Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Why the Volcker Rule Is Now 3x Longer Stock-Markets / Financial Markets 2013
Nov 20, 2013 -
By: Money_Morning
Shah Gilani writes: Let’s talk about the so-called Volcker Rule.
When the Dodd-Frank Act was signed into law in 2010 – the bank-busting, save the system, “we’ll never again have a financial meltdown that could destroy the world” legislation – it was more of an outline.
The ostensible idea, in the aftermath of the credit crisis, was to give regulators time to write sensible rules and not throw the baby out with the bathwater. Yeah right.
Of course, the real deal was about giving banks and financial services institutions time to fight every rule and regulation, from first drafts to final implementation.
Along the way, it was proposed that banks should spin off their risky businesses into separately capitalized companies, in the form of what an investment bank or a merchant bank used to be. That way they could play hard and fast. And if they failed, tough luck, you’d be on your own. Meantime, the sister bank would have FDIC insurance to cover its depositors and make loans and do traditional bank things. Boring and stuffy bank things.
The Obama administration didn’t go for that. President Obama, for all his bluster about bad banks needing a spanking, didn’t go for that.
Obama advisor Paul Volcker – himself one the most revered and celebrated Federal Reserve Chairmen in the institution’s 100-year history – wanted the separation of gun-slinging banks from insured depository institutions. He suggested banks stop proprietary (or “prop”) trading altogether. (That’s betting the house’s money to make outsized gains to enrich the homeboys who are pulling leveraged levers for fun and profit.)
That suggestion became known as the Volcker Rule.
There’s still no finished Volcker Rule. When I wrote about it 18 months ago, it was 300 pages long (see “Why the Volcker Rule Is a Cop-Out and a Joke“). There’s now a 1,000-page draft circulating with all kinds of marks and bruises all over it. But it’s not done, not nearly done. It’s one rule.
Part of the problem is that banks and bank lobbyists and Congressmen in the banks’ pockets are trying to stymie what they don’t like, meaning the rule itself.
But the bigger problem is this: No fewer than five regulatory agencies are collaborating on the rule.
The Fed and the SEC want to cut banks as wide a highway as they can, so banks aren’t “hindered” from doing what they do that facilitates smooth-running capital markets. The CFTC and the FDIC want to fill in the loopholes being written into the rule. The OCC, they’re clueless anyway, so they’re just reading drafts over lunchtime martinis.
It all comes down to banks wanting to conduct “important functions” – such as market-making and hedging – without stupid restrictions. After all, market-making is not proprietary trading, they say, and hedging, well, that’s hedging, they say.
I was a market-maker (that’s an official stamp) on the Floor of the CBOE. And I was the hedge trader for one of the world’s biggest banks. Let me tell you what market-making is and what hedging is… really.
Market-making[color=red][/color] is when you are supposed to make a two-sided market. It’s your job to simultaneously bid and offer for a stock, an option, a commodity, whatever.
I’ll use stocks as an example. If you (supposing you’re a broker or dealer or floor trader) ask me for a “quote,” I have to give you a price I would buy the stock at and a price I would sell you the stock at and how much stock I am willing to buy or sell.
You might want to ask a bunch of market-makers what their quotes are (or these days you see what their quotes are on your computer screen), and you try to buy at the lowest price being offered by some market-maker or sell at the highest price some other market-maker is quoting.
Market-making is all about taking risks. Market-making is itself proprietary trading. You want to buy stock, and I sell you stock. I did that to facilitate you. But in doing so, I took a position, I sold you stock, maybe I sold you stock I didn’t own, so I shorted the stock to you. I am now short the stock. I have a position. I have on a proprietary trade.
Let’s say you’re a big customer and you want to buy a ton of stock from me. I will go out and amass a huge position, because I’m going to facilitate you. I’m making a market for you. I’m taking a huge risk building up a position that you said you want to buy. What if you don’t buy that position I’ve built up? What if I made up the fact that I had a customer that I needed to facilitate? What if I just wanted to pretend I was making a market but really wanted to amass a huge position to make money for my trading desk, for my bank, for my bonus pool?
How on earth are regulators going to know if banks are taking proprietary positions and just calling them client-related positioning or market-making? They aren’t. It’s a giant loophole.
Hedging?[color=red][/color] Let me say this about that. Hedging is when you have an at-risk position and you don’t like the risk. So, instead of just dumping the risk position (which is better than hedging), which you may not be able to do or unwilling to do for any number of reasons, you put on a hedge. A hedge is another position that makes money if your other position loses money. A perfect hedge (which is very hard to accomplish) means you don’t lose any money. You don’t make money, but you don’t lose money. An imperfect hedge will result in you probably losing some money, and once in a blue moon, you can make a little money on a hedge.
If you’re a bank, though, you can make a ton of money on a hedge, or you can lose a ton of money on a hedge.
Why? Because you weren’t really hedging. You were saying you were hedging. But you were taking another position with a lot of risk to make money on that part of your hedge.
You weren’t hedging. You were lying about hedging. You were prop trading.
That just happened. The JPMorgan “Whale” trade in London, the one that lost them $6.5 billion, that was a “hedge” trade. Yeah, that’s what they called it. It was a hedge trade that went bad. That was a prop trade lipsticked-up and called a hedge trade.
Market-making and hedging are both loopholes. They will be used to prop trade. It’s that simple.
Treasury Secretary Jacob Lew is pushing hard to get the Volcker Rule done by year-end, this year. But the Fed now wants to give banks until July 2015, instead of 2014, to implement whatever it looks like.
If the rule ends up being 1,000 pages, you can guess why it’s that long. It’s that long so that there will be enough fine print loopholes in it to give banks what they want… the ability to prop trade and not call it proprietary trading.
The only thing I can tell you for sure about this pending Volcker Rule is this: When it comes out, I will read it and I will spell out for you where the loopholes are and how banks will use those loopholes.
That much I can promise you.
Shah
Source :http://www.wallstreetinsightsandindictments.com/2013/11/why-the-volcker-rule-is-now-3x-longer/
Money Morning/The Money Map Report
US Government Lets JPMorgan Off the Hook for Mortgage Fraud
By Andre Damon and Barry Grey
Global Research, November 20, 2013
On Tuesday, the US Justice Department announced a long-awaited official settlement with JPMorgan Chase & Co., the largest US bank, on an array of charges by state and federal agencies related to the bank’s sale of toxic mortgage-backed securities, which contributed to the 2008 financial crash.
US Attorney General Eric Holder touted the agreement, which includes $9 billion in fines and $4 billion in consumer relief, as a major victory for the public over the banks. “The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over,” said Holder, adding, “No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”
In reality, the settlement falls far short of holding JPMorgan accountable for its fraudulent sale of mortgage-backed assets, which netted the bank tens of billions of dollars in profits while exacerbating the sub-prime mortgage crash that led to over ten million foreclosures in the US and a global economic downturn that thrust many millions more into unemployment and poverty.
Holder himself, in an interview broadcast Tuesday by NBC News, said that, in his opinion, JPMorgan’s actions played a direct role in the biggest financial crisis since the Great Depression. Yet in return for the settlement, the bank is released from a raft of lawsuits by the Justice Department, state attorneys general and three federal agencies.
The settlement’s statement of facts asserts that “employees of JPMorgan… received information that, in certain instances, loans that did not comply with underwriting guidelines were included in the RMBS [residential mortgage-backed securities] sold and marketed to investors; however, JPMorgan… did not disclose this to securitization investors.”
New York State Attorney General Eric Schneiderman, head of the Obama administration’s mortgage fraud task force, said the company “acknowledged it made serious, material misrepresentations to the public—including the investing public—about numerous RMBS transactions.”
While JPMorgan endorsed as factual the government’s claim that it knowingly sold defective mortgage-backed bonds to investors in violation of securities laws, the settlement does not include a direct admission of criminal wrongdoing by the bank. In months of closed-door negotiations between bank executives, including CEO Jamie Dimon, and top Justice Department officials, including Attorney General Holder, the bank resisted making such an acknowledgment of guilt, which would have opened it up to a wave of private lawsuits. In the end, the Obama administration complied with the bank’s wishes.
The Justice Department said it was continuing a criminal investigation of JPMorgan’s mortgage bond business, but there has as yet been no criminal indictment of Dimon or any other leading JPMorgan official.
This is in keeping with the administration’s policy of shielding the Wall Street elite from prosecution for its criminal actions both before, during and after the financial crash of September 2008. Not a single top banker has been criminally charged, let alone convicted and jailed, despite detailed exposures of illegal actions made public two years ago by a special investigatory commission into the financial crisis and, in a separate report, the Senate Permanent Subcommittee on Investigations.
The settlement, hailed by the Obama administration and the media as a “breakthrough” in government policing of the banks, is nothing of the kind. The headline figure of $13 billion is deliberately deceptive. Only $9 billion of the total is in cash, the rest taking the form of relief to troubled homeowners, partly through reductions in mortgage principals and partly through the lowering of interest payments. It is likely that JPMorgan was already planning to offer much of this $4 billion in relief for business reasons.
Moreover, according to Reuters, $11 billion of the total penalty is tax deductible. The news agency quoted Gregg Polsky, a law professor at the University of North Carolina, as saying the bank’s fine would effectively be reduced by $4 billion. The total cost to the bank for settling virtually all outstanding civil suits stemming from its fraudulent mortgage business prior to the crash will thus be about a third of its reported $21 billion profit for 2012.
The deal worked out mutually between the US government and JPMorgan is calibrated to include a fine large enough to give the appearance of a sharp rebuke, while insuring the bank’s continued viability and profitability. JPMorgan has, moreover, already set aside $28 billion to settle the large number of lawsuits and investigations into its activities.
The very fact that top Justice Department officials have spent months cajoling Dimon to agree to a such a deal highlights the immense power wielded by Wall Street over the government and the entire political establishment. The victims of predatory loans sold by JPMorgan or packaged into securities sold by the bank, who were then unable to meet their mortgage payments, were accorded no such consideration before they were thrown onto the street and had their homes seized.
Following the Justice Department announcement on Tuesday, Dimon said in a statement: “We are pleased to have concluded this extensive agreement with the president’s RMBS Working Group and to have resolved the civil claims of the Department of Justice and others.”
The blanket settlement releases JPMorgan from civil investigations by the Department of Justice and the state attorneys general of California, Delaware, Illinois, Massachusetts and New York, as well as civil litigation by the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA) and the National Credit Union Administration (NCUA).
The company’s stock jumped by 0.74 percent following the announcement, even as other financial stocks closed lower for the day.
Multiple probes into the fraudulent sale of mortgage bonds constitute only one area of JPMorgan’s activities that are currently under investigation. In September, the bank agreed to pay close to $1 billion to settle charges that it lied to investors and government regulators and committed accounting fraud to conceal $6.2 billion in losses in derivatives bets last year. A 300-page report on the so-called “London Whale” scandal issued last March by the Senate Permanent Subcommittee on Investigations concluded that the bank sought “to hide hundreds of millions of dollars of losses,” and that top executives, including Dimon himself, knowingly misinformed the public and investors.
According to the New York Times, the bank is currently being investigated by “at least eight federal agencies, a state regulator and two European nations.”
The actions under examination include the bank’s participation in the Libor-rigging scandal, allegations that JPMorgan facilitated Bernard Madoff’s multi-billion-dollar Ponzi scheme, accusations by the Federal Energy Regulatory Commission that it manipulated energy prices, allegations that it bribed Chinese officials, and the bank’s participation in the so-called robo-signing scandal, in which the employees of major mortgage lenders claimed to have reviewed foreclosure documents with which they were totally unfamiliar.
http://www.globalresearch.ca/us-government-lets-jpmorgan-off-the-hook-for-mortgage-fraud/5358794
US Government Lets JPMorgan Off the Hook for Mortgage Fraud
By Andre Damon and Barry Grey
Global Research, November 20, 2013
On Tuesday, the US Justice Department announced a long-awaited official settlement with JPMorgan Chase & Co., the largest US bank, on an array of charges by state and federal agencies related to the bank’s sale of toxic mortgage-backed securities, which contributed to the 2008 financial crash.
US Attorney General Eric Holder touted the agreement, which includes $9 billion in fines and $4 billion in consumer relief, as a major victory for the public over the banks. “The size and scope of this resolution should send a clear signal that the Justice Department’s financial fraud investigations are far from over,” said Holder, adding, “No firm, no matter how profitable, is above the law, and the passage of time is no shield from accountability.”
In reality, the settlement falls far short of holding JPMorgan accountable for its fraudulent sale of mortgage-backed assets, which netted the bank tens of billions of dollars in profits while exacerbating the sub-prime mortgage crash that led to over ten million foreclosures in the US and a global economic downturn that thrust many millions more into unemployment and poverty.
Holder himself, in an interview broadcast Tuesday by NBC News, said that, in his opinion, JPMorgan’s actions played a direct role in the biggest financial crisis since the Great Depression. Yet in return for the settlement, the bank is released from a raft of lawsuits by the Justice Department, state attorneys general and three federal agencies.
The settlement’s statement of facts asserts that “employees of JPMorgan… received information that, in certain instances, loans that did not comply with underwriting guidelines were included in the RMBS [residential mortgage-backed securities] sold and marketed to investors; however, JPMorgan… did not disclose this to securitization investors.”
New York State Attorney General Eric Schneiderman, head of the Obama administration’s mortgage fraud task force, said the company “acknowledged it made serious, material misrepresentations to the public—including the investing public—about numerous RMBS transactions.”
While JPMorgan endorsed as factual the government’s claim that it knowingly sold defective mortgage-backed bonds to investors in violation of securities laws, the settlement does not include a direct admission of criminal wrongdoing by the bank. In months of closed-door negotiations between bank executives, including CEO Jamie Dimon, and top Justice Department officials, including Attorney General Holder, the bank resisted making such an acknowledgment of guilt, which would have opened it up to a wave of private lawsuits. In the end, the Obama administration complied with the bank’s wishes.
The Justice Department said it was continuing a criminal investigation of JPMorgan’s mortgage bond business, but there has as yet been no criminal indictment of Dimon or any other leading JPMorgan official.
This is in keeping with the administration’s policy of shielding the Wall Street elite from prosecution for its criminal actions both before, during and after the financial crash of September 2008. Not a single top banker has been criminally charged, let alone convicted and jailed, despite detailed exposures of illegal actions made public two years ago by a special investigatory commission into the financial crisis and, in a separate report, the Senate Permanent Subcommittee on Investigations.
The settlement, hailed by the Obama administration and the media as a “breakthrough” in government policing of the banks, is nothing of the kind. The headline figure of $13 billion is deliberately deceptive. Only $9 billion of the total is in cash, the rest taking the form of relief to troubled homeowners, partly through reductions in mortgage principals and partly through the lowering of interest payments. It is likely that JPMorgan was already planning to offer much of this $4 billion in relief for business reasons.
Moreover, according to Reuters, $11 billion of the total penalty is tax deductible. The news agency quoted Gregg Polsky, a law professor at the University of North Carolina, as saying the bank’s fine would effectively be reduced by $4 billion. The total cost to the bank for settling virtually all outstanding civil suits stemming from its fraudulent mortgage business prior to the crash will thus be about a third of its reported $21 billion profit for 2012.
The deal worked out mutually between the US government and JPMorgan is calibrated to include a fine large enough to give the appearance of a sharp rebuke, while insuring the bank’s continued viability and profitability. JPMorgan has, moreover, already set aside $28 billion to settle the large number of lawsuits and investigations into its activities.
The very fact that top Justice Department officials have spent months cajoling Dimon to agree to a such a deal highlights the immense power wielded by Wall Street over the government and the entire political establishment. The victims of predatory loans sold by JPMorgan or packaged into securities sold by the bank, who were then unable to meet their mortgage payments, were accorded no such consideration before they were thrown onto the street and had their homes seized.
Following the Justice Department announcement on Tuesday, Dimon said in a statement: “We are pleased to have concluded this extensive agreement with the president’s RMBS Working Group and to have resolved the civil claims of the Department of Justice and others.”
The blanket settlement releases JPMorgan from civil investigations by the Department of Justice and the state attorneys general of California, Delaware, Illinois, Massachusetts and New York, as well as civil litigation by the Federal Deposit Insurance Corporation (FDIC), the Federal Housing Finance Agency (FHFA) and the National Credit Union Administration (NCUA).
The company’s stock jumped by 0.74 percent following the announcement, even as other financial stocks closed lower for the day.
Multiple probes into the fraudulent sale of mortgage bonds constitute only one area of JPMorgan’s activities that are currently under investigation. In September, the bank agreed to pay close to $1 billion to settle charges that it lied to investors and government regulators and committed accounting fraud to conceal $6.2 billion in losses in derivatives bets last year. A 300-page report on the so-called “London Whale” scandal issued last March by the Senate Permanent Subcommittee on Investigations concluded that the bank sought “to hide hundreds of millions of dollars of losses,” and that top executives, including Dimon himself, knowingly misinformed the public and investors.
According to the New York Times, the bank is currently being investigated by “at least eight federal agencies, a state regulator and two European nations.”
The actions under examination include the bank’s participation in the Libor-rigging scandal, allegations that JPMorgan facilitated Bernard Madoff’s multi-billion-dollar Ponzi scheme, accusations by the Federal Energy Regulatory Commission that it manipulated energy prices, allegations that it bribed Chinese officials, and the bank’s participation in the so-called robo-signing scandal, in which the employees of major mortgage lenders claimed to have reviewed foreclosure documents with which they were totally unfamiliar.
http://www.globalresearch.ca/us-government-lets-jpmorgan-off-the-hook-for-mortgage-fraud/5358794
Pilot Hits Home Run
Bob Moriarty
Archives
Nov 20, 2013
There are some wonderful aspects to getting old and coming down with Alzheimer’s. For one, you get to hide your own Easter eggs . As a writer you can go back and read what you wrote a few months ago and think, “By golly, that writer got it just right,” when reading your own crap.
I wrote a piece about the Kinsley Mountain project of Pilot Gold two months ago. By golly, I got it just right. Other than misspelling the name of the Rock Whisperer, Moira Smith.
On the 18th of November, Pilot announced the drill results of some 32 core and RC holes at the Kinsley project. Assays are pending for an additional 26 holes. The company has drilled about 14,200 meters of a 20,000 meter program due to end this month.
When I visited Kinsley two months ago Moira told me that her theory was that Alta Gold was producing from the wrong package of rocks and if they could drill the same rock sequence that they had found at Long Canyon, she thought the project had district scale potential.
She also felt the NS trending structures were as important or more important than the prevailing NNW structures that Alta had been mining. Alta had been mining the Candland Shales and she thought the limestone and shales underneath the Candland sequence would show better mineralization.
In short, Moira and her team wanted to apply the Long Canyon model to Kinsley. The initial drill results from the 2013 program support her theory. Proof of Concept came in the form of a 36.6-meter intercept of 8.53 g/t gold. To give you an idea of how significant that is, the hole was located some 550 meters from Alta’s mining. It was the single best intercept of over 1300 drill holes drilled at Kinsley.
I’d say Pilot and Moira Smith and her team just hit a giant home run. I wonder if Newmont has another $2.3 billion they would like to spend on another multi-million ounce deposit in the Long Canyon Trend.
Pilot has about $23 million in the bank and is well cashed up for the coming future. Look for more drill results in the next month.
Pilot is an advertiser and I am biased. Do your own due diligence.
Pilot Gold Inc
PLG-T $.92 (Nov 19, 2013)
PLGDF OTCQX 89.9 million shares
Pilot Gold website
###
Bob Moriarty
President: 321gold
Archives
321gold Ltd
http://www.321gold.com/editorials/moriarty/moriarty112013.html
The Red Queen’s race and the real winners from Quantitative Easing: Celebrating the five year anniversary of redistributing wealth to the top.
Posted by mybudget360.com
Nov. 20, 2013
The Federal Reserve is celebrating its 5 year anniversary of Quantitative Easing. As the stock market reaches record highs, it is useful to examine the real winners from QE. Luxury good purchases have done extremely well during this period as income inequality in the nation has reached levels last seen during the Gilded Age. Yet for the average American worker, salaries are stagnant and wage growth is nearly non-existent. After factoring in for inflation, many are stuck in having to run faster and faster just to stay in the same place. The Red Queen’s race in Through the Looking Glass involves a race where you have to run faster just to stay in the same place. Or in other words, trying to maintain a middle class lifestyle in an era of massive Fed intervention. QE has made it harder for savers and most American families to keep up while the leveraged top has been able to maximize all the benefits of QE. After 5 years, it is rather clear who the winners are.
Examining luxury goods
Few people have the means to buy Tiffany or Coach products. So it is interesting to compare these luxury brand companies versus other places where average Americans shop after QE:
It is clear that QE has provided a dramatic benefit to products that really cater to a small sliver of the population. QE has been a direct punishment to savers and most Americans since many do not own one piece of stock. This is why the 144% rally in the S&P 500 has not provided the expected benefits from such a significant run. Very little has trickled down.
