Perspectives on the global economic meltdown- (Nov 28 2010)

Singha · Post by **Singha** » 03 Sep 2011 17:10

Zynda thanks for the link but it says resource not found when I clicked it.

in any case, bay area employment for IT is only a small part of the overall matrix that keeps the US in or out of recession. from a friend who just relocated out of boston to blr, the MA IT job scene is not that good. he works in same co as me, and our employer through slow layoffs and lack of growth is essentially letting its new england center (opened with much fanfare by the governor in 2002) die on the vine. cafetarias in buildings are being closed and consolidated to save cost. fancy a 5min drive in deep snow to another building to find food? they had land for another 8 big buildings but it sure as hell doesnt look like its happening.....and there's nobody else willing to buy it either.

ill omen.

Hari Seldon · Post by **Hari Seldon** » 03 Sep 2011 19:40

Bob Shiller on the economy. http://www.ritholtz.com/blog/2011/09/robert-shiller/

Worthwhile watch, IMHO.

Also, an interactive map of by-county job growth/drop in the US http://globaleconomicanalysis.blogspot. ... nties.html

interesting, to say the least.

Zynda · Post by **Zynda** » 03 Sep 2011 20:03

Singha,
I am in non-IT and not in massa anymore. Have very little idea abt IT job scenario outside CA. Just wanted to bring out the contrast b/w scenario in Bay Area & rest of the US. Most of the IT ppl I know are in Bay Area with stable jobs (enough to make them invest in 500K plus homes). Anyways kind of OT for this thread.

RamaY · Post by **RamaY** » 03 Sep 2011 22:15

Thanks HS garu. Interesting trends indeed.

Looks like the 'offshorable' job market will force the decline of the coastal centers and make the mid-west a strong political force. Looks like the US economy is walking backwards with job growth in 2- gen industry like mining and health-care (aren't we supposed to be more healthy and strong as the science advances, demanding lesser health-care support?)

On average there seems to be 5-8% job loss since 2007 in tech areas. That means 3-5 million jobs = approximate increase in ITES exports from desh and associated IT hubs.

Singha · Post by **Singha** » 03 Sep 2011 22:23

looks like the 'core' of the old america is finally growing and decades of depopulation might yet be reversed . a return to hardworking and frugal old values in the expantionist phase of the empire vs the self delusional indulgences and vices of both coasts in sinful orgiastic excesses of consumerism

http://www.economicmodeling.com/2010/07 ... t-economy/

Throughout the good times and, more important, the bad of this new millennium, the cities of the plains—from Dallas in the south through Omaha, Des Moines, and north to Fargo—have enjoyed strong job growth and in-migration from the rest of the country. North Dakota boasts the nation’s lowest unemployment rate—3.6 percent in May, compared with the national average of 9.7—with South Dakota and Nebraska right behind it.

The trend has been particularly strong in urban areas. Based on employment growth over the last decade, the North Dakota cities of Bismarck and Fargo rank in the top 10 of nearly 400 metropolitan areas, according to data analyzed by economist Michael Shires for Forbes and NewGeography.com. Much of that growth has come in high-wage jobs. In Bismarck, the number of high-paying energy jobs has increased by 23 percent since 2003, while jobs in professional and business services have shot up 40 percent.

Singha · Post by **Singha** » 03 Sep 2011 22:26

america is kind of unique in being a superpower at the high end of technology, yet also a massive producer of raw materials - oil, metals, minerals, forestry, food.

its the middle of the equation - manufacturing - whose migration to china has left a damaging hole in the fabric.

VikramS · Post by **VikramS** » 04 Sep 2011 01:01

Singha:

That is the key. They pretty much have the best of everything, geographical isolation, vast natural resources, advanced technology, demographic balance, and a system which has shown the ability to change. I think this will be a decade of turmoil, but once the dust settles, it is still the horse to bet on.

The housing boom hid the loss of these middle type jobs. And now the effects are well known. But with wages rising in Asia and the cost of energy/transportation also going up, the natural advantages of Asia will gradually diminish.

Neshant · Post by **Neshant** » 04 Sep 2011 03:34

VikramS wrote:Neshant: Gold is nothing but another element which is valued because it is
(i) Rare
(ii) Is one of the least reactive metals & does not rust or dissolve (even in acids)
(iii) Shines (so women like it).

..and its been money for 6000 years. Amen.

VikramS wrote:You can convert Mercury into Gold too

A ridiculous point as at great energy cost, only a few atoms of gold are ever produced. Any element can be transformed into another element with unlimited energy. Gold as with all other heavy elements came from fusion reactions in stars that went supernova.

The beauty of gold is only 2% or so is added to the net supply every year - roughly the rate at which the productive economy advances globally. Its perfectly suited for its role as money.

VikramS wrote:The argument against the Gold Standard are numerous; it puts an artificial limit on the human ability to harvest innovations.

Nonsense, counterfeiting money is not harvesting innovation. Its just a scam. If it had anything to do with innovation, we should all be doing it. I'd like to print up a few $100 bills on my laser printer and harvest some of this innovation myself.

There are a lot of countries who issue and use fiat in a responsible manner, so the problems do not originate with fiat. The problems originate with the abuse of the fiat system.

The problem with fiat money is that inevitably it ends up getting corrupted by the banking crooks and assorted goons looking to rip off the system through bribery & corruption. It gives rise to the useless middleman industry, academia gets polluted and co-opted into the scam for grants and jobs, politicians do it to get re-elected, the so called "independance" of the central bank is just a cover for the perpetuation of ripping off the system...etc Its endless.

And that's why every fiat currency that has ever existed eventually ends up in failure and only gold has ever survived the test of time as money.

