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500 Tons Of Gold Per Month Move From West To East

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Gold price may be dropping but the demand for physical gold in the East is unprecedented. James Turk reckons 500 tons are being shipped each month. So much so, transportation is struggling to keep up with the demand. Turk discusses some of the reasons behind the takedown other than the obvious.

“We have recently seen one of the greatest interventions in the history of the gold market by Western central banks.  Gold is one of the world’s least transparent markets, and misleading central bank accounting keeps it that way.  But sometimes, by looking at different pieces of the puzzle, a picture starts emerging.  So I have put together some of the pieces together….

“For example, there have been bottlenecks in moving metal, which is clearly flowing from West to East.  Supply from mining in the West, excluding Russia and China which do not export their production, is about 160 tons per month.  In addition, there may be another 50-to-80 tons per month of gold already in the above ground stock which moves around as a result of normal flows among countries and changing demand for different gold products.

 But I estimate that recently over 500 tons per month have been moving around.  This has had the effect of creating some transportation bottlenecks.  The transport providers have not been able to cope with this remarkable development.  Similarly, the refiners have not been able to cope with the historic level of demand by fabricating the metal needed to meet the frantic buying, even though they are operating 24/7.  So we have to ask ourselves, where is all this metal coming from?

 We are talking here about physical metal, Eric, and not just selling paper-gold with futures and other derivatives.  The reality is that there has simply been too much metal moving from West to East — far beyond what has been dishoarded from ETFs and other visible sources like the Comex vaults.  Much of this physical metal had to come from central bank vaults.  That point is clear.  But an important question still remains unanswered.

 Even though Western central banks killed the gold price during the last couple of months with their dishoarding, we do not yet know precisely why they killed the gold price.  What did the central planners want to accomplish by dishoarding so much metal in such a short period of time?

 Of course we know the obvious reasons, like trying to keep people in national currencies, and the various risks these currencies involve, particularly the risk of keeping money on deposit in banks.  Reasons such as these have been in play for more than a decade as the central planners have attempted to hold together a financial system that is no longer sustainable because of insolvent banks, unmanageable levels of debt and governments that cannot control their spending.  These reasons have been well documented by the various analysts whose work has been published at places such as GATA and King World News. 

 But we have never before seen such a massive amount of dishoarding from central banks in such a short period of time.  Given that the central bankers all recognize the importance of gold as a key monetary asset on their balance sheet and one they only sell gold reluctantly, why did they do it?  Why the selling frenzy?  And why right now?

 Here is one possibility:  It was to provide liquidity to ailing banks in Italy, or perhaps Spain.  This is difficult to prove because central banks still do not prepare their accounts according to generally accepted accounting principles.  But look at it this way, every 100 tons of gold is $4 billion of liquidity.  So if central banks sold 500 tons, and I think at least this much was dishoarded by them recently, it is $20 billion, which is enough to provide a big lifeline to some insolvent banks.

 It works like this.  The banks borrow gold from the central bank, which they then sell for dollars/euros.  The transaction is hidden from view because of central bank accounting, and the gold debt on the borrowing bank’s balance sheet is hidden among its total liabilities.  The added benefit is that its gold liability diminishes as the gold price falls, making the bank appear even more solvent.  Of course the bad assets remain, so this scheme is just a fig leaf for the insolvent banks to buy time.

 However, there is an irony here for holders of gold:  The dishoarding by central banks has caused the gold price to drop precipitously, but the central bank’s use of gold makes clear gold’s greatest attribute, which is the exceptional liquidity gold provides.  Gold is money, and in this case it is rainy-day money in the sense that if I am right about how it is being used here, it is giving insolvent banks a lifeline.

 The net result is that gold continues to flow from the West to the East where it is more highly valued.  But even if desperate Western central banks are dishoarding gold in order to bail-out insolvent commercial banks, don’t take your eye off the ball.  Keep accumulating physical gold and silver because they have always stood the test of time as the world’s only true money.  All of these schemes by Western central planners will ultimately fail and the current financial system will end in disaster.  As the system implodes, one of the only things left standing will be physical gold and silver.”

