Monday, September 30, 2013

We Are Seeing An All-out Defense of the Status Quo (Excerpt)

"L.S.: Will those ‘currency wars’ intensify going forward according to your analysis, and if so, how do you think they will play out?
Jesse.: Yes they will intensify and we are seeing that already. A fiat currency is an exercise in both confidence and power. As confidence weakens, the use of power must intensify to maintain it.

One of the things that people forget is that when one adopts a common currency, they surrender a portion of their economic autonomy. We are seeing this play out in the European Union as monetary theory would predict.
In adopting a common currency, the euro, the entire region thereby agreed to let a central group set their monetary policy for all, which includes the ability to tighten and loosen supply in response to prevailing economic conditions. But whose conditions, when they vary over a broader area?
When a country adopts another currency, they surrender a portion of their own fiscal authority, and thereby their political autonomy. If you do not believe this, just look at what is happening in Greece and Cyprus.
A common fiat currency system works over a large and diverse region such as the United States because in addition to monetary union there is a political union as well, including transfer payments and spending to those regions which may have differing economic conditions. Fiscal policy evens out the blunt force of a unified monetary policy.
This is important, because as the rest of the world is now seeing, the dollar hegemony is not working because the United States is setting monetary policy for itself, but is doing it with the world’s reserve currency. This is where the dislocations begin in some regions of higher natural growth, which see inflation and other effects first that place a stress on their political governance.
The outcome of the currency war will be something like a supra-regional government that encompasses most of the developed world, with the same problems that have become apparent in the European Union that leads to repression, or in some other resolution that permits for local autonomy with more flexibility for international trade. Obviously this is a range of possibilities and the actual result will be evolving somewhere in between.
The creation of a ‘currency’ that is not under the control of a single political authority could be achieved by creating a unit of trade based on a broad basket of national currencies. It ought to include something that is not under the control of a single country,  such as gold or silver.
There will still be manipulation of currencies and metals, but the manipulation would be more difficult because the power of each is diluted within a basket if it has been constructed well.
Since money is power, those who are in control of the money of the status quo, the US dollar, will resist this change, even to their own eventual disadvantage and destruction. Pre-eminent among those are the multinational banks, which are loosely called the Anglo-American banking cartel. This extreme defense of untenable positions is an unfortunate tendency of human nature, and especially of those who are driven to seek power and fear losing it.
 By the way, the US is suffering a protracted recession now because while monetary policy is active, although misguided, the fiscal policy has stopped functioning well because of political deadlock. The monetary policy that Bernanke has set is a trickle down approach, which is obviously failing because it is operating in a system that was already skewed by corruption and has not been reformed. It is like sending aid to a Third World country. The aid is seized by powerful warlords and used for their own advantage, with little reaching the people.
They know this, but they do not care. It is about personal advantage and careers.
In the US in addition to political deadlock, caused by a struggle for power, there is ironically a credibility trap as well. Both sides are dipped so deep in the corruption of the system that they cannot bear to unleash any uncontrolled reform movement, but they are also fighting one another for the spoils. I have seen this play out in the failure of major corporations, and I am seeing it now again on a larger scale..."


Blackstone's Private Equity Head Warns: "We Are In The Middle Of An Epic Credit Bubble"

"Blackstone Group have arguably been at the center of inflating the new echo bubble in real estate by bidding (all cash) for property across the US. So it is somewhat ironic that just two months after we noted that "the smartest money is selling," the head of Blackstone's Private Equity Group had the following words for an audience at a Dow Jones Equity conference in New York:
"We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity."
Joseph Baratta had plenty more to say including "the good times are not going to last forever," and "we are not leveraging US GDP," as he expects a 'mean reversion' in multiples and "that largesse goes to the seller."

The U.S. is "in the middle of an epic credit bubble," according to Blackstone Group's global head of private equity, Joseph Baratta , and that bubble is affecting how one of the world's largest private equity firm's invests its billions.

The firm has slowed its investments amid such concerns, with Mr. Baratta saying he sees easy credit as adding risk for buyers of companies, even if it benefits sellers. "That largesse goes to the seller," Mr. Baratta said, speaking at the Private Equity Analyst conference in New York.

The firm is still bullish on prospects in the U.S. economy, but focused on certain investment areas. Energy, transport infrastructure, consumer finance and housing and construction remain attractive investment theses, Mr. Baratta said.

"We are not leveraging U.S. GDP," he said, because the good times are not going to last forever. The firm expects what Mr. Baratta called a "mean reversion," which he said will ultimately affect exit multiples at portfolio companies.

"The single biggest assumption we make is the multiple we can sell [a company] at five years hence," said Mr. Baratta, and right now those projections do not seem to warrant a lot of deal activity."


3 Disasters Now Threaten To Collapse The World Economy

"With continued uncertainty in global markets, today the 42-year market veteran, who correctly predicted that the Fed would not taper, is now warning King World News that 3 disasters threaten to collapse the world economy.  He also discussed what all of this means for major countries and key markets such as gold and silver.  Below is what Egon von Greyerz, founder of Matterhorn Asset Management out of Switzerland, had to say in his interview.

Greyerz:  “Eric, we have three potential disaster areas in the world:  Europe, the US, and Japan.  And each one of these areas have problems of a magnitude which would be sufficient to trigger a collapse of the world economy and of the global financial system.

But the combined problems of these three areas are guaranteed to change the world as we know it today...."


Friday, September 27, 2013

Massive Gold Earthquake Now Shaking The Financial System

"...Since the collapse in 1971 of the old fixed exchange rate system under Bretton Woods, the world has been using the dollar as the international reserve currency.  While each country has control over their money and interest rates, the benchmark remains the US dollar.  However, in the past dozen years, the US federal monetary policy has been the world’s de facto monetary policy, a form of financial protectionism.  The dilemma for each country other than the United States is that a “made in Washington” policy is not necessarily, Beijing’s or Brazil’s policy.

