Friday, November 30, 2012

Nothing But Counterfeit Political Rhetoric And Hauser's Law

Governments will spend as much as the tax system will raise, plus as much more as they can get away with  - Milton Friedman
Politics is nothing but the insidious term applied to those voted into office who spend their time conspiring to find ways to annex economic wealth and redistribute it for their own gain.   Fiat currency is the mechanism used to accomplish this act of legal theft.

What is going on in this country - and has been for the better part of 99 years since establishment of the Federal Reserve - is the slow disintegration of our system.  Just like the accelerating increase in the money supply since 1971 resulting from the final decapitation of the gold standard,  the rate of corruption and legal theft from the middle class has started to rise at a parabolic rate.  This, my friends, is the final stage of the collapse of our country and system.  There is no other explanation for what is happening.  Anyone who refuses to acknowledge that this is happening or admit that what I just described is factual is either hopelessly naive and in denial or tragically ignorant.

I bring this up because here we go again with another wash, rinse, repeat cycle of the debt ceiling circus of a little over a year ago.  That political abortion did nothing more than delay facing the real problem of too much Government spending relative to the amount of revenues annexed by the Government.  The so called "Fiscal Cliff" (FC) is this mythical event that will supposedly automatically slash Government spending and raise tax rates across the board.  Does anyone really think that the politicians will let their ability to spend be reduced like this?  Really?

Occasionally I like to wander over to a blog called The Economic Collapse because the author usually has some nicely written posts with excellent data and factual analysis.   With regard to the FC, he had this to say:
Please keep in mind that the "$1.2 trillion in automatic spending cuts" is not for a single year.  When you break it down, the cuts to spending would be somewhere around 100 billion dollars a year.  And a lot of those "cuts" are actually spending increases that would be cancelled.  So those spending cuts would not really put much of a dent in our yearly budget deficits at all.  LINK  (I highly recommend reading the blog post)
As he explains, the attempt to raise revenues to help cover the spending is more severe than the cuts.  But what everyone needs to remember is that if Government raises tax rates, the best case is that it will be revenue neutral and will more likely cause a tax revenue decline.

This statement is backed by something known as Hauser's Law, which states that regardless of the tax rates, the amount of revenue raised by income taxes is constant at 19.5% of GDP:  LINK  Despite a thorough grounding as an Economics major in undergrad and an MBA from the economics heavyweight University of Chicago, I had never come across Hauser's Law until I read this article in the Wall St Journal: LINK

To add a little analysis to this 19.5% of GDP tax revenue phenomenon, it is also the case that raising the marginal tax rate will most likely cause a decline in GDP (we're talking real, inflation-adjusted GDP here, not the fraudulent Government concocted number).  In other words, regardless of what kind of political "deal" is hatched to enable the massive spending deficit to continue to grow while kicking the catastrophe down the road some more, if marginal tax rates are raised, revenues will decline in an amount likely in excess of any real annual spending reductions.

What we do know is that the Obama Administration is now floating the "trial balloon" idea of permanently doing away with the debt limit ceiling.  Tim Geithner talked about this in a recent interview on Bloomberg TV and yesterday Obama floated an FC resolution proposal which included the elimination of debt ceiling limitation rules.

You see where this is headed?  I don't care what type of rhetorical position is being assumed by Boehner and Harry Reid, they both want to maintain the unfettered ability to confiscate the public's wealth and keep funneling it to their wealthy constituents who put them into office.  The easiest path to this end is to enact a big increase in the debt ceiling limit, which enables the Fed to print up a lot more fiat currency needed to fund that extra debt load.  Make no mistake about it, when this political rhetoric regarding the FC settles, we are going to see a huge increase in the debt ceiling limit AND a massive amount of QE/Govt stimulus.  I will guarantee that outcome.

If you want to protect your hard-earned wealth from this mess you need to start moving as much of your wealth as possible OUT of the system and in to physical gold and silver.  This current pullback in the market is the perfect time to start doing that.  Given that November was the biggest month this year for gold eagle sales by the U.S. Mint, I would say a few more people are starting to understand why - et tu, Brute?....Have a great weekend

Thursday, November 29, 2012

The Unmistakable Sign Of Illegal Market Manipulation

I preface this remark by saying that it is just a theory, but could Wednesday's Comex paper raid possibly be a signal of desperation by the cartel? We have been hearing countless reports out of London - the nexus of the world's physical bar market - that delivery supplies of gold and silver are getting tight.  Was Wednesday's raid an attempt by a desperate bullion bank to trigger open interest selling by longs in order to reduce the number of potential accounts that hold for delivery in the face of a tight physical bar market?

Wednesday right after the Comex opened, a total of 35,000 gold contracts were sold almost at once, with one order reported to be nearly 8100 contracts.  This is roughly 104 tonnes and 24 tonnes respectively.  It caused a "cliff-dive" in the price of gold/silver that was not cross-correlated with any other commodity market or equity/fixed income index. Why would someone, using paper, sell so recklessly and abruptly like this, flooding the market with an inordinately heavy supply of paper "gold."  Any veteran trader knows that if you are trying to unload a disproportionately large long position - that is, large relative to the price and volume context of a given market - you have to bleed your offers into the market and not give away your size in order to try and maximize your sell proceeds.  If you are not operating in this manner, you are either irrational or illegally attempting to influence the price lower.  In the absence of any other credible explanation or theory being offered - and an open admission that a "computer mistake" was not the catalyst, this was clearly an attempt to exert manipulative - illegal downward influence on the price of gold.  There is no other explanation for what happened on Wednesday morning.

I know that some analysts like to see some sort of proof that the manipulation occurred for the purposes of heading off a possible physical delivery squeeze. But you can't make trading profits without analyzing the "dotted lines" and anticipating future events based on what is likely unmistakable evidence. The motive for uneconomical selling like this is to derail potential stoppers (accounts who stand for delivery) as a means to avoid a physical squeeze.
In this case, the event has a long history and many experienced eyeballs and brains looking at the evidence of cause.  We know that China and several other Central Banks are accumulating physical gold which, at the margin, puts total global demand well in excess of annual mined supply.  We also know that several countries have either issued or are threatening to issue a recall of their sovereign-owned gold being held by the Fed, Bank of England and Bank of France (mostly those three custodians).  We also have first-hand accounts from several hands-on operators in London who are telling us that the global physical supply of gold is getting very tight.  Finally, the open interest in the December gold and silver front-month contracts has persisted at an unusually high level relative to the fact that today is first-notice day for December.  This means that any account that is long contracts is legally entitled to receive physical delivery of Comex gold bars from the counterparty who sold the contracts.  Usually the open interest starts declining starting a couple weeks before first notice as paper speculators either roll forward or exit the position.  But this time the open interest remained quite stubbornly high.

The success of this operation is evidenced by the fact that the uncharacteristically high open interest for the day before first notice of a little over 97,000 dropped precipitously by over 65,000 contracts. I can't recall seeing gold open interest this high the day before first notice or a percentage drop in open interest like this in one day. The 65,000 drop would cover the 35,000 contracts sold to trigger the raid plus account for 27.2k overall drop in open interest yesterday LINK.   From the standpoint of reducing the degree of delivery demand today, this illegal manipulation was a resounding success. There will come a time when it will fail...

Is the physical market finally getting to the point at which demand for delivery is starting to overwhelm the amount of paper claims "issued," the amount of which far exceeds available delivery supply?  There's no way of knowing for sure but, proverbially, if it looks like and duck and quacks like a duck...

