Thursday, June 28, 2012

The Fate of the Global Financial System Hangs in the Balance

“You would also expect the ECB to be allowed to increase its purchases of bonds because they need some type of major package.  But investors have to back up a second, and when you back up, you have to be a little more worried.  The reason to worry is because this is the 19th time the European leaders have gotten together. 
During that period we have gone from bad, to worse, to outright frightening….

Greyerz - Greatest Financial Collapse The World Has Ever Seen

“Europe is in a crisis, but they can never decide anything in these meetings.  They might come out with a little package, but in the end it will be irrelevant.  The real package will come out when there is panic.  We shouldn’t even listen to what these politicians are saying today because they are incapable of facing the truth. 
Many countries in Europe are already bankrupt, such as Greece, Spain, Italy, and many others are on the way to bankruptcy such as France, the UK, etc..  In the short-term Europe will hold together.  Longer-term the EU will break up and the euro will disappear, but shorter-term it’s not going to happen.  

Americans Are Being Prepared For Full Spectrum Tyranny

JPMorgan Trading Loss May Reach $9 Billion
“Essentially, JPMorgan has been operating a hedge fund with federal insured deposits within a bank,” said Mark Williams, a professor of finance at Boston University, who also served as a Federal Reserve bank examiner.

Iran threatens to close strait if new sanctions begin

Wednesday, June 27, 2012


While Banks Crumble, The Next Leg Up For Gold Prices Draws Near

I blogged about the BIS reconsidering gold's status as a Tier 1 asset earlier.  Here's another take.

FDA OKs first new prescription diet drug in a decade

Arena Pharma Shares Surge; FDA Approves Weight-Loss Drug

Draghi May Enter Twilight Zone Where Fed Fears To Tread

European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. 
While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15.

Germany rebuffs Obama's advice on euro crisis

The Consequences Of The Unthinkable: Here Is What Happens When The Euro Breaks Up
As the following image from Spiegel summarizes, three things will happen simultaneously when the unthinkable finally occurs: i) economic output plummets, ii) unemployment rate soars, and iii) consumer prices explode. Of course, this is nothing but merely deferred consequences for Europe partying for over a decade under an unsustainable regime that borrowed from the future (sound familiar?). And now the inevitable hangover. In other words: payback is a bitch.

Stockton official: Mediation with creditors fails

The Ignorance Is Willful

Friday, June 22, 2012

Europe To Launch Massive Two Trillion Euro Bailout Package

Gold As A Store Of Value

Escalation: Syria Says Turkish Jet Shot Down Was Over Syrian Territorial Waters

Could this make Ben Bernanke a Soviet dictator?

Dr. Michael J. Burry at UCLA Economics Commencement 2012

Ministry of [Un]Truth

Nigel Farage - Europe is About to Impose Extreme Repression

The USD Trap Is Closing: Dollar Exclusion Zone Crosses The Pacific As Brazil Signs China Currency Swap

Presenting The Fundamental Flaw In The Fed's Thinking

Central Banks Manipulate Gold Markets

Thursday, June 21, 2012


Prepare for Lehmans re-run, Bank official warns

Debt crisis: Spain and Italy to be bailed out in £600bn deal

Only 600 billion Euro?  And pundits are advising people to sell their gold?  lol

US behind the Iran nuclear 'crisis'

This is an interesting Chinese perspective on the relationship between Iran and the  US. 

SocGen: Gold Could Surge Over 500%

Societe Generale is "enthusiastic on gold" -- so much so that in their latest cross-asset strategy report, they call "buy gold ahead of QE3" their number one strategy, saying it's "the perfect asset to benefit" from additional loose monetary policy. 
In the report, SocGen discusses the historical relationship between the price of gold and the U.S. monetary base. The SocGen team writes that "if gold catches up with the increase in the monetary base since 1920 (as it did in the early 80s), its price would rise to USD 8500/Oz," adding that just "to close the gap with the monetary base increase since July 2007, gold would have to rise to $1,900/oz, assuming full transmission from the monetary base increase to the gold price."

China takes up India's gold buying slack

Renminbi begins to go global

China's Central Bank Willing To Share $3 Trillion

Russia Buys 0.5 Million Ounces and Bank of Korea “Needs To Buy More” Gold

What’s next…

This is today’s reality. It can happen here, it probably will happen here. And frankly, it’s all unfolding almost exactly as it has so many times before throughout history:
1. A nation rises to greatness and becomes wealthy based on sound principles and the hard work of initial generations.
2. Eventually, being wealthy becomes the natural expectation… an entitlement, rather than a goal to work hard for and achieve.
3. A nation begins living beyond its means to maintain the high life without the hard work, leveraging its credibility to trade tomorrow’s production for today’s consumption.
4. Living beyond its means eventually becomes unsustainable. Government begins to slowly, then staggeringly, devalue its currency.
5. The market (i.e. people) finally wake up to the fraud being perpetrated.
6. Financial repression usually follows– high taxes which steal from the productive, negative real interest rates which steal from the savers, etc.
7. Capital flight comes next. People take their money and run.
8. Governments implement capital controls, border controls, price and wage controls, and anything else they can do to maintain the status quo. People find out who the police are really there to protect and serve.
9. Capitulation (default) is the endgame; the system resets itself and begins anew.
This is nothing new. From the 3rd Dynasty of Ur (2000 BC) to Medieval Venice to the familiar stories of Rome and the Ottoman Empire, the world is full of monuments to the past greatness of failed civilizations.

