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Where Is All The Gold Going?
Where Is All The Gold Going?
Changing Attitudes
With the help of a set of excellent charts on gold imports vs exports by Nick Laird (www.sharelynx.com), I would like to give you a brief overview of where gold is going. We have heard for some time that gold is moving to the Far East but is it really only moving there?
Roman historian Gaius Plinius Secundus (Pliny the Elder, AD23-AD79) complained that India drained Rome of its gold
Official gold reserves held by central banks – in the official sector, there has certainly been a noticeable shift, with emerging market central banks increasing their buying to such an extent that total central bank holdings have been rising since 2008, for the first time since the mid 1960s – click to enlarge.
Well if we start with the US, it certainly is going out. In the first chart, we can observe that gold has been leaving the US without exception at least since 1996. Even at the top of the gold bull market when the price crossed briefly $1,900, gold exports exceeded gold imports for the US. However, according to Nick Laird, if one adds US gold mine production to this, it puts the US in a net neutral position. So US imports plus production equals exports; this has been the case over the last 18 years.
US gold exports and imports – adding back annual production reduces the difference roughly to zero – click to enlarge.
Is the same the case for Europe? Contrary to what one might think, while gold is moving from West to East, some of it is not going all the way to India and China but rather stays in Europe. I have always made a distinction between North America (US and Canada) and Europe. In the next chart below, it can be seen that European central banks have stopped selling gold in 2008, which corresponds with the financial crisis that almost brought down the international financial system.
…click on the above link to read the rest of the article…
Neither Bull nor Bear
Neither Bull nor Bear
“Good Economic Management” vs. Larceny
“Will you shut up?!”
That is what we wanted to say this morning, here in Zurich, Switzerland. At the table next to us, a hedge fund promoter is working hard…
“The value proposition… outside of the box… we’re only talking two points… we can dialogue about it… Goldman… our business model… prioritize our priorities… get the balance right…”
New Canadian prime minister Justin Trudeau – who actually has more than just one bad idea.
Photo credit: Andrew Vaughan / Canadian Press
Meanwhile, on the front page of the Financial Times is a good-looking guy with a bad idea. Pierre Trudeau’s son, Justin, is Canada’s new prime minister. (Another political dynasty!) He will “take advantage of low interest rates” to embark on a C$60 billion infrastructure program.
Just for the record, the Canuck feds are not taking advantage of low interest rates. They’re cheating savers… retirees… and responsible citizens whose expenses are lower than their incomes.
In much of the developed world, central banks have pushed interest rates to their lowest level in 5,000 years. This is not “good economic management.” It’s larceny. They’re taking money from savers and giving it to borrowers – especially in the financial sector and in government. But on to other things….
This is not just larceny, it is insanity (not unique to Canada to be sure, as it has gone global) – click to enlarge.
12% a Year in Stocks
“We don’t pay any attention to the stock market. We buy good companies at good prices,” an old friend explained about how his private fund operates. (In the interest of full disclosure, we are one of his investors.)
“We aim for 12% a year,” he continued. “And that’s what we get, more or less.”
…click on the above link to read the rest of the article…
Waiting to be SKEWered?
Waiting to be SKEWered?
SKEW Goes Pear-Shaped
Back in 1998, at the height of the Russian crisis, the CBOE SKEW Index reached its all time high of 146.88. Previously very high values were seen on the eve of the 1990 recession, and in March 2006 it spiked again when sudden worries about the housing bubble surfaced.
“There are no black swans” they said …
Over the past two years, SKEW has begun to act totally crazy, regularly rising to rarely before seen levels. In late 2014 and again in September this year, moves to around the 140 level have become quite frequent. On Tuesday it broke its Russian crisis all time high, spiking briefly to 148.91.
SKEW spikes to a new all time high on Monday – click to enlarge.