We also have a very large number of Americans on food stamps. It appears that we now have a structurally poor part of our country that seems to be permanently entrenched. Over 47 million Americans are now on food stamps and the costs are not reversing:
You’ll notice that QE did very little in reversing this trend. And why would it? QE is merely a focus on assisting banks and hoping that the financial industry has the best interest of the nation at heart. First, let us set aside that the financial crisis that led us to this cliff was brought on by none other than our financial system. No reforms ever came about and instead more money was funneled into the banking sector and even accounting laws were paused simply to assist banks. 5 years later banks are back to making mega profits while many Americans are shutout of this prosperity. It is a massive system of corporate social welfare.
Where the wages stagnant
If we look at average hourly earnings we find that QE was not much help here either:
Source: SoberLook
This wasn’t a very positive development for your regular worker. We also find that many of the jobs added since the recession officially ended in the summer of 2009 have come in the form of lower paying jobs. It is the case that the largest employment sectors in the US pay very little:
It is clear that QE has been a big win for the banking sector. It has allowed banks the time to inflate assets and get rid of loans in a timely manner (of their choosing circumventing generational accounting rules and standards). Ironically the real estate market has also boomed but over 5 million foreclosures have occurred over this period and many of these were sold to large banks and hedge funds for low prices financed with easy debt provided by the Fed. In other words, from one bank to another bank and away from regular households. You can see this in the drop in homeownership over this same time:
The Federal Reserve has been primarily focused on helping the financial industry. In this mission they have succeeded. However, as most know there is no economic free lunch and we are seeing this at the 5 year anniversary of QE.
RSSIf you enjoyed this post click here to subscribe to a complete feed and stay up to date with today’s challenging market!
http://www.mybudget360.com/fed-qe-anniversary-wealth-distribution-qe-quantitative-easing-history/
Banks Syphoning Off the Financial Blood of their Customers
Nov 18, 2013 - 10:13 AM GMT
By: James_Quinn
Reports like the recent one from SNL Financial – Branch Networks Continue to Shrink really get my goat. As I travel the increasingly vacant highways of Montgomery County, PA I’m keenly aware of my surroundings. If I were a foreigner visiting for the first time, I’d think Space Available was the hot new retailer in the country. I’ve detailed the slow disintegration of our suburban sprawl paradise in previous articles:
Thousands of Space Available signs dot the bleak landscape, as office buildings, strip malls, and industrial complexes wither and die. Gas stations are shuttered on a daily basis as the ongoing depression results in less miles being driven by unemployed and underemployed suburbanites. At least the Chinese “Space Available” sign manufacturers are doing well. The only buildings doing brisk business are the food banks and homeless shelters.
The sad part is that I live in a relatively prosperous county with a low level of SNAP recipients and primarily occupied by a white collar college educated populace. If the clear downward spiral in my upper middle class county is an indication of our country’s path, the less well-off counties across the land must be in deep trouble.
While hundreds of thousands of square feet of retail, restaurant, office and industrial space have been vacated in the last six years, the only entities expanding in my area have been banks, drug stores, municipal buildings and healthcare facilities. I have been flabbergasted by what I’ve viewed as a complete waste of resources to create facilities that weren’t needed and wouldn’t be utilized. I have seven drug stores within five miles of my house. I have ten bank branches within five miles of my house. While two perfectly fine older hospitals in Norristown were abandoned, a brand new $300 million super deluxe, glass encased Einstein Hospital palace was built three miles away by a barely above junk bond status non-profit institution. None of this makes sense in a contracting economy.
This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I’m all for competition between drug store chains and banks. CVS, Walgreens, and Rite Aid are the three big chains in the country. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income. The only reason Rite Aid is still in the picture is the easy money policies of the Federal Reserve. They have been teetering on the verge of bankruptcy for the last five years, but continue to get cheap financing from the Wall Street cabal, who would rather pretend they will get paid, than write-off the bad debt. Who in their right mind would continue to lend money to a company with $6 billion in debt, NEGATIVE $2.3 billion of equity, and losses exceeding $2 billion since 2008? They are the poster child for badly run businesses that over expanded, took on too much debt and should be liquidated. There are over 4,600 zombie Rite Aid stores littering the countryside waiting to be put out of their misery.
Rite Aid will never repay the $6 billion of debt. They know it. Their auditors know it. Their Wall Street lenders know it. The Federal Reserve Bank regulators know it. Anyone with a functioning brain knows it. Tune in to CNBC for those who are paid to keep clueless investors from knowing it. Interest rates that actually reflected risk and weren’t manipulated to an artificially low level by the Federal Reserve would make financing for a dog like Rite Aid a non-starter. Creative destruction would be allowed to work its magic, with winners separated from losers. Instead Rite Aid continues as a zombie entity, barely surviving for now. This exact scenario applies to J.C. Penney, RadioShack, Sears and a myriad of other dead retailers walking. Rather than suffering the consequences of appalling management judgment, dreadful strategic decisions, and reckless financial gambles, they have been allowed to remain on life support compliments of Bernanke, his Wall Street chiefs, and the American taxpayer.
In a truly free, non-manipulated market the weak would be culled, new dynamic competitors would fill the void, and consumers would benefit. Extending debt payment schedules of zombie entities and pretending you will get paid has been the mantra of the insolvent zombie Wall Street banks since 2009. The Federal Reserve is responsible for zombifying the entire country. And it wasn’t a mistake. It was a choice made by those in power in order to maintain the status quo. The fateful day in March 2009 when the pencil pushing lightweight accountants at the FASB rescinded mark to market accounting rules gave birth to zombie nation. And not coincidently, marked the bottom for the stock market. Wall Street banks were free to fabricate their earnings, pretend they didn’t have hundreds of billions in bad loans on their books, and extend the terms of commercial real estate loans that were in default. With their taxpayer funded TARP ransom, ability to borrow at 0% from Uncle Ben, and the $3 trillion of QE cocaine snorted up their noses in the last four years, the mal-investment, fraud, and idiocy of the Wall Street drug addicts has reached a crescendo.
The mal-investment by zombie drug store chains has only been exceeded by the foolish, egocentric, insane bank branch expansion by the Too Big To Trust Wall Street CEOs. In the last ten years dozens of bank branches have been built in the vicinity of my house and across the state of Pennsylvania. These gleaming glass TARP palaces are on virtually every other street corner across Montgomery County. Stunning, glittery, colorful branches stuffed with bank employees pretending to loan money to non-existent customers. They have become nothing but a high priced marketing billboard with an ATM attached. By 2010, the number of bank branches in this country had reached almost 100,000. The vast majority are run by the usual insolvent suspects:
Wells Fargo – 6,500
J.P. Morgan – 6,000
Bank of America – 5,700
The top ten biggest banks, in addition to holding the vast majority of deposits, mortgages and credit card accounts, operate 33% of all the bank branches in the country. The very same banks that have paid out $66 billion in criminal settlement charges over the last three years and have incurred $103 billion of legal fees to defend themselves against the thousands of actions brought by victims for their criminal misdeeds, decided it was a wise decision to open new bank branches from 2007 through 2010. Only an Ivy League educated MBA could possibly think this was a good idea.
It was almost as if the CEO’s of the biggest Wall Street banks didn’t care about pissing away the $2.5 million to build the average 3,500 square foot bank branch, which would require $30 million of deposits to breakeven. This level of deposits isn’t easy to achieve when your customers are unemployed due to your bank destroying the American economy, broke due to their real household income declining by 10% over the past fourteen years, and your bank paying them .15% on their deposits. It also probably doesn’t help when you charge them $3 every time they withdraw their own money from your bank and you charge them $25 when their bank balance falls below $1,000 because they just got laid off from Merck on Christmas Eve. It is now estimated that one-third of all bank branches in the country lose money. Who can afford to run something that consistently losses money, other than our government? Wall Street bankers can when the taxpayer is footing the bill and Bernanke/Yellen subsidizes their mal-investment by lending to them at 0%, providing them $2.5 billion per day of QE play money, and paying them $5 billion per year in interest to park the excess reserves that aren’t getting leant to small businesses and consumers at their thousands of gleaming bank branches.
Hasn’t one of the thousands of highly educated MBA vice presidents occupying offices at the Too Big To Control Wall Street banks explained to Stumpf, Dimon and Monyihan that bricks and mortar are dead? A new invention called the internet has made in-person banking virtually obsolete. Why does anyone need to go into a bank branch in this electronic age? I’ve been in my credit union branch five times in the last ten years, twice for a refinance closing on my home and a couple times to get a certified check. With ATM machines, direct deposit and on-line bill paying, why would the country need 100,000 physical bank locations? I pay 90% of my bills on-line. If I need cash, I hit the ATM at Wawa, where there are no ATM fees (my credit union doesn’t charge me to get my own money). The only people who go into bank branches on a regular basis are old fogeys that don’t trust that new-fangled internet. The older generations are dying out and the millennial generation has no need for bank branches. Their iGadgets function as their bank connection. Plus, since they don’t have jobs or money, a bank account at the local bank branch of J.P. Morgan seems a bit trite.
The writing had been on the wall for a long time, but the reckless bank executives continued to build branches in an ego driven desire to outdo their equally irresponsible competitor bank executives. Now the race is on to see which banks can close the most branches. Bank consultant Jim Adkins succinctly sums up the pure idiocy of physical bank branches:
“There’s almost nobody in the branches. You could shoot water balloons all over the place and not hit anybody.”
It seems my humble state of Pennsylvania leads the pack in closing branches in the past year, with 149 abandoned and only 43 opened. Only two states in the entire country had more branch openings than closings.
After shuttering 2,267 branches in 2012, the industry is on track to closing another 2,500 in 2013. Shockingly, the leader of the Wall Street zombie apocalypse, Bank of America, led the pack in bank branch closings with 194 in the last year. Staying true to his hubristic arrogance, Jamie Dimon actually opened 62 more branches than he closed in the last year, despite his upstanding institution having to pay tens of billions in fines, settlements and pay-offs for their criminal transgressions.
There are now 93,000 bank branches remaining in this country, and one third of them don’t generate a profit. That percentage will grow as the older generations rapidly die out and are replaced by the techno-narcissists who never leave their family rooms. Online banking already accounts for 53% of banking transactions, compared with 14% for in-branch visits. Younger bank customers increasingly prefer online and mobile banking, as advancing technology enables them to make remote deposits, shop for loans and manage accounts more efficiently from their desktops or smartphones. This trend will only accelerate in the years to come.
Banking industry profits reached a record level of $141 billion in 2012 as more vacancy signs appeared on Main Street. Now that the Wall Street cabal have syphoned every ounce of blood from their customers/victims through ATM fees, overdraft fees, minimum balance fees, credit card fees, late payment fees, and paying no interest on deposits, they are forced to focus on the $300,000 average loss per bank branch. QE and ZIRP might not last forever. Yeah right. AlixPartners, a New York consulting firm, expects the number of bank branches to drop to 80,000 over the next decade. They are wrong. They have failed to take into account the lemming like behavior of Wall Street banks. As their accounting gimmicks to generate fake profits dissipate, the increasingly desperate insolvent zombie banks will rapidly vacate their prime corner locations in droves. With approximately 30,000 locations already generating losses, the Wall Street MBAs will be closing branches quicker than you can say “mortgage fraud”. There will be less than 70,000 branches within the next five years. That means another 20,000 to 30,000 Space Available signs going up on Main Street. That means another 200,000 to 300,000 neighbors without jobs. But don’t worry about Jamie Dimon and the rest of the Wall Street bankers. They’ll be just fine. In addition to being endlessly fed by the Fed, they’ll get creative and charge their customers a new bank branch access fee of $50 for the privilege of entering one of their few remaining outlets. By now we should know how cash flows to Main Street in this corporate fascist paradise.
Do your part to starve the beast. Move your bank accounts to a local credit union. Don’t support criminals.
Join me at www.TheBurningPlatform.com to discuss truth and the future of our country.
By James Quinn
quinnadvisors@comcast.net
James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.
http://www.marketoracle.co.uk/Article43162.html
Banks Syphoning Off the Financial Blood of their Customers
Nov 18, 2013 - 10:13 AM GMT
By: James_Quinn
Reports like the recent one from SNL Financial – Branch Networks Continue to Shrink really get my goat. As I travel the increasingly vacant highways of Montgomery County, PA I’m keenly aware of my surroundings. If I were a foreigner visiting for the first time, I’d think Space Available was the hot new retailer in the country. I’ve detailed the slow disintegration of our suburban sprawl paradise in previous articles:
Thousands of Space Available signs dot the bleak landscape, as office buildings, strip malls, and industrial complexes wither and die. Gas stations are shuttered on a daily basis as the ongoing depression results in less miles being driven by unemployed and underemployed suburbanites. At least the Chinese “Space Available” sign manufacturers are doing well. The only buildings doing brisk business are the food banks and homeless shelters.
The sad part is that I live in a relatively prosperous county with a low level of SNAP recipients and primarily occupied by a white collar college educated populace. If the clear downward spiral in my upper middle class county is an indication of our country’s path, the less well-off counties across the land must be in deep trouble.
While hundreds of thousands of square feet of retail, restaurant, office and industrial space have been vacated in the last six years, the only entities expanding in my area have been banks, drug stores, municipal buildings and healthcare facilities. I have been flabbergasted by what I’ve viewed as a complete waste of resources to create facilities that weren’t needed and wouldn’t be utilized. I have seven drug stores within five miles of my house. I have ten bank branches within five miles of my house. While two perfectly fine older hospitals in Norristown were abandoned, a brand new $300 million super deluxe, glass encased Einstein Hospital palace was built three miles away by a barely above junk bond status non-profit institution. None of this makes sense in a contracting economy.
This is another classic case of mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity. Cheap money leads to bad investments. I’m all for competition between drug store chains and banks. CVS, Walgreens, and Rite Aid are the three big chains in the country. I have my pick of multiple stores close to my house. There are clearly too many stores competing for a dwindling number of customers, with a dwindling supply of disposable income. The only reason Rite Aid is still in the picture is the easy money policies of the Federal Reserve. They have been teetering on the verge of bankruptcy for the last five years, but continue to get cheap financing from the Wall Street cabal, who would rather pretend they will get paid, than write-off the bad debt. Who in their right mind would continue to lend money to a company with $6 billion in debt, NEGATIVE $2.3 billion of equity, and losses exceeding $2 billion since 2008? They are the poster child for badly run businesses that over expanded, took on too much debt and should be liquidated. There are over 4,600 zombie Rite Aid stores littering the countryside waiting to be put out of their misery.
Rite Aid will never repay the $6 billion of debt. They know it. Their auditors know it. Their Wall Street lenders know it. The Federal Reserve Bank regulators know it. Anyone with a functioning brain knows it. Tune in to CNBC for those who are paid to keep clueless investors from knowing it. Interest rates that actually reflected risk and weren’t manipulated to an artificially low level by the Federal Reserve would make financing for a dog like Rite Aid a non-starter. Creative destruction would be allowed to work its magic, with winners separated from losers. Instead Rite Aid continues as a zombie entity, barely surviving for now. This exact scenario applies to J.C. Penney, RadioShack, Sears and a myriad of other dead retailers walking. Rather than suffering the consequences of appalling management judgment, dreadful strategic decisions, and reckless financial gambles, they have been allowed to remain on life support compliments of Bernanke, his Wall Street chiefs, and the American taxpayer.
In a truly free, non-manipulated market the weak would be culled, new dynamic competitors would fill the void, and consumers would benefit. Extending debt payment schedules of zombie entities and pretending you will get paid has been the mantra of the insolvent zombie Wall Street banks since 2009. The Federal Reserve is responsible for zombifying the entire country. And it wasn’t a mistake. It was a choice made by those in power in order to maintain the status quo. The fateful day in March 2009 when the pencil pushing lightweight accountants at the FASB rescinded mark to market accounting rules gave birth to zombie nation. And not coincidently, marked the bottom for the stock market. Wall Street banks were free to fabricate their earnings, pretend they didn’t have hundreds of billions in bad loans on their books, and extend the terms of commercial real estate loans that were in default. With their taxpayer funded TARP ransom, ability to borrow at 0% from Uncle Ben, and the $3 trillion of QE cocaine snorted up their noses in the last four years, the mal-investment, fraud, and idiocy of the Wall Street drug addicts has reached a crescendo.
The mal-investment by zombie drug store chains has only been exceeded by the foolish, egocentric, insane bank branch expansion by the Too Big To Trust Wall Street CEOs. In the last ten years dozens of bank branches have been built in the vicinity of my house and across the state of Pennsylvania. These gleaming glass TARP palaces are on virtually every other street corner across Montgomery County. Stunning, glittery, colorful branches stuffed with bank employees pretending to loan money to non-existent customers. They have become nothing but a high priced marketing billboard with an ATM attached. By 2010, the number of bank branches in this country had reached almost 100,000. The vast majority are run by the usual insolvent suspects:
Wells Fargo – 6,500
J.P. Morgan – 6,000
Bank of America – 5,700
The top ten biggest banks, in addition to holding the vast majority of deposits, mortgages and credit card accounts, operate 33% of all the bank branches in the country. The very same banks that have paid out $66 billion in criminal settlement charges over the last three years and have incurred $103 billion of legal fees to defend themselves against the thousands of actions brought by victims for their criminal misdeeds, decided it was a wise decision to open new bank branches from 2007 through 2010. Only an Ivy League educated MBA could possibly think this was a good idea.
It was almost as if the CEO’s of the biggest Wall Street banks didn’t care about pissing away the $2.5 million to build the average 3,500 square foot bank branch, which would require $30 million of deposits to breakeven. This level of deposits isn’t easy to achieve when your customers are unemployed due to your bank destroying the American economy, broke due to their real household income declining by 10% over the past fourteen years, and your bank paying them .15% on their deposits. It also probably doesn’t help when you charge them $3 every time they withdraw their own money from your bank and you charge them $25 when their bank balance falls below $1,000 because they just got laid off from Merck on Christmas Eve. It is now estimated that one-third of all bank branches in the country lose money. Who can afford to run something that consistently losses money, other than our government? Wall Street bankers can when the taxpayer is footing the bill and Bernanke/Yellen subsidizes their mal-investment by lending to them at 0%, providing them $2.5 billion per day of QE play money, and paying them $5 billion per year in interest to park the excess reserves that aren’t getting leant to small businesses and consumers at their thousands of gleaming bank branches.
Hasn’t one of the thousands of highly educated MBA vice presidents occupying offices at the Too Big To Control Wall Street banks explained to Stumpf, Dimon and Monyihan that bricks and mortar are dead? A new invention called the internet has made in-person banking virtually obsolete. Why does anyone need to go into a bank branch in this electronic age? I’ve been in my credit union branch five times in the last ten years, twice for a refinance closing on my home and a couple times to get a certified check. With ATM machines, direct deposit and on-line bill paying, why would the country need 100,000 physical bank locations? I pay 90% of my bills on-line. If I need cash, I hit the ATM at Wawa, where there are no ATM fees (my credit union doesn’t charge me to get my own money). The only people who go into bank branches on a regular basis are old fogeys that don’t trust that new-fangled internet. The older generations are dying out and the millennial generation has no need for bank branches. Their iGadgets function as their bank connection. Plus, since they don’t have jobs or money, a bank account at the local bank branch of J.P. Morgan seems a bit trite.
The writing had been on the wall for a long time, but the reckless bank executives continued to build branches in an ego driven desire to outdo their equally irresponsible competitor bank executives. Now the race is on to see which banks can close the most branches. Bank consultant Jim Adkins succinctly sums up the pure idiocy of physical bank branches:
“There’s almost nobody in the branches. You could shoot water balloons all over the place and not hit anybody.”
It seems my humble state of Pennsylvania leads the pack in closing branches in the past year, with 149 abandoned and only 43 opened. Only two states in the entire country had more branch openings than closings.
After shuttering 2,267 branches in 2012, the industry is on track to closing another 2,500 in 2013. Shockingly, the leader of the Wall Street zombie apocalypse, Bank of America, led the pack in bank branch closings with 194 in the last year. Staying true to his hubristic arrogance, Jamie Dimon actually opened 62 more branches than he closed in the last year, despite his upstanding institution having to pay tens of billions in fines, settlements and pay-offs for their criminal transgressions.
There are now 93,000 bank branches remaining in this country, and one third of them don’t generate a profit. That percentage will grow as the older generations rapidly die out and are replaced by the techno-narcissists who never leave their family rooms. Online banking already accounts for 53% of banking transactions, compared with 14% for in-branch visits. Younger bank customers increasingly prefer online and mobile banking, as advancing technology enables them to make remote deposits, shop for loans and manage accounts more efficiently from their desktops or smartphones. This trend will only accelerate in the years to come.
