Tuesday, September 8, 2015


Posted on 7th September 2015 by Administrator in Economy |Politics |Social Issues

Last week’s volatility to the downside was entirely predictable, as the first leg down during this ongoing market crash reached the correction stage of 11%. The technical bounce was a given, as the 30 year old HFT MBAs on Wall Street have been trained like rats to BTFD. In their lemming like minds, it has worked for the last six years of this Federal Reserve created “bull market”, so why wouldn’t it work now. Last week was their first lesson in why it doesn’t work during bear markets, and we’ve entered a bear market. John Hussman seems amused at the shallowness of the arguments by Wall Street shills and CNBC cheerleaders about the future of the stock market in his weekly letter. After this modest pullback from all-time highs, the S&P 500 is still overvalued by 92%:
Following the market decline of recent weeks, the most reliable valuation measures we identify now project average annual nominal returns for the S&P 500 of about 0.5% in the next 10 years. On a broad range of historically reliable valuation measures (see Ockham’s Razor and the Market Cycle) the May peak in the S&P 500 reached valuations averaging about 114% above run-of-the-mill historical norms – more than double the valuation levels that have historically been associated with the 10% average expected market returns that investors have enjoyed over the long-term. At present, those measures have retreated to about 92% above historical norms.
Keep in mind that low interest rates don’t raise the estimated 10-year expected return on stocks from the current 0.5% level. Low interest rates only make the low expected return on stocks somewhat more “acceptable” because the alternatives are similarly dismal. The Federal Reserve’s policies of zero interest rates and quantitative easing have done nothing but to encourage yield-seeking speculation, bringing valuations to extreme levels, and leaving prospective future investment returns equally depressed.
Those who assert that high equity valuations are “justified” by low interest rates are actually (and probably unknowingly) saying that 0.5% expected returns on equities over the coming decade are a-okay with them. But it’s critically important to understand that while low interest may help to explain why current market valuations have been driven to obscene levels, low rates do not change the relationship – the correspondence – between elevated valuation levels and dismal subsequent long-term market returns.
It is time to assume crash positions because we have not experienced anything approaching a crash thus far. We’ve hit nothing but an air pocket.  As Dr. Hussman points out so succinctly, market crashes do not happen at the peak. There is usually an initial 10% to 14% decline as the smart money exits stage left, then the lemming dip buyers pile in and drive the market back up, but fail in bringing it above the initial high. It’s only then that sentiment deteriorates, support levels are broken, and all hell breaks loose. That time is coming.

