Sunday, October 31, 2010
By Gregory White:
Bill Gross of PIMCO has attacked quantitative easing as a "Ponzi Scheme," and charged the American public and our politicians, not Ben Bernanke, with fault.
The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need - as with Charles Ponzi - to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not. This one is so unique that it requires a new name. I call it a Sammy scheme, in honor of Uncle Sam and the politicians (as well as its citizens) who have brought us to this critical moment in time. It is not a Bernanke scheme, because this is his only alternative and he shares no responsibility for its origin. It is a Sammy scheme - you and I, and the politicians that we elect every two years - deserve all the blame.
While Gross isn't sure if QE 2 will work due to our liquidity trap predicament, he is sure who to blame for getting us into this mess. Gross targets the politics of the country at large.
Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn't a choice between chocolate and vanilla folks, it's all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath......read on
The mortgage & foreclosure scandal runs so deep that ordinary observers can conclude the US financial foundation is laced with a cancer detectable by ordinary people. The metastasis is visible from the distribution of mortgage bonds into the commercial paper market, money market funds, the bank balance sheets, pension funds under management, foreign central banks, and countless financial funds across the globe. Some primary features of the cancerous tissue material are mortgage bond fraud, major securities violations, absent linkage to property title, income tax evasion, forged foreclosure documents, duplicate property linkage to single mortgage bonds, NINJA (no income, no job or assets) loans to unqualified buyers, and more. In fact, more is revealed it seeems each passing week toward additional facie to high level and systemic fraud. The world is watching. The growing international reaction will be amplified demand for Gold, from recognition that the USDollar & USEconomy have RICO racketeering components extending to Wall Street banks and Fannie Mae mortgage repositories.
The centerpiece question, when the US bond fraud is coupled with European sovereign debt distress, comes down to WHAT IS MONEY? The answer is Gold & Silver and not much of anything else. Other assets like crude oil or farmland are effective hedges against tainted money, but when they contain debt tethers, they too are vulnerable. Huge flows of funds are fleeing traditional asset groups. Some mistakenly still believe the USTreasurys to be a safe haven. A shock of cold water comes to them when that bubble goes into reverse perhaps several months later after reaching 2% yields. The big magnificent epiphany in the last couple years has been that a house is not a hard asset, but rather a debt instrument extension. Important questions have arisen as to what assets are free from counter-party debt risk. The grand demands for physical gold prove that the futures gold contracts are not money either, but tainted Wall Street and London securities contracts that keep the system going.
The big banks have been called too big to fail. What a ruse! They are too big to plow under without removal from power of the bankers themselves. They are too big to permit their balance sheets to be liquidated without a US banking system seizure together, and a 30% to 50% additional housing market price decline. They are too big to send into receivership without igniting a credit derivative sequence of explosions. They are too big to block the widespread practice of fraud and enforcement of law of regulations. However, a wondrous spectacle has begun to shine light. The mortgage & foreclosure scandal could turn out to be the big US Bank tombstone epitaph, as bank revenues from mortgages halt, as home owners refuse to make mortgage payments, as court cases unfold in full view, as class action lawsuits prove racketeering at a systemic level, as MERS and REMICs are frozen by the courts from further activity. Time will tell. Time will reveal extraordinary efforts by the USCongress to pass ex-post facto laws that legalize the bond fraud and contract violations from the past. Remember back in July 2007 when Bernanke claimed this was just a subprime mortgage problem. The Jackass called it an absolute bond crisis.
The Gigantic Achilles Heel Exposed
Two critical elements have been identified. The MERS electronic title registry system was designed to facilitate recording of property titles as associated mortgage bonds traded freely and changed ownership hands. Unfortunately, the title database has no legal standing, as declared by several state courts, including some supreme courts. Banks or financial firms holding the mortgage notes cannot team with the title database and force eviction during the home foreclosure process. That is the first gaping flaw. The second is the REMIC funding facility. The Real Estate Mortgage Investment Conduit was designed to facilitate funding mortgages, in particular Fannie Mae mortgages. Unfortunately, the conduit funding vehicle intentionally omitted citation of the mortgage income stream owner, so as to avoid income taxes. The lack of identification means that the Fannie Mae asset backed securities might lack any legal tie to the mortgage loan income stream.
If the casual observer concludes that Fannie Mae mortgage bonds have no value, then that observer matches the same thought pattern of the Jackass, and the same as an increasing number of financial experts. The mortgage finance boom was more a racketeering scheme to send financial products through the pipeline, earn fees, set up arbitrage, enable leveraged schemes, and justify executive bonuses. At the same time, the scheme had the perceived benefit of putting money in people's hands to spend when their jobs were shanghaied on a ship to China. It concealed the destruction of the USEconomy. It made homes very convenient piggy banks to abuse in consumer binges, as people eagerly burned their furniture. Harken back to the Great Macro Asset Economy, a slippery chapter scripted by Greenspan, one of several heretical chapters. Many citizens were turned into paupers who lost all their home equity, while 22% of the nation today lives in homes bearing negative equity overhead. To claim an elaborate Ponzi Scheme seems a fair characterization. The USGovt hands are dirty. The reflection on USTreasurys is filled with risk of a popped bubble. The reflection on the USDollar is filled with risk of downdrafts since a corrosive currency.