“What the hell is SKEW?” we hear you ask. Here is the explanation from the CBOE, where SKEW lives (or rather, where the options that are used in its calculation live):
“The CBOE Skew Index – referred to as “SKEW” – is an option-based indicator that measures the perceived tail risk of the distribution of S&P 500 log returns at a 30- day horizon. Tail risk is the risk associated with an increase in the probability of outlier returns, returns two or more standard deviations below the mean. Think stock market crash, or black swan. This probability is negligible for a normal distribution, but can be significant for distributions which are skewed and have fat tails. As illustrated in the chart below, the distribution of S&P 500 log returns has a sizable left tail. This makes it riskier than a normal distribution with the same mean and the same volatility. SKEW quantifies the additional risk.
SKEW is derived from the price of S&P 500 skewness. That price is calculated from the prices of S&P 500 options using the same type of algorithm as for the CBOE Volatility Index (VIX). The details of the SKEW algorithm and a sample calculation are presented in the SKEW White Paper http://www.cboe.com/SKEW .
…click on the above link to read the rest of the article…
Reflections on Modern Democracy
Reflections on Modern Democracy
Democracy – but only when it goes your way!
Over the years of watching the democratic process I’ve noticed something important. People tend to reject democracy, indeed, fight it tooth and nail, when it doesn’t go their way. But when it does, well, it is the tops.
Consider the case of California’s Proposition 187. Then governor Gray Davis of California was maneuvering to essentially gut this referendum, one that won with over 60% of the votes. So let us recognize that the leader of the Democratic Party in California has no problem rejecting what the majority of the people want when he and his friends believe that the people are wrong.
Former California governor Gray Davis, a typical representative of the cronyism prevalent in the US merchant State. What eventually tripped him up wasn’t his attempt to gut prop. 187 by legal maneuvering, but his perceived poor performance during California’s energy crisis. Many of his energy advisors were the very speculators who benefited the most from the crisis. It was one affront too many. Davis was the first member of California’s ruling caste to fall prey to a recall, after 117 previous recall attempts throughout California’s history had failed, and only the 2nd politician in US history to suffer this ignominious fate. During the boom of the 1990s, Davis had greatly expanded government spending, landing California with a near $35 bn. deficit when the bust inevitably struck.
Photo credit: Patrick Fallon/Bloomberg
Now if you believe in democracy regarding the handling of certain problems in society, whether people actually have signed up for that process, you will go along with the verdict regardless of whether you like the outcome. That is a principled defense of democracy.
During all the health (Obama) care reform debates it is liberal Democrats who said, repeatedly, that their demand for a government supervised health care system merely expresses the will of the public and thus has ample legitimacy behind it.
…click on the above link to read the rest of the article…
How Big an Oil Glut is There Really?
How Big an Oil Glut is There Really?
Revisiting Crude Oil
Beginning in late August we have frequently discussed the possibility that a significant low in crude oil prices could be imminent in spite of the “obvious” lousy fundamentals. As blind luck would have it, the first of these articles (entitled “Is Crude Oil Close to a Low?”) was posted exactly one trading day before the low to date was actually put in. Well, you know what they say about blind chickens :).
Image credit: freshidea – Fotolia
Note here that we are not saying it was the low, although this cannot be ruled out either. It seems very likely though that it was at least a low of medium term significance.
From a technical perspective, the action in crude oil since late August is so far consistent with a medium term low. The recent advance looks actually somewhat healthier than the previous one, due to the lengthy consolidation after the initial strong rally leg – click to enlarge.
To summarize our train of thought on the topic: We noted for one thing that commodities always bottom out at a point in time when their fundamentals still look atrocious. This is simply due to the fact that prices will at some point have declined sufficiently to discount all the (by then widely known) negative factors.
For another thing, we have pointed out that the prices of commodities are ultimately not only determined by their specific supply-demand characteristics, but also by the money relation. For instance, no-one would seriously expect crude oil prices to revert back to their level of 1933 ($ 0.67 annual average), no matter how bad crude oil’s supply-demand fundamentals become. After all, since May of 1933, the Fed has managed to devalue the US dollar by nearly 95% (based on the government’s own dubious CPI statistics).