To be sure, gold has some drawbacks. If a country is not a major producer of it, it is at a disadvantage. Ron Paul really has the best idea in this regard. It is a system of privately issued independant currencies that exists alongside gold. It ends the monopoly of banking crooks robbing people through printing scams, it ends the corruption of politicians of robbing one to pay another to get elected, it transfers the responsibility to you to protect your wealth (no FDIC so choose wisely who's dollarrs you hold), it creates an obligation on the private currency issuer to protect your wealth (or they will be out of a job unlike incompetent Bernanke). It also transforms the role of the useless middleman industry into a useful one.

Too much to discuss but when I read his vision, I was convinced that was the perfect monetary system.

VikramS · Post by **VikramS** » 04 Sep 2011 04:03

Neshant:

A person as cynical as you using terms like "perfect system" is a bit of a non-sequitur.

Any system can be compromised if the checks and balances fail.

Diamonds were also created during the planet creation process. However their price and supply on earth is completely rigged by large companies like De-Beers.

What makes you think that a financial system based on a gold standard will not be manipulated and controlled for the interests of a few?

Fiat currencies fail when the government system behind them fails; while financial mismanagement is sometimes the cause, it is more often external intervention which leads to the collapse of the government, and the end of that fiat system.

Mankind was on a Gold Standard for much of its history. But it made the most progress as it decoupled from it. Think about it for some time.

As I have written earlier also, paper versus hard assets run in a multi-generational cycle. As Indians, we should not be surprised by this cycle of birth and death. In my life time Gold has rallied to 2000 fallen to 200 and is now rallying to 2000 and beyond. I do not know how you define that as surviving the test of time...

Incidentally, there are some talk that ancient Indians knew how to convert Mercury to Gold via a chemically induced process...

And why do you think that the multiple currencies (Ron Paul's version) will not lead to manipulation, deception and other scams?

shyam · Post by **shyam** » 04 Sep 2011 04:22

VikramS:

Why can't GOTUS let gold and silver be used as currency along with US$ inside US? That would require not taxing any appreciation of gold/silver prices aginst US$. Why are they totally opposed to that idea?

Neshant · Post by **Neshant** » 04 Sep 2011 15:23

VikramS wrote:Neshant:
What makes you think that a financial system based on a gold standard will not be manipulated and controlled for the interests of a few?

It should be based on multiple privately issued local currencies that exist along side gold and with zero rules & regulations that favor one currency over another. A free floating exchange rate between these local currencies ensures there's always money of one kind or another around and more importantly, its not the monopoly of a few banking crooks. It also ensures those who earn the money get to define what money is and not get robbed of it through trickery & thievery. It cuts down on an enormous amount of corruption that comes from monopolizing power in the hands of a few.

Mankind was on a Gold Standard for much of its history. But it made the most progress as it decoupled from it. Think about it for some time.

The gold standard existed till 1971 in the US. Most of the progress came before that. The fastest economic growth (without incuring debt) occured in the late 1800s when the US was on a gold standard.

Finally, nothing says that economic growth came about due to the issuance of worthless paper money. The IT & Internet boom did not come about due to some guy printing money anymore than the US discovered the atom bomb or created the steam engine because it was on a gold standard. Classic case of mis-attributing one thing to another.

If anything, the people along with savers & creditors abroad are all about to pay for the bogus "economic growth" from 2000 to 2011 through our ass in the years ahead because much of it was based on debt and fake wealth.

Strangely you'll never hear Bernanke admit to his own ineptitude in wrecking the economy although you can draw a straight line between cause & effect in that case.

In my life time Gold has rallied to 2000 fallen to 200 and is now rallying to 2000 and beyond.

Gold has never rallied to $2000 in anyone's lifetime. For 6000 years upto the present day, it has never been worthless on a global basis. The average life span of fiat currencies (there have been about 60,000 varieties in total or thereabout) is about 60 years i think. Have to find the stats.

Incidentally, there are some talk that ancient Indians knew how to convert Mercury to Gold via a chemically induced process...

Sounds like the plot of a Harry Potter movie.

Ambar · Post by **Ambar** » 04 Sep 2011 21:15

VikramS wrote:Ambar:
1. I will throw any university research on price movement in to a shredder unless it is lead by people who have years of experience trading in that area.

Since almost every trading firm i know hire university researchers to chart strategies and draw trading algorithms, i would hardly "shred" research papers by one of world's top university.

You would agree the price of crude dropping nearly 15% from it July highs is due to a slowing economy and rising inventories. If it was just speculators regulating the price of oil, OPEC may well fold up and stop their meetings about controlling production and supply.

I vividly remember a CFTC report that was published in the Economist sometime in 2005 about the rise in price of oil due to increasing spreads.If it is spreads, then how does it determine the immediate price of a commodity ?

So they say since bulk of non-oil commodities like steel/gold/copper etc are traded in OTC, there should be less non-institutional speculators there. But why pray did we see similar trends in those markets as well post 2005 if there were less speculators ?

VikramS wrote: In any securities market it is the short term traders, speculators by definition, who provide liquidity.

A key issue you need to keep in mind is time-frames, and orders of magnitude. Fundamentals of supply/demand, cost of production, inflation etc. are useful for guiding the average price over a significant period of time (order of years).

Sorry. The biggest gripe i have with speculators being solely responsible for price of commodities is thanks to routinely published data by CFTC. They love talking in conferences how long positions of speculators drive the prices up, but when we have a similar magnitude of shorts on the same commodity, the corelation is absent between the rise/fall of the price.Why ?

