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Saturday, September 29, 2012

This is a direct result of that

One of the most moronic infuriating comments you can hear over and over from the brain dead political and economic punditocracy is: "This is a direct result of that."

In sports maybe.  And in arithmetic.

But in the world of global economy this statement is always and everywhere a substitute for thought.

I don't care what this and that are.  If you ever believe this is a direct result of that you are constructing an oversimplified and largely irrelevant view of the world.

In the realm of economy and political economy there are correlations that are more or less statistically relevant.

Examine the correlations.  Try to understand how they can be influenced under a specific set of circumstances.

We are in a period where the elements of economy and political economy are the single most determinative factors affecting the stability of world government.

Things are exceedingly fragile.

And yet we hear arguments from politicians and political hacks that state over and over "This is a direct result of that."

Until this toxic, brain-dead from of argumentation changes the global economy will continue to collapse.

And gold will continue to soar.

Why will gold soar as the economy collapses?  Isn't that a "this is the direct result of that?"

Nicely observed. 

Well, the answer in this case, is that gold is a currency that cannot be printed into existence in an effort to affect This and That.  It can be mined and bought, but the supply is finite and limiting.  Therefor the more This and That fluctuates the more value is accorded to the stability of the finite supply of gold.  This is indeed a correlation not a cause.  But as far as correlations go it is one that has held pretty constant over the last 5000 years.

In other words, it's a correlation you can bank on.

Thursday, September 27, 2012

Budesbank advocates a Gold Standard:


Jens Weidmann, President of the Deutsche Bunde...
Jens Weidmann, President of the Deutsche Bundesbank.
Indeed, the fact that central banks can create money out of thin air, so to speak, is something that many observers are likely to find surprising and strange, perhaps mystical and dreamlike, too  – or even nightmarish.
— Jens Weidmann
On September 18th, the London office of Deutsche Bank  — one of the most respected banks in the world, and a bellwether of elite opinion — published a Global Markets Research paper entitled Gold: Adjusting for Zero. It was written by two esteemed, mainstream analysts Daniel Brebner and Xiao Fu:Figure 7: USD devaluation vs. gold (rebased) log scale
Gold is not really a commodity at all. While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publicly used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’’s larger central banks as a component of reserves. We would go further however, and argue that gold could be characterised as ‘‘good’’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.
 On the very same day of the Deutsche Bank report Herr Dr. Jens Weidmann, president of the Bundesbank, gave a speech entitled Money Creation and Responsibility.  The Bundesbank is the only member of the ECB’s governing board to oppose Mario Draghi’s sovereign debt purchase policy, a policy disturbingly like that of Bernanke’s “Buzz Lightyear” monetary strategy of QE “to Infinity and Beyond.”
Weidmann stated that “Concrete objects have served as money for most of human history; we may therefore speak of commodity money. A great deal of trust was placed in particular in precious and rare metals – gold first and foremost  due to their assumed intrinsic value. In its function as a medium of exchange, medium of payment and store of value, gold is thus, in a sense, a timeless classic.”

 Green shoots of respect for the classical gold standard are beginning to pierce the decaying concrete of Neo-Keynesianism monetary theory all over the world.  The gold standard’s purpose is by no means to privilege the wealthy and prejudice workers or debtors.  The purpose of gold is to unwind the Faustian bargain throttling our economy and stifling job creation.   The purpose of the gold standard is to propel the world economy into a new era of vibrant, widespread prosperity.  And as Goethe, as if to cheer on future advocates of gold, wrote  in in the concluding pages of Faust, Part II: Whoever strives, in his endeavour,/ We can rescue from the devil.

Tuesday, September 25, 2012

The Hate trade

Now that QE Infiniti is the official policy of the US and will soon be so in Europe (Unless Germany would rather see the Euro unravel) - the question is: What will drive gold's next leg up?

Answer: The Hate trade.

Hatred is so palpable in public anti-discourse, both domestic and international - that mutually assured destruction had become an incentive rather than a deterrent - Think the Fiscal Cliff.

And War had become the answer to all problems: Think Iraq, Afghanistan and soon Iran, Egypt, Libya and Israel.

