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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
Texas Wants Its Gold Back
Bloomberg
April 5, 2013
(Bloomberg) -- Tangent Capital Partners Senior Managing Director James Rickards discusses the history of gold in the U.S. He speaks on Bloomberg Television's "Lunch Money." (Source: Bloomberg)
(4 minute Interview)
http://www.bloomberg.com/video/texas-wants-its-gold-back-PhaK3QtWRBWcyOUqSBTdrA.html
Trifecta Of Events All Break In Favor Of Gold
Apr 5 2013, 23:17
Tom Luongo
SeekingAlpha
Coming into this week, there were three events that were standing in the way of a potential turnaround in the price of gold (GLD). The initial monetary policy decision by the new head of the Bank of Japan, the monthly policy statement by ECB President Mario Draghi and the dual release of employment and unemployment data from the U.S.. In the days leading up to these events, gold was literally the victim of multiple drive-by shootings in the futures markets, which pushed the price down to $1540 per ounce. Once the events began unfolding, however, the Mac-10s were put away and the cars idled as the bulls stood their ground and the price drop halted.
A directionless equity market, which has seen the S&P 500 (SPY) vacillate up and down for 13 days now has not helped matters as oil inventory data in the U.S. sent oil prices sliding after putting in a strong reversal signal last week. The indecision in equities and the general weakness in commodities has weighed heavily on both copper (CPER) and silver (SLV), both of which correlate highly with gold on a day-to-day basis. So, if there was going to be one more short push to the downside in gold in an attempt to break the price below $1550 on a weekly basis, then this was the opportunity to do so.
All three of the events broke decisively in gold's favor. All of them were either explicit or implicit guarantees of more inflationary behavior on the part of the three most influential central banks in the world, the Federal Reserve, the ECB and the Bank of Japan:
The Bank of Japan is going to add $1.4 trillion to its already bloated balance sheet over the next 7 quarters, well above what the market was expecting.
Mario Draghi denounced the Cyprus depositor theft plan as ill-advised but also dusted off his speech from last July and reiterated for everyone in no uncertain terms that the euro, like certain venereal diseases, is forever.
Between the initial unemployment claims of 385,000 on Thursday and the huge miss on the BLS non-farm payroll data on Friday -- 88,000 low paying jobs and a labor force participation rate not seen since the Carter Administration -- we haven't seen a labor report this bad in over a year.
It was one thing to watch the gold market continue to sink post-Cyprus, it was another to watch it refuse to respond to an unfathomable amount of quantitative easing from the BoJ and the yen (FXY), getting clocked for nearly 4% in an hour. But when the market for 10 year JGBs has to be halted on breath-taking volatility and the BLS pretty much made Fed governor Richard Fisher look like an idiot for suggesting that QE in the U.S. will end soon, it was impossible to think that gold bulls would not pick up the pitchforks and torches and push the price in the direction of the fundamentals.
You will note the sheer number of articles declaring the break of support by gold to the downside and the calls for $1400 or $1350 because of an intra-day price move. Here's a hint. They mean almost nothing except to skew the near-term probabilities of an upside reversal. Whenever I discuss trading strategies, you will note that I almost never talk about daily movements. In today's highly manipulated and correlated markets daily price movements, especially in gold, are simply noise generated to create a perception and adjust sentiment not to discover price. Weekly and monthly prices reveal trends.
The only day of the week I take seriously in the gold market is Friday.
And at this point, even though gold put in one of its single most impressive days of the year, I'm not convinced that Monday the markets won't open and we'll have to watch the bulls plough the same row all over again.
I'll finish up here with some other observations heading into the weekend to ponder:
1. The TIPS (TIP) market has stopped vacillating. The 10 year yield plunged this week from -0.65% to -0.74%, the lowest yield since the days following the QE IV announcement.
2. The TIPS curve contracted on the last two days of this week with the 5/30 dropped from 2.02% to 1.80%. The 5 year TIPS refuses to break below -1.50%.
3. Excess reserves held by the banks at the Federal Reserve reached an all-time high in March at $1.698 trillion. There is no recovery in the health of the U.S. banking system. Bank credit growth has flat-lined in 2013 as well.
4. Brent Crude (BNO) dropped from $111 to $104 per barrel in 4 trading days. Friday sent the gold to Brent Ratio soaring back to 15.18 which was the highest reading since late January.
5. The gold to silver ratio is currently 57.97 and is very high. It has always reversed (4 times) from this level since the correction in gold began in September 2011. It is also been trending against the historic trend, which is down.
6. Gold needs to put in a weekly close above this week's high of $1604 to create a preliminary reversal signal. The real reversal signal occurs at $1620, however.
7. The Draghi put is back in place and the euro (FXE) is headed higher from here. The reversal in the euro was made on structural reasons, not moral ones.
8. April is already an outside month, which would normally limit the upside reversal potential but March was exceptionally quiet -- less than 50% of normal monthly volatility -- so the chance to break the March high and low are much higher than normal. So I would still give a potential rally to $1700 an outside shot in April, especially if gold closes over $1620 next week.
Additional disclosure: I own physical gold, silver and a few goats.
http://seekingalpha.com/article/1324501-trifecta-of-events-all-break-in-favor-of-gold?source=email_authors_alerts&ifp=0
Trifecta Of Events All Break In Favor Of Gold
Apr 5 2013, 23:17
Tom Luongo
SeekingAlpha
Coming into this week, there were three events that were standing in the way of a potential turnaround in the price of gold (GLD). The initial monetary policy decision by the new head of the Bank of Japan, the monthly policy statement by ECB President Mario Draghi and the dual release of employment and unemployment data from the U.S.. In the days leading up to these events, gold was literally the victim of multiple drive-by shootings in the futures markets, which pushed the price down to $1540 per ounce. Once the events began unfolding, however, the Mac-10s were put away and the cars idled as the bulls stood their ground and the price drop halted.
A directionless equity market, which has seen the S&P 500 (SPY) vacillate up and down for 13 days now has not helped matters as oil inventory data in the U.S. sent oil prices sliding after putting in a strong reversal signal last week. The indecision in equities and the general weakness in commodities has weighed heavily on both copper (CPER) and silver (SLV), both of which correlate highly with gold on a day-to-day basis. So, if there was going to be one more short push to the downside in gold in an attempt to break the price below $1550 on a weekly basis, then this was the opportunity to do so.
All three of the events broke decisively in gold's favor. All of them were either explicit or implicit guarantees of more inflationary behavior on the part of the three most influential central banks in the world, the Federal Reserve, the ECB and the Bank of Japan:
The Bank of Japan is going to add $1.4 trillion to its already bloated balance sheet over the next 7 quarters, well above what the market was expecting.
Mario Draghi denounced the Cyprus depositor theft plan as ill-advised but also dusted off his speech from last July and reiterated for everyone in no uncertain terms that the euro, like certain venereal diseases, is forever.
Between the initial unemployment claims of 385,000 on Thursday and the huge miss on the BLS non-farm payroll data on Friday -- 88,000 low paying jobs and a labor force participation rate not seen since the Carter Administration -- we haven't seen a labor report this bad in over a year.
It was one thing to watch the gold market continue to sink post-Cyprus, it was another to watch it refuse to respond to an unfathomable amount of quantitative easing from the BoJ and the yen (FXY), getting clocked for nearly 4% in an hour. But when the market for 10 year JGBs has to be halted on breath-taking volatility and the BLS pretty much made Fed governor Richard Fisher look like an idiot for suggesting that QE in the U.S. will end soon, it was impossible to think that gold bulls would not pick up the pitchforks and torches and push the price in the direction of the fundamentals.
You will note the sheer number of articles declaring the break of support by gold to the downside and the calls for $1400 or $1350 because of an intra-day price move. Here's a hint. They mean almost nothing except to skew the near-term probabilities of an upside reversal. Whenever I discuss trading strategies, you will note that I almost never talk about daily movements. In today's highly manipulated and correlated markets daily price movements, especially in gold, are simply noise generated to create a perception and adjust sentiment not to discover price. Weekly and monthly prices reveal trends.
The only day of the week I take seriously in the gold market is Friday.
And at this point, even though gold put in one of its single most impressive days of the year, I'm not convinced that Monday the markets won't open and we'll have to watch the bulls plough the same row all over again.
I'll finish up here with some other observations heading into the weekend to ponder:
1. The TIPS (TIP) market has stopped vacillating. The 10 year yield plunged this week from -0.65% to -0.74%, the lowest yield since the days following the QE IV announcement.
2. The TIPS curve contracted on the last two days of this week with the 5/30 dropped from 2.02% to 1.80%. The 5 year TIPS refuses to break below -1.50%.
3. Excess reserves held by the banks at the Federal Reserve reached an all-time high in March at $1.698 trillion. There is no recovery in the health of the U.S. banking system. Bank credit growth has flat-lined in 2013 as well.
4. Brent Crude (BNO) dropped from $111 to $104 per barrel in 4 trading days. Friday sent the gold to Brent Ratio soaring back to 15.18 which was the highest reading since late January.
5. The gold to silver ratio is currently 57.97 and is very high. It has always reversed (4 times) from this level since the correction in gold began in September 2011. It is also been trending against the historic trend, which is down.
6. Gold needs to put in a weekly close above this week's high of $1604 to create a preliminary reversal signal. The real reversal signal occurs at $1620, however.
7. The Draghi put is back in place and the euro (FXE) is headed higher from here. The reversal in the euro was made on structural reasons, not moral ones.
8. April is already an outside month, which would normally limit the upside reversal potential but March was exceptionally quiet -- less than 50% of normal monthly volatility -- so the chance to break the March high and low are much higher than normal. So I would still give a potential rally to $1700 an outside shot in April, especially if gold closes over $1620 next week.
Additional disclosure: I own physical gold, silver and a few goats.
http://seekingalpha.com/article/1324501-trifecta-of-events-all-break-in-favor-of-gold?source=email_authors_alerts&ifp=0
Jim Rogers: “I Suspect They’ll Take The Pension Plans Next; I For One Am Worried, And I’m Taking Preparations”
April 5, 2013 | By Tekoa Da Silva
I was able to reconnect for an interview with legendary Quantum Fund manager and commodities bull, Jim Rogers. This was an especially groundbreaking interview, as Jim shared thoughts on what governments around the world will be taking next, and what he’s doing right now to protect his personal bank accounts following the Cyprus collapse.
Speaking towards the frightening implications of the Cyprus banking collapse, Jim said that, “It’s been condoned [now] by the IMF, the European union, and everybody else in sight; that a government in need, can take assets. We all knew they could tax us…but this is the first time that I’m aware of, that they’ve gone in and taken bank accounts. They took gold from people in the U.S. in the 1930's…but I’ve never heard of them taking bank accounts. [Now] they’re doing it. So be careful [because], now they can take your bank account under this precedent.“
When asked if bank account confiscation will be going worldwide, Jim said, ”Well, it’s now in their bag of tricks, but yes, they can do anything they want too now. I for one am worried and I’m taking preparations. Who knows if I’m right or not, but I’d rather be safe than sorry as all of those people who had money in Cyprus have learned. They thought they had a normal bank account…but now it’s been [taken] with the sanctions of many governments and institutions.”
Jim also urged that, “If people have money in any account, anywhere in the world…cut it down to under the guaranteed amount. They might take that too someday when things get desperate, because the precedent has been set, but that’s where I would start if I had money in the bank anywhere in the world.”
With respect to which assets governments will likely be coming for next, Jim said, ”401k plans, IRA’s, and pensions plans which the government knows about [may be next]…They’re rationale would be, ‘Well most people haven’t been doing well in their IRAs and pension plans for the past several years, so we’re going to help you. We’re going to take your pension plan and give you government bonds so that you have a guaranteed return.”
Jim further added that, ”That’s how they’ll rationalize taking our money. They know where all the pension plans are because we have to report it, so they’re easily accessible by governments. They know where they are, what they are, and they’ll be able to snatch them away. Who knows what they’ll do, but they’ll certainly find some way to take our money when things get worse, they always have.”
As a final chilling comment to end the interview, Jim noted that, “Anything they know about—they might easily take.”
———
This was another powerful interview, conducted with an absolute legend of our time. It is required listening for serious investors and market students.
To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:
>>Interview with Jim Rogers (MP3)
http://bullmarketthinking.com/jim-rogers-i-suspect-theyll-take-the-pension-plans-next-i-for-one-am-worried-and-im-taking-preparations/
Jim Rogers: “I Suspect They’ll Take The Pension Plans Next; I For One Am Worried, And I’m Taking Preparations”
April 5, 2013 | By Tekoa Da Silva
I was able to reconnect for an interview with legendary Quantum Fund manager and commodities bull, Jim Rogers. This was an especially groundbreaking interview, as Jim shared thoughts on what governments around the world will be taking next, and what he’s doing right now to protect his personal bank accounts following the Cyprus collapse.
Speaking towards the frightening implications of the Cyprus banking collapse, Jim said that, “It’s been condoned [now] by the IMF, the European union, and everybody else in sight; that a government in need, can take assets. We all knew they could tax us…but this is the first time that I’m aware of, that they’ve gone in and taken bank accounts. They took gold from people in the U.S. in the 1930's…but I’ve never heard of them taking bank accounts. [Now] they’re doing it. So be careful [because], now they can take your bank account under this precedent.“
When asked if bank account confiscation will be going worldwide, Jim said, ”Well, it’s now in their bag of tricks, but yes, they can do anything they want too now. I for one am worried and I’m taking preparations. Who knows if I’m right or not, but I’d rather be safe than sorry as all of those people who had money in Cyprus have learned. They thought they had a normal bank account…but now it’s been [taken] with the sanctions of many governments and institutions.”
Jim also urged that, “If people have money in any account, anywhere in the world…cut it down to under the guaranteed amount. They might take that too someday when things get desperate, because the precedent has been set, but that’s where I would start if I had money in the bank anywhere in the world.”
With respect to which assets governments will likely be coming for next, Jim said, ”401k plans, IRA’s, and pensions plans which the government knows about [may be next]…They’re rationale would be, ‘Well most people haven’t been doing well in their IRAs and pension plans for the past several years, so we’re going to help you. We’re going to take your pension plan and give you government bonds so that you have a guaranteed return[.”
Jim further added that, ”That’s how they’ll rationalize taking our money. They know where all the pension plans are because we have to report it, so they’re easily accessible by governments. They know where they are, what they are, and they’ll be able to snatch them away. Who knows what they’ll do, but they’ll certainly find some way to take our money when things get worse, they always have.”
As a final chilling comment to end the interview, Jim noted that, “Anything they know about—they might easily take.”
———
This was another powerful interview, conducted with an absolute legend of our time. It is required listening for serious investors and market students.
To listen to the interview, left click the following link and/or right click and “save target as” or “save link as” to to your desktop:
>>Interview with Jim Rogers (MP3)
http://bullmarketthinking.com/jim-rogers-i-suspect-theyll-take-the-pension-plans-next-i-for-one-am-worried-and-im-taking-preparations/
Are All G20 Bank Depositors Exposed to a Cyprus Style Seizure of Deposits for a 'Bail-in?'
Posted by Jesse
at 11:04 PM 03 April 2013
(special thanks to basserdan)
Dave from Golden Truth has let me know of an interesting quote from an article by Eric Sprott titled Caveat Depositor ( http://tinyurl.com/cdrmrd5 ) which *could* explain why countries like New Zealand and Canada are quietly tilting towards seizing bank deposits to recapitalize failed banks.
"If there is a risk in a bank, our first question should be: ‘Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?’ If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank. And if necessary the uninsured deposit holders: ‘What can you do in order to save your own banks?’”
-Jeroen Dijsselbloem, March 26, 2013
Apparently this template has already been agreed to by the G20 according to Dave.
"Because the use of taxpayer-funded bailouts would likely no longer be tolerated by the public, a new bank rescue plan was needed. As it turns out, this new "bail-in" model is based on an agreement that was the result of a bank bail-out model that was drafted by a sub-committee of the BIS (Bank for International Settlement) and endorsed at a G20 summit in 2011.
For those of you who don't know, the BIS is the global "Central Bank" of Central Banks. As such it is the world's most powerful financial institution. I sourced a copy of this Agreement here: http://tinyurl.com/bv97x9k
...the agreement references specifically avoiding more taxpayer bailouts. It also refers to bank deposits in excess of Government insured amounts as "uninsured creditors." This is essentially the standard legal bankruptcy model which uses creditor hierarchy (secured lenders, unsecured lenders, preferred equity, equity) and applies to the rescuing of banks.
This is very important to know about and understand because what is commonly referred to as a "bail-in" in Cyprus is actually a global bank rescue model that was derived and ratified nearly two years ago. It also means that bank deposits in excess of Government insured amounts in any bank in any country will be treated like unsecured debt if the bank goes belly-up and is restructured in some form.
Because this is a legal Central Banking agreement that will be applied globally, it also means that U.S. bank depositors will not be immune to this rescue mechanism. It means that no one should keep any amount in any bank that exceeds the FDIC guarantee. In fact, I would recommend only keeping enough money in the bank to fund your monthly or quarterly bill paying requirements. Any amount in excess of FDIC deposit insurance will be exposed to the risk bankruptcy."
You may read the entire article at Dave's blog Golden Truth. http://tinyurl.com/d56ulnl
I would assume that if Dave's reading of this document is correct, unless there is a specific and unequivocal denial by your local government Administration, then this is the operative plan for another series of bank failures in the G20 countries, including the US, Germany, France, Italy, and the UK. This would explain how these stealthy depositor seizure plans have been bubbling up from diverse countries.
