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Agency Shit Storm
July 8, 2013
Bruce Krasting
I’ve been waiting four years for a lawsuit against the government and its handling of Fannie Mae and Freddie Mac. Perry Capital, a hedge fund who has invested in Agency Pref stock, filed the suit on Saturday. A heavyweight law firm, Gibson, Dunn & Crutcher (GDC), is handling the case. I think this is going to cause a shit-storm in D.C.
The Wall Street Journal
Federal Government Sued Over Fannie Bailout
The deep thinkers in Washington set this up to happen way back in 2008. Then Treasury Secretary, Hank Paulson, made the fateful decision to put Fannie and Freddie (F/F) into a Conservatorship. The Agencies should have been put into a Receivership; they were broken entities back then. If they had been declared bankrupt in 2008, there would be no Perry lawsuit today.
Paulson had two strong incentives to go down the Concervatorship road:
1) If F/F had declared bankruptcy, then all of the $7 Trillion of Agency debt would have have gone on the Federal balance sheet. Treasury Marketable Debt outstanding at the time was $5,8Tn. It would have gone up 120% overnight.
Hank P made a form-over-substance decision. It would have been (another) shock to the system to see the Federal debt double. The wheels were coming off the cart when the choice was made. So Hank elected to ‘hide’ the debt and kept F/F functionally alive.
2) No one (especially Hank Paulson) thought there was even a remote chance that F/F would ever be able to dig themselves out of the hole. The estimated losses were in the $400Bn range. That assumed outcome meant that there was 100% certainty that the government would never get paid back its bailout of F/F. So it didn’t matter that the F/F shareholders were not legally put out of their misery (as they should have been).
As it has turned out, everyone (including me) was wrong on the actual size of the bailout for FF, and we were way off on how long it would take to pay back the taxpayers in full (with a big return). If allowed to continue to operate as they now are, F/F are capable of returning 100% of the bailout money PLUS a 10% return PLUS a significant equity interest in F/F in under three years. That would be a big win for the taxpayers.
So Hank made a critical choice based on a bad assumption. His decision was driven by the ‘optics’ of shifting the debt onto the balance sheet. The Treasury Secretary made a mistake. When governments pass laws and take actions, there are always negative side effects. When mistakes are made, lawsuits happen and lawyers, and guys with capital make money.
The Perry lawsuit has merit. GDC would not have filed such a high profile suit unless it thought the law was on its side. The Feds set this up to happen, and it happened. By no means is the solvency of F/F a ‘bad thing’ – the taxpayers will make billions.
I expect that the Perry lawsuit goes no place fast; the Feds can delay the process for years. But the existence of the lawsuit will make it much harder for D.C. to take action that results in a shareholder wipe out. The Bob Corker (R-Tn) plan to unwind the Agencies and blow-off the existing stakeholders is now a dead end. (Link)
There is a delicious irony to this story. Go back to the beginning and ask why Paulson could have missed this coming? The answer is that he never, in his wildest imagination, believed that the Fed would keep interest rates at zero for five years and buy Trillions of MBS. Were it not for the unending monetary gas that the Fed has plowed into the system, F/F would be in much different shape today. They would not be able to pay back the taxpayers in full, and the publicly traded equity would be worth zip. (Zero Hedge discussion)
I hope this case does come to a trial. The star witness for GDC will be Ben Bernanke:
GDC – Was one of your goals with ZIRP and QE 1-3 to support the mortgage industry participants?
Bernanke – Yes.
GDC – Was your purchase of $1.2 trillion of Agency MBS a subsidy for the entire mortgage industry?
Bernanke - Yes.
GDC – Are you surprised that F/F have made huge profits as a result of your monetary policies the past five years?
Bernanke - No. It is exactly the outcome that we hoped would happen. The rise of F/F from the ashes is a measure of our success.
GDC- Did you repeatedly communicate your intentions of supporting the mortgage market, and its participants, to the public and in testimony to the House and Senate?
Bernanke- Yes.
GDC - Your Honor, we rest our case. This witness has proven beyond any doubt that the favorable outcome for F/F was the desired, and well communicated policy of one branch of the Government. You can’t now penalize investors who listened, and paid heed to the Chairman of the Federal Reserve.
Like I said, there will be a storm over this one.
http://brucekrasting.com/agency-shit-storm/
Leaked IMF Report Shows Dangers For US Economy
Jul 11, 2013 - 04:29 PM GMT
By: Dan_Amerman
A confidential internal International Monetary Fund report was recently leaked to the Wall Street Journal, with the contents later being made public by the IMF. The contents of this report have major implications for Europe, but even greater implications for the United States.
Most of the press attention is being paid to the legalities associated with the report, and revolve around what the International Monetary Fund knew, when it knew it, and whether it properly acted within its charter at various points. However, what is being overlooked is the truly explosive information that comes in the form of what the IMF admitted (in this internal report to itself) when it came to miscalculations about "austerity", and closing budget deficits.
Briefly, the International Monetary Fund and European Union did not force balanced budgets upon Greece, but only a reduction in the level of deficits.
The IMF's economists estimated that this reduction in deficits would lead to a 5.5% reduction in the size of the Greek economy. But they were horrified to discover that in practice they were dead wrong, as it instead resulted in a 17% contraction in the Greek economy, or just over three times the damage that they were estimating.
They were also badly mistaken, as they belatedly came to realize, when it came to the impact of these deficit cuts on the official unemployment rate.
That is, the IMF had expected unemployment to rise to 15%, which was unpleasant, but a necessary part of the belt-tightening associated with austerity and reducing the levels of government deficit. In practice, however, unemployment jumped to 25%, a level grossly in excess of IMF estimates, and which also placed the entire economic theory underlying the austerity approach in jeopardy.
For the decrease in tax revenues associated with a 17% contraction in the economy, combined with an official unemployment rate of 25%, is of such magnitude that the government deficit reduction targets can no longer be met.
A loop was created in which the economic damage associated with reducing government spending - even while increasing tax rates - was so great that it offset the enhanced revenues expected from this combined "austerity" strategy.
The issue is what economists refer to as the fiscal multiplier– and this is what the IMF so badly underestimated. What they failed to fully take into account is that when all those beneficiaries of government spending lost their income - whether they be government employees, private contractors or transfer beneficiaries - they would stop spending their income.
So when the corporations, and municipalities, and waiters, and cooks, and convenience store employees whose jobs were dependent on that spending saw a contraction in their own revenues, they spent less as well. Which led to reduced employment, and a further reduced economy that spiraled down in a multiplier effect, causing the Greek economy to contract three times more than expected, even as unemployment levels grew to a level that was almost twice as high as expected.
Bigger Problems In The United States
Greece is not the only nation that has what could be called an "artificial" economy, if we define an artificial economy as being one where both economic output and employment levels are each materially dependent on the government borrowing money that it can't possibly pay back under normal circumstances.
And arguably the globe's largest "artificial" economy is also the globe's largest economy – which is that of the United States of America.
As I have previously covered in detail in a series of articles which includes, "The Economic Deception At The Heart Of The Fiscal Cliff", linked below, the economic situation in the United States is in fact much worse than what can be seen at the surface level of government statistics and the financial media's reporting thereof.
http://danielamerman.com/articles/2012/FiscalC.html
And this can be established quite easily by going directly to the government's own statistics themselves, and looking underneath the headline statistics, to the next level below.
The government share of the United States economy has been growing for many decades now, fundamentally transforming the country as a result. And by 2007, the United States economy had reached the extraordinary point (outside of a major war) where the government was consuming a full 35% of the economy. That is, government spending amounted to 35% of the economy, and 65% was the private sector.
Then something remarkable happened. At the height of the Financial Crisis of 2008, the private economy imploded by $1.3 trillion per year when it came to the real private production of goods and services. This was a catastrophic decline that if left untouched, would have pushed the United States straight into an overt Depression.
But this implosion, while confirmed in the government's own statistics and very real, is not what the government's surface level reporting of GDP shows at all. Instead, what the official statistics indicate on that top level is that there was "only" a $300 billion contraction in the economy, with the recession officially having ended in June 2009.
Wait, what? How could it be that if the private sector within the economy plummeted by $1.3 trillion, that the total economy only fell by $300 billion?
Well, when it comes to desperate governments in a time of economic collapse, there turns out to be a bit of a loophole. And that is that when GDP is reported by the media, what is reported is almost always total GDP - which is the sum of economic activity by the private sector and the public sector. So in looking only at total GDP then, any catastrophic declines in private economic activity can be effectively masked by equally extraordinary increases in public spending - at least temporarily.
That obscure little loophole is the hidden-but-real story behind 2009, and every year since. In practice, the difference between the actual government-reported $1.3 trillion collapse in the private sector, and the officially reported $300 billion decline in the total economy, came from federal, state and local governments increasing their spending by a staggering $1 trillion between 2008 and 2009.
This resulted in a massive and unprecedented shift in spending as the government soared in size, even as simultaneously the private sector was collapsing in size. So the economy nearly instantly shifted from being 35% government and 65% private, to being 43% government and 57% private – a level which remains in approximate terms true today.
So when we look at these fantastic levels of deficits that have been consistently coming in at well over $1 trillion per year, what we have in fact been seeing is the increase in the size of the government from 35% to 43% of the overall economy, in order to maintain the facade of an intact economy.
In other words, since the fall of 2008, a substantial chunk of the US economy has been "artificial". The private-sector imploded. It has not recovered to this day. And the great majority of damage containment has been dependent on the United States government running unsustainable deficits, of which it lacks the ability to pay back under ordinary circumstances.
Dire Lessons For The US From Greece
Here are some questions that may be worth considering: what happens to economic output and employment if we were to unwind the crisis-averting "artificial" economy in the United States, and bring the ratio between private sector-created wealth and government spending back to pre-2009 levels, and thereby return deficits to sustainable levels?
What might the real price be of returning to "normal"? And can we get there at all in the near future?
The size of fiscal multipliers for government spending has been a highly controversial question within economics for many years now.
In previous articles, I chose to neutralize the fiscal multiplier controversy by taking the analytically conservative approach of assuming the fiscal multiplier to be 1.0. So if we reduced government spending as a percentage of the economy to a pre-2008 level, then we would see exactly proportionate reductions in the size of the economy, as well as proportionate increases in unemployment rates.
However, the dire lesson to take away from Greece is that if the United States government were in fact to abandon its "artificial" economy and return to spending no more than it could afford to pay, based upon tax revenues and a much reduced level of annual deficits to a more historical level, then a likely higher fiscal multiplier could translate to a change in the economy that is much more drastic than even that.
If the lessons of Greece do indeed apply to the US economy, then the unfortunate implications are that reducing government spending as a percentage of the economy to let's say 2007 levels might cause the economy to drop not by 5-6%, but by 8% to 10%. This would take the United States straight into an overt depression.
And unemployment could go from our current headline rate of 7.6% - with the real full unemployment rate (adjusting for U-6 unemployment and workforce participation rate changes) of roughly 19% - soaring up to a real full unemployment rate of 25-30% or more, which would be a higher level than during the Great Depression.
Now whether those numbers would actually occur - or whether they'd be something else altogether - would be a massive experiment, and nobody can really know at this point.
But what we do now know, based upon real-world data from this leaked IMF report on their experience with Greece, is that the consequences may be much worse than what even some of the leading economists in the world anticipated they might be, because the fiscal multiplier in practice has proven in these circumstances to be much higher than previously thought.
IMF Discovery & False Dichotomy
The second half of the article is linked below. As explored therein, when we consider the full implications of the interrelationship between the fiscal multiplier and the extraordinary current deficit levels - the mainstream version of the future simply doesn't add up. We can't stop and we also can't afford not to stop. But that doesn't mean that collapse is necessary, either.
Continue Reading The Article
Daniel R. Amerman, CFA
Website: http://danielamerman.com/
http://www.marketoracle.co.uk/Article41360.html
SEC votes to lift 80-year-old ban on hedge-fund advertising
BY DAVE MICHAELS
BLOOMBERG
JULY 10, 2013
Hedge funds and other companies seeking private investments will be allowed to advertise publicly for funding under a rule approved today by the U.S. Securities and Exchange Commission.
The rule, which passed under a 4-1 vote, is the first one mandated by last year’s Jumpstart Our Business Startups Act to be completed by the SEC. A deadline for the regulation set by Congress lapsed more than a year ago.
The rule will ease 80 years of advertising restrictions intended to help ensure small investors aren’t lured into taking inappropriate risks. Under the measure, startups and other small companies would also be able to use advertising to raise unlimited amounts of money.
“Given the explicit language of the JOBS Act as well as the statutory deadline which passed last July, the commission should act without any further delay,” SEC Chairman Mary Jo White said. “This does not mean, however, that the commission should not take steps to pursue additional investor safeguards if and where such measures become needed.”
The rule affects how companies raise money through private offerings, which are exempt from requirements to publicly report financial statements. Private offers are restricted to investors with a net worth of at least $1 million excluding their primary residence, who are considered better positioned to take the risks of investing with less information.
“It changes the whole paradigm of who you can talk to,” said Brian J. Lane, a former division director at the SEC and now a partner at Gibson, Dunn & Crutcher LLP in Washington. “Hedge funds will benefit because they have the most restrictions on their ability to communicate more broadly about different funds coming to market.”
Raising Capital
Companies raised $899 billion through private offers last year, compared with $228 billion through registered sales of stock and $976 billion through sales of public debt, according to the SEC. Firms raising capital through private offers decide what information to share with investors.
State securities regulators say private offers were the most common product leading to enforcement actions in 2011. The North American Securities Administrators Association protested the SEC’s plan for lifting the advertising ban after it was proposed in August. The state regulators said the SEC’s plan failed to provide guidance to companies about appropriate advertising and didn’t include any investor protections.
The rule proved controversial at the five-member commission. Democratic Commissioner Luis A. Aguilar, who voted against the rule, said it leaves investors unprotected against a greater risk of fraud.
“Without common-sense protections, general solicitation will prove be a great boon to the fraudster,” Aguilar said in a statement prepared for today’s meeting. “Experience tells us that this will lead to economic disaster for many investors.”
Fellow Democratic Commissioner Elisse B. Walter voted for the rule, saying the SEC will scrutinize how advertising is used and will pursue additional investor protections in a separate rule.
“Technology has rapidly and permanently altered the ways in which we communicate with each other,” Walter said. “Congress recognized that and directed us to update” the regulation by removing the advertising ban.
Changes Recommended
An SEC advisory committee recommended in October that the commission rewrite the proposal while seeking to ensure better compliance with a required form that tracks the initial offer. The committee also said the SEC should restrict the number of people eligible to invest by refining the definition of an “accredited investor,” or those considered rich enough to understand the risks and withstand an adverse outcome. About 7.4% of U.S. investors meet the definition.
“They have decided to allow blast marketing of private offerings without any meaningful adjustments to the regulatory structure,” said Mercer E. Bullard, a professor of law at the University of Mississippi and founder of investor advocacy group Fund Democracy. “It’s a complete repudiation of virtually all of the concerns expressed by two Democratic commissioners and the SEC’s own investor advisory committee.”
Two Methods
The SEC’s rule specifies two methods for companies to verify a person is qualified to participate, while giving them flexibility to determine other ways. Companies can review federal-tax documents to check the income of the purchaser or get confirmation of a person’s income or wealth from a registered broker, investment adviser, licensed attorney or certified public accountant.
The limit to sell only to accredited investors explains why many hedge funds probably won’t respond to the rule change by taking out print and television ads seeking new investors, said David S. Guin, a partner at Withers Bergman LLP whose clients include hedge funds.
Instead, the rule may free up hedge-fund managers to communicate more freely at conferences and to offer more information about fund performance on their websites, Guin said in a phone interview.
“You wouldn’t expect the type of person who is typically sought as an investor to be investing off of an ad in a newspaper or magazine,” Guin said.
Operating Companies
Operating companies also will be able to advertise for investors after the ban is lifted. They’ll benefit because they’ll be able to reach “a much broader audience than they would be able to with their own contacts,” Guin said.
In an effort to address questions about deception, the commission approved a new proposal, on a 3-2 vote, that seeks to monitor how advertising is used and whether it contributes to more fraud. The SEC also approved a rule that blocks felons and others found culpable of securities-law violations from marketing private offers, which are more lightly regulated than public offers of stock or debt.
The three-step process allows White to complete the required rulemaking before two new commissioners replace Walter and Commissioner Troy A. Paredes later this summer. Paredes and fellow Republican Commissioner Daniel M. Gallagher voted to lift the ban.
“We want this new market and the private markets in general to thrive in a safe and efficient manner, and the rules we adopt today are designed to achieve that objective,” White said.
Paredes and Gallagher voted against the proposal to add new rules to private offers, saying it would restrict their role in capital formation.
“The proposal, if adopted, would undermine the JOBS Act goal of spurring our economy and job creation,” Paredes said.
Under the proposal, advertising would have to include cautionary statements about the risk of the investment and a disclosure that the offer is open only to accredited investors.
Companies raising money through private offers also would be required to file a required statement, known as Form D, to the SEC 15 days before the offer closes. The form would include information on the type of advertising used. Companies would have to update the information contained in the form within 30 days of completing the offer.
Companies that failed to comply with the form requirements would be disqualified from conducting a private offer for one year.
Sales Literature
The proposal also would alter SEC guidance to make private funds such as hedge funds accountable for fraudulent or misleading sales literature. Investor advocates such as the Consumer Federation of America have expressed skepticism about whether the proposal will ever be adopted.
“I don’t think it’s a hopeless exercise but there are a lot of examples where the SEC just can’t get proposals to fruition,” Bullard said in a phone interview. “To be fair, it was either do something now or wait probably at least two or three months after the new commissioners are in place.”
www.bloomberg.com
http://www.futuresmag.com/2013/07/10/sec-votes-to-lift-80-year-old-ban-on-hedge-fund-ad?t=regulations
Great article basserdan. Nice pick for today's cartoon, "Gold in Sacks" good one!
William Kaye: The German Gold Is Gone
Posted by Jesse
at 1:50 PM 09 July 2013
(special thanks to basserdan)
Inspector Gregory: "Is there any other point to which you would wish to draw my attention?"
Sherlock Holmes: "To the curious incident of the dog in the night-time."
Inspector Gregory: "The dog did nothing in the night-time."
Sherlock Holmes: "That was the curious incident."
-Arthur Conan Doyle, Silver Blaze
There is some speculation in this interview excerpted below, but I think it raises important issues that need to be addressed more fully and frankly to eliminate the need for speculation.
The leasing of gold, and the disposition of it by the central banks, including of course the Fed and the Treasury, is remarkably opaque considering that they do not own this gold, but merely hold it in custody for other parties, primarily the people of the nation that claims ownership.
As you know I have wondered if it was the realization that the German gold was not readily obtainable that triggered the heavy handed market operation, a stealth confiscation if you will ( http://tinyurl.com/n9zydpn ), to free up gold from the ETFs, from the beginning of the year, when the Bundesbank presented a formal request for repatriation on behalf of, and furthermore at the insistence of, the German people.
The Fed has been resolutely and somewhat obtusely silent on this subject, even in the face of such absurd statements that the German people may have their gold back, but must wait seven years for it. And this is a relatively nominal amount of gold given the flows in the world markets!
Also as you may recall, there were reports earlier this year of large quantities of gold leaving New York en route to refiners in South Africa for reprocessing ( http://tinyurl.com/mn5jd5p ). They were large enough to show up in official reports. They were attributed to slack capacity in that country because of the gold mine strikes. And the amounts seemed to be far in excess of the normal 'scrap market.'
One might wonder if this was to change the nature of the gold from New York and London, to remove any existing hallmarks of ownership, and to convert it to the 400 oz. sizing and quality demanded by the Asian market.
This may or may not be the case. But the intransigence of the Fed, the Treasury and the Bank of England to submit to meaningful audits by independent parties in the face of such repeated claims of crony dealings with the bullion banks is almost incredible to otherwise understand. A seven years delay to return property held in trust?
I do not feel the need to impute a motive such as Mr. Kaye does that the leasing is intended to cap the price of gold, although it is certainly possible. Current bank practices are sufficient. I think making a cheap source of rehypothecated collateral available for the favored TBTF banks is fully in line with current central banking practices, even to the extent of reusing the same asset multiple times so that ownership often becomes a somewhat vaguely philosophical concept.
When does a custodian deny legitimate and official requests from other governments and domestic bodies for an audit of assets held in custody? Is the government imitating Bernie Madoff or Jon Corzine now in refusing to disclose the details of its transactions and potential rehypothcation of customer assets? The lack of inquiry on behalf of the media is bewildering.
Kaye raises some serious questions in this article below which I would suggest you read in its entirety. And they are easily addressed, if they can be done so openly and honestly.
An answer is owed to the people of Germany at the least. And it is a shame to their politicians that they will not ask it, and even demand it, on their behalf. As Sophie Scholl once said, a people deserve the government which they are willing to tolerate.
"My sources tell me that contrary to the public numbers that are available, China has anywhere between 4,000 to possibly 8,000 tons of (physical) gold....
In practice how that (leasing) works is the Fed would contact their agent, typically JP Morgan, sometimes Goldman Sachs, and they would say, ‘OK, the gold price needs to be capped, so here is 20, 30, 40, 50 tons (of gold) that we’re going to lease out to you as our agent. But in theory we can call it back.’
That’s a great theory, but in reality it’s nonsense because once JP Morgan and Goldman Sachs get the gold they sell it into the market. So these bullion banks then become net-short gold. And the Fed says, ‘Well, we still have a contract where in theory we can claim the gold. So we’re going to report that we still own it in the official documents.’
But in reality the gold has been sold into the market. That gold winds up in places like Beijing. But before it gets to Beijing it frequently goes through Hong Kong. And when it goes to Hong, it goes to our refiner, the same people we use...
That gold, which could have had the symbol of the Bundesbank on it when it arrived in Hong Kong, a leading refiner, one of the biggest in the world that deals with the People’s Bank of China (PBOC), certified that, ‘Yes, we’ve got gold available that we can deliver. We’ve melted it down, we’ve tested it. It may have had the Bundesbank symbol on it when it arrived, but now it’s melted down gold...'"
