Saturday, March 31, 2012

Demand for U.S. Debt Is Not Limitless: In 2011, the Fed purchased a stunning 61% of Treasury issuance. That can't last.

"The conventional wisdom that nearly infinite demand exists for U.S. Treasury debt is flawed and especially dangerous at a time of record U.S. sovereign debt issuance.
The recently released Federal Reserve Flow of Funds report for all of 2011 reveals that Federal Reserve purchases of Treasury debt mask reduced demand for U.S. sovereign obligations. Last year the Fed purchased a stunning 61% of the total net Treasury issuance, up from negligible amounts prior to the 2008 financial crisis. This not only creates the false appearance of limitless demand for U.S. debt but also blunts any sense of urgency to reduce ..."


The Student Loan Debt Time Bomb

"Student debt is growing at an alarming rate. At the end of 2011, total student loan debt crossed the $1 trillion mark, a level that is higher than the sum of all credit card debt in the United States. Already, this category of debt has been likened to the subprime crisis, raising worries that a potential delinquency crisis could find its way into the wider economy..."


Brzezinski Says Romney Lacks ‘Grasp’ of Foreign Policy

"A former Democratic national security adviser assailed Republican presidential front-runner Mitt Romney for lacking a grasp of foreign policy and said the former Massachusetts governor would return the U.S. to the policies of George W. Bush.
“If we take seriously what he has been saying in the course of the campaign, we have every reason to be very worried,” former U.S. National Security Adviser Zbigniew Brzezinski said in an interview on Bloomberg Television’s“Political Capital With Al Hunt,” airing this weekend. “He probably subscribes to the notions articulated by his Republican predecessor,” George W. Bush, Brzezinski said..."


European Central Bank urges more resources for IMF

"Eurozone finance ministers raised the combined lending capacity of their two bailout funds to €700bn from €500bn on Friday after many G20 countries made a stronger eurozone firewall a pre-condition for committing more money to the IMF.
"These resources (for the IMF) would be for the general resources of the IMF, not for any specific fund or for any specific account for Europe," Mr Constancio told a news conference after a meeting of European Union finance ministers and central bank governors in Copenhagen.
"It is a recognition that, in general, for the world economy, the IMF needs to have more resources if we think ... what in a future emergency situation could be the needs of the IMF to fulfill its role anywhere in the world," he said.
Finance ministers from the world's 20 biggest developing and developed economies, the G20, meet in April in Washington to discuss an increase of resources for the IMF.
"That is very important to understand - this linkage with the European situation has in my view been overplayed and exaggerated by some," Mr Constancio said..."


Billionaire Hugo Salinas Price - World May Go Down in Flames

"Today multi-billionaire Hugo Salinas Price told King World News a complete catastrophe is unfolding in Europe. He also called Fed Chairman Bernanke “a vampire” and urged people to hold gold and silver because they will be the last things standing. But first, Salinas Price warned about the serious dangers we are facing: “I think that unless we see legislation, somewhere, that is rational and recognizes that gold and silver are really different forms of money, and that this whole scheme of paper is unworkable, then the world is going to go down in flames. The only thing that would last will be people’s savings of gold and silver.”

Japan approves shoot-down order for North Korean rocket

"Prime Minister Yoshihiko Noda's cabinet on Friday gave the green light to shoot down a North Korean rocket if it threatens Japan's territory, as the planned launch raises global alarm bells..."


NATO eyes deploying AMD in Ukraine

"The North-Atlantic Treaty Organization (NATO) is holding talks with Kiev over Ukraine’s possible participation in the alliance's planned missile defense system n Europe.
According to the head of the NATO Liaison Office in Ukraine, Marchin Koziel, the deployment of the system's elements is a priority for the alliance. He says during the summit in Lisbon, NATO heads agreed on the possibility of involving non-member countries – or “third countries”- in the planned missile shield in Europe.
Thanks to “its ballistics missiles, technologies, know-how, experience or simply the process of European integration,” Ukraine is such a country, he stated speaking at a round table meeting in Kiev, reports the Rosbalt news agency.
The alliance and the leadership of the former Soviet republic are holding informal consultations regarding the issue on both political and technical levels, Koziel said.
After the February meeting between NATO Secretary General Anders Fogh Rasmussen and Ukrainian Foreign Minister Kostiantyn Hryschenko, the latter announced Ukraine would participate in the upcoming alliance summit in Chicago.
NATO, for its part, noted that Kiev was interested in cooperation with the organization on the creation of the missile defense system.
Rasmussen also said that NATO will invite Ukrainian President Viktor Yanukovich to take part in the summit in May.
Ukraine had long been bidding to join the military alliance. However, after Yanukovich replaced his pro-Western predecessor Viktor Yushchenko, the country's policy made a u-turn. The new leader signed a decree declaring that Ukraine would remain non-aligned to any political-military unions, but would still continue to cooperate with NATO and other blocks based upon common interests."


Burning beam target: US Navy may deploy lasers in four years

"The US Navy hopes to have operational laser cannons on their ships within the next four years. They will be used against fast-moving targets like cruise missiles, speedboats and drones.
­The Navy hopes to have a working prototype for the futuristic laser weapon within two years, Wired reports..."


Is Spanish Regional Debt Out Of Control?

"Spanish regional debt currently stands at 13% of GDP and has surged from EUR60bn in 2006 to over EUR140bn currently. As Credit Suisse points out, the top four regions account for the majority of GDP, two-thirds of regional debt, and, with the exception of Madrid, substantially missed their deficit targets. What is more worrisome is the heavily front-loaded nature of the maturing debt with substantial refinancing needs in the next 2 years and this regional debt is split between bonds and loans - with many of the latter from Spanish banks - yet another illustration of the interconnected contagion that is building more rapidly. The growing crisis in refinancing (liquidity and costs) for regional debt developed the idea of Ponzibonos 'Hispabonos' - debt issued by regions but guaranteed by the central government. The conditionality of these guarantees with regard to deficit targets wil be critical but once they are issued, the risk is that the regions are unable to get their finances under control, the Spanish debtload increases, and there is no longer the flexibility for a regional debt restructuring, should one be necessary.

Spanish regional debt has grown dramatically in recent years..."


Everyone Is Wondering When Spain Will Become The New Greece

"This post originally appeared at The Automatic Earth.

Another week, another bout of social unrest in a Euro peripheral nation, if the fourth largest economy in the area (Spain) can even be called that. Yesterday's action saw more than a million people take to the streets in protest, while several million actually participated in the 24-hour general strike (about 77% of union workers), resulting in 176 arrests and a 104 injuries. It is estimated that 91% of all large business employees took part in the strike and/or occupied the streets. The Spanish politicians, of course, tried to downplay the rate of participation and claimed victory because the strike wasn't as bad as the last big one in 2010, but those claims merely reveal how their desperation is taking on a ridiculously childish quality at this point.
All of this was in response to newly proposed budget cuts of €27bn that are the harshest in Spain's history (along with a 7% rise in electricity/gas bills), but are STILL estimated to fall well short of what's needed to meet the deficit targets required by the Troika gang. In fact, as TAE readers (and Greeks) should know by now, this severe austerity virtually ensures that deficits and sovereign rates will spiral out of control, necessitating calls for bailouts with capital that simply doesn't exist. With a general unemployment rate of about 23% and youth unemployment at stunning levels of 50%, it is rather surprising that the pain in Spain isn't projecting itself into the streets with even greater force. One thing is for sure - Rajoy and his administration is extremely flustered, and the Eurocrats must be soiling their undergarments right now..."