Gold is a Default Currency
The US Federal Reserve has flooded the emerging markets with dollars.  However, with the slowdown, many emerging countries have seen their currencies drop against the dollar, causing them to purchase their currencies in a support arrangement.  Emerging markets now make up over half of the world’s GDP and what they do with their currencies or the US dollar has international ramifications.  For example, the coming showdown over debt could lead to a government shutdown and a collapse of the dollar when those dollars come home to roost. 
The big risk is that the emerging countries, in order to protect their currencies will wash their hands on America and Mr. Bernanke’s successor will have to live with the consequences.  After all, America is the world’s largest debtor and the emerging markets are the largest creditor and in diversifying their holdings into gold for example, they are only defending their purchasing power.
China too is making a major adjustment.  In warp speed fashion, it has loosened controls around the renminbi, moving the renminbi to the top 10 currencies and there is talk of backing the renminbi with a little gold.  China is the world’s largest gold producer and this year will prove to be the largest gold consumer, surpassing India.  The financial crisis gave China a vivid lesson depending on another country for its reserve currency.  The Chinese have a problem with what to do with their outsized $3.5 trillion of foreign exchange reserves. 
They are big holders of US Treasuries but will suffer big losses when the Fed exits the market.  China has hedged their bets and diversified.  It has been reported that they have been adding to their 1,000 tonnes of gold, which represents less than two percent of their reserves.  Even if China were to buy the next three years of total world output they would have less 10 percent of their reserves in gold, the average of most Western central banks.

Central banks hold a little more than 30,000 metric tons of gold or less than twenty percent of the above ground gold stocks.  United States is the largest holder at 8,000 tonnes with the IMF, Switzerland and now the Russians all now holding more than a thousand tonnes of gold each.  China, Russia, Kyrgyzstan, and Turkey are buying gold with their excess dollars.  Gold is an alternative investment to the dollar for these central banks.  Change is coming.  A stable international system has eluded the world since the end of the gold standard.  Perhaps the solution is back to the future.  Gold is the default currency..."


Disastrous Error Has Increased The Risk Of A Major Collapse

"The Fed’s blinking on tapering was due to their concern over the uptick in interest rates following Mr. Bernanke’s musings in June.  While the markets soared on his back-peddling, there are reasons to worry.  The economy is still weak despite trillions of stimuli.  Today, even the Fed is addicted to low interest rates.  And coming soon are the negotiations between the White House and Congress which could trigger a Federal shutdown next month.  Ironically, none of this is going to give the economy a boost.

We believe that America botched the “exit” partly because nobody has tried it on this scale before...."

Thursday, September 26, 2013

RICHARD KOO: Forget Hyperinflation — The Fed Is Now Facing The True Cost Of Quantitative Easing

"In the press conference following the decision, Fed chairman Ben Bernanke cited the recent rise in long-term interest rates — spurred by Bernanke's previous press conference in July, during which he seemed to endorse it — as a reason for the delay. Rates had risen too far, too fast, and they were presenting a threat to sustainable economic growth.
Nomura chief economist Richard Koo calls this a "QE 'trap' of [the Fed's] own making," writing in a note to clients that the Fed's decision last week is a clear sign that a "vicious cycle of rising rates and economic weakness has already emerged."
The yield on the 10-year U.S. Treasury note rose as high as 3.0% in the weeks before the Fed announced its decision not to taper.
"Instead of falling back to 2.0% or lower following the Fed’s decision to delay tapering, the 10-year Treasury yield has settled at around 2.5%, which means the next rise in rates could easily take the 10-year yield into 3.0%-plus territory," says Koo. "I worry that this kind of intermittent increase in rates threatens the recoveries in interest- rate-sensitive sectors such as housing and automobiles. That could lead to renewed hesitance at the Fed and prompt it to temporarily shelve or postpone tapering."
That's how the vicious cycle starts.
"While rates might then decline, reassuring the markets for a few months, talk of tapering would probably re-emerge as soon as the data showed some improvements, pushing rates higher and serving as a brake on the recovery," says Koo. "Then the Fed would again be forced to delay or cancel tapering. In my view, recent events have greatly increased the likelihood of this kind of 'on again, off again' scenario, something I warned about in my last report. To be honest, I did not expect it to occur so soon."
Now that it's here, though, Koo writes that the Fed is facing the true cost of QE:
Given that this would never have been a problem if the central bank had not engaged in quantitative easing, I think the US is now facing the real cost of its policy decision.
Had the Fed not implemented QE, long-term rates would not have risen so early in the rebound, and the economic recovery would have proceeded smoothly. Now, any talk of ending QE pushes long-term rates higher and throws cold water on the economy, making it more difficult to discontinue the policy.
That raises the possibility that by buying longer-term securities the central banks of the US, the UK and Japan have placed themselves in a QE “trap” of their own making and will be unable to escape for many years to come. I have previously described QE as a policy that is easy to begin and hard—even scary— to end. The recent drama over tapering signals the start of the less-pleasant second part.
"Amid all the talk of ending QE, I think hyperinflation is a less likely outcome than a QE 'trap'," says Koo. "As soon as the economy picks up a bit, the authorities begin to talk about tapering, which sends long-term rates sharply higher and nips the recovery and inflation in the bud, effectively preventing them from winding down the policy. In this kind of world the economy never fully recovers because businesses and households live in constant fear of a sharp rise in long-term rates."

The Financial States of America and Why the European Union Is Inherently Unstable

"I am including this because it shows the economic diversity in growth and wealth amongst the States.

And they all function under a common currency. Why does this work whereas the Eurozone is having such problems?

That is because with a common currency union, a political and fiscal union are required as well. This is a hard lesson from monetary theory and history.

When you have a fiat system with a central authority setting policy according to economic conditions over a geographic area in which there is diversity, there must be fiscal policy and transfer payments to 'even out' the effects of that monetary policy.

That is why the European Union is inherently unsustainable, because it is a monetary union without a public policy and fiscal union.

The EU cannot possibly create the appropriate single government, without undue hardship. So they must consider allowing the individual countries or regions to conduct their own monetary policy and have their own currency and exchange rates.

Source: Financial States of America
This chart is from  They are responsible for the data and the figures."


Massive Sovereign Bid In The Gold Market At This Price Level

"Today one of the savviest and most well-connected hedge fund managers in the world spoke with King World News about the exact price level where a large sovereign buyer has a massive order for physical gold.  He also updated KWN readers on the state of physical demand around the world for gold, as well as the extreme leverage being employed in the gold market.  Outspoken Hong Kong hedge fund manager William Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, had this to say in his powerful interview.
Kaye:  “It’s apparent to me that the orchestration against gold is not over.  The paper gold market is the dog wagging the tail of the real gold market, the physical gold market, which is still incredibly robust.  In my area of the world, Chinese demand, Indian demand, and so forth, is very strong. 

