Tuesday, April 2, 2013

Death By 1000 Paper Cuts

If you're intellectually honest with yourself, what's happening in this country right now is truly frightening...people who understand the markets are terrified by what's going on...Now we know why Bernanke is stepping down and running for the safety of his academic ivory tower - it has to be embarrassing for him to stand up in public and say: "look at the stock market - see, everything is fine."
Those comments are from a good, long-time friend of mine from NYC who used to tell me back in 2003 - in response to my prognostication about what's unfolding in this country and why owning gold was imperative - that I was "seeing black helicopters coming."

In fact, he called me up this morning and said "I really hate to think about it, but your scenarios for what could happen in this country are starting to look real.  He also commented that "the system crashed in 2008 and never really recovered except superficially from all of the money printing by the Fed and financial support of the banks by the Government."

Regarding his remark about people who understand the markets and are terrified - that observation comes from the fact that he chats regularly with high level wealth management people at the big banks.

The truth is, any kind of economic recovery is really only being "experienced" by an increasingly smaller part of the population.  Fact:  food stamp usage hits a new record every month - currently 48 million (as of the end of December) were on food stamps - that's  15% of the population and by household, 19% of the households.  Fact:  currently a record 11 million people are now receiving social security disability benefits - 5.9 million added during Obama's 1st term.   Fact, the labor force participation rate (the number of people working + the number of people looking for work divided by the population) is down to a near-record low 63.5% - it was 65.7% when Obama was inaugurated and and has declined nearly every month since then.

How can Bernanke possibly claim the economy is improving given those FACTS?  Now you know why he wants to leave at the end of his current term.  A two-term'er vs. Greenspan, who was a 6-term Fed head.  We all know why, it's just very few are willing to be "intellectually honest with themselves."

The fact is, there's 2.2 trillion reasons the economy superficially appears to be improving and the stock market keeps hitting new record levels.  That's the number of dollars printed and injected into the system since the Fed QE program started in March 2009.  By the end of 2013, that number will be 3.2 trillion.

The housing market?  Really?  Fact:  the Government is financing, using Taxpayer-subsidized money, around 97% of the mortgage market now.  In fact, the Government has recently ramped up its refinancing of underwater mortgages to now include the once-notorious no-documentation mortgages.  This is for mortgages that are already underwater and in danger of defaulting.  Since the FHA stepped in to replace the void left by the FNM/FRE bankruptcy, the FHA's liberal home purchase mortgage programs have gone from 2% of the housing market to close to 20%.  FACT:  the 2008 vintage FHA mortgage delinquency rate is now approaching 30%.

Want more?  FACT:  since the Fed announced the additional mortgage QE - i.e. printing money to buy mortgage paper, the Fed has been purchasing roughly 2/3's of all Government agency-financed mortgages.  Translation:  the Fed is printing money to enable some people to buy homes.  FACT:  currently, based on Census Bureau numbers, there are 18 million vacant homes in this country, of which about 4.5 million are in process of being converted by investment funds into rentals (there goes the rental market) and 4.5 million are considered vacation homes.  That's 9 million vacant homes with no intended purpose.  I'm not making that up, those are Census Bureau numbers.  There goes the low housing inventory story.  Wanna know where a lot of those homes are?  They're sitting on bank balance sheets, foreclosed, being financed by the money printing:  LINK

As my friend said, the economy collapsed in 2008 and never really recovered.  Instead, there's been slow systematic erosion in the general standard of living for an increasing percentage of the population.  Here's one more FACT:  since June 2009, the inflation-adjusted median household income has declined by 7.2%.  That is not the type of statistic we would be looking at if things were really getting better.

The golden truth is that the Fed's money printing program is doing nothing more than delaying the inevitable:  a complete systemic reset/collapse which will likely destroy the standard of living for everyone in this country except the truly wealthy .5% (that's point 5 percent).  And those in the .5% who don't own any gold/silver will be reset into relative poverty.  Death by a 1000 paper cuts (or 3.2 trillion printed dollars).


  1. Dave, I didnt see any news or reason why the metals got destroyed today. Any thoughts??

    1. Ya. Every night for the most part the metals rally during Indian and Asian trading - the global physical markets - and get slammed right before or right at the COmex open. Today was no different.

      Here's my comments that Bill Murphy will be publishing in his Midas report tonight:

      I'm sticking to my guns that this is a short-lived drop in the market primarily fueled by the hedge funds shorting the downward momentum. That doesn't mean that the market can't go lower temporarily, but it also means the upside when the hedge funds scramble to cover will be, in Jim Sinclair's words "spiritual."

