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Tuesday, March 22, 2016

The Great Misdiagnosis

June 30, 2011 by · 4 Comments 

By Jim Willie CB, Golden Jackass

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Imagine a doctor who administers an elaborate treatment for a man suffering from multiple broken bones, joint arthritis, and fallen foot arches. The quack doctor orders massive amounts of liquids as though he has a horrible case of dehydration. The inept doctor also permits unlimited freedom of movement around the hospital and its grounds to the patient, as part of the blunt treatment. The man still cannot walk right or breathe normally, has trouble lifting any significant weight with the arms, and stumbles around from shaky legs. But he has plenty of fluids and freedom to roam, urinating like a race horse. With the heavy mistreatment that is badly off the mark, he has a new problem, diarrhea and bloat together. His doctor is an idiot, incompetent, but still given respect. The doctor is the US Federal Reserve, led by the lousy economist who never ran a business, the mad professor from Princeton University. His claim to fame was revisionist history of the Great Depression. He was chosen to be the bagholder, to print money until no tomorrow. The USFed balance sheet is almost totally ruined, without hope of repair. The clumsy oaf professor posing as USFed Chairman actually admitted in public that he is confused why the USEconomy remains moribund, unresponsive to all the special treatment administered so thoroughly. Bernanke admits his incompetence. The national economy desperately requires a housing market revival that cannot come since banks are constipated with foreclosed homes in still rising inventory. The misguided licensed doctor continues to ply his trade, directing the wreckage, confused at the helm. Now the hospital is overrun by victims of the USEconomy, sinking under the weight of debt.

At least the health care sector is expanding as a business, the government sector too. Neither is productive. Meanwhile, the nation sinks into a depression, the debt approaches a default, and the USDollar faces extinction through revolt, rejection, and evasion. The nation suffers from lost direction, absent leadership, and unspeakable corruption from the climax of the Fascist Business Model introduced by the last administration with large doses of fear. The dominant themes in the USCongress and Executive branch are clearly paralyze, polarize, and partisan. Tainted money has been followed by tainted morality, policy, justice, and representation, enough to invite a public response. Let’s take a quick look at numerous pressure points, broken parts, and centers of ailment. The doctor is extremely busy in confusing both the patient and anxious family. They are repeatedly told the patient is on the mend, but he keeps falling down when attempting to move on his own power. The family has lost faith in the doctor, but no other medical professionals seem any more enlightened.

THE ULTIMATE PROBLEM OF INSOLVENCY

The national officials have grotesquely misdiagnosed the problem. It is not one of liquidity. Rather the problem is widespread systemic insolvency and absence of industry for legitimate income and high level bank corruption that has caused a national sclerosis. Inefficiency reigns supreme, like with any fascist business model climax. The corporate leaders and political leaders sold out two to three decades ago. As long as the national policy is off the mark on recognition of the ultimate problem, no solution will come. Jamming a solution after a wrong diagnosis leads to tragic results. All the problems in the USEconomy from summer 2008 are actually worse today. No solution is even attempted. Mountains of money have been wasted, undermining the USDollar. In my view, the diagnosis is intentionally made incorrect in order to continue the elite largesse. The blunt instruments of the USFed are obviously from the wrong toolbag.

TURNING POINT, NOT BROKEN BRETTON WOODS

The turning point was not breaking the Bretton Woods Accord in 1971, the movement off the gold standard. Obviously, that was an extremely significant event, but analysts miss the original wart that changed the financial complexion. My viewpoint is different from most within the gold community. The turning point was the Vietnam War, whose costs forced the federal deficits to an extreme, the first $1 trillion in the national debt. At the time, when the Jackass was in college chasing airborne frisbies and frolicking females, that first trillion was hugely important. The reaction was the broken Bretton Woods Accord in order to avoid a run on the national gold treasury held by the USGovt. The ultimate irony is that 20 years later, the Rubin Gang lowered the gold lease rate, enabled raids on Fort Knox for $trillion profit by the Wall Street gangsters in private gains. The USDollar has had no collateral ever since, the basis for a vaporous currency, and a grand setup for debt default. The emphasis on war remains a high priority, even a sacred topic not permitted in debate. The budget battle has effectively removed the military budget when making proposals for spending cuts, precisely as the Jackass forecasted two months ago.

GOLD READY TO RESUME

With all the lousy USEconomic news (no need to provide ample detail), the obvious nature of continued fiscal and monetary stimulus has permeated into the financial markets. The most direct beneficiary has been the S&P500 stock index. Stocks have jumped off the double bottom tested low. The entire stock and commodity market can be appropriately described as a risk trade, as in risk of paper securities. The silly empty bluff by the USFed has been called. The USGovt debt limit will be raised, even if on a temporary basis by a small amount. The absurd gesture to release US Strategic Petroleum Reserve crude oil, coupled with a similar release of IEA European oil, has seen an effect come and gone. It was not exactly minimal, but surely fleeting and meaningless. They will replace those reserves with more costly oil, no doubt. No solution has come for the global monetary mess with fracturing sovereign debt. No lasting solution has come to Greece, although the bandaids and chewing gun and bailing wire will assure that another month of tranquility will come, except for minor events like street riots. No lasting solution will ever come to the USGovt budget, where spending cuts are obstructed and tax hikes are obstructed, and war spending will continue into oblivion.

