Things That Make You Go Hmmm...

Bulls Hit

April 22, 2013

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Bulls Hit

'The key to making money in stocks is not to get scared out of them.'

'Rise above the deceptions and temptations of the mind. This is your duty. You are born for this only; all other duties are self-created and self-imposed owing to ignorance.'

'Almost all people are hypnotics. The proper authority saw to it that the proper belief should be induced, and the people believed properly.'

'Oh, what a tangled web we weave ... when first we practice to deceive.'

'Gold still represents the ultimate form of payment in the world.'


THINGS THAT MAKE YOU GO HMMM... ....................................................3

Reinhart, Rogoff ... And Herndon: The Student Who Caught Out the Profs ..................19

How Europe's Crisis Countries Hide Their Wealth ................................................20

After the Flash Crash .................................................................................21

Why Can't the IMF Face Up to the Truth About the Failing Euro? ..............................23

Central Banks Find Stimulus Glitter in Gold Slump ..............................................24

Understanding German Politics ......................................................................25

The Oracle's Oracle ...................................................................................26

That Swooning Feeling ................................................................................27

Japan Joins Ugly Contest with Tsunami of Money ................................................28

CHARTS THAT MAKE YOU GO HMMM... ..................................................31

WORDS THAT MAKE YOU GO HMMM... ...................................................35

AND FINALLY ................................................................................36

Things That Make You Go Hmmm...

I am a seller of gold.


Just not yet — and certainly not anywhere close to this price.

One day, long into the future, it will be time to sell gold — or, more likely, to exchange it for something you want more; but it just ain't time yet, folks — no matter what you've been reading.

However, the past week has seen some truly amazing action in the gold (and silver) market, the kind of action that marks a shift in the status quo on a level so profound that it's hard to understand it at the time. But, as the years pass, these moments get viewed through the glorious prism of hindsight, and then they take on their full technicolour hues.

Friday, April 11th, 2013, began like so many other days, with gold at $1561, about $5 above its opening price on the previous Monday, having traded as high as $1590 and as low as $1550. In short, it had been an uneventful week.

However, there were a few things that had been bubbling away under the surface, each of which individually seemed to have relevance to the gold market but none of which apparently had any immediate effect.

Firstly, there was a report by Société Générale with the snappy title 'The End of The Gold Era', which hit the inboxes of the bank's clients on April 2. With the report forecasting the imminent demise of everybody's favourite immutable object, it obviously received a lot of coverage, as such viewpoints are apt to do. In fairness, the report was detailed, with a wealth of interesting charts, and I would recommend those amongst you interested in gold read through it in its entirety — whether you agree with SocGen's thesis or not.

Patrick Legland and his team of analysts declared that gold's day in the sun had come and gone and that the yellow metal was 'in bubble territory'. The front cover of their report pulled no punches:

(Société Générale): Our expectations for rising interest rates, driven in part by a positive view of the US economy with an associated improvement in the dollar, could be the perfect storm to start a longer-term bear market. Professional sentiment, as evidenced by heavy redemptions in ETFs and the increasing willingness of managed money investors to trade from the short side, confirms our view that gold may have had its “last hurrah”.

Fair enough, but what did that mean for the price?

Our base case 2013 forecast for gold is for $1500/oz on average, and $1375/oz by year’s end.

Clear as a bell.

Then they explained what other purpose the report served:

This report outlines the bear case for gold and explores what it would take for a dramatic decline in gold prices beyond our forecast.

The extreme conditions that would be required for SocGen's bear-case scenario to play out were, in their own words, a 'perfect macro storm', and they put a 20% probability on that situation playing out and gold 'crashing' 20%.

“Among all forms of mistake, prophecy is the most gratuitous.”

Three days later, stung into action, none other than two of Sprott's finest, the Davids Franklin and Baker, took it upon themselves to offer a 'A Retort To SocGen's Latest Gold Report', in which they carefully deconstructed the French bank's bear case in measured tones:

(Sprott): Société Générale (“SocGen”) recently published a special report entitled “The end of the gold era” that garnered far more attention than we think it deserved. The majority of the report focused on SocGen’s “crash scenario” for gold wherein they suggest that gold could fall well below their 2013 target of US$1,375/oz. It also included a classic criticism that we’ve heard so many times before: that the gold price is in “bubble territory”. We have problems with both suggestions.


Source: Sprott/Bloomberg

Addressing each of SocGen's points in turn, 'The Davids' eloquently and convincingly laid out the case for continuing strength in the gold market, with a particular focus on gold as a currency.

Their conclusion summed things up nicely:

(Sprott): We believe gold is nowhere close to ‘bubble territory’ today. It is acting exactly as a currency should. Under its current stewardship, we expect the Federal Reserve’s balance sheet to continue to expand along with Japan’s. SocGen’s “crash” scenario would require a complete reversal of this trend, which we do not believe is even remotely possible at this point.

Gold is the base currency with which to compare the value of all government-sponsored money. Investors can incorporate it into their portfolios as ‘central bank insurance’, or ignore it entirely. Either way, we believe gold will continue to track the total aggregate of the central bank balance sheets of the US, UK, Eurozone and Japan. If SocGen believes the aggregate central bank balance sheet will continue to shrink as it did in Q1, then gold should continue its decline. We strongly suspect that shrinkage is over, however. Given Japan’s recent QE decision, we would expect the aggregate to grow a lot bigger, and fast. If there was ever a time for gold to be a relevant currency alternative — it’s now.

The next negative influence on gold was an extraordinary report from Goldman Sachs which (coincidentally) was published the same day that we discovered there had been an early leak of FOMC meeting minutes to a 'select' email list that consisted largely of lobbyists from the financial industry (yes, including Goldman Sachs).


In this report, Goldman made a call that is startling at best and at worst (in my humble opinion, at least) reckless in the extreme: they recommended their clients short gold.

Now, I can understand advising a 'sell' in gold from people who refuse to believe it is going higher, but to call it a 'short' within the context of the macro environment surrounding it I thought extraordinary.

No matter. A few days later, the author of the report, Jeffrey Currie, would be seen as some kind of human Magic 8 Ball, as his prescience was hailed far and wide.

The next negative news item for gold was Cyprus and the yes-they-will/no-they-won't argument about whether the country would be forced to sell their 'excess gold' (a contradiction in terms of epic proportions, given the state of the world today, but we'll go with it). Initially denied by the Cypriot government, rumours of the sale were, of course, later confirmed, and the sum of €400mn was mooted as the total of their 'excess'.

According to the World Gold Council, Cyprus' holdings of 13.9 tons (which represent 58.3% of their reserves) place them at #59 on the list of the world's largest official holdings.

Any sale by Cyprus would equate to roughly 2% of daily turnover on the LBMA, and so it can hardly have been that which spooked holders. Rather, it was the inference that Cyprus would be the first domino to topple, which would lead to other, more sizeable sales — specifically by Portugal (382.5 tons/92% of reserves) and the big dog, Italy (2,451 tons/72%).