      The mint sold 15 million ozs of silver eagles in Q1. That is by far a record amount of silver eagles for any quarter going back 27 years to when the program was started. The metal holdings by SLV increased by 20 million oz. Q1 also saw the largest quarterly reduction in short interest of SLV - 10 million shares - on record. In other words, the divergence between the paper market and the physical market is extreme.

      I went back and looked at the disaggregated COT data going back to 2006. As of last Tuesday, the hedge funds were net long 1,000 contracts (rounded). That's the lowest net long position in the history of the disaggregated COT reporting, fueled primarily by the build-up in the short interest. As it turns out, the smaller bank/commercials - Ted Butler's raptors - are taking the other side of this hedge fund shorting, as the raptors are record long 28,300 contracts. Historically, when the hedge funds take an extreme position like this - long or short - they are horrendously wrong. The two previous low net long positions were October 28, 2008 - net long a then record low 3100 contracts (rounded) - and June 26, 2011 - net long a new record low 2400 contracts (rounded). If you look at the chart of silver going back to 2008, you can verify that the timing of the hedge funds in both of those low net long positions was spectacularly wrong.

      My point here is that I'm not going to say the bottom is in right now, but it's pretty damn close

  2. I appreciate your FACT-filled comments. My aren't you cheery today. Meanwhile the Dow and S&P roll merrily along toward new record levels, and gold miners are testing new lows today. That's a FACT too. You could be intellectually correct, but broke in the real world if your preferred asset allocation is maintained. Hope you can last it out.

    This gold/silver/mining relative underperformance is the most nausesating thing I've ever encountered in investing. When will this turn around? I thought Cyprus was gonna do it, but no dice. We have already forgotten that disaster dejour. Maybe Kim Jong Un will follow through on his threats, and THAT would wake up investors, helping the PM complex. Don't ever hope for war, but that has been an historical FACT too.

    1. LOL - Yup. As it happens, this was my view I sent to a client/colleague last night who asked about an eventual "exit" strategy:

      That's a good question. Something I've been pondering for quite some time. I think if the "reset" that is inevitable in this country and Europe occurs without being accompanied by a global war, I think the natural exit happens when China rolls out a gold-backed currency, likely in conjunction with Russia and a few others, and they reset the price of gold up to a level which will give them a full backing on the new currency. My bet is that is 3-5 years away. I know there's some credible guys out there that think that price would be $20-30k/oz in dollar terms. The dollar would be done. I know Rickards is saying a price reset would occur at $7k/oz but I think he's low and he's benching it off the size of the Fed's balance sheet. He's still thinking the dollar is viable AND he's assuming the U.S. still owns 8100 ozs.

      If that scenario happens, then we liquidate this fund and find whatever the newest best investment idea is.

      The only other scenario I see happening is a war scenario. In that case we're a fucked no matter what. No one is really paying attention, but there's been an escalation in military exercises and "muscle flexing" since the Cyprus thing happened. Russia stuck a very powerful fleet of ships in the Mediterranean off the coast of Cyprus and said it would be permanent.. And then I'm sure you've seen what's going on Korea. The U.S. did stealth bomber exercise and then announced, I think yesterday, that they were moving some stealths permanently to S. Korea. Obviously China and Japan having staring each other down for a while.

  3. Yankee Stadium Parking Misses Bond Payment on Opening Day

    The operator of parking garages at New York’s Yankee Stadium missed a $6.9 million interest payment to bondholders yesterday, according to a securities filing.

    It was the the first time Bronx Parking Development Corp. has skipped a payment to investors, Steven Polivy, an attorney at Akerman Senterfitt LLP representing the company, said in a telephone interview from New York. The next scheduled one is for $8.1 million on Oct. 1. Polivy wouldn’t say if the October payment would be made.

    Bronx Parking issued $237.6 million of municipal bonds in 2007 through New York City’s Industrial Development Agency to build three garages and renovate two others. The structures haven’t generated enough revenue and Bronx Parking has hired Willkie Farr & Gallagher to serve as bankruptcy counsel.

    “Due to the continued financial difficulties experienced by the company, the interest payment scheduled on April 1, 2013 will not be made,” according to a filing on the Municipal Securities Rulemaking Board’s website.


    I guess the economy's so good everyone gets dropped off by limo?????

    1. why the hell would anyone ever drive and pay a gazillion $'s to park at Yankee stadium when you can take the #4 Subway train right to the stadium?

