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Are Central Bankers Losing Control?

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In light of all the money printing going on, including Japan going full retard with the printing press followed by the Nikkei index collapsing by 15% the question to be asked is, have the Central Bankers lost control? Although things went well in Japan initially, May has not been a good month and cracks are appearing.

The last couple of weeks have been very interesting. Remember that, certain regional differences aside, Japan has, for the past two-plus decades, been the global trendsetter in terms of macroeconomic deterioration and monetary policy. It was the first to have a major housing and banking bubble, the first to see that bubble burst, to respond with years of 1 percent interest rates, then zero rates, then various rounds of quantitative easing. The West has been following Japan each step on the way – usually with a lag of about ten years or so, although it seems to be catching up of late. Now Japan is the first developed nation to go ‘all-in’, to implement a no-holds-barred money-printing regime to (supposedly) ‘stimulate’ the economy. This is called Abenomics, after Japan’s new prime minister, Shinzo Abe, the new poster-boy of policy hyper-activism. I expect the West to follow soon. In fact, the UK is my prime candidate. Wait for Mr. Carney to start his new job and embrace ‘monetary activism’. Carnenomics anybody?

But here is what is so interesting about recent events in Japan. At first, markets did exactly what the central bankers wanted them to do. They went up. But in May things took a remarkable and abrupt turn for the worse. In just eight trading days the Nikkei stock market index collapsed by 15%. And, importantly, all of this started with bonds selling off.

Are markets beginning to realize that all these bubbles have to pop sometime and that sometime may as well be now? Are markets beginning to refuse to dance to the tune of the central bankers and their printing presses? Are central bankers losing control?

 ‘Sell in May and go away’

Let’s turn back the clock for a moment, if only just a bit. Let’s revisit April 2013 for a moment. At the time I spoke of central bankers enjoying a kind of ‘policy sweet spot’: they were either pumping a lot of liquidity into markets or promising to do so if needed, and all of them were keeping rates near zero and promising to keep them there. Some started to consider ‘negative policy rates’. Yet, despite all this policy accommodation, official inflation readings remained remarkably tame – indeed, inflation marginally declined in some countries – while all asset markets were on fire: government bonds, junk bonds, equities, almost all traded at or near all-time highs, undeniably helped in large part by super-easy money everywhere. Even real estate in the US was coming back with a vengeance. And then, in early April, central bankers got an extra bonus: Their nemesis, the gold market, was going into a tailspin. I am sure Mr. Bernanke was sleeping well at the time: financial assets were roaring, happily playing to the tune of the monetary bureaucracy, seemingly falling in line with his plan to save the world with new bubbles, while the cynics and heretics in the gold market, the obnoxious nutters who question today’s enlightened policy pragmatism, were cut off at the knees.

But then came May and everything sold off.

However, that is not quite how the media presents it. Here, one prefers the phrase ‘volatility returned’, as that implies that everything could be fine again tomorrow. And it certainly can. Maybe this is just a blip. But what if it isn’t? And, more importantly, what is driving it?

A widely debated theory is that the prospect of the Fed ‘tapering’ its quantitative easing operation, of it oh-so carefully, ever-so slightly removing its unprecedentedly large and more than ever alcohol-filled punchbowl could end the party. There has for some time been concern about and even outright opposition to never-ending QE within the Fed. So there is, of course, a risk (a chance?) that the Fed may reduce or even halt its asset-buying program. (As a quick reminder, since the start of the year, the Fed has expanded the monetary base already by more than $340 billion, and at the present pace, the Fed is on course to create $1,000 billion by the end of the year.)

Ben Bernanke – tough guy?

However, I do not think that markets have a lot to fear from the Fed. Should a pause in QE lead to a sell-off in markets, to rising yields and rising risk premiums, then, I believe, the Fed will quickly revert course once more and switch on the printing press again. The critics inside the Fed will be silenced rather quickly. Remember that most of them seem to argue that additional QE is not needed; they do not appear to reject it on principle. Ultimately, nobody in policy circles is willing to sit on his or her hands when the markets seriously begin to liquidate. The ‘end’ to QE, if it is announced at all, is likely to be just an episode.