Congress has but one mandate: each party must destroy the other party.

The Banks have but one business model: suck all the capital out of the economy.

 Network news has but one idea: Entertain us.

Talk Radio and Cable TV have but one chilling mission: earn money by spreading Hatred towards The Other.  Them.

And everyone blames the Fed (including me), without whom this whole mess would have imploded years ago.

Unfortunately, if it had, we'd at least be on the way to some sort of desperation-born discourse.

Or not.

Because two months from an election and the whole electoral process has been marked by an astonishing absence of discourse, on all sides.

So, if this sounds unrealistically bleak, you can cling to the idea that gold is in a bubble ready to burst at any second.

If not, you're running out of time to pick up the only financial shelter from the Hate Trade: Gold.

Saturday, September 22, 2012

Draw your own conclusion Dept.

Extreme correlation between debt - the quantity of paper money - the price of gold.  Perhaps even implying causation?

Friday, September 21, 2012

Deutsche Bank: GOLD IS MONEY

Deutsche Bank analysts Daniel Brebner and Xiao Fu say gold is seriously misunderstood, and in a new report – wherein they update their gold target to $2000/oz sometime in the first half of 2013 – they explain that "gold is not really a commodity at all.  Gold is money."

"While it is included in the commodities basket it is in fact a medium of exchange and one that is officially recognised (if not publically used as such). We see gold as an officially recognised form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves."

"We would go further however, and argue that gold could be characterised as ‘good’ money as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies. In describing gold as such we refer to Gresham’s Law – when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation."
"In our view the ideal medium of exchange must balance the paradox of representing value while having little intrinsic value itself. There are very few media which can do this. Fiat currencies physically have no use other than that which is prescribed to them by government and accepted by the public. That fiat currencies cost little to produce is of a secondary concern and we believe, quite irrelevant to the primary purpose.

"Gold is neither production good nor consumption good. Jewellery we see as a form of storage or hoarding (the people of Portugal have all but exhausted their personal gold stores – hoarded in the form of jewellery – having converted them to survive the crisis). If gold did have a meaningful commercial use we believe that it would make the metal less attractive as a medium of exchange as the value of the metal in whatever market it was used in could periodically interfere with its medium-of-exchange role..."

Wednesday, September 19, 2012

Don't take my word for it:

Jeff Berwick of : “We’re on 0% interest rates . . . and quantitative easing (money printing) until the system dies.  We’ve never had a global system like this die before.  One way to protect your assets is to buy precious metals, but you better not wait too long to buy them.  It will be impossible to buy gold and silver in the next few years.  Dramatic changes are coming, most people in the U.S. will not see this coming.”

Jim Rickards: "It's almost as if the large banks can't make money without breaking the law"

Milo Jones and Philippe Silbersahn in Forbes: "At the highest level, bankers wittingly sell hazardous products they can know nothing about. Which is like having a nuclear missile division run by entertainment executives.  Brace yourself for the next banking crash, it's coming soon."

John Hussman: "Our prospective return/risk estimates are more negative than at any point in history.  The likelihood of extreme “tail events” is vastly enriched."

A. Gary Shilling,  "Well, I beg to differ with the 'It's so bad, it's good' crowd. Conditions are so bad, they're bad. All the immense monetary and fiscal stimuli here and abroad in the last five years have failed to offset the gigantic deleveraging in global private sectors. And they're unlikely to do so until global deleveraging is completed in another five to seven years."

JIM CRAMER (CNBC): "I don’t believe in fiat paper, I only believe in gold”
RAY DALIO: "There's No Sensible Reason Not To Own Gold."

Richard Russel: "Buying GLD is a trade, and holding gold coins is a move that theoretically is forever. For instance, if I had GLD, at some point I'd sell it, and hopefully show a profit. But I don't know when I'd ever sell the bullion coins. Sell them for what? For Fed-created fiat paper?"

