Gold World News Flash |
- The Soothing Lullaby Of The Junior Mogambo Ranger (JMR)
- Asian Metals Market Update
- Royal Canadian Mint starts rationing silver coins
- Has The Debt Jubilee Already Started?
- Commodity Technical Analysis: Gold Former Resistance is Estimated Support at 1679
- “Silver going extinct” – YouTube
- Guest Post: Do I Have To Report My Offshore Gold...?
- "Return = Cash + Beta + Alpha": An Inside Look At The World's Biggest And Most Successful "Beta" Hedge Fund
- Growth: The Trillion Dollar Question
- The High Price Of Understated Inflation
- Marc Faber To Robert Shiller: “You Keep Your Dollars, I’ll Keep My Gold” – YouTube
- A Year After Declaring War On The Banks
- Ben Shapiro- Liberals Are Bullies – YouTube
- The Biggest Bubble In History: Fraud
- What Really Goes On In China
- Jim Rogers 2013 Predictions – Gold, Silver, Economic Outlook & Investments – YouTube
- David Morgan QE3 & Silver Predictions for 2012-2013 – YouTube
- The Gold Price Fell $6.60 Today Why is Silver Outperforming Gold?
- Jeff Nielson: Thinking silver? Talk to the gold bugs
- Ambrose Evans-Pritchard: Central bankers should be brought to heel by elected parliaments
- Gold Price Forecasts Become Bearish, Stoeferle Bullish Explaining Key Drivers
- ARE ALL FED GOVERNORS CLUELESS MORONS?
- Gold Daily and Silver Weekly Charts - Cap, Cap, Cap
- Gold Seeker Closing Report: Gold and Silver End Near Unchanged
- Infographic Explains Bright Outlook For Palladium & Platinum – by Sprott
- Commodities: Crude Oil, Gold Look to US House Vote for Direction
- Separating the Gold Mining Haves from the Have-Nots: Paolo Lostritto
- Forget Germany, Check Out Turkey's Central-Bank Gold
- Goldman Sachs Short-Term Bullish, Long-Term Bearish Call On Gold
- Separating the Gold Mining Haves from the Have-Nots
- Wall Street Kow Tows To Obama
- Final Pulse May Be A Stunning $8,000 For Gold & $500 Silver
- Forget Germany – Here's Central Bank Gold Put to Really Good Use
- Forget Germany – Here's Central Bank Gold Put to Really Good Use
- China already may have second largest gold reserves, Leeb says
- Thinking Silver? Talk To The Gold-Bugs
| The Soothing Lullaby Of The Junior Mogambo Ranger (JMR) Posted: 24 Jan 2013 01:30 AM PST by Richard Daughty, MogamboGuru.Blogspot.ca:
A guy, we'll call him Tom, and he is coming across the parking lot to go into the grocery store behind me. I recognize him, and, for me, it was a kind of reunion, and I thought he would be as happy to see me as I was happy to see him. But he wasn't. He had his ragamuffin wife and kids with him, and they were all apparently in some kind of bad mood as they trudged along towards me, and I could see them looking at me furtively, and hear them muttering amongst themselves "Oh, no! It's that creepy old guy who is always trying to get us to buy gold bullion, silver bullion and oil stocks because the evil Federal Reserve has created so impossibly much money and credit that the inflation in prices will destroy us!" |
| Posted: 24 Jan 2013 12:02 AM PST Gold and silver fell after the passing of the US debt limit extension for four months and repeated failed attempts to break past $1700 and $3260 respectively. For now the fall in gold and silver is just a technical correction which if it continues till Monday will result in another bear phase. |
| Royal Canadian Mint starts rationing silver coins Posted: 23 Jan 2013 10:40 PM PST 12:36a ET Thursday, January 24, 2013 Dear Friend of GATA and Gold: Jason Hamlin of Gold Stock Bull reports that, following the U.S. Mint, the Royal Canadian Mint has begun rationing its silver coin production: http://www.goldstockbull.com/articles/royal-canadian-mint-hits-supply-sh... It's not that silver isn't available. It seems to be that the mints don't want to buy the metal necessary to meet coin demand, lest they allow the price of silver to be pushed up to jeopardize the government-backstopped price suppression scheme. CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT GoldMoney adds Singapore vaulting option In addition to its precious metals storage facilities in Hong Kong, Switzerland, Toronto, and the United Kingdom, now with GoldMoney you can store gold and silver in Singapore in a high-security vault operated by Brink's Singapore Pte Limited. To celebrate the launch of this storage option, GoldMoney is offering a discount on buy and exchange fees at this vault for any orders above US$10,000 (or the equivalent) until January 31, 2013. The gold buy rate is 0.98%, while the silver rate is 1.99%. Metal exchanges into Brink's Singapore will also be discounted for this period and will be charged at 0.78% for gold and 1.75% for silver. Simply place your order online and the above rates apply automatically until January 31, 2013, 15.00 UK time. To find out more about the new vault, please visit: http://www.goldmoney.com/singapore?gmrefcode=gata GoldMoney customers can take delivery of any number of gold, silver, platinum, and palladium bars from any GoldMoney vault, as well as personally collect their bars stored in the Hong Kong, Switzerland, and U.K. vaults. It's easy to open an account, add funds, and liquidate your investment. For more information, visit: http://www.goldmoney.com/?gmrefcode=gata Join GATA here: California Resource Investment Conference * * * 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: 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: To contribute to GATA, please visit: ADVERTISEMENT How to profit in the new year with silver -- 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... |
| Has The Debt Jubilee Already Started? Posted: 23 Jan 2013 10:00 PM PST by John Rubino, DollarCollapse.com:
Until yesterday these proposals seemed like provocative curiosities, fun to think about but too far off the mainstream radar screen to become official policy anytime soon. Then reader Bruce C responded to a DollarCollapse post about the impact of rising interest expense on US and Japanese budgets: |
| Commodity Technical Analysis: Gold Former Resistance is Estimated Support at 1679 Posted: 23 Jan 2013 09:40 PM PST courtesy of DailyFX.com January 23, 2013 01:06 PM Daily Bars Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0 Commodity Analysis: Gold took out the January 2nd high last week. This is important because it nullifies bearish implications from a first day of the month (and year) high. Focus is on the trendline that extends off of the October and November 2012 highs and 50% retracement of the decline from the October high at 1710. Commodity Trading Strategy: Look higher as long as price is above the 1/17 low. Estimated support is former resistance at 1679. LEVELS: 1656 1666 1679 1697 1710 1731... |
| “Silver going extinct” – YouTube Posted: 23 Jan 2013 08:23 PM PST Check our website daily at... [[ This is a content summary only. Visit http://www.figanews.com for full Content ]]  |
| Guest Post: Do I Have To Report My Offshore Gold...? Posted: 23 Jan 2013 08:04 PM PST Via Simon Black of Sovereign Man blog, Let's do a little math problem today. As you probably know, in 2010 the US government passed one of the most arrogant, destructive, poorly conceived pieces of legislation in history, now known as the Foreign Account Tax Compliance Act (FATCA). FATCA heaps all sorts of reporting requirements on US taxpayers with foreign financial accounts. This is in ADDITION to form TDF 90-22.1, which is due to the Treasury Department each year by June 30th, and IRS form 1040 schedule B. (Nothing says 'government' like passing along the same information on different forms to the same department multiple times…) Another major provision of the law requires ALL financial institutions on the PLANET to share personal customer information with Uncle Sam. The hubris is overwhelming. Imagine what would happen if the Chinese government passed a law requiring US banks to share customer information with Beijing. People would go nuts. But in the Land of the Free, it's normal. Crazy. It gets worse. FATCA was a mere 18 pages of poorly worded legislation that failed to define critical terms. For example, two terms that are used over and over again are "foreign financial institution" and "foreign financial account". The terms are ambiguous, to say the least. Does an account with an offshore gold depository like GoldMoney constitute a foreign financial account? Does a Swiss insurance company constitute a foreign financial institution? It's not intuitively obvious. Congress solved this problem in the most confusing way; they use the terms to define each other. It's like saying, "What's a dog? The opposite of a cat… OK, so what's a cat? The opposite of a dog." Needless to say, this "who's on first" legislation sent shockwaves through the global banking system. Many banks simply dropped US customers, erroneously believing that it would get them off the hook from having to abide by this bizarre, destructive law. Enter the IRS. After the law was passed in 2010, it became the responsibility of the IRS to figure out Congress's intent in implementing FATCA. It has taken them nearly THREE YEARS to do so, and they will be releasing the final regulations next week. So here's the math problem: How many pages of regulations did the IRS issue? I'll show you using the special arithmetic that only exists in government– 18 pages of law + 33 months x 1 government agency (IRS) = X Give up? The answer is a mind numbing 544 pages… Unbelievable, no? Eighteen pages of law turn into 544 pages of regulation. What's more, in all of those 544 pages, there is not a single mention of the words, "gold", "silver", or "precious metals". So there's still quite a bit of mystery with respect to the question, "Do I have to report my offshore gold…?" I'm still having my team go through the rules; after an initial read, though, the language of the regulation does suggest that custodial gold institutions (like GoldMoney, etc.) should be reported. Offshore safety deposit boxes (like Das Safe) do not. Here's the bright side of all this nonsense: now that the rules are finally settled, it's now going to be much, much easier for US taxpayers to open foreign bank accounts. Over the past three years, the opacity of FATCA was too risky for banks. Today, while the final rules are cumbersome, they're at least settled. So the banks know how to operate. I'm hearing from a number of overseas banker contacts, from Singapore to Panama to Malta, that they're once again opening their doors to US customers. More to follow on this development. |
| Posted: 23 Jan 2013 07:31 PM PST Some time ago when we looked at the the performance of the world's largest and best returning hedge fund, Ray Dalio's Bridgewater (split roughly evenly between his Pure Alpha and All Weather strategies), it had some $138 billion in assets. This number subsequently rose by $4 billion to $142 billion a week ago, however one thing remained the same: on a dollar for dollar basis, it is still the best performing and largest hedge fund of the past 20 years (assuming of course, JPM's $350 billion AUM Whale office has finally been "beached" and its positions unwound), and one which also has a remarkably low standard deviation of returns to boast. This is known to most people. What is less known, however, is that the two funds that comprise the entity known as "Bridgewater" serve two distinct purposes: while the Pure Alpha fund is, as its name implies, a chaser of alpha, or the 'tactical', active return component of an investment, the All Weather fund has a simple "beta isolate and capture" premise, and seeks to generate a modestly better return than the market using a mixture of equity and bonds investments and leverage. Ironically, as we foretold back in 2009, in the age of ZIRP, virtually every "actively managed" hedge fund would soon become not more than a massively levered beta chaser however charging an "alpha" fund's 2 and 20 fee structure. At least Ray Dalio is honest about where the return comes from without hiding behind meaningless concepts and lugubrious econospeak drollery. Courtesy of "The All Weather Story: How Bridgewater created the All Weather investment strategy, the foundation of the "risk parity" movement" everyone else can learn that answer too. And while we absolutely agree with Dalio that "there is a way of looking at things that overly complicates things in a desire to be overly precise and easily lose sight of the important basic ingredients that are making those things up" (they need those Econ PhDs for something), we certainly don't agree with Bob Prince's assessment that the entire world is merely a "machine" which can be understood, in terms of its cause-effect linkages. While this may be true in simple two actor environments, and in theoretical, textbook markets, it is certainly not the case in a enviornment filled with irrational actors, who respond in times of crises - so vritually all market inflection points - with their feelings, instincts, phobias and gut reactions, than with anything resembling logic and reason. And especially not in times of "New Normal" central planning. Then again, it is Prince and Dalio who are multi-billionaires and run a $125 billion hedge fund, so perhaps they are on to something... The annotated presentation of how one half of Bridgewater's bread and butter operates:
And the unabridged: The All Weather Story How Bridgewater associates created the all weather investment strategy, the foundation of the 'risk parity' movement President Richard Nixon sat in the Oval Office staring into a television camera and addressed the nation: "I directed Secretary Connelly to suspend temporarily the convertibility of the dollar into gold." After 27 years of relative monetary stability, the United States was breaking from the Bretton Woods system of fixed exchange rates that had tied the dollar's value to gold. Ray Dalio, fresh out of college, was then a clerk on the New York Stock Exchange. Watching Nixon's speech in his apartment, he tried to fathom the implications. Paper money derived its value from being a claim on gold. Now those claims wouldn't be honored. The next morning he walked on to the chaotic floor of the NYSE expecting stocks to plummet. Instead the Dow Jones Industrial Average rose almost 4% and gold shot higher in what was later dubbed the "Nixon rally." Ray had heard Nixon's announcement but misunderstood its implications. This event transformed Ray's thinking about markets. Nothing like it had ever happened to him before, so it came as a shock. He quickly realized he couldn't trust his own experience: anyone's lifetime is too narrow a perspective. So he began to study the cause-effect linkages at work in the dollar devaluation and subsequent market pop. He discovered the Bretton Woods breakup was one of many seemingly unique occurrences that, in truth, are more infrequent than unprecedented. A broader perspective revealed that currency devaluations had occurred many times throughout history and across countries, and were the result of the same essential dynamics playing out under different circumstances. Ray dedicated himself to understanding what he would in time call the 'economic machine': the timeless and universal relationships that both explain economic outcomes and repeat throughout history. Ray is now in his 60s. He founded Bridgewater Associates four years after the Nixon speech. Reflecting back on that incident, Ray said, "that was a lesson for me. I developed a modus operandi to expect surprises. I learned not to let my experiences dominate my thinking; I could go beyond my experiences to see how the machine works." Ray realized he could understand the economic machine by breaking down economies and markets into their component pieces, and studying the relationships of these pieces through time. This type of thinking is central to All Weather. For instance, any market move can be broken down into a few key components. Markets move based on shifts in conditions relative to the conditions that are priced in. This is the definition of a surprise. The greater the discrepancy, the larger the surprise. That explained the Nixon rally. When countries have too much debt and their lenders won't lend them more, they are squeezed. They, in this case the US, invariably print money to relieve the squeeze. The unexpected wave of new money cheapens its value and alleviates the pressure from tight monetary conditions sending stocks and gold higher. What Ray observed was 'another one of those' - a shift in conditions relative to what people had expected. The principles behind All Weather relate to answering a deceptively