Our analysis of the physical gold market shows that central banks have most likely been a massive unreported supplier of physical gold, and strongly implies that their gold reserves are negligible today. If Frank Veneroso’s conclusions were even close to accurate back in 1998 (and we believe they were), when coupled with the 2,300 tonne net change in annual demand we can easily identify above, it can only lead to the conclusion that a large portion of the Western central banks’ stated 23,000 tonnes of gold reserves are merely a paper entry on their balance sheets – completely un-backed by anything tangible other than an IOU from whatever counterparty leased it from them in years past. At this stage of the game, we don’t believe these central banks will be able to get their gold back without extreme difficulty, especially if it turns out the gold has left their countries entirely. We can also only wonder how much gold within the central bank system has been ‘rehypothecated’ in the process, since the central banks in question seem so reluctant to divulge any meaningful details on their reserves in a way that would shed light on the various “swaps” and “loans” they imply to be participating in. We might also suggest that if a proper audit of Western central bank gold reserves was ever launched, as per Ron Paul’s recent proposal to audit the US Federal Reserve, the proverbial cat would be let out of the bag – with explosive implications for the gold price.... We realize that some readers may scoff at any analysis of the gold market that hints at “conspiracy”. We’re not talking about conspiracy here however, we’re talking about stupidity. After all, Western central banks are probably under the impression that the gold they’ve swapped and/or lent out is still legally theirs, which technically it may be. But if what we are proposing turns out to be true, and those reserves are not physically theirs; not physically in their possession… then all bets are off regarding the future of our monetary system.
After briefly attempting to stage a rise in the early overnight session, the EUR has since resumed its lower glidepath (something which Germany's export-focused economy and the only realy economic driver in Europe desperately needs: after all Europe is the only entity in the world whose central bank is working to promote a stronger currency) to the 1.2900 support, as once again Europe comes back into focus, exposing all its warts, scars and boils in perfect 1080HD resolution. Among the key events were a Spanish €4.00 billion bill sale as well as an Italian €3.94 billion 2 year bond sale, which despite selling at the maximum of the intended range, showed far less investor demand than on recent occasions, a development which Rabobank said is to be expected as the "Draghi effect" wanes, and once again Europe is left to its own devices. "The longer Spain delays on requesting bailout, the more the improvement in sentiment following Draghi’s pledge to save euro is likely to unwind" Richard McGuire, fixed income strategist at Rabobank, writes in client note. "Unraveling of “Draghi effect” may accelerate, with possible Moody’s downgrade this week and lack of progress at Oct. 8 Eurogroup summit." Other events out of Europe include the ongoing attempts in Spain to package lots of trash under the rug (see: Spanish Bad Bank Risks Investor Conflict With Stressed Lenders), the realization that the Swiss National Bank instead of continuing to exchange EUR for AUD, bought €80 billion of core debt according to S&P, the print of Italy's September consumer confidence which held near 15-Year lows, a French industrial sentiment which held near Two-Year lows, and so on. Greece too continues to make noises but it seems that the little country is being ignored by everyone. Catalonia's separatist tensions however are getting louder after the Barcelona province did not get the unconditional bailout it demanded (as we wrote yesterday).
With $1.6 Trillion In FDIC Deposit Insurance Expiring, Are Negative Bill Rates Set To Become The New Normal?Submitted by Tyler Durden on 09/24/2012 13:46 -0400
As we noted on several occasions in the past ten days, as a result of QE3 and its imminent transformation to QE4, which will merely be the current monetization configuration but without the sterilization of new long-term bond purchases, the Fed's balance sheet is expected to grow by over $2 trillion in the next two years. This also means that the matched liability on the Fed's balance sheet, reserves and deposits, will grow by a like amount. So far so good. However, as Bank of America points out today, there may be a small glitch: as a reminder on December 31, 2012 expires the FDIC's unlimited insurance on noninterest-bearing transaction accounts at which point it will revert back to $250,000. Currently there is about $1.6 trillion in deposits that fall under this umbrella, or essentially the entire amount in new deposit liabilities that will have to be created as a result of QEternity. The question is what those account holders will do, and how will the exit of deposits, once those holding them realize they no longer are government credit risk and instead are unsecured bank credit risk, impact the need to ramp up deposit building. One very possible consequence: negative bill rates as far as the eye can see.
Mr. Jenkins’ error rests on incomplete accounting and incorrect attribution analysis. In Frederic Bastiat’s terms, we have a confusion of what is seen and what is not seen.
The data suggests that relative to other tech companies AAPL is significantly overvalued. And going forward there is no guarantee that AAPL can justify today’s value by keeping up its dominance of the sector. Tech is an extremely fickle and fast-changing sector where one year’s turkey can be next year’s prize pig. And AAPL’s product lineup is still dominated by products developed under the charge of Steve Jobs — it will take a while longer to fully assess whether or not AAPL can succeed at the same magnitude over the entire product cycle from conception to sales without his leadership.
BoomBustBlog Challenges Face Ripping Facebook Share Peddlers That Left Muppets Faceless And Nearly 50% Poorer After IPOSubmitted by Reggie Middleton on 08/17/2012 10:47 -0400
How anyone can possibly do asset management business with the Goldmans, Morgan Stanleys or JP Morgans of the world is beyond me, and to even hint that they have analysis or performance on par with the independent shops is even worse than those "yo mamma" jokes from grade school!
