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Silver COT - The Day the Numbers Lied
By Jeff Lewis
May 17th, 2013
(special thanks to basserdan)
Prices ended down slightly once again for both silver and gold last week. There was no great change noted in the COT reports for either precious metal, and the monthly Bank Participation Report was a non-event for silver. This is once again leaving many observers scratching their heads about the suddenly questionable reliability of these numbers.
They seem to provide especially important information because they represent the last window of insight into what the elephants are doing in these commodity markets. It is not exactly rocket science when it comes to interpreting the data in those reports.
Part of the belief that there must be more complexity to these numbers comes from some very loud voices entrenched in the "denial of suppression" camp.
Nevertheless, the greatest absurdity arises when one considers that the CFTC — the very regulatory agency that has spent years supposedly ‘investigating’ silver price manipulation — also happens to be the same agency that produces these very simple reports that demonstrate unquestionably that the trading structure in these markets could not be anything other than manipulative.
As has been noted here before, the concentrated long silver position accumulated by the Hunt Brothers for which they were persecuted was a fraction of what the bullion banks currently hold on the short side today. It also appears that not much has changed in their overall short position since the latest price smash seen last month.
Questions About the COT Emerge
Recent months have seen a resurgence of questions being asked regarding the reliability of the COT data.
Many people have been asking why they should trust these COT numbers when just about every other important economic indicator is tampered with, or distorted, and then trumpeted to the complacent masses via the mainstream media.
The ongoing dichotomy in the historical open interest numbers between gold and silver seems especially notable. Also significant is the apparent resilience of the speculative longs in silver, despite repeated violent washouts.
Another interesting observation is the relative stasis in the positions of the large commercial shorts, which "normally" tend to decline in the wake of these sell-offs.
The Last Bit of Integrity Left?
Observers have long questioned the integrity of the CFTC’s data. Also, Just about anyone who follows these metal markets closely understands the influence of the ‘Too Big to Fail’ or TBTF mentality. Whether they admit it or not will mainly depend on their business model.
Admission by the most vocal of stock pickers would undermine much of their premise for buying equity in businesses. Yet, an intelligent minority actually still sees precious metals as more than just a curious historical relic or an annoying tradition. They tend to perceive the often inconvenient truths about the world’s financial and political systems.
Eventually, will these reported numbers disappear in the name of market safety or to protect the identity of the TBTF entities? Removing the COT data to protect the positions of the bullion banks would seem fruitless and probably contradictory, but perhaps this is not unlike most other regulatory agency activity.
The Risk to Market Confidence
Unfortunately, it seems probable that confidence will have taken a significant hit if this occurs. The markets will have completely split, confidence will be lost in all derivatives, and the physical market will take over again to begin the ‘great revaluation’.
Of course, this scenario would completely backfire on the agencies because the exchanges depend economically on the huge trading volume now provided by the algorithmic trading hedge funds. Most likely, it would simply shed more light on what should now be obvious to every serious precious metals observer and investor.
Basically that the trading structure in the silver futures market gives rise to price discovery, and that this mechanism has long been divorced from the real fundamentals for physical silver. Instead, it is almost entirely driven by the vested interests of the for-profit exchanges and their largest clients.
http://www.silverseek.com/article/silver-cot-day-numbers-lied-11781
Switzerland close to deal in U.S. tax dispute: finance minister
Reuters – 2 hours 53 minutes ago
ZURICH (Reuters) - Switzerland is on the brink of a deal to settle a long-running dispute with U.S. authorities over Swiss banks accused of helping wealthy Americans evade billions of dollars of tax, the finance minister said on Saturday.
"We hope that we will shortly be at the finishing line," Eveline Widmer-Schlumpf told Swiss radio in an interview. "The banks won't get it for nothing."
Widmer-Schlumpf declined to say how high fines might be, but added: "It is clear that it will not be a pleasant solution."
Bank secrecy, which has helped Switzerland become the world's largest offshore center with $2 trillion in assets, has come under fire since the financial crisis, as cash-strapped governments seek to clamp down on tax evasion.
The Swiss government has been in protracted talks to end U.S. investigations into Swiss banks, including Credit Suisse and Julius Baer, in return for expected heavy fines and a transfer of client names.
Bern said last month it was considering a possible solution to the U.S. probes, but declined to give further details as negotiations were still continuing.
A source familiar with the talks has told Reuters the two sides had agreed an outline for a deal that would divide more than 300 Swiss banks according to the extent they had helped U.S. clients hide money, to determine how they are dealt with.
Under the outline deal, banks already under investigation would settle with individual deferred prosecution agreements, the source said. Credit Suisse has already made a 295 million Swiss franc ($303 million) provision towards a settlement.
A second group of banks which had U.S. clients but have not yet been targeted by investigators would have to agree to pay fines and hand over data on their customers, the source said.
The country's biggest bank UBS was forced in 2009 to pay a fine of $780 million and hand over the names of more than 4,000 clients, delivering the U.S. authorities information that allowed them to then pursue other Swiss banks.
Switzerland's oldest private bank, Wegelin & Co, said in January it was closing down after pleading guilty to helping Americans evade taxes, paying a fine of nearly $58 million.
EU finance ministers gave their official approval this week to start formal negotiations with Switzerland and the tax-haven microstates of Liechtenstein, San Marino, Andorra and Monaco about surrendering bank data on an automatic basis, exposing savers to tax claims.
Widmer-Schlumpf said Switzerland could do little to resist the pressure for more transparency. "The automatic exchange of information can't be stopped," she said. ($1 = 0.9729 Swiss francs)
(Additional reporting by Oliver Hirt; Editing by David Holmes)
http://finance.yahoo.com/news/switzerland-close-deal-u-tax-154543180.html
Undermining Iranian Currency By Blocking Gold Imports
Saturday, 18 May 2013, 12:03 pm
Press Release: GoldCore
Gold Wars: U.S. Undermining Iranian Currency By Blocking Gold Imports
Today’s AM fix was USD 1,376.75, EUR 1,069.15 and GBP 903.62 per ounce.
Yesterday’s AM fix was USD 1,377.00, EUR 1,070.01 and GBP 904.32 per ounce.
Gold fell $6.00 or -0.43% yesterday to $1,386.70/oz and silver finished +0.71%.
Nothing has changed regarding the positive fundamentals of the physical gold market.
All that has changed is that the price of gold is again lower due to the machinations of technical traders and speculators.
GoldCore Market Performance Table
Tragically, it appears, the U.S. and other investors are again borrowing to buy stocks, confident that prices can only go in only one direction. All of this euphoria can be traced to the monetary expansion policies of the U.S. Fed and across the sea to Europe to the Bank of England and the ECB, and over to Japan and the ‘la la land’ of ‘Abenomics’
Does history repeat itself? Can we learn from money printing throughout history?
Of course we can.
US Dollar and Iranian Rial (USDIRR) Spot Exchange Rate - Price of 1 USD in IRR– 5 Years
US Dollar and Iranian Rial (USDIRR) Spot Exchange Rate - Price of 1 USD in IRR– 5 Years
Currency wars are set to continue and deepen which will support gold.
The United States government is to rigorously enforce a ban on gold sales to Iran from July 1. The U.S. will now ban sales of gold by anyone to either the Iranian government or to Iranian citizens, a senior U.S. Treasury official said yesterday.
The Iranian rial is the official currency of the Islamic Republic of Iran. The conventional market quotation is the number of rials per U.S. dollar. The rial is a fiat currency which like most paper currencies today is a managed, floating currency. The Central Bank of Iran has abolished the multi-tier exchange rate regime and established a single rate in its place.
This is another manifestation of the war on gold. Central banks and their minion banks have won the recent battles but the finite money par excellence gold and owners of physical gold will again win the war as they have throughout history.
http://www.scoop.co.nz/stories/BU1305/S00722/undermining-iranian-currency-by-blocking-gold-imports.htm
Gold shipment valued at $625,000 goes missing at Miami airport
MIAMI | Thu May 16, 2013 12:03pm EDT
(Reuters) - A shipment of gold with a declared value of $625,000 has gone missing in a suspected heist at Miami International Airport, authorities said on Thursday.
A theft incident report from the Miami-Dade Police Department said the gold, packed in a box, arrived at Miami International early Tuesday morning on an American Airlines flight from Guayaquil, Ecuador.
Miami International serves as a major trans-shipment point for large quantities of gold produced in South America and exported primarily to Switzerland for refining.
The plane's cargo was unloaded but the box containing the gold disappeared after apparently being loaded onto a motorized luggage cart or tug, the report said.
The cart was found in front of a gate of the same terminal were the flight from Ecuador was unloaded, about an hour after workers emptied the cargo hold, but without the box containing the gold.
The police incident report did not say who owned the gold or what its final destination was and an American Airlines security official at the airport declined to comment on the case, saying only that it was being investigated by the FBI.
"The FBI is aware of the situation," FBI spokesman Michael Leverock told Reuters in an email.
Miami has seen the trans-shipment of gold rise sharply in recent years as investors have turned to gold and its price has risen. Gold is Miami's No. 1 import valued at almost $8 billion last year, mostly from Mexico and Colombia, and almost all destined for Switzerland, according to World City, a Miami-based publication that tracks trade data.
(Reporting by Tom Brown; Editing by David Adams and Marguerita Choy)
http://www.reuters.com/article/2013/05/16/us-usa-miami-gold-idUSBRE94F0RM20130516
Morning basserdan. Thought I was up early. Student loan article.
How Student Loans Became a $120 Billion Government Bonanza
May 16, 2013
By DAVID ZEILER, Associate Editor, Money Morning
Business has been good for the federal government when it comes to student loans.
Over the past five years, student loans have generated profits of $120 billion for the Department of Education.
And the latest projections from the Congressional Budget Office (CBO) put the take from student loans for the 2013 fiscal year at $48.6 billion - helped along by a change in 2010 that eliminated the middleman and made the Education Department the direct lender for all government-backed loans.
It means the government will reap more in profits from student loans this year than any of the nation's largest corporations. Last year, for example, the most profitable company was ExxonMobil (NYSE: XOM), which reported income of $44.9 billion.
The money is rolling in partly because the Education Department has stepped up efforts to collect on delinquent loans, but mostly because the U.S. government can borrow money far more cheaply than the students to whom it is giving the loans.
The government's student loans now carry an interest rate of 3.4%, which has proved plenty lucrative.
But unless Congress acts soon, the interest rate on government student loans will double to 6.8% as of July 1. (The temporary 3.4% rate was supposed to expire last July, but last year Congress extended it for one year.)
Meanwhile, 10-year Treasuries go for about 2%, and 30-year Treasuries for about 3%.
That widening gap in rates could drive government profits even higher, but at the risk of appearing to exploit a struggling and vulnerable segment of the population.
"As the pomp of graduation fades, many college graduates become keenly aware of their financial circumstance: in debt," Ernie Almonte, chairman of the National CPA Financial Literacy Commission of the American Institute of CPAs, said in a statement. "They start out with an anchor that slows their progression toward future goals. It's a difficult reality confronting a growing number of people."
Student Loans Hurt the Young - and the U.S. Economy
Outstanding student loans now exceed $1 trillion, which put them ahead of all other forms of household debt except home mortgages.
That's triple what student loan debt was in 2004; and the number of Americans burdened with student debt, nearly 39 million, is 70% higher, according to the Federal Reserve Bank of New York.
And unlike other kinds of debt, bankruptcy does not release the obligation to pay back a student loan.
The stubbornly high unemployment rate has played a role as well. It's hard to pay back student loans when you have little or no income, and the unemployment rate for those 18-24 is an alarming 16.2% - more than double the average for the general population.
And it's starting to bite. A recent Harris Interactive survey of student loan borrowers found that 75% had made personal or financial sacrifices to keep up with their monthly student loan payments.
That, in turn, is starting to harm the U.S. economy. Young people struggling to pay back student loans consume less and postpone buying homes - vital catalysts to the economic recovery.
Congress Can't Be Trusted to Fix Student Loans
Miraculously, most in Washington agree that the interest rate on student loans should be lower, and some would like to see the billions in profits used to help students in danger of default.
But since everyone has a different idea on how to achieve the goal, there's a real possibility that no agreement will be reached and the student loan interest rate will increase to 6.8%.
House Republicans and President Barack Obama both have plans that would use a variable rate based on market rates but each uses a different formula. Both also have caps, but the Republicans would cap rates and the White House would limit payments to 10% of discretionary income.
Congressional Democrats would offer more relief to those who need student loans. One proposal would freeze the interest rate at 3.4% for two more years.
The most radical idea comes from Rep. Elizabeth Warren, D-MA, who has proposed that the government offer student loans at 0.75% - the same rate big banks get from the U.S. Federal Reserve discount window.
But even if lawmakers are somehow able to reach some sort of compromise solution, it's unlikely to change the fact that the government is making tens of billions in profits every year from student loans.
"Higher education loans are meant to subsidize the cost of higher education, not profit from them, especially at a time when students are facing record debt," Ethan Senack, the higher education advocate at the United States Public Interest Research Group, told The New York Times. "The revenue from student loans should be used to keep education affordable, and should never be used to pay down the deficit or for other federal programs."
For more on just how frightening the debt picture is that stems from student loans, check out The Scary Reality of the Student Loan Bubble in 5 Charts.
http://moneymorning.com/2013/05/16/how-student-loans-became-a-120-billion-government-bonanza/
So Much for Position Limits on COMEX Gold
May 15, 2013
Gene Arensberg
HOUSTON -- We are using this space to put something in the public domain out of convenience more than anything.
Where were the regulators on gold futures position limits April 12 and April 16?
Flash back to Friday, April 12, when the paper gold futures market was slammed with an enormous sell order in the early going of New York trading, following a “tenderizing” of the market right at the New York open.
We have read and heard various descriptions of the initial sell order being as little as 124 tonnes and as much as 400 tonnes of gold equivalent – sold by a single source or by a group all at once – with the express intent to break the gold market. (More...)
Friday, April 12 5-minute tick chart courtesy of Ross Norman, Sharps-Pixley, UK.
We want to voice a concern of ours which we thought of that very day and have thought about off and on since then, but have yet to act on it. (Other than to share it with several colleagues.)
Our simple question: Where are the regulators (in this case the CFTC and CME Group) with regard to size and accountability limits?
First, though, a caveat: We do not have the actual trade data which would include the actual orders and the sellers of those orders. Without that, this is pure speculation and subject to receiving that actual data. (More...)
That said, what we do know is that the volume spiked to an unprecedented level April 12 and Monday, April 15 and that initial sale triggered an avalanche of trading and trailing stops. The net effect was that the initial order was indeed large enough and sold into the market fast enough that it literally overwhelmed the gold futures market. Whoever it was used a bazooka at a knife fight. The selling panic that ensued will be talked about for generations.
Whether the initial sale into the gold market was 124 tonnes or 400 tonnes is not really material to our question. Either size would be so much higher than any one trader should have been able to sell into the gold market at one time that it begs the question: How many traders would have had to be involved in order to “legally” sell that many gold futures contracts into the market?
Let’s assume for this discussion that the initial sale was 124 tonnes. That’s about 4 million ounces or the equivalent of 40,000 COMEX contracts.
From earlier work we know that the CME Group has position limits for gold futures of 3,000 contracts in the front month and 6,000 contracts in all months.
We know from the open interest that the initial sale on April 12 was concentrated in the front month, so no one trader should have been able to sell more than 3,000 contracts at one time, and that’s assuming that trader had a zero open position when the sale occurred. The 3,000 number is supposed to be the limit of all contracts and options, both long and short at any time, even intra-day.
Assuming all the traders involved had no open contracts before opening four million ounces worth, how many traders would have had to be involved? Simple math says (40,000 contracts / 3,000 lots limit) = 13.3 traders. Call it 14 traders.
So, in order for the initial 124 tonne sale to have occurred “legally” it would have had to have been 14 traders, all with zero orders open, all acting simultaneously, all acting independently, in their own self-interest, without colluding with each other to “sell-for-effect” or conspiring to foment a price smash.
In actuality, the chances that there were 14 traders who held zero open orders all acting independently, all throwing their full allowable 3,000 contracts into the gold market within a few minutes of each other are infinitesimally small.
Much more likely is that the initial sale which triggered the sell stop putsch in gold was done by a single trader, acting so far outside the position limit regime as to be brazen about it.
How about a few facts:
At the time of the large sale on April 12, the gold price was breaking through $1,520.
4 million ounces at $1,520 is roughly $6 billion in notional value.
40,000 contracts would have required about (40,000 X $5,940) = $237.6 million in initial performance bond requirements, if the traders were Spec members. (CME Group subsequently raised Spec initial margin to $7,040 for the close on April 16.) If the big seller was a commercial hedge member, then it would have required (40,000 X $5,400) = $216 million in initial bond requirement. (CME Group subsequently raised Hedger initial margin to $6,400 for the close on April 16.)
At the time of the large sale the COMEX open interest was a little over 416,000 contracts. So the initial sale was about 10% of the entire open interest of the COMEX. There was little change in the number of contracts open as of Tuesday, April 16, by the way (413,083).
A few questions:
Who was the large trader who decided to hammer the gold market with 40,000 contracts all at once?
How did that trader manage to do so without running afoul of the CME Group position limits or the CFTC regulators?
Was the initial trade by one, two or many traders? If by one or two, then there is no way in hell the trade was “legal” under the position limits.
If by many traders all acting at once, then how is that possible without their conspiring in advance to do so? (We are talking about the initial smash trade here, not the ensuing stops triggered.)
We invite well-informed commentary on this subject and would be grateful to any N.Y. traders who know the facts to comment either here on the blog or privately.
We suppose it is possible that the initial sale was actually much smaller than 124 tonnes, but that it triggered a series of sell stops that collectively amounted to that much, but we are doubtful that the sale which triggered this sell down was “legit” when we look at the facts.
Our sense is that no one would sell that many gold contracts so fast unless it was with the express intent to drive the market lower and by doing so, trigger sell stops of many other traders - which is, of course, trading for effect, which is patently illegal. (And yes, we know it happens all the time, but there you go.)
Our sense is that we won’t be bothered with any commentary or enforcement action by the CME Group or the CFTC on this issue. The history of the paper gold and silver futures markets suggests that rules and position limits are just so much sausage – to be ground up by a few elite traders from time to time.
Not that we are complaining, mind you. We are merely trying to understand if there really are position limits and whether they should have come into play on April 12, 2013.
Edit to add: A trader buddy, responding to our inquiry reminds: “The hedge members can use their bona fide hedger exemptions to sell more than the limit, but not without filing paperwork with the exchange.”
If true, and we do believe it is true, then whoever blew out the gold market on April 12 is already known to the CFTC (and what documentation they used to back up their trade). But don't hold your breath waiting to hear about if from the CFTC under Goldman Sachs-ex Gary Gensler.
Mr. Gensler is a Goldman sausage grinder from way back...
