Category: zerohedge

From Russ Certo, head of rates at Brean Capital

Two Roads Diverged

As we know, it has been a suspect week with a variety of earnings misses.  Although I have been constructive on risk asset markets generally, equities anecdotally, as figured year end push for alpha desires could let it run into year end.  New year and ball game can change quickly.  Just wondering if a larger rotation is in order.                        

There is an overall considerable theme of what you may find when a liquidity tide recedes as most major crises or risk pullbacks have been precipitated by either combination of tighter monetary or fiscal policy.  Some with a considerable lag like a year after Greenspan departed from Fed helm, or many other examples.  I’m not suggesting NOW is a time for a compression in risk but am aware of the possibility, especially when Fed Chairs take victory laps, Bernanke this week.  Symbolic if nothing more.       Cover of TIME magazine?

I happen to think that 2014 is a VERY different year than 2013 from a variety of viewpoints.  First, there appears to be a dispersion of opinion about markets, valuations, policy frameworks and more.  This is a healthy departure from YEARS of artificiality.  Artificiality in valuations, artificiality in market and policy mechanics and essentially artificiality in EVERY financial, and real, relationship on the planet based on central bank(s) balance sheet expansion and other measures intended to be a stop-gap resolution to  tightening financial conditions, adverse expectations of economic activity, and the great rollover….of both financial and non-financial debt financing.       Boy, what a week in the IG issuance space with over $100 billion month to date, maybe $35 billion on the week.        Debt rollover on steroids.        

Beneath the veneer of market aesthetics, I already see fundamental (and technical) relevance.  This could be construed as an optimist pursuit or reality that markets are incrementally transcending reliance and/or dependence on the wings of central bank policy prerogatives.  The market bird is trying to fly on its own with inklings of a return to FUNDAMENTAL analysis.  A good thing, conceptually, and gradualist development of passing the valuation baton back to market runners.  A likely major pillar objective of policy despite more than a few critics worried about seemingly dormant lurking imbalances created by immeasurable policy and monetary and fundamentally skewed risk asset relationships globally. 

This exercise of summarization of ebb and flow and comings and goings of markets and policy naturally funnels a discussion to what stature of central bank policy currently or accurately exists?  Current events.  What is the accurate stage of policy?

I actually think this is a more delicate nuance than I perceive viewed in overall market sentiment. Granted, we have taken a major step for mankind, which is the topical engagement of some level of scope or reduction of liquidity provisioning,” not tightening.”  Tip of the iceberg communique with markets to INTRODUCE the concept of stepping off the gas but not hitting the break.  Reeks of fragility to me but narrative headed in right direction to stop medicating the patient, the global economy.

Some markets have logically responded in kind.  The highest beta markets as either beneficiaries or vulnerable to monetary policy changes, the emerging markets, have reflected at least the optics of change with policy.  More auditory than optics in hearing a PROSPECTIVE change in garbled Fedspeak.  The high flyer currencies which capture the nominal flighty hot money flows globally affirmed the Fed message. 

In literally the simplest of terms, the G7 industrialized, not peripheral; interest rate complex has simply moved the needle in form of +110 basis point higher moves in nominal sovereign interest rates.  And there are a bevy of other expressions which played nicely and rightly conformed to the messages coming out of the central bank sandbox.  But there are ALSO notable dichotomies, which send a different or even the opposite message.

I perceive a deviation in perception of message as some markets or market participants appear to be betting on taper or a return to normalcy in global growth or U.S. growth outcomes???  OR no taper, or conversely QE4 or whatever.  Sovereign spreads have moved materially tighter vs. industrial and supposed risk free rates (Tsys, Gilts, Bunds) both last year and in the first three weeks of 2014. Something a new leg of QE would represent, not a taper.   A different year!!!

There have been VERY reliable risk asset market beta correlations over the last 5 years and sovereign or peripheral spreads have been AS volatile and correlated as any asset class.  These things trade like dancing with a rattle-snake.  Greece, Spain, France etc.  They can bite you with fangs.  They have been meaningfully more correlated to high yield spreads and yields and to central bank balance sheet expansion as nearly any asset class.  So, the infusion of central bank liquidity into markets has seen “relief” rallies in peripherals and one would think the converse would be true as well.  The valuations have represented the flavor and direction of risk on/risk off or liquidity on/liquidity off reliably for many months/years.

But I THOUGHT markets were deliberating tapering views and expressions as validated by some good soldier markets BUT that is not necessarily what the rally in riskiest of sovereign “credits” is suggesting.  The complex seems to be decoupling with Fed balance sheet correlation and message.  Some are OVER 100 standard deviations from the mean!  They are rich and could/should be sold.     Especially if one was to follow the obvious correlation with the direction of central bank as stated.

But look to other arena’s like TIPS breakevens which also have been correlated with liquidity and risk on/off and central bank balance sheet expansion.  Correlated to NASDAQ, HY, peripherals and the like.   BUT this complex COUNTERS what peripherals are doing.  They haven’t shown up to the punch bowl party yet.  Not invited.      This is a departure of markets that have largely and generally been in synch from a liquidity and performance correlation view.

Like gold and silver which got tattooed vis a vis down 35%+ performance last year MOSTLY, but not exclusively, due to perceptions of winds of central bank change.  BUT even within a contrary, the fact that rallies in Spain, France, Greece, and Italy reflect more of central bank easing notions, the opposite of taper.  In essence, the complex has gone batty uber-appreciation this year.  Sure, many eyeball the Launchpad physical metals marginal stabilization no longer falling on a knife but the miner bonds and the mining stocks are string like bull with significant appreciation.  This decidedly isn’t the stuff of taper which had the bond daddy’s romancing notions of 3% 10yr breaks, 40 basis point Green Eurodollar sell-offs,  emerging market rinse, and upticks in volatility amongst other things.

Equity bourses appear to be changing hands between investors with oscillating rotations which mark the first prospective 3 week consecutive sell-off in a while.  New year.  This is taper light.       Somewhere in between and
further blurs the correlation metrics. 

So, which is it?  Are we tapering or not and why are merely a few global asset classed pointed out here, why are they deviating or arguably pricing in different central bank prospects or scenarios or outcomes? 

I’m not afraid but I am intrigued as to the fact that there may some strong opinions within markets and I perceive a widely received comfortability with taper or tightening notions, negative leanings on interest rate forecasts, a complacency of Fed call if you will.  And all of these hingings occur without intimate knowledge of the most critical variable of all, what Janet Yellen thinks? She has been awfully quiet as of late and there are many foregone conclusions or assumptions in market psyche without having heard a peep from the new MAESTRO.

Moreover, looking in the REAR view mirror within a week where multiple (two) Fed Governor proclamations, communicated and implicated notions which arguably would be considered radical in ANY other policy period of a hundred years.  How to conduct “monetary policy at a ZERO lower bound (Williams) ” and “doing something as surprising and drastic as cutting interest on excess reserves BELOW zero (Kocherlakota).”

This doesn’t sound like no stinking taper?  A tale of two markets.  To be or not to be.  To taper or not to taper.  Two roads diverged and I took the one less traveled by, and that has made all the difference.  Robert Frost.

Which is it? Different markets pricing different things.  Right or wrong, the market always has a message; listen critically.    