Source: King World News

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NASA Finds Carbon Dioxide Acts As A Coolant

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Far from CO2 causing global warming, a report from NASA in 2012 confirms that CO2 it is in fact a coolant. But hey, there is money to be made in Carbon taxes so shhhhhh.

March 22, 2012:  A recent flurry of eruptions on the sun did more than spark pretty auroras around the poles.  NASA-funded researchers say the solar storms of March 8th through 10th dumped enough energy in Earth’s upper atmosphere to power every residence in New York City for two years.

“This was the biggest dose of heat we’ve received from a solar storm since 2005,” says Martin Mlynczak of NASA Langley Research Center.  “It was a big event, and shows how solar activity can directly affect our planet.”

Mlynczak is the associate principal investigator for the SABER instrument onboard NASA’s TIMED satellite.  SABER monitors infrared emissions from Earth’s upper atmosphere, in particular from carbon dioxide (CO2) and nitric oxide (NO), two substances that play a key role in the energy balance of air hundreds of km above our planet’s surface.

“Carbon dioxide and nitric oxide are natural thermostats,”

explains James Russell of Hampton University, SABER’s principal investigator.  “When the upper atmosphere (or ‘thermosphere’) heats up, these molecules try as hard as they can to shed that heat back into space.”

That’s what happened on March 8th when a coronal mass ejection (CME) propelled in our direction by an X5-class solar flare hit Earth’s magnetic field.  (On the “Richter Scale of Solar Flares,” X-class flares are the most powerful kind.)  Energetic particles rained down on the upper atmosphere, depositing their energy where they hit.  The action produced spectacular auroras around the poles and significant1 upper atmospheric heating all around the globe.

“The thermosphere lit up like a Christmas tree,” says Russell.  “It began to glow intensely at infrared wavelengths as the thermostat effect kicked in.”

For the three day period, March 8th through 10th, the thermosphere absorbed 26 billion kWh of energy.

Infrared radiation from CO2 and NO, the two most efficient coolants in the thermosphere, re-radiated 95% of that total back into space.

In human terms, this is a lot of energy.  According to the New York City mayor’s office, an average NY household consumes just under 4700 kWh annually. This means the geomagnetic storm dumped enough energy into the atmosphere to power every home in the Big Apple for two years.

“Unfortunately, there’s no practical way to harness this kind of energy,” says Mlynczak.  “It’s so diffuse and out of reach high above Earth’s surface.  Plus, the majority of it has been sent back into space by the action of CO2 and NO.”

During the heating impulse, the thermosphere puffed up like a marshmallow held over a campfire, temporarily increasing the drag on low-orbiting satellites.  This is both good and bad.  On the one hand, extra drag helps clear space junk out of Earth orbit.  On the other hand, it decreases the lifetime of useful satellites by bringing them closer to the day of re-entry.

The storm is over now, but Russell and Mlynczak expect more to come.

“We’re just emerging from a deep solar minimum,” says Russell.  “The solar cycle is gaining strength with a maximum expected in 2013.”

Source: NASA

Eurozone Banks Stop Lending To Each Other

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The eurozone banks have stopped lending to each other in a clear sign that mistrust has entered the system. We already know that Deutsche Bank is 60 times over leveraged with a massive derivative exposure. As Irish economist Karl Whelan put it best “At any point in time, this thing can blow up”.

euroEUROZONE banks are refusing to lend to peers in other countries in the common currency bloc, signalling a worrying fall in confidence that appears to have worsened since the Cyprus bailout earlier this year, data analysed by Reuters shows.
European Central Bank data shows the share of inter-bank funding that crosses borders within the eurozone dropped by one-third, to just 22.5pc in April from 34.5pc at the start of 2008.

The silent retreat to within national borders is most pronounced in the troubled economies of southern Europe, but is even seen in Germany.

