Friday, September 28, 2012

Happy Friday - End Of Quarter

This is what QE to infinity looks like:
Unlike our past asset-purchase programs, this one doesn’t have a preset expiration date. Instead, it is explicitly linked to what happens with the economy.  We might even expand our purchases to include other assets.  - San Francisco Fed President John Williams  LINK
 This is what it is being used for:
Lindsey said that with the Fed purchasing at least $40 billion a month in mortgage debt through QE3, “they are buying the entire deficit.”  - Lawrence Lindsey, Chairmen of the National Economic Council and assistant to the President on economic policy for President George W. Bush.  LINK
I have maintained all along that the primary purpose of QE has been to keep the big banks from going insolvent and to finance Government deficit spending.  I guess Larry Lindsey agrees with me for the most part.

What has gone unnoticed in the commentary about QE3 is that the duration and commitment level to more QE has been pegged to the employment level, as reported by the Government.  As everyone knows, and as has been detailed on this blog exhaustively, the Government has insidiously manipulated the unemployment level to an unbelievably relative low level for political purposes.  Now, the Government can let the reported unemployment rate "breathe" a little by reporting a higher unemployment rate and thereby enabling the Fed to "justify" increasing the level of QE and expanding the range of assets purchased.  Several Fed Governors are already discussing the expansion of QE3 to include Treasuries.  Fait accompli.  It's all very systemically Orwellian.

As for what some of this Government spending is being used for, let's ask Barack.  He won't answer that question, but a new book, "Presidential Perks Gone Royal," by Robert Keith Gray outlines in detail the $1.4 billion spent by Taxpayers on perks for the Obama family during 2011.  Here's the report from The Daily Caller:  LINK  As an example, the baby-sitter and pooper-scooper of the family dog was paid $102,000 last year.  Nice work if you can get it...

Thankfully King Barack and Queen Michelle get to live the life of luxury while our economy falls to pieces.  Yesterday's durable goods orders plunged to a low not seen since January 2009.  Yesterday's final revision for Q2 GDP came in at 1.25%, well below consensus estimate and below even the lowest estimate.  If you assume the manipulated Government CPI rate of about 2%, that means that on a real basis the U.S. economy contracted in Q2.  Believe me, the real inflation rate is multiples higher than 2%.   And today the Chicago PMI - a widely followed economic barometer - fell below 50%.  It actually plunged, as a reading of 53 was expected.  Again, more indications that real GDP is negative.

On a more positive note, as most know, the NFL referee lock-out was ended Wednesday evening and we get the real referees back.  Thankfully.  Apparently there was a $500 million swing in gambling payouts from the wrong call by the referee on Monday Night Football that gave Seattle a win.  This Sunday my Broncos host the much-hated Oakland Raiders.  The Broncos have had two tough losses to two potential Super Bowl teams.  But for as poorly as Denver played during the first half of each of those games, Denver still had a chance to win them.  I expect Denver to hammer the Raiders this weekend.   Have a great weekend.

Wednesday, September 26, 2012

The Presidency Has Become A Joke

As heads of government arrived in New York on Monday to attend the opening of the United Nations General Assembly, President Obama also made his way to Manhattan but to see a different group of world leaders: Barbara, Elisabeth, Joy,  Sherri and Whoopi...It bordered on scandalous that Obama, joined by the first lady, would make time to sit down with the women of “The View” even as he declined foreign leaders’ requests to meet with him one on one in New York this week.  - Dana Milbank, Washington Post   LINK
I get a kick out of everyone who thinks that they can make a difference by voting.  Clearly the majority of people in this country have never heard about the Citizens United v. Federal Election Commission Supreme Court Decision, which essentially allows corporations and wealthy individuals the ability to spend an unlimited amount  of money to buy an election on behalf of the candidate that they want to control - including the President.  Google the case if you are interested in truly understanding why your vote is useless.

