things that make you go hmmm...jan 29, 2013

7/29/2019 Things that make you go hmmm...Jan 29, 2013

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Copyright Mauldin Economics. Unauthorized disclosure prohibited. Use of content subject to terms of use stated on last page.

War Games

We live in a global economy, so you yourself cannot dosomething alone. You have to cooperate with your partners.

Kim Choong-soo, Governor of the Bank of Korea

David Lightman: What is the primary goal?

Joshua: To win the game.

Dialogue, War Games

I generally dont know how far things go, but I can see whichway they are going.

George Soros

The fact is, currency wars are fought globally in allmajor nancial centers at once, twenty-four hours perday, by bankers, traders, politicians and automated

systems and the fate of economies and their affectedcitizens hang in the balance

Jim Rickards, Currency Wars

o learn more about Grant's new investment newsleer,

Bull's Eye Investor, click here

THINGS THAT MAKE YOU GO

Hmmm...A walk around the fringes of nance

By Grant Williams

29 JANUARY
http://www.mauldineconomics.com/bulls-eye/learn-more/TTM008PP1012Ahttp://www.mauldineconomics.com/bulls-eye/learn-more/TTM008PP1012A


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ContentsTHINGS THAT MAKE YOU GO HMMM... ....................................................3

Pop Quiz, Hotshot! ....................................................................................19Carney to Put Growth Top of List ...................................................................19

A Mountain of Risk .....................................................................................20

Snakes And Ladders: Investment Banking on the Brink ..........................................21

Too Early to Celebrate ECB's Balance Sheet Reduction ..........................................22

George Osborne's Austerity Plan 'Risks Lost Decade' for UK Economy .........................23

How a $91 Million Loan on the Marlins Ballpark Will Cost Miami-Dade $1.2 Billion .........24

Cleaning Up China's Secret Police Sleuthing .......................................................25

CHARTS THAT MAKE YOU GO HMMM... ..................................................28

WORDS THAT MAKE YOU GO HMMM... ...................................................32

AND FINALLY ................................................................................33


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Things That Make You Go Hmmm...One, two, three, four, I declare a thumb war!

I was late to the sport of Thumb Wrestling, having spent my childhood playing such gamesas British Bulldog (sadly, a game deemed too violent for todays less hardy progeny); but my

children, prevented from engaging in any kind ofphysical contact on the school playground for fearof potentially life-ending knee-scrapes (or, morelikely, school-ending legal action) were ardent thumbwrestlers; and I found myself engaged in what to mewere rather pointless exercises during which new ruleswere arbitrarily added to the game, which seemeddesigned solely to ensure that Dad never won. (I amstill not 100% certain what the rules are surroundingthe sneak round-the-back-attack, but that strategydid result in my losing handily to my daughter, Bront,

whenever combat ensued). No matter. Whenever the rhyming gauntlet was thrown down, it wason like Donkey Kong though the need to explain that particular reference to Bront meantthat I tended to enter the battle feeling rather old and decidedly unt for combat. My run ofdefeats was truly epic.

Nobody ever really wins at Thumb Wars, which makes the whole thing rather pointless; and,as it turns out, the same can be said about the subject of todays discussion Currency Wars

which seem to be erupting across the globe; and, as they gain in intensity, these monetaryconicts are threatening to throw a major spanner in the works of a world that, until recently,seemed to have been operating under the assumption that it was possible for multiple countriesto all devalue their currencies simultaneously in order to inate their massive debts away.

Poor, misguided fools.

There are many parts of the current nancial equation that puzzle me, from investors who arehappy to accept guaranteed losses in their government-bond portfolios to governments thatgenuinely seem to think that increasing their spending by a tiny bit less than they had intendedcounts as a 'spending cut'; from yield-starved souls who feel that the appropriate return for

dipping ones toe into the junk bond market is sub-6% to business owners who, in a worldsloshing in trillions of freshly printed funny money, are forced to pay double-digit interest ratesfor access to some of the magical bounty.

But beneath it all, at the wellspring of all the disconnects and false price signals that aremaking investing in todays supposedly free markets an impossible task, lies the source of mygreatest consternation: central banks.

I have one simple question for those august institutions, and it is this:


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Do they reallythink it is possible for them all to devalue their currencies against eachother simultaneously and achieve anything but rampant and universal ination at somefuture point in time?

Thus far, the focus on a currency war has been rather diffuse and conned to the fringes

of intelligent discussion. The rst shot across the bow came way back in 2010 when GuidoMantega, Brazil's nance minister, stepped up to a microphone in So Paulo and broke thecentral bank omerta:

'Were in the midst of an international currency war, a general weakening of currency. This

threatens us because it takes away our competitiveness,'were Mantega's exact words. Simple.Accurate. Ominous. The FT takes up the story:

(FT): Mr Mantegas comments in So Paulo on Monday follow a series of recent

interventions by central banks, in Japan, South Korea and Taiwan in an effort to make

their currencies cheaper. China, an export powerhouse, has continued to suppress the

value of the renminbi, in spite of pressure from the US to allow it to rise, while ofcialsfrom countries ranging from Singapore to Colombia have issued warnings over the

strength of their currencies....

By publicly asserting the existence of a currency war, Mr Mantega has admitted what

many policymakers have been saying in private: a rising number of countries see a

weaker exchange rate as a way to lift their economies.

The politics of such an issue were immediately apparent:

The proliferation of countries trying to manage their exchange rates down is also

making it difcult to co-ordinate the issue in global economic forums.

South Korea, the host of the upcoming G20 meeting in November, is reluctant to

highlight the issue on the gatherings agenda, also partly out of fear of offending China,

its neighbour and main trading partner.

That was then, and at the time most 'policymakers' (unsurprisingly) as well as most journalists,or 'commentators' (as they are often called in such matters), opined that the term currency waroverstated the extent of the hostilities. Any chance of such a conict was ... 'contained'. Youknow, like that 'little subprime problem'.

The tools available for competitive devaluation begin with good old-fashioned jawboning. Afterall, why waste valuable reserves when markets can be scared or cajoled into a suitable reactionby a few choice words from a central banker armed with the necessary gravitas. Ain't that right,Mario?

Next up is the euphemistic process of 'intervention' in currency markets. This is, of course,aimed purely at manipulation 'stabilization'. From there, we move on to a mish-mash ofinterest-rate policies, capital controls, and something quite innocuously called 'quantitativeeasing', aka 'money printing', about which we have all heard quite a lot in recent times.


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(Rant on: Incidentally, I have had enough of the whole business of trying to continually softenor nd new and less-offensive phrases for just about everything that has invaded every cornerof modern life. The nal straw came this week when I discovered that the humble tracksuitworn by soccer players when warming up before a match is now called an 'anthem jacket'.Why? Because they happen to be wearing it as the national anthem is played. IT'S A TRACKSUIT.

Please. Somebody. Make it stop. Rant off.)

Anyway, back to Currency Wars.

The 16-year period between 1995 and 2010 saw a huge shift in the world's currency reservesfrom West to East (a theme we will certainly return to this year), as can be seen from thechart below. During that period, emerging economies took advantage of shifting trade patternsto accumulate enormous foreign reserves, largely at the expense of their Western customers;but this explosion in their holdings can be traced back to the Fed's ridiculous 'lower for longer'approach to interest-rate policy, which persisted from the mid-1990s to ... well, I'll get back toyou when I can ll in the back-end number, but sufce to say, it won't be any time soon.

