Strong stocks or debilitated dollar?

Click on chart to enlarge.

http://online.barrons.com/article/SB50001424052970204485204575522280439957038.html?mod=BOL_hpp_dc

Stocks are up only in terms of a declining dollar. In real terms, relative to gold, stocks have gone nowhere.

Technically, equities indeed are resilient and seemingly every other day shake off morning weakness to rebound by the close. Stocks reaching new 52-week highs are plentiful while stocks at the other end are scarce.

So what's the problem? Basically, negative factors don't matter until they do. Only retrospectively do their importance reveal themselves.

The bond market continues to voice its displeasure with the economy.

The U.S. dollar also expressed its concern. One week ago, the U.S. Dollar Index (DXY), a measure of the dollar against a trade-weighted basket of other currencies, broke down below a very important support level at 80 (see Chart 1). In fact, the dollar has been in a declining trend since June.

Granted, a weak dollar helps U.S.-based exporting companies, and indeed big, multinational stocks on the U.S. exchanges are beating smaller, domestically oriented stocks. But a falling currency only helps until it hurts.

So is the weak dollar, and not a positive outlook for the economy, boosting stock prices? Chris Carolan, proprietor of the Carolan.org analysis firm thinks so. He points out that the stock market priced in gold has barely lifted off its March 2009 lows.

By changing the pricing mechanism of the stock market from nominal dollars to the purchasing power of gold, we can see an undeniable multiyear bear market still in force.

To be sure, a falling dollar does boost the price of gold as well since it is priced in dollars. But gold has rallied for nearly a decade as the dollar gyrated wildly. Indeed, gold has made highs in terms of all major paper currencies. Gold is in a bull market no matter how we look at it.

For the near-term, stocks continue to show strength — but only in terms of depreciating dollars. In real terms of a golden constant, the stock market has barely maintained its value.

Saving Americans by sticking it to them

http://www.bloomberg.com/news/2010-09-24/saving-americans-requires-sticking-it-to-them-jonathan-weil.html

Last week, in a rare and possibly fleeting victory for the little guy, Ally Financial Inc.’s mortgage-servicing unit temporarily halted evictions tied to foreclosures in 23 states. This came after some attorneys for homeowners caught the company saying things that weren’t true in its court filings.

There’s no sense complaining to the federal government about Ally’s conduct, though. That’s because the Treasury Department is the company’s majority shareholder, after spending $17.2 billion of bailout money on Ally under the Troubled Asset Relief Program.

With the benefit of hindsight and a little rephrasing, the government’s policy is clearer now: We have to let these bailed- out banks keep screwing the American people, in order to keep the American people from getting screwed on their investments in these bailed-out banks.

It makes no difference how many loan-modification programs the government creates, or what new consumer-protection agency Elizabeth Warren gets hired to lead. As long as the Treasury is supporting a company such as Ally, Americans will be right to conclude the government is two-faced and working against their own best interests.

This is what infuriates so many Americans about the bailout culture. When banks break the rules, consumers are supposed to be able to turn to the government for help. When Ally breaks the rules, though, it’s the Treasury’s own company that’s doing it.

Our government isn’t supposed to prey on its own people in the name of protecting our investments. It never should have gotten in this business in the first place.

Senator Franken letter on mortgage fraud

It takes a former comedian to call government officials out on the carpet in their role regarding the massive mortgage fraud.

http://franken.senate.gov/files/letter/100930_All_Financial_Letter.pdf

Excerpt:

"I respectfully request that you collaborate to conduct a thorough investigation into the alleged misconduct," the letter reads. "As part of this investigation, it is crucial that Ally and its employees are held fully accountable for any criminal misconduct. Additionally, all homeowners who may have experienced illegitimate foreclosure sales, those who have been forced to defend against illegitimate foreclosure actions, and those who have been harmed must be identified. These individuals must receive proper restitution and compensation, as provided for under the law. It is also critical to confirm that no loans provided through the Federal Housing Administration or in conjunction with the Home Affordable Modification Program were associated with Ally's misconduct."

FDIC expands deposit insurance limit from $250,000 to unlimited

http://fdic.gov/news/news/press/2010/pr10217.html

The Federal Deposit Insurance Corporation (FDIC) Board of Directors today approved the issuance of a proposed rule to implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act to provide depositors at all FDIC-insured institutions unlimited deposit insurance coverage on noninterest-bearing transaction accounts beginning December 31, 2010 through December 31, 2012.

That's great to hear, until one realizes the FDIC itself is broke.

The mechanisms of a currency war (21st century trade war)

Now that we know WHY countries want to debase their currencies, let's explore HOW they are doing it. If a sovereign central bank wants to devalue the local currency, they simply buy USDollars. Buying USDollars has the net effect of selling the local currency, driving down the value of that local currency. The intervention mechanisms are becoming more complex, as central banks are using derivatives in the foreign currency markets. But all things being equal, they buy the USDollar and short their local currency. The Fed and US Treasury are more than willing to print more USDollars to accommodate Congress, the Administration, and US government and consumer spending. The global financial system is built on a glut of USDollars--and the debt resulting from the creation of said dollars. Of course, this puts a higher burden on US taxpayers.

The world is awash with USDollars--that is the lighter fluid. Money velocity--the so-called multiplier effect of money exchanging hands, is the match. Once lit, prices rise as multiple dollars chase a finite supply of goods and services. This causes price inflation, something the Fed believes is under their control, as they attempt to fight a spiraling deflationary environment. The problem is that inflation can turn into hyperinflation overnight. A controlled fire can morph into an out of control, ranging combustion.

A depression is terrible, but hyperinflation is much worse, as it causes a complete loss of confidence in the currency.

Currency Rumble Royale

When a country's currency is devalued relative to other countries' currencies, the expected result is that individual country's exports are relatively cheaper compared to the other countries'. Hence, the motivation behind central banks devaluing their currency is to stimulate exports and by extension, the domestic economy. However, this devaluation is a zero-sum game, because as one country's exports increase, another country's exports decrease, relatively-speaking. And when all countries attempt to boost their exports by devaluing their currencies, it becomes a competitive currency race to the bottom, destroying the wealth of their citizens.

Why is that? How can the stimulation of a country's exports be destructive to the wealth of its citizens? Because even though exports to other countries are cheaper, and since the value of the local currency is cheapened, imports and domestic items are more expensive. A debased currency causes price inflation in the local economy; it takes more local paper currency to purchase items like food, water, energy, and shelter. Everybody suffers diminished purchasing power. Inflation is a hidden tax, reducing the standard of living for everyone, especially the lower and middle classes.

But sovereign nations are doing exactly that--manipulating their currencies lower to keep their factories humming and capping unemployment. China doesn't want the yuan to appreciate by 40% relative to other currencies (specifically the USDollar) because 200 million jobs are at risk. So they peg their yuan to a USDollar that is being systematically destroyed by the Fed, which accommodates an overspending Congress. In other words, it is the Fed that is manipulating the USDollar, as China piggybacks the yuan on the USDollar.

But US politicians need a scapegoat, and the Chinese are a convenient target. In fact, Japan intervened and devalued the yen last week, raising the ire of officials in the Euro zone and the US. And they also triggered trade war rhetoric with China. All told, more than 25 countries devalued their currencies recently, as they each attempt to fix their impaired domestic economies. It is analogous to mass mutual currency suicide, as the wages and purchasing power of their citizens are structurally destroyed.

That's why the last man standing in this currency war will be precious metals. Precious metals are scarce and carry a finite supply--they cannot be created by a printing press. They must be discovered and mined, which takes 10 - 15 years. The easy discoveries are long gone, and ore quality (ounces per ton) has deteriorated. Miners must wander off to geopolitically unstable regions to find it, dig deeper, satisfy tougher environmental constraints, invest more in the local communities, and expend higher costs for energy, water, and labor to produce smaller quantities of the metals. Hence, supply is shrinking, even while investment demand is soaring.

See disclaimers in the side bar.

Disclosure: long precious metals and long mining equities.