straight-forward question explored by Ray with co-Chief Investment Officer Bob Prince and other early colleagues at Bridgewater - what kind of investment portfolio would you hold that would perform well across all environments, be it a devaluation or something completely different? After decades of study Ray, Bob, Greg Jensen, Dan Bernstein and others at Bridgewater created an investment strategy structured to be indifferent to shifts in discounted economic conditions. Launched in 1996, All Weather was originally created for Ray's trust assets. It is predicated on the notion that asset classes react in understandable ways based on the relationship of their cash flows to the economic environment. By balancing assets based on these structural characteristics the impact of economic surprises can be minimized. Market participants might be surprised by inflation shifts or a growth bust and All Weather would chug along, providing attractive, relatively stable returns. The strategy was and is passive; in other words, this was the best portfolio Ray and his close associates could build without any requirement to predict future conditions. Today the All Weather strategy and the concepts behind it are fundamentally changing how the biggest capital pools in the world manage money. What began as a series of questions has blossomed into a movement. This article tells the story of how All Weather came into being. It recounts how a series of conversations hardened into principles that are the foundation of a coherent and practical investment philosophy. A Discovery Process Ray founded Bridgewater in 1975 in his New York City brownstone apartment. At the time, he actively traded commodities, currencies and credit markets. His initial business was providing risk consulting to corporate clients as well as offering a daily written market commentary titled Bridgewater Daily Observations that is still produced. The competitive edge was creative, quality analysis. Among his clients were McDonalds and one of the country's largest chicken producers. McDonalds was about to come out with Chicken McNuggets and was concerned that chicken prices might rise, forcing them to choose between raising their menu prices or having their profit margins squeezed. They wanted to hedge but there was no viable chicken futures market. Chicken producers wouldn't agree to sell at a fixed price because they were worried that their costs would go up and they would then take a loss on their supply contracts. After some thought, Ray went to the largest producer with an idea. A chicken is nothing more than the price of the chick (which is cheap), corn, and soymeal. The corn and soymeal prices were the volatile costs the chicken producer needed to worry about. Ray suggested combining the two into a synthetic future that would effectively hedge the producer's exposure to price fluctuations, allowing them to quote a fixed price to McDonalds. The poultry producer closed the deal and McDonald's introduced the McNugget in 1983. This early work reflected a truth. Any return stream can be broken down into its component parts and analyzed more accurately by first examining the drivers of those individual parts. The price of poultry depends on the price of corn and soymeal. The price of a nominal bond can be broken down into a real yield and an inflation component. A corporate bond is a nominal bond plus a credit spread. This way of thinking laid the groundwork for constructing All Weather. If assets can be broken down into different component parts and then summed up to a whole, so too could a portfolio. Portfolio Building Blocks In time, Ray and Bob set their sights on managing liabilities, not merely advising on what to do with them. For any asset there is a corresponding liability and, relative to asset management, liability management appeared to be an underserved market. There was a long education process to convey the value proposition to a corporate treasurer, however. To do so, Ray, Bob and others would write a "Risk Management Plan." These were tailored analyses that generally followed three steps; a) identify the risk neutral position for the corporation b) design a hedging program to reach that exposure and c) actively manage around that exposure, hiring Bridgewater and paying them based on performance around this neutral position. Over time this approach had Ray, Bob and others managing $700 million in corporate liabilities. The evolution to managing assets occurred in 1987. The World Bank pension fund had been following Bridgewater's research. On the basis of this research and Bridgewater's track record managing liabilities, they opened a $5 million bond account. Given the decade plus of experience managing liabilities, Bridgewater approached the asset portfolio in the same way. The bond benchmark was the risk neutral position; the active management was the value added, or alpha, gained from deviating from the benchmark. The two are completely separate. This is an important insight. While there are thousands of investment products, there are only three moving parts in any of them. Consider buying a conventional mutual fund. The investment may be marketed as a 'large cap growth fund.' The reality is that the return of that product, or any product, is a function of a) the return on cash b) the excess return of a market (beta) above the cash rate and c) the 'tilts' or manager stock selection (alpha). The mutual fund blurs the distinction between the moving parts, which makes it hard to accurately assess the attributes of any one part or the whole. In summary: return = cash + beta + alpha Many people, perhaps most, don't look at investment returns from this perspective and as a result miss a lot. The cash rate is after all controlled by a central bank, not the investor, and can move up or down significantly. In the US after peaking above 15% in the 1980s, cash rates are now zero. Stocks and bonds price relative to and in excess of cash rates. A 10-year bond yield of 2% is low relative to history but high relative to 0% cash rates. What is unusual about the recent environment is the price of cash, not the pricing of assets relative to cash. The characteristics of betas and alphas are distinct. Betas are few in number and cheap to obtain. Alphas (i.e. a trading strategy) are unlimited and expensive. The most important difference is the expected return. Betas in aggregate and over time outperform cash. There are few 'sure things' in investing. That betas rise over time relative to cash is one of them. Once one strips out the return of cash and betas, alpha is a zero sum game. If you buy and I sell, only one of us can be right. The key for most investors is fixing their beta asset allocation, not trading the market well. The trick is to figure out what proportion of stocks, bonds and commodities to hold such that a static portfolio is reliable. That is the question ('what kind of investment portfolio would you hold that would perform well across all environments") Ray, Bob, Dan and others were trying to answer. The first step was to separate out the beta from cash and alpha. Balancing and Risk-adjusting Assets By this time Bridgewater had decamped from Manhattan to rural Connecticut, eventually ending up in Westport. Now that Bridgewater was managing pension assets, other pension funds began exploring Bridgewater's capabilities. Among those for whom Bridgewater provided advice was Rusty Olson, the CIO of a large US-based consumer goods manufacturer pension plan. Rusty asked what Bridgewater thought about his plan of using long duration zero coupon bonds in the pension portfolio. Ray gave a quick answer on the spot, suggesting it was a great idea but that they should use futures to implement it so that they could create any duration they desired. Ray said he would get back to Rusty with a more fully fleshed out idea. The brainstorming happened on a Friday. Merely getting asked the question was a coup. Not that long ago Bridgewater had been a niche investment adviser and at the time it had very little money under management. Now an iconic CIO was asking their counsel. Ray, Bob, Dan and a few other Bridgewater employees at the time worked all weekend to get Rusty an answer on how to do this best. Step one in the pension analysis was breaking down this manufacturer's pension portfolio into the three key components described above (cash or the risk free position, beta, and alpha). The typical institutional portfolio had (and still has) roughly 60% of its dollars invested in equities and as a result almost all of its risk. The rest of the money was invested in government bonds as well as a few other small investments, which are not as volatile as the stocks. This is the type of asset allocation many investors held at the time and remains the basic advice many investors still adhere to. Rusty was an innovative thinker and had begun deviating from conventional wisdom by trying to construct a high-returning portfolio out of uncorrelated returns, while maintaining a high commitment to equities. Rusty was struggling with what to do about nominal zero coupon government bonds. He thought they had too low a return to justify a place in his portfolio and were cash intensive, yet, at the same time, he correctly feared his portfolio was vulnerable in a deflationary economic contraction. So he had begun a program to protect his portfolio using long duration treasury bonds, which used much less cash than normal bonds. He wondered what Bridgewater could add to this approach. Bridgewater's response documented two key ideas that would later reappear in All Weather – environmental bias and risk balancing assets. Ray, Bob and others knew that holding equities made an investor vulnerable to an economic contraction, particularly a deflationary one. The Great Depression was the classic example of this. Stocks were decimated. It was also true as Rusty suspected that nominal government bonds provided excellent protection in these environments. The goal was an asset allocation that didn't rely on predicting when the deflationary shift would occur but would provide balance nonetheless. The 1990 memo to Rusty put it this way, "Bonds will perform best during times of disinflationary recession, stocks will perform best during periods of … growth, and cash will be the most attractive when money is tight." Translation: all asset classes have environmental biases. They do well in certain environments and poorly in others. As a result, owning the traditional, equity heavy portfolio is akin to taking a huge bet on stocks and, at a more fundamental level, that growth will be above expectations. The second key idea stemmed from their work helping corporations hedge unwanted balance sheet exposures. Ray, Bob, Dan and others always thought first about risk. If the risks didn't offset, the client would be exposed. Due to his equity holdings Rusty was exposed to the risk that growth in the economy would be less than discounted by the market. To 'hedge' this risk, the equities needed to be paired with another asset class that also had a positive expected return (i.e. a beta) but would rise when equities fell and do so in a roughly similar magnitude to the decline in the stocks. The Bridgewater memo agreed that Rusty should hedge this risk with long duration bonds that would have roughly the same risk as his stocks. Quoting from the study: "low-risk/low-return assets can be converted into high-risk/high-return assets." Translation: when viewed in terms of return per unit of risk, all assets are more or less the same. Investing in bonds, when risk-adjusted to stock-like risk, didn't require an investor to sacrifice return in the service of diversification. This made sense. Investors should basically be compensated in proportion to the risk they take on: the more risk, the higher the reward. As a result of this work, Ray wrote Rusty, "I think your approach to managing the overall portfolio makes sense. In fact, I would go so far as to say that I think it makes more sense than any strategy I have seen employed by any other plan sponsor." The long duration bonds, or futures equivalents, would make the portfolio roughly balanced to surprises in economic growth while not giving up return. Bridgewater began managing Rusty's bond portfolio and also overlaid their own alpha (this portfolio became their first 'alpha overlay' account). Balancing Growth and Inflation Over time these discrete discoveries - breaking a portfolio into its parts, recognizing environmental biases, risk adjusting asset classes – began to harden into principles, concepts that could be applied over and over again. Running these portfolios in real time, particularly through economic shocks ranging from stock market crashes to banking crises to emerging market blow ups reinforced a confidence in the principles. Yet, there were a few additional insights that would come before All Weather would grow into a mature concept. A key step was framing growth and inflation as the environmental drivers that mattered and mapping asset classes to these environments. Ray, Bob and their other close associates knew stocks and bonds could offset each other in growth shocks, such as they had mapped out for Rusty. They also knew there were other environments that hurt both stocks and bonds, such as rising inflation. That was obvious because they lived through these shifts. For a 1970s style environment it was much better to hold commodities than it was to hold stocks and nominal bonds. This notion was rattling around in conversations and became fully formed for Bob in a simple experiment. Since the invention of the PC early Bridgewater employees had utilized technology to collect and chart data and process decision rules. They called these rules 'indicators.' These were the 'timeless and universal' linkages Ray had set out to understand in the 1970s. A PC was a big step up in efficiency from a slide rule or an HP hand-held calculator and graphs plotted by hand with colored pencils, which was what they used early on. Bob was fiddling around with a new computer program, Microsoft Excel. Microsoft had released the first windows based version of it in 1987. With these tools Bob began playing around to see how shifting asset weights would impact portfolio returns. He found that the best performing portfolio was 'balanced' to inflation surprises. This made some sense coming after the inflationary 1970s and the dis-inflationary 1980s. It also held true for more extreme shocks, like the 1920s German hyperinflation or the US Depression. Bob shared his discovery with Ray. "I showed it to Ray and he goes, 'that makes sense,'" Bob recalled years later. "Then he goes, 'But it really should go beyond that, it should really also be balanced to growth.'" This was classic Bridgewater. Though the 'data' indicated one thing (to balance assets via inflation sensitivity) common sense suggested another. The message - don't blindly follow the data. Ray proceeded to sketch out the four boxes diagram below as a way of describing the range of economic environments any investor has faced in the past or might face in the future. The key was to put equal risk on each scenario to achieve balance. Investors are always discounting future conditions and they have equal odds of being right about any one scenario. This diagram tied key principles together and became a template for All Weather. Much as a portfolio can be boiled down to three key drivers, economic scenarios can be broken down to four. There are all sorts of surprises in markets, but the general pattern of surprises follows this framework, because the value of any investment is primarily determined by the volume of economic activity (growth) and its pricing (inflation). Surprises impact markets due to changes in one or both of those factors. Think about any stress scenario and it ends up putting a portfolio in one or two of these sectors unexpectedly. The 1970's oil shocks, the disinflation of the 1980's or the growth disappointments post 2000 were all shifts in the environment relative to expectations. This framework captured them all. More importantly, it captured future, yet unknown surprises. There were many economic surprises after Bridgewater started running All Weather, and they were different from the surprises that preceded the strategy but the strategy weathered them all. The framework is built for surprises in general, not specific surprises, the very issue Ray had been wrestling with at the outset. Initially the four box framework was used to explain alpha diversification