10 Reasons Why The Global Economy Is About To Experience Its Own Version Of “Sharknado”

"The following are 10 reasons why the global economy is about to experience its own version of "Sharknado"...
#1 The financial situation in Portugal continues to deteriorate thanks to an emerging political crisis.  It all began last week when Portuguese finance minister Vitor Gaspar resigned...

"Mr. Gaspar's resignation on July 1 has opened a Pandora's box," says Nicholas Spiro, managing director of Spiro Sovereign Strategy. "Portuguese politicians from the President down are treating the exit of Mr. Gaspar, the architect of the fiscal and structural reforms demanded by the troika, as a green light for a public debate about the bail-out programme. Yet the manner in which this debate is taking place, with the President undermining the prime minister and the opposition leader seeking to renegotiate the terms of the programme, is spooking markets."

The general population is becoming increasingly restless as the nation plunges down the exact same path that Greece has gone.  Nobody seems to have any solutions as the economic problems continue to escalate.  According to Reuters, the president of Portugal has added fuel to the fire by calling for early elections next year...

Portugal's president threw the bailed-out euro zone country into disarray on Thursday after rejecting a plan to heal a government rift, igniting what critics called a "time bomb" by calling for early elections next year.

Due to all of this instability in Portugal, the yield on Portuguese bonds shot up to 7.51% this week.  That is a very bad sign.
#2 The economic depression in Greece continues to deepen, and it is being reported that Greece will not even come close to hitting the austerity targets that it was supposed to hit this year...

A leaked report from the European Commission confirms that Greece will miss its austerity targets yet again by a wide margin. It alleges that Greece lacks the “willingness and capacity” to collect taxes. In fact, Athens is missing targets because the economy is still in freefall and that is because of austerity overkill. The Greek think-tank IOBE expects GDP to fall 5pc this year. It has told journalists privately that the final figure may be -7pc.

Another 7 percent contraction for the Greek economy?
It has already been contracting steadily for years.
At this point, it would be hard to overstate how bad economic conditions inside Greece are.  The following is from a recent article by Simon Black...

My friend Illias took a drag of his cigarette as he contemplated my question.
"Our government tells us that this will be a better year. No one really believes them. But all we can do is be optimistic. Too many people are committing suicide."
His statement probably best sums up the situation in Greece right now. It's as if the hopelessness has gone stale, and the only thing they have to replace it with is desperate, misguided, faux-optimism. And anger.
There are roughly 11 million people in this country. 3.4 million of them are employed, of which roughly one third work for the government.
1.34 million people are 'officially' unemployed. To put this in context, it would be as if there were 36 million officially unemployed in the US.
More startling, if you add the number of 'inactive' workers (i.e. those who gave up looking), the total number of unemployed is roughly 57% of the entire Greek work force.

#3 The economic crisis in the third largest country in the eurozone, Italy, has taken another turn for the worse.  The unemployment rate in Italy is up to 12.2 percent, which is the highest in 35 years.  An average of 134 retail outlets are shutting down in Italy every single day, and the debt of the country has been downgraded again to just above junk status..."

at http://theeconomiccollapseblog.com/archives/10-reasons-why-the-global-economy-is-about-to-experience-its-own-version-of-sharknado

Variable Rate World, Part 3: “This Horror Show Is Just the Beginning”

"It’s easy to assert that big banks and other holders of long-term bonds will be crushed by rising interest rates, but it’s tough to calculate just how bad the carnage will be and how quickly it will come. Tough but not impossible. A couple of recent Zero Hedge articles provide some data – and it’s brutal.
First, this from July 8:

Chart Of The Day: Taper Fears Lead To Biggest Monthly Loss In Bank Securities Portfolios Since Lehman
Wondering how the blow out in interest rates is impacting commercial banks, which just happen to have substantial duration exposure in the form of various Treasury and MBS securities, not to mention loans, structured products and of course, trillions in IR swap, derivatives and futures? Wonder no more: the Fed’s weekly H.8 statement, and specifically the “Net unrealized gains (losses) on available-for-sale securities” of commercial banks in the US gives a glimpse into the pounding that banks are currently experiencing. In short: a bloodbath.
After crashing from $15 billion to just $6 billion, the reported balance of net unrealized gains is barely positive for just the first time since April 2011. And to think this number had topped out at over $43 billion in December 2012. But the worst is that monthly drop in “gains” of $24 billion is the biggest by a wide margin since the Lehman collapse.
Note the crash in the long-term chart:

The skeptics will say: $6 billion? Big deal. The Fed did almost that much in its POMO last Wednesday. The issue, however, is that the AFS line, which runs through the Accumulated Other Comprehensive Income line as the last thing banks want is for MTM to crush their reported bottom line is merely a proxy for how rising rates impact on a snapshot basis the consolidated bank balance sheet of US banks, which at last check had $7.3 trillion in loans and leases (still below pre-Lehman levels) not to mention countless other undisclosed instruments that represent their “London Whale” equivalent prop positions, funded with customer deposits.
In other words, the shorthand is to look at the massacre that is going on in the AFS line and extrapolate it to all other levered commercial bank (and hedge fund) rate exposure. Expect math PhD-programmed GETCO algos that determine the marginal momentum of the S&P to figure this out some time over the next 2-3 weeks once banks begin reporting results that are not quite in line with expectations..."

at  http://dollarcollapse.com/interest-rates-2/variable-rate-world-part-3-this-horror-show-is-just-the-beginning/

Art Cashin Warns Of Potential Massive Short Covering In Gold

"Today 50-year veteran Art Cashin warned King World News that if the gold market holds its recent lows we may see a massive upside spike in gold because of panicked short covering.  Cashin, Director of Floor Operations at UBS ($650 billion under management), also warned that the Fed’s position is becoming increasingly desperate.

