Wednesday, August 3, 2011

Our Government Gets More Absurd By The Day

"U.S. Treasury considering selling less debt" - that was a headline that scrolled across news this morning.  Seriously, is Tim Geithner retarded?  Here's the article if anyone wants to try and make sense of it:  LINK  The math is pretty easy.  Government spending will continue to increase even under the new debt-limit deal.  The economy is tanking hard and I wouldn't be surprised to see a negative GDP print this year even with the ridiculous Government hedonic adjustments used to inflate the headline GDP number.  This means declining tax revenues.  So how the hell can Geithner expect to be taken seriously when he issues a statement like that?  This gets more surreal by the day.

Many of you have probably seen this by now, but for those who haven't, several countries have announced significant central bank gold purchases.  The most significant of which is South Korea, which purchased 25 tonnes in June and July.  Why is this significant?  "JB," who's global gold market reporting can be found every night in the Midas report at - and is invaluable I might add - sums it up the best: 
South Korea is emphatically an American client state and to see it defying the well-known US hostility to the use of gold in FX reserves is arresting. Furthermore Korea has been struggling to restrain the Won: buying gold is a stratagem which logically would answer the similar Swiss problem as well. This is not just a matter of another CB joining the list of gold buyers. Korea has $300B in FX reserves, the 7th largest in the world.
Thailand, Russia and Kazakhstan all added signficantly to their central bank gold reserves as well:  LINK  These purchases make Bernanke's statement that gold isn't money and that central banks hold gold out tradition look retarded.  I doubt these central banks would be spending $10's of billions on "tradition."  I might also add that Russia has been the most outspoken about the U.S. debt problem and has been backing up those words by substantially reducing its Treasury holdings over the last 6 months.  I'm still trying to figure out who is going to collectively pony-up $2.5 trillion over the next 18 months to finance Geithner's Treasury auctions...

Finally, for all you out there thinking that you can seek safety in Swiss francs, we were greeted this morning with the news that the Swiss central bank is making an aggressive attempt to devalue the Swiss franc, which has move up substantially vs. the euro and the dollar.  Please note that the Swiss franc is a fiat currency and the Swiss banking system is nearly as bloated with bad debt as that of the EU and the United States.  Here's good color on action being taken by the Swiss:  LINK

People scratching their head over the recent strength in gold and silver this summer will soon be scratching their ass.  Many of us have suggested that we might see a large, surprising upside move in the metals this summer, contrary to the typical seasonal summer pattern for the metals.  And for those still scratching their head and not their ass yet, Ben Davies sums up the reality of the sentiment/bubble situation: 
Sentiment may be high, actually I had a main stream reporter call me from a newspaper and said, ‘Hey I’m going to write this piece about popular culture and you know it’s all the talk at cocktail parties’. And that’s just it, it may be all the talk, but it’s all hot air, nobody really owns it (gold). I mean I’ve just come back from a meeting where a very large UK allocator said they’ve had their portfolios short gold, actually short gold for the last 18 months.

Then I went to another one, again very large private bank in the UK and they told me they had cut from 6% to 4% their holdings in gold over the last ten months. So for my mind there is no participation. The market is going to be higher over the next four months. The market is making it very difficult, it feels like it is going to make that move with not many people on board
Here's a link to his interview on King World News:  LINK

With that I'll finish by mentioning that today the front section of The Denver Post has two 3/4 page ads and one full-page ad soliciting readers to sell their gold.  Remember, it's not an investment bubble when the majority of retail and institutional investors/people are selling an asset/investment.  It will be a bubble when these people looking to buy your gold now begin to solicit you to purchase their gold because you have turned from a skeptic to buyer at any price - like with internet stocks and houses...


  1. Dave,

    What do you make of the below link?