 Marc Faber "our nation has a 100% chance of entering another recession... You ought to own some gold but don’t store it in the U.S., the Fed will take it away from you one day” 

Author G Edward Griffin who wrote the history of the Fed in 1984's "The Creature from Jekyll Island."  "We are in the middle of enormous changes to society that will affect your lifestyle, your livelihood and your financial wellbeing... that are playing out every day, while few people are taking notice."

Monday, September 17, 2012

Art Nouveau Medals

At the turn of the 20th century Art Nouveau was system of aesthetics that encompassed painting, drawing, sculpture, architecture, jewelry design, furniture design, etc.  It was a global (western) movement that incorporated an ideal of the abstract flow of the lines and patterns of nature into a disciplined functional design.  It was a marriage of beauty and use, and as such formed the basis of Modernism.  And, as is always the case, the term Modernism echoed the precepts of Classicism.

Art Nouveau expressed itself completely in the Art Nouveau Medal.  Most of the great Art Nouveau sculptors, painters and designers were also Medallists.  The form and substance of the medal was one of ultimate Use: They were created on round or rectangular planchets to celebrate specific occasions and accomplishments in identifiable metals all the while celebrating the artists' vision of natural beauty.

Two world wars and a global depression gave rise to a total rejection of classical (Read: Modern) ideas of  the marriage of "technique, beauty, and form and use."  The rejection of Modernism gave rise to Post Modernism wherein the "The concept" was championed in "fine art," most often by those with minimal conceptual training, while form, use and beauty were consigned to "decorative arts."

At the same time, I will note the same movement occurred gradually in the conception of Money, which progressed from the naturally useful function of precious metal towards the realm of pure concept.

Fifty years later, the championing of Concept - in art by those who by now have no conceptual training whatsoever - and in Money by those who have no practical training in use - has coalesced into an unintentional Theater of the Absurd wherein "Fine Art" is dominated by advertising executives and commodity traders, while Money is conjured into existence by academic theorists.

Not coincidentally Art Nouveau medals are trading readily and plentifully for little more than the (degraded) price of the precious metals in which they were created.

But as we are clearly in the endgame of the Conceptual Absurdity, and the pendulum is swinging back towards ideal of natural use in money, the value of "use, function and beauty" in art is sure to follow.  

Friday, September 14, 2012

It's the demand, stupid

Sometimes economics is simple.

What's wrong with the economy?  Too much taxes?  Too little taxes?  Too much spending?  Too much debt?  Too much gridlock?   Too many regulations?  Too few regulations?  Too much Keynes?  Too much supply side?   Socialism?  Capitalism?  Blah, blah, blah.

It's the demand, stupid.

When you crush the middle class there is no demand.  When you're drowning in debt, there is no demand.

How do you stimulate demand?

Well, for a while you can load up on stuff you can't afford through debt.

Then, once everyone is deeply in debt how do you stimulate demand?

You don't.

The Romans had vomitoriums for those who had gorged themselves, in order that they could return to the feast.  That's the original quantitative easing.  But after the third trip to the vomitorium, really, how much more could they eat?

Now the Fed has promised to stick its big fat fingers down its throat and disgorge as much cash as often as it takes to stimulate more demand.

The only real demand that will stimulate is the demand for hard currency and high end hard assets that will be increasingly hard to purchase with the content of the Fed's stomach.

Thursday, September 13, 2012

Coin Auction season: Collect only the finest examples:

As time goes on the middle class is being crushed.  While the rich get richer and richer.  Bear this in mind when forming your collections.  Buy only the finest examples.  These will always appeal to the very rich.  The middle class collector who simply collects average examples for the love of history will soon be a thing of the past.  All objects will be seen by the rich as alternative investments to paper:

Rich-Poor Gap Widens to Most Since 1967 as Income Falls

Spencer Platt/Getty Images
A teenager who collects bottles and cans and lives in a city shelter walks near Times Square in New York City.
A census report showing median household income fell last year puts a new focus on the biggest issue of the U.S. presidential election. And it’s likely to be deployed by both candidates to reinforce their campaign themes.

The U.S. Census Bureau figures released yesterday underscored the struggles of American families in a sputtering economic recovery. The report also showed the income gap between rich and poor people grew to the widest in more than 40 years in 2011 as the poverty rate remained at almost a two-decade high. 