Eric King:  “What about the gold market?  We are seeing record short positions by hedge funds and the public.  What could this mean for the gold market going forward, Art?

 

Cashin:  “It could be dramatic.  You’ve got a couple of things going on:  You saw what is called a ‘backwardation’ in the gold futures.  That has occurred, don’t hold me to this, but I think about four times over the last 10 years or so, and it’s usually been at or around a bottom in gold.

 

So you’ve got the possibility of that working for you.  Then, when Bernanke made his speech that caught some of the (gold) shorts off base.  It could have a dramatic effect because there are a lot of shorts in gold.  I personally would like to see if we get another retest of the bottom.  That could be truly dramatic if we go down again and retest that bottom and it holds.  These already nervous shorts could react.

 

Remember, short covering is rarely a rational, thought-out event.  It is nervousness.  It tends to come from near panic, and it’s always emotional.  That’s why it always looks so dramatic when it’s on the tape.”

 

Eric King:  “Art, you were one of the youngest traders ever to earn a seat on the exchange.  You’ve been doing this for half a century.  What are your big worries going forward?  What has you concerned?”

 

Cashin:  “Obviously the geopolitical.  I am thunderstuck that the markets have virtually ignored it for a while, except now that oil is beginning to catch on.  But secondarily, the very, very tenuous hold that the Fed seems to have on the bond market and which way things are going.

 

If the bond market begins to move irrespective of the Fed’s efforts, if in essence the bond vigilantes come back, this could be very, very dramatic.  As I said earlier, the key here is that if we get an economic disruption, if we were to lapse back into some kind of a recession, the Fed doesn’t have any more tools.

 

They’ve used every tool they have.  Could they repeat what they’ve done?  Yes, they could try to do that, but we see it’s had very little effect.  So it makes you wonder, how will they put out the next fire should it arrive?”

 

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/12_Art_Cashin_Warns_Of_Potential_Massive_Short_Covering_In_Gold.html

This Market Collapse Will Shake The World Financial System

"On the heels of another wild week of trading in global markets, today one of the top economists in the world sent King World News an exclusive piece warning that a key market collapse will shake the world financial system.  Michael Pento, founder of Pento Portfolio Strategies, wrote this piece for KWN. 

Pento: “The U.S. Ten-Year Note yield has been surging of late.  Absent another recession, or renewed European debt crisis that threatens the existence of the Euro currency, or the Fed launching QEV; the yield should approach 4% by the end of this year.  How much should we be concerned about yields rising to that level?....

“Well, the surge in yields from 1.6%, to 2.6% since the beginning of May has already caused purchase applications for new homes to plunge 28% month over month.  Mr. Bernanke predicated the economy’s healing on saving the real estate market.   Since the Fed is now threatening to begin removing its stimulus programs, that primary support column for the economy is being eliminated. 

 

One has to question what rising rates will do for this so-called recovery.  The U.S. economy (and indeed the rest of the globe as well) is already suffering from anemic growth.  Now we are told by the puppet masters of the economy that the manipulation is going to end.  But can we really believe them?

 

There’s plenty of evidence that the global economy is just treading water.  Base metal prices have fallen sharply in the last six months.  Chinese exports were down 3.1% in June on a YOY basis, while exports to Europe plunged 8.3%.  The IMF lowered its growth forecast for the U.S. to just 1.7% in 2013.  And the European recession deepens with the unemployment rising to 12.2%, with Greek unemployment hitting a record 26.8%.  Emerging market economies are suffering, while Japan is headed towards a complete collapse of its currency and bond market.  This collapse will shake the world financial system. 

 

So, where do we go from here?  Now we have to add to all of this global malaise the surge in oil prices, Middle-East revolutions, and most importantly, rapidly rising borrowing costs in some key countries.  Yields aren’t just rising in the United States.  The Portuguese 10-Year Note jumped from 5.2% in the middle of May, to well over 7%. 

 

The rise in debt service payments and cost of money will cause the already fragile global economy to fall sharply lower.  Once this fact becomes clear to the Fed, Mr. Bernanke will withdraw his outline for ending QE and perhaps even increase the monthly allotment of bond buying.  It is at this point that the price consolidation for gold will come to an end, and gold will begin its ascent to $2,000 an ounce by the middle of next year.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/13_This_Market_Collapse_Will_Shake_The_World_Financial_System.html

Portugal Has Opened Pandora's Box, And Borrowing Costs Are Blowing Out Today

"The chart below shows the yield on Portugal's 10-year government bond. Today alone, it's up a massive 55 basis points to 7.24%, the highest level since December.