Read the entire interview with William Kaye at KWN here : http://tinyurl.com/l5cxzow
Posted by Jesse at 1:50 PM
http://jessescrossroadscafe.blogspot.com/2013/07/william-kaye-german-gold-is-gone.html
If You Own Gold, You Must See This Chart…
By Keith Fitz-Gerald, Chief Investment Strategist
Money Morning
July 10, 2013
What I'm about to say will challenge even the most steadfast gold bears - or anyone for that matter right now who thinks that gold has seen its better days.
The chart below tells a story - a big story. In fact, I encourage you to forward this email to anyone you know who serious about his money.
What I found here, with the help of Frank Holmes from U.S. Global and one of the smartest people on earth on the potent combination of Asian markets and commodities, is a chart that shows a truly astounding fact about gold.
Let me walk you through it, and what it could mean to your money, your gold and your financial future.
(Chart at link below)
Courtesy U.S. Global Advisors
The grey backdrop is total world mining production. The blue vertical lines represent COMEX gold deliveries. And the big long vertical red lines? That's physical gold delivery on the Shanghai gold exchange.
The takeaway? - Chinese demand for physical delivery all by itself is nearly equal to total worldwide gold production.
That's not a misprint.
In fact, so far this year Chinese deliveries through the Shanghai exchange account for nearly 50% of total global production all by themselves. The COMEX that's part of the New York Mercantile Exchange is almost an afterthought.
This is about as bullish as it gets because the basic laws of supply and demand stipulate that whenever supply is reduced but demand remains constant or accelerates, higher prices result.
No Stopping It
This is as immutable as the sun coming up tomorrow or the grass turning green in the spring.
This is good for the markets in general, especially with Bernanke hell bent on keeping the "bad is good theme alive" when it comes to further stimulus.
And this is positively great for gutsy gold investors at a time when others want to relegate it to the scrap pile.
Imagine what happens when people actually figure out that China is buying so much gold that physical deliveries there could account for 100% of worldwide production by year's end?
The first will be additional opportunities that I expect current volatility to create in the weeks ahead. My Geiger Index is flickering yellow on a handful of solid gold related opportunities.
http://moneymorning.com/2013/07/10/if-you-own-gold-you-must-see-this-chart/
If You Own Gold, You Must See This Chart…
By Keith Fitz-Gerald, Chief Investment Strategist
Money Morning
July 10, 2013
What I'm about to say will challenge even the most steadfast gold bears - or anyone for that matter right now who thinks that gold has seen its better days.
The chart below tells a story - a big story. In fact, I encourage you to forward this email to anyone you know who serious about his money.
What I found here, with the help of Frank Holmes from U.S. Global and one of the smartest people on earth on the potent combination of Asian markets and commodities, is a chart that shows a truly astounding fact about gold.
Let me walk you through it, and what it could mean to your money, your gold and your financial future.
Courtesy U.S. Global Advisors
The grey backdrop is total world mining production. The blue vertical lines represent COMEX gold deliveries. And the big long vertical red lines? That's physical gold delivery on the Shanghai gold exchange.
The takeaway? - Chinese demand for physical delivery all by itself is nearly equal to total worldwide gold production.
That's not a misprint.
In fact, so far this year Chinese deliveries through the Shanghai exchange account for nearly 50% of total global production all by themselves. The COMEX that's part of the New York Mercantile Exchange is almost an afterthought.
This is about as bullish as it gets because the basic laws of supply and demand stipulate that whenever supply is reduced but demand remains constant or accelerates, higher prices result.
No Stopping It
This is as immutable as the sun coming up tomorrow or the grass turning green in the spring.
This is good for the markets in general, especially with Bernanke hell bent on keeping the "bad is good theme alive" when it comes to further stimulus.
And this is positively great for gutsy gold investors at a time when others want to relegate it to the scrap pile.
Imagine what happens when people actually figure out that China is buying so much gold that physical deliveries there could account for 100% of worldwide production by year's end?
The first will be additional opportunities that I expect current volatility to create in the weeks ahead. My Geiger Index is flickering yellow on a handful of solid gold related opportunities.
http://moneymorning.com/2013/07/10/if-you-own-gold-you-must-see-this-chart/
A Historic Inversion: Gold GOFO Rates Turn Negative For The First Time Since Lehman
Submitted by Tyler Durden
07/08/2013
Today, something happened that has not happened since the Lehman collapse: the 1 Month Gold Forward Offered (GOFO) rate turned negative, from 0.015% to -0.065%, for the first time in nearly 5 years, or technically since just after the Lehman bankruptcy precipitated AIG bailout in November 2011. And if one looks at the 3 Month GOFO, which also turned shockingly negative overnight from 0.05% to -0.03%, one has to go back all the way to the 1999 Washington Agreement on gold, to find the last time that particular GOFO rate was negative.
Before we get into the implications of this rather historic inversion, let's review the basics:
What is GOFO (Gold Forward Offered Rates)?
GOFO stands for Gold Forward Offered Rate. These are rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods.
Who provides the rates?
The contributors are the Market Making Members of the LBMA: The Bank of Nova Scotia–ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG.
When are the rates quoted?
The means are set at 11 am London time. These are the rates shown on the LBMA website. To show derived gold lease rates, the GOFO means are subtracted from the corresponding values of the LIBOR (London Interbank Offered Rates) US dollar means. These rates are also available on the LBMA website.
How are the GOFO means established?
At 10.30 am London time, the Reuters page is cleared of all rates. Contributors then enter their rates for all time periods. A minimum of six contributors must enter rates in order for the means to be calculated. At 11.00 am, the mean is established for each maturity by discarding the highest and lowest quotations in each period and averaging the remaining rates.
What are some uses for GOFO means in the market?
They provide a basis for some finance and loan agreements as well as for the settlement of gold Interest Rate Swaps.
* * *
Unpleasant similarities with Libor and most other fixed (literally and metaphorically) rates aside, what is known is that under normal market conditions, GOFO is always positive, or in other words gold serves as a money-equivalent collateral for a pseudo-secured loan against paper fiat (USD in this case) hence the low interest rate.
Sometimes, however, normality inverts and the rate goes negative and as such serves as a useful indicator of gold market dislocations. Thus, while disagreements exists, one can safely say that what GOFO is, is simply a blended indicator of liquidity, counterparty or collateral (physical availability) stress in the gold market. Since it is next to impossible to isolate just which component is causing the indicated disturbance, it is prudent to be on watch for all three.
The best known example of a complete collapse in the GOFO rate, is the September 1999 Washington Agreement on Gold, which in brief, was an imposed "cap" on gold sales (mostly European in the afteramth of Gordon Brown's idiotic sale of UK's gold) to the tune of 400 tons per year. The tangent of the Washington Agreement is quite interesting in its own right. Recall the words of Milling-Stanley from the 12th Nikkei Gold Conference:
"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement...At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.
"Several of the central bankers involved had said repeatedly they had no intention of selling any of their gold, but they had been saying that as individuals—and no-one had taken any notice. I think that is what Mr. Duisenberg meant when he said they were making this statement to clarify their intentions."
Of course, this happened in a time long ago, when the primacy of Fractional reserve banking was sacrosanct, when the first Greenspan credit bubble (dot com) was yet to appear, and when barbarous relics were indeed a thing of the past, only to be proven oh so contemporary following not one, not two, but three subsequent cheap-credit bubbles which have vastly undermined the religious faith in fiath and central banking, sending the price of gold to all time highs as recently as 2011.
Another subsequent negative GOFO episode occurred in early 2001, which coincided with what has been rumored to be a speculative attack and reversal of the futures market. However, while pushing 1 month rates negative, 3 month rates remained well positive.
Indeed, the only other time when both 1M and 3M GOFOs were both negative or almost so (3M touched on 0.05%) was in the aftermath of the AIG bailout following the Lehman collapse in November 2008.
Fast forward to today, when both 1M and 3M GOFOs just went negative.
And while both Antal Fekete and Sandeep Jaitly, traditionally two of the most vocal pundits in the arena of gold backwardation and temporal and collateral gold market arbritrage, are likely come up with their own interpretations of what may be causing this historic inversion, the reality is that one can't know for sure until after the fact. It may be one of many things:
* An ETF-induced repricing of paper and physical gold
* Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.
* Liquidations in the paper gold market
* A shortage of physical gold for a non-bullion bank market participant
* A major fund unwinding a futures pair trade involving at least one gold leasing leg
* An ongoing bullion bank failure with or without an associated allocated gold bank "run"
* All of the above
The answer for now is unknown. What is known is that something very abnormal, and even historic, is afoot at the nexus of the gold fractional reserve lending market.
h/t S Roche
http://www.zerohedge.com/news/2013-07-08/historic-inversion-gold-gofo-rates-turn-negative-first-time-lehman
A Historic Inversion: Gold GOFO Rates Turn Negative For The First Time Since Lehman
Submitted by Tyler Durden 07/08/2013
Today, something happened that has not happened since the Lehman collapse: the 1 Month Gold Forward Offered (GOFO) rate turned negative, from 0.015% to -0.065%, for the first time in nearly 5 years, or technically since just after the Lehman bankruptcy precipitated AIG bailout in November 2011. And if one looks at the 3 Month GOFO, which also turned shockingly negative overnight from 0.05% to -0.03%, one has to go back all the way to the 1999 Washington Agreement on gold, to find the last time that particular GOFO rate was negative.
Before we get into the implications of this rather historic inversion, let's review the basics:
What is GOFO (Gold Forward Offered Rates)?
GOFO stands for Gold Forward Offered Rate. These are rates at which contributors are prepared to lend gold on a swap against US dollars. Quotes are made for 1-, 2-, 3-, 6- and 12-month periods.
Who provides the rates?
The contributors are the Market Making Members of the LBMA: The Bank of Nova Scotia–ScotiaMocatta, Barclays Bank Plc, Deutsche Bank AG, HSBC Bank USA London Branch, Goldman Sachs, JP Morgan Chase Bank, Société Générale and UBS AG.
When are the rates quoted?
The means are set at 11 am London time. These are the rates shown on the LBMA website. To show derived gold lease rates, the GOFO means are subtracted from the corresponding values of the LIBOR (London Interbank Offered Rates) US dollar means. These rates are also available on the LBMA website.
How are the GOFO means established?
At 10.30 am London time, the Reuters page is cleared of all rates. Contributors then enter their rates for all time periods. A minimum of six contributors must enter rates in order for the means to be calculated. At 11.00 am, the mean is established for each maturity by discarding the highest and lowest quotations in each period and averaging the remaining rates.
What are some uses for GOFO means in the market?
They provide a basis for some finance and loan agreements as well as for the settlement of gold Interest Rate Swaps.
* * *
Unpleasant similarities with Libor and most other fixed (literally and metaphorically) rates aside, what is known is that under normal market conditions, GOFO is always positive, or in other words gold serves as a money-equivalent collateral for a pseudo-secured loan against paper fiat (USD in this case) hence the low interest rate.
Sometimes, however, normality inverts and the rate goes negative and as such serves as a useful indicator of gold market dislocations. Thus, while disagreements exists, one can safely say that what GOFO is, is simply a blended indicator of liquidity, counterparty or collateral (physical availability) stress in the gold market. Since it is next to impossible to isolate just which component is causing the indicated disturbance, it is prudent to be on watch for all three.
The best known example of a complete collapse in the GOFO rate, is the September 1999 Washington Agreement on Gold, which in brief, was an imposed "cap" on gold sales (mostly European in the afteramth of Gordon Brown's idiotic sale of UK's gold) to the tune of 400 tons per year. The tangent of the Washington Agreement is quite interesting in its own right. Recall the words of Milling-Stanley from the 12th Nikkei Gold Conference:
"Central bank independence is enshrined in law in many countries, and central bankers tend to be independent thinkers. It is worth asking why such a large group of them decided to associate themselves with this highly unusual agreement...At the same time, through our close contacts with central banks, the Council has been aware that some of the biggest holders have for some time been concerned about the impact on the gold price—and thus on the value of their gold reserves—of unfounded rumours, and about the use of official gold for speculative purposes.
"Several of the central bankers involved had said repeatedly they had no intention of selling any of their gold, but they had been saying that as individuals—and no-one had taken any notice. I think that is what Mr. Duisenberg meant when he said they were making this statement to clarify their intentions."
Of course, this happened in a time long ago, when the primacy of Fractional reserve banking was sacrosanct, when the first Greenspan credit bubble (dot com) was yet to appear, and when barbarous relics were indeed a thing of the past, only to be proven oh so contemporary following not one, not two, but three subsequent cheap-credit bubbles which have vastly undermined the religious faith in fiath and central banking, sending the price of gold to all time highs as recently as 2011.
Another subsequent negative GOFO episode occurred in early 2001, which coincided with what has been rumored to be a speculative attack and reversal of the futures market. However, while pushing 1 month rates negative, 3 month rates remained well positive.
Indeed, the only other time when both 1M and 3M GOFOs were both negative or almost so (3M touched on 0.05%) was in the aftermath of the AIG bailout following the Lehman collapse in November 2008.
Fast forward to today, when both 1M and 3M GOFOs just went negative.
And while both Antal Fekete and Sandeep Jaitly, traditionally two of the most vocal pundits in the arena of gold backwardation and temporal and collateral gold market arbritrage, are likely come up with their own interpretations of what may be causing this historic inversion, the reality is that one can't know for sure until after the fact. It may be one of many things:
* An ETF-induced repricing of paper and physical gold
* Ongoing deliverable concerns and/or shortages involving one (JPM) or more Comex gold members.
* Liquidations in the paper gold market
* A shortage of physical gold for a non-bullion bank market participant
* A major fund unwinding a futures pair trade involving at least one gold leasing leg
* An ongoing bullion bank failure with or without an associated allocated gold bank "run"
* All of the above
The answer for now is unknown. What is known is that something very abnormal, and even historic, is afoot at the nexus of the gold fractional reserve lending market.
h/t S Roche
http://www.zerohedge.com/news/2013-07-08/historic-inversion-gold-gofo-rates-turn-negative-first-time-lehman
No Hope On The Jobs Front: Rising Unemployment in America
By Dr. Paul Craig Roberts
Global Research
July 05, 2013
Do you remember the promise of the New Economy that was going to replace the lost “dirty fingernail” manufacturing jobs with innovative highly paid New Economy jobs? Well, the promise was just another deception from the elites who have stolen Americans’ future.
For the umpteenth consecutive month and year, the June BLS payroll jobs report (released on July 5) shows that the US economy has created no such jobs. The same old tired categories account for the same old lowly paid new domestic service jobs.
Of the 195,000 new private sector jobs alleged to have been created, 75,000 or 38% are accounted for by the category “leisure and hospitality.” Within this category there were 52,000 new waitresses and bartenders, and 19,000 jobs in “amusements gambling, and recreation.”
Retail trade added 37,000 employees. Is your local shopping center that busy?
Wholesale trade added 11,000.
Zero Hedge points out that the retail and wholesale jobs numbers seem inconsistent with the latest report from the Institute of Supply Management, which shows a sharp drop in new order components and business activity.
www.zerohedge.com/news/2013-07-03/non-manufacturing-ism-crashes-lowest-february-2010-new-orders-devastated-july-2009-l
Perhaps the New Economy’s inefficiency requires more people to sell less.
Professional and business services added, allegedly, 53,000 jobs, which are largely building management services, janitors, employment services, and temporary help.
Ambulatory health care services added 13,000 jobs.
Financial activities allegedly added 17,000 jobs despite the Bank of America moving its property appraisals to India.
www.bizjournals.com/charlotte/blog/morning-edition/2013/07/bank-of-america-routing-property.html?ana=lnk
Local government, despite severe budget cuts, added 13,000 jobs.
The BLS news release points out that the number of involuntary part-time workers (the number of people who are unable to find full-time jobs or whose hours were cut back) increased by 322,000 in June to 8.2 million.
This deplorable report provided the cover for the market riggers to take the stock market up and the gold market down. Remember that economic theory about “rational markets”? Another deception.
About the author:
Paul Craig Roberts, former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal, has held numerous university appointments. He is a frequent contributor to Global Research.
http://www.globalresearch.ca/no-hope-on-the-jobs-front-rising-unemployment-in-america/5341808
Think Your Money is Safe in an Insured Bank Account? Think Again.
By Ellen Brown
Global Research
July 05, 2013
A trend to shift responsibility for bank losses onto blameless depositors lets banks gamble away your money.
When Dutch Finance Minister Jeroen Dijsselbloem told reporters on March 13, 2013, that the Cyprus deposit confiscation scheme would be the template for future European bank bailouts, the statement caused so much furor that he had to retract it. But the “bail in” of depositor funds is now being made official EU policy. On June 26, 2013, The New York Times reported that EU finance ministers have agreed on a plan that shifts the responsibility for bank losses from governments to bank investors, creditors and uninsured depositors.
Insured deposits (those under €100,000, or about $130,000) will allegedly be “fully protected.” But protected by whom? The national insurance funds designed to protect them are inadequate to cover another system-wide banking crisis, and the court of the European Free Trade Association ruled in the case of Iceland that the insurance funds were not intended to cover that sort of systemic collapse.
Shifting the burden of a major bank collapse from the blameless taxpayer to the blameless depositor is another case of robbing Peter to pay Paul, while the real perpetrators carry on with their risky, speculative banking schemes.
Shuffling the Deck Chairs on the Titanic
Although the bail-in template did not hit the news until it was imposed on Cyprus in March 2013, it is a global model that goes back to a directive from the Financial Stability Board (an arm of the Bank for International Settlements) dated October 2011, endorsed at the G20 summit in December 2011. In 2009, the G20 nations agreed to be regulated by the Financial Stability Board; and bail-in policies have now been established for the US, UK, New Zealand, Australia, and Canada, among other countries. (See earlier articles here and here.)
The EU bail-in plan, which still needs the approval of the European Parliament, would allow European leaders to dodge something they evidently regret having signed, the agreement known as the European Stability Mechanism (ESM). Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, said on March 13 that “the aim is for the ESM never to have to be used.”
Passed with little publicity in January 2012, the ESM imposes an open-ended debt on EU member governments, putting taxpayers on the hook for whatever the ESM’s overseers demand. Two days before its ratification on July 1, 2012, the agreement was modified to make the permanent bailout fund cover the bailout of private banks. It was a bankers’ dream – a permanent, mandated bailout of private banks by governments. But EU governments are now balking at that heavy commitment.
In Cyprus, the confiscation of depositor funds was not only approved but mandated by the EU, along with the European Central Bank (ECB) and the IMF. They told the Cypriots that deposits below €100,000 in two major bankrupt banks would be subject to a 6.75 percent levy or “haircut,” while those over €100,000 would be hit with a 9.99 percent “fine.” When the Cyprus national legislature overwhelming rejected the levy, the insured deposits under €100,000 were spared; but it was at the expense of the uninsured deposits, which took a much larger hit, estimated at about 60 percent of the deposited funds.
The Elusive Promise of Deposit Insurance
While the insured depositors escaped in Cyprus, they might not fare so well in a bank collapse of the sort seen in 2008-09. As Anne Sibert, Professor of Economics at the University of London, observed in an April 2nd article on VOX:
Even though it wasn’t adopted, the extraordinary proposal that small depositors should lose a part of their savings – a proposal that had the approval of the Eurogroup, ECB and IMF policymakers – raises the question: Is there any credible protection for small-bank depositors in Europe?
She noted that members of the European Economic Area (EEA) – which includes the EU, Switzerland, Norway and Iceland – are required to set up deposit-insurance schemes covering most depositors up to €100,000, and that these schemes are supposed to be funded with premiums from the individual country’s banks. But the enforceability of the EEA insurance mandate came into question when the Icelandic bank Icesave failed in 2008. The matter was taken to the court of the European Free Trade Association, which said that Iceland did not breach EEA directives on deposit guarantees by not compensating U.K. and Dutch depositors holding Icesave accounts. The reason: “The court accepted Iceland’s argument that the EU directive was never meant to deal with the collapse of an entire banking system.” Sibert comments:
[T]he precedents set in Cyprus and Iceland show that deposit insurance is only a legal commitment for small bank failures. In systemic crises, these are more political than legal commitments, so the solvency of the insuring government matters.
The EU can mandate that governments arrange for deposit insurance, but if funding is inadequate to cover a systemic collapse, taxpayers will again be on the hook; and if they are unwilling or unable to cover the losses (as occurred in Cyprus and Iceland), we’re back to the unprotected deposits and routine bank failures and bank runs of the 19th century.
In the US, deposit insurance faces similar funding problems. As of June 30, 2011, the FDIC deposit insurance fund had a balance of only $3.9 billion to provide loss protection on $6.54 trillion of insured deposits. That means every $10,000 in deposits was protected by only $6 in reserves. The FDIC fund could borrow from the Treasury, but the Dodd-Frank Act (Section 716) now bans taxpayer bailouts of most speculative derivatives activities; and these would be the likely trigger of a 2008-style collapse.
Derivatives claims have “super-priority” in bankruptcy, meaning they take before all other claims. In the event of a major derivatives bust at JPMorgan Chase or Bank of America, both of which hold derivatives with notional values exceeding $70 trillion, the collateral is liable to be gone before either the FDIC or the other “secured” depositors (including state and local governments) get to the front of the line. (See here and here.)
Who Should Pay?
Who should bear the loss in the event of systemic collapse? The choices currently on the table are limited to taxpayers and bank creditors, including the largest class of creditor, the depositors. Imposing the losses on the profligate banks themselves would be more equitable , but if they have gambled away the money, they simply won’t have the funds. The rules need to be changed so that they cannot gamble the money away.
One possibility for achieving this is area-wide regulation. Sibert writes:
[I]t is unreasonable to expect the area as a whole to bail out a particular country’s banks unless it can also supervise that country’s banks. This is problematic for the EEA or even the EU, but it may be possible – at least in the Eurozone – when and if [a] single supervisory mechanism comes into being.
A single regulatory agency for all Eurozone banks is being negotiated; but even if it were agreed to, the US experience with the Dodd-Frank regulations imposed on US banks shows that regulation alone is inadequate to curb bank speculation and prevent systemic risk. In a July 2012 article in The New York Times titled “Wall Street Is Too Big to Regulate,” Gar Alperovitz observed:
With high-paid lobbyists contesting every proposed regulation, it is increasingly clear that big banks can never be effectively controlled as private businesses. If an enterprise (or five of them) is so large and so concentrated that competition and regulation are impossible, the most market-friendly step is to nationalize its functions.
