04 August 2015

Gold Daily and Silver Weekly Charts - Meh

Gold and silver were drifting higher most of the day.
Dennis Lockhart of the Atlanta Fed felt the urge to declare that barring the wheels falling off the economy, he was inclined to raise rates at the September meeting.
That sounds familiar.  Oh, this is what I have been saying for most of the year.
Wow, what a revelation.
Traders in stocks and short term rates, and their associated algos, bounced their pricing to generate some activity, and more 'vig' for the HFT programs and the brokers.
Other than that this was a nothing day. 
The most important development I am watching, besides the stagnant economy and the kabuki theater of the Fed-centered propeller heads, is the decline in AAPL.
This is a danger, very narrow market that has been driven to an extreme based on a handful of 'new era stocks.'
Where have we seen this scenario before?
Nothing much happened in The Bucket Shop
Someone at Scotia decided to move 10,000 ounces from eligible to deliverable which will give the guys who track these things breathlessly the change to recalculate that 124:1 ratio of paper to bullion a bit lower.
I'll keep an eye on it, but it does not matter much if it is 116:1, or 120:1, or even 130:1.   If you don't have it, you don't have it.  And so they go to plan B, the artful dodge, which they have been hitting like a crack pipe in the VIP room at a 10th avenue 'nightclub' on a Friday night.
Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Janet Jett and the Blackhearts

"I think there is a high bar right now to not acting, speaking for myself. It will take a significant deterioration in the economic picture for me to be disinclined to move ahead."

Dennis Lockhart, Atlanta Fed President, 4 August 2015

This statement and the continuing decline in AAPL today were the primary movers in the market.

Apple cracked its 200 DMA and closed below it, for the first time in a very long while. This has technical market watchers spooked.

And in this highly narrowed market with just a few of the big tech fliers pulling the rally behind them, the potential for further declines in a behemoth like Apple has traders a little worried.

Let's see if Apple confirms this by continuing to close below the 200 DMA and can go out on the week, and then it might be a serious decline underway.

As for Lockhart, he is Yellen's buddy, and is continuing to give her cover for a rate increase that has nothing to do with the real economy, as I have said here many times. The Fed wants to pull the trigger before we get closer to the election because they do not want to provide a topic for the debates.

This market is dodgy.

Have a pleasant evening.

03 August 2015

Gold Daily and Silver Weekly Charts - Claims Per Ounce to New High of 121:1

As you can see from the first chart below, the number of potential claims per deliverable ounce on the Comex has risen to a record high of 121 to 1.

That can be corrected by higher prices for bullion that will prompt more legitimate sellers of actual bullion to take their stored gold and put it in the 'registered' for delivery category.

Or the trading desks of the banks and funds can continue to pummel the price with paper short selling, in the hopes of knocking down the open interest and the longs.

In the short term a fraud is relatively easy to sustain if you can compromise the 'cops on the beat' and you have powerful friends in the game with you.

In the longer term all such schemes collapse.  But con men and other criminal sorts are rarely thinking about the longer term consequences.

And it is the character of our time that those who say they are for reform, and vigilantly seek out injustice in their own case, will so often not only ignore, but join in on the taunts and misery of others less fortunate, who are suffering their own injustices, often from the same perpetrators.  

There is no real merit in acting solely out of self-interest.  Even the worst of people will do this.  But since this has become the guiding principle of our age, having sacrificed the notions of duty and honour on the altar of expediency and greed, so the virtue of the people is found wanting.

It is all too easy to  act out of the self-interest, with your mind, and not for what is right out of a principled stand for what is just, with the heart.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Stick Save

Stocks were slumping most of the day, but managed to take back much of their losses in the closing minutes.

There is no sustainable recovery.

There cannot be a recovery while the causes of our problems cannot be discussed frankly, for the reasons cited in this intraday commentary here.

We may wish to have one.  The statisticians and pundits may paint a rosy picture of one.  But most are now aware of the huge discrepancy between what is said and what is done.  And their anger is being reflected in the political landscape.

Years of complacent looting and personal privilege have made the plutocrats tone deaf to the message.

The lack of reform of the financialized economy that caused the last two bubbles and crashes will most likely cause the next one as well.

The primary reason is the corrupting power of money in politics, academics, the media, and most of the higher level functions in a society. They are caught, complicit, in a credibility trap.

The contributing reason is the after effects of a sustained draining of income and wealth from the bottom 99% to the top, as a consequence of policy and injustice.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

And none of this can be accomplished without serious political campaign reform to staunch the enormous flow of money as soft bribes into the coffers of the politicians.

Have a pleasant evening.

Central Planning and the Inevitable Abuse of Freedom from a Concentration of Wealth and Power

This is a reprise of a blog posting from August 2011

Most students of economics are aware of the tendency of 'perfect competition' to zero economic profit over time, unless there is a continual renewal and reinvention of the business, under the guidance of a wise, insightful, and responsive management. Even the best enterprise involves a risk of loss, the expense of well paid employees, and significantly hard work, all combined with a bit of luck. Little wonder that a minority of businessmen find this arrangement less satisfactory that other alternatives, which unfortunately includes various forms of cheating, if not outright fraud.