The country has descended into political crisis over the implementation of austerity measures designed by troika creditors at the EU, IMF, and ECB.

This morning, it's been reported that the opposition is calling for a renegotiation of the terms of Portugal's bailout package..." 

at http://www.businessinsider.com/portugals-borrowing-costs-blowing-out-2013-7#ixzz2YrBLbeeR

Twenty-first Century Trade Integration in Eight Figures

"In this short post (based on our recent paper), we present eight attributes of the current phase of trade integration which began towards the end of the last millennium.

Hyperglobalization

Since 1870, there have been four phases of trade integration, as figure 1 shows. The first three were (1) globalization of the late 19th century; (2) the collapse of globalization in the Great Depression; (3) reglobalization after World War II. In this fourth phase of hyperglobalization, trade has grown substantially faster than world GDP and now represents about a third of world GDP. Trade in merchandise will soon reach twice what it was at the peak of the first globalization (just prior to World War I). This is true whether trade is measured in gross or value-added terms. (A chart on global foreign direct investment flows would show a similar trend.)

Figure 1 World exports as share of GDP, 1870–2011 (current dollars)

Sources: Klasing and Milionis (2013) for historical data, WTO for 1960–2011, Johnson and Noguera (2012) for value-added adjustment.

at http://www.piie.com/blogs/realtime/?p=3777&utm_source=feedburner&utm_medium=%24%7Bfeed%7D&utm_campaign=Feed%3A+%24%7Bupdate%7D+%28%24%7BPIIE+Update%7D%29

Price Destruction In Gold & Silver Will Be A Distant Memory

"On the heels of the surge in gold and silver, today acclaimed money manager Stephen Leeb told King World News the price destruction we have seen in gold and silver will soon be a distant memory.  Leeb also spoke with KWN about the desperation by the West to suppress the price of gold and how it is about to fail.

Leeb:  “My thoughts are that Bernanke surprised me last night.  He came across as very dovish, and this is a man that knows exactly what he is doing.  He doesn’t speak without thinking about what he is saying and what effect it will have.  So you have to ask yourself, why was he so concerned about getting across a message that the Fed is still quite dovish, and highly likely to continue for quite some time with QE?....

“There are a couple of reasons:  One is the economy is not nearly as strong as what has been painted in the press.  So the economy is still in recession.  The other concern Bernanke has is that the U.S. dollar has been very strong.  Any suggestion of cutting back has seen the dollar surge and that is not what the Fed wants.  So the Fed is trying to talk the dollar down.

In that environment, how can investors not be bullish on real stores of value?  Whenever a country’s currency strengthens, they immediately do whatever they can to bring the value of their currency down.  So gold and silver are starting to surge once again.

I have to tell you that I don’t think the West has given up yet on trying to hold gold down.  But right now you have backwardation in gold and that’s rarely ever seen.  This is only seen when there is a shortage of gold.  Where is that shortage of gold?  In the West.

So I definitely think this rally in gold has some legs, but the West may still put up a fight.  They will try to talk the dollar down and still keep gold prices under control.  But I think it’s a question of months before they capitulate on both gold and silver.  There is a continued flow of gold from West to East, and now you have three countries in Europe fighting to be major hubs of yuan trading.  We also just recently saw another huge Chinese accumulation of gold.  That’s why the West is short of physical gold here.

So it’s getting tougher and tougher for the West, and I believe that gold has made a bottom.  When you saw that one day when gold traded under $1,200, and then reversed and came back up, that’s the bottom.  The only question now is when does this next leg higher in the secular bull market really begin to take off?  When the price of gold really starts to surge there are so many shorts that need to be covered.  

Right now the West is desperate because they see themselves as losing ground every day against China.  The West continues to fight the ascendancy of China, but it’s a losing battle.  So we are going to see an inflection point in the price of gold where all of these resistance levels are blown out on the upside.  Gold will roar through them like a hot knife through butter.  As much as that will happen for gold, magnify it a couple of times for silver.

And for investors holding the high-quality juniors, which really are the only source of incremental gold in the world, these stocks will end up in a mania at some point.  All of this price destruction we have seen will be a distant memory.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/11_Price_Destruction_In_Gold_%26_Silver_Will_Be_A_Distant_Memory.html

We Are In The Early Stages Of A Massive Short Squeeze In Gold

"Today one of the most respected institutional minds in the entire financial world told King World News that we are in the early stages of what will be a massive short squeeze in the gold market.  John Hathaway, of Tocqueville Asset Management L.P., is one of the great original thinkers in the business, and his fund was awarded a coveted 5-star rating.  Below is what Hathaway had to say about the developing massive short squeeze in gold. 

Hathaway:  “I think the story of the day is the disconnect between physical gold and paper.  I just saw a note this morning about the most current drop in COMEX warehouse inventories.  Brinks also reported this week that their inventories were down 55%....

