16-page silver report with our forecast for 2013 that includes profiles of nine companies and technical analysis of their stock performance. Six of the companies have market capitalizations of less than $800 million and one company has a market cap of only $30 million. The most exciting of these companies will begin production in a few weeks and has a market cap of just $150 million.

Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.

To learn about this report, please visit:

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Spoiler Alert: Godot Never Shows Up

Posted: 25 Nov 2013 04:20 PM PST

Submitted by Ben Hunt of Epsilon Theory

The 18th Brumaire of Janet Yellen

One of the more painful lessons in investing is that the prudent investor (or 'value investor' if you prefer) almost invariably must forego plenty of fun at the top end of markets. This market is already no exception, but speculation can hurt prudence much more and probably will. Ah, that's life. And with a Fed like ours it's probably what we deserve.

      – Jeremy Grantham, macro fund manager and noted Bear (Nov. 19, 2013)

 

I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends.

      – Hugh Hendry, macro fund manager and noted Bear (Nov. 22, 2013)

 

The hippies, who had never really believed they were the wave of the future anyway, saw the election results as brutal confirmation of the futility of fighting the establishment on its own terms.

      – Hunter S. Thompson, "The Hashbury is the Capital of the Hippies" (1967)

 

In the sunset of dissolution, everything is illuminated by the aura of nostalgia, even the guillotine.

      – Milan Kundera, "The Unbearable Lightness of Being" (1984)

 

The Greek word for 'return' is nostos. Algos means 'suffering.' So nostalgia is the suffering caused by an unappeased yearning to return.

      – Milan Kundera, "Ignorance" (2000)

 

The class which has the means of material production at its disposal, has control at the same time over the means of mental production. The ruling ideas are nothing more than the ideal expression of the dominant material relationships.

      – Karl Marx, "The German Ideology" (1846)

 

"Let's go." "We can't." "Why not?" "We're waiting for Godot."

      – Samuel Beckett, "Waiting for Godot" (1953)

Karl Marx may not have had a small-l liberal bone in his body, but he was one of the keenest observers of the human condition to ever live, and his writings are a phenomenal resource for anyone seeking to understand our lives as social animals. In 1852 Marx published an essay titled The 18th Brumaire of Louis Bonaparte, recounting the 1851 coup where Louis-Napoleon Bonaparte (nephew of THE Napoleon) seized dictatorial powers in France. The essay was, Marx wrote, intended to "demonstrate how the class struggle in France created circumstances and relationships that made it possible for a grotesque mediocrity to play a hero's part," and it is here that Marx describes his view of the individual's role in history. Which is to say … not much, as individuals are almost always prisoners of the past and their class, particularly shadow or derivative individuals, as Louis-Napoleon was to his uncle and Yellen is to Bernanke. This was the essay where Marx famously said that history always repeats itself, only the second time as farce, a phenomenon I've written about at length as the emergency Fed policies that saved the world in 2009 have been transformed into a more or less permanent government insurance program.

I started this note with quotes from two prominently bearish money managers – Jeremy Grantham and Hugh Hendry – both of whom are throwing in the towel on the upward trajectory of the market in the face of inexorable government bond-buying. Their change of heart reflects (finally and begrudgingly) the overwhelmingly dominant Narrative of Central Bank Omnipotence, that for better or worse it is central bank policy (particularly the Fed's QE policy) that determines market outcomes. This Narrative is encapsulated in the following chart, a graph that we've all seen a million times in one form or another and has become a meme unto itself.

This is the Common Knowledge of our day … that so long as the Fed continues to buy, the market will continue to go up. Maybe they taper the rate of purchases or even stop expanding altogether, but if the market gets squirrelly they will just start buying again. The Narrative of Central Bank Omnipotence doesn't mean that the market will only go up; it means that central bank policy is the overwhelming causal factor for market levels. It is as powerful a Common Knowledge structure as I've ever measured, and it's at the heart of Grantham and Hendry's hand-wringing. They aren't capitulating to the market going up, but to WHY the market is going up. It's a market dynamic that is alien to their (formidable) talents as money managers and to their (strongly held) belief structures on the meaning of an investment.

But for both Grantham and Hendry (and I suspect every investor who has been fighting the Fed in one way or another), this is a temporary capitulation. They both cling to the notion that this, too, shall pass, that we shall someday return to a market environment where real-world business fundamentals matter more than monetary policy. Maybe the return to "normal" comes with a bang … some sort of "Minsky moment" and asset price collapse where there's a sudden realization that the Emperor has no clothes (or no more bonds to buy) … or maybe it comes with a whimper, as the Fed slowly and calmly drains the excess reserves it has built up in the financial system with the magical "tools" that are touted every time Bernanke (and now Yellen) testifies before Congress. To which I say … maybe. Or maybe that's just wishful thinking for a market clearing Shock Ending or Happy Ending, as opposed to what seems to me to be the more likely outcome of the Entropic Ending, a long gray slog through a more or less permanently depressed world and a more or less permanently Fed-centric market.

Louis-Napoleon's reign may have been a farcical shadow of his uncle's Emperorship, but the truth is that Napoleon I set into motion structural changes in the world that dominate our lives still. Napoleon changed the meaning of nationalism. He changed the meaning of war. He changed what it means to live as a human animal in a mass society. I mean, the entire concept of mass society really begins with Napoleon and the levée en masse, the Napoleonic Code, the notion of Total War, and the authoritarian co-opting of revolutionary ideals. Put the political inventions of Napoleon (and his Prussian and English opponents) together with the mechanical inventions of the Industrial Revolution and you have … the modern nation-state, a massive and entrenched insurance company attached to an equally massive and entrenched standing army.

I think it's likely that government policy initiatives of the past ten years, particularly monetary policy and particularly US monetary policy, have created a structural shift in the meaning of capital markets and the global economy that rivals what Napoleon did almost exactly 200 years ago. I think Larry Summers is right – we are mired in a world of secular stagnation and a more or less permanent liquidity trap. The degree to which ZIRP and QE and bubble-promoting monetary policy creates that secular stagnation by delaying the deleveraging, loss assignment, and creative destruction that vibrant growth requires is ludicrously underappreciated in Summers' speech, but as a statement of economic reality it's pretty spot-on. I think Paul Krugman is right, too – in for a penny, in for a pound. Central bankers have come this far. Do you really think they're going to back down now? I'm not saying that Krugman's argument is "right" in terms of being intellectually honest or even very smart. I'm saying that I believe it is an accurate representation of the world as it is.

Here's the crucial part of what Summers and Krugman are saying: this is not a temporary gig. This isn't going to just "get better" on its own over time. This really is, as Mohamed El-Erian of PIMCO would call it, the New Normal. And if you're Jeremy Grantham or anyone for whom a stock has meaning as a fractional ownership stake in a real-world company rather than as a casino chip that gives you "market exposure" … well, that's really bad news.

So what's the point of all this?

Denial ain't just a river in Egypt, and alienation ain't just a movie with Mandy Patinkin in heavy make-up. For my money, the smartest thing Marx ever wrote was on the concept of alienation, the separation of a worker from the meaning of his labor. Marx believed that the greatest theft that capitalism perpetrated on the working class was psychological. The Industrial Revolution and the assembly line crushed a worker's spirit by eliminating the sense of pride, the sense of accomplishment, the sense of place and meaning that an honest day's work previously imbued. Instead of seeing, feeling, and knowing the object of his labor, the modern worker made … a widget. He made a cog and he was a cog.

What traditional value investors like Grantham are experiencing today is alienation in the traditional Marxist sense. In today's context it's not the separation of a worker from the meaning of his labor, but the separation of an investor from the meaning of his investment. Sure, you can go on investing on the basis of your discounted cash-flow model or your earnings margin reversion-to-the-mean model or whatever it is that floats your boat, but it's just going to be a continuing exercise in frustration so long as we live in a Fed-centric universe. As Hugh Hendry says, it's hard to look at yourself in the mirror every morning when everything that you've held dear as your investment belief structure doesn't seem to matter much anymore. Nostalgia, as Milan Kundera points out, is a form of suffering. Life's way too short to wallow in those waters.

Marx has an answer to the alienation problem … end it, don't amend it. Take your ball and go home, or at least find a different game. For the alienated proletariat, this is easier said than done. You've got to throw off your chains, rise up in violent class struggle, create a vanguard political party that maintains the necessary ideological discipline, watch out for counter-revolutionaries … creating a worker's paradise is hard work! For the alienated value investor, on the other hand, the portability of capital makes the road to greener pastures quite a bit easier -- just get out of public markets. Go buy a farm … or an apartment building … or a fleet of tankers … or a portfolio of bank loans … anything where your investment process has meaning again and isn't hijacked by the game-playing and trend-following that dominates public capital markets. If you have to stay in public securities, at least move into areas of the market where you are not dominated by the game-players and where there remains a critical mass of your fellow value investors to make a community of sorts … small and mid-cap industrials, say, or maybe activist targets. Just don't kid yourself into thinking that your deep dive into the value fundamentals of some large-cap bank has any predictive value whatsoever for the bank's stock price, or that a return to the happy days of yesteryear is just around the corner. It doesn't and it's not, and even if you're making money you're going to be miserable and ornery while you wait nostalgically for what you do and what you're good at to matter again. Spoiler Alert: Godot never shows up.

But maybe you're not a dyed-in-the-wool value investor wracked by feelings of severe alienation. Maybe you're pretty agnostic about the whole investment style box thing and you're just looking to grow your wealth as quickly as possible with the least risk as possible. If you don't really care WHY the markets are going up, only that they ARE going up; if you don't feel an existential angst about Fed policy, but are actually quite happy that they've got your back; if you're looking to play the investment game better, regardless of what the rule changes might be … well, Marx has some good advice for you, too. Think for yourself.

Marx is most famous for his concept of "the means of production", the notion that human history is best seen and understood through an economic lens, that what we have been told is a story of Great Men and Empires and Discovery is really just a byproduct of class struggle for the control of those economic means of production. But what's less appreciated is that Marx made a distinction between material production (all the stuff that we characterize as economic activity) and what he described as "mental production" – the creation of "the ruling ideas" that do all the heavy lifting in maintaining control over the proletariat. Now Marx wrote this in the 1840's (!), so it's going to need some contextual updating to speak clearly to us 170 years later. To wit: in the same way that Marx's concept of alienation is more relevant today to capitalist investors than it is to labor, so, too, is this concept of mental production and ruling ideas. We investors – big or small, retail or institutional – are the proles. A well-to-do and content proletariat, to be sure, kind of like professional athletes, but a proletariat nonetheless. We control neither the means of material production (the public capital markets in which we labor) nor, more importantly, the means of mental production – the creation of the ruling ideas that drive our behavior and are taken for granted. We are ALL suckers for a good story that has more truthiness (to use Stephen Colbert's word) than truthfulness, and you don't have to be a raving Marxist to believe that the institutions that do in fact control the means of material and mental production depend on this central truth about human nature to maintain their position.