The market decline of recent weeks was not a crash. It was merely an air-pocket. It was probably just a start. Such air pockets are typical when overvalued, overbought, overbullish conditions are joined by deterioration in market internals, as we’ve observed in recent months. They are the downside of the “unpleasant skew” that typically results from that combination – a series of small but persistent marginal new highs, followed by an abrupt vertical decline that erases weeks or months of gains within a handful of sessions (see Air Pockets, Free-Falls, and Crashes).
Actual market crashes involve a much larger and concerted shift toward investor risk-aversion, which doesn’t really happen right off of a market peak. Historically, market crashes don’t even start until the market has first retreated by 10-14%, and then recovers about half of that loss, offering investors hope that things have stabilized (look for example at the 1929 and 1987 instances). The extensive vertical losses that characterize a crash follow only after the market breaks that apparent “support,” leading to a relentless free-fall that inflicts several times the loss that we’ve seen in recent weeks.
It’s hysterical watching the paid Wall Street hucksters paraded on CNBC and the other corporate media propaganda outlets trying to calm the muppets so they can continue to fleece them. The highly paid talking heads, bubble headed bimbo spokesmodels, and captured shill “experts” like Cramer, blather about the 10% decline as if it has been an extreme over-reaction to a meaningless possible .25% increase in an obscure Fed lever and the complete collapse of the China bubble economy. They knowingly ignore the extreme valuations of our stock market to levels only seen in 1929 and 2000. Their goal is to keep the muppets in the market so their advertising revenue stream from Wall Street continues unabated.
The reason why the word “crash” has been bandied about to describe the recent selloff, I think, is partly because investors have lost all perspective of the losses that have historically been associated with that word, but mostly because it gives market cheerleaders the needed “cover” to encourage investors to continue speculating near record market valuations. After all, everyone “knows” that investors shouldn’t sell after a crash, thus the endless flurry of articles advising “selling in a crash is a textbook mistake,” “selling off stocks during a crash is a terrible idea”, “whatever you do, don’t sell”, “market crash: don’t rush to press the panic button,” “the worst investing move during a market crash,” … you get the idea.
Hand-in-hand with the exaggeration of the recent decline as a “crash” and “panic” is the exaggeration of investor sentiment as being wildly bearish. The actual shift has been from outright bulls to the “correction” camp, but that’s a rather meaningless shift since anyone but the most ardent bull would characterize current conditions as being at least a market correction. Historically, durable intermediate and cyclical lows are characterized by a significant increase in the number of outright bears. That’s not yet apparent here. Indeed, Investors Intelligence still reports the percentage of bearish investment advisors at just 26.8%.
The reason people lose so much money during market crashes is because of their cognitive dissonance and normalcy bias. They don’t want to think about the possibility of losing 50% of their money, even though history, facts, and common sense all point towards a dramatic crash. They will be convinced to stay in the market by the dramatic rallies that occur during bear market crashes. Six of the largest one day gains in history occurred during the 2008/2009 crash. Did that result in people not losing 55% of their money over a few month period? Selling now would not be a panic move, it would be a rational move.
It’s generally true that one doesn’t want to sell stocks into a crash (as I’ve often observed, once an extremely overvalued market begins to deteriorate internally, the best time to panic is before everyone else does). Still, the recent decline doesn’t nearly qualify as a crash. For the record, those familiar with market history also know that even “don’t sell stocks into a crash ” isn’t universally true. Recall, as an extreme example, that from September 3 to November 13, 1929, the Dow Industrials plunged by -47.9%. The market briefly recovered about half of that loss by early 1930. Even so, it turned out that investors would ultimately wish they had sold at the low of the 1929 crash. By July 8, 1932, the Dow had dropped an additional -79.3% from the November 1929 trough. In any event, the recent market retreat, at its lowest closing point, took the S&P 500 only -12.2% from its high, and at present, the index is down just -9.7% from its highest closing level in history. To call the recent market retreat a “crash” is an offense to informed discussion of the financial markets.
The biggest fallacy bought into by the ignorant masses and the intellectual academic elites is that the Federal Reserve’s purposeful blowing of this enormous bubble has increased the wealth of the nation. It has done nothing of the sort. It has increased the debt of the nation, while starving the productive wealth creating segments of the nation. They have created paper wealth by encouraging reckless gambling by Wall Street and the corporations using shareholder funds to buy back their stock at all-time highs. As we saw in 2000 and 2007, paper wealth can vaporize overnight.
Keep in mind that when paper wealth is “lost,” nobody gets it. Quantitative easing has not made the nation “wealthier”, nor will the massive paper loss we expect over the completion of the market cycle make the nation “poorer.” As I detailed in June (see When Paper Wealth Vanishes):
“As in equal or lesser speculative bubbles across history, there’s a common delusion that elevated stock prices represent wealth to their holders. That is a fallacy, and we can hardly believe that given the collapses that followed the 2000 and 2007 extremes, investors (and even Fed policymakers) would again fall for that fallacy so readily. The actual wealth is in the cash flows that are ultimately delivered into the hands of shareholders over time. Individuals can realize their paper wealth by selling now to some other investor and receiving cash in return, but only a small proportion of investors can actually convert current paper wealth into cash by selling to other investors without disrupting the bubble. The new buyer then receives whatever cash flows the stock delivers into the hands of existing holders, and can eventually sell the claim to the remaining stream of future cash flows to yet another investor. Ultimately, a share of stock is nothing but a claim on the long-term stream of cash flows that will be delivered into the hands of its holders over time. The current price and the future cash flows are linked together by a rate of return: the higher the price you pay today for a given stream of future cash flows, the lower the rate of return you can expect achieve by holding that investment over the long-term.”
The Federal Reserve has been successful in redistributing the wealth of the nation to the .1% who control the levers of our economic, financial, and political systems, from the working middle class who do the heavy lifting in this country. Redistributing wealth through speculation, rigging markets, printing money and throwing savers and senior citizens under the bus is not creating wealth. The biggest debt bubble in world history will lead to the greatest financial collapse in world history. Act rationally and get your money out of the stock market now.
Emphatically, the wealth of a nation is not measured by the price that the most reckless speculator will pay for the last few shares that change hands at the most exuberant moment of a bull market, multiplied by the entire number of shares outstanding. No, the wealth of a nation is its accumulated stock of productive real investment, human capital, and resources. Everything else cancels out because every security owned by some holder is also the liability of some issuer (see Stock Flow Accounting and the Coming $10 Trillion Paper Loss).
Put simply, many investors, and even some policy makers at the Federal Reserve, are under the delusion that paper market capitalization represents real wealth to the economy as a whole. The truth is that the wealth is in the productive assets of the economy and the long-term stream of cash flows they generate. Price fluctuations can certainly affect the distribution of wealth. Those who repeatedly buy stocks from others at depressed prices, and sell them to others at elevated prices, will accumulate the purchasing power of others. Those who repeatedly do the opposite will surrender their purchasing power to others. But the aggregate wealth of the economy as a whole is unaffected by those price fluctuations.

Food stamp spending at farmers’ markets increased 500% in seven years

by: L.J. Devon
(NaturalNews) The number of people using The Supplemental Nutrition Assistance Program (SNAP) has exploded in recent years. In 2008, 28,233,000 people were receiving food stamps, with a total expenditure of $37,639,640,000.
The USDA, which manages the redistribution program, reported that the total number of beneficiaries in 2014 had jumped to 46,537,000 and that the program now consumes more than $74 billion.
Is this path sustainable? Why are a frightening number of Americans resorting to SNAP? What will happen when the food supply production is overshadowed by a mob too numerous to feed?
The good news is that farmer’s markets are growing in popularity as people draw near to the real origins of food abundance. According to a new press release by the USDA, food stamp spending at farmers markets is increasing tremendously. Consumers are beginning to re-learn where food actually comes from. The press release reports, “Since 2008, the number of SNAP-authorized farmers, roadside farm stands, and farmers markets grew dramatically, from 753 to in excess of 6,400.”
“All Americans, including those participating in our nutrition assistance programs, need to include more fresh fruits and vegetables in their diet,” Concannon said. “America’s farmers have an important role to play in addressing that need in communities across the country.”

