goldmap

Perpetual Adolescence - 11/30/10

 

"Contrary to widespread belief, inflation is not too much money chasing too few goods, but rather too much money."   -- James Grant, 11/1/10, addressing the HSBC Asia Global Commodities Conference, Singapore

 

Dear All,

I refrain from gratuitously posting any of the videos of Americans trampling one another on 'Black Friday' for the sake of purchasing crap on sale.  You've undoubtedly seen these videos.  I do mention them though for two reasons:

1) Americans by and large have absolutely no sense of the world around them or the one that awaits them.  Their sole historical reference point is the world that has been their immediate past, which they believe is on a brief vacation and returning shortly. Hence, there has been relatively little change in their priorities or behavior, other than when dictated by the restrictions attendant to unemployment.

2) If they'll riot for electronic gadgets imagine what they'll do for food.

Somewhere during the post World War II era and despite platitudes to the contrary, the U.S. populace decided that consumption was a goal more worthy than self-education.  I use the term "self-education" because it is a quite different and far more valuable endeavor than formal education, which has grown immensely but with rapidly diminishing result. Despite increased educational spending and a growing number of Americans with college and advanced degrees, we live in very uneducated nation. Somewhere post mid-century the desire for self-education simply stopped, replaced by emotional cravings and intemperate consumption. 

We are witnesses here in this place to what happens to the collective intellect of a country whose powerful economy and currency are ruined by among other things, an incessant credit driven consumer culture.  The curiosity about history that begets an understanding of what their future holds is now missing from Boobus americanus'  (I've attributed this term to Doug Casey but in actuality it was H.L. Mencken who coined it)) DNA.  Ignorant of civics, Austrian economics or the larger world and lacking in curiosity, Americans are frozen in a state of intellectual non-development.  America is today a land of puerility -- one of perpetual adolescence inhabited by middle-aged philistines. Lacking any historical context of their plight and awareness of how women and men were impacted in the past by similar circumstances, they are doomed rats on a sinking ship willing to believe that the captain and crew have their interests at heart.  Meanwhile, they buy gadgets and watch reality television.

In a terrific piece entitled Lies Across America, James Quinn includes these photographs with his comments on the notion that Americans comprehend how their world has changed:

Austerity – Circa 1932

 

Austerity – Circa 2010

 

 

 

Everywhere there is criticism of QE2 -- the current phase of the Fed's monetization orgy, and the likelihood of its succeeding in stimulating the economy where QE1 failed.  For sure there here will be a QE3 once QE2 is deemed to have "failed", followed by endless subsequent Q installments.  Why would that be?  These are not stupid people, these Fed governors.  Why would they continue to create hoards of new currency in a failed effort to spur the economy and create jobs while succeeding only at ultimately lowering the purchasing power and living standards of retirees and those Americans who are employed? 

Could it be that stimulating the economy is not the true purpose of Quantitative Easing?  Writing in the November 15th issue of 'Crosscurrents' Alan Newman opines,  "There is now considerable reason for us to speculate that QE2’s primary objective was to ensure a safety net for both JPM [JPMorgan] and BAC [Bank of America]. A recent interview between reporter Aaron Task and economist John Galbraith has Galbraith perplexed,saying “"what [QE2] has to do with restoring economic growth is a complete mystery to me.” If that’s not enough, (see http://tinyurl.com/2cr9rfp) for Pragmatic Capitalism’s compelling point-of-view, “QE2 was never intended to boost Main Street. It is entirely focused on helping the banks.” QE2 is certainly not designed to create any jobs, a really pathetic development."

Virtually nowhere to be found in the financial press is an acknowledgement of the real purpose of Quantitative Easing.  QE is an ongoing banking system rescue which in a climate of bank bailout fatigue, the Fed and Treasury dare not identify as such .  This though is precisely what it is and the pundits by and large haven't a clue.