Gene Arensberg for Got Gold Report
Posted by Gene Arensberg at 02:24:45 PM in Got Gold Blog, Vulture In Review
http://www.gotgoldreport.com/2013/05/so-much-for-position-limits-on-comex-gold.html
From Petrodollar To Petrogold: The US Is Now Trying To Cut Off Iran's Access To Gold
Submitted by Tyler Durden on 05/16/2013
The US is moving to broaden its 'blockade' efforts of Iran to the movement of pure gold into the Islamic Republic. The US-led embargo of Iranian crude succeeded in slowing the flow of petrodollars into the nation but as Foreign Affairs committee chairman Edward Cohen remarked, there is "no question that there is gold going from Turkey to Iran." While the official line from US elite such as Bernanke remains that 'gold is not money' it appears that increasingly other nations would disagree, as Cohen admitted, "in large measure what we're seeing is private Iranian citizens buying gold as a protection against the falling value of Iran's currency." It would seem somewhat self-evident that the US is admitting, by attempting to embargo this gold flow, that outside the US, the Dollar is becoming increasingly irrelevant (see China's gold demand); and that for many countries the petrodollar no longer exists, having been replaced by 'Petrogold'.
Via Trend,
...
With Iran's currency already hit hard by European and Asian participation in the U.S.-led embargo of Iranian crude, Mr. Cohen asserted that his staff is broadening its efforts to include blocking the movement of pure gold into the Islamic republic.
"I can assure you that we are looking very, very carefully at any evidence that anyone outside Iran is selling gold to Iran," he said.
The remark came after Rep. Edward R. Royce, California Republican and the Foreign Affairs Committee's chairman, asked whether the administration was aware of recent reports indicating an uptick in the flow of gold into Iran.
"With its currency now in free fall, the Iranians desperately need gold," said Mr. Royce, who noted that a U.S. law authorizing the Obama administration to sanction anyone selling gold to citizens inside Iran does not take effect until July 1.
With existing U.S. law only allowing sanctions on the sale of gold directly to the Iranian government, Mr. Cohen told lawmakers the administration is keeping a close eye on the situation.
While Mr. Cohen acknowledged that U.S. authorities have "no question that there is gold going from Turkey to Iran," he said that "in large measure what we're seeing is private Iranian citizens buying gold as a protection to the falling value" of Iran's currency, the rial.
http://www.zerohedge.com/news/2013-05-16/petrodollar-petrogold-us-now-trying-cut-irans-access-gold
US to the world: no gold sales to Iran
Anthony Halley | May 16, 2013
Mining.com
The United States is pressuring the governments of Turkey, the United Arab Emirates and elsewhere to cease gold sales to Iranians as part of broader sanctions over Iran's nuclear program.
The US, along with many other countries, is working openly to isolate Iran from the international financial system, hoping that the Iranian people – and in particular elites and business class – will demand policy reforms of their government.
A key component of this strategy is an attack on the value of the Iranian rial.
One way of pressuring the currency is to prevent Iranian purchases of foreign gold, which the US government seems determined to achieve.
"As of July 1st all [gold sales] must stop, not just the trade to the government," treasury under-secretary for terrorism and financial intelligence David Cohen told the Senate Foreign Relations Committee Wednesday.
Cohen suggests that current trade sanctions are costing Tehran some $5 billion a month "caused the economy to contract by as much as eight percent last year."
Sources: Reuters; The Economic Times; news.com.au; The Hindu
http://www.mining.com/us-to-the-world-no-gold-sales-to-iran-34860/
U.S. Congress Seeks to Replace the Base Metal of Most American Coins With Steel
by Mike Maloney - GoldSilver
Published : May 15th, 2013
A measure introduced in the U.S. Congress seeks to replace the base metal of most American coins with steel. The move would slash the nickel and copper content of U.S. coins to a fraction of today’s already reduced levels. Like past changes in metal content, the bill represents a logical continuation of currency debasement and calls into question the strength of U.S. fiat currency—yet another sign of the decline of the global monetary system.
Congressman Steve Stivers (R-OH) introduced the bill, H.B. 1719—the “Cents and Sensibility Act”—on April 24. It mandates that pennies, nickels, dimes and quarters be composed primarily of steel; specifically U.S. produced steel. He presents the bill as a budget measure, stating, “This legislation is a common-sense solution to decrease the cost of minting our coins. Not only will it cost less, but steel is an American resource that we have here at home and can be manufactured right here in our backyard.” His office asserts that, according to the House Financial Services Committee, the U.S. government would save up to $433 million over 10 years.
Conveniently, Worthington Industries, a steel processor that supplies steel blanks for Canadian currency, is located in Stivers’ district and strongly supports the bill.
At present, a penny contains 97.5% zinc and 2.5% copper (for exterior plating) while a nickel contains 75% copper and 25% nickel. Yes, a nickel contains more copper than a penny! Dimes and quarters contain a different cupronickel blend of 8.33% nickel to 91.67% copper. As of May 8, a penny contains one-half cent worth of metal; nickels contain 4.6 cents. Factoring in production costs, the U.S. Mint reported that a penny cost 2¢ and a nickel cost 10¢ to manufacture in 2012. Interestingly enough, an external consultant to the Mint found that steel pennies would cost the same as the zinc-copper blend. A steel coin mandate would all but eliminate copper, nickel and zinc from the currency and significantly reduce the intrinsic metal value of nickels, dimes and quarters.
Though not considered precious metals per se, zinc, nickel and copper are often mined from locations also rich in silver. Indeed, the vast majority—somewhere in the range of 70%—of silver mining occurs as a by-product of other metal extraction. Thus the amount of silver mined depends on the demand for these other metals. In 2012, the U.S. Mint consumed 14,662 metric tons of zinc for new penny minting and 6,244.8 metric tons of nickel to produce nickels, dimes and quarters.Another 36,031 metric tons of copper went into nickels, dimes and quarters. Taking this much out of demand for zinc, nickel and copper may reduce new supplies of silver, introducing more volatility and price increases into the silver market.
Besides threatening the world’s supply of silver, Stivers’ bill draws attention to the lack of real value in U.S. currency. Gold coins as circulating currency ceased in 1933. Silver was largely eliminated from coins by 1965. Copper was dropped from pennies in 1982. Each change precipitated a rush to hoard the discontinued coins, which in turn triggered the government to flood the market with the new issues—offering a near perfect examples of Gresham’s Law: “Bad money drives out good.” Expect a repeat of this phenomenon if Stivers’ bill becomes law.
To students of economic history, these currency debasements sound both familiar and disturbing. As Mike Maloney explains in Guide to Investing in Gold and Silver, great civilizations have resorted to debasement to squeeze more profit from their citizens. Pocketing the difference between face values and actual cost amounts to no less than a hidden tax, but one more nefarious than an overt tax. Fiddling with coin content creates questions about the integrity of government policies and destabilizes confidence in the currency. It makes sense: If a silver dollar isn’t really silver, is it still a dollar? Why?
Sure enough, from Athens to Rome to modern times, debasement of currencies has occurred in times of stress. Each time, however, debasement unleashed destabilization and introduced inflation. Indeed, debasements of Athenian silver coinage created the first state inflation in the West. Moreover, frequent debasement is a sure sign of a weak state teetering on the edge of collapse. Economists can trace the collapse of the Western Roman Empire by tracking the rate of currency debasement. As the third U.S. currency debasement in a hundred years, Stivers’ bill begs the question—is the United States economy entering a terminal collapse?
Rep. Stivers’ bill may not pass—this is the third year he has introduced the measure. However, since 2010, the U.S. Mint has studied alternate metals for use in coins. Steel alloys are among the top candidates. Regardless of how it comes, the reduction or elimination of zinc, nickel or copper from U.S. currency is a debasement. Following so quickly on other debasements, these initiatives concretely demonstrate the weakness of the American currency and the ongoing determination of the government to maintain the fiat currency shell game for as long as possible.
http://www.24hgold.com/english/news-gold-silver-u-s-congress-seeks-to-replace-the-base-metal-of-most-american-coins-with-steel.aspx?article=4370439880G10020&redirect=false&contributor=Mike+Maloney
Taibbi: Everything Is Rigged, Continued: European Commission Raids Oil Companies in Price-Fixing Probe
By Matt Taibbi
May 15, 12:05 PM ET
(special thanks to basserdan)
(please note: The underlined words are 'clickable' links when accessed via the link at the bottom of this page)
We're going to get into this more at a later date, but there was some interesting late-breaking news yesterday.
According to numerous reports, the European Commission regulators yesterday raided the offices of oil companies in London, the Netherlands and Norway as part of an investigation into possible price-rigging in the oil markets. The targeted companies include BP, Shell and the Norweigan company Statoil. The Guardian explains that officials believe that oil companies colluded to manipulate pricing data:
"The commission said the alleged price collusion, which may have been going on since 2002, could have had a "huge impact" on the price of petrol at the pumps "potentially harming final consumers".
Lord Oakeshott, former Liberal Democrat Treasury spokesman, said the alleged rigging of oil prices was "as serious as rigging Libor" – which led to banks being fined hundreds of millions of pounds.
The inquiry also involves Platts, the world's largest oil price reporting agency. The concept here is very similar to both the LIBOR scandal, which involved banks manipulating the benchmark rates for interest rates, and to the possible rigging of interest rate swap prices through the manipulation of ISDAfix, the benchmark rate for those instruments, which is also the subject of a regulatory probe.
We wrote about both of those scandals in last month's Rolling Stone article, "Everything is Rigged." In that piece, finance professionals talked about the potential for manipulation in other markets that involve voluntary price reporting:
What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we're forced to trust.
"In all the over-the-counter markets, you don't really have pricing except by a bunch of guys getting together," Masters notes glumly.
That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it.
One analyst I spoke to for that piece talked specifically about Platts (and another, similar price assessment company), noting that they "do benchmarks for the entire oil market, the entire refined products market" and "you name it" – any of these benchmarks that rely on voluntary reporting could be manipulated.
It's not clear yet exactly what is alleged to have occurred, but Europeans have long complained that retail gas prices have not seemed to match wholesale prices. In fact, complaints that wholesale prices at gas stations were noticeably slow to fall when wholesale prices fell prompted the U.K.-based Office of Fair Trading last year to conduct a cursory inquiry into possible anti-competitive behavior in the fuel markets. Early this year, they announced that they hadn't found enough evidence to warrant a full-blown investigation. But complaints persisted.
The story is obviously hugely significant in its own right, just as the LIBOR story was. But both are even more unpleasant in conjunction with each other, and the other price-fixing scandals that have cropped up in the financial markets in the last year or two. We've had other price-fixing scandals involving gas in the U.K. and here in the U.S., just a few weeks ago, it came out that the Federal Energy Regulatory Commission (FERC) concluded that JPMorgan Chase used "manipulative schemes" to tinker with energy prices in Michigan and California.
FERC last year also recommended a massive $470 million fine against Barclays for similar activity. (Barclays has vowed to fight the penalty.) Deutsche Bank, meanwhile, settled with FERC for $1.7 million after the commission alleged that the German bank was involved with manipulation in the California energy markets for several months during 2010.
More on all this later . . .
http://www.rollingstone.com/politics/blogs/taibblog/everything-is-rigged-continued-european-commission-raids-oil-companies-in-price-fixing-probe-20130515
ORDERS FOR GOLD GO UNFILLED IN ASIA
by RUSS WINTER
May 14, 2013
Considering the rush of gold orders in mid to late April, it is understandable that there would be some temporary delays in delivery. However, we’re now into mid May and sources indicate those same orders are still unfulfilled. So it begs the question: Where’s the gold?
The Shanghai Gold Exchange has an enormous appetite for physical gold, so much so that it’s absorbing all world production month after month — even before the April fire sale. A month’s production averages about 230 tonnes. Gold Miner Pulse, which tracks the numbers from the Shanghai Gold Exchange, reports that during the week of April 22 only one tonne has been delivered to the exchange. Since May 1, it has received only 0.3 tonnes
The Economic Times of India reports a similar story. Furthermore, many Indian jewelers said compared to last year they expected gold sales will be up 30 % to 50% during the Akshaya Tritiay holiday on May 13 due to the lower price of gold.
Haresh Soni, chairman of the All India Gem and Jewellery Trade Federation, said banks and trading houses importing gold are getting only 10 percent of their orders as the demand has surged sharply after a sudden slide in gold prices last month. ‘If they place order for one tonne, for instance, then they are getting only around 100 kg,’ Soni said. “
Oh, wait. I get it now. You deal with real market demand by declaring a defacto force majeure. Meanwhile, the paper market continues on unimpeded. Could the Comex and LBMA be next for force majeure?
Paul Craig Roberts’ theory is that the raid of the Comex was done in conjunction with the buying of GLD shares in the washout. The banksters get the physical gold by delivering to the GLD 100,000 share lots, which was then supposedly shipped off to Asia, according to Roberts. However, I think the real reason for the raid was to send leased gold back to the Federal Reserve, that in turn must continue to return gold to Germany. I predict additional official sources, such as central banks, also want their gold back — and much quicker than Germany’s seven-year delivery window. What the masters of the universe didn’t predict was the huge demand coming out of China and India. Now, the response is to choke those buyers from real product.
Good news for silver bulls. Last month, Japan will increased silver use for solar by 1.5 million ounces to 5 million ounces ["Dowa Boosts Silver for Japan Post-Quake Solar Demand"]. That’s if it can get delivery.
http://winteractionables.com/?p=2397
GoldMinerPulse: Shanghai Gold Exchange Physical Gold Delivery
Shanghai Gold Exchange Physical Gold Delivery Trends
http://www.goldminerpulse.com/v/shanghaiGoldExchangePhysicalDelivery.php
New App Lets You Boycott Koch Brothers, Monsanto and More by Scanning Your Shopping Cart
By Clare O'Connor | Forbes – Tue, May 14, 2013 8:57 AM EDT
Buycott shows you a product's corporate family tree while you shop.
In her keynote speech at last year's annual Netroots Nation gathering, Darcy Burner pitched a seemingly simple idea to the thousands of bloggers and web developers in the audience. The former Microsoft programmer and congressional candidate proposed a smartphone app allowing shoppers to swipe barcodes to check whether conservative billionaire industrialists Charles and David Koch were behind a product on the shelves.
Burner figured the average supermarket shopper had no idea that buying Brawny paper towels, Angel Soft toilet paper or Dixie cups meant contributing cash to Koch Industries through its subsidiary Georgia-Pacific. Similarly, purchasing a pair of yoga pants containing Lycra or a Stainmaster carpet meant indirectly handing the Kochs your money (Koch Industries bought Invista, the world’s largest fiber and textiles company, in 2004 from DuPont).
At the time, Burner created a mock interface for her app, but that's as far as she got. She was waiting to find the right team to build out the back end, which could be complicated given often murky corporate ownership structures.
She wasn't aware that as she delivered her Netroots speech, a group of developers was hard at work on Buycott, an even more sophisticated version of the app she proposed.
"I remember reading Forbes' story on the proposed app to help boycott Koch Industries and wishing that we were ready to launch our product," said Buycott's marketing director Maceo Martinez.
The app itself is the work of one Los Angeles-based 26-year-old freelance programmer, Ivan Pardo, who has devoted the last 16 months to Buycott. "It's been completely bootstrapped up to this point," he said. Martinez and another friend have pitched in to promote the app.
Pardo's handiwork is available for download on iPhone or Android, making its debut in iTunes and Google Play in early May. You can scan the barcode on any product and the free app will trace its ownership all the way to its top corporate parent company, including conglomerates like Koch Industries.
Once you've scanned an item, Buycott will show you its corporate family tree on your phone screen. Scan a box of Splenda sweetener, for instance, and you'll see its parent, McNeil Nutritionals, is a subsidiary of Johnson & Johnson.
Even more impressively, you can join user-created campaigns to boycott business practices that violate your principles rather than single companies. One of these campaigns, Demand GMO Labeling, will scan your box of cereal and tell you if it was made by one of the 36 corporations that donated more than $150,000 to oppose the mandatory labeling of genetically modified food.
Deciding to add that campaign to your Buycott app might make buying your breakfast nearly impossible, as that list includes not just headline grabbers like agricultural giant Monsanto but just about every big consumer company with a presence in the supermarket aisle: Coca-Cola, Nestle, Kraft, Heinz, Kellogg's, Unilever and more.
Buycott is still working on adding new data to its back end and fine-tuning its information on corporate ownership structures. Most companies in the current database actually own more brands than Buycott has on record. The developers are asking shoppers to help improve their technology by inputting names of products they scan that the app doesn't already recognize.
And if this all sounds worthy but depressing, be assured that your next trip to the supermarket needn't be all doom and gloom. There are Buycott campaigns encouraging shoppers to support brands that have, say, openly backed LGBT rights. You can scan a bottle of Absolut vodka or a bag of Starbucks coffee beans and learn that both companies have come out for equal marriage.
"I don't want to push any single point of view with the app," said Pardo. "For me, it was critical to allow users to create campaigns because I don't think its Buycott's role to tell people what to buy. We simply want to provide a platform that empowers consumers to make well-informed purchasing decisions."
Forbes reached out to Koch Industries and Monsanto for comment and will update this story with any responses.
Update: Tuesday's traffic surge is causing some problems for Buycott. Pardo says he's working to fix issues with the Android app in particular. "The workload is a bit overwhelming now," he said. "For example, our Android app was just recently released and the surge of new users today has highlighted a serious bug on certain devices that needs to be fixed immediately. So all other development tasks I was working on get put on hold until I can get this bug fixed."
http://finance.yahoo.com/news/app-lets-boycott-koch-brothers-125701452.html
$1 billion of gold has been shipped from New York to South Africa this year
By David Yanofsky @YAN0 May 13, 2013
Quartz
When South Africa makes so much gold of its own, why does it need to import it?
Examining US trade data, we were surprised to see that South Africa’s $402 million trade surplus with the United States in January had turned into a $689 million deficit by March. Why?
It turns out the $1.1 billion swing is entirely due to unusual shipments of gold from the US to South Africa in February and March. So far this year, 20,013 kg of unwrought gold, worth $982 million, has left John F. Kennedy International Airport (JFK), in New York, for somewhere in South Africa, according to the US Census Bureau’s foreign trade division. (Unwrought gold includes bars created from scrap as well as cast bars, but not bullion, jewelry, powder, or currency.)
The shipments from JFK were the only unwrought gold to leave the US for South Africa in 2013; another large shipment occurred in September 2012.
South Africa has an enormous mining industry, and a lot of the material leaves the country–$1.72 billion worth of precious stones and metals were exported in March according to the South African Revenue Service. Although the country’s gold output has been falling steadily for decades, it remains one of the world’s largest producers and is still primarily an exporter. In fact ordinary South Africans are legally prohibited from importing or owning unwrought gold. (Refiners, dealers, and jewelers are granted licenses.)
