Nationalization

The Hostess bankruptcy liquidation, the result of a bungled negotiation between the company, its equity sponsors, its striking workers, and the labor union, over what has been defined as unsustainable benefits and pension benefits, is rapidly becoming a Ding Ding farce. The latest news in what promises to be an epic Chapter 22 fight is that the judge, pressured by various impaired stakeholders, among which none other than the US trustee, is that the bankruptcy Judge Robert Drain has ordered the company and its unions to seek private mediation to attempt averting what the company has already said is an inevitable unwind of operations. More to the point, and as we predicted on Friday, if there is an outright purchase of the company, it will be a standalone entity, without its unions: Hostess will draw strategic buyers and private-equity investors for its brands, Rayburn said, without naming potential bidders. The company is “more attractive” to buyers without the unions, he said. In other words, if the Union had hoped that their workers would be retained by the purchasing entity, their dreams just got shattered. But while the Union may be sad, it is about to add another emotion to its arsenal: blind fury. Because it is here that things get truly surreal. As the US Trustee, a Justice Department official responsible for protecting creditors, disclosed, as part of the winddown of Hostess, wants to pay as much as $1.75 million in incentive bonuses to 19 senior managers during the liquidation.

Two weeks ago, when Spain unveiled the specifics of the SAREB, also known as the Spanish Bad Bank initiative, which is simply the haphazardly put together chaotic plan to shift toxic assets from Spain's already insolvent banking sector to a bank that is even more insolvent than all others as it is fulled to the brim with "assets" such as land which has already been discounted by 80%, and backed with Spanish government guarantees, which are largely worthless as the entire country has been on the verge of demanding a bailout for 4 months now, we summarized it simply as follows: "it is ugly - far uglier than many had expected. And while the Spanish government expects private interest to take some of this massively discounted 'crap' off their hands, we have three words: 'deleveraging' and 'no bid!" We were right, although one wouldn't get that impression if one reads the official party line. Here is how Reuters summarized the government's party line: "Spain's bad bank is generating a lot of interest amongst international investors, an economy ministry source said. The bad bank would be possible with only domestic participation but non-resident investors gave the vehicle credibility, the source said." That's a lie. Here is the truth.

Silver remains the most under appreciated and under reported on asset in the world despite continuing positive fundamentals.

The Telegraph published an unusually bullish article on silver yesterday which suggests that silver might rise by over five times in the next few years. 

Emma Wall interviews fund manager Ian Williams who says that "silver is about to enter a sustained bull market that will take the price from the current level of $32 an ounce to $165 an ounce and we expect this price to be hit at the end of October 2015."

The Obama Administration thus far has proven itself in favor of increased Government control and Central Planning. That is, the general trend throughout the last four years has been towards greater nationalization of industries (first finance, then automakers and now healthcare and insurance), as well as greater reliance on our Central Bank to maintain our finances.

The people have spoken. It’s seen as a solution.

Exxon Mobil is no longer the world's number-one oil producer. As of yesterday, that title belongs to Putin Oil Corp – oh, whoops. We mean the title belongs to Rosneft, Russia's state-controlled oil company. With TNK-BP in its hands, Rosneft will be in charge of more than 4 million barrels of oil production a day. And who is in charge of Rosneft? None other than Vladimir Putin, Russia's resource-full president. Gazprom in control of Europe's gas, Rosneft in control of its oil. A red hand stretching out from Russia to strangle the supremacy of the West and pave the way for a new world order– one with Russia at the helm. It is not as far-fetched as it might seem – or as you might want it to be. Or imagine this: Russia could join OPEC.

Tensions between Japan and China over the Senkaku (Diaoyu) islands are continuing, as indicated by continued obstacles to Japanese businesses in China, a drastic decline in tourism, and Chinese patrols near the islands.   This is both a Sino-Japanese issue and a part of a broader confrontation between China on one side and the United States and its allies on the other. Given Japan’s reliance on the U.S. security umbrella, Tokyo’s moves are to some extent constrained by American actions.  Nevertheless, Japan’s size and resources mean Tokyo retains considerable autonomy in handling its relationship with Beijing. At this point, Tokyo has three options... Taking a proactive course on China policy requires stable and high-quality leadership, something which is lacking in Tokyo.

No, it is not a glitch in the matrix: we previously used the same title about a month ago when showing the relative imports of crude in the US vs China. This time the topic is slightly different, but the players are the same. The premise: "Japan, US call off joint drill to 'retake' disputed islands fearing backlash from China." At least it is now clear who calls the shots from not only a tactical (see China starts drilling for crude in a US-protected Afghanistan yesterday), but strategic standpoint as well.