I would not be satisfied if there was merely a dismissal of the possibility, that Cyprus was somehow a 'special case' because of the way in which their banks were capitalized, and so heavy with deposits. In the event of a global derivatives meltdown, no capital structure will stand, and no bank can maintain a so-called 'fortress balance sheet' while they are gambling wildly with speculative leverage on the side.
I do not wish to seem to be an alarmist, but this additional information and some of the other events which are occurring has created a rather significant shift in my thinking. Cash is not cash and deposits are no longer deposits as we once thought of them in this non-transparent, post-Glass Steagall financial world of ours.
Congratulations. You may now be an unsecured creditor of your local TBTF bank if your and yours have any money on deposit there, either directly or indirectly. You say you have money in a pension fund and an IRA at XYZ bank? Oops, it is really on deposit in you-know-who's bank. You say you have money in a brokerage account? Oops, it is really being held overnight in their TBTF bank. Remember MF Global?
Who can say how far the entanglements go? The current financial system and market structure is crazy with hidden risk, insider dealings, control frauds, and subtle dangers. Jim Chanos says that the cheating is so widespread and unpunished that it becomes almost a fiduciary responsibility to break the rules.
No wonder people are so edgy. I think the plutocrats have gone too far, but are so detached and out of touch that they have not figured it out yet. And when the awaking comes, it will be quite a surprise to many.
To my correspondents who say they have spoken to their elected representatives about this and received assurances, I would not assume that they are aware of this international agreement which the US has presumably signed. I was not.
And if you think they will stand up against any plans to take your deposits during a banking emergency, against a vociferous and overwhelming flood of objections from their constituents, remember how quickly the Congress caved on TARP and Cyprus' Parliament gave way to the EU and ECB.
Welcome to the abyss.
Posted by Jesse at 11:04 PM
http://jessescrossroadscafe.blogspot.com/2013/04/are-all-g20-bank-depositors-exposed-to.html
Reviewing The Thesis For Precious Metals And Miners
Apr 3, 2013
Emmet Kodesh
SeekingAlpha
As the markets surge and Gold and Silver drop we should review the thesis for Precious Metals and Miners. On April 2 the XAU index (PHLX) fell 3.94% while the main indices rose to new nominal highs. The PM sector continues to badly underperform others and this raises some basic questions: does continuing underperformance make it a strong contrarian play? Should it be limited to 5 - 10% of your holdings? Should you seek up-days to sell off your miners? Let us look at the economic and fiscal situations and the interplay of geopolitics, trade and finance for answers to these questions.
The 4.46% rise of the USD in the past year (4.09 YTD) certainly exerts downward force on precious metals and miners prices. Yet the fall in the share price of miners far exceeds the strengthening of the USD. The XAU comprises 31 miners and is down 28% in a year. The Junior Gold Miners (GDXJ) is down 42% in the past fifty-two weeks and the Gold Miners ETF (GDX) down 44%. Since the 4th Quarter of 2012 GDXJ has been making new all-time lows since inception and is 65% off its January 2011 high. In its fall the sector has become deep value and sells without a premium unlike the decade that preceded 2008. Still, one doesn't want to ride a loser for the sake of attractive prices. The decline in miners is of another order than the extended basing and range bound prices of bullion the past 22 months for silver and 18 months for gold. Even though the markets are enjoying a cyclical bull within a secular bear market, the fall in the miners is the backdrop for this review of the thesis of over-weighting PMs and PGMs (Platinum Group Metals).
Important macro-economic and geopolitical-trade dynamics in time will exert downward pressure on the Dollar. There are increasing ex-USD bilateral trade arrangements, most of them including China with nations as disparate as Japan, Australia, India, Russia, Brazil and South Africa. The BRICS nations met in Durban March 26-7 and initiated a fund to support multilateral ex-USD trading. Additionally, there are formal proposals based at OMFIF in London to establish a new world reserve system composed of the USD, Renminbi (RMB), the currencies of the BRICS nations and gold. I have discussed this plan here. The RMB's rise against the Dollar matches the current bull market and China continues its large purchases of PMs and PGMs. These developments are constructive for gold. So too is ongoing expansion of digital currency and sovereign debt in England, America, Europe and Japan.
Moreover, the shift to a multilateral world reserve system backed with gold should give a firmer basis to the global economy which now is sapped with debt and demographic decline. Strengthening of economies based on fundamentals and sounder fiscal practice rather than on debt and derivative expansion also will boost tech-industrial metals like Ag and PGMs. I reported on the integration of PGMs with economies here.
The Cyprus bank bail outs for now are boosting markets, the Dollar and US Treasuries as money leaves European banks for safer havens. Those with over 100k Euro at the Cyprus Central Bank are having 37.5% of their deposits exchanged for bank shares and 22.5% frozen for an indefinite period. Those at the second largest bank, The Popular Bank (Bank Laiki) are going to lose 80% of their funds as the bank is folded into the Central Bank. Although the Euro recovered to $1.282 from its April 1 drop to $1.277, Eurozone problems are systemic and the Euro likely will approach parity to the dollar. The official Eurozone jobless rate is above 12% and rising as UK factory orders drop. This economic decline urges holding precious metals in Euros (or Yen) but a strengthening USD will hold down PM prices/USD in the short term.
Deepening structural problems in Europe are in synergy with secular declines in American income, net worth and liquidity which lead to slowing retail sales growth which lead to market flops. While growth is up since last July's trough it is half that of early 2011 and below the rate of a decade ago. The doubling of the national debt since 2008 also raises doubts about this year's market surge. Though a notable rise in gold seems remote now, the basis of the economy is weak and in tandem with the trade, finance and reserve trends noted above will eventually produce a higher Gold/USD ratio. Looking at the ratio's chart in the 42 years since the abrogation of Bretton Woods puts the basing in precious metals prices these past 2 years in context: even with the past 4 years cyclical bull market the ratio shows USD/Au merging as was the case from 1970-9 and as recently as 1991. Indeed it shows that the signal feature of the post crash period has been the close correlation of the DOW and Gold. So the bull markets are not likely to further suppress PM prices or miners, who will rise with genuine economic growth. The metals remain in the center of their 12-year up channel, right on the trend line despite 15-20 months of basing for gold and silver respectively.
Thus, though it is counter-intuitive, historical price movement shows that PMs will track market strength and when economic or fiscal problems undermine nominal index highs, metals prices will regain their status as a hedge to fiat valuations. Because miners are rooted in business-economic matrices they will be volatile when equities decline. They certainly are shunned now but that is a bullish epitome: "buy when there's blood in the streets," as Buffet says: "buy panic" as Jim Rogers remarks. Having reached capitulation - like selling amid growing ex-USD trade that previews a new world reserve system, miners too will share in the rise of metals. Major producers now grossly undervalued will lead this expansion and acquisitions will resume.
It is becoming legitimate to favor gold and silver and criticize Keynesian experiments. In the New York Times, David Stockman blasted the "warfare-welfare" state and the wrecking of the economy that ensued when the State usurped gold as the definer of value. Reinforcing my view on the dangerous and growing chasm between the markets and economy, Stockman lashed a government being run for the 1% while disguising its imperial character with populist rhetoric. So the collapse or "sundown in America" as he termed it and its link to fiat currency is now in the mainstream. This discourse will lift knowledge about fiscal - currency basics and support metals' prices.
Similarly regarding gold, on the Willis Report on Fox Business April 1, analysts Steve Crowley and David McAlvaney stated that the best investment at this juncture is gold. Crowley added "the entire Canadian Resource Sector" is today's best value play. The segment is not yet on the web but the prominent place given to these suggestions speaks to sentiment for precious metals and miners as premier value plays in today's rush to the indices.
As noted in my previous piece, insider buying at GDX listed companies in March reached 7 - 1 level usually seen at a market trough. The Toronto Globe & Mail online for March 25 wrote
"Insiders are typically contrarian investors... Right now it appears many of them think [mining] stocks are going for fire-sale prices. They are usually early, too. Historically, insider transactions often foreshadow market moves... it's interesting to see insiders display this level of confidence in a sector that the broader investment community has been fleeing." The macro backdrop that drove the 2011 peaks has not changed but only deepened. Insider buying accelerated last December and supports the thesis being examined in this article that despite the dismay about this badly lagging sector a base is being prepared from which "fortunes will be made" as Rick Rule commented. He added his own version of the Rogers, Templeton, Buffet rule: "sell when you're feeling brilliant: buy when you're feeling terrible." Rule shares my view on upcoming growth in PGMs as articulated here. He has just bought $280 Mn in PGM miners based on increasing demand and limited supply. Basic principles like supply and demand and buying panic ("buy low, sell high") help re-focus the mind when sector under-performance sickens the heart.
In a March 27 interview with au report, Peter Krauth notes that average commodity bull is 17 years, not 12, and suggests, as I have done that energy, agriculture and precious metals are the best areas for growth. I have mentioned the merits of Sprott Natural Resources (SCPZF.PK) that combines these areas in its holdings. Also note that the current equities market is a cyclical bull within a larger secular bear market that began in 2000 and that it rests unsteadily on the inflation of fiat-debt currencies. Continuing electronic creation of debt builds bank balance sheets, receiving credits at 0.0% interest and loaning it out at 3-5% (or selling Treasuries for MBS repos and playing the market), but even with this no-risk profit margin the loan/deposit ratio is shrinking as the major banks vote 'NO' on the economy. Against this backdrop, the descending wedge for both silver and gold has solidified as recent dips have stayed above strong support at $26.50/oz and $1555/oz respectively: "The larger gold miners have become extremely cheap, with very compelling valuations" Krauth comments. Among juniors, I again mention Reservoir Minerals (RVRLF.OB) with its huge, high-grade mine in Serbia. In the past month it out-performed not only its sector but even Consumer Staples, rising 55%. Amid the April 2 sell down in the miners it rose 6.01%.
Regarding rising taxes and royalty rates on miners, Krauth says "We expect to see this everywhere. Governments are hungry for income." Nevertheless he foresees profitability. Because of the strong fundamentals for precious metals, Central Bank and investor buying and, for silver and PGMs expanding industrial applications "this rise in taxes will have only a temporary dampening effect; it will not hurt the bull market in any way" Krauth concludes. Combine his view with the thesis I presented in "NGOs Thwart Miners, Skew Sector Outlook."
John Hathaway of Tocqueville Gold (TGLDX) continues to see precious metals as optimal value plays. Caesar Bryan, Manager of Gabelli Gold Fund (GOLDX) emphasizes that increasing governmental direction of fiscal policy distorts markets, increases debt and deadens economic growth. In Europe there is negative growth and in Japan inflation posturing as growth. Today miners trade at discounted valuations whereas from 1997-2007 they traded at 100% premium.
The Cyprus crisis exposes counterparty risk in simple checking and savings accounts. The ugly fact is that via derivatives banks are insolvent and this is why they are hoarding cash and blaming the consumers whose money is their collateral. So even cash now is a risk asset. "Bank deposits and even cash itself must now be considered as investments with severe downside risk in the event that the Cyprus template spreads to other countries. This is a huge change..." notes Robert Fitzwilson of the Portola Group. So the Cyprus crisis bolsters the thesis for owning precious metals which at current prices qualify as strong value and contrarian plays aside from their intrinsic merits in technology-industry and as currency. Fitzwilson concludes:
"Doubts about the safety of bank accounts and sovereign debt could trigger a rare confluence of fear and greed. The impact on the prices of real assets, particularly gold and silver, would be great." Recall that the FDIC only has funds to back .04 of the bank deposits it supposedly secures. The banking sector of Cyprus was 7.1 x GDP. UK Banks are 5.1 x GDP. In Switzerland the ratio is 4.8 x 1. America at .8>1 is clean by this measure and the flow of money into the "safe haven" of US Treasuries masks the positive fundamentals for PMs.
Note that Tuesday's sell down in PM miners did not show that royalty or streaming companies do better than miners. Franco Nevada (FNC), Silver Wheaton (SLW), Sandstorm Gold (SAND) and Royal Gold (RGLD) were down 1.51% (FNV) to 3.93% despite analysts retaining a strong buy on Silver Wheaton with an average target price of $49, 65% above its current level. Its revenue, income, income to revenue ratio, dividends all are increasing. Its trading performance typifies the rupture between perception and value on the precious metals and mining sector.
To sum up the main points of the precious metals thesis: they are powerful value and contrarian plays. Government debt and currency devaluation increases their merits though this presently is masked by a stronger USD and investment in US bonds. Massive buying of PMs continues by Asian banks and citizens and the BRICS nations are establishing a $100 Bn reserve fund to trade in their own currencies. These developments bolster BRICS currencies and PMs which are part of their trade arrangements. Silver and the PGMs retain the benefits of expanding industrial - technological uses that will persist even when the world sags into recession. The debt in major economies is finessed with creation of more debt and derivatives which almost insures a depression. But even if the markets soar, the history in the charts referenced and linked above indicate that PMs and miners will rise from current depressed levels.
Thus, rather than capitulate on metals, trim if your allocation feels unsustainable but try to avoid locking in a loss. Check top-ranked funds to support your own research on the best companies to hold or add. Remain in the 10-20% range for bullion and miners combined. Wait for a spring pullback before nibbling more on the indices. This will be a memorable year.
http://seekingalpha.com/article/1318621-reviewing-the-thesis-for-precious-metals-and-miners
BRICS Are Forcing A Dollar Endgame
Apr 4 2013
Tom Luongo
I want to make clear at the outset that this is a long-term strategy piece and not to be confused with looking at a near-term trading scenario. It is important to make that distinction before I get started. Looking at the big picture requires thinking about things in longer time frames than the next month or even quarter.
The events in Cyprus which took center stage last month were an admission by the ECB, the Fed and the IMF that there wasn't enough QE available to bailout the banking system if the currencies in question - the U.S. dollar (UUP) and the euro (FXE) were going to survive the debt deflation and knock-on effects from the derivative collapse that is occurring.
In order to finance part of this process depositors will pay part of the bill. There is a reason why deposit insurance is not unlimited and it is for moments in history just like this. That the Western monetary authorities thought it was a good idea to threaten insured depositors to scare them into circulating their money, thereby undoing more than 80 years of trust in government guarantees, should tell you something about the gravity of the situation.
In previous articles I've discussed the need for the international demand for dollars to remain as high as possible as both the reserve system breaks down and the use of dollars as the universal medium of exchange in international trade - especially that of oil and gold - breaks down. The TIC report has been very revealing in the hardball that is being played by the Fed to force China to buy more U.S. Treasuries after it antagonized Japan over the Senkaku/Diaoyu islands. This was a massive geopolitical error on China's part. Had they let that sleeping dog lie and continue strengthening ties with Japan, the Abe government would not have had to throw its hat back in the ring with the U.S. and engage now in very ill-advised, nearly biblical QE.
Another BRICS in the Wall
The recent BRICS Summit was notable for a number of things, not the least of which was the $30 billion currency swap arrangement between China and Brazil. Make no mistake, just like the similar deal struck between Japan and China last year, this is an important step in ensuring that the dollar is cut out of an ever-growing swath of international trade. While the summit ended without a firm commitment to a BRICS version of the World Bank, expect that to become a reality in the near future. At a minimum, expect stronger ties between these nations as the decade gets older.
Let's add into that the growing closeness of China with its ASEAN trading partners, exemplified by the nomination of ICBC as the clearing bank for yuan-denominated trade in Singapore. Previous to this, transactions had to be routed back through Hong Kong but now the process is streamlined and again, will cut the dollar slowly out of trade between Singapore and China.
In this respect I would expect the Singapore dollar (FXSG) to continue moving in sympathy with the yuan (CNY) than with the dollar or the euro. For all intents and purposes, the Singapore Dollar has been pegged to the Malaysian Ringgit at ~2.5 to 1 for nearly the past year. While the Ringgit itself trades very strongly with the Yuan.
This makes sense since Malaysia is Singapore's biggest trading partner and China is Malaysia's. To further facilitate this move away from the dollar and Western monetary control, China has developed the China ASEAN Electronics Clearing System (CHANCES) and guess which bank is the CHANCES representative across ASEAN? ICBC is.
Revenge will be SWIFT
When the U.S. pushed Iran out of the SWIFT system as a final bit of leverage to try and crush their adolescent nuclear program, it set in motion the current chain of events. China has moved brick by brick to remove itself from the dollar trade internationally.
The point here is that SWIFT is not that difficult to replicate and within four months of the Iran sanctions taking effect, China was deploying CHANCES across ASEAN. Now, let's add in the fact that gold and other commodities futures are trading in Shanghai and being settled in both yuan and dollars and that crude oil is next in line - presumably by the end of the year but possibly sooner. This is a direct threat to the petrodollar system and places even more pressure on the demand for dollars. With Russia and China laying the groundwork for Russia to supply the oil for the contract, you should be able to connect the dots as to where all of this is headed.
The Prevent Defense
This brings me to where we are today. There is a whiff of desperation in the air at the moment that is hard to ignore. Western monetary authorities are working extra hard to keep all hints of instability swept up under the rug. When I look at the big picture, I see falling structural demand for dollars that is being papered over by a mix of fear in Europe, historic debasement of the Japanese yen and ruthless suppression of the price of gold (GLD). The VIX is at an historic low and U.S. equities continue to shake off rising commodity inventories and worsening employment data.
Attempts at goosing money velocity to this point have been an abject failure and economic activity around the world is slowing down despite a tremendous amount of money having been printed. There is no way to remove this money without causing the entire banking system to collapse, so a mixture of QE and depositor impairment will be the order of the day as time goes along.