However, the strikes that rocked South Africa’s mining industry last year briefly caused gold output to fall sharply, around the same time as last autumn’s big gold shipment from JFK. Overall 2012 production declined by a relatively modest 6% (pdf) over the year before, according to a preliminary figure from the US Geological Survey; but those first estimates have sometimes proven wide of the mark. (In 2009 the USGS estimated South Africa’s 2008 production to be 250 tons; it subsequently revised the figure to 213 tons.) So it could be that the strikes dealt a more severe blow to the country’s gold industry than the data show.
Still, even if gold output did fall precipitously, it’s not clear why South Africa would need to start importing it. One possible destination for the gold is the South African Mint, which produces legal-to-own gold coins called Krugerrands; the gold used in them is first refined by the Rand refinery. Calls to the South African embassy in Washington, DC were not returned.
The data do not imply that the gold originated from the New York area, only that JFK was the gold’s final point of transit before it made its way to South Africa. For instance, a US domestic cargo carrier could have delivered the gold to an international carrier in New York, who in turn hauled it across the Atlantic. The amount of unwrought gold exported through JFK has more than doubled in recent years.
In 2012, 335,204 kg was transported from the airport to other countries, up from 148,894 kg in 2009.
The shipments to South Africa amount to 16% of all unwrought gold exported through JFK in the first three months of 2013 and 9% of all unwrought gold exported from the US this year.
All the gold was not necessarily shipped at the same time. However, if it was, it would take up no more space than a washing machine. The Boeing 747-200, a cargo model of the distinctive jumbo jet, is capable of transporting a shipment six times heavier than the 20,013 kg exported so far this year. That’s all we know.
If you have a better theory about (or the full story behind) these gold shipments, feel free to get in touch.
http://qz.com/83396/1-billion-of-gold-has-been-shipped-from-new-york-to-south-africa-this-year/
Great article basserdan.
Great article cork!
Another irony is the benefactors of the banksters sale of the gold leeched from the gold ETFs. Asia is the beneficiary, especially India and China. The "get out of gold line" of the US financial press enables China to unload its excess supply of dollars, accumulated from the off-shored US economy, into the gold market at a suppressed price of gold.
Kranzler points out that not only does the Fed's manipulation permit Asia to offload US dollars for gold at low prices, but the obvious lack of confidence in the dollar that the manipulation demonstrates has caused wealthy European families to demand delivery of their gold holdings at bullion banks (the bullion banks are essentially the "banks too big to fail").
CTFC Probes Over 1 Million US Swap Contracts
Published: Monday, 13 May 2013 | 8:55 PM ET
Financial Times
By: Gregory Meyer and Kara Scannell
A top U.S. financial regulator has launched a broad inquiry into the legitimacy of more than 1 million energy and metals transactions by the biggest traders in commodities markets over the past two years.
The Commodity Futures Trading Commission has issued a "special call" asking Wall Street banks and other traders to provide documents that would prove recent derivatives transactions known as "exchanges of futures for swaps" were legal. Lawyers at the CFTC enforcement division are also scrutinizing the trades for possible violations.
"They are looking at a huge amount of trading," an industry lawyer said.
The CFTC push shows how authorities are clamping down on previously unregulated derivatives dealing in markets from commodities to interest rates after the financial crisis. The CFTC this week is set to impose new trading rules for over-the-counter markets, even as the Group of 20 industrial countries seeks to shift more derivatives to electronic platforms.
The new inquiry centers on whether large traders and market-makers used unregulated over-the-counter swaps markets to trade what were in fact futures, strictly regulated contracts that are economically identical to swaps.
Trading futures off an exchange is illegal, and regulators are concerned that traders may have used these deals, known as EFSs, to agree prices that did not reflect the market.
"They've made information requests to everybody that's ever traded an EFS. They're saying, 'prove to us that the swap was legitimate'," said a recipient of a CFTC document request.
Leading banks that have received document requests include JPMorgan Chase, Goldman Sachs and Citigroup. The banks declined to comment.
EFSs are two-step transactions used by banks, oil companies and hedge funds to arrange specialized commodities deals, often in illiquid markets where there are few counterparties and one trade could move prices dramatically.
In the first step, two traders enter a private swap contract linked to the direction of commodity prices. In the second step, an instant later, this position is converted into a futures contract as it is transferred to the CME Group clearing house.
CFTC staff are demanding information on EFSs executed following the passage of the Dodd-Frank financial reform law in 2010 until this year, people familiar with the inquiry said. They want traders to show the first step of the transactions involved swaps and not futures contracts masked as swaps.
One CFTC official said: "Where's the evidence? ...It can't just be that a transaction is labelled a swap and there's no audit trail."
The CME clearing house has processed more than 1 million EFSs and similar trades since 2010, according to the Futures Industry Association. Large traders said the transactions had not drawn objections from the CFTC previously. "It seems like a witch hunt," said one.
CME has provided traders with details of swaps transferred to its clearinghouse, but it is not clear this information will satisfy commission requirements.
Terry Duffy, CME executive chairman, said in a letter to CFTC last week: "In our view, nothing is served by piling on duplicative reporting mandates."
Any traders found to have misrepresented futures as swaps could face lawsuits and penalties from the agency. Last year Morgan Stanley was fined $5 million over what the CFTC called "fictitious sales" of futures.
http://www.cnbc.com/id/100733420
Teaching You How to Fish the Markets, Part VII
May 9th, 2013 | By Shah Gilani
Wall Street Insights & Indictments
By the start of the 1960s, banking in America was in a state of flux.
Boundaries were being blurred – especially those separating “commercial banks” and “investment banks” under Depression-era Glass-Steagall parameters. The banking landscape was shifting. In fact, it was about to go volcanic.
The Truman Administration had championed the break-up of bank cartel arrangements, whereby a powerful coterie of commercial-bank bond underwriters controlled how corporations financed debt and who got to distribute bond offerings. Subsequent regulatory changes (requiring bidding for underwriting assignments) broke up the “Gentleman Bankers Code,” which had been code for cartel.
A more competitive landscape drove banks to expand. Branch banking spread through shopping malls and onto prime locations on America’s Main Streets.
The hunt for deposits was on.
And it got ugly fast…
Commercial banks needed more and more deposits to supply funds to rapidly growing corporations. And they wanted to make small business and consumer loans, wherever they could.
Intense banking competition was driving down lending profitability. At the same time, corporations were self-financing themselves through retained earnings and increasingly turning to insurance companies with whom they could directly place their bonds.
Commercial banks were losing their predominant position as providers of capital… while investment banks were growing rapidly.
The investment banks, with insignificant amounts of their own capital, were raising equity capital for corporations and trading blocks of stock accumulating in pension plans, which were mushrooming as a result of 1950s tax law changes and collective bargaining victories by labor unions.
Commercial banks had to grow rapidly to offset declining profit margins in the lending business. And they had to figure out how to compete with more aggressive and more profitable investment banks, as well as their institutional investor clients, who were rapidly becoming suppliers of capital.
So they did.
Under Glass-Steagall, commercial banks were allowed to deal and trade in U.S. Treasury securities, municipal bonds (which were considered safe by virtue of issuers’ taxing authority), and foreign exchange.
Historically, banks didn’t so much trade foreign currencies as they did manage exchanging one currency for another in the spot market and on a “forward” basis. This service, which banks had a monopoly over, facilitated borrowing clients, who were increasingly U.S. multinational corporations, overseas corporations, and foreign governments in need of currency exchange services.
They weren’t supposed to underwrite equity issues, distribute them or trade in them. But they did.
Commercial banks set up trust departments and, in some cases, controlled separate trust banks. The old Bankers Trust, backed by J.P. Morgan’s interests, was a prime example.
Trust departments were “entrusted” with safeguarding client assets. That included equity securities. As securities trading increased, for reasons about to become apparent, banks blatantly circumvented Glass-Steagall prohibitions and actively facilitated trading.
Two seminal events in the 1960s paved a one-way path from traditional banking to casino banking.
First, in 1961, George Moore and Walter Wriston of First National City bank brilliantly sidestepped regulatory prohibitions against banks paying interest to depositors. Their brainchild was the “negotiable certificate of deposit,” simply referred to as CDs.
By structuring a deposit as at least a 30-day “loan” to the bank, interest could be paid to the lender. The word “negotiable” was the magic ticket. Depositors’ CDs and the “liabilities” (deposits) they represented could be traded.
The invention spawned a world-wide hunt for deposits, as banks could raise money virtually anywhere and compete for “hot money” by offering competitive interest rates.
Excess deposits – those that banks couldn’t lend out and those that exceeded regulatory reserve requirements – were traded to other banks in the overnight federal funds (bank to bank) market.
The transition from primarily managing assets (loans) to liabilities (deposits) was almost instantaneous.
Trading floors were built and staffed to speculate on interest rate products. Those instruments, CDs, Treasuries, municipal bonds, and foreign exchange, were all interest rate-based. With the ability to aggressively attract depositor capital – to be used as trading capital – commercial banks embarked upon a hugely profitable new business…
The business of speculation.
Now here’s the second thing that changed.
Commercial banks traditionally offered mergers and acquisition advice, usually as a free service to their bond underwriting clients. But not for long.
Investment banks in the 1960s went on the offensive. To generate mergers and acquisitions fees, they actively put corporations in play. Soliciting takeovers from prospective clients was part of the new mantra of “conglomeratization.”
Putting corporations into play had become easy.
Large blocks of stock were spread among trust banks, held directly by pension plans and in the hands of institutional investors. Investment banks had access to these blocks of securities through their relationships with their institutional clients, as well as having access to stock residing at brokerage affiliates. Commercial banks had access to blocks of stock through their trust departments and brokerage operations they were setting up through the bank holding companies they manufactured to hold commercial bank businesses and separate brokerage businesses that commercial banks, on their own, weren’t allowed to operate.
Because blocks of stock were held for individuals by their pension managers, the institutional managers got to vote the shares in their safekeeping. M&A bankers used their institutional relationships to maneuver voting blocks of stock to their advantage in the new war games.
Seeing their corporate clients under attack and recognizing the pull investment banks were having over fee-paying corporate giants, commercial banks recast their M&A bankers as swashbuckling, fee-generating do-gooders.
Which, of course, they weren’t.
M&A bankers rode roughshod over and corralled thousands of American corporations in the Go-Go 60s – for increasingly larger and larger fees. More than 25,000 businesses were merged, acquired, or “vanished” in the 1960s.
Commercial M&A bankers and investment bankers had forever been transformed into commando-bankers, acting like generals on the ever-widening casino floor.
And this was only the beginning of “transactional banking.”
Events in the 1970s would act like an accelerant, igniting a fire under bankers that would further their power and lead to the implosion of a tiny shopping mall bank in Oklahoma.
That “off the radar” event, in a matter of days, led to the failure of a single money-center bank. Its losses were greater than all the failed banks in the Depression, combined.
Only, it didn’t fail. It was the bank that directly led to the American banking doctrine of too-big-to-fail.
And you know what happened next…
http://www.wallstreetinsightsandindictments.com/2013/05/teaching-you-how-to-fish-the-markets-part-vii/
Suit up for the best summer ever to buy resource stocks and here are ten epic charts
POSTED ON MAY 9, 2013 BY CEO TECHNICIAN
Two weeks ago Sprott USA Chairman Rick Rule said:
“This is the first time since 1992 that I’ve seen high-quality gold development assets reasonably and cheaply available in the market…”
With the summer doldrums fast approaching what is a resource investor to do? While many will head off on vacation and try to avoid looking at stock quotes like the plague, those fortunate enough to have available cash to invest could be presented with generational buying opportunities in the highest quality mining & resource companies.
After sifting through over one hundred charts I have selected ten which offer the most promise based on several criteria. Over the coming months investors will want to pay attention to charts that show evidence of at least a couple of the following:
Accumulation at or above long term support levels
Higher lows
Relative strength
Holding trendline support
Breaking above downtrend lines and key resistance levels
Stocks that don’t make new lows during the summer doldrums are probably excellent longs heading into the fall
So without further ado, the 10 most interesting charts:
Click to enlarge (link below)
Alpha Minerals (AMW.V)
Asanko Gold (AKG – AMEX)
Yamana Gold (AUY)
Cameco (CCJ)
Kinross Gold (KGC)
Luna Gold (LGC.TO)
Virginia Mines (VGQ.TO)
Pretium Resources (PVG.TO)
Reservoir Minerals (RMC.V)
UEX Corp. (UEX)
http://ceo.ca/suit-up-for-the-best-summer-ever-to-buy-resource-stocks-and-here-are-ten-epic-charts/
Guess What’s Hidden In The Immigration Bill? A National Biometric Database For Citizens
Submitted by Tyler Durden on 05/11/2013
Competitive Enterprise Institute
Submitted by Michael Krieger of Liberty Blitzkrieg blog,
Oh just another eight hundred page “bipartisan” bill that nobody will read, mainstream media will refuse to cover, and that will merely further destroy any remnants of freedom left in these United States. Never forget the George Carlin quote on bipartisanship:
“Bipartisan usually means that a larger-than-usual deception is being carried out.”
From Wired:
The immigration reform measure the Senate began debating yesterday would create a national biometric database of virtually every adult in the U.S., in what privacy groups fear could be the first step to a ubiquitous national identification system.
Buried in the more than 800 pages of the bipartisan legislation (.pdf) is language mandating the creation of the innocuously-named “photo tool,” a massive federal database administered by the Department of Homeland Security and containing names, ages, Social Security numbers and photographs of everyone in the country with a driver’s license or other state-issued photo ID.
This piece of the Border Security, Economic Opportunity, and Immigration Modernization Act is aimed at curbing employment of undocumented immigrants. But privacy advocates fear the inevitable mission creep, ending with the proof of self being required at polling places, to rent a house, buy a gun, open a bank account, acquire credit, board a plane or even attend a sporting event or log on the internet. Think of it as a government version of Foursquare, with Big Brother cataloging every check-in.
“It starts to change the relationship between the citizen and state, you do have to get permission to do things,” said Chris Calabrese, a congressional lobbyist with the American Civil Liberties Union. “More fundamentally, it could be the start of keeping a record of all things.”
David Bier, an analyst with the Competitive Enterprise Institute, agrees with the ACLU’s fears.
“The most worrying aspect is that this creates a principle of permission basically to do certain activities and it can be used to restrict activities,” he said. “It’s like a national ID system without the card.”
Good thing the terrorists aren’t winning or anything.
Full article here.
http://www.zerohedge.com/news/2013-05-11/guess-what%E2%80%99s-hidden-immigration-bill-national-biometric-database-citizens
Gold Price Target
May 11, 2013
Katchum's Macro-Economic Blog
This page is created to monitor the target price of gold as opposed to the money supply M1, central bank forex reserves, fed custodials and U.S. external debt.
(Possible Gold Price Targets Chart)
M1 correlates to gold because the more money is present in the system, the more gold can be bought and the higher the gold price will become.
Central bank forex reserves correlate to gold because a central bank tends to have as much gold as forex reserves on their balance sheet.
Federal Reserve Custodial accounts are a group of accounts that contain money from foreign central banks (mostly treasuries and a some MBS's). In other words these are the U.S. debt holdings of Foreign Central Banks around the world. It is a direct measure in our opinion of how foreign central banks view the stability and value of the dollar, and the current monetary policies of the US. It frequently shows changes in major financial trends far ahead of "the crowd's" awareness. A rising custodial trend is accompanied by rising gold prices.
Increasing U.S. external debt (which can be found here) leads to higher gold prices because the amount of gold held by the Federal Reserve should be linear with the U.S. external debt held by foreigners. Technically, to be solvent, the U.S. should be able to sell all of its gold to buy up all external debt. As of 2013, external debt was $5.5 trillion. The U.S. held 8133.5 tonnes (or 260272000 oz’s) of gold. To be solvent, the gold price would need to be $5.5 trillion/260272000 = $21131/ounce. This is 15 times higher than the current gold price.
http://katchum.blogspot.com/2013/05/gold-price-target.html
Gold Price Target
May 11, 2013
Katchum's Macro-Economic Blog
This page is created to monitor the target price of gold as opposed to the money supply M1, central bank forex reserves, fed custodials and U.S. external debt.
(Possible Gold Price Targets Chart)
M1 correlates to gold because the more money is present in the system, the more gold can be bought and the higher the gold price will become.
Central bank forex reserves correlate to gold because a central bank tends to have as much gold as forex reserves on their balance sheet.
Federal Reserve Custodial accounts are a group of accounts that contain money from foreign central banks (mostly treasuries and a some MBS's). In other words these are the U.S. debt holdings of Foreign Central Banks around the world. It is a direct measure in our opinion of how foreign central banks view the stability and value of the dollar, and the current monetary policies of the US. It frequently shows changes in major financial trends far ahead of "the crowd's" awareness. A rising custodial trend is accompanied by rising gold prices.
Increasing U.S. external debt (which can be found here) leads to higher gold prices because the amount of gold held by the Federal Reserve should be linear with the U.S. external debt held by foreigners. Technically, to be solvent, the U.S. should be able to sell all of its gold to buy up all external debt. As of 2013, external debt was $5.5 trillion. The U.S. held 8133.5 tonnes (or 260272000 oz’s) of gold. To be solvent, the gold price would need to be $5.5 trillion/260272000 = $21131/ounce. This is 15 times higher than the current gold price.
http://katchum.blogspot.com/2013/05/gold-price-target.html
Red Alert in Gold Lease Rates
May 10, 2013
Katchum's Macro-Economic Blog
I have become very bullish lately on silver and was already bullish on gold.
But the following chart makes me ultimately bullish. We see the biggest increase in gold lease rates as of yesterday and we have seen this before. In 2008, the gold lease rates started to spike upwards, which meant gold was in short supply. It also meant that the "interest" to hold gold was going up, just like the "interest" on your cash is going up.
This ultimately means that the world is valuing gold at a higher interest rate and the central banks are demanding their gold back from the bullion banks.
We are in for a huge upside move if you ask me.
(Chart) at link below:
http://katchum.blogspot.com/2013/05/red-alert-in-gold-lease-rates.html
The Truth About The Gold Being Drained From GLD
May 8, 2013
In over 30 years of studying, researching, trading and investing in the financial markets, I have never seen the contrarian signals flashing as bullishly as they are for gold right now. - Link: Update On Gold: Is This The Bottom?
It's really quite astonishing. Especially the degree to which the negative media reports - especially from Bloomberg News and CNBC - are piling up like dead bodies in the aftermath of the Mt. Vesuvius eruption.
I want to "connect some dots" for everyone who has been worried about the rather large liquidation of gold from GLD. In fact, media citations of this gold drain have proliferated like the odor of burning marijuana in the streets of Denver now that pot has been legalized (trust me, it's everywhere).