USDA providing farmer’s markets with tools necessary to attract SNAP users

The USDA is now making it a “top priority” to provide wireless equipment to “qualifying farmers and farmers markets” so food stamp beneficiaries can access more nutritious, local foods.
In the past seven years, food stamp spending at farmer’s markets has increased by more than 500 percent!
This is a powerful shift because it indicates that consumers are becoming re-acquainted with nutritious whole food and the people who know how to produce them. As more people flock to farmer’s markets, they can catch a glimpse of the real food growing and food sharing opportunities that await them. The SNAP program does allow beneficiaries to purchase seeds so consumers can learn how to become producers and grow their own food.
Talking with farmers at the market allows people to share growing techniques, natural pest control methods, and other useful information. In these moments, farmers and customers can develop a personal relationship with one another. Whether customers pay with cash or SNAP, it’s a win-win scenario because people are reconnecting with one another and the true source of food abundance.

Consumers moving closer toward food self-reliance?

True abundance doesn’t come from resources redistributed through government safety net programs. These programs might help some people who are truly down and out and have nowhere else to turn, but these programs also inadvertently steer many fully capable people away from the satisfaction and responsibility of working for or growing one’s own food. There would be less desire to take advantage of these resource redistribution programs if communities taught food self-reliance and took advantage of all of the land space that could be used for growing nutritious food.
For example, how many churches have large, unused lots that could be used to cultivate large harvests of diverse crops for people who are hungry, malnourished, or sick? How many schools could take advantage of their empty lots and teach children how to grow food and medicine?
The abundance is waiting to be reaped. Are people willing to step out of the box and be the change they want to see in the world? It’s time for church leaders and members, teachers and students to get their hands dirty. Everyone can do their part without relying on politicians in Washington to solve their problems.
As food stamp spending increases at farmer’s markets around the country, it is apparent that people are coming closer to and craving the answers to their hunger, their sickness, and their poverty.
The answers can be found within each and every one of us, but are we willing to let that power express itself?
Sources for this article include:

China Central Bank Says Stock Market Has Crashed 40% Since Peak!

Russia ‘is building military base in Syria’
G-20 Wrestles Currency Tension as Zhou Says Bubble Has Burst
China stock market crash
The euro’s founding father has warned that Europe’s latest plan for an EMU-wide finance ministry is a dangerous attempt to smuggle through political union, and breaches the basic tenets of modern democracy.