Biggest bond funds receiving inside information from the Fed

http://www.zerohedge.com/article/here-how-worlds-biggest-bond-funds-and-others-just-not-you-get-advance-notice-what-fed-about

Reuters has just released a stunning special report detailing how the Fed leaks all important, non-public, and ever so material, information to private parties.

...leaking the most important decisions made on "behalf of the middle class" so that a few multi-billionaires can make a few extra soon to be worthless dollars.

Where's the SEC? Oh, that's why right, we ARE talking about the Fed and the SEC here...

Spain: Ten million workers take part in general strike

http://www.wsws.org/articles/2010/sep2010/spai-s30.shtml

Nearly 70 percent of Spanish workers—10 million—took part in Wednesday’s general strike. In some sectors, such as mining, metal, auto manufacture, electronic, fishing and other industries, participation was nearly 100 percent. The movement also encompassed many self-employed workers and small businesses.

Although the government tried to downplay the effects of the strike, the national grid operator Red Electrica Corp. said that electricity consumption was down by 20 percent.

And here is China's response to allegations of currency manipulation

http://www.reuters.com/article/idUSLDE68S24D20100929

China said the United States should take action to stabilise the dollar, criticising Washington's expansionary monetary policy for weakening the currency despite its key role in the global financial system.

The comments by a Chinese official at a meeting of the World Trade Organization came as the U.S. House of Representatives was set to pass a bill putting pressure on China to let the yuan rise faster.

House slaps China on currency policy, deepening trade dispute

http://www.washingtonpost.com/wp-dyn/content/story/2010/09/29/ST2010092907303.html?sid=ST2010092907303

No one wins in a trade war, and the US will definitely lose this one.

The House of Representatives voted Wednesday to punish China for policies that unfairly favor its exports at the expense of the United States and other countries, the latest volley in what is developing as a global battle over jobs and commerce.

Brazilian Finance Minister Guido Mantega said this week that a quiet "currency war" is underway.

The Fed and US Treasury are doing everything in their power to devalue the USDollar. And folks wonder why owning gold isn't "risky." While the USDollar is the world's reserve medium of exchange, it is proving to be a horrible store of value.

Pentagon Loses Control of Bombs to China Metal Monopoly

I warned of China's near-monopoly on strategic rare earth metals last year. The Pentagon is waking up to this reality.

http://www.bloomberg.com/news/2010-09-29/pentagon-losing-control-of-afghanistan-bombs-to-china-s-neodymium-monopoly.html

Philip Manduca: America giving away wealth and power

For years, financial and mainstream media have been demonizing gold. Ten years later, after appreciating over five-fold, CNBC is just now acknowledging the legitimacy of gold and gold-related assets. At some point in the future, they'll be claiming they were gold bulls all along. Bull manure.

Distrust in US media hits record high

Click on chart to enlarge.

http://www.zerohedge.com/article/distrust-us-media-hits-record-high-cnbc-and-especially-mad-money-viewership-drops-multi-year

Banking analyst Meredith Whitney

“You have to look at the states and the risk that the states pose, because the crisis with the states will result in an attempt at least for the third near-trillion-dollar bailout. That has consequences on the dollar that has consequences on just about everything. It certainly has consequences on the US recovery.”

Bonuses for Wall Street Bankers are going to be “really, really bad at year end.”

Currency intervention

Here are a couple articles on the hazards of currency intervention, the so-called race to the bottom.

http://ftalphaville.ft.com/blog/2010/09/28/354756/25-currency-interventions-in-a-one-week-band/

http://edition.cnn.com/2010/BUSINESS/09/28/currency.wars.brazil.ft/index.html

Dan Norcini on the dollar and gold

The reason the Dollar continues to drop even though it is technically “oversold” is because the Fed has made it perfectly clear that there is essentially no limit to the amount of liquidity that they are willing to inject into the economy in order to stave off a stall in the economic “recovery”. A trillion here, a trillion there, a trillion everywhere and pretty soon the host currency is rendered valueless for all practical purposes.

Compound that with the fact that we now seem to have entered an era in which there is a race to devalue currencies by the respective central banks and monetary authorities around the globe and you have the reason why gold is continuing its ascent. Quite simply, it is acting as a currency and it will continue to attract buying on dips in price as long as there is fear, uncertainty and doubt about the “health” of the current monetary system and a lack of confidence in the willingness of the global monetary authorities to change their tactics of systematically undermining the value of their own domestic currencies.

Gold is insurance against the depradations of the central banking class and the parasitical monetary authorities.

Keep your eye on the long term consequences of the Fed’s actions and their signaling to all who can see that they intend to sacrifice the Dollar to achieve their goals. That is set in stone and it will take a huge about face on their part (scrapping QE2 completely) to cause anything more than a bounce in the Dollar. Besides, the US has now past the point at which it is mathematically possible to ever repay all of its outstanding debt. Either it defaults which is unthinkable as it would send the entire global economic system into absolute chaos or it effectively defaults by devaluing the Dollar. Which path do you think it will choose to follow? I don’t think this is a secret to anyone on the planet at this point which is why we are seeing Central Banks all over the planet attempting to stem the rise of their own currencies against the Dollar. Everyone knows that the Fed is killing the Dollar by design.

The rising economic powerhouses of Asia are too powerful of a force to contend with in the gold market and they have made it quite clear that they intend to hold gold as part of their official reserves. Price capping efforts by the West only serve to provide a discounted gold price to buyers from the East who must no doubt in private scratch their heads and marvel at such short-sighted madness on display by their debt-plagued counterparts on the other side of the globe. I have said it once and will say it again – the war for gold is the war for economic supremacy in the 21rst century.

John Paulson: double digit inflation coming

http://blogs.forbes.com/robertlenzner/2010/09/27/john-paulson-sell-bonds-buy-stocks-double-digit-inflation-coming/

Multibillionaire hedge fund operator John Paulson, the investment genius who made a killing going short subprime mortgages a few years ago, told a standing room only crowd at New York’s University Club that double-digit inflation is about to rear its ugly head by 2012, killing the bond market, and restoring strength to equities and gold.

His crystal ball is for 2% GDP growth for 2011 and 2012 and he warns that the Fed’s promise of quantitative easing should contribute to double-digit inflation over the next few years.

As this is the best time in 50 years to buy homes, Paulson advised his listeners, crowded into 3 separate dining rooms, to issue 30 year mortgages to buy a home as “your debt and interest payments get locked in at record lows, while the price of your home will rise.”

See disclaimers in the side bar. The opinions in this article are not necessarily representative of mine, and should not be construed as investment advice. Perform your own due diligence.

Howard Buffett, Warren's dad

http://www.zerohedge.com/article/howard-buffett-said-human-freedom-rests-gold-redeemable-money-called-return-gold-standard

A must read essay by Howard Buffett, father of the "legendary" investor who initially was so very much against derivatives then promptly changed his tune, discusses fiat money and gold, and concludes that "human freedom rests on gold redeemable money." In this stunningly simple, straightforward, and flawless analysis, Buffett's father stresses the relation between money and freedom and contends that without a redeemable currency, an individual's freedom and one's access to property is dependent on goodwill of politicians. Buffett also says that paper money systems generally collapse and result in economic chaos. He goes on to observe that a gold standard would restrict government spending and give people greater power over the public purse.

"Is there a connection between Human Freedom and A Gold Redeemable Money? At first glance it would seem that money belongs to the world of economics and human freedom to the political sphere. But when you recall that one of the first moves by Lenin, Mussolini and Hitler was to outlaw individual ownership of gold, you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty. Also, when you find that Lenin declared and demonstrated that a sure way to overturn the existing social order and bring about communism was by printing press paper money, then again you are impressed with the possibility of a relationship between a gold-backed money and human freedom." His conclusion is eerily prophetic with what is happening with US society currently: "I warn you that politicians of both parties will oppose the restoration of gold, although they may outwardly seemingly favor it. Unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money."

Foreclosure flaws delay recover

http://www.bloomberg.com/news/2010-09-27/foreclosure-flaws-may-delay-u-s-recovery-by-slowing-drop-in-home-prices.html

Intellectual retardation

http://belacquajones.blogspot.com/2009/11/can-they-get-any-smarter.html

Tim Geithner personifies a new phenomenon that is sweeping the financial world: intellectual retardation. This is a condition in which an individual’s thinking becomes so sophisticated and so immersed in detail that it becomes incapable of functioning in a sensible manner.

