How to Shift to OPMF (Overt Permanent Money Financing)
Estblish a Goal that CANNOT BE Achieved But where Central Bank Monetization is Accepted as the ONLY alternative available to acheive it.
ECB - Securitizing SME Loans as ABS and taking on ECB Books
Draghi and his cohorts will begin securitizing SME loans and taking the ABS directly on to the ECB's balance sheet. This theoretical injection of credit into the system gets close to the fine line Germany won't cross of outright monetization (if you really squint). (Perhaps, the ECB should consider 'demand' as opposed to supply and just who benefits...)
CARROT: SME Loans are Unlimited
BOJ - 2% Inflation Target in 2 Years
FED - 7% Unemployment Rate
BOE - Carney's new "Inflation & Growth" Targeting Policy
REAL GOAL - Financial Repression
Elevate Bond Prices (Higher Collateral Values)
Reduce Interest Rtaes & Payments (Lower Government Payments)
Debase Currency (Competitive Advantage)
Reduce Real Debt Value (Sovereign Debt)
CURRENCY CARTEL - A Certel is Defined as 'The Coordianted Effort to Manipulate Prices"
5- Sovereign Debt Crisis
AUSTERITY - Over in Europe Before it Was Every Implemented
French Finance Minister Pierre Moscovici declared the era of austerity over after his German counterpart offered flexibility on deficit cutting amid renewed bickering between Europe’s two biggest economies.
“We’re witnessing the end of the dogma of austerity” as the only tool to fight the euro debt crisis, Moscovici said yesterday on Europe 1 radio. “We’ve been pleading for a growth policy for a year. Austerity on its own impedes growth.”
Coalition lawmakers in Germany are pushing back against the two-year extension for France to meet European Union deficit rules floated by Olli Rehn, the EU economic and monetary affairs commissioner.
“We made it clear to our government, the chancellor and finance minister that in the case of France a one-year delay to 2014 to fulfill the euro’s deficit rules is the absolute limit for us,” Norbert Barthle, budget-policy spokesman for Schaeuble’s Christian Democratic Union, said in a May 3 telephone interview from his constituency in southwestern Germany. “France must show that it’s willing to tackle structural reforms.”
There are a dozen significant economic indicators that are warning that the U.S. economy is heading into a recession. The Dow may have soared past the 15,000 mark, but the economic fundamentals are telling an entirely different story. If historical patterns hold up, the economy is heading for a very rocky stretch.
For example, the price of copper is called "Dr. Copper" by many economists because it so accurately forecasts the future direction of the U.S. economy. And so far this year the price of copper is way down. But that is not the only indicator that is worrying economists. Home renovation spending has fallen dramatically, retail spending is crashing in a way not seen since the last recession, manufacturing activity and consumer confidence are both declining, and troubling economic data continues to come pouring out of Asia and Europe.
So why do U.S. stocks continue to skyrocket? Will U.S. financial markets be able to continue to be divorced from reality? Unfortunately, as we have seen so many times in the past, when stocks do catch up with reality they tend to do so very rapidly. So you better put on your seatbelts because a crash is coming at some point.
But most average Americans are not that concerned with the performance of the stock market. They just want to be able to go to work, pay the bills and provide for their families. During the last recession, millions of Americans lost their jobs and millions of Americans lost their homes. If we have another major recession, that will happen again. Sadly, it appears that another major recession is quickly approaching.
The following are 12 recession indicators that are flashing red...
#1 The price of copper has traditionally been one of the very best indicators of the future performance of the U.S. economy. The fact that it is down nearly 20 percent so far this year has many analysts extremely concerned...
Copper's downward trend foreshadows a stock market collapse, according to Societe Generale's famously bearish strategist Albert Edwards, who said equity markets will riot "Japan-style."
"Copper is acting exactly as it did when I wrote about the impotence of liquidity in the face of the (then imminent) 2007 recession. Once again it is giving us an early warning that liquidity will not save risk assets: time to get out of equities," Edwards wrote in his latest research note, on Thursday.
#3 As Zero Hedge recently pointed out, U.S. retail spending is repeating a pattern that we have not seen since the last recession...
Retail sales of clothing is growing at the slowest pace since 2010; but while major store sales are about to drop negative YoY for the first time in over 3 years, the utter collapse in general merchandise sales is worse that at the peak of the last recession at -5%. It seems tough to see how a nation with an economy built on 70% consumption is not in a recessionary environment. And while this alone is a dismal signal for the discretionary upside of the US economy/consumer; as Gluskin Sheff's David Rosenberg points out real personal income net of transfer receipts plunged at a stunning 5.8% annual rate in Q1. The other seven times we have seen such a collapse, the economy was either in recession of just coming out of one.
#4 Manufacturing activity all over the country is showing signs of slowing down. In fact, Chicago PMI has dipped below 50 (indicating contraction) for the first time since the last recession.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined to 72.3 in April from 78.6 a month earlier. This month’s reading was lower than all 69 estimates in a Bloomberg survey that called for no change from the March number.
#6 NYSE margin debt peaked right before the recession that began in 2002, it peaked right before the financial crisis of 2008, and it is peaking again.
#7 The S&P 500 usually mirrors the performance of Chinese stocks very closely. That is why it is so alarming that Chinese stocks peaked months ago. Will the S&P 500 soon follow?
#8 The economic data coming out of the Chinese economy lately has been mostly terrible...
For starters, China’s recent economic data, as massaged as it is to the upside, is downright awful. China’s PMI numbers were the worst in two years. Staffing levels in the Chinese service sector decreased for the first time since January 2009 (remember that year).
China’s LEI also shows no sign of recovery. If anything, it indicates China is heading towards an economic slowdown on par with that of 2008. And if you account for the rampant debt fueling China’s economy you could easily argue that China is posting 0% GDP growth today.
#9 Things just continue to get even worse over in Europe. Unemployment in both Greece and Spain is now about 27 percent, and the unemployment rate in the eurozone as a whole has just set a brand new all-time record high.
#10 Crude inventories have soared to a record high as demand for energy continues to decline. As I have written about previously, this is a clear sign that economic activity is slowing down.
#11 Casino spending is usually a strong indicator of the overall health of the U.S. economy. That is why it is so noteworthy that casino spending is now back to levels that we have not seen since the last recession.
#12 The impact of the sequester cuts is starting to kick in. According to the Congressional Budget Office, the sequester cuts will cost the U.S. economy about 750,000 jobs this year.
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
For a while there, it seemed that even the densest of career economists who try to pass for stock pundits on financial comedy TV, were starting to get that without the Fed's (and the ECB's, and the BOE's, and the BOJ's) QE, the market would be much, much lower (whether 500 points lower as Gundlach suggested or much more, remains unclear). After all: by now it should have been clear to most that QE is doing nothing for the economy, and everything for the stock and bond market (here we certainly agree: there is a bond bubble, which by implication there is an even more massive stock bubble too - anyone who says the two are unlinked can be immediately put on mute).
And is also why in January, we showed this update of the calendar days with and without QE:
And yet, judging by the roster of TV guests appearing on assorted cable stations, the confusion is back again.
So just to set the record straight, and make it so easy even Jeremy Siegel gets it, below is a chart showing the absolute performance of the S&P, starting with March 18, 2009 when full-blown QE1 was announced, and adding up all the S&P points "gained" under some QE regime: QE1 (2009-2010), QE2 (2010-2011), Operation Twist, QE3 and QE4 (2011 until today) on one hand, while subtracting all the S&P points "lost" when there was no QE or no advance notification of QE from the Fed, such as the period from the end of QE1 (March 31, 2010) until the QE2 announcement at Jackson Hole in August 2010, and from the end of QE2 on June 30, 2011 until the start of Operation Twist on September 21, 2011.
The chart below is sufficiently self-explanatory that not even career economists will need assistance to grasp it.
One final point: for all those who say the Fed's QE has "been successful", or the stock market is sufficiently strong and does not need any more forced liquidity injections, here is a simple suggestion: just end it.
