Tuesday, 9 November 2010

Gold v Paper.

Baltic Dry Index. 2495 -15
LIR Gold Target by 2019: $30,000. Revised.

“Although textbooks may view gold as the old money, markets are using gold as an alternative monetary asset today”

World Bank President, Robert Zoellick. November 8, 2010.

Below my rough and ready guide to the US government subsidy to Americans owning gold. Officially Uncle Sam claims to hold 262 million troy ounces of gold, though this hasn’t been audited since the late 1950s, and even that wasn’t an audit meeting current standards. Many believe that Uncle Sam has secretly sold off a lot of it fighting his undeclared wars, and mortgaged much of the rest via gold leases, where other central banks were encouraged to lease their gold in return for an indemnity from Uncle Sam if the lessee couldn’t get real gold back to settle the contract. Though under a gold lease, the gold passes to the likes of JP Morgan or HSBC who sell it, and then use the money to speculate in anything from government bonds to crude oil futures. Even though the gold has moved and been sold into the market, the leasing central bank is allowed by the Bank for International Settlement in Basel, to pretend nothing has happened and to keep listing the gold on their books. Over the years, they have used all kinds of legal weasel words to describe the phony gold on their books.

But today I’m feeling charitable, and I’ll go along with Uncle Sam’s pretence, and assume that there is still 262 million troy ounces of gold somewhere that Uncle Sam can get his hands on to back up the currency component of America’s most restrictive monetary component, M1. The latest currency component number available is at the end of October at 909 billion. Simple arithmetic means that each ounce of gold is covering 3,470 dollars of US currency. Currently gold is about 1410 dollars per troy ounce. So each American holder of gold is effectively getting a subsidy of over two thousand dollars from Uncle Sam, against the day that the next Lehman hits and the current fiat dollar reserve system crumbles, and gold re-enters the system again as official money. The public have already made it unofficial money against the collapsing Great Nixonian Error of fiat money and floating exchange rates. With trillion dollar deficits forever, unending discretionary wars, and a quantitative easing program that can never end, anyone with any wealth is crazy not to take advantage of Uncle Sam’s generous 2,000 dollar subsidy.

As fewer and fewer people have confidence in paper as a store of value, the price of gold will continue to rise."

Jerome F. Smith


M1 Currency Comp.



U.S. Gold holding. Ozs





Dollars issued per oz





Gold Price





Gold Subsidy




In other precious metals news, yet another class action lawsuit has been filed against the big silver shorts. Go get them Eric! Since they’re too big to fail, they can easily cover any judgment should the lawsuit prevail. While arguably the gold shorts might plausibly claim to be acting in the market as agent of the central banks in their policy of gold suppression in the interest of preserving the fiat currency system, and therefore should be indemnified, central banks have no legitimate interest in suppressing silver. In the western system Silver was demonetized between 1870-1900. There is no legitimate silver suppression interest, the banksters merely privateered in silver, piggy backing gold suppression, and all for their own avaricious gain. Any shareholder in a silver producing mining company should give serious thought to joining in the class action.

"When paper money systems begin to crack at the seams, the run to gold could be explosive."

Harry Browne

Whistleblower accuses HSBC and JP Morgan of silver futures scam

Banking giants HSBC and JP Morgan have been accused of "intentionally and unlawfully" suppressing the price of silver futures traded on the Comex exchange in New York after an ex-employee of Goldman Sachs in London blew the whistle on the scheme.

By Garry White Published: 6:10AM GMT 08 Nov 2010

In a lawsuit filed in New York last week, trader Eric Nalven has launched a class action suit against the two banks, claiming they "artificially depressed the price of silver dramatically downward" in a scheme that netted the banks "substantial illegal profits".

This follows two suits filed at the end of October against both banking groups, one of which claimed the "defendants reaped hundreds of millions of dollars, if not billions of dollars in profits" from the conspiracy.

The ex-Goldman Sachs employee, a veteran of 40 years, reported the two banks activities to the US derivatives regulator, the Commodity Futures Trading Commission (CFTC), which has been conducting an investigation into the manipulation of the silver market.

The whistleblower claims he was told about the conspiracy and scheme by traders.

A spokesman for JP Morgan declined to comment.

A spokesman for HSBC said: "We aren't commenting on this case other than to say we will defend ourselves through proper legal channels."


We end for the day with the German Finance Minister threatening to put Uncle Sam on a diet. “Ve haf vays of gettin eben for losing drei vars.” (Zwei surely, or is there something else in mind.)

Interview With German Finance Minister Schäuble

'The US Has Lived on Borrowed Money for Too Long'


In an interview with SPIEGEL, German Finance Minister Wolfgang Schäuble, 68, criticizes US calls for Germany to reduce exports, outlines his plans for an insolvency framework for indebted European nations and the emphasizes the significance of the German-French axis for Europe.

SPIEGEL: Minister Schäuble, how well do you get along with your American counterpart, Treasury Secretary Timothy Geithner?

Schäuble: Mr. Geithner is an excellent minister. We have a good personal relationship.

SPIEGEL: Nevertheless, he constantly criticizes government officials in countries that are achieving high export surpluses and not doing enough to stimulate their domestic economies. He's referring to you, isn't he?

Schäuble: It would appear that way. That's why I tell him again and again that I think his point of view is incorrect in this regard.