Wednesday, November 28, 2012

Housing Recovery? Yeah Right.

The debt crisis could transform into a currency crisis. That would create a surge in demand for gold. The source of new metal is junior mining companies.  - Morris Hubbert, Precious Metals Market Analyst, Trading Risk Specialist
New home sales for October were released today at 368k "seaonally annualized" contracts for new homes.  This number missed badly vs. the expected 387k.  Worse, the previous month's report - September - had a huge downard revision to 369k from the originally reported 389k.  Please note that these are "seasonally adjusted annualized" numbers and not true new home sales.  Here's the Census Bureau report:  LINK

In fact, the actual number of new homes "sold" was 29,000.  I say "sold" becuase the Census Bureau counts a "sale" when the contract is signed, regardless of whether or not financing is in place.  Of that number, 9,000 were not yet started, 10,000 were under construction and  10,000 were finished but not necessarily delivered.  From my last post on this, the cancellation rate of new home contracts was, in general, in the low 20%  range. Based on subsequent homebuilder quarterly reports, the cancellation rate is closer to 30%, with Beazer reporting a 31% cancellation rate.  This means that OF THE 29,000 CONTRACTS SIGNED, it is highly probable that only 20,000 will actually close and be delivered.  If you annualize this number straight up, you get 240,000 actual homes sales.

A straight up annualization is probably not a bad guestimate as October is a "tween'er" month - i.e. in between the seasonally strong period and the dead period.  At most maybe you could say that the statistically adjusted annualized run is 260,000.  This is 28% below what is being reported.  If you are keeping track, you'll note that new homes as counted by the Government (368k for Oct) are starting to decline again.  It is highly likely, for several reasons to be discussed in a more comprehensive post on housing, that the "recovery bounce" in housing has run its course and we will see the resumption of the bear market in housing.

Folks, the housing bear has only lasted for 5 years at this point.  The Government and Fed combined have dumped several trillion of "stimulus" in various forms into the housing market and they can't even stimulate the annual home sales number up to the its level going all the way back to 1963 (560k), when they started compiling the data:  LINK  Bear markets typically last a lot longer than 5 years and require a long time to wring out the excesses, fraud and corruption that created the preceeding mania.

Just for the record, I am not cheering for another housing decline.  But I am dancing on the grave of everyone who participated in the massive fraud and Government/Fed intervention which spawned the housing bubble to begin with (Clinton, Robert Rubin, Alan Greenspan, Bush, Congress etc).  A fraudulent, corruption-riddled housing finance system created the bubble, it was chased blindly by mindless individuals who made terrible, sub-prime debt fueled investment decisions and it fostered one of the biggest mechanisms of misallocated capital and wealth-transfer in the history of the planet (derivatives and Treasury bonds/US dollar will prove to be bigger).   Unfortunately, we are now going to suffer the consequences of this and printing money is not a viable "Plan B" (see my sidebar at the top).

Monday, November 26, 2012

Expect Wall Street's Crime Spree To Continue Unabated

Bottom line: Walter has never worked at a private sector productive job her entire life. That Obama is nominating her means that she will play ball with Wall Street crony insiders and crush any upstarts trying to crack the oligarchy. She has the perfect resume for this.  LINK
As everyone who reads this blog knows, the rate of enforcement and prosecution of financial markets crimes under Obama has declined by over 25% from the Bush administration.  This is not political demagoguery or biased commentary, this is black and white numerical fact.  And this decline comes despite some of the most grand scale big bank open theft of customer funds in the history of this country.

Today it was announced that SEC head jester, Mary Shapiro, is leaving the SEC and stepping down from her scandal-laced chairmanship.  One would think that it would be an ideal time for Obama to make amends with his voting supporters and undertake steps to completely overhaul the SEC, right? Instead, we get a retread from the Bush administration as Obama's new appointee, Elisse Walter.  This particular appointment will not require Congressional (Senate) approval as she is already a Commission member.  What reinforces the bad decision on this appointment is the fact that apparently Harry Reid recommended it (Harry Reid, the guy who went from being a pauper with a failed law practice to being worth millions once he was elected to the Senate by the good-gaming State of Nevada and no doubt a big beneficiary of Steve Wynn's political largesse).

You can read about Ms. Walter's background here:  LINK  Yes on the surface her educational credentials make her look impressive.  But note that she is clearly connected to both the Bush dynasty via Yale and to Obama via Harvard Law School.  Harvard Law has successively bred some of the most corrupt financial markets operators in history (see Robert Rubin's history).  In fact, Ms. Walter was involved with the CFTC when Rubin ran the Treasury Dept and Shapiro ran the CFTC.  That time period lives in infamy with financial market historians as being the time when Brooksley Born attempted to reign in and regulate derivatives, but was promptly stuffed and politically punished by Rubin, Greenspan and Shapiro.  Ms. Walter was a complete non-event as a regulator at FINRA.

Even more troubling is the fact that it appears as if Ms. Walter, in her capacity as one of the SEC commissioners under Ms. Shapioro, was nothing more than a rubber-stamp vote for Shapiro's policy proposals:  "Ms. Walter was often the only reliable vote for Ms. Schapiro’s rule-making effort."  What rule-making efforts?  The SEC refused/failed to enforce the rules that are already on the books. You can read about Ms. Shapiro's failures as the chief securities industry regulator and Ms. Walter's affirmation of these failures here:  LINK

While Obama supporters and Romney haters are still wallowing in their victory 3 weeks ago, I'm sure this Obama appointment will get buried by the mainstream media and overlooked by the few credible analysts who try to report the facts.  But the truth is that Obama further demonstrated his true lack of desire and ability to reform our system.  Either that or he reaffirmed that fact that he is largely a Manchurian President, a mere dish-rag for those elitists who paid for his election both times around.

Wednesday, November 21, 2012

Got Gold? Central Banks Are Getting Large Quantities

With investing, if you are not early you are late - Hal, long time friend and colleague
Brazil's Central Bank announced the purchase of over 17 tonnes of gold in October.  Here's the commentary on this from UBS precious metals strategist Ed Tully:
There may be a flutter of excitement in the market today with news that Brazil's official reserves of gold rose 17.2 tonnes in October, according to IMF statistics. This follows on from the 1.7 tonnes of buying in September and brings total Brazilian gold reserves to 52.52 tonnes. This is a chunky purchase by a central bank, and the gold market will likely sit up and pay attention to today's news, not just because of its size but because this is a central bank that has not been active in the market for some time. Gold struggled in October, and without this official sector buying the move below $1700 would likely have been much more severe than the short lived dips transpired to be. Today's news confirms much of the market chatter at the time that official sector buying was taking place and was one of the key factors that gave prices a reasonable floor last month.
In fact, several non-Fed/BOE Central Banks increased their gold holdings by over 40 tonnes in October.  We know that China, in addition to retaining 100% of the 25 tonnes per month it produces, has been importing bullion hand over fist.

Gold and silver have been unusually resilient in the face of one of the more overt attempts by the U.S. bullion banks to trigger a COT open interest liquidation sell-off.  For those of us who have been trading and researching the metals market for the past 11 years of the bull market, the attempted manipulation has never been more transparent, nor has the ability of the market to withstand this big bank flagrancy.