CENTRAL BANKS - $10 Trillion In and $10 Trillion to Go
By now everyone, even CNBC, admits that the only reason stocks are where they are is due to the G-7 central banks. What many may not know, however, is how we got here, and where we will be at the end of this year. The answer, as provided by JPM Asset Management CIO Michael Cembalest in the chart below, is at the dot in the top right. This will represent the addition of $10 trillion in liquidity, or alternatively the conversion of the "planetary nebula" of central bank balance sheet expansion, in the past seven years. And considering that, as we explained yesterday, there is another $10-11 trillion in scarce "quality collateral" that has to be injected into the financial markets via central banks collateral transformations, the number in yet another 7 years will be at $20 trillion if not exponentially higher, or higher than where US GDP will be.
The planetary nebula of central bank balance sheet expansion (last chart), which we expect to hit $10 trillion later this year, isstill the most important factor underpinning an uneven global recovery. It makes sense to have some patience right now. Global equities are up 8%-9% year to date, which is a pretty good return for a time when the profits expansion is slowing, global growth is closer to 3% than 5%, Chinese growth continues to cool down despite rapid increases in the use of credit, and when it is practically impossible to disentangle how much central banks are affecting asset prices. I read a research report that showed that returns on consumer staples stocks are now correlated 75% with the returns on Treasury bonds, by far the highest level since 1929. Usually, the correlation is close to zero.... Note to Fed: uh, congratulations?
Luckily, nothing bad happened in 1929.
The difference this time, as is now very obvious, is that in the event the central banks fail at preserving the perpetual growth of what may truly be the final bubble (yes, a preposterous assumption), the central banks are already all in, unlike all previous credit, risk-asset, and housing bubbles. So who becomes the "bad bank" to the central banks when confidence in the "lender of last resort" finally gives way? Full note here
TECHNICALS & MARKET ANALYTICS
MANUFACTURED MARKET - Flow Driven Versus Real Economy
The 'most hated' rally as mainstream media types prefer to call this manufactured 'market' is flashing red warning symbols under the surface wherever one looks (from complacency to earnings and macro) but, for now, none of that matters. All too often valuations for nominal equity prices are justified by data that is just as supported by fiat largesse as the flow-driven headline-making indices themselves. However, as Diapason Commodities' Sean Corrigan points out in this simple-to-understand chart, valuations for stocks are at extremes relative to the 'real' (even nominally inflated) economy. One glance at the chart of equity price relative to core capital goods orders and the message is clear - this is not an attractive time to be 'buying'; instead a time to be 'selling high' from all your gains. But that is not a narrative that plays well with asset-gathering commission-takers (who are just as dependent on the Fed since 'the AUM must flow' to keep them in the way they are accustomed - paging Larry Fink).
The ratio of the S&P 500 to Core Capital Goods Orders (ExAir) has only been this high 4 times in the last 20 years. Each time it has marked a turning point in the cycle. On the other hand, the 'low' end of this ratio has been an excellent time to be entering stocks for a nominal surge.
EQUITY PRICES Relative to CORE CPAITAL GOODS ORDERS
Unless we are greeted with an enormous jump in capital goods orders - something that is self-evidently not occurring judging by PMIs, ISMs, and practically every data point (except NFP) - then equity valuations are 'stretched'.
We surveyed banks, we combed the academic literature, we asked economists at central banks. It turns out that most of their models predict that we will enjoy historically high excess returns for the S&P 500 for the next five years.
But how do they reach this conclusion?
Why is it that the equity premium is so high? And more importantly:
Can we trust their models?
EQUITY RISK PREMIUM: is the expected future return of stocks minus the risk-free rate over some investment horizon.
Because we don’t directly observe market expectations of future returns, we need a way to figure them out indirectly. That’s where the models come in. In this post, we analyze
Twenty-nine of the most popular and widely used models to compute the equity risk premium over the last fifty years. They include
cross-sectional regressions, and time-series regressions, which together use more than thirty different variables as predictors, ranging from price-dividend ratios to inflation.
Our calculations rely on real-time information to avoid any look-ahead bias. So, to compute the equity risk premium in, say, January 1970, we only use data that was available in December 1969.
Let’s now take a look at the facts. The chart below shows the weighted average of the twenty-nine models for the one-month-ahead equity risk premium, with the weights selected so that this single measure explains as much of the variability across models as possible (for the geeks: it is the first principal component). The value of 5.4 percent for December 2012 is about as high as it’s ever been. The previous two peaks correspond to November 1974 and January 2009. Those were dicey times. By the end of 1974, we had just experienced the collapse of the Bretton Woods system and had a terrible case of stagflation. January 2009 is fresher in our memory. Following the collapse of Lehman Brothers and the upheaval in financial markets, the economy had just shed almost 600,000 jobs in one month and was in its deepest recession since the 1930s. It is difficult to argue that we’re living in rosy times, but we are surely in better shape now than then.
The next chart shows a comparison between those two episodes and today. For 1974 and 2009, the green and red lines show that the equity risk premium was high at the one-month horizon, but was decreasing at longer and longer horizons. Market expectations were that at a four-year horizon the equity risk premium would return to its usual level (the black line displays the average levels over the last fifty years). In contrast, the blue line shows that the equity risk premium today is high irrespective of investment horizon.
Why is the equity premium so high right now? And why is it high at all horizons? There are two possible reasons:
low discount rates (that is, low Treasury yields) and/or
high current or future expected dividends.
We can figure out which factor is more important by comparing the twenty-nine models with one another. This strategy works because some models emphasize changes in dividends, while others emphasize changes in risk-free rates. We find that
the equity risk premium is high mainly due to exceptionally low Treasury yields at all foreseeable horizons.
In contrast, the current level of dividends is roughly at its historical average and
future dividends are expected to grow only modestly above average in the coming years.
IMPACT LOW TREASURY YEILD HAVE ON EQUITY PREMIUM
In the next chart we show, in an admittedly crude way, the impact that low Treasury yields have on the equity risk premium. The blue and black lines reproduce the lines from the previous chart: the blue is today’s equity risk premium at different horizons and the black is the average over the last fifty years. The new purple line is a counterfactual: it shows what the equity premium would be today if nominal Treasury yields were at their average historical levels instead of their current low levels. The figure makes clear that exceptionally low yields are more than enough to justify a risk premium that is highly elevated by historical standards.
But none of this analysis matters if excess returns are unpredictable because the equity risk premium is all about expected returns. So…are returns predictable? The jury is still out on this one, and the debate among academics and practitioners is alive and well. The simplest predictive method is to assume that future returns will be equal to the average of all past returns. It turns out that it is remarkably tricky to improve upon this simple method. However, with so many models at hand, we couldn’t help but ask if any of them can, in fact, do better.
The table below gives the extra returns that investors could have earned by using the models instead of the historical mean to predict future returns. For investment horizons of one month, one year, and five years, we pick the best model in each of the four classes we consider together with the weighted average of all twenty-nine models. We compute these numbers by assuming that investors can allocate their wealth in stocks or bonds, and that they are not too risk-averse (for the geeks again, we solved a Merton portfolio problem in real time assuming that the coefficient of relative risk aversion is equal to one). The table shows positive extra returns for most of the models, especially at long horizons.
At face value, this result means that the models are actually helpful in forecasting returns. However, we should keep in mind some of the limitations of our analysis.
First, we have not shown confidence intervals or error bars. In practice, those are quite large, so even if we could have earned extra returns by using the models, it may have been solely due to luck.
Second, we have selected models that have performed well in the past, so there is some selection bias. And of course, past performance is no guarantee of future performance.
This extraordinary stock market is driven by characteristics that defy conventional valuation techniques. I receive emails from people who tell me that the market is overextended, overvalued, and trading way above its 50- or 200-day moving average. If you look at the metrics, the market is all of those things. I receive other emails that talk about the valuation of the market. Is it reasonably “fair?” If you look at earnings expectations and the price of stocks this year and compare them to a metric, you would say the market is reasonably priced.
MARKET REASONABLY PRICED: The math goes something like this.
The S&P 500 Index will earn an estimated $105-$110 for 2013.
That puts it at a multiple of about 15 times earnings.
Those earnings are being reported by companies that have minimal distortions due to inflation or accounting mechanisms. Thus the earnings are of a higher quality in terms of reporting than they have been in the past.
They do not reflect the bubble of the 2006 and 2007 financials. And they are more representative of the diversity of American companies.
Our metric would say the market is reasonably priced. Not a great market, but certainly not excessive.
