Friday, September 30, 2011

U.S. States Seek to Break Financial Connection with Federal Government

Dear David,

This is exactly what gold is doing on its own.


From: Hera Research, LLC

Dear David,

I hope you don’t mind receiving this note.  Let me say that I am not given to hyperbole.  This is the most important message I have ever sent.  I urge you to read it and to share it with others.
Earlier this week I attended the Utah Monetary Summit in Salt Lake City, Utah.  As you may know, the state of Utah passed a Legal Tender Act earlier this year authorizing the use of federally minted gold and silver coins as money in the state of Utah.  Now, legislators in other states, many of whom attended the Monetary Summit, are evaluating similar legislation.
Among other things, this means the United States is approaching a Constitutional crisis because states are beginning to financially break away from the federal government.  This is no less serious than the American War of Independence or the War Between the States.  The Utah Monetary Declaration (below) is a financial declaration of independence whereby states are beginning to opt out of the Federal Reserve System.  A major confrontation seems inevitable.

The issues underlying this historic development include:

1.  The unsound condition of large U.S. banks, which have inaccurate and crumbling balance sheets along with $250 trillion in high-risk OTC derivatives contracts;

 2.  The unstable nature of the U.S. and world financial systems, characterized by unworkable levels of sovereign debt and private debt and by over $600 trillion in OTC derivatives liabilities;

3.  The excessive levels of federal government debt and unfunded liabilities combined with falling federal tax revenues prior to the start of the double-dip recession that began in the second half of 2011;

4.  The radically inflationary monetary policies of the federal government and of the Federal Reserve, which promise high inflation or hyperinflation in the future;

5.  The worsening condition of the real U.S. economy outside of large banks, multinational corporations, and Wall Street firms, where federal government bailouts and Federal Reserve monetary easing (money printing) transfer wealth from proverbial Main Street to literal Wall Street;

6.  The rapidly escalating polarization of the distribution of wealth, which threatens not only the economic stability of the United States but also its social and political stability; and

7.  The current, highly inflationary monetary system is plainly unfair and fundamentally immoral.

As a consequence of these grave, ongoing and growing problems, which are being largely ignored by the mainstream news media, state governments must take immediate action to ensure the functioning of local economies and of state governments, should the federal government / Federal Reserve System break down.  Specifically, there is an urgent requirement for an alternative currency to the privately issued Federal Reserve Note, which is erroneously referred to as the “U.S. dollar.”
Replacing a stable form of money with ever expanding debt and inflation undermines capitalism and destroys jobs.  The monopolistic monetary system of the United States today is inherently inflationary because it must continually expand in order to prevent a deflationary collapse.  The underlying structure and root cause of the monetary system’s inherent and inescapable inflationary bias is the legal construction of money as debt with no direct link to real economic activity.  Debt levels in the economy and bank profits are simply out of line with reality.
In addition to the unsustainable and unstable nature of such a system, an inherently inflationary monetary system destroys savings by devaluing the currency.  Savings, which are the result of excess production, precisely define the term “capital.”  Replacing capital with debt, while highly beneficial for banks that create money out of thin air (through lending), is a deeply flawed concept responsible for the systematic and ongoing breakdown of capitalism in America.  This deep, structural problem is the absolute root cause of chronic, irremediable unemployment.  As a consequence, there will be no genuine economic recovery in the U.S. and jobs will not return unless and until the monetary system is fundamentally reformed.
An ultimately more important issue is also garnering attention among state legislators, prominent (non Keynesian) economists, religious leaders, political activists and voters.  Inflation, particularly if it is systematically understated by the federal government or Federal Reserve, robs savers of the proceeds of past labor and robs workers of the spending power of their wages, living standards and financial futures.  Inflation robs the elderly of their retirement and robs investors of their capital by facilitating taxes on alleged gains created solely by currency debasement.  Legal tender, created as debt, results in ever larger debt burdens thrust upon innocent future generations that will experience progressively lower living standards and reduced economic opportunity.  Generations to come will be born into debt bondage, thus the monetary system is at the center of a profound moral crisis.
The morally and literally bankrupt nature of the current U.S. financial system is transforming America into a dog-eat-dog society where every person seeks to live at the expense of someone else rather than by producing wealth, because production is systematically stolen by the federal government and by banks through the clever device of an inflationary monetary system.  The monetary system operates by exchanging fictitious “wealth” (debt based money created out of thin air by private banks) for the real wealth of borrowers, i.e., the proceeds of their labor.  In effect, the monetary system is a massive scam purported to be legal but lacking any demonstrable legal authority.  Specifically, there is no Constitutional or other legal basis upon which the federal government can force a private monetary monopoly on the states.  In fact, the Constitution of the United States explicitly establishes the exact opposite.
The oversized banking system and federal government have grown in an unholy alliance in lock-step and now consume so much of the U.S. economy that, together, they not only pillage the real economy but threaten to kill, once and for all, what is left of the free country founded by the Declaration of Independence.  The moral precedent and example set at the highest levels of the federal government and of the banking cartel is that profit, fame, success and wealth are (either directly or indirectly) rewards for immoral acts rather than for honesty in business.  Moral corruption at the top–embedded in the very structure of the monetary system–has slowly spread its gangrenous effect, undermining totally the founding principles of the United States of America, enshrined in the Constitution of the United States and in the Bill of Rights.  Rather than liberty, America’s legacy is fast becoming one of moral turpitude enshrined in financial injustice and oppression.
The challenge before our nation today–our moment in history–is not merely a financial or economic or political or legal / Constitutional crisis.  It is also, and primarily, a moral crisis that could literally destroy the United States of America and all that it has stood for in more than two centuries.  A stable society requires sound principles.   A moral society requires sound money.  Today, the United States of America has neither.
This message is a call to action.  In the words of poet Dylan Thomas, let us say for America “Do not go gentle into that good night / Rage, rage against the dying of the light.”
I am personally asking you to read the Utah Monetary Declaration (below), which I, among many others, signed on Monday evening, September 26, 2011, in the Post Chapel on the University of Utah campus at Salt Lake City, and to forward it to all, especially to your state officials.  Time is of the essence.  Although its duration and pace are as yet unclear, the crisis is already upon us.  Please act now and do not delay.
Ron Hera
Utah Monetary Declaration
WHEREAS, money, as a medium of exchange, a store of value, and a unit of measure promotes economic activity, growth and productivity by facilitating specialization and trade, the accumulation of wealth and its long-term investment, as well as accountability in setting prices, tracking progress, and settling accounts;
WHEREAS, natural money – precious metal coin – by virtue of its inherent qualities of recognizability, measurability, uniformity, divisibility, durability, portability and scarcity has reliably retained its purchasing power, notwithstanding periodic fluctuations, over the centuries and millennia of human history, serving as an effective medium of exchange and store of value often without any governmental declaration to require, legitimize or perpetuate its adoption and operation as such;
WHEREAS, sound money, by retaining stable purchasing power over time, best serves societal needs by substantially reducing the uncertainty of inflation risk for creditors and deflation risk for debtors as well as encouraging saving and investment among the general populace and benefiting the economic zone in which it circulates by stimulating the economy and by attracting foreign capital and commerce to the region;
WHEREAS, history attests that monopolistic monetary systems frequently engender currency debasement, resulting in serious consequences such as lost purchasing power, inequitable wealth redistributions, misallocation of productive resources, and chronic unemployment, and that, as the cornerstone of a free market and society, the right to choose, whether between suppliers of goods and services, political parties and candidates, or between alternative media of exchange, effectively promotes the general welfare;
WHEREAS, for the equal protection of all people, rich and poor, the open circulation of complementary and competing currencies should be fostered and promoted by every sovereign state, including those of The United States of America pursuant to their monetary powers (expressly reserved in article 1, § 10 and in the 10th amendment of the United States Constitution) to monetize gold and silver coin as an alternative, voluntary medium of exchange, and as an effective check and balance against debasement of the national currency by the national government which is constitutionally precluded from demonetizing state legal tender, through disparate tax treatment, discriminatory regulation, the threat of suppression and seizure, or otherwise;
NOW THEREFORE, we the undersigned hereby declare and affirm that:
1.     As an essential element of true liberty and of the pursuit of happiness in a free society, all people enjoy the inherent and unalienable right to lawfully acquire, hold and use as a medium of exchange whatever form or forms of money they may prefer, including especially gold and silver coin.
2.     All free and sovereign states bear the moral, political and legal obligation not only to refrain from debasing their own currencies (except under the most exigent circumstances) and from erecting barriers to the unfettered circulation of monies issued under the authority of their sovereign trading partners, but also to affirmatively defend and protect against fraud, counterfeiting, uttering, passing off, embezzlement, theft or neglect by requiring full transparency and accountability of all state chartered financial institutions.
3.     No tax liability nor any regulatory scheme promoting one form of money over another should apply to: (a) the holding of any form of money, in a financial institution or otherwise; (b) the exchange of one form of money for any other; or (c) the actual or imputed increase in the purchasing power of one form of money as compared to another.
4.     Except in the case of governmentally assessed taxes, fees, duties, imposts, excises, dues, fines or penalties, the authority of government should never be used to compel payment of any obligation, contract or private debt in any specific form of money inconsistent with the parties’ written, verbal or implied agreement, or to frustrate the intent of contracting parties or impair contractual obligations by invalidating the application of a discount or surcharge agreed to be dependent upon the particular medium of exchange or method of payment employed.
5.     The extent and composition of a person’s monetary holdings, including those on deposit with any financial institution, should not be subject to disclosure, search or seizure except upon adherence to due process safeguards such as requiring an adequate showing of probable cause to support the issuance by a court of competent jurisdiction of a lawful warrant or writ executed by legally authorized law enforcement officers.
We hereby urge business leaders, educators, members of the media, legislators, government officials as well as judicial and law enforcement officers to use their best combined efforts to reinstate and promote the legal and commercial framework necessary to establishing and maintaining well-functioning, sound monetary systems based on choice in currency.
The signatories hereto concur in the general principles expressed in the foregoing declaration notwithstanding specific reservations some may have as to how such principles should be interpreted and applied in practice.

