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China Mulls Offshore Yuan Gold Trade in Free Trade Zone
By Bloomberg News
Jun 4, 2014 12:38 AM ET
A Chinese clerk sorts gold necklaces at a jewelry store in Shanghai, China. Photograph:... Read More
China, the world’s largest bullion consumer and producer, is considering allowing the use of offshore yuan in gold trading in the Shanghai free-trade zone.
The Shanghai Gold Exchange, the country’s biggest physical bourse for the metal, is proposing to let holders of offshore yuan accounts trade the three contracts it will offer, including bullion of 99.99 percent purity, according to a draft of the plan obtained by Bloomberg News. It stipulates that gold may be physically delivered into a warehouse in the zone. Gu Wenshuo, a spokesman at the Shanghai Gold Exchange, wasn’t available for comment when contacted by phone, text message and e-mail.
China started a free-trade zone in Shanghai this year as a testing ground for liberalizing interest rates and currency usage. The gold contracts will expand the range of investment options for yuan deposits around the world, which reached at least 1.5 trillion yuan ($240 billion) in March, according to Standard Chartered Plc estimates as of last month.
“While it’s convenient for a foreign entity to use offshore yuan to trade in the zone, it’s the ability to deliver onshore that matters,” Wallace Ng, a Shanghai-based trader at Gemsha Metals Co., said in an interview today. “It’s good that they’re trying to open the market to more people but it’s still limited for physical traders in terms of the import quotas.”
Gold imports in China are controlled through a quota system administered by the central bank. HSBC Holdings Plc and Australia & New Zealand Banking Group Ltd. last year became the first foreign banks to be granted licenses by the People’s Bank of China to bring bullion into the country, according to the World Gold Council.
Bank Meetings
SGE wants to establish an international gold trading platform as part of the liberalization of China’s gold markets and to attract foreign institutional and private investors, according to the proposal.
The exchange is meeting with banks including ANZ and Standard Bank Group Ltd. to obtain feedback on the plan, according to people who asked not to be identified because the information is confidential.
ANZ is keen to explore cooperation in the Shanghai Free Trade Zone gold market and sees the development of a new exchange as being “a great opportunity” to entice foreign investment to China’s physical gold market, Stephen Ries, the Melbourne-based head of media relations at the bank, said in an e-mail May 30. He declined to comment on further developments when contacted June 3. Standard Bank doesn’t comment on “market speculation,” Erik Larsen, a Johannesburg-based spokesman, said in a May 30 e-mail.
The PBOC has recommended that financial institutions in the zone be allowed to trade on exchanges in Shanghai, without suggesting a time frame for the change. The bank removed a cap on foreign-currency deposit rates in the area from March 1.
To contact Bloomberg News staff for this story: Feiwen Rong in Beijing at frong2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net; James Poole at jpoole4@bloomberg.net Alexander Kwiatkowski, Ovais Subhani
http://www.bloomberg.com/news/2014-06-04/china-considers-offshore-yuan-gold-trade-in-shanghai-trade-zone.html
Wall Street Firms Using Their Dark Pools To Make Markets in Their Own Stocks
Posted by Jesse
at 11:31 AM 03 June 2014
(special thanks to basserdan)
These self-named dark pools are operating as private exchanges, with a faux type of specialist system managing the order book, with all the insight and power that it entails. The layman may not quite comprehend this, but anyone familiar with Wall Street operations and history will certainly do so.
That they are trading for their own parent company stocks, and possibly for their own books, ought to raise more than a few eyebrows.
We ought to have internalized the lesson by now that markets are not naturally efficient and self-regulating. But even moreso when the business of price setting and order matching is being done in darkness, and apparently with lax regulatory oversight.
The lack of integrity in the Western financial system must seem appalling to anyone whose ears are not firmly taped to the corporate news feed droning out of New York and London.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.
http://jessescrossroadscafe.blogspot.com/2014/06/wall-street-firms-using-their-dark.html
After Charges of Running a Price Fixing Cartel on Nasdaq in the 90s, Wall Street Banks Are Now Trading Their Own Stocks in Darkness
By Pam Martens and Russ Martens
June 3, 2014
On July 17, 1996, the U.S. Justice Department charged the biggest names on Wall Street, names like Merrill Lynch, JPMorgan and predecessor firms to Citigroup, with pricing fixing on the electronic stock market known as Nasdaq.
The Justice Department felt the firms were so untrustworthy to make a fair electronic marketplace that as part of its settlement it required that some traders’ phone calls be tape recorded when making Nasdaq trades and it gave itself the right to randomly show up and listen in on the traders’ calls. The scandal made headlines for years and revealed that the price fixing had been going on under the unwatchful eye of regulators for more than a decade.
Now, more than six years after the greatest Wall Street crash since 1929, the public is still learning stomach-churning details about the lingering effects of de-regulating Wall Street.
Yesterday we learned that the very same Wall Street firms charged with price fixing in the 90s have somehow conned their regulators into allowing them to own their own dark pools – effectively unregulated stock exchanges – and make markets in the stock of their very own Wall Street bank.
The Financial Industry Regulatory Authority (FINRA) – a self-regulatory Wall Street body (which under a previous name was responsible for missing the Nasdaq price fixing for more than a decade) released trading data yesterday for the dark pools operating the week of May 12 – 16. This was the first time such data has been released. The data releases are set to continue.
There are three major concerns that are immediately raised by the trading statistics: that Wall Street banks are allowed to make a market in their own stock inside an unregulated dark pool; that the other largest banks are making large markets in each other’s stocks; and why the public is just seeing a sliver of sunshine – instead of what went on in the previous 51 weeks or prior years of trading in these dark pools? Since the Wall Street firms knew this public data release was coming, it’s possible that higher trading volumes were previously occurring in their own and each other’s stocks.
Bank of America’s trading arm, Merrill Lynch, owns two dark pools, one of which is Instinct X. Last evening, FINRA data showed that during the relevant week Merrill’s dark pool, Instinct X, traded 8,207,150 shares of its own parent’s stock in a total of 16,246 trades. Merrill is now stating that it provided erroneous numbers to FINRA and the figure is really just 4,103,575 shares and 8,123 trades. A second Merrill Lynch dark pool, which goes by the letters MLVX, last evening showed it traded in its company stock to the tune of 66,200 shares in 94 trades. This morning, those figures have been cut in half.
Citigroup, which became insolvent during the 2008 crisis and required multiple bailouts from the taxpayer, owns a total of four dark pools according to a list posted at the SEC’s web site ( http://tinyurl.com/p3k5l44 ) – none of which the general public has ever heard of: LavaFlow, LIQUIFI, Citi Credit Cross and Citi Cross. (The more dark pools a Wall Street firm owns the greater the concern that it could be trading between these pools to effectively paint the tape, i.e., manipulate the price of a stock.) Dark pools match buyers and sellers in the dark, without disclosing the bids and offers to the public marketplace.
According to FINRA data for the relevant week, Citigroup’s dark pool, LavaFlow, traded 645,756 shares of Citigroup stock in 1,838 trades while Citi Cross traded another 39,997 in 256 trades.
Merrill Lynch’s dark pool, Instinct X, has dramatically changed its data as to what it traded in Citigroup stock for the referenced week: last night it showed it was the largest trader among the dark pools in Citigroup stock with total shares traded of 1,791,492 in 10,282 trades. This morning those figures have been cut exactly in half, making it the seventh largest share volume trader in Citigroup for the referenced week among the dark pools. Ranking above it in share volume are, in order, the dark pools of Credit Suisse (CrossFinder), Deutsche Bank (DBAX), UBS, Goldman Sachs (Sigma-X), Barclays (LATS) and Morgan Stanley (MSPL).
Data for the same week for JPMorgan shows its dark pool, JPM-X, traded 826,614 shares of its own stock in 1,483 trades. JPMorgan ranked seventh among the dark pools for trading in its stock that week with the following dark pools trading a million or more shares of JPMorgan: Credit Suisse’s CrossFinder (1.9 million); UBS (1.57 million); Barclays LATS (1.15 million); Deutsche Bank’s DBAX (1.12 million); Goldman Sachs’ Sigma-X (1.07 million). Three of Citigroup’s dark pools — LavaFlow, LIQUIFI and Citi Cross — traded a total of 939,072 shares in JPMorgan.
Another serious concern that has arisen since the release of the book, Flash Boys, by bestselling author Michael Lewis, is the introduction of tricked up order types that let high frequency traders fleece the ordinary investor along with revelations that exchanges and dark pools are now offering payment for order flow and other cash incentives to attract trades from high frequency traders.
On September 22, 2009, Citigroup released the following press release concerning a new order type and rebate program at LavaFlow:
“Citi’s LavaFlow ECN has introduced a new order type, Hide to Comply, an execution instruction that allows liquidity providers to enter displayable limit orders at aggressive prices and obtain the best possible time priority at the order’s posted price level, all while receiving a rebate.
“Hide to Comply adjusts aggressively priced orders such that they are hidden on entry, and their limit price set to the opposite side of the national best bid and offer (NBBO). While hidden at this price, the order will be eligible for a full rebate. When the NBBO updates such that the order is no longer at a locking price, the order will be displayed at this new limit, maintaining its original time priority; the order will not be re-priced.”
We have asked the SEC to weigh in on how Wall Street banks, which caused the greatest economic collapse since the Great Depression, are allowed to make markets in their own stocks. We’ll update this article when we hear back.
http://wallstreetonparade.com/2014/06/after-charges-of-running-a-price-fixing-cartel-on-nasdaq-in-the-90s-wall-street-banks-are-now-trading-their-own-stocks-in-darkness/
Putin Stands Up To FATCA: Here’s How It Could Go Down For July 1
Birchgold.com
June 1, 2014
Financial privacy is under attack in the United States today, and with the Foreign Account Tax Compliance Act (FATCA), the IRS has a whole new weapon in its quiver. FATCA comes into full force on July 1; after this date, any and all foreign banks that wish to continue to do business with Americans or American businesses must register with the IRS and disclose all kinds of financial details about those clients to the IRS. The cost of compliance is estimated to be about $7,000 per individual for the banks, and Americans overseas will incur an average of $4,000 in expenses to comply. It is outrageous and draconian, not to mention demeaning and insulting for the United States to lay claim to income its citizens earn outside of our borders and then to presume to meddle in the affairs of every bank in the world to get its paws on that money.
After the Edward Snowden interview with Brian Williams last week, addressing the scope and methodology of NSA surveillance, you could easily make the case that every kind of privacy is under attack. And when you hear about how many innocent people are wrongly targeted by various agencies of the government, when you consider that U.S. tax court has its own separate process and rules for adjudication, you understand what a canard it is to say “Well, if you aren’t doing anything wrong, you have nothing to worry about.”
A ton of people have done nothing wrong and STILL have had tons to worry about because of government intrusiveness.
And now, how ironic is it that Russia’s Vladimir Putin seems to be the one to step up and say “no more” to the United States? Russia, whom Snowden criticized in his interview for forcing bloggers to register with the government, is telling its own banks that it is a violation of bank privacy laws to share customer data this way. It is a violation of privacy rights to share customer data with a foreign government without their knowledge or consent, without a warrant or suspicion of illegal activity, and just as a matter of routine.
Fifty other countries, including Switzerland, are bending over backwards to comply with this new law. (Or should we call it a new tax?) But Russia? Putin is throwing egg at our government’s face.
Of course, the Russian government might act to change this or pass a stop-gap measure or something so that they don’t lose all their American business. Or they might not. And then what?
How motivated is Russia really to hang on to an increasingly cumbersome relationship with the U.S. and the dollar? Moscow is already making big advances in trade outside the dollar. Financial expert James Rickards sees those advances coming much faster than he anticipated in his recent book “The Death of Money”. Very recently, China and Russia signed a trade agreement worth $400 billion that has China buying gas from Russia in rubles. Rickards notes:
“Putin said he envisions a Eurasian economic zone involving Eastern Europe, Central Asia, and Russia. The Russian ruble is nowhere near ready to be a global reserve currency, but it could be a regional reserve currency.”
A regional reserve currency doesn’t sound all that implausible. And it may be the catalyst that starts other dominoes falling, leading to the dollar’s ultimate collapse. And the U.S. government has the hubris to put FATCA in front of all these banks that are less and less enchanted with dollars already.
You should have no doubt: These are uncertain times. These are uncertain times for the world, for our economy and certainly for the dollar. Fortunately, having a decent percentage of your portfolio in gold can help to insulate your hard-earned savings. And as luck would have it, gold is currently at a 16-week low, just begging to be snatched up. Gold is on sale, right as global events severely threaten the dollar. There are not too many opportunities like this to get in just as things start to boil over.
http://www.birchgold.com/economy/putin-russia-fatca-july-1
Ecuador Sends Gold Reserves to Goldman Sachs in Liquidity Hunt
By Nathan Gill
Jun 2, 2014
Bloomberg.com
Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years as the government seeks to bolster liquidity.
The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get “instruments of high security and liquidity” and expects to earn a profit of $16 million to $20 million over the term of the accord.
The deal comes as the South American country’s government, which defaulted on about $3.2 billion of bonds five years ago, seeks to cover a budget deficit forecast by the Finance Ministry to swell to a record $4.94 billion this year. President Rafael Correa said in April he also planned to sell about $700 million of foreign debt this year in the country’s first international bond sale since the 2008 and 2009 default.
“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits,” the central bank said in the statement. “These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities.”
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment.
The country’s gold reserves fell by $605 million, or 55%, to $493 million in the week ending May 23, according to a report on the central bank’s website.
Central Bank President Diego Martinez didn’t respond to requests made through the bank’s press office seeking more information on the transaction.
To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Bradley Keoun
http://www.bloomberg.com/news/2014-06-02/ecuador-sends-gold-reserves-to-goldman-sachs-in-liquidity-hunt.html
Ecuador Sends Gold Reserves to Goldman Sachs in Liquidity Hunt
By Nathan Gill
Jun 2, 2014
Bloomberg.com
Ecuador agreed to transfer more than half its gold reserves to Goldman Sachs Group Inc. for three years as the government seeks to bolster liquidity.
The central bank said it will send 466,000 ounces of gold to Goldman Sachs, worth about $580 million at current prices, and get the same amount back three years from now. In return, Ecuador will get “instruments of high security and liquidity” and expects to earn a profit of $16 million to $20 million over the term of the accord.
The deal comes as the South American country’s government, which defaulted on about $3.2 billion of bonds five years ago, seeks to cover a budget deficit forecast by the Finance Ministry to swell to a record $4.94 billion this year. President Rafael Correa said in April he also planned to sell about $700 million of foreign debt this year in the country’s first international bond sale since the 2008 and 2009 default.
“Gold that was not generating any returns in vaults, causing storage costs, now becomes a productive asset that will generate profits,” the central bank said in the statement. “These interventions in the gold market represent the beginning of a new and permanent strategy of active participation by the bank, through purchases, sales and financial operations, that will contribute to the creation of new financial investment opportunities.”
Michael DuVally, a spokesman for New York-based Goldman Sachs, declined to comment.
The country’s gold reserves fell by $605 million, or 55%, to $493 million in the week ending May 23, according to a report on the central bank’s website.
Central Bank President Diego Martinez didn’t respond to requests made through the bank’s press office seeking more information on the transaction.
To contact the reporter on this story: Nathan Gill in Quito at ngill4@bloomberg.net
To contact the editors responsible for this story: Brendan Walsh at bwalsh8@bloomberg.net Bradley Keoun
http://www.bloomberg.com/news/2014-06-02/ecuador-sends-gold-reserves-to-goldman-sachs-in-liquidity-hunt.html
Something Ominous Is Coming – Hold On Tight
May 31, 2014
Investment Research Dynamics
(special thanks to the cork)
One of the rules by which the elite aristocrats abide is they consider it rude to not warn us before they do something bad to us. They’re like criminals with manners. In other words, it’s gauche to flush the toilet while the serfs are in the shower without a heads up. – Anonymous
I honestly don’t know how long they can keep up this fraud using fraudulent Comex paper. It’s gone on much longer that I ever thought conceivable. I think we all underestimated the degree of corruption in DC and NYC, which means we’re all underestimating the consequences.
We find out yesterday in a Washing Times article that Obama authorized the use of military force against U.S. civilians in 2010: LINK. As it turns out, the option of using the military in the Cliven Bundy situation was considered.
Gold and silver get smashed in Comex trading every day this week, despite an avalanche of fundamental news that should have triggered a big move higher in the price of gold/silver.
A friend and colleague of mine called me this morning and said “they smashed gold and silver everyday this week –
there has to something really bad coming at us.”
For those who recall, after a big move higher in early 2008, the price of silver was smashed in March from $20 starting on March 6, 2008. Bear Stearns stock was trading well over $60/share at that point. Silver bounces back to $20 and then gets annihilated on March 17, right after JP Morgan agreed to buy Bear for $2/share.
Meanwhile, in the background, Lehman Brothers was quietly on a path to collapse, as were AIG and Goldman Sachs. After the Bear debacle settled, silver trended back up to $19. But at the end of July that year, silver began a steep sell-off from $17. Unbeknownst to most observers, Lehman Brothers was about to collapse. At the same time that Lehman collapsed, AIG was collapsing – as was Goldman Sachs from its derivative ties to AIG. By mid-September the U.S. financial had de facto collasped and we know how the story unfolded from there.
AIG and Goldman were saved because the former CEO of Goldman Sachs happened to be the Treasury Secretary at the time and his butt-boy, Tim Geithner, was head of the NY Fed.
My point here is that there’s a reason that the Fed, using its agent banks on the Comex, is working overtime to try and push gold and silver a lot lower using fraudulent Comex contracts while China – and now Russia – accumulate physical gold hand-over-fist. Blinded by extreme corruption and hubris, the Fed and the Government are trying to destroy the messenger.
The message likely should be telling us that something devastating is unfolding behind the scenes. Likely something far uglier than what unfolded in 2008.
I know for sure now that the housing market is starting collapse again and household formation is at 30-year lows – the friend who called me told me four homes for sale in his neighborhood reduced their asking price this morning. Retail sales are plunging despite the onset of favorable shopping weather and the rigged GDP number went negative in Q1.