The Coming Middle-Class Anarchy

(Gonzalo Lira) Publish Date 2010- True story: A retired couple I know, Brian and Ilsa, own a home in the Southwest. It’s a pretty house, right on the manicured golf course of their gated community (they’re crazy about golf).
The only problem is, they bought the house near the top of the market in 2005, and now find themselves underwater.
They’ve never missed a mortgage payment — Brian and Ilsa are the kind upright, not to say uptight 60-ish white semi-upper-middle-class couple who follow every rule, fill out every form, comply with every norm. In short, they are the backbone of America.
Even after the Global Financial Crisis had seriously hurt their retirement nest egg — and therefore their monthly income — and even fully aware that they would probably not live to see their house regain the value it has lost since they bought it, they kept up the mortgage payments. The idea of them strategically defaulting is as absurd as them sprouting wings.
When HAMP — the Home Affordable Modification Program — was unveiled, they applied, because they qualified: Every single one of the conditions applied to them, so there was no question that they would be approved — at least in theory.
Applying for HAMP was quite a struggle: Go here, go there, talk to this person, that person, et cetera, et cetera, et cetera. “It’s like they didn’t want us to qualify,” Ilsa told me, as she recounted their mind-numbing travails.
It was a months-long struggle — but finally, they were approved for HAMP: Their mortgage period was extended, and the interest rate was lowered. Even though their home was still underwater, and even though they still owed the same principal to their bank, Brian and Ilsa were very happy: Their mortgage payments had gone down by 40 percent. This was equivalent to about 15 percent of their retirement income. So of course they were happy.
However, three months later, out of the blue, they got a letter from their bank, Wells Fargo: It said that, after further review, Brian and Ilsa had in fact not qualified for HAMP. Therefore, their mortgage would go back to the old rate. Not only that, they now owed the difference for the three months when they had paid the lowered mortgage — and to add insult to injury, they were assessed a “penalty for non-payment”.
Brian and Ilsa were furious — a fury which soon turned to dour depression: They tried contacting Wells Fargo, to straighten this out. Of course, they were given the run-around once again.
They kept insisting that they qualified — they qualified!  But of course, that didn’t help at all — like a football, they were punted around the inner-working of the Mortgage Mess, with no answers and no accountability.
Finally, exhausted, Brian and Ilsa sat down, looked at the last letter—which had no signature, and no contact name or number—and wondered what to do.
On television, the news was talking about “robo-signatures” and “foreclosure mills,” and rank illegalities — illegalities which it seemed everyone was getting away with. To top it off, foreclosures have been suspended by the largest of the banks for 90 days — which to Brian and Ilsa meant that people who weren’t paying their mortgages got to live rent free for another quarter, while they were being squeezed out of a stimulus program that had been designed — tailor made — precisely for them.
Brian and Ilsa are salt-of-the-earth people: They put four kids through college, they always paid their taxes. The last time Brian broke the law was in 1998: An illegal U-turn on a suburban street.
“We’ve done everything right, we’ve always paid on time, and this program is supposed to help us,” said Brian. “We follow the rules—but people who bought homes they couldn’t afford get to squat in those McMansions rent free. It would have been smarter if we’d been crooks.”
Now, up to this point, this is just another sob story of the Mortgage Mess—and as sob stories go, up to this point, it’s no big deal.
But here’s where the story gets ominous—here’s where the Jaws soundtrack kicks in:
Brian and Ilsa — the nice upper-middle-class retired couple, who always follow the rules, and never ever break the law — who don’t even cheat on their golf scores — even when they’re playing alone (“Because if you cheat at golf, you’re only cheating yourself”) — have decided to give their bank the middle finger.
They have essentially said, Fuckit.
They haven’t defaulted — not yet. They’re paying the lower mortgage rate. That they’re making payments is because of Brian: He is insisting that they pay something — Ilsa is of the opinion that they should forget about paying the mortgage at all.
“We follow the rules, and look where that’s gotten us?” she says, furious and depressed. “Nowhere. They run us around, like lab rats in a cage. This HAMP business was supposed to help us. I bet the bank went along with the program for three months, so that they could tell the government that they had complied — and when the government got off their backs, they turned around and raised the mortgage back up again!”
“And charged us a penalty,” Brian chimes in. The non-payment penalty was only $84—but it might as well been $84 million, for all the outrage they feel. “A penalty for non-payment!”
Nevertheless, Brian is insisting that they continue paying the mortgage — albeit the lower monthly payment — because he’s still under the atavistic sway of his law-abiding-ness.
But Ilsa is quietly, constantly insisting that they stop paying the mortgage altogether: “Everybody else is doing it—so why shouldn’t we?”
A terrible sentence, when a law-abiding citizen speaks it: Everybody else is doing it — so why don’t we?
I’m like Wayne Gretsky: I don’t concern myself with where the puck has been — I look for where the puck is going to be.
Right now, people are having a little hissy-fit over the robo-signing scandal, and the double-booking scandal (where the same mortgage was signed over to two different bonds), and the little fights between junior tranches and senior tranches and the servicer, in the MBS mess.
But none of that shit is important.
What’s really important is Brian and Ilsa: What’s really important is that law-abiding middle-class citizens are deciding that playing by the rules is nothing but a sucker’s game.
Just like the poker player who’s been fleeced by all the other players, and gets one mean attitude once he finally wakes up to the con? I’m betting that more and more of the solid American middle-class will begin saying what Brian and Ilsa said: Fuck it.
Fuck the rules. Fuck playing the game the banisters want you to play. Fuck being the good citizen. Fuck filling out every form, fuck paying every tax. Fuck the government, fuck the banks who own them. Fuck the free-loaders, living rent-free while we pay. Fuck the legal process, a game which only works if you’ve got the money to pay for the parasite lawyers. Fuck being a chump. Fuck being a stooge. Fuck trying to do the right thing — what good does that get you? What good is coming your way?
Fuck it.
When the backbone of a country starts thinking that laws and rules are not worth following, it’s just a hop, skip and a jump to anarchy.
TV has given us the illusion that anarchy is people rioting in the streets, smashing car windows and looting every store in sight. But there’s also the polite, quiet, far deadlier anarchy of the core citizenry — the upright citizenry — throwing in the towel and deciding it’s just not worth it anymore.
If a big enough proportion of the populace — not even a majority, just a largish chunk — decides that it’s just not worth following the rules anymore, then that society’s days are numbered: Not even a police-state with an armed Marine at every corner with Shoot-to-Kill orders can stop such middle-class anarchy.
Brian and Ilsa are such anarchists — grey-haired, well-dressed, golf-loving, well-to-do, exceedingly polite anarchists: But anarchists nevertheless. They are not important, or powerful, or influential: They are average — that’s why they’re so deadly: Their numbers are millions. And they are slowly, painfully coming to the conclusion that it’s just not worth it anymore.
Once enough of these J. Crew Anarchists decide they no longer give a fuck, it’s over for America — because they are America.
Update I:
The Center for Public Integrity has a story, written by Michael Hudson this past August 6, that shines a light on the issue of perverse incentives of the HAMP program. These perverse incentives came to light because of a whistleblower, a former employee of Fannie Mae, filing a lawsuit. Fannie Mae was so keen on being perceived as a money-maker, after the Federal government bailout, that the aid programs passed by the Congress and signed by the President were turned into profit centers.
The former executive, Caroline Herron, recounts:
“It appeared that Fannie Mae officers were focused on maximizing incentive payments available to Fannie Mae under various federal programs – even if this meant wasting taxpayer money and delaying the implementation of high-priority Treasury programs,” she claims in the lawsuit.
Herron alleges that Fannie Mae officials terminated her $200-an-hour consulting work in January because she raised questions about how it was administering the federal government’s push to help homeowners avoid foreclosure, known as the Home Affordable Modification Program, or HAMP.
Herron further alleged that “trial mods” were implemented regardless of eligibility of applicants, so that Fannie Mae would be eligible for Federal government bonuses.
Ms. Herron’s testimony in fact proves Ilsa’s suspicion that there was a scam at bottom. As Mr. Hudson writes, “Herron charges that Fannie Mae continued in headlong pursuit of ‘trial mods’ even though it knew that many had little chance of becoming permanent. [. . .] Fannie preferred doing trials, Herron alleges, because it was eligible to receive incentive payments from the Treasury Department.”
So in the pursuit of these perverse incentives, people who did not qualify for HAMP were enrolled in the program. And when their “trial mods” were up after 90 days, they would be notified that they didn’t qualify — regardless of whether they in fact did qualify, as in the case of Brian and Ilsa.
All so as to be perceived as a profitable operation, worth having been bailed out. All so as to be perceived as “returning America’s money”.
As of February, 2010, of the over one million homeowners’ mortgages under HAMP auspices, 83 percent were “trial mods”. One would assume that those 850,000 homeowners would also be assessed an $84 penalty for non-payment.
$84 times over 850,000? You do the math.
Update II:
This post seems to have struck a nerve — by the number of hits it’s gotten, it’s number two on my list of most viewed posts, with a bullet. By the number of comments it’s generated, it’s the undisputed number one.
But a lot of the comments seem very negative toward Brian and Ilsa personally, which I’ve found surprising. A lot of the comments seem to say, basically, “They had it coming, for buying at the top of the market.” Or else, they seem to say, “They deserve it, trying to take advantage of the system.”
First of all — as I thought I made clear early in the piece — HAMP would not change the principal of Brian and Ilsa’s mortgage: It would only extend their payment period, and refinance the loan with the now-lower interest rate, so as to lower their monthly payments. Brian and Ilsa would still owe more money than their house was worth, but at least they’d be paying less money per month.
Second — and an issue I debated quite a bit before publishing the post — I didn’t highlight the fact that, in order to qualify for HAMP, one of the conditions was that one of the homeowners had to have a medical event which had required large out-of-pocket expenses.
In the case of Brian and Ilsa, both of them had had such medical expenses: Ilsa for breast cancer, which has since gone into remission, Brian for cardio-vascular problems, which have also been cured, though at great cost.
I didn’t highlight these medical issues because I wasn’t trying to write a sob story — I was trying to write a piece describing a middle-class couple who are throwing in the towel.
I thought I had made it clear that Brian and Ilsa were not trying to have someone else pay for their misfortunes—they would still own an underwater house. But they would simply be paying for it over a longer period of time, with a slightly lowered mortgage interest rate, and therefore having to pay less out of their monthly income.
The vitriol of some of the comments, however, was surprising in its need to find blame with Brian and Ilsa.
There were elements of class envy, certainly, but I think for the most part, there was a kind of projection-and-denial going on: If salt-of-the-earth, always-follow-the-rules people are getting screwed with, then maybe the screwing that I’ve been getting as of late isn’t normal either — and maybe I should be fighting back, instead of accepting my lot.
By claiming that Brian and Ilsa “had it coming, and should accept their fate,” maybe those commentators are trying to explain away — to themselves most of all — why they have been screwed with, yet are doing nothing about it.
Just a thought.

