Did Barron's Just Kill The American "Self-Sustaining Recovery" Dream?

The curse of the over-bearish (or over-bullish) magazine cover is well known. Of course, the media will only cherry-pick the “lows” as an indication that it’s time to buy; as opposed to the exuberance-exhibiting article writers and their glaring headlines. To wit, this week’s Barron’s cover proclaims “GOOD NEWS – The US economy could grow this year at 4%… Forget the snow, consumers and businesses are ready to spend.” Hhmm, it seems that Barron’s forgot to look at the data…

 

The propaganda…

 

The reality (hope is fading fast and even the optimistic out-months aren’t anywhere near 4%!!)

 

Simply put – the mal-investment-driven inventory-build (that among others, automakers are buried under) is coming back to bite – as Rick Santelli so eloquently noted

Simply put, that is not the kind of “growth” and “consumption” needed to cover the massive inventory build
and so once again – thanks to Federal Reserve intervention – managers
have been ‘fooled’ into believing in the future sustainability, have mal-invested, and next comes another stagnation (and the cyclical downturn that we noted here).

 

 

 

 

h/t Bloomberg and @Not_Jim_Cramer


    



via Zero Hedge http://ift.tt/1glWtEy Tyler Durden

Man Breaks Into Police Station, Beats Up Cops

It’s not that the US has a scarcity of bizarre everyday stories – it does not. It is just that sometimes you encounter something so surreal, warped and ridiculous, that even the stock “market” makes sense by comparison. Such as this.

From WNEP of Scranton.

A man is locked up in Luzerne County after breaking into city hall in Pittston. Police said Max Deangelo of Blakeslee smashed one of the glass doors to get into city hall. The Pittston Police Department is also located in the building.

 

Deangelo is also accused of kicking officers in the chest and face as they tried to arrest him. Deangelo and an officer were taken to the hospital for treatment.

 

Investigators have not said why Deangelo broke into the building.

 

Police said he is charged with burglary, aggravated assault, and more charges.

 

And now, back to the regularly scheduled, televised recovery.


    



via Zero Hedge http://ift.tt/1byQQUg Tyler Durden

Guest Post: The Merger Of State And Commerce

Submitted by Stephen Merrill, editor of the Alaska Freedom News. He served in the Navy Judge Advocate General’s Corps and as a Navy Reserve Intelligence Officer

The Merger of State and Commerce

The Leviathan’s Thumb

Many observers of the US economy have come to the realization there are now few truly free markets left within 21st Century Western capitalism. 

It seems all investments today are controlled to unfair advantage in some large way by the governments and financial firms operating the markets, especially the market in money itself.  The newly-invented powers of the central banks to buy anything, to fund any bailout, can reach into any area of the economy, either to grant large favors or to inflict great pain, typically with the cooperation of the too-big-to-jail banks that own the Federal Reserve and its policies.

The precious metals market is a good example of the Fed and its henchmen inflicting pain.  The Western paper gold market has been the long-used tool of Leviathan to bludgeon the world’s only true money.

In one of the Fed’s generous ways the second US housing bubble has been inflated from a river of counterfeit money and a wet-blanket of negative interest rates.  The QE Forever giveaway to the Fed’s banker friends through buying toxic mortgages at full price charges on.

A Swinging Pendulum

It is nothing at all new for a nation to defy the basic economic principle that allows for ever increasing wealth benefiting all layers of society.  In a word it is liberty. 

The underlying concepts of capitalism were best set out by British author Adam Smith.  Smith postulated it is the magic of the invisible hand of a free market that best distributes economic resources and best energizes the people and industry and innovation.   Smith’s signature work The Wealth of Nations was written well over two hundred years ago. 

The magic of Smith’s free market proved to be the model for the first sustained, rapid economic growth in global history, since at least the early Roman Empire.  It seems, whatever its academic merit in Ivy League halls, general economic liberty has clearly proven to be the best way to serve all society, given how humans themselves are created, as individuals each seeking a good life and secure family.

European medieval economics between the Romans and  the 18th Century Industrial Revolution showed how the vulture practices of monarchs and nobility eliminated even the hope for economic growth or of ever fostering a middle-class, while stifling innovation at every turn.  The private institutions empowered by law in that time were the lesser nobility and the Catholic Church.

With the Enlightenment period led by writers like Adam Smith, John Locke and Edmund Burke, the grip of elitism in commerce in Britain and France and beyond began to be replaced by private enterprise and capital quite completely.   Individual rewards for productivity and innovation and risk-taking became the driving force for economic decision-making, no longer centered on the whim of the lord or his knights as things have largely returned to in today’s fascist economy.   It was the belief in bottom-up capitalism in its rawest form. 

The Europeans had suddenly become a juggernaut of innovation and growth after many centuries of stagnation.  The United States later in the cycle became the signal success of free-market capitalism.

In the wake of this revolution in society, the 19th Century saw the fastest economic growth in human history, all fueled by economic liberty.  For the first time a large prosperous middle-class of workers came into existence in many countries, no longer just the rulers lording over the peasants. 

The same economic revolution is happening across most of Asia during our 20th and 21st Centuries.  Just one example, tiny city-state Singapore has proven once again the amazing achievements for all citizens from unbridled capitalism.  Singapore has risen from post-WWII devastation to the top of the world economic ladder without ever asking for or accepting foreign aid from any nation.  Singapore is the heir of Ancient Athens, the first free city, the founder of monetary silver.