Cross-border inter-bank funding of German banks was down by 11.2pc year-on-year in March, equivalent to banks elsewhere in Europe withdrawing €29.5bn from its biggest economy.

Eurozone banks’ stock of lending to their Greek peers was a startling 68pc lower in April than in the same month a year earlier, equivalent to €18bn withdrawn. In Portugal, the decrease was roughly a quarter.

The ECB figures include lending between separate banks in different eurozone countries and within a single banking group to its cross-border units.

CYPRUS

Faltering confidence may be responsible for the reduction in cross-border lending, due in part to a bailout of Cyprus that closed one of its two main banks.

Lobbyists for the banking industry also say a soon-to-be-finalised EU law making it possible to impose losses, or “haircuts”, on bank creditors could hurt confidence.

“At any point in time, this thing can blow up,” said Karl Whelan, an economist at University College Dublin, warning of a potential spillover on to regular savers.

“We are relying on an absence of panic among depositors while we sit around and work out who to haircut. There is a risk of large-scale deposit withdrawals in Spanish banks, in particular. They are the obvious tinder box.”

A spokesman for the European Central Bank countered that the trend was due to a general shift towards secured lending and funding via retail deposits. Banks were deleveraging, which increases the importance of stable retail deposits. (Reuters)

Source: Irish Independent

The Bond Bubble Has Been Pricked

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As Andy Haldane, Executive Director of Financial Stability at the Bank of England said to Members of Parliament in London last week,

“We’ve intentionally blown the biggest government bond bubble in history.”

Now having pricked that bubble through Bernanke’s taper comments it may now be a case of controlling that implosion. Thats the new game.

bubble-burstIn theory, the Fed could continue to print money and buy Treasuries and mortgage-backed securities, or even pure junk, at the current rate of $85 billion a month until the bitter end. But the bitter end would be unpleasant even for those that the Fed represents – and now they’re speaking up publicly.

“Savers have paid a huge price in this recovery,” was how Wells Fargo CEO John Stumpf phrased it on Thursday – a sudden flash of empathy, after nearly five years of Fed policies that pushed interest rates on savings accounts and CDs below inflation, a form of soft confiscation, of which he and his TBTF bank were prime beneficiaries. That interest rates were rising based on Fed Chairman Ben Bernanke’s insinuation of a taper was “a good thing,” he told CNBC. “We need to get back to normal.”

A week earlier, it was Goldman Sachs CEO Lloyd Blankfein: “Eventually interest rates have to normalize,” he said. “It’s not normal to have 2% rates.”

They weren’t worried about savers – to heck with them. They weren’t worried about inflation either. They were worried about the system, their system. It might break down if the bond bubble were allowed to continue inflating only to implode suddenly in an out-of-control manner. It would threaten their empires. That would be the bitter end.

Andy Haldane, Director of Financial Stability at the Bank of England, put it this way: “We’ve intentionally blown the biggest government bond bubble in history.” The bursting of that bubble was now a risk he felt “acutely,” and he saw “a disorderly reversion” of yields as the “biggest risk to global financial stability” [my take… Biggest Bond Bubble In History Is Turning Into Carnage].

Preventing that “disorderly reversion” of yields is the Fed’s job, in the eyes of Stumpf, Blankfein, Haldane, and all the others. The Fed should let the air out gradually to bring yields back to “normal.” So the Fed hasn’t actually changed course yet. It’s keeping short-term rates at near zero, and it’s still buying bonds. But it has started to talk about changing course – and the hissing sound from the deflating bond bubble has become deafening.

Long-term Treasuries went into a tailspin. The 10-year note had the worst week since June 2009, the days of the Financial Crisis; yields jumped 39 basis points (13 bps on Friday alone), to 2.55%. Up from 1.66% on May 2. And almost double from the silly 1.3% that it briefly bushed last August.

The average 30-year mortgage rate increased to 4.17%, from 3.59% in early May. In response, the Refinancing Index crashed by almost 40%. Banks have sucked billions in fees out of the system via the refinancing bubble, but that game is over. And the Purchase Index dropped 3% for the week, a sign that higher rates might start to impact home purchases.