What are the ruling ideas in investment theory and practice today? There are plenty, but I'll highlight two: "stocks for the long haul" and Modern Portfolio Theory. I'm not going to go into a long critique of either ruling idea, as I've written on this topic here, and I have lots more planned for the future. But for now I'll just ask this: does the Narrative of Stocks For the Long Haul or the Narrative of Modern Portfolio Theory serve your best interests and your clients' best interests … or theirs? It's a question that deserves to be asked and explored again and again, and that's what I'll keep doing with Epsilon Theory.

"Mining Pitch" with Stuart Ross, President & CEO of El Tigre Silver Corp

Posted: 25 Nov 2013 04:14 PM PST

El Tigre Silver Corp. President/CEO, Stuart Ross, discusses El Tigre's recent developments & upcoming catalysts. El Tigre Silver currently owns 100% of 9 mining concessions, 8 comprising 21,500...

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

Have We Reached 'Peak Gold'?

Posted: 25 Nov 2013 03:39 PM PST

Led by countries such as Russia and China, central banks have recently become net buyers of gold. Meanwhile, ETF gold outflows have been a temporary source of supply this year, but obviously this cannot persist. It's also unreasonable to assume that recycling will make up a significantly greater piece of supply without the price of gold increasing substantially. With the grade of current producing gold mines being 32.6% higher than undeveloped deposits, it makes the supply scenario even more clear. Not only is the current yearly mine supply difficult to sustain, but future mines coming online will be challenged by grade and margins to be economical at today's prices. Mathematically, unless we have high-grade, high ounce deposits that are being fast tracked online, it will be very difficult to find a way to get supply to match demand. Have we reached peak gold?

 

(click image for large legible version)

 

And The Full Natural Resource Holdings' 40-page Global Gold Mine and Deposit Rankings report is available here

 

Global Gold Mine and Deposit Rankings 2013

Chart Of The Day: How China’s Stunning $15 Trillion In New Liquidity Blew Bernanke’s QE Out Of The Water

Posted: 25 Nov 2013 03:14 PM PST

25-Nov (ZeroHedge) — Much has been said about the Fed’s attempt to stimulate inflation (instead of just the stock market) by injecting a record $2.5 trillion in reserves into the US banking system since the collapse of Lehman (the same goes for the ECB, BOE, BOJ, etc). Even more has been said about why this money has not been able to make its way into the broader economy, and instead of forcing inflation – at least as calculated by the BLS’ CPI calculation – to rise above 2% has, by monetizing a record amount of US debt issuance, merely succeeded in pushing capital markets to unseen risk levels as every single dollar of reserves has instead ended up as assets (and excess deposits as a matched liability) on bank balance sheets.

Much less has been said that of the roughly $2 trillion increase in US bank assets, $2.5 trillion of this has come from the Fed’s reserve injections as absent the Fed, US banks have delevered by just under half a trillion dollars in the past 5 years. Because after all, all QE really is, is an attempt to inject money into a deleveraging system and to offset the resulting deflationary effects.

…in the past five years the total assets on US bank books have risen by a paltry $2.1 trillion while over the same period, Chinese bank assets have exploded by an unprecedented $15.4 trillion hitting a gargantuan CNY147 trillion or an epic $24 trillion – some two and a half times the GDP of China!

Putting the rate of change in perspective, while the Fed was actively pumping $85 billion per month into US banks for a total of $1 trillion each year, in just the trailing 12 months ended September 30, Chinese bank assets grew by a mind-blowing $3.6 trillion!

…However, the biggest workhorse behind the scenes, is neither: it is China. And if something happens to the great Chinese credit-creation dynamo, then we see no way that the rest of the world’s central banks will be able to step in with low-powered money creation, to offset the loss of China’s liquidity momentum.

Finally, when you lose out on that purchase of a home to a Chinese buyer who bid 50% over asking sight unseen, with no intentions to ever move in, you will finally know why this is happening.

[source]

PG View: That figure should make you queasy and send you fleeing for the safe harbor of gold, because the explosion in global liquidity in recent years simply can’t be sustainable.

Another Terrifying Black Swan Is Headed Our Way

Posted: 25 Nov 2013 03:05 PM PST

With the Dow closing once again above the 16,000 leve, and gold and silver markets coming off the lows, today a man who has been involved in the financial markets for 50 years, and whose business partner is billionaire Eric Sprott, warned King World News that another "terrifying Black Swan" is headed our way. Below is what John Embry had to say in this powerful and timely interview.

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

With India’s Market Interventions, Thailand’s Gold Demand Is Up 125%

Posted: 25 Nov 2013 02:06 PM PST

It does not happen very often but The Economist dedicated a blog post to the gold situation in Asia. In particular, it discusses the effects of the numerous interventions by the Indian government to suppress gold demand in their local market. We reported recently that 15 different measures had been taken since early 2012, mainly gold import hikes and internal market regulations with the banking industry and bullion dealers. By doing so, the country imported a lot less physical gold. Official figures show that 148.2 tonnes had been imported between July and September of this year, which would be a drop of some 30% than the same period a year ago.

The article in The Economist explains that the Indian insatiable demand for gold has resulted in a surge in gold smuggling. Customs officials at airports in India, Nepal and Bangladesh seem to report a spike in gold originating from other Asian countries like Abu Dhabi, Bahrain and Dubai. According to the article, “the effects of India's attempts to curb gold imports are most widely felt in Thailand.”

From The Economist:

With India's market ring-fenced, more physical gold has made its way to Thailand. In the most recent quarter demand from Thai consumers surged 125% compared with the same period last year, to nearly 36 tonnes—faster than in any other country. And demand from investors has grown more than 80% this year. The World Gold Council attributes the increase "in no small part due to Thailand being used as a route to channel gold into other markets, notably India and Vietnam."

But other factors play a role too. Gold has become cheaper recently, the Thai economy and the baht are wobbling, and real short-term interest rates are close to zero. In addition, a period of relative political stability has come to an abrupt end: Thailand has recently seen the biggest street protests since 2010.

Thailand has its own experience with interventions that create unwanted side effects. The Thai government pays high prices for rice produced by local farmers, who are an important political constituency. But their colleagues in Cambodia, Myanmar and Laos have long figured out that by shipping their rice across the border to Thailand, they can pocket a multiple of what it is worth back home.Thai gold smugglers now play this trick on India.

Business has been swift on the top floor of one of Bangkok's glitziest shopping malls where gold traders and banks make their case for investment in gold. Trading screens outnumber gold bars, of which a few are on display to remind investors of the stuff. But this should count as progress compared to the days when gold shops made a killing in trading gold bars bartered for opium 850km north of Bangkok where Thailand, Myanmar and Laos meet—an area which still is called "Golden Triangle".

India was the world’s largest consumer of gold until the first half of this year. After the gold price drop of April and June, the demand for gold in China had truly exploded. China is expected to import some 1,000 tonnes of gold through Hong Kong in 2013, becoming the number one gold consumer country in the world.

Gold rises from 4-month low on options-related buying

Posted: 25 Nov 2013 01:59 PM PST

25 (Reuters) – Gold prices rose on Monday, reversing early losses in a late-session rally, as options-related demand and short-covering offset a weaker crude oil market following a deal on Iran’s nuclear program.

Buying related to Monday’s Comex December option expiration and the December-February contract rollover underpinned gold prices, said George Gero, vice president of RBC Capital Markets.

[source]

Gold Daily and Silver Weekly Charts - Comex Option Expiration Overnight Antics

Posted: 25 Nov 2013 01:14 PM PST

Gold Daily and Silver Weekly Charts - Comex Option Expiration Overnight Antics

Posted: 25 Nov 2013 01:14 PM PST

QE Is Hazardous To Your Retirement

Posted: 25 Nov 2013 01:01 PM PST

A mid 60s woman was chatting with two friends at a Starbucks.  I overheard the conversation.  It went something like this…

"When my husband and I retired, our financial advisor said we had enough money to last until we were both 95 years old.  Now he is concerned that our savings might not last until we are 80."

It gets worse.

"But if either of us dies then our pension income is reduced and the survivor has to make a choice – pay the mortgage or eat."

It gets worse.

"And we still have to worry about healthcare."  She went on about sky-high health care costs, Obamacare, and her pre-existing conditions that prevented her from changing insurance.

She probably does not see how much worse it can become.

WHAT IS THE PROBLEM?

In simple terms the Federal Reserve has lowered short term interest rates to nearly zero (ZIRP – Zero Interest Rate Policy) and is "printing" $85 Billion per month (QE) to bail out bankers and our politicians who can't balance the government budget or even pass a budget.

So What?  Aren't low interest rates good for the economy and for home prices?

Well, maybe in the short term they appear to be beneficial.  The politicians and bankers have assured us of such.  But politicians and bankers are benefitting from QE so perhaps we should question their assessment.  Consider these points:

  • Would you loan your money for 30 years to an insolvent government that chronically spends far more than it collects in taxes?  Would you consider that 30 year bond a wise investment if the government paid you less than 4% per year?  Think back to what your expenses for gasoline, housing, food, and health care were in 1983 to help determine if 4% per year is enough to compensate for your guaranteed higher expenses and for the decline in the value of the dollar in the years to come.  (Hint:  NO!)
  • Retirement systems, life insurance policies, annuities, city and state government pensions and so much more depend upon the interest earned from government and corporate bonds, saving accounts, and Certificates of Deposit.  If the interest earned over the past five years has been about 1% to 3.5% per year and most pension plans have assumed earnings in the (typical) 7% to 9% range, those pension plans have been underfunded by a larger amount each year.  Think California public employees, Chicago public employees, New Jersey, Detroit and so on.  Most pension plans for city and state employees are currently underfunded while they are optimistically assuming future interest earnings much higher than the Federal Reserve has repeatedly assured us will be possible.

Conclusion

The ZIRP and QE are causing the retirement funds for many governments and corporations to be more underfunded each year.  If your retirement comes from a government pension, it is less secure each year.  It can't remain underfunded forever.  Ask the retirees from Detroit!

Corporate pension systems invest similarly.  If your retirement comes from a corporate pension, it is less secure each year.  Ask the retirees from a bankrupt airline or from Enron Corporation.

If your retirement is funded by your personal savings and you have been earning perhaps 1% per year for the past five years, you already know the devastation that ZIRP and QE have caused in your personal finances.

The lady mentioned at the beginning understands that she and her husband are earning much less money in their retirement accounts than their financial advisor had projected, and so their retirement money will not last as long as originally hoped.  What she probably does not realize is that her interest income will be kept low for the foreseeable future while her living expenses are very likely to substantially increase.  In short, their retirement funds probably will be depleted well before she and her husband reach 80 years old.  That is not a happy thought for her family and for millions of others who expected more "normal" interest earnings before the government and The Federal Reserve chose to bail out the financial industry.  That bailout occurred at the direct expense of the taxpayers and at the indirect expense of savers, pension plans, and other retirement systems because of the unexpectedly low interest earnings created by the ZIRP and QE.

Karl Denninger has written a highly intelligent piece describing this process and the consequences.  Read it for new insights.  From that article:

"The bottom line is that QE produces what looks like a 'benefit' without cost at the start of the program, but that appearance is a con job."