And therefore there is a constant tendency of participants in capitalist systems to foster the unreasonable profits of cartels and the stable pricing power of monopolies, natural or otherwise, with a measure of discretionary control over resources and choices, legislation and information, and political and monetary power.

Corporations are merely creatures of the law, and inferior to it. Without it, they don’t exist. What better way to create the supreme monopoly and maintain it in perpetuity than to skew the law in one’s favor?

When corporations obtain an inordinate amount of power over the social fabric of regulation and governance, the creation of an oligarchy distorts the real economy through the accumulation of too much power in too few hands, in the manner of the central planning bureaucracies of the old line communist nations.

And this is why the standard economic solutions of both stimulus and austerity for normal cyclical excess can be doomed to failure, as they are at this time. The system itself has become distorted and broken, and is badly in need of reform.  Whatever one puts into it will come out badly, and be turned to fruitless purposes, corrupted by the unprecedented concentration of power in the hands of the few, the partnership of the Wall Street banks, big media, multinational corporations, and their servants in the government.

The hallmark of a corrupt enterprise is that while it has the power to confiscate and destroy, it cannot create sustainable organic growth and recovery that benefits the broader public.   This may be a private monopoly or collection of monopolies, or a government chartered agency, or a government itself.  The characteristics of all of these can be very similar.  It is merely the details of their legal composition that differ.   

The modern, somewhat romantic theory of naturally efficient markets peopled by inhumanly rational and altruistic individuals is a fairly modern twist on the noble savage ideal of Rousseau, and just as other-worldly and impractical when applied to a modern society. Certainly no one who has driven recently on a modern highway in rush hour could believe it.

Nineteenth century Americans viewed the business trusts as un-American "internationalists, and  heartless, abusive exploiters of the public interest." And rightly so. They looked for relief to the reform of their government, and the power of democracy and the law.  

This struggle of the individual to maintain a balance of power with the organizations, whether they be the corporation or the state, is a recurrent theme, a continuing saga throughout human history.  Big Government and Big Business have both been inimical to human freedom.

Whether such an accumulation of power in a few hands is achieved by the gun and star chamber, or the pen and the bribe, may not matter to the end result, which is a society plagued by corruption, stagnation, and at its end, a growing instability with a resort to physical force and more overt repression on its own people.

Central Planning - It's not Just for Communists Anymore
By Matthew K
23 August 2011
Vancouver, BC

It's been a rough few weeks for the capitalist system, which bestrides the globe like a teetering colossus. Not only has there been stock market turmoil worldwide, and the temporary threat of a US default on its debts, but an esteemed, mainstream economist suggested that Karl Marx was right. In the Wall Street Journal, no less! Karl Marx Was Right

That would be Nouriel Roubini, whose claim to fame came from timely warnings about the US housing bubble and subsequent US stock market collapse.. It is important to note that he only said that Marx was right in that capitalism could collapse on itself,  not that it actually would.

Most people are familiar with the spectacular failures of central planning in the Communist regimes. According to the resurgently fashionable Austrian school of economics, an economy is too complex to be managed by one expert, or even one committee of experts, regardless whether the clubhouse door reads "Politburo" or "Shark Tank."

According to the Austrians, society's fastest path to prosperity consists of allowing every person to decide freely what is in their best interest, with the emphasis on individual transactions.

A biological analogy comes from flocks of birds, schools of fish, and ant colonies, among others. These swarms function extremely well, despite being composed of simple creatures following simple rules, and despite the anarchic lack of a leader directing things. Our own "simple critter rules" in modern society are probably along the lines of "try to get a higher paying job, and pay lower prices for stuff, within the laws of the land, and without making too many enemies."

A business analogy comes from Toyota. Their quality went from hopeless to fearsome by training every employee to be competent enough to figure out how to do their own job better, and then allowing them to do so. If their management tried to dictate how each task was to be done, they might have peaked at early-80’s American car maker quality levels.

In a similar way, they decided not to try to predict the right production levels for each model, colour, and trim. Instead they pre-built enough cars to fill dealership inventory, and each time a customer purchased a vehicle, they would build one more of that same model, colour, and features. In economic nerd speak, they responded to that "market signal". So if 5% of Corolla drivers wanted a green car with deluxe extras, in the long run 5% of Corolla production would consist of deluxe green vehicles.

Since the flaws of central planning and benefits of distributed decision-making occur in the public sector, the private sector, and even in biology, we can generalize that the USSR's economic problem was ultimately that a small group of people would decide how to (mis)allocate most of the country's resources.

In the past thirty years, there's been an immense concentration of wealth -- particularly in Anglo-American countries (the US, UK, us, the Aussies). The US is at the leading edge of this trend, with the top 1% owning 42% of the wealth, or about six times as much as the bottom four fifths of the population, and a significant portion of the means of production and public information (media) and influence over the course of society.

In recent decades Western capitalism has moved towards the central planning model of a relatively small number of people in charge of directing the allocation of resources. This narrowing of perspective has in turn led to policies progressively more disastrous for the moved and the shaken... which was the Soviet denouement.