If we could see the truth, I wonder haw bad things really are …
http://investmentresearchdynamics.com/category/financial-markets/
Capital Controls Rolling Into High Gear Under FATCA
Politics / Global Financial System
May 28, 2014 - 03:34 PM GMT
By: Jeff_Berwick
The traditional banking system was already bad enough but now, with banks around the world rushing to comply with the Foreign Account Tax Compliance Act (FATCA) it is beginning to reach extreme levels. And it isn't just affecting the most financially restricted people on Earth: US citizens... it is affecting everyone.
Take myself for example. I operate numerous businesses worldwide. I am a Canadian citizen as well as the citizen of a Caribbean country and our business operations are also operated out of a non-tax jurisdiction in the Caribbean. On top of that we hold no bank accounts, whatsoever, in the US... instead, we have bank accounts all over the world.
Yet, in the last two months we have had our accounts or transactions frozen, denied or questioned in different jurisdictions at least ten times. And we have had countless other problems over the last two years.
Here are just a list of the most recent:
We got FATCA'ED. We received a FATCA notice from one of our banks in Eastern Europe. They told us that we must comply and contact them immediately. We contacted them and let them know that the company is not a US company and no US citizen is involved with the company nor the bank account. They told us that one of the phone numbers they had on file for us was a US number and therefore they'd have to close our account. We informed them that the number they had was a virtual Skype number, one of many we have, that forwarded to the property departments in our companies around the world. We are still dealing with this issue.
Constant Inquiries. At the same Eastern European bank a few weeks ago they demanded to see detailed contracts and information on a large number of our transactions. We are still also dealing with that.
Wires Constantly Scrutinized. At one of our bank accounts in Canada with which I have had a 20 year relationship in good standing they have blocked numerous of our recent wires and demanded to see information on who the money is going to and why. In more than one instance, when sending funds to the Middle East, we were informed that any and all wires sent to the Middle East were under heavy scrutiny causing us numerous problems.
The Paypal Monster. Paypal has frozen many of our numerous Paypal accounts that we have worldwide on an ongoing basis. This shouldn't come as news to any merchants who use Paypal as the company is notorious for constantly freezing funds and accounts for all manner of reasons. In one instance, as part of operations in our hotel in Acapulco (Las Torres Gemelas Private Suites) they froze our account until we could show them proof of numerous very small denomination transfers. The transactions were for room rentals that had occurred weeks or months prior and Paypal would demand that we show proof that the person had stayed with us and approved the transaction. Often these were past guests who had just booked for a few nights, who we had no other relation with, that we would have to somehow try to contact afterwards and bother them to supply Paypal with their information and approval of the transaction!
No Cuba For You. In another instance, just a few weeks ago, another Paypal account we had was frozen after we paid for a flight from Havana, Cuba (ironically I had just stopped there for one night because I wanted to avoid the pain and risk of flying through the US) via Paypal because it was nearly impossible to purchase a flight to or from Cuba by any other means. Because we denoted the payment done was for a flight from "Havana" the account was frozen. The total dollar amount was for just a few hundred dollars.
No Brokerage For You. Last year, a brokerage account I use in Luxembourg threatened to close my account. When I asked why they said that the brokerage had recently been bought by a Canadian brokerage and there is a Canadian law that says that no Canadian can deal with a brokerage owned by a Canadian company outside of Canada. Luckily they accepted my Caribbean residency and therefore let the account remain open. US citizens are not so lucky. The SEC has made it so hardly any brokerage outside of the US will accept US citizens effectively locking their accounts inside the US as a capital control.
And, we are most definitely not alone. At TDV Offshore we hear dozens of stories per week from people scrambling to find a way to have international bank accounts after their accounts have suddenly been shuttered. The great majority are US citizens who receive a notice that their accounts will be immediately closed due to FATCA. FATCA is essentially creating capital controls for US citizens on banking making it harder and harder to hold funds outside of the US.
In short, it is getting more difficult all the time to transact in the traditional banking system. And it seems to just get worse by the month. There appears to be a worldwide effort underway to make it harder and harder just to transact financially.
THE OPTIONS
Luckily there is still options for getting around many of these issues but it isn't cheap or easy... and not about to get any easier.
Passports. For Americans the only way to really be able to internationalize your assets and get out from the unbelievably egregious US tax system is to get a foreign passport and then to renounce your US citizenship. This may seem extreme to some but it seems like the most rational thing to do to us. We foresee the US continuing to devolve, further capital controls to be erected and the US not being a place anyone will want to go for an extended period of time as it completely collapses... so why not get yourself and your capital out while you can? The US government, as we have reported, has even gone to lengths to make it harder for US citizens to get foreign passports... which should be a big hint as to their intentions. Just this month they have attacked probably the most arduous, respectable and legitimate "citizenship by investment" program in St. Kitts. And the US government has pressured the Dominican Republic to increase the time to get a passport from an original two years to now eight years. We foresee this continuing and by the time many do see the writing on the wall and want to get a second passport to get away from the US it will be too late. The demand will be too overwhelming and the supply will continue to dwindle which will drive the cost through the roof... if it is even possible at all. You can contact TDV Passports for a consultation on what your current options are.
Foreign Trusts. Another option that is still available but may not be for much longer is to transfer your assets into an offshore trust thereby getting around FATCA rules and giving US citizens the ability to bank, have brokerage accounts and to do business internationally. This is not easy or simple and our FATCA experts at TDV Wealth Management have a fulltime job trying to help US citizens to internationalize their assets. Citizens of other countries may feel that they do not need to do something like this as their country does not currently have FATCA controls nor taxes them on worldwide income. We expect this door to be closed very quickly as the Western countries all devolve into the Greater Depression and as tax revenue for their governments decline.
Bullion. One of the best ways to retain your assets is to have them in hard assets like precious metals outside of the financial system and preferably geopolitically diversified to make it harder for any one government to seize. This, also, is getting harder and harder but is still possible even though it is now nearly impossible for Americans to ship gold outside of the country and have it insured as we know of no companies that will now do that for US citizens. There are many ways to international precious metals though and you can read more in the Getting Your Gold Out Of Dodge report. As well, precious metals should rise tremendously as the modern banking and financial systems collapse during The End Of The Monetary System As We Know It (TEOTMSAWKI).
Bitcoin. Bitcoin offers not only a safehaven from the financial system and ability to transact worldwide in seconds for free and with no chance of any government or bank freezing the transfer... but it also offers tremendous speculative upside. I believe that as more people awaken to the serious capital controls and inability to transact internationally easily that more will move to bitcoin as a way to hold their assets as well as to transfer them easily. This alone could see bitcoin go up 1,000% in the next 1-2 years in my opinion, if not more. In fact, bitcoin has surpassed Western Union and is now close to surpassing Paypal in terms of transaction volume which is no surprise to us here at The Dollar Vigilante (where we have been following bitcoin since $7 in 2011 at The Dollar Vigilante newsletter) as it is a much easier, better, faster, safer, more private and cheaper way to transact.
MASSIVE CHANGES IN THE WORLD MONETARY AND BANKING SYSTEM
The perfect storm is developing and it is all going as we have predicted over the last five years. The Western world will continue to inflate their currencies to keep the system alive as almost all governments are bankrupt. Governments will continue to make it harder to get your assets outside of the country. There will be further grabs on all manner of assets including retirement and pension funds and more bank bail-ins, like in Cyprus, as government bonds collapse and the currencies hyperinflate.
Luckily, as mentioned above, there are still options but the doors are closing at such a rapid pace now that if you haven't begun to protect yourself from the coming collapse you had better start doing it yesterday.
Have you had a nightmarish banking experience abroad or in the US? Share it, and other stories, in the comment section by clicking here.
Anarcho-Capitalist. Libertarian. Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Services and host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media.
© 2014 Copyright Jeff Berwick - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
http://www.marketoracle.co.uk/Article45795.html
Shanghai Gold Exchange Gets Shark Teeth
Stewart Thomson
email: stewart@gracelandupdates.com
email: stewart@gracelandjuniors.com
email: stewart@gutrader.com
May 27, 2014
Today is expiry day for gold options. Please click here now . I’ve suggested that gold is unlikely to begin a trending move until options on the June COMEX contract expire.
On that note, please click here now . That’s the weekly chart for gold. I’ve highlighted the price action that occurred after the Stochastics oscillator (14,3,3 series) flashed a buy signal.
While gold is off to a bit of a disappointing start this morning, I think investors in the Western gold community should watch this oscillator closely now. It’s moved into a position where significant rallies have occurred.
From a technical standpoint, senior gold stocks look similar to gold. Please click here now . This weekly GDX chart suggests senior gold stocks are likely poised to begin a significant rally.
Please click here now . That’s another look at the same GDX chart. I’ve highlighted all the key intermediate trend highs.
Since 2011, only once has GDX managed to rally above any of those highs. The election of the new pro-growth government in India is good news. It's one of two fundamental catalysts that could be behind the bullish technical set-up on the charts.
Another catalyst is the news that the Chinese central bank has granted approval to the Shanghai Gold Exchange (SGE) to launch a global gold trading platform.
Please click here now . In this news release from Scrap Monster, note the words that I’ve highlighted in gold.
Some members of the gold community may be nervous about the ramifications of inviting major Western bullion banks into the Chinese gold market, and rightly so.
While the issue of manipulation on the COMEX and LMBA markets can be endlessly debated, there’s no question that gold in the West gets a lot of bad press.
Jiang Shu’s words that China’s strong gold demand is currently “only a number, not a power” make it clear that the new platform will be designed to put upwards pressure on the gold price.
Gold is entering a new era, centred on gold jewellery demand in China and India.
On the Shanghai platform, the banks will be expected to act with a level of professionalism that perhaps has not existed in their COMEX and LBMA operations. I expect them to consistently endorse gold as an asset of the highest quality. These banks will essentially provide the SGE with a set of gold price discovery “shark teeth”!
Please click here now . That’s the weekly silver chart. From a technical perspective, the Stochastics oscillator looks superb.
Like gold, silver appears to be in the process of gearing up for an intermediate trend rally.
Please click here now . That’s the daily chart of SIL-NYSE (silver stocks ETF).
A bullish wedge pattern has become more apparent over the past few trading sessions, and the Stokeillator (14,7,7 Stochastics series) suggests a rally is imminent.
Junior gold stocks are the first love of most investors in the Western gold community. Please click here now . That’s the GDXJ weekly chart.
I labelled the October 2010 period the “loss of sanity” zone, because of the widespread view that the Western world’s financial super-crisis was destined to catapult junior gold stocks into the stratosphere.
Note the red horizontal bars on that GDXJ chart. Those mark intermediate trend highs.
It’s clear that junior gold stocks have not staged a single intermediate trend rally that has exceeded even one of those highs.
The bottom line is that for the past four years, the super-crisis and the “gold fear trade” have failed miserably, as a junior gold stock price driver.
Ironically, the “love trade” (gold jewellery) may be the price driver that creates even higher gold stock prices, in a more stable manner, than anything envisioned by even the most bullish super-crisis analysts!
Please click here now . I’ve highlighted the Stokeillator on this daily chart of GDXJ. When the bullish posture of key oscillators on both the weekly chart and the daily chart are considered alongside the bullish fundamental news about the Shanghai Gold Exchange, I think Western junior gold stock investors are poised for a very positive ending to the 2014 calendar year!
May 27, 2014
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email for questions: stewart@gracelandupdates.com
email to request the free reports: freereports@gracelandupdates.com
http://www.321gold.com/editorials/thomson_s/thomson_s_052714.html
China Launching “Global Gold Exchange” In Shanghai
Submitted by GoldCore
05/27/2014 10:23 -0400
Today’s AM fix was USD 1,283.00, EUR 940.48 and GBP 762.87 per ounce.
Yesterday, U.S. & UK markets were closed yesterday for a national holiday.
Friday’s AM fix was USD 1,292.00, EUR 948.61 and GBP 767.18 per ounce.
Gold in U.S. Dollars, Daily, 6 Months - (Thomson Reuters)
Gold is testing the lower level of support of the unusually tight range seen in recent days between $1,284/oz and $1,306/oz. Below that the next level of support is at $1,250/oz and below that the low seen on December 31st at $1,190/oz. Overnight, gold in Singapore gradually traded lower from a high of $1,293/oz to a low of $1,282.81/oz.
The price weakness comes despite continuing bullish developments for the gold market. These include geopolitical risk as Ukraine lurches into a civil war, tensions between Vietnam and China in the Far East and China’s push to make Shanghai a “Global Gold Exchange.”
Ukraine launched air strikes and a paratrooper assault against pro-Russian rebels who seized an airport on Monday. Its newly elected leader rejected any talks with "terrorists" and said a robust military campaign in the east should be able to put down a separatist revolt in "a matter of hours".
Even as the fighting was getting under way, Poroshenko held a news conference in Kiev and said that the government's military offensive needed to be "quicker and more effective".
A Vietnamese fishing vessel capsized in disputed waters in the South China Sea on Monday after "harassing and colliding" with a Chinese fishing boat, the official Xinhua news agency said on Tuesday.
China has approached foreign banks and gold producers to participate in a global gold exchange in Shanghai, as the world's top producer and importer of gold seeks greater influence over pricing and the global gold market.
Shanghai Gold Exchange - China Foreign Exchange Trade System
The Shanghai Gold Exchange got the go ahead from the central bank last week to launch a global trading platform in the city's pilot free trade zone. SGE is looking to launch physical contracts of gold, silver and platinum group metals denominated in Chinese yuan on the international exchange.
According to Reuters:
“For gold, they are looking to launch three yuan-denominated physical contracts, of 100 grams, 1 kg and the bigger London good delivery bar weighing 12.5 kg.
Beijing's plans to open up gold trading comes at a time when the benchmark price-setting process for precious metals is under scrutiny. Barclays Plc became the first bank to be fined over manipulation of the 95-year-old benchmark London gold market daily "fix" last week.
State-backed SGE has asked bullion banks such as HSBC , Australia and New Zealand Banking Group (ANZ), Standard Bank, Standard Chartered and Bank of Nova Scotia to take part in the global trading platform, two people approached by the exchange said.
SGE, the world's biggest physical gold exchange, where domestic banks, miners and retailers buy and sell gold, could also open up the international platform to foreign brokerages and gold producers, they said.
"China wants to have more voice in gold prices," said Jiang Shu, an analyst with Industrial Bank, one of 12 banks allowed to import gold into China. "The international exchange is the first step towards gaining a say in gold pricing."
"If you don't allow foreign players to participate in your market actively, or do not push Chinese financial institutions to participate in the international market, then China's strong gold demand is only a number, not a power," he said.
HSBC and Standard Bank declined to comment, while the other banks and SGE were not immediately available for comment.
The global platform will first host spot physical contracts for gold and other precious metals, before aiming to launch derivatives down the line, said a third source who is directly involved in the launch of the international exchange.
"We are not just encouraging foreign banks but also producers and other entities," added the source.
China, the world's biggest buyer of raw materials from copper to coal, is pushing hard to establish pricing benchmarks for a number of commodities.
Gold, along with oil, could be among the first to be opened up to foreign players. The free trade zone in Shanghai is set to see international energy trading by hosting the country's first crude oil futures.
Contract specifications for silver, platinum and palladium were also being discussed, though the sources said specifications and participants had not yet been finalized. The exchange is expected to be launched by the fourth quarter.
Even if China lures foreign players, the exchange would still need to see full convertibility of the yuan and enough liquidity on the exchange before it can be considered to operate on a par with other hubs.
Currently, the London gold "fix" is the benchmark for spot prices, while New York's COMEX contract sets the futures' benchmark. SGE prices are tracked to gauge Chinese demand as reflected in premiums or discounts to spot rates.
Earlier this year, China's ICBC - in conjunction with its acquisition target Standard Bank - indicated interest in buying Deutsche Bank's seat on the London gold fix but it is not interested anymore, sources previously told Reuters.
The influx of gold has made SGE the biggest physical exchange, with a turnover of 10,000 tonnes for its immediate and deferred delivery contracts, according to Thomson Reuters GFMS.
The Shanghai Futures Exchange has the world's second-most traded gold futures contract, though trading is largely limited to the domestic market with volumes of about 41,176 tonnes last year, still well behind COMEX's 147,083 tonnes.
The SGE's international board and the main exchange could eventually be merged when the yuan is fully convertible, Albert Cheng, managing director of the World Gold Council's far east region, said.
"That would become a very important exchange in the world, and Shanghai will truly become one of the three international gold centres after New York and London," he said. "No doubt, the participation in the international market is the key effort of the SGE and the current administration."
Read the full story here.
Conclusion
Banks, global producers, refineries and mints will be hesitant to embrace the new Chinese exchange, especially in the short term. However, once the new exchange achieves critical mass in China and Asia, the exchange will be embraced by western institutions and could become the most important gold exchange in the world.
The move will challenge the dominance of New York and London as global precious metal hubs, as centres of the gold trade. It will also challenge their influence on pricing. Physical demand provides underlying support to gold prices and ultimately dictates the price. Speculative trading and manipulation can and has affected prices in the short term.
With China's push for an international physical exchange, physical demand will begin to have a stronger influence, thereby ending gold manipulation. This will allow gold to rise to a more appropriate price given the scale of macroeconomic, systemic, geo-political and monetary risks of today.
http://www.zerohedge.com/contributed/2014-05-27/china-launching-%E2%80%9Cglobal-gold-exchange%E2%80%9D-shanghai
Western oil bosses stand by Russia despite sanctions
May 25 2014, 06:38 ET
- BP (BP) has signed an agreement with Rosneft to explore for hard-to-recover shale oil in the Volga-Urals region of central Russia despite Western sanctions against Rosneft (RNFTF) CEO Igor Sechin because of the tensions in Ukraine.
- BP will hold 49% in a joint venture and the Russian company the rest.
- The deal was announced at the St Petersburg International Economic forum, where Total (TOT) CEO Christophe de Margerie also finalized an agreement with Lukoil to explore for unconventional oil.
- Other major energy bosses to attend the event included Shell's (RDS.A) Ben van Beurden and Eni's (E) Claudio Descalzi, as well as senior ExxonMobil (XOM) executive Neil Duffin.
http://seekingalpha.com/news/1770063-western-oil-bosses-stand-by-russia-despite-sanctions
Weighing The Week Ahead: Will Sluggish Housing Growth Derail The Economy?
