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Monday, October 28, 2013


Creeping Capital Controls At JPMorgan Chase?  Pretty Scary...

A letter sent by JPMorgan Chase, specifically its Business Banking division, reveals something disturbing. For whatever reason, JPM has decided that after November 17, 2013, it will halt the use of international wire transfers (saying it would "cancel any international wire transfers, including recurring ones"), and also, limits the cash activity in associated business accounts to only $50,000 per statement cycle. "Cash activity is the combined total of cash deposits made at branches, night drops and ATMs and cash withdrawals made at branches and ATMs."

Why? "These changes will help us more effectively manage the risks involved with these types of transactions." So... JPM is now engaged in the risk-management of ATM withdrawals?

At Chase a representative explained they were complying with new Money Laundering Laws.  This is obviously a catch-all that can explain cash monitoring (though I can think of lot of other explanations) but it doesn't begin to address a reason for controlling WIRES to foreign Banks - even banks in European Capitals like Deutsche Bank or UBS.

As Tyler Durden comments at Zero Hedge:

Reading between the lines, this sounds perilously close to capital controls to us.
While we have no way of knowing just how pervasive this novel proactive at Chase bank is and what extent of customers is affected, what is also left unsaid is what the Business Customer is supposed to do with the excess cash: we assume investing it all in stocks, and JPM especially, is permitted? But more importantly, how long before the $50,000 limit becomes $20,000, then $10,000, then $5,000 and so on, until Business Customers are advised that the bank will conduct an excess cash flow sweep every month and invest the proceeds in a mutual fund of the customer's choosing?

Saturday, October 26, 2013


Who’s the Best-Selling Young Artist? You Don’t Get to Know

“The whole point of the art market, especially with young artists, is to militate against the existence of an open market.”

Photograph by Andrew Lichtenstein/Corbis

When it comes to art, even “Is it for sale?” can have several answers.
If ever there was a moment to grasp how the art market works, this is it.
With art sales regularly setting new price records, Bloomberg Rankings has released lists of the top-selling young artists–one covering those born since 1970 and a second limited to those born since 1980. Banksy tops the first list; with the British artist’s New York invasion in the news, it’s interesting to see the nearly $40 million his works have gotten at auction. But it’s the numbers on the younger-artists list that really caught TMN‘s attention.

In a word, they are low. If you’ve been following any of the reporting on the recent mania in the art market, they’ll seem startlingly, head-scratchingly low.
Check out the chart below (scroll down if you don’t see it). To break into the top 10 born-since-1980 list, an artist needs only a million dollars in sales, or just over $300,000 for the top 20. That’s not just last year. That’s over the course of a whole career. In a list of artists born since 1980, the careers are still young, but there are plenty of artists that age who’ve sold a lot more than that. Walk through New York’s Chelsea gallery district on any fall weekend and you’ll find at least a couple of young artists whose dealers charge more than that for a single work.

Here’s where it starts to get weird. The numbers you’re looking at, based on data from Artnet, reflect not work sold by the artist, but works that collectors bought from galleries and resold at auction.  As you might expect, the numbers rise dramatically as artists get older and their work hits the auction houses in increasing numbers. To break into the “post-1970″ list would take $6 million in sales. If you were to look at artists born since, say, 1940 or 1950, the numbers would be vastly higher.
That’s what makes the list of young artists so interesting. You may conclude from the low numbers that collectors aren’t interested in their work. Utterly untrue. The list actually says less about the value of the work than about the success of the galleries at keeping it off the open market until artists are well into the later stages of their working lives.

To anyone who isn’t familiar with how the art market works, that last part has to sound bizarre. But it’s key to how art is sold, at least in the U.S. and Europe. Listen to Marion Maneker, publisher of Art Market Monitor and founder of the Art Compliance Company:
“The basic tenet of the gallery system is that the auction market is antithetical to the management of an artist’s career,” says Maneker. “A good dealer is a market maker and prefers to manage the market privately.”

