OTC

From The Archives - Bunker Hunt And 'Silver Thursday'

Back in May of last year, just after the now historic silver slamdown of "Silver Sunday" on May 1, 2011, when the metal imploded by nearly 20% in the span of seconds, a move that some considered 'normal', primarily the CFTC, we presented the extended biopic of the infamous "Silverfinger": Bunker Hunt, who attempted to corner the silver market, and succeeded, if only briefly (and they say Playboy has no good articles). Today, courtesy of Grant Williams, we have dredged up the following clip from the archives, which is a 10 minute overview of just how there is really nothing new ever in the silver market, bringing up memories of Silver Thursday, March 27, 1980, and raising questions whether last year the move in precious metals was not due to the same attempt to corner the silver and gold markets as happened 30 years prior. A far more important question perhaps is how was it that tried a redux of the Hunt brothers (and Warren Buffett of course), and when will someone take their place next?

Morgan Stanley, Italy, Swaps And Misplaced Outrage

One of the big stories of the week was that Morgan Stanley “reduced” its exposures to Italy by $3.4 billion mostly by unwinding some swaps they had on with Italy. Morgan Stanley booked profit of $600 million on the unwind. The timing couldn’t have been worse coming on the heels of the “Darth Vader” resignation at Goldman Sachs, attracting more attention to profits on derivatives trades was the last thing the investment banks need. Much of the outrage seems misplaced though. In this case, don’t blame Morgan Stanley, blame Italy, and be very afraid of what else Italy has done.

Dylan Grice Explains When To Sell Gold

Following the latest temporary swoon in gold, the PM naysayers have once again crawled out of the woodwork, like a well tuned Swiss watch (made of 24K gold of course). Of course, they all crawl right back into their hole never to be heard of again until the next temporary drop and so on ad inf. Naturally, the latest incursion of "weak hand" gold longs is screaming bloody murder because the paper representation of the value of their hard, non-dilutable, physical gold is being slammed for one reason or another. Ironically, these same people tend to forget that the primary driver behind the value of gold is not for it to be replaced from paper into paper at some point in the future, but to provide the basis for a solid currency following the reset of a terminally unstable system, unstable precisely due to its reliance on infinitely dilutable currency, and as such any cheaper entry point is to be applauded. Yet it seems it is time for a refresh. Luckily, SocGen's Dylan Grice has coined just that with a brief explanation of "when to sell gold" which while having a modestly different view on the intrinsic value of gold, should provide some comfort to those for whom gold is not a speculative vehicle, but a true buy and hold investment for the future. And in this day and age of exponentially growing central bank balance sheets (chart), this should be everyone but the die hard CNBC fanatics. In brief: "Eventually, there will be a crisis of such magnitude that the political winds change direction, and become blustering gales forcing us onto the course of fiscal sustainability. Until it does, the temptation to inflate will remain, as will economists with spurious mathematical rationalisations as to why such inflation will make everything OK. Until it does, the outlook will remain favorable for gold. But eventually, majority opinion will accept the painful contractionary medicine because it will have to. That will be the  time to sell gold."

Guest Post: Money from Nothing - A Primer On Fake Wealth Creation And Its Implications (Part 1)

What is fraud except creating “value” from nothing and passing it off as something? Frauds interlink and grow upon each other. Our debt-based money system serves as the fraud foundation. In our debt-based money system, debt must grow in order to create money. Therefore, there is no way to pay off aggregate debt with available money. More money must be lent into the system to make the payments for old debts. This causes overall debt to expand as new money for actual people (vs. banks) always arrives at interest and compounds exponentially. This process is called financialization. Financialization: The process of making money from nothing in which debt (i.e. poverty, lack) is paradoxically considered an asset (i.e. wealth, gain). In current financialized economies “wealth expansion” comes from the parasitic taxation of productivity in the form of interest on fiat lending. This interest over time consumes a greater and greater share of resources, assets, labor, and livelihood until nothing is left.