This idea that Italy should sell had originally been proposed by, of course, a German lawmaker in November 2011:

(Bloomberg): Italy could lower its debt by selling gold reserves, Gunther Krichbaum, a lawmaker in German Chancellor Angela Merkel’s governing coalition, was quoted as saying by the Rheinische Post.

Italy’s gold reserves are relatively high, Krichbaum, who chairs the German parliament’s European affairs committee, was quoted as saying in an e-mailed summary of an article to appear in the newspaper today.

I'll let you be the judge as to whether you think Italy is about to sell any of its 'excess gold':


Source: Bloomberg

That sets the scene that was swirling around the gold market going into last Friday, so now let's get to the good stuff and see what happened, what happened next, what happened after that, what was alleged, what was kinda strange and, hopefully, what might happen now.

But first, before we get to the market action, let's take a look at a couple of charts from my good friend Nick Laird of, which show what was going on in the physical metal warehouses in the lead-up to 'Gold Fryday'.

First up is the level of eligible and registered gold stocks at the COMEX warehouse:


Source: Sharelynx

(I've said it before and I'll say it again, if you have any interest in precious metals markets whatsoever, you need to know about Nick and his fantastic site. It's far and away the best resource for data on gold and silver anywhere on the internet. Check it out at

The difference between the two classifications in the COMEX warehouse is important to understand.

Registered: This is gold (or silver) that is sitting in the COMEX warehouse and that can be used to settle a futures contract.

Eligible: This is gold (or silver) that has been purchased (and paid for) by a long at some point in the past (and for which they are currently paying storage fees) and which is eligible for delivery to the client at any point that the client specifies. It has been assigned to the client, who has the serial numbers of its bars, and cannot be used for delivery.

Essentially, if it's 'eligible' then hands off, and if it's 'registered' it can be sold and delivered.

Often, we see gold or silver move from registered to eligible and vice versa, but to see both registered and eligible drawn down so sharply means that gold was being taken out of the warehouse to be stored privately — notably, in the wake of the Cypriot deposit confiscation.

Another way to see how severe the move was is to take a look at this chart of total COMEX gold inventories:


Source: Bloomberg

As you can see, gold has been pouring out of the COMEX warehouse since January 2013, and the slide accelerated both just before and immediately after the Cyprus bail-in was announced. Somebody sure got nervous right before the announcement, and a lot of people did after the event. All of them seemed to want their gold where they have direct access to it.

So, with that as background, let's get to the events of last week.

The chart below is a look at trading in the COMEX June futures contract on Friday, April 12.

As you can see, there were a series of sharp sell-downs on very large volume that flowed one after the other.

To put what happened into perspective, somebody (or bodies) sold pieces of paper with a notional value of $28,000,000,000 into the gold futures market (that's roughly 25% of the market cap of Bank of America).

Not gold. Paper.

It was 'the gold price' that collapsed, not 'the price of gold' — an incredibly important distinction to make and one that we will be coming to shortly, but for now let's get back to last week and see how the Paper Smash proceeded.


Source: unknown

Those concerted sell orders tripped a group of stop-loss and technical sell orders that were clustered around that level, but what happened next was so bizarre that even the most dyed-in-the-wool conspiracy debunkers would have a hard time coming up with a 'that's just coincidence, happens all the time' defence.

Bill Downey takes up the story (in capital letters in places, so you KNOW he's angry):

(Gold Trends): Now comes the part that is pure genius or a total coincidental thing that just so happens to be a gift to those who are short the market and those who would be responsible to deliver gold should the inventory deplete.


The screens all freeze.

What does that mean?

No one can get to the physical market to buy at these low prices, but at the same time they can’t sell or protect their positions either. The system is frozen. Yes, just like at Bit-coin. The system locks up. And of course the results are going to be the same, just on a lower percentage level.

What can the physical holders do?

Meanwhile the futures market continues to drop.

So what happens? The physical market holders begin to panic. How can they protect themselves, as they can’t sell either?

What would you do if you were in that situation?

There is only one solution, especially during a panic. Short and ask questions later.

Now, say what you want, but for this to happen when it did most definitely caused two very specific problems, as Bill points out. Buyers were unable to take advantage of paper weakness to buy physical bullion, and holders were forced to sell yet more paper contracts in order to properly hedge themselves.

Bill continues:

Their choice was either this solution, or wait until Monday and be subject to potentially heavy losses should margin calls go out over the weekend. With no time to think and survival instinct kicking in, the physical holders most likely did what they could to protect themselves. They went in and shorted the futures market.

At this point the market goes into a free fall as the physical market can’t buy at these low prices because the computer system is down; they can only sell futures to hedge their long physical holdings, and so they do what they have to and begin selling futures.

Now it gets worse. As the price drops even more, underfunded players are getting wiped out, and now they begin to liquidate. The market goes into a total collapse as all the stops below $1,500 get tripped up and the market tanks to $1,490.

The market finally closes in New York and returns to the $1,500 area.

But it’s not over. There's another situation going on. The weekend is arriving and players begin wondering about margin calls. How are holders going to get money to their brokers over the weekend for the Monday trade session?

But there is not enough liquidity, as the COMEX has closed and only the aftermarket GLOBEX is there to execute trades.

Without a doubt, the shorts know exactly what is about to transpire.

The banks and brokers are open all weekend and as long as it takes to go through all the accounts and issue all the MARGIN calls.

If they get the margin calls out by Saturday, the customers have 24 hours to get more money to their brokers. If the money is not received by Sunday night or Monday morning, the positions will have to be liquidated, just when the market is at its lowest liquidity, and the longs have had all weekend to think about it and the media has had time to tell everyone that the bull market in gold is over.


As Bill predicted Saturday morning, Monday came and the margin calls caused a cascade of liquidation selling that saw the gold price tumble to the low $1300s at one point on even larger volume than had flooded the exchange the previous Friday (chart below).


Source: Nick Laird

Naturally, the gold-haters were out in force, while headlines trumpeted 'the bursting of the bubble' and the notion that gold had 'officially entered a bear market':

'Gold Bubble Finds Its Pin' — Fox News

'The Gold Bubble Pops, Others Will Follow' — Forbes

'Can Gold Plummet To $400/Ounce?' — Seeking Alpha

Wait ... WHAT?

Somebody out there on the internet coined a phrase that I wish I could claim as my own for this strange phenomenon of giddy delight that so many commentators seem to feel whenever gold wobbles: 'Goldenfreude'.

Fortunately, amidst the wreckage, calmer heads prevailed, and some widely respected market minds less prone to hyperbole weighed in, beginning with SocGen alum and all-around champion Scottish bloke Dylan Grice:

(Dylan Grice): The collapse does not necessarily mean that the gold bull market is over. It could indeed be over, but I think not. And in view of the greater whole, such a collapse is not important, even if it has a violent and unpleasant course. There are good reasons to own gold. And to buy gold, there is now a reason which did not exist a week ago: It's 30% cheaper.