May. 25, 2014 6:01 AM ET
Jeff Miller
NewArc Investments, Inc.
http://seekingalpha.com/article/2236483-weighing-the-week-ahead-will-sluggish-housing-growth-derail-the-economy
Western oil bosses stand by Russia despite sanctions
May 25 2014, 06:38 ET
- BP (BP) has signed an agreement with Rosneft to explore for hard-to-recover shale oil in the Volga-Urals region of central Russia despite Western sanctions against Rosneft (RNFTF) CEO Igor Sechin because of the tensions in Ukraine.
- BP will hold 49% in a joint venture and the Russian company the rest.
- The deal was announced at the St Petersburg International Economic forum, where Total (TOT) CEO Christophe de Margerie also finalized an agreement with Lukoil to explore for unconventional oil.
- Other major energy bosses to attend the event included Shell's (RDS.A) Ben van Beurden and Eni's (E) Claudio Descalzi, as well as senior ExxonMobil (XOM) executive Neil Duffin.
http://seekingalpha.com/news/1770063-western-oil-bosses-stand-by-russia-despite-sanctions
The Net Neutrality Wake-up Call
By Ben Thompson
Monday, May 19, 2014
(thanks to basserdan)
Sometime in the summer of 2002, having just graduated from university and determined to change the world, I was driving home from Albert Lea, Minnesota formulating my resignation letter.
After graduating I had, rather naively I suppose, assumed that politics was the best means to effect the change I desired, and so had taken a job on a significant political campaign. The work was hardly glamorous – lots of parades and handing out stickers – but that meeting in Albert Lea, where I had to listen to a local bemoan how immigrants were ruining the country, force a smile and say “The [candidate] hears your concerns” or some other sort of drivel, was simply too much. Real politics, I had come to learn, was a whole lot different than the ideal I imagined as an editor of the university paper. Real politics was about looking naked bigotry in the face, and somehow controlling my gag reflex.
So I quit.
Last week the FCC held a hearing about Net Neutrality, complete with protesters and stern editorials from tech sites everywhere. The message was uniform: net neutrality must be preserved, no ifs ands or buts. It was all deeply unserious.
I’ve written and spoken about net neutrality a fair bit at this point – see Netflix and Net Neutrality ( http://tinyurl.com/mflppbl ), or listen to this podcast ( http://tinyurl.com/mj6jmnj ) – so I won’t dwell on this specific point for too long, but the basic issue is that broadband capacity needs continue to increase, which requires ongoing investment. It ought to go without saying, but said investment is not free; I understand and in principle agree with the argument that internet access should be regulated as a common carrier under Title II of the Telecommunications Act, but that does not address the need for ongoing broadband investment, and calls for reclassification, to be taken seriously, must include proposals for ensuring the US doesn’t fall even further behind the rest of the world in broadband penetration, speed, and capacity.
Specifically:
Government control of the “last mile” would guarantee net neutrality, but then taxes must cover the investment necessary for upgrading our infrastructure. If this is the best plan, then calls for net neutrality ought to be combined with local activism pressing city and state governments to prioritize funding accordingly
Open loop unbundling, which means separating ownership of the last mile infrastructure from the provision of Internet services, requires compelling Comcast et al to open their infrastructure to anyone who wants to be an ISP (this is how it works in many countries in the world, including almost all of those with vastly superior broadband speeds and capacity). However, the P/E ratio of your typical utility is far lower than that of a monopolistic ISP; enforcing open loop unbundling would truly be a battle, threatening billions in shareholder value (this is the best outcome in my opinion)
Usage-based pricing, where you pay for the capacity that you use, would properly incentivize ISPs to support net neutrality, but would be strongly opposed by many in the tech industry who do not want customers keeping track of what services are bandwidth hogs (Hi Netflix!), or choosing slower speeds to save money
Or, we could have the situation we have now: emotional appeals for net neutrality on one side, with ISPs arguing they have the right to maximize the economic utility of their networks by means that most consumers will never see (i.e. making content providers pay for fast lanes) on the other, and only the latter includes a solution for incentivizing ongoing investment.
I presume many of my readers work in technology; if you were deciding between two potential alternatives, one backed with an emotional appeal about one priority, and the other by data and a clear articulation of how a different priority would be addressed, which would you choose? I suspect most would choose the one supported by data. In other words, it’s not enough to insist that a position is morally right; it behooves us who believe in net neutrality to work through how the US can balance net neutrality with the need for ongoing broadband investment, fashion a case for our position, and then build a political movement that makes our plan a reality. That is being serious.
I sometimes fear that the tech industry as a whole learned the wrong lesson from the SOPA debate ( http://tinyurl.com/ce4vhyh ) a few years ago. In that case much of the tech world came together at the last minute to defeat a terrible piece of legislation. It was certainly a great outcome, but I very much wonder how often the last-minute protest card can be played. Wouldn’t it be better if we never got to the moment of crisis at all?
The Daily Dot posted a list of companies ( http://tinyurl.com/l6to3rk ) that have spent money lobbying for and against net neutrality. It’s their introductory paragraph, though, that gets at the real problem:
With the Federal Communications Commission’s (FCC) decision to move forward with a controversial proposal that threatens net neutrality and the open Internet, lobbying activity looks like it has reached a fevered pitch. But for the companies involved—especially the telecom companies that are eager to be allowed to charge more for a “fast lane” of Internet service—lobbying has been at a fevered pitch for almost a decade.
Perhaps you will be surprised to hear that the “real problem” I am referring to is not lobbying per se.1 Rather, it’s the fact that only net neutrality opposers have been playing the game for “almost a decade.” Just like SOPA supporters, “fast” lane advocates have been making their case for a very long time, and the tech industry has been largely absent. Sure, we’re making a fuss now, but note that at last week’s hearing the FCC approved the fast lane approach. Last minute protests didn’t work.
It’s no longer enough to just complain. We as an industry need to complain with solutions, and do it on an ongoing basis.
I care deeply about the net neutrality debate, but the reason I am writing this is my fear that what we are witnessing is the start of a pattern that will hurt tech industry in the long run. Those who are injured by the impact of technology will diligently make their case in the political realm, while we in the industry who genuinely believe we are changing the world ignore the messiness of politics. And then, suddenly, we will be blindsided again and again by unfavorable legislation or regulation, at which point we will raise a fuss, with ever decreasing effectiveness.
The truth isn’t just that technology has had an impact on society, but that it is only getting started. A few months ago, in FiveThirtyEight and the End of Average ( http://tinyurl.com/pt8eds7 ) I wrote about the power curve in journalism; this idea, though, is broadly applicable to every field touched by technology. The ease of communication and distribution on the Internet is rendering vast swathes of the economy uncompetitive, even as certain sectors, companies, and individuals reap absolutely massive profits. I am by no means saying this is a bad thing, but I am certainly sympathetic to those who can no longer compete. I am also extremely concerned that recourse for these changes will increasingly be sought through the political process without tech having a seat at the table, much less a coherent solution for dealing with the human fallout of technological progress.
We as an industry absolutely need to wake up. SOPA, net neutrality, the Google bus protests – all of these are of a piece, and they are only the beginning.
I understand that politics is messy, and leaves one feeling just a bit queasy. I’ve been there, driving home from Albert Lea. But that queasiness is not a function of politics in the abstract, but the reality of any institution concerned with the behavior of humans. I am familiar with the desire to escape, to put one’s head down and do work that makes one proud, but I don’t know how much longer we as an industry have the luxury. I also know how easy it is to look at politics with a defeatist attitude: how much of a difference can one person make? And yet, working at scale is exactly what we as an industry are good at! Every business model in the Valley is predicated on the idea of serving massive groups of customers with easily repeated processes and software. We can do this.
The world is changing because we are changing it, just like we all wanted to, and now it’s time to grow up and deal with the consequences in a serious way. I truly hope that the fight for net neutrality will only be the beginning.
http://stratechery.com/2014/net-neutrality-wake-call/
China Halts US Dollar Transactions With Afghan Banks
Submitted by Tyler Durden
05/22/2014 10:35 -0400
Zerohedge.com
The de-dollarization escalates. As Reuters reports, Chinese banks have halted dollar transactions with most Afghan commercial banks. Whether this is related to the terrorist operations in the Muslim-dominated Uighur region is unclear... also unclear is whether the Chinese banks will accept transactions with Afghan banks in CNY?
As Reuters reports,
Chinese banks have halted dollar transactions with most Afghan commercial banks, the central bank governor said on Thursday, making it difficult for businesses to pay for imports with one of the Afghanistan's biggest trading partners.
"China is a major country that was handling those bank transfers, and now they have told the banks they can't do it," governor Noorullah Delawari told Reuters.
The impact on business had been felt immediately, he said.
De-Dollarization or Anti-Terrorist action? The official story is as follows:
The Chinese move was part of the trend in which it was increasingly difficult for Afghanistan's commercial banks to execute international transactions, Delawari said. "Some of our banks cannot do any direct transactions because their correspondent banks in the U.S., Europe, Germany, or Turkey (have halted transactions)," he said.
"Now even transferring money to China to import goods has been affected."
The Afghan government's failure to pass key measures means that it could in June be blacklisted by Financial Action Task Force (FATF), an international body that sets standards on how countries combat money laundering.
Banks have been struggling since FATF threatened Afganistan with the blacklist early this year.
"That has been affecting our banks ability to transfer money for anything," Delawari said, describing how students abroad were unable to receive money from there parents as an example.
Chinese banks and officials were not immediately available for comment.
Because, apparently, now even the Chinese banks are suddenly very concerned about money laundering compliance. In the meantime, Afghanistan: meet gold.
http://www.zerohedge.com/news/2014-05-22/china-halts-us-dollar-transactions-afghan-banks
China Halts US Dollar Transactions With Afghan Banks
Submitted by Tyler Durden
05/22/2014 10:35 -0400
Zerohedge.com
The de-dollarization escalates. As Reuters reports, Chinese banks have halted dollar transactions with most Afghan commercial banks. Whether this is related to the terrorist operations in the Muslim-dominated Uighur region is unclear... also unclear is whether the Chinese banks will accept transactions with Afghan banks in CNY?
As Reuters reports,
Chinese banks have halted dollar transactions with most Afghan commercial banks, the central bank governor said on Thursday, making it difficult for businesses to pay for imports with one of the Afghanistan's biggest trading partners.
"China is a major country that was handling those bank transfers, and now they have told the banks they can't do it," governor Noorullah Delawari told Reuters.
The impact on business had been felt immediately, he said.
De-Dollarization or Anti-Terrorist action? The official story is as follows:
The Chinese move was part of the trend in which it was increasingly difficult for Afghanistan's commercial banks to execute international transactions, Delawari said. "Some of our banks cannot do any direct transactions because their correspondent banks in the U.S., Europe, Germany, or Turkey (have halted transactions)," he said.
"Now even transferring money to China to import goods has been affected."
The Afghan government's failure to pass key measures means that it could in June be blacklisted by Financial Action Task Force (FATF), an international body that sets standards on how countries combat money laundering.
Banks have been struggling since FATF threatened Afganistan with the blacklist early this year.
"That has been affecting our banks ability to transfer money for anything," Delawari said, describing how students abroad were unable to receive money from there parents as an example.
Chinese banks and officials were not immediately available for comment.
Because, apparently, now even the Chinese banks are suddenly very concerned about money laundering compliance. In the meantime, Afghanistan: meet gold.
http://www.zerohedge.com/news/2014-05-22/china-halts-us-dollar-transactions-afghan-banks
URGENT -China halts dollar transactions with most Afghan banks - c.bank
KABUL Thu May 22, 2014 10:19am EDT
Reuters
May 22 (Reuters) - Chinese banks have halted dollar transactions with most Afghan commercial banks, the central bank governor said on Thursday, making it difficult for businesses to pay for imports with one of the Afghanistan's biggest trading partners.
"China is a major country that was handling those bank transfers, and now they have told the banks they can't do it," governor Noorullah Delawari told Reuters.
http://www.reuters.com/article/2014/05/22/afghanistan-banking-idUSL3N0O845I20140522
Welcome to the Third World, Part 15: Insurance Agents Lose Their Hea
by John Rubino - Dollar Collapse
Published : May 20th, 2014
One would think that great health coverage would be a basic perk of working for an insurance company, but those days are apparently over. Investment News reports that John Hancock has not only eliminated health insurance for its agents, it has converted those agents from employees to commission-based independent contractors.
John Hancock B-D to terminate health and insurance benefits
Registered representatives at Signator Investors Inc., John Hancock's broker-dealer, received some dismaying news on Tuesday: The firm will be terminating its health and insurance benefits and will freeze its retirement benefits plan at the end of the year.
Effective Jan. 1, 2015, the firm will change its compensation structure "to one more representative of those commonly offered in the industry as a whole," according to an e-mail confirmation from Melissa Berczuk, a spokeswoman for John Hancock Financial Services Inc.
Signator has been migrating from a pure career agency to a model that's more based on that of an independent broker-dealer, Ms. Berczuk said.
John Hancock in 2009 overhauled its business model to give its career reps the option of going independent. The reps also had the option of maintaining a traditional relationship with John Hancock as statutory employees, which would give them support from the company, as well as health and retirement benefits subsidized by the company.
The new notices to reps and employees, obtained by InvestmentNews, include a breakdown of options for health and insurance benefits once the plan terminates at the end of the year.
Signator suggests that reps and staffers look into the public insurance exchanges, as well as health coverage bought through a private channel such as an insurance agent. There's also the possibility of going without coverage. However, the firm warns that "as a result of the Affordable Care Act, an individual mandate applies for medical coverage and a penalty may apply if you do not have medical insurance." Those who were in the health plan will get access to resources to help them weigh their options.
COBRA coverage, which allows individuals to continue the benefits they received at work at a higher cost, won't be available to affected reps and staff because termination of a health benefits plan isn't a COBRA-qualifying event, according to the notice.
Basic and supplemental group life insurance coverage will be discontinued, but reps and staffers can obtain an individual policy on a guaranteed issue basis from MetLife Inc., the provider, as of Dec. 31, according to the notice.
As for Signator's 401(k) plan, workers won't be able to make contributions once the plan has frozen. Auto-rebalancing and fund changes will be allowed to continue, however. Loans from the 401(k) accounts won't be permitted on or after Jan. 1, according to the notice.
Meanwhile, those who are in the pension plan will stop receiving pay credits on Dec. 31, but they will continue to earn interest credits until they begin receiving benefits, according to the notice.
The pension participants' grandfathered status will not be affected by the plan freeze. As long as these participants maintain their current contract or continue to be employed by the same agency, they will continue earning credit toward the unreduced benefit, according to the notice.
The change will be a shock to the system for reps. "Those two items [health insurance coverage and retirement plans] are a key reason that keeps people in their seats; they don't go independent because of it," said recruiter Jodie Papike, executive vice president at Cross-Search Inc. "If they take that away, it's a really big deal for a lot of those folks."
Some thoughts
Companies of every kind are closing down their in-house insurance programs and migrating their workers to the new government-managed exchanges. But when an insurance company does this it's a bit more notable, kind of like a Pizza Hut telling its workers to get dinner at the corner grocery store. You'd think that if a company makes a given product, the marginal cost of providing that product to employees would be pretty low. But apparently not.
In any event, the bigger trend is what's really interesting: Formerly-secure jobs with good benefits are being replaced by less secure jobs in which workers have to manage their own health care and retirement savings. Both kinds of jobs count as "employment" in government statistics, which means the official numbers are overstating the benefits to the average person of recent hiring increases.
In fact, most of the new jobs being created are some combination of 1) part-time work, 2) service industry work that pays far less than manufacturing or symbol manipulation, or 3) independent contractor positions like the above that both pay less and are far less secure than the jobs they replace.
The result: a nation of workers who make less than they used to, have to cover big expenses like insurance and retirement savings on their own, and can be unemployed virtually overnight with no severance or other consideration from their "employer."
Life, in short, is getting a lot harder for millions of people and much of it is happening under the radar, hidden by the government, unreported in the media and unappreciated by those not directly affected.
http://www.24hgold.com/english/news-gold-silver-welcome-to-the-third-world-part-15-insurance-agents-lose-their-hea.aspx?article=5481333834H11690&redirect=false&contributor=John+Rubino
Russia’s VTB and Bank of China agree on domestic currency settlements
Published time: May 20, 2014 08:58
Edited time: May 20, 2014 11:27
Reuters / Sergei KarpukhinReuters / Sergei Karpukhin
VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.
“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.
The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.
An Agreement on Cooperation was signed by Titov and Bank of China President Chen Siqing in Shanghai on Tuesday in the presence of Russian President Vladimir Putin and Chinese President Xi Jinping.
VTB Group is Russia’s second biggest financial institution with more than 30 banks and financial firms in more than 20 countries. Its assets were estimated at 8.8 billion rubles as of 2013, with a profit of 100.5 billion rubles.
Growing trade and investment
The agreement comes as a part of Russia’s larger scale pivot to Asia, as Western economies threaten sanctions over the turmoil in Ukraine. Sanctions by the US and the EU have been mostly limited to visa bans and asset freezes on some leading Russian officials, and so far only threatening a so-called third round of real economic sanctions against Russian businesses.
In the first day of a two-day trip to China Russia’s President Vladimir Putin said the two countries will be increasing their bilateral trade to reach a new level.
“Our countries have done a huge job to reach a new historic landmark…. China has firmly settled in a position of our key trade partner,” Putin said.
Putin also said that trade turnover between Russia and China grew almost 2 percent during 2013 to reach about $90 billion.
“If we sustain this pace the level of bilateral trade of $100 billion will be reached by 2015 and we’ll confidently move on,” Putin said.
Increasing investment cooperation is crucial, Putin added. Holding the first Russia-China EXPO in Harbin this summer help towards that, he said.
In Shanghai Russia and China also agreed to set up a Committee on Investment Cooperation that will enable consultations between the countries’ first vice premiers and representatives of state and private companies.
“Together it’ll be possible to discuss investment in various projects much more efficiently and clearly,” as Interfax quotes Kirill Dmitriyev the head of Russia’s Direct Investment Fund.
In terms of concrete deals the Russia-China Investment Fund (RCIF) and Vcanland, a leading Chinese tourism developer, have agreed to invest $800 million in development of tourism and social projects.
"Most of the money (60 - 70%) will be spent on tourism development. The geographical focus will be on destinations such as Hainan Island, Lake Baikal, the cities of Vladivostok and Sochi," Dmitriyev said.
China is the second most popular destination for Russian tourists, and Russia - the third most popular destination for Chinese, and in the next 10 years the Russian tourism sector will be growing, according to forecasts by the RCIF.