Adam Smith’s Lassie Faire capitalism has become though the ancient, barbaric relic in our modern fiat money Western world economy, especially in America.  No living American has experienced an economic system that can be fairly described as general capitalism. 

The US has now what is called a “mixed economy” involving many “public-private partnerships” and “professional self-regulation” and “social programs”.  These are modern phrases that explain the slow return to feudal ways.

Monopolies of political power or of markets yield huge profits for the few over generations without much having to change a thing.  Monopoly power is a distant mirror of feudal nobility.  It operates in both the public and the private sector and so often in direct combination with each other.  Power not only corrupts: power wins, power stagnates, power destroys.

The Money-Changers Above the Law

Then there are the market traders in a fiat, debt-fueled world.

Whenever free markets can be conned, fixed or disrupted there is a lot of money to be made in the process. There always has been short-term gain for those insiders who manage to fleece the public by harming the secure, uninterrupted flow of goods and services and finance and information. 

Most economic transactions, at their base, rely on a large element of trust.  Deceit punishes trust to self-advantage.  Deceit harms the economic market itself, beyond the impact of the con-jobs in play.  A marketplace chocked with deceit is a fraud itself, the absence of the rule of law.  Only the law can fully deal with deceit in order to allow a free marketplace to even exist. 

The more hidden processes used by modern bankers and traders to obtain unearned wealth is little different in its societal effects than robbing a convenience store is, or robbing hundreds of thousands of convenience stores actually, given the numbers typically involved in white collar crime at the highest levels.

The counterfeiting of the private-public central banks, that strangles the middle class to further enrich the wealthy, is daily theft on the grandest scale.  Counterfeiting by central banks now affects almost every investment decision. 

In the end, it is little different than the peasants always giving a one-third share of their crops to the royal duke just because the King says so.

The Rule of the Cartels on Main Street

This collectivist syndrome in the United States is far from limited to the Congress-buying Wall Street cartel and the subject of finance.  The same general form of corruption permeates an increasing number of professions and businesses.  Even tattoo artists and legal process servers have earned their guild status by law in many states, hoping to, like others do, choke off low-price competition in their field.

The national health-care industry seems to have become almost a single cartel empowered by federal spending.  The Obamacare spending bonanza is designed to pay off every big healthcare interest in sight and the health-insurance industry to boot.

The provision of education in the United States has long been the fiefdom of rigged markets and systems. 

The socialism model rules primary and secondary education almost alone.  Even 40-years of abject failure in effectively educating students has failed to dent the nationwide taxpayer spending spree for this state-imposed monopoly rule in the most crucial work there is for society.  Alaskans today pay over $18,000 per student for K-12 education.  Test scores are well below those of students from some third-world countries.

A mix of public and private institutions rule US higher education as a single-minded oligarchy.  This cartel is primarily empowered by federal spending in the form of student loans.  The younger generations are saddled now with a trillion dollar in debt to repay college tuition and fees that no longer deliver a good job.

The lawyer guild has controlled its market for professional services in every state in the union for generations.  Market-fixing remains one of the central goals of bar association rules:  ditto for the physician guild.

Part private business organization, part government institution, part professional guild, part bank regulator, entirely self-interested, the creature from Jekyll Island, the Federal Reserve, has become the go to mechanism for replacing free markets with aristocratic privilege.  He who issues the money controls the nation the phrase goes.

The Unifying Force

But the ultimate overarching rigged system in the US is the effective monopoly by two private political cartels sharing the same basic agenda, the Democratic Party and the Republican Party.  As a consequence of these two faces of modern fascism, the nation and its liberty has been for sale for more than two generations now.

This welfare-warfare party, one bent on ever expanding centralized power, has owned the Congress and most of the Presidents going back to WWI and the founding of the Federal Reserve.  The success in keeping the “two-party system” in place has had far more to do with the special privileges granted by law to Democratic and Republican candidates than to any good reason for a lack of meaningful political competition.

What is the fundamental error of governance made in all of this modern injustice? 

It is the practice of the government surrendering open elections and free markets to officially anointed regulatory systems that then form an unchallengeable oligopoly within their bailiwick.  

In the case of public regulation rather than a guild system, the regulated industry invariably become the effective master of the industry regulators, like Democrats and Republicans have for instance in US politics.  Within any regulated business, the temptation of well-heeled collegiality from industry always wins over government regulators eventually or, more often, the people that appoint the regulators. 

With professional guilds in power its officials take over entirely for the government in controlling the business and its participants.  Professional guilds as a rule disconnect their own disciplinary code and market-rigging from the courts as much as possible, the place where everyone else is required to go for such matters.

Self-regulation for a profession invariably becomes mostly a program for less competition for guild members.  It freezes the present elite in their power and position, a never ending goal of humanity it seems.

In a wider sense, the officially anointed protector of the public safety, whether it is the state bureaucrat or a private guild official, over time becomes an enabler of reduced accountability for wrongdoing, a way to keep standards low for the industry or service by locking out competition and even the law, to the extent possible.

The US economy has regressed to feudal ways like these in such force that a variety of private guilds, cartels, unions and oligopolies exercise, officially or in practice, many of the powers of government itself, especially those powers assumed by but never granted by a constitution to the government.  It has all become a part of the “the law”.