Dylan then reminded readers of the macro picture surrounding gold:

States and financial systems are deeply in debt, interest rates can not fall further, real interest rates are negative, we live in a world of financial repression. The best possible outcome would be a gentle rise in interest rates in the coming years. This would be accompanied by negative real interest rates, because that is the only way for governments to gradually reduce their debt burden. In this scenario, long-term interest rates remain extremely low and imply overvalued stocks and bonds. That's not a bad environment for gold.

I was never bullish for gold, because I assumed higher inflation is imminent. Inflation is a slow and a long-term problem. You will not see it suddenly. Those who acquired gold for the wrong reasons are selling. Those who maintain it now belong to a more stable investor base.

Gold was up for twelve years in a straight line, which is extremely unusual, and a downsizing and a correction was overdue. While the largest price drop in the past thirty years is unusual, on the other hand, these unusual incidents occur quite often in financial markets. The gold market has now become healthier.

Dylan even went to the trouble of including a reminder of a similar fall in the 1970s:


Source: Grice/Bloomberg/US Funds

Backing up Dylan's sober assessment was that of another long-time market watcher of great repute, CLSA's Chris Wood (of GREED & fear fame), who had this to say about the remarkable move in gold:

(Chris Wood): Rather than viewing this as confirmation of the end of the gold bull market, investors should see this as a massive buying opportunity while also being aware, based on the technicals, that gold could trade down to the US$1,200/oz level....

This bear case makes sense for those who believe the American economy is “normalising” and that Bernanke will be ending QE and resuming monetary tightening earlier than the market currently expects.

Still, GREED & fear does not believe in such “normalisation”, nor should investors.

And even David Kotok of Cumberland Advisors thought enough was enough:

... we would recommend gold acquisition, for those who are inclined to pursue it, on a very modest level, utilizing a dollar-cost averaging method. Buy a little gold and put it away. Forget the price. Come back again, buy a little more, add to your hoard, and forget the price. Look at gold as an insurance policy that you hope you never need to use. We do believe that abandoning gold completely and disparaging it as a barbarous relic is too extreme.

... gold should form a part (not more than 5-10%) of a well-diversified investment portfolio to protect against open-ended QE programs undertaken by central banks around the world. Additionally, the cost of holding gold is negative in an environment of negative real interest rates and widespread financial repression. Therefore the recent extreme move in gold presents an attractive initial buying opportunity for those who have been looking to enter the market ...

"An attractive entry point for those who have been looking to enter the market." How very true.

Across the world, retail investors were of like mind as they stampeded gold bullion dealers in a frenzied rush to buy physical gold.

Anecdotally, I asked friends across Asia to go see what was happening at bullion dealers where they live, and the responses I received were truly staggering.

In Beijing and Shanghai, gold dealers were sold out of coins and small bars. In Macau, police had been called in to divert traffic around the scores of people lining the streets outside the dealers, and in Bangkok buyers stood eight deep at the counter trying to buy physical metal.

Mumbai was no different, and here in Singapore Mustafa's Department Store in Little India was awash with buyers of gold. I received similar reports from Sydney, Zurich, and Toronto, and then saw Nigel Moffat of the Perth Mint, interviewed on Bloomberg TV, paint a graphic picture of the activity in Western Australia:

Monday morning when we opened the gates of the Perth Mint at 9 o'clock, there was a large crowd of people waiting outside and as the gates were opened people ran across the courtyard to get into the retail operation. And we have seen enormous numbers of people in there and they're all buying.

Let's face it, when you find the price of something $200 cheaper than it was the previous business day, it's like the Christmas sale at your favourite department store.

But all that paled into insignificance when an email hit my inbox from a good friend in Hong Kong. This one made my chin hit the floor:

I've been taking this opportunity to stock up on some yellow metal. Went to Hang Seng bullion counter yesterday.

The line was out the door. It took an hour wait to see a teller. When I asked if people were buying in the dip or selling in panic, she told me that they haven't had one ounce of gold sold back to them all day. She told me they have sold more gold in 24 hrs than they normally do in 3 months. Yes, there was a lot of extra security. The guy in front of me bought over $1 million USD in gold. He paid in cash and walked out of the door with the bullion in a Nike bag. Amazing."

So this is what a crash looks like? This is the panic associated with the bursting of a bubble?

Get real.


Sources: various

During my 30-odd years in finance, I have somehow weaved my way through many crashes, beginning with the 1987 stock market crash and including LTCM, NASDAQ, the Asian Currency Crisis, the Mexican Tequila Crisis, 9/11, and everything in between; and I can promise you that not a single one of those crashes, collapses, or crises ended up with retail investors stampeding to buy the asset that was supposedly cratering.

Not one.

Something different and, I believe, incredibly significant is happening here, and it goes back to that important distinction I made and promised to get back to: 'the gold price' vs 'the price of gold'.

'The gold price', as it is understood by most people, is nothing more than the quoted price of a gold futures contract on the COMEX exchange in the US. When you read that 'gold fell in overnight trading', what actually happened is that the price of a paper futures contract fell — not the metal itself.

'The price of gold', on the other hand, is what you will have to pay to get your hands on the physical metal itself, and that is a different thing altogether.

Despite the plunge in paper prices, 'the price of gold' remained remarkably robust. Here in Singapore I was quoted a 25% premium for a 1-oz. Canadian Maple Leaf, while on eBay premiums were substantial: Silver Eagles were up as much as 50%, 10-oz. silver bars never dropped below $30/oz., and Gold Eagles never dropped below about $1630 (a premium of around 21%).

My good friend Mike, who lives in Bangkok, sent me an article from the Bangkok Post that highlighted just how feverish the demand for gold was in Thailand's capital:

Shops were jammed, particularly the large gold shops in Yaowarat. Managers asked customers to line up and take queue numbers. Similar scenes took place in Phuket, Phitsanulok, Nakhon Ratchasima and other provinces. Gold shops in some provinces reportedly closed up rather than face the jam. A Chanthaburi resident told the Bangkok Post her gold shop in the gem-dealing town was closed for the day....

Lastly, and at the risk of labouring the point, this article by the Chinese Xinhua agency makes clear how seriously the bursting of the gold bubble and the crash in the price was regarded in China:

(China News): Gold bars have sold out and gold accessories are going fast at the Caishikou Department Store, the largest gold dealer in downtown Beijing.

"No gold bars are available. Customers who have paid can pick up their bars in one week," said a notice posted at the store's gold sales counter.

Gold had almost exclusively been purchased by wealthy Chinese before the prices plummeted. But with prices dropping significantly, those with lesser means have seen an opportunity to invest in the metal themselves.

"I couldn't wait to buy gold. Many of my colleagues and friends have already made their purchases," said Zhang Jiang, a Beijinger who bought two gold necklaces and a five-ounce gold bar.

Whatever happened last week in the paper market, the retail response has been unprecedented and, I suspect, will have caught many by surprise.