European Bailout Stigma Shifts From Banks To Sovereigns As Bundesbank Refuses PIG Collateral

"Back in early February, the ECB's Margio Draghi told a naive world when discussing the implication of taking LTRO bailout aid, that “There is no stigma whatsoever on these facilities." We accused him of lying. Additionally, we also suggested to put one's money where Draghi's lies are, and to go long non-LTRO banks, while shorting LTRO recipients. In two short months the spread on that trade has doubled...

... which intuitively is not surprising: after all, as a former Goldmanite (and according to some - current), Draghi is merely treating Europe's taxpayers like the muppets they are. As such, fading anything he says should come as naturally as Stolpering each and every FX trade. Yet what that little incident shows is that despite all their attempts otherwise, the central planners can not contain every single natural consequences of their artificial and destructive actions. Today, we see learn that the same Stigma we warned about, and that Draghi said does not exist, is starting to spread away from just the bailed out banks (becuase we now know that the LTRO was merely a QE-like bailout of several insolvent Italian and Spanish banks), and to sovereigns. From Bloomberg: "Germany’s Bundesbank is the first of the 17 euro-area central banks to refuse to accept as collateral bank bonds guaranteed by member states receiving aid from the European Union and the International Monetary Fund, Frankfurter Allgemeine Zeitung reported." And where Buba goes, everyone else is soon to follow. And what happens then? Since it is inevitable that Spain and Italy will be next on the bailout wagon, what happens when over $2 trillion in bonds suddenly become ineligible for cash collateral from the only solvent central bank in the world (aside for that modest, little TARGET2 issue of course). Will it force the ECB to be ever more lenient with collateral, and how long until the plebs finally realize that the ECB has been doing nothing but outright printing in the past 5 months? What happens to inflationary expectations then?..."


RICHARD RUSSELL: A Massive Stock Market Collapse Will Wipe Out 60 Years Of Inflation And Leveraging

"Richard Russell, writer of the Dow Theory Letters, is just looking for the right time to buy stocks.
But that time isn't now. And until that time comes, Russell will be keeping his wealth in gold.
He writes in King World News:
What I want to illustrate is that great fortunes are made at super-bear market lows. But you must have the money at the lows. Which is why gold is so singular and valuable. If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.
You are then betting on the lasting power of the US. If the US comes back, you will be rich beyond your wildest dreams. But you have to have the guts to hang on to your gold. And you need patience -- the patience of ten men.
And when the time comes, things will get messy before they get good.
And I wonder -- is there a super bear market waiting for us somewhere in the future? The great ride from the end of WWII to today has never been fully corrected. Some day it will be. And impossible bargains in stocks will be lying around -- with very few willing or solvent buyers.
...My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging. When that happens, I want to own the only kind of money that the Fed can't destroy."


Exclusive: Iran helps Syria ship oil to China: sources

"Iran is helping its ally Syria defy Western sanctions by providing a vessel to ship Syrian oil to a state-run company in China, potentially giving the government of President Bashar al-Assad a financial boost worth an estimated $80 million..."


Another Failed Grand Plan In Europe

"European Sovereign Yields have been under pressure for most of the last month...seems the market doesn't buy the firewall idea...

The EFSF has committed €200 billion. Depending on how you viewed EFSF, the maximum was €440 billion of funding at the AAA level (which it still has from Moody’s and Fitch). It could have been as much as €500 billion if it wasn’t focused on that maximum rating.

So how did we get a headline of €800 billion?

€200 billion of EFSF money that has already been committed got counted. They can’t commit it again. Yes this is money Europe has committed (more on how they fund it, later) which helped, but it cannot be committed again.

They also included €49 billion and €53 billion of loans already made to Greece under other EU programs as part of the firewall. Again, that €100 billion has already been spent, so it doesn’t really add anything.

Prior to today, the EU had €300 billion of remaining capacity and had spent or committed €300 billion. Now they have €500 billion of free capacity.

Let’s take a deeper look:

Last fall, Greece, Ireland, and Portugal had just over €600 billion of admitted debt (not the guaranteed hidden kind). So far, they have received €300 of EU commitments. Can we assume that a “bailout” is about 50% of a countries debt? Probably not, but it seems that the first round is less than 50%, but as it goes on, the amount grows beyond 50%, but it is eye opening, that 3 countries, with a total of €600 billion of debt, have needed €300 billion of support already – and look likely to need more. Ireland is getting a new extended payment plan. Portugal seems likely to need more. Greece may need more already to deal with the English law bonds, but in any case will likely draw down more.

So this €500 billion that is remaining, has to not only continue to support the existing countries, but in theory needs to deal with Spain and Italy. With €700 billion and €1.6 trillion, that seems dubious, especially once the mechanics are understood, but before we get to that, let’s look at what the EFSF has already done..."


Thursday, March 29, 2012

CHARLES NENNER: Investors Who Miss This Gold Rally Need To Be 'Educated Better'

"In an interview with Yahoo! Finance's Breakout, market forecaster Charles Nenner projects that gold will rise to a $2,500/oz level in the next "year to year and a half." In addition to his big projection for gold, he expects silver to charge past the $50 barrier..."

BRICS Threaten To Withhold IMF Funding Unless They Get More Voting Power

"The BRICS - Brazil, Russia, India, China and South Africa - have agreed to provide credit to each other in local currencies. Officials say the deal will facilitate economic growth in times of crisis.
­The currency swap deal is aimed at promoting trade and investment in local currencies as well as to cut transaction costs. It’s also seen as a step to replace the dollar as a reserve currency in trade between BRICS.

“The idea is in line with many interests and economic exigencies in the world economy,” Yaroslav Lissovolik, the chief economist at Deutsche Bank told RT. “The euro and dollar are no longer seen as unquestionable monopolies in the role of reserve currencies. Clearly the world needs more reserve currencies.”
The deal would also increase the BRICS influence on the international arena and will make their cooperation less sensitive to sanctions from the West, experts say.
"The BRICS countries are in the first rank to do the job that international financial system now needs. What the BRICS said was a very welcomed wake up call," John Kirton, the Co-Director of the BRICS Reasearch Group told RT.
Russia and China have been trading in the rouble and yuan for several years, now Russia plans to expand local currency settlement with India.

“With China it took us three years to (evolve) from initial conversations to trading in local currencies,” Vladimir Dmitriev, the chairman of Russia’ s VEB told reporters. “I think we will meet similar terms with India”.
Meanwhile the swap requires a lot of technical work by each country such as the synchronization of national banking legislation, according to Mr. Dmitriev.
The BRICS countries are also going to announce plans on a joint development bank which is considered a possible rival to the World Bank and the IMF. If established, it would function as a lending agency and would provide finance for joint BRICS projects..."