Gold has benefited from the lost credibility of the global monetary system, from the loss of unquestioned faith in the central bank franchise system. Gold represents the mirror image of the crumbling monetary system and its soured debt foundation, managed by dubious central bankers. The system will perpetuate its ruinous debasement of money itself, since the power structure will struggle to preserve itself. It is that simple. In no way will JPMorgan or Citigroup or Bank of America voluntarily commit to bankruptcy and debt restructure, accompanied by impaired asset liquidation. They are the insolvent pillars of the US financial syndicate, firmly in power, never to release that power unless from cold dead fingers. The Gold & Silver prices will continue to make new highs in the second half of the year. We should look forward with juicy anticipation to all the back-peddling by countless analysts who claimed the anti-USDollar trade was over. It was just resting in consolidation. The battle cry remains INFLATE OR DIE!! The system will continue to seek vast resuscitation via harmful inflation, or implode. The latest lousy USTreasury auctions should be viewed as having great importance. The USFed will continue its debt monetization or face failed auctions. Notice the strong signal for continued debt coverage in the S&P500 stock index itself. Crude oil has recovered. Gold & Silver have bottomed. Onward and upward. The great spring shock was administered in empty threats.

POLITICS & ILLUSION, NO SOLUTION

In the last three years, at least 100 direct questions have come to my INBOX or telephone, asking what solution might come. My answer has been consistent, that no solution is even pursued. The objective is not remedy, but rather retained power by the banksters. Any meaningful remedy must begin with a foundation of liquidated failed insolvent big US banks. That will never happen, since they hold the power over the USGovt and control the USDollar printing press. We are witnessing moral hazard over the top, the acceptance of the most dangerous risk. The entire concept of Too Big To Fail for banks ensures no serious attempt to deal with the problems, no meaningful policy to encourage recovery, and a sinking toward systemic failure. The business model leads always to a climax of ruin.

THE CAN HAS GONE NUCLEAR

The Rubin Doctrine has a more colloquial translation, of kicking the can down the road. Dullard Joe Kernan of CNBC fame coined the phrase of kicking the can into the cul-de-sac, a dead end. My preference is the jump shift in metaphor, where the can has gone nuclear. Those who kick it are infected. Whatever the can touches is infected. The air on the road is infected. The latest Greek example with austerity measures points out the futility. One year ago a bailout solution was handed to Greece. In no way did it resemble a solution It was a grand cover of big bank exposure, nothing more. The process will continue until the people interrupt the handouts to the bankers. If not added public debt, then added money supply has been abused to redeem Southern European debt held by the bankers. A great irony presents itself, since a Greek Govt debt default might trigger huge Credit Default Swap contract payouts by AIG, now obligated by the USGovt. Increasingly, but secretively, many deals have been cut to collateralize the Greek debt. In fact, a private source informs that in Greek dock warehouses, an estimated 200 to 400 billion Euros in shrink wrapped unopened cargo containers lies in limbo. The EuroNotes come in Greek denomination, but also German and other national markings. The pressure is strong to avoid a removal of the Euro currency, even though fully broken. The owners of the vast hoard of EuroNotes are scared witless and sweating profusely, fearful of loss from obsolescence or retirement. The funds were from secret payment to purchase stakes in major properties like telecom firms, shipping firms, media firms, commercial properties, and more. The owners struggle to put the funds into the system without detection.<

FAILED KEYNESIANISM TURNSTYLE

Despite the failure of the entire textbook theory of government stimulus through debt propagation, the policy continues without end. Extended to the Great American Politburo for administered price controls, it is failing in public view. It will continue until conclusion, a national debt default. The centers of cancerous thought continue to be the University Chicago, Harvard University, and lately Stanford University. The purveyors of failed economic and monetary policy typically come from these dens of heresy. They serve as Fed Governors and members of the White House Council of Economic Advisors. Hardly a one has any business experience, but they do have impressive credentials, complete with lofty theses about something equally abstruse as useless. Wall Street has colluded effectively with the titan schools, offering them decades of chaired posts, plenty of prestige, and recently some lush collusion like with the Enron project.

QE2 NOT AN ECONOMIC STIMULUS

What a laughable concept that the Quantitative Easing was to stimulate the USEconomy!! Not even close. In fact, the Stimulus Bill had only a trifle stimulus inherent either. It was primarily about plugging the vast state budget shortfalls, which have reappeared in full force. Even the name Quantitative Easing is an insult to human sensibilities. It is hyper monetary inflation, which would sound bad. Heck, Neo-Conservative was another euphemism, a label that sounded better than Neo-Nazi. It also fooled the public, an easy task since dominated by simpletons. The actual beneficiaries of QE and QE2 were the big banks. They were given freshly printed electronic funds for their toxic bonds in a vast redemption process. They have been given nearly infinite credit lines to speculate in the easy USTreasury carry trade. They borrow at near 0% and invest in long-term bonds. In the process, low rates enable the big US banks to play the carry trade while their balance sheets fall backwards from the crippled housing and property credit asset. The practice keeps long-term rates down. The USGovt is hard pressed to find willing investors in USTreasurys. So QE and QE2 really helped to compensate for those scarce investors.

THE MONETARY POLICY BLUFF

Anyone who truly believes that QE will stop is a verifiable moron. Already this week, three USTreasury auctions took place. All three were borderline dismal. The main advantage for the USGovt again was the slide deeper into recession for the USEconomy. The effect exposes the destructive inter-relationship, since the USGovt needs a miserable lifeless moribund USEconomy in order to sell its USTreasurys, the packaged USGovt debt. During the last several months, the USFed has been the buyer, directly or indirectly, for 70% of the USTreasury debt securities. Apply the indirect argument to include the inventory of bonds gobbled by obligation from Primary Bond Dealers. They typically have been recycling their USTBills and USTBonds back to the USFed during Permanent Open Market Operations in three weeks on average, an abomination. With foreign creditors backing away and the USFed supposedly buyers no more, a huge vacuum cometh. Again, anyone who truly believes that QE will stop is a verifiable moron.