Volcano Zone Reservoirs Could Hold Huge Amounts of Gold and Silver

#Volcano #Gold – Volcano zone reservoirs could hold huge amounts of gold and silver – The heat is on for prospectors in what could be the next gold rush. According to a recent study in the journal Geothermics, a team of geologists has discovered a mother lode of gold and silver inside super-heated reservoirs within New Zealand’s Taupo Volcanic Zone. Extreme heat from the volcanoes’ magma plumes is heating water, producing acidic underground reservoirs and springs that in turn dissolve the surrounding rock. This then allows the embedded gold and silver to come loose and collect in the water. If successfully drilled, one well could yield as much as $2.7 million in gold a year.
Read More:

Comex Registered Gold Inventories – ‘Deliverable Gold’ At Current Prices

by Jesse
As someone asked, since hardly anyone is buying gold on the Comex and taking it out, why would be concerned about any inventory levels of deliverable gold?
Indeed, why be concerned about price if it is just all a part of an extended game of liar’s poker between speculative interests?
It is almost just a betting parlor now, hence the title The Bucket Shop.
However, that does call into question its role in price discovery in the global trade around the world, much if not most of which is physical.
And that price discovery in London at the LBMA is asserted almost every day in one of the clearest patterns of price manipulation that one might even try to imagine.
As I have said on a number of occasions, I am not looking for a ‘default’ in NY.   How can one default when forced settlements in cash can be easily accomodated at the Fed’s window at any time?
No, the first cracks in the facade of the modern Gold Pool will appear in a key node of the physical market, most likely in London or Switzerland as fails to deliver.  Perhaps even in Shanghai.
However, like the ebbing of the tide, a ready supply of gold for delivery will likely start disappearing from the shelves around the world at both the wholesale and retail level as the vortex of actual delivery in Asia consumes the ready supply at current prices.  The cost of ‘borrowing’ gold will increase dramatically as the risk of a counterparty failure to return the bullion will intensify.
There will be a divergence between the price for immediate delivery of bullion and the paper price in the future, until the discrepancy becomes so obvious that there is a ‘run’ on the available short term physical supply, and real gold bullion goes to ‘none offered’ at any price close to the ‘price discovery’ of the paper markets.  And then there will be a halt, a settling, and a reset.
If the source where you hold your bullion does not offer a guarantee of the bullion itself, rather than the ‘value of the bullion’ then chances are unacceptably high that you will be force settled in cash prior to a reset of the price substantially higher.
This is what happened in the US in 1933 when the official gold currency in circulation was recalled.   People who had gold stored in the Banks had their monetary gold taken,  a paper payment was received for it at the official price, and then afterwards the price of bullion in US dollars was set 41% higher.  The increase in reserves was used to help prop up the insolvent banking sector.
Although such an action today is less likely since gold is no longer a monetary metal with a claim from the state, nevertheless such an action in a force majeure breakdown in the financial system whereby borrowed and ‘shared’ gold could not be returned at the current price faces a similar fate.  This is how the failure of MF Global was recently resolved, and I can easily see the same rules applying for a market break in any leveraged system of ownership.
Related:  Why the Federal Government Seized Gold In 1933

