Standard Chartered: "Three Factors Will Drive Gold To $5,000" 

Submitted by Tyler Durden on 06/14/2011 09:25 -0400

Following less than parabolic moves higher in the precious metals complex over the past several weeks has extinguished some of the fervor in the space, which of course is welcome: a slow, gradual increase which does not provoke the CME's attention is far better for the boiling free than a sudden surge in prices. Yet the recent period of stability may soon be over. Standard Chartered has just released a report which looks at actual gold breakeven prices, production bottlenecks, central bank interest, and Chinese and Indian buying, and comes to the conclusion that $5,000 gold may just be a matter of time. To wit: "The limited supply comes at a time when central banks have completely changed their tune on selling down their gold stocks and now appear likely to accelerate their net buying programmes. China is way behind the curve. Currently, only 1.8% of China’s foreign exchange reserves is in gold; if the country were to bring this proportion in line with the  global average of 11%, it would have to buy 6,000 more tonnes of gold, equivalent to more than 2 years of gold production. We believe that these factors – limited gold production, buying by central banks and increasing demand from India and China – can potentially drive the  gold price to US$5,000/oz, as highlighted in our commodity team’s earlier report." And what according to Std. Chartered is the best way to capitalize on this undervaluation: "We believe the best ways to invest in the gold cycle are buying physical gold (a safe asset) or investing in junior gold miners (highest leverage to the gold price) that are 1-2 years away from production." Perhaps the current price 66% lower is therefore not a bad entry point...

Gold Robust Over $1,500 As Stagflation Deepens And Greek Default Risks Eurozone Break Up And Financial Contagion 

Submitted by Tyler Durden on 06/14/2011 07:42 -0400

Stagflation Threatens Major Global Economies - Inflation in China at 5.5% and UK at 4.5%. Another fundamental factor supporting gold prices and likely to lead to further gains are the increasing signs of stagflation in major global economies. UK inflation data released this morning shows that inflation remains high at 4.5%. The Bank of England expects inflation to reach 5% later this year prior to falling but the Bank’s credibility is increasingly strained as inflation has now exceeded the BoE’s target of 2% for 34 of the last 40 months. British savers and pensioners are suffering from negative real interest rates and this continues to make gold an attractive diversification from a devaluing pound. There appears to be a gathering “perfect storm” of deepening inflation, slowing economic growth and double dip recessions, stagflation, sovereign debt crisis in many major western economies and the risk of sovereign and banking contagion.

As Europe Stares A Break Up In The Face And PIG Bonds Plunge, Its Finance Ministers Are Holding More Meetings 

Submitted by Tyler Durden on 06/14/2011 07:30 -0400

The next two days will be very exciting in Europe: as noted previously, tomorrow Greece will experience a general strike, another parliamentary square blockade (with or without an evacuation tunnel involved) and most importantly, an MP vote on the Troica's "bailout" measures. Yet the vote appears far from certain to pass affirmatively, just as the entire bailout hinges on some incomprehensible "voluntary" definition which may or may not trigger a "selective" rating agency default anyway. As a result the bonds of Greece, Ireland and Portugal are once again trading at all time record high yields as the market has zero confidence the Eurozone will succeed with this juggling act. In order to prevent a last minute breakdown of the Eurozone, its finance ministers are holding another emergency meeting later today hoping desperately that a deux ex machina will just fall into their laps: "Yields on 10-year Greek bonds climbed to 17.12 percent today, a record in the 17-nation euro-area's history, before an emergency session of finance ministers in Brussels. They’re seeking to narrow differences on how investors share the cost of easing Europe’s biggest debt burden and to wrap up a new financing plan at a leaders’ summit on June 23-24, a year after Greece received a first bailout." All this is just theatrics to avoid the impression, and reality, that Europe is now completely powerless: "Greece will default; it’s a question of when, rather than if,” said Vincent Truglia, managing director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s. “It’s a basic solvency issue rather than a liquidity issue. Only a debt writedown will do." Which incidentally is as we have been claiming since January of 2010. But it seems that for the currency experimentalists, reality is something best postponed (even at a cost of trillions of taxpayer money).