So, your listeners (and readers) need to be clear that we have none of the characteristics of a bear market (in gold).  Gold is still very much in a bull market, but that’s physical gold.  The claims on paper gold exceed physical gold by roughly 93 to 1....
“Those aren’t my numbers, those are the Reserve Bank of India’s calculations, and they are the ultimate insider.  So at 93 to 1 you (as manipulators) have a chance to use that leverage, until you can’t, to try to dictate prices. 
And prices are now being dictated in terms that are very favorable to people looking to buy gold, which certainly is the Chinese, the Reserve Bank of India, the central bank of Russia, and so forth.  We also continue to buy gold.  We consider this to be very attractive levels, so we continue to buy.”
Eric King:  “Bill, there is a big buyer just below the market here isn’t there?”
Kaye:  “At the moment, yes.  Right around the $1,305 to $1,310 level there is a huge sovereign buyer.  I suspect it’s China ... They are clearly running out of gold.  This is clear from the continued backwardation of gold, and the continued negative GOFO rates, which is basically the same thing.
It’s very obvious to me that the parties which are orchestrating this manipulation are running out of physical metal necessary to orchestrate the manipulation ... If we can just get it (this downside move) over with in the next couple of weeks that would be fantastic. 
Then gold would migrate much higher and we would seek the equilibrium price for gold, which in my opinion is well above $2,000 an ounce, absent manipulation, and possibly $3,000 an ounce.  It’s going to be very good times for people who were able to endure the pain.”


The Shocking Truth About Secret Documents & The CFTC

"In the aftermath of the CFTC announcing that it has closed its investigation into silver market manipulation, today King World News spoke to the man who has been focused on uncovering sensitive government and market information for over 15 years.  What he had to say will shock KWN readers around the world.  Chris Powell covered everything from secret government documents, to market manipulation, gold, and what was really behind the CFTC closing its silver investigation.  Below is what Powell had to say in this remarkable interview.
Eric King:  “Chris, we have had this announcement today from the CFTC that they have dropped their investigation of silver manipulation.”
Powell:  “A lot of the complaints which have been made about market manipulation over the years have been directed at JP Morgan.  In recent years, JP Morgan has said they are innocent of manipulating the metals markets -- that they don’t trade in the metals markets in their own account, they do it just for clients.
I am inclined to take them at their word, insofar as those ‘clients’ are likely to be the US government.  The US government very likely trades in the metals markets every single day, either through agents or through the Bank for International Settlements.  Remember, the BIS is a gold bank whose only clients are governments....
“If the CFTC discovered that the rigging of the monetary metals markets is essentially government policy, being conducted through intermediaries, then it would not be able to act against government agents. 
By federal law, the Gold Exchange Act of 1934 specifically authorizes the US government to rig not only the gold market, but to rig any (financial) market surreptitiously through the Exchange Stabilization Fund.  If the CFTC has discovered that market rigging is taking place because of US government policy, then according to law there is nothing to be done about it.”
Eric King:  “Can you talk about your appearances in court on this matter, the major law firms, who they represented and what transpired?”
Powell:  “I bumped into the Exchange Stabilization Fund and JP Morgan back in 2001, when we were underwriting Reg Howe’s lawsuit against the Bank for International Settlements, the Fed, the US Treasury, JP Morgan, and other bullion banks.  Reg was charging them with gold market manipulation.

In one hearing I attended in US District Court in Boston, an assistant US attorney got up, speaking on behalf of the US government, and he said that the US government under the Exchange Stabilization Fund Statute, the Gold Reserve Act of 1934, had precisely the power to interfere with the pricing of gold that the lawsuit complained of -- that is, a US government lawyer declared in open court, in 2001, that rigging the gold market as government policy is totally authorized by law.
You will find the US Treasury Department quoting the Gold Reserve Act as saying the Exchange Stabilization Fund can intervene, as I said previously, not only in the gold market, but in any financial market.  This intervention power is essentially an economic declaration of war against every other nation in the world.
At that historic hearing in Boston, I witnessed one man, Reg Howe, who was essentially taking on the greatest powers on Earth.  He sat as one man, a Harvard trained lawyer, against an army of lawyers representing all of the high-powered defendants in the case. 
Of course the army of lawyers were representing the Fed and the US Treasury, but they were also representing JP Morgan, Goldman Sachs and other investment banks.  It was literally like David against an army of Goliaths.  I’ll never forget that scene for the rest of my life.  But in that hearing in Boston, the government, allied with the major bullion banks, was saying, ‘We have the power, under the law, to rig the gold market and any other financial market.’
The mainstream media will never admit to this fact because they are essentially part of a machine.  But there it is, the United States government claims the power to rig the gold market and every financial market, and to do it in secret.”

Wednesday, September 25, 2013

Fives Tonnes of Customer Gold Leave the HSBC Vault

"On Monday 173,582 ounces, or roughly five tonnes, of customer gold was withdrawn the HSBC warehouse.

This takes the total gold in all of the COMEX warehouses to a new low of 6,860,160 ounces in 100 oz. bars.

The portion of this that is deliverable or 'dealer gold' remains at 672,000 ounces.

While this is adequate for the non-active delivery month of September, these are slim numbers for the upcoming active delivery month of October, and hardly appropriate for the contracts that are held through December, at least at these prices.

I will include additional charts as appropriate later on this evening.

These inventory figures indicate that option expiration shenanigans aside, higher prices will be required to move more gold into the dealer category and clear the markets at the COMEX.  The blatant price manipulation in paper has led to a tough situation for the banking cartel which seems to be at the apogee of their power, despite a prominent role in the financial crisis of only five years ago..."


The Fiscal Problems in the US are severe, but not as severe as in Japan

"Nouriel Roubini : “The fiscal problems in the US are severe, but on a relative basis, they’re not as severe as in Japan, the euro zone and the UK,” he said..."