Ponzi Comes Full Circle: ECB Will Rate Sovereign Bonds It Accepts As Collateral

The Master Narrative Nobody Dares Admit: Centralization Has Failed

Fleckenstein - Fed Takes Half Step, Will Be Forced to Act Again

Fed Meeting, European Crisis & An Inflationary Death Spiral

Here is the reality, we have a situation in the developed world, particularly Europe and the United States, where the level of debt at the public sector level has become so onerous that the tax base no longer supports the solvency of the states.  When you get to the point where the tax base cannot support the stability in interest rates, the international bond market starts to lose faith in the credit market and interest rates rise. 
The idea that you can bring down interest rates by creating inflation through never-ending counterfeiting on the part of central banks is absurd.  It doesn’t make any sense as an economic theory or in the real world.  You cannot create endless rounds of inflation for the purpose of keeping interest rates low.  You destroy your economy, and you send the cost of borrowing on the sovereign level much higher when you continually print money. 
Someday soon central banks will learn that lesson.  I can assure you that the central bank of Hungary learned that lesson in 1946.  The central bank of Zimbabwe also learned that lesson.  A central bank cannot continually become the only buyer of a nation’s debt.  That is where we are in Europe, that is where we are in Japan, and that’s where we’re headed in the United States. 
When your central bank becomes the only buyer of your debt, you enter into an inflationary death spiral.  That is where we are in Europe, and if it doesn’t end, you are going to have the euro going the same way as the Hungarian pengo.

Wednesday, June 20, 2012

Nigel Farage: "Listen! The Whole Thing's a Giant Ponzi Scheme!"

Diminishing returns on monetary easing

With everybody closely watching the FOMC on whether they re-institute another round of QE and/or Operation Twist, I think it's instructive to examine the frequency of easing.  QE 1 was launched in March 2009 to stem the collapse on Wall Street.  QE 2 was launched in November 2010 (the Fed announced it in August 2010).  Operation Twist was initiated in October 2011.

edit:  As I type this, Operation Twist has been extended from June 30 to December 31, 2012. Short-term interest rates will also continue to be pinned to 0% until 2014.

Based on the timeline of monetary easing (i.e. money printing), the law of diminishing returns is in full effect--and that includes its effect on propping up asset markets.  The period between QE 1 and QE 2 was 20 months, and the period between QE 2 and Operation Twist 1 was 11 months.  The period between Operation Twist 1 and Operation Twist is 8 months.  It appears markets need more sugar, more frequently to maintain its highs.

Previous announcements of easing caused markets to rally sharply.  With the latest announcement, it appears markets have already priced it in.  Printing money out of thin air seems to be dampening the wealth effect--or at least is becoming less and less effective.

Of course, the counter argument is that the economy is stronger now and doesn't need more sugar--it just needs an extension of current monetary policies.  I believe this view is Polyannish, as the world economy is still teetering on the verge of another financial collapse.

The Fed also downplays the desired outcome of elevating markets, but that easing is more intended to cap interest rates to stimulate the economy.  Given rates are already at historical lows, this justification seems flimsy.  The Fed is pushing on a string.

My views are debatable, but what is intractable is the balance sheet of the US continues to balloon.  This does not bode well for the financial condition of the US, especially if inflation ends its apparent dormancy.  At that point, a rising interest rate environment would be a death knell for the US economy.

'The US Is Hypocritical when It Lectures Europe'

The Economic Abuse Of Veterans In America

Napolitano stands by controversial report
Homeland Security Secretary Janet Napolitano said Wednesday that she was briefed before the release of a controversial intelligence assessment and that she stands by the report, which lists returning veterans among terrorist risks to the U.S.

Obama Asserts Executive Privilege Over Fast And Furious Fiasco

Talk of drones patrolling US skies spawns anxiety

Businessman stopped on Swiss border with £1.6m worth of gold in his car

Job Openings In U.S. Decrease By Most In Almost Four Years

Tuesday, June 19, 2012

Regulatory Capital Rules: Standardized Approach for Risk-Weighted Assets; Market Discipline and Disclosure Requirements

Gold bugs have gotten it right all along.

