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BILL GROSS: Here Are The 4 Big Ways That The Government Will Steal Money From Bondholders
Joe Weisenthal | May 1, 2013, 8:03 AM
Bill Gross's latest monthly letter is out, and the title is There Will Be Haircuts.
Haircuts, of course, are a popular topic of discussion ever since Cyprus clipped the savings of large depositors in order to recap the banks.
In his latest letter, Bill Gross points argues that there's no way that governments will ever be able to reduce total debt to GDP unless they find creative ways to clip bondholders.
He comes up with four main ways.
(1) Negative Real Interest Rates – “Trimming the Bangs”
During and after World War II most countries with high debt overloads resorted to artificially capping interest rates below the rate of inflation. They forced savers to accept negative real interest rates which lowered the cost of government debt but prevented savers from keeping up with the cost of living. Long Treasuries, for instance, were capped at 2½% while inflation was soaring towards double-digits. The resulting negative real rates together with an accelerating economy allowed the U.S. economy to lower its Depression-era debt/GDP from 250% to a number almost half as much years later, but at a cost of capital market distortions.
Today, central banks are doing the same thing with near zero-bound yields and effective caps on higher rates via quantitative easing. The Treasury’s average cost of money is steadily grinding lower than 2%. If current policies continue to be enforced in future years it will eventually be less than 1% because of the inclusion of T-bill and short maturity financing. The government’s gain, however, is the saver’s loss. Investors are being haircutted by at least 200 basis points judged by historical standards, which in the past offered no QE and priced Fed Funds close to the level of inflation. Large holders of U.S. government bonds, including China and Japan, will be repaid, but in the interim they will be implicitly defaulted on or haircutted via negative real interest rates.
Are Treasuries money good? Yes. But are they good money? Most assuredly not, when current and future haircuts are considered. These rather innocuous seeming (-1%) and (-2%) real rate haircuts are not a bob or a mullet in hairstyle parlance. More like a “trimming of the bangs.” But at the cut’s conclusion, there’s a lot of hair left on the floor.
(2) Inflation / Currency Devaluation – “the “Don Draper”
Inflation’s sort of like your everyday “Mad Men – Don Draper” type of haircut. It’s been around for a long time and we don’t really give it a second thought except when it’s on top of a handsome head like Jon Hamm’s. 2% ± a year – some say more – but what the heck, inflation’s just like breathing air … you just gotta have it for a modern-day levered economy to survive. Sometimes, though, it gets out of control, and when it is unexpected, a decent size hit to your bond and stock portfolio is a possibility. If our TV idol Don Draper lives another decade or so on the airwaves, he’ll find out in the inflationary 70s. Such was the example as well in the Weimar Republic in the 1920s and in modern day Zimbabwe with its One Hundred Trillion Dollar bill shown below. As central banks surreptitiously inflate, they also devalue their currency and purchasing power relative to other “hard money” countries. Either way – historical bouts of inflation or currency devaluation suggest that your investment portfolio may not be “good as the money” you might be banking on.
(3) Capital Controls – the “Uncle Sam Cut”
Uncle Sam with his rather dapper white hair and trimmed beard serves as a good example for this type of haircut, if only to show that even the U.S. can latch on to your money or capital. Back in the 1930s, FDR instituted a rather blatant form of expropriation shown above. All private ownership of gold was forbidden (and subject to a $10,000 fine and 10 years in prison!) if it wasn’t turned into the government. Today we have less obvious but similar forms of capital controls – currency pegging (China and many others), taxes on incoming capital (Brazil) and outright taxation/embargos of bank deposits (Cyprus). Governments use these methods to keep money out or to keep money in, the net result of which is a haircut on your capital or your potential return on capital. Future haircuts might even include a wealth tax. Are gold and/or AA+ sovereign bonds good as money? Usually, but capital controls can clip you if you’re not careful.
(4) Outright Default – the “Dobbins”
Ah, here’s my favorite haircut, and I’ve named it the “Dobbins” in honor of this 5-year bond issued in the 1920s with a beautiful gold seal and payable, in dollars or machine guns! Bond holders got neither and so it represents the historical example of the ultimate haircut – the buzz, the shaved head, the “Dobbins.” As suggested earlier, the objective of central banks is to prevent your portfolio from resembling a “Dobbins.” I have tweeted in the past that the Fed is where all bad bonds go to die. That is half figurative and half literal, because central banks are typically limited from purchasing bonds payable in machine guns or subprime mortgages (there have been exceptions and Bloomberg reported that nearly 25% of global central banks are now buying stocks believe it or not)! But by purchasing Treasuries and Agency mortgages they have rather successfully incented the private sector to do their bidding. This behavior reflects the admission that modern-day developed economies are asset-priced supported. Unless prices can continuously be floated upward, defaults and debt deflation may emerge. Don’t buy a Dobbins bond or a Dobbins-like asset or a bond from a country whose central bank is buying stocks. They probably aren’t “good as money!”
Read more: http://www.businessinsider.com/bill-gross-4-ways-the-government-steals-your-money-2013-5#ixzz2S9B0CwE8
The Next Wall Street Mega-Scandal Has Arrived
By SHAH GILANI, Capital Wave Strategist,
Money Morning May 2, 2013
Well, it looks like the major financial institutions can't learn a lesson. They're neck deep in yet another financial scandal of global proportions.
U.S. and international securities regulators investigating manipulation of LIBOR, the world's most important set of benchmark interest rates, have uncovered another price-rigging scheme, this one in the $379 trillion market for interest rate swaps.
$379 Trillion, not Billion. Trillion.
The Commodity Futures Trading Commission (CFTC) has already issued subpoenas to Wall Street's biggest banks and is interviewing a dozen former and current brokers from the Jersey City, NJ, offices of ICAP Plc.
For investors in the big banks, new revelations may put an end to the upward push to the groups' stock prices, whose earnings of late have been helped by reductions in reserves meant as a cushion against future asset hits and litigation expenses.
Examples of ISDAFIX users
ISDA developed ISDAFIX to facilitate the determination of exercise values for cash-settled swap options. The existence of such a benchmark provides a transparent (in theory), readily available value to which parties to a transaction can refer as a settlement rate. Without such a benchmark, it might be necessary to go through the process of calling a number of active dealers for quotes in order to settle transactions.
The 2006 ISDA Definitions refer specifically to ISDAFIX rates as a means of settlement of over-the-counter derivatives transactions. In the sample Swaption Confirmation in the 2006 ISDA Definitions (Exhibit II-E), for example, the parties can include 'ISDA Source' - that is, ISDAFIX - as the reference settlement rate under Settlement Terms.
ISDAFIX is also used as a reference rate for cash settlement in connection with early terminations of swap transactions. In addition, dealers often use ISDAFIX as an input when marking their swap portfolios to market.
Beyond their use in settling over-the-counter-traded transactions, ISDAFIX rates are also used as a rate or curve source in various exchange products. LIFFE, for example, uses ISDAFIX as the source of the swap curve in calculating the settlement price of its Swapnote futures contract.
In addition, both the Chicago Mercantile Exchange and the Chicago Board of Trade use ISDAFIX as the settlement price in their swap futures contracts. In the United States, the Federal Reserve uses ISDAFIX as the source for USD swap rates in its H.15 Statistical Release.
http://www2.isda.org/asset-classes/interest-rates-derivatives/isdafix/#Fixfix
Blackbeard's Legacy
According to a former broker from London-based ICAP's Jersey City swap desk, nicknamed "Treasure Island" for the huge commissions and pay packages traders there are accustomed to, brokers routinely manipulated prices on behalf of bank clients to benefit bank trading desks.
On the other side of the banks' trades are tens of thousands of counterparties who may have lost hundreds of billions of dollars as a result of having to pay more interest, or may have received less interest, on swaps whose prices were manipulated.
ICAP, formerly Intercapital Brokers, initially hit regulators' radar as part of the LIBOR scandal. According to the July 7th, 2012 print edition of the Economist,
"Court documents filed by Canada's Competition Bureau have also aired allegations by traders at one unnamed bank, which has applied for immunity, that it had tried to influence some LIBOR rates in cooperation with some employees of Citigroup, Deutsche Bank, HSBC, ICAP, JPMorgan Chase and RBS."
Far from being in a shady corner in the world of derivatives, interest rate swaps are a mainstream financing tool used by tens of thousands of corporate treasurers worldwide.
Interest rate swap prices are used to set the value of over $550 billion of commercial real estate collateralized bonds and are used to calculate pension annuity values and benefits. (Other examples of where swap rates are used, from the ISDA website, are in the sidebar.)
Big Banks in Big Trouble, Again?
Mega-banks primarily facilitate interest rate swaps by initially taking the other side of customers' trades and are responsible for establishing pricing of these instruments in conjunction with a handful of brokers.
Similarly to how LIBOR is calculated, the ISDAFIX, the benchmark series of rates used to price interest rate swaps for U.S. dollar denominated swaps, is convened by a "panel" of banks.
The panel, according to the International Swaps and Derivatives Association consists of: Bank of America Corp., Barclays, BNP Paribas SA, Citigroup Inc., Credit Suisse AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Mizuho Financial Group Inc., Morgan Stanley, Nomura Holdings Inc., Royal Bank of Scotland, UBS and Wells Fargo & Co.
The banks submit their quotes for a range of maturities to ICAP through a secure screen connection. ICAP then forwards those data points to Thompson Reuters, who calculates the actual swap rates. Rates are then disseminated to over 6,000 viewers.
An Easy Con in an Era of Regulation
Manipulation of rate pricing is easy. ICAP posts rates, supposedly based on transactions and bid and offer quotes it receives and enters manually into what's known as the 19901 screen (named for the Reuters screen page number). Banks don't have to submit their own rates as part of the panel; they can use the suggested rates ICAP posts. Or they submit their own rates to ICAP to be forwarded to Thompson Reuters who calculates the final numbers.
ICAP sits in the middle, entering by-hand prices and rates from the transactions that occur through their brokerage desk, which average a staggering $1.4 trillion a day.
Not only can banks ask ICAP brokers to post whatever quote benefits the bank's internal trading book, whether it's to affect a positive mark-to-market closing price for accounting and profit and loss (bonus) calculations, or manipulate an entry price on a new trade with a counterparty, they allegedly ask ICAP brokers to delay entry of actual transactions until after ISDAFIX rates are disseminated.
The delay can easily create a beneficial entry price on a trade that would otherwise be priced based on fresh data. Manipulation of prices and rates has huge profit and loss and mark-to-market implications in terms of capital reserve ratios and other bank balance sheet metrics.
Of course, these allegations have yet to become indictments, and nothing may come out of any of this but a few little fines and some slapped wrists. And if the past is actually prologue, we can rest assured that no criminal charges will ever be tossed into the casino, since none ever are.
After all, the tumbling dice always favor the house, and we know whose house it is.
http://moneymorning.com/2013/05/02/the-next-wall-street-mega-scandal-has-arrived/
The Next Wall Street Mega-Scandal Has Arrived
By SHAH GILANI, Capital Wave Strategist,
Money Morning May 2, 2013
Well, it looks like the major financial institutions can't learn a lesson. They're neck deep in yet another financial scandal of global proportions.
U.S. and international securities regulators investigating manipulation of LIBOR, the world's most important set of benchmark interest rates, have uncovered another price-rigging scheme, this one in the $379 trillion market for interest rate swaps.
$379 Trillion, not Billion. Trillion.
The Commodity Futures Trading Commission (CFTC) has already issued subpoenas to Wall Street's biggest banks and is interviewing a dozen former and current brokers from the Jersey City, NJ, offices of ICAP Plc.
For investors in the big banks, new revelations may put an end to the upward push to the groups' stock prices, whose earnings of late have been helped by reductions in reserves meant as a cushion against future asset hits and litigation expenses.
Examples of ISDAFIX users
ISDA developed ISDAFIX to facilitate the determination of exercise values for cash-settled swap options. The existence of such a benchmark provides a transparent (in theory), readily available value to which parties to a transaction can refer as a settlement rate. Without such a benchmark, it might be necessary to go through the process of calling a number of active dealers for quotes in order to settle transactions.
The 2006 ISDA Definitions refer specifically to ISDAFIX rates as a means of settlement of over-the-counter derivatives transactions. In the sample Swaption Confirmation in the 2006 ISDA Definitions (Exhibit II-E), for example, the parties can include 'ISDA Source' - that is, ISDAFIX - as the reference settlement rate under Settlement Terms.
ISDAFIX is also used as a reference rate for cash settlement in connection with early terminations of swap transactions. In addition, dealers often use ISDAFIX as an input when marking their swap portfolios to market.
Beyond their use in settling over-the-counter-traded transactions, ISDAFIX rates are also used as a rate or curve source in various exchange products. LIFFE, for example, uses ISDAFIX as the source of the swap curve in calculating the settlement price of its Swapnote futures contract.
In addition, both the Chicago Mercantile Exchange and the Chicago Board of Trade use ISDAFIX as the settlement price in their swap futures contracts. In the United States, the Federal Reserve uses ISDAFIX as the source for USD swap rates in its H.15 Statistical Release.
http://www2.isda.org/asset-classes/interest-rates-derivatives/isdafix/#Fixfix
Blackbeard's Legacy
According to a former broker from London-based ICAP's Jersey City swap desk, nicknamed "Treasure Island" for the huge commissions and pay packages traders there are accustomed to, brokers routinely manipulated prices on behalf of bank clients to benefit bank trading desks.
On the other side of the banks' trades are tens of thousands of counterparties who may have lost hundreds of billions of dollars as a result of having to pay more interest, or may have received less interest, on swaps whose prices were manipulated.
ICAP, formerly Intercapital Brokers, initially hit regulators' radar as part of the LIBOR scandal. According to the July 7th, 2012 print edition of the Economist,
"Court documents filed by Canada's Competition Bureau have also aired allegations by traders at one unnamed bank, which has applied for immunity, that it had tried to influence some LIBOR rates in cooperation with some employees of Citigroup, Deutsche Bank, HSBC, ICAP, JPMorgan Chase and RBS."
Far from being in a shady corner in the world of derivatives, interest rate swaps are a mainstream financing tool used by tens of thousands of corporate treasurers worldwide.
Interest rate swap prices are used to set the value of over $550 billion of commercial real estate collateralized bonds and are used to calculate pension annuity values and benefits. (Other examples of where swap rates are used, from the ISDA website, are in the sidebar.)
Big Banks in Big Trouble, Again?
Mega-banks primarily facilitate interest rate swaps by initially taking the other side of customers' trades and are responsible for establishing pricing of these instruments in conjunction with a handful of brokers.
Similarly to how LIBOR is calculated, the ISDAFIX, the benchmark series of rates used to price interest rate swaps for U.S. dollar denominated swaps, is convened by a "panel" of banks.
The panel, according to the International Swaps and Derivatives Association consists of: Bank of America Corp., Barclays, BNP Paribas SA, Citigroup Inc., Credit Suisse AG, Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc, JPMorgan Chase & Co., Mizuho Financial Group Inc., Morgan Stanley, Nomura Holdings Inc., Royal Bank of Scotland, UBS and Wells Fargo & Co.
The banks submit their quotes for a range of maturities to ICAP through a secure screen connection. ICAP then forwards those data points to Thompson Reuters, who calculates the actual swap rates. Rates are then disseminated to over 6,000 viewers.
An Easy Con in an Era of Regulation
Manipulation of rate pricing is easy. ICAP posts rates, supposedly based on transactions and bid and offer quotes it receives and enters manually into what's known as the 19901 screen (named for the Reuters screen page number). Banks don't have to submit their own rates as part of the panel; they can use the suggested rates ICAP posts. Or they submit their own rates to ICAP to be forwarded to Thompson Reuters who calculates the final numbers.
ICAP sits in the middle, entering by-hand prices and rates from the transactions that occur through their brokerage desk, which average a staggering $1.4 trillion a day.
Not only can banks ask ICAP brokers to post whatever quote benefits the bank's internal trading book, whether it's to affect a positive mark-to-market closing price for accounting and profit and loss (bonus) calculations, or manipulate an entry price on a new trade with a counterparty, they allegedly ask ICAP brokers to delay entry of actual transactions until after ISDAFIX rates are disseminated.
The delay can easily create a beneficial entry price on a trade that would otherwise be priced based on fresh data. Manipulation of prices and rates has huge profit and loss and mark-to-market implications in terms of capital reserve ratios and other bank balance sheet metrics.
Of course, these allegations have yet to become indictments, and nothing may come out of any of this but a few little fines and some slapped wrists. And if the past is actually prologue, we can rest assured that no criminal charges will ever be tossed into the casino, since none ever are.
After all, the tumbling dice always favor the house, and we know whose house it is.
http://moneymorning.com/2013/05/02/the-next-wall-street-mega-scandal-has-arrived/
The Global "Fractional" Paper Bullion Market Is Collapsing
April 29, 2013
The Golden Truth
I wrote last week that there was a scramble going on globally by entities seeking to take physical possession of the gold on which they have a legal claim, most of which is sitting either in alleged "allocated" big bank bullion vaults or in alleged "allocated" accounts in Comex custodial warehouse vaults.
I also demonstrated mathematically, using the reported numbers on the CME website for precious metals futures open interest and warehouse gold/silver stocks, that the amount of gold represented by Comex futures open interest far exceeds the amount of deliverable gold on the Comex (the analysis is even more extreme for silver). In fact, if less than just 10% of the buyers of June gold contracts demand delivery, the Comex won't have enough gold to cover the legal claims. For silver (July silver) it's even more extreme.
This is a global problem and not just endemic to the Comex. Globally, the legal claim of ownership on physical gold far exceeds the amount of gold represented by paper futures, LMBA forward contracts, leased gold and vault receipts. The latter - vault receipts - is where the big banks in London have the most severe problem, as gold this is supposed to be sitting in "allocated" accounts under the name of the legal owner who bought and paid for those bars has been largely leased out. I'll get to that in a minute.
First, I received this comment from John Brimelow's "Gold Jottings" report, which comes from Gerhard Schubert, head of Precious Metals at Emirates NBD, the largest banking group in the Middle East. Keep in mind that Middle Eastern buyers demand physical delivery of their gold. Here's the quote from his latest weekly report:
I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…
I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.
The price hit of two weeks ago has triggered a serious scramble for physical gold and silver. Reports like the above comment have been flooding from Europe, the Comex has had about 30% of its gold bars literally drained from the customer accounts of the Comex bank custodian vaults and the U.S. mint is running way behind on demand for silver eagles and some weights of gold eagles. Ditto for the Canadian mint.
And then I get a call from a close friend in NYC last Friday. His career has been in private wealth management in the private bank department of the Too Big To Fail banks. He's been looking for work and chats with old colleagues all the time. He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.
This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact. He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment. The Bundesbank/Fed and the ABN/Amro situations triggered this move. He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it's very wealthy clients assuring them their bars were safe, in allocated accounts. He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100's of millions in investment portfolios to competitors. His wording was "these people are putting a gun to the heads of private banks and demanding their gold."
I know this information is good because I know my friend's background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend's source said that there's no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.
Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting - supposedly - in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes. After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years. To this day, the time required for that shipment has never been explained. Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.
And regarding the ABN/Amro situation. ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out. About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption.
I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway.
In fact, what we are now seeing is the final stages of the paper gold/silver bullion market, which has grown at a parabolic rate over that last 13 years, and includes Comex futures, LMBA forward contracts, OTC derivatives - which is an even bigger paper market than the Comex - leased gold claims/contracts and warehouse receipts.
At some point there will be an even bigger "run on the bank" by those looking for delivery of the physical gold/silver that they have been "assured" is sitting in their "trusty" bank custodian vault. I know for myself that I have seen enough from the JPM's of the world to not trust anything they do or say. I think a lot more people are finally coming to that same conclusion. At some point there will be a complete collapse of trust in the paper monetary system and the price of gold/silver will really go parabolic, as the masses realize all at once - and far too late I might add - that everything that was rumored over the last 13 years about paper gold, gold leasing, etc is actually true.
POSTED BY DAVE IN DENVER AT 10:55 AM
http://truthingold.blogspot.com/2013/04/the-global-fractional-paper-bullion_6103.html
From Subprime Crisis to QE3 the Federal Reserve has Failed America
Apr 26, 2013 - 10:37 PM GMT
By: Richard_Mills
Alan Greenspan was chairman of the Federal Reserve from 1987 to early 2006. Greenspan used monetary policy to ignite one of the longest economic booms in history. Of course booms can soon turn to bust and nowhere was the boom more evident than in the housing industry - the sub-prime crisis collapsed the housing boom just after Greenspan left the Fed.
Sub-Prime Crisis
"The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending." L. William Seidman, former chairman of both the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation
Between 1997 and 2005 mortgage fraud increased by 1,411 percent. In 2001 the US Federal Reserve lowered the Federal funds rate eleven times, from 6.5 percent to 1.75 percent. Mortgage denial rates were 28 percent in 1997, in 2002 – 2003 they were 14 percent for conventional home purchase loans. “Fog the mirror loans” were common, if you breathed you got a loan.
In June 2002 President George W. Bush set out to increase minority home ownership by 5.5 million. Bush’s lofty goals would be accomplished by tax credits, subsidies and Fannie Mae committing $440 billion to establish Neighbor Works America.
In June 2003 Federal Reserve Chair Alan Greenspan lowered the federal reserve’s key interest rate to one percent - the lowest rate in 45 years.
Throughout 2003 Fannie Mae and Freddie Mac bought $81 billion in subprime securities. President Bush signed the American Dream Down payment Act – the Act provided a maximum down payment assistance grant of either $10,000 or six percent of the purchase price of the home, whichever was greater.
U.S. homeownership rate peaked to an all time high of 69.2 percent in 2004.
From 2004 to 2006 Fannie Mae and Freddie Mac purchased $434 billion in securities backed by subprime loans.
In late 2004 the Securities Exchange Commission (SEC) suspended net capital rule for five firms - Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Free from government imposed limits on the amount of debt they could assume, they all levered up, as much as 40 to 1.
The United States housing market bubble burst in the fall of 2005. By year-end a total of 846,982 properties were in some stage of foreclosure. From the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide dropped off 3.3 percent.
The U.S. Home Construction Index was down over 40 percent as of August 2006. A total of 1,259,118 foreclosures were filed in 2006, up 42 percent from 2005. Homeowners were going underwater (they owed more than the house was worth) and many had had questionable credit to start with.
In 2007, lenders started foreclosure proceedings on nearly 1.3 million properties, a 79 percent increase over 2006.
Foreclosure proceedings increased to 2.3 million in 2008, an 81 percent increase over 2007 and increased by another half million in 2009 to 2.8 million. By January 2008, the mortgage delinquency rate had risen to 21 percent and by May 2008 it was 25 percent.
By August 2008, 9.2 percent of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4 percent.
From September 2008 to September 2012, there were approximately 3.9 million completed foreclosures in the U.S. As of September 2012, approximately 1.4 million homes, or 3.3 Percent of all homes with a mortgage were in some stage of foreclosure compared to 1.5 million, or 3.5 percent, in September 2011.
Causes
The Great Recession started in December of 2007 and took a sharp downward turn in September 2008. It was started by the U.S. sub-prime crisis which burst the housing bubble. Businesses failed, consumers lost wealth estimated in the trillions of dollars and economic activity and international trade slowed.
So what caused the real estate crisis? Three things stand out:
Irrational exuberance - irrational exuberance was caused by a deliberate easy credit fueled boom.
“Most economists now believe that low, stable, and—most important—predictable inflation is good for an economy. If inflation is low and predictable, it is easier to capture it in price-adjustment contracts and interest rates, reducing its distortionary impact. Moreover, knowing that prices will be slightly higher in the future gives consumers an incentive to make purchases sooner, which boosts economic activity.” Ceyda Oner,Inflation: Prices on the Rise
In other words, economic growth – prosperity at the national level - can be driven by consumption. Saving is bad because money sitting in bank accounts will not stimulate the economy. The world’s central bankers believe inflation is necessary because it discourages the hoarding of money and encourages consumers to consume.
“In January of 1959, the personal savings rate in the United States was 8.3 percent - this means that, on average, Americans were able to save 8.3 percent of their disposable incomes. In the early 70s, the average savings rate started to spike, hitting a peak of 14.6% in May of 1975. The spike in personal savings rates from 1973 to 1975 coincided with the deep recession that was ravaging the country over the same period of time…The recession of the early '80s was a particularly nasty mix of high inflation and weak economic activity, otherwise known as "stagflation".
The average savings rate spiked to 12.2% in November of 1981, which was right when the national unemployment rate in the country really started to trend higher.
The average savings rate pulled back when the economy started to recover, spiked over 10% once again in 1984, and then really started to noticeably pull back in the mid '80s. Consumer confidence was rapidly improving in the country, Ronald Reagan swept to victory on the back of a strengthening economy, and people were starting to spend their money once again. It was "morning in America". There was another recession in the early '90s, but no noticeable increase in the average savings rate. As a matter of fact, the savings rate of the average American held steady during the recession of the early '90s, and then proceeded to fall like a stone throughout the rest of the decade. By January 2000, the average savings rate was 3.5% - it would end up falling below 1.0% multiple times between 2000 and 2010.
Why the dramatic drop in the average rate of savings between 1990 and 2008? The mindset of the average US consumer changed. There was greater access to credit and increasingly sophisticated marketing campaigns that had people cracking open their wallets or purses in droves. Due to the surge of available credit, many people actually maintained negative savings rates. I'm sure that we all have known somebody who has spent more than what they made - this was all made possible through the explosion of available credit. This access to credit made people want to spend, and marketers exploited this to the nth degree. People were flush with cash (and credit) in the post 9-11 economy. Interest rates were low, the real estate market was strong and many people were in a mood to spend. And spend they did.” Savings Rates In The United States Have Collapsed Since Mid '80s, Manuel.com
The personal saving rate for Americans was a record low at the height of the housing bubble.