So the question is: Who’s not on that list? Hot artists are sold by galleries that will move heaven and earth to avoid having works go to auction and risk (a) their selling for less than they would in the gallery or (b) their selling for a lot more, and setting a price for future works that an artist won’t match later. The right to purchase work is itself carefully controlled. Works by artists in high demand are parceled out to regular clients, on the understanding that they won’t be sold quickly. That’s why most of the younger artists making a stir in the gallery world now (one example: Lucien Smith) don’t make it into these rankings. As Maneker explains, the gallery’s job “is to get works that will be donated to museums that will ratify the artists’ reputations, not to have collectors resell works at auction for a quick profit.”

And then he says the single most important thing you need to understand about this world: “The whole point of the art market, especially with young artists, is to militate against the existence of an open market.”

Thursday, October 24, 2013

Fall Auction review

CNG, Gorney, Kuenker and Hess Divo provided the market with better than usual selections of Greek and Roman gold and electrum. There were few rarities, but several tougher to find pieces in very nice condition brought the new normal of around $20,000 dollars

CNG and Nomos contributed the de-accession of the Clearwater Collection which included the better part of the "Walwel" horde as well as a fair number of the Pergamon staters.  These coins held their value surprisingly well as savvy collectors used the opportunity to pick up pieces that may not hit the market again for many years.

Later Roman and Byzantine gold was everywhere in evidence and often in spectacularly high grade.  Late Roman of course fared better than Byzantine, especially emperors closest to Constantine.  Both CNG and Kuenker had amazing runs from the recent horde, as does NAC later next month.  Hess Divo offered several late Roman rarities including a couple of medallions from outside the horde that fetched prices in the $100,000 range.

And finally Gorney and Kuenker each boasted a very high quality shooting Daric.  The Gorney's, with a far more detailed style, went for $48,000 and the Kuenker piece went for $25.000.  CNG ran their worst piec,e a VF specimen, that went for $6,500, after selling a superb piece off their site for $27,500 while Roma had 3 pieces, all in poor condition, and all went around the same price as the CNG auction.  Finally Goldberg had a nicer VF (called EF) that went for $12,000, and Heritage had an EF off center that went for $17,500.  The rumor was that there were 20 pieces in all with the finest specimens all going into auction.  It is proving to be true as none of the top dealers have any more for offer at any price, and none of the forthcoming auctions have a single example.   A few more could surface of course, or be recirculated, but it seems the opportunity to pick one up has come and gone.

Still to come is NAC's amazing Republican Roman auction which is sure to bring staggering prices especially for the astounding selection of ultra rare Imperatorial Gold.

And it must be noted that most of the European auctions continued to run ex-jewelry and damaged pieces undescribed as such, which will continue to be a huge problem for US collectors looking to get them graded.

On a related note, none of the European auctions ran graded coins, though CNG did so especially with the Clearwater Oktadrachms, and there are several graded pieces in the very fine Maison Palombo auction running in December.

And, of course, the US firms that are moving into ancients all run exclusively graded coins, as that is what their clientele expects.  I expect that over time grading will become the expected and accepted means of valuing ancient pieces - with the proviso that grading can take into account condition variables but all there is to describe coins of tremendous eye appeal as the asterisk (*) and the "fine style" designation both of which are highly subjective.  So it will be always and ever up to the eye of the individual collector to assemble truly great collections.

Saturday, October 19, 2013

As your neighbor sells their kidney to put food on the table, just down the road, your other neighbor is trying to find ways to spend his billions:

A TOILET:  SOLID GOLD: $21 Million
Built in 2001, this rather luxurious toilet is made of solid 24-carat gold and coated with gems. Everything in the restroom surrounding it — sink, tiles and doors — is also made of solid gold; the display at Hang Fung Gold Technology's showroom in Hong Kong.