SPIEGEL: All the same, the value of goods Germany sold to the United States exceeded imports from that country by almost €14 billion ($19.8 billion) last year. Can't you understand that the American treasury secretary is concerned about this?

Schäuble: No, because since we introduced the euro in Europe, the determining factor is no longer US trade with Germany, but US trade with the totality of countries in the euro zone. And in that respect the balance of trade tends to be even. So what's the problem? After all, we don't complain about the export successes of individual American states.



At the Comex silver depositories Monday, final figures were: Registered 50.69 Moz, Eligible 58.47 Moz, Total 109.16 Moz.


Crooks and Scoundrels Corner.

The bent, the seriously bent, and the totally doubled over.

Stay long precious metals. Below Ireland stares Iceland’s fate in the face. If it wasn’t for the ECB buying Irish bonds, there wouldn’t be a market in Irish bonds. But how many countries can the ECB bailout before it needs a bailout itself? How many countries will be allowed to corrupt the ECB before Germany walks out on the Club Med euro?

NOVEMBER 9, 2010

Ireland's Next Blow: Mortgages

Ireland's commercial-property bust has knocked the country's banks to their knees. Now the lenders are bracing for another blow: losses on home loans.

So far, residential mortgages haven't been nearly as big a problem for Irish banks as their portfolios of loans to finance real-estate development and construction projects. Those ill-fated property loans have saddled the banks with tens of billions of euros in losses, forcing the government to mount a series of costly bailouts that have pushed Ireland to the brink of insolvency.

But problems in the residential-mortgage arena are starting to crop up, fueling fears that a second wave of losses could hit even Ireland's healthiest banks. Those fears are one reason why jittery investors punished shares of Irish banks. An index of Irish financial stocks fell 5.3%, and shares in Bank of Ireland, one of the country's biggest mortgage lenders, tumbled 5.6% in Dublin.

A rising tide of Irish households has been falling behind on their mortgage payments. More than 36,000 borrowers, representing 4.6% of Irish mortgage loans, were at least 90 days behind on their loans as of June 30, according to Ireland's financial regulator. That compares with 26,000, or 3.3%, nine months earlier. Data for September, due next month, is expected to show another rise but remain below the U.S. rate, which was above 9% in June.

In a foreboding sign, nearly 200,000 Irish mortgages—about one of every four outstanding home loans—is expected to be "underwater" by the end of the year, according an estimate made earlier this year by David Duffy, a research officer at the Economic and Social Research Institute in Dublin. That means the outstanding loan balance will be greater than the underlying value of the home, increasing the odds that borrowers will default. If the house-price decline becomes even more calamitous, Mr. Duffy said in a March paper, some 350,000 homeowners could be underwater.

Peter Mathews, a former Irish banker who now is an independent banking-sector analyst, reckons between 10% and 20% of the value of home loans made during the three frothiest years of Ireland's property bubble, which peaked in 2007, could be written down. "There's a bigger bump on the horizon than people would like to admit," he said.

Such fears were shoved into the spotlight Monday. Morgan Kelly, an economics professor at University College Dublin, published an opinion column in the Irish Times newspaper warning that the country was headed over a financial cliff due partly to a coming flood of mortgage defaults.

"The perception growing among borrowers is that while they played by the rules, the banks certainly did not, cynically persuading them into mortgages that they had no hope of affording," Mr. Kelly wrote. "Facing a choice between obligations to the banks and to their families—mortgage or food—growing numbers are choosing the latter."

Meanwhile, Irish government bonds continued to weaken as investors worry that the country is moving toward a sovereign default due to the ever-rising costs of the banking bailout. The gap between yields on Irish 10-year debt and similar German debt widened to record levels, and the troubles spread to other euro-zone countries. The cost of buying insurance on Portuguese and Spanish bonds hit new highs Monday, while the cost of insurance on Irish debt hovered near record levels.

The renewed concerns about the continent's health rubbed off on the euro, which fell below $1.40 after rising to $1.43 last week. And the European Central Bank said Monday that it had resumed its purchases of bonds from struggling countries like Ireland, after a three-week hiatus.

While Irish banks' disastrous commercial real-estate lending has received the most attention, the banks were similarly profligate when it came to home loans.

Residential-mortgage debt soared from about €49 billion in late 2003 to €113 billion in March 2010, or from about $69 billion to about $159 billion, according to Ireland's central bank.


As a service to our hapless European readers, below is a list of Euro banknotes by country of origin. Personally, I think any Euros not starting with the letter X are dodgy. Would you want to be holding any at all on the day that Germany and the northern, hard working, Lutheran tier walk out?

Euro Country Letter
Belgium Z
Germany X
Finland L
France U
Greece Y
Ireland T
Italy S
Luxembourg (R) **
Netherlands P
Austria N
Portugal M
Spain V

"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"

Kenneth J. Gerbino

The monthly Coppock Indicators finished October:

DJIA: +204 Down. NASDAQ: +289 Down. SP500: +196 Down.

The bull market (or bear market rally) that commenced on Nasdaq on 30/4/09 at 1717 has ended. (30/5/09 SP 500 at 919, 30/5/09 DJIA 8500.) While the indicators can flip flop at market turns, this action is rare on the slow monthly indicators. October is the fifth down month in a row.

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