This is highly inflationary, as this money will move out of the currencies that are depreciating and will move into those that are or give a return above its home country's CPI, in effect, effecting a real yield. Some of it will flow into physical gold. And the more this system is revealed to be insolvent, the more people will trust the promise of gold in their hands rather than digits in their accounts. The ratio of M2 to M1 will collapse in structurally weak currencies.
(Click to enlarge)
In the U.S. currently this is the scenario we are facing. Falling M2/M1 - since M2 is M1 plus savings - is coupled with falling money velocity. The Fed has tried to scare savers to death but it hasn't worked. M2 velocity is still in free fall, as it has been since the turn of the millennium.
(Click to enlarge)
What this means is that the savings are not being deployed into the economy but rather being laundered out and transformed into some other form of savings. I have established in previous articles that the money is not flowing into Treasury bonds nor is it flowing into commodities - the CCI, if anything, has been signaling economic contraction for a while now. It is not flowing into paper gold either as ETF outflows have been very large - more than $7.3 billion in 2013.
The data and the headlines are pointing in one direction, that there is a serious problem lurking just beneath the surface of these currently calm waters which the records in the S&P 500 (SPY) and the Dow Jones Industrial Average (DIA) are masking. The Fed is trapped. It cannot print money in the face of weakening international demand for dollars. But it needs to do so to fund the shenanigans in Washington D. C.
Interesting Times
At this point, China has been willing to let the yuan slowly appreciate versus the dollar - now ¥6.20 - while soaking up some of the supply of Treasuries being created and buying gold to improve its hard asset backing. But, there will be a limit to how much China will absorb and as the yuan becomes more internationalized and the dollar less important to the Chinese economy. The news that Australia and China have launched direct trading of the yuan and the Aussie, cutting the dollar out of trade between them is very significant and will further marginalize the dollar in the region.
So, where are we now? We are at the stage of extreme defense of the dollar's position as both the world's reserve currency and as the dominant currency for settling international trade. The foundation is being laid every day which means that the Fed must continue on its current path of monetary debasement and scare tactics to project calm to the world. But, all is not calm. The key to projecting this calm, however, is a falling or unresponsive gold price and a rising stock market.
At some point the game will change and what happened in Cyprus will happen somewhere else and capital will continue to shift from West to East and the control over how that capital flows is transferred as well.
http://seekingalpha.com/article/1321261-brics-are-forcing-a-dollar-endgame?source=email_authors_alerts&ifp=0
UniCredit Says Global Rule Needed to Bail In Big Deposits
By Boris Groendahl - Apr 4, 2013 8:17 AM ET
Bloomberg
Uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach, according to Federico Ghizzoni, the chief executive officer of Italy’s biggest lender, UniCredit SpA. (UCG)
Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.
Including deposits “is acceptable if it becomes a European solution,” said Ghizzoni, 57. “What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented. Otherwise we would open the market for arbitrage.”
Cyprus became a testing ground for investor losses when euro-area authorities last month required restructuring of the country’s two biggest banks as a condition of a 10 billion-euro ($12.8 billion) rescue. The Cyprus program was the first to impose losses on uninsured depositors as the EU continues to hash out how to handle failing banks on a case-by-case basis. Its banking resolution law is still under discussion.
‘Sensitive Issue’
Ghizzoni said deposits should only be included when bonds aren’t sufficient, and those below the guaranteed level of 100,000 euros should be off limits. While he would prefer not to touch them at all, including deposits in a global plan was a acceptable solution, he said.
“The deposit issue is very sensitive,” he said. “It will become part of the discussion for the bail-in instruments related to the resolution plans of banks. I hope it will be addressed carefully and with clarity.”
EU lawmakers and national governments agreed on March 19 to a provisional deal to turn the European Central Bank into a supervisor for banks in the euro zone and other willing nations.
The EU also is working on proposals to standardize procedures for insuring deposits and shutting down banks, including which investors should absorb losses. Those rules are due to be agreed on by mid-2013, and proposals for a common bank resolution framework are due later this year.
Deposits Stable
Ghizzoni said he had been “afraid” of his clients’ reaction to the measures in the Cyprus rescue and asked for monitoring of deposit flows in all 22 European countries -- stretching from Italy, Germany and Austria as far as Russia and Turkey -- where his Milan-based bank operates. It didn’t find any loss of deposits, he said.
“Really, we were afraid, we started to monitor on a daily basis the flow of deposits in different countries,” he said. “Maybe I’m disappointing you, but in reality we had no reaction so far from customers.”
UniCredit increased its deposits in Italy by 8 percent last year, Ghizzoni said. While this was good for the bank’s funding, it was also a worrying sign for the Italian economy that people aren’t increasing consumption, he said.
While the inconclusive election in Italy has created uncertainty about who will govern the nation in the future, Ghizzoni noted that this uncertainty hasn’t carried over into higher debt costs so far.
“If you forget the equity market and look at fixed-income rates and spreads, it didn’t move in spite of the fact that there is quite high political uncertainty,” he said.
To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net
http://www.bloomberg.com/news/2013-04-04/unicredit-s-ghizzoni-favors-using-big-deposits-in-bank-failures.html
Global Deposit Confiscation Called For By Influential CEO Of Italy's Largest Bank
5 April 2013
Source: GoldSeek.com
Cross Currencies Table – Bloomberg
Gold is higher in most currencies today except the Japanese yen. Gold surged over 3% to 0.149 million yen per ounce yesterday as markets shuddered due to the scale of currency debasement soon to be seen in Japan.
While the Nikkei has surged as expected, Japanese 10 year bonds sold off sharply with yields spiking from the all time record lows of 0.334% to over 0.6%.
The risks of a bond market crisis or currency crisis in Japan is something we have long warned of. The risk is now very high and hence strong demand for gold bullion in Japan with Reuters quoting sources in Japan who said that "the general public is buying."
Billionaire investor George Soros and Bill Gross, who runs the world’s biggest bond fund, said the Bank of Japan’s currency debasement risks weakening the yen. Indeed, Soros has warned of a currency "avalance".
“If the yen starts to fall, which it has done, and people in Japan realize that it’s liable to continue and want to put their money abroad, then the fall may become like an avalanche,” Soros said today in an interview on CNBC.
An interesting development in the precious metals market is the largest Dutch bank, ABN Amro, has said that they will no longer be providing physical delivery of precious metals including gold, silver, platinum, and palladium bullion coins and bars.
ABN AMRO, one of the largest banks in Europe announced in a letter to clients that it would no longer allow clients to take delivery of their metal and instead will pay account holders in a paper currency equivalent to the current spot value of the precious metal.
Thus, instead of legally owning a risk free, physical asset (a bullion bar or a bullion coin), the bank’s clients are now unsecured creditors and are now exposed to the bank and the financial system – somewhat defeating the purpose of owning precious metals.
The move highlights the importance of owning physical bullion either in your possession (be that be in a safe or vault in a house, in the attic, under the floorboards or elsewhere in your possession) or in a secure vault in a country that is stable and respects property rights.
Gold is again testing long term support at the $1,540/oz level and at the €1,200/oz and £1,000/oz levels (see charts).
While further weakness is possible and the short term trend remains down, current price levels will be seen as cheap in the coming years as fiat currencies continue to be devalued versus store of value gold.
Gold looks oversold and gold’s 14-day relative strength index has fallen to 28.4, below the level of 30 that indicates to some analysts who study technical charts that a rebound may be imminent.
Markets and many experts remain in complete denial about the ramifications of the EU, IMF, ECB deposit confiscation in Cyprus. The mantra is that Cyprus is different and unique. This is the same complacent and irresponsible mantra that was heard when the subprime crisis in the U.S. reared its ugly head and when Greece began to implode in 2009.
The CEO of Unicredit Federico Ghizzoni said yesterday that it is “acceptable to confiscate savings to save banks.” He said that the savings which are not guaranteed by any protection or insurance could be used in the future to contribute to the rescue of banks who fail and that uninsured deposits could be used in future bank failures provided global policy makers agree on a common approach.
Gold in EUR (3 Year) – Bloomberg
He called for “a common solution in Europe” saying that the “EU should pass laws identical and shared in different member states”. Indeed he went a step further and called for a global coordination of deposit confiscations to rescue failing banks.
Including deposits “is acceptable if it becomes a European solution,” said Ghizzoni, 57.
“What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented.
Ghizzoni is also a Member of the Board of Directors of Institute of International Finance in Washington, Member of the International Monetary Conference in Washington and Member of the Institut International d'Etudes Bancaires in Brussels. He attended the powerful Bilderberg Group meeting in Spain in 2010 and he a frequent attendee at Davos.
It is important to realise that the Cypriot deposit confiscation was not a "haircut" rather this is a confiscation of people's deposits - 60% of individual and companies hard earned cash saved in a bank.
Cyprus is not a tax haven or offshore. It is in the EU and the majority of the deposits were held by EU citizens - Cypriots, Greeks, British, German, Italian and citizens and companies of other nations.
Russian deposits made up just 8% of the total and of that only a tiny fraction was 'Oligarch money'.
This is an attack on capitalism itself and something that one would expect in North Korea. It is a very dangerous precedent and what is more concerning is that there are policy papers calling for similar confiscation of deposits in the UK, Canada and New Zealand in future "banker bail outs" or “bail ins”.
We do not have a “crystal ball” however we are keen students of economic history and of the history of debt and financial crises. This clearly shows that sovereign nations, be they led by kings and queens or democratically elected governments usually resort to printing money and debasing the currency or expropriating assets.
Gold in GBP (3 Year) – Bloomberg
Today, we have powerful supranational institutions who have little loyalty or affinity with ordinary people or businesses and whose primary aims seem to be to protect failing banks and a failing currency union.
The confiscation of deposits, especially deposits over the €100,000 level seems likely in other European countries and could be seen in indebted nations globally.
Individuals, families and companies need to diversify their assets and not have all their life savings and capital in banks.
For breaking news and commentary on financial markets and gold, follow us on Twitter.
http://news.goldseek.com/GoldSeek/1365165660.php
CEO Of Italy's Largest Bank Says Haircuts Of Uninsured Depositors "Acceptable", Should Become A Template
by Tyler Durden on 04/04/2013
ZeroHedge
While the head of the ECB and his assorted kitchen sinks scramble to explain how Diesel-BOOM was horribly misunderstood when saying that depositor impairment may and will be the template for future European bank "resolution" (as should have been the case from Day 1), the CEO of Italy's largest bank appears to have missed the memo. As Bloomberg reports, according to the chief executive Federico Ghizzoni, "uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach." Or failing that, because if Cyprus taught us anything is that Europe will never have a common approach on anything, just use deposits as impairable liabilities, period, once the day of reckoning for Non-Performing Loans comes and these are forced to be remarked to reality, just as happened in Cyprus. One can only hope that uninsured deposits do not represent a substantial portion of the bank's balance sheet because the CEO basically just told them they are next if when risk comes back to the Eurozone with a vengeance. Especially since as Mario Draghi was so helpful in pointing out, "there is no Plan B."
To wit:
Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.
In fact, to the Italian, deposit impairment is perfectly ok as long as "everyone does it" - in other words, if it does become the template the Dutch finance minister already said it is, then all is well.
Including deposits “is acceptable if it becomes a European solution,” said Ghizzoni, 57. “What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented. Otherwise we would open the market for arbitrage.”
Ghizzoni said deposits should only be included when bonds aren’t sufficient, and those below the guaranteed level of 100,000 euros should be off limits. While he would prefer not to touch them at all, including deposits in a global plan was a acceptable solution, he said.
“The deposit issue is very sensitive,” he said. “It will become part of the discussion for the bail-in instruments related to the resolution plans of banks. I hope it will be addressed carefully and with clarity.”
Which makes perfect sense: where will those "evil, tax-evading oligarchs" go if everyone in the world says that no uninsured deposits anywhere are safe any more.
Well, perhaps Singapore? Or the Caymans? Or Lichtenstein? Or Switzerland?
Yes, there are tax havens where the banking sector is not woefully insolvent, and the rich have ways of finding out where these places are. And remember: Italy does not have capital controls to prevent the outflow of deposits. At least not yet.
But what it also means is that for a bank like UniCredit with nearly €1 trillion in assets, the liability side of its balance sheet is about to get far smaller, forcing it to readjust its balance sheet i.e., pump more equity to offset the loss of unsecured funding liabilities. One wonders just how this will happen when no European bank has made any real profits in the past several years, as for raising equity capital... forget it.
More importantly, as the chart below shows, deposits just happen to be a primary source of funding for the Italian megabank. Perhaps trying to spook them is not the smartest idea, especially if UniCredit also plans on one day "resolving" its non-performing loans (15% of total assets? 20%? 25%? 30%?) and is forced to "impair" liabilities from most junior all the way to deposits (and higher).
Ghizzoni's conclusion is perfectly expected: allay any fears that the Monte Paschi specter of depositor outflows has shifted to UniCredit:
Ghizzoni said he had been “afraid” of his clients’ reaction to the measures in the Cyprus rescue and asked for monitoring of deposit flows in all 22 European countries -- stretching from Italy, Germany and Austria as far as Russia and Turkey -- where his Milan-based bank operates. It didn’t find any loss of deposits, he said.
“Really, we were afraid, we started to monitor on a daily basis the flow of deposits in different countries,” he said. “Maybe I’m disappointing you, but in reality we had no reaction so far from customers.”
Maybe the CEO should revisit this issue in a few days to a week, once the bank's clients are fully aware its CEO is perfectly happy to sacrifice the whales in order to preserve his bank's viability. Perhaps then customers will have a slightly different reaction...
http://www.zerohedge.com/news/2013-04-04/ceo-italys-largest-bank-says-haircuts-uninsured-depositors-acceptable-should-become-
I understand and as it is I have a hard time keeping up with reading all the great articles you post! Much appreciated basserdan.
Valcambi CombiBar - The New Gold Standard in Gold (Video)
Thursday, 4 April 2013
GoldSeek.com
In the video below, Peter Schiff demonstrates an innovative new bullion product out of the Valcambi Suisse mint: the CombiBar. It is a 50-gram gold bar that can be broken into 1-gram segments without any loss of material.
Video Link (6min)
http://news.goldseek.com/GoldSeek/1365101216.php
basserdan thanks for adding the daily money morning segment.
Case for Gold 'more solid than ever' as 'profit takers' exit the market
April 3, 2013
By Rob St George
Over the past six months, the gold price has fallen by 4.5% at the same time as the MSCI World index of equities has gained 17%.
Malcolm Burne, chairman of the Golden Prospect Precious Metals investment trust, conceded that it was ‘certainly understandable’ for investors to have sold out of gold and moved into stock markets through the period, following the metal’s 400% appreciation over the past decade.
‘However,’ Burne contended, ‘once the sellers and profit takers have been shaken out fully, the arguments for a new revival upwards are more solidly in place than ever.’
First, he pointed to resilient demand from central banks. In 2012 such institutions purchased 534.6 tons of gold, the most they have in 20 years.
Second, gold should benefit from its promotion to being classified as Tier 1 capital for other banks. The decision by the Basel Committee on Banking Supervision, an industry regulator, is an upgrade from the metal’s previous Tier 3 status, meaning it was valued at only half the worth of cash for banks calculating their capital adequacy ratios. The change should induce them to hold more gold in their reserves.
Burne observed that this move coincided with Germany’s repatriation of gold worth around 60 billion pounds from foreign vaults. ‘Whether this is an insurance against future currency crises or not,’ he remarked, ‘it has to be seen as hugely relevant in today’s era of monetary debasement.’
The inflation and currency devaluations propagated by such stimulus policies are considered supportive of gold prices. ‘There is nothing more that attracts buyers to gold than monetary depreciation,’ asserted Burne.
Finally, Burne supposed that proposals by the China Securities Regulatory Commission to permit gold-backed exchange-traded funds (ETFs) would draw more participants into the market and so buoy prices.
‘The new ETFs are expected to appeal to larger-scale investors such as institutional or sovereign wealth funds,’ Burne explained. ‘Even before they start up, the volume of gold recently traded on the Shanghai Gold Exchange reached a record level in the latter part of 2012.’
Courtesy: What Investment
http://www.bullionstreet.com/news/case-for-gold-more-solid-than-ever-as-profit-takers-exit-the-market/4418
How Giant Companies Get Away with Paying Virtually No Taxes
Apr 02, 2013 - 06:30 PM GMT
By: Money_Morning
David Zeiler writes: Even though the United States has the highest corporate tax rate in the world, many American companies pay little or nothing in taxes - and some even get refunds.
That doesn't mean that U.S. companies necessarily cheat Uncle Sam, but the steadily falling amount of corporate taxes paid has clearly helped boost profitability.
A recent analysis by The Washington Post showed that it was typical for companies in the Dow Jones Industrial Average in the 1960s and 1970s to pay federal taxes that were between 25% and 50% of their global profits.
Today, most big U.S. companies pay half that.
A study by NerdWallet of the 500 biggest U.S. companies last fall showed that while the statutory corporate tax in the U.S. is 35%, the actual rate paid - not the amount companies set aside for taxes - is down to an average of 13%.
According to the NerdWallet data, 20% of the top 500 U.S. companies paid nothing in corporate taxes in 2011, and 42% paid between 0% and 15%.
The discrepancy has led some in Washington to call for corporate tax reform, which many U.S companies actually support - but mainly because they'd rather pay even less.
"We need to take steps to make our tax system more competitive and better aligned with the rest of the world by undertaking comprehensive tax reform that will reduce the corporate tax rate," Bob McDonald, CEO of The Procter & Gamble Co. (NYSE: PG), said in a statement released before a meeting of top U.S. CEOs with President Barack Obama in November.