Banking industry profits reached a record level of $141 billion in 2012 as more vacancy signs appeared on Main Street. Now that the Wall Street cabal have syphoned every ounce of blood from their customers/victims through ATM fees, overdraft fees, minimum balance fees, credit card fees, late payment fees, and paying no interest on deposits, they are forced to focus on the $300,000 average loss per bank branch. QE and ZIRP might not last forever. Yeah right. AlixPartners, a New York consulting firm, expects the number of bank branches to drop to 80,000 over the next decade. They are wrong. They have failed to take into account the lemming like behavior of Wall Street banks. As their accounting gimmicks to generate fake profits dissipate, the increasingly desperate insolvent zombie banks will rapidly vacate their prime corner locations in droves. With approximately 30,000 locations already generating losses, the Wall Street MBAs will be closing branches quicker than you can say “mortgage fraud”. There will be less than 70,000 branches within the next five years. That means another 20,000 to 30,000 Space Available signs going up on Main Street. That means another 200,000 to 300,000 neighbors without jobs. But don’t worry about Jamie Dimon and the rest of the Wall Street bankers. They’ll be just fine. In addition to being endlessly fed by the Fed, they’ll get creative and charge their customers a new bank branch access fee of $50 for the privilege of entering one of their few remaining outlets. By now we should know how cash flows to Main Street in this corporate fascist paradise.
Do your part to starve the beast. Move your bank accounts to a local credit union. Don’t support criminals.
Join me at www.TheBurningPlatform.com to discuss truth and the future of our country.
By James Quinn
quinnadvisors@comcast.net
James Quinn is a senior director of strategic planning for a major university. James has held financial positions with a retailer, homebuilder and university in his 22-year career. Those positions included treasurer, controller, and head of strategic planning. He is married with three boys and is writing these articles because he cares about their future. He earned a BS in accounting from Drexel University and an MBA from Villanova University. He is a certified public accountant and a certified cash manager.
http://www.marketoracle.co.uk/Article43162.html
Jim Rogers on QE, Currency Wars, Gold and Inflation Commodities / Gold and Silver 2013
Nov 19, 2013 - 03:15 PM GMT
By: Submissions
BGG writes: In this revealing interview with Birch Gold Group, Jim Rogers, legendary investor and author, explains just how badly Quantitative Easing and ongoing currency wars are damaging the U.S. economy, and why it’s so important for any person to protect their savings with physical gold and silver.
MF Global Admits Liability; Will Pay $1.2Bn Restitution & $100MM Penalty
Submitted by Tyler Durden on 11/18/2013 12:06 -0500
(special thanks to the cork)
The CFTC has won a consent order against MF Global requiring it to pay $1.212 billion in restitution to customers and a further $100 million civil penalty:
*MF GLOBAL TO PAY $1.2 BLN RESTITUTION, $100M PENALTY
*CFTC:PENALTY TO BE PAID AFTER MF FULLY PAYS CUSTOMERS/CREDITORS
*CFTC:LITIGATION CONTINUES VS CORZINE,O'BRIEN,MF GLOBAL HOLDINGS
*CFTC: MF GLOBAL ADMITS TO ALLEGATIONS OF LIABILITY IN ORDER
The big question is - of course - where is the money coming from?
Full CFTC Statement:
The U.S. Commodity Futures Trading Commission (CFTC) obtained a federal court consent Order against Defendant MF Global Inc. (MF Global) requiring it to pay $1.212 billion in restitution to customers of MF Global to ensure customers recover their losses sustained when MF Global failed in 2011.
The consent Order, entered on November 8, 2013 by U.S. District Court Judge Victor Marrero of the U.S. District Court for the Southern District of New York, also imposes a $100 million civil monetary penalty on MF Global, to be paid after MF Global has fully paid customers and certain other creditors entitled to priority under bankruptcy law. The Trustee for MF Global obtained permission from the bankruptcy court to pay restitution in full to customers to remedy any shortfall with funds of the MF Global general estate.
The consent Order arises out of the CFTC’s complaint, filed on June 27, 2013, charging MF Global and the other Defendants with unlawful use of customer funds (see CFTC Press Release 6626-13, June 27, 2013). In the consent Order, MF Global admits to the allegations pertaining to its liability based on the acts and omissions of its employees as set forth in the consent Order and the Complaint. The CFTC’s litigation continues against the remaining defendants: MF Global Holdings Ltd., Jon S. Corzine, and Edith O’Brien.
Gretchen Lowe, Acting Director of the CFTC’s Division of Enforcement, stated, “Division staff have worked tirelessly to ensure that 100 percent restitution be awarded to satisfy customer losses. The CFTC will continue to ensure that those who violate U.S. commodity laws and regulations designed to protect customer funds will be vigorously prosecuted.”
The CFTC’s Complaint charged MF Global, a registered Futures Commission Merchant (FCM), with violating provisions of the Commodity Exchange Act and CFTC Regulations intended to protect FCM customer funds and requiring diligent supervision by registrants. Specifically, the Complaint charged that during the last week of October 2011, MF Global unlawfully used customer segregated funds to support its own proprietary operations and the operations of its affiliates. In addition to the misuse of customer funds, the Complaint alleged that MF Global
(i) unlawfully failed to notify the CFTC immediately when it knew or should have known of the deficiencies in its customer accounts,
(ii) made false statements in reports it filed with the CFTC that failed to show the deficits in the customer accounts,
(iii) used customer funds for impermissible investments in securities that were not considered readily marketable or highly liquid in violation of CFTC regulation, and
(iv) failed to diligently supervise the handling of commodity interest accounts carried by MF Global and the activities of its partners, officers, employees, and agents.
end
Why Bitcoin Prices Are Rising So Quickly – And Will Keep Going
By DAVID ZEILER, Associate Editor,
Money Morning November 18, 2013
[Update: The positive comments about Bitcoin from numerous federal officials at Monday's Senate hearing, in addition to a letter from Fed Chairman Ben Bernanke to the Homeland Security Committee saying that Bitcoins "may hold long-term promise," caused the digital currency to spike briefly to $900 Monday evening. As of Tuesday morning, however, Bitcoin prices on Mt. Gox had settled back to about $650.]
Anyone wondering why Bitcoin prices are rising need look no further than China.
Since the beginning of November, a massive spike in Chinese buying of the digital currency has almost single-handedly caused Bitcoin prices to triple.
When you look at the numbers, it's almost surreal.
At the start of November, one Bitcoin was worth about $213 on Japan-based Mt. Gox, the world's second-largest Bitcoin exchange. Today (Monday) one Bitcoin traded as high as $675.
Volume on BTC China, where Chinese yuan can be exchanged for Bitcoins, has risen 10-fold in just over a month. Volume jumped from 2,000 to 5,000 Bitcoins traded per day as recently as September to 40,000 to 60,000 Bitcoins traded per day in the past few weeks.
The spike has made BTC China the world's largest Bitcoin exchange by volume, surpassing Mt. Gox, which allows Bitcoin trades in U.S. dollars, euros, and more than a dozen other world currencies.
The sudden surge in Chinese interest in Bitcoin - mostly as buyers - is the primary reason why Bitcoin prices are rising so rapidly.
With the total number of Bitcoins in existence having just crossed the 12 million mark, that means the total value of the currency has soared from about $2.5 billion to about $8 billion in less than three weeks.
While some have dismissed Bitcoin as a fad, the virtual currency has slowly gained traction since its inception by an anonymous creator named Satoshi Nakamoto in 2008.
In the past couple of years, more and more businesses around the world, particularly in Europe, have begun to accept Bitcoin as a form of payment.
In fact, one of the events that triggered Chinese interest in Bitcoin was in late October when Baidu Inc. (Nasdaq ADR: BIDU), a search engine company even more dominant in China than Google Inc. (Nasdaq: GOOG) is in the United States, announced it would take Bitcoin.
But it was a much more dramatic development that sent Chinese in far larger numbers to the BTC China exchange...
Why Bitcoin Prices Are Rising in China
In a very rare move, the Chinese government seems to be actually encouraging its citizens to invest in Bitcoin.
This is one of the most glaring oddities about the popularity of Bitcoin in China, as the Chinese government is not known for allowing rogue economic activity that it cannot control. But the government has done nothing to curb the Bitcoin craze.
In fact, shortly after Baidu made its October announcement, the official state television network CCTV broadcast an extremely favorable 30-minute documentary on the digital currency. And it's probably not a coincidence that the People's Daily newspaper published a positive story on Bitcoin at about the same time.
It's possible that Beijing sees Bitcoin - an international online currency beyond the control of any central bank - as a way to indirectly poke a few holes in the dominance of the U.S. dollar.
"China realizes that the yuan has to clear a lot of hurdles before it can become a reserve currency. If people start using and holding more Bitcoins in place of the dollar, it would likely lead to a less U.S.-centric global economy and that's what China wants," Kyle Drake, founder of CoinPunk, an open-source hybrid web wallet, told CNBC.
Regardless of Beijing's motives, the double-barreled stamp of approval from the Chinese government sent the populace scurrying to buy as much Bitcoin as they could.
But that still leaves the question: Why? What do the Chinese love about Bitcoin?
The short answer is that it fills several needs.
"The main reason why Bitcoin has become big in China is because Chinese people are savers, and more people are seeing Bitcoin as a way to store and invest their money," Linke Yang, vice president of BTC China, told Agence France-Presse at a recent conference in Singapore.
One big problem that Bitcoin solves for the Chinese upper-middle class is that the Beijing government has made it difficult to move yuan outside of the country - Bitcoin can be transferred anywhere in the world with the click of a mouse.
Finally, much of the new wealth in China has almost no place else to go.
"Traditionally, high net-worth individuals and investors first go to the property market to invest and then the stock market, but since the property market is capped and controlled and stocks maybe aren't doing so well that's changing," Yang said.
While Bitcoin prices almost surely will not continue shooting up at the pace of the last few weeks, any correction will be mitigated by the keen interest of Chinese investors.
"The sky's the limit in some sense," Bobby Lee, a co-founder of BTC China, told TechCrunch. "The price eventually will settle down when there's a good balance between supply and demand, but clearly as more people are learning about Bitcoin, all that means is more people are becoming aware of it - and as they become aware they become comfortable buying some Bitcoin. A few hundred dollars or a few dollars. But everything adds to the push-up in price."
Editor's Note: Michael Robinson, Money Morning's Director of Technology Investing, is getting ready to release the most comprehensive Bitcoin guide ever created. This guide covers Bitcoin A to Z. Not only does it give you the full history of Bitcoin and the technologies driving it... it also serves as a step-by-step "how-to" manual for putting into action the best Bitcoin investing opportunities. If you would like to receive this guide for free as soon as it's available, just sign up below. You'll also get Michael Robinson's weekly updates from Strategic Tech Investor where you'll learn about the best technology investing ideas on the planet right now.
http://moneymorning.com/2013/11/18/why-bitcoin-prices-are-rising-so-quickly-and-will-keep-going/
The U.S. Gov't Owes You $1 Million
By Porter Stansberry
Tuesday, November 19, 2013
It's a funny thing about people and lies…
If a lie lasts long enough... and is repeated enough... it becomes a kind of truth. Not a real truth, of course... just a lie that has become accepted and respectable.
That's what's happening right now to the idea of inflation...
Long (and rightfully) seen as the bane of the working man, the inevitable consequence of paper money, and a hidden tax... inflation has suddenly become not only acceptable, but lauded. In fact, central bankers and economic leaders – people who should really know better – are now saying in public that what we really need is more inflation.
Three weeks ago, The New York Times published what I would describe as an ode to inflation. Said the Gray Lady:
There is growing concern inside and outside the Fed that inflation is not rising fast enough. Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment...
Janet Yellen has long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers' wages. Retailers including Costco and Wal-Mart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts.
People who believe that inflation will lead to an increase in prosperity or our standard of living are simply fools. Cutting more slices out of a pizza doesn't create more pizza.
What inflation does accomplish is shift the dynamics of who wins and loses in our economy. Very simply: People whose income and wealth are manufactured through their asset base become vastly wealthier on a relative basis. People whose wealth is tied to their labor and wages become vastly poorer.
For example, retailers want inflation because it enables them to mark up their goods. And combined with negative real interest rates (like we have now), they can maintain inventories for free (or even to produce a carrying profit). The school board knows that inflation will eat away at the real costs of the wages it must pay. And the federal government – the world's largest debtor – needs both inflation and negative real interest rates to pay for the absurd promises it has made to voters.
In current dollars, based on the net present value of all of its current and future obligations, the federal government owes more than $1 million to every citizen of the United States.
Hopefully, you realize that these promises cannot be kept. What you might not realize is that absent negative real interest rates (driven by inflation), the federal government's current obligations couldn't be financed.
Inflation, unlike what our economic leaders seem to believe, isn't Santa Claus. It can't bring gifts to everyone. All it does is shift the benefits of our economy around. In the immortal words of President OBAMA!... inflation "spreads the wealth around a little."
Inflation penalizes wage earners for the benefit of asset owners. It benefits debtors at the expense of creditors. There's no net increase in the nation's wealth. One group is merely taxed for the benefit of the other. This is sold as a benefit to the country by our government. It has to sell it to us because without inflation it couldn't pay its bills.
Ironically, left-leaning middle-class citizens believe in the benefits of mild inflation most fervently. They are simply bad at math.
Since 1971, when we left the gold standard currency system, wages have stopped tracking gains to productivity. In the past, when innovations would cost some workers their jobs, there was a reciprocal benefit: The real value of wages increased at the same pace as productivity. Thus, they could be nearly assured higher wages in their next position.
The fact that wages were tied to productivity through a stable, gold-backed currency was what propelled the middle class to prosperity. And it led to the United States' political dominance.
But as you can see in this chart, based on one originally published by the Economic Policy Institute think tank... when we took the dollar off gold and allowed the central bank to continuously debase the currency, the dollar and the wages paid in the dollar no longer kept pace with inflation. Thus today, when trade or innovation leads to a gain in productivity (and the loss of a job), there is no reciprocal benefit to wages for the middle class. The replacement job is sure to come at a much lower real wage.
It's this gutting of wages that most appeals to corporate America. To the wealthy, inflation provides easy ways of increasing the size of their asset base: All they have to do is borrow money at a negative real rate of interest and buy up productive assets. That's why farm prices have soared, why private-equity funds now control trillions in assets, and why the wealthy now dominate the middle class politically.
There are two good reasons to believe our current love affair with inflation will end badly…
First, real wages have fallen so far and for so long that they are no longer attractive to many workers. The lack of labor participation has become an enormous burden with a record number of healthy Americans no longer working and instead living on taxpayer-funded assistance.
The other, even more powerful reason is that negative real interest rates have enabled our government to borrow truly unbelievable amounts of money. Not only will this eventually lead to a crisis in the U.S. Treasury market (with soaring interest rates), but this chronic borrowing has transformed America from the world's largest creditor nation (with massive income from global investment) into the world's largest debtor nation.
Foreign investors now own $5 trillion more of America's best assets than we own of foreign assets. Generations of Americans will be sending foreigners net investment income, month after month. If these capital flows continue, it won't be long before no one wants to hold a U.S. dollar.
What's the trigger? When will my dark fears about the future of our economy come to fruition? When will the inevitable next crisis strike? No one knows, of course. My "canary in the coal mine" is the dynamic between the price of gold (which represents sound money) and the price of U.S. long-dated Treasury bonds (which represents the global paper money system).
You can track long-dated Treasury bonds (which mature in 20 years or more) by tracking TLT on the stock market. It's an exchange-traded index fund that holds a basket of long-dated U.S. Treasury bonds. Over the last year, it's down by 15%. You can track gold using the SPDR Gold Shares Fund (GLD), which holds gold bullion. Over the last year, gold has corrected significantly (after a massive 12-year bull market) and is down about 25%.
When the market finally realizes that inflation isn't good for the economy... that wages are far too low... and that debts are far too high, you won't want to be holding U.S. long-dated Treasury bonds. I expect within the next few years, we'll see a real panic in Treasury bonds, with annual yields reaching more than 10%. Many investors will flee into gold, as the U.S. dollar will be seen as unstable.
You'll see a dramatic inversion between TLT (which will collapse) and GLD (which will soar). This prediction, by the way, isn't really a prediction at all. It's a trend. Over the last five years, gold has outperformed the long bond by more than 100%.
That tells you all you really need to know about inflation.
Regards,
Porter Stansberry
http://dailywealth.com/2590/the-u-s-gov-t-owes-you-1-million
The U.S. Gov't Owes You $1 Million
By Porter Stansberry
Tuesday, November 19, 2013
It's a funny thing about people and lies…
If a lie lasts long enough... and is repeated enough... it becomes a kind of truth. Not a real truth, of course... just a lie that has become accepted and respectable.
That's what's happening right now to the idea of inflation...
Long (and rightfully) seen as the bane of the working man, the inevitable consequence of paper money, and a hidden tax... inflation has suddenly become not only acceptable, but lauded. In fact, central bankers and economic leaders – people who should really know better – are now saying in public that what we really need is more inflation.
Three weeks ago, The New York Times published what I would describe as an ode to inflation. Said the Gray Lady:
There is growing concern inside and outside the Fed that inflation is not rising fast enough. Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment...
Janet Yellen has long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
The school board in Anchorage, Alaska, for example, is counting on inflation to keep a lid on teachers' wages. Retailers including Costco and Wal-Mart are hoping for higher inflation to increase profits. The federal government expects inflation to ease the burden of its debts.
People who believe that inflation will lead to an increase in prosperity or our standard of living are simply fools. Cutting more slices out of a pizza doesn't create more pizza.
What inflation does accomplish is shift the dynamics of who wins and loses in our economy. Very simply: People whose income and wealth are manufactured through their asset base become vastly wealthier on a relative basis. People whose wealth is tied to their labor and wages become vastly poorer.
For example, retailers want inflation because it enables them to mark up their goods. And combined with negative real interest rates (like we have now), they can maintain inventories for free (or even to produce a carrying profit). The school board knows that inflation will eat away at the real costs of the wages it must pay. And the federal government – the world's largest debtor – needs both inflation and negative real interest rates to pay for the absurd promises it has made to voters.
In current dollars, based on the net present value of all of its current and future obligations, the federal government owes more than $1 million to every citizen of the United States.
Hopefully, you realize that these promises cannot be kept. What you might not realize is that absent negative real interest rates (driven by inflation), the federal government's current obligations couldn't be financed.
Inflation, unlike what our economic leaders seem to believe, isn't Santa Claus. It can't bring gifts to everyone. All it does is shift the benefits of our economy around. In the immortal words of President OBAMA!... inflation "spreads the wealth around a little."
Inflation penalizes wage earners for the benefit of asset owners. It benefits debtors at the expense of creditors. There's no net increase in the nation's wealth. One group is merely taxed for the benefit of the other. This is sold as a benefit to the country by our government. It has to sell it to us because without inflation it couldn't pay its bills.
Ironically, left-leaning middle-class citizens believe in the benefits of mild inflation most fervently. They are simply bad at math.
Since 1971, when we left the gold standard currency system, wages have stopped tracking gains to productivity. In the past, when innovations would cost some workers their jobs, there was a reciprocal benefit: The real value of wages increased at the same pace as productivity. Thus, they could be nearly assured higher wages in their next position.
The fact that wages were tied to productivity through a stable, gold-backed currency was what propelled the middle class to prosperity. And it led to the United States' political dominance.
But as you can see in this chart, based on one originally published by the Economic Policy Institute think tank... when we took the dollar off gold and allowed the central bank to continuously debase the currency, the dollar and the wages paid in the dollar no longer kept pace with inflation. Thus today, when trade or innovation leads to a gain in productivity (and the loss of a job), there is no reciprocal benefit to wages for the middle class. The replacement job is sure to come at a much lower real wage.
It's this gutting of wages that most appeals to corporate America. To the wealthy, inflation provides easy ways of increasing the size of their asset base: All they have to do is borrow money at a negative real rate of interest and buy up productive assets. That's why farm prices have soared, why private-equity funds now control trillions in assets, and why the wealthy now dominate the middle class politically.
There are two good reasons to believe our current love affair with inflation will end badly…
First, real wages have fallen so far and for so long that they are no longer attractive to many workers. The lack of labor participation has become an enormous burden with a record number of healthy Americans no longer working and instead living on taxpayer-funded assistance.
The other, even more powerful reason is that negative real interest rates have enabled our government to borrow truly unbelievable amounts of money. Not only will this eventually lead to a crisis in the U.S. Treasury market (with soaring interest rates), but this chronic borrowing has transformed America from the world's largest creditor nation (with massive income from global investment) into the world's largest debtor nation.
Foreign investors now own $5 trillion more of America's best assets than we own of foreign assets. Generations of Americans will be sending foreigners net investment income, month after month. If these capital flows continue, it won't be long before no one wants to hold a U.S. dollar.
What's the trigger? When will my dark fears about the future of our economy come to fruition? When will the inevitable next crisis strike? No one knows, of course. My "canary in the coal mine" is the dynamic between the price of gold (which represents sound money) and the price of U.S. long-dated Treasury bonds (which represents the global paper money system).
You can track long-dated Treasury bonds (which mature in 20 years or more) by tracking TLT on the stock market. It's an exchange-traded index fund that holds a basket of long-dated U.S. Treasury bonds. Over the last year, it's down by 15%. You can track gold using the SPDR Gold Shares Fund (GLD), which holds gold bullion. Over the last year, gold has corrected significantly (after a massive 12-year bull market) and is down about 25%.