Median household income dropped 1.5 percent last year while the proportion of Americans living in poverty was 15 percent, little changed from 2010. The 46.2 million people living in poverty remained at the highest level in the 53 years since the Census Bureau has been collecting that statistic.

Wednesday, September 12, 2012

DAVID STOCKMAN TELLS IT LIKE IT IS: (or is he crazy too?)

"This market isn't real. The two percent on the ten-year, the ninety basis points on the five-year, thirty basis points on a one-year – those are medicated, pegged rates created by the Fed and which fast-money traders trade against as long as they are confident the Fed can keep the whole market rigged. Nobody in their right mind wants to own the ten-year bond at a two percent interest rate. But they're doing it because they can borrow overnight money for free, ten basis points, put it on repo, collect 190 basis points a spread, and laugh all the way to the bank. And they will keep laughing all the way to the bank on Wall Street until they lose confidence in the Fed's ability to keep the yield curve pegged where it is today. If the bond ever starts falling in price, they unwind the carry trade. Then you get a message, "Do not pass go." Sell your bonds, unwind your overnight debt, your repo positions. And the system then begins to contract...
"The Fed has destroyed the money market. It has destroyed the capital markets. They have something that you can see on the screen called an "interest rate." That isn't a market price of money or a market price of five-year debt capital. That is an administered price that the Fed has set and that every trader watches by the minute to make sure that he's still in a positive spread.
"And you can't have capitalism if the capital markets are dead, if the capital markets are simply a branch office – branch casino – of the central bank. That's essentially what we have today.

"Ron Paul is the only one who is right about the Fed, and the Fed is the heart of the problem. They have destroyed the capital markets and the money markets; interest rates mean nothing; everything is trading off the Fed and Wall Street isn't even home - as it's now a bunch of computers trading word-clouds emitted by this central banker and that"
  "everyone is being given the wrong signal - the Ryan/Romney campaign is about restoring vibrant capitalism; how can you do that when the financial markets are dead - the lifeblood of a capitalist system. And that is the problem today."

Tuesday, September 11, 2012

10 billion dollars a day

10 billion dollars a day.

That's how much the US government must borrow to keep running between today and the end of the year, as tax receipts have now run out.

And that's not counting interest payments on the debt.

That's just the on balance sheet day to day running of the Federal Government.

Good luck.

Monday, September 10, 2012

Why Gold Must Soar under Rombama

Romney Doubles Down on Obama's Toxic Currency Policies

May 7, 2012 RSS Feed Print James Rickards is a hedge fund manager in New York City and the author of Currency Wars: The Making of the Next Global Crisis from Portfolio/Penguin. Follow him on Twitter: @JamesGRickards.

"On most issues, former Gov. Mitt Romney tries to distinguish himself from President Obama and set his policies apart from those of the current administration. Yet, in one area Romney is not only a clone of Obama but has doubled down and insisted that the president's policies be applied with even greater force. This area involves China and its alleged currency manipulation.
The exchange rate between the U.S. dollar and Chinese yuan is the main battlefield in the global currency wars. Romney demands that China be officially branded a currency manipulator and suffer retaliation in the form of taxes and trade sanctions from the United States. This is just a more extreme form of Obama's continual diplomatic pressure on the Chinese to revalue their currency upward."

And they're not the only ones.  The entire US government from Geithner to most every US Senator and congressman on both sides of the aisle are demanding a stronger yuan.  In other words they are demanding a weaker dollar.

Right now the dollar index trades primarily against the Euro.  But the euro, as a reserve currency,  is cooked.  China, Russia, Brazil etc are all paring back on euro reserves.  Meanwhile, they are all stockpiling gold.  

Say what you want about Chinese GDP growth - illusion or reality - the fact is that on a purchasing power parity basis chinese GDP is now equal to US GDP.  And whatever their growth rate - it's a lot faster than the US growth rate.

Soon China will find it in their own best interest to let the Yuan dramatically revalue.  They'll allow us to bully them into doing exactly what they want to do.