STOCKS-INTEREST RATE RELATIONSHIP: The next metric ties the relationship between stocks and interest rates. We use a number of vehicles to make this comparison. I like the calculation of the equity risk premium that says how much you get paid for owning stocks versus riskless debt instruments.
If you compute an equity risk premium against an interest rate next to zero, the valuation of stocks could be infinite. Anything compared to near-zero has a huge bulge in its multiplier.
If you compare stock valuations against the 10-year riskless Treasury note, the equity risk premium is still very high by any historical measure. Why? Because the Treasury interest rate is so low.
If you try to compare the equity risk premium against what you believe to be the normalized 10-year Treasury interest rate, you still get a fairly reasonable equity risk premium.
The math is straightforward. Take the earnings and the earnings yield of the S&P at about 7 percent. Normalize the yield on interest rates that you expect to occur 2-5 years from now. Let’s say those rates are in a range of 3-4 percent rather than the current range of 0-2 percent. Using this new math, you would achieve an equity risk premium 4-5 years from now of approximately 3-4 percent. Thus you would conclude that stocks will then be reasonably priced.
VALUATIONS: Next metric. What will the earnings be for the S&P if you use this equity risk premium metric that we just described? Answer: somewhere around $135-$140, maybe $150, depending on the robustness of the economy. In which case, these stocks are currently cheap. Let’s sum this up.
We are going to have very low interest rates for the next couple of years, maybe longer.
We are going to see gradual recovery, maybe more robust over time, but certainly not a screaming rebound.
Under those circumstances, the likelihood is that stocks will go higher, maybe much higher.
Our targets for US stocks at the end of this decade are about $2200 on the low end of the S&P 500 Index to about $2500 on the high end.
Those stocks will be earning $140-$150 annually, in an environment of low interest rates and inflation.
Note: interest rates do not have to be near zero; they could be 3-4 percent. The mortgage interest rate in the US might increase by 100 or 150 basis points. If the unemployment rate and overall employment situation in the US have healed to some extent by decade's end, then all of these numbers are perfectly reasonable.
We do not know what the stock market is going to do. Nobody does. We do not know whether the world is going to come to an end, or is going to be chugging full steam ahead for the next 15 years. Nobody does. What we do know is that when you line up all of the metrics that you can use to value stock markets, most of them will tell you that stocks are fairly priced and strategically cheap if you have a longer-term view.
Intra-market breadth is deteriorating, suggesting fewer and fewer stocks are actually contributing to the current rally in global equities... It seems that all that can break us from this current index-driven 'melt-up' is hot or frigid data that confirms the economy is breaking out of its languid range (though it appears credit is starting to make that decision earlier than stocks).
Internal market breadth narrowing rather than broadening
presented (via BofAML) as a diffusion index (net % of global stocks that rose less net % of global stocks that fell over a rolling 3m period)
and it seems credit is finding it hard to follow equity exuberance...
Charts: BofAML and Bloomberg
PATTERNS - "Most Shorted" Driving Market Higher As Short Sellers Deystroyed
The chart below, courtesy of Bespoke Investment Group, shows how the most-shorted stocks have actually been the ones leading the market rally in the past few weeks.
What's going on here?
Bespoke points out that Tesla and Green Mountain Coffee Roasters alone – two heavily shorted stocks – are both up over 20% today on company-specific news.
There's also a bigger trend unfolding as the rally that began in November continues to extend itself further and further.
While dividend-paying, defensive types of stocks have led most of the rally, investors seem to be rotating out of that group and into riskier – and perhaps more heavily shorted – names.
Miller Tabak Chief Economic Strategist Andrew Wilkinson explained in a note to clients yesterday (emphasis added):
We’ve noticed a perhaps interesting trend emerging between companies that consistently enhance their dividends and the benchmark S&P 500 index. Our chart of the day shows that as the stock market powers to new highs, Aristocratic dividend paying names are starting to underperform and perhaps indicating that equity buyers have become less concerned with what they are buying.
If this erosion of the excess return often provided by consistent dividend payers is maintained during the month of May, it will be the first time since 2009 when the benchmark index rose in that month and exceeded the performance of the Aristocrats club. We should note too that that May 2009 was shortly after the bear market low when investors bought anything that had a pulse. Are we witnessing the same thing today after the Fed has crushed the yield curve?
Looks like we're seeing a new leg of the market rally now
RISK - US Equity Markets Disconnecting from Benchmarks
Of course, it doesn't matter (for now) but today's JOLTS data internals and Consumer Credit's miss just piled on to the misery and pushed Bloomberg's US Macro Surprise Index to its lowest in seven months. What is worse is the rate of collapse - the last five weeks have dropped faster than at any time since May 2011.
The current level of US macro data suggests the S&P should be over 200 points lower - but as the charts below show relative volatility levels are more complacent now than in the pre-crisis vinegar strokes in 2008.
US Macro data is anything but positive (no matter what your are told)...
But that does not seem to matter - as realized volatilities are now elevated in practically NO asset classes compared to 2008's exuberance where 84% of asset classes were at least showing some 'risk'...pre-crash
and nowehere is the total lack of concern about downside risk any more evident than in the distribution of returns that the options market current implies for the S&P 500. The following chart shows an extreme perspective that downside risk is being priced out of options prices to the same extent as it was in the previosu bubble peak in 2006...
As opposed to VIX (which merely tracks the perspective of market participants about volatility - two-sided risk), the chart above is a pure measure of the 'downside' risk and shows that complacency is at its highs...
Herd-mentality, group-think, safety-in-numbers, or lemmings. When a trade becomes one-sided, we are often taught that contrarianism is the smarter position. When a trade becomes extremely one-sided, the market is at its most fragile. There are currently three trades that have become not just consensus, but are near record levels of extreme positioning - and with the help of leverage (and record margin levels) this all adds up to a risk-on market (since all the three trades are on the same side of the long central bank largesse, short safety view) that is over-prone to more significant corrections. Join the crowd or join the smarter money?
In his prescient 1972 lecture, The Obvious, Laing explained the inherent difficulty of understanding "the obvious" when a systemic madness is taken as "normal":
To a considerable extent what follows is an essay in stating what I take to be obvious. It is obvious that the social world situation is endangering the future of all life on this planet. To state the obvious is to share with you what (in your view) my misconceptions might be. The obvious can be dangerous. The deluded man frequently finds his delusions so obvious that he can hardly credit the good faith of those who do not share them.
We can summarize one aspect of this analysis by asking: what is "obvious" to those inside a system and what is "obvious" to those outside the system? Our experience of what is "obvious" says a lot about our cultural context and assumptions: the manufacture of our "news" and consensus, the mystification of our experience via propaganda and simulacra, what we perceive as "normal" relationships, work, goals, etc.
What is "obvious" to most participants is that the stock rally is fueled by central bank liquidity and quantitative easing, and since there is no limit in sight to these policies, there is also no limit to the stock market running higher.
It is also "obvious" that betting against this trend is an excellent way to lose money, so the number of people shorting the market dwindles with each push higher.
Equally "obvious" is the incentive to borrow money via margin to invest in the rising market: the higher it goes, the more you can borrow, and the more you borrow and plow into the market, the more you make. It is a wonderful self-reinforcing feedback loop.
Thus record-high margin debt is not a warning sign but evidence that the music is still playing, so by all means, keep on dancing:
That the disconnect between the real economy and the stock market is widening is obvious, but there doesn't seem to be any intrinsic reason why it can't continue widening. As a result, many analysts are calling for a brief retrace and then another leg up to new highs. Others see a serious decline (10%+) this summer and a new high in Q4 2013 or Q1 2014.
In other words, what might be obvious to those outside the system--that all liquidity-driven bubbles end badly, usually when participants are convinced there is nothing to restrain the trend from going higher--is not at all obvious to participants and those cheering them on (the MSN, the Federal government and the Fed).
What I sense is a near-universal resignation of those attempting to call a top in the market, an acceptance that the trend is up for the foreseeable future and that trying to short this market (i.e. profit from a decline) is a fool's game.
The number of those willing to short the market, i.e. take the other side of the trade, has dwindled. Every sharp rally like last Friday's eliminates entire divisions of shorts, leaving the trade even more one-sided.