 

Lexapro Alert!:  President Obama has announced that the gravy train of huge salary and benefit increases for federal workers will temporarily be frozen.  He could have shut the barn door when he took office.  Instead, he contributed to this perversion in the midst of a financial crisis. USAToday: Federal workers earning + $150,000 has doubled under Obama.  In the past five years the number of federal workers earning over $150,000 has grown ten-fold. Federal workers earning over $180,000 have grown twenty-fold.  Federal compensation has increased 36.9% since 2000 compared with 8.8% for private workers.   

PAY RATES

Source: Zerohedge

 

And...Zerohedge: In Entitlement America, Head of Household of Four Making Minimum Wage, Makes More than a Family Making $60,000. per Year.  Wait, it gets worse.  Should the provider decide to cut back and work only 12 weeks per year at minimum wage, the family's net disposable income would still be 92 percent as much as a provider grossing $60,000 a year.

 

For now this is largely below the radar.  The PBGC paid out $5.6 billion in benefits to participants in 147 company pension plans that failed in the fiscal year ended Sept. 30th, 2010.  There's a bailout coming. For many who are approaching retirement it won't much matter whether their pension plans default or are bailed out.  The bailout funds they receive will be in debased dollars. Either way, the living standard they expect will not come to pass. WashingtonPost: Pension Benefit Guarantee Corp. reports wider loss

 

In August of 2008, approximately 29 million Americans, or 9.7% of the population received food stamps. As of August 2010 over 42 million Americans are participating in the food stamp program.  In the past two years 13 million Americans have been added to the program. 13.7% of Americans now receive food stamps and disturbingly, the number has grown in each of the past 24 months.

 

Here's an example of how legislation works.  The Senate today passed bill S.510.  Under the pretense of making our overall food supply safer, the bill intends to centralize agriculture under federal control, eliminate small farms and ranches and potentially regulate farmer's markets. It is a federal power grab that will have no positive effect on food safety yet expand the FDA's ineptitude while creating increased overlap between it, the Dept. of Agriculture and numerous other federal agencies.  In order to facilitate passage the bill needed a palatable title and so in this case we have the "Food Safety Modernization Act"   Euphemisms provide cover for legislators to accept money for their votes and few are ever the wiser.  GovTrackInsider: S.510 Oversight or Overreach?

This list of the payments to Senators for their votes on S.510 tells the story of how the votes were purchased. Senate S.510 $$ contribution list 

 

Don't expect to read this in the mainstream press: Nobel Laureate Jumps off Global Warming ‘Titanic’

 

The trend:

Bloomberg: China Considers Gradual Increase in Gold Reserve Holdings

ChinaDaily: China, Russia quit dollar

Telegraph: Putin - World should move away from "dollar reserve currency monopoly"

 

Regarding gold...

The perfect storm I have alluded to continues to build.  Europe is in turmoil and the sovereign crisis will not remain confined to the so called PIIGS countries.  Spain's economy is three times the size of those of Iceland, Greece and Ireland's combined and Italy's economy is four times their combined size. Spreads are already widening on Italian bonds. There is military tension on the Korean peninsula with very little geopolitical risk priced into gold.  The entire financial system is a disaster and central banks are impotent. Quantitative easing is a permanent way of life now and there is no exit strategy.  Slowly the investment world is coming to understand this. 

Gold is not a day-to-day game.  That losing battle belongs to hedge funds -- collectively Wall Street's dumb money.  Much of the gold volatility is hedge fund induced momentum.  The sharp price action you see is simply a picture of their desperation in chasing the investment thesis du jour.  For the entire silver and gold bull market they have had their clocks cleaned, moving in and out with the wind and missing the wonderful returns that stillness and patience can bring.  I have yet to meet a hedge fund investor who has done as well for the past decade as she would have by simply holding silver and gold, not to mention a basket of good precious metals companies.