"In short at best QE is nothing more than pulling forward the ability to spend paid interest from tomorrow into today but for each dollar pulled forward to today it is taken from tomorrow's spending."

"How much harm are we talking about?  Well, that's difficult to determine, because you'd need a blended rate of interest across the entire lending continuum to figure it out.  But it is certain that the $3 Trillion added to the Fed's balance sheet is less than the actual amount pulled forward over that time."

SUMMARY

The Fed, through ZIRP and QE, has created $Trillions of benefits for the financial industry and much of that benefit has been created at the expense of government pension plans and individuals who depend upon interest earnings.  This has a direct and negative consequence to many retirement plans, especially city and state public pensions.

It is especially destructive to those individuals who depend upon interest earnings to fund their cost of living.

Your savings are unlikely to last as long as you hoped. 

FURTHER CONSIDERATIONS

The Fed is "creating" $85 Billion per month for QE.  This boosts the financial industry, the stock market and the bond market but the average person realizes little benefit from those markets.  The average person is actually hurt by the lower than expected interest earnings in his personal accounts and in the pension accounts from which his pension is paid.

SILVER:  The silver market is tiny.  In very round numbers about a billion ounces are mined, worldwide, each year.  This is approximately $20 Billion per year or only about one week of QE for bond monetization.

GOLD:  The gold market is much larger than the silver market but still small compared to the QE process.  In round numbers the worldwide annual gold mining market is 3,000 – 4,000 tons or about $ 130 – $170 Billion per year.  Two months of QE "money printing" is enough to purchase all the gold mined each year in the whole world.

Does it seem "right or moral" to you that a privately owned central bank prints enough money each WEEK to buy the equivalent of all the silver mined worldwide in a year, or that TWO MONTHS of "printing" would purchase all the gold mined in a year?  The politicians and bankers will not change this process but we can adapt to the consequences.

Does it seem likely that dollars, which are printed in excess every month, will retain their value against gold and silver?

Stated another way, does it seem likely that while gold and silver are limited in supply, and while the dollars used to purchase those metals are increasingly debased by both the central bank and the government, that the prices for gold and silver will remain stable or even decline?

The bullish case for gold and silver is reported in the alternate media and by numerous gold and silver "bugs" such as myself.  The bearish viewpoint is easily obtained from the mainstream media, Goldman Sachs, and the Federal Reserve.  Other intelligent individuals, such as Harry Dent and Robert Prechter, also promote the bearish viewpoint.  I find the bearish analysis for gold and silver rather unlikely and often self-serving for those in the financial industry who make their living selling "paper."  But often it is valuable to analyze the perspective of those who disagree with you.

Decide for yourself!  Your financial well-being and your retirement may depend on an intelligent assessment of the consequences of more QE, higher or lower gold and silver prices, and booms and busts in the stock and bond markets.

My vote is with gold and silver.  Five thousand years of history support that viewpoint.  Paper money does not retain its value or purchasing power.  Hundreds of years of history support that viewpoint.  Further, QE and ZIRP accelerate the decline in the value of paper dollars.

Gold and silver have been moving down, on average, for about 2.5 years.  They might even be down another year, however I doubt it.  In five years you might earn a total of 5 – 10% in a Certificate of Deposit.  By contrast you are likely to double (quadruple or more) your savings if they are invested in gold or silver.  Which will be more beneficial to your retirement?

Which sounds safer – gold or paper?  Would you prefer something that has retained its value for 5,000 years or unbacked paper money – which has eventually and always declined in value to near zero?

Additional commentary on gold, silver, and retirement:

 

Mish: No Money to Retire
The DI: I Have an IRA.  How Can I Invest in Gold and Silver?
QE + Desperation = Higher Gold Prices
The Incredible Weight of Quantitative Easing

 

GE Christenson  |  The Deviant Investor

Bitcoin & the DotCom Bubble

Posted: 25 Nov 2013 12:54 PM PST

More about bitcoin. Yes, really...
 
The DOW closed over 16,000. Glory hallelujah! gasps Bill Bonner in his Daily Reckoning.
 
Onwards and upwards...from now and for all eternity.
 
Oh, dear reader, tears came to our eyes as the bell rang and we reflected on the majestic delusion that drives stocks higher and higher, day after day, to some breathtaking pinnacle.
 
Thirteen years ago, the value of America's capital stock – as measured by the Dow – was under 12,000. Now, it is fully a third higher.
 
Wait. 13 years ago was the height of the dotcom bubble. Since then, there has been a real estate bubble. And a debt bubble. And now, another stock market bubble?
 
What else has happened? GDP is up $6 trillion. But total debt is up $30 trillion. Debt is rising five times faster than output! How could the capital stock of this economy be worth 33% more now than it was then?
 
Sell? Buy? Old timer Richard Russell thinks we are just at the beginning of the exciting third stage of a market bubble...the fireworks stage...where prices skyrocket, before blowing up.
 
Who knows? So let's change the subject...to Bitcoin. Nobody knows anything about Bitcoin either, but everybody seems to have an opinion.
 
First, a dear reader writes from Switzerland:
"You are becoming a speculator...I am extremely surprised and disappointed.
 
"From gold to virtual currency...you are losing your mind.
 
"I am in Montreux for a conference for the wealthiest family offices in Europe. Nobody give a chance to this virtual currency.
 
"We just had a session how families lose wealth over the long run – I think Bitcoin may be added to the list."
Just to clarify. We are not crazy enough to recommend putting the family fortune in Bitcoin. As for speculating, we only speculate on ideas...not on investments. Bitcoin, the idea, may be worth speculating on.
 
Meanwhile, another dear reader sent us this opinion from Matthew O'Brien at The Atlantic:
"Bitcoin is a Ponzi scheme libertarians use to make money off each other – because gold wasn't enough of one for them."
Ponzi scheme? Huh? A ponzi scheme requires a Ponzi...a mastermind who fraudulently attracts investors and then uses their money to pay off earlier investors. That's not how Bitcoin works.
 
Mr O'Brien sees a parallel between Segway and Bitcoin. It's true that people have made big claims for both. True too that Segway hasn't revolutionised transportation. And it may be true that Bitcoin won't revolutionise the money system.
 
We don't know. Neither does Mr O'Brien. But he believes he knows:
"What's revolutionary is that it's a payments system with no third-party, like a credit card company, standing in between buyers and sellers. See, any time you buy something, it's a minor leap of faith. You choose to believe that the seller will deliver as promised – and if they don't, you want your money back. That's where financial intermediaries like credit card companies and Paypal come in. They make sure buyers and sellers are both trustworthy, and handle any disputes.
 
"Now, it's nice to be able to get your money back if things go wrong, but that's not free. The middlemen take their cut. Bitcoin, though, has no middlemen. It's just a decentralized peer-to-peer system. So you can't get your bitcoins back if things go wrong, but there won't be any transaction fees. The question is whether non-enthusiasts will think this trade-off is worth it.
 
"...The people who have bitcoins still have no reason to spend them, and the people who don't still have no reason to get them. They don't want a currency whose value you can't predict from one hour to the next. They don't want to buy things anonymously. And they don't want transactions to be irreversible (and certainly wouldn't want that if they got hacked).
 
"Every big idea starts out sounding crazy. But not every crazy-sounding idea ends up being big. History is littered with Segways. But for all its majestic dweebiness, at least the Segway was kind of useful. You really could zoom across sidewalks without anything resembling effort. I don't know why you'd want to, but you could. But what can you do with Bitcoin? 
 
"Well, it's good for real and fake gambling. Since it doesn't have any actual fundamentals, it can be worth anything: Bitcoin 36,000 and 36 are about equally plausible. That's good for making money at the expense of people who get in the game later, but little else."
Poor Mr O'Brien lacks imagination. Had he been around when the telephone was introduced, he surely would have remarked, 'Who will want one? It only works if you have someone you can call. And as of today, there are only 109 of these contraptions in all of North America.'
 
At first, the value of any new innovation is unclear. Its price should be volatile. Its immediate usefulness, too, will be limited.
 
Most innovations fail. But some don't. We're not saying that bitcoin will be one of the successes. It could crash and die tomorrow for all we know. But the promise of virtual money...crypto currencies...is, like the telephone, revolutionary.
 
Here's Joel Bowman – the first bitcoin miner we ever met – writing for the defence:
"I suspect you'll receive a lot of emails – both love and hate – on the subject. If nothing else comes of the experiment, it will have invited us all to challenge some unexamined 'truths' regarding what we thought we knew about money...
 
"One of the mental roadblocks I encounter from the 'hard money' crowd (to which many of your Dear Readers belong, I suspect) is that bitcoin is, by nature, intangible. This they see as necessarily negative, a priori.
 
"The glitch lies in conflating the concept 'fiat' with 'intangible'. It is assumed that the latter is synonymous with the former, which is simply not the case. It is, rather, classic deductive fallacy: All fiat monies are intangible, therefore all intangible monies are fiat.
 
"It's a bit like the old example, 'All thumbs are fingers...therefore, all fingers are thumbs.' Not true. Not all intangible monies are fiat, as bitcoin demonstrates. Fiat means a money that is declared to have value simply because the state says so. (From the latin, 'it shall be'.) Bitcoin is nothing of the sort.
 
"Bitcoin relies solely on subjective value, which is to say, value assigned to it by voluntary individuals who, after weighing up its characteristics, determine its utility as a medium of exchange in a given context (a digital context, for example). It is the very opposite of value by decree...by coercion...by violence. It is value by voluntary market determination.
 
"The hard money crowd is right to distrust the state, given its abysmal track record of destroying purchasing power through inflation. But they are wrong to throw the potential value of intangibles out with the putrid, fiat bathwater.
 
"There are many intangibles to which we attach immense value. Math...language...logic...ideas...love...You can already think of a dozen more, I'm sure...
 
"The fact that bitcoin is intangible is, perhaps counter intuitively, considered by many to be one of its most appealing characteristics. It virtually eliminates storage costs, for one. Same for transport costs. And transport time. And, despite what the Feds say, it is more or less impossible to outlaw (unlike, say, private ownership of gold...) They could write the rule, of course, but enforcing it would be like enforcing a ban on the English language...or algebra...or naughty thoughts about your neighbour's wife...
 
"In some ways, bitcoin is very much the 'Language of Money': it is egalitarian, in that it is available to anyone and everyone equally. (There is no central authority first issuing bitcoins to a preferred few...unlike, say, every fiat currency on earth.) It can evolve and adapt (the Open Source protocol allows for this). It is democratic, in that its price is set by millions of freely associating individuals – the market – who each 'vote' with their btc wallet. (This is a refreshing contrast to the phony price of money as determined by the over-degreed blowhards at the Fed.) It is entirely transparent, as anyone who downloads the btc client can view the entire transaction history...but it is also private, as users can fairly easily shield their identity from prying eyes.
 
"It performs much like a language, communicating information both from individual to individual, and from discrete transaction to the entire, distributed network. It is a digital currency for the digital age.
 