Russ                 

via Zero Hedge http://ift.tt/1fJftz7 Tyler Durden

From Russ Certo, head of rates at Brean Capital

Two Roads Diverged

As we know, it has been a suspect week with a variety of earnings misses.  Although I have been constructive on risk asset markets generally, equities anecdotally, as figured year end push for alpha desires could let it run into year end.  New year and ball game can change quickly.  Just wondering if a larger rotation is in order.                        

There is an overall considerable theme of what you may find when a liquidity tide recedes as most major crises or risk pullbacks have been precipitated by either combination of tighter monetary or fiscal policy.  Some with a considerable lag like a year after Greenspan departed from Fed helm, or many other examples.  I’m not suggesting NOW is a time for a compression in risk but am aware of the possibility, especially when Fed Chairs take victory laps, Bernanke this week.  Symbolic if nothing more.       Cover of TIME magazine?

I happen to think that 2014 is a VERY different year than 2013 from a variety of viewpoints.  First, there appears to be a dispersion of opinion about markets, valuations, policy frameworks and more.  This is a healthy departure from YEARS of artificiality.  Artificiality in valuations, artificiality in market and policy mechanics and essentially artificiality in EVERY financial, and real, relationship on the planet based on central bank(s) balance sheet expansion and other measures intended to be a stop-gap resolution to  tightening financial conditions, adverse expectations of economic activity, and the great rollover….of both financial and non-financial debt financing.       Boy, what a week in the IG issuance space with over $100 billion month to date, maybe $35 billion on the week.        Debt rollover on steroids.        

Beneath the veneer of market aesthetics, I already see fundamental (and technical) relevance.  This could be construed as an optimist pursuit or reality that markets are incrementally transcending reliance and/or dependence on the wings of central bank policy prerogatives.  The market bird is trying to fly on its own with inklings of a return to FUNDAMENTAL analysis.  A good thing, conceptually, and gradualist development of passing the valuation baton back to market runners.  A likely major pillar objective of policy despite more than a few critics worried about seemingly dormant lurking imbalances created by immeasurable policy and monetary and fundamentally skewed risk asset relationships globally. 

This exercise of summarization of ebb and flow and comings and goings of markets and policy naturally funnels a discussion to what stature of central bank policy currently or accurately exists?  Current events.  What is the accurate stage of policy?

I actually think this is a more delicate nuance than I perceive viewed in overall market sentiment. Granted, we have taken a major step for mankind, which is the topical engagement of some level of scope or reduction of liquidity provisioning,” not tightening.”  Tip of the iceberg communique with markets to INTRODUCE the concept of stepping off the gas but not hitting the break.  Reeks of fragility to me but narrative headed in right direction to stop medicating the patient, the global economy.

Some markets have logically responded in kind.  The highest beta markets as either beneficiaries or vulnerable to monetary policy changes, the emerging markets, have reflected at least the optics of change with policy.  More auditory than optics in hearing a PROSPECTIVE change in garbled Fedspeak.  The high flyer currencies which capture the nominal flighty hot money flows globally affirmed the Fed message. 

In literally the simplest of terms, the G7 industrialized, not peripheral; interest rate complex has simply moved the needle in form of +110 basis point higher moves in nominal sovereign interest rates.  And there are a bevy of other expressions which played nicely and rightly conformed to the messages coming out of the central bank sandbox.  But there are ALSO notable dichotomies, which send a different or even the opposite message.

I perceive a deviation in perception of message as some markets or market participants appear to be betting on taper or a return to normalcy in global growth or U.S. growth outcomes???  OR no taper, or conversely QE4 or whatever.  Sovereign spreads have moved materially tighter vs. industrial and supposed risk free rates (Tsys, Gilts, Bunds) both last year and in the first three weeks of 2014. Something a new leg of QE would represent, not a taper.   A different year!!!

There have been VERY reliable risk asset market beta correlations over the last 5 years and sovereign or peripheral spreads have been AS volatile and correlated as any asset class.  These things trade like dancing with a rattle-snake.  Greece, Spain, France etc.  They can bite you with fangs.  They have been meaningfully more correlated to high yield spreads and yields and to central bank balance sheet expansion as nearly any asset class.  So, the infusion of central bank liquidity into markets has seen “relief” rallies in peripherals and one would think the converse would be true as well.  The valuations have represented the flavor and direction of risk on/risk off or liquidity on/liquidity off reliably for many months/years.

But I THOUGHT markets were deliberating tapering views and expressions as validated by some good soldier markets BUT that is not necessarily what the rally in riskiest of sovereign “credits” is suggesting.  The complex seems to be decoupling with Fed balance sheet correlation and message.  Some are OVER 100 standard deviations from the mean!  They are rich and could/should be sold.     Especially if one was to follow the obvious correlation with the direction of central bank as stated.

But look to other arena’s like TIPS breakevens which also have been correlated with liquidity and risk on/off and central bank balance sheet expansion.  Correlated to NASDAQ, HY, peripherals and the like.   BUT this complex COUNTERS what peripherals are doing.  They haven’t shown up to the punch bowl party yet.  Not invited.      This is a departure of markets that have largely and generally been in synch from a liquidity and performance correlation view.

Like gold and silver which got tattooed vis a vis down 35%+ performance last year MOSTLY, but not exclusively, due to perceptions of winds of central bank change.  BUT even within a contrary, the fact that rallies in Spain, France, Greece, and Italy reflect more of central bank easing notions, the opposite of taper.  In essence, the complex has gone batty uber-appreciation this year.  Sure, many eyeball the Launchpad physical metals marginal stabilization no longer falling on a knife but the miner bonds and the mining stocks are string like bull with significant appreciation.  This decidedly isn’t the stuff of taper which had the bond daddy’s romancing notions of 3% 10yr breaks, 40 basis point Green Eurodollar sell-offs,  emerging market rinse, and upticks in volatility amongst other things.

Equity bourses appear to be changing hands between investors with oscillating rotations which mark the first prospective 3 week consecutive sell-off in a while.  New year.  This is taper light.       Somewhere in between and further blurs the correlation metrics. 

So, which is it?  Are we tapering or not and why are merely a few global asset classed pointed out here, why are they deviating or arguably pricing in different central bank prospects or scenarios or outcomes? 

I’m not afraid but I am intrigued as to the fact that there may some strong opinions within markets and I perceive a widely received comfortability with taper or tightening notions, negative leanings on interest rate forecasts, a complacency of Fed call if you will.  And all of these hingings occur without intimate knowledge of the most critical variable of all, what Janet Yellen thinks? She has been awfully quiet as of late and there are many foregone conclusions or assumptions in market psyche without having heard a peep from the new MAESTRO.

Moreover, looking in the REAR view mirror within a week where multiple (two) Fed Governor proclamations, communicated and implicated notions which arguably would be considered radical in ANY other policy period of a hundred years.  How to conduct “monetary policy at a ZERO lower bound (Williams) ” and “doing something as surprising and drastic as cutting interest on excess reserves BELOW zero (Kocherlakota).”

This doesn’t sound like no stinking taper?  A tale of two markets.  To be or not to be.  To taper or not to taper.  Two roads diverged and I took the one less traveled by, and that has made all the difference.  Robert Frost.

Which is it? Different markets pricing different things.  Right or wrong, the market always has a message; listen critically.    

Russ                 

via Zero Hedge http://ift.tt/1fJftz7 Tyler Durden

The US dollar finished last week well bid. It is at six week highs against the euro. It recovered from the brief dip at the start of the week below JPY103 and finished the week above JPY104.00. The Australian dollar fell to new multi-year lows, as did the Canadian dollar. Most emerging market currencies also fell. 