Current Debt Trajectory Will Lead To Western Disintegration

"In the aftermath of last week’s disaster for the Fed, today Canadian legend John Ing warned King World News that the current debt trajectory will lead to Western disintegration and soaring gold prices.  Ing, who has been in the business for 43 years, also spoke about the devastating situation the Fed now faces as the world gets closer to turning its back on the US.  Below is what the 43 year market veteran had to say in this powerful interview.
Ing:  “Unfortunately, the pattern we have seen in history when countries spend beyond their means and take on too much debt and can’t pay that debt, then we see default.  Default seems ridiculous because everybody says, ‘America can always print more.’ 
But we must look at Argentina as an example.  We are going to see the second default in 10 years in Argentina of sovereign credit.  So, unquestionably there is going to be a line in the sand.  It’s going to be twisted and bent line, but just as tapering can’t happen, the exit is going to be rebranded and it will just be an attempt to pile on even more debt.  The problem is, as we have seen in Europe, it’s unsustainable and it will end in tragedy.
All of this will be left to Bernanke’s successor.  We also know that because Bernanke’s successor will be dovish, the harsh reality is that eventually America is going to have to be told to stop printing.  America will essentially be told that they can’t keep producing dollars to service their debt.  But the dollar will experience a major devaluation.  That is what we are going to see rather than default.
America has been prolific at debasing its currency, and for a long time everybody has accepted that.  But the problem America faces going forward is the rapid emergence of the Chinese currency.  The Chinese already have one of the top ten currencies in the world.  However, my expectation is that the classic currency choice in the future will be gold.”


This Is Why The Price Of Gold Is Now Set To Super-Surge

"On the heels of some chaotic trading in the gold, silver, stock and bond markets last week, after the Fed decision not to taper, today top Citi analyst Tom Fitzpatrick sent King World news 3 amazing gold and US dollar charts.  Fitzpatrick had previously indicated to KWN that he expects a massive 150% surge in gold, and a staggering 300% move higher in silver.  He also believes the Fed’s credibility has been severely damaged by their decision not to taper.  Below are his 3 astonishing charts & comments about what to expect next from the metals.
Eric King:  “Tom, we will get to gold and the US dollar in just a minute, but first your thoughts in the aftermath of the Fed decision not to taper?”
“The whole of the market expectation, as guided by the Fed, was that we were going to see some tapering of some sort.  As we saw data deteriorate going into the Fed meeting everybody thought that they were going to reduce, but nobody was ready for the ‘non-move.’....
...Eric King:  “Where does that leave us as far as the gold market, Tom?”
Tom Fitzpatrick:  “You know that we have always been of the view that the down-move in gold to the $1,180 area was the end of the much larger correction in gold.  But we are also watching the dynamics of the action in the equity markets.
We are looking at how gold performed during the stock market collapse during the 1973 - 1974 time frame.  Gold went up dramatically during that market collapse.  You can also track the next strong rally in gold very closely to the period when the subsequent market rally ran out of steam in 1976 (see chart below).

We have also overlaid things like the interest rate surge in the 1970s, the rising oil price, consumer confidence, etc., when looking at the dynamic price action in gold during the 1970s time period.”
King World News note:  On the chart above you can see the huge move in gold during the massive 1973 - 1974 bear market, as well as the subsequent explosion in gold beginning in 1976.  The chart below isolates just the 1976 - 1980 manic move in gold as stocks struggled.

Fitzpatrick continues: “All of this has led us to the conclusion that the equity market could really start to struggle in the September - October time period of this year.  It’s quite possible that the ‘put’ factor might be coming out of the equity market.  If this is correct and we do get this downside move that we expect in the general stock market, this would be a setup for conditions that would see the gold price trade significantly to the upside.
Circling back to the Fed, I think that at the end of the day they had an opportunity, they gave a guidance, and tapering was the right thing to do.  It’s our view that not only was it a mistake to give that level of guidance and then back away from it, but overall I think it’s going to be shown to be a mistake not to taper.
Increasingly this is delivering a bad message from the Fed.  The Fed told people that after QE1 they were bringing it to an end, and then they flipped.  They told people the same thing after QE2, and they flipped again.  After ‘Operation Twist’ it was the same message, but they flipped once again.
So the Fed habitually guides toward the idea of taking back some of the accommodation, the bond market reacts by plunging, rates go higher, and this has a negative feedback loop in the economy, and then the Fed chokes and fails to execute what they promised.  So the market reaction has helped to keep the Fed trapped and round and round the circle this has gone for the past 3 years.
I wouldn’t like to be the one going on record talking about the Fed losing credibility altogether, but I think without a shadow of a doubt if you look at the feedback following this latest decision not to taper, there are a lot of people who believe the Fed lost a lot of credibility with regard to how they have managed this process.”

Tuesday, September 24, 2013

This Will End In Catastrophic Collapse & Tragedy For The West

"In the aftermath of a disastrous week for the Fed, which culminated in Friday’s desperate propaganda from the Fed’s James Bullard, today a man who has been involved in the financial markets for 50 years warned King World News that this will “... end in a catastrophic collapse and tragedy for virtually every single human being in the West.”  Below is what John Embry had to say in this powerful interview.
Embry:  “Right now I am focused on the egregious price behavior of gold and silver in the wake of the ‘no taper’ decision by the U.S. Federal Reserve.  Before this decision was made public, 95% of the pundits were talking about some degree of tapering.
As this discussion of tapering was taking place, the gold price was crushed from about $1,420 down to $1,300.  What was shocking to most people was that the Fed’s decision sparked a one-day $60 rally in the gold price....
“Well, after trading sideways on Thursday, on a Triple-Witching Friday the gold price was attacked and surrendered 2/3 of its gains.
But it’s worse than that because as I said gold was taken down ahead of this decision and it is now roughly $100 lower than before this situation really became an issue.  So this is egregious behavior and it is discouraging to many investors.  This counterintuitive price action also continues to drive people away from the gold market.
My attitude is the exact opposite.  This is a gift.  Investors are getting one of the world’s most undervalued assets at giveaway prices, and this is at a time when they are getting ready to totally destroy the world currency system as we know it.  There was a logical explosion higher in gold after the ‘no taper’ was announced. 
The only cover that could be used for that takedown on Friday were some remarks from Bullard, who isn’t even a voting member of the Fed.  Bullard said that just because they didn’t taper doesn’t mean they won’t do it next month or the month after, depending on economic statistics.  This is all just bullsh*t propaganda which is used to try to control the gold price and keep people away from it.
We will continue to have this type of propaganda from the Fed, but the problem is that the physical shortages in the gold market are real.  There has been a massive amount of gold being offloaded to the East.  If you just look at the gold demand from India, China and Russia, they are consuming more than the entire world’s annual mine production.  So people ask, ‘Where is all of the gold coming from?’  Well, it’s coming from GLD and Western central banks, but at some point, when things really get messy in the financial world and demand for physical gold surges even higher, the price of gold is going to explode.
Am I frustrated in the very short-term?  Yes, I am frustrated.  But am I the least bit concerned about where gold is headed in the long-term?  Not in the least.  Gold will eventually head much higher than anybody thinks possible.  Meaning, the eventual upside move will be greatly exacerbated because of this continued price suppression.”