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

Developing

Developed

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

IMF Currency Reserves of

Developed and Developing Economies(1995-2012 - US$ Millions)

US$mn

Year Source: IMF

Source: IMF/TTMYGH

Where did that explosion in reserves come from? Well, some of it came from good old-fashionedgrowth (remember that?). The vast majority rest? Well, that would be debt you know, 'debt',the remedy currently being prescribed to x the problem of too much debt? Yeah, that.


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By the time July of 2011 rolled round, despite a period of relative calm, Mantega was stillbanging the currency war drum as he watched the Brazilian real continue to strengthen againstBernanke and Geithner's much-desired 'strong' dollar:

1.50

1.75

2.00

2.25

2.50

2.75

2008 2009 2010 2011 2012 2013

Brazilian Real vs US Dollar

(2008-2013)

Real Weakness

Real Strength

Source: Bloomberg

(FT): Brazil is preparing a range of additional measures to stem the damaging rise of thereal as the global currency war shows no signs of ending, according to Guido Mantega,

the countrys nance minister...

Mr Mantega said the Group of 20 leading economies was still a long way from achieving

its goal of agreeing new guidelines for managing currencies, there were 'struggles

between countries' such as the US and China, and the global currency war was

'absolutely not over'.

'Absolutely not over'. No, it wasn't. In fact, it was just getting started.

The problems for emerging markets facing concerted efforts by slowing, debt-laden

economies to weaken their currencies are well-known.

Slow growth and low interest rates in advanced economies continued to put upward

pressure on Brazils currency, Mr Mantega said, forcing the authorities to consider

further intervention in currency and derivatives markets to limit overshooting.

'We always have new measures to take,' he told the FT, indicating on the sidelines of an

investor conference that these would not be pre-announced, but would include marketintervention.


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The relative strength of their currencies is a big issue for fast-growing economies. Too strongand, though the domestic market will struggle to overheat, competitiveness is impaired. Tooweak and the reverse is true, but ination becomes a serious issue. The answer, of course,is what used to be referred to as the 'Goldilocks' outcome. This term was quite popular untilthe subprime crisis made fools of everyone who predicted it as the likely endgame to theclear and present dangers facing the US economy. I would, in fact, venture to suggest that thedisappearance of that particular term from the punditocracy's lexicon is perhaps the one goodthing to have come out of the events of 2007-8.

But, as always, I digress.

It used to be that a government would decrease the value of its currency by literally devaluingit reducing its intrinsic value by lowering the amount of gold (or silver) from which coinswere minted; but that was in a time devoid of at currencies and when there was extremelylimited international trade, so exchange rates were of little or no importance. It was a time ofhard money and gold standards.

The rst great currency war occurred, coincidentally of course, during the Great Depression,when most countries abandoned the gold standard; and Britain, France, and the USA set offon a competitive devaluation process driven by sky-high unemployment (you'll stop me if any

of this stuff sounds familiar, right?). As countriesdevalued against each other in the attempt toreinvigorate their export economies at the expenseof their trading partners, nothing was really achieved(except that countless trading companies werebankrupted by wildly gyrating short-term exchange

rates). This period in history is beautifully chronicledin Liaquat Ahamed's Lords of Finance (see left),a staggeringly good book from which I have oftenquoted in these pages. If you haven't read it, read it!

The Bretton Woods era, which ran from the end ofWWII until August 15, 1971 (roughly) meant that, withgold anchoring a group of semi-xed exchange rates,competitive devaluation was more or less negated;and, though the Plaza Accord, signed in 1985, broughtabout a major devaluation of the US dollar against theyen and Deutsche Mark, it necessitated the LouvreAccord two years later to halt the dollar's slide (youjust gotta LOVE these bankers).

The Asian currency crisis of 1997 contained the seeds of an East vs. West currency conict, butcatastrophe was averted, despite the damage that was done to the US decit and the seedsthat were sown for a decade-long war of words between the US and China all of which bringsus right back to today and the currency war that is just getting going.
http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0143116800http://www.amazon.com/Lords-Finance-Bankers-Broke-World/dp/0143116800


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Whenever such things are talked about, it is invariably in the context of the US dollar; but thetrade war I want to take a look at specically is the one brewing in my part of the world,between two powerhouses who bear considerable enmity towards one another. No, not Chinaand Japan (that has the makings of a war of an altogether different kind), but Korea and Japan.

The rather unfortunate-looking vehicle (left) is theSibal the rst car ever produced in South Korea. Itwas developed by the Choi brothers in 1955 and wasbased (as you can clearly see) on the chassis of theWilly's Jeeps left behind by departing US troops onlyabout 50% of its parts were locally produced.

This put the Korean automobile industry about 40years behind that of Japan, whose storied zaibatsu(conglomerates) began building in the 1910s the carsthat would eventually come to dominate the world.

The other area where Japan had it over Korea wasconsumer electronics.

Back in the 1980s and into the 1990s, companies such as Sony, Pioneer, Hitachi, and Sharp wereproducing consumer electronics widely recognized as the best in the world; and alongside thelikes of Toyota, Nissan, and Honda they helped Japan Inc. stand astride the world.

Back then, Korean cars and consumer electronics were, frankly, a bit of a joke.

Nobody who could afford not to would buy a Daewoo

or a Hyundai car. Nobody wanted an LG television.In fact, in 1981 Samsung Electric (the forerunner toSamsung Electronics) proudly boasted that it hadmanufactured its 10 millionth black & white TV.

Fast forward to 2012, and the change in the landscapehas been nothing short of seismic.

Sharp sits on the verge of bankruptcy, once-mightySony has seen its share price plummet and is now thesubject of speculation as to who may buy it and Hitachi

is known more for computer disk drives than consumerelectronics. Meanwhile, Samsung Electronics is the onlycompany in the world giving Apple a run for its money.

Samsung surpassed Sony in 2005 to become the world's 20th-largest brand, and by 2012 ithad not only become the world's largest-selling mobile phone company (some feat in today'sApple-dominated world) but had spent a brief period in 2007 as the world's largest technologycompany, when it leapfrogged the then-incumbent, Hewlett-Packard.

Hong Kong

Singapore Taiwan

South Korea

Japan

1980 1990 2000 2011 2017*

80

60

40

20

0

Source: IMF/Economist * Forecast

GDP Per Person at Purchasing-Power Parity

2011 Prices ($000s)


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How did all this come about? Simple:

5

10

15

20

25

30

35

40

1982 1984 1986 1988 1990 1992 1994 2000 2002 2004 2006 2008 2010 20121996 1998

Yen Weakness

Yen Strength

Korean Won vs Japanese Yen

(1982-2013)

6

7

8

9

Jan 12 Apr 12 Jul 12 Oct 12 Jan 13

1-Year Performance

Source: Bloomberg

As the yen strengthened due to its anchor role in the carry trade, the won weakenedsubstantially, making Korean products far cheaper than those of their Japanese counterparts.

Simultaneously, the quality of Korean cars and consumer electronics was improvingdramatically, enabling Korean consumer electronics to sweep past those of Japan and their carindustry to reach heights never dreamed of when the Choi brothers cobbled together the Sibal,as a look at the best-selling cars of 2012 demonstrates:

9 1. Toyota Corolla (Japan)

9 2. Hyundai Elantra (Korea)

9 5. Kia Rio (Korea)

9 8. Toyota Camry (Japan)

Having been gifted a huge headstart by Japan, South Korea is not about to allow the Japaneseto claw that advantage back by standing still and letting them weaken the yen, as was madeapparent by comments from South Korea's nance minister, Kim Choong-soo, in Davos this pastweek:


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(CNBC): Basically, the level of foreign exchange has to be determined by market

fundamentals in the medium to long-run. But in the short run, we all know that thereare times where noises can matter, disturbances can take effect. But that's only for the

short-term period," Kim told CNBC on the sidelines of the WEF in Davos.