"Of course, nobody knows where we go from here...except into uncharted waters. As someone said recently, bitcoin will either go to zero...or many, many zeros."
 

Bitcoin & the DotCom Bubble

Posted: 25 Nov 2013 12:54 PM PST

More about bitcoin. Yes, really...
 
The DOW closed over 16,000. Glory hallelujah! gasps Bill Bonner in his Daily Reckoning.
 
Onwards and upwards...from now and for all eternity.
 
Oh, dear reader, tears came to our eyes as the bell rang and we reflected on the majestic delusion that drives stocks higher and higher, day after day, to some breathtaking pinnacle.
 
Thirteen years ago, the value of America's capital stock – as measured by the Dow – was under 12,000. Now, it is fully a third higher.
 
Wait. 13 years ago was the height of the dotcom bubble. Since then, there has been a real estate bubble. And a debt bubble. And now, another stock market bubble?
 
What else has happened? GDP is up $6 trillion. But total debt is up $30 trillion. Debt is rising five times faster than output! How could the capital stock of this economy be worth 33% more now than it was then?
 
Sell? Buy? Old timer Richard Russell thinks we are just at the beginning of the exciting third stage of a market bubble...the fireworks stage...where prices skyrocket, before blowing up.
 
Who knows? So let's change the subject...to Bitcoin. Nobody knows anything about Bitcoin either, but everybody seems to have an opinion.
 
First, a dear reader writes from Switzerland:
"You are becoming a speculator...I am extremely surprised and disappointed.
 
"From gold to virtual currency...you are losing your mind.
 
"I am in Montreux for a conference for the wealthiest family offices in Europe. Nobody give a chance to this virtual currency.
 
"We just had a session how families lose wealth over the long run – I think Bitcoin may be added to the list."
Just to clarify. We are not crazy enough to recommend putting the family fortune in Bitcoin. As for speculating, we only speculate on ideas...not on investments. Bitcoin, the idea, may be worth speculating on.
 
Meanwhile, another dear reader sent us this opinion from Matthew O'Brien at The Atlantic:
"Bitcoin is a Ponzi scheme libertarians use to make money off each other – because gold wasn't enough of one for them."
Ponzi scheme? Huh? A ponzi scheme requires a Ponzi...a mastermind who fraudulently attracts investors and then uses their money to pay off earlier investors. That's not how Bitcoin works.
 
Mr O'Brien sees a parallel between Segway and Bitcoin. It's true that people have made big claims for both. True too that Segway hasn't revolutionised transportation. And it may be true that Bitcoin won't revolutionise the money system.
 
We don't know. Neither does Mr O'Brien. But he believes he knows:
"What's revolutionary is that it's a payments system with no third-party, like a credit card company, standing in between buyers and sellers. See, any time you buy something, it's a minor leap of faith. You choose to believe that the seller will deliver as promised – and if they don't, you want your money back. That's where financial intermediaries like credit card companies and Paypal come in. They make sure buyers and sellers are both trustworthy, and handle any disputes.
 
"Now, it's nice to be able to get your money back if things go wrong, but that's not free. The middlemen take their cut. Bitcoin, though, has no middlemen. It's just a decentralized peer-to-peer system. So you can't get your bitcoins back if things go wrong, but there won't be any transaction fees. The question is whether non-enthusiasts will think this trade-off is worth it.
 
"...The people who have bitcoins still have no reason to spend them, and the people who don't still have no reason to get them. They don't want a currency whose value you can't predict from one hour to the next. They don't want to buy things anonymously. And they don't want transactions to be irreversible (and certainly wouldn't want that if they got hacked).
 
"Every big idea starts out sounding crazy. But not every crazy-sounding idea ends up being big. History is littered with Segways. But for all its majestic dweebiness, at least the Segway was kind of useful. You really could zoom across sidewalks without anything resembling effort. I don't know why you'd want to, but you could. But what can you do with Bitcoin? 
 
"Well, it's good for real and fake gambling. Since it doesn't have any actual fundamentals, it can be worth anything: Bitcoin 36,000 and 36 are about equally plausible. That's good for making money at the expense of people who get in the game later, but little else."
Poor Mr O'Brien lacks imagination. Had he been around when the telephone was introduced, he surely would have remarked, 'Who will want one? It only works if you have someone you can call. And as of today, there are only 109 of these contraptions in all of North America.'
 
At first, the value of any new innovation is unclear. Its price should be volatile. Its immediate usefulness, too, will be limited.
 
Most innovations fail. But some don't. We're not saying that bitcoin will be one of the successes. It could crash and die tomorrow for all we know. But the promise of virtual money...crypto currencies...is, like the telephone, revolutionary.
 
Here's Joel Bowman – the first bitcoin miner we ever met – writing for the defence:
"I suspect you'll receive a lot of emails – both love and hate – on the subject. If nothing else comes of the experiment, it will have invited us all to challenge some unexamined 'truths' regarding what we thought we knew about money...
 
"One of the mental roadblocks I encounter from the 'hard money' crowd (to which many of your Dear Readers belong, I suspect) is that bitcoin is, by nature, intangible. This they see as necessarily negative, a priori.
 
"The glitch lies in conflating the concept 'fiat' with 'intangible'. It is assumed that the latter is synonymous with the former, which is simply not the case. It is, rather, classic deductive fallacy: All fiat monies are intangible, therefore all intangible monies are fiat.
 
"It's a bit like the old example, 'All thumbs are fingers...therefore, all fingers are thumbs.' Not true. Not all intangible monies are fiat, as bitcoin demonstrates. Fiat means a money that is declared to have value simply because the state says so. (From the latin, 'it shall be'.) Bitcoin is nothing of the sort.
 
"Bitcoin relies solely on subjective value, which is to say, value assigned to it by voluntary individuals who, after weighing up its characteristics, determine its utility as a medium of exchange in a given context (a digital context, for example). It is the very opposite of value by decree...by coercion...by violence. It is value by voluntary market determination.
 
"The hard money crowd is right to distrust the state, given its abysmal track record of destroying purchasing power through inflation. But they are wrong to throw the potential value of intangibles out with the putrid, fiat bathwater.
 
"There are many intangibles to which we attach immense value. Math...language...logic...ideas...love...You can already think of a dozen more, I'm sure...
 
"The fact that bitcoin is intangible is, perhaps counter intuitively, considered by many to be one of its most appealing characteristics. It virtually eliminates storage costs, for one. Same for transport costs. And transport time. And, despite what the Feds say, it is more or less impossible to outlaw (unlike, say, private ownership of gold...) They could write the rule, of course, but enforcing it would be like enforcing a ban on the English language...or algebra...or naughty thoughts about your neighbour's wife...
 
"In some ways, bitcoin is very much the 'Language of Money': it is egalitarian, in that it is available to anyone and everyone equally. (There is no central authority first issuing bitcoins to a preferred few...unlike, say, every fiat currency on earth.) It can evolve and adapt (the Open Source protocol allows for this). It is democratic, in that its price is set by millions of freely associating individuals – the market – who each 'vote' with their btc wallet. (This is a refreshing contrast to the phony price of money as determined by the over-degreed blowhards at the Fed.) It is entirely transparent, as anyone who downloads the btc client can view the entire transaction history...but it is also private, as users can fairly easily shield their identity from prying eyes.
 
"It performs much like a language, communicating information both from individual to individual, and from discrete transaction to the entire, distributed network. It is a digital currency for the digital age.
 
"Of course, nobody knows where we go from here...except into uncharted waters. As someone said recently, bitcoin will either go to zero...or many, many zeros."
 

Palladium And Platinum Faced With Large Supply Shortage

Posted: 25 Nov 2013 12:54 PM PST

Can you name a commodity that’s currently in a supply deficit—in other words, production and scrap material can’t keep up with demand? How about two?

If you find that difficult to answer, it’s because there aren’t very many.

When you do find one, you might be on to a good investment—after all, if demand persists for that commodity, there’s only one way for the price to go.

At the end of 2012, the platinum market was in a supply deficit of 375,000 ounces. Much of it was chalked up to the sharp decline in output from South Africa, where about 750,000 ounces didn’t make it out of the ground due to legal and illegal strikes, safety stoppages, and mine closures.

The palladium sector was worse: It ended the year with a huge supply deficit of 1.07 million ounces—this, after 2011, when it boasted a surplus of 1.19 million ounces. The huge reversal was due to record demand for auto catalysts and a huge swing in investment demand—going from net selling to net buying in just 12 months.

What’s important to recognize as a potential investor is that the deficit for both metals isn’t letting up, especially for platinum.

Platinum Palladium Supply Deficit 2009 2013 physical market

Since platinum supply is dwindling, let’s take a closer look…

Will the Supply Deficit Continue?

According to Johnson Matthey, the world’s largest maker of catalysts to control car emissions, platinum supply will decline to 6.43 million ounces this year, largely due to lower Russian stockpile sales. But the company claims the decline will be made up by a 7.4% increase in recycling.

Ha. Projections on scrap supply are almost always wrong. Analysts said in early 2012 that supply from recycling would grow 10-12% that year—but it declined by 4%.

There are critical issues with scrap this year, too…

  • Impala Platinum (“Implats”) reported a 17% decline in output, not due to decrease in production but in scrap supply. Other companies have not reported this problem, but Implats is one of the biggest producers of the metal.
  • Recycling of platinum jewelry in China and Japan is falling and is on pace to be 12.9% lower than last year.
  • European auto sales are declining, so one would think demand would be the most impacted. However, this has major implications for supply, too: The average age of a car in Europe is eight years, with more than 30% over 10 years old. When a vehicle exceeds 10 years, the wear and tear on the catalyst is so significant that a substantial portion of the platinum has already been lost. So the jump in supply many are anticipating will be much less than expected.

Some of these declines are offset by scrap from auto catalysts in the US, but this obviously hasn’t made up for all of it.

Demand Isn’t Letting Up Either

Platinum demand is driven mostly by the automotive industry and jewelry, which account for 75% of world demand. What happens in these two sectors has a significant impact on the metal.

We’ll let you draw your own conclusions from the data…

The Cars

  • Auto industry analysts forecast total monthly sales in the US last month will reach about 1.23 million for passenger cars and light trucks, up 12% from 1.09 million in October 2012.
  • China, the world’s largest auto market, saw a 21% rise in passenger car and light-truck sales in September to 1.59 million units, an eight-month high.
  • PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will have nearly doubled by 2019. This trend largely applies to other Asian countries too, becoming a constant source of demand for both platinum and palladium.

The Politicians

Both platinum and palladium will benefit from new regulations that take effect in 2014 in Europe and China:

  • Europe’s new “Euro 6″ emission regulation will force diesel vehicles to have new catalysts going forward.
  • China has already accepted tighter emission standards that will substantially push platinum demand in the country. It’s worth mentioning that car markets in China and other emerging countries are at the “Euro 4″ level, so they have some catching up to do before reaching US and European levels.

The Investors

NewPlat, a platinum exchange-traded fund, launched in South Africa on April 26 and has already seen an inflow of 600,000 ounces through the end of September. This unprecedented surge is expected to lift platinum investment demand by 68% to a record 765,000 ounces.