But what is really going on? Let's look "under the hood" at some relevant information that is being left out of a lot of the financial reporting in the U.S. To begin with, the way gold is put into or taken out of GLD is via the Authorized Participants. These are the primary market makers in GLD shares. When they collect a basket of 100,000 shares from buyers or sellers, they take the cash proceeds and either buy gold to move into GLD or buy gold from GLD to remove the gold from the trust. The current list of AP's, at least according to GLD's latest 10-K filing are: Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sach, HSBC, JP Morgan, Merrill Lynch, Morgan Stanley, Newedge (a online hedge fund oriented futures bookie), RBC, UBS, and Virtu Financial (another online hedge fund bookmaker).
If the price of gold - for whatever reason, legitimate or not - gets crushed, it will tend to generate a lot of selling in the shares of GLD. In turn, that will generate the ability of the AP's to collect 100,000 share baskets and convert those baskets into gold that is removed from the GLD vault and into the "custody" of the specific AP who is turning in the shares. At today's price of gold, 100,000 shares represents about $14.2 million - 9,627 ozs of gold, or roughly .29 tonnes. Since the beginning of the year, roughly 293 tonnes of gold has been drained from GLD, which had 1350 tonnes in it - allegedly - on 12/31/12. Nearly 30% of the total amount of gold that has been drained from GLD occurred in the 3 weeks since the April 16-17 price massacre.
So where, you might ask, is all this gold going? It's not just vaporizing into thin air. Using today's price of gold, 293 tonnes is worth about $14.5 billion. If you look at that AP list above, all of them except the two hedge fund bookies are LBMA "bullion bank" market makers. Unless these bullion banks are keeping the gold for themselves - and if any of them were, it would have to show up in the footnotes of their next 10-Q - that gold is being delivered to buyers of it on the other side.
So, who would be buying this gold? Based on numerous news service reports, which often seem to never make their way into the U.S. financial media reporting, India and China combined through the end of April have imported somewhere around 700 tonnes of gold, plus or minus 100 tonnes. What's 100 tonnes among bullion bank friends when GLD still has 1,057 tonnes left? Here's one news report - actually from Bloomberg - which is calculating that China purchased around 223 tonnes of gold in March alone: LINK That is a staggering amount of gold (mostly 400 oz bars - the type of bar in GLD's vaults) when you consider that the global annual mined production of gold is around 2500 tonnes, and declining.
And here's an account out of India about the massive gold demand there in April and May:
“The biggest slump in gold prices in more than three decades on April 15 spurred banks, traders and jewelers to import more than 100 tons last month, said Rajesh Khosla, managing director of MMTC-PAMP India Pvt. Purchases this month will match April’s imports, he said”
And here's a refreshingly honest assessment of the situation from an Indian newspaper:
The jump in Chinese physical demand also prompted some banks to ship in more supplies from London and Swiss vaults, traders said
If you read that entire article, you'll see that in 2012, India/China imported more than 1/3 of the global gold production and will likely account for close to 50% this year. This is the unintended consequences for the Central Banks who are spear-heading the manipulation of the price of gold for the purposes of defending the dollar and fiat currencies.
This rabid demand for 400 oz. gold bars from China/India (not to mention Russia, Turkey, Viet Nam, pretty much all of southeast Asia) goes a long way toward explaining the rumors that were circulating during February and intensified in March that the LBMA was in danger of facing a big delivery default.
Layer on top of this the fact that many wealthy families in Europe are now demanding delivery of the gold bars that JPM and other bullion banks are holding custody of. The report on this from my friend was confirmed independently by a source of Bill Murphy's over in Europe. This is exactly why ABN/Amro announced a week before the $200 hit on gold that they would no longer deliver physical gold from their gold investment account product and would instead only settle redemptions in cash. That product catered to high net worth investors over there. ABN didn't have the gold that would be required to satisfy delivery claims. It was a fractional bullion investment account, just like all the other big bank "bullion" investment products. Morgan Stanley settled a lawsuit several years ago for this type of scheme using silver. But they never admitted guilt.
So in connecting all the dots, there is no question in my mind that the big price smashing of gold in mid-April was an operation designed to shake loose enough 400 oz. gold bars out of GLD in order to satisfy the enormous delivery demands coming from Asia, India and even within Europe. GLD is the only possible source of above-ground 400 oz. gold bars that could be used to satisfy this enormous demand for physically deliverable bars.
At some point, and probably sooner than most people are willing to believe, this physical demand is going to force an upward "explosion" of the paper derivatives being used to hold down the spot price right now. In 30 years of studying and trading the financial markets, I have never seen contrarian indicators for any market sector flashing as bullishly as they are for gold and silver, which further confirms my view that the metals have bottomed and are getting ready to give those of us who held on the ride of a lifetime.
http://truthingold.blogspot.com/2013/05/the-truth-about-gold-being-drained-from.html
Foreign Investment: A Stealthy Driver Of U.S. Real Estate
May 1 2013,
Zomie Brokers
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Real estate is recovering nationally and surging in many U.S. markets. The key drivers of this recovery have been strong measures of investment performance, low and decreasing supply, affordability, favorable interest rates on financing, and last, but not least, foreign investment.
I recently touched on most of these key drivers in my articles "Best Places To Invest In U.S. Real Estate" and "Is the Phoenix Housing Market Getting Too Hot?", but pinning down good macro data on foreign investment in U.S. real estate has been difficult, to say the least. Foreign investment is a stealthy driver affecting many major U.S. real estate markets; people working in these affected markets witness the significant activity and presence of foreign investment and know that it's having an impact, but rarely are there any statistics reported that can accurately reflect the magnitude of foreign investment and the extent of its impact on respective markets.
While admittedly not the most unbiased source, NAR authored a research report on "The Profile of International Home Buying Activity 2012". To highlight a few numbers from this report for the 12 months ending March 2012:
* NAR estimated that almost 5% of all home buying activity in the U.S. was attributed to international buyers (estimated sales of $82.5 Billion)
* Estimated volume of international sales increased from 2011 to 2012 by 24 percent (sales volume increased from $66.4 Billion in 2011 to $82.5 Billion in 2012)
* International buyers came from nearly all over the world, but 55 percent of the buyers are from Canada, China, Mexico, India and the United Kingdom
(click to enlarge)
* International buyers purchase across the whole U.S., but 51 percent of all international purchases were made in 4 states: California, Arizona, Florida and Texas
(click to enlarge)
* The east coast tends to attract Europeans, the west coast tends to attract Asian purchasers, Florida tends to attract a diverse mix of South Americans as well as Canadians and Europeans, Arizona tends to attract Mexican purchasers as well as Canadians, Texas tends to attract Mexican purchasers
* Economic conditions in the foreign exchange rates impact international sales (i.e. a weak dollar increases international sales)
* The top 3 factors influencing international buyers (in order) are: location, price, and security of their investment
* International buyers have a significant preference for single family homes and suburban areas
Whether coincidentally or not, the U.S. markets identified as the highest percent of purchases for international buyers are also the same markets showing strong performance over the last several quarters in the monthly Case-Shiller reports on sales prices. Phoenix, for example, has had the best performance for some time in the Case Shiller reports. Note that the largest international buyer segment, Canadians, are significant buyers of Phoenix real estate. According to the W.P. Carey School of Business, for the month of February 2013:
22% of purchase transactions in Maricopa county (Phoenix and surrounding cities) were made to out-of-state buyers, and Canadians made up 3.2% of all purchases.
It's clear to see that outside money is helping to fuel the housing recovery in Phoenix. Here's a map from Cromford Report that actually shows residences owned by Canadians geographically in Maricopa county:
(click to enlarge)
Similarly, San Francisco, Los Angeles, San Diego, Seattle, Las Vegas, and South Florida have all shown strong upward price movements in the Case-Shiller reports, and likewise, happen to be in primary markets with the highest activity of international buyers.
There are significant opportunities to profit from this flow of foreign investment: foreign investment will continue to assist U.S. real estate in its recovery, therefore, the DJ US Real Estate ETF (IYR) could be a solid play. Homebuilders (XHB) (specifically those with active developments in markets favored by international buyers) such as KB Home (KBH), D.R. Horton (DHI), Taylor Morrison (TMHC), Toll Brothers (TOL), Pulte (PHM), Lennar (LEN) could have strong upside as well. Home construction (ITB) should fare well, along with specific stocks Home Depot (HD) and Lowe's (LOW). Last, but not least, one could play Blackstone (BX) and Silver Bay (SBY) for their significant acquisitions / holdings of real estate in many of these markets.
Foreign investment in U.S. real estate is yet another bullish signal for the brightening outlook of U.S. real estate, and understanding where that money goes and the impact on the respective market is critical to identifying lucrative investment opportunities.
http://seekingalpha.com/article/1388611-foreign-investment-a-stealthy-driver-of-u-s-real-estate
Gold And Markets Married By Fiat: PM Collapse Precedes Markets
May 8 2013, 06:04
Emmet Kodesh
Disclosure: I am long SCPZF.PK. (More...)
"For those of us paying attention, the ice keeps getting thinner and thinner and at some point the ice will simply break." (John Hathaway, 5-03-13)
John Hathaway is Senior Director of Tocqueville Asset Management fund group. For 15 years he has managed Tocqueville Gold (TGLDX). He has worked in finance for forty years and to his recent comment above on the economy he added:
"The derivative books of the seven or eight largest US banks are completely opaque and incomprehensible. They are going to be big trouble in the future. The world is falling apart..."
Prominent Columbia University Economist Dr. Jeffrey Sachs shares this view on the "criminality" and opacity of the financial system.
The thesis for PMs (precious metals) is intact, and so are the danger flares for the economy: the G20 nations are insolvent, most of their CBs are devaluing currencies, joblessness is increasing, retail sales in America are sagging and shrinking in Europe: but the markets are soaring. The fundamentals and financial system have parted ways. The times are badly out of joint, it is the stuff of tragedy.
First I give the context then I offer suggestions on this time of heightened chicanery and terrors of every kind. The fiat system and, indeed, the West is at the climax of its identity crisis and the masters of the game are imposing the glory of the Emperor's new clothes that grow more blatantly threadbare each day. We must live with fraud.
Gold and the markets are conjoined by interventionist fiat fiscal policies in a fractious dysfunctional relationship from which coherence has been banished. Like Victor Frankenstein stalked by his monster, gold and the markets tremble in their diverse ways around the issue of their unhappy union, the Economy. This love-hate child has been damaged by fiat interventions and its subordination to financial-diplomatic games that afflict it with diseases, vanishing jobs, lower real income and net worth, hidden but inexorably rising costs: failure of values in all forms. The economy is a kind of elephant-man in whose sad ruminations we are trapped and which at any time may rise up and strike its forebears. The markets and those who tout them deny its illness and blame the physician, PMs and sound money. Retail sales slowing toward negative turf and PMI manufacturing at 50.7 echo what we lived through from 2005-1Q 2009. Wealth consolidation events are coming with increased frequency like waves in a storm, like birthpangs of a new order.
PM mining stocks are slumping into a pit that seems bottomless. It is like the "limbo rock" song that asks, "How low can you go" and the answer is lower than you thought possible, lower than any fundamental measure indicates. But we are in an era whose method is manipulation of sentiment and belief. That is, we are in an irrational era in which fictions are defended at all costs: the greater the lie-fiction, the greater are the efforts and resources marshaled in its defense.
As ex-USD trade agreements spread amid growing global awareness (no doubt shared in London, DC and NYC) that the USD is doomed as a world reserve currency, as QE guts USD worth, bullion banks and too-big-to-jail institutions that serve "the controlling oligarchy" muster their suasion against alternative sources of value, especially those held by members of their own nation whose autonomy they mean to break to facilitate their control of all aspects of life. Those who are buying PM bullion (coins) are paying expanding premiums over spot price while the U.S. Mint takes the swag and intermediaries profit, too. From 1981-2002 PM prices were stagnant: it can happen again. The basics say PMs should rise but the powers have the ability to create facts on the ground. The Goldman Sachs short sell just proved it.
The word is out against gold: Barron's reports that late June options and puts against the gold miner ETF (GDX) triple the open contracts. The put/call ratio is 4.4 and GDX and junior Au miner ETF (GDXJ) fell Tuesday 2.96% and 4.49% respectively. GDXJ keeps making new lows since inception. Gold even is slumping against the doomed Yen. The take down may be contrived, but it is here.
Thus, despite inviting valuations, if you already have PM miners as 10-20% of your nut, hold them or trim your holdings. If your income stream is adequate you can add a bit at these levels or the next big dip which probably will be this quarter. It is important to remember that the sell-off was a paper-triggered event of cascading stops, margin calls and algorithm trades. If you entered since April 15, you're fine: hold or add PMs depending on your investable cash. Nibble at the inflated indices and hope that the masters of Metropolis can keep the "heart machine" pumping and whipping the markets into froth: the finish line is in sight for fiat economies.
The financial attacks on gold and multi-faceted attacks on its kin the mining sector are a hubristic intervention that will be echoed when the economy that fiscal gaming has deformed rises like an iceberg to wreck the Titanic of the soaring indices. Revenues mostly fall, earnings are fudged: the P/E looks reasonable but is as misleading as government stats about jobs and inflation.
Price action on May 7 made the combination of hostility to PMs and negative sentiment plain: there was a stark contrast between the gains of diversified miners like BHP Billiton (BHP), Rio Tinto (RIO), Vale (VALE) and Freeport McMoRan (FCX) and nearly all PM miners from giants Gold Corp (GG) and Barrick (ABX) to mid-tiers Eldorado Gold (EGO) and Kinross (KGC) to juniors like McEwen Mining (MUX), whose red numbers were high. The writing is on the wall. You must hold or begin trimming down this sector unless you are a recent entrant with ample cash flow. Yes, the valuations are good and will get better. Sentiment is about as negative as it can get. If you are looking at a loss, hold tight unless you definitely need more cash before 4Q 2013, when PM miner estimates are strong as noted in this recent piece.
Those of you who need or wish to avoid miners may use low cost index funds like Vanguard S&P (VOO), small cap value (VBR), yes, capture some dividend: the NASDAQ has the farthest to go even to approach its nominal high. For income, try oil and gas energy play Vanguard Natural Resources (VNR) with its annualized yield of 8.8%, paid monthly. Also try the diversified oil, gas, agriculture and bullion Sprott Natural Resources (SCPZF.PK) that pays monthly to the tune of 10.4% annually. The Reit ETF (MORT) has been solid for a year and even if the markets and economy stumble, REITs' minimal costs and huge profitability should sail.
Global REITs like the Vanguard ETF (VNQI) has been stellar YTD but it is difficult to read the global situation except for the negatives which are clear. Outside the fiat bloc there is lucidity on PMs: as I have discussed often, wealth is being shifted West-to-East, the betrayal of Chiang Kai-Shek in 1949 signaled this as did the Nixon-Rockefeller "opening to China" in 1973. I have been explaining that a new reserve system is being born in agony and blood: the narrative is being fulfilled. Western oligarchs see China as a model of socio-governance because Communists know how to manage human inventory. It is a sad truth of these times.
Also, start easing out of paper contract PM surrogates like the gold ETF GLD and silver (SLV). Get rid of these media that facilitate manipulation. They were created for gaming and destruction: avoid them. Beware those that encourage their purchase.
To protect yourself you must participate in these markets but have a defensive core sized to your situation and time horizon. This core could be 10-70% of your holdings depending on when you want the cash at hand. Unfortunately, at this juncture one cannot rely on PMs in the short term for wealth preservation. For those who can hold there will be ample practice in gritting one's teeth and muttering imprecations about the frailty, fakery and immorality of a fiat system. The West was born in identity theft and is dying in the same way: what goes around comes around: the wheel will come full circle.
Some of us experienced the euphoric breaking of traditional norms in the late 1960s and the entrance to the heralded and lethal Aquarian Age. We now must endure the state that follows history, the state that baffles sense: the period when government is "in your face" and saving the remnant is the task at hand. Look out for new lows in PMs and keep an eye cocked for the fall of the fiat markets.
http://seekingalpha.com/article/1413081-gold-and-markets-married-by-fiat-pm-collapse-precedes-markets
INFOGRAPHIC: Market intellignce for May 2013
MINING.com Editor | May 7, 2013
VC Market Intelligence is a monthly infographic from Visual Capitalist that summarizes changes in economic indicators, relevant news stories, commodity and financial trends, and provides technical analysis.
The goal is to make this information intuitive and visual to the average investor.
http://www.mining.com/market-intellignce-for-may-2013-96722/?utm_source=digest-en-au-130507&utm_medium=email&utm_campaign=dige
INFOGRAPHIC: Market intellignce for May 2013
MINING.com Editor | May 7, 2013
VC Market Intelligence is a monthly infographic from Visual Capitalist that summarizes changes in economic indicators, relevant news stories, commodity and financial trends, and provides technical analysis.
The goal is to make this information intuitive and visual to the average investor.
http://www.mining.com/market-intellignce-for-may-2013-96722/?utm_source=digest-en-au-130507&utm_medium=email&utm_campaign=digest
World Bank Whistle-blower: “Precious Metals To Serve As An Underpinning For Paper Currencies”
May 6, 2013 | By Tekoa Da Silva
I had the opportunity yesterday to speak with one of the western world’s most courageous and astute women, Karen Hudes, Former Senior Counsel to the World Bank—now turned whistle-blower.
It was a powerful conversation, as Karen spent 20 years with the World Bank as an attorney and economist, before being “let-go” after reporting internal fraud and corruption.
During the interview Karen indicated that the world is rapidly changing, with western power structures breaking down, economic & political influence gravitating to BRICs nations, all amid a pending currency transition which will highly favor precious metals.
Starting out by discussing the shocking centralized power she witnessed while working at the World Bank, Karen explained that, “A study done by three [Swiss] systems analysts who used mathematical modeling [shows] how the [world's] 43,000 transnational corporations were being controlled through interlocking corporate directorates. There’s a group of 147 companies, most of them are financial institutions, and what they’ve done, is through the interlocking directorates, they control 40% of the net worth of these [43k] companies, and 60% of their earnings…so that group has been using the presidency of the World Bank as kind of a puppet to dominate the world—that’s [now] finished.”
A major shock to that centralized power base, according to Karen, was the recent move by BRICs nations leaders to bypass the World Bank for their financing needs, by establishing their own development bank. “As the BRICs [nations] economic power grows,” she explained, “they’re not going to be strangled anymore through the grabbing [of] their resources…So their decision to start their own development bank was their way of letting [world] governments know…that its time to end this corruption.”
Major moves toward monetary independence are also being made by growing numbers of U.S. states, Karen added. She explained that, “The states are starting to have legislation recognizing gold and silver bullion as legal currency. This is [also] a very strong signal the states are sending to the federal government, that the time to get serious about ending the corruption in the financial system is now here.”
When asked her thoughts on what this all means for the world monetary system, Karen said, “What’s going to happen, is we’re going to have all the countries of the world, sit down and figure out what’s going to be the best, most orderly transition from the current system that we have, [which has] profound imbalance and unsustainable deficits…[this change] is going to happen as each country makes its preference known, because the system we have now is not transparent, and the biggest change [in the new system], is that there’s going to be transparency.”