Here's the Bloomberg report of the October Central Bank buying spree:  LINK  Without bloviating on the significance of this aggressive and rampant CB accumulation of bullion, please note that several countries besides Germany are now making noise about repatriating their gold being "safekept" by the Fed, BOE and Bank of France.  Switzerland has proposed legislation being introduced in order to force the issue, The Ecuadorian Government has called on its banks to repatriate 1/3 of their foreign-held gold and the Netherlands is starting to make noise about doing the same.

The name of the game is "accumulate physical - not paper (GLD, CEF, GTU, etc) and make sure you have trustworthy custodian."  That would be either a private domestic depository or under lock and key in your own house, with Smith and Wesson are your guard dogs.

Tuesday, November 20, 2012

More Housing Hype/Hope

If you tell a lie big enough and keep repeating it, people will eventually come to believe it - Joseph Goebbels, Hitler's Propaganda Minister
Many of you woke up yesterday to news that existing home sales for October were higher than expected and that the homebuilder sentiment index had reached a 6-yr high.  This morning, housing starts were reported and were better than expected, although this reading was achieved by revising last month's data report lower.   All three data points are being promoted as evidence that housing was recovering. See the quote above.

To put a "truth" dent into the existing home sales report, the data as it's being promoted is not supported by fundamental evidence.  For instance, with existing home sales, although there was an increase, it would look to be as a result of investment in rental buyers and maybe some speculators.  If you review the mortgage purchase application data for September and October, there has been a definitive downtrend.  "Organic" buyers who are buying a home to live in as a primary residence - the bread and butter of a healthy housing market - require mortgage financing in order to purchase a home.  The data being reported on mortgage purchase applications does not indicate that the existing home sales are being purchased by this type of buyer.  Here's what I'm talking about:  LINK

As we know, there has been an accelerating trend of hedge fund/private equity investors who are going into areas and buying up "blocks" of vacant homes.  These are cash buyers, or buyers who have access to credit that is a lot cheaper than mortgage financing.  A preponderance of this type of buyer in October would explain a possible jump in existing home sales.  Interestingly, it was reported about a month ago that one of the first big hedge funds to jump into this type of deal, Ziff-Ochs, is in the process of trying to unload 80,000 homes in northern California.  They discovered that being a landlord does not justify the cash on cash return on investment.  It probably won't take long for monkey-see monkey-do imitators to discover the same thing, and at some point  the existing homes being bought now will be reintroduced to the inventory pool of homes for sale...

As for the homebuilders sentiment index, it's just that:  sentiment.  If there's a prototypical "touchy feely" economic indicator, it's any of the sentiment index reports.  After  six years of getting their ass kicked by the market (Dow Jones Homebuilding Index is down 60% from it's 2005 peak), this index would be reflecting a dead-cat bounce in "hope."  I would rename that housing market indicator as "the builder hope" indicator.  Think of it as a "hope" box, or a "god" box - lol.

Finally, with regard to whether or not the average middle class person even has the income to support buying a home, we know that personal income, especially on an inflation-adjusted basis, has been declining for several months now.  Furthermore, if you look at the best grassroots indicator of business formation and potential hiring - capital expenditures - it would appear that big corporations are not only NOT spending money on capital formation, but bona fide hiring is not taking place and we'll probably see an acceleration in corporate layoffs.  How can the middle class be buying homes right now when many of them know they might not have a job next year?  Here's an article from yesterday's Wall Street Journal that sums it up best - "Investment Falls Off A Cliff:" LINK

Quickly, with regard to today's housing starts number, suffice it to say that it was a "seasonally adjusted annualized" number that hit the headlines.  As we've seen in previous posts, these seasonally adjusted numbers could also be called "robustly manipulated fallacious statistics."  If you peruse today's full release from the Census Bureau:  LINK, you'll discover that the headline number was actually below the revised number for September.  Moreover, you'll see that actual construction starts are lagging permit applications - badly.  Last, I have discovered by perusing the latest homebuilder quarterly reports that cancellation rates are starting to spike higher.  They have been - in general - running in the low-high teens, and now they are running in the high 20% to low 30% range.  This factoid is not being reported in the headlines or in the main stream media.  What this means is that new home sales reports and housing start reports are egregiously overstated, since new home sales data are based on contract signings, which now have a 30% chance of being cancelled.

Bottom line is that housing is not only NOT recovering, but the elitists in NYC and DC are putting their best spin possible on what is being reported.  The truth is that housing is getting ready to follow corporate capital investment off the cliff...

Saturday, November 17, 2012

IRA/401k Confiscation Coming?

To start, I would like to report that my MBA alma mater, the University of Chicago (class of '91, Dean's list 1990), just received the #1 business school ranking by Businessweek:  LINK  Unfortunately, the professor I had for a high level "forensic" accounting course is not longer there. His course was the best course in any MBA program anywhere and made the 2 years there worthwhile.

An article about Obama starting the process of nationalizing the private retirement fund system went viral in the blog community yesterday.  The truth is that the these "genius" bloggers are about 4 years behind the curve on this.  Here's the report:  LINK

Let me make one thing crystal clear before the world erroneously blames this on Obama.  The IRA confiscation movement started at least during, if not before, the Bush administration.  Four years before the recent hearing sponsored by the Treasury/Labor Dept, there was a Congressional hearing On October 7, 2008 sponsored by the House Education and Labor Committee at which pension reform academic Teresa Ghilariducci presented a paper on her Guaranteed Retirement Account program.  Her idea is to replace IRA/401k accounts with a Government administered program which would provide retirees with a guaranteed annuity stream annuitized by good old U.S. Treasuries.

This symposium was held before Obama was elected.  In fact, I warned 10 years ago, that the elitists (note: real elitists, as in the handful of men who pull the strings) would print money and keep our system from collapsing until they had swept every last crumb of middle class wealth off the able the table and into their own pockets.  Note:  "middle class" = everyone who is not wealthy enough to buy their own Congressman;  in my view this would be anyone with a liquid net worth under $100 million.

This movement to de facto seize your private retirement plan was started years before Obama was even a local politician in Chicago.  Regardless, once these movements begin in the Government they happen slowly and then all at once (sound familiar?).  Anyone with two operational frontal lobes will do what I did 6 years ago and cash out their IRA, pay the 10% penalty plus any income tax for that year on the proceeds and put the money into physical gold and silver outside of the system.  Over the next 4-5 years you will more than make up for the 10% penalty/taxes with the appreciation of the bullion AND your wealth will be safe from the Government.  Capito?

Friday, November 16, 2012

Look Out Above?

When too many investors are rushing for the doors at once and everyone is looking down, it usually marks a turning point for a market that has been dropping pretty quickly.  The precious metals and mining stocks have been in a sharp decline since September 21 for the miners per the HUI and since early October for gold and silver.  This week I've witnessed several seasoned metals and mining stock investors capitulate and either exit their positions completely or put on hedges.  The time to put on a hedge was a 3-4 weeks ago.  Although this isn't necessarily the absolute bottom, the probabilities are that - barring some unforeseen exogenous event that hammers all the markets - we've seen 80-90% of the downside movement.

Brief interruption here.  I've been saying for weeks now that Capitol Hill would figure out a way to avoid the Fiscal Cliff by kicking it down the road.  It turns out that the can is sitting in front of the White House and Obama's leg is in a backswing:  This means more debt, more printing and higher prices for gold and silver...