Then there was the junk-bond rout. They’d had a phenomenal run since the Fed started its money-printing and bond-buying binge. Average yields dropped from over 20% during the Financial Crisis to an all-time insane low of 5.24% – insane, because this is junk! It has a relatively high probability of default, and then the principal vanishes. That was on May 9, the day the rout started. The average yield hit 6.66% on Thursday. Investors have started to take a gander at what they’re buying and would like to be compensated for some of the risks that they’re suddenly seeing again. The feeding frenzy for yield is over. A sea change! Some companies might not be able to find buyers for their junk. And there will be defaults.

To preserve the system, as dysfunctional as it has become, the Fed has set out to tamp down on that feeding frenzy for yield, the hair-raising speculation, and blind risk-taking that its easy money policies have engendered – that is, financial risk-taking which doesn’t create jobs and doesn’t move the economy forward but just stuffs balance sheets with explosives. With its vague and inconsistent words, the Fed pricked the bond bubble but now is scrambling to control the implosion and soften that giant hissing sound. It doesn’t want the bubble to go pop. Its strategy: sowing confusion and dissension so that investors would react in both directions, with violent swings up and down, not just down.

The first big gun to open fire on the “taper” promulgations was St. Louis Fed President James Bullard when he announced on Friday that he’d dissented with the FMOC’s decision “to authorize the Chairman” to discuss publicly “a more elaborate plan” for the taper and an “approximate timeline.” They were premature. “Policy actions should be undertaken to meet policy objectives, not calendar objectives,” he said.

As stocks were heading south, three hours before what might have been a very ugly Friday close, after Thursday’s plunge, Jon Hilsenrath was dispatched. He is considered a backchannel mouthpiece of the Fed, and markets feed on his morsels. “The markets might be misreading the Federal Reserve’s messages,” he wrote in the Wall Street Journal. Stocks turned around on a dime. Others chimed in. The cacophony grew. And any consensus of when the Fed might actually taper its bond purchases dissolved into hot air.

That’s the plan. To accomplish its goal of preventing, as Haldane called it, “a disorderly reversion” of yields, the Fed will redouble its efforts to spread dissention and uncertainty, to intersperse periods of misery with periods of false hope, to stretch out the process over years so that big players have time to reposition themselves – and make some money doing it, or fall off the cliff and get bailed out, while others will end up holding the bag. Which is how bubbles end.

Source: TestosteronePit

ANALYSIS: WHY THE REAL EU FUHRER IS NOW MARIO DRAGHI

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During the week the Telegraph broke the story of how the ESM will be used to bailout broke banks. The article from the Slog explores how all the power now resides with Draghi.

ANALYSIS: WHY THE REAL EU FUHRER IS NOW MARIO DRAGHI.

China’s Credit Bubble Unprecedented

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Whereas China may have helped to save the world in 2008, its ability to help global GDP has slowly been strangled by its own massive debt levels. Corporate and private sector debt has grown out of all proportions severely limiting China’s ability to grow its way out of its debt problems.  It’s not just Western banks we need worry about.

China’s shadow banking system is out of control and under mounting stress as borrowers struggle to roll over short-term debts, Fitch Ratings has warned. Fitch warned that wealth products worth $2 trillion of lending are in reality a “hidden second balance sheet” for banks, allowing them to circumvent loan curbs and dodge efforts by regulators to halt the excesses.

The agency said the scale of credit was so extreme that the country would find it very hard to grow its way out of the excesses as in past episodes, implying tougher times ahead.

“The credit-driven growth model is clearly falling apart. This could feed into a massive over-capacity problem, and potentially into a Japanese-style deflation,” said Charlene Chu, the agency’s senior director in Beijing.

“There is no transparency in the shadow banking system, and systemic risk is rising. We have no idea who the borrowers are, who the lenders are, and what the quality of assets is, and this undermines signalling,” she told The Daily Telegraph.