When the market finally realizes that inflation isn't good for the economy... that wages are far too low... and that debts are far too high, you won't want to be holding U.S. long-dated Treasury bonds. I expect within the next few years, we'll see a real panic in Treasury bonds, with annual yields reaching more than 10%. Many investors will flee into gold, as the U.S. dollar will be seen as unstable.
You'll see a dramatic inversion between TLT (which will collapse) and GLD (which will soar). This prediction, by the way, isn't really a prediction at all. It's a trend. Over the last five years, gold has outperformed the long bond by more than 100%.
That tells you all you really need to know about inflation.
Regards,
Porter Stansberry
http://dailywealth.com/2590/the-u-s-gov-t-owes-you-1-million
Insight: Wall Street uses 'merchant' workaround to cling to commodity assets
BY JONATHAN LEFF AND DAVID SHEPPARD
NEW YORK/LONDON Tue Nov 19, 2013 1:20am EST
Reuters
Traders work just before the end of trading for the day on the floor of the New York Stock Exchange, November 18, 2013.
CREDIT: REUTERS/LUCAS JACKSON
(Reuters) - Wall Street's commodity trading giants are using a 14-year-old law to hold on to their oil storage terminals and metals warehouses a little bit longer, even as the Federal Reserve considers cracking down on such investments.
Under the so-called "merchant" authority, U.S. financial holding companies are allowed to invest their own capital in just about any type of business - so long as they do so at arm's length, for purely passive financial purposes, and for no more than 10 years. Banks have been allowed to take small equity stakes for decades, but a controversial 1999 banking law vastly expanded the scope of such investments.
Morgan Stanley gave approval to TransMontaigne LP to re-purchase a major stake in a new oil terminal in Houston, Texas late last year after the investment was restructured as a "merchant" deal that would comply with the law, according to a person familiar with the project.
The legal maneuver, which hasn't been previously reported, is likely only a temporary measure for Morgan Stanley, which has been looking at ways to spin off or sell the whole commodities business since last year. The bank's oil trading desk is too deeply intertwined with the wider TransMontaigne oil terminal and pipeline business to separate the two.
It is unclear whether the arrangement offers a longer-term solution for Goldman Sachs, which has said publicly that its Metro International Services metals warehousing unit - the target of political and regulatory scrutiny due to allegations that it has inflated the cost of aluminum - is structured as a merchant business. The same goes for a Colombian coal mine.
Executives at Goldman have been the most outspoken on Wall Street about the importance of commodity trading, saying its J. Aron commodities arm is "core" to the bank and stressing that it is allowed to hold onto Metro for another six years. However, the bank is informally resuming efforts to sell the warehouses after drawing interest in recent months, a source said.
The merchant deal tag has allowed the banks to press ahead with certain investments or stave off an immediate forced sale. However, it also means the assets they purchased during the height of the commodity boom are of little use to their trading desks, as the Fed enforces strict Chinese walls.
If the banks can show that they are not involved in the "routine management or operation" of the firm, as required under the merchant clause, the bank would be largely protected from liability, lawyers say - in theory satisfying the Fed's primary objective of keeping the banks and financial system safe from potentially devastating disasters.
"The Federal Reserve might interpret merchant banking as potentially containing less legal risk and therefore requiring fewer prudential controls," said Karen Petrou at Federal Financial Analytics.
It is unclear whether it would satisfy politicians, however, some of whom are campaigning for a much deeper review of banking rules that would restore sharper divisions between basic commercial services and riskier trading activities.
A second Senate Banking Committee hearing to examine the rules governing Wall Street's expansion into everything from oil terminals to electricity generation to aluminum storage was postponed this week. It had been slated for Wednesday.
Last week, Janet Yellen, speaking at a Senate hearing on her nomination to become Fed chairman, said the central bank may create new rules as part of its comprehensive review of Wall Street's physical commodity trading, the first time a senior official has publicly raised the prospect of tougher restrictions.
Regulatory and legal experts say the most likely target is the direct ownership and operation of crude tankers, power plants, and other trading assets that could potentially undermine a bank in the event of a catastrophe.
BACK IN BOSTCO
In 2010, Morgan Stanley's TransMontaigne staked a claim to what would be a major new project - the $400 million Battleground Oil Specialty Terminal Co (BOSTCO) - a massive storage complex in Houston, Texas, an area that is on the brink of a major boom in trading as U.S. fuel exports grow.
But by the middle of 2011, the project had hit a snag: the Federal Reserve had yet to tell Morgan Stanley whether it could continue to own and operate physical commodity assets as part of its trading business. The question had been unresolved since Morgan Stanley and Goldman Sachs converted to become Fed-regulated banks at the 2008 peak of the financial crisis.
While such investments have long been off-limits to commercial banks, Morgan and Goldman Sachs argued that they should be able to pursue them thanks to a "grandfather" clause in the 1999 Gramm-Leach-Bliley Act.
With growing uncertainty over the Fed's interpretation of the clause, TransMontaigne agreed in late 2011 to sell its stake in the project to its partner, Kinder Morgan Energy Partners. Hoping that a positive decision might come soon, however, TransMontaigne included an option that would allow it to buy back into BOSTCO within a year.
Almost 12 months later, despite the lack of a Fed ruling on grandfathering, that's what happened: TransMontaigne exercised the option. It paid approximately $79 million to regain a 42.5 percent stake in the Battleground Oil Specialty Terminal Co LLC. It had sold its 50 percent share in the project for $10.8 million a year earlier.
In an SEC filing earlier this month, TransMontaigne said its BOSTCO investment was "approved by Morgan Stanley based on the specific facts and circumstances of the BOSTCO project and the structure of our investment in BOSTCO, and is not indicative of whether Morgan Stanley will approve any other acquisition or investment that we may propose in the future."
According to a source familiar with the matter, Morgan Stanley had won the Fed's blessing to proceed with this particular investment under the merchant authority, allowing it to return to the project - with merchant restrictions.
In October, the first stage of BOSTCO started commercial operations, exporting diesel from the Gulf Coast to international markets.
A spokesperson for Morgan Stanley declined to comment on the BOSTCO project. TransMontaigne also declined to comment.
THE OLD MEN OF COMMODITIES
Even if they are allowed to retain the assets, banks may have little interest in keeping businesses that must be kept strictly segregated from their trading desks, which may benefit from information or insight gleaned from operators. Such interaction is strictly prohibited by the Fed.
"The purpose of a merchant is to be a passive financial investment," said one person who has dealt with the Fed on issues related to commodity trading.
"So if day-to-day market information is flowing back to the traders - that's not what a passive financial investor would get."
The merchant clause also arises from Gramm-Leach-Bliley, which contained the grandfather clause. In theory, any bank can undertake a merchant investment, but only Goldman and Morgan can claim that their right to own commodity assets is grandfathered due to their long history of operating in those markets prior to 2008.
The law does not require banks to secure the Federal Reserve's explicit approval to invest under the "merchant" authority, although the Fed has the ability to review such deals to ensure that they comply with the law.
Goldman has resumed talks with parties interested in buying its Metro warehouses, a source familiar with the matter said on Monday. It bought the business for some $550 million in 2010, and owns it under what Chief Operating Officer Gary Cohn called a "private equity exemption" - the merchant clause.
JPMorgan Chase & Co last year reshuffled the board of the Henry Bath & Sons metals warehouse it bought from Royal Bank of Scotland in 2010 in an effort to conform to merchant status, Reuters reported earlier this year. It is unclear if that effort was successful. The bank has opted to sell its physical business.
(Reporting by Jonathan Leff in New York and David Sheppard in London)
http://www.reuters.com/article/2013/11/19/us-usa-banks-commodities-exemption-insig-idUSBRE9AI05V20131119
How Wall Street Manipulates Everything: The Infographics
by Tyler Durden on 11/18/2013
Zero Hedge
Courtesy of the revelations over the past year, one thing has been settled: the statement "Wall Street Manipulated Everything" is no longer in the conspiracy theorist's arsenal: it is now part of the factually accepted vernacular. And to summarize just how, who and where this manipulation takes places is the following series of charts from Bloomberg demonstrating Wall Street at its best - breaking the rules and making a killing.
Foreign Exchanges
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Energy Trading
Banks have been accused of manipulating energy markets in California and other states.
Libor
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Mortgages
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
* * *
http://www.zerohedge.com/news/2013-11-18/how-wall-street-manipulates-everything-infographics
And in the latest news on manipulation, according to the FT, "The UK’s financial regulator is probing the use of private accounts by foreign exchange traders amid allegations they traded their own money ahead of clients orders, in a serious twist in the global probe into possible currency market manipulation. The Financial Conduct Authority has asked several banks to investigate whether traders used undeclared personal accounts, two people close to the situation said."
Investors and foreign exchange traders have been speculating for a while that less scrupulous colleagues might have used private accounts at spread betting firms to gain advantages from their inside knowledge.
Hiding personal accounts is viewed as a clear breach of the rules. “If someone was [using a PA] to sell or buy ahead of the fix, I have no sympathy for him,” said one trader.
Personal accounts – or “PAs”, as traders call them – generally have to be declared to the bank and usually to a trader’s boss. Each individual trade then also has to be declared – often through an automatic email that is sent out when a trade is made.
Regulators are focusing their investigations on possible manipulation of a crucial benchmark, the 4pm WM/Reuters fix, in an affair that is echoing the Libor benchmark rate-rigging scandal.
Guess what they are going to find...
http://www.zerohedge.com/news/2013-11-18/how-wall-street-manipulates-everything-infographics
How Wall Street Manipulates Everything: The Infographics
by Tyler Durden on 11/18/2013
Zero Hedge
Courtesy of the revelations over the past year, one thing has been settled: the statement "Wall Street Manipulated Everything" is no longer in the conspiracy theorist's arsenal: it is now part of the factually accepted vernacular. And to summarize just how, who and where this manipulation takes places is the following series of charts from Bloomberg demonstrating Wall Street at its best - breaking the rules and making a killing.
Foreign Exchanges
Regulators are looking into whether currency traders have conspired through instant messages to manipulate foreign exchange rates. The currency rates are used to calculate the value of stock and bond indexes.
Energy Trading
Banks have been accused of manipulating energy markets in California and other states.
Libor
Since early 2008 banks have been caught up in investigations and litigation over alleged manipulations of Libor.
Mortgages
Banks have been accused of improper foreclosure practices, selling bonds backed by shoddy mortgages, and misleading investors about the quality of the loans.
* * *
http://www.zerohedge.com/news/2013-11-18/how-wall-street-manipulates-everything-infographics
And in the latest news on manipulation, according to the FT, "The UK’s financial regulator is probing the use of private accounts by foreign exchange traders amid allegations they traded their own money ahead of clients orders, in a serious twist in the global probe into possible currency market manipulation. The Financial Conduct Authority has asked several banks to investigate whether traders used undeclared personal accounts, two people close to the situation said."
Investors and foreign exchange traders have been speculating for a while that less scrupulous colleagues might have used private accounts at spread betting firms to gain advantages from their inside knowledge.
Hiding personal accounts is viewed as a clear breach of the rules. “If someone was [using a PA] to sell or buy ahead of the fix, I have no sympathy for him,” said one trader.
Personal accounts – or “PAs”, as traders call them – generally have to be declared to the bank and usually to a trader’s boss. Each individual trade then also has to be declared – often through an automatic email that is sent out when a trade is made.
Regulators are focusing their investigations on possible manipulation of a crucial benchmark, the 4pm WM/Reuters fix, in an affair that is echoing the Libor benchmark rate-rigging scandal.
Guess what they are going to find...
http://www.zerohedge.com/news/2013-11-18/how-wall-street-manipulates-everything-infographics
Insight: Wall Street uses 'merchant' workaround to cling to commodity assets
BY JONATHAN LEFF AND DAVID SHEPPARD
NEW YORK/LONDON Tue Nov 19, 2013 1:20am EST
Reuters
Traders work just before the end of trading for the day on the floor of the New York Stock Exchange, November 18, 2013.
CREDIT: REUTERS/LUCAS JACKSON
(Reuters) - Wall Street's commodity trading giants are using a 14-year-old law to hold on to their oil storage terminals and metals warehouses a little bit longer, even as the Federal Reserve considers cracking down on such investments.
Under the so-called "merchant" authority, U.S. financial holding companies are allowed to invest their own capital in just about any type of business - so long as they do so at arm's length, for purely passive financial purposes, and for no more than 10 years. Banks have been allowed to take small equity stakes for decades, but a controversial 1999 banking law vastly expanded the scope of such investments.
Morgan Stanley gave approval to TransMontaigne LP to re-purchase a major stake in a new oil terminal in Houston, Texas late last year after the investment was restructured as a "merchant" deal that would comply with the law, according to a person familiar with the project.
The legal maneuver, which hasn't been previously reported, is likely only a temporary measure for Morgan Stanley, which has been looking at ways to spin off or sell the whole commodities business since last year. The bank's oil trading desk is too deeply intertwined with the wider TransMontaigne oil terminal and pipeline business to separate the two.
It is unclear whether the arrangement offers a longer-term solution for Goldman Sachs, which has said publicly that its Metro International Services metals warehousing unit - the target of political and regulatory scrutiny due to allegations that it has inflated the cost of aluminum - is structured as a merchant business. The same goes for a Colombian coal mine.
Executives at Goldman have been the most outspoken on Wall Street about the importance of commodity trading, saying its J. Aron commodities arm is "core" to the bank and stressing that it is allowed to hold onto Metro for another six years. However, the bank is informally resuming efforts to sell the warehouses after drawing interest in recent months, a source said.
The merchant deal tag has allowed the banks to press ahead with certain investments or stave off an immediate forced sale. However, it also means the assets they purchased during the height of the commodity boom are of little use to their trading desks, as the Fed enforces strict Chinese walls.
If the banks can show that they are not involved in the "routine management or operation" of the firm, as required under the merchant clause, the bank would be largely protected from liability, lawyers say - in theory satisfying the Fed's primary objective of keeping the banks and financial system safe from potentially devastating disasters.
"The Federal Reserve might interpret merchant banking as potentially containing less legal risk and therefore requiring fewer prudential controls," said Karen Petrou at Federal Financial Analytics.
It is unclear whether it would satisfy politicians, however, some of whom are campaigning for a much deeper review of banking rules that would restore sharper divisions between basic commercial services and riskier trading activities.
A second Senate Banking Committee hearing to examine the rules governing Wall Street's expansion into everything from oil terminals to electricity generation to aluminum storage was postponed this week. It had been slated for Wednesday.
Last week, Janet Yellen, speaking at a Senate hearing on her nomination to become Fed chairman, said the central bank may create new rules as part of its comprehensive review of Wall Street's physical commodity trading, the first time a senior official has publicly raised the prospect of tougher restrictions.
Regulatory and legal experts say the most likely target is the direct ownership and operation of crude tankers, power plants, and other trading assets that could potentially undermine a bank in the event of a catastrophe.
BACK IN BOSTCO
In 2010, Morgan Stanley's TransMontaigne staked a claim to what would be a major new project - the $400 million Battleground Oil Specialty Terminal Co (BOSTCO) - a massive storage complex in Houston, Texas, an area that is on the brink of a major boom in trading as U.S. fuel exports grow.
But by the middle of 2011, the project had hit a snag: the Federal Reserve had yet to tell Morgan Stanley whether it could continue to own and operate physical commodity assets as part of its trading business. The question had been unresolved since Morgan Stanley and Goldman Sachs converted to become Fed-regulated banks at the 2008 peak of the financial crisis.
While such investments have long been off-limits to commercial banks, Morgan and Goldman Sachs argued that they should be able to pursue them thanks to a "grandfather" clause in the 1999 Gramm-Leach-Bliley Act.
With growing uncertainty over the Fed's interpretation of the clause, TransMontaigne agreed in late 2011 to sell its stake in the project to its partner, Kinder Morgan Energy Partners. Hoping that a positive decision might come soon, however, TransMontaigne included an option that would allow it to buy back into BOSTCO within a year.
Almost 12 months later, despite the lack of a Fed ruling on grandfathering, that's what happened: TransMontaigne exercised the option. It paid approximately $79 million to regain a 42.5 percent stake in the Battleground Oil Specialty Terminal Co LLC. It had sold its 50 percent share in the project for $10.8 million a year earlier.
In an SEC filing earlier this month, TransMontaigne said its BOSTCO investment was "approved by Morgan Stanley based on the specific facts and circumstances of the BOSTCO project and the structure of our investment in BOSTCO, and is not indicative of whether Morgan Stanley will approve any other acquisition or investment that we may propose in the future."
According to a source familiar with the matter, Morgan Stanley had won the Fed's blessing to proceed with this particular investment under the merchant authority, allowing it to return to the project - with merchant restrictions.
In October, the first stage of BOSTCO started commercial operations, exporting diesel from the Gulf Coast to international markets.
A spokesperson for Morgan Stanley declined to comment on the BOSTCO project. TransMontaigne also declined to comment.
THE OLD MEN OF COMMODITIES
Even if they are allowed to retain the assets, banks may have little interest in keeping businesses that must be kept strictly segregated from their trading desks, which may benefit from information or insight gleaned from operators. Such interaction is strictly prohibited by the Fed.
"The purpose of a merchant is to be a passive financial investment," said one person who has dealt with the Fed on issues related to commodity trading.
"So if day-to-day market information is flowing back to the traders - that's not what a passive financial investor would get."
The merchant clause also arises from Gramm-Leach-Bliley, which contained the grandfather clause. In theory, any bank can undertake a merchant investment, but only Goldman and Morgan can claim that their right to own commodity assets is grandfathered due to their long history of operating in those markets prior to 2008.
The law does not require banks to secure the Federal Reserve's explicit approval to invest under the "merchant" authority, although the Fed has the ability to review such deals to ensure that they comply with the law.
Goldman has resumed talks with parties interested in buying its Metro warehouses, a source familiar with the matter said on Monday. It bought the business for some $550 million in 2010, and owns it under what Chief Operating Officer Gary Cohn called a "private equity exemption" - the merchant clause.
JPMorgan Chase & Co last year reshuffled the board of the Henry Bath & Sons metals warehouse it bought from Royal Bank of Scotland in 2010 in an effort to conform to merchant status, Reuters reported earlier this year. It is unclear if that effort was successful. The bank has opted to sell its physical business.
(Reporting by Jonathan Leff in New York and David Sheppard in London)
http://www.reuters.com/article/2013/11/19/us-usa-banks-commodities-exemption-insig-idUSBRE9AI05V20131119
Foreign Purchases Of US Securities Drop To New Post-Lehman Low
by Tyler Durden on 11/18/2013 10:24 -0500
Zero Hedge
While the domestic euphoria in the stock market bubble has succeeded to sucker in everyone into the biggest multiple expansion rally in 15 years (as was noted earlier today, 75% of the S&P's YTD return has come from its trailing PE expanding to 16.5x now from 13.7x in 2012 - the largest increase since 1998), foreigners continue to vote with their feet. In fact, as today's August TIC data report showed, in August - perhaps due to Tapering fears - foreigners sold $16.9 billion in US equities. This was the fourth largest equity outflow in history. Transactions in other securities were mixed, with $10.8 billion in long-term Treasury sales offset by $16.8 billion in MBS/agency purchases, as well as $2.3 bilion in Corporate Bond buys.
How does this chart look on a trailing 12 month basis? Not good - the 12 month rolling average of net foreign purchases of Long-Term US securities dropped to just $17 billion from $25 billion last month. This is also the lowest average print since the 2009 recession.
Source: TIC
http://www.zerohedge.com/news/2013-11-18/foreign-purchases-us-securities-drop-new-post-lehman-low
Federal Reserve Steals From the Poor and Gives to the Rich
-- Posted Monday, 18 November 2013
by Dr. Ron Paul
Last Thursday the Senate Banking Committee held hearings on Janet Yellen's nomination as Federal Reserve Board Chairman. As expected, Ms. Yellen indicated that she would continue the Fed’s “quantitative easing” (QE) polices, despite QE’s failure to improve the economy. Coincidentally, two days before the Yellen hearings, Andrew Huszar, an ex-Fed official, publicly apologized to the American people for his role in QE. Mr. Huszar called QE "the greatest backdoor Wall Street bailout of all time.”
As recently as five years ago, it would have been unheard of for a Wall Street insider and former Fed official to speak so bluntly about how the Fed acts as a reverse Robin Hood. But a quick glance at the latest unemployment numbers shows that QE is not benefiting the average American. It is increasingly obvious that the Fed’s post-2008 policies of bailouts, money printing, and bond buying benefited the big banks and the politically-connected investment firms. QE is such a blatant example of crony capitalism that it makes Solyndra look like a shining example of a pure free market!
It would be a mistake to think that QE is the first time the Fed's policies have benefited the well-to-do at the expense of the average American. The Fed’s polices have always benefited crony capitalists and big spending politicians at the expense of the average American.
By manipulating the money supply and the interest rate, Federal Reserve polices create inflation and thereby erode the value of the currency. Since the Federal Reserve opened its doors one hundred years ago, the dollar has lost over 95 percent of its purchasing power —that’s right, today you need $23.70 to buy what one dollar bought in 1913!