“We also have what’s been happening with the gold lease rates.  This is just another indication of how hard physical gold is to come by.  Bernanke also basically made a U-turn on QE by essentially saying we are going to be in this easy money mode for a long, long time.  He definitely backed away from ending QE in mid-2014.

I think the shorts had been ganging up on gold with the view that there would be some sort of exit, and now it’s nowhere in sight.  So now some of the shorts are running for cover.  But if I’m at the Fed, I am looking at a huge mess.  We also know that Bernanke is on his way out..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/11_We_Are_In_The_Early_Stages_Of_A_Massive_Short_Squeeze_In_Gold.html

Gold Surges $50 Or 3.3% - Brinks Sees 55% Decline In Gold Inventories In Week

"Although Bernanke’s comments are the ostensible reason for gold’s
price rise, a more fundamental reason, and less reported upon, is likely
to be the continuing decline of COMEX gold inventories.

Bullion buyers internationally and particularly in Asia are taking
delivery of physical gold which is draining inventories on the COMEX.
COMEX inventories fell another 1.5% yesterday (see table).



Brinks has seen a massive decline in its gold inventories in recent
days. The huge decline in Brinks inventories is being seen soon after a
similar decline in JP Morgan’s gold inventories.

Brinks inventories have fallen from 570,000 ounces on July 3rd to
257,000 ounces today which is a drop of 313,000 ounces - a drop of 55%
in just one week.

The entire inventories on the COMEX, of bullion banks and
depositories is now just 7.096 million ounces and is worth just $9.1
billion at today’s prices. This is a very small amount vis á vis the
amount of money in stocks, bonds, cash and other assets today throughout
the world and in Asia where much of the gold seems to be flowing East.

This has all the hallmarks of a ‘run’ on the COMEX and needs to be
monitored. A default on the COMEX would see the price of physical gold
rise substantially and potentially in a very short period of time..."




at http://www.zerohedge.com/contributed/2013-07-11/gold-surges-50-or-33-brinks-sees-55-decline-gold-inventories-week

William Kaye - China has 4 to 8 Thousand Tons of Gold

"William Kaye hedge fund manager discusses the Chinese official gold holdings, how the Hong Kong gold market works, and how many of us might own Germany's gold without even realising. Listen to the KWN interview here"

at http://ausbullion.blogspot.com/2013/07/william-kaye-china-has-4-to-8-thousand.html

Here Is The Summer Catalyst Which Will Launch Gold Higher

"...“Well, to anyone who understands economics, when you print massive amounts of money it always results in higher interest rates over time.  It’s only because of government interference that bonds held up as long as they did.  The bond market had also been resilient for a longer period of time because of the fact that the economy is not really in stagflation or deflation, it’s really in a depression.

 

So the Fed has to throw incredible amounts of cash at it in order to stimulate anything.  Until recently, interest rates were kept at zero, and yet it hasn’t resulted in a boom in new hiring.  The money has simply fueled another stock market bubble.

 

In the gold space things have been consolidating, but that should change.  In the past week we have seen key developments in Portugal.  KWN readers may remember that I have been warning that Europe was going to be an important place to watch this summer.  We have now seen many members of the Portuguese government resign because they don’t like the austerity that’s going on.

 

The bond rates have also shot-up in Portugal, and some of the other PIIG countries are starting to see rates climb in sympathy.  We also saw another extraordinary development:  A huge amount of money was given to Greece because Greece was going to go bankrupt yet again over the course of the next several months.

 

The Germans intervened with the European Central Bank and contributed a large chunk of cash to Greece to make sure they did not default before the upcoming German elections.  So Angela Merkel is trying to avoid election problems, even though this issue has haunted her all along.  The bottom line is the Germans are not happy with bailing out the southern European countries.  For that matter, neither are the Finnish, Austrians, or any of the northern bloc of countries.”

 

Barron also added:  “Gold and silver have moved off the lows.  Gold, for example, is still over $50 off its recent lows.  As we move back into the bullish phase of the gold market, gold will continue to climb ‘A wall of worry,’ which is how it has advanced for the past 12 years.

 

Confidence will only be rebuilt after gold solidly advances back above the $1,600 level.  If there is no faith in the euro over the course of the summer that will only help gold.  Also, continued QE by the Fed will only lead to greater levels of inflation, and at the end of the day that will also be extremely constructive for gold.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/10_Here_Is_The_Summer_Catalyst_Which_Will_Launch_Gold_Higher.html

Turk - We Are Witnessing Historic & Shocking Events In Gold

"I believe that gold has been in backwardation for quite some time, but it’s been hidden because interest rates have been manipulated.  So when I pointed out early Monday that the LBMA reported official gold backwardation, that was truly an earthshaking event.

 

While many sites then jumped on the bandwagon and interpreted this event in different ways, the reality is that it revealed that there is a shortage of physical gold at these prices.  So it is not at all surprising to me that the price has risen as sharply as it has, because those desperate to get their hands on physical gold are now bidding up the price as we speak. 

 

This is a desperate attempt to get entities to part with their physical gold and take paper currency instead.  In my view it’s going to take much, much higher prices to get these entities to part with their physical gold, if they are willing to part with it at all.