Plenty of suggestions have been made as to who crashed the market and why; and depending on the level of your thirst for conspiracy theories, you can have some real fun with it, but the cold hard facts are these:


1) 'The gold price' saw its biggest fall in 30 years — a 7.5 standard deviation event. To put that into the proper perspective, I'll hand things over to Howard Simons of Bianco Research:

(Bianco): As the odds against such a move are on the order of 20 trillion to 1, it had a lower probability of occurrence than randomly selecting a specific $1 bill out of a pile of singles representing the US National Debt. (See image, left.)

Oh, by the way, the bills stacked in the image are $100 bills, so the pile from which you'd have to randomly pull that single $1 bill would be 100x higher — just sayin'.

2) 'The price of gold' is significantly higher than 'the gold price', and the real demand for bullion is enormous. Not only that, but buyers are waiting for any weakness in the former as an opportunity to accumulate the latter.

3) Anybody who is short COMEX contracts will have seen the amazing response to this engineered fall in 'the gold price' and will be recalibrating their rationale for being short an obligation to deliver a physical commodity that is clearly in heavy demand amongst retail investors.

4) Leaving retail investors aside, central banks (particularly in Asia) see any such weakness in 'the gold price' as an opportunity to increase their holdings at bargain prices:

(Bloomberg): Sri Lanka’s central bank governor said falling prices are an opportunity for nations to raise gold reserves and that the island will “favorably” examine buying more. The Bank of Korea said the plunge isn’t a “big concern” because holding the metal is part of a long-term strategy for diversifying currency reserves....

“Overall, gold prices coming down is giving an opportunity to various central banks across the world to improve on their holdings,” Central Bank of Sri Lanka Governor Ajith Nivard Cabraal said today in an interview with Rishaad Salamat on Bloomberg Television. “An opportunity that provides us with space to purchase a little more quantities and hold in our own reserves would be an interesting one.”

Meanwhile, to demonstrate just how differently the 'Western' central bankers look at gold, RBA Assistant Governor Guy Debelle (which, if I'm not mistaken, is coincidentally French for 'The Bell'. No, wait, that would be 'DuCloche'. Wouldn't it?) made an extraordinary statement in the face of gold's correction:

(Bloomberg): “If you think about the intrinsic value of gold, there’s not a lot,” Guy Debelle, assistant governor at Australia’s central bank, which owns 79.9 tons, said at a business lunch in Canberra today. “Gold often has a high price because people believe that other people believe that it’s worth a lot. When you describe other markets like that, the word ‘bubble’ gets thrown about.”

Debelle then added (almost with a theatrical wink):

"... but, I'm not going to say that here but ... you can draw your own conclusions".

Hey, Guy, you know that 79.9 tons of useless metal you own? Give those muppets at the Sri Lankan Central Bank a call (Tel : +94 11 247 7000) — maybe you can dump it on them at these vastly inflated prices and have a good laugh over it? DuBelle indeed.

But, as always when looking at extraordinary events and trying to figure out what the root cause is behind any such move, we find it always pays to ask one question first: qui bono?

(Bloomberg): The slump in gold may hand activist central bankers more reasons to pursue the easy monetary policy that helped drive up the metal’s price in the first place....

The combination of growth jitters and reduced inflation anxiety boosts the case of Federal Reserve Chairman Ben S. Bernanke and counterparts elsewhere to keep pump-priming their economies in the hope they will finally secure traction. It also may help them beat back critics, including some U.S. Republican lawmakers.

“Central banks can be opportunistic and proceed with quantitative easing now the gold market is surrendering with regards to its hyperinflation fears,” said Edward Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “They could also argue the weakness in commodity prices suggests a growth concern and so all the more reason to keep QE going.”

Now, far be it from me to suggest the central bankers of the world had any sort of hand in crashing the gold price — I mean they are all such fine, upstanding servants of the public good and are probably definitely NOT short physical gold — but said crash certainly doesn't hurt their desire to amp up the printing presses; and, even in the age of unlimited QE, $28,000,000,000 is still an awful lot of money ... at least for now.

So, after a tumultuous week, I have a real sense that the sands have shifted somewhere, somehow, even though I can't quite put my finger on where or what it means.

I can't help but think this has something to do with the continuing fallout from Hugo Chavez's repatriation of Venezuelan gold in 2011 and the weakness of the fractional-reserve gold leasing system (see my recent presentation on this subject), and that an attempt was made to try to cover some significant short positions via COMEX futures, a move that looks doomed to fail thanks to the voracious demand for physical metal.

The next time somebody thinks about casually shorting COMEX futures for a trade that obligates them to deliver physical metal at a given price, I'm sure they'll remember this week and think twice.

Those who are in a bind and need the gold price to be lower in order to cover short positions? Well, let's just say they may end up getting not what they want but what they deserve.

So, yes, I am a seller of gold — as, I suspect, are the likes of Dylan Grice and Chris Wood.

I dare say Eric Sprott, Jim Sinclair, Ben Davies, and Jim Rogers (to name but a few) are likely also sellers of gold, but none of them will be selling at this level, either. In fact, without wishing to put words in anybody's mouth, I'll go out on a limb and suggest that not only are we all not sellers today, we are all strong buyers and, as the events of this week have proven, we are most definitely not alone.


Due to a heavy travel schedule over the next couple of weeks, I will not be darkening your inboxes for a few weeks (cue sighs of relief). I am heading to Carlsbad for the Altegris Strategic Investment Conference and then onwards to San Francisco, Dallas, New York, and beyond to talk about (what else but) precious metals.


OK ... so let's get to it.

Obviously, this edition of Things That Make You Go Hmmm... is somewhat gold-heavy, so if you have had your fill of gold commentary, skip straight to this week's 'and finally' for an amazing video of an incredible talent.

Right ... now that we've got rid of the gold-haters, it's just us, so here's the skinny.

This week we get the background on the amazing Reinhart & Rogoff debacle and meet the student who upset the apple cart; we look at how certain European countries hide their wealth (think 'South'); Jeremy Warner hauls the IMF over the coals; and Liam Halligan discusses a subject we have broached in these pages several times of late: the Japan vs. Korea currency war, as things heat up at the G20.

My great friend David Hay finds additional wisdom in the words of the wise, and we profile Germany's political spectrum, hear from Nigel Farage in his epic 'common criminals' speech, and get to sit back and hear the thoughts of the great John Hussman on an 'unstable equilibrium'.

And then there's gold — lots and lots of gold, including stories, charts, a fascinating documentary called 'The Secret World of Gold' that aired on CBC this week, and even an interview or two with yours truly.

Until Next Time.


Reinhart, Rogoff ... and Herndon: The student who caught out the profs

This week, economists have been astonished to find that a famous academic paper often used to make the case for austerity cuts contains major errors. Another surprise is that the mistakes, by two eminent Harvard professors, were spotted by a student doing his homework.

It's 4 January 2010, the Marriott Hotel in Atlanta. At the annual meeting of the American Economic Association, Professor Carmen Reinhart and the former chief economist of the International Monetary Fund, Ken Rogoff, are presenting a research paper called Growth in a Time of Debt.