The Revolution Looms Anew

Today’s economic model was best summed up by dictator Benito Mussolini in one short sentence: “Fascism … is the perfect merger of power between the corporations and the state”. 

But tyranny also has its life-cycle within the balance between the past and the future.  Once the past becomes far too much of a millstone for the future generations to carry any longer, governments fall and debt and servitude recede. 

Empires can fall largely without violence and allow a new, freer system to emerge, as most of the satellite states of the Soviet Union achieved.   Or the legacy of fallen empire becomes violent chaos followed by renewed oppression, like the French Revolution.

This bottom-up style revolution is happening to nations across our 21st Century.  The future lies in the balance.  The bell tolls for all Western nations, too.

So, in the United States, it seems, liberty will have its chance again before too long.


    



via Zero Hedge http://ift.tt/1jmMFKB Tyler Durden

US Organized Labor Humiliated After Volkswagen’s Tennessee Workers Vote Against Unionizing

While US organized labor has been in a state of steady decline for several generations, never had it suffered as crushing a blow as it did last night, when in a 712 to 626 vote, Volkswagen’s hourly workers in Chattanooga, TN, rejected joining the United Auto Workers labor union. What makes the defeat even more bitter is that a win would have marked the first time the union has been able to organize a foreign-owned auto plant in a Southern U.S. state, and would have been particularly meaningful, because the vote was set in a right-to-work state in the South, where anti-union sentiment is strong and all past UAW organizing drives at automobile plants have failed. What is most shocking, however, is that the defeat came even though the UAW had the cooperation of Volkswagen management and the aid of Germany’s powerful IG Metall union, and yet it still failed to win a majority among the plants 1,550 hourly workers.  As the WSJ notes, “the defeat raises questions about the future of a union that for years has suffered from declining membership and influence, and almost certainly leaves its president, Bob King, who had vowed to organize at least one foreign auto maker by the time he retires in June, with a tarnished legacy.”

Frank Fischer, the chairman and CEO of the Volkswagen plant in
Tennessee, left, and Gary Casteel, a regional director for the UAW
hold a press conference at the Chattanooga, Tenn., facility on Feb. 14. AP

“If the union can’t win [in Chattanooga], it can’t win anywhere,” said Steve Silvia, a economics and trade professor at American University who has studied labor unions.

Under an agreement the UAW has with Volkswagen, it now must cease all organizing efforts aimed at the Chattanooga plant for at least a year.

And while the UAW could not blame the company, it still found a scapegoat: “The UAW said that “outside interference” affected the outcome of the vote. “Unfortunately, politically motivated third parties threatened the economic future of this facility and the opportunity for workers to create a successful operating model that that would grow jobs in Tennessee,” Gary Casteel, the union official in charge of the VW campaign, said in a statement.”

Then again, it’s not as if the workers did not know what they had to lose:

The Chattanooga workers had been courted steadily for nearly two years by both the UAW and the IG Metall union, which pushed Volkswagen management to open talks with the UAW and to refrain from trying to dissuade American workers from union representation.

 

Mr. King made forging alliances with overseas unions the centerpiece of his strategy after he was elected in 2010. The union now must come up with a way to halt its decline. It once represented 1.5 million workers, but now has about 400,000, and diminished influence, as a result of years of downsizing, layoffs and cutbacks by the three Detroit auto makers General Motors Co., Ford Motor Co. F +1.06% and Chrysler Group.

So even with the stakes all too clear, the workers themselves voted against union representation: a step which many consider may be the beginning of the end for once all too powerful unions.

“The union needs new members. They have to organize the transplants or they don’t have much of a future,” said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich.

 

The election was also extraordinary because Volkswagen choose to cooperate closely with the UAW. Volkswagen allowed UAW organizers to campaign inside the factory—a step rarely seen in this or other industries.

 

This is like an alternate universe where everything is turned upside down,” said Cliff Hammond, a labor lawyer at Nemeth Law PC in Detroit, who represents management clients but previously worked at the Service Employees International Union. “Usually, companies fight” union drives, he added.

Or maybe this time even the workers decided to give efficient labor supply and demand a chance? It certainly wouldn’t be the first time when workers have realized that there is more downside than upside to joining a labor union:

The union’s loss adds to a long list of defeats for organized labor in recent years. States like Wisconsin enacted laws that cut the power of public-employee unions, and other states, including Michigan, home of the UAW, adopted right-to-work laws that allow workers to opt out of union membership if they choose.

Than again, instead of political influence, the primary reason for the huge disappointment was the union’s own internal strife and political bickering as it seeks to remain relevant in a divided world in which labor representation is increasingly equated to political affiliation.

More workers were persuaded to vote against the union by the UAW’s past of bitter battles with management, costly labor contracts and complex work rules. “If the union comes in, we’ll have a divided work force,” said Cheryl Hawkins, 44, an assembly line worker with three sons. “It will ruin what we have.”

 

Other UAW opponents said they dislike the union’s support of politicians who back causes like abortion rights and gun control that rub against the conservative bent of Southern states like Tennessee. Still others objected to paying dues to a union from Detroit that is aligned with Volkswagen competitors like GM and Ford.

 

“I just don’t trust them,” said Danielle Brunner, 23, who has worked at the plant for nearly three years and makes about $20 an hour—about $5 an hour more than new hires at GM, Ford and Chrysler plants.