Why Corporate Taxes Are So Low
The main reason corporate taxes have fallen off so much is that multinational companies have avoided bringing foreign profits home. As long as the profits stay overseas, a company can defer paying federal taxes on them.
But this often is not just money earned overseas; many companies have figured out schemes to transfer profits earned in the U.S. to overseas tax shelters.
For example, by using a Puerto Rico-based subsidiary, Microsoft Corp. (Nasdaq: MSFT) was able to shift $21 billion in revenue from 2009-2011 - about half its U.S. retail sales - offshore. The Senate Permanent Subcommittee on Investigations estimated the scheme saved Microsoft up to $4.5 billion in U.S. taxes.
With so much of its profits sheltered from U.S. corporate taxes, Microsoft's reported tax expense as a percentage of income has plunged from 33% in 1987 to 10% in 2012.
Other companies are able to take advantage of various loopholes or unusual losses to reduce their corporate taxes, and in some cases qualify for a huge refund.
¦Last year, Verizon Communications Inc. (NYSE: VZ) raked in more than $100 billion in revenue, and yet collected a federal tax refund of $660 million. How? Verizon booked a big one-time charge related to pension liabilities in the fourth quarter, combined with large losses resulting from Superstorm Sandy.
¦For Bank of America Corp. (NYSE: BAC), the pain of two costly settlements - $2.5 billion and $2.7 billion - in cases related to its home loan business hurt a bit less after the big bank received a $1.12 billion tax refund from Uncle Sam.
¦Exxon Mobil Corp. (NYSE: XOM) claims to be paying more taxes than it really is. The oil giant reported last year that it had paid $57 billion in taxes over the previous five years. But as it turns out, most of that amount should have counted as operating expenses - royalties paid to the government to access deposits on federal land. Backing out those payments puts Exxon's tax expenses at just $9.6 billion over those same five years. In 2011, Exxon made $41.1 billion in profit, while actually paying U.S. corporate taxes of just $1.5 billion.
¦General Electric Co. (NYSE: GE) may be the most notorious of them all, however. The Citizens for Tax Justice found last year that GE paid a tax rate of just 1.8% between 2002 and 2011 - a fraction of the official rate of 35% - despite making $81 billion in profits.
Company executives routinely deflect criticism about ridiculously low corporate tax rates, invariably saying that they are in compliance with all tax laws.
And as bad as it looks, corporations are not to blame. They'd be remiss in their fiduciary duty to shareholders if they did not exploit every legal tax advantage they can, and every year their accountants get better at it.
That means the situation can only keep getting worse unless Washington takes serious and smart action on corporate tax reform - something few expect.
"I think tax reform on this front is going to be really, really tough," Jia Lynn Yang, the Washington Post reporter who wrote the story on declining corporate tax rates, said in a Huffington Post interview. "This is the most heavily lobbied topic in Washington."
Source :http://moneymorning.com/2013/04/01/how-these-companies-get-away-with-paying-peanuts-in-corporate-taxes/
http://www.marketoracle.co.uk/Article39761.html
The Great Disconnect Between Paper & Physical Silver
Gold Silver Worlds | April 2, 2013
This article proves how paper silver (i.e. silver futures market) has been able to cap the silver price despite exceptional strength in the physical silver market. The first quarter of 2013 revealed this great disconnect based on publicly available data. Besides, silver expert Ted Butler calculates an historic concentration of short positions by JP Morgan allowing the bank to control the silver price.
Silver started the first quarter at $30.45 per ounce (Jan 2nd 2013) and closed more than $2 lower at $28.30 per ounce (March 29th). During the same time period, investment demand for physical silver was historically strong and all data pointed to accumulation by investors. This evolution asks for an explanation; the answer lies in the paper silver market.
Physical silver (bullish): investors have accumulated at a record pace
In order to get an idea of the physical silver market, we use (1) the physical holdings of all silver ETF’s combined together with (2) US Mint sales of Silver Eagles. Those are leading indicators when it comes to investment demand for physical silver.
(1) The US Mint has sold a record amount of US Eagles when compared to the first quarter of all previous years (also described here in detail).
14.2 mio ounces (equaling 457.2 tonnes) of US Silver Eagles sold
(2) All silver ETF’s combined increased their physical holdings by some 4.0% (also described here, based on Standard Bank Research)
Physical accumulation of 26 mio ounces (equaling 800 tonnes) in all silver ETF’s
Total silver holdings at the end of the quarter quarter stood at 655.8 mio ounces (equaling 20,400 tonnes)
To put these figures into perspective, one should remember that total mine supply in 2011 was 761.6 mio ounces (equaling 24,485 tonnes).
The key message that the physical silver market is signaling is one of EXCEPTIONAL STRENGTH. One should note that this trend is occurring particularly in silver; gold is not showing the same strength in physical investment demand. Given these facts, how is it possible that the silver price has moved down in the first quarter? The next paragraphs reveal the answer.
Paper silver (bearish): futures positions have held the silver price down
The paper silver market refers primarily to the futures market in which large traders (hedge funds, large commercial banks, bullion banks, etc) hold long or short positions. Silver expert Ted Butler has been analyzing this area for three decades, and reports the weekly evolutions into great detail in his market commentaries. This is an excerpt from his latest analysis:
By far, the standout price feature for the first quarter in silver was the reduction in the total commercial net short position on the COMEX from the high point of Feb 5. From the peak on Feb 5 through last Tuesday, 29,000 net contracts were bought by the commercials. This is the equivalent of 145 million oz of silver and is clearly a towering amount compared to any amount of silver produced or consumed within the quarter. Yes, these are paper transactions, but they are so excessive in size as to overwhelm the free market forces emanating from the real world of supply and demand. Simply put, the commercials on the COMEX colluded and rigged silver prices lower during the quarter to trick the tech funds into selling.
One of those commercials is JP Morgan. Based on his analysis, Ted Butler calculates their short positions.
I would now calculate JPMorgan’s net short position to be 23,000 contracts as of Tuesday March 26th. Simple math shows that JPMorgan held 96% of the total commercial short position of 24,000 contracts in the latest COT report. I doubt such an extreme measure of concentration has ever occurred in any other regulated futures market. On this measure alone, it is safe to conclude that JPMorgan has manipulated the silver price in the last month(s), as there would be virtually no commercial short position in COMEX silver without this bank. That the CFTC and the CME Group can sit by and allow such an unnatural concentration to exist shows how inept and corrupt the regulators have become.
To put things into perspective, the current short position of JP Morgan (one single entity) equals some 12.5% of total yearly silver mining production. This short position is so concentrated that it has the power to control the overall price.
Ted Butler points out that the paper market controlling the price is illegal practice; it is against commodity law.
How to stop this illegal practice?
For how long can the paper market control the silver price is a key question. Ted Butler wrote in his latest commentary in that respect:
The question that really matters is what will JPMorgan do on the next silver rally? This is the question I asked back in December 2011 and during the summer of 2012. Each time, the answer was resounding as JPMorgan sold as many additional shorts as was required to cap the silver price. I would imagine most would expect the same outcome again as who’s to stop these criminals, surely not the sad excuse we have as regulators. I can’t argue that the regulating agencies (CFTC or CME) will ever do the right thing in silver, but there is one thing that could persuade JPMorgan to stop manipulating the price of silver. That something is too strong of a demand for physical silver, the signs of which appear to emerge daily.
In retrospect, it was growing physical silver demand in late 2010 that prompted JPMorgan to refrain from selling short silver and which allowed the price to climb to near $50 in a matter of six months or so. The crooks at JPMorgan will see that physical silver imbalance coming before just about anyone and that will be what causes them to cease adding new silver shorts.
The market situation in silver is not sustainable long term. It can for sure go on for a while, but not ad infinitum. From a longer term risk/reward perspective, which is the fundamental rationale for physical silver investors, silver is an excellent asset to own.
I am still of the mind that we are close to a silver price bottom of some great significance and that the investment risk/reward ratio in silver has rarely been more attractive than it is currently. Whatever new price lows the commercials (read: JP Morgan) may rig in silver, it is important to recognize any imaginable price lower is vastly exceeded by the potential amount silver will move higher in price eventually. The essence of successful investment is to place funds into the thing least likely to lose money and most likely to show great gains. In this instance, silver is it.
We strongly recommend readers to consider subscribing to Ted Butler his excellent service. His analysis shows in almost real time the silver market evolutions and puts investors in pole position.
http://goldsilverworlds.com/gold-silver-insights/the-great-disconnect-between-paper-physical-silver/
Are You Going To Entropy Faire?
by James Howard Kunstler - Kunstler.com
Published : April 02nd, 2013
Things are breaking loose. Holes have appeared in the fabric of fraud and lies that passes for the world money system. They are black holes, gravitationally sucking in the things breaking loose, and as these things cross their event horizons, they will never be seen again. These things I speak of are the collateral for vast nebulae of falsely generated debts and obligations that were never intended to be honored (i.e. regarded as real). As they vanish down the wormholes of time, they take with them their pretenses of money value, meaning they leave reverberations of impoverishment in the shadowy place that the real world has become.
The process described above - an alchemy of physics - will begin to shed light where the shadows have been, revealing a much harsher world in sharp contours and shocking color, for instance: red, the color of ink representing losses on real balance sheets of every household, every enterprise, and every government the whole world round. A scramble for safety now ensues, not just to lay hold of anything with remaining real "moneyness," but for the resources that drive the kind of economies we have. In other words, for gold and silver, and for oil and gas.
Of course, great geopolitical forces spin in the background. Only idiots subscribe to the paranoid fantasies of "one world government" and "global currencies." In the scramble underway, the things falling apart include units of governance, breaking into smaller pieces: empires, nation states. These will include the unraveling European Union but also the matrix of agreements and protocols that binds together the West - everything from the IMF to the G-7 to the World Bank - into an entropy express. One rather extreme scenario I do subscribe to was laid out by blogger Jim Willie recently: the effort by Russia, China, and others to isolate and neutralize the US dollar as the world's so-called reserve currency by systematically converting holdings of US Treasury bills into gold wherever possible, and to thereby diminish the baleful influence of the Imperial US behemoth. They are assisted in this endeavor by the US itself in its bungling efforts to manipulate and suppress gold prices, as well as our prevarications as to exactly how much gold remains in the various places it is supposed to be stashed - Fort Knox, West Point, and the sub-basement labyrinth of the Federal Reserve Bank of New York - generating ever-greater uncertainty about the extant world gold supply, and hence its value relative to things like currencies. Nobody here can even ask the right questions.
While The New York Times focuses on the momentous issue of real estate sales in the Hamptons, Russia and China will build gold-backed currencies aimed at monopolizing the trade in mineral and energy resources, leaving America and much of Europe to freeze in the dark and sit on gasoline lines at the empty filling stations. For a while that will work to the East's advantage - until it becomes clear that the entropic contraction of industrial economies is for everyone as we veer into a literal world made by hand. That's right, sooner or later Russia and China will get theirs, too. But in the meantime they have the ability to make the story a lot more interesting.
There's plenty of suspense this Easter weekend as observers nervously await the breaking action, to find out how much the oft-cited fear of confiscation has penetrated the regional money centers around Europe. Slovenia, a fairy-tale republic somewhere between Austria and the Duchy of Grand Fenwick, has been nominated by observers as the place most likely to be whacked by EU treasure confiscators. It owes about 10 billion Euros to the EU entropy cloud, with exactly zero chances of meeting its obligations. But then, it's in the nature of such non-linear event sequences that the shadows of the black swan's wings will pass over Slovenia and alight on a chimney-top in some utterly surprising place, say, Latvia or perhaps even Italy. In any case, European money will be on fire and a lot of that smokin' moolah surely will wend its way into the US equity markets under the illusion of safety. It's all just an accident waiting to happen. Money is not what it used to be and not what it seems.
There must be an inverse relationship between the juiced S & P index and the IQs of the public figures in America who pretend to be able to think, so that there are now just six remaining people in the political arena who can articulate the various parts of the mega-swindle that besets us: Bill Black, Jim Rickards, Bill Moyers, Elizabeth Warren, Bernie Sanders, and David Stockman. Stockman is out with a new book, The Great Deformation, that manages to concentrate all the requisite outrage in one gale of rectified objurgation. It is a pleasure to read Stockman - former budget director under Reagan and Michigan congressman - call out the villains from Reagan to Bernanke to Paulson to Rubin and scores of others in the most opprobrious terms. Stockman characterizes the financial action of recent decades a "leveraged buyout of the USA" and it sure looks that way. If you travel around the towns of the upper Hudson Valley - once an industrial corridor full of Jimmy Stewart type burgs - it's beginning to look like the country Borat grew up in. Everything of value that wasn't nailed down was taken, and everything that remains is broken, including the ragged population.
On Sunday night, wire stories had Cyprus close to "going Icelandic," that is, hoisting the middle finger to Brussels and repudiating the money owed. That option may end up seeming more attractive to virtually everybody in the broke world, including even the young college loan debt donkeys of the USA, groaning under their loads as they stand idle in the barren fields of unemployment. Imagine, all those people thinking that nirvana is a place of cold and darkness... with the vague odor of rotting fish hanging in the still air.
http://www.24hgold.com/english/news-gold-silver-are-you-going-to-entropy-faire-.aspx?article=4313346476G10020&redirect=false&contributor=James+Howard+Kunstler
Are You Going To Entropy Faire?
by James Howard Kunstler - Kunstler.com
Published : April 02nd, 2013
Things are breaking loose. Holes have appeared in the fabric of fraud and lies that passes for the world money system. They are black holes, gravitationally sucking in the things breaking loose, and as these things cross their event horizons, they will never be seen again. These things I speak of are the collateral for vast nebulae of falsely generated debts and obligations that were never intended to be honored (i.e. regarded as real). As they vanish down the wormholes of time, they take with them their pretenses of money value, meaning they leave reverberations of impoverishment in the shadowy place that the real world has become.
The process described above - an alchemy of physics - will begin to shed light where the shadows have been, revealing a much harsher world in sharp contours and shocking color, for instance: red, the color of ink representing losses on real balance sheets of every household, every enterprise, and every government the whole world round. A scramble for safety now ensues, not just to lay hold of anything with remaining real "moneyness," but for the resources that drive the kind of economies we have. In other words, for gold and silver, and for oil and gas.
Of course, great geopolitical forces spin in the background. Only idiots subscribe to the paranoid fantasies of "one world government" and "global currencies." In the scramble underway, the things falling apart include units of governance, breaking into smaller pieces: empires, nation states. These will include the unraveling European Union but also the matrix of agreements and protocols that binds together the West - everything from the IMF to the G-7 to the World Bank - into an entropy express. One rather extreme scenario I do subscribe to was laid out by blogger Jim Willie recently: the effort by Russia, China, and others to isolate and neutralize the US dollar as the world's so-called reserve currency by systematically converting holdings of US Treasury bills into gold wherever possible, and to thereby diminish the baleful influence of the Imperial US behemoth. They are assisted in this endeavor by the US itself in its bungling efforts to manipulate and suppress gold prices, as well as our prevarications as to exactly how much gold remains in the various places it is supposed to be stashed - Fort Knox, West Point, and the sub-basement labyrinth of the Federal Reserve Bank of New York - generating ever-greater uncertainty about the extant world gold supply, and hence its value relative to things like currencies. Nobody here can even ask the right questions.
While The New York Times focuses on the momentous issue of real estate sales in the Hamptons, Russia and China will build gold-backed currencies aimed at monopolizing the trade in mineral and energy resources, leaving America and much of Europe to freeze in the dark and sit on gasoline lines at the empty filling stations. For a while that will work to the East's advantage - until it becomes clear that the entropic contraction of industrial economies is for everyone as we veer into a literal world made by hand. That's right, sooner or later Russia and China will get theirs, too. But in the meantime they have the ability to make the story a lot more interesting.
There's plenty of suspense this Easter weekend as observers nervously await the breaking action, to find out how much the oft-cited fear of confiscation has penetrated the regional money centers around Europe. Slovenia, a fairy-tale republic somewhere between Austria and the Duchy of Grand Fenwick, has been nominated by observers as the place most likely to be whacked by EU treasure confiscators. It owes about 10 billion Euros to the EU entropy cloud, with exactly zero chances of meeting its obligations. But then, it's in the nature of such non-linear event sequences that the shadows of the black swan's wings will pass over Slovenia and alight on a chimney-top in some utterly surprising place, say, Latvia or perhaps even Italy. In any case, European money will be on fire and a lot of that smokin' moolah surely will wend its way into the US equity markets under the illusion of safety. It's all just an accident waiting to happen. Money is not what it used to be and not what it seems.
There must be an inverse relationship between the juiced S & P index and the IQs of the public figures in America who pretend to be able to think, so that there are now just six remaining people in the political arena who can articulate the various parts of the mega-swindle that besets us: Bill Black, Jim Rickards, Bill Moyers, Elizabeth Warren, Bernie Sanders, and David Stockman. Stockman is out with a new book, The Great Deformation, that manages to concentrate all the requisite outrage in one gale of rectified objurgation. It is a pleasure to read Stockman - former budget director under Reagan and Michigan congressman - call out the villains from Reagan to Bernanke to Paulson to Rubin and scores of others in the most opprobrious terms. Stockman characterizes the financial action of recent decades a "leveraged buyout of the USA" and it sure looks that way. If you travel around the towns of the upper Hudson Valley - once an industrial corridor full of Jimmy Stewart type burgs - it's beginning to look like the country Borat grew up in. Everything of value that wasn't nailed down was taken, and everything that remains is broken, including the ragged population.