North Sea oil industry risks collapse as energy prices fall

© Darrin Zammit Lupi
The North Sea oil industry is at “serious and urgent risk” of being abandoned as major energy firms put off projects due to the oil price slump, according to the UK's Oil and Gas Authority (OGA).
The energy companies operating in the area should join forces to become more efficient and to fundamentally change some of their working practices to sustain the industry, the head of OGA, Andy Samuel told the Financial Times on Monday.
Samuel, who’s in charge of reviving the sector, warned of a possible “domino effect”, when one company leaves an area of the North Sea, and others have to share more of the cost of maintaining infrastructure. While in some fields several companies share the cost of pipelines and processing plants, it will be impossible for them to bear those costs if one or more of them leave.
The head of OGA said that “whole areas of the continental shelf” could be shut down if critical infrastructure is decommissioned too soon. Joint arrangements where one oil producer helps another are, however, difficult to be agreed while companies are competing with each other, Samuel added.
READ MORE: Oil slump leads to $200bn cut in new energy projects - study
The North Sea oil industry has been hit hard as crude prices plunged more than 50 percent since last June. From January to March this year, government revenues plunged 75 percent to £168 million, with more than 5,000 jobs lost in the sector, according to the OGA.
The world’s top energy firms have put off $200 billion in spending on 46 major oil and gas projects due to the oil price slump, energy consultancy Wood Mackenzie reported in July.
North Sea operators such as Shell, BP, Chevron and Taqa have cut jobs and investment over the weak oil price, in addition to postponing projects. Shell cut 6,500 jobs and reduced capital spending by 20 percent. In July, BP lowered its expected full-year capital spending to below $20 billion after cutting it by 13 percent earlier this year.
READ MORE: Shell cuts 6,500 jobs & investment by 20% over weak oil
The UK government has offered companies a number of new tax breaks, but has also urged energy companies to work together, trying to sustain the vital industry. The Oil and Gas Authority was established in April with the task of maximizing the recovery of oil and gas from the region.
“It is important that the government and regulators understand that if you lose one company, that will have an impact on the others because of infrastructure costs,” Amjad Bseisu, chief executive of EnQuest, one of the independent operators in the North Sea, told the FT.
There are up to 23 billion barrels of oil and gas still to be recovered from the North Sea, according to the OGA.

Stock Market Crash 2015: The Dow Has Already Plummeted 2200 Points From The Peak

(RINF) – Those that watched their stocks steadily increase in value for years are now seeing all of that “wealth” disappear at a staggering pace.  The only way you actually make money in the stock market is if you get out in time, and many Americans are discovering that all or most of their gains have already been wiped out.  At this point, the Dow Jones Industrial Average has dipped below where it was at the end of the 2013 calendar year.  That means that nearly two years of gains have already been obliterated.  On Friday, the Dow was down another 272 points, and it is now down more than 2200 points from the peak of the market back in May.  For months, I have been detailing how things were setting up for this kind of financial crash in textbook fashion, and now events are playing out just as I warned.  But this is just the beginning – what is coming next is going to shock the world.
We have already seen the 8th largest and 10th largest single day stock market crashes in all of U.S. history happen within the past few weeks.  In fact, it was actually the very first time that we have ever seen the Dow fall by more than 500 points on consecutive trading days.
On August 25th, I warned that there would be some huge rebound days where we would see lots of “panic buying”, and on August 26th we witnessed the 3rd largest single day stock market increase in all of U.S. history.
Headlines all over America trumpeted the “fact” that the stock market had “recovered”, but the mainstream media failed to mention that the only two better days for the stock market were right in the middle of the stock market crash of 2008.
In this article, I explained that this is exactly the type of market behavior that we expect to see during a full-blown market meltdown.  There are going to be even more violent swings in the market in the weeks ahead, but the general direction will be down.
Friday was definitely another down day.  The following is how Zero Hedge summarized the carnage…
  • Dow Industrials lowest weekly close since April 2014
  • Dow Transports lowest weekly close since May 2014
  • S&P 500 lowest weekly close since Oct 2014’s Bullard lows
  • Nikkei dumped over 7% this week – worst week since April 2014
  • Utilities collapsed 5.1% this week – worst week since March 2009
  • Financials lowest weekly close since Oct 2014’s Bullard lows
  • Biotechs lowest weekly close since Feb 2015
  • Investment Grade Corporate Bond Spreads worst since June 2013
  • Treasury Curve (2s30s) flattened 6bps today – biggest drop in 2 weeks.
  • JPY strengthened 2.4% on week against the USD – strongest week since August 2013 (up 4.5% in 3 weeks) – major carry unwind!
I wish I could tell you that things are going to get better, but I can’t do that.  There are some giant financial bubbles that are starting to unwind, and this process is going to take time to fully unfold.
And this is truly a global phenomenon.  Chinese stocks have been crashing horribly, Japanese stocks just had their worst week in over a year, Canada and much of South America are plunging into recession, and Europe is probably in worse shape than everyone else if you look at the fundamentals.
Even though U.S. stocks have already fallen substantially, the truth is that they easily have much farther to fall.  Yale economics professor Robert Shiller believes that we could actually soon see the Dow plunge all the way to 11,000
In what amounts to an ominous message for Wall Street, Robert Shiller, a Yale economics professor and author of Irrational Exuberance, doled out some serious bear talk this morning.
Shiller told CNBC Thursday morning that “this is a dangerous time” for the stock market.
Shiller, who has a reputation for calling market tops, warned that the Dow Jones industrial average, which closed Wednesday at 16,351, could fall as low as 11,000, a potential drop of more than 30% from current levels.
At the moment, the Dow is sitting just above 16,000, which is an exceedingly important psychological level.
If the Dow breaks below 16,000 and stays there for a few days, it is quite likely that full-blown panic will set in.
And once we see the Dow dip below 15,000, people will be going insane.
Another key indicator to watch is the VIX (the CBOE Volatility Index).  If you are not familiar with the VIX, here is  a pretty good definition from Investopedia
The ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge.”
Right now it is sitting at 27.80.  If the VIX rises above 40 and stays there, that will be a major red flag.
We have entered “the danger zone“, and events are going to start moving very rapidly now.  If you have been listening to the warnings, you are going to understand why things are happening and you are going to know what to do.
Unfortunately, most people are going to have that “deer in the headlights” look because they will not understand what is happening and they will be frozen by fear.
Stay tuned to this website and to End Of The American Dream because things are about to get very weird and I will do my best to explain them as the coming weeks and months play out.
So what do you think the rest of September will bring?
Please feel free to join the discussion by posting a comment below…