Paul Mylchreest Presents Various Visual Case Studies Of Gold Price Manipulation

"When it comes to open questions and general issues surrounding the gold market, The Thunderroad Report's Paul Mylchreest is among the leading contrarian voices who always injects a dose of reality in an otherwise nebulous topic, and one which has been a great disappointment for central bankers over the past century, because as Chris Martenson explained yesterday, "Gold is an objective measure of the degree to which fiat money is being managed well or managed poorly" and never has fiat money been managed as badly as over the past 4 years. In his latest report, Mylchreest focuses on a topic that is near and dear to many precious metal fans: manipulation, and specifically capturing it in practice. In an extended overview of what he dubs various "repeating algorithmic trading programmes" Mylchreest is confident he has enough evidence to demonstrate a recurring pattern of blatant gold manipulation. And he very well may: at the end of the day price merely expresses the relative confidence of buyers versus sellers, still even so we once again go back to the one question we keep on repeating, and one which Martenson also picked up on: if gold is manipulated, so what? Not only so what, but thank you! Because what keeping the price artificially lower does is provides a cheap entry point to pick up physical. As a reminder, those who buy gold, at least so they claim, are not doing it to flip it higher in some fiat equivalent, unless they are merely speculators of course, and instead preparing for the period that follows the collapse of paper money, in which only sound currency, such as gold and silver, will be relevant. In this context, we can only say - bring on the manipulation, in fact send gold to zero if possible please. Frankly neither we, nor anyone else, should be that much concerned with day to day gyration of the value of gold. The long-term trajectory is well-known, however the only question is- does one buy gold to sell it (in dollars, euros, rial, or dong), or to have a true backstop to a failing currency when point T+1 finally comes?..."


European Weakness Spreads And Accelerates

"European equity prices fell for the third day in a row and pulled back near six week lows, breaking below the 50DMA for the first time since it crossed above on 1/16. Today's drop was the largest in three weeks as Italian banks were halted (and Spanish banks sold hard), plunging their most in over three months and back at levels not seen since mid January. Most Italian banks are down 9-11% in March but BMPS is down over 24% as Italian sovereign yields start to come unhinged again (ironically a day after Monti announced the crisis was over). 10Y BTPs broke back below last Friday's lows (the moment the ECB stepped in last time to save the day) up over 5.2% yield - catching up to CDS levels (and ITA spreads are +23bps on the week). Spain is also weak (+15bps on the week) and heading for 3 month highs in its yields. Since the CDS roll (March 20th), the sell-off has accelerated with equity and credit markets tracking lower together (as opposed to the last few months where credit underperforms and then snaps back higher). We discussed the LTRO Stigma trade earlier and that has continued sliding notably wider today as LTRO-encumbered banks hugely underperform. We suspect hedges (sovereign credit, financial credit, and equity) placed early in the year for the 3/20 Greece event (among other things) have run off and now managers are reducing risk in real terms (selling) as opposed to replacing hedges which is why the uber-supported markets of Italy and Spain are losing the battle now. Lastly, Europe's VIX is its richest relative to US VIX since the rally began, jumping dramatically today.
The BE500 (Bloomberg's broad European equity index) dropped for 3 days in a row and the most today in 3 weeks - near 2 month lows..."


BRICS cite obstacles to growth set by debt struck West

"The world’s five largest emerging economies claim the West’s quantitative easing policy is destabilizing their own growth.Should the western cheap cash injection last too long, the developed countries themselves will suffer, experts are warning.
Brazil's President Dilma Roussefftold the fifth annual BRICS summit that while the developed world's monetary policy "brings enormous trade advantages to developed countries, it results in unfair obstacles for others".
The BRICS summit joint statement, signed by the leaders of Brazil, Russia, India, China and South Africa states that the enormous cash slush created by the west to deal with its debt crisis has "been spilling over into emerging economies, fostering excessive volatility in capital flows and commodity prices".
The US Fed, Bank of England and the ECB have injected trillions into their banking systems and cut their key interest rates to boost domestic economies. Lately the ECB alone provided for $1.3 trln in form of the 3-year loans at a very low interest rate, seeking to cool worries around the European money market. The benchmark US Fed rate has been varying within the bottom coring of0-0.25% for more than three years. The ECB rate stands at 1%, while the Bank of England's charges 0.5%.
“Since western countries gets cheap money, they seeks to invest it into the most precious things, which is today commodities,” Tamerlan Khasimikov, a general director at BST Capital Management, told Business RT, “BRICS have real cause for concern, as high demand in commodity driven economies makes them the major destination for foreign investors”


BRICS: Foreign interference in Syria 'unacceptable'

"The world’s five leading emerging economies, represented by Brazil, Russia, India, China and South Africa, have released a statement that condemns foreign interference in Syria.
It is important to give the Arab Republic’s government and the opposition a chance to start a dialogue, “without saying that such a dialogue is doomed to failure from the start and that only military actions can restore order,” President Dmitry Medvedev told reporters on Thursday at the conclusion of the fourth BRICS summit, held in New Delhi, India.
The Russian leader stressed that a military approach to the Syrian crisis, which is pitting anti-government militants against the government of President Bashar al-Assad, would be “the most shortsighted and dangerous.”
He stressed that the BRICS member states “will promote the success” of the Syrian dialogue.
Medvedev also suggested his partners from BRICS organize joint humanitarian aid to the Syrian people.
The Russian president noted that Russia is already providing such aid to the conflict-torn country.
The BRICS Summit also focused their attention on other pressing global issues, including reform of the International Monetary Fund (IMF)..."


Greyerz - European Leaders Lying, Trillions Need to Be Printed

“Spain now has over 700 billion euros of debt, and of that about 14% has been issued in the last three months. That’s over 100 billion euros of debt issued in the last three months. So Europe is hemorrhaging and Spain will be the next Greece.
The Spanish problem is a lot bigger and will be a lot worse. Spanish banks have never taken the correct provision for their property collapse...."


Labor rage: Arrests as General Strike locks Spain

"At least 58 people have been arrested and nine injured in Spain, as thousands take part in a general strike and rally against recent labor reforms. Flag-waving protesters fear the decree will undo employers’ hands and thus rob them of their rights.
The 24-hour general strike began before dawn, along with pickets and sporadic clashes with police. Most of those arrested were detained in the early hours, after trying to stop night shift workers getting to their jobs on public transport, in factories and in wholesale markets.
Demonstrators burnt mattresses, tires and other debris in an attempt to keep workers from their jobs. A Molotov cocktail was even thrown at a police car in the eastern city of Murcia. The car was destroyed and two officers were injured by the flames.
Hundreds of flights were cancelled, several local TV stations went off air, and several factories shut down for the day, including the Nissan and Seat facilities in Catalonia. Hospitals provided only minimal care, while at least a third of public transport was halted..."