While the non-performing loan rate of the banks may look benign at just 1pc, this has become irrelevant as trusts, wealth-management funds, offshore vehicles and other forms of irregular lending make up over half of all new credit. “It means nothing if you can off-load any bad asset you want. A lot of the banking exposure to property is not booked as property,” she said.

Concerns are rising after a string of upsets in Quingdao, Ordos, Jilin and elsewhere, in so-called trust products, a $1.4 trillion segment of the shadow banking system.

Bank Everbright defaulted on an interbank loan 10 days ago amid wild spikes in short-term “Shibor” borrowing rates, a sign that liquidity has suddenly dried up. “Typically stress starts in the periphery and moves to the core, and that is what we are already seeing with defaults in trust products,” she said.

Fitch warned that wealth products worth $2 trillion of lending are in reality a “hidden second balance sheet” for banks, allowing them to circumvent loan curbs and dodge efforts by regulators to halt the excesses.

This niche is the epicentre of risk. Half the loans must be rolled over every three months, and another 25pc in less than six months. This has echoes of Northern Rock, Lehman Brothers and others that came to grief in the West on short-term liabilities when the wholesale capital markets froze.

Mrs Chu said the banks had been forced to park over $3 trillion in reserves at the central bank, giving them a “massive savings account that can be drawn down” in a crisis, but this may not be enough to avert trouble given the sheer scale of the lending boom.

Overall credit has jumped from $9 trillion to $23 trillion since the Lehman crisis.

“They have replicated the entire US commercial banking system in five years,” she said.

The ratio of credit to GDP has jumped by 75 percentage points to 200pc of GDP, compared to roughly 40 points in the US over five years leading up to the subprime bubble, or in Japan before the Nikkei bubble burst in 1990. “This is beyond anything we have ever seen before in a large economy. We don’t know how this will play out. The next six months will be crucial,” she said.

The agency downgraded China‘s long-term currency rating to AA- debt in April but still thinks the government can handle any banking crisis, however bad. “The Chinese state has a lot of firepower. It is very able and very willing to support the banking sector. The real question is what this means for growth, and therefore for social and political risk,” said Mrs Chu.

“There is no way they can grow out of their asset problems as they did in the past. We think this will be very different from the banking crisis in the late 1990s. With credit at 200pc of GDP, the numerator is growing twice as fast as the denominator. You can’t grow out of that.”

The authorities have been trying to manage a soft-landing, deploying loan curbs and a high reserve ratio requirement (RRR) for banks to halt property speculation. The home price to income ratio has reached 16 to 18 in many cities, shutting workers out of the market. Shadow banking has plugged the gap for much of the last two years.

However, a new problem has emerged as the economic efficiency of credit collapses. The extra GDP growth generated by each extra yuan of loans has dropped from 0.85 to 0.15 over the last four years, a sign of exhaustion.

Wei Yao from Societe Generale says the debt service ratio of Chinese companies has reached 30pc of GDP – the typical threshold for financial crises — and many will not be able to pay interest or repay principal. She warned that the country could be on the verge of a “Minsky Moment”, when the debt pyramid collapses under its own weight. “The debt snowball is getting bigger and bigger, without contributing to real activity,” she said.

The latest twist is sudden stress in the overnight lending markets. “We believe the series of policy tightening measures in the past three months have reached critical mass, such that deleveraging in the banking sector is happening. Liquidity tightening can be very damaging to a highly leveraged economy,” said Zhiwei Zhang from Nomura.

“There is room to cut interest rates and the reserve ratio in the second half,” wrote a front-page editorial today in China Securities Journal on Friday. The article is the first sign that the authorities are preparing to change tack, shifting to a looser stance after a drizzle of bad data over recent weeks.

The journal said total credit in China’s financial system may be as high as 221pc of GDP, jumping almost eightfold over the last decade, and warned that companies will have to fork out $1 trillion in interest payments alone this year. “Chinese corporate debt burdens are much higher than those of other economies. Much of the liquidity is being used to repay debt and not to finance output,” it said.

