Trust is fading

The post GFC world has set off a domino effect. Globally, trust in government is beginning to erode. We first saw it in the "Arab Spring", but it's everywhere if you care to look.

Europe has gone from one disaster to another - the most recent being Cyprus. Now the Japanese will undertake a massive version of their own QE. In the US the job participation rate in the lowest since 1979. Even in Aus we see a government scrambling for cash, looking to make things sustainable.

The markets sill signify a loss of trust and force the govt's hands.

Where is the good news? Like each season, this too shall pass. First comes the pain.

http://www.jsmineset.com/2013/04/06/you-must-act-now/

Cypriot depositors learn about "safe" assets, the hard way!

  http://www.ft.com/cms/s/0/33fb34b4-8df8-11e2-9d6b-00144feabdc0.html#ixzz2Nm4QtmvT

International lenders agreed to a €10bn bailout of Cyprus early on Saturday morning after 10 hours of fraught negotiations, which included convincing Nicosia to seize €5.8bn from Cypriot bank deposits to help pay for the rescue, a first for any eurozone bailout.
The cash from Cypriot account holders will come in the form of a one-time 9.9 per cent levy on all deposits over €100,000 that will be slashed from their savings before banks reopen Tuesday, a day after a Cypriot holiday. An additional 6.75 per cent levy will be imposed on deposits below that level.

Those hiding cash or gold under their mattress...are 7% to 10% better off!

Implications: If you live in Italy, Greece or Spain do you take the risk and keep your "safe" assets in a a bank? NFW!

Greece - It's a GREAT Depression

Even if the EMU machine succeeds in keeping Greece in the system, is this any longer a remotely desirable goal? Has it not become a vicious and immoral policy in itself?

I agree with the IFO Institute’s Hans-Werner Sinn that upholding euro membership has by now become an act of cruelty. It not being done in the interests of Greeks. It is being done for the Project, by enforcers of the Project. Only by breaking free can Greece restore a minimum of economic vibrancy and national dignity.


http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100021180/who-will-stop-the-sado-monetarists-as-jobless-youth-hits-58pc-in-greece/


Trapped in a currency they can't control.
Unemployment rate of youth at 50% plus.

Does this sound like a "good" plan for the greeks?

"It's a maths problem"

http://www.sovereignman.com/expat/i-apologize-for-what-youre-about-to-read-9397/

Simon Black summarises it well (above link)

It took just 286 days to accumulate the most recent trillion (from $15 trillion to $16 trillion).
Last month alone, the first full month of Fiscal Year 2013, the US government accumulated nearly $200 billion in new debt– 20% of the way to a fresh trillion in just 31 days.


The big issue about to hit is the "fiscal cliff" - that is the gap between what the government brings in and spends. Certain tax breaks are due to expire meaning greater taxes will come from the taxpayer. Taxing will not lead to growth - growth is the only option the US has to get over the debt binge and prevent the banks from further writedowns.

The printing press must continue...

Are politicians going to take the soft political option?

What really broke Germany was the constant taking of the soft political option in respect of money. The take-off point therefore was not a financial but a moral one; and the political excuse was despicable, for no imaginable political circumstances could have been more unsuited to the imposition of a new financial order than those pertaining in November 1923, when inflation was no longer an option. The Rentenmark was itself hardly more than an expedient then, and could scarcely have been introduced successfully had not the mark lost its entire meaning. Stability came only when the abyss had been plumbed, when the credible mark could fall no more, when everything that four years of financial cowardice, wrong-headedness and mismanagement had been fashioned to avoid had in fact taken place, when the inconceivable had ineluct-ably arrived.


From When Money Dies by Adam Fergusson

Mr Lipps, a Swiss private banker wrote in 2001

http://www.fame.org/pdf/Gold%20Wars%200-9710380-0-7%20%20-%2001.21.02.pdf

I demand to know from Western bankers and portfolio managers what confused logic compels them to leave no room for gold in their portfolios. They should know from history that the future of fiat money does not bode well for the survival of their clients. portfolios. I address the Western bankers because the people of the East have a better understanding of gold. Do the portfolio managers really think that stocks of companies with no earnings or bonds in troubled currencies are sensible long-term investments?

Should they not be more interested in sound monetary conditions? It would make their work easier.

I ask the central bankers of this world: Are you really concerned with what should be the main purpose of your jobs: to protect the purchasing power and the integrity of your country.s currency? Are you really sincere and acting to the best of your ability when you decrease your country.s gold holdings only to replace it with continuously depreciating paper claims that may not be honored? Remember, no serious farmer would sell his seeds. If not, you are clearly useless and should get out of the business.

