Commodity Futures Trading Commission
- China carrier a show of force as Japan tension festers (Reuters)
- Draghi Rally Lets Skeptics Dump Spain for Bunds (Bloomberg)
- China’s Central Bank Injects Record Funds to Ease Cash Crunch (Bloomberg)
- Obama warns Iran on nuclear bid, containment 'no option' (Reuters)
- When Would Bernanke’s Successor Raise Rates? (WSJ) that's easy - never
- Italy's Monti Downplays Sovereignty Risk (WSJ)
- Portugal swaps pay cuts for tax rises (FT)
- Madrid faces regional funding backlash (FT)
- Berlin Seeks to Push Back New Euro-Crisis Aid Requests (WSJ)
- Race Focuses on Foreign Policy (WSJ)
- China Speeds Up Approvals of Foreigners’ Stock Investment (Bloomberg)
Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, L.P. and one of the most successful hedge fund managers of all time told Maria Bartiromo last week that he owns gold and that he sees no “sensible reason not to own gold”. The interview was part of the Council on Foreign Relations (CFR) Corporate Program's CEO Speaker Series, which provides a forum for leading global CEOs to share their priorities and insights before a high-level audience of wealthy and influential CFR members. The respected hedge fund manager suggested that a depression and not a recession was likely and warned of social unrest and the risk of radical politics as was seen with Hitler and the Nazis in the Depression of the 1930’s. Dalio spoke about how “gold is a currency” and when asked by Bartiromo “do you own gold?”, he smiled and said “Oh yeah, I do.” The admission elicited a laugh from the CFR audience. Dalio’s interview is important as it again indicates how slowly but surely gold is moving from a fringe asset of a few hard money advocates and risk averse individuals to a mainstream asset. Wealthier people and some of the wealthiest and most influential people in the world are slowly realising the importance of gold as financial insurance in an investment portfolio and as money. This will result in sizeable flows into the gold market in the coming months which should push prices above the inflation adjusted high of 1980 - $2,500/oz. The interview section where Dalio is asked about gold by an audience member begins in the 43rd minute and can be seen here.
Marc Faber, one of the few analysts, to have predicted the current crisis correctly and to have protected his clients in the process, remains very bullish on gold. In another excellent Bloomberg interview, Faber said that “the trend for gold prices will be steady but the trend for the dollar and other currencies will be down. So in other words gold in dollar terms will trend higher.” “How high it will go, you will have to call Mr Bernanke and at the Fed there are other people who actually make Mr Bernanke look like a hawk and so they are going to print money.” Faber is on record as to the importance of owning physical gold and he again warned about the importance of owning gold but not storing it in the U.S. “You ought to own some gold but don’t store it in the U.S., the Fed will take it away from you one day,” Faber astutely noted. He said that Bernanke is a money printer and this could lead to massive inflation and the Dow Jones at 20,000, 50,000 or 10 million. Faber cheerily predicted that the “the Federal Reserve’s monetary policy will destroy the world” and “eventually we will have a systemic crisis and everything will collapse.”
Gold has risen to new record highs in euro terms overnight in Asia when gold consolidated on last week’s 3% gains and rose above €1,360/oz for the first time. Significant consolidation has been seen in the last year between €1,200/oz and the previous record high at €1,359.01/oz. This record high was seen almost exactly a year ago on September 9th 2011. Gold is being supported by the unrest in South Africa which continues to destabilise the mining sector. Gold Fields said this morning that some 15,000 workers were still on strike at one of its gold mines outside of Johannesburg. The tally of workers on strike at the West Section of the KDC Gold Mine is about 3,000 higher than last week. All production at the mine has been brought to a standstill. With the US job growth contracting significantly in August, investors see that the Fed will be inclined to announce QE3 at this week’s policy meeting on the 12th & 13th. US gold futures and options climbed to 6-month high 144,775 contracts in the week ended September 4, according to data from the U.S. Commodity Futures Trading Commission. Gold ETF’s grew to a record high of 72.125 million ounces on Friday. Also, Hong Kong's July gold shipments to China was almost double on the year and exports for the first 11 months were greater than 2011, suggesting China will overtake India as the world's top gold consumer.
