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Plan by Google’s Motorola to open Tex. factory signals shift as tech firms look to add U.S. jobs
By Craig Timberg, Published: May 29 E-mail the writer
Washington Post
Motorola Mobility, once a pioneer in shifting manufacturing to China, is opening a smartphone factory in Texas, the company said Wednesday, joining a small but growing movement toward bringing technology jobs to the United States.
The decision follows announcements by major tech firms, including Apple and Lenovo , planning to add U.S. manufacturing capacity after more than a decade in which the flow was almost exclusively in the other direction — with millions of jobs going to East Asian factories known for low wages and minimal labor protections.
Multimedia
The shifts to the United States are fledgling, and some industry experts say the companies are motivated less by long-term manufacturing needs than by public relations strategy. At a time of rising governmental scrutiny of technology companies, analysts say, there are few better ways to acquire allies on Capitol Hill than to create manufacturing jobs in lawmakers’ home districts.
But Motorola Mobility officials said they see significant business logic to having a factory close to the engineers who are designing a new flagship smartphone and the customers they hope will buy it. Officials say it aids innovation while allowing for leaner inventories and lower shipping costs.
“Doing that work of actually assembling the phone close to home will allow us to fix things faster, innovate faster,” said Dennis Woodside, chief executive of Motorola Mobility, a division that was bought by Google last year for $12.5 billion.
The new smartphone, the Moto X, will be the first designed entirely under Google’s ownership. It also will allow the company to capitalize on rising consumer preference for U.S. manufacturing; nearly two out of three Americans said they would pay more for an American-made product, a Gallup poll found in April.
The Moto X will be the first smartphone assembled in significant numbers in the United States since the launch of the iPhone made sophisticated mobile devices a key driver of growth in the technology industry, Motorola officials said. Americans are estimated to own 130 million smartphones, overwhelmingly built in East Asian factories. Many of the Moto X’s roughly 1,100 component parts will still be made overseas, the company said.
The competitiveness of American factories is helped by rising labor costs in East Asia — though wages there are still much lower than in the United States — and falling energy costs.
East Asia remains home to most suppliers of electronics components, a long-term advantage that will make it difficult for a large percentage of high-tech manufacturing jobs to move to the United States, some analysts say. Previous pushes to attract more factory jobs have largely fizzled in the face of competition from East Asia and Latin America.
“This is Groundhog Day, big time,” said Timothy Sturgeon, an MIT researcher on globalization. “On the other hand, this doesn’t mean that this isn’t significant news.”
The United States lost 5.5 million manufacturing jobs, about one third of the nation’s industrial workforce, between 2000 and 2009, said the Alliance for American Manufacturing, an advocacy group founded jointly by industry and the United Steelworkers union. The outward flow of jobs has stabilized in recent years, with the numbers of factories opening and closing roughly equal.
Within the tech industry, Chinese computer maker Lenovo announced in October that it would build laptops and tablets in North Carolina, and Apple said this month that it would invest $100 million in a plant to assemble some of its Mac computers in Texas. Google, meanwhile, is producing the initial versions of its wearable Glass mobile devices in California.
“You would have said five years ago this would have been impossible,” said Scott N. Paul, president of the Alliance for American Manufacturing. “It’s interesting that you’re seeing this getting started now. It’s possible this could be part of a larger trend.”
Motorola was among the earliest and most aggressive U.S. companies in moving manufacturing to China in the 1990s, at a time when relations between the countries were still raw after the bloody crackdown at Tiananmen Square. Motorola developed a commanding position in the cellphone market, but its market share has gradually eroded as Apple, Google and Samsung have emerged as the industry’s key innovators. (Motorola later spun off its cellphone division, Motorola Mobility, and renamed the remaining parts of the company Motorola Solutions.)
Motorola’s partner in the Texas project, global contract manufacturer Flextronics, has leased a 481,000-square-foot factory — about the size of eight football fields — in Fort Worth and has begun recruiting the nearly 2,000 workers who will assemble the Moto X, due to be released this summer. The factory, built by cellphone maker Nokia in the 1990s, employed 3,800 people at its peak before it was closed in 2007, according to news reports at the time.
The Moto X, company officials said, will streamline some common functions, such as taking a picture, to make the process faster and easier for users. The Texas factory will produce smartphones for the U.S. and Mexican markets, allowing faster shipping times and making it easier for engineers to make design tweaks — such as colors beyond the standard black or white — in response to shifting customer tastes, officials said.
Company officials hope to make millions of smartphones in Texas, though the volume of production will depend on the popularity of the Moto X. “It’s definitely designed to have a much different look and feel than other smartphones and a much purer Google experience,” said Mark Randall, senior vice president for supply chain and operations for Motorola Mobility.
The Fort Worth factory is in a foreign trade zone, which has tax advantages for exporters, and is near an international airport, a FedEx shipping hub and a distribution center for AT&T, a wireless carrier that is a major seller of smartphones.
“Motorola Mobility’s decision to manufacture its new smartphone and create thousands of new jobs in Texas is great news for our growing state,” Gov. Rick Perry said in a statement. “Our strong, healthy economy, built on a foundation of low taxes, smart regulation, fair legal system and a skilled workforce is attracting companies from across the country and around the world.”
Governors and members of Congress typically are avid protectors of major manufacturing employers, a potentially important development at a time when tech firms are under fire in Washington for their tax strategies, privacy policies and, in the case of Motorola parent company Google, allegations of monopolistic behavior. Reports about labor unrest and dangerous working conditions at East Asian technology plants also have generated unwanted publicity for some tech companies.
http://www.washingtonpost.com/business/technology/plan-by-googles-motorola-to-open-tex-factory-signals-shift-as-tech-firms-look-to-add-jobs-in-us/2013/05/29/9e91b0c0-c875-11e2-9245-773c0123c027_story.html
What the SEC Says Happened in the Facebook IPO, and What Really Happened
May 30th, 2013 | By Shah Gilani
WallStreet Insights & Indictments
What really happened on May 18, 2012, with the botched IPO of Facebook Inc. (NasdaqGS:FB)?
Well, the Securities and Exchange Commission (SEC) just released its version of events under the guise of Administrative Proceeding File No. 3-15339.
And “In the Matter of THE NASDAQ STOCK MARKET, LLC and NASDAQ EXECUTION SERVICES, LLC (Respondents)” the SEC slapped wrists and fined the fools $10 million for screwing up Facebook’s IPO – the largest-ever fine imposed on an exchange.
Of course, it’s good reading. But there’s something missing.
It’s called “the truth.”
Here below in bold italics are excerpts from the actual order and my commentary (or the truth) in bold between the lines.
Let’s go.
In its Introduction, the SEC states: National securities exchanges, which are registered by the Commission under Section 6 of the Exchange Act, are critical components of the National Market System, which provides the foundation for investor confidence in the integrity and stability of the United States’ capital markets.
Which is all well and good if they practiced what they preach.
Except the SEC has aided and abetted the undermining of fair and orderly markets conducted at the exchanges. I’ll get to that in a minute.
Here’s how an initial public offering (IPO) is supposed to work.
Shares of the about-to-be-launched company are sold to participating purchasers (usually the fortunate ones) by the IPO’s underwriters around midnight the night before the IPO.
“Secondary” trading, which is what happens when shares are released on the morning of the IPO, after they are priced, happens when the first “print” of the stock’s price is announced and everyone can buy and sell based on the going price for stock.
Usually it’s an easy process to get out the first “print” or the initial price of the offering.
Buyers and sellers place orders through their brokers and on their trading platforms for the amount of shares they want to buy or sell and at what price they want to transact.
The “display only period” (DOP) is the approximately 30 minutes it takes for orders to be put into the mixing bowl so that the largest number of shares aggregated at one price is “crossed” to determine the opening price.
In an IPO, if there are more buyers than sellers, the shares they buy come from the underwriters.
After the initial “print” is announced, secondary trading begins and underwriters sell their allotted shares to buyers wanting stock, and sellers who bought stock can sell in the open market. (Sometimes, a lot of the time, underwriters buy stock that’s put up for sale, to keep the price up. But that’s another story for another time.)
What mechanically happens in the mixing bowl during the DOP is handled by the IPO Cross Application at the NASDAQ exchange. The Cross Application matches the largest buy and sell orders at the same price (besides for IPOs, the Cross Application is what matches orders every day to open all stocks and to close all stocks). Because it’s computerized, it takes the Application about one to two milliseconds to do its job.
Almost instantaneously, once the Cross Application has done its job, a “validation check” occurs. What’s being validated is this: Are the orders in the Cross Application identical to the NASDAQ’s matching engine? The matching engine matches up buyers and sellers, the number of shares and prices they are trading at, and is used to send confirmations to the trading parties.
If the validation check doesn’t line up exactly with the Cross Application a “fail” occurs.
Quite often they don’t line up. That’s because orders get changed. For example, an order could get cancelled. The Cross Application then has to do its thing again. But it’s no big deal; it does it in milliseconds. And then the validation check is run again, and so on. This “cycling” happens every five seconds until everything lines up.
What happened with Facebook’s IPO was that there were so many cancels and resubmitted orders that the normal cycle of a few milliseconds, cycling regularly to get to the cross, turned into a “loop.”
You’d think NASDAQ would have planned for this eventuality better. They tried. They actually tested their live systems with a test security they labeled ZWZZT and had members send in orders. The problem was, they limited the number of test orders to 40,000. Why? Who knows, “It’s a helicopter.”
On May 18, 2012, the initial number of orders submitted into the Cross Application was 496,000 – roughly 12.4 times more.
In the SEC’s words, The time that had elapsed during the price/volume calculation and validation check was 20 milliseconds, which is significantly longer than usual for an IPO cross, which usually takes 1 to 2 milliseconds. This additional length resulted from the larger than normal volume of orders received during the DOP.
Okay, here’s the rub.
NASDAQ tested for 40,000 orders believing that the FB IPO would be hugely popular. But what they forgot about, because they forgot that they (the exchanges and the SEC) let buggers, I mean bugs – in the form of high-frequency traders with their faster computers – into the machinery that is supposed to facilitate smoothly debuted IPOs and… The orderly initiation of secondary market trading after an IPO (which “they” say is) one of the most fundamental functions of a national securities exchange, and affects not only the market for those individual companies but also investor confidence in the markets as a whole.
Of course there’s nothing in the findings that remotely points to why there were hundreds of thousands of orders submitted and cancelled, over and over, and who might be behind most of those orders and cancellations.
Funny, that.
It doesn’t seem to matter to the SEC that on the CODE BLUE call of executives and programmers trying desperately to figure out what was happening and how to fix it, no one knew that Prior to receiving this report on May 18, the SVP/INET was unaware of the existence of the validation check.
That is, the Senior Vice President (on the Code Blue call) for INET, regulatory, and Data Services never even knew NASDAQ had a validation process!
Nor does it matter that two minutes before the IPO launch at 11:00 am, a large market-making broker-dealer requested the lead underwriter extend the DOP by five minutes.
Guess they figured out they needed more time to tee-up more clients or rig their quotes.
Nor does it matter that NASDAQ ended up with a short position in the stock as a result of the “fails,” and when the price, fell it made over $10 million. (They had to give that up.)
NASDAQ announced on May 21, 2012 that it would contribute the $10.8 million in profits from its May 18, 2012, Facebook trading towards funding an accommodation policy. In a rule filing dated July 26, 2012, NASDAQ voluntarily proposed a $62 million accommodation program to compensate certain members for their losses in connection with the Facebook IPO. On March 22, 2013, the Commission approved NASDAQ’s proposed accommodation policy as consistent with the requirements of the Exchange Act.
Nor does it matter that when the exchange restarted their machines after they executed a “failover” that bypassed the validation check – the one that the Sr. VP never knew existed – they didn’t realize that they were 19 minutes behind and 38,000 orders upside down.
What does matter in all this – at least to me – is that the SEC won’t admit that the problems just might have been caused by ghosts in the machines that they back-doored in because they are tools of the crony capitalists.
It’s disgusting.
Shah
P.S. You can read the SEC’s full report here… if you can stomach it: http://brokeandbroker.com/PDF/NASDAQFacebook.pdf.
http://www.wallstreetinsightsandindictments.com/2013/05/what-the-sec-says-happened-in-the-facebook-ipo-and-what-really-happened/
Ben Bernanke's Latest Casualty: The Pension Plan
Submitted by Tyler Durden
05/27/2013
With every passing day, the destructive consequences of Ben Bernanke's ruinous monetary policy on the broader economy become more and more apparent.
Nowhere is this more evident than the observation of a record high stock market - benefiting just a tiny portion of the population - correlating directly with the record number of Americans on food stamps - the wealth effect "trickle down", or lack thereof, for everyone else (not to mention an economic growth rate four years after the "end of the recession" that is the worst recovery in recorded history).
Less hyperbolically, this can be seen empirically in the anti-correlation between the US economy and corporate profits. Through his "central" scheming, Bernanke has turned the discounting paradigm on its face, leading to a world in which the market no longer "discounts" or anticipates any information or fundamentals, but merely cares about how big the next latest and greatest liquidity hit will be, and in which there is an inverse correlation between profitability and general economic well-being.
And so on, and so on: which is to be expected from a world gone upside down as a result of the biggest doomed economic experiment ever conducted on a global scale to preserve a system which can only survive following debt liquidation, and yet one which we are told day in and day out needs just a little bit more debt... to fix a problem resulting from record debt.
For the the latest "unintended casualty" of Bernanke and his ZIRP policy, we look at corporate pension funds, which as WaPo reports, are finally starting to crack under the weight of pervasive central planning, brought to the brink by none other than the Chairman's "good intentions."
On the surface this makes no sense: after all pension funds invest in assets - the same assets that Bernanke's policy of serial cheap credit funded bubble creation are supposed to inflate. And they do. The only problem is that pension funds also have offsetting matching liabilities: or the amount of money a company has to inject in order to cover future retiree obligations. And in a period of low discount rates brought by a record low interest rate environment, these liabilities painfully and relentlessly increase when discounting future cash needs.
Quote WaPo:
Assets held by pension plans of the firms that make up the Standard & Poor’s 500-stock index increased by $113.4 billion in 2012, according to a report by Wilshire Associates, a consulting firm. But largely because of low rates, company liabilities increased even more: by $173.6 billion. That left the median corporation’s pension plan 76.9 percent funded, with just over $3 of assets for every $4 of liabilities.
Low interest rates hurt firms that provide pensions in two ways: They are required to set aside more money to pay for future pensions even as the liabilities appearing on their balance sheets grow larger.
And therein lies the rub: because while the NPV of future benefits in a bubbly environment results in higher asset values, it is the plunging rate used in the DCF that is dooming companies to a slow, painful cash bleeding death as they scramble to prefunded already underfunded (and ever more so) liabilities.
Visually, this is as follows:
In brief: the longer ZIRP drags on, the uglier the monetary reality that private (for now) workers will have to face when they finally choose to retire.
“Low interest rates are certainly a significant issue for employers,” said Judy A. Miller, director of retirement policy for the American Society of Pension Professionals and Actuaries. “The lower the interest rates, the higher the value of the benefits you have to provide and the higher the required contributions.”
Fear not though: in a world in which the recovery is so strong, Mark-to-Market accounting for banks still has to come back four years after it was killed at the altar of central planning, corporations are the next to realize that out of sight means out of mind, and what better way to ignore the pension issue than to just move it "off the books."
[F]irms are moving pension liabilities off their books. Last year, Verizon Communications transferred $7.5 billion in pension obligations — about a quarter of its total — to Prudential Insurance, to limit its liabilities and bolster its financial profile. The move came after General Motors paid Prudential to assume $25 billion of its pension risks.
Congress is in on it too now:
Congress moved last year to provide relief from the pension damage being caused by low rates by allowing firms to temporarily use a 25-year interest rate average when calculating how much money they had to funnel into funds.
“It phases out over the next five or six years,” said Joshua D. Rauh, a Stanford University professor who studies pension plans.
But the relief does not change how pension liabilities appear on a firm’s balance sheet. In addition, firms could find that under the new law, their pension-related liabilities could quickly rise after 2013 unless interest rates return to more normal levels. This has dampened the appeal of the change for many companies.
Nothing like legislating 'magic' accounting into law, allowing companies to reap the benefit of low interest rates and soaring asset values, while pricing in the future benefits of inflation that will magically come (but not impair the asset values of course) and sweep all their underfunded liability concerns away.
Of course, since everyone is in on the scheme - most certainly the workers who stands to receive less and less the longer the lies are perpetuated - it has no chance of working. Instead, what companies are doing is simply cutting off the "welfare" illusion tentacle at the core, and finally starting to freeze pension funds.
That has left many firms to conclude that it is best to freeze their pension plans, cutting off contributions for current workers and making new employees ineligible for the benefit.
At ILM, which sells commercial insurance to building-supply manufacturers and retailers, the pension plan had been a source of pride in a benevolent company culture developed over 117 years.
“Personally, I think a pension is a tremendous benefit,” said Don W. Blackwell, ILM’s chief financial officer and treasurer. “This is a very valuable benefit to our employees. We did not want to take it away.”
But with the pension plan causing the firm to report a $8 million liability at the end of last year and with no end in sight for low interest rates, “we waved the white flag,” Blackwell said. “It was a waiting game and we blinked. We had no idea that interest rates would remain this low.”
There is still the hope and the illusion that as companies switch from traditional pensions to that most direct bubble beneficiary, the 401(k), that everyone will live happily ever after? Well no: here is the side by side comparison:
Once it froze its pension plan, ILM started to contribute 3 percent of each worker’s salary to a 401(k) plan. It’s something, but nowhere near enough to provide the same level of retirement security that the company’s pension did.
Blackwell said an employee with a $40,000 annual salary who received a 3 percent raise each year, set aside 7 percent of his pay for retirement and received a 3 percent company contribution would wind up with roughly a third less money in his retirement fund after 25 years than he would have with the pension plan.
In the private sector, surprisingly, some still prefer realism over lies:
Still, ILM employees are taking the pension fund’s demise in stride. “To be honest, I am surprised that the plan was not frozen a while back,” said Traci Barber, 42, a service center manager who has been with ILM nearly 13 years. “I was surprised when I took this job that it even offered a pension plan.”
Knotts, the firm’s vice president for human resources, said that many employees do not seem to understand the security that a pension’s guaranteed monthly payments offer in retirement. “When people get hired here,” she said, “they are not thinking about that. All of the questions are about salary and paid time off.”
She was among the executives who fretted over cutting the pension plan, deciding to back the decision even though she knew it is bad for employees. Keeping it, she said, would be even worse for the company.
David J. Riese, who retired as vice president of claims in 1997 after 16 years at ILM, said he values the security provided by his company pension. Current employees, he added, will not have it as good.
At least someone dares to admit defeat in the face of ubiquitous central planning. And as always, the private sector is the first to realize that in the New Normal, all workers will be worse off.
The question we have is how long until the same logic and methodology, which is absolutely universal, is transferred from the private to the public sector, and how long until the tens of millions of state and federal servants, most of whom do their tedious and menial tasks with a matched enthusiasm, only so they can reap the benefits of a luxurious lifetime pension upon early retirement, still based on a discounting math from the Old Normal?
Because the start of the unwind of the welfare myth, if only in the private sector for now, made worse by Ben Bernanke's endless tinkering in what was formerly a free market, should be making the guardians of the status quo very, very nervous... and certainly has the disciples of the Bismarckian welfare state delusion on their toes, because they can see very well what is coming down the road.
http://www.zerohedge.com/news/2013-05-27/ben-bernankes-latest-casualty-pension-plan
If I May....
By Bill Holter
May 28th, 2013
(special thanks to basserdan)
I’d like to connect a few dots for you. We had a couple of pieces of news come out on Friday that were strange. One piece did not even seem credible because of size and the other one seemed odd because of the lack of size. Here is what we learned and if this is true THE biggest financial news of the 21st century. Europe announced that they may crack down on the Shadow Banking System. Basically, assets of all sorts that are “deposited” within the system are routinely “re” lent out by the custodian. This “re lending” of assets is called rehypothecation. The scheme has gone on for years and has been abused to the tune of the same asset being lent out 10 times, 50 times or even 100 times over. Legal? Well no, but everyone does it and “it’s the way business gets done all the time”…plus the regulators turn a blind eye to …party on dudes!
Before I talk about the ramifications of the above, another, seemingly unimportant/unconnected piece of news hit the tape. 3 men were arrested in Hong Kong and in their possession were $500 million worth of “fraudulent” letters of credit, letters of guarantee and proof of funds; these were supposedly issued by HSBC and Standard Charter. A 4th man arrested was not named, only that he is 55 years old. Which coincidentally is the same age as Barry Cheung who sits (sat until his resignations this past week) on the boards of several government agencies, he was chairman of HKMEX and has very close ties to the CEO of Hong Kong, Mr. CY Leung. The investigation and arrests are tied to the HKMEX (metals exchange) that closed a week ago Friday and claimed that all open contracts would be settled in cash…not metal.
OK, so these guys got arrested and had in their possession $500 million fraudulent “collateral.” Is this ALL of the fraudulent collateral? Did they have more Do others possess or have pledged fraudulent collateral? How much? Where and to whom has it been pledged? How many times over has it been pledged? …And then out of nowhere, Europe decides to rein in the Shadow Banking System that is purported to be $80 TRILLION (with a capital “T”)! Do you see any connection here? I’ll make it easy for you, “collateral” is the common denominator.
I also want to mention that “collateral” is what makes the financial world turn. Everything runs on “credit,” if you have “collateral” then you can obtain credit. The problem now, that is being exposed, is that no one knows anymore if collateral is real or even “who’s” collateral it is anymore since it has been lent out so many times. Now, to add even more fuel to the fire, it turns out that some of the so called “collateral” is not and was not even real to begin with! Funds in the trillions of dollars have been lent and now it seems as if the collateral backing many loans may not be real. …And Europe is now considering pulling the plug on shadow banking? How many “assets” will banks and brokers have to sell to keep their capital ratios adequate? Do they even have enough real assets to sell to cover the collateral that turns out to be fake or has been lent out 10 times over (not to mention 100 times over). I might also ask the question, “What happens to the markets?” What will happen to the stock markets, bond markets, and real estate markets, ALL MARKETS if banks are forced into liquidation to cover for fraudulent or many times pledged collateral?
Back to the HKMEX, though quite small they did not even have the gold (collateral) to settle contracts with and this was a teeny tiny exchange. We have been watching GLD bleed, COMEX inventories decline and JP Morgan monkey with purported inventory between registered and eligible. Massive quantities of paper gold were sold last month that had the effect of depressing prices, was it real gold? No, we already knew this…but there had to be some sort of “collateral” or letter of credit standing behind the seller right? I mean who could be allowed to sell “naked” contracts if they didn’t have the muscle of “collateral” behind them to ensure “settlement” even if only in paper terms, right?
My point is this, the tide is going out and it looks like EVERYONE is naked and no one has drawers on. Margin debt for stocks are at an all-time high, shorts by hedge funds in gold are at an all-time high, printing by central banks are at an all-time high, yields on sovereign bonds (even the deadbeats like Spain and Italy) were recently compressed to all-time lows and are now rising…and the real economies across the globe are beginning to contract again. The “inflection point” has apparently arrived and fraud everywhere you look is being uncovered. In a system that runs on debt, “collateral” is the foundation. What are the ramifications when “collateral” is questioned and turns out to be nothing more than a piece of paper with no value whatsoever? Everything that has derived value from this initial capital …is worth nothing.
One last thought, this month (May) there are still contracts in both gold and silver standing for delivery with only 3 trading days left. First notice date for June gold will be upon us shortly, if there really is a “collateral problem” (now not just inventory questions but questions of the validity of paper collateral) we may be in for quite a show. Gold has been frantically moved all over the world during the last 2 months to make deliveries and keep up the “good face.” Can they get past June and get everyone delivered to? We shall soon see!
http://blog.milesfranklin.com/if-i-may
How Big Corporations Are Destroying the "Free Market"
By Garrett Baldwin, Money Morning Economist
Money Morning -- May 29, 2013
As an economist, I wince whenever I hear someone say that we live in a true free market.
The reality is we live in a semi-free market where regulation stifles business and corporate money influences and distorts what would normally be a highly competitive marketplace.
And over the last two decades, the situation has only gotten worse for consumers, producers, and defenders of the so-called "free market."
From 2008 to 2010, 30 major corporations paid more money in lobbying fees than they did in taxes, according to the Public Campaign.
But while traditional lobbying once centered on altering tax rates and encouraging legislation to liberalize and deregulate the economy, it has now evolved into a competitive weapon for companies trying to box out competitors and raise barriers to entry in their markets.
It's a business phenomenon that I like to call the "Rise of the Fifth Rail."
You see, in traditional markets, companies compete on four specific principles: Price, product quality promotion, and place (market access). These principles are known as the "four P's."
The first three are self-explanatory in that customers want the highest quality product at the cheapest price. Companies use promotional techniques to instill a need for its products and do so by marketing against the offerings of a competitor.
The fourth principle centers on a company's ability to reach new markets and still provide low prices for high-quality products. A strong coordinated distribution network tends to make this possible.