…click on the above link to read the rest of the article…
The Lowest Interest Rates in 5,000 Years…
The Lowest Interest Rates in 5,000 Years…
A Dangerous Spot
SANTORINI, Greece – “Gods were gods. Men were men,” explained our tour guide, Spiros.
“The ancient Greeks thought there was a difference. Men had to realize they weren’t gods. They couldn’t do the things gods could do. If they tried, it provoked a disaster. The gods got jealous and punished them.”
What has changed? There are still things humans can and can’t do. When men get too big for their britches, the gods still punish them. The disaster we were looking at had nothing to do with the hubris of mankind. The problem was geological.
Santorini – world improvers from Hollywood have apparently found housing there.
Photo via kiklamino.com
Having built their city over the fault line between the African and European tectonic plates, the ancient Cycladians were in a dangerous spot. Every few thousand years there were bound to be fireworks. As it turned out, trouble came – big time – in about 1650 B.C. The earth trembled. A huge volcano rose from the sea near Akrotiri and blew up.
The remains of Akrotiri, which was buried in a massive volcanic surprise eruption in 1640 BC.
Photo credit: Klearchos Kapoutsis
“The people had plenty of warning,” Spiros went on. “There are no human bones in the town. No one was killed by the eruption. They were a seafaring people. They were fishermen. They probably got in their boats and headed for Crete, which you can see from here on a clear day.
“These people were not Minoans, like the people of Crete. But they traded with one another and knew one another.”
More Akrotiri leftovers. Archaeologists love sites that have been buried in volcanic ash – usually a lot of stuff turns out to be preserved quite well.
Photo credit: Klearchos Kapoutsis
…click on the above link to read the rest of the article…
Legal Fictions and new Battlegrounds in the War on Cash
Legal Fictions and new Battlegrounds in the War on Cash
Greece – Ground Zero in the War on Cash?
We believe it was our friend Claudio Grass of Global Gold in Switzerland who first mentioned that the eurocracy may possibly have plans to use the Greek crisis as an opportunity to expand the ongoing war on cash. It stands to reason: Greece is well known for its extremely large “shadow economy” (the name for economic activity that flies under the radar of the greedy grasp of the State). Greece’s citizens not unreasonably regard the State as akin to a mafia organization which they are trying to avoid as much as possible (unless it promises them free goodies to buy their votes – they do of course gladly accept those).
We vividly recall an interview with a Greek shipping magnate about the constitutional provision that has relieved the country’s shipping industry from income tax. The interviewer asked (we are paraphrasing) whether the magnate thought it “fair” that this was so, and if he wasn’t troubled by his conscience in light of the Greek government debt crisis. The shipping magnate replied (again paraphrasing) along the lines of: “Just look at the government in Athens. They’re nothing but a bunch of crooks. Would you hand over your money voluntarily to Al Capone? Surely not. Well, neither do I.”
Not someone you want to hand your money to…
Photo credit: Bettmann / Corbis
A great many ordinary Greeks undoubtedly agree with the shipping magnate. They have a very cynical, but ultimately quite well-informed view of the political class and the State. The reason why the Greeks are way ahead of most other European citizens in this department is rooted in history. Greece had been under Ottoman occupation from the 15th century until 1821. The so-called millet system led to the Orthodox Christian Greek community remaining a fairly cohesive group. However, the Greeks certainly chafed under Ottoman rule.
…click on the above link to read the rest of the article…
Faith in Central Banks Dwindles
Faith in Central Banks Dwindles
Even Bloomberg Notices that Something is Amiss
As anyone who hasn’t been in a coma knows, assorted central bank interventions have failed to achieve their stated goals over the past several years. A recent article at Bloomberg focuses on their failure to reach their “inflation” targets.
Of course, this particular failure is actually reason to celebrate, as it means that consumers have at least been spared an even sharper decline in their real incomes than has been underway in spite of relatively tepid increases in consumer prices (whereby it should always be kept in mind that whether or not such price increases are considered “tepid” depends on on the composition of the basket of goods and services relevant to each individual).
Market-based inflation expectations in the major currency areas have crashed again – click to enlarge.