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Chart Of The Week: Monetary Chaos In The Bubble Years

Sean Corrigan of Diapason Commodities shows, in his wonderfully loquacious way, the massive disruptions in domestic money holdings involved since 'Irrational Exuberance',  noting the underlying message that, given that they hold a higher fraction of the stuff than has traditionally been the case,  if you want to 'mobilize' the money in existence now, it is the willingness to do so of Non-financial BUSINESSES (both corporate and non-corporate) that needs to be encouraged, a finding which further supports our oft-expressed contention that it is not the level of interest rates or currency parities, but the extreme degree of regime uncertainty which is the enervating factor and that this last is as much to blame for the current, sub-par recovery as it was in the FDR/Morgenthau/Eccles 1930s.

Market Snapshot: Worst Quarter For S&P 500 Since Q4 2008 And Second Best Ever For TSYs

Equities ended on a very weak note, bringing the worst quarter since Q4 2008 for the S&P500 to an end. Stocks remain, perhaps remarkably to some, expensive relative to credit markets - especially HY which is feeling significant pain as issuance volumes drop 75% in the quarter to their lowest since Q2 2009. While stocks dropped around 2 standard deviations from a long-run mean, Treasuries did even better and rallied around 3.5 standard deviations - the second largest percentage shift in yields ever (once again Q4 2008 was the only better). Truly a remarkable day, week, month, and quarter and to be frank, one that shows no signs of slowing and as far as the rotation/re-allocation trade from bonds to stocks, we suspect risk-aversion will keep that on hold with a 4 standard deviation jump in VIX.

Presenting Eastman Kodak's Main 'Value Investors'

As EK is halted on news that it is considering patent sales and potential bankruptcy (very much in line with the expectations CDS markets have had for a while), we present the professional falling-knife-catchers (sorry value investors) who owned the most at the end of Q2. Has anyone heard from Bill Miller today? Largest holder was LMM LLC (yes that Legg Mason). Or is Bill Miller preparing for a speech at some Value Investing Shindig?

Russ Certo: "Fire In The Hole"

If the equity crowd only knew how difficult it is to trade financial instruments in secondary markets (or primary markets with IPOs non-existent and IG issuance taper off etc) and what each new non-agency valuation mark means for the next quarterly earnings report, given top five banks own near $800 billion of second liens and stuff not to mention other variations of housing stock.  Record long mortgage exposute in all its forms.  These asset markdowns will be reflected across the street in next slate of earnings statements.   Litigious environment too blurring liability thanks to partner government.  Financials CDS anywhere from +15 bps to +25 bps wider. Another thought is that this particular primary banking group is actually the lubrication, artery or aorta for the liquidity of the U.S. Treasury as primary role for distributing U.S. and other sovereign debt.  What does it mean when the equity valuations of these players plummets, what their OWN liquidity dysfunction and willingness and ability to raise liquidity for U.S. or any debt?  I suppose with the recent Op Twist release a few minutes ago, the Fed will buy some of it.

We're Getting Closer
Bruce Krasting
09/30/2011 - 16:07
The boss at the IASD says that the EU banks are fudging the books on Greek debt.