As pointed out by the economists of the Austrian School, the creation of new money does not impact everyone equally. The well-connected benefit from inflation, as they receive the newly-created money first, before general price increases have spread through the economy. It is obvious, then, that middle- and working-class Americans are hardest hit by the rising level of prices.
Congress also benefits from the devaluation of the currency, as it allows them to increase welfare- and warfare-spending without directly taxing the people. Instead, the increase is only felt via the hidden “inflation tax.” I have often said that the inflation tax is one of the worst taxes because it is hidden and because it is regressive. Of course, there is a limit to how long the Fed can facilitate big government spending without causing an economic crisis.
Far from promoting a sound economy for all, the Federal Reserve is the main cause of the boom-and-bust economy, as well as the leading facilitator of big government and crony capitalism. Fortunately, in recent years more Americans have become aware of how the Fed is impacting their lives. These Americans have joined efforts to educate their fellow citizens on the dangers of the Federal Reserve and have joined efforts to bring transparency to the Federal Reserve by passing the Audit the Fed bill.
Auditing the Fed is an excellent first step toward restoring a monetary policy that works for the benefit of the American people, not the special interests. Another important step is to repeal legal tender laws that restrict the ability of the people to use the currency of their choice. This would allow Americans to protect themselves from the effects of the Fed’s polices. Auditing and ending the Fed, and allowing Americans to use the currency of their choice, must be a priority for anyone serious about restoring peace, prosperity, and liberty.
-- Posted Monday, 18 November 2013
http://news.goldseek.com/GoldSeek/1384791600.php
The Coming Week: The Biggest Story, Biggest Threat, Yet Least Covered
Nov 18 2013, 01:33
Cliff Watchel
The Dubai World default was the catalyst for the start of the EU Crisis. Have we gotten the catalyst for its end?
The following is a partial summary of conclusions from our weekly fxempire.com analysts' meeting in which we share thoughts and conclusions about the key lessons we learned from last week's action in global asset markets that matter for the coming week and beyond. These lessons apply to virtually all liquid global asset markets, particularly currencies, equities, commodities and bond markets.
Continued Stimulus Hopes Keep Fueling Uptrends In Global Stocks
Two of the most market moving events of last week that are likely to continue to exert bullish influence this week are:
US Stimulus Speculation
Janet Yellin's feeding the belief that Fed stimulus is to continue unabated longer than previously expected, possibly much longer. Even if it starts tapering QE, it can dampen rising bond rates via "forward guidance" about not raising them until economic growth and jobs data meet higher standards than previously used.
This means 7 speeches by FOMC officials (at least one per day) from Monday to Friday (EST), and the release FOMC minutes Wednesday, will have market moving potential if they provide any kind of surprise, pro or anti- QE taper.
It also means that any top-tier data thought to influence their thinking also has market moving potential if they provide any material surprises. The list includes:
* Wednesday: US monthly retail sales, existing home sales
* Thursday: Monthly PPI and flash Philly Fed manufacturing index and weekly jobless claims
ECB Indicates More Easing Likely Despite German Objections, Complications
As we discussed in depth last week here, the ECB's should continue to ease, the only question is how and when. When someone as senior as ECB executive board member Peter Praet speaks, markets listen as his remarks are assumed to be an intentional message for public consumption. He sought to ease concerns that the ECB was running out of stimulus tools, and explicitly mentioned:
* Negative interest rates (penalizes banks for holding cash with the ECB rather than lending it out into the economy)
* European variants of US style QE, the purchase of sovereign or mortgage backed bonds, or another LTRO (Long Term Refinancing Operations), which provides cheap long term loans called LTROs to banks too short of cash to provide sufficient credit to otherwise credit worthy businesses and households.
Inflation-anxious Germany has long opposed US-style sovereign bond purchases, and Praet acknowledged that the ECB's charter prohibits it from financing governments. However he noted there are other ways for the ECB to intervene in markets to keep liquidity up and rates down. EUR losses were minimal, a response that suggests no one believes such steps are imminent.
Nonetheless, few believed the ECB's rate cut last week was anything more than a symbolic "bandage on a shotgun wound," that would do nothing to revive the EU's (ex-Germany) stagnant growth and jobs picture, nor would it stave off potential deflation threats recently indicated.
The key point is, more radical easing is officially on the menu, despite the objections of Germany, Holland, Austria and other harder money funding nations.
More Stimulus From Bank Of Japan Expected
The simultaneous rally in Japanese stocks and drop in the USDJPY indicates more than just rising risk appetite.
Over the coming months, the Federal Reserve reduce stimulus while the Bank of Japan will consider increasing it in order to offset the impact of the consumption tax.
The diverging monetary policies of the Fed and BoJ is another reason for why USD/JPY should be trending higher.
The Bank of Japan meets next week and no policy changes are expected. That means the continuation of the three week uptrend in the Yen's counterparts like the USDJPY, EURJPY, and in Japanese stocks, will depend mostly on whether data from Japan's big customers such as the US, Europe, and China beat expectations and so provide additional bullish fuel to the risk asset rally.
Battle Over The EU Bank Stabilization Plan: The Biggest Story, Biggest Threat
The most market moving event from the EU last week, and perhaps this week too, is that additional future ECB easing is likely on the way. The EURUSD hardly moved in the wake of the November 7th surprise rate cut, and EU stocks responded more that day to the strong US GDP report and its implied QE taper threat. In other words, markets didn't believe the rate cut would have a material impact. More stimulus was needed, and more would likely be coming. Seehere for details on why.
Remember that the EU crisis comes from a combination of too much sovereign debt and bad bank loans, which forced GIIPS governments to go further into debt to help the banks, and the banks returning the favor by buying much of those bonds.
Thus the states, especially the GIIPS, and their banks, will stand or fall together.
As we discussed last week here, we believe the biggest under-the-radar "phantom menace" for the global economy is the coming ECB bank stress tests, which unlike the prior stress tests of recent years, will be conducted not as national PR stunts, but rather by the ECB, with serious intent to find bad banks and bad debts, so that the ECB or EU doesn't get stuck with the cleanup bill, estimated at $50 bln (and these estimates tend to prove optimistic).
The danger lies in the bitter fight that will come over who pays and how, because it will reveal whether the EU is really ready to make some of the hard decisions it has avoided thus far, for example:
* Are funding nations prepared to accept additional financial burdens to stabilize EU banks?
* Are all EU members prepared to accept centralized bank supervision from Brussels?
If there's no agreement on how to deal with banks that fail the ECB's stress tests, there won't be any stress tests and the entire process of centralizing EU bank supervision grinds to a halt.
More ominously, the usual solution of print, lend, and extend payback periods to debtors that can't handle their current debt burden won't work for more than a few months at best. See our full special report, ECB Bank Stress Tests: Catalyst Of The Final EU Crisis?
Leaked China Reform Details May Continue To Lift Asia This Week
Whether or not they provide more lift to risk appetite in the coming weeks will depend greatly on whether at least some of the market friendly reforms are believed to hit within a matter of months as opposed to years, the usual time frame for enacting fundamental reforms in China
China's Third Plenum meeting of senior leaders was supposed to herald an unprecedented wave of reforms, or at least the biggest one in decades. However after seeing markets disappointed by the lack of details released, China leaked further details. These included (via seekingalpha.com market currents for Friday November 15)
* Accelerating capital account convertibility, speeding up interest rate reform and the creation of a deposit-insurance system.
* Encouraging overseas investment.
* Cutting barriers on private firms entering certain sectors.
* Encouraging private firms to take part in the reform of state-owned enterprises.
* Creating more free trade zones in different cities.
* Letting local municipalities broaden their financing channels, including issuing bonds.
* Cutting government intervention in resource allocation.
* Improved protection for property rights.
* Easing the one-child policy.
* Abolishing the labor camp system.
* Scrapping residence restrictions in small cities.
The good news: These indicate intention to move China firmly in the direction of becoming a more liberal market economy
The bad news: There was no explicit mention of improving transparency or reliability of economic data, nor any indication that these would be coming soon enough to influence markets in the near future.
Technical Momentum Of Uptrends Strengthened: Keeps Bias Bullish
As noted above:
* The fed is maintaining its current level of stimulus until at least March 2014, quite possibly longer, and even if it starts, it is unlikely to tighten in any meaningful way, never mind actually raise benchmark rates, for at least the coming 6-12 months.
* The ECB and Bank of Japan are believed to be planning further stimulus programs.
Inflation pressures in all of the above mentioned economies remain low, even too low.
Better than expected UK data has raised tightening expectations somewhat, and the PBOC has allowed rates to rise.
Not surprisingly then, US, Japanese, and core economy EU indexes continue to march higher or hold steady near multi-year or all-time highs, while UK and Chinese indexes have drifted a bit lower over the past weeks.
The coming week's trends for the main indexes will depend on whether the likely top market moving reports and events for the coming week surprise to the upside. Even if they don't, many of these trends, as shown on the weekly charts below, are old enough that they can sustain 5-10% pullbacks without sustaining long term damage, hence our bias remains to the upside.
(click to enlarge)
Weekly Charts Of Large Cap Global Indexes With 10 Week/200 Day Ema: Left Column Top To Bottom: S&p 500, Dj 30, Ftse 100, Middle: Cac 40, Dj Eur 50, Dax 30, Right: Hang Seng, Msci Taiwan, Nikkei 225
01 nov 17 1800
That means markets will be more receptive to bullish than bearish data.
One Additional Lesson And Conclusion
As we approach the yearend, we don't think 2013 is going out quietly. We hope to have a year-end outlook article out this week, stay tuned. You'll be able to find it here if you don't see it in my usual online hangouts.
Reviewing the past week, the biggest lesson for the coming week and beyond is that we could be facing a very volatile year end.
The EU faces a year-end deadline for an agreement on handling and funding banks that fail the coming ECB stress tests. The current battle between funding and debtor nations over who controls and funds the process carries very real risk of setting off the next chapter of the EU debt crisis. See here for our in-depth special report on what could easily become the biggest threat markets face in 2014.
The US faces a possible renewed budget battle and new risks of damage.
Preliminary data on holiday sales has been mixed at best.
Of course, expect global stock indexes and other risk assets to move with any materially bullish or bearish surprises to data that is believed to influence monetary policy of the Fed, ECB, BoJ, etc. Fed and ECB speculation will be particularly important for forex markets given that the USD and EUR are involved in over 80% of all currency transactions.
Disclosure/disclaimer: No positions. The above is for informational purposes only. All trade decisions are solely the responsibility of the reader.
http://seekingalpha.com/article/1845532-the-coming-week-the-biggest-story-biggest-threat-yet-least-covered
GoldSeek.com Radio: Dr. Ron Paul, Jim Rogers & Mike Maloney, and your host Chris Waltzek
By: Chris Waltzek, GoldSeek.com Radio
-- Posted Sunday, 17 November 2013
GoldSeek.com Radio: Dr. Ron Paul, Jim Rogers & Mike Maloney, and your host Chris Waltzek
By: Chris Waltzek, GoldSeek.com Radio
-- Posted Sunday, 17 November 2013
Federal Reserve Steals From the Poor and Gives to the Rich
-- Posted Monday, 18 November 2013
by Dr. Ron Paul
Last Thursday the Senate Banking Committee held hearings on Janet Yellen's nomination as Federal Reserve Board Chairman. As expected, Ms. Yellen indicated that she would continue the Fed’s “quantitative easing” (QE) polices, despite QE’s failure to improve the economy. Coincidentally, two days before the Yellen hearings, Andrew Huszar, an ex-Fed official, publicly apologized to the American people for his role in QE. Mr. Huszar called QE "the greatest backdoor Wall Street bailout of all time.”
As recently as five years ago, it would have been unheard of for a Wall Street insider and former Fed official to speak so bluntly about how the Fed acts as a reverse Robin Hood. But a quick glance at the latest unemployment numbers shows that QE is not benefiting the average American. It is increasingly obvious that the Fed’s post-2008 policies of bailouts, money printing, and bond buying benefited the big banks and the politically-connected investment firms. QE is such a blatant example of crony capitalism that it makes Solyndra look like a shining example of a pure free market!
It would be a mistake to think that QE is the first time the Fed's policies have benefited the well-to-do at the expense of the average American. The Fed’s polices have always benefited crony capitalists and big spending politicians at the expense of the average American.
By manipulating the money supply and the interest rate, Federal Reserve polices create inflation and thereby erode the value of the currency. Since the Federal Reserve opened its doors one hundred years ago, the dollar has lost over 95 percent of its purchasing power —that’s right, today you need $23.70 to buy what one dollar bought in 1913!
As pointed out by the economists of the Austrian School, the creation of new money does not impact everyone equally. The well-connected benefit from inflation, as they receive the newly-created money first, before general price increases have spread through the economy. It is obvious, then, that middle- and working-class Americans are hardest hit by the rising level of prices.
Congress also benefits from the devaluation of the currency, as it allows them to increase welfare- and warfare-spending without directly taxing the people. Instead, the increase is only felt via the hidden “inflation tax.” I have often said that the inflation tax is one of the worst taxes because it is hidden and because it is regressive. Of course, there is a limit to how long the Fed can facilitate big government spending without causing an economic crisis.
Far from promoting a sound economy for all, the Federal Reserve is the main cause of the boom-and-bust economy, as well as the leading facilitator of big government and crony capitalism. Fortunately, in recent years more Americans have become aware of how the Fed is impacting their lives. These Americans have joined efforts to educate their fellow citizens on the dangers of the Federal Reserve and have joined efforts to bring transparency to the Federal Reserve by passing the Audit the Fed bill.
Auditing the Fed is an excellent first step toward restoring a monetary policy that works for the benefit of the American people, not the special interests. Another important step is to repeal legal tender laws that restrict the ability of the people to use the currency of their choice. This would allow Americans to protect themselves from the effects of the Fed’s polices. Auditing and ending the Fed, and allowing Americans to use the currency of their choice, must be a priority for anyone serious about restoring peace, prosperity, and liberty.
-- Posted Monday, 18 November 2013
http://news.goldseek.com/GoldSeek/1384791600.php
The Video Bankers Hate: The Real Government Debt Fraud
by Charleston Voice - Knology
Published : November 15th, 2013
The Federal Reserve’s Centennial Birthday – The Hundred Years’ War Against Gold and Economic Sense
By: Nick Barisheff
http://bmgbullionbars.com/the-federal-reserves-centennial-birthday-the-hundred-years-war-against-gold-and-economic-
The Federal Reserve’s Centennial Birthday – The Hundred Years’ War Against Gold and Economic Sense
By: Nick Barisheff
http://bmgbullionbars.com/the-federal-reserves-centennial-birthday-the-hundred-years-war-against-gold-and-economic-common-sense/
Art Buying Binge A Red Flag For USD And Equities: A Plus For Gold
Nov 17 2013, 04:15
Emmet Kodesh
includes: AG, EXK, GEMS, PHYS, PSLV, SLW
Disclosure: I am long SLW. (More...)
Strong hands move markets and influence trends. Just as the trading activity of corporate insiders can signal company health so too may the asset choices of wealthy individuals. Recent activity in alternate asset classes the indices may signal a change in weather for stocks.
High end individuals have been exchanging their USD for works of art and precious gems, paying enormous prices to possess alternate portable assets. Christie's Fine Art, for example, recently set a record with $691 million spent at an auction of 20th century works. This trend of record art sales has been accelerating and is a red flag for the USD, equities and the economy generally. Does it mean that gold, an ancient store of portable value will soon rebound from a dismal YTD, down 22%? Demand has not flagged: foreign banks continue to buy heavily.
This article will consider how high net worth individuals shifting to portable assets may effect PM (precious metal) mining stocks. They, and bullion ETPs like Central Fund of Canada CEF), are ways that investors may hedge against high-flying markets, the deteriorating experiment with a fiat system and the inflation hidden by official stats.
QE means that the Fed has been monetizing US debt, growing its balance sheet from $500 billion in 2000 to $4 trillion today, an eight-fold increase. As David Stockman, former director of the OMB recently noted, this has been benefiting the top dogs in the markets at the expense of everyone else. Veteran trader Art Cashin, NYSE floor-manager for UBS who does a daily market watch with CNBC recently used an analogy like my reference to Poe's "Masque of the Red Death" to describe the hilarity of the partiers in this happy hour for equities. It's going to end, he suggested, but we can't be sure of anything because "the clocks don't have hands" anymore, that is, the numbers are broken: fiscal policy has utterly trumped fundamentals and created mad markets. Cashin worries about the bond as well as equity markets and commented on China's continued purchases of gold. He sees a chance that bond prices may plunge and gold rise. Former Fed Reserve official, Andrew Huszar recently referred to QE as "the greatest backdoor bailout of Wall Street of all time." The markets seem close to a euphoric peak as Federal policies create chaos in large areas of the economy. The S&P is up about 28% while earnings are +3%. Mom and Pop investors are pouring in: beware.
Stockman referred to the QE climax of fiat governance as "lunatic policies" leading to "global [economic] collapse." Many people, like Thorsten Polleit at the von Mises institute believe that socio-cultural and moral collapses are concomitant with economic-fiscal profligacy and decay. Among the way this decline manifests itself is in a growing gap between Main Street on one hand and Wall Street and the financial system on the other. How can retail investors best respond to this grave situation? What asset blend maximizes protection of retail assets?
Gold is a monetary metal and, as such, subject to short selling pressures. Macro dynamics, heavy demand and changes in world financial structures (like growing ex-USD trade) should be positioning it for a powerful and sustained rise. Like that "rough beast" in the famous Yeats poem, it is clear that a new monetary order is stalking toward us. I do not believe, however that investors can bank on a PM rise commensurate with impending pain for King Dollar. But before considering the outlook for PM bullion, ETPs and miners, let's look further at the rush by deep pockets into art, gems and real estate.
As noted, the evening of November 12, English painter Francis Bacon's 1969 triptych portrait of artist Lucien Freud sold at Christie's for $142.4 million. This beat the record of $120 million set last year at the sale of Edvard Munch's iconic work, "The Scream." A ten-foot tall stainless steel balloon dog sold for $58 million. It recalled the sale of Gustave Klimt's gold-flecked masterwork, "Portrait of Adele Bloch Bauer" for $135 million before QE lit the fire of hidden, corrosive inflation. A day after the asset transfer at Christie's, Sotheby's elicited $105.4 million for one of Andy Warhol's "Double Disaster Car Crash" paintings of 1963. His "Coke Bottle (3)" sold for $53 million and a portrait of Elizabeth Taylor for $21 million among notable exchanges of USD for alternate assets. One can laugh at the aesthetics but not the evidence of capital transfers.
Also notable were recent precious gems sales including that of a pink diamond for $83 million and an orange diamond for $35.5 million in Geneva. This complements the staggering sums paid for condos in Manhattan the past few years. Areas like Bedford - Stuyvesant that not long ago were no-go zones have condos selling over $1 million. The hi-end market has risen above $60 million / condo. Clearly high net worth individuals are exchanging USD for alternate hard assets at record levels. The rich are getting richer and many prefer $140 million in a modernist masterwork than in 10-year T-bills yielding 2.5%. Partly the exchange reflects the reality of high inflation with more to come. It also reflects a disinclination to have wealth sitting only or mainly in cash.
With this action in mind, keep an eye on the Pure Funds Diamonds / Precious Gems ETP (GEMS) and consider parking some of your wealth there. Since I first began mentioning its merits in the summer, it has moved from the lower to the upper end of its 52-week range, closing Friday at $21.86. It is lightly traded but is an appealing complement or alternative to investing (more) in PM miners.
Chris Powell, a consultant to GATA, editor for 40 years and member of the New England chapter of the Society of Professional Journalists, returned from meeting with two Asian CBs recently and confirmed that "the gold market is micro-managed." He expects that the current flight of physical gold from West to East will create greater monetary changes than the collapse of the London gold pool in 1968. Opaque, self-certifying markets tend to break down. COMEX gold holdings have fallen from 3 million to 586k oz. to cover paper claims worth 75x amount. However, do not expect prices of your bullion simply to rise or government policy to rest lightly when monetary arrangements are re-set. One still needs liquidity while forming an exit strategy.
It is more likely that gold and silver mining companies will be nationalized, de jure or de facto than that free markets and individual investment will be protected. If the health care industry can be nationalized, so can mining: look at China. One needs only extrapolate the trends embedded in social security, health insurance and their relation to tax and security policies. The crises and atrocities that began on 9/11 are more likely to increase than diminish. With this trend and juiced markets comes the value of more diversified assets.
Despite many daunting prospects in governance and commerce, don't give up on purchasing the best PM miners which remain near secular lows. Top companies like First Majestic (AG), Endeavour (EXK) and Silver Wheaton (SLW) remain at very low prices. This also seems like an apt time to enter or add to bullion ETPs like Sprott Physical Silver (PSLV) or Gold (PHYS) which have fallen again with the frequently attacked gold price. Despite the havoc that paper-contract short selling wreaks on this sector, it again is looking safer than indices surging on debt creation at a time of costly legislative snarls, disorder in international currencies and continuing stagnation in Europe. Adding to this, France had its credit downgraded by Standard & Poor Nov. 8 and its 10-year note jumped 24 basis points. It could happen here so for those who can stomach exposure to PM miners, there is a buying situation.
