Curious
why the mere prospect of a gold, or gold-linked "standard" (or any
other hard-asset backing for that matter) - a monetary system in which
the creation of money units, i.e., literally the creation of money out
of thin air, is constrained by some real-world limitation is the
scariest thing to the status quo, the following chart courtesy of Grant
Williams should explain it all. It shows the expansion of the world's
monetary bases coupled with the expansion in the world's gold supply
over a comparable period. Needless to say, expanding the money supply at
8% in several years will hardly lead to the massive inflation needed
to "inflate away" the roughly $35 trillion in debt overhang by now (vs $21 billion through 2009) that is crushing the entire developed world.Bob Janjuah - "Central Banks Are Attempting The Grossest Misallocation And Mispricing Of Capital In The History Of Mankind"
"The bottom line is simple: The Fed and the ECB are directing and attempting to orchestrate the grossest misallocation and mispricing of capital in the history of mankind. Their problem is that their actions have enormous unintended and even (eventually) intended consequences which serve to negate their actions in the shorter run, and which could create even bigger problems than we currently face in the near future. Kicking the can is not a viable policy for us now. The private sector knows all this, consciously and/or sub-consciously, which is why I feel these current policy settings are doomed to fail. Having said all that, the one area which for some reason still holds onto hope that Draghi and Bernanke can still perform feats of "magic" is the financial market, which central bankers assume, rely on and are happy to encourage Pavlovian responses. The reality here though is that even financial markets are, collectively, either sensing or assigning a half-life to the "positives" of central bank debasement policies, which to me means that even markets are only suggesting a short-term benefit from the latest policy actions. This is not what Draghi and Bernanke are hoping for, but in order for them to see the half-life outcome averted they know that we need to see major political and structural real economy reforms which somehow make Western workers competitive and hopeful again. The track record of the last four to five years inspires very little confidence that we will see such great necessary reformist strides taken anytime soon."QE Lessons: Fiat Grows On Trees - Gold Does Not
Global gold production remains at its level of the late '90s, even though prices have risen to over $1,700 per ounce from $252 per ounce in 1999 or roughly 16% per annum in dollar terms. Only Rio Tinto and Ivanhoe's Oyu Tolgoi mine in Mongolia stand out as a major new gold mines expected to begin production in the near future. Bulls note that global production has remained impervious to the price of gold. This may continue to be the case due to the increasingly obvious geological constraints being seen in the gold mining sector. Resource nationalism is beginning to become an important factor again. This will also almost certainly affect supply at a time when demand is increasing from people throughout the world and many hedge funds, pension funds and central banks’ due to geopolitical, systemic and monetary risks. The lesson of QE is that fiat currencies increasingly grow on trees. Gold does not. This is the primary reason that gold will continue to protect investors in the coming months.
Some Shocking Perspectives On Inflation And Currency Destruction By None Other Than The Federal Reserve
Going back to the FOMC's own archives reveals some truly stunning disclosures arising from none other than the Federal Reserve on the topics of inflation, currency "debauching", money creation, and what it would take for the Communists and Stalin to win. "I agree with you entirely that the Soviet dictators would like to bring about our economic collapse and, as you know, inflation is perhaps the greatest force for arraying the various sectors of a capitalistic economy against each other. John Maynard Keynes stated in his 'Economic Consequences of the Peace' (1919): 'Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency...Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of Society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.'"Score 1 For Japan As Chinese Protest At US Embassy In Beijing
Between the anti-Japanese tensions and the converging dominance
of the Japanese with the Chinese to our fiscal status quo, it seems the
Chinese are increasingly pushing the US hand to supporting the
Japanese. Via Ai Weiwei, contemporary Chinese artist, the US Embassy in Beijing is under protest by the Chinese marchers demanding (Google Translated) "Pay Back The Money" and "Down with US Imperialism".