It’s a simple proposition—if a firm accepts public money then the public sets the terms and conditions.

Another government official spoke of “sophisticated financial institutions.”

It now appears that sophisticated is just another word for stupid.

The only question, now, is who is more sophisticated, finance corporatism or the government. Or, are they so joined at the hip that they are indistinguishable.

Capitalism vs. corporatism

A decent society is grounded on four moral absolutes; do not kill; do not steal; do not lie and do not exploit. Obviously, corporatism and decency are mutually exclusive. For what is fouling democracy’s waters in the twenty-first century is not capitalism but corporatism. Capitalism was a product of owners who exploited their workers. Capitalism has morphed into a corporatism in which employees who think they are owners exploit the workers. Capitalist owners walked the factory floor; corporatist employees are sequestered in glass towers which makes it easier for them to ramp up their exploitation of their workers.

Our wars are corporate wars, waged to expand markets and secure natural resources. Corporatism’s attempt to equate itself with freedom is bogus. It offers freedom only to those at the apex of the pyramid, a freedom that is bought at the expense of the pyramid’s base. This is the peg upon which Progressives could hang liberty’s lantern. We must be willing to demonize corporatism , especially the finance corporatism that has raped pension funds, turned people out of their homes and shipped jobs overseas.

- Case Wagenvoord

6 reasons for a Dollar crisis

http://seekingalpha.com/article/227136-6-reasons-why-a-dollar-crisis-is-imminent?source=hp_wc

I blogged about the US Mint depleting their inventory of Gold Buffalo coins a couple days ago:

http://gregnguyen.blogspot.com/2010/09/us-mint-has-run-out-on-buffalo-gold.html

Last month, they had depleted their inventory of the more popular Gold Eagle coins.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKIgT9DddcYY

The Silver Gold Eagle coins have at times been sold out as well. This is not supposed to happen when an asset is in the throes of a long-running bull market. Higher prices should invite more production.

For instance, if wheat prices soar (like they have been due to drought in Russia), more farmers will allocate their acreage to production of wheat in order to increase profits, eventually bringing prices down to equilibrium. Gold was priced at $35 an ounce until President Nixon took us off the gold standard in 1971. It is now priced at approximately $1300. A much higher price should yield much higher production, as mining companies are motivated to produce higher quantities at inflated prices.

The problem is that an increase in supply has not accompanied gold's price increase, because there is no easy gold to find. Miners have to look far and wide for new deposits, and they have to dig deeper to find smaller amounts of gold (lower grade deposits). Higher gold prices have not fueled increased supply, despite incentive to increase production. Simply put, there is not enough supply to meet increased invesstment demand. Extrapolate that scenario out as you must.

Cal eliminates baseball

University of California, Berkeley is eliminating a number of varsity intercollegiate athletics programs, including America's past time, baseball.

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/09/28/SPP31FL0IP.DTL

The state's fiscal problems has far-reaching consequences.

The world monetary earthquake, the dash from cash

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/9/28_Ben_Davies_-_The_World_Monetary_Earthquake.html

Within a single week 25 nations have deliberately slashed the values of their currencies. Nothing quite comparable with this has ever happened before in the history of the world. This world monetary earthquake will carry many lessons.

Revolution or World War III

http://ampedstatus.com/the-road-to-world-war-iii-the-global-banking-cartel-has-one-card-left-to-play

Bill Gross: More QE Will Lead To A "Declining Dollar And A Lower Standard Of Living

Bill Gross manages a bond portfolio of over $1 trillion, making him the largest fixed-income fund manager in the world.

http://www.zerohedge.com/article/bill-gross-more-qe-will-lead-declining-dollar-and-lower-standard-living

Gold spikes on Bank of England quantitative easing

The threat of QE by the BOE causes gold to surge. The butterfly effect is alive and well.

http://www.zerohedge.com/article/gold-spikes-after-boes-posen-demands-more-qe-wants-buy-corporate-debt

Money transfers facing increased scrutiny

I'm sure drug overlords are wiring $100 money transfers. Capital and currency controls are coming. And then border controls are next.

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/26/AR2010092603941.html

An American passport used to signal freedom to travel overseas. In the future, it will be an anchor.

US practically owned by China

http://www.cnbc.com/id/39376706

China may retaliate for currency measure

MAY retaliate? How about WILL retaliate? Another dumb move by Congress and the Obama administration will sink US exports. Smooth-Hawley II will doom the American economy.

http://www.bloomberg.com/news/2010-09-27/yuan-legislation-in-u-s-congress-may-prompt-retaliation-businesses-say.html

Investbank hiring freeze

http://www.bloomberg.com/news/2010-09-27/morgan-stanley-said-to-freeze-hiring-at-investment-bank-for-rest-of-year.html

Securities firms around the world will cut as many as 80,000 jobs in the next 18 months as revenue growth begins to slow, bank analyst Meredith Whitney of Meredith Whitney Advisory Group LLC said in a report dated Aug. 31.

This is what happens when the government allows fictitious accounting, and bankers pay themselves outrageous bonuses based on said fictitious profits. Meanwhile, shadow banking assets remain, rotting as upside-down borrowers walk away from their mortgages.

US Mint has run out on Buffalo gold coins

http://af.reuters.com/article/metalsNews/idAFN2711303520100927

The U.S. Mint has run out of a type of highly pure gold coin it had been selling amid record high prices of gold.

The mint said it will not stock more of the 1-ounce, 24-karat American Buffalo bullion coins.

"The United States Mint has depleted its inventory of 2010 American Buffalo One Ounce Gold Bullion Coins," the Mint said in a statement, seen by Reuters on Monday.

Officials at the Mint could not immediately be reached for comment.

Grand Unified Theory of market manipulation

http://www.precisioncapmgt.com/wp-content/uploads/PCM-A_G.U.T._of_Market_Manipulation.pdf

There is much speculation and anecdotal information regarding the rally that began March 6 2009, which have suggested the gains are the result of massive manipulation on the part of the Federal Reserve (FR) and the large institutions that dominate Treasury securities dealing, program trading and the derivatives markets. Traders have reported that traditional indicators and metrics used for market analysis stopped working for periods of time or altogether, and that correlations among markets have been erratic and quick to change. Record program trading by Goldman Sachs as reported by the NYSE, heightened focus on high frequency trading (HFT), outsized profits by the large and well-connected banks, along with unprecedented intervention by the FR in the markets only fuel the manipulation speculation.

The POMO Effect
The theory for which we have the greatest supporting evidence of manipulation surrounds the fact that the Federal Reserve Bank of New York (FRNY) began conducting permanent open market operations (POMO) on March 25, 2009 and has conducted 42 to date. Thanks to Thanassis Stathopoulos and Billy O’Nair for alerting us to the POMO Effect discovery and the development of associated trading edges. These auctions are conducted from about 10:30 am to 11:00 am on pre-announced days. In such auctions, the FRNY permanently purchases Treasury securities from selected dealers, with the total purchase amount for a day ranging from about $1.5 B to $7.5 B. These days are highly correlated with strong paint-the-tape closes, with the theory being that the large institutions that receive the capital injections are able to leverage this money by 100 to 500 times and then use it to ramp equities.

China: proudly demolishing buildings

What Chinese property bubble?

http://www.zerohedge.com/article/china-proudly-demolishing-buildings-completed-pursuit-great-housing-bubble-perpetual-engine

Japanese consumer lender Takefuji may file for bankruptcy

http://www.businessweek.com/news/2010-09-27/takefuji-may-file-for-bankruptcy-as-shares-put-on-delist-watch.html

Lending laws passed in 2006 went into effect on June 18, capping interest rates at 20 percent and prohibiting lending to borrowers with consumer debt equal to a third or more of their annual income. In June, more than 60 percent of Japan’s 3,900 registered lenders were yet to comply with a rule requiring them to sign up with credit information firms, meaning they can’t make new loans, according to Japan Credit Information Reference Center Corp. and Credit Information Center Corp.