At any rate, with regard to the current price correction in gold and silver and hammering of the mining stocks, I'm not saying we've bottomed, but I will go on record saying that the worst is over based on indicators I've observed over the last 11 years in this market.  I'm cutting and pasting some comments that I sent earlier to Bill "Midas" Murphy at

The most significant indicator is the number of seasoned and unseasoned metals market participants who have either bailed on their positions or put on fear hedges. Just yesterday a long time silver futures trader I know, who recently began trading the mining stocks and who goes by fairly sophisticated technical signals, announced she had bailed on her stock positions on Wed. Another fellow I know announced that he had hedged his bullion with puts on GLD. Quite frankly, I can see getting scared out of the miners, but it's clearly late in the game to be buying puts on gold and he clearly does not have the access to information which shows that India has been buying gold in the low 1700's and China buys hard anytime gold below $1700, thereby putting a floor under the gold market (we pay a lot of money for this particular research).  If you are going to hedge positions, you need to do it BEFORE the top is in, otherwise the drop happens so quickly you miss at least half the move before you capitulate and hedge near the bottom - been there, done that.

Finally, I'm getting several comments on my blog of newer gold market players who are pissed off, taking shots at guys like Embry and Turk and dumping their positions. This is usually a perfect indicator that a bottom is near. I usually don't post most of these comments because they are abusive and profanity-laced, but if you're curious at a sampling, I posted one from last night along with my response.

I also sent Bill this:  Part of the action this week in metals has been influenced by it being the "roll" period, when the front month longs either have to sell, take delivery or roll to the next front-month. Usually during the roll period the open interest declines and the cartel uses this as an opportunity to hit the market. Yesterday, however, was different. Yesterday was an unusually large roll from Dec gold to Feb gold, 17,212 dropped from Dec but 17,281 added to Feb. In addition, another 1,330 added to June gold. A big drop from the front month accompanied by an outright increase is rare - beyond my recollection when the drop from the current front month is this large.

Same deal in silver. 4,268 silver carts dropped from Dec and 5,386 added to March, silver's next front month. The silver o/i increased to 1,263. The open interest in silver is 145k. As Dan Norcini pointed out the other day, something different is occurring right now. Despite the big cartel-led sell-off in silver over the past 6 weeks, the silver open interest has persisted in the 140k area. Historically the o/i has been liquidated down to 100k or less in pullbacks like this. Furthermore, for those intimidated by the 140k o/i, my partner pointed out that the high in open interest since we've been keeping track of it - going back to around 2003, was 189,151 back on 2/19/2008 with silver at $17.53. That leaves a lot of room for the specs to add longs and drive the price a lot higher.

So before anyone gets worried about what seems to be high open interest in silver and that big COT liquidation run is coming, they better examine the facts. I really get sick and tired of all of the misinformation between tossed around, especially by gold/silver site aggregators, bloggers and blog commenters. As I said earlier, I'm not officially saying this pullback is over, but it sure is starting to smell like it could be...

As always, the market is governed to a large degree by random probabilities. Measuring the past is a function of math - a science. But taking those results and projecting them forward is where the "art" of money management and market speculation takes place. Based on past market behavior and the probabilities associated with those behaviors, I would bet that the risk of getting short/hedged right now and missing a big upside move is greater than the risk of the bottom "falling out" from here. Have a great weekend!

Thursday, November 15, 2012

Systemic Collapse: The Corzine Factor

In the end, more than freedom, they wanted security. They wanted a comfortable life, and they lost it all – security, comfort, and freedom. When the Athenians finally wanted not to give to society but for society to give to them, when the freedom they wished for most was freedom from responsibility, then Athens ceased to be free and was never free again.  - Edward Gibbon, English historian and acclaimed author of "The Decline and Fall of the Roman Empire."
I hope everyone has a chance to meditate on the quote above, as it applies to the state of our society here and now.  History may not exactly repeat, but it sure does seem to rhyme (to paraphrase Mark Twain).

Before I get started on my source of irritation today,  I wanted to point out that Bernanke is giving a speech right now in which he is stating that the Fed will do what it can to support the housing market and that the pace of mortgage financings  is as low as it was in 1995.  Now, why on earth would he make that latter remark if the housing market was in a state of recovery?  Furthermore, it was reported by the Wall St. Journal that the FHA is on the verge of insolvency.  How can this be if the housing market is recovering?  Finally, it was reported today that the U.S. Postal Service is also on the verge of insolvency and it has been borrowing heavily from the Taxpayer to sustain itself.  If you take all three of these factors into consideration, in aggregate, it can only mean that either the Fed is going to let the housing market collapse and the U.S. mail service will have to be drastically reduced, OR there is a LOT more QE coming.  The precious metals and mining stocks are extraordinarily cheap here...

The John Corzine issue has been a perpetual source of disgust and irritation for me (not continuous as I've accepted that our system is entirely corrupt, but it sneaks up on me).  Quite frankly, if there was any ONE reason to vote against Obama in the election, it was because of his profoundly abysmal failure to crack down on Wall Street corruption, and specifically his refusal to prosecute Jon Corzine despite the overwhelming evidence of Corzine's overt and blatant role in the collapse of MF Global and the loss of over a billion in dollars in customer assets that were supposed to 100% legally protected.  The actual numbers support the fact that Obama has failed to prosecute the financial industry, as litigation by the Justice Department has declined substantially during Obama's tenure even though the evidence of events of lawbreaking and corruption has soared.  This, despite Obama's explicit promise in his 2008 campaign to "clean up Wall Street."  It's hilarious/pathetic to me that this topic was never any part of any of the debates this year...

The latest irritation stab from the MF Global/Corzine issue surfaced when the House issued a report yesterday which blames Corzine for the collapse of MF Global.   What is beyond absurd is that the House Democrats refuse to endorse the findings, saying "ummm, we need ummmm more time to study the findings."  Here's a news release of the report:  LINK

The bottom line here is that anyone who has any Wall Street experience AND knows the regulations governing the brokerage business KNOWS that Corzine is not only guilty of violating several SEC and FINRA regulations but should be sitting in a jail cell waiting his trial.  Over a $1 billion dollars was stolen.  Martha Stewart was put in jail for a just a small percentage of that amount.  This has become an an egregiously inexcusable case of  bi-partisan politicizing by the Democratic Party - led by Obama - as the Government has refused to crack down and go after Corzine.  Corzine, a former Democratic Governor of, and Senator from,  New Jersey has been one of Obama's biggest campaign fundraisers.

I have outlined on this blog where and how Corzine broke the laws.  The Trustee of the MF Global bankruptcy has finally joined in with private groups in suing Corzine.  I still can't understand why Obama hasn't forced Eric Holder to do the same.  Well, let me revise that, it's obvious why Obama has refused to go after Corzine just as it's obvious why the House Democrats refuse to endorse the House report.

We live in a system that is collapsing and the overt corruption permeating from every institutional sector of our system is entirely indicative and supportive of my "collapse" premise.  Just remember, how does a system collapse?  First slowly and then all at once (to paraphrase Hemingway).  The only issue in my mind is where our system sits relative to the proximity of "all at once" on the collapse timeline...

Wednesday, November 14, 2012

It's Getting Ugly

The declining state of the economy, as I've been explaining for a while now, is starting to finally manifest in economic and financial reports.  As most of you know, corporate earnings for the 3rd quarter have been pretty dismal, with lots of earnings "misses" occurring.

Second, the Government released its "income statement" for the month of October, the first month of the Govt's Fiscal Year 2013.  It showed a $120 billion deficit, substantially higher than was expected and estimated and higher than October 2012's $98.5 billion.  Here's the LINK  The Government is saying "technicalities" led to a higher deficit.  But the OMB didn't seem to know about those technicalities when it projected a $113 billion deficit a couple of weeks ago.  Where were these seasonal "technicalities" last year?  I smell an accelerating spending deficit coming, which means more printing!