The Europeans have their damaged sovereign debt, but the Americans can boast twin beasts in the USTreasury Bond bubble and the USAgency Mortgage Bond scam. The scam involves mortgage bond fraud from improper perfection of property title that ensures revenue stream. The scam involves securities violations from usage of the MERS title database, duplicate properties in multiple bonds, and forged documents. The scam involves faulty finance vehicles (REMIC) with deep intractible flaws in the structure of funding the loans, whose remedy would come with a $1 trillion tax bill due (estimated by bank analysts). Just last weekend, the state of California demanded as part of a class action lawsuit, with MERS at the center, between $60 and $120 billion in unpaid property title recording fees. One might wonder if any potential criminal fraud was avoided in the mortgage industry during the last decade that saved a few bucks and added to bank profit. The MERS & REMIC twins represent the two unfixable banking Achilles Heels. Can the USCongress forgive the fraud with a fresh piece of supercharged legislation?? If they do, then civil disobedience will blossom across the land, in the form of public demonstrations, marches on Washington, non-payment of monthly mortgage bills, and demands to prove property title. The global response will be to sell any bonds with a US$ denomination.
The fallout comes as shattered integrity of the USDollar after broken credibility of the USFed and ruined prestige of Wall Street, all while a sanctioned USTreasury Bond bubble puffs. The full USGovt guarantee of the Fannie Mae clearinghouse cesspool contents bridges the gap between USTBonds and USAgency Mortgage Bonds. One might argue that Agency Bonds differ from USTBonds only in the claim of linkage to mortgage income and ultimately home seizure, except that linkage is being removed in plain view to the public. The USDollar will suffer. Rather than fall versus other major currencies, the wrecked monetary system will take down all major currencies. Each fiat paper currency is being exposed as illegitimate in different ways. The consequences will be:
- All cost structures will rise, causing a worse global recession, a very heavy painful consequence.
- Income levels will not rise to meet the challenge, since monetary inflation destroys capital and erodes wealth engines in corporate structures.
- The US$-based bond markets take on a racketeering glow in global view.
The vast monetization schemes are set to come into motion for the bond market in general. The objects are hardly just USGovt debt securities, not even just Fannie Mae mortgage securities, but big bank Corporate Bonds as well. The scheme will paint the USDollar in a light with a RICO tint, as in racketeering, sanctioned by the US finance ministry and shielded from prosecution by US legal authorities and regulatory bodies. Worse still, the Financial Accounting Standards Board has permitted accounting fraud to the big dead US banks. Since April 2009, they have been permitted to declare any value they wish on their toxic balance sheets. That has enabled them to take advantage of USGovt largesse, direct USFed redemption of toxic bonds, called widely banker welfare. That has enabled them to tap the 0% money tree that produces carry trade profits. The only stipulation was the banks were required to place their excess cash at the USFed itself, which thereby hid the central bank's insolvency, and distracted attention from the absence of Loan Loss Reserves for the banks. Details on the USFed balance sheet, and big bank vulnerability to further losses, are provided in the October Hat Trick Letter. Toss in the High Frequency Trading schemes, and the US financial markets look to contain more crooked venues than the Las Vegas casinos. The USDollar lies at great risk in the process.
Big Bank Vulnerables Again
The next QE2 is a done deal but with the details missing. The next TARP-2 bailout package is having its justification and foundation fashioned from the building blocks of need and desperation, along with the cement provided by banking lobbies. The two initiatives will likely meld paths. A disorderly condition comes. An armada of lawyers is on the job ready to challenge mortgage securities, foreclosure orders, and much more. Class action lawsuits are on the docket. The US financial platforms are unraveling. The USDollar will follow a path to oblivion, locked in a destructive spiral. The Competing Currency War assures that other major nations will undermine, debase, and devalue their currencies rather than seek out, plan, and establish a new monetary system. The investment in a broken system will soon be realized as infinite, with unchecked aid, even $trillions tossed in Black Holes. The sound money experts have always argued that accelerated funds are required to maintain a bubble. Gold will therefore skyrocket in price, as the monetary system will be actively ruined from unchecked money creation. The silver price gains will be at least double the gold gains. Markets are beginning to take control, and kick aside the corrupt control levers. The horizon features a big US bank on death watch. The ripple effects will be shocking even to those who expect it. Other big banks will be dragged down in a chain reaction, while illicit control in certain key markets will be stripped away. Control will be lost by the Powerz. Confusion will rein. The bank stock index BKX signals an imminent breakdown. The dustbin awaits!!
The pressured bank stock index breakdown will be led by Bank of America, HSBC, and Wells Fargo. The Wall Street firms remain protected bastions. The comprehensive fraud in a chain link, from home loan origination to bond securitization to debt ratings to ultimate foreclosure, reveals a corrupt protected broken bankrupt system. Its financial status will be clearly broken soon in full view. Further accounting fraud sanctioned by the FASB might come about, but the date with the destiny of failure is assured. My best source from the banking world believes the wheels come completely off the renegade wagon train that blocks the free market for determining a fair gold price when HSBC fails, and that event is imminent. That renegade wagon train has trademarks bearing the name USGovt and Wall Street nameplates, a merged enterprise. A chain reaction will follow. HSBC manages the SPDR gold exchange traded fund for its gold bullion inventory (symbol GLD). To those who were shocked by the mortgage fraud, wait until they witness the broken suppression levers and devices holding down the gold market. An estimated 50 to 60 thousand tonnes of gold bullion have been naked shorted by the biggest banks. Its value is worth between $2.16 and $2.60 trillion. Wait until the GLD fund lawsuits line up, since most of their gold has been leased by the COMEX and LBMA, since many of its shares have been used to cover short gold contracts.