Moral hazard - in economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others – Wikipedia.
Almost 100 international banking crises have occurred during the last 20 years, according to the World Bank all were resolved by bailouts at taxpayer expense.
"The risks inherent in mortgage lending became so widely dispersed that no one was forced to worry about the quality of any single loan. As shaky mortgages were combined, diluting any problems into a larger pool, the incentive for responsibility was undermined." Mark Zandi, Moody's Analytics
Forbearance - banks, mortgage underwriters and other lenders abandoned any pretense of having loan standards and having applicants meet any normal level of criteria such as:
Employment history
Income
Down payment
Credit rating
Assets
Q: Who cared or asked about property loan-to-value ratio and debt-servicing abilities?
A: No one.
“Where the Fed really failed was as a regulator. It could have gone after the predatory lending in the subprime world, if it had wanted to. At least one Fed governor suggested doing so. Greenspan rebuffed him. Counter-factuals are always tricky, but if the Fed had clamped down on the endemic fraud in the mortgage market, it's not difficult to imagine the run-up in housing prices being much more muted. After all, if the problem had been low interest rates, prices should have skyrocketed across the board. That prices only skyrocketed for housing tells us that something peculiar was going on there, namely an abdication of any regulatory oversight.” Matthew O’Brian, Happy Birthday, Alan Greenspan, the Atlantic.com
This was an overall decline in regulatory oversight known as forbearance.
“During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.” Declaration of the Summit on Financial Markets and the World Economy. dated 15 November 2008
The U.S. Financial Crisis Inquiry Commission, in January 2011, concluded "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”
The sub-prime mortgage crisis and collapsing housing industry threatened the U.S. economy, as the crisis started to spiral out of control and go global, the Fed had to act, and it did.
Economic Stimulus Goes Steroidal
After Fed chairman Greenspan left office, the Federal Reserve, under the stewardship of new chairman Ben Bernanke, started easing monetary policy aggressively. By December of 2008, the federal funds rate was between 0 and 1/4 percent. The Fed had used up its traditional stimulus, all the ‘Creature from Jekyll Island’ had left was the ability to print money so they started throwing cash at everything.
Additional stimulus was injected into the economy by:
The System Open Market Account (SOMA) purchased mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae (agency MBS).
The Term Auction Facility was $40 billion in loans to rescue the banks. It wasn’t near enough, the Treasury department got authorization to spend $150 billion more to subsidize and eventually take over Fannie Mae and Freddie Mac, they also bailed out AIG.
Dollar Swap Lines exchanged dollars with foreign central banks for foreign currency to help address disruptions in dollar funding markets abroad.
The Term Securities Lending Facility auctioned loans of U.S. Treasury securities to primary dealers against eligible collateral.
The Primary Dealer Credit Facility provided overnight cash loans to primary dealers against eligible collateral.
The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility provided loans to depository institutions and their affiliates to finance purchases of eligible asset-backed commercial paper from money market mutual funds.
The Commercial Paper Funding Facility provided loans to a special purpose vehicle to finance purchases of new issues of asset-backed commercial paper and unsecured commercial paper from eligible issuers.
The Term Asset-Backed Securities Loan Facility supported the issuance of asset-backed securities (ABS) collateralized by loans related to autos, credit cards, education, and small businesses. In March 2009, the Fed announced that it was expanding the scope of the TALF program to allow loans against additional types of collateral.
The Troubled Asset Recovery Program was proposed and $350 billion was approved by Congress – the money was used to buy bank and automotive stocks.
Late in 2008 there was a run on ultra safe money market accounts – according to AMG Data Services a record $140 billion was pulled out in one day.
In response to the continuing crisis and a stalling economy the US Federal Reserve initiated Quantitative Easing and Operation Twist.
Quantitative Easing
In September of 2008 the $1.7 trillion QE1 was started. The Fed purchased mostly mortgage backed securities and established a commercial paper lending facility.
In October of 2010 QE2 started. At $600 billion, QE2 was much smaller then QE1 and its buying was mostly confined to purchasing long term government bonds.
QE1 & QE2 failed to restart the economy and housing market.
Operation Twist
Operation Twist is the Fed’s initiative of buying longer-term Treasuries while simultaneously selling shorter-dated issues in order to bring down long-term interest rates.
By purchasing longer-term bonds, the Fed drives up prices which forces yields down - price and yield move in opposite directions. Selling shorter-term bonds causes their yields to go up because their prices fall. These two actions “twist” the shape of the yield curve, hence the name Operation Twist.
Quantitative Easing Three, QE3
On September 13, 2012, the Fed announced that it would buy $40 billion a month of mortgage-backed securities until the unemployment rate fell below 6.5 percent, or the expected inflation rate rose above 2.5 percent. In December the Fed added buying $45 billion/month of longer-term Treasury securities per month – QE3 is more than one trillion dollars a year.
In 1Q2013, which comprised the first three months of QE3, the Fed increased the size of its balance sheet by $285 billion, or 9.8 percent.
During the first 3 months of QE3, the Fed increased the monetary base by 10.83 percent.
Report Card
U.S. labor force participation is now down to where it was in 1979 – 63.3 percent. The unprecedented 2.5 percentage point decline in labor force participation under President Obama amounts to 6.2 million Americans being pushed out of the job market - 6,200,000 have stopped looking for work, these people have been forced to give up.
If labor force participation had remained at the 65.8 percent level it was at when Obama took over from Bush the unemployment rate for March would have been reported at 11.1 percent – that equates to a 3.1 percentage point rise during Obama's presidency.
In the final quarter of 2012, the US economy expanded at an annual rate of 0.4 percent. The 0.4 percent growth rate for the gross domestic product (GDP) was the weakest quarterly performance in almost two years.
For all of 2012, the economy grew 2.2 percent, that’s after a 1.8 percent increase in 2011 and a 2.4 percent advance in 2010. Since the recession ended in the summer of 2009 the economy has been expanding at sub-par rates.
The Congressional Budget Office (CBO) has estimated that the combination of tax increases and spending cuts (the much talked about fiscal cliff) could trim economic growth this year by 1.5 percentage points leaving just 1.4 percentage points for growth in 2013. If the CBO’s estimates of just 1.4 percent real GDP growth this year prove true, America will have experienced its worst four consecutive growth years of GDP in the Bureau of Economic Analysis’ data going back to 1930.
There can’t be anyone even remotely thinking the Fed’s, or Obama’s, policies are a success, here’s just a few facts:
Medium household income has declined
Inflation is climbing much higher and faster than officially reported statistics
Few Americans own any significant amount of financial wealth
Housing has not recovered
U.S. Employment rate is not recovering
Consumer goods prices are not stable
The number of Americans living in poverty has now reached a level not seen since the 1960s. There are 50 million poor people in America
There are over 47 million Americans on food stamps
U.S. national debt is $16+ trillion
Adjusted for inflation markets are lower than they were in 2000
Student debt totals over $1 trillion
The Federal Reserve’s balance sheet is plus $3.2 trillion and the Fed is continuing to purchase assets at a rate of $85 billion a month
Consumer sentiment is at crisis levels last seen in 2008
The banking system backs $7.4 trillion in insured deposits with $32 billion, that’s just .43 percent – when the U.S. was on the gold standard your dollar was backed 40 percent with gold
The largest city bankruptcy in US history was just announced for Stockton, California - population 300,000
Blue Collar Man
Give me a job, give me security Give me a chance to survive I’m just a poor soul in the unemployment line My god, I’m hardly alive
Styx
Conclusion
Is it fair to say the Federal Reserve has failed America? I was watching TV the other night when an ad came on touting some drug. The disease could be cured by diet and exercise, of course most today would rather take a pill then responsibility. Anyway the announcer started reeling off all the side effects of this drug, it wasn’t long before I was staring up at the ceiling and the speakers voice had become Lucy’s teachers voice, yada yada yada blah blah blah, cancer, stroke, heart disease. I found myself thinking I’d rather have the disease then take the cure, it was fixable with some lifestyle tinkering.
The next thing I thought of was the Gold Standard was like the disease – not so bad compared to the drug. The Gold standard was fixable and amenable to today, it would work, and it’s certainly preferable to the cure, the pill represented by fiat currency, the Federal Reserve, stock market crash’s, banking and sovereign crises, yada yada yada.
I think we all need to ask ourselves if the U.S., and the world, were better off when the dollar was backed by gold, and politicians, along with their bankster brethren, had to operate under the burden of gold’s chains of fiscal discipline. Or are we all doing so well now, are things so great, has the Fed with its limited monetary policies worked out so well that we don’t need gold backed money?
Perhaps we don’t need the Federal Reserve, maybe what we need are gold’s chains of fiscal discipline. Perhaps the fiscal discipline of a gold standard needs to be imposed on our dear leaders. This question should be on all our radar screens. Is it on yours?
If not, maybe it should be.
By Richard (Rick) Mills
www.aheadoftheherd.com
http://www.marketoracle.co.uk/Article40160.html
From Subprime Crisis to QE3 the Federal Reserve has Failed America
Apr 26, 2013 - 10:37 PM GMT
By: Richard_Mills
Alan Greenspan was chairman of the Federal Reserve from 1987 to early 2006. Greenspan used monetary policy to ignite one of the longest economic booms in history. Of course booms can soon turn to bust and nowhere was the boom more evident than in the housing industry - the sub-prime crisis collapsed the housing boom just after Greenspan left the Fed.
Sub-Prime Crisis
"The banking problems of the '80s and '90s came primarily, but not exclusively, from unsound real estate lending." L. William Seidman, former chairman of both the Federal Deposit Insurance Corporation (FDIC) and the Resolution Trust Corporation
Between 1997 and 2005 mortgage fraud increased by 1,411 percent. In 2001 the US Federal Reserve lowered the Federal funds rate eleven times, from 6.5 percent to 1.75 percent. Mortgage denial rates were 28 percent in 1997, in 2002 – 2003 they were 14 percent for conventional home purchase loans. “Fog the mirror loans” were common, if you breathed you got a loan.
In June 2002 President George W. Bush set out to increase minority home ownership by 5.5 million. Bush’s lofty goals would be accomplished by tax credits, subsidies and Fannie Mae committing $440 billion to establish Neighbor Works America.
In June 2003 Federal Reserve Chair Alan Greenspan lowered the federal reserve’s key interest rate to one percent - the lowest rate in 45 years.
Throughout 2003 Fannie Mae and Freddie Mac bought $81 billion in subprime securities. President Bush signed the American Dream Down payment Act – the Act provided a maximum down payment assistance grant of either $10,000 or six percent of the purchase price of the home, whichever was greater.
U.S. homeownership rate peaked to an all time high of 69.2 percent in 2004.
From 2004 to 2006 Fannie Mae and Freddie Mac purchased $434 billion in securities backed by subprime loans.
In late 2004 the Securities Exchange Commission (SEC) suspended net capital rule for five firms - Goldman Sachs, Merrill Lynch, Lehman Brothers, Bear Stearns and Morgan Stanley. Free from government imposed limits on the amount of debt they could assume, they all levered up, as much as 40 to 1.
The United States housing market bubble burst in the fall of 2005. By year-end a total of 846,982 properties were in some stage of foreclosure. From the fourth quarter of 2005 to the first quarter of 2006, median prices nationwide dropped off 3.3 percent.
The U.S. Home Construction Index was down over 40 percent as of August 2006. A total of 1,259,118 foreclosures were filed in 2006, up 42 percent from 2005. Homeowners were going underwater (they owed more than the house was worth) and many had had questionable credit to start with.
In 2007, lenders started foreclosure proceedings on nearly 1.3 million properties, a 79 percent increase over 2006.
Foreclosure proceedings increased to 2.3 million in 2008, an 81 percent increase over 2007 and increased by another half million in 2009 to 2.8 million. By January 2008, the mortgage delinquency rate had risen to 21 percent and by May 2008 it was 25 percent.
By August 2008, 9.2 percent of all U.S. mortgages outstanding were either delinquent or in foreclosure. By September 2009, this had risen to 14.4 percent.
From September 2008 to September 2012, there were approximately 3.9 million completed foreclosures in the U.S. As of September 2012, approximately 1.4 million homes, or 3.3 Percent of all homes with a mortgage were in some stage of foreclosure compared to 1.5 million, or 3.5 percent, in September 2011.
Causes
The Great Recession started in December of 2007 and took a sharp downward turn in September 2008. It was started by the U.S. sub-prime crisis which burst the housing bubble. Businesses failed, consumers lost wealth estimated in the trillions of dollars and economic activity and international trade slowed.
So what caused the real estate crisis? Three things stand out:
Irrational exuberance - irrational exuberance was caused by a deliberate easy credit fueled boom.
“Most economists now believe that low, stable, and—most important—predictable inflation is good for an economy. If inflation is low and predictable, it is easier to capture it in price-adjustment contracts and interest rates, reducing its distortionary impact. Moreover, knowing that prices will be slightly higher in the future gives consumers an incentive to make purchases sooner, which boosts economic activity.” Ceyda Oner,Inflation: Prices on the Rise
In other words, economic growth – prosperity at the national level - can be driven by consumption. Saving is bad because money sitting in bank accounts will not stimulate the economy. The world’s central bankers believe inflation is necessary because it discourages the hoarding of money and encourages consumers to consume.
“In January of 1959, the personal savings rate in the United States was 8.3 percent - this means that, on average, Americans were able to save 8.3 percent of their disposable incomes. In the early 70s, the average savings rate started to spike, hitting a peak of 14.6% in May of 1975. The spike in personal savings rates from 1973 to 1975 coincided with the deep recession that was ravaging the country over the same period of time…The recession of the early '80s was a particularly nasty mix of high inflation and weak economic activity, otherwise known as "stagflation".
The average savings rate spiked to 12.2% in November of 1981, which was right when the national unemployment rate in the country really started to trend higher.
The average savings rate pulled back when the economy started to recover, spiked over 10% once again in 1984, and then really started to noticeably pull back in the mid '80s. Consumer confidence was rapidly improving in the country, Ronald Reagan swept to victory on the back of a strengthening economy, and people were starting to spend their money once again. It was "morning in America". There was another recession in the early '90s, but no noticeable increase in the average savings rate. As a matter of fact, the savings rate of the average American held steady during the recession of the early '90s, and then proceeded to fall like a stone throughout the rest of the decade. By January 2000, the average savings rate was 3.5% - it would end up falling below 1.0% multiple times between 2000 and 2010.
Why the dramatic drop in the average rate of savings between 1990 and 2008? The mindset of the average US consumer changed. There was greater access to credit and increasingly sophisticated marketing campaigns that had people cracking open their wallets or purses in droves. Due to the surge of available credit, many people actually maintained negative savings rates. I'm sure that we all have known somebody who has spent more than what they made - this was all made possible through the explosion of available credit. This access to credit made people want to spend, and marketers exploited this to the nth degree. People were flush with cash (and credit) in the post 9-11 economy. Interest rates were low, the real estate market was strong and many people were in a mood to spend. And spend they did.” Savings Rates In The United States Have Collapsed Since Mid '80s, Manuel.com
The personal saving rate for Americans was a record low at the height of the housing bubble.
Moral hazard - in economic theory, a moral hazard is a situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk. In other words, it is a tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking such risk will be borne, in whole or in part, by others – Wikipedia.
Almost 100 international banking crises have occurred during the last 20 years, according to the World Bank all were resolved by bailouts at taxpayer expense.
"The risks inherent in mortgage lending became so widely dispersed that no one was forced to worry about the quality of any single loan. As shaky mortgages were combined, diluting any problems into a larger pool, the incentive for responsibility was undermined." Mark Zandi, Moody's Analytics
Forbearance - banks, mortgage underwriters and other lenders abandoned any pretense of having loan standards and having applicants meet any normal level of criteria such as:
Employment history
Income
Down payment
Credit rating
Assets
Q: Who cared or asked about property loan-to-value ratio and debt-servicing abilities?
A: No one.
“Where the Fed really failed was as a regulator. It could have gone after the predatory lending in the subprime world, if it had wanted to. At least one Fed governor suggested doing so. Greenspan rebuffed him. Counter-factuals are always tricky, but if the Fed had clamped down on the endemic fraud in the mortgage market, it's not difficult to imagine the run-up in housing prices being much more muted. After all, if the problem had been low interest rates, prices should have skyrocketed across the board. That prices only skyrocketed for housing tells us that something peculiar was going on there, namely an abdication of any regulatory oversight.” Matthew O’Brian, Happy Birthday, Alan Greenspan, the Atlantic.com
This was an overall decline in regulatory oversight known as forbearance.
“During a period of strong global growth, growing capital flows, and prolonged stability earlier this decade, market participants sought higher yields without an adequate appreciation of the risks and failed to exercise proper due diligence. At the same time, weak underwriting standards, unsound risk management practices, increasingly complex and opaque financial products, and consequent excessive leverage combined to create vulnerabilities in the system. Policy-makers, regulators and supervisors, in some advanced countries, did not adequately appreciate and address the risks building up in financial markets, keep pace with financial innovation, or take into account the systemic ramifications of domestic regulatory actions.” Declaration of the Summit on Financial Markets and the World Economy. dated 15 November 2008
The U.S. Financial Crisis Inquiry Commission, in January 2011, concluded "the crisis was avoidable and was caused by: Widespread failures in financial regulation, including the Federal Reserve’s failure to stem the tide of toxic mortgages; Dramatic breakdowns in corporate governance including too many financial firms acting recklessly and taking on too much risk; An explosive mix of excessive borrowing and risk by households and Wall Street that put the financial system on a collision course with crisis; Key policy makers ill prepared for the crisis, lacking a full understanding of the financial system they oversaw; and systemic breaches in accountability and ethics at all levels.”
The sub-prime mortgage crisis and collapsing housing industry threatened the U.S. economy, as the crisis started to spiral out of control and go global, the Fed had to act, and it did.
Economic Stimulus Goes Steroidal
After Fed chairman Greenspan left office, the Federal Reserve, under the stewardship of new chairman Ben Bernanke, started easing monetary policy aggressively. By December of 2008, the federal funds rate was between 0 and 1/4 percent. The Fed had used up its traditional stimulus, all the ‘Creature from Jekyll Island’ had left was the ability to print money so they started throwing cash at everything.
Additional stimulus was injected into the economy by:
The System Open Market Account (SOMA) purchased mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae (agency MBS).
The Term Auction Facility was $40 billion in loans to rescue the banks. It wasn’t near enough, the Treasury department got authorization to spend $150 billion more to subsidize and eventually take over Fannie Mae and Freddie Mac, they also bailed out AIG.
Dollar Swap Lines exchanged dollars with foreign central banks for foreign currency to help address disruptions in dollar funding markets abroad.
The Term Securities Lending Facility auctioned loans of U.S. Treasury securities to primary dealers against eligible collateral.
The Primary Dealer Credit Facility provided overnight cash loans to primary dealers against eligible collateral.
The Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility provided loans to depository institutions and their affiliates to finance purchases of eligible asset-backed commercial paper from money market mutual funds.
The Commercial Paper Funding Facility provided loans to a special purpose vehicle to finance purchases of new issues of asset-backed commercial paper and unsecured commercial paper from eligible issuers.
The Term Asset-Backed Securities Loan Facility supported the issuance of asset-backed securities (ABS) collateralized by loans related to autos, credit cards, education, and small businesses. In March 2009, the Fed announced that it was expanding the scope of the TALF program to allow loans against additional types of collateral.
The Troubled Asset Recovery Program was proposed and $350 billion was approved by Congress – the money was used to buy bank and automotive stocks.
Late in 2008 there was a run on ultra safe money market accounts – according to AMG Data Services a record $140 billion was pulled out in one day.
In response to the continuing crisis and a stalling economy the US Federal Reserve initiated Quantitative Easing and Operation Twist.
Quantitative Easing
In September of 2008 the $1.7 trillion QE1 was started. The Fed purchased mostly mortgage backed securities and established a commercial paper lending facility.
In October of 2010 QE2 started. At $600 billion, QE2 was much smaller then QE1 and its buying was mostly confined to purchasing long term government bonds.
QE1 & QE2 failed to restart the economy and housing market.
Operation Twist
Operation Twist is the Fed’s initiative of buying longer-term Treasuries while simultaneously selling shorter-dated issues in order to bring down long-term interest rates.
By purchasing longer-term bonds, the Fed drives up prices which forces yields down - price and yield move in opposite directions. Selling shorter-term bonds causes their yields to go up because their prices fall. These two actions “twist” the shape of the yield curve, hence the name Operation Twist.
Quantitative Easing Three, QE3
On September 13, 2012, the Fed announced that it would buy $40 billion a month of mortgage-backed securities until the unemployment rate fell below 6.5 percent, or the expected inflation rate rose above 2.5 percent. In December the Fed added buying $45 billion/month of longer-term Treasury securities per month – QE3 is more than one trillion dollars a year.
In 1Q2013, which comprised the first three months of QE3, the Fed increased the size of its balance sheet by $285 billion, or 9.8 percent.
During the first 3 months of QE3, the Fed increased the monetary base by 10.83 percent.
Report Card
U.S. labor force participation is now down to where it was in 1979 – 63.3 percent. The unprecedented 2.5 percentage point decline in labor force participation under President Obama amounts to 6.2 million Americans being pushed out of the job market - 6,200,000 have stopped looking for work, these people have been forced to give up.
If labor force participation had remained at the 65.8 percent level it was at when Obama took over from Bush the unemployment rate for March would have been reported at 11.1 percent – that equates to a 3.1 percentage point rise during Obama's presidency.
In the final quarter of 2012, the US economy expanded at an annual rate of 0.4 percent. The 0.4 percent growth rate for the gross domestic product (GDP) was the weakest quarterly performance in almost two years.
For all of 2012, the economy grew 2.2 percent, that’s after a 1.8 percent increase in 2011 and a 2.4 percent advance in 2010. Since the recession ended in the summer of 2009 the economy has been expanding at sub-par rates.
The Congressional Budget Office (CBO) has estimated that the combination of tax increases and spending cuts (the much talked about fiscal cliff) could trim economic growth this year by 1.5 percentage points leaving just 1.4 percentage points for growth in 2013. If the CBO’s estimates of just 1.4 percent real GDP growth this year prove true, America will have experienced its worst four consecutive growth years of GDP in the Bureau of Economic Analysis’ data going back to 1930.
There can’t be anyone even remotely thinking the Fed’s, or Obama’s, policies are a success, here’s just a few facts:
Medium household income has declined
Inflation is climbing much higher and faster than officially reported statistics
Few Americans own any significant amount of financial wealth
Housing has not recovered
U.S. Employment rate is not recovering
Consumer goods prices are not stable
The number of Americans living in poverty has now reached a level not seen since the 1960s. There are 50 million poor people in America
There are over 47 million Americans on food stamps
U.S. national debt is $16+ trillion
Adjusted for inflation markets are lower than they were in 2000
Student debt totals over $1 trillion
The Federal Reserve’s balance sheet is plus $3.2 trillion and the Fed is continuing to purchase assets at a rate of $85 billion a month
Consumer sentiment is at crisis levels last seen in 2008
The banking system backs $7.4 trillion in insured deposits with $32 billion, that’s just .43 percent – when the U.S. was on the gold standard your dollar was backed 40 percent with gold
The largest city bankruptcy in US history was just announced for Stockton, California - population 300,000
Blue Collar Man
Give me a job, give me security Give me a chance to survive I’m just a poor soul in the unemployment line My god, I’m hardly alive
Styx
Conclusion
Is it fair to say the Federal Reserve has failed America? I was watching TV the other night when an ad came on touting some drug. The disease could be cured by diet and exercise, of course most today would rather take a pill then responsibility. Anyway the announcer started reeling off all the side effects of this drug, it wasn’t long before I was staring up at the ceiling and the speakers voice had become Lucy’s teachers voice, yada yada yada blah blah blah, cancer, stroke, heart disease. I found myself thinking I’d rather have the disease then take the cure, it was fixable with some lifestyle tinkering.
The next thing I thought of was the Gold Standard was like the disease – not so bad compared to the drug. The Gold standard was fixable and amenable to today, it would work, and it’s certainly preferable to the cure, the pill represented by fiat currency, the Federal Reserve, stock market crash’s, banking and sovereign crises, yada yada yada.
I think we all need to ask ourselves if the U.S., and the world, were better off when the dollar was backed by gold, and politicians, along with their bankster brethren, had to operate under the burden of gold’s chains of fiscal discipline. Or are we all doing so well now, are things so great, has the Fed with its limited monetary policies worked out so well that we don’t need gold backed money?
Perhaps we don’t need the Federal Reserve, maybe what we need are gold’s chains of fiscal discipline. Perhaps the fiscal discipline of a gold standard needs to be imposed on our dear leaders. This question should be on all our radar screens. Is it on yours?
If not, maybe it should be.
By Richard (Rick) Mills
www.aheadoftheherd.com
http://www.marketoracle.co.uk/Article40160.html
JPMorgan Accounts For 99.3% Of The COMEX Gold Sales In The Last Three Months
by Tyler Durden on 04/26/2013 19:28 -0400
Submitted by Mark McHugh from
Across The Street
Jamie Dimon Has Issues
When just one firm accounts for 99.3% of the physical gold sales at the COMEX in the last three months it’s not what most of us on this side of the rainbow would consider “broad-based” selling. Of course discovering this kind of relevant information requires an internet connection, 2nd grade math and reading skills, and the desire to do a teeny-weeny bit of reporting. Sadly they’ve wandered so far down the rabbit hole that the concept of “physical demand” (i.e. people actually wanting to take possession of the stuff) is puzzling to them because the vast majority of the world’s so-called “gold-trading” takes place in the realm of make believe (which is their natural habitat). It’s all fun and games until somebody loses their metal and “somebody” has lost one hell of a lot of metal in the last 90 days.