Naturally, when all four work together, you end up with a company like Walmart (NYSE: WMT), which has the ability to provide low, everyday prices due to its best-in-class distribution network.
But over the last few decades, this new phenomenon of using lobbying as a competitive tool has altered the course of market economics, and driven fair competition into the ground.
And that phenomenon is rotting the American free market from the inside.
Corporatist Lobbying on the Rise
No longer are companies bound by the "four P's." In fact, I argue that now there are five P's, the fifth being "public policy."
We have seen an explosive growth of direct lobbying at the local, state, and Federal level to carve out markets and stifle competition. And it is troublesome to think that lobbying could potentially have an even greater impact on our markets and our society as each corporate donation whipsaws through the American economy over time.
Lobbying is not just a tool to curry favor with legislators. It has become a strategic weapon, one that distorts competitive markets in an effort to hurt rivals.
To illustrate the rise of this fifth "P" here are some prime examples of the worst corporate lobbying stories in recent memory. All them were designed to stifle competition:
* In 2012, Altria Group (NYSE: MO), formerly Phillip Morris, spent approximately $11million onlobbying. Most of it was designed to hammer Mom and Pop tobacco shops that allowed customers to "roll-your-own" cigarettes. The cost of rolling your own cigarettes in the shops on special machines cost the customer about $2 per pack. Altria lobbied to Sen. Max Baucus (D-SD), who recently put into law a note that redefined these Mom and Pop shops as "cigarette manufacturers," which essentially raised their costs, taxes, and regulations, effectively driving these popular, customer-friendly shops out of business.
* In 2012, down in North Carolina, Time Warner Cable (NYSE:TWC) , AT&T ( NYSE:T), CenturyLink (NYSE: CTL), and other cable and telecom companies engaged in a massive lobbying campaign to bar communities from building their own networks. The networks would have provided a cheaper network for customers, which would have forced the big boys to reduce prices or become more innovative to compete. The new laws these companies lobbied for and got passed now make new public deployments of cable and broadband impossible. By raising new barriers to entry, the larger cable and DSL now have more influence on future laws and effectively limit the marketplace to just their services.
* For years, large retailers like Wal-Mart and Costco (Nasdaq: COST) have supported and lobbied on behalf of higher minimum wage standards. Are they doing it out the goodness of their hearts and love for their employees? Hardly. Higher minimum wages provide another competitive advantage to larger businesses, which can absorb these costs. Meanwhile, smaller mom-and-pop stores absorb higher variable costs as a result. Higher minimum wages don't necessarily mean a more competitive, innovative marketplace.
* And the worst situation I've seen is the ongoing battle between the nation's two largest shipping companies. United Parcel Service (NYSE:UPS) is a unionized company, while FedEx (NYSE: FDX) is not. UPS has been lobbying for years to get changes that would enable and force unionization of air shipping workers. Doing so would raise costs for FedEx. In fact, some unionized UPS workers said they were forced to write letters to local lawmakers in support of stricter labor laws for FedEx. And this battle isn't going away any time soon.
Not a Distinctly American Problem
The Rise of the Fifth Rail is not a distinctly American phenomenon.
As I noted last week from my visit to Argentina, the relationship between the rail union and the trucking union has been so bad that political assassinations are a growing problem. On April 19, the former president of one of the Argentine rail unions (Unión Ferroviaria), was to 15 years in prison for murdering a member of the country's left-wing Workers Party.
It is the rise of corporate influence with expanded government influence over private sectors that is the hallmark of corporatism and fascism, a dangerous economic system that stifles innovation and competition, and drives massive divides between the richest and the poorest in a society.
If American companies were honest about their commitment to competition, innovation, and engaging in the true American Dream, then they would stop attempting to buy influence in an attempt to hurt the competition. The American standard of living relies on companies to engage in true competition, a driver of innovation, better products at lower prices, and greater commitment to customers. Competitive lobbying practices rot that standard from the inside.
We see on a regular basis what happens when a company has little market competition.
They aren't held accountable, and as a result, they are able to deny customers the service they expect and deserve.
Putting an end to this rot is something that is long overdue in Washington.
http://moneymorning.com/2013/05/29/how-big-corporations-are-destroying-the-free-market/
How to Value a JR’s Gold in the Ground
Munknee.com
At any given time, we know the international spot price for an ounce of refined gold but what about the gold an exploration or mining company has in the ground – how do we value that? www.stockhouse.com; By: Louis James & Andrey Dashkov, Casey Research; Words: 745
In further edited excerpts from the original article* James and Dashkov goes on to say:
There are several different ways to value a junior miner’s gold in the ground:
1. Given sufficient data, you can estimate a reasonable net present value (NPV) for a project and deduce what each of the company’s ounces should be worth. To do this, you need to know annual output of the proposed mine, proposed capital expenditures, energy and other costs, and many more things. Unfortuneately, for most deposits held by the junior companies we tend to follow, there’s just not enough data available.
2. Another approach is to compare the value the market is giving a company per ounce of gold in hand against the average value the market gives companies with similar ounces. The most obvious way to define “similar” ounces in the ground is to use the three resource and two mining reserve categories defined by Canada’s National Instrument NI43-101 regulations – the industry standard. These are combine these into three broad groups:
a) Inferred:
The lowest-confidence category, based on just enough drilling to outline the mineralization.
b) Measured & Indicated (M&I):
These higher-confidence categories have been drilled enough to establish their geometry and continuity reasonably well.
c) Proven & Probable (P&P):
These are bankable mining reserves – basically Measure and Indicated resources with established value.
So, what does the market give a company, on average, for an Inferred ounce of gold? M&I? P&P?
To answer this, we combed through every company listed on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSX-V) and pulled out the ones with 43-101-compliant gold resource estimates (or mostly gold) – no silver, copper, etc. Of these, we kept only those with resources that fall almost entirely into only one of our three broad groups: Inferred, M&I, and P&P leaving us with about 90 companies to calculate some averages on and we got these numbers:
• US$20 per ounce Inferred
• US$30 per ounce for M&I
• US$160 per ounce for P&P
Armed with this information, if you didn’t know anything else about an M&I resource (political risk, type of ore, etc.), but you saw that the company that owned it was trading at $10 per ounce, whereas its peers are valued at around $30 an ounce, you can conclude that there must either be something very wrong with the project or the stock is a great speculation.
If there’s nothing wrong with the project, there’s an implied growth potential in the stock price, based on the difference between what the company is getting per ounce and the market average for similar ounces. In this case, it would be:
$20 x # Ounces ÷ # shares.
As a matter of perspective, a few years ago the market was giving a company about $25 per ounce Inferred, $50 for M&I, and about $100 for P&P. Then, when gold ran up over $1,000 before the crash of 2008, these valuations went out the window, and some companies were getting over $100 for merely Inferred ounces – do we have your attention now?
Conversely, just after the crash, there were companies having a hard time getting $10 for M&I. That was clearly a sign that it was time to buy, and we did, with gusto.
It’s also why, when the Mania phase gets underway, we’ll be selling into it as gold approaches the top; we will not be attempting to time the top. It’s far better in this business to be a day early than a day late.
Today, the market is willing to pay more for advanced and producing stories ($160 P&P) but is discounting earlier-stage stories, hence the lower M&I valuation than in previous years ($30). These figures will change again as the market’s appetite for risk changes.
Bottom line
We often get asked what an Inferred, or M&I, or P&P ounce is worth in the ground. The $20, $30, and $160 figures are only rough guides, and you must consider the reasons why some ounces are given more or less by the market, but they’re a good starting point.
*http://www.stockhouse.com/Columnists/2010/Feb/1/Valuing-a-junior-miner-s-gold-in-the-ground
Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)
How to Value a JR’s Gold in the Ground
http://thedailygold.com/how-to-value-a-jrs-gold-in-the-ground/
The Bilderberg, Google and the G8: New Global Tax Regime Already in the Works
By Patrick Henningsen
Global Research, May 28, 2013
21stCenturyWire
This year’s annual Bilderberg conference is rapidly approaching – where the world’s political and business elite meet in private to discuss their agenda which will determine future policies that govern global affairs.
Some aspects of this year’s Bilderberg agenda are gradually coming into view, and have the potential for directly affecting not only big multinationals like Google, but every business on the planet.
The secret gathering has been gradually forced into public view in recent years, and the run-up to Bilderberg 2013 has been one of great anticipation and not without its share of news. First came the false start from the alternative media regarding the meeting’s actual location, with many claiming it would be held again at the Westfield Marriot in Chantilly, Virginia.
Two months after, the announcement arrived that the meeting would take place 30 minutes north of London, at the Grove Hotel in Hertfordshire, England, and small media circus is expected the year following the announcement that a ‘Bilderberg Fringe’ festival is being organized adjacent to the venue – an event certain to attract hundreds, if not thousands of revelers, press and alternative media personalities. Add to this the news that long time Bilderberg sleuth and American Free Press correspondent, Jim Tucker had passed away on April 24th. Few people would even know the Bilderberg meetings ever took place if not for 30 years of digging and reporting by veteran journalist Tucker.
Beyond all the fanfare, however, the central question still remains: what items will be on the agenda at this year’s ultra-secret transatlantic steering committee? The answer to this question may be hidden in plain site.
Google is currently engaged in a battle over unpaid taxes in the UK, and which has led political commentators to now call for a new system of global taxation. Not surprisingly, this has become the chief topic of discussion at a series of global summits taking place during May and June.
Here’s how this major issue rose out of the Google debate, and how it will be folded into Bilderberg’s 2013 agenda, and later to the G8 Summit shortly thereafter…
Google’s Big Tent: ‘A Digital-Davos’
This past week witnessed another major global conference held at the very same Grove Hotel in Hertfordshire. The parallels to Bilderberg are striking – they share the same guests, the same venue, observe similar codes on conduct, and no doubt have similar items on their agenda. Google’s ‘Zeitgeist’ Global Summit, or “Big Tent” event, is effectively the internet’s version of a ‘Digital Davos’, where ‘the best and the brightest’ are invited to hear the latest ‘big ideas’, with debates and keynote speeches from the likes of Bill Clinton (Bilderberg member), UK Chancellor George Osborne, UK Labour Party leader Ed Miliband and other celebrities including Stephen Hawking.
It’s worth pointing out here that both Osborne and Miliband have played the role of Google’s adversary in public during their corporation tax row, yet they are the corporation’s VIP guests in private.
Beyond the high profile talks and entertainment, there were of course, some serious discussion about ‘big ideas’ taking place under the big tent. This year’s event also required participants to observe ‘Chatham House Rules’, meaning key conversations should be held in the strictest of confidence and not be leaked to the outside world. As with Bilderberg, Google’s Big Tent discusses serious global changes that affect present and future generations – all behind closed doors.
Other persons of note at this year’s Google retreat were former US attorney general and Bush legal brain, Alberto Gonzales, alongside former Secretary of State Hillary ‘innovation’ adviser, Alec Ross, key Putin advisor Arkady Dvorkovich, and Swedish foreign affairs minister, Carl Bildt (Bilderberg attendee 2006-2012). The profile of Google and Bilderberg guests has seen an incredible overlap in recent years, which is a testament to the corporation’s own stated ambition to achieve a global dominion, not only over its marketplace, but over cultural and political life as well. The reality in 2013 is that Google is poised to manage nearly every aspect of our lives – our communications, our work, our social life and even our history.
Bilderberg’s Digital Tycoons
As Google’s global summit runs smoothly into Bilderberg this year, so have the two meeting agendas. Recent years have seen an increase in the influx of digital tycoons present at Bilderberg. Alongside software moguls like Craig Mundie, Head of Research and Strategy Officer at Microsoft (Bilderberg attendee 2006-2012), and Google CEO Eric Schmidt (Bilderberg attendee 2007-2011), the social media kingpins have also moved in to occupy key positions in Bilderberg’s top steering committees.
A key player in amongst them is Peter Thiel (left), head of Clarium Capital, the digital investment house that provided the financial clout which allowed for online ventures like Paypal, Facebook, LinkedIn and Friendster to dominate their digital marketplaces. Thiel was promoted to Bilderberg committee head in 20ll and has emerged as a key player not only in the online industries, but also as an influencer in US political spheres, gaining attention recently as a prominent backer of Kentucky’s Republican junior Senator Rand Paul.
New global ‘Google Tax’ already in the works
The convergence of the Google Summit, its tax battle, and Bilderberg 2013 may seem innocent enough on its surface, but the timing is no mere coincidence. UK leadership have whipped up a frenzy in the media over Google’s alleged tax sins, leaving the public clamouring for a solution. The words “never let a good crisis go to waste” certainly chime in well here.
Two weeks ago, a major UK clash erupted between No. 10 Downing Street and Google over the issue of corporate tax evasion. Google’s Matt Brittin was grilled by the UK’s Commons Public Accounts Committee (PAC) and its chair Margaret Hodge, who accused Google “doing evil” by using an elaborate array of offshore entities in a “smoke and mirrors” financial maze designed to avoid paying any significant tax into UK coffers. Both PM David Cameron and Chancellor George Osborne also came out loudly in public accusing Google of being ‘immoral’. Google is said to have only chipped in 6 million GBP in 2011 out of its 3 billion GBP turnover in that same year. Google’s Peter Baron claims its in full compliance with UK law, issuing the public statement last week that, “None of the allegations put to us change the fact that Google pays the corporate tax due on its UK activities and complies fully with UK law.”
Will Google throw in the towel and submit to a British tax resolution?
The fact of matter is Google is powerful and with a net worth that trumps some countries. These days much of the world’s commerce runs through Google in some way, and their brand recognition and money buys influence in Britain, and everywhere else it seems. So it’s doubtful that any British politico could strong-arm Google. Behind the scenes both Google and Britain’s political elite share a place at central planning’s top round table – as members of the Bilderberg Group and that’s where the really ‘big ideas’ are not just discussed, but actually transmitted into policy.
As the public feud between Google and Downing Street takes centre stage, backstage both UK Chancellor George Osborne and Google CEO Eric Schmidt – both committed fellow Bilderberg members, are said to have met in private at the Google event, and are poised to do so again at Bilderberg 2013. Both have attended the annual meeting almost continuously since 2006.
So this apparent Punch ‘n Judy match between Google and Downing Street appears just three weeks before this year’s Bilderberg summit, and four weeks before the G8, and suddenly the UK government and media outlets have become infested with a the new talking point: “we need for a new ‘global profit tax’.
While addressing the Google tax loophole, the UK’s Independent newspaper led by its liberal-leaning economics editor Ben Chu, goes on to essentially lay-out what is likely to be at the top of the agenda at Bilderberg 2013:
“The cascade of revelations in recent months showing multinational companies doing a huge amount of business here and yet paying virtually no corporation tax has provoked widespread public demands for something to be done.
National governments could and should try to put a stop to this egregious “profit shifting” on their own. But a unilateral approach is plainly second best.
The natural solution is to secure an agreement by all the world’s governments to tax the profits of multinational firms collectively and to divide up the revenues fairly between them. This division could be based on the amount of business done by the multinational in their various territories as revealed by their turnover and number of employees.”
Global tax means global government
So is Google supplying the Trojan horse needed to implement a global taxation system that many have been warning about for so many years? Maybe.
Will Bilderberg’s global elite use this perfect crisis moment as a pretext to build the framework for global taxation? Most likely.
If the idea passes through Bilderberg in June, will it then be rubber stamped later at the G8? Highly likely.
Although happy to float such a revolutionary idea in the media in advance of back-to-back Google and Bilderberg summits at the Grove Hotel, and later at the G8, one thing which global taxation advocates fail to mention here is that if you institute a global taxation system then you would then need a global government to administrate it. Yes, you heard that right: global taxation = global government.
It would be naive to think that any tax could be levied without a government standing behind it. That is, after all, part of the definition of a tax. Campaigners will deny it exists, but the reality is that global governing bodies have already been put into place long ago.
UK Column Editor Mike Robinson explains, “I think that the embryonic global institutions are already in place, and we’re going to see them being given more and more real ‘jobs’ to do as time goes on, and collecting corporation tax is clearly going to be one of those”.
History can certainly prove one thing: that the world’s wealthiest individuals corporations have consistently exploited all international tax loopholes for years now. Whatever commentators like Ben Chu and others are proposing will obviously be much easier to enforce on small to medium size businesses, as well as individual traders – all of whom have significantly less political leverage (and no invitations to Bilderberg) than the Googles and Facebooks of the world.
Post-Bilderberg: G8 Summit
Following the ratification of Bilderberg’s 2013 agenda in Watford on June 6–9th, the next step is normally to disseminate this same agenda on to the G8 heads of state. Conveniently, this year’s G8 summit will held June 17-18 at the Lough Erne golf resort in Fermanagh, Northern Ireland. David Cameron and George Osborne’s new plan for Google is already expected to be very high on the agenda at the G8 meeting, where world leaders including Barack Obama and Vladimir Putin will be in attendance. Henceforth, ahead of the G8, the UK government is expected to play their key role in promoting the new global tax system, by publically advocating, “new strong international standards to make sure that global companies pay the tax they owe.”
Coincidentally, this year’s G8 in Northern Ireland will be the biggest police operation in country’s history (and that’s saying a lot), with an estimated 8,000 officers from the surrounding counties, and from as far as England and Wales, all drafted in to secure the area for what many now believe has essentially become a global government operations meeting in all but name.
Other recent attempts at a global tax
The financial component of this global tax and government equation is actually already in place, and that is the World Bank. The first administrative working model for a global taxation structure was originally unveiled in 2009 at the United Nations Climate Summit in Copenhagen. Delegates at that event floated their plan for a global carbon tax that would be collected and then deposited into a slush fund which was to be administered by the World Bank. There plan also entailed the poorer, developing nations footing most of the bill for this operation, while the wealthier nations would receive a free pass. The secret plan was thwarted at the last minute thanks to the infamous Danish Text Leak, which were serialized in the Guardian newspaper at the time.
Although popular in socialist circles, few have dared reveal the true picture of a global tax regime for fear of triggering a public backlash. Another such tax proposals have been pushed into the public sphere through the Occupy Movement in 2011, with called for a global tax on financial transactions, or a global “Robin Hood Tax”. As was the case in Copenhagen two years earlier, proponents called for a tax structure without borders, yet few dared mention who would be in charge of administering and distributing the revenues. Such plans pose the very real danger of further centralizing power into the international banking community who would be asked to handle and perhaps hypothecate on these enormous slush funds.
Which brings us back to this latest global ‘google tax’ proposal, which ultimately begs the question: when will their global government structure be unveiled?
Serving the global collective
Plans for erecting an entirely new global tax system should worry anyone who values the concept of national sovereignty because any solution that entails the collection of tax by way of elite international “collective” of nations, and where “revenues are to divided up fairly between them” is suggesting a form of global collectivism, or communism. This is also the fundamental problem with EU plans to levy new taxes on member nations – for any citizen it’s simply another master to serve.
Shocking as that may be, these issues are exactly what is being discussed behind closed doors at each of these global summits taking place in May and June of 2013.
What’s worse, is that this entire construct could be ushered in without any vote being cast by an citizen in the individual countries – which is about as undemocratic as it gets. This remains one of the fundamental flaws at the heart of the ultra-liberal utopian ideal which is global government.
http://www.globalresearch.ca/the-bilderberg-google-and-the-g8-new-global-tax-regime-already-in-the-works/5336719
Switzerland proposes deal for banks to resolve tax-evasion dispute with U.S.
By Catherine Bosley, Elena Logutenkova and Giles Broom, Updated: Wednesday, May 29, 8:07 AM
WashingtonPost
May 29 (Bloomberg) -- Switzerland proposed a bill that it says will provide the legal basis for the country’s banks, including Credit Suisse Group AG and Julius Baer Group Ltd., to resolve a tax-evasion dispute with the U.S.
The bill authorizes Swiss banks to cooperate with U.S. authorities and transfer information while safeguarding their interests, the government in Bern said in a statement today. The Swiss Parliament will consider the bill as soon as next week and it could come into force on July 1.
“The urgency is due to the fact that the United States is unprepared to wait any longer with the arrangement for the past for Swiss banks,” the government said. “If a solution is not found soon, Switzerland risks further escalation.”
Switzerland, the biggest haven for offshore wealth, has been in talks with the U.S. for more than two years to resolve a Justice Department investigation of at least 14 financial firms that allegedly helped Americans hide money from the Internal Revenue Service. The Swiss government wants to prevent another bank being indicted after Wegelin & Co. pleaded guilty in a Manhattan federal court in January to conspiring to help conceal more than $1.2 billion from the IRS.
The bill will enable banks to pass on information on business relationships concerning U.S. persons and details on employees who worked with Americans, the government said. It doesn’t allow for the transfer of client data, which can only be passed on through administrative assistance procedures under a tax agreement with the U.S., it said.
Fines Undecided
Julius Baer, Switzerland’s third-largest wealth manager, informed some American clients this month that their accounts meet the criteria of a U.S. request for data, the Zurich-based bank wrote in a letter obtained by Bloomberg News.
Raymond Baer, honorary chairman of Julius Baer, said in a presentation in Geneva that government’s proposal needs to be analyzed before making any comment.
The agreement may lead to total fines of as much as 10 billion Swiss francs ($10.3 billion), Tages-Anzeiger reported earlier today.
“The Swiss won’t pay anything,” Swiss Finance Minister Eveline Widmer-Schlumpf told reporters today in Bern. “We haven’t got an agreement about the level of a payment.”
The program isn’t up for discussion, said Widmer-Schlumpf, adding that Swiss banks will decide whether the proposal is useful for them.
Seems Painful
“I am convinced that what at first glance seems to be painful for all is better than no solution,” Credit Suisse Chairman Urs Rohner said in an interview with Neue Zuercher Zeitung published yesterday. “To believe that one can just postpone this problem and that it will solve itself isn’t realistic.”
The Department of Justice is requesting delivery of generic data about closing of accounts and money transfers to help resolve matters, the bill said. Data on bank employees will only be passed on after the persons are informed about the scope and type of data that is being sent, the bill said.
The banks will set up a fund of 2.5 million francs to support affected employees in particularly harsh cases, the association of banking employees said in a separate statement.
Switzerland is trying to shed its image as a tax haven after attracting $2.1 trillion to cross-border accounts during an era of undeclared money that started to crumble after UBS AG avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and giving the IRS data on more than 250 accounts. The turnover by UBS of a further 4,450 names, in the face of Swiss laws barring most disclosures of client data, set a precedent for the current settlement.
http://www.washingtonpost.com/business/switzerland-proposes-deal-for-banks-to-resolve-us-dispute/2013/05/29/2f2191e6-c853-11e2-9cd9-3b9a22a4000a_story.html?hpid=z3
Related stories:
Meyerson: Apple’s U.S. revenue should be taxed
Switzerland’s top tax negotiator steps down as showdown with U.S. looms
Push on corporate tax rules goes global
The Bilderberg, Google and the G8: New Global Tax Regime Already in the Works
By Patrick Henningsen
Global Research, May 28, 2013
21stCenturyWire
This year’s annual Bilderberg conference is rapidly approaching – where the world’s political and business elite meet in private to discuss their agenda which will determine future policies that govern global affairs.
Some aspects of this year’s Bilderberg agenda are gradually coming into view, and have the potential for directly affecting not only big multinationals like Google, but every business on the planet.
The secret gathering has been gradually forced into public view in recent years, and the run-up to Bilderberg 2013 has been one of great anticipation and not without its share of news. First came the false start from the alternative media regarding the meeting’s actual location, with many claiming it would be held again at the Westfield Marriot in Chantilly, Virginia.
Two months after, the announcement arrived that the meeting would take place 30 minutes north of London, at the Grove Hotel in Hertfordshire, England, and small media circus is expected the year following the announcement that a ‘Bilderberg Fringe’ festival is being organized adjacent to the venue – an event certain to attract hundreds, if not thousands of revelers, press and alternative media personalities. Add to this the news that long time Bilderberg sleuth and American Free Press correspondent, Jim Tucker had passed away on April 24th. Few people would even know the Bilderberg meetings ever took place if not for 30 years of digging and reporting by veteran journalist Tucker.
Beyond all the fanfare, however, the central question still remains: what items will be on the agenda at this year’s ultra-secret transatlantic steering committee? The answer to this question may be hidden in plain site.
Google is currently engaged in a battle over unpaid taxes in the UK, and which has led political commentators to now call for a new system of global taxation. Not surprisingly, this has become the chief topic of discussion at a series of global summits taking place during May and June.
Here’s how this major issue rose out of the Google debate, and how it will be folded into Bilderberg’s 2013 agenda, and later to the G8 Summit shortly thereafter…
Google’s Big Tent: ‘A Digital-Davos’
This past week witnessed another major global conference held at the very same Grove Hotel in Hertfordshire. The parallels to Bilderberg are striking – they share the same guests, the same venue, observe similar codes on conduct, and no doubt have similar items on their agenda. Google’s ‘Zeitgeist’ Global Summit, or “Big Tent” event, is effectively the internet’s version of a ‘Digital Davos’, where ‘the best and the brightest’ are invited to hear the latest ‘big ideas’, with debates and keynote speeches from the likes of Bill Clinton (Bilderberg member), UK Chancellor George Osborne, UK Labour Party leader Ed Miliband and other celebrities including Stephen Hawking.