Yes, the market is manipulated and totally dependent on central bank QE, liquidity and outright buying of stocks and bonds. But the market is not as stable as presumed, and one-sided trades tend to capsize when everyone who feels safe being on one side of the boat least expects it.
Every trader wants to short the market after it becomes obvious the trend has reversed. But since there are so few shorts left, the decline (should one ever be allowed to happen) might not be orderly enough for everyone to pile on board. More likely, the train will leave with few on board and the initial drop will leave everyone who was convinced the uptrend was permanent standing shell-shocked on the platform with margin calls in hand.
When it is obvious the trend has reversed, it will be too late to profit from it.
The conclusion? What is "obvious" to those embedded in the conventional, MSM/state-manufactured worldview is not the same as what is obvious to those outside the asylum.
Fantastic chart and data here from Citi Research showing the issuance of various securities over the last 10 years in the Eurozone, US and Japan. It’s interesting to note the surge in treasuries that has occurred since the collapse in the GSEs and the so-called AAA bubble in real estate. It’s also interesting to note the decline in net issuance. In other words, the supply of asset issuance continues to run at a level well below pre-crisis levels. That might explain at least some of the broad upward pressure on assets in general.
Here’s more excellent commentary from Citi:
“The blue/grey bars quantify the net issuance of securities across broad asset classes on a rolling 4-quarter basis in the Eurozone, the US and in Japan. The orange bars capture the effects of central bank interventions. The red line is the net amount of issuance left after those interventions – in other words, it is a proxy for the change in the size of the universe of securities that investors can buy.
As you would expect, the chart shows a surge in net government debt issuance in 2009-10 as fiscal deficits ballooned. These have fallen back over the last couple of years but remain significantly higher than before the crisis.
The surge in corporate issuance of bonds since 2007 is perhaps less intuitive, considering that companies have generally run their balance sheets very conservatively, cutting capex and M&A. However, a big shift from loan to bond funding has more than compensated for that. Net equity issuance remains a relatively small component. There was a brief flurry of equity issuance in 2009-10, but as leverage has come down corporates have reverted to the more normal pattern of retiring shares on a net basis.
The biggest shift has been the drop in net issuance from financials and GSEs (like Fannie Mae and Freddie Mac). Having dominated securities markets before the crisis, their net issuance has dwindled to next to nothing in recent years.
Adding up the bars (still ignoring CB interventions in orange) shows that the growth in the investible universe has slowed from around $3.5-4tn annually before the crisis, to less than $2.5tn over the last couple of years. In other words, the rate of expansion of financial securities has slowed by more than $1tn. That’s a pretty penny, when you think about it.
When the effect of central bank interventions (quantitative easing and LTROs3) in orange is subtracted, the reduction in the supply of new assets available to financial investors becomes even more dramatic:
Apart from a brief period in H1 2011 (where markets incidentally did not perform particularly well), the investible universe of financial assets has grown by less than $2tr per year over the last three years – half the run-rate that we were used to. In fact, in some quarters net issuance of securities been virtually zero. We think this ‘supply effect’ on financial markets of central bank interventions is widely underestimated.”
Things in the 'economy' must be good - investors are nearing their most levered long to US equities ever. As Sean Corrigan notes, Net Margin(defined as NYSE Margin Debt minus Mutual Fund Liquid Assets) is within a hair of its all-time record high and relative to the March 2000 peak in the Wilshire 5000 (broadest US equity market cap), we are rapidly approaching 'peak' exuberance levels.
Indicatively this should make sense since the market is at all time highs, but it is so because of central banks, not because of individual investors. So why would the investors themselves be just as stretched as the global central banks, and how does this leverage upon leverage unwind in the end?
In what must be an inexplicable move to momentum-chasers everywhere, as gold continued to decline in price in March, and long before its targeted smash in April, China was not backing off its gold purchases of the yellow product. Quite the contrary: as export data released by the Hong Kong Census and Statistics Department overnight showed, Chinese gold imports in March exploded to an all time record high of 223.5 tons. This follows 97.1 tons in February, and brings the total imports for the first quarter of 2013, or 372 tons, on par with what China imported in the entire first half. It also means that since January 2012, China has imported an absolutely stunning 1,206 tons of gold. Putting this number in context, this is 20% more than the entire reporter official gold holdings of 1054 tons, and represents roughly half of the total 2500 tons of gold mined every year (a number which is set to decline as gold miners find current prices unsustainable and are forced to shut down production).
Comparison of Chinese gold imports: 2012 vs 2013:
And sequential change in Chinese gold imports since January 2012 or when the gold fever in China was truly unleashed:
The latest official Chinese holdings:
And if March was a record month for China, we can't wait for April when prices plunged and when physical buyers, who unlike paper momentum chasers buy more then lower the price falls will see the recent take down as a buying opportunity (if they can find physical of course). From Reuters:
Chinese gold imports are likely to swell further after more than doubling to an all time high in March as retail consumers pounced when prices plunged to a two-year low last month.
"Physical demand picked up significantly over the last couple of weeks. Consumers and industrial users tend to see price drops as buying opportunities," Zhang Bingnan, secretary-general of the China Gold Association, told Reuters.
"Investment demand should continue to stay strong through the rest of the year because of limited investment alternatives," said Zhang, adding that gold sales and processing volumes both spiked in April.
"April imports will be stronger than March," said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong. "The world was buying gold and China was no different at all."
And therein lies the rub: because if China fails to mask the ongoing soaring hot money inflows as reported earlier, and which amounted to over $180 billion in q1 as reported earlier, just watch as Chinese demand for physical goes truly off the charts.
The rest of the story is well known but here it is from Reuters:
In March, Shanghai gold futures fetched premiums of more than $30 to global prices, making it cheaper to buy the metal overseas.
April could see imports swell further after the drop in international prices spurred frenzied buying in Asia, leading to a shortage of gold bars and coins in Singapore as well as Hong Kong, which is China's main source for gold imports.
The drop in prices has prompted a gold rush in China, with Chinese shoppers flocking to retailers to buy jewellery and bars.
A spokesman for Hong Kong jewellery chain Chow Tai Fook, the world's largest jewellery retailer by market value, told Reuters that traffic at its China stores jumped by 50 percent during the May Day holidays.
The surge in Chinese travellers during the three-day May Day holiday also drove gold sales in Hong Kong to rise by an estimated 50 percent, with total gold sales from April 29-May 2 reaching some 40 tonnes, local media quoted Haywood Cheung, president of the Hong Kong Gold and Silver Exchange, as saying.
The jump in Chinese physical demand also prompted some banks to ship in more supplies from London and Swiss vaults, traders said.
What about New York vaults? And specifically the biggest gold vault in the world, located 90 feet below 1 Chase Manhattan Plaza?
Or is there maybe a correlation between the record drawdown in JPM's commercial holdings and the record break out of Chinese gold fever? We hope to find out soon.
As for the increasingly irrelevant spot price of gold paper derivatives, we can only hope "experts" like Paulson et al can continue their liquidation of gold ETF "holdings" for as long as possible: after all one can buy far more gold more when the price is lower, not higher.
Two weeks ago we reported about one of the biggest daily withdrawals of eligible gold from the JPM gold vault, it not on an absolute basis, then certainly on a relative, when in one day over 260k ounces of gold were withdrawn, leaving a record low 141.6k ounces, or just over 4 tons of gold in the vault. Subsequently, we tracked the daily additions and withdrawals of gold from the vault to see if any other major withdrawal request would come, instead discovering instance after instance of JPM reclassifying Registered gold into Eligible, which is how the vault saw its eligible inventory rish back to 195K ounces as of yesterday, without any actual net additions or more importantly withdrawals. It seems the pause of withdrawals has ended, and as of yesterday, another delivery led to a withdrawal of 53,658 ounces, or 28.5% of the total, leaving a fresh record low inventory of only 137,377 eligible ounces in the vault.
As a result, total Eligible in the Comex system is now at a level of 6.13 million oz, or roughly the lowest since since 2009.
And since much of the Eligible gold "additions" have come as a result of the reclassification of Registered gold into Eligible, the combined total of Eligible and Registered has also declined to levels last seen in 2008, at just under 8 million total ounces.
