Archive - May 18, 2013 - Story

Not a day passes without the financial media denouncing gold as an investment option and hailing the bureaucrats heading the world's monopolist monetary central planning agencies as superheroes. It began prior to gold's recent breakdown, with widely cited bearish reports on gold published by Credit Suisse and Goldman Sachs, among others. Never mind that most of their arguments were easily unmasked as spurious. It should be no wonder though: gold's rise was the most conspicuous evidence of faith in central banking being slowly but surely undermined. The banking cartel relies on the fiat money system remaining intact; the legal privilege of fractional reserve banking provides it with what is an essentially fraudulent profit center unparalleled by any other in the world (fraudulent in terms of traditional legal principles, but not in terms of the current law of course). As a subtle reminder, in October (before the Nikkei began its 80% rally), a full 76% of the 'big money' fund managers surveyed declared themselves bearish on Japan. Currently, 69% of the managers surveyed in the most recent Barron's poll are bearish on gold.

Amid the sound and fury of yesterday's IRS hearing were a few small tidbits which raise significant questions about who knew what and when within the Obama administration. While getting the answer (the real honest truth) is highly unlikely, as the Wall Street Journal notes, the IRS's watchdog told top Treasury officials around June 2012 (when Republican lawmakers were complaining publicly about alleged IRS targeting of tea-party groups) he was investigating allegations the tax agency had targeted conservative groups, for the first time indicating that Obama administration officials were aware of the explosive matter in the midst of the president's re-election campaign. The revelation nonetheless raised a fresh set of questions about who was aware of the problem within the Obama administration. However, the hearing left numerous other fundamental questions unanswered, including who ordered the targeting and why it continued so long, pointing to a protracted investigation ahead as Rep. Paul Ryan exclaimed, "how can we not conclude that you misled this committee?" As Doug Ross' full timeline below suggests, this is fascism on the part of the IRS and White House...

We feel that now there is a Bermuda Triangle of economics - a space where everything tends to disappear without radar contact, a black hole in which rationality and science is replaced by hope, superstition and nonsense pundits pretending to understand the real drivers of the economy. The Bermuda Triangle in real life runs from Bermuda to Puerto Rico to Miami. The Economic Bermuda Triangle (EBT) one runs from high stock market valuations to high unemployment to low growth/productivity. There is a myth that the sunken Atlantis could be in the middle of this triangle. It has been renamed Modern Monetary Theory (MMT) to make it suit the black hole's main premise of ensuring there is a fancy name for what is essentially the same economic recipe: print and spend money, then wait and pray for better weather. The EBT is getting harder and harder to justify - if for nothing else because the constant reminders of crisis keep us all defensive and non-committed to investing beyond the next quarter. We all naively think we can exit the "risk-on" trade before anyone else. We are due for a new crisis. We have governments and central banks proactively pursuing bubbles. A long time ago, policymakers entered a one-way street where reversing is, if not illegal, then impossible.

Despite 'crashes' in the market, the demand for physical silver continues to rise. "Buyers are already outpacing sellers by a stunning 50-to-1 ratio. We are seeing the beginning of shortages; but this will only accelerate if Western governments continue with this raid on paper gold and silver."

There have been quite a few bold predictions, since the beginning of the year, that the dollar was set to soar and that the great "bond bull market" was dead.  The primary thesis behind these views was that the economy was set to strengthen and inflation would begin to seep its way back into the system.  Furthermore, the "Great Rotation" of bonds into stocks, on the back of said economic strength, would push interest rates substantially higher.  While we have no doubt that at some point down the road that inflation will become an issue, interest rates will rise and the dollar will strengthen - it just won't be anytime soon.  A wave of "disinflation" is currently engulfing the globe. The deflationary pressures that weigh on the consumer and the economy are likely going to keep downward pressure on rates for some time to come as the Fed comes to realize that they have been caught in the same "liquidity trap" that has plagued Japan for a generation. The real concern for investors, and individuals, is the actual economy.

70% of graduates had at least some debt according to the latest poll from Fidelity Investments but as the Wall Street Journal reports the average student-loan debt for a borrower who received a bachelor's degree in 2013 is $30,000 - an all-time record. With $986 billion of outstanding student loan debt (up 50% from Q1 2009) and unemployment rates running at or near all-time highs for the 16-24 year old cohort in this nation, it is little surprise that delinquencies are surging. The unemployment rate among graduates is 7.1% (which is considerably worse than it looks given that many are stuck in low-paid jobs) but it is those who don't complete college that face the greatest burden - the median annual income of a non-completer was $25,000 (compared to $33,900 for a degree holder), less than the average student loan debt. As the WSJ notes though, the 2013 class is unlikely to hold the 'most indebted class ever' title for long as 2014 enrollments and tuition costs look set to continue the 20 year trend...