It’s worth pointing out here that both Osborne and Miliband have played the role of Google’s adversary in public during their corporation tax row, yet they are the corporation’s VIP guests in private.
Beyond the high profile talks and entertainment, there were of course, some serious discussion about ‘big ideas’ taking place under the big tent. This year’s event also required participants to observe ‘Chatham House Rules’, meaning key conversations should be held in the strictest of confidence and not be leaked to the outside world. As with Bilderberg, Google’s Big Tent discusses serious global changes that affect present and future generations – all behind closed doors.
Other persons of note at this year’s Google retreat were former US attorney general and Bush legal brain, Alberto Gonzales, alongside former Secretary of State Hillary ‘innovation’ adviser, Alec Ross, key Putin advisor Arkady Dvorkovich, and Swedish foreign affairs minister, Carl Bildt (Bilderberg attendee 2006-2012). The profile of Google and Bilderberg guests has seen an incredible overlap in recent years, which is a testament to the corporation’s own stated ambition to achieve a global dominion, not only over its marketplace, but over cultural and political life as well. The reality in 2013 is that Google is poised to manage nearly every aspect of our lives – our communications, our work, our social life and even our history.
Bilderberg’s Digital Tycoons
As Google’s global summit runs smoothly into Bilderberg this year, so have the two meeting agendas. Recent years have seen an increase in the influx of digital tycoons present at Bilderberg. Alongside software moguls like Craig Mundie, Head of Research and Strategy Officer at Microsoft (Bilderberg attendee 2006-2012), and Google CEO Eric Schmidt (Bilderberg attendee 2007-2011), the social media kingpins have also moved in to occupy key positions in Bilderberg’s top steering committees.
A key player in amongst them is Peter Thiel (left), head of Clarium Capital, the digital investment house that provided the financial clout which allowed for online ventures like Paypal, Facebook, LinkedIn and Friendster to dominate their digital marketplaces. Thiel was promoted to Bilderberg committee head in 20ll and has emerged as a key player not only in the online industries, but also as an influencer in US political spheres, gaining attention recently as a prominent backer of Kentucky’s Republican junior Senator Rand Paul.
New global ‘Google Tax’ already in the works
The convergence of the Google Summit, its tax battle, and Bilderberg 2013 may seem innocent enough on its surface, but the timing is no mere coincidence. UK leadership have whipped up a frenzy in the media over Google’s alleged tax sins, leaving the public clamouring for a solution. The words “never let a good crisis go to waste” certainly chime in well here.
Two weeks ago, a major UK clash erupted between No. 10 Downing Street and Google over the issue of corporate tax evasion. Google’s Matt Brittin was grilled by the UK’s Commons Public Accounts Committee (PAC) and its chair Margaret Hodge, who accused Google “doing evil” by using an elaborate array of offshore entities in a “smoke and mirrors” financial maze designed to avoid paying any significant tax into UK coffers. Both PM David Cameron and Chancellor George Osborne also came out loudly in public accusing Google of being ‘immoral’. Google is said to have only chipped in 6 million GBP in 2011 out of its 3 billion GBP turnover in that same year. Google’s Peter Baron claims its in full compliance with UK law, issuing the public statement last week that, “None of the allegations put to us change the fact that Google pays the corporate tax due on its UK activities and complies fully with UK law.”
Will Google throw in the towel and submit to a British tax resolution?
The fact of matter is Google is powerful and with a net worth that trumps some countries. These days much of the world’s commerce runs through Google in some way, and their brand recognition and money buys influence in Britain, and everywhere else it seems. So it’s doubtful that any British politico could strong-arm Google. Behind the scenes both Google and Britain’s political elite share a place at central planning’s top round table – as members of the Bilderberg Group and that’s where the really ‘big ideas’ are not just discussed, but actually transmitted into policy.
As the public feud between Google and Downing Street takes centre stage, backstage both UK Chancellor George Osborne and Google CEO Eric Schmidt – both committed fellow Bilderberg members, are said to have met in private at the Google event, and are poised to do so again at Bilderberg 2013. Both have attended the annual meeting almost continuously since 2006.
So this apparent Punch ‘n Judy match between Google and Downing Street appears just three weeks before this year’s Bilderberg summit, and four weeks before the G8, and suddenly the UK government and media outlets have become infested with a the new talking point: “we need for a new ‘global profit tax’.
While addressing the Google tax loophole, the UK’s Independent newspaper led by its liberal-leaning economics editor Ben Chu, goes on to essentially lay-out what is likely to be at the top of the agenda at Bilderberg 2013:
“The cascade of revelations in recent months showing multinational companies doing a huge amount of business here and yet paying virtually no corporation tax has provoked widespread public demands for something to be done.
National governments could and should try to put a stop to this egregious “profit shifting” on their own. But a unilateral approach is plainly second best.
The natural solution is to secure an agreement by all the world’s governments to tax the profits of multinational firms collectively and to divide up the revenues fairly between them. This division could be based on the amount of business done by the multinational in their various territories as revealed by their turnover and number of employees.”
Global tax means global government
So is Google supplying the Trojan horse needed to implement a global taxation system that many have been warning about for so many years? Maybe.
Will Bilderberg’s global elite use this perfect crisis moment as a pretext to build the framework for global taxation? Most likely.
If the idea passes through Bilderberg in June, will it then be rubber stamped later at the G8? Highly likely.
Although happy to float such a revolutionary idea in the media in advance of back-to-back Google and Bilderberg summits at the Grove Hotel, and later at the G8, one thing which global taxation advocates fail to mention here is that if you institute a global taxation system then you would then need a global government to administrate it. Yes, you heard that right: global taxation = global government.
It would be naive to think that any tax could be levied without a government standing behind it. That is, after all, part of the definition of a tax. Campaigners will deny it exists, but the reality is that global governing bodies have already been put into place long ago.
UK Column Editor Mike Robinson explains, “I think that the embryonic global institutions are already in place, and we’re going to see them being given more and more real ‘jobs’ to do as time goes on, and collecting corporation tax is clearly going to be one of those”.
History can certainly prove one thing: that the world’s wealthiest individuals corporations have consistently exploited all international tax loopholes for years now. Whatever commentators like Ben Chu and others are proposing will obviously be much easier to enforce on small to medium size businesses, as well as individual traders – all of whom have significantly less political leverage (and no invitations to Bilderberg) than the Googles and Facebooks of the world.
Post-Bilderberg: G8 Summit
Following the ratification of Bilderberg’s 2013 agenda in Watford on June 6–9th, the next step is normally to disseminate this same agenda on to the G8 heads of state. Conveniently, this year’s G8 summit will held June 17-18 at the Lough Erne golf resort in Fermanagh, Northern Ireland. David Cameron and George Osborne’s new plan for Google is already expected to be very high on the agenda at the G8 meeting, where world leaders including Barack Obama and Vladimir Putin will be in attendance. Henceforth, ahead of the G8, the UK government is expected to play their key role in promoting the new global tax system, by publically advocating, “new strong international standards to make sure that global companies pay the tax they owe.”
Coincidentally, this year’s G8 in Northern Ireland will be the biggest police operation in country’s history (and that’s saying a lot), with an estimated 8,000 officers from the surrounding counties, and from as far as England and Wales, all drafted in to secure the area for what many now believe has essentially become a global government operations meeting in all but name.
Other recent attempts at a global tax
The financial component of this global tax and government equation is actually already in place, and that is the World Bank. The first administrative working model for a global taxation structure was originally unveiled in 2009 at the United Nations Climate Summit in Copenhagen. Delegates at that event floated their plan for a global carbon tax that would be collected and then deposited into a slush fund which was to be administered by the World Bank. There plan also entailed the poorer, developing nations footing most of the bill for this operation, while the wealthier nations would receive a free pass. The secret plan was thwarted at the last minute thanks to the infamous Danish Text Leak, which were serialized in the Guardian newspaper at the time.
Although popular in socialist circles, few have dared reveal the true picture of a global tax regime for fear of triggering a public backlash. Another such tax proposals have been pushed into the public sphere through the Occupy Movement in 2011, with called for a global tax on financial transactions, or a global “Robin Hood Tax”. As was the case in Copenhagen two years earlier, proponents called for a tax structure without borders, yet few dared mention who would be in charge of administering and distributing the revenues. Such plans pose the very real danger of further centralizing power into the international banking community who would be asked to handle and perhaps hypothecate on these enormous slush funds.
Which brings us back to this latest global ‘google tax’ proposal, which ultimately begs the question: when will their global government structure be unveiled?
Serving the global collective
Plans for erecting an entirely new global tax system should worry anyone who values the concept of national sovereignty because any solution that entails the collection of tax by way of elite international “collective” of nations, and where “revenues are to divided up fairly between them” is suggesting a form of global collectivism, or communism. This is also the fundamental problem with EU plans to levy new taxes on member nations – for any citizen it’s simply another master to serve.
Shocking as that may be, these issues are exactly what is being discussed behind closed doors at each of these global summits taking place in May and June of 2013.
What’s worse, is that this entire construct could be ushered in without any vote being cast by an citizen in the individual countries – which is about as undemocratic as it gets. This remains one of the fundamental flaws at the heart of the ultra-liberal utopian ideal which is global government.
http://www.globalresearch.ca/the-bilderberg-google-and-the-g8-new-global-tax-regime-already-in-the-works/5336719
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Fort Knox, Fort Hocks or Fort Shocks: Three United States Gold Scenarios
by Stewart Dougherty
24hGold
From the Archives
Originally published July 24th, 2009
For 72 years, the building at the intersection of Bullion Boulevard and Gold Vault Road in Fort Knox, Kentucky has symbolized the financial strength of the United States of America. The United States Bullion Depository, better known as Fort Knox, is said to contain 147.3 million troy ounces of gold, over half the nation’s total reported gold bullion holdings of 261.5 million troy ounces. The remaining 114 million ounces are said to be stored at the Denver and Philadelphia Mints, the West Point Bullion Depository, and the San Francisco Assay Office. Assuming a price of $1,000 / ounce, the nation’s gold is worth $261.5 billion. If the metal is actually there, it represents the largest sovereign stockpile of gold bullion in the world.
However, the gold holdings of the U.S. have not been audited in more than 50 years. One reason given for the lack of an audit is that it would be “too expensive” to conduct one. An audit would cost a few million dollars, at most, so using cost as a reason for not performing it strains belief when placed in the context of the country’s Fiscal Year 2009 deficit of $2,000,000,000,000.00+, and federal debt of $11,600,000,000,000.00+. It is curious that one of the few places within the government where costs appear to be of concern relates to an audit of the one, true monetary asset possessed by the American people.
Even the Treasury Department’s clandestine $50 billion Exchange Stabilization Fund (ESF), which is only one-fifth the value of America’s reported gold holdings, undergoes an annual audit. For fiscal year 2008, this audit was conducted by KPMG, a well-known, independent CPA firm. KPMG’s 2008 ESF audit uncovered “significant deficiencies,” “material weaknesses,” a “weak control environment,” and “several control deficiencies.” If a Treasury organization subject to annual audits could fail its recent exam as broadly as that, what are we to assume about the safety and security of the people’s gold supply, which, like the national money geyser, the Federal Reserve Bank is never audited? And if the ESF is audited each year, what legitimate rationale can there be for not auditing the nation’s gold supply? Something isn’t adding up. In such a situation, inferential analysis can provide value, which you will see as this article progresses.
The financial events of the past year demonstrate beyond any reasonable doubt that the United States government is now of Wall Street, by Wall Street and for Wall Street, in general, and of, by and for Goldman Sachs, in particular. This inversion of power and privilege was partly brought about by an explosion in government debt. The government relies on Wall Street to roll over existing and sell new debt issues. Debt is now hitting the market like a tidal wave, given the country’s record-shattering deficits and costly Wall Street bailouts. If the paper cannot be sold at expected interest rates, then the debt-addicted system will go into seizure.
The radical empowerment and enrichment of Wall Street has transformed our democracy into an aristocracy, making the debt dealers the nation’s new royalty, the government its feudal barons, and the citizens mere serfs who endlessly sweat and toil in fields of debt weeds that grow so fast they can never, ever be harvested.
Predictably, in such an aristocracy, an iron curtain of secrecy and non-transparency has descended across the land, separating Wall Street and government on one side, and the people on the other. While the people are deluged with generally useless government data that numbs their minds (as an example, a recent search of the Federal Reserve web site for “United States government 2008 financial statement” produced an unmanageable avalanche of 520,817 entries), simple, truly important information, such as audited gold reserve statistics, accurate monetary aggregates like M3, the names of taxpayer-funded TARP, TALF and other bailout recipients, and audited Federal Reserve Bank financials, is kept a state secret, using the hackneyed excuse that “it’s for the people’s good.” Autocracies have always tried to convince the masses that ignorance is freedom, and that knowledge is enslavement.
The colossal conflict of interest that has developed between government -Wall Street axis, which hides behind the iron curtain of secrecy, and the citizens who stand in front of it now requires the people to-second guess everything they are told, for their own protection. The financial interests of a government controlled by avaricious, bonus-focused financiers are directly opposed to those of the people, since government revenues come directly from the people. What the government gains, the people lose, in the zero sum game of government finance. Which brings us to a more detailed examination of the people’s gold.
For the past 28.5 years, from 1980 through June, 2009, the United States government’s gold holdings have been reported as being essentially constant, at around 262 million ounces. Gold hit a nominal price high of $850.00 per ounce in January, 1980, when a severe recession was developing. (Compared to today, 1980 looks like the bubbliest part of the Roaring 1920s.) Inflation-adjusted (using government CPI figures, which are hotly debated), that price would now exceed $2,400 per ounce, whereas the current market price is only $950.00 per ounce. As GATA (www.gata.org) has demonstrated beyond any doubt, U.S. Treasury and Federal Reserve officials actively monitor and seek to suppress the gold price, because a rising price can signal fiscal, economic and/or fiat currency distress, things that are bad for markets and embarrassing for governments. (GATA’s work in this area has been nothing short of heroic, and is well worth examining in detail.) For gold to be selling today at only 40% of its 1980 inflation-adjusted price, in the midst of the worst financial crisis in the nation’s history, is curious.
While the United States gold supply is said to be constant, the holdings of many other nations, with the general exception of export-rich Asian countries, has declined, oftentimes radically. According to the World Gold Council, Canada’s gold reserves are down 99.5% from 1980 to today; Australia’s are down 68%; Austria’s are down 57%; Belgium’s are down 79%; The Netherlands’ are down 55%; Portugal’s are down 45%; Spain’s are down 38%; Norway’s are down 100%; Sweden’s are down 30%; the United Kingdom’s are down 47%; South Africa’s are down 67%; Argentina’s are down 60%; Mexico’s are down 92%; Brazil’s are down 41%; and the European Central Bank’s are down 33% (since 1999, its first reporting year). Even Switzerland, a country with a long-term affinity for gold, has slashed its reserves by 60%. Official world gold holdings (held by all nations plus international financial organizations such as the BIS, the IMF and the ECB) are down 17%, despite large gold reserve increases by countries such as China, Taiwan, India and Russia that moderated the larger percentage declines in the many nations noted above.
However, the United States’ gold holdings are said to be down a mere 1% during this 28.5 year period, even though the country’s debt has surged from $712 billion to $11.6 trillion and its unfunded contingent liabilities have exploded to more than $90,000,000,000,000.00. So while other countries with far less debt and far better balance sheets slashed their gold holdings to raise money for various government purposes, the United States, with its surging debt and staggering deficits did not. Inconsistencies like this are worth exploring; sometimes they represent golden opportunities.
If the United States were a corporation or an individual, it would be considered completely non-credit worthy given its disastrous finances. The U.S.A. would not qualify for an Exxon credit card, let alone for the trillions of dollars it is borrowing in the global bond market. One way those in financial distress can obtain credit is to post bona fide collateral. Some consider a country’s future tax receipts to be a form of collateral, but in the case of the United States, this is not so, because according to the Congressional Budget Office, the country will run multi-hundred billion dollar annual deficits for the next 70 years and beyond. So according to the CBO, the nation’s future tax revenues are already spent. Hypothetically, the nation could sell its national parks, or its mineral and/or energy rights, but this would be a radical, last ditch solution that has not even been publicly debated. For all practical purposes, the country’s only true collateral is the gold in Fort Knox and related depositories.
Those who are lending the United States money, by buying its Treasuries and other debt instruments, must be competent capitalists. If they have billions to lend, they obviously know how to earn and manage money. These lenders simply cannot be oblivious to America’s financial situation, and must certainly understand the concept of collateral.
As of July 17, 2009, the nation’s top few bullion banks were short 19.5 million ounces of gold on the futures exchanges. This highly concentrated short position was reportedly held by 4 or fewer major money-center banks. At a gold price that day of roughly $940.00 / ounce, the dollar value of this short position was $1,833,000,000.00, or $1.83 billion. A mere $10.00 / ounce decline in the price of gold would give the banks a profit of $195,000,000.00. A price increase of the same amount would produce a loss of $195,000,000.00, in other words, serious money in either direction. Given the financial crisis and the myriad problems affecting the banks, such as toxic derivatives and non-performing loans, why they would risk $1.8 billion on naked gold shorts in the world’s most volatile financial casino, the commodities and precious metals futures market, is difficult to understand, unless they know things or have other advantages that the rest of the marketplace does not.
In inferential analysis, we look at what might appear to be unrelated facts to see if, in reality, there might be connecting strands among them. These connections help explain situations that otherwise defy logic. Even though isolated facts might be mute and uninteresting, they often tell an important story when combined. Sometimes, conjoined facts sing like canaries. We believe events in the gold market are trying to tell a tale, and we posit three general scenarios relating to the nation’s gold reserves: Fort Knox, Fort Hocks and Fort Shocks.
FORT KNOX. In this scenario, the citizens of the United States own the exact amount of gold that is reported by the Treasury Department and the Federal Reserve: 261.5 million ounces. The gold supply is owned free and clear by the United States and its citizens. It is not swapped, hypothecated, pledged, exchanged, leased, sold, claimed, conditionally offered or in any other way compromised with respect to ownership. A full audit of the gold would prove that it exists strictly in bullion form (with no “paper bullion” or third party warehouse receipts) in the stated depositories. Based on recent fiscal, financial, monetary and economic developments, we view this scenario as possible, but extremely unlikely.
FORT HOCKS: In this scenario, an audit will show that a significant portion of the citizens’ gold has been mobilized by the Treasury and / or the Federal Reserve; in other words, that it has been hocked at the global financial system’s pawn shop. There are many possible means by which this could have happened; we list only a few.
1.) The gold backstops favored bullion banks’ trading activities: In this scenario, the government has contracted with a small number of favored bullion banks to have them manipulate the gold price so it remains within federal targets. They would achieve this by large-scale shorting and related market-intervention techniques. This helps explain why a small number of major NYC money center banks are currently short 19.5 million ounces of gold, which would otherwise be a reckless, irresponsible gamble with shareholder assets, and a possible violation of the banks’ fiduciary duty, particularly in the current financial crisis. The banks have been guaranteed that if an exogenous event increases the gold price, their short positions will be “backstopped” by U.S. gold reserves. In other words, if a major bank failure, terrorist event, natural catastrophe, war or other major domestic or international event drives the gold price higher, exposing the banks to trading losses on their shorts, then the government will supply them with the bullion needed to close out their positions and cancel their losses. This is entirely consistent with the recent bailouts, where the government has purchased the banks’ toxic assets with taxpayer money, sterilizing their losses at citizen expense.
This scenario creates a money machine for the bullion banks. They can short gold with a government guarantee against losses, and can cover at lower prices, after they have driven the longs out of their positions. Operating like this, they can profit on up and down price moves, since they will create them. As noted above, the profits generated from these types of “bear raids” and subsequent “bull covers” can be enormous. ($195,000,000.00 for every $10.00 price decline given the bullion banks’ current short position.) The banks can launch these raids repeatedly at virtually no risk, since dumping large amounts of gold onto the futures market creates predictable price declines. However, if the government needs to backstop the banks (due to trades gone wrong that are backstopped and insured), then the gold must come from the United States’ gold reserve. There have been hundreds of $10.00 and dozens of $50 – 100.00+ price declines during the current bull market, indicating that the bullion banks have potentially made tens of billions of dollars’ worth of profits, given that they have consistently been short the gold market during these price episodes. If they have not been profiting from these short positions, why would they have continued to hold them for years, and continue to hold them today? One further point: since futures represent a zero-sum game, where every profit means an identical loss for another party, any bank gains have come at the direct expense of other investors who have been losing in a rigged, corrupt casino that is riddled with fraud.
2.) Leasing for profit: In this scenario, the government has leased all or a portion of the nation’s gold to earn interest on its value, or simply to mobilize the gold as a way for bullion banks to keep the price within targets. However, in this case there is no government “backstop” or guarantee if the bullion banks’ shorts go bad; the banks are responsible for their own trades. In this case, the government assumes counterparty risk, because if the bullion banks’ naked shorting operations produce losses, then the banks may be unable to return the borrowed gold to the government. This is a Las Vegas gamble on the part of the bullion banks and the government. However, if the government is willing to lend large quantities of gold to the bullion banks, this will give the banks enormous leverage in the marketplace, and the ability to drive down the price of gold, thereby generating significant profits at the longs’ expense. The banks are fully exposed to the risk that exogenous events could increase the price of gold, creating losses on their short positions. However, if the gold price does increase, the banks might be able to “double down” by borrowing additional bullion from the government, in an ongoing effort to crush the price. With potentially tens of millions ounces at their disposal from the United States, plus additional gold possibly available from other central banks, producers and operators of the new Exchange Traded Funds, the shorts could cause serious price damage, though they would have to take risks to win. As in scenario #1 above, the profits from such trading operations are potentially huge. Leasing has existed in the market for years, with gold supplied by central banks and miners. Much of this hedging activity has been curtailed with respect to miners, but due to the culture of secrecy and non-transparency at central banks, their exact activities are an unreported state secret and a mystery. Recent government rhetoric about transparency has clearly been disingenuous.
3.) The government is actively trading gold. In this scenario, the government is trading gold on the futures exchanges, for profit and to control the price, either directly (under a secret trading name) or indirectly (using proxies), and either on-shore or offshore. This activity could be conducted by the Working Group on Financial Markets or some other government-funded financial entity. Any trading losses could be settled by delivering to the exchange(s) gold from the United States’ official reserve.
FORT SHOCKS: In this general scenario, and audit would reveal that America’s gold is gone, either in whole, or in part. It might have been sold outright, pledged to counterparties, or otherwise distributed. The belief that there are millions of ounces of gold in Ft. Knox would therefore be a great American delusion. America’s gold could have been sold or exchanged in several ways. Here are a few:
1) Foreign purchasers of U.S. Treasury and/or Agency debt simultaneously demanded the right to purchase U.S. gold, to offset currency and other risks associated with the debt. In this scenario, China, Japan and/or other governments demanded and won the right to purchase “x” ounces of United States gold for every “y” dollars of United States debt. This would compensate the debt purchasers for likely dollar devaluation given current fiscal deficits and fast-growing national indebtedness. This would also provide debt purchasers with some insurance against default, since default would most likely result in a rising gold price. Since the U.S. economy is now completely debt-based, maintaining an orderly debt market is the nation’s top fiscal and financial priority. Selling national gold to keep the debt market functioning smoothly would be considered by authorities a small price to pay.
2) Backstopping guarantees were invoked. In this scenario, recent rallies in the gold market caught the bullion banks short, and enabled them to receive gold from the government as part of the backstopping guarantees they negotiated. This gold was used by the banks to settle their short positions and cover losses. This gold would be sold into the open market, and never returned to the official U.S. reserve.
3) Government sold gold to raise cash. Over the 50 year non-audit period, government needed money and did not want to issue additional debt at the time. Therefore, it sold gold into the market to raise funds, just as numerous other central banks have done in recent years.
4) Gold leases with a “cash settlement” option. In this case, the government leased gold to third parties, such as bullion banks, with a “cash settlement” option, as opposed to demanding that the gold be returned at the termination of the leases. For whatever reasons, the bullion banks exercised the cash settlement option, and did not return the borrowed gold. In this scenario, the gold would never be returned to the official U.S. reserve.
5) A portion of the gold supply has been stolen, or has otherwise disappeared. The Royal Mint of Canada announced in June, 2009 that 17,500 ounces of Mint gold had been lost or stolen. This disappearance was confirmed during an audit of the Mint by Deloitte & Touche, CPAs, under the direction of the Auditor General of Canada. (If Canada audits its gold, why doesn’t the United States?) Regarding security, the Mint’s web site states: “The rigour of our production standards is equalled by the stringency of our security protocols. The refinery is a restricted environment controlled by security personnel supported by state-of-the-art surveillance technology.” If it could happen there, could it not happen here, particularly over a period of 50 years? This is exactly why you conduct audits.
6) All or a portion of the gold simply cannot be accounted for. In this scenario, the paper trail for the nation’s gold fails, with errors, gaps and inconsistencies, and no one even begins to know how to re-create it. If gold is missing, no one knows when it went so or how to find it, since there are so many years (50) to account for. This would be similar to the $50+ billion in cash that is missing in Iraq. That money was stolen recently, and even so, no one can account for or find it.