In 2013, the volume of Chinese direct investments in the Russian economy grew five-fold to $4 billion. By the start of 2013, the total amount of Russia's direct investments in China was valued at $847.7 million. Forty projects with investment of 20 billion dollars are on the drawing board. The power sector is the driving force behind Sino-Russian cooperation, although agriculture and agribusiness also have huge cooperation potential.
http://rt.com/business/160124-vtb-bank-china-currencies/
Russia’s VTB and Bank of China agree on domestic currency settlements
Published time: May 20, 2014 08:58
Edited time: May 20, 2014 11:27
Reuters / Sergei KarpukhinReuters / Sergei Karpukhin
VTB, Russia’s second biggest lender, has signed a deal with Bank of China, which includes an agreement to pay each other in domestic currencies.
“Under the agreement, the banks plan to develop their partnership in a number of areas, including cooperation on ruble and renminbi settlements, investment banking, inter-bank lending, trade finance and capital-markets transactions,” says the official VTB statement.
The deal underlines VTB Group’s growing interest in Asian markets and will help grow trade between Russia and China that are already close trading partners, said VTB Bank Management Board Vasily Titov.
An Agreement on Cooperation was signed by Titov and Bank of China President Chen Siqing in Shanghai on Tuesday in the presence of Russian President Vladimir Putin and Chinese President Xi Jinping.
VTB Group is Russia’s second biggest financial institution with more than 30 banks and financial firms in more than 20 countries. Its assets were estimated at 8.8 billion rubles as of 2013, with a profit of 100.5 billion rubles.
Growing trade and investment
The agreement comes as a part of Russia’s larger scale pivot to Asia, as Western economies threaten sanctions over the turmoil in Ukraine. Sanctions by the US and the EU have been mostly limited to visa bans and asset freezes on some leading Russian officials, and so far only threatening a so-called third round of real economic sanctions against Russian businesses.
In the first day of a two-day trip to China Russia’s President Vladimir Putin said the two countries will be increasing their bilateral trade to reach a new level.
“Our countries have done a huge job to reach a new historic landmark…. China has firmly settled in a position of our key trade partner,” Putin said.
Putin also said that trade turnover between Russia and China grew almost 2 percent during 2013 to reach about $90 billion.
“If we sustain this pace the level of bilateral trade of $100 billion will be reached by 2015 and we’ll confidently move on,” Putin said.
Increasing investment cooperation is crucial, Putin added. Holding the first Russia-China EXPO in Harbin this summer help towards that, he said.
In Shanghai Russia and China also agreed to set up a Committee on Investment Cooperation that will enable consultations between the countries’ first vice premiers and representatives of state and private companies.
“Together it’ll be possible to discuss investment in various projects much more efficiently and clearly,” as Interfax quotes Kirill Dmitriyev the head of Russia’s Direct Investment Fund.
In terms of concrete deals the Russia-China Investment Fund (RCIF) and Vcanland, a leading Chinese tourism developer, have agreed to invest $800 million in development of tourism and social projects.
"Most of the money (60 - 70%) will be spent on tourism development. The geographical focus will be on destinations such as Hainan Island, Lake Baikal, the cities of Vladivostok and Sochi," Dmitriyev said.
China is the second most popular destination for Russian tourists, and Russia - the third most popular destination for Chinese, and in the next 10 years the Russian tourism sector will be growing, according to forecasts by the RCIF.
In 2013, the volume of Chinese direct investments in the Russian economy grew five-fold to $4 billion. By the start of 2013, the total amount of Russia's direct investments in China was valued at $847.7 million. Forty projects with investment of 20 billion dollars are on the drawing board. The power sector is the driving force behind Sino-Russian cooperation, although agriculture and agribusiness also have huge cooperation potential.
http://rt.com/business/160124-vtb-bank-china-currencies/
Russia And China Sign Gas Pipeline Megadeal
MICHAEL KELLEY
MAY 21, 2014, 5:40 AM
Businessinsider.com
REUTERS/Aly Song
Russia's President Vladimir Putin and his Chinese counterpart Xi Jinping shake hands in Shanghai May 21, 2014.
Russia's Gazprom and China's China National Petroleum Corporation (CNPC) have signed a historic 30-year contract to supply natural gas to China, according to Russia Today and confirmed by Bloomberg.
The total value of the contract is $400 billion, Gazprom CEO Aleksey Miller told RT, although the price in the document remains a "commercial secret." Negotiations have been ongoing for more than a decade.
The deal would send 38 billion cubic meters of natural gas to China each year, starting in 2018, with the potential to expand the annual capacity to 61 billion cubic meters.
The gas will be sent via a new eastern pipeline linking the countries, although Oliver Bullough reports that there are still uncertainties about the deal.
Jane Perelez of The New York Times went further, reporting that it's unclear "if the accord was an actual contract with details of prices and terms, or if it was a memorandum of understanding that would signal the need for further negotiations."
China consumed about 170 billion cubic meters of natural gas in 2013 and set a target of up to 420 billion cubic meters a year by 2020.
Europe is Russia’s largest energy importer as it bought more than 160 billion cubic meters of natural gas in 2013, but tensions and sanctions over Putin's meddling in Ukraine have Russia looking elsewhere.
Consequently, the deal is huge for the Kremlin since natural gas represents nearly 60% of Russia's total exports. That said, the amount of gas is still only about a fifth of what Russia sends to Europe.
russia china pipeline
Gazprom
The new pipeline that will be built to send Russian gas to China.
Here's a look at the major gas pipelines between Russia and Europe.
ukraine gas map
Read more: http://www.businessinsider.com/russia-and-china-sign-billion-gas-pipeline-mega-deal-2014-5#ixzz32LU6BVLg
Gold Price Manipulation Goes Mainstream On German TV
Koos Jansen
Published on May 20, 2014
Short documentary about gold price manipulation on public TV channel 3sat, a cooperation between Germany, Austria and Switzerland.
Gold Price Manipulation Goes Mainstream On German TV
Koos Jansen
Published on May 20, 2014
Short documentary about gold price manipulation on public TV channel 3sat, a cooperation between Germany, Austria and Switzerland.
Giving NSA the boot – California bids to end spying on its citizens
May 20, 2014
rt.com
AFP Photo / Paul J. RichardsAFP Photo / Paul J. Richards
The state of California is looking to pass a law stating the federal government would need a warrant from a judge if it wants to search residents’ cellphones and computer records. The bill passed the state senate with just one person voting against.
The bill was introduced following information that was leaked by former National Security Agency contractor Edward Snowden, who showed that US citizens had been subject to massive internal surveillance by the NSA.
"The Fourth Amendment to the US Constitution is very clear. It says the government shall not engage in unreasonable search and seizure," said the bill's author, Democratic State Senator Ted Lieu of Torrance, to Reuters. "The National Security Agency's massive and indiscriminate collecting of phone data on all Americans, including more than 38 million Californians, is a threat to our liberty and freedom."
California is one of eight states to introduce such measures, according to Lieu’s spokesman, Jeff Gozzo. Alaska, Arizona and Oklahoma are also looking to counter this problem, though America’s most populous state is the nearest to getting legislation passed. The bill will be heard before an assembly policy committee in June 2014.
The Obama administration is unhappy about the powers of NSA being diluted. Last year a federal judge ruled that the NSA’s practice of ‘spying’ on its citizens was unconstitutional. The US government is currently appealing this ruling.
The California bill would not allow any law enforcement or other officials to help federal agencies look into phone records, internet use, or any other electronic activity by residents of the state unless a warrant has been authorized by a judge.
The legislation was first mooted in January 2014. Known as Senate Bill 828, Joel Anderson co-sponsored it with Lieu. The state senators were prepared to go to extreme measures to make sure the rights of the citizens of California are no longer infringed.
The bill is happy to target government-owned utilities (water and electricity); any public universities that allow their facilities to be used as NSA research facilities and their campuses as recruiting grounds. They are also willing to impose sanctions on any corporations trying to fill the gaps left by the utility providers and other state companies. Finally, the bill also seeks to ban any local or state criminal investigations from carrying out their work using data harvested by government snooping without a specific warrant. In the absence of such a document, the information will simply be inadmissible in court.
Earlier this month, the House Judiciary Committee voted 32-0 to move along legislation, which would bring a halt to the NSA’s controversial activities, with amendments to the USA Freedom Act. As part of the bill, the NSA would need to prove to a judge that an individual is somehow connected to terrorism before being granted access to their personal data.
The bill reflects recommendations forwarded last year by a presidential Review Group that advised the NSA to stop pressuring tech companies to put ‘back doors’ into their programs, which gives the NSA unfettered access to customers’ records.
Under the NSA’s so-called PRISM program, which former NSA contractor-turned-whistleblower Edward Snowden revealed last year to intense international condemnation, the NSA collects and stores numbers dialed and call times but does not record the conversations.
However, even that claim of limited powers was challenged in March after it was reported that the NSA operates another program, dubbed MYSTIC, that gives it the power to “retrieve audio of interest that was not tasked at the time of the original call,” according to the Washington Post.
http://rt.com/usa/160104-nsa-spying-california-snowden/
Guess Who's Winning the Money Battle in the War on Net Neutrality
May 19, 2014
Adam Clark Estes
Who's spending the most to win the hearts and minds of Congress in the war on net neutrality? Verizon and AT&T, of course. Followed by—guess who?—Comcast. In other words, the companies that stand to lose money if the internet remains free and open are trying to shut it down.
The Sunlight Foundation recently published a series of graphics showing lobbyist spending from companies that support and oppose net neutrality. From 2003 to 2013, anti-net neutrality groups issued nearly three times as many lobbying reports mentioning net neutrality as those that support it, like AOL, Google, and Microsoft. Verizon and AT&T alone each issued 119 reports, while Google issued less than 25. None of this is surprising, though, because big telecom companies were spending millions on lobbying before companies like Google even employed lobbyists.
It's difficult to boil this all down into a dollar amount, though. While the Sunlight Foundation breaks out these companies' total spending on lobbying to reveal that anti-net neutrality groups out spend pro-net neutrality groups by a five-to-one ratio, that graph fails to recognize that all of these companies hire lobbyists to do more than fight for or against net neutrality. The sharp increase in total spending from anti-net neutrality groups is, nevertheless, undeniable.
This is only the beginning. Now that the FCC has pushed forward with a horrible set of proposed net neutrality rules that would allow internet fast lanes for those who paid for them, we're going to hear more and more about how the war for a free and open the internet hinges upon a battle over profit margins. Companies like Verizon and AT&T stand to make more money if the FCC turns its proposed rules into policy, while startups that can't even afford lobbyists in the first place stand to lose out.
But hey, why wouldn't the FCC bend to big telecom interests? After all, high-paying jobs with big telecom companies are a popular destination for outgoing commissioners. FCC chairman Tom Wheeler himself is a former big telecom lobbyist. The elected officials on Capitol Hill can't be bought and sold so directly (we hope) so it's only natural that big telecom would shovel tens of millions of lobbyist dollars in their direction. We must just look like a bunch of idiots for letting them. [Sunlight Foundation]
http://gizmodo.com/guess-whos-winning-the-money-battle-in-the-war-on-net-n-1578497307?utm_campaign=socialflow_gizmodo_twitter&utm_source=gizmodo_twitter&utm_medium=socialflow
Gold ETF lets retail investors swap shares for bars
Merk Gold Trust gold-backed ETF ‘OUNZ’ to start trading Friday
By Myra P. Saefong
MarketWatch
May 14, 2014
Merk Investments
SAN FRANCISCO (MarketWatch) — A new gold-backed exchange-traded fund launching this week boasts a unique characteristic: individual investors can take delivery of physical gold — in small bars or coins — in exchange for shares of the Merk Gold Trust.
Set to start trading Friday under the ticker OUNZ, the Trust, at first, seems similar to other exchange-traded funds that hold gold bullion in the form of bars — most notably the world’s largest gold-backed ETF, the SPDR Gold Trust GLD +0.65% . But Merk Investments refers to its offering as a “deliverable gold ETF” and is betting that it’s filling a previously unmet need.
Backup the truck
“The most important differentiating factor of OUNZ compared to other products is that investors may request delivery of their gold,” Axel Merk, manager of Merk Funds and chief investment officer of Palo Alto, Calif.-based Merk Investments LLC, told MarketWatch in a phone interview.
They can take delivery of London Bars, gold bricks that are traded by central banks and large institutions, but they can also choose to have the gold exchanged into other gold coins or bars, he said.
The SPDR Gold Trust, often referred to just as GLD, allows for a shares-for-physical-gold exchange too, but it’s definitely not for the Average Joe investor. Read about how gold ETFs have transformed the market.
GLD investors who have a position in excess of 1 basket—a set amount of shares, which for the GLD ETF is 100,000 shares—can exchange their shares for physical gold, according to Will Rhind, a managing director at the World Gold Council, an organization that sponsors the SPDR Gold Trust.
The exchanges are done by authorized participants, which are typically big investment banks, said Rhind. “Because of the size of the baskets (100,000 shares for GLD), individual investors aren’t likely to have a position big enough for a redemption. The people who are creating baskets or redeeming shares are generally on the institutional level.”
Gold is delivered in ‘LBMA Good Delivery bars,’ which can weigh 400 ounces to 430 ounces. The value of one of those bars is roughly $500,000, and it cannot be cut into smaller bars, Rhind said.
Gold on Wednesday topped $1,300 an ounce Wednesday, supported by a retreat in U.S. stocks.
Online interface
Merk Investments
The Merk Gold Trust’s minimum share amount to trade for physical gold is much smaller than GLD’s.
While the SPDR Gold Trust requires a minimum of a basket of 100,000 shares of its ETF to exchange for gold, the Merk Gold Trust’s minimum share exchange is roughly 100 shares for one ounce of gold.
The ETF’s characteristics are based on what investors said were lacking in ETFs such as GLD.
Big institutions don’t know “how to handle John Smith coming in from the street,” said Merk. They’re “not used to having an interface.”
Merk thinks it found the interface, and it received a U.S. patent for the “deliverable commodity investment vehicle.”
“We needed to test the processes so that this product works in practice, not just theory,” Axel Merk said. “We wanted an easy online interface to allow investors to be guided through the steps to take delivery.”
Merk Investments can facilitate home delivery of coins and 10-ounce bars, delivered with UPS next-day delivery, while London bars are shipped from London by armored courier and can’t be sent to residential addresses.
Merk Investments, as the sponsor, gets paid in gold and then pays the operating expenses, said Merk. “Because ownership of the shares is a pro-rata ownership of the trust’s gold, we get paid in gold.” Read about the processing fees.
Investors who choose to take delivery of physical gold in exchange for their Merk Gold Trust shares can also do it tax free.
Do they really want it?
Gold ETFs are popular because U.S. institutions can buy a share cheaply and quickly and the purchase affects the gold price, said Julian Phillips, founder and contributor to GoldForecaster.com. Read: Gold alternative investment choice shines brighter than ever.
In comparison, buying physical gold entails fees, storage changes, insurance and shipping, while buying shares of gold miners doesn’t affect the gold price, he said.
So it’s not necessarily advantageous for small investors to exchange ETF shares for physical gold.
Phillips said that because institutions are short-term to medium-term investors only, “they like to own the share only [while] wealthy individuals prefer bullion because it is a long-term ‘hold’ investment.”
“Shares in ETFs do impact the gold price directly, but by owning gold itself, they would achieve little more than they do already with less flexibility,” he said.
Axel Merk says it’s the choice that’s key.
“There are many investors that still like the option to take delivery, even if many may never take advantage of this option,” he said. “We wanted to make sure this option isn’t only theoretical.”
More Commodities Corner columns on gold ETFs:
Gold alternative investment choice shines brighter than ever
‘ETF Revolution in gold bloodies investors
How gold ETFs have transformed the market in 10 years
Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong.
http://www.marketwatch.com/story/gold-etf-lets-retail-investors-swap-shares-for-bars-2014-05-14?pagenumber=2
Internal Graph at CME Shows How the Futures Market is Rigged
By Pam Martens
May 15, 2014
(thanks to basserdan)
Senate Agriculture Committee Hearing on May 13, 2014 on High Frequency Trading in the Futures Market
Since Michael Lewis first uttered the immortal words on 60 Minutes on March 30 that “stock market’s rigged” through the willful collusion of exchanges, large broker dealers and high frequency traders, it has become clear that the public relations game plan of the regulators and self-regulators is to pray for a technology-challenged Congress and a gullible public.
J. Bradley Bennett, Executive Vice President of Enforcement at FINRA, the industry’s self regulator, suggested that high frequency trading was no different than buying a first class ticket on an airplane. (Wall Street On Parade suggested that this is only true if one has also hijacked the plane and robbed the passengers in coach.)
Next up was SEC Chair Mary Jo White who flatly told the House Financial Services Committee on April 29 that “the markets are not rigged” despite three books and dozens of research papers documenting the opposite conclusion. On Tuesday of this week, Terrence (Terry) Duffy, Executive Chairman and President of the CME Group, which operates the largest futures exchange in the world, appeared before the Senate Agriculture Committee to testify that his market was pristine and was delivering a “level playing field” to all comers. (Operating a level playing field is not negotiable for an exchange; under U.S. law, an exchange serves as a self-regulator and must police itself and its members to guarantee a level playing field for all.)
First Duffy testified that “Our market data is sent to everyone at once. While customers have several options in terms of how they can receive data from us, we do not restrict access. Having multiple connectivity options makes our markets accessible to a broader array of participants.”
Then Duffy went on to explain co-location to the skeptical group of Senators, telling them:
“Another service that CME Group provides to the marketplace is colocation. The criticism of colocation in some of the public coverage of this issue has failed to recognize that colocation actually equalizes access to the benefits of speed through proximity. It used to be that the benefit of speed from proximity was available only to traders who could buy real estate near an exchange, or where he or she thought the server would be…Everyone in our facility connects with the same length wire, so there are no unequal location advantages. This is one of the true benefits of our colocation services.”
Duffy is one of the top executives at a critical futures marketplace which allows farmers and corporations as well as traders to hedge their risk in everything from farm crops like corn to interest rates, foreign currency, stock indexes, and oil. Its integrity is, quite seriously, a matter of national security. The CME Group owns the Chicago Mercantile Exchange (CME), the largest futures exchange in the world, as well as the Board of Trade of the City of Chicago (C-B-O-T), New York Mercantile Exchange (NYMEX), and Commodity Exchange (COMEX).