The Jewelers

Jewelry is the second-largest use for platinum, representing 35% of overall demand.

China dominates this market, and demand has doubled in the past five years. According to ETF Securities, China is well on its way to make up around 80% of total platinum jewelry sales in 2013—their report calls Chinese platinum demand “a new engine of growth.”

Johnson Matthey expects the interest for platinum jewelry to soften in China this year. However, a recent article in Forbes suggests the opposite may be happening:

A good proxy for Chinese platinum jewelry demand is the volume of platinum futures traded on the Shanghai Gold Exchange. Average daily platinum volume on the exchange in 2013 is running near 45% above 2012 levels, recently reaching a new record high this year.

Another indicator of Chinese platinum jewelry demand is China platinum imports. The latest data on China platinum imports for September showed the highest level since March 2011 at 10,522 kilograms (or approximately 338,300 ounces).

And this from International Business Times

Net platinum inflows into China hit their highest levels in two and a half years … China’s net imports of platinum rose by 11%, to hit almost 70 metric tons for the first three quarters in 2013, higher than the 62 metric tons from the same period last year.

Overall, platinum demand is expected to be greater than ever before, reaching a record 8.42 million ounces this year. And this while supply continues to decline.

This supply/demand imbalance will likely continue for at least several years, perhaps a decade. Prices haven’t moved all that much yet, but that doesn’t mean they won’t. Prices of commodities with a supply/demand imbalance can only stay subdued for so long before reality catches up. Either prices must rise or demand must fall.

The other metal to take advantage of right now is gold. While there’s no supply crunch, the gold price is so low right now that it practically screams to back up the truck. Learn in our free Special Report, the 2014 Gold Investor’s Guide, when and where to buy gold bullion… the 3 best ways to invest in gold… and more. Get your free report now.

By Jeff Clark, Senior Precious Metals Analyst

Fantasy Share Trading

Posted: 25 Nov 2013 12:49 PM PST

Fancy taking a bet on investing...or an investment by betting...?
 
THEY don't ring bells at the top, but when a company called Fantex Holdings plans to sell shares in professional athletes and possibly actors and musicians, a chill should race up the spine of investors, writes Doug French at Casey Research.
 
You know this isn't your grandfather's market when a company pushing chicken wings (Buffalo Wild Wings) sells at over 40 times earnings. And when a company that dominates retail but doesn't make any money (Amazon) trades for $350 a share. And when a company that pumps old movies, TV shows, and a sliver of new content to subscribers trades at 280 times earnings (Netflix).
 
Let's just say that American industry ain't what it used to be.
 
"As General Motors goes, so goes the nation," was relevant a long time ago. Today's nation is gaga for something different: fantasy football. Adults lining up players against each other like toy soldiers is a billion-Dollar business for the companies facilitating the fun and games. Bloomberg reports:
"About 25.1 million people play fantasy football in the US...About $3.38 billion is spent annually in the US on fantasy sports... [T]hree-quarters of that, or about $2.54 billion, is spent on football."
With all of this fantasizing, Wall Street doesn't want to be left out of the money. Fantex Holdings intended to sell an IPO of Houston Texan running back Arian Foster until he was injured. The plan was to market 1.06 million shares of Foster stock at $10 a share. The shares would trade on a Fantex exchange, and the company believes the shares would track Mr.Foster's future brand income, including his playing contract, corporate endorsements, and appearance fees.
 
Investors would be one hit away from losing all or most of their money. Luckily for them, Arian Foster's season-ending injury happened prior to the floating of his stock. However, as Peter Lattman and Steve Eder write for the New York Times:
"Risks aside, the offering is intended to capitalize on the mammoth popularity of the National Football League and fantasy football, where fans draft players and score points for touchdowns, yardage and other notable plays during the season.
 
"If thousands of fans are willing to pay as much as $250 for an Arian Foster jersey, the thinking goes, why wouldn't they pay up for a few shares of Arian Foster stock?"
Wondering what Foster was to get out of this? $10 million, in exchange for 20% of his future income. Shareholders wouldn't have a direct claim on Foster's income or control of his brand: Fantex would. Theoretically the better Foster does, the better his stock would do. Fantex said it anticipated paying a dividend.
 
Aswath Damodaran, NYU professor of finance, blogged at Musings on Markets that a portion of Fantex's 20% percent claim on Foster's income "will be set aside to cover the expenses associated with managing and maintaining the Fantex platform." Also, "Fantex views its role as not just a contractual intermediary but also as a brand building organization. Effectively, that implies that Fantex can and will use some of the Foster income to market him better (and hopefully increase endorsement income)."
 
Using some very rosy assumptions about Foster's career – like that the running back will play until he's 36 years old – Damodaran calculated the present value of 20% of Foster's future cash flows to be $10 million, before expenses and injury risk. Once he factors those in, Damodaran says the value of the Foster claims are $5.07 million. He admits that Mr. Foster is definitely getting the better part of the deal.
 
San Francisco 49er tight end Vernon Davis was the second player signed by Fantex; he promptly left last week's game with a concussion. Fantex intends to buy 10% of Mr. Davis' future earnings for $4 million. The company will sell shares to investors in a tracking stock linked to the tight end's economic performance, which includes the value of playing contracts, corporate endorsements, and appearance fees.
 
This all sounds newfangled, but it's been done before. In its April 2000 edition, the Elliott Wave Financial Forecast wrote:
"Another indication that a historic extreme has reached its zenith is that in recent months, even individuals have become brands. A number of them, including Dick Clark, Donna Karan, Tommy Hilfiger, Ralph Lauren, Martha Stewart and C. Everett Koop, have become publicly traded companies. All are down substantially from their close on their first day of trading, but the effort literally to buy heroes continues to spread. The latest development is at the venture capital level, where numerous promoters are busily launching Internet investment funds with superstar athletes because 'athletes have tremendous brand presence'."
A bear market had actually begun a few days before.
 
John Hussman calls the current market "a textbook pre-crash bubble". He cites a Schiller P/E above 25, that the median-stock-price-to-revenue ratio is at a record high, and that the market-cap-to-GDP ratio is approaching an all-time high. Margin debt is also at an all-time high of 2.2% of GDP, and the "this time is different" narrative is back.
 
As crazy as the market is, the folks at Cantor Gaming want to make the investment world even wilder. The Wall Street Journal reported last month:
"The company pushed Nevada legislators this year to let investment funds bet on sports. It said this would widen the ways investors such as hedge funds could diversify."
The bill didn't pass this session. In the future, who knows? If the bull market keeps charging ahead, investors may be able to own shares in their favorite fantasy players, while their mutual funds "invest" in wagers on the games' outcomes.
 
Makes getting down a bet with the corner bookie look very tame.
 
Could the craziness of the market spell another crash in the near future? Find out all about today's big-picture investment trends, as well as precious metals, income investing, oil and gas, technology, and more – in the free e-letter Casey Daily Dispatch.

Fantasy Share Trading

Posted: 25 Nov 2013 12:49 PM PST

Fancy taking a bet on investing...or an investment by betting...?
 
THEY don't ring bells at the top, but when a company called Fantex Holdings plans to sell shares in professional athletes and possibly actors and musicians, a chill should race up the spine of investors, writes Doug French at Casey Research.
 
You know this isn't your grandfather's market when a company pushing chicken wings (Buffalo Wild Wings) sells at over 40 times earnings. And when a company that dominates retail but doesn't make any money (Amazon) trades for $350 a share. And when a company that pumps old movies, TV shows, and a sliver of new content to subscribers trades at 280 times earnings (Netflix).
 
Let's just say that American industry ain't what it used to be.
 
"As General Motors goes, so goes the nation," was relevant a long time ago. Today's nation is gaga for something different: fantasy football. Adults lining up players against each other like toy soldiers is a billion-Dollar business for the companies facilitating the fun and games. Bloomberg reports:
"About 25.1 million people play fantasy football in the US...About $3.38 billion is spent annually in the US on fantasy sports... [T]hree-quarters of that, or about $2.54 billion, is spent on football."
With all of this fantasizing, Wall Street doesn't want to be left out of the money. Fantex Holdings intended to sell an IPO of Houston Texan running back Arian Foster until he was injured. The plan was to market 1.06 million shares of Foster stock at $10 a share. The shares would trade on a Fantex exchange, and the company believes the shares would track Mr.Foster's future brand income, including his playing contract, corporate endorsements, and appearance fees.
 
Investors would be one hit away from losing all or most of their money. Luckily for them, Arian Foster's season-ending injury happened prior to the floating of his stock. However, as Peter Lattman and Steve Eder write for the New York Times:
"Risks aside, the offering is intended to capitalize on the mammoth popularity of the National Football League and fantasy football, where fans draft players and score points for touchdowns, yardage and other notable plays during the season.
 
"If thousands of fans are willing to pay as much as $250 for an Arian Foster jersey, the thinking goes, why wouldn't they pay up for a few shares of Arian Foster stock?"
Wondering what Foster was to get out of this? $10 million, in exchange for 20% of his future income. Shareholders wouldn't have a direct claim on Foster's income or control of his brand: Fantex would. Theoretically the better Foster does, the better his stock would do. Fantex said it anticipated paying a dividend.
 
Aswath Damodaran, NYU professor of finance, blogged at Musings on Markets that a portion of Fantex's 20% percent claim on Foster's income "will be set aside to cover the expenses associated with managing and maintaining the Fantex platform." Also, "Fantex views its role as not just a contractual intermediary but also as a brand building organization. Effectively, that implies that Fantex can and will use some of the Foster income to market him better (and hopefully increase endorsement income)."
 
Using some very rosy assumptions about Foster's career – like that the running back will play until he's 36 years old – Damodaran calculated the present value of 20% of Foster's future cash flows to be $10 million, before expenses and injury risk. Once he factors those in, Damodaran says the value of the Foster claims are $5.07 million. He admits that Mr. Foster is definitely getting the better part of the deal.
 
San Francisco 49er tight end Vernon Davis was the second player signed by Fantex; he promptly left last week's game with a concussion. Fantex intends to buy 10% of Mr. Davis' future earnings for $4 million. The company will sell shares to investors in a tracking stock linked to the tight end's economic performance, which includes the value of playing contracts, corporate endorsements, and appearance fees.
 
This all sounds newfangled, but it's been done before. In its April 2000 edition, the Elliott Wave Financial Forecast wrote:
"Another indication that a historic extreme has reached its zenith is that in recent months, even individuals have become brands. A number of them, including Dick Clark, Donna Karan, Tommy Hilfiger, Ralph Lauren, Martha Stewart and C. Everett Koop, have become publicly traded companies. All are down substantially from their close on their first day of trading, but the effort literally to buy heroes continues to spread. The latest development is at the venture capital level, where numerous promoters are busily launching Internet investment funds with superstar athletes because 'athletes have tremendous brand presence'."
A bear market had actually begun a few days before.
 