Calm Before The Storm As The World Heads Into 2nd Meltdown

"With continued uncertainty in global markets, today acclaimed money manager Stephen Leeb warned King World News that what we are seeing right now is the “calm before the storm” as the world heads dangerously into a second “meltdown.”  Below is what the acclaimed money manager had to say in this candid interview.
Leeb:  “In Europe, despite Merkel’s overwhelming victory, she still has to bring together a coalition.  There are great concerns inside Germany about how much money Germany has lent out in order to support the weaker economies.  Also, there is concern about what the long-term effects of that lending will be.

So, the prognosis for the euro is not particularly good...."

Sunday, September 22, 2013

Guest Post: The Case For Investing In Gold

"Submitted by Tomas Salamanca of the Ludwig von Mises Institute of Canada,

The last two years have been disappointing for gold investors and what happened this week to the yellow metal epitomized the frustrating price movement. After the Fed startled the markets by announcing that it was going to continue with its current rate of bond purchases, gold shot up from just under $1300 an ounce to $1370. But late Thursday, it started to back off somewhat from those gains before falling sharply on Friday.  It ended the week at $1325, virtually unchanged from the prior week.

How can that possibly be?  It has, after all, become more evident that the Fed is politically hindered from turning off the money spigot. If gold can’t stay elevated on that development, what hope is there going forward that it will resume its decade-long uptrend and eventually overtake the  2011 high of $1900 per ounce? And so why bother investing in gold?

Yet the case for investing in gold does not depend on the market’s reaction to the Fed’s latest doings. For a trader in gold — someone looking to profit from taking a position over a period of days or weeks — it certainly would.  An investor, by contrast, has a longer time horizon — years, if not decades. For the investor, whether or not to buy gold necessarily entails forming a judgement about the larger and more enduring forces that impinge on its price. Is our politico-economic system, in other words, congenitally disposed to the cheapening of the currency?

Those who invest in gold basically answer yes. And they have very solid grounds for that stance. In the democratic polities that prevail today in the developed world, politicians have very strong incentives to run budget deficits. For the way to maximize votes is to spend money on benefits for the public and then to simultaneously minimize the taxes levied to fund those benefits.

Propelling this dynamic along is that the economies of developed nations have liquid bond markets in which government debt securities, whose safety can be believably affirmed by the state’s power to tax,  are eagerly sought by risk-averse investors. In this way, the bond market greatly relaxes budgetary constraints on politicians, being equivalent to a payday loan provider that ensnares a spendthrift individual into amassing a huge debt.  When this debt becomes unsustainable, and the bond market finally acknowledges the mess it enabled, politicians must decide between imposing fiscal austerity or printing money to pay off the debt. The latter is the politically more attractive option, especially as the resulting inflation can be blamed on private industry. The recognition of this inflationary tendency built into our politico-economic framework is what constitutes the case for investing in gold.

Nor is this all just idle theorizing. The logic of a democratic inflationary bias is well illustrated by the historical experience since August 1971. This is when the last remnants of an external constraint on money supply creation was done away with by President Nixon’s closing of the gold window. Before then, the U.S. government stood ready (at least vis-a-vis other central banks) to exchange dollars for gold at $35 per ounce. How would someone, aware of the long-term inflationary threat that Nixon’s decision posed, have done had they invested in gold at the time and held it until now?   The answer is that they would have generated an 8.7% annualized rate of return.

Compare that to investing in stocks. Let’s say you invested in the S&P 500 index over the same time frame. Now one big difference between investing in gold and stocks is that the latter pay dividends. So to make our comparative test of gold even stronger, let’s assume one reinvested the dividends in the S&P 500. How much would such an investment in the S&P 500 have returned? The answer is 10.2%. Yes, that’s 1.5% more than gold, but with shares one is actually betting on a group of private companies’ ability to generate profits. With gold, one is simply looking to preserve purchasing power over goods and services. To have only sacrificed 1.5% for this more modest aim has arguably been a good deal.

Or let’s pit gold against government bonds. What we are comparing here is actually closer. Like gold, government bonds do not involve a play on future company profitability.  Their yield is supposed to cover the time value of money as well as compensate for expected inflation. So how would an investment in 10 year US treasury securities, with a reinvestment of their coupon interest payments, have performed from 1971 until now? The annualized rate of return was 7%. That’s 1.7% less than holding gold.


Over the past forty two years, one would have been better off holding what Keynes called the barbarous relic than what are commonly described as the safest securities in the world. Unless there is a tectonic change in our politico-economic structure — such as a return to a hard money standard — it’s hard to see how this will change."


JPMorgan Says "Buy Gold"

"The FOMC shocked markets by deciding not to slow its large-scale asset purchase program, after all the signals it had sent out in previous months that it would do so. While increasing policy risk, JPMorgan notes, this puts the asset-reflation trades back on the table. In their view, the main driver of gold’s performance over the past five years has been QE. As QE continued and inflation expectations remained subdued, the demand for an inflation hedge subsided, ETF positions were unwound and gold prices fell. However, JPM now believes, as a result of the Fed's volte-face on tapering, uncertainty about future inflation may pick up and suggest a long position in gold. Of course, the question is - are they buying or is this a last ditch effort to drain what little remaining gold they have in their vault to their hapless clients?

JPMorgan On Gold:

This week’s surprise by the Fed in not tapering their asset purchases led to a 5% rally in precious metals. In our view, the main driver of gold’s performance over the past five years has been QE. Following the 2008 crisis, the unprecedented expansion of central bank balance sheets led to fears of inflation further down the road and resulted in very strong demand for gold, a large amount of which came via ETFs.

As QE continued and inflation expectations remained subdued, this demand for an inflation hedge subsided, ETF positions were unwound and gold prices fell. Along with precious metals rallying, inflation breakevens widened following the Fed announcement, another indication that uncertainty around future inflation may pick up as a result of the Fed’s volte-face on tapering.

