The recovery everyone believed in - even those who have been warning about the dangers of QE Infitniti"

A very successful oilman dies. He faces Saint Peter, who says, “You’ve been a good man, and normally I’d send you to heaven, but heaven is full. We only have a place for you in hell.” 

The oilman asks, “Any chance I could talk to other oilmen who are in heaven? Maybe I can convince someone to switch places with me.” Saint Peter says, “It’s never happened before, but sure, I don’t see any harm in it.” 

The oilman goes to heaven, finds an oilmen convention, and yells, “They found a huge, cheap oil discovery in hell!” 

So oilmen are stampeding out of heaven straight to hell, and our oilman is running with them; he's leading the pack. 

Saint Peter shouts to him, “Why are you going to hell with them? I have a spot here in heaven for you now!” 

The oilman shouts back, “Are you kidding, what if it’s true?”

 (courtesy of Warren Buffet - who also believes in the recovery)

You can fool

If the Ben Bernanke Fed has proved anything at all it's that you can fool most of the people all of the time.

Just a few years after engineering world history's biggest transfer of wealth from the public sector into the hands of a very few bankers, and just a few months after the ECB engineered the first official confiscation of banks deposits, the Public Trust in the Central Banks and the Banking Sector is at an all time high.

The clear measure of this massive misplacement of Trust, lies in the massive repricing of gold, an all time Low on the Vix and a record 133 billion dollars of Junk Bonds sold this quarter.

The question of when the  gold bull will resume is answered quite simply: The Gold Bull will resume when the Trust in Central Banks and the Big Banking Sector is shaken once again.

What could shake this trust?

With US and international debt - and Bank Debt - at unprecedented levels in the history of the world, it could really be almost anything from a bad derivatives trade at a Bank or a Hedge Fund to a Sovereign default in France, Japan, Italy, Spain to a natural disaster that wipes out an insurance company and its entire web of counter-parties.

Or, it might simply be caused by the equity markets getting the strange idea that the Fed might slow its massive easing, and everyone racing for the exits at once.

But if one thing in life is certain its that misplaced trust will lead to disappointment - and an acute sense of betrayal...

What that looks like is anybody's guess.  But one facet of the picture will be the resumption of the gold bull.

Ackerman on the tightening:

Why Even Talk of Tightening Could Be Fatal

by Rick Ackerman on May 22, 2013 3:39 am GMT ·

Repeat after us: There is zero chance the Fed is going to tighten…zero chance…zero chance…zero chance.  We’ve made this point so often here that it is has practically become a mantra at Rick’s Picks.  It has also been amplified, refracted and explicated – though not hotly debated – in our forum, where there are apparently few who expect any change in Fed policy. As how could there be?  For even the slightest hint that easing is about to taper off, let alone end, would bring on the Second Great Depression faster than you can say “Hooverville!” The prospect of hard times might have superficial appeal, since the legacy of the 1930s with respect to art, architecture, cinema, public works, automobiles and other monuments to creativity and human endeavor is quite impressive. But the downside is that the illusion of prosperity would be gone, and with it much false wealth that could never withstand the discipline of unrigged markets.  Also gone – overnight – would be the global banking system, buttressed as it is by a nearly quadrillion dollar edifice of hyper-leveraged derivatives.  Subject that sum to even a few more basis points of vig and you’re talking about trillions of dollars that would have to be coughed up in real money. Fat chance.

The foregoing is in response to a CNBC story out Tuesday evening under the headline Bernanke Expected to Deliver Dovish Message.  This is about as dog-bites-man as news gets – a space-filler intended to pump up the press-release version: Bernanke will testify before Congress today.  Here’s the opening paragraph:  “Federal Reserve Chairman Ben Bernanke is expected to maintain his dovish tone when he speaks to Congress Wednesday, and he is likely to dispel any notion that the Fed is ready to cut back on its easing policy.”  What puzzles us is the matter of whether such a notion even exists – not just on Capitol Hill, but in editorial rooms where stories like this originate. Of course, political calculations will naturally be biased toward easing until the cows come home. But there are also economic factors to be considered, such as: Won’t all of this easing eventually lead to really bad inflation?  This fear is misplaced as far as we’re concerned. More likely in our view is that there will be no “process” of inflation to reckon with, but rather a hyperinflation that comes on so swiftly as to steamroller whatever puny remedies might be tried.  In the meantime, deflation will continue to rule the global economy, since, as Margaret Thatcher famously warned, the statists have in fact finally run out of other people’s money.
While we await the global economy’s all but inevitable collapse, one thing we absolutely need not fear is that the Fed will stop easing.  And if the central bank should make the serious mistake of trying to cut back slowly on monthly bond purchases that currently total $85 billion, be prepared for the markets to reject the experiment with such violence that even the likes of CNBC will finally understand that tightening, or even merely talking about it, will by then have become quite impossible.