Perhaps Just Launch QE2 at Night
The USFed is showing some reluctance, remorse, or second thoughts about launching a gigantic second Quantitative Easing ship loaded with acid into icy waters. John Hilsenrath has reported the hesitation in the Wall Street Journal, claiming only a few hundred $100 billion of bond debt might be monetized. The prevailing sentiment is that QE2 might not succeed in reviving the USEconomy and not might succeed in clearing the sclerotic condition in the banks. Whether wrenching constipation or multiple sclerosis in the banking channels and arteries, what difference!! My main question is WHEN DID 'QE1' EVER END?? The grand bond monetization is mostly hidden from view for USTreasurys, since almost every auction is a failure. The grand bond monetization is mostly hidden from view for USAgency Bonds, since mammoth activity in Fannie Mae basements keeps the lid on evidence that their bonds have gone worthless, and contains the acidic spillover. Watch the backdoor bank welfare in a TARP-2 package soon to be tossed into QE2. Watch the overall debt monetization be kept much more hidden from view, a new national priority. The USDept Treasury and the USFed do care what the world thinks, when the threat of them pulling the global plug on the United States seems a viable option to stop the cancer from spreading even more on a global scale. A cancer has been exposed in the global reserve currency. Reaction should be much more evident in the Gold price than in currency exchange rates. They move relative to each other.
An enormous pressure point in the legal process right here, right now is the threat of Put-Backs. A mortgage security is put back to the bank that packaged the securities from a portfolio neatly arranged in tranches of loans, when the mortgage backed bond is forced by the courts to be bought back by the bank, after fraud or negligence or contractual defects were demonstrated. A fiduciary responsibility is enforced in the bond securitization process. Estimates wildly have come forth that $2 trillion, give or take a few hundred $billion, in mortgage bonds will be put back to the big banks. They are scrambling to win support from the USCongress for quick action. The TARP-1 package worth almost $800 billion was motivated by declines in the housing market. To be sure, plenty of Bait & Switch was evident, but leave that aside. The TARP-2 package might be required at least $1.5 trillion, motivated this time by securities violations, defective fraudulent MERS & REMIC devices, and contract fraud, when the specter of class action lawsuits, even with RICO claims, hangs overhead. These are felony crimes, a far cry from a declining market.
The second round of big bank TARP bailouts certainly has come in a vastly different light. To solve the challenge, look for the USDept Treasury (controlled by Goldman Sachs) and the USFed (controlled by godfathers to Wall Street banks) to conduct a more secretive monetization of the big bank bond exposure. THEY WILL MONETIZE THE PUTBACKS IN THE DEAD OF NIGHT, DONE IN SECRET, WITHOUT FANFARE, IN A MORE DIRECT CABAL EXERCISE. They will use Fannie Mae as a bad bank, a bond garbage can, its reason for being, its raison d'Ãªtre. When caught, they will claim they did it to avoid a USEconomic Depression. The truth is more that they will conceal their activity in order to retain power, to enable much more banker welfare courtesy of the captured USGovt, even to prevent a collapse on US soil.
Global Bankers Angry & Feisty & Demanding
The G-20 ministers have come forth with a vacant pledge as a working theme. Regard it as the billboard message of crisis. Ignore the words, but take serious note of the theme, since it wraps words around the alarm. The competitive currency devaluations will be devastating, even as fast moving trade deficits will be the visible outcome. National trade gaps will go out of control. The G-20 finance ministers issued an opening preliminary statement, a working theme. They will pledge to refrain from competitive devaluations and endorse market based exchange rates, whatever that means. Of course, the silent vote is not made by nations that shun attendance, like Brazil. They decided not to attend, due to stated concerns over growing hostility in competitive currency policy. China might have pulled that cord, as Brazil earned a favor. A US proposal was evaluated to set targets for current account gaps on the pathway to rebalancing global growth and realigning exchange rates. The United States will surely be kept exempt, causing more friction. The G-20 Meeting is telling of the crippling devastation coming in the Competing Currency War, which will take down the entire monetary system. And furthermore, the evidence will be seen in the trade deficits. For instance, even Turkey is setting record deficits. Large deficits will be unavoidable. The obvious outcome of the G-20 Meeting was a sharp pullback in the US monetization project planning, but it will be temporary.
Talk of a Plaza-2 Accord has begun, but it will find zero traction. Unfortunately, any such accord requires nations to take the lead in sacrificing their domestic economies and banking systems. Such nations would have to agree to higher currencies, which harm their economies. Not gonna happen!! Instead, expect conflict, disruption, and chaos to grow. What is needed is consensus and order to depreciate the USDollar in relation to the other major world currencies by direct intervention. The present day environment has no maturity, no cooperation, and no order. It is loaded with resentment, animosity, and a desire to topple the horribly corrupt and recognized villains in Wall Street and London, where power is wielded without respect and thefts are perpetrated without conscience. In fact, a spirit of retribution and deserved vengeance permeates the FOREX winds. Witness the Competing Currency Wars soon in full glory, which have moved past first gear, and are well into second gear. USFed Chairman Bernanke has in essence threatened to inflate with QE2 to infinity in order to support a system that cannot any longer be supported, a rickety US$-centric system. Commodity prices are surging, and emerging economies are battling against fast rising price inflation. The USEconomy operates under 7% to 8% annual price inflation, but emerging nations have it a bit worse. Currency appreciation is a necessary tool to keep prices under control for other nations. The BIG problem here is that they are reluctant to allow significant currency appreciation as long as the Chinese Yuan remains static and fixed. The key is China. No nation will agree to a currency rise without China doing so first, and doing so with some magnitude to matter. Emerging nations are cutting deals, even with non-Anglo industrial nations, to avoid usage of the USDollar in trade settlement. If Plaza-2 happens, it will have China as its champion.