Implications. If the Fort Knox scenario prevails, it is a non-event. Since there is no change in the nation’s gold supply, the status quo is maintained.
If the Fort Hocks scenario prevails, then the government has orchestrated a market manipulation scandal that is equivalent in nature to Enron, Worldcom, Madoff and all the other frauds in the sordid panoply, but that dwarfs them in dollar value and sheer, outright dishonesty. The revelation that a first world government had deliberately engineered such a market manipulation, resulting in tens of billions of losses to honest investors, while simultaneously producing epic, illicit profits for favored inside traders would be a shock to all markets and investors. An insider trading scandal of such alarming, unprecedented proportions would constitute an inexcusable abuse of power, and represent fraud and corruption on a third world scale. It would not just damage the reputations of America’s monetary institutions, it would destroy them.
If the Fort Shocks scenario prevails, it would have severe implications for the dollar, because it would demonstrate that the United States’ financials are deliberately distorted for monetary and political reasons. Even though the dollar amount of this scandal ($262 billion) would be miniscule in comparison with the government’s 2009 deficit ($2 trillion), debt ($11.6 trillion) and combined debt and unfunded contingent liabilities ($90 trillion), it might serve as a tipping point, where faith in America’s finances and confidence in its government are lost. If America’s gold reserve position is a lie, then what else has been distorted, and where, if anywhere, is the truth?
Keep in mind that the fiscal year, 2009 deficit is currently running at $5,479,000,000.00 per DAY. So even if the Fort Knox scenario prevails and the 261.5 million ounces of citizen gold are safe and accounted for, their dollar value is completely destroyed by only 47 days’ worth of deficits. America’s gold cannot protect it from the national wealth wipeout that intensifies each and every day.
The United States could put these concerns to rest simply by auditing the gold and publicly reporting the findings. And yet, despite repeated attempts by such organizations as GATA to get them to do that, they refuse. Why? Is it because Treasury and Federal Reserve officials know that the results would be explosive, and similar to what has been outlined in the Fort Hocks and Fort Shocks scenarios above?
If it becomes known that the United States has surreptitiously hocked or sold its citizens’ gold, the price per ounce would most likely explode. Conceivably, gold would have its first $500 up day as people threw in the towel on other forms of “money” they could no longer understand or trust.
While inferential analysis is not used to prove a hypothesis (there are other forms of analysis that can offer proofs, when the facts exist to create them), it can be extremely useful in pointing to the truth when important facts about a situation are not available or revealed. Even though this report does not prove the hypothesis that the United States’ gold position is compromised, perhaps radically, the risk/reward dynamics of this situation are so interesting that we believe it is worth paying attention to the opportunity they provide.
http://www.24hgold.com/english/news-gold-silver-fort-knox-fort-hocks-or-fort-shocks-three-united-states-gold-scenarios.aspx?article=2219844990G10020&redirect=false&contributor=Stewart+Dougherty
Fort Knox, Fort Hocks or Fort Shocks: Three United States Gold Scenarios
by Stewart Dougherty
24hGold
From the Archives
Originally published July 24th, 2009
For 72 years, the building at the intersection of Bullion Boulevard and Gold Vault Road in Fort Knox, Kentucky has symbolized the financial strength of the United States of America. The United States Bullion Depository, better known as Fort Knox, is said to contain 147.3 million troy ounces of gold, over half the nation’s total reported gold bullion holdings of 261.5 million troy ounces. The remaining 114 million ounces are said to be stored at the Denver and Philadelphia Mints, the West Point Bullion Depository, and the San Francisco Assay Office. Assuming a price of $1,000 / ounce, the nation’s gold is worth $261.5 billion. If the metal is actually there, it represents the largest sovereign stockpile of gold bullion in the world.
However, the gold holdings of the U.S. have not been audited in more than 50 years. One reason given for the lack of an audit is that it would be “too expensive” to conduct one. An audit would cost a few million dollars, at most, so using cost as a reason for not performing it strains belief when placed in the context of the country’s Fiscal Year 2009 deficit of $2,000,000,000,000.00+, and federal debt of $11,600,000,000,000.00+. It is curious that one of the few places within the government where costs appear to be of concern relates to an audit of the one, true monetary asset possessed by the American people.
Even the Treasury Department’s clandestine $50 billion Exchange Stabilization Fund (ESF), which is only one-fifth the value of America’s reported gold holdings, undergoes an annual audit. For fiscal year 2008, this audit was conducted by KPMG, a well-known, independent CPA firm. KPMG’s 2008 ESF audit uncovered “significant deficiencies,” “material weaknesses,” a “weak control environment,” and “several control deficiencies.” If a Treasury organization subject to annual audits could fail its recent exam as broadly as that, what are we to assume about the safety and security of the people’s gold supply, which, like the national money geyser, the Federal Reserve Bank is never audited? And if the ESF is audited each year, what legitimate rationale can there be for not auditing the nation’s gold supply? Something isn’t adding up. In such a situation, inferential analysis can provide value, which you will see as this article progresses.
The financial events of the past year demonstrate beyond any reasonable doubt that the United States government is now of Wall Street, by Wall Street and for Wall Street, in general, and of, by and for Goldman Sachs, in particular. This inversion of power and privilege was partly brought about by an explosion in government debt. The government relies on Wall Street to roll over existing and sell new debt issues. Debt is now hitting the market like a tidal wave, given the country’s record-shattering deficits and costly Wall Street bailouts. If the paper cannot be sold at expected interest rates, then the debt-addicted system will go into seizure.
The radical empowerment and enrichment of Wall Street has transformed our democracy into an aristocracy, making the debt dealers the nation’s new royalty, the government its feudal barons, and the citizens mere serfs who endlessly sweat and toil in fields of debt weeds that grow so fast they can never, ever be harvested.
Predictably, in such an aristocracy, an iron curtain of secrecy and non-transparency has descended across the land, separating Wall Street and government on one side, and the people on the other. While the people are deluged with generally useless government data that numbs their minds (as an example, a recent search of the Federal Reserve web site for “United States government 2008 financial statement” produced an unmanageable avalanche of 520,817 entries), simple, truly important information, such as audited gold reserve statistics, accurate monetary aggregates like M3, the names of taxpayer-funded TARP, TALF and other bailout recipients, and audited Federal Reserve Bank financials, is kept a state secret, using the hackneyed excuse that “it’s for the people’s good.” Autocracies have always tried to convince the masses that ignorance is freedom, and that knowledge is enslavement.
The colossal conflict of interest that has developed between government -Wall Street axis, which hides behind the iron curtain of secrecy, and the citizens who stand in front of it now requires the people to-second guess everything they are told, for their own protection. The financial interests of a government controlled by avaricious, bonus-focused financiers are directly opposed to those of the people, since government revenues come directly from the people. What the government gains, the people lose, in the zero sum game of government finance. Which brings us to a more detailed examination of the people’s gold.
For the past 28.5 years, from 1980 through June, 2009, the United States government’s gold holdings have been reported as being essentially constant, at around 262 million ounces. Gold hit a nominal price high of $850.00 per ounce in January, 1980, when a severe recession was developing. (Compared to today, 1980 looks like the bubbliest part of the Roaring 1920s.) Inflation-adjusted (using government CPI figures, which are hotly debated), that price would now exceed $2,400 per ounce, whereas the current market price is only $950.00 per ounce. As GATA (www.gata.org) has demonstrated beyond any doubt, U.S. Treasury and Federal Reserve officials actively monitor and seek to suppress the gold price, because a rising price can signal fiscal, economic and/or fiat currency distress, things that are bad for markets and embarrassing for governments. (GATA’s work in this area has been nothing short of heroic, and is well worth examining in detail.) For gold to be selling today at only 40% of its 1980 inflation-adjusted price, in the midst of the worst financial crisis in the nation’s history, is curious.
While the United States gold supply is said to be constant, the holdings of many other nations, with the general exception of export-rich Asian countries, has declined, oftentimes radically. According to the World Gold Council, Canada’s gold reserves are down 99.5% from 1980 to today; Australia’s are down 68%; Austria’s are down 57%; Belgium’s are down 79%; The Netherlands’ are down 55%; Portugal’s are down 45%; Spain’s are down 38%; Norway’s are down 100%; Sweden’s are down 30%; the United Kingdom’s are down 47%; South Africa’s are down 67%; Argentina’s are down 60%; Mexico’s are down 92%; Brazil’s are down 41%; and the European Central Bank’s are down 33% (since 1999, its first reporting year). Even Switzerland, a country with a long-term affinity for gold, has slashed its reserves by 60%. Official world gold holdings (held by all nations plus international financial organizations such as the BIS, the IMF and the ECB) are down 17%, despite large gold reserve increases by countries such as China, Taiwan, India and Russia that moderated the larger percentage declines in the many nations noted above.
However, the United States’ gold holdings are said to be down a mere 1% during this 28.5 year period, even though the country’s debt has surged from $712 billion to $11.6 trillion and its unfunded contingent liabilities have exploded to more than $90,000,000,000,000.00. So while other countries with far less debt and far better balance sheets slashed their gold holdings to raise money for various government purposes, the United States, with its surging debt and staggering deficits did not. Inconsistencies like this are worth exploring; sometimes they represent golden opportunities.
If the United States were a corporation or an individual, it would be considered completely non-credit worthy given its disastrous finances. The U.S.A. would not qualify for an Exxon credit card, let alone for the trillions of dollars it is borrowing in the global bond market. One way those in financial distress can obtain credit is to post bona fide collateral. Some consider a country’s future tax receipts to be a form of collateral, but in the case of the United States, this is not so, because according to the Congressional Budget Office, the country will run multi-hundred billion dollar annual deficits for the next 70 years and beyond. So according to the CBO, the nation’s future tax revenues are already spent. Hypothetically, the nation could sell its national parks, or its mineral and/or energy rights, but this would be a radical, last ditch solution that has not even been publicly debated. For all practical purposes, the country’s only true collateral is the gold in Fort Knox and related depositories.
Those who are lending the United States money, by buying its Treasuries and other debt instruments, must be competent capitalists. If they have billions to lend, they obviously know how to earn and manage money. These lenders simply cannot be oblivious to America’s financial situation, and must certainly understand the concept of collateral.
As of July 17, 2009, the nation’s top few bullion banks were short 19.5 million ounces of gold on the futures exchanges. This highly concentrated short position was reportedly held by 4 or fewer major money-center banks. At a gold price that day of roughly $940.00 / ounce, the dollar value of this short position was $1,833,000,000.00, or $1.83 billion. A mere $10.00 / ounce decline in the price of gold would give the banks a profit of $195,000,000.00. A price increase of the same amount would produce a loss of $195,000,000.00, in other words, serious money in either direction. Given the financial crisis and the myriad problems affecting the banks, such as toxic derivatives and non-performing loans, why they would risk $1.8 billion on naked gold shorts in the world’s most volatile financial casino, the commodities and precious metals futures market, is difficult to understand, unless they know things or have other advantages that the rest of the marketplace does not.
In inferential analysis, we look at what might appear to be unrelated facts to see if, in reality, there might be connecting strands among them. These connections help explain situations that otherwise defy logic. Even though isolated facts might be mute and uninteresting, they often tell an important story when combined. Sometimes, conjoined facts sing like canaries. We believe events in the gold market are trying to tell a tale, and we posit three general scenarios relating to the nation’s gold reserves: Fort Knox, Fort Hocks and Fort Shocks.
FORT KNOX. In this scenario, the citizens of the United States own the exact amount of gold that is reported by the Treasury Department and the Federal Reserve: 261.5 million ounces. The gold supply is owned free and clear by the United States and its citizens. It is not swapped, hypothecated, pledged, exchanged, leased, sold, claimed, conditionally offered or in any other way compromised with respect to ownership. A full audit of the gold would prove that it exists strictly in bullion form (with no “paper bullion” or third party warehouse receipts) in the stated depositories. Based on recent fiscal, financial, monetary and economic developments, we view this scenario as possible, but extremely unlikely.
FORT HOCKS: In this scenario, an audit will show that a significant portion of the citizens’ gold has been mobilized by the Treasury and / or the Federal Reserve; in other words, that it has been hocked at the global financial system’s pawn shop. There are many possible means by which this could have happened; we list only a few.
1.) The gold backstops favored bullion banks’ trading activities: In this scenario, the government has contracted with a small number of favored bullion banks to have them manipulate the gold price so it remains within federal targets. They would achieve this by large-scale shorting and related market-intervention techniques. This helps explain why a small number of major NYC money center banks are currently short 19.5 million ounces of gold, which would otherwise be a reckless, irresponsible gamble with shareholder assets, and a possible violation of the banks’ fiduciary duty, particularly in the current financial crisis. The banks have been guaranteed that if an exogenous event increases the gold price, their short positions will be “backstopped” by U.S. gold reserves. In other words, if a major bank failure, terrorist event, natural catastrophe, war or other major domestic or international event drives the gold price higher, exposing the banks to trading losses on their shorts, then the government will supply them with the bullion needed to close out their positions and cancel their losses. This is entirely consistent with the recent bailouts, where the government has purchased the banks’ toxic assets with taxpayer money, sterilizing their losses at citizen expense.
This scenario creates a money machine for the bullion banks. They can short gold with a government guarantee against losses, and can cover at lower prices, after they have driven the longs out of their positions. Operating like this, they can profit on up and down price moves, since they will create them. As noted above, the profits generated from these types of “bear raids” and subsequent “bull covers” can be enormous. ($195,000,000.00 for every $10.00 price decline given the bullion banks’ current short position.) The banks can launch these raids repeatedly at virtually no risk, since dumping large amounts of gold onto the futures market creates predictable price declines. However, if the government needs to backstop the banks (due to trades gone wrong that are backstopped and insured), then the gold must come from the United States’ gold reserve. There have been hundreds of $10.00 and dozens of $50 – 100.00+ price declines during the current bull market, indicating that the bullion banks have potentially made tens of billions of dollars’ worth of profits, given that they have consistently been short the gold market during these price episodes. If they have not been profiting from these short positions, why would they have continued to hold them for years, and continue to hold them today? One further point: since futures represent a zero-sum game, where every profit means an identical loss for another party, any bank gains have come at the direct expense of other investors who have been losing in a rigged, corrupt casino that is riddled with fraud.
2.) Leasing for profit: In this scenario, the government has leased all or a portion of the nation’s gold to earn interest on its value, or simply to mobilize the gold as a way for bullion banks to keep the price within targets. However, in this case there is no government “backstop” or guarantee if the bullion banks’ shorts go bad; the banks are responsible for their own trades. In this case, the government assumes counterparty risk, because if the bullion banks’ naked shorting operations produce losses, then the banks may be unable to return the borrowed gold to the government. This is a Las Vegas gamble on the part of the bullion banks and the government. However, if the government is willing to lend large quantities of gold to the bullion banks, this will give the banks enormous leverage in the marketplace, and the ability to drive down the price of gold, thereby generating significant profits at the longs’ expense. The banks are fully exposed to the risk that exogenous events could increase the price of gold, creating losses on their short positions. However, if the gold price does increase, the banks might be able to “double down” by borrowing additional bullion from the government, in an ongoing effort to crush the price. With potentially tens of millions ounces at their disposal from the United States, plus additional gold possibly available from other central banks, producers and operators of the new Exchange Traded Funds, the shorts could cause serious price damage, though they would have to take risks to win. As in scenario #1 above, the profits from such trading operations are potentially huge. Leasing has existed in the market for years, with gold supplied by central banks and miners. Much of this hedging activity has been curtailed with respect to miners, but due to the culture of secrecy and non-transparency at central banks, their exact activities are an unreported state secret and a mystery. Recent government rhetoric about transparency has clearly been disingenuous.
3.) The government is actively trading gold. In this scenario, the government is trading gold on the futures exchanges, for profit and to control the price, either directly (under a secret trading name) or indirectly (using proxies), and either on-shore or offshore. This activity could be conducted by the Working Group on Financial Markets or some other government-funded financial entity. Any trading losses could be settled by delivering to the exchange(s) gold from the United States’ official reserve.
FORT SHOCKS: In this general scenario, and audit would reveal that America’s gold is gone, either in whole, or in part. It might have been sold outright, pledged to counterparties, or otherwise distributed. The belief that there are millions of ounces of gold in Ft. Knox would therefore be a great American delusion. America’s gold could have been sold or exchanged in several ways. Here are a few:
1) Foreign purchasers of U.S. Treasury and/or Agency debt simultaneously demanded the right to purchase U.S. gold, to offset currency and other risks associated with the debt. In this scenario, China, Japan and/or other governments demanded and won the right to purchase “x” ounces of United States gold for every “y” dollars of United States debt. This would compensate the debt purchasers for likely dollar devaluation given current fiscal deficits and fast-growing national indebtedness. This would also provide debt purchasers with some insurance against default, since default would most likely result in a rising gold price. Since the U.S. economy is now completely debt-based, maintaining an orderly debt market is the nation’s top fiscal and financial priority. Selling national gold to keep the debt market functioning smoothly would be considered by authorities a small price to pay.
2) Backstopping guarantees were invoked. In this scenario, recent rallies in the gold market caught the bullion banks short, and enabled them to receive gold from the government as part of the backstopping guarantees they negotiated. This gold was used by the banks to settle their short positions and cover losses. This gold would be sold into the open market, and never returned to the official U.S. reserve.
3) Government sold gold to raise cash. Over the 50 year non-audit period, government needed money and did not want to issue additional debt at the time. Therefore, it sold gold into the market to raise funds, just as numerous other central banks have done in recent years.
4) Gold leases with a “cash settlement” option. In this case, the government leased gold to third parties, such as bullion banks, with a “cash settlement” option, as opposed to demanding that the gold be returned at the termination of the leases. For whatever reasons, the bullion banks exercised the cash settlement option, and did not return the borrowed gold. In this scenario, the gold would never be returned to the official U.S. reserve.
5) A portion of the gold supply has been stolen, or has otherwise disappeared. The Royal Mint of Canada announced in June, 2009 that 17,500 ounces of Mint gold had been lost or stolen. This disappearance was confirmed during an audit of the Mint by Deloitte & Touche, CPAs, under the direction of the Auditor General of Canada. (If Canada audits its gold, why doesn’t the United States?) Regarding security, the Mint’s web site states: “The rigour of our production standards is equalled by the stringency of our security protocols. The refinery is a restricted environment controlled by security personnel supported by state-of-the-art surveillance technology.” If it could happen there, could it not happen here, particularly over a period of 50 years? This is exactly why you conduct audits.
6) All or a portion of the gold simply cannot be accounted for. In this scenario, the paper trail for the nation’s gold fails, with errors, gaps and inconsistencies, and no one even begins to know how to re-create it. If gold is missing, no one knows when it went so or how to find it, since there are so many years (50) to account for. This would be similar to the $50+ billion in cash that is missing in Iraq. That money was stolen recently, and even so, no one can account for or find it.
Implications. If the Fort Knox scenario prevails, it is a non-event. Since there is no change in the nation’s gold supply, the status quo is maintained.
If the Fort Hocks scenario prevails, then the government has orchestrated a market manipulation scandal that is equivalent in nature to Enron, Worldcom, Madoff and all the other frauds in the sordid panoply, but that dwarfs them in dollar value and sheer, outright dishonesty. The revelation that a first world government had deliberately engineered such a market manipulation, resulting in tens of billions of losses to honest investors, while simultaneously producing epic, illicit profits for favored inside traders would be a shock to all markets and investors. An insider trading scandal of such alarming, unprecedented proportions would constitute an inexcusable abuse of power, and represent fraud and corruption on a third world scale. It would not just damage the reputations of America’s monetary institutions, it would destroy them.
If the Fort Shocks scenario prevails, it would have severe implications for the dollar, because it would demonstrate that the United States’ financials are deliberately distorted for monetary and political reasons. Even though the dollar amount of this scandal ($262 billion) would be miniscule in comparison with the government’s 2009 deficit ($2 trillion), debt ($11.6 trillion) and combined debt and unfunded contingent liabilities ($90 trillion), it might serve as a tipping point, where faith in America’s finances and confidence in its government are lost. If America’s gold reserve position is a lie, then what else has been distorted, and where, if anywhere, is the truth?
Keep in mind that the fiscal year, 2009 deficit is currently running at $5,479,000,000.00 per DAY. So even if the Fort Knox scenario prevails and the 261.5 million ounces of citizen gold are safe and accounted for, their dollar value is completely destroyed by only 47 days’ worth of deficits. America’s gold cannot protect it from the national wealth wipeout that intensifies each and every day.
The United States could put these concerns to rest simply by auditing the gold and publicly reporting the findings. And yet, despite repeated attempts by such organizations as GATA to get them to do that, they refuse. Why? Is it because Treasury and Federal Reserve officials know that the results would be explosive, and similar to what has been outlined in the Fort Hocks and Fort Shocks scenarios above?
If it becomes known that the United States has surreptitiously hocked or sold its citizens’ gold, the price per ounce would most likely explode. Conceivably, gold would have its first $500 up day as people threw in the towel on other forms of “money” they could no longer understand or trust.
While inferential analysis is not used to prove a hypothesis (there are other forms of analysis that can offer proofs, when the facts exist to create them), it can be extremely useful in pointing to the truth when important facts about a situation are not available or revealed. Even though this report does not prove the hypothesis that the United States’ gold position is compromised, perhaps radically, the risk/reward dynamics of this situation are so interesting that we believe it is worth paying attention to the opportunity they provide.
http://www.24hgold.com/english/news-gold-silver-fort-knox-fort-hocks-or-fort-shocks-three-united-states-gold-scenarios.aspx?article=2219844990G10020&redirect=false&contributor=Stewart+Dougherty
Quantitative Easing: Three Reasons Why Stocks Have Skyrocketed Over the Past Couple of Years
By Washington's Blog
Global Research, May 26, 2013
Washington's Blog
The Big Buyers … Unmasked
Stocks have soared since 2009 because the Fed’s quantitative easing has – intentionally – pumped them up.
They’ve also skyrocketed because central banks are directly buying stocks.
NBC News reports on a third major reason that stocks took off … corporate buybacks:
It’s the narcissist rally.
***
You may want to spare a thought, and a healthy dose of worry, for what is one of the biggest, and least appreciated, reasons for the rally: buybacks.
Flush with cash and a world of opportunity at their doorstep, companies have decided there’s nothing more attractive than themselves. So, they’re offering big money to buy back their own stock. This year, big U.S. companies have given the go-ahead for $286 billion of buybacks, up 88 percent from the same period last year, according to Birinyi Associates, a market research firm. If the pace continues for the rest of the year, the tally will exceed the record set in 2007.
Every manner of company is caught up in the buying binge, including home-improvement chains, makers of farm equipment and jet engines, airlines, sellers of soft drinks and of hard liquor alike. Not one to miss a hot trend, Apple recently authorized as much as $50 billion of buybacks.
Investors like buybacks because they suggest companies think their stock is cheap. They also help reduce the number of shares outstanding, which automatically increases earnings per share. And higher earnings per share often, though not always, lead to rising stock prices.
But buybacks are also crucial to the rally for a reason that’s not widely known. Companies are one of the few big stock purchasers nowadays. Nearly every other big player in the stock market has been selling more than they’ve been buying.
Pension funds have been selling. Local and state governments have been selling. Investment brokerages have been selling. And, yes, until recently, even Main Street investors.
You can see this in the data released by the Federal Reserve each quarter, and it’s a sea of red — save for corporate buying, that is, buybacks plus purchases of other companies. In total, U.S. companies, not counting banks and other financial firms, have bought more than $1 trillion of stock in the five years through 2012, net of stocks they’ve issued.
***
However much they spend, each dollar of buybacks appears to be having a greater effect on raising the prices of certain stocks. That’s because fewer shares are changing hands each day. On Wall Street, it’s referred to as a “drying up” of liquidity. And like in any market, a purchase or sale when fewer people are trading can push prices up and down much more.
DirecTV bought $1.4 billion of its own shares in the first quarter, or 7.8 percent of all trades in the company’s stock, according to data from Birinyi Associates. DirecTV rose 12.8 percent in the same period, two points more than the Standard and Poor’s 500. IBM bought $2.6 billion of its shares in the first quarter, or 5.6 percent of what was traded. It rose 11.8 percent.
***
Companies that do buy back their own stock are seeing prices soar, and almost immediately.
On Friday, Northrup Grumman jumped 4 percent after announcing it had authorized $4 billion of buybacks. The military contractor said it expects buybacks will cut its shares outstanding by 25 percent by the end of 2015.
Another big share buyer, Home Depot, rose 5.7 percent on Feb. 26 after it announced a $17 billion buyback program. The S&P 500 rose 0.6 percent that day. If the retailer spends all the authorized in its plan, it will remove 18 percent of the shares outstanding at current prices, which will make the impact of a next round of purchases even more powerful.
Stocks of companies that have authorized the 10 biggest buybacks so far this year have risen 2.2 points more than the S&P 500 in the week after their announcements….
Gregory Milano, CEO of consultancy Fortuna Advisors, has run studies showing that companies that spend the most on buying back their own stock tend to underperform because they don’t spend enough on opening new factories, research or otherwise building their business for the long term.