VikramS wrote:During the run to $147 in oil, traders were told by GS to keep buying. They were coming with wild targets ($150, $200, $250 in 12 months). As it turned out all along they were trying to squeeze a company called Sem Group. And during that period the "Useless Middleman Industry" was printing research report after research report talking about peak oil, ghost Saudi oil fields and what not. Oil dropped almost 80% to 30s within a year.

No one trading firm can have a significant impact on the price of any commodity as CFTC places strict position limits. CFTC Chairs keep blaming the speculators for pushing the price of commodities up, but what happened to their sep 2008 investigation report ? Nothing.

===

VikramS wrote:
The argument against the Gold Standard are numerous; it puts an artificial limit on the human ability to harvest innovations. There are a lot of countries who issue and use fiat in a responsible manner, so the problems do not originate with fiat. The problems originate with the abuse of the fiat system.

If i was living in 16th century where commerce is limited to my "country" within fortified walls,ruled by a monarch, and controlled information flow,then yes, i wouldn't mind carrying gold coins to 7-11 when i buy that box of Marlboro. In a globalized world with such magnitude of commerce, getting rid of fiat system and replacing it with gold would plunge the world back into dark ages. Ofcourse, we can have a quasi-gold standard as we did pre-70s, but then we saw the result of a fixed peg system. Besides, even in a quasi-gold standard,why and how exactly is it impossible to debase currency ?

VikramS · Post by **VikramS** » 04 Sep 2011 23:56

Ambar:

The price of Crude (I am talking WTI-CL) here was as high as 115 and as low as 75 in the past 4 months. As measured from the Aug 9 lows, crude had been higher by more than 50% in the past 4 months. Do you really think it is all because of the so called in the global economy? If you look at the oil inventory and consumption data there have been no dramatic shifts. In fact the situation in Libya was quite bad till a few weeks ago. So why do you think the price moves so much???

CFTC limits are a joke. Almost big banks own a lot of storage and even have stakes in the pipelines, refineries etc to be treated as commercials? So they can pretty much do anything since they can get exemptions from most limits since they are not treated as specs. And then there is the unregulated OTC market where they can deal directly with the producers.

Most of all, you are missing the crux of the argument. Most managed futures firms, hedge funds etc s follow some kind of trend following system. The Big Boys do not have to themselves buy oil; they just have to give hints and the rest follow. The comment from that trader about keeping on bidding it higher offers an insight. Specs buy high to sell higher.

The position limits stuff typically applies to a single entity; it is pretty much useless when every spec gets on one side of the trade and jacks the price up. When they exit then the price collapses; it is what in Hindi called bhed-chal or sheeple. While longer term average price does revert to the mean as determined by physical supply/demand, in the shorter time-frames the price is in the control of specs and the specs can and do move the price by as much as 50% in 4 months!

If you look at the fundamentals, consumption, production, available floating supply and other metrics, there is nothing which has changed so dramatically to justify a 50% swing in 3-4 months. And even folks who look at longer term trends look at average prices. The price fluctuates a lot around these average prices and those swings are massive. Academic research may provide some idea of longer term price trends, but you can not trade using that. You could invest using that if you have the stomach to tolerate 20-40% draw-downs.

====
Neshant:

Prior to 1971, it was not a true gold standard buy a system of pegs tied to gold. That too failed to work since it did not permit adjustments as needed. The British (the dominant world power then) left the Gold standard on September 19, 1931, almost 80 years ago. I would argue that most major discoveries which made modern life possible were made in that 40 year period between 1930s and 1970s.

Any system is susceptible to manipulation if the checks and balances do not apply. How will you guarantee that the Gold Standard based currencies are not holding Gold plated tungsten?

http://en.wikipedia.org/wiki/File:Gold_price_in_USD.png
And in inflation adjusted dollars, Gold did reach close to 2395 during the early 80s.

Prem · Post by **Prem** » 05 Sep 2011 01:12

VikramS
Energy/commodity traders are responsible for creating current economic uncertainties. Right now they exert disproportional amount of influence over global economy.Since Fundamentals dont work becuase of control by few greedy instutitions, i dont see any light at the end of tunnel till these trader factors is taken out of whole economic equation. Either they keep control or economic recovery start , choice is obvious. Larry Kudrow mentioned lowering of oil prices last month equals to 100B $ stimulus for US economy and i laughed
with the understanding that this tax break for average joe will be completely eaten within a month by few big Anacondas of WS. Lets hope the next couple of shocks dont bring us closer to German yconomic woes right before the rise of Third Reich.

Ambar · Post by **Ambar** » 05 Sep 2011 01:16

Good. Lets consider the WTI-CL data from CFTC, here's a graph i have uploaded that maps net longs vs WTI-CL price index :

When the long positions were rising ( the so called atomic catalyst to push crude prices through the sky!), the WTI-CL price was actually dropping! So where exactly is the corelation between speculation and a price that is determined by socio-economic/supply-demand trends ?

The CFTC limits are something that is followed both by CME and ICE in Europe, and to avoid the scenario that you have mentioned,there is a position limit and a exchange set limit. Now that may not hold true to gold/copper/steel that are mostly trader OTC. By law ICE has to oblige CFTC rules and settle its WTI contracts non-physical contract to that of nymex WTI price again putting an end to "speculation" that prices can be manipulated outside the US,no. One may say whatever they usually shout about US being a crook etc. there is no denying the fact it is one of the most transparent and well regulated markets in the world. (Please don't bring in the realestate/.com bubble or "useless snakeoil middlemen" argument again!). So CFTC limits are hardly a "joke"!