That transparency may be found through a gold-backed currency system, Karen noted, as, “All of the countries of the world are going to allow precious metals to serve as currency, and this will be an underpinning for paper currency, [as] we’ll have both systems at the same time. This is my guess, as I mentioned—I am an economist.”
As a final comment speaking towards her difficult journey as a World Bank whistle-blower, Karen said, “I’ve been struggling now for years, to tell the American public what’s [been] going on. I haven’t gotten through, because this [financial] group has bought up the press and has been spreading disinformation systematically. That undermines the whole point of a democracy. How can voters vote without an informed opinion, without the information that they’re entitled too? So this strangle-hold on information is going to end in very short order.”
——
This was a powerful interview conducted with a great American patriot and honorable world citizen. Karen is setting an example for the history books, and her interview is required listening for global thinkers and market students.
To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:
>>Interview with Karen Hudes (MP3)
To learn more about Karen and support her work, visit: Kahudes.net
http://bullmarketthinking.com/world-bank-whistle-blower-precious-metals-to-serve-as-an-underpinning-for-paper-currencies/
World Bank Whistle-blower: “Precious Metals To Serve As An Underpinning For Paper Currencies”
May 6, 2013 | By Tekoa Da Silva
I had the opportunity yesterday to speak with one of the western world’s most courageous and astute women, Karen Hudes, Former Senior Counsel to the World Bank—now turned whistle-blower.
It was a powerful conversation, as Karen spent 20 years with the World Bank as an attorney and economist, before being “let-go” after reporting internal fraud and corruption.
During the interview Karen indicated that the world is rapidly changing, with western power structures breaking down, economic & political influence gravitating to BRICs nations, all amid a pending currency transition which will highly favor precious metals.
Starting out by discussing the shocking centralized power she witnessed while working at the World Bank, Karen explained that, “A study done by three [Swiss] systems analysts who used mathematical modeling [shows] how the [world's] 43,000 transnational corporations were being controlled through interlocking corporate directorates. There’s a group of 147 companies, most of them are financial institutions, and what they’ve done, is through the interlocking directorates, they control 40% of the net worth of these [43k] companies, and 60% of their earnings…so that group has been using the presidency of the World Bank as kind of a puppet to dominate the world—that’s [now] finished.”
A major shock to that centralized power base, according to Karen, was the recent move by BRICs nations leaders to bypass the World Bank for their financing needs, by establishing their own development bank. “As the BRICs [nations] economic power grows,” she explained, “they’re not going to be strangled anymore through the grabbing [of] their resources…So their decision to start their own development bank was their way of letting [world] governments know…that its time to end this corruption.”
Major moves toward monetary independence are also being made by growing numbers of U.S. states, Karen added. She explained that, “The states are starting to have legislation recognizing gold and silver bullion as legal currency. This is [also] a very strong signal the states are sending to the federal government, that the time to get serious about ending the corruption in the financial system is now here.”
When asked her thoughts on what this all means for the world monetary system, Karen said, “What’s going to happen, is we’re going to have all the countries of the world, sit down and figure out what’s going to be the best, most orderly transition from the current system that we have, [which has] profound imbalance and unsustainable deficits…[this change] is going to happen as each country makes its preference known, because the system we have now is not transparent, and the biggest change [in the new system], is that there’s going to be transparency.”
That transparency may be found through a gold-backed currency system, Karen noted, as, “All of the countries of the world are going to allow precious metals to serve as currency, and this will be an underpinning for paper currency, [as] we’ll have both systems at the same time. This is my guess, as I mentioned—I am an economist.”
As a final comment speaking towards her difficult journey as a World Bank whistle-blower, Karen said, “I’ve been struggling now for years, to tell the American public what’s [been] going on. I haven’t gotten through, because this [financial] group has bought up the press and has been spreading disinformation systematically. That undermines the whole point of a democracy. How can voters vote without an informed opinion, without the information that they’re entitled too? So this strangle-hold on information is going to end in very short order.”
——
This was a powerful interview conducted with a great American patriot and honorable world citizen. Karen is setting an example for the history books, and her interview is required listening for global thinkers and market students.
To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:
>>Interview with Karen Hudes (MP3)
To learn more about Karen and support her work, visit: Kahudes.net
http://bullmarketthinking.com/world-bank-whistle-blower-precious-metals-to-serve-as-an-underpinning-for-paper-currencies/
STAGFLATION & GOLD - PRICE MADE IN HEAVEN
7th May 2013
by Administrator
Andy Xie
This is a must read. It is the clearest assessment of what has happened since 2008 I’ve ever read. It also reveals the complete incompetence of bankers and politicians in solving what ails the global economy. He clearly explains why massive multinational corporations are able to generate profits by adapting to the idiotic economic measures instituted by countries around the globe. Only the average person on the street gets screwed in our global economy. The huge corporations, bankers, and politicians are doing just fine. Lastly, he makes a great case for the average person to own physical gold. These two quotes from the article are brilliant and truthful:
“This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history. But it is always coded in arcane academic lingos spoken by respected central bankers with impeccable CVs. All that is just packaging; it is robbery nevertheless.”
“Yes, gold doesn’t bear interest. Many, including Warren Buffett, belittle its investment value. But, paintings or antiques don’t bear interest either. When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world. There are more artists that can paint more paintings every day. 80% of the world’s gold has already been extracted. The remaining 20% will be dug up in the next 20 years. The money supply will grow forever. But the gold supply can grow only by 25% and no more.”
The enduring glow of gold: Andy Xie
Despite ripple of skepticism, gold is the ultimate hedge on inflation
By Andy Xie
BEIJING (Caixin Online) — The global economy has already entered into stagflation with a growth rate of 2% and inflation at 3%. The inflation rate is likely to rise above 4% in 18 months while the growth rate will remain stuck in the same range.
With inflation twice as high as the growth rate, the global economy will slip deeper into stagflation.
The recent decline in commodity prices doesn’t signal a reversal in the inflationary trend. It is a onetime redistribution of mining income to consumer purchasing power.
The prevailing negative real interest rate channels monetary growth above economic growth into inflation wherever there is shortage. Manual labor in emerging economies, skilled labor in the developed economies, agricultural commodities, rent, healthcare, education, etc., are leading the inflationary trend.
Inflation expectations are already a self-reinforcing influence on emerging economies such as India. It will take root in developed economies. When this occurs, the global economy will run into an inflationary crisis as a result of wrong-headed policies used to deal with the financial crisis.
Multinational companies remain the biggest beneficiaries of the current global environment. The macro instabilities give them opportunities to arbitrage the frequent fluctuations in demand and production costs across the globe. The negative real interest rate has boosted their profits significantly, too.
The real interest rate is probably minus 2% in the world today. It should be in line with the per capita income growth rate of 1%. The difference is 3%. This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history.
Speculative capital also profits from the mismatch between economic challenges and policy responses. The global economy needs flexibility on the supply side to handle the dislocations from globalization and technology development.
The primary policy response so far is the use of monetary stimulus, in the hopes that a demand kick will snowball into a virtuous cycle in each national economy.
For the past five years, it hasn’t worked to achieve its main objective. But it has created big fluctuations in asset markets, giving speculative capital a golden opportunity to engage in the biggest wealth redistribution in modern history.
Despite its recent setback, gold (CNS:GCM3) remains a big beneficiary of the current macro environment. It could make a new high in the current year and rise much higher in 2014. The gold bull market will end when an inflation crisis pushes central bankers around the world to tighten aggressively.
Stagflation is now
The emerging economies exhibit significant symptoms of stagflation. All major emerging economies are facing significant slowdown. But the attempts to stimulate are checked by inflationary problems.
The International Monetary Fund projects a 5.5% gross domestic product growth rate in 2013 for emerging economies. The Q1 data suggests a much weaker year. I see 4% for the year.
The broadest inflation gauge, the GDP deflator, is likely around 6%. Emerging economies are easing monetary policy on the whole, just haltingly to demonstrate some credibility on inflationary concerns. But the easing policy remains the main trend. It is likely that inflation will surpass twice the GDP growth rate.
The U.S. economy grew by 1.7% in 2012 with GDP deflator, the broadest inflation gauge, at 2.4%. In the first quarter of 2013, it reported a 2.5% rate, of which 1% came from inventory accumulation, and GDP deflator at 0.9%. It appears that the U.S. economy is stuck at a 2% growth rate and GDP deflator is slightly higher.
The U.S. economy is experiencing a mild form of stagflation. The high unemployment keeps wage under control. But, shouldn’t one be concerned about the significant inflation pressure despite such a weak economy? As a mismatch remains a major force in the U.S. unemployment picture, wage inflation is quite possible in many pockets. Energy and agricultural industries already face such pressures.
Both the IMF and the Organisation for Economic Co-operation and Development project a 1.4% GDP growth rate for developed economies. The Q1 data suggests that this is just too optimistic. I think 1% is more likely.
While weak growth is disinflationary, momentum and imported inflation are significant forces. The whole OECD block is likely to be similar to the U.S. with GDP deflator above growth.
At current exchange rates, the OECD block accounts for about two-thirds of the global economy and the emerging economies, one-third. This fact suggests that the global economy will grow at 2% with inflation at 3%.
Global policy paralysis
The latest IMF, World Bank and G-20 meetings didn’t come out with new ideas. The same people were talking about the same policy prescriptions. Despite the massive stimulus by any measurement so far, the global economy remains stuck. The excuse is that the stimulus should be bigger.
I predicted the 2008 Global Financial Crisis on the debt binge in the West to defend its living standard during a prolonged period of declining competitiveness. After the crisis occurred, I predicted that the global economy was heading toward stagflation, as the policy makers around the world would embrace stimulus, the wrong medicine for what ails the world.
The bubble bursting was supposed to be a wake-up call. But it was interpreted as a cyclical event, like a natural disaster, or just bad financial decisions.
In the Anglo-Saxon world, the main response was stimulus to jump-start the economy, believing that the economy was like a car running out of battery power. In the euro zone, the main response was to control debt growth, the so-called austerity.
Neither has worked. However, the policy debate remains stuck as stimulus versus austerity.
Technology and globalization have made jobs and production of goods and even services mobile. But people are still confined within national boundaries. Global competition largely determines one’s income. But many expenses like housing, healthcare and education are locally determined. The asymmetry is wreaking havoc for a large share of the population in the developed economies.
The second and equally-important mismatch is in local market flexibility versus global competition.
The labor market isn’t as flexible as markets for goods or services under the best circumstances. Hence, the unemployment rate is higher than that for other factors of production. To protect labor, the OECD economies have built up or tolerated many practices to limit businesses from adjusting labor demand in response to demand fluctuations in goods and services.
Such well-intentioned market impediments are running into the brick wall of globalization. A business doesn’t need to make things where it sells. Apple is the best example in that regard. So countries have lost control over businesses.
The two mismatches must be solved together. Higher living costs justify labor protection. Unless the big ticket items in living costs reflect global competition, the wages that result from global competition aren’t living wages. Hence, governments should focus on decreasing living costs and increasing supply side flexibility.
Yes, gold doesn’t bear interest. Many, including Warren Buffett, belittle its investment value. But, paintings or antiques don’t bear interest either. When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world.
Monetary stimulus magnifies the problem. It inflates non-tradables like healthcare, education and housing, increasing resistance to labor market flexibility. In that regard, the stimulus and austerity approach is still the same. The later doesn’t solve the growth problem, pushing the central bank into monetary easing.
Everyone for themselves
Crisis tends to produce strong leaders, as demonstrated by World War II and 1970s’ stagflation. The 2008 crisis didn’t. It may take another crisis to elevate a generation of leaders with the right medicine for nation states to fit into the world of globalization. Until then, people must survive stagflation as best they can.
The real interest rate is probably minus 2% in the world today. It should be in line with the per capita income growth rate or 1%. The difference is 3%.
This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history. But it is always coded in arcane academic lingos spoken by respected central bankers with impeccable CVs. All that is just packaging; it is robbery nevertheless.
The fifth column
The world is composed of sovereign nation states. Today’s multinational corporations (MNCs) are really the fifth column of instability. The IT revolution has spawned today’s MNCs. They can shift production and sales to anywhere with low costs. They can locate their staff anywhere for doing any job.
As commercial organizations, they can of course arbitrage differences across nation states for profits. As nation states have evolved independently, the differences among them are big. Hence, the profit opportunities for MNCs are abundant.
When the global crisis hit, the affected countries adopted different policy responses, creating more profit opportunities for MNCs. Despite sluggish global growth the MNCs have reported strong profit growth since the crisis.
Globalization has made most markets global. This increases the stake of winning but also its hurdles. This is why there are virtually no new global companies in the past decade. This factor makes the existing MNCs more valuable. I believe that pension funds should invest most of their money into MNCs.
Not all the MNCs are the same. Big isn’t necessarily a guarantee for success. One must have something difficult to duplicate. Brands are the best asset in the world today. Food brands, in particular, are well positioned to profit from income growth in emerging economies. Luxury brands, despite their recent setbacks, are also well positioned.
Technology isn’t a good long term investment in general. In the information technology world, sooner or later, someone will come up with something better. In mature industries, however, some technologies are hard to duplicate. Energy, chemical and machinery are better bets.
Financial markets believe that corporate credit shouldn’t surpass sovereign debt. Such thinking no longer applies in today’s world.
A balanced MNC has revenue evenly spread across the world. Its income volatility is less than a country’s tax revenue. MNCs have lower leverage and higher income growth than nation states. I believe that, if one invests in bonds, MNCs are better than government bonds.
A speculator’s paradise
Whenever growth rate disappoints, demanding more monetary stimulus is always the outcry. A central bank will predictably release dovish statements to satisfy the market. Even though the monetary stimulus, even when it works, takes a long time to kick in, it affects asset markets right away.
When countries adopt the same policy — but at a different times — global speculators are presented with fantastic opportunities in all liquidity assets.
Economics isn’t good at studying speculation. It assumes it’s not important. But the speculative capital, when fully leveraged, is probably half of the global GDP.
It can magnify volatility to such an extent that mass panic results, changing the equilibrium path for a country of even the world. To some extent, macro policy making is held hostage by global speculative capital.
When you can’t beat them, join them. It may not be moral, but quite profitable to join the global speculative capital. One can invest in some of the funds or mimic their trading patterns. Monetary policy essentially redistributes wealth from clueless savers to debtors and speculators. You can fight back by joining the dark side.
Gold still glitters
The recent sharp decline in gold prices has shaken the confidence of many people. Don’t worry. The price of gold has dipped, but will rise to new heights soon. In the long term, gold prices will rise far more than inflation. For the masses, gold is the best inflation hedge. It is the best weapon for the little guy to fight central banks that help a few to rob many.
Yes, gold doesn’t bear interest. Many, including Warren Buffett, belittle its investment value. But, paintings or antiques don’t bear interest either. When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world.
There are more artists that can paint more paintings every day. 80% of the world’s gold has already been extracted. The remaining 20% will be dug up in the next 20 years. The money supply will grow forever. But the gold supply can grow only by 25% and no more.
The income growth in emerging economies will vastly increase with gold demand. When people realize how little gold the world has left, the price will skyrocket. If you don’t know how to preserve your wealth in an inflationary environment, you should accumulate gold. When the price comes down, just as it did two weeks ago, just buy more.
http://www.theburningplatform.com/?p=53759
STAGFLATION & GOLD - PRICE MADE IN HEAVEN
7th May 2013
by Administrator
Andy Xie
This is a must read. It is the clearest assessment of what has happened since 2008 I’ve ever read. It also reveals the complete incompetence of bankers and politicians in solving what ails the global economy. He clearly explains why massive multinational corporations are able to generate profits by adapting to the idiotic economic measures instituted by countries around the globe. Only the average person on the street gets screwed in our global economy. The huge corporations, bankers, and politicians are doing just fine. Lastly, he makes a great case for the average person to own physical gold. These two quotes from the article are brilliant and truthful:
“This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history. But it is always coded in arcane academic lingos spoken by respected central bankers with impeccable CVs. All that is just packaging; it is robbery nevertheless.”
“Yes, gold doesn’t bear interest. Many, including Warren Buffett, belittle its investment value. But, paintings or antiques don’t bear interest either. When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world. There are more artists that can paint more paintings every day. 80% of the world’s gold has already been extracted. The remaining 20% will be dug up in the next 20 years. The money supply will grow forever. But the gold supply can grow only by 25% and no more.”
The enduring glow of gold: Andy Xie
Despite ripple of skepticism, gold is the ultimate hedge on inflation
By Andy Xie
BEIJING (Caixin Online) — The global economy has already entered into stagflation with a growth rate of 2% and inflation at 3%. The inflation rate is likely to rise above 4% in 18 months while the growth rate will remain stuck in the same range.
With inflation twice as high as the growth rate, the global economy will slip deeper into stagflation.
The recent decline in commodity prices doesn’t signal a reversal in the inflationary trend. It is a onetime redistribution of mining income to consumer purchasing power.
The prevailing negative real interest rate channels monetary growth above economic growth into inflation wherever there is shortage. Manual labor in emerging economies, skilled labor in the developed economies, agricultural commodities, rent, healthcare, education, etc., are leading the inflationary trend.
Inflation expectations are already a self-reinforcing influence on emerging economies such as India. It will take root in developed economies. When this occurs, the global economy will run into an inflationary crisis as a result of wrong-headed policies used to deal with the financial crisis.
Multinational companies remain the biggest beneficiaries of the current global environment. The macro instabilities give them opportunities to arbitrage the frequent fluctuations in demand and production costs across the globe. The negative real interest rate has boosted their profits significantly, too.
The real interest rate is probably minus 2% in the world today. It should be in line with the per capita income growth rate of 1%. The difference is 3%. This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history.
Speculative capital also profits from the mismatch between economic challenges and policy responses. The global economy needs flexibility on the supply side to handle the dislocations from globalization and technology development.
The primary policy response so far is the use of monetary stimulus, in the hopes that a demand kick will snowball into a virtuous cycle in each national economy.
For the past five years, it hasn’t worked to achieve its main objective. But it has created big fluctuations in asset markets, giving speculative capital a golden opportunity to engage in the biggest wealth redistribution in modern history.
Despite its recent setback, gold (CNS:GCM3) remains a big beneficiary of the current macro environment. It could make a new high in the current year and rise much higher in 2014. The gold bull market will end when an inflation crisis pushes central bankers around the world to tighten aggressively.
Stagflation is now
The emerging economies exhibit significant symptoms of stagflation. All major emerging economies are facing significant slowdown. But the attempts to stimulate are checked by inflationary problems.
The International Monetary Fund projects a 5.5% gross domestic product growth rate in 2013 for emerging economies. The Q1 data suggests a much weaker year. I see 4% for the year.
The broadest inflation gauge, the GDP deflator, is likely around 6%. Emerging economies are easing monetary policy on the whole, just haltingly to demonstrate some credibility on inflationary concerns. But the easing policy remains the main trend. It is likely that inflation will surpass twice the GDP growth rate.