Silver Setup Classic 'Rope a Dope'

Eric De Groot at Eric De Groot - 2 minutes ago
Muhammad Ali was the master of misdirection. He was so good at it the phrase “rope a dope” reflected his ability to lure his opponents into believing an illusion that setup their demise. Ali often feigned exhaustion on the ropes in order to exhaust his opponents against the counter attack in later rounds. Many a fighter, notably George Foreman in the Rumble in the Jungle, succumbed to this famous... [[ This is a content summary only. Visit my website for full links, other content, and more! ]] 

Suki Cooper Barclays PM Analyst: Silver has the weakest fundamentals across all the metals

silvergoldsilver at silvergoldsilver - 27 minutes ago
"2015 price target for Gold is $1400." "Once INVESTMENT demand is out of the equation silver is weak (true Blythe hits it with short selling we know this)....the PHYSICAL demand IS *NOT THERE*." Just wondering, whats Barclays SHORT interest concentration...? Suki, let us know when you are back from Disney Land or when you need a job because if you haven't seen the physical demand for silver in the last 5 days, forget about it. Click here to see... 

Today Was A Really Really Ugly Day For The Stock Market

Dave in Denver at The Golden Truth - 3 hours ago

One observation of note: gold acutally rallied during the last few minutes of sell-off in the NYSE/Dow/SPX. It should be disconcerting to technicians and bubbleheads that the market shit the bed like this on the last day of a quarter, which is usually used to make the markets look friendly. In the after-market right now, the SPX futures are still selling off, while gold and silver grind higher... Have a great weekend all. 

Startling Unpublished Keynes Equations Discovered (Friday Afternoon Humor)

A remarkable discovery reveals equations that economists say could end the business cycle - forever. Ian Macallum, spokesman for the Royal & Ancient Historical Society of London, told Routers that the equations were contained in an unpublished manuscript which was found in the attic of an 18th century flat in Soho. "We were skeptical when initially contacted by the current owners” said Macallum. “There is no record of Keynes ever having resided at that address. But we can confirm that the manuscript is indeed an original work of Lord Keynes." The formulas seem to have been derived from the Navier-Stokes equations which describe the motion of fluid substances. “It’s pure Keynesian genius” said former Fed Governor Fred Mishkin. “There is a strong consensus among economists, at least within the Federal Reserve, that liquidity is the answer to the age-old question ‘what is the meaning of life?’” So, it makes perfect sense that someone as brilliant as Keynes would adapt these equations to a framework for fiscal and monetary policy.”

The AMD Event

On September 29, 2011, beginning at 14:08:25, quote rates from one stock, AMD, accounted for nearly half of all equity quotes. The pattern of data is similar to what we found in Dell a month earlier. There were 6 seconds that each had over 20,000 AMD quotes. We are having trouble finding the appropriate superlative to describe the level of lunacy that generated this event, and the incompetence of regulators to allow it to continue. And continue it does: both in frequency and magnitude. Soon 20,000 quotes/second per stock will be the new normal.  This problem will only continue to grow until one day, when there is real market impacting news, there simply won't be enough bandwidth or computing power to process legitimate equity prices. And everyone will wonder what happened. The last time this occurred was May 6, 2010.

Guest Post: Looking Back To the Late '80s For 'Contagion' Guidance

The clock has been turned back to 1989 and the stock market briefly cheered the temporal transformation, although credit markets have remained far less sanguine. With Europe on everyone's collective mind, rumors of an expanded European Financial Stability Fund (EFSF) acting akin to the early version of U.S. TARP had many hoping that a true resolution had finally been found. Of course, the first plan (the one sold to Congress) for TARP was to act as a resurrected Resolution Trust Corporation (RTC), so the markets are reaching back to the late 1980's for guidance on how to "successfully" contain banking contagion.

Buffett Says European Bank(s) Have Asked Him For Money

While Buffett hemmed and hewed in his usual populist rhetoric, discussing how multi-billionaires can afford to be generous with other people's tax rates, all of it completely unremarkable and highly hypocritical, the Octogenarian did release, whether by accident or on purpose, something quite critical, namely that European banks have approached him with requests for money.  From Bloomberg: "They need capital in their banks, in many of their banks," Buffett, Berkshire's chairman and chief executive officer, told Bloomberg Television's Betty Liu on "In the Loop" today. "We would not be a good prospect," he said in an interview from the New York Stock Exchange. He's received "very, very few" calls about putting capital into European banks. "Not quite none at all," he said, declining to name any institutions."And that, as they say, is a word out of place, because while one my pretend that borrowing $500MM from the ECBs Fed swap line is really just an (inverse) arb on Libor or some other useless excuse, a bank begging for Buffett to take a bath can not be explained away.

Debt Solutions: The Scandinavian Way Versus The Japanese Way

Admin at Jim Rogers Blog - 1 hour ago
"It was painful. It was extremely painful for Scandinavia back then. But they did it and the alternative was what the Japanese did at the same time. The Japanese propped up everybody with zombie companies and zombie banks. The Japanese have two lost decades now. The Japanese stock market is 80% where it was 21 years ago. Sure. You can do it or try to do it the Japanese way. I prefer the Scandinavian way. You make some mistakes, take your losses and start over. By the way, the Koreans did it the Scandinavian way, the Russians, the Mexicans - various people did it the Scandinavian way... more » 

Presenting Eastman Kodak's Main 'Value Investors'

As EK is halted on news that it is considering patent sales and potential bankruptcy (very much in line with the expectations CDS markets have had for a while), we present the professional falling-knife-catchers (sorry value investors) who owned the most at the end of Q2. Has anyone heard from Bill Miller today? Largest holder was LMM LLC (yes that Legg Mason). Or is Bill Miller preparing for a speech at some Value Investing Shindig?

RANsquawk Weekly Wrap - Stocks, Bonds, FX – 30/09/11



You didn't think the Fed would let more than a few months pass without the much beloved and dearly missed near-daily POMOs now did you. The FRBNY's Brian Sacksters just released the October schedule of $44 billion in long-dated purchases, and $44 billion in short-dated sales. Since the net effect to banks is one of derisking, the offsetting rerisk will be implemented in the form of more stock purchases. Hopefully their prop desks (which no longer exist, right, after all the whole Volcker Rule thing and the UBS fiasco...) will know how to trade Netflix this time around better than last time.

Margin Stanley, China, And High Yield: Mix It All In, And Let Simmer (With An Aussie Accent?)

