Sunday, October 31, 2010

The Fed Can't Afford To Say "BOO!"

Could Friday's news that the Sprott Asset Management Physical Silver Trust announced it's Initial Public Offering have the CRIMEX shorts in a panic? Consider that the total number of shares listed is 50 million shares at 10 dollars or 500 million dollars. Eric Sprott and company will now be on the prowl for 20.4 million oz of silver...perhaps they have been already. Sprott will likely go to the source, the Silver mining companies, to obtain this hoard. This will further crimp the Silver supply to the goons at the CRIMEX desperately in need of this physical bullion to cover their outrageous and criminal short positions.

Sprott Physical Silver Trust Announces Initial Public Offering of 50,000,000 Trust Units
TORONTO, Oct. 29 /PRNewswire-FirstCall/ - Sprott Inc. (TSX: SII) ("Sprott") today announced that Sprott Physical Silver Trust (the "Trust"), a trust created to invest and hold substantially all its assets in physical silver bullion and managed by Sprott Asset Management LP, a wholly-owned subsidiary of Sprott, has agreed to issue in its initial public offering (the "Offering") 50,000,000 transferable, redeemable units of the Trust ("Units") at US$10.00 per Unit, for gross proceeds of US$500,000,000. As part of the Offering, the Trust has granted the underwriters an over-allotment option which is exercisable in whole or in part to purchase up to an additional 7,500,000 Units at US$10.00 per Unit.

The Units will be listed on the NYSE Arca and the Toronto Stock Exchange under the symbols 'PSLV' and 'PHS.U', respectively. The Offering was made simultaneously in the United States and Canada through a syndicate of underwriters led by Morgan Stanley and RBC Capital Markets in the United States and RBC Capital Markets and Morgan Stanley in Canada. The Canadian syndicate includes TD Securities Inc., Canaccord Genuity Corp., National Bank Financial Inc., BMO Capital Markets, HSBC Securities (Canada) Inc., GMP Securities L.P., Wellington West Capital Markets Inc., and Mackie Research Capital Corporation.

Lust for Silver Returning
By Gene Arensberg, GotGoldReport
The world has a lot less silver sitting in vaults than it did 30 years ago. The best estimates are there is less than half as much as there was then.

The world population is about 50% higher than it was in 1980. The sheer number of people on the planet that could possibly want to own some silver is more than two billion higher than then, and in 1980 people in China were prohibited from owning silver bullion. Today China’s 1.3 billion souls are actually being encouraged to own gold and silver in commercials on Chinese TV. …

The number of people able to afford a small amount of silver metal is logarithmically higher than then. There are literally hundreds of millions more people the world considers “middle class” than there was in the last great rush into silver – some of whom will seek to protect a portion of their wealth in hard assets like silver. … The number of millionaires today compared to 1980 is exponentially higher – many of whom will seek to protect a portion of their wealth in metal.

Since 1980 the various governments have increased world money supply by close to 1,000%. There are literally three orders of magnitude more dollars, yen, euro, francs, pounds sterling, etc. than there was in 1980. Governments know few limits when it comes to printing money when they are no longer kept in check by the monetary policemen of gold and silver. …

For several generations people have been led to believe (artificially) that silver was no longer precious, or at least as precious as it used to be. For several generations government interference and manipulation of the money supply and the supply of actual metal gave people a reason to believe that silver was more abundant than it actually is. …

For several generations the historic ratio of silver to gold was convoluted and overly high because of that interference. By the 1940s and again in the 1990s the silver to gold ratio reached as high as an absurd 100:1 or 100 ounces of silver to “buy” an ounce of gold.

We think that there is a good reason that silver saw wide use as money in the world historically. We think there was also good reason for the old, historic ratios of between 15 and 20 ounces of silver to one ounce of gold too. We also think that silver became known as a “precious metal” for good and valid reasons.

We think that silver has begun its journey back from being despised and looked down upon, back to its proper position as the second most popular precious and monetary metal. We do indeed think that silver is money.

Think of it for a moment. Today, versus the last great rush into silver in 1980, we have 50% more people globally using 1,000% more dollars, yen, euros, pounds, etc. to chase less than half as much physical silver metal in a world where one can buy silver instantly, with a mouse click, in one’s study … maybe even in one’s underwear while browsing the internet for the latest market moving developments.