- China Output Growth Slows as Leadership Handover Looms (Bloomberg); Weak China trade data raises Beijing spending stakes (Reuters)
- Italy Q2 GDP revised down to -0.8% year-on-year on weak domestic demand (Economic Times)
- Troika disagreed with €2 billion in Greek "cuts" (Reuters)
- No Greek bottom in sight yet: Greek IP, Manufacturing Output plunge compared to year earlier (WSJ)
- France's Hollande sees 2013 growth forecast about 0.8 pct (Reuters), France plots tax hikes of up to 20 bln euros (Reuters)
- Euro Crisis Faces Tests in German Court, Greek Infighting (Bloomberg)
- Geithner sells more AIG stock (FT)
- Japan infuriates China by agreeing to buy disputed isles (Reuters)
- Euro crisis to worsen, Greece could exit euro: Swedish FinMin Anders Borg (Economic Times)
- ‘Lead or leave euro’, Soros tells Germany (FT)
- German MP makes new court complaint against euro plans (Reuters)
- Obama super-Pac in push to raise $150m (FT)
So what's driving these high ass oil prices? Fundamentals, paper pushing derivatives, fraud, or fear? A common sense discussion ensues...
That the SEC is the most incompetent, corrupt, irrelevant and captured organization "serving" the US public is known by everyone. And while the details of the SEC's glaring lack of capacity to do anything to restore investor confidence in the capital markets, which has become a casino used exclusively by Wall Street to defraud any retail investor still stupid enough to play (which lately a moot point as there have been no material retail inflows into mutual funds in over three years), are scattered, courtesy of Bloomberg we now have the best summary of just how the utterly clueless SEC is a muppet plaything of Wall Street, and together with it, the "grand regulation" that was supposed to keep Wall Street in check, is nothing but what Wall Street demand it to be, and forced the SEC, way over its head on regulation, to accept every change, that the very banks that are supposed to be regulated, demands as part of Dodd-Frank reforms. In short: everything we know about Wall Street 'regulation' has been a farce, and a lie, exclusively thanks to corruption rampant at the now documentedly incompetent Securities And Exchange Commission.
Weidmann rejected suggestions that he was isolated on the ECB Governing Council in having such reservations. "I hardly believe that I am the only one to get a stomach ache over this," he said. Alexander Dobrindt, a senior German politician who has been the Executive Secretary of the Christian Social Union of Bavaria since 2009, was more direct, saying Draghi risked passing into the history books as the "currency forger of Europe". A conservative ally of Merkel, Dobrindt echoed Bundesbank’s Weidmann that Greece should leave the currency bloc by next year. The comments show the huge divisions in Germany over the debt crisis now in its 3rd year and the understandable concerns of inflation and even hyperinflation. The Bundebank and senior politicians and allies of Merkel may thwart Mario Draghi’s big plans to do “whatever it takes” to solve Europe’s financial collapse. One way or another, the euro is certain to fall in value in the long term.
Silver, wine, art and gold – or SWAG – may be the solution for investors looking to protect their wealth in the coming years according to perceptive Reuters Columnist, James Saft. In an interesting article and an interesting video for Reuters, Saft coins the term “Investing 201” which means having SWAG in your portfolio in order to protect investors from “a grim decade of money printing and financial repression.” SWAG, as in silver, wine, art and gold, are real assets that might just outperform if official policy causes the money supply to surge according to Saft. This is the idea of Joe Roseman, who says SWAG will do very well over what could be a very troubled next decade. "These assets effectively act as a money supply index tracker," said Roseman, who for 16 years was a money manager and economist at Moore Capital, run by the legendary Louis Bacon. "If the authorities are going to bail themselves out, money supply will expand. Every single time governments have been here, this is exactly what they have done."
What do the following have in common? LIBOR, Bernie Madoff, MF Global, Peregrine Financial, zero-percent interest rates, the Social Security and Medicare entitlement funds, many state and municipal pension funds, mark-to-model asset values, quote stuffing and high frequency trading (HFT), and debt-based money? The answer is that every single thing in that list is an example of market rigging, fraud, or both. How are we supposed to make decisions in today’s rigged and often fraudulent market environment? Where should you put your money if you don’t know where the risks lie? How does one control risk when control fraud runs rampant? Unfortunately, there are no perfect answers to these questions. Instead, the task is to recognize what sort of world we happen to live in today and adjust one’s actions to the realities as they happen to be. The purpose of this report is not to stir up resentment or anger -- although those are perfectly valid responses to the abuses we are forced to live with -- but to simply acknowledge the landscape as it is so that we can make informed decisions.