This is the CME Group’s COMEX metals issues and stops year-to-date report, which can be found here everyday for free. It chronicles the physical delivery notices of various metals, including gold. Let’s have a look:
“I” is for “Idiot”
That’s how I remember it, anyway. “I” actually stands for “issues,” meaning the firm parted with its metal (@ 100 troy ounces a shot), and “S” stands for “stops,” meaning the firm took delivery of gold. “C” is for customer accounts, “H” is house accounts. The first thing you should notice is that most transaction net out to zero in a given month (blue boxes), meaning the firm’s gold holdings didn’t change. What they delivered one day they got back the next, or vice versa. The green boxes show firms who received more than they delivered and the red boxes indicate firms who coughed up gold for Bernanke bucks (aka idiots). Note that Deutsche Bank’s massive take in February more than offsets its deliveries in December and April.
Notice one more thing before we move on: Despite Goldman’s much ballyhooed “Gold Sucks!” call a few weeks ago, the squid has not parted with any yellow metal whatsoever in 2013. Hmmm.
Now for the main event:
CME CLEARING - COMEX (At link below)
J P Morgan has fumbled ownership of 1,966,000 Troy ounces of gold since February 1. That’s 74% more gold than the US mint delivered through the US mint’s American Eagle program in all of 2012. I mention this because there’s little doubt in my mind that the US government is one of JPM’s gold “customers.” So (if I am correct) the same US government who just let the Morgue dump its gold on the COMEX floor will once again be suspending gold sales to peasants.
Maybe Jamie Dimon figures he’ll buy back all that gold on the cheap when the rest of the world realizes how smart he is. Or maybe he’s once again displaying that his firm doesn’t have the slightest idea what “hedging” is and is teetering on the brink of collapse. That would explain the April 11th meeting between President Obama and the Pig 5 bank CEOs, wouldn’t it? And you just have to get a little misty that Lloyd Blankfein was nice enough to provide some hot-air cover for his competitor, don’t you?
One thing’s very clear: When it comes to selling physical gold, J P Morgan is acting alone. The 130 contracts NOT delivered by JPM in the last three months (of which 110 were fromABN AMRO) are but a footnote. If Jamie’s right, he’ll look like a genius in a few months, if not he should be able to recycle his quote regarding the infamous “London Whale” losses: “Just because we’re stupid, doesn’t mean everybody else was.” Time will tell.
100 years ago John Pierpont Morgan famously testified to Congress, “Money is gold, and nothing else.” (Note: That is the exact quote, the full testimony can be found here). One has to wonder what the big guy would think of his legacy’s disregard for sound money, $70 Trillion derivatives book, and "House of Cards" "Fortress" balance sheet.
One more very, very important thing.
Anybody who says there’s been gold selling in the GLD is a freaking moron (Bob Pistrami, I’m looking in your direction). The GLD works much like a coat check. Unless you think checking your coat constitutes a real transaction of some kind you shouldn’t think of changes in the GLD’s gold holdings as sales. They’re not. When you check your gold into the GLD you get shares (like a claim check). Where it gets wierd is you can sell these claim checks to nimrods who seem to think they’ve bought your coat, but aren’t actually allowed to wear it.
What nobody seems to appreciate is that every share of GLD is allowed to be sold TWICE (long and short, and it’s really important to understand that). If you’re foolish enough to doubt me (and foolish enough to short gold), go short GLD shares and see if anyone knocks on your door demanding gold. Saying the GLD is 100% backed by gold is a bold face lie because they’re can be twice as many shares in play as gold backing them, which means GLD shares may be only 50% backed by gold before any rules are broken.
When GLD (or any ETF for that matter) shares sold exceed the existing shares PLUS all the shortable (double-sold) shares, legitimate shares can not be found for settlement and that must be reported to the SEC’s “Fails to Deliver” list, which is published twice a month with about a four-week delay (here).
April 15, 2013 was this biggest volume day ever for GLD (93.7mm) and I’ll guarantee you right now that record fails to deliver will be reported on or around that date, which should have required more gold to be deposited with the GLD (but that didn’t happen). So instead of the half-assed explanation Pistrami offered (here) of how he thinks the GLD works, he should have raised the question of whether or not there were enough legitimate shares of GLD to facilitate trading (I say no way in hell).
Gold continues to be pulled from the GLD (which really means people want their coats back) and still no one’s concerned about the number doubled-owned shares. Worse yet, the responsibility for sorting this unholy mess out falls to SEC chief Mary Jo White who is celebrating her 16th day in office.
I can’t wait to see what happens next….
Notes for Nerds: This piece is not intended to describe the inner workings of the COMEX or GLD in detail, so don’t bust my balls with minutiae, unless it is relevant to the discussion of JPM’s massive gold sales or the double-ownership of ETF shares. Double-owned ETF shares are huge problem with ETFs in general, but the misrepresentation (by omission) of this fact by ETFs supposedly backed by tangible assets like gold and silver seems more egregious to me.
In addition to the YTD CME Group metals report, you can track the hilarity on a day-by-day basis here.
The February 1 to April 25 delivered gold contracts info referenced included only transactions between firms. For that reason Morgan Stanley’s 307 contracts transferred from house account to customer account was excluded from the calculations.
Total Net gold deliveries Feb 1 to April 25:
Vision Financial – 1 contract
R J O’Brien – 2
ADM Investor Services INC – 2
Marex – 5
Citigroup Global Markets – 10
ABN AMRO – 110
JP Morgan – 19,660
http://www.zerohedge.com/news/2013-04-26/jpmorgan-accounts-993-comex-gold-sales-last-three-months
Gold's Sharp Rebound Confirms Bottom Is In
Apr 26 2013, 07:13
Tom Luongo
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
After last week's brutal and historical sell off in the price of gold (GLD) the price has snapped back very strongly - with more strength than I was expecting - and regained the $1450 level by the Thursday open on the COMEX. While I am fundamentally still very bullish on gold and silver (SLV) I was willing to admit that a tremendous amount of damage was done to the market with the two-day sell off that took the price of gold down to $1320 per ounce.
We even saw a re-test of that bottom which took the price back to $1336 after an initial dead cat bounce on April 17th. Since the low on April 15th we have not seen gold make a lower low. Thursday's action which broke through the $1420 to $1435 range which has dominated for four days turns the 200 week moving average ($1430) from resistance to support. While I'm not a huge fan of 200 period MAs as signals, many traders and technicians look at them for guidance or confirmation of a bullish or bearish trend. Breaking through $1455 brings those people back into gold to help keep the shorts on the run.
(click to enlarge)
Many of the gold commentators have mentioned the amount of buying occurring in the physical markets. In my last article I reprinted charts of the drains from vaults of both JPMorgan's (JPM) and the CME Group (CME). This is what I believe precipitated the most to crash the price of both gold and silver. And given the enormous Open Interest on the COMEX as of Tuesday night for the deliverable May contract in silver the hit may actually have been more orchestrated to stamp out the fire brewing in silver in the immediate term.
Gold prices have recovered nicely as we can see in the chart above, but silver has lagged behind only rallying on Thursday after expiration of the May futures contract. As of the close on Tuesday April 23rd there were more than 35,000 contracts open in May for silver. That equates to more than 175 million ounces. The registered stock at the COMEX is just [color=blue]167 million ounces and of that only 39 million are eligible for delivery.[/bl]
Folks, even if 80% of those contracts are rolled forward in the next few days there is still a very high probability of a failure to deliver in silver given those numbers. Is it any wonder that the day after futures expiration the price of silver rose more than $1 during COMEX trading back over $24 per ounce?
In my last article I went over some of the stories about large investors not being able to get their physical gold from the bullion banks. After following this market for as long as I have I am, frankly, jaded by stories of demand. But I've now seen enough in the past week to sweep all of those past misgivings aside.
Moreover, the drain from the various gold investment vehicles seems to be accelerating. This article by Tekoa de Silver details the $7.8 billion in gold that was removed from various depositories on April 23rd. This is gold removed in a single day. 6.3% of the world's available gold stocks for purchase moved into the hands of physical owners and out of the exchanges.
When I couple the price action in Gold with the rapidity with which the U.S. Dollar is being substituted out of international trade I become more fundamentally bullish on gold. This is confirmed by the latest print from the TIC report. While the monthly report showed a net increase in February, a small one however, the April 15th release had long-term U.S. Net Long-Term transactions falling by $17,8 billion versus expectations of rising $25.7 billion. Moreover, U.S. foreign buying dropped slightly by $0.12 billion versus expectations of $32.3 billion worth of buying. These are enormous misses that when coupled by the announcement that Australia will diversify 5% of its foreign reserve holdings into Chinese Yuan (CYB) after signing an historic agreement to trade directly in their currencies spells more incremental loss of demand for the Dollar, in this case just shy of $2 billion dollars.
That doesn't sound like a lot but since Australia only holds $25.7 billion in U.S. treasuries that is a significant step for them. Moreover, it looks like China's buying of U.S. Treasuries is over with this latest report as well. The latest report - including revisions to previous month's data -- has China's reserves now stable since December between $1.214 and $1.222 trillion.
Gold will benefit more from the repudiation of the dollar as a settlement currency for international trade than it will from expansion of the Fed's balance sheet. At this point the situation still looks relatively calm on the surface but that can change in a heartbeat. China is moving quickly to improve yuan liquidity around Southeast Asia and has pretty much shut the Japanese out of their economy. Debasing the yen (FXY) will not bring the sales back for Toyota (TM) or Honda (HMC). And, at this point it is the dislocation caused by the yen debasement by the BoJ that is created the illusion of U.S. Dollar stability.
I expect gold to run from this area back to first $1500 and then $1528 (the 144 week EMA) and bottom of the previous heavy support level. I initially had hopes this week of besting $1435, Monday's high and the 200 week MA, but now that it has fallen, last week's high of $1494 is the initial bullish upside target in conjunction with the round-number effect of $1500.
The ease with which gold is rising should unnerve people as much as the sudden drop did 10 days ago. If the flight to physical continues as the price continues to rise than that signals the stability of the financial system is at risk and the ultimate flight to quality is underway. Trust has been lost in those that manage it and the latest show of power to move markets has failed to regain that trust.
Additional disclosure: I own physical gold, silver, a few goats and what's left of my sanity... just for times like this.
http://seekingalpha.com/article/1375291-gold-s-sharp-rebound-confirms-bottom-is-in
Halted and Backordered
Ranting Andy | Wednesday, April 24th, 2013
Miles Franklin Ltd.
The U.S. Mint just halted production of fractional gold coins; just as April 2013 just passed January 2013 for its largest ever month of gold sales. Meanwhile, most one ounce silver rounds are backordered six weeks, and premiums on silver Eagles are $6-$8 above spot.
The news worldwide is that the ECB will likely need to cut rates next week; while today’s U.S. Durable Goods report represents perhaps the 20th straight disappointing U.S. economic report.
The fundamentals for PHYSICAL PMs have never been stronger; and for FIAT CURRENCY, never weaker.
Andrew C. ("Ranting Andy") Hoffman, CFA
Marketing Director
Miles Franklin Ltd.
http://www.silverseek.com/article/halted-and-backordered-11181
Physical Gold vs. Paper Gold: The Ultimate Disconnect
-- Posted Tuesday, 23 April 2013
By Bud Conrad, Chief Economist
How can we explain gold dropping into the $1,300 level in less than a week?
Here are some of the factors:
* George Soros cut his fund holdings in the biggest gold ETF by 55% in the fourth quarter of 2012.
* He was not alone: the gold holdings of GLD have contracted all year, down about 12.2% at present.
* On April 9, the FOMC minutes were leaked a day early and revealed that some members were discussing slowing the Fed $85 billion per month buying of Treasuries and MBS. If the money stimulus might not last as long as thought before, the "printing" may not cause as much dollar debasement.
* On April 10, Goldman Sachs warned that gold could go lower and lowered its target price. It even recommended getting out of gold.
* COT Reports showed a decrease in the bullishness of large speculators this year (much more on this technical point below).
* The lackluster price movement since September 2011 fatigued some speculators and trend followers.
* Cyprus was rumored to need to sell some 400 million euros' worth of its gold to cover its bank bailouts. While small at only about 350,000 ounces, there was a fear that other weak European countries with too much debt and sizable gold holdings could be forced into the same action. Cyprus officials have denied the sale, so the question is still in debate, even though the market has already moved. Doug Casey believes that if weak European countries were forced to sell, the gold would mostly be absorbed by China and other sovereign Asian buyers, rather than flood the physical markets.
My opinion, looking at the list of items above, is that they are not big enough by themselves to have created such a large disruption in the gold market.
The Paper Gold Market
The paper gold market is best embodied in the futures exchanges. The prices we see quoted all day long moving up and down are taken from the latest trades of futures contracts. The CME (the old Chicago Mercantile Exchange) has a large flow of orders and provides the public with an indication of the price of gold.
The futures markets are special because very little physical commodity is exchanged; most of the trading is between buyers taking long positions against sellers taking short positions, with most contracts liquidated before final settlement and delivery. These contracts require very small amounts of margin – as little as 5% of the value of the commodity – to gain potentially large swings in the outcome of profit or loss. Thus, futures markets appear to be a speculator's paradise. But the statistics show just the opposite: 90% of traders lose their shirts. The other 10% take all the profits from the losers. More on this below.
On April 13, there were big sell orders of 400 tonnes that moved the futures market lower. Once the futures market makes a big move like that, stops can be triggered, causing it to move even more on its own. It can become a panic, where markets react more to fear than fundamentals.
Having traded in futures for over two decades, I want to provide some detail on how these leveraged markets operate. It's important to understand that the structure of the futures market allows brokers to sell positions if fluctuations cause customers to exceed their margin limits and they don't immediately deposit more money to restore their margins. When a position goes against a trader, brokers can demand that funds be deposited within 24 hours (or even sooner at the broker's discretion). If the funds don't appear, the broker can sell the position and liquidate the speculator's account. This structure can force prices to fall more than would be indicated by supply and demand fundamentals.
When I first signed up to trade futures, I was appalled at the powers the broker wrote into the contract, which included them having the power to immediately liquidate my positions at their discretion. I was also surprised at how little screening they did to ensure that I was good for whatever positions I put in place, considering the high levels of leverage they allowed me. Let me tell you that I had many cases where I was told to put up more margin or lose my positions. Those times resulted in me selling at the worst level because the market had gone against me.
The point of this is that once a market moves dramatically, there are usually stops taken out, positions liquidated, margin calls issued, and little guys like me get taken to the cleaners. Debates rage about the structure of the futures market, but my personal opinion is that a big hammer to the market by a well-heeled big player can force liquidations, increase losses, and push the momentum of the market much lower than the initial impetus would have. Thus, after a huge impact like we saw on April 13, the market will continue with enough momentum that a well-timed exit of a huge set of short positions can provide profits to the well-heeled market mover.
Moving from theory to practice, one of the most important things to keep your eye on is the Commitment of Traders (COT) report, which is issued every Friday. It details the long and the short positions of three categories of traders. The first category is called "commercials." They are dealers in the physical precious metals – for example, gold miners. The second category is called "non-commercials." They include hedge funds and large commercial banks like JP Morgan. Non-commercials are sometimes called "large speculators." The rest are the small traders, called "non-reporting" since they are not required to identify themselves. The ones to watch are the large speculators (non-commercials), as they tend to move with the direction of the market. Individual entities could be long or short, but in combination the net position of the group is a key indicator.
The following chart shows the price of gold as a blue line at the top, and the next panel down shows the net position of these large speculators as a black line. You can see that over the long term, they move together. When the net speculative position is above zero, this group is betting on rising gold prices. Of course, the reverse is true when it's below zero. In this 20-year view, the large speculators were holding net negative positions during the lowest point of the gold price, around the year 2000. As the price of gold rose, their positions went net long, and they profited.
An interesting thing about the chart above is that the increasing amount of net longs reversed itself before gold peaked in 2011, suggesting that these large speculators became slightly less bullish all the way back in 2010. The balance remains net long, but it remains to be seen how long that lasts.
What is not so obvious is that these large speculators are so big that they can affect the market as well as profit from it; when they initiate massive positions in a bull market, they drive the price of the futures contracts even higher. Similarly, when they remove their positions or actually go short, they can push the market lower.
So what happened a week ago was that a massive order to sell 400 tons of gold all at once hit the market. Within minutes the price plummeted, and over a two-day period resulted in the largest drop of the price for futures delivery of gold in 33 years: down $200 per ounce.
We don't have the name of the entity that did this. However, the way the gold was sold all at once suggests that the goal was not to get the best price. An investor with a position of this size should have been smart enough to use sensible trading tactics, issuing much smaller sell orders over a period of time. This would avoid swamping the market; and some of the orders would be filled at higher prices and thus generate more profit. Placing a sell order big enough to affect the overall market price suggests that someone with powerful backing wanted to drive the price of gold down.
Such an entity could have been a large speculator who already had a sizable short position and could gain by unloading some of its short position once the market momentum had driven the price even yet lower. Or it could be a central bank – one that might be happy to have the gold price move lower, as it would provide cover for its printing of more new money. Of course, it could be some entity that owned long contracts and wanted to get out of the position all at once. We don't know, but this kind of activity, resulting in the biggest drop in 30 years, raises more than just suspicion when we consider how important the price of gold is to many markets around the globe.
Can markets really be influenced by big players? Well, was the LIBOR rate accurately reported by huge banks? Have players ever tried to corner markets? The answer to all the above, unfortunately, is yes.
There's an even bigger problem with the legal structure of the futures market: even the segregated funds on deposit can be pilfered by the broker for the brokerage's other obligations. That is what happened to MF Global customers under Mr. Corzine. (I had an account with a predecessor company called Man Financial – the "MF" in the name. I also had an account with Refco, which is now defunct. Fortunately, the daggers did not hit my account, since I was not a holder when the catastrophes occurred.) My take: the futures market is dangerous, and not a place for beginners.
One last note: after the Bankruptcy Act of 2005, the regulations support the brokers, not the investors, when there are questions of legality about losses in individual investment accounts. Casey Research will be producing a report with much more detail on this subject in the near future.
So, what now? We aren't going to see a secret memo – no smoking gun to confirm that what happened on April 13 was an attempt to affect the market. Still, the evidence is suspicious. When big entities can gain from putting on big positions, the incentives are big enough for them to try – LIBOR, Plunge Protection Team, Whale Trade, etc., all support this view.
The Physical Gold Market
Previously, there was little difference between the physical and paper markets for gold. Yes, there were premiums and delivery charges, but everybody regarded the futures market as the base quote. I believe this is changing; people don't trust the paper market as they used to.
Instead of capitulating to fear of greater losses, the demand for physical gold has hit new records. The US Mint sold a record 63,500 ounces – a whopping 2 tonnes – of gold on April 17 alone, bringing the total sales for the month to 147,000 ounces; that's more than the previous two months combined. Indian markets, which are more oriented to physical metal, now have a premium of US$150 over the futures price in Chicago. Demand at coin dealers has increased as the price has dropped. And premiums are much bigger than they were as recently as a week ago.
Here is a vendor page that quotes purchase prices and calculates the premiums on an ongoing basis. It shows premiums of 50% and more in many cases. On eBay, prices for one-ounce silver coins are $33 to $35, where the futures price is quoted as $23. A look on Friday April 19 shows one vendor out of stock on most items:
Buy - Sell On Silver Bullion
2013 Sealed Mint Boxes Of 1 Oz. Silver American Eagles - Brand New Coins 500 Coin Min. (1 Sealed Box) Buy @Spot + $1.80 Sold Out
2013 Sealed Mint Boxes Of 1 Oz. Silver American Eagles "San Francisco Mint" Brand New Coins 00 Coin Min. (1 Sealed Box) Buy @ Spot + $2.00 Sold Out
90% Silver Coin Bags (Our Choice Dimes Or Quarters) $1,000 Face Value Figured at 715 Ozs Per $1,000 Face $1,000 Face Value Min.
We Buy @Spot + $1.70Per Oz (Spot+ $1.70 X 715)Spot + $4.99 Per Oz
(Spot + $4.99 X 715)
90% Silver Coin Bags 50¢ Half Dollars $1,000 Face Value We Ship in 2 $500 Face Bags $1,000 FaceValue Min.We Buy @Spot + $1.90Per Oz (Spot+ $1.90 X 715) Sold Out
90% Silver Coin Bags Walking Liberty Half Dollars $1,000 Face Value We Ship in 2 $500 Face Bags $1,000 FaceValue Min.We Buy @
Spot + $2.10 Per Oz (Spot+ $2.10 X 715) Sold Out
Amark 1 Oz. Silver Rounds ( Made By Sunshine ) Pure .999 BU
500 Coin Min.Buy @Spot -15c Sold Out
Clearly, the physical gold market today is sending different signals than the paper market.
The Case for Gold Is Still with Us
The long-term fundamental reasons to hold gold are undeniably still with us. The central banks of the world are acting in concert in "currency wars" or "the race to debase." As they print more money, the purchasing power of each unit declines. They are caught between the rock of having to keep interest rates low to support their governments' huge deficits and the hard place of the long-term effect of diluting their currency. If rates rise, even First World governments will be forced to pay higher interest fees, leading to loss of confidence in their ability to pay back their debt, which will bring on a sovereign debt crisis like what we have seen in the PIIGS or Argentina recently.
The following chart shows the rapid growth in the balance sheets as a ratio to GDP for the three largest central banks. I've extrapolated the expected growth into the future based on the rate at which they propose to buy up assets. One could argue about how long these growth rates will continue, but the incentives are all there for all central banks to bail out their governments and their commercial banks. I fully expect the printing game to continue to provide the fuel for hard-asset investments like gold and silver to increase in price in the years to come.
Buying Opportunity or Time to Flee?
So what does it all mean? The paper price of gold crashed to $1,325 in the wake of this huge trade. It is now hovering around $1,400. My first reaction is to suggest that this is only an aberration, and that the fundamentals of the depreciating value of paper currencies will eventually take the price of gold much higher, making it a buying opportunity. But what I can't predict is whether big players might again deliver short-term downturns to the market. The momentum in the futures market can make swings surprisingly larger than the fundamentals of currency valuation would suggest.
Traders will be looking for a significant turnaround to the upside in price before entering long positions. However, a long-term, fundamentals-based trader has to look at the low price as a buying opportunity. I can't prove it, but I think the fundamentals will drive the long-term market more than these short-term events. The fight between pricing from the physical market for bullion and that from the "paper market" of futures is showing signs of discrimination and disagreement, as the physical market is booming, while prices set by futures are seemingly pressured to go nowhere.
In short, I think this is a strong buying opportunity.
What would you do if the government outlawed gold ownership? If you had taken the steps outlined in Internationalizing Your Assets, you'd have little to worry about, as much of your gold – indeed, most of your assets – would be protected. Internationalizing Your Assets is a must-see web video for anyone concerned about losing wealth to increasingly desperate politicians. The event premiers at 2 p.m. EDT on April 20 and features some of the world's foremost experts on international asset protection, including Casey Research Chairman Doug Casey and Euro Pacific Capital CEO Peter Schiff. Attending Internationalizing Your Assets is free. To register or for more information, please visit this web page.
http://news.goldseek.com/GoldSeek/1366737537.php
Physical Gold vs. Paper Gold: The Ultimate Disconnect
-- Posted Tuesday, 23 April 2013
By Bud Conrad, Chief Economist
How can we explain gold dropping into the $1,300 level in less than a week?
Here are some of the factors:
* George Soros cut his fund holdings in the biggest gold ETF by 55% in the fourth quarter of 2012.
* He was not alone: the gold holdings of GLD have contracted all year, down about 12.2% at present.
* On April 9, the FOMC minutes were leaked a day early and revealed that some members were discussing slowing the Fed $85 billion per month buying of Treasuries and MBS. If the money stimulus might not last as long as thought before, the "printing" may not cause as much dollar debasement.
* On April 10, Goldman Sachs warned that gold could go lower and lowered its target price. It even recommended getting out of gold.
* COT Reports showed a decrease in the bullishness of large speculators this year (much more on this technical point below).
* The lackluster price movement since September 2011 fatigued some speculators and trend followers.
* Cyprus was rumored to need to sell some 400 million euros' worth of its gold to cover its bank bailouts. While small at only about 350,000 ounces, there was a fear that other weak European countries with too much debt and sizable gold holdings could be forced into the same action. Cyprus officials have denied the sale, so the question is still in debate, even though the market has already moved. Doug Casey believes that if weak European countries were forced to sell, the gold would mostly be absorbed by China and other sovereign Asian buyers, rather than flood the physical markets.
My opinion, looking at the list of items above, is that they are not big enough by themselves to have created such a large disruption in the gold market.
The Paper Gold Market
The paper gold market is best embodied in the futures exchanges. The prices we see quoted all day long moving up and down are taken from the latest trades of futures contracts. The CME (the old Chicago Mercantile Exchange) has a large flow of orders and provides the public with an indication of the price of gold.
The futures markets are special because very little physical commodity is exchanged; most of the trading is between buyers taking long positions against sellers taking short positions, with most contracts liquidated before final settlement and delivery. These contracts require very small amounts of margin – as little as 5% of the value of the commodity – to gain potentially large swings in the outcome of profit or loss. Thus, futures markets appear to be a speculator's paradise. But the statistics show just the opposite: 90% of traders lose their shirts. The other 10% take all the profits from the losers. More on this below.
On April 13, there were big sell orders of 400 tonnes that moved the futures market lower. Once the futures market makes a big move like that, stops can be triggered, causing it to move even more on its own. It can become a panic, where markets react more to fear than fundamentals.