Soros on gold:

George Soros switches from physical gold to gold stocks and that is very bullish for gold prices

By: Peter Cooper, Arabian Money

 

Ever the investor who loves to confuse markets – remember how his description of gold as the ‘ultimate bubble’ confused some folk as he bought the metal himself – George Soros has done it again with his gold ETF sales.

Today the global financial press is awash with reports that Mr. Soros has sold gold again. True. But he has reinvested that money in a far more risky investment in gold miners whose performance is leveraged against the gold price. They go up faster than the gold price and they fall further when it comes down too.

Very bullish

The Soros Investment Fund’s 13F filing does indeed show the sale of 12 per cent of his total investment in GLD. But it also reveals that he then used $40 million of that cash to buy shares of the Market Vectors Gold Miner Major ETF (GDX).

Then he also bought $25 million worth of call options on the Market Vectors Gold Miner Junior ETF (GDXJ). As all gold mining stocks are leveraged plays on the price of gold and the juniors are the most leveraged bet of all, this is very bullish. The second investment in the juniors is about as bullish on the gold price as anybody could get.

How typical of Mr. Soros to put the cat among the pigeons again. He likes of course to throw up a smokescreen in one direction while moving off in another. The true mark of the master trader. ArabianMoney has also jumped in the same direction (click here). Readers of our monthly investment newsletter got this tip last month (subscribe here). It’s a bit late to read about it today.

This looks a clever move, so long as the stock market’s current euphoria holds up, and gold bounces off $1,321 as a testing of the bottom of the last sell-off. Still Mr. Soros knows his market timing and following in his wake usually pays off handsomely. But better still to be ahead of him…

ROUBINI THROWS IN THE TOWL: EVERYONE'S ON ONE SIDE OF THE TRADE

Japan has taken up Bernanke's print or die mantra and gone one better.  They are printing as much in a country one third the size.  

And everyone says it's working wonders. Even Nouriel Roubini.  He does begrudgingly note that the policy still could fail.  If certain things go wrongs:

However, consumer service sector price deflation, arguably the most important gauge of general price level trends, accelerated for a third straight quarter, corroborating the weak CPI data we have seen so far this year. There is still a long road to sustained positive inflation.

The first thing that jumped out at us was the negative sign in front of the private nonresidential investment growth rate. At -0.7% q/q, private investment in plants and equipment recorded a fifth straight sequential contraction, a particularly ignominious result…. Given the slack still evident in the economy through Q1 (recall that deflation worsened over the quarter), this result isn't so surprising. The pace of contraction was considerably slower than H2 2012, and we expect to see this series return to growth in Q2. Still, this persistent weakness underscores the challenges to Japan's longer-term outlook. The pace of private nonresidential investment is now more than 17% below its Q1 2008 peak.

But clearly even Roubini is loath to predict dire consequences for massive printing.  He'd be a fool, right.  Massive printing is so clearly working here, in England, and now in Japan.  The European's will be fools not to join on in.

So markets will soar, gold will dive as long as this narrative continues.  Prosperity can be simply printed with a computer.  This is the computer age.  Get with it.

Sell all your gold and put all the proceeds into the stock market.  You can't go wrong.  After all, everything in human history changed drastically in 2009 - thanks to the Universal Genius of Ben Bernanke.  One man who had the courage to change the entire course of human history.  One man realized that prosperity could be printed into existence just by pushing a button on a computer.  Kind of like the Namy-ho-regne-kyo Buddhists who become prosperous by chanting.  But this doesn't even take chanting.  That would be too much work.

Thank God for his genius, his courage, his integrity.  Thank God.

portrait of a failed recovery: Velocity of Money

Retail Sales for april came in up a suprise .1 percent.  That's point one.  That number is based on an inflation skewed dollar total generously adjusted by supposed seasonal factors.  And still it's flatlining.  5 years into a supposed recovery.

Of course, all government data can be endlessly massaged.  But if people are buying stuff money most be turning over.

Why then is rate at which money is turning over at a rate slower than that at the depth of the great depression?

In 1931 Velocity of M2 was at 1.97.

Today it is at 1.54

I know, if you're extremely wealthy, who cares?

If not, maybe you should care.

Hubris

The term Hubris has a very specific meaning for the Greeks who invented it.  It describes a tragic situation where the will of man becomes paramount. 

In the Iliad, the heroes of the battlefield could effect no positive outcome when acting under the force of their own will and wisdom.  It was only when the Gods literally entered them and controlled their every action that victories were achieved.  This reflected a view wherein man's success lay in sublimating their will, their goals, their actions to those of the Gods.

Though we love to use the term hubris, the idea makes no sense to us.  We love to laud business leaders as men of iron will and great vision.  In other words we celebrate Hubris rather than fear and decry it.  We never say "He was a great leader because he was able to sublimate his will to the common good."  Rather "He was a great leader because he imposed his will upon the business landscape."