 

The reality is that all of the physical gold is now in extremely strong hands after the latest shakedown.  So tricking people into parting with it might prove to be an incredibly difficult, if not impossible task.”

 

Eric King:  “James, as you know KWN reported in the Andrew Maguire interview that in just 7 trading days we had Eastern central banks and various sovereign funds purchase a staggering 580 tons of physical gold, which is 25% of the world’s annual mine production.  Those orders for physical gold will have to be filled.  Where are they going to get 580 tons of gold to fill those orders?”

 

Turk:  “The only way they will even have a chance of getting that gold is by significantly raising the price of gold.  As I was saying, they are going to have to try to induce various entities that hold large quantities of gold to part with it.  There is no way in hell that’s going to happen at these incredibly discounted prices.

 

As I mentioned, the players who own large quantities of gold are very strong hands.  If anything they are looking to accumulate even more physical gold, not sell it.  This is why gold is in historic backwardation.  It’s telling us that there is a significant shortage at current prices.

 

They can’t create gold out of thin air.  It has to come out of the ground.  And it doesn’t come out of the ground fast enough to satisfy current demand.  Maguire mentioned a 7-day trading period where the physical buyers purchased 25% of the annual mine production.  The bottom line is the sellers will be forced to come up with that gold for those buyers or we will see another historic event, a major default by one or more LBMA member banks..."

 

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/11_Turk_-_We_Are_Witnessing_Historic_%26_Shocking_Events_In_Gold.html

COMEX Gold Inventories - A Towering Citadel of Paper

"Lower and lower, to new record lows.

Weighed, and found wanting.

Who is running this sideshow?

And where will it end?

 

at http://jessescrossroadscafe.blogspot.com/2013/07/comex-gold-inventories-how-low-can-you.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Costs To Borrow Physical Gold Rise Sharply Across All Timeframes

"I thought this quote from a recent report by Ned Naylor-Leyland was quite to the point.

"...I find it extraordinary that investors do not notice that the Gold price is presently defined by a market which operates using around a 90:1 leverage ratio. This cannot, and will not, end well for holders of synthetic Gold, or the banking system overall.

Indeed, the recent raids on the spot price have just brought forward the day of reckoning for the present price discovery mechanism by stimulating yet further drawdowns on physical inventories."

Ned Naylor-Leyland, Cheviot Management

How can this be true? Is the market not efficient?

How do the journalists remain so indifferent? How can the vigilant economists miss something so obvious? And where are the regulators in all this? Tut tut, looks like rain.

So many questions, and so few answers. lol

As I write this, the talking heads on financial TV are touting the COMEX as a great place to go and short gold in the futures market in anticipation for further declines to $1,000. Get some. Get some.

Thanks very much to Mr. T Ferguson for making this report from Cheviot available.  His site is a trove of information.

Chart from Sharelynx.com, the place for precious metals charts.  Also found as goldchartsrus.com

 

at http://jessescrossroadscafe.blogspot.com/2013/07/costs-to-borrow-gold-rise-sharply.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29

Gold Borrowing Costs Hit Post-Lehman High - Hong Kong Jewellers And Banks Face Supply Issues

"Gold is little changed near a one-week high, and is marginally higher in dollars as the dollar has retreated from a three-year high, and higher in most currencies.

The gold market continues to digest the ramifications of gold borrowing costs surging to the highest since the post-Lehman Brothers scramble for gold bullion.

Gold Forward Offered Rates (GOFO) or the cost to borrow gold remains negative and overnight the 1 month GOFO has gone from -0.106% to -0.11167%. Other durations eased marginally.

The lack of liquidity in the the interbank London Good Delivery gold market (400 ounce gold bars) has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only after the Lehman Brothers collapse and near the bottom of the gold market in 1999.

The last time forwards were negative was in November 2008, when a scramble for physical gold led a sharp price rally of 46% from $682/oz to over $1,000/oz between October 2008 and February 2009..."

at http://www.zerohedge.com/news/2013-07-10/gold-borrowing-costs-hit-post-lehman-high-hong-kong-jewellers-and-banks-face-supply-

Turk - Something Shocking Has Occurred In The Gold Market

"...This brings me to the second key event taking place:  Even the LBMA website now shows that gold is in backwardation.  The gold forward rate out to three months is negative.

The LBMA stopped reporting silver forwards last year because they were artificial.  They showed silver in contango, but you could not deal at those rates.  The obvious implication is that silver was actually in backwardation.  The point is that silver, and particularly gold, are not supposed to go into backwardation, at least in theory.  That's because they have huge aboveground stocks, in contrast to other commodities that have limited aboveground stocks.

Look at the current backwardation in crude oil for example.  The August 2013 contract is $10.47 higher than August 2014.  So if you have physical crude in hand, you sell it today and immediately buy the Aug-14 contract, earning not only the $10.47 per barrel price difference but you also have the use of the $103.22 you receive as the proceeds from your sale.  To top it off, you avoid storage charges for one year.  So clearly, there is a shortage of crude oil.