The last central banker who had the cojones to take on Wall Street was Paul Volcker. Ben Bernanke, as well as his predecessor Alan Greenspan, have been nothing but nice to the speculating and borrowing classes. Both subscribe to and have, on numerous occasions, articulated the notion that it is part of the central bank’s remit to bring good cheer to households and corporations by lifting their house prices and inflating their stock prices and executive option packages. What the country needs is optimism and what is more conducive to optimism than a rising stock market and happy faces on CNBC? Bernanke declared that boosting financial assets can kick-start a virtuous circle of borrowing, investing and self-sustained growth. David Stockman has aptly called this approach ‘prosperity management’ through ‘Wall Street coddling’. Of course, Greenspan tightened in 1994, and again very carefully in 2005, and yes, both times financial markets caved in. But this only serves to illustrated how unsustainably bloated and dislocated the financial system has become, and how addicted to cheap money from the Fed. I think the Fed will be very careful to reduce the dosage of its drug anytime soon.

Although he didn’t quite put it in those terms, global bond guru Bill Gross, founder and co-chief investment officer at asset management giant PIMCO, seems to see it similarly. In an interview with Bloomberg in the middle of May, he confirmed that he and his team saw “bubbles everywhere”, which certainly implied that everything could go pop at the same time. He also stated that the Fed would “not dare” to do anything drastic anytime soon as the system is so much more leveraged now than it was in 1994, when Greenspan briefly tried to play tough and tighten policy.

My conclusion is this: if market weakness is the result of concerns over an end to policy accommodation, then I don’t think markets have that much to fear. However, the largest sell-offs occurred in Japan, and in Japan there is not only no risk of policy tightening, there policy-makers are just at the beginning of the largest, most loudly advertised money-printing operation in history. Japanese government bonds and Japanese stocks are hardly nose-diving because they fear an end to QE. Have those who deal in these assets finally realized that they are sitting on gigantic bubbles and are they trying to exit before everybody else does? Have central bankers there lost control over markets? After all, money printing must lead to higher inflation at some point. The combination in Japan of a gigantic pile of accumulated debt, high running budget deficits, an old and aging population, near-zero interest rates and the prospect of rising inflation (indeed, that is the official goal of Abenomics!) are a toxic mix for the bond market. It is absurd to assume that you can destroy your currency and dispossess your bond investors and at the same time expect them to reward you with low market yields. Rising yields, however, will derail Abenomics and the whole economy, for that matter.

It is, of course, too early to tell. The whole thing could end up being just a storm in a tea cup. It could be over soon and markets could fall back in line with what the central planners prescribe. But somehow I doubt that this is just a blip – and interestingly, so does Mohamed El-Erian, Bill Gross’ colleague at PIMCO and the firm’s other co-chief investment officer. In an interesting article on CNN Money yesterday, he contemplated the possibility that markets were beginning to lose confidence in central bankers.

If that is indeed the case it won’t be confined to Japan but will rapidly reverberate around the world. This is a much bigger story than a modest slowing of QE in the US. Could it be the beginning of the end?

I think the central bankers may not be sleeping so well now.

Source:  detlevschlichter.com

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All Wars Caused By Bankers

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Eric Sprott: Central Banks Use Accounting Tricks To Hide Lack Of Gold

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Eric Sprott gave an interview on Bloomberg regarding Central Banks using accounting tricks to hide the missing gold from their reserves. Some of the transcript from Silverdoctors are below including link to video. Well worth a look.

Sprott simply destroyed the MSM pundits’ anti-gold arguments, stating that gold has beat the Dickens out of every other asset class over the last 12 years, and questioned whether the Western Central Banks have any physical gold left in the vaults, as the gold listed on their balance sheets includes gold receivables, which has been leased out and is gone for good.