Andrew Smithers, who runs a London-based investment consultancy, thinks buybacks have pushed stocks more than 40 percent higher than they’re worth. In his book “The Great Deformation,” former U.S. budget director David Stockman says Corporate America is drunk on buybacks and that they’ve helped push stocks up too far, too.
***
Forty percent of the increase in the earnings per share of S&P 500 companies in the past 12 months came from reducing the number of shares through buybacks, estimates Barry Knapp, chief U.S. stock strategist at Barclays Capital.
Postscript: Max Keiser points out that quantitative easing and corporate buybacks are related.
Specifically, the Fed’s easy monetary policy means that big corporations can borrow cheaply … and then use the money to buy back their own stock.
The bailouts and easy money aren’t going into helping Main Street or stabilizing the economy.
Of course, most of the trading is done by high frequency computers these days.
http://www.globalresearch.ca/quantitative-easing-three-reasons-why-stocks-have-skyrocketed-over-the-past-couple-of-years/5336385
Mystery Surrounding Collapse Of Hong Kong Mercantile Exchange Deepens; Four Arrested
Submitted by Tyler Durden on 05/25/2013 22:30 -0400
A week ago, when the brand new Hong Kong Mercantile Exchange suddenly shuttered after being in operation for only two years, urgently settling what little contracts were outstanding, many questions were left unanswered.
Such as: how it was possible that the exchange, expected by many to become the new preferred trading venue for Asian precious metals and to steal the CME's crown, could close on such short notice, without barely having been given a fair chance at being profitable, let alone dominating Pacific rim metals trading.
This mystery deepened further after reports that the exchange barely had seen any volume, with allegedly only a tiny 200 open contracts remaining to be settled upon shuttering.
Now, the confusion surrounding the HKMex closure has taken another big step for bizarrokind following news that not only have at least four HKMex senior executive have been arrested having been found to be in possession of false bank docs for nearly half a billion in dollars, but that government itself was forced to "shore up confidence" in CY Leung, Hong Kong's 3rd Chief Executive, whose former top aide was none other Barry Cheung Chun-yuen, founder of the HKMex.
Yet another major geopolitical scandal centered around gold: how original.
From the South China Morning Post:
Three mainland men charged in a scandal over the failed Hong Kong Mercantile Exchange (HKMEx) were found in their hotel rooms with false bank documents purporting to be worth hundreds of millions of dollars, a court heard yesterday.
Dai Linyi, 65; Li Shanrong, 49, and Lian Chunyan, 50, who were arrested on Tuesday, appeared in Kowloon City Court charged with "possessing false instruments with intent".
The men were detained after the Securities and Futures Commission found serious irregularities with the finances of the exchange - chaired by executive councillor Barry Cheung Chun-yuen - and handed the details of its inquiry to the police.
Specifically, among the confiscated false documents were an acknowledgment letter, two letters of guarantee and three proofs of funds allegedly issued by HSBC and Standard Chartered Bank. There were also time deposits and at least one telegraphic transfer. "The acknowledgement letter, which was found among Dai's papers, was dated April 23 and allegedly issued by Standard Chartered in relation to a cheque for US$460 million (HK$3.57 billion). He also had a letter of guarantee from the same bank undertaking to pay US$460 million to a Zhang Jisheng."
Just as "surprising" is that HSBC is involved in another potential money-laundering scheme:
Dai also had a proof of funds dated May 8 and allegedly issued by HSBC confirming that US$11 million had been deposited into an account held by Lian. Both Li and Lian also held two other such "proofs" with the same descriptions. In addition, Dai and Lian had two documents dated May 7 proving the existence of two separate deposits of US$11 million each in another account held by Lian, the court heard.
However that is just the beginning:the scandal over the failed exchange threatens to go to the very top of Hong Kong's political ladder, following Friday's resignation of HKMEx founder Barry Cheung Chun-yuen, from all his public duties - including executive councillor and head of the Urban Renewal Authority - on Friday and is himself under police investigation over the collapse, the government has said.
The probe into the collapse of the Hong Kong Mercantile Exchange has widened, with police questioning three senior executives of the failed commodities agency.
Separate sources confirmed yesterday that detectives from the commercial crime bureau had talked to a total of four staff from the exchange.
Where things get truly bizarre is the news that the head of Hong Kong itself and the founder of the HKMEx were very close.
The probe into the collapse of the Hong Kong Mercantile Exchange has widened, with police questioning three senior executives of the failed commodities agency.
Separate sources confirmed yesterday that detectives from the commercial crime bureau had talked to a total of four staff from the exchange.
Meanwhile, government officials moved to shore up confidence in Leung Chun-ying's administration amid the growing controversy surrounding HKMEx founder Barry Cheung Chun-yuen, who was formerly his top aide.
Cheung resigned from all his public duties - including executive councillor and head of the Urban Renewal Authority - on Friday and is himself under police investigation over the collapse, the government has said.
Speaking to the Sunday Morning Post yesterday, Cheung, 54, would say only: "Sorry, I am not taking calls today. I am at home with friends and family."
How long before there is a connection between Cheung and Hong Kong's top man CY Leung? Probably not very.
In the meantime, we don't hold much hope for the resurrection of the now shuttered mercantile exchange:
Meanwhile, Ben Kwong Man-bun, one of the 37 broker members of the HKMEx, said the exchange's business model would make it difficult for any would-be investor, or "white knight", to consider rebuilding the exchange.
"If you look at the exchange's record, not too many members were actively using the platform," he said. "[The exchange] needs a lot of capital and infrastructure."
So... what was the HKMEx being used for? Well, one explanation is that it was nothing more than a highly structured gold financing vehicle?
Huh?
Recall our [color=bluelengthy article about China's Copper Financing Deals,[/color] and how China is cracking down on the practice: something which will likely unencumber 500,000 tons of copper as Letter of Credit collateral, and force its market liquidation, further crushing the spot price.
The opposite process can also be just as true: while in China copper has long been the preferred financing-creation asset of choice, in Hong Kong it may well have been gold. Which ostensibly would make the previously discussed CCFDs convert into HKGFDs.
And with the recent collapse in the price of paper gold, suddenly the infinite rehypothection chain that whatever gold was at the HKMEx was used for, found itself in jeopardy, with margin funding pressure forcing collateral chains to break, as counterparties suddenly demanded excess margin on existing arrangements.
The subsequent escalation in the serial failure of assorted "HKGF" deals may have been the ultimate reason why suddenly not only the very exchange - which may have been nothing than a glorified bonded warehouse for tons of LC collateral - was forced to promptly shutdown, but all those associated with it had to scramble to procure fake financial documents on short notice to avoid someone else's wrath, while the found a way to ride into the sunset.
Naturally, all of the above is still speculation, and much can change in the coming hours and days as more information is disclosed, however, if indeed this is a scandal about (multiple times) encumbered gold, if it reaches the very top of HK's power structure, one can be assured that there will be some very angry counterparties on the losing side of whatever gold-financing deals Hong Kong's top politicians had engaged in over the past two years.
http://www.zerohedge.com/news/2013-05-25/mystery-surrounding-hong-kong-mercantile-exchange-collapse-deepens-four-arrested
Gold Bugs Army - Dollar Indices Pricing Research Rubbish?
May 23, 2013 - 05:31 PM GMT
By: Ned_W_Schmidt
The Value View Gold Report
Investors rely on indices to help understand how a market is moving, and perhaps even how it might move in the future. Technical analysis of a market, for example, is only possible due to market indices. How else would we assess what might be happening in a market? If an index is not properly constructed, that whole effort may prove fruitless.
Indices must adapt and change to accommodate the economic evolution that takes place in the market. The Dow Jones Industrial Average bears no resemblance to the first Dow average which was created more than 100 years ago. Due to the inadequacies inherent to the mathematics of that average, market weighted indices were created. The well-known S&P 500 being the best example.
The first step in using any index is a review of the construction of the index. What is included in the index is obviously important. Equally important, and perhaps a more serious concern, is what is excluded from the index. Investors should be aware that the name of the index may or may not accurately reflect what it is the index measures. A cursory review of many indices will find that few adequately measure the market with which they are associated by their names.
As we are interested in Gold, the comments which follow relate to a popular dollar index. Note that we have not chosen this index for a vindictive reason. Rather, it was chosen due to popularity and ease of understanding. The comments that follow are generally applicable to other dollar indices. In short, nearly all dollar indices are inadequately constructed and are therefore of little analytical value. Due to inadequacies in their construction they likely tell us little or nothing about the future for Gold.
An index to be useful should have two characteristics: depth and timeliness. It should be sufficiently broad as to create a reasonable approximation of what a market might be doing. It should evolve over time to include changes taking place in the market. Of the 30 stocks in the Dow Jones Industrial Average, for example, only 6 have been in that average for more than 40 years.
A popular dollar index is the USDX produced by ICE. Per the web site of that exchange,
“The USDX is quite unique among currency indices in its fixed composition. It has changed once since its 1973 introduction, and that was when the euro was launched in January 1999, replacing a number of European currencies. The net representation of the European legacy currencies in the USDX remained fixed at 57.6%.” (theice.com, 20 May 2013)
Rarely do we read of market research that brags about having not changed or adapted its methodology in 40 years. In short, this index assumes that the global economic system is today as it was 40 years. On this basis any such index fails to meet an important criterion, timeliness. The only change that occurred in this index was forced upon it when the Euro replaced the former European currencies.
WEIGHTS OF ICE FUTURES U.S.DOLLAR INDEX (USDX)
EURO 57.6%
JAPANESE YEN 13.6%
BRITISH POUND 11.9%
CANADIAN DOLLAR 9.1%
SWEDISH KRONA 4.2%
SWISS FRANC 3.6%
Chart to the right comes from the ICE web site. In it are listed the currencies that compose this index. Note per the above that the composition has not changed in 40 years.
While the British Pound, Swedish krona, and Swiss franc are indeed unique currencies issued by sovereign governments, the economies of those nations are not independent of the European economy. In reality, 77.3% of the value of this index is determined by Europe. That is hardly a representative sample of the world’s economy today. And we must ask, when was the last time you used Swedish krona?
What is not included in, or excluded from, an index is equally important. All of the currencies of Latin America are excluded. With the exception of the Japanese yen, all Asian currencies are excluded. Where are India and Russia? Africa does not exist per most of these indices.
Perhaps the most shocking exclusion from dollar indices is the Chinese Renminbi. China surpassed the U.S. to become the largest global trading nation, imports plus exports, in 2012.(bloomberg.com, 9 February) But yet, this dollar index has 77% exposure to the European economy, and zero(0%) to the Chinese economy. Some justification should be available for such a questionable design feature.
Second chart on this page portrays the dollar value of the Chinese Renminbi over the past 2+ years. The readily apparent appreciation of the Renminbi, depreciation of the U.S. dollar, has been excluded from most dollar indices. That exclusion of the Chinese Renminbi suggests that the such indices may not have adequately portrayed the value of the dollar in recent times.
That reality leads to some questions. How long can these researchers ignore the Chinese economy? What justification exists to exclude the currency of what is becoming the most important economy in the world? How can researchers use indices with such deficiencies to predict the future price of Gold?
Based on the inclusions and exclusions in dollar indices we would have to question their usefulness. Any claim that these indices reflect a reasonable measure of the value of the dollar would seem to be difficult to defend. More serious is that research using these dollar indices to infer the potential for Gold or Silver may be questionable as well as fallacious. Serious issues exist with such research that should make any investor dubious of using conclusions on Gold based on dollar indices.
By Ned W Schmidt CFA, CEBS
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com
http://www.marketoracle.co.uk/Article40581.html
May 25 ‘March Against Monsanto’ planned for over 30 countries
Global Research, May 23, 2013
‘March Against Monsanto’
FOR IMMEDIATE RELEASE
Contact:
Emilie Rensink
Media Facilitator
March Against Monsanto
emilie@activistsfreepress.org
(317) 643-1677
May 25 ‘March Against Monsanto’ planned for over 30 countries
SEATTLE, Wash. (May 1, 2013) – March Against Monsanto has announced that on May 25, tens of thousands of activists around the world will “March Against Monsanto.” Currently, marches are being planned on six continents, in 36 countries, totaling events in over 250 cities, and in the US, events are slated to occur simultaneously at 11 a.m. Pacific in 47 states.
Tami Monroe Canal, lead organizer and creator of the now-viral Facebook page, says she was inspired to start the movement to protect her two daughters. “I feel Monsanto threatens their generation’s health, fertility and longevity. I couldn’t sit by idly, waiting for someone else to do something.” [The full March Against Monsanto mission statement can be read here.]
An organizer for the march in Athens, Greece, Roberta Gogos, spoke about the importance of the events in austerity-impacted South Europe. “Monsanto is working very hard to overturn EU regulation on obligatory labeling (questionable whether it’s really enforced in any case), and no doubt they will have their way in the end. Greece is in a precarious position right now, and Greece’s farmers falling prey to the petrochemical giant is a very real possibility.”
Josh Castro, organizer for Quito, says he wants to protect Ecuador against Monsanto’s influence, too. “Ecuador is such a beautiful place, with the richest biodiversity in the world. We will not allow this Garden of Eden to be compromised by evil multinational corporations like Monsanto. Biotechnology is not the solution to world hunger. Agroecology is.”
Partners facilitating the organizing of March Against Monsanto include The Anti-Media, Activists’ Free Press and A Revolt – Digital Anarchy. Major sponsors include GMO Free USA, NationofChange and Films for Action. Official website: www.march-against-monsanto.com.
Click here for downloadable version of this press release.
For media inquiries, contact Emilie Rensink at emilie@activistsfreepress.org. To schedule an interview or for general information, contact Tami Monroe Canal at tamicanal@gmail.com. For sponsorship inquiry, contact Nick Bernabe at nickog_2021@yahoo.com.
http://www.globalresearch.ca/may-25-march-against-monsanto-planned-for-over-30-countries/5336137
GMOs: Power, Profit and the Patenting of Life
By Global Research
Global Research, May 24, 2013
The debate on genetically modified foods is making a powerful statement this weekend, with the “March Against Monsanto” being planned on Saturday, May 25, in over 30 countries across the globe.
Today more than ever, the world’s food resources are being hijacked by giant corporations that are turning farms into factories and replacing natural resources with genetically modified “food-like” substances.
In the bestselling book, “Seeds of Destruction: The Hidden Agenda of Genetic Manipulation“, author F. William Engdahl takes the reader inside the corridors of power, into the backrooms of the science labs, behind closed doors in the corporate boardrooms. He cogently reveals a diabolical world of profit-driven political intrigue, government corruption and coercion, where genetic manipulation and the patenting of life forms are used to gain worldwide control over food production.
To learn more, pick up your copy of “Seeds of Destruction: The Hidden Agenda of Genetic Manipulation“, published by Global Research.
Seeds of Destruction: The Hidden Agenda of Genetic Manipulation
by F. William Engdahl
http://www.globalresearch.ca/gmos-power-profit-and-the-patenting-of-life/5336167
Europe Opens $80 Trillion Shadow Banking Pandora's Box: Will Seek To Collapse Repo "Collateral Chains"
Submitted by Tyler Durden on 05/24/2013 10:51 -0400
In what may be the most important story of the day, or maybe year, for a world in which there already is an $11 trillion shortfall in high-quality collateral (and declining every day courtesy of Ben's monetization of Treasury paper) so needed to support the deposit-free liability structures of the shadow banking system (as most recently explained here), Bloomberg has just reported that Europe may begin a crackdown on that most important credit money conduit: the $80 trillion+ global shadow banking system, by effectively collapsing collateral chains, and by making wanton asset rehypothecation a thing of the past, permitted only with express prior permission, which obviously will never come: who in their right mind would allow a bank to repledge an asset which may be lost as part of the counterparty carnage should said bank pull a Lehman. The result of this, should it be taken to completion, would be pervasive liquidations as countless collateral chain margin calls spread, counterparty risk soars all over again, and as the scramble to obtain the true underlying assets finally begins.
From Bloomberg:
Banks and brokers face a clampdown on using assets they hold for clients as collateral for their own trades as part of European Union moves to bolster market stability and rein in shadow banking.
The European Commission is weighing whether firms should have to obtain formal consent from their clients before being allowed to reuse assets to back other trades, according to a document obtained by Bloomberg News. The consent would be enshrined in a “contractual agreement” between the parties.
The handing over of collateral is an integral part of repurchase agreements, or repos -- one of the activities under review by global regulators as part of their efforts to regulate shadow banking. The reuse of clients’ assets poses a potential threat to financial stability should one of a chain of firms that handled the securities go bankrupt, according to the document prepared by commission officials and dated May 15. Uncertainty about who holds an asset can fuel panic in times of market stress, according to the paper.
“Complex” chains of collateral can make it difficult for investors to “identify who owns what, where risk is concentrated and who is exposed to whom,” according to the document. “This has consequences for transparency and financial stability.”
Under the plans being weighed by the commission, banks and brokers holding securities for clients wouldn’t be allowed to reuse the assets for trading on their own account -- speculation on the markets aimed solely at boosting their own revenues, according to the document.
...
The Financial Stability Board has estimated that the global shadow-banking system was worth $67 trillion in 2011, with EU-based activities accounting for about $31 trillion.
Here's the kicker: collateral chains collapse on their own when confidence and faith in the financial system is evapoarting. This is usually manifested in soaring variation margin, and demand for delivery of collateral (which having been pledged at 10 or more different places just doesn't actually exist).
In other words, the last thing Europe needs is to force the aftereffect of a plunge in systemic confidence to be imposed upon the market participants! And yet, it is doing just that.
Cont...
http://www.zerohedge.com/news/2013-05-24/europe-opens-80-trillion-shadow-banking-pandoras-box-will-seek-collapse-collateral-c
Gold Bugs Army - Dollar Indices Pricing Research Rubbish?
May 23, 2013 - 05:31 PM GMT
By: Ned_W_Schmidt
The Value View Gold Report
Investors rely on indices to help understand how a market is moving, and perhaps even how it might move in the future. Technical analysis of a market, for example, is only possible due to market indices. How else would we assess what might be happening in a market? If an index is not properly constructed, that whole effort may prove fruitless.
Indices must adapt and change to accommodate the economic evolution that takes place in the market. The Dow Jones Industrial Average bears no resemblance to the first Dow average which was created more than 100 years ago. Due to the inadequacies inherent to the mathematics of that average, market weighted indices were created. The well-known S&P 500 being the best example.
The first step in using any index is a review of the construction of the index. What is included in the index is obviously important. Equally important, and perhaps a more serious concern, is what is excluded from the index. Investors should be aware that the name of the index may or may not accurately reflect what it is the index measures. A cursory review of many indices will find that few adequately measure the market with which they are associated by their names.
As we are interested in Gold, the comments which follow relate to a popular dollar index. Note that we have not chosen this index for a vindictive reason. Rather, it was chosen due to popularity and ease of understanding. The comments that follow are generally applicable to other dollar indices. In short, nearly all dollar indices are inadequately constructed and are therefore of little analytical value. Due to inadequacies in their construction they likely tell us little or nothing about the future for Gold.
An index to be useful should have two characteristics: depth and timeliness. It should be sufficiently broad as to create a reasonable approximation of what a market might be doing. It should evolve over time to include changes taking place in the market. Of the 30 stocks in the Dow Jones Industrial Average, for example, only 6 have been in that average for more than 40 years.
A popular dollar index is the USDX produced by ICE. Per the web site of that exchange,
“The USDX is quite unique among currency indices in its fixed composition. It has changed once since its 1973 introduction, and that was when the euro was launched in January 1999, replacing a number of European currencies. The net representation of the European legacy currencies in the USDX remained fixed at 57.6%.” (theice.com, 20 May 2013)
Rarely do we read of market research that brags about having not changed or adapted its methodology in 40 years. In short, this index assumes that the global economic system is today as it was 40 years. On this basis any such index fails to meet an important criterion, timeliness. The only change that occurred in this index was forced upon it when the Euro replaced the former European currencies.
WEIGHTS OF ICE FUTURES U.S.DOLLAR INDEX (USDX)
EURO 57.6%
JAPANESE YEN 13.6%
BRITISH POUND 11.9%
CANADIAN DOLLAR 9.1%
SWEDISH KRONA 4.2%
SWISS FRANC 3.6%
Chart to the right comes from the ICE web site. In it are listed the currencies that compose this index. Note per the above that the composition has not changed in 40 years.
While the British Pound, Swedish krona, and Swiss franc are indeed unique currencies issued by sovereign governments, the economies of those nations are not independent of the European economy. In reality, 77.3% of the value of this index is determined by Europe. That is hardly a representative sample of the world’s economy today. And we must ask, when was the last time you used Swedish krona?
What is not included in, or excluded from, an index is equally important. All of the currencies of Latin America are excluded. With the exception of the Japanese yen, all Asian currencies are excluded. Where are India and Russia? Africa does not exist per most of these indices.
Perhaps the most shocking exclusion from dollar indices is the Chinese Renminbi. China surpassed the U.S. to become the largest global trading nation, imports plus exports, in 2012.(bloomberg.com, 9 February) But yet, this dollar index has 77% exposure to the European economy, and zero(0%) to the Chinese economy. Some justification should be available for such a questionable design feature.
Second chart on this page portrays the dollar value of the Chinese Renminbi over the past 2+ years. The readily apparent appreciation of the Renminbi, depreciation of the U.S. dollar, has been excluded from most dollar indices. That exclusion of the Chinese Renminbi suggests that the such indices may not have adequately portrayed the value of the dollar in recent times.
That reality leads to some questions. How long can these researchers ignore the Chinese economy? What justification exists to exclude the currency of what is becoming the most important economy in the world? How can researchers use indices with such deficiencies to predict the future price of Gold?
Based on the inclusions and exclusions in dollar indices we would have to question their usefulness. Any claim that these indices reflect a reasonable measure of the value of the dollar would seem to be difficult to defend. More serious is that research using these dollar indices to infer the potential for Gold or Silver may be questionable as well as fallacious. Serious issues exist with such research that should make any investor dubious of using conclusions on Gold based on dollar indices.
By Ned W Schmidt CFA, CEBS
GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com
http://www.marketoracle.co.uk/Article40581.html
How Ben Bernanke Is Destroying Your Retirement
May 23, 2013
By: Money_Morning
Martin Hutchinson writes: Uncle Sam has an unfunded pension liability of $800 billion.
Corporate pension funds have an unfunded liability around $400 billion.
State and local pension funds have an unfunded liability in the tony neighborhood of $3 trillion.
That's over $4 TRILLION in UNFUNDED pension funds.
And if you're not lucky enough to be in a "defined benefit" pension plan (which fewer and fewer people are these days) there's undoubtedly an "unfunded liability" in your own savings - in other words, you haven't saved enough to retire.
It's a huge problem and it's getting worse. And there's one individual to blame for all that $4.2-plus trillion of money we need to find - Ben Bernanke.
The Killer of Nest Eggs
Bernankeism exerts a double whammy on pension funds, because of the accounting.
To determine the cost of all the pensions that must be paid, the actuary makes assumptions about people's lifespans (another problem - they're lengthening), gets a future stream of cash flows, then discounts the cash flows back to the present at an assumed rate, based on what he thinks the fund can earn on its money.
If the discounted amount is less than the current value of the fund, the fund has a surplus; if it's more, the fund has a deficit.
Still awake?
Here's the kicker: When interest rates are held at very low levels year after year, they make it more difficult for pension funds to achieve their desired returns, and they move the goalposts farther and farther away from the ball.
Unlike the Peanuts strip where Lucy removes the football just as Charlie Brown is about to kick it, in this case the Bernanke Fed playing Lucy lets Charlie Brown (us) kick it but moves the goalposts into the far distance, so that Charlie has no chance of reaching them however hard he kicks.
Look Back to Look Ahead
In the 1990s, even though interest rates were too low from 1995 on, all was well with pension funds. The U.S. stock market zoomed upwards, so many funds' value soared far above their actuarial liabilities.
Many companies stopped contributing to their funds, and General Electric (NYSE: GE) even found a way to make profits on its pension funds goose the company's reported profits - thus siphoning more bonuses and stock option gains into management's pockets.
After 2000, the profits went into reverse. Pension funds then responded foolishly; they transferred a huge percentage of their money into "alternative investments" such as farmland, forests, private equity funds and hedge funds.
Essentially, they bought a lot of assets at inflated prices - like, well, anything to do with real estate in 2004-07 - and paid inflated fees for mediocre performance.
However, apart from the losses from the market crashes of 2000 and 2008, the real problems for pension funds came from the steady decline in interest rates engineered by Alan Greenspan and Ben Bernanke.
For example, even though stock prices are at record levels, and the asset sides of the pension funds ought to be doing fine, Bernanke's low interest rates have swelled the liabilities sides to enormous heights, so pension funds' funding deficit is at levels more typical of the bottom of bear markets than several years into a recovery.
What's more, the problem won't go away when interest rates rise again. That will make stock and bond prices decline, reducing the asset side of the funds' balance sheets. It will also push leveraged hedge funds and private equity funds into bankruptcy, wreaking further havoc.
No One Is Exempt
The problem of pension funds also extends to baby boomers' own retirement savings. You see, what may look good on your statements isn't usually put through the same actuarial calculations that pension funds build.