A PAIR OF SHOES Price tag: $3,000,000

House of Harry Winston Ruby Slippers
House of Harry Winston Ruby Slippers
A painstaking two (whole) months was spent in carefully crafting a pair of shoes that out of four thousand and six hundred rubies and fifty carats of diamonds. After about sixty days, the opulent heels, glittering in all their glory, were unveiled at the House of Harry Winston, accompanied by a price tag of no less than three million.

A PEN: Price: $1,470,600
The Aurora Diamante is the most expensive writing instrument till date. Only one is for sale per year. The Aurora Diamante contains over 30 carats of De Beers diamonds on a solid platinum barrel. It has a two-tone, rhodium-treated, 18KT solid gold nib and is personalized with a coat of arms, signature or portrait. Aurora Pens says it is the only over 30 carat pen in the world.Aurora Diamante Top 10 Most Expensive Pens in The World
The $400,000 Poop-Scooping Robot designed by the GRASP Lab researchers that is capable of finding and removing 95 percent of pooch's poo at a sidewalk-sparkling rate of one ppm (that's poo per minute).



Personal Submarine
A Submarine
Triton 1000 Luxury Submersible: $1,690,000

U.S. Submarines' Triton 1000 is a 2-man submarine, designed specifically to be deployed from your huge mega-yacht. It's air conditioned, joystick controlled, and it has leather seats to distinguish it from crappier luxury personal submarines.

A Jetpack
Tecnologia Aerospacial Mexicana's Rocket Belt
The Rocket Belt can reach speeds of nearly 10 miles per hour! With each rocket belt purchase, the company also provides complimentary training sessions, a machine to manufacture your own rocket fuel, and 24/7 support – so you'll never have to wait until business hours to fly around in your jetpack again.


A Hover-Chair
Hover IT's Hovering Lounge Chair
When you're rich, you can afford to do things that other people can't do, like harness the power of magnetism. People have been using magnets for a long time, but it wasn't until recently that Hover IT put magnetism to good use… by using it to create a levitating lounge chair! However, you have to provide your own cushions, because this thirteen thousand dollar chair doesn't come with them.
Hover Chair

A Crystal-Powered Laptop Computer
Luvaglio's Luxury Notebook
This luxury laptop comes equipped with a 17" monitor and a Blue-Ray drive. Other than being plated in gold and encased in expensive wood, there's only one key difference between this $1 million dollar laptop and a six hundred dollar Sony Viao: this one is powered by a crystal. Okay, it's not technically "powered" by a crystal, but it requires the insertion of a very rare colored diamond that serves as the computer's power button, making it more than worth the $1 million price tag, right?

Luxury Laptop

Desperate Measures for Desperate TImes:

Bodies Double as Cash Machines With U.S. Income Lagging: Economy

Cash on Hand: The Price of Body Parts
Hair, breast milk and eggs are doubling as automated teller machines for some cash-strapped Americans such as April Hare.
  Bodies Double as Cash Machines With U.S. Income Lagging: Economy
A doctor marks which kidney to remove on a kidney donor in Baltimore, Maryland. Photographer: Brendan Smialowski/AFP via Getty Images

Out of work for more than two years and facing eviction from her home, Hare recalled Louisa May Alcott’s 19th-century novel and took to her computer.
“I was just trying to find ways to make money, and I remembered Jo from ‘Little Women,’ and she sold her hair,” the 35-year-old from Atlanta said. “I’ve always had lots of hair, but this is the first time I’ve actually had the idea to sell it because I’m in a really tight jam right now.”

The mother of two posted pictures of her 18-inch auburn mane on, asking at least $1,000 and receiving responses within hours. Hare, who also considered selling her breast milk, joins others exploring unconventional ways to make ends meet as the four-year-old economic expansion struggles to invigorate the labor market and stimulate incomes.

In all but two quarters since the beginning of 2011, “hair,” “eggs,” or “kidney” have been among the top four autofill results for the Google search query, “I want to sell my...,” according to Nicholas Colas, chief market strategist at New York-based ConvergEx Group, which provides brokerage and trading-related services for institutional investors.