The Nationalization Option
Nationalization of bankrupt, systemically-important banks is not a new idea. It was done very successfully, for example, in Norway and Sweden in the 1990s. But having the government clean up the books and then sell the bank back to the private sector is an inadequate solution. Economist Michael Hudson maintains:
Real nationalization occurs when governments act in the public interest to take over private property. . . . Nationalizing the banks along these lines would mean that the government would supply the nation’s credit needs. The Treasury would become the source of new money, replacing commercial bank credit. Presumably this credit would be lent out for economically and socially productive purposes, not merely to inflate asset prices while loading down households and business with debt as has occurred under today’s commercial bank lending policies.
Anne Sibert proposes another solution along those lines. Rather than imposing losses on either the taxpayers or the depositors, they could be absorbed by the central bank, which would have the power to simply write them off. As lender of last resort, the central bank (the ECB or the Federal Reserve) can create money with computer entries, without drawing it from elsewhere or paying it back to anyone.
That solution would allow the depositors to keep their deposits and would save the taxpayers from having to pay for a banking crisis they did not create. But there would remain the problem of “moral hazard” – the temptation of banks to take even greater risks when they know they can dodge responsibility for them. That problem could be avoided, however, by making the banks public utilities, mandated to operate in the public interest. And if they had been public utilities in the first place, the problems of bail-outs, bail-ins, and banking crises might have been averted altogether.
Ellen Brown is an attorney, president of the Public Banking Institute, and author of twelve books, including Web of Debt and its recently-published sequel The Public Bank Solution. Her websites are http://WebofDebt.com, http://PublicBankSolution.com, and http://PublicBankingInstitute.org.
http://www.globalresearch.ca/think-your-money-is-safe-in-an-insured-bank-account-think-again/5341812
The Big Banks On Trial, Again
By SHAH GILANI, Capital Wave Strategist
Money Morning July 3, 2013
You want to know why the entire global financial system almost collapsed in 2008?
There seems to be a simple answer. Not encouraging, but simple: The European Commission is exploring the possibility that there was a conspiracy among 13 of the world's major banks that colluded to keep the entire house of cards a secret.
In a press release Monday the European Commission announced it sent a "statement of objections" to Bank of America Merrill Lynch (BAC), Barclays (BARC), Bear Stearns , BNP Paribas (BNP), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC (HBC), JP Morgan (JPM), Morgan Stanley (MS), Royal Bank of Scotland (RBS), UBS (UBS) as well as the International Swaps and Derivatives Association (ISDA) and data service provider Markit.
This statement of objections is a formal step in EU investigations that charges the banks, the dealers' association, and the swaps pricing agent and index controller of "colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009."
The companies are then expected to answer the charges.
"If, after the parties have exercised their rights of defence, the Commission concludes that there is sufficient evidence of an infringement, it can issue a decision prohibiting the conduct and impose a fine of up to 10% of a company's annual worldwide turnover."
Part of the antitrust behavior of the accused, besides controlling pricing of derivatives to their exclusive benefit, would likely address their complicity in veiling the entire market to deflect fears of counterparty exposure, concentration of risks and leverage in the financial system.
Behind the Veil: Where the Elite Meet
The ISDA, the trade and lobbying group for users of over-the-Counter (OTC) derivatives that was named as a colluding partner, said last August that after eliminating more than $200 trillion in notional value of interest rate and credit-default swaps by cancel ing offsetting trades, on an adjusted basis interest rate swaps totaled $262 trillion.
According to the ISDA's website it has 840 members. There are 196 "primary members" that include all the big banks in the statement of objections and most of the world's trading banks.
Associate members include banks, corporations and some of the most powerful law firms around the world. Among them: Washington power lobbying firm Patton Boggs LLP, bank and securities law firms Davis Polk & Wardwell, Wachtell, Lipton, Rosen & Katz, and Weil Gotshal & Manges.
The ISDA's "subscriber members" include the 12 Federal Home Loan Banks, Freddie Mac and Fannie Mae, the Student Loan Marketing Association (Sallie Mae), New York Life Insurance Company, Intel Corporation (INTC), the Bank of England, Luxembourg and GMAC Inc. are all subscriber members.
Markit, according to its website, "is a private company headquartered in London. The company is owned by employees, private investors, private equity investors and numerous buy-side and sell-side financial institutions."
But Markit wants to change that. The company, which competes with Bloomberg and Thomson Reuters Corp, has been planning a public offering to raise $1 billion.
Outrage Upon Outrage
A Reuters story on June 25 quoted a source saying, "A registration statement for the deal could be filed with U.S. regulators during the fourth quarter of this year, although timing is still in flux and could change depending on market conditions."
The story names Goldman Sachs as the lead coordinator for the deal, but points out Markit's other large stakeholders, including JPMorgan Chase and Bank of America Merrill Lynch want to be lead syndicate partners.
An IPO may be a long way off if Markit, in large part owned by the big banks who also are all primary members of the ISDA, are all accused of antitrust violations and face potential multi-billion dollar fines.
In addition to its current woes, Markit would have to disclose that back in July 2009 the Justice Department's antitrust division had sent civil notices to banks that own Markit to find out if they had unfair access to price information.
Justice, or Just Cold Comfort?
A July 14, 2009 New York Times Dealbook post pointed to William Cohan, a former investment banker and financial crisis commentator, who said any potential investigation into Markit and its owners was overdue.
"The fact that they control Markit and it provides information about the prices of credit default swaps and they've benefited from this for many years without any challenge or investigation was outrageous," he was quoted as saying by Bloomberg News.
To date, nothing has come out of the Justice Department's investigation.
Yet again, the world's biggest banks, those principally responsible for driving the global financial system off a cliff, are being exposed for what they've done and how they did it. That's the bad news - for them.
The good news - for them - is they still have the earnings power to pay whatever fines are levied against them and that no one at the top of any of these criminal enterprises has gone to jail.
http://moneymorning.com/2013/07/03/the-big-banks-on-trial-again/
The Nudge That Will Force Banks to Put More Money Into Treasury Securities
Economic Policy Journal
July 2, 2013
The Federal Reserve is out with a release today announcing that it:
on Tuesday approved a final rule to help ensure banks maintain strong capital positions that will enable them to continue lending to creditworthy households and businesses even after unforeseen losses and during severe economic downturns[...]
"This framework requires banking organizations to hold more and higher quality capital, which acts as a financial cushion to absorb losses, while reducing the incentive for firms to take excessive risks," Chairman Ben Bernanke said. "With these revisions to our capital rules, banking organizations will be better able to withstand periods of financial stress, thus contributing to the overall health of the U.S. economy."
Translation: The rules will require banks to purchase more government securities, rather than make loans to the private sector. The nudge is in.
In a May 1 report,Treasury Borrowing Advisory Committee said banks, over time, will need to buy as much as $5.7 trillion in "safe" assets including government bonds by 2020 to comply with the 2010 Dodd-Frank Act in the U.S., and capital standards set by the Bank for International Settlements in Basel, Switzerlandt.
http://www.economicpolicyjournal.com/2013/07/the-nudge-that-will-force-banks-to-put.html
The Big Banks On Trial, Again
By SHAH GILANI, Capital Wave Strategist
Money Morning July 3, 2013
You want to know why the entire global financial system almost collapsed in 2008?
There seems to be a simple answer. Not encouraging, but simple: The European Commission is exploring the possibility that there was a conspiracy among 13 of the world's major banks that colluded to keep the entire house of cards a secret.
In a press release Monday the European Commission announced it sent a "statement of objections" to Bank of America Merrill Lynch (BAC), Barclays (BARC), Bear Stearns , BNP Paribas (BNP), Citigroup (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), HSBC (HBC), JP Morgan (JPM), Morgan Stanley (MS), Royal Bank of Scotland (RBS), UBS (UBS) as well as the International Swaps and Derivatives Association (ISDA) and data service provider Markit.
This statement of objections is a formal step in EU investigations that charges the banks, the dealers' association, and the swaps pricing agent and index controller of "colluding to prevent exchanges from entering the credit derivatives business between 2006 and 2009."
The companies are then expected to answer the charges.
"If, after the parties have exercised their rights of defence, the Commission concludes that there is sufficient evidence of an infringement, it can issue a decision prohibiting the conduct and impose a fine of up to 10% of a company's annual worldwide turnover."
Part of the antitrust behavior of the accused, besides controlling pricing of derivatives to their exclusive benefit, would likely address their complicity in veiling the entire market to deflect fears of counterparty exposure, concentration of risks and leverage in the financial system.
Behind the Veil: Where the Elite Meet
The ISDA, the trade and lobbying group for users of over-the-Counter (OTC) derivatives that was named as a colluding partner, said last August that after eliminating more than $200 trillion in notional value of interest rate and credit-default swaps by cancel ing offsetting trades, on an adjusted basis interest rate swaps totaled $262 trillion.
According to the ISDA's website it has 840 members. There are 196 "primary members" that include all the big banks in the statement of objections and most of the world's trading banks.
Associate members include banks, corporations and some of the most powerful law firms around the world. Among them: Washington power lobbying firm Patton Boggs LLP, bank and securities law firms Davis Polk & Wardwell, Wachtell, Lipton, Rosen & Katz, and Weil Gotshal & Manges.
The ISDA's "subscriber members" include the 12 Federal Home Loan Banks, Freddie Mac and Fannie Mae, the Student Loan Marketing Association (Sallie Mae), New York Life Insurance Company, Intel Corporation (INTC), the Bank of England, Luxembourg and GMAC Inc. are all subscriber members.
Markit, according to its website, "is a private company headquartered in London. The company is owned by employees, private investors, private equity investors and numerous buy-side and sell-side financial institutions."
But Markit wants to change that. The company, which competes with Bloomberg and Thomson Reuters Corp, has been planning a public offering to raise $1 billion.
Outrage Upon Outrage
A Reuters story on June 25 quoted a source saying, "A registration statement for the deal could be filed with U.S. regulators during the fourth quarter of this year, although timing is still in flux and could change depending on market conditions."
The story names Goldman Sachs as the lead coordinator for the deal, but points out Markit's other large stakeholders, including JPMorgan Chase and Bank of America Merrill Lynch want to be lead syndicate partners.
An IPO may be a long way off if Markit, in large part owned by the big banks who also are all primary members of the ISDA, are all accused of antitrust violations and face potential multi-billion dollar fines.
In addition to its current woes, Markit would have to disclose that back in July 2009 the Justice Department's antitrust division had sent civil notices to banks that own Markit to find out if they had unfair access to price information.
Justice, or Just Cold Comfort?
A July 14, 2009 New York Times Dealbook post pointed to William Cohan, a former investment banker and financial crisis commentator, who said any potential investigation into Markit and its owners was overdue.
"The fact that they control Markit and it provides information about the prices of credit default swaps and they've benefited from this for many years without any challenge or investigation was outrageous," he was quoted as saying by Bloomberg News.
To date, nothing has come out of the Justice Department's investigation.
Yet again, the world's biggest banks, those principally responsible for driving the global financial system off a cliff, are being exposed for what they've done and how they did it. That's the bad news - for them.
The good news - for them - is they still have the earnings power to pay whatever fines are levied against them and that no one at the top of any of these criminal enterprises has gone to jail.
http://moneymorning.com/2013/07/03/the-big-banks-on-trial-again/
Fraud Confirmed: 100-Day Delay To Take Bullion Delivery In London
Written by Jeff Nielson
Monday, 01 July 2013 13:59
Bullion Bulls Canada
(special thanks to al44)
As the rampant criminality in bullion markets becomes more and more apparent (even to outside observers); we get another anecdote from the Corporate Media illustrating the level of fraud/manipulation in unequivocal terms. We’re told that bullion-buyers in London must now wait more than 100 days to take delivery of the bullion for which they have already paid.
The comedic drones at Bloomberg, and officials of the London Metal Exchange itself would have us believe this is due to “warehouse queues.” While precious metals bulls undoubtedly appreciate the imagery implied of a 100-day line-up of armored cars waiting to load their bullion – in the middle of this “bear market” – the implication is fallacious.
In an era of just-in-time inventories; the notion that there can be a 100-day backlog to load bullion into armored cars with the metal already sitting in the warehouse is ludicrous. Clearly what the LME is really reporting here is a greater-than-three-month delay to refine the gold (or silver) being purchased here – and then ship it to their warehouse.
In other words, the “bullion” which traders believe they are purchasing today is in fact merely ore which hasn’t even been dug out of the ground yet. While gold and silver miners have nearly eliminated the suicidal “hedging” which the banking cabal used to suppress the sector even further in previous years; the banksters are now effectively “forward-selling” the gold and silver of these mining companies – by selling “gold” and “silver” which doesn’t even exist yet.
Essentially, the purchasers of futures contracts at the LME who request to “take delivery” of the metal they have purchased are simply given a new futures contract instead of the metal they now legally own. This second, unofficial, illegal futures contract is simply a 3+ month wait for buyers to receive what they have paid for – where the buyers aren’t compensated in any way for this effective default (on the first contract), and the banksters have free use of the buyers’ money for that period.
Meanwhile, behind the scenes we know what is taking place, since it’s been widely reported since 2008. LME shills quietly contact buyers individually and inform them that if they don’t want to wait more than 3 months to take delivery of what they already own that there is another option: cash settlement.
As with these failures to deliver by the LME; cash settlement represents another category of bullion default. The LME can’t supply the metal, and so it buys off buyers with large bribes to ward-off the official bullion-default which becomes more inevitable by the day.
How large are the bribes? Even as far back as 2009 it was rumored that the normal size of the “premium” paid to buy-off traders was approximately 25%. Naturally such bribes will be accompanied by non-disclosure clauses – conveniently prohibiting buyers from confirming these serial inventory defaults at the LME (and New York as well?).
With current delays to take delivery having now reached such absurd extremes, there is no longer any doubt that the LME bullion warehouses are empty. This means that any cash settlements taking place can no longer be characterized as mere attempts to “conserve inventories.”
Rather, what we are dealing with here is now open fraud. Selling futures contracts to purchase bullion at specific dates, knowing that (in fact) that “bullion” does not exist. The cash settlement becomes the legal “consideration” confirming the fraudulent transaction: bait-and-switch.
Buyers think they are purchasing “bullion”, when all the LME banksters are really offering buyers is interest on their paper. It’s a generous rate of interest, to be sure, but it in no way alters the nature of the bait-and-switch being perpetrated at the LME – and thus the size of the bribe itself can in no way negate the serial acts of fraud being committed by the LME.
The criminal manipulation of prices is now being accompanied by criminal “settlement” of contracts in London. We must suspect that New York is near or at the same level of criminality in the settlement of its own contracts. Indeed, with the Attorney General of the United States having publicly pledged to cover-up all the crimes committed by these bullion banks; they could commit the same crimes being committed by the LME banksters with complete impunity.
Meanwhile, the only thing more perverse than trading in these official, fraudulent paper-bullion markets is the reporting on this sector by the Corporate propaganda machine. It continues to refer to the fraudulent manipulation of bullion prices as a “bear market”.
We have India engaging in three, extreme, rapid-fire measures to attempt to suppress gold demand in its own market; because at current, fraudulent prices Indians were literally buying-up every available ounce of gold on the planet (with some competition from the Chinese). Meanwhile, we also see recent data indicating India is now importing silver at an annualized rate of 10,000 tonnes per year.
This is more than double the rate of silver-importing which occurred in India during the Great Take-Down of bullion prices which occurred in the Crash of ’08. But after five more years of silver inventory depletion; the silver market is even less-capable of absorbing such rabid demand for real metal today than it could in 2008.
Now we see that the official bullion exchange in London is unable to fill legally contracted orders. Previously, the U.S. Mint suspended production (and sales) of some of its gold coins, despite a statutory requirement that it always produce sufficient supply to meet demand. We must presume that the reason why the U.S. Mint broke its own law was simply lack of supply.
To refer to the precious metals sector where supply-exhaustion and inventory defaults are now facts of life as a “bear market” is nothing less than despicable. It is a perverse lie with only one purpose: to attempt to legitimize the fraudulent take-down of precious metals markets.
“Why are prices falling so far/so fast? Because it’s a bear market.”
(“Why is it a bear market? Because prices are falling so fast.”)
It is nothing but nonsensical, circular reasoning; but it’s the best that the Corporate Media can do. Having spent the last 3 years calling gold (and silver) “a risk asset” one day, and “a safe haven” the next; media shills have contradicted themselves so often that they no longer even attempt any pseudo-analysis of fundamentals.
There is nothing but the “bear market” lie as a near-transparent façade to mask open crime in these markets. But it’s not merely the banksters who have openly exposed their own criminality. When we have prices plummeting lower while demand is so frenzied that we are now seeing inventory-defaults in the world’s largest official exchange(s); it is impossible for any regulator not to see (and comprehend) such a perverse imbalance in these markets.
There is no rational or legal explanation for a market where prices are falling despite such extreme demand that inventory-default is now taking place. “Price” (i.e. a rising price) is the mechanism – the only mechanism – which can relieve such demand in markets, and restore at least some sort of equilibrium.
The fact that our pseudo-regulators allow prices to continue to be suppressed while demand literally “demands” (much, much) higher prices is nothing less than an implicit confession that these Charlatans are the direct accomplices of the banksters. Let no one be fooled when the laughable Bart Chilton engages in another one of his “good cop/bad cop” farces with Gary Gensler at the CFTC.
The massive, unprecedented bullion demand (in the face of falling prices) is unequivocal, empirical proof of the criminality of the banksters in these markets. The failure of our regulators to intervene in this prima facie crime is unequivocal, empirical proof of their own complicity in this crime.
(Official) bullion default or (unofficial) market Decoupling is now an absolute near-term certainty, unless prices are allowed to reverse radically higher in the very near future. Indeed, the speed with which these markets are being driven to inventory default must lead one to suspect that such a default is the intent of the banking cabal.
While we cannot know what (evil) illegal schemes the banksters have in store for us next, we do know the inevitable result of their current crimes: (real) bullion markets drying-up completely. The tidal wave of bullion-buying from India and China alone must soak-up any/all available supply.
As the line goes from all of those corny, TV infomercials; “buy now, while supplies last.”
http://www.bullionbullscanada.com/gold-commentary/26273-fraud-confirmed-100-day-delay-to-take-bullion-delivery-in-london-
The Colossus Is Twitching
Jun 21 2013, 15:21
by Itinerant
COLUF.PK, includes: SAND, STTYF.PK, VALE
Disclosure: I am long SAND, LGCUF.PK. (More...)
The greatest gold rush in South America took place in northern Brazil in the 1980s at a place called Serra Pelada. About 80,000 artisan miners, or garimpeiros, flocked to the area and dug a hole 400m by 300m across and 120m deep. Apparently about 2M ounces of gold were pulled from the earth during a 10 year period. Some got rich, most didn't. A highly entertaining documentary was made about this time and place which is free to view here (wait, read on and watch later). Brazilian mining giant Vale (VALE) held the formal title and explored the area until February 2007. Then COOMINGASP, a local cooperative company, was granted the exploration license for the area surrounding the historic pit.
(click to enlarge)
(photo taken from company web site)
Colossus Minerals (COLUF.PK) entered the scene by signing a joint venture agreement with COOMINGASP only a few months after the cooperative took control of Serra Pelada. Colossus Minerals is earning its share of the project by financing exploration and mine development capex. Furthermore, Colossus is making monthly payments of around $175,000 to COOMINGASP until start of production, after which COOMINGASP is entitled to a royalty of 1.3% to 2.1% of precious metal sales depending on production. Further exploration licenses were added over time covering the surrounding area with numerous interesting near mine and regional exploration targets already identified.
Reported grades from various drill core assays include some truly spectacular results in the double digits g/t for all three present precious metals - gold, platinum and palladium - over significant lengths. The geology of the area is complex. Gold-platinum-palladium mineralization has been traced to depths of up to 350m under the southern end of the historic pit and remains open along strike. Colossus is currently developing an underground mine to access what has been termed the Central Mineralized Zone (CMZ). Difficult ground conditions in combination with ground water had been a concern but turned out to be better than expected allowing for ongoing optimization of intended mining methods. Additional mineralization has been encountered during underground exploration from the decline suggesting a lower grade halo around the CMZ. A bulk sample has been extracted and will be processed on site as soon as the plant is functional. The technical challenges of building this mine are not to be underestimated, but so far construction has been executed with great precision.
Gold is presently under a great deal of pressure and the spot price has been correcting for over a year and a half. The present spot price of $1,300 seems a long way from the tops of $1,900+ and gold investor sentiment is shot to pieces. Platinum and palladium are also precious metals and attract increasing investment interest. Additionally, these two metals also have industrial applications especially in the car industry. Moreover, almost 80% of world supply of platinum and palladium is produced in South African mines. These mines are facing some serious challenges as is evidenced by numerous news reports during past months. Analysts such as Peter Hug of kitco.com have become very bullish on platinum and palladium recently based on the assumption of an upcoming supply squeeze. We view the platinum and palladium concentrate to be produced at Serra Pelada as a very attractive hedge against the gold correction turning into a proper bear market.
(click to enlarge)
An unusual decision was taken by the company to develop this mine without prior preparation of a NI 43-101 compliant reserve statement. The nature of the mineralization at Serra Pelada creates significant uncertainties with reporting to this standard and release of a NI 43-101 report has been postponed to later this year when sufficiently closely spaced drill data from underground exploration will be available, and results from the bulk sample can be incorporated. For potential investors this represents an additional risk. However, it did not stop Sandstorm Gold (SAND) to participate in the financing of the mine by providing $60M of upfront cash toward mine development in exchange for a streaming agreement that will allow them to purchase 15% of the gold production for $400 per ounce, and 35% of the platinum for $200 per ounce. Sibling company Sandstorm Metals & Energy (STTYF.PK) paid $15M upfront in exchange for 35% of the palladium production at $100 per ounce. It can be assumed that the Sandstorms performed significant due diligence before committing to this so-called streaming arrangement which could also be taken as some re-assurance by interested investors. Colossus has the right to buy back half of the precious metal stream until April 1, 2015, at a total cost of $58.5M to the two Sandstorms.