On Sunday night, wire stories had Cyprus close to "going Icelandic," that is, hoisting the middle finger to Brussels and repudiating the money owed. That option may end up seeming more attractive to virtually everybody in the broke world, including even the young college loan debt donkeys of the USA, groaning under their loads as they stand idle in the barren fields of unemployment. Imagine, all those people thinking that nirvana is a place of cold and darkness... with the vague odor of rotting fish hanging in the still air.
http://www.24hgold.com/english/news-gold-silver-are-you-going-to-entropy-faire-.aspx?article=4313346476G10020&redirect=false&contributor=James+Howard+Kunstler
David Stockman: We've Been Lied To, Robbed, And Misled
And we're still at risk of it happening all over again
by Adam Taggart
Saturday, March 30, 2013, 12:42 PM
Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the thread of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history.
David Stockman, The Great Deformation
David Stockman, former director of the OMB under President Reagan, former US Representative, and veteran financier is an insider's insider. Few people understand the ways in which both Washington DC and Wall Street work and intersect better than he does.
In his upcoming book, The Great Deformation: The Corruption of Capitalism in America, Stockman lays out how we have devolved from a free market economy into a managed one that operates for the benefit of a privileged few. And when trouble arises, these few are bailed out at the expense of the public good.
By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct. And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued -- in full -- at all costs.
Of course, history shows that our markets and economy would have been better off had the system been allowed to correct. Most of the "too big to fail" institutions would have survived or been broken into smaller, more resilient, entities. For those that would have failed, smaller, more responsible banks would have stepped up to replace them - as happens as part of the natural course of a free market system:
Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.
Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.
Stockman's anger at the unnecessary and unfair capital transfer from taxpayer to TBTF bank is matched only by his concern that, even with those bailouts, the banking system is still unacceptably vulnerable to a repeat of the same crime:
The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America. When the Fed panicked, it basically destroyed the free-market interest rate – you cannot have capitalism, you cannot have healthy financial markets without an interest rate, which is the price of money, the price of capital that can freely measure and reflect risk and true economic prospects.
Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformations as I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they've then booked the profits, they've rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America.
Now they go down and pound the table and whine and pout like JP Morgan and the rest of them, you have to let us do stock buy backs, you have to let us pay out dividends so we can ramp our stock and collect our stock option winnings. It is outrageous that the authorities, after the so-called “near death experience" of 2008 and this massive fiscal safety net and monetary safety net was put out there, is allowing them to pay dividends and to go into the market and buy back their stock. They should be under house arrest in a sense that every dime they are making from this artificial yield group being delivered by the Fed out of the hides of savers should be put on their balance sheet to build up retained earnings, to build up a cushion. I do not care whether it is fifteen or twenty or twenty-five percent common equity and retained earnings-to-assets or not, that is what we should be doing if we are going to protect the system from another raid by these people the next time we get a meltdown, which can happen at any time.
You can see why I talk about corruption, why crony capitalism is so bad. I mean, the Basel capital standards, they are a joke. We are just allowing the banks to go back into the same old game they were playing before. Everybody said the banks in late 2007 were the greatest thing since sliced bread. The market cap of the ten largest banks in America, including from Bear Stearns all the way to Citibank and JP Morgan and Goldman and so forth, was $1.25 trillion. That was up thirty times from where the predecessors of those institutions had been. Only in 1987, when Greenspan took over and began the era of bubble finance – slowly at first then rapidly, eventually, to have the market cap grow thirty times – and then on the eve of the great meltdown see the $1.25 trillion to market cap disappear, vanish, vaporize in panic in September 2008. Only a few months later, $1 trillion of that market cap disappeared in to the abyss and panic, and Bear Stearns is going down, and all the rest.
This tells you the system is dramatically unstable. In a healthy financial system and a free capital market, if I can put it that way, you are not going to have stuff going from nowhere to @1.2 trillion and then back to a trillion practically at the drop of a hat. That is instability; that is a case of a medicated market that is essentially very dangerous and is one of the many adverse consequences and deformations that result from the central-bank dominated, corrupt monetary system that has slowly built up ever since Nixon closed the gold window, but really as I say in my book, going back to 1933 in April when Roosevelt took all the private gold. So we are in a big dead-end trap, and they are digging deeper every time you get a new maneuver.
Click the play button below to listen to Chris' interview with David Stockman (56m:33s):
http://www.peakprosperity.com/podcast/81371/david-stockman-federal-reserve-fed-wall-street-bernanke-deformation
COMEX gold update: J.P. Morgan converts almost all of eligible gold to registered gold
April 1, 2013
Katchum's Macro-Economic Blog
And again, over the weekend, J.P. Morgan converted its eligible gold into registered gold. I predict that we will see the total gold stock decline once again as a rise in registered gold means people will take delivery.
J.P. Morgan has now almost converted all of its eligible gold into registered gold.
Gold Stock Comex Chart (at link below)
On the silver stock, we don't see anything significant happen yet.
Geplaatst door Albert Sung op 23:29
http://katchum.blogspot.com/
COMEX gold update: J.P. Morgan converts almost all of eligible gold to registered gold
April 1, 2013
Katchum's Macro-Economic Blog
And again, over the weekend, J.P. Morgan converted its eligible gold into registered gold. I predict that we will see the total gold stock decline once again as a rise in registered gold means people will take delivery.
J.P. Morgan has now almost converted all of its eligible gold into registered gold.
Gold Stock Comex Chart (at link below)
On the silver stock, we don't see anything significant happen yet.
Geplaatst door Albert Sung op 23:29
http://katchum.blogspot.com/
The 6 Economic Charts That Vintage Media is Hiding From You
April 1, 2013
http://directorblue.blogspot.com/2013/04/the-6-economic-charts-which-vintage.html
Business Insider offers 66 charts that are said to worry Wall Street insiders, but
these are the six I found most troubling.
http://directorblue.blogspot.com/2013/04/the-6-economic-charts-which-vintage.html
David Stockman: We've Been Lied To, Robbed, And Misled
And we're still at risk of it happening all over again
by Adam Taggart
Saturday, March 30, 2013, 12:42 PM
Then, when the Fed’s fire hoses started spraying an elephant soup of liquidity injections in every direction and its balance sheet grew by $1.3 trillion in just thirteen weeks compared to $850 billion during its first ninety-four years, I became convinced that the Fed was flying by the seat of its pants, making it up as it went along. It was evident that its aim was to stop the hissy fit on Wall Street and that the thread of a Great Depression 2.0 was just a cover story for a panicked spree of money printing that exceeded any other episode in recorded human history.
David Stockman, The Great Deformation
David Stockman, former director of the OMB under President Reagan, former US Representative, and veteran financier is an insider's insider. Few people understand the ways in which both Washington DC and Wall Street work and intersect better than he does.
In his upcoming book, The Great Deformation: The Corruption of Capitalism in America, Stockman lays out how we have devolved from a free market economy into a managed one that operates for the benefit of a privileged few. And when trouble arises, these few are bailed out at the expense of the public good.
By manipulating the price of money through sustained and historically low interest rates, Greenspan and Bernanke created an era of asset mis-pricing that inevitably would need to correct. And when market forces attempted to do so in 2008, Paulson et al hoodwinked the world into believing the repercussions would be so calamitous for all that the institutions responsible for the bad actions that instigated the problem needed to be rescued -- in full -- at all costs.
Of course, history shows that our markets and economy would have been better off had the system been allowed to correct. Most of the "too big to fail" institutions would have survived or been broken into smaller, more resilient, entities. For those that would have failed, smaller, more responsible banks would have stepped up to replace them - as happens as part of the natural course of a free market system:
Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.
Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.
Stockman's anger at the unnecessary and unfair capital transfer from taxpayer to TBTF bank is matched only by his concern that, even with those bailouts, the banking system is still unacceptably vulnerable to a repeat of the same crime:
The banks quickly worked out their solvency issues because the Fed basically took it out of the hides of Main Street savers and depositors throughout America. When the Fed panicked, it basically destroyed the free-market interest rate – you cannot have capitalism, you cannot have healthy financial markets without an interest rate, which is the price of money, the price of capital that can freely measure and reflect risk and true economic prospects.
Well, once you basically unplug the pricing mechanism of a capital market and make it entirely an administered rate by the Fed, you are going to cause all kinds of deformations as I call them, or mal-investments as some of the Austrians used to call them, that basically pollutes and corrupts the system. Look at the deposit rate right now, it is 50 basis points, maybe 40, for six months. As a result of that, probably $400-500 billion a year is being transferred as a fiscal maneuver by the Fed from savers to the banks. They are collecting the spread, they've then booked the profits, they've rebuilt their book net worth, and they paid back the TARP basically out of what was thieved from the savers of America.
Now they go down and pound the table and whine and pout like JP Morgan and the rest of them, you have to let us do stock buy backs, you have to let us pay out dividends so we can ramp our stock and collect our stock option winnings. It is outrageous that the authorities, after the so-called “near death experience" of 2008 and this massive fiscal safety net and monetary safety net was put out there, is allowing them to pay dividends and to go into the market and buy back their stock. They should be under house arrest in a sense that every dime they are making from this artificial yield group being delivered by the Fed out of the hides of savers should be put on their balance sheet to build up retained earnings, to build up a cushion. I do not care whether it is fifteen or twenty or twenty-five percent common equity and retained earnings-to-assets or not, that is what we should be doing if we are going to protect the system from another raid by these people the next time we get a meltdown, which can happen at any time.
You can see why I talk about corruption, why crony capitalism is so bad. I mean, the Basel capital standards, they are a joke. We are just allowing the banks to go back into the same old game they were playing before. Everybody said the banks in late 2007 were the greatest thing since sliced bread. The market cap of the ten largest banks in America, including from Bear Stearns all the way to Citibank and JP Morgan and Goldman and so forth, was $1.25 trillion. That was up thirty times from where the predecessors of those institutions had been. Only in 1987, when Greenspan took over and began the era of bubble finance – slowly at first then rapidly, eventually, to have the market cap grow thirty times – and then on the eve of the great meltdown see the $1.25 trillion to market cap disappear, vanish, vaporize in panic in September 2008. Only a few months later, $1 trillion of that market cap disappeared in to the abyss and panic, and Bear Stearns is going down, and all the rest.
This tells you the system is dramatically unstable. In a healthy financial system and a free capital market, if I can put it that way, you are not going to have stuff going from nowhere to @1.2 trillion and then back to a trillion practically at the drop of a hat. That is instability; that is a case of a medicated market that is essentially very dangerous and is one of the many adverse consequences and deformations that result from the central-bank dominated, corrupt monetary system that has slowly built up ever since Nixon closed the gold window, but really as I say in my book, going back to 1933 in April when Roosevelt took all the private gold. So we are in a big dead-end trap, and they are digging deeper every time you get a new maneuver.
Click the play button below to listen to Chris' interview with David Stockman (56m:33s):
http://www.peakprosperity.com/podcast/81371/david-stockman-federal-reserve-fed-wall-street-bernanke-deformation
Cash Cow: Of the 50 Largest US Companies, Who has the Cash? Who has the Debt?
April 1, 2013
Mish's Global Economic Trend Analysis
Here's the question of the day: How much actual cash is on hand at corporations?
Fed by glowing reports from sell-side analysts, most investors are unaware that except for a handful of companies, there is no cash, only debt. Even counting short-term investments there is surprisingly little cash on hand.
Courtesy of Mike Klaczynski at Tableau Software please consider the latest update to my periodic "Cash Cow" interactive report.
Read more at
http://globaleconomicanalysis.blogspot.com/2013/04/cash-cow-of-50-largest-us-companies-who.html#kFDfqHIju4dXpkm2.99
In Daily Reckoning interview, Sprott notes central banks' deceptive accounting of gold
Submitted by cpowell on Mon, 2013-04-01
8:45p ET Sunday, March 31, 2013
Dear Friend of GATA and Gold:
Interviewed by Alex Cowie of The Daily Reckoning's Australian edition last week during the Mines and Money conference in Hong Kong, Sprott Asset Management Chairman Eric Sprott stressed the deceptiveness of central bank gold accounting, particularly the failure to distinguish gold in the vault from gold that has been swapped or leased into the market. This misleading accounting, Sprott says, is masking high demand for real metal around the world.
Sprott adds: "When Venezuela devalued by 40 percent, if the citizens had owned gold they would have lost nothing. When Iceland devalued, if the residents had owned gold they wouldn't have lost 60 percent of their money. I don't know how many more countries it takes to have these events happen to until the world finally clicks in to realising it's better to own gold than it is to have a bank deposit."
The interview is posted at The Daily Reckoning here:
http://www.dailyreckoning.com.au/on-gold-billionaire-investor-eric-sprot..
Eric: Alex I'm happy to be here; anyone who spreads the word on precious metals is in my camp. We need more people to realise that that's where they should be investing their money, so I'm happy to partake in this.
Alex: I've been speaking a great deal recently about the possibility of an inflection point in gold, rallying strongly from here. We've seen quite a few technical and fundamental signs that suggest that we could have a serious move from here. Not just in gold but in gold equities too. How are you seeing the gold market from here, what do you anticipate for the rest of the year?
Eric: Well Alex we've done a lot of work on gold supply and demand and I've written a number of articles, all of which are available at our website sprott.com. And I think the most important one is one we wrote about six months ago, and it basically questioned whether the western central banks had any gold left. And we like to do an analysis of the physical market for gold, not the paper market where seemingly the prices are determined. And our own analysis suggests that the demand for gold is 2400 tons more than the annual supply - which is approximately 4000 tons - which is a very great disparity between supply and demand.
Alex: Yes.
Eric: And then we get there by adding up the Chinese demand the Indian demand, the mint sales. The central banks used to be sellers of gold, now they're buyers of gold. How do all these people come into the market when supply of gold hasn't changed in the last 12 years? It's still 4000 tons a year. And there's only one answer to the question: that is that the western central banks must be selling their gold.
It's been analysed by a number of people. The way they do it is on central banks balance sheets they have one line on the financial statement and it's called gold and gold receivables. So a receivable is gold they don't have that's been leased out into the market. Whereas physical gold they have. But we see a combined number and we don't know what percent of that is leased.
We've seen evidence for example the Austrian finance minister when he was challenged, 'well where's our gold', he foolishly made the comment, 'Well we've only got 13% in the country but the rest of it's either in New York or London, but we made 300 million of interest on it.' Well you only make interest because you've leased the gold out, right? And then that gold of course is gone to satisfy physical demand and when the central bank goes back to the counterparty and says, we want our gold back, it's not going to be there. Because there's a shortage.
So I'm with you that there's going to be an inflection point.
Here we are with these financial events firing up; of course the latest one is in Cyprus, and it looks like there'll be one in Slovenia, and in my mind it never stops. It just keeps carrying on here.
And of course it's brought people back to realise that when you can lose money in your bank account, you are way better off owning gold than having a deposit in the bank.
When Venezuela devalued by 40%, if the citizens had owned gold they would have lost nothing. When Iceland devalued, if the residents had owned gold they wouldn't have lost 60% of their money. I don't know how many more countries it takes to have these events happen until the world finally clicks in to realising it's better to own gold than it is to have a bank deposit.
Alex: What about Chinese accumulation of gold? We know from official data that they're the biggest consumer in terms of importing.
Eric: And manufacturing.
Alex: And manufacturing as well.
Eric: There's a voracious Chinese appetite for gold. And I don't believe it's just the citizens of China. I think it's the People's Republic Bank of China that's actually buying the gold. If I was in China, and you see what's going on in some of these countries and the printing of money, they should be taking all their bonds and owning gold. But they're smart enough to know that they can't buy so much that everyone gets tipped off to the fact that there's no gold left. So they're going to just slowly bleed these western central banks dry of their gold.
Alex: Well we heard from People's Bank of China last week suggesting that they hadn't increased their holding over the last three years, from 1,054 tons. Let's file that under 'fairy tale'.
Eric: I don't believe that for a second. It seems so obvious to me. They haven't been buying US treasury bills or treasury bonds for the last 18 months. I think it doesn't take a rocket scientist to realise that owning gold is probably the best thing you can do these days as a central bank.
Alex: Are you up for any sort of gold price targets?
Eric: You know that's the toughest thing in the world to analyse Alex, because you know...you tell me how much they're going to print in the future and I'll tell you what the gold price should be, right?
I mean lots of people have done that analysis. With this much money in the world the price of gold should be $10,000 or $12,000. And of course the amount being printed is escalating, so it's a moving target. It's way beyond where we are today. It's many times higher than where we are today, is what I would say. You know, we may look back in 2017 and now we're printing 8 trillion a year, and the number could be $20,000. It's just a moving target, but I know it's a lot higher than today.
Alex: Well one of the reasons I'm suspicious of an inflection point happening sometime this year is the drop in physical supply.
Eric: I get the distinct feeling that they could very well be running on fumes. There's lots of chatter about, you know, they went into Libya to get the gold, MF Global was closed down and nobody received their gold, and there's some chatter about Cyprus has some gold. Maybe they'll end up getting that gold out of this whole thing, and have a little amount to supply the market.
But it's a game that they're going to lose here. And I certainly know why they're doing it. Because I think their explanation of some kind of economic recovery doesn't hold true when it comes to the man in the street. Yes the stock market's up, because the central banks are supporting it, but when it comes to looking at the fundamental economic strength, it's just not there.
Alex: We've seen food stamp participants rising to 15% of the American population.