Here's a paper by ms.Hillary Till who has appeared with CBS ' Raghuram Rajan many a times.
http://docs.edhec-risk.com/mrk/000000/P ... utures.pdf

When she uses the Sanders equation with dataset from 1950s to present, speculative positions in oil have been net short by a huge margin. She concludes the speculative peak T index in 2008 wasn't excessive by historical data debunking the theory of speculators being the reason for historic highs in oil.

VikramS · Post by **VikramS** » 05 Sep 2011 06:27

Ambar:

I am not sure what your graph is plotting. By definition, there is always a net short when there is a net long; that is the nature of the futures contract. Is that graph showing the open interest? If yes the open interest of current contract or the sum of the nearest six month contracts or something else? Or is it showing the net position of commercials (unlikely since commercials are almost always net short)? Or is it showing the net long position of speculators?

Do understand that a graph like this is meaningless on the short term market dynamics. There may be a lot of spec traders who bought at $100 and were closing out contracts at $110, $120, $130 reducing the total open interest. What is important from the market structure point of view was whether the dips were being bought; i.e. were there enough buyers willing to buy even at $120. As long as dips are bought (for whatever reason, a massive short squeeze in this case) the trend will continue up. The total open interest might be decreasing as the price rises; perhaps an indication that the upward auction is loosing steam as old longs start closing their positions while not attracting new longs.

Section 559 here includes clauses which can allow you get around position limits.
http://www.cmegroup.com/rulebook/NYMEX/1/5.pdf#page=49

You are assuming that all contracts are cleared on exchanges. What about those which are not? Two private parties could agree on a contract as long as they trust each other's credit worthiness without involving an exchange coming in the middle to clear, a truly OTC contract.

Then there is the question of physical storage, tanker storage and what not.

I think we are going in circles. Crux of the matter is that speculators play a huge if not the dominant part in short term price movements. And these movements can be as high as 50% of the price. While "fundamentals" shape the long term average price, the short term price movements is almost always driven by the actions of speculators.

vina · Post by **vina** » 05 Sep 2011 07:20

Prior to 1971, it was not a true gold standard buy a system of pegs tied to gold. That too failed to work since it did not permit adjustments as needed. The British (the dominant world power then) left the Gold standard on September 19, 1931, almost 80 years ago. I would argue that most major discoveries which made modern life possible were made in that 40 year period between 1930s and 1970s.

Well, the Bretton woods was a sort of Gold Standard I think, with the USD linked to physical gold and all other currencies pegged largely to the USD. Now thanks to Nixon and the inflation due to the Vietnam misadventure, that gold peg was kicked out and the USD became a fiat currency.

In some ways, the fundamental argument about a gold standard being very difficult to inflate by printing paper is right. Just as the Vietnam misadventure and the big deficits can be laid as the root cause of the 70s stagflation (amazing innit?, they start printing money like no tomorrow and the economy goes into stagflation, something that Keynesian e-con--mix said couldn't happen and the reason why Milton Freidman who said that it could , became the toast of the season and the Chicago school of e-con-o-mix and neo conservatism came to the fore), the slamming of growth in 2011 onwards and the deficit problem is directly tied to the ruinous wars in Afghanistan and Iraq. Iraq was a war of choice. A classic case of imperial over reach.

shyam · Post by **shyam** » 05 Sep 2011 11:30

VikramS wrote:Prior to 1971, it was not a true gold standard buy a system of pegs tied to gold.

What caused gold standard to fail is the fraud within the system. Printing more money than the gold they had to back it up, without publicly announcing that, is nothing else but fraud.

Another system we can have is to let every currency in the world to have reserve status. Countries that trade will use each other countries' currencies as reserve. By this way, no single country has the monopoly of owning global money. People will trust countries that back their currency by gold and will also trust countries that are very innovative, even if their currencies are not backed by gold. People will also dump toilet papers used as currencies.

VikramS · Post by **VikramS** » 05 Sep 2011 12:54

vina: Agree completely with the comparison.

shyam: Yes you hit the nail on the head when it comes to the Gold Standard. How do you guarantee that the standard is being followed and it is not lead which is backing the currency? There is no way. That is why currency markets which move freely are the best arbiter of relative strength. If the dollar is being printed it will lose value as it has. The consequences of that policy are obvious.

There is no inherent need for a reserve currency between countries which have well established history of trade. They can trade using their own currencies, while settling the imbalance in whatever reserve they chose (gold, USD, oil, RMB or IOUs). Currencies become reserve because of the perception that in times of distress, their value and standing will be honored by the most. When that perception falters, the currency no longer remains the reserve. That is what is happening in the US.

Neshant · Post by **Neshant** » 05 Sep 2011 17:45

It is easy to find out if gold is backing the currency. On any gold standard, the paper has to be freely exchangable for gold on demand - i would futher add the word 'anonymously' to the end of that statement.

The day this exchange is refused is the day there no longer exists a gold standard.

Despite massive bull&hitting attempts by the useless middleman industry, people are coming round to the idea that money counterfeitiers cannot be trusted as they inevitably defraud creditors. Thus history keeps returning over and over to honest money.

Ambar · Post by **Ambar** » 05 Sep 2011 22:26

Vikaram , I thought it was quite obvious it speaks about net long positions in WTI CL for 24 months with cumulative data based on weekly COT issued by CFTC of future and option open interest contracts/quarter . Why is hard to gauge what the graph is pointing at ? It clearly displays the lack of co-relation between speculators taking a long bet on commodity but the commodity price actually falling.

Short term market dynamics ? The data for almost 8 quarters! Someone closing out of their contracts is trying to get out before expiration. No trader will pay above the price for a contract someone is trying to close and get out before expiration. I would love to see someone try to remove the futures market from commodities and then enjoy the fun riding volatility on spot prices!
The CME article that you mentioned clearly states how the trader trying to get through hard limits ONLY for bonafide hedging must get an approval from both the exchange and CFTC. Both CME and ICE contracts abides by the same CFTC, they get 10k single month futures,and 20k combined and a 3k contract hard limit for the last three days of trading in the spot month.