Colossus Minerals have been very forthcoming in reporting on mine development and has been releasing detailed monthly updates. The latest instalment on June 18 made for very interesting and encouraging reading once again. Construction is 85% complete and the company confirmed that the project is still on track for first production at an initial rate of 250 tpd in the third quarter this year. Production is scheduled to ramp up to 1000 tpd by Q1 2014. The decline has reached the CMZ and 2,500 tonnes of material have already been stockpiled on the ROM pad. Construction of the plant is on track for commissioning in the third quarter. The plant will process gold first, followed by PGM flotation a year later in Q3/2014. Serra Pelada is fully licensed and well serviced with roads, water and power and also has access to skilled local labor.
(click to enlarge)
Brazil is a mining friendly jurisdiction with a modern mining code, welcoming to foreign investment and a stable political and fiscal system. It's the sixth-largest economy world-wide and the undisputed economic power house in South America. Inflation has been high and increasing which warrants close monitoring. There are a number of operating gold mines in Brazil including the Aurizona mine by Luna Gold (LGCUF.PK), several mines operated by Yamana Gold (AUY) or operations by the local mining giant Vale.
Colossus is a development company. The company has gone through a speculative exploration phase during which the share price has soared to $9 and above. Such exuberance is typical for exploration companies with promising projects, and it is often followed by a drop when reality settles in with the concrete necessities of financing and mine development. Brent Cook of explorationinsights.com calls the bottom in the share price that is often associated with this development phase the "orphan period." This is exactly where we find Colossus Minerals at the moment. Consider the diagram below for an illustration of where Colossus Minerals may be heading if it managed to bring the Serra Pelada mine into production.
(click to enlarge)
(taken from explorationinsights.com)
Colossus Minerals presently has a market capitalization of $138M with 125M outstanding shares (139M fully diluted) trading at multi-year lows of $1.29 at the time of writing. Institutions own about 62% of the company and insiders about 13% - there has been some heavy insider buying very recently. The company just raised $28.75M in a bought deal which should be sufficient to get to production with some contingency to spare. The shares issued in this offering are not yet considered on Yahoo.com or other trading information platforms. Furthermore, the company has $75M worth of unsecured notes trading on the Toronto stock exchange under the ticker CSI.NT maturing December 2016. Each note has a face value of $1,000 and has 60 warrants with an exercise price of $8.50 each attached to it. Interest depends on the gold price and varies between 6% and 13%. These notes are currently trading at just under C$70.00.
(click to enlarge)
The share price has been locked in a downtrend since April 2011 as evidenced by the weekly chart above. There are various weak support levels below the present share price, but from a technical perspective the trend might continue and test strong support at $0.34 later in the year. From a chart perspective this would be a healthy move since it would fill a few gaps that have remained open from 2009.
Finishing up we would like to present our present investment thesis for Colossus Minerals. This stock represents a very high risk/reward opportunity with the company presently in a very vulnerable position. The project is a high risk undertaking and even though execution has been managed in an exemplary manner there are still many risks that could manifest themselves before the mine will go into production and a NI 43-101 reserve will be presented. Investors interested in this company need a very high risk tolerance, but looking at the potential of this project we believe that rewards could be handsome. Catalysts to turn around the downtrend and put an end to the orphan phase are coming up later in the year giving interested parties ample time to research and monitor Colossus Minerals over the coming weeks and months.
http://seekingalpha.com/article/1515172-the-colossus-is-twitching?source=email_authors_alerts&ifp=0
Ignore The Fed's DoubleSpeak And Get To Gold
Jun 21 2013,
Tom Luongo
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
If there is one thing I've learned in my years of watching over the gold (GLD) and equity markets since Ben Bernanke took over as Chairman of the FOMC it is to ignore nearly everything said and focus on the reaction by the markets. Wednesday's statement contained nothing at all worth remembering no less reacting to but the markets have reacted badly to this nothingness as if it is the end of the Fed's coming to its rescue. So, what does this mean for gold?
In the short term it means that there will be more volatility, possibly more action to the downside. Why? Because there is a growing lack of liquidity in the markets and gold is always sold during liquidity stress, which is why buying now is the right play.
This liquidity seizure may have begun in China over the PBoC s desire to break the shadow banking system and unwinding the literal mountain of copper collateralized financial contracts. It may have its roots back in Cyprus and the rush to physical gold that ensued after the depositor impairment scheme created the cascading assault on gold in mid-April, the fallout from which we are still dealing with. But, the one thing it is not being caused by, as I will show with one simple chart, is the Fed backing off from its asset purchasing program.
How Do You Know a Fed Chairman is Lying…
In my last article I went over the latest T.I.C. Report in detail and linked the data to the current acceleration of capital flight from Southeast Asia. At the time there were a couple of unanswered questions about what the Fed was willing to accept on the long end of the yield curve as it looked like the verbal intervention by Fed mouthpieces and strengthening yen (FXY) had arrested rising bond yields. Unfortunately, that no longer looks like the situation.
(click to enlarge)
As everyone is aware now, since the Fed's statement everything has sold off with the exception of the US Dollar (UUP) and the Chinese Yuan (CYB) as liquidity concerns are running rampant. The PBoC has refused to use the blunt instrument of monetary policy to stave off the liquidity crisis brewing among many of its banks, instead preferring to adhere to that age-old governmental practice of picking winners and losers by selectively bailing out certain banks behind the scenes.
… His Lips Are Moving.
So, now with the US 10 year note (IEF) rising to 2.4% and TIPS (TIP) rising even faster - as noted by the rapidly falling breakeven rate - the air is finally coming out of the bond bubble… and the equity bubble… and the new housing bubble.
When asked about this situation in bond yields at the press conference after the FOMC statement Chairman Bernanke replied:
Well, we -- we were a little puzzled by that. It was -- it was bigger than can be explained, I think, by changes in the ultimate stock of asset purchases within reasonable ranges, so I think we have to conclude that there are other factors at work, as well, including, again, some optimism about the economy, maybe some uncertainty arising. So I'm agreeing with you that -- that it seems larger than can be explained by a changing view of monetary policy.
Remember what I said about ignoring what the Fed says? Ignore the bolded. There is no way that bond yields are rising like this because people are rejoicing over getting a minimum wage job as a cashier at Home Depot (HD). Because they certainly aren t getting high paying jobs. But his last sentence may mean he knows exactly what is happening and why. This is capital flight, Mr. Chairman and he knows it when he sees it. I ended my last article saying that I would be watching US/Singapore yield spreads for signs that the stress in Southeast Asia's markets was lessening. As of last night the 10 year spread finally turned negative with Singapore's 10 year yield now above that of the US's and the Singapore Dollar (FXSG) is now trading well above S$1.27.
(click to enlarge)
So, the bond markets are now screaming deflation which is causing a huge flight to the dollar. This, in turn, is causing dishoarding of U.S. Treasuries by emerging market central banks to defend their currencies. I note while I'm writing this article that Singapore's bond yields are blowing up but the Singapore Dollar is strengthening versus the USD. This tells me the MAS is selling treasuries like mad. Thanks to the T.I.C. report being 2 months out of phase with reality I'll have to live with my suspicions for the next two months.
From QEterity to the 'Taper' Tantrum?
So, is all of this happening because the Fed is slowing down its asset purchases and some savvy hedge fund guys are front-running it? The chart below blows that idea out of the water. The Fed is beginning to accelerate its credit expansion again, adding $54.376 billion this week. That brings the three week total in June so far to $65.7 billion. We can expect, by the normal 4 week pattern here, that next week will bring another ~$20 billion into existence and put us right at $85 billion for the month. If next week's number comes in higher than that then the Fed is having to accelerate its purchasing to soak up the selling happening overseas and still yields are rising.
(click to enlarge)
Bernanke made the point in the quote above that he believes that a certain amount of bond buying will correlate with a certain yield target - that the stock of Fed purchases is what affects bond yields.
He would be right if there was no other source of supply of U.S. Treasuries other than the Treasury Department. But if there is a structural shift in the demand for Treasuries then it's an entirely different market that will require different thinking. So, no, Dr. Ben, it is the flow that matters.
What should be obvious at this point is that we are beginning to witness the drying up of liquidity across multiple asset classes which is why everything is being sold in order to raise dollars and Yuan. This is why it is the amount of dollars flowing through markets that matters not the nominal amount of bonds Bernanke buys with his printing press. And this is where the disconnect between what the Fed says and what it is reaping with its policy lies. Bernanke is talking about stock, the reserve of bonds, but the markets run on flow of dollars.
Look at what is happening right now. The Fed is expanding credit like mad and yet bond yields are continuing to spike higher. This is the worst case scenario that I've discussed previously and, erring on the side of caution, expected the Fed to respond to with accelerated buying. It has not been enough. If Bernanke is confused about why this is happening then there is no protection for the average investor at this point beyond cash and gold because once the prisoner's dilemma of central banks buying treasuries because everyone else is ends, there will be a mad scramble for hard assets.
If that doesn't sound like what is happening today to you, then you must still have Bernanke's soporific speech patterns rumbling through your brain.
Double-Plus Bad
I said watch the 10 year yield above 2.2%. It's 2.42% and rising. I said watch the Singapore/US 10 year spread for continued stress indicators. It's gotten worse. SE Asian currencies and equity markets continue to deteriorate versus the dollar. Fed Credit is expanding at an $85 billion rate in June, the same as in May and bond yields keep rising, same as in May. This implies the flow argument trumps the stock argument. Even a huge $54.4 billion injection in one week was not enough to even slow the rise in yields, no less reverse them. This further implies that the selling in emerging markets is accelerating.
What this means is that if the Fed does not want to lose all control of the bond market it better start accelerating its QE program fast or risk a flood of Treasuries hitting the market at a rate which puts the U.S. budget back under the microscope due to rising interest payments on debt.
Remember, no matter what gets parroted around the financial press about the U.S. budget, May's deficit came in at $139 billion versus expectations of $110 billion. The CBO's projections have never been accurate and as of tonight the 10 year yield is 0.3% above the projected yield for Q3 of 2.1%. Right now with the Fed talking down its hand in the future markets, how else is it going to get rates down without accelerating its buying, since everyone else is selling?
Far be it for me, as an Austrian economist, to tell the Fed to print more money and expand the credit base. But for it to not do so at this point means abandoning everything it has sworn to protect, namely the banks, which are still scared to lend - excess reserves continue to rise - and multiply base money. For gold investors, this latest shock is yet another liquidity-related shake out, but with the COMEX raising margins on Thursday and the commercials net long this is a recipe for margin-related short covering there as the speculative players are the ones net short on margin.
The next major hurdle in the 10 year note is where we are now at 2.42%. A monthly close above that would be bearish and indicative of a trend change. Gold will need to re-capture $1320 immediately while the need for protection from these events that tangible assets offer is higher now than it's been since Lehman Bros. fell.
Additional disclosure: I own gold, silver, a few dairy goats, some dogs and what's left of my sanity
http://seekingalpha.com/article/1514602-ignore-the-fed-s-doublespeak-and-get-to-gold?source=email_authors_alerts&ifp=0
Correlation: LIBOR Vs. Fed Funds Rate
June 21, 2013
Katchum
The LIBOR rate at which the banks lend each other money, is an important element in calculating the gold lease rate. Obviously, this LIBOR rate is influenced by the Federal Reserve via the Fed Funds Rate.
As you can see on this chart, there is an almost 100% correlation between LIBOR and the Fed Funds Rate.
As the Federal Reserve said that they will keep interest rates at zero until 2015, LIBOR rates will keep floating around the 0% level.
This also means that the gold lease rate (LIBOR minus GOFO (Gold Forward Rate)) is entirely dependent on the GOFO rate as long as the Federal Reserve keeps interest rates near zero.
Once inflation begins to pick up though, the Federal Reserve will have to raise the Fed Funds Rate (contractionary monetary policy), which will increase LIBOR rates and this will tend to raise the gold lease rates. In turn, high gold lease rates are a bullish environment for gold prices.
Note that there is one power that will force the Federal Reserve to increase its Fed Funds Rate and that is the yields on the bond market and the mortgage market.
As you can see on this graph below, the adjustable mortgage rates are starting to edge upwards even with a zero interest rate policy. Government bond yields are also edging upwards. So eventually, the Federal Reserve will be pressured to increase interest rates to keep up with the rise in bond and mortgage yields.
Investors who are still invested in the U.S. bond market, are taking a huge risk at this stage, especially when Ben Bernanke is forced to implement contractionary monetary policies at some point. Who will buy these U.S. government bonds... As a matter of fact, foreign investors are already dumping U.S. bonds as shown in the foreign U.S. bond investors report of April 2013.
Geplaatst door Albert Sung op 17:54
http://katchum.blogspot.com/2013/06/correlation-libor-vs-fed-funds-rate.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+KatchumsMacro-economicBlog+%28Katchum%27s+Macro-Economic+Blog%29
Correlation: LIBOR Vs. Fed Funds Rate
June 21, 2013
Katchum
The LIBOR rate at which the banks lend each other money, is an important element in calculating the gold lease rate. Obviously, this LIBOR rate is influenced by the Federal Reserve via the Fed Funds Rate.
As you can see on this chart, there is an almost 100% correlation between LIBOR and the Fed Funds Rate.
As the Federal Reserve said that they will keep interest rates at zero until 2015, LIBOR rates will keep floating around the 0% level.
This also means that the gold lease rate (LIBOR minus GOFO (Gold Forward Rate)) is entirely dependent on the GOFO rate as long as the Federal Reserve keeps interest rates near zero.
Once inflation begins to pick up though, the Federal Reserve will have to raise the Fed Funds Rate (contractionary monetary policy), which will increase LIBOR rates and this will tend to raise the gold lease rates. In turn, high gold lease rates are a bullish environment for gold prices.
Note that there is one power that will force the Federal Reserve to increase its Fed Funds Rate and that is the yields on the bond market and the mortgage market.
As you can see on this graph below, the adjustable mortgage rates are starting to edge upwards even with a zero interest rate policy. Government bond yields are also edging upwards. So eventually, the Federal Reserve will be pressured to increase interest rates to keep up with the rise in bond and mortgage yields.
Investors who are still invested in the U.S. bond market, are taking a huge risk at this stage, especially when Ben Bernanke is forced to implement contractionary monetary policies at some point. Who will buy these U.S. government bonds... As a matter of fact, foreign investors are already dumping U.S. bonds as shown in the foreign U.S. bond investors report of April 2013.
Geplaatst door Albert Sung op 17:54
http://katchum.blogspot.com/2013/06/correlation-libor-vs-fed-funds-rate.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+KatchumsMacro-economicBlog+%28Katchum%27s+Macro-Economic+Blog%29
The Dark Side of the QE Circus
Posted Thursday, 20 June 2013
My Two Cents
By Andy Sutton
There may come a day soon where the markets sell off if one of the whiskers in Big Ben’s beard is out of place. Or perhaps if his tie is a bit crooked. Or maybe we end up with Janet Yellen as the next puppet in charge over at the local banking cabal and we fret about her hairdo. I don’t know, but one thing that is for certain is that this central bank so wants to be loved and we are so under psychological attack with all of this QE nonsense that it isn’t even funny.
QE is the endgame. ZIRP was only the beginning. QE, or monetization (which they’ll never call it because of the negative connotations), is the heroic measure applied to an already dead system. Our system, for all intent and purposes, died in 2008. It ceased to exist. The investing, economic, and business paradigm that has existed since is drastically different than its predecessor despite all the efforts being made to convince everyone, including Humpty Dumpty, that it is in fact 2005 all over again.
Quantitative Conditioning
Now we get to the fun part of the game. This is the part where the not-so-USFed wants to give the idea that it is tapering (buzzword of the month) without actually doing so. There will be no tapering. There will be no end to QE. The goose (Americans and their willingness to continue to pile up debt) is still laying the golden eggs. And even if they make paper contracts on those golden eggs gyrate wildly in price, they still want them. The quislings on television who are gleefully bashing precious metals this morning? They want them. They want your physical metal. These folks will swim through any sewer to get that which they desire. If you don’t understand the Machiavellian nature of your enemy, then you’re in for an extremely rough ride. This is no playground. This is a battlefield (credit to Chuck Baldwin). They’re playing chess and we’re still playing Tiddly Winks.
I’ve told people many times that you will be given no quarter by these people. This morning is a prime example of that. The entire world is red. ALL markets are down. Commodities, equities, precious bonds, everything. It would be my guess that we’re going to see many more mornings like this, especially any time the Barbasol man mentions the magic word: taper. And even this is not without purpose; you are being conditioned that the not-so-USfed and its obscene, virulent policies are a necessary intrusion in your economic life. Just like you were conditioned that inflation is necessary for economic growth, you will now come to believe that central bank manipulation of every market imaginable is in fact a necessary component to keeping the charade going.
Mornings like today are part of that conditioning. Trot out the Bernank’ and have him mention ending QE, then the markets immediately go in the tank. This has become something of a pattern. Keep it up long enough and people will start demanding QE. They’ll demand to have their mortgage, car loan, school loan, and everything else owned by international banksters. They won’t care. Just make it stop. Make the pain go away. They won’t care that they will rise everyday with no other purpose in mind than paying the interest to service debt that was created from nothing.
Yet in several weeks these same folks will gather and celebrate our independence. What a sick joke. We’ve been played like a two-dollar fiddle and we don’t even know it. I heard a great line last night on Liberty Talk Radio. One of our callers called this a ‘press release economy’. Credit: unknown. He couldn’t have been more correct. We live and die on reports issued by an institution that has everything to gain by keeping us in the dark and nothing to gain by telling us the truth. Yet we clap our hands like little children when it tells us ‘this is for your own good, just give us your bank accounts and retirement savings’.
That is what is coming. Probably not all at once, but over time it will all be confiscated, for our own good of course. If there is anyone who thinks that these folks will be able to resist the $18 trillion and change currently in the US retirement system, then I’ve got some beachfront property in North Dakota to sell you cheap. And yes, North Dakota borders Canada, rather than South Dakota as was so blithely asserted by a sitting US Senator last week.
Metals News
The metals complex has been the red-headed step child of the international bankers since the 2011 high. Ironically, the price pattern that has traced out since does actually fall into the confines of what could have been expected if using Elliott Wave analysis. Not that EW is the be all of end alls, but it is worth noting. Also worth noting is that once this mother of all corrections is over, there are going to be some high times for metals. Now, whether or not that will include the paper markets remains to be seen. Personally, I am hoping the paper markets crash and burn. I’d have no problem seeing $500 paper gold and $2000 physical gold. The end of that sham will be an amazing site.
Watching JP and the boys squirm as they try to wiggle their way out from under all the foul paper bets they’ve made would be even more fun, but unfortunately we have nearly two century’s worth of history on how that one will end. They will run to the government, which will promptly let them off the hook, just like they did for the silver banks in the 1800s. Unfortunately, there is no Andrew Jackson; at least not yet.
This writer cannot help but wonder if the current fear climate isn’t intended to push assets into cash where they can be easily scooped up in a neat and tidy bail-in after the next Lehman brothers occurs. With the new bail-in mentality now codified around the world, mark my words, the next time there is a flare up of the European mess, the Japanese mess or our very own twisted system trembles on the head of a pin, Robbin’ the Hood will make an appearance and people are going to get a haircut – Cyprus style. Don’t believe me? That’s fine. Watch hockey or basketball or maybe go shopping. However, if you think there might be a shred of truth to what is being presented in this piece and many before it, then take heed of a few simple truths:
1) If you don’t hold it in your hand, then it is not truly yours. Possession is nine tenths of the law. Always has been, still is. Get your assets as close to you as possible.
2) The above includes your precious metals. There are many fine and well-intended folks who think you should store your metals an ocean away. What good does that do you, especially if you can’t retrieve them?
3) Be your own central bank. All of the above truths have an underlying principle: responsibility. You need to start being responsible for your own economic destiny. The government is not going to help you. The bankers certainly aren’t going to help you. Running to them for solutions is like Little Red Riding Hood asking the wolf for advice on how to cook dinner.
Finally, there are many who are saying you should just leave the country. Go somewhere else. They fail to recognize that this is already largely a global problem. And even the little hideout countries are not immune. If our forefathers had felt the same way, we wouldn’t have this rich inheritance that we are now squandering. My prayer for this country is that one day soon enough of us realize that there are some things in life that truly are worth fighting for and the freedoms this country was founded on might just be one of those things. Just sayin’.
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton & Associates, LLC
http://www.sutton-associates.net
andy@suttonfinance.net
http://news.goldseek.com/GoldSeek/1371742369.php
The Dark Side of the QE Circus
Posted Thursday, 20 June 2013
My Two Cents
By Andy Sutton
There may come a day soon where the markets sell off if one of the whiskers in Big Ben’s beard is out of place. Or perhaps if his tie is a bit crooked. Or maybe we end up with Janet Yellen as the next puppet in charge over at the local banking cabal and we fret about her hairdo. I don’t know, but one thing that is for certain is that this central bank so wants to be loved and we are so under psychological attack with all of this QE nonsense that it isn’t even funny.
QE is the endgame. ZIRP was only the beginning. QE, or monetization (which they’ll never call it because of the negative connotations), is the heroic measure applied to an already dead system. Our system, for all intent and purposes, died in 2008. It ceased to exist. The investing, economic, and business paradigm that has existed since is drastically different than its predecessor despite all the efforts being made to convince everyone, including Humpty Dumpty, that it is in fact 2005 all over again.
Quantitative Conditioning
Now we get to the fun part of the game. This is the part where the not-so-USFed wants to give the idea that it is tapering (buzzword of the month) without actually doing so. There will be no tapering. There will be no end to QE. The goose (Americans and their willingness to continue to pile up debt) is still laying the golden eggs. And even if they make paper contracts on those golden eggs gyrate wildly in price, they still want them. The quislings on television who are gleefully bashing precious metals this morning? They want them. They want your physical metal. These folks will swim through any sewer to get that which they desire. If you don’t understand the Machiavellian nature of your enemy, then you’re in for an extremely rough ride. This is no playground. This is a battlefield (credit to Chuck Baldwin). They’re playing chess and we’re still playing Tiddly Winks.