 

The no-UAW vote raises questions on how the union proceeds now in separate efforts to organize other foreign-owned plants in the South, and whether international cooperation can provide any additional leverage for labor unions.

 

The UAW’s alliance with IG Metall was forged over the last several years by Mr. King, who traveled to Germany, Japan, Brazil and South Korea in hopes of getting unions around the world to combine forces.

No matter the long-term future of labor unions, one thing is certain: yesterday’s defeat will make the UAW’s role and leverage in US manufacturing even weaker, and in turn – lead to some very big question marks about the future of organized labor.

The UAW’s loss in Chattanooga also seems likely to complicate contract talks it will have with the Detroit auto makers in 2015. Right now, GM, Ford and Chrysler pay veteran workers about $28 an hour, and new hires about $15 an hour, and the UAW wants to narrow that gap.

 

But without the ability to push wages higher at foreign-owned car plants, the UAW is likely to have little leverage in Detroit, said Kristin Dziczek, director of the Labor & Industry Group at the Center for Automotive Research in Ann Arbor, Mich.

 

“They have to organize at least one of the international auto makers in order to attempt to regain bargaining power with the Detroit Three,” she added.

The one sure winner from last night’s outcome: corporations, who will be delighted to know that they can take advantage of the ongoing US depression and pay appropriate wages in an economy filled with labor (and demand) slack, and instead of spending more on wages, hiring and capital expansion, can continue doing more of the kind of “capital allocation” that has sent the S&P to all time highs: stock buybacks.


    



via Zero Hedge http://ift.tt/1jmlT4U Tyler Durden

US Organized Labor Humiliated After Volkswagen's Tennessee Workers Vote Against Unionizing

While US organized labor has been in a state of steady decline for several generations, never had it suffered as crushing a blow as it did last night, when in a 712 to 626 vote, Volkswagen’s hourly workers in Chattanooga, TN, rejected joining the United Auto Workers labor union. What makes the defeat even more bitter is that a win would have marked the first time the union has been able to organize a foreign-owned auto plant in a Southern U.S. state, and would have been particularly meaningful, because the vote was set in a right-to-work state in the South, where anti-union sentiment is strong and all past UAW organizing drives at automobile plants have failed. What is most shocking, however, is that the defeat came even though the UAW had the cooperation of Volkswagen management and the aid of Germany’s powerful IG Metall union, and yet it still failed to win a majority among the plants 1,550 hourly workers.  As the WSJ notes, “the defeat raises questions about the future of a union that for years has suffered from declining membership and influence, and almost certainly leaves its president, Bob King, who had vowed to organize at least one foreign auto maker by the time he retires in June, with a tarnished legacy.”

Frank Fischer, the chairman and CEO of the Volkswagen plant in
Tennessee, left, and Gary Casteel, a regional director for the UAW
hold a press conference at the Chattanooga, Tenn., facility on Feb. 14. AP

“If the union can’t win [in Chattanooga], it can’t win anywhere,” said Steve Silvia, a economics and trade professor at American University who has studied labor unions.

Under an agreement the UAW has with Volkswagen, it now must cease all organizing efforts aimed at the Chattanooga plant for at least a year.

And while the UAW could not blame the company, it still found a scapegoat: “The UAW said that “outside interference” affected the outcome of the vote. “Unfortunately, politically motivated third parties threatened the economic future of this facility and the opportunity for workers to create a successful operating model that that would grow jobs in Tennessee,” Gary Casteel, the union official in charge of the VW campaign, said in a statement.”

Then again, it’s not as if the workers did not know what they had to lose:

The Chattanooga workers had been courted steadily for nearly two years by both the UAW and the IG Metall union, which pushed Volkswagen management to open talks with the UAW and to refrain from trying to dissuade American workers from union representation.

 

Mr. King made forging alliances with overseas unions the centerpiece of his strategy after he was elected in 2010. The union now must come up with a way to halt its decline. It once represented 1.5 million workers, but now has about 400,000, and diminished influence, as a result of years of downsizing, layoffs and cutbacks by the three Detroit auto makers General Motors Co., Ford Motor Co. F +1.06% and Chrysler Group.

So even with the stakes all too clear, the workers themselves voted against union representation: a step which many consider may be the beginning of the end for once all too powerful unions.

“The union needs new members. They have to organize the transplants or they don’t have much of a future,” said Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, Mich.

 

The election was also extraordinary because Volkswagen choose to cooperate closely with the UAW. Volkswagen allowed UAW organizers to campaign inside the factory—a step rarely seen in this or other industries.

 

This is like an alternate universe where everything is turned upside down,” said Cliff Hammond, a labor lawyer at Nemeth Law PC in Detroit, who represents management clients but previously worked at the Service Employees International Union. “Usually, companies fight” union drives, he added.

Or maybe this time even the workers decided to give efficient labor supply and demand a chance? It certainly wouldn’t be the first time when workers have realized that there is more downside than upside to joining a labor union:

The union’s loss adds to a long list of defeats for organized labor in recent years. States like Wisconsin enacted laws that cut the power of public-employee unions, and other states, including Michigan, home of the UAW, adopted right-to-work laws that allow workers to opt out of union membership if they choose.