Gold closed at all-time highs today against the Euro, Pound and Yen and made a record monthly close against the dollar.  Silver closed at a record high against most currencies.  Expect increased volitility on the way to sharply higher prices.  If you're fully invested keep your finger off the sell trigger. 

All the best,

Jeff

Bubble in extremis - 11/14/10

 

"The golden elephant in the room, whether people recognize it or not, is being used as an alternative monetary asset,"-- Robert Zoellick, president of the World Bank 11/10/10

 

Dear All,

Another day, another G20 Meeting. The most substantive deliberation comes as one by one each finance minister must ponder the question: "Will you be having the chicken or the fish?" 

The unprecedented acrimony and dysfunction in Korea reflects the increasing competitive currency tensions in which the U.S. is seen as provocateur. It is every country for itself and these meetings are now a forum to beat up on the U.S.  Who can blame them?   

"It’s inconsistent for the Americans to accuse the Chinese of manipulating exchange rates and then to artificially depress the dollar exchange rate by printing money."  -- German finance minister, Wolfgang Schäuble in an interview with Der Spiegel

A more meaningful development was the ascertation in a Financial Times Op-Ed last week by Robert Zoellick, president of the World Bank that the Bretton Woods II system of floating currencies has failed.  Mr. Zoellick went on to call for a re-introduction of gold into the monetary system. His comments are  notable because they come from an establishment  source and were undoubtedly unwelcome by central bankers.

What Mr. Zoellick calls for is inevitable -- however not quite yet.  Before gold re-emerges as a standard of discipline to the failed Keynesian fiat monetary experiment things must get even worse, which they will.  Not content with having inflated every market balloon to its breaking point the Fed's mad scientists have unveiled their pièce de résistance -- a grotesque monetary misadventure to debase the nation's medium of exchange.   For what is Quantitative Easing if not gold's reciprocal?  The hyper-printing will cross borders and go viral but only when it runs its course fully, from the carnage of devastating inflation will a new monetary system emerge, centered by gold. 

How maddening to have to listen to the gold bubble callers. Through the lens of pure fiat, which they think of as "money"  do they ascert that gold is frothy.  Au contraire.  Currency is not money.  Rather, it is non-redeemable, non-interest bearing unsecured credit which can be perpetually created by its issuer in limitless quantities using a keystroke -- at a cost of a mere percentage or two of its face value.  In contrast with a conventional promissory note, there is neither a maturity date nor an obligation to repay.  It's value is therefore solely derived from its utility in trading for goods, services and other financial instruments.  Because of the particular  'issuer's right'  to increase the supply of these note "obligations" at will, their holders never have certainty as to their tradeable value (Much of what we think of as re-pricing of goods is in fact re-pricing of currency).  Even when ostensibly redeemable in gold, a currency is subject to the risk of its issuer reneging on such obligation. The United States so defaulted in 1971.

The chemical element Au in contrast takes years of planning, significant capital, labor and expertise to profitably extract from the earth, the aggregate of which extraction (since 3000 BC) would fit into two olympic size swimming pools.  Gold, the only universally recognized medium of exchange that is simultaneously a liability to no party, has been throughout history the great monetary constant.  Currencies come and go.  Not one has lasted more than a few hundred years.  Gold is in fact, the refuge from bubbles and we are in the midst of the mother of all bubbles -- bubble in extremis -- a global currency or cash bubble. 

In the face of growing criticism and Knowing full well that it may stimulate nothing nor create a single job, the Fed will continue QE full throttle -- monetizing everything in sight.  It must paper over securitized mortgage fraud, OTC derivative fraud, FASB/false balance sheet fraud, and the fraud smorgasbord that our financial system has become.