Eric: Yeah, well it's gone up by at least 27 million people in the last five years. And over that same time period we lost 3.6 million jobs. So you think, well how can that group of the population be better off? They've got less money to spend. So there is no recovery going on.
Alex: Neither in Europe?
Eric: I don't know if it's a recession or a depression, quite frankly. But it could be defined as either. When you have 25% unemployment in Greece and Spain, and 50% youth unemployment, I mean that's a depression.
And one of the theses that I have is that weakness begets weakness. So for example, if somebody announces a layoff, JP Morgan says they're going to lose 19,000 employees, it doesn't just affect the 19,000 employees, it affects the people whose services these 19,000 people would buy. And there's only one way to stop weakness begetting weakness, and that is through some overt policy that comes in from the outside and changes the dynamic. And typically, under Keynesian analysis, that was fiscal policy or monetary policy.
We have no room on fiscal policy; we have austerity programs in most countries in Europe, we essentially are having austerity forced on the United States because of the whole fiscal cliff and the sequestration, and so fiscal policy is off the table.
And of course the deficits are at record highs already. And in terms of monetary policy, we already have the zero interest rate, and we have money printing. I don't see any room for some outside influence to come along and cause this change in weakness.
Alex: Under those financial conditions, macro-economic conditions, we'd be expecting gold and silver to be the indicator of just how bad things are.
Eric: You would.
Alex: You can only suppose that there's been a bit of discrete supply into the market to suppress that.
Eric: That's totally what I think. I think when the world wakes up to the fact that having money in a bank is a risky situation because of leveraged financial counterparties...and when this financial system caves a little...all of a sudden the balance sheets of the banks can't support the deposit liability. Which is what we're already saw it in Greece. We're seeing it in Cyrpus. We're going to see it in other countries.
I think it's a very risky thing having money in a bank, and that's why I keep suggesting, whether it's gold or silver or some other precious metal, something real is the preferred asset.
Alex: I've certainly been buying gold and silver, physical gold and silver, taking ownership of it, not just for myself but for my children as well. So I'm taking a five to ten year view, at least. Because we're five or six years into this crisis and clearly nothing's getting much better.
So there's a good opportunity there in precious metals, physical precious metals, but also equities. If we could move to gold equities. They're at record lows whichever way you want to slice and dice them, whichever metrics you want to look at. Do you see an inflection point happening there soon?
Eric: Well I've always said the stocks won't go up until the metals go up, because everyone looks at the metal price and says, 'Oh my god the price of the metal went down I don't want to own the stocks.' But typically when the metal goes up, the stocks outperform by at least two to three times. So if we can get a sustained move here - and we can't just go to 1650 and give it up again, we've got to look like we're going to a new high here - then of course the metal stocks have so much to get back again. And out of the 2009 bottom, the metal stocks put on a 200% gain in about nine months, because gold went up to $1920, obviously a new high.
Alex: And that's just for the larger producers. Whereas the smaller developers and explorers rose even more.
Eric: The small companies always outperform the big companies, because they have more room to expand. I'd much rather buy a guy whose producing 100,000 ounces who can go to 200,000 ounces, ie who could double his income, than a major guy who's at five million who thinks he might get to 5.5 million in three years, so there's not the same growth element. So I always prefer the small to midcap guy, as providing by far the bigger return
Alex: I was hoping that you'd say that, because that's what I've been doing a lot of recently, tipping those small to midcap guys. [To find out which guys, click here. -Ed]
So you think that from this level it's quite realistic that, when we do see a sustained move for gold above 1650 or 1700, that gold stocks could rally hard?
Eric: I think that as it approaches 1700, people will realise it's going to be a sustained rally. And it's not as though the stocks haven't started moving already.
I mean they have, we had a day recently where the gold price went up half a percent and the gold stocks went up 2.5%, because they are so oversold here.
Plus you've got short positions on them so there's a bit of vulnerability from the guys that are short. And particularly as they realise that 'hold one now maybe the mood towards precious metals has changed here', and all of a sudden they think, 'Gee, maybe it will go higher because of the developments in the financial system.'
http://www.gata.org/node/12406
Silver – Keep It Simple! – Part 2
GE Christenson | Monday, April 1st
SiverSeek
Begin the analysis in 1971 when Nixon dropped the link between the dollar and gold. A pack of Marlboros cost (depending on local taxes) about $0.39. We paid about $0.36 for a gallon of gasoline. The DOW Index was about 850. Silver was priced at about $1.39.
Times have changed!
Today we have more currency in circulation, far more debt, and much higher prices – what does it mean?
Examine Graph 1. The prices for retail cigarettes, crude oil, national debt, silver, and the true money supply (TMS) (see notes at end) are shown on a log scale graph with all prices normalized to start at 1.0 in 1971.
* National debt (green line) has increased rapidly since 1971 and even more rapidly, on average, than the other items. (National debt has increased over 12% per year for the last five years.)
* Silver (black line) and crude oil (red line) prices have been erratic with peaks in the early 1980s, troughs in the late 1990s, and substantial rises since 2001.
* Cigarettes and TMS have increased steadily since 1971.
* TMS (also M2, M3, etc.), debt, and most commodity prices have increased exponentially since 1971. Because the dollar was not backed by gold, dollar creation, total debt, and prices increased rapidly.
* Not shown are some prices that increased more rapidly (medical costs and college tuition) and some that increased more slowly (postage and bread).
Graph 2 shows annual silver and crude prices smoothed with a centered five period moving average. This removes much of the “noise” in the price data and shows longer term trends better. Note that the price of silver actually reached about $50 per ounce in early 1980, but the average daily price in 1980 was only $16.39; the smoothed daily average was about $11.
Statistical Correlations
* Silver prices in dollars (annual average of daily price) correlated with crude prices in dollars (annual average of daily price) at 0.83 – a good correlation. Both are commodities, both are affected by politics, and both are sensitive to money supply, actual inflation, and inflationary expectations.
* TMS correlated with national debt at 0.99 – a tight correlation. When budget deficits increase the national debt, the money supply expands accordingly.
* Silver prices (annual average shown) correlated with national debt at 0.67 and with TMS at 0.58. The smoothed silver price correlation to national debt was 0.76 over 40 years and much higher over the past 13 years.
* Silver prices (smoothed) correlated with crude prices (smoothed) at 0.93 – an excellent correlation.
So What?
* National debt correlates tightly with TMS. Smoothed silver prices correlate well with both national debt and TMS. We may be apprehensive about future silver prices, but we can be 99.99% certain about the inevitable increase in national debt. Based on the 40 year correlation between silver and national debt, silver prices will continue to rise.
* Both crude oil and silver are commodities that experience large price volatility. On average, they go up and down together; and, over a 40 year history, their prices have clearly moved substantially higher. I see many reasons to expect both to move higher in the long term.
* Crude oil is the most important commodity in the world. Its per capita use, on average, is rising and the world’s population is increasing, so demand will remain strong, unless the world suffers a massive financial and economic collapse. Further, the easily available oil has been taken so there is little chance that inexpensive supply will increase. More demand coupled with flat or declining supply requires higher future prices. Higher crude oil prices strongly suggest higher silver prices.
* Central banks are “printing money” in their desperate attempt to fight deflation, levitate asset prices, bailout banks and countries, and encourage inflation. This guarantees further increases in national debt and TMS and price increases for most commodities including crude oil, cigarettes, and silver.
Price of Silver as a Projection Based on Other Variables
We can construct a calculated price for silver based on three variables – national debt, TMS, and the price of crude oil. Examine Graph 3 of smoothed silver prices and the calculated price of silver based on those three variables. Note that the correlation is 0.86 – quite good. The silver price has both a monetary component (national debt and TMS) and a commodity component (crude oil). Together they produce a simple but effective projection for the smoothed average price of silver over the past 42 years.
For the Future
Assume national debt increases 12% per year for the next five years like it has for the past five years. Assume TMS and crude continue their past five year growth rates (11% and 8%). The estimated price for the smoothed average price of silver is about $55 in 2016. The peak price on a spike higher could easily be triple the smoothed price. Look for $100 silver in 2015 - 2017 unless a deflationary collapse occurs – to the detriment of everyone including banks, politicians, and national governments.
Conclusion
Debt, money supply, and the prices for most commodities have exponentially increased over the past 42 years. Prices for crude oil and silver have substantially increased but inconsistently. I can be certain of death and taxes, and I feel confident that the national debt and prices for crude oil, cigarettes, silver, and most other consumer items will drastically increase in the next few years – under circumstances similar to the past 40 years. A hyperinflationary increase is also possible, in which case, all commodity prices will be unbelievably higher. Assuming no deflationary collapse, expect $100 silver relatively soon – perhaps in 2016. Read Past & Future Speculative Bubbles – What They Indicate for Gold and Silver!
Notes on the Data
Cigarette data found at the Center for Disease Control. The 1971 average retail price for a pack of cigarettes, including various taxes, was quoted at $0.39. (I remember paying $0.25 for a pack of Marlboros in the late 1960s.)
Crude oil data found at InflationData.com. The 1971 price for a barrel of crude was $3.60.
Silver data was found at Kitco. They list the average of approximately 260 daily prices in each year. I used this annual average. Note that the spike high price in 1980 exceeded $50, but the annual average price was only $16.39.
National debt data found at TreasuryDirect.
True money supply (TMS) data was found at Ludwig von Mises Institute.
Gasoline prices from U.S. Department of Energy. The average retail price for gasoline in 1971 was $0.36.
GE Christenson
aka Deviant Investor
SilverSeek.com
http://www.silverseek.com/article/silver-%E2%80%93-keep-it-simple-%E2%80%93-part-2-10631
US demand for silver coins highest ever since records began in 1986 as private investors seek a safe haven
Peter Cooper | March 31, 2013 - 10:14am
Sales of American Eagle silver coins produced by the US Mint have surpassed 14 million so far this year, a number not hit until late May last year with sales running at their highest level ever since records began in 1986. If the price of silver was set by coin sales then it would be at a new all-time high, but the Comex futures pit still rules the price.
Investors have to wonder whom is the better judge: thousands of small investors worried about inflation and the risk of a dollar, banking and bond market collapse, or the professional hedge fund traders and bullion banks who dominate the Comex?
Manipulated market
If the Comex was not such an obviously manipulated market then it would be tempting to vote for the professionals. But in this instance the price is largely set by an inside job with a bias towards lower silver prices.
Besides smaller investors in coins hardly represent a floodtide when you consider what they have invested so far this year. Those 14 million coins cost all of $400 million, the sort of sum that a top hedge fund professional would consider a bad year.
However, it ought to be a sobering consideration that even this modest level of demand could not be met by the US Mint in January when it suspended sales for a period. Just where are buyers going to get their coins if this kind of demand keeps up or more likely gets even stronger?
Higher coin prices
Well, they will buy them from each other and push up the premium paid on coins by comparison to the spot or Comex price of silver. Will that eventually impact on the Comex price of silver? It just has to down the line.
So the explosion of coin buying is a concrete indicator of a silver price surge coming soon, whatever the short term vagaries of the global financial markets might do to the Comex silver price in the meantime. Coin holders should take heart and keep their bullion.
As we have commented on ArabianMoney before (click here) the Cyprus bank bail-in is a catastrophe in the making that will boost gold prices and silver will gain even more as a leveraged play on gold.
http://www.silverseek.com/commentary/us-demand-silver-coins-highest-ever-records-began-1986-private-investors-seek-safe-haven-
Cyprus terms rooted in secret letter from '70s
Commentary: Draghi recalls Germans invoking secret escape clause
David Marsh on Monday April 1, 2013
MarketWatch.com
(special thanks to sludgehound)
LONDON (MarketWatch) -- The Emminger letter forms one of the more obscure parts of the history of the German Bundesbank, the country's vaunted central bank. It is also one of the most chillingly controversial. And, in the hard-line negotiations over the latest Cyprus bailout package, 35 years after it was written, it has just made a singular re-entry.
The document, drawn up in secret in 1978, gave the German central bank the power to sidestep formal obligations to support weaker countries via foreign-exchange intervention during European currency turmoil. Otmar Emminger was one of the most influential figures rebuilding German post-war central banking from the 1950s.
He was a member of the board of the Bundesbank and its forerunner, Bank deutscher Länder, for 26 years, finishing as Bundesbank president for 2 1/2 years, from 1977 to 1979. Emminger died in 1986. But his spirit lingers on.
The European Central Bank ultimatum delivered to Cyprus on March 21, giving the country until the following Monday to agree a lending deal with the International Monetary Fund and the European Union or risk bankruptcy, bore the Emminger hallmarks. In a classic pincer move, the ECB governing council said its emergency liquidity assistance (ELA) to Cyprus would not be renewed unless an official program was in place -- sparking frantic diplomatic action that led finally to a deal a week ago closing down the island's second biggest banks and imposing swinging writeoffs on large depositors.
The ultimatum marked a dramatic change of ECB tactics.
In previous action over the past few years, the ECB had maintained generous liquidity assistance for Ireland and Greece, under lending that is deemed semiautomatic unless the governing council (currently 23 people, all men) decides with a two-thirds majority to close it down. The lending has attracted great displeasure in Germany and other current-account surplus countries.
With Cyprus, the hard-currency central banks behind the ECB, led by the Bundesbank, decided they had had enough. By ensuring that its habitually tough line unreservedly became ECB policy, the Bundesbank -- without needing to act in public -- strode to the front line of the debate over the future of economic and monetary union (EMU) and the euro (EURUSD) .
The Emminger episode is an almost-exact parallel. In the 1960s and 1970s, the Bundesbank was perennially haunted by the fear that its efforts to control the German monetary base and hence German inflation would be compromised by commitments to take in large volumes of foreign currencies to maintain exchange-rate stability. These obligations were imposed first by the Bretton Woods fixed-exchange rate agreements and then by various European currency arrangements.
In EMU, the Bundesbank is highly wary of the risks caused by the buildup of its assets with the ECB reflecting the ECB's lending to hard-hit peripheral countries, which includes borrowings under the ELA. The Bundesbank's assets under the so-called Target-2 system for short term liquidity transfers were 613 billion euros as of end-February, up from 547 billion euros in February last year, making up roughly two-thirds of the Bundesbank's balance sheet. The Target-2 total has declined by around 140 billion euros since the peak in August last year, but greatly exceeds the Bundesbank's gold stocks worth 132 billion euros as of end-February as well as its 29 billion euros of foreign exchange reserves.
The significance of the Emminger letter is that he wrote it at a similarly fraught time of skirmishing with France and other neighbors over Europe's monetary framework. Emminger sent the missive to Helmut Schmidt, then West German chancellor, on Nov. 16, 1978, to register the Bundesbank council's approval of most of the elements of the prospective agreement setting up the European Monetary System (EMS), which developed later into EMU.
However, Emminger made an important exception. He and his council colleagues disagreed with the feature of the EMS agreement that the Bundesbank would be forced to intervene with unlimited amounts of Deutsche mark sales and foreign currency purchases whenever European partners' currencies reached their floor in the EMS's exchange-rate mechanism.
The letter made clear the Bundesbank's desire to be freed from this obligation to intervene during monetary crises. Schmidt sent Emminger a telex message signaling agreement on all the outstanding issues apart from the intervention exemption.
On Nov. 30 Schmidt attended a lengthy Bundesbank council meeting in Frankfurt to clinch agreement on the EMS details -- the first-ever visit to the Bundesbank by a head of government. Schmidt pointed out, to Emminger's evident satisfaction, that -- in relation to the intervention exemption -- he had annotated the Bundesbank president's letter of Nov. 16 with an 'r' to indicate "richtig" ("right" in German) or, as he said, "factual agreement".
This deviation, Schmidt told the council, was allowable under the classical legal exemption clause "clausula rebus sic stantibus" ("Treaties may become inapplicable because of changes in circumstances").
However, he affirmed that the modification should remain secret and could not be part of a formal agreement. "Let us imagine that this appeared in a French or Italian newspaper tomorrow," Schmidt told the council, according to official documents that were published only 30 years later. "The editorials would criticize their own governments for believing such a shallow promise from the Germans. A [German] government promises to intervene to uphold certain rules of the game, but then writes in an internal paper that it intends to act differently at times of emergency."
The Emminger letter was brought into play, with great effect, 14 years later on Friday Sept. 11, 1992, a day after the Banca d'Italia, the Italian central bank, publicly complained about "excessively high" Bundesbank interest rates, when the lira fell to its lowest permitted point in the exchange-rate mechanism, triggering enormous obligatory intervention from the Bundesbank and Banca d'Italia.
In the light of massive inflows of liquidity threatening to disrupt German monetary policy, the Bundesbank invoked the Emminger let-out clause to free it from the constraint of making unlimited support purchases of the lira.
The news shocked the Italians.
Carlo Azeglio Ciampi, governor of the Banca d'Italia, was conferring with Prime Minister Giuliano Amato and Finance Minister Piero Barucci at the prime minister's office in Rome when Ciampi was called to the telephone to be told that the Bundesbank would stop intervening on Monday. "When he came back, he was pale, almost white," Amato recalled later. The episode forced a lira devaluation over the weekend and helped sparked a run on the British pound on Wednesday Sept. 16 (known later in British parlance as "Black Wednesday") when the U.K. had to leave the exchange-rate mechanism.
The Bundesbank carefully avoided having to resort to the Emminger letter on Black Wednesday because it intervened to buy Dutch guilders and sell Deutsche marks, forcing the guilder to the top of the ERM intervention framework against sterling and therefore avoiding any Bundesbank obligation to undertake unlimited purchases of sterling.