Some embassy cars were attacked - apparently on the back of the US
role in the China-Japan tensions. The question now is what happens to
China's Treasury holdings? They already threatened Japan with economic
sanctions and now the populist view is turning anti-American at a time of new leadership.
We assume they will continue to sell down their USD-based Treasury
holdings and convert to Gold as they have been for the past year. With 2
months until the election, this will be an interesting distraction of
global importance as the US is forced to support Japan or throw them
under the bus.The Fed's Financial Repression 'Game'
The Grand Plan, as we have espoused for years, is to force all 'safe' assets to a point where they appear 'rich' to 'risk' assets - and inflate another bubble to take our eyes off the debt being inflated away in the other hand. In the Fed's mind, they tried this before with QE1 and it worked magnificently - lifting stocks phoenix-like from the ashes of a credit-crunch reality. However, this time is different. The last time the Fed forced MBS CurCpn yields down to 'match' the S&P 500's dividend yield was March 2009 - and investors 'rotated' back to risk (to many people's surprise). Yields were at 4% then and the S&P's P/E multiple was 10x; this time yields are just above 2% and the S&P 500's P/E multiple is a staggering 14.9x. We suspect that rather than re-enacting the post-March 2009 eruption, valuations this time will force that liquidity to flood into non-equity asset classes (and with HY call-constrained, it leaves little but the energy and precious metals complex to soak up the Fed's exuberance).
The Schrodinger Election Futures Market And Fiscal Gridlock
As
the US Presidential and Congressional election campaigns move into
their frenetic final stages ahead of the November 6th polling date, we
thought it would be good to see what the futures markets think about the
outcome. As UBS notes, the Iowa Electronic Markets (IEM)
are futures markets allow traders to take positions, with real money,
on a variety of economic and political events, the best known of which
are US elections. Since inception, the IEM has had an impressive track
record of forecasting elections, consistently better than conventional polls months in advance. The current data, however, highly contradictory - or Schrodinger-like - as the gap
in the popular vote has narrowed significantly, yet the gap in the
winner-take-all election result market has widened dramatically in favor
of Obama. Furthermore, there is a 70% chance the Republicans wrest control of the Senate and the probability of the democrats gaining a House of Representatives majority is a mere 10%. It would seem gridlock will persist with a divided government - not good news for the fiscal cliff.If You Want to Help the Poor and the Middle Class, Encourage Deflation
If the Federal Reserve’s nightmare comes true and deflation occurs, something else happens that the banks fear and loathe: marginal borrowers default on all their debts. Rather than being easier to pay, the debts become more difficult to pay as money gains value. Marginal borrowers no longer get the “boost” of inflation, so they increasingly default on their loans. How is it bad for hopelessly over-indebted, overleveraged households to default on all their debt and get a fresh start? Exactly why is that bad? What is the over-indebted household losing other than a lifetime of debt-serfdom, stress and poverty? The banks have to absorb the losses, and since they are so highly leveraged, the losses drive the banks into insolvency. They are bankrupt and must close their doors. Note that 99.9% of the people benefit when bad banks absorb losses and close their doors. Only the bank managers, owners and bond holders lose, and everyone else gains as an unproductive, poorly managed bank no longer burdens the economy with its malinvestments and risky bets. The Federal Reserve’s policy of protecting the wealth and power of the banks while stealing from wage earners via inflation is a catastrophe for the nation and the 99.9% who are not financiers, politicians and lobbyists.If you want to do something for the poor and middle class, encourage deflation.