This week's trifecta of key financial developments, that go far deeper than superficial headlines, namely China, Morgan Stanley (and European bank exposure in general) and the equity-credit disconnect, just got another major push. CNBC just interviewed Tim Backshall (of Capital Context) to discuss the dramatic moves in MS credit risk (which we mentioned earlier) and in an undeniably convincing accent (British, Aussie, South African?), he managed to bring many of our broader concerns into focus including global financial contagion, bank funding, Chinese growth, and high yield credit. We also learned that ZeroHedge is a blog.

In The News Today

Jim Sinclair’s Commentary

If you do not like how the inflation rate reads just change how you calculate it.

Eurozone inflation rate jumps to 3% in September 30 September 2011 Last updated at 07:18 ET
The eurozone inflation rate increased to 3% in September, up from 2.5% in August, according to the first estimate from the EU statistics agency.
No breakdown was given, but Eurostat said its initial forecasts were usually "reliable".
Separate figures also released by Eurostat showed the eurozone unemployment rate unchanged at 10% in August from the previous month.
The number of people unemployed fell by 38,000 compared with July.
The unemployment rate in Spain, the highest in Europe, rose slightly to 21.2%, with youth unemployment hitting 46.2%.
However, the jobless rate for those under 25 in the eurozone as a whole fell slightly, to 20.4%.
Falling shares
Analysts, who had expected a small rise in inflation, pointed to technical changes in the way price rises are calculated as a contributory factor in the sharp increase.
"It’s not a nice number, but I wouldn’t panic that the high inflation which some have warned about for years is finally here," said Martin Van Vliet at ING.



Jim’s Mailbox

Bullard: Fed will act if economy weakens further CIGA Eric


QE to ∞ (infinity) = QE(1)+QE(2)+QE(3)…QE(n) as the economy weakness and social unrest organizes across the globe.

Headline: Bullard: Fed will act if economy weakens further
(Reuters) – The Federal Reserve will act if the economy weakens further and has the tools to do so, a top Fed official said on Friday.
St. Louis Fed President James Bullard said he expects the economy to grow modestly over the next year — though the sluggish pace leaves it vulnerable to shocks.
"Should economic performance deteriorate, monetary policy will respond," Bullard said, according to slides of a presentation he was scheduled to make . "The Fed is not now, or ever, ‘out of ammunition’."
With interest rates near zero, Bullard said, the Fed can support the economy through inflation and inflation expectations and asset purchases are a "potent tool".


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Bullard: Fed will act if economy weakens further

Eric De Groot at Eric De Groot - 8 minutes ago
QE to ∞ (infinity) = QE(1)+QE(2)+QE(3)...QE(n) as the economy weakness and social unrest organizes across the globe. Headline: Bullard: Fed will act if economy weakens further (Reuters) - The Federal Reserve will act if the economy weakens further and has the tools to do so, a top Fed official said on Friday. St. Louis Fed President James Bullard said he expects the economy to grow... [[ This is a content summary only. Visit my website for full links, other content, and more! ]]

NEIN, NEIN, NEIN, and the death of EU Fiscal Union

David Stockman: Blame The Fed!

David Stockman, former US Representative and Director of the Office of Management and Budget under Reagan, does not mince words. He sees the monetary systems of the world coming apart. How did we get here? He identifies the root cause as the intentional over-leveraging of world economies by central planners in a misguided effort to enjoy growth without consequence.
I blame it on the Fed. I blame it on the 1971 decision by Nixon to close the gold window and let the dollar float. Because out of that has evolved -- or morphed -- a central banking policy in the world that absorbs unlimited amounts of government debt. And so we went on what I call the "T-bill standard" or the "federal debt standard." And the other central banks of the emerging mercantilist Asian economies -- Japan, Korea, and now, especially, the People’s Printing Press of China -- have absorbed this massive emission of debt that otherwise would’ve created powerful negative consequences that would’ve forced politicians to act long ago. In other words, higher interest rates, pressure for inflationary monetary policy, and the actual appearance of price inflation. But because all the bonds on the margin were being absorbed by the central banks, we got away for twenty or twenty five years with “deficits without tears.”
And he's just getting started. The only thing more impressive than Stockman's CV of insider roles in public economics and private finance is his talent for colorful metaphor.

Reuter Video Interview: Global Economy & markets

Admin at Marc Faber Blog - 1 hour ago
Latest video interview, Reuters. *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.*

Gold Correction: Watching 1,500/oz Support

Admin at Marc Faber Blog - 1 hour ago
'If $1,500/oz support doesn't hold, Gold will bottom out at $1,000 - $1,200' - in CNBC Europe *Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.* 

Can Gold Trade Over 10,000?

Admin at Jim Rogers Blog - 1 hour ago
Gold back in the ‘70s has not gone up ten years in a row. It has only gone up two years, three years, four years max. So things are all a little bit different now than what they were then. Can gold trade at over 10,000? Of course it can and it might. But not this year. - *in GoldSeek radio* Related: SPDR Gold Trust ETF (GLD), Novagold (NG), Newmont Mining (NEM), Barrick Gold (ABX) *Jim Rogers is an author, financial commentator and successful international investor. He has been frequently featured in Time, The New York Times, Barron’s, Forbes, Fortune, The Wall Street Journal, The F... more » 

Morgan Stanley CDS - Is China Part Of The Problem?

The move in Morgan Stanley CDS has been grabbing some attention.  It has moved wider than any of the other banks.  Its exposure to French banks in particular has been part of the reason.  Potential hedging of counterparty exposure has also been listed as a reason. (Once again I can’t help but wonder why derivatives in general, and CDS in particular, didn’t get forced into clearing or exchanges after Lehman). I don’t know whether Morgan Stanley is rich or cheap at these levels, but I think there is more digging that needs to be done and it should focus on Asian exposures because that seems to correlate best to the recent moves.

Corn Price Plunges To Lowest Since July 1, Hits Revised Daily Limit As Sellers Outnumber Buyers By 2000 To 1

Back in April, when we first discussed the hike in daily corn trading limits from $0.30 to $0.40, we had some cynical observations, namely that "inviting not only more vol (read bottom line for the business) but more margin, the CME is exposing speculators to far greater impacts from margin hikes (and drops). Which of course means a far great capacity and ability to kill any commodity rally dead in its tracks." Well, there is no margin hike today (yet), although based on today's action we fully expect one. The reason, we are currently at today's down 40 cent limit, a price of $5.925 a bushel, the lowest since July 1, and by the looks of things it will get far worse: as the chart below demonstrates right now sellers outnumber buyers by a ratio of 2000 to 1. Expect this ratio to get even bigger once the CME hikes corn (and who knows what other commodity) margins as soon as today.