A. Zero Percent Risk-Weighted ItemsThe following exposures would receive a zero percent risk weight under the proposal:
  • Cash;
  • Gold bullion;
  • Direct and unconditional claims on the U.S. government, its central bank, or a U.S. government agency;
  • Exposures unconditionally guaranteed by the U.S. government, its central bank, or a U.S. government agency;
  • Claims on certain supranational entities (such as the International Monetary Fund) and certain multilateral development banking organizations
  • Claims on and exposures unconditionally guaranteed by sovereign entities that meet certain criteria (as discussed below).
For more information, please refer to sections 32(a) and 37(b)(3)(iii) of the proposal. For exposures to foreign governments and their central banks, see section L below. 
Q. Treatment of Collateralized TransactionsThe proposal allows banking organizations to recognize the risk mitigating benefits of financial collateral in risk-weighted assets, and defines financial collateral to include:
  • cash on deposit at the bank or third-party custodian;
  • gold;
In all cases the banking organization would be required to have a perfected, first priority interest in the financial collateral.
1. Simple approach: A banking organization may apply a risk weight to the portion of an exposure that is secured by the market value of financial collateral by using the risk weight of the collateral – subject to a risk weight floor of 20 percent. To apply the simple approach, the collateral must be subject to a collateral agreement for at least the life of the exposure; the collateral must be revalued at least every 6 months; and the collateral (other than gold) must be in the same currency.

Funding gap for state retirement benefits rises to $1.4 trillion

Sunday, June 3, 2012

The Fat Lady Is Clearing Her Throat

Things That Make You Go Hmmm - Such As The Spread Between Gold And Gold Miners
The fact that gold stocks are behaving so poorly seems to be as a result of both misunderstanding and inadequate knowledge of history on the part of the vast majority of investors and, as we have seen with subprime, Greece, Spain, Italy and, one day, Japan, the UK and the US, nothing matters to anybody until it matters to everybody.

ZOMBIE ATTACK Disaster Preparedness Simulation Exercise #5 (DR5)

WTF?  Is this real?

Friday, June 1, 2012

The End Game

Time Bomb? Banks Pressured to Buy Government Debt

Mining Maven Says Share Slump To Spur Merger Boom

Fed Will Likely Weigh Rosengren’s Call For Stimulus

I'll say it once again in case there is any misunderstanding.  Multiple rounds of quantitative easing (QE) are guaranteed, despite multiple rounds of previous declarations on economic "green shoots."  The cheerleaders on Wall Street and in Washington got it wrong--again.

As the global economies continue to tank, desperate central bankers will continue to gin up the printing press.  There is no other solution on this path to fiscal hell.

The sovereign economies are stricken with a metastasizing tumor called debt.  Yet, central bankers continue to provide drips of antibiotic monetary stimulus, trying to treat the low-grade fever symptoms, when the only cure is a gutting of the growing cancerous tumor.

Yes, debt defaults are drastic solutions, but they are also necessary to treat the malignancy.  Will it occur by design? No, there is no political will to cut off the government teat of social welfare transfer payments.  Will it occur out of necessity?  Yes, as surely as the Roman empire collapsed under its own weight of bankruptcy.

Art Cashin - Precipice of a Broad, Dangerous Global Contagion

When asked about the spectacular move in gold today, Cashin responded, “In the Middle Ages, people were always looking for alchemists who could change the substance of something into gold. 
This morning at 8:32 AM (EST), gold converted from just another asset class, back into safe haven status.  People scrambled saying, ‘I’m not sure which currency, I’m not sure which continent, which area can offer me safety.  Let me buy some of the yellow metal.’”

Rick Rule - Here is Why Gold is Soaring & Stocks are Tanking

Greyerz - Market Chaos & Incredibly Important 200 Year Chart

Turk - This Coming Disaster Will Be Worse Than Lehman 2008

Comex Gold Soars on Safe-Haven Demand, Panic Short Covering after Very Weak U.S. Jobs Data

Uncle Sam admits monitoring you for these 377 words:

The Real Banking Crisis, Part II,-part-ii/

Myths and Realities of Returning to a Gold Standard

Obama Order Sped Up Wave of Cyberattacks Against Iran

I guess Obama found Israel a convenient scapegoat for cyber-attacking Iran's nuclear enrichment plants.  President Obama:  living up to his Nobel Peace Prize.

From his first months in office, President Obama secretly ordered increasingly sophisticated attacks on the computer systems that run Iran's main nuclear enrichment facilities, significantly expanding America's first sustained use of cyberweapons, according to participants in the program. 
Mr. Obama decided to accelerate the attacks - begun in the Bush administration and code-named Olympic Games - even after an element of the program accidentally became public in the summer of 2010 because of a programming error that allowed it to escape Iran's Natanz plant and sent it around the world on the Internet. Computer security experts who began studying the worm, which had been developed by the United States and Israel, gave it a name: Stuxnet. 
At a tense meeting in the White House Situation Room within days of the worm's "escape," Mr. Obama, Vice President Joseph R. Biden Jr. and the director of the Central Intelligence Agency at the time, Leon E. Panetta, considered whether America's most ambitious attempt to slow the progress of Iran's nuclear efforts had been fatally compromised. 
"Should we shut this thing down?" Mr. Obama asked, according to members of the president's national security team who were in the room.

The big new thing in gold - capital adequacy ratios

Stockton California: Real estate seized by Wells Fargo as city preps bankruptcy contingency plan

Money flies out of Spain, regions pressured