by Doug Hamel,“The masses of the people, however, did not realize how much the industrial tycoons, the Army and the State were benefiting from the ruin of the currency. All they knew was that a large bank account could not buy a straggly bunch of carrots, a half a peck of potatoes, a few ounces of sugar, a pound of flour. They knew that as individuals they were bankrupt. And they knew hunger when it gnawed at them, as it did daily. In their misery and hopelessness they made the republic the scapegoat for all that had happened. Such times were heaven-sent for Adolf Hitler. “ Chapter 3, page 62, The Rise and Fall of the Third Reich
After reading ‘When Money Dies” by Adam Fergusson over a year ago, I had been poised, waiting for the ‘click’ moment when the next bullet of stimulus would enter the chamber of desperation. The audible ‘click’ was heard last week when Mr.Bernanke announced QE3. Described as a ‘bold new stimulus program’, by The Financial Post, September 13, 2012, it more resembles a game of Russian Roulette with barrel of inflation pointing at our ability to provide for ourselves and families. Read More…
Even Nigeria Gets It
Nigeria gets it. So why not our distinguished Princeton/MIT/Harvard edumacated PeeEichDees?- NIGERIA'S SANUSI: ECB, US QUANTITATIVE EASING DRIVING OIL PRICE
- NIGERIA'S SANUSI: THREAT OF HOT MONEY FROM QUANTITATIVE EASING
As The Global Economy Slowly Implodes
Eric De Groot at Eric De Groot - 24 minutes ago
As the global economy slowly implodes, old social, political, and economic
wounds are opened across the globe. the world's leadership will be tested.
Failed leadership, as seen most recently in the early stages of the Great
Depression (1929-1949), will create a power vacuum that increases the
probability of Imperialistic ajendas and Megalomaniacs imposing their will
over...
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FedEx says economy is worsening, cuts outlook
Eric De Groot at Eric De Groot - 57 minutes ago
Fed confirms what Insight readers have known for months that the global
economy is worsening. A slowing global economy, however, does not necessary
equal lower stock prices. Lower stock prices are coming, but likely not
until the headlines have convinced the majority of investors that the bull
market has no end. Call 2012 today's price action similar to 1935 or 1945;
I prefer the former. A...
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The Solution Is Not Papering It Over
Admin at Jim Rogers Blog - 1 hour ago
A recent video interview with Reuters.
*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
Financial Times and is a regular guest on Bloomberg and CNBC.*
Printing Money Never Made A Fundamental Change In Any Economy
Admin at Jim Rogers Blog - 1 hour ago
Never in history has printing money made a fundamental change in any
economy. - *in Reuters *
*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
Financial Times and is a regular guest on Bloomberg and CNBC.*
I Don`t Like Bonds, I Don`t Particularly Like Equities
Admin at Marc Faber Blog - 3 hours ago
I don`t like bonds, I don`t particularly like equities, but I think
equities are a better space to be in than bonds. - *in Bloomberg TV*
*
*Related: SPDR SP 500 ETF (NYSE:SPY), iShares Lehman 7-10 Year Treasury
Bond (ETF) (IEF), iShares MSCI Emerging Markets Indx (ETF) (EEM)
*Marc Faber is an international investor known for his uncanny predictions
of the stock market and futures markets around the world.*
Be Very Worried About 2013
Admin at Jim Rogers Blog - 3 hours ago
Be very worried about 2013 and be very worried about 2014, because that's
when the next slowdown comes. - *in Resource Investor*
Related: SPDR S&P 500 Index ETF (SPY), IShares MSCI Emerging Markets (EEM)
*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
Financial Times and is a regular guest on Bloomberg and CNBC.*
You Have To Let It All Go - Fear, Doubt & Disbelief
Eric De Groot at Eric De Groot - 3 hours ago
Doubting market direction is easy to do. That's why characterize many stock
market rallies as climbing the wall of worry. Now that price has broken
above the March 2012 high, an event forecasted week's ago by positive
divergences of trend energy and price, the doubters return to keep the
masses frozen in fear. The stock market will continue climbing the wall of
worry as long as trend energy...
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The Fallacy Of Monetary Policy In The U.S.
Admin at Marc Faber Blog - 4 hours ago
The fallacy of monetary policy in the U.S. is to believe that this money
will go to the man on the street. It won’t. It goes to the Mayfair economy
of the well-to-do people and boosts asset prices of Warhols … .Very happy.