I also mentioned about OTC contracts in one of my earlier posts. Off-exchange OTC trading that uses future markets to hedge are also monitored by CFTC and the exchanges and is included in commercial COT weekly statistics.Similarly, the index funds that uses OTC swaps have to provide complete data of their activity to CFTC,SEC and USITC. If you had read the Hillary Till and CBS report that i had mentioned earlier, she clearly mentions the DCOT report that publishes the breakables of exchange,non-exchange,managed money and other reportable trades.The Sanders equation for T index clearly considers the inventory data,supplier data and end user data and summary position of derivatives in exchange and off-exchange avenues.

There is not a single empirical evidence of speculators being responsible for the swings in oil.Imagine US allowing itself so naively to be exposed to wild manipulations from a bunch of Chinese traders trying to topple domestic US economy through manipulated swings!

Ambar · Post by **Ambar** » 05 Sep 2011 22:33

shyam wrote:
VikramS wrote:Prior to 1971, it was not a true gold standard buy a system of pegs tied to gold.
What caused gold standard to fail is the fraud within the system. Printing more money than the gold they had to back it up, without publicly announcing that, is nothing else but fraud.

Another system we can have is to let every currency in the world to have reserve status. Countries that trade will use each other countries' currencies as reserve. By this way, no single country has the monopoly of owning global money. People will trust countries that back their currency by gold and will also trust countries that are very innovative, even if their currencies are not backed by gold. People will also dump toilet papers used as currencies.

If every currency gets a "reserve currency" status, then how can it be called a "reserve" in the first place ? The need for a "reserve" currency arised due to the lack of flexibility in a globalized economy. India has around 70+ state partners it does commerce with, imagine trying to hold each one their currencies and then hedging yourself against manipulations on all those currencies! It is simply not practical.

When USD un-pegged itself from quasi-gold standard, it pegged the value of USD on the scale of US commerce,liquidity,military and diplomatic power. Sure, with the decline of US maybe someone else will take its place,or may be a basket of currencies in form of SDRs. There is no ways we can ever go back to absolute gold standard as there just isn't enough gold to cover the scale of commerce in this world.

VikramS · Post by **VikramS** » 05 Sep 2011 23:54

Ambar:

That graph does not have any description at all. Further your explanation is even more confusing.There is NOTHING like a "NET" long in a paper market, which a futures market is. There is ALWAYS someone short if someone is long. You can have net open interest or net hedged/unhedged positions but no net long. You can have speculators who are net long with commercials who are net short but there is nothing like a "NET" long position.

You can have producers who take a net short position because they want to sell their oil in the future at a fixed price; and you can have consumers who take a net long position because they want to buy the same. But the concept of NET long position is by construction, invalid.

That being said most of the time people who analyze COT look at how much net short the commercials are to get a sense of the direction of the market. At bottoms, commercials tend to cut their short interest and near tops their short interest increases. Check out the COT report for gold towards the end of June/early July, and in February this year and how the commercials cut down on their short exposure near lows.
http://futures.tradingcharts.com/cotcharts/GD

OTC contracts DO NOT have to be cleared or settled at exchanges if the counter parties trust each other. What will the CFTC do then?

The big banks are commercials and can not only work around position limits but also have physical storage capacity to tak e supply in and out of the market when convenient.

Further you also completely ignored the Sem corp revelation and how traders were bidding oil up simply because they smelt blood in the water. And the entire Wall St. Machinery was calling for higher and higher prices.

Incidentally, I had written to the some one in the US government (do not remember) about why the GOTUS does not use the SPR to sell futures contracts and break the bids to reverse the trend. I got a very detailed answer whose summary was that we do not interfere in the free market. Incidentally, Obama admin has been very quick and has released oil from the SPR, part of the reason which led to the collapse in the oil price; most of the buyers of that oil were BANKS!.

Why do you think the WTI-Brent spread is holding up when the cost of the arb (filling up WTI in a tanker and shipping it to Europe) is much much less than the $20 spread (WTI is a better quality crude). The whispers are that the banksters have been ordered to use the oil they got from the SPR release to beat the price of WTI down. And it is working.

The price of fell about 25% from mid-July to early August, falling almost 15% in a 2 day period. What do you think caused that volatility?
====
Regarding the amount of Gold and Gold Standard. The Gold Bugs believe that if and when the world moves to a Gold Standard, the price of Gold will be an order of magnitude higher. Good for India BTW.

ranjbe · Post by **ranjbe** » 06 Sep 2011 03:59

Things seem to be unravelling in Europe. Even "The Economist" is getting in to the Gloom & Doom camp:

Let us sum up the recent news. The Greek talks with its multinational lenders have been suspended (broken down?) on signs the government is missing its targets; Italy's politicians are backtracking from the measures unveiled in its austerity budget. Europe's Plan A - that countries will bring their debts down through fiscal discipline while the markets wait patiently - looks less and less likely to succeed. In the FT, Wolfgang Munchau said that

the very least one should expect is for the eurozone to abandon all austerity measures with immediate effect
Actually, that is rather a lot to expect. Just to illustrate the confusion among policymakers, Christine Lagarde, the new head of the IMF, said at the weekend that European countries should

consider stimulus measures to drive growth
while Jean-Claude Trichet, head of the ECB, called for faster implementation of austerity measures.