Than again, instead of political influence, the primary reason for the huge disappointment was the union’s own internal strife and political bickering as it seeks to remain relevant in a divided world in which labor representation is increasingly equated to political affiliation.

More workers were persuaded to vote against the union by the UAW’s past of bitter battles with management, costly labor contracts and complex work rules. “If the union comes in, we’ll have a divided work force,” said Cheryl Hawkins, 44, an assembly line worker with three sons. “It will ruin what we have.”

 

Other UAW opponents said they dislike the union’s support of politicians who back causes like abortion rights and gun control that rub against the conservative bent of Southern states like Tennessee. Still others objected to paying dues to a union from Detroit that is aligned with Volkswagen competitors like GM and Ford.

 

“I just don’t trust them,” said Danielle Brunner, 23, who has worked at the plant for nearly three years and makes about $20 an hour—about $5 an hour more than new hires at GM, Ford and Chrysler plants.

 

The no-UAW vote raises questions on how the union proceeds now in separate efforts to organize other foreign-owned plants in the South, and whether international cooperation can provide any additional leverage for labor unions.

 

The UAW’s alliance with IG Metall was forged over the last several years by Mr. King, who traveled to Germany, Japan, Brazil and South Korea in hopes of getting unions around the world to combine forces.

No matter the long-term future of labor unions, one thing is certain: yesterday’s defeat will make the UAW’s role and leverage in US manufacturing even weaker, and in turn – lead to some very big question marks about the future of organized labor.

The UAW’s loss in Chattanooga also seems likely to complicate contract talks it will have with the Detroit auto makers in 2015. Right now, GM, Ford and Chrysler pay veteran workers about $28 an hour, and new hires about $15 an hour, and the UAW wants to narrow that gap.

 

But without the ability to push wages higher at foreign-owned car plants, the UAW is likely to have little leverage in Detroit, said Kristin Dziczek, director of the Labor & Industry Group at the Center for Automotive Research in Ann Arbor, Mich.

 

“They have to organize at least one of the international auto makers in order to attempt to regain bargaining power with the Detroit Three,” she added.

The one sure winner from last night’s outcome: corporations, who will be delighted to know that they can take advantage of the ongoing US depression and pay appropriate wages in an economy filled with labor (and demand) slack, and instead of spending
more on wages, hiring and capital expansion, can continue doing more of the kind of “capital allocation” that has sent the S&P to all time highs: stock buybacks.


    



via Zero Hedge http://ift.tt/1jmlT4U Tyler Durden

James Turk: Erosion of Trust Will Drive Gold Higher

Submitted by Casey Research

James Turk: Erosion of Trust Will Drive Gold Higher

James Turk, founder of precious metals accumulation pioneer GoldMoney, has over 40 years’ experience in international banking, finance, and investments. He began his career at the Chase Manhattan Bank and in 1983 was appointed manager of the commodity department of the Abu Dhabi Investment Authority.

In his new book The Money Bubble: What to Do Before It Pops, James and coauthor John Rubino warn that history is about to repeat. Instead of addressing the causes of the 2008 financial crisis, the world’s governments have continued along the same path. Another—even bigger—crisis is coming, and this one, say the authors, will change everything.

One central tenet of your book is that the dollar’s international importance has peaked and is now declining. What will the implications be if the dollar loses its reserve status?

In a word, momentous. Although the dollar’s role in world trade has been declining in recent years while the euro and more recently the Chinese yuan have been gaining share, the dollar remains the world’s dominant currency. So crude oil and many other goods and services are priced in dollars. If goods and services begin being priced in other currencies, the demand for the dollar falls.

Supply and demand determine the value of everything, including money. So a declining demand for the dollar means its purchasing power will fall, assuming its supply remains unchanged. But a constant supply of dollars is an implausible assumption given that the Federal Reserve is constantly expanding the quantity of dollars through various forms of “money printing.” So as the dollar’s reserve status erodes, its purchasing power will decline too, adding to the inflationary pressures already building up within the system from the Federal Reserve’s quantitative easing program that began after the 2008 financial collapse.

Most governments of the world are fighting a currency war, trying to devalue their currencies to gain a competitive advantage over one another. You predict that China will “win” this currency war (to the extent there is a winner). What is China doing right that other countries aren’t? How would the investment world change if China did “win”?

As you say, nobody really wins a currency war. All currencies are debased when the war ends. What’s important is what happens then. Countries reestablish their currency in a sound way, and that means rebuilding on a base of gold. So the winner of a currency war is the country that ends up with the most gold.

For the past decade, gold has been flowing to China—both newly mined gold as well as from existing stocks. But that flow from West to East has accelerated over the past year, and there are unofficial estimates that China now has the world’s third-largest gold reserve.

The implications for the investment world as well as the global monetary system are profound. Why should China use dollars to pay for its imports of crude oil from the Middle East? What if Saudi Arabia and other exporters are willing to price their product and get paid in Chinese yuan? Venezuela is already doing that, so it is not a far-fetched notion that other oil exporters will too. China is a huge importer of crude oil, and its energy needs are likely to grow. So it is becoming a dominant player in global oil trading as the US imports less oil because of the surge in its own domestic fossil fuel production.

Changes in the way oil is traded represent only one potential impact on the investment world, but it indicates what may lie ahead as the value of the dollar continues to erode and gold flows from West to East. So if China ends up with the most gold, it could emerge as the dominant player in global investments and markets. It already has become the dominant player in the market for physical gold.