Traditional legal principles are seemingly pretty clear and straightforward on how a good faith acquisition of stolen goods is to be treated: the buyer, even though he is not criminally liable, can not acquire title to stolen property. The failed futures brokerage Sentinel Management Group lost the money of its clients in when it went into bankruptcy in 2007. According to the SEC, the firm misappropriated the funds belonging to its clients. Since then, creditors of the company have been fighting over who has title to certain assets. On the one side are the customers of Sentinel, whose funds and accounts were supposed to have been segregated from the company's assets. On the other side there is New York Mellon Bank, which lent Sentinel $312 million that were secured with collateral mainly consisting of said – allegedly 'segregated' – customer funds. The result: 'Banks that received what were essentially misappropriated goods as collateral do not have to return them to their original owners as long as they are deemed to have acted in good faith'. Legal questions aside, one thing is already certain: customers of futures brokerages can no longer have faith that their assets are in any way segregated or protected. This is yet another chink in the 'confidence armor' that has propped up the financial system to date.
It is important to note that markets were also unusually calm during the two weeks of the Chinese Olympics in 2008. The 2008 Summer Olympic Games took place slightly later in August than the London Olympics – starting August 8 and ending August 24. Only days after the ending of the Chinese Olympics came massive market volatility in September and then seven months of market turmoil. Similarly to this Olympic year, in Olympic year 2008, gold traded sideways to down in a period of consolidation prior to further gains. Gold bottomed in September 2008 in euro and sterling terms. Another brief bout of dollar strength saw gold bottom in November 2008 in dollar terms. Besides the eurozone crisis (and the significant risk of the German Constitutional Court deciding on September 12th to reject the recently cobbled together alphabet soup response to the crisis (ESM etc etc) and significant instability in the Middle East, there is also the not inconsequential risk from the US Presidential campaign and the upcoming ‘fiscal cliff’.
Back in April, when gas at the pump hit all time highs for that time of the year, and when the world was still hoping the euphoria from the LTRO would last (it didn't), Obama decided to implement his own centrally-planned vision of events in yet another market: crude. Recall: "now that Obama's uber-central planning mandate has proven completely powerless to redirect the flow of zero-cost money from acquiring real, as opposed to paper-based, assets (read crude), the Teleprompter in Chief will have a sit down with the nation at 11:10 am and in the latest sermon from the White House mound, will "confront" oil speculators once and for all. His plan: why encourage margin hikes of course - the same principle that crushed the spine of the gold and silver spike in 2011." Furthermore as part of his then adopted plan, Obama would "Give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets." Our conclusion was that "Obama is about to become the Margin Hiker-in-Chief." 4 months later, the MaHinC has fired the first warning shot. After all, while Obama would love to have 1600 on the S&P the day before the election, the last thing he would like is to also have the $150 in WTI that would necesssarily accompany it, and guarantee his reelection failure. Sure enough: the first attempt at disconnecting the hard asset market from the S&P has arrived, as the CME just hiked various Crude margins by about 3.7%.
The silver market was affected by “devious efforts” to move the price of the precious metal, according to Bart Chilton, a member of the U.S. Commodity Futures Trading Commission, as reported by Bloomberg. “I continue to believe, consistent with my previous statements and information from the public, that there have been devious efforts related to moving the price of silver,” Chilton said by e-mail today in response to questions from Bloomberg. “There have also been silver and gold market anomalies outside of the silver investigate window that have raised, and continue to raise, market concerns.” The enforcement division of the Washington-based agency, the main U.S. overseer of derivatives markets, began pursuing allegations of manipulation in the silver market in September 2008. Investigators have analyzed more than 100,000 documents and interviewed dozens of witnesses, the CFTC said in a November 2011 statement. Chilton said last month the investigation may be completed as early as September.
In what may be the most amusing news of the day, according to the FT the CFTC will shortly drop its 4 year old investigation into silver manipulation, "after US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation." How about evidence to support an "illegal" case? Of course, that this is happening after the recent discovery that the world's most pervasive fixed income benchmark was manipulated for years, if not decades, can only be reason for laughter and wonder if the CFTC used the same assiduous diligence methods in pursuing the alleged perpetrators of precious metal manipulation as it did in letting the fraud at PFG slip through its fingers for two decades. We will probably never know, or at least not until an email mentioning bottles of Bollinger and silver price "fixing", (or "banging the close" for that matter) in the same sentence inexplicably turns up and makes a complete mockery of the CFTC yet again.