The Eight Hundred Pound Greek Gorilla Enters The Room

I hold up my hand, “One moment please” as I introduce you to the 800 pound Greek Gorilla that is about to enter the room. Allow me to now present to you the “OTHER” Greek debt that is outstanding and will have to be accounted for as the country defaults. Detailed below are some of the “OTHER” sovereign obligations of the Greek government which have now been submitted to the ISDA and I list some of them below. You will note that there are bank bonds, Hellenic Railway bonds, Urban Transportation bonds et al that are guaranteed by Greece. You will also note that there are bonds tied to Inflation, Floating Rate Notes, Asset-Backed securities and a whole mélange of other structured products with a Greek sovereign guarantee. What we all thought was fact is now clearly fiction and default will now bring “Acceleration” one could reasonably bet in all kinds of these securitizations and in all kinds of currencies.  This could come from the ratings agencies placing Greece in “Default” or it could come from the CDS contracts being triggered depending upon each indenture and you will also note that a great many of these off balance sheet securitizations are governed by English Law and not Greek Law. You may also wish to consider the fallout to the banking system as the lead managers of all of these deals could find themselves behind the eight ball as various clauses trigger and as the holders of these securitizations line up at the judicial bench [ZH note: there is a reason why Allen & Overy is getting paid $1500 an hour to indemnify ISDA with a plethora of exculpation clauses - they know what is coming] The ISDN numbers are on all of these securities and the lead managers may be found on Bloomberg or other sources as well as the holders of the debt.  The curtain just lifted and the show is about to get way too interesting!

Daily Collateral's picture

The BIS published a working paper estimating the costs of moving off-balance sheet derivatives trading to central exchanges in terms of daily margin requirements could be, for a dealer like Deutsche Bank, upwards of $8B, and for JPMorgan, $5B in times of volatility. The cost to the biggest 14 swaps dealers in terms of initial margins? Over $100B.

Reggie Middleton's picture

Not many websites, analysts or authors have both the balls/temerity & the analytical honesty to take Goldman on. Well, I say.... Let's dance! This isn't a collection of soundbites from the MSM. This is truly meaty, hard hitting analysis for the big boys and girls. If you're easily offended or need the 6 second preview I suggest you move on.

The Gold Party: World Gold Council Chimes In

Of course, if only one had seen that there is absolutely nothing different or new about the gold "story" at all since March 2009, there would have been no need to strengthen positions. Otherwise, more or less as has been said here all along. Furthermore, below are some pretty charts from the latest World Gold Council demand trends letter, presented below.

Asia Buying Gold On Dips - “Empires May Fall, Currencies May Change... Gold Will Always Survive”

Market focus tends to be almost solely on Chinese and Indian demand but demand is broad based throughout increasingly important Asian gold markets. Demand for gold remains robust in most Asian countries where consumers are buying gold as a store of wealth due to concerns about their local paper currency.  This phenomenon is happening throughout Asia including in Malaysia, Indonesia, Thailand and Vietnam and other large Asian countries (see news below regarding demand for gold by investors in Thailand).   AFP have a very interesting article on Vietnamese ‘gold fever’ which recounts how  “stashing gold at home rather than having cash in the bank is a generations-old habit in communist Vietnam”. And old habits are dying hard even if an ounce of gold bullion can now cost up to US $100 more in Hanoi than anywhere else in the world due to government meddling in the gold market. AFP quote 60-year-old retiree Truong Van Hue “I still like to keep my savings in gold. It's safe for retired people like me. I can sell the gold any time, anywhere, when I need cash,” he told AFP. Although the treasure has long been perceived as a safe haven, the recent gold rush has alarmed Vietnam's government, which is faced with an 18 percent inflation rate and an unstable national currency, the dong.

Daily US Opening News And Market Re-Cap: February 7

Ahead of the North American open, European Indices are trading in negative territory following further deliberations over a Greek settlement, with a tentative meeting between the Greek PM and his respective Party Leaders scheduled for some time after 1600GMT as well as an underperforming Basic Materials sector following caution over the upcoming Glencore/Xstrata merger. In foreign exchange news, the EUR/CHF currency pair has exhibited volatility following comments from the SNB’s acting Chair Jordan. Jordan has committed the Central Banks’ resources to preventing any further appreciation of the CHF adding that the SNB will buy unlimited amounts of Forex to defend the minimum level of 1.2000. Overnight, the AUD index has appreciated following an unexpected move by the RBA to hold its base rate at 4.25%, with many analysts expecting a drop in rates due to the global economic outlook and domestic job losses. In terms of European economic releases, German Industrial Production data fell below expectations for the month of December, posting a 2.9% fall while the figure was expected to stay flat at 0.0%.