I’ve told people many times that you will be given no quarter by these people. This morning is a prime example of that. The entire world is red. ALL markets are down. Commodities, equities, precious bonds, everything. It would be my guess that we’re going to see many more mornings like this, especially any time the Barbasol man mentions the magic word: taper. And even this is not without purpose; you are being conditioned that the not-so-USfed and its obscene, virulent policies are a necessary intrusion in your economic life. Just like you were conditioned that inflation is necessary for economic growth, you will now come to believe that central bank manipulation of every market imaginable is in fact a necessary component to keeping the charade going.
Mornings like today are part of that conditioning. Trot out the Bernank’ and have him mention ending QE, then the markets immediately go in the tank. This has become something of a pattern. Keep it up long enough and people will start demanding QE. They’ll demand to have their mortgage, car loan, school loan, and everything else owned by international banksters. They won’t care. Just make it stop. Make the pain go away. They won’t care that they will rise everyday with no other purpose in mind than paying the interest to service debt that was created from nothing.
Yet in several weeks these same folks will gather and celebrate our independence. What a sick joke. We’ve been played like a two-dollar fiddle and we don’t even know it. I heard a great line last night on Liberty Talk Radio. One of our callers called this a ‘press release economy’. Credit: unknown. He couldn’t have been more correct. We live and die on reports issued by an institution that has everything to gain by keeping us in the dark and nothing to gain by telling us the truth. Yet we clap our hands like little children when it tells us ‘this is for your own good, just give us your bank accounts and retirement savings’.
That is what is coming. Probably not all at once, but over time it will all be confiscated, for our own good of course. If there is anyone who thinks that these folks will be able to resist the $18 trillion and change currently in the US retirement system, then I’ve got some beachfront property in North Dakota to sell you cheap. And yes, North Dakota borders Canada, rather than South Dakota as was so blithely asserted by a sitting US Senator last week.
Metals News
The metals complex has been the red-headed step child of the international bankers since the 2011 high. Ironically, the price pattern that has traced out since does actually fall into the confines of what could have been expected if using Elliott Wave analysis. Not that EW is the be all of end alls, but it is worth noting. Also worth noting is that once this mother of all corrections is over, there are going to be some high times for metals. Now, whether or not that will include the paper markets remains to be seen. Personally, I am hoping the paper markets crash and burn. I’d have no problem seeing $500 paper gold and $2000 physical gold. The end of that sham will be an amazing site.
Watching JP and the boys squirm as they try to wiggle their way out from under all the foul paper bets they’ve made would be even more fun, but unfortunately we have nearly two century’s worth of history on how that one will end. They will run to the government, which will promptly let them off the hook, just like they did for the silver banks in the 1800s. Unfortunately, there is no Andrew Jackson; at least not yet.
This writer cannot help but wonder if the current fear climate isn’t intended to push assets into cash where they can be easily scooped up in a neat and tidy bail-in after the next Lehman brothers occurs. With the new bail-in mentality now codified around the world, mark my words, the next time there is a flare up of the European mess, the Japanese mess or our very own twisted system trembles on the head of a pin, Robbin’ the Hood will make an appearance and people are going to get a haircut – Cyprus style. Don’t believe me? That’s fine. Watch hockey or basketball or maybe go shopping. However, if you think there might be a shred of truth to what is being presented in this piece and many before it, then take heed of a few simple truths:
1) If you don’t hold it in your hand, then it is not truly yours. Possession is nine tenths of the law. Always has been, still is. Get your assets as close to you as possible.
2) The above includes your precious metals. There are many fine and well-intended folks who think you should store your metals an ocean away. What good does that do you, especially if you can’t retrieve them?
3) Be your own central bank. All of the above truths have an underlying principle: responsibility. You need to start being responsible for your own economic destiny. The government is not going to help you. The bankers certainly aren’t going to help you. Running to them for solutions is like Little Red Riding Hood asking the wolf for advice on how to cook dinner.
Finally, there are many who are saying you should just leave the country. Go somewhere else. They fail to recognize that this is already largely a global problem. And even the little hideout countries are not immune. If our forefathers had felt the same way, we wouldn’t have this rich inheritance that we are now squandering. My prayer for this country is that one day soon enough of us realize that there are some things in life that truly are worth fighting for and the freedoms this country was founded on might just be one of those things. Just sayin’.
Andrew W. Sutton, MBA
Chief Market Strategist
Sutton & Associates, LLC
http://www.sutton-associates.net
andy@suttonfinance.net
http://news.goldseek.com/GoldSeek/1371742369.php
Huge Protests In Brazil Are The Result Of Global Currency Wars
WOLF RICHTER, TESTOSTERONE PIT
JUN. 20, 2013
Fed Chairman Ben Bernanke and his ilk refuse to see the connection. They’re too busy ogling inflation in the US that is suspiciously low. But China has its eyes riveted on the revolt in Brazil.
Like all revolts, it’s about deep-seated issues and inequalities, but the spark that lit it – after price and asset inflation had made life too expensive for the middle class – was an increase in bus fares.
The warning shot came in September 2010. From Brazilian Finance Minister Guido Mantega. In a speech, he denounced the “international currency war” that the money-printers in Washington and elsewhere were waging against his and other countries, and the hot money that they sent sloshing around the world, particularly the developing world. “This threatens us because it takes away our competitiveness,” he warned.
He’d taken aim at the Fed’s “bold” efforts to hand trillions to the big players – the hot money – who didn’t invest it in production and jobs in the US but plowed it into every conceivable “asset class,” such as commodity and currency speculation and similar productive uses. It hit prices in Brazil and drove up the Real.
Brazil counterattacked last year. The Real plunged 24% against the buck. Prices of imported goods soared – adding to the inflation that had already been zigzagging up from 3.7% in 2007. In May, it hit a red-hot 6.45%.
It was just too much for the 40 million people who’d made the transition from poverty into (barely) the middle class since the turn of the millennium. Products they buy on a daily basis have jumped: tomatoes are up 96% over last year, onions 70%, rice 20%, chicken 23%. Since 2008, rents are up 118%. Rio de Janeiro has become the third most expensive city in the world.
But the economy is languishing. Last year, it eked out a minuscule gain of 0.9%, after having edged up only 2.7% in 2011, dreadfully slow for a developing nation. Stagflation!
So cities increased bus fares – in Rio by 6.7%, from R$ 3.00 to R$ 3.20 ($1.47). The spark that ignited the fire. On Thursday, 5,000 to 10,000 protesters rallied against the fare increases, set a bus on fire, smashed windows. The police responded with force, shot seven reporters of the daily Folha with rubber bullets, enthusiastically teargased TV reporters who were filming the mass arrests....
By Monday, 200,000 people were on the streets spread over the cities of São Paulo, Rio (100,000 according to independent observers), Salvador, Curitiba, Belém, and the capital, Brasília – where some of the demonstrators managed to get on the roof of Parliament to sing the national anthem before descending.
The ballooning size of the protests took authorities by surprise. Momentum is picking up. The social media play a crucial role in organizing the masses. And the next few days are going to be hot. Yet protests are not the norm in Brazil. There have been sporadic ones, but nothing major since the demonstrations in 1992 against the corruption of President Fernando Collor de Mello’s government. And violent protests are rare – in contrast to the everyday violence in their neighborhoods.
This is a revolt of the young middle class, of students, of people in suits, of bystanders. Bus fares sparked it, but now they denounce the rising cost of living, the wasteful costs of the World Cup, the corruption of the elites, high levels of inequality, lousy public service, inefficiency, and crime.
“The entire Brazilian youth” was there, wrote a student participant. People “seemed determined to continue the movement.” One likened it to the “euphoria of the Carnival.” Many participants didn’t see the violence and considered the protests peaceful – until they saw it on TV. Banners covered a spectrum of concerns and hopes. One of them read, “Here lies a conformist nation. Brazil woke up!” Some vandals were reprimanded by the crowd. A banner brimmed with youthful optimism: “We’re the future of the nation.” Government corruption was a favorite target. “Today I saw my country change,” wrote a 38-year-old participant in Rio. “We don’t need a new soccer stadium, we need a new country.”
For the elite and political class, this mayhem comes at an inconvenient time: Brazil will host the soccer World Cup in 2014 and the summer Olympics in 2016 – events designed to goose the stagnating economy and line their pockets. While the country is plowing $15 billion into the Olympics, it’s the less costly World Cup that is being targeted by protesters, whose bus fares were hiked, and who want hospitals and affordable housing, not glamorous stadiums.
On Tuesday, the government tried to diffuse the protests before they spiral out of control. They talked about dialogue. The mayor of São Paulo, Fernando Haddad, was willing to meet with representatives of the protesters but refused to budge on the bus fares; there was a stadium to pay for, and his budget was squeezed. President Dilma Rousseff, a target of the protesters, admitted, “These voices, which go beyond traditional mechanisms, political parties and the media itself, need to be heard.” She went all out to embrace the restive crowd: “The greatness of yesterday’s demonstrations was proof of the energy of our democracy,” she said.
Palliative words. Whether they will soothe the spirits, heal the wounds of police brutality, douse the fire of discontent, bring inflation under control, and make life more affordable remains to be seen. Whether this is just a blip, or a long-term event that will drag down further the seventh largest economy in the world also remains to be seen. Meanwhile, the effects of the Fed’s monetary policy continue to ricochet around the world.
“We’ve intentionally blown the biggest government bond bubble in history,” confessed Andy Haldane, Director of Financial Stability at the Bank of England. The bursting of that bubble was a risk he felt “acutely.” He saw “a disorderly reversion” as the “biggest risk to global financial stability.” Seatbelts are being fastened; the clicks can be heard worldwide. Read.... Biggest Bond Bubble In History Is Turning Into Carnage
Read more: http://www.testosteronepit.com/home/2013/6/18/currency-war-rattles-brazil-wakes-up-the-people.html#ixzz2Wr1A9CqI
http://www.businessinsider.com/currency-war-rattles-brazil-wakes-up-the-people-2013-6
Great article basserdan thanks for posting.
Matt Taibbi: The Last Mystery of the Financial Crisis
It's long been suspected that ratings agencies like Moody's and Standard & Poor's helped trigger the meltdown. A new trove of embarrassing documents shows how they did it
The Last Mystery of the Financial Crisis
by Matt Taibbi
June 19, 2013
(special thanks to basserdan)
What about the ratings agencies?
That's what "they" always say about the financial crisis and the teeming rat's nest of corruption it left behind. Everybody else got plenty of blame: the greed-fattened banks, the sleeping regulators, the unscrupulous mortgage hucksters like spray-tanned Countrywide ex-CEO Angelo Mozilo.
But what about the ratings agencies? Isn't it true that almost none of the fraud that's swallowed Wall Street in the past decade could have taken place without companies like Moody's and Standard & Poor's rubber-stamping it? Aren't they guilty, too?
Man, are they ever. And a lot more than even the least generous of us suspected.
Thanks to a mountain of evidence gathered for a pair of major lawsuits, documents that for the most part have never been seen by the general public, we now know that the nation's two top ratings companies, Moody's and S&P, have for many years been shameless tools for the banks, willing to give just about anything a high rating in exchange for cash.
In incriminating e-mail after incriminating e-mail, executives and analysts from these companies are caught admitting their entire business model is crooked.
"Lord help our fucking scam?.?.?.?this has to be the stupidest place I have worked at," writes one Standard & Poor's executive. "As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it," confesses a high-ranking S&P analyst. "If we are just going to make it up in order to rate deals, then quants [quantitative analysts] are of precious little value," complains another senior S&P man. "Let's hope we are all wealthy and retired by the time this house of card[s] falters," ruminates one more.
Ratings agencies are the glue that ostensibly holds the entire financial industry together. These gigantic companies – also known as Nationally Recognized Statistical Rating Organizations, or NRSROs – have teams of examiners who analyze companies, cities, towns, countries, mortgage borrowers, anybody or anything that takes on debt or creates an investment vehicle.
Their primary function is to help define what's safe to buy, and what isn't. A triple-A rating is to the financial world what the USDA seal of approval is to a meat-eater, or virginity is to a Catholic. It's supposed to be sacrosanct, inviolable: According to Moody's own reports, AAA investments "should survive the equivalent of the U.S. Great Depression."
It's not a stretch to say the whole financial industry revolves around the compass point of the absolutely safe AAA rating. But the financial crisis happened because AAA ratings stopped being something that had to be earned and turned into something that could be paid for.
That this happened is even more amazing because these companies naturally have powerful leverage over their clients, as they are part of a quasi-protected industry that enjoys massive de facto state subsidies. Largely that's because government agencies like the Securities and Exchange Commission often force private companies to fulfill regulatory requirements by retaining or keeping in reserve certain fixed quantities of assets – bonds, securities, whatever – that have been rated highly by a "Nationally Recognized" ratings agency, like the "Big Three" of Moody's, S&P and Fitch. So while they're not quite part of the official regulatory infrastructure, they might as well be.
It's not like the iniquity of the ratings agencies had gone completely unnoticed before. The Financial Crisis Inquiry Commission published a case study in 2011 of Moody's in particular and discovered that between 2000 and 2007, the agency gave nearly 45,000 mortgage-backed securities AAA ratings. One year Moody's doled out AAA ratings to 30 mortgage-backed securities every day, 83 percent of which were ultimately downgraded. "This crisis could not have happened without the rating agencies," the commission concluded.
Thanks to these documents, we now know how that happened. And showing as they do the back-and-forth between the country's top ratings agencies and one of America's biggest investment banks (Morgan Stanley) in advance of two major subprime deals, they also lay out in detail the evolution of the industrywide fraud that led to implosion of the world economy – how banks, hedge funds, mortgage lenders and ratings agencies, working at an extraordinary level of cooperation, teamed up to disguise and then sell near-worthless loans as AAA securities. It's the black box in the American financial airplane.
In April, Moody's and Standard & Poor's settled the lawsuits for a reported $225 million. Brought by a diverse group of institutional plaintiffs with King County, Washington, and the Abu Dhabi Commercial Bank taking the lead, the suits accused the ratings agencies of conspiring in the mid-to-late 2000s with Morgan Stanley to fraudulently induce heavy investment into a pair of doomed-to-implode subprime-laden deals, called Cheyne and Rhinebridge.
Stock prices for both companies soared at the settlement, with markets believing the firms would be spared the hell of reams of embarrassing evidence thrust into public view at trial. But in a quirk, an earlier judge's ruling had already made most of the documents in the case public. Although a few news outlets, including The New York Times, took note at the time, the vast majority of the material was never reported, and some was never seen by reporters at all. The cases revolved around a highly exotic and complex financial instrument called a SIV, or structured investment vehicle.
The SIV is a not-so-distant cousin of the special purpose entity, or SPE, which was the main weapon of destruction in the Enron scandal. The corporate scam du jour in those days was mass accounting fraud, in which a company would create an ostensibly independent corporate structure that would actually be controlled by its own executives, who would then move their company's liabilities off their own books and onto the remote-controlled SPE, hiding the firm's losses.
The SIV is a similar concept. They first started showing up in the late Eighties after banks discovered a loophole in international banking standards that allowed them to create SPE-like repositories full of assets like mortgage-backed securities and keep them off their own books.
These behemoths operated on the same basic concept as an ordinary bank, which borrows short-term cash from depositors and then lends money long-term in the form of things like mortgages, business loans, etc. The SIV did the same thing, borrowing short-term from investors and then investing long-term on things like student loans, car loans, subprime mortgages. Like banks, a SIV made money on the spread between its short-term debt and long-term investments. If a SIV borrowed on the commercial paper market at 3 percent but earned 6.5 percent on subprime mortgages, that was an easy 3.5 percent profit.
The big difference is a bank has regulatory capital requirements. A SIV doesn't, and being technically independent, its potential liabilities don't show up on the books of the megabank that created it. So the SIV structure allowed investment banks to create and take advantage of, without risk, billions of dollars of things like subprime loans, which became the centerpiece of the new trendy corporate scam – creating and then selling masses of risky mortgage-backed securities as AAA investments to institutional suckers.
Ratings agencies helped this game along in two ways. First, banks needed them to sign off on the bogus math of the subprime era – the math that allowed banks to turn pools of home loans belonging to people so broke they couldn't even afford down payments into securities with higher credit ratings than corporations with billions of dollars in assets. But banks also needed the ratings agencies to sign off on the safety and reliability of these off-balance-sheet SIV structures.
The first of the two SIVs in question was dreamed up by a London-based hedge fund called Cheyne Capital Management (pronounced like Dick "Cheney"), run by an ex-Morgan Stanley banker duo who hired their old firm to build and stock this vast floating Death Star of subprime loans.
Morgan Stanley had multiple motives for putting together the Cheyne deal. For one thing, it earned what the bank's lead structurer affectionately called "big fat upfront fees," which bank executives estimated would eventually add up to $25 million or $30 million. It was a lucrative business, and the top dogs wanted the deal badly. "I am very focused on?.?.?.?getting this deal done to get NY to stop freaking out" and "to make our money," said Robert Rooney, the senior Morgan Stanley executive on the deal. A spokesman for Morgan Stanley, however, told Rolling Stone, "Our sole economic interest was in the ongoing success of the SIV."
But that wasn't Morgan Stanley's only motive. Not only could the bank make the "big fat upfront fees" for structuring the deal, they could also turn around and sell scads of their own mortgage-backed securities to the SIV, which in turn would be marketed to investors like Abu Dhabi and King County. In Cheyne, 25 percent of the original assets in the deal came from Morgan Stanley – over time, $2 billion of the SIV's $9 billion to $10 billion portfolio of assets came from the bank as well.
Internal Morgan Stanley memorandums show that the bank knowingly stuffed mortgages in the SIV whose borrowers were, to say the least, highly suspect. "The real issue is that the loan requests do not make sense," complained a Morgan Stanley employee back in 2005. He noted loans had been made to a "tarot reading house" operator who claimed to make $12,000 a month, and a "knock off gold club distributor" who claimed to make $16,000 a month. "Compound these issues," he groaned, "with the fact that we are seeing what I would call a lot of this type of profile."
No matter – into the soup it went! Morgan sold mountains of this crap into Cheyne's SIV, where it was destined to be sold off to other suckers down the line. The only thing that could possibly get in the way of the scam was some pesky ratings agency.
Fortunately for the bank and the hedge fund, these subprime SIVs were a relatively new kind of investment product, so the ratings agencies had little to go on in the area of historical data to measure these products. One might think this would make the ratings agencies more conservative. In fact, caution in the face of the unknown was supposed to be a core value for these companies. As Moody's put it, "Triple-A structures should not be highly dependent on untestable assumptions."
But when it came to the Cheyne SIV, Moody's punted on caution. In an e-mail sent to executives from both Morgan Stanley and Cheyne in May 2005, David Rosa, a Moody's senior analyst, admitted that when it came to this SIV, he had nothing to go on.
"Please note that in relation to assumed spread [volatility] for the Aa and A there is no actual data backing up the current model assumptions," he wrote. In lieu of such data, he went on, "We will for now accept the proposal to use the same levels as [residential mortgage-backed securities] given that this assumption is supported by the analysis of the Aaa data?.?.?.?and Cheyne's comments on their views of this asset class."
Translation: We have no historical data, so we'll just accept your reasoning for the time being, even though you have every incentive in the world to lie about the quality of your product.
At one point, a Morgan Stanley analyst even claimed that the bank had written, in Moody's name, an entire 12-page "New Issue Report" for the Cheyne SIV – a kind of ratings summary in which Morgan Stanley appears to have given itself AAA ratings for large chunks of the deal. "I attach the Moody's NIR (that we ended up writing)," yawns Morgan Stanley fixed-income employee Rany Moubarak in a March 2006 e-mail. The attached document came proudly affixed with the "Moody's Investors Service" logo. (Both Moody's and Morgan Stanley deny that anyone other than Moody's wrote that report.)
Morgan Stanley ended up getting both Moody's and S&P to rate the deal, and that was not only common, it was basically industry practice. There were many reasons for this, but a big one was a concept called "notching," in which the agencies gave ratings penalties to any instrument that had not been rated by their own company. If a SIV contained a basket of mortgage-backed securities rated AA by Standard & Poor's, Moody's might "notch" those underlying securities down to A, or even lower. This incentivized the banks to hire as many ratings agencies as possible to rate every investment vehicle they created.
Again, despite the fact that the ratings agencies enjoyed broad quasi-official subsidies, and despite the powerful market leverage that techniques like "notching" gave them, they still routinely chose to roll over for banks. And the biggest companies were equally guilty. In the case of the Cheyne deal, Standard & Poor's was every bit as craven as Moody's.
In September 2004, an S&P analyst named Lapo Guadagnuolo sent an e-mail to Stephen McCabe, the agency's lead "quant" on the Cheyne deal, who apparently was on vacation. The e-mail chain was mostly a bunch of office gossip, where the two men e-whispered about an employee who was about to quit. But sandwiched in the office banter was an offhand line about the Cheyne deal and how full of shit it was. "Hi Steve!" Guadagnuolo wrote cheerily, adding, "How is Australia and how was Thailand????Back to [Cheyne]?.?.?.?As you know, I had difficulties explaining 'HOW' we got to those numbers since there is no science behind it?.?.?.
"Thanks and regards?.?.?.?have you heard that [redacted] has resigned .?.?. and somebody else will follow suit today!!"
McCabe, blowing off the "no science behind it" comment, answered eagerly, "Who, Who, Who????" The quadruple question mark must be an S&P-ism.
A month later, McCabe seemed more concerned about the lack of science in the Cheyne deal. He complained in an e-mail to his boss, Kai Gilkes, who was the agency's senior quantitative analyst in Europe.
"From looking at the numbers it is quite obvious that we have just stuck our preverbal [sic] finger in the air!!" he fumed.
Gilkes was experiencing his own crisis of conscience by mid-2005, complaining in an oddly wistful e-mail to another S&P employee that the good old days of just giving things the ratings they deserved were disappearing. "Remember the dream of being able to defend the model with sound empirical research?" he wrote on June 17th, 2005. "If we are just going to make it up in order to rate deals, then quants are of precious little value."
Frank Parisi, Standard & Poor's chief credit officer for structured finance, was even more downtrodden, saying that the model that his company used to rate residential mortgage-backed securities in 2005 and 2006 was only marginally more accurate than "if you just simply flipped a coin."