With bank exec heads rolling, investigations hotting up globally, politicians fuming and investors exercising caution in bank shares, the LIBOR scandal is fueling massive speculation about the long-term ramifications for the industry. Indeed, after all that the banking industry has faced in the wake of the bursting of the housing bubble, an anonymously quoted bank CEO in a recent Economist story proclaimed "This is the banking industry’s tobacco moment." While there are more reasons not to draw parallels between the banking industry now and the tobacco industry of the mid-1990’s than there are similarities, we thought it would be interesting to review the impact on Tobacco during its "moment", and beyond.
Since the 2009 stock market lows, Europe has demonstrated what happens to capital markets when there is no central planner willing and able to accept the risk of runaway inflation in the future (not to mention soaring deficits and deferred austerity) in exchange for instant stock market gratification right here, right now. End result: the French, Italian and Spanish stocks markets have barely budged since their 2009 lows (and Spain is well below). How does this look in the context of all global stock markets on a Price to Book ratio? The answer is below.
Facebook investors are about to get unliked...
The devil is in the details and we finally have the Spanish Bank rescue details. The cost is not mentioned. We do not know the cost of the borrowing or how long it will last for. That ultimately will be key. Short dated, high coupon loans will not help much. Long dated, low coupon loans will help. The seniority issue doesn’t seem too bad but reading the documentation it looks like it must have been extremely contentious as it can’t help but say it is going to Spain time and again where it was unnecessary. The other reason the seniority doesn’t look too bad is because it doesn’t look like much money will get doled out. The timing seems far too long. This is a political fix and one where they live in some bankers world rather than a traders world. We are VERY concerned about the long timeframe for implementation. The immediate availability of €30 billion is good, but as TF Market Advisors' Peter Tchir confirms, we have our doubts that it will be distributed. However, as we noted earlier, even if fully implemented there would be well under EUR200 billion by year-end anyway and now with the German Court stalling implementation further, the devil in the details may just be overwhelmed by the god of reality.
A land grab shrouded in a banking takeover, wrapped in a financial crisis "rescue." As always, insiders get first dibs. (And, yes, there is an MF Global connection.)
While the Spanish government feverishly attempts to wrap up the country’s euphemistic financial system reform, the ever-expanding black holes, multiple balance-sheets restructuring with infinite amounts of public funds and reiterated calls for the need to further consolidate financial institutions seem to be setting up the stage for a self-fulfilling prophecy of Mayan proportions. Hopefully, this time around, we can learn from the not-so-ancient Mesoamericans’ hard-learnt lessons of the dangers implied in the state breaking the rules of free market capitalism when bailing out institutions and interest groups at the taxpayers’ expense. If we don’t, at least the endgame should not take anyone by surprise.
From the BBC: "Facebook has started testing a system that lets users pay to highlight or promote posts. Facebook said the goal was to see if users were interested in paying to flag up their information." That’s their plan? That’s Zuckerberg’s big idea? Get users to pay to post premium content!? Did the well-circulated hoax that Facebook planned to get users to pay for use just turn out to be true? If they proceed with this (unlikely) it seems fairly obvious the world would say goodbye Facebook, hello free alternatives. The truth is that Facebook is a toy, a dreamworld, a figment of the imagination. Zuckerberg wanted to make the world a more connected place (and build a huge database of personal preferences), and he succeeded thanks to a huge slathering of venture capital. That’s an accomplishment, but it’s not a business. While the angel investors and college-dorm engineers will feel gratified at paper gains, it is becoming hard to ignore that there is no great profit engine under the venture. In fact, the big money coming into Facebook just seems to be money from new investors — they raised eighteen times as much in their flotation yesterday as they did in a whole year of advertising revenue. For an established company with such huge market penetration, they’re veering dangerously close to Bernie Madoff’s business model.
While Charlie Munger has so far to comment on the 24K content of made in the basement tribalware, he and his partner have made quite a few other statements on items ranging far and wide, during the annual Berkshire Omaha convention, which year after year represents the annual pilgrimage for thousands to a crony capitalist Mecca, and which with the passage of time, has become increasingly more irrelevant. Why? Because with a $58 billion bet (on $37.8 billion in cash and equivalents) that asset prices will go higher, it is rather clear on what side of the 'bail out' argument, and its 'all in' fallback: central planning, Warren Buffett sits.
May had arrived in Spain. It was not, however, the May of years’ past but a Spring that was somehow devoid of warmth and of joy. The flowers had begun to blossom but they were gnarled, deformed, as if the land was reflecting the mood of the people. It seemed as if the Devil had arrived in Spain and, having conducted his Inquisition, was loosening various punishments upon the country based upon the confessions that he had witnessed. The Cathedrals appeared to have been defaced, the bones of the Saints were pocked with mildew and the once dazzling Crosses in the churches were inlaid with some type of worm that had not been seen before. Sadness, like a thick band of fog, had descended upon the coastline and it moved inward untouched by any wind or plea to God for Salvation. The malfeasance of what Spain had brought upon herself was about to be bourne and the hope of any other conclusion was now but a faint prayer remembered in our winter memories. The Piper has arrived from Hamelin; and Spain, like so many before her, will be forced to pay.