Gazprom Keeps Scoring Goals - Revives German Asset Swap Deal

Eastern Economic Forum in Vladivostok has been a big success for Gazprom which scored three mayor deals in a day:
Signed a Shareholders’ Agreement on Nord Stream 2
  • Consortium for the project is formed by Gazprom, E.ON, BASF/Wintershall, OMV, ENGIE and Royal Dutch Shell 
Provisionally agreed cooperation with Austria’s energy giant OMV
  • OMV will gain a stake in Siberia oil fields in exchange for a stake in OMV's assets in Europe
Most surprisingly, has signed a previously abandoned deal with German BASF/Wintershall
  • Germans will gain a stake in Siberia oild fields, in exchange for a Russian stake in North Sea operations, and full control of a gas trading hub in Germany with the largest underground gas storage facility in western europe

The Numbers Are In: China Dumps A Record $94 Billion In US Treasurys In One Month

Shortly after the PBoC’s move to devalue the yuan, we noted with some alarm that it looked as though China may have drawn down its reserves by more than $100 billion in the space of just two weeks. That, we went on the point out, would represent a stunning increase over the previous pace of the country’s reserve draw down, which we began documenting months ahead of the devaluation (see here, for instance). We went on to estimate, based on the projected size of the RMB carry trade unwind, how large the FX reserve liquidation might need to be to offset capital outflows and finally, late last week, we suggested that China’s official FX reserve data was set to become the new risk-on/off trigger for nervous, erratic markets. In short, the pace at which Beijing is burning through its USD assets in defense of the yuan has serious implications not only for investors’ collective perception of market stability, but for yields on core paper, for global liquidity, and for US monetary policy. 
On Monday we got the official data from China and sure enough, we find out that the PBoC liquidated around $94 billion in reserves during the month of August to $3.557 trillion (the lowest since September 2013)...

... and as Goldman argues (see below), the "real" figure might have been closer to $115 billion. Whatever the case, it’s a staggering burn rate and needless to say, were the PBoC to continue to liquidate its assets at this pace, it would necessitate a raft of RRR cuts and hundreds of billions in short-term liquidity ops to ensure that money markets don’t seize up in the face of the liquidity drain.
Here’s some commentary from across sellside desks on the official numbers:
  • From RBC’s Sue Trinh: 
    • China FX reserves suggest about $140b used to defend yuan in April once valuation is accounted for
    • Believes PBOC has been intervening to maintain the yuan’s stability since the devaluation, but this kind of intervention can’t continue indefinitely
    • It’s unsustainable in the long run; yuan is overvalued by around 15% by RBC’s latest estimate; still targeting USD/CNY at 6.56 by year-end and 6.95 by the end of 2016
  • From Commerzbank’s Zhou Hao:
    • Decline in foreign reserves clearly suggests China’s central bank intervened intensively in the FX market to stabilize CNY exchange rate
    • “One-off devaluation” in mid-Aug. triggered market expectations of further CNY deprecation, which has not only endangered the financial stability, but also posts a downside risk to the economy due to capital outflows
    • It’s costly because frequent intervention will burn foreign reserves rapidly and tighten the onshore market liquidity; that said, further tightening of regulations is expected near term
    • Expects spread between CNY and CNH is likely to persist as PBOC has become an active player in onshore market
  • From Goldman:
    • The People’s Bank of China (PBOC) reported that its foreign exchange reserves dropped by US$94bn in August, to US$3.557tn at the end of the month. However, it is not straightforward to derive the actual scale of FX reserves sales from the headline FX reserves data, given uncertain valuation effects and possible balance sheet management by the PBOC.
    • It is possible to get an approximate sense about valuation effects stemming from currency movement: e.g., assuming the currency composition of the PBOC’s FX reserves broadly follows that of the average country’s (using the IMF COFER weights, which suggest roughly 70% in USD for EM countries), the currency valuation effect would probably be positive to the tune of roughly US$20bn (i.e., if we only look at the change in headline FX reserves as a gauge of sales of FX reserves, sales of FX reserves might have been underestimated by around US$20bn, given the currency valuation effect). However, besides currency movements, there could also be significant valuation effects from changes to the market prices of the PBOC’s investment portfolios, and the direction and size of those effects is hard to measure given the uncertainty of the asset composition. Moreover, there could also be possible short-term transactions and agreements between the PBOC and banks that may complicate the interpretation of the change in FX reserves as an underlying measure of RMB demand.
Of course the huge draw down was widely anticipated and indeed, we've explored and detailed virtually every angle of this story in the lead up to the data. The key takeaway here is that we now have official confirmation that August saw $94 billion in reverse QE (and more likely $115 billion) or, quantitative tightening as Deutsche Bank puts it.
We can, as we explained on Saturday, argue about what the ultimate effect on safe haven assets will be, but what's not up for debate is that conceptually speaking, China's massive UST dumping is the opposite of Western central bank QE and as such should be expected to pressure yields. More specifically, Citi has suggested that for every $500 billion in EM FX reserve liquidation, there's an attendant 108 bps or so of upward pressure on 10Y yields. Similarly, Deutsche Bank, citing the extant literature, flags 50-60bps of upward pressure on 5Y yields for every $100 billion in monthly EM FX reserve liquidations.
The takeaway, as we put it last week, is that if the Fed hikes this month, it will be tightening into a tightening.
But it's not that simple. It's also possible that, if China's FX reserve draw downs do indeed end up serving as a trigger for risk-off behavior (i.e. a selloff in risk assets), the subsequent flight to safety could end up driving yields on long bonds lower, not higher. We discussed this in detail over the weekend.
Still, China isn't the only country liquidating its USD assets. When you consider that global EM FX reserves amount to more than $7 trillion, it seems reasonable to ask whether the flight to safety that would invariably accompany a worldwide selloff in risk assets would be sufficient to replace the lost bid from massive reserve draw downs. Or, as we put it on Saturday, "the real question is what would everyone else do. If the other EMs join China in liquidating the combined $7.5 trillion in FX reserves (i.e., mostly US Trasurys but also those of Europe and Japan) shown below into an illiquid Treasury bond market where central banks already hold 30% or more of all 10 Year equivalents (the BOJ will own 60% by 2018), then it is debatable whether the mere outflow from stocks into bonds will offset the rate carnage."
And that consideration, in turn, puts the Fed in a very, very difficult spot. A rate hike cycle will put further pressure on already beleaguered EM currencies which raises the possibility that the FX reserve liquidation will be larger than the eventual safe haven flows and besides, there's bound to be a lag between the liquidation of USD assets and the flight to safety and given the potential for extraordinary bouts of volatility in UST, JGB, and German Bund markets, it's anyone's guess what happens in between.
Whatever the case, something will have to give here. That is, all of these dynamics (i.e. a Fed hike, China's massive UST dumping, an EM meltdown precipitating FX reserve drawdowns, illiquid markets for the same assets everyone is dumping, hemorrhaging petrostate budgets, etc.) simply cannot coexist for long without something snapping because, as we put it last week, in this very unstable arrangement, the smallest policy error will reverberate exponentially, and those reverberations can lead to only one thing: the Fed's admission of policy failure by adopting a tightening bias, and ultimately launching another phase of monetary easing, be it QE4 or perhaps even the long-overdue and much anticipated Friedmanesque "helicopter money" episode.