You draw a distinction between “financial” and “tangible” assets, noting that we go through a recurring cycle where each falls in and out of favor. Where are we in that cycle? With US stocks at all-time highs and gold down over 30% since the summer of 2011, is it possible that the cycle is rolling over?

Our monetary system suffers recurring booms and busts because of the fractional reserve practice of banks, which allows them to create money “out of thin air,” as the saying goes. During booms—all of which are caused by too much money that banks have created by expanding credit—financial assets outperform, but they eventually become overvalued relative to tangible assets. The cycle then reverses. The fractional reserve system goes into reverse and credit contracts, causing a lot of promises made during the good times to be broken. Loans don’t get repaid, unnerving bankers and investors alike. So money flees out of financial assets and the counterparty risk these assets entail, and into the safety of tangible assets, until eventually tangible assets become overvalued, and the cycle reverses again.

So for example, the boom in financial assets that ended in 1967 led to a reversal in the cycle until tangible assets became overvalued in 1981. The cycle reversed again, and financial assets boomed until the popping of the dot-com bubble in 2000. We are still in the cycle favoring tangible assets, but there is no way to predict when it will end. We know it will end when tangible assets become overvalued, but as John and I explain in The Money Bubble, we are not even close to that moment yet.

You cite the “shrinking trust horizon” as one of the long-term factors that will drive gold higher. Can you explain?

Yes, this is an important point that we make. Our economy, and indeed, our society, is based on trust. We expect the bread we buy from a baker or the gasoline we buy for our car to be reliable. We expect our money on deposit in a bank to be safe. But if we find the baker is putting sawdust in our bread and governments are using depositor money to bail out banks, as happened in Cyprus last year, trust begins to erode.

An erosion of trust means that people are less willing to accept the counterparty risk that comes with financial assets, so the erosion of trust occurs during financial busts. People as a consequence move their wealth into tangible assets, be it investments in tangible things like farmland, oil wells, or mines, or in tangible forms of money, which of course means gold.

Obviously, gold has been in a painful slump since the summer of 2011. What near-term catalysts—let’s say in 2014—could wake it from its slumber?

We have to put 2013 into perspective, because portfolio management is a marathon, not a 100-meter sprint. Gold had risen 12 years in a row prior to last year’s price decline. And even after last year, gold has appreciated 13% per annum on average, making it one of the world’s best-performing asset classes since the current financial bust began with the popping of the dot-com bubble.

Looking to the year ahead, there are many potential catalysts, but it is impossible to predict which event will be the trigger. The derivatives time bomb? Failure of a big bank? The sovereign debt crisis returns to the boil? The Japanese yen collapses? It could be any of these or something we can’t even imagine. But one thing is certain: as long as central banks continue their present money-printing ways, the price of gold will rise over time to reflect the debasement of national currencies. The gold price might not jump to its fair value immediately because of government intervention, but it will rise eventually and inevitably.

So the most important thing to keep in mind is the money printing that pretty much every central bank around the world is doing. The central bankers have given it a fancy name—”quantitative easing.” But regardless of what it is called, it is still creating money out of thin air, which debases the currency that central bankers are supposed to be prudently managing to preserve the currency’s purchasing power.

Money printing does the exact opposite; it destroys purchasing power, and the gold price in terms of that currency rises as a consequence. The gold price is a barometer of how well—or perhaps more to the point, how poorly—central bankers are doing their job.

Governments have been debasing currencies since the Roman denarius. Why do you expect the consequences of this particular era of debasement to be so severe?

Yes, they have, and to use Rome as the example, its empire collapsed when the currency was debased. Worryingly, after the collapse of the Roman Empire, the world went into the so-called Dark Ages. Countries grow and prosper on sound money. They dissipate and eventually collapse when money becomes unsound. This pattern recurs throughout history.

Rome of course did not collapse overnight. The debasement of their currency cannot be precisely measured, but it lasted over 100 years. The important point we need to recognize is that the debasement of the dollar that began with the formation of the Federal Reserve in 1913 has now lasted over 100 years too. A penny in 1913 had the same purchasing power as a dollar has today, which, interestingly, is not too different from the rate at which Rome’s denarius was debased.

After discussing how the government of Cyprus raided its citizens’ bank accounts in 2013, you suggest that it’s a near certainty that more countries will introduce capital controls and asset confiscations in the next few years. What form might those seizures take, and how can people protect their assets?

It is impossible to predict, of course, because central planners can be very creative in coming up with different forms of financial repression that prevent you from doing what you want with your money. In fact, look at the creativity they have already used.

For example, not only did bank depositors in Cyprus lose much of their money, much of what was left was given to them in the forms of shares of the banks they bailed out, forcing them to become shareholders. And the US has imposed a creative type of capital control that makes it nearly impossible for its citizens to open a bank account outside the US. Pension plans are the most vulnerable because they are easy to get at. Keep in mind that Argentina, Ireland, Spain, and Poland raided private pensions when those countries ran into financial trouble.

Protecting one’s assets in today’s environment is difficult. John and I have some suggestions in the book, such as global diversification and internationalizing oneself to become as flexible as possible.

You dedicated an entire chapter of your book to silver. Which do you think will appreciate more in the next year, gold or silver? How about in the next 10 years?