Having traded in futures for over two decades, I want to provide some detail on how these leveraged markets operate. It's important to understand that the structure of the futures market allows brokers to sell positions if fluctuations cause customers to exceed their margin limits and they don't immediately deposit more money to restore their margins. When a position goes against a trader, brokers can demand that funds be deposited within 24 hours (or even sooner at the broker's discretion). If the funds don't appear, the broker can sell the position and liquidate the speculator's account. This structure can force prices to fall more than would be indicated by supply and demand fundamentals.
When I first signed up to trade futures, I was appalled at the powers the broker wrote into the contract, which included them having the power to immediately liquidate my positions at their discretion. I was also surprised at how little screening they did to ensure that I was good for whatever positions I put in place, considering the high levels of leverage they allowed me. Let me tell you that I had many cases where I was told to put up more margin or lose my positions. Those times resulted in me selling at the worst level because the market had gone against me.
The point of this is that once a market moves dramatically, there are usually stops taken out, positions liquidated, margin calls issued, and little guys like me get taken to the cleaners. Debates rage about the structure of the futures market, but my personal opinion is that a big hammer to the market by a well-heeled big player can force liquidations, increase losses, and push the momentum of the market much lower than the initial impetus would have. Thus, after a huge impact like we saw on April 13, the market will continue with enough momentum that a well-timed exit of a huge set of short positions can provide profits to the well-heeled market mover.
Moving from theory to practice, one of the most important things to keep your eye on is the Commitment of Traders (COT) report, which is issued every Friday. It details the long and the short positions of three categories of traders. The first category is called "commercials." They are dealers in the physical precious metals – for example, gold miners. The second category is called "non-commercials." They include hedge funds and large commercial banks like JP Morgan. Non-commercials are sometimes called "large speculators." The rest are the small traders, called "non-reporting" since they are not required to identify themselves. The ones to watch are the large speculators (non-commercials), as they tend to move with the direction of the market. Individual entities could be long or short, but in combination the net position of the group is a key indicator.
The following chart shows the price of gold as a blue line at the top, and the next panel down shows the net position of these large speculators as a black line. You can see that over the long term, they move together. When the net speculative position is above zero, this group is betting on rising gold prices. Of course, the reverse is true when it's below zero. In this 20-year view, the large speculators were holding net negative positions during the lowest point of the gold price, around the year 2000. As the price of gold rose, their positions went net long, and they profited.
An interesting thing about the chart above is that the increasing amount of net longs reversed itself before gold peaked in 2011, suggesting that these large speculators became slightly less bullish all the way back in 2010. The balance remains net long, but it remains to be seen how long that lasts.
What is not so obvious is that these large speculators are so big that they can affect the market as well as profit from it; when they initiate massive positions in a bull market, they drive the price of the futures contracts even higher. Similarly, when they remove their positions or actually go short, they can push the market lower.
So what happened a week ago was that a massive order to sell 400 tons of gold all at once hit the market. Within minutes the price plummeted, and over a two-day period resulted in the largest drop of the price for futures delivery of gold in 33 years: down $200 per ounce.
We don't have the name of the entity that did this. However, the way the gold was sold all at once suggests that the goal was not to get the best price. An investor with a position of this size should have been smart enough to use sensible trading tactics, issuing much smaller sell orders over a period of time. This would avoid swamping the market; and some of the orders would be filled at higher prices and thus generate more profit. Placing a sell order big enough to affect the overall market price suggests that someone with powerful backing wanted to drive the price of gold down.
Such an entity could have been a large speculator who already had a sizable short position and could gain by unloading some of its short position once the market momentum had driven the price even yet lower. Or it could be a central bank – one that might be happy to have the gold price move lower, as it would provide cover for its printing of more new money. Of course, it could be some entity that owned long contracts and wanted to get out of the position all at once. We don't know, but this kind of activity, resulting in the biggest drop in 30 years, raises more than just suspicion when we consider how important the price of gold is to many markets around the globe.
Can markets really be influenced by big players? Well, was the LIBOR rate accurately reported by huge banks? Have players ever tried to corner markets? The answer to all the above, unfortunately, is yes.
There's an even bigger problem with the legal structure of the futures market: even the segregated funds on deposit can be pilfered by the broker for the brokerage's other obligations. That is what happened to MF Global customers under Mr. Corzine. (I had an account with a predecessor company called Man Financial – the "MF" in the name. I also had an account with Refco, which is now defunct. Fortunately, the daggers did not hit my account, since I was not a holder when the catastrophes occurred.) My take: the futures market is dangerous, and not a place for beginners.
One last note: after the Bankruptcy Act of 2005, the regulations support the brokers, not the investors, when there are questions of legality about losses in individual investment accounts. Casey Research will be producing a report with much more detail on this subject in the near future.
So, what now? We aren't going to see a secret memo – no smoking gun to confirm that what happened on April 13 was an attempt to affect the market. Still, the evidence is suspicious. When big entities can gain from putting on big positions, the incentives are big enough for them to try – LIBOR, Plunge Protection Team, Whale Trade, etc., all support this view.
The Physical Gold Market
Previously, there was little difference between the physical and paper markets for gold. Yes, there were premiums and delivery charges, but everybody regarded the futures market as the base quote. I believe this is changing; people don't trust the paper market as they used to.
Instead of capitulating to fear of greater losses, the demand for physical gold has hit new records. The US Mint sold a record 63,500 ounces – a whopping 2 tonnes – of gold on April 17 alone, bringing the total sales for the month to 147,000 ounces; that's more than the previous two months combined. Indian markets, which are more oriented to physical metal, now have a premium of US$150 over the futures price in Chicago. Demand at coin dealers has increased as the price has dropped. And premiums are much bigger than they were as recently as a week ago.
Here is a vendor page that quotes purchase prices and calculates the premiums on an ongoing basis. It shows premiums of 50% and more in many cases. On eBay, prices for one-ounce silver coins are $33 to $35, where the futures price is quoted as $23. A look on Friday April 19 shows one vendor out of stock on most items:
Buy - Sell On Silver Bullion
2013 Sealed Mint Boxes Of 1 Oz. Silver American Eagles - Brand New Coins 500 Coin Min. (1 Sealed Box) Buy @Spot + $1.80 Sold Out
2013 Sealed Mint Boxes Of 1 Oz. Silver American Eagles "San Francisco Mint" Brand New Coins 00 Coin Min. (1 Sealed Box) Buy @ Spot + $2.00 Sold Out
90% Silver Coin Bags (Our Choice Dimes Or Quarters) $1,000 Face Value Figured at 715 Ozs Per $1,000 Face $1,000 Face Value Min.
We Buy @Spot + $1.70Per Oz (Spot+ $1.70 X 715)Spot + $4.99 Per Oz
(Spot + $4.99 X 715)
90% Silver Coin Bags 50¢ Half Dollars $1,000 Face Value We Ship in 2 $500 Face Bags $1,000 FaceValue Min.We Buy @Spot + $1.90Per Oz (Spot+ $1.90 X 715) Sold Out
90% Silver Coin Bags Walking Liberty Half Dollars $1,000 Face Value We Ship in 2 $500 Face Bags $1,000 FaceValue Min.We Buy @
Spot + $2.10 Per Oz (Spot+ $2.10 X 715) Sold Out
Amark 1 Oz. Silver Rounds ( Made By Sunshine ) Pure .999 BU
500 Coin Min.Buy @Spot -15c Sold Out
Clearly, the physical gold market today is sending different signals than the paper market.
The Case for Gold Is Still with Us
The long-term fundamental reasons to hold gold are undeniably still with us. The central banks of the world are acting in concert in "currency wars" or "the race to debase." As they print more money, the purchasing power of each unit declines. They are caught between the rock of having to keep interest rates low to support their governments' huge deficits and the hard place of the long-term effect of diluting their currency. If rates rise, even First World governments will be forced to pay higher interest fees, leading to loss of confidence in their ability to pay back their debt, which will bring on a sovereign debt crisis like what we have seen in the PIIGS or Argentina recently.
The following chart shows the rapid growth in the balance sheets as a ratio to GDP for the three largest central banks. I've extrapolated the expected growth into the future based on the rate at which they propose to buy up assets. One could argue about how long these growth rates will continue, but the incentives are all there for all central banks to bail out their governments and their commercial banks. I fully expect the printing game to continue to provide the fuel for hard-asset investments like gold and silver to increase in price in the years to come.
Buying Opportunity or Time to Flee?
So what does it all mean? The paper price of gold crashed to $1,325 in the wake of this huge trade. It is now hovering around $1,400. My first reaction is to suggest that this is only an aberration, and that the fundamentals of the depreciating value of paper currencies will eventually take the price of gold much higher, making it a buying opportunity. But what I can't predict is whether big players might again deliver short-term downturns to the market. The momentum in the futures market can make swings surprisingly larger than the fundamentals of currency valuation would suggest.
Traders will be looking for a significant turnaround to the upside in price before entering long positions. However, a long-term, fundamentals-based trader has to look at the low price as a buying opportunity. I can't prove it, but I think the fundamentals will drive the long-term market more than these short-term events. The fight between pricing from the physical market for bullion and that from the "paper market" of futures is showing signs of discrimination and disagreement, as the physical market is booming, while prices set by futures are seemingly pressured to go nowhere.
In short, I think this is a strong buying opportunity.
What would you do if the government outlawed gold ownership? If you had taken the steps outlined in Internationalizing Your Assets, you'd have little to worry about, as much of your gold – indeed, most of your assets – would be protected. Internationalizing Your Assets is a must-see web video for anyone concerned about losing wealth to increasingly desperate politicians. The event premiers at 2 p.m. EDT on April 20 and features some of the world's foremost experts on international asset protection, including Casey Research Chairman Doug Casey and Euro Pacific Capital CEO Peter Schiff. Attending Internationalizing Your Assets is free. To register or for more information, please visit this web page.
http://news.goldseek.com/GoldSeek/1366737537.php
great article cork!
great post itsonlymuni!
Chinese Gold & Silver Exchange Sold Out Of Bullion
April 20, 2013
GoldSilverWorlds
The list of evidence and testimonials of an explosion in PHYSICAL gold and silver demand keeps on growing. Here is now Mr. Haywood Cheung, President of the Chinese Gold & Silver Exchange Society, who testifies on Bloomberg that their exchange is sold out of gold bullion. The delivery time is increasing as they rely on (additional) shipments out of Switzerland and London.
A quote from the interview: “Demand is much higher than the supply right now. Most of the bullion is sold out right now. Most of our members are short of physical delivery.”
Watch the full video here.
Our key take-aways after hearing the comment in the interview:
(1) Gold is moving in large quantities from the East to the West. We wrote about that extensively. The underlying dynamic is that gold goes where the money is; otherwise stated, gold follows wealth. That is a direct consequence of the destructive monetary policies in the Western world.
(2) It is very likely that the gold price drop was purely manufactured by the paper products (gold & silver futures market). If that is true, than we have once again the confirmation of holding physical gold over paper based products (including futures, options, ETF’s, etc). Besides, with premiums that have exploded this week, the price for bullion owners did not change compared to a week ago (before the price crash); the spot price plus premium stands now at the point for the price crash!
http://goldsilverworlds.com/gold-silver-general/chinese-gold-silver-exchange-sold-out-of-bullion/
Russia's Main Exchange Plans To Develop Gold Bullion Market -CEO
By Jacob Bunge
Published April 19, 2013
Dow Jones Newswires
Russia's main exchange operator aims to harness the country's resource riches as the company bids for a position among the global exchange elite, according to its chief executive.
Moscow Exchange plans to develop markets in gold and grains and will utilize its ownership in smaller local exchanges as the company seeks to become a regional trading power, according to CEO Alexander Afanasiev.
"Many of the customers of Moscow Exchange, particularly international clients, might see us as a hub for entering other [former Soviet Union] countries for international investing," Mr. Afanasiev said following a visit to the U.S. last week, in his first interview since the exchange's February flotation. The commodities push places the company alongside foreign-based exchange rivals such as Canada's TMX Group Inc. (X.T) and ASX Ltd. (ASX.AU) in Australia, both working to parlay those nations' commodity strengths into trading business. Moscow's largest financial markets operate under one roof following the December 2011 merger of the country's two main exchange operators. The enlarged Moscow Exchange has been revamping its stock markets in recent months, upgrading infrastructure for the settlement of trades and pushing for an overhaul of pension-plan rules that could drive more investment in Russian securities.
To hasten expansion efforts, Moscow Exchange is discussing possible alliances with international peers, including Germany's Deutsche Boerse AG (DB1.XE, DBOEF) and U.S.-based operators CME Group Inc. (CME) and NYSE Euronext (NYX), Mr. Afanasiev said.
Moscow Exchange's stock, futures and currency platforms cover a broader range of asset classes than many of its foreign-based competitors, but Russia has struggled against the perception that its financial markets are clubby and tough for outsiders to navigate. Domestic restrictions around securities investing have prompted some Russian companies to list shares in London and elsewhere, while prices for the region's wheat harvests generally remain set in Chicago and Paris.
Moscow Exchange already runs the number-nine derivatives market globally in terms of trading activity, according to data from the Futures Industry Association. Its strength has been in financial futures, such as contracts linked to the RTS Russian stock index, with more than 320 million contracts traded in 2012.
Mr. Afanasiev, a former Russian banker who joined the exchange in 2005 and was named CEO last June, aims to expand Moscow's commodities franchise into bullion trading by the end of the year, planning a new market in physical metals like gold. Russia ranked fourth last year in terms of global gold production with 205 tons yielded, according to a February report from the U.S. Geological Survey. The effort will tap existing gold-storage facilities in Moscow, Mr. Afanasiev said.
The country's first exchange-traded funds linked to precious metals like gold and platinum are set to launch in the coming weeks, he said.
Moscow Exchange's ruble-denominated grain markets have potential to be more widely used across the Black Sea region, among the world's biggest growers of wheat, according to Mr. Afanasiev.
To extend grain efforts Moscow could build on its relationship with Kazakhstan's commodity exchange, where Moscow Exchange owns a 61% stake, he said. The Kazakhstan market runs trading in wheat, barley, rye and sunflower seeds.
As it revamps its derivatives and securities markets Moscow Exchange is weighing alliances with CME and NYSE around risk-management services, order routing and pricing data, Mr. Afanasiev said.
Moscow Exchange is also discussing the cross-listing of some futures contracts with Deutsche Boerse, he said, and may offer a version of the German exchange group's money-market trading service. The two exchange companies last November sealed an agreement to explore partnerships.
Representatives for Deutsche Boerse, CME and NYSE declined comment.
Shares in Moscow Exchange have fallen 21% since its initial public offering Feb. 15, touted as a milestone in the Vladimir Putin government's longer-range ambition to elevate Moscow as an international hub for finance. Russia's Micex stock index has declined 12% over that time.
-Lukas Alpert in Moscow contributed to this article.
Write to Jacob Bunge at jacob.bunge@wsj.com
Read more: http://www.foxbusiness.com/news/2013/04/19/russia-main-exchange-plans-to-develop-gold-bullion-market-ceo/#ixzz2R0AG8GER
Chinese Gold and Silver Exchange Has 'Almost Run Out of Available Gold Bullion' Awaits Imports
19 April, 2013
Hong Kong's century old Chinese Gold and Silver Exchange has reportedly almost run out of gold bullion at these price levels and is waiting for imports to come on Wednesday of next week from Switzerland and London. This information is from an April 19th interview.
Apparently they are not able to source from within their region which is a bit of a surprise since China is a major gold and silver producer. Gold seems to be moving from West to East.
Why aren't they also going to New York for available bullion supply at the Comex?
The Hong Kong Gold and Silver market seems to be more of what is called a 'bullion market' rather than a paper speculative market dealing in highly leveraged position trading with only small amounts of actual metal changing hands.
"The Chinese Gold and Silver Exchange Society operates in Hong Kong as a registered society. At present, we have 171 member firms which are sole proprietorships, partnerships or limited companies. Among these 171 firms, 30 are bullion group members. Bullion group members who want to manufacture good delivery bars may apply for the qualification of accredited refineries. Upon accreditation, these member firms may produce 99% fineness 5-tael gold bullions and 999.9% 1-kg gold bullions for delivery on the Exchange. The bullions they produce also circulate widely in the open market."
Please see the attached interview from Bloomberg Asia with the President of the exchange.
I do not want to make too much of this as it may be temporary. And since this is a metals exchange rather than a derivatives market a shortage of metal is not a default. A default is a paper promise to deliver that fails.
But it seems to call into question, if not shoot all to hell, the theory that the precipitous decline in the price of gold marked by the dumping of huge numbers of contracts into quiet markets was based on market fundamentals rather than brazen naked short selling and highly leveraged speculation in the London and especially New York markets, which both deliver only a fraction of the metals volumes which are traded on their exchanges.
And still hardly anyone is talking about the dog that didn't bark, and that is silver.
h/t to Delray and Liberty Mike
Sorry but I do not have any way to turn off the autoplay feature with the Bloomberg player. You will have to pause it yourself.
http://jessescrossroadscafe.blogspot.com/2013/04/chinese-precious-metals-exchange-has.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+(Jesse's+Caf%C3%A9+Am%C3%A9ricain)
US States Push Gold Bullion as Currency Agenda, David Morgan Interview
Interview with David Morgan (11 min)
April 15, 2013
Debit Card backed by precious metals (gold/silver/platinum/palladium).
For more info contact; support@silver-investor.com
http://www.silver-investor.com/blog/silver-market-update/us-states-push-gold-bullion-as-currency-agenda-david-morgan-interview/
The Price Smash – Who, What, How and Why?
Theodore Butler
April 16, 2013 - 1:19pm
There is no doubt that we are at a critical juncture in gold and silver and the first order of business is to drill down to how and why prices plunged so much Friday and Monday. Certainly, more commentary (mostly on gold) is being written about the precious metals currently in regards to the price weakness than I can remember. Unfortunately, much of the analyses and commentary is wide of the mark, in my opinion. But the great thing is that everyone interested in what just took place with gold and silver prices can decide for themselves from the multitude of opinions offered as to what makes the most sense.
For me, explaining what took place is easy, since the price plunge occurred in the confines of how I analyze gold and silver. First, what exactly did happen? Basically, a neutron price bomb was detonated in certain NYMEX/COMEX markets that selectively targeted gold, silver, copper, platinum, palladium and crude oil prices. On just about every other market, like stocks, bonds, currencies, grains, meats, soft commodities yesterday was non-eventful pricewise. The importance of this distinction that only selected markets experienced unusual price weakness is that it eliminates many general knee-jerk explanations about prices being impacted by broad macroeconomic factors. How could broad economic factors influence certain commodities and not the stock or currency markets? Looking deeper, the commodities experiencing price weakness all have different supply/demand fundamentals relative to one another, so as to eliminate the possibility that all those unique fundamentals changed yesterday in synch. Commodity fundamentals change glacially; it’s impossible for the supply/demand equation of many various commodities to change overnight.
So, if it wasn’t abrupt change in the fundamental story in the various separate markets that were hit to the downside yesterday, then what the heck accounted for the steep declines in price? Stated differently, what was the common denominator present in the markets that plunged? The most visible common denominator was that the various big price declines occurred on the NYMEX/COMEX markets owned and run by the CME Group. But the most important common denominator was the nature of the buyers and sellers across all the markets that got smashed. Without exception, in any market that declined significantly, the big net buyers were the traders classified as commercials and the big net sellers were those traders classified as non-commercials, largely technical trading funds. Not only was this true yesterday, it has been true on every single big price decline throughout history, according to US Government data (COT reports).
This may seem elemental, but I ask you to contemplate this anew. In the highly-charged emotional state of significant price declines, it is tempting to accept fabricated stories as to what may be the cause of the declines. Because of that, it is more important than ever to rely on the known facts and only that which can be substantiated. COT data have and will show without question that the commercials are always the big buyers and the technical funds are always the big sellers and there was no exception this time. Once you know who the big buyers and sellers are (which is the beauty of the COT), only then can you proceed to the how and why of the big price declines.
Armed with the certain knowledge that in every market that declined substantially the big buyers were the commercials with the big sellers as the technical funds, how and why fall into place. Why is real easy – in order to make money. The way one makes money is by buying low and selling high, although not necessarily in that order. For instance, JPMorgan the big concentrated short seller and manipulator of silver and other markets, has made a boatload of money, many hundreds of millions of dollars, by short selling at higher prices than the prices they have been buying back at. I don’t begrudge JPMorgan for making large trading profits if they were doing so legally, but that is not the case. The trading profits being made by JPMorgan and the other commercials are as far from legal as is possible. That’s the only plausible conclusion a reasonable person could reach when answering the last open question – how do they do it?
Knowing who the buyers and sellers are and why, all that’s left is the how. Simply stated, JPMorgan and the commercials have captured control of the mechanism that sets short term prices, by means of High Frequency Trading (HFT), which dominates modern electronic trading. Whenever JPMorgan and the commercials wish to set prices for any market sharply higher or lower, they can and do set those prices. That is an incredibly powerful trading advantage. Since the technical funds, which are always the counter parties to JPM and the other commercials, rely on price changes to initiate their buying and selling, these funds are, effectively, controlled by JPMorgan and the commercials.
Sunday night was a classic example in that JPMorgan and the commercials kept setting lower and lower prices in the NYMEX/COMEX commodities mentioned to induce more and more technical fund selling so that JPM and the commercials could and did buy. The commercials knew there was residual margin call liquidation for Monday morning, following Friday’s rout, so rather than let panicky margin call sellers out with additional losses of 50 cents in silver or $20 in gold, the commercials rig prices lower in thin Sunday night Globex dealings by $3 in silver and close to $100 in gold. This is similar to the May 1, 2011 Sunday night $6 massacre in silver. The only difference is that this time the commercials took all other important NYMEX/COMEX markets down with silver.
The proof that this is how the market operates can be seen in current and historic COT data in that on big declines in price the commercials are always big buyers and technical funds are big sellers. In fact, I don’t know that there can be an alternative explanation based on actual data. Of course, there is no way a small group of large banks and financial firms could be continuously pulling this trading scam off without prearrangement and collusion. And of course, this collusion and price control is against the law and any sense of fair trade. We actually have in place a federal regulator, in the form of the CFTC and a self-regulator in the CME, specifically created to combat the trading operations I just described, who both refuse to end the ongoing scam.
Clearly, the main impetus behind Monday’s price decline is margin call liquidation by those holding long futures contracts. Although I’ve always warned not to hold silver on margin, at times like this I kick myself for not having warned more forcefully. The $200 gold and $5 silver move over the past two days has resulted in most holding long gold and silver futures contracts to be forced to immediately deposit $20,000 to $25,000 for each contract held or be sold out by their brokers. These demands for such large amounts of money have resulted in an avalanche of panic selling. And it matters little if you believe, like me, that there was an intent behind the extreme price declines or if the margin call selling was spontaneous and beyond intent. In the end, there can be no question that gold and silver (and copper, platinum, palladium and oil) are down today due to extraordinary trading activity on the NYMEX/COMEX, led by margin call selling.
If you accept the premise that massive margin calls are at the center of today’s price decline, the next question is when will the margin call selling end? We know from market history that such selling must burn itself out fairly quickly. This is particularly true in COMEX gold, copper and silver, since there was not a large relative speculative long position to begin with, following months of speculative net long liquidation and new short selling. I don’t think that technical funds are adding aggressively to short positions today since current prices are so far below the popular moving averages so as to make the normal stop loss points above too excessive for prudent risk taking. This looks like plain-vanilla leveraged long liquidation in which the selling pressure has reached a climax and, therefore, must soon end. Prices will stop going down when the margin call liquidation, principally on the COMEX, ends.
The next question is what happens when prices stop going down and the margin call selling burns itself out. In other words, what does the next price rally look like; will we go up slowly or with a rush? No one knows for sure, but the possibility exists that prices could rocket higher. Certainly, any market that can fall 10% in a day can rise by that amount (or more) as well. But what improves the odds of a rush to the upside is the incredible degree of commercial buying that has taken place in the markets that have been smashed. We’ll have to wait until this week’s COT report, but there appears little doubt that it will indicate more record net commercial buying as has been the case for weeks and months. Since I’m convinced behind question that the price of silver has been manipulated by the big commercials on the COMEX, watching them buy aggressively suggests they could let the price rip to the upside with the same intensity that they’ve orchestrated to the downside.
With the record-setting trading volume Monday and on Friday, I would not be surprised if JPMorgan had eliminated its concentrated silver short position. I think it obscene that the CFTC and the CME have stood by and allowed JPMorgan and the other crooked commercials to disrupt the orderly functioning of the markets, but this is nothing new. The reality is that JPMorgan and their collusive partners are better positioned for a price rally in silver and other markets like never before.
As painful as the severe price declines have been, at least holders of fully-paid for silver retain the option of holding without having to deposit large sums of capital or lose their position. I know that I’m holding, in addition to holding call options. This is, unfortunately, not an option for holders of leveraged metal in the form of futures contracts. While it is true that a good number of leveraged longs have been forced from the market and are unlikely to buy anytime soon, that is not a factor necessary for silver prices to climb in the future. The ultimate resolution for silver prices has always depended upon the physical market. In terms of the physical market, the severe price declines would suggest the physical resolution should be accelerated.
Every free market economic principle holds that lower commodity prices increase demand and curtail supply. Clearly, the sudden price decline in silver is not causing miners to rush into increasing production. And as soon as prices stabilize (which I think is very soon), buying pressure will increase to take advantage of the sudden bargain prices.