The Yen Carry Trade has a vast hidden doorway. Japan has revealed a hidden pressure point. It is the unwind of the great Yen Carry Trade. It was the greatest financial engineering project in modern history. The Jackass found it utterly amazing that the venerable Kurt Richebacher had no idea what it was, and his popular acclaimed newsletter had a moniker devoted to credit and currency markets. Its unwind is coming to an end finally with a climax upward thrust in the Yen, amidst clouding factors like the rise of China. In fact, China is diversifying its FOREX reserves to some extent by using USTreasurys to purchase Japanese Govt Bonds, which has drawn great anger from Tokyo. Witness more currency war battles, bigger than skirmishes.
The climax chapter of the USTreasury Bond bubble, with its benchmark 0% label, removes the Yen Carry Trade since both sovereign bonds offer near 0% yield. The yield differential is eliminated. The end of the great carry trade signals a monetary system breakdown and finally a USGovt debt default. The carry trade provided tremendous demand for the USTreasurys, which has been replaced by the Printing Pre$$. The Yen currency is the quiet litmus index of the competing currency war, its turbo-charge. It remains hidden from view and free from discussion. Details are provided on it in the October issue of the Hat Trick Letter, along with many implications of the bank condition on the gold price.
Gold Consolidates Big Gains
The gold price rose almost 200 points from the beginning of August to the first week of October. It is consolidating the gains, a digestion process. The resistance was broken. More importantly, the big US bank chokehold of the gold market was somewhat broken. A bull market remains, and the strong seasonal months of December and January lie around the corner. The effect of a seasonally strong September has been seen. The Competing Currency War, the deadly round robin exercise to devaluate currencies, feeds the gold bull in magnificent style. The G-20 platitudes will be brushed aside. The gold bull is given a rich diet in huge volumes of fiat money from strained monetary presses, justified to protect export trade, committed to serve the broken banks. In the middle of the sovereign debt crisis and the mortgage bond eruption and the insolvent bank condition, GOLD IS REGARDED AS THE SAFER HAVEN, since not tied to debt and not associated with counter-party risk. Gold has emerged as a global reserve asset, a competing currency!!
Expect a consolidation in the gold price while the USDollar attempts to bounce up. The Euro currency defense is only beginning. The Euro hit 140 per US$, and has come down with a mild selloff. The damage to be done to the European Economy is being evaluated. The 78 level on the US$ DX index was not defended. A bounce was made possible at 77 instead, a firmer support level. The monetary system is crumbling. All attention is on the USDollar, especially after the mortgage foreclosure scandal erupted. Pay note to the bearish crossover of the 20-week MA below the 50-week MA. It signals a test of the 75 critical support, which will bring about a thrust move in Gold past $1400. Notice how the bullish MA crossover in March signaled a test of the upside resistance. A full 800 basis point run-up followed the reliable sentinel signal. My expected 78 to 84 range was blown out. An eerie calm does not seem likely, not with the mortgage bond fraud and home foreclosure scandal in full blossom. The United States financial structures have never looked more corrupt or broken in the national history. As the US$ standard bearer of the monetary system takes severe damage, look for the Gold price to march toward $1500 and the Silver price to march toward $30. It is written; it will be done. The bankers in the temple will eventually be placed in their deserved domicile or find themselves on the run.
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a Ph.D. in Statistics. His career has stretched over 22 years. He aspires to one day join the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com
"Gold has always been funny in that way. So many people worldwide think of it as money, it tends to dry up as the price rises."
All the gold in the world is a fixed quantity. It always has been. It just gets moved around like poker chips on a table. Some of it is still in the ground and some is above ground, in portable form. But it is all owned by someone, underground or above. If it was sufficient to simply trade paper ownership certificates then there would be no need to pull it out of the ground at all. We could just estimate how much was down there and then trade ownership rights. But it is not sufficient, especially for cross-border trade. Never has been. And this is why we pull it out of the ground.
In the monetary roles of 'numéraire/accounting unit' and 'store of value', this gold has been the most reliable money the world has ever known. But those of us who are savers know from personal experience that gold need not be the medium between every single exchange. We generally work four months out of the year to cover the government's "cost of living," seven months to cover our own cost of living, and one month to add to our capital account, our savings. We really only need the gold for that last month's efforts. Debtors, of course, work those last months just to service their debts. So they don't need gold at all.
But for a saver whose income is derived from depleting his capital, like a gold dealer or an oil producer, the required flow of gold is a much greater percentage of gross receipts than a saver who, say, produces cheap goods for Walmart. While the latter might require a flow of 5% of gross receipts in order to slowly grow his capital account, the former needs a flow sometimes as high as 95% of gross receipts just to stay even!.......read on
Fundamental and technical factors for gold are now in total harmony and gold is entering a virtuous circle that will drive the price up at its fastest pace since this bull market started in 1999.
It is a fact that gold in US dollars (and many other currencies) has gone up 400% in eleven years or 16% per annum annualized.
It is a fact that the US dollar has declined 80% in value against gold since 1999.
It is a fact that the dollar and most other currencies have gone down 98-99% against gold since 1913 when the Federal Reserve Bank of New York was created.
It is also a fact that the Dow Jones (and many world stock markets) has declined over 80% against gold since 1999.
It is a fact that gold has made a new all time monthly closing high in dollars in August 2010."
"Gold entering a virtuous circle" - Egon von Greyerz, HSL Jr, 9/6/10
Just over a year ago, Deepcaster noted the following Report, and its consequences for the U.S. Dollar.
"(In a meeting allegedly held by the Gulf States, China, Russia, Japan and France it was decided--) to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese Yen, the Chinese Yuan, the EUR, and a new unified currency planned for nations in the Gulf Cooperation Council."
Report in The Independent by Robert Fisk October 6, 2009
"As a consequence in part of this unconfirmed report the U.S. Dollar took a real battering earlier this week.
Yet in spite of that and all the other market, economic and other uncertainties the U.S. Equities markets bounced blithely higher.