It also flagged worries over an exodus of hot money once the US Federal Reserve starts tightening. “China will face large-scale capital outflows if there is an exit from quantitative easing and the dollar strengthens,” it wrote.

The journal said foreign withdrawals from Chinese equity funds were the highest since early 2008 in the week up to June 5, and withdrawals from Hong Kong funds were the most in a decade.

Source: Irish Independent

Margin Debt over 2.25% of GDP Signals Stock Market Crash

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Another signal that the stock market is over inflated and heading for a major correction is margin debt greater than 2.25% of GDP. Levels in April already show that this level has been hit. Previous stock market crashes have in common high margin debt greater than 2.25%. Will we be lucky this time around, unlikely.

What do 1929, 2000 and 2007 all have in common?  Those were all years in which we saw a dramatic spike in margin debt.  In all three instances, investors became highly leveraged in order to “take advantage” of a soaring stock market.  But of course we all know what happened each time.  The spike in margin debt was rapidly followed by a horrifying stock market crash.  Well guess what?  It is happening again.  In April (the last month we have a number for), margin debt rose to an all-time high of more than 384 billion dollars.  The previous high was 381 billion dollars which occurred back in July 2007.  Margin debt is about 29 percent higher than it was a year ago, and the S&P 500 has risen by more than 20 percent since last fall.  The stock market just continues to rise even though the underlying economic fundamentals continue to get worse.  So should we be alarmed?  Is the stock market bubble going to burst at some point?  Well, if history is any indication we are in big trouble.  In the past, whenever margin debt has gone over 2.25% of GDP the stock market has crashed.  That certainly does not mean that the market is going to crash this week, but it is a major red flag. The funny thing is that the fact that investors are so highly leveraged is being seen as a positive thing by many in the financial world.  Some believe that a high level of margin debt is a sign that “investor confidence” is high and that the rally will continue. 

“The rising level of debt is seen as a measure of investor confidence, as investors are more willing to take out debt against investments when shares are rising and they have more value in their portfolios to borrow against. The latest rise has been fueled by low interest rates and a 15% year-to-date stock-market rally.”

Others, however, consider the spike in margin debt to be a very ominous sign.  Margin debt has now risen to about 2.4 percent of GDP, and as the New York Times recently pointed out, whenever we have gotten this high before a market crash has always followed…

“The first time in recent decades that total margin debt exceeded 2.25 percent of G.D.P. came at the end of 1999, amid the technology stock bubble. Margin debt fell after that bubble burst, but began to rise again during the housing boom — when anecdotal evidence said some investors were using their investments to secure loans that went for down payments on homes. That boom in margin loans also ended badly.”

Posted below is a chart of the performance of the S&P 500 over the last several decades.  After looking at this chart, compare it to the margin debt charts that the New York Times recently published that you can find right here.  There is a very strong correlation between these charts.  You can find some more charts that directly compare the level of margin debt and the performance of the S&P 500 right here.  Every time margin debt has soared to a dramatic new high in the past, a stock market crash and a recession have always followed.  Will we escape a similar fate this time?

S&P 500

What makes all of this even more alarming is the fact that a number of things that we have not seen happen in the U.S. economy since 2009 are starting to happen again.  For much more on this, please see my previous article entitled “12 Clear Signals That The U.S. Economy Is About To Really Slow Down“.

At some point the stock market will catch up with the economy.  When that happens, it will probably happen very rapidly and a lot of people will lose a lot of money.

And there are certainly a lot of prominent voices out there that are warning about what is coming.  For example, the following is what renowned investor Alan M. Newman had to say about the current state of the market earlier this year

If anything has changed yet in 2013, we certainly do not see it. Despite the early post-fiscal cliff rally, this is the same beast we rode to the 2007 highs for the Dow Industrials. The U.S. stock market is over leveraged, overpriced and has been commandeered by mechanical forces to such an extent that all holding periods are now affected by more risk than at any time in history.”

Source: theeconomiccollapseblog.com

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