with prospective clients. The framework explained the concept in such an intuitive and clear way that it became the starting point of their conversations. To be sure, at this time the focus of the key Bridgewater personnel was on alpha, not beta. To do so, Ray, Bob and Dan were obsessed with identifying and articulating timeless and universal tactical decision-making rules across most liquid financial markets. The tactical strategy that resulted from this work, Pure Alpha, was launched in 1991, years before All Weather came into being. The final ingredient: inflation-linked bonds If Bridgewater is the pioneer of risk parity, it is also true the firm played a critical role in the acceptance of inflation-linked bonds in institutional portfolios. Inflation-linked bonds play an important role in All Weather. The concept of a security whose principal value is tied to inflation dates to at least the 18th century but in the early 1990s inflation-linked bonds were not playing a significant role in institutional portfolios. Like the other discoveries along the way, this one came out of a conversation, or a series of them. A US foundation came to Bridgewater with a question: how could they consistently achieve a 5% real return? By law the foundation had to spend 5% of its money every year, so for it to keep operating in perpetuity it had to generate a 5% real return. Going back to the building blocks of a given portfolio, the client's "risk-free position" was no longer cash, but rather a portfolio that provided a real return. Inflation-linked bonds, bonds that pay out some real return plus actual inflation, would 'guarantee' this 5% hurdle, as long as one could find bonds paying 5% real coupons. The main problem, however, was that there weren't any of these bonds in the US at the time. They were issued widely in the UK, Australia, Canada and a few other countries. As currency and bond managers, Ray, Bob and Dan knew how to hedge a bond portfolio back to dollars, eliminating the currency impact. The three of them sought to construct a global inflation-linked bond portfolio and hedge it back to the US dollar as a solution for the endowment. At the time, global real yields were around 4% so a little bit of leverage had to be applied to the inflation linked bonds to reach the endowment's target. Through their work for the foundation it became clear inflation-linked bonds were a viable, underutilized asset class relative to their structural correlation benefits. Inflation-linked bonds do well in environments of rising inflation, whereas stocks and nominal government bonds do not. As a result, the bonds filled a diversification gap that existed (and continues to exist) in the conventional portfolio. Most investors do not hold any assets that perform well when inflation surprises to the upside outside of commodities, which tend to comprise a tiny fraction of their overall portfolio. From the environmental perspective Bridgewater established, inflation-linked bonds helped balance out both boxes and other asset classes in a way no other asset class could (inflation-linked bonds are also negatively correlated to commodities relative to growth, an added benefit). Unsurprisingly, when the US Treasury decided to issue inflation-linked bonds, officials came to Bridgewater to seek advice on how to structure the securities. Bridgewater's recommendations in 1997 led to TIPS being designed as they now are. The All Weather Strategy The fully formed All Weather emerged in 1996 as Ray, Bob and by this point the third CIO, Greg Jensen, who had joined Bridgewater out of college, sought to distill decades of learning into a single portfolio. The impetus was Ray's desire to put together a family trust and create an asset allocation mix that he believed would prove reliable long after he was gone. The accumulation and compounding of the investment principles Bridgewater had discovered, while hedging McNuggets, helping Rusty balance his portfolio, or managing inflation-linked bonds, came together into a real portfolio. The ultimate asset allocation mapped asset classes onto the environmental boxes framework, as shown in the diagram below. Bridgewater had learned to map asset classes to the environments through study. They also knew that all the asset classes in the boxes would rise over time. This is how a capitalist system works. A central bank creates money, and then those who have good uses for the money borrow it and use it to achieve a higher return. These securities by and large come in two forms: equity (ownership) and bonds (loans). As a result, the boxes don't offset each other entirely; the net return of the assets in aggregate are positive over time relative to cash. The environmenta |
| Growth: The Trillion Dollar Question Posted: 23 Jan 2013 07:28 PM PST The importance of GDP growth to world and country-specific economic well-being cannot be over-emphasized. Even more importantly the recognition that GDP growth is stated in 'nominal terms' - that is, it has two components being ... Read More...  |
| The High Price Of Understated Inflation Posted: 23 Jan 2013 06:59 PM PST The reliable data which policymakers and the public need if effective solutions are to be found is not available. As Tullett Prebon's Tim Morgan notes, economic data has been subjected to incremental distortion; Data distortion can be divided into two categories. Economic data has been undermined by decades of methodological change which have distorted the statistics to the point where no really accurate data is available for the critical metrics of inflation, growth, output, unemployment or debt. Fiscal data, meanwhile, obscures the true scale of government obligations. While he does not believe that the debauching of US official data is the result of any grand conspiracy to mislead the American people; he does see it as an incremental process which has taken place over more than four decades. From 'owner equivalent rent" to 'hedonics', few series have been distorted more than published numbers for inflation, and few if any economic measures are of comparable importance; and the ramifications of understated inflation are huge. Via Dr. Tim Morgan, Tullet Prebon, the high price of understated inflation Though the undermining of data quality has been widespread, few series have been distorted more than published numbers for inflation, and few if any economic measures are of comparable importance. In the United States, CPI-U inflation reported at 3.2% in 2011 probably masked real price escalation which was very much higher than that. This is hugely significant, because inflation is central to calculations of economic growth, wages, pensions and benefits. Moreover, understated inflation undermines calculations of the 'real' cost of credit as represented by interest rates and bond yields, a factor which, as we shall see, may have played a very significant role in the escalation of indebtedness during the credit super-cycle. British inflation data, too, seems pretty optimistic Between 2001 and 2011, average weekly wages increased by 38%, which ought to have been a more than adequate rise when set against official CPI (consumer price index) inflation of 27% over the same period (fig. 4.1). But the reported rate of overall inflation between those years seems strangely at odds with dramatic increases in the costs of essentials such as petrol (+59%), water charges (+63%), electricity (+97%) and gas (+168%). Those who question the accuracy of official inflation measures in Britain have nothing much more upon which to base their suspicions than intuition, experience and the known escalation of the prices of essentials. In the United States, this situation is quite different, and far greater data transparency has enabled analysts to reverse out the methodological changes of the last three decades. The scale of the distortions which have been identified is truly shocking. The biggest single undermining of official inflation data results from the application of "hedonic adjustment". The aim of hedonic adjustment is to capture improvements in product quality. The introduction of, say, a better quality screen might lead the Bureau of Labor Statistics (BLS) to deem the price of a television to have fallen even though the price ticket in the shop has remained the same, or has risen. The improvement in the quality of the product is equivalent, BLS statisticians argue, to a reduction in price, because the customer is getting more for his or her money.
A big problem with hedonic adjustment is that it breaks the link between inflation indices and the actual (in-the-shop) prices of the measured goods. Another is that hedonic adjustment is subjective, and seems to incorporate only improvements in product quality, not offsetting deteriorations. A new telephone might, for example, offer improved functionality (a hedonic positive), but it might also have a shorter life (a hedonic negative) and, critics claim, the official statisticians are all too likely to incorporate the former whilst ignoring the latter. The failure to incorporate hedonic negatives may be particularly pertinent where home-produced goods are replaced by imports, a process which has been ongoing for more than two decades. A Chinese-made airbrush might be a great deal cheaper than one made in America, but is the lower quality of the imported item factored in to the equation? A second area of adjustment to inflation concerns 'substitution'. If the price of steak rises appreciably, 'substitution' assumes that the customer will purchase, say, chicken instead. As with hedonic adjustment, the use of substitution not only breaks the link with actual prices (a process exacerbated by 'geometric weighting'), but it also, as Chris Martenson explains, means that CPI has ceased to measure the cost of living but quantifies "the cost of survival" instead.
Geometric weighting, too, plays a significant role in the distortion of American inflation data. In any case, some of the weightings used in the official indices look strange, one example being medical care, which accounted for 16% of consumer spending in 2011 but is weighted at just 7.1% in the CPI-U. Since the process of adjustment began in the early 1980s, the officially-reported CPI-U number has diverged ever further from the underlying figure calculated on the traditional methodology. Fig. 4.2 gives an approximate idea of quite how distorted US inflation data seems to have become over three decades. Instead of the 3.2% number reported for 2011, for example real inflation was probably at least 7%. Worse still, the official numbers probably understate the sharp pick-up in inflation which America has been experiencing. A realistic appreciation of the inflationary threat would be almost certain to have forced very significant changes in monetary policy. Taken in aggregate, the extent to which the loss of dollar purchasing power has been understated is almost certainly enormous. Between 1985 and 2011, official data shows that the dollar lost 53% of its value, but the decrease in purchasing power might stand at more like 75% on the basis of underlying data stripped of hedonics, substitution and geometric weighting. The ramifications of understated inflation are huge. First, of course, and since pay deals often relate to reported CPI, wage rises for millions of Americans have been much smaller than they otherwise would have been. Small wonder, then, that millions of Americans feel much poorer than official figures tell them is the case. By the same token, those Americans in receipt of index-related pensions and benefits, too, have seen the real value of their incomes decline as a result of the severe (and cumulative) understatement of inflation.
This process, of course, has saved the government vast sums in benefit payments. Rebasing payments for the understatement of inflation since the early 1980s suggests that the Social Security system alone would have imploded many years ago had payments matched underlying rather than reported inflation. In other words, the use of 'real' inflation data would have overwhelmed the federal budget completely or, conversely, might have forced government to come clean on what levels of welfare spending really can be afforded. Another implication of distorted inflation, an implication that may have played a hugely important role in the creation of America's debt bubble, is that real interest rates may have been negative ever since the late 1990s (fig. 4.3). Taking 2003 as an example, average nominal bond rates12 of 4.0% equated to a real rate of 1.7% after the deduction of official CPI-U inflation (2.3%), but were almost certainly heavily negative in real terms if adjustment is made on the basis of underlying inflation instead. Logically, it makes perfect sense to borrow if the cost of borrowing is lower than the rate of inflation. Whilst most Americans may not have been aware of the way in which inflation numbers had been subjected to incremental distortion, their everyday experience may very well have led them to act on an intuitive understanding that borrowing was cheap. We believe that distorted inflation data may, together with irresponsible interest rate policies and woefully lax regulation, have been a major contributor to the reckless wave of borrowing which so distorted the US economy in the decade prior to the financial crisis. |
| Marc Faber To Robert Shiller: “You Keep Your Dollars, I’ll Keep My Gold” – YouTube Posted: 23 Jan 2013 06:50 PM PST Check our website daily at... [[ This is a content summary only. Visit http://www.figanews.com for full Content ]]  |
| A Year After Declaring War On The Banks Posted: 23 Jan 2013 06:45 PM PST Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter On January 22, 2012, French presidential candidate François Hollande shook up the banks: “It has no name, no face, no party, it will never be candidate, it will therefore never be elected, yet it governs: that enemy is the world of finance,” he said. It “freed itself from all rules” and “took control of the economy, of society, and even our lives.” He’d fight it, he said, and promised some tough reforms. But as the private sector in France sank deeper into an economic and fiscal quagmire, his words, designed to endear him to the left wing of his Socialist Party, were swept under the rug. And you’d think that since becoming President of France, he has been tutored by JPMorgan Chase CEO Jamie Dimon. A year later, Dimon had some choice words himself, while at the World Economic Forum in Davos, Switzerland, where bankers, business leaders, politicians, and whoever was able to get in were hobnobbing for the better of the world. Dimon lashed out at regulators and their feeble, slow, and confused efforts to rein in the banking industry so that it wouldn’t shove the world into another crisis. They were “trying to do too much, too fast,” he said. He defended inscrutable megabanks with their meaningless financial statements. “Businesses can be opaque,” he said. “They’re complex.” A word that in a financial crisis excuses everything, even massive bailouts that will haunt generations to come. “You don’t know how aircraft engines work, either,” he mollified us, based on the logic that we still get on a plane and fly across the Pacific. And so the CEO of America’s largest TBTF bank, recipient of the Fed’s bailout trillions, praised the Fed because “they saved the system.” Indeed, they not only saved the system that had shoved the world into the financial crisis, but they also bailed out and enriched those who were, and still are, integral part of it—who now, according to Dallas Fed President Richard Fisher, “believe themselves to be exempt from the processes of bankruptcy and creative destruction” [for more on Fisher’s feisty fight against TBTF, read.... How Big Is ”BIG?”]. This is the world Hollande declared war on, back in the day. But now, France is sinking into a new crisis, and this time it’s the already diminutive private sector that is gasping for air and shedding jobs—and moving overseas, along with the rich and not-so-rich for whom the fiscal and rhetorical climate has become too hostile. Not a day passes without another confirmation or a new indication. Today, the statistical agency Insee released its monthly Business Climate Index, which, after a soupçon of an uptick, has deteriorated again in the categories of Industry, Wholesale, Construction, and Retail. Only Service saw an improvement. The index, at 86.75, is down from 87.02 in December, and below where it was in October 2009, during the financial crisis. Given this scenario, what happened to Hollande’s “enemy” and the reforms to rein it in? It’s not that he didn’t try—though there simply isn’t much appetite around the world for confronting the banks. For example, even the highly anticipated Basle III liquidity rules that were supposed to make global banks more stable and another financial meltdown less likely, well... A couple of weeks ago, after years of negotiations and intensive lobbying by the banks, the rules were finalized. In watered-down form. And implementation was delayed until 2019. A huge win for the banks. Nevertheless, Hollande’s vow to separate the banks’ retail operations from their speculative activities coagulated into a proposal for a law that was presented to parliament last December. The government prided itself that it was the first in the EU to put banking reform on the table. Four years after the financial crisis. As Dimon said: “trying to do too much, too fast.” The proposal, of course, came with such huge concession to the banks that effectively not much will change. And his vow to impose a tax on financial transactions? It has also turned into a proposal, and the EU just issued its blessing for the tax. The 11 countries, including France and Germany, that are considering such a tax are now free to impose it. Against a wall of opposition from the banks. Nothing will happen in Germany before the election later this year. But in France, which is dying for additional revenues, the tax might pick up momentum. These days, tangled up in a real war in Mali, Hollande no longer declares war on the financial world. In fact, he already has the first taxpayer-funded bank bailouts under his belt, including the €7 billion bailout of Banque PSA Finance. He’d “saved the system,” Dimon would say, because when push comes to shove, citizens and taxpayers, and their kids, are the ones who pay, not bank investors. And it doesn’t matter who is president. France’s economic foundations are cracking. Unemployment is rising incessantly. The private sector is comatose. Car sales sank 13.9% in 2012, from a lousy 2011; sales by its native automakers plunged even more. Now home sales are grinding to a halt. And the finger-pointing has already started. Read.... The Next Shoe To Drop In France. |