Bloomberg kicked the interview off by asking Sprott whether he is as much a fan of precious metals today as he once was, ”given the fact that they’ve treated you so poorly over the past 18 months?”  Sprott replied:

A little history is probably important here.  Gold has gone from $250 to over $1700.  It’s beat the Dickens out of every other asset class over the last 12 years…To specifically answer your question, am I more optimistic today than I might otherwise be?  Absolutely.   I wrote an article recently questioning whether the Western Central Banks had any gold left.  We simply did a physical analysis of the people that are coming into the gold market and the changes that have happened since 2000, (and the supply of gold has not changed since 2000 on an annual basis, it’s still 4,000 tons).   When you look at the fact that the central banks used to sell 400 tons annually, now they buy 500 tons.  The ETF didn’t even exist in 2000, now they buy 300 tons a year. 

The Bloomberg host then interrupted Sprott to claim that this sounds like a conspiracy theory and asked for another reason to buy gold.  Sprott responded:

I could probably give you 20 reasons.  How about money printing?  QE1, QE2, QE3, LTRO, OMT’s, people are essentially debasing their currencies.  They’re not holding them in the esteem that they should, and it’s reflected in the fact that the price of gold’s gone up.  One of the issues we have with gold is the fact that it hasn’t performed well in the last 18 months…But People are flocking to goldWhen I look at the US Mint statistics for gold sales.  When I look at what the Chinese are doing in terms of imports of gold from Hong Kong into the mainland, they’re up 500 tons in the last 12 months in a 4,000 ton market!!  Imagine if the Chinese bought an extra 12% of the oil or wheat market this year!  Would they get it?  And who’s supplying the 500 tons?  We already had a market that was in balance!

Gold production is flat, and one might even argue that the gold miners may have trouble increasing production this year.  You’ve seen the disappointments of Barrick and Newmont, and many others are having issues.

The Bloomberg host then asked Sprott why the gold price hasn’t responded to those supply and demand factors.  Sprott responded:

Well, there’s two markets for gold.  There’s the paper market, the COMEX futures. You can have the annual gold production trade in two days on the paper market.  I focus on the physical market.  I want to see what people are doing with their money physically.  Are they continuing to buy more and more gold, year after year?  Every indication we have is that they continue to buy INCREASING AMOUNTS OF GOLD.  Sooner or later, (and ask Eric asked, how do the central banks sell gold without telling anybody?), they have a very simple way: Central banks have one line on their balance sheets for gold and gold receivables!  If they lease gold to a bullion dealer, that’s a receivable.  That gold has obviously been sold into the market, but we can’t tell what’s real gold and what’s receivable (on the central bank balance sheets).

Full Video Interview

Source: Silverdoctors

KWN: London Trader Explains Latest Moves In Gold and Silver Market – Including Recent Takedown

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We are used to the gold market being controlled by vested interests but their ability to manipulate is now being seriously strained as Central Banks are lining up to buy the lows. In the case of the latest pullback from the $1800 level, the London Trader has pointed out that “We were within a hair of a major price explosion, and disorder in the gold market.” Checkout some of the comments from a series of 3 interviews given on King World News.

Physical demand is huge.

“In the past we have seen waterfall type declines when small speculators are heavily leveraged.  But the market has changed.  When the physical market was not as strong as it is now, these corrections would go $200 to $300 in gold.  As an example, we went from a previous peak of about $1,900 down to around $1,500, or roughly $400 in that case.”

“We are not going to see that this time.  It’s not going to happen that way this time.  Back then, the central bank buyers and these sovereign buyers were quite happy to sit and wait for a lower price.  Now they are not.  These buyers want out of their dollars and euros and they want physical gold and silver.

In the past, central banks have had the luxury of sitting back and waiting for the price to come to them.  Right now you have different central banks and different sovereigns competing with each other to buy gold, and in some cases silver as well.

There are simply too many buyers right now, and the competition to buy physical is extremely fierce right now….

“We are continuing to see the bids get raised in these markets.  This has become a competition for the central banks and sovereign buyers to get rid of their dollars and euros as fast as they can, and swap it for something of real value.

How will the physical orders be filled?

Meanwhile, the bullion banks run the COMEX and they are not stupid.  They are going to ring the register on this managed money.  The commercials have been doing extremely heavy short covering into the weak-handed longs which have been selling, but they are also covering into fresh shorts from speculators and managed money.

 The question now is, where is the inventory going to come from to fill all of these physical orders?  The physical market is already tight as a drum.  I would be surprised if there is much more downside in this environment.  Yes there is this game of the commercials covering into weak-handed longs, and fresh shorts, but there is reality here, and reality is the physical market, and these buyers have moved their orders higher, and will continue to do so.