While Americans can legally sell hair, breast milk and eggs, the sale and purchase of a kidney in the U.S. is against the law. “The fact that people even explore it indicates that there are still a lot of people worried about their financial outlook,” said Colas, who tracks off-the-grid economic indicators. “This is very much unlike every other recovery that we’ve had. It’s going to be a slow-grinding, very frustrating recovery.”

Egg Donors

At Shady Grove Fertility Center, which has offices in Washington, Virginia, Maryland and Pennsylvania, about 13,000 women will apply this year to be an egg donor. That’s roughly a 13 percent increase from 2012, Ali Williams, marketing assistant supervisor at the fertility center, said in a telephone interview.
The clinic’s own survey last year showed that 65 percent of women said there was at least some financial motivation in deciding to donate their eggs. As few as 3 percent become actual donors due to a strict screening process and lengthy time commitment associated with egg donation.
The slow pace of economic recovery, exacerbated by higher taxes and across-the-board federal spending cuts this year, has soured attitudes among U.S. households. Some 54 percent of Americans say their incomes have “hardly recovered at all” from the recession, according to a September survey by the Pew Research Center in Washington.

Labor Sentiment

Sentiment regarding employment opportunities is similarly bleak, with 52 percent saying the job market has barely recovered since the recession, Pew’s survey shows. Payrolls are still down 1.9 million employees from the January 2008 peak, according to Labor Department data.
Such figures help explain why some Americans are seeking unorthodox ways to supplement their incomes. Hare, who has a 4-month-old son and 7-year-old daughter, researched selling her breast milk online after seeing she could make as much as $5 an ounce.
“These are tough times,” said Hare, who was last employed as a showroom sales manager at a wholesale trade center. “The rich are getting richer and everybody else is losing their jobs and their homes. It’s just terrible.”

Household Income

Median household income, which includes wages and investments, has fallen every year for the past five after adjusting for inflation, according to data from the Commerce Department, with Americans earning less than they did in 1996.
Gains in worker pay have lagged behind the previous recovery. Wages and salaries, unadjusted for changes in prices, have climbed at a 3.2 percent annualized rate since the economy emerged from the recession in June 2009, trailing the 4.5 percent pace in the four years after the 2001 slump.
“If you’ve been unemployed for years, if you’re on food stamps and you’ve had trouble getting by, I can totally see you being very economically desperate,” Colas said. “I don’t think a lot of people sell their kidneys. I do think a lot of people in desperation do that search to say, ‘If worse comes to worst what could I do?’”
While the sale of kidneys is limited to the black market, the organ could fetch $15,200 if legal monetary incentives for donations were introduced, according to 2007 research by University of Chicago economics professor Gary Becker and Julio Elias, then an economics professor at State University of New York at Buffalo.

Unemployment Benefits

Such a decision may be influenced by a labor market that’s struggling to improve and unemployment benefits that are running out. The jobless rate has been above 7 percent since the end of 2008. The share of unemployed Americans out of work for 27 weeks or longer was 38 percent in August, more than double what it was before the end of the last expansion, according to Labor Department figures.
“Clearly that would be creating some pressure for people who haven’t been able to work,” Becker said. “They’re getting unemployment compensation that was less than they had in their last job, or their unemployment compensation may have run out and they’re on welfare.”
At Shady Grove Fertility Center, egg donors receive compensation at almost every step of the process, earning $7,000 by the time they finish their first donation cycle. Women can receive $7,500 for a second donation and $8,000 for each additional cycle up to a total of six, incurring no out-of-pocket costs along the way.

Acting Man and Gold manipulation:

With gold oscillating around a short term support line at $1,275 and the HUI testing its June low, we are paying close attention to the action. On Tuesday, another attempt to break the support line was undertaken at an unusual time, i.e., during GLOBEX trading overnight, when volumes are small. An analysis of this unusual trading activity (actually, we're not sure if it can really be called 'unusual' anymore) by NANEX can be reviewed in this Zerohedge article. Apparently, 'this time not the entire bid stack was obliterated', so that a 'stop logic' trading halt was avoided.