| Ben Shapiro- Liberals Are Bullies – YouTube Posted: 23 Jan 2013 06:40 PM PST Check our website daily at... [[ This is a content summary only. Visit http://www.figanews.com for full Content ]]  |
| The Biggest Bubble In History: Fraud Posted: 23 Jan 2013 06:21 PM PST The housing bubble which burst in 2007 or so was the biggest bubble of all time. Many argue that the bubble in U.S. bonds has surpassed the housing bubble as the largest ever. Of course, given that the derivatives market is more than a thousand trillion dollars, and that is is backed by thousands of times less collateral, a good case can be made for arguing that derivatives are the biggest bubble. But if you really think about it, the largest bubble in history is fraud, because it includes all of the above and more. Specifically, the housing crisis was caused by fraud. The government encouraged fraud, and helped cover it up. Huge swaths of the derivatives market are manipulated by fraud. See this, this, this and this. But instead of cracking down on the fraud, the government is backing it. And the bubble in bonds was caused by super-low interest rates. See this, this and this. Low interest rates - in turn - are caused by quantitative easing and the government's general zero interest rate policy. And how did the government sell these programs? That they were necessary to help the economy and create more jobs. But in reality, zero interest rate policy is just another stealth bailout for the big banks. And quantitative easing only helps the super-elite ... and hurt the economy and the little guy (Bernanke knew back in 1988 that QE doesn't work for its advertised purposes.) In other words, the government's low interest rate policies were based upon a fundamental misrepresentation as to their purpose and probable effect. Indeed, experts say that all bubbles are enabled by fraud. But there are signs that the fraud bubble is collapsing. Trust is falling to all-time lows as to many government and private institutions. Why? Because institutional corruption is so rampant that it is becoming obvious to everyone from Joe Sixpack to amateur and sophisticated professional investors. While liberals tend to distrust big corporations and conservatives tend to distrust the federal government, we all agree that the malignant, symbiotic relationship between the two is the root problem. Indeed, when government and corporatism merge, it is hard for anyone to trust what is going on. When government officials are as corrupt as the criminal enterprises they are suppose to regulate, even the mainstream media can't ignore it any longer. And the people lose all trust in the system. No matter how hard the boys work to cover up their ongoing misdeeds, the fraud bubble may finally be popping ... |
| Posted: 23 Jan 2013 05:31 PM PST Authored by Edward Chancellor and Mike Monnelly of GMO, Feeding the Dragon: Why China's Credit System Looks Vulnerable Prologue For GMO's asset allocation team, valuations are our first protection against losses. We generally believe that cheaper assets are more resilient against bad economic and financial events, and that if we focus on avoiding the overvalued assets, we should not only achieve higher returns over time, but more often than not do less badly when markets encounter difficulty. From a valuation perspective, Chinese equities do not, at first glance, look to be a likely candidate for trouble. The PE ratios are either 12 or 15 times on MSCI China, depending on whether you include financials or not, and the market has underperformed MSCI Emerging by about 10% over the last three years (ending December 31, 2012). Neither of these characteristics screams "bubble." And yet, China has been a source of worry for us over the past three years and continues to be one, affecting not merely our behavior with regards to stocks domiciled in China but the entire emerging world, as well as some specific developed market stocks, which we believe are particularly vulnerable should things in China go down the road we fear it might. China scares us because it looks like a bubble economy. Understanding these kinds of bubbles is important because they represent a situation in which standard valuation methodologies may fail. Just as financial stocks gave a false signal of cheapness before the GFC because the credit bubble pushed their earnings well above sustainable levels and masked the risks they were taking, so some valuation models may fail in the face of the credit, real estate, and general fixed asset investment boom in China, since it has gone on long enough to warp the models' estimation of what "normal" is. Our fears have not stopped us from buying emerging stocks, or indeed some Chinese stocks, but they have tempered our positions relative to what they would be if we were not concerned about the bubbly aspects of China. Because this view has a real effect on our portfolios, it is important for us to continue to update our work to make sure we aren't missing something important. The recent apparent strengthening of the Chinese economy is a potential challenge to our thesis, and as a result, Edward and others at the firm have been working hard to understand what is driving the rebound and understand whether it is sustainable or not. "Feeding the Dragon" looks at the utterly crucial issue of funding in China's very credit-dependent economy. Ben hiker, January 22, 2013
Introduction — The Credit Tsunami Until the summer of 2011, China's economic juggernaut seemed unstoppable. In September of that year, however, an acute credit crunch appeared in the city of Wenzhou on China's eastern coast. Stories suddenly appeared of defaulting property developers, loan sharks disappearing in the middle of the night, work halted on half-completed apartment blocks, luxury cars abandoned in droves, property prices plunging, and credit drying up. China's high-speed economy appeared to be running off the tracks. Such fears have proven unfounded. Last year, the property market — perhaps the most important driver of Chinese economic growth — staged a remarkable recovery. Credit growth has also picked up strongly. As memories of Wenzhou fade, conventional wisdom holds that Beijing has pulled off yet another soft landing. Even if credit problems reemerge, it's widely believed that a number of policy options remain open: the PBOC can free up some RMB 18 trillion of bank credit by cutting the reserve ratio requirement.' Regulators can also relax the cap on the banks' loan to deposit ratio. And interest rates can be cut further. If need be, Beijing can simply borrow more. There's no near-term limit to China's financial capacity. This white paper presents a brief account of China's great credit boom and outlines some worrying recent developments in the financial system. In our view, China's credit system exhibits a large number of indicators associated with acute financial fragility. These include:
Not only does financial fragility look to be on the rise, Beijing seems to be on the verge of losing control over the credit system. Savings are migrating from deposits in the state-owned banking system to higher-yielding nonbank credit instruments. Furthermore, rich Chinese are increasingly willing to evade capital controls and take their money out of the country. As a result of these developments, deposits in the banking system are becoming less stable. "Red Capitalism," namely the ability of the Chinese authorities to direct the country's enormous savings for their own ends, faces an existential threat.
A Credit Bubble Economists have woken up to the fact that periods of rapid credit growth generally end badly. As one recent paper puts it, "credit [growth] matters, and it matters more than broad money, as a useful predictor of financial crisis." China today seems to be in a similar predicament to several of the developed economies prior to 2008. Too much credit has been created too quickly. Too much money has been poured into investments that are unlikely to generate sufficient cash flows to pay off the debt. Last year, for instance, new credit extended to the non-financial sector amounted to RMB 15.5 trillion.' That's equivalent to 33% of 2011 GDP, although as Fitch Ratings notes, overall credit formation is running at an even faster rate when items missing from the official data are added in.' The latest surge of credit follows the great tsunami of 2009, when China's non-financial credit expanded by the equivalent of 45% of the previous year's GDP. Since that date, China's economy has become a credit junkie, requiring increasing amounts of debt to generate the same unit of growth. Between 2007 and 2012, the ratio of credit to GDP climbed to more than 190%, an increase of 60 percentage points. China's recent expansion of credit relative to GDP is considerably larger than the credit booms experienced by either Japan in the late 1980s or the United States in the years before the Lehman bust (see Exhibit 1).
Most China commentators believe that rapid credit growth in China is not worrying because the debt is funded by domestic savings rather than by foreigners. The historical record, however, suggests that current account deficits don't increase the likelihood of a financial debacle in an economy where credit has been growing rapidly (for instance, Japan's "bubble economy" of the 1980s was funded domestically)! It has also been argued that China has nothing to fear because total non-financial credit, at roughly 200% of GDP, is relatively low by comparison with the U.S. and other developed economies. Yet the total stock of credit is less predictive of future problems than its rate of growth. Furthermore, mature economies appear to have a greater capacity to shoulder debt. In economists' parlance, "financial deepening" is correlated with the level of economic development. In fact, China is rather heavily indebted relative to other emerging markets and has roughly the same amount of debt as Japan sported in the late 1980s (even though Japan's per capita income at the time was much higher, as shown in Exhibit 2). Many commentators also take comfort from the fact that China's public debt is less than 30% of GDP. The trouble is that the official numbers are misleading. As is often the case in China, most of the debt is kept off balance sheet. Because the main banks are state-controlled and most of their lending is directed at state-controlled entities, a great deal of bank lending is quasi-fiscal in nature. In order to get a proper picture of China's sovereign liabilities we must add back the loans to local government infrastructure projects, policy bank debt (issued by the likes of the China Development Bank), borrowings by the asset management companies (which acquire non-performing loans from banks and others), and debt issued by the Ministry of Railways to fund the roll-out of the expensive high-speed rail network. When these on- and off-balance-sheet liabilities are combined, China's public debt approaches 90% of GDP. Significantly, this is considered by economists to be an upper threshold for public indebtedness.' Higher levels of public debt are associated with a prolonged decline in economic growth. Economist Andrew Hunt estimates that China's true public debt has increased by around 60% of GDP since 2007. If Beijing were to attempt to repeat the credit-fuelled stimulus package of 2009, its true debt-to-GDP ratio would exceed that of Greece.
Debt and the Real Estate "Bubble" Recent research suggests that credit booms are more likely to end in severe busts when they coincide with property bubbles.' It's difficult to prove using purely quantitative tools that China's property market is in a bubble. There's no doubt, however, that China has witnessed a tremendous residential construction boom in recent years. Miles upon miles of half-completed apartment blocks encircle many cities across the country. Official data suggest that the value of the unfinished housing stock is equivalent to 20% of GDP and rising. Real estate collateral supports much of the country's outstanding debt. Officially, the banks' exposure to property — through loans to developers and mortgages — is only 22% of their total loan book. The banks, however, are also exposed to real estate through their loans to local government funding vehicles and through sundry off-balance-sheet credit instruments. It's probably fair to say that at least one-third of bank credit exposures are real estate related. Developments in the infamous "ghost city" of Ordos, in Inner Mongolia, reveal the vulnerability of China's credit system to an overblown housing market. The Kangbashi district of Ordos is a totem for China's property excesses. Kangbashi has enough apartments to shelter a million persons, roughly four times its current population. Until recently, turnover in the local real estate market appears to have been driven by debt-fuelled speculators. Construction in Ordos came to a sudden stop in the fall of 2011 after property prices collapsed (Caixin magazine reports incredibly that prices declined by 85%). More than 90% of the building sites in Kangbashi were said to be idle. Debt problems soon emerged. A prominent developer in the neighboring city of Baotou hanged himself last June, leaving behind debts of RMB 700 million, according to the National Business Daily. Local property developers were revealed to have funded themselves in the underground loan market, where monthly interest rates range between one and three percent. The city government has run into difficulties after revenues from land sales fell by three-quarters. Local banks also reported an increase in non-performing loans. Property-related debt problems have cropped up in other cities. In late 2011, funding difficulties at a Hangzhou-based real estate developer imperiled dozens of companies that had issued guarantees over its debts. Property trusts in Nanjing and Beijing have recently threatened default. Last October, developers in the city of Changsha in Hunan province were reported to have both reneged on debts and sold the same properties to different buyers.' Given the vast amount of residential construction in China (estimated at around 12% of GDP) and severe weakness in many property markets, it's remarkable that real estate lending issues have been relatively contained.'