In the past India was the largest buyer of physical gold and when they didnt like the price they would sit back and wait for the price to pull back. Now plenty of buyers are lining up including China and Central Banks.

India would just say, ‘We’re the biggest gold buyers in the world, so we will just step back and wait for our price.  We will wait for our price because we already have plenty of gold here.’  But now you’ve got too many competing entities all trying to acquire physical gold. 

Suddenly China has overtaken India.  So India doesn’t have the luxury of sitting back.  India is back in the market now.  India is back buying in the mid-$1,700s.  India was back yesterday.  India is back today.  They need to buy gold and they are stepping ahead of other entities and becoming a large buyer.

The Indians are not stupid.  They know the commercials harvest the weak hands on the COMEX.  Once they see open interest get to a certain level, they fully expect a reaction in the price.  But your readers have to understand that there isn’t going to be a ‘correction’ this time, there will only be a ‘pull back.’  There is a big difference between a pull back and a correction.

The reasons for this is there are just layers of central bank and sovereign physical buy orders in here right now.  Some of it has already been filled.  There has been tonnage filled at higher levels than we are currently trading.  As soon as we went through $1,760, we started to see central bank buying.

Bullion Banks had to stop the latest price rise

“Why do you think the bullion banks threw everything they had at the gold market at the $1,800 level?”  The answer, “We were within a hair of a major price explosion, and disorder in the gold market.”

“As gold was heading up to the $1,800 level recently, we were very close to a situation where we were going to see a commercial capitulation.  Some of the weaker commercials were already starting to bail out of their shorts.” 

“You have to understand that some of these bullion banks are more than happy to turn on these less powerful commercial shorts.  They view them as weaker hands.  Yes they are all commercials, but some of them are a lot weaker than the bullion banks. 

But there does come a point where the bullion banks say, ‘We’ve got to protect those stops.’  We had already gotten to the point where some stops were being tripped from those weaker commercial shorts….

“It got to the point where the vast majority of stops were located near the $1,810 level.  If gold would have pierced $1,810, that would have tripped the vast majority of all of those weaker, underwater commercial short positions out of the market.  This would have created enough of a short squeeze that we would have seen new highs in gold very rapidly.

 This would have been a literal failure by these commercials (commercial signal failure).  The gold market got to within $10 of their stops.  Why do you think the bullion banks threw everything they had at the gold market at the $1,800 level?  We were within a hair of a major price explosion, and disorder in the gold market.

 They (bullion banks) wanted to protect those stops, even though they weren’t their own stops.  They needed to do this in order to stop those weaker commercials from capitulating.  Now everyone is getting bearish, and when the physical market is closed, we are seeing some shenanigans such as after hours price drops in access market.

 So we are seeing more weak hands entering the short side of the gold market, and the commercials have been covering not only into the small speculators liquidating, but also into these fresh shorts.  The commercials are doing this in a very, very calculated way.

 hat readers need to take away from this, is we were dangerously close to a commercial signal failure and a major price spike in gold.  Even though the commercials have alleviated that concern for the time being, the possibility still exists that we could see a major price spike when the $1,810 area is pierced on the upside in gold.”

LBMA is a massive Ponzi scheme.

On July 20th, the ‘London Trader’ told King World News, “The LBMA’s price fixing scheme is coming to an end.”  Gold quickly rose $200 after that interview.  Today the source now tells KWN the LBMA has, “… incredibly large quantities of paper silver and gold being traded each day, but the real problem here is there is virtually nothing to back this up.”  The source also said, “This is all part of the LBMA Ponzi scheme.”

 

“The physical silver market is extraordinarily tight.  It’s insanely tight right now.  In other words, there isn’t any for sale.  We are seeing large premiums in places like Shanghai.  If a buyer wants size in physical silver, you are going to have to wait a long time.”

“When the commercials see a large order enter the market, they just turn the market around.  They don’t have that quantity of silver in inventory.  Every day the London Bullion Market Association (LBMA) clears 5,000 tons of silver, and between 600 and 700 tons of gold through paper trading.  When you think about it, that is a ridiculous amount.

