Gold Market Daily Updates

Another Riddle: (come on, give it a try)

2012-03-15T07:50:00.002-07:00

Here's another riddle:

America has 400 Billionaires in a population of 307 million.

Venezuela has only 2 billionaires in a population of 23 billion.

What does this tell you about the respective economies and economic systems of these two countries?

Here's one possible answer: "If Venezuela were on economic par with the US they'd have 45 billionaires, therefor it's clear the wages of socialism is economic deprivation:" This according to Dennis Gartman.

Here's another: "US capitalism tends to concentrate wealth exclusively in the hands of the very few: therefor the wages of capitalism are economic deprivation."

Which answer is correct?

Neither.

This is a classic example of fast thinking which substitutes a simple correlation between two random events and then designates a false causation. You hear this every day over and over from every talking head on every subject.

Why? Because it's easier than thinking things through. And it's faster than thinking things through. And it supports the positions we want supported, which will not always be the case if we bother to think things through.

The trouble is - (well, one amongst many troubles) that the longer we engage in this fast and facile thinking the less able we are to think things through.

The first step in thinking is learning the difference between correlation and causation.

If you don't know how to do that, try the book Freakonomics, which, despite the flashy title, is all about the "surprising" things we learn about our world when we learn to distinguish the difference between Correlation and Causation.

Technically correct

2012-03-13T03:14:00.000-07:00

Here's a riddle:

How is it that a Fund Manager who lost 20 percent last year is able to convince himself that a fund manager who gained 200 percent is really incompetent?

Answer:
Well, according to momentum trader Dennis Gartman, holding onto a fundamental conviction through a 50 percent slide only to end up with a 200 percent gain is the height of incompetence:

"In retrospect he was right in having lived through those sorts of downward
price movements, but as a trader/investor this was borderline suicide. To have lived through a movement of such consequence without taking some sort of defensive action is nonsense and we think it terrible, terrible trading technique."

Apparently Gartman is proud of the fact that while ending the year with a 20 percent loss he was able to exhibit all the trappings of smart money management.

How is this possible?

This is the classic example of what Dr Daniel Kahneman labels: fast thinking. It is thinking done in shorthand, relying on "what is normal," "the mental shotgun," "illusions of truth," "mental anchors," "heuristics," and "Sheer laziness."

According to Dr. Kahnemann this fast thinking is typical of most of what passes for thought right now, for the simple reason that it is far easier, for more reassuring than the painful process of slow or deliberative thought that often exposes the myths and fictional narratives that we build up around our world and ourselves.

In trading it is thinking that relies on technical models that dictate when and what to buy and sell. After all, these models are the time tested results of normative delusion. They reflect that which everyone agrees to be can't-miss-economic-truths that result in disasters "nobody could have predicted" like those of Long Term Capital Management, the S and L crisis, the banking collapse of 2008, and the second banking collapse that is right around the corner.

Relying on technique, catch phrases and meaningless correlations rather than analytic thought is a tragic symptom of the fast thinking that dominates American discourse: political, economic and social.

Fast thinking is why Ben Bernanke creates mountains of new debt to solve a debt problem. It is why Newt Gingrich assumes that cutting taxes in a deficit economy will produce the same results as cutting taxes in a surplus economy. It is why armies of liberals and conservatives think Obama's economic policy is different from that of George Bush. Think that Ronald Reagan's economic policy was more conservative than Jimmy Carter's. It is why Larry Kudlow believes America can have a strong dollar by adopting a "Strong Dollar Policy." It is also why most Christians believe that the New Testament is an historical document. Why most Americans believe we have a Free Market.

And fast thinking is why 95 percent of Americans believe that the US dollar is the world's most stable and reliable currency. It is why they think that gold is just another commodity to be traded like wheat or coffee. And why they will be shocked at the world's most predictable crisis (that nobody could have foreseen) which is unfolding right before their very eyes.

And fast thinking will be the tragic cause of why the vast majority of Americans will be convinced that keeping a well diversified portfolio dominated in US dollars was the wisest thing to do even though it left them stone cold broke.