At a time of economic crisis, their finding resonates — economic growth slows dramatically when the size of a country's debt rises above 90% of Gross Domestic Product, the overall size of the economy.

Word about this paper spread. Policymakers wanted to know more.

And so did student Thomas Herndon. His professors at the University of Massachusetts Amherst had set his graduate class an assignment — pick an economics paper and see if you can replicate the results. It's a good exercise for aspiring researchers.

Thomas chose Growth in a Time of Debt. It was getting a lot of attention, but intuitively, he says, he was dubious about its findings.

Some key figures tackling the global recession found this paper a useful addition to the debate at the heart of which is this key question: is it best to let debt increase in the hope of stimulating economic growth to get out of the slump, or is it better to cut spending and raise taxes aggressively to get public debt under control?

EU commissioner Olli Rehn and influential US Republican politician Paul Ryan have both quoted a 90% debt-to-GDP limit to support their austerity strategies.

But while US politicians were arguing over whether to inject more stimulus into the economy, the euro was creaking under the strain of forced austerity, and a new coalition government in the UK was promising to raise taxes and cut spending to get the economy under control — Thomas Herndon's homework assignment wasn't going well.

No matter how he tried, he just couldn't replicate Reinhart and Rogoff's results.

"My heart sank," he says. "I thought I had likely made a gross error. Because I'm a student the odds were I'd made the mistake, not the well-known Harvard professors."

His professors were also sure he must be doing something wrong.

"I remember I had a meeting with my professor, Michael Ash, where he basically said, 'Come on, Tom, this isn't too hard — you just gotta go sort this out.'"

So Herndon checked his work, and checked again.

By the end of the semester, when he still hadn't cracked the puzzle, his supervisors realised something was up....

*** BBC / link

How Europe's Crisis Countries Hide their Wealth

How fair is the effort to save the euro if the people living in the countries that receive aid are wealthier than the citizens of donor countries like Germany? A debate over a redistribution of the burdens is long overdue.

The images we see from the capitals of Europe's crisis-ridden countries are confusing to say the least. In the Cypriot capital Nicosia, for example, thousands protested against the levy on bank deposits, carrying images of Hitler and anti-Merkel signs, one of which read: "Merkel, your Nazi money is bloodier than any laundered money."

German Chancellor Angela Merkel was greeted by a similar scene when she visited Athens in October 2012. An older man with a carefully trimmed moustache and pressed trousers stood in Syntagma Square. The words on the sign he was carrying sharply contrasted with his amiable appearance: "Get out of our country, bitch."

Despite these abuses, the protesters and all of Merkel's other critics in Rome, Madrid, Nicosia and Athens agree on one thing:

Germany should pay for the euro bailout, as much as possible and certainly more than it has paid so far.

They argue that Germany is a rich country that has benefited more than all others from the introduction of the euro, and that it has flooded other European countries with its exports, becoming more prosperous at their expense.

But there is also a second image of Germany, one that's based on numbers, not emotions. The figures were obtained by the European Central Bank (ECB) and released last week. This image depicts a country whose households own less on average than those that are asking for its money.

In this ranking of assets, Cyprus is in second place Europe-wide, while Germany ranks much lower, even lower than two other crisis-ridden countries, Spain and Italy.

And this Cyprus, with its affluent households, is now supposed to receive €10 billion ($13.1 billion) from the European Stability Mechanism (ESM), the Euro Group's permanent bailout fund, and the International Monetary Fund (IMF), at least according to the decisions reached after dramatic negotiations, which the German parliament, the Bundestag, is expected to approve this week. But a new question is arising: Why exactly are we doing this? Isn't Cyprus rich enough to help itself?

In light of the new ECB study, a new discussion of the Euro Group's bailout strategy is indeed necessary. So far taxpayers have born the risks of this strategy, by guaranteeing all loans the ESM has paid out to needy countries. Greece, Ireland, Portugal and Spain are already part of this group, and now Cyprus has been added to the mix.

Germany is already guaranteeing about €100 billion in loans. If even more countries request aid and can then no longer serve as donors, the amount of money guaranteed by the Germans could rise to €509 billion, according to an estimate by the German Taxpayers' Association. This figure doesn't even include the latent risks in the balance sheet of the European Central Bank....

*** Der Spiegel / link

After the Flash Crash

The recent gyrations in precious metals, commodities, and both the dollar and yen stem from correlated deployment of vast liquidity resulting from quantitative easing around the world. Some of the correlations are just due to the same people stir-frying the same stuff, not economic reasons.

As the quantitative easing around the world continues, such flash crashes will recur. It is possible that mass panics, resulting from such flash crashes, could change the trajectory of some economies.

The most important case is that, if the Japanese government bonds and/or yen holders panic over the Bank of Japan's (BOJ) QE policy, the resulting chaos could trigger a financial crisis in Japan, and the resulting yen crash would push East Asia and the world into a crisis.

Gold has bottomed. The recent price gyration is manufactured to benefit big speculators at the expense of gold buyers in emerging economies. Physical gold demand is from emerging economies, but the financial market resides in New York and London; it is a heavily manipulated market. Retail investors must be on guard for manufactured panic-euphoria cycles to fleece them.

Abenomics has triggered a massive reorientation of speculative capital in the world. Shorting the yen against multiple currencies has become a consensus trade. The Australian dollar and euro have risen due to this trade. The BOJ recently released massive QE, almost doubling the quantity and increasing risks in asset purchases. It has reinforced the shorting-yen consensus, furthering liquidity flowing into this trade from other trades.

In addition to lifting some currencies without supporting fundamentals, the liquidity reorientation sucked some away from gold. One justification for the decline in gold price is the rising dollar. Its historical correlation with gold is negative. Wall Street has been pushing the negative gold story for some time. I bet that the people who have been talking down gold will turn positive soon. It's a game to fleece credulous retail investors who follow the trend but are always several steps too late.

China's weak Q1 GDP number spooked the market, triggering a wave of selling. The market was talking about a Chinese investment boom. Such a notion is laughable in China but was consensus on Wall Street. This is another example how inefficient financial markets are. People just believe what they want to.

The news was obviously bad for industrial commodities. Hence, the resulting selling is justified. But, the news was good for precious metals. Weaker growth may incentivize central banks to prolong QE, which supports gold. It decreases demand for stocks, which is good for gold too. Nevertheless, gold came down with other base metals.

Prolonged QE around the world has created vast pools of speculative liquidity. Some of the pools, like commodity specializing funds, have money in all commodities. When they lose money, they shrink positions in all commodities. As a lot of high-profile speculators have been talking down gold, after they liquidated, and the gold market was fragile to begin with. The market gyration after China's Q1 GDP data tricked people into panicking without asking questions....

*** andy xie / link

Why can't IMF face up to the truth about the failing euro?

I've been in Washington most of this week for the spring meeting of the International Monetary Fund. I wish I could say there was light at the end of the tunnel, but the reality is still deeply depressing. Sorry to use cliches, but two sayings spring to mind: fiddling while Rome burns, and re-arranging deck chairs on the Titanic.