This is all part of the LBMA Ponzi scheme.  You have these incredibly large quantities of paper silver and gold being traded each day, but the real problem here is there is virtually nothing to back this up….

So if I turn up to the LBMA and I say, ‘Out of your 5,000 tons of silver that you clear every day, I just want 300 tons.’  It shouldn’t be a problem.  It shouldn’t even cause a ripple.  But when you think about it, and that physical silver is leveraged 100 to 1, that’s more than the annual mine production of silver for the entire year when you do the math, including the leverage implications.

Of course they can’t deliver the 300 tons.  They don’t have it.  So when you actually go and send a Brinks truck to go and pick this silver up at the back door of Scotia Mocatta, you aren’t going to get it.  An order like that takes at least two months to get filled.

Too many large physical orders waiting to be filled.

 The problem right now is that there is such a large overhang of orders in both of these markets, and specifically silver.  Every day there are people turning up at the fix to buy physical, regardless of price.  As the markets are taken down, it exponentially increases the amount of physical silver that needs to be filled.

I would also add that the local traders are heavily short now.  So we are seeing a large short position building in silver on this price decline.  And don’t forget, the COT reports are groomed.  I don’t trust them. 

So when they see a large physical order enter the market, that’s the point where the commercials start covering.  Remember, the gold and silver markets on the COMEX are all about chasing out leveraged longs.  That’s all that market is about right now.

But we will see a day when silver can no longer be capped through paper trading and various games being played at the LBMA and COMEX, and in the end, it will be the physical market which will be the deciding factor.  At that point you will see the real price of silver for the first time, and it will leave people in disbelief.”

 

Sources:

  1. London Trader – Competition To Buy Physical Gold Is Fierce,
  2. London Trader – Bullion Banks Had To Halt Gold’s Advance
  3. London Trader – The LBMA Is A Massive Ponzi Scheme

GATA’s Bill Murphy Talks Of Gold Manipulation on Capital Account

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30 April 2012 – GATA’s Bill Murphy is interviewed on Capital Account.

  • Gold is unique as an asset class that is over 12 years on bull run.
  • Gold Cartel consists of Bullion Banks(HSBC, JPMorgan), the Treasury FED, BIS.
  • Cartel trying to slow down the asscent of gold (managed retreat).
  • Gold will eventually have to trade freely.
  • Gold is a barometer of financial health and this is the reason why its attacked.
  • Evidence has been gathered of manipulation since 1999.
  • The attacks are at certain times of day. (e.g. 3am New York time), attacks even when there is no news.
  • Central Banks are loading up on gold on the dips because they know how the Gold Cartel works.
  • Russia and China are very interested in how the Gold Cartel works and have approached GATA.

Life After The Euro

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Central Banks around Europe are considering life after the Euro as reported by GoldCore.

Central Banks Prepare For Life After Euro
The Wall Street Journal reports today that central banks are preparing for life after the euro with countries studying printing national currencies in case the single monetary union collapses.

Given the real risk of a breakup of the currency as we know it today, that would seem like the logical and prudent thing to do. 

Major multinational corporations are planning for the possibility of this scenario and recently British Chancellor George Osborne said his government had contingency planning in place in the event of the break-up of the euro.

There has been reports for the last few months of Central Banks seeking printing equipement or rumours of printing new currency. Earlier this week we reported that the Wall Street Journal has reported the Irish Central Bank has been seeking printing equipment to go back to the Punt.

In an article last week from ArabiaMoney,

Germany has its printing presses working overtime but they are not printing euros but Deutsche Mark notes in case the eurozone sovereign debt crisis ends in a return to national currencies.

At the same time the British Foreign Office has issued warnings to embassies in the eurozone to prepare to handle the problems of its expatriates who may be unable to access local bank accounts and face rioting mobs.

On the 4 October MoneyNews.com it was said quoted by a Philippa Malmgren who is a former economics advisor to George Bush

“The decision has already been made by the government that leaving the euro is a possibility. I think they have already got the printing machines going and are bringing out the old deutsche marks they have left over from when the euro was introduced.”

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