This time when the world discovers what we have been saying since August of 1999 – that silver is cheap relative to gold – that silver is scarce relative to gold – that silver will not remain the bastard child of the precious metals forever, and so on … this time when the world discovers silver it will likely do so in the most extreme fashion ever. We think this global rush into silver will make the first surge into silver in 1980 look like a little league warm up. We also think that this Silver Express has finally begun to board. It may actually be inching forward just a little. We’ll see. …

We cannot expect the average person to understand or to investigate the actual reasons for why silver was so beaten up and so hated for so long. Nor can we expect the average person to grasp the coming clash of the tectonic forces of overwhelming demand versus actual relative scarcity. All they will know is that the “lust for silver” has somehow returned, long after the train - long after this Silver Express has left the station… AND THEY STILL WON’T BELIEVE IT!

Silver to $30 in 18 days, Turk tells King World News
Dear Friend of GATA and Gold (and Silver):
In an interview today with Eric King of King World News, GoldMoney founder and GATA consultant James Turk does some chart work and predicts that silver will be at $30 in 18 days. The last time Turk made such a specific prediction about a precious metals price explosion he was off by 48 hours. His friends forgave him that much and maybe he'll do better this time. In any case, from Turk's lips to the Great Market Manipulator's ear -- and we don't mean Bernanke's. You can find excerpts from the interview with Turk at the King World News Internet site here:

Mr. Turk identifies the Flag Pattern that has been broken to the upside in Silver. My calculations projected a move to $29.15 with $25 as resistance on the way. This coming week should be one of the more interesting to date in the now ten year old bull market in Silver.

I pointed out Friday morning how anemic the 2% third quarter GDP reported is in reality relative to today's stubbornly high unemployment numbers. John Mauldin in his latest essay makes it quite clear how poor the most recent US GDP reading is. The Fed has papered themselves into a corner with their talk of further Quantitative Easing. In fact, they may have pulled the rug out from under the economy. $500 BILLION, $1 TRILLION or $2 TRILLION, it doesn't matter how much, for how long or when. The money isn't going to find it's way into the "mainstreet" economy, it's going to go straight into US Treasury bonds, the equity markets, and commodities. Americans are going to pay a heavy price to watch their economy be destroyed by the banksters.

It's Softer Than It Looks
by John Mauldin
The GDP number came in at a rather soft 2% growth, up slightly from last quarter's 1.7%. From the standpoint of creating new jobs, 2% just doesn't cut it. We need about 100,000-125,000 new jobs a month just to keep up with population growth, and a 2% GDP will not give us half that, as we saw last quarter. Most economists say you need about 3.5% GDP growth to get solid job reports.

And the prospect for getting that robust a number any time soon is not looking good, as the soft number mentioned above looks even softer when you delve into the details. 70% of the total growth in GDP came from growth in inventories, up by over 40% from the second quarter. Now normally a build in inventories is a positive, as it shows confidence on the part of businesses. But business confidence surveys have not been all that good, which suggests that businesses may be cautious, as this cycle does not seem to resemble past cycles.

(Well, except for Apple. Everyone's going to get an iPad for Christmas. You haven't got one? It is so way cool. My new favorite toy and fast becoming an indispensable business tool.)

How likely are we to see that same type of growth in inventories in the last quarter? Not very, I think.

Sidebar: For the non-geek reader, when inventories are increasing, that is a "plus" for GDP. When those inventories are sold, that reduces GDP. That may seem backwards, but that is just the way the math works. So if inventories are sold in the 4th quarter (think Christmas sales), that will be a drag on the GDP numbers.

In every previous post-recession cycle, GDP growth would typically be around 5% at this time. But this is not a business-cycle recession; it's a deleveraging, credit-crisis recession. Thankfully, those do not show up all that often, but sadly one has come home to roost in much of the developed world this decade. The aftermath of credit-crisis recession is a slow growth period of 6-8 years, punctuated by more volatility and more frequent recessions.

What economists call the "final sales" portion of GDP has just been growing at less than 1% over the last 18 months. That is a lukewarm number, to say the least. That is not the stuff of a strong GDP.

And export growth is slowing, which rather surprises me, as the dollar has been weaker. If imports rise and exports do not rise as much, as has been the case, that is a drag on GDP. State and local governments reduced GDP by 0.2%, and this12 % of the economy is likely to be under continued pressure, not adding to GDP for quite some time.

It would not surprise me to see GDP growth be closer to 1% in the 4th quarter, unless we start to see evidence of more inventory building. That is not good for jobs, personal income, tax collections needed to cover deficits at all levels, or consumer confidence. My worry is, what if we get some kind of shock to our economic body when growth is so anemic?