 

As big as the securitized mortgage fraud may appear to be, it is larger still. Here's a video deposition of a robo-signer who executed over 5,000 documents per day: realcontv: robosigner deposition 

 

I'm fully with Bill Fleckenstein here although I take exception to his conclusion that the coming inflation won't necessarily be of the "hyper" variety.  If you can tolerate the inane Betty Liu the rather flabbergasting part of the interview comes at approximately 10:00 when Wall Street big-shot/elder-statesman Barton Biggs expresses a complete indifference to the consequences of the Fed's ruinous actions.  To him the financial burdens that the middle-class and retirees will be forced to bear are perfectly fine as long as the stock market gets a goose.  Self-centered and callous, Biggs makes a perfect Wall Street poster boy.

 "...We probably are going to have a bigger bubble because of what Bernanke has done...How it's all going to play out in the long run, I don't know and maybe Bill's right, maybe it's going to lead to a hyper-inflation bust at some point, but that could be a couple of years from now and that's not the way our investors look at us. They're valuing us on how we do in the next couple of months and the next couple of quarters."   Betty, Bill and Barton on Bloomberg

 

From my last post:  "Don't be fooled by the spin that the amount of necessary QE is a mere function of required stimulus.  It is largely a function of what will be required still to bail out the derivative burdened banks, pension funds, states, cities, ubiquitous false balance sheets and to lower the real value of debt in the system."   Jim Rickards makes the same point in this interview.  It seems that almost everyone has bought the bunk that the purpose of QE is to stimulate the economy.  Eric King interview: Jim Rickards 

 

Jeremy Grantham is a student of bubbles.  One would have hoped that upon hearing the following statement from a rather formidable figure: "The Fed has spent most of the last 15 or 20 years manipulating the stock market,"  the interviewer, Maria Bartiromo might have followed up.  That is what a journalist would have done. But then Maria is not a journalist -- she's a cheerleader. cnbc: Jeremy Grantham interview

 

The trend:

Reuters: ICE says will takes gold as collateral

 

CanadianBusiness: China warns printing of dollars could spark crisis

 

BangkokPost: Thai Prime Minister calls on Asia to use yuan in trade 

 

TIME: Teacher Pensions: $500 Billion Shortfall and Growing 

 

Gold price trend as measured in 8 major currencies 

 

Regarding the current "benign inflation" -- I wonder how many economists actually buy their Thanksgiving turkeys?  At $1.09 per pound turkeys this year will cost 28% more than they did last Thanksgiving.  I doubt it would matter to them anyway. Economists defer to the Bureau of Labor Statistics in matters concerning the real world.

 

 

Taleb is spot on:    "They want to change the world to fit their model instead of change their model to fit the world." Bloomberg: Taleb - "Fed Policymakers Do Not Understand Risk'

  

  

Very well done:  Video: Quantitative Easing Explained

 

 

 

Regarding gold...

 

Silver has been on a tear since CFTC Commissioner Bart Chilton's pronouncement that the silver market is rigged.  The dramatic volatility in both silver and gold is a very healthy sign -- both metals want to go much higher. 

 

As you see, the smaller cap silver and gold stocks are like firecrackers when they go.  This is one of the several reasons you must sit tight in a secular bull market.  The money is made from remaining in and being patient.  The risk of being out at the right time far exceeds the risk of being in at the wrong.  Fortunes have been made in this bull market thus far if you have been disciplined in this way.  The "fractional reserve" paper silver and gold markets are being confronted by the strong physical markets which are forcing the fraudulent paper prices higher. 

 

Expect wild price movements and big swings.  This is the perfect storm.  Enjoy it.

 

My best,

 

Jeff

Downtown - 11/2/10

"[I]n the aftermath of the Savings and Loan (Thrifts) scandal there were more than a thousand felony convictions of financial elites...The current sub-prime/mortgage-backed security scandal is 40 times bigger...Can you guess how many indictments there have been on financial elites who created this enormous mess?  Zero, none, nada, zip...Where is U.S. Attorney General Eric Holder in all of this?  I guess he’s busy planning a lawsuit to stop California from making pot smoking a misdemeanor."  -- Gregg Hunter, 10/25/10

 

Dear All,

Phyllis Caldwell, chief of the U.S. Treasury's Home-ownership Preservation Office, testified as follows before the TARP Congressional Oversight Panel on Wednesday on the residential mortgage securitization crisis:  "We're looking at the situation very, very closely...At this point in time, there is no evidence that there is a systemic risk to the financial system."