A slow thinking problem: Why so few still get gold

2012-03-11T11:23:00.001-07:00

A bat and a ball cost $1.10. The bat costs $1.00 more than the ball. How much does the ball cost?

Quick...

How much?

If you answered 10 cents you're wrong.

In Daniel Kahneman's brilliant book "Thinking, Fast and Slow" he points out that even 50 percent of Harvard, Princeton, Yale and MIT students who partook in this study got the wrong answer to this simple question. The ratio moves to 80 percent in "less selective" colleges.

Why can't even our brightest citizens think well?

Dr Kahneman posits two distinct thinking processes that battle each other in the human brain. Fast thinking is a process dominated by snap judgements and pre-judgements based on everything we think we know. In other words, it is a thinking process dominated by non-deliberation.

Slow thinking takes effort. It mean slowly going through the process that Plato called: Syllogism: Reasoning Together. Plato noted that to do this successfully you have to ask what is this, what is it not, what does it seem to be, what does it seem not to be. Whether or not you literally ask and answer each of these questions, you still have work though those issues.

It takes a few seconds to actually think the above problem through. Maybe you got it. Maybe you're used to thinking things through. If so, you're in the vast minority of US citizens, who are obsessed with instant gratification, instant information and instant analysis.

What does this have to do with gold?

Most US analysts examine all economic markets - especially gold - as a function of historical ratios. They claim that because the gold-dow ratio or the gold-silver ratio or the gold-gold stock ratio is this and such etc etc, therefor the gold price should be doing this and such. Or because moving averages and stochastics etc. in the past have shown this and such, this and such will ensue.

This is all a product of fast thinking. It's easy, it's reassuring, It involves historical ratios and outcomes. And it's almost always wrong. Because as we move forwards in time underlying conditions that informed the ratios in the past have changed.

This is why technical momentum traders all lose money over time. And this is why 95 percent of US investors still don't get gold.

MF GLOBRAL EXECS GET HUGE BONUSES FOR STEALING A BILLION DOLLARS

2012-03-10T14:14:00.001-08:00

Welcome to the Free Market. You couldn't make this sh#t up:

Bloomberg: MF Global Holdings Executives to Get Bonuses (for stealing 1.2 billion dollars) If Court Approves

By Tiffany Kary - Mar 10, 2012 12:01 AM ET

The MF Global Holdings Ltd. (MFGLQ)executives who oversaw the company before it failed last yearshould get bonuses this year if a bankruptcy court approves,said Frank Piantidosi, an adviser working with the trustee,Louis Freeh. A senator objected to Freeh in a letter.
The compensation packages are still being prepared, andwould apply to Chief Operating Officer Bradley Abelow, GeneralCounsel Laurie Ferber and Chief Financial Officer Henri J. Steenkamp, Piantidosi of Freeh Group International Solutions LLCsaid in an e-mail.

Jon S. Corzine, left, former chairman and chief executive officer of MF Global Holdings Ltd., Bradley Abelow, center, president and chief operating officer of MF Global, and Henri Steenkamp, right, the company's chief financial officer, at a Senate Agriculture Committee hearing in Washingtonon Dec. 13, 2011. Photographer: Andrew Harrer/Bloomberg

“The value that Brad, Henri and Laurie bring by helping toliquidate and recover assets for the estate outweighs the costto retain them,” Piantidosi said. It would cost more to replacethem with outside consultants less familiar with MF Global’soperations, he said.

PS: NOT A DIME OF THE STOLEN 1.2 BILLION DOLLARS HAS YET BEEN RECOVERED

How much European debt is on (or off) the books at US Banks?

2012-03-08T22:53:00.000-08:00

03/06/2012 Spiegel online

The Hundred-Billion-Euro Bomb

Euro-Zone Central Bank System Massively Imbalanced

By Stefan Kaiser

Sinn: A brilliant economist with a terrible beard. DPA

More than a year ago, German economist Hans-Werner Sinn discovered a gigantic risk on the balance sheets of Germany's central bank. Were the euro zone to collapse, Bundesbank losses could be half a trillion euros -- more than one-and-a-half times the size of the country's annual budget.