Given that many commodity funds are suffering large outflows (after all, everybody is '100% sure' the sector is doomed), there could be a certain amount of forced selling by funds in the sector. However, one is still left wondering, why would such sales take place at times when there is very little trading volume and bids are relatively small? Wouldn't a seller be interested in selling at the highest possible price?

This is actually a rhetorical question – it seems rather obvious that the sales are specifically timed so as to ensure that attacks on widely watched trend lines are crowned with success. Such a tactic can make sense for someone shorting the market; put options can be bought beforehand, gold stocks can be sold short beforehand or puts on gold shares can be bought. In that case, selling the futures contract at a slightly lower price can still prove a very profitable tactic overall, especially if the break of support results in follow-through selling by other market participants. Since the market is already weak and has embarked on another short term bear trend, the odds of success are presumably considered high. However, it didn't quite work out that way on Tuesday.


Thursday, October 17, 2013

EU Bail-Ins are here: Detroit follows same template. Who's next?

Swiss regulator backs bank bail-ins before government rescues

The logo of Switzerland's biggest bank UBS is seen on an office building at the Paradeplatz square in Zurich July 25, 2013. REUTERS/Arnd Wiegmann

ZURICH | Wed Aug 7, 2013 10:40am EDT
(Reuters) - Switzerland shouldn't bail out its largest banks again before asking creditors and shareholders to stump up, the local financial regulator said on Wednesday.
Authorities have been grappling since the collapse of U.S. investment bank Lehman Brothers five years ago with the question of how banks regarded as systemically important - or too big to fail (TBTF) - can be recapitalized without causing panic or needing taxpayer cash.
In Switzerland, regulator FINMA has joined with the Swiss National Bank (SNB) to enforce stiffer regulator on UBS (UBSN.VX) and Credit Suisse (CSGN.VX), which form the backbone of a financial industry that generates 6 percent of the Alpine nation's gross domestic product.
FINMA has now backed "bail-ins" by creditors should UBS, rescued by the Swiss government nearly five years ago, or Credit Suisse risk collapse.
The regulator recommended spreading bank losses across a range of creditors, including shareholders, holders of contingent convertible (CoCo) instruments (which may convert into equity under certain conditions) and owners of debt including senior debt.

The Detroit Bail-In Template: Fleecing Pensioners to Save the Banks

Tuesday, 06 August 2013 09:04 By Ellen Brown, Web of Debt | News Analysis Detroit, MichiganDetroit, Michigan. (Photo: Casino Jones)The Detroit bankruptcy is looking suspiciously like the bail-in template originated by the G20’s Financial Stability Board in 2011, which exploded on the scene in Cyprus in 2013 and is now becoming the model globally. In Cyprus, the depositors were “bailed in” (stripped of a major portion of their deposits) to re-capitalize the banks. In Detroit, it is the municipal workers who are being bailed in, stripped of a major portion of their pensions to save the banks.
Bank of America Corp. and UBS AG have been given priority over other bankruptcy claimants, meaning chiefly the pensioners, for payments due on interest rate swaps they entered into with the city.

Tuesday, October 15, 2013


First Published: Tue, Oct 15 2013. 08 05 PM IST

EU finance ministers agree on new bank supervisor system

The single supervision mechanism is meant to prevent any repeat of the financial meltdown which plunged Europe into crisis 
Question over paying for bank closures
As the debate twists and turns, an immediate practical issue concerns “backstop arrangements” to pay for potential bank closures until the SRM begins its work, most likely in several years.
One option being discussed is to tap the European Stability Mechanism (ESM), the €500 billion eurozone bailout fund which has been used to help Spanish banks.
However, it is unclear how this would work in practice and especially if a member state seeking such ESM help would also have to accept tough economic policy conditions as in the full bailouts accorded Greece, Cyprus, Ireland and Portugal.
Sweden’s Anders Borg said ministers “first and foremost must clarify backstops” before the ECB completes tough asset tests on the banks next year to pave the way for the supervisory mechanism to begin its work.
The stress tests, which are supposed to be much tougher than previous reviews, should give a clear indication of whether European lenders need fresh capital.