Ted Butler
April 16, 2013
http://www.silverseek.com/commentary/price-smash-%E2%80%93-who-what-how-and-why-10991
The END GAME Has Commenced
Ranting Andy | Monday, April 15th
This weekend, the world’s second largest copper mine – Rio Tinto’s Kennecott in Utah – had a massive landslide; taking out 16% of U.S. silver production and 7% of U.S. gold production for years; if not forever. And this, on the heels of last week’s indefinite delay of the Barrick’s massive Pascua Lama gold/silver project on the border of Argentina and Chile.
However, the leveraged PAPER market is imploding; in PMs’ biggest collapse in 30 years; care of GOVERNMENT ATTACKS amidst the most bullish PM fundamentals of our lifetimes. Miles Franklin and other dealers are practically SOLD OUT of most silver inventory; and delivery delays and premiums are dramatically expanding. Shortly, I expect the same in gold; and just like in 2008, don’t be surprised if mints SHUT DOWN due to lack of supply.
In my view, the END GAME has commenced; which is why only PHYSICAL metals should be held; NOT deadly “PAPER PM Investments.”
Andrew C. ("Ranting Andy") Hoffman, CFA
Marketing Director
Miles Franklin Ltd.
http://www.silverseek.com/article/end-game-has-commenced-10961
ALL US WHOLESALERS SOLD OUT OF ALL PHYSICAL SILVER!!!
April 15, 2013
The Doc
*UPDATE: ALL US WHOLESALE SUPPLIERS ARE NOW SOLD OUT OF EVERY OUNCE OF PHYSICAL SILVER & HAVE SUSPENDED ALL SALES! SDBullion.com has closed due to lack of ANY AVAILABLE SILVER!
Two of the largest wholesale suppliers in the US, including Amark and CNT, who is the supplier of gold blanks to the US Mint for Gold Eagles, and is a registered COMEX depository, HAVE JUST SOLD OUT OF ALL PHYSICAL SILVER!!!
AND……IT’S GONE!!!!!
In the face of an EPIC TSUNAMI of gold and silver sales today as the cartel hammered the price of silver down over 12%, and off $6 from Friday’s open, we have just been informed at SDBullion upon trying to place a large inventory order that BOTH AMARK & CNT ARE SOLD OUT OF EVERY LAST OUNCE OF PHYSICAL SILVER!!!
Apparently the fact that one of the largest wholesale suppliers in the US is SOLD OUT, while simultaneously the 2nd largest silver mine in the US is offline perhaps permanently is of absolutely no consequence to the paper dumping cartel bullion banks.
Bullion bank silver shorts are most likely covering in mass RIGHT NOW, and we’ll soon have the data to make the case. Many have speculated that the bullion banks are going to switch to a net long position. There couldn’t be a better time to do just that given that at $22/oz, pretty much all existing shorts taken out before this week will be in the money.
http://silverdoctors.com/cnt-sold-out-of-all-physical-silver/
Force Majeure Was the End Game All Along!
Bill Holter
Miles Franklin Ltd
Published: April 15th, 2013
Last week Barrick Resources announced the postponement of their giant Pascua Lama mine. This was to be one of the worlds largest mines and is now tied up in litigation over true ownership as it appears to show that Barrick does not have clear title. The probable reserves were nearly 18 million ounces of gold and almost 700 million ounces of silver. Work on this mine was completely ceased last Wednesday.
Last Wednesday was also an important day for the Kennecott copper mine in Utah, the ground started to shift more rapidly prior to this weekend’s landslide. They knew this was coming as they closed the visitor center on April 1st and had all equipment and personnel out of harms way. This mine produces some 400,000 ounces of gold and over 3 million ounces of silver as a by product of copper. This is the largest copper mine on the planet. Have you heard even a peep out of the mainstream media on this on? I didn’t think so.
Is it not strange that these two events came to a head last Wednesday? The same day that out of nowhere gold reversed from being up and give up $40? And then of course there was Friday with $85 and another $75 this morning. gold is now down $200 per ounce in just over 3 trading days. Between these two projects, one not coming online and the other going off line, a VERY significant amount of production is not going to happen. Does this make sense? Did you not learn in school that “less” supply meant higher prices? In the real world?
We don’t live in “the real world”, we live in a world where everything financial is manipulated. Here is what I see happening. They knew that this mine was going to collapse and the production would stop. Then the ruling on the Pascua Lama mine was sent down. Last Thursday president Obama met with 15 heads of the biggest banks and brokers in the country, THIS was discussed as sure as the sun came up this morning: we have hit the bottom of the barrel! Reserves that could be fed into the market are and have dried up at the same time that production has dropped and future production delayed. The paper game is blowing up …RIGHT NOW and the topic of discussion at the White House was about “how it would play out.”
The COMEX will default in the next week or several weeks and people will be “settled” with dollars, no more metal will be delivered! So, knowing that “game over” has arrived, they are dumping a massive volume of paper contracts with impunity to push the metals prices as low as possible before the “default.” This way the “shorts” do not have to and will not be “covered” when “supply” cannot be obtained because of “an act of God.” They will be settled in cash (at a profit no less) because these “unforeseen” disruptions in supply. “Who could have seen it coming?” will be the mantra. I would suspect that banking stress and “bail ins” will also become prevalent globally. The pricing structure will now push any and all physical sellers away from the markets and the “door” to safety is effectively being shut. Either you own metal or you don’t.
I tried to “be nice” in my piece from last night talking to those who worry about price. What is now happening is exactly what I spoke of. You must count ounces because “availability” is going away right here and right now! After the closure of the COMEX and LBMA doors there will be no availability and “price” will be meaningless. Your ability to protect yourself is right now for all intents and purposes being eliminated.
We received a few (very few) angry letters from customers who say that Jim Sinclair, Mr. Sprott and Embry, James Turk and others including myself are and were wrong. That we should hang our heads in shame and that we are nothing more than charlatans hawking gold and silver. We will soon, very soon, see just how right or wrong we really are. What is happening right now is very clear to me, what I don’t understand is how anyone could miss this as it has all been laid out for you to see (for years now), understand and prepare for. Life, all of life as we knew it, is about to change forever. Hopefully you understood this and have already prepared for it!
http://blog.milesfranklin.com/force-majeure-was-the-end-game-all-along
Gold Crush Started With 400 Ton Friday Forced Sale On COMEX
Submitted by Tyler Durden on 04/15/2013 09:41 -0400
On The Forced Sale...
Via Ross Norman of Sharps Pixley,
The gold futures markets opened in New York on Friday 12th April to a monumental 3.4 million ounces (100 tonnes) of gold selling of the June futures contract in what proved to be only an opening shot. The selling took gold to the technically very important level of $1540 which was not only the low of 2012, it was also seen by many as the level which confirmed the ongoing bull run which dates back to 2000. In many traders minds it stood as a formidable support level... the line in the sand.
Two hours later the initial selling, rumoured to have been routed through Merrill Lynch's floor team, by a rather more significant blast when the floor was hit by a further 10 million ounces of selling (300 tonnes) over the following 30 minutes of trading. This was clearly not a case of disappointed longs leaving the market - it had the hallmarks of a concerted 'short sale', which by driving prices sharply lower in a display of 'shock & awe' - would seek to gain further momentum by prompting others to also sell as their positions as they hit their maximum acceptable losses or so-called 'stopped-out' in market parlance - probably hidden the unimpeachable (?) $1540 level.
The selling was timed for optimal impact with New York at its most liquid, while key overseas gold markets including London were open and able feel the impact. The estimated 400 tonne of gold futures selling in total equates to 15% of annual gold mine production - too much for the market to readily absorb, especially with sentiment weak following gold's non performance in the wake of Japanese QE, a nuclear threat from North Korea and weakening US economic data. The assault to the short side was essentially saying "you are long... and wrong".
Futures trading is performed on a margined basis - that is to say you have to stump up about 5% of the actual cost of the gold itself making futures trades a highly geared 'opportunity' of about 20:1 - easy profit and also loss ! Futures trading is not a product for widows and orphans. The CME's 10% reduction in the required gold margins in November 2012 from $9133/contract to just $7425/contract made the market more accessible to those wishing both to go long or as it transpired, to go short. Soon after we saw the first serious assault to the downside in Dec 2012, followed by further bouts in January 2013 - modest in size compared to the recent shorting but effective - it laid the ground for what was to follow. One fund in particular, based in Stamford Connecticut, was identified as the previous shorter of gold and has a history of being caught on the wrong side of the law on a few occasions. As baddies go - they fit the bill nicely.
The value of the 400 tonnes of gold sold is approximately $20 billion but because it is margined, this short bet would require them to stump up just $1b. The rationale for the trade was clear - excessively bullish forecasts by many banks in Q4 seemed unsupported by follow through buying. The modest short selling in Jan 2013 had prompted little response from the longs - raising questions about their real commitment. By forcing the market lower the Fund sought to prompt a cascade or avalanche of additional selling, proving the lie ; predictably some newswires were premature in announcing the death of the gold bull run doing, in effect, the dirty work of the shorters in driving the market lower still.
This now leaves the gold market in an interesting conundrum - the shorter is now nursing a large gold position and, like the longs also exposed - that is to say the market is polarised between longs and shorts and they cannot both be right. Either the gold bulls - like in a game of tug-of-war - pull back and prompt the shorters to panic and buy back - or they do nothing, in which case the endless stories about the "end of gold" will see a steady further erosion in prices. At the end of the day it is a question of who has got the biggest guns - the shorts have made their play - let's see if there is any response from the longs to defend their position.
On Inventories...
Via Mark O'Byrne of Goldcore,
Gold futures with a value of over 400 tonnes were sold in hours and this is equal to 15% of annual gold mine production. The scale of the selling was massive and again underlines how one or two large banks or hedge funds can completely distort the market by aggressive, concentrated leveraged short positions.
It may again be the case that bullion banks with large concentrated short positions are manipulating the price lower as has long been alleged by the Gold Anti Trust Action Committee (GATA). The motive would be both to profit and also to allow them to close out their significant short positions at more advantageous prices and possibly even go long in anticipation of higher prices in the coming weeks.
Those with concentrated short positions may also have been concerned about the significant decline in COMEX gold inventories.
The plunge in New York Comex’s gold inventories since February is a reflection of increased demand for the physical metal and concerns about counter party risk with some hedge funds and institutions choosing to own gold in less risky allocated accounts.
Comex gold bullion inventories have slumped 17% already in 2013, falling to just 286.6 metric tons of actual metal on April 11, the lowest since September 2009.
This means that futures speculators on Friday sold a significant amount of more paper gold, in an hour or two, then the entire COMEX physical gold bullion inventories.
Interestingly, the drop in Comex inventories would be the biggest for a whole year since 2001, when bullion began its secular bull market.
Absolutely nothing has changed regarding the fundamentals of the gold market and bullion owners are advised to again focus on the long term and the vital diversification benefits of owning gold over the long term.
Although some Federal Reserve policy makers said that they probably will end their $85 billion monthly U.S. bond purchases sometime in 2013. The key word is ‘probably’ and it remains unlikely that the Federal Reserve will stop their debt monetisation programmes any time in 2013 or even in 2014.
Even if the Fed did end them, ultra loose monetary policies and negative real interest rates are set to continue as are competitive currency devaluations and currency wars - two other fundamental pillars supporting the precious metal markets.
Buyers are now presented with another very attractive buying opportunity. We always caution against trying to “catch a falling knife” and buyers should hold off until we get a few days of higher closes or a weekly higher close. Alternatively, they should consider dollar, pound or euro cost averaging into a position at these levels.
Sellers should consider holding off as if contemplating selling they may have missed their opportunity and if they have to sell they may be best placed holding off until prices bounce or recover. Sellers are now disadvantaged both in terms of price but also in terms of premiums that have spread on some physical bars such as one kilo bars.
In the course of gold’s bull market, vicious sell offs like this have often presaged material weakness in stock markets and this may occur again.
Gold’s ‘plunge’ is now headline news which is bullish from a contrarian perspective. Less informed money is again selling gold or proclaiming the end of gold’s bull market.
The smart money such as certain hedge fund managers, high net worth individuals, pension funds, family offices, institutions and creditor nation central banks and will see this vicious sell off as an absolute gift and will accumulate again on this dip.
A long term allocation to physical gold bullion to hedge systemic and monetary risk remains vital.
http://www.zerohedge.com/news/2013-04-15/gold-crush-started-400-ton-friday-forced-sale-comex
From Here, Where?
Saturday, April 13, 2013 at 3:59 pm
TF Metals Report
I've been thinking since yesterday about what I should write today. My first idea was to overwhelm you with information. Charts, data, links...the usual stuff, only more so. Then it dawned on me...that's probably not what you want to hear right now.
Besides there are all kinds of other websites out there where you can get that stuff. And today, I'm not too concerned about technicals. You see, my obligation is to you and to the other 28,939 unique IPs that hit this site yesterday. What do you need to hear? Or, put this way, if I was in your shoes, what would I want to hear from Turd this weekend?
Therefore I've decided, at least for today, to dispense with the charts and the links. I'm not going to mention the info that Andy shared on KWN or the fact that the GLD incredibly shed another 22.86 metric tonnes of "inventory" yesterday. (That's another 1,840 bars or 10 of my pallets, by the way.) Nope, none of that. If I were you, I'd want to be reassured that this wasn't all just a big crock of shit. All this gold stuff. All of the new reserve currency stuff. All of the Cartel manipulation stuff. All of it. I'd want to know that I hadn't been snookered and taken advantage of. I'd want to know that all of these "internet people" that I follow aren't simply making stuff up as they go along. And I'd want to know that they're sincere and that they're just as frustrated as I am.
So, I guess I'll start with myself. I think everyone knows this but I'll state it again: I'm just a nobody. I live in the American Midwest and my entire life has been spent doing pretty-much normal stuff. About five years ago, I quit the "corporate ladder" and pursued a path of independence. In 2009, I discovered ZeroHedge and the rest, as they say, is history. I now find myself in the middle of a global struggle against elements of the established central and bullion banking order. Suffice it to say: It's a surreal existence and not one that I could ever have envisioned. But I'm here now and waist-deep in the fight. Does this make me infallible or all-knowledgeable? Of course not. But I do my best to share with you, my dear reader, as much information and insight as I can.
The past eight months have been the most challenging. Not only have I lost all remaining faith in the idea that Americans live in a self-governing, representative republic, I've also been privileged(?) to witness first-hand some of the true depth of the corruption. Concurrently, I allowed myself to be totally caught off-guard by the ferocity of the attack on the precious metals after the announcement of QE8. At this critical time, I should have anticipated that all necessary measures would be taken to discourage the ownership of any form of money other than fiat currency. In failing to recognize this contingency, I failed you, my dear reader. Though I am 100% confident in the accuracy of my predictions of "the end of the Great Keynesian Experiment", I failed to recognize that this current beatdown was both predictable and inevitable. I hope we've both learned something and that we both are able to keep from making the same mistake in the future.
But mistakes will still be made and the point of this post is to assure you that I am on your side and doing everything in my power to help you prepare for what is inevitably coming. I do so with all sincerity of purpose and the cloak of this responsibility wears heavily upon my soldiers every day. Just ask MrsF or the LTs. They'll tell you how they often catch me staring blankly off into the distance, seemingly detached from the moment. "What are you thinking about", they'll ask. "Oh, dear, where do I begin...". But that's OK; I'm not looking for sympathy. I just want you to know that I, and most everyone else I've had the privilege to meet within the metals "community", truly believe in the cause and we are doing our best to help as many as possible.
I've often said that the greatest thing about "being Turd" is the access this grants me and the friendships and contacts that I've been able to make, so, please indulge me this. As stated above, this post is not about me. It's about what I assume must be on your mind this weekend. Namely, is this real and are the people with these websites trustworthy? For what it's worth, here's some of what I know (with apologies to anyone I mistakenly leave out):
* Jim Sinclair (Santa): JSMineset was the first metals website I ever visited. That I've actually gotten to know Jim a little bit is a great honor. I've known a couple of NYSE-listed CEOs is in my life and Jim is no different. He smart and wise. Measured in his words but with a vision. Under no circumstances does he need to publish JSM but he does. Why? Because he cares. Period. He firmly believes that he can clearly see what is coming and he's trying to use his platform to warn as many as possible. You can trust and believe in him because I do.
* Andrew Maguire: Not sure where to start and I'll try to keep this brief. Andy is a true gentleman and staunch ally of all of us. Sort of like Jim Sinclair, he doesn't need any of this but he's sick of the injustice and the inequity created by the bullion banks...and he's fighting back. Even though we've never met, I've come to trust him implicitly.
* Ned Naylor-Leyland: I don't think you could find a nicer guy on the face of the planet. Again, just like so many of us, Ned's sort of had this stuff thrust upon him. But he's an eloquent spokesman for our cause and I've come to value him as a friend.
* Jim Willie: You may think that Jim has some crazy theories. I know I do. But please do not doubt his intellect, his intuition or his sincerity. The guy is a true visionary and I have no doubt that, one day soon, he will be vindicated and treated as such.
* Bill Murphy and Chris Powell: The veteran soldiers of the movement. Though Bill might seem a bit of a loose cannon from time to time, he's a good man and tireless campaigner against The Cartels. Chris is a solid, upright and honest man whose commitment and integrity benefits all of us.
* Ted Butler, Ranting Andy, Mike Krieger, Jim Quinn, Kerry Lutz, Dave Janda, David Morgan, Alasdair Macleod, Jeff Nielson, Detlev Schilchter, John Williams: All of these guys either write newsletters or offer paid subscription analysis and I have either met them in person or made their acquaintance via Skype. All of them provide a valuable resource and all of them are doing everything they can to help the cause. I feel I can personally vouch for them and I strongly recommend that you trust them, too.
* There are many others but, for the sake of your time, I'll stop here.
I could go on but I don't want to turn this into some kind of LoveFest. The point of this is what I stated above. Though you should always question the things you read, do your own research and due diligence, I wanted to pass along what I know to reassure you about the gold community and those involved within it. I hope I've done just that.
Please utilize the rest of this weekend to get some much-needed rest and relaxation. To me, it's quite clear that we have entered the final chapter of bullion bank hegemony and the days ahead are only going to get more volatile. You're going to need information and wisdom to see your way through it so I hope that this post has been a valuable use of your time.
See you Monday.
TF
http://www.tfmetalsreport.com/blog/4641/here-where
Friday Gold Theatrics (updated)
Friday, April 12, 2013 at 10:52 am
TF Metals Report
A concerted effort was made this morning to smash gold through the bottom of its 18-month range. It failed. However, you can be certain that they will try again so you need to keep a few things in perspective.
First of all, perhaps you need a reminder that we've been discussing this possibility for weeks. If you missed any of these posts, perhaps today would be a good day to go back and review them.
www.tfmetalsreport.com/podcast/4619/turd-talks-metals
www.tfmetalsreport.com/blog/4618/increasing-likelihood
www.tfmetalsreport.com/blog/4551/forewarned-forearmed
So, at 5:00 a.m. EDT this morning, the attack commenced. The plan was to drive prices down enough in the pre-market that, when the Comex opened at 8:20 a.m. enough sell-stops would be triggered that would break gold down through $1525 and then the thing would take on a life of its own. Below $1525 undoubtedly lay a veritable cornucopia of sellstops that, if/when triggered, will send price momentarily plunging. Earlier today, they failed. Price in the June13 gold bottomed at $1525.60. But don't worry, they'll be back. Maybe as soon as later today (after the PM fix?) or Monday. Will they fail again or will we get The Final Washout as we've been mentioning? We'll see...
Here's the 5-minute chart from earlier today where you can see the action in all its glory. Again, note the selling in the final 10 minutes before the open that lowered price from $1544 to $1536. This was the final attempt at mustering enough selling to prompt a washout at 8:20. It didn't work. Yes, price immediately fell $10 at the open but, again and significantly, it stopped at turned at $1525.60.
OK, so where are we on the long-term charts? I apologize for having to use these FTC charts but they're the only ones that I can access that show the "continuous" price. You should be able to click on them to expand them. NOTE THE LOWS IN RED.
Look, as stated above, I can't imagine that they're not going to try again soon. The Spec Momos might even get a little help from The Forces of Darkness. I mean, shoot, why not? All of the selling that will materialize below $1525 will allow The Cartels to cover all kinds of additional shorts. Again, we'll see. But you have to be prepared, both mentally and financially, for this to happen. Both gold and silver are historically oversold from a CoT perspective. To remind you of this and to prepare you for today's CoT, let's go back and look at the CoT structures from the lows on the charts above.
On 12/27/11, as gold was bottoming at $1525, the weekly Commitment of Traders Report looked like this:
LargeSpec longs 167,413. LargeSpec shorts 36,625. Net long ratio 4.57:1
SmallSpec longs 57,327. SmallSpec shorts 24,183. Net long ratio 2.37:1
Gold Cartel longs 162,522. Cartel shorts 326,454. Net short ratio 2.01:1
Total open interest 418,945
On 5/29/12, the Commitment of Traders Report looked like this:
LargeSpec longs 167,439. LargeSpec shorts 56,727. Net long ratio 2.95:1
SmallSpec longs 49,856. SmallSpec shorts 29,859. Net long ratio 1.67:1
Gold Cartel longs 170,208. Cartel shorts 300,917. Net short ratio 1.77:1
Total open interest 419,991
Last week (and today's will be even more dramatic), the CoT looked like this:
LargeSpec longs 202,634. LargeSpec shorts 82,428. Net long ratio 2.46:1
SmallSpec longs 52,253. SmallSpec shorts 29,937. Net long ratio 1.75:1
Gold Cartel longs 137,205. Gold Cartel shorts 279,727. Net short ratio 2.04:1
Total open interest 417,176
So I ask you: What is different this time? Nothing! No, I take that back. The only real difference is the amount of disinformation and SPIN trying to convince you to sell your metal and convert it back to fiat. Other than that, NOTHING! And wait until we get the updated report today! I'll be sure to update this post and show the numbers in an identical format so that you can make an easy comparison over the weekend.
Let's move on to silver. On 12/27/11, the silver CoT looked like this:
LargeSpec longs 24,026. LargeSpec shorts 17,171. Net long ratio 1.40:1
SmallSpec longs 20,294. SmallSpec shorts 13,017. Net long ratio 1.56:1
Silver Cartel longs 41,224. Silver Cartel shorts 55,356. Net short ratio 1.34:1
Total open interest 103,993
Then, on 6/19/12, the CoT looked like this:
LargeSpec longs 27,767. LargeSpec shorts 17,665. Net long ratio 1.57:1
SmallSpec longs 21,704. SmallSpec shorts 14,852. Net long ratio 1.46:1
Silver Cartel longs 47,447. Silver Cartel shorts 64,401. Net short ratio 1.36:1
Total open interest 122,508
And last week (7 trading days ago and with OI 11,000 lower) look like this:
LargeSpec longs 38,201. LargeSpec shorts 30,055. Net long ratio 1.27:1
SmallSpec longs 27,211. SmallSpec shorts 16,854. Net long ratio 1.61:1
Silver Cartel longs 57,847. Silver Cartel shorts 76,350. Net short ratio 1.32:1
Total open interest 155,755
So, what's different in silver? A LOT! Well...not really that much. The net ratios are almost identical to where they were at bottoms in the past. But look at the size! The Specs are gross short 50% more contracts than at past lows and the Commercials are long more contracts than ever before. And this was last week! When open interest was 155,755! As of this Wednesday (2 days ago), the total OI had grown to 166,621! How do you suppose the ratios and the total look at this moment?? Perhaps more bullish than I ever conceived possible?!?! Again, we'll at least get an update through Tuesday later this afternoon and I'll post it into this thread once it's released.
As I go to hit "SEND" I see that "they" have finally succeeded in dropping price through $1525. Funny how this has happened immediately following the London PM fix. So, there you go. Look for a "V" bottom very soon and a sharp rebound by later today or Monday. This is it! This is what we've been waiting for...A final, capitulative, sell-stop running Washout. Let it run its course and then let's see what happens next.
TF
4:10 p.m. EDT UPDATE:
Well, I suppose I could go on all afternoon about what transpired today but much of that has been covered in the comments of this thread. Therefore, I'll just stick to two things. This afternoon's Globex action and your CoT update.
Here's a 1-minute chart of the sharp selloff this afternoon on the Globex. This looks like a margin liquidation to me. Why on earth would an actual person wait until 3:20 in the afternoon to sell into the low-liquidity Globex? Either way, it doesn't make anyone any more confident heading into Monday.
This week's CoT is out and it wasn't quite as interesting as I'd hoped. In gold, where price rose $11 on an OI change of just 663 contracts, I didn't expect much...and I received little in return. The LargeSpecs reduced their net long by 800 contracts. The SmallSpecs added 2100 net longs and The Cartel added 1300 net short.
The silver report was surprising, though, in that hardly any changes took place in the Spec category, even though price rose 63¢ for the week and OI rose by 6,486.
The silver LargeSpecs added 300 longs and also added 500 shorts. The SmallSpecs sold 1400 longs and covered 1100 shorts. THE REAL ACTION and, once again perhaps the brewing Civil War, was in the Commercial space. JPM and their two pals added 2,634 new shorts, bringing their total back up to 78,984. Why did they do that? Because the other commercials added 3,213 new longs, bringing their total to an astonishing 61,060! All of this buying and selling drops the Silver Cartel net short ratio back to 1.29:1.
Here's how silver looks when presented as it was earlier in this post:
LargeSpec longs 38,492. LargeSpec shorts 30,577. Net long ratio 1.26:1
SmallSpec longs 25,754. SmallSpec shorts 15,745. Net long ratio 1.64:1
Silver Cartel longs 61,060. Silver Cartel shorts 78,984. Net short ratio 1.29:1
Total open interest 162,241
Keep in mind that, as of Wednesday night, silver OI had surged to 166,621 before falling back yesterday to 164,393. Since it appears that The Specs were not adding additional shorts this week, it is unlikely that they became net short as a category. It is also not true that the silver commercials have moved net long. At least not yet.