But here's the real punchline: if JPM had not been allowed to arbitrarily convert registered gold into eligible in the past two weeks, the firm's current inventory of eligible gold would be just 83,718 troy oz, or a little over one and a half metric tons: an amount that is laughable and is about 3% of the maximum eligible gold (2.8 million oz) held at the JPM vault, shortly after its commercial reopening in October 2010.
Earlier today, when reporting about the insatiable demand for physical out of China, following the report that "The jump in Chinese physical demand also prompted some banks to ship in more supplies from London and Swiss vaults, traders said." we asked "What about New York vaults? And specifically the biggest gold vault in the world, located 90 feet below 1 Chase Manhattan Plaza?" It appears the Chinese may have gotten just a little more gold out of New York today after all.
Finally with gold at record low levels, pay attention to how much more registered gold is converted into eligible in the coming days. Because if one day the registered gold holders realize the "run on the vault" that is going on, and they too ask to have their gold moved elsewhere, then things will really get entertaining.
The legal claims on physical gold far exceed the amount of physical gold that the banks actually have by a very, very wide margin. And right now the bankers are scared out of their wits because their warehouses are being drained of physical gold at a frightening rate. So what happens when their physical gold is gone but they still have lots and lots of people with legal claims to gold? When that moment arrives, it will represent the end of the paper gold scam.
Many believe that the recent takedown of the price of paper gold was a desperate attempt by the bankers to put off that day of reckoning, but it appears to have greatly backfired on them. Instead of cooling off demand for precious metals, it has unleashed a massive "gold rush" all over the globe. Meanwhile, word has been spreading among wealthy families in both North America and Europe that they had better grab their physical gold out of the banks while they still can.
This is creating havoc in the financial community, and at least one major international bank has already declared that it will only be settling those accounts in cash from now on. The paper gold scam is starting to unravel, and by the time this is all over it is going to be a complete and total nightmare for global financial markets.
For years it has been widely known that the promises that banks have made regarding their gold far exceed their actual ability to deliver, but we have never reached a moment of such crisis before.
Posted below are quotes from people that know precious metals far better than I do. What these experts are saying is more than a little bit disturbing...
-CME President Terry Duffy: What’s interesting about gold, when we had that big break two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product.
-Billionaire Eric Sprott: So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what’s going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes.
When we hear about the LBMA not willing to deliver gold, and JP Morgan’s inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It’s the real physical market that you have to rely on.
FACT #1: COMEX gold vaults were recently drained of 2 million ounces of physical gold in one quarter, the largest withdrawal of physical gold bullion from COMEX vaults in one quarter during this entire 12-year gold and silver bull. There has been speculation about the reasons that spurred these massive withdrawals of gold from COMEX vaults, but the most reasonable speculation is that no one trusts the bankers to hold on to their physical gold anymore, especially in light of Fact #2. Note below, that both registered AND eligible stocks of gold had heavily declined in recent months. Such an event signals a general distrust of the banking system from everyone holding gold in registered COMEX vaults.
FACT #2: One of the largest European banks, ABN Amro, defaulted on their gold contracts and informed their clients that they would only settle their gold bullion contracts in cash and not in physical. So much for the supposed legality of financial contracts as a "binding" contract. So whether Fact #1 caused Fact #2 or vice versa is irrelevant. What IS apparent is that the level of trust in bankers to safekeep physical gold and physical silver is disappearing, as it should be, and as it should have already been for years now. But truth always takes some time to catch up to banker spread lies and that is what is happening now. I have been warning people never to trust bankers in deals involving gold and silver for years now, as in this article I wrote nearly four years ago informing the public that the SLV and GLD are likely a banker invented scam as well.
FACT #3: Silver fraud whistleblower and London trader Andrew Maguire stated that the LBMA was having trouble settling gold contracts in bullion as well and stated that institutions that asked for physical settlement “were told they would be cash settled instead by a bullion bank.” In plain English, this is a default. So Andrew Maguire reported that the LBMA had already gone into default. In light of Fact #1 and Fact #2, the dominoes were starting to tumble and the house of cards that the bankers had built in gold and silver paper derivatives to deceive and hide the true fundamentals of the physical gold and physical markets from the entire world was rapidly starting to crumble. A financial earthquake of magnitude 2.5 was quickly threatening to evolve into one of the biggest financial earthquakes of all time in which the world’s confidence in all global fiat currencies would effectively have a well-deserved funeral.
-Jim Sinclair: I think the reality is the supply situation is extremely volatile at this point, and even discussing it is like rubbing a raw nerve to the people who are in charge. The amount of discussion on the subject of warehouse supply, supply that is represented by the gold leases, indicated to the central planners that the demand for physical was going to continue to effect the exchanges.
Although they did not expect any grandstand delivery, the mere continued draining of physical inventories was threatening the very functioning of the paper exchange. That threatening of the paper exchange and its ability to continue functioning is really taking off the blinders and revealing the truth behind the critical question, ‘Where is the gold?’
The question now is, ‘Where has the gold gone?’ Who has all of this gold? Because of the nature of gold leasing, all of this gold has been purchased and it has gone somewhere. The reality of the empty vaults reveal that the gold has gone missing.
-Ronald Stoeferle: We’re seeing this rush to physical gold not only in the retail market, but also for the institutional players...[it's] just overwhelming…I [estimate] a 130-to-1 [ratio of paper to physical gold]…and I think in the last week we were really close to [triggering] a default of the paper market.
-Gerhard Schubert, head of Precious Metals at Emirates NBD: I have not seen in my 35 years in precious metals such a determined and strong global physical demand for gold. The UAE physical markets have been cleared out by buyers from all walks of life. The premiums, which have been asked for and which have been paid have been the cornerstone of the gold price recovery. It is very rare that physical markets can have a serious impact on market prices, which are normally driven solely by derivatives and futures contracts…
I did speak during the week with several refineries in the world, of course including the UAE refineries, and the waiting period for 995 kilo bars is easily 2-3 weeks and goes into June in some cases. A large portion of the 995 kilo bars in the UAE goes normally into the Indian market, but a lot of the available 995 kilo bars are destined for Turkey, at this time. We heard that premiums paid in Turkey have reached anything between US $ 20 and US $ 35 per ounce.
-James Turk: Another indication of the demand for large bars is the huge drawdown in the gold stock in COMEX warehouses. It is noteworthy that COMEX reports show the drawdown is largely the result of dealers removing their inventory, their working stock. When that happens, you know the availability of supply is constrained.
What all of this means, Eric, is one thing. If the central planners want to keep the precious metals at these low prices, to meet the demand for physical metal they will need to empty more metal from central bank vaults, or borrow metal from the ETFs as some have suggested is happening. Otherwise, the central planners will have to step back and stop their intervention, thereby letting the price of gold and silver rise so that demand tapers off, bringing demand and supply of physical metal back toward some kind of balance.
We've seen this same situation several times over the last twelve years. It is what I have been calling a “managed retreat.” Despite the current weakness, I firmly believe we have again entered a critical period where the central planners will need to retreat once again in order to let the gold and silver prices climb higher.
-The Golden Truth: And then I get a call from a close friend in NYC last Friday. His career has been in private wealth management in the private bank department of the Too Big To Fail banks. He's been looking for work and chats with old colleagues all the time. He called my Friday and told me he just got off the phone with a very high level private banker from a big Euro-based TBTF bullion bank, but who was at JP Morgan until about six months ago.
This guy told my friend that there is a scramble by many very wealthy European families/entities to get their 400 oz bars out of the big bank vaults. He knows this personally, for a fact. He said the private banker community is small over there and the big wealthy families all talk to each other and act on the same rumors/sentiment. The Bundesbank/Fed and the ABN/Amro situations triggered this move. He knows for a fact JPM tried to calm fears about 3 months ago by sending a letter to it's very wealthy clients assuring them their bars were safe, in allocated accounts. He said right now those same families are walking into the big banks like JPM and demanding delivery of their bars or threatening to take their $100's of millions in investment portfolios to competitors. His wording was "these people are putting a gun to the heads of private banks and demanding their gold."
I know this information is good because I know my friend's background and when he tells me his source is plugged in, the guy is plugged in. Not only that, my friend's source said that there's no doubt that someone like a John Paulson, not necessarily specifically him, but entities like him or it may include him, have held a gun to GLD and demanded delivery of physical in exchange for their shares.