Rather than expounding on this, I would urge everyone to read this excellent analysis by Chris Hedges, in which he unwittingly and without reference proves with examples how the Citizens case has usurped democracy in this country:
You get the point. Obama is not in charge. Romney would not be in charge. Politicians are the public face of corporate power. They are corporate employees. Their personal narratives, their promises, their rhetoric and their idiosyncrasies are meaningless. And that, perhaps, is why the cost of the two presidential campaigns is estimated to reach an obscene $2.5 billion. The corporate state does not produce a product that is different. It produces brands that are different. And brands cost a lot of money to sell.

You can dismiss those of us who will in protest vote for a third-party candidate and invest our time and energy in acts of civil disobedience. You can pride yourself on being practical. You can swallow the false argument of the lesser of two evils. But ask yourself, once this nightmare starts kicking in, who the real sucker is.
Here's the LINK

You can go ahead and get all hot and bothered by the upcoming election and have your self-rationalized reasons why you support either candidate, but also know that it doesn't matter which candidate wins and which party is in control.  Therefore your vote is meaningless.  Anyone who criticizes those of us who are on voter strike has no knowledge or understanding of the facts as they now exist in our system.

Tuesday, September 25, 2012

More On The Housing Market...

This league (the NFL) is a Mona Lisa and they're painting a moustache on it - Rick Reilly on the set of ESPN after the replacement referees stole the game from Green Bay and gave it Seattle on an obviously bad call on the last play of the game.
I was going to rant about the replacement referee situation in the NFL, but I decided anyone who cares can tune into ESPN to see the problem.  I will say that it was revealed this morning that three of the referees on last night's crew were former Pac-12 referees who were fired for poor performance.
Toll Brothers is having a "national sales event starting Friday - incentives, low-rate mortgages and free customization" - I thought the housing market was strong...why the incentives?  -  a long-time market colleague, "Hal" from Chicago
Many of you probably turned on the business news this morning - or will hear it tonight when you get home from work - to hear  that housing prices rose strongly in July vs July last year and that the increase was bigger than was forecast.  If you bothered to read my post yesterday and the links in it from Mark Hanson, you would understand why the Case Shiller 20 city price index is statistically problematic.  You would also understand that a small price increase over last year was expected for several reasons, including the fact that mortgage financing rates are at a record low and credit standards have deteriorated.  In fact, Hanson said this:
Based on various other more real-time prices indices – and even NAR’s monthly existing sales data, which do a great job leading CS by a quarter — prices trended “higher” this spring and summer, as they usually do for the ‘season’...Obviously, the monthly Case-Shiller index will now ‘rise’ through Oct representing the rise in purchase prices from March through July we already know occurred. Then in Nov the CS will start heading lower again for the season. Because the index will still be comping against the CS 2011 “double dip” readings for many more months prices paid will be the last to fall into the “triple dip” occurring now, yet they will experience significant headwinds beginning shortly  LINK
I really hate to rain on the parade of optimism regarding the housing market.  But to me it's one of the glaring areas in which the Wall Street, political and media spin-masters are having a field day manipulating the emotions and expectations of the public ("If you tell a lie big enough and keep repeating it, people will eventually come to believe it" - Joseph Goebbels, Hitler's Propaganda Minister).  Thus, I'm not really raining on a parade, rather my interest lies in getting out the truth.  And truth ain't gonna be found in the mainstream media, Capitol Hill or Wall Street.

The fact remains that the housing market is getting ready to fall off another cliff.  The Fed's mortgage purchase QE program will provide some tenuous support and it might delay the inevitable, but housing is going lower. A lot lower. The basic ingredient to support housing values, even more important than credit availability, is income levels. Real income levels are declining - pretty quickly I might add. That plus true oversupply adds up to lower housing prices.   There is not any public policy implementation that can fix this.  The only fix is to let the free market fix the problem.  What the Fed is doing, and what the politicians are doing, is only succeeding in transferring a lot more wealth from the middle class taxpayer to the bankers, mortgage brokers and Wall Street mortgage trust syndicators...