The U.S. economy grew by 1.7% in 2012 with GDP deflator, the broadest inflation gauge, at 2.4%. In the first quarter of 2013, it reported a 2.5% rate, of which 1% came from inventory accumulation, and GDP deflator at 0.9%. It appears that the U.S. economy is stuck at a 2% growth rate and GDP deflator is slightly higher.
The U.S. economy is experiencing a mild form of stagflation. The high unemployment keeps wage under control. But, shouldn’t one be concerned about the significant inflation pressure despite such a weak economy? As a mismatch remains a major force in the U.S. unemployment picture, wage inflation is quite possible in many pockets. Energy and agricultural industries already face such pressures.
Both the IMF and the Organisation for Economic Co-operation and Development project a 1.4% GDP growth rate for developed economies. The Q1 data suggests that this is just too optimistic. I think 1% is more likely.
While weak growth is disinflationary, momentum and imported inflation are significant forces. The whole OECD block is likely to be similar to the U.S. with GDP deflator above growth.
At current exchange rates, the OECD block accounts for about two-thirds of the global economy and the emerging economies, one-third. This fact suggests that the global economy will grow at 2% with inflation at 3%.
Global policy paralysis
The latest IMF, World Bank and G-20 meetings didn’t come out with new ideas. The same people were talking about the same policy prescriptions. Despite the massive stimulus by any measurement so far, the global economy remains stuck. The excuse is that the stimulus should be bigger.
I predicted the 2008 Global Financial Crisis on the debt binge in the West to defend its living standard during a prolonged period of declining competitiveness. After the crisis occurred, I predicted that the global economy was heading toward stagflation, as the policy makers around the world would embrace stimulus, the wrong medicine for what ails the world.
The bubble bursting was supposed to be a wake-up call. But it was interpreted as a cyclical event, like a natural disaster, or just bad financial decisions.
In the Anglo-Saxon world, the main response was stimulus to jump-start the economy, believing that the economy was like a car running out of battery power. In the euro zone, the main response was to control debt growth, the so-called austerity.
Neither has worked. However, the policy debate remains stuck as stimulus versus austerity.
Technology and globalization have made jobs and production of goods and even services mobile. But people are still confined within national boundaries. Global competition largely determines one’s income. But many expenses like housing, healthcare and education are locally determined. The asymmetry is wreaking havoc for a large share of the population in the developed economies.
The second and equally-important mismatch is in local market flexibility versus global competition.
The labor market isn’t as flexible as markets for goods or services under the best circumstances. Hence, the unemployment rate is higher than that for other factors of production. To protect labor, the OECD economies have built up or tolerated many practices to limit businesses from adjusting labor demand in response to demand fluctuations in goods and services.
Such well-intentioned market impediments are running into the brick wall of globalization. A business doesn’t need to make things where it sells. Apple is the best example in that regard. So countries have lost control over businesses.
The two mismatches must be solved together. Higher living costs justify labor protection. Unless the big ticket items in living costs reflect global competition, the wages that result from global competition aren’t living wages. Hence, governments should focus on decreasing living costs and increasing supply side flexibility.
Yes, gold doesn’t bear interest. Many, including Warren Buffett, belittle its investment value. But, paintings or antiques don’t bear interest either. When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world.
Monetary stimulus magnifies the problem. It inflates non-tradables like healthcare, education and housing, increasing resistance to labor market flexibility. In that regard, the stimulus and austerity approach is still the same. The later doesn’t solve the growth problem, pushing the central bank into monetary easing.
Everyone for themselves
Crisis tends to produce strong leaders, as demonstrated by World War II and 1970s’ stagflation. The 2008 crisis didn’t. It may take another crisis to elevate a generation of leaders with the right medicine for nation states to fit into the world of globalization. Until then, people must survive stagflation as best they can.
The real interest rate is probably minus 2% in the world today. It should be in line with the per capita income growth rate or 1%. The difference is 3%.
This environment redistributes wealth from savers to debtors on a scale of over $2 trillion per annum or $55 billion per day. This must be the biggest legal robbery ever in human history. But it is always coded in arcane academic lingos spoken by respected central bankers with impeccable CVs. All that is just packaging; it is robbery nevertheless.
The fifth column
The world is composed of sovereign nation states. Today’s multinational corporations (MNCs) are really the fifth column of instability. The IT revolution has spawned today’s MNCs. They can shift production and sales to anywhere with low costs. They can locate their staff anywhere for doing any job.
As commercial organizations, they can of course arbitrage differences across nation states for profits. As nation states have evolved independently, the differences among them are big. Hence, the profit opportunities for MNCs are abundant.
When the global crisis hit, the affected countries adopted different policy responses, creating more profit opportunities for MNCs. Despite sluggish global growth the MNCs have reported strong profit growth since the crisis.
Globalization has made most markets global. This increases the stake of winning but also its hurdles. This is why there are virtually no new global companies in the past decade. This factor makes the existing MNCs more valuable. I believe that pension funds should invest most of their money into MNCs.
Not all the MNCs are the same. Big isn’t necessarily a guarantee for success. One must have something difficult to duplicate. Brands are the best asset in the world today. Food brands, in particular, are well positioned to profit from income growth in emerging economies. Luxury brands, despite their recent setbacks, are also well positioned.
Technology isn’t a good long term investment in general. In the information technology world, sooner or later, someone will come up with something better. In mature industries, however, some technologies are hard to duplicate. Energy, chemical and machinery are better bets.
Financial markets believe that corporate credit shouldn’t surpass sovereign debt. Such thinking no longer applies in today’s world.
A balanced MNC has revenue evenly spread across the world. Its income volatility is less than a country’s tax revenue. MNCs have lower leverage and higher income growth than nation states. I believe that, if one invests in bonds, MNCs are better than government bonds.
A speculator’s paradise
Whenever growth rate disappoints, demanding more monetary stimulus is always the outcry. A central bank will predictably release dovish statements to satisfy the market. Even though the monetary stimulus, even when it works, takes a long time to kick in, it affects asset markets right away.
When countries adopt the same policy — but at a different times — global speculators are presented with fantastic opportunities in all liquidity assets.
Economics isn’t good at studying speculation. It assumes it’s not important. But the speculative capital, when fully leveraged, is probably half of the global GDP.
It can magnify volatility to such an extent that mass panic results, changing the equilibrium path for a country of even the world. To some extent, macro policy making is held hostage by global speculative capital.
When you can’t beat them, join them. It may not be moral, but quite profitable to join the global speculative capital. One can invest in some of the funds or mimic their trading patterns. Monetary policy essentially redistributes wealth from clueless savers to debtors and speculators. You can fight back by joining the dark side.
Gold still glitters
The recent sharp decline in gold prices has shaken the confidence of many people. Don’t worry. The price of gold has dipped, but will rise to new heights soon. In the long term, gold prices will rise far more than inflation. For the masses, gold is the best inflation hedge. It is the best weapon for the little guy to fight central banks that help a few to rob many.
Yes, gold doesn’t bear interest. Many, including Warren Buffett, belittle its investment value. But, paintings or antiques don’t bear interest either. When money supply is rising, anything scarce tends to rise in value. Gold is the best scarce commodity in the world.
There are more artists that can paint more paintings every day. 80% of the world’s gold has already been extracted. The remaining 20% will be dug up in the next 20 years. The money supply will grow forever. But the gold supply can grow only by 25% and no more.
The income growth in emerging economies will vastly increase with gold demand. When people realize how little gold the world has left, the price will skyrocket. If you don’t know how to preserve your wealth in an inflationary environment, you should accumulate gold. When the price comes down, just as it did two weeks ago, just buy more.
http://www.theburningplatform.com/?p=53759
Junior Gold Miner Brazil Resources: What’s Been Done, What’s To Come
Gold Silver Worlds | May 6, 2013
We first introduced you to Brazil Resources Inc. (TSX.V: BRI | OTCQX: BRIZF) in the fall of 2012, when we applied Casey Research’s The Eight P’s of Resource Stock Evaluation to the company. We’ve decided to revisit this company, look at its progress over the past six months and explore some of the upcoming catalysts BRI has in store for the next 12 months.
As a reminder, Brazil Resources is a gold company which is focused on the exploration and development of its five projects in Brazil, as well as its large concession in northern Paraguay. Its founder and Chairman, Amir Adnani, CEO of Uranium Energy Corp (NYSE: UEC), is a rising star in the mining industry, and took UEC from exploration to production in under five years. The President and CEO is Stephen Swatton, who prior to joining BRI was the head of BHP Billiton’s Global Business Development and Technical Team Division (Exploration Department).
The company is still very well financed with over $4.2 million in the bank, and maintains a strategic alliance with one of the largest financial banks in Brazil, the Brasilinvest Group.
Since we last looked at BRI, the company has been rapidly advancing its two main projects, Cachoeira and Artulândia.
Cachoeira, Brazil Resources’ flagship property, which is located in the Gurupi Gold belt, was originally acquired from Luna Gold Corp in the fall of 2012 for roughly $18/ounce in the ground. When acquired the project had an NI 43-101 indicated mineral resource of 12.5 million tonnes at 1.11 g/t Au or 446,000 ounces of gold, and an inferred resource of 5.4 million tonnes at 1.27 g/t Au, or 221,300 ounces of gold.
On March 4, 2013 the Company released an updated NI 43-101 resource report which substantially increased the resource at Cachoeira. The project now has an indicated resource of 17,470,093 tonnes at 1.40 g/t Au, or 786, 737 ounces or gold, and an inferred resource of 15,666,580 tonnes at 1.12 g/t Au, or 563,200 ounces of gold.
With a resource estimate which more than doubled, Brazil Resources is moving the project along and has plans to drill the property in Q2 2013 to upgrade much of the inferred resource to the indicated resource category. Furthermore, the Company plans to do environmental permitting, and completion of other work to better understand the project from a structural and economic standpoint.
Another project worth investigating further is the Company’s Artulândia project. Artulândia, a 12,000 acres property located in the central part of Brazil, is situated in the same state as several other well known gold deposits. In particular, Artulândia is located approximately 140 km away from Yamana’s (NYSE: AUY) Chapada gold-copper mine, a 5.5M ounce deposit and AngloGold Ashanti’s (NYSE: AU) Serra Grande mine.
The potential of Artulândia could be far reaching. In the fall of last year, Brazil Resources did some rock sampling and trench work which yielded very positive results and a polymetallic copper-gold discovery was announced. The Company has since announced that it will be initiating a drilling program at the project to further its exploration. With that being said, excitement is buzzing around this project, which we should note, has had no previous exploration work done on it, and is a discovery made uniquely by the technical team of the Company.
The success at both of these projects isn’t the only thing keeping investors happy; BRI has outperformed the Toronto Venture Exchange, by gaining more than 40% since it IPO’d in May of 2011.
At a time when many junior exploration companies are scaling back, Brazil Resources is pushing forward. Looking ahead to the next 12-18 months, the company plans to continue developing its current projects and acquiring new projects with proven resources. BRI not only has the technical team to develop its projects, but the management team with the experience and ability to raise capital in a difficult market, and make strategic acquisitions.
Key milestones that have the potential to drive the share price significantly higher in the next 12 months:
* Pending exploration drill results at its Artulândia project;
* Acquisition of an additional advanced stage project with proven gold resources; and
* Environmental permitting at Cachoeira, and additional work to better understand the economics of the project.
We will keep a close eye on this company which is performing very well given the current state of the gold market.
http://goldsilverworlds.com/gold-silver-stocks-news/junior-gold-miner-brazil-resources-whats-been-done-whats-to-come/
Dow, Gold and Jobs Up - The Fed’s Next Step!
May 06, 2013 - 12:06 PM GMT
By: Robert_M_Williams
“When you're in jail, a good friend will be trying to bail you out. A best friend will be in the cell next to you saying, 'Damn, that was fun'.”? Groucho Marx
It was quite a week with the FOMC decision, the ECB rate cut and then Friday’s employment report so we have a lot to talk about. I want to start out discussing the jobs report as we saw that the U.S. economy created 165,000 jobs in April, and the unemployment rate fell to 7.5% from 7.6% even though the size of the labor force increased. What's more, hiring in March and February were revised up by a combined 124,000 jobs. The increase in hiring in April beat Wall Street's forecast for a 135,000 gain, with unemployment remaining at 7.6%. The decline to 7.5% puts the jobless rate at the lowest level since December 2008. Meanwhile, the number of new jobs created in March was revised up to 138,000 from 88,000, the Labor Department said, while February's figure was revised up to 332,000 from 268,000. The number of jobs created in February was the highest since November 2005 for any month that did not include temporary Census bureau hiring.
All of this is well and good but it’s still only half of the creation of 350,000 jobs per month Obama said we needed when QE was initiated way back in 2009. It also doesn’t resolve anything for the 496,000 people that simply dropped out of the work force in March. We have nearly 90 million Americans ages 16 or older not working, or looking for work. Adjusted for population growth, fewer Americans now work than at any time since 1979. Then there are the millions of people working who are considered to be unemployed. They’re earning close to minimum wage and considerably less than the used to five years ago. All in all nothing has really improved on the labor front if you simply dig down below the surface and look at what’s there!
What’s going on with the US Federal Reserve is another story altogether. First a short review. When the crisis began back 2007 it quickly became apparent that we would need to see a combination of fiscal (taxes and government spending) and monetary (printing) policy in order to right the ship. As the Fed so kindly pointed out in its FOMC statement, we have no fiscal policy. An inept Congress and Senate see to it that no real decisions are ever made, and that will not change anytime soon. If you
look at this chart you’ll see that tax revenues have actually increase as a percentage of GDP, taking money out of the consumer’s hands. Then to make matters worse we now have the government sequestration that takes another US $85 billion off the table.
That leaves us with the Fed and it’s chosen path of monetary stimulus, or QE as it is called, where they go into the bond market and buy debt. During the first quarter the Fed purchased 72% of all new debt issued. QE has come in bits and pieces, each one greater than its predecessor, and I’ve pictured it below:
I framed QE in terms of the bond market because QE was/is designed to buy back US debt, and bonds are of course US debt. You’ll notice that each infusion has had a shorter shelf life, but that’s a story for another day.
This week a lot of people were expecting the Fed to come out and say that they were working on a plan to ease out of QE. This would mean less printing and higher interest rates. That didn’t happen! Instead the FOMC committee said that they were prepared to go either way. Here’s an excerpt:
“The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.”
That’s the first time they admitted to the possibility that they might have to increase QE somewhere down the road. That’s a major change and I’m convinced that’s exactly what we’ll see before the end of the year. In other words the Fed will have to print even more money, and buy back even more debt, in order to keep the ship of state afloat!
Not to be out done the European Central Bank announced on Thursday morning that it decided to lower its benchmark interest rate by 25 basis points to 0.50%. ECB President Mario Draghi is under a lot of pressure to provide growth, and he’ll be forced to print a lot more before it’s over. By the end of 2012 the balance sheets of the world's largest central banks, the G20 nations and the Eurozone, totaled $17.4 trillion US, this according to Bank of Canada calculations:
That is nearly a quarter of global GDP, and slightly more than double the $8.5 trillion these same institutions were holding five years ago.
The problem with both the Fed an ECB policy is that it simply has little or no affect on their respective economies. Europe in particular chose a truly stupid mix of austerity and expansionary monetary policy, the end result being shrinking economies while expanding debt loads! The Fed wasn’t much better as they printed money and gave it to banks in return for toxic debt. The banks in turn refused to loan money in a zero interest rate environment, choosing instead to deposit it back into the Fed and earn a small return with “no risk”. New debt was financed in much the same way so there was never any real increase in the money supply and inflation.
Now that the US economy is shrinking, we actually have deflation. Under Obama’s leadership overall government debt as a percentage of GDP has exceeded 100%:
In terms of dollars and cents, the debt has increased from US $10.6 trillion to US $16.8 trillion over the same period. Then we have another US $90 trillion in unfunded obligations and US $1 quadrillion in derivatives floating around out there.
So while The Fed is printing more money and increasing debt, it is failing to create growth. To further complicate matters the per capita savings rate has fallen like a stone, from over 6% to 2.7% in just six months. The Fed is now to the point that conventional monetary expansion, printing to buy debt, is unproductive. That means the Fed will be forced to revert to a little known tool called overt monetary stimulus whereby it simply prints money and gives it to the Department of the Treasury without requiring the Treasury to issue new debt. This is as close to dropping money out of helicopters as you can get without actually using a helicopter.
I predict this will in fact happen but first we’ll see a new and bigger round of the more conventional QE, probably before the end of this year. Of course it will change little since the amounts of the buy backs are just a small fraction of all the debt out there, and it’s an unproductive use of funds. Why have another round of QE if we know it doesn’t work? The Fed is playing for time, and maybe hoping for some sort of miracle along the way! With one more round of QE it can try to keep the wheels on the bond market without pressuring the dollar lower. Since the dollars the Fed prints goes to buy old and new debt, and the banks simply deposit the money received back in the Fed, the dollar is steady as she goes and that keeps our foreign lenders from getting to nervous.
Here you get a picture of the dollar’s behavior going back to January 2012:
The good news is that the greenback has moved sideways over the last sixteen months. The bad news is that it appears to have formed a head-and-shoulders formation in the process. Finally, what you can’t see is the massive printing going on in Japan that serves to artificially prop up the US dollar.
Why is the dollar so important? In a zero interest rate environment there would be absolutely no incentive to hold dollar denominated assets if the dollar begins to fall. So the Fed has to print without devaluating the dollar, but now that the economy is slowing that dog won’t hunt for much longer. Aside from that we have the Fed buying
more than 70% of all bond issues and yet bond prices are falling as you can see in the chart above. Falling bond prices mean that interest rates are rising, and that is something a debt-laden economy cannot afford.
As I mentioned earlier the Fed really needs to buy time with another round of QE. Meanwhile it needs to support the dollar and bonds for as long as it can and pray that somehow the economy turns around. How can you support a currency that has been declining since 2001 and a bond that appears to have topped out ten months ago? If both continue lower from here it wouldn’t take long before we’d see a crisis in confidence. Another part of this buying time process involves the blowing of bubbles. For about the last year or so the media and the Fed have been focusing on the “rebound in housing”:
Although it’s true that housing permits have been on the rise, they are still historically quite low. Furthermore you need to keep in mind that this is a lagging indicator. For a more accurate view of the future of housing you would be wise to look at a weekly chart of lumber prices:
Here you can see that lumber prices, a forward looking barometer, turned down at the beginning of March and have dropped close to 20%. So the price of lumber is telling you that the miniscule recovery is housing may already be over and done with.