Local Government Funding Vehicles Moral hazard, or the belief that the government is underwriting financial risk, is another common feature of unstable banking systems. In China, the issue of moral hazard is accentuated by the state's control of both the leading banks and the main recipients of credit, namely the state-owned enterprises. These arrangements have encouraged crony lending practices and the concealment of non-performing loans. In this respect, China combines the poor lending practices of the Indonesian banking system during the corrupt Suharto era with the propensity to roll over or "evergreen" nonperforming loans, which was a marked feature of the Japanese banking system after its property and stock market bubble burst in 1990. In recent years, the problems of moral hazard, related-party lending, and loan forbearance have been particularly prevalent in the area of local government finance. Local governments in China are restricted in their ability to borrow on their own account. To get around this law, they set up platform companies, commonly referred to as local government funding vehicles (LGFVs), to finance their investment activities. Loans to these platform companies mushroomed in 2009 and 2010 as the banks financed China's infrastructure-heavy economic stimulus. The People's Bank of China estimated LGFV debt at RMB 14.4 trillion, while China's banking regulator came up with a figure of RMB 9.1 trillion. On these numbers, LGFV debt accounts for between 15% and 25% of outstanding loans in China's banking system. Although ostensibly commercial entities, much of the money spent by these infrastructure companies appears to have been wasted on extravagant trophy projects. The quality of the collateral held by the banks against their loans has been questioned. Collateral often comes in the form of land, which in some cases has been valued by local officials at a premium to actual market values. Moreover, guarantees issued by local governments in respect of LGFV debts may not be of much use. Not only is their legal basis dubious, these promises depend on continuing land sales. Because land sales and development taxes account for a large chunk of local government revenue, when the real estate market turns down, local governments in China face a potential cash crunch. Loudi, a little-known city in Hunan province, serves as the poster child for LGFV excesses. According to Bloomberg, Loudi's local government borrowed RMB 1.2 billion to finance the construction of a 30,000-seat faux Olympic stadium, gymnasium, and swimming complex. The land collateral for Loudi's loan was valued at around four times the value of nearby plots zoned for commercial use.' Early evidence that platform companies were struggling to repay their debts emerged in April 2011 when the Yunnan Highway informed its banks that it couldn't meet the repayment schedule on RMB 100 billion of loans." In the summer of 2011 China's banking regulator rescinded a previous instruction to the banks not to roll over non-paying local government loans. Since then, problems with LGFV loans have largely remained out of the headlines. As the banks' balance sheets are laden with non-paying loans, capital is tied up that might otherwise have supported the extension of new credit to other entities. In the long run, the consequences of "evergreening" non-performing loans will be slower economic growth.
Shadow Banking Although Beijing maintains a tight grip over the lending of the Big Four banks (Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China), the most notable feature of the credit boom has been the rapid expansion of nonbank lending, in particular of so-called wealth management products. The explosive growth of China's shadow banking system represents a de facto liberalization of the financial system. In a number of countries, financial liberalization has been associated with asset price bubbles and has been a leading indicator of banking crises (e.g., the appearance of the secondary banks in the U.K. in the early 1970s and the deregulation of the Nordic banks in the late 1980s). Last year, Chinese banks' share of total lending fell to only 52% of total credit creation, down from 92% a decade ago. In the fourth quarter of 2012, nonbank lending accounted for an astonishing 60% of new credit issuance. China's thriving shadow banking system has much in common with the American version, which thrived before Lehman's collapse: trust loans that finance cash-strapped property developers have a whiff of the subprime about them; wealth management products that bundle together a miscellany of loans, enabling the banks to generate fees while keeping loans off balance sheet, bear a passing resemblance to the structured investment vehicles and collateralized debt obligations of yesteryear; while thinly capitalized providers of credit guarantees are reminiscent of past sellers of credit default insurance.
Corporate Bonds and Trust Products After China's economy turned down in early 2012, there were calls for another economic stimulus. The banks, however, were reluctant to add to their LGFV exposure. So the local governments turned to the bond markets. Restrictions on the platform companies' ability to issue bonds were relaxed, and a corporate bond boom was soon underway. Over the course of 2012, RMB 2.3 trillion of corporate bonds were issued in China, an increase of 64% on the previous year. Almost half of the funds raised went to local governments (see Exhibit 3).
In the past, China's banks have purchased most new corporate bond issuance. This time, however, an increasing number of bonds have been bundled into wealth management products, which are sold on to the banks' retail and corporate clients. Caixin quotes a source at a major bank claiming that many bonds, which purported to finance new infrastructure projects, were actually being used to pay off old bank debts.' While this has allowed banks to reduce their reported exposure to local governments, it is possible they will have to make good any future losses suffered by investors on future bond defaults. The worst investment decisions have generally been made when dumb money is chasing yield. Chinese savers who are looking for something more satisfying than the negative real interest rates available on bank deposits often end up choosing trust products. Borrowers whose operations are too risky for banks often resort to a trust company. However, over the last year LGFVs have emerged as the dominant borrower from trust companies. China's trust industry has more than doubled in asset size over the past two years, controlling some RMB 6.0 trillion of assets at end September 2012. Given their generally low credit quality and widespread exposure to real estate, trust products can be seen as China's equivalent to subprime mortgage-backed securities. Problems with the assets backing trust products are well documented. Bloomberg recently reported on the "Purple Palace," a half built and abandoned luxury development in Ordos, which had been funded with trust loans: Trust investors, however, believe they are protected against loss. Because trust companies can lose their operating license if they impose losses on investors, they tend to make good any shortfalls with their own capital. The trouble is that trust operators are highly leveraged. The average leverage of the trust companies — defined as trust balance divided by net assets of the trust company — was 24 times, according to Yongi Trust Research Institute. To date, problems associated with trust products have largely been concealed from public scrutiny. Last year, a state- run asset management company, China Huarong, took over two property trusts that were on the verge of defaulting. Industry insiders have also alleged that on occasion the proceeds from new trusts have been used to pay off maturing loans.
Wealth Management Products Wealth management products (WMPs) have been by far the most popular investment for Chinese savers looking for higher returns. These securities yield on average around 2 percentage points more than bank deposits, and are sold by banks to retail investors as low-risk investments. Ratings agency Fitch estimated that around RMB 13 trillion of WMPs were outstanding by the end of 2012, an increase of over 50% on the year. WMPs share some of the characteristics of both the Structured Investment Vehicles (SIVs) and Collateralized Debt Obligations (CD0s), which were used by U.S. banks before 2008 to keep loans off balance sheet. Central to the structure is the pooling of investor funds. Money raised from the sale of several different WMPs is aggregated into a general pool (see Exhibit 4). The general pool then funds a variety of assets, investing across the risk spectrum. Some money goes into trust products and LGFV bonds described earlier in this paper, and some is invested in less risky interbank loans.
These credit instruments pose a number of different problems. They often create a duration mismatch, as short-dated funds are invested in longer-dated assets, such as trust products supporting real estate development. Many WMPs are as opaque as the old SIVs and CDOs. The documentation provided to investors is typically short on detail with regards to the mix of assets funded. Some WMPs resemble blind trusts in which savers hand over their money without knowing what exactly they are investing in. A recent WMP sold by China Construction Bank, for instance, merely stated that it would invest up to 70% of the funds in debt and at least 30% in bonds and money market instruments. WMPs contain a further twist. The buyers are typically required to sign a confirmation — which can be as simple as ticking a box on an online application — that they will bear the financial shortfall if assets funded by the pool fail to generate the expected returns. And, to be clear, most WMPs advertise "expected" rather than guaranteed or promised returns. So long as the returns are not guaranteed, WMP providers are able to hold off balance sheet both the liabilities raised from investors and the assets funded by them. Once again, buyers appear ignorant of the risks. Most likely, they assume that the issuing banks will backstop them should the funded assets fail to pay. After all, banks have their reputations to consider. They would be leery of starting a run on their WMP assets. And the government could be expected to lean upon them.
Ponzi Finance Within China, some highly-placed officials have started raising concerns. "Many assets underlying the [wealth management] products are dependent on some empty real estate property or long-term infrastructure, and are sometimes even linked to high-risk projects, which may find it impossible to generate sufficient cash flow to meet repayment obligations," Xiao Gang, chairman of the Bank of China, wrote in the China Daily in October. "China's shadow banking is contributing to a growing liquidity risk in the financial markets...[I]n some cases short-term financing has been invested in long-term projects, and in such situations there is a possibility of a liquidity crisis being triggered if the markets were to be abruptly squeezed." Xiao touches next upon a key vulnerability of WMPs. "In fact, when faced with a liquidity problem, a simple way to avoid the problem could be through using new issuance of WMPs to repay maturing products. To some extent, this is fundamentally a Ponzi scheme," he writes. "Under certain conditions, the music may stop when investors lose confidence and reduce their buying or withdraw from WMPs." These comments were well-timed. Salesmen employed by banks have reportedly earned commissions by selling third-party products without their employers' knowledge. Customers appear to have bought these third-party WMPs believing they came with a bank guarantee. In early December, the Shanghai branch of Huaxia Bank was beset by protesters after a WMP sold at the branch defaulted. This incident was the first in a number of scandals concerning shadow banking credit. In the same month, customers at a branch of China Construction Bank in the northeastern province of Jilin claim to have been sold a WMP with guaranteed returns but suffered a loss of 30% of their principal.' Citic Trust Co, a unit of China's biggest state-owned investment company, recently missed a bi-annual payment to investors on one of its trust products after a steel company missed interest payments on the underlying loan. As might be expected, sell-side analysts have reacted blithely to risks posed by shadow banking securities. A study by Merrill Lynch highlights so-called "collective trusts" — a type of high-yielding WMP originated by trusts rather than banks — as the most subprime-like subsector, but notes they are limited in size to RMB 1.7 trillion. "The risk for a systematic liquidity crunch seems very low for now," Merrill concludes. While another broker concedes that "some collateral is used twice by different institutions," he suggests that only 5% of loan-backed WMPs are likely to go bad!' We are less sanguine. In our view, WMPs are providing a lifeline for the most marginal of borrowers.
Other Chinese Credit Curiosities Credit guarantees If the proliferation of WMPs in China's financial system follows the originate-and-distribute model for credit popular in the U.S. prior to 2008, a further echo of the subprime era is sounded by China's extensive network of credit guarantees. China's credit guarantee businesses have enjoyed a long boom. There were 8,402 of them guaranteeing RMB 1.3 trillion of debt at the end of 2011, according to Merrill Lynch.' Providers of credit guarantees, like sellers of credit default insurance, earn a small fee for their service. The danger is that when credit guarantors operate with insufficient capital, their losses can spread contagiously throughout the system. Around a quarter of all bank loans in China carry some form of guarantee. These guarantees may come in the form of a mutual guarantee, where one c |