Monday, September 24, 2012

The Truth About The Housing Market

Many of us who have to follow the news closely every day as part of our jobs woke up this morning to headlines of Lennar, the big homebuilder, reporting supposedly robust earnings for the 3rd quarter.  The stock was up over 2% in pre-market trading and the bubblevision news stations were doing cartwheels.  But LEN stock closed down 1.5% from Friday's close and the Dow Jones Homebuilder Index closed down 1.14% from Friday's close.  What happened?

If you peruse LEN's detailed earnings release, some interesting data stand out.  The headline shouts out that LEN's deliveries were up 28% from Q3 2011.  But actual increase in units was 785 homes.  That's 43 homes per State in which Lennar operates.  43 homes per State.  The total number of homes delivered in Q3 was 3,617.  Year to date for 9 months the total is 9,353 homes.  Assume a constant run-rate for Q4 and the total deliveries will be 12,400 for all of 2012 (truth is, Q4 will likely be a lot lower than the run-rate due to seasonality).  That 12,400 compares to 49,568 homes delivered in Lennar's 2006 peak selling year.  That's a 75% decline.  If you put the 49,568 vs 12, 400 in market context, think about what that means in terms of just how overbuilt and saturated the housing market is in reality, beneath the heavy sales-spin being applied by the industry about "recovery."

As for Lennar's reported earinings, again it's well worth looking beneath the ebullient headlines to see what's really going on - and I just happened to do that.  Lennar reported net income of $87.1 million vs $20.7 million in Q3 2011.   However, $25.3 million of that net income came from its mortgage underwriting operations (vs. $8 million in 2011).   Since the average price of a Lennar home is about $250k, we can assume most, if not all, of its mortgages get flipped into FHA, FNM and FRE programs - i.e. get sold to the Government/taxpayer.  I mentioned in a post earlier this month that the liberalized FHA underwriting standards and QE programs would transfer wealth from the Taxpayer to mortgage underwriters/brokers.  Well, there you have it first-hand in Lennar's earnings report.

Furthermore, Lennar's $87 million in reported net income, $12.8 million was derived from a non-cash tax accounting maneuver.  You can read the earnings report for details if you are curious.  But, quite frankly, it's basically the same kind of non-cash GAAP manipulation being used by banks who are reversing out loan loss reserves in order to pad reported income, as opposed to actually getting a cash earnings benefit.  The accounting maneuver serves no purpose other than to pad its bottom line for this quarter, in an attempt to make the stock price look appealing to brokers and investors who do not do their homework. Here's a link to LEN's earnings release today:  LEN

The reason I wanted to spend time shredding Lennar's earnings report was because in the last few months unjustified bullishness for the housing market has invaded the mainstream media and certain widely read blogs, Calculated Risk being one of them.  For some reason Wall Street, the media and Calculated Risk are looking at recent month-to-month data points and projecting a big housing recovery.   The fact of the matter is that most of data is based on accounting and data manipulation schemes, like "seasonal adjustments" and the use of reporting percentage changes rather than actual unit data.

In terms of industry fundamentals - truthful industry fundamentals - it's the same old story.  Yes, there's been a bit of a bounce in the housing market.  We would expect that to happen given that the Fed has successfully engineered record low mortgage rates, there's been unprecedented stimulus injected into the system over the past 3 1/2 years and taxpayer-sponsored FHA has stepped up its rate of subprime financing.