Of course central banks have succeeded in blowing up the money supply at truly astonishing rates since 2008, so prices in the economy have certainly been vastly distorted. The devastating effects of such price distortions are currently being visited on the oil patch, where credit-financed malinvestment on a stunning scale has occurred as a result of an erroneous appraisal of future oil prices. A slowdown in money supply growth in the US and China between 2011 and 2014 was all it took to take the wind out of the sails of this particular collective hallucination.
Inflating the euro alone wasn’t enough to keep oil prices afloat …
Illustration by David Simonds
To the delight of the financial industry, asset prices have been the main beneficiaries of money supply inflation, but deep down many market participants are presumably aware that the “wealth” ostensibly created by artificially pushing the prices of titles to capital to the stratosphere is just as ephemeral – it is ultimately nothing but phantom wealth. If everybody tried to cash in, it would disappear in a flash.
…click on the above link to read the rest of the article…
The Phrase that Initiates Recessions
The Phrase that Initiates Recessions
It Can’t Get Any Worse?
On Friday, shortly after the release of the payrolls report, we asked half in jest whether the time had finally come for the market to interpret bad news as bad news, and not as an opportunity to speculate on more central bank largesse. As someone remarked to us later: “You had to ask”.
Photo credit: Paul Cross
Apparently a slightly later released news item informing us that “factory orders hit the skids” was taken as a buy signal of the “it can’t get any worse” sort. Normally it is considered bullish when the market rises on ostensibly bad news – and very often, this is actually the correct interpretation of such market action. However, one must be careful when the fundamental backdrop is subject to severe deterioration. Readers may recall that commentary on the markets was brimming over with the same type of argument in late 2007 and early 2008. In October 2007, the market in its unending wisdom priced the shares of Fannie Mae at $73 for instance.
SPX, 10 minute chart – after initially sliding on Friday, the market quickly recovered and has rallied quite a bit since then – click to enlarge.
The point is this: Although as a trader one must always respect market action, especially in the short term, one must at the same time avoid to ascribe to the mass of market participants a degree of wisdom they simply don’t possess. The market very often “knows” nothing and frequently tends to get things completely wrong. If that were not so, there would never be any buying or selling opportunities, but plenty of those obviously exist.
The “Throwing of the Light Switch”
Anyway, over the weekend we caught up a little on our reading, and inter alia came across an article at Wolfstreeta friend had pointed out to us, which discusses the recent weakness in US manufacturing data.
…click on the above link to read the rest of the article…
EU Moloch in a Fresh Bid to Inflate
EU Moloch in a Fresh Bid to Inflate
Brussels Alters Capital Requirements to “Spur Lending”
Saints preserve us, the central planners in Brussels are giving birth to new inflationist ideas. Apparently the 2008 crisis wasn’t enough of a wake-up call. It should be clear by now even to the densest observers that a fractionally reserved banking system that flagrantly over-trades its capital is prone to collapse when the tide is going out. 2008 was really nothing but a brief reminder of this fact.
The political and bureaucratic classes will certainly never go back to sound money or free banking. The State’s paws will remain firmly embedded in the business of money, as the modern-day welfare/warfare states and the ever-growing hordes of cronies and zombies they have to keep well-fed have become utterly dependent on fiat money inflation. This will continue until the bitter end. New measures are now being designed to hasten its arrival.
Designed by Bjarke Ingels
Before we continue, ask yourself if the euro zone actually needs more monetary inflation – even from the perspective of those who erroneously believe inflation to be an economic panacea:
The euro area’s money supply over time. We are on purpose using the narrow aggregate M1, which is the closest approximation to money TMS. The broader aggregates include items that are actually not money, but credit transactions. This leads to double-counting. Money= the means of final payment for goods and services in the economy, chart via ECB – click to enlarge.
It is fair to say that this expansion of the money supply hasn’t made society at large any more prosperous; quite the contrary in fact. It has however been beneficial to the State and others with first dibs on newly created money, as real wealth has been redistributed to these privileged groups.
…click on the above link to read the rest of the article…
Here Come the Money Helicopters!