"We all know the grave consequences of competitive devaluation efforts, which weexperienced some decades ago. So I think it's time to sit together to talk about that.We live in a global economy, so you yourself cannot do something alone," Kim said. "Youhave to cooperate with your partners."...

Asked whether South Korea would be forced to respond to the Bank of Japan by

managing the won in a more meaningful way for the country's manufacturers, Kim said:

"It all depends upon how markets respond to such moves, and the markets have changedover time our central bank will do whatever it's supposed to do to protect the high

volatilities in the nancial sector."

"And I'm particularly concerned about the volatilities. If changes are made too rapidly,we all know that will create uncertainties, and we have to do something to prevent that

from happening," Kim added.

80

90

100

110

120

130

JPY/KRW Rate

Nikkei 225

KOSPI Index

KOSPI vs Nikkei CorrelationWith Yen/Won Rate Overlay

Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13

Source: Bloomberg


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Japan's currency has been strengthening for two decades, while its competitors have beenhappy to sit back and let the weakening effects of that move on their own currencies continue.Now Japan has decided it needs a weaker yen, and though the move has thus far been fairlypowerful, we have reached the point where the likes of Korea will step in and defend theadvantage they have gained over the last twenty years. As can clearly be seen from the graph(previous page), Korea's KOSPI Index has decoupled from the Nikkei as the yen slide has pickedup speed, and that is a phenomenon South Korea simply cannot allow to continue.

This is how it starts with Currency Wars.

When it comes to ammunition reserves, Japan's balance sheet dwarfs that of Korea, withalmost four times the amount of foreign currency at their disposal; but they will be ghting thiscurrency war on multiple fronts, and those reserves can quickly become exhausted.

JapanKorea

US$ 1,193,077US$ 316,861

Foreign Currency Reserves

(US$ millions)

Source: IMF

Printing money or devaluing your currency in a vacuum is one thing. Generally, you can make adifference up to the point where those against whom you are attempting to weaken push back(ask the Swiss National Bank); but once it becomes a competitive sport, all bets are off.

This past week, Japan announced that, as of January 2014, it will begin an open-ended,unlimited QE program to monetize Japanese debt (they are currently buying 36 trillion yen

a month, or about $410 billion) and attempt to generate the magical 2% ination that willdecimate its bond market solve all its problems. Sadly, this does no more than allow Japan tocatch up with other central bankers around the world who are already monetizing like crazy;but, purely on the basis that something is better than nothing, this change in policy has beencheered to the echo.


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As we head into 2013, we nd ourselves in a situation unlike any that has ever occurred in thehistory of global nance. The ability to simplify the complexity of that situation is somethingonly the very brightest amongst us are able to do, and one such man is Raoul Pal of the GlobalMacro Investor (with whom I have recently been fortunate enough to have a fascinatingdialogue). Raoul put together a very simple list which, at the time he compiled it in late

December, beautifully highlighted the utter absurdity of today's central banking folly.

The list was split into sections that grouped the 38 countries that had negative or zero realrates (yes: THIRTY. EIGHT.), as well as the countries that either had explicit QE programs inplace or were actively intervening in or verbally manipulating their currencies:

USA

UK

Japan

Canada

Germany

FranceItaly

Belgium

Holland

Greece

Portugal

Ireland

Spain

Cyprus

EstoniaFinland

Luxembourg

Slovakia

Slovenia

Bulgaria

Czech Republic

Norway

DenmarkHungary

Mexico

Saudi Arabia

Turkey

South Africa

Israel

Bahrain

Jordan

Kuwait

Oman

Hong Kong

India

SingaporeTaiwan

Thailand

USA

UK

Japan

Eurozone

Switzerland

China

Hong Kong

Switzerland

Australia

Israel

Denmark

Japan

South Korea

Malaysia

Taiwan

Thailand

NorwayQatar

Russia

Saudi Arabia

UAE

Negative

Real Rates(G7)

Quantitative

EasersMoneyprinters

Good

Old-Fashioned

Manipulators(Intervention &

Jawboning)

Negative

Real RatesOthers

NegativeReal rates

Eurozone(ex-Malta)

Source: Raoul Pal, Global Macro Investor

Now, does it seem remotely possible that all these countries can have weak currencies at thesame time? Of course it isn't possible. Not without rampant ination, it isn't. But that doesn'tappear to be a problem for the central bankers of the modern world, who are condent that

ination is 'contained'. Yes, 'contained'. Is anyone paying attention, I wonder?

The competitive devaluation merry-go-round will continue, because these buffoons have leftthemselves no other options. A currency war will break out in earnest; because none of themwill be able to generate the weaker currency they need, and that will in turn lead to severalexits from the EU, because the weaker economies will need to regain control of their owncurrencies and not be beholden to Brussels. This is the way things go, I am afraid.
http://www.globalmacroinvestor.com/index.asphttp://www.globalmacroinvestor.com/index.asp


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"One, two, three, four, I declare a currency war!"

There is one other important piece of Currency Warsthat I want to take a look at before we wrap thingsup for the day, and it stems from a rather interesting

recent announcement from the Bundesbank.

Last October, the Bundesbank was challenged byauditors to explain why they kept the majority of theirgold overseas. They explained it rather neatly:

(ZeroHedge): The reasons for storing gold reserves

with foreign partner central banks are historical... To

be more specic: in October 1951 the Bank deutscherLnder, the Bundesbanks predecessor, purchased

its rst gold for DM 2.5 million; that was 529 kilograms at the time. By 1956, the gold

reserves had risen to DM 6.2 billion, or 1,328 tonnes; upon its foundation in 1957, theBundesbank took over these reserves. No further gold was added until the 1970s. Duringthat entire period, we had nothing but the best of experiences with our partners in New

York, London and Paris. There was never any doubt about the security of Germanysgold. In future, we wish to continue to keep gold at international gold trading centres

so that, when push comes to shove, we can have it available as a reserve asset as soon

as possible. Gold stored in your home safe is not immediately available as collateral

in case you need foreign currency. Take, for instance, the key role that the US dollar

plays as a reserve currency in the global nancial system. The gold held with the NewYork Fed can, in a crisis, be pledged with the Federal Reserve Bank as collateral against

US dollar-denominated liquidity. Similar pound sterling liquidity could be obtained bypledging the gold that is held with the Bank of England.

So there you have it. The Bundesbank was extremely happy with holding its gold in New York(amongst other places) and saw no need to move it.

A couple of weeks later, the story surfaced again when Andreas Dobret of the Bundesbank gavea speech in front of the NY Fed's Bill Dudley:

(Zerohedge): Please let me also comment on the bizarre public discussion we arecurrently facing in Germany on the safety of our gold deposits outside Germany a

discussion which is driven by irrational fears.

In this context, I wish to warn against voluntarily adding fuel to the general sense of

uncertainty among the German public in times like these by conducting a phantom

debate on the safety of our gold reserves.