Additionally, positions are much cleaner now, following the unwinding of ETF positions, and physical demand from retail buyers in Asia has been very strong.

We open a long position in gold."


Guest Post: Gold And Monetary Inflation Prospects

"Submitted by Alasdair Macleod via,

On Wednesday last the Fed surprised most people by deciding not to taper. What is not generally appreciated is that once a central bank starts to use monetary expansion as a cure-all it is extremely difficult for it to stop. This is the basic reason the Fed has not pursued the idea, and why it most probably never will.

That is a strong statement. But consider this: Paul Volcker faced this same dilemma in 1979, when he was appointed Chairman of the Fed. In raising interest rates to choke off inflation he had two things going for him that his successor has not: rising inflation was already over 10% so was an obvious priority, and importantly private sector debt-to-GDP was at a far lower level than today. It was a tough decision at the time to nearly double interest rates. Today, with official inflation low and private sector indebtedness high it would be extremely difficult.

Until official inflation picks up, it is far more comforting to pretend it won’t be an issue, which reasonably describes the Fed’s approach. Instead it is targeting unemployment rates, on the basis that price inflation is tied to capacity utilisation, which in turn is tied to employment.

One thing is certain in life, besides death and taxes, and that is if you expand the quantity of money prices eventually rise; or more accurately the purchasing power of debased money falls. The problem is how to measure currency debasement, and this has been a topic of heated debate since fiat currencies first developed. This has led me to propose a new measure of money, which at James Turk’s suggestion I am calling the Fiat Money Quantity (FMQ). The purpose is to gives us a measure of fiat money that enables us to assess the danger of currency hyperinflation. I shall be publishing a paper on this shortly explaining the methodology.

The principle behind it is to signal deviations from the long-term trend of currency growth to alert us to both monetary crises and excessive inflation. The approach is to unwind the historic progression from full gold convertibility to the current state of no convertibility. Our gold was first deposited with our banks, and then from there with the central bank. In return for our gold deposits we have been issued cash notes and coin and credits in the form of deposits at the bank, and our bank equally has deposits at the central bank.

The FMQ is therefore comprised of the sum of cash and coin, plus all accessible deposits, plus our bank’s deposits held at the central bank. This for the US dollar is illustrated in the chart below.

Fiat money quantity

The dotted line is the long-term exponential trend rate, and it is immediately obvious that the FMQ is now hyper-inflating. It currently requires a $3.6 trillion contraction of deposits to return this measure of currency quantity back to trend.

This accurately sums up the problem facing the Fed. We must understand they are in an almost impossible position that dates back to their monetary response to the banking crisis. Not even Paul Volcker could have got us out of this one. Once the addiction to weak money hits this pace there is no solution without threatening to bring down the whole system."


Too Big To Fail Is Now Bigger Than Ever Before

"The too big to fail banks are now much, much larger than they were the last time they caused so much trouble.  The six largest banks in the United States have gotten 37 percent larger over the past five years.  Meanwhile, 1,400 smaller banks have disappeared from the banking industry during that time.  What this means is that the health of JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley is more critical to the U.S. economy than ever before.  If they were "too big to fail" back in 2008, then now they must be "too colossal to collapse".  Without these banks, we do not have an economy.  The six largest banks control 67 percent of all U.S. banking assets, and Bank of America accounted for about a third of all business loans by itself last year.  Our entire economy is based on credit, and these giant banks are at the very core of our system of credit.  If these banks were to collapse, a brutal economic depression would be guaranteed.  Unfortunately, as you will see later in this article, these banks did not learn anything from 2008 and are being exceedingly reckless.  They are counting on the rest of us bailing them out if something goes wrong, but that might not happen next time around..."


Massive Currency Debasement will Rally Gold Prices

"Jim Rogers : It is is a massive currency debasement all over the world , every major central bank in the world is printing money..."


Big Strategy Game played again at Yalta Today

"Nouriel Roubini ‏: "Big strategy game played again at Yalta today: should Ukraine sign the EU's AA and DCFTA or go for the Russian Eurasian custom union?"

"At Yalta high level West (the Clintons, high EU officials) facing Russian ones (Dvorkovich) to convince Ukraine to choose Europe over Russia"

"At Yalta where Stalin, Churchill and Roosevelt divided the post WWII world, high profile debate: should Ukraine go for the EU or Russia?"

"I am now headed to Yalta to attend the YES (Yalta European Strategy) Conference - YES " - in Twitter "


Man Who Predicted No Fed Tapering Now Says To Expect Chaos

"Greyerz:  “Yes, Eric.  It did not surprise me at all that the Fed did not taper because for a patient on life support that is not the time to turn off the machine because that machine is what keeps the patient alive artificially.  So how can the Fed possibly slow tapering? 
The US is a country with a total government debt of $220 trillion, unemployment at 23%, the job participation rate at the lowest level since the 1970s, median household incomes at multi-decade lows, and real-GDP declining since 2006.  We have also seen federal debt double since 2006, and consumer credit has been exploding.  So the picture is clear....
“Not only will there be no tapering, but my forecast is that during 2014 QE will increase substantially.  In fact, we could easily see QE double in 2014, and later on I expect trillions of dollars, and eventually even tens of trillions of dollars of money printing each year.  This will also mean increased turmoil and chaos in global markets.

So the US is now on the road to hyperinflation.  Hyperinflation arises as a result of a collapsing currency and this is exactly what is happening to the US dollar.  Back in the late 1960s, when I started working in Switzerland, we paid 4.3 Swiss francs for each US dollar.  Now it only costs us .91 for each dollar.  That’s a decline of 80%!..."

This Week Was A Disaster And It Will Lead To More Tyranny

"...Eric King:  “Keith Barron also said to KWN this week that all of this (chaos) was part of a much larger move to a new financial system.  Is that how you see it, Chris?”
Powell:  “I’m inclined to agree with Keith.  I have always suspected that what is underway here is a redistribution of world gold supply, from the West to the East, to compensate the Eastern nations for their dollar surpluses which are not going to hold their value as gold does. 
I think that is probably the secret bargain here -- that China and the other dollar-surplus countries will agree not to pull the plug on the dollar and US government bonds and Western debt generally, as long as they have access to discounted gold.