USGOVT DEBT LIMIT STENCH

The power harlots in WashingtonDC are playing a dangerous game. They have been attempting, much like the Europeans, to redefine what debt default means. The debt rating agencies have been rushing on stage to clarify the matter. The one party refuses to budge on tax hikes. The other party refuses to budge on spending cuts. Both sides obediently leave alone the sacred war so as not to anger the narco barons and fear merchants. The sad fact of life is that Wall Street banks would sink into a failure pit in three months time without the money laundering from the narco operations bound within the smokescreen of a spurious war on terrorism. A glimpse of what might happen with a closer flirtation on debt default has been seen with a quick move in the 10-year USTNote yield from 2.86% low last week to the 3.18% Thursday. It rises to give a quiet alarm.

INTEREST COST WILL SOAR IF EXIT FROM ZIRP

The most basic reason why extreme monetary inflation will continue is the absent demand for USTreasurys. The most convincing practical argument down the road only a little in time is that the entire USGovt debt structure cannot afford higher borrowing costs. The Zero Interest Rate Policy has been blessed as near permanent. Debt Monetization as policy goes hand in hand with ZIRP. Since the US banking system died in September 2008, the USGovt deficits have exploded past $1.5 trillion annually. Most of the recently issued debt securities have been in the very short term maturities, a trend begun by the Clinton Admin. If QE is halted, then short-term yields would rise and long-term yields would rise. The result would be a doubled borrowing cost for the USGovt debt. Not gonna happen! Inflation as policy will rule!!

UNITED STATES IS GREECE TIMES HUNDRED

The national implosion, disintegration, and ruin of Greece is in full view. The plight of the United States debt situation is 100 times worse than Greece. The people of Athens are angry, with focus of their anger on the duplicitous and corrupted politicians who favor the bankers and yield to their demands. The people of the United States are angry but less perceptive. They still believe the mean nasty oil producers are lifting gasoline prices, still believe mean nasty speculators are lifting food prices, still believe mean nasty Chinese are lifting import prices, but have clearly come to believe that mean nasty bankers are illegally foreclosing on their homes. The intentional poor education on economic and financial matters has left the American public as mere cannon fodder on the financial battle field. The great advantage of the Printing Pre$$ has spared the American marketplace of much higher rates. Like Greece, the nation flirts with debt default. The artificially low interest rates, the result of dictated monetary policy with the fortification of Interest Rate Swaps, have conspired to avoid heavy borrowing costs for the USEconomy. The bond market gives a false signal. In Athens, the bond yields are out of sight high, from 20% to 30%, due to a broken insolvent wrecked system. In the United States, the bond yields are out of sight low, from 0% to 3%, due to a broken insolvent wrecked system. The paradox and irony are incredibly ugly, stark, and confusing. The US is Greece, and only the true experts are aware. Leaders in both nations are sweating profusely and quaking in their boots. They each march backwards into debt default.

EMPHASIS ON HOME PRICES

If one were to be told in 1960 that the USEconomy would turn up or down depending upon the housing market, the reaction would be a conclusion of stupidity and break from reality. In 2004, when the Hat Trick Letter was hatched, my belief was firm that the dependence upon a string of asset bubbles for wealth creation in the USEconomy would end in a national catastrophe. My forecast was for a chronic housing decline to begin around 2007 or 2008, one to thrust the nation into an endless recession and lethal insolvent condition. It is happening precisely as expected in broad strokes, and much as imagined in the details. The nation exchanged legitimate factory income for home equity sources of funds after the great Chinese industrial buildup. The corporate feudalists in the United States betrayed the American workers and invested in China. They began that process in the 1980 decade with the PacRim investment that was triggered by Intel, the semiconductor chip maker. So here we stand with housing firmly lodged in the septic field of lost dreams. The national USEconomy cannot recover unless the housing market rebounds and revives. It will not, at least it will not until home prices fall to 30% below construction costs. What a travesty awaits this market in climax!!

BLOAT OF BANK INVENTORY

Supposed experts actually discuss early signs of a housing market recovery, but they sound like idiots. They overlook the ugly shadow inventory held by banks. Almost never does the financial press touch the ugly factor of bank owned home inventory. Imagine over a million homes held on bank balance sheets, an extra inventory held in secondary fashion. It will be years before the inventory clears, and when it does, the home prices will be 20% lower. Analysts spout their nonsensical perspectives not worth squat. Even Shiller during interviews avoids the topic of the enormous bank inventory acquired from foreclosures, some perhaps illegally. Like with many other statistics, the analysts focus on the headline news and avoid the meat of the story. The meat is often rancid. The housing market cannot rebound. It cannot revive. It is a wrecked market. It is weighing down the already insolvent big US banks. It is dragging down the USEconomy. Housing is actually the key factor that will assure a USGovt debt default, since it replaced industry in function. The system has forfeited and abandoned its industrial base. The nation must be re-industrialized, a process not even begun.

TAXATION CHOKEHOLD ON JOB GROWTH

A little known fact by the investment community and public at large is that the USGovt taxes the business sector at a higher rate than any other of the top 18 industrial nations. Yet one corrupted administration after another talks about growing the USEconomy and enabling the creation of new jobs. They are hypocrites and fools. The tax policy along with oppressive regulations are the main problem, not even addressed. The recent folly of the Obama Health Care program has actually exacerbated the problem. The great economic policy failures of the last four decades feature one case after another of raising tax rates and realizing lower tax income. The economic corps has no brain in trust. They learn nothing. They push the nation into the abyss.