SEC Report On Credit Raters Finds Leaks And Conflicts Of Interest

In what is perhaps the biggest face-palm moment of the day, the SEC's summary report on credit raters found 22 pages worth of supervisory failure and conflicts of interest concerns at each and every one of our NRSROs. However, perhaps the most notable headline, via Bloomberg was potentially much more litigiously serious:
Now who could it be?

Will Start Of Landesbank Mortgage Litigation Against Bank Of America Push Stock To New 52 Week Lows?

When all is said and done, Bank of America will have no choice but to charge its 6 to 8 remaining clients about one million dollars each time an ATM transaction is executed because the bank will be so deep in mortgage putback litigation it will have a negative market cap. The latest news for the bank is about the worst possible kind: the wave of lawsuits filed against the Countrywide toxic mortgage receptacle has just jumped across the Atlantic, and after the Norwegian sovereign wealth fund recently started proceedings, the real threat, German banks, have just realized that Bank of America is nothing but a legal liability piggy bank and have sued Moynihan's house that taxpayers built. Furthermore, since it is precisely purchases of toxic MBS and RMBS from BAC and other banks that caused the collapse of the Landesbanken system, with Germany going on the offensive and now trying to recoup as much money as they can, look for gray market putback estimates to soar by another $20-40 billion, which will result in BAC selling the other half of its stake in the Chinese Construction Bank any minute, especially with Chinese banks starting to tumble like dominoes on Chinese slow down concerns.

Robert Eisenbeis | Do the math
09/30/2011 - 11:36
These back-of-the-envelope calculations suggests that the current attempts to deal with the nation’s fiscal problems are at best a sham and assume that the general public will be fooled into... 

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IMF Scrambles To Double Bail Out Capacity To $1.3 Trillion, May Issue Bonds

The scariest news out of the IMF overnight is not that the scandalized bailout agency telegraphed that the global sovereign debt crisis is about to get into even higher gear after the Dow Jones reported it is "exploring" ways to double its gross lending power to $1.3 trillion (which means that in addition to the EFSF's proposed $3 trillion expansion, global bailout capacity will soon hit $5 trillion), nor is it that the US middle class will soon be on the hook for tens of billions more in real European-facing exposure (over an above the hundreds of billions in USD FX swaps that the Chairman is about to unleash on the world), but that the IMF is in fact considering issuing its own bonds. The reason why this is disturbing to the G-7/8/20 is that such a move would take the SDR one step closer to being an alternative gold-backed reserve currency, an dilute the hegemony of the Western axis much to the delight of Russia and China (which however may be having problems of their own). Well, that's bad, but we take it back - just as bad is that the IMF is about to have $1.3 trillion in bailout power. And yes, they wouldn't scramble to get it if they didn't need it. What next: unlimited rescue capacity, and unlimited exposure for US taxpayers?



ECRI's Achutan Says US Is "Entering A New Recession"

Last year the ECRI index was the bete noir leading indicator of the market: while the index clearly indicated the US had entered a recession, its creator Lakshman Achutan consistently refuted the findings of the index, instead pushing a contrary view that the US was in fact growing. Then came QE2 and with it s 9 month suspension of reality. That time is over, as is Achutan's ongoing attempt to deny facts. As of a minutes ago, the ECRI's head told Bloomberg Radio that the U.S. is "tipping into a new recession." "He added: "We don’t make these calls lightly. When we make them, it’s because there’s an overwhelming objective message coming out of our forward-looking indicators. What is going on with the leading indicators is wildfire; it’s not reversible.” As Zero Hedge first said months ago, when it finally extracts its head from between its gluteui maximus, we expet the NBER to proclaim the re-recession as having started in June/July.

Guest Post: QE And The “Crowding Out” Of The Bond Market Vigilante

We’ve updated our chart of the sources of financing of the U.S. budget deficit from the Fed’s Flow of Funds data released on September 16th.   The chart illustrates how the Fed and foreign central banks have been indirectly fully funding the  massive U.S. budget deficit for the last three quarters.   It will be interesting to see the data for the quarter ending today as no doubt there will be less yellow with the end of Q2 on June 30 and more “flight to quality” blue (domestic) and red (rest of world).

Martin Armstrong on the 24 hour turn around/Bernanke QE3

silvergoldsilver at silvergoldsilver - 1 hour ago

"In the repo market you post securities, the next day you get cash for them and the next day you have to pay back the cash. So it’s a 24 hour market. Now if you have these time bombs that are rated AAA, and it has to be AAA paper to go into the repo market, and it blows up, you have 24 hours to come up with the cash." Click here for more... 

China CDS Soars On Continued Hard Landing Concerns

Update: CDS now over 200 bps, or over 7 bps since this artice was posted.
This is an emergency announcement for bubble watchers: China CDS has soared to 194.5 bps, +14.5 in the past few hours (a trend first noted here about a week earlier), the biggest relative mover in the sovereign realm, which has just hit the widest it has been since March 2009. Ironically the incremental newsflow was mildly positive after the Final September HSBC PMI came at 49.9, still contractionary, but modestly better than the Preliminary 49.4, and unchanged from the August print. That however brought little solace to China bulls, who have seen their local stock holdings drop significantly in the last few days now that the China "Hard Landing" scenario is becoming widely accepted. Not helping is a just released UBS report which now expects Q1 2012 GDP to drop to below stall speed at 7.7%. Whether or not the country can land softly, or hardly, or at all, with that kind of growth drop, is certainly unknown. Look for more widening in CDS spreads as the China crash thesis permeates the vigilante community which has now picked its next target.

Greek Banana Republic Status Upgraded To AAA After Sit-Ins At Eight Ministries Prevent Troika Inspections

A day after we learned that the Greece tragicomedy just gets better and better after it had run out of ink to print tax forms, and hence is unable to collect taxes, and were forced to got over a minute long bout of hysterical laughter having learned that Greece plans on refinancing its rolling debt (which trades at over 100%) with Century Bonds, no seriously and this under the sage advice of BNP Paribas, Deutsche Bank, HSBC and Lazard, we now get the latest update in this progression of relentless Banana Republic upgrades after learning that the Troika is unable to conduct its much needed inspections of Greek deficit cut progress due to sit ins by protesting government workers at 8 ministries. From Kathimerini: "The troika has been in Athens since Wednesday but its monitoring of Greek finances is running into a variety of problems, as besides the disagreement with the government on a number of issues, the representatives of the country’s international creditors had to deal with sit-ins at the building they were about to visit on Thursday. Public sector employees blocked the entrance to the Finance Ministry and the Hellenic Statistical Authority (ELSTAT) in protest at the planned measure of putting thousands of them on labor standby status." Seriously what else? News that government workers start shredding debt indentures for fun? In the meantime the Troika is having official meetings with what's left of the government at the local Starbucks...