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The arguments raised are not really convincing. And I am glad that this is common sense

for most Germans. Following the statement by the President of the Federal Court of

Auditors in Germany, the discussion is now likely to come to an end and it should do

so before it causes harm to the excellent relationship between the Bundesbank and the

US Fed.

Throughout these sixty years, we have never encountered the slightest problem, let

alone had any doubts concerning the credibility of the Fed [ZH may, and likely will,

soon provide a few historical facts which will cast some serious doubts on this claim.

Very serious doubts]. And for this, Bill, I would like to thank you personally. I am also

grateful for your uncomplicated cooperation in so many matters. The Bundesbank will

remain the Feds trusted partner in future, and we will continue to take advantage of

the Feds services by storing some of our currency reserves as gold in New York.

Pretty clear, it has to be said. No chance the Bundesbank would be repatriating their gold anytime soon. Except...

On January 16, 2013, just a matter of weeks after their earlier assertions, the Bundesbankreleased the following statement:

By 2020, the Bundesbank intends to store half of Germanys gold reserves in its own

vaults in Germany. The other half will remain in storage at its partner central banks in

New York and London. With this new storage plan, the Bundesbank is focusing on thetwo primary functions of the gold reserves: to build trust and condence domestically,and the ability to exchange gold for foreign currencies at gold trading centres abroad

within a short space of time.

The following table shows the current and the envisaged future allocation of Germanys

gold reserves across the various storage locations:

31 December 2012 31 December 2020

Frankfurt am Main 31% 50%

New York 45% 37%

London 13% 13%

Paris 11% 0%

To this end, the Bundesbank is planning a phased relocation of 300 tonnes of gold fromNew York to Frankfurt as well as an additional 374 tonnes from Paris to Frankfurt by2020.

The withdrawal of the reserves from the storage location in Paris reects the change inthe framework conditions since the introduction of the euro.


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Given that France, like Germany, also has the euro as its national currency, the

Bundesbank is no longer dependent on Paris as a nancial centre in which to exchangegold for an international reserve currency should the need arise. As capacity has now

become available in the Bundesbanks own vaults in Germany, the gold stocks can now

be relocated from Paris to Frankfurt.

Of course, no sooner had this story hit the wires than all hell let loose as the conspiracytheorists went on the rampage. Rumours swirled around of missing gold, rehypothecation, andmassive price spikes as the Fed scrambled to get delivery of Bundesbank gold long ago leasedinto the market; but nding out the truth about the situation will likely take considerable time.

The important point about the Bundesbank move is that it heightens another form of currencywar one that involves the only REAL currency, gold that began in August of 2011.

As I wrote back then, when Hugo Chavez demanded his 99 tons of gold from the Bank ofEngland:

(TTMYGH August 26, 2011): Chavezs move this week could set in motion a chain ofevents whereby Central banks who store the bulk of their gold overseas in safe

locations scramble to repossess their countrys true wealth. If that happens, the most

high-stakes game of musical chairs the world has ever seen will have begun.

One would imagine that a countrys gold would be stored onshore in their own vaultsrather than be entrusted to a foreign power after all, if tensions WERE to risebetween the two sovereigns, amongst the rst casualties would be said gold.

Based on the paper prepared for the Venezuelan Finance Ministry and Central Bank

(table, page 3), Chavez is about to ask a group of Western banks to hand over some$11.1 billion in gold bullion and, despite the obvious logistical nightmare that thetransportation of this bullion presents, he will be expecting it to be delivered either to

the Venezuelan Central Bank vault, or that of a friendly nation such as China or Russia.

Soon.

For the longest time, conspiracy theories about the amount of gold actually held in the

various depositories have abounded in fact, we have discussed many of them in these

pages over the past couple of years but now we may nally nd out just what doeslie beneath, as Venezuelas grab for their gold could potentially start a landslide of

demands for delivery that could unravel a web of deceit years in the making.


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Or it may not. Either way, we MIGHT just nd out who was right and who was wrongand be able to put the matter to rest once and for all. To quote Vizzini, it would beinconceivable to think for a second that central bank governors the world over are

blissfully unaware of the rumours about empty vaults, massive leasing programs, and

ctitious allocations held on their behalf at places like Fort Knox, the Federal Reserve,and the Bank of England; so one can reasonably imagine that quite a few of them aresitting uneasily in their chairs waiting to see what the response is to the Venezuelan

demands.

Personally, if I were a central bank governor, I know I would want to be absolutely

certain that my gold was (a) exactly where it was supposed to be, (b) held in the

amount advertised and (c) ... well ... made of gold, ideally as opposed to tungsten.

If there is ANY delay in repatriating Venezuelas gold, it could potentially start a franticscramble by central banks to claim their physical gold; and if that happens you can beassured that a re will be lit under the gold price, the likes of which we havent yetseen even as gold has appreciated from $250 to $1850 over the past 11 years.

As it turned out, of course, there was no delay in repatriating Chavez's gold (which is good),but for Germany to pull the same move takes the game to a whole new level, based on thesize of their holdings. They estimate that (for unexplained reasons) it will take them 7 years torepatriate the 8% of their gold that they intend moving from the Fed, so answers on that matterwill be a long time in coming unless of course, other central banks decide that Currency Warsis a game they need to get good at.

Earlier in this piece, the chart of currency reserves demonstrated just how swiftly developing

markets have been accumulating at currency in the last 15 years. A look at what those samecentral banks have been doing with their gold is highly instructive (not to mention veryfamiliar).

Yes, emerging-country central banks are accumulatinggold just as fast as they possibly can, as insuranceagainst problems in the world of at currency; andthose problems are liable to get bigger with eachcrank of the printing press.

It was Chavez's announcement that sent gold spiking

to $1,900 back in September of 2011. Furtherannouncements of similar actions in the wake ofGermany's momentous decision may well have asimilar effect.

But as I close this week I will leave the nal word, appropriately enough, to the man whosebook Currency Wars: The Makings of the Next Global Crisis is an absolute must-read on thesubject Jim Rickards:


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(Yahoo): Germany made even bigger splash than Japan in the gold market recently withits surprise announcement last week that the Bundesbank would begin repatriating gold

reserves held overseas. The central bank said it wanted to keep more than 50% of itsgold reserves at home, up from slightly less than one-third currently. With that in mind,the Bundesbank will move all its gold reserves now held in Paris back to Germany, and

reduce its reserves held in New York City.

Germany is saying that gold is money, says Jim Rickards... Otherwise... they wouldjust leave the gold where it currently is stored.

And Germany isnt alone. Theres talk that the Netherlands and Azerbaijan will alsorepatriate gold reserves.

China, the second largest global economy but the sixth largest holder of gold, according

to the World Gold Council, is increasing its gold reserves, Rickards tells The Daily Ticker.

If the Chinese repeat their pattern, I expect late this year or early 2014 the Chinesewill announce, Weve got 3,000 tons or maybe 4,000 tons. That will be a shockbecause suddenly the world will wake up and say why is China buying all this gold?" saysRickards.

He says the reason is obvious: Gold is the real base money.

In dollar terms gold hasnt gone up that much lately, but in yen terms with the

devaluation of the yen, gold is partly a function of the currency wars, he says.

Yes Jim, gold is very much a part of Currency Wars, and the competition is just getting started.

*******Before I run you through what you will nd in this week's Things That Make YouGo Hmmm..., a quick piece of housekeeping:

I will once again be speaking at the Cambridge House California Resource Investment

Conference in Indian Wells, CA, on February 23/24th; and the line-up this year isfantastic.