STATISTIC LIES & PAINTED BILLBOARDS

The Clinton Admin started the process, with sage counsel provided by Robert Rubin. They deceive with statistics. Substitution, hedonics on value, curious adjustments, bogus models, bias galore, they all contribute to corrupted statistics. Imagine a patient in a hospital whose temperature cannot be properly measured, whose blood pressure cannot be properly measured, whose blood sugar cannot be properly measured, whose heart rate cannot be properly measured, whose brain waves cannot be properly measured, whose blood gases cannot be properly measured, whose antigens cannot be properly measured, whose organ function cannot be properly measured. The patient surely could not be given proper treatment. The attendant staff would have no clue of what medication or therapy to offer. That is the USEconomy.

ENDLESS WAR, HEAVY COST, MAKING ENEMIES

A very heavy added burden has been put upon the USEconomy ever since March 2002 when the war machine was set into motion. It is above debate or dispute. Patriotism is questioned when objections are made. The budget battle has removed the wars from consideration in spending cuts. The American worker is asked to wear a mountain climber’s 50-lb pack when heading to the office. The USEconomy wagon train must tow a 2-ton set of bricks as it moves along the Valley of Tears. The USGovt must ingest a potion of toxin each month as it sells its debt in a beauty contest, often conducted with coercion. The war just happens to alienate our allies, enrage our enemies, and tip those on the fence away from us. See Pakistan, the latest nation to make distance from the United States. The drone aircraft are largely to blame, the newest video game.

DESTROY OIL PRODUCTION IN THE MENA REGION

The story of the Libyan War is typical. The American public is told of murder of US civilians by the hands of Qaddafi. Sure, he is a vile specimen. Whether or not he was in the midst of launching a Petro Dinar with gold backing is possible. Not in debate though is the $90 billion in Qaddafi funds located in European and US banks that have been frozen. The word frozen always sounds better than seized or stolen. It is motive for war. Wealth is transferred. The story of the Libyan War dominated the news in April. The heist is complete. Move on, nothing to see. The destabilization of the entire Middle East and North African theater is well along. Their oil production might be the secondary target. The oil barons might want a much higher crude oil price, and curtailment of global oil supply. Their sprawling corporations and vast properties might include numerous locations where development awaits, if only the crude oil price would climb above the $150 level. If it does, the blame can be put squarely on Libya. The shutdown of the Gulf of Mexico could have been part of the plan.

THE PEOPLE NOT PREPARED

After years of mis-education, the American people are not prepared to defend themselves. They have seen their home equity vanish. Over 28% of US households live under the oppressive stench of negative equity, which puts them in a consumer straitjacket. They have seen their pension funds damaged, if not from direct value then in purchase power value. They have been subjected to non-stop propaganda that gold offers no yield, is a dead asset, and cannot aid an economy. Yet gold was the best performing asset in the 2000 decade. Amazingly, after a near COMEX default event, amidst global sovereign debt crisis, as government debt threatens default in numerous trouble spots, at a time when all major currencies are being debased in unspeakable fashion, the US press media networks have succeeded in some part in convincing the US public even since May 1st that gold is not the place to find refuge and security. They sell the USTreasury bond as safe haven still. Less than 2% of the American public owns gold in any way. Less than 2% of US managed mutual funds or pension funds have any significant gold ownership. Yet the babbling US press talks about the gold market being a bubble. The actual asset bubble is the USTreasury Bond market. Unlike housing, the bond sucks capital out of the system as part of its Black Hole function. It slows the USEconomy from its small yield offered to savers and pensioners. The speculation it encourages does greater damage to the USEconomy, inducing investors to search for the next asset bubble instead of rebuilding the industrial base. Only those Americans who leave behind the financial markets dominated by paper values will survive to thrive in the next chapter.

Jim Willie CB

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STRIKING SIMILARITIES

June 30, 2011 by · Leave a Comment 

By Toby Connor, Gold Scents
It appears that the approval of Greece’s austerity measures has finally halted the correction in the stock market. But has it really?

I would suggest that this correction has never been about Greece. The market has known for over a year that Greece would be back looking for more money. Let’s face it no one is under any delusions that Greece is going to be able to solve their problems. Greece is going to default, there’s no avoiding that. What the EU is trying to avoid is a domino effect of cascading sovereign debt crises.

Last summer the crisis was solely centered around Greece. Does anyone really believe that this is going to stop with Greece this year? I doubt it. I suspect in the next week or two were going to see bond yields spike in Spain or Italy or Portugal, or maybe in all of the PIIGS.

What started as a financial crisis in `08 has now infected sovereign debt as countries around the world have acted to bail out the banking system. I really doubt that this is going to start, and stop, with Greece again this year. As we found out during the real estate bust, there is never only one cockroach.

Striking similarities to last years correction are now starting to pop up. In May of last year the market put in what looked like a final intermediate low. It was followed by a higher low and higher high. The only problem was that the daily cycle was too short for the May bottom to be a final cycle trough as the bottom had occurred on day 13 and a normal daily cycle runs 35 to 45 days.

I also noted on the chart that we saw a large selling on strength day (smart money distribution day) one week from the top. The market then proceeded to move down into a final intermediate low in the normal timing band. I can tell you that many technicians got caught during the May bounce.

Now take a look at the current chart.

This time the market appears to have bottomed on the 15th day of its daily cycle. Again we have a pattern of higher lows and higher highs, convincing technicians that the bottom is in. Also note that we have another large distribution day just like we saw last year.

We have been expecting some kind of counter trend rally all along because sentiment had become too bearish by the middle of June. In order for the market to continue lower we were going to have to see some kind of relief rally to work off the oversold technical and sentiment conditions. The question is, is the rally for real or is it a counter trend move to be followed by another leg down. In bear markets the counter trend moves are very convincing.