 

The notable exception to this general pattern was sterling. Strong retail sales helped ease some anxiety that had been creeping in about sustainability of the UK’s expansion.

 

It was the apparent resiliency of the UK and US economies that was the main fundamental development in recent days. The poor US jobs data had sparked some speculation that the economy was sufficiently fragile that the Federal Reserve would have to re-think its tapering tactics that it just had unveiled last month. The combination of the healthy gain in a key component of retail sales (excluding autos, gasoline and building materials), stronger than expected regional Fed surveys (Empire and Philly) and a Beige Book that seemed to slightly upgrade the economic assessment, pointed in the direction of continued exit from QE. A number of Fed officials, not of all who are voting members on the FOMC, encouraged this conclusion by investors.

 

Before the weekend, the euro slumped to almost $1.3500. It finished the North American session below its 100-day moving average (~$1.3665) for the first time since September. A break of this area could open trigger a new wave of long liquidation that could carry the single currency toward $1.3450. The euro’s technical condition has deteriorated and the five days average is trending below that 20-day average.

 

As poor as the euro’s technical readings are, sterling’s are positive. The RSI an MACD are turning higher. Sterling stalled in front of the $1.6460 area, which corresponds to a 50% retracement of the losses seen since the multi-year high above $1.6600 was seen briefly on the first trading session of the year. A move above $1.6500-20 is needed to signal the resumption of the uptrend. Support has been established in front of $1.6300.

 

The greenback also finished last week above its 100-day moving average against the Swiss franc (~CHF0.9075), an area it has been flirting with, but for which it was unable to sustain a convincing break. The CHF0.9130 area offers immediate resistance.

 

The dollar finished the week little changed against the yen, but this overlooks the ride it took. It first fell to JPY102.85 in follow through selling after the US employment report, but proceeded to recover back to almost JPY105 as the dollar buying strategy on pullbacks continues to be seen. The RSI and MACDs are still pointing lower, but rather than signal a new leg down in the dollar, we suspect a consolidation phase is more likely.

 

The technical condition of the dollar-bloc currencies is poor and the Canadian dollar is challenging the Australian dollar for leadership of decline. Economic data from both countries have encouraged rate cut speculation. The Bank of Canada meets next week. A rate cut is highly unlikely, though dovish comments by the central bank are likely. This could trigger a bout of short-covering, perhaps on a sell-the-rumor-and-buy-the-fact type of activity. Key support for the US dollar is seen in the CAD1.0880-CAD1.0900 area.

 

Australia reports Q4 CPI figures and a subdued report could fan rate cut expectations. The Australian dollar traced out a big outside down week and many market participants are looking for $0.8500 in the coming weeks. Ironically, the New Zealand dollar was dragged lower, even though the market sees a growing risk of a rate hike at the end of the month. The $0.8500 area now marks important resistance and the Kiwi can make its way toward $0.8100.

 

The US dollar trended higher against the Mexican peso last week and reached its best level since September.  It has approached the upper end of the Q4 ’13 trading range.  Although the technical indicators are not generating strong signals, we suspect the market has moved too far too fast.  The dollar closed marginally above its Bollinger Band (+/- 2 standard deviations around the 20-day moving average).   Support is seen near MXN13.15.  The  top of the range appears to be around MXN13.3450.  

 

Outside of the currencies we usually review here, we observe among the clearest technical signal may be that the euro is poised to weaken against the Swedish krona. It has traced out a large head and shoulders pattern and finished last week below the neckline. The left shoulder was carved in mid-November near SEK9.00. The head was put in place in mid-December near SEK9.10. The right shoulder was formed in the first half of this month. The neckline can be found around SEK8.82. If this is indeed a valid pattern, the measuring objective is near last summer lows around SEK8.55.

 

Observations from the speculative positioning in the CME currency futures:

 

1. The net speculative position switched from long to short Swiss francs.  It is the first net short position in 5 months. It was more the result of longs being cut (6.2k contracts) than shorts being added (+1.5k contracts).

 

2.  The net speculative Canadian dollar position stands at a new record short of 67.3k contracts.  Gross shorts rose 10.5k contracts to 101.6k.  As noted above,  we suspect the Canadian dollar is vulnerable to a short squeeze after the central bank meeting on January 22.  

 

3.  In three of the seven currency futures we review here, there was a reduction of both gross shorts and longs (yen, Australian dollar and Mexican peso).  In the previous reporting period, there were four currencies were subject to such position adjustments  (yen, sterling, Swiss franc and Australian dollar).  

 

4.  There net long euro position fell for the third consecutive week.  The net short yen position was reduced for a third week as well. 

via Zero Hedge http://ift.tt/1mdjutn Marc To Market

via Zero Hedge http://ift.tt/1jchW5A williambanzai7

History is often written to benefit certain groups over others.

 

Indeed, you will often find the blame for some of the worst events in history placed on the wrong individuals or factors. Most Americans today continue to argue over liberal vs. conservative beliefs, unaware that the vast majority of economy ills plaguing the country originate in neither party but in the Federal Reserve, which has debased the US Dollar by over 95% in the 20^th century alone.

 

With that in mind, I want to consider what actually caused the hyperinflationary period in Weimar Germany. Please consider the quote from Niall Ferguson’s book, “The Ascent of Money” regarding what really happened there:

 

Yet it would be wrong to see the hyperinflation of 1923 as a simple consequence of the Versailles Treaty. That was how the Germans liked to see it, of course…All of this was to overlook the domestic political roots of the monetary crisis. The Weimar tax system was feeble, not least because the new regime lacked legitimacy among higher income groups who declined to pay the taxes imposed on them.

 

At the same time, public money was spent recklessly, particularly on generous wage settlements for public sector unions. The combination of insufficient taxation and excessive spending created enormous deficits in 1919 and 1920 (in excess of 10 per cent of net national product), before the victors had even presented their reparations bill… Moreover, those in charge of Weimar economic policy in the early 1920s felt they had little incentive to stabilize German fiscal and monetary policy, even when an opportunity presented itself in the middle of 1920.

 

A common calculation among Germany’s financial elites was that runaway currency depreciation would force the Allied powers into revision the reparations settlement, since the effect would be to cheapen German exports.

 

What the Germans overlooked was that the inflation induced boom of 1920-22, at a time when the US and UK economies were in the depths of a post-war recession, caused an even bigger surge in imports, thus negating the economic pressure they had hoped to exert. At the heart of the German hyperinflation was a miscalculation.

 

You’ll note the frightening similarities to the US’s monetary policy today. We see:

 

1)   Reckless spending of public money, particularly in the form of entitlement spending

2)   Excessive spending resulting in massive deficits.

3)   Little incentive for political leaders to rein in said spending.

4)   Intentional currency depreciation in order to make debt payments more feasible.

 

This sounds like a blueprint for was US leaders (indeed most Western leaders) have engaged in post-2007. The multi-trillion Dollar question is if we’ve already crossed the line in terms of setting the stage for massive inflation down the road.

We believe that it is quite possible… for the following reasons.

 

·      The US now sports a Debt to GDP ratio of over 100%.

·      Every 1% rise in interest rates will result in over $100 billion more in interest payments on US debt.

·      Indications of inflation (stealth price hikes, wage protests, etc.) are showing up throughout the economy.

·      Indications that other countries are moving to abandon the US Dollar are present.