United States Is In Talks About Relaxing China’s Access To Technology

"The United States are questioning the current access restrictions to technology in China. Traditionally, these restrictions were to protect the military but now they want to change it up a little to boost economic sales and to form good relations with China.
In just a few months, both countries plan on meeting up to discuss products and technology services. The U.S. plans on putting a significant focus on a select list of over 140 items in hopes that China will make purchases. While the list of items has not yet been disclosed, some of the controlled items are said to include aircraft, engines, depleted uranium, lasers, and telecommunications equipment. Wall Street Journal reports that the U.S. planned this talk for at least over one year..."

Farage - Western World Collaborated in Giant Ponzi Scheme

“What’s happened and we’ve seen it with the ECB, in America and around the Western world, is the central banks have acted in a very concerted manner and have created a whole new, fresh load of money. 

We call it quantitative easing in the United Kingdom, others might even call it a giant Ponzi scheme. But we’ve created all of this fresh credit, and for the moment we’ve kicked the can down the road.
So we are just getting deeper and deeper into problems. Leaving our children and grandchildren with loans that could well take decades to finish (paying) off. I fear we are now stoking up the conditions, at some point in the future, for serious inflation..."

Paul Mladjenovic: Economists Exhibit Lunacy and Confusion over the Gold Standard

"Some conventional and well-known economists have expressed the idea that a gold standard is a bad idea and that the gold standard was a major (and possibly THE major) catalyst for the Great Depression. One well-known fellow surmises that an equivalent of the gold standard is the reason why today’s European financial crisis is going on. In due course, I am sure that they will blame the gold standard for global warming and probably the heartbreak of psoriasis…

The point that critics make is that the gold standard “removes financial flexibility” when a system-wide financial crisis unfolds. They don’t like a gold standard because it is viewed as a “rigid constraint”.
In a monetary system that is on the gold standard, the amount of currency you can produce at will is indeed greatly constrained since the amount of currency (dollars or euros or whatever) is limited to the amount of gold that is on reserve. This condition puts the breaks on the unlimited creation of a currency.

The real problems behind today’s (and yesterday’s) financial crises and depressions have nothing to do with constraints such as a gold standard; the problems come from mismanagement of spending and debt… and governments that are too expansive in their size and scope.

Economists don’t blame governments for spending too much or creating too much debt or printing up too much of their currencies; they blame whatever may stop them from doing so (such as a gold standard). This is insane; it is like blaming the seat belt for a car crash..."


A Reminder...

A reminder from IMF's World Economic Outlook 2009:

"The April 2009 Global Financial Stability Report (GFSR) estimates write-downs on U.S.-originated assets by all financial institutions over 2007–10 will be $2.7 trillion, up from the estimate of $2.2 trillion in January 2009, largely as a result of the worsening prospects for economic growth. Total expected write-downs on global exposures are estimated at about $4 trillion, of which two-thirds will fall on banks and the remainder on insurance companies, pension funds, hedge funds, and other intermediaries."

Eric Sprott - Mainstream Bashes Gold, But New Highs Coming

"Today billionaire Eric Sprott told King World News the central planners are desperately trying to convince the masses that everything is okay. Sprott, who is Chairman of Sprott Asset Management, also said the mainstream media continues to bash gold. But first, he had this to say about the global economy: “I think it’s safe to say we’ve hit that ‘Minsky moment’ where the productive capacity of the country is not capable of paying off the debt. All we’re trying to do is push it down the road so maybe there is some luck and these economies will come to life.”

Eric Sprott continues:
“But all the data we get, whether it’s European PMI, UK GDP, almost any data point we get seems to point to a contraction in Europe. So it’s pretty hard to imagine that anyone is going to pay off their debt when their GDPs are contracting.
So, I think it will be an ongoing process. The powers that be are trying to convince the masses that everything is okay, but the opposite is the case..."

Norcini - Trading “Extremely Violent” & Will End in “Disaster”

"Initially you had money rushing into stocks and commodities with almost everything trading higher across the board. But for the last two days traders have looked at the data and jettisoned stocks and commodities. The bottom line is you are seeing these very large swings of say 2% to 3% per day in key commodities such as copper and silver.
We are also seeing big swings across the grain markets as well. Huge upside moves are followed by huge downside moves intraday. These false buy and sell signals and wild swings have been wreaking havoc in these markets and crushing to many traders.
In my opinion, the Fed and the Working Group on Financial Markets have been actively manipulating key markets. The Fed has been doing this manipulation in an attempt to push investors back into the stock market and out of commodities and hard assets.
Bernanke assists in this manipulation by jawboning key markets. As an example, if the commodities are showing too much strength, he or another member of the Fed will come out and sound hawkish. The Working Group on Financial Markets then goes in and starts putting heavy pressure on key commodities, which triggers a cascade of sell orders. 
This is, effectively, a modern day version of price controls...."

Wednesday, March 28, 2012

BRICS: Not bound by ‘unilateral’ sanctions on Iran

"India and China insist that US sanctions on Iran's oil industry should not apply to their trade ties with Tehran. All of the BRICS countries agree they are not bound by the "unilateral" sanctions against Iran.
­The statement comes as the trade ministers of the BRICS economies – Brazil, Russia, India, China and South Africa – meet ahead of a summit in India.
"I think that we all broadly agree with the proposal, the terminology that was made, that if there are UN Security Council sanctions then we are all bound by that, but if there are sanctions that are imposed by other countries unilaterally, they shouldn't have to apply to us," South Africa's Trade and Industry Minister Rob Davies is cited by Reuters as saying..."


US gears up for land operation in Persian Gulf?

"The US is sending an amphibious assault group and a couple of thousand US Marines to the Persian Gulf. With another US carrier making its way to Iran’s doorstep, US military still insist that this is a “regularly scheduled deployment”.
­The Iwo Jima Amphibious Ready Group is comprised of amphibious assault ship USS Iwo Jima, amphibious transport dock USS New York, and amphibious dock landing ship USS Gunston Hall. It is also reinforced with an atomic submarine and a marine helicopter squadron.
The group, which is “a versatile sea-based force that can be tailored to a variety of missions,” left port on Tuesday and is heading to the Gulf, the US Navy says.
Over 2,000 US Marines are to come on board Iwo Jima when the group makes a stop in North Carolina.
Many of those marines are veterans of ground combat in Iraq and Afghanistan making their first shipboard deployment, points out.
The US already has an amphibious group with an expeditionary marine unit in the Gulf region. The Makin Island Amphibious Ready Group was deployed there in January, after Iran’s threat to close the Strait of Hormuz, a crucial route that allows the delivery of around 20 per cent of the world's oil..."