Rick Rule, Greg Weldon, Frank Holmes, and Peter Schiff will all be in attendance, along

with my great friends Al Korelin and John Mauldin; so if you are in the vicinity andwould like to drop by and hear from any of these ne speakers, you can nd all thedetails at the conference's website HERE

I hope to see some of you there.

*******
http://cambridgehouse.com/node/10652http://cambridgehouse.com/node/10652


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This week's Things That Make You Go Hmmm... includes a look at Mark Carney's plansfor the Bank of England, a trip to Sienna to hear allabout the travails of the world's oldest bank, an in-depth assessment of employment prospects in the

banking industry, and a stinging rebuke of GeorgeOsborne's 'Fauxsterity' programme from Jim O'Neill.

The Miami Marlins loan payment schedule looks likea pop-up y, China's secret police seem to be a littlegung-ho, and we hear why it's a little too early tocelebrate the ECB's dwindling balance sheet.

Charts include Fed intervention, a UK triple-diprecession, silver investing from A to Z, and EricSprott's take on ignoring the obvious.

We hear from Bill Fleckenstein, Kyle Bass, and animpeccably attired Daniel Hannan; and there's even apop quiz on the Fed's balance sheet to keep you all onyour toes.

Lastly, there is an audio clip that I am still scratchingmy head over three weeks after I rst heard it. Don'tmiss that!

Until next time...

*******


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Pop Quiz, Hotshot! True or false. Answers on page 27.1. Marketable Treasury debt exceeds the size of the U.S. economy.

2. China owns more Treasuries than the Federal Reserve.

3. Over the past year, Chinas ownership share of Treasuries has declined.

4. Since 1998, Chinas ownership share of Treasuries has increased 10-fold.

5. China owns more Treasuries than Japan.

6. Excluding China and Japan, foreign investors own more Treasuries than any other group.

7. Foreign investors own more Treasuries than domestic investors.

8. Banks and other nancial institutions own more Treasuries than the Fed.

9. As a percentage of Treasuries outstanding, the Fed owns more Treasuries today than itdid prior to the nancial crisis.

10. Over the past ten years, households share of Treasury ownership has been littlechanged.

*** VIA 'MN' (THANKS!)

The new Governor of the Bank of England has signalled that he will put growth atthe heart of his approach to the job and is willing to see higher ination for longer in order tosupport the economy.

Mark Carney was making some of his most detailed comments since he was announced as thesurprise choice for the post in November.

He said that, although price stability was central, there were tolerances concerning thespeed with which ination would be brought down if the economy was struggling.

At the moment ination is running at 2.7pc, which is above the 2pc target set by theGovernment.

Some economists believe that the Bank of Englands loose monetary policy is contributing to

inationary pressures and have called for an increase in interest rates.

Others argue that, while the economy is at-lining and state spending is being curtailed, a scalconsolidation, interest rates should remain low.

If you are coming from above [the ination target] and you have a scal consolidation youmight take a little longer to get back given the issues with output, Mr Carney told the WorldEconomic Forum in Davos.


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Once the goal is set, the central bank needs to make that determination and there needs to bean understanding of the goals set and of the tolerances that the central bank can operate in.

Using the US as an example, Mr Carney said economies needed to be allowed to reach anescape velocity in which they were out of danger of slipping back into recession.

That would suggest keeping interest rates lower for longer while considering furtherquantitative easing, indirect provision of monetary stimulus via the nancial system.

In the UK, despite some quarters of growth, the economy has regularly slipped back intonegative territory.

As the economy gains traction within the context of price stability the stimulus iscontinued to be provided entirely appropriately to ensure the US economy achieves escapevelocity, Mr Carney said.

He added that monetary levers had not been maxed out or taken to the hilt.

There continue to be monetary policy options in all the major economies, he said, whilepointing out that central banks could not do the job on their own.

There is not an ability for central banks to take all the risks out or set the seeds for asustainable recovery.

*** UK DAILY TELEGRAPH / LINK

Confused, shocked andfurious. These three words pretty much sum up howshareholders of the Banca Monte dei Paschi di Siena (MPS), Italy's third largest bank and theworld's oldest, felt when they gathered on January 25th. The meeting had been called toask them to put their bank in hock to the state through a convertible bond subscribed by thegovernment of up to 4.5 billion ($6 billion). (When the stock market closed on the day of themeeting, MPS was worth just under 3 billion.) Aimed at bringing the bank's capital ratios upto scratch, the state aid, which was approved by the shareholders, comes at an eye-wateringprice: MPS will pay 9% interest, and the rate will increase starting next year.

The meeting capped a bad week for Siena, the bank and its shareholders. Two days before theymet, the Bank of Italy, the central bank and banking regulator, said that the true nature ofsome of MPSs transactions emerged only recently, following the discovery of documents kepthidden from the supervisory authority and brought to light by the banks new management.

The latter had begun investigating suspect operations in October. (Digging is nearly nished:within two weeks the board, chaired since April by Alessandro Profumo, UniCredit's chiefexecutive between 1997 and 2010, should know the effect of the dodgy operations.)
http://www.telegraph.co.uk/finance/financetopics/davos/9829310/Carney-to-put-growth-top-of-list.htmlhttp://www.telegraph.co.uk/finance/financetopics/davos/9829310/Carney-to-put-growth-top-of-list.html


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MPS had always been considered a conservative institution solid, prudent, unadventurousand tightly linked to the city where it was founded in 1472 and still has its head ofces. Henceshareholders' dismay to learn that the previous management, pushed aside a year ago at thebehest of the Bank of Italy, had apparently been indulging in nance of the more risky sort and that its bets had not panned out. At the end of September net losses for the MPS Group

amounted to almost 1.7 billion. Shareholders are now wondering whether results for the fullyear will be worse than those of 2011 when the net loss reached almost 4.7 billion.

Shareholders are also asking why things did go so wrong. At the root of MPSs troubles arepolitics, poor management and inadequate supervision. Twenty years ago, when Italy's public-sector banks were transformed into joint stock corporations, politicians in Siena were unwillingto let go. They wanted to maintain the bank's local character and keep its jobs in and aroundthe city. Even today, the 16-member board of the Fondazione Monte dei Paschi di Siena, whichowns a stake of almost 35% in the bank, is dominated by political appointees: eight are chosenby the city authorities and ve by provincial authorities.

A lawyer by profession and linked to the left, which has long run the city, Giuseppe Mussari wasappointed chairman of the foundation in 2001. He became the bank's chairman in 2006 and heldthat post until last year. In 2007 MPSs board decided to buy Banca Antonveneta from Santanderfor a whopping 10 billion a move that has since bled MPS and crippled the foundation.

Attention now focuses on what the regulator has done or not done over the past ve years.Ignazio Visco, the Bank of Italy's governor, has said rather disingenuously that the centralbank does not police banks or ght crime but is concerned with prudential supervision. He hasalso said that the regulator steps in when bank management seems imprudent..

*** ECONOMIST / LINK

For decades, investmentbankers have held the key to untold riches butnow they're being laid off by the tens of thousands. As the crisis forces the industry to searchfor a new identity, is it ready to mend its ways?

The suicide victims chose a location with symbolic signicance. Last fall, only a few weeksapart, a businesswoman and a banker went to the Coq d'Argent, an upscale restaurant and hotspot in the world of London high nance, located on the top oor of a shopping complex, to endtheir lives.

The woman put down her purse and jumped from the restaurant's cozy rooftop terrace. Thebanker, an investment specialist, jumped into the building's atrium around lunchtime.