Regarding the Bundesbank/Fed situation, recall that the Bundesbank asked to have some portion of its gold sitting - supposedly - in the NY Fed vault in NYC sent back Germany. The total amount is 1800 tonnes. After behind the scenes negotiations, the Fed agreed to ship 300 tonnes back over seven years. To this day, the time required for that shipment has never been explained. Venezuela demanded the return of its 200 tonnes held in London, NYC and Switzerland and received it all within about four months.
And regarding the ABN/Amro situation. ABN/Amro offered a gold investment account product that offered physical delivery of the gold in the investment account when the investor cashes out. About a week before the gold price smash, ABN sent a letter to its clients informing that the physical delivery of the bullion was no longer available and that all accounts would be settled with cash at redemption.
I believe it was these two events that triggered the big scramble for physical gold by wealthy families/entities who were suspicious of the integrity of their bank vault custodial arrangement anyway.
So what does all of this mean?
It means that we are entering a period when there will be unprecedented volatility for precious metals. There will be tremendous ups and downs as this crisis plays out and the bankers try to keep the paper gold scam from completely unraveling.
Meanwhile, nations such as China continue to stockpile gold as if the end of the world was coming.
According to Zero Hedge, Chinese gold imports set a brand new all-time record high in March...
And the number for April is expected to be even higher. Does China know something that the rest of us do not?
We are also seeing a rapid decoupling between spot prices and physical prices. In fact, it is quickly getting to the point where the spot price of gold and the spot price of silver are becoming irrelevant.
For example, demand for silver coins has become so intense that some dealers are charging premiums of up to 30 percent over spot price for silver eagles.
That would have been regarded as insane a few years ago, but people are now willing to pay these kinds of premiums. People are recognizing the importance of actually having physical gold and silver in their possession and they are willing to pay a significant premium in order to get it.
We are moving into uncharted territory. The paper gold scam is rapidly coming to an end. In the long-term, this will greatly benefit those that are holding significant amounts of physical gold and silver.
In over 30 years of studying, researching, trading and investing in the financial markets, I have never seen the contrarian signals flashing as bullishly as they are for gold right now. - Link:Update On Gold: Is This The Bottom?
It's really quite astonishing. Especially the degree to which the negative media reports - especially from Bloomberg News and CNBC - are piling up like dead bodies in the aftermath of the Mt. Vesuvius eruption.
I want to "connect some dots" for everyone who has been worried about the rather large liquidation of gold from GLD. In fact, media citations of this gold drain have proliferated like the odor of burning marijuana in the streets of Denver now that pot has been legalized (trust me, it's everywhere).
But what is really going on? Let's look "under the hood" at some relevant information that is being left out of a lot of the financial reporting in the U.S. To begin with, the way gold is put into or taken out of GLD is via the Authorized Participants. These are the primary market makers in GLD shares. When they collect a basket of 100,000 shares from buyers or sellers, they take the cash proceeds and either buy gold to move into GLD or buy gold from GLD to remove the gold from the trust. The current list of AP's, at least according to GLD's latest 10-K filing are:
GLD: AUTHORIZED PARTICIPANTS
Merrill Lynch, Morgan Stanley,
Newedge (a online hedge fund oriented futures bookie),
Virtu Financial (another online hedge fund bookmaker).
If the price of gold - for whatever reason, legitimate or not - gets crushed, it will tend to generate a lot of selling in the shares of GLD. In turn, that will generate the ability of the AP's to collect 100,000 share baskets and convert those baskets into gold that is removed from the GLD vault and into the "custody" of the specific AP who is turning in the shares. At today's price of gold, 100,000 shares represents about $14.2 million - 9,627 ozs of gold, or roughly .29 tonnes.
Since the beginning of the year, roughly 293 tonnes of gold has been drained from GLD, which had 1350 tonnes in it - allegedly - on 12/31/12.
Nearly 30% of the total amount of gold that has been drained from GLD occurred in the 3 weeks since the April 16-17 price massacre.
So where, you might ask, is all this gold going? It's not just vaporizing into thin air. Using today's price of gold, 293 tonnes is worth about $14.5 billion. If you look at that AP list above, all of them except the two hedge fund bookies are LBMA "bullion bank" market makers. Unless these bullion banks are keeping the gold for themselves - and if any of them were, it would have to show up in the footnotes of their next 10-Q - that gold is being delivered to buyers of it on the other side.
So, who would be buying this gold? Based on numerous news service reports, which often seem to never make their way into the U.S. financial media reporting,
India and China combined through the end of April have imported somewhere around 700 tonnes of gold, plus or minus 100 tonnes. What's 100 tonnes among bullion bank friends when GLD still has 1,057 tonnes left?
Here's one news report - actually from Bloomberg - which is calculating that China purchased around 223 tonnes of gold in March alone: LINK That is a staggering amount of gold (mostly 400 oz bars - the type of bar in GLD's vaults) when you consider that the global annual mined production of gold is around 2500 tonnes, and declining.
And here's an account out of India about the massive gold demand there in April and May:
“The biggest slump in gold prices in more than three decades on April 15 spurred banks, traders and jewelers to import more than 100 tons last month, said Rajesh Khosla, managing director of MMTC-PAMP India Pvt. Purchases this month will match April’s imports, he said”
And here's a refreshingly honest assessment of the situation from an Indian newspaper:
The jump in Chinese physical demand also prompted some banks to ship in more supplies from London and Swiss vaults, traders said LINK
If you read that entire article, you'll see that in 2012, India/China imported more than 1/3 of the global gold production and will likely account for close to 50% this year. This is the unintended consequences for the Central Banks who are spear-heading the manipulation of the price of gold for the purposes of defending the dollar and fiat currencies.
This rabid demand for 400 oz. gold bars from China/India (not to mention Russia, Turkey, Viet Nam, pretty much all of southeast Asia) goes a long way toward explaining the rumors that were circulating during February and intensified in March that the LBMA was in danger of facing a big delivery default.
Layer on top of this the fact that many wealthy families in Europe are now demanding delivery of the gold bars that JPM and other bullion banks are holding custody of. The report on this from my friend was confirmed independently by a source of Bill Murphy's over in Europe. This is exactly why ABN/Amro announced a week before the $200 hit on gold that they would no longer deliver physical gold from their gold investment account product and would instead only settle redemptions in cash. That product catered to high net worth investors over there. ABN didn't have the gold that would be required to satisfy delivery claims. It was a fractional bullion investment account, just like all the other big bank "bullion" investment products. Morgan Stanley settled a lawsuit several years ago for this type of scheme using silver. But they never admitted guilt.
So in connecting all the dots, there is no question in my mind that the big price smashing of gold in mid-April was an operation designed to shake loose enough 400 oz. gold bars out of GLD in order to satisfy the enormous delivery demands coming from Asia, India and even within Europe. GLD is the only possible source of above-ground 400 oz. gold bars that could be used to satisfy this enormous demand for physically deliverable bars.
At some point, and probably sooner than most people are willing to believe, this physical demand is going to force an upward "explosion" of the paper derivatives being used to hold down the spot price right now. In 30 years of studying and trading the financial markets, I have never seen contrarian indicators for any market sector flashing as bullishly as they are for gold and silver, which further confirms my view that the metals have bottomed and are getting ready to give those of us who held on the ride of a lifetime.
The global economy is slowing, no doubt about that. The timing of the big drop in precious metals coincided with an announcement that growth in China had slowed. So there’s lower growth, particularly in the markets where there’s big demand for gold.
That tracks with the split about nine months ago between commodities and equities, when copper diverged inexplicably from the S&P 500. Can copper show that we’re in a powerful deflation and corporate earnings imply a recovery? Not at the same time.
So either copper goes up or the S&P 500 goes down. If copper is right and deflation is the now the dominant theme, then people who need to raise cash will have to sell assets, including precious metals.
BANK DEPOSITS - Derivatives and Volatility
With Cyprus we saw the dawning of the realization that insured deposits may not be what they used to be and that regulators are planning bank resolutions without too-big-to-fail, which is to say at the expense of depositors and creditors rather than taxpayers.
The Bank of England and Fed recently published an overview of how this would happen, with equity investors, uninsured depositors and creditors taking a big hit.