I will not ask anything of the politicians because they will never change. All they have done with their politics is to destroy the purchasing power of money.

A Golden Lion speaks about what is coming

a 43 min video worthy of your time...

http://ceo.ca/frank-giustra-long-form-interview/

By all accounts Giustra is brilliant, connected and wealthy. He made headlines in 2007 by pledging over $100 million and half of his future earnings to establish a charitable foundation with President Clinton. Outside of philanthropy however, Giustra has been reluctant to draw attention to himself, and rarely speaks publicly about investing.

Very volatie week ends with pollies meeting on Europe...we are saved

A G8 meeting was held overnight where officials took lovely photos and smiled for the cameras. Pronouncements of significance were missing...let's see how the markets react this week. Last week was not good!! Maybe it will take a Dow move of another 1,000 points to get pollies acting.

Barron's had a good piece from Ray Dalio...

http://online.barrons.com/article/SB50001424053111904370004577390023566415282.html#articleTabs_article%3D1

ps - he says keep 10% in gold!

ps2 - markets are oversold this week. One measure I use...share price falls made the weekend news.

ps3 - Soros increase his gold

ps4 - a Japanese fund initiated a gold position...hmmmmmm

Japanese Pension Fund Switches to Gold
By Ben McLannahan
Financial Times, London
Wednesday, May 16, 2012

http://www.ft.com/intl/cms/s/0/1be7a2a2-9f3f-11e1-a255-00144feabdc0.html

TOKYO -- Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies.
Initially, the fund aims to keep about 1.5 per cent of its total assets of Y40 billion ($500 million) in bullion-backed exchange-traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to "escape sovereign risk."

The move into a non-yielding asset comes as funds in the world's second-biggest pension market are under increasing pressure to meet promised payments, as domestic interest rates remain rooted near zero.

"You can avoid reality, but you cannot avoid the consequences of reality" Ayn Rand

Banks are insolvent...at current asset values and cashflows! Understanding the consequences of reality, you can prepare. Capital is working it out. Are you listening?

Meditate on the questions:

- Why is greece not allowed to fail?

- Why are banks not allowed to fail?

- Why is gold rising?

- Why are banks stocks falling?

- What is capital doing?

- How is all the debt to be re-paid?

- How does a reserve currency solve it's problems?

$1,800USD gold - Momentous!

Today gold hit $1,800 in USD terms. It has moved substantially in all currencies. It is a momentous day, because of what it announces to the world about fiat money – money backed by nothing other than the promises of government. Confidence is “officially” broken. The words of the Central bankers and governments are rendered meaningless. Worthless. Worth nothing. Gold now waits for actions. No, it screams for actions.

The sound money men are vindicated today. They warned of the 20 plus year policies that have led us to this point. Ridiculed, by academics and professionals everywhere, they stood alone, in the minority. They still are. But not for much longer! Gold has announced their arrival and before the final and dramatic act is over, monetary history will be learned by many, many more. Including the doubters and the “professionals” stuck, mindlessly in their recent history paradigm. The professionals - smart men? Yes. Wise? No.

The seeds of the great re-awakening are in this momentous day. By the end of this there will be a demand for sound money. It is coming.

I thankfully and gratefully acknowledge the independent and courageous thoughts and teachings of those men and women who understood history and the nature of the current system. They stood for something. They stood alone. I humbly say, thankyou!!

Specifically, I would like to list the following: James Turk, James Sinclair, Marc Faber, James Rogers, Eric King , Eric DeGroot, Dan Norcini, Eric Sprott, John Embry, John Hathaway, Ron Paul, the Austrians, DG, DM, CL....and many more

GOLD in USD at $1,604...a siren to those listening

European debt fears have been the major theme for the last couple of months. Now, the US debt ceiling debate begins to take centre stage. Gold screams higher in all currencies, (even the stronger ones eg AUS).

There is no value in sovereign debt. Not at this juncture and at these prices. This won't end well.

Now that the slowdown appears to have arrived, Dalio thinks it will be prolonged. “We are still in a deleveraging period,” he said. “We will be in a deleveraging period for ten years or more.”
Dalio believes that some heavily indebted countries, including the United States, will eventually opt for printing money as a way to deal with their debts, which will lead to a collapse in their currency and in their bond markets. “There hasn’t been a case in history where they haven’t eventually printed money and devalued their currency,” he said. Other developed countries, particularly those tied to the euro and thus to the European Central Bank, don’t have the option of printing money and are destined to undergo “classic depressions,” Dalio said. The recent deal to avoid an immediate debt default by Greece didn’t alter his pessimistic view. “People concentrate on the particular thing of the moment, and they forget the larger underlying forces,” he said. “That’s what got us into the debt crisis. It’s just today, today.”