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| The Gold Price Fell $6.60 Today Why is Silver Outperforming Gold? Posted: 23 Jan 2013 04:14 PM PST Gold Price Close Today : 1686.30 Change : -6.50 or -0.38% Silver Price Close Today : 32.409 Change : 0.262 or 0.82% Gold Silver Ratio Today : 52.032 Change : -0.626 or -1.19% Silver Gold Ratio Today : 0.01922 Change : 0.000229 or 1.20% Platinum Price Close Today : 1691.70 Change : -6.70 or -0.39% Palladium Price Close Today : 725.45 Change : -3.70 or -0.51% S&P 500 : 1,494.81 Change : 2.25 or 0.15% Dow In GOLD$ : $168.92 Change : $ 7.50 or 4.65% Dow in GOLD oz : 8.171 Change : 0.363 or 4.65% Dow in SILVER oz : 425.17 Change : -1.38 or -0.32% Dow Industrial : 13,779.33 Change : 67.12 or 0.49% US Dollar Index : 79.88 Change : -0.144 or -0.18% Again today the silver price outran the GOLD PRICE, adding 26.2 cents (0.82%) to 3240.9c while gold lost $6.50 (0.38%) to 1,686.30. Question you have to keep asking yourself is, Why does silver keep on outperforming gold? Yes, indeed, why? I wish I knew. At least it confirms what I am seeing in the physical market, where 90% silver coin has soared. Once again, eye-catching, strange doings in gold and silver today, odd moves stirred by phantoms. World was rocking along just fine with gold knocking on $1,695, it's high. Eased off to $1,692 right at 10:00 then a safe fell from the sky on its head. In 15 minutes it had gapped down to $1,683, and traded sideways and punch drunk the rest of the day, dipping as low as $1,683.80. The GOLD PRICE hit its 50 DMA at 1693.85, but no big reason that ought to have occasioned such a sudden drop. Today's fall took gold back to the uptrend line from its $1,626 low on 4 January, so no real damage was done. I expect it will rise again tomorrow, for another knock on that $1,695 door. Gold's doing fine as long as it doesn't close below $1,663.97, its 200 DMA and where the uptrend from the June '12 low now rests. The SILVER PRICE improved yesterday's breach of the downtrend from the 3449c November high, but has risen for the last eight (8) days running. That performance is hard to maintain, and makes me sweat a little, wondering if silver doesn't need a few days moving sideways or lower to rest. High at 3243.5c nearly reached the 3250c resistance. Whatever hit gold today hit silver as well, but silver only dropped 15c -- a gappy drop -- from 3235c to 3220c, the day's low. From there it easily recovered. It may be nothing more than the natural born fool speaking, but silver just feels very strong. Tomorrow will solve the mystery or prove me once again a fool. Even if silver and gold see a few days' correction here, the bottom was posted 4 January and there's not much risk in buying here. An old poker rule says, "Never draw to an inside straight." That means, never bet that the smallest odds will turn out in your favor, or, always take the main chance. Stocks, both the Dow and the S&P500, have reached a Relative Strength Index (RSI) over 70. In that territory, a market is very much overbought, and the next big move will be down. Trouble is, markets can stay overbought or oversold sometimes longer than people have money. But that and an MACD in the stratosphere, and trading at the top of the Bollinger Bands all prophesy some correction in stocks' future, soon. Some indices rose today, some fell -- indecision? Exhaustion? Dow gained 67.12 (0.49%) to 13,779.33 but the S&P500 did no more than add 2.25 (0.15%) to 1,494.81. Dow in Gold keeps flirting with a top, while the Dow in Silver has dead broken down, trading the last two days below its 200 day moving average. Not impossible, but hard to picture that stocks will advance much more against gold. I would still sell stocks and put the proceeds into gold. Looky there! That US dollar index has itself a little-old uptrend going. 'Tain't much, but it is a series of higher lows. Course, there are lower highs, too, so it's moving into an even-sided triangle that will eventually break up or down. Dollar index today gained 6.5 scanty points (0.08%) -- Hey! somebody hold a mirror under its nostrils to see if it fogs up! I think that thing may be dead -- to close at 79.937. Top of the trading range is 80.20, 20 day moving average at 79.91, so maybe twill head higher. Watching currencies is like watching a flea circus: most of what's happening is only your imagination. After the politicians jawboned the yen down from 126.43 in November to 110.96 four days ago, the BOJ head has jawboned it back up to 112.75 cents/Y100 today, up 0.03%. That's probably as low as the yen will stoop this trip. Euro closed unchanged today at $1.3319. Big roadblock above is $1.3400. US$1=Y88.69=E0.7508=0.030 856 oz Ag=0.000 593 oz Au. Argentum et aurum comparenda sunt -- -- Gold and silver must be bought. - Franklin Sanders, The Moneychanger The-MoneyChanger.com 1-888-218-9226 10:00am-5:00pm CST, Monday-Friday © 2012, The Moneychanger. May not be republished in any form, including electronically, without our express permission. To avoid confusion, please remember that the comments above have a very short time horizon. Always invest with the primary trend. Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate 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. No, I don't.  |
| Jeff Nielson: Thinking silver? Talk to the gold bugs Posted: 23 Jan 2013 03:57 PM PST 4:53p CT Wednesday, January 23, 2013 Dear Friend of GATA and Gold: Jeff Nielson of Bullion Bulls Canada today reflects on GATA's presentations at the Vancouver Resource Investment Conference, noting that the organization stresses research and public record rather than "conspiracy theory" and that GATA's research into market manipulation has heavily involved silver as well. Nielson's commentary is headlined "Thinking Silver? Talk to the Gold Bugs" and it's posted at Bullion Bulls Canada here: http://www.bullionbullscanada.com/silver-commentary/26046-thinking-silve... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT Opinion Around the World Is Changing When Deutschebank calls gold "good money" and paper "bad money". ... http://www.gata.org/node/11765 When the president of the German central bank, the Bundesbank, pays tribute to gold as "a timeless classic". ... http://www.forbes.com/sites/ralphbenko/2012/09/24/signs-of-the-gold-stan... When a leading member of the policy committee of the People's Bank of China calls the gold standard "an excellent monetary system". ... http://www.forbes.com/sites/ralphbenko/2012/10/01/signs-of-the-gold-stan... When a CNN reporter writes in The China Post that the "gold commission" plank in the 2012 Republican platform will "reverberate around the world". ... http://www.thegoldstandardnow.org/key-blogs/1563-china-post-the-gop-gold... When the Subcommittee on Domestic Monetary Policy of the U.S. House of Representatives twice called on economist, historian, and gold standard advocate Lewis E. Lehrman to testify. ... World opinion is changing in favor of gold. How can you learn why and what it will mean to you? Read the newly updated and expanded edition of Lehrman's book, "The True Gold Standard." Financial journalist James Grant says of "The True Gold Standard": "If you have ever wondered how the world can get from here to there -- from the chaos of depreciating paper to a convertible currency worthy of our children and our grandchildren -- wonder no more. The answer, brilliantly expounded, is between these covers. America has long needed a modern Alexander Hamilton. In Lewis E. Lehrman she has finally found him." To buy a copy of "The True Gold Standard," please visit: http://www.thegoldstandardnow.com/publications/the-true-gold-standard Join GATA here: California Resource Investment Conference * * * 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: 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: To contribute to GATA, please visit: ADVERTISEMENT Fred Goldstein and Tim Murphy open All Pro Gold Longtime GATA supporters Fred Goldstein and Tim Murphy have brought their many years of experience in the precious metals and numismatic coins to All Pro Gold as metals brokers who specialize in the delivery of gold and silver bullion bars and coins as well as numismatic gold and silver coins. Fred and Tim follow these markets closely and are assisted by a team of consultants in monitoring market trends. All Pro Gold offers GATA supporters competitive pricing on all bullion products and welcomes inquiries. Tim can be reached at 602-299-2585 and Tim@allprogold.com, Fred at 602-799-8378 and Fred@allprogold.com. Ask about their ratio strategy and the relationship of generic $20 dollar gold pieces to 1-ounce gold bullion coins. Visit their Internet site at http://www.allprogold.com/. |
| Ambrose Evans-Pritchard: Central bankers should be brought to heel by elected parliaments Posted: 23 Jan 2013 03:43 PM PST Central Bankers Should Be Brought to Heel by Elected Parliaments By Ambrose Evans-Pritchard http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/981970... Intellectual fashion is changing. Central bankers around the world no longer command the charisma of a high priesthood. Nor should they after stoking a global bubble and then tightening just as the money supply was collapsing in mid-2008. The onus is falling on them to justify why monetary independence is self-evidently a good thing, and why central bankers should operate beyond democratic control. The humbling of the Bank of Japan (BoJ) this week is just the start, as Bundesbank chief Jens Weidmann warned. "It is already possible to observe alarming infringements -- for example, in Hungary or in Japan, where the new government is massively involving itself in the affairs of the central bank, is emphatically demanding an even more aggressive monetary policy, and is threatening an end to central bank autonomy," he said. ... Dispatch continues below ... ADVERTISEMENT Fred Goldstein and Tim Murphy open All Pro Gold All-Pro Gold, run by long-time GATA supporters Fred Goldstein and Tim Murphy, offers its services to GATA supporters and anyone else interested in precious metals. The company brokers a full line of precious metals and numismatic coins. It aims to inform prospective clients about the importance of the monetary metals as part of a diversified financial portfolio and to keep prospective clients current with market trends. All-Pro Gold has competitive pricing and ships promptly to clients so they may have physical possession. Learn more by e-mailing Fred@allprogold.com or Tim@allprogold.com or telephone 1-855-377-4653 or visit www.allprogold.com. One could say that "alarming infringements" are in the eye of the beholder. The European Central Bank that he serves is itself a political operator of unbounded power. Professor Richard Werner, a monetary expert at Southampton University, says the men of Maastricht misread German history very badly when they created a central bank that answers to nobody. "They thought they were modelling the ECB on the Bundesbank, but they weren't. They have instead replicated the Reichsbank, which was not accountable to any democratic institution and led to disaster," he said. No political force in Germany was able to halt Reichsbank deflation in the early 1930s until Hitler took power, tore up the rulebook, and appointed Hjalmar Schacht with instructions to reflate, which he did with gusto and success. Prof Werner said the Bundesbank was deliberately brought under the control of the German parliament when created after the Second World War to avoid repeating the mistakes of the Weimar era. "Europe has unlearned all the lessons of the Bundesbank," he added. The ECB's actions have certainly been remarkable. It sent secret letters to the leaders of Italy and Spain in mid-2011 with a list of sweeping demands, covering pensions, labour reform, and sensitive political issues over which it has no constitutional authority. When Italy failed to comply with the terms, the ECB switched off bond purchases, let yields spiral upwards, and forced Silvio Berlusconi out of office. That may be a good or bad outcome -- depending on your point of view -- but it is not the action of a central bank. It is the action of a political authority that has entirely slipped the leash of democratic control. The only real constraint on the ECB is the greater political power of the German Chancellory. Each stage of escalation in ECB's emergency policies -- culminating in Mario Draghi's August pledge to buy "unlimited" amounts of Italian and Spanish bonds, once the political trigger is pulled -- first required a green light from Angela Merkel. Princeton professor Gauti Eggertsson has long argued that independent central banks have a "deflation bias" by their nature. This was fine during the quarter century after the Great Inflation of the 1970s, but as the inflation rate fell ever lower with each business cycle it eventually became dangerous, for there lies the dreaded "liquidity trap." A new paper by Paul McCulley and Zoltan Poszar argues that the taste for independent central banks goes "hand-in-hand with secular private debt cycles." It becomes faddish during credit upswings such as the era of "monetary supremacy" from 1978 to 2008. The appeal wears off as the "deleveraging cycle"" gathers force and the economy slides into slump. The US Employment Act of 1946 was the low point for the Fed. The bank was entirely harnessed to US Treasury purposes until its "emancipation" in 1951. The implication is that politicians may have to take charge of central banks and force them to monetise debt at key moments to break the vicious circle. Indeed, the banks may have to be crushed into submission in extremis as a national priority if they drag their feet. That is more or less what has just happened to the BoJ, the poster child of "deflationary bias." The BoJ has agreed to raise its inflation target to 2 percent, to be achieved at the "earliest possible time," and will boost the money supply with "open-ended" bond purchases. The BoJ yielded only after premier Shinzo Abe won a landslide victory on an easy-money ticket and threatened to change the bank' s statute. The BoJ continues to mount a fighting retreat. It will not add fresh stimulus this year beyond the $170 billion (L107 billion) already in the pipeline. But Mr Abe will get his way as he appoints "soulmates" to replace governor Masaaki Shirakawa and two key rate-setters over the next three months. "Throughout the election I called for aggressive monetary easing. From now on each party will be held responsible," Mr Abe said yesterday. Deputy governor Toshiro Muto is already talking his language -- saying nothing is taboo. The BoJ offers a cautionary tale for the West. It has been largely passive for 20 years, dabbling on the margins, buying bonds on short maturities from banks in a way that does little to revive broad money supply. "All they did was to expand reserves, but that is never going to make any difference. They created a straw man to then argue that quantitative easing does not work," said Prof Werner, the man who coined the term QE in the early 1990s and later wrote "Princes of the Yen." The result was to let budget deficits take the strain instead. One fiscal blitz after another over the past two decades has pushed public debt to 237 percent of GDP. State financing needs will be 60 percent of GDP this year. This is a cul-de-sac. The greatest indictment of modern central banks is that they chose to target the consumer price level, one variable among many, and a bad one to boot. They took their eye off credit growth and asset prices. Now some -- notably the ECB -- are making the opposite mistake. Rising CPI inflation blinds them to credit contraction and surging jobless levels. They might fare better to target nominal GDP growth of 4 to 5 percent and forget about the short-term ups and downs of inflation. Former rate-setter Adam Posen told Parliament on Tuesday that nominal GDP targeting would be a "serious mistake." That clinches the matter. Let's do it. Join GATA here: California Resource Investment Conference * * * 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: 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: To contribute to GATA, please visit: ADVERTISEMENT Opinion Around the World Is Changing When Deutschebank calls gold "good money" and paper "bad money". ... http://www.gata.org/node/11765 When the president of the German central bank, the Bundesbank, pays tribute to gold as "a timeless classic". ... http://www.forbes.com/sites/ralphbenko/2012/09/24/signs-of-the-gold-stan... When a leading member of the policy committee of the People's Bank of China calls the gold standard "an excellent monetary system". ... http://www.forbes.com/sites/ralphbenko/2012/10/01/signs-of-the-gold-stan... When a CNN reporter writes in The China Post that the "gold commission" plank in the 2012 Republican platform will "reverberate around the world". ... http://www.thegoldstandardnow.org/key-blogs/1563-china-post-the-gop-gold... When the Subcommittee on Domestic Monetary Policy of the U.S. House of Representatives twice called on economist, historian, and gold standard advocate Lewis E. Lehrman to testify. ... World opinion is changing in favor of gold. How can you learn why and what it will mean to you? Read the newly updated and expanded edition of Lehrman's book, "The True Gold Standard." Financial journalist James Grant says of "The True Gold Standard": "If you have ever wondered how the world can get from here to there -- from the chaos of depreciating paper to a convertible currency worthy of our children and our grandchildren -- wonder no more. The answer, brilliantly expounded, is between these covers. America has long needed a modern Alexander Hamilton. In Lewis E. Lehrman she has finally found him." To buy a copy of "The True Gold Standard," please visit: http://www.thegoldstandardnow.com/publications/the-true-gold-standard |