There’s a lot of discussion about the fact that that derivatives will have seniority in these kinds of circumstances.
Uninsured depositors and creditors in the fixed income markets are worried, and there’s a danger of real contagion in which paper wealth flows into physical precious metals.
For regulators, the last thing you want is the gold price going to the moon while you’re trying to keep people in their bank deposits. In that circumstance gold becomes the safe haven, making it even harder to hold the bond market together.
So how to you make gold look riskier and more dangerous than an FDIC-insured deposit? You smash the price down.
If you want to argue the case that this was a managed move, then I would say if you’re running the G7 nations you’re in the business of keeping the bond market going, so how do you keep trillions of dollars in the bond market that’s earning no money?
You make the price look stable and make everything else look volatile.
The people managing the system are doing everything they can to tighten down the hatches. This is like a ship going into a storm and all the sailors are tightening everything down.
Banks are announcing that you can’t take delivery in gold, you have to take it in dollars.
The Bundesbank wants its gold back and the Fed says it will take seven years.
Every day for months it’s been a different story, but every story is about institutions getting ready for a period of real trouble.
They want their systems to survive a period in which millions of people say “I’d rather have gold than Treasuries”.
GOLD - Supply / Demand
SOURCE: E-mail from Bill Holter
"When" does the current unsustainable and lopsided (soon to be proven fraudulent which yes, includes "intent") business model of the precious metals market blow up in a default?
China imported 900 tons last year and India roughly 800 tons versus total global production of 2,500 tons, did the rest of the world make due with only 700 tons? Hardly.
So far this year through March, China has already imported some 372 tons putting them on a pace of 1,500 for the year. This figure does not even include April where we know that VERY conservatively their appetite increased by 50% from the previous month which was just over 220 tons.
So through April a conservative number would be 600 tons for the trimester making an annual pace of 1,800 ton for that country ALONE!
So where is all of this Gold coming from if mine supply cannot satisfy the current and apparently exponentially growing demand? You can look at the numbers from the Shanghai exchange.
They reportedly delivered 1,900 tons in 2011 and 2,400 tons in 2012.
So far this year they have delivered over 1,000 tons.
We also know that the
JP Morgan and
Inventories are being seriously bled down, not by "leeches" mind you, no, the current deliveries and drawdown of inventories is like open arterial wounds gushing into the streets.
It has become so serious at JP Morgan that they report only to have 137,000 (just over a whopping 4 tons) ounces left of "eligible" Gold for delivery.
Over the course of the last 2 months there have also been reports of investors withdrawing their "registered" Gold. This has come about not because people "missed" their metal and wanted it delivered so they could see how shiny it was. No, these "withdrawal pains" (pun intended) have been requested because people are afraid of the Gold not being there. They want control of their money and don't want to be MF Globalled or Cyprussed.
This mindset is adding to the "run" on inventories. The funny thing is this, IF the metal was not really purchased in the first place (Morgan Stanley...ABN Amro anyone?), these demands for deliveries will act as CURRENT demand. Call it "deferred demand" or anything you'd like, these requests for delivery will put further pressure on existing and real inventories OR on price as firms go out to actually buy the product to deliver.
DOW: GOLD - Shallow Fibonacci Retracements
The crash in nominal 'price' is followed by a Fib 23.6% retracement rally as hope triumphs over adversity... only for reality to rapidly re-emerge...
2013 - STATISM
2012 - FINANCIAL REPRESSION
1971 SUSPENSION OF GOLD EXCHANGE - The Triggering Event
#7 The Federal Reserve Greatly Favors The "Too Big To Fail" Banks
#8 The Federal Reserve Gives Secret Bailouts To Their Friends
#9 The Federal Reserve Is Paying Banks Not To Lend Money
#10 The Federal Reserve Has An Astounding Track Record Of Failure
#11 The Federal Reserve Is Unaccountable To The American People
If the American people truly understood how the Federal Reserve system works and what it has done to us, they would be screaming for it to be abolished immediately. It is a system that was designed by international bankers for the benefit of international bankers, and it is systematically impoverishing the American people.
The Federal Reserve system is the primary reason why our currency has declined in value by well over 95 percent and our national debt has gotten more than 5000 times larger over the past 100 years.
The Fed creates our "booms" and our "busts", and they have done an absolutely miserable job of managing our economy. But why do we need a bunch of unelected private bankers to manage our economy and print our money for us in the first place? Wouldn't our economy function much more efficiently if we allowed the free market to set interest rates?
And according to Article I, Section 8 of the U.S. Constitution, the U.S. Congress is the one that is supposed to have the authority to "coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures". So why is the Federal Reserve doing it? Sadly, this is the way it works all over the globe today. In fact, all 187 nations that belong to the IMF have a central bank. But the truth is that there are much better alternatives. We just need to get people educated.
The following are 11 reasons why the Federal Reserve should be abolished...
#1 The Greatest Period Of Economic Growth In The History Of The United States Happened When There Was No Central Bank
Did you know that the greatest period of economic growth in U.S. history was between the Civil War and 1913? And guess what? That was a period when there was no central bank in the United States at all. The following is from Wikipedia...
The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873. The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.
So if our greatest period of economic prosperity was during a time when there was no Federal Reserve, then why shouldn't we try such a system again?
#2 The Federal Reserve Is Systematically Destroying The Value Of The U.S. Dollar
The United States never had a persistent, ongoing problem with inflation until the Federal Reserve was created in 1913.
If you do not believe this, just check out the inflation chart in this article.
The Federal Reserve systematically penalizes those that try to save their money. Inflation is a tax, and the value of each one of our dollars goes down a little bit more every single day.
But over time, it really adds up. In fact, the value of the U.S. dollar has fallen by 83 percent since 1970.
Anyone that goes to the grocery store on a regular basis knows how painful inflation can be. The following is a list that shows how prices for many of the things that we buy on a regular basis absolutely skyrocketed between 2002 and 2012...
Peanut Butter: 40%
A Loaf Of White Bread: 39%
Spaghetti And Macaroni: 44%
Orange Juice: 46%
Red Delicious Apples: 43%
Ground Beef: 61%
Chocolate Chip Cookies: 39%
Even the price of water has absolutely soared in recent years. According to USA Today, water bills have actually tripled over the past 12 years in some areas of the country.
So how can the Federal Reserve get away with claiming that we are in a "low inflation" environment?
Well, what Ben Bernanke never tells you is that the way that the government calculates inflation has changed more than 20 times since 1978.
When the U.S. government decides that it wants to spend another billion dollars that it does not have, it does not print up a billion dollars.
Rather, the U.S. government creates a bunch of U.S. Treasury bonds (debt) and takes them over to the Federal Reserve.
The Federal Reserve creates a billion dollars out of thin air and exchanges them for the U.S. Treasury bonds.
So what does the Federal Reserve do with those Treasury bonds? I went on to explain what happens...
The U.S. Treasury bonds that the Federal Reserve receives in exchange for the money it has created out of nothing are auctioned off through the Federal Reserve system.
There is a problem.
Because the U.S. government must pay interest on the Treasury bonds, the amount of debt that has been created by this transaction is greater than the amount of money that has been created.
So where will the U.S. government get the money to pay that debt?
Well, the theory is that we can get money to circulate through the economy really, really fast and tax it at a high enough rate that the government will be able to collect enough taxes to pay the debt.
But that never actually happens, does it?
And the creators of the Federal Reserve understood this as well. They understood that the U.S. government would not have enough money to both run the government and service the national debt. They knew that the U.S. government would have to keep borrowing even more money in an attempt to keep up with the game.
Men like Thomas Edison and Henry Ford could not understand why we would adopt such a foolish system. For example, Thomas Edison was once quoted in the New York Times as saying the following...
That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.
Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.
But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good.
Unfortunately, today most Americans don't even understand how the system works. They just assume that we have the best system in the entire world.
Sadly, the reality is that the system is working just as the international bankers that designed it had hoped. The United States has the largest national debt in the history of the world, and we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day in a desperate attempt to keep the debt spiral going.
#4 The Federal Reserve Is A Centrally-Planned Financial System That Is The Antithesis Of What A Free Market System Should Be
Why do we need someone to centrally-plan our financial system?