That means what looks like a fairly decent pile of money when looked at in cash, translates into an absolutely pathetic annual sum if you try to turn it into an annuity (because annuity calculations are based on the same arithmetic as pension fund accounting).
The fact is, most retiring baby boomers keep their IRAs and 401(k)s in cash, withdrawing the amounts of money they need to live on.
What needs to shouted from the rooftops is, more likely than not, the withdrawals they make are too large, and will exhaust the available funds long before the unfortunate owners expire.
Baby boom retirements are destined to be thoroughly miserable, mostly thanks to Bernanke; those with funded pension plans will find their plans in bankruptcy, while those without pensions - the IRA and 401(k) majority - will simply find the bankruptcy transferred to their own finances.
The solutions are simple, but not easy: save every penny you can, pray QE ends quickly and just in case, work till you drop.
In all seriousness, to the extent you invest, buy into emerging markets with good growth rates and no Ben Bernanke. They may have risks, but at least they avoid the Bernanke risk you have to live with in the rest of your life.
Source :http://moneymorning.com/2013/05/23/how-ben-bernanke-is-destroying-your-retirement/
http://www.marketoracle.co.uk/Article40573.html
Unveiling the Gold Market’s Working Parts
May 23, 2013 - 03:53 PM GMT
By: Jan_Skoyles
http://www.marketoracle.co.uk/Article40575.html
al44 please delete my post # 69313. thank you.
Great post gtsourdinis!
Push on corporate tax rules goes global
By Howard Schneider, Published: May 22,
Washington Post
A global effort to tighten corporate tax rules is gaining momentum as politicians in Europe and the United States take aim at American tech giants whose savvy use of international tax laws has provoked a public backlash.
A day after a U.S. Senate report slammed Apple’s use of Irish regulations to minimize payments to the U.S. government, European heads of state said they hoped for quick action from an international effort to change rules that let companies shelter profits.
Pushed by British Prime Minister David Cameron, who has faced public outrage over the low taxes paid in his country by companies such as Amazon.com and Starbucks, the effort is moving quickly in European nations caught in an era of slow growth and painful austerity. Officials said they are driven not just by a hunt for revenue but also by the political difficulty of justifying to smaller businesses or homeowners why the world’s most sophisticated companies are allowed to play by a seemingly different set of rules.
“We are in an unprecedented economic crisis,” European Council President Herman Van Rompuy said Wednesday after European leaders endorsed plans to move ahead with information sharing and other steps to try to make companies pay more corporate tax. “We have to act because it is fair. .?.?. The economic crisis makes the difference.”
The rise of the issue to the top of the agenda among world leaders reflects a shift in how the firms that have come to drive the U.S. economy are perceived abroad. From their roots as edgy start-ups that challenged corporate orthodoxy, companies such as Apple and Google have become the very establishment they once threatened.
At one of Google’s regular Big Tent events in Britain, Labor Party leader Ed Miliband showed up with verbal guns blazing — saying that the company’s use of tax laws to minimize its contribution to society mocks its promises of corporate benevolence.
“I can’t be the only person here who feels disappointed that such a great company as Google, with such great founding principles, will be reduced to arguing that when it employs thousands of people in Britain, makes billions of pounds of revenue in Britain, it is fair that it should pay just a fraction of 1 percent of that in tax,” Miliband said, criticizing by name Google’s executive chairman, who was not in attendance. “It’s a shame Eric Schmidt isn’t here to hear me say this direct. When Google goes to extraordinary lengths to avoid paying its taxes, I say it’s wrong.”
The issue of corporate taxation has surged to the fore during Europe’s economic crisis, with countries such as Ireland and the Netherlands singled out for offering easy shelters for multinationals looking to avoid paying taxes in countries where they make the majority of their profits.
There are no global estimates of how much revenue governments lose through tax avoidance or evasion schemes.
But recent research by the Organization for Economic Cooperation and Development (OECD) indicates that the problem is massive. Foreign direct investment, for example, in theory represents a long-term commitment by a firm in one country to owning productive capacity — a plant or building, for example — in another. But data show billions of dollars in foreign direct investment moving through small nations such as Bermuda and the Bahamas, suggesting that the money is not invested there but simply used to set up a corporate presence, for tax purposes, before moving to a final destination elsewhere. The Netherlands is one of the top locations for U.S. foreign direct investment, but OECD data suggest that the money ultimately moves on.
Such macro-level connections are only suggestive and prove nothing about the behavior of individual firms. But they have been enough for the OECD to press major nations to develop a global strategy for curbing tactics such as “hybrid mismatching” — in which the tax laws of several countries are played against each other to lower a corporation’s tax bill.
It is legal under current international tax laws and treaties but “far from the spirit of what the law is,” said an OECD official who was not authorized to speak on the record. Tax treaties were written “to avoid double taxation, not to allow double non-taxation.”
Cameron has pledged to put the issue of corporate tax avoidance at the top of the agenda when the Group of Eight industrialized powers meets in Northern Ireland next month. Russia is pressing the issue as well in its role as the current chair of the broader Group of 20, which includes top developing nations such as China and Brazil.
It is a campaign driven by a series of revelations that have set the political blood boiling. Citizens and politicians in Britain waged a boycott against Starbucks last year, for instance, after learning that the company had used a maze of deals with European subsidiaries to pay just $13.76 million in British corporate taxes on nearly $5 billion in British sales since 1998.
Some of the company’s revenue was transferred to a subsidiary in the Netherlands, a country the OECD said is often used by non-European firms as headquarters for their European operations because of the favorable tax rules.
Anthony Faiola in London contributed to this report.
http://www.washingtonpost.com/business/economy/push-on-corporate-taxes-goes-global/2013/05/22/79f65724-c308-11e2-8c3b-0b5e9247e8ca_story.html?tid=pm_business_pop
How The Fed Directly Subsidizes Corporate Profits And Why The Game Is Over
May 23 2013, 07:21
Nicholas Pardini
Disclosure: I am short SPY, QQQ. (More...)
I admit I have been early on calling the end of the "Fed bubble" as price action has continued to rise further than my greatest expectations. However, as the market has risen, the quality of economic data has deteriorated. Like every other central bank created asset bubble, this time is not different and stocks will correct back to at least pre-QE 3/4 levels.
Those who are bullish on equities often argue that this current rally is sustainable without the Fed due to record high corporate profits. Their logic continues with the idea that the Fed cannot use QE to drive up profits directly. The reality is they can and do. By providing cheap credit for the federal government, the Fed effectively subsidizes earnings.
Quantitative easing boosts earnings by making massive government deficits and social spending affordable. The state effectively replaces large corporations as the supplier of income to consume the products that drive revenues. Earnings have maintained high levels due to companies being to cut jobs without losing much revenue from customers. Since those who live on government benefits likely earn less than during their time working, revenues have stagnated. Population growth and the fact that the government through food stamps, extended unemployment insurance, Obamacare, disability claims, and other welfare has replaced corporations as the supplier of income has prevented revenues from declining.
Government dependency has reached the point where 41.3% of Americans receive more from the state than they pay in taxes. If government employees are included, this number likely exceeds 50% of the American population. The government is effectively subsidizing corporate profits by providing income for customers to still consume without companies needing to create jobs to earn that income. Since, Americans in the private sector do not earn significantly more than their government counterparts, there is no long-term way to pay for all of this social spending.
Outside of government dependency, the Fed also juices up profits through allowing large companies to refinance their debt at extremely low rates. This not only reduces interest expenses but also encourages companies to leverage up to buy back shares. This works well in the short term, but increasing indebtedness has weakened corporate balance sheets. An early sign of is the escalating S&P 500 debt/equity ratio of 1.55 (57% higher than historical averages).
Overall, the Fed has been directly responsible for record high profit margins by the combination of allowing income to be detached from employment and slashing interest expenses. When the US has debt of over 100% of GDP and pays out 12% of the budget in interest payments in a record low rate environment, this subsidizing of profits is not sustainable. The direction of the economy and lack of real income will force capital markets to revert to lower valuations. Even if earnings just decline 10% from here to $91 on annualized basis, and the P/E ratio falls to a reasonable but not cheap level of 12, that prices the S&P 500 at 1092. Stocks can fall much further than that if earnings decline more or if the P/E ratios fall at the level of historical bear market lows in the 7-10 range. Outside of an unlikely inflationary collapse of the dollar, I do not see any way that this market does not revert back prices implied by current economic fundamentals.
The trade here is to short US equities (SPY, QQQ, IWM) as the support from the welfare state and the Fed will erode. The downward catalyst will either be fears of a reversal of the current monetary policy or a declining economy despite the Fed's efforts pulling down earnings even further. Bonds (TLT) should also perform poorly as fear about the US government's creditworthiness and/or declining Fed will trigger higher rates. This was exemplified by ten year yields shooting up 0.08% in spite of risk assets such as stocks, commodities, and foreign currencies, selling off.
Those who quote "don't fight the Fed", should look at what is happening in Japan with the Nikkei imploding overnight and JGB yields skyrocketing as investors start to see through Abenomics as a policy just to keep the government afloat versus improving the real economy. What the rest of the world's central banks are doing is not much different. That eye-opening moment will happen soon with the Fed as well and both stocks and earnings will sink as reality grips investors. The technical engulfing candle during Wednesday may have been the blow-off top that ends this rally once and for all.
Additional disclosure: I am also short Japanese government bonds.
http://seekingalpha.com/article/1456161-how-the-fed-directly-subsidizes-corporate-profits-and-why-the-game-is-over
Why The Petrodollar System Is Crippled
May 23, 2013 - 12:52 PM GMT
By: Andrew_McKillop
BRETTON WOODS BREAKDOWN, VIETNAM AND THE GREAT SOCIETY
For Jerry Robinson (http://ftmdaily.com/documents/Preparing-for-the-Collapse-of-the-Petrodollar-System.pdf) the reasons why the so-called Petrodollar System must collapse is ultimately because the political and monetary drivers of the system date back to the fast-fading times of 1945-1971 when the the USA's global hegemony and monetary power was almost unchallenged.
After the collapse of the USSR in 1989, the US was the sole remaining hyperpower but also by 1989, the USA's economic power and monetary bases had been sapped. Robinson cites the old saying "He who holds the gold makes the rules." This statement was a rock-solid truth for the US in the post–World War II era - but only until the "Nixon Shock" of August 1971 when US president Nixon broke the link between gold and the dollar. Previous to this, at the end of World War II, Fort Knox held nearly 80% of all central bank gold in the world. The US dollar was the world’s undisputed reserve currency. Consecrated by the 1944 Bretton Woods arrangement, the dollar was “safer than gold.”
After 1971 it was not. In 1975, US military power was tested and broken in Vietnam, and oil prices had been pentupled in 1973-1974 by OPEC action led Saudi Arabia - and by the Chah's Iran. For internal political reasons hpwever, Nixon's successor Lyndon Johnson lauched "The Great Society", a project which added deficit to deficit, menacing to open the floodgates of runaway inflation.
Before Nixon broke the "gold standard" which fixed a price of about $38 for 1 Troy ounce of gold, the US received plenty of advance warning. The large and growing demand by foreign nations, including major allies like France for gold, instead of dollars, was a sure sign the United States had to get its fiscal house in order - but firstly Nixon, then Lyndon Johnson went out on a spending binge. As Washington went on racking up debt to fund its unwinnable Vietnam "adventure", killing an estimated 1.5 million Vietnamese, and to fund riproaring domestic demand for everything that US industry could not meet, fueling a constant growth of imports and the trade deficit, foreign nations sped up their demand to exchange dollars for gold from Fort Knox.
Overseas dollars, already needed by foreign buyers wherever oil was priced in dollars, and sold in dollars, were flooding back home with a vengeance, and the USA's gold stock was evaporating. As Robinson writes: "Soon the United States was bleeding gold. Washington knew that the system was no longer viable, and certainly not sustainable".
START OF THE PETRODOLLAR SYSTEM
No formal proof exists for the repeated assertion, by serious historians and analysts that Nixon's Secretary of State, Henry Kissinger made a secret visit to Saudi Arabia as early as 1972, to fix and set what became called the "petrodollar system and petrodollar recycling". There, Kissinger would have sealed a deal whereby Saudi Arabia, henceforth, would formally and solely accept dollars for all its oil sales, and would apply its Arab regional power to ensure other Gulf exporters did the same. Saudi Arabia would then make available and place "surplus liquidities", unspent dollars, in the US Federal Reserve system, starting with the Federal Reserve Bank of New York.
The massive advantages of this to the US were plain. Worldwide, any buyer and importer of Arab oil would first need to buy and hold dollars, ensuring strong global demand for the US money. Secondly, the surplus or unspendable dollars - for Gulf Arab countries with populations under one-half present, and incomes under one-tenth today's - that each state would accumulate in its national treasury would flow back to the USA in a controlled and fixed way. There would be no tsunami of dollars flooding back to the USA but finding nothing to buy - would create hyperinflation. Instead, the "petrodollars" would go straight into the Federal Reserve system, backstop the US dollar, and enable the strategy of "controlled devaluation", needed to help service growing US debt by devaluing the money used to repay loans, to operate without running out of control and turning into an inflation rout.
Even more advantageous to the US, when or if oil prices "spiked" or stayed high, the advantages to the US from higher oil prices, and high petrodollar flows, outweighed the handicap to the US economy of higher oil prices. On balance and even if the economy lost out from high oil prices - the dollar won. This is a debatable conclusion - US inflation like that in all other major OECD countries, most of them importing much more oil than the USA, ran high from 1975. Petrodollar recycling may have shielded or "backstopped" the dollar, but it certainly did not limit inflation in the US.
Several decades later, the "recycling" advantage was able to morph into Petrodollar War - for example the imputed or theoretical "oil currency war" driver for the 2003 US-UK Iraq invasion, possibly motivated by Saddam's attempts to break away from the forced utilisation of dollars for sales of oil. Similar arguments are also used to explain the fall of Libya's Khadafi in 2011, as due to his attempts to use euros or gold for oil transactions, instead of dollars. Oil currency war is also often proposed as the main, or a main but hidden motive for war against Iran.
Variants of the Petrodollar War concept include the role of oil currency conflicts and rivalry, notably concerning US relations with Venezuela and Russia, and possibly with Europe concerning the gradual replacement of US dollars with the euro, for oil transactions. At least as important however, the fundamental basis of the petromoney system and the potential for Petrodollar War hinges on global oil import demand and the oil price. Both of these have to hold up.
This is simply no longer the case, in a world economic system which needs less oil, and a world monetary system now massively dominated by QE.
START OF THE END
When or if oil demand and oil prices do not hold up, foreign oil importer nations who formerly found it necessary or beneficial to hold dollars to pay for oil, would have to find some other (completely unexplained) reason for huge holdings of dollars. Such holdings become even more impossible to rationalize when their oil imports decline and-or oil prices also decline. The massive role of QE in Europe and Japan, as in the USA (although in dollars), also sidelines and downsizes the potential role of petrodollar and petroeuro recycling today.
Using IEA data, world energy dependence on oil in 1973 was about 1.8 times today's dependence. In 1973 oil covered about 56% of world commercial energy supply; in early 2013 it covers about 32%.
Today also, the petro-energy system has to face massive growth of firstly gas, then oil resource availability revealed by the shale energy revolution, rising global oil production capabilities outside the Arab countries, stagnating or declining oil demand in the OECD, and rising renewable energy supplies in all major developed countries. The constantly declining role of oil in the economy also signals that the Petrodollar System's days are surely numbered, like the notion that $100-oil prices are "normal".
On that basis however ($100-oil) the estimated total transaction value of world oil trade is about $3.4 trillion a year, around 75% in dollars and 25% in euros. The percentage of this which still enters the Kissinger-era "recycling" system is unknown, but estimates by the Federal Reserve Bank of New York, which seem low or very low, place the value of petrodollar recycling today, with oil at current prices, at approximately $750 billion a year. Leverage is of course applied, but high-end estimates of the combined, dollar-equivalent financial and monetary impact of petrodollar and petroeuro recycling today are at most $6 trillion a year - near 10% of world GNP.
QE since 2008, and the known total liabilities of "bad banks" in the OECD countries which make QE Forever necessary, are at least 15 times larger, and could be over 20 times larger. Petromoney recycling's role has also been massively shrunk by the growing oil revenue "absorbtion capacity" of Arab oil exporter countries with declining capital-surpluses. In turn this sets the real menace of what will happen when the recycling system "formally" terminates.
At its simplest, the combined effects of lower oil import needs, and lower oil prices, together with non-dollar payment and settlement systems (including barter and offset trades) will result in world dollar purchases and holding - needed to pay for oil - declining further and perhaps rapidly. In turn, these former petrodollars can only be "returned to sender", to their known address the USA. Here, the inflation impact may be grave, at a critical time for "continuing the experiment" of QE which basically only works as long as there is no evident, impossible-to-hide inflation.
By Andrew McKillop
Contact: xtran9@gmail.com
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.
http://www.marketoracle.co.uk/Article40563.html
Bullion bank led casino manipulates gold price – and everything else!
While the banking cartel tries to suppress gold prices, demand for the physical metal continues to increase.
Author: David Levenstein
Posted: Tuesday , 21 May 2013
JOHANNESBURG -
Although the primary purpose of the futures markets is to provide an efficient and effective mechanism for the management of price risks, when it comes to precious metals, and as we have seen in recent weeks, it has become nothing more than a casino run by a group of bullion banks that are acting as agents for the US Federal Reserve which is intent in manipulating these markets as they do all other markets. And, while much of the recent volatility has been caused by the options and futures market, the regulatory authorities of the CFTC who came up with a series of hikes in margins to stop the price of both gold and silver from rising, claiming that the markets were extremely volatile, I see they have done nothing to prevent the recent price drops.
The action or lack thereof by the regulatory authorities is most disturbing and would suggest that they themselves are colluding with the parties involved in this illegal manipulation of the gold and silver market.
How can they ignore the massive short sale that took place on Friday, April 12, 2013, when short sales of gold hit the New York market in an amount estimated to have been somewhere around 400 tons of gold? This enormous sale implies an illegal conspiracy of sellers intent on rigging the market or action by the Federal Reserve through its agents, the bullion banks. Last Friday, this suspicious selling resumed, with the equivalent of 17 tons sold on the New York Comex in two bursts in the morning, according to market sources.
Any normal seller that wanted to exit a position would do it discreetly and slowing thereby trying to ensure the best possible price and not simply dump an enormous amount all at once unless the goal was not profit but to smash the bullion price.
Interestingly, the futures markets were established to prevent such huge price swings in commodities. The business of trading futures is not new and in fact it is now more than 100 years old. It began in Chicago during the 1800’s.
Chicago was a growing city in the 1830s and a centre for the sale of grains grown nearby to be shipped to the East. Prior to the establishment of central grain markets in the mid-nineteenth century, the nation’s farmers carted their newly harvested crops up rivers or dirt roads to major population and transportation centres each fall in search of buyers. These seasonal supply gluts drove prices downward to giveaway levels and even to throwaway levels as corn, wheat and other crops often rotted in the streets or were dumped in rivers and lakes for lack of storage. Come spring, shortages frequently developed and foods made from corn and wheat became barely affordable luxuries.
By the early 1850s, the local merchants began to buy corn from farmers which they then sold to the Chicago merchants on time contracts, or forward contracts, to minimize their risk. The farmers risked not having anyone buy their corn or having to sell at rock-bottom prices, and the merchants risked not having any corn to buy or having to buy at sky-high prices. The forward contract set forth the amount of corn to be sold at a future date at an agreed-upon price. Forward contracts in wheat also started in the early 1850s.
As soon as the forward contract became the usual way of doing business, speculators appeared. They did not intend to buy or sell the commodity. Instead, they traded contracts in hope of making a profit.
Speculation itself became a business activity. Contracts could change hands many times before the actual delivery of the corn. During this time, contracts were negotiated and traded in public squares and on street curbs. Then in 1848, 82 merchants formed a centralized marketplace to trade grain, and this was the beginning of the Chicago Board of Trade - more commonly known as the CBOT, the oldest futures exchange in the world. Today it is one of the largest futures exchange in the world.
Now around the same time metals merchants living in London began to sell contracts of copper on forward contracts. Imagine for a few minutes that you are a metals merchant living in London in say 1890. You lease vessels to sail to Chile where you buy copper ore. However, the journey takes several months, and during this time the price of copper fluctuates so you have no idea what it’s going be by the time your vessels return. Hopefully, when your copper is finally delivered the price is high enough for you to cover all your expenses and make a small profit. On the other hand if prices have plummeted you are going to make a large loss. So, you are always at risk.
Now, suppose that while having a cup of tea with some other traders, one of them tells you that he is prepared to pay you a guaranteed price for a specific quantity of copper that you only have to deliver in 6 months’ time. You do your calculations and figure that this price is enough to cover all expenses as well as make you a small profit – risk free. So you agree to this. But in the meantime if prices soar, you cannot claim the higher price, but you are protected if prices plummet. This meant that no matter what the domestic conditions were, when your shipments of copper arrived, you would receive the price agreed upon a few months previously
Then, once again speculators arrived. They had no intention of taking physical delivery and instead they traded contracts in hope of making a profit. For example, let’s say that you were offered $0.40c per pound. Now some other trader who believes that prices will be a lot higher than this in three months’ time offers say 0.41c per pound, and then another trader makes an offer of say 0.42c per pound, and so on. So, before delivery is made, the actual contract can be traded many times over. And, this is how the London Metal Exchange began.
The actual London Metal Exchange (LME) was officially formed in 1877. And it’s because of the merchants in Chicago and London that the process known as hedging began. And as these exchanges grew, more and more contracts were added. Futures trading is now a global industry, and futures can be traded electronically outside the United States in more than 80 countries. While electronic trading is becoming more and more popular, a huge amount of business is still done in the pits.
Now the gold and silver futures markets are not being used for their original purpose, but are being used to manipulate prices by some entity that does not want to see prices of precious metals move higher. As this is certainly not what the producers want, it is reasonable to surmise that the institution behind this is the US Federal Reserve. While, this has always been considered as another conspiracy theory, it is widely known that central banks and other major financial institutions have been manipulating Libor, bonds, equities as well as the foreign exchange market. So, it is absolutely plausible that they are manipulating precious metals, in particular gold and silver
Before the spike in gold prices that took place on Monday, the price of gold has dropped by more than $100 over the past seven sessions. The last time gold fell for eight consecutive sessions was in 2009, with that run ending on March 4. Since April the price is down by more than $200 an ounce and down by around 16% since the beginning of the year.
In the same time, global equities have advanced and the US dollar has gained against its major peers. The Dow Jones Industrial Average and benchmark S&P 500 stock index surged to new closing highs in a rally that has pushed both indices this year up 17%. The DOW made another record close at 15354 while S&P 500 also had a record close at 1667. The FTSE 100 made a five year high at 6723 while DAX also closed at another record high of 8389. And, the Nikkei closed above 15000 at 15138.
The U.S. dollar index which measures its value against a basket of six major currencies, rose to 84.371, it’s highest in nearly three years. However, much of the dollar's recent gains can be attributed to the euro, which fell to a six-week low on talk the European Central Bank could introduce negative deposit rates, a move that effectively would make banks pay to park their cash overnight with the ECB.
The latest EU figures released Wednesday show full year-and-a-half of contraction in the Eurozone as tens of millions of individuals remain unemployed.
EU data agency Eurostat said output across the 17 states that share the euro -- which are home to 340 million people -- fell by 1.0% compared to the same quarter last year. France has also slipped into recession with a 0.2% quarter-on-quarter contraction, with unemployment already running at a 16-year high.
While outflows of gold exchange traded funds continue, demand for physical gold remains robust especially from Asia. The latest World Gold Council Gold Demand Trends report, covering the period of January to March 2013 has indicated that demand for gold jewellery continues to grow. Total jewellery demand was up 12% year-on-year in Q1 2013, primarily driven by Asian markets. Jewellery demand in China was up 19% and stood at a record 185 tons, with demand in India and the Middle East was up 15% and in US demand increased 6%, for the first time since 2005.
Demand for gold in China and India was also driven by an increase in bar and coin sales – up 22% year-on-year in China and 52% in India. In the US demand for bars and coins was up 43% compared with the same quarter in 2012. Globally bar investment was up 8% and official coins such as American Eagles and Canadian Maple Leafs were up 18%. Gold-backed ETFs, which in 2012 accounted for 6% of the world’s gold demand, fell by 177 tons.
Marcus Grubb, Managing Director, Investment at the World Gold Council said “The price drop in April, fuelled by non-physical moves in the market, proved to be the catalyst for a surge of buying that has left many retailers short of stock and refineries introducing waiting lists for deliveries. Putting this into context, sales of bars and coins, jewellery and consumption in the technology sector still make up 81% of the market. What these figures show is that even before the events of April, the fundamentals of the gold market remain robust with; growing demand in India and China, central banks consistently adding gold to their reserves and strong buying of investment products such as gold bars and coins.”
According to the report, investment demand in India was up by 52% compared to last year, despite an increase in import duties from 4% to 6% in January. Gold bars and gold coins continued to attract strong demand despite an increase in import duties which took place in January.