In "The Economic Consequences of the Peace", the British economist, John Maynard Keynes, wrote that his preference in any negotiation or arbitration was for "violent and ruthless truth telling" but there has been very little evidence of that in this week's discussions. Instead of addressing the underlying causes of today's economic funk — the failing euro — debate has focused on marginal fiscal and monetary issues such as whether the UK and the US are consolidating too fast.

That the IMF's chief economist, Olivier Blanchard, and his managing director, Christine Lagarde, could think some minor loosening of the fiscal purse strings in the UK either appropriate or capable of getting growth going again, when there is such a deep seated crisis going on in Europe is not just odd, it is pitiful. I've already written about the wider failings of the IMF in confronting the worst economic crisis since the second world war in today's print edition of the Daily Telegraph, but there is a lot more to say about it.

Instead of forcing eurozone leaders to face up to the truth — that their project in its present form is failing not just them, but the whole world economy — the IMF busies itself with irrelevances such as whether the UK has the fiscal space for a little more debt fuelled demand management. Worse, it meakly goes along with attempts to sustain what is plainly in its current form a completely unsustainable endeavour.

One of the big "puzzles" under discussion this week at the IMF is why the massive degree of monetary stimulus applied to advanced economies over the past four years has gained so little traction. I would have thought the answer was obvious. You can have as much demand management as you like, but as long as underlying imbalances in the world economy go unaddressed and unresolved, companies and households are not going to have the confidence to spend and invest.

The biggest example of these problems lies in the eurozone. It's long been apparent that there are really only two permanent solutions to the single currency's malaise. Either it must break up, allowing the magic of free floating currencies to restore economic equilibrium to Europe, or it must move rapidly to a full-scale transfer union, where surplus nations subsidise deficit economies. Instead of forcing eurozone leaders to face up to this choice, the IMF acquiesces in sticking plaster solutions that fail to address the underlying sickness.

If you prevent relative prices moving in the way they must to restore balance in the European economy, which is what the single currency effectively does, then the whole process of economic correction becomes virtually impossible.

Why are these things not being said, openly and honestly at the IMF? Why are the eurozone's political leaders being allowed to run away from a problem which is causing misery not just within their own borders, but throughout the industrialised world....

*** jeremy warner / link

Central Banks Find Stimulus Glitter in Gold Slump

The slump in gold may hand activist central bankers more reasons to pursue the easy monetary policy that helped drive up the metal’s price in the first place.

Among many explanations for the biggest drop in more than 30 years: a fourth annual global growth scare as data disappoint from China to the U.S. and investors fold long-held bets that monetary stimulus will ultimately unleash inflation. Other reasons for the drop range from a view that the price reached so-called technical levels to concerns that Cyprus could start a rush by indebted nations to sell their supplies of the metal.

The combination of growth jitters and reduced inflation anxiety boosts the case of Federal Reserve Chairman Ben S. Bernanke and counterparts elsewhere to keep pump-priming their economies in the hope they will finally secure traction. It also may help them beat back critics, including some U.S. Republican lawmakers.

“Central banks can be opportunistic and proceed with quantitative easing now the gold market is surrendering with regards to its hyperinflation fears,” said Edward Yardeni, president and chief investment strategist at Yardeni Research Inc. in New York. “They could also argue the weakness in commodity prices suggests a growth concern and so all the more reason to keep QE going.”

Gold has tumbled 27 percent to $1,387.40 yesterday from the Aug. 22, 2011, close and is now in a bear market after a 12-year surge through 2012 that was fueled partly by investors concluding faster inflation and central-bank aid would buoy the metal as a protection of wealth. Its dive has come days before international finance ministers and central bankers meet in Washington to discuss signs of slowing in the world economy.

“Investors were somewhat optimistic that the relative strength we’d seen earlier in the year would continue,” said Roberto Perli, a Washington-based managing director at International Strategy & Investment Group and a former Fed economist. “When you go through a soft patch like this, you are forced to at least think that maybe things could go in a different way than you believed.”

U.S. payrolls grew the least in nine months in March, China is suffering the weakest expansion in two decades with growth below 8 percent, and unemployment among the 17 euro nations is a record 12 percent. A Citigroup Inc. index shows data in major economies undershooting forecasts by the most since September.

In the wake of such developments, the International Monetary Fund yesterday trimmed its estimate for global growth this year to 3.3 percent from 3.5 percent in January. Such softness may help explain the selloff in gold and other commodities, said Igor Arsenin, head of emerging Asia rates strategy at Barclays Plc in Singapore. Brent crude yesterday dropped below $100 a barrel for the first time since July....

*** bloomberg / LINK

Understanding German Politics

Inquiring minds in the US note the upcoming German election and may be wondering about the platforms of the major political parties. Reader Bernd from Germany explains.

Die Linke (The Left): Die Linke is made up of the former SED/PDS (The East German Communist Ruling Party), some former West German Communist and Socialist Parties and a “rebel group” of the SPD. They all have merged and are now called "Die Linke". By and large they have a communist/socialist platform, albeit not Stalinist.

Their main requests are: dissolve NATO and replace it with a new organization to include Russia in it, end all wars, control or nationalize all relevant banks and some crucial industries, increase support for the poor, raise taxes for the rich (above income of 60k Euros gradually go to 75%), introduce a stiff wealth and inheritance tax. They are pro Euro and want the introduction of Eurobonds immediately. To alleviate the economic crisis in Europe they advocate some serious deficit spending for social and work programs. They have voted against ESM; EFSF and Cyprus deal in Parliament.

SPD (Social Democrats): SPD is the grand old Social Democratic Party, with a wonderful and long tradition. SPD originated from the worker's movement. Its first party program is from 1869. It the only party that tried to stop Hitler's power grab by opposing the emergency laws in 1933.

Many went to concentration camps for opposing Hitler. In post-World War II Germany SPD provided three Chancellors, Willy Brandt, Helmut Schmidt and Gerhard Schröder. All three Chancellors were major reformers in Germany for one or the other topic. SPD lost its original power base in the wake of Schröder's reforms in the early 2000s. SPD is a staunch pro Euro party. They also want Eurobonds immediately, as well as a common fiscal policy, a bank union and a quick unification of Europe.

Die Grünen (The Green Party): Die Grünen started as a mix of 1968 communists/socialists and anti-nuclear energy activists in West Germany. The second part is made up of some left over former East German anti SED “rebels” who helped to bring down East Germany. Today this is the party for so the so-called "politically correct". In Germany we call them the Latte Macchiato Moms/Dads. The typical party member is a well-paid Government official or teacher with a work week of 36 hours.

They believe firmly in manmade climate change and want to tax and spend their way to eliminate the CO-2 footprint. No amount of money is too much for preventing climate change. They are staunch pro Euro advocates similar to the SPD....

[Click on the link to read the rest of the party profiles.]