Also, retail sales for October were reported this morning and, not only did the headline number "miss" expectations, but the monthly print was negative - a sequential decline from September.  The Obvious "explanation" for this is Hurricane Sandy.  But the Government statistical geniuses typically make adjustments to smooth irregularities like that out of the number AND one would have expected to see a pop in retails sales, as areas expecting to be affected would have experienced a "run" on groceries, hardware items and propane.  That excuse does not fit.  Nevertheless, below is a chart sourced from Zerohedge, with the data sourced from Bloomberg, which shows monthly retail sales:

(click on chart to enlarge)

Anyone notice anything interesting (the red arrow is my edit)?  Not only is the trend for retail sales declining pretty quickly, but it was also declining during the "all-important" back to school season, July - Sept.  I think this chart encapsulates the picture of the average American's finances and lack of disposable income.  The holiday season spending this year could be exceedingly ugly.  It will be interesting to see if the banks roll out some incredible revolving credit deals for the season.  If you do see that know that the Federal Reserve is behind that and, ultimately, the Treasury/Government.

Finally, I know I've been threatening to post a big report on the housing market, showing its impending demise.  I have been collecting data for this and it will take some time to write something meaningful.  Since I don't get paid to write this blog, I need to find the time - I'm hoping some time in the next week.  What I can say is that, based on looking at the data I've compiled already, the "under the hood" data for the housing market is startlingly weak.  I say "startlingly" because the Fed has driven mortgage rates to record lows, the banking industry in conjunction with the Government has prevented a lot of the "shadow inventory" from hitting the market and the Government has rolled out, thru FHA, a massive mortgage purchase and refinance program which is a "sub prime" quality lending program designed to try and really stimulate "organic"/primary residence purchases. All of those measures combined have barely stimulated a "bounce" in the numbers and the market is getting ready to do another big cliff-dive.  To be continued...

With respect the Government's spending and debt accumulation situation, I fully anticipate that some way, somehow, after a lot of political grandstanding and accounting chicanery, an agreement to kick the fiscal deficit can down the road will be reached.  We already know that the Democrats in the Senate, via Harry Reid's comment last week posted above on the right side of this blog, plan on asking for a $2.4 trillion bump in the Treasury debt limit ceiling.  That tells you right there we can expect a deficit of at least $2 trillion for FY 2013.  My personal view is that the politicians in DC do not have the mettle required to let the "fiscal cliff" event occur - neither does the President, nor would Romney have either for that matter.  As history has shown time and again, the Government will spend and print until the currency ultimately collapses...

Monday, November 12, 2012

Entitlement Nation

The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.  – Alexis de Tocqueville
The monthly Government report for August on food stamp usage was conveniently released, on a delayed basis supposedly because of the storm, after the election.  The food stamp usage numbers are beginning to go beyond shocking.  August saw close to half a million more people added to the food stamp usage list, the largest increase in a year.  47.1 million people and 22.6 million households in this country are now using food stamps.  Zerohedge has compiled some nice charts, which you can see here:  LINK

According the latest Census reports, there's 311 million people in this country and 114 million households.  As of the August food stamp report, 15.1% of the population and 19.8% of the households are using food stamps.  Nearly 1 out of every 6 people and nearly 1 in 5 households are using food stamps.  To put this in perspective, next time you are driving thru a standard middle class housing development, know that roughly 1 out of every 5 homes is using food stamps.  I don't know about anyone else, but this fact blows my mind.

Even more staggering is that food stamp usage is becoming more common among college students:  LINK  Please note that the linked article is from the Washington Post, so know that any possible positive "spin" has put on the facts.  What the article does not talk about is the fact that student loan usage hits a new record every month - with $1 trillion in outstanding student loans guaranteed by the Government now.   In essence, it's becoming more common that the taxpayer is now financing 100%  of the entire college experience for a growing number of students. 

I guess in an ideal world, it's great that someone who can't put food on the table is able to get assistance from the Government for this purpose.  Please note:  "an ideal world."  Unfortunately, not only do we not live in an ideal world, but the financial condition of the country we do live in is approaching catastrophic conditions.  Not only can we not afford to pay for food stamps and finance college tuition, but even if  the Government stopped all spending except that which is "mandatory" it would still be operating at a deficit.

Blogger Simon Black has written an excellent piece which puts the raw numbers into black and white.  Mandatory Govt spending encompasses anything required by law and everything else is "discretionary."  Surprisingly, "discretionary" expenditures include:  "nearly everything we think of related to government– the US military, Air Force One, the Department of Homeland Security, TSA agents who sexually assault passengers, etc."

He goes on to run the math on the mandatory vs. discretionary spending, and if we cut out all spending except for things like social security, medicare and Treasury debt interest we are still left with a $250 billion spending deficit.  Just think about that for a minute and understand that military spending is not part of the "mandatory" category.

I recommend that everyone read Mr. Black's brief essay:  LINK  He's an ex-pat living in South America. I've been reading his work for quite some time and it's excellent analysis usually devoid of any hyperbole or political spin.  After you read it, you'll understand why neither Romney or Obama could articulate some kind of gameplan to address this country's catastrophic fiscal condition.  I honestly believe that voters voted Obama back into office because they figured his puppeteers wouldn't loot the system quite as quickly as would Romney his handlers. 

The bottom line with all of this is that either the Government is going to have to print a whole helluva lot more paper money over the next four years or our economic and financial system will collapse.  Moreover, and probably an even stronger argument for the "more printing" view, unless the Government keeps printing there's 47.1 million food stamp recipients who will start rioting in the streets.  That's why Mr. de Tocqueville, the quote at the top, said what he said about the United States and that's why gold and silver are going a lot higher in price...

Friday, November 9, 2012

Avoiding The Fiscal Cliff = QE To Infinity

There is no reason to expect that renewed efforts at federal budget deficit reduction will result in anything more than the usual smoke and mirrors, further increasing, not reducing, long-term U.S. sovereign-solvency risk.  In reality, the U.S. economy has not recovered, and no recovery is pending.  Consumer liquidity remains severely impaired, and broad business activity continues to falter anew.  As a result. the actual federal budget deficit going forward will be much worse than the relatively rosy numbers being used as the basis for government negotiations - John Williams,
Everyone can draw their own conclusions about how this so-called "fiscal cliff" situation will play out, but the only way it can possibly be "resolved" is by postponing the inevitable.  As Williams states:   "Accordingly, global market reaction—to a severely deteriorating outlook for U.S. fiscal conditions—increasingly should reflect massive flight from the U.S. dollar and movement into gold and the stronger Western currencies."

The big news yesterday was the fact that a couple of "official" - supposedly professional - organizations issued a statement proclaiming that if the U.S. goes off the fiscal cliff that it would lead to a recession.  This revelation would be funny if it weren't so completely pathetic. Talk about understating the obvious.  Notwithstanding the fact that on a real inflation basis, not Govt CPI basis, our economy has remained in contraction since at least 2008, if Congress and the President were to allow the "fiscal cliff" mechanism to occur, it would throw our system into economic armegeddon.  I went over the numbers earlier this week as to why this would be the case.