John Hussman calls the current market "a textbook pre-crash bubble". He cites a Schiller P/E above 25, that the median-stock-price-to-revenue ratio is at a record high, and that the market-cap-to-GDP ratio is approaching an all-time high. Margin debt is also at an all-time high of 2.2% of GDP, and the "this time is different" narrative is back.
 
As crazy as the market is, the folks at Cantor Gaming want to make the investment world even wilder. The Wall Street Journal reported last month:
"The company pushed Nevada legislators this year to let investment funds bet on sports. It said this would widen the ways investors such as hedge funds could diversify."
The bill didn't pass this session. In the future, who knows? If the bull market keeps charging ahead, investors may be able to own shares in their favorite fantasy players, while their mutual funds "invest" in wagers on the games' outcomes.
 
Makes getting down a bet with the corner bookie look very tame.
 
Could the craziness of the market spell another crash in the near future? Find out all about today's big-picture investment trends, as well as precious metals, income investing, oil and gas, technology, and more – in the free e-letter Casey Daily Dispatch.

Don Coxe: “The Inflationary Potential Is There And It Will Assert Itself”

Posted: 25 Nov 2013 12:44 PM PST

Don Coxe, Chairman of Coxe Advisors LLP, has issued a powerful new weekly review of global capital markets, entitled, "Seeds of Deflation." 

In this updated conference call, Don spoke to a potential impetus behind ongoing taper-talk, inflationary kindling remaining within the economy, and of great interest to our readers--an updated comment on gold.

Beginning at the 17:75 mark, Don noted that, "With all this talk about tapering, I'm cynical enough to believe that

The Daily Market Report: Gold Rebounds From Overseas Lows

Posted: 25 Nov 2013 11:14 AM PST


25-Nov (USAGOLD) — Gold retreated in overseas trading on news of that Iran was willing to curb its nuclear program in exchange for the lifting of some sanctions. The perceived easing of geopolitical tensions in the volatile region lifted global stocks and the dollar, which simultaneously weighed on gold.

However, losses stalled well shy of the range low from June at 1179.83 and the yellow metal quickly popped back into positive territory. Perhaps there was a realization that we’ve been here before with respect to Iran and their nuke program. The deal struck over the weekend is really just an interim agreement and no formal deal has been inked yet. Even then, it’s just a six month deal to slow progress toward a level of enrichment that could be used for a weapon.

On the heels of a rate cut several weeks ago, the ECB continues to make noise about further easing. Governing Council members Christian Noyer and Ardo Hansson both suggested today that the ECB could cut rates further if necessary, specifically citing disinflation risks. Mr. Hansson also said that the central bank is 'technically ready' for a negative deposit rate. This knocked the euro back down and boosted the dollar.

Additionally, some soft U.S. economic data may have further diminished the likelihood of Fed tapering over the next couple of months. The U.S. NAR pending home sales index fell 0.6% to 102.1 in October. This was below expectations of 103.9, and was the fifth consecutive monthly decline. The U.S. Dallas Fed Index also missed expectations, falling to 1.9 in November, versus 3.6 in October.

This reversed the intraday gains in the dollar, which helped gold rebound. While outflows from ETPs picked up last week, we continue to see strong interest for actual physical gold on price dips.

NY Fed seems to be running a full-service investment house

Posted: 25 Nov 2013 10:51 AM PST

1:45p ET Monday, November 25, 2013

Dear Friend of GATA and Gold:

If the Federal Reserve isn't rigging markets, its New York office nevertheless seems to be running the biggest full-service investment house in town and becoming entangled in some terrible conflicts of interest, according to Pam Martens' commentary today at Wall Street on Parade. Martens calls particular attention to the resume of a New York Fed employee who seems to be covering a lot more than the currency and government bond markets. Martens' commentary is headlined "New York Fed's Strange New Role: Big Bank Equity Analyst" and it's posted at Wall Street on Parade here:

http://wallstreetonparade.com/2013/11/new-york-fed%E2%80%99s-strange-new...

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



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Jim Sinclair Plans Seminar in Boston on Dec. 7

Gold advocate and mining entrepreneur Jim Sinclair will hold his next seminar from 1 to 5 p.m. on Saturday, December 7, in the Boston suburb of Cambridge, Mass., at the Boston Marriott Cambridge at 50 Broadway in Cambridge. The admission fee will be $50. Details are posted at Sinclair's Internet site, JSMineSet, here:

http://www.jsmineset.com/2013/11/14/boston-qa-session-announced/



Join GATA here:

Vancouver Resource Investment Conference
Vancouver Convention Centre West
Sunday-Monday, January 19-20, 2014
Vancouver, British Columbia, Canada

http://www.cambridgehouse.com/event/vancouver-resource-investment-confer...

* * *

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

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

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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:

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To contribute to GATA, please visit:

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

Bitcoin: Like Gold. Only Less So

Posted: 25 Nov 2013 10:46 AM PST

Bitcoin newbie Bill Bonner isn't bullish. He's buggish on the cyber currency...
 
The DOW hit new highs, gold prices fell again, and Tim Geithner found a job, writes Bill Bonner in his Daily Reckoning.
 
Now Geithner can give up the food stamps...and get off the unemployment rolls. The cronies are taking back one of their own. He's back on Wall Street – at private equity firm Warburg Pincus.
 
"When they approached me, they clearly wanted me to play a substantial role in running the company," Geithner told the Wall Street Journal.
 
What does Geithner know about private equity?
 
Nothing. But sometimes WHO you know is more important than WHAT you know.
 
It won't hurt Warburg Pincus that its new managing director knows his way around Washington. And it didn't hurt the suits on Wall Street, when the bad debt hit the fan in 2008, that they had their man Tim in the Department of the Treasury.
 
The record shows that Goldman Sachs boss Lloyd Blankfein got on the phone with Geithner no fewer than 18 times in one 24-hour period.
 
Apparently, those were calls worth making. Geithner came to the Street's aid almost overnight – with $700 billion in TARP funds plus federal guarantees worth, according to the former Inspector General of the TARP, $21 trillion.
 
Where does a government that is already running deeply in the red...and whose elected representatives are dead set against raising taxes...get that kind of money?
 
Ah, dear reader, where have you been?
 
We live in new era of experimental money. The supply of cash and credit can be expanded easily and almost infinitely – making it possible for the feds to do this kind of thing.
 
But here's the really remarkable story: The experimental money of the 1971-2013 period is now threatened by another monetary experiment.
 
We explained it to our 94-year-old mother:
 
'What is bitcoin?' she asked.
 
'It's a new virtual currency. You know, it was created by some computer whiz. You can use it to buy things.'
 
'Who was this whiz?'
 
'Nobody knows. He is said to have been a Japanese programmer...or group of programmers.'
 
'Do you have a bitcoin? Could I see it?'
 
'No, it only exists in cyberspace.'
 
'Where does it come from?'
 
'You have to find it in cyberspace, using computers plugged into the internet.'
 
'Oh. Well, I guess everyone with a computer is looking for them. How much is the new money worth?'
 
'It depends. It trades freely in cyberspace.'
 
'But what makes it valuable?'
 
'Nothing...except that people are using it. And its supply is limited. We're going to begin using it in our business.'
 
'But why would a merchant trade his valuable merchandise for something that has no value?'
 
'Well...that's what we do with the Dollar.'
 
'But the government guarantees the value of the Dollar. They may not always do a good job of it. But at least they stand behind it. Who's guaranteeing the value of the bitcoin?'
 
'Nobody. It's just the way the system has been set up. But remember, the supply of bitcoins is limited, unlike the supply of Dollars or Euro or Yen.'
 
'You mean...nobody knows where it came from. Nobody has ever seen it. Nobody knows what it is worth. Nobody knows where to find it. And nobody stands behind it. Seems crazy to me.'
 
Yes, dear reader, amazing things are beginning to happen.
 
When bitcoin first came along we didn't know what to make of it. We dismissed it as a silly fantasy perpetrated by techie dreamers.
 
Money you can't see? Money you can't hold in your hand or put in your safe? Money with no precious metal backing...that no one stands behind? It sounded crazy.
 
At least the paper US Dollar has the full faith and credit of the United States of America backing it – for whatever that's worth.
 
The Euro has the ECB, Brussels and Berlin (more or less) behind it. Sterling has the Bank of England, the British parliament and the crown.
 
What has bitcoin got? Nothing.
 
And yet, what currency has outperformed all others?
 
Bitcoin!
 
Hmmm...what to make of it?
 
We don't know. Our friend Max Keiser tweets: "Bill Bonner is bullish on bitcoin."
 
But we're not bullish on the new money...we're buggish. We like bitcoin like we like gold. Only less.
 
Will it go up in price? We don't know.
 
But what we like about bitcoin is the same thing the feds don't like about it. They can't control it. So, they can't use it to steal from people. And they can't use it to bail out their friends...support zombies...or finance pointless wars.
 
Nor can they use bitcoin to cover their deficits or to manipulate the economy.
 
But wait...
 
Why can't the feds put their enormous computing power to work mining for bitcoin? That way, if bitcoin becomes the coin of the realm, they could still control it...with a huge reserve of their own.
 
Are they too busy spying on people?
 
Are they too thick to see the potential?
 
Are we missing something?

Bitcoin: Like Gold. Only Less So

Posted: 25 Nov 2013 10:46 AM PST

Bitcoin newbie Bill Bonner isn't bullish. He's buggish on the cyber currency...
 
The DOW hit new highs, gold prices fell again, and Tim Geithner found a job, writes Bill Bonner in his Daily Reckoning.
 
Now Geithner can give up the food stamps...and get off the unemployment rolls. The cronies are taking back one of their own. He's back on Wall Street – at private equity firm Warburg Pincus.
 
"When they approached me, they clearly wanted me to play a substantial role in running the company," Geithner told the Wall Street Journal.
 
What does Geithner know about private equity?
 
Nothing. But sometimes WHO you know is more important than WHAT you know.
 
It won't hurt Warburg Pincus that its new managing director knows his way around Washington. And it didn't hurt the suits on Wall Street, when the bad debt hit the fan in 2008, that they had their man Tim in the Department of the Treasury.
 
The record shows that Goldman Sachs boss Lloyd Blankfein got on the phone with Geithner no fewer than 18 times in one 24-hour period.
 
Apparently, those were calls worth making. Geithner came to the Street's aid almost overnight – with $700 billion in TARP funds plus federal guarantees worth, according to the former Inspector General of the TARP, $21 trillion.
 
Where does a government that is already running deeply in the red...and whose elected representatives are dead set against raising taxes...get that kind of money?
 
Ah, dear reader, where have you been?
 
We live in new era of experimental money. The supply of cash and credit can be expanded easily and almost infinitely – making it possible for the feds to do this kind of thing.
 
But here's the really remarkable story: The experimental money of the 1971-2013 period is now threatened by another monetary experiment.
 
We explained it to our 94-year-old mother:
 
'What is bitcoin?' she asked.
 
'It's a new virtual currency. You know, it was created by some computer whiz. You can use it to buy things.'
 
'Who was this whiz?'
 
'Nobody knows. He is said to have been a Japanese programmer...or group of programmers.'
 