    2. Don't you think they should have thought that out before they borrowed the money?

  4. Dave.. as usual.. I am in complete agreement with your comments. My question to you is.. how can any of us who see this coming not want to get out of Dodge completely? Chile, Belize, Costa Rica... I gotta believe if you can get to one of these places and have a small house, some land, and some Gold/Silver in a safe.. staying low under the radar. .that you will be better off than if you stay here. Are there more people starting to think about repatriation than I know about? Thanks, 1Kg Lunar Dragon

    1. I don't know if anywhere will be safe if this thing unfolds the way I think it will unfold. Uruguay might be a good option, but don't count on being able to move a lot money there once it becomes obvious that it's time to move. You have to set up your move now or live with your decision to stay here.

  5. Do you hear that music playing ? It is the band playing 'The Last Dance". By the way didn't the Titanic have a band ? I cannot convince my relatives or freinds to own Gold or Silver they all think it's con game perpatraited by bullion dealers. I have been buying since '05. I also prepared by buying whiskey by the case for bartering and for medicinal purposes.

  6. Huh? Did u see gold today?

  7. FACT: We are so screwed, and not in a manner which usually pleases a person.

  8. I am finding here in Nevada a lot of "fly-by-night" temp agencies popping up all over the place. I have been here for 35 byears and can tell when something unusual is happening and I know this doesn't happen during a "recovery". They guarantee work for a couple of days to a couple of months - depending on the economy. Whereas full-time roboust employment occurs during a true recovery. The latest Governor promised that he would turn Nevada from tourism to production but all his (and other Officals) attention has been tourism and service-sector jobs. I'm waiting to see the casinos post another negative month but the numbers may be distorted to hide the truth.

    Dave, you write great articles. To add to this information would be production year-over-year and I'm hearing that its sour. The latest report out today said that US production rose 3% because of war planes that we sold to other countries. Automtive Parts came in at 1.4%. Year-over-year growth in nonfarm payroll jobs has now dropped to an 18-month low, and household job growth has dropped to a 16-month low.

    Expect some nice sales on non-eatable items (like technology) as nobody will be able to afford them or the electricity to run them.

    1. THanks for the feedback. Appreciate it. Don't forget that those numbers are "seasonally adjusted." They also have inflation built into them. If you strip out inflation, our production was flat, at best.

    2. Yes I know about those numbers being seasonally adjusted and have inflation built in. Unfortuately, I'm not an economist but such low numbers matches my day-to-day here. The numbers - no matter how they are skewed - are disconnected from the real economy. Unfortuately, the US Government bailouts or creation of "Corporate Welfare" helps to inflate the numbers and that's why I bring up production. For Example:

      Native U.S. Tribes Seek Federal Bailouts to Offset Casino Losses

      "According to the Associated Press, the once billion-dollar Pequot casino empire has, in the past, distributed stipends of more than $100,000 annually to adult tribe members. Now, however, the Pequots join other gaming tribes, including nearby rival casino Mohegan Sun, in the pursuit of more federal aid. The pattern is getting the attention of those who opposed the law that allowed Indian tribes to develop casinos, since the law was promoted as one that would assist tribes in becoming financially self-reliant.

      The Pequots began a financial downturn along with other businesses across the U.S. during the 2008 recession. In that year, however, Foxwoods had just completed a major expansion with the MGM Grand hotel and casino. In 2009, the tribe defaulted on debt exceeding $2 billion.

      The Pequots have since ended member stipends, but have kept other benefits in place. Federal grants to the tribe, awarded through the Interior Department, increased from $1 million in 2008 to $2.7 million in 2011. Federal monies granted though Health and Human Services, rose from $1.7 million in 2008 to $1.9 million in 2012."


      (If Indian Casinos are getting hit and asking for a Federal Bailout, I wonder if the ones in Nevada will (or have already) cry out for the same thing? Will the Federal Government continue to fund businesses to keep them open? I have been to two places where they are getting federal monies to run their business and I wonder how this "corporate welfare" plays into the production numbers.)

  9. Beyond parody

    Why do we fall, Bruce?
    Curiously, the only people who have intelligent reactions to these sorts of things are citizens of the former communist countries and what was derisively referred to as the third world (I find the definition of ''third world'' - crumbling infrastructure, volatile politics, ad-hoc asset seizures, no rule of law - funny now, because every aspect of the old definition is met by the current standards of government in the United States and Western Europe, and increasingly less so in the countries for whom the definition was intended previously).