Goldman On Europe: "Risk Of 'Financial Fires' Is Spreading"

"Germany's recent 'agreement' to expand Europe's fire department (as Goldman euphemestically describes the EFSF/ESM firewall) seems to confirm the prevailing policy view that bigger 'firewalls' would encourage investors to buy European sovereign debt - since the funding backstop will prevent credit shocks spreading contagiously. However, as Francesco Garzarelli notes today, given the Euro-area's closed nature (more than 85% of EU sovereign debt is held by its residents) and the increased 'interconnectedness' of sovereigns and financials (most debt is now held by the MFIs), the risk of 'financial fires' spreading remains high. Due to size limitations (EFSF/ESM totals would not be suggicient to cover the larger markets of Italy and Spain let alone any others), Seniority constraints (as with Greece, the EFSF/ESM will hugely subordinate existing bondholders should action be required, exacerbating rather than mitigating the crisis), and Governance limitations (the existing infrastructure cannot act pre-emptively and so timing - and admission of crisis - could become a limiting factor), it is unlikely that a more sustained realignment of rate differentials (with their macro underpinnings) can occur (especially at the longer-end of the curve). The re-appearance of the Redemption Fund idea (akin to Euro-bonds but without the paperwork) is likely the next step in countering reality..."

Section 4 below is the most critical to understanding the pitfalls of the consensus thinking...


Summarizing The True Sad State Of The World In Two Charts

"You can listen to CNBC, and the president, drone on about the recovery, about the wealth effect, about trickle-down economics, about why adding $150 billion in debt per month is perfectly acceptable, and about a brighter future for America and the world... or you can take a quick look at these two charts and immediately grasp the sad reality of where we stand, and even sadder, where we are headed."

Chart 1

Chart 2

Source: BIS and NYT


Warren Pollock: Overall Derivative Market Contracts - Warning Signs

"I have spoken before about the fallacy of netting and the danger of instability in the derivatives market.

Critical Mass: The Mispricing of Derivatives Risk and How the Financial World Ends

Here is Warren Pollock's take on this and on the recent contraction in nominal value of the global derivatives market.
"Ponzi schemes can go on for a long time under the mask of expansion; these frauds blow up during a contraction of new money being input into them.

Such may be the story of credit derivatives as we see a working contraction in the notional value of these instruments as reported by the comptroller of the currency. In simple terms the number of these instruments has gone down to a mere 240 Trillion!

The premise for this ponzi is the concept of netting whereby risks off offset on paper under the false justification that positions can become risk neutral. In this ponzi scheme the efficacy of the netting process has magically risen from 50% or so to an astounding 92.2%.. This means that the reported risk of 240 Trillion is only 8% of the notional amount.

In less insane times the notional risk was reduced to a mere 50% through the netting process. Even with 8% risk not covered by netting the liabilities of JPM and others are far greater than their assets under management. The problem being that JPM's assets are secured by its liabilities and the liabilities of banks tend to be YOUR Savings.

With changes to Safe Harbor rules the government is not only facilitating fraud with these netting assumptions but they are also putting your savings at risk by giving the coverage of derivatives priority should there be a dispute. This very issue is being worked out presently with MF Global."

Jim Rogers : when the next blow comes, we have nothing left

"Jim Rogers : "Money was too cheap and too plentiful,He caused the stock market bubble and that led to the real estate bubble and the consumer debt bubble. Now those bubbles have burst and what is Ben Bernanke — the current Fed chairman — doing? He's printing more money. Bernanke couldn't get a job as a banker. He's just a printer. That's all he knows how to do. Print money. There isn't enough trees to print all of the money Bernanke wants." "Sure, when the next blow comes, and it will over the next 18 months, we have nothing left." - in gulfnews"


Jim Rogers : Commodity prices still in a major uptrend

"Jim Rogers interviewed by the Indian ET Now 27 March 2012 : commodity prices have not been in a downturn , they may have been in a short term downturn , but long term commodity prices are still in a major uptrend , and that's going to continue , yes they have postponed Armageddon I am glad you put it that way , 2013 and 2014 are what I am most worried about , because this year everybody is trying to just get through the next election , there are 40 elections in 2012 Aisha , everybody is going to do their best to get us through their election " says legendary investor Jim Rogers"


Shiller: Real Chance of Japan-like Housing Slump in US

"Robert Shiller, who coined the term “irrational exuberance,” is one of our favorite economists. He really nails it here on the structural shifts taking place in housing. We agree there is a generational change going on in the sector where the younger “connected” cohort groups are shunning McMansions in the ‘burbs.
Also, the risks of a Japan-like multi-decade slump in housing is much higher than the markets perceive. Is Mr. Bernanke listening?..."


On Spain’s coming under the watchful eye of the Troika in 2012

"This is a thematic post, I am also putting outside the paywall because there is a lot of chatter today about Spain needing to tap EU bailout funds this year. The messaging in the analyst community follows the thematic prediction I made in October 2010 about periphery countries missing targets and this creating a renewed crisis in the euro zone. Just to quote briefly to fix on how this will proceed, I wrote On the Troika’s Coming Occupation of the Periphery:
Translation: continue fiscal austerity until you reduce your deficits significantly. If the depression this creates causes you to miss your fiscal targets, redouble your efforts under the watchful eye of the Troika.
Portugal is out making additional cuts and increasing taxes (link in Spanish). Nevertheless, Olli Rehn has already indicated that Portugal runs the risk of not making its 2011 fiscal targets (link in Portuguese). Even Spain, not under an IMF program, will miss fiscal targets.
So, it is only a matter of time before what is happening in Greece happens at a minimum in Portugal and probably in Ireland as well.
While Ireland and Portugal are already in IMF programs, the worry now is that Spain will follow. Let me break down the different threads briefly. Here are the principal stories I am hearing..."


MBA: Refinance Applications Drop for Sixth Consecutive Week

"From the MBA: Refinance Applications Drop for Sixth Consecutive Week
Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending March 23, 2012. ..."


"There's a fresh note out this morning from Goldman Sachs urging traders to buy gold.

Under our gold framework, US real interest rates are the primary driver of US$-denominated gold prices. However, after being remarkably strong in the first half of 2011, this relationship broke down last fall, with gold prices falling sharply in the face of declining US real rates, as tracked by 10-year
TIPS yields. While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields.
We believe that despite last fall’s decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple benchmarking of real rates to
US consensus growth expectations suggested a level of +40 bp by year end. Our models suggest this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists expect subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/toz.
Goldman isn't the only bank to go bullish on gold lately."


The Rejection of Austerity Begins

"With national elections in Greece only a few weeks away, the coalition that rules the nation finds itself in trouble. Politicians who supported austerity measures as a means to get a bailout of the country’s finances face challenges from candidates who say the government went too far. The reaction is only natural. Many voters have been stripped of benefits, had salaries cut or have lost some form or another of their social safety nets. The upcoming election could sweep new members into parliament, and these new members may try to repeal or modify austerity agreements.
Greece is not the only nation that faces angry voters. Similar circumstances could affect elections in Portugal, Spain and even Italy. A referendum will be held in Ireland to seek support for the nation’s treaty with the European Union, a treaty that is the basis of Ireland’s bailout.
The rounds of national elections could be a year off or more, but this may make it more difficult for current leaders to keep their positions. Austerity’s bite could be felt the most in a few more quarters as governments cut expenses, which may push some nations into recessions, increase unemployment and cut the social services to the elderly..."