However, DO NOT DISMISS the significance of the action pitting nearly everyone in the commercial space against JPM. The action since Tuesday is almost certainly related to the anger JPM must feel at the audacity shown by those who are seemingly attempting to challenge them.
If we survive the weekend, Monday and the rest of next week are certainly going to be...uhh...interesting. Get some rest and relaxation this weekend. You're going to need it.
TF
http://www.tfmetalsreport.com/blog/4637/friday-gold-theatrics?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TFMetalsReport+%28TF+Metals+Report%29
How the Gold Market was Crashed
Gold Daily Update
12 Apr 2013 2:12 PM | Bill Downey (Administrator)
There’s been a recent huge draw down of physical gold at the New York COMEX and at the JP Morgan Chase depository. Look at the physical market draw down on the charts below. It has taken a drastic plunge.
HOUSTON -- we have a problem.
Physical inventory drawdown at JPM
Charts by Nick Laird of www.sharelynx.com
JP MORGAN CHASE DEPOSITORY GOLD STOCKS (CHART)
Physical Drawdown at COMEX
Charts by Nick Laird of www.sharelynx.com
COMEX DEPOSITORY WAREHOUSE GOLD STOCKS (CHART)
You can imagine the dilemma this is causing for the market interests behind these inventories. If the inventory runs out and one cannot meet deliveries then it has to be bought on the open market. Not only that but it could cause a run up in prices that would hurt the shorts in the market.
So what to do?
There is only one way out of this for the market controllers would be to devise a plan that would collapse the market and trip up all the stops at the correction lows in gold of 1525 thereby setting off the stop loss orders under this important market low. And what if the plan included a way to stop the physical market from purchasing gold under 1525 while that correction was underway?
And how can that happen?
They have to hatch out a plan and carefully orchestrate it in a series of events that takes the gold market by surprise and force the players out of their positions.
Read on for today’s lesson in market manipulation and allow me to relay my speculation about what transpired last week.
A successful ambush usually involves surprise.
One of the main new weapons in the FEDS arsenal is TRANSPARENCY.
After a lifetime of silence the FED all of a sudden has come out of the closet and has decided that the best thing for the market is to be transparent and to that end they now have televised communication meetings with the general public so chairman Bernanke can explain the FED policy and answer any questions that the market has on its mind as well as the usual minutes that get released to the markets that review the policy decisions and discussion of prior meetings.
Why does the Fed need to explain what they are doing now?
Well it isn’t because everything is going just fine. Put it this way. They must figure when you have 50 million people on food stamps and the Dow Jones is going up a few hundred points a week and making all time highs and you have 16 trillion dollars in debt and interest rates are zero, its best to have a communiqué every month before someone asks you to explain what is going on. It’s called staying ahead of the curve if you will. If you tell them what’s going on it makes it look like you know what you’re doing. Otherwise all we have is the statistics and by themselves they tell you something is wrong, something is terribly wrong. So they have become transparent.
During the last communiqué the chairman made it abundantly clear that QE was here to stay until the unemployment rate reached acceptable levels. This communiqué whether by personal appearance or by releasing the FOMC minutes of the prior meeting is something the FED relies on so market participants can remain comfortable and abreast of Fed monetary policy.
Three strikes and you’re out
The FOMC minutes from the last meeting were due for release during last week. But a funny thing happened. They got released EARLIER than expected. It was all a big mistake and the FED let the SEC and the CFTC know right away that the error had occurred. And lo and behold even with all its transparency there happened to be some language we didn’t get updated on until the FOMC minutes were released. The notes say that several members have been discussing cutting back on the stimulus. That was strike one. It got the gold market thinking that stimulus cuts might be coming.
Strike one
Surprise number two
Then a bombshell was released from news sources. It was reported that Cyprus would have to sell 400 million Euro’s of gold as part of the bailout package of raising money for their failed banking system. Gold prices came down to 1550 on the news and the day passed by. Even though Cyprus bankers tell us the next day that they didn't discuss selling any gold, market jitters seemed to remain and Friday was just around the corner. This was strike two.
Now we need a strike three and you’re out. Gold is a nervous market to begin with as a lot of people have already lost a lot of money in the last six months.
With Gold at 1550, all that is needed for the market to drop is to get one more push where all the stops are (just below the 2 year low of 1525).
The selling began in the Friday sessions overseas. By time we got to the New York COMEX gold open, the price was down to 1542. Now all the players are there and the volume and liquidity is there to create the final blow to the market.
And then the attack began. Wave after wave of selling until gold got to 1525. Then they break down the price below the two year low and all the stops that have been accumulating there start getting tripped up and the selling accelerates as it begins to feed on itself. The physical market for gold sees this as a gift and gets ready to make their move and buy up the gold.
Now comes the part that is pure genius or a total coincidental thing that just so happens to be a gift to those who are short the market and those who would be responsible to deliver gold should the inventory deplete.
ALL OF A SUDDEN THE LONDON PHYSICAL PLATFORM THAT BUYS AND SELLS PHYSICAL GOLD GETS LOCKED UP. THE SYSTEM FREEZES.
The screens all freeze.
What does that mean?
No one can get to the physical market to buy at these low prices but at the same time, they can’t sell or protect their position either. The system is frozen. Yes, just like at Bit-coin. The system locks up. And of course the results are going to be the same, just on a lower percentage level.
What can the physical holders do?
Meanwhile the futures market continues to drop.
So what happens? The physical market holders begin to panic. How can they protect themselves as they can’t sell either?
What would I do if I were in that situation?
There is only one solution, especially during a panic. Short and ask questions later.
Therefore it is my speculation that based on 350,000 contracts sold on Friday and the massive drop, some of those contracts was the physical market having no choice but to enter into the futures markets and in order to hedge their physical position holdings, sell contracts or short the market. It’s either that or wait until Monday and be subject to potentially heavy losses should margin calls go out over the weekend. With no time to think and survival instinct kicking in, the physical holders most likely did what they could to protect themselves. They went in and shorted the futures market.
From there the market goes into a free fall as the physical market can’t buy at these low prices because the computer system is down; they can only sell futures to hedge their long physical holdings and so they do what they have to and begin selling futures.
Now it gets worse. As the price drops even more, underfunded players are getting wiped out and now they begin to liquidate. The market goes into a total collapse as all the stops below 1500 get tripped up and the market tanks to 1490.
The market finally closes in New York and returns to the 1500 area.
But it’s not over. There's another situation going on. The weekend is arriving and players begin wondering about margin calls? How are holders going to get money to their brokers over the weekend for the Monday trade session?
But there is not enough liquidity as the COMEX has closed and only the aftermarket GLOBEX is there to execute trades.
But guess what folks?
The banks and brokers are open all weekend and as long as it takes to go through all the accounts and issue all the MARGIN calls.
If they get the margin calls out by Saturday, the customers have 24 hours to get more money to their brokers. If the money is not received by Sunday night or Monday morning, the positions will have to be liquidated, just when the market is at its lowest liquidity and the longs have had all weekend to think about it and the media has had time to tell everyone that the bull market in gold is over.
Not only that but the shorts know exactly what is about to transpire.
I hope you got the picture on how the control boyz forced a major sell off. I speculate the panic over low gold inventory had someone hatch a plan to save their accounts and a lot that is at stake.
They started with leaked information with explosive potential changes in USA policy, and then they published information that Europe/Cyprus would have to sell 400 million Euro's of physical gold. Finally once the sell off began the physical gold market platform in London locks up and no one has buy or sell access in the physical spot market.
As the market players begin to work this out in their mind there is only one thing left to do. Try and exit and get out in the Globex market. So the selling begins again. The market hits below 1500 and then 1490 get broken. The market sells as much as it can up until the very last minute of trade at 5PM New York time. Even then it’s not over. For some reason the volume and the price keeps moving. Was there special consideration going on for those connected who wanted out? I don't know. But at 5:07 PM Eastern standard time the market closes at 352,248 contracts and a price of 1476.10 down a whopping 5.67% -88.80 dollars.
Did the control boys lock down the physical market platform or was it pure coincidence? Either way they have total plausible deniability. HOW?
The computer system went down. It couldn’t handle the traffic and it shut down or a glitch happened in the server. It can be any one of many reasons.
This exact same thing happened during the last take down of gold in late December 2011.
VOILA. The perfect excuse and the perfect scenario.
The physical markets couldn’t buy at those low prices.
Let me repeat that. The physical markets couldn’t buy. They could only sell futures to hedge their physical gold positions.
Of course this will all be reported on the news and in the financials right?
Wrong.
None of it will be reported as none of it was reported on Dec 29th, 2011 when the control boyz did the same thing and locked out the computer and left the physical market holding the bag. Not one word hit the papers.
Most people are not even aware that the physical market is run by computers. They have never considered or thought about how the physical market works and executes. Guess what folks? It works the same way as Futures via computers and programs.
How do you think it works? Did you think that people show up with all their gold at an auction house and buying and bidding goes on with a mediator who can speak two hundred words a minute and gold is auctioned off like rugs or art?
No it runs off a computer system.
How do I know all of this happened today?
Because I was in direct contact with a big physical dealer out of the mid-east as it was happening. They have taken the time to explain the physical market and how they get SHUT out of the game --- just like they did during the last panic (and physical shortage) in Dec of 2011.
Here is the screen shot of the actual physical market in action from January 4th 2012 that the physical trader sent me.
That completes our lesson for today on how to force a major sell off. You start the ball rolling with disinformation and early leaks and surprise with potential policy change considerations at the Federal Reserve level and you follow it up with a potential huge gold supply story that could come to the market.
You've shaken up the market and the selling begins and gets to within 20 dollars of two year lows where all the stops are and then you bring it down to where all the stops start getting tripped up and you just sit back and watch the market do the rest. Finally, you shut off the physical system and stop gold buying and at the same time you force physical dealers to sell the futures to hedge themselves.
There's even a term for this in the trading world. It's called "Beat the Beehive." You smash the nest and then watch the total confusion feed on itself. By the next day all the bees are gone and all that's left is a smashed up beehive.
There has been a lot of speculation on the markets and manipulation that is going on. What I've offered in this report using the fact that gold crashed on Friday is a scenario on how it could have been orchestrated. I leave it to the reader to pass judgment on the potential.
At 8:33 AM Friday morning with gold just beginning to trade, GoldTrends listed a potential for $1490 on twitter if $1525 was taken out. Here is the chart of the COMEX session. Note the low. That blue channel line was what we based our projection potential on. The rest as they say is history.
(CHART)
What Next?
I will be assessing the damage over the weekend.
If there really is a shortage then there will be clues that should show up that should show up in the physical markets. We will be on the watch for them if they develop. If we see these clues we will advise subscribers as they develop. The last system lock out was on December 29, 2011. The clues showed up then and a 270 dollar rally took place from 1525 to 1795 by February 29th. Interestingly on Feb 29th, gold fell 100 dollars an ounce on a Bernanke announcement that the Fed was considering slowing down on QE.
Let me say this. IF the Feds were to slow down on QE the entire system would collapse in a major deflationary spiral. In a speech two months ago at a college Mr. Bernanke admitted that the FED always tries to "talk" control or what they want to see happen. When that doesn't work they expand to other more important methods of policy.
There are only two things that can bring gold down. A manipulated event like we just saw or a liquidity squeeze like we saw in 2008 where an immediate need for cash forced the liquidation of all assets. Can it happen again? Yes, but this time it would be on a global scale and much more powerful than the Lehman crisis of 2008. While many think a sovereign default would create an inflationary spiral, it’s the opposite could happen. A default would result in liquidation and 99 cents out of every dollar in the banking system has been lent out. The need for cold hard cash would be enormous and the only way to get it to avoid leverage margin calls would be to sell assets at a low enough price to attract immediate cash. That is what happened in 2008. With one penny in banks and 99 cents of debt a spiral the other way could develop.
But you say the FEDS could print the money. Would they have time?
Once a deflationary collapse takes place, then a HYPER INFLATIONARY event can take place. But this is all for another report.
Stay tuned as it's probably going to get real interesting.
We are now at a critical juncture in gold’s 21st century bull market. At www.GoldTrends.net we monitor the price patterns on an hourly, daily, weekly and monthly basis. We offer commentary on what it all means along with support and resistance levels along the way in advance of each day’s trade. If you would like to join us for 30 days we offer a free trial. Visit our website home page for details. We’d like you to join us and try us out.
May you all prosper,
Bill Downey
Bill Downey
http://www.goldtrends.net/
Goldtrends@gmail.com
http://goldtrends.net/FreeDailyBlog?mode=PostView&bmi=1267250
The Great Global Tax Grab is Already Underway
by Phoenix Capital Research on 04/12/2013
Graham Summers
The world will soon be facing a tsunami of defaults on bad debts. This will include municipal or local government defaults such as the one now occurring in Stockton California, governments “defaulting” on promises they’ve made to the people (Social Security, Medicaid), a default on the social contract between society and politicians such as the one in Cyprus (a default on the notions of private property and Democracy), stealth defaults on debts in the form of inflation and finally, of course, outright sovereign defaults.
However, the last option will be sovereign defaults; all other options will be tried first. The reason for this is that sovereign bonds are the senior most collateral posted by the banks for their hundreds of trillions of Dollars worth of derivatives bets.
The minute an actual sovereign default occurs in Europe, Asia or the US, then the large global banks will all be vaporized. End of story. As is now clear, the Central banks do not care about ordinary citizens. They only care about propping up the big banks.
This is why Cyprus decided to default on the social contract with its people and steal their funds rather than simply instigating a formal default. And it’s why in general we’re going to see Governments implementing more and more theft in the form of “taxes” (Cyprus called its theft a tax) in the future.
This will be sold to the public as either an attempt to tax those with a lot of money because it’s only fair that they put in more to bailout the nation OR as a form of financial terrorism e.g. “either you take a 7% cut on your deposits and the bank stays afloat or the bank crashes and you lose everything.”
This will be spreading throughout the world, GUARANTEED.
Spain, Canada (which allegedly has the safest banks in the world), and New Zealand have already begun discussing confiscation schemes for depositors in the event of a banking crisis.
As Cyprus has shown us, when push comes to shove, rule of law goes out the window. I fully expect that when things get really bad in the financial system the money grabs will come fast and furious. Foreign accounts, including possibly even Gold held aboard, will come under attack. Heck, the US got Switzerland to throw its 300-year-old banking secrecy out the window…
The Swiss bank Wegelin is to close, after admitting that it helped about 100 US clients evade paying taxes.
The news that Switzerland's oldest private bank will cease to operate has potentially huge implications for Switzerland's entire banking sector, and for the long tradition of Swiss banking secrecy.
Thirteen other Swiss banks are under investigation by US authorities, among them Credit Suisse, a bank now termed "too big to fail" by the Swiss government.
When Wegelin's managers pleaded guilty in a New York court, the case was watched with mounting horror by the financial communities in Zurich and Geneva.
Many had expected Wegelin to continue to try to fight the case. For months, the bank had failed to turn up in court, saying the summons had not been delivered correctly.
Instead, Wegelin's guilty plea included the admission that it intentionally opened accounts for US citizens to help them avoid tax.
www.bbc.co.uk/news/business-20909168
If you’re an individual investor worried about what Europe’s Crisis really means for your portfolio, we’ve published a FREE Special Report outlining exactly that. It’s titled, What Europe Means For You and Your Savings.
In this report, we outline the risks Europe’s banking crisis holds not only for those in Europe, but for savers around the world. We also explain how this crisis will most likely unfold, including which areas are most at risk in the financial system. And we cap it off by listing multiple backdoor plays on Europe that investors can use to profit from Europe’s Crisis.
You can pick up a FREE copy here:
http://gainspainscapital.com/what-europes-collapse-means-for-your-savings
http://www.zerohedge.com/contributed/2013-04-12/great-global-tax-grab-already-underway
EMU plot curdles as creditors seize Cyprus gold reserves
By Ambrose Evans-Pritchard Economics
Last updated: April 11th, 2013
First they purloin the savings and bank deposits in Laiki and the Bank of Cyprus, including the working funds of the University of Cyprus, and thousands of small firms hanging on by their fingertips.
Then they seize three quarters of the country’s gold reserves, making it ever harder for Cyprus to extricate itself from EMU at a later date.
The people of Cyprus first learned about this from a Reuters leak of the working documents for the Eurogroup meeting on Friday.
It is tucked away in clause 29. "Sale of excess gold reserves: The Cypriot authorities have committed to sell the excess amount of gold reserves owned by the Republic. This is estimated to generate one-off revenues to the state of €400m via an extraordinary payout of central bank profits."
This seemed to catch the central bank by surprise. Officials said they knew nothing about it. So who in fact made this decision?
Cypriots are learning what it means to be a member of monetary union when things go badly wrong. The crisis costs have suddenly jumped from €17bn to €23bn, and the burden of finding an extra €6bn will fall on Cyprus alone.
The government expects the economy to contract 13pc this year as full austerity bites. Megan Greene from Maverick Intelligence fears it could be a lot worse.
She says the crisis has reached the point where it would be “less painful” for Cyprus to seek an “amicable divorce” from the eurozone and break free.
Quite so, and while we’re at it, lets seek an amicable divorce for everybody, for Portugal, for Ireland, for Spain, for Italy, and above all for Germany, since they are all being damaged in different ways by the infernal Project. All are victims of their elites.
It is an interesting question why Cyprus has been treated more harshly than Greece, given that the eurozone itself set off the downward spiral by imposing de facto losses of 75pc on Greek sovereign debt held by Cypriot banks.
And, furthermore, given that these banks were pressured into buying many of those Greek bonds in the first place by the EU authorities, when it suited the Eurogroup.
You could say that this is condign punishment for the failure of Cyprus to deliver on its side of the bargain on the 2004 Annan Plan to reunite the island, divided by the Attila Line since the Turkish invasion in 1974.
Greek Cypriots gained admission to the EU on the basis of a gentleman’s agreement, then resiled from the accord. President Tassos Papadopoulis later deployed the resources of the state to secure a "No" in the referendum on the Greek side of the island. No wonder the EU is disgusted.
But there again, Greece behaved just as badly. It threatened to block Polish accession to the EU unless a still-divided Cyprus was admitted, much to the fury of Berlin.
The workhouse treatment of Cyprus is nevertheless remarkable. The creditor powers walked away from their fresh pledges for an EMU banking union by whipping up largely bogus allegations of Russian money-laundering in Nicosia. A Council of Europe by a British prosecutor has failed to validate the claims.
The EU authorities have gone to great lengths to insist that Cyprus is a “special case”, but I fail to see what is special about it. There is far more Russian money – laundered or otherwise – in the Netherlands. The banking centres of Ireland and Malta are just as large as a share of GDP. Luxembourg’s banking centre is at least four times more leveraged to the economy.
It should be clear by now that the solemn pledges of EMU leaders are expendable. They change their mind whenever its suits them, and whenever the internal politics of their own countries demands.
Cyprus may not be a “template” but it is clearly a warning to any other EMU country that needs help from now on. The creditor powers will go to extraordinary lengths to avoid sharing the costs.
We now learn that one of those lengths is to seize gold reserves. So what will happen as Portugal’s economy slides deeper into its contractionary vortex, and its deficits remain stubbornly stuck near 6pc of GDP despite the fiscal cuts, and its public debt hits 124pc of GDP this year?
Portugal holds 382 tonnes of gold, the 14th largest holding in the world, and more than either Britain or Spain. For the sake of delicacy, I will skip over the methods by which Salazar acquired that gold.
So will the Troika order Portugal to hand over these reserves if the country requires a second bail-out, as deemed likely by a great number of analysts in the City?
Will they impose savage haircuts on anybody with savings or operational funds above €100,000 in Portuguese banks? Portugal’s banks may be healthy, but that is no protection.
The original plan in Cyprus – approved by the Eurogroup, but rejected by the Cypriot parliament – was to steal the money from any bank regardless of its health, and from small depositors regardless of the €100,000 guarantee. They have shown their character. The Eurogroup don’t give a damn about moral hazard. They are thieves.
Furthermore, the northern powers skip lightly over their own responsibility for what has happened. They seem not to recognise that EMU was a joint venture. The creditor states were entirely complicit. They flooded the South with cheap debt. They failed to understand the ruinous implications of monetary union just as badly as the southern states.
Eurozone citizens still have a touching faith in the euro and the EMU Project. They blame their own leaders, their own bankers, even the head of statistics office in Greece. But most still refuse to blame monetary union itself.
This is understandable. Even Nobel laureate Robert Mundell seems to have trouble understanding his own theory of "optimal currency areas".
Yet this escalating assault on bank savings and on the state assets of victim nations is gradually taking its toll. Throw gold into the mix and you touch an atavistic nerve. The Cypriot gold confiscation of April 2013 may matter more than first meets the eye.
On a side note, Greek unemployment reached a fresh record of 27.2pc in January. Youth unemployment reached 59.3pc. Ah, but, recovery is surely round the corner.
Greece’s foreign minister is digging himself deeper into a hole on the issue of war reparations against Germany. He told his parliament that Greece “reserves the right” to seek damages at the International Court of Justice in The Hague.
Germany’s Wolfgang Schauble dismissed the demarche as irresponsible. Time has resolved the matter, he said. They won’t get one bent Pfennig.
Nor will Germany when Greece defaults on its rescue loans.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100023990/emu-plot-curdles-as-creditors-seize-cyprus-gold-reserves/
EMU plot curdles as creditors seize Cyprus gold reserves
By Ambrose Evans-Pritchard Economics
Last updated: April 11th, 2013
First they purloin the savings and bank deposits in Laiki and the Bank of Cyprus, including the working funds of the University of Cyprus, and thousands of small firms hanging on by their fingertips.
Then they seize three quarters of the country’s gold reserves, making it ever harder for Cyprus to extricate itself from EMU at a later date.
The people of Cyprus first learned about this from a Reuters leak of the working documents for the Eurogroup meeting on Friday.
It is tucked away in clause 29. "Sale of excess gold reserves: The Cypriot authorities have committed to sell the excess amount of gold reserves owned by the Republic. This is estimated to generate one-off revenues to the state of €400m via an extraordinary payout of central bank profits."
This seemed to catch the central bank by surprise. Officials said they knew nothing about it. So who in fact made this decision?
Cypriots are learning what it means to be a member of monetary union when things go badly wrong. The crisis costs have suddenly jumped from €17bn to €23bn, and the burden of finding an extra €6bn will fall on Cyprus alone.
The government expects the economy to contract 13pc this year as full austerity bites. Megan Greene from Maverick Intelligence fears it could be a lot worse.
She says the crisis has reached the point where it would be “less painful” for Cyprus to seek an “amicable divorce” from the eurozone and break free.
Quite so, and while we’re at it, lets seek an amicable divorce for everybody, for Portugal, for Ireland, for Spain, for Italy, and above all for Germany, since they are all being damaged in different ways by the infernal Project. All are victims of their elites.
It is an interesting question why Cyprus has been treated more harshly than Greece, given that the eurozone itself set off the downward spiral by imposing de facto losses of 75pc on Greek sovereign debt held by Cypriot banks.
And, furthermore, given that these banks were pressured into buying many of those Greek bonds in the first place by the EU authorities, when it suited the Eurogroup.
You could say that this is condign punishment for the failure of Cyprus to deliver on its side of the bargain on the 2004 Annan Plan to reunite the island, divided by the Attila Line since the Turkish invasion in 1974.
Greek Cypriots gained admission to the EU on the basis of a gentleman’s agreement, then resiled from the accord. President Tassos Papadopoulis later deployed the resources of the state to secure a "No" in the referendum on the Greek side of the island. No wonder the EU is disgusted.
But there again, Greece behaved just as badly. It threatened to block Polish accession to the EU unless a still-divided Cyprus was admitted, much to the fury of Berlin.
The workhouse treatment of Cyprus is nevertheless remarkable. The creditor powers walked away from their fresh pledges for an EMU banking union by whipping up largely bogus allegations of Russian money-laundering in Nicosia. A Council of Europe by a British prosecutor has failed to validate the claims.
The EU authorities have gone to great lengths to insist that Cyprus is a “special case”, but I fail to see what is special about it. There is far more Russian money – laundered or otherwise – in the Netherlands. The banking centres of Ireland and Malta are just as large as a share of GDP. Luxembourg’s banking centre is at least four times more leveraged to the economy.
It should be clear by now that the solemn pledges of EMU leaders are expendable. They change their mind whenever its suits them, and whenever the internal politics of their own countries demands.
Cyprus may not be a “template” but it is clearly a warning to any other EMU country that needs help from now on. The creditor powers will go to extraordinary lengths to avoid sharing the costs.
We now learn that one of those lengths is to seize gold reserves. So what will happen as Portugal’s economy slides deeper into its contractionary vortex, and its deficits remain stubbornly stuck near 6pc of GDP despite the fiscal cuts, and its public debt hits 124pc of GDP this year?
Portugal holds 382 tonnes of gold, the 14th largest holding in the world, and more than either Britain or Spain. For the sake of delicacy, I will skip over the methods by which Salazar acquired that gold.
So will the Troika order Portugal to hand over these reserves if the country requires a second bail-out, as deemed likely by a great number of analysts in the City?
Will they impose savage haircuts on anybody with savings or operational funds above €100,000 in Portuguese banks? Portugal’s banks may be healthy, but that is no protection.
The original plan in Cyprus – approved by the Eurogroup, but rejected by the Cypriot parliament – was to steal the money from any bank regardless of its health, and from small depositors regardless of the €100,000 guarantee. They have shown their character. The Eurogroup don’t give a damn about moral hazard. They are thieves.