Dalio’s assessment sounded alarmingly plausible. But when one plays the global financial markets a thorough economic analysis is only the first stage of the game. At least as important is getting the timing right. I asked Dalio when all this would start to come together. “I think late 2012 or early 2013 is going to be another very difficult period,” he said.

Read more http://www.newyorker.com/reporting/2011/07/25/110725fa_fact_cassidy#ixzz1SVKzNYtT

There are no accidents...ok...very few

NEW YORK (Reuters) - Oil tumbled 6 percent on Thursday to a four-month low after the world's top consumers released emergency oil reserves for the third time ever, a surprise intervention to aid the struggling global economy.
The International Energy Agency announced it would inject 60 million barrels of government-held stocks in the global market, immediately increasing world supply by some 2.5 percent for the next month and sending prices spiraling, with U.S. crude prices erasing all of the year's gains.
The move shocked traders who had been expecting the IEA to give top exporter Saudi Arabia more time to make up for the supply shortfall following OPEC's failed meeting on June 8, when other members blocked Gulf efforts to hike output.
"It comes after the Saudis said they would increase output so it suggests they think this might not be enough," said Helen Henton, head of commodity research for Standard Chartered Bank. "I think it will knock prices lower. I expect prices to be lower a month from now."
Goldman Sachs, whose oil price forecasts are closely watched by markets, said the release of the IEA oil could knock prices for Brent crude down by $10 to $12 a barrel.

QE3?...or QE(n)

The debate is raging. To QE or not to QE?

Bill Gross say's a form is coming. Jim Grant sees the same thing. The US economy is floundering that's after 2 version of QE. Without it this would be a modern day GREAT depression. For many americans it already is.

We need to be aware of the politics of such a move. A stealth version is my tip. "Extended period" you better believe it.


Here is what Mr Gold is saying: Meditate on these -  Thankyou Jim.

Dear Extended Family,
Today’s markets are exactly what you would expect as we enter illustration number three of the Skier.
Economic statistics are taking a hard fall.
Without QE who will buy US treasury issues?
Without QE where is the basis of world equity markets?
Without QE what do you think the chart of unemployment will look like?
Without QE how do you think the camouflage of the insolvent balance sheets of the financial industry will fare?
Without QE where is mortgage money coming from?
Without QE what do you think home prices will do?
Without QE how will the present Administration and the legislative be re-elected?
Without QE how will the States of the United States of America finance themselves?
Be prepared for a reversal of the decision to curtail QE at the end of June.
Be prepared for a snap back at a greater percentage of QE with a different name.
Be prepared for covert QE between July 1st and late August when stimulation goes wild.
Be prepared for gold to take out $1650 on the upside as magnets at $12,544 come into play.
Be prepared for the Inflationary Depression of all time.
Stand firm on your gold positions.
Stand firm on your discipline of NO margin.
Stand strong in your Swiss Franc and Canadian dollar positions.
Survive the MOPE and market manipulation that is so obvious today.
Respectfully,
Jim

http://www.jsmineset.com/2011/06/23/stand-strong/

Stealing from the people...the silent killer

http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=201106211841dowjonesdjonline000414&title=change-to-inflation-measurement-on-table-as-part-of-budget-talksaides

By Corey Boles and Janet Hook

WASHINGTON -(Dow Jones)- Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks.
According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically.
Such a move is widely seen by economists as resulting in a slower rise in inflation. That would impact an array of federal programs that are linked to CPI including the Social Security program and income tax brackets set by the federal government.
The proposal could lower federal spending by around $220 billion over the next decade, based on calculations by last year's White House deficit commission, which recommended the change as part of its final report.

Wall Street Journal - "Recognition phase"

Editorial in the WSJ:

http://online.wsj.com/article/SB10001424052748703983704576277431813826152.html?mod=WSJ_Opinion_LEFTTopOpinion

"The solution to the problem is equally simple. First, in order to limit Fed discretion, the dollar must be made convertible to a weight unit of gold by congressional statute—at a price that preserves the level of nominal wages in order to avoid the threat of deflation. Second, the government must at the same time be prohibited from financing its deficit at the Fed or in the banks—both at home or abroad. Third, only in the free market for true savings—undisguised by inflationary new Federal Reserve money and banking system credit—will interest rates signal to voters the consequences of growing federal government deficits."

Something historic this way comes...the precious metals are shouting...

Gold at $1,486;  Silver at $43.05...(in USD) terms on Friday 15th April in US...

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/14_Jim_Grant_-_US_Will_Resolve_Debt_by_Returning_to_Gold_Standard.html

In the above interview on Eric King's website, Jim Grant, put's a value on gold in his own style...