The "City," the casual term the nancial center uses in reference to itself, was shocked. Thesuicides are the most glaring expression of an apocalyptic mood that seems to have gripped allof London. Hospitals are reporting a high incidence of patients with alcohol problems, while toprestaurants are ghting for every customer.
http://www.economist.com/blogs/schumpeter/2013/01/banca-monte-dei-paschi-di-sienahttp://www.economist.com/blogs/schumpeter/2013/01/banca-monte-dei-paschi-di-siena


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The crisis has struck at the heart of the nancial center. In 2012, banks began to downsizetheir investment banking activities. For years, the area had been seen as a playground forthose seeking instant riches and guaranteed success, and it provided tens of thousands withsometimes exorbitant incomes.

October 30 would become a horric day for the nancial district after the Swiss bank UBSannounced that it was slashing 10,000 jobs in the sector. On one morning alone, the bank'sLondon ofce let hordes of bankers go. Some were intercepted at the entrance, still carryingtheir coffee in to-go cups, only to be shown the door a short time later with a piece of paperlled with instructions.

All he felt was hate, says a 51-year-old who was among those affected by the recent layoffs.For him and others like him, the chances of nding a new job are slim. The competition isalso doing its utmost to downsize. Morgan Stanley plans to lay off 1,600 employees in thecoming weeks, Lloyds is cutting as many as 15,000 jobs worldwide, and Deutsche Bank has justeliminated 1,500 jobs in its investment banking division.

An era seems to be coming to an end, the era of an industry that led us to believe that whatit did was useful. In reality, though, it was lining its pockets by conducting more and morereckless transactions and involving itself in increasingly insane deals and products. Seniorexecutives say the business is merely shrinking to a healthy level and characterize it assomething like a catharsis.

As former investment bankers search for new identities, arrogance is being replaced withhumility. It's important to "improve the way we operate as an organisation," Antony Jenkins, thenew CEO of the major British bank Barclays, wrote in a memo to employees. Anshu Jain, co-CEO

of Deutsche Bank and the former head of its investment banking division, has promised "culturalchange.".

*** DER SPIEGEL / LINK

The ECB has been receiving praise for shrinking the Eurosystem balance sheet since lastsummer.

MarketWatch: The euro notched an 11-month high versus the dollar Friday, asEuropean banks prepared to pay back a larger-than-expected chunk of cheap, three-yearloans provided by the European Central Bank.

Most of the reduction is from the MRO and LTRO loan repayments by EMU periphery banks.These were funds borrowed by banks to replace lost sources of funding, including massive lossesof deposits.
http://www.spiegel.de/international/business/investment-banking-faces-massive-layoffs-and-identity-crisis-a-877710.htmlhttp://www.spiegel.de/international/business/investment-banking-faces-massive-layoffs-and-identity-crisis-a-877710.html


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But before congratulating Mr. Draghi on this achievement, it is important to note that the ECBhas simply swapped a portion of its on-balance sheetexposure for an unlimited off-balance sheetcommitment via the Outright Monetary Transactionsprogram.

Consider Spain for example. Fundamentals of thestretched nancial system, collapsing property values,and record unemployment have hardly changed.There is certainly no fundamental justicationfor the spectacular collapse in sovereign yields(chart middle), except for the fact that the ECB iscommitted to buy unlimited amounts of this papershould Spain request it.

Just because off-balance sheet exposure is not visibledoesn't make it any less real. As a reminder of howoff-balance sheet exposures can quickly appear onbalance sheets, just take a look at the start of thenancial crisis in 2007. Large U.S. and Europeannancial institutions had signicant off-balancesheet exposures by providing backstop guaranteesto their commercial paper vehicles prior to thenancial crisis. When that commercial paper couldno longer be rolled, banks, particularly Citi, RBS,and Wachovia, were forced to take assets mostlymortgage securities onto their balance sheets.The chart below shows mortgage securities on thebalance sheets of large US commercial banks. This isnot a "buying spree" in late 2007 to early 2008 it's aforced balance sheet expansion driven by commercialpaper backstops.

*** SOBER LOOK / LINK

George Osborne should recognise that his decit-reduction programme is failingand change economic policy to avoid a triple-dip recession, a senior investment banker haswarned.

Jim O'Neill, the chairman of Goldman Sachs Asset Management, said the chancellor's continuedpursuit of austerity despite signs that the economy was stagnating, including worse-than-expected GDP gures, risked a lost decade for the British economy with low growth andincreasing public debt.
http://soberlook.com/2013/01/too-early-to-celebrate-ecbs-balance.htmlhttp://soberlook.com/2013/01/too-early-to-celebrate-ecbs-balance.html


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Figures unveiled on Friday showed that the British economy shrank in the last quarter of 2012.If the economy shrinks again in the rst quarter of 2012, Britain will be in recession for thethird time since the economic crash of 2008.

The government insists that its policy of cutting expenditure is the only course available but

critics insist that the absence of growth was increasing the decit rather than cutting it.

O'Neill told the BBC: "Based on my business experience, if what you thought was not deliveringwhat you expect to be the outcome surely you have to change what you thought a little. At aminimum, a repositioning of the stance, if not a full change."

The banker's comments echo criticism of Osborne from within his own party. Boris Johnson,the mayor of London, said government spending could trigger a virtuous cycle of spending bybusiness, which would activate cash held by companies and create economic growth.

Ed Balls, the shadow chancellor, accused Osborne of being "asleep at the wheel" and said

now was the time for a "plan B" to promote growth through cuts to VAT and spending oninfrastructure.

"The longer David Cameron and George Osborne cling on to their failing plan the more long-term damage will be done. They must nally listen and act to kick start this economy," he said.

*** UK GUARDIAN / LINK

How can youturn $91 million into almost $1.2 billion? Buy some bonds from Miami-Dade County.

This week, the Economic Time Machine helped cover the debate over the Miami Dolphinsrequesting Miami-Dade hotel taxes for part of a $400 million stadium renovation. Countycommissioners endorsed the plan with a non-binding resolution. But they emphasized theywouldnt approve anything close to the 2009 deal given to the Marlins, which had the countyfooting most of the construction bill for the new $639 million ballpark and parking complex.

Miami-Dade borrowed about $400 million in that deal by selling bonds on Wall Street. Duringthe commission discussion on the Dolphins plan, Mayor Carlos Gimenez mentioned one set ofstadium bonds worth about $90 million would cost more than $1 billion to pay back. We at theETM thought: Can that be true? The answer: yes. See below.

The rst column is the money borrowed, and the small lines show the amount of principal andinterest owed each month. The soaring line is a running total of how much money Miami-Dadeis scheduled to pay back for the loan. It crosses the $500 million mark in 2042, and hits $1.18billion by the time the last payment is due 2048.
http://www.guardian.co.uk/politics/2013/jan/26/goldman-sachs-criticism-george-osborne-austerityhttp://www.guardian.co.uk/politics/2013/jan/26/goldman-sachs-criticism-george-osborne-austerity


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Source: Miami Herald

Miami-Dade will use hotel-tax revenue to pay off the bonds. But payments dont kick in until2026. Once they do, they get very costly very quickly. The rst payment, for example, totals$260,000. The fth jumps to almost $8 million and the 10th tops $20 million. Payment No. 18brings the big hit: $118 million comes due in 2042 alone.