  2. License to Debase U.S. Dollar Further

    The USFed denied they would embark on QE. The Jackass called them liars with a message of deception. They did embark on QE, then QE Lite, then QE2, all replete with denials. The USFed has lost all its prestige, all its credibility, and all its respect for economic analysis. They are actually a central office for the Syndicate. They are the focal point of the failure of the central bank franchise model.

    To cap it off, the tombstone on the US Republic will feature a Super Committee to recommend the most difficult of budget decisions. Such fanfare without proper label. The committee is a formalization of the Politburo process, a perverse interwoven political stranglehold fabric that takes the worst of the Weimar Republic and melds with the worst of the Fascist Business Model. Slowly forming is the Fascist Dictatorship that follows logically from nationalization of Fannie Mae and AIG, the home mortgage cesspool and the derivative black hole.

    The USGovt has the wonderful benefit of Interest Rate Swap contracts. They produce leveraged magnificent artificial demand for the 10-year USTreasury. Despite huge uncontrollable bond supply for USGovt debt, contrary to standard myopic finance theory promoted in universities (see USFed-funded chairs), the bond yield continues to decline. In no way does migration from stocks to bonds justify the move under 2.60% on the TNX yield. Every time some negative USEconomic news is released, and plenty of such lousy data has come in the last several weeks, a big bond rally comes. It is aided with a vast under-current of Interest Rate Swaps. Between 80% and 86% of the total derivative market is IRSwap contracts. That market was measured at $243 trillion by the Office of Comptroller to the Currency in its 1Q2011 report of the Top25 commercial banks and trust companies. Shockingly, Morgan Stanley added $51 trillion to their derivative book in the first quarter alone, with zero coverage by the sleepy intrepid lapdog financial press. Let the reader decided if $51 trillion in notional value spread over three months would have much effect on USTreasury Bonds.

    The hacks who operate at the bond desks have pathetically little knowledge of their own sector. Most bond traders actually believe the IRSwap application has no practical effect on the USTreasury market, with no end product. They are at best stupid and at worst corrupt. As friend and colleague Rob Kirby points out, the IRSwap contract has a real actual end demand in a USTreasury Bill or Note or Bond. Typically, they sell a short-term USTBill in order to buy a long-term USTreasury, like a 10-year note. This is all within the structure of the IRSwap contract. Thus the fast move below 2.60% from 3.00% on the TNX yield.

  3. Guru tips agricultural commodities

    "I fully expect more social unrest in the world, I fully expect more
    turmoil, but I didn't expect it to happen this quickly because food
    prices are somewhat depressed," he said. "It will slow growth but some
    people are going to benefit -- Brazil's booming, Canada's booming,
    Australia's booming, you're going to see some people benefit and some
    people suffer, that's the way the world works."

    According to Mr Rogers, there appears no option but for food prices to
    keep rising, partly to bring in more farmers in developed nations,
    such the US and Japan, where the average age of those in the industry
    is 58 and 66 respectively.
    His theory is that if economies get worse, central banks will start printing money, leading to inflation. "When banks and governments start printing money, the best place to be is in physical assets," Mr Rogers said.

  4. Okay Dave, let's get down to the real nitty gritty.

    First off, how'd the tourney go? What round did you make it too? Finals?

    Recently you said you had 50/50 in precious metals; specifically Gold and Silver. I'm not a power hitter like you. I've got a few coins; 80% gold, 20% silver. Why so much of the silver stuff? Would that be the investment portion whereas the gold is the preservation angle? I bought my coins from local reputable coin shops where I've established a rather trusting rapport with the owners of each shop.

    I'm wondering many things now.

    What exactly is a Financial Collapse? Does it take place during a drawn out transition or does it take place on a day, e.g. "The day before the collapse and the day after the collapse".?
    Why are we holding our PM's, to purchase the new currency? Use as money? Barter? What happens if my local coin shops, (which I consider my "banks" when I make deposits I get PM's in return and make withdrawals where I withdraw cash when I sell, so to speak) if the government decides to shut them down? How will we "use" our pm's?