'Do you have a bitcoin? Could I see it?'
 
'No, it only exists in cyberspace.'
 
'Where does it come from?'
 
'You have to find it in cyberspace, using computers plugged into the internet.'
 
'Oh. Well, I guess everyone with a computer is looking for them. How much is the new money worth?'
 
'It depends. It trades freely in cyberspace.'
 
'But what makes it valuable?'
 
'Nothing...except that people are using it. And its supply is limited. We're going to begin using it in our business.'
 
'But why would a merchant trade his valuable merchandise for something that has no value?'
 
'Well...that's what we do with the Dollar.'
 
'But the government guarantees the value of the Dollar. They may not always do a good job of it. But at least they stand behind it. Who's guaranteeing the value of the bitcoin?'
 
'Nobody. It's just the way the system has been set up. But remember, the supply of bitcoins is limited, unlike the supply of Dollars or Euro or Yen.'
 
'You mean...nobody knows where it came from. Nobody has ever seen it. Nobody knows what it is worth. Nobody knows where to find it. And nobody stands behind it. Seems crazy to me.'
 
Yes, dear reader, amazing things are beginning to happen.
 
When bitcoin first came along we didn't know what to make of it. We dismissed it as a silly fantasy perpetrated by techie dreamers.
 
Money you can't see? Money you can't hold in your hand or put in your safe? Money with no precious metal backing...that no one stands behind? It sounded crazy.
 
At least the paper US Dollar has the full faith and credit of the United States of America backing it – for whatever that's worth.
 
The Euro has the ECB, Brussels and Berlin (more or less) behind it. Sterling has the Bank of England, the British parliament and the crown.
 
What has bitcoin got? Nothing.
 
And yet, what currency has outperformed all others?
 
Bitcoin!
 
Hmmm...what to make of it?
 
We don't know. Our friend Max Keiser tweets: "Bill Bonner is bullish on bitcoin."
 
But we're not bullish on the new money...we're buggish. We like bitcoin like we like gold. Only less.
 
Will it go up in price? We don't know.
 
But what we like about bitcoin is the same thing the feds don't like about it. They can't control it. So, they can't use it to steal from people. And they can't use it to bail out their friends...support zombies...or finance pointless wars.
 
Nor can they use bitcoin to cover their deficits or to manipulate the economy.
 
But wait...
 
Why can't the feds put their enormous computing power to work mining for bitcoin? That way, if bitcoin becomes the coin of the realm, they could still control it...with a huge reserve of their own.
 
Are they too busy spying on people?
 
Are they too thick to see the potential?
 
Are we missing something?

Comex gold 'very much a manipulated market,' Ing tells King

Posted: 25 Nov 2013 10:32 AM PST

1:25p ET Monday, November 25, 2013

Dear Friend of GATA and Gold:

Market analyst John Ing, CEO of Maison Placements in Toronto, today comments to King World News about the continuing "strange activity" in the gold market, the regular abrupt dumping of large numbers of futures contracts. The New York gold futures market, the Comex, "is very much a manipulated market," Ing says. He predicts a run on whatever metal the Comex has left. An excerpt from the interview is posted at the King World News blog here:

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/11/25_H...

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



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How to profit with silver --
and which stocks to buy now

Future Money Trends is offering a special 16-page silver report with our forecast for 2013 that includes profiles of nine companies and technical analysis of their stock performance. Six of the companies have market capitalizations of less than $800 million and one company has a market cap of only $30 million. The most exciting of these companies will begin production in a few weeks and has a market cap of just $150 million.

Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.

To learn about this report, please visit:

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Join GATA here:

Vancouver Resource Investment Conference
Vancouver Convention Centre West
Sunday-Monday, January 19-20, 2014
Vancouver, British Columbia, Canada

http://www.cambridgehouse.com/event/vancouver-resource-investment-confer...

* * *

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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How to Cash In on Deflationary Forces

Posted: 25 Nov 2013 09:57 AM PST

It's been a pretty rotten year for gold equities, and most investors can't wait for a fresh start in 2014. There's plenty to look forward to, according to Jay Taylor, publisher and editor of Gold, Energy & Tech Stocks and host of the radio show "Turning Hard Times into Good Times." Taylor, who is speaking at the Metals & Mining Conference in San Francisco, is forecasting a staggering rise in the real gold price, and profits for small-cap gold companies in the new year. In this interview with The Gold Report, Taylor identifies the best and brightest in his portfolio as he positions for a gold run. The Gold Report: Jay, you're presenting "Deflationary Forces in the Midst of an Inflationary Monetary Regime," at the San Francisco Metals & Minerals Conference Nov. 25 and 26. How can that concept affect gold investors?

Dit zijn tekens dat de bodem dichterbij komt…

Posted: 25 Nov 2013 09:23 AM PST

Vandaag is het de beurt aan Detour Gold om te crashen. Het aandeel gaat 30% lager op hoog volume. Zoals we in de wekelijkse grafiek kunnen zien is het volume fors aan het oplopen sinds juli 2013. Een eerste teken … Continue reading

Historic Run On Comex Gold To Create $200 Daily Moves

Posted: 25 Nov 2013 09:19 AM PST

On the heels of more volatile trading in global markets, today Canadian legend John Ing warned King World News that a historic run on the Comex is preparing to take place. Ing, who has been in the business for 43 years, also stated this is going to have shocking ramafications for the price of gold, which will experience unimaginable single-day price moves. Below is what Ing had to say in his fascinating interview.

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

Dimitri Speck explains gold price suppression

Posted: 25 Nov 2013 09:07 AM PST

12:09p ET Monday, November 25, 2013

Dear Friend of GATA and Gold:

In the first segment of a two-part interview conducted for Matterhorn Asset Management's Gold Switzerland Internet site, the financial journalist Lars Schall today interviews market analyst, asset manager, author, and GATA consultant Dimitri Speck about the statistical evidence and purposes of gold price suppression by central banks and their bullion bank agents.

Speck notes that gold price suppression is meant to reduce market expectations of inflation, to support bond prices, and to impair gold as a competitor to currencies and bond investments.

The first segment of the interview is titled "The Coordinated Effort to Suppress the Gold Price." It's 16 minutes long and it's posted at Gold Switzerland here:

http://goldswitzerland.com/part-one-the-coordinated-effort-to-suppress-t...

Speck has written two books about gold price suppression and information about them is posted at GATA's Internet site here:

http://www.gata.org/node/13263

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



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Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.

To learn about this report, please visit:

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Join GATA here:

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Sunday-Monday, January 19-20, 2014
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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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Bitcoin Bytes Back

Posted: 25 Nov 2013 09:00 AM PST

[Ed. Note: This article originally published on Jan. 24, 2013]

Stocks up. Gold down. Bitcoin…waaay up.

The S&P 500 busted through the 1,500 mark this morning. Stocks haven't been this expensive since 2007…right before they got a whole lot cheaper…for a whole lot longer. Gold, meanwhile, dipped a tad. This, despite central bankers of the world goading it on, promising to dilute the value of their respective paper currencies against the Midas Metal. Befriend the dips.

And what about bitcoin? Wait…what is bitcoin??

Here is your misfit! Your champion of decentralized power… And with it, a price…determined by the free market you profess to adore.

Why, it's a speculation, of course; a dark horse, beloved by anarchists, ne’er-do-wells and fringe-dwelling lunatics, the kind of people you wouldn't invite over for tea with your mother-in-law. It is the fascination of the ill-adjusted, the oddly-mannered, the heterodoxical hedonist. Indeed, the very idea of bitcoin, a "decentralized, cyber-crypto currency," has to it a ring of the unknown…of disruption, rebellion…perhaps even revolution…

In plain English, it's not to be trusted by members of polite society. And these are just some of the reasons we like it so much!

Since we first disgraced these pages with mention of the wretched thing, bitcoin has quadrupled in price…then fallen through the floor…then risen once again, like a Phoenix, nurtured by the fertile ashes of doubt and skepticism.

On the subject of cyber currencies, pointy-headed professors remain predictably divided. Economists, too, are split down the middle.

Even the libertarian camp seems unsure of its "official" stance…

"Can we fairly consider bitcoin a money? Is it even real? Can we take it to be intellectually 'valid.'"

What a pompous band of academic lickspittles! You who criticize the mainstream for their blind adherence to rigidly archaic principles. You who admonish the stuffy Ivy Leaguers for their brittle little theories, lacking in dynamism and ill-equipped to deal with the world as it is and as it changes. You who rage against the concentration of power, against the arrogance of control and the folly of central planning.

Well then…Here is your misfit! Your champion of decentralized power…your catalyst for democratic, horizontal information dissemination. And with it, a price…determined by the free market you profess to adore. Here, within your grasp, lies a spectacular failure…or else the agent of change for which you've long been waiting. Have you nothing to say but, "Yes…but does it satisfy Aristotle's requirements of sound money?"

Ah, Phooey to you all!

We first brought you word of this underdog currency a couple of years back, shortly after it began making waves on Internet message boards. The premise seemed appealing. It was – and still is – a bet against the omniscience of central bankers. Demand for the currency rests, in no small part, on the continued arrogance of the Bernankes, Shirakawas, Kings, Stevens and Draghis of the world.

"The demand for a totally free market currency arose, naturally, out of the dismal state of the current monetary environment," we wrote at the time, an environment "in which governments around the world systematically debase the value of their printed monies in order to pay for the various welfare-warfare states they promised but can't possibly afford. The resulting inflation is sometimes referred to as a 'sneaky tax,' one that silently, insidiously infiltrates the marketplace, with each freshly-inked dollar compromising the value and integrity of each and every currency unit already in circulation."

What, if anything, has changed in the two years since we penned those words? Has a single central banker admitted a single mistake? Has one been reprimanded for his gross negligence – be it criminal, cerebral or a combination of the two? Is one of them serving time behind bars…or on the rack…for his crimes against progress and human advancement?

Not a chance! Indeed, it is to those who caused the mess that a brain dead populace look for solutions! These are the men, mind you, who worked – actually labored – to keep alive companies that ought now to be decomposing in the tar pits of corporate failure, breaking down in order that other creative agents might one day unlock its idle energy and potential. The very presence of these individuals at the solution table is an offense to decency.

In the end, bitcoin is a bet on the other side of The State's coin; the free market side. It's a bet that voluntary trade will, in the end, overcome neanderthalic force and coercion. It's a wager that the conversation currently underway in the shadowy "black" market is far more intriguing, far more complex, far more nuanced and exceedingly more interesting than the yip-yapping that distracts the undead, mainstream TV-consumer for an hour or so around feeding time every evening.

If bitcoin goes to its grave tomorrow – and it may well do so – it will be in service of precisely the point free market enthusiasts have been advocating all along: That it is not for a committee to determine the price of a good (including money itself)…or for a state or a central agency or a law or an edict.

That is for the market to decide. Today, that market says a bitcoin is worth $19. Tomorrow, maybe 19 cents…or $19k. No one body knows…and that's exactly the point.