I think silver will do better for the foreseeable future. It is still very cheap compared to gold. As but one example to illustrate this point, even though gold underwent a big price correction last year, it is still trading above the record high it made in January 1980, which was the top of the bull run that began in the 1960s.

In contrast, not only has silver not yet broken above its January 1980 peak of $50 per ounce, it is still far from that price. So silver has a lot of catching up to do.

Silver is a good substitute for gold in that silver, too, can be viewed as money outside the banking system, which is an important objective to keep wealth liquid and safe today. But silver may not be for everyone, because it is volatile. This volatility can be measured with the gold/silver ratio, which is the number of ounces of silver needed to equal one ounce of gold. The ratio was 30 to 1 in 2011, and several months later jumped to 60 to 1.

So you can see how volatile silver is. But because I expect silver to do better than gold, I believe that the ratio will fall to 16 to 1 eventually, which is the same level it reached in January 1980. It is also the ratio that generally applied when national currencies used to be backed by precious metals.

Besides gold, what one secular trend would you be most comfortable betting a large portion of your nest egg on?

Own things, rather than promises. Avoid financial assets. Own tangible assets of all sorts, like farmland, timberland, oil wells, etc. Near-tangibles like the equities of companies that own tangible assets are okay too, but avoid the equities of banks, credit card companies, mortgage companies, and any other equities tied to financial assets.

What asset class are you most bearish on?

Without any doubt, it is government debt in particular and more generally, government promises. They have promised more than they can possibly deliver, so a lot of their promises are going to be broken before we see the end of this current bust that began in 2000. And that outcome of broken promises describes the huge task that we all face. There will be a day of reckoning. There always is when an economy and governments take on more debt than is prudent, and the world is far beyond that point.

So everyone needs to plan and prepare for that day of reckoning. We can’t predict when it is coming, but we know from monetary history that busts follow booms, and more to the point, that currencies collapse when governments make promises that they cannot possibly fulfill. Their central banks print the currency the government wants to spend until the currency eventually collapses, which is a key point of The Money Bubble. The world has lost sight of what money is.

What today is considered to be money is only a money substitute circulating in place of money. J.P. Morgan had it right when in testimony before the US Congress in 1912 he said: “Money is gold, nothing else.” Because we have lost sight of this wisdom, a “money bubble” has been created. And it will pop. Bubbles always do.


    



via Zero Hedge http://ift.tt/1jmdgrd Tyler Durden

White House: “Weather practically everywhere is being caused by climate change”

 

So Obama went to California to talk drought and climate change. He brought some cash with him to help the state cope with the water shortage. The Prez is right to be worried about this drought, after all, Cali is 15% of the US economy. The only question is how big the hit to CA/US GDP is going to be.

The President's new plan is have the Ag department come up with $100 million for cattle farmers. There is also $5m for communities that are literally running out of water. So it's 20 to 1 in favor of the cattlemen. Great plan…

As Obama headed west, the White House's Science Assistant, John Holdren, had this to say about the California drought:

 

"Weather practically everywhere is being caused by climate change"

 

Really? It's all climate change?

 

There are many forces that shape weather patterns. One of the most significant is the El Nino/ La Nina cycles. this is what NOAA has to say about the connection between El Nino and rainfall in the South West:

 

El Niño results in increased precipitation across California and the southern tier of states

 

elninorain_edited-1

 

The California drought has persisted for the past three years. It's no coincidence that there have been no El Nino conditions during this time period:

 

 

noaadata

 

 

The WH has a climate agenda – this is payback for a lot of support (money). Okay, but when the chief scientist at the WH ignores the scientists who actually look at weather patterns, then one is forced to doubt everything the WH says on the topic.

 

 

Misdirection By Holdren???

U.S. President Obama gets direction from White House science adviser Holdren during event on South Lawn at White House in Washington

 

 


    



via Zero Hedge http://ift.tt/1jlYbpD Bruce Krasting

White House: "Weather practically everywhere is being caused by climate change"

 

So Obama went to California to talk drought and climate change. He brought some cash with him to help the state cope with the water shortage. The Prez is right to be worried about this drought, after all, Cali is 15% of the US economy. The only question is how big the hit to CA/US GDP is going to be.

The President's new plan is have the Ag department come up with $100 million for cattle farmers. There is also $5m for communities that are literally running out of water. So it's 20 to 1 in favor of the cattlemen. Great plan…

As Obama headed west, the White House's Science Assistant, John Holdren, had this to say about the California drought:

 

"Weather practically everywhere is being caused by climate change"

 

Really? It's all climate change?

 

There are many forces that shape weather patterns. One of the most significant is the El Nino/ La Nina cycles. this is what NOAA has to say about the connection between El Nino and rainfall in the South West:

 

El Niño results in increased precipitation across California and the southern tier of states

 

elninorain_edited-1

 

The California drought has persisted for the past three years. It's no coincidence that there have been no El Nino conditions during this time period:

 

 

noaadata

 

 

The WH has a climate agenda – this is payback for a lot of support (money). Okay, but when the chief scientist at the WH ignores the scientists who actually look at weather patterns, then one is forced to doubt everything the WH says on the topic.

 

 

Misdirection By Holdren???