| Gold Price Forecasts Become Bearish, Stoeferle Bullish Explaining Key Drivers Posted: 23 Jan 2013 03:34 PM PST In this interview with Gold Silver Worlds, Ronald Stoeferle explains in detail why lower gold price forecasts lack insights in the physical gold fundamentals. He is one of the top precious metals analysts worldwide and author of the well known reports "In Gold We Trust" (see last edition of the report). Stoeferle considers this article the most important one when it comes to gold fundamentals. It is a must read for everyone involved or interested in precious metals. The new year brings traditionally forecasts. Those are interesting data as they reveal the market sentiment. In general, analysts are revising their outlook for gold downward. Goldman Sachs lowered considerably their outlook in the light of an expected economic recovery. Deutsche Bank and HSBC reduced their gold price outlook, although they still expect a slightly higher price. A quote from one of the reports: "Global investment demand for gold has moderated considerably over the past 18 months, largely a function of the apparent success of central bankers in mitigating the risks associated with excessive financial leverage within the Western economic system," […]"The strength in other more conventional assets, U.S. equities for example, as economic conditions appear to normalize has also resulted in less urgency for investors to buy unorthodox investment instruments such as gold." Gold Silver Worlds asked Ronald Stoeferle for his view on the lowered outlook. Stoeferle is a top precious metals analyst and author of the comprehensive series of gold reports "In Gold We Trust". His high level view: "Gold analysts remain bearish, which is a reliable contrary indicator. I honestly would interpret that as a positive sign. Most of the major investment banks were bullish on gold a while ago. As a contrarian, that made me cautious. The fact that a lot of banks are turning bearish now is a good sign. The bottom must be in soon." Stoeferle comes to the same conclusion by looking at other gold indicators, including the put/call ratio, COT reports, sentiment indicators and gold stocks. He points to the 2012 edition of his report, quoting the following: The market opinion held by the analyst community is not exactly over-the-top. Normally, the consensus at the end of a trend should have substantially higher price targets; in the case of gold, however, no such irrational exuberance can be seen. The 24 gold analysts covered by Bloomberg show little signs of excessive optimism: the consensus estimate expects a falling gold price from 2014 onwards. The median price targets are USD 1,720 (in 2012), USD 1,835 (in 2013), USD 1,600 (in 2014) und USD 1,400 (in 2015). This is in stark contrast to the forward price, which signals a gold price of USD 1,650 for 2015. (page 106, July 2012) The earnings revisions of the Gold Bugs index remain extremely negative. This means that at the moment more analysts revise their earnings estimates downwards than upwards. It highlights the primary analysts' profound pessimism. 2008 was the last year we saw similarly sharp adjustments of earnings forecasts. By relating earnings revisions to the price development of the Gold Bugs index, we find that the timing of the greatest pessimism tends to provide investors with reliable signals to engage." (page 94, July 2012)
However, a contrarian approach is only part of the answer. The gold market fundamentals reveal a much larger truth, which remains largely underexposed in Stoeferle's view. Driving fundamental forces: Asian physical gold demandWhat the previous forecasts fail to see, is the exploding physical gold demand in Asia and the emerging markets, driven by solid economic fundamentals in those countries. The increasing welfare and the gradually rising propensity to save, i.e. the savings ratio, are the crucial factors. Recent statistics confirm this. The Federation of Indian Exporters Organisations has said India exported gold jewellery to the tune of $12.12 billion in the first nine months of this fiscal, which was just 30.68% of the value of imported gold. Between April to December 2012, gold imports jumped 40.23% over $28.16 billion imported during the corresponding period of April to December 2011. [Mineweb] Indians save roughly 30% of their income, as opposed Americans, who save 5%. Plus, Indians are getting richer all the time. Once a very poor country, the rich and middle classes now outnumber the poor in this nation of 1.2 billion. The country has the sixth-largest economy in the world. [LFB] The net gold flow from Hong Kong to mainland China in November hit its second-highest level in 2012 after April. Hong Kong exported 90.763 tonnes of gold to mainland China in November, an increase of 91 percent on the month. Its gold imports from China rose 23 percent to 27.681 tonnes. The total net gold flow in the first eleven months of the year, at 462.75 tonnes, already exceeded last year's total of 379.573 tonnes, Reuters calculations showed. [Mineweb] The Iraqi dinar exchange rate is based on the amount of cash reserves, which include not only money but gold as well. Iraq's gold holdings quadrupled to 31 tons, the first time something like this has happened in years. [BullionStreet] Turkish gold exports rose to $12.7 billion in the first eleven months of 2012 compared to the $1.47 billion exported in the whole of the previous year, Economy Minister Zafer Caglayan told a briefing in Istanbul. Around half of the exports – $6.5 billion worth – went to Iran, while $4.2 billion went to the United Arab Emirates. Turkey exported just $54 million worth of gold to Iran in 2011. [Reuters]
Dynamics in the Asian gold market are simply too strongLet's take the above facts and trends one step further by looking at the dynamics within the Asian gold market. All signs point to a continuation of the current trend. What makes Ronald Stoeferle convinced of this expectations, is the strength in the drivers in their economies. (1) Physical demand is set continue its rise because gold is NOT expensive. China and India as the biggest (gold) markets experienced the same percentage increase in nominal GDP, wages and their currencies' gold price. Locally, the gold prices did not change when expressed in terms of purchasing power, which is fundamentally different to the West. China has been the trendsetter in their reaction to financial repression (started in 2000). The Chinese population has chosen consciously and hugely for physical gold investments as a way to escape from financial repression. During the interview, Ronald Stoeferle quotes from its 2012 report (page 55): "In view of the fact that Asia already accounts for the majority of gold demand, the US data is of limited significance. Therefore the development of household income in China and India is a crucial factor for physical gold demand. In terms of the Indian rupee, the gold price has posted an average increase of 18% p.a. since 2001, while in Chinese yuan the growth rate was only slightly lower at 16%. Nominal income has been going up at the same rate and pace, which means that the gold price is basically unchanged in real terms for the Chinese and Indian population since 2000. The following chart illustrates the rapid development of Chinese (left scale) and Indian (right scale) GDP per capita." The officially reported inflation in Asia is often a rather vague depiction of reality. Therefore the gold price in terms of disposable income provides more insights. The next chart shows how the gold price in terms of purchasing power in China and India is currently 80% lower than in 1980. Gold is amazingly cheap for them. (2) Governments stimulate people owning gold. The Indian gold mania has resulted in a decrease of the current account deficit (source) which was a reason for their government to attempt to increase duties on gold trades. The Indians succeeded in changing their policy makers from that idea, after several protests and strikes. Apart from that case, most Asian governments stimulate their citizens to own gold for their protection. It shows the trust from the Indian people to hold gold. China, which accounts for one sixth of world population, is a perfect example. The Turkish government is in the process of creating incentives for the population to deposit their private holdings with the banking system. As the global "run to debase" currencies becomes increasingly apparent, the Asian and emerging markets will undoubtedly continue to stimulate their citizens to hold gold. (3) Alternative currency. Oil producing countries start dealing their oil with huge purchasers (think Russia, China, Brazil) in alternative currencies, resulting in a lower demand for dollars. A potential rush to the exit is coming from central banks that do not need US dollars anymore, which would lower the value of the dollar, make inflation and interest rates explode. We saw the first proof of this in 2012, where several Asian and BRIC countries began trading oil for gold. Looking through the noise of the paper marketIn addition to all the fundamental forces in Asia, Ronald Stoeferle looks to the day-to-day confusion primarily created in the paper futures market. That's indeed where the short term price is set, but it's nothing more than the short term price. "We are witnessing a huge disconnect between the short term price set in the paper market and the long term fundamentals primarily driven by Asian and emerging markets." This is a concept that most people fail to understand, at least the fundamental impact on it on the gold market.
The Dow Theory says that the primary trend cannot be ignored. In the case of gold and silver, the long term fundamentals are so strong that manipulation is only possible on a short term basis. So take the opportunity to accumulate on every price dip. The West fails to understand that gold follows prosperous economiesOn the most essential level, people need to understand what gold really stands for. Ronald Stoeferle refers to his report where he wrote on page 52 that gold has always abandoned regions of stagnating wealth, heading for prospering economies and rising savings volumes. In 1980 Europe and the US accounted for 70% of gold demand, since then this share has plummeted to below 20%. Chart courtesy Sharelynx.
Impact of a Chinese recessionIn closing, we talked about the impact of a Chinese recession on the gold fundamentals discussed in this article. Ronald Stoeferle believes that the fears for a hard landing did not play as some expected. In contrast, most indicators are picking up momentum currently. In his last oil report to premium subscribers he wrote the following: In our view, the increasingly expansive Chinese monetary policy will cause Chinese oil consumption to regain its momentum in the short term. However, over the long term we continue to believe that an extensive market shakeout will take place. The earlier China allows the necessary break to happen, the less painful it will be. Chinese leadership is facing a difficult task. Due to the exceptionally high capital intensity of the Chinese economy (gross capital expenditures stand at 40% of GDP), future growth will be dependent on the propensity to consume of the Chinese people. To lift China's domestic demand, the level of real wages would have to increase. However, the low current level of wages in China is the country's most important competitive advantage which permitted the economy to grow at enormous rates over the past decade. Thus, it is evident that the Chinese government finds itself in a dilemma. As opposed to the now generally accepted belief in the Chinese economic miracle, we take a more skeptical stance. Merely extrapolating the past into the future can eventually be disastrous. To this point the exorbitant stimuli have been sufficient to prevent an economic collapse. Substantial existing overcapacities have increased further. The governments share in the overall economic performance is gradually rising, state-funded infrastructure projects are responsible for the majority of this growth. In the long run, China will not be able to overturn the fundamental laws of economics and business activity.
This article is based on a Q&A with Ronald Stoeferle. He is born October 27, 1980 in Vienna, Austria, is a Chartered Market Technician (CMT) and a Certified Financial Technician (CFTe). During his studies in business administration and finance at the Vienna University of Economics and the University of Illinois at Urbana-Champaign, he worked for Raiffeisen Zentralbank (RZB) in the field of Fixed Income/Credit Investments. After graduating from University, Stoeferle joined Vienna based Erste Group Bank, covering International Equities, especially Asia. In 2006 he began writing reports on gold and gained media attention when he expected the price of gold to rise to USD 2,300/ounce when the current price was only at USD 500. His six benchmark reports called "In GOLD we TRUST" drew international coverage on CNBC, Bloomberg, the Wall Street Journal, Economist and the Financial Times. He was awarded "2nd most accurate gold analyst" by Bloomberg in 2011. He also writes reports on crude oil. The latest oil report by Stoeferle, entitled "Nothing to Spare" was published earlier this year. Stoeferle is managing two gold mining funds and one fund with silver mining equities. As of December 2012, Stoeferle will leave Erste Group in order to become partner of Liechtenstein based Incrementum AG. Contact Ronald Stoeferle at rps@incrementum.info | The website of Incrementum AG www.incrementum.li |
| ARE ALL FED GOVERNORS CLUELESS MORONS? Posted: 23 Jan 2013 03:01 PM PST Evidently not. Another reason to like Texas. Richard Fisher was the ONLY Federal Reserve Governor who saw the disaster coming. Bernanke, Geithner and the rest of the moron were either too stupid or too captured by Wall Street to understand what was about to happen. And these idiots are still in charge. Can you believe these people are the ones who are supposedly saving the world now? Read this dialogue from 2007 to see what an idiot Bernanke and the rest of them truly are:
Back in late Spring of 2007 (May 9th), while many on the FOMC felt housing problems might be contained, Fisher worried allowed (much lifted from WSJ 1/18/13):
Apparently, Chairman Bernanke did not wish to rock the boat.