Perhaps the best known and most reoccurring of all bubbles is the stock market. It died a notorious death in 1999, rose like the phoenix from the ashes to reach new heights in 2007. Then came an even more spectacular fall and now an even grander recovery as the Dow hit 15,000 on Friday. Why is the Dow so important? It’s where you have your IRA’s and pension funds along with your hopes and dreams for a peaceful and plentiful old age. As anyone who doesn’t live in a cave knows, the Dow has made a series of new all-time highs and the trend is clearly higher:
Here you can see the current leg higher and I’ve highlighted how in lieu of a pullback we’ll see a sideways movement allowing for consolidation of prior gains. This consolidation leads to a break out to the upside and a run to yet another new all-time closing high.
We occasionally see some scary three and four day reactions, but it doesn’t force anyone out of the market because everybody goes to sleep firm in the belief that the Fed has their back! This is obvious when you look at a chart of the VIX:
The VIX tells you when traders are getting nervous and want to buy insurance that protects them against any substantial downward movements. You can see in the chart above that the VIX has been trading at or below historical lows all year, meaning no one is worried. They’re not worried because they know the Fed will support the market.
The Dow is the canary in the coalmine and as long as you can read in the Sunday paper that it traded at 15,000 for the first time ever, people will believe that all must be right in the world. No one seems to care that only 1% of the people benefit from 95% of all the gains in the Dow. It’s the perception that everything is okay that really counts. Obama and Bernanke can go on TV and say, “See, I told you everything is okay! The Dow just made a new all-time high.” What’s more the Dow is the only game in town since bonds pay a negative real interest rate and cash pays nothing and is subject to central bank induced devaluations. Funds and even central banks are forced to load up on stocks in search of elusive returns and that drives the market higher.
The final piece of the Fed’s puzzle is gold. It is absolutely vital to the Fed’s plans that the price of gold is driven down into submission. A declining gold price supports the US dollar since it is a direct competitor and a store of value. If gold is headed lower it means that all is right with the world and it forces investors into the “safe haven” investments of US bonds and stocks. Three weeks ago we saw a concerted unified effort to break the back of the bull market in gold as price broke $240 in just two days.
As a result of the take down, gold traders are the most bearish in three years after investors sold a record amount of metal held in exchange-traded products and prices tumbled in what many believe is a new bear market for the yellow metal. Yet as you can see in this chart, the decline is nowhere near the decline we experienced back in 2008:
Of course that doesn’t get any airtime and instead we have daily segments on why gold should be avoided. The decline produced never before seen readings of 15 in RSI while MACD made all-time lows. On Friday spot gold closed at 1,469.90 and more than $140 above the April 16th 1,321.20 intraday low, but the mood among investors is still black as night.
The decline on the price of gold is part and parcel to the Fed plan because it eliminates alternatives to the stock market while at the same time giving support to the US dollar and bond market. Perhaps more importantly it allows the puppet masters to accumulate the only true store of wealth at ridiculously cheap prices. Like every ill-conceived plan there are always flies in the ointment. In order to suppress the physical demand for gold the Fed used the paper (futures) market to push the price down. They pushed it so far that buyers, including central banks in China, Russia and India found physical gold too cheap to ignore, so physical demand surged. In order to avoid a disconnect between the physical market and the paper market, the Fed had to cease with the raids.
I am convinced that the Fed’s goal was to push price all the way down to strong support at 1,089.50, more that $250.00 below the actual cost of mining an ounce of gold, in an effort to accomplish their goals. Unfortunately the jump in physical demand near the 1,303.30 support caught them off guard. Now it remains to be seen if the Fed will make one more attempt to push prices down to 1,089.50. As you can see in the following chart, the recovery is at a critical stage as it is testing the resistance at 1,470.50, a 50% retracement of the recent decline:
You can see a sideways movement has developed over the last week, and it begs the question as to whether or not this is accumulation or distribution? In spite of the recovery RSI is still below neutral at 46.00 and MACD is still moving below old lows. This sideways movement is in a range that runs from 1,450.00 on the low side to 1,485.00 on the high side. As soon as price approaches 1,460.00 we see buyers run into the market and a bounce follows.
Whether or not we see another attack on gold all depends on how desperate the Fed is right now. As much as the Fed wants lower gold prices to prop up the dollar, it also wants to avoid a crisis of confidence. If a disconnect were to occur between the paper and physical markets for gold, it would lead to a crisis in confidence that would affect the dollar, the bond and the stock market. Are things so bad that the Fed is willing to run the risk? I don’t know but we’re about to find out, as I don’t believe this sideways movement can go on for more than another session or two. As most of you know I sold the break of strong support at 1,522 short and covered at 1,345.00. I also bought physical gold for clients at 1345.00, 1367.00 and again at 1,404.00 so I believe that there is a better than good chance the low is in.
I currently have a small short position in June gold at 1,481.00. but this is not a hedge. I have accumulated physical gold since 2003 and I do not hedge it for the simple reason that it is a store of wealth and I know it will be much higher in a year or two. What I do in the paper market is designed to make profits in the here and now. I was long paper gold from 1,367.00 until it reached 1,470.00 where I took profits. Then I went short looking for a pullback to the 1,420.00 to 1,435.00 area. Gold fell to 1,439.00 and I covered at 1,441.00. Now I am short from 1,481.00 and will stay that way until gold can either move up through the 1,470.50 resistance with authority or I will add on if it breaks down below 1,455.00. Meanwhile there is nothing to do but watch.
Without a doubt gold is the best investment you can make right now and it’s cheap, but that doesn’t mean it can’t get even cheaper. Is the bull market in gold over? No, and it won’t be even if it does fall another $200.00; it will just be absurdly cheaper and I will have to buy even more physical gold. With that said it won’t stop me from selling paper gold short should gold break down one more time. Profits are profits whether they come from the long side or the short side. Normally I would look at a chart like gold’s and tell you that the price has to head higher, but manipulation (corruption) make that call a lot tougher. With that said I feel that 1,420.00 should hold here and there’s an off chance that we’ll retest the lows from a couple of weeks ago. The only way that gold goes to 1,100.00 from here is if things are a lot worse than even I imagine.
CONCLUSION
What a difference a few months make! Six months ago a gain of 165,000 jobs would have been a disappointment because we were looking for 250,000 or more. Now we get an increase of 165,000 jobs and the Dow jumps 150 points. They drink Cognac on Bloomberg to celebrate! What if anything changed to make lesser appear to be more? I can answer that in one word, spin!They have to spin the trivial in order that it appear to be substantial, just like they’ll spin Dow 15,000 into a growing US economy where all is well.
The Inclusion of the word “increase” in the FOMC decision is a real game changer. Also, they’re laying the groundwork for the assignment of blame by saying that we are lacking fiscal policy and the Fed can only do so much. Bernanke will do everything possible to keep all the balls in the air until he’s out the door. His probable successor, Janet Yellen, is a supporter of QE and will be left with an almost impossible task of keeping rates at zero while paying all the bills.
Meanwhile the gap between the have’s (Germany) and the have not’s (Spain, Greece, et al…) is growing and austerity is only increasing that gap. I suspect that gap will be closed with a combination of a series of write-offs and violence. The same goes for the US as 95% of the gains on Wall Street go to the top 5% of the population. Meanwhile real wages and hours worked, the bread and butter of the “other” 95% continue to decline. The laws are being changed to limit your freedom, your IRA’s and pension funds will be seized, and you’ll be given government bonds that pay negative real rates of return. In the end you’ll have a health care system and a pension plan run by the State that will be completely inefficient as all state run programs are.
The real problem, debt, will increase exponentially and the printing press simply won’t be able to keep up. You simply can’t print fast enough to service more than US $1.2 quadrillion in debts, much less make it disappear! In the end the markets will do what they do best, clean house! Civil unrest will aid the process and only then will we see real change. The Fed and their printing press are the only thing holding it all back and gold is your only salvation, assuming you can hang on to it once the manure hits the fan. Most of you won’t. The brown shirts will come knocking on your door at 4 am, demanding that you give up your gold if you want to keep your liberty.
It might interest you to know that there is a new $1 million dollar program led by Palm Beach County Sheriff Rick Bradshaw aimed at “violence prevention” by encouraging Floridians to report their neighbors for making hateful comments about the government, a chilling reminder of how dissent is being characterized as an extremist threat. What constitutes a “hateful comment” is completely subjective and overlooks the fact that most humans tend to embellish when telling a story. Of course you’ll be in Gitmo charged with domestic terrorism and denied all due process because you gave up your rights a long time ago! Like the complacency we see in the stock market, it permeates all facets of our life. The cost of eradicating complacency will be extremely high but unavoidable.
In conclusion, don’t expect much to change in the way of policy. In Wednesday’s FOMC statement, the Fed noted that ”… fiscal policy is restraining economic growth.” This is Fed speak charging that Washington is acting irresponsibly, thus the Fed needs to possibly increase both its bond and mortgage backed securities purchases. In short the Fed has become a one trick pony; whatever the question is, QE is the answer. When it becomes blatantly obvious that QE no longer works, then we’ll shift to overt monetary stimulus. At that instant the rest of the world will come to the immediate conclusion that the dollar and bond are doomed and we’ll see flash crashes across the board. Gold and the Swiss Franc will rocket higher and you’ll be left to wonder why you never got out of the way of that freight train you saw coming from miles away.
http://articles.chicagotribune.com/2013-04-06/news/ct-edit-workforce-0406-jm-20130406_1_fewer-americans-unemployment-rate-jobs
Bernanke’s term as Fed Chairman ends this year and it is believed he does not want another term.
http://www.mypalmbeachpost.com/news/news/state-regional-govt-politics/bradshaw-gets-1-million-for-violence-prevention-un/nXbs4/
Robert M. Williams
St. Andrews Investments, LLC
Nevada, USA
rmw@standrewspublications.com
http://www.marketoracle.co.uk/Article40300.html
A Short History Of Currency Swaps (And Why Asset Confiscation Is Inevitable)
Submitted by Tyler Durden on 05/05/2013
by Martin Sibileau of A View From The Trenches blog,
I want to offer today an historical perspective on the favorite liquidity injection tool: Currency swaps. These coordinated interventions are not a solution to the crashes, but their cause, within a game of chicken and egg. But I’ve just given you the conclusion. I need to back it now…
To read this article in pdf format, click here: May 5 2013
With equity valuations no longer levitating but in a different, 4th dimension altogether, and credit spreads compressing... Which fiduciary portfolio manager can still afford to hedge? Any price to hedge seems expensive and with no demand, the price of protection falls almost daily. The CDX NA IG20 index (i.e. the investment grade credit default swap index series 20, tracking the credit risk of 125 North American investment grade companies in the credit default swap market) closed the week at 70-71bps. The index was at this level back in the spring of 2005. By the summer of 2007, any credit portfolio manager that would have wanted to cautiously hedge with this index would have seen a further compression of 75% in spreads, completely wiping him/her out.
It is in situations like these, when the crash comes, that the proverbial run for liquidity forces central banks to coordinate liquidity injections. However, something tells me that this time, the trick won’t work. In anticipation to the next and perhaps final attempt, I want to offer today an historical perspective on the favorite liquidity injection tool: Currency swaps. These coordinated interventions are not a solution to the crashes, but their cause, within a game of chicken and egg. But I’ve just given you the conclusion. I need to back it now…
How it all began
Let me clarify: By currency swaps, I refer to a transaction carried out between two central banks. This means that currency swaps cannot be older than the central banks that extend them. On the other hand, foreign exchange swaps between corporations may date back to the late Middle Ages, when trade began to resurface in the Italian cities and the Hansastädte. Having said this, I believe that currency swaps were born in 1922, during the International Monetary Conference that took place in Geneva. This conference marked the beginning of the Gold Exchange Standard, with the goal of stabilizing exchange rates (in terms of gold) back to the pre-World War I.
According to Prof. Giovanni B. Pittaluga (Univ. di Genova), there were two key resolutions from the conference, which opened the door to currency swaps. Resolution No. 9 proposed that central banks “…centralise and coordinate the demand for gold, and so avoid those wide fluctuations in the purchasing power of gold which might otherwise result from the simultaneous and competitive efforts of a number of countries to secure metallic reserves…”
Resolution No. 9 also spelled how the cooperation among central banks would work, which “…should embody some means of economizing the use of gold maintaining reserves in the form of foreign balance, such, for example, as the gold exchange standard or an international clearing system…”
In Resolution No. 11, we learn that: “…The convention will thus be based on a gold exchange standard.” (…) “…A participating country, in addition to any gold reserve held at home, may maintain in any other participating country reserves of approved assets in the form of bank balances, bills, short-term Securities, or other suitable liquid assets…. when progress permits, certain of the participating countries will establish a free market in gold and thus become gold centers”.
Lastly, gold or foreign exchange would back no less than 40% of the monetary base of central banks. With this agreement, the stage was set to manipulate liquidity in a coordinated way to a degree the world had never witnessed before. The reserve multiplier, composed by gold and foreign exchange could be “managed” and through an international clearing system, it could be managed globally.
How adjustments worked under the Gold Standard
Before 1922, adjustments within the Gold Standard involved the free movement of gold. In the figure below, I show what an adjustment would have looked like, as the United States underwent a balance of trade deficit, for instance:
Gold would have left the United States, reducing the asset side of the balance sheet of the Federal Reserve. Matching this movement, the monetary base (i.e. US dollars) would have fallen too. The gold would have eventually entered the balance sheet of the Banque of France, which would have issue a corresponding marginal amount of French Francs.
It is worth noting that the interest rate, in gold, would have increased in the United States, providing a stabilizing/balancing mechanism, to repatriate the gold that originally left, thanks to arbitraging opportunities. As Brendan Brown (Head of Economic Research at Mitsubishi UFJ Securities International) explained (here), with free determination of interest rates and even considerable price fluctuations, agents in this system had the legitimate expectation that key relative prices would return to a “perpetual” level. This expectation provided “…the negative real interest rate which Bernanke so desperately tries to create today with hyped inflation expectations…”
There is an excellent work on the mechanics of this adjustment published by Mary Tone Rodgers and Berry K. Wilson, with regards to the Panic of 1907 (see here). The authors sustain that the gold flows that ensued from Europe into the United States provided the liquidity necessary to mitigate the panic, without the need of intervention. This success in reducing systemic risk was due to the existence of US corporate bonds (mainly from railroads) with coupon and principal payable in gold, in bearer or registered form (at the option of the holder) that facilitated transferability, tradable jointly in the US and European exchanges, and within a payment system operating largely out of reach from banksters outside of the bank clearinghouse systems. The official story is that the system was saved by a $25MM JPM-led pool of liquidity injected to the call loan market.
How adjustments worked under the Gold Exchange Standard
During the 1920s and particularly with the stock imbalances resulting from World War I, the search for sustainable financing of reparation payments began. Complicating things, the beginning of this decade saw the hyper inflationary processes in Germany and Hungary. By 1924, England and the United States rolled out the Dawes Plan and between 1926 and 1928, the so called Poincaré Stabilization Plan in France. The former got Charles G. Dawes the Nobel Prize Peace, in 1925.
As the figure below shows, against a stable stock of gold, fiat currency would be loaned between central banks. In the case of a swap for the Banque de France, US dollars would be available/loaned, which were supposedly backed by gold. The reserve multiplier vs. gold expanded, of course:
With these transactions central banks would now be able to influence monetary (i.e. paper) interest rates. The balancing mechanism provided by gold interest rate differentials had been lost. As we saw under the Gold Standard before, an outflow of US dollars would have caused US dollar rates to rise, impacting on the purchasing power of Americans. Now, the reserve multiplier versus gold expanded and the purchasing power of the nation that provided the financing was left untouched. The US dollar would depreciate (on the margin and ceteris paribus) against the countries benefiting from these swaps. Inflation was exported therefore from the issuing nation (USA) to the receiving nations (Europe). The party lasted until 1931, when the collapse of the KreditAnstalt triggered a unanimous wave of deflation.
How the perspective changed as the US became a debtor nation
Fast forward to 1965, two decades after World War II, and currency swaps are no longer seen as a tool to temporarily “stabilize” the financing of flows, like balance of trade deficits or war reparation payments, but stocks of debt. By 1965, central bankers are already worried with the creation of reserve assets, just like they are today; with the creation of collateral (see this great post by Zerohedge on the latter).
Indeed, 48 years ago, the Group of Ten presented what was called the Ossola Report, after Rinaldo Ossola, chairman of the study group involved in its preparation and also vice-chairman of the Bank of Italy. This report was specifically concerned with the creation of reserve assets. At least back then, gold was still considered to be one of them. In an amazing confession (although the document was initially restricted), the Ossola Group explicitly declared that the problem “…arises from the considered expectation that the future flow of gold into reserves cannot be prudently relied upon to meet all needs for an expansion of reserves associated with a growing volume of world trade and payments and that the contribution of dollar holdings to the growth of reserves seems unlikely to continue as in the past…”
Currency swaps were once again considered part of the solution. Under the so called “currency assets”, the swaps were included by the Ossola Group, as a useful tool for the creation of alternative reserves. Three months, during a Hearing before the Subcommittee on National Security and International Operations, William McChesney Martin, Jr., at that time Chairman of the Board of Governors of the Federal Reserve System, acknowledged a much greater role to currency swaps, in maintaining the role of the US dollar as the global reserve currency.
In McChesney Martin’s words: “…Under the swap agreements, both the System (i.e. Federal Reserve System) and its partners make drawings only for the purpose of counteracting the effects on exchange markets and reserve positions of temporary or transitional fluctuations in payments flows. About half of the drawings ever made by the System, and most of the drawings made by foreign central banks, have been repaid within three months; nearly 90 per cent of the recent drawings made by the System and 100 per cent of the drawings made by foreign central banks have been repaid within six months. In any event, no drawing is permitted to remain outstanding for more than twelve months. This policy ensures that drawings will be made, either by the System or by a foreign central, bank, only for temporary purposes and not for the purpose of financing a persistent payments deficit. In all swap arrangements both parties are fully protected from the danger of exchange-rate fluctuations. If a foreign central bank draws dollars, its obligation to repay dollars would not be altered if in the meantime its currency were devalued. Moreover, the drawings are exchanges of currencies rather than credits. For instance, if, say, the National Bank of Belgium draws dollars, the System receives the equivalent in Belgian francs; and since the National Bank of Belgium has to make repayment in dollars, the System is at all times protected from any possibility of loss. Obviously, the same protection is given to foreign central banks whenever the System draws a foreign currency.
The interest rates for drawings are identical for both parties. Hence, until one party disburses the currency drawn, there is no net interest burden for either party. Amounts drawn and actually disbursed incur an interest cost, needless to say; the interest charge is generally close to the U.S. Treasury bill rate…”
My graph below should help visualize the mechanism:
Essentially, with these currency swaps, foreign central banks that during the war had shifted their gold to the USA, became middlemen of a product that was a first-degree derivative of the US dollar, and a second-degree derivative of gold.