The Emminger letter was also invoked later that month in a furious battle with the French government and the Banque de France to prevent the French franc from devaluing within the ERM. A top French official Guillaume Hannezo reiterated Paris's surprise over the discovery of the Emminger letter limiting the Bundesbank's intervention obligations. "This is singular: a treaty from state to state can be repudiated by an independent public organ."
The various intrigues surrounding the Emminger letter are shadowy and somewhat convoluted. Jens Weidmann, the current Bundesbank president, who has been known to cite Emminger approvingly in his speeches, was 10 years old when the document was written.
However, there is one man to whom it is not a mystery. Mario Draghi, the ECB president, and the man who authorized the March 21 Cypriot ultimatum, was head of the Italian Treasury during the September 1992 encounters with the Bundesbank.
Draghi has been on the receiving end of the Bundesbank's power. And he could be excused for now thinking he can unleash some of it in the service of the ECB.
David Marsh is chairman of the Official Monetary and Financial Institutions Forum.
http://www.marketwatch.com/story/cyprus-terms-rooted-in-secret-letter-from-70s-2013-04-01?pagenumber=1
Great article sludgehound thanks for posting.
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors
Mar 28 2013, 11:42
Ellen Brown
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few eurozone "troika" officials scrambling to salvage their balance sheets. A joint paper by the U.S. Federal Deposit Insurance Corporation and the Bank of England dated Dec. 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.
New Zealand has a similar directive, discussed in my last article here, indicating that this isn't just an emergency measure for troubled eurozone countries. New Zealand's Voxy reported on March 19:
The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand, which will see small depositors lose some of their savings to fund big bank bailouts...
Open Bank Resolution (OBR) is Finance Minister Bill English's favored option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank's bailout.
Can They Do That?
Although few depositors realize it, legally the bank owns the depositor's funds as soon as they are put in the bank. Our money becomes the bank's, and we become unsecured creditors holding IOUs or promises to pay (see here and here). But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into "bank equity." The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
The 15-page FDIC-BOE document is called "Resolving Globally Active, Systemically Important, Financial Institutions." It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain "financial stability." Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.
No exception is indicated for "insured deposits" in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a "resolution process," defined elsewhere as a plan that "would be triggered in the event of the failure of an insurer..." The only mention of "insured deposits" is in connection with existing U.K. legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.
An Imminent Risk
If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be "at risk" and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008. That this dire scenario could actually materialize was underscored by Yves Smith in a March 19 post titled "When You Weren't Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives." She writes:
In the U.S., depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren't even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.
One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor "secured," while the depositor who puts up 100 cents on the dollar is "unsecured." But moving on -- Smith writes:
Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.
Its "depositary" is the arm of the bank that takes deposits; and at Bank of America (BAC), that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:
...Bank of America's holding company...held almost $75 trillion of derivatives at the end of June...
That compares with JPMorgan's deposit-taking entity, JPMorgan Chase Bank NA, which contained 99% of the New York-based firm's $79 trillion of notional derivatives, the OCC data show.
$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in notional derivatives each than the entire global GDP (at $70 trillion). The "notional value" of derivatives is not the same as cash at risk, but according to a cross-post on Smith's site:
By at least one estimate, in 2010 there was a total of $12 trillion in cash tied up (at risk) in derivatives...
$12 trillion is close to the U.S. GDP. Smith goes on:
...Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs...Lehman failed over a weekend after JPMorgan grabbed collateral.
But it's even worse than that. During the savings and loans crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.
Perhaps, but Congress has already been burned and is liable to balk a second time. Section 716 of the Dodd-Frank Act specifically prohibits public support for speculative derivatives activities. And in the eurozone, while the European Stability Mechanism committed eurozone countries to bail out failed banks, they are apparently having second thoughts there as well. On March 25, Dutch Finance Minister Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, told reporters that it would be the template for any future bank bailouts, and that "the aim is for the ESM never to have to be used."
That explains the need for the FDIC-BOE resolution. If the anticipated enabling legislation is passed, the FDIC will no longer need to protect depositor funds; it can just confiscate them.
Worse Than a Tax
An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government's debt is at least arguably the people's debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.
What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture. Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.
The Cyprus haircut on depositors was called a "wealth tax" and was written off by commentators as "deserved," because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the U.S., it will be a tax on the poor and middle class. Wealthy Americans don't keep most of their money in bank accounts. They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.
Are you safe, then, if your money is in gold and silver? Apparently not -- if it's stored in a safety deposit box in the bank. Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of "national security," which a major bank crisis no doubt will be.
The Swedish Alternative: Nationalize the Banks
Another alternative was considered but rejected by President Obama in 2009: nationalize mega-banks that fail. In a February 2009 article titled "Are Uninsured Bank Depositors in Danger?" Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:
It is...amazing that Obama does not understand the political appeal of the nationalization option...[D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.
On whether depositors could indeed be forced to become equity holders, Salmon commented:
It's worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they're by far the largest class of unsecured creditors.
President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the U.S. Fed had not worked in Japan, which wound up instead in a "lost decade." But Obama opted for the Japanese approach because, according to Ed Harrison, "Americans will not tolerate nationalization."
But that was four years ago. When Americans realize that the alternative is to have their ready cash transformed into "bank stock" of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.
http://seekingalpha.com/article/1306931-it-can-happen-here-the-confiscation-scheme-planned-for-u-s-and-u-k-deposito
It Can Happen Here: The Confiscation Scheme Planned For U.S. And U.K. Depositors
Mar 28 2013, 11:42
Ellen Brown
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few eurozone "troika" officials scrambling to salvage their balance sheets. A joint paper by the U.S. Federal Deposit Insurance Corporation and the Bank of England dated Dec. 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.
New Zealand has a similar directive, discussed in my last article here, indicating that this isn't just an emergency measure for troubled eurozone countries. New Zealand's Voxy reported on March 19:
The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand, which will see small depositors lose some of their savings to fund big bank bailouts...
Open Bank Resolution (OBR) is Finance Minister Bill English's favored option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank's bailout.
Can They Do That?
Although few depositors realize it, legally the bank owns the depositor's funds as soon as they are put in the bank. Our money becomes the bank's, and we become unsecured creditors holding IOUs or promises to pay (see here and here). But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into "bank equity." The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
The 15-page FDIC-BOE document is called "Resolving Globally Active, Systemically Important, Financial Institutions." It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain "financial stability." Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.
No exception is indicated for "insured deposits" in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a "resolution process," defined elsewhere as a plan that "would be triggered in the event of the failure of an insurer..." The only mention of "insured deposits" is in connection with existing U.K. legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.
An Imminent Risk
If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be "at risk" and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008. That this dire scenario could actually materialize was underscored by Yves Smith in a March 19 post titled "When You Weren't Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives." She writes:
In the U.S., depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren't even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.
One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor "secured," while the depositor who puts up 100 cents on the dollar is "unsecured." But moving on -- Smith writes:
Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.
Its "depositary" is the arm of the bank that takes deposits; and at Bank of America (BAC), that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:
...Bank of America's holding company...held almost $75 trillion of derivatives at the end of June...
That compares with JPMorgan's deposit-taking entity, JPMorgan Chase Bank NA, which contained 99% of the New York-based firm's $79 trillion of notional derivatives, the OCC data show.
$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in notional derivatives each than the entire global GDP (at $70 trillion). The "notional value" of derivatives is not the same as cash at risk, but according to a cross-post on Smith's site:
By at least one estimate, in 2010 there was a total of $12 trillion in cash tied up (at risk) in derivatives...
$12 trillion is close to the U.S. GDP. Smith goes on:
...Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs...Lehman failed over a weekend after JPMorgan grabbed collateral.
But it's even worse than that. During the savings and loans crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.
Perhaps, but Congress has already been burned and is liable to balk a second time. Section 716 of the Dodd-Frank Act specifically prohibits public support for speculative derivatives activities. And in the eurozone, while the European Stability Mechanism committed eurozone countries to bail out failed banks, they are apparently having second thoughts there as well. On March 25, Dutch Finance Minister Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, told reporters that it would be the template for any future bank bailouts, and that "the aim is for the ESM never to have to be used."
That explains the need for the FDIC-BOE resolution. If the anticipated enabling legislation is passed, the FDIC will no longer need to protect depositor funds; it can just confiscate them.
Worse Than a Tax
An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government's debt is at least arguably the people's debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.
What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture. Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.
The Cyprus haircut on depositors was called a "wealth tax" and was written off by commentators as "deserved," because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the U.S., it will be a tax on the poor and middle class. Wealthy Americans don't keep most of their money in bank accounts. They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.
Are you safe, then, if your money is in gold and silver? Apparently not -- if it's stored in a safety deposit box in the bank. Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of "national security," which a major bank crisis no doubt will be.
The Swedish Alternative: Nationalize the Banks
Another alternative was considered but rejected by President Obama in 2009: nationalize mega-banks that fail. In a February 2009 article titled "Are Uninsured Bank Depositors in Danger?" Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:
It is...amazing that Obama does not understand the political appeal of the nationalization option...[D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.
On whether depositors could indeed be forced to become equity holders, Salmon commented:
It's worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they're by far the largest class of unsecured creditors.
President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the U.S. Fed had not worked in Japan, which wound up instead in a "lost decade." But Obama opted for the Japanese approach because, according to Ed Harrison, "Americans will not tolerate nationalization."
But that was four years ago. When Americans realize that the alternative is to have their ready cash transformed into "bank stock" of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.
http://seekingalpha.com/article/1306931-it-can-happen-here-the-confiscation-scheme-planned-for-u-s-and-u-k-depositors
Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility
by Tyler Durden on 03/31/2013
A month ago we pointed out that as a result of Australia's unprecedented reliance on China as a target export market, accounting for nearly 30% of all Australian exports (with the flipside being just as true, as Australia now is the fifth-biggest source of Chinese imports), the two countries may as well be joined at the hip.
Over the weekend, Australia appears to have come to the same conclusion, with the Australian reporting that the land down under is set to say goodbye to the world's "reserve currency" in its trade dealings with the world's biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar intermediation, in the process "slashing costs for thousands of business" and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar's reserve currency status until one day it no longer is.
That said, this latest development in global currency relations should come as no surprise to those who have followed our series on China's slow but certain internationalization of its currency over the past two years. To wit: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", and "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap."
And while previously the focus was on Chinese currency swap arrangements, the uniqueness of this weekend's news is that it promotes outright convertibility of the Yuan: something China has long said would happen but many were skeptical it ever would. That is no longer the case, and with Australia setting the precedent, expect many more Asian countries (at first) to follow in Australia's footsteps, because while the developed world is far more engaged in diluting its currency as a means to spur "growth", Asian and developing world nations are still engage in real, actual trade, where China is rapidly and aggressively becoming the world's hub.
More from The Australian:
Former ambassador to China Geoff Raby, now a Beijing-based business figure, told The Weekend Australian: "The value of such a deal would be substantial for exporters to China, especially those that import a lot from China like mining companies, as it would remove business constraints including exchange-rate risks and transaction costs."
Businesses, like individuals when travelling, have to pay extra to convert currency since there are different rates for buying and selling.
So removing one step also cuts out the cost of paying for such a "spread".
Australia has undertaken significant lobbying for the deal and the direct conversion of the yuan, also referred to as the renminbi (RMB), is identified as a priority in the government's Asian century white paper.
"We have held preliminary discussions with the Chinese government to explore how soon direct convertibility can be practicably achieved," the white paper says.
"We are continuing these discussions, and also exploring other opportunities to work with China to support the internationalisation of the RMB."
Australia's banks increasingly arrange trade finance through Hong Kong, which has developed a special role as China's chief international finance centre.
Needless to say, China is eagerly looking forward to taking yet another bite out of the USD's reserve status.
New President Xi Jinping, a former Communist Party secretary of Shanghai, is a champion of that city's development as China's finance hub, and it is believed that the Prime Minister may fly there to sign the currency conversion deal.
Ms Gillard is expected to go on from Shanghai to Beijing, where she will open the third Australia China Economic and Trade Forum organised primarily by the Australia China Business Council, which will be bringing about 100 people from Australia for the event. Participants are likely to include Andrew Harding, Rio Tinto's new chief executive for iron ore; Warwick Smith, ANZ Bank's chairman for NSW and the ACT; Australian Trade Minister Craig Emerson and Financial Services Minister Bill Shorten; Gao Hucheng, China's Commerce Minister; and Gao Xiqing, the acting head of China Investment Corporation, the country's vast sovereign wealth fund.
The ANZ Bank has been a strong advocate of direct convertibility between the dollar and the yuan. Gilles Plante, the bank's chief executive in Asia, said in a recent report that in the last financial year, China accounted for 29 per cent of all exports and 18 per cent of imports, but the value of that trade denominated in yuan was less than 0.3 per cent.
He forecast that cross-border flows of funds would be liberalised "to support Shanghai's plan to build itself as a global financial centre. At the time the whole world is digging out opportunities from the rise of the yuan, Australia should not lag behind."
It was significant the liberalising governor of the People's Bank, Zhou Xiaochuan, kept his job during the reshuffle of China's leadership. He said last year at a conference: "The next movement related to the yuan is going to be reform of convertibility. We are moving in this direction; we need to go further, we will have some deregulation."
Most importantly, to China, Australia will serve as the Guniea Pig - should this experiment in FX liberalization work out to China's satisfaction, expect Beijing to engage many more trade partners in direct currency conversion.
Beijing appears to have chosen Canberra as its partner in this next movement for straightforward economic reasons, as Australia has become China's fifth-biggest source of imports and thus, the appropriate partner for the march of its currency.
Ms Gillard and President Xi Jinping may also during the visit establish a "strategic partnership" between the countries. This will enable Australia to catch up in status with a large range of nations.
Why is this so very critical? For the simple reason that the free lunch the US has enjoyed ever since the advent of the US dollar as world reserve currency, may be coming to an end as other, more aggressive alternatives - both fiat, and hard-asset based - to the USD appear. And since there is no such thing as a free lunch, all the deferred pain the US Treasury Department has been able to offset thanks to its global currency monopoly status will come crashing down the second the world starts getting doubts about the true nature of just who the real reserve currency will be in the future.
http://www.zerohedge.com/news/2013-03-31/thanks-world-reserve-currency-no-thanks-australia-and-china-enable-direct-currency-c
Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility
by Tyler Durden on 03/31/2013
A month ago we pointed out that as a result of Australia's unprecedented reliance on China as a target export market, accounting for nearly 30% of all Australian exports (with the flipside being just as true, as Australia now is the fifth-biggest source of Chinese imports), the two countries may as well be joined at the hip.
Over the weekend, Australia appears to have come to the same conclusion, with the Australian reporting that the land down under is set to say goodbye to the world's "reserve currency" in its trade dealings with the world's biggest marginal economic power, China, and will enable the direct convertibility of the Australian dollar into Chinese yuan, without US Dollar intermediation, in the process "slashing costs for thousands of business" and also confirming speculation that China is fully intent on, little by little, chipping away at the dollar's reserve currency status until one day it no longer is.
That said, this latest development in global currency relations should come as no surprise to those who have followed our series on China's slow but certain internationalization of its currency over the past two years. To wit: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", and "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap."
And while previously the focus was on Chinese currency swap arrangements, the uniqueness of this weekend's news is that it promotes outright convertibility of the Yuan: something China has long said would happen but many were skeptical it ever would. That is no longer the case, and with Australia setting the precedent, expect many more Asian countries (at first) to follow in Australia's footsteps, because while the developed world is far more engaged in diluting its currency as a means to spur "growth", Asian and developing world nations are still engage in real, actual trade, where China is rapidly and aggressively becoming the world's hub.
More from The Australian:
Former ambassador to China Geoff Raby, now a Beijing-based business figure, told The Weekend Australian: "The value of such a deal would be substantial for exporters to China, especially those that import a lot from China like mining companies, as it would remove business constraints including exchange-rate risks and transaction costs."
Businesses, like individuals when travelling, have to pay extra to convert currency since there are different rates for buying and selling.
So removing one step also cuts out the cost of paying for such a "spread".
Australia has undertaken significant lobbying for the deal and the direct conversion of the yuan, also referred to as the renminbi (RMB), is identified as a priority in the government's Asian century white paper.
"We have held preliminary discussions with the Chinese government to explore how soon direct convertibility can be practicably achieved," the white paper says.
"We are continuing these discussions, and also exploring other opportunities to work with China to support the internationalisation of the RMB."
Australia's banks increasingly arrange trade finance through Hong Kong, which has developed a special role as China's chief international finance centre.
Needless to say, China is eagerly looking forward to taking yet another bite out of the USD's reserve status.
New President Xi Jinping, a former Communist Party secretary of Shanghai, is a champion of that city's development as China's finance hub, and it is believed that the Prime Minister may fly there to sign the currency conversion deal.
Ms Gillard is expected to go on from Shanghai to Beijing, where she will open the third Australia China Economic and Trade Forum organised primarily by the Australia China Business Council, which will be bringing about 100 people from Australia for the event. Participants are likely to include Andrew Harding, Rio Tinto's new chief executive for iron ore; Warwick Smith, ANZ Bank's chairman for NSW and the ACT; Australian Trade Minister Craig Emerson and Financial Services Minister Bill Shorten; Gao Hucheng, China's Commerce Minister; and Gao Xiqing, the acting head of China Investment Corporation, the country's vast sovereign wealth fund.
The ANZ Bank has been a strong advocate of direct convertibility between the dollar and the yuan. Gilles Plante, the bank's chief executive in Asia, said in a recent report that in the last financial year, China accounted for 29 per cent of all exports and 18 per cent of imports, but the value of that trade denominated in yuan was less than 0.3 per cent.