Given all of this, why would top analysts from both Moody's and Standard & Poor's rate such a massive deal like Cheyne without any science to back it up? The answer was simple: money. In the old days, ratings agencies lived on subscriptions sold to investors, meaning they were compensated – indirectly, incidentally – by the people buying the financial products.
But over time, that model morphed into the current "issuer pays" model, in which a company like Moody's or Standard & Poor's is paid directly by the "issuer" – i.e., the company that is actually making the financial product.
For Cheyne, for instance, the agencies were paid in the area of $1 million to $1.5 million to rate the deal by Morgan Stanley, the very company with an interest in getting a high rating. It's the ultimate in negative incentives, and was and continues to be a major impediment to honest analysis on Wall Street. Michigan Sen. Carl Levin, one of the few lawmakers to focus on reforming the ratings agencies after the crash, put it this way: "It's like one of the parties in court paying the judge's salary."
Thanks to this model, ratings-agency business soared during the bubble era. A Senate report found that fees for the "Big Three" doubled between 2002 and 2007, from $3 billion to $6 billion. Fees for rating mortgage-backed securities at both Moody's and S&P nearly quadrupled.
So there were powerful incentives to whitewash deals like Cheyne. The eventual president of Moody's, Brian Clarkson, actually copped to this awful truth in writing, in a 2004 internal e-mail. "To put it bluntly," he wrote, "the issuer could take its business elsewhere unless the rating agency provides a higher rating."
Both Moody's and Standard & Poor's employees described complex/exotic new financial products like CDOs and SIVs as "cash cows," and behind closed doors, executives talked openly about the financial pressure to give scientifically unfounded analysis to products the banks wanted to sell.
The minutes from a 2007 conference of Standard & Poor's executives show that the raters knew they were in way over their heads. Admitting that it was virtually impossible to accurately rate, say, a synthetic derivative loan deal with underlying assets in China and Russia, one executive candidly admits, "We do not have the capacity nor the skills in house to rate something like this." Another counters, "Market pressures have significantly risen due to 'hot money.'" The first retorts that bankers are pushing boundaries, asking the raters to help them play the highly cynical hot-potato game, in which bad loans are originated en masse and then instantly passed off to suckers who will take on all the risk. "Bankers say why not originate bad loans, there is no penalty," the executive muses.
Hilariously – or tragically, depending on your point of view – an S&P executive at the conference even tossed off a quick visual sketch of their company's moral quandary. The picture is atrociously drawn (it looks like a junior high school student's rendering of a ganglion cell) and comes across like the Wall Street version of Hamlet, showing the industry traveling down a road and reaching a "Choice Point" crossroads, where the two options are "To Rate" and "Not Rate."
The former – basically taking the money and just rating whatever crap the banks toss their way – is crudely depicted as a wide, "well marked super highway." Meanwhile the honorable thing, not rating shitty investments, is shown to be a skinny little roadlet, marked "Dark and narrow path less traveled."
Obviously, the ratings agencies like S&P ultimately decided to take the road more traveled, choosing profits over scruples. Not that there wasn't some token resistance at first. For instance, some at S&P hesitated to allow the use of a questionable technique called "grandfathering," in which old and outdated rating models were used to rate newly issued investments.
In one damning e-mail chain in November 2005, a Morgan Stanley banker complains to an S&P executive named Elwyn Wong that S&P was preventing him from putting S&P ratings on Morgan Stanley deals that used this grandfathering technique. "My business is on 'pause' right now," the banker complains.
Wong took the news that S&P was holding up deals over the grandfathering issue badly. "Lord help our fucking scam," he said. "This has to be the stupidest place I have worked at." Wong, incidentally, was later hired by the U.S. Office of the Comptroller Currency, our top federal banking regulator.
The purists, however, couldn't hold out for long. In the Cheyne case, when one of the "quants" tried to hold the line, Morgan Stanley went over their heads to someone on the business side at the company to get the rating it wanted.
In July 2004, for instance, analyst Lapo Guadagnuolo sent an e-mail to Morgan Stanley's point man on the Cheyne deal, Gregg Drennan, and told him that the best he could do for the "mezzanine capital notes" or "MCN" piece of the SIV – a piece that Drennan wanted at least an A rating for – was BBB-plus. Drennan responded in an e-mail that CC'd Guadagnuolo's boss, Perry Inglis, telling him that Morgan Stanley "believe[s] the position the committee is taking is very inappropriate."
Ultimately, the analyst committee agreed to give the dubious Mezzanine Notes an A rating, marking the first time these middle-tier investments in a SIV ever received a public A rating. For Wall Street, this was occasion to par-tay. In the summer of 2005, one of the Cheyne hedge-funders sent out a celebratory e-mail to Morgan Stanley execs, bragging about getting the ratings companies to cave. "It is an amazing set of feats to move the rating agencies so far," the hedgie wrote. "We all do all this for one thing and I hope promotions are a given. Let's hope big bonuses are to follow."
Later on, S&P caved even further, agreeing to allow Morgan Stanley to lower the "capital buffer" in the deal protecting investors without suffering a ratings penalty. As late as February 1st, 2006, Guadagnuolo was defiantly telling Morgan Stanley that the one-percent buffer was a "pillar of our analysis." But by the next day, Morgan Stanley executive Moubarak had chopped Guadagnuolo's knees out. He cheerfully announced in a group e-mail that the bank had managed to remove this "pillar" and get the buffer knocked down to .75 percent.
Tina Sprinz, who worked for the Cheyne hedge fund, sent an e-mail that very day to Moubarak, thanking him for straightening out the pesky analysts. "Thanks for negotiating that," she says. The ratings process shouldn't be a "negotiation," yet this word appears throughout these documents.
In the Cheyne deal, just the plaintiffs in the lawsuit invested a total of $980 million in "rated notes," and those who invested in these "MCNs" were completely wiped out. Analysts from both agencies would express regret and/or trepidation about their roles in unleashing the monster deals and their failure to stop the business-side suits running the companies from selling them out. Gilkes, the S&P analyst who worried about shunning real science in favor of just making things up, later testified that the subprime assets in such SIVs were "not appropriate."
"They should not have been rated," he said.
If the significance of Cheyne is that it showed how the ratings agencies sold out in an effort to get business, the significance of the next deal, Rhinebridge, is that it showed how low they were willing to stoop to keep that business.
Rhinebridge was a subprime-packed SIV structured very much like Cheyne, only both the quality of the underlying crap in the SIV and the timing of the SIV's launch were significantly more horrible than even Cheyne's.
Not only did Morgan Stanley insist that the ratings agencies allow the bank to pack Rhinebridge full of a much higher quantity of subprime than in the Cheyne deal, they were also pushing this massive blob of toxic mortgages at a time when the subprime market was already approaching full collapse.
In fact, the Rhinebridge deal would launch with high ratings from both agencies on June 27th, 2007, less than two weeks before both Moody's and S&P would downgrade hundreds of subprime mortgage-backed securities. In other words, both Moody's and S&P were almost certainly in the process of downgrading the underlying assets in the Rhinebridge SIV even as they were preparing to launch Rhinebridge with AAA-rated notes.
"It was the briefest AAA rating in history," says the plaintiffs' lawyer Dan Drosman. "Rhinebridge went from AAA to junk in a matter of months."
There is an enormous documentary record in both agencies showing that analysts and executives knew a bust was coming long before they sent Rhinebridge out into the world with a AAA label. As early as 2005, S&P was talking in internal memorandums about a "bubble" in the real-estate markets, and in 2006 it knew that there had been "rampant appraisal and underwriting fraud for quite some time," causing "rising delinquencies" and "nightmare mortgages."
In June 2007, the same month Rhinebridge was launched, S&P's Board of Directors Report talked about a total collapse of the market. "The meltdown of the subprime-mortgage market will increase both foreclosures and the overhang of homes for sale."
It was no better at Moody's, where in June 2007, executives were internally discussing "increased amounts of lying on income" and "increased amounts of occupancy misstatements" in mortgage applications. Clarkson, who would become president two months later, was told the week before Rhinebridge launched that "most players in the market" believed subprime would "perform extremely poorly," and that the problems were "quite serious."
Yet the two ratings agencies not only kept those concerns private, they both took outlandish steps to declare just the opposite.
In a pair of matching public papers, both Moody's and S&P proclaimed that summer that while subprime might be going to hell, subprime-packed investments like SIVs might be just fine. The Moody's report on July 18th read "SIVs: An Oasis of Calm in the Sub-prime Maelstrom," while an S&P report on August 14th, 2007, was titled "Report Says SIV Ratings Are Weathering Current Market Disruptions."
The S&P report was so brazen that it even shocked a Morgan Stanley banker involved in the SIV deals. "I cannot believe these morons would reaffirm in this market," chortled the banker in an e-mail the day after the paper was released.
Rhinebridge, cheyne and a hell of a lot of other subprime investments ultimately blew to smithereens, taking with them vast amounts of cash – 40 percent of the world's wealth was wiped out in the aftermath of the mortgage bubble, according to some estimates. 2008 was to the American economy what 9/11 was to national security. Yet while 9/11 prompted the U.S. government to tear up half the Constitution in the name of public safety, after 2008, authorities went in the other direction. If you can imagine a post-9/11 scenario where there were no metal detectors at airports and people could walk on carrying chain saws and meat cleavers, you get a rough idea of what was done to reform the ratings process.
Specifically, very little was done to change the way AAA ratings are created – the "issuer pays" model still exists, and the "Big Three" retain roughly the same market share. An effort by Minnesota Sen. Al Franken to change the compensation model through a new approach under which agencies would be assigned randomly to rate new issues through a government agency passed overwhelmingly in the Senate, but in the House it was relegated to a study by the SEC – which released its findings last year, calling for?.?.?. more study. "The conflict of interest still exists in the exact same way," says a frustrated Franken.
The companies by now are all the way back in black. In 2012, for instance, Moody's profits soared 22 percent, to $1.18 billion. McGraw-Hill, the parent company of Standard & Poor's, scored $437 million in profits last year, with the rating business accounting for 70 percent of the company's profits.
In February, the Obama Justice Department, in an action that seems belated, filed a $5 billion civil suit against Standard & Poor's, drawing upon some of the same data and documents that were part of the Cheyne and Rhinebridge suits. As part of that action, high-ranking officials at S&P were interviewed by government investigators and admitted that they had shaded their ratings methodologies to protect market share. In this deposition of Richard Gugliada, head of S&P's CDO operations, the government asks why the company was slow to implement updates to its model for evaluating CDOs:
Q: Is it fair to say that Standard & Poor's goal of preserving an increasing market share and profits from ratings fees influence the development of the updates to the CDO evaluator?
A: In part, correct.
Q: The main reason to avoid a reduction in the noninvestment grade ratings business was to preserve S&P's market share in that category, correct?
A: Correct.
Years after the crash, it's a little insulting to see industry analysts blithely copping under oath to having traded science for market share, especially since the companies continue to protest to the contrary in public. Contacted for this story, Moody's and S&P insisted many of the documents in this case were simply taken out of context, and that their analysis throughout has been rigorous, objective and independent.
It's a thin defense, but it's holding – for now. McGraw-Hill stock plunged nearly 14 percent when news of the Justice Department suit leaked, and dropped nearly 19 percent for February, but has since regained much of its value – its stock rose nearly 16 percent in March and April, as markets reacted favorably to, among other things, its recent settlement of the Cheyne and Rhinebridge suits. The markets clearly think the ratings agencies will survive.
What's amazing about this is that even without a mass of ugly documentary evidence proving their incompetence and corruption, these firms ought to be out of business. Even if they just accidentally sucked this badly, that should be enough to persuade the markets to look to a different model, different companies, different ratings methodologies.
But we know now that it was no accident. What happened to the ratings agencies during the financial crisis, and what is likely still happening within their walls, is a phenomenon as old as business itself. Given a choice between money and integrity, they took the money. Which wouldn't be quite so bad if they weren't in the integrity business.
This story is from the July 4 - July 18, 2013 issue of Rolling Stone
http://www.rollingstone.com/politics/news/the-last-mystery-of-the-financial-crisis-20130619
Buying Physical Gold and Silver
Personal Experiences & Thoughts On My Favorite Market
by: Tekoa De Silva
Publisher BullMarketThinking.com
http://bullmarketthinking.com/wp-content/uploads/2013/06/goldsilver.pdf
Iranian Rial Currency Targeted For Destruction
Jon Matonis
Forbes
6/17/2013
Effective July 1st, the United States has authorized new sanctions directly targeting the already-devalued Iranian rial with penalties for transacting or holding the currency outside of Iran. This represents the first time that the U.S. has focused specifically on the Iranian monetary unit itself and the ninth set of sanctions President Barack Obama has imposed against Iran.
White House Press Secretary Jay Carney said, “This new action targets Iran’s currency, the rial, by authorizing the imposition of sanctions on foreign financial institutions that knowingly conduct or facilitate significant transactions for the purchase or sale of the Iranian rial, or that maintain significant accounts outside Iran denominated in the Iranian rial.”
The tough sanctions are intended to increase the financial pressure on the Islamic republic to abandon its nuclear program. However, Iran maintains that its nuclear energy program is for peaceful purposes only and has refused to back down arguing that it has this right.
Carney explained how the sanctions also target the foreign assets of Iran’s leaders, “Further increasing the pressure on the Iranian government, the Executive Order authorizes the imposition of additional sanctions on persons who provide material support to Iranian persons and certain other persons designated pursuant to Iran sanctions authorities that are included on the list of Specially Designated Nationals and Blocked Persons (SDN List) maintained by the Department of the Treasury.”
The Government of Iran’s leadership controls a vast overseas network of 37 private businesses for the purpose of managing off-the-books investments that are shielded from the view of international regulators.
This month in exchange for pledges to reduce oil purchases from Iran, the U.S. State Department renewed six-month waivers on Iran sanctions for nine countries in total, including China, India, South Korea, Malaysia, Singapore, South Africa, Sri Lanka, Turkey and Taiwan.
In early 2012, the U.S. and the European Union imposed payment sanctions on Iran’s oil and financial sectors with the goal of weakening Iranian oil exports and blockading transactions with the Central Bank of Iran via Swift. However, a European Union court in February ruled against the EU banking sanctions imposed on one of Iran’s largest banks, which extends to the payment sanctions imposed by Swift in March of last year.
The Iranian currency has already been suffering from record inflation losing more than two-thirds of its value in the past two years, trading at 36,000 per U.S. dollar as of April 30th, compared with 16,000 at the beginning of 2012.
“The idea is to cause depreciation of the rial and make it unusable in international commerce,” according to David Cohen, the Treasury Department’s undersecretary for terrorism and financial intelligence.
President Obama issued this latest Executive Order on June 3rd and during an interview Cohen said, “the purpose of the one-month phase-in period is to give financial institutions currently holding rials the opportunity to dump them.”
Follow author on Twitter.
http://www.forbes.com/sites/jonmatonis/2013/06/17/government-of-worlds-reserve-currency-targets-iranian-rial/
Own Physical Gold as Governments Destroy Wealth and Squander Tax Payers’ Money
David Levenstein | June 19, 2013
Gold prices have failed to hold above the key resistance level of $1400 an ounce even though the fundamental driving forces behind the precious metal have not changed and as the global monetary system remains as precarious as ever.
While some investors may think they are getting wealthier because they see the value of their equity portfolio increase, others are seeing the value of their hard earned cash gradually erode due to the low interest rate environment. And, while mainstream media particularly in the USA claim that the economy is recovering due to the recent stock market rally, this rise in prices is due to an economic stimulus programme engineered by the US Federal Reserve and has nothing to do with a vibrant economy.
If you believe that there is not going to be any repercussion from central banks unprecedented money printing and that governments will be able to sustain their current record high levels of debt when interest rates rise, then you have nothing to worry about. However, if you believe as I do, that these monetary policies will result in further currency devaluation, rising commodity prices, steep inflation which may end in hyperinflation and then a complete collapse of the current global monetary system, then you had better prepare yourself now.
It is obvious that the policies of central bankers have been a total failure when it comes to stimulating economic growth. The scenario they have created seems to be playing out in an almost textbook manner. And, if history does repeat itself, then this nominal rise in asset prices will be followed by a period of rising inflation. The ensuing increase in interest rates will prevent governments from being able to pay the interest on their debt which will lead to a total loss of confidence in their respective currencies.
Meanwhile, Western governments continue their insidious actions to rob their citizens of their hard earned wealth and individual liberties. These bankrupt Western governments will blame the war on terror, or the war on drugs, and will impose new taxes, and capital controls on their citizens as they try to inflate their way to higher tax revenue. They will also continue to interfere and manipulate the markets
Only recently, Bloomberg reported that traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates to set the value of trillions of dollars of investments.
Evidently, employees have been front-running client orders and rigging WM/Reuters rate by pushing through trades before and during the 60-second windows when the benchmarks are set.
According to certain traders, dealers colluded with counterparts to boost chances of moving the rates. This happened daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, two traders said.
The currency market, estimated at around $4.7 million a day is the largest market in the world as well as one of the least regulated.
While hundreds of firms participate in the foreign-exchange market, four banks dominate, with a combined share of more than 50%, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank is No. 1, with a 15.2% share, followed by New York-based Citigroup with 14.9%, Barclays Plc., with 10.2% and UBS AG with 10.1%.
The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, after three lenders were fined about $2.5 billion for rigging the London Interbank offered rate, or Libor. Regulators also are investigating benchmarks for the crude-oil and swaps markets.
Singapore’s monetary authority has ordered, 20 banks at which 133 traders tried to manipulate the Singapore interbank offered rate, swap offered rates and currency benchmarks to set aside as much as S$12 billion ($9.6 billion) at zero interest pending steps to improve internal controls.
Nineteen firms were asked to post reserves ranging from S$100 million to S$1.2 billion — depending on the severity of the attempts by their traders to manipulate rates — for a year and will earn zero interest on that money.
As governments together with their financial leaders try to manipulate the currency markets, financial markets and stock markets, they also attempt to suppress the prices of gold and silver. Owning gold and silver is taking money out of the system, something which governments despise and something that every single individual should do.
In his speech at the Open for Growth conference at Lancaster House in central London on Saturday, UK prime-minister, David Cameron pledged to tackle tax evasion and transparency at the upcoming G8 summit on Monday. Cameron claims that trade, tax and transparency are vital factors in the global effort to eradicate poverty.
During their meeting in Northern Ireland which began on Monday, one topic clamping down on tax havens, launching EU-US trade talks and progress towards a Syrian peace conference. British Prime Minister David Cameron has put clamping down on tax avoidance top of the agenda for this G8 summit. Cameron is seeking an agreement on clamping down on corporation tax loopholes, and creating an international registry of company ownership to stop companies hiding profits in shell companies registered in tax havens.
Emma Seery from aid agency Oxfam said: “We don’t even know the scale of how much developing countries are losing because there are so many secretive deals and tax havens are secretive places, but we know that just because of companies are dodging their taxes, developing countries lose $160 billion every year.”
While so called tax havens receive more bad publicity once again, nothing is said about the billions of tax payers’ money that governments have squandered in hopeless aid programmes as well as financial assistance to corrupt governments, not to mention the cost of financing all these so called aid agencies.
Over the last 50 years, developed countries have dished out more than $2.5 trillion of tax payers’ money in foreign aid and yet there is still an overwhelming amount of poverty. Approximately $568 billion was spent on aid programs in Sub-Saharan Africa from 1960 to 2003, yet, corruption and poverty remain its defining features. The region remains poverty stricken while corrupt government officials become very wealthy. Add to this the cost of on-going wars as well as the cost to finance ever expanding governments. Suddenly, a few offshore bank accounts look insignificant to the amount of money governments have wasted. Furthermore, industrialised nations are under no obligation whatsoever to provide any aid to developing countries; contrary to what many politicians in Africa may like believe.
The African Union estimates corruption costs the continent $150 billion annually, far outstripping global development spending. The World Bank reckons over a quarter of its entire lending portfolio has been tainted by graft. Yet aid agencies funded by tax payers’ money continue to pour hundreds of millions into this bottomless pit every year.
Personally, I think leaders such as David Cameron, together with the Secretary-General of the OECD, Angel Gurría, should focus their energies on clamping down on global government corruption instead of trying to invent ways to extract more taxes from legal companies and hard-working individuals who have legitimate offshore bank accounts. And, they should be held accountable, for squandering tax payers’ money by funding these corrupt governments. They should receive a prison sentence for all the hundreds of millions of tax payers’ money that simply disappears into the bank accounts of corrupt politicians.
Unfortunately, while governments continue to waste tax payers’ money, they also continue to bully their citizens with their tax authorities. Also, they expect individuals to tolerate their actions as they invade your privacy, devalue currencies, manipulate markets, and destroy the value of your savings and pensions.
As an individual you cannot change the system, but you can take certain steps to prevent yourself from being totally wiped out by these insidious actions. One way is to make sure you own physical gold and silver.
TECHNICAL ANALYSIS
As gold prices fail to break above the key resistance (R) of $1400/oz., I expect to see more consolidation before prices move upwards.
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. For more information go to: www.lakeshoretrading.co.za
http://goldsilverworlds.com/money-currency/own-physical-gold-as-governments-destroy-wealth-and-squander-tax-payers-money/
Own Physical Gold as Governments Destroy Wealth and Squander Tax Payers’ Money
David Levenstein | June 19, 2013
Gold prices have failed to hold above the key resistance level of $1400 an ounce even though the fundamental driving forces behind the precious metal have not changed and as the global monetary system remains as precarious as ever.
While some investors may think they are getting wealthier because they see the value of their equity portfolio increase, others are seeing the value of their hard earned cash gradually erode due to the low interest rate environment. And, while mainstream media particularly in the USA claim that the economy is recovering due to the recent stock market rally, this rise in prices is due to an economic stimulus programme engineered by the US Federal Reserve and has nothing to do with a vibrant economy.
If you believe that there is not going to be any repercussion from central banks unprecedented money printing and that governments will be able to sustain their current record high levels of debt when interest rates rise, then you have nothing to worry about. However, if you believe as I do, that these monetary policies will result in further currency devaluation, rising commodity prices, steep inflation which may end in hyperinflation and then a complete collapse of the current global monetary system, then you had better prepare yourself now.