Hans-Werner Sinn, an economist in Munich, discovered a strange entry in the Bundesbank's statistics: In late 2010, records showed claims on other euro-zone central banks totaling over €300 billion ($400 billion). Curious, Sinn began to dig deeper. What he found exceeded his worst expectations.

"The Bundesbank told me those were irrelevant balances. But that didn't reassure me."

After weeks of detective work, Sinn assembled enough pieces to create a picture that would make any one shudder: Since the 2007 financial crisis, immense imbalances have formed within the otherwise harmless payment system that exists between the central banks of the 17 euro-zone member states. While Italy, Spain, Ireland, Portugal and Greece, all hit hard by the debt crisis, show deficits totaling over €600 billion, the claims owed the Bundesbank have climbed to €498 billion.

'Caught in a Trap'

As long as the monetary union continues to exist, this isn't a catastrophe. The money is virtual, created by central banks, and its existence doesn't mean that an equivalent amount is lacking elsewhere. But as soon as a country leaves the euro zone, or the currency union collapses entirely, things get critical.

"We're caught in a trap," Sinn says. "If the euro breaks apart, we're left with an outstanding balance of nearly €500 billion, owed by a system that no longer exists." That figure, €500 billion, is more than one and a half times Germany's annual federal budget.

This, though, is the worst-case scenario, and would only apply if the euro zone falls apart entirely. A far more realistic possibility is that one country, such as Greece, would leave the monetary union. In this case, all of the other euro-zone central banks would have to bear the Greek central bank's debt together. Germany's Bundesbank, in accordance with its share of the European Central Bank (ECB), would assume about 28 percent. With Greek debt at €108 billion, Germany's share would be approximately €30 billion.

SPIEGEL ONLINE

The Bundesbank's claims are set off by massive debts in crisis-stricken euro-zone countries.

Gold technicals?

2012-03-08T04:22:00.000-08:00

These are the monthly and weekly charts of gold.

Technically this is all anyone needs to know about gold. Every time it goes from the top of the channel to the bottom of the channel technical momentum traders like Gartman, the fast money crowd on CNBC, the geniuses at Fox Business, Gene Epstein at Barrons etc etc declare that the gold bull is dead, and they urge everyone to sell all their gold.

Don't listen. Don't trade gold. Think why it's been going up. Think to see what's changed. If you can't think it through stay away altogether. If you can, then you'll see we're a long long way from the day when anything will change.

Otherwise you'll be one of the dopes trying to make money off something like this:

Manipulation

2012-03-07T05:56:00.001-08:00

There are still many many analysts, brokers, traders, investors who profess not to believe in market manipulation - and trade, analyze, invest as though manipulation does not or could not exist. There are even many, like Dennis Gartman, who regularly ridicule the very idea that manipulation could exist.

Let me point out that the Federal Reserve Bank has a license to print money. They can use that money in any way they like to accomplish any purpose.they like. And nobody can legally audit or monitor their activities. So clearly they have the ability to manipulate the markets simply by dropping unlimited cash to buy unlimited contracts on any futures exchange through any member bank or dealer.

Why on earth would anyone believe they don't do this thing that they can do?

Why would anyone believe they would refrain from an activity that clearly benefits them - in the short run.

Their stated goal is to support the stock market. Bernanke sites the stock market level continually as a proof that his policies are working. Why wouldn't he then support the stock market?

On the other hand, Gold is widely regarded as the most effective measure of the efficacy of Fed policy. A high gold price is regarded as proof the Fed is failing. Bernanke and everyone else understands this. Why then would he not cap the gold price?

Apart from the mountains of anecdotal evidence of market manipulation - there's this simple common sense test: Why would someone with the power and motive to easily do something not do it?

And why not do it?