U.S. President Obama gets direction from White House science adviser Holdren during event on South Lawn at White House in Washington

 

 


    



via Zero Hedge http://ift.tt/1jlYbpD Bruce Krasting

Dollar Remains Out of Favor

The US dollar fell against all the major currencies over the past week.  Helped by speculation that the Bank of England will likely hike rates before it currently envisions, lifted sterling to its highest level since April 2011, as it tacked on almost 2% last week.  Even the Japanese yen strengthened against the dollar, despite the rise in equities and an increase in the US interest rate premium over Japan.  We had generally anticipated the weaker dollar, but did not expect the yen to have participated.

 

The technical indicators we use are not providing any compelling reason to try picking a top in the foreign currencies or a bottom to the US dollar, though we recognize that sterling is a bit stretched and bumping against the upper Bollinger Band.  This raises the risk of some consolidation at the start of the new week.  Yet with the March 2015 short sterling futures still falling (implying a yield of just over 100 bp compared with the current 50 bp base rate), the consolidation may be shallow and brief.  

 

Initial support for sterling is seen in the  $1.6680-$1.6700 area, though the bulls are unlikely to be really deterred unless the $1.66 level goes.  The RSI and MACDs are trending higher and five-day average crossed above the 20-day average on Thursday, February 13.   The 2011 high near $1.6750 is the next immediate target, but a move toward $1.70 in the coming weeks would not be surprising.  The euro has approached a key retracement objective against sterling near GBP0.8160.  A convincing break could spur a move toward GBP0.8000. 

 

The euro is at the upper end of its six-week trading range.   The technical indicators are positive and the five-day average crossed above the 20-day average on Tuesday, February 11.  The upper Bollinger Band is near $1.3740, which also corresponds to the late January high and the 61.8% retracement objective of the decline from the December 27 multi-year high near $1.3900.   We suspect that pullbacks toward $1.3630-50 will be seen as new buying opportunities.  

 

The dollar initially extended its recovery from the JPY100.75 area seen on February 4-5.  However, the momentum faltered in the JPY102.60-70 area.  In fact the dollar recorded lower highs in each of the last four sessions.   The MOF and CME data suggests at least part of the reason why:  Japanese investors have sold foreign bonds for six consecutive week.  Foreigners have sold Japanese stocks (and covered their short yen hedges) for three weeks in a row.   In the CME futures, the speculators (a proxy for momentum and trend followers) have been reducing short position for seven consecutive weekly reporting periods through February 11.  The gross position short position has been cut by more than 40% over this period. 

 

The technical indicators, however, are not generating clear signals at the moment.  We are more inclined to still for a weaker yen.  Rising through the previous day’s high would be the first sign that the dollar’s correction may have run its course.  The 20-day moving average provided support in November and December.  Since it was convincingly violated, the moving average has capped bounces.  It is found now near JPY102.55. 

 

The Australian dollar looks to have legs.  Even the disappointingly weak jobs data was not able to derail the short-covering  rally, spurred on by the shift in the RBA’s stance from its easing bias to neutrality.   The next upside target is near $0.9085,which corresponds to the 38.2% retracement of the drop from last October’s high near $0.9760 to the recent low about 11 cents below that high and the mid-January high.    A break of that could spur a move toward $0.9160, and possibly $0.9200, before the bears try to pick another top.  The $0.8930-60 area offers support.  

 

The Canadian dollar’s technicals are not as clean.  The RSI warns that momentum has waned, though the MACDs are still trending lower.  A bounce in the greenback could see a test on the CAD1.1020-35 area.  A break of this could spur ideas that the correction has run its course with a 2.5% USD pullback.  On the downside, we had suggested potential toward CAD1.0850. 

 

The Mexican peso has been frustrating.    It has lagged behind the recovery many of the other emerging market currencies over the past week, which has seen the Indonesian rupiah rally 2.8%, the South African rand almost 2% and the Turkish lira 1.7%.  The peso rose about 0.3% against the dollar over the past week.  Technical indicator are not generating strong signals.  The dollar has spent the last eight sessions between roughly MXN13.20 and MXN13.40.   We are more inclined to sell into a dollar rally than buying a further pullback, but are most comfortable on the sidelines pending better risk–reward opportunities. 

 

Observations from the speculative positioning in the CME currency futures: 

 

1.  Position adjustments were minor in the most recent reporting week that ended on February 11. There were not gross position adjustments more than 10k contract.  In fact, there were only two adjustments more than 5k contracts (gross euro longs grew by 7.4k contracts and gross short Australian dollar positions were pared by 9.6k contracts).  Eight of the 14 gross positions we track changed by less than 2k contracts.

 

2.  Speculators generally lightened up on gross long positions, the exceptions were the euro, which we already noted, and sterling, which added 1k long contracts.  Short positions were mostly reduced, except, ironically enough the euro and sterling, and the Swiss franc.  Yet all together these added less than 3k contracts.

 

3.  In terms of gross short positions, there are still some substantial positions, warning of the risk of more serious position adjustment.  Speculators remain most short the Japanese yen, with 92.5k contracts, but Canada with 86.7k gross short contracts is not far behind.  And there are 82k gross short euro contracts.  There are 57.6k gross short Australian dollar contracts.

 

4.  The gross long positions are highly concentrated.  There are 75k long euro contracts and 53k long sterling contracts.  Canada’s 28k contracts puts it at a distant third place.  The others have less than 15k long contracts.


    



via Zero Hedge http://ift.tt/NOPxWN Marc To Market