And the more an individual can suck out of the system, at the expense of his neighbors, friends and family the more we admire his Will and Vision.

Thus it is no surprise that we laud Bernanke to the heavens for his attempts at controlling the business cycle.  Just as we did with Greenspan.  Greenspan was a man of iron will and great genius as he highhandedly engineered prosperity.  Until the entire system collapsed. 

Now, few short years later, we laud Bernanke and another who has been able to impose his iron will on the business cycle.  What a strong man.  What will.  What vision.

Until the system collapses yet again.

What man of Iron Will will rise from the ashes this next time?

Jim Grant weighs in:

"Gold has been in a bull market for 12 years. Gold is this rare thing in which you can be bullish and yet contrary and also with the trend. There is I think a general fatigue animus towards gold. The gold prices are reciprocal of the world's view of the competence of central banks. The greater the world's confidence in the Ben Bernanke's of the world, the weaker the gold market. The less the world holds confidence in the institution of managed currencies, the stronger the gold market. And to me the confidence is utterly misplaced."

THE VALUE OF GOLD:

Peter Tenebraum's 'acting man' post is certainly the best financial blog around.  He makes the point repeatedly that gold is not an industrial commodity - it is a CURRENCY.

As such Gold's value will always be determined by monetary/investment demand.

In Peter's words:

In short, it is monetary or investment demand, which in turn is technically divisible into outright new demand and reservation demand, that is the main driver of gold's price. If one wants to analyze gold's likely price trend,  it would be perfectly legitimate to completely ignore annual mine and scrap supply and  annual industrial and jewelry demand for gold. One might perhaps mention these as 'marginal factors', but they really are unimportant in terms of the bigger picture. Instead, one must concentrate on the factors driving above mentioned monetary demand.

These factors are, in no particular order:

1. the level of real interest rates (i.e., nominal interest rates minus market-based inflation expectations),

2.    the dollar's exchange rate,

3.    the rate of growth of the true money supply, (different from the Fed's money supply which leaves out an vast array of Treasury/Fed/Foreign bank demand deposits)

4.    the steepness of the yield curve, (currently heavily manipulated)

5.  credit spreads (and other indicators of waxing or waning economic confidence),

6.    the desire to increase or decrease savings, and

7. confidence in government, the monetary authority and the financial establishment generally. 

Now - real rates are still negative; True Money Supply is still exploding; and confidence in government is waning.  All these trends are - as of now - perpetual one way trends.

Gold has clearly taken a big hit lately. But the true measures of FUTURE VALUE are still clear.

Zeno's triumph

In about 460 BCE Zeno of Elia came up with a bunch of mind teasers he called paradoxes, which illustrated that all movement was essentially impossible.  The most famous of these states that in moving from point A to Point B we must always travel half the distance - yet however far we travel, half the distance still remains.  Thus you can never reach a destination.

We laugh at the idiocy of this.  Yet when analyzing the economy we are more than happy to use this same logic, and decide that since point B has not yet arrived, it will never necessarily arrive.

Therefor we feel it is not necessarily true - for sophisticated economies - that massive debt must be repaid or defaulted upon, it is not necessarily true that bad paper ever has to be written down, it is not necessarily true that flawed institutions that routinely mis-alocate capital should ever have to suffer write-downs, it is not necessarily true that massive inequalities of income and wealth should ever lead to grossly inefficient economies.

A generation after Zeno, Plato of Athens came up with his theory of incisive thought which he called Syllogism.  Sylligistic thought demands that in properly analyzing any situation you must ask not only what is - but what Seems to Be.  As well what isn't and what Seems not to be.

Of course, it very in vogue right now to mock Plato as an inflexible fascist thinker.

The idea that things could Seem to be working yet not working at all is routinely lambasted by Nobel Laureates like Paul Krugman, daily in the New York Times.

If creating trillions of dollars from thin air and pumping it into the risk markets is bad - why then are the risk markets at all time highs?

This argument - to Plato - would have seemed so stupid - it would not warrant a direct answer.  In stead he would have patiently explained - though extensive analogy - the difference between what IS and what SEEMS TO BE.

It's really too bad this distinction has become lost over the ages.

However, if you imagine the proverbial fool jumping off the top of the Empire State Building, crying out as he passes the 100th floor "This is awesome, I'm flying!"  You might imagine he would feel different when he hits the pavement.

FANTSAY JOBS FIGURE FUELS REAL RALLY:

COUNTRY ADDS 165,000 JOBS – BLS BIRTH DEATH EXCEL MODEL ADDS 193,000 of the 165,000 JOBS

Wall Street is using the addition of 165,000 burger flipping, drink order taking, floor sweeping jobs to rally to new all-time highs. It’s the reason of the day, when anyone with two brain cells knows that the market would have soared if the number was 50,000. With Ben Bernanke pumping $85 billion of heroin into the veins of Wall Street on a monthly basis, the big swinging dicks will keep swinging. Their HFT supercomputers are programmed to buy. It will work until it doesn’t.