I tend to think that this is probably not over yet. If the daily cycle runs a normal duration then we should look for a final bottom somewhere around July 22. However Congress is going to vote on the debt ceiling August 2. It’s possible that this daily cycle could stretch just a bit long and bottom on that vote.

Traders should probably be careful about placing too much trust in charts right now. Last year trading the charts suckered investors into the counter trend rally only to drag them down into a final intermediate bottom.

One final note. The market is now nearing the 50% retracement level. This is the same level that turned back the market last year.

Toby Connor

GoldScents

A financial blog primarily focused on the analysis of the secular gold bull market.

If you would like to be added to the email list that receives notice of new posts to GoldScents, or have questions, email Toby.

 

Possible Bottom as Key Sectors Breaking Out

June 30, 2011 by · Leave a Comment 

By Chris Vermeulen, TheGoldAndOilGuy

The past month we have seen stocks pick up momentum to the down side after an already very weak month prior (May – Sell in May and go away). This second wave of high volume selling in June was enough to spook the masses out of the market shifting the sentiment from bullish to bearish. But just recently we are starting to see big money accumulate stocks down at these oversold prices, which has me thinking we just may be headed higher sooner than later.

During market reversals we typically see the more sensitive stocks move first, which are the small cap and tech stocks. Then a couple days later we see the brand name stocks (big cap, energy and banking) follow. It’s these large sectors which provide the power in trends.

Taking a look at the graph below you can see on the far right both tech and small caps are leading the market higher and as of today the power sectors (energy and financials) started to move higher also. So if things play out I expect the SP500 which is a basket of the 500 largest companies to follow the small caps higher over the next 1-3 weeks. My trading buddy David Banister over at ActiveTradingPartners.com focuses mainly on small cap stock trading combining crowd psychology and fundamental analysis. his focus is finding stocks ready to explode during bull market advances which may just be starting…

If we take a look at the charts to see how each of these sectors have been performing you will notice that the small caps (IWM) and tech stocks (XLK) broke out one day before the energy and financials did. This is very typical to see and it also works for playing gold. I have seen gold stocks lead the price of gold bullion up to 7 days before gold bullion started to move. It’s these little golden nuggets of info which can not only save you money but make you even more when put to work.

Mid-Week Trading Conclusion:
In short, I feel the market has been forming a base for almost 3 weeks. Just last week we saw the big sectors (financials and energy) reach their key support levels from several months back and that should trigger a sizable bounce and with any luck the start of another leg higher in the market. If you would like to receive these free weekly updated in your inbox please opt-in to my newsletter here: http://www.thegoldandoilguy.com/trade-money-emotions.php
Chris Vermeulen

Marc Faber on the Massive Proliferation of Fraud in China

June 30, 2011 by · Leave a Comment 

The Daily Reckoning

Based on his deep experience in Hong Kong, Marc Faber — investment analyst and publisher of the Gloom, Boom & Doom Report — is concerned about investing hype in China. In a recent Bloomberg interview, he indicates that fraud is widespread, and that foreigners and likely to take the brunt of the pending fallout. Three of his key thoughts are paraphrased below and the clip itself follows.

  • Proliferation of fraud on a massive scale, as we have seen with Chinese companies, is symptomatic of a bubble or a mania… especially when it comes to US investors, because the general public doesn’t really understand China.
  • The Mainland Chinese are more careful about cheating in Hong Kong, because – as Faber describes in his own colorful way — they feel a more tangible threat of retribution from misbehavior in Hong Kong.
  • Faber believes that the people making the real money in China are the locals, and that it’s much more difficult for foreign investors to become savvy about the market… they are more likely to get fleeced.

Lastly, Faber also covers some of his current thoughts on precious metals. You can view the Bloomberg interview below, which came to our attention via a Bearish News post on how Marc Faber still likes gold and silver.

Marc Faber on the Massive Proliferation of Fraud in China originally appeared in the Daily Reckoning. The Daily Reckoning provides 400,000+ readers economic news, market analysis, and contrarian investment ideas. The Daily Reckoning features articles by Addison Wiggin author of Empire of Debt and Bill Bonner author of Financial Reckoning Day and The Idea of America.

More articles from The Daily Reckoning….

Economic Forecasts: Lies or Idiocy? Part I

June 30, 2011 by · Leave a Comment 

By Jeff Nielson, Bullion Bulls Canada

There was an interesting report from Reuters today, which (for the first time) takes an aggregate look at the utterly futile/incompetent “forecasts” which have been inflicted upon us by Western “economists” and “experts” over the past four years. It is nothing less than a litany of failure and disgrace.

There are two aspects to this piece which make it very useful. First, it provides a considerable list of anecdotes illustrating the mind-numbing incompetence of these mainstream prognosticators. Then it goes one step further and offers an explanation for such pervasive failure. Let’s begin with the former.

The May U.S. non-farm payrolls report and Philly Fed Index both reported numbers worse than the lowest “forecast” of the dozens of “experts” who participate in those surveys for the mainstream media

In June 2008, not one of the “top-24” economists in the UK predicted a recession (with “similar” figures in the U.S.)

None of the 24 “experts” polled by Reuters predicted that the UK economy would contract in the fourth quarter of 2010.

Those same “experts” were too optimistic on 20 out of 27 categories of economic statistics for the U.S., UK, and the Euro zone for both the months of April and May

More generally, the margin of error for these pseudo-experts in their predictions for GDP have gone from 0.1% (pre-crisis) to 0.5% (today). Put another way, their forecasting of this vital economic statistic is now only 20% as reliable as it was a mere four years ago. What Reuters fails to add is that the huge increase in the bias/inaccuracy of these forecasts is invariably to the up-side.