A Paralyzed Fed Defers Decision On Monetary Policy To Primary Dealers In An Act That Can Only Be Classified As Treason [MUST READ]
by Tyler Durden
As if there was any doubt before which way the arrow of control, and particularly causality, points in America's financial system, the following stunner just released from Bloomberg confirms it once and for all. According to Rebecca Christie and Craig Torres, the New York Fed has issued a survey to Primary Dealers, which asks for suggestions on the size of QE2 as well as the time over which it would be completed. It also asks firms how often they anticipate the Fed will re-evaluate the program, and to estimate its ultimate size. This is nothing short of a stunning indication of three things: i) that the Fed is most likely completely paralyzed due to the escalating confrontation between the Hawks and the Doves, and that not even Bernanke believes has has sufficient clout to prevent what Time magazine has dubbed a potential opening salvo into a chain of events that could lead to civil war: in effect Bernanke will use the PD's decision as a trump card to the Hawks and say the market will plunge unless at least this much money is printed, ii) that the Fed is effectively asking the Primary Dealers to act as underwriters on whatever announcement the Fed will come up with, and thus prop the market, and, most importantly, iii) that the PDs will most likely demand the highest possible amount, using Goldman's $2-4 trillion as a benchmark, and not only frontrun the ultimate issuance knowing full well what the syndicate of 18 will decide in advance of what the final amount will be, but will also ramp stocks on November 3 to make the actual QE announcement seem like a surprise. This also means that the Primary Dealers of America, which include among them such hedge funds as Goldman Sachs, such mortgage frauds as Bank of America, such insolvent foreign banks as Deutsche, RBS, UBS and RBS, and such middle-market excuses for banks as Jefferies, are now in control of US monetary, and as we explain below fiscal, policy.

It also means that the Fed has absolutely no confidence in its actions, and, more importantly, no confidence in how its actions will be perceived by the market which is why it is not only telegraphing its decision to the bankers, but is having its decision be dictated by them, an act so unconstitutional it would be seen as treason in any non-Banana republic! This is the last straw confirming that the only ones left trading the market are the Fed and the PDs, passing hot potatoes to each other, and the HFTs, churning the shit out of everything else to pretend someone is still trading.

And the saddest conclusion is that this is the definitive end of US capital markets: not only is the Fed's political subordination a moot point, but the Fed, and the middle class' purchasing power via the imminent dollar destruction that is sure to follow as the PDs seek to obliterate their underwater assets by raging inflation, is now effectively confirmed to be a bitch of Lloyd Blankfein and his posse.

The official explanation for this unprecedented incursion by the banking crime syndicate in US monetary policy is as follows:

Hyperinflation is certain, John Embry tells King World News
Eric King,
King World News interviewed John Embry, Chief Investment Strategist for Sprott Asset Management. John is absolutely convinced that hyperinflation is a certainty. When asked about Art Cashin’s comments on hyperinflation Embry replied, “I’m another person that worries hugely about hyperinflation, I mean the monetary path that they appear to be following, I guarantee you will lead to hyperinflation.”
October 27, 2010

John Embry continues:

“I think it could very well happen this time because the physical market is robust, and I’m told there’s not a lot of physical gold available right now...We could very easily overrun the shorts at Comex and force them to cover, even though they have extraordinarily deep pockets. If that happens, we are going to see some really spectacular price moves as a result.

...I think that’s why when these things move, all the gold stocks, I think you’re going to feel like your hair’s on fire they’re going to move so fast.”

Regarding the US dollar:

“What it’s really going to collapse against is hard assets...I really don’t think people have any idea the extent to which the standard of living can fall in North America, particularly in the United States. I mean when a currency collapses against everything else, basically that is saying that the standard of living is going to fall.

In fact, it could fall by 30, 40 or 50% just to pick some wild numbers, is not out of the question. Things have been pretty good for the last 60, 70 years in North America, and they think they’ll be good forever. It isn’t going to happen that way.”

The scary actual U.S. government debt
By Neil Reynolds
Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”

Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”

This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.

Prof. Kotlikoff says: “The IMF is saying that, to close this fiscal gap [by taxation], would require an immediate and permanent doubling of our personal income taxes, our corporate taxes and all other federal taxes.

“America’s fiscal gap is enormous – so massive that closing it appears impossible without immediate and radical reforms to its health care, tax and Social Security systems – as well as military and other discretionary spending cuts.”