    In my limited experience and knowledge, I see three distinct phases that PM's will go through. The: Before, During and After phase. We are presently in the "Before". We are free to buy and sell PM without too much difficulty. Yes, for those of us who like to fly under the radar, we have to keep each individual purchase at one shop under $10k to avoid exposing ourselves to the IRS. But all and all, it's easy at the moment.

    In the "During" collapse, I think those of us with PM's, those who want to buy, those who want to sell, might possibly run into a veritable kaleidoscope issues. What might they be as you see it? Too many possibilities to consider?

    Then there is the After phase. Not sure what that means but it could be that we use Gold/Silver to purchase the new currency, if gold is legal to have in one's possession. Anyway, it may all be clear to you but I haven't got a clue.

    I'll tell you this. If it becomes illegal to own PM's, there is absolutely no way would I turn one gram in, even if they were to pay me or "the act of holding pm" was considered a (very big) felony.

    If you haven't, maybe you could write an article on this. Your vision of how it might play out. Sort of a step by step unfoldment. I suspect there's a million ways it could go as each day brings a whole new meaning to America's financial circus of mayhem and entropy.

  5. Satan Sandwich has a new Urban Dictionary entry.
    Not mine, but OK.

  6. Thursday, August 4, 2011

    The price of gold could almost double as central banks' reserves are depleted, according to the chairman of a gold industry association.

    "You could see $3,000-5,000 to clear the market as the central banks and bullion banks run out of gold to meet the growing demand," Bill Murphy, chairman of the Gold Anti-Trust Action Committee (GATA), which is hosting a conference in London this week, told CNBC Thursday.

    "Six years ago when gold was at $436 we predicted that this would happen."

    GATA is backed by gold traders and investors.

    Murphy spoke of a "gold cartel" and claimed that the selloff came because Goldman Sachs and the Bank of England wanted to drive the price of gold down.

    "If you want the best price for your gold, you don't tell the world in advance what you are doing," he added.

    He said that in London, where the Bank of England and the London Bullion Market Association are based, GATA was "in the belly of the beast."

    "They're losing control of the price," he said, claiming that GATA predicted the recent record highs in the price of gold, which hit $1,672.65 this week. "When we started (in 1999), we said that the central banks were flooding the market with gold."

    Central banks in South Korea, Thailand, and even debt-laden Greece have added to their gold reserves recently.

    notice how condescending the interviewer was?

  7. We Need a Gold Standard Now

    I went out there again two and a half weeks ago for the ceremonial signing by Governor Gary Herbert. And they're already making arrangements -- Utah businessmen and Tea Party activists -- to have an alternate monetary system. A depository will be able to take in gold and silver coins which as of May 10 have been legal tender. In exchange customers can get a Visa debit card linked to those coin holdings to use them as money.

    Here in Iowa, just on reading about what had happened in Utah, State Senator Kent Sorenson introduced a similar bill, which State Representative Kim Pearson introduced in the House. And it's spreading to other states as well. There are at least 12 states that have legal tender bills under consideration. States are taking things into their own hands. They are not getting any satisfaction from Washington, no action from Congress. There is, however, a grass roots movement afoot.

    The people of Iowa have an ability to do that. Everyone in this room has every possibility of seeing a candidate for the Republican Presidential nomination, which is a wide open race as you know. You must use your leverage with these people. You must ask them about returning to a gold standard.

    Now there are people, especially in Washington, who say, "How can you talk about something that is so antiquated? Didn't that go out with wooden sailing ships? And are we going to be carrying gold bars around or trying to have very heavy gold coins in our pockets?"

    No, the gold standard simply makes gold the final money. It brings an end to zero interest rates, quantitative easing, and Fed financing of congressional deficits. This paper system, which has existed in full form for 40 years since President Nixon severed the dollar's final link away to gold in 1971, has run its course.