Animal spirits may not be the only factor that drives an economy. But when you consider all the above factors - sovereign debt crisis, fiscal austerity, bank funding pressures, weak credit growth, falling markets, political drift - the background facing consumers and businesses is very gloomy. Only those German companies exporting to China can feel immune

http://www.economist.com/blogs/buttonwo ... _economist

Hari Seldon · Post by **Hari Seldon** » 06 Sep 2011 05:21

^^^Bah, nothing will happen. It hasn't so far, right? By tghe infalliable logic of mathematical induction induction, it never will....

meanwhile, some twitter stories (TIFWIW)

@ zerohedge
Bring Out Your Dead - UBS Quantifies Costs Of Euro Break Up, Warns Of Collapse Of Banking System And Civil War http://tinyurl.com/3mkjvso

@zerohedge
10 year drops to record 1.92% {wow. eh? Deflationistas, rejoice you were right before deflation blanks out all joy from the world...}

Trichet Warns Heads of States; Italian President Warns "Markets Lost Confidence in Italy";IMF… http://goo.gl/fb/yAynA {yawn}

@AutomaticEarth
European banks face collapse under debts, warns Deutsche Bank chief Josef Ackermann http://tgr.ph/rbewtN (Like TAE has been sayin for 4 yrs)
{You go, girl!}

An on and on

Neshant · Post by **Neshant** » 06 Sep 2011 07:50

BS Quantifies Costs Of Euro Break Up, Warns Of Collapse Of Banking System And Civil War

Ah yes. The old ``too big to fail`` scenario.

The cynical side of me says they are prepping the people to hand over their hard earned money for more bailouts & bonuses to the useless middleman industry. The system is FAST running out of suckers with strong backs on which to offload gambling losses of banking goons who gambled their arse away.

Singha · Post by **Singha** » 06 Sep 2011 09:41

funny excerpt from MSNBC - GOTUS wants crowdsourced ideas on what to do with foreclosed homes.
perhaps demolishing these homes is the only way out? even keeping them clean and saleable is a running opex....we have seen articles of people whose job it is to keep their backyard pools clean, check the locks, throw out any hydroponic weed 'farmers' who crawled in, spray paint the grass green and so on....

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For sale or rent by distressed owner: 248,000 homes. That’s how many residential properties the U.S. government now has in its possession, the result of record numbers of people defaulting on government-backed mortgages. Washington is sitting on nearly a third of the nation’s 800,000 repossessed houses, making the U.S. taxpayer the largest owner of foreclosed properties. With even more homes moving toward default, Fannie Mae, Freddie Mac and the Federal Housing Administration are looking for a way to unload them without swamping the already depressed real estate market.

Trouble is, they haven’t figured out how to do that. The government admitted as much in August, when Fannie, Freddie and FHA issued a joint plea to the public for ideas about how to solve the problem. (Give it your best shot: You have until Sept. 15 to email ideas to [email protected].) “They’re stuck,” says Karen Shaw Petrou, managing partner of Federal Financial Analytics, a Washington-based consultant that advises banks and other clients on government policy. “They don’t know what to do.”

Paul · Post by **Paul** » 06 Sep 2011 10:14

The FBAR declaration will impact OCIs and PIOs hard with the coming Sept 9 deadline(per IRS.gov)
..one of the unforseen conssequences of running headlong for US citizenship and GC status....

http://www.forbes.com/sites/robertwood/ ... n-willful/

Many U.S. citizens and permanent residents didn’t know about these rules until recently. See IRS On What Is A Foreign Account. But it’s harder today to remain ignorant. See IRS Offshore Amnesty: Second (Last) Chance.

You can still enter the IRS OVDI program until August 31, 2011, though time is short. Unlike the 2009 IRS amnesty that required you only to enter the program by October 15, 2009, the current OVDI program requires to you supply everything—even payment—by August 31 unless you qualify for an extension (once granted, extensions allow up to November 29, 2011). See IRS Updates Voluntary Disclosure Amnesty: What You Should Know.

Much of the current focus in these waning weeks is on How Do You Opt Out Of IRS Voluntary Disclosure? But to opt out you first must enter the program. See Opt Out and Removal Guide for the 2009 OVDP and 2011 OVDI for the procedures for opting out. Others consider quiet disclosure, something that to the IRS is a dirty word.

As you evaluate alternatives, consider what the IRS says is “willful.” Among other things, this analysis will influence whether you can qualify for reduced penalties upon opting out. The IRS says willfulness can be a conscious effort to avoid learning about FBAR reporting. Form 1040 Schedule B refers to the instructions to Schedule B, which mention FBARs.

The IRS says that with hardly any diligence, the person could have learned of the requirements quite easily. A person with foreign accounts should read the information the government specifies in its tax forms and instructions. Failing to follow-up on this knowledge may provide evidence of “willful blindness.” See Excerpt From Internal Revenue Manual, 4.26.16.4.5.3, Paragraph 6.

The failure to learn of filing requirements coupled with efforts to conceal the existence of the accounts may lead to a conclusion that the violation was willful. Yet “[t]he mere fact that a person checked the wrong box, or no box, on a Schedule B is not sufficient, by itself, to establish that the FBAR violation was attributable to willful blindness.”

Singha · Post by **Singha** » 06 Sep 2011 11:01

in a nutshell, if they have NRE / NRO / demat trading / FD ac in india or rental income from property in India, would need to disclose that and pay US taxes on the interest earned right?

Neshant · Post by **Neshant** » 06 Sep 2011 18:11

they want to know everything & the kitchen sink about what money you have... and will then tax you up the wazoo.

suckers are needs to pay for the bailouts & bonuses to the useless middleman industry.

suckers are in high demand.

i wish i could buy a Sucker ETF.

sumishi · Post by **sumishi** » 06 Sep 2011 20:45

Neshant wrote:...
suckers are needs to pay for the bailouts & bonuses to the useless middleman industry.

suckers are in high demand.

i wish i could buy a Sucker ETF.