Very good for the Fed. Congratulations, Mr. Bernanke. I’m happy. - *in
Federal Reserve Policies Will ‘Destroy the World’- Money News *
*
* *Marc Faber is an international investor known for his uncanny
predictions of the stock market and futures markets around the world.*Operation Adios Rajoy Begins
As
we have been discussing for a few weeks, the European markets need a
risk flare for any of the oh-so-conditional firewalls, that have been
heralded as cutting risk's tail, to become relevant. What is stunning is the level of disappointment that Rajoy has not requested a bailout yet
(noted this morning on CNBC as the reason Europe is red today). It
seems, as we pointed out Friday and yesterday, Operation Adios Rajoy is
underway in the markets... Spanish bonds have pushed notably higher in
yield (with the front-end leaking rather considerably), Spanish 5Y CDS are 21bps wider today,
but it is the Portuguese market that we suspect is where the leverage
is being applied. The Portuguese market was used as evidence of
Draghi's awesomeness and while its illiquidity helped on the way down
in yields, it is also hindering now - as Portugal's 10Y is now
70bps higher in yield in the last two days - notably back above an
unsustainable 8% (at the same time as government revenues missed
expectations - shocker). Risk flare-on.As The China-Japan Conflict Escalates, Whom Will The US Support?
The spread between Chinese and Japanese US Treasury holdings has declined to a tiny $33 billion, from $430 billion one short year ago (we know that China is now actively buying gold with its current account cash instead of US paper but that is irrelevant for the time being). What is more importantly is which of its top US Treasury holders (the Fed being naturally the largest) will the US end up disappointing: China or Japan, because as much as it wants, it won't be able to support both. What happens if and when the snubbed party decides to dispose of its $1.1 trillion in US securities?
Why A Centrally-Planned Heroin Addiction Never Has A Hollywood Ending
The
market rally has assuredly been more powerful than Morgan Stanley had
anticipated, defying the weak fundamentals. Many have said they don’t think fundamentals will matter for the rest of this year. We don’t do heroin. We are sure the period of being high on heroin is “enjoyable.” We had thought that most investors would decide this “heroin” wasn’t worth it.
We forgot about what it means to be an addict. Will equities continue
to go higher simply because the specter of unlimited liquidity is there
or will investors see through to the other side of the “high”? People
can’t envision a catalyst to make fundamentals matter, they can’t
envision a catalyst for earnings to come down, and they still think the
“tradable rally” from positioning and policy will last. It well may last for a while more, but the disconnect from fundamentals can’t last forever. We all know that the current “bad is good, good is good” mentality can’t persist.The Spacious Sound Of Nothing
The world is awash in liquidity.
If you listen closely you can hear the giant slurping sound of it
rushing the shores at home and continents away. The Fed is providing it
and the ECB is providing it while China doesn’t need it but it is
sloshing around anyway. The world’s problems, the financial mess in
Europe, the global slowdown that is resplendent from sea to
not-so-shining sea is all being addressed with liquidity. Liquidity provided must be paid back
and if the banks and nations that receive it do not provide structural
changes, reduce their deficits, decrease their borrowings then,
ultimately, the gods of chaos are unleashed. The applause of today may become the tears of tomorrow if the current course continues.Daily US Opening News And Market Re-Cap: September 18
Stocks fell in Europe today, that’s in spite of the fact that German investor confidence rose the first time in 5 months (ZEW), as market participants focused on somewhat unfavourable auction schedule for Spain, which may force the Treasury to raise its T-bill issuance in order to meet its zero-net funding target. As a result, Bunds traded higher throughout the session, with the shorter-dated Spanish and Italian bonds underperforming (Italian and Spanish 2s up by c.3bps). Of note, Spanish 10y bond yield has risen back above 6% and given the upcoming supply, there is a risk that yields will continue to rise and flatten the curve. On that note, the Spanish Treasury is set to sell a new 3y benchmark and a 10y re-opening this Thursday, which proved notoriously difficult to sell in the past. Spain is also planning to issue EUR 8bln in private placements with EUR 3bln on Sep-21st and EUR 5bln in mid-October.Frontrunning: September 18