Pricing in a Recession, Liquidity Crunch, Or...

The high yield bond market is in worse shape than most people realize. HYG looks extremely rich relative to what is going on beneath the surface, and this liquidation is occurring into quarter end, when bond investors have just as much incentive to “window dress” as stock investors do. And it isn’t just domestic high yield. Emerging Markets, and Asian Property companies in particular, are seeing their bonds getting crushed. It may be more fun to watch the EU contort itself and find some way to lend money to itself that makes the markets happy, but in the depths of the credit world, there is a problem, and it is getting worse.

US Consumer Taps Out: Personal Savings Rate Drops To Lowest Since December 2009

The August Personal Income and Spending report is out and while there were some modest surprises in the data, namely a drop in Personal Income of -0.1%, on expectations of an increase of 0.1% (and an adverse revision for July data from 0.3% to 0.1%) - the first drop in two years, while Personal Spending was in line with expectations at 0.2% (previous revised from 0.8% to 0.7%), the biggest news of the day is that the US consumer is getting tapped out, with spending coming entirely from savings: the savings rate dropped from a revised 4.8% (previously 5.0%), to 4.5%, the lowest since December 2009.

Morgan Stanley CDS Curve Inverts As Risk Highest Since Q4 2008

We have been discussing US (and European) financial risk for some time (especially recently with regard MS exposure to French banks). Since we published that article, we have seen incredible shifts in MS CDS and bonds even as stocks appear to shrug of some of the reality of the situation. An excellent article on Bloomberg last evening pointed out that not only was MS CDS at rather extreme levels, it was quietly as risky (if not more so) than many of the European banks that are making the headlines. Not only is MS CDS its highest since its spike highs in Q4 2008, the curve is inverted with 1Y risk trading 500/550 against 5Y risk at 455/470 which strongly suggests jump risk (or counterparty risk) is being aggressively hedged. With over $4.5bn of debt maturing in Q4 (which we have been pointing out for months - TLGP issues) and the increasingly binary nature of any outcomes, it seems the only real buyer of any MS debt are basis traders as the difference between bond spreads and CDS has halved in the last few weeks.

Closing Dexia Long CDS With $3.6MM Profit On Imminent Nationalization Concerns

Back on May 25, somewhere close to the irrelevant equity market's highs, when once again a little ahead of the market curve we suggested that Dexia would be the bank most impacted by the next round of Greek-induced risk flaring, we were banging the table on a long Dexia CDS SUB position. 5 Year subs were trading at 568 bps then. They are now 31/39 points upfront and every day for Dexia could be its last. Which is precisely why we are closing the trade: should Dexia go under it will drag all of Europe with it. We expect a partial or complete nationalization to be announced imminently, which in addition to all other side effects, would lead in a Bear Stearnsing of all accrued profit. With a 20% recovery rate on the CDS, the P&L on the trade is $3.6MM on $10MM notional. Not bad for a 4 month holding period.

Manufacturing Decoupling Comes To America As Chicago Breaks Away From Rest Of Country

Economic activity decoupling is no longer a phenomenon between the developed and developing world. It is between the Chicago region and everywhere else. And because the Chicago PMI is supposed to be representative of the Manufacturing ISM, the market just loves (or rather loved, considering the 10 minute leak of the data) that the PMI soared from 56.5 to 60.4 on expectations of a decline to 55.0. The internals were all hot, hot, hot as follows: "Business Activity: "EMPLOYMENT expanded to highest level in 4 months; NEW ORDERS erased net declines accumulated since April; ORDER BACKLOGS remained in contraction at a 23-month low; SUPPLIER DELIVERIES approached neutral; while the buying policy was as follows: PRODUCTION MATERIEL moved to an 10-month high; CAPITAL EQUIPMENT lead times ended a 4-month uptrend." Yet as usual the amusing part, which is straight from the respondents was the following: "We are seeing unannounced and incredible inflation on one product, multiple parts, that we are purchasing out of Europe. At 400% increase we thought surely must have been a mistake. This is not related to $ exchange since we pay in Euros already. Supplier says they cannot absorb costs anymore." And that's why Houston, we have a problem.

Guest Post: Our Many Layers Of Entitlement

The word entitlement commonly refers to government benefits to which we are entitled as taxpayers and/or citizens/residents. But there are layers of entitlement in the American psyche far beyond government benefits programs. Let's start with the government benefits entitlements. The programs most people refer to as entitlements are Social Security and Medicare, which taxpayers pay for with payroll taxes (even if the money just goes into one giant Federal pot). Beyond these "I paid into them" entitlements are the "welfare" entitlements of Medicaid, Section 8 Housing, SNAP/food stamps, etc., which are paid out of general tax revenues and which are available to anyone who qualifies, regardless of their status as taxpayers. Buried within Social Security is another large entitlement program for the disabled and dependents (widows and orphans). Veterans are entitled to benefits as a result of their military service, as are their families. Employers pay for other employment-related entitlements: Federal and state unemployment, workers compensation and disability insurance, etc. The entitlement mindset is thus firmly established in the American psyche.

News That Matters
09/30/2011 - 08:24
All you need to read. (a little late today) 
Phoenix Capital...
09/29/2011 - 14:31
The Fed’s decision to buy $400 billion of longer-term US Treasuries in this environment is essentially the Fed announcing that it will be covering a significant portion of new debt issuance going... 
Reggie Middleton
09/30/2011 - 09:26
This is the first in a series of articles to be released this weekend concerning the sell side's, media's, and general investing public's extreme under-appreciation for the risk that is Goldman Sachs... 

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Thursday, September 29, 2011

Pat Heller: Silver shortages growing and premiums rising



The "Muddle Through" Has Failed: BCG Says "There May Be Only Painful Ways Out Of The Crisis"

Denial. Denial is safe. Comforting. Religiously and relentlessly abused by politicians who don't want nor can face reality. A word synonymous with "muddle through." Ah yes, that "muddle through" which so many C-grade economists and pundits believe is the long-term status quo for the US and the world just because it worked for Japan for the past three decades, or, said otherwise, "just because." Well, too bad. As the following absolutely must read report, which comes not from some trader of dubious credibility interviewed by BBC, nor even from an impassioned executive from a doomed Italian bank, but from consultancy powerhouse Boston Consulting Group confirms, the "muddle through" is dead. And now it is time to face the facts. What facts? The facts which state that between household, corporate and government debt, the developed world has $20 trillion in debt over and above the  sustainable threshold by the definition of "stable" debt to GDP of 180%. The facts according to which all attempts to eliminate the excess debt have failed, and for now even the Fed's relentless pursuit of inflating our way out this insurmountable debt load have been for nothing. The facts which state that the only way to resolve the massive debt load is through a global coordinated debt restructuring (which would, among other things, push all global banks into bankruptcy) which, when all is said and done, will have to be funded by the world's financial asset holders: the middle- and upper-class, which, if BCS is right, have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path. But not before the biggest episode of "transitory" pain, misery and suffering in the history of mankind. Good luck, politicians and holders of financial assets, you will need it because after Denial comes Anger, and only long after does Acceptance finally arrive.