 

In a nutshell we are in a very dangerous position. This doesn’t mean hyperinflation HAS to occur. Indeed, history often times rhymes rather than repeats. However, the fact of the matter is that the same policies which create Weimar Germany are occurring in the US today. How they play out remains to be seen, but it is unlikely it will end well.

 

For a FREE Special Report outlining how to set up your portfolio from this, swing by: http://ift.tt/170oFLH

 

Best Regards

Phoenix Capital Research 

 

 

  

 

 

 

via Zero Hedge http://ift.tt/1kI8d8W Phoenix Capital Research

With Deutsche Bank quitting the price-setting panel for gold and Bafin bearing down on the manipulators, Eric Sprott provides some more color on where the manipulation in the precious metals markets is underway (and when it will end)…

Submitted by Eric Sprott of Sprott Global Resource Investments,

Introduction

As we very well know, 2013 was a difficult but also puzzling year for precious metals investors. The price of gold, silver and their related equities declined by a significant amount while demand for physical bullion from emerging markets and their Central Banks was exceptionally strong.

A common argument that has been made to explain the precipitous decline of the price of precious metals in 2013 is of investors’ disenchantment with precious metals, which had been piling up in exchange traded products as a way for investors to gain exposure to the metals. Proponents of this theory point to the large declines in the total holdings of those ETFs as evidence of investors fleeing the precious metal trade. As shown in Figure 1, the price of both gold and silver suffered very significant declines throughout 2013. Therefore, if this explanation is correct, one would expect the total ETF holdings of both metals to be lower as well.

However, this is not the case. As shown in Figure 2 gold ETFs suffered large redemptions whereas silver ETFs saw their holdings remain more or less constant throughout the year, and this without any observable change in trading patterns in the two largest ETFs; GLD and SLV (Figure 3 shows the ratio of the trading values in the ETFs over time). If redemptions are a symptom of investors’ disenchantment with precious metals as an investment, shouldn’t silver have suffered the same fate as gold? Indeed it should have, but we think the reason silver ETFs were not raided like gold was that Central Banks do not have a silver supply problem, they have a gold problem. As we have argued before, the raiding of gold ETFs is bullish for gold because it reflects an imbalance in the physical market.¹

Figure 1: Gold and Silver prices declined significantly in 2013

 Source: Bloomberg

Figure 2: ETF Holdings – Troy oz (millions)

Source: Bloomberg, tickers ETSITOTL & ETFGTOTL

In this article, we further argue that the April raid on gold and gold ETFs almost backfired by creating a tsunami of buying in India and increased demand to unsustainable levels. In May 2013 alone, Indians imported 162 tonnes² of gold in a market where monthly global mine production is about 182 tonnes. A continuation of this trend, coupled with strong buying from other Emerging Markets and their Central Banks, would have been overwhelming. But, the response was swift. We suspect that, at the behest of Western Central Banks, the Reserve Bank of India reacted by enacting, in incremental steps, restrictive measures to prevent gold imports (See Figure 4 for a timeline of the major changes made by the Indian Government).³

Figure 3: Traded Value – Ratio of SLV to GLD

Source: Bloomberg. Traded Value is calculated by taking the total trading volume for a quarter and multiplying it by the average price over that quarter. A ratio of 1 indicates that SLV traded as much, in $ terms, as GLD.

Figure 4: Efforts to Curb Indian Gold Imports

Source: Bloomberg, Economic Times 

 

Supply and Demand Imbalances: The Indian Effect 

We have already discussed at length the supply and demand imbalance in an Open Letter to the World Gold Council, asking them to revise their methodology because it grossly understates the amount of demand coming from emerging markets.⁴ Our gold supply and demand table (Table 1) reflects the latest available data (2013 Q3 in most cases). World mine production, excluding Chinese and Russian production still stands at about 2,100 tonnes a year. Chinese net imports most likely exceeded 1,700 tonnes for 2013 (81% of world mine production) and demand from the rest of the world is rather stable.⁵

The overall picture has not changed much since our last article, with the exception of Indian imports. As of the second quarter of 2013, India had cumulative net gold imports of 551 tonnes, which annualizes to 1,102 tonnes.⁶ However, Q3 data shows net imports of only 31 tonnes (for a total of 582 tonnes YTD), which annualizes to 776 tonnes. 

This incredible loss of momentum for “official” gold imports was the result of concerted actions by the Reserve Bank of India and the Indian Government. While the “official” justification for those restrictions is the large Indian current account deficit, this argument makes little sense. According to government officials, Indian’s taste for gold and the corresponding imports worsens the country’s trade balance, worsens its current account deficit and puts downward pressure on their currency, the Rupee. 

But, without going into too many details, the classification of gold as a “good” in the trade balance is at best misleading. Since gold is more of an investment vehicle and is not “consumable” per se, it should instead be accounted for in the capital account of the balance of payments instead of the current account. Indeed, Switzerland, which is a large net importer of gold, reports its trade balance “without precious metals, precious stones and gems as well as art and antiques” to reflect fact that those are “investments” rather than consumption goods.⁹ In this case, why should India be any different and report their trade data excluding gold? To us, all the fuss about gold imports by the Indian Government is a red herring.

So, without the intervention in the Indian gold market, the shortage of gold would have wreaked havoc in the market, a situation that Western Central Banks could not tolerate.

 Table 1: World Gold Supply and Demand 2013, in Tonnes
 
Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1, Q2 & Q3. Chinese mine supply comes from the China Gold Association and is up to October 2013, the annualized number is a Sprott estimate.⁸ Russian mine supply comes from the Union of Gold Producers and is up to 2013 Q3. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Nov. 2013 and is annualized to account for the missing month. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1, Q2 & Q3 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1, Q2 & Q3. ETFs data comes from GFMS as well.

 

Conclusion and Outlook for 2014

As demonstrated in our Open Letter to the World Gold Council, there was a large supply-demand imbalance in 2013. The evidence presented here suggests that the decline in the price of gold in mid-2013 and the subsequent raid of gold ETFs (but not silver ETFs) was engineered by Western Central Banks to help solve their physical gold supply problem. However, the resulting increase in Indian gold demand exacerbated the problem. The solution was to restrict Indians from importing gold by all means possible in order to help the Western Central Banks regain control of the gold market.

However, the rate of drain in gold ETFs cannot continue forever; at the current pace of 930 tonnes/year, there are less than two years of gold left in ETFs. Moreover, Indians have proved highly creative at finding ways around import restrictions.¹⁰ Smuggling is on the rise and will most likely increase as smugglers become more sophisticated. Overall, we believe that interest in physical gold from emerging markets will remain a driving force.

Besides, mine production is unlikely to grow, as reflected by the significant decrease in capital expenditures expected for the major gold producers (Figure 5).

Accordingly, we believe that the manipulation of gold prices by central banks, as demonstrated by the above analysis, cannot continue in 2014. Therefore, we expect substantial increases in the price of precious metals as the true shortages become obvious.

Figure 5: Capital Expenditures ($mm) – XAU Index Members
 
 Source: Bloomberg. Consensus analyst estimates are used for years 2013-2015.

 

P.S. Due to recent developments, we would also like to highlight some related media stories

Jan. 17, 2014: Germany’s top financial regulator said possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal

Jan. 17, 2014: Deutsche quits gold price-setting as regulators investigate fix (Did the regulators ask them to?)