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.

While the plight of precious metal mining in the 3rd largest gold producer in the world has been well-documented here, as on ongoing strike in various South African mines has crippled precious metal supply, so far the mining shut down had not spread outside the continent of Africa (excluding the occasional Bolivian and Venezuelan mine nationalization). Today, however, even more mining capacity was taken offline, as India's Goa, the country's second largest iron ore producer, announced it was temporarily ceasing all mining activity "after an expert panel formed by the central government found "serious illegalities and irregularities" in mining operations." While no gold production has been impacted yet, this move, which likely has political overtones, will likely shift to other extractors soon, as more production capacity is taken offline, for either labor or kickback reasons. And as reported previously, demand by the now largest importer of gold in the world China, refuses to decline with supply, which has clear implications for the equilibrium price. It remains to be seen if Goa going dark will push iron-ore prices higher. It is quite likely that the collapse in Chinese iron-ore demand offline is far greater than anything Goa will remove from the market and as such will hardly push iron prices higher.

With "unlimited" bond purchases confirmed by Super Mario and the ECB and the Fed essentially doing the same thing without calling it so, it is nothing short of integral to juxtapose the current western world central banking revolution with that of the Bank of Japan in the 80s. Japan faced an asset bubble that forced the nationalization decapitation of many Japanese banks whose lending practices and balance sheets depended upon the appreciation of said frothy assets (mainly real-estate, sound familiar?), which threw the country into recession in 1990...four years after the crisis was considered to have begun.

Peter Schiff pulled an OccupyWallStreet (remember that whole Occupy movement?) at the Democratic National Convention. What he did, was succeed in exposing some very disturbing prevailing beliefs about the government's role in establishing the 'utility' value of the free market as manifested by corporations, namely that according to a broad cross-section of society, it is the government job to "explicitly outlaw profitability."  We wish to remind readers that this has been done on numerous occasions in the past, but most "effectively" in the Soviet Union's centrally planned regime. Until the USSR's failure of course. The premise of eliminating profitability is also quite popular, and even has its own name: nationalization, and its result in a business "manager" who is perfectly ambivalent if the state owned enterprise makes or loses money. After all the wage is determined by a politburo, and is not a function of the profits, or losses, a business may engender. Furthermore, it is probably worth reminding that the primary tenet behind capitalism is the production of goods and services for a profit. Sadly, quite a few of these concepts appear to have not been made clear to not just one or two Americans as the following clip demonstrates.

Last night we reported that the troubles for South Africa's metal mining industry, which accounts for 20% of the nation's GDP, have spread, when in the aftermath of the Lonmin Marikana Platinum mine bloodbath which saw 44 miners shot by police another mine - this time Gold Fields' KDC mine - went dark as the bulk of the firm's miners went on strike. Moments ago AP reported that violence has erupted at a third mine, this time the gold mine owned by the nephew of Nelson Mandela, where 4 workers have been shot. So much for an amicable resolution, or for gold production returning to historical levels.

September has arrived which means for Europe reality can, mercifully, return. First on the agenda: moments ago the French government suddenly announced the nationalization of troubled mortgage lender Credit Immobilier de France, which is also the country's second lagrest mortgage specialist after an attempt to find a buyer for the company failed. "To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee," Finance Minister Pierre Moscovici said according to Reuters. What he really meant was that in order to avoid a bank run following the realization that the housing crisis has finally come home, his boss, socialist Hollande, has decided to renege on his core campaign promise, and bail out an "evil, evil" bank. Sadly, while the nationalization was predicted by us long ago, the reality is that the French government waited too long with the sale, which prompted the Moody's downgrade of CIF by 3 notches earlier this week, which in turn was the catalyst that made any delay in the nationalization inevitable. The alternative: fears that one of the key players in the French mortgage house of cards was effectively insolvent would spread like wildfire, leading to disastrous consequences for the banking system. End result: congratulations France: your Fannie/Freddie-Dexia moment has finally arrived, and the score, naturally: bankers 1 - taxpayers 0.

While one may wonder about the implications of the just announced "accelerated windown" of the GSEs, predicated in no small part by the surge in animosity between Tim Geithner and the FHFA's Ed DeMarco, there is one aspect of the announcement that is completely and utterly unambigious: as part of its justification to demand faster liquidation of Fannie and Freddie's "investment portfolio" Tim Geithner gave the following argument:

This will help achieve several important objectives, including... Ending the circular practice of the Treasury advancing funds to the GSEs simply to pay dividends back to Treasury

Transfer one more conspiracy theory into the conspiracy fact bin.