Everything has been rigged in market terms.  5 years ago in a speech in Washington I said, ‘There are no markets anymore, just interventions.’  Increasingly in academic and journalistic circles this is being called ‘financial repression.’  I suspect and fear that the Fed’s defeat on tapering this week means that we are going to see even more repression..."

Friday, September 20, 2013

ART CASHIN: 140 Years Ago Today The Fall Of One Bank Slowly Triggered A Global Panic

"Know your history, it'll help you recognize what's going on when you're doomed to repeat it.

In his daily note, Wall Street's unofficial historian Art Cashin reminds us of what tipped the world into the Panic of 1873 on this day 140 years ago.
On September 18th 1873 Jay Cooke and Company — a powerful brokerage and the first to communicate to its clients via telegraph — fell when it was unable to sell enough railroad bonds to meet other obligations.
The NYSE closed two days later.
And the exchange had to close, Cashin writes. As the market emerged from the confusion of losing Cooke and Co., it began to understand its dire situation. The panic spread..."


Hedge Funder Stan Druckenmiller Wants Every Young Person In America To See These Charts About How They're Getting Screwed

"Iconic hedge fund manager Stanley Druckenmiller, the founder of Duquesne Capital Management, has been vocal for the past several months about the issue of generational theft. 

Druckenmiller, who accurately called the housing crisis, has said he sees another "storm" coming due to entitlement transfer payments. Entitlements are things like Social Security and Medicare that primary go to older, retired workers.
The billionaire fund manager believes that seniors in this country are essentially stealing from the young via these entitlement transfers. What's more is he thinks it could result in a crisis even more devastating than 2008.  
Druckenmiller, 60, will be visiting various college campuses this fall to talk about this issue with the younger population. We found a video of his presentation he gave at his alma mater Bowdoin College in Maine a few months ago.  
Druckenmiller told the Bowdoin students that he started worrying back in 1994.
"The reason was was demographics because I knew that in 2011 the 'Baby Boomers'...the front end was going to turn 65 and you were going to have this huge surge in entitlement payments because again the biggest buckets of entitlements are for the elderly."
He also shared 16 charts with the students and explained why it's such a pressing matter that should be addressed now. We've included his charts and commentary in the slides that follow..."


The US Dollar is a Troubled Currency, Renminbi Globalization can't wait too long

"There is no reason to restrict the Renminbi globalization. It is good for all Chinese people, as Renminbi globalization means all investors worldwide can invest in China, which will bring great market opportunities to China's commodities. Stock price in China will rise, China will become the world's center for commodity transaction, China's financial market will be the best in the world. The US dollar is a troubled currency, Renminbi globalization can't wait too long, now it is an opportunity for it..."


Jim Rogers confident in The Chinese Yuan long-term development in the future

"China is the largest creditor country and has huge trade surplus. The Chinese government has leaded Chinese Yuan to be developed on the right way over the past eight years, and those development trends make me confident in the Chinese Yuan long-term development in the future..."


This Chaos Is All Part Of The Move To A New Financial System

"...The West has successfully pressured the Indian government and they have been very effective at smashing the official supply of gold into the Indian market.  However, what I hear from my sources is that a tremendous amount of gold is continuing to filter into the country through the black market.
The reason I bring this up is back in the days of the French Revolution, when they brought in the assignat paper currency, which eventually imploded and went the way of all of the other paper currencies in history, they passed a law that if you tried to pay your debts in gold or silver you would face execution.  Well, the people just ignored it (laughter ensues) because they were believers in gold and silver and not believers in paper.
When the assignat paper money inflation ended in France, what happened was they took the unprinted bails of soon-to-be fiat paper money, all of the money that had recently been printed at the mints, as well as the printing presses and the plates, and they took them all to the Place de la Concorde in Paris.  In front of a huge crowd they smashed the printing presses and plates with sledge hammers and then set fire to everything else in a huge bonfire.  This was to signify the end and that they were not going to print fiat paper money anymore.
Eventually, when Napoleon Bonaparte came to power he said, ‘We will pay in gold or we will pay not at all.’  This is the sort of thing that eventually happens, and this is what is still to come in the West.  People will get so fed up with paper, or digital money, that they will revolt and then we will see a new system with gold at the center of it.”

Former US Treasury Official - Terrifying US Collapse Ahead

"Today a former US Treasury Official warned King World News that the U.S. is now headed toward a terrifying collapse.  He also cautioned that, despite mainstream media propaganda, the Fed and other Western central planners are now desperately trying to keep the current financial system from imploding.  This is without question one of the most powerful interviews Dr. Paul Craig Roberts has ever done.
Eric King:  “Obviously the big news this week, Dr. Roberts, was the Fed and how they shocked the financial markets with no tapering.  Your thoughts?”
Dr. Roberts: 
“Here’s the situation for the Fed:  All of the markets, and the solvency of the big banks, are totally dependent on the Fed buying the bonds.  If they don’t buy the bonds, then the interest rates are going to rise, the prices of all debt-related instruments are going to go down, the insolvency of the banks again reappears, the bond market collapses, and the stock market collapses....
“So they can’t stop QE because the whole system is rigged-dependent on that (QE).  The other part of the trap they are in is that the longer they carry on QE, the closer they get to the time when the rest of the world simply loses all confidence in the dollar because of the enormous rate at which new dollars are being created, and they bail out (of dollars).
And when there is a run on the dollar the Fed loses control and the whole system blows up.  So what the Fed is doing is preventing a short-term blowup with QE -- that is, with rigging bond prices, but the consequence is there is going to be a long-run blowup when there is a run on the dollar.
So what the Fed is doing is simply keeping the system going as long as it can.  I don’t see how they can avoid a crash.  If they stop QE it’s going to crash.  If they don’t stop it, it’s going to crash later.  So the Fed is manipulating everything to keep the system intact.  And to repeat myself, they can do that, until there is a run on the dollar, and when there is a run on the dollar they lose control.  At that point, (the price of) gold and silver will explode.”