The truth is that not only will the fiscal cliff scenario be kicked down the road like the proverbial "can" (anyone know if that's supposed to be a beer can or a soda can?  Maybe a can of beans?), but the increasing chasm between expenses and revenues will have to be filled with even more Treasury debt issuance.  Tautologically, this means more QE.  More QE means even higher prices for gold and silver.  The reason more QE will be needed is the same reason the Fed has continued and expanded QE since its inception in 2008:  1) the banks need liquidity or they will collapse; 2) the Treasury needs a new source of cash or interest rates will go to the moon.

To address the Treasury funding requirements, I've got a graph from Zerohedge which shows the steady decline in foreign Treasury purchases since 2009:

(click on chart to enlarge)

Foreign funding of Treasury paper has declined by 55% since 2009.  I have not seen this fact reported anywhere in the mainstream media.  It should come as no shock, however, as foreign investors are not idiots.  They know that money printing devalues the dollar, so they want less of it.  China has somewhat maintained its level of Treasury buying lately, but that's because if they are perceived as fleeing the dollar, the dollar would collapse and China would be, in a sense, shooting itself in the head financially.   That will change eventually.

The decline in foreign participation in Treasury auctions has been replaced by the Fed's participation, aka QE.  The next chart, which I hypothecated from, shows this fact nicely:

(click on chart to enlarge)
This is an interesting chart.  Not only does it show graphically the fact that the Fed is increasing the size of its balance sheet by buying Treasuries in order to make up for the loss in foreign participation, but it shows the concomitant correlation of the price of gold.  The orange line shows the projected growth in the Fed's balance sheet if it just maintains the existing QE policy.  The red line shows the trajectory of the Fed's balance sheet if it implements the highly telegraphed next phase of QE.  Everyone can draw their own conclusion as to the expected trajectory for the price of gold under the "red line" scenario.

And the truth is, the red line scenario is the expected policy move given what is already written on the chalkboard in terms of the giant locker room on Capitol Hill.  What about when the impending debt ceiling increase has to be increased again by next summer?  See where this is headed?  QE to infinity.

The metals/miners market seems to have reverted from "sell the rallies" to "buy the dips."  What's even more interesting, the metals have had more days recently in which they go higher when the S&P 500 is getting hit.  I think the hedge fund margin calls related to the mini-crash in AAPL have run their course, so I think the SPX will get a trading bounce here and the metals will move with it.  As the media hype and political show connected to "The Cliff" intensify, the stock market has a lot of downside risk and I fully expect a portion of the money that leaves stocks will flow into the metals.

As for the NFL, the season is maturing and the favorites are starting to distance themselves from the rest of the field.  Up until now, the point spread underdogs have been outperforming the favorites.  I think this weekend and forward will see the point spread favorites starting to cover a lot more frequently.  The most interesting game is the Houston/Bears game.  This is must-watch TV.  I like the Texans to prevail.  Of the mediocre teams, the Tampa Bay/San Diego game will be interesting to watch.  And, of course, I like the Broncos to easily cover the 4 1/2 point spread over Carolina.  Have a great weekend.

Thursday, November 8, 2012

Just Another Paper Bullion Scam - This Time From The Royal Canadian Mint

This one is absurd.  I just read through the prospectus for the new Royal Canadian Mint ETR, priced on Monday at $20 per unit.  Each unit initially entitles the holder to a .619525 share of 1 oz. of silver bullion, to be safekept by the RCM.  Notwithstanding the complicated formula required to calculate the share of bullion ratio on an ongoing basis for several reasons - the new RCM paper form of silver has several embedded issues which can create the inability of the holder to actually receive the physical silver which they think they are investing in.

The RCM does not directly link the prospectus on its website.  In fact, it made it a pain the ass to track down and get a copy of it.  My bet is that I'm one of the few people out there who has actually undertaken this task and read the prospectus.  I've linked it below.

To begin with, like all the other paper metal trusts (except the Sprott trusts - this write up does not apply to the Sprott trusts, let me make that clear), the RCM is the custodian of the bullion and states up front that the silver which is supposed to be for the trust will be held in an unallocated account.  This may seem trivial right now, but if and when silver bullion becomes scarce and more people demand physical delivery of bullion that is being safekept by the RCM, the RCM ETR has NO LEGAL STANDING FOR A SUPERIOR CLAIM on the bullion.  In other words, let the lawsuits begin and wait in line if there's more claims on the silver flooding into the RCM vault than the RCM can produce.  This is the number one and most egregious problem with all paper bullion trusts.  Quite frankly, it would not cost any more money to create a separate, allocated storage section which legally specificies that all silver in that part of the vault belongs to the ETR trust.  Why do they not do this?  Because this security is a fractional bullion scam.  Also, don't forget that it was just a couple years ago that both the U.S. and Canadian mints had to suspend production of bullion products because of a shortage.

Second, in order to make a redemption claim on the bullion, the holder must own a minumum of 5000 ETRs, or roughly $100,000 worth of ETRs.  This is another hurdle that the promoters of these trusts build into them in order to avoid creating a 1:1 physical backing and in order to try and avoid the problem created by using an unallocated account.  For most investors, $100,000 is too high of a commitment.  In other words, the RCM is hoping that most ETR holders never redeem them and instead sell the ETRs in the market in exchange for paper dollar settlement.  This issue is endemic to the paper bullion trust scam and the RCM is perpetuating and expanding the scam.

Third, the redemption process itself is quite burdensome.  The person redeeming has to follow a mult-step redemption process perfectly, or the RCM can cancel the redemption.  Besides the paper work involved, the redeemer ALSO has to provide for a Carrier to go to the RCM vault and pick up the silver.  This includes the fact that redeemer bears all the risk and expense of pick-up, transfer and delivery.  While on the surface not unreasonable, typically the delivering party will take the responsibility of this step, including any insurance involved.  The way this part of the ETR is structured tells me that the RCM was looking to erect yet another hurdle in order to discourage actual physical redemption and further reinforce the fractional scam that has been created.

Finally,  just in case the holder seeking redemption successfully clears the above hurdles, the RCM has added a very broad clause giving it the power to suspend or cancel the redemption.  This provision is directly from the prospectus:  The Mint may suspend the right of an ETR Holder to redeem its ETRs or postpone the date of delivery or payment of the redemption proceeds (whether physical  silver bullion and/or cash, as the case may be) for any period during which the Mint determines that conditions  exist which render impractical the fabrication, evaluation or sale of  silver  or which impair the ability of the Mint to determine the value of the  silver  bullion owned by the ETR Holder or the redemption amount for the ETRs. Any declaration of suspension  made by the Mint shall be conclusive.

I don't think I need to restate the obvious there.  At the end of the day, when you  buy an RCM ETR thinking that you are investing in physical silver and thinking that you can take actual delivery if you want, the RCM has made it extremely burdensome to take actual delivery and can cancel your right to take delivery pretty much at its discretion.  I don't know about anyone else, but if I want to own physical bullion, I would not take the risks embedded in the Royal Canadian Mint ETR.  It is nothing more than another version of the fractional ownership paper scam.  Wash, rinse, repeat. 

Here's a link the prospectus: RCM Prospectus

Wednesday, November 7, 2012

A Little Post-Election Humor

Now that it's safe to re-start our frontal lobes and put the torture of election season behind us, this Chris Rock vignette from Jimmy Kimmel is priceless:

By the way, for everyone who knows and understands that Dennis Gartman is the perfect contrarian indicator for gold - i.e. when he's selling, it's the perfect buy entry and when he's buying, it's time to take profits - he added another nice entry to his contrarian track record:  yesterday morning he went on record calling for big Romney victory.  I believe he used the term "landslide."  Even the proverbial "broken clock being right twice a day" has a better predictive track record than Gartman!!!!