Priced In Gold, The Median Home Price Is Down 80% In The Past Decade

Submitted by Tyler Durden on 06/13/2011 23:52 -0400

It is kind of the fine folks who compile the Case Shiller index to finally "definitively" tell us that home prices have now officially double-dipped (or is that quadruple dipped when one adjusted for the pro forma impact of QE1 and 2?). Well, below is a chart that cuts right through the noise and semantics, and shows that when expressed in a currency that has not been battered and diluted endlessly, the true normalized value of housing is really down 80% not just since the housing peak but since the turn of the millennium.

Exclusive: In Q1 Bernanke Spurred Inflation By Successfully Offsetting The Ongoing Collapse Of The Shadow Banking System 

Submitted by Tyler Durden on 06/13/2011 23:10 -0400

While the rest of the economic world was staring transfixed at the ongoing collapse in American home equity disclosed by the most recently Z.1, we were busy analyzing the as always far more important liability side of the ledger. After all, the quarterly Z.1 update provides the only undisputed update of the state of the Shadow Banking system, or more specifically, Shadow Liabilities. Not only that, but it also fully exposes the periodic changes in the "overt" Commercial Banking system's liabilities. The results as always hold some very dramatic surprises, although those who read and understood our recent expose on the surge in foreign-banks' cash courtesy of the Fed spike in reserves, may have a sense of what is coming. In a nutshell, and not very surprisingly, Shadow Liabilities dropped once again, and for the 12th consecutive quarter (or 3rd year in a row), although the $81 billion decline was the smallest since the $604.9 billion rise (the last one recorded) in Q1 2008. The drop since then is now a total of $5.1 trillion, and the total now stands at $15.8 trillion, a far cry from the all time high of $20.9 trillion just before the 3 years of consecutive declines. That the shadow system continues collapsing is no surprise: after all with the securitization machine dead, and the nationalized GSEs (with $6.6 trillion in liabilities) unable to relever there is little marginal debt that can be accrued to the shadow banking system. Yet oddly enough, despite drops across most other shadow liability verticals, there were some very strong performers, with Open Market Paper seeing the biggest surge since Q2 2007 at $74 billion. Though what was most surprising (or least, considering that it is Bernanke's only role now, as we have said since last July, to reflate the conventional banking system liabilities, and thus assets, through QE) is that traditional liabilities of Commercial Banks exploded by $424 billion in Q1, more than offsetting the drop in the shadow banking system, and leading to a $343 billion jump in the liabilities of the consolidated financial system. To all those wondering, here is your answer where the inflation in Q1 came from. Yet the biggest stunner in the data set is just where the biggest jump in commercial bank liabilities came from. Jumping from $19.4 billion to $232.4 billion over the quarter, accounting for two thirds of the Q1 "inflation" was... interbank liabilities due to foreign banks. And there you have that foreign bank smoking gun again...

Was The Iraq War Merely A Smokescreen For "The Largest Theft Of [Taxpayer] Funds In National History"? 

Submitted by Tyler Durden on 06/14/2011 10:59 -0400

Back in 2004, following the disastrous Iraq war, started on false Weapons of Mass Destruction pretenses, and which was nothing but a backdoor subsidy to various energy contractors close to the Bush administration, the US government decided to impose a mini Marshall Plan and literally flood the country with billions in crisp $100 bills. The LA Times reports: "Pentagon officials determined that one giant C-130 Hercules cargo plane could carry $2.4 billion in shrink-wrapped bricks of $100 bills. They sent an initial full planeload of cash, followed by 20 other flights to Iraq by May 2004 in a $12-billion haul that U.S. officials believe to be the biggest international cash airlift of all time." And here we are making fun of the Chairsatan and his puny helicopter. Yet where the story gets very disturbing is that it now seems that more than half of this "reconstruction" funding was blatantly stolen! 'Despite years of audits and investigations, U.S. Defense officials still cannot say what happened to $6.6 billion in cash — enough to run the Los Angeles Unified School District or the Chicago Public Schools for a year, among many other things. For the first time, federal auditors are suggesting that some or all of the cash may have been stolen, not just mislaid in an accounting error. Stuart Bowen, special inspector general for Iraq reconstruction, an office created by Congress, said the missing $6.6 billion may be "the largest theft of funds in national history."" Is another huge political embarrassment in store for the current US administration (even if on this occasion it can legitimately be blamed on the predecessor?): it appears so: "The mystery is a growing embarrassment to the Pentagon, and an irritant to Washington's relations with Baghdad. Iraqi officials are threatening to go to court to reclaim the money, which came from Iraqi oil sales, seized Iraqi assets and surplus funds from the United Nations' oil-for-food program." Prepare for many more hearings involving Halliburton et al. As for where the money is - why, it has long been spent.