Dec. 13, 2013: Bafin Said to Interview Deutsche Bank Staff in Gold Probe

Nov. 26, 2013: U.K., German Regulators Scrutinize Gold, Silver Pricing

Sept. 9, 2013: Sprott Thoughts: A Leaky Fix

 

1	See, for example, “Redemptions in the GLD are, oddly enough, Bullish for Gold”.
2	http://ift.tt/10ObGYg
3	See “Do the Western Central Banks have any gold left?”. Sprott Asset Management LP, Markets at a Glance May 2013.
4	See the full article at: http://ift.tt/1dy0X95
5	As a reminder, because of our methodology which uses net imports as a proxy for total demand in countries that do not re-export gold, we exclude the “total industrial demand” estimate from the GFMS to avoid double counting. Thus, we underestimate total gold demand because we do not include industrial demand from the countries other than China, India, Turkey and Thailand.
6	As reported by the UN Comtrade Statistics. We use the total dollar amount reported and average quarterly prices to infer the total amount of gold imported and exported.
7	This is calculated by taking the total consumer demand for jewellery, coins and bars for 2013 Q1 & Q2 from table 10 of the WGC’s “Gold Demand Trends” and subtracting from it demand from the individual countries we have listed in the table (China/Hong Kong, India, Turkey, Russia and Thailand).
8	http://ift.tt/1fHaBuu
9	See the Swiss Customs Administration website: http://ift.tt/1fHaDm6
10	See, for example: http://ift.tt/1fHaBKI http://ift.tt/1bhCAeP http://ift.tt/1fHaBKJ

 

via Zero Hedge http://ift.tt/LsSwmx Tyler Durden

With Deutsche Bank quitting the price-setting panel for gold and Bafin bearing down on the manipulators, Eric Sprott provides some more color on where the manipulation in the precious metals markets is underway (and when it will end)…

Submitted by Eric Sprott of Sprott Global Resource Investments,

Introduction

As we very well know, 2013 was a difficult but also puzzling year for precious metals investors. The price of gold, silver and their related equities declined by a significant amount while demand for physical bullion from emerging markets and their Central Banks was exceptionally strong.

A common argument that has been made to explain the precipitous decline of the price of precious metals in 2013 is of investors’ disenchantment with precious metals, which had been piling up in exchange traded products as a way for investors to gain exposure to the metals. Proponents of this theory point to the large declines in the total holdings of those ETFs as evidence of investors fleeing the precious metal trade. As shown in Figure 1, the price of both gold and silver suffered very significant declines throughout 2013. Therefore, if this explanation is correct, one would expect the total ETF holdings of both metals to be lower as well.

However, this is not the case. As shown in Figure 2 gold ETFs suffered large redemptions whereas silver ETFs saw their holdings remain more or less constant throughout the year, and this without any observable change in trading patterns in the two largest ETFs; GLD and SLV (Figure 3 shows the ratio of the trading values in the ETFs over time). If redemptions are a symptom of investors’ disenchantment with precious metals as an investment, shouldn’t silver have suffered the same fate as gold? Indeed it should have, but we think the reason silver ETFs were not raided like gold was that Central Banks do not have a silver supply problem, they have a gold problem. As we have argued before, the raiding of gold ETFs is bullish for gold because it reflects an imbalance in the physical market.¹

Figure 1: Gold and Silver prices declined significantly in 2013

 Source: Bloomberg

Figure 2: ETF Holdings – Troy oz (millions)

Source: Bloomberg, tickers ETSITOTL & ETFGTOTL

In this article, we further argue that the April raid on gold and gold ETFs almost backfired by creating a tsunami of buying in India and increased demand to unsustainable levels. In May 2013 alone, Indians imported 162 tonnes² of gold in a market where monthly global mine production is about 182 tonnes. A continuation of this trend, coupled with strong buying from other Emerging Markets and their Central Banks, would have been overwhelming. But, the response was swift. We suspect that, at the behest of Western Central Banks, the Reserve Bank of India reacted by enacting, in incremental steps, restrictive measures to prevent gold imports (See Figure 4 for a timeline of the major changes made by the Indian Government).³

Figure 3: Traded Value – Ratio of SLV to GLD

Source: Bloomberg. Traded Value is calculated by taking the total trading volume for a quarter and multiplying it by the average price over that quarter. A ratio of 1 indicates that SLV traded as much, in $ terms, as GLD.

Figure 4: Efforts to Curb Indian Gold Imports

Source: Bloomberg, Economic Times 

 

Supply and Demand Imbalances: The Indian Effect 

We have already discussed at length the supply and demand imbalance in an Open Letter to the World Gold Council, asking them to revise their methodology because it grossly understates the amount of demand coming from emerging markets.⁴ Our gold supply and demand table (Table 1) reflects the latest available data (2013 Q3 in most cases). World mine production, excluding Chinese and Russian production still stands at about 2,100 tonnes a year. Chinese net imports most likely exceeded 1,700 tonnes for 2013 (81% of world mine production) and demand from the rest of the world is rather stable.⁵

The overall picture has not changed much since our last article, with the exception of Indian imports. As of the second quarter of 2013, India had cumulative net gold imports of 551 tonnes, which annualizes to 1,102 tonnes.⁶ However, Q3 data shows net imports of only 31 tonnes (for a total of 582 tonnes YTD), which annualizes to 776 tonnes. 

This incredible loss of momentum for “official” gold imports was the result of concerted actions by the Reserve Bank of India and the Indian Government. While the “official” justification for those restrictions is the large Indian current account deficit, this argument makes little sense. According to government officials, Indian’s taste for gold and the corresponding imports worsens the country’s trade balance, worsens its current account deficit and puts downward pressure on their currency, the Rupee. 

But, without going into too many details, the classification of gold as a “good” in the trade balance is at best misleading. Since gold is more of an investment vehicle and is not “consumable” per se, it should instead be accounted for in the capital account of the balance of payments instead of the current account. Indeed, Switzerland, which is a large net importer of gold, reports its trade balance “without precious metals, precious stones and gems as well as art and antiques” to reflect fact that those are “investments” rather than consumption goods.⁹ In this case, why should India be any different and report their trade data excluding gold? To us, all the fuss about gold imports by the Indian Government is a red herring.

So, without the intervention in the Indian gold market, the shortage of gold would have wreaked havoc in the market, a situation that Western Central Banks could not tolerate.

 Table 1: World Gold Supply and Demand 2013, in Tonnes
 
Sources: GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1, Q2 & Q3. Chinese mine supply comes from the China Gold Association and is up to October 2013, the annualized number is a Sprott estimate.⁸ Russian mine supply comes from the Union of Gold Producers and is up to 2013 Q3. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Nov. 2013 and is annualized to account for the missing month. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1, Q2 & Q3 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013 Q1, Q2 & Q3. ETFs data come
s from GFMS as well.

 

Conclusion and Outlook for 2014

As demonstrated in our Open Letter to the World Gold Council, there was a large supply-demand imbalance in 2013. The evidence presented here suggests that the decline in the price of gold in mid-2013 and the subsequent raid of gold ETFs (but not silver ETFs) was engineered by Western Central Banks to help solve their physical gold supply problem. However, the resulting increase in Indian gold demand exacerbated the problem. The solution was to restrict Indians from importing gold by all means possible in order to help the Western Central Banks regain control of the gold market.