If they do, new rules require governments to progressively ‘bail-in´ private creditors and uninsured larger depositors.

If that is not enough, then state aid is the next option while the EMS is also another possibility.

Sunday, October 13, 2013

Your bank account Now legally belongs to the bank

In June of 2012, Eric Bloom, former chief executive, and Charles Mosely, head trader of Sentinel Management Group (SMG) were indicted for stealing $500 million in customer secured funds. Both Mosely and Bloom were accused of “exposing” customer segregated funds “to a portfolio of highly risky derivatives.”

These customer funds were used to “back up personal investments” which were part of “collateral for a loan from Bank of New York Mellon” (BNYM). This loan derived from stolen customer monies was “used to purchase millions of dollars worth of high-risk, illiquid securities, including collateralized debt obligations, or CDOs, for a trading portfolio that benefited Sentinel’s officers, including Mosley, Bloom and certain Bloom family members.”

Fast forward to August 9th of 2012, and the 7th Circuit Court of Appeals (CCA) rules that BNYM can be moved to first in line of creditors over the customers that had their funds stolen by SMG.
When a banking customer deposits their money into their bank account, the Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SPIC) are in place to protect the customer from fraud or theft.

The ruling from the CCA means that these regulatory systems will not insure customer funds, investments, depositors and retirees who hold accounts in banks. In fact, the banking institution is now legally allowed to use those customer funds deposited as collateral, payment on debts for loans made, or free use on the stock market to purchase investments as the bank sees fit.

Fred Grede, SMG trustee, explained that brokers are no longer required to keep customer money separate from their own. “It does not bode well for the protection of customer funds.”

Since the ruling gives banks the right to co-mingle customer funds with their own, no crime can be committed for the use of customer deposited monies.

According to Walker Todd , former lawyer for the Federal Reserve Bank of New York and Cleveland: “Basically, there is a new 7th Circuit opinion saying that there is no reason to impose a constructive trust on a lender’s takings of customers’ funds from client commodity firms that were used (inappropriately) to secure the firms’ borrowings, as long as the lender can say that it did not know WITH CERTAINTY that customers’ funds were being repledged. Negligence and misappropriation (vs. knowing criminal intent) are now a sufficient excuse for letting the lender keep the money and go to the head of the line for distributions in bankruptcies of the client commodity firms.”

Friday, October 11, 2013

Gold Remains the Most Hated Asset Class

Sell-Side Analysts Tripping Over Each Other With Bearish Pronouncements

While the debt ceiling farce is playing out, a full court press against gold has become visible in the media (once again), with mainstream sell-side analysts trying to out-bear each other. Never mind that not one of them told people to buy gold when the bull market started – in fact, they were for the most part completely silent until it moved above the $1,500 level, at which time they all turned bullish. Having done their clients the favor of telling them to buy high, they are now apparently quite eager to advise them to sell low.
We have previously remarked that rising gold prices are not in the interest of the fractionally reserved banking cartel, which requires faith in the State's confetti to remain strong. Since rising gold prices inter alia indicate that this faith is crumbling, both banks and governments have a vested interest in not seeing gold rally.
We are however not necessarily alleging here that the individual analysts making these calls are acting in order to defend these vested interests. Rather, we think most (but not all) of them simply don't understand the gold market and that their arguments are simply in error. Mind, we have no opinion on whether their price forecasts will or won't turn out to be correct, we are just saying that they are throwing darts. If they turn out to be right, it will be for the wrong reasons.