Then the dollar will trade against the yuan.  And then the dollar will cease to be the world's primary reserve currency.  Then gold will enter its primary bull phase.

Thursday, September 6, 2012

The 29 Trillion dollar Private Equity swindle

The Fed claims that it gave the banks only a trillion dollars in bailout money.  We've all heard this number disputed by Bloomberg (7.6 trillion) and the General Accounting Office (16 trillion)  and many independent commentators.  Here's a breakdown of Fed charitable donation activity to the World's largest Banks since the crash of 2008.

The total charitable contributions made by the Fed totals 29 trillion dollars.  Maybe some of it has been paid back.  Maybe some of it was traded for securities with some value.  Who knows?  Only the Fed.  And they're not gonna say. 

What's sure is that while the politicians argue publicly over a few billion here and there, the single greatest transfer of wealth in the history of the world from the middle class to the banking class has just been perpetrated.

What's also certain is that the crisis that facilitated this massive transfer of wealth was engineered by the Fed (negative real rate policy starting in 1980 with Reagan and Greenspan) and the banks who sold every mortgage (facilitated by the negative rates) ten times over.   Not to mention trillions of dollars of Virtual Mortgages that had no underlying properties.

They loaded the economy with debt.  The economy went broke.  They extracted 29 trillion dollars of equity.  That puts Bain capital to shame.  Though it operates in exactly the same manner.

Table 1: Cumulative facility totals, in billions
Source: Federal Reserve
Facility Total Percent of total
Term Auction Facility $3,818.41 12.89%
Central Bank Liquidity Swaps 10,057.4(1.96) 33.96
Single Tranche Open Market Operation 855 2.89
Terms Securities Lending Facility and Term Options Program 2,005.7 6.77
Bear Stearns Bridge Loan 12.9 0.04
Maiden Lane I 28.82(12.98) 0.10
Primary Dealer Credit Facility 8,950.99 30.22
Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility 217.45 0.73
Commercial Paper Funding Facility 737.07 2.49
Term Asset-Backed Securities Loan Facility 71.09(.794) 0.24
Agency Mortgage-Backed Security Purchase Program 1,850.14(849.26) 6.25
AIG Revolving Credit Facility 140.316 0.47
AIG Securities Borrowing Facility 802.316 2.71
Maiden Lane II 19.5(9.33) 0.07
Maiden Lane III 24.3(18.15) 0.08
AIA/ ALICO 25 0.08
Totals $29,616.4 100.0%

Source: “$29,000,000,000,000: A Detailed Look at the Fed’s Bail-out by Funding Facility and Recipient” by James Felkerson, forthcoming, Levy Economics Institute, based on data analysis conducted with Nicola Matthews for the Ford Foundation project “A Research And Policy Dialogue Project On Improving Governance Of The Government Safety Net In Financial Crisis”.

Tuesday, September 4, 2012

Billionaires loaded up on gold this quarter. Jealous pundits laugh at them

Billionaires who have loaded up on gold as their principal asset of choice:

George Soros: Recently bought 8884,000 shares of GLD, while dumping all of his bank stocks.

John Paulsen:  Paulson & Co., which owns the biggest stake in the SPDR Gold Trust, increased its holdings to 21.8 million shares in the three months through June. The New York-based $21 billion hedge fund firm had more than 44 percent of its U.S. traded equities tied to bullion

Frank Giustra: Mr. Giustra says in the future the world  is almost certainly heading for more money printing and more inflation. Avoiding cash, bonds and fixed income securities and focusing on gold and stocks is how one positions to benefit from that scenario.

Kyle Bass:  When Texas University invested $1 billion in gold, he advised its board to take physical delivery of the precious metal. According to Bass, the reasons for taking physical delivery were more practical than they may seem.

Erich Mindich: Eric Mindich’s Eton Park Capital also bought  739,117 shares in the SPDR Gold Trust during the first quarter. The New York-based fund held no shares of the exchange-traded product as of December 31.

David Einhorn:  Einhorn's Greenlight Capital  was very bullish on gold but this quarter, though he sold positions in ABX and GDXJ. As a percentage of the total exposure to gold, the sales are on the low side for the very large stake in GDX was left untouched. Einhorn also has a large stake in physical gold.