Isn't that the kind of thing they do in communist China?
Why do we need someone to tell us what interest rates are going to be?
Why do we need someone to determine what "the target rate of inflation" should be?
If we actually had a free market system, the free market would be the one "managing" our economy.
But instead, we have become so accustomed to central planning that any alternatives seem to be absolutely unthinkable.
For example, CNBC cannot possibly imagine a world where the Fed (or some similar institution) was not running things...
But suppose the law were taken off the books? The Fed's job—in simple terms—is to manage the nation's money supply and achieve the sometimes-conflicting tasks of full employment, stable prices while fighting inflation or deflation.
How would the U.S. economy then function? Something has to take its place, right?
Global markets would also need some sort of economic direction from the U.S. The Fed manages the dollar — and as the world's leading currency, a void left by a Fed-less America could throw those markets into chaos with uncertainty about who's managing U.S. interest rates and the American economy.
I've got an idea - let's let the free market "manage" U.S. interest rates and the American economy.
I know, it's a crazy idea, but I have a sneaking suspicion that it just might work beautifully.
It has been said that the Federal Reserve is about as "federal" as Federal Express is.
Most Americans still believe that the Federal Reserve is a "federal agency", but that is simply not true. The following comes from factcheck.org...
The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System. These include all national banks (chartered by the federal government) and those state-chartered banks that wish to join and meet certain requirements. About 38 percent of the nation’s more than 8,000 banks are members of the system, and thus own the Fed banks.
And even the Federal Reserve itself has argued that it is "not an agency" of the federal government in court.
So why is there still so much confusion about this?
We should not be allowing a private entity that is owned and dominated by the banks to make decisions that dramatically affect the daily lives of all the rest of us.
#7 The Federal Reserve Greatly Favors The "Too Big To Fail" Banks
Since the Federal Reserve is owned by the banks, should we be surprised that it serves the interests of the banks?
In particular, the Fed has been extremely good to the "too big to fail" banks.
Over the past several decades, those banks have grown tremendously in both size and power.
Back in 1970, the five largest U.S. banks held 17 percent of all U.S. banking industry assets.
Today, the five largest U.S. banks hold 52 percent of all U.S. banking industry assets.
#8 The Federal Reserve Gives Secret Bailouts To Their Friends
The Federal Reserve is the only institution in America that can print money out of thin air and loan it to their friends any time they want to.
For example, did you know that the Federal Reserve made 16 trillion dollars in secret loans to their friends during the last financial crisis?
The following list is taken directly from page 131 of a GAO audit report, and it shows which banks received secret loans from the Fed...
Citigroup - $2.513 trillion
Morgan Stanley - $2.041 trillion
Merrill Lynch - $1.949 trillion
Bank of America - $1.344 trillion
Barclays PLC - $868 billion
Bear Sterns - $853 billion
Goldman Sachs - $814 billion
Royal Bank of Scotland - $541 billion
JP Morgan Chase - $391 billion
Deutsche Bank - $354 billion
UBS - $287 billion
Credit Suisse - $262 billion
Lehman Brothers - $183 billion
Bank of Scotland - $181 billion
BNP Paribas - $175 billion
Wells Fargo - $159 billion
Dexia - $159 billion
Wachovia - $142 billion
Dresdner Bank - $135 billion
Societe Generale - $124 billion
"All Other Borrowers" - $2.639 trillion
If you will notice, a number of the banks listed above are foreign banks.
Why is the Fed allowed to print money out of thin air and lend it to foreign banks?
#9 The Federal Reserve Is Paying Banks Not To Lend Money
Did you know that the Federal Reserve is actually paying U.S. banks not to lend money?
That doesn't make sense. Our economy is based on credit, and small businesses desperately need loans in order to operate.
But the Fed has decided to pay banks not to risk their money. Section 128 of the Emergency Economic Stabilization Act of 2008 allows the Federal Reserve to pay interest on "excess reserves" that U.S. banks park at the Fed.
So the big banks can just send their cash to the Fed and watch the money come rolling in risk-free.
As the chart below demonstrates, the banks have taken great advantage of this tremendous deal...
#10 The Federal Reserve Has An Astounding Track Record Of Failure
Over the past ten years, the Federal Reserve has been an abysmal failure when it comes to running the economy.
But despite a track record of failure that would make the Chicago Cubs look like a roaring success, Barack Obama actually decided to nominate Ben Bernanke for a second term as the Chairman of the Federal Reserve.
What a mistake.
Just check out some of the things that Bernanke said prior to the last financial crisis. The following is an extended excerpt from an article that I published previously...
In 2005, Bernanke said that we shouldn't worry because housing prices had never declined on a nationwide basis before and he said that he believed that the U.S. would continue to experience close to "full employment"....
"We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though."
In 2005, Bernanke also said that he believed that derivatives were perfectly safe and posed no danger to financial markets....
"With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly."
In 2006, Bernanke said that housing prices would probably keep rising....
"Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise."
In 2007, Bernanke insisted that there was not a problem with subprime mortgages....
"At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency."
In 2008, Bernanke said that a recession was not coming....
"The Federal Reserve is not currently forecasting a recession."
A few months before Fannie Mae and Freddie Mac collapsed, Bernanke insisted that they were totally secure....
"The GSEs are adequately capitalized. They are in no danger of failing."
There are many, many more examples that could be listed, but hopefully you get the point.
And now it is happening again. Bernanke is telling the American people that everything is going to be just fine and that no major problems are ahead.
Do you believe him this time?
#11 The Federal Reserve Is Unaccountable To The American People
What is the most important political issue to most Americans?
Survey after survey has shown that the American people care about the economy more than anything else.
So why do we allow an unelected, unaccountable entity that is privately-owned to make our economic decisions for us?
The Federal Reserve has become so powerful that it has been called "the fourth branch of government". Every four years, presidential candidates argue about who will be best at managing the economy, but the truth is that it is the Fed that manages our economy.
We are told that the "independence" of the Federal Reserve is absolutely critical, but don't the American people deserve to have a say in the running of the economy?
Our system is broken. It is a system that will continue to create more bubbles and more debt until the entire thing finally collapses for good.
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.
But instead of banning government borrowing, we have allowed ourselves to become enslaved to a system where government borrowing actually creates our money.
We do not need to have a central bank. There are much better alternatives. We just need to get people educated.
LONDON, May 7 (Reuters) - Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young says in its latest Fraud Survey published on Tuesday.
One in five of almost 3,500 staff quizzed in 36 countries in Europe, the Middle East, Africa and India said they had seen financial manipulation in their companies in the last 12 months, the accounting and consultancy firm said.
In addition 42 percent of board directors and top managers surveyed said they were aware of "some type of irregular financial reporting".
And despite scandals and regulatory failures in the wake of the credit crunch, almost a quarter of top financial services staff surveyed said they were aware of manipulation and almost 10 percent of all staff said their companies had understated costs, overstated revenues or used unprincipled sales tactics.
Meanwhile, almost half of the sales staff surveyed across all sectors did not consider anti-corruption policies to be relevant and more than a quarter thought it acceptable to offer personal gifts or services to win or retain business.
In India, over a third felt justified in offering cash - triple the number in western Europe.
"Our survey shows that to find growth and improved performance in this environment, an alarming number appear to be comfortable with or aware of unethical conduct,"
David Stulb, head of E&Y's fraud investigation and dispute services practice.
In Spain, ranked alongside Russia and just below Nigeria and Slovenia, 61 percent of staff believed companies often exaggerated results, compared with only 7 percent in Finland.
And E&Y said the vast majority of managers from Norway to Nigeria and Russia to Greece were feeling the pressure to deliver a good financial performance over the next 12 months, despite little optimism that business conditions would improve.
They were now forced to balance the risks of expanding into rapid-growth markets, where winning contracts can go hand-in-hand with corruption, cutting costs further and piling pressure on staff or suppliers - or distorting results, the firm said.
E&Y warned multinationals based in mature markets they could be more vulnerable to the risks of unethical behaviour. One quarter of those asked thought watchdogs in rapid-growth markets focussed more on the behaviour of foreign businesses.
The consultancy called on managers to ask more robust questions, focus on key risks, such as poor due diligence accounting checks of intermediaries and associates, and punish unethical behaviour.
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