It is obvious that the policies of central bankers have been a total failure when it comes to stimulating economic growth. The scenario they have created seems to be playing out in an almost textbook manner. And, if history does repeat itself, then this nominal rise in asset prices will be followed by a period of rising inflation. The ensuing increase in interest rates will prevent governments from being able to pay the interest on their debt which will lead to a total loss of confidence in their respective currencies.
Meanwhile, Western governments continue their insidious actions to rob their citizens of their hard earned wealth and individual liberties. These bankrupt Western governments will blame the war on terror, or the war on drugs, and will impose new taxes, and capital controls on their citizens as they try to inflate their way to higher tax revenue. They will also continue to interfere and manipulate the markets
Only recently, Bloomberg reported that traders at some of the world’s biggest banks manipulated benchmark foreign-exchange rates to set the value of trillions of dollars of investments.
Evidently, employees have been front-running client orders and rigging WM/Reuters rate by pushing through trades before and during the 60-second windows when the benchmarks are set.
According to certain traders, dealers colluded with counterparts to boost chances of moving the rates. This happened daily in the spot foreign-exchange market and has been going on for at least a decade, affecting the value of funds and derivatives, two traders said.
The currency market, estimated at around $4.7 million a day is the largest market in the world as well as one of the least regulated.
While hundreds of firms participate in the foreign-exchange market, four banks dominate, with a combined share of more than 50%, according to a May survey by Euromoney Institutional Investor Plc. Deutsche Bank is No. 1, with a 15.2% share, followed by New York-based Citigroup with 14.9%, Barclays Plc., with 10.2% and UBS AG with 10.1%.
The Financial Conduct Authority, Britain’s markets supervisor, is considering opening a probe into potential manipulation of the rates, after three lenders were fined about $2.5 billion for rigging the London Interbank offered rate, or Libor. Regulators also are investigating benchmarks for the crude-oil and swaps markets.
Singapore’s monetary authority has ordered, 20 banks at which 133 traders tried to manipulate the Singapore interbank offered rate, swap offered rates and currency benchmarks to set aside as much as S$12 billion ($9.6 billion) at zero interest pending steps to improve internal controls.
Nineteen firms were asked to post reserves ranging from S$100 million to S$1.2 billion — depending on the severity of the attempts by their traders to manipulate rates — for a year and will earn zero interest on that money.
As governments together with their financial leaders try to manipulate the currency markets, financial markets and stock markets, they also attempt to suppress the prices of gold and silver. Owning gold and silver is taking money out of the system, something which governments despise and something that every single individual should do.
In his speech at the Open for Growth conference at Lancaster House in central London on Saturday, UK prime-minister, David Cameron pledged to tackle tax evasion and transparency at the upcoming G8 summit on Monday. Cameron claims that trade, tax and transparency are vital factors in the global effort to eradicate poverty.
During their meeting in Northern Ireland which began on Monday, one topic clamping down on tax havens, launching EU-US trade talks and progress towards a Syrian peace conference. British Prime Minister David Cameron has put clamping down on tax avoidance top of the agenda for this G8 summit. Cameron is seeking an agreement on clamping down on corporation tax loopholes, and creating an international registry of company ownership to stop companies hiding profits in shell companies registered in tax havens.
Emma Seery from aid agency Oxfam said: “We don’t even know the scale of how much developing countries are losing because there are so many secretive deals and tax havens are secretive places, but we know that just because of companies are dodging their taxes, developing countries lose $160 billion every year.”
While so called tax havens receive more bad publicity once again, nothing is said about the billions of tax payers’ money that governments have squandered in hopeless aid programmes as well as financial assistance to corrupt governments, not to mention the cost of financing all these so called aid agencies.
Over the last 50 years, developed countries have dished out more than $2.5 trillion of tax payers’ money in foreign aid and yet there is still an overwhelming amount of poverty. Approximately $568 billion was spent on aid programs in Sub-Saharan Africa from 1960 to 2003, yet, corruption and poverty remain its defining features. The region remains poverty stricken while corrupt government officials become very wealthy. Add to this the cost of on-going wars as well as the cost to finance ever expanding governments. Suddenly, a few offshore bank accounts look insignificant to the amount of money governments have wasted. Furthermore, industrialised nations are under no obligation whatsoever to provide any aid to developing countries; contrary to what many politicians in Africa may like believe.
The African Union estimates corruption costs the continent $150 billion annually, far outstripping global development spending. The World Bank reckons over a quarter of its entire lending portfolio has been tainted by graft. Yet aid agencies funded by tax payers’ money continue to pour hundreds of millions into this bottomless pit every year.
Personally, I think leaders such as David Cameron, together with the Secretary-General of the OECD, Angel Gurría, should focus their energies on clamping down on global government corruption instead of trying to invent ways to extract more taxes from legal companies and hard-working individuals who have legitimate offshore bank accounts. And, they should be held accountable, for squandering tax payers’ money by funding these corrupt governments. They should receive a prison sentence for all the hundreds of millions of tax payers’ money that simply disappears into the bank accounts of corrupt politicians.
Unfortunately, while governments continue to waste tax payers’ money, they also continue to bully their citizens with their tax authorities. Also, they expect individuals to tolerate their actions as they invade your privacy, devalue currencies, manipulate markets, and destroy the value of your savings and pensions.
As an individual you cannot change the system, but you can take certain steps to prevent yourself from being totally wiped out by these insidious actions. One way is to make sure you own physical gold and silver.
TECHNICAL ANALYSIS
As gold prices fail to break above the key resistance (R) of $1400/oz., I expect to see more consolidation before prices move upwards.
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. For more information go to: www.lakeshoretrading.co.za
http://goldsilverworlds.com/money-currency/own-physical-gold-as-governments-destroy-wealth-and-squander-tax-payers-money/
If Bernanke really shakes the tree, half the world may fall out
By Ambrose Evans-Pritchard Economics Last updated:
June 18th, 2013
The Telegraph
We no longer have a free market. The world’s financial asset prices have become a plaything of central banks and the sovereign wealth funds of a few emerging powers.
Julian Callow from Barclays says they are buying $1.8 trillion worth of AAA or safe-haven bonds each year from an available pool of $2 trillion. Nothing like this has been seen before in modern times, if ever.
The Fed, the ECB, the Bank of England, the Bank of Japan, et al, own $10 trillion in bonds. China, the petro-powers, et al, own another $10 trillion. Between them they have locked up $20 trillion, equal to roughly 25pc of global GDP. They are the market. That is why Fed taper talk has become so neuralgic, and why we all watch Chinese regulators for every clue on policy.
We will find out tomorrow whether Ben Bernanke is ready to blink after the market ructions of the last three weeks, sobered by the cascading upsets across the Brics and mini-Brics; or whether he will stay the course with Fed tapering sooner rather than later.
Investors seem to think he will indeed blink, or at least blink enough to put off the day of reckoning for another three month investment cycle, which is what hedge funds care about, and that if he doesn’t blink it will be because the economy is picking up speed. They cling to the Bernanke Put, when the new reality may instead be the Bernanke Call.
Perhaps Bernanke will oblige one more time, knowing that the US economy has yet to absorb the full shock of fiscal tightening, the biggest squeeze for half a century. Besides, core PCE inflation is down to 1.1pc. Jim Leaviss from M&G says the Fed would normally be cutting rates by 1.5pc under the Taylor Rule in these circumstances, not tightening.
Yet what causes me to hesitate is the drip of reports and comments from key figures in – or near – the Fed seeming to suggest a loss of nerve, or who fear that QE has turned counterproductive.
First we had a paper co-written by Frederic Mishkin – Bernanke’s close friend and a former board member – warning that is becoming ever harder for the Fed to extricate itself safely from QE, and the door my shut altogether from 2014.
“Crunch Time: Fiscal Crises and the Role of Monetary Policy” said the Fed’s own capital base could be wiped out “several times” once borrowing costs spike. It said trouble could compound at an alarming pace, with yields spiking up to double-digit rates by the late 2020s. By then Fed will be forced to finance spending to avert the greater evil of default.
Then we had the minutes of the Federal Advisor Council arguing that it is “not clear” whether QE is really boosting the economy, while the toxic side-effects are all too clear. It warned of “unsustainable bubbles” in asset prices. It said zero rates are pushing pension funds underwater on their liabilities, and even claimed that QE may be causing firms to defer investment.
Since then the Bank for International Settlements has issued a full frontal attack on the credibility of QE, saying it “doesn’t work” and is doing more harm than good. Even the Boston Fed’s ultra-dove Eric Rosengren has talked of early tapering, a clear sign that the Fed’s centre of gravity has shifted.
So don’t be surprised if Bernanke talks tough tomorrow, and don’t underestimate the implications if he does. The point was put nicely by Jan Loeys from JP Morgan in a note last week:
In Fed hiking cycles over the past half century, 10-year US Treasury yields on average bottomed some 6 months before the first rate hike. In the current cycle, where rate cuts have been complemented by large-scale asset purchases, the end of the easy money period is harder to define. It is surely well before the first rate hike.
The end of the current easy money regime is set to have a bigger impact than previous ones as the current one will have lasted much longer and was much more extreme.
We have learned from past regime changes that the longer they last, the more the market will have got used to them, and could even be said to become leveraged and addicted to the old regime.
In addition, after major regime changes, we find that the leverage to the old one was each time much larger and in different places than most of us had assumed. A regime change is like shaking a tree and having no idea who or what will fall out.
Brazil, South Africa, and Turkey, are already falling out. Any other candidates?
Read more by Ambrose Evans-Pritchard on Telegraph Blogs
Follow Telegraph Blogs on Twitter
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100024895/if-bernanke-really-shakes-the-tree-half-the-world-may-fall-out/
SLV: Institutional Ownership
http://www.j3sg.com/Reports/Stock-Insider/generate-Institution.php?tickerLookUp=SLV&DV=yes
Swiss Parliament Pushes Back On U.S. Banks Deal
Mountain Vision | June 18, 2013
This article is an excerpt from the Mountain Vision newsletter, an excellent service which we strongly recommend.
From the WSJ– The lower house of Switzerland’s parliament voted against adopting a plan for banks to step around the Alpine nation’s banking secrecy laws and hand information about their dealings with suspected American tax evaders to U.S. authorities in an attempt to reach a sweeping resolution.
The vote sends the measure back to the upper house, which approved it last week, for further debate.
The proposed plan would have many of the country’s roughly 300 banks start providing details to the U.S. Department of Justice about their past relationships with American clients and the employees who assisted those clients.
The Swiss cabinet, which announced the plan last month, cautioned Parliament to act swiftly to approve it—implying that if banks don’t come forward now, U.S. authorities may ultimately come down hard on them with indictments and heavy fines. Wegelin & Co., Switzerland’s oldest bank, was hit with a U.S. indictment last year and is now defunct.
Critics have called the plan a violation of Swiss sovereignty, which unfairly exposes local bankers, advisers and attorneys to legal prosecution in the U.S. Critics have also said the plan lacks important details on the potential size of fines for the banks that opt to participate.
Now, following a 126-67 vote in the lower house against considering the measure, it is being tossed back to the Swiss Parliament’s upper house for further consideration Wednesday. Parliament’s summer session is scheduled to end Friday. The autumn session begins Sept. 9.
About a dozen banks have already been under investigation by U.S. authorities, including Credit Suisse Group AG and Julius Baer GroupAG. Those banks have begun handing over information as part of the U.S. crackdown on American tax evasion. UBS AG, the country’s biggest bank, resolved its issues with the DOJ with a deferred prosecution agreement in 2009.
Credit Suisse has already set aside 295 million Swiss francs ($319.8 million) to deal with the U.S. tax probe. Julius Baer hasn’t made a specific provision, but analysts generally estimate the Zurich-based bank could be hit with fines ranging from 200 million francs to 500 million francs.
The proposed plan for banks to resolve their issues with the U.S. by skirting banking secrecy laws drew criticism from the largest political parties in the lower house of Parliament.
The right-wing Swiss People’s Party has railed against the measure as “blackmail” on the part of U.S. authorities pressing Swiss officials to do their bidding, while the left-leaning Social Democrats have said banks should be left to resolve their legal issues on their own.
Though they haven’t been given specific details about the fines in store for participating banks, lawmakers have estimated penalties will amount to as much as 10 billion francs.
While banks would be expected to hand over data on their business with American clients, the exact identities of U.S. account holders would remain unknown.
Swiss officials have said the country remains unable to hand over such detailed information on clients until the U.S. Senate passes a 2009 amendment to a long-standing tax treaty between the countries.
Looking for monetary protection? Then we recommend to consider Global Gold, a Swiss-based service with high security storage in Switzerland, Hong Kong and Singapore. It is one of the few truly solid international solutions.
http://goldsilverworlds.com/investing/swiss-parliament-pushes-back-on-u-s-banks-deal/
The Gold Clock Goes TIC-Tock On SE Asia
Jun 18 2013, 01:58
Tom Luongo
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
The Treasury International Capital report each month is not normally looked at with much scrutiny because, truth be told, it's usually a non-event. Foreign sovereigns buy enough U.S. government securities to increase their total holdings between 0.5% and 1.0% month over month. The U.S. Treasury almost always has a surplus of buyers for its debt which allows it to continue to run up trillion-plus dollar budget deficits and export the inflation to the rest of the world. But, what happens when that doesn't happen? And what does that mean for Gold (GLD)?
In April, the TIC report was the most negative one I've seen since China dumped $100 billion in U.S. Treasuries in August 2011. That caused gold to spike to $1926 per ounce, the Swiss to peg the Franc to the euro (FXE) and eventually the five major central banks to open up a $500 billion coordinated swap line to ensure that liquidity would flow. Some $69.4 billion in net sales of U.S. Treasury securities were sold in April and what is interesting about this report is that it wasn't the work of one 'rogue' central bank attempting to make a statement, it was a lot of them.
(click to enlarge)
I've presented the above chart before, and when I did the last time, I did it was because of a curious event whereby China was the major net buyer, without whom there would have been a month like April.
(click to enlarge)
So, what's going on? Who's doing the selling? The answer is emerging markets, mostly Southeast Asia and Japan. Japan sold $14 billion but it owns $1.11 trillion. Singapore sold $8 billion of its $98 billion, and this was the second such month in a row.
(click to enlarge)
Okay. So, now we know what happened and who's did it. But the big question is why? For that we have to start looking at bond yields. Specifically, we need to understand that both U.S. and Japanese bond yields spiked to their lowest levels of the year near the end of April and turned on a dime May 1st with the release of the FOMC minutes for that month. The Yen (FXY) exploded above ¥94 early in April which caused a huge surge in buying JGBs and USTs (TLT) and sent the U.S. dollar soaring (UUP). In response, the selling of U.S. Treasuries behind the scenes by emerging markets to raise dollars for their foreign exchange reserves began.
Capital flight from emerging markets began in April.
Bond yields started to rise in early May as the Fed began serious talk about slowing down QE. And the capital flight began to intensify until it reached its peak last week. Bond spreads in some markets, like Singapore, Mexico, Brazil and Hong Kong collapsed.
10 year Bond Yields
Country 1-May 22-June Spread Change vs. UST
U.S. 1.624% 2.180% -
Brazil 9.610% 11.040% 0.87%
Hong Kong 0.879% 1.660% 0.23%
Mexico 4.490% 5.260% 0.21%
Singapore 1.374% 2.136% 0.21%
Thailand 3.420% 3.810% -0.17%
Japan 0.566% 0.845% -0.28%
Philippines 3.447% 3.580% -0.42%
Malaysia 3.370% 3.440% -0.49%
While for others, like Thailand (18% drop peak to trough) and the Philippines (17% peak to trough), their equity markets have been under heavy pressure. Singapore has gotten it from both ends with the Straits Times Index dropping more than 9% and its 10 year spread with the U.S. moving to parity.
It is no stretch to say that the short position of the Japanese yen may be one of the biggest short positions ever. And with the huge reversal in the yen in the past 3 weeks, the size of the moves we have seen can only suggest that there is a leverage at work in the unwinding of the short yen carry trade.
And if that's the case, then the Fed will have its hands full trying to contain the capital drain currently occurring in emerging markets and Asia. These countries will have been selling U.S. Treasuries all through May and now into June. So, we can expect that next month's TIC Report will look equally ugly. Moreover, May's budget deficit came in sharply worse than anticipated at $139 billion on expectations of $110 billion. Now, of course, this makes perfect sense when we note the huge move in U.S. bond yields and the higher debt service costs that are associated with this.
The takeaway here is that there is serious volatility happening on the fringes of the global banking system and this is where the whirlwind almost always starts. Now, we have leveraged carry trades unwinding after suicidal monetary policy decisions by the Japanese that could be spinning things out of control.
China's interbank markets are drying up and the curve is a complete mess.
China Interbank Rates
Latest Change MTD
Close 6/17 (BPS)
1D SHIBOR 4.813% +0.312%
7D SHIBOR 6.848% +2.067%
14D SHIBOR 5.494% +1.206%
1M SHIBOR 7.282% +3.266%
3M SHIBOR 5.319% +1.437%
Is it any wonder that people are lining up by the thousands to buy gold in Shanghai?
I'm not convinced that control has been lost, but with the Fed continuing to buy Treasuries, if there is another repo collateral shock going on (like what happened back in April which helped cause gold to drop) then what we have seen so far is simply the early tremors before the big shock wave. If not, then we have the upper limit for yields in U.S. Treasuries that the Fed is willing to accept and this has been nothing more than a resetting of the table for the next round of big QE.
But, this time there won't be a compliant Bank of Japan soaking up all of those dollars, unless the ECB steps up to the plate and begins debasing the euro. So now when the Fed prints, it's going to show up as inflation, which is exactly what I think it wants. Therefore TIPS yields should begin to drop again, and the breakeven rate should begin widening back out towards 2.5% and gold should follow along to the upside.
The demand for physical gold coming from China and India is likely what started this mess in the first place and is what will continue to create strains in these markets as well. As long as the prices stay in this range, gold will flow from west to east and the closer we will come to the day when the futures market will have to fully recognize the disconnect between the physical price - now a $217 premium in Vietnam - and the securitized price.
A weekly close above $1400 would be an accomplishment since gold has not been able to hold that level through a Friday close since the crash back in April. If the current price range holds, this will be the fourth inside bar on a monthly basis out of the last six in gold. This is extremely odd behavior no matter which side of the gold market you are on.
I'll be watching the U.S./Singapore 10 year spread as well, looking for it returning to a more normal 0.5% from its current near parity as a sign of a relaxation of capital flight stressors. The 2.2% rate on the 10 year U.S. note seems to be the Fed's limit as well. A weekly close above that at this point would be bearish, especially if emerging market spreads continue to widen.
Additional disclosure: I own physical gold, silver and a trio of dairy goats
http://seekingalpha.com/article/1506992-the-gold-clock-goes-tic-tock-on-se-asia?source=email_authors_alerts&ifp=0
ALERT: JP MORGAN INCREASES SLV HOLDINGS BY 500%!
June 18, 2013
Silverdoctors
The past few years of silver smashing has been all about letting JP Morgan extract themselves from that Silver short hot potato. That’s why the CFTC has not filed charges against them (yet) for silver manipulation. That’s why the banking cabal has sat on the price of silver this whole time. That’s why Citibank added $7.5B in OTC silver shorts. That’s why sentiment in the silver market has never been worse. It’s all about extricating JP Morgan from the silver short position they were likely REQUIRED to take on by the US Treasury after the collapse of Bear Stearns.
So knowing what is happening it might not be surprising to you that during the 1st Quarter of 2013 JP Morgan has INCREASED their physical silver holdings in SLV for their own account by 500%!
Submitted by Bix Weir:
The numbers are clear in the reported data on SLV which must be recorded quarterly by the major institutional holders. Here’s the latest report showing JP Morgan holding 6,042,752 shares (ounces) increasing their holdings in SLV by 4,819,640 shares or 500%.
http://www.j3sg.com/Reports/Stock-Insider/generate-Institution.php?tickerLookUp=SLV&DV=yes
This report is cut off as of the end of the 1st quarter so when the second quarter is posted you can bet that this number has increased substantially. On a side note I’d like to point out that two other major cabal members shed massive amounts of shares in the same quarter: UBS selling (or transferring to JPM) 7,477,363 and Morgan Stanley shedding 1,186,347. Both are playing the opposite side of the trade to control the price as the cabal trades back and forth to each other.
I’m not saying that JP Morgan is completely out of their silver short but they may now be very, very close when you put all their various silver holdings together and net them out.
So WHERE IS THE SHORT NOW?!
Truthfully, I don’t know but there are suspects that cannot be counted out. The prime one is Citibank as I pointed out a while back.
ALERT: Silver Short Hot Potato Being Passed Again
http://www.roadtoroota.com/members/1019.cfm
But I believe that plan was stopped as soon as it was noticed by the Good Guys that the Citibank silver derivative book had ballooned. The reason I think so is that after adding about $5B a quarter of silver derivatives in 2012 it was abruptly frozen and the CEO and CFO fired.
So where to now? The most likely spot would be a HEDGE FUND that is controlled by the banking cabal as their reporting requirements are almost non-existent as opposed to banks and large financial institutions.
Obviously, BlackRock would be the leading candidate as it is the largest and currently has full control of SLV as it’s legal Sponsor. They also have one of the ORIGINAL market riggers, Peter Fisher, as one of their managing directors. Here’s his bio:
http://www.blackrock.com/corporate/en-us/about-us/leadership/peter-fisher
Senior Managing Director Senior Director of the BlackRock Investment Institute
Mr. Fisher is a member of BlackRock’s Global Executive Committee and a senior director at the BlackRock Investment Institute which serves to leverage the investment insights of BlackRock’s portfolio managers for the collective benefit of our clients.
From 2007 to 2013, Peter served as co-head and then head of BlackRock’s Fixed Income Portfolio Management Group. From 2005 to 2007 he served as Chairman of BlackRock Asia. Prior to joining BlackRock in 2004, he served as Under Secretary of the U.S. Treasury for Domestic Finance from 2001 to 2003 and worked at the Federal Reserve Bank of New York from 1985 to 2001.