The high interest comes from the penalty Miami-Dade must pay in exchange for a repaymentplan that lets the county delay by 15 years making it rst debt-service payment to the WallStreet lenders who bought the bonds.

Its an expensive way to borrow money, said Frank Hinton, head of the countys bondprogram. Youve got $1.2 billion to pay back. It is a lot of money.

*** MIAMI HERALD / LINK

Wiretapping, email hacking, cell phone tracking and secret videotaping are justa few of the cloak-and-dagger techniques long employed by police in the course of criminalinvestigations in China.

But now, for the rst time, police ofcers applying for permission to employ these so-called"technological investigation measures" will be subject to "rigorous" reviews, without saying bywhom.

The stricter rules were written into an amendment to the Criminal Procedures Code that tookeffect January 1. Details were spelled out in complementary regulation documents recentlyreleased by the Ministry of Public Security, the Supreme People's Procuratorate and the People'sSupreme Court.
http://www.miamiherald.com/2013/01/24/3199018/how-a-91million-loan-on-the-marlins.htmlhttp://www.miamiherald.com/2013/01/24/3199018/how-a-91million-loan-on-the-marlins.html


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Still waiting to be answered, however, are questions about the amendment's deeper impact.Will the rules put tighter controls on secret investigations by, for example, subjecting police tothe rule of law and public scrutiny? Or has the amendment effectively given police more roomto maneuver behind closed doors?

Offering a positive spin is Cheng Lei, a professor of criminal procedures at Beijing's RenminUniversity.

Cheng says the public is justiably skeptical about the amendment since police for a long timeshrouded their investigations in "mysticism." But the amendment, he said, effectively lifted themystical veil by forcing police to conduct investigations within legal boundaries.

On the other hand, the amendment has raised questions about possible police abuse sinceit widened the scope of probes qualifying for secret investigations to include, for example,suspected bribery and other forms of ofcial corruption.

Chen Ruihua, a law professor at Peking University, calls secret police investigations a potentiallyegregious violation of personal liberty and privacy unless controlled via judicial supervision.Even under the new amendment, though, police and prosecutors can launch a secretinvestigation without a judge's permission, leaving the door open to potential power abuse.

China's police have used secret means to chase criminal leads for decades. And duringthe Cultural Revolution between 1966 and 1976, authorities abused the power to conductundercover investigations, turning it into a political tool.

Probes were more closely coordinated inside legal parameters after the National Security Lawtook effect in 1993, and as a result of provisions in the People's Police Law in place since 1995.

These laws gave public security agencies the power to use technological sleuthing "in accordwith relevant state regulations and after a rigorous approval process."

But before the latest amendment took effect, there were no "relevant state regulations," andthus no system or legal support for reviewing police applications for secret probes. Thesegaps left room for government agencies and the Communist Party to get involved in policeinvestigations, said Cheng. Various national security organizations also have access to secretpolice work.

An effort to raise China's secret investigation practices to international standards prompteda public security ministry regulation in 2000 that says evidence gathered in secrecy cannot

be admitted in court. That rule complemented a 1998 regulation that said any informationgathered secretly by police could not be shared with the public.

*** CAIXIN / LINK
http://english.caixin.com/2013-01-24/100485834.htmlhttp://english.caixin.com/2013-01-24/100485834.html


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POP QUIZ ANSWERS:

1. False. Publicly held federal debt is 71% of GDP. Gross federal debt, however, tops 100%.

2. False. Despite presidential campaign rhetoric, the Fed currently owns signicantly moreTreasuries than does China.

3. True. Chinas ownership share of Treasuries has fallen from a peak of 13.5% in Q2 2011to 10.3% in Q3 2012.

4. False. Tricky question. Chinas ownership share of Treasuries increased 11-fold from1998 to 2011 but has declined to roughly 8-times now.

5. True. China has owned more Treasuries than Japan only since 2008 and maybe not formuch longer. The latest TIC report shows a difference of $37 billion. But with Chinasownership attening out and Japans likely to increase if the Bank of Japan buys foreignbonds, the two will likely cross this year.

6. True. Although China and Japan own 20% of the Treasuries, all other foreign investorsown 28%.

7. False. Another tricky question. According to the ow of funds data, foreign investorsown 48% of Treasuries. But the TIC data shows foreign investors own slightly more thanhalf. Take your pick.

8. True. Financial institutions own nearly 9 percentage points more than the Fed.

9. False. When Bernanke mentioned at the December 12 press conference that, as apercentage of Treasuries outstanding, the Fed owns more Treasuries today than it

did prior to the nancial crisis, we didnt believe it either. Puts things in a differentperspective and maybe explains why the Fed isnt so worried about the size of itsbalance sheet and potentially disrupting the nancial markets.

10.True. Households ownership share of Treasuries declined from over 20% in 1998 to littlemore than 7% in 2002. Its about a point higher today.


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Charts That Make You GoHmmm...

Source: Doug Short

Pop Quiz! Without recourse to your text, your notes, or a Google search, what line item isthe largest asset on Uncle Sam's balance sheet?

A) U.S. ofcial reserve assets

B) Total mortgages

C) Taxes receivable

D) Student loans

The correct answer, as of the latest Flow of Funds report is ... student loans.

The rapid growth in student debt has been a frequent topic in the nancial press. One stunningchart that caught my attention illustrated the rapid growth in federal loans to students sincethe onset of the great recession. Above is a chart based on data from the Flow of Funds TableL.105, which shows the federal government's assets and liabilities.

As I point out on the chart, the two callouts are for Q4 2007, the quarter in which the Great

Recession began (December 2007) and the most recent quarter on record, Q3 2012. The loanbalance has risen an astonishing 448 percent over that timeframe, most of which dates fromafter the recession.

This chart includes only federal loans to students. Private loans make up an even largeramount.

*** DOUG SHORT / LINK
http://www.advisorperspectives.com/dshort/commentaries/Federal-Government-Assets-and-Student-Loans.phphttp://www.advisorperspectives.com/dshort/commentaries/Federal-Government-Assets-and-Student-Loans.php


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Everything you ever wanted to know about silver but were afraid to ask...

Source: Visual Capitalist

The UK economy shrank by 0.3pc in thenal three months of last year, raising the prospectof a triple dip recession, as Britains manufacturerssuffered their worst year since the nancial crisis.

The ofcial gures were the fourth quarter ofnegative growth in the last ve and mean that theUK atlined for last year as a whole posting zerogrowth.

The economy is smaller than it was in September 2011 and still 3.3pc below its pre-crisis peak.

Making matters worse, there was scant evidence in the data that the economy is rebalancingfrom consumption to manufacturing. Output by Britains factories fell by 1.5pc in the quarterand by 1.8pc for the year as a whole the rst annual decline since 2009.

*** UK DAILY TELEGRAPH / LINK
http://www.visualcapitalist.com/the-silver-series-investment-part-3http://www.telegraph.co.uk/finance/economics/9826019/UK-heads-for-triple-dip-as-GDP-contracts-0.3pc.htmlhttp://www.telegraph.co.uk/finance/economics/9826019/UK-heads-for-triple-dip-as-GDP-contracts-0.3pc.htmlhttp://www.visualcapitalist.com/the-silver-series-investment-part-3


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The day Lehman failed saw the launch of the most epic central bank intervention inhistory with the Fed guaranteeing and funding trillions worth of suddenly underwater capital.However, what Bernanke realized quickly, is that the "emergency, temporary" loans andbackstops that made up the alphabet soup universe of rescue operations had one major aw:

they were "temporary" and "emergency", and as long as they remained it would be impossible toeven attempt pretending that the economy was normalizing, and thus selling the illusion ofrecovery so needed for a "virtuous cycle" to reappear.