The mistake Abe is making is to think the same trick that worked for the US will work for them. The problem, as Shirakawa no doubt realizes, is that the two country’s situations are not at all analogous, because the yen isn’t really a reserve currency in the same way the dollar is. There is no population of natural sovereign buyers who will be forced to print their own currency to mop up excess yen, as there is for the dollar. No sovereign is going to want to dramatically increase the allocations of their country’s reserves to the yen, not when it’s in the middle of being deliberately devalued, or really ever. Russia and China and Saudi Arabia don’t need any more yen, they have plenty. Oil isn’t priced in yen. Japan isn’t the world’s largest economy, or even its second largest. World trade isn’t conducted in yen. The emerging economies will just let it collapse. There is no natural sovereign sink for yen to drain into, as there is for the dollar, no group of buyers of last resort with bottomless pockets and no choice but to buy.

Now that the Federal Reserve has hired every single pennystock trader and momentum-chasing algo in the world (or at least is enjoying Citadel's helping hand in regards to the latter) it is time for the Fed's human resources department to branch out and fill those really important gaping holes.

Great job opportunity! Penetration Tester: rfer.us/FRS5ERsd.

— Federal Reserve Jobs (@FedReserveJobs) May 18, 2013

It was less than a month ago that the new Italian government of the pseudotechnocrat Letta, of Bilderberg 2012 and Aspen Institute fame, was voted in by a majority of the PD and the PDL parties (the latter agreeing so Berlusconi would get an extension of his much needed political immunity from assorted prison sentences). It may not last too long. As Reuters reports, it took just 20 days for Letta's approval rating to plunge by 25%, dropping from 43% at the start of the month to 34%, according to an SWG institute poll. It would appear the Italian people (unlike their Japanese peers who at least according to government-controlled media data could not be happier with PM Abe, supposedly because of the bubblelicious 50% rise in the Nikkei225 year to date, even though under 20% are actually invested in the stock market making one wonder just how credible polling, and all other data in Japan actually is) don't have Mrs. Watanabe's childish fascination wth soaring stock bubbles, sexy bonds, mini skirts and 2% inflation bras, and instead demand real economic results. Which also means the protests are back.

While it does have all the impromptu genuineness of a made for C-Span soap opera, the following exchange between Rep. Mile Kelly (PA) and the IRS' commissioner Miller was the highlight of yesterday's grilling of the IRS by the House Ways and Means committee, because rehearsed or not, it does capture the prevalent sentiment the US public harbors not only toward its tax collectors, but the government in general. "The IRS can do almost anything they want to anybody they want any time they want. This is very chilling for the American people.... This is a Pandora's box that has been opened.... This is a huge blow to the faith and trust the American people have in their government. Is there any limit to the scope of where you folks can go? Is there there any question that you should have asked: how much money do you have in your wallet, who do you get emails from, whose sign do you put up in your front yard: this ia tax question? The fact that you all can do just about anything you want to anybody: you can put anybody out of business any time you want.... I think the American people have seen what's going on right now in the their government. This is absolutely an overreach and this is an outrage for all Americans."

There is a reason why in Europe, no matter how much some want to deny it, the Cyprus deposit confiscation "resolution" has become the norm. Quite simply, as BofA summarizes, "Europe's economy struggles with too many banks, too much debt and too little growth. A long history of empire, trade, war and commerce means a long history of banking. The world’s first state-guaranteed bank was the Bank of Venice, founded in 1157, and the world’s oldest bank today is also Italian, Monte Paschi di Siena (founded 1472). In many European countries, bank assets dwarf the size of the local economy and are far in excess of other regions in the world. This is similarly reflected in the local stock exchanges: even now financials account for 42% of the Spanish stock market and 31% of the Italian stock market versus  ust 16% in the US."

Five days ago, when describing the launch of the joint-US, South Korean naval military exercise in the East Sea, we said that "for all his endless posturing, North Korea's Un has done absolutely nothing. And if his inability and unwillingness to translate threats into actions continue, that will pretty much be it for North Korea's hope to even get a few loose pennies as a nuisance factor" be it from the US, Japan, South Korea, or anyone else who is listening. It seems the North Korean leader has taken the hint, and overnight escalated from merely constant jawboning into at least some variant of activity, when he fired three short-range missiles into the sea off the eastern coast of the Korean peninsula on Saturday, "once again stirring tensions that had appeared to ease in the wake of a recent series of bellicose statements directed at South Korea and the U.S."