Goldman's Analyst Index Points To A Bleak September

As the rapacious rally of this afternoon glides into a sulky sell-off, Goldman's global economics team provide a little more kindling on top of further Kiwi downgrades to help us on our way. The Goldman Sachs Analyst Index (GSAI) fell below the 50 mark (signifying more analysts see contraction in their sectors than expansion) for the first time since AUG09. Combine that with the new orders index registering the largest decline in the index's history (plummeting 22.5pts to 28.6) and the subdued growth outlook remains firmly in place.

Cambridge House International Interviews Doug Casey

We round off the early evening with this must watch interview by Tommy Humphrey of Cambridge House International with Casey Report's Doug Casey, familiar to all regulars of Zero Hedge, in which all the usual suspects are discussed: systemic downfall, alternative investments and flight to real, not mainstream media inspired, safety.

Guest Post: China’s Rare Earths Monopoly - Peril or Opportunity?

REEs are found in everyday products, from laptops to iPods to flat screen televisions and hybrid cars, which use more than 20 pounds of REEs per car.  Other RRE uses include phosphors in television displays, PDAs, lasers, green engine technology, fiber optics, magnets, catalytic converters, fluorescent lamps, rechargeable batteries, magnetic refrigeration, wind turbines, and, of most interest to the Pentagon, strategic military weaponry, including cruise missiles. Technology transfer is the essential overlooked component in China’s economic rise, and Beijing played Western greed on the subject like a Stradivarius, promising future access to China’s massive market in return, an opium dream that rarely occurred for most companies. You want unimpeded access to Chinese RREs? Fine – relocate a portion on your production lines here, or…Which brings us back to today’s topic.Rare earths and investment – where to go?

Toxic Titles | Herkimer County Clerk to Nationwide Title Clearing “MERS Assignments and Satisfactions Do NOT Comply with NY Law"
09/29/2011 - 17:31
This should get real interesting if the rest of the clerks in NY follow suit. Good luck on “fixing” this one Nationwide… 
Cognitive Dissonance
09/29/2011 - 15:49
The seductive embrace of our collective insanity promises us all a softer easier way, an alternative path where we are told we can have our cake and eat it too. This is a bald faced lie, even if the... 

In The News Today

Dear CIGAs,

During reactions in gold, the degree of gold and gold share holders pessimism is EPIC and without cause.
Why Gold?

1. Gold is a currency.
2. Gold is competitive to paper currency.
3. Gold is not a commodity
4. Gold is a barometer of fear.
5. Gold is a barometer of confidence in government.
6. Gold is insurance.
7. Gold is insurance against government gone mad.
8. Insurance is not something you trade.
9. Gold is the financial high ground when global debt problems exist.
10. Gold in your hand eliminates all counter party risk.
11. Every single currency is paper backed by nothing.
Stay the course. Nothing is solved, nor will it be.
Gold will be violent. Gold is nowhere near fully priced.


Jim Sinclair’s Commentary

Here is the latest from John Williams’

- GDP Revised Higher, GDI Revised Lower,  Growth Remained Statistically Indistinguishable from a Contraction

- Average Monthly Understatement of 16,000 Jobs for Year-Ended March 2011 (per BLS)

- Home Sales Keep Bottom-Bouncing  Despite Having Covered Sales Lost to Stimulus Efforts

Market Commentary From Monty Guild
September 29, 2011, at 3:12 pm
by Monty Guild in the category Guild Investment | Print This Post Print This Post | Email This Post Email This Post

The Coming Euro Bail

Financial volatility and political incoherence have been the order of the day on the continent.  However, with the German vote today there are distinct signs that a political consensus has taken shape in Europe. Now the job is to create a TARP like facility to stabilize the banking system and the sovereign debt crisis. As we see things, it looks likely that trillions of Euros will be injected into recapitalization of weak European banks.  Funds would also be earmarked for buying the government debt of the three weakest countries ― Greece, and perhaps Ireland and Portugal ― for probably about 50 percent of the face value. Private owners, primarily the banks, would take the losses.  One major goal of the plan is to try and keep contagion away from Spain and Italy, which would be massively expensive to bail out.

Cash for the bailout would be funneled through instrumentalities such as the European Central Bank, the European Financial Stability Facility fund, and the European Investment Bank.

This development is to be welcomed. Until recently, many authorities in Europe have been acting as if their heads are stuck in the sand. They have tried to assure the markets about the health of European banks and that no bailout was needed by for Europe’s weakest members. The pretend game has been absurd, and market participants have long been aware of the charade. Politicians lie to suit their own needs but financial markets know better and by and large ignore the foolishness.  The public, in Europe and globally, is learning to do the same.

Information has been leaked out to the financial markets in recent days indicative of a credible and large (2+ trillion Euro) plan.  Should this materialize, as we think it will, you can expect rallies in global stock markets and in gold.  From our side, we will try to determine when this will happen, and communicate our findings to you.

U.S. Job growth ― Go the Reagan Route

The President and Congress are not in harmony on many important issues these days.  One thing they are in tune on is this: American job growth is a priority.  Their ideas for making this happen, however, have not worked.

We suggest taking a page from former President Ronald Reagan’s playbook. During the 1980s he created a tax regime for new investment which eventually led to the biggest economic miracle that the U.S. had seen for decades: a high-tech boom that came a few years after he implemented a cut in the capital gains tax and new rules to stimulate capital formation.

In our opinion, it was this plan which incentivized the capital investment that created the technology and internet booms. This plan opened the door for the venture capital industry to grow and attract more investors. As it grew, the industry funded the tech revolution and the creation of many new companies. Whole new enterprises emerged, such as internet search engines, web portals, internet security, social media, mobile telephony, software and hardware technology and much biotechnology.

The new industries created many jobs for creative and highly-skilled workers. They cut costs for companies all over the world and improved the global flow of information and communication. U.S. computer scientists, other cutting edge scientists, and many engineers enjoyed a big increase in their personal standard of living, while immigrants with a background in technology flocked to the U.S. to satisfy the demand for expertise; which improved the overall national standard of living.