Backwardations in oil can occur because its supply is limited.  Its aboveground stock is counted in days of use, in contrast to gold where the aboveground stock is essentially all of the gold mined throughout history.  So when backwardation occurs in gold, it is an earthshaking event.  People who own physical metal do not want to profit from the backwardation, even though they are only taking a credit risk for as short as one month.  They want to own physical metal, regardless of the potential profit, because earning this potential profit depends on the ability of the entity selling the future contract to deliver physical metal to you when the contract comes due. 

 

Gold backwardation is occurring because the big bullion dealers, hedge funds and arbitragers, do not want to take this risk.  This phenomenon highlights the difference between physical metal and all of its paper substitutes.  When backwardation in the metals occurs, it means two things:  First, people want physical metal and not paper promises to deliver metal in the future. 

Second, it means that the physical market is starting to drive the price of the metal, rather than what we have seen the past several months where paper selling drove gold and silver prices to abnormally low levels.  The bottom line, Eric, is that in a year or two when we look back at today, we will marvel at how cheap the prices of physical gold and physical silver plummeted to.”

 

at  http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/8_Turk_-_Something_Shocking_Has_Occurred_In_The_Gold_Market.html

Game Over - “It’s All A Farce, The Fed & German Gold Is Gone”

"Today one of the savviest and well connected hedge fund managers in the world shocked King World News by taking us once again on a trip down the rabbit hole that was nothing short of breathtaking.  Outspoken Hong Kong hedge fund manager William Kaye spoke with KWN about the missing Fed and German gold, where it has gone, and how much gold the People’s Bank Of China (PBOC) really owns.  This interview is going to stun readers around the world.  Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, had this to say in part I of his remarkable interview.

 

Kaye:  “Global hegemony (leadership or dominance) is changing in a way that most people don’t fully comprehend.  This area of the world, the Asia-Pacific, China in particular, is positioning itself to be the leading global power as we look out over the next five to ten years.

 

My sources tell me that contrary to the public numbers that are available, China has anywhere between 4,000 to possibly 8,000 tons of (physical) gold....

 

“They are not only the world’s largest producer of gold, but they are the largest importer of gold in the world.

 

This is an ongoing process for China.  This is a strategic initiative.  So China is massively accumulating the gold that is being extricated from the West at a very rapid pace.  The dynamics here are very geopolitical, and the Far-East is being elevated by this. 

 

In the ‘New World Order,’ which will ensue when this raid ends, China’s position, Russia’s position, Brazil’s position, will be greatly enhanced.  The position of the United States, as well as Europe and the UK, will be greatly reduced.  Those are the major consequences.

 

Eric King:  “Bill, you say China has over 4,000 tons of gold already, possibly as high as 8,000 tons.  Where do you see them heading in terms of their overall ownership of gold?”

 

Kaye:  “Well, they’re not done yet.  Gold has been leased out, and we do know this (takes place) because it’s been admitted to by the major central banks.  The Fed has admitted it, the European Central Bank has admitted it, the Bank of England has admitted it.  They’ve all admitted that they engage in wholesale leasing of gold to the market.  

 

In practice how that (leasing) works is the Fed would contact their agent, typically JP Morgan, sometimes Goldman Sachs, and they would say, ‘OK, the gold price needs to be capped, so here is 20, 30, 40, 50 tons (of gold) that we’re going to lease out to you as our agent.  But in theory we can call it back.’ 

 

That’s a great theory, but in reality it’s nonsense because once JP Morgan and Goldman Sachs get the gold they sell it into the market.  So these bullion banks then become net-short gold.  And the Fed says, ‘Well, we still have a contract where in theory we can claim the gold.  So we’re going to report that we still own it in the official documents.’

 

But in reality the gold has been sold into the market.  That gold winds up in places like Beijing.  But before it gets to Beijing it frequently goes through Hong Kong.  And when it goes to Hong Kong, it goes to our refiner, the same people we use.  And by the way, Eric, we may own some of the gold that Germany thinks that they own.  But Germany will never see that gold because it’s safely stored in my account (and) for our investors at the Hong Kong International Airport.

 

Regarding that gold, which could have had the symbol of the Bundesbank on it when it arrived in Hong Kong, a leading refiner, one of the biggest in the world that deals with the People’s Bank of China (PBOC), certified that, ‘Yes, we’ve got gold available that we can deliver.  We’ve melted it down, we’ve tested it.  It may have had the Bundesbank symbol on it when it arrived, but now it’s melted down .9999 (fine) gold.’ 

 

That’s how it works in practice.  So the Fed gold, that Americans think is theirs, is gone.  The gold that the Germans have been told they will get back in 7 years, they’ll never get back because it doesn’t exist anymore (at the Fed).  I own it.  The People’s Bank of China owns it.  The Reserve Bank of India owns it.  The central bank of Russia owns it.  But the people of Germany (and America) don’t own it.”

 

Eric King:  “So they (the refiner) have admitted then that the Bundesbank gold, they get those bars in and they just melt them down?”

 

Kaye:  “What they’ve done is confirmed that everything I’ve told you is correct.  They get gold (bars) from all over the place, including major central banks, including the symbol of the central bank on them, and they melt them down.”