Takefuji, founded by Yasuo Takei in 1966, was listed on the Tokyo Stock Exchange in December 1998. The shares have plunged 99 percent since their peak of 19,300 yen reached in August 1999.

I guess they couldn't stay in business by "only" charging 20% interest to borrowers.

Central banks no longer selling gold

Click on graphs to enlarge.

http://www.zerohedge.com/article/central-banks-no-longer-selling-gold-duh-factor-1010

Something funny (and quite revolutionary) happened during the CBGA's (Central Bank Gold Agreement) year ending this Sunday - the group of 15 signatory banks sold a mere 6.2 tonnes of gold, a massive 96% decline from the year earlier, according to provisional data.This means that unlike in the past, when it was central banker prerogative #1 to sell some gold and every year just to keep all the longs on their toes, this year the trend has finally changed. As the FT reports, "the sales are the lowest since the agreement was signed in 1999 and well below the peak of 497 tonnes in 2004-05." And yes, we do love the FT's brilliant summation of the change in mindset: "In the 1990s and 2000s, central banks swapped their non-yielding bullion for sovereign debt, which gives a steady annual return. But now, central banks and investors are seeking the security of gold."

Sure, bearer bonds may yield an annual return, but what happens if yields rise and the principal on the bonds evaporate?

European central banks are unlikely to sell much more gold in the new CBGA year, according to a survey by the Financial Times.

Although many central banks declined to detail their sales plans, the responses of some, along with numerous interviews with bankers and consultants, suggest it is unlikely there will be a return to the trend of the past decade, when CBGA signatories sold on average 388 tonnes a year.

The central banks of Sweden, Slovakia, Ireland and Slovenia said they had no plans to sell, while Switzerland reiterated a previous statement to the same effect.

The CBGA was first signed after gold miners protested that central banks’ rush to sell was depressing prices.

Here is a description of the CBGA (Central Bank Gold Agreement): http://www.reserveasset.gold.org/central_bank_agreements/cbga1/

Gold is the final refuge against universal currency debasement

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8026324/Gold-is-the-final-refuge-against-universal-currency-debasement.html

PPT and POMO

Get familiar with these acronyms. PPT = Plunge Protection Team, which I've blogged about a few times already (use the Search function and type in "Plunge Protection"). POMO = permanent open market operations. Central banks (especially the Fed) are intervening and manipulating markets in an attempt to maintain orderly flow. These attempts will eventually fail in spectacular fashion as the manipulation distorts and creates rolling bubbles in various asset classes.

The Queen of England can't afford to heat Buckingham Palace

This portends us mere mortals having higher energy costs in the future.

http://www.independent.co.uk/news/uk/home-news/queen-tried-to-use-state-poverty-fund-to-heat-buckingham-palace-2088179.html

The Emperor really has no clothes.

Trade war with China is on with proposed tariffs

Apparently, our government leaders didn't study Smoot-Hawley, and its role in extending the Great Depression.

http://www.telegraph.co.uk/finance/economics/8024180/Risk-of-trade-war-rises-as-key-US-committee-backs-tariffs-on-China.html

Silence over tri-party repo market

http://www.cnbc.com/id/39340131/

Safest credit ratings

http://www.economicpolicyjournal.com/2010/09/us-about-to-drop-off-list-of-top-ten.html

According to CMA Datavision, the U.S. ranks below nine other countries in terms of the safety of its sovereign debt. Norway is #1 followed by Finland and Germany.

Sweden and Hong Kong are new members of top ten list, displacing France and Belgium.

China hold on metals worries Washington

As it should...

http://online.wsj.com/article/SB10001424052748704062804575510112116972510.html

WASHINGTON—China's control of a key minerals market has U.S. military thinkers and policy makers alike worried about access to materials that are essential for 21st-century technology like smartphones—and smart bombs.

The concern over supplies of so-called rare-earth elements was highlighted this week by a report that Chinese customs officials had blocked exports of the materials to Japan. On Thursday, Beijing denied those reports. "China doesn't block rare-earth exports to Japan," said Chen Rongkai, a spokesman for China's Ministry of Commerce.

At issue is a group of 17 metallic elements with magnetic properties suited for high-tech applications such as computer hard drives and digital cameras. Rare-earth elements are also key to "green" technology: Energy-efficient light bulbs use europium and yttrium, while hybrid car batteries and wind-power turbines use neodymium.

While rare-earth ore deposits are found around the globe, China's dominance in mining and processing the elements has raised alarms in Washington. According to an April 2010 Government Accountability Office report, China now produces approximately 97% of the world's rare-earth oxides, the raw materials that can be further refined into metals and blended into alloys that can be made into finished components.

Over the past year, China has imposed global export quotas on the elements. Its Commerce Ministry has said total exports for the year would be capped at just under 30,300 metric tons, down 40% from last year. Only 7,976 tons of that were allocated for the second half of this year. Experts say much of that has already been shipped.

That has spurred anxiety among government officials and industry executives. Delegations from the U.S., Germany, and Japan have implored Beijing to recognize how critical they consider sustained supply.

Premier Wen Jiabao pledged last month to a visiting Japanese delegation that China wouldn't halt exports. Chinese officials have said the tighter export limits this year are motivated by environmental concerns. During the meeting with the Japanese, Chinese Commerce Minister Chen Deming said Beijing had tightened controls over production and trade because "mass-extraction of rare earth will cause great damage to the environment."

Earlier this week, London-based Industrial Metals magazine and the New York Times reported that China had blocked a shipment of the metals, in retaliation for Japan's detention of a Chinese fishing boat captain on Sept. 7 amid a territorial dispute. Officials in Japan's foreign and trade ministries said they weren't aware of such an embargo. Any ban on shipments to Japan would mark a startling escalation of the dispute, one that would risk aligning Japan, the U.S. and others against China for using its global commercial clout in a bilateral political dispute.

Rare-earth metals have important military applications because of their magnetic strength, which allows for extraordinary miniaturization of components. The fins that steer precision bombs, for instance, have samarium-cobalt permanent magnet motors. The motors that run the rudder and tail fins on a high-performance fighter aircraft like the Air Force F-22 Raptor are built with lightweight, rare-earth magnets. Neodymium is found in the solid-state lasers used to designate targets.

In the newest issue of Joint Force Quarterly, a professional military journal published by National Defense University, Navy Reserve Lt. Cdr. Cindy Hurst, a research analyst in the Foreign Military Studies Office at Fort Leavenworth, Kan., wrote that "China appears to be holding an unlikely trump card" through its dominance in the rare-earth element industry.

"The country's grasp on the rare-earth element industry could one day give China a strong technological advantage and increase its military superiority," she wrote.

The Department of Defense is completing a study to identify the potential national security risks of rare-earth material dependency. Pentagon spokeswoman Cheryl Irwin said a full report drawing on input from a number of government agencies will be released next month.

"It is a highly charged topic," she said, adding the Pentagon is seeking to separate "fact from fiction to ensure we continue to protect the interests of both the warfighter and the taxpayer."

In parallel, U.S. lawmakers have begun probing the national-security implications of rare-earth supplies. The House Committee on Science and Technology's investigations panel held a hearing this year on the issue, and on Thursday, the committee began marking up a bill that would encourage the U.S. government to hedge against rare-earth shortages by collecting more data on potential supply and identifying alternative materials.

Rep. Bart Gordon (D., Tenn.), chairman of the committee, said he was concerned about the United States being "held hostage" when it came to access to raw materials for new technology.

Molycorp, Inc., the owner of a mine in Mountain Pass, Calif., that holds the largest, richest rare-earth deposit outside China, is currently looking to restart and expand production. Jim Sims, a spokesman for Molycorp, said the company was planning by mid-2012 to create a complete U.S.-based supply chain for some kinds of rare-earth magnets.

Company representatives have also discussed the ongoing Department of Defense study with Pentagon officials.

Mr. Sims said the study was a "pretty significant undertaking" that involved going many steps down the defense industry supply chain to understand how rare earths contribute to a weapons system.