Obviously, when an entire flock of “experts” demonstrates a large, consistent bias toward “optimism”, one explanation immediately leaps out to explain this sudden lapse in accuracy: these experts are in fact nothing but market-pumping shills, continually telling the investing community that “things are getting better” in order to lure them (and their money) into the banksters’ casinos (i.e. our equity markets).

The two Reuters writers who compiled this piece were (strangely) unable to identify the motive which I found so obvious, however (to their credit) the writers come up with an explanation which also plausibly accounts for the sudden and horrendous inaccuracy of economists and market experts. They label this phenomenon as assumptions of “mean reversion”.

The premise is quite simple. The “reason” why all these economists/experts have suddenly and consistently displayed a grossly over-optimistic bias for the past four years is that they “expect” our economies to “revert to the mean”. In other words, rather than restricting their analysis to the actual data in front of them, they are allowing their analysis to be biased/clouded by assuming that our economies “must” move back toward the long-term trend of economic performance. Of course there is an even simpler term which accurately describes what these experts and economists have been doing for the past four years: they have been guessing.

To this point in my analysis, we are presented with two explanations as to how/why all of our experts and economists have suddenly and consistently had the accuracy of all of their forecasting plummet by 80%, all the while demonstrating a clear and unmistakable bias to the up-side:

1) The obvious explanation: our “economists” and “experts” are nothing more than market-pumping shills.

2) The Reuters explanation: that this esteemed collection of experts has either suddenly reverted to merely making guesses on their forecasts for our economies, or that they have always been simply guessing – we just never had economic data extreme enough to expose these charlatans until the last four years.

Before I offer two deeper, darker explanations of my own for this phenomenon, let me spend a little time expanding on my “simplification” of the Reuters explanation as implying mere guesswork by the Western world’s most highly-respected “voices” on our economies.

More articles from Bullion Bulls Canada….

Treasury covered up China’s excessive buying of U.S. debt

June 30, 2011 by · Leave a Comment 

GATA

Maybe someday Reuters will ask Treasury some gold questions too.

* * *

U.S. Caught China Buying More Debt than Disclosed

By Emily Flitter
Reuters
Thursday, October 30, 2011

http://www.reuters.com/article/2011/06/30/us-usa-china-treasuries-idUSTR…

NEW YORK — Rules of Treasury auctions may not sound like the stuff of high-stakes diplomacy. But a little-noticed 2009 change in how Washington sells its debt sheds new light on America’s delicate balancing act with its biggest creditor, China.

When the Treasury Department revamped its rules for participating in government bond auctions two years ago, officials said they were simply modernizing outdated procedures.

The real reason for the change, a Reuters investigation has found, was more serious: The Treasury had concluded that China was buying much more in U.S. government debt than was being disclosed, potentially in violation of auction rules, and it wanted to bring those purchases into the open — all without ruffling feathers in Beijing.



Treasury officials then worked to keep the reason for the auction-rule change quiet, with the acting assistant Treasury secretary for financial markets instructing subordinates to not mention any specific creditor’s role in the matter, according to an email seen by Reuters. Inquiries made at the time by the main trade organization for Treasury dealers elicited the explanation that the change was a “technical modernization,” according to a document seen by Reuters. There was no mention of China.

 

The incident calls into question just how clear a handle the Treasury has had on who is buying U.S. debt. Chinese entities hold at least $1.115 trillion in U.S. government debt, and are thought to account for roughly 26 percent of the paper issued by Washington, according to U.S. government data released on June 15.

China’s vast Treasury holdings are both a lifeline and a vulnerability for Washington. If the Chinese sold their Treasuries all at once, it could undermine U.S. markets and the economy by driving interest rates higher very quickly. Scenarios of this sort have been discussed in Washington defense-policy circles for at least a year now. Not knowing the full extent of these holdings would make it even more difficult to assess China’s political leverage over U.S. finances.

The Treasury has long said that it has a diversified base of investors and isn’t overly reliant on any single buyer to digest new U.S. Treasury issuance. Evidence that China was actually buying more than disclosed would cast doubt on those assurances.

… The ‘Guaranteed’ Bid

The United States sells its debt to investors through auctions that are held weekly — sometimes four times per week — by the Treasury’s Bureau of the Public Debt, in batches ranging from $13 billion to $35 billion at a time. Investors can buy the bonds directly from the Treasury at auctions, or through any of the 20 elite “primary dealers,” Wall Street firms authorized to bid on behalf of customers. The Treasury limits the amount any single bidder can purchase to 35 percent of a given auction. Anyone who bought more than 35 percent of a particular batch of Treasury securities at a single auction would have a controlling stake in that batch.

By the beginning of 2009, China, which uses multiple firms to buy U.S. Treasuries, was regularly doing deals that had the effect of hiding billions of dollars of purchases in each auction, according to interviews with traders at primary dealers and documents viewed by Reuters.

Using a method of purchases known as “guaranteed bidding,” China was forging gentleman’s agreements with primary dealers to purchase a certain amount of Treasury securities on offer at an auction without being reported as bidders in that auction, according to the people interviewed. After setting the amount of Treasuries the guaranteed bidder wanted to buy, the dealer would then buy that amount in the auction, technically on its own behalf.

To the government officials observing the auction, it would look like the dealer was buying the securities with the intent of adding them to its own balance sheet. This technicality does not preclude selling them later in the secondary market, but does influence the outcome of bidding in the auction, by obscuring the ultimate buyer. In fact, the dealer would simply pass the bonds on immediately to the anonymous, guaranteed bidder at the auction price, as soon as they were issued, according to the people interviewed.