In "Chasing the S&P" I suggested that the markets have overshot even the elevated angle of the past year's gains and that a pullback even to the 1700-20 level would not break the established QE-supported trend lines. Overbought conditions increased last week. Unless we have entered still more uncharted turf, the chances for retracing toward 1720 by early December are real. There will be buying opportunities there. After that, the S&P's tragic rise will continue: expect that markets to race perhaps in 2014 amid heightening risks of a major re-set. It might be wise to wait a bit on equities and keep in mind that a major break in world economies, American consumer strength (an engine for global growth) and / or currency failures and change will at some point validate a conservative position anchored in alternate assets and cash.
Companies positioned for a stormy long haul are mentioned here. Issues as disparate as British Petroleum (BP), Starbucks (SBUX), Boeing (BA), Disney (DIS), CBS (CBS), TJX (TJX) and United Tech (UTX) are among the stalwarts I have discussed. Follow them and diversify your assets. The flood of money into art, gems and real estate signals stormy weather.
http://seekingalpha.com/article/1844902-art-buying-binge-a-red-flag-for-usd-and-equities-a-plus-for-gold?source=email_authors_alerts&ifp=0
Art Buying Binge A Red Flag For USD And Equities: A Plus For Gold
Nov 17 2013, 04:15
Emmet Kodesh
includes: AG, EXK, GEMS, PHYS, PSLV, SLW
Disclosure: I am long SLW. (More...)
Strong hands move markets and influence trends. Just as the trading activity of corporate insiders can signal company health so too may the asset choices of wealthy individuals. Recent activity in alternate asset classes the indices may signal a change in weather for stocks.
High end individuals have been exchanging their USD for works of art and precious gems, paying enormous prices to possess alternate portable assets. Christie's Fine Art, for example, recently set a record with $691 million spent at an auction of 20th century works. This trend of record art sales has been accelerating and is a red flag for the USD, equities and the economy generally. Does it mean that gold, an ancient store of portable value will soon rebound from a dismal YTD, down 22%? Demand has not flagged: foreign banks continue to buy heavily.
This article will consider how high net worth individuals shifting to portable assets may effect PM (precious metal) mining stocks. They, and bullion ETPs like Central Fund of Canada CEF), are ways that investors may hedge against high-flying markets, the deteriorating experiment with a fiat system and the inflation hidden by official stats.
QE means that the Fed has been monetizing US debt, growing its balance sheet from $500 billion in 2000 to $4 trillion today, an eight-fold increase. As David Stockman, former director of the OMB recently noted, this has been benefiting the top dogs in the markets at the expense of everyone else. Veteran trader Art Cashin, NYSE floor-manager for UBS who does a daily market watch with CNBC recently used an analogy like my reference to Poe's "Masque of the Red Death" to describe the hilarity of the partiers in this happy hour for equities. It's going to end, he suggested, but we can't be sure of anything because "the clocks don't have hands" anymore, that is, the numbers are broken: fiscal policy has utterly trumped fundamentals and created mad markets. Cashin worries about the bond as well as equity markets and commented on China's continued purchases of gold. He sees a chance that bond prices may plunge and gold rise. Former Fed Reserve official, Andrew Huszar recently referred to QE as "the greatest backdoor bailout of Wall Street of all time." The markets seem close to a euphoric peak as Federal policies create chaos in large areas of the economy. The S&P is up about 28% while earnings are +3%. Mom and Pop investors are pouring in: beware.
Stockman referred to the QE climax of fiat governance as "lunatic policies" leading to "global [economic] collapse." Many people, like Thorsten Polleit at the von Mises institute believe that socio-cultural and moral collapses are concomitant with economic-fiscal profligacy and decay. Among the way this decline manifests itself is in a growing gap between Main Street on one hand and Wall Street and the financial system on the other. How can retail investors best respond to this grave situation? What asset blend maximizes protection of retail assets?
Gold is a monetary metal and, as such, subject to short selling pressures. Macro dynamics, heavy demand and changes in world financial structures (like growing ex-USD trade) should be positioning it for a powerful and sustained rise. Like that "rough beast" in the famous Yeats poem, it is clear that a new monetary order is stalking toward us. I do not believe, however that investors can bank on a PM rise commensurate with impending pain for King Dollar. But before considering the outlook for PM bullion, ETPs and miners, let's look further at the rush by deep pockets into art, gems and real estate.
As noted, the evening of November 12, English painter Francis Bacon's 1969 triptych portrait of artist Lucien Freud sold at Christie's for $142.4 million. This beat the record of $120 million set last year at the sale of Edvard Munch's iconic work, "The Scream." A ten-foot tall stainless steel balloon dog sold for $58 million. It recalled the sale of Gustave Klimt's gold-flecked masterwork, "Portrait of Adele Bloch Bauer" for $135 million before QE lit the fire of hidden, corrosive inflation. A day after the asset transfer at Christie's, Sotheby's elicited $105.4 million for one of Andy Warhol's "Double Disaster Car Crash" paintings of 1963. His "Coke Bottle (3)" sold for $53 million and a portrait of Elizabeth Taylor for $21 million among notable exchanges of USD for alternate assets. One can laugh at the aesthetics but not the evidence of capital transfers.
Also notable were recent precious gems sales including that of a pink diamond for $83 million and an orange diamond for $35.5 million in Geneva. This complements the staggering sums paid for condos in Manhattan the past few years. Areas like Bedford - Stuyvesant that not long ago were no-go zones have condos selling over $1 million. The hi-end market has risen above $60 million / condo. Clearly high net worth individuals are exchanging USD for alternate hard assets at record levels. The rich are getting richer and many prefer $140 million in a modernist masterwork than in 10-year T-bills yielding 2.5%. Partly the exchange reflects the reality of high inflation with more to come. It also reflects a disinclination to have wealth sitting only or mainly in cash.
With this action in mind, keep an eye on the Pure Funds Diamonds / Precious Gems ETP (GEMS) and consider parking some of your wealth there. Since I first began mentioning its merits in the summer, it has moved from the lower to the upper end of its 52-week range, closing Friday at $21.86. It is lightly traded but is an appealing complement or alternative to investing (more) in PM miners.
Chris Powell, a consultant to GATA, editor for 40 years and member of the New England chapter of the Society of Professional Journalists, returned from meeting with two Asian CBs recently and confirmed that "the gold market is micro-managed." He expects that the current flight of physical gold from West to East will create greater monetary changes than the collapse of the London gold pool in 1968. Opaque, self-certifying markets tend to break down. COMEX gold holdings have fallen from 3 million to 586k oz. to cover paper claims worth 75x amount. However, do not expect prices of your bullion simply to rise or government policy to rest lightly when monetary arrangements are re-set. One still needs liquidity while forming an exit strategy.
It is more likely that gold and silver mining companies will be nationalized, de jure or de facto than that free markets and individual investment will be protected. If the health care industry can be nationalized, so can mining: look at China. One needs only extrapolate the trends embedded in social security, health insurance and their relation to tax and security policies. The crises and atrocities that began on 9/11 are more likely to increase than diminish. With this trend and juiced markets comes the value of more diversified assets.
Despite many daunting prospects in governance and commerce, don't give up on purchasing the best PM miners which remain near secular lows. Top companies like First Majestic (AG), Endeavour (EXK) and Silver Wheaton (SLW) remain at very low prices. This also seems like an apt time to enter or add to bullion ETPs like Sprott Physical Silver (PSLV) or Gold (PHYS) which have fallen again with the frequently attacked gold price. Despite the havoc that paper-contract short selling wreaks on this sector, it again is looking safer than indices surging on debt creation at a time of costly legislative snarls, disorder in international currencies and continuing stagnation in Europe. Adding to this, France had its credit downgraded by Standard & Poor Nov. 8 and its 10-year note jumped 24 basis points. It could happen here so for those who can stomach exposure to PM miners, there is a buying situation.
In "Chasing the S&P" I suggested that the markets have overshot even the elevated angle of the past year's gains and that a pullback even to the 1700-20 level would not break the established QE-supported trend lines. Overbought conditions increased last week. Unless we have entered still more uncharted turf, the chances for retracing toward 1720 by early December are real. There will be buying opportunities there. After that, the S&P's tragic rise will continue: expect that markets to race perhaps in 2014 amid heightening risks of a major re-set. It might be wise to wait a bit on equities and keep in mind that a major break in world economies, American consumer strength (an engine for global growth) and / or currency failures and change will at some point validate a conservative position anchored in alternate assets and cash.
Companies positioned for a stormy long haul are mentioned here. Issues as disparate as British Petroleum (BP), Starbucks (SBUX), Boeing (BA), Disney (DIS), CBS (CBS), TJX (TJX) and United Tech (UTX) are among the stalwarts I have discussed. Follow them and diversify your assets. The flood of money into art, gems and real estate signals stormy weather.
http://seekingalpha.com/article/1844902-art-buying-binge-a-red-flag-for-usd-and-equities-a-plus-for-gold?source=email_authors_alerts&ifp=0
Magic fairy dust scheme of theft of private wealth, infinite currency to suit the need. Unbelievable.
Eight Choices for "Generation Wait"; Percentage of Young Adults Moving Hits 50-Year Low
Nov. 15, 2013
Mish's Global Economic Trend Analysis
When you do not have a job (or have a low paying job), and are stuck with education costs that you cannot possibly pay back, what do you do?
Eight Unfortunate Choices
You stay in school accumulating debt
You go back to school accumulating debt
You move back home
You share an apartment with others
You delay marriage
You delay having kids
You delay buying a house
You wish and hope and pray for better times
Those choices are not mutually exclusive. In general you wait, hoping for something good to happen.
Generation Wait
Please consider 'Generation Wait': Share of young adults who move hits 50-year low
U.S. mobility for young adults has fallen to the lowest level in more than 50 years as cash-strapped 20-somethings shun home-buying and refrain from major moves in a weak job market.
Among adults ages 25-29, just 4.9 million, or 23.3 percent, moved in the 12 months ending March 2013. That's down from 24.6 percent in the same period the year before. It was the lowest level since at least 1963. The peak of 36.7 percent came in 1965, during the nation's youth counterculture movement.
Demographers say the delays in traditional markers of adulthood — full-time careers and homeownership — may prove to be longer-lasting. Roughly 1 in 5 young adults ages 25 to 34 is now disconnected from work and school.
The overall decline in migration among young adults is being driven largely by a drop in local moves within a county, which fell to the lowest level on record.
While homeownership across all age groups fell by 3 percentage points to 65 percent from 2007 to 2012, the drop-off among adults 25-29 was much larger — more than 6 percentage points, from 40.6 percent to 34.3 percent.
Young Adults Stay Put
Yahoo!Finance has an interesting chart that shows More Young Adults Stay Put.
ttp://
Structural Issue
Unlike what Bernanke thinks, this is a structural problem. And I have been talking about it for years. Here are a few examples.
May 2008: Demographics of Jobless Claims
January 2010: Recent Graduates, Teens Hit Hard In Miserable Jobs Market
October 2010: Reluctant Breadwinners, Downsized Housing; Demographic Pendulum in Motion
October 2012: Multigenerational Households On Rise; Boomerang Students Return Home; What's the Impact on Housing Demand?
October 2013: Workforce, Population, Jobs by Age-Group
Percent Employment
Here is a chart courtesy of Tim Wallace from the last link above.
In 1990 close to 60 percent of those 16-19 were working. Now it's under 30%. In the 20-24 age group the percentage fell from 75% in 1988 to under 65% now. Why?
Structural Demographics Poor
This is what I said in my May 2008 post Demographics of Jobless Claims.
Structural demographic effects imply that prospects in the full-time labor market will be poor for those over age 50-55 and workers under age 30. Teen and college-age employment could suffer a great deal from (1) a dramatic slowdown in discretionary spending and (2) part-time Boomer reentrants into the low-paying service sector; workers who will be competing with younger workers.
Ironically, older part-time workers remaining in or reentering the labor force will be cheaper to hire in many cases than younger workers. The reason is Boomers 65 and older will be covered by Medicare (as long as it lasts) and will not require as many benefits as will younger workers, especially those with families.
In effect, Boomers will be competing with their children and grandchildren for jobs that in many cases do not pay living wages.
And here we are. Any Mish readers surprised?
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Read more at http://globaleconomicanalysis.blogspot.com/2013/11/eight-choices-for-generation-wait.html#A4WrcYhsU1f7eShC.99
The Unspoken, Festering Secret At The Heart Of Shadow Banking: "Self-Securitization" ... With Central Banks
Tyler Durden's picture Submitted by Tyler Durden on 11/15/2013
Zero Hedge
By now everyone has heard of securitization: the process whereby banks take risky assets on their books, package, tranche them, and then re-sell them to yield chasing fiduciaries of widows and orphans. The conversion process can be nebulous, usually involving a 20 year-old evil French mastermind working for Goldman, and a billionaire hedge fund manager, who select the worthless securities put into the weakest tranche, just so the abovementioned two parties can short it while misrepresenting their conflicts of interest, and make a boatload of money when the whole securitized structure implodes. The process usually takes place "off balance sheet" via Special Purpose Vehicles so it is completely unregulated, and as such allows massive leverage.
According to many, the hidden leverage embedded in the securitization pipeline is what catalyzed the 2008 near-death experience of the financial markets.
All of this is well-known to most.
What however is certainly not known, because until a few days ago the concept did not technicall exist, is what emerged deep from the bowels of the FSB's 2013 "Global Shadow Banking report", and what is barely even defined anywhere in popular literature, which thus we have defined as the "unspoken, festering secret at the heart of shadow banking."
Presenting self-securitization.
What is "self-securitization"? Go ahead and Google it: there doesn't exist any technical definition of this heretofore unheard of phrase.
Rather the term, conceived by the FSB as a means of making the total size of the $71 trillion shadow banking sector somewhat more palatable, is defined as follows:
Self-securitisation (retained securitisation) is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the Structured Finance Vehicle (SFV) for all tranches are owned by the originating bank and remain on its balance sheet.
At this point alarm bells should be going off. And if they aren't, here is some more color.
The numbers for OFIs presented in sections 2 to 4 of this report include all financial assets of Structured Finance Vehicles (SFVs), regardless of who holds the securitised products. However, in a number of jurisdictions, some of these products are returned back onto the balance sheet of the bank that originally provided the asset to be securitised. This so called self-securitisation, or retained securitisation, is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the SFV for all tranches are owned by the originating bank and remain on the bank’s balance sheet, so that third-party investors do not own any of the securities issued by the SFV. These assets should not be included in the shadow banking figure, as prudential consolidation rules consider them as banks’ own assets and as such subject to consolidated supervision and capital requirements.
... some of the assets that are currently ‘self-securitised’ by banks may at some point be sold to third parties when financial conditions improve.
Wait a minute: a company is "securitizing" assets.... which it then keeps, but only after it has "obtained funding with a central bank"? What?
Judging by the countries whose shadow bank institutions are the most aggressive participants in "self-securitization", it gets clearer just what is going on here:
While Italy and Spain are clear, why is Australia on this list?
While the large increase in Australian banks’ self-securitisation of residential mortgage-backed securities (RMBS) started in 2008 (i.e. before Basel III was developed), the amount of self-securitisation is expected to stay high going forward as these securities are eligible as collateral for the Reserve Bank of Australia’s Committed Liquidity Facility (CLF). Indeed some banks are gearing up already for the CLF. Given the low level of government debt in Australia, the Australian prudential regulator has adopted elements of the Basel rules that allow banks to count a committed liquidity facility provided by the central banks as part of their Basel III liquidity requirements.
So that very strict Basel III requirements are permissive enough to allow... shadow "banks" to engage in self-securitization with their central bank? Just brilliant.
Finally, what amount of circularly (non) securitized, central-bank backstopped securities are we talking here?
Answer: $1,200,000,000,000.
That is the amount of unlevered notional that shadow (and regular) banks engage in circular check-kiting games with central banks for, and in the process obtaing "funding." As one trading desk explained it:
you take yr worst assets... package up in an spv (which removes em from yr gaap balance sheet) then flip to central bank for cash at modest haircut and boom revenues...
And presto: magic balance sheet clean up and even more magical "revenues."
But wait, there's more (spoiler preview: take the above quote and put in on constant rewind)
Where this mindblowing, circular scheme in which riskless central banks serve as secret sources of incremental bank funding, i.e., free money, gets completely insane, is the realization that these self-securitized assets can also participate in rehypothecation chains. Recall from our exposition yesterday on the permitted leverage resulting from collateral reuse in a repo chain which is fundamentally what shadow banking is all about: unregulated, stratospheric leverage.
We added:
So... three participants result in 4x leverage; four: in roughly 6x, and so on. Of course, these are conservative estimates: in the real, collateral-strapped world, the amount of collateral reuse, and thus the number of participants is orders of magnitude higher. Which means that after just a few turns of rehypothecation, leverage approaches infinity.
Which means that should these same banks that self-securitize with Central Bank X, then proceed to re-use the same security with the same counterparty - i.e., their host central bank, or the Fed of course - then this $1.2 trillion in assets, already carried off-balance sheet with Basel III's blessings, can get 2x, 3x, 5x, 8x, 13x or more turns of leverage on them, as for the shadow bank it is the central bank that is the (up to infinity) levered counterparty. And the central bank, as everyone knows, can always just print money if and when the worthless collateral backing the bank's self securitization ends up worthless.
The implication of this unprecedented shadow banking circle jerk, which could very easily make even the direct wealth transfer resulting from trillions in QE pale by comparison, is so stunning that we leave it up to the reader to come to their own conclusion.
http://www.zerohedge.com/news/2013-11-15/unspoken-toxic-secret-heart-shadow-banking-self-securitization-central-banks
Why the Sell-Off in Gold Bullion Is Based on Faulty Logic
Nov 15, 2013 - 10:38 AM GMT
By: InvestmentContrarian
Sasha Cekerevac writes: Over the last few days, gold bullion in U.S. dollars has been under selling pressure yet again. With the price of gold bullion pulling back, one obvious question arises: what’s the appropriate investment strategy at this point?
Many are pointing to talk that the Federal Reserve is about to reduce its monetary stimulus, and this has led some investors to adjust their investment strategy by reducing their gold bullion holdings.
There are several interesting points to make about the argument for this investment strategy. Firstly, members of the Federal Reserve, along with other central bankers around the world, have explicitly stated that inflation is far too low—the opposite of what these investors who are bearish on gold believe.
Considering that the Federal Reserve has all the control in terms of money supply and it is adamant in its goal of increasing inflation, I certainly wouldn’t want to fight the Fed.
So, the media is stating that the reason people are shifting their investments strategy on gold bullion is because the Federal Reserve is about to begin reducing money printing due to the increase in inflation…
Since when does higher inflation lead to lower gold bullion prices? It just doesn’t. If inflation gets out of control, I would rather already own gold bullion than join the crowd scrambling to jump on board again.
If anything, having the Federal Reserve and global central bankers pushing their foot on the money printing accelerator just means a greater increase in the probability of inflation.
Inflation, of course, means higher asset prices. As an investment strategy, when an economy is encountering inflation, the one place you can’t be is in cash.
While the stock market has clearly benefited from the money printing, I believe the next leg-up is an increase in the price of gold bullion. With the Federal Reserve clearly unhappy with the low level of inflation, it has stated that monetary stimulus won’t stop until inflation starts to accelerate.
The second point is that the Federal Reserve is not about to tighten monetary policy; rather, the Fed is discussing reducing the most aggressive monetary policy in its history. There’s a huge difference between tightening monetary policy and continuing it at a reduced pace.
While the Federal Reserve might lower its buying from close to $1.0 trillion in asset-backed securities per year to perhaps only $600 billion, this is still a ridiculous sum of money.
We are not talking about the Federal Reserve clamping down and tightening monetary policy. If that were to occur, then yes, one should adjust their investment strategy, including gold bullion. But the Federal Reserve has stated that it plans to leave monetary policy in an extremely easy condition all the way to 2016—if not further.
The last point regarding gold bullion is the investment strategy shift by the mining companies themselves. At the end of the day, supply and demand is extremely important for the price of gold bullion.
Mining companies have begun reducing expansion, cutting back on projects and focusing on the most lucrative assets. This means that over the next few years, there will be a far less supply of gold bullion coming onto the market.
However, the investment strategy of many nations is to continue accumulating physical gold bullion. I’m sure you’re all aware that China has not stopped accumulating gold bullion, and I believe it is using the current pullback as part of its investment strategy to continue exchanging paper money into physical gold bullion.
Over the short term, the market can move all over the place. But looking at the fundamental drivers of gold bullion, in my opinion, I think incorporating some precious metals at current price levels as part of a long-term, diversified investment strategy definitely makes sense.