Furthermore, the northern powers skip lightly over their own responsibility for what has happened. They seem not to recognise that EMU was a joint venture. The creditor states were entirely complicit. They flooded the South with cheap debt. They failed to understand the ruinous implications of monetary union just as badly as the southern states.
Eurozone citizens still have a touching faith in the euro and the EMU Project. They blame their own leaders, their own bankers, even the head of statistics office in Greece. But most still refuse to blame monetary union itself.
This is understandable. Even Nobel laureate Robert Mundell seems to have trouble understanding his own theory of "optimal currency areas".
Yet this escalating assault on bank savings and on the state assets of victim nations is gradually taking its toll. Throw gold into the mix and you touch an atavistic nerve. The Cypriot gold confiscation of April 2013 may matter more than first meets the eye.
On a side note, Greek unemployment reached a fresh record of 27.2pc in January. Youth unemployment reached 59.3pc. Ah, but, recovery is surely round the corner.
Greece’s foreign minister is digging himself deeper into a hole on the issue of war reparations against Germany. He told his parliament that Greece “reserves the right” to seek damages at the International Court of Justice in The Hague.
Germany’s Wolfgang Schauble dismissed the demarche as irresponsible. Time has resolved the matter, he said. They won’t get one bent Pfennig.
Nor will Germany when Greece defaults on its rescue loans.
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100023990/emu-plot-curdles-as-creditors-seize-cyprus-gold-reserves/
Whatever Goldman Sachs Says on Gold, Do The Opposite!
April 11, 2013
Katchum's Macro-Economic Blog
Okay, you might think I'm making this chart up, but Goldman Sachs is doing completely the opposite trade of each call on gold they make.
Each time you see a "B", Goldman Sachs says buy gold. Then the gold price drops down.
Each time you see an "S", Goldman Sachs says sell gold. Then the gold price goes up.
Whatever you do, don't follow Goldman Sachs. Goldman Sachs forecasts gold to drop under $1300/ounce by next year. Let's bookmark this post and see what happens.
Here's what Michael Pento thinks about Goldman's call:
www.pentoport.com/mp3/MRC130410.mp3
Chart 1: Goldman Sachs Buy or Sell Gold Calls (see link)
Link
11/04/2013 http://seekingalpha.com/article/1334851-stars-continue-to-align-against-gold-goldman-sachs-targets-1-270-per-ounce-in-2014?source=google_news
22/01/2013 http://www.arabianmoney.net/gold-silver/2013/01/22/goldman-sachs-reverses-and-turns-positive-on-gold-hitting-1825-this-year-as-jim-sinclair-proven-right-again/
6/12/2012 http://profit.ndtv.com/news/commodities/article-goldman-sachs-cuts-2013-gold-price-forecasts-314311
6/09/2012 http://www.resourceinvestor.com/2012/09/06/jpm-goldman-see-1800-oz-gold-by-year-end
10/05/2012 http://goldnews.bullionvault.com/gold-prices-051020125
28/03/2012 http://www.valuewalk.com/2012/03/goldman-sachs-group-inc-gs-gives-gold-gld-buy-signal-repeat-of-oil/
9/01/2012 http://www.bloomberg.com/news/2012-01-09/goldman-stays-overweight-on-commodities-as-gold-favored-1-.html
19/12/2011 http://www.businessinsider.com/2012-gold-averages-goldman-1810oz-barclays-2000oz-and-ubs-2050oz-2011-12
8/07/2011 http://www.zerohedge.com/news/goldman-hikes-its-12-month-gold-price-target-1735-1830
22/03/2011 http://www.zerohedge.com/article/fmx-connect-debunks-reverse-psychology-goldmans-buy-gold-recommendation
11/02/2011 http://pragcap.com/goldman-sachs-not-so-bullish-about-gold
12/10/2010 http://www.zerohedge.com/article/goldman-tells-clients-buy-comex-gold-13642-raises-12-month-gold-forecast-1365-1650-silver-27
18/08/2010 http://www.zerohedge.com/article/goldman-tells-its-special-clients-sell-gold-even-it-raises-its-price-target-shiny-metal
12/04/2010 http://www.zerohedge.com/article/goldman-again-buying-gold-selling-copper-it-lowers-gold-price-forecast-boosts-copper
3/12/2009 http://georgewashington2.blogspot.be/2009/12/goldman-predicts-gold-to-rise-above.html
Geplaatst door Albert Sung op 18:04
http://katchum.blogspot.com/
Goldman Sachs is Manipulating Gold Prices Right Before Your Eyes
By DAVID ZEILER
Associate Editor, Money Morning April 11, 2013
If you want a lesson on how to manipulate gold prices, you need only look at what Goldman Sachs Group Inc. (NYSE: GS) has been doing over the past few months.
Goldman set the table by predicting a turn in gold prices back in December 2012, which no doubt contributed to the precious metal's 5% decline in the first two months of the year.
At the end of February, Goldman issued a research report that said the big Wall Street bank had soured on the yellow metal, and dropped its three-month target for gold prices from $1,825 an ounce to $1,615, its six-month forecast from $1,805 to $1,600, and its one-year outlook from $1,800 to $1,550.
Then, just yesterday (Wednesday), Goldman doubled down on its negative outlook for gold prices.
The bank's new targets for gold prices are $1,530 in three months, $1,490 in six months and $1,390 in one year.
The double whammy - two downgrades in two months - had its intended effect, as gold prices fell 2%, to $1,558.80, after Goldman released its report. It was the biggest single-day percentage drop for gold in nearly six months.
"If you've ever suspected gold prices are being manipulated, you're not alone - and you're right, they are," said Money Morning Chief Investment Strategist Keith Fitz-Gerald.
The proof is right in front of us.
How Goldman Uses its Forecasts to Manipulate Gold Prices
In addition to the lower targets, Goldman's reports spell out why the bank thinks gold prices will decline, which are at least as important in the price manipulation strategy as the targets themselves.
Here's what Goldman said in its February report:
"The decline in prices since last fall and our updated forecast [emphasis ours] suggests that the turn in the gold price cycle is likely already underway. As a result, although our U.S. economic forecasts point to modest near-term upside to gold prices, we believe that a sharp recovery in prices to our previous price forecast is unlikely."
Goldman brazenly cites its own forecast as part of the evidence that the downward move in gold prices is happening. In other words, they're practically bragging about their manipulation of gold prices.
Then Goldman applies a Jedi mind-control technique to remedy the inherent contradiction in its forecasts for the U.S. economy and its targets for gold prices: "These are not the forecasts you are looking for."
Yesterday's report again advised investors to ignore economic realities and trust in Goldman instead.
"Despite resurgence in euro-area risk aversion and disappointing U.S. economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning," Goldman said in its research note.
Meanwhile, Fitz-Gerald said, the reasons gold is more likely to rise than fall - central bank money printing, central bank gold-buying, slowing production at gold mines, more Euro-zone troubles - haven't changed.
How Goldman's Gold Price Manipulation Works
The purpose behind all this, Fitz-Gerald explained, is to "get the weak money out, so they can accumulate more gold themselves."
In fact, this is a widely used Wall Street strategy that dates back at least to the 1920s.
For that matter, there's plenty of evidence Goldman uses this strategy to manipulate stocks and other commodities all the time.
Here's how it's done.
Often, the big banks are making subtle trades to help push the commodity - be it gold, a stock or anything else in the markets - in the direction they want it to go.
Issuing reports helps the cause by getting the media to transmit and amplify the message manipulators like Goldman are trying to send.
"Bigger firms like JPMorgan, Goldman Sachs, PIMCO or any of a dozen other behemoths simply release a "research report' that is interpreted as gospel by the mainstream media and swallowed hook, line and sinker by millions of unsuspecting investors as a reason to buy or sell," Fitz-Gerald said.
For example, the MarketWatch headline on its story about yesterday's Goldman downgrades of gold prices proclaimed, "Another blow to gold - Goldman Sachs slashes 2013, 2014 forecast."
That story noted that Deutsche Bank AG (NYSE: DB) also had lowered its forecast for gold prices just the day before.
In short, investors need to pay close attention to what the big banks say about stocks and commodities, because very often they are betting in the opposite direction. If you fall for the misinformation, you'll end up on the wrong side of the trade - losing money while Wall Street operators like Goldman reap the big profits.
How to Deal With the Market Manipulators
Fitz-Gerald advised investors not to get frustrated and angry about Wall Street manipulation of stocks and gold prices, but rather to try to understand what's going on and use it for their own benefit.
"Do what Wall Street does, not what it says," Fitz-Gerald said.
That's not as hard as one might think, he said, noting that retail investors don't have the pressure to move around large amounts of money every day and don't need to worry about major moves that could tip off their strategies to other big competitors.
"You can use tactics the big boys can't," Fitz-Gerald said.
One thing that retail investors can do to avoid becoming a Wall Street patsy, he said, is to dollar-cost average (buy a set dollar amount of an investment at regular intervals) into things like gold and stocks.
"Dollar-cost averaging forces you to buy more when the price is low and less when the price is high," Fitz-Gerald said. "Maybe you can't compete with the big banks, but you can beat them at their own game."
http://moneymorning.com/2013/04/11/goldman-sachs-is-manipulating-gold-prices-right-before-your-eyes/
Cyprus Denies Gold Sale - Debtors Sell Gold; Creditors Buy
April 11, 2013
GoldCore
In Europe, Cyprus has denied the plan to sell its very small gold reserves of 13.9 tonnes as a contribution to an international bailout.
Were the sale to happen it would be unlikely to set a precedent for other troubled Eurozone countries as these nations now greatly value their gold reserves as important stores of value that will protect against currency devaluations.
The Central Bank of Cyprus (CBC) said last night however that selling the island’s gold had not been on the table.
“Such an issue has not been raised, has not been discussed and is not being discussed at the moment,” CBC spokeswoman Aliki Stylianou said.
Stylianou added that sale of the gold was a matter handled exclusively by the CBC board.
A spokesperson for the Central Bank of Cyprus told the Cyprus News Agency (CNA) that reports of the $523 million gold sale have not been, “raised, discussed or debated,” with the bank’s board of directors.
The Central Bank of Cyprus denied the gold sale after reports on Reuters said that Cyprus officials had agreed to sell around 400 million euros in excess gold reserves to contribute to the country's bailout. Stylianou, the spokesperson for the Central Bank of Cyprus said that the gold sale was, “never discussed nor are there current or future plans to do so on the board’s agenda.” Reuters based its story on a draft report from the European Commission which assessed the nation's financing needs.
News of Cyprus’ planned sale likely did not contribute to gold's weakness yesterday. The amount of gold is trifling both in dollar or euro terms versus the scale of debts in Cyprus and the wider Eurozone and in terms of tonnage. At just 13.9 tonnes the Cyprus gold reserves is equal to one week's gold demand from Chinese people.
http://news.goldseek.com/GoldSeek/1365681600.php
You're right about that al44 check out the video at the link below. At first I thought they were joking.
The mattress safe – the latest way to bank with confidence
http://deadlyclear.wordpress.com/2013/04/01/the-mattress-safe-the-latest-way-to-bank-with-confidence/
Derivatives Managed by Mega-Banks Threaten Your Bank Account. All Depositors, Secured and Unsecured, May Be at Risk
Winner Takes All: The Super-priority Status of Derivatives
By Ellen Brown
Global Research, April 09, 2013
Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.
Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus. A “bail in” is a quantum leap beyond a “bail out.” When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to “recapitalize” themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the “creditors” include the depositors who put their money in the bank thinking it was a secure place to store their savings.
The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here. “Too big to fail” now trumps all. Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.
Why Derivatives Threaten Your Bank Account
The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.
In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.
The tab for the 2008 bailout was $700 billion in taxpayer funds, and that was just to start. Another $700 billion disaster could easily wipe out all the money in the FDIC insurance fund, which has only about $25 billion in it. Both JPMorgan and Bank of America have over $1 trillion in deposits, and total deposits covered by FDIC insurance are about $9 trillion. According to an article on Bloomberg in November 2011, Bank of America’s holding company then had almost $75 trillion in derivatives, and 71% were held in its depository arm; while J.P. Morgan had $79 trillion in derivatives, and 99% were in its depository arm. Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion; and JPM is the biggest player, with 30% of the market.
It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:
Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.
There will be no more $700 billion taxpayer bailouts. So where will the banks get the money in the next crisis? It seems the plan has just been revealed in the new bail-in policies.
All Depositors, Secured and Unsecured, May Be at Risk
The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.
In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.” It refers only to “unsecured creditors.” But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:
Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims!
. . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!
If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.
The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.
That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.
Super-priority Status for Derivatives Increases Rather than Decreases Risk
Harvard Law Professor Mark Row maintains that the super-priority status of derivatives needs to be repealed. He writes:
. . . [D]erivatives counterparties, . . . unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors.
. . . [W]hen we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability.
In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.
Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it. When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run.
Putting the Brakes on the Wall Street End Game
Besides eliminating the super-priority of derivatives, here are some other ways to block the Wall Street asset grab:
(1) Restore the Glass-Steagall Act separating depository banking from investment banking. Support Marcy Kaptur’s H.R. 129.
(2) Break up the giant derivatives banks. Support Bernie Sanders’ “too big to jail” legislation.
(3) Alternatively, nationalize the TBTFs, as advised in the New York Times by Gar Alperovitz. If taxpayer bailouts to save the TBTFs are unacceptable, depositor bailouts are even more unacceptable.
(4) Make derivatives illegal, as they were between 1936 and 1982 under the Commodities Exchange Act. They can be unwound by simply netting them out, declaring them null and void. As noted by Paul Craig Roberts, “the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system.”
(5) Support the Harkin-Whitehouse bill to impose a financial transactions tax on Wall Street trading. Among other uses, a tax on all trades might supplement the FDIC insurance fund to cover another derivatives disaster.
(5) Establish postal savings banks as government-guaranteed depositories for individual savings. Many countries have public savings banks, which became particularly popular after savings in private banks were wiped out in the banking crisis of the late 1990s.
(6) Establish publicly-owned banks to be depositories of public monies, following the lead of North Dakota, the only state to completely escape the 2008 banking crisis. North Dakota does not keep its revenues in Wall Street banks but deposits them in the state-owned Bank of North Dakota by law. The bank has a mandate to serve the public, and it does not gamble in derivatives.
A motivated state legislature could set up a publicly-owned bank very quickly. Having its own bank would allow the state to protect both its own revenues and those of its citizens while generating the credit needed to support local business and restore prosperity to Main Street.
For more information on the public bank option, see here. Learn more at the Public Banking Institute conference June 2-4 in San Rafael, California, featuring Matt Taibbi, Birgitta Jonsdottir, Gar Alperovitz and others.
Ellen Brown is an attorney, chairman of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com.
http://www.globalresearch.ca/derivatives-managed-by-mega-banks-threaten-your-bank-account-all-depositors-secured-and-unsecured-may-be-at-risk/5330700
Derivatives Managed by Mega-Banks Threaten Your Bank Account. All Depositors, Secured and Unsecured, May Be at Risk
Winner Takes All: The Super-priority Status of Derivatives
By Ellen Brown
Global Research, April 09, 2013
Cyprus-style confiscation of depositor funds has been called the “new normal.” Bail-in policies are appearing in multiple countries directing failing TBTF banks to convert the funds of “unsecured creditors” into capital; and those creditors, it turns out, include ordinary depositors. Even “secured” creditors, including state and local governments, may be at risk. Derivatives have “super-priority” status in bankruptcy, and Dodd Frank precludes further taxpayer bailouts. In a big derivatives bust, there may be no collateral left for the creditors who are next in line.
Shock waves went around the world when the IMF, the EU, and the ECB not only approved but mandated the confiscation of depositor funds to “bail in” two bankrupt banks in Cyprus. A “bail in” is a quantum leap beyond a “bail out.” When governments are no longer willing to use taxpayer money to bail out banks that have gambled away their capital, the banks are now being instructed to “recapitalize” themselves by confiscating the funds of their creditors, turning debt into equity, or stock; and the “creditors” include the depositors who put their money in the bank thinking it was a secure place to store their savings.
The Cyprus bail-in was not a one-off emergency measure but was consistent with similar policies already in the works for the US, UK, EU, Canada, New Zealand, and Australia, as detailed in my earlier articles here and here. “Too big to fail” now trumps all. Rather than banks being put into bankruptcy to salvage the deposits of their customers, the customers will be put into bankruptcy to save the banks.
Why Derivatives Threaten Your Bank Account
The big risk behind all this is the massive $230 trillion derivatives boondoggle managed by US banks. Derivatives are sold as a kind of insurance for managing profits and risk; but as Satyajit Das points out in Extreme Money, they actually increase risk to the system as a whole.
In the US after the Glass-Steagall Act was implemented in 1933, a bank could not gamble with depositor funds for its own account; but in 1999, that barrier was removed. Recent congressional investigations have revealed that in the biggest derivative banks, JPMorgan and Bank of America, massive commingling has occurred between their depository arms and their unregulated and highly vulnerable derivatives arms. Under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured. In a major derivatives fiasco, derivative claimants could well grab all the collateral, leaving other claimants, public and private, holding the bag.
The tab for the 2008 bailout was $700 billion in taxpayer funds, and that was just to start. Another $700 billion disaster could easily wipe out all the money in the FDIC insurance fund, which has only about $25 billion in it. Both JPMorgan and Bank of America have over $1 trillion in deposits, and total deposits covered by FDIC insurance are about $9 trillion. According to an article on Bloomberg in November 2011, Bank of America’s holding company then had almost $75 trillion in derivatives, and 71% were held in its depository arm; while J.P. Morgan had $79 trillion in derivatives, and 99% were in its depository arm. Those whole mega-sums are not actually at risk, but the cash calculated to be at risk from derivatives from all sources is at least $12 trillion; and JPM is the biggest player, with 30% of the market.
It used to be that the government would backstop the FDIC if it ran out of money. But section 716 of the Dodd Frank Act now precludes the payment of further taxpayer funds to bail out a bank from a bad derivatives gamble. As summarized in a letter from Americans for Financial Reform quoted by Yves Smith:
Section 716 bans taxpayer bailouts of a broad range of derivatives dealing and speculative derivatives activities. Section 716 does not in any way limit the swaps activities which banks or other financial institutions may engage in. It simply prohibits public support for such activities.
There will be no more $700 billion taxpayer bailouts. So where will the banks get the money in the next crisis? It seems the plan has just been revealed in the new bail-in policies.
All Depositors, Secured and Unsecured, May Be at Risk
The bail-in policy for the US and UK is set forth in a document put out jointly by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England (BOE) in December 2012, titled Resolving Globally Active, Systemically Important, Financial Institutions.
In an April 4th article in Financial Sense, John Butler points out that the directive does not explicitly refer to “depositors.” It refers only to “unsecured creditors.” But the effective meaning of the term, says Butler, is belied by the fact that the FDIC has been put on the job. The FDIC has direct responsibility only for depositors, not for the bondholders who are wholesale non-depositor sources of bank credit. Butler comments:
Do you see the sleight-of-hand at work here? Under the guise of protecting taxpayers, depositors of failing institutions are to be arbitrarily, de-facto subordinated to interbank claims, when in fact they are legally senior to those claims!
. . . [C]onsider the brutal, unjust irony of the entire proposal. Remember, its stated purpose is to solve the problem revealed in 2008, namely the existence of insolvent TBTF institutions that were “highly leveraged and complex, with numerous and dispersed financial operations, extensive off-balance-sheet activities, and opaque financial statements.” Yet what is being proposed is a framework sacrificing depositors in order to maintain precisely this complex, opaque, leverage-laden financial edifice!
If you believe that what has happened recently in Cyprus is unlikely to happen elsewhere, think again. Economic policy officials in the US, UK and other countries are preparing for it. Remember, someone has to pay. Will it be you? If you are a depositor, the answer is yes.
The FDIC was set up to ensure the safety of deposits. Now it, it seems, its function will be the confiscation of deposits to save Wall Street. In the only mention of “depositors” in the FDIC-BOE directive as it pertains to US policy, paragraph 47 says that “the authorities recognize the need for effective communication to depositors, making it clear that their deposits will be protected.” But protected with what? As with MF Global, the pot will already have been gambled away. From whom will the bank get it back? Not the derivatives claimants, who are first in line to be paid; not the taxpayers, since Congress has sealed the vault; not the FDIC insurance fund, which has a paltry $25 billion in it. As long as the derivatives counterparties have super-priority status, the claims of all other parties are in jeopardy.
That could mean not just the “unsecured creditors” but the “secured creditors,” including state and local governments. Local governments keep a significant portion of their revenues in Wall Street banks because smaller local banks lack the capacity to handle their complex business. In the US, banks taking deposits of public funds are required to pledge collateral against any funds exceeding the deposit insurance limit of $250,000. But derivative claims are also secured with collateral, and they have super-priority over all other claimants, including other secured creditors. The vault may be empty by the time local government officials get to the teller’s window. Main Street will again have been plundered by Wall Street.
Super-priority Status for Derivatives Increases Rather than Decreases Risk
Harvard Law Professor Mark Row maintains that the super-priority status of derivatives needs to be repealed. He writes:
. . . [D]erivatives counterparties, . . . unlike most other secured creditors, can seize and immediately liquidate collateral, readily net out gains and losses in their dealings with the bankrupt, terminate their contracts with the bankrupt, and keep both preferential eve-of-bankruptcy payments and fraudulent conveyances they obtained from the debtor, all in ways that favor them over the bankrupt’s other creditors.
. . . [W]hen we subsidize derivatives and similar financial activity via bankruptcy benefits unavailable to other creditors, we get more of the activity than we otherwise would. Repeal would induce these burgeoning financial markets to better recognize the risks of counterparty financial failure, which in turn should dampen the possibility of another AIG-, Bear Stearns-, or Lehman Brothers-style financial meltdown, thereby helping to maintain systemic financial stability.
In The New Financial Deal: Understanding the Dodd-Frank Act and Its (Unintended) Consequences, David Skeel agrees. He calls the Dodd-Frank policy approach “corporatism” – a partnership between government and corporations. Congress has made no attempt in the legislation to reduce the size of the big banks or to undermine the implicit subsidy provided by the knowledge that they will be bailed out in the event of trouble.
Undergirding this approach is what Skeel calls “the Lehman myth,” which blames the 2008 banking collapse on the decision to allow Lehman Brothers to fail. Skeel counters that the Lehman bankruptcy was actually orderly, and the derivatives were unwound relatively quickly. Rather than preventing the Lehman collapse, the bankruptcy exemption for derivatives may have helped precipitate it. When the bank appeared to be on shaky ground, the derivatives players all rushed to put in their claims, in a run on the collateral before it ran out. Skeel says the problem could be resolved by eliminating the derivatives exemption from the stay of proceedings that a bankruptcy court applies to other contracts to prevent this sort of run.
Putting the Brakes on the Wall Street End Game
Besides eliminating the super-priority of derivatives, here are some other ways to block the Wall Street asset grab:
(1) Restore the Glass-Steagall Act separating depository banking from investment banking. Support Marcy Kaptur’s H.R. 129.
(2) Break up the giant derivatives banks. Support Bernie Sanders’ “too big to jail” legislation.
(3) Alternatively, nationalize the TBTFs, as advised in the New York Times by Gar Alperovitz. If taxpayer bailouts to save the TBTFs are unacceptable, depositor bailouts are even more unacceptable.
(4) Make derivatives illegal, as they were between 1936 and 1982 under the Commodities Exchange Act. They can be unwound by simply netting them out, declaring them null and void. As noted by Paul Craig Roberts, “the only major effect of closing out or netting all the swaps (mostly over-the-counter contracts between counter-parties) would be to take $230 trillion of leveraged risk out of the financial system.”
(5) Support the Harkin-Whitehouse bill to impose a financial transactions tax on Wall Street trading. Among other uses, a tax on all trades might supplement the FDIC insurance fund to cover another derivatives disaster.
(5) Establish postal savings banks as government-guaranteed depositories for individual savings. Many countries have public savings banks, which became particularly popular after savings in private banks were wiped out in the banking crisis of the late 1990s.
(6) Establish publicly-owned banks to be depositories of public monies, following the lead of North Dakota, the only state to completely escape the 2008 banking crisis. North Dakota does not keep its revenues in Wall Street banks but deposits them in the state-owned Bank of North Dakota by law. The bank has a mandate to serve the public, and it does not gamble in derivatives.
A motivated state legislature could set up a publicly-owned bank very quickly. Having its own bank would allow the state to protect both its own revenues and those of its citizens while generating the credit needed to support local business and restore prosperity to Main Street.
For more information on the public bank option, see here. Learn more at the Public Banking Institute conference June 2-4 in San Rafael, California, featuring Matt Taibbi, Birgitta Jonsdottir, Gar Alperovitz and others.
Ellen Brown is an attorney, chairman of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com.
http://www.globalresearch.ca/derivatives-managed-by-mega-banks-threaten-your-bank-account-all-depositors-secured-and-unsecured-may-be-at-risk/5330700
Gold Record High in Yen - Rush to Sell Jewelery, Buy Coins and Bars
Submitted by GoldCore on 04/10/2013 10:01 -0400
Yen versus Currencies and Precious Metals, YTD –( Bloomberg) (Chart)
Soros’ yen “avalanche” would appear to have begun with the yen having fallen by 9.5% against gold in 5 trading days since last Thursday leading to record nominal highs in the yen at over 0.1577 million yen per ounce this morning.
The higher gold prices have led to a curious anomaly in Japan where the public has again been selling gold in cash for gold schemes, often due to being under financial pressure, while some Japanese investors and savers have diversified into gold coins and bars both of which have seen an increase in demand in recent days.
“We are seeing buyback from the general public," a physical dealer in Tokyo told Reuters and there are reports of shortages of coins and bars and premiums increasing on bullion coins.