We will focus on some reasoning that strikes us as especially misguided. Here is the view from Goldman Sachs, apparently seconded by Credit Suisse:

“Gold, set for its first annual loss in 13 years, is a “slam dunk” sell for next year because the U.S. Economy will extend its recovery after lawmakers resolve stalemates over the nation’s budget and debt ceiling, Goldman Sachs Group Inc.’s Jeffrey Currie said.
The bank has a target for gold prices next year at $1,050 an ounce, Currie, Goldman Sachs’s head of commodities research, said today on a panel in London. The precious metal has tumbled 21 percent this year to $1,322.28 an ounce on speculation that the Federal Reserve would reduce its $85 billion monthly bond-buying program, known as quantitative easing, as the economy recovers. Lawmakers probably will reach an agreement on raising the debt ceiling before the Oct. 17 deadline, Currie said.
“Once we get past this stalemate in Washington, precious metals are a slam dunk sell at that point,” Currie said. “You have to argue that with significant recovery in the U.S., tapering of QE should put downward pressure on gold prices.”
Currie and Ric Deverell, the head of commodities research at Credit Suisse AG, both said on a panel at the Commodities Week conference in London today that selling gold is their top recommendation for trading in raw materials in the next year.”

(emphasis added)
We should perhaps point out the glaringly obvious here because it seems  Mr. Currie hasn't noticed: all that 'speculation' about the 'end of QE' and even a mere 'tapering' has so far turned out to be 100% wrong. It was not possible to make a more incorrect forecast on this issue than Goldman Sachs and other mainstream banks have so far made. We would remind here that the Fed has been mumbling about 'exit strategies' since 2009 and has instead vastly increased its 'QE' programs. Meanwhile, since 'QE to infinity' has so far not helped gold to rally, why should a slight deceleration thereof mean anything?
As to the 'US recovery' – it remains a sorry sight indeed.

US Real GDP Per CapitaUS real GDP per capita, 9 and 5 year change rate, via our friend BC – click to enlarge.

Thursday, October 10, 2013

The real cost of shutdown/default

Everyone is busy calculating the current and possible future costs to the shutdown and possible default.

The biggest cost by far is the damage to Trust that Americans have in their institutions and in each other.  Especially those of opposing points of view.  And no matter what your point of view there's guaranteed to by at least 250.000 million other whining, coniving, dirty low down traitors who disagree with you.

That's a lot of people not to trust.  And even those who agree with you on some things are probably not to be trusted on other major concerns.

And the Banks, and the Government, and the Entitlement Freeloaders (those who enjoy those other entitlements, not the ones you enjoy), and the Unions, and the Teachers, and Wall Street Traders, and the Immigrants, the insurance companies and, oh yeah, the terrorists.  Who can trust any of them?

Lots of people to mistrust.

It's tough to quantify trust.  But certainly the shutdown has damaged it in a major way.   And certainly a default - even if it were to be resolved fairly quickly - would go a long way towards destroying trust - what little is left - in this country - and abroad.

The problem with this is that every financial transaction is entirely dependent on Trust.  Even those done under iron clad contracts.  The paper means nothing without trust.  Nothing. 

If you had to open a carton of crackers and check inside, just to make sure there were crackers in it - and they weren't rotten - before buying, you just wouldn't bother to buy crackers anymore.

Same thing with stocks, bonds, mortagages etc.

Finance runs 100 percent on trust.  Damage it, and you've damaged the core of our financial system

Sunday, October 6, 2013

What do you own?

Possession is nine tenths of the law.

A stock is a certificate of ownership.  But what do you own?  A part of a company?  Not really.  You own an electronic entry stating you own a share of stock.  So what's that?  Well, it is what it can be redeemed for.  For example a piece of paper stating you own a share in a company.  Or pieces of paper with notional values written on them: dollars.  You own paper.  Redeemable for more paper.

The company itself is owned by its Directors who can extract value, sell off pieces, trade products for other products, have offices on the real estate, lease cars, etc.  They have something real.

You own paper.  If you demand part of the company, those who really own it will laugh at you.  Come take it, they will say.  Ha ha ha.  Possession is nine tenths of the law.