"It's a difficult supply chain to ferret out," he said, because "in some cases, the rare earths are used in such small amounts."

Volcker spares no one in broad critique

http://blogs.wsj.com/economics/2010/09/23/volcker-spares-no-one-in-broad-critique/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29

Former Federal Reserve Chairman Paul Volcker scrapped a prepared speech he had planned to deliver at the Federal Reserve Bank of Chicago on Thursday, and instead delivered a blistering, off-the-cuff critique leveled at nearly every corner of the financial system.

Standing at a lectern with his hands in his pockets, Volcker moved unsparingly from banks to regulators to business schools to the Fed to money-market funds during his luncheon speech.

He praised the new financial overhaul law, but said the system remained at risk because it is subject to future “judgments” of individual regulators, who he said would be relentlessly lobbied by banks and politicians to soften the rules.

“This is a plea for structural changes in markets and market regulation,” he said at one point.

Here are his views on a variety of topics.

1) Macroprudential regulation — “somehow those words grate on my ears.”

2) Banking — Investment banks became “trading machines instead of investment banks [leading to] encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”

3) Financial system — “The financial system is broken. We can use that term in late 2008, and I think it’s fair to still use the term unfortunately. We know that parts of it are absolutely broken, like the mortgage market which only happens to be the most important part of our capital markets [and has] become a subsidiary of the U.S. government.”

4) Business schools — “We had all our best business schools in the United States pouring out financial engineers, every smart young mathematician and physicist said ‘I don’t want to be a civil engineer, a mechanical engineer. I’m a smart guy, I want to go to Wall Street.’ And then you know all the risks were going to be sliced and diced and [people thought] the market would be resilient and not face any crises. We took care of all that stuff, and I think that was the general philosophy that markets are efficient and self correcting and we don’t have to worry about them too much.

5) Central banks and the Fed — “Central banks became…maybe a little too infatuated with their own skills and authority because they found secrets to price stability…I think its fair to say there was a certain neglect of supervisory responsibilities, certainly not confined to the Federal Reserve, but including the Federal Reserve, I only say that because the Federal Reserve is the most important in my view.”

6) The recession — “It’s so difficult to get out of this recession because of the basic disequilibrium in the real economy.”

7) Council of regulators — “Potentially cumbersome.”

8) On judgment — “Let me suggest to you that relying on judgment all the time makes for a very heavy burden whether you are regulating an individual institution or whether you are regulating the whole market or whether you are deciding what might be disturbing or what might not be disturbing. It’s pretty tough and it’s subject to all kinds of political and institutional blockages as well.”

9) On procyclicality — “It’s the hardest thing as a regulator in my opinion…when things are really going well, the economy is going well, the market is not disturbed, but you see developments in an institution or in markets that is potentially destabilizing, doing something about it is extremely difficult. Because the answer of the people in the markets is, ‘what are you talking about? Things are going really well. We know more about banking and finance than you do, get out of my hair, if you don’t get out of my hair I’m going to write my congressman.’”

10) Risk management — “Markets that are prone to excesses in one direction or another are not simply managed under the assumption that we can assume that everybody follows a normal distribution curve. Normal distribution curves — if I would submit to you — do not exist in financial markets. Its not that they are fat tails, they don’t exist. I keep hearing about fat tails, and Jesus, it’s only supposed to occur every 100 years, and it appears every 10 years.”

11) Derivatives — “I’ve heard so many stories about how important” derivatives are but “there doesn’t seem to be much doubt that the creation of derivatives has far exceeded any pressing need for hedging.”

12) Money market funds — “Money market funds have encroached so much on the banking market. They are nothing, in my view, but a regulatory arbitrage. The purpose that they serve in handling payments and short term paper is a commercial banking function” but they don’t hold the capital or face the regulation of banks.

13) The Fed and Dodd-Frank — Volcker said it was a “miracle” that despite all the criticism aimed at the Fed the central bank “came out with enhanced regulatory authorities rather than reduced regulatory authorities.”

Understanding the national debt (Sesame Street edition)

Click on Sesame Street's Elmo to enlarge.

http://www.zerohedge.com/article/guest-post-understanding-national-debt-sesame-street-edition

Head of TARP bailout resigns

Another government official resigns.

http://finance.yahoo.com/news/Summary-Box-Head-of-TARP-apf-3734109150.html?x=0

What planet is this guy from?

http://www.eyeblast.tv/public/checker.aspx?v=hdkUnzuzkU

MARK SHIELDS: I think the President's task right now is compared to the situation the nation is comparable to a subway train that has stopped suddenly between two scheduled stops and the lights go out. And what the American people are looking for just as the passengers on that train are looking for is a voice that comes on and says, "This is what happened, this is what's being done about it, and this when we are going to get out." And, I mean, just the simple fact that more jobs in the private sector have been created in this year, 2010, this terrible year, then were created in the eight years of George W. Bush's administration is something to think about and to mention.

Investors deaf to the screams of gold and cotton

http://www.bloomberg.com/news/2010-09-22/investors-are-deaf-to-screams-of-gold-cotton-commentary-by-mark-gilbert.html

Currency wrapped in a riddle--and the collapse of the dollar

The deleveraging deception

http://www.realclearmarkets.com/articles/2010/09/23/the_deleveraging_deception_98682.html

Did the Fed Really Say Inflation Isn't High Enough?

http://www.minyanville.com/businessmarkets/articles/commodities-fomc-coffee-gold-inflation-grocery/9/22/2010/id/30207

Bubble comparisons

Click on chart to enlarge.

Click on the following link for a clearer view.
http://www.sharelynx.com/chartstemp/BubbleComparisons.php

This chart suggests the "bubbles" in gold and silver have a long way to run before collapsing.

Gold market is not fixed, it's rigged

http://news.goldseek.com/GATA/1281888000.php

The change in price between the AM Fix and the PM Fix are cumulatively making a trend which is increasingly losing money in a very strong bull market! Clearly the fixes are not being set to “clear the market” but are being manipulated to suppress the gold price.

What this shows is that the more gold rises over night in essentially Asian markets the more it is sold down into the PM fix. This was exactly the modus operandum of the London Gold Pool but now it is being done covertly.

The case against gun control

http://www.lewrockwell.com/rep/gun-ownership-up-crime-down.html

Murder has fallen 49 percent to a 45-year low.2 At the same time, the number of guns that Americans own has risen by about 90 million. Predictions by gun control supporters, that increasing the number of guns, particularly handguns and so-called “assault weapons,” would cause crime to increase, have been proven profoundly lacking in clairvoyance.

Disclosure: I have an opinion on gun control laws, but it is irrelevant to the data that suggests stricter gun control laws do not decrease the incidences of violent crimes.

Twinkie economy

http://pragcap.com/deep-thoughts-from-seth-klarman

“A tipping point is invisible, as we just saw in Greece. In most situations, everything appears fine until it’s not fine, until, for example, no one shows up at a Treasury auction. In the meantime, we can be lulled into thinking all is well, that the United States will always be rated triple-A. Treasury Secretary Timothy Geithner speaks as if—at least in his public statements—he has been lulled into thinking that the United States will always be triple-A. That kind of thinking guarantees that someday the United States will no longer be triple-A. A sovereign deserves to be rated triple-A only if it has valuable assets, a good education system, a great infrastructure, and the rule of law, all of which are called into question by an eroding infrastructure, a government that changes the law or violates it whenever there is a crisis, and a legislature that shows no fiscal responsibility. There is an old saying, “How did you go bankrupt?” And the answer is, “Gradually, and then suddenly.” The impending fiscal crisis in the United States will make its appearance in the same way.”

Klarman finds the current environment particularly difficult because many of the hedges that have been working are more speculative in nature. He finds little value in most commodities (with the exception of land) because commodities offer no real cash flow and instead rely almost entirely on some future “greater fool” buying the asset from you. Klarman makes an exception with gold, however:

“Gold is unique because it has the age-old aspect of being viewed as a store of value. Nevertheless, it’s still a commodity and has no tangible value, and so I would say that gold is a speculation. But because of my fear about the potential debasing of paper money and about paper money not being a store of value, I want some exposure to gold.”