Translation:  "It's systemic."

Securitized mortgage fraud is a story that is going to get worse.  Whether anybody will be criminally charged is another story.   Gregg Hunter: The Perfect No-Prosecution Crime 

William Black is a law professor, former bank regulator during the S&L debacle and an expert on bank fraud.  He knows exactly what he's talking about.  The magnitude of fraud truly is as massive as he states and worse -- our highest government officials are deceiving us. MSNBC: Black - 'Fed and Bernanke leading a coverrup of toxic asset fraud.'  

You may also want to read Professor Black's commentary which appeared in the Huffington Post:  No Mr. President, Larry Simmers Did Not Resolve the Financial Crisis for a Pittance, He Just Papered Over the Problem

One would expect that with the most recent revelations of rampant Wall Street fraud in the packaging and marketing of securitized mortgage products, investors would be taking note and exiting other fraudulent products such as the silver and gold ETF's (most notably SLV and GLD).  It isn't happening.  The marketing pitch of ease and convenience in precious metals investing is precisely the pitch used to market securitized mortgages.  Investors don't learn until it is too late.

 

The U.S. failed at moving anything on its G-20 agenda forward because the U.S is no longer calling the shots. Two thirds of the world's currency reserves are in Asia today.  It's their sandbox now.

 

Vowing to make his government a more open one, President Obama said the following on January 21, 2009, his first full day in office:  "The government should not keep information confidential merely because public officials might be embarrassed by disclosure, because errors and failures might be revealed, or because of speculative or abstract fears."   Here's how that's been working out:  Bloomberg: U.S. Treasury shields Fed's $300B secret bailout

This is the same Treasury Dept. that told you American taxpayers would eventually make a profit on the bailouts, when in fact most of the capital is lost:   NYTimes: U.S. Treasury concealed $40 billion in A.I.G. taxpayer losses

 

If you're inclined to believe the SEC's refusal to act on the information that Harry Markopolos provided about Bernard Madoff's fraud was an anomaly, you are terribly naive. As but one example, an ongoing crime in progress continues to be sanctioned by another bought-and-paid for regulatory body.  For years the Commodities and Futures Trading Commission (CFTC) has been "investigating" allegations of illegal suppression of the silver price by major bullion banks -- most notably J.P. Morgan Chase and HSBC.  In the face of voluminous evidence, including that provided by a whistleblower, former Goldman Sachs trader Andrew McGuire  -- the CFTC has refused to act.  The targets of the investigation in this case happen to be two powerful banks to which the commission (headed by a Goldman Sachs alumnus) is beholden.  Last week, a CFTC Commissioner, Bart Chilton decided he'd had enough and spoke out:  WSJ: CFTC Commissioner asserts "fraud" and "devious control" of silver prices.  Within 24 hours of Chilton's statement two class action lawsuits were filed: Forbes: Lawsuits Allege Banks Manipulated Silver Futures Trading by Amassing 'Enormous Short Positions

In addition to the many reasons the price of precious metals will be revalued higher, the winding down of the illegal suppression of the silver and gold price adds particular explosiveness. 