Regards,

Joel Bowman
for The Daily Reckoning

Ed. Note: Joel’s been following this cyber-crypto currency for years now, and his insight has given readers plenty to think about. This kind of analysis, especially as regards fringey little Interent currencies, is just what you’ll find in the FREE Laissez Faire Today email edition – a daily newsletter devoted to providing the most in-depth analysis on the topics of liberty, freedom and politics the world has to offer. Don’t wait. Sign up for FREE, right here.

TF Metals Report: Perception deception

Posted: 25 Nov 2013 08:20 AM PST

11:17a ET Monday, November 25, 2013

Dear Friend of GATA and Gold:

The TF Metal Report's Turd Ferguson today details the misinformation about gold demand that is being distributed by Goldman Sachs, Bloomberg News, and the International Monetary Fund. His commentary is headlined "Perception Deception" and it's posted here:

http://www.tfmetalsreport.com/blog/5271/perception-deception

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



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GoldMoney was established in 2001 by James and Geoff Turk and is safeguarding more than $1.7 billion in metals and currencies. Buy gold, silver, platinum, and palladium from GoldMoney over the Internet and store them in vaults in Canada, Hong Kong, Singapore, Switzerland, and the United Kingdom, ­taking advantage of GoldMoney's low storage rates, among the most competitive in the industry. GoldMoney also offers delivery of 100-gram and 1-kilogram gold bars and 1-kilogram silver bars. To learn more, please visit:

http://www.goldmoney.com/?gmrefcode=gata



Join GATA here:

Vancouver Resource Investment Conference
Vancouver Convention Centre West
Sunday-Monday, January 19-20, 2014
Vancouver, British Columbia, Canada

http://www.cambridgehouse.com/event/vancouver-resource-investment-confer...

* * *

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



ADVERTISEMENT

How to profit with silver --
and which stocks to buy now

Future Money Trends is offering a special 16-page silver report with our forecast for 2013 that includes profiles of nine companies and technical analysis of their stock performance. Six of the companies have market capitalizations of less than $800 million and one company has a market cap of only $30 million. The most exciting of these companies will begin production in a few weeks and has a market cap of just $150 million.

Half of all proceeds from the sale of this report will be donated to the Gold Anti-Trust Action Committee to support its efforts exposing manipulation and fraud in the gold and silver markets.

To learn about this report, please visit:

http://www.futuremoneytrends.com/index.php?option=com_content&id=376&tmp...


Hitch a Ride on This Supply Crunch

Posted: 25 Nov 2013 08:08 AM PST

Dear Reader,

Short and sweet here. We're not gold bugs, in the sense of gold being the only thing we care about. We do, however, still see gold as an absolutely essential wealth preservation vehicle. We also see more upside in precious metals stocks as a class than almost anything else in the financial world.

That said, various indicators are still bearish for gold in the very near-term, so we've recommended more GLD puts as "insurance" for the downside, and are looking for opportunities to diversify. We've written about platinum and palladium as vehicles for doing so before, but now the upside in both is looking increasingly imminent.

Jeff Clark has an update on the "other" precious metals below. Whether or not you want our recommendations on how to play it, the analysis should help guide and support your investment strategy.

Good hunting,

Louis James
Senior Metals Investment Strategist
Casey Research

Rock & Stock Stats
Last
One Month Ago
One Year Ago
Gold 1,243.70 1,342.60 1,728.20
Silver 19.83 22.79 33.35
Copper 3.20 3.34 3.50
Oil 94.84 98.30 87.38
Gold Producers (GDX) 22.25 26.02 48.08
Gold Junior Stocks (GDXJ) 32.50 40.76 88.40
Silver Stocks (SIL) 11.50 13.59 22.93
TSX (Toronto Stock Exchange) 13.478.34 13,248.06 12,153.10
TSX Venture 932.15 971.68 1,248.36

Hitch a Ride on This Supply Crunch

Jeff Clark, Senior Precious Metals Analyst

Can you name a commodity that's currently in a supply deficit—in other words, production and scrap material can't keep up with demand? How about two?

If you find that difficult to answer, it's because there aren't very many.

When you do find one, you might be on to a good investment—after all, if demand persists for that commodity, there's only one way for the price to go.

At the end of 2012, the platinum market was in a supply deficit of 375,000 ounces. Much of it was chalked up to the sharp decline in output from South Africa, where about 750,000 ounces didn't make it out of the ground due to legal and illegal strikes, safety stoppages, and mine closures.

The palladium sector was worse: It ended the year with a huge supply deficit of 1.07 million ounces—this, after 2011, when it boasted a surplus of 1.19 million ounces. The huge reversal was due to record demand for auto catalysts and a huge swing in investment demand—going from net selling to net buying in just 12 months.

What's important to recognize as a potential investor is that the deficit for both metals isn't letting up, especially for platinum.

Since platinum supply is dwindling, let's take a closer look…

Will the Supply Deficit Continue?

According to Johnson Matthey, the world's largest maker of catalysts to control car emissions, platinum supply will decline to 6.43 million ounces this year, largely due to lower Russian stockpile sales. But the company claims the decline will be made up by a 7.4% increase in recycling.

Ha. Projections on scrap supply are almost always wrong. Analysts said in early 2012 that supply from recycling would grow 10-12% that year—but it declined by 4%.

There are critical issues with scrap this year, too…

  • Impala Platinum ("Implats") reported a 17% decline in output, not due to decrease in production but in scrap supply. Other companies have not reported this problem, but Implats is one of the biggest producers of the metal.
  • Recycling of platinum jewelry in China and Japan is falling and is on pace to be 12.9% lower than last year.
  • European auto sales are declining, so one would think demand would be the most impacted. However, this has major implications for supply, too: The average age of a car in Europe is eight years, with more than 30% over 10 years old. When a vehicle exceeds 10 years, the wear and tear on the catalyst is so significant that a substantial portion of the platinum has already been lost. So the jump in supply many are anticipating will be much less than expected.

Some of these declines are offset by scrap from auto catalysts in the US, but this obviously hasn't made up for all of it.

Demand Isn't Letting Up Either

Platinum demand is driven mostly by the automotive industry and jewelry, which account for 75% of world demand. What happens in these two sectors has a significant impact on the metal.

We'll let you draw your own conclusions from the data…

The Cars

  • Auto industry analysts forecast total monthly sales in the US last month will reach about 1.23 million for passenger cars and light trucks, up 12% from 1.09 million in October 2012.
  • China, the world's largest auto market, saw a 21% rise in passenger car and light-truck sales in September to 1.59 million units, an eight-month high.
  • PricewaterhouseCoopers forecasts that sales of automobiles and light trucks in China will have nearly doubled by 2019. This trend largely applies to other Asian countries too, becoming a constant source of demand for both platinum and palladium.

The Politicians

Both platinum and palladium will benefit from new regulations that take effect in 2014 in Europe and China:

  • Europe's new "Euro 6" emission regulation will force diesel vehicles to have new catalysts going forward.
  • China has already accepted tighter emission standards that will substantially push platinum demand in the country. It's worth mentioning that car markets in China and other emerging countries are at the "Euro 4" level, so they have some catching up to do before reaching US and European levels.

The Investors

NewPlat, a platinum exchange-traded fund, launched in South Africa on April 26 and has already seen an inflow of 600,000 ounces through the end of September. This unprecedented surge is expected to lift platinum investment demand by 68% to a record 765,000 ounces.

The Jewelers

Jewelry is the second-largest use for platinum, representing 35% of overall demand.

China dominates this market, and demand has doubled in the past five years. According to ETF Securities, China is well on its way to make up around 80% of total platinum jewelry sales in 2013—their report calls Chinese platinum demand "a new engine of growth."

Johnson Matthey expects the interest for platinum jewelry to soften in China this year. However, a recent article in Forbes suggests the opposite may be happening:

A good proxy for Chinese platinum jewelry demand is the volume of platinum futures traded on the Shanghai Gold Exchange. Average daily platinum volume on the exchange in 2013 is running near 45% above 2012 levels, recently reaching a new record high this year.

Another indicator of Chinese platinum jewelry demand is China platinum imports. The latest data on China platinum imports for September showed the highest level since March 2011 at 10,522 kilograms (or approximately 338,300 ounces).

And this from International Business Times

Net platinum inflows into China hit their highest levels in two and a half years … China's net imports of platinum rose by 11%, to hit almost 70 metric tons for the first three quarters in 2013, higher than the 62 metric tons from the same period last year.

Overall, platinum demand is expected to be greater than ever before, reaching a record 8.42 million ounces this year. And this while supply continues to decline.

This supply/demand imbalance will likely continue for at least several years, perhaps a decade. Prices haven't moved all that much yet, but that doesn't mean they won't. Prices of commodities with a supply/demand imbalance can only stay subdued for so long before reality catches up. Either prices must rise or demand must fall.

We already recommend the best vehicle to play this worsening supply crunch to our subscribers—but you can buy this fund at a better price now than when we first recommended it. And it's a great way to diversify your precious metals portfolio. Get the name of this fund and our recommendation with a risk-free trial subscription to BIG GOLD. Try it for 3 months with full money-back guarantee—click here.


Gold and Silver HEADLINES

China to Start Gold Swaps Trading (Reuters)

The Shanghai-based "China Foreign Exchange Trade System" began gold swaps trading today, November 25. Swaps trading, which gives additional hedging tools to bullion banks, comes in line with other steps China has taken to open up its gold market and increase financial investments. The measures are timely, as the country is set to overtake India as the world’s top gold consumer this year. Demand is predicted to reach 1,000 tonnes (32.1 Moz) from gold jewelry, bars, and coins.

Germany Cuts Gold Holdings for Second Time in Five Months (Mineweb)

Germany, the world's second biggest holder of gold reserves, cut its bullion holdings in October for the second time in five months, the latest data from the International Monetary Fund shows. Last month the country sold 3.421 tonnes (0.1 million ounces) and now holds 3,387.247 tonnes (108.9 Moz) of gold in Reserves.

Gold holdings by central banks are closely watched since the official sector became net purchasers in 2010 after two decades as net sellers. Changes in central banks' buying and selling patterns tend to affect global gold prices.

It should be noted, though, that the Bundesbank said it sold the gold for coin minting.

Gold Rush in Space? Asteroid Miners Prepare, But Eye Water First (Reuters)

Could mining in space move from science fiction to commercial reality?

Two companies, Planetary Resources and Deep Space Industries, will launch prospecting missions to passing asteroids within three years. Meteorites—pieces that survive and fall to earth after asteroids disintegrate in the atmosphere—have been found to contain significant amounts of precious metals like platinum, rhodium, iridium, rhenium, osmium, ruthenium, palladium, germanium, and gold.

Some asteroids are very rich in resources. For example, according to estimates by Planetary Resources, some platinum-rich asteroids just 500 meters across could contain more than the entire known reserves of platinum group metals. However, experts say before going for gold or platinum, the mining industry must find the most precious resource of all—water.

Fun to read about, but mining in space is still in a galaxy far, far away.


This Week in International Speculator and BIG GOLD—Key Updates for Subscribers

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