"Its constipated, its socialized, its highly, highly regulated, it has the wrong philosophical values, it's been going downhill since World War I. Europe is going to be no more than a petting zoo for the Chinese -- its going to be a source of maids and houseboys for them." -- Doug Casey, Sydney, Australia, October 2011.
Dear All,
When analyzing anything put forth by the U.S. Bureau of Labor Statistics one must recognize that it serves as is its country's economic ministry of propaganda. Michael Pento however made a keen observation this week by contrasting at least the trend of the BLS' official inflation reports -- if not the figures themselves -- with the complete nonsense spun by the U.S. Fed chief at the conclusion of the last FOMC meeting:
"Mr. Bernanke’s words last week uttered during his prepared statement and press conference indicated that inflation pressures have eased and will continue to subside...But the data from the Bureau of Labor Statistics directly conflicts with his words. The following is the YOY increase in Consumer Price Inflation from January thru September of 2011: 1.7%, 2.2%, 2.7%, 3.1%, 3.4%, 3.4%, 3.6%, 3.8% and 3.9%."
Although it dramatically understates the true inflation rate, the sequential BLS reports capture a sharp accelerating inflationary trend, something Mr. Bernanke not only denies but insists is moving in the opposite direction. The Fed chairman (who apparently freeloads off relatives for his Thanksgiving meal, for were he to play holiday host he might notice that a traditional turkey dinner costs 13% more than a year ago - USA Today) also made this absolutely bizarre comment: Low interest rates benefit savers too - Bernanke
Forty-two percent (530,000) of the jobs the Bureau of Labor Statistics has reported as formed in 2011 were "created" using a "Birth/Death Adjustment." 102,000 Birth/Death Adjustments accounted for the entirety of the jobs the BLS reported as having been created in October.
The Commodities Futures Trading Commission, headed by the former protege and Goldman Sachs partner of MF Global's just-resigned CEO. was so busy working out the details of new enforcement regulations to expand its authority and powers under the Dodd-Frank Act , it had little interest in enforcing laws already on the books which might have prevented the now bankrupt MF Global from defrauding its customers.
The MF Global collapse ought to throw cold water on the belief that SIPC and excess insurance coverage can be relied on to make you whole under unfortunate circumstances, as was made clear by SIPC this week. SIPC recoveries in prior failures have often been lengthy while customer assets remained at risk with no appreciation potential on account gains exceeding SIPC limits. The MF Global collapse also calls into question the entire notion of "segregated" customer accounts. If a customer cannot know with certainty that his account assets are segregated from those of his broker (and the MF Global collapse demonstrates that he cannot), prudence requires him to assume otherwise. In the final analysis, when you open an account at a broker you incur counterparty risk.
I would add as well that quite a few folks mistakenly believe their assets are safer in a cash account than in a margin account. Do not confuse your inability to employ leverage, or the prohibition of a brokerage house from accessing shares in a cash account for its 'stock-lending' activities, with the safekeeping of your cash and securities therein. MF Global's collapse demonstrates that it is not possible to know if your broker is in compliance with regulations or if regulators are regulating.
The reality is that your brokerage account is merely a virtual concept as securities in your account are never actually "in" your account to begin with. Account securities are not registered with the issuer in your name; rather they are titled in the name of your broker or what is referred to as "street name." Now with the MF Global collapse you see as well that cash in your account belongs to your broker until it is back in your possession.
I will be pleasantly surprised if the MF Global debacle turns out to be an isolated event. Rely on regulators for protection at your own peril. Here is how the SEC spends most of its day. Under a worst case scenario if your broker fails you become a general creditor in bankruptcy and if you fail to consider the worst case scenario you're already a step closer to it.
Bloomberg: Selling More CDS on Europe Debt Raises Risk for U.S. Banks
“The big problem with all these gross exposures is counterparty risk. When the CDS is triggered due to default, will those counterparties be standing? If everybody is buying from each other, who’s ultimately going to pay for the losses?”
NYTimes: Distortions in Baffling Financial Statements The Federal Accounting Standards Board ought to be renamed the "Fraud Facilitation Board." The FASB has its hand in every instance of deceit at financial institutions: WSJ: Three Lessons from the Collapse
In the face of a 23% U.S. unemployment rate, this is simply disgusting: MSNBC: Federal hiring proves to be recession-proof
Housing Bubble Redux...Political give-away artists learned absolutely nothing from the housing bubble (More likely, they simply don't care). As housing prices kept rising over several decades, Fannie Mae continually raised its lending limits in order to keep pace with the escalating costs. In such fashion it was Fannie Mae itself (accompanied by myriad government financing programs) that played the principal role in driving up U.S. housing prices. Abundant government financing drives up prices. Politicians then cite those higher prices and decreasing affordability as a rationale for ever more financing, conveniently ignoring their role in fueling the cycle to begin with.