Have 10% of Wealth In Gold As “Fire Insurance” – Rickards

by GoldCore
‘Death of Money’ author Jim Rickards recommended a 10% allocation to physical gold when interviewed by the ‘Money Honey’ Maria Bartiromo on Fox Business last week.
In a very interesting interview which also included Barron’s Editor Jack Otter and FBN’s Dagen McDowell, Rickards said that gold is like “fire insurance on your house” …
“Nobody wants their house to burn down but if it does you are glad you have some insurance”.
(Click on the image to view the video on the Fox Business site)

Rickards points out that as gold is insurance you should not worry about its price as much as you would other assets. When you buy insurance you are not concerned when the price of the insurance falls. What is important is that you own it as it will protect from worst case financial and monetary scenarios.
He says that gold is money and warns that fiat currencies can lose value sharply if confidence disappears as has been seen in “5,000 years of history.”
Rickards reaffirmed his view that gold will rise to $10,000 per ounce but said that it is not gold rising to $10,000/ oz, rather it is the dollar losing value and a “collapse in the dollar” which could “start tomorrow” as we have an “unstable financial system.”
Today’s Gold Prices: USD1121, EUR 1,004.03  and GBP 734.75  per ounce.
Yesterday’s Gold Prices: USD1,125.00, EUR 1,009.87  and GBP 737.95  per ounce.

Gold in EUR – 1 Week

On Friday, gold ended with a loss of just 0.29% while silver ended with a loss of 0.75%. For the week, gold was 1.08% lower and silver was 0.07% lower.
Gold was marginally lower in gold trading in Singapore and this slight weakness continued to European trading with gold tethered to a remarkably tight $3 range between $1,123.70/oz and $1,120.50/oz.
Gold again outperformed embattled stock markets last week. The Dow Jones Industrial Average, S&P 500 and Nasdaq were down 3.25%, 3.4% and 3% respectively. Other indices were down by much more – the Nikkei plunged by over 7%. The stock falls follow a dire August which was the worst month for stocks in more than three years.
Gold inches higher as China returns – The Bullion Desk
Gold Trades Slightly Higher in Asia – The Wall Street Journal
Gold struggles near 2-1/2-week low on U.S. jobs data – Reuters
Gold Holds Near Lowest in Two Weeks as U.S. Jobless Rate Drops – Bloomberg
Global concerns may shrink Wall Street’s third-quarter estimates – Reuters
Father of the euro fears EU superstate by the back door – The Telegraph
Russia flirts with Saudi Arabia as OPEC pain deepens – The Telegraph
“System Is Highly Unstable—If [Confidence] Is Lost, It Can Melt Down Very Quickly” – Sprott Global
Get ready for a lousy September as investor sentiment slips – MarketWatch
The Frankenmarket Monster – MoneyWeek
Read the stories above on our News and Commentary page

Jim Rickards: The US Economy Weak And Getting Weaker

Jim Rickards: The US Economy Weak And Getting Weaker
Jim Rickards chief global strategist at West Shore Funds – to talk about the US economy.