A bond is an IOU.  A loan.  What do you own?  A piece of paper stating you have a right to some sort of Dividend or income stream.  It can be redeemed for dollars.  Maybe.  It is worth something as long as those who pledge to pay you, do.  If they stop, it is worthless.  You can say: "Hey, give me my dollars."  They will say "Sorry, come take them if you can.  Ha ha ha."

A bank account is a loan.  You are loaning money to a bank.  What do you own?  A pledge that they will return your money on demand.  If they can.  For that they give you some interest.  Some income.  Very very little.  In a crisis banks can be shuttered.  Or bank accounts can be confiscated.  They call that a "Bail in."  Then what do you own?  An electronic entry stating your loan (bank account) is at the bank.  You can print that out on paper if you want.

Then you own paper.

All these instruments of value work as long as everyone trusts everyone else.  The moment trust is compromised they can stop working.  And then you own worthless paper.

Trust is a very tenuous notion.  Do you trust your government?  Do you trust your bank?  Do you trust your broker?

The other type of asset is a hard asset.  You keep that in a vault somewhere close to you.  Somewhere you have immediate access.  Then what do you own?  You own the coin, the painting, the  diamond, the book, the statue, the document.  You own exactly what you own.  It is real.  In a crisis, you need trust only that you have the strength to protect your hard asset from thieves.

You should own hard assets in direct proportion to your level of trust in your institutions.

Wednesday, October 2, 2013

Confidence and hard assets

The origin of the term Confidence Man (con-man), or Confidence Scheme or Con, comes from a scam played by a well-healed, good looking hustler in the 1920's who would approach genteel marks in NY's upper crust neighborhoods, pretend to know them, engage them in lively conversation, and then say: "Do you have the Confidence to loan me your watch until tomorrow?"

Often his marks would indeed loan their watch, and never have it returned.

The Banks play many similar games every day with their "Customers."

For example, when you "deposit" money with a bank, you are in fact loaning them your money, for which they should pay you some return or interest. The banks now however refuse to pay you any interest at all. Rather, they take your money, and gamble twelve times the amount in the risk markets, driving up all commodity prices, making everything more expensive for you.

Meanwhile the Fed is simultaneously producing ever more money which dilutes the money you've loaned the bank.

By the time you get your money back it is worth much less than the amount you loaned the bank. That is a Confidence Game.

Funny right?

Yeah, sure, it's funny until enough people realize what's happening. While it's true the average US citizen takes a very dim view of Wall Street, the banking system, and the Congress that overseas it all, still, in general they have CONFIDENCE that the US is still the greatest country on earth, the overall System generally works.

That confidence keeps people in the "Safety" of paper money generated by the system.

But now the clowns in Washington are doing their best to undermine that.  They've introduced a new tool: Negotiation through Hostage Taking.  Most people still believe that this mess in Washington will be quickly resolved.  But this new Hostage mentality, as it drags on, and is repeated, will go a long way towards damaging America's Confidence in its Systems, and the International Community's confidence in the US system.

And when that changes, when doubt creeps in about the efficacy, probity, transparency, of the SYSTEM, the insidious result is that people lose CONFIDENCE in the MONEY generated and used by the System.

When that happens they seek to convert that money into goods - as quickly as possible.

The super rich are already doing that.  Because they have more paper money than they could ever hope to spend.  This is causing hard assets to rise in value.

But right now, the middle class is scared. And though they have little confidence in the Bankers, the Financiers and the Politicians, they do have some CONFIDENCE in the system. So they are hoarding their dollars. This causes the deflationary pressures we're experiencing as money doesn't turn over.

But Confidence is a strangely tenuous human emotion. Nobody knows what can trigger the loss of Confidence in something as amorphous as THE SYSTEM. But the Tea Party Republicans are clearly hell bent on finding out.

And when that happens, people lose confidence in the system's money. Then even the middle class will seek to exchange it as quickly as possible for real goods. The money quickly loses all value. That is hyperinflation.

Do you think that could never happen here? Thank God. Because believing it could happen, is the first step in the loss of confidence.