"The only gold bubble likely to burst is the bubbling ridicule of gold." - Don Coxe, Coxe Capital Advisers, 5/26/11
In the decisive 1803 Marbury v. Madison opinion, U.S. Supreme Court Justice John Marshall codified words attributed to John Adams: "The government of the United States has been emphatically termed a government of laws, and not of men."
Last week, Brad Hints, an analyst at Sanford C. Bernstein & Co. commented on the likelihood of a forceful criminal prosecution of Goldman Sachs and its leaders for its mortgage market activities: "Goldman Sachs won't face criminal prosecution related to sales of mortgage linked securities because such a move could threaten the US financial system."
So there you have it -- the United States is no longer a country of laws. Powerful men and women receive prosecutorial exemption for their crimes. Under the pretense of national security or threats to the financial system the nation's most powerful and corrupt sociopaths are 'too big to jail.'
While there is indication that a prosecution of Goldman Sachs for its CMBS activities may eventually come to pass, the company has for decades engaged in so much criminal activity across so many of its business lines that the prospect of a single prosecution is uninspiring. In any event it is hard to imagine any substantive punitive result. If the typical script plays out, one or two token low to mid-level players will take a fall at Goldman, but don't expect any managing director's to be punished -- they are not subject to the same laws as the rest of us.
Andrew Ross Sorkin is an establishment mouthpiece masquarading as a journalist. This week he penned an incredibly sloppy and sycophantic defense of Goldman Sachs: NYTimes: The Fine Print of Goldman’s Subprime Bet.
It is a sad commentary that Rolling Stone Magazine provides superior financial reporting today than The New York Times: RollingStone: Matt Taibbi - The Times' Andrew Ross Sorkin Gives Goldman a Rubdown "The Sorkin piece reads like it was written by the bank's marketing department, which may not be an accident."
Making Orwell proud...
CNBC: Paltry New Job Growth of 54,000 Sends Rate to 9.1% Paltry? If only it were that good. CNBC doesn't inform us of the Bureau of Labor Statistics' Birth/Death modeling adjustment used in its calculation. This month's magic...206,000 theoretical workers were included as actual workers -- the largest such adjustment in over a year. Remove these theoretical jobs and the number would be a loss of 152,000 jobs:
"Over the last few years, the BLS has added roughly 1 million “phantom jobs” per year via its birth/death calculation. And then after each of those years it “revises” its calculation (using real data) and then subtracts all of those jobs. It is the BLS itself which has calculated that none of these “birth/death” jobs ever existed." Jeff Neilson: The Real Truth on U.S. Phantom-Jobs
Washington Post: President Obama’s phony accounting on the auto industry bailout "What we found is one of the most misleading collections of assertions we have seen in a short presidential speech"
Here's a view of the (entire post-war) labor market that doesn't receive the headline attention it should:
This chart, offered by David Rosenberg of Gluskin Sheff depicts an extremely worrisome reality. The gap between the share of income received by labor and capital owners is widening. In brief, the middle class is becoming rapidly poorer while the affluent are grabbing a larger share of the economic income pie at an accelerating rate. Wait until inflation begins to impact incomes, which disproportionately hits the poor and middle class. It is a recipe for social unrest.
If you remain comfortable holding U.S. dollar denominated assets after viewing this chart, you deserve what's coming to you:
Our kids are safe now: Congressman introduces bill to protect children from internet sex predators
The candor about deceit is, in a perverted sort of way -- kind of refreshing: Obama Nominee: "Cap and Trade good way to 'Hide' carbon taxes from the people"
Frustrated in not being permitted to sit at the big-boy table, Obama's Fed board nominee, Peter Diamond decided to publicly whine about it, thrice citing his Nobel prize as evidence he should no longer have to sit with the little kids, who eat with their hands and throw stuff. NYTimes Op-Ed: Peter Diamond - When a Nobel Prize Isn’t Enough. The insular and childish world these academics inhabit really is striking. Zerohedge's Tyler Darden nailed it quite well I thought by pointing out last week that the "utterly worthless...Nobel awards are merely a[n] honorary award in groupthink, presented to anyone who perpetuates the status quo."
And why do you think that might be?...Case-Shiller reports that Washington D.C. residents apparently did not receive the memo that there was a housing crash. In the single major metropolitan exception to the national housing bust, prices there continue to rise.
The college bubble..."Student loan debt nationwide now tops $913 billion and surpassed credit card debt for the first time last year, a study from college financial aid website FinAid has found. The situation is so tough that 85 percent of college graduates expect to live with their parents." SunSentinel: Florida students default on school loans
Salman Khan created Khan Academy in 2006 as a non-profit enterprise offering 'A free world-class education for anyone anywhere.' Take a look at this astonishing list of subjects and lectures -- all free -- which is constantly growing. Incredibly, Khan does them all himself (Makes you wonder about the "busy" tenured professor who doesn't have time to grade papers.) and I can tell you that he is brighter and more capable than the herd of misfits who taught at the major university I attended. Khanacademy
College has become a terrible rip-off which serves the interests of the administrative and teaching establishment at the expense of students:
Bloomberg: Mobius Says Financial Crisis ‘Around The Corner’ “Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes.”
BP Statistical Review of World Energy June 2011 China has surpassed the U.S as the world's largest consumer of energy.
Worth the read...
If the foregoing didn't concern you perhaps this will open your eyes: FRONTLINE: Are We Safer?