 

Eric King:  “But they’ve confirmed the Western central bank gold is where it comes from in many cases?”

 

Kaye: 

“Reading between the lines, and you don’t have to read too much between the lines, it’s all a farce.  The gold is gone.  It’s been hypothecated and rehypothecated.  It’s gone.  Not only do the Fed and the U.S. Treasury not own 8,000+ tons, they probably own nothing.”

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/9_Game_Over_-_Its_All_A_Farce,_The_Fed_%26_German_Gold_Is_Gone.html

William Kaye - The Savage Gold War Behind The Scenes

"With global stocks, the US dollar, and gold all surging, today one of the savviest and well connected hedge fund managers in the world sent King World News the most amazing chart concerning what is happening in the gold market.  Outspoken Hong Kong hedge fund manager William Kaye also spoke with KWN about what is really going on behind the scenes in the gold war.  Kaye, who 25 years ago worked for Goldman Sachs in mergers and acquisitions, had this to say in part II of his remarkable interview.

 

Kaye:  “As you and I are talking now, we’re a little bit below $1,250 on gold which is ridiculously low.  On the numbers we are looking at that would mean that roughly half of the production of the mining community of the world is unprofitable, which is stunning when you think about it.

What is going on is unprecedented....

“It’s unsustainable, and like anything that is unsustainable it won’t be sustained.  So this is a great opportunity for people who do have an interest in possibly adding to or initiating new positions in gold or precious metals.  We are at levels that I think are extremely attractive, Eric.”

Eric King:  “Bill, what about this chart that you sent me going over the various entities out there that hold gold for retail and institutional investors?  Can you talk about that?”

Kaye:  “Yes, I’m happy to.  Pick up the Wall Street Journal, the Financial Times, watch CNBC if you want to have your brain damaged, you’ll get the same narrative (regarding gold). 

And it’s a scary narrative, which is that people are panicked -- there is a bear market in gold.  And they (the mainstream media) never make a distinction between the paper market in gold and the physical bullion market.  That is a very important distinction for your listeners (and readers) to make.

But the narrative is that people are panicked, and because they are panicked they are selling into the market to whoever will buy.  And this is why the gold inventories, the Spyder Gold Trust and the other major exchange traded funds (gold holdings) have been so rapidly reduced.

The problem with that narrative is it’s not true ... Those exchange-traded funds are losing and are continuing to lose a lot of gold because it’s a manipulation.  The only people who can get access to the gold (at the exchange-traded funds) are the bullion banks themselves, and that’s exactly what they are doing.

And that gold is being transited from places like London and New York to places like Hong Kong and Shanghai.  This is what’s happening.  There is this major migration of gold from the West to the East.  And it’s ongoing, but we’re getting late in the game.

The Spyder Gold Trust, which is by far the largest ETF in the world and has provided the majority of the gold that has been used to execute the scam that is ongoing by the bullion banks, these guys have lost 30% of their inventory.  They have lost roughly 13 million ounces year-to-date.

Now how much has your friend Eric Sprott lost?  Because he has a similar class of ownership.  As I just said, the Spyder Gold Trust has lost 30% of the gold that they had at the beginning of the year, and yet Eric Sprott has lost virtually nothing.  He has lost a total of one bar.  Now, enquiring minds would ask themselves, if we have a bear market in physical gold, why have they redeemed 30% of the gold that exists in the Spyder GLD, but they’ve redeemed nothing in Eric Sprott’s fund (see chart below)?

The answer is obvious:  The major bullion banks can control and do manipulate what goes on in terms of Spyder GLD and the other trusts that have the same structure which only they can access.  Whereas the closed-end funds that exist in Canada, Europe, and the Sprott fund which is run by a reputable guy who is regularly on your program, Eric Sprott, the people who can redeem (from those funds) are not the bullion banks, but the actual owners of the funds.  

Well, guess what?  He (Eric Sprott) has received only one notification in this entire paper bear market.  One notification this entire year, and that was for one bar.  According to Eric, and I may have heard it on your program, he called the guy up to find out, ‘Why did you ask for one bar?’  And the guy said, ‘I wanted to test the system.’  As far as I’m concerned that tells me everything anyone should want to know.”

King World News note:  The chart below shows a remarkable zero percent loss of physical gold from both the Central Fund of Canada and Eric Sprott’s Gold Trust during the entire vicious decline in gold.  In contrast, you can also see the extraordinary declines in physical gold holdings in the global ETFs."

 

at  http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/7/9_William_Kaye_-_The_Savage_Gold_War_Behind_The_Scenes.html

 

Bundesbank Warns China's Currency "On Its Way To Becoming Global Reserve Currency"

"Following the most recent shift 'away' from a USD-centric world (with the China-Australia direct currency convertibility), it seems the possibility of China's Yuan as the next global reserve currency is getting closer. The Brits, Germans, and now the Swiss (who just signed a free-trade-agreement with China) are all actively vying to become Europe's Yuan trading hub as it seems the long line of developments to internationalize the currency over the past two years. As Bundesbank board member Joachim Nagel noted in a speech entitled "Reniminbi as a potential reserve currency" this week, "the Chinese currency is well on its way to becoming one of the future global reserve currencies." He noted that, although the USD is still the most commonly-used currency for settling trade with China; from virtually zero in 2010, the Yuan is used to settle over 12% of trading transactions now - and is likley to increase further.