Daniel Loeb:  Loeb sold 24 equity positions this quarter, leaving physical gold as his single largest position. 

Bill Gross:  Dow Jones is reporting this morning that PIMCO's Commodity Real Return Strategy Fund, with about $20 billion in assets, has raised its gold holdings to 11.5% of it total assets from 10.5% two months ago. The position was apparently taken when gold dipped towards $1500 according to comments from Nic Johnson, its co-portfolio manager.  Their concern is a triple one - loose monetary policy, high levels of sovereign debt and rising commodity prices are going to fuel an inflation outbreak as we move ahead.

CENTRAL BANKS aggressively buy gold: Russia – Bangladesh – Philippines – Saudi Arabia – Thailand – Belarus – Venezuela – India – Sri Lanka – Mauritius – Mexico – Bolivia – Colombia – South Korea – Turkey – Kazakhstan – Tajikistan – Serbia – Ukraine – Mongolia – Malta – Greece  - Argentina.

Pundits who don't get gold at all:

Some jackass named Mike Norman regularly ridicules Kyle Bass for his bullion purchases.  His reason: " central banks cannot print money. They simply can't."

James Paulsen of Wells Capital regularly touts the idiocy of buying gold: He claims the odds of QE3 are remote.  And he thinks the US economy is about to coming roaring back.

Charles Sizemore Investor place newsletter advises readers that gold is a bubble like tech stocks in 1999.

Dave Ramsey: claims that buying gold at this high price is stupid.  He laughs at financial morons like Soros and Paulsen who are throwing their money away at the top of the market.  Instead he advises a portfolio of mutual funds.

Ric Edelman: "Gold is for suckers." 


Saturday, September 1, 2012


Gold is a monetary instability hedge.

Everyone assumes that the DEBT PROBLEM is the source of monetary instability.

Everyone is talking about the Debt Problem.

Nobody is doing anything ab out the  Debt Problem.  Nobody has even PROPOSED anything about the Debt Problem.  Especially not Rombama. 


Because the Debt Problem is a symptom.

The real SOURCE of Monetary Instability is the BANKING PROBLEM.   

Banks are supposed to direct Capital in an efficient manner through the economy.

Banks are currently sucking capital out of the economy.  

They do this by creating 100's of TRILLIONS of new debt products that they mark to imaginary models and award themselves fantastic bonuses when they work out and charge the taxpayer when they don't.  This is going on unchecked - right now. 

And Nobody has the guts to even address this problem.  Especially not Rombama

Don't take my word for it.  Listen to Andrew Haldane of the Bank of England:

“In 1989, the CEOs of the seven largest US banks earned on average $2.8 million…almost 100 times the median US household income. 

By 2007, at the height of the boom, CEO compensation among the largest US banks had risen tenfold to $26 million.

That was over 500 times the median US household income.” 

Haldane noted that the increase grew: at the same rate as the increase in bank leverage.

And this doesn't even begin to cover bank special purpose entities (off balance sheet) engaging in hedge fund and private equity activity.

DAVID STOCKMAN:  "Here's the heart of the matter. The Fed is a patsy. It is a pathetic dependent of the big Wall Street banks, traders and hedge funds. Everything (it does) is designed to keep this rickety structure from unwinding. If you had a (former Fed Chairman) Paul Volcker running the Fed today 7/8— utterly fearless and independent and willing to scare the hell out of the market any day of the week — you wouldn't have half, you wouldn't have 95 percent, of the speculative positions today.

Q: You sound as if we're facing a financial crisis like the one that followed the collapse of Lehman Brothers in 2008.

A: Oh, far worse than Lehman. When the real margin call in the great beyond arrives, the carnage will be unimaginable.

Protect yourself.  Buy physical gold.   While you still can.

Bankers are more dangerous than standing armies......(and) if the American people allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and CORPORATIONS that will grow up around them will deprive the People of all their property until their children will wake up homeless on the continent their Fathers conquered." .......................................................................Thomas Jefferson