The public is already well aware that some of the underlying products that trade on the exchanges of the CME Group are, or have been recently, rigged: like interest rates, and foreign currency exchange, and potentially metals and oil. But that’s not the exchanges’ fault – that’s a result of the serial collusion of too-big-to-jail global banks that both Congress and the U.S. Department of Justice have failed to tame.
The question before Duffy on Tuesday by a Senate panel that should have had the good sense to put him under oath, given the wealth of material currently in the public domain attesting to the broad rigging of financial markets, was if his exchanges are rigged.
When Duffy testified to the Committee that “Our market data is sent to everyone at once,” it was a beguiling deception. The market data may be sent at the same time but it is not received at the same time by all participants and the CME Group is directly responsible for that reality.
When Duffy testified to a U.S. Senate panel that “customers have several options in terms of how they can receive data from us, we do not restrict access” it was, in the opinion of market veterans, a flat out falsehood. The CME restricts access based on the participant’s ability to pay $144,000 a year for a lease to locate their computer right next to the exchange’s computer, allowing that participant to receive market data faster than other participants.
Telling a U.S. Senate panel attempting to get at the truth that “Everyone in our facility connects with the same length wire, so there are no unequal location advantages” is, once again, a gross distortion of what is actually going on at the world’s largest futures exchange.
There was not one word in Duffy’s written or verbal testimony to explain to this Senate panel that the CME has given extreme preferential treatment based on exorbitant pay-to-play rules it has imposed on its market participants.
To have given forthright testimony to the Senate, Duffy should have introduced the CME’s co-location pricing plan available at this link. It shows not a two-tiered market but an eight-tiered market based on the participant’s ability to pay CME $144,000 a year for super-fast speed declining to $6,000 a year at the bottom rung of the speed chain. Each higher rung of the pricey chain is feeding on the slower traders on the lower, cheaper rungs.
We do not have to rely on just Michael Lewis or academic scholars to tell us what this access to fast or slow speed means in terms of manipulated markets. This handy video from a trading firm that has snagged some of CME’s choice co-location computer rack space (and is offering to share it for $299 a month) explains it all in exquisite detail:
“You can get your orders in the market before everyone else. And when you detect an event, and you want to place an order by having a co-located server and such fast connectivity, you’re there before everyone else. You can detect order flow events; perhaps a very large trade is going off on the E-Mini S&P and you can detect that event before everyone else and you can jump on their back and take a tick or two or three out of the market.”
Duffy was questioned by Senator Sherrod Brown about another problem at his exchange – high frequency traders getting ahead of other participants by receiving confirmations of their own trades which are not recorded on the CME’s data feed until later.
Senator Brown: “As we know the world of high speed trading time is measured in microseconds (millionths of a second) or milliseconds (thousandths of a second)…The Wall Street Journal highlighted ‘order latency’ when trade information is routed to the parties to a trade before they post to the rest of the market. This informational advantage, if you will, allows high speed trading firms to see which way prices are heading, as you know, and trade ahead of the rest of the market on a different futures exchange, exploiting arbitrage opportunities in mere milliseconds.
“Your testimony today says that CME’s market data quote is sent to everyone at once. On April 23, Mr. Duffy, you told Bloomberg that (quote) “latencies have been shrunk dramatically” but I’ve heard that they may remain in important contracts like the crude oil complex. Has CME addressed latencies across all futures contracts? Are these delays just shorter or are they gone completely?”
Duffy: All of our market data comes out of one pipe sir. And then the way you decide to acquire that is up to you. So there’s multiple ways to receive market data. So it does go out all at once. What you’re referring to, I believe, in the Wall Street Journal article that was written over a year and a half ago is where a participant would receive his confirmation of a trade but the market data did not hit the tape yet. So he knew he had the trade, he was the only one who knew he had the trade, the rest of the world didn’t know he had the trade yet. That was what the Wall Street Journal article cited. We have shrunk that latency dramatically about market data to market confirmation.”
Duffy goes on to say that there could still be a lag of a millisecond. The problem with this is that there are 1000 microseconds in 1 millisecond and, according to the Wall Street Journal article referenced in the testimony, “Firms can also capitalize on that early information by buying a related product on another exchange before other traders know of a market shift. For example, it takes about 200 microseconds for trades to get from CME’s Aurora, Ill., data center to the computers of Intercontinental Exchange Inc.”
If our Congress ever hopes to get at the facts and the truth about our rigged markets, and convey the information to the public in language it can understand, both the Senate and the House must hire a Special Counsel who is articulate, clear, and has a deep background in the securities and futures markets to conduct these hearings. The Senate appointed Ferdinand Pecora to do the job after the 1929 crash and ensuing Great Depression. Pecora issued subpoenas and demanded testimony under oath for two years. The American people deserve no less this time around.
http://wallstreetonparade.com/2014/05/internal-graph-at-cme-shows-how-the-futures-market-is-rigged/
Oil SDR'S and the New Currency Basket
JC Collins
May 17, 2014
Silverbearcafe.com
Oil, along with other commodities, will soon be priced in the Special Drawing Right issued by the International Monetary Fund. This was first mentioned back in 1979 in a secret White House memo written by Henry Owen for President Jimmy Carter.
In that memo, it is stated that if oil were to be priced in SDR’s then the value of the U.S. dollar would be effected on the exchange markets due to lower demand.
Though the price of oil itself would see little change if priced in SDR’s. The recommendation at the time was to keep oil priced in dollars.
Todays things have changed dramatically as the world is shifting away from the dollar as the reserve currency. It is inevitable that oil will be priced in something other than dollars.
Memo
The likelihood is that oil trade deals will be first denominated in regional currencies such as the Russian ruble and Chinese yuan. This will increase the demand for some form of multilateral reserve currency agreement to ensure a level playing field between markets and regions.
The SDR will be offered up as the obvious solution. In order for that to happen the basket of currencies from which the SDR gets its value will have to be expanded to include Russia and China, and most likely Canada and Australia as well.
This is why Ukraine, Syria, Libya, Egypt, and now Vietnam are such important factors in the emergence of the more powerful SDR. Each country is either directly involved in the production of oil and gas or are located on or near transport roots by which energy is traded.
Those who work in the Canadian oil and gas industry have watched over the last 5 years as massive infrastructure and transport projects have been started to facilitate the explosive growth which will take place when the SDR pricing begins.
Canadian mining is on the verge of a massive realization of potential. Its as if all the bases are loaded and the best batter just stepped up to the plate.
The same can be said for other regions of the world. Vietnam’s off-shore oil fields will be further developed as demonstrated by the urgency of China’s placement of their massive drilling platform in Vietnams Economic Zone.
Drilling Platform
What has been happening over the last 6 years since the financial crisis is becoming clearer and clearer. The move away from the dollar is quickening at a rate that is surprising the most hardened critic of dollar alternatives.
Canada is now backing off on sanctions against Russia. As reported in this RT article:
Canada has chosen not to impose sanctions against two of Russia's top officials already targeted by the US – Rosneft's Sechin and Rostec's Chemezov. Reports say Ottawa doesn't want politics to be hurting one of the country's biggest business projects.
“Our goal is to sanction Russia, it is not to go out of our way to sanction or penalize Canadian companies,” as Reuters quotes a Canadian government source familiar with Ottawa’s sanctions strategy.
“We will continue to apply pressure to Russia, we will continue to impose sanctions along with our allies, but we will also look out for Canada’s broader interests,” it added.
Sergei Chemezov is head of state-owned industrial and defense conglomerate, Rostec. The company has an aircraft assembly joint venture lined up with Bombardier Inc – a deal vital for the Canadian plane and train maker. Last year the two companies signed a $3.4 billion deal to sell 100 short – haul aircraft in Russia. Another Bombardier interest in Russia includes a long-standing joint venture in its rail business.
Igor Sechin is CEO of oil giant, Rosneft, which owns some 30 percent of an Exxon Mobil Corp oil field in the western province of Alberta.
All roads are now leading away from the dollar. The aggressive measures which the G20 countries discussed back in Feb are now being realized. The International Monetary Fund will have no choice but to collectively remove the veto power of the United States and allow the Executive Board to be restructured. The BRICS Bank will join the World Bank in a common cause under the IMF banner with the Bank for International Settlements acting as the clearing house.
With this restructuring will come the merging of the Euro-Atlantic financial powers with the Euro-Asian financial powers. The semi-fiat semi-commodity SDR supra-sovereign reserve currency is on the way. – JC
philosophyofmetrics.com
http://www.silverbearcafe.com/private/05.14/SDRs.html
U.S. regional banks tip-toe into commodities as Wall Street faces shake-out
BY CEZARY PODKUL AND ANNA LOUIE SUSSMAN
NEW YORK Fri May 16, 2014 11:05am EDT
Reuters
Snow falls outside the New York Stock Exchange during a winter storm in New York February 26, 2010.
CREDIT: REUTERS/CHIP EAST
(Reuters) - Two years ago, Denver-based oil and gas driller Bonanza Creek Energy wanted to spread its credit risk and hedge its production - and it called on some regional Main Street banks to help do it.
It ended up with a group of banks, including several names little-known in commodity circles until recently. Ohio-based KeyCorp led the lenders and was also among the banks providing hedging.
Traditionally, Wall Street's big banks were the go-to providers of such services, but since the financial crisis and the introduction of tougher regulations, they have been pulling back.
At the same time, regional banks, more used to serving consumers and small and medium-sized businesses in the communities they serve, have been growing their energy and commodity lending and hedging businesses. Soaring U.S. oil and gas production resulting from the use of fracking technology in states such as North Dakota has encouraged the regional banks.
"In the past, you didn't have those banks in there and they are definitely beginning to fill the void left by some of the big guys that are beginning to pull in some of their tentacles," said Bill Cassidy, Bonanza Creek's chief financial officer. "The more competition you have, the better it is for someone like myself," he added.
The measured expansion of these regional banks, which has not been previously reported, highlights the emergence of new competition in the commodities markets. Other new rivals offering to lend and hedge include Australian bank Macquarie to the risk management arms of agribusiness giant Cargill and oil major BP.
Last year, the top ten regional banks active in the space together held an average of $23 billion in commodity derivatives contracts on their books, up nearly 50 percent from their holdings in 2009, according to a Reuters analysis of quarterly regulatory data from Thomson Reuters Bank Insight.
This is still miniscule relative to the $3.9 trillion in commodity derivatives that the top six Wall Street banks still controlled, according to the data, though that sum has barely risen over four years.
Bonanza Creek, which drills for oil and gas in Colorado and Arkansas, has a credit line with the KeyCorp-led group of 10 banks, which also include Wall Street giants JPMorgan Chase & Co and Wells Fargo, as well as other regional institutions such as IBERIABANK Corp. and Cadence Bank. It has hedging arrangements with five banks.
Even modest inroads can be meaningful for regional banks expanding in the sector, as it allows them to "pop out and create some incremental revenue growth," said Marty Mosby, banking analyst at Guggenheim Partners.
Indeed, the proportion of KeyCorp's new derivatives business that is commodities-related is now about 25 percent, up from nothing in 2006 when the business started, said Matthew Milcetich, its head of derivatives
"It is a meaningful percentage of our new business volumes," he said.
CHIPPING AWAY
New techniques for drilling wells have made it possible to extract more crude and natural gas from shale formations in North Dakota, Texas, Pennsylvania and a handful of other energy-rich states.
The boom has also fed the need for more loans and risk management for energy producers, who use derivatives to protect themselves from swings in commodity prices.
As of December 2013, 24 banks reported having at least some commodity derivatives exposure on their books, according to the Reuters analysis of "commodity and other" derivatives holdings reported to the Federal Reserve by bank holding companies.
Of those 24, seven are global megabanks, such as Morgan Stanley and Goldman Sachs. The rest range from Midwest regional banks to the domestic arms of Israeli and Dutch groups.
The list isn't exhaustive, as it excludes some foreign banks that are not subject to Fed supervision, like Sydney-based Macquarie, and some smaller banks don't file holding company data.
The only regional bank on the list that was active a decade ago is BOK Financial Corp., parent company of the Bank of Oklahoma, long known as "the oil bank of America" thanks to its roots in the state's oil industry.
"We live, eat and breathe this business, and we've been doing it since 1910," said Bob Lehman, senior vice president at Bank of Oklahoma.
BOKF offers a "high-touch service" that attracts many small oil producers, who want something "much more relationship-driven than one of the Wall Street banks, where they'll just be another number," he said. Nine of the 50 employees in its energy division are petroleum engineers, he added.
Still, even BOKF's commodities derivatives book - $2.7 billion at the end of 2013 - is tiny next to a rival like Morgan Stanley, which reported $545 billion.
Other companies are growing in the sector through their lending businesses.
Fifth Third Bancorp, another Ohio bank, began building up a team to provide commodities hedging services in 2006, but expanded into energy lending in 2012 by hiring seven bankers from Lloyds Banking Group, a British bank which was refocusing its strategy around UK-linked clients.
"Energy's been on the drawing board for the last eight or nine years," said Kevin Lavender, Fifth Third's managing director of corporate banking.
Today, Fifth Third's energy banking team manages $2 billion in capital commitments across all segments of the energy sector, according to energy banking group head Richard Butler.
LET'S NOT GET PHYSICAL?
Like KeyCorp and BOKF, Fifth Third does not trade physical commodities, relying on purely financial commodities trading for its hedging services.
That doesn't bother folks like Jim Finley, who runs an eponymous Texas-based oil and gas company that has a $500 million credit facility with eight, mostly regional banks, including Fifth Third.
"We have never traded physicals with any bank," he said. "Regionals know the space really well."
The ability to deal in barrels of crude oil or piped natural gas was once a big selling point for Wall Street's giants. But several major banks, including JPMorgan, have announced they are quitting the business due to sliding margins, and tougher regulation, including from the Federal Reserve.
Wall Street rivals have often run physical trading desks or owned storage terminals, warehouses and other infrastructure assets. These businesses are supposed to help them gain market heft and intelligence that help them trade profitably and provide other kinds of services to customers. But if the little guys can provide the same services without running such empires, they could start to change the structure of the business.
Wall Street banks, including Goldman Sachs, and some consumers of commodities have warned that limiting banks' ability to take or make delivery of raw materials would make it harder for them to properly serve their clients.
For example, the treasurer of oil refiner PBF Energy, John Luke, recently wrote a comment letter to the Fed claiming that limiting banks' ability to trade in physical commodity markets would "make it very difficult for end-users of physical commodities to efficiently transact in these markets and effectuate hedging strategies."
The question is whether such physical trading is an absolute requirement - or simply a way to maximize earnings from such deals.
"There is a pocket of smaller financial institutions who are clearly providing their clients these types of services and yet they are not playing big in the physical market," said Saule Omarova, a law professor at the University of North Carolina at Chapel Hill.
bit.ly/1iRMvZb
(Reporting By Cezary Podkul and Anna Louie Sussman; Editing by Martin Howell)
http://www.reuters.com/article/2014/05/16/us-banks-commodities-derivatives-analysi-idUSBREA4F02V20140516
New App Offers Stock Trades for $0 Commission; End of $7 to $10 Trades at E*trade and Schwab?
May 17, 2014
Globaleconomicanalysis.blogspot.com
Mike Shedlock
Many companies claim to be discount brokers. But there is no definition of the term. Charles Schwab was a pioneer in discount trading, but other online trading firms offer lower prices.
The ultimate in low-commission trading is $0 per trade, and that model is about to hit the street. "Robinhood", a new app in the works has a huge waiting list precisely because it offers trade commissions for noting.
CNN Money reports Trading App has 340,000 Person Wait List.
The legendary archer of Sherwood Forest is taking aim at the stock market. Robinhood is a new trading app that promises users free trades and no account minimums.
That's a big departure from the $7 to $10 fees per trade that other brokers which cater to the masses like E*Trade and Charles Schwab charge. These firms offer discounts from time to time, but only if a customer has a large account or uses other services.
Plenty of people are excited about $0 commission trades on Robinhood. The app is still in beta test phase, but nearly 340,000 people have signed up on the company's website to gain early access.
The roll out process is reminiscent of the early days of Gmail, Gilt Groupe and the Mailbox app: There's an aura of exclusivity, and if you refer more friends, you move up the wait list.
Perhaps it's not a surprise that Robinhood is taking this approach since Google Ventures is one of the company's key backers, and a former Mailbox app employee is now part of Robinhood's 15-person team in Redwood City, California.
In December, the company said it was targeting "early 2014" for launch. Now they plan to open the app up to more people on the wait list in the coming weeks and have it available in app stores later in the summer.
"Rest assured when you use it, it will be unbelievably cool," Baiju Bhatt, one of the co-founders, told CNNMoney.
Robinhood was founded by former Stanford roommates Vladimir Tenev and Bhatt who worked on Wall Street after getting master's degrees in math.
Tenev and Bhatt's job on Wall Street was to build high-frequency trading (HFT) platforms for financial institutions.
"At the time, HFTs were commonly paying a tenth of a penny per trade, which enabled the business model to operate with razor thin margins," Bhatt says. "We had a head scratcher moment where we asked ourselves, 'Why do we pay $10 when we trade our personal accounts?'"
Video
(at link below)
How Does Robinhood Make Money?
CNN offered this explanation: "The company's business model is to make money on margin trading, interest on cash deposits and payment for order flow, a fancy way of saying making money by trading faster or slower than others."
Purposely trading faster or slower and stripping out the difference is not legal. With interest rates near zero, making a lot of money on cash deposits will not be easy unless the company takes some risks. E*trade nearly blew up making questionable investments.
The Robinhood website makes this more reasonable-sounding claim: "Robinhood will offer margin trading as well as API access, which will allow partnered developers to build applications in conjunction with Robinhood. Robinhood will also receive remuneration for providing trade volume in certain markets. In the future, we plan to offer premium services for active investors."
The Catch?
I don't see one. But don't expect service at Robinhood to be the same as service at Schwab or Merrill Lynch. If you need hand-holding, advice, or insist on paper-mailed statements, you may be better off elsewhere.
Those who trade frequently will be among those who benefit the most. And ultimately, this will cost Schwab, E*Trade, Scottrade and others some business. In response, commissions will drop everywhere, even if not to zero. Increased competition always leads to lower costs. And that is a good thing.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/2014/05/new-app-offers-stock-trades-for-0.html#k7qSU47hXgmYXwMU.99
New App Offers Stock Trades for $0 Commission; End of $7 to $10 Trades at E*trade and Schwab?