Remember, nothing lasts forever:





This latest development in global currency relations should come as no surprise to those who have followed our series on China's slow but certain  internationalization of its currency over the past two years. To wit: "World's Second (China) And Third Largest (Japan) Economies To Bypass Dollar, Engage In Direct Currency Trade", "China, Russia Drop Dollar In Bilateral Trade", "China And Iran To Bypass Dollar, Plan Oil Barter System", "India and Japan sign new $15bn currency swap agreement", "Iran, Russia Replace Dollar With Rial, Ruble in Trade, Fars Says", "India Joins Asian Dollar Exclusion Zone, Will Transact With Iran In Rupees", "The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap", and "Thanks, World Reserve Currency, But No Thanks: Australia And China To Enable Direct Currency Convertibility."



Via Deutsche Bundebank (Dr. Joachim Nagel),

Renminbi as a potential reserve currency

According to Bundesbank Executive Board member Joachim Nagel, the Chinese currency is well on its way to becoming one of the future global reserve currencies. This potential stems from the renminbi’s increasing convertibility, he said at a conference of the Chamber of Industry and Commerce in Frankfurt.

He emphasised that although the US dollar is currently the most commonly used currency for settling trade with China, the significance of the renminbi has increased greatly over the last few years. He underlined this by referring to figures published by SWIFT, which indicate that the percentage of trading transactions settled in renminbi jumped from virtually zero to around 12% between 2010 and 2012 – and is likely to increase further. In view of this, he pointed out that the renminbi has already achieved the status of a trading currency.

Drawing parallels to the Deutsche Mark

Mr Nagel compared China’s growing importance with the German economic miracle of the 1950s and drew parallels between the renminbi's current growth and the development of the Deutsche Mark. Thanks to the recovery of the German economy, the country accumulated a large volume of foreign exchange reserves and the Deutsche Mark acquired the status of a global investment and reserve currency, he explained. He anticipates that "the renminbi is certain to have similar long-term prospects if market access is liberalised further". Mr Nagel backed up his comments by citing a survey of reserve managers carried out by RBS. The survey revealed that 14% of reserve managers have already invested in renminbi, with 37% of respondents considering investing in the currency in the next five to ten years.

Mr Nagel sees the renminbi as currently transitioning from a being trading currency to an investment currency. While both inward and outward direct investment is now possible, portfolio investments will continue to be regulated, he remarked, adding that improvements are expected in this area. "The internationalisation process of the Chinese currency is taking place more gradually than was the case with the Deutsche Mark, which, at times, was subject to radical upheaval", he added. Mr Nagel recalled, in this context, the collapse of the Bretton Woods system of fixed exchange rates and the crisis in the European Monetary System at the beginning of the 1990s.

Renminbi financial centre in Frankfurt

Mr Nagel noted that "given China’s growing economic importance, the internationalisation of the renminbi seems long overdue". He explained the Chinese government’s decision to employ offshore trading centres, which would allow China to establish its currency internationally, while protecting its domestic financial system. Hong Kong, where around 80% of all renminbi trade is settled, is by far the most important trading centre for the currency, with London and Singapore each accounting for 4% of renminbi trade since mid-2012. He added that the expansion of the market has led to the growing significance of other financial centres for renminbi.

Mr Nagel welcomed Frankfurt’s endeavour to position itself as a trading hub for the Chinese currency, calling it a step in the right direction, towards the free movement of capital. "The high level of interaction between China's and Germany's real economies highlights the necessity for a more active renminbi trade", Mr Nagel remarked, "perhaps even using Germany as a hub"

at http://www.zerohedge.com/news/2013-07-06/bundesbank-warns-chinas-currency-its-way-becoming-global-reserve-currency

You Are In The Ponzi Scheme Whether You Realize It Or Not

"Originally posted at Monty Pelerin's World blog,

The reasons for continuing to participate in stock markets are discussed in this video from Gordon T. Long and John Rubino. It all comes down to liquidity (and little else).

The liquidity fraud is well advanced and likely will continue. This worldwide Ponzi scheme, engineered by governments, provides massive risks and opportunities. For those who don’t understand what is occurring, there is much to be gained from this presentation.

Mr. Rubino describes the problem the Fed’s liquidity has created. Bubbles are re-inflating just as they did prior to the 2008 collapse. Why shouldn’t they? The exact same scam is being perpetrated by government.  Another collapse will eventually occur, but its timing and form can only be speculated on.

Rubino does a good job of explaining Ludwig von Mises’  ”crack-up boom” which will ultimately destroy fiat currencies. That end leads to extremely high, probably hyper, inflation. The pieces are already in place for this outcome. All that has to happen is for banks to begin normal lending or for people to understand what is happening (or going to happen) to the value of currency. Something will ignite the timber..."

at http://www.zerohedge.com/news/2013-07-06/you-are-ponzi-scheme-whether-you-realize-it-or-not