On September 24th 1965, someone called this Ponzi scheme out. In an article published by Le Monde, Jacques Rueff publicly responded to this nonsense, under the hilarious title “Des plans d’irrigation pendant le déluge” (i.e. Irrigation plans during the flood). He minced no words and wrote:
“…C’est un euphénisme inacceptable et une scandaleuse hyprocrisie que de qualifier de création de “liquidités internationales” les multiples operations, tells que (currency) swaps…” “C’est commetre une fraude de meme nature que de présenter comme la consequence d’une insuffiscance générale de liquidités l’insufficance des moyens dont disposent les Etats-Unis et l’Anglaterre pour le réglement de leur déficit exterieur”
My translation: “…It is an unacceptable euphemism and an outrageous hypocrisy to qualify as creation of “international liquidity” multiple transactions, like (currency) swaps…”…“…In the same fashion, it is a fraud to present as the consequence of a general lack of liquidity, the lack of means available to the USA and England to settle their external deficits…”
Comparing the USA and England to underdeveloped countries, Rueff added that these also lack external resources, but those that are needed cannot be provided to them but by credit operations, rather than the superstition of a monetary invention disguised as necessary and in the general interest of the public (i.e. rest of the world).
With impressive prediction, Rueff warned that the problem would present itself in all its greatness, the day these two countries decide to recover their financial independence by reimbursing with their dangerous liabilities (i.e. currencies). That day, said Rueff, international coordination would be necessary and legitimate. But such coordination would not revolve around the creation of alternative instruments of reserve, demanded by a starving-for-liquidity world. That day would be a day of liquidation, where debtors and creditors would be equally interested and would share the common responsibility of the lightness with which they jointly accepted the monetary difficulties that are present….Sadly, Rueff’s call could not sound more familiar to the observer in 2013…
How adjustments work today, without currency swaps
Until the end of the Gold Exchange Standard, even if the reserve multiplier suppressed the value of gold (like today), gold was still the ultimate reserve and had in itself no counterparty risk. After August 15th, 1971, when Nixon issued the Executive Order 11615 (watch announcement here), the ultimate reserve was simply cash (i.e. US dollars) or its counterpart, US Treasuries. And unlike gold, these reserve assets could be created or destroyed ex-nihilo. When they are re-hypothecated, leverage grows unlimited and when their value falls, valuations dive unstoppable. Because (and unlike in 1907) the transmission channel for these reserves today is the banking system, when they become scarce, counterparty risk morphs into systemic risk.
When Rueff discussed currency swaps, he had imbalances in mind. In the 21st century, we no longer have time to worry about these superfluous things. Balance of trade deficits? Current account deficits? Fiscal deficits? In the 21st century, we cannot afford to see the big picture. We can only see the “here and now”. Therefore, when we talk about currency swaps, the only thing we have in mind is counterparty risk within the financial system. The thermometer that measures such risk is the Eurodollar swap basis, shown below (source: Bloomberg). As the US dollar became the carry currency, the cost of accessing to it became the cornerstone of value for the rest of the asset spectrum, widely known as “risk”.
In the chat below, we can see two big gaps in the Eurodollar swap basis. The one in 2008 corresponds to the Lehman event. The one in 2011 corresponds to the banking crisis in the Eurozone that was contained with a reduction in the cost of USDEUR swaps and with the Long-Term Refinancing Operations done by the European Central Bank. In both events, the financial system was in danger and banks were forced to delever. How would the adjustment process have worked, had there not been currency swaps to extend?
In the figure below, I explain the adjustment process, in the absence of a currency swap. As we see in step 1, given the default risk of sovereign debt held by Eurozone banks, capital leaves the Eurozone, appreciating the US dollar. We see loan loss reserves increase (bringing the aggregate value of assets and equity down). As these banks have liabilities in US dollars and take deposits in Euros, this mismatch and the devaluation of the Euro deteriorates their risk profile
Eurozone banks are forced to sell US dollar loans, shown on step 2. As they sell them below par, the banks have to book losses. The non-Eurozone banks that purchase these loans cannot book immediate gains. We live in a fiat currency world, and banks simply let their loans amortize; there’s no mark to market. With these purchases, capital re-enters the Eurozone, depreciating the US dollar. In the end, there is no credit crunch. As long as this process is left to the market to work itself out smoothly, borrowers don’t suffer, because ownership of the loans is simply transferred. This is neutral to sovereign risk, but going forward, if the sovereigns don’t improve their risk profile, lending capacity will be constrained.
In the end, an adjustment takes place in (a) the foreign exchange market, (b) the value of the bank capital of Eurozone banks, and (c) the amount of capital being transferred from outside the Eurozone into the Eurozone.
How adjustments work today, with currency swaps
Let’s now proceed to examine the adjustment –or better said, lack thereof- in the presence of currency swaps. The adjustment is delayed. In the figure below, we can see that the Fed intervenes indirectly, lending to Eurozone banks through the ECB. Capital does not leave the US. Dollars are printed instead and the US dollar depreciates. On November 30th, of 2011, upon the Fed’s announcement at 8am, the Euro gained two cents vs. the US dollar. As no capital is transferred, no further savings are required to sustain the Eurozone and the misallocation of resources continues, because no loans are sold. This is bullish of sovereign risk. The Fed becomes a creditor of the Eurozone. If systemic risk deteriorates in the Eurozone, the Fed is forced to first keep reducing the cost of the swaps and later to roll them indefinitely, as long as there is a European Central Bank as a counterparty for the Fed, to avoid an increase in interest rates in the US dollar funding market. But if the Euro zone broke up, there would not be any “safe” counterparty –at least in the short term- for the Fed to lend US dollars to. In the presence of a European central bank, the swaps would be bullish for gold. In the absence of one, the difficulty in establishing swap lines would temporarily be very bearish for gold (and the rest of the asset spectrum).
Final words
Over almost a century, we have witnessed the slow and progressive destruction of the best global mechanism available to cooperate in the creation and allocation of resources. This process began with the loss of the ability to address flow imbalances (i.e. savings, trade). After the World Wars, it became clear that we had also lost the ability to address stock imbalances, and by 1971 we ensured that any price flexibility left to reset the system in the face of an adjustment would be wiped out too. This occurred in two steps: First at a global level, with the irredeemability of gold: The world could no longer devalue. Second, at a local and inter-temporal level, with zero interest rates: Countries can no longer produce consumption adjustments. From this moment, adjustments can only make way through a growing series of global systemic risk events with increasingly relevant consequences. Swaps, as a tool, will no longer be able to face the upcoming challenges. When this fact finally sets in, governments will be forced to resort directly to basic asset confiscation.
http://www.zerohedge.com/news/2013-05-05/guest-post-short-history-currency-swaps-and-why-asset-confiscation-inevitable
Government's New Regulation That Will Result In Your Getting Screwed on Your Corporate Pension
May 3, 2013
Economic Policy Journal
Robert Wenzel
Never underestimate crony America's methods in teaming up with government to screw the average American.
The latest is a new government regulation that was snuck into a transportation bill, Moving Ahead for Progress in the 21st Century, aka, MAP-21.
Some progress, the bill requires corporations to calculate payments into pensions based on a 25-year average on interest rates, instead of current rates.
In other words, with current low rates, corporations in reality need to make larger contributions to meet pension fund growth goals. But not with government stepping in to help crony corporations. According to new government regulations, corporations now need to calculate pension fund payments based on an interest rate earned on pension assets that can't possibly be earned.
The current rate on the 10-year Treasury is 1.66%. In 1988, 25 years ago the rate was 8.5% plus. Thus, an average over the last 25 years is going to assume an interest rate on assets that doesn't exist. Got that? In calculating contributions, instead of calculating under the actual rate, corporations by law will assume that rates are much higher than they really are by taking an average of the rates over the last 25 years. They are assuming that they are earning much more in their pensions than they really are.
"People getting pension checks this week or next month won't be affected," Greg McBride, chief economist at Bankrate.com, told CNBC "It's the young person of today that has to worry about getting full pension benefits when they retire."
"This proves that pensions are pretty much dead," said McBride. "The change is just another charade to mask the underfunding of pensions and increases the odds of having less money for retirement."
The reduced amount that companies will be putting in has to be figured out by each firm based on the higher rates. CNBC says that Madison Pension Services, a consulting firm, has reported that some minimum pension contributions in 2012 were reduced by 33 percent because of the new regulations..
http://www.economicpolicyjournal.com/2013/05/governments-new-regulation-that-will.html
The Birth of the New Real Estate Market in the USA
BY PATER TENEBRARUM05/02/2013
Editor's note: This is a guest post from Ramsey Su.
Who is Ed DeMarco? What is the FHFA?
Even though it did not come entirely unexpected, the day has finally arrived. President Obama has decided to nominate Mel Watt instead of Ed DeMarco as the Director of the FHFA (Federal Housing Finance Administration).
Most people have never heard of the FHFA, nor Mr. DeMarco. Who cares? Why should one care? You should actually all care. The real estate market has officially entered a new chapter. Analysts, economists, investors and homeowners, throw away everything you thought you knew about real estate and start all over. I would like to get right to the point so if you do not know what the FHFA is, you can read about the agency here yourself. Ed DeMarco has been the acting director of the agency since 2009.
At issue is the write down of principal, which DeMarco refused to support. That is really not the point though. It is the role of government in housing. It is the writing down of principles.
The government has always had a hand in the real estate market, be it through Section 8, the FHA, mortgage interest deductions, renters tax credit, capital gains, etc. Up until September 2008, real estate financing has been supported by the two quasi government agencies – Freddie Mac and Fannie Mae.
The termination of DeMarco's acting directorship is a formal declaration that real estate in the United States is now officially nationalized and socialized. From this point forward:
1. All real estate financing will be done through Freddie, Fannie, Ginnie or a new government bureaucracy to be created and named later.
2. All interest rates will be determined by the Federal Reserve, which will be purchasing all loans.
3. The government will determine what percentage of their income households should pay on their mortgages.
4. Regarding point 3 above, the government can retroactively re-determine what households should pay, based on the direction of political wind.
5. In the event home prices go down, debt will be forgiven.
6. If the private sector wishes to compete with the government, there is the CFPB (consumer finance protection bureau) which will demonize you if anything goes wrong, and what "wrong" means will be defined at some future date.
7. Housing, and more importantly, a mortgage, is now an entitlement, just like healthcare. How the country is going to pay for it will be, you guessed it, determined at some future date.
In closing, I wish I were really just being facetious, but unfortunately, I see the above as just the start of the new era.
Source: Acting Man
http://www.financialsense.com/contributors/pater-tenebrarum/birth-new-real-estate-market-usa
The Next Escalation: Gold Goes 100% Initial Margin
05/02/2013
by Tyler Durden on 05/02/2013
The day many have predicted would come, has finally arrived: 100% initial margin on gold.
For now it is just one Futures Commission Merchant, in this case ex-CBOT traders Crossland LLC (motto: "Where Speed And Service Matter"), but tomorrow it will be another, and another.
In a dramatic flashback to the torrid days of 2011, when the CME and other exchanges desperately tried to scare away the weak hands by raising initial and maintenance margins on paper gold futures ever higher, and when many predicted that eventually the brokers and exchanges would simply do away margin completely in order to make levered trading in paper gold impossible, we have now witnessed the next shot across the bow aimed at all those who dare to oppose the central planners' scheme of forcing everyone out of hard assets, savings, bank deposits and other inert saved capital and into investing in ponzi capital markets, preferably on leverage, or otherwise spend their hard earned cash to buy stuff they don't need and stimulate inflation.
Of course, all this will do is simply shake out even more weak hands, making the residual base of holders that much most stable and not only eliminate the bulk of paper price volatility, but also lead to an even more profound breakage in the link between paper and hard gold.
Below is Crossland's notification to clients that starting tomorrow (we assume), the initial margin on gold and silver, will be 100%. In other words, the utility of a margin account is now null and void when trading PMs.
From: CustomerService <CustomerService@crosslandllc.com>
Subject: Margin Notice - Precious Metals
To: []
Date: Thursday, May 2, 2013, 3:46 PM
Crossland LLC is requiring all customers trading the precious metals, more specifically Gold and Silver, to be margined at 100% of initial for intraday trading.
Current margin for Gold is $7040 and for Silver is $12375
If it is the customers intention to trade the above products, it is recommended that you keep a minimum of $10,000 in your account at all times to trade Gold and a minimum of $15,000 to trade Silver.
Please note: Crossland LLC always reserves the right to amend margins as we deem necessary.
Thank you
Krissy Metcalf
Customer Service Manager
How long until other brokers and exchanges follow suit? At the rate the onslaught to crush the last remaining "gold bug" is unfolding we expect that what Crossland just did will be a mandatory CFTC regulation in a few short months.
All hard asset resistance must be crushed!
And in other news, the delivery requests to JPM continue, as does the company's somewhat questionable strategy to make it appear it has no eligible deliverable problem by continuing to convert registered gold into commercial. Because while the bank's vault has not received one additional ounce of gold in over a week, just as it got another request for 24,028 oz of gold on Wednesday, the bank continues to "restock" by converting its stock of registered gold into eligible, this time "adding" another 57,860 oz (something HSBC decided to do as well), the fourth day in the past week it has done just this.
CME Group Metal Depository Statistics (link below)
We wonder what happens if those holding gold warrants with JPM (i.e., registered stock) decide to inquire as to why over a hundred thousand ounces of their gold has been converted into eligible to satisfy ongoing delivery requests?
Finally we inquired how the CME goes about the entire process of reclassifying eligible gold into registered and vice versa. This is the response we got back:
... the adjustment column does reflect the issuance and cancellation of warrants, but it can be used for other purposes as well. Anything that is not received or withdrawn would be reported in the adjustment column.
Sufficiently vague to provide absolutely no real information on why it is happening or just who is cancelling their warrants, and whether it is voluntary or not. We would expect nothing less from the COMEX system of safe "vaulting."
h/t Ro and JQ
http://www.zerohedge.com/news/2013-05-02/next-escalation-gold-goes-100-initial-margin
Thank you basserdan. I don't even have to mention how much I enjoy reading the great articles you post.
High-Speed Traders Exploit Loophole
By Scott Patterson, Jenny Strasburg and Liam Pleven
May 1, 2013
(special thanks to basserdan)
High-speed traders are using a hidden facet of the Chicago Mercantile Exchange's CME computer system to trade on the direction of the futures market before other investors get the same information.
Using powerful computers, high-speed traders are trying to profit from their ability to detect when their own orders for certain commodities are executed a fraction of a second before the rest of the market sees that data, traders say.
The advantage often is just one to 10 milliseconds, according to people familiar with the matter and trading records reviewed by The Wall Street Journal. But that is plenty of time for computer-driven traders, who say they can structure their orders so that the confirmations tip which direction prices for crude oil, corn and other commodities are moving. A millisecond is one-thousandth of a second.
The ability to exploit such small time gaps raises questions about transparency and fairness amid the computer-driven, rapid-fire trading that increasingly grips Wall Street and confounds regulators.
The Chicago Mercantile Exchange, a unit of CME Group Inc., is the largest U.S. futures exchange, handling 12.5 million contracts a day on average in the first quarter, according to Sandler + O'Neill Partners L.P. High-frequency trading generated about 61% of all futures-market volume, up from 47% in 2008, according to Tabb Group.
Fast-moving traders can get a head start in looking at key information because they connect directly to the exchange's computers, giving them the data just before it reaches the so-called public tape accessible to everyone else. The exchange connections contain a host of data, of which the advance notice of trade confirmations is only a piece.
All firms that connect directly to CME's trading computers are able to get information ahead of the market when their trades are executed, firm officials say. But many companies are unaware of the advantage or choose not to use it, traders say, either because they don't have the technology to take advantage of such tiny edges or employ different investing strategies.
CME spokeswoman Anita Liskey said the exchange operator is aware of the order delays, which industry officials refer to as a "latency."
There are "times when customers experience a latency of a few milliseconds between the time they receive their trade confirmations and when the information is accessible on the public feeds," she said, noting that the delays "are not consistent and vary across asset classes."
Ms. Liskey said CME has been able to trim some delays through computer upgrades and plans additional efforts. Some customers of the exchange have been pressuring CME to improve its technology, according to people familiar with the matter.
Sophisticated traders have been aware of CME's order-latency issue for years and have incorporated the information into their trading strategies, according to an official with Jump Trading LLC, a big Chicago high-frequency company.
Officials with Virtu Financial LLC, a high-speed trading firm in New York, view a slight head start as good for the overall market, according to a person familiar with their thinking. The person said the data helps traders who buy and sell futures contracts throughout the day manage risk and post more quotes that benefit other buyers and sellers. The person said Virtu doesn't use the information to amplify its profits by anticipating moves elsewhere in the market.
Proponents say eliminating the ability of parties in a trade to get information slightly in advance could lead to less-liquid markets because some firms would be inclined to trade less due to the greater risks.
Officials with Chicago-based DRW Trading Group see the data-feed lags at CME as a "fact of life," not an unfair advantage, because any firm trading in milliseconds can take advantage of it if they build their systems properly, according to a person familiar with their views.
Firms can use their early looks at CME trading data in several ways. One strategy is to post buy and sell orders a few pennies from where the market is trading and wait until one of the orders is executed. If crude oil is selling for $90 on the CME, a firm might post an order to sell one contract for $90.03 and a buy order for $89.97.
If the sell order suddenly hits, the firm's computers detect that oil prices have swung higher. Those computers can instantly buy more of the same contract before other traders are even aware of the first move.
Firms can also capitalize on that early information by buying a related product on another exchange before other traders know of a market shift. For example, it takes about 200 microseconds for trades to get from CME's Aurora, Ill., data center to the computers of IntercontinentalExchange Inc. about 33 miles away. A microsecond is one-millionth of a second.
Traders able to see market swings milliseconds before others gives them "an informational advantage," says Pete Kyle, a finance professor at the University of Maryland who is a former member of the Commodity Futures Trading Commission's Technology Advisory Committee.
Mr. Kyle likened the activity to "a tax on other traders" because "you get all the gains from being the first guy" to trade.
The CFTC, which oversees futures exchanges such as the CME, has been ramping up oversight of high-speed trading but agency officials said the CME'S latency issue isn't currently an area of focus.
While many speed advantages are well-known to market insiders, only a relatively small group of sophisticated firms appears to be aware of the CME's trade-reporting delays. The CME has told regulators that investors routinely get trade information at the same time. A March 29, 2012, CME presentation to the CFTC stated that market data "is disseminated to all participants simultaneously."
A Chicago trading firm says it recently detected delays between the time it received confirmations of trades and the time the CME published the information on multiple futures contracts covering thousands of trades. For two weeks in late December and early January, the firm detected an average delay of 2.4 milliseconds for silver futures, 4.1 milliseconds in soybean futures and 1.1 milliseconds for gold futures.
Write to Scott Patterson at scott.patterson@wsj.com, Jenny Strasburg at jenny.strasburg@wsj.com and Liam Pleven at liam.pleven@wsj.com
http://online.wsj.com/article/SB10001424127887323798104578455032466082920.html