However, the rate of drain in gold ETFs cannot continue forever; at the current pace of 930 tonnes/year, there are less than two years of gold left in ETFs. Moreover, Indians have proved highly creative at finding ways around import restrictions.¹⁰ Smuggling is on the rise and will most likely increase as smugglers become more sophisticated. Overall, we believe that interest in physical gold from emerging markets will remain a driving force.

Besides, mine production is unlikely to grow, as reflected by the significant decrease in capital expenditures expected for the major gold producers (Figure 5).

Accordingly, we believe that the manipulation of gold prices by central banks, as demonstrated by the above analysis, cannot continue in 2014. Therefore, we expect substantial increases in the price of precious metals as the true shortages become obvious.

Figure 5: Capital Expenditures ($mm) – XAU Index Members
 
 Source: Bloomberg. Consensus analyst estimates are used for years 2013-2015.

 

P.S. Due to recent developments, we would also like to highlight some related media stories

Jan. 17, 2014: Germany’s top financial regulator said possible manipulation of currency rates and prices for precious metals is worse than the Libor-rigging scandal

Jan. 17, 2014: Deutsche quits gold price-setting as regulators investigate fix (Did the regulators ask them to?)

Dec. 13, 2013: Bafin Said to Interview Deutsche Bank Staff in Gold Probe

Nov. 26, 2013: U.K., German Regulators Scrutinize Gold, Silver Pricing

Sept. 9, 2013: Sprott Thoughts: A Leaky Fix

 

1	See, for example, “Redemptions in the GLD are, oddly enough, Bullish for Gold”.
2	http://ift.tt/10ObGYg
3	See “Do the Western Central Banks have any gold left?”. Sprott Asset Management LP, Markets at a Glance May 2013.
4	See the full article at: http://ift.tt/1dy0X95
5	As a reminder, because of our methodology which uses net imports as a proxy for total demand in countries that do not re-export gold, we exclude the “total industrial demand” estimate from the GFMS to avoid double counting. Thus, we underestimate total gold demand because we do not include industrial demand from the countries other than China, India, Turkey and Thailand.
6	As reported by the UN Comtrade Statistics. We use the total dollar amount reported and average quarterly prices to infer the total amount of gold imported and exported.
7	This is calculated by taking the total consumer demand for jewellery, coins and bars for 2013 Q1 & Q2 from table 10 of the WGC’s “Gold Demand Trends” and subtracting from it demand from the individual countries we have listed in the table (China/Hong Kong, India, Turkey, Russia and Thailand).
8	http://ift.tt/1fHaBuu
9	See the Swiss Customs Administration website: http://ift.tt/1fHaDm6
10	See, for example: http://ift.tt/1fHaBKI http://ift.tt/1bhCAeP http://ift.tt/1fHaBKJ

 

via Zero Hedge http://ift.tt/LsSwmx Tyler Durden

“We are concerned about the sustainability of the Equity market rally at this stage,” warns Citi’s FX Technicals’ Tom Fitzpatrick. Between price action parallels to those seens around the peaks in 2000, the fragility of confidence, the Fed taking its “foot off the gas” and bonds now yielding considerably more than stocks, Citi adds, though we are yet to see bearish breaks, they doubt higher highs wil be sustained for long.

 

 

The price action on the S&P 500 reminds us of that seen around the highs in 2000

Starting on the left of the chart, there was a serious correction down in the S&P 500 of 22%. This was at the time of the Asia and Russia Crises

That looks very similar to the 22% correction down seen in 2011

Both of these corrections of 22% each were reversed by a bullish monthly reversal (not shown on this chart as it is a weekly chart)

From that 1998 low, the S&P 500 rallied 68% to the high in 2000. At that high the market was 14% above the 55 week moving average while we also had a large gap between the 55 week and 200 week

This time the market has rallied 72% from the 2011 high and currently the 55 week moving average stands at 1655. 14% above that level would put the S&P 500 at 1,887 which is marginally above where we trade today

We also see a large gap between the 55 and 200 week moving average similar to that seen in 2000.

So overall, from a price action perspective, the trend is mature and is as stretched as it was in 2000.

Furthermore, as previously highlighted,

• Confidence appears fragile and likely to move lower (Confidence is not dependent on the stock market but quite often the other way round)
• The Fed is taking the “foot off the gas” which has been the primary driver of this stock market rally
• Bonds yield more than equities now (The S&P 500 dividend yield is at 1.9% while the 10 year yield is currently 2.9%)

So overall, while we are yet to see bearish breaks, we are concerned here with the S&P 500 from a medium term perspective. It may well be possible for a higher high still (in 2000, the market made a marginal new high in March but then fell back), though we doubt such a development will be sustained for long

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

Submitted by Doug Casey's International Man,

(Editor's note: See here for Part 1 of this story. The following is a firsthand story of how and why a former US citizen—who kindly shared this information on condition of anonymity—decided to renounce his US citizenship. It's packed with practical advice and priceless insights into this momentous decision. Whether or not you take the ultimate step of renunciation, I believe you will find value from the author's experiences.)

By Citizen of the World

There are two forms for the applicant to fill out: DS-4079—a questionnaire about the applicant’s intentions to give up US citizenship; and DS-4081—a “Statement of Understanding” (that the applicant knows and understands the consequences of giving up US citizenship, and that doing so is irrevocable). DS-4079 is technically only for a “Relinquishment” filing, but may also be requested for a “Renunciation” filing. For a Renunciation proceeding (but not for a Relinquishment), the consular officer also prepares DS-4082, the Oath of Renunciation. The Oath is administered orally, after which the applicant as well as the consular officer signs the DS-4082.

Then the consular officer prepares a DS-4083, Certificate of Loss of Nationality (CLN). But the applicant will not be given a copy of the CLN at this time, as the application must first be approved by a State Department bureau in Washington. Embassy/consular staff were careful to remind me that my expatriation would not be finalized until these documents were reviewed in Washington—in particular my CLN, and my application was approved in Washington.

The time necessary for that State Department review process apparently has varied quite widely in recent years. Its duration may also depend at least somewhat on the embassy or consular office where one makes their expatriation application (perhaps taking longer from embassies with higher expatriation caseloads). Again, it may be useful to shop around among various embassies/consular offices which may be relatively accessible to an expatriation-seeker. The Isaac Brock website may be a very useful resource in this regard.

In my case, approval of my renunciation was fairly prompt—only about a month. As soon as the embassy or consular office receives confirmation from the State Department in Washington that the applicant’s filing has been approved, the embassy/consular office will provide the applicant an approved, sealed copy of the CLN.

For a renunciation, the effective date of expatriation is the date the Oath of Renunciation was performed; but for a relinquishment, the effective date of expatriation—as far as the State Department is concerned (but not the IRS)—is the date the “potentially expatriating act” (such as obtaining citizenship in another country) occurred. The IRS considers one’s expatriation date to be the date the applicant completes his or her filing with the embassy/consular office—provided only that that filing is subsequently approved by the State Department.

Of course, the “potentially expatriating act” may have occurred quite some time before one’s expatriation filing is made—but in such a case, it’s important for the person seeking to expatriate to avoid availing himself of any significant privileges/benefits of US citizenship, such as voting or using his or her US passport.

The State Department seems to have developed formulaic criteria for whether an applicant really intended to give up citizenship at the time they performed the “potentially expatriating act.” Even if one really did intend at the time one did the “potentially expatriating act” to give up citizenship and declares so in the application, the State Department will apparently refuse to accept that fact, if the person subsequently “continues to avail oneself” of any “significant”—whatever that means—benefits of US citizenship.