The answer is that manipulation is a very temporary fix for complex structural problems. And manipulation of prices only encourages those contributing to the structural problems to continue their destructive practices. In fact it rewards them for practices that ultimately destroy the economy.

Specifically: Manipulation rewards bank and Hedge Fund traders for continuing to use debt to leverage enormous bets through complex derivative instruments in order to make large trading gains. This continually increases the amount of debt in a system that is already drowning in debt. And this directs the energies of the banks towards trading gains rather than towards the efficient distribution of capital.

And worst of all, ultimately, manipulation always fails. It's only a matter of when. And when it does, manipulated markets catapult in the exact opposite direction.

David Stockman on the Fed:

2012-03-06T14:48:00.002-08:00

David Stockman (Ronald Reagan's budget director): "Here's the heart of the matter. The Fed is a patsy. It is a pathetic dependent of the big Wall Street banks, traders and hedge funds. Everything (it does) is designed to keep this rickety structure from unwinding. If you had a (former Fed Chairman) Paul Volcker running the Fed today 7/8— utterly fearless and independent and willing to scare the hell out of the market any day of the week — you wouldn't have half, you wouldn't have 95 percent, of the speculative positions today.

Q: You sound as if we're facing a financial crisis like the one that followed the collapse of Lehman Brothers in 2008.

A: Oh, far worse than Lehman. When the real margin call in the great beyond arrives, the carnage will be unimaginable.

Q: What will 10-year Treasurys yield in a year or five years?
A: I have no guess, but I do know where it is now (a yield of about 2 percent) is totally artificial. It's the result of massive purchases by not only the Fed but all of the other central banks of the world.
Q: What's wrong with that?
A: It doesn't come out of savings. It's made up money. It's printing press money. When the Fed buys $5 billion worth of bonds this morning, which it's doing periodically, it simply deposits $5 billion in the bank accounts of the eight dealers they buy the bonds from.

(comment: and they use that money to front run your stock trades.)

Q: Do you own any shares?
A: No.

Q: Are you in short-term Treasurys?
A: I'm just in short-term, yeah. Call it cash. I have some gold. I'm not going to take any risk.

Q: Municipal bonds?
A: No.

Q: No munis, no stocks. Wow. You're not making any money.
A: Capital preservation is what your first, second and third priority ought to be in a system that is so jerry-built, so fragile, so exposed to major breakdown that it's not worth what you think you might be able to earn over six months or two years or three years if they can keep the bailing wire and bubble gum holding the system together, OK? It's not worth it.

Comment: Personally, I think that gold is safer than cash. But obviously you need both.

Short term thinking is not thinking at all

2012-03-05T16:41:00.003-08:00

There's an old adage that the stock market is discounting out into the future, say nine months to a year. Now, I don't know if this was ever true. But right now 70 percent of the volume on the NYSE is from high frequency trading.

What's high frequency trading? It's when you place a trade to buy 100 shares of Apple, and Goldman Sachs' supercomputer picks up you trade buys the 100 shares, sells it to Merril Lynch's supercomputer at a fraction higher as it picks up the trade a split second later and then Merril Lynch sells the 100 shares at a fraction higher to your broker - even if your broker works at Merril Lynch too.

The amount of time being discounted by the NYSE in this model is about a nano second.

And a nano second is about the attention span of the average American right now.

The fact that Goldman Sachs is now also a commercial bank and they can get the money to front run your trade from the Federal Reserve Bank at zero percent interest is far too long a thought for most Americans to grasp. Add to that the fact that the money the Fed uses to give to Goldman Sachs to front run your trade is, in fact, your money. The Fed uses your money to give to Goldman Sachs so that they can front run your trade should make most Americans furious.

It would be far more obvious, but functionally no different than if the US Congress declared a Front Run Tax to be taken from your paycheck and given to Goldman Sachs to use to cheat you on every trade. If there was a tax you'd probably vote against it, I'd bet. But since the process takes about 5 minutes of solid thought to decipher, you just don't give a damn. (That's the generic "you.")