    Such people, though, have no credibility in the eyes of the West, therefore we have the specter of folk trying to run around in circles trying to rationalize or negotiate their way out of a downward spiral. A recent classic was when a few months ago, as gold prices were in free fall on a day, a commentator on a financial television channel said: ''Perhaps one of the main reasons for gold to fall is that people are questioning who is behind [ie who guarantees] the commodity.''

    Watching that little nugget I choked into my iced tea and it took a few moments to recover; here was a supposedly intelligent person with a degree in economics or some such, pontificating on television.
    Worse, the person actually subscribed to the notion that the ''backing'' of a government - the US or Europe - actually meant something, against a commodity that could NOT be manipulated. You really couldn't make up stuff like this; and worse, the notion that you go quickly past parody in such matters. How on earth does one make fun of a person such as this commentator; and worse, how do you get across to their average viewers who must be - almost by definition - dumber than the presenter?

  10. The Emminger letter reappears

    This deviation, Schmidt told the council, was allowable under the classical legal exemption clause ‘clausula rebus sic stantibus’(‘Treaties may become inapplicable because of changes in circumstances’)
    However, he affirmed that the modification should remain secret and could not be part of a formal agreement. ‘Let us imagine that this appeared in a French or Italian newspaper tomorrow,’ Schmidt told the council, according
    to official documents that were published only 30 years later. ‘The editorials would criticise their own governments for believing such a shallow promise from the Germans. A [German] government promises to intervene to uphold certain rules of the game, but then writes in an internal paper that it intends to act
    differently at times of emergency.’


  11. Russia & China Loot Western Gold While JP Morgan Sells Silver

    Today Jim Sinclair told King World News that Russia and China are looting Western gold while JP Morgan sells silver. He also said that all of this chaos is taking place as central planners conceal serious financial problems from the general public. Below is what Sinclair, who was once called on by former Fed Chairman Paul Volcker to assist during a Wall Street crisis, had to say.

    Sinclair: "If you watch the market throughout the night and into the morning, as we have to, there is only one conclusion you can come to, and that conclusion is that this takedown has been totally orchestrated. It has been executed using tremendous strategy, and it was perfectly timed.

    This has involved entities acting in unison for the purpose of affecting price and psychology, while at the same not necessarily selling volume.


  12. It's an interesting thing to observe Jim Sinclair having to couple gold with silver at the moment as is the case with his commentary in today's King World News piece.

    This dynamic of having to show that the two precious metals are having the same true pricing problems due to the gross manipulation activities being allowed by the CFTC seems to have Sinclair slightly off of his game.

    Presently this small window is signifying that what is happening to gold is also happening to silver, only for a much longer period for silver.

    This might help change Sinclair's view on silver as an investment for the better rather than only focusing solely on gold.
    One can only hope that he finally sees the two supporting each other.

    God knows, after the world banks & governments get done with raping the financial security from civilization these two metals will play a HUGE role in helping to make some kind of sense out of world capitalism .

  13. Fiduciary Duty to Cheat? Stock Market Super-Star Jim Chanos Reveals the Perverse New Mindset of Financial Fraudsters
    American business has always had cheaters and crooks, but today they are escaping prosecution and are incentivized to cheat more.
    April 1, 2013 |

    Editor's note: This article is the first in a new AlterNet series, "The Age of Fraud."

    Hustlers. Cheaters. Crooks. American business has always had them, and sometimes they’ve been punished. But today, those who cheat and put the rest of us at risk are often getting off scot-free. The recent admission of Attorney General Eric Holder that systemically dangerous megabanks may escape prosecution because of their size has opened a new chapter in fraud history. If you know your company won’t be prosecuted, a perverse logic says that you should cheat and make as much money for shareholders as you can.


  14. Foreign Cash is Now Bidding for “Rat Infested” Homes in America’s Latest Housing Bubble

    His agent, Sharmila Banerjee, said that "cash is coming from China, India, Russia, but there can be difficulties transferring money from outside the country." When one such deal fell through, another one of her clients had his offer accepted, she said.

    In February, 1,044 houses and condos -- 28 percent of the sales -- in the counties of Santa Clara, San Mateo, Alameda and Contra Costa were bought by absentee buyers. That is the highest percentage since DataQuick began tracking them in 2000. In Contra Costa County, absentee buyers were 35 percent of the sales.

    Real estate agent Melissa Haugh said everyone in her office was stunned at the price, paid in cash, for a Santa Clara fixer-upper.

    "The house had a rat infestation, there were holes in the walls, windows that leaked, mold around windows, water damage to floors. It needed $100,000 in work," she said.