Indeed, anyone who thinks the U.S. Equities and other Major Markets are not rigged should seriously consider the report last week on zerohedge.com. Zerohedge reported that both the S&P and the DJIA returned exactly 14.98% in Q3 to the hundredth of a percent. The odds of that happening as a result of Free Market Action in two stock Universes containing a total of 530 stocks are, to say the least, infinitesimal........read on
Depending on its scope, a fresh round of quantitative easing could have a major impact on the dollar and inflation outlook, both potentially significant for gold, analysts said.....read story in full
I have highlighted the main issues from this Reuters story below. You have to love the Commies, how dare the people keep their savings in Gold instead of The Party's wonderful fiat Dong currency! Gee the people in Vietnam have only been saving in gold and silver since about 2,000BC and have had Indian, Chinese, French, US and their own currencies come and go from their economy over thousands of years, yet Gold has always remained the savings vehicle of choice, and will remain so even when the Dong is long gone.
Oct 29 (Reuters) - Vietnam's central bank has stopped banks selling gold deposited by customers and using the funds for loans or for converting into foreign currencies, partly to help take downward pressure off the dong............Small gold bars, sold by banks and private gold shops, are used widely in Vietnam instead of the dong as a savings vehicle and for real estate payments..........The central bank has devalued the dong three times since November and speculation about another devaluation has been putting pressure on the currency.
Saturday, October 30, 2010
From the BBC World Service, Business Daily program:
Speculation is increasing that America's central bank will start another round of quantitative easing to pump new money into the economy. Would it be effective, and would it have the side-effect of devaluing the dollar and forcing up the value of other currencies?
Lesley Curwen talks to former US Federal Reserve Governor, Larry Meyer from Macroeconomic Advisors, and to DeAnne Julius, former member of the committee which sets interest rates for the Bank of England.....listen here
Friday, October 29, 2010
Visions of swastikas in my head
Plans for everyone
It's in the white of my eyes
My little China Girl
You shouldn't mess with me
I'll ruin everything you are
I'll give you US Treasury Bills
I'll give you eyes of blue
I'll give you the means to rule the world
And when I get excited
My little China Girl says
Oh baby just you shut your mouth
Not only is China the 2nd largest miner of Silver in the world they are most likely the world largest smelter of Silver containing ores in the world, refining much of the world's lead, zinc and copper containing ores which approx. 80% of the world's mined Silver is produced from (as a by-product of smelting these base metal ores). As I reported in greater detail on my companion blog in February this year.
So not only is China reducing the exports of its own Silver, it is reducing the re-exportation of the world's Silver!
If any readers have come across other commentators or bloggers discussing the reduction in the re-exportation of smelted/refined ores, especially Silver from China please leave me a link in the comments section of this post or email me at: firstname.lastname@example.org
October 26, 2010
If we follow the path of "converting" fiat paper-currencies back to precious metals-backed money, we immediately see only two options. Either we get all of the world's major currencies to simultaneously convert their paper-currencies (an extremely unlikely event), or we must do this in some step-by-step process - which must begin with the world's "reserve currency" (currently the U.S. dollar).
In my own attempt to reconcile this enormous logistical issue, I previously proposed a two-stage process: first switching from the U.S. dollar to China's renminbi as the new reserve-currency, and then backing the renminbi with gold. My reasoning was that if the two changes were instituted (more or less) simultaneously that there would be an horrific plunge in the U.S. dollar - as a world full of U.S. dollar-holders all sought to rid themselves of their inferior paper in favor of gold-backed renminbi at the same time........read on
By: Richard Daughty, The Mogambo Guru - The Daily Reckoning
I thought I had seen and heard it all after the ludicrous Ben Bernanke, asinine chairman of the Federal Reserve, announced that the official (and thus a lie!) 2% inflation in prices was too, too low, and he wanted higher inflation because, somehow, in some weird little fantasy world that only he and other neo-Keynesian econometric cyber-nerds can see, higher inflation is “consistent with the mandate of the Fed” to achieve stable prices (zero inflation)! Hahahaha!
This is so bizarre that I had a hard time dealing with it, as I have enough problems of my own in distinguishing reality from my own weird little mental world without this dimwit forcing his schizophrenia on me.
So I cleverly doubled up on some of my medications, which didn’t help much, although I finally did relax enough to unclench one fist.
Of course, the other mandate of the Fed came in the ’70s when Hubert Humphrey and other leftist weirdo morons changed the Fed’s charter to include a mission to, somehow, with magic perhaps but certainly with creating more and more money and driving interest rates down and down, always maximize employment. Maximize employment! How convenient an excuse for the Fed to create more money!
And speaking of maximizing, I thought I had, with this one statement by the chairman of the Federal Reserve to purposely create the horror of higher inflation, maximally achieved a state of complete loathing for the Federal Reserve.
With my newfound Maximum Mogambo Contempt (MMC) for Ben Bernanke and the Federal Reserve, you can imagine that I was not very surprised to see an essay with the title “Three Horrifying Facts About the US Debt Situation” by Graham Summers of gainspainscapital.com.
Initially, I was “ho-hum” mostly because I can, offhand, think of about a thousand horrifying facts about the US debt situation, and that is all without even touching upon the inflationary horror of the federal government deficit-spending untold trillions of dollars per year, year after year, increasing the national debt by borrowing an avalanche of money that the foul Federal Reserve magically creates out of thin air, and that the Federal Reserve will itself use, in an outrageous episode of historically treacherous monetary infamy known as “monetizing the debt,” to buy the trillions and trillions of T-bonds, a terrifying example of fiscal and monetary insanity that will, to wax poetic, reverberate through the ages.