The practice kept the true size of China’s holdings hidden from U.S. view, according to Treasury dealers interviewed, and may have allowed China at times to buy controlling stakes — more than 35 percent — in some of the securities the Treasury issued.

The Treasury department also came to believe that China was breaching the 35 percent limit, according to internal documents viewed by Reuters, though the documents do not indicate whether the Treasury was able to verify definitively that this occurred.

Guaranteed bidding wasn’t illegal, but breaking the 35 percent limit would be. The Uniform Offering Circular — a document governing Treasury auctions — says anyone who wins more than 35 percent of a single auction will have his purchase reduced to the 35 percent limit. Those caught breaking auction rules can be barred from future auctions, and may be referred to the Securities and Exchange Commission or the Justice Department.

The Treasury Department generally does not comment on specific investors but a source in the department said China was not the only Treasury buyer striking guaranteed bidding deals.

People familiar with the matter named Russia as being among the guaranteed bidders. But Russia’s total Treasury holdings, while significant, represent only 2.8 percent of outstanding U.S. debt, versus one-fourth for China’s.

… Changing the rule

Traders at primary dealers did not have the same diplomatic concerns about the level of Chinese buying. But they did have reasons to dislike guaranteed bidding, and they began clamoring for a change. One trader said in an interview he first brought the issue to the attention of Treasury officials in 2007.

Some primary dealers began expressing concern that the deals were opaque in a way akin to the Salomon Brothers Treasury trading scandal in the early 1990s. In that case, traders from the securities firm submitted false bids under other bidders’ names in Treasury auctions in order to more closely control the results, and their bids altered the auction prices. The idea that unseen bidders were again influencing auction prices raised similar concerns among traders.

There were also commercial concerns: Dealers say that knowing that the practice was going on at other firms made them less confident they could see and understand overall patterns of buying in the Treasury market. Such visibility can be one of the greatest benefits of being a primary dealer, since the service itself often doesn’t pull in big profits directly.

Some traders at primary dealers say they simply refused to do the deals and ended up turning away customers, including China. That irked sales colleagues who were promising clients guaranteed bidding deals.

At the beginning of 2009, Treasury officials began discussing the issue of guaranteed bidders, with a focus on China’s behavior, internal documents seen by Reuters show. The culmination of their efforts was a change to the Uniform Offering Circular published on June 1, 2009, that eliminated the provision allowing guaranteed bidding.

Treasury Secretary Timothy Geithner was in Beijing that day meeting with Chinese government officials on his first formal visit to China since taking up his cabinet post. There is no evidence he discussed the rule change with Chinese officials there.

A spokeswoman for the Treasury Department said: “We regularly review and update our auction rules to ensure the continued integrity of the auction process. The auction change made in June 2009 eliminated some ambiguity in auction rules and increased transparency, which ultimately benefits taxpayers and investors.”

The rule change had an immediate impact.

In the first auctions conducted after guaranteed bidding was banned, a key metric rose sharply: the percentage of so-called indirect bidders, those who placed their auction bids through primary dealers. Indirect bidders are seen as a proxy measure for foreign central bank buying, because foreign central banks most often bid through primary dealers. With the elimination of the guaranteed bidder provision, far more buyers were put in this class in reports to the Treasury Department.

The seven-year U.S. Treasury note, which was sold in sizes of between $22 billion and $28 billion once a month from February 2009 to September 2009, had an average indirect bid percentage of 33 percent from February through May. But from June to September the average indirect bid rose to 63 percent.

… Bidders react

Shortly after the Treasury revised the auction rules, U.S. officials learned from dealers that some bidders were seeking to continue using guaranteed bids. According to a Treasury document, a large client asked one primary dealer whether the Treasury might make an exception to the new rule for them. Neither the client nor the dealer were named.

Deutsche Bank, Goldman Sachs, JPMorgan, RBS Securities, and UBS all received calls from clients asking for secret bid arrangements immediately after the rule change went into effect, according to the internal Treasury document, a summary of inquiries received seeking guidance from dealers after the rule change.

Deutsche Bank, according to the document, said their client canceled a bidding deal. Goldman told Treasury that a large client would be going to other dealers who in the past had done the deals after Goldman turned them away, the document said.

JPMorgan asked if there were any exceptions to the new prohibition on guaranteed bids. RBS said it actually struck a deal with a customer for a guaranteed bid after the rule change, but it used a different structure and wanted to know what was legal. UBS told the New York Fed that its former guaranteed-bidder client would now change its behavior and buy Treasuries in the secondary market directly after an auction, according to the document.

Spokespeople for Goldman Sachs and UBS declined to comment for this story. Deutsche Bank, RBS, and JPMorgan did not respond to requests for comment.

The change came at a delicate time in U.S.-Chinese financial relations. China, long a major buyer of American government securities, was at the time snapping up huge amounts of debt as Washington was suffering a sharp drop in tax revenue during a crushing recession.

Almost all of the business of buying Treasuries on behalf of the Chinese government is conducted by China’s State Administration of Foreign Exchange (SAFE), an arm of the Chinese central bank that manages China’s currency reserves, which include large amounts of U.S. Treasury bonds.

SAFE, for its part, was facing heat in China over the extent of its U.S. holdings. SAFE was hit hard by the collapse of Lehman Brothers, the doomed investment bank that was SAFE’s trading counterparty in the U.S. overnight-lending market. And the potential losses SAFE faced upon the collapse of the U.S.-backed mortgage titans Fannie Mae and Freddie Mac whipped up such a storm in China that Chinese officials publicly berated the Americans for lapses in financial stewardship.

SAFE officials in Beijing did not respond to a request for comment.