*** mike shedlock / link

The Oracle's Oracle

One of America’s least known genius investors is Howard Marks, co-founder and key personage behind $77 billion Oaktree Capital. Because Mr. Marks runs mostly institutional money, he doesn’t attract the rock star adulation of a Bill Gross. Yet, his long-term track record with bonds in general, and distressed debt in particular, is among the best in the business. Moreover, Barron’s recently quoted Warren Buffett to this effect: “When I see memos from Howard Marks in my mail, they’re the first thing I open and read. I always learn something.” (Oddly, the Oracle of Omaha has never been on record with a similar comment about the Evergreen Virtual Adviser and its scribe.)

My reason for bringing Howard Marks to your attention is his recent memo, “The Outlook for Equities.” Undoubtedly, Mr. Buffett opened and read this missive with the speed of light in a vacuum, not just because of its author but also due to its theme, which is supportive of the Oracle’s generally upbeat view of stocks. As usual, Mr. Marks’ musings contain some really good stuff, including this section echoing the main message from the March 22nd, EVA: “Many of the important things about investing are counterintuitive. Low-quality assets can be safer than high-quality assets. Things get riskier as they become more highly respected (and thus appreciate).”

Therefore, it is possible that at times stocks can be safer than bonds, as conveyed in the aforementioned EVA, even though a share of stock in a company is, by definition, less secure than a bond in the same entity.

Basically, if the price of the stock is low enough and the price of the bond is high enough, the latter may have more risk of producing a negative return than the former, assuming that it is a solvent enterprise. (This is especially true on a long-term bond when it may not be possible to hold it to maturity and also considering inflation.)

Or, looking at the stock market overall, it’s also feasible for it to be less risky than the bond market. Obviously though, it takes some highly unusual factors to create such a condition—like the Fed whipping up and then injecting a trillion dollars a year into bonds.

Consequently, Messrs. Marks and Buffett, and I, are all on the same page about the long-term outlook for stocks: They offer the prospect of higher return over the next decade with potentially less risk and, certainly, much lower risk compared to bonds, than is generally the case.

The key phrase here is “compared to bonds.” Now we are entering the realm of relativity and with that, emerges another maxim of the investing world.

The equity risk premium (ERP) is one of those things you’ve probably heard bandied about on TV or in the Wall Street Journal but never really understood. For better or worse, I’m going to do my best to explain what it means as it is an important concept.

In fact, the erstwhile maestro, none other than Mr. Alan Greenspan, appeared on CNBC last month and declared: “The basic way of looking at the degree of exuberance or non-exuberance (my note: toward stocks) is to take a look at what we call the ‘equity premium’...and right now, by historical calculation, we are significantly undervalued.”

Based on Mr. Greenspan’s forecasting record, with both stock and home values, letting him be your market compass is much like, as one wag recently noted, “getting a lecture on seamanship from the captain of the Titanic.” But, I digress.

The point he’s making is that if you take the current P/E of the market, which is around 16 based on profits generated over the last year, it equates to an earnings yield of 6.25%.

The easiest way to think about this is to visualize a stock selling at $10 earning a dollar a share, meaning that based on the price you are paying you are receiving a 10% profits return, or $1 divided by $10.

For the overall market today, you have to pay $16 to receive $1 in profits, hence the 6.25% earnings yield. (For those of you with a real estate orientation, this is the equivalent of the “cap rate” for stocks.)

The next step is to compare that 6.25% to risk-free interest rates. Here it gets a bit murky. Do you use the 10-year Treasury note or short-term cash? Let’s be generous to stocks and use present short-term interest rates of zero. Voila, the market has a spread over risk-free interest rates, otherwise known as the equity risk premium, in excess of 6%! And, as Mr. Marks points out, the average over the years has been 5% to 6%. Even better, since WWII it has been just 3.25%. Hence, at least superficially, it’s not unreasonable for Mr. Greenspan to be touting stocks....


That swooning feeling

FOR America’s economy, April is the cruellest month. In each of the past three years the economic recovery started with a burst of momentum, only to swoon over the spring and summer. Sadly, there are now signs of a repeat.

Despite a big tax increase on January 1st, employment, retail sales and housing all performed sturdily in January and February this year. Gross domestic product, which stalled at the end of 2012, is thought to have grown at a healthy 3% or more, at an annualised rate, in the first quarter. The stockmarket duly hit fresh highs.

Then in March the news abruptly turned sour. After averaging 208,000 in January and February, employment growth slowed sharply to just 88,000. Retail sales, excluding cars and petrol, dropped—as did new construction starts on single-family homes. The fall-off in housing activity is especially unsettling because fundamental determinants, from low mortgage rates and lean inventories to an increase in the number of households being formed, have all been pointing to continued gains.


The eerie regularity of this “spring swoon” (see chart) has aroused suspicions that something is amiss in the data. Government statisticians use models to adjust the raw data for seasonally recurring effects, such as extra-strong retail sales in December or slack construction in the winter. Any residual change should reflect actual trends in the economy, not the vicissitudes of the calendar.

One theory is that the models interpreted the economy’s plunge in late 2008 and early 2009 as partly seasonal, and responded by nudging up subsequent winter figures and nudging down summer data to compensate. But the federal Bureau of Labour Statistics (BLS) has found that the pattern persists even if the job numbers are seasonally adjusted without those recession months.

Michael Feroli, an economist at J.P. Morgan, offers a slightly different take. Large firms, he says, tend to do most of their hiring in the fourth quarter, whereas smaller ones mostly hire in the second quarter. Since the recession ended in 2009, large firms have been healthier than small firms, which could explain why employment consistently strengthens in the fourth quarter and weakens in the second....

*** economist / link

Japan joins ugly contest with tsunami of money

Political tensions on the Korean peninsula have lately escalated. In February, North Korea carried out a nuclear weapons test, defying tighter United Nations sanctions.

Kim Jong-un’s regime has since been threatening pre-emptive nuclear strikes against Pyongyang’s enemies, the recently installed “supreme leader” clumsily attempting to rally the moribund population of one of the world’s most secretive states.

A fortnight ago, North Korea pulled workers from an industrial complex operated jointly with South Korea, in a move seen as deliberate provocation.

What with this return to Cold War hostilities, then, Seoul is presumably deeply concerned about the aggressive antics of its Northern nemesis?

South Korea seems fixated, though, less on a theoretical nuclear war than on an actual financial war — not with nasty North Korea, but with Japan, a fellow Western-ally.

“Japan’s economic policies are doing their part to help the world economy recover,” said Hyun Oh-Seok, the South Korean finance minister, on the fringes of last week’s G20 summit in Washington.

“But if this causes problems and then the problems cause new responses from partnering nations, for example a currency war, the world economy will have a hard time”.

Despite Hyun’s careful phrasing, there is no “if” about it. South Korea already has “problems” with “Japan’s economic policies”.

Over the last six months, as Shinzo Abe, the new Japanese prime minister, has scrapped Tokyo’s traditional policy caution and dramatically embraced “quantitative easing”, the South Korean won has risen by a fifth against the yen.