US investment demand in bars and coins increased in the first quarter and a surge in investment pushed Thailand to the third largest market for gold bars and coins in the first quarter. Meanwhile European investment demand slowed and investment across the Middle East was unchanged.
Total mine production in Q1 2013 was up 4% on last year at 688 tons and recycling fell 4% resulting in a total supply that is 1% higher than a year ago. However according to several gold analysts, global gold production is set to decline in the coming years.
While global stock markets, which have been propped up by the unprecedented debt-monetization scheme of central banks in particular the US Federal Reserve and the Bank of Japan, demand for physical gold remains robust. I also believe that the demand for gold in the second quarter is going to be substantially greater than the demand seen in the first quarter.
With increased demand for physical gold I have no doubt that the price will soon rebound.
David Levenstein is a Johannesburg-based expert on investing in precious metals. He began trading silver through the LME in 1980 and over the years has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients. www.lakeshoretrading.co.za
http://www.mineweb.com/mineweb/content/en/mineweb-independent-viewpoint?oid=190952&sn=Detail
The Great Disconnect Between Paper And Physical Precious Metals Prices
May 21 2013
includes: AG, DIA, EXK, GLD, IAU, SLV
Disclosure: I am long AGQ, EXK. (More...)
Over the last few months, precious metals investors have seen their net worth decline due to falling precious metals prices (GLD) (SLV). Most of the decline in precious metals prices was due to a decrease in demand, which was the result of selling by hedge funds, as reported by the World Gold Council here.
First quarter gold demand was 963 tonnes, down 13% compared with Q1 2012 due to an outflow of 177 tonnes from the gold ETF holdings. 2013 marks the first year in a decade where ETFs are actually selling gold. While ETF holdings were reduced, this selling has been countered by an increase in physical demand for gold by China and India. Total demand in China rose 20% to 294 tonnes in Q1 2013 as compared to Q1 2012 (50 tonnes increase).
This huge increase in demand for physical gold can be witnessed on Chart 1, which gives the net imports of gold from Hong Kong to China.
Chart 1: Net Gold Imports from Hong Kong to China
While Chinese demand for gold was strong, Indian demand increased at an even higher pace. The Indian demand for gold increased 27% to 257 tonnes as compared to the same quarter last year.
On the supply side we see a total increase of 1% in the first quarter of 2013 as compared to Q1 2012. Mine production increased 4% while recycling of gold decreased 4%.
(click to enlarge)
Chart 2: ETF gold holdings in tonnes by region to end Q1 2013 (Source: World Gold Council)
The reason for the decline in precious metals prices is evident from an increase in supply (mine production increased) and a decrease in demand for gold (ETF outflows) (Chart 2). But there is an important point I need to make here. While the supply side is pretty constant at 1% increase per annum, the demand side is the critical indicator we need to look at with its 13% decline this year. The decline was a result of hedge funds converting their gold holdings into equities. The Dow Jones (DIA) hit an all time high last week, fueled by bullish news in the equity market of Japan, which on itself was a result of the massive Japanese monetary stimulus announced in April 2013. Although investors are cheering the bull market in equities, the macroeconomic conditions keep worsening. A few examples were a deterioration in PMI, capacity utilization, ISM manufacturing, vehicle sales, ADP employment, initial claims, PPI, mortgage applications and wages.
So we have a huge disconnect here between the macroeconomic conditions and the equity markets (SPY) (Chart 3).
(click to enlarge)
Chart 3: Disconnect between equities and macroeconomy (Zero Hedge)
When the equity markets ever come back to reality, the money in the equity market will flow back to the precious metals market.
While ETF outflows were large, those outflows were countered by physical demand in Asia. As Zero Hedge reports, physical demand is still very robust (Chart 4).
(click to enlarge)
Chart 4: Physical Demand Vs. Paper Demand (Zero Hedge)
In fact, there are many signs that the physical market is going to be the driver of higher precious metals prices going forward.
First, we see that the premiums on physical precious metals have never been this high. As an example I give you the premiums on APMEX and the premium at First Majestic Silver Corp. (AG) (Charts 5, 6, 7). On top of that, the gold premiums in Shanghai compared to London are skyrocketing (Charts 8 and 9).
(click to enlarge)
Chart 5: Silver Premium First Majestic Silver Corp.
(click to enlarge)
Chart 6: Silver Premium APMEX 100% silver coins
(click to enlarge)
Chart 7: Silver Premium APMEX Junk Silver
(click to enlarge)
Chart 8: Silver Premium Shanghai/London
(click to enlarge)
Chart 9: Gold Premium Shanghai/London
Second, gold lease rates (the interest rate of gold) have been rising to a new one-year high (Chart 10). This points to a very low GOFO (Gold Forward) rate, which means there is backwardation in gold. Historically such low GOFO rates mark bottoms in the gold price.
Chart 10: Gold Lease Rates
Third, we see a decline in registered gold at the COMEX. This indicates that gold is in short supply. Whenever investors try to redeem large amounts of their gold from the COMEX warehouses, they are told that they will be settled in cash, which is basically a default or force majeure. In fact, we already see defaults happening. For example, the HKMEX decided to cease trading on May 20, 2013 and will close all open positions.
Lastly, we see that many miners are cutting back on their production plans. For example, Endeavour Silver (EXK) had to readjust its plans for this year, cutting back on capital investment and exploration. Another example can be found at First Majestic Silver Corp., where capital investments were cut by 16%. This will ultimately be bullish for the precious metals.
It's also important to notice the following. While paper gold prices decline, the selling price of the bullion by some of these miners won't decline with the spot price as a result of increasing premiums (See Chart 4). In other words, the decline in precious metals prices on the paper market is countered by an increase in premiums on the physical side of the precious metals market. This means that the profits of these miners will stay the same (as the selling price stays the same). Consequently, we will first see the miners bottom out, while the paper price of precious metals may keep falling. So investors need to keep an eye on the miners. I believe they will start to outperform the bullion price first.
As a matter of fact, one of the most prominent precious metals investors, Eric Sprott, has confirmed that he has been selling the bullion to acquire an increasing stake in the miners. Another example, George Soros has been actively buying calls in the junior miners as reported by William Kaye.
As a final note I want to stress that it is very important to watch the amount of gold held by the gold ETFs. As demand is now being dictated for a part by the ETFs, we need to pay attention to what's happening in the trusts. If they unload their gold, the demand from ETFs is going to decline, which has a negative impact on the gold price. This is the basic theory of supply and demand.
You can monitor this chart daily at the SPDR gold trust site.
(click to enlarge)
Chart 11: SPDR Gold Trust: Units in the Trust (Red Chart, right axis)
What investors see is the massive physical buying in Asia and the high premiums in precious metals that are almost at the highs in 2008. What investors don't see is that there is a great difference between 2013 and 2008. In 2008, ETFs were massive buyers of gold, while today they are massive sellers (Chart 11). Keep watching this trend. If it reverses, then you can confidently start buying precious metals.
The overall conclusion of this is that we are witnessing a shift from the paper market to the physical market in gold and silver and the price will start to be dictated by the physical market.
http://seekingalpha.com/article/1450461-the-great-disconnect-between-paper-and-physical-precious-metals-prices?source=email_authors_alerts&ifp=0
Gold’s Pivotal Role – The Yuan Sees Freer Convertibility this Year! (Part 1)
-- Posted Wednesday, 22 May 2013 |
Julian D. W. Phillips
China has signaled it is going to propose plans this year to allow freer flows of the Yuan both in and out of the nation as part of measures to loosen control over the Yuan and interest rates. It was expected that full and free convertibility after 2022, but it’s clear that the program is moving at an accelerated pace. How far this next phase of convertibility will go has to be seen at the end of this year.
It’s understandable that the process will be gingerly handled so as to dovetail into the currency world without causing crises there. We have to always remember that China will do what suits China and not the outside world. But the inescapable conclusion we have to reach is that the Yuan is set to replace the U.S. Dollar to a greater or lesser extent as it arrives on the world stage. This will inevitably lead to more global uncertainty and instability as dollar hegemony is cracked and more currency volatility batters the currency world. Market reactions could well discount the future and cause premature reactions that, we believe, will benefit gold.
We feel it is inevitable that –in line with the World Gold Council sponsored OMFIF report on the subject—from which we will quote freely, that gold will move to a pivotal role in the monetary system over time. It is the beginning of substantial structural changes to the global financial system and in particular to the gold world.
This will happen at a time when the developed world’s financial system is at a structurally weak stage, struggling to precipitate economic growth and somehow coordinate the 3-speed growth within itself without heading into extended recessions across it. It is certainly time to stand back from a local national perspective and extrapolate the global economic and financial currents. We believe that the demand for gold and silver will find another facet in the growing monetary role precious metals will play in the future.
The world is preparing for possible twin shocks from the parlous position of the two main reserve currencies: the dollar and the euro. As China weighs up its options for joining in the reserve asset game, gold, the official asset that plays no formal part in the monetary system yet, has never really gone away and is poised, once again, to play a pivotal role. Many dismiss gold as a relic of the past or as an inadequate hedge against inflation. But from an asset management point of view, as well as on the basis of political analysis, gold has a lot going for it; it correlates negatively with the USD, and no other reserve asset seems safe from the coming USD shock.
If the specter of collapse continues to haunt the main reserve assets and on the expectation that the Yuan will take time to get into its stride, then the world will rush to safe-havens as currency pressures mount. With the expanded convertibility of the Chinese Yuan due by the end of this year, it would be wise to draw up contingency plans now, for such eventualities.
Gold may be the only reserve asset with the requisite size, clout and history to help ward off the strains that will beset the world monetary system from 2014 onwards.
Let’s look at the main features of this time of transition now taking place:
1. The West has been assailed by the longest-running economic crisis since the 1930s, undermined by the shift of manufacturing from West to East, shifting wealth in the process. In the past the developed world enjoyed 80% of the world’s income, while hosting 20% of its population. By 2020, according to Wolfensohn, the ex-head of the World Bank, this will change to 35% of the globe’s income going to the developed world and 65% of it going to the emerging world and so weakening the natural pull of the U.S. and European currencies.
2. Emerging nations, led by China have amassed huge surpluses in the form of massive monetary reserves that have become the most potent factor behind reserve diversification into other assets, including gold. The I.M.F.'s belated recognition in December 2012 of the occasional need for temporary capital controls demonstrates how dealing with world imbalances in a way consistent with emerging market needs has become a new force in international policy thinking.
3. The Chinese have followed a careful preparatory course for the Yuan to take on this reserve currency role, developing its banking system to facilitate this alongside the signing of many trade agreements (U.K. Australia, Brazil, etc.) in which the Yuan will be used to the exclusion of the USD. Now it is to be a currency independent of USD-oriented currencies and acting solely in the interests of China.
4. Critically the sheer size of the China-oriented trade bloc Asia –now the world’s second largest and moving to first position, possibly as early as 2016—is coming into a position to dictate to the rest of the world the monetary system acceptable to the east. It’s clear that China does not want to ‘fit into’ the present monetary system skewed to the retention of the United States’ hold on political, economic and financial supremacy. As an empire on the rise, it’s avoiding the pitfalls of rising through the ranks and will set its own standards that it hopes will be powerful enough to make others follow.
5. With the last 42 years of trying to dismantle gold’s position as effective money, it remains recognized as an important monetary asset in the global monetary system. The 40-year experiment with unbacked currencies, designed to reinforce and make useful the power of the developed world, globally, is stumbling, for a variety of reasons. In so doing it has left gold ready to fill the vacuum created by the evident failings of the dollar and the euro, and the not-yet requited ambitions of the Yuan.
6. For gold, it’s not important that China fulfil its ambitions. What’s relevant are the changes in the balance of power, both economic and financial, that will precipitate stresses and strains, making the use of an internationally-respected and valued asset critical to retain continuity in the global monetary system.
7. With China using an agency to buy not only local production of gold (the largest in the world now) and encouraging its own citizens to buy gold, we’ve already seen an ongoing propensity towards building up stocks of monetary gold, reflecting their cultural attachment to it that goes back millennia, is itself a powerful factor in the equation.
The role that gold would have to play would have to be consistent with the ambitions and dictates of first China then accepted by the developed world in its attempts to hold onto the advantages of globalization and international trade. We would see some form of indexation of currencies to gold or if acceptable to the Chinese the SDR and its components. In this way gold would act as a “value-anchor” initially suggested by the World Bank head Robert Zoellick.
Gold would not need to be paid out, but its dollar or Yuan or Rouble equivalent, would be based on the currency value against gold at the time. As such, gold would act as the measure of value against which all currencies fluctuate.
If gold is kept in the wings of the monetary system the world may face a huge liquidity crunch if a combination of U.S. and European shortcomings and the natural ambitions of Asia produce an attack on the major currencies. This would open up large holes in the framework of the world’s reserve currency arrangements.
With the advent on the world stage of the Yuan, the international community will be forced to take on these challenges, either willingly ahead of currency crises or in the midst of them. We feel that political pressures will lead to a recognition of these changes only in the midst of crises, or “currency wars,” that lie ahead of the world from 2014 onwards.
The unavoidable conclusion one can reach as to the future is that the world is headed towards the uncharted waters of a durable multi-currency reserve system, where the dollar will share its pivotal role with a range of other currencies, including the Yuan. Historical precedent and the underlying principles behind asset diversification indicate that the coming time of flux and uncertainty for worldwide reserve management will be a period when reserve holders spread their investments into a relatively wide range of assets and sectors.
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China Continues To Cut Out The Middle Man - The Dollar
May 21 2013, 13:03
Alpha Vn Research
includes: CYB, FXA, FXY, UDN, UUP
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
China is aiming to increase foreign trade by 8% in 2013 amid a slow recovery in the world economy and rising trade protectionism. The Yuan (CYB) has been steadily appreciating versus the dollar since last September and accounted for an all-time high of 0.63% of global payments, making it the thirteenth most-used currency in the world.
China and Japan began direct trading between the yuan and the yen (FXY) last June as a move to boost trade and investment between them. This was also viewed as a further step to enable the yuan to become a true global currency. Japan is China's fourth largest trading partner after the EU, the US and ASEAN. Bilateral trade volume settled directly reached ¥10 billion ($1.63 billion US) in 2012. The huge trade volume between Asia's two biggest economies is much more significant than any other agreements China has signed with other countries. However, their deteriorating relationship over the Japanese position on the Senkaku/Diaoyu islands and subsequent massive devaluation of the yen by the new Abe government has slowed down the integration of these two Asian powerhouses.
The Japanese, making both of these policy decisions, have obviously sided with the U.S. in the growing trade and currency war that is upon us. This path that the Japanese have embarked on, however, is suicidal in the long run, in our opinion.
Australia has also cut out the US dollar (UUP) in trade with China when the two countries announced a $31 billion currency swap agreement in March and formalized it in early April. China is Australia's largest trading partner. Since the announcement and the rate cut by the Royal Bank of Australia, the Australian Dollar (FXA) is down nearly 10% versus the dollar and the Yuan. Much of this is a result of the Yen's devaluation, creating havoc in the foreign exchange markets by creating undue demand for the U.S. Dollar by Japanese investors fleeing the country. This effect cannot last indefinitely without engendering hyperinflation in Japan.
What should be obvious here is that the U.S. is putting heavy pressure on the Chinese economy by forcing a strong appreciation of the Yuan and threatening Chinese export competitiveness. These types of strong currency moves are the stuff wars are generally fought over.
One-third of China's imports come from Australia and bilateral trade between China and Australia has been rising every year, mostly in the form of base metal ores and coal. More than 40% of Australian SME exporting to or importing from China plan to settle transactions in yuan which will reduce their foreign exchange risk.
Direct yuan settlement is encouraged to reduce currency risk and trading costs. The direct exchange rate is based on a weighted average of prices given by market makers, excluding the gap of the highest and lowest offers. Bank of China (BACHY.PK), China's third-largest lender, announced that it became one of the country's first market makers in yuan-yen direct trading recently. HSBC (HBC) was also approved as a market maker for direct trading on China's interbank market, followed by Mizuho Corporate Bank. This direct settlement is estimated to save Japan and China some $3 billion in transaction fees annually.
Similarly, major Australian banks found there is a 3-5% price advantage in selling to Chinese buyers when Australian companies price in yuan. The People's Bank of China has already approved licenses for Westpac Bank Corp (WBK) and Australia & New Zealand Bank to act as market makers for direct currency trading. Direct conversion between the Aussie and the yuan could lead to the doubling in monthly volumes to US $600 million in the next six months, as trade between the two countries continues to grow.
In 2013, JETRO expected single digit Japanese export growth to China, and nearly 10% growth in imports from China, recovering from the 10% drop in 2012 to $144.7 billion. Direct trading among the two countries will help Japan maintain its competitive advantages in intellectual property, brands and capital while China can take advantage of its natural resources and labor force. With the cooling off of the Senkaku islands dispute which led to plummeting trade over the previous 6 months between two countries, there is a sign of improved sentiment. January sales in China for the top three Japanese auto makers, Toyota Motor Corp (TM), Honda Motor Co (HMC) and Nissan Motor Co (NSANY.PK), were up from a year earlier by double digits. Demand is coming mostly from the private markets but hasn't recovered from the government and state-owned enterprises. But their share in overall Japanese exports isn't large enough to greatly influence the overall trend.
Japan obtained approval to buy about U.S $10 billion of Chinese bonds in March, allowing the investment of renminbi that leaves China during the transactions. Japanese foreign direct investment into China rose 16% to $2.7 billion so far this year over a year earlier. Australia is also the largest destination for China's surging overseas investment, reaching $55.9 billion by the end of 2012, according to statistics from the China Global Investment Tracker. Chinese investment is starting to diversify away from mining into energy and other sectors which will drive trade in direct currency conversion. Investment by private Chinese companies (versus state-owned enterprises) is on the rise. Meanwhile, the RBA will invest about $1.9 billion, or 5%, of the country's foreign currency reserves in China's bond market.
Direct convertibility is an important step in China's drive for the Yuan to become a reserve currency. France announced it will set up a currency swap line with China to allow French companies to bypass the U.S dollar for trade on April 12th. And with each of these deals the U.S. Dollar gets fundamentally weaker, regardless of what the short-term trend looks like. This is simply another counter-cyclical bull move in an overall bear market for the dollar. However, it is crucial that China continues to liberalize all facets of its currency markets. With the loss of central control will come more power through indirect methods and inherent demand.
http://seekingalpha.com/article/1450341-china-continues-to-cut-out-the-middle-man-the-dollar
Great article basserdan!
This should be of interest to holders of PM's and/or PM stocks...
(special thanks to basserdan)
Washington Signals Dollar Deep Concerns
By Paul Craig Roberts
Tuesday, May 21, 2013
Paul Craig Roberts
Over the past month there has been a statistically improbable concurrence of events that can only be explained as a conspiracy to protect the dollar from the Federal Reserve's policy of Quantitative Easing (QE).
Quantitative Easing is the term given to the Federal Reserve's policy of printing 1,000 billion new dollars annually in order to finance the US budget deficit by purchasing US Treasury bonds and to keep the prices high of debt-related derivatives on the "banks too big to fail" (BTBF) balance sheets by purchasing mortgage-backed derivatives. Without QE, interest rates would be much higher, and values on the banks' balance sheets would be much lower.
Quantitative Easing has been underway since December 2008. During these 54 months, the Federal Reserve has created several trillion new dollars with which the Fed has monetized the same amount of debt.
One result of this policy is that most real US interest rates are negative. Another result is that the supply of dollars has outstripped the world's demand for dollars.
These two results are the reason that the Federal Reserve's policy of printing money with which to purchase Treasury bonds and mortgage backed derivatives threatens the dollar's exchange value and, thus, the dollar's role as world reserve currency.
To be the world reserve currency means that the dollar can be used to pay any and every country's oil bills and trade deficit. The dollar is the medium of international payment.
This is very helpful to the US and is the main source of US power. Because the dollar is the reserve currency, the US can cover its import costs and pay for its cost of operation simply by creating its own paper money.
If the dollar were not the reserve currency, Washington would not be able to finance its wars or continue to run large trade and budget deficits. Therefore, protecting the exchange value of the dollar is Washington's prime concern if it is to remain a superpower.
The threats to the dollar are alternative monies–currencies that are not being created in enormous quantities, gold and silver, and Bitcoins, a digital currency.
The Bitcoin threat was eliminated on May 17 when the Gestapo Department of Homeland Security seized Bitcoin's accounts. The excuse was that Bitcoin had failed to register in keeping with the US Treasury's anti-money laundering requirements.
Washington has stifled the threat from other currencies by convincing other large currencies to out-print the dollar. Japan has complied, and the European Central Bank, though somewhat constrained by Germany, has entered the printing mode in order to bail out the private banks endangered by the "sovereign debt crisis."
That leaves gold and silver. The enormous increase in the prices of gold and silver over the last decade convinced Washington that there are a number of miscreants who do not trust the dollar and whose numbers must not be permitted to increase.
The price of gold rose from $272 an ounce in December 2000 to $1,917.50 on August 23, 2011. The financial gangsters who own and run America panicked. With the price of the dollar collapsing in relation to historical real money, how could the dollar's exchange rate to other currencies be valid? If the dollar's exchange value came under attack, the Federal Reserve would have to stop printing and would lose control over interest rates.
The bond and stock market bubbles would pop, and the interest payments on the federal debt would explode, leaving Washington even more indebted and unable to finance its wars, police state, and bankster bailouts.
Something had to be done about the rising price of gold and silver.
There are two bullion markets. One is a paper market in New York, Comex, where paper claims to gold are traded. The other is the physical market where personal possession is taken of the metal–coin shops, bullion dealers, jewelry stores.
The way the banksters have it set up, the price of bullion is not set in the markets in which people actually take possession of the metals. The price is set in the paper market where speculators gamble.
This bifurcated market gave the Federal Reserve the ability to protect the dollar from its printing press.
On Friday, April 12, 2013, short sales of gold hit the New York (paper) market in an amount estimated to have been somewhere between 124 and 400 tons of gold. This enormous and unprecedented sale implies an illegal conspiracy of sellers intent on rigging the market or action by the Federal Reserve through its agents, the BTBF that are the bullion banks.
The enormous sales of naked shorts drove down the gold price, triggering stop-loss orders and margin calls. The attack continued on Monday, April 15, and has continued since.
Before going further, note that there are position limits imposed on the number of contracts that traders can sell at one time. The 124 tons figure would have required 14 traders with no open interest on the exchange to sell all together in the same few minutes 40,000 futures contracts. The likelihood of so many traders deciding to short at the same moment at the maximum permitted is not believable. This was an attack ordered by the Federal Reserve, which is why there is no investigation of the illegality.
Note also that no seller that wanted out of a position would give himself a low price by dumping an enormous amount all at once unless the goal was not profit but to smash the bullion price.
Since the April 12-15 attack on the gold price, subsequent attacks have occurred at 2pm Hong Kong time and 2 am New York time. At this time activity is light, waiting on London to begin operating. As William S.Kaye has observed, no entity concerned about profits would choose this time to sell 20,000 to 30,000 futures contracts, but this is what has been happening.
Who can be unconcerned with losing money in this way? Only a central bank that can print it.
Now we come to the physical market where people take possession of bullion instead of betting on paper instruments. Look at this chart from ZeroHedge ( tinyurl.com/cfqqfhg ). The demand for physical possession is high, despite the assault on gold that began in 2011, but as the price is set in the non-real paper market, orchestrated short sales, as in the current quarter of 2013, can drive down the price regardless of the fact that the actual demand for gold and silver cannot be met.
While the corrupt Western financial press urges people to abandon bullion, everyone is trying to purchase more, and the premiums above the spot price have risen. Around the world there is a shortage of gold and silver in the forms, such as one-ounce coins and ten-ounce bars, that individuals demand.
That the decline in gold and silver prices is an orchestration is apparent from the fact that the demand for bullion in the physical market has increased while naked short sales in the paper market imply a flight from bullion. (bolded for emphasis)
What does this illegal manipulation of markets by the Federal Reserve tell us? It tells us that the Federal Reserve sees no way out of printing money in order to support the federal deficit and the insolvent banks. If the dollar came under attack and the Federal Reserve had to stop printing dollars, interest rates would rise. The bond and stock markets would collapse. The dollar would be abandoned as reserve currency. Washington would no longer be able to pay its bills and would lose its hegemony. The world of hubristic Washington would collapse.
It remains to be seen whether Washington can prevail over the world demand for gold and silver. Can the dollar remain supreme when offshoring has deprived the US of the ability to cover its imports with exports? Can the dollar remain supreme when the Federal reserve is creating 1,000 billion new ones each year, while the BRICS, China and Japan, China and Australia, and China and Russia are making deals to settle their trade balances without the use of the dollar?
If the consumption-based US economy deprived of consumer income by jobs offshoring takes a further dip down in the third or fourth quarter–a downturn that cannot be masked by phony statistical releases–the federal deficit will rise. What will be the effect on the dollar if the Federal Reserve has to increase its Quantitative Easing?
A perfect storm has been prepared for America. Real interest rates are negative, but debt and money are being created hand over foot. The dollar's demise awaits the world's decision how to get out of it. The Federal Reserve can print dollars with which to keep the bond and stock markets high, but the Federal Reserve cannot print foreign currencies with which to keep the dollar afloat.