“Essentially, the problem is that government intervention interfered with the lessons investors needed to learn. Those who stared into the metaphorical abyss are right back at it, with the possible exception of college endowments, for whom the pain has been long lasting because of their spend rate. Almost everybody else is drinking the Kool Aid again, and it is very troubling. We could have another serious collapse, and people would again not be prepared for it.”

The Great Recession ended in June, 2009

According to the National Bureau of Economic Research, this most recent recession started in December, 2009, ended in June, 2009. Thanks for the funnies.

http://www.nber.org/cycles/sept2010.html

Emanuel likely to leave before November

President Obama's Chief of Staff Rahm Emanuel is likely to leave to run for mayor of Chicago. The ship is sinking.

http://www.bloomberg.com/news/2010-09-22/emanuel-likely-to-leave-white-house-before-november-for-chicago-mayor-race.html

Dollar sinks and gold soars

http://latimesblogs.latimes.com/money_co/2010/09/dollar-falls-gold-record-fed-interest-rates-inflation.html

Investors and traders dumped the dollar and sent gold to yet another record high Tuesday, taking their cues from the Federal Reserve’s apparent readiness to drive interest rates down further and inflation up.

The markets’ verdict was clear: They believe Fed Chairman Ben S. Bernanke is willing to debase the dollar to avoid the risk of the economy falling into deflation.

The Fed didn’t announce any change in policy Tuesday, but financial markets read a shift in the Fed’s statement on inflation as a sign that the central bank soon could launch a huge new round of “quantitative easing” -- meaning, a massive program of Treasury bond purchases, perhaps totaling upwards of $1 trillion.

The goal would be to pull longer-term interest rates lower, pump up the supply of money in the financial system and, the Fed would hope, eventually boost inflation.

But any move to flood the system with more dollars would be expected to drive down the greenback’s value. So would lower bond yields, by encouraging investors to look to other countries’ bonds for better returns.

Gold, meanwhile, got a boost as the anti-dollar -- the alternative to paper currencies. What’s more, anyone who expects the Fed to succeed too well, unleashing sharply higher inflation in the next few years, naturally would be drawn to gold as a classic inflation hedge.
With the Fed “now explicitly committed to inflation, investing in gold and foreign currencies becomes an easy decision,” said Peter Schiff, head of Euro Pacific Capital and one of the central bank’s biggest critics.

The possibility of a new Fed program of Treasury purchases drove bond yields sharply lower. The 10-year T-note yield slid to 2.57% from 2.70% on Monday, the biggest one-day drop since June 4. The five-year T-note yield fell to a 21-month low of 1.30% from 1.41%.

But bond investors should recognize the risk here: If the Fed eventually gets consumer prices rising at a faster pace, locking in these yields could mean being stuck with securities earning less than the inflation rate.

Lawrence Summers is out

Surprise, surprise...not. Hailed as a financial genius by the financial press, Summers--along with Robert Rubin, Alan Greenspan, and Ben Bernanke, will go down in history as causing the collapse of the United States, in my humble opinion.

http://www.washingtonpost.com/wp-dyn/content/article/2010/09/21/AR2010092104828.html

The Keynesian end point is approaching, and the collapse of the USDollar and global financial system as we know it will accompany it.

Forensic evidence of gold and silver manipulation

http://www.zerohedge.com/article/guest-post-more-forensic-evidence-gold-silver-price-manipulation

What is really astounding is that one can generate almost a perfect reproduction of the price of silver by only knowing the price of gold. This is again “smoking gun” forensic evidence that the price of silver is not only manipulated but is done so algorithmically.

Such a perfect relationship with gold could not happen over a seven year period by pure happenstance. The silver price is completely false and has absolutely nothing to do with the fundamentals of silver.

The bad news is that for the last seven years those who have been expecting silver to outperform gold or to march to its own drum have been sorely disappointed and it was hard wired into the trading that they were not going to see a freely traded silver market. The good news is that from the way silver has traded in recent days it is decoupling from gold. It is breaking the algorithmic shackles placed on it by the manipulators.

The artificially low price that has resulted from the creation of false supply through the sale of paper silver via unallocated accounts as a substitute for real bullion has led to a growing shortage. This monumental scam is in the process of becoming unraveled as investors insist on taking delivery of real silver.

Forward sales of silver through the LBMA OTC London market are approximately 8.5 Billion ozs. This is almost all the entire global reserves of silver that are yet to be mined! But the silver miners who own the remaining reserves are unhedged, so who ever has sold 8.5 billion ozs of silver forward by inference does not own 8.5 billion ozs of silver. It is a naked short position of 11 years of global production.

The interesting question is what will the free market price of silver be? Gold itself is suppressed by many multiples of the current price and the false silver price is just a derivative of a false gold price. I have previously estimated that there is only one ounce of gold for every 45 ozs that have been sold. If a similar relationship exists in silver than the eventual long term free market price target could be more than $900/oz. This is just a wild estimate but I think it is safe to say it will be many multiples of the current outrageously suppressed price of $20.9/oz.

Ben Bernanke on deflation

http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

My take? We will have deflation in some asset classes (vacation homes, bonds, and some equities). We will have inflation in consumable items (energy, food, precious metals). Stuck in between is the American consumer who continues to experience a declining standard of living.

Illinois pension fund death spiral revisited

http://www.zerohedge.com/article/illinois-pension-fund-death-spiral-revisited-10-years-money-left

This fund is already selling, this year, about $80 million of assets a month. Here's the problem - if you have to sell faster than you thought you have to sell, because you are not getting that state funding, then you sell the liquid stuff - stocks, bonds, and then you are left with private equity, real estate, infrastructure...all of a sudden your portfolio has changed, people are asking questions, it is a major issue.

http://www.youtube.com/watch?v=V3obGLpSKFA&feature=player_embedded

The last price standing of true money

http://www.zerohedge.com/article/bill-buckler-discusses-last-price-standing-true-money-answers-only-question-relevant-gold-bu

The jaws of death

http://lcmgroupe.home.comcast.net/~lcmgroupe/2010/Article-Preserve_and_Protect-Jaws_of_Death.htm

The United States is facing both a structural and demand problem - it is not the cyclical recessionary business cycle or the fallout of a credit supply crisis which the Washington spin would have you believe.

It is my opinion that the Washington political machine is being forced to take this position, because it simply does not know what to do about the real dilemma associated with the implications of the massive structural debt and deficits facing the US. This is a politically dangerous predicament because the reality is we are on the cusp of an imminent and significant collapse in the standard of living for most Americans.

If this is what deflation looks like...

http://www.zerohedge.com/article/guest-post-if-what-deflation-looks-like%E2%80%A6

Stocks, bonds and real estate will perform horribly in the environment that we have. Even if they go up for periods, over time they will not make up for the cost of living increases in the things that we need. This is the major disconnect happening right now between “Wall Street” and “Main Street.” Wall Street has been coddled and pampered for two and a half decades by the natural forces of a secular bull market in financial assets as well as the Federal Reserve Chairman and a D.C. establishment that refuses to allow the free market to function. So when a money manager of financial assets looks into his future and sees deflation he is correct. When the majority of “Main Street” looks into their future they also correctly see inflation. That is because when you have 40 million Americans on food stamps I am sorry but they have much bigger issues to deal with than the S&P500. So the world we are looking at is where a BLT sandwich could cost $12 and home prices drop another 20%. Investment professionals have a very hard time getting the heads around this concept for some reason but that is the reality we are looking at. Goods that are wanted around the world will rise in price in debased dollars while non-essential items deflate. The Chinese want pork but they could care less about some McMansion in Ohio. There is nothing anyone can do to change this. It is a natural cycle as simple, powerful and inevitable as any cycle in nature. If it must happen, it will happen.

My problem with the “deflationists” that recommend a high allocation of assets to long-term treasuries is that there are a lot of better assets to buy in the type of environment we are entering. As I have repeated over and over again these assets are primarily precious metals but also include other commodities. Especially commodities that people need and are strategic to governments such as food and oil. There are plenty of equities that are associated with these themes and in my opinion they will do far better over time than long-term treasuries. Gold for example IS the end game. Treasuries certainly are not. Gold is the best way to short the market. Gold is the ultimate form of payment. Gold is your vote as an investment manager and a citizen against the maniacs running governments all over the world.