    Gold worked far better than any other system that has ever existed. There was virtually no inflation in the last forty years of the gold standard, there was less volatility than in any other system that we've ever had. We did have to go off the gold standard at times, during the Civil War for example, but we always got back and the economy always stabilized and without the gold standard we would not have had the Industrial Revolution in this country and in Britain.

    There was enormous progress; enormous economic integration in the world because all over the world people know that gold holds its value. The same amount of gold that could buy a family car in 1910 can buy one now. The same amount of gold that could buy an expensive men's suit in 1940 can buy the same suit now. If you price those things in dollars the increase is obscene: $500 for the car, now twenty-some thousand for a reasonable facsimile. So it isn't gold that is volatile, it is the paper dollar that is volatile. It is the monetary authorities in Washington that don't know what they are doing.

  8. Isn't this:

    Bank Of New York Mellon To Pay Negative Interest Rate for Very Large Cash Deposits
    The Bank of New York Mellon will begin paying negative interest rates on very large cash savings deposits, over $50 million, this week.

    We wonder why the Fed does not similarly reduce the interest they pay on bank reserve deposits with them to zero from the current .25 percent?

    It should be noted that Bank of New York Mellon has a current dividend yield of 2.06%. Are those dividends taxable? Will depositors be able to claim a lost on the negative interest they pay to BNY Mellon?

    Not a sign of deflation if you understand it, although I am sure some will tease that conclusion out of this. Negative real interest rates are the hallmark of quantitative easing. It is just they are nominally positive on the longer end of the curve. When they go actually negative on the short end, you know we are not in Kansas anymore, Toto.

    A form of this:

    It May Be Time for the Fed to Go Negative

    The problem today, it seems, is that the Federal Reserve has done just about as much interest rate cutting as it can. Its target for the federal funds rate is about zero, so it has turned to other tools, such as buying longer-term debt securities, to get the economy going again. But the efficacy of those tools is uncertain, and there are risks associated with them.

    In many ways today, the Fed is in uncharted waters.

    So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent?

    At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand.

    The problem with negative interest rates, however, is quickly apparent: nobody would lend on those terms. Rather than giving your money to a borrower who promises a negative return, it would be better to stick the cash in your mattress. Because holding money promises a return of exactly zero, lenders cannot offer less.

    Unless, that is, we figure out a way to make holding money less attractive.

    Economics "Professor" Advocates Theft


    Corporate Crime, Russia, Peter Orszag and Getting Away with Murder
    25 Corporate Crime Reporter 31, July 28, 2011

    Gretchen Morgenson and Joshua Rosner were at the Wilson Center in Washington, D.C. yesterday for a discussion about their book – Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon.

    During the question period, Blair Ruble, who heads the Kennan Institute at the Wilson Center, stood up to speak.

    He told a story about when he was at a conference in Elagua, Tartarstan.

    “I was pulled out of the conference, and was told the Minister of Economics was coming from the capital of Kazan to see me,” Ruble said.

    The country had apparently invested some of its oil wealth with the U.S. government and the Minister was concerned about the lack of accountability after the collapse of the housing bubble.

    “They had this oil revenue and they didn’t trust the Russian government,” Ruble said. “I was the first American he could find. We had lunch. After realizing I couldn’t help him he said to me – ‘When did you Americans become Russians?”

    ”It’s bad enough that the regulators allowed the bad behavior and practices to proliferate. But now it’s going to result in very few prosecutions.”

    “This feeds into the idea that there are two sets of rules in America. There is one set of rules for people like you and me. And there is another set of rules for people who are powerful, who are politically connected, who have very high level jobs, who know the right people.”

  10. Here we have it.

    Miners are a waste of time during panic. Back to beginning September levels with what kind of Gold price.

    The only way is NO miners, NO paper....


  11. Twitter feed for conference

    Gold Money@GoldMoneyNews!/goldmoneynews

  12. Watch Eric Sprott & James Turk's silver price update