Tuesday, November 6, 2012

Game Over

The best argument against democracy is a five-minute conversation with the average voter. - Winston Churchill
Thankfully this election season is finally over.  This had to be the most brain-damage inflicting election I've experienced.   I wrote a blog piece about a month ago in which I declared Obama the winner, why I was making that call and why it doesn't matter in terms of fiscal/economic policy who, or which Party, sits in the Oval office.  The only difference it makes is to the specific wealthy individuals and corporations who purchased the winning candidate (see Citizens United v. Federal Election Commission).

The shame of this election is that the Republicans had a chance to win and blew it by nominating Romney.  Obama was ripe for defeat.  He's done a terrible job managing the country and he pissed off a lot of his support base by reneging on most of his 2008 campaign promises.  Just like in 2008 when the country was set up to vote for any Democrat, the stage was pretty much set for an anybody but Obama election.  But the Republicans had to select a candidate from an extreme Christian sect who is socially retarded, ethically bankrupt and a serial liar.

I think he could have overcome the latter two problems, but his stance on Roe v. Wade and planned parenthood alienated him from a significant segment of the voting populace - that would be women.  The fact that he urinated on 47% of the electorate by being caught on tape saying "they don't matter" didn't help his cause either.  And his coup de grace was picking Paul Ryan, the mentally challenged intellectual zombie from Wisconsin who looks like a cross between Eddie Munster and Pee Wee Herman.  That sealed the deal as Ryan was seen as wielding a hatchet that would chop down medicare and other senior citizen  entitlements.  Game, set, match.

But, the good news is, the metals stand to benefit from a huge snap-back rally from the beating they took in October, which was partially from the irrational fear that a Romney victory would be bad for precious metals and primarily from the the automated black box hedge funds dumping the metals because October historically is negative ROR month.  Well guess what?  November, going back to 1971, is historically the second best positive ROR month.  I would suggest that everyone reading this start loading up on even more gold and silver (not GLD, SLV, CEF or GTU).  You'll glad you did when you look up in four years to see that outstanding Government funded Treasury debt is well over $20 trillion, possibly as high as $25 trillion. Gold and silver are already up $7 and 23 cents as I write this...

Monday, November 5, 2012

Pre-Election Farce

October Jobs and Unemployment Numbers Were Not Credible, Artifacts of a Broken Reporting System and/or Direct Manipulation - John Williams,
Also from John Williams' latest report, which is worth the price of subscription if you want to have access to someone who has studied and analyzed Government statistics over several decades:
The headline numbers (or the general substance of the reporting results) usually are known a week or so in advance, and early release of data to officials in various administrations and at the Federal Reserve has been common in the past and as suggested in former Clinton Labor Secretary Robert Reich’s autobiography
With a downturn in October’s online help-wanted advertising, weakening employment growth in the ISM’s October purchasing managers manufacturing survey, and significant indications of slowing activity, not accelerating economic growth—to be discussed in the upcoming Special Commentary—the October labor data indeed were not credible.
Enough of that.  I think the market's response to the jobs report on Friday told the real tale, if you don't want to believe the facts as they are presented by guys like John Williams...

Along with any credibility associated with the jobs report, I want to bury the idea that either Presidential candidate will have a specific effect on the stock market, precious metals, or the catastrophic U.S. fiscal/economic situation.  The popular promotion in the media is that Romney will be good for stocks and bearish for metals.  The latter idea I guess because of his threat to get rid of Bernanke, who is an economic strawman for the banks anyway - as would be his successor.

Let's take a look beneath the hood of this argument.  We'll look at the black and white numbers with no editorial or slant.  The Government is currently borrowing 40 cents of every dollar it spends.  If it were to cut spending in a meaningful way to reduce that number - let's say a 10% cut across the board in order to reduce that borrowing rate to 30 cents - imagine what that would do to the economy.  Imagine if they cut entitlement spending by 10%.  People would starve and seniors would go without healthcare.  The Dept of Defense,  the largest employer in the world with 3.6 million employees, would have to unload close to 400,000 employees.  The only thing a 10% cut would do is reduce the rate at which the Government is accumulating debt, if the economy stayed the same, which it woudn't.

If the Government cut spending 10% to try and take a whack at the deficit spending, it would send our system in an economic tailspin and throw our economy into a depression that would make the 1930's look like a day at Disneyland..  Now imagine that Congress passed a hard law require immediate balancing of the budget.  40% of all Government would stop.  That would annihilate our system.  Armageddon.  Mad Max.  A balanced budget would only stop the increase in debt accumulation, it would do nothing to reduce the $16+ trillion outstanding.  Ahh, but under any of these scenarios, Romney is promising 12 million new jobs...

My point here is that there isn't any possible "fix" for our system that either Romney or Obama can implement in order to solve the fiscal cliff problem without sending our country into chaos.  To be sure, this would lead to the "reset" our country needs, and in the long run it would be a good thing, but there isn't one sane person out there who would sign up for that.  Neither Romney or Obama have any choice except to extend the madness of more deficit spending, more debt accumulation and more money printing.

If you think Romney has some sort of "magic underwear" solution he's hiding, please read the quote from Bill Buckler's Privateer, probably the most candidate and truthfully analytic newsletter available:
Mr Romney has now been the official Republican candidatefor two months. Over that time, he has spent an unprecedented amount of money (as has his opponent) to get out a “message” that boils down to this:  “You’re better off with me than you would be with him!”  He has said absolutely nothing about his “plans” to address the fiscal and financial condition of the US and its government. There is a good reason for this, Mr Romney doesn’t have any plans.
I've been whining about the latter statement since the first debate.  And the reason neither Romney nor Obama have laid out a specific plan is because any plan to cut spending and debt accumulation would destroy the economy.  This is what happens when you have an economic system that is based entirely on fiat currency and very little actual substantive economic production.  Hell even Apple's Iphones and Ipads are manufactured in China.  For some reason many Wall Street analysts have said that the new Iphone would add 1% to economic growth.  Given that Apple's stock price is down over 13% since the new Iphone was introduced, I think we can see how retarded that notion is.

In addition, anyone notice how the Fiscal Cliff deadline was never addressed in the debates.  It's related to the previous point, but it's worth pointing out, because neither candidate can possibly do anything with that situation except override the legislation and increase the Treasury debt limit by quite a bit.  Even if the Fiscal Cliff were allowed to kick in - and we know it won't be - the Treasury debt limit would still have to be raised.  I've seen some estimates which suggest that we would be looking at an initial increase of at least $2 trillion in order to fund the Government for the next 12 months.

So as you can see, regardless of which candidate prevails tomorrow, they both face the same unsolvable, catastrophic problem for which neither has laid out a gameplan to address because any action taken to address the problem sends our country into economic and social Armageddon.  For that reason, the Fed will have to continue increasing QE in order to continue buying Treasury bonds in order to finance the voracious, unstoppable Government spending.  Moreover, for those reasons, the current price pullback in gold and silver should be bought with both hands, as it is a true gift from JP Morgan and the CFTC.