Gold and silver gain

http://www.bloomberg.com/news/2010-09-17/gold-may-drop-as-advance-to-second-record-this-week-prompts-investor-sales.html

“All the debt and deficits are so high, the only perceived way out of this mess is a global synchronized devaluation of all fiat currencies,” said Michael Pento, a vice president at Euro Pacific Capital Inc. in New York. “Gold is replacing the dollar as the world’s reserve currency.”

It's talk like this that got Pento kicked out of his CNBC interview with Erin Burnett.

When Japan collapses

http://theburningplatform.com/blog/2010/09/15/when-japan-collapses/

Ireland bailout rumors spook markets

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8010097/Ireland-IMF-bail-out-rumours-spook-markets.html

Spain the next Dubai?

http://www.businessinsider.com/the-ecb-is-the-only-thing-stopping-spain-from-becoming-the-next-dubai-2010-9

Yen intervention

http://www.ft.com/cms/s/0/43627416-c074-11df-8a81-00144feab49a.html

Now that the Bank of Japan has manipulated the yen down, will they draw criticism from the US for "currency manipulation", as they have from Europe? The US has already pointed fingers at China for currency manipulation. Could it be that all sovereign governments are manipulating their native currencies down in an attempt to stimulate their exports? Guess which store of value wins when paper currencies race each other to the bottom? I'll give you two guesses. And they're not colored pieces of paper.

Soros reiterates gold as the ultimate bubble

He declared gold is the "ultimate bubble" in January, and reiterates that sentiment today. Problem is, his fund loaded up on gold and gold-related assets last December. Is he talking down his book? You decide.

http://uk.reuters.com/article/idUKTRE68E3PX20100915

In the video, he declares gold is the ultimate bubble destined to "disappoint" investors, yet he admits gold has been the best-performing asset in his funds in 2010. He could have said gold was the best-performing asset class for the last 10 years, and still have been correct.

http://insider.thomsonreuters.com/link.html?ctype=groupchannel&chid=3&cid=144412&start=0&end=124&shareToken=MzoxOTI3YTRkNS1jMzRjLTQ1OTYtODJiNS1mNDY3OTg2ZWVjOWY%3D

Third world America

http://www2.macleans.ca/2010/09/14/third-world-america/

Congressmen Weiner and Waxman Set Gold Hearing

Thanks to my friend John for sending this article.

http://seekingalpha.com/article/225579-congressmen-weiner-and-waxman-set-gold-hearing

Atlast just shrugged

http://www.gata.org/node/9022

Greenspan's warning on gold

http://www.nysun.com/editorials/greenspans-warning-on-gold/87080

Arena plunges, blames FDA panel over obesity drug

http://www.reuters.com/article/idUSTRE68G2CF20100917

CHARLIE MUNGER: “MORE PAIN TO COME”

http://pragcap.com/charlie-munger-more-pain-to-come

Just a day after Warren Buffett expressed his optimism in the US economy Charlie Munger, his right hand man, said there is “more pain to come”.

China hints it could dump U.S. bonds

http://www.moneynews.com/Headline/China-Fires-Shot-Over/2010/09/14/id/370164

The Chinese dumping US bonds will cause yields and interest rates to soar, which will unravel any hopes of a US economic recovery. Is Congress really thinking this through in accusing the Chinese of currency manipulation and threatening to impose import tariffs? My short answer is no.

Zero down mortgages restarted by Fannie

http://www.fundmymutualfund.com/2010/09/zero-down-mortgages-restarted-by.html

Good news folks... the "no skin in the game" mortgage is back. You know the game right? It's a one sided bet where the buyer can only win. If the house goes up, you pocket that and hopefully get that granite countertop you so deserve with the home equity. If it doesn't go up.... you walk - but only after living in the home rent free for at least 18-22 months as you strategically default your way to a mountain of savings while waiting for the sheriff to show up. If you are smart you can save at least $30K during this time. There are no losers here (except the U.S. taxpayer).

Gold and silver will lead the way

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/9/14_James_Turk_-_Gold_and_Silver_Will_Lead_the_Way.html

John Hathaway Says Gold Bull Run At Midway Point

http://www.kitco.com/reports/KitcoNews20100913AS_hathaway.html

Frank Holmes does not see a bubble in gold

http://www.kitco.com/reports/KitcoNews20100913AS_Frank.html

Silver demand surging in India

http://www.mineweb.com/mineweb/view/mineweb/en/page32?oid=111161&sn=Detail&pid=102055

Piper Jaffray Says Arena Pharmaceuticals (ARNA) Sell-Off is an "Overreaction"

Piper Jaffray reiterates their Overweight rating on shares of ARNA with a price target of $10.

http://www.streetinsider.com/Analyst+Comments/Piper+Jaffray+Says+Arena+Pharmaceuticals+%28ARNA%29+Sell-Off+is+an+%22Overreaction%22/5967972.html

Handicapping Lorcaserin's advisory committee review

This is my attempt to handicap the voting by members of Lorcaserin's advisory committee, given they are the same panel as Meridia's advisory committee.

ENDOCRINOLOGIC AND METABOLIC DRUGS ADVISORY COMMITTEE MEMBERS (Voting)

Eric I. Felner, M.D.
Associate Professor of Pediatrics
Director of Diabetes and Endocrinology
Hughes Spalding Children's Hospital
Emory University School of Medicine
Atlanta, Georgia
* Yes on Lorqess, due to lower HbA1c glucose levels

Lamont G. Weide M.D., Ph.D., F.A.C.E.
Chief, Diabetes & Endocrinology
Professor, Internal Medicine
University of Missouri - Kansas City
Truman Medical Centers
Diabetes Center
Kansas City, Missouri
* Voted No on Qnexa, wanted 2 year data
* Yes on Lorqess, due to 2 year echo data, and lower HbA1c glucose levels

Allison B. Goldfine, M.D. Associate Professor
Harvard Medical School Section Head of Clinical Research
Joslin Diabetes
Boston, Massachusetts
* Voted Yes on Qnexa
* Strong Yes on Lorqess, due to better safety profile, and lower HbA1c glucose levels

Abraham Thomas, M.D., M.P.H.
Acting Chair Division Head
Endocrinology, Diabetes, Bone, and Mineral Disorders
Henry Ford Hospital
Whitehouse Chair of Endocrinology
Detroit, Michigan
* Voted No on Qnexa
* No on Lorqess, didn't seem to believe in drug therapeutics for obesity

CARDIOVASCULAR AND RENAL DRUG ADVISORY COMMITTEE MEMBER (Voting)

Sanjay Kaul., M.D.
Director, Fellowship Training Program in Cardiovascular Diseases
Cedars-Sinai Heart Institute
Professor, David Geffen School of Medicine at UCLA
Division of Cardiology
Cedar Sinai Medical Center
Los Angeles, California
* Voted Yes on Qnexa
* Strong Yes on Lorqess, due to better safety profile and 2-year echo data

CENTER FOR DRUG EVALUATION AND RESEARCH TEMPORARY MEMBERS (Voting)

Melanie Coffin
Patient Representative Rockville, Maryland
* Voted Yes on Qnexa
* Strong Yes on Lorqess, due to better safety profile

Jessica W. Henderson, Ph.D.
Acting Consumer Representative
Professor of Community Health Education Division of Health and Physical Education
Western Oregon University
Monmouth, Oregon
* Voted Yes on Qnexa
* Strong Yes on Lorqess, due to better safety profile.

John M. Flack, M.D., M.P.H., F.A.H.A., F.A.C.P.
Professor of Medicine & Physiology
Chair, Department of Internal Medicine
Chief, Division of Translational Research & Clinical Epidemiology
Wayne State University School of Medicine
Detroit, Michigan
* Yes on Lorqess, due to 2-year echo data, and lower HbA1c glucose levels. Also, half-life for Lorqess is faster and metabolized in the kidneys, not the liver.