I have to credit the influence of the thoughtful blog of a well-to-do American entrepreneur and military strategist, and especially this particular posting. Central Planning and the Fall of US Empire

Capitalism's path back from the self-perpetuating central planning will require a more equitable, or at least a less inequitable, distribution of wealth and power, by which to rebuild the middle class and promote decision making based on individual choice and a more widely based entrepreneurial meritocracy. Which is what Roubini was complaining about, in saying that too much wealth was being redistributed from labour to capital.

It would be a terrible irony if Marx was proven correct, and unchecked capitalism destroyed itself by evolving the self-crippling features of a centrally planned communist economy.  One can only hope that we can reform our current market systems before things get worse.

Rewriting the History of the Financial Crises and the Repeal of Glass-Steagall

In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting (up from 10 percent).

This expansion of the loophole created by the Fed's 1987 reinterpretation of Section 20 of Glass-Steagall effectively renders Glass-Steagall obsolete. Virtually any bank holding company wanting to engage in securities business would be able to stay under the 25 percent limit on revenue. However, the law remains on the books, and along with the Bank Holding Company Act, does impose other restrictions on banks, such as prohibiting them from owning insurance-underwriting companies.

In August 1997, the Fed eliminates many restrictions imposed on "Section 20 subsidiaries" by the 1987 and 1989 orders. The Board states that the risks of underwriting had proven to be "manageable," and says banks would have the right to acquire securities firms outright...

As the push for new legislation heats up, lobbyists quip that raising the issue of financial modernization really signals the start of a fresh round of political fund-raising. Indeed, in the 1997-98 election cycle, the finance, insurance, and real estate industries (known as the FIRE sector), spends more than $200 million on lobbying and makes more than $150 million in political donations. Campaign contributions are targeted to members of Congressional banking committees and other committees with direct jurisdiction over financial services legislation.

PBS Frontline: The Long Demise of Glass-Steagall

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

Upton Sinclair

The Glass-Steagall Law was enacted as a key reform in 1933, the depths of the Great Depression, in the overall effort to prevent the corruptions and abuses of the 1920's from enabling such a dire result again.

And together with other safeguards, such as antitrust laws and prosecutions for fraud, it worked. 
It worked, that is, until a long, and extremely well-funded effort by a few Wall Street Bankers, and strongly enabled and supported by the Federal Reserve, overturned this law piece by piece sixty years later in the 1990's.
It is almost amazing to watch the new American ruling class, and those who bask and benefit in their power, continue to spin fairy tales about what went wrong, what caused it, and what we need to do about it.

The high leverage and inherently dangerous asset concentration in the financial sector enabled by the Clinton-Bush tag team has taken down the American economy, and is keeping it down in a 'new normal' of stagnation by corruption.

This situation recently caused ex-President Jimmy Carter to observe that the US is now 'just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members.'
In our despair, we turn to--  Bush or Clinton.  It looks less like an election that offers an honest examination of the issues, and more like a power struggle between competing oligarchies in a banana republic, with inflammatory issues, paid demonstrations,  and bought off analysis designed to distract and diffuse any serious attempts at change.

And always, behind the scenes, are the oligarchs, Wall Street, and the Fed. 
The corrupting power of big money on politics, the media, and public discourse is at the root of our problems.

Is there a mainstream economist anywhere who has the moral fiber to stand up to the Fed and and their grotesque series of policy errors to tell the emperor that they are naked?  Or to tell the scions of Wall Street that they are enriching themselves but strangling the real economy?  Is there a politician who will refuse to be bought off that has not already been made obscenely rich by a corrupt and rotten system?
How quickly the sycophants to the power of place and money fall all over themselves to support the sources of our misery.
Greed is not good.   Greed kills.

New York Times Pushes False Narrative on the Wall Street Crash of 2008
By Pam Martens and Russ Martens: August 3, 2015

William D. Cohan has joined Paul Krugman and Andrew Ross Sorkin at the New York Times in pushing the patently false narrative that the repeal of the Glass-Steagall Act in 1999 had next to nothing to do with the epic Wall Street collapse of 2008 and the greatest economic calamity since the Great Depression. (See related articles on Krugman and Sorkin below.)
The New York Times has already admitted on its editorial page that it was dead wrong to have pushed for the repeal of Glass-Steagall but now it’s dirtying its hands again by publishing all of these false narratives about what actually happened.
In a July 30 column, Cohan ridicules Senators Elizabeth Warren and John McCain over their introduction of legislation to restore the Glass-Steagall Act to separate insured deposit banks from their gambling casino cousins, Wall Street investment banks. The Senators are being joined in their call to restore Glass-Steagall by a growing number of Presidential aspirants, including Senator Bernie Sanders and former Governor of Maryland, Martin O’Malley, both running as Democrats.

Hillary Clinton, another Democratic presidential hopeful whose husband, Bill Clinton, signed the bill during his presidency that repealed Glass-Steagall, does not see the need to restore Glass-Steagall...
Read the entire article here.