Friday, November 2, 2012

It's A Complete Farce

Statistics are what the powers that be want you to believe them to be, nothing more and nothing less - Kerry Lutz,  founder of the FinancialSurvivalNetwork
With regard to the quote above, Kerry Lutz had me as a segment guest on his FinancialSurvivalNetwork radio broadcast.  The topic was fraudulent Government statistics and you can listen to it here:  LINK

I honestly don't know how Obama gets up in front of crowds today and claims that the economy is getting better and that jobs are being created.  I find it exceedingly hard to believe that he doesn't know the truth about the Bureau of Labor Statistics preposterous calculation of the monthly non-farm payroll report.  I find it even harder to believe that anyone with functioning frontal lobes would believe the absurd "report."  It is a complete farce that CNBC/Fox Business/News/CNN and all other media sources discuss and debate this particular Government economic statistic as if it has any semblance of credibility.

The Government reported this morning that the economy produced 171,000 new jobs in October, well in excess of the average estimate of 125,000 - the latter number a nonsense estimate based on highly manipulated data, the former a fantasy beyond any remote rationalization.  

The primary driver of the employment report today was the nefariously mysterious "birth/death model."  For today's particular report, the birth/death model contributed 90,000 jobs to the Government's statistical stew.  Let's take a look to see exactly what this is and how it is applied.  The metric is supposed to measure employment growth created from new business formations net of business "deaths."  Here's the key definitional sentence from the BLS website:
The sample-based estimates are adjusted each month by a statistical model designed to reduce a primary source of non-sampling error which is the inability of the sample to capture, on a timely basis, employment growth generated by new business formations.
To save you all the brain damage from translating that sentence, here's what it means:   "A primary source of non-sampling error" means that the Government has no possible way of figuring out how many, if any, new businesses were formed during the period of time when the Government worker bees were calling around to try and figure how many people were actually hired and fired in the previous month.  The data gathering for this comes from sampling about 1/3 of all Unemployment Insurance tax accounts.  You can read all about the birth/death model here:  LINK

Essentially, what the Government is doing is using a small universe of businesses that contribute to the unemployment insurance program to determine the extent to which new accounts were opened and closed.  Then it extrapolates out from that based on some unexplained statistical model the number of new jobs, net of jobs lost, that were created by the private sector from new business being formed and closing.  Essentially the Government is "imputing" the number of new jobs that were created from an "imputed" number of new businesses that the Government thinks might have been started during the previous month.  I am begging someone to explain to me how this can be even remotely accurate.

The word "impute" ("imputing") is actually used in the BLS' description of the birth/death model.  Here's the dictionary of the word "imputation" in reference to its use in business:  "to give (a notional value) to goods or services when the real value is unknown."  In short, to make it up when you don't know the truth and you don't have verifiable data.

The Government goes on to explain/claim that "research" indicates that contribution to jobs growth from birthing/dying businesses is "relatively small and stable."  Hmmm.   Not only is this claim completely unsubstantiated, it's makes no sense in the context of reality.  First, here's a chart of the birth/death data on a monthly basis as compiled by Zerohedge:  LINK  Does that look like the picture of stability?  Second, in the context of the standard economic cycle, it would make sense that in a growing economy a lot of new businesses would be formed and in a declining economy a lot of small businesses would die.  We've had 4 years of a stagnant economy, with little nominal growth and negative real growth (after the adjustment for real inflation).  It would be realistic to assume that new business formation during this period would be in decline and business deaths would be accelerating, especially in comparison with new business formation from say, 1995-2005.    During the latter period we had new technology mushrooming and then many finance-related businesses flourishing - both a product of Fed-driven fiat currency asset bubbles.  We've had none of that except for the expansion of the Government in the last four years. 

As John Williams has pointed out many times in the past, the current Government statistical computation models were constructed during a period when we had actual growth in the system.   The models were never adjusted and revised to account for decelerating growth and actual decline, which means that the models are egregiously inaccurate.  This makes sense if you have any background in statistical/econometrics forecasting theories, which I happen to have had the misfortune of being forced to study at the University of Chicago.  Talk about something causing brain damage.

Finally, the birth/death definition page at the BLS website notes that:  "Note that the net birth/death figures are not seasonally adjusted, and are applied to the not seasonally adjusted monthly employment estimates to derive the final CES employment estimates."   To translate, what this says is that the Government conjures up a b.s. estimate for the number of jobs created by new business formation, does not make any "seasonal adjustments" to it, adds it to the unadjusted employment estimate and then runs it thru it's covert "ARIMA time series model" and produces the employment report.  This is the model that John Williams references as being entirely inaccurate.

The way I see it, the Government's monthly employment report - especially when considered in the context of what is going on in the real economy (growing number of people on food stamps, social security disability, long term unemployment insurance and student loans) - is not only completely fictitious, but the fact that everyone discusses the report in a way that gives it some modicum of credence shows that our entire system has diminished into a complete farce.

Thursday, November 1, 2012

The Economy Is Crumbling

If you lie down with dogs, you wake up with fleas  (attributed to Benjamin Franklin)
Before I chat briefly about the subject of the title, I want to point out that today's action in the mining stock HUI index (-1.8% vs. the SPX +1%) is largely a result of American Barrick and it's big earnings miss released today.  ABX is currently down 9%.  ABX accounts for 15.4% of the HUI index.  Barrick announced crappy operating results plus a pretty big bump in cash costs, which led to the huge earnings miss.  Plus there's this item:  "$71 million in unrealized losses on non-hedge derivative instruments."  I like the way they qualify that as "non-hedge."  Remember they supposedly removed their hedges in 2009, but I never trusted that and it turns out they still have "non-hedge" hedges in place - lol.   I've always thought ABX was a poorly managed company and have steered investors away from it.  ABX is the poster-child of the quote above...

Several economic reports were released today.  Actually, yesterday the Chicago Purchasing Manager's Index was released and was lower than expected.  Worse, the sub-index of component measures was ugly.  Today it was followed up with a slight "beat" by the touchy-feely ISM manufacturing index.  Consumer confidence came in lower than expected and construction spending missed expectations.  In addition, the notoriously manipulated jobless claims weekly report of course came in slightly better than expected (lower claims supposedly) but last week's "better than expected" was of course revised quite a bit lower and below last week's expected number. 

For those paying attention to the Government-sponsored (i.e. Taxpayer financed) General Motors, it was reported that the inventories at GM dealers soared to a record level.  Zerohedge does a great job following this metric:  LINK  A lot of tech hardware and manufacturing companies "stuff the channel" with inventory in order to inflate revenues.  This is because the way GAAP accounting works, when a manufactured good leaves the manufacturer's factory and is shipped to the middle man distributor, it is counted as a sale, even though technically it's never really a sale until it's in the end-user's possession and paid for.  What makes GM's channel-stuffing inordinately egregious is the fact that GM dealer inventories are financed with Taxpayer money.  So when the music finally stops in our fractional-reserve Ponzi system, the Taxpayer will be left holding the bag on millions of unsold cars.   And, of course, the top brass at GM will have walked away with tens of millions in bonus money based on artificially inflated sales.  That particular bubble, by the way and just so readers don't think that my Presidential-candidate hatred is limited to Romney, is being blown by Obama.  Helluva blow job there, Barack.

The point of all of this is that our economy is starting to spiral downwardly out of control and that process is starting to pick up some speed.  Rest assured that the Fed will come to the rescue after the election with another big slug of QE.  This time it will consist of expanding the Treasury financing being done by the Fed.  Interestingly, more on this is future posts, the trickle of fiat money globally that is converting into non-fiat gold/silver bullion is also starting to increase in velocity...