Hackers Deface Website Of Greek Presidency 

Submitted by Tyler Durden on 06/14/2011 10:38 -0400

First Citi, next the Senate, now the website of the Greek presidency: the global hacking campaign is getting ever more "effective."

Kathimerini Reports Of An Imminent Greek Cabinet Reshuffle, Finance Minister Likely To Be Ousted 

Submitted by Tyler Durden on 06/14/2011 10:18 -0400

It appears that "Goldman employee of the decade", Greek Finance Minister Giorgos Papaconstantinou's days in parliament may be numbered. According to Greek daily Kathimerini, following the commencing of the Troica's midterm fiscal plan review by the parliament tomorrow, there could be a substantial reshuffling in the Greek cabinet: "Prime Minister George Papandreou will soon conduct a Cabinet reshuffle but has not yet decided if it will be before or after the government’s medium-term fiscal plan is voted through Parliament, sources told Kathimerini. From the website: "The two options being discussed by Papandreou and his closest advisers are either to shakeup his team of ministers as soon as possible, possibly even as early as this week, or to make changes to his Cabinet after the government’s economic proposals have been debated and voted on in Parliament. This would mean that the reshuffle would happen in early July." While there are risks that the vote on the IMF-imposed fiscal plan may fail, this appears to not be a big concern in Greece currently: "Papandreou and his aides appear confident that PASOK MPs will not scupper the midterm fiscal plan in Parliament. The government has a six-seat majority and while it is expected that one or two deputies might vote against the proposals, which include further cuts to public spending and more tax hikes, there will not be a large rebellion." Yet, several high profile pink slips are expected: "It is expected that one of the casualties of the reshuffle will be Finance Minister Giorgos Papaconstantinou, who has been severely criticized by PASOK deputies in recent weeks, both because of the measures he has adopted and due to claims that he has failed to consult with them." Of course, all of this ignores the popular mood which so far has been peaceful, although it may all come to a head during tomorrow's major strike and Parliament blockade. We hope to webcast from Athens as soon as practical.






Jim Sinclair’s Commentary

In a practical sense nothing (monetary stimulation) is ending on June 30th.

Summers: More stimulus needed to avoid ‘Lost Decade’ Chris Isidore, On Monday June 13, 2011, 11:13 am EDT
Larry Summers, formerly one of the top economic advisors to President Obama, is advocating more government stimulus to jumpstart the struggling U.S. economy.
In opinion pieces Monday in the Washington Post and Financial Times, Summers, who was the first director of the National Economic Council under Obama, says that the United States is at risk of falling into a "Lost Decade" of prolonged weak economic growth and high unemployment unless more action is taken in the near term.
"We averted Depression in 2008/2009 by acting decisively. Now we can avert a lost decade by recognizing economic reality," he wrote.
Summers wrote that demand is likely to stay weak without the government taking steps to spur spending. He said the U.S. could have fallen into a double-dip recession already if not for the tax cuts and payroll tax holiday passed at the end of last year.
"The central irony of financial crisis is that while it is caused by too much confidence, borrowing and lending, and spending, it is resolved only by increases in confidence, borrowing and lending, and spending," he wrote in both columns.
More…

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