Which is why on November 25, 2008, Bernankeannounced something that he had only hinted at forthe rst time three months prior at that year's JacksonHole conference: a plan to monetize $100 billion inGSE obligations and some $500 billion in Agency MBS"over several quarters." This was the beginning ofwhat is now known as Quantitative Easing: a program

which as we have shown bypasses the traditionalfractional reserve banking monetary mechanism,and instead provides commercial banks with risk-asset buying power in the form of innitely fungiblereserves.

This program has been so successful in its trueintended goal enriching its benefactors, the banks,who have managed to push the S&P to fresh ve yearhighs (and the Russell 2000 to records) even as the

economy has deteriorated to subpar growth not seenin years, in the process replacing a vibrant workforcewith a part-time, gerontocratic labor pool, committingthe US economy to many more years of subpar growth,that many more years of Fed interventions, a la QE,are assured (not to mention the need to monetizetrillions more in US government decits).

So how does all this look on paper?

We have compiled the data: of the 1519 total days

since that fateful Tuesday in November 2008, the Fed has intervened in the stock market for agrand total of 1230 days, or a whopping 81% of the time!

*** ZEROHEDGE / LINK
http://www.zerohedge.com/news/2013-01-22/what-1230-days-explicit-market-support-federal-reserve-lookshttp://www.zerohedge.com/news/2013-01-22/what-1230-days-explicit-market-support-federal-reserve-looks


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First, while we are supposed to be in the midst of an economic recovery, about onein ve Americans are on food stamps. As the chart below shows, this measure of povertyhas been fairly steady for the past year. We also nd it hard to reconcile this data pointwith the headline unemployment numbers, which seem to be improving. We prefer a more

comprehensive measure of unemployment, commonly referred to as U6, which includesdiscouraged workers and those working part time against their will. By this measure, we seethat Total Unemployment has come down, but remains extremely elevated at around 14%of the labour force. Moreover, food stamps and Total Unemployment tend to move together.If food stamps users stabilize at current highs, we believe that it is a sign that the naturalunemployment rate in the U.S. economy is now signicantly higher than it was pre-crisis.

Second, income inequality has been growing steadily since the mid-1980s. Figure 3 shows theshare of total U.S. income earned by the middle class and the top 5% of households. As of2011, the top 5% of households brought home over 22% of all income generated in the country,whereas the middle 20% of households (quite literally the middle class) got less than 15%.

Coupled with the unemployment picture, this shows that a majority of the U.S. populationhas been losing ground to the most wealthy. In a society that relies on consumption for 70%of its economic activity, this certainly does not bode well for the future, since the wealthiesttraditionally do not consume much of their income. To top it off, the recent scal cliff dealjust reduced disposable income further by increasing payroll taxes by 2% for all those working,putting additional strain on the working class and their discretionary spending dollars.

*** SPROTT / LINK
http://www.sprott.com/markets-at-a-glance/ignoring-the-obvious/http://www.sprott.com/markets-at-a-glance/ignoring-the-obvious/


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Words That Make You GoHmmm...

MEP Daniel Hannanexplains the

difference between being pro-business andpro-market to the Oxford Union and makesthe point that, far from being a failure ofcapitalism, the events of 2008 demonstratedthat capitalism does, in fact, work beautfully if the market is left alone to do its work.What an outrageous theory! (via ZeroHedge)

CLICK TO WATCH

Just because this interview tookplace ten days ago doesn't mean that Fleckis any less educational to listen to. Asalways, he keeps things in perspective as hediscusses Japan's newfound determinationto weaken the yen through money printing,the impending bond market disaster, goldand silver, and the inationary endgamethat central banks arepromising the world.Deationary fears? Soooo 2012...

CLICK TO LISTEN

With Japan front and centre lately,whose brain is better to pick on the subjectthan Kyle Bass's?

Nobody has laid out the case for disaster inJapan better than Kyle in recent years, butthe xation with timing that pundits seem tohave is always uppermost in people's minds.

A disaster is coming in Japan it's nothingmore complicated than mathematics. Kyle isright just not yet. When that day comes, ohboy is he going to be right...

CLICK TO WATCH
http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisishttp://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/1/16_Bill_Fleckenstein_files/Bill%20Fleckenstein%201%3A16%3A2013.mp3http://video.cnbc.com/gallery/?video=3000142263http://video.cnbc.com/gallery/?video=3000142263http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/1/16_Bill_Fleckenstein_files/Bill%20Fleckenstein%201%3A16%3A2013.mp3http://www.zerohedge.com/news/2013-01-26/daniel-hannan-destroys-3-unquestionable-myths-our-crisis


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29 JANUARY 2013

and fnally...

SUSPEND DISBELIEF THENCLICK HERE

'Broken Britain' is a soubriquet that has gained increasing validity in recent years, buta recent caller to a live phone-in show on LBC, London's news radio station, does more perhapsto highlight the change in British culture over the past two decades than a thousand drunk

'chavs' rioting in the streets of Croydon ever could.

All the dangers of a state's increasing reliance on social welfare are on display in this clip in

which a man explains just how difcult it can be nding a job in today's highly unreasonablemarketplace.

The answer to your rst two questions after listening to it are as follows:

"Yes. The clip WAS real, and yes, he WAS being serious."

Hmmm...
http://order-order.com/2012/12/30/on-the-dole-because-he-didnt-want-to-get-up-at-800-a-m/http://order-order.com/2012/12/30/on-the-dole-because-he-didnt-want-to-get-up-at-800-a-m/


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29 JANUARY 2013

Grant Williams

Grant Williams is a portfolio and strategy advisor toVulpes Investment Management in Singapore a hedgefund running over $250 million of largely partnerscapital across multiple strategies.

The high level of capital committed by the Vulpespartners ensures the strongest possible alignmentbetween us and our investors.

In Q4 2012, we will be launching the Vulpes AgriculturalLand Investment Company (VALIC), a globallydiversied agricultural land vehicle that will providetruly diversied exposure to the agricultural sector

through a global portfolio of physical farmland assets.Grant has 26 years of experience in nance on the Asian, Australian, European and US marketsand has held senior positions at several international investment houses.

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

For more information on Vulpes, please visit www.vulpesinvest.com

*******

Follow me on Twitter: @TTMYGH

YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH

Fall 2012 Presentation: Extraordinary Popular Delusions & the Madness of Markets:

California Investment Conference 2012 Presentation: Simplicity: Part I : Part II
http://www.vulpesinvest.com/https://twitter.com/ttmygh/http://www.youtube.com/user/GWTTMYGHhttp://www.youtube.com/watch%3Fv%3Db4zOAHoncF0%26feature%3Dplcphttp://www.youtube.com/watch?v=Ri6rIF40iSA&feature=plcphttp://www.youtube.com/watch?v=xoMAYAKHQqU&feature=plcphttp://www.youtube.com/watch?v=xoMAYAKHQqU&feature=plcphttp://www.youtube.com/watch?v=Ri6rIF40iSA&feature=plcphttp://www.youtube.com/watch%3Fv%3Db4zOAHoncF0%26feature%3Dplcphttp://www.youtube.com/user/GWTTMYGHhttps://twitter.com/ttmygh/http://www.vulpesinvest.com/


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things that make you go hmmm...jan 29, 2013

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