Eventually many of the companies financed by venture capital went public. The capital gains taxes spawned by this incentive were massive. When paid, the revenue allowed subsequent presidents, starting with President Clinton, to balance the budget and create a robust job market for technology workers.

These actions worked superbly back then…and we believe something similar would work now. We are not alone in this view. It is also the view of Nobel Prize winning economist Robert Lucas of the University of Chicago, who the majority of economists believe is the most influential U.S. macroeconomist of the last 40 years. He is not of the left or of the right. He prefers to remain in his academic roost and write books that have shaped economic thinking for decades. He does not work with politicians of either party.  More importantly he stated in a recent interview that “if you want to stimulate growth in investment, productivity, and income, cut taxes on capital.”

We agree. Why do we agree? Because people and businesses plan ahead.  As Dr. Lucas pointed out decades ago, businesses hire people because they think that they will be able to make money when their project comes to fruition. If the administration and Congress want to stimulate employment, they need to act to lower taxes on capital investment.  We’ve said this before. We’re saying it again…and so is a transcendent Nobel Prize winner.

President Obama and Congress are arguing about taxes. Some say increase taxes, and some say cut taxes. Whatever is done, they should strongly consider tax cuts for capital investment.

When businesses have ideas for expansion, and capital to pull it off, they hire people. They produce newer and better products and services. This is the action plan that would solve the problems of the U.S., Europe, and Japan. All three ailing regions need to think in these terms.

Brazil Institutes Protectionism ― A Big Mistake

Recently Brazil’s finance minister announced a major tax on cars and parts made outside of the Latin free trade block. Why such an unwise move?  The bottom line: cars are 60 percent more expensive to build in Brazil than in China.

Protectionism doesn’t work.  It is far better to improve the economy and make it more competitive than to stimulate sloth and inefficiency by putting up protectionist barriers. The old saying still rings true: “Competition is for the competent.”

Even land purchases in Brazil have fallen under the influence of protectionism.  When foreign sovereign wealth funds or foreign companies seek land they face a limit on the amount they can buy. As a result, billions in foreign agriculture investments are being lost. Investors recently have been shunning Brazil and these behaviors are part of the reason.

Brazilian Bovespa Index (5 year chart)


The Plight of the Volcker Rule

A few weeks ago we reported on the Volker Rule as a critical action necessary to restrict banks from involvement in the kind of speculative investment activity that contributed to the current financial crisis.  The rule was created by the former U.S. Federal Reserve Chairman Paul Volcker and is contained in the Congressional financial and consumer protection overhaul legislation.

The banks, however, are fighting the reform.  They are trying to dilute the requirement that would minimize their leveraged bets on the direction of markets for stock bonds and commodities.  This increases the chance that the taxpayer will have to bail them out once again.

Overall, the overhaul restrictions of the Dodd-Frank bill are too heavy-handed in many respects.  However, the Volcker Rule in our opinion represents the best part of the bill and hopefully will prevail over banking greed.  If it becomes diluted, the results, once again, may be harmful for taxpayers.

A recent article in the Wall Street Journal sheds light on one of the ways the banks are trying to lobby around this issue. To quote from the article, “Banks could be allowed to continue making risky bets with their own capital, according to a draft version of the so-called Volcker rule that dilutes the provision’s original ban on proprietary trading.” To read the article, click here Wall Street Journal Article

India watch

India’s economy is moving along at a strong and steady clip.  The GDP will rise by over 7 percent in 2011 and will probably do the same next year. As we have been reporting, India has enacted multiple interest rate hikes in the past few months to combat a strong and rising inflation rate. Inflation stems from many causes, primary among them a steep increase in agricultural prices.

The good news for India has been a fortuitous combination of strong monsoon rainfall and minimal flooding. The result is a bumper summer crop of most farm products. Looking ahead, the rivers in northern India are full for a good winter crop.  With its very warm climate, India can produce more than one crop per year in most of the country. Increased agricultural production will moderate inflation at least temporarily.


If the optimists are to be believed, Europe will come to grips with its critical financial problems and conduct a massive restructuring of the banking system and bail out the irresponsible countries that overspent. If the pessimists are correct, the world is a mess and will stay that way.

We are moving toward the optimistic side.  We see that Europe is finally recognizing that the all-is-well charade is no longer working. Investors are too smart and more cynical than in the past.  Moreover, information travels fast these days. European banks need capital.  If they get it, investors may see a sizeable stock market rally in much of the world.

On dips gold remains a good long term buy in our opinion.

Thank You

We thank you for reading our newsletter and look forward to hearing from you. To request information about Guild Investment Management services and offerings please call (310) 826-8600 or email us at

Jim’s Mailbox

Gold Share Broke Out To New Highs


Any investor pessimistic about the gold stocks is not listening to the message of the market. What’s that message? Gold leads and the gold stocks follow. The most recent yellow box (green lined) illustrates this leadership. When gold stocks follow in the coming weeks/months will anyone but the talking heads be surprised? Let’s hope not.
Source: Gold leading Gold Shares
The gold shares finally broke out to new highs in September. This effort was promptly rewarded by a big league takedown. Don’t rush to proclaim the gold shares dead money quite yet. Paper operations only dislocate the short-term trend.
The gold stocks have broken out. They will recognized and be controlled by stronger hands during the next advance.
Gold and Gold Stocks Side by Side Comparison clip_image001[5]

Is There Blood In The Streets?  

Fear is the key element to control. Panic, induced by fear, generates selling. Bouts of intense selling keeps buyers disorganized just enough to prevent physical demand from overwhelming paper supply and maintain confidence in the old paradigm a little longer. Investors that recognize extreme through rare TA and money flows setups, or what traders often refer to as recognizing and buying "Blood In The Streets" survive and prosper despite ruthless, organized takedowns.
COT money flows in the coming weeks should confirm and quantify the extreme nature of the current decline in gold, silver, and equity related plays.
A Technical Look "Blood In The Streets"
Arrow mark extreme speculative flushes during organized paper operations. The earliest inflection point would be October.
Gold 2x to Gold Ratio clip_image001
The selling in silver, likely motivated behind the curtain, has been even more extreme. A two standard deviation decline of leveraged silver to silver ratio suggests not only an intense but also extreme speculative flush.
Silver 2x to Silver Ratio clip_image002
Extreme selling, likely margin related, has been punishing the junior miners as well. Here the relative selling is approaching three standard deviations; three standard deviation setups are extremely rare.
Gold Miners Index to Junior Gold Miners Index Ratio clip_image003
As a rule, extreme or “blood in the streets” tend to precede major inflection points. This, however, is usually recognized well after the fact by the public. Don’t expect the organized takedown to subside until Thursday’s option expiration passes.

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