- Nothing has changed and things have just gotten worse: Europe Banks Fail to Cut as Draghi Loans Defer Deleverage (Bloomberg)
- Mitt Romney secret video reveals views on Obama voters (BBC)
- Romney Stands by Government-Dependent ‘Victims’ Remark (Bloomberg)
- Video shows Libyans helping rescue U.S. ambassador after attack (Reuters)
- Fannie Mae paid BofA premium to transfer soured loans-regulator (Reuters)
- Northrop to shed nearly 600 jobs (LA Times)
- LOLmarkets: Retail Currency Traders Turn to Algorithms (WSJ)
- U.K. Royal Family Wins French Ruling on Kate Photos (Bloomberg)
- Nevada recluse dies with $200 in bank, $7 million in gold at home (LA Times)
- Gap Between Rich and Poor Grows in Germany (Spiegel)
- Chicago teachers meet Tuesday to decide whether to end strike (Reuters)
- Australia's Fortescue wins debt breather, shares soar (Reuters) ... a deal which ultimately will prime equity and unsecureds by $4.5 billion in secured debt
- Ford car sales fall 29% in Europe (FT)
Today’s Items:
With sovereign debt crisis getting worse,
the limelight on the euro has essentially gone out. A growing number
of nations, within the euro-zone, no longer desire to switch to, or use,
the euro. In addition, Bulgaria, has indefinitely frozen plans to adopt
the euro.
The last 14 days of September may go down
as a turning point in the history of economics. In the wake of the
Fed’s QE and the European Central Banks’s actions, the west’s largest
central banks are bringing unprecedented resolve to bear on economic
growth. When history books are written, the first two weeks may be
looked upon as the final nail in the coffin for both the euro and the
dollar. Are you ready?
Michael Pento says that the Fed’s actions
will send gold to an all-time high. Inflation and real unemployment
will increase while the middle class and the dollar will go down as a
result of the abuse of currency we are witnessing from politicians and
the Fed. The race will begin shortly out of paper and into hard assets
like gold and silver; therefore, after preparing, keep stacking
physical.
For every 10 percent increase in global
food prices there is a 100 percent increase in anti-government
protests. Food commodities are up 20 percent so far this year and we
are seeing the Middle East on fire. Just imagine the joy and happiness
when the effect of QE3, and the worldwide drought begin to emerge in food prices?
So, has JP Morgan been shorting silver,
money laundering, or both? A U.S. regulatory probe is looking into
possible money laundering at JP Morgan. The scrutiny of JPMorgan comes
amid a change at the top of the bank’s anti-money laundering division.
So does JP Morgan also have an anti-naked short selling division as
well? Give me a break. Of course, we are told that JP Morgan is
servicing its clients. So, is the Fed or drug lords their clients?
Despite the 6.5% stock market rally over
the last three months, some billionaires, like Warren Buffett, are
quietly dumping their American stocks… and fast. Some are expecting a
90% correction in the stock market and it starts with the repercussions
of the Fed printing massive amounts of currency out of thin air.
Many people are refusing to even look at a
General Motors car because of its association with both the U.S and
Chinese government. GM executives want the U.S. Treasury to sell off
its stake in the auto maker. Of course, the problem is that the sale would be a total loss for the government. Nothing that more printing from the Fed could not fix. No wonder, Ford wanted to avoid this mess.
Using $237 million in Federal Funds, a PR
company has been set up to push Hollywood to promote Obamacare on
television network shows like “Grey’s Anatomy”. This is the same kind
of propaganda, at taxpayer’s expense, that occurred under Bush, with paid promotions of “No Child Left Behind.”
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