He cites earlier calculations by the Congressional Budget Office (CBO) that concluded that the United States would need to increase tax revenue by 12 percentage points of GDP to bring revenue into line with spending commitments. But the CBO calculations assumed that the growth of government programs (including Medicare) would be cut by one-third in the short term and by two-thirds in the long term. This assumption, Prof. Kotlikoff notes, is politically implausible – if not politically impossible.

One way or another, the fiscal gap must be closed. If not, the country’s spending will forever exceed its revenue growth, and no one’s real debt can increase faster than his real income forever.

A Hidden Fiscal Crisis
Laurence J. Kotlikoff
A large fiscal gap
How large is the U.S. fiscal gap? According to the recent IMF report, “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates,” which are rates applied to future receipts or payments to determine their present value. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

Data from the U.S. Congressional Budget Office (CBO) long-term alternative fiscal scenario confirm the IMF’s findings. Based on the CBO data, closing the fiscal gap requires an annual fiscal adjustment of roughly 12 percent of GDP. This is based on a 3 percent real discount rate. Using a 6 percent real discount rate lowers this figure to about 8 percent of GDP. The comparable figures for Greece are slightly lower than those for the United States, according to unpublished calculations by Stephan Moog, Christian Hagist, and Bernd Raffelheuschen of the University of Freiburg.

What would it take to raise 8 percent, let alone 12 or 14 percent, of GDP? In 2009, federal personal income taxes totaled 7.4 percent of GDP in the United States. To achieve present value fiscal balance would require a change in the present value of the government’s net cash flow equivalent to at least an immediate and permanent doubling of income taxes.

The CBO forecast actually is more pessimistic than the IMF’s. That’s because the CBO already builds in a 50 percent increase in personal income tax payments as a share of GDP. In addition, the CBO assumes that growth in the benefit levels of Medicare and Medicaid—government programs that provide health care to the elderly and poor, respectively—will fall by about one-third in the short term and two-thirds in the long term. Moreover, both CBO scenarios are implausible.

Take the CBO’s projected rise in income taxes relative to GDP. This projection reflects primarily the automatic increase in taxes that occurs because the income tax is indexed to prices, not real wages, and the CBO assumes no adjustment for real wage growth in the graduated tax brackets. Under this projection, as real wages rise, workers move into higher income-tax brackets. It seems politically unlikely that the U.S. Congress would allow this to continue for even a decade, which is what the CBO assumes.

Spending projections appear optimistic too. There is no concrete policy in place to keep a lid on growth in Medicare and Medicaid benefit levels. Since 1970, real federal spending per person on Medicare and Medicaid has grown at an average annual rate of 6.4 percent, whereas real per capita GDP has grown at an annual rate of only 1.8 percent. The CBO assumes a significant slowdown in the nondemographic component of this differential. Given the 40-year failure to control growth in Medicare and Medicaid benefits per beneficiary, the CBO’s assumption seems optimistic.

Moreover, there is a significant possibility that employer-based health insurance will unravel, which is not envisaged in the CBO projections. The new health care reform law passed this year includes large subsidies for low-income workers who seek to buy insurance coverage under a health insurance exchange, and imposes relatively minor penalties on employers who stop offering coverage. The availability of Medicare has effectively eliminated private provision of basic health insurance coverage for the elderly. Given the mix of incentives for employers and low-income employees, we should expect the same ultimate result for low-income workers.

Were the CBO to forecast without its strong assumptions, the U.S. fiscal gap in relationship to GDP would be substantially larger than that of Greece—and of most, if not all, the advanced economies that are members of the Organization for Economic Cooperation and Development. And unlike in Greece, where the government has just publicly debated and legislated major, if still insufficient, fiscal reforms, the CBO’s assumptions about how things will evolve have yet to be publicly discussed or, indeed, even contemplated in U.S. political discourse.

Insurmountable government debt and massive mortgage fraud assure us of a Fed rescue via QE2. The US government can not be allowed to default on it's debt. Given the choice of saving the US Dollar, or saving the equity and bond markets, the Fed has little choice but to cut the dollar loose, and let if fall where it may. Tuesday's mid-term elections are taking a back seat to Wednesday's Fed announcemnt regarding their QE2 intentions. The markets hate surprises, and at this stage, the Fed can't afford to say "BOO!"

Keep an eye to the Yen and the Yuan as the week begins, and "expect the unexpected". It would be foolish to make predictions ahead of the Fed this evening, but it would be safe to say that "volatility" will rule the days ahead.

No comments:

Post a Comment