But if you look behind the media and industry spin on the numbers, a different story than what is being promoted emerges.  I've detailed the "shadow inventory" aspect to the housing market inventory several times on this blog.  In terms of unit sales and price increases being reported, I will refer you to a series of three blog posts by Mark Hanson - here are some excerpts:

1) On reported price gains:   When…

1) rates drop by 30% YoY allowing the 70% of buyers who use a mortgage to ‘pay’ 15% more for a house on the same monthly payment;

2)  foreclosures as a percentage of total sales drop 25% YoY lifting the “median” sale price:

3)  and you comp YoY against a stimulus hangover year;

…”prices paid” will ‘rise’ and ‘comps’ will look great.   But the benefits of stimulus and easy comps will soon turn into headwinds and difficult comps, which is exactly what happened in 2011 following the year+ long home buyer tax credit stimulus pump of 2009/10.  LINK and LINK
And on the pending home sale data released by the National Association Realtors:
Pending Home Sales number got everybody hot and bothered because the headline had the word ”higher” in it.  But what everybody fails to understand is that this year over 30% of Pendings fail to close. Last year less than 10% failed.  In fact, contract failures got so bad into Q2 that NAR quit releasing the data.
Here's the LINK

I hope everyone has a chance to read those quick pieces by Hanson - they are quite revealing and contain actual data analysis, rather than the hope-laced garbage thrown at everyone by Wall Street, the media and highly promotional industry associations.

Finally, here's some more cold water thrown on the housing party by Gary Shilling:  LINK  He sees another 20% downside in the housing market.  I think even that projection is optimistic.  I've said since 2003 that I expect to see a 50-75% decline in housing from the top to the bottom.  I am more inclined to bet on the 75% number and I'm beginning to think - short of the Fed printing up money to buy up a few million homes and bulldozing them - that we could see a top to bottom decline greater than 75%.   As I've pointed out before, Sir John Templeton (of Templeton mutual fund fame and one of the "fathers" of mutual fund investing) said in 2002 and before his death that he wouldn't touch U.S. real estate until dropped 90%...

Friday, September 21, 2012

"Gold Seen Luring Wealthy As Central Bankers Expand Stimulus"

Right now, the best expression of our macro view is still to own gold and silver because we believe this is ultimately going to be the survivor of this Debt Supercycle.  We believe it’s going to be the surviving collateral...You have to countenance into the largest Debt Supercycle that’s known to man, that what happened in the late 1970s could pale in significance relative to what could happen in the next five years here. I think September 12th might well have marked the day the world embarked on serial debasement of the reserve currency, and set the train in motion for a really gigantic move in gold over the next five years.  There is no limit to the price.  - Ben Davies, King World News LINK
I think most people are aware that Ron Paul's legislation requiring a thorough, independent audit of the Fed has passed in the House.  I also think most people are unaware that Senate Majority Leader, Harry Reid, is trying to kill this legislation in the Senate.  Does anyone see the irony here?  The Democrats stormed DC in 2008 on a campaign platform of "Change."  Obama promised to clean up the corruption on Capitol Hill and make Government more transparent.  After all, isn't it supposed to be a "Government of the People, by the People, for People?"  It seems Obama and Harry Reid skipped over that part of the history lesson in grade school.  In fact, Obama is supposedly a Constitutional Law expert.  But from the legislation and Executive Orders signed by Obama during his 1st term, I have every reason to believe he's never even read the Bill of Rights (the first 10 Amendments).  As an example:  Sayonara habeas corpus

At any rate, there seems to be significant resistance from the Democrats for legislation requiring an audit of the Fed.  This makes no sense because aren't the Democrats supposed to be the party of the 99%'ers?  What gives?  It took getting the swishy Democrat, Barney Frank, out of the way of the House Finance Committee in order to get Ron Paul's legislation out of committee and to the House floor, where it passed overwhelmingly.  But now Harry Reid stands in the way.  If you want to voice your opinion on this matter, please fill out this form and hit "send my fax:"  LINK  I don't know about anyone else, but at the very least I would like to see what the Fed is doing with the gold swap transactions alluded to by former Fed Chief Counsel, Kevin Warsh, and I would like to see how the dollars are being directed in Europe from the Fed's massive currency swap facility.

A news item in the Financial Times - and likely one that will not be repeated by U.S. media sources - that caught my eye this morning was the Brazilian Finance Minister lashing out at the Fed over QE3:
Guido Mantega, Brazil’s finance minister, has warned