At the late June (27/28) meeting, as things began to worsen, they reviewed some of the implications of the problems at Bear Stearns. Secretary Geithner, then NY Fed President led:
Mr. Fisher apparently responded:
By the next meeting (August 7th), Mr. Fisher's concern and exasperation were becoming very evident as seen in this exchange. It starts with current NY Fed President (then chief of the open market desk) Dudley:
Dallas Fed president warned of housing crisis and Bear Stearns worries early in 2007By SHERYL JEAN SHERYL JEAN The Dallas Morning News Staff Writer Published: 21 January 2013 09:17 PM Richard Fisher, president of the Federal Reserve Bank of Dallas, was a lone voice of caution in June 2007 that problems at the Wall Street investment bank Bear Stearns were not "contained" and posed an "enormous risk." Then-New York Fed President Timothy Geithner, now U.S. treasury secretary, and others disagreed and brushed off Fisher's concerns. Bear Stearns collapsed in March 2008 — an early casualty of the financial crisis that led to the start of the Great Recession in December 2007. Newly released transcripts from the Federal Reserve Bank's policy meetings in 2007 (available at federalreserve.gov/monetarypolicy/fomchistorical2007.htm) highlight such inner workings of the central bank's policymakers as the United States sat at the edge of a financial precipice. Although Fisher was a nonvoting member of the Federal Open Market Committee in 2012 (and this year), he attends meetings and participates in discussions. Fisher also had expressed his growing concern about a housing credit crisis at the May 2007 Federal Open Market Committee meeting, according to the transcripts. On Monday, Fisher talked with The News about his role at the Fed during that pivotal year. Why were you the first FOMC member to warn about Bear Stearns in June 2007 or before? I have a different background and take a different perspective than my FOMC colleagues. Most of my colleagues are Ph.D.s and I'm an MBA [from Stanford University with a bachelor's degree in economics from Harvard University]. I was picking this up on the street, and you could see this in the credit default spreads. I also interview about 50 CEOS on large, medium and small companies around the world. I get to 30 to 35 in the week before each FOMC meeting. I can't say who they are. There were pressures developing elsewhere, too, such as at Merrill Lynch. I think others did pick it up. Eric Rosengren, president of the Boston Fed, and I talked quite a bit about this offline. How did your background as a hedge fund manger help you spot warning signs? I think it helps to have that background and to have a market operating background. Now there are two bankers on the FOMC board, but not then. Most theoretically trained economists work off of models, and data is history. On the housing credit side, the Dallas Fed was way ahead of others on that front because we were talking to homebuilders. You could see it building, but not showing up in the data yet. This is why we have different types of people on the Federal Open Market Committee. In August 2007, Fed Chairman Ben Bernanke said, "Odds are that the market will stabilize." Even as he considered interest rate cuts in December 2007, he felt "quite conflicted." Why did it take him so much longer to see the economic downturn? I don't want to be critical of the Fed chairman. He has one of the greatest economic minds in the world. I think serious economists tend to downplay anecdotal evidence. Over the years, I've sorted out the Eeyores from the Tiggers [characters from Winnie-the-Pooh books]. There are some who are always negative and others who are always bouncing. It's a combination of anecdotal evidence and theoretical data. Now, more members of the Federal Open Market Committee do pick up key signs from their districts. In May 2007, you voiced growing concern about the housing market based on an interview with a CEO of one of the five big builders. What other signs did you see? I spoke to the Texas Mortgage Bankers Association. I was by far the oldest person in the room. There was no institutional memory, and these people were packaging and selling packages of mortgages. In January 2007, you said the risk of recession had declined based on interviews with 25 CEOs including at Disney, MasterCard and Wal-Mart. But two months later, you said the risk had increased and "the financial market turbulence has a potential to become greater." Is that proof that anecdotes are not a good economic indicator on their own? No, it means I had rethought and refined my questions for my interlocutors, and listened more carefully. The point is that anecdotal input is a necessary complement to data. Data is history but useful for validating trends; anecdotal evidence, carefully listened to, is a helpful way to identify possible trends. Business operators are the front line of the economy. What they report back is vital to understanding what policymakers take into account in developing strategy. In hindsight, could you have done more, done anything differently in 2007? It's a group process. Nineteen of us sit at the table. Back then it was 17. It doesn't matter if you have a vote or not. Everybody puts out and it gets digested. I don't think there was more that I could have done. I think I was just doing my part. If President Barack Obama decides to replace Bernanke for his second term, would you consider the chairmanship? I have no interest in going back to Washington ever. I've done it twice [as assistant to the treasury secretary from 1978 to 1979 and deputy U.S. trade representative from 1997 to 2001]. I love Dallas. I really have done my duty. I wouldn't rule out Ben staying on for another term. |
| Gold Daily and Silver Weekly Charts - Cap, Cap, Cap Posted: 23 Jan 2013 02:23 PM PST  This posting includes an audio/video/photo media file: Download Now |
| Gold Seeker Closing Report: Gold and Silver End Near Unchanged Posted: 23 Jan 2013 02:13 PM PST Gold climbed up to $1695.00 at about 8:40AM EST before it fell back to $1683.91 in the next couple of hours of trade, but it then bounced back higher midday and ended with a loss of just 0.29%. Silver fell to $32.081 in Asia before it rallied to as high as $32.459 in early afternoon New York trade, but it then fell back off in the last few hours of trade and ended with a gain of just 0.25%. |
| Infographic Explains Bright Outlook For Palladium & Platinum – by Sprott Posted: 23 Jan 2013 02:09 PM PST Platinum and palladium (part of the Platinum Group Metals with the abbreviation PGM's) are the less shiny precious metals. With most attention going to gold and silver, the PGM's are less understood. Sprott has focused lately on the PGM's, by creating the Platinum & Palladium Trust similar to the existing Gold Trust (PHYS) and Silver Trust (PSLV). The new trust is trading under the symbol SPPP in NYSE and PPT.U in TSX. The trustworthiness of Sprott's ETF's is the commonly accepted differentiator. The infographic shows some highlights that everyone with an interest or involvement in precious metals should know about:
Courtesy: Sprott Physical Bullion
Related precious metals infographics: Is gold a bubble? Look at this Infographic for the answer. Own physical Gold? This infographic explores Vaulted Gold as one of your options. Infographic: all you need to know about Gold in the world |
| Commodities: Crude Oil, Gold Look to US House Vote for Direction Posted: 23 Jan 2013 01:40 PM PST courtesy of DailyFX.com January 23, 2013 09:23 AM Crude oil and gold may rise as the US House of Representatives votes to suspend the “debt ceiling” through mid-May but follow-through is likely to be limited. Crude oil and gold may rise as the US House of Representatives votes to suspend the “debt ceiling” through mid-May but follow-through is likely to be limited. Talking Points [LIST] [*]Commodities Tread Water as Markets Wait US House Vote on Debt Ceiling [*]Risk Appetite Boost from Fading US “Default” Fears May Prove Fleeting [/LIST] Commodities are treading water in early trade, reflecting standstill on the risk sentiment front ahead of a vote in the US House of Representatives to suspect the federal spending limit (the so-called “debt ceiling”) until the May 19. This would allow the US Treasury to continue to borrow at whatever pace necessary to accommodate its liabilities until that time. The newswires report that the mov... |
| Separating the Gold Mining Haves from the Have-Nots: Paolo Lostritto Posted: 23 Jan 2013 01:22 PM PST The Gold Report: National Bank Financial began taking a defensive approach to gold equities in April by focusing on companies with strong balance sheets, which could fund their own growth and not have to go to the equity markets to survive. Does Alamos Gold Inc.'s (AGI:TSX) $780 million (M) takeover offer for Aurizon Mines Ltd. (ARZ:TSX; AZK:NYSE.MKT) validate that defensive thesis? Paolo Lostritto: We were right to have a defensive approach, but we probably weren't defensive enough. Multiples contracted much more aggressively than even we expected. There was a raft of project delays, cancellations, and capital and operating cost increases that have decimated the space so much that less than half of the gold mining industry is actually making money based on our all-in-cost estimate from third quarter data. [INDENT]"Royalty companies are positioned well in the current market environment." [/INDENT] On the surface, it looks as if Alamos is trying to take advantage of a multiple di... |
| Forget Germany, Check Out Turkey's Central-Bank Gold Posted: 23 Jan 2013 01:21 PM PST AMID the brouhaha over Germany's gold reserves at the Bundesbank, there's another central bank using gold actively to bolster its currency and financial stability. The strategy looks the same – sitting on big stockpiles of the stuff. But the aim differs, because gold is much closer to the everyday financial system. The tactics differ too. Because the central bank hasn't bought and paid for this gold. Private citizens have. |
| Goldman Sachs Short-Term Bullish, Long-Term Bearish Call On Gold Posted: 23 Jan 2013 01:13 PM PST Goldman Sachs predicts a gold spike in the near term to $1800+, but eventual decline to about 1200 by 2018. Their view is that safe haven seeking behavior will reduce as economies heal and interest rates rise, and risk assets appreciate. In particular, they are concerned that when interest rates revert from negative real rates to positive real rates, the price of gold will experience strong negative pressures, which they feel will probably outweigh other factors that may produce positive price pressures. |
| Separating the Gold Mining Haves from the Have-Nots Posted: 23 Jan 2013 01:00 PM PST After months of turmoil that has lasted longer than investors could have imagined, the mining world has been divided into haves and have-nots. There are gold companies that managed their balance sheets wisely and there are those that burned through cash and are left begging for financing. It's a great time for those flush companies that don't need handouts to take advantage of the resulting valuation differential, says Paolo Lostritto, the director of research and mining and metals analyst at National Bank Financial. |
| Posted: 23 Jan 2013 12:56 PM PST BACK TO SQUARE ONE In 2008, Goldman Sachs executives and employees were the largest single Wall Street backers of the president, but by 2012 things had changed. Obama had "meddled with the free market", or perhaps had not been generous enough with billion dollar bailouts, the chemistry wasn't right. Goldman Sachs Group, Morgan Stanley, Citigroup Inc., Bank of America, JPMorgan Chase and other Wall Street heavyweights gave $21 million to Mitt Romney, more than any other presidential candidate since the USA's modern campaign system began in 1976, according to the Center for Responsive Politics. |
| Final Pulse May Be A Stunning $8,000 For Gold & $500 Silver Posted: 23 Jan 2013 12:43 PM PST  The following chart was put together exclusively for King World News by Kevin Wides, out of Switzerland. Once again, this is a way for all King World News readers globally to take an important step back and look at the big picture in both gold and silver as we kickoff 2013. These charts show the final pulse higher for gold may stretch to over $8,000, and over $500 for silver. This posting includes an audio/video/photo media file: Download Now |
| Forget Germany – Here's Central Bank Gold Put to Really Good Use Posted: 23 Jan 2013 12:25 PM PST How Turkey is using gold to boost stability, reduce interest rates and temper credit growth... |
| Forget Germany – Here's Central Bank Gold Put to Really Good Use Posted: 23 Jan 2013 12:25 PM PST How Turkey is using gold to boost stability, reduce interest rates and temper credit growth... |
| China already may have second largest gold reserves, Leeb says Posted: 23 Jan 2013 12:00 PM PST 11a PT Wednesday, January 23, 2013 Dear Friend of GATA and Gold: Fund manager Stephen Leeb today tells King World News that China already may have surpassed Germany with the second largest official gold reserves in the world. Leeb adds that the Basel liquidity rules for banks imply that they are all "scared to death" that people might start recognizing gold as a currency. An excerpt from the interview is posted at the King World News blog here: http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/1/23_Ch... CHRIS POWELL, Secretary/Treasurer ADVERTISEMENT How to profit in the new year with silver -- 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... Join GATA here: California Resource Investment Conference * * * 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: 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: To contribute to GATA, please visit: ADVERTISEMENT GoldMoney adds Singapore vaulting option In addition to its precious metals storage facilities in Hong Kong, Switzerland, Toronto, and the United Kingdom, now with GoldMoney you can store gold and silver in Singapore in a high-security vault operated by Brink's Singapore Pte Limited. To celebrate the launch of this storage option, GoldMoney is offering a discount on buy and exchange fees at this vault for any orders above US$10,000 (or the equivalent) until January 31, 2013. Tthe gold buy rate is 0.98%, while the silver rate is 1.99%. Metal exchanges into Brink's Singapore will also be discounted for this period and will be charged at 0.78% for gold and 1.75% for silver. Simply place your order online and the above rates apply automatically until January 31, 2013, 15.00 UK time. To find out more about the new vault, please visit: http://www.goldmoney.com/singapore?gmrefcode=gata GoldMoney customers can take delivery of any number of gold, silver, platinum, and palladium bars from any GoldMoney vault, as well as personally collect their bars stored in the Hong Kong, Switzerland, and U.K. vaults. It's easy to open an account, add funds, and liquidate your investment. For more information, visit: http://www.goldmoney.com/?gmrefcode=gata |
| Thinking Silver? Talk To The Gold-Bugs Posted: 23 Jan 2013 11:35 AM PST It is a reality of life that those investors who favor gold (and silver) as their preferred asset-class need to have 'thick skins'. On aggregate, Western investors are holding roughly 1/10th the amount of gold and silver which they have held (in similar circumstances) in the nearly 5,000 years since we first began refining "good money." Strip away the "gold bugs" however, the less-than-5% of the general population who hold virtually all of our gold (and silver); and the Average Investor (in Western societies) is only holding approximately 1% as much bullion as in any similar circumstances, in the thousands of years since we first began refining these metals. This absurd level of under-ownership comes despite the twelve consecutive years of rising gold prices, a statistic unmatched by any other asset class. Obviously "it's lonely at the top." While the Corporate Media have engaged in an endless stream of juvenile scare-tactics to try to frighten people away from the world's best-performing asset class, probably the most defamatory of these attacks is the continual insistence that gold-bugs are Zealots – who worship gold like a "religion." There are many ways to rebut such a ridiculous smear, however perhaps the best way to do so occurred to me while attending a recent international resources conference in Vancouver. As always, the "gold bugs" featured prominently in this conference. The commodities professionals who put together such shows first of all recognize the best-performing class of commodities (and all assets) when they see it. Secondly, they understand that the much-maligned gold-bugs can be counted on to provide the most interesting and insightful presentations among all of their speakers. It was thus no surprise to see the executive group of the Gold Anti-Trust Action Committee (more commonly known as "GATA") being asked to once again share their knowledge with the attendees of this conference. It was Chris Powell of GATA who actually inspired my own (minor) epiphany, when he first reminded us of yet another of the scurrilous accusations hurled at the gold-bugs by the mainstream media: that they (we) all are "nothing but a bunch of conspiracy theorists." He then pointed out that in reality GATA was purely-and-simply a non-profit information-gathering entity; who does its research and present its facts to their large-and-growing global audience. This was not mere assertion. The Gold Anti-Trust Action Committee then went on to demonstrate the truth of that statement by spending most of their allotted time talking about silver. This is not the behavior of zealots. You won't hear devoted Christians saying that while "their god" is good, if you want to see "a really great god" in action you should follow Buddha. Zealots, by definition, are unwavering believers in their own dogma. Yet not just with GATA but with most of the "community" of gold-bugs, we hear these individuals asserting one-after-another that the real story here is in the silver market. Understand that the enthusiasm these individuals have for the gold market has not wavered in the slightest. Indeed, for numerous, fundamental reasons the gold-bugs are more optimistic about the future of gold than ever. Put another way, these analysts are more pessimistic than ever about the speed with which our servile governments are destroying our economies. More than anything, gold-bugs are "detectives": seekers of the Truth, in a world where the Corporate Media bombard us with a deluge of fear-mongering and outright lies to attempt to ward-off investor dollars from entering this sector. Remember all the years that these Liars attempted to dismiss gold as a "barbarous relic"? That lie had to be abandoned. In fact, gold never ceased being treated as "money" by the same cabal of international banking which produces all of our debauched, "fiat currencies": the central banks. However, it was only after the world's premier Gold Haters were forced to abandon their relentless gold-dumping (because they ran out of gold), and suddenly flip-flopped and began buying gold at the fastest rate in history that the Corporate Media finally jettisoned this absurd lie. |
To vividly demonstrate how rude people can be these days, let me recount a recent experience at the grocery store.
There are three fairly radical ideas floating around the monetary policy world right now. The first is economist 
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