“To me the gold price takes the form of a very uncomplicated formula, and all you have to do is divide one by ‘n.’  And ‘n’, I’m glad you ask, ‘n’ is the world’s trust in the institution of paper money and in the capacity of people like Ben Bernanke to manage it.  So the smaller ‘n’, the bigger the price.  One divided by a receding number is the definition of a bull market. 

Kocherlakota...The CB has to bail out the government sometimes...there you have it!

Central Bank Independence and Sovereign DefaultNarayana Kocherlakota - President
Federal Reserve Bank of Minneapolis
Wharton Conference
Philadelphia, Pennsylvania
April 1, 2011

exerpt below...

More subtly, regardless of the FA’s solvency, sovereign debt issues can fail simply through a co-ordination failure among investors. If I, as an investor, don’t anticipate that others will buy into the debt issue, I won’t either. In this sense, sovereign debt issues may be susceptible to suboptimal “runs”. The CB can eliminate this possibility by ensuring the nominal promises of the FA whenever the FA is threatened with default.
Thus, I see trade-offs. On the one hand, the CB is known to be willing to intervene to keep the FA solvent, then inflation is necessarily shaped by fiscal considerations and by the short-run incentives of elected officials. We know from many years of theoretical and empirical research that this effect is not a desirable one. On the other hand, if the CB is fully committed to allow the FA to default if necessary, then even optimal debt management by the FA may end up exposing the country to troubling risks.
Let me wrap up. I’ve argued that even if the fiscal authority borrows exclusively in its country’s own currency, the central bank can have a large amount of control over the price level. But the central bank can only achieve that control if it is willing to commit to letting the fiscal authority default. Such a commitment may expose the country to risks of short-term and medium-term output losses. How this trade-off should best be resolved awaits future research. But I suspect that it may be optimal for central banks to guarantee fiscal authority debts in some situations. If so, we again have to think of price level determination as something that is done jointly by the fiscal authority and the central bank — just as Sargent and Wallace taught us 30 years ago.

we, the sheeple get fleeced...

http://online.wsj.com/article/SB10001424052748704050204576219073867182108.html

If you want to understand better why so many states—from New York to Wisconsin to California—are teetering on the brink of bankruptcy, consider this depressing statistic: Today in America there are nearly twice as many people working for the government (22.5 million) than in all of manufacturing (11.5 million). This is an almost exact reversal of the situation in 1960, when there were 15 million workers in manufacturing and 8.7 million collecting a paycheck from the government.

It gets worse. More Americans work for the government than work in construction, farming, fishing, forestry, manufacturing, mining and utilities combined. We have moved decisively from a nation of makers to a nation of takers. Nearly half of the $2.2 trillion cost of state and local governments is the $1 trillion-a-year tab for pay and benefits of state and local employees. Is it any wonder that so many states and cities cannot pay their bills?

QE3??

The debate has started amongst the Fed Reserve members as to whether they will or won't QE3? It's interesting to see this debate take place in public. Are they just telegraphing their votes to the markets so that there is no surprise? I suspect they are.

Bill Gross of PIMCO, correctly points out that without the aid of the Fed rates should be at least 1.5% higher. Then he tells the world he has sold all his holdings of government treasuries. Long terms rates are going up - it's just a question of time.

http://www.pimco.com/Pages/Two-Bits-Four-Bits-Six-Bits-a-Dollar.aspx

Bill says:
"As a counter, one would argue (and I would partially agree) that the U.S. and indeed developed global economies must keep yields artificially low for some time if post Lehman healing is to take place. But that of course is the point. By eliminating QE II, the Fed would be ripping a Band-Aid off a partially healed scab. Ouch!  25 basis point policy rates for an “extended period of time” may not be enough to entice arbitrage Treasury buyers, nor bond fund asset allocators to reenter a Treasury market at today’s artificially low yields. Yields may have to go higher, maybe even much higher to attract buying interest."

Meanwhile in Europe the talk is getting tough by the ECB that they will begin raising rates later this year.

I'm speculating, but QE3 in some form is highly likely. Markets are not sure and volatility is starting to increase. The next couple of months are going to get interesting.

Ponder this number a few times...

http://www.washingtontimes.com/news/2011/mar/7/government-posts-biggest-monthly-deficit-ever/

The federal government posted its largest monthly deficit in history in February, a $223 billion shortfall that put a sharp point on the current fight on Capitol Hill about how deeply to cut this year’s spending.

Debts exceed any capacity to pay...holes in budgets are massive...if the Fed stops QE...the house of cards crumbles! Ponder quietly.