 

I was pleased to have attended the CMRE (Committee for Monetary Research and Education) dinner on October 21st in New York.  The standout was this speech delivered by Ed Vierra.  Dr. Vierra is a rare bird -- a fellow who notwithstanding his four Harvard degrees is a coherent, first-rate thinker.  Do try to find the time to read his treatise on the replacement of the Federal Reserve System (which in his opinion is too far gone to be repaired or rehabilitated). Edwin Vieira: "A Cross of Gold"

 

The trend:

Reuters: China Chamber of International Commerce -- China should significantly boost its gold reserves

Reuters: China commerce minister -- Dollar printing "out of control"

Bloomberg: Iran Switched 15 Percent of Foreign Exchange Reserves Into Gold

 

Why it took so long to boot this guy is the question: National Post: Global warming propagandist slapped down

 

Foreign aid has been described as the process by which the working people of rich countries transfer their money to the rich people of poor countries.  Billions in Afghanistan aid dollars unaccounted for: audit

 

The New York Times reports that the U.S. bound explosives packages originating from Yemen and seized in Britain and Dubai last week contained PETN.  As discussed here in this January post; goldmap: Anatomy of a Seizure, a terrorist can walk PETN through virtually any existing U.S. airport passenger TSA security checkpoint undetected.  Only a  "Puffer" device -- Explosive Trace Portal (ETP) will detect PETN without a chemical test and there are relatively few in operation. Obviously, terrorists can eliminate subjecting themselves to operating ETP's by avoiding the few airports that employ them.  Remember this as you're re-assuring yourself that the theatrical airport "security" charade in which you're participating is somehow reducing the likelihood of your aircraft exploding mid-air.  While you are shoeless and being manhandled by hygiene-challenged TSA employees, well-groomed terrorists may be walking (albeit shoeless) PETN through the checkpoint in their pant pocket. Washington Examiner: Time to abolish TSA as we know it.

 

Note to Bill Maher (who believes that all the TARP money has been repaid): 

"A government watchdog said this week that public statements by Treasury officials around the Oct. 3 deadline appeared designed to create a mistaken sense that TARP is over. The idea that TARP is dead is just not accurate," said Neil Barofsky, the special inspector general overseeing the program, in an interview. "People can write its obituary, people can declare that it's been put out of its misery, but there's still close to $180 billion of TARP money outstanding, and $82 billion obligated to be spent."  -- APNews 10//29/10 

 

Tomorrow the Fed will make a needless yet much anticipated statement as to the degree to which it will fleece dollar holders.  The inane guessing game in which market participants position themselves for this or that level of  Quantitative Easing will thankfully, until the Fed's next announcement at least, come to a close.  The Fed is not even is a position to decide the amount of currency to print, nor would it tell the truth anyway.  Don't be fooled by the spin that the amount of necessary QE is a mere function of required stimulus.  It is largely a function of what will be required still to bail out the derivative burdened banks, pension funds, states, cities, ubiquitous false balance sheets and to lower the real value of debt in the system. 

The central bank of the United States has lost control of the financial system over which it feigns omniscience.  It is all-in with dollar printing and the Fed is effectively, if not functionally  -- as much a spectator as you are.  The deluge of new currency that is coming assures massively higher gold and silver prices.

In the Fed's eyes, the system is too big to fail and the Fed, let's be clear, is the system.  The Federal Reserve is not about to put itself out of business (blessed thought though that may be) and its business for the foreseeable future is wholesale currency distribution.  The Bureau of Engraving and Printing will have a record year in 2011. It is the Fed's only supplier and the Fed is for all intents and purposes, its only customer. 

Fellow blogger Jim Quinn of the 'Burning Platform'...."Inflation is the “painless” method through which the Federal Reserve has decided this country will commit suicide. It is like turning on the car in the garage and letting the carbon monoxide slowly put you to sleep. The ruling elite are content that the American public is dumbed down by the government run public schools. They count on the fact that 9 out of 10 Americans do not understand inflation. It is an insidious scheme of robbing the working middle class and funneling it to the Wall Street/K Street ruling class."

In order to perpetuate its existence for the time being, the nominal dollar cost of the Fed's near century of profligacy and now derivative laden system must be hyper-reduced in real  terms.  The dollar just simply cannot have it any other way against gold.  The dollar, ladies and gentlemen, is going downtown.   

Last chance to get on the uptown gold/silver train.

My best,

Jeff