Say, how's that democracy thing working for ya? NYTimes: Egypt's Christian's fear violence with end of police state
This letter to the Editor appearing in the New York Times on May 27th typifies the ignorance surrounding gold. It comes in this case from a fellow named Carl Richards, whom a Google search indicates is a CFP (Certified Financial Planner). I've never taken a CFP exam nor do I plan to. I have held a Series 7 and a Registered Principal's license (generally what's needed to become a securities broker) and in those cases I can inform you that the threshold for passing the exams was semi-literacy and the possession of a pulse. Judging from my reading of Mr. Richards discourse, it doesn't appear the requirements for a CFP are quite as rigorous:
Gold has no real underlying value. I know there is a market for it. I know it is real, just like real estate in 2007.
It has no value except the one assigned by speculators. This is true for most commodities. They don't actually produce anything. They are raw material. No value. No dividend. No cash flow.
Investing in gold is dangerous right now. Whenever the price of something rises as much, and as quickly, as gold has, stop and consider the end game.
When institutional players decide that the run is over, there won't be time for you to run to your safe, pack up your gold, run to the local pawn shop and get rid of the stuff.
I have no idea where the price of gold is going, but for me it doesn't matter. The time to bet on gold was 2007. At this point if you are counting on the gold under your bed to finance your retirement things could get very ugly.
How rich. This is quite instructive, actually.
"Gold is not an investment. It's a speculation." Holding U.S. Treasury bonds at this time are in my opinion, wildly speculative so let's agree that one man's investment is another's speculation and vice-versa. Properly stated though, gold is neither. It s a store of value -- the purest known to man, the only real money (i.e. it is not dependent on the credit or promise of an issuer) and the highest quality and longest lasting currency in history.
An ounce of gold buys the exact same amount of oil today as it did in 1950 (it was priced at $2.77 per barrel then). That would strike many as a pretty solid, stable store of value and as real money. As for paper currencies? In 1950 the U.S. dollar bought 15 gallons of crude oil. Today it buys 7 cups.
"Gold has no real underlying value." I'd be curious to hear what Mr. Richards believes the 'real underlying value' of the U.S. dollar is since it would seem to share those same attributes he finds so lacking in gold -- "No dividend. No cash flow." People often revert to their native tongue when they count. They similarly perceive value through the prism of their native currency, or that which they are most accustomed, Mr. Richards has little understanding that what he perceives to be 'money' is in fact, the type of 'speculation' he so eschews.
"It has no value except the one assigned by speculators." Again with the "speculators." It's easy to vilify what one doesn't understand. According to Richards, all gold market participants are speculators -- there are no investors participating in the price discovery process. When the country's second-largest university endowment -- that of the University of Texas -- placed 5 % of its assets ($1 billion) in gold bars in April, it was, according to Richard's thinking, foolishly "gambling" on the price movement of something with no value except that assigned to it by other speculators.
"Investing in gold is dangerous right now." "dangerous," speculative," "volatile," "risky," This is precisely the type of ridicule and flourish that Don Coxe is referring to in the quote at the top of this post. Broad skepticism is healthy and necessary in any bull market. Beware when there is a dearth of it. A bull market isn't over until the last bear throws in the towel.
"I have no idea where the price of gold is going." That much seems clear.
Further on gold....
This is an excellent visual of the gold price suppression: Comex Gold Manipulation Pictorial
Will they?...won't they?...The Federal Reserve, as I have repeatedly emphasized, is now a spectator with regard to U.S. monetary policy. The public 'debate' as to whether it will continue with Quantitative Easing is pretense and noise. It will. It has no real choice. The credit machine must continue plowing new dollars. If the engine shuts down a deflationary death spiral commences.
Gold will continue to climb the 'wall of worry' to higher prices. Gold stocks will do so as well but at an accelerated rate. Ignore the current market noise to the contrary. Its all temporary.
I've previously discussed how for the investor, liquidity is a double-edged sword. Perhaps the single most difficult thing for an investor in a liquid market is to remain still. Jesse Livermore described it as "Be[ing] right and sit]ting] tight."
Offering a continual bid for a portion or all of an investor's position, a liquid market is a blessing when the appropriate time for departure arises. Until then it is a terrible distraction and temptation, and a breeding ground for self-doubt.
Once you've done your homework and identified a trend, the trick is -- unless facts have changed -- to ignore false signals indicating you've erred in your decision, the most glaring of which is a decline in the quoted bid prices of your assets. The publicly quoted trading that occurs is, if you are playing a long-term trend, a side-show. The inclination to interpret price changes and the second-guessing that goes with it when prices trade lower can be quite self-destructive. In this manner, liquidity becomes a siren song for the investor, tempting him to make use of it to trade in and out of his position and feel "productive," rather than resist the call and remain still.
It is what most people do and it is, among other reasons, why they fail.
Investing is essentially a matter of recognizing an asset's mis-pricing. The correct pricing however may not come about for an extended period and the pricing that occurs in the interim is irrelevant. The market is also not necessarily on your schedule. On precisely this subject, some pearls from Warren Buffett:
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
"Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years."
"For investors as a whole, returns decrease as motion increases."
Stewart Thomson offers some advice for those in gold and silver stocks. Get out of the fetal position! GracelandUpdates: Gold Stocks Gulag - View From The Inside
Sit still. QE(n) is coming -- either overtly or covertly, to be followed by more of the same. The world the Federal Reserve now confronts is reminiscent of the one described by Woody Allen through the character of Alvy Singer in the film, Annie Hall: "I feel that life is divided into the horrible and the miserable. That's the two categories."
The first of the Fed's two options entails continued expansion of the monetary base, dollar debasement, soaring consumer prices, lower living standards, higher gold and silver prices and growing populist anger.
The alternative is a derivative induced collapse of the United States stock market, the banking system and the worst depression in the country's history.
Place your bets accordingly.