193,000 of those 165,000 jobs were created courtesy of the BLS birth death model.  The BLS survey yielded  LOSS OF 28,000 JOBS! 

But that's not possible, right?  Not five years into a massively successful recovery!  Surely we can just add in another 193,000, and call it even.  That's actually pretty restrained.  You'd think they could add in, say 293,000.  That would look a little more like a recovery.

In the real world, the number of working age Americans increased by 180,000, so even today’s fantasy number doesn’t even keep up with population growth. 

TO REPEAT: A BLS drone with an excel spreadsheet model created 193,000 jobs out of thin air.  The BLS is guessing that is how many jobs were added by small businesses in April. With increasing taxes, lower consumer spending, stagnant wages and looming Obamacare taxes and regulations, do you really think small businesses are adding employees in great numbers? Really?

In the real world the percentage of people in the labor force is at a 34 year low. Sounds like a reason for a stock market rally. There are 1.6 million more Americans employed today than one year ago – of course most of the jobs are as temps or in low paying service jobs. Over this same time frame the working age population grew by 2.4 million. Surely this means the unemployment rate went up. It’s just basic math. But NO. The unemployment rate has plunged from 8.1% to 7.5%.

To get that figure, all you have to do is pretend that 1.6 million Americans willingly left the labor force and do not want a job anymore. Why would they want a job in the midst of the worst economic environment since the Great Depression? Racking up $150,000 of student loan debt going to the University of Phoenix or developing a back ache to get on SSDI for life is much easier than working at a job. 

The American Dream is alive and well, in the mouths of Big Banks and the Wall Street shills.  So go out and buy on credit.  Otherwise, the terrorists win. 

Will gold survive as an alternate currency?

Gold is certainly a fiat metal.  Yet it has been so for 5000 years.  Rare, divisible, portable, constant, and intrinsically compelling (beautiful, fascinating).   But perhaps most salient is that this peculiar confluence of characteristics makes gold the single most difficult form of wealth for governments to control.  They can outlaw private ownership, but that just leads to hoarding.  They can demonetize it, but that just leads to the inevitable explosion of value on the secondary market.  It survives war, depression, revolution, insurrection, famine, plague and pestilence. 

And the invention of precious metal coinage may not have caused the shift from Tyranny to Democracy in Ancient Greece, but it was certainly co-incident and correlative.

Of course, at times of great economic stability, its use can be limiting to growth and prosperity.  Nothing is perfect on this earth. 

If you feel this is a time of great economic stability you're probably pretty wealthy.  And even if you're wealthy, you may have some connection to the vast middle class that is suffering through  stagnant wages and  drowning in debt and afflicted by horrible inflation associated to rents, health care and education and fuel.

If you feel this is a time of great economic instability, you should look back through the history of other periods of instability to understand the use and performance of gold in the preservation of private wealth during those periods.

And act accordingly.

Is the spread widening:

Gold Rush From Dubai to Turkey Saps Supply as Premiums Jump (3)
2013-04-30 12:26:16.366 GMT

By Glenys Sim
April 30 (Bloomberg) -- Surging demand for gold from Dubai
to Istanbul has pushed physical premiums in the region to levels
not seen in years as the biggest price slump in three decades
lures consumers, according to MKS (Switzerland) SA.
Premiums paid by wholesalers and bulk buyers in Dubai to
secure a 1 kilogram bar of bullion are being quoted between $6
an ounce and $9 an ounce over the London cash price, said
Frederic Panizzutti, global head of marketing and sales at the
Swiss-based bullion refiner. That compares with about 50 cents
before the rout, Panizzutti, also chief executive officer of MKS
Precious Metals DMCC, said in an interview from Dubai.
Gold fell to the lowest in more than two years this month
on speculation that the global economy is recovering, unleashing
a purchasing frenzy among coin and jewelry buyers from China to
the U.S. Consumer demand for jewelry, bars and coins in Turkey
and the Middle East represented about 9.4 percent of the global
total last year, according to the World Gold Council. Bars have
been cleared from display in the souks, according to Gerry
Schubert, head of precious metals at Emirates NBD PJSC.
“Physical demand has been tremendous in a way I haven’t
seen for a number of years,” said Jeffrey Rhodes, global head
of precious metals at INTL FCStone Inc., who’s worked in the
industry for more than three decades. “The price collapse
prompted a physical gold rush and the evidence of the extent of
that is the prolonged period of high premiums that we’ve seen.
Reports from the gold souks are that business is good,” Rhodes
said from Dubai.