In fact, most Americans are furious. But they're furious because their cell phone just dropped a call or their DS isn't working properly, or their neighbor's phone has more apps than their phone, or because the damned Liberals or Conservatives or Muslims or Jews are screwing everything up.

On top of that they're vaguely upset that things don't seem to be going well. But they're kind of sure things might probably do better soon enough, hopefully.

Unfortunately it does require about 5 minutes of thought to figure things are really getting worse and why they are getting worse. And another 5 minutes to figure out how gold will be the ultimate insurance policy against this persistent decline.

If you have 5 minutes it might be worth it to try.

But seriously... What happened to gold?

2012-03-02T03:52:00.000-08:00

The gold flash crash on Wednesday certainly freaked out a lot of gold investors. And it provoked an amusing round of jeering from everyone who's missed the entire gold rally so far. Which is a lot of people.

J P Morgan (a bank that is a principal owner of the Fed) dropped three million paper ounces of paper gold onto the comex futures exchange all at once. They ran stops and took the paper price down pretty hard - from 1800 to 1700. They can do this any time with money they borrow for free from the Fed. They did this in conjunction with a Fed press conference.

But think about this: Does J P Morgan own three million ounces of gold that they wanted to sell? No. Of course not. What do they own? They own the Fed. Literally. They are majority share holder of the Federal Reserve Bank. They are part of the banking consortium that owns the Fed.

1800 to 1700. That's a big move in one day. Get used to it. That's what the comex is for. The Fed plays this game in the other direction with stocks. Every time the market falls J P Morgan can buy 10,000 SP contracts, rally the futures, and the cash price follows like a panting dog.

It's fun and profitable - if you're J P Morgan.

If you're one of the many analysts and fund managers who refuse to believe in market manipulation because it ruins your religious belief in America's Great Free Market, it's not so fun. You get to be right about the stock market going up - a tiny bit. And you get to be right about Gold being a dangerous trading market. And you get to steadily lose 20 percent a year for you fund and your clients.

Make no mistake. Nobody's making any money trading these markets - except the banks that own the Fed. Hedge funds run by trading geniuses like George Soros also make money. Because he takes a long term macro fundamental position and knows he's right and waits it out. Everyone else using quant based technical trading programs and stupid momentum trading strategies are getting killed. Year in and year out.

So don't trade. Gold is on sale right now. Buy it cheap. Buy bullion. Put it away. Because all the Central Banks in the world can't change the primary trend of markets - over time.

And remember this: in June the Pan Asian Gold Exchange goes live in China. A real exchange for real gold. Each contract backed by physical gold that will be delivered. That's the beginning of the end for J P Morgan and the Fed's short term control of the gold market.

That's not far off. And they know it too. So hang on to your hats til then.

BREAKING NEWS: GOLD BULL IS DEAD!

2012-02-29T15:09:00.000-08:00

Bloomberg: "Gold Falls in ’Manic’ Plunge as Bernanke Damps Stimulus Bets"

By Debarati Roy - Feb 29, 2012 4:33 PM ET

Gold fell as much as $100 to below$1,700 an ounce on signs that that the Federal Reserve willrefrain from offering more monetary stimulus to bolster the U.S.economy.

But Federal Reserve Chairman Ben S. Bernanke said that keeping monetary stimulus is warranted evenas the unemployment rate falls and rising oil prices may causeinflation to rise temporarily.

NOW HERE'S MY QUESTION:

What more can the Fed possibly do?

Banks here and in Europe can borrow infinite amounts of money at ZERO PERCENT INTEREST. This is money that the Central Banks just print right up. And rates will remain at zero indefinitely. Meanwhile, the Fed can still take any bad loan off any bank balance sheet at any time, at its sole discretion. And nobody can audit them.

So what new stimulus is the Fed refraining from committing to? Riddle me that, Batman.

Is Bernanke pledging not to fill a swimming pool with billion dollar bills and then dive in naked and swim around in it with all his banker buddies?

Gee, how abstemious. Sell all your gold right now!