Tuesday, March 27, 2012

STRATFOR On Assange: 'Bankrupt The A-------, Ruin His Life, Give Him 7-12 For Conspiracy'

"Fred Burton, Stratfor Vice-President for Counterterrorism and Corporate Security, provided some insight on the strategy against Wikileaks in emails leaked on the Wikileaks website.

"Take down the money. Go after his infrastructure. The tools we are using to nail and de-construct Wiki are the same tools used to dismantle and track aQ [Al Qaeda]. Thank Cheney & 43 [former US President George W. Bush]. Big Brother owns his liberal terrorist arse."
Burton is a former Deputy Chief of the Department of State's counterterrorism division for the Diplomatic Security Service (DSS). The DSS assists the DoD in following leads and doing forensic analysis of hard drives seized by the US Government in ongoing criminal investigations. He also stated what his strategy against Wikileaks founder Julian Assange would be:
"Bankrupt the arsehole first, ruin his life. Give him 7-12 yrs for conspiracy."


PRESENTING: A Blood-Hued History Of The East Coast's Mortgage Meltdown

June 2011

"The Tri-state Area — New York, New Jersey and Connecticut — weren't hit nearly as hard by the housing crisis as the sunbelt states.
But for illustrating how that crisis evolved over time, they make a pretty good test case.
The New York Federal Reserve just released a really cool widget that chronicles the spike in the foreclosure rate in Tri-state counties from 2007 through 2011.
What's most scary about these maps is that for many counties, the foreclosure rate has actually gone back up after coming down for a period — most likely as a result of the stalled "foreclosure pipeline."
Bottom line: We still have a long way to go before the area's housing market fully recovers..."



"A pick-up in this spring’s housing data doesn’t seem to be translating to much in terms of housing prices. Case Shiller reported another decline in housing prices through January as year over year declines showed a -3.9% drop. They said:
Data through January 2012, released today by S&P Indices for its S&P/Case-Shiller Home Price Indices, the leading measure of U.S. home prices, showed annual declines of 3.9% and 3.8% for the 10- and 20-City Composites, respectively. Both composites saw price declines of 0.8% in the month of January. Sixteen of 19 MSAs also saw home prices decrease over the month; only Miami, Phoenix and Washington DC home prices went up versus December 2011..."

Illusion of Cheap Money; Major Promises in Europe But No Real Reform; Does the Bond Market Have it Wrong? 30 years of Japanisation?

"Steen Jakobsen, chief economist at Saxo Bank in Denmark discusses the illusion of cheap money, bond market yields, and the lack of European reform in his latest email.
In Spain, things are going from bad to worse. Last weekend's local election in Andalucia, where Spain’s centre right People’s Party failed to secure an outright majority, left Prime Minister Rajoy without a mandate to carry on with tough austerity.

It was a bad start to week where we on Thursday will see a major general strike aimed at… Yes, you guessed it: Austerity measures.

Spain 10-Year Bonds and 5-Year CDS

Illusion of Cheap Money

The European story remains one of major promises and no actual reforms. A low interest rate and an extreme sense of “security” created by the illusion of easy money and low interest rates won't last forever.

As I wrote in Interest rates: the market has it all wrong, we could be on route to an exit strategy from central banks which at a bare minimum will be a goodbye to “unconventional measures” and if so, the low in interest rate cycle is in place.

30 years of Japanisation?

The only way central banks can create a proper exit from unconventional is to hand over the torch to reforms from governments and politicians. Unlikely, yes, needed?

Absolutely, otherwise we are doomed to 30 years of Japanisation..."

On Europe's 'Stealth' Money Printing

"While much has been made of the public side the ECB's money-printing facade whereby any and every piece of junk collateral can be lodged with the lender-of-first-last-and-only-resort in return for shiny new Euros to spend on government bonds (or save as the case seems to be), there is another facility - the Emergency Liquidity Assistance program (ELA) - that skirts under the radar. As Goldman notes today, the ELA enables the National Central Banks (NCBs) to provide 'liquidity' beyond and above the regular refinancing operations. While the amounts are not quite on the scale of the LTRO, they are large and continue to play a crucial role in stabilizing certain segments of the Euro area banking sector. But, of course, as seems always to be the case, the unintended consequence of this temporary emergency facility is that it appears to have become a permanent facility. This consequence has two rather ugly consequences, it removes still further collateral (assets encumbered) from bank balance sheets and further delays the needed adjustment process (read deleveraging) across the banking sector..."


It's Official - The Fed Is Now Buying European Government Bonds

"As if the 'risk-less' dollar-swaps the Fed has extended to any and every major central bank were not enough, William Dudley just unashamedly admitted that the Fed now holds 'a very small amount of European Sovereign Debt'. Explaining this position, as Bloomberg notes:
Dudley, testifying to a House panel, noted that he doesn't see more efforts by the Fed to buffer the US from Europe's tempests and believes European banks are deleveraging in an orderly manner. So not only is the US taxpayer bailing out Europe via the IMF (as we noted here a week ago using Greece as an intermediary) and the Fed is providing limitless USD swap lines but now we join the ECB in monetizing European government bonds - something we warned might happen back in December 2010. As for being a small amount - wasn't MF Global's holding relatively small too? And aren't we getting a little full from all this buying?"


10 Reasons Why The Reign Of The Dollar As The World Reserve Currency Is About To Come To An End

"The U.S. dollar has probably been the closest thing to a true global currency that the world has ever seen. For decades, the use of the U.S. dollar has been absolutely dominant in international trade. This has had tremendous benefits for the U.S. financial system and for U.S. consumers, and it has given the U.S. government tremendous power and influence around the globe. Today, more than 60 percent of all foreign currency reserves in the world are in U.S. dollars. But there are big changes on the horizon. The mainstream media in the United States has been strangely silent about this, but some of the biggest economies on earth have been making agreements with each other to move away from using the U.S. dollar in international trade. There are also some oil producing nations which have begun selling oil in currencies other than the U.S. dollar, which is a major threat to the petrodollar system which has been in place for nearly four decades. And big international institutions such as the UN and the IMF have even been issuing official reports about the need to move away form the U.S. dollar and toward a new global reserve currency. So the reign of the U.S. dollar as the world reserve currency is definitely being threatened, and the coming shift in international trade is going to have massive implications for the U.S. economy.
A lot of this is being fueled by China. China has the second largest economy on the face of the earth, and the size of the Chinese economy is projected to pass the size of the U.S. economy by 2016. In fact, one economist is even projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.

So China is sitting there and wondering why the U.S. dollar should continue to be so preeminent if the Chinese economy is about to become the number one economy on the planet.

Over the past few years, China and other emerging powers such as Russia have been been quietly making agreements to move away from the U.S. dollar in international trade. The supremacy of the U.S. dollar is not nearly as solid as most Americans believe that it is.

As the U.S. economy continues to fade, it is going to be really hard to argue that the U.S. dollar should continue to function as the primary reserve currency of the world. Things are rapidly changing, and most Americans have no idea where these trends are taking us.

The following are 10 reasons why the reign of the dollar as the world reserve currency is about to come to an end...."