William R. Hiatt, M.D., F.A.C.P.
University of Colorado Denver, School of Medicine
Section of Vascular Medicine
Divisions of Geriatric Medicine and Cardiology
President, Colorado Prevention Center
Aurora, Colorado
* Yes on Lorqess, due to 2-year echo data.

Jacqueline S. Gardner, Ph.D., M.P.H.
Professor Emeritus
Department of Pharmacy
University of Washington
Seattle, Washington
* Strong Yes on Lorqess, due to no teratogenicity or unwanted pregnancy concerns (see Qnexa). Formulary journal endorses Lorqess as a safe, effective drug that can be taken for longer than 12 weeks, unlike phentermine.

Jodi B. Segal, M.D., M.P.H.
Associate Professor of Medicine
Health Policy and Management, and Epidemiology
Johns Hopkins University
Baltimore, Maryland
* Yes on Lorqess, due to better safety profile, and lower HbA1c glucose levels

Peter A. Gross, M.D.
Executive Vice President & Chief Medical Officer
Hackensack University Medical Center
Hackensack, New Jersey
* Don't Know

David D. Waters, M.D. Emeritus Professor
Division of Cardiology
San Francisco General Hospital University of California
San Francisco, California
* Yes on Lorcaserin, due to 2 years of echo data

REGULAR GOVERNMENT EMPLOYEES (Voting)

Dennis O. Dixon, Ph.D. Mathematical Statistician
Biostatistics Research Branch
National Institute of Allergy and Infectious Diseases (NIAID)
National Institutes of Health (NIH)
Bethesda, Maryland
* Strong Yes on Lorcaserin, as clinical trials had the most patients and benefits are statistically significant.

Katherine M. Flegal, Ph.D.
Senior Research Scientist
Distinguished Consultant
National Center for Health Statistics
Centers for Disease Control and Prevention
Hyattsville, Maryland
* Voted No on Qnexa
* Yes on Lorqess, due to 2-year echo data and clinical trials had the most patients and benefits are statistically significant

Edward W. Gregg, Ph.D.
Chief, Epidemiology and Statistics Branch
Division of Diabetes Translation
Centers for Disease Control and Prevention
Atlanta, Georgia
* Don't Know
* Could be a yes for Lorqess as clinical trials had the most patients and benefits are statistically significant.

Michael A. Proschan, Ph.D.
Mathematical Statistician
Biostatistics Research Branch
NIAID, NIH
Bethesda, Maryland
* Voted No on Qnexa
* Strong Yes on Lorcaserin, as clinical trials had the most patients and benefits are statistically significant

ENDOCRINOLOGIC AND METABOLIC DRUGS ADVISORY COMMITTEE MEMBER
(Non-Voting)

Enrico P. Veltri, M.D.
Industry Representative
Pharmaceutical Industry Consultant
Princeton, New Jersey

FDA PARTICIPANTS (Non-Voting)

Curtis J. Rosebraugh, M.D., M.P.H.
Director
Office of Drug Evaluation (ODE) II
Office of New Drugs (OND)
Center for Drug Evaluation and Research (CDER)
Food and Drug Administration (FDA)

Mary H. Parks, M.D.
Director
Division of Metabolism and Endocrinology Products (DMEP),ODE II
OND, CDER, FDA

Eric Colman, M.D.
Deputy Director
DMEP, ODE II, OND
CDER, FDA

Monique Falconer, M.D., M.S.
Clinical Reviewer
DMEP, ODE II, OND
CDER, FDA

David Hoberman, Ph.D.
Mathematical Statistician
Division of Biometrics II
Office of Biometrics
Office of Translational Sciences
CDER, FDA

My best guess tally is 14 Yes, 1 No, and 2 Don't Know. Seven of the Yes votes are a Strong Yes. Even though cardiac valvulopathy has been ruled out based on 2 years of echo data, I did not include all of the cardiovascular voting members as a Strong Yes.

Worst-case scenario is 9 Yes, 8 No. ARNA shares probably drop to $3 - $4 in this scenario.

Best-case scenario is 16 Yes, 1 No. ARNA shares could soar to $15 - $20 in this scenario.

See disclaimers in the side bar. This is not financial advise, and any price or directional targets are my opinion only. Perform your own due diligence.

Disclosure: long ARNA shares, short January 2011 puts, long October calls and short October puts (bullish risk reversal spread, or synthetic long stock split strikes position).

September 15-16, 2010 Meeting of the Endocrinologic and Metabolic Drugs Advisory Committee

FDA and Sponsor briefing documents for Abbott's Meridia and Arena's Lorcaserin advisory committee reviews will be posted here.

http://www.fda.gov/AdvisoryCommittees/CommitteesMeetingMaterials/Drugs/EndocrinologicandMetabolicDrugsAdvisoryCommittee/ucm191113.htm

Lori Ann LaRocco must-hear interview

This is a must-hear interview from Lori Ann LaRocco, which is surprisingly but now predictably gloomy about our chances for an economic recovery. It is predictable because it's becoming quite obvious our government's stimulus programs are failing to create jobs and stimulate the economy, something us naysayers have been forecasting all along, at the risk of sounding dogmatic. With the benefit of hindsight, we were right.

But why is Ms. LaRocco's candor surprising? She happens to be CNBC's Senior Producer for Squawk Box, so one should expect her to be a cheerleader pandering to our government's propaganda on an economic recovery. Yet, she shares her honest, behind-the-scenes interactions with CEO's pessimistic about the path our country has taken. And in case readers may forget, CEO's of companies do make employment decisions.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/9/9_Lori_Ann_LaRocco_files/Lori%20Ann%20LaRocco%209%3A9%3A2010.mp3

The funeral of Keynesian theory

http://www.zerohedge.com/article/eric-sprott-we-are-now-paying-funeral-keynesian-theory

A two percent spending increase inevitably requires an increase in taxes. Due to the nature of interest costs, however, the government would have to raise taxes by MORE than two percent in order to pay back the initial borrowing. According to their data, this increase in taxes would generally lead to a seven percent drop in GDP. As they state in their study: "This shows that when government spending is financed contemporaneously that the contractionary effects of the tax increases outweigh the expansionary effects of the increased expenditure after a very short time."2 Stated simply, ‘borrowing to stimulate’ has never worked as planned because the cost of paying back the borrowed funds surpassed the immediate benefits of the stimulus.

In a follow-on study, Harald Uhlig estimated that an approximate $3.40 of output is lost for every dollar spent on stimulus.3 Another study on the same subject by C’ordoba and Kehoe (2009) went so far as to say that, "massive public interventions in the economy to maintain employment and investment during a financial crisis can, if they distort incentives enough, lead to a great depression."4

Deficit spending, which has generated smaller and smaller increases in GDP over time, is now generating a negative impact on GDP due to the costs of servicing the debt.

Since Keynesian economics is no longer relevant, some are now arguing that tax cuts will save the day. Two of the academic studies we reviewed suggest that tax relief is a much stronger stimulus to the economy than government spending, and under normal circumstances this is probably true. But we are not in a normal economic environment. Even if the tax cuts implemented by George Bush in 2006 are extended by the next Congress, the US will still face the ‘Keynesian Endpoint’. A Government Accountability Office (GAO) report published in January 2010 states the following: "In our Alternative simulation, which assumes expiring tax provisions are extended through 2020 and revenue is held constant at the 40-year historical average; roughly 93 cents of every dollar of federal revenue will be spent on the major entitlement programs and net interest costs by 2020."12 Extending tax cuts won’t solve anything.

Keynesian stimulus can’t be blamed for all our problems, but it would have been nice if our politicians hadn’t relied on it so blindly. Debt is debt is debt, after all. It doesn’t matter if it’s owed by governments or individuals. It weighs on the institutions that issue too much of it, and the ensuing consequences of paying off the interest costs severely hinders governments’ ability to function properly. It suffices to say that we need a new economic plan – a plan that doesn’t invite governments to print their way out of economic turmoil. Keynesian theory enjoyed a tremendous run, but is now for all intents and purposes dead… and now it’s time to pay for it. Literally.