He forecast that cross-border flows of funds would be liberalised "to support Shanghai's plan to build itself as a global financial centre. At the time the whole world is digging out opportunities from the rise of the yuan, Australia should not lag behind."
It was significant the liberalising governor of the People's Bank, Zhou Xiaochuan, kept his job during the reshuffle of China's leadership. He said last year at a conference: "The next movement related to the yuan is going to be reform of convertibility. We are moving in this direction; we need to go further, we will have some deregulation."
Most importantly, to China, Australia will serve as the Guniea Pig - should this experiment in FX liberalization work out to China's satisfaction, expect Beijing to engage many more trade partners in direct currency conversion.
Beijing appears to have chosen Canberra as its partner in this next movement for straightforward economic reasons, as Australia has become China's fifth-biggest source of imports and thus, the appropriate partner for the march of its currency.
Ms Gillard and President Xi Jinping may also during the visit establish a "strategic partnership" between the countries. This will enable Australia to catch up in status with a large range of nations.
Why is this so very critical? For the simple reason that the free lunch the US has enjoyed ever since the advent of the US dollar as world reserve currency, may be coming to an end as other, more aggressive alternatives - both fiat, and hard-asset based - to the USD appear. And since there is no such thing as a free lunch, all the deferred pain the US Treasury Department has been able to offset thanks to its global currency monopoly status will come crashing down the second the world starts getting doubts about the true nature of just who the real reserve currency will be in the future.
http://www.zerohedge.com/news/2013-03-31/thanks-world-reserve-currency-no-thanks-australia-and-china-enable-direct-currency-c
Expert Analysis
Colossus Minerals Inc.
theaureport
http://www.theaureport.com/pub/co/597#quote
The Gold Report Interview with Peter Krauth (3/27/13) "I like Colossus Minerals Inc., a developing precious metals miner. Its flagship project, Serra Pelada in Brazil, is fully permitted and has environmental, installation and mining licenses going back to 2010. The mine is under construction, with first production planned for early H2/13. It has done all kinds of metallurgical testing and expects very good recoveries. The company has come across some extremely high-grade intercepts for gold, platinum and palladium. Some of the high-grade intercepts have been 4,600 g/t gold over admittedly short intercepts, about 2–2.5m sections, 1,600 g/t platinum and 1,700 g/t palladium. Its margins are likely to be extremely wide, so it should be a very profitable producer. Some of the grades at Serra Pelada are among the highest on record. The project has drilled 100,000m to date, and a lot of exploration upside remains. . .
"[Colossus] has a $75M contingency for construction and working capital. It sold some of its production in advance to Sandstorm Gold Ltd. and Sandstorm Metals & Energy Ltd., but it has the right to repurchase half of those commitments. Platinum and palladium production will be relatively important, in addition to gold. This makes it an interesting way to play the PGM space. Investors can be part of a company that is very close to production and should have attractive profit margins. . .Colossus would be a trophy piece for a miner that wanted to own potentially large, high-grade reserves in a good, relatively safe jurisdiction." More >
Morning Coffee (3/12/13) "Shares of Colossus Minerals surged as traders anticipated positive updates from the company?s Serra Pelada gold/platinum mine in Brazil. . .mining operations remain on track to start initial production early in the second half of 2013 at an initial rate of 250 t/d and continue the ramp up phase throughout the remainder of 2013 to 500 t/d. . .the company expects to achieve 1,000 t/d of production by the end of the first quarter of 2014. . .the bulls get giddy like school girls when they look at cash costs, capital intensity and eye popping drill holes."
Morning Coffee (3/1/13) "Colossus Minerals Inc. announced further drill results from its Serra Pelada project in Brazil. . .[Hole SPD-182 returned] 3.4m grading 13.28 g/t gold, 0.02 g/t platinum and 0.06 g/t palladium. . .highlights from the underground include Hole SPUD-018, which intercepted 0.8m grading 23.07 g/t gold and 3.6m grading 24.37 g/t gold, 0.28 g/t platinum and 0.88 g/t palladium. Overall, the results continue to delineate and extend the Central Mineralized Zone mineralization, while demonstrating localized increases in widths in certain areas."
Morning Coffee (2/11/13) "Colossus Minerals Inc. provided investors with a positive update surrounding progress at its Serra Pelada mine in Brazil: The company commented that it remains on track to start initial production early in H2/13 at an initial rate of 250 mtpd and continue the ramp up phase throughout the remainder of 2013 to 500 mtpd. . . .Colossus also noted that underground development is progressing well with a number of infrastructure projects necessary to support full-scale mining now complete or well underway."
George Albino, GMP Securities (2/8/13) "At Colossus Minerals Inc.'s Serra Pelada, we are pleased to see development progressing on track (and in some cases, ahead of schedule). With completion of the bulk sample by the end of the quarter, an initial resource/reserve estimate expected in early Q2/13, ongoing development efforts and, of course, continuing exploration updates, H1/13 should prove to be an eventful period for the company; we reiterate our Buy rating and CA$11.50 target."
http://www.theaureport.com/pub/co/597#quote
Precious Metals the Antidote to Fiat Currency Threat:
International Resource Specialist Peter Krauth
Source: Brian Sylvester of The Gold Report (3/27/13)
TGR: You recently wrote about the coming global shortage of palladium and the likely rise in the palladium price. Investors have heard similar refrains from experts relative to rare earth elements, lithium and even some base metals. Those commodities have witnessed only what one might call sporadic price gains. Are you "crying wolf" when it comes to palladium?
PK: The fundamentals for palladium's supply-demand profile are very solid. On the demand side, two-thirds end up in vehicles, mostly for catalytic converters. Car sales are growing very quickly. In 2011, 77M vehicles were sold worldwide; in 2012, 81M. This year, the forecast is to reach 85M and the 2018 estimate is 104M. A lot of that growth will happen in China, which also has a serious pollution problem. China has been increasing its emission standards as its air becomes relatively unbreathable.
On the supply side, Russia accounts for 44% of palladium production; South Africa for 38%.
South Africa has serious labor disruptions. In August 2012, miners at Lonmin Plc's (LMI:LSE) Marikana mine went on strike. Clashes between strikers and the police resulted in 46 deaths. Protests and strikes have multiplied since then. In January, Anglo American Plc (AAUK:NASDAQ) decided to close and sell off several of its platinum mines. Labor problems and production costs have just become overbearing. The mines are not profitable anymore. That does not help supply.
Ore grades from Russia have been falling quickly. Output from Norilsk, the world's largest palladium producer, is declining. Russia also sells palladium into the physical market from Gokhran, its state repository. In 2010, as much as 1 Moz of the physical palladium—representing 15% of the global supply—came from Gokhran. In 2011, that dropped to 775 Koz and last year to 250 Koz. This year, Johnson Matthey forecast Gokhran will supply only 150 Koz. In four years, supply from Gokhran will have dropped from 15% of the global supply to only 2%. Some insiders say there will be no supply from Gokhran in 2014.
TGR: Are resource equities the best way to play palladium?
PK: They are. Palladium's demand outlook is solid, and Russia and South Africa—source of 80% of the supply—will have a difficult time keeping up with demand. As a result, palladium prices will continue climbing. That will attract investors to things like palladium ETFs. As those ETFs use the metal as backing, it will drive up physical demand further.
The equities provide leverage to the palladium price. If companies can mine palladium at a relatively low cost, they can generate healthy profit margins. That is how investors should play this trend.
TGR: There are few platinum group metals (PGM) plays out there. Can you give us one or two names?
PK: I like Colossus Minerals Inc. (CSI:TSX; COLUF:OTCQX), a developing precious metals miner. Its flagship project, Serra Pelada in Brazil, is fully permitted and has environmental, installation and mining licenses going back to 2010. The mine is under construction, with first production planned for early H2/13. It has done all kinds of metallurgical testing and expects very good recoveries.
The company has come across some extremely high-grade intercepts for gold, platinum and palladium. Some of the high-grade intercepts have been 4,600 grams per ton (4,600 g/t) gold over admittedly short intercepts, about 2–2.5 meter (2–2.5m) sections, 1,600 g/t platinum and 1,700 g/t palladium. Its margins are likely to be extremely wide, so it should be a very profitable producer. Some of the grades at Serra Pelada are among the highest on record. The project has drilled 100,000m to date, and a lot of exploration upside remains.
TGR: For a long time, a group of workers called the Cooperativa de Mineração dos Garimpeiros de Serra Pelada (COOMIGASP) held a percentage of Serra Pelada. Does it still own a percentage?
PK: Yes, that group still owns 25% of Serra Pelada.
TGR: Is Colossus likely to try to buy them out?
PK: I think that could be part of its long-term plan.
TGR: Is Colossus on target for production in H2/13?
PK: Yes. It has a $75M contingency for construction and working capital. It sold some of its production in advance to Sandstorm Gold Ltd. (SSL:TSX.V) and Sandstorm Metals & Energy Ltd. (SND:TSX.V), but it has the right to repurchase half of those commitments.
Platinum and palladium production will be relatively important, in addition to gold. This makes it an interesting way to play the PGM space. Investors can be part of a company that is very close to production and should have attractive profit margins.
TGR: With its margins and its unusual gold-PGM project, is this a takeover target?
PK: Yes. Imminent producers inevitably become targets because they are irresistible in terms of adding to production and reserves. Colossus would be a trophy piece for a miner that wanted to own potentially large, high-grade reserves in a good, relatively safe jurisdiction.
(Continued at link below)
http://www.theaureport.com/pub/na/15109
One Simple Secret To Pick Winning Gold & Silver Miners
Gold Silver Worlds | March 27, 2013 |
We came across a recent interview in which Casey Research (Marin Katusa) talks to FutureMoneyTrends (Daniel Ameduri). Marin Katusa makes some excellent points about intevesting in resource companies (which includes gold and silver miners). He does not go in detail though. We decided to elaborate the two core ideas of the interview in this article.
(1) By being contrarian in resource investing some investors truly became billionaires. Very well known examples include Rick Rule and Doug Casey; also Jim Rogers made a fortune in the resource markets. Applying the contrarian approach to today’s markets means that now is the time to be accumulating, although not yet very aggressively. The worse the decline in resource shares becomes the more you could accumulate. One extremely important condition is that investors MUST be extraordinarily selective: a significant part of the miners will disappear, and the majority will continue to make losses. Investors who select the winners based on the right criteria could make fortunes in the coming years. Be aware that only some 10% of the miners will be true winners.
One of the quotes in the interview that is certainly worth reflecting: “When shares are on sale, people are scared.” We quote from a recent article in which Rick Rule described the mental state of most investors that are invested in the miners right now: “It is like someone walked in the street and ignored every store that a for sale sign and went to the only store that had the full price, no discounts ever sign. Now is the time to buy because we are in a bear market. We sell high in a bull market; we buy low in a bear market.” He continued by stating that the key challenge is to master your emotions: “Either you take advantage of your emotion, or you will be taken advantage of your emotion.”
Natural resource based businesses (including gold and silver mining) are cyclical. Bear markets, like we are in now, beget bull markets. Bull markets beget bear markets. When you are feeling terrified, you have to be aggressive; when you are feeling brilliant, you have to sell. If you do not do that, you will be a victim. It is just the way it works. If you ignore these facts, you are roadkill on a good day. (Source)
(2) Related to the previous point miners with excellent management teams are much more likely to survive and become a winner. This is a very appealing finding, because of its simplicity. It is really easy to check the background and track record of a management team; it only requires a limited time investment based on some desktop research.
We decided to do a reality check of this point. We looked into the share price performance of gold and silver miners that are run by people in “The Next 10” of Casey Research, a selection of highly talented and young entrepreneurs in the resource sector. The results are shown below. Based on these data, our conclusion is that miners with strong and talented management teams are able to track the performance of the TSX (which we used as a basis), or in several cases truly outperform the index!
Base for comparison: performance TSX Ventures Index (6 months) (Charts in article link)
Brian Dalton, President and CEO, Altius Minerals (T.ALS)
Marcel de Groot, CEO, Luna Gold (V.LGC)
Amir Adnani, President, CEO, and Director, Uranium Energy Corp. (UEC) and Brazil Resources Inc. (BRI.V)
Nolan Watson, CEO of Sandstorm Gold (V.SSL) and director at Bear Creek Mining (V.BCM)
Ari Sussman, Executive Chairman, Colossus Minerals (T.CSI) | President and CEO, Continental Gold (T.CNL)
Morgan Poliquin, President and CEO, Almaden Minerals (T.AMM)
In closing, Marin Katusa mentions one of the most promising junior & exploration miners in which Casey / Rule / Katusa believe, is Brazil Resources (BRI.V). The small company has better than expected discoveries, they have easy access to capital in times these extremely difficult times, and their management team has a proven track record (easy to check reader as mentioned before). It has the potential to become one of the winners in the foreseeable future.
http://goldsilverworlds.com/gold-silver-stocks-news/one-small-secret-to-pick-winning-gold-silver-miners/
Widespread Manipulation of Gold and Silver Prices?
March 24th 2013
Money Morning
Tony Daltorio: As we’ve explained before, manipulation of gold and silver prices is happening right here in the United States.
Our Global Resources Specialist Peter Krauth interviewed silver market analyst Ted Butler last year, who explained how big financial institutions were using high-frequency trading to depress silver prices.
And earlier this month, Money Morning Chief Investment Strategist Keith Fitz-Gerald detailed how these same big firms were toying with retail investors in the gold market.
Now, in the wake of the Libor scandal in London, which involved the rigging of interest rates by certain banks, it looks like prices in other markets such as gold and silver could be being rigged in a similar fashion.
Widespread Rigging in Markets
Bart Chilton, commissioner of the CFTC (Commodity Futures Trading Commission), spoke last month about possible ‘fixing’ of prices in other markets besides interest rates.
“Why would they [other markets] be any different in the minds of those that may have sought to push or pull rates?” he wrote in a CFTC statement. “Given what we have seen in Libor, we’d be foolish to assume that other benchmarks aren’t venues that deserve review.”
Chilton believes these other markets “are legit areas of inquiry,” and “every single market needs to be reviewed, and potentially investigated.”
Another group questioning gold and silver price manipulation is the International Organization of Securities Commissions. In a recent paper, it stated that “the risk of manipulation will be greater where participants. . .have both incentive and opportunity to submit inaccurate dataor apply a methodology inaccurately.”
The organization added that the problem is particularly acute “where judgment is required in determining the data to be submitted.”
In other words, it’s possible people will put forth data that will make them the most money possible…
“Fixing” Gold and Silver Prices
Turning specifically to the gold market, the price of gold has been “fixed” in London twice a day.
The practice has been in place since 1919 and the fixing is done by only five banks: Barclays Plc, HSBC Holdings Plc, Deutsche Bank AG, Societe Generale SA and the Bank of Nova Scotia. It takes place over the phone, a practice started in 2004.
The “fixing” of the silver price in London, which is “fixed” once a day via phone, is conducted by an even smaller group of banks: HSBC, Deutsche Bank AG and the Bank of Nova Scotia.
In light of Libor scandal, the CFTC is now studying various aspects of the fixings in London for gold and silver prices. It is believed the Commission is looking at whether the fixings are conducted in a proper manner and with enough transparency.
Some investors are already nervous about London’s gold and silver markets since admission that the ratio between metal traded and metal actually existing in London’s bullion market is 100 to 1, according to International Business Times.
Across the pond though, the CFTC inquiries are looked at in a different light. The investigation is seen as a way for the United States (Wall Street) to discredit London as a reliable financial center for the world’s capital and its banks as a safe custodian. London has a monopoly in the benchmark gold and silver prices and physical gold and silver settlement at the London AM Fix.
Homegrown Scandal
Actually, it would be good to see U.S. regulators pursue possible manipulation here at home as hard as they are pursuing manipulation in foreign markets.
The CFTC enforcement division started looking into possible manipulation of the COMEX silver market in 2008. The aforementioned Commissioner Chilton said in August 2012 that there indeed had been “devious efforts” to move precious metals prices downward through huge short positions held by a few U.S. banks.
Most prominent among these banks in the silver market is JPMorgan Chase & Co. (NYSE: JPM).
The bank recently filed a motion to dismiss a case brought against it for silver price manipulation. The judge presiding over the case is still deciding whether or not to grant the dismissal. The judge is looking for the plaintiffs to provide more direct evidence of manipulation, such as the size of JPMorgan’s silver trades on the COMEX, according toSilver Investing News.
If the judge agrees there is something here, then the plaintiffs will be able to obtain JPMorgan records through a court order.
The lead counsel in the case, Christopher Lovell of Lovell Stewart Halebian Jacobsen, told Silver Investing News he’s not overly optimistic that the judge will allow the case to go forward.
If not, perhaps the CFTC investigation will continue. After all, the U.S. Attorney General recently said that the large U.S. banks should not be perceived by the public as “too big to jail.”
Related Tickers: iShares Silver Trust (NYSEARCA:SLV), SPDR Gold Trust ETF (NYSEARCA:GLD).
Written By Tony Daltorio From Money Morning
http://etfdailynews.com/2013/03/24/widespread-manipulation-of-gold-and-silver-prices/
properlynumb I'd be skeptical of gold ETFs. There's full scale market manipulation in the "paper gold" markets. ETFs allow gold to be commingled with the custodian gold and the custodian can lease the gold to a sub-custodian. The gold is not "allocated" to the investor. The "exchange traded" gold is not regulated by the CFTC.