You can tell by the way I ended that paragraph with a mere period instead of an exclamation point to denote horror and terror that I was pretty bored.
Well, I was, until he went on that, firstly, “The US Fed is now the second largest owner of US Treasuries” after just recently overtaking the stash of US bonds owned by Japan, “leaving China as the only country with greater ownership of US Debt.”
To his credit, he went on that the horror is that “we’re printing money to buy it. Setting aside the fact that this is abject lunacy, this policy is trashing our currency which has fallen 13% since June…as in four months ago. Want an explanation for why stocks, commodities, and gold are exploding higher?”
I raised my hand to make a comment about how, “We’re Freaking Doomed!” but before I could interrupt, he went on that, secondly, “There are only about $550 billion of Treasuries outstanding with a remaining maturity of greater than 10 years.”
Out of all this, he deduces the third point, which is that “The US will Default on its Debt.”
Apparently, he had a second thought about that “will default” thing, as he says, correctly, “either that or experience hyperinflation. There is simply no other option.”
I am happy to see that Mr. Summers still maintains some of that sunny optimism of youth, a quality that I completely lost years ago when the realization of the immense degree of stupidity and corruption in the world crushed my hopes, when he says that there are no other options except default or hyperinflation.
I say, ominously, which explains the scary and ominous soundtrack, that the other option is (pause for effect) “both.”
And speaking of “both” if ever there was a time when you should buy both gold and silver, this is it! And the fact that you can get them by merely plunking down depreciating Federal Reserve Notes in payment should make you giddy with delight, so that you giggle as you say, “Whee! This investing stuff is easy!”
Thursday, October 28, 2010
Silver market gurus David Morgan & Jeffrey Christian discuss the silver manipulation story on Business News Network.....view video
* Hundreds of millions in illegal profit alleged
* Triple damages sought in one of two lawsuits
* CFTC proposed new tools to thwart price manipulation (Adds adviser comment, details)
NEW YORK, Oct 27 (Reuters) - JPMorgan Chase & Co (JPM.N) and HSBC Holdings Plc (HSBA.L) were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.
The banks, among the world's largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.
"Defendants reaped hundreds of millions of dollars, if not billions of dollars in profits" from the conspiracy, one of the complaints said.
The respective plaintiffs, Brian Beatty and Peter Laskaris, each said they traded COMEX silver futures and options and contracts, and lost money because of the alleged manipulation.
Beatty lives in Connecticut and Laskaris in New York, court records showed. The lawsuits seek class-action status, damages that may be tripled and other remedies. The defendant banks are major participants in the silver market.
JPMorgan declined to comment. An HSBC spokeswoman had no immediate comment.
The lawsuits were filed one day after the Commodity Futures Trading Commission proposed regulations to give it greater power to thwart traders who try to manipulate prices.
The CFTC began probing allegations of silver price manipulation in September 2008.
"Going back to the early 1980s, silver has been an extremely volatile market," said Bill O'Neill, managing partner at Logic Advisors, an Upper Saddle River, New Jersey investment firm specializing in commodities. "I often describe it as a speculative playground. You have to be a big boy to play."
FRAUD, DEVIOUSNESS ALLEGED
Only once in its 36-year history has the CFTC successfully concluded a manipulation prosecution, in a 1998 proceeding concerning prices for electricity futures.
Speaking on Tuesday, Chairman Gary Gensler said the proposed regulations would give the regulator greater power to police "fraud-based manipulation.".......read on
The recent gold price rally is the first stage of a multi-year bull market that will drive the gold price to at least $2,000 an ounce by 2015. A mixture of economic factors and innovations in how institutions can purchase the metal have moved prices. But the biggest driver of gold prices is yet to come.
First, a recap of the factors that have taken gold prices to current levels.
The economic causes centre on monetary policy and the risk of inflation. Some industrial countries are striving to devalue their currencies and will use monetary policy to support the goal. Japan recently spent $24bn on unsterilised intervention trying to weaken the yen. The policy succeeded, albeit briefly. In 2003-04, Japan spent more than $350bn on intervention and could easily do so again. This policy would increase dollar liquidity while nurturing more monetary growth in Japan itself.
The Federal Reserve has been dropping ever-bigger hints that it will embark on further quantitative easing. A significant policy move will trigger immediate selling of the dollar, and could set the stage for competitive devaluations elsewhere......read on
Wednesday, October 27, 2010
An interesting revelation on the High Frequency Trading travesty.
From Washington's Blog:
The Fourteenth Banker writes today:
In the stock market, program trading dominates volume. I heard recently that 70% of trade positions are held for an average of 11 seconds.
As the New York Times dealbook noted in May:
These are short-term bets. Very short. The founder of Tradebot, in Kansas City, Mo., told students in 2008 that his firm typically held stocks for 11 seconds. Tradebot, one of the biggest high-frequency traders around, had not had a losing day in four years, he said
Similarly, FT's Martin Wheatley pointed out last month:
I know of one HFT firm operated out of the west coast of the US that boasts its average holding period for US equities is 11 seconds
And market analyst Peter Cohan writes at AOL's Daily Finance:
70% of trading volume on the major exchanges is conducted by high-frequency traders who hold a stock for an average of 11 seconds.The fact that the vast majority of stock market trades are held for 11 seconds shows that the stock market is not a real market with real traders governed by the law of supply and demand, and that there is no real price discovery......read on
From the UK Telegraph
By Ambrose Evans-Pritchard:
Europe's debt woes have returned to the fore after Greek premier George Papandreou threw open the door to fresh elections and vowed to liberate the nation from "slavery and surveillance".