Japan is late to the QE table, but with Abe having ordered the ultraconservative Bank of Japan to flood the world with freshly created currency, Tokyo is making up for lost time.

That has led to outrage in some quarters, not least South Korea, where exports account for half of national income. The country’s vehicles and electrical goods, in particular, compete head-to-head on global markets with more established Japanese products.

In recent years, they’ve made real headway, taking considerable market share. But now, an artificially created 20pc hike in the won-yen rate makes South Korean goods less attractive, inflicting damage on the likes of Samsung and Hyundai and threatening to reverse the hard-fought trade gains of Asia’s fourth-largest economy.

“Compared to the North Korea risk, a sliding yen is having a considerable impact on the real economy of South Korea,” uttered Hyun, in a bid to place this issue firmly on the G20 summit table and prior to this weekend’s Spring meetings of the International Monetary Fund and World Bank.

The trouble is that very few big Western players want to talk about Japan and currency wars. That’s because when it comes to competitive depreciations, the unedifying truth is that countries such as the US and UK are guilty to an even greater extent than Japan....

*** liam halligan / link

Charts That Make You Go Hmmm...


US Population Reference Bureau

The population across the Japanese archipelago dropped by around 284,000 to an estimated 127.5 million by October last year, the figures compiled by the government's Internal Affairs and Communications Ministry found.

The number of elderly people aged 65 or over surpassed 30 million for the first time, accounting for as much as 24 per cent of the population — in contrast to children aged 14 and under which decreased to a record low of 13 per cent.

As a result, the elderly officially outnumbered children, with a higher number of over-65s compared to children aged 14 and under in each of Japan's 47 prefectures for the first time.

The new figures confirm Japan's growing reputation as one of the fastest ageing nations in the developed world....

*** UK Daily Telegraph / link

Gold Seasonality Charts


Source: Signal Financial Group

If history really doesn't repeat but rhymes, as Mark Twain famously said, the charts of gold seasonality put together by Signal Financial make for worthwhile viewing in terms of possible pathways through the rest of this year. Click on the link above for comparisons galore.

If you want to know what Warren Buffet's 'useless cube' looks like, then the good folks at Demonocracy will not only show you but provide lots more data and perspective on the gold market — including the total amount of central bank gold reserves.

What's remarkable is to compare all the gold ever mined to the graphic of the US national debt on page 16. Doing so just makes it that much harder to understand the whole 'gold has no intrinsic value' debate. For me, at least.

But then again, I'm not a central banker, so I probably have absolutely no idea what I'm talking about.

If Guy Debelle reads this, he'll no doubt have a good old chuckle....


Source: Demonocracy

The Secret World Of Gold — CBC Documentary

Canada's CBC aired a fascinating documentary this past week that is required viewing for anyone interested in the gold market

Titled 'The Secret World of Gold', it took an in-depth look at the gold market and the allegations of manipulation that plague it.

This is the first time I can remember that these theories have been given an airing on prime-time TV in a Western country.

Although the video is only available in Canada, thanks to YouTube you can watch the documentary (in three parts) by clicking on the links below.

Whether you give credence to the various allegations of manipulation, this documentary is educational in the extreme and will at the very least make you start to wonder 'what if?'


Source: CBC Canada

Part I

Part II

Part III

Words That Make You Go Hmmm...


He's back!!

Nigel Farage had a few choice words for Olli Rehn & Co. in the European Parliament this week (click here) and followed that up with a hard-hitting interview with Eric King in which, as always, he pulled no punches whatsoever.

Farage calls the Cyprus 'bail-in' exactly what it is and expands on the likely fallout.


John Hussman is one of the best minds in the business, in my opinion, and in this presentation from the recent Sonoma Wine Country Conference he addresses what he labels the 'unstable equilibrium'.

Sit back and enjoy a master at work.




In the midst of the gold sell-off, I spoke to ABC television's Ticky Fullerton in Sydney and then to my good friend Al Korelin in the Pacific Northwest about what was going on in the gold market.

Somehow, I managed to stretch out the words 'I have no idea' into five minutes for ABC and then about 30 minutes for Al, during which we covered many of the topics in this week's TTMYGH.

The two links (left) will take you to either the 5-minute TV interview or the 30-minute radio conversation (see segment 6). Choose wisely — one contains scenes not suitable for those of a nervous disposition my face....


and finally...

Love him or hate him, Simon Cowell does have a knack for uncovering some absolutely phenomenal talent.


Last week, a shy, 28-year-old beauty therapist and walking bag of nerves from Hertfordshire named Alice Fredenham ("like Debenhams") stood on the stage in front of four judges and a couple of thousand people.

She had come alone and hadn't told anybody she was auditioning, because she 'didn't want to fail and let anybody down'.

You can probably guess what happened next, but ... WOW!

This is guaranteed to give you goosebumps and, I suspect, bring a tear to many an eye.

Simply beautiful.




Grant Williams

Grant Williams is the portfolio manager of the Vulpes Precious Metals Fund and strategy advisor to Vulpes Investment Management in Singapore — a hedge fund running over $280 million of largely partners’ capital across multiple strategies.

The high level of capital committed by the Vulpes partners ensures the strongest possible alignment between the firm and its investors.

Grant has 28 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses.

Grant has been writing Things That Make You Go Hmmm... since 2009.

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A walk around the fringes of finance


By Grant Williams

22 APRIL 2013


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Dallas Kennedy

April 23, 2013, 9:59 a.m.

I used to be a gold skeptic. But it, along with silver, looks like an excellent form a protection. We have been passing, since the late fall of 2011, through a period of complacency in the midst of a crisis and now into another slowdown. A large correction in gold is not surprising. But the price would have to drop to below $1000/oz to mark the end of the secular bull market. The demand for physical gold and silver has remained strong. But, like many commodities, the gold price is now influenced by the paper futures market in strange ways.

BTW, that Reinhardt-Rogoff thing is rapidly becoming an overblown urban legend. Maybe I’m the only person to read their whole book (which they started writing in 2005, well before the current crisis). But looking at their charts and tables is all you need to see their point. They use several metrics, not just public debt-to-GDP, to gauge how serious a debt situation is. Their diagrams and tables show it plainly to the naked eye; Excel spreadsheets are not necessary. Beyond certain limits of debt, depending on the nature of the debt and what it’s being used for, economies perform in markedly worse ways.

People have quibbled with their methodology, which does require some degree of judgment and isn’t simply a cookbook exercise. But that’s not a matter of just making a mistake. My only reservation about their methodology is their relative neglect of demographics, which is, I think, important in sorting out “good” debt and “bad” debt and why some episodes lead to inflation (youth surge, self-denominated debt) and others to deflation (aging, other-denominated debt).

Pay attention, because we’re about to get a demonstration of the “stimulus” dead-end in Japan.

Thomas Wolf

April 23, 2013, 4:32 a.m.

Did you hear the ‘Swoosh’?.....

“The guy in front of me bought over $1 million USD in gold. He paid in cash and walked out of the door with the bullion in a Nike bag. Amazing.”