President Obama is doing to the college market precisely what government did to the housing market. Peter Schiff is absolutely correct: EuroPacific: President Obama Announces Plan to Boost College Tuitions
The trend...
MarketWatch: China advocates Europe borrow in renminbi
Bloomberg: Indian Investors Fleeing Bonds, Savings Spur Record Flows into Gold
FinancialSense: Chinese Silver Investment Going Parabolic
FT: China’s September gold imports jump six fold
Gold and silver...
The German people understand what gold is, having experienced hyper-inflation in their recent past. Their regard for the metal is something that Americans will soon develop. Bloomberg: German Gold Reserves ‘Untouchable’ for EFSF
Central bank intervention (price suppression) in the gold market could not have been more obvious this week as the rapidly deteriorating European saga ought to have propelled the price up a good $100. per ounce. As has been the case for over a decade, the price suppression only delays the inevitable. There's nothing to do but patiently wait it out. If it makes you feel better, write your congressman although unless you plan to personally deliver your letter and include cash in the envelope, don't waste your time.
Those in the gold community have long known that Bart Chilton is the only Commodities Futures Trading Commissioner with any integrity, the rest being pawns of the bullion banks. Last week, in the face of a silver investigation that the CFTC for years refused to commence and now refuses to conclude, Chilton again went on record stating that the silver price is manipulated: "I believe there ha[v]e been repeated attempts to influence prices in the silver market. And there’s been fraudulent efforts to persuade and deviously control the price.” This prompted this pathetic response from the CFTC which after three years of investigating silver manipulation -- despite voluminous evidence and the assistance of whistle-blower Andrew Maguire -- still cannot conclude that a crime has taken place. It is reminiscent of the SEC's refusal to pursue Bernard Madoff when presented with the case on a silver platter by Harry Markopolis.
A British GATA supporter by the name of James Bern received a response from the Bank of England to a Freedom of Information Request he made for clarification on the Bank's gold swapping and leasing activities. You can view the Bank's response here and this GATA dispatch in which Chris Powell lays out the proper interpretation of the BOE's response: Markets mustn't learn about our gold transactions, Bank of England says
Dilemma resolved...
In the face of a global financial meltdown without solution there exists straight forward methodology that neatly sorts out life's smaller complexities. Accordingly, I present what is known as the Washburn Formula:
L2 = yDt/4n
Wired Magazine's November issue reviews the critical matter of the joining of cookie and milk for the purpose of softening the former prior to consumption: Wired: Dunk a Cookie in Milk. I offer no judgment as to the appropriateness or benefits of the practice commonly referred to as "dunking." It has likely been going on for as long as there has been bread, having evolved into its modern confectionary incarnation one guesses, in the mid to late 17th century. The duration of submergence is where the controversy lays -- i.e. the matter of a biscuit's length of contact with liquid before crumbling takes effect. Wired explains how the Washburn formula leads us to an understanding of optimal submergence (3.5 - 5.0 seconds), which in turn leads me to this headline from Friday's New York Times...
GREECE AND ITALY ASK TECHNOCRATS TO FIND SOLUTION
_____________
MARKETS AWAIT ACTION ______________
Issue is Whether Experts Can Succeed After Politicians Failed
This then is what it has come to. I wish it were satire. As though the politicians and technocrats are something other than two wings of the same pigeon the Times informs that the western financial system's fate has been advanced from the political class's oily hands to those of the bureaucratic stratum -- those "experts" bearing advanced economic degrees from the now thoroughly discredited academic institutions which propagated the Keynesian horror and malinvestment that has befallen the west in the first place. These financial arsonists, among whom the architecture of a Frankenstinian common currency sprouted, have been recruited to assess the crime scene. God help us.
There is a story told of an economist who upon leaving the academic setting and spending some rare time in the real world makes a startling observation of economic law in practice that had never occurred to him during all his years in academia. When he returns to campus and enthusiastically approaches a colleague to report his observation the colleague responds, "Yes, but will it work in theory?"
Having far exceeded the time allotment under the credit based equivalent of the Washburn formula, Keynesian dunkers have overseen the destruction of the assortment box comprising the doomed currency union, reducing the contents to crumbs. Panicked and confused technocrats on both continents can be relied on to continue doing the only thing they know -- returning to the monetary oven of central banking and printing lots of cookies.
My best,
Jeff