VikramS · Post by **VikramS** » 07 Sep 2011 03:03

Sorry Neshant. Short Selling has been banned in Europe so you will not be able to short the Sucker ETF.

The Swiss National Bank today put a floor on the EUR-CHF rate at 1.20. This resulted in a 900 pip move in about an hour. A lot of traders would have been wiped out today since CHF was the goto currency. Nasty surprise for those who woke up post Labor Day to find their accounts destroyed. The FIAT wars have started with every one trying to devalue their currency.

Chinmayanand · Post by **Chinmayanand** » 09 Sep 2011 12:52

Got this in mail :

------------------

Dictators are falling. Democracies are failing. A curious coincidence? Or is it, perhaps, a sign that something fundamental has changed in the grain of human history. I believe so.

How do dictators survive? They tell lies. Muammer Gaddafi was one of the biggest liars of all time. He claimed that his people loved him. He also controlled the flow of information to his people to prevent any alternative narrative taking hold. Then the simple cell phone enabled people to connect. The truth spread widely to drown out all the lies that the colonel broadcast over the airwaves. Similarly in Egypt and Tunisia, the regimes lost control of the narrative. In short, technology has undermined dictators’ ability to lie to their people.

So why are democracies failing at the same time? The simple answer: democracies have also been telling lies. Now we know, for example, that the eurozone project was created on a big lie. All the major European politicians assured their publics that the contradiction between monetary union and fiscal independence would be resolved by insisting on fiscal discipline. Any eurozone member that violated the 3 per cent budget deficit rule would be punished.

All this was a big lie. When France and Germany breached the 3 per cent rule in 2003, nothing happened. This then opened the doors for others to break the rule (Portugal, Ireland, Greece and Spain). Even worse, Greece began lying to its European partners from the very beginning. To be fair to Greece, its European partners knew Greece was lying.

The people of Europe went along with the big lie as long as they did not have to pay for it. The great western financial crisis of 2008-09 changed everything. Bankers had to be rescued. Taxpayers had to pay the price. Foolishly, the Irish government took on the liabilities of Irish banks, passing the burden to Irish citizens. Today, the German taxpayers balk at having to pay the price for rescuing an economic experiment that rested on a big lie.

Europe is not alone. The American people are equally angry with their government. No US leaders dare to tell the truth to the people. All their pronouncements rest on a mythical assumption that “recovery” is around the corner. Implicitly, they say this is a normal recession. But this is no normal recession. There will be no painless solution. “Sacrifice” will be needed and the American people know this.

But no American politician dares to utter the word “sacrifice”. Painful truths cannot be told. And there is an even more fundamental reason why they cannot tell the truth. In theory, a “government of the people, by the people, for the people, shall not perish from the earth” in America. In practice this is a big lie. Take the US budget process as exhibit A. In theory, the government collects taxes to deliver public goods to the population. In practice, the US budget has been hijacked by all kinds of special interest groups. This is why the US stimulus plan failed. A small portion of it went to help create jobs. Most of it was absorbed by various special interests. As Harvard economist Jeffrey Miron says: “The stimulus was so poorly run that stimulus money wound up going to prisoners and dead people, bridges to nowhere, and useless government buildings.”
In short, the US political system is dangerously flawed. The American people feel in their bones that something has gone awfully wrong. They know that the financial elite is in bed with the political elite. The interests of the banks will be taken care of; the interests of the people will not. Yet while all this is happening, politics is on autopilot.

Few American politicians seem aware that the whole world was shocked that a “deal” was reached to get America’s finances in order without raising a single tax. When S&P delivered the natural verdict that this would not work, the messenger, as usual, was crucified.

Most people know what is happening. Hence, there is a simple way politicians can regain trust: tell the truth, even if it hurts. But they won’t until they learn that lying doesn’t work – it is not just dictators like Col Gaddafi who never will.
The writer is Dean, Lee Kuan Yew School of Public Policy, National University of Singapore, and author of “The New Asian Hemisphere: the Irresistible Shift of Global Power to the East”
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Christopher Sidor · Post by **Christopher Sidor** » 09 Sep 2011 21:23

QEI and QE-II, resulted in more than half a trillion dollars flooding the financial system. The thinking was that if interest rates are driven down to zero then banks would have to lend. After all money was being given to the banks practically for free. Well not exactly. What the US Fed did was buy US Treasuries and bonds in massive amounts. In return it gave the holders and issuers of US Treasuries, Dollars. The american government expanded US government with the money. The banks used the money to shore up their balance sheets and put part of the money in turn into speculation.

Consider a scenario, a bank loans 10000 USD to some company in middle america. This would yield the bank say 100 US Dollars of interest. But if used in say commodity markets, gold, or emerging markets stocks or currencies then the return would be higher as the banks have to pay only the transaction charge of the trading exchange. While with the loan, they have to carry it on their books for significant amount of time.

Another aspect was the dollar-carry trade. Previously there was a yen-carry trade, in which BoJ kept interest rates close to zero. This caused people to borrow in Japan and carry out risky trades on exchanges. This is now getting repeated now on steriods, yen has been replaced with dollars and what we get is the dollar-carry trade. There was one massive risk with yen-carry trade and that was, yen had to be converted to currencies like dollar and euro before it could be used. Hence it carried an element of exchange risk, i.e. value of yen used to fluctuate. But with dollar-carry trade this risk is eliminated entirely.