This article Why the Sell-Off in Gold Bullion Is Based on Faulty Logic was originally published at Investment Contrarians
By Sasha Cekerevac, BA
www.investmentcontrarians.com
Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”
About Author: Sasha Cekerevac, BA Economics with Finance specialization, is a Senior Editor at Lombardi Financial. He worked for CIBC World Markets for several years before moving to a top hedge fund, with assets under management of over $1.0 billion. He has comprehensive knowledge of institutional money flow; how the big funds analyze and execute their trades in the market. With a thorough understanding of both fundamental and technical subjects, Sasha offers a roadmap into how the markets really function and what to look for as an investor. His newsletters provide an experienced perspective on what the big funds are planning and how you can profit from it. He is the editor of several of Lombardi’s popular financial newsletters, including Payload Stocks and Pump & Dump Alert. See Sasha Cekerevac Article Archives
http://www.marketoracle.co.uk/Article43132.html
Yellen - a - mania
Nov.14, 2014
Market Anthropology
Although we don't really subscribe to the notion that an extension of the taper or further easing by the Fed is gold and silver's primary motivation these days (see 3 year returns for gold & silver since QE2+), we couldn't help ourselves as the miners set-up in the elusive Hulkamania formation as the feisty future Chairwoman made her first substantive policy remarks since being nominated by President Obama in October.
(In our best Hulk)
Sister - what could go wrong?
As he use to say, "To all my little Hulkamaniacs, say your prayers, take your vitamins and you will never go wrong. "
Clearly Hulk was also a Keynesian.
http://www.marketanthropology.com/2013/11/yellen-mania.html
The Unspoken, Festering Secret At The Heart Of Shadow Banking: "Self-Securitization" ... With Central Banks
Tyler Durden's picture Submitted by Tyler Durden on 11/15/2013
Zero Hedge
By now everyone has heard of securitization: the process whereby banks take risky assets on their books, package, tranche them, and then re-sell them to yield chasing fiduciaries of widows and orphans. The conversion process can be nebulous, usually involving a 20 year-old evil French mastermind working for Goldman, and a billionaire hedge fund manager, who select the worthless securities put into the weakest tranche, just so the abovementioned two parties can short it while misrepresenting their conflicts of interest, and make a boatload of money when the whole securitized structure implodes. The process usually takes place "off balance sheet" via Special Purpose Vehicles so it is completely unregulated, and as such allows massive leverage.
According to many, the hidden leverage embedded in the securitization pipeline is what catalyzed the 2008 near-death experience of the financial markets.
All of this is well-known to most.
What however is certainly not known, because until a few days ago the concept did not technicall exist, is what emerged deep from the bowels of the FSB's 2013 "Global Shadow Banking report", and what is barely even defined anywhere in popular literature, which thus we have defined as the "unspoken, festering secret at the heart of shadow banking."
Presenting self-securitization.
What is "self-securitization"? Go ahead and Google it: there doesn't exist any technical definition of this heretofore unheard of phrase.
Rather the term, conceived by the FSB as a means of making the total size of the $71 trillion shadow banking sector somewhat more palatable, is defined as follows:
Self-securitisation (retained securitisation) is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the Structured Finance Vehicle (SFV) for all tranches are owned by the originating bank and remain on its balance sheet.
At this point alarm bells should be going off. And if they aren't, here is some more color.
The numbers for OFIs presented in sections 2 to 4 of this report include all financial assets of Structured Finance Vehicles (SFVs), regardless of who holds the securitised products. However, in a number of jurisdictions, some of these products are returned back onto the balance sheet of the bank that originally provided the asset to be securitised. This so called self-securitisation, or retained securitisation, is defined as those securitisation transactions done solely for the purpose of using the securities created as collateral with the central bank in order to obtain funding, with no intent to sell them to third-party investors. All of the securities issued by the SFV for all tranches are owned by the originating bank and remain on the bank’s balance sheet, so that third-party investors do not own any of the securities issued by the SFV. These assets should not be included in the shadow banking figure, as prudential consolidation rules consider them as banks’ own assets and as such subject to consolidated supervision and capital requirements.
... some of the assets that are currently ‘self-securitised’ by banks may at some point be sold to third parties when financial conditions improve.
Wait a minute: a company is "securitizing" assets.... which it then keeps, but only after it has "obtained funding with a central bank"? What?
Judging by the countries whose shadow bank institutions are the most aggressive participants in "self-securitization", it gets clearer just what is going on here:
While Italy and Spain are clear, why is Australia on this list?
While the large increase in Australian banks’ self-securitisation of residential mortgage-backed securities (RMBS) started in 2008 (i.e. before Basel III was developed), the amount of self-securitisation is expected to stay high going forward as these securities are eligible as collateral for the Reserve Bank of Australia’s Committed Liquidity Facility (CLF). Indeed some banks are gearing up already for the CLF. Given the low level of government debt in Australia, the Australian prudential regulator has adopted elements of the Basel rules that allow banks to count a committed liquidity facility provided by the central banks as part of their Basel III liquidity requirements.
So that very strict Basel III requirements are permissive enough to allow... shadow "banks" to engage in self-securitization with their central bank? Just brilliant.
Finally, what amount of circularly (non) securitized, central-bank backstopped securities are we talking here?
[img]www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/11/Self%20Sec%201.2%20tr_0.jpg
[/img]
Answer: $1,200,000,000,000.
That is the amount of unlevered notional that shadow (and regular) banks engage in circular check-kiting games with central banks for, and in the process obtaing "funding." As one trading desk explained it:
you take yr worst assets... package up in an spv (which removes em from yr gaap balance sheet) then flip to central bank for cash at modest haircut and boom revenues...
And presto: magic balance sheet clean up and even more magical "revenues."
But wait, there's more (spoiler preview: take the above quote and put in on constant rewind)
Where this mindblowing, circular scheme in which riskless central banks serve as secret sources of incremental bank funding, i.e., free money, gets completely insane, is the realization that these self-securitized assets can also participate in rehypothecation chains. Recall from our exposition yesterday on the permitted leverage resulting from collateral reuse in a repo chain which is fundamentally what shadow banking is all about: unregulated, stratospheric leverage.
We added:
So... three participants result in 4x leverage; four: in roughly 6x, and so on. Of course, these are conservative estimates: in the real, collateral-strapped world, the amount of collateral reuse, and thus the number of participants is orders of magnitude higher. Which means that after just a few turns of rehypothecation, leverage approaches infinity.
Which means that should these same banks that self-securitize with Central Bank X, then proceed to re-use the same security with the same counterparty - i.e., their host central bank, or the Fed of course - then this $1.2 trillion in assets, already carried off-balance sheet with Basel III's blessings, can get 2x, 3x, 5x, 8x, 13x or more turns of leverage on them, as for the shadow bank it is the central bank that is the (up to infinity) levered counterparty. And the central bank, as everyone knows, can always just print money if and when the worthless collateral backing the bank's self securitization ends up worthless.
The implication of this unprecedented shadow banking circle jerk, which could very easily make even the direct wealth transfer resulting from trillions in QE pale by comparison, is so stunning that we leave it up to the reader to come to their own conclusion.
http://www.zerohedge.com/news/2013-11-15/unspoken-toxic-secret-heart-shadow-banking-self-securitization-central-banks
The Economics of ObamaCare
Nov 14, 2013 - 06:18 PM GMT
By: Robert_Murphy
Near the end of Human ActionLudwig von Mises declared that it was the “primary civic duty” to learn the teachings of economics. The public’s growing furor over the Patient Protection and Affordable Care Act — popularly known as “ObamaCare” — beautifully illustrates Mises’s point. No one has any business being shocked — shocked! — thatmillions of Americans will losetheir current health insurance (including the present, irritated, writer), because such an outcome was obvious all along. Furthermore, the hilarious snags with healthcare.gov are merely a sideshow; the true problems with ObamaCare run much deeper than a malfunctioning website.
The Basic Structure of “ObamaCare”
The Affordable Care Act (ACA) was formally signed into law on March 23, 2010. There are numerous provisions that kick in at various stages, through 2020. For our purposes in this article, there are four key elements of the ACA that merit our attention:
* Insurers are legally required to provide coverage to all applicants, regardless of medical history, with a partial “community rating” system for premiums, which means that insurers must set premiums based (mostly) on geography and age, rather than sex and (most) pre-existing conditions.
* Health insurance policies must meet minimum standards (called “essential health benefits”), including no caps on annual or lifetime payments from the insurance companies for an individual policy.
* Everyone is required to obtain health insurance, except for waivers granted for certain religious groups and those deemed to be unable to afford coverage. Government subsidies and state-based “health exchange markets” will be provided to assist individuals.
* An “employer mandate” penalizes firms with 50 or more employees if they do not offer coverage for their full-time employees, defined as those working 30 or more hours per week.
Intended Consequences
There are reasons for the particular provisions above, which sound superficially sensible (if you don’t know much about economics). Obviously, before the passage of the new law, there were millions of people without health insurance coverage. Although many of them were young and healthy — thinking they could risk going without coverage — many of them wanted coverage but couldn’t obtain it, either because of the price or an outright refusal of coverage because of a pre-existing condition.
Now, given that the government wanted to mandate that health insurers provide coverage to all applicants, there had to be specific rules on what premiums they could charge, and minimums on the type of policies offered. Otherwise, the health insurers could say, “Fair enough, President Obama, we will indeed give a policy to any applicant — even someone with brain cancer. It’s just that the annual premium for people with brain cancer will be $2 million, and we will cap our total payment at $100 per year. Who wants to sign up? We’re more than happy to comply with the new mandate.”
Moving down the list, let’s consider the individual mandate, which requires that (just about) every American carries health insurance. The reason for this provision is to avoid what’s known as adverse selection. If health insurers were required to provide coverage to all applicants, with (partial) community rating, and if individuals retained the freedom to buy coverage or not, then the private health insurance companies would quickly go out of business. Healthy people could drop their coverage, saving on the hefty premiums each year, and then apply for health insurance whenever they got sick. This would be analogous to people buying car insurance only after they’d gotten in an accident; it clearly wouldn’t work for any firm to offer insurance in this environment.
But, given that the government is going to mandate that (virtually) all individuals obtain health insurance, it was necessary to offer subsidies and other mechanisms to make sure this mandate was feasible.
Finally, the employer mandate was ostensibly included, in order to minimize the disruption to the existing system. In the absence of an employer mandate, people feared that employers would drop their original health insurance plans, telling their employees to sign up at the state-based “health exchanges.”The reason for limiting the employer mandate to large firms (50 or more full-time employees) and their full-time employees (those working 30 or more hours) is that it would be unreasonable and counterproductive to impose such expensive requirements — which could be thousands of dollars annually, per worker — on small businesses or even a large firm concerning only its part-time workers.
The “Unintended” But Entirely Predictable Effects
We are now seeing many of the undesirable effects of the ACA. These are typically being described as “unintended.” However, this adjective is a bit of a misnomer, since these outcomes were entirely predictable, and in fact were predicted by many free-market economists in the debate leading up to the passage of the ACA. Cynics can justifiably speculate that at least some of the proponents of the ACA knew full well the outcome would be untenable, leading the public to embrace even more federal intervention in health care down the road.
The most obvious result is a large spike in premiums for many people, once the mandates on health coverage are fully phased in. The biggest hit will occur in places that right now offer bare-bones catastrophic policies with large deductibles and low caps. For example, according to this CNN article, officials in Florida estimated that the premiums on a “silver” plan would rise anywhere from 7.6 percent to 58.8 percent, while officials in Ohio estimated an average increase of 41 percent.
Now even if the official amount that certain individuals pay for their health insurance goes down, the real question is whether this is more than offset by the increase in taxes necessary to cover all of the new subsidies to poor individuals who cannot afford to meet the individual mandate. Step back and look at the big picture: Under the ACA, suddenly millions of new people are going to be seeking more medical care than they did before. There’s nothing in the new law that will magically create more doctors, hospitals, or MRI machines. Americans in general are going to pay for this, one way or another. Indeed, the huge increase in government responsibility for health spending will provide the justification for government-imposed rationing down the road — as even Paul Krugman acknowledges when he cheekily calls for death panels. (Really, click on the link to see the video if you don’t believe me.)
“But the President Said I Could Keep My Plan …”
Another predictable outcome is that many Americans will not be able to keep their previous plan. Millions of Americans who bought insurance in the individual market (i.e., not via their employer) will find that their plan doesn’t meet the standards of ObamaCare. To keep premiums down, relatively young and healthy, self-employed individuals had “catastrophic” plans with high deductibles. These are no longer legally allowed. According tothis Forbes article, as far back as 2010 (sic!) Obama officials were projecting that 93 million Americans had health insurance plans that would be unacceptable under ObamaCare.
Job Losses
Besides rate hikes (and ultimately, government rationing of medical care), another major downside of the ACA is the job losses it will cause. For example, here is an email that a fellow economist sent to Greg Mankiw of Harvard:
With the implementation of the ACA (Affordable Care Act) these institutions are giving notification to their part-time faculty that their individual teaching schedules will now be limited to three sections. At the college this will likely result in the cancellation of 20-25% of the class sections in economics, and I would assume other areas will have a similar result. The students are not fully aware of the situation and many will be surprised that their desire to get a college education is now being impacted by the need to avoid the full implementation of the ACA. [Emphasis added]
Even some labor leaders recognize the devastation ObamaCare would wreak on workers, protesting to the government that it would “destroy the foundation of the 40-hour work week.”
This isn’t rocket science, as they say. If the government has to force employers to provide a benefit to their employees, it means it’s unprofitable; otherwise the employers would have already done it as part of their compensation package in order to attract quality workers. So if this costly, unprofitable employer mandate only applies to firms with 50 or more employees, and even then only applies to those employees who work 30 or more hours, then we shouldn’t be shocked — shocked! — to discover firms not growing past 49 employees, and/or limiting people to 29 hours per week.
Register for “The Economics of Obamacare” here.
Robert Murphy, an adjunct scholar of the Mises Institute and a faculty member of the Mises University, runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, the Human Action Study Guide, and The Politically Incorrect Guide to the Great Depression and the New Deal. Send him mail. See Robert P. Murphy's article archives. Comment on the blog.
http://www.marketoracle.co.uk/Article43124.html
Yellen on gold: “People want to hold (it) when they’re very fearful”
November 14, 2013, 3:40 PM
Blogs.marketwatch.com
While Janet Yellen’s testimony suggests she’ll stick to the Federal Reserve’s current playbook, Sen. Dean Heller thinks she’s different — better, actually — when it comes to analyzing gold prices.
Heller, a Nevada Republican, said he liked her take on the yellow metal better than Ben Bernanke’s.
At Yellen’s confirmation hearing on Thursday, Heller asked the Fed chair nominee whether she follows gold prices and what causes them to rise or fall.
“Well, I don’t think anybody has a very good model of what makes gold prices go up or down,” Yellen responded.
“But certainly it is — it is an asset that people want to hold when they’re very fearful about potential financial market catastrophe or economic troubles and tail risks. And when there is financial market turbulence, often we see gold prices rise as people flee into them.”
Heller followed up with this statement: “Well, that was a better answer than I got from Chairman Bernanke last July. I asked him the same question, and he said that nobody really understands gold prices, and he went on to say, and I don’t pretend to really understand them either.”
The Twitterverse certainly had some fun with Yellen’s take on gold:
After Bernanke’s soundbite on gold in July, MarketWatch’s Commodities Corner column suggested what he should have said instead: Gold is difficult to understand and it takes a lot of work to analyze the factors and their influences on the precious metal.
Wonder how Heller and other lawmakers might be linked to gold and the mining industry? The blog Open Secrets provided a nice roundup earlier this year.
Also worth noting: Gold settled higher on Thursday for the first time in six sessions.
–Victor Reklaitis
Follow Vic @vicrek
Follow The Tell @thetellblog
http://blogs.marketwatch.com/thetell/2013/11/14/yellen-on-gold-people-want-to-hold-it-when-theyre-very-fearful/?mod=sfmw
China Running Out Of Economic Gold Mining Reserves
Nov 14 2013, 11:39
Russ Winter
Disclosure: I am long OTC:OTC:LYDIF, VGZ. (More...)
(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
First order of business is that the Chinese stepped it up in Shanghai last night, trading 16,105 kg Au and 38,650 Au (T+D). Going forward, I think I will report this as T+D as the composition of activity has shifted of late. As importantly, 17,916 kg was delivered. That is roughly 702,500 oz. That brings it to over 2.5 million oz in the last four sessions since the phony economic numbers and the Lockhart Pinocchio routine.
Shanghai delivered more gold in just one session than the so called Comex "market" has registered to cover about 400,000 paper futures contracts. There seems to be such a quick and aggressive response to these paper attacks that it makes me wonder who is conducting them. Do the Chinese use agents on the phony Comex to flush out physical gold? I have no evidence or strong opinion. I'm just asking.
China's domestic mining industry does produce a lot of gold. For 2013, it is estimated to be 440 tonnes. I believe this is largely sold directly to the PBoC. However, China and its miners have a serious problem. Remaining mineable reserves are put at 1,900 tonnes. So unless China can turn up some major discoveries - and they have been somewhat unsuccessfully looking - then they have less than five years of production remaining.
A few months ago, Bloomberg ("China Gold Mine Deals") discussed the Chinese appetite for foreign acquisitions. Where possible, Chinese firms don't want to buy up gold on the open market, as the profits are greater with mining. From the Bloomberg article:
Financing is often easier for Chinese commodities companies compared with rivals overseas, Jake Klein, chairman of Evolution Mining Ltd., said in an interview: "They have access to cheaper, vast pools of capital, they are going to be competitive," said Klein, who previously ran gold mines in China. Zijin said in November 2012 it had received 30 billion yuan ($4.9 billion) in loans from the state-controlled China Development Bank's Hong Kong and Fujian units for overseas acquisitions.
"China's government has urged national gold producers to boost development of overseas resources in neighboring countries and in Africa and Latin America, according to its 12th Five-Year Plan which ends in 2015.
'There are some good bargains out there, and things that are too good to pass up on,' said James Wilson, a Perth-based analyst at RBS Morgans Ltd. and a geologist who has worked in Australia, Africa and China.
Acquisitions by China's gold mining companies reached a record this year as the metal's steepest quarterly drop in more than nine decades slashed mine values and sidelined Western competitors laden with debt. Takeovers and asset purchases by producers based in China and Hong Kong rose to a record $2.24 billion this year, beating last year's record $1.96 billion, according to data compiled by Bloomberg. Zijin Mining Group Co., the world's seventh-largest gold company by market value, and Zhaojin Mining Industry Co. are among companies looking to strike. Although Chinese miners don't overpay, they will act and might be the primary player initially.
Targets would include Australia, where business-friendly conditions make it a priority for Chinese direct investment, according to a recent HSBC survey. I think Vista's (VGZ) Mt. Todd, valued by the "market" as cow pasture, would be a great Chinese acquisition or partnership.
A source of Chinese deals done in 2011-2012: Casey Research. They are apt to go with frontier locations, such as Africa. I think Lydian in Armenia could be bought at a bargain price, say three times its current level.
In December 2011:
-- China Gold International Resources Corporation bought a gold mine in Central Asia, and is reported to be looking at Canada and Mongolia for its next targets. (It bought Canadian gold miner Jinshan a few years ago.)
-- The Chinese took control of A1 Minerals, a gold exploration and production company, and renamed it Stone Resources Australia.
-- Shanghai investors bought a controlling stake in the Australian-owned Zara gold project in Eritrea.
In April 2012:
-- Sovereign Gold Partners, along with Jiangsu Geology and Engineering, paid $4 million for a 30% interest in two gold tenements (an area of land in Australia where the holder may conduct exploration or mining activities). By November 2012, the firm increased its funding to fast-track exploration and development of the projects.
In August 2012:
-- A subsidiary of Zijin Mining Group (China's top gold producer by output) bought more than 50% of Norton Gold Fields, acquiring a large, operating gold miner.
-- China National Gold Corporation announced a $3.9 billion bid to acquire African Barrick Gold, Tanzania's largest gold miner. Barrick held out for too much and China National walked, but this is still out there. I hold African Barrick.
Between September and December 2012:
-- China's Shandong Gold Group announced its intention to purchase 51% of Australian gold miner Focus Minerals, which has four active mines in Western Australia.
-- China-based Western Mining Group, through its subsidiary, bought all of the outstanding shares of Inter-Citic Minerals, a Canadian-based gold exploration and development company.
Just the three most recent acquisitions (Focus Minerals, Norton Gold Fields and Inter-Citic Minerals) contain 12.5 million ounces of gold resources.
http://seekingalpha.com/article/1839732-china-running-out-of-economic-gold-mining-reserves
Friday Charts: The Death Of TV, Annoying Politicians And The Most Unexpected Economic Stimulus Plan
Nov 15, 2013, 06:00
Lou Basenese
includes: GAS, IYT, NFLX, UNG
It's Friday in the Wall Street Daily Nation! That means the long-winded analysis is out. (Hallelujah!) And some carefully selected charts are in. (Amen!)