There are also reports of shortages of bullion coins and bars in Thailand and in Singapore where premiums on certain bullion coins which are legal tender and have favourable tax treatment, such as American gold and silver eagles, have risen due to tightness in the market and delays of three to four weeks for delivery.
Ms. Nakamura, a 50-year-old mother of two, told the Wall Street Journal that she is considering buying some new gold, even as she is cashing in her old holdings due to financial needs.
She said she has been roaming department stores checking the price of gold jewelry and surfing online to compare prices. "I didn't think the [store] prices now are that expensive. I've heard rumors that there's a shortage of gold so I'm thinking it might be best to buy now."
Gold in Yen, 1 Year – (Bloomberg)
(Chart)
As we told the Wall Street Journal overnight regarding the Japanese situation, “the smart money is buying gold.”
“Given the BOJ's determination, there's no doubt you're going to get 2% inflation, and there's a risk it might be much, much higher.”
Gold in Yen in Nominal Terms Since 1971 – (Bloomberg)
(Chart)
“For those who are prudent, diversifying into gold makes sense."
As the Japanese are finding out, global diversification and allocations to precious metals remain fundamentally important for savers and investors internationally and will protect from inflation, currency devaluation and confiscation in the coming years.
http://www.zerohedge.com/contributed/2013-04-10/gold-record-high-yen-rush-sell-jewelery-buy-coins-and-bars
Historic Missteps Create Launchpad For Gold
Apr 9 2013
Tom Luongo
In the past few weeks we have seen probably two of the biggest mistakes in the handling of events post-Lehman Bros. The first was the attempted bail-in of insured depositors in Cyprus. The second was the enormous increase in the quantitative easing policy of the Bank of Japan. Both of these policy decisions will have far-reaching consequences of the unintended variety. Both of them are bullish for the price of gold.
The Cyprus bail-in strategy was not endorsed by all members of the major central planners involved in navigating the Western world through the current debt deflationary cycle we are experiencing. Both Ben Bernanke and Mario Draghi have been quick to distance themselves from the policy which, if you stop for a moment and think about it, runs exactly counter to the policies that have been adopted since the September 2008 financial crisis broke out - namely to secure the continued operation of mostly normal banking operations, albeit under extremely tenuous conditions.
The efforts of most of the central bank heads in Europe and the U.S. had created, up until Cyprus, a false sense of security which created faith in the U.S. dollar and, to a lesser extent, the euro. Both currencies may be sick in terms of value retention but both still functioned as a medium of exchange and within tolerable volatility bands. With the incessant back-pedaling since the initial announcement of depositor impairment in Cyprus it is clear that IMF Chief Christine Lagarde and members of the European Commission went too far and in doing so laid bare one of the funding mechanisms for resolving all of the imploding debt when quantitative easing would no longer suffice.
The only other explanation is that Germany attempted to declare financial warfare on Russia and Putin slapped Angela Merkel back down privately. That's not a scenario I take very seriously. No, the actions of the architects of the current financial world are very telling. Lagarde at the IMF and northern Europe got impatient and tried to push too far too fast over not enough money and in doing so undermined the foundation of Western banking.
The long-term effects are obvious. Capital will flee Western banks and the job of the central banks will be made even harder to maintain any semblance of control over this mess. No amount of statements to the press by the people responsible for this will placate people. Lost trust in banking is similar to a food scare. There is no percentage in taking the risk. People will withdraw their money and ask questions later. And some of them will be smart enough to get their money out of the financial system altogether and put it into gold, and to a lesser extent, silver. With physical demand already causing serious price dislocations vis a vis the futures market, adding this demand will only ensure that sentiment turns around quicker and the price will begin to leak higher.
The second policy decision - the nearly ridiculous level of quantitative easing announced by the Bank of Japan - will have a more immediate effect. In fact we are already seeing the effects and they are not only bullish for gold but also for the euro at the expense of the dollar.
The great Yra Harris, whose blog everyone should read, has made the very salient point that Japanese bond holders are, as everyone knows, primarily Japanese entities - banks, insurance companies, pension funds, individuals - and that now that the BoJ is targeting CPI inflation all of those bonds will be carrying a negative yield. Moreover, so many of them are sitting on large capital gains on the value of the bonds themselves. This policy will send money out of Japan and into high yield sovereign bonds, or at least any bond with a positive yield spread to the expected CPI inflation rate.
This means, of course, European debt. French, Italian, Spanish and Belgian bond yields have all dropped like a rock in response to this policy change by the Japanese. And, of course, the money is going to flow there because Mario Draghi not 12 hours after the BoJ announcement reiterated that the ECB stood ready to do whatever it took to keep the euro together. It sure sounds like the Draghi Put is still in place to me.
This is bullish for the euro in every way. Yes, it will strengthen and yes it will be tough on German car manufacturers like Volkswagen (VLKAY.PK) but at the same time, Germany is a huge energy importer and a strong euro with Japanese capital flowing into it faster than it is flowing into the U.S. dollar will be able to stay ahead of any rise in the price of Brent crude and natural gas.
Statoil (STO) is providing competition to Gazprom (GZPFY.PK) right at the time when the Russian gas giant (all puns intended) is having to renegotiate contracts all across Europe (see here, and here ). So, in general, we are looking at a different energy market for Europe than we have in the past few years. The euro price of Brent crude is threatening the €80 level which hasn't been seen since December 2011. Rebuilding the stricken economies of the periphery that have been put through vicious austerity measures will not occur with rising energy prices.
Domestic industry will be rebuilt with relatively cheaper energy while Japan will hollow out what is left of its economy with ruinous rises in commodity prices in yen terms. The BoJ's QE program will not only chase capital out of Japan, potentially sparking a collapse of the currency, it will also send energy prices soaring, transferring wealth back to a European economy that may sell fewer cars of European origin but they will be better able to afford to actually use them.
All of this is extremely positive for gold, as I said at the outset. Some of that capital flight from Japan will wind up fleeing into gold -- we are already seeing the beginnings of it. In Europe, the insecurity of savings will do the same thing. Moreover, the ECB will welcome a higher gold price as it supports an expansion of ECB's balance sheet relative to the liabilities against it. With U.S. bond yields already below the BoJ's inflation target of 2% with the exception of the 30 year bond, the U.S. will see limited inflow beyond from Japan. Again, this is bullish for gold prices.
http://seekingalpha.com/article/1329291-historic-missteps-create-launchpad-for-gold?source=email_authors_alerts&ifp=0
METALS & MINING: BLOOD IN THE STREETS – DAVID MORGAN & AMIR ADNANI
April 8, 2013
Since the 2008 financial meltdown, the Federal Reserve has printed mountains of fiat cash while the government continues to borrow and borrow, with no end in sight. Yet even as the DOW has soared, precious metals mining shares have been absolutely gutted. David Morgan says that right now, “per dollar invested you’re probably getting the best buy you could have gotten in the past three decades, if you’re buying the mining index as a whole.” “The mining sector as a whole has been beaten up really badly”, Morgan says.
So is now the time to suck it up and buy the mining shares of quality companies, while blood is flowing in the streets? That’s what made Rothschild rich beyond his wildest dreams (that and the fiat printing presses!). Or should you only stack the PHYSICAL metal?
Morgan says he believes that the consolidation period is nearly over for the precious metals, and that it’s also probably very nearly over for the mining equities as well.
2 part interview at link below:
http://silverdoctors.com/metals-mining-blood-in-the-streets-david-morgan-amir-adnani/
5 Juniors = 1 Amazing Gold Portfolio: Adrian Day
Apr 7 2013, 08:01
Adrian Day
The Gold Report
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
Adrian Day, founder of Adrian Day Asset Management, finds royalty plays some of the cleanest, least risky ways to invest in precious metals. In addition to mitigating risk, royalties offer high margins and the benefit of exposure to exploration. In this interview with The Gold Report, he explains why royalty companies are so hot right now and shares the names of a handful of favorite companies both large and small with royalties around the world.
The Gold Report: John Wilson, a senior portfolio manager with Sprott Asset Management, said recently that investors tend to get more comfortable with equity markets when equity markets are riding high versus when equity markets are riding low. What are your thoughts?
Adrian Day: That's true; you see that in the broad market and in the gold market. The broad market has been a pretty steady move up from the middle of November until now, and yet all the way through the beginning of January the public was still very heavy sellers, not buyers, of equities. Then they started buying in January.
If you look at the gold stocks, you need to be very discriminating about what you buy. A lot of the senior companies have had management shakeups because of bad acquisitions or overpriced acquisitions, capital expenditure [capex] overruns and bad capital allocation decisions; a lot of decisions were made in the last few years simply for the sake of getting bigger. For a few years, the market was indiscriminate, and everything was going up. But for the last six months, the market generally has been a lot more discriminating. Stocks of companies that have good balance sheets and inexpensive or very good projects and are advancing them nicely are doing reasonably well despite the overall negativity in the sector. Some amazing companies are selling at very good prices, and yet nobody seems interested right now.
TGR: Is your gold portfolio mostly equities? Do you dabble in exchange-traded funds [ETFs]?
AD: We buy physical bullion and ETFs. We have been known to buy bonds, although we're not buying any bonds at the moment. The portfolio is primarily equities.
TGR: You allocate a portion of your clients' portfolios to juniors, but you also have significant positions in larger-cap gold equities. John Paulson said in late March that he believes that gold companies need to get smaller and spin out some of their mines into other companies and operate on a much smaller scale. Do you think that's realistic, and do you think that that's a sound approach to generating shareholder value?
AD: I would flip it around and say that companies need to stop fixating on getting bigger simply for the sake of getting bigger. That doesn't necessarily mean that companies have to get smaller, but certainly a smaller profitable company is a better company than a larger unprofitable company.
The model has changed a lot in the last 30 years. In the 1960s and 1970s, the biggest mines and the biggest companies in the world were the South African ones, and generally they were single-mine companies. Some mines had relatively short lives; other mines had multi-decade lives. The companies would generate revenue and pay that revenue out as dividends to shareholders, hence the dividends were high. Over the years the model changed from being single-mine companies to ongoing enterprises. The problem with the ongoing enterprise model is that when you're a Newmont Mining Corp. (NEM) or a Barrick Gold Corp. (ABX), it is extremely difficult to find 5-7 million ounces [5-7 Moz] gold per year, so you end up buying it. No company wants to shrink, so if you're producing 7 Moz, you better find 7 Moz. If that means buying it, so be it. If it means overpaying, that's the price you pay to keep growing. That is a mistake.
We're going to see companies focus more on profitable growth. That will inevitably mean slower growth or even, at periods, no growth. I don't think many companies are going to deliberately aim for lower growth, but that's going to be a byproduct of companies focusing on profitable growth. Barrick, which is the largest gold miner in the world, recently said that its metric for acquisitions is going to be return on equity. That is novel for many mining companies.
We can all think of acquisitions that shouldn't have taken place or mines under construction that perhaps shouldn't be under construction: Costs at Barrick Gold's Pascua Lama mine have gone up threefold since original estimates. This is a mine on the border of Chile and Argentina, and it's going to be pretty tricky to mine and process without disturbing the glaciers. Other overpriced acquisitions include Kinross Gold Corp.'s (KGC) Tasiast and Newmont's Hope Bay, acquisitions that at the right price would've made a lot of sense, but these were just too expensive.
TGR: You put your clients into mining royalty companies, which is about gaining exposure to higher commodity prices but at a lower risk. What sort of exposure do your clients have today to royalty plays versus what they did 5-10 years ago?
AD: There are more royalty companies available today and that has enabled us to buy more.
For investors, the main goal should be to mitigate risk. How do you mitigate the risk that's inherent in the business? For the bigger, senior companies, the biggest risks are replacing ounces produced because a mine is a depleting asset, and the continual things that go wrong with a mining operation. The big royalty companies that actually have revenue from various royalties mitigate that risk to a very large extent. Once you've bought a royalty, your first dollar in is your last dollar in. You're not obligated to pay for cost overruns. If the government increases taxes, you don't have to pay them. If the water table breaks and the mine shaft floods, you don't have to pay to fix it. You mitigate the risk by avoiding all those unforeseen additional expenses. Pascua Lama's capex has gone from $2.5 billion [$2.5B] to $8B. Barrick has to pay that, but the owner of the royalty doesn't. The owner of a royalty just has to be a little patient and wait for the mine to finally get built and produce gold. That's a big benefit. We like the royalty model a lot.
In addition to that, the margins are extremely high, and you still have the benefit of exposure to exploration, whether it's from brownfields exploration around existing mine sites, assuming you own a royalty on the surrounding ground, or whether it's new mines where you've got a royalty on a mine in development.
But just because you own a royalty doesn't make it a risk-free investment. If Mining Company A decides not to build a mine because of a government tax increase, you the royalty owner don't get your royalty. If the price of gold drops considerably, then your royalty is worth a lot less, because the revenues you get are a lot less. If the mining company decides not to do the expansion, you don't get your additional revenue.
Along the same line, in the juniors the biggest risk is the long odds of actually finding something that becomes a mine. I like to mitigate that risk by buying companies that have multiple projects or companies that use the prospect-generator model where they don't have to continually raise money themselves to put into the ground but have partners to spend the money and so, again, you mitigate what is the biggest risk in the business.
TGR: Randy Smallwood, the CEO of Silver Wheaton Corp. (SLW), said that he looks for assets that are management proof when he's seeking to buy preexisting production at a given rate. When we talk to numerous pundits in this industry, it's always about management, management, management, but on the royalty side, it seems as if the asset is more important.
AD: That's probably true.
TGR: There are basically two ways these companies make their money. One is with a royalty, so if it's a 5% royalty and a company produces 10,000 ounces [10,000 oz] gold, the royalty company is going to be taking 500 oz. The other is through streaming: the company buys production before it's produced and then sells it at the market price later. Which do you prefer?
AD: The prime benefit to the royalty is that royalties are typically on the ground itself, on the mine itself, and are not affected by changes in ownership of the mine. The main benefit of a stream is apparent when you look at the totality of the money that you're putting up. A lot of that money is put up not upfront but is put up to buy each ounce that comes out of the ground at a very low cost, for instance, silver royalties are often $4/oz. If the mine totally gets messed up, you stop making payments, whereas with the royalty, you've already made the payment upfront. There are benefits to each, but royalties are cleaner, so it's a lot easier to analyze a royalty on an ongoing basis. Streams can start to get pretty complicated if the company doesn't produce the ounces in any given year, if the price of the commodity goes up, etc. It's not the end of the world if the payment from silver goes from $4/oz to $5/oz, because the price of silver went from $30/oz to $35/oz. It just makes it a little bit more difficult to analyze.
TGR: Most royalty companies generate their cash from precious metals-producing companies, yet there isn't a royalty play with a focus on platinum group metals [PGM] or even base metals. Should investors expect to see those types of royalty companies in the future?
AD: Most of the royalty companies do have a certain amount of their revenue from non-gold. Then there is a royalty company that is entirely devoted to non-gold royalties, Sandstorm Metals & Energy Ltd. (STTYF.PK), the sister company of Sandstorm Gold Ltd. (SAND). Sandstorm Metals & Energy hasn't grown as rapidly as Sandstorm Gold has.
TGR: There are a number of newcomers to the royalty space over the last few years and especially in the last six months. Do you expect this relative proliferation to continue?
AD: Yes. It's an easier business in that it's less high risk than operating a mine. Royalty companies have become rather expensive. The stock valuations that you can attract by having a royalty company are a lot better than the valuations from actually mining. I think newcomers make things healthy, because the competition is good in that it keeps the business profile going. But we are beginning to see the space rather crowded with some less-than-efficient players, and premium valuations.
TGR: Which small-cap royalty plays are you following?
AD: There are two groups that we're following. One is exploration companies that have a royalty or royalties and are developing more royalties. The other is smaller companies that are pure royalty companies.
Of the former, I have three favorite companies. One is Virginia Mines Inc. (VGMNF.PK). The company has a very attractive royalty on the Éléonore deposit that it discovered a few years ago. When Virginia sold the project, it kept a royalty. That mine is on track for production last quarter of next year. At that point, that royalty will generate at today's price of gold around $30 million a year for the next 17 years. The value of that royalty alone is worth more than Virginia's whole market cap. Virginia has other royalties from exploration projects, but none close to production.
Altius Minerals Corp. (ATUSF.PK) is another company that I like a lot. It has a producing royalty, part of the Voisey's Bay royalty, that pays for all of its annual general and administrative expenses. Altius uses the prospect-generator model but with a bit of a twist. It generates prospects and finds partners to come in, and then it spins that into a separate company. Altius retains 25%, 30%, 40% of the shares and a royalty. It uses the shares as a source of cash so it doesn't have to go to the market, but it always keeps these royalties. It has a lot of royalties on the books. Voisey's Bay is already producing, and it has a very attractive royalty on an iron ore project known as Kami.
TGR: That's Alderon Iron Ore Corp.'s (AXX) main project, correct?
AD: Yes. Altius discovered Kami. The company brought in the partner and put it into a separate company called Alderon Iron Ore, and so now it is a separate company, developing and advancing the project. Alderon published a very attractive feasibility in January. Alderon has a Chinese steel company, Hebei, as a partner, which has just agreed to put up the final round of financing so Hebei now owns 25% of Kami. Alderon owns 75%. Altius owns about 30% of Alderon and a royalty on the project.
Altius also has a lot of exploration projects, such as in Newfoundland. The key to Altius is it's continuing to generate projects. Six months ago it undertook a new joint venture program in Chile where the company has a local partner putting up most of the money.
Eurasian Minerals Inc. (EMXX) is the third of these companies that I really like. Eurasian last year acquired a small royalty company called Bullion Monarch, which had producing royalties. Eurasian paid for it with both cash and shares, but the royalties from Bullion Monarch now cover Eurasian's overhead. Eurasian is a prospect generator with properties in gold and copper around the world. It tends to focus on larger companies as its partners. Smaller companies are more aggressive; larger companies have more money. Eurasian's partners include Newmont in Haiti, Freeport-McMoRan Copper & Gold Inc. (FCX) in Arizona and Russia, Antofagasta PLC (ANFGY.PK) in Sweden, and others in Serbia and Turkey. It looks to keep a royalty on all of these projects.
We also follow smaller companies that are pure royalty companies. One of my favorites is Callinan Royalties Corp. (CCNMF.PK). [For more of Adrian's favorite royalty companies, visit click here]
Callinan was founded by Roland Butler, who was one of the founders of Altius. His expertise is in exploration, so what Callinan tends to do is look at very early-stage exploration and tries to do some kind of joint venture with the company where it puts some money in return for a royalty on any future production. As an example, it did a strategic alliance transaction similar to that with a prospect generator called Evrim Resources Corp. (EMRRF.PK), based in Mexico. Evrim was founded a couple of years ago and acquired a lot of Rimfire's properties and joint ventures in Mexico. Callinan also has a couple of producing royalties from which it pays a nice dividend, with a current 3.4% yield. The potential over the long term is excellent.
TGR: Do you have some parting thoughts?
AD: Royalties are a very low-risk way of getting exposure to the precious metals mining sector. But just because you have a royalty company doesn't mean that it's not exposed to the vagaries of the market, the gold price as well as specific problems with specific mines, but it's certainly a much lower-risk way of playing the market.
TGR: Thank you.
This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.
Adrian Day, London born and a graduate of the London School of Economics, heads the eponymous money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
http://seekingalpha.com/article/1325351-5-juniors-1-amazing-gold-portfolio-adrian-day?source=email_authors_alerts&ifp=0
Trust in Gold Not Bernanke as U.S. States Promote Bullion
April 8, 2013
Bloomberg
By Amanda J. Crawford
Distrust of the Federal Reserve and concern that U.S. dollars may become worthless are fueling a push in more than a dozen states to recognize gold and silver coins as legal tender.
Lawmakers in Arizona are poised to follow Utah, which authorized bullion for currency in 2011. Similar bills are advancing in Kansas, South Carolina and other states.
The measures backed by the limited-government Tea Party movement are mostly symbolic -- you still can’t pay for groceries with gold in Utah. They reflect lingering dollar concerns, amplified by the Fed’s unconventional moves in recent years to stabilize the economy, said Loren Gatch, who teaches politics at the University of Central Oklahoma.
“The legislation is about signaling discontent with monetary policy and about what Ben Bernanke is doing,” said Gatch, who studies alternative currencies at the Edmond, Oklahoma-based school. “There is a fear that the government, or Bernanke in particular and the Federal Reserve, is pursuing a policy that will lead to the collapse of the dollar. That’s what is behind it.”
Bernanke has pushed interest rates to near zero since the 18-month recession that began in December 2007. The Fed said in March it would continue buying $85 billion in securities each month in a program known as quantitative easing that has ballooned its assets beyond $3 trillion and is aimed at keeping long-term borrowing costs low to support economic growth.
Tame Inflation
Consumer prices rose just 1.3 percent in February from a year earlier, according to an inflation measure favored by the Fed. That was below the central bank’s 2 percent target and compares with occasional bouts of more-than 10 percent increases in the 1970s and early 1980s.
Bets that inflation would pick up because of economic- stimulus measures helped fuel a 78 percent jump in gold since December 2008. The dollar’s rise to less than 1 percent below a one-year high set in July and monthly increases of about 2 percent or less in the U.S. consumer price index have curbed demand for bullion. Since reaching a record $1,923.70 an ounce in 2011, gold prices have fallen and are near a bear market.
Gold futures for June delivery fell 1.2 percent last week, to $1,575.90 an ounce on the Comex in New York, after touching $1,539.40 April 4, a 10-month low for a most-active contract.
Texas Depository
In Texas, lawmakers are considering a measure supported by Republican Governor Rick Perry to establish the Texas Bullion Depository to store gold bars valued at about $1 billion and held in a New York bank warehouse. The gold is owned by the University of Texas Investment Management Co., or Utimco, which took delivery of 6,643 bars of the precious metal in 2011 amid concern that demand for it would overwhelm supply.
The proposed facility would also accept deposits from the public, and would provide a basis for a payments system in the state in the event of a “systemic dislocation in a national and international financial system,” according to the measure.
Should Texas take such a step, it would offer sovereign backing for deposits and make buying and storing gold easier, said Jim Rickards, senior managing director at Tangent Capital Partners LLC in New York and author of “Currency Wars: The Making of the Next Global Crisis.” He said the coin measures, while impractical, have symbolic value.
“We are seeing a distinct movement back to a world where gold is considered money,” Rickards said.
Inflation Protection
The measures give “people the option of using money that won’t lose any purchasing power to inflation,” said Rich Danker, economics director at the American Principles Project. The Washington-based public-policy group supports the steps as well as a return to the gold standard, which pegged the dollar’s value to bullion. President Richard Nixon formally ended the convertibility of U.S. currency to the precious metal in 1971.
“People in these states find the idea of having the option to use hard currencies appealing over these policies they have no control over,” Danker said.
The U.S. Constitution bars states from coining money and also forbids them from making anything except gold and silver coin tender for paying debts. Advocates say that opens the door for the states to allow bullion as legal tender. The measure being considered in South Carolina would recognize foreign or domestic minted coins as legal tender.
Utah’s law applies only to U.S.-minted coins, while other states are less clear on whether privately produced coins qualify. Arizona leaves the door open for private coins if they are declared legal by a non-appealable court order.
Tax Breaks
In Utah and some other states, the measures also eliminate state capital gains or other taxes on the coins.
Critics say the state measures are unwieldy. In Arizona, Senator Steve Farley, a Democrat, unsuccessfully offered an amendment that would have recognized as legal tender other state commodities, such as citrus fruit, as well as sunbeams. The amendment was intended to reflect the absurdity of the bill, said the 50-year-old lawmaker from Tucson.
“It is simply grandstanding to get people afraid that somehow President Obama’s agenda is going to drive us into hyperinflation and economic collapse,” Farley said. “We have enough real problems to deal with. I don’t see undercutting our entire financial structure as a priority.”
In Utah, officials haven’t yet figured out how to accept gold and silver for tax payments -- though some residents have asked to pay that way -- or integrate the precious metals into commerce, state Treasurer Richard Ellis said. Lawmakers have established a task-force to study implementing the law and to examine how the state can accept gold and silver, with their fluctuating values, for payment, Ellis said. He’s not optimistic that it will work, he said.
Regulatory Barriers
“People point to Utah and say we are leading the way, but nothing much has happened because regulatory hurdles have gotten in the way,” said Ellis, a Republican. If gold and silver is being used in the state as legal tender, it is probably only in transactions between individuals, he said.
The Utah Precious Metals Association, established after passage of the 2011 law to advocate for the use of gold and silver coins, has about two dozen members enrolled in a two month-old bill-pay service in which their accounts are held in gold, said Lawrence Hilton, the group’s chairman. Hilton envisions a future with an alternative monetary system based on precious metals in which merchants accept silver coin while gold mostly backs electronic transfers.
Gold Producers
The Arizona measure, sponsored by Republicans, won preliminary approval in the House of Representatives April 4 after passing the Senate on a party line vote Feb. 28. Gold is mined in both Arizona and Utah, while Nevada is the largest U.S. producer, according to National Mining Association figures.
The bill’s sponsor, Senator Chester Crandell, 66 of Heber, said he is convinced the move is the “logical thing for the state of Arizona to do.”
“I think you look at some of the things that are happening and the amount of money printed by the Federal Reserve and who has control of that money, and I think anybody would be concerned,” Crandell said. “Gold and silver have been around a long time and people are secure with it and we should give them an opportunity to use it.”
To contact the reporter on this story: Amanda J. Crawford in Phoenix at acrawford24@bloomberg.net
http://www.bloomberg.com/news/2013-04-08/trust-in-gold-not-bernanke-as-u-s-states-promote-bullion.html