Once you’ve succeeded in expatriating, it will be important to be able to produce your CLN at various times in the future, as there will be no other official document you can offer as proof that you really did give up US citizenship. As FATCA and similar measures eventually become widespread (which unfortunately seems much more likely than not), the few remaining foreign financial institutions which have continued to accept US individuals as clients will dwindle further. So providing your CLN will likely become essential to open or even retain already existing financial accounts.

You should probably make several good copies of your CLN, including a high-resolution color scan (quite useful for online purposes). Sometimes it may be important to have some sort of notarization or other official recognition of it. You may want to do that sometime when you’re in the US, as notaries abroad tend to be a lot more expensive, less prevalent, and may refuse to even deal with documents not originating in their own country. Because loss of citizenship is irrevocable, there is logically no expiration to the CLN, so it should not matter when a copy of it is notarized. But alas, bureaucrats everywhere are not well known for their reliance on logic.

Once you’ve been notified that your expatriation application has been approved in Washington, you will be able to begin the process of applying for a visa to enter the US, if you wish to—that is, if you don’t hold a passport from a country on the US visa waiver list. Some people advise waiting for some time before applying for a visa, but there’s no formal requirement to do so.

Do keep in mind that the State Department considers that every applicant for a visitor visa to the US has the burden of proving (to the consular officials where the visa application is made) that the applicant will not try to stay illegally in the US. One might think that an expatriate, having gone to the considerable trouble of giving up citizenship, would be highly unlikely to want to stay too long in the US—but there’s no evidence that the State Department recognizes such an argument. One factor which does lend considerable support to an applicant’s (implied) assertion that they will not try to stay illegally in the US is to have “substantial ties” to another country—residency, social and/or familial ties, etc.

There’s no hard and fast requirement to apply for a US visa only at your “home”-country US embassy or consular office, but it’s generally considered better to do so. For instance, it’s likely easier to provide evidence of one’s substantial ties to that other country from within that country (and easier for the consular staff there to verify that evidence).

One very critical point to understand is that you should NEVER state that you are expatriating to avoid taxes. It could end up complicating matters if you ever intend to return to the US.

If your dossier with the US government states that you renounced for tax purposes, that information should be assumed to be readily available to any number of agencies—including those dealing with visas and immigration—and likely could be used to deny you a visa or otherwise deny entry into the US.

Although the authority to exclude a person from re-entering US on that basis is of questionable validity, and formal regulations on this have never even been proposed or implemented, State Department guidance to overseas posts does explicitly state this as a reason to reject a visa application.

The increasingly great difficulty (largely due to FATCA, FBAR, and Form 8938 reporting requirements) of trying to lead a normal life while living overseas as a US citizen is—and ought to be—reason enough for many to give up their US citizenship.

Some experts advise against giving any reason for why you’re expatriating in any of your interaction with US consular officials at any point during the expatriation process—and particularly in any of your responses on the DS-4079 Questionnaire. But these responses may be useful later on to have established that one did have substantial non-tax-avoidance reasons for expatriating. In any case, it would probably be best not to express opposition to the regime in DC too strongly or explicitly as the reason for expatriating—even if that is a major factor in one’s decision.

Do keep in mind that visa applicants are required to have a face-to-face interview with a US consular agent before a visa can be approved. The application (using form DS-160) must be completed using the State Department’s online system. The interview itself may be conducted in a more or less assembly-line manner, in a bank-teller-window-like setting. The main purpose of the interview requirement seems to be to assess the general nature of the applicant and his or her situation—and to attempt to ferret out any adverse factors for which US officials there might want to reject the application (such as lacking strong enough ties to one’s new home country, or an actual—or even fleeting—thought on the applicant’s part to remain illegally in US).

The lead time for getting the interview appointment will vary considerably by location and time of year, ranging anywhere from just one day up to several weeks, maybe even months. Consult the online appointment calendar of the embassy/consular office where you plan to submit your application and try to avoid applying during whatever peak periods may exist there.

It will probably only take a few business days after successfully completing the interview to receive your passport back with your visa. You’ll be advised at the end of the interview whether or not your application is being recommended for approval; apparently an application is very rarely rejected after a successful interview.

The parameters of any US Visitor visa you may be issued—its validity period (in years), number of entries allowed, and maximum length (in days or months) of each visit—will depend on the passport under which you apply for that visa.

It’s not very easy to locate country-specific State Department policy on these parameters, but this page on the State Department’s website has a selection box to check at least the default visa validity period and default number of entries allowed for any particular country. Unfortunately, this page has no information about the default length of stay permitted for US visa holders of a particular nationality.

(Editor’s Note: See the VisaHQ website to see what kind of visa passport holders from country X need to enter country Y while living in country Z.)

Another point to note: regardless of whether you enter the US under the visa-waiver rules or under your own visa, doing a “visa run” (a quick trip to a nearby country to reset one’s visa or visa waiver period) is not so easy. US Immigration authorities require you to perform a “substantial” departure, meaning you must go at least as far away as continental South America—no quick trips to Canada, Mexico, nor even any Central American or Caribbean country!

Without question, you’re likely to have some fairly keen feelings at least the first few times when you come back to the US as an “alien” (what a horrible word—as if people living elsewhere are some sort of suspicious or even dangerous intruders). When you come back to the US, you’re likely to be quizzed a little bit by the immigration officer (and maybe also the Customs inspector), but in the half-dozen or so times I’ve been back so far, I’ve not been given a hard time at all.

Of course, past performance is no guarantee of future results, so one will always face the risk of more hassles down the road. But given that US border authorities already claim that even US citizens have no Constitutional rights at entry points, there are risks for everyone.

I didn’t expatriate because I expected it to make my life easier overall—it has not made it easier overall (at least for me). Yes, some things are easier now: I can open financial accounts overseas and invest directly in overseas securities, many of which have become effectively off limits to US individuals.

Also, I sleep better at night, relieved to no longer be even an unwilling, passive participant in the ever-escalating wars against the growing assortment of “evils” declared by Washington. And I no longer have to worry about making an honest mistake or omission on any of the ever-increasing IRS reporting requirements. But it’s at least somewhat more difficult to travel—this depends a lot on the other passport(s) one has.

Another significant trap to be wary of is the IRS’s Substantial Presence criteria, which risks you getting sucked back into the whole US tax regime (including all the overseas reporting requirements). This occurs if you stay too long while visiting in the US. Not only must one stay in the US no more than 182 days in any one year, you must also ensure that your weighted average number of days within the US over the most recent three years isn’t too high.

There are several other ways one may be required to continue dealing with the IRS after successfully expatriating, especially if you continue to have any US-based assets. At a minimum, in the first year after expatriation, it will be necessary to file Form 8854.

If you are considered a “covered expatriate”, preparing Form 8854 (and both of its associated 1040 forms) will be at least fairly complicated, and will almost certainly require the services of one of the small number of professionals who are experienced with Form 8854 and the “mark to market exit tax.”