May 17, 2014
Globaleconomicanalysis.blogspot.com
Mike Shedlock
Many companies claim to be discount brokers. But there is no definition of the term. Charles Schwab was a pioneer in discount trading, but other online trading firms offer lower prices.
The ultimate in low-commission trading is $0 per trade, and that model is about to hit the street. "Robinhood", a new app in the works has a huge waiting list precisely because it offers trade commissions for noting.
CNN Money reports Trading App has 340,000 Person Wait List.
The legendary archer of Sherwood Forest is taking aim at the stock market. Robinhood is a new trading app that promises users free trades and no account minimums.
That's a big departure from the $7 to $10 fees per trade that other brokers which cater to the masses like E*Trade and Charles Schwab charge. These firms offer discounts from time to time, but only if a customer has a large account or uses other services.
Plenty of people are excited about $0 commission trades on Robinhood. The app is still in beta test phase, but nearly 340,000 people have signed up on the company's website to gain early access.
The roll out process is reminiscent of the early days of Gmail, Gilt Groupe and the Mailbox app: There's an aura of exclusivity, and if you refer more friends, you move up the wait list.
Perhaps it's not a surprise that Robinhood is taking this approach since Google Ventures is one of the company's key backers, and a former Mailbox app employee is now part of Robinhood's 15-person team in Redwood City, California.
In December, the company said it was targeting "early 2014" for launch. Now they plan to open the app up to more people on the wait list in the coming weeks and have it available in app stores later in the summer.
"Rest assured when you use it, it will be unbelievably cool," Baiju Bhatt, one of the co-founders, told CNNMoney.
Robinhood was founded by former Stanford roommates Vladimir Tenev and Bhatt who worked on Wall Street after getting master's degrees in math.
Tenev and Bhatt's job on Wall Street was to build high-frequency trading (HFT) platforms for financial institutions.
"At the time, HFTs were commonly paying a tenth of a penny per trade, which enabled the business model to operate with razor thin margins," Bhatt says. "We had a head scratcher moment where we asked ourselves, 'Why do we pay $10 when we trade our personal accounts?'"
Video
(at link below)
How Does Robinhood Make Money?
CNN offered this explanation: "The company's business model is to make money on margin trading, interest on cash deposits and payment for order flow, a fancy way of saying making money by trading faster or slower than others."
Purposely trading faster or slower and stripping out the difference is not legal. With interest rates near zero, making a lot of money on cash deposits will not be easy unless the company takes some risks. E*trade nearly blew up making questionable investments.
The Robinhood website makes this more reasonable-sounding claim: "Robinhood will offer margin trading as well as API access, which will allow partnered developers to build applications in conjunction with Robinhood. Robinhood will also receive remuneration for providing trade volume in certain markets. In the future, we plan to offer premium services for active investors."
The Catch?
I don't see one. But don't expect service at Robinhood to be the same as service at Schwab or Merrill Lynch. If you need hand-holding, advice, or insist on paper-mailed statements, you may be better off elsewhere.
Those who trade frequently will be among those who benefit the most. And ultimately, this will cost Schwab, E*Trade, Scottrade and others some business. In response, commissions will drop everywhere, even if not to zero. Increased competition always leads to lower costs. And that is a good thing.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/2014/05/new-app-offers-stock-trades-for-0.html#k7qSU47hXgmYXwMU.99
Visa, MasterCard to pay $3bn to stay in Russia - Morgan Stanley
May 15, 2014 15:30
Reuters
Jonathan Ernst Reuters
Under Russia's new legislation, Visa and MasterCard will have to pay $3 billion in ‘security fees’ to continue operating in Russia, more than five times higher than the companies combined revenues, a new Morgan Stanley report says.
Under the new plan, Visa will be required to pay Russia’s Central bank $1.9 billion, and MasterCard will have to fork out $1 billion, according to an estimate by Morgan Stanley, Kommersant reported on Thursday.
Russian President Vladimir Putin signed a law on foreign payment systems on May 5 that requires foreign payment systems to be levied at 25 percent of an average amount of transfers profit during one calendar day in Russia, to be paid each quarter to the Central Bank. The law will be enacted on July 1.
Morgan Stanley has calculated that it is unprofitable for both Visa and MasterCard to continue to work in Russia.
The Morgan Stanley Report titled “The Russian Bear: Impacts of V and MA” said the fees will be more than five times the two companies’ combined annual revenue in Russia. Analysts at Morgan Stanley report net sales for Visa to be between $350-470 million, and $160 million for MasterCard.
A possible loophole would be to create a separate, non US-owned entity to run the Russian Visa and MasterCard divisions. Visa already has such an operation in Europe.
“MasterCard has worked in Russia for more than 20 years. We are continuing to study all components of the new law, and are sure that some of the provisions will not only create serious difficulties for our operations in Russia, but will damage the Russian market of electronic payments in the long-term,” the company told Kommersant in a statement, adding they “continue to work closely with government agencies, financial institutions, and commercial enterprises in Russia.”
Visa has declined comment on the report.
The first wave of US sanctions prompted a mix-up with Visa and MasterCard, which led to unlawful payment freezes at three Russian banks in March and demands from the Russian government to compensate for the mix-up.
The $3 billion (100 billion ruble) estimate is much higher than the original 80 billion ruble lawmakers previously discussed slapping the companies with.
Visa and MasterCard control 90 percent of the Russian payment systems market, but Putin said that both companies will lose market share if there are any future payment disruptions.
The creation of a National Payment System (NPS) for Russia is being worked out by the country’s central bank, with the government hoping to complete work on the project within the next six months.
http://rt.com/business/159196-visa-mastercard-morgan-stanley/
Russia Dumps 20% Of Its Treasury Holdings As Mystery "Belgium" Buyer Adds Another Whopping $40 Billion
Submitted by Tyler Durden
05/15/2014 13:23 -0400
ZeroHedge.com
Back in mid-March, there was a brief scare after the start of the Ukraine conflict, when Fed custody holdings plunged by a record $104.5 billion (if promptly bouncing back the following week), leading many to believe that Russia may have dumped its Treasurys, or at least change its bond custodian. We noted that we wouldn't have a definitive answer until the May TIC number came out to know for sure how much Russia had sold, or if indeed, anything. Moments ago the May TIC numbers did come out, and as expected, Russia indeed dumped a record $26 billion, or some 20% of all of its holdings, bringing its post-March total to just over $100 billion - the lowest since the Lehman crisis.
But as shocking as this largely pre-telegraphed dump was, it pales in comparison with what Zero Hedge first observed, is the country that has quietly and quite rapidly become the third largest holder of US paper: Belgium. Or rather, "Belgium" because it is quite clear that it is not the country of Begium who is engaging in this unprecedented buying spree of US paper, but some account acting through Belgian custody.
This is how we explained it last month:
... to clarify for our trigger-happy Belgian (non) readers: it is quite clear that Belgium itself is not the buyer. What is not clear is who the mysterious buyer using Belgium as a front is. Because that same "buyer", who to further explain is not China, just bought another whopping $31 billion in Treasurys in February, bringing the "Belgian" total to a record $341.2 billion, cementing "it", or rather whoever the mysterious name behind the Euroclear buying rampage is, as the third largest holder of US Treasurys, well above the hedge fund buying community, also known as Caribbean Banking Centers, which held $300 billion in March.
In summary: someone, unclear who, operating through Belgium and most likely the Euroclear service (possible but unconfirmed), has added a record $141 billion in Treasurys since December, or the month in which Bernanke announced the start of the Taper, bringing the host's total to an unprecedented $341 billion!
Make that an unprecedented $381 billion because as we just learned "Belgium" bought another $40 billion in March!
Curiously, this happened as Japan sold $10 billion in TSYs, and as China remained unchanged. Further, foreign official accounts actually declined from $4.069 trillion to $4.054 trillion, which means this is what the US Treasury would classify as a "Private" buyer.
So to summarize, of the total $60 billion increase in foreign Treasury holdings, which rose from $5.89 trillion to $5.95 trillion, "Belgium" accounted for two thirds, most likely doing the purchases under the guise of a "private", unofficial account!
And once again, it is Belgium in "", because whoever is buying through the tiny European country, whose GDP is just double its reported total TSY holdings, is neither its government nor its people.
The question remains: who? Who has bought a whopping $200 billion in Treasurys using Belgium as a proxy since October?
http://www.zerohedge.com/news/2014-05-15/russia-dumps-20-its-treasury-holdings-mystery-belgium-buyer-adds-another-whopping-40
The Detroit Model: Permanent Rule by the Banks
By Jerry White
Global Research, May 13, 2014
World Socialist Web Site
The Michigan legislature is debating a series of bills to impose a financial authority on Detroit that would remain in place long after the city emerges from bankruptcy. An unelected financial “oversight” committee, known as the Michigan Settlement Administration Authority (MSAA), would run the city for two decades, effectively usurping the local government.
When the governor of Michigan installed Emergency Manager Kevyn Orr in Detroit last March, it was presented as a temporary measure, lasting 18 months at most. Now, according to the restructuring plan submitted by Orr, a bankruptcy lawyer with close ties to Wall Street, a new body “composed of individuals with recognized financial competence and experience” will have the authority to limit city borrowing and expenditures and tear up labor agreements.
The authority is to be charged with ensuring that the city “continues to implement financial and operational reforms” outlined in the restructuring plan. This includes an effective 30 percent cut in pensions and health care benefits for more than 30,000 current and retired public employees. The “robust governance structure” outlined in Orr’s plan will promote “long-term public confidence in the fiscal health and stability of Detroit, in particular with financial markets.”
It could hardly be stated more clearly: the proposed body will be accountable solely to Wall Street. It will remain in power indefinitely and will not be subject to a popular vote or recall.
The state of Michigan has been at the forefront of establishing anti-democratic forms of rule. Twelve Michigan cities and school districts—all ravaged by decades of deindustrialization, corporate tax cuts and financial manipulation—are currently under the control of emergency managers.
Orr, who has described himself as a “benevolent dictator,” has outlined a plan to attack public employees, override constitutional protections for pensions, and hand over city-owned assets—including the Detroit Institute of Arts and the streetlight, electrical grid, and water and sewerage systems—to private interests and big investors.
What is happening in Detroit is a model for cities and states across the country that are looking to unload pensions to pay off the debts stemming from the financial crisis of 2008 and the years of economic stagnation. “If this city gets it right, it’s going to lay a nice foundation for other cities, other municipalities to go forward,” said, Martha Kopacz, the “turnaround expert” hired by the bankruptcy court to review Detroit’s financial plan.
As Detroit was driven into bankruptcy, the Obama administration explicitly rejected a bailout and opposed all efforts to block the intervention of the courts. The White House has given its full support to the bankruptcy, which it sees as a setting a national precedent for the destruction of the jobs, pensions and health benefits of public employees across the US.
The naked rule of the banks, dispensing with political forms that can in any way be affected by popular pressure, is part of an international process. In country after country, newspaper editorialists, academics and other mouthpieces for the financial aristocracy are echoing the comments of right-wing columnist George Will, who declared last year that “self government has failed” in Detroit.
Instead, they say, what is needed are financial experts and technocrats who will be free to impose unpopular austerity measures without concern that they will be thrown out by voters who do not understand the need for “hard choices.”
In Europe, the so-called “Troika” of the European Commission, the European Central Bank and the International Monetary Fund has brought down elected governments as part of an unrelenting drive to wipe out public-sector jobs, increase the age of retirement, gut health care and pensions, lower minimum wages and introduce “labor flexibility.” This has been accompanied by the banning of strikes and the encouragement of right-wing and fascistic movements to suppress popular opposition.
The banks are imposing a historic reversal in conditions for the working class in Greece, Spain, Portugal, Italy, Ireland and other countries, with joblessness, hunger and disease returning to levels not seen since the Great Depression and World War II. Meanwhile, the ruling elites of Europe, with the encouragement of the US, are rearming and preparing for a catastrophic military conflict with Russia.
Behind the collapse of democracy is the immense growth of social inequality and the unprecedented concentration of wealth in the hands of a tiny minority of the population. Well aware of the deep working class hostility to its anti-social measures and growing increasingly anxious that the discredited political parties and trade unions will not be able to contain popular resistance much longer, the corporate and financial ruling elite is dispensing with democratic trappings and turning to authoritarian forms of rule.
The Obama administration has overseen a massive expansion of police state measures, including NSA spying, drone assassinations of US citizens, and the frame-up of political dissenters. Its targets have included Edward Snowden, Julian Assange and Chelsea Bradley Manning, as well as anti-NATO protesters in Chicago and Occupy Wall Street protesters in New York City.
What is happening in Detroit reveals the social purpose of these measures. Political forms are being restructured in accordance with the reality of social relations, which are characterized by an immense chasm between a super-rich minority and the vast majority of the population.
The pension cuts and other austerity measures included in Orr’s plan of adjustment for Detroit are only the beginning. The Wall Street banks and their political front-men are preparing even deeper attacks in Detroit, as shown by the plans to establish a permanent bankers’ dictatorship. This Detroit precedent will be used to accelerate the social counterrevolution against the working class throughout the US and internationally.
http://www.globalresearch.ca/the-detroit-model-permanent-rule-by-the-banks/5382086
Fed Laundering Treasury Purchases to Disguise What’s Happening -Paul Craig Roberts
By Greg Hunter
USAWatchdog.com
May 14, 2014
(special thanks to basserdan)
In his latest article, former Assistant Treasury Secretary Dr. Paul Craig Roberts says, “The Fed is the great deceiver.” Why is he making this shocking accusation? The reason is tiny Belgium’s whopping purchase of $141 billion in Treasury bonds earlier this year. Dr. Roberts explains, “We know that Belgium didn’t have any money to buy $141 billion worth of bonds over a three month period. That sum comes to 29% of the Belgium GDP. So, they don’t have a surplus in their budget that is 29% of their GDP, and they don’t have trade or current account surplus in that amount. In fact, everything is in the red. Their budget deficit is in the red, and their trade and current accounts are in the red. So, Belgium didn’t have the money, and yet, they managed to pick up $141.2 billion in U.S. Treasuries over a three month period. So, where did they get the money?” Dr. Roberts, who holds a PhD in economics, goes on to say, “We know their central bank couldn’t have printed euros to buy the bonds with because the Belgium central bank can’t print euros. Belgium is part of the euro system and has lost the ability to create its own money. So, the only source for that kind of money would have been the Federal Reserve. The Federal Reserve thought it needed to hide the fact it was buying $141 billion in bonds over a three month period when it was officially reducing or tapering the quantitative easing down to $65 billion. It didn’t want to have to admit it was really purchasing $112 billion a month, almost double the announced purchases.”
Dr. Roberts also says, “I think also the Fed did not want it to get out that some large country is unloading Treasuries. Somebody dropped over $100 billion in Treasuries in one week. If that was a large holder and that became known, it could panic smaller holders and you could see a stampede, and the Fed could lose control of interest rates. So, I think the Fed thought the best thing to do is launder its purchase through a different country; and, thereby, disguise what is actually happening.”
Why is the Fed worrying about the shell game of Treasury purchases? Dr. Roberts says, “I think there wasn’t any buyer for the $104 billion in one week. So, if that kind of bond sale sat unattended, interest rates would rise; and so, the Fed had to buy the bonds in order to protect its interest rate policy. But, if it outright bought them and this was known, then it starts to interfere with the ‘tapering’ that it promised to do because all of a sudden it’s not ‘tapering,’ at least not for those three months. It signals somebody is unloading Treasuries, and that could stampede others. What it indicates is they are not feeling all that confident that the dollar is on such a sound footing, or the U.S. financial system is on all that much sound footing that they can openly step in and take up that type of purchase.”
On the steep drop in GDP growth of a paltry .1% in the first quarter, Dr. Roberts says, “What I find most amusing about this is they had to claim some real growth in the first quarter; so, they eked out .1%. Now we know they got that by rigging the inflation number they used to deflate the gross domestic product (GDP). The real GDP in the first quarter, properly deflated, was negative and probably also in the fourth quarter. Most likely, this coming quarter, they are not going to be able to hide the fact that it is negative. . . . I am convinced the first quarter was negative, and I don’t see how it could possibly go positive in the second quarter.”
On Fed Head Janet Yellen’s rosy outlook on the economy, Dr. Roberts debates, “I don’t see how she can see that the economy is going to start growing. What is going to make it grow? Why should investors invest money when consumers don’t have any money? There are not retail sales. I think it is just part of the rah, rah talk. Everywhere else in the world is going down the tube. So, what’s going to push the American economy up?–Nothing that I know of.”
On the Ukraine crisis, Dr. Roberts says, “I think Washington badly miscalculated this whole Ukraine business. It was an act of hubris, arrogance and stupidity. They are mad at Russia for blocking their attack on Syria and blocking their attack on Iran. They said ‘we’ll teach them.’ We’ll give them trouble in their own backyard and not to get in our way anymore.” The threat of sanctions has made the Russians realize the dollar system is not in their interest, and they are going to leave it. . . . If any significant part of the world stops using the dollar, the price of the dollar falls because demand for dollars falls, and the import cost for America would rise. When you see how import dependent we are, it would mean a substantial rise in the real cost of living for most Americans.”
Join Greg Hunter as he goes One-on-One with Dr. Paul Craig Roberts.
(There is much more in the video interview.)
The Detroit Model: Permanent Rule by the Banks
By Jerry White
Global Research, May 13, 2014
World Socialist Web Site
The Michigan legislature is debating a series of bills to impose a financial authority on Detroit that would remain in place long after the city emerges from bankruptcy. An unelected financial “oversight” committee, known as the Michigan Settlement Administration Authority (MSAA), would run the city for two decades, effectively usurping the local government.
When the governor of Michigan installed Emergency Manager Kevyn Orr in Detroit last March, it was presented as a temporary measure, lasting 18 months at most. Now, according to the restructuring plan submitted by Orr, a bankruptcy lawyer with close ties to Wall Street, a new body “composed of individuals with recognized financial competence and experience” will have the authority to limit city borrowing and expenditures and tear up labor agreements.
The authority is to be charged with ensuring that the city “continues to implement financial and operational reforms” outlined in the restructuring plan. This includes an effective 30 percent cut in pensions and health care benefits for more than 30,000 current and retired public employees. The “robust governance structure” outlined in Orr’s plan will promote “long-term public confidence in the fiscal health and stability of Detroit, in particular with financial markets.”