Thursday, September 19, 2013

Druckenmiller Blasts "The Biggest Redistribution Of Wealth From The Poor To The Rich Ever"

"Reflecting on exactly what was said yesterday, Duquesne's Stanley Druckenmiller is initially perplexed as Bernanke explained 'financial conditions' - not interest rates - have prompted the decision to forestall any taper. His confusion is that financial conditions are actually slightly better than they were in June and "a stock market at an all-time high would suggest we don't have a problem with financial conditions." While he dismisses surveys, the big-money was betting that they were going to taper as is clear from the moves in gold, bonds, and stocks; and it appears the Fed "lost their nerve." In fact, Druck continues, the Fed "blew it... they had a freebie," they could have started the process to "get us off the dope." This action, or inaction, he warns "is going to make it so much harder for the next Chairman to start the process." In fact, he concludes, that from beginning to end - once markets adjust from these subsidized prices - that the wealth effect of QE will have been negative not positive.

His discussion focuses on the transparency mistakes, the cornering they have managed, and the concerns he has over QE in general...

QE1 he supported as a crisis-fighting tool at the time - but from QE2 onwards and 5 years and he "doesn't think the academics at the Fed understand the unintended consequences of the exit."

At around 13:45 he also provides a clear explanation of the 'other side' of the Fed's expanding balance sheet - the average investor who is 'forced' to sell them the bonds and take on more risk... this has forced us to buy securities at subsidized prices and when they adjust, at whatever point in the future, they will adjust immediately and on no volume.

In fact, he concludes, that from beginning to end - once markets adjust - that the wealth effect of QE will have been negative not positive.

At 15:00, he explains how this is the biggest redistribution of wealth from the middle class and the poor to the rich ever - "who owns assets" he asks rhetorically..."


Gold Surges 4.3% As $1 Trillion QE Per Annum, Debasement Continues

"Gold had its biggest one day jump in four years surging 4.3% as the US Federal Reserve surprised many market participants by continuing its extraordinary debt monetisation programme at the massive $85 billion a month ($85,000,000,000 per month) or $1.02 trillion annualised.

Gold In USD and All Federal Reserve Banks Total Assets - 1996 to Today (Bloomberg)

This morning, gold spiked to $1,376/oz in early trading in London, prior to profit taking and sellers pushed gold a few dollars lower after yesterday’s $53 surge.

Zero Hedge noted that gold’s price move higher commenced some 3 minutes prior to the FOMC minutes being released, suggesting that certain entities had advance knowledge of the no taper FOMC announcement.

Gold and silver surged 4.3% and 7% respectively as investors are concerned that the Fed's decision suggests that the U.S. economy is much weaker than believed and that continuing currency debasement will lead to inflation.

Ben Bernanke, who will exit the Fed in the coming days, backed away from the guidance he gave in June and the Fed cut its growth forecast and confounded constant speculation that it would start to slow its third round of quantitative easing. Thus the speculation and erroneous predictions that gold would go lower due to tapering were proved badly wrong.

The forthcoming appointment of a new Fed Chairmanship could not be worse.

Gold in USD - 3 Day  (Bloomberg)

Goldman Sachs did another flip flop yesterday. After being very loud in bearish calls in recent days that gold would go lower in the short term, Goldman said late yesterday that the Fed decision, combined with the upcoming debt ceiling debate, leaves risks for gold to move  to the upside.

Senior Republican politicians have hardened their stance over the U.S. budget and debt ceiling, increasing the chances of a crisis.

The Federal Reserve decision to refrain from and put off indefinitely a QE taper is very bullish.

The Fed is struggling to keep interest rates low for as long as possible in a desperate attempt to prolong a very fragile U.S. recovery or non recovery in our opinion.

Money printing and debt monetisation on this scale has led to higher gold prices throughout history and will do so again.

The Federal Reserve is effectively insolvent and investors and savers should prepare for falls in the U.S. dollar, a dollar crisis and an international monetary crisis.

All Federal Reserve Banks Total Assets Quoted Value In Million - 2000 to Today (Bloomberg)
We remain confident in our long term price target, held since 2003, of $2,400/oz which is the real record high or inflation adjusted high from 1980. We believe gold should surpass the nominal high seen in August 2011, of $1,900/oz sometime in 2014 and will reevaluate our longer term price outlook then..."


Bank of America Closes Silver Short, Says Bearish Precious Metal View Was "Incorrect"

"Yesterday it was Goldman capitulating on their near-term gold, er, capitulation reco (expectedly so after gold ripped over $75 in the span of 24 hours). Now, it is Bank of America's turn to close their silver short. To wit: "The Wednesday Bullish Candlestick formations (Bullish Engulfing Candles) in gold and silver say that our bearish view on precious metals now incorrect. Indeed, this is supported by the US $ breakdown and the increasingly constructive environment for risk assets generally. As such, we are cutting our Silver Short and moving to the sidelines. Silver should see a test of long term resistance at 24.24/26.23, in the sessions and weeks ahead while gold should re-test its 1433, August highs. In both cases, watch trendlines at 23.20 & 1375. A close above confirms the bullish candles and upside trajectories."

When was the trade put on? September 4. This was their justification then:

We have turned bearish silver following the series of intra-day impulsive declines from the confluence of long-term resistance between 24.78/24.97. It is now time to act. Initial downside targets should be seen to 22.44/31 (382% of the Jun/Aug advance and Aug-20 low), before making a push back toward 18.22.Sell Spot silver at 23.60, target 20.00, risking 24.55

What a difference two weeks makes. Below is the "technical" reason to make physical silver purchases more expensive:


Houston, We Have A Sustainability Problem

"Just because the CBO puts its longer-term "Extended Baseline" budget forecast (stretching through 2088) on page 117 of 126 in its most recent Long-Term Budget Outlook, doesn't mean that nobody will get to see it. Then again, based on what the perpetually over-optimistic CBO if forecasting (meaning the real outcome will be orders of magnitude worse) perhaps it would be better to not look at all. Because when even the CBO says there may be a modest sustainability problem down the line, it may be time to be concerned. That said, it may also explain why the Fed, through its idiotic policies, no longer really cares all that much about the "long run"...

It's not all Apocalyptic news though.

Because if one simply makes an adjustment to "reflect recent revisions by the Bureau of Economic Analysis to estimates of gross domestic product (GDP) in past years and CBO’s extrapolation of those revisions to projected future GDP", or in other words, to completely make things up, the future is quite bright...

... Unless of course it isn't.

In summary: America will either have +250% debt/GDP (or in reality much more) in 2088... or negative debt. While we applaud the CBO's attempt to cover all bases (and sense of humor), something tells us the final outcome from the collapse of Schrodinger's wave-debt function for the American Cat will not be a happy one."