As Under Secretary of the Treasury, he was the senior advisor to the Secretary on all aspects of domestic finance including financial institutions, public debt management, capital markets, government financial management, federal lending, fiscal affairs, government-sponsored enterprises and community development. He served on the board of the Securities Investor Protection Corporation and as a member of the Airline Transportation Stabilization Board and also as the Treasury representative to the Pension Benefit Guaranty Corporation.
At the Federal Reserve Bank of New York, from 1995 to 2001, he served as an Executive Vice President and Manager of the System Open Market Account, responsible for the conduct of domestic monetary and foreign currency operation and for the management of the foreign currency reserves of the Federal Reserve and the Treasury. He also served in the Foreign Exchange Function, 1990-94, and in the Legal Department, 1985-89. From 1989 to 1990 he worked at the Bank for International Settlements, in Basel Switzerland.
Mr. Fisher’s other current responsibilities include serving as a member of the Strategic Advisory Committee at Agence France Trésor, the FDIC’s Advisory Committee on Systemic Resolution, the IMF’s Financial Institutions Consultative Group and the Google Investment Advisory Committee.
Mr. Fisher is a recipient of the Distinguished Service Award from The Bond Market Association (2004), the Alexander Hamilton Medal from the United States Department of the Treasury (2003), and the Postmaster General’s Partnership for Progress Award, United States Postal Service (2002).
Mr. Fisher earned a BA degree in history from Harvard College in 1980 and a JD degree from Harvard Law School in 1985.
END
The game of rigging the silver market is seemingly endless but that is exactly what we are fighting for…to END the illegal manipulation.
One day we will win and we will take our freedom back but for now the best we can do is KEEP TAKING THE FIGHT TO THEM!
Do yourself a favor…follow JP Morgan’s advice and BUY PHYSICAL SILVER at these low prices.
Tracking down the NEW holder of the Silver Short Hot Potato will be one of my major goals going forward.
May the Road you choose be the Right Road.
Bix Weir
www.RoadtoRoota.com
http://www.silverdoctors.com/alert-jp-morgan-increases-slv-holdings-by-500/#more-28052
Probe Mines Continues to Intersect High-Grade Gold on Its Borden Gold Project, Ontario
TORONTO, ONTARIO--(Marketwired - June 18, 2013) - Probe Mines Limited (TSX VENTURE:PRB) ("Probe" or the "Company") is pleased to announce that it has received further assays from its ongoing drilling program at the Company's Borden Gold project near Chapleau, Ontario. Results for 25 diamond drill holes, BL12-385 to BL13-409, were received and were successful in identifying high-grade gold mineralization up to 700 metres along strike from the initial high-grade discovery on Section 1200m SE; continued high-grade intercepts in the southeast High-Grade Zone, including very high-grade intercepts on the new step-out section 1250m SE; and expansion of the near surface mineralization to the northwest. Results include the remaining five holes from the winter ice drilling program on Borden Lake, which have extended the high-grade gold zone an additional 200 metres in strike length. Infill drilling also returned some important results confirming the continuity of strong, near-surface mineralization in the northwest on sections 900m and 950m NW.
The deposit still remains open in both directions along strike.
Results continue to confirm that, in addition to a dramatic improvement in gold grades in the southeast extension of the deposit, the high-grade zone also appears to extend over a significant strike length with the potential for continued expansion. Owing to the new scope of the mineralization, the Company is now re-classifying the deposit as a more traditional high-grade, Archean lode gold system, amenable to underground recovery, which is also bounded by significant ancillary lower-grade mineralization, the latter ideally suited to potential open pit mining techniques.
High-Grade Zone
Results from the high-grade gold zone continue to show thick intersections of high-grade gold mineralization in both infill and expansion drilling. The zone has now been identified over a potential strike length of 700 metres and is still open to the southeast.
Winter Drilling Program:
The five remaining drill holes from the Winter drill program have successfully extended the high-grade mineralization an additional 200 metres to the southeast on Sections 1800m and 1900m SE. Results from the two new sections, 1800m SE and 1900m SE, show strong mineralized intercepts that are thicker and higher grade than those previously reported from Section 1700m SE, indicating a robust system with the potential to continue well to the southeast.
Intercepts include 27.1 metres grading 6.4 g/t Au, including 9.2 metres averaging 11.1 g/t Au in Hole BL13-402 on Section 1800m SE; and 39 metres grading 5.0 g/t Au, including 13.0 metres averaging 11.2 g/t Au in Hole BL13-403 on Section 1900m SE. Drilling is now focused on better delineating the high-grade gold zone in this area in order to bring the mineralization into an upcoming NI 43-101-compliant Resource Update.
The following table shows selected results from the expansion drilling of the high-grade gold zone, with all intervals approximating true width. Depths of the mineralized zones are between 255 and 431 metres vertical depth. Updated plan and section maps for all holes are available on the Company's website at
http://www.probemines.com/s/Borden_Lake.asp?
ReportID=585318&_Type=Borden-Gold:
High-Grade Zone Expansion Drill Results
DDH Section From(m) To(m) Width(m) Au(g/t)
BL13-390 1700m SE 332.5 336.9 4.4 1.3
BL13-394 1800m SE 341 352 11.0 1.4
BL13-394 1800m SE 378 388.7 10.7 4.7
BL13-397 1900m SE 281 282.5 1.5 6.8
BL13-397 1900m SE 372 396.2 24.2 1.2
BL13-402 1800m SE 396 423.1 27.1 6.4
including 401.9 411.1 9.2 11.1
BL13-403 1900m SE 297.1 299.6 2.5 1.8
BL13-403 1900m SE 394 433 39.0 5.0
including 396 409 13.0 11.2
including 402.1 409 6.9 15.7
High Grade Infill:
Drill results are also available for the first step-out holes made from the initial high-grade discovery on Section 1200m SE. As expected, Section 1250m SE returned significant intervals of high-grade gold mineralization including an impressive 26.1 metres grading 8.5 g/t Au, including 17.7 metres averaging 12.0 g/t Au in Hole BL13-399; and 20.4 metres of 6.7 g/t Au, including 6.1 metres averaging 17.5 g/t Au within a broader interval of 36.3m averaging 4.2 g/t Au in Hole BL13-401. These first step-out holes confirm the continuity of the high-grade zone, and in conjunction with the expansion holes, indicate that the high-grade mineralization is extensive and is quickly becoming a dominant feature of the deposit.
The following table shows selected results from the infill drilling of the high-grade zone on Section 1250m SE, with all intervals approximating true width. Depths of the mineralized zones are between 252 and 343 metres vertical depth:
High-Grade Zone Infill Drill Results
DDH Section From
(m) To
(m) Width
(m) Au
(g/t)
BL13-399 1250m SE 307.1 333.2 26.1 8.5
including 313.5 331.2 17.7 12.0
BL13-401 1250m SE 312 348.3 36.3 4.2
including 327.9 348.3 20.4 6.7
including 342.2 348.3 6.1 17.5
BL13-407 1250m SE 291 315.9 24.9 2.1
including 307 315.9 8.9 3.5
Infill Drilling
Infill drilling between Sections 950m NW and 1200m SE was successful in further delineating the gold deposit, particularly for the shallow (less than 200 metre vertical depth) mineralization. Results for Sections 900m NW and 950m NW confirmed the continuity of the gold zone between previous sections 1100m NW (winter program) and 800m NW, and returned impressive intersections at shallow depths. Hole BL13-409 (Section 950m NW) returned a 49-metre intersection averaging 1.8 g/t Au, including 6.7 metres of 5.3 g/t Au, starting at a vertical depth of 120 metres, while Hole BL13-400 (Section 900m NW) returned a 10 metre wide intercept of 1.5 g/t Au starting at only 74 metres vertical depth. These results indicate that the deposit continues to show robust shallow mineralization at its northwest end in the area of the potential open pit operations. Gold mineralization still remains open in the northwest direction.
The following table shows selected results from the infill drilling, with all intervals approximating true width. Depths of the mineralized zones are between 60 and 413 metres vertical depth:
Infill Drill Results
DDH Section From
(m) To
(m) Width
(m) Au
(g/t)
BL13-385 900m NW 85 95 10.0 0.9
BL13-385 900m NW 159 162 3.0 1.2
BL13-386 1150m SE 214.8 220 5.2 1.3
BL13-387 850m SE 314.4 328.5 14.1 1.1
BL13-387 850m SE 331.5 339.1 7.6 1.0
BL13-387 850m SE 371 392.7 21.7 1.1
including 371 375 4.0 2.9
BL13-388 600m NW 86 90 4.0 1.2
BL13-389 650m NW NSA
BL13-391 850m SE 341.6 347.5 5.9 2.8
BL13-391 850m SE 380.5 395.6 15.1 1.2
including 380.5 386.5 6.0 1.8
BL13-392 1050m SE 93.3 98.5 5.2 1.2
BL13-392 1050m SE 186 195.6 9.6 1.2
BL13-393 1050m SE 216 225 9.0 1.1
BL13-393 1050m SE 232 235.9 3.9 1.7
BL13-395 900m SE 319.6 328 8.4 2.4
BL13-395 900m SE 348 365 17.0 1.4
BL13-396 950m SE 185 190.6 5.6 1.7
BL13-396 950m SE 221 222.1 1.1 8.7
BL13-398 950m SE 196 235.7 39.7 1.1
including 218 224.5 6.5 2.0
BL13-400 900m NW 85 95 10.0 1.5
BL13-404 900m NW 146 155 9.0 0.9
BL13-404 900m NW 161 169 8.0 0.9
BL13-405 950m NW 87 103.4 16.4 1.4
BL13-406 1200m SE 404.8 415 10.2 1.1
BL13-408 950m NW 117.5 124 6.5 1.1
BL13-409 950m NW 122 171 49.0 1.8
including 122 129.6 7.6 2.6
also including 162 168.7 6.7 5.3
Dr. David Palmer, President and CEO of Probe, states, "Once again the new drill results highlight the improving quality of the Borden Gold deposit. Owing to these encouraging results our focus has now shifted entirely to the high-grade gold zone, with all four drills mobilized to the southeast to begin work on expansion and infill drilling. Our goal is to include as much of the new high-grade gold mineralization into an updated NI 43-101 Resource Estimate later this year. The evolution of this deposit has been remarkable, going from a grass-roots discovery to a continuous gold horizon over three kilometers in strike length, in under 3 years, and we see much more potential ahead as we continue our technical program."
Probe has instituted a strict quality assurance and quality control ("QA-QC") program for the Borden Gold drill core sampling, with each fire assay furnace batch of 40 samples including two certified reference materials (standards), one blank sample and one core duplicate sample. Quality control guidelines and ongoing QAQC monitoring are being carried out by Probe personnel.
About Probe Mines:
Probe Mines Limited is a Canadian precious metals exploration company whose key asset is the Borden Gold Zone in Ontario, Canada. As of January 31, 2013, the Company had approximately $32 million in treasury and a portfolio of highly prospective mineral properties. In May 2013, the Company closed a private placement of $15 million. As a result of the financing, Agnico Eagle Mines Limited now owns 9.9% of the Company on a non-diluted basis. The Company is actively exploring a significant new gold resource on its Borden Gold Zone near Chapleau, Ontario and has 100% interest in the Black Creek chromite deposit located in Northern Ontario. The Company's shares trade on the TSX Venture Exchange under the symbol PRB.
David Palmer, Ph.D., P.Geo., is the qualified person for all technical information in this release. To find out more about Probe Mines Limited, visit our website at www.probemines.com.
On behalf of Probe Mines Limited,
Dr. David Palmer, President & Chief Executive Officer
Forward-Looking Statements
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release. This News Release includes certain "forward-looking statements". These statements are based on information currently available to the Company and the Company provides no assurance that actual results will meet management's expectations. Forward-looking statements include estimates and statements that describe the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition or result to occur. Forward-looking statements may be identified by such terms as "believes", "anticipates", "expects", "estimates", "may", "could", "would", "will", or "plan". Since forward-looking statements are based on assumptions and address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results relating to, among other things, results of exploration, project development, reclamation and capital costs of the Company's mineral properties, and the Company's financial condition and prospects, could differ materially from those currently anticipated in such statements for many reasons such as: changes in general economic conditions and conditions in the financial markets; changes in demand and prices for minerals; litigation, legislative, environmental and other judicial, regulatory, political and competitive developments; technological and operational difficulties encountered in connection with the activities of the Company; and other matters discussed in this news release. This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on the Company's forward-looking statements. The Company does not undertake to update any forward-looking statement that may be made from time to time by the Company or on its behalf, except in accordance with applicable securities laws.
Contact:
Probe Mines Limited
Karen Willoughby
Director of Corporate Communications
(866) 936-6766
info@probemines.com
Probe Mines Limited
Patrick Langlois
Vice President, Corporate Development
(416) 777-6703
patrick@probemines.com
www.probemines.com
http://finance.yahoo.com/news/probe-mines-continues-intersect-high-100000432.html
Mangled financing market puts shine on strategic exploration alliances
There's more to a strategic alliance than mere shared costs.
Author: Kip Keen
Posted: Wednesday , 17 Apr 2013
HALIFAX, NS (MINEWEB) -
There's one good reason for explorers not to want to touch strategic alliances with a major. You have to share. You have to share potential projects that you generate and you may even have to share projects you have already generated, as in a regular earn-in agreement. This has been one of the traditional reasons to forego such deals for mineral explorers - it lessens the gain in a potential discovery.
But there's also one good reason to flock to strategic alliances. They distribute - even negate - exploration costs, and this for a typically non-cash-generating mineral exploration company can be crucial point - especially now.
Indeed, I think this is a fascinating time to watch for strategic alliances as much as for their potential to generate new discoveries - the key outcome for speculators - as what they say about management at this moment in the mineral exploration sector suffering a protracted lull in readily-available financing. And there is no doubt of this state of affairs - depressing data in a moment.
Maybe we haven't reached the nadir of this financing famine. Maybe that's still to come. Maybe we will never wholly recover. Who knows. But, regardless, it's safe to say this market is totally and completely mangled and unrecognizable. Money is not flowing into the hands of mineral explorers for a variety of reasons. Among them, investor have spurned the sector due to lack of major discoveries in the past few years. But the cause is not the subject here. The effect is and the latest data on financings beat the point to a bloody truth.
The chart below compares mining sector financings in January and February on the TSX and TSXV - typically decent months for getting funding - for the past three years based on data from Oreninc and quoted by Reuters. It's an uncomplicated picture. It says financings have atrophied. And the reality is probably worse for mineral explorers proper as the data below also encompasses miners and developers - yet if one sector has been ignored the most it is the mineral explorers.
Now coming back to the main thread: mangled financings and those companies striking strategic alliances, with a couple points to make. First: mineral explorers are now far more willing than in recent years to strike them. The easy money is gone, removing an extreme incentive to undergo a reasonable measure of dilution via equity to fund a project all by yourself. Now partnerships, if they can be found, are in.
Over the past couple days I spoke with the heads of three mineral exploration companies that struck strategic alliances in recent weeks. They weighed in on the subject and they all agreed there was no doubt that strategic alliances, and other like partnerships, have become far more attractive as an option to underpin an exploration program during this ever worsening drought in financings. This may come as a “duh” like insight, but it's worth remembering this is a recent reversal.
First I spoke with Erdene Resource Development President and CEO Peter Akerley. He was frank about how the changing financing market played into its decision to sign with a larger partner, in its case Teck, to help fund exploration on a portion of its properties in Mongolia and also to generate new projects. “I don't think there is any question,” he said of being nudged to partner up in Mongolia given a lack of decent financing options. He noted that up until recently equity was easy to come by and for the likes of Erdene, during better days for financing, a partnership was not the preferred route to fund exploration. As Akerley put it, “Why would you give up an interest if you could go to the market and easily raise cash with low dilution?”
Next I turned to Jean-Mark Staude, president and CEO of Riverside Resources, which recently brought Hochschild Mining on board a strategic alliance, the aim of which is to come up with new projects in Sonora state, Mexico. Staude noted that whereas during the fat days of financing strategic alliances were less popular to potential shareholders, perhaps even eschewed by them as unattractive in comparison to wholly-owned projects, in the past year or so they were starting to view them as an advantage.
Finally, I asked Tom Schroeter, president and CEO of Fjordland Exploration which recently struck a BC-focused partnership with a Canadian-based subsidiary of Sumitomo - Sumac - about his view on strategic alliances. He rendered doing such deals down to necessity, something for all juniors to at least consider with cash having dried up. “Many juniors are in survival mode,” Schroeter said. “If you can't see ahead a few months, you're in trouble. It behooves juniors to do whatever they can to keep their companies going.” Schroeter, who has been exploring BC for minerals for over four decades, also gave a dire assessment of the current state of the financing markets for juniors. “I've never seen anything like it,” he said.
To the second and final point: It's a valuable moment to be watching mineral explorers for what they can do during one of the worst junior markets in living memory. Strategic alliances - and who can do them - are revealing in this respect. Whether they're struck because a financing isn't possible or attractive or they're the business model anyway, those that consummate them at this time are putting the richness of their contact base to work and displaying the depth of their expertise in a particular region or deposit model. They show they can sell or promote something to the toughest, most circumspect buyers in the market - majors that might otherwise just build an in-country/region team and property portfolio themselves if they thought it any easier.
Quick inspection of Akerley, Staude and Schroeter and the companies they head reveals commonalities to help explain why majors have, in their cases, have chosen to team up. All are geologists. All have operated in their respective region of focus - Mongolia, Mexico, and BC - for over a decade, if not quite a bit more. All have a history of working with majors in the past. All have their own, fairly extensive project portfolio in said countries, including projects that haven't been farmed out.
In this, being able to sell more than properties but also expertise, there is clearly safety during these dog days of financing. If risk investors have crawled into holes to hide, not so majors who need new discoveries. Some of the juniors that opt - and succeed - in doing strategic alliances (and not all need or want to, it's worth emphasizing) are showing they can do exploration during some of the harshest financing conditions in recent decades. They stave off a fate many will not. Schroeter declared simply, “Otherwise you'll run of money and go belly up.”
Guts of three recent strategic alliances
Riverside Resources (operator): Hochschild to spend C$750,000 a year, or C$2.25 million over three years on new Sonora, Mexico, projects. Hochschild gets 65 percent interest after C$5 million work program per property. On earn-in, C$3 million lump sum payment, then joint venture. To note, the strategic alliance does not include any existing projects, so this is very much new ground being broken at Hochschild's expense.
Fjordland (operator): Sumac to get 51 percent of Dillard property in BC after $3.5 million over three years on exploration. It will also consider new projects within a 20 km radius, on ground mostly staked by others. Fjordland lead on potential expansion of Dillard to nearby targets. Dillard includes past drilling from 1990s, with as much as 187 metres @ 0.24 percent copper. Schroeter noted Sumac has been active in BC since late 1950s, but has not done a lot of deals with juniors. Best known for work on Kutcho project (now Capstone's) and also the Bethlehem copper mine.
Erdene (operator): $1 million private placement, most to be spent on its Khuvyn Khar copper project in Mongolia. Teck gets can earn 75% interest on project, and Trans Altai area project, if it spends up to C$10 million on its Khuvyn Khar copper project and C$5 million on other projects. Up to C$3 million in financing being considered, or up to 19.9 percent of the company, but this is subject to Teck getting clarity on Mongolian government's position on exploration and mining sector. Akerley noted it was election year and expected rhetoric over royalties etc. to die down after the election this summer. Further, he suggested staking system, closed since to 2008, may open up again. The strategic alliance, in this regard, may reflect Teck's desire to get in on the ground with a knowledgeable team.
Management
Schroeter - well acquainted with porphyry targets in BC as BC government district geologist early in career and in recent years as the head of Fjordland. Back in the 2007 Fjordland discovered and subsequently spun out its Woodjam copper project, in the Quesnel Trough, into Consolidated Woodjam Copper, part of which is now under a joint venture with Gold Fields, which can earn up to 70 percent of the core project. Over the years there have been some telling intercepts from Woodjam with as much as 359 metres @ 0.69 percent copper and 0.27 g/t gold.
Akerley - longtime president and CEO of Erdene, which is best known for its Mongolian projects and what was until recently its 25-percent stake in the Donkin coal project (75-percent Xstrata) in NS, Canada. Erdene accomplishments include a resource at Zuun Mod moly-copper deposit, as well as advancing its Khuvyn Khar copper porphyry project with early stage drilling. Most recently it discovered interesting - some very high - grades of gold at its Altan Nar project, an epithermal system. Erdene also spun out Donkin into Morien Resources, which is looking at options to consolidate ownership of Donkin. Erdene has been in Mongolia since early 2000s.
Staude - head of Riverside Resources for about a decade now. Focus has been in Mexico, where since the mid-2000s Riverside has driven a variety of projects on its own and under joint venture, both early and more advanced stage deposits. It has worked, and continues to work, with several majors such as Cliffs and Antofagasta to generate new projects. Hochschild is the latest miner to engage it.
Other, proven, partnership-loving juniors: Mirasol Resources (mostly south America), Altius Minerals (mostly Newfoundland & Labrador), Calibre Mining (mostly Central America), Lara Resources (mostly South America). Not on this far from comprehensive list but think you should be? Contact reporter kip[at]mineweb.com.
http://www.mineweb.com/mineweb/content/en/mineweb-junior-mining?oid=186423&sn=Detail
Riverside Resources Corporate Video
http://rivres.com/media-centre/corporate-video
Mackie Research Updates on Probe Mines (TXSV:PRB)
April 12, 2013
Investment firm Mackie Research has updated its coverage on Probe Mines, which trades on the TSX Venture Exchange, under the symbol "PRB". Following the release of gold assays from an additional 19 holes at the Borden Gold Zone, analyst Barry Allan reiterated his buy recommendation, maintaining his 12-month target of $4.60, giving a projected return of 177% from the $1.66 price the day the report was issued.
(video 3.3min)
How To Evaluate Mining Stocks
by: Resource World Magazine
http://www.resourceworld.com/online/Evaluating_Mining_Stocks/
How To Evaluate Mining Stocks
by: Resource World Magazine
http://www.resourceworld.com/online/Evaluating_Mining_Stocks/
How To Evaluate Mining Stocks
by: Resource World Magazine
http://www.resourceworld.com/online/Evaluating_Mining_Stocks/