It could hardly be stated more clearly: the proposed body will be accountable solely to Wall Street. It will remain in power indefinitely and will not be subject to a popular vote or recall.
The state of Michigan has been at the forefront of establishing anti-democratic forms of rule. Twelve Michigan cities and school districts—all ravaged by decades of deindustrialization, corporate tax cuts and financial manipulation—are currently under the control of emergency managers.
Orr, who has described himself as a “benevolent dictator,” has outlined a plan to attack public employees, override constitutional protections for pensions, and hand over city-owned assets—including the Detroit Institute of Arts and the streetlight, electrical grid, and water and sewerage systems—to private interests and big investors.
What is happening in Detroit is a model for cities and states across the country that are looking to unload pensions to pay off the debts stemming from the financial crisis of 2008 and the years of economic stagnation. “If this city gets it right, it’s going to lay a nice foundation for other cities, other municipalities to go forward,” said, Martha Kopacz, the “turnaround expert” hired by the bankruptcy court to review Detroit’s financial plan.
As Detroit was driven into bankruptcy, the Obama administration explicitly rejected a bailout and opposed all efforts to block the intervention of the courts. The White House has given its full support to the bankruptcy, which it sees as a setting a national precedent for the destruction of the jobs, pensions and health benefits of public employees across the US.
The naked rule of the banks, dispensing with political forms that can in any way be affected by popular pressure, is part of an international process. In country after country, newspaper editorialists, academics and other mouthpieces for the financial aristocracy are echoing the comments of right-wing columnist George Will, who declared last year that “self government has failed” in Detroit.
Instead, they say, what is needed are financial experts and technocrats who will be free to impose unpopular austerity measures without concern that they will be thrown out by voters who do not understand the need for “hard choices.”
In Europe, the so-called “Troika” of the European Commission, the European Central Bank and the International Monetary Fund has brought down elected governments as part of an unrelenting drive to wipe out public-sector jobs, increase the age of retirement, gut health care and pensions, lower minimum wages and introduce “labor flexibility.” This has been accompanied by the banning of strikes and the encouragement of right-wing and fascistic movements to suppress popular opposition.
The banks are imposing a historic reversal in conditions for the working class in Greece, Spain, Portugal, Italy, Ireland and other countries, with joblessness, hunger and disease returning to levels not seen since the Great Depression and World War II. Meanwhile, the ruling elites of Europe, with the encouragement of the US, are rearming and preparing for a catastrophic military conflict with Russia.
Behind the collapse of democracy is the immense growth of social inequality and the unprecedented concentration of wealth in the hands of a tiny minority of the population. Well aware of the deep working class hostility to its anti-social measures and growing increasingly anxious that the discredited political parties and trade unions will not be able to contain popular resistance much longer, the corporate and financial ruling elite is dispensing with democratic trappings and turning to authoritarian forms of rule.
The Obama administration has overseen a massive expansion of police state measures, including NSA spying, drone assassinations of US citizens, and the frame-up of political dissenters. Its targets have included Edward Snowden, Julian Assange and Chelsea Bradley Manning, as well as anti-NATO protesters in Chicago and Occupy Wall Street protesters in New York City.
What is happening in Detroit reveals the social purpose of these measures. Political forms are being restructured in accordance with the reality of social relations, which are characterized by an immense chasm between a super-rich minority and the vast majority of the population.
The pension cuts and other austerity measures included in Orr’s plan of adjustment for Detroit are only the beginning. The Wall Street banks and their political front-men are preparing even deeper attacks in Detroit, as shown by the plans to establish a permanent bankers’ dictatorship. This Detroit precedent will be used to accelerate the social counterrevolution against the working class throughout the US and internationally.
http://www.globalresearch.ca/the-detroit-model-permanent-rule-by-the-banks/5382086
Russian Economic Power Driving Wedge Between Indebted Western Governments
May 13, 2014
Goldseek
Officials in the U.S. and European Union are having second thoughts about punishing Russia with sanctions targeting entire industries and the Russian economy, opting instead to focus on tightening pressure by targeting more individuals and companies.
Policy makers say they are concerned that broad-brush sanctions on Russia’s energy and financial sectors, the two areas mentioned as possible targets, risk provoking economically costly retaliation by Russia according to Bloomberg.
Gazprom, Russia’s massive gas-export monopoly, yesterday threatened to cut off supplies to Ukraine, a reminder of the power Russia wields over energy supplies to the rest of Europe.
A gas cutoff by Russia would wipe out half of Ukraine’s supply and could severely disrupt supplies to the EU. The EU, Turkey, Norway, Switzerland and the Balkan countries received 30% of the natural gas they burned from Russia last year, according to the U.S. Energy Department.
“We have to be very careful not to hurt ourselves more than we hurt the other side,” Polish Foreign Minister Radoslaw Sikorski said yesterday in a speech in Brussels, echoing comments made by U.S. Treasury Secretary Jacob J. Lew last week.
In a sign of Russia’s ability to use its economic power to drive a wedge between its former G20 allies, France’s government said this week it will deliver Mistral helicopter carrier warships to Russia as planned, thus rejecting requests from its European and U.S. allies to cancel the sale.
There are also significant dependencies on Russian grain exports, particularly in the EU.
It looks like the pragmatists and non ideologues may be gaining the upper hand over the more hawkish western voices who were risking conflict with Russia, potentially militarily.
Russia is powerful both in terms of natural resources and in terms of finances given their very significant foreign exchange reserves. Ukraine is bankrupt and on the verge of hyperinflation as we pointed out here. Ukraine desperately needs some $20 billion to avoid financial collapse.
With Western nations heavily indebted including the hugely indebted U.S., Russia looks like the only realistic source of such funds.
Geopolitical risk remains very much underestimated and there remains the risk of financial, economic and currency wars where the Russians use gold as a geopolitical weapon to undermine the dollar.
http://news.goldseek.com/GoldSeek/1399982400.php
Russia Holds "De-Dollarization Meeting": China, Iran Willing To Drop USD From Bilateral Trade
Submitted by Tyler Durden on 05/13/2014 17:47 -0400
ZeroHedge
That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares "Symbolic" Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce "Holy Grail" Gas Deal With China; Russia And China About To Sign "Holy Grail" Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).
But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is "ridiculous" that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar... because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.
Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.
However, as much as it may trouble the statists to read, Russia is actively pushing on with plans to put the US dollar in the rearview mirror and replace it with a dollar-free system. Or, as it is called in Russia, a "de-dollarized" world.
Voice of Russia reports citing Russian press sources that the country's Ministry of Finance is ready to greenlight a plan to radically increase the role of the Russian ruble in export operations while reducing the share of dollar-denominated transactions. Governmental sources believe that the Russian banking sector is "ready to handle the increased number of ruble-denominated transactions".
According to the Prime news agency, on April 24th the government organized a special meeting dedicated to finding a solution for getting rid of the US dollar in Russian export operations. Top level experts from the energy sector, banks and governmental agencies were summoned and a number of measures were proposed as a response for American sanctions against Russia.
Well, if the west wanted Russia's response to ever escalating sanctions against the country, it is about to get it.
The "de-dollarization meeting” was chaired by First Deputy Prime Minister of the Russian Federation Igor Shuvalov, proving that Moscow is very serious in its intention to stop using the dollar. A subsequent meeting was chaired by Deputy Finance Minister Alexey Moiseev who later told the Rossia 24 channel that "the amount of ruble-denominated contracts will be increased”, adding that none of the polled experts and bank representatives found any problems with the government's plan to increase the share of ruble payments.
For the benefit of our Russian-speaking readers, the interview with Moiseev is below:
Further, if you thought that only Obama can reign supreme by executive order alone, you were wrong - the Russians can do it just as effectively. Enter the "currency switch executive order":
It is interesting that in his interview, Moiseev mentioned a legal mechanism that can be described as "currency switch executive order”, telling that the government has the legal power to force Russian companies to trade a percentage of certain goods in rubles. Referring to the case when this level may be set to 100%, the Russian official said that "it's an extreme option and it is hard for me to tell right now how the government will use these powers".
Well, as long as the options exists.
But more importantly, none of what Russia is contemplating would have any practical chance of implementation if it weren't for other nations who would engage in USD-free bilateral trade relations. Such countries, however, do exist and it should come as a surprise to nobody that the two which have already stepped up are none other than China and Iran.
Of course, the success of Moscow's campaign to switch its trading to rubles or other regional currencies will depend on the willingness of its trading partners to get rid of the dollar. Sources cited by Politonline.ru mentioned two countries who would be willing to support Russia: Iran and China. Given that Vladimir Putin will visit Beijing on May 20, it can be speculated that the gas and oil contracts that are going to be signed between Russia and China will be denominated in rubles and yuan, not dollars.
In other words, in one week's time look for not only the announcement of the Russia-China "holy grail" gas agreement described previously here, but its financial terms, which now appears virtually certain will be settled exclusively in RUB and CNY. Not USD.
And as we have explained repeatedly in the past, the further the west antagonizes Russia, and the more economic sanctions it lobs at it, the more Russia will be forced away from a USD-denominated trading system and into one which faces China and India. Which is why next week's announcement, as groundbreaking as it most certainly will be, is just the beginning.
http://www.zerohedge.com/news/2014-05-13/russia-holds-de-dollarization-meeting-china-iran-willing-drop-usd-bilateral-trade
Collectors Universe: An Alternative Silver Strategy
May. 9, 2014 12:36 PM ET
Bruce Pile
Disclosure: I am long CLCT. (More...)
Summary
* As a defensive holding against currency market problems, silver coins are enjoying great popularity.
* Collectors Universe is a rapidly improving company.
* Collectors stock is an excellent defensive holding with several nice advantages over the more common defensive silver holdings.
With a looming currency crisis over the dollar's reserve currency status hanging over investors' heads, a constant question in the backs of our minds is how to best diversify some assets into gold and silver. Some tout the advantages of ETFs over futures, physical over paper, silver over gold, miners over metal, coins over bullion, a hole in the back yard over the safe deposit box of a bank - all fun stuff to think about, like buying insurance policies. Here's a crazy thought. What if one of the best currency defenses isn't any of the above? What if it's the stock of a company that fools around with baseball cards and other collectibles? I'm referring to Collectors Universe (CLCT), and it may be developing into a nice dollar insurance policy with a lot of advantages over the usual measures.
Some insurance policy is really needed against the change of the USD status from the world's premier currency to something else. This "reset", as it is being called, could involve currency instability. Many analysts feel China wants to put some sanity back into the global currency system by offering the yuan as what the dollar used to be before 1971, when Nixon removed it from the gold standard. They may offer a responsibly managed, trusted, gold-backed currency. There will be some kind of transition, and China's frenzied gold buying of the last five years now has their holdings at estimates ranging from 6000 tonnes to 10000 tonnes, up from a measly 1000 or so at the start of their five-year plan in 2009. This puts them at the global reserve currency table, along with the US with 8000 tonnes and Europe with 10000 tonnes. Their new five-year plan of 2014 could involve an offering of a yuan tied to gold, something way better than Bitcoin. If this doesn't happen soon, it will probably happen at some point, and having some currency mayhem insurance holdings in your lineup certainly is a must nowadays.
This change away from the USD isn't something that may happen out there in the future, it is a process that is well underway. To appreciate how fast it is changing, have a look at how much the yuan has advanced in international trade in a recent period of only 22 months:
(click to enlarge)
There are bilateral and regional agreements among the major trading partners bypassing the dollar blossoming all over the globe.
The course of this reset will likely induce the kind of turbulence that historically has caused the markets to view silver as money. I wrote an article about this a while back at Seeking Alpha, "Is Silver Money?", where I show a most interesting chart of the history of the gold/silver ratio and associated events going clear back to the 1700s. If you've ever wondered about silver's status as money, you need to look at this chart.
Getting In Tune With The Times
What does all this have to do with Collectors Universe? This small company is a leading provider of authentication and grading services for sports collectibles, autographs, and rare coins. It also authenticates and grades gold and silver coins, both old and newly minted. The company researches and publishes information on all the collectibles it provides services for. It operates an internet trading platform for coin dealers, and puts on trade shows and conventions. The coin business is known as PCGS (Professional Coin Grading Service), and is the world leader, expanding globally.
[img]static.cdn-seekingalpha.com/uploads/2014/5/8/saupload_silver-bullion-coins.jpg
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Coin grading services were born of the big counterfeiting problem in collector coins in the early '70s. The American Numismatic Association responded by establishing the ANA Certification Service (ANACS) in 1972. This was certification only (no grading), and quelled the false coin problem. But soon, overgrading and overpricing became a problem, and again, the ANA responded by adding grading service to ANACS in 1979. This also quelled the problem for awhile. But soon, you had a seller assigning a grade of A+ and a buyer thinking B-, creating market mayhem with inconsistency of grades. David Hall led a revolt of coin dealers in 1986, which resulted in the creation of the Professional Coin Grading Service (PCGS). He instituted the innovations of consensus grading (more than just one expert's opinion) and encapsulation of coins in the labeled, sealed hard plastic holders we see today for high-grade coins - the "slabbing" revolution. An offshoot of David Hall's effort was John Albanese breaking away from PCGS to form the Numismatic Guaranty Corporation of America (NGC), forming the three groups we have today overseeing a more stable coin market - ANACS, PCGS, and NGC. The baseball cards and the other two divisions of Collectors Universe were then formed, with David Hall still head of PCGS today. His title at Collectors is chief operating officer and president.
This tiny $193 million market cap stock has just a 6 million share float, so it could climb very swiftly if more money is attracted to it. It has a 31% to 26% insider/institutional ownership ratio. I like it when a tiny band of insiders own more than all the big institutions. With a tiny float and light institutional attention, there is a large upside.
Collectors has no debt, and is in a good position to greatly benefit from the debt woes of irresponsible governments and China's remedy for this. The company seems to be making a march toward this new paradigm every couple of years with the opening and closing of its business segments:
* In February, 2009, it sold its currency (paper money) authentication division.
* In September, 2011, it acquired Coinflation, a coin pricing business.
* In April, 2013, PCGS opened its first location in Mainland China, serving a burgeoning interest in gold and silver coins by the Chinese populace. Founded in 1986 in Santa Ana, CA, it expanded to Paris in 2010, Hong Kong in 2012, and then Mainland China in 2013.
The story of Collectors Universe seems to be one of a bad company gone good. Between 2005 and 2007, with the economy growing, gold climbing, and its revenues advancing, it managed a 76% decline in cash flow and a dive into the red in EPS, by Value Line data. That, and the crash of 2008 demolished the stock. But then, things started to change. Revenue remained flat, but cash flow and earnings came back from an atrocious negative 26% of sales and negative 32% of sales in 2008 to positive numbers in 2009.
In a picture, this is how Collectors has come back from the fiscal dead over the past five years:
In the bad old days, it paid no dividend. Then in 2007, it suddenly started with about a 3% average year's dividend. It dramatically upped that to 8.1% in 2008, and has gradually increased that to 10.5% in 2013, by Value Line's figures. That has dropped back this year so far, but it remains a fat dividend payer.
The cash flow from operations and EPS has been flat compared to EBITDA, as shown by the brown line above. The EBITDA cash flow has been outperforming revenue for the last five years, a condition I look for in a stock. I call this an "inverted cash flow curve", which suggests that management is getting better at handling its sales. The net income, for now, is the sore point, being relatively flat. But that hasn't kept it from being ranked #2 by the SmarTrend newsletter in the ranking done last month of the best consumer services companies in the world by ROE (return on equity). HR Block was first at 51%, CLCT comes in 2nd at 36%. That's extraordinarily high for such a small, little-known company.
All this improvement did not escape the eye of Forbes when, in November 2013, they announced that the company had been installed on their Top 100 Best Small Companies List at #50.
The Silver Syndrome
The improving management, nice dividend, and climbing sales are all good reasons to explain the buoyant stock chart over the last couple of years. But since some 67% of CLCT's revenue is from coins, there is one chart that perhaps explains what the stock is doing better than any other:
This looks very similar to the CLCT stock chart of the last five years, and suggests that the market is tying the stock more closely to post-'08 precious metal coin traffic than to the current earnings or anything else. A closer look at coins shows the stock may be following US Eagle minting even more closely than coins in general, as the big dip of 2012 in these coins matches the 2012 slump in CLCT:
(click to enlarge)
Management pointed this very thing out in reporting Q3 2012 results, when CEO Michael McConnell said:
Looking ahead, our coin business, and in particular our modern coin business, has started the fourth quarter with slower momentum than this time last year. Notably, year-to-date sales of Silver and Gold Eagles from the US Mint are down approximately 24% and 44%, respectively, as compared to the same period last year. This general market decline is impacting our customers who submit modern coins to us.
And they were glad to see the 2013 rebound in Eagle sales. In reporting Q3 2013, they said:
While this past quarter is normally our strongest of the year, coinciding with the new 2013 coin issues, we are encouraged by the current stronger coin market conditions overall, and with the increased production of gold and silver modern coins from the US and other mints around the world; we are optimistic about our prospects throughout calendar 2013."
Collectors Universe likes both gold and silver, but the market potential is vastly better with silver. You can see just how much silver coins are outperforming gold coins when you look at a direct comparison of coin sales yearly since 1986:
(click to enlarge)
Here we see that the explosive growth in coin sales since the financial panic of 2008 is almost entirely a silver thing. Is this marking a big return to silver being viewed as money again in its roller coaster ride through history, as pictured in the panoramic chart I show in the "Is Silver Money?" article?
Collectors' Game
Collectors Universe makes its money with traffic, by piece count, a fee for each individual coin. Assuming a roughly equal split of precious metal coin investment money between gold and silver, and the gold/silver ratio of around 65 currently, you would expect CLCT to be 65 times more geared to silver than to gold. And the above charts do show a much stronger correlation to silver than to gold coins. Actually, if you look at the most recent month's tallies for the number of new mint gold vs. silver coins sold, you get about 75 times more silver coins. Note that the above graph gives cumulative numbers, and for total dollar value going into coins from 1986 to now, gold has averaged a 3 to 1 advantage over silver. Currently, that ratio has radically changed to about even. If we do experience a return to silver being viewed as money via some US dollar turmoil, silver should soar from its depressed level much more than gold, and silver coin demand should soar even more than that, giving CLCT direct leverage to it.