Embry - Massive QE Near as System Moves Closer to Collapse

"With gold moving towards the $1,700 level, up another $23 today, and silver closing in on $33, today King World News interviewed John Embry, Chief Investment Strategist of the $10 billion strong Sprott Asset Management. Embry said US Treasury Secretary Tim Geithner’s comments prove that massive money printing is necessary in order to avoid a collapse. Here is what Embry had to say about the situation: “There is so much interference in the gold market. Because of that it will be interesting to see what price level will spark interest in gold again. I do think it’s important to recognize the news backdrop, the real news, not the constant babble that is coming out of the powers that be.”

John Embry continues:
“As an example, a Congressman Gowdy was questioning Timothy Geithner, in a Congressional hearing. It was interesting the way he asked one of his questions. He asked Geithner, ‘Let’s say we only have one more debt ceiling increase that would have to cover all of the future obligations, what number would that be?’

Geithner backpedaled immediately, he wasn’t going to get involved in this. Then, Congressman Gowdy starting lobbing out numbers, ‘Would it be $20 trillion or $50 trillion?’ Geithner said, ‘I can’t give you that number.’ But then, he finally conceded and said, ‘It would be a lot. It would make you uncomfortable.’
Now that is an astounding statement for the Secretary of the Treasury of the United States...."

A Noose Is Tightening As War Looms

"Rothman is the Founder of Cornerstone Analytics. He has been rated #1 for Independent Energy Research by Institutional Investor Magazine since 2006. Rothman consults directly with governments and has attended every OPEC meeting since 1986. Here is what Rothman had to say about the current situation: “A proverbial noose is tightening around Iran’s economic livelihood as seen by a fairly rapid drop in its output and exports. Withholding payments to ship owners for moving Iran’s crude is the latest tactic to squeeze Tehran’s revenue by targeting the logistics side of the export process.”


Countries Swapping Billions & Transferring Oil Ahead of War

"Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the Unites States. He told King World News that countries are engaging in currency swaps out of fear of being cutoff from international transfers. Fitzwilson also said gold and silver are getting ready for a major move. But first, here is what Fitzwilson had to say about recent developments: “Another development that’s been happening in recent days is swaps are being made. China and Australia just recently completed a $31 billion swap of their currencies. To me that’s tantamount to barter. These countries have essentially pre-positioned their currencies, probably because they are worried about being cutoff from international transfers.”

Robert Fitzwilson continues:

“Jim Sinclair has pointed out what is taking place with the SWIFT system. I would just like to add that SWIFT has now become a weapon in the currency wars and as Sinclair correctly stated, unfortunately the United States is now threatening other countries. We are saying if they do not do what we want, we will cut them off from SWIFT, which will effectively shut down their economy.
We have already seen this with Iran, so India and Iran were trying to do an oil for gold swap. Evidently we’ve warned the Indians because we’re not happy about that. So SWIFT is being used to threaten our trading partners and allies....
“As we now know, South Africa is actively trying to participate in dethroning the dollar as the reserve currency. If you look at the pattern of what is happening, these are like mini earthquakes all over the world. 
When you add these seismic events together, it suggests that something may be imminent, perhaps in the next month or two. Saudi Arabia is suddenly sending 22 million barrels to the United States. Why did they do that? 
Are they trying to get paid for it before there is some sort of eruption in the Middle-East? Is the US stockpiling oil ahead of war? There are military assets being positioned all over the Middle-East, on all sides. So something is building and these countries are taking action ahead of that for self preservation which is understandable.”

Monday, March 26, 2012

The problem of fake gold bars

"You don’t need to be a conspiracy theorist to find this worrying: a 1kg gold bar, certified as 99.98% pure by XRF (X-ray fluorescence) tests, turns out to have been drilled out and largely replaced with tungsten. This bar was discovered only because it was 2 grams lighter than it ought to have been: the forgers failed to add quite enough gold to the outside of the bar to make up for the weight lost when they replaced gold with tungsten. But if they’d gotten the weight right, it would probably still be circulating today.
Of course, there are means of testing gold bars beyond just weight and XRF. If you can weigh the bar accurately, then you can test for purity by essentially dropping it in a bucket of water and seeing how much the water level rises: a gold-covered tungsten bar will displace more water than a pure gold bar. Alternatively, for $3,000 or so you can buy a micro ohm meter, which is easily sensitive enough to tell the difference in conductivity between a pure gold bar and one which is largely tungsten.
But as far as I know, these tests are not particularly commonplace among gold dealers, and in any case only a minuscule fraction of the gold bars in the world are physically traded, changing hands from one owner to the next — the obvious point at which tests like these would be conducted. If you own gold — if you’re a central bank, say, or a physical-gold ETF, or even if you’re just a Ron Paul or Glenn Beck type with your own personal stash — then there’s no realistic chance at all that you’re going to go bar by bar through your own holdings, testing each one.
In the case of gold, then, what JK Galbraith famously called “the bezzle” — the amount of wealth that people think they have, which in fact they don’t have — could be truly enormous. If there are 1.3 million salted 400 oz bars in existence, and each one is 75% tungsten, then that makes 390 million ounces of gold which in truth isn’t there. At $1,660 per ounce, that’s over $600 billion which people think they own but don’t. To put that number in context, it’s roughly half the total quantity of subprime mortgages which had been issued at the height of the housing bubble..."


Financial repression: Then and now

"Rich nations worldwide have a problem with debt. In the past, such problems have been dealt with by several tactics, including 'financial repression'. This column explains how the tactic works and documents its resurgence in the wake of the global and Eurozone crises.

In light of the record or near-record levels of public and private debt, debt-reduction strategies are likely to remain at the forefront of policy discussions in most of the advanced economies for the foreseeable future (Reinhart and Sbrancia 2011).
Throughout history, debt-to-GDP ratios have been reduced by:
  • Economic growth.
  • Fiscal adjustment and austerity plans.
  • Explicit default or restructuring of private and public debt.
  • “Surprise” inflation.
  • Steady financial repression accompanied by steady inflation.
As coined by Ronald McKinnon (1973), the term “financial repression” describes various policies that allow governments to “capture” and “under-pay” domestic savers. Such policies include forced lending to governments by pension funds and other domestic financial institutions, interest-rate caps, capital controls, and many more. Governments have typically used a mixture of these to bring down debt levels, but inflation and financial repression typically only work for domestically held debt (the Eurozone is a special hybrid case). In the current policy discussion, financial repression comes under the “macroprudential regulation” rubric.
Most governments would only contemplate default or surprise inflation in truly desperate economic conditions. In Europe, austerity is being pursued but in the countries that need it most, falling growth tends to offset much of the progress. Little wonder, then, that financial repression is back on the policy menu.
Financial repression, teamed with a steady dose of inflation, cuts debt burdens from two directions:
  • Low nominal interest rates reduce debt servicing costs.
  • Negative real interest rates erode the debt-to-GDP ratio (it is a tax on savers).
Here, inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historic standards).
Financial repression also has some interesting political-economy properties. Unlike other taxes, the “repression” tax rate (or rates) is determined by financial regulations and inflation performance that are opaque to the highly politicised realm of fiscal measures. Given that deficit reduction usually involves highly unpopular expenditure reductions and/or tax increases of one form or another, the relatively “stealthier” financial repression tax may be a more politically palatable alternative for authorities faced with the need to reduce outstanding debts..."