When the dollar goes, Washington's power goes, which is why the bullion market is rigged. Protect the power. That is the agenda. Is it another Washington over-reach?
Bitcoin Note: On May 16, PCWorld reported: "The seizure of funds of the largest bitcoin exchange, Mt. Gox, was triggered by an alleged failure of the company to comply with U.S. financial regulations, according to a federal court document. The U.S. District Court in Maryland on Tuesday ordered the seizure of Mt. Gox's funds, which were in an account with Dwolla, a payments company that transferred money from U.S. citizens to Mt. Gox for buying and selling the virtual currency bitcoin."
Reports subsequent to my column suggest that instead of funds being seized, a money transfer mechanism was shut down. Whatever happened, the government has demonstrated that it can disable or destroy Bitcoin at will. Bitcoin might be tolerated unless it becomes widely used. If the government regards Bitcoin as a refuge from the dollar, it can simply have its agents buy up the Bitcoins, driving the price skyhigh, and then dump the purchases all at once, just as tons of gold shorts were dumped on the gold market.
Bitcoin showed its vulnerability in April when, according to news reports, someone gave away $13,627 worth of Bitcoins, and Bitcoin values crashed from $265 to $105. Some people who watch this market concluded that the exercise was a covert central bank stress test.
The fact that I reported on Bitcoin does not mean that I oppose Bitcoin. The point of my article is to demonstrate that the government will take all steps to protect the dollar from Quantitative Easing.
This column was originally published at PaulCraigRoberts.org and is reprinted here with the author's position. Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He has had numerous university appointments. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here.
http://www.thedailybell.com/29124/Paul-Craig-Roberts-Washington-Signals-Dollar-Deep-Concerns
The Coming Collapse Of The Petrodollar System
Submitted by Tyler Durden on 05/20/2013
Authored by Andrew McKillop,
PETRODOLLAR WAR
The theory of Petrodollar Warfare can be attributed to US analyst and author William R Clarke, and his 2005 book of that title which interpreted the US-UK decision to invade Iraq in 2003. He called this an "oil currency war", but the concept of the petrodollar system and petrodollar recyling dates back to the eve of the first Oil Shock in 1973-1974. The role of the petrodollar system as a driving force of US foreign policy is explained by analysts and historians as basic to maintaining the dollar's status as the world's dominant reserve currency - and the currency in which oil is priced.
The term "petrodollar warfare" as used by William R. Clark says that major international war, legal or not, was seen as justified to protect the petrodollar system. Over and above the loss of human life, the combined costs of the Afghan and Iraq wars for the US are controversial like the interpretation of these wars as "oil wars", but analysts like Joseph Stiglitz and Linda Bilmes put the total combined war cost at above $4 trillion. This can be compared with - and totally dwarfs - the annual cost of US oil imports, which are now sharply declining on a year-in year-out basis as domestic shale oil output ramps up, and US oil demand stagnates.
Clarke's theory, like the explanation of the role and power of the "petrodollar system" depends on two basic drivers. Most major developed countries rely on oil imports, which are purchased using dollars, so they are forced to hold large stockpiles of dollars in order to continue importing oil. In turn this also creates consistent demand for dollars, and prevents the dollar from losing its relative international monetary value, regardless of what happens to the US economy.
Variants of the Petrodollar War concept include the role of oil currency conflicts and rivalry, notably concerning US relations with Iran, Venezuela and Russia, and possibly with Europe concerning the gradual replacement of US dollars with the euro, for oil transactions. More important, the entire petromoney system and the potential for Petrodollar War hinges on global oil import demand and the oil price. Both of these have to hold up. When or if they do not, foreign oil importer nations who formerly found it beneficial to hold dollars to pay for oil, would have to find some other (unexplained) reason for huge holdings of dollars, when their oil imports decline and-or oil prices also decline.
The "currency war" variant of the petrodollar system theory, holding that a shift to notably euros or gold for oil payments would undermine the system, is unrealistic when given any serious analysis, because all world moneys are interchangeable or convertible, and gold is priced in US dollars.
THE THREE PHASES OF THE SYSTEM
These are easy to define.
1974-1986 The first phase. The 1972 start of "petrodollar recycling" initiated by Nixon and Kissinger just before the fivefold rise in oil prices of 1973-74, set the process of US-Saudi Arabian cooperation for the near-exclusive benefit of these two players. The US dollar was "backstopped" by the transfer of Saudi liquidities to the US Federal Reserve system banks, especially the Federal Reserve Bank of New York. A small number of other chosen central banks, especially the Bank of England, and the central banks of Germany, France, Italy and Japan also benefitted.
1986-1999 The second phase. This also featured US and Saudi control, but under Clinton's two mandates the focus radically changed to the controlled deflation or reduction of both oil prices and the world value of the US dollar. While the US continued to benefit from "petrodollar recycling", Saudi Arabia was the major loser, undoubtedly changing its perceptions of the system's utility to KSA.
2000-2013 The third and last phase. This period featured a major longterm rise in oil prices and the entry not in force, but progressively of the euro currency into the now enlarged "petromoney recycling" process. Euros now cover about 25% of global oil transactions, for an annual value of around €700 billion, with about the same amount of back-to-back additional lquidities. The massive growth of QE and central bank "easing", from 2008, has heavily reduced the role of "petromoney recycling".
Among the major changes of the petromoney system during these 3 phases, the first phase set the basic political concept among US deciders that "petrodollar recycling" could at one and the same time enable the US to run huge trade and budget deficits, low or very low interest rates, and prevent the collapse of the dollar's value due to the forced need of all world buyers of oil to hold US dollars to make purchases of oil. By the second phase, this underlying concept shaded to including non-oil assets as the focus of value manipulation, controlled inflation and controlled deflation of value. In the third phase, massive increases of the oil price to 2008 played a major role in enabling the continued depreciation of the dollar's world value as US sovereign debt also massively increased, but since 2008 and the start of central bank QE the need for, and role of the petrodollar system have heavily contracted.
THE SYSTEM IS NOW MENACED
Estimates of the exact size and role of petrodollars and petroeuros in the international money system, finance system, and economic system are varied. Many analysts however say the minimum role of the petrodollar system is to create, back-to-back, liquidities at least equivalent to the transaction value of the world oil trade, which for crude and products is about $3.4 trillion-a-year. Combined, the approximate minimum total $6.8 trillion annual value of oil trade plus the petromoney system is about 10% of world annual GNP, equivalent to about 45% of US annual GDP. This may appear as still large and important but has to be compared with, for example, the exposure of national private banks only in Europe in relation to national GDPs, which is often 300% - 400%.
Only QE can "plaster over" these liabilities.
Petromoney recycling is still treated by "the elites" as a critical prop to monetary system integrity, and explains why the USA is far from the only country depending on the system holding up. All oil producers, even smaller-sized, are beneficiaries the same way as all major developed nations' central banks, but the US is still the prime beneficiary. However, the basic supports for the system's operation - continuing high oil demand, high oil prices, and oil priced in dollars - have all weakened or are threatened, today. In particular when global oil demand declines or stagnates, and when oil prices decline, the dollars that will no longer be needed for global purchases of oil will return in massive amounts back to their country of origin, the USA. The consequences can only be dramatic, and threaten the start of a process completely unlike the Clinton-era controlled devaluation of the dollar's value along with the decline of oil prices consented by Saudi Arabia.
The now-menaced "petrodollar system" is also weakened because of worldwide change in the perception of oil and oil energy. From the dawn of the petroleum age to its accelerating twilight, today, geopolitical strategies concocted by developed nations featured the maintenance of secured access to world oil supplies. This was believed to be a win-win strategy for developed nation policy makers, and especially for US policy makers. From the 1970s and the first Oil Shock of 1973-1974, the only "morph' in this policy and strategy was to substitute expensive oil, for cheap oil.
For the USA's ability to run deficits and the petrodollar system, much higher oil prices were a major gain, not a loss, and this is almost surely still the perception of the Obama administration today.
In its first phase and last phase, the economic and political incentives for ensuring national access to oil supplies, and the existence of the petrodollar system as a monetary and finance tool - unrelated to the economy - worked better with higher oil prices. Today however, with the major and massive changes of oil resource availability revealed by the shale energy revolution, rising global oil production capabilities, stagnating oil demand, and rising renewable energy supplies in all major developed countries, and the constantly declining role of oil in the economy, the Petrodollar System's days are surely numbered, like the notion that $100-oil prices are "normal".
The impact of this will be massive.
http://www.zerohedge.com/news/2013-05-20/guest-post-coming-collapse-petrodollar-system
Why Silver Prices Fell Today then Recovered in Wild Trading
By DIANE ALTER, Contributing Writer
Money Morning May 20, 2013
If you're wondering why silver prices fell sharply Monday, it looks like the answers lie in Asia.
Silver prices staged a sharp recovery Monday after volatile trading that took the white metal tumbling 9% in 10 minutes to $20.25 an ounce, a level not seen since 2010.
The steep selloff followed a spike in the Japanese yen against the dollar. Precious metals traders surmise investors were forced to sell silver to cover losses in the currency market. The result was a rash of automated sell orders.
Indeed, the effect has so extreme and rapid, the Chicago Mercantile Exchange halted silver futures trading four times to restrain volatility and rein in excessive price movements, a move known as Stop Logic. Because volumes for silver are lower than for gold, they are more prone to sharp swings, up and down.
Data shows more than 3,000 contracts in Comex silver futures sold in just 20 minutes during early Asian trading. Standard Bank in Tokyo confirmed an unidentified investor sold a sizable position of silver Monday morning.
"The drastic move lower happened pretty much after the CME's electronic platform Globex opening," Afshin Nabvi, MKS head of trading told Reuters.
"The move was exacerbated by the fact that it happened when liquidity was very thin in Asian trade," he continued. "If the same happened in London or New York hours, the size of the liquidation might have been cushioned by higher volumes."
Silver Prices: The Yen Factor
The Japanese yen soared after Economy Minister Akira Amari cautioned about damage to Japan's economy should the country's currency continue to wane. Silver sank 4% on the Tokyo Commodity Exchange after the comments.
"The slump of silver is mainly due to fund outflows from precious metals to yen as some investors are betting on an upturn of the Japanese currency as well as [a] continued rally in the equities market in Japan," Yu Kam-Wing, an executive director at Henfin Ltd, a Hong Kong-based gold trader told The Wall Street Journal.
Investors were quick to flee precious metals in favor of the yen, betting on a recovery in the Asian nation. On Monday, the Japanese government boosted its assessment of its domestic economy as fresh data revealed a pickup in exports--thanks to the yen's steady slide since October.
While the country's recovery remains anemic at best, Japan's leaders are determined to end 15 years of deflation and generate sustainable economic growth. Ambitious goals run the gamut from doubling farm incomes and tourists visits to tripling the value of transport and power generation exports.
Silver Prices Await Fed's Minutes
Precious metals investors are also anxiously awaiting remarks from Ben Bernanke. On Wednesday, the U.S. Fed Chairman testifies before Congress and will share his economic outlook.
Chatter the Federal Reserve could tap the breaks on its $85 billion a month asset purchases, which have stoked silver prices, would spook silver investors.
As a result, investors have been shedding silver stakes. Holdings of the iShares Silver Trust (NYSE: SLV), the largest silver exchange-traded fund, fell 187.7 tons last week to 10,253 tons, the largest weekly outflow since the start of May and the lowest level since mid-January.
However, silver's selloff has spurred a frenzied buying in physical silver. Investors continue to take advantage of the two-and-a-half year low and 30% year-to-date decline in the white metal causing depleted inventories at dealers nationwide.
Silver Prices Rebound
Among heavy short covering, bargain hunting, a weaker U.S. Dollar Index, higher crude oil prices and a flight to safety, silver prices rebounded Monday.
Also providing a lift was a Moody's report warning of a possible U.S. debt downgrade if the U.S. fails to act on its budget problems this year. Safe haven silver buying ensued.
Comex July silver prices closed near session highs, up $0.31, at $22.67 an ounce. Meanwhile, New York spot silver jumped 2.07%, or $0.46, to $22.82 an ounce in afternoon trading.
Money Morning's Shah Gilani joined FOX Business' "Varney & Co." today to talk about gold and silver prices - and a promising stock with 10% yield. Get the full story here.
http://moneymorning.com/2013/05/20/why-silver-prices-fell-today-then-recovered-in-wild-trading/
Why Silver Prices Fell Today then Recovered in Wild Trading
By DIANE ALTER, Contributing Writer
Money Morning May 20, 2013
If you're wondering why silver prices fell sharply Monday, it looks like the answers lie in Asia.
Silver prices staged a sharp recovery Monday after volatile trading that took the white metal tumbling 9% in 10 minutes to $20.25 an ounce, a level not seen since 2010.
The steep selloff followed a spike in the Japanese yen against the dollar. Precious metals traders surmise investors were forced to sell silver to cover losses in the currency market. The result was a rash of automated sell orders.
Indeed, the effect has so extreme and rapid, the Chicago Mercantile Exchange halted silver futures trading four times to restrain volatility and rein in excessive price movements, a move known as Stop Logic. Because volumes for silver are lower than for gold, they are more prone to sharp swings, up and down.
Data shows more than 3,000 contracts in Comex silver futures sold in just 20 minutes during early Asian trading. Standard Bank in Tokyo confirmed an unidentified investor sold a sizable position of silver Monday morning.
"The drastic move lower happened pretty much after the CME's electronic platform Globex opening," Afshin Nabvi, MKS head of trading told Reuters.
"The move was exacerbated by the fact that it happened when liquidity was very thin in Asian trade," he continued. "If the same happened in London or New York hours, the size of the liquidation might have been cushioned by higher volumes."
Silver Prices: The Yen Factor
The Japanese yen soared after Economy Minister Akira Amari cautioned about damage to Japan's economy should the country's currency continue to wane. Silver sank 4% on the Tokyo Commodity Exchange after the comments.
"The slump of silver is mainly due to fund outflows from precious metals to yen as some investors are betting on an upturn of the Japanese currency as well as [a] continued rally in the equities market in Japan," Yu Kam-Wing, an executive director at Henfin Ltd, a Hong Kong-based gold trader told The Wall Street Journal.
Investors were quick to flee precious metals in favor of the yen, betting on a recovery in the Asian nation. On Monday, the Japanese government boosted its assessment of its domestic economy as fresh data revealed a pickup in exports--thanks to the yen's steady slide since October.
While the country's recovery remains anemic at best, Japan's leaders are determined to end 15 years of deflation and generate sustainable economic growth. Ambitious goals run the gamut from doubling farm incomes and tourists visits to tripling the value of transport and power generation exports.
Silver Prices Await Fed's Minutes
Precious metals investors are also anxiously awaiting remarks from Ben Bernanke. On Wednesday, the U.S. Fed Chairman testifies before Congress and will share his economic outlook.
Chatter the Federal Reserve could tap the breaks on its $85 billion a month asset purchases, which have stoked silver prices, would spook silver investors.
As a result, investors have been shedding silver stakes. Holdings of the iShares Silver Trust (NYSE: SLV), the largest silver exchange-traded fund, fell 187.7 tons last week to 10,253 tons, the largest weekly outflow since the start of May and the lowest level since mid-January.
However, silver's selloff has spurred a frenzied buying in physical silver. Investors continue to take advantage of the two-and-a-half year low and 30% year-to-date decline in the white metal causing depleted inventories at dealers nationwide.
Silver Prices Rebound
Among heavy short covering, bargain hunting, a weaker U.S. Dollar Index, higher crude oil prices and a flight to safety, silver prices rebounded Monday.
Also providing a lift was a Moody's report warning of a possible U.S. debt downgrade if the U.S. fails to act on its budget problems this year. Safe haven silver buying ensued.
Comex July silver prices closed near session highs, up $0.31, at $22.67 an ounce. Meanwhile, New York spot silver jumped 2.07%, or $0.46, to $22.82 an ounce in afternoon trading.
Money Morning's Shah Gilani joined FOX Business' "Varney & Co." today to talk about gold and silver prices - and a promising stock with 10% yield. Get the full story here.
http://moneymorning.com/2013/05/20/why-silver-prices-fell-today-then-recovered-in-wild-trading/
Hong Kong Mercantile Exchange to Close Monday, Gold and Silver Paper Contracts will have Cash Settlements
-- Posted Monday, 20 May 2013
HONG KONG, 18 May, 2013:
The Hong Kong Mercantile Exchange (HKMEx) announces today it has decided to voluntarily surrender the authorisation to provide automated trading services (“ATS”) granted by the Securities and Futures Commission (“the SFC”).
With immediate effect, no new orders may be placed and all open positions will be financially settled at the settlement price determined by HKMEx and its designated clearinghouse.
The voluntary surrender decision was made to enable the Exchange to re-align its strategy with the new industry environment since its trading revenues have not been sufficient to support operating expenses and, as a result, its inability to meet the required regulatory financial conditions.
While trading on the Exchange will discontinue, HKMEx as an organisation will continue to operate with its existing staff, and will focus on developing new products including renminbi-denominated precious and base metals contracts that will better meet customer needs. It also intends to re-apply at an appropriate time for an ATS authorization to launch these products with stronger and more effective market maker programs.
“The favourable conditions under which HKMEx was founded have not changed. Global commodity demand continues to shift towards Asia as the region undergoes sustained growth, presenting great opportunities that we will continue to exploit,” said Barry Cheung, Chairman of HKMEx. “Our priorities now are to protect members’ interests by ensuring effective closing of open positions while strengthening our shareholding base and developing new products that play to our distinctive strengths.”
In closing out the open positions, the Exchange has developed a plan in consultation with the SFC to ensure the process is orderly and that investors are well informed of the matter. The Exchange will disseminate settlement prices to its members the morning of next Monday, 20 May 2013. Investors may contact the Exchange’s hotline at +852 3900 9898 for any assistance or enquiry.
http://hkmerc.com/en/index.xml
About:
Exchange turnover hits US$50 billion
HONG KONG, 13 February, 2012- The Hong Kong Mercantile Exchange (“HKMEx”), China’s global marketplace, announces that its trading volume surpassed one million contracts, marking a significant milestone in the Exchange’s development since it went live in May last year.
As of 5pm on February 13, trading on HKMEx’s gold and silver futures reached 1,003,210 contracts, representing total turnover of over US$50 billion (around HK$390 billion). Daily average volume for the first eight trading days of February stood at 7,198 contracts, compared to 2,455 per day in the whole of May. Since launch, more than 832 metric tons of gold have been traded.
“HKMEx was founded to bridge China’s fast-growing commodities markets with the rest of the world by providing products adhering to international standards, but tailored to local and regional market participant’s risk management needs. This is especially pertinent amid today’s uncertain global economic climate, characterised by high commodity price volatility,” said Barry Cheung, Chairman of HKMEx. “We are pleased to have reached this significant trading milestone today, and look forward to the continued support from our members as well as exchange partners as we pursue the task of building a vibrant and liquid marketplace for commodities trading in a fast and secure environment.”
In addition to US-dollar gold and silver future contracts currently traded, HKMEx plans to launch a renminbi-denominated gold futures contract along with other precious metals. Also in the pipeline are renminbi contracts in copper and other base metals. The Exchange will also develop other futures contracts in energy, agriculture, and commodity indices.
HKMEx is backed by well-known shareholders including China’s ICBC and COSCO Group, as well as Russia’s En+ Group, among other regional and international institutions. Its membership of 23, up from 18 at launch, include some of the most well-respected futures brokerages and financial institutions in Asia and across the world.
MONTHLY REPORTS:
http://hkmerc.com/en/Market-Data/Reports/Monthly-reports.html
History
The exchange was announced at a Hong Kong press conference on June 25, 2008 by Chairman Barry Cheung Chun-yuen (Chinese: ???). In attendance was Hong Kong Financial Secretary John Tsang Chun-wah who said there is “a huge opportunity for Hong Kong to develop a commodities futures market” in Hong Kong.[3] In March 2009, HKMEx appointed Albert Helmig, a former Vice Chairman of NYMEX, as President of the exchange to lead day-to-day operations of the bourse.[4]
In June 2009, HKMEx and LCH.Clearnet agreed initial terms for LCH.Clearnet to provide clearing for the exchange.[5] In September, HKMEx signed a contract with Hong Kong International Airport to use HKIA’s Precious Metals Depository as a licensed storage venue for gold traded on the exchange.[6]
In December 2009, ICBC (Asia) acquired a 10% equity stake in the company, and said it intends to participate extensively in the exchange's operations as a trading and clearing member, as well as a settlement bank.[7] This was followed by a June 2010 announcement that En+ Group, owned by Russia's Oleg Deripaska, had also purchased a 10% equity interest.[8]
On May 18, 2011, HKMEx formally began trading with a US Dollar gold futures contract. [9]In an interview with Reuters, Helmig said it plans to launch gold and silver futures contracts denominated in renminbi. He also said HKMEx will follow precious metals products with contracts in base metals, and then energy and agriculture.[10] On July 22, 2011, the exchange launched a second product, a US Dollar silver futures contract.[11]
As of 5pm on February 13, 2012 trading on HKMEx’s gold and silver futures reached 1,003,210 contracts, representing total turnover of over US$50 billion (around HK$390 billion). [12] Trading on the exchange's US-dollar gold futures for the first time surpassed the 10,000 contract mark on June 4, 2012.[13]
On August 2, 2012, the exchange appointed Jane Wang and William Barkshire as Co-Presidents, following the retirement of Albert Helmig. .[14]
Products
Gold
HKMEx's gold futures contract is in 32-troy ounce (1-kilogram) bar units and priced in US dollars per troy ounce. There is one contract per board lot. Futures contracts are offered for expiry in the current calendar month, the next two consecutive calendar months, and any even months falling within a 12-month period starting with the current month. The contract will be physically delivered in Hong Kong.[9]
Silver
HKMEx's US Dollar silver futures contract trades in units of 1,000 troy ounces with physical delivery in Hong Kong. Contracts are for the current calendar month, the next two consecutive months, and any months of January, March, May, July, September, and December within the succeeding 12-month period.[11]
http://en.wikipedia.org/wiki/Hong_Kong_Mercantile_Exchange
http://news.goldseek.com/GoldSeek/1369077753.php
Hong Kong Mercantile Exchange closes its doors
Two years after opening, cash crunch forces chairman Barry Cheung to give up licence, but he says investors won’t lose and funds will be raised
Sunday, 19 May, 2013, 6:13am
Nick Edwards
South China Morning Post
nick.edwards@scmp.com
The Hong Kong Mercantile Exchange will go ahead with a planned US$100 million rights issue and be ready within months to reapply for the trading licence it handed back to regulators at the weekend after it became clear the struggling commodity trader could no longer meet crucial financial criteria.
HKMEx chairman Barry Cheung Chun-yuen told the Sunday Morning Post that the decision to surrender the trading licence and not reopen for business tomorrow would have no impact on investors and that client contracts would be honoured.
"There is no question of not getting your money back or anything like that. People absolutely do not have to worry about that and I don't think they are.
"The only thing they will want to know is what settlement price will be used," Cheung said.
HKMEx was working with LCH.Clearnet - the world's largest clearing house for financial transaction settlements - to arrange settlement pricing on the exchange's roughly 200 outstanding contracts, Cheung said.
The tiny number of outstanding contracts reflects the difficulty HKMEx has had in attracting trades to the platform that officially opened almost two years ago to the day on May 18, 2011.
In contrast, the London Metal Exchange, owned by Hong Kong Exchanges and Clearing, saw record volume in April of 14.5 million lots traded. The Chicago Mercantile Exchange, the world's biggest commodity trading platform, traded 11.6 million contracts daily in April.
The decision to hand back the trading licence was taken by HKMEx when it became clear that it was no longer able to meet the Hong Kong Securities and Futures Commission requirement that the exchange had sufficient cash to cover nine months of operations.
Cheung said the rights issue would solve that problem.
"We are in the process of doing a rights issue which we expect to be completed by the end of June.
"This exercise will raise US$100 million. It will be sufficient to meet the SFC's requirements as well as to support the exchange's operations for the next three to four years," Cheung said.
The next few months would be spent redefining strategy, finalising the rights issue and closing negotiations with potential strategic shareholders in a bid to reapply for the licence.
"This could be in two, three or four months' time and we hope to use this period to regroup, to improve, refine our shareholding structure, to bring in some new additional strategic shareholders, to continue to prepare new products … and to make various improvements," Cheung said.
He declined to identify the potential new shareholders, saying only that they were likely to be based on the Chinese mainland, though Cheung also did not rule out the possibility of other international entities being part of the new HKMEx structure.Cheung conceded that a delay in rolling out the exchange's planned yuan product range over the last 12 months had not been helpful.
Cheung, who chaired the 2012 election campaign for Hong Kong Chief Executive Leung Chun-ying, and who is a non-official member of the Executive Council of Hong Kong, said there was no political issue involved in the decision to close the doors of the HKMEx for trading.
"This is a private commercial matter that has nothing to do with my public duties. I try to do my best in both areas.
"Of course this has nothing to do with the government or the chief executive," he said.
http://www.scmp.com/news/article/1240917/hong-kong-mercantile-exchange-closes-its-doors