Here Come the Money Helicopters!
$10 Trillion Goes to Money Heaven
We interrupt our series on what to do if you have no money to bring you an update on those who are losing it. (You can catch up on Parts I and II of that series here and here.)
What was the best place for your money so far in 2015? Cash! Compared to cash, almost everything is down. We are headed for the worst quarter for stocks since 2011, says the lead story in today’s Financial Times.
Global stock markets have lost $10 trillion of their value over the last three months. What? Where did all that paper wealth go? The old-timers say it went to “money heaven.”
One fine morning in money heaven….will it ever rain down again? Of course, no money has actually disappeared. Only make-believe values have. Image credit: Salvatore Vuono
We’re not so sure. But we stop. We stare. We look at it as we would at a corpse. What happened to its life force? Where did it go? Why is it no longer there? We have no answer. But looking at a stock market sell-off is like standing over an open coffin: We are in awe at the power of the gods to take as well as to give.
They ask no one’s permission. They follow their own playbook (which they never reveal to mortals). And they are as much a law unto themselves as the NSA. But what’s $10 trillion that never actually existed anyway? Easy come, easy go, right?
Well… yes… and no. It’s usually a pleasure to welcome a baby, but a funeral can be painful. And every one of those dollars – now headed for heaven or hell – will be missed by someone.
…click on the above link to read the rest of the article…
The Baby Boomer Survival Guide (Part II)
The Baby Boomer Survival Guide (Part II)
A Lehman Moment for Commodities?
LONDON – Today, we continue our philosophical look at what you should do if you are running out of time and money. (You can catch up on Part I here.)
Where do we begin? With how to add wealth? Or how to lose it? The way to lose it is simple. You buy something that is not worth the money you paid for it. You are instantly poorer, whether you know it or not.
The pleasingly plump.
Illustration by jdeer69
DJIA, daily – still unsettled – click to enlarge.
That is what is happening today to stock market investors. The stocks they bought were not worth the money; now Mr. Market is letting them know. On Monday, the Dow dropped almost 2% to 16,002 points. Next stop: 15,000.
“It’s a bear market,” says Jim Cramer. It will be a “bloodbath,” says billionaire investor Carl Icahn. We don’t know. But our guess is that 10 years from now your stocks will be worth no more than they are today.
The biggest losers on Monday were in the commodities and biotech sectors. Well, Glencore – one of the world’s largest resource companies – is one of the companies not buying them.
Glencore shares have lost 75% of their value so far this year. If commodities prices stay at these low levels, it could be worth nothing by the end of the year. Glencore could be headed the way of Lehman Brothers…
Glencore, daily. On Tuesday the stock recovered a bit, after Glencore tried to refute speculation about its imminent demise with a press release “responding to speculation”… click to enlarge.
Biotechs dragged the Nasdaq down yesterday. But the sector is still up more than 425% since 2009. Plenty of room left on the downside, in other words. Icahn, by the way, seems to have signed on as an advisor to Donald Trump. This is a good thing. The presidential hopeful needs advice.
…click on the above link to read the rest of the article…
The Baby Boomer Survival Guide (Part I)
The Baby Boomer Survival Guide (Part I)
The Yellow Machines Go Silent
PARIS – What should you do if you are running out of time and money? This is the question we get from readers over 50… over 60… and sometimes over 70.
We baby boomers were famously “na… na… na… live for today.” Now, it’s tomorrow. And many of us – often through no fault of our own – are having trouble making ends meet.
At the Diary, we write about the world of money. About economic policy and how it affects you. But what if, in your world of money, you are running short? What should you do to get more? Check under the seat cushions? Rob a bank?
We’ll come back to this question in a few moments. First, let’s take a look at the big picture.
It appears that the world economy is headed for recession. An economy makes and takes. Whatever you make – whether it is an apartment building or a plastic toy – you have to begin by taking dirt out of the ground.
Caterpillar-made fleet of mining trucks
Photo credit: Caterpillar
You need to dig a hole before you can put up a building… or even make a parking lot. And you need to scrape up raw materials – copper, iron, oil, etc. – before you can make anything at all.