More Bad News for the Dollar

"Buying gasoline these days has turned into a horror show. I filled up my car and handed the attendant a $50 bill to turn the pump on. I had a little more than a quarter of a tank. So, I thought that would do the trick and peg the needle past full with change to spare. I was wrong. I stood in shock as the pump rolled right past $40 and up to $50. The car (which is a Buick Lacrosse) was still not quite full. I thought, $50 is not enough to fill up a standard size car with already more than a quarter of a tank? You could say fuel has gotten expensive, but in reality, the dollar is losing its buying power. Money printing and monster deficits in America are the big problems for the buck. The more dollars we produce, the less each one is worth. The rest of the world has been noticing and moving away from the dollar.
Oil and almost everything else is traded mostly in U.S. dollars globally, but that is changing. There has been a definite move by some of the biggest economies in the world in the last few years to not trade in dollars. China is the second biggest economy in the world and is leading the charge to do business in its own currency–the renminbi. The Financial Times reported last week, “China has signed a $31bn currency swap agreement with Australia, a step towards boosting the renminbi’s profile in developed markets. Beijing has established nearly 20 bilateral swap lines over the past four years, but Australia ranks as the biggest economy yet to sign such a deal, which analysts said could give a shot in the arm to Beijing’s goal of internationalising its currency.” (Click here for the complete story.) This is bad news for the dollar in the long term.
China is also doing business in Saudi Arabia. It is building a new gigantic oil refinery that is slated to be operational in 2014. China is already a key Saudi oil importer, and the upcoming refinery will make the two countries even more intertwined. Is there any reason to believe China will not want to bypass the greenback? A story last week on said, “Essentially, China is running circles around the United States when it comes to locking up strategic oil supplies worldwide. And all of these developments could have tremendous implications for the future of the petrodollar system. . . . So what happens if the petrodollar system collapses? Well, for one thing the value of the U.S. dollar would plummet big time. U.S. consumers would suddenly find that all of those “cheap imported goods” would rise in price dramatically as would the price of gasoline. If you think the price of gas is high now, you just wait until the petrodollar system collapses.” (Click here for the complete story from It is really good!)
The dollar is slowly but surely losing its buying power and reserve currency status. That will mean higher prices over time, especially at the pump. If there is a collapse of the petro dollar system, it would mean higher prices over night."


Caesar Bryan - Central Banks Aggressively Buying Gold

" Caesar told KWN that central banks have been aggressively accumulating physical gold into weakness in the paper price of gold. Caesar went on to discuss silver and the mining shares as well, but first here is what he had to say about gold: “Well, there’s been a bit of a transfer from the paper players, those involved on the COMEX and in the futures market who have been liquidating. On the other hand, the physical buyers, including central banks, are stepping in to accumulate gold.”

Caesar Bryan continues:
“The central banks have been accumulating a great deal of physical gold at these lower levels. So there’s a bit of a tug of war going on between the futures market and the physical market."


Financial black swans driven by ultrafast machine ecology


Society’s drive toward ever faster socio-technical systems, means that there is an urgent need to understand the threat from ‘black swan’ extreme events that might emerge4-19. On 6 May 2010, it took just five minutes for a spontaneous mix of human and machine interactions in the global trading cyberspace to generate an unprecedented system-wide Flash Crash4. However, little is known about what lies ahead in the crucial sub-second regime where humans become unable to respond or intervene sufficiently quickly20,21. Here we analyze a set of 18,520 ultrafast black swan events that we have uncovered in stock-price movements between 2006 and 2011. We provide empirical evidence for, and an accompanying theory of, an abrupt system-wide transition from a mixed human-machine phase to a new all-machine phase characterized by frequent black swan events with ultrafast durations (<650ms for crashes, <950ms for spikes). Our theory quantifies the systemic fluctuations in these two distinct phases in terms of the diversity of the system’s internal ecology and the amount of global information being processed. Our finding that the ten most susceptible entities are major international banks, hints at a hidden relationship between these ultrafast ‘fractures’ and the slow ‘breaking’ of the global financial system post-2006. More generally, our work provides tools to help predict and mitigate the systemic risk developing in any complex socio-technical system that attempts to operate at, or beyond, the limits of human response times..."

Silver Manipulation Caught in the Act; HFT Swamps NASDAQ with 75K SLV Sell Orders Per Second

"Ironically, just days after noted analyst Ted Butler came on the show to explain how silver and other markets are manipulated through the use of high frequency trading, the real-time data feed company, Nanex, showed how the silver ETF (SLV) was forced downwards by a rapid number of machine-generated quotes exceeding a rate of 75,000 per second. Before you start to think that this was merely a bunch of people hitting the sell button all at once, consider this: They were all launched within the space of 25 milliseconds—ten times faster than you and I can blink!

Here’s a chart of the second by second market activity in SLV where you can see the massive lightning-quick spike occurring at 13:22:33.
slv htf spike
Source: Nanex

Ted Butler Explains the Whole Process

"What's happening is that these commercials [or large traders], through HFT, can set the price suddenly down. It didn’t go down because there was massive selling from the commercials, they just set the price down. They know how to do it with their computers by putting in actual orders, and faking it, and spoofing, canceling them right away; but what happens is when the price moves down then the selling comes, which is the intended effect and result. Commercials basically put the price down in order to set off stops because everybody seems to be some type of technical trader in the market that reacts to prices."
Of course, this isn't just limited to the extremely emotional gold and silver markets. A new study released last month, Financial Black Swans Driven by Ultrafast Machine Ecology, looked at 600 different markets around the world and found that these sort of events happen routinely. Over the most recent five years of market data analyzed, 18,520 crashes and spikes occurred at a speed far exceeding human origin.

Making Money from Human Emotion

So what is going on here you might ask? Like the premise of Robert Harris' new fictional sci-fi thriller, The Fear Index, it appears that mathematicians have figured out a way to make money off human emotion. Then again, this really isn't anything new. One very old trick for doing this, as Ted Butler mentions, is by triggering sell-stops. As it turns out, millions of investors around the world reveal their emotional tolerance for how far a stock can vary before automatically buying or selling at a set price. With access to such highly valuable information, one could make a killing by simply preying on the emotional levels of human greed and fear revealed by investors tipping their hand, so to speak, to the market. Of course, analyzing such data with pattern recognition software has advanced light-years since stop-losses were born. That's kindergarten compared to what they're doing now.
As Robert Harris says regarding the technology he imagined, "What they've done in my book is developed an algorithm that can predict the markets by analyzing the incidence of fear related words on the internet—trends on Facebook, Twitter—a sense of the mood. I thought I was making this all up but, of course, I then discovered this is yesterday's news—they've been doing this for years! There's nothing you can invent that these guys, very clever, haven't thought up before you."