Yields on 10-year Greek bonds jumped 31 basis points to 9.57pc and the euro tumbled 2 cents to $1.385 against the dollar as investors awoke to the risk of political upheaval in Greece, not helped by warnings from bond giant PIMCO that Athens will default within three years.
"We have not yet escaped the danger. I am sounding the alarm," said Mr Papandreou.
While he promised to stick to the EU-IMF austerity plan, he threatened to go to the country if upcoming local elections fail to give his socialist PASOK party a clear mandate. "There can no deadlock in democracy, the people have the power to decide," he said.
The main opposition group New Democracy has yet to give a watertight pledge that it would abide by the terms of the EU's €110bn (£97bn) rescue, or the "Memorandum" as it is known.
PASOK itself is fraying at the edges in any case. A socialist rebel candidate from the "anti-Memorandum" bloc leads the polls for the Athens region.
Mr Papandreou is responding with populist gestures, granting pensioners a €300 bonus and rejecting calls by Brussels and his own central bank for further belt-tightening. "There will be no new measures on wage-earners or pensioners, they have paid enough," he said.
The fiscal picture is extremely delicate. Eurostat is expected to raise Greece's budget deficit for 2009 to 15.1pc of GDP from 13.3pc. Public debt will rise to 127pc instead of 115pc, bringing the country closer to a debt compound spiral.
Mohamed El-Erian, chief executive of Pimco, said the EU-IMF package prevents Greece from growing its way out of the crisis and will test political consensus to destruction. He said it would be healthier for both Greece and Europe to opt for orderly debt restructuring.
Most investors seem to agree that the EU-IMF plan is unworkable, merely buying time for German and French banks to shift Greek liabilities on to EU taxpayers. A Barclays survey found that 82pc of clients expect the eurozone to face a debt restructuring, a sovereign default or even a full break-up by 2013.
Hans Redeker, currency chief at BNP Paribas, said global attention may switch back to Europe once the US Federal Reserve clears the air on quantitative easing next week.
"We are seeing a complete failure of the EU to agree on common foundations for how to solve the eurozone's problems. Germany is demanding a mechanism for controlled bankruptcy but the high-debt states refuse to accept this," he said.
"And over the next few months we are going to find out what fiscal consolidation in Europe really means."
By Gregory Meyer and Jack Farchy
Financial Times, London
Tuesday, October 26, 2010
A senior US commodities regulator has alleged fraud in silver trading more than two years after investigators began a probe into the market.
Bart Chilton, commissioner at the Commodity Futures Trading Commission, said "members of the public" and "publicly available documents" convinced him the silver markets are tainted by violations of federal commodities law.
"I do believe that there have been repeated attempts to influence prices in the silver markets," Mr Chilton said on Tuesday at a meeting in Washington. "There have been fraudulent efforts to persuade and what I consider deviously control that price."
The CFTC, the US watchdog, in September 2008 disclosed that it was investigating misconduct in the silver market. The announcement followed complaints by small investors that silver prices were artificially suppressed.....read on
Link to Bart Chilton's press release
By Eric Sprott
Bonfire of the Currencies
World governments just can’t get enough conflict these days. They’ve now resorted to battling each other with money printing. The devaluation race is in full gear, and it’s tough to keep track of who’s winning. It’s been just wonderful for investors, of course. In addition to contending with 0% interest rates, they now have to navigate through increased currency volatility and uncertainties associated with potential inflation. Gold and silver are benefiting greatly from this ‘currency war’ as investors seek safe harbor in hard money. We can’t say we’re surprised to see gold and silver where they are, but it has been surprising to witness just how willing and open governments are to blasting their own currencies down in value. Although we have complete confidence that the economists at the world’s various central banks know exactly what they are doing, we’re content to own precious metals investments in the meantime until such a day arises when the currency war winner is finally announced.
Just to make sure you’re up to date in currency war news, the most recent devaluation shot was fired by the Federal Reserve on August 17, 2010, when it initiated its permanent open market operations (POMO) to stimulate economic activity. The central bank announced its intention to reinvest the proceeds of its maturing mortgage-backed security holdings back into Treasury bonds. Combined with recent comments by the Federal Open Market Committee (FOMC) on increasing the US inflation rate (through money printing), world governments have been coerced into action. They’ll be damned if they let the US devalue against their own respective currencies and slam their exports, so everyone’s devaluing in tandem. It’s literally a "race to the bottom", with all major currencies on the potential fiat currency chopping block.
By our count, no less than 23 separate countries have now intervened in the foreign exchange market in some way since September 21, 2010. The goal for all is to increase the supply of their respective paper currencies in order to drive them down in value. In the cases where countries can’t print outright, they have intervened through capital controls or "open mouth" operations (ie. talking down your currency in policy meetings, etc.). Both approaches have significantly increased the currency market’s volatility. Japan’s October 5th announcement of a "new fund" to purchase assets ranging from government to corporate bonds has forced other countries to pursue the same policy, and the world now awaits similar announcements from the United States and UK in the form of new Quantitative Easing programs.2
Investors aren’t clueless, however, and many are shifting capital to protect themselves. A large number of commodities are now benefiting from the uncertainty created by the devaluation race. Gold, Silver, oil, copper, wheat, sugar and Platinum are all on the run, and yet we have no reported inflation!.....read on
Tuesday, October 26, 2010
An interesting post from MaxKeiser.com re the recent Business Insider article giving 11 reasons why gold is in a bubble. Read the article and watch the video retort from one of Max's readers. I have to agree with retort of the bubble premise, particularly this point:
"Almost every industrial use of gold is also an industrial use of silver. Since silver is much cheaper than gold you can imagine that people would rather use silver than gold for industrial purposes. Its no surprise that silver has outperformed gold this past year despite all the media fuss about gold."