This requires machines. Yellow machines. When economic activity goes down… so do sales of these machines. Yellow machines move dirt. They are used in construction, mining, and every sort of resource industry. We’re talking about backhoes… tractors… forklifts… excavators… bulldozers… and loaders.
Ominously, demand for these machines – along with the stuff they move – is collapsing. Two of the biggest suppliers are Caterpillar in the U.S. and JCB in Britain. Both report catastrophic drops in sales.
Caterpillar says its sales have fallen three years in a row. And it expects a fall of another 5% next year. This marks the first time in its 90-year history that sales have fallen four years straight.
CAT’s worldwide sales have been declining for quite some time (via Zerohedge) – click to enlarge.
…click on the above link to read the rest of the article…
A Prediction: Gold and Gold-Silver Ratio Up, Stocks Down
A Prediction: Gold and Gold-Silver Ratio Up, Stocks Down
A Trend Change may be in the Works
The price of gold moved up moderately, and the price of silver moved down a few cents last week. However, there were some interesting fireworks in the middle of the week. Tuesday, the prices dropped and Thursday the prices of the metals popped $23 and $0.34 respectively.
Everyone can judge the sentiment prevailing in gold and silver articles for themselves, but we think there is a growing feeling of optimism (that is a renewed fall in the dollar, which most think is a rise in gold). This goes along with a sense that the long bull run in the stock market is rolling over.
Gravity… ever since Einstein invented it, stocks occasionally go down
We are inclined to agree that the stock market may be overdue for its appointment with gravity. This is not a good business climate, and we sure don’t see where earnings growth could come from. At the same time, we see lots of forces that could cause margin compression, not to mention rising default risk in many disparate places (e.g. shale oil bonds). We are not stock market prognosticators, so treat this as nothing more than a feeling.
Gold market participants may be expecting the price of gold to move up if the stock market moves down. This would be a continuation of the pattern of the last several years, with the prices moving opposite to each other. We are inclined to agree with this. That said, to shamelessly borrow a phrase from the London Underground (we’re currently visiting London), please mind the gap between the theory and the data.
For an updated picture of the only true supply and demand data read on…
Last Week’s Market Data
First, here is the graph of the metals’ prices.
The prices of gold and silver – click to enlarge.
…click on the above link to read the rest of the article…
Abe Reaches his Militarist Goal
Abe Reaches his Militarist Goal
Japan’s House of Councilors Briefly Transforms into Rada Outpost
Pictures such as those below used to primarily reach us from Ukraine’s Rada, back before Poroshenko’s “lustration law” banned about four million Ukrainian citizens from the political process forever. In Ukraine, brawls regularly broke out between Western Ukrainian nationalists and representatives of Eastern Ukrainian ethnic Russians.
Last week we received similar imagery from the upper house of Japan’s Diet, a.k.a. the House of Councilors.
A brawl breaks out in the usually quite reserved upper house of Japan’s Diet
Photo credit: Toru Hanai / Reuters
A few close-ups:
Alain Delonakawa dishes out an an uppercut
Photo credit: Yuya Shino / Reuters
Take that you bastard! Lawmakers are piling on in scrum-fashion
Photo credit: Yuya Shino / Reuters
So what has happened? Why are Japan’s notoriously consensus-prone and bushido-inhibited lawmakers suddenly trading fisticuffs and one presumes, matching verbal insults?
Dulce et Decorum est pro Patria Mori?
As our long-time readers know, we have posted a portrait of Japan’s nationalist-socialist prime minister Shinzo Abe a while back, entitled “Shinzo Abe’s True Agenda”. In brief: “fixing” Japan’s economy with even more inflation and deficit spending is only a side-show for Abe. He is convinced that he has a quasi-divine mission to bring Japan back to its glorious militaristic past. In this, he appears to be influenced by the philosophy of his grandfather Nobusuke Kichi, who actually served as a minister in Japan’s war cabinet during WW2 and became prime minister in the late 1950s.