So without further ado, check out these snapshots that show the big thorn stuck in small business' side; how a single penny can provide $1 billion in economic stimulus; and the latest technological fad sweeping the nation - courtesy of the internet.
The Blame Game
I've featured the NFIB Small Business Optimism Index here before. So what's the latest reading tell us? Even when Washington is closed, politicians are still a major problem.
(click to enlarge)
In the latest survey, taxes and government regulations topped the list (again). Combined, the two categories ranked as the biggest problems facing 41% of small business owners. Third in line? Poor sales.
As Bespoke Investment Group noted,
It doesn't say much for the business climate in the United States when businesses are two and a half times more worried about how the government is going to regulate and tax them than they are about actually moving merchandise.
No, it doesn't.
Imagine for a moment what the economic recovery would be like if the government would just move and get out of the way. I know - not going to happen. So let's get back to reality…
No More Pain At the Pump
I'm pretty sure every American noticed that average gasoline prices are down more than 15% since February.
What many probably don't realize, though, is that every penny of lower gas prices per gallon yields $1 billion in economic stimulus, according to Deutsche Bank's Joe LaVorgna.
(click to enlarge)
If the price drops continue, look for consumer confidence and holiday spending numbers to perk up. Falling oil and gas costs promise to provide a lift to the transportation sector, too, making the iShares Transportation ETF (IYT) a timely investment.
Video Killed the Radio Star… and the Internet Killed TV
The internet relegated print media to insignificance. And it's about to do the same to traditional television.
More than five million Americans have already "cut the cord." That is, they ditched traditional pay television services in favor of online content from the likes of Hulu, Netflix (NFLX), Aereo, YouTube, Amazon Prime, iTunes video and Google Play. The trend is accelerating, too, according to new data from analyst Craig Moffett.
(click to enlarge)
From August to September, cable TV subscriptions dropped by 687,000. Meanwhile, the 800-pound gorilla in the online streaming industry, Netflix, notched another strong quarter of growth - adding 1.3 million subscribers.
So for every one American who ditched cable TV, almost two signed up for Netflix. The investment implications couldn't be clearer: Go short cable television and long video streaming.
That's it for this week.
http://seekingalpha.com/article/1842522-friday-charts-the-death-of-tv-annoying-politicians-and-the-most-unexpected-economic-stimulus-plan?source=email_authors_alerts&ifp=0
Gold And Silver: How To Trade The Pressure.
Nov 14 2013, 13:30
by: Itinerant
Disclosure: I am long AG, SLW, SVLC, AEM, EXK. (More...)
Prior to the ECB meeting last Friday fellow author, Hebba Investments, has published an article on the situation in Europe and how it could influence the price of gold. The thesis was, that any indication of softening in the European monetary policies would kindle fears of inflation setting off a flight to safety, to be found first and foremost in ownership of gold (GLD), (PHYS) and silver (SLV).
The ECB surprised many with the decisive measures proclaimed after this meeting. Interest rates were lowered to historic lows and concerns about deflation were voiced.
According to the quoted article this should have fired up the gold price. However, the exact opposite turned out to be the case.
The obvious fundamental explanation is of course, that these measures weakened the Euro currency against the US Dollar (UUP). And a relatively stronger US Dollar tends to put pressure on GLD more often not. The leveraged inverse correlation between the dollar index, or UUP, and GLD is quite obvious for the past month (as shown in the chart below) and well beyond.
To be fair, the European announcement was exacerbated by the jobs report in the US one day later which signaled a better than expected employment situation in the USA. In fact, your humble scribe silently suspects that the ECB announcement was the side event here priming American investor sentiment for the real show that was of course centered on events closer to home.
One can never underestimate the importance of events outside the US, we have learned to caution ourselves.
UUP data by YCharts
But what about inflation fears? Well, there ain't any. It's deflation that is putting the fear of beejesus into financial experts at the moment. Inflation might come later; or quite likely, much later. But for now, deflation is the topic of choice in Europe and elsewhere, thus the rate cut.
After a week or two of strained sideways trading prior in the lead-up GLD sentiment swung to the bearish side when these two announcements came out. GLD broke through $1,300/oz support and was settling in at under $1,280/oz at the time of writing.
So far, so good concerning the post mortem. But where are proceedings developing from here?
Our favourite gold sentiment oracle has not spoken this past weekend, and so we are left to our own devices. Thankfully we own a crystal ball that is hardwired into investor sentiment and we are happy enough to share our interpretation of its latest mumblings with our readers. A word of caution may not go astray here since this crystal ball does have its share of blind spots which have led it to make some rather incorrect calls at times in the past.
The way we read precious metals investor sentiment at the moment is as follows. A test of $1.251/oz of gold might well be in the cards (that would be $121.85 in GLD terms). If this does not hold, and we do sense that bears might be strong enough to break through this level, then a re-test of June lows will quickly become a strong possibility. Last week's action seems to confirm that we are indeed in the midst of a bearish wave-5 move (speaking in Elliot wave terms of course) which should take us South in coming days. A re-gain of the $1,300/oz level would force us to re-consider our thesis.
In this context it is interesting to note that gold miners (GDX) have not joined the move downwards in GLD, just yet. Sentiment among the mining investors seems to be more positive than among traders of the actual metals (or its paper counterparts).
The chart below shows that GDX has been trading largely flat(ish) since the start of November steadily opening a gap on the upside of the price of GLD. This could mean one of at least two things:
1. We are wrong and GLD will return to a bullish posture soon and GDX is merely in a waiting pattern until GLD re-composes. So let us be mindful of the mentioned $1,300/oz resistance. A break of this level to the upside would indicate this scenario in our opinion.
2. We are correct in our bearish near-term outlook for GLD and the gold miners are a coiling spring ready to propel share prices of god miners south-wards as GLD tests $1,251/oz support.
GLD data by YCharts
And here is how we intend to trade this situation:
As explained, we expect a test of the stated support for gold at $1,251/oz in the near future. We have therefore lightened up on GLD keeping only our physical position and we have also lightened up on the precious metals miners and GDX.
In the (unexpected) event that GLD breaks to the upside of $1,300/oz we plan to buy a staple of mining stocks (see below for suggestions) or simply GDX.
Any indication of a crumbling of the mentioned GLD support will lead us to believe that gold miners are about to be dragged South by the metal price and we will quite likely take a short-term position in the Direxion Daily Gold Miners Bear 3x Shares ETF (DUST).
Not so well known DUST amplifies moves of the gold mining sector, but in the inverse direction. In other words, if gold miners decline, DUST thrives - and vice versa. Caution is advised with this particular instrument since it is very volatile. It's often a good idea to exit early and watch DUST settle from the sideline.
Once our DUST position is unwound and signs of a bottom are showing we intend to re-deploy some funds into value mining stocks. Among these mining stocks we count for example First Majestic Silver (AG), Endeavour Silver (EXK), Silver Wheaton (SLW), Silvercrest (SVLC) or Agnico Eagle (AEM).
The mentioned mining stocks have clean balance sheets, functioning cash flow even at depressed price levels; and these companies have structured costs to survive in the present environment. We expect these stocks to perform even if a bottom takes longer to establish than we anticipate.
And if GLD and SLV finally conclude the present wave down and start another meaningful leg upwards again then these stock picks should provide some healthy returns. Now, wouldn't that be welcome for a change?
http://seekingalpha.com/article/1840402-gold-and-silver-how-to-trade-the-pressure?source=email_authors_alerts&ifp=0
Jim Rogers Warns of "Serious Collapse" of Financial Markets in Interview With Birch Gold Group
Legendary investor and financial commentator tells Birch Gold Group that everyone should own precious metals as an insurance policy against a stock market crash and the declining dollar.
Burbank, CA (PRWEB) November 14, 2013
Jim Rogers reveals why "everybody should own some precious metals as an insurance policy."
" We've got to stop this, this is going to be bad!"
"We're all losing the currency wars," says legendary investor Jim Rogers in an exclusive interview released by Birch Gold Group. And he predicts that "as long as the politicians can continue to print money," the problem will get worse.
The bestselling author and Wall Street expert asserts that everyone should own precious metals as an "insurance policy" against the potentially catastrophic consequences caused by the Federal Reserve's policy of Quantitative Easing. Rogers told the precious metals company that the central bank's monetary policies will cause U.S. currency to become "more and more worthless." But the situation will deteriorate even further once the Fed begins to taper their trillion-dollar purchase of assets each year, causing the markets to plummet.
"Eventually the markets will just say, 'We're not going to play this game anymore,' and we'll have a serious collapse," Rogers claims. "I wish the politicians were smart enough at some point to say, 'We've got to stop this; this is going to be bad.' But unfortunately they never have, and probably never will … Nobody wants to go down as causing the collapse of the world."
The collapse may not happen all at once, Rogers told Birch Gold Group, which helps investors protect their savings with physical gold and silver, also as part of Precious Metals IRAs. But as the Fed continues to taper back its "stimulus," the markets will steadily drop further and further until a collapse forces a complete reset.
"Eventually [the Fed] will try to cut [Quantitative Easing]; it will finally cause the collapse," he says. "At that point, we will have a big change, because they will throw them out, whether it's the politicians or the central bankers or whoever … and then we'll finally start over. But it may be really painful in the meantime."
Investing in gold and other precious metals, Rogers says, can provide protection against the turbulence ahead.
"I've owned gold for many years. I've never sold any gold and I can't imagine I ever will sell gold in my life, because it is somewhat of an insurance policy," he says. "Everybody should own some precious metals as an insurance policy. So, if they don't have any right now, I would urge them to go buy something."
"If they do their homework, most people will then realize, 'Oh my gosh, I better have insurance, and gold and silver may get me through serious problems ahead.'"
Ultimately, to Rogers, "Nobody ever wins a currency war. Everybody loses in the end."
The full audio and transcript of Birch Gold Group's exclusive interview with Jim Rogers can be found at BirchGold.com: http://www.birchgold.com/jim-rogers-interview-qe-currency-gold-inflation/
For more information on Birch Gold Group or its precious metals investment options, please call (800) 355-2116 or visit http://www.birchgold.com.
---
About Birch Gold Group
Birch Gold Group, the Precious Metal IRA Specialists, is a leading dealer of physical gold and silver in the United States. The company helps people protect their hard-earned savings with investments in precious metals; clients do this by taking physical possession or by moving an existing IRA or 401(k) to an IRA backed by gold and silver. Birch Gold Group maintains an A+ Rating with the Better Business Bureau (BBB) and is the only precious metals dealer that is a member of the Retirement Industry Trust Association (RITA). For press inquiries or more information on Birch Gold Group, please call (800) 355-2116.
About Jim Rogers
Jim Rogers is an American investor and author of several books, including his most recent work, "Street Smarts: Adventures on the Road and in the Markets." A graduate of Yale University and Balliol College at Oxford, Rogers co-founded the Quantum Fund with George Soros, a global-investment portfolio that gained more than 4,000 percent in its first 10 years. Rogers also served as a professor of finance at the Columbia University Graduate School of Business and has provided financial commentary on numerous news media outlets, including CNBC, Fox News, and CNN, among others. He is currently the chairman of Rogers Holdings and Beeland Interests, Inc.
Which bubbles will burst the worst?
By Martin Hutchinson
Nov. 12, 2013
Last week the hedge fund SAC was fined US$1.8 billion and will revert to running Steve Cohen's family money only - still a big job, since he's worth some $8-9 billion. This raises the question of which forms of investment will be exploded by the next market downturn, just as were subprime mortgages and complex securitizations by the 2008 unpleasantness.
Guessing what the next downturn will look like and which forms of wealth will suffer permanent rather than temporary diminution in value is the most important task facing investors as we approach the top of the current bubble.
After the 2000 bubble burst, the value downturn was almost entirely in equities, and a tiny subset of equities at that. While the main share indexes declined less than 50%, and were above their previous peaks within six years, the Nasdaq is still 13 years later more than 20% below its 2000 peak of 5,048, a loss of more than 40% when inflation is taken into account.
For individual companies, the decline was more comprehensive. Microsoft (Nasdaq:MSFT) and Cisco (Nasdaq:CSCO) are both more than a third below their 2000 highs, even though their assets and profits are much greater than they were in 2000. Some companies have had much steeper falls; the switchgear specialist JDS Uniphase (Nasdaq:JDSU), valued well over $100 billion in 2000, now has a stock price of little more than 1% of its high, even though the company's operations remain solidly profitable and its P/E ratio is still elevated at 45 times earnings. Finally, a few companies that had taken excessive advantage of easy money and easy ethics went outright bankrupt, the most prominent being Enron, WorldCom and Global Crossing.
Other types of asset saw only a modest downturn after 2000. Emerging market stocks had already been beaten down in 1997-98, so the 2000 crash saw only a hiccup in the beginnings of recovery. The hedge fund that had sold all its tech holdings in March 2000 and reinvested in Russia and Indonesia would have truly deserved its management's exorbitant fees. Gold and silver too were close to their bottom in 2000, and would prove an excellent investment over the next decade.
For small investors, here's a tip. It's true most of the time, but it's overpoweringly, Biblically true at the top of a bull market: the best investment going forward is not the best-performing fund among a broad family of mutual funds, based on 1-year, 3-year and 5-year track records, but the worst-performing fund, which is almost certainly close to a cyclical low and will shortly rebound sharply.
The next time around in 2007-08 the casualty list was quite different. There were no significant losses in the tech sector, other than stock market declines that were mostly made up when the market recovered. Again, emerging markets were little affected - the world central banks' policies of ultra-easy money soon reflated their balloons.
US house prices declined, by as much as 50% in some over-inflated markets, but real estate in general suffered only modest losses - General Growth, the shopping center operator that went bust in 2009, was soon refloated. General Motors and Chrysler filed for bankruptcy, but those bankruptcies, like the frequent bankruptcies in the airline sector, reflected long-term lack of profits rather than any bursting bubble.
The biggest permanent losses of value were suffered in three areas: housing bonds and the associated securitizations, the financial sector and the PIIGS - Portugal, Ireland, Italy, Greece and Spain - in Europe. All three losses were directly linked to excesses of the preceding bubble. Lending practices in the home mortgage sector had deteriorated to unsustainable levels, largely owing to government encouragement by housing legislation and the Federal Reserve, and that bubble had been further encouraged by the practice of securitization and associated derivatives games. The result was a bust that had been inevitable, but was made much worse by government and Wall Street malfeasance.
The financial sector's losses were largely a spin-off of the losses in the housing sector, but strictly reflected a bubble of easy money and unsound derivatives innovation rather than the housing bust directly. Credit default swaps in particular were poorly managed, dominated by rent-seeking trading practices, and should have caused a lot more damage than they were allowed to (if they had caused more damage in 2008, they would not still be around to plague us in 2014-15).
Finally, the losses in peripheral Europe resulted from the unsound self-deluding structures surrounding the establishment of the euro and the admission of Greece to the European Union. Greece, in particular, had been allowed to become a subsidy junkie and had driven its living standards up to unsustainable levels. Its gross domestic product (GDP) per capita needed to halve, and it could do not do so within the euro without intolerable levels of deflation.
Interestingly, the Baltic states, also ahead of themselves in living standards in 2007, were able to solve their problems through deflation alone - the living standards excesses were less than Greece's and the internal discipline was much better.
The other PIIGS: Ireland, Italy, Spain, Portugal, and now Slovenia, had only a mild version of Greece's problem, so only a bearable deflation and possibly a modest debt write-off should see it solved.
The sectors self-destructing this time round will be those showing most excesses in this bubble, which are not the same as the excesses of the two previous bubbles. Housing is unlikely to cause another major problem directly, at least in the United States, because it hasn't recovered far enough, although the bloated and overblown London housing market, where prices are now above those of 2007, seems certain to crash.
Most emerging market countries have managed their finances much more carefully than Western countries, so are unlikely to see more than modest problems, although every year this bubble lasts will increase the numbers of emerging markets that get into difficulties - the temptation to spend the money being thrown at them is too great.
Finally, commodity prices have fallen back a long way from their 2011 peaks; unless that bubble reflates rapidly it is unlikely to cause much trouble - the underlying driver of strength, growth in emerging markets relative to developed ones, is a long-term trend that is not going away.
Having listed assets that won't suffer a meltdown when the current bubble bursts, it is a melancholy fact that the list of assets that will melt down is much longer.
First, there are the assets located in the BRIC economies of Brazil, Russia, India and China. Far too much money has poured into these economies, drawn by their likely future wealth, but also by the foolish theory of BRIC domination perpetrated by Jim O'Neill of Goldman Sachs. These economies are already showing their cracks, but there's much more to come.
The Batista bankruptcy in Brazil is the first of many; both the consumer debt and government sectors in that ill-run country are hugely overblown and due for a credit crunch similar to that suffered in the 1980s.
In Russia, trouble will accompany an oil price collapse, caused by the plethora of new energy sources currently being developed; with oil at $40-50 a barrel, a perfectly reasonable long-term expectation, Russia's fiscal and economic position is hopeless.
In India, the economy is already showing signs of strain; it's most likely that fiscal and economic collapse, accompanied by a major balance of payments crisis, will be Congress's legacy to its successor in spring 2014, a poor recompense for the bright, reformist outlook Congress inherited at its unjustifiable election victory in 2004.
Finally, China's bank bad debt problem is now sufficiently large as to swallow even its $3.4 trillion of international reserves. The four BRICs may well have good long-term prospects, but they are due to suffer a grisly and costly decade before re-embarking on the road to prosperity.
The BRICs are only the tip of the cracking iceberg of bubble credit, albeit a very large one. The US junk bond market has prospered in the last few years with credit standards weaker even than in 2006-07 and interest rates at unsustainably low levels. When interest rates rise, holders of junk bonds will suffer gigantic losses, many of which will be unrecoverable as the underlying borrowers collapse in turn.
US mortgage real-estate investment trusts, or REITs, which buy long-term mortgage bonds, financing themselves in the repo market, will be a medium-sized casualty, with losses somewhere under $1 trillion, as short-term and long-term interest rates rise, collapsing their capital structures as bond prices decline. Their death will also kill off the repo market, which is rather more serious, as all kinds of entities depend on it for their short-term liquidity excesses and shortages.
To return to where we opened, hedge funds will also collapse, as their investment returns become heavily negative, their funding dries up and the legal vultures close in, as they have on SAC. The hedge fund and private equity sectors have grown far larger than is justified in a non-bubble economy; their return to their proper size will inevitably involve large losses for their investors. It's another bubble; therefore it must burst.
There will also be collapses in the too-big-to-fail bank sector. Here the losses and bailout of 2008 have made them more cautious, although they still employ trading desks that are far too large and aggressive for the genuine businesses of the banks. However in the last few months, governments have discovered the political joy of zapping big banks with penalty after penalty, mostly relating to malfeasances that should by now have passed beyond the five-year statute of limitations.
A financial system cannot survive continual looting raids by regulators and trial lawyers, out of proportion to any losses directly caused. At some point, one of the majors will find itself unable to attract either further capital or funding and will fail. That failure will drag the other largest banks with it, since they all have similar legal liabilities and are hopelessly intertwined. Only medium-sized banks may survive, since the politicians and lawyers have not yet targeted them to the same extent.
The tech sector, spared in 2008, will crash again this time. The hopelessly over-optimistic valuations given to the likes of Twitter and Facebook will collapse, as Internet advertising revenues prove finite, while teenage and young adult fashions move on from Facebook membership and tweeting to some other activity. This particular part of the movie we have seen before; it will involve only modest credit losses, but a substantial number of ex-billionaires will be created.
A wholly new credit crash will come in the area of college debt, which recently passed $1 trillion as students hocked themselves to the eyeballs to pay for overpriced college courses. With college courses now available for free or close to it over the Internet, much of the college infrastructure, and college debt infrastructure, is hopelessly overpriced malinvestment and will have to be liquidated. The process will be both painful and to the intelligentsia wholly unexpected.
Finally, government bonds are themselves a bubble, which will inevitably burst. However, only Japan's public debt is large enough in terms of the country's GDP to cause a bursting bubble in the next year or two. US, British and most EU public debt is still within historical norms in terms of GDP, although the accompanying deficits often aren't.
My crystal ball is thus clouded on whether the public debt bubble bursts this time around, or whether reflationary policies cause it to grow further, becoming an unimaginably damaging centerpiece of a collapse around 2020. Either way, when it goes it will take the entire banking system with it, because of the Basel regulatory structure's incredibly foolish zero-weighting of public debt in calculating capital needs.
As you can see from the above discussion, the universe of assets whose price will collapse in the next downturn is considerably better populated than the collection of assets whose price won't collapse. It is only a question of time, and if you asked me to guess, I'd put the collapse's onset in the fourth quarter of 2014.
Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found on the website www.greatconservatives.com - and co-author with Professor Kevin Dowd of Alchemists of Loss (Wiley, 2010). Both are now available on Amazon.com, Great Conservatives only in a Kindle edition, Alchemists of Loss in both Kindle and print editions.
(Republished with permission from PrudentBear.com. Copyright 2005-13 David W Tice & Associates.)
http://www.atimes.com/atimes/Global_Economy/GECON-01-121113.html