This point is the strangest of the whole 11, if you were making a product that required gold for some reason, eg in electrical contacts, but you could just as well use silver why wouldn't have already switched to silver - or more sensibly used silver from the start? More importantly many silver's industrial uses can only be performed by silver and no other metal.
Ultimately Gold derives it's value because it is rare and the above ground supply increases on average at 2% per year, which is roughly the same as the world's average population growth. That means Gold's supply to population is static unlike paper currencies which seem of late to have grown exponentially.
An interesting article from ArabianMoney.net The editor muses that the currency traders will soon start, if they haven't already, marking down the value of the Pound vs. the $US and the Euro and that investors should exit UK Pound denominated investments. Note in the comments section of the article where both the editor and readers agree that all currencies are ugly and the only alternative to currencies is gold.
UK pound heading towards dollar and euro parity:
Foreign exchange dealers have decided to slaughter the UK pound. This morning’s press attacks appear the start of a sustained campaign to drive sterling much lower and profit from the process. And who can blame the forex guys for backing a one-way bet, and probably one the British Government secretly endorses......read on
With just over a week left to the QE2 announcement, discussion over the amount, implications and effectiveness of QE2 are almost as prevalent (and moot) as those over the imminent collapse of the MBS system. Although whereas the latter is exclusively the provenance of legal interpretation of various contractual terms, and as such most who opine either way will soon be proven wrong to quite wrong, as in America contracts no longer are enforced (did nobody learn anything from the GM/Chrysler fiasco for pete's sake), when it comes to printing money the ultimate outcome will certainly have an impact. And the more the printing, the better. One of the amusing debates on the topic has been how much debt will the Fed print....Is the case for $10,000 gold becoming clearer?.......read on
Monday, October 25, 2010
Thanks to Jesse for capturing this speech by one of the precious metal and finance industries rising stars. Jesse's post can be found here. As an intro here is some of Ben Davies's opening remarks.....
Remarks by Ben Davies,
CEO, Hinde Capital, London
Economics has sought to blend epistemology, physics, mathematics, and behavioral science to try to measure uncertainty. They aim to try to predict when we might have an economic collapse, but no model has been created that manages this with much confidence, if any at all. How do you measure a risk that is unmeasurable?
No, there is nothing certain about economic predictions. Donald Rumsfeld, the former U.S. defense secretary, unwittingly declared it so at a NATO press conference in 2002, when he responded to a question on intelligence gathering:
"It's not the certainties that make life interesting; it's the uncertainties. There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things we know we don't know. But there are also unknown unknowns -- the things we don't know we don't know."
Ridicule aside, I do think it was brilliant piece of polemic, irrespective of one's political persuasion. Without knowing it, Rumsfeld could actually be the poster child for a new line of economic thought that tries to draw parallels from physics -- the Heisenberg Uncertainty Principle.
In quantum physics this principle states that certain pairs of physical properties, such as position and momentum, cannot be simultaneously known to arbitrarily high accuracy........read in full
Oct. 19 (Bloomberg) -- Silver exports from China, the world’s largest, may drop about 40 percent this year as domestic demand from industry and investors climbs, according to Beijing Antaike Information Development Co.
Shipments may decline from about 3,500 metric tons in 2009, said Feng Juncong, chief analyst at the state-owned Antaike, without providing a specific forecast. Customs data show exports plunged almost 60 percent to 970 tons in the first eight months. Cancellation of an export rebate in 2008 is also hurting shipments, she said.
Reduced exports may bolster prices that are trading near a 30-year high on speculation that governments worldwide will take further steps to stimulate their economies, weakening currencies and increasing demand for assets that are a store of value. China, the third-largest producer after Peru and Mexico, revoked export rebates in August 2008 to curb use of natural resources.
“There is huge demand in China this year and that has affected exports, which were already hurt after the tax rebate was abolished,” said Ng Cheng Thye, head of bullion at Standard Bank Asia. “The demand is coming from all areas, including jewelry, investment and fabrication and this has resulted in a physical market shortage in the Far East.”
The metal for immediate delivery touched $24.92 an ounce on Oct. 14, the highest price since September 1980, and traded at $24.2750 at 2:28 p.m. in Singapore. Industrial applications for silver, including electrical conductors and batteries, represent about half global demand.
“There are Chinese investors now hoarding silver, along with other resources, amid anticipation of higher inflation,” Feng said. “China is short of resources so these investors believe the metals will be more valuable in the future.”........read in full
Sunday, October 24, 2010
Jim Rickards interviewed by Eric King of King World News......listen here
The precious metals space is poised for robust gains in the long term on the back of strong supply- and demand factors. Declining mine production for precious metals has resulted in a tight supply scenario over the past few years, triggering prices. Key producers including South Africa, the U.S., Australia and Russia are showing signs of a gradual shortfall in potential output, creating a global supply deficit. Two other reasons have coerced prices to attain present levels: the upturn in industrial activities post recession and the return of investors due to subside in volatility. With demand remaining strong, a flat to negative supply scenario augurs well for precious metals.....read on
Saturday, October 23, 2010
From The Economist:
MORE than a billion people lack clean water—and in most cases the lack is just of cleanliness, rather than of the water itself. The result is disease, particularly diarrhoea. This kills millions of children a year and stunts the growth of millions more. Better water filters, then, could save many lives and improve many others, and Yi Cui of Stanford University thinks he has come up with one........The filter element he and his team have designed is a mesh of tiny carbon cylinders, known as nanotubes, and silver wires laid on top of a thin strip of cotton cloth. Silver is well known to kill bacteria, so Dr Cui conjectured that forcing bugs to pass close to the metal without actually trapping them might lead to their destruction......read in full