Investing in silver is difficult. This particular stock removes many of the difficulties. Collectors Universe is a way to invest in silver without the spot price manipulation and suppression. Consider the vast difference between coin demand and spot price (shown in blue) in the first silver coin graph above. This stock also allows silver investment without having to pay fat premiums for coins over spot, and without having the storage problems and risk of large amounts of coins. To hold coins, you have to arrange and pay for storage and insurance, or worry about a bank guarding your safe deposit box with no FDIC insurance. Small deposit boxes are generally not cost-effective for bulk silver anyway. And you must wonder about what conditions may close a bank or prompt a bank to seal your box.
To own collector coins, you must pay a certification company like Collectors a fee of around $20 per coin. For a one-ounce silver coin, that means paying $40 for a silver content of $20 at today's prices. But the demand is still ferocious, and is clearly representing a widespread investor view of future silver prices and collector markets. And it may be reflecting an accessibility issue with the major metal exchanges, such as the COMEX. These exchanges trade metal as paper contracts, with real metal inventory for delivery being just a tiny fraction of contracts exchanged at ratios estimated as high as 100 to 1. In a sudden chaotic surge of physical delivery demand, these exchanges could default and shut down, leaving only coin shops for an outlet to trade silver. As the JM Bullion website's buyer guide section points out under "Disadvantages of Bars":
Generic bars produced by normal mints do not offer any kind of "collectibility" factor
The largest bars (10 oz gold bars or 100 oz silver bars) may be harder to trade in event of a crisis than smaller bars
And it could be added that even the smaller bars may be harder to trade than coins. Because of their legal tender status, coins are easier to cross national borders with. A currency crisis may truly be a complete historical return to silver being viewed as money - 1964 redux. No matter what your personal view is for silver prices or future collector prices, you do nothing with CLCT ownership but benefit from other investors' speculation and resultant coin traffic, and get paid a 6% dividend.
Why don't investors just buy junk silver coins (old silver coins with no collector value, pre-1964 in US coins) and avoid grading and certification costs? Well, there just isn't enough junk silver available nowadays for much wealth protection. Even modern minting can barely keep up with demand. "Out of stock" is a common description when you go shop. Even for small amounts, buying modern minted coins is much better investing. This is because of the "collectibility factor" mentioned above - and this is actually a very big factor.
ISN (International Silver Network) crunched some hard numbers on this value-added factor recently. If you had embarked on a monthly auto-save (buying a coin a month) for new American Silver Eagles graded MS70 (the top grade) between 1986 and 2011, you would have spent $27,672 on 312 MS70s at an average cost of $88.70 a month. Today, your collection would be worth $673,344. If you had bought 312 Eagles' worth of silver in bars or junk silver coins, you would have dollar cost averaged into the spot price of silver as it rose from around $6 to $20 now - something like a 4-fold gain, not bad. But the high-grade Eagles gave you a 24-fold gain. And we didn't even have a dollar crash. So this was for an insurance policy that never was used, and instead of you paying for it, it makes you filthy rich. This makes you want to slap your forehead and say, "What was I thinking in 1986?" It is this massive collectibility value that Collectors adds with its services.
In the event of a big dollar slump, CLCT would provide exposure to a likely boom in silver coin trafficking, but even now, in dollar-peaceful times (if you could call Bitcoin peaceful), silver coin demand is soaring and the stock is giving a nice return. In defensive, crisis-prep holdings, one typically has to suffer time decay pain with such things as the VXX, or complex options strategies, or accept a negative or uncertain return between times of crisis with gold or silver price exposure. Silver coin trafficking seems to bend those rules a bit in favor of a buy-and-hold defense strategy.
Silver is most commonly thought of as a currency devalue holding. But in a disturbed economy, deflation is sometimes predicted by doom 'n gloomers. It's really impossible to predict how much of either inflation, deflation, or bouts of both would occur in a monetary blow-up. But consider that in a deflationary economy, the high-grade, collectible coins like vintage MS70s in the example above would be priced at something like $2000 a coin, with $20 of that being the spot price of silver currently. That's 1% - the other 99% being collector value. Top-grade collectors are a somewhat isolated economy, most of them independently wealthy and not as drastically effected by the economy around them as the average consumer. If you are more of the average collector and you come down from the ultra-pricey top grade to auto-save nothing but the second-grade MS69s from 1986 to present, your average collected Silver Eagle would be priced at just around $72 now. But spot silver still makes up only 28% of your investment with the other 72% being collector value. To the extent that you go for new mint, high-graded coins, your silver holdings would be somewhat insulated from a bout of deflation. You could consider a microcosm of this to be 2008, when deflation certainly posed significant problem and silver was hit with a 50% sell-off. Yet, the Silver Eagle coin market certainly did not suffer.
The Problem With Coins
It should be mentioned that the coin dealer problems of the '70s and early '80s that prompted David Hall to form PCGS are still with us today. If you, as a novice collector, decide to go out into the coin dealer world to make a killing, you will be going up against some very sharp, often unscrupulous pros with a lifetime of experience, and yes, you will get taken in the fuzzy back and forth of coin values. That's why no coin shop should be your coin value guide - only one of the three authoritative grading services. PCGS gives current prices gleaned from taking averages among bona fide dealers. Coin shop problems were discussed in a goldsilver.com piece "Investor Beware: Numismatic Collector Coins" back in 2011, where a good warning was issued to numismatic babes in the woods:
... unless you are well educated and knowledgeable about these products, you cannot hope to profit ... In the event of a global currency crisis, all the growing millions of investors who have been hoarding their collectible coins over the past four or five decades will dump them on the market in a desperate rush for cash or liquidity. Should that occur, the value of premiums on numismatic coins, save those items whose rarity is absolutely indisputable, will tank. goldsilver.com, January 10, 2011 (italics added)
Indisputable values are what PCGS is all about. The "dumping" of hoarded coins onto the market mentioned above should be considered in the context of the bigger picture of what may happen in a currency problem. The "hoarders" with enough coin value to be of market significance probably make up something like 2% of the population. The 98% think the 2% are nuts. In a dollar implosion of any magnitude, the 2% would be selling a lot of their holdings, but the 98% would suddenly be buyers; 2% selling to the 98% would probably be good supply/demand for coin prices.
This massive difference between those who own coins and those who may want to own them later can be seen graphically in some interesting charts that PCGS keeps at its website. There are coin pricing histories for many different types of coins, but I'll show just one here, because it shows two important points:
This is average dealer pricing for old mint silver coins, namely the Morgan and Peace silver dollars that were minted up until 1935. The first point I want to make is that coin collector value is a very fickle thing. The stunning performance of new mint MS70 grade silver dollars in the above auto-save example is not repeated here with the old silver dollars. In fact, since 1986, this index has lost money. The crazy popularity of the new Silver Eagles is somewhat atypical. It has certainly become the silver coin of choice since it began in 1986. Note how very well the old mints were doing before 1986, for example, from 1981 to the late '90s - during the huge bear market in silver. Even after the horrible performance since 1989, these coins still represent a 3 1/2-fold increase in value from the peak in silver from 1980. The price of silver today is less than half of its 1980 peak. If only you had known to make the switch to the Eagle in 1986! This all brings up a major problem in long-term silver coin ownership - knowing what coin is going to be popular years into the future. And this is a major advantage of owning CLCT instead of a ton of coins, because this company is geared to coin traffic no matter where it is headed. So you don't have to know what the hot coin of the future is going to be.
Which brings me to my second point with the above chart. All the various PCGS coin index charts show this crazy spike topping in 1989. What in blue blazes happened here? When David Hall got the dealer act more or less together in the mid '80s, amid a budding new bull in the stock market, lots of people began to look at coins like stocks. This culminated in some major Wall Street firms offering new products. In February of 1989, Kidder, Peabody launched a $40 million coin fund, then a year later, Merrill Lynch offered a $50 million version. But this blitz of popularity in silver coins in the midst of just the beginnings of a loose monetary policy, and an economic recovery to beat the band, was producing no real lasting incentive to move big money into coin products. So the overheated price climbs ran hard the other way. Lawsuits were flung, even one at PCGS, and the lawyers forbade Wall Street from even using the word "investment" when promoting any coin product.
About the only one sounding any alarm about government debt, and the danger to the dollar, and the implications for coins during this 1989 coin craze was a nut named Perot. I wish he would run for President again. His campaign slogan could be, "I told you so". Think about this for a moment. Is the massive spike in the collector coin markets of 1989 a small taste of what any attention from big money would do in a currency crisis in our much more dangerous world of today? I've shown in other articles how incredibly small the gold and silver market is, compared to all the other nefarious financial instruments that have ballooned since the '80s. The 1989 phenomenon was over trivial amounts of $50 million or so, and we have umpteen trillion in garbage products now that will be shunned in any such crisis. It would drive money elsewhere. A currency crisis would radically refocus investor interest, and could produce unbelievable results in coins.
Another Thing To Consider About Coins
An added dimension of safety in coins vs. bullion against any total catastrophe with the dollar is the issue of face value. The Silver Eagle is legal tender at $1 which, compared to its $20 silver content, is irrelevant. But what if silver's spot price suffers at least a temporary decimation in a dollar crash? The Eagle's face value may not be all that significant, but you can buy that same 1 ounce of silver in the Canadian Maple Leaf that has a $5 face value in Canadian dollars. And in a world where a gold and silver-bolstered Chinese yuan may be the last major currency standing after a crash of the fiat system, you can move money into both silver, gold, and yuan with the Chinese Pandas. There are one-ounce silver Pandas with a 10 yuan face value. That's 60% more currency value than the Silver Eagle's dollar, at today's exchange rate. That number would, of course, skyrocket in a dollar debacle. The yuan is not a convertible currency, so it's a bit more hassle to move around now. But some think it may become fully convertible around 2015, which could greatly accelerate the dollar's growing unpopularity in the international community. It's so karma that in the Chinese language, "yuan" means "the people's currency", as opposed to "the bankers' chicanery". And at first, the word meant "lump" after the original yuan centuries ago, which was a lump of silver.
Jim Rogers has decades of history of being ahead of major trends in hard assets. Lately, about everytime you see him on your screen, he says to buy the same three things (other than gold) - buy yuan, buy Pandas, buy agriculture, and buy often. He loves Pandas, and even has his daughters wearing bracelets inlaid with Panda coins. He has been known to plunk down over a 1/4 million dollars at a time in China's shops buying Pandas. On a recent TV interview, he apologizes for being late, but explains that he was out buying Pandas and promptly pulls some of them out of his pocket to show them off.
(click to enlarge)
I should probably add here that die-hard gold and silver fans like Rogers and Peter Schiff are not big fans of high numismatic value, which they say will crumble in bad times. On the other hand, I mentioned above that the higher-grade collectors tend to be independent of the economy. It's really impossible to say what the pricing power of the nicer coins would be like in future hard times. But if you examine the PCGS 3000 index, chart, which is the higher-value coins of all types, not just silver and gold, you see that, across the atrocious cataclysm of 2008, this index actually went up about 5%.
CLCT Market Behavior
But CLCT is a stock, and 35% of its business is baseball cards and non-coin collectibles, which are all linked to the economy. Won't a stock panic from a currency crisis slam this stock too? In its standard cautionary statement, it points this risk out, but it also highlights its strong linkage to the precious metals markets and:
our continued dependence on our coin business which generated more than 60% of our consolidated revenues and a substantial portion of our operating income in the year ended June 30, 2013, making our operating results more vulnerable to conditions that could adversely affect or cause stagnation in the prices of precious metals and collectible coins..."
Its stock seems to be much more in tune with coin demand than the price of the metals, and there is not much stagnation in coin demand. While CLCT is a stock with a third of its sales from discretionary spending, its resilience to stock sell-offs has improved dramatically since it was a relatively bad company in 2008 and before an increasing focus on coins. The stock showed good strength over the August 2011 banking-related, fear-driven sell-off (the VXX here spiked to the 2008 level), and the stock has totally ignored the past few weeks' market correction:
(click to enlarge)
Here we see that the 2011 smack-down actually had CLCT following the gold spike up rather than everything else down. And with calm stock seas in 2012, CLCT follows the big dip in US Eagle minting down, rather than creeping up with everything else. The stock now appears to be ignoring the stock market and following mainly whatever silver coin demand does. This is understandable when you consider that before 2008, modern bullion coins made up only about a 30%-40% share of the PCGS segment's revenue. Now, they aren't making any more of the coins valued just because they're very rare, but they are making a new flood of modern silver coins. And coins, most of which are modern silver mints, are now 67% of the revenue of the whole company. With its aggressive expansion into China, this figure will likely be climbing fast.
As a defensive holding, Collectors focuses on just the small defensive slice of the silver pie:
In an economic crisis, they won't be using silver coins to make cell phones. All of the above pie is offense, except the Collectors piece. For an example of how this dynamic works, consider the big recession year of 2008. The price of silver lost 27% on the year, while the number of Silver Eagles sold not only avoided a loss, but rose 100%! The average Eagle price dipped, but the coin's traffic (CLCT's bread and butter) exploded higher.
Silver coin demand is becoming a market unto itself since 2008, when investor attention was redirected to money printing and future currency confidence. The money printing, and the conditions that cause it, continues unabated by the eight central banks. And until that whole situation goes away, coin demand will continue to grow. If Collectors Universe has much more sensitivity to silver coin demand than spot price, the economy, or the stock market, it could be an alternative silver strategy worth considering.
Additional disclosure: I also own Pandas (not as many as Rogers)
http://seekingalpha.com/article/2206843-collectors-universe-an-alternative-silver-strategy?utm_medium=referral&utm_source=t.co
When $1.2 Trillion In Foreign ‘Hot Money’ Parked At The Fed Dissipates
Submitted by testosteronepit
05/09/2014
Wolf Richter www.testosteronepit.com
www.amazon.com/author/wolfrichter
It fits the pattern of gratuitous bank enrichment perfectly, but this time, the big beneficiaries of the Fed are foreign banks. A JPMorgan analysis, cited by the Wall Street Journal, figured that in 2014 the Fed would pay $6.74 billion in interest to the banks that park their excess cash at the Fed – half of that amount, so a cool $3.37 billion, would line the pockets of foreign banks with branches in the US.
This is where part of the liquidity ends up that the Fed has been handing to Wall Street through its bond purchases. Currently, the Fed requires that banks keep a minimum balance of $80.2 billion at the Fed. Banks can keep up to $88.2 billion at the Fed as part of the “penalty-free band.” In theory, as “penalty-free” implies, there’d be a penalty on balances above $88.2 billion.
But the total balance was $2.66 trillion in April, up from $2.62 trillion in March and from $1.83 trillion a year ago. The balances in excess of the “penalty-free band” have reached $2.57 trillion. The highest ever. The penalty on that?
Forget that. The Fed’s raison d’être is to enrich the banks regardless of what the costs to the economy, the rest of society, and savers. So instead of penalizing banks for these excess reserves, it pays the banks 0.25% interest not only on the required balances but also on all other balances. Spread over the year 2014, as JPMorgan estimated, interest payments on these balances would amount to $6.74 billion.
It’s a marvelous system. The banks’ cost of funds, given the heroic efforts the Fed has undertaken to repress interest rates, is near zero. Banks can borrow short-term from their depositors – that’s you and me – and from money-market funds – that’s you and me again – at near zero cost, so maybe 0.10%. Instead of lending it out, banks put that money on deposit at the Fed to earn 0.25%. It’s the laziest no-brainer in banking history. A pure gift from the Fed.
But there’s a kink. Non-US-charted banks with branches in the US benefit even more. The Bank for International Settlements, the umbrella organization for the world’s largest central banks, revealed how these non-US banks were taking advantage of the new FDIC insurance charges on wholesale funding (borrowing from other banks, short-term repos, or funding from affiliates outside the US). They’d figured out that these extra costs didn’t apply to them. They only applied to US-chartered banks.
The wider FDIC charge added 2.5 to 45 basis points to the costs of large and complex US chartered banks’ short-term wholesale funding. The calculation is complex and its result by bank is not disclosed, but the rate for the largest US bank was said to be 8 basis points.... With wholesale rates of 10 basis points or less, the new FDIC charge made bidding for such funds and parking them at the Fed at 25 basis points unattractive for many US-chartered banks but not to the US branches of foreign banks, which pay no FDIC fee.
These “seemingly small regulatory differences” at the FDIC, the report points out, turned the Fed into a special profit center for non-US banks. In this chart from the report, foreign banks’ balances parked at the Fed (blue area in dollars, and red line in percent) started shooting up at the end of 2008, and by mid-2013, reached about 50%. It resulted in “massive changes” in the balance sheets of internationally active banks.
As foreign banks took advantage of the laziest no-brainer in history, the Fed’s money-printing and bond buying regime led to an enormous inflow of money into the US – about $1.3 trillion so far. It’s the risk-free banking version of the hot money. And the $2.6 trillion in excess reserves that economists are expecting to flow into the US economy sooner or later to really stir things up? Half of it is that hot money. It won’t ever flow into the US economy. It won’t fuel the “escape velocity” that has been forecast for five years in a row. It’ll dissipate.
The Fed has an excuse for this banking gravy train: “eliminate effectively the implicit tax that reserve requirements used to impose on depository institutions,” it says. OK, I get it, concerning the “penalty-free” $80.2 billion that banks are required to deposit at the Fed. Fine. Pay them 0.25% on that. I don’t get paid that much on my money at the bank. But what the heck. Let’s not quibble over pocket change, which is what billions have become to these megabanks. But what about the annual interest on $2.6 trillion in excess reserves?
Ah, the Fed has an excuse for that too: it’s of course – I mean, how could I possibly not think of this on my own? – “an additional tool for the conduct of monetary policy.” A policy whose goal it is to fan reckless speculation, inflate asset bubbles, enrich the banks and those who run them at the expense of savers, and douse the entire neighborhood, namely Wall Street, with free money.
We don’t know what hedge fund manager Steven Cohen will do with the money he borrowed from Goldman Sachs. We don’t even know how much it is, though it's a lot; the personal loan is backed by his $1 billion art collection. But we know how he'll use it: cheap leverage. Read....
Explosive Hidden Leverage Threatens To Blow Up the Markets
http://www.zerohedge.com/contributed/2014-05-09/when-12-trillion-foreign-%E2%80%98hot-money%E2%80%99-parked-fed-dissipates