I’m still in the early days of my post-expatriation life—really far too soon to judge with any certainty whether I made the right decision (even according to my own thinking, let alone what anyone else thinks). But so far, I’m satisfied that I did do the right thing—for myself. The “silence implies consent” credo is very deeply ingrained in my outlook; this tends to trump the drawbacks, at least for myself. I find implied endorsement of this thinking in Nassim Taleb’s Antifragile, especially in a number of passages in chapter 22. In the end, expatriation is a momentous decision and will be unique for each person considering it—there’s no one right answer for everyone.

via Zero Hedge http://ift.tt/1ae5DDo Tyler Durden

The Ultimate Act of Freedom

By

Cognitive Dissonance

 

Which came first, the chicken or the egg? I ask not because I require an answer, but rather because I desire to ask better questions both of myself and of the world around me. Asking a question that seems to compel the questioner to chase his or her tail is not as pointless as it may seem if the query can be redirected to challenge ‘common’ knowledge or long standing beliefs.

So let me try again with a different question. Which came first, the sociopathic leadership or the seriously dysfunctional populace? I suspect the answer is both and neither.

As with most symbiotic codependent (dysfunctional) relationships, there is no Yes or No, Right or Wrong, Black or White answer. Asking which came first is missing the point since one component of the relationship cannot exist as it does now without the other, at least not for long. A better question might be…..why do we believe there is a defined cause and effect relationship that creates the present day insanity when the very nature of insanity itself requires none in order to exist?

As I have said several times before in my comments and contributing articles, insanity is the ultimate in perfection. It is self replicating, self sustaining and most importantly self affirming. Nearly all sane (or near sane) entities cease and desist wasting energy on useless or self destructive tasks once its futility or danger is obvious and affirmed, often by outside forces or authorities but occasionally by self examination which prompts self awareness.

Insanity on the other hand is its own sole and ultimate authority which in turn acts as the energy source to keep the perpetual motion insanity machine marching forward toward a parabolic blow off of self annihilation. The potentially lethal mistake we all tend to make is in believing that there is only one flavor of crazy. There are in fact seven billion variations of the base product, uniquely customized in cut, color and clarity to meet our own individual needs and perceptions. So in effect the problem is not they, those and them, but us, we and me.

A Mind of its Own

I’m certain you have seen any of a dozen variations of the comedy routine where out of the blue the comedian’s arm or hand becomes possessed and tries to choke the comedian or otherwise attack the body that the arm is attached to. Suddenly the appendage has a mind of its own and that mind is usually extremely self destructive. It can be hilarious stuff when performed well, with a classic example being Peter Sellers as Dr. Strangelove.

Of course we all know this can’t really happen. A person’s brain controls all the appendages via the central nervous system, aside from certain special conditions such as a disease of the body. So while the body’s ‘operating system’ pretty much functions independently of our conscious awareness, essentially utilizing its own firmware/software routines, we (as do all other animals) command our assorted joints and appendages with broad commands ) to suit our needs and wants.

For example we think ‘I want that over there’ or ‘I want to pick that up’ rather than thinking about moving individual muscles. Though I suppose it could be argued that we don’t even ‘think’ about these commands in the same way we think about those financial problems that have been bugging us. We just sort of see or perceive that we want to do something and the internal software routine figures out the details. Either way, the only (perceived) difference between ‘we’ and the flea is that ‘we’ are conscious, and we believe the flea is not.

Perhaps it is this ability to command our appendages that afford us our false sense of perceived independence from, and control of, the body. Yet in so many ways it is our body and not our mind/consciousness that actually controls the appendages, though not in the direct sense of the word ‘control’. We spend our entire life attending to the needs of the body; feeding, sheltering and tending to all its various needs whether physical, emotional or psychological. And yet we maintain to our dying days that ‘we’ are in control of the body, rather than at a minimum acknowledge the obvious codependency.

Codependently Dysfunctional

In so many ways the human mind and the body are engaged in a symbiotic codependent dysfunctional relationship. Dysfunctional because for as long as the conscious mind believes it is the master of its domain (when clearly it is not) the relationship is not a healthy one by any stretch of the imagination. This error of perception (actually a deliberately staged continuous deception perpetrated by external sources) is one of the reasons I often speak about looking within, of understanding our motives and dependencies in order to move deeper down the rabbit hole.

We carry this potentially fatal disconnect with us when thinking about and interacting with not just the physical world around us, but with the social order and the so called powers that be, aka ‘our’ leadership. We believe ourselves disconnected from the world around us; particularly from those who we believe ‘control’ us or who are ‘leaders’ in our world. We speak of this phenomenon by using distancing terms such as they, them and those. We consider ourselves divorced from the cause and only subject to the effect.

And yet all around us we see on a daily basis various examples of nature interconnected, of animals moving and acting as one even though they are seemingly as disconnected from each other as we perceive ourselves to be separated from one another. Watch carefully as birds flock, fish school and cattle herd. Even a stand of trees or a patch of wild flowers will communicate with each other either through interconnected root systems, pheromones or other (un)known methods or processes. But communicate they do and it is only our denial that prevents us from recognizing the same in ourselves and others in the human herd.

Choice and Free Will

That which we try to ignore, outright deny or reject out of fear controls us, oftentimes on a deeply subconscious level. This concept as it applies to ‘them’ is very difficult for most of ‘us’ to grasp, let alone accept, principally because we believe ourselves to be ‘in control’ of ourselves, but not at all in control of, or responsible for, ‘their’ actions other than possibly in the most indirect and inconsequential way. No one rain drop feels responsible for the flood, yet here comes the rain. Can you say hip waders?

Why is it that throughout history every so called leader has demanded consent (some demand more nicely than others) from the population, regardless of whether the consent is coerced, connived or freely given? Think about that carefully for a while rather than to just dismiss it off hand with any of a dozen rote responses. A symbiotic relationship, no matter how dysfunctional or self destructive, requires consent from all parties at some level to function as it does.

As ridiculous as this may sound nothing truly compels us to consent even when the ultimate violence is threatened if we do not comply, that of (extreme) distress and/or death. We can choose death, though many will argue that to choose death is irrational or insane. However as I said earlier, that which we try to ignore, outright deny or reject out of fear controls us, oftentimes on a deeply subconscious level. And the vast majority of ‘us’ ignore, deny or reject seriously contemplating ‘our’ own death, whether by natural causes or externally applied violence.

We wish to believe that we live in a cooperative society; that we participate of our own ‘free will’. And yet when we see those flashing lights in the rear view mirror or open that demand letter from the IRS or ‘Justice’ system we do not actually participate of our own ‘free will’, but simply because a threat of (ultimate) violence is implied if we do not.

Still, this is consent simply because there is/are alternative(s) available. We consistently take the softer easier way and comply, then rationalize and justify it as reasonable, rational and sane. It is important that we recognize the difference between ‘free will’ and ‘consent’ because in so many ways they are very different concepts.

Since we make the (un)(semi)(fully)conscious decision to comply in many ways we are ‘willingly’ part of the very system we rail against as predatory and abusive. While many might argue that this is all just semantics, I contend that the world would be a very different place if we had the courage to consider the always available alternative choices other than the softer easier way of complying. Please notice I said consider, not agree. One must always (seriously) consider everything even if one does not agree.

In most, but not all cases, our pain comes not in knowing what we should do, but in actually doing it. In fact most of our emotional/psychological pain springs from the cognitive dissonance of trying to ignore, deny or reject that which we know to be true and correct.

The ultimate act of freedom is to seriously consider breaking the chains that bind us. And those chains are not physical and won’t be found binding our wrists or ankles, but rather they are self imposed upon our own minds. Freedom, true freedom, can only begin when we willing choose to start down the path of personal sovereignty and total personal accountability.

 

01-17-2014

Cognitive Dissonance

via Zero Hedge http://ift.tt/1b7zbAS Cognitive Dissonance