This is a mother of unintended consequences. What US Fed wanted to do and what actually happened. US Fed wanted the money to be used in the real US economy. What happened was that is was used to buy up commodities, assets and so on where the banks and financial institutions saw a quicker return on capital.

So with this background, if Fed goes for QE-III, what are the chances that its goals will be met ? Add to this inflation is creeping up. In US the annual inflation figures for July-2011 was 3.6%. For the month-on-month the inflation increased by 0.5% in July-2011. Source is over here.. This raises a very dangerous prospect of stagflation in US. So the question changes from QE-III to another one entirely. How long will US Fed play chicken with inflation? It will have to raise its interest rates, non-withstanding its commitment to keep the easy money policy for the foreseeable future.

Neshant · Post by **Neshant** » 10 Sep 2011 21:37

Just as there are all kinds of peak oil and peak debt and peak ..... theories, the useless middleman industry might have also hit a peak. I call it "peak uselessness".

The productive economy has been drained flat by these scammers and now fewer & fewer fresh suckers are available to be defrauded of their money. The next thing to unravel (inshallah) will be the fiat racket and then it will be curtains down on these scammers for good. Their source of revenue will be gone and with it them too. We can only hope.

----

Bank of America cuts 'could hit 40,000'

US financial giant Bank of America is considering cutting up to 40,000 jobs as part of a hotly anticipated round of belt-tightening, the Wall Street Journal reported Friday.

The Journal cited unnamed sources as saying the company had discussed cuts of 30,000 to 45,000 jobs, but it said the numbers could still change and that the decision would be carried out over a period of a few years.

Such cuts would amount to more than 10 percent of the company's workforce.

The bank has been pummeled with losses from the 2007-2009 financial crisis and has recently been hit with a series of multi-billion dollar lawsuits relating to dodgy mortgage-backed securities issued by its subsidiaries, Countrywide Financial and Merrill Lynch.

Weighed down with the lawsuits, the bank reported a net loss of more than $9 billion in the second quarter.

Amid rumors that it had serious capital deficiency problems, last month it announced a $5 billion injection from investment guru Warren Buffett's Berkshire Hathaway.

It has also said it will sell half of its 10 percent stake in China Construction Bank to raise about $8.3 billion in cash.

http://news.yahoo.com/bank-america-cuts ... 14999.html

Prem · Post by **Prem** » 10 Sep 2011 23:24

Singha wrote:funny excerpt from MSNBC - GOTUS wants crowdsourced ideas on what to do with foreclosed homes.
Trouble is, they haven’t figured out how to do that. The government admitted as much in August, when Fannie, Freddie and FHA issued a joint plea to the public for ideas about how to solve the problem. (Give it your best shot: You have until Sept. 15 to email ideas to [email protected].) “They’re stuck,” says Karen Shaw Petrou, managing partner of Federal Financial Analytics, a Washington-based consultant that advises banks and other clients on government policy. “They don’t know what to do.”

I just advised them to sell the houses in international market for cash and grant residency to the owners. There are milions of Yindians, Chindians, Afrindians and Eurindians who can easly buy these properties.

Prem · Post by **Prem** » 10 Sep 2011 23:29

Neshant wrote:Just as there are all kinds of peak oil and peak debt and peak ..... theories, the useless middleman industry might have also hit a peak. I call it "peak uselessness".
The productive economy has been drained flat by these scammers and now fewer & fewer fresh suckers are available to be defrauded of their money. The next thing to unravel (inshallah) will be the fiat racket and then it will be curtains down on these scammers for good. Their source of revenue will be gone and with it them too. We can only hope.

Most of the poverty in India was caused by Soodkhors, Byajkhors, Commission Agents, Arrtiis , etc. Sooner these middlemen controlling the commodities go kaput ,better for economy . Wall street must be Walled by bricking it alive to avoid the rise of global Reich .

Hari Seldon · Post by **Hari Seldon** » 11 Sep 2011 04:07

^^^ Good pint.

A very subversive (from the POV of the permanent establishment) idea slowly gaining ground among the more thoughtful yanquis in khanland is that of declaring banking as a utility as regulating it like one. In one fell swoop, much of the muck and the incentive structures driving it would be brought to heel. Moi 400% support only...

Singha · Post by **Singha** » 11 Sep 2011 07:16

+1 - while savings banks and FDs are useful, I am yet to see a compelling use to humanity of the tribe of "investhment bankers" and "hedge fund operators" and "high frequency traders(HFT)" other than skimming milk off the pan, using superior access and information to make money, taking a commission on deals that should never happen (more the M&A more they make) and helping the really rich grow richer.

a friend of mine who sells ethernet switches was told by a HFT firm that even 10 nanosec latency less in executing trades was worth 10s of millions of dollars to them. Arista networks has staked its future on reducing latency in ethernet switches and raking in financial customers. others are also trying to compete.

long term if the brightest native people are pushed out of finance and law into science , medicine and engineering, Khan might rise again and be able to look at itself honestly in the mirror

but thinking like a paki, if their slow downfall is our upward mobility opportunity, all power to their financial engine

Neshant · Post by **Neshant** » 11 Sep 2011 11:50

I just advised them to sell the houses in international market for cash and grant residency to the owners. There are milions of Yindians, Chindians, Afrindians and Eurindians
who can easly buy these properties.

Not a bad idea. Buy a house in the 200K limit and get permanent residency in the US. That should mop up some of the huge over-hang of homes in the US.

The idea to turn these houses into govt rental properties is bad because people who might otherwise have bought these homes as investment to be rented out will now think twice. The govt renting out millions of homes will depress rental prices. Plus do they really want to be competing against the govt.