After evidence mounted that China was disconcerted by the auction-rule change, U.S. officials moved to tweak the system, to offset some of the pinch of the stricter bidding rules. The move gave big buyers a way to maintain some anonymity, by increasing the amount of securities it was possible to buy at a single auction without having to declare the purchase in a letter to the New York Fed.

The old requirement stipulated that any purchase of $750 million in Treasury securities had to be declared by the buyer in a letter to the New York Fed. Officials increased the threshold to $2 billion.

… ‘Technical modernization’

The official explanation for eliminating guaranteed bidders did not mention foreign central banks at all. It focused instead on “technical modernization” of auction rules.

One government official warned others in a written message “not to include the words ‘China’ or ‘SAFE’ in email subjects.” The Securities Industry and Financial Markets Association, the main trade organization for Treasury dealers, asked the Treasury in early June 2009 to explain the change. The Treasury’s response: It had found that a detail in its auction rules no longer applied to the way auctions were conducted, and so the rule was changed, according to an internal Treasury memo.

Separately, the Treasury’s acting assistant secretary for financial markets, Karthik Ramanathan, told subordinates in an email: “Please let’s stick to the ‘Modernization of Auction Rules’ when outside requests come in on the (rule) change. Please DO NOT emphasize the guaranteed bid portion, or mention any specific investors.”

Ramanathan, who left the Treasury in March of 2010 and is now senior vice president and director of bonds at Fidelity Investments in Merrimack, New Hampshire, declined to comment.

The Federal Reserve Bank of New York, which interacts directly with primary dealers on Treasury auctions, issued a strongly worded letter on June 23, 2009, dealers say, urging them to “comply with the spirit as well as the letter of this recent auction rule clarification.”

“That was how we knew they wanted us to tell them who was buying what,” said a trader at one primary dealer.

* * *

Help keep GATA going

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Christopher Barker: Lifting gold’s veil of secrecy

June 30, 2011 by · Leave a Comment 

GATA

10:10p ET Wednesday, June 29, 2011

Dear Friend of GATA and Gold:

Writing at the Motley Fool, our friend Christopher Barker notes what may be the greatest proof of surreptitious intervention in the gold market: the secrecy surrounding central bank gold holdings and obscure transactions. Barker’s essay is headlined “Lifting Gold’s Veil of Secrecy” and you can find it at the Motley Fool here:

http://www.fool.com/investing/general/2011/06/29/lifting-golds-veil-of-s…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

http://www.gata.org

To contribute to GATA, please visit:

http://www.gata.org/node/16


Chris Martenson: The screaming fundamentals for owning gold and silver

June 30, 2011 by · Leave a Comment 

GATA

9:39p ET Wednesday, June 29, 2011

Dear Friend of GATA and Gold (and Silver):

Financial writer Chris Martenson tonight attempts the comprehensive case for investing in gold and silver. But he raises and leaves unanswered a crucial question. Martenson writes:

“Federal deficits are seemingly out of control and are now stuck in the $1.5 trillion range. Massive deficit spending has always been inflationary, and inflation is usually gold/silver friendly. Although not always, mind you, as the correlation is not strong, especially during mild inflation (less than 5%). Note, for example, that gold fell from its high in 1980 all the way to its low in 1998, an 18-year period with plenty of mild inflation along the way.”

So why didn’t gold keep up with that inflation in the 1980s and 1990s? Why are financial establishment types able to disparage gold even today for having failed to keep up with inflation?

The answer is the invention and mass distribution of paper gold, gold certificates and pledges never redeemed against gold that most likely doesn’t exist, imaginary gold supported against redemption by central bank sales and leasing of gold timed strategically to discourage the market — paper gold that has deceived the world into thinking that it has many times the gold actually available.

But for supply-and-demand commentary, Martenson’s essay is still pretty good. It’s headlined “The Screaming Fundamentals for Owning Gold and Silver” and you can find it at Martenson’s Internet site here:

http://www.chrismartenson.com/blog/screaming-fundamentals-owning-gold-an…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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Pan Asia Gold Exchange welcomed for reducing influence of concentrated shorts

June 30, 2011 by · Leave a Comment 

GATA

8:50p ET Wednesday, June 29, 2011

Dear Friend of GATA and Gold:

Cheviot Asset Management Investment Director Ned Naylor-Leyland, who will speak at GATA’s Gold Rush 2011 conference in London in August (http://www.gatagoldrush.com/), today has published at 24hGold a little welcoming essay for the new Pan Asia Gold Exchange in Kunming, China. Naylor-Leyland’s essay is accompanied by a video with comments from GATA heroes Adam Fleming, chairman of Wits Gold; Peter Hambro, chairman of Petropavlovsk PLC; and, apparently being seen in a public forum for the first time, London gold trader and CFTC whistleblower Andrew Maguire, who will make his first public address at Gold Rush 2011. Maguire says he expects the new Chinese exchange to reduce the impact of concentrated short positions in the gold and silver futures markets elsewhere.

Naylor-Leyland’s essay is headlined “Andrew Maguire Supporting Renminbi Contracts on the New Pan Asia Gold Exchange” and you can find it and the video at 24hGold here:

http://www.24hgold.com/english/news-gold-silver-andrew-maguire-supportin…

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Help keep GATA going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:

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To contribute to GATA, please visit:

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2010-P Grand Canyon 5 Ounce Silver Uncirculated Coin Available

June 30, 2011 by · Leave a Comment 

Collectors were able to start purchasing the 2010-P Grand Canyon National Park 5 Ounce Silver Uncirculated Coin today, June 29, 2011, when the United States Mint began offering them at Noon Eastern Time. The US Mint is selling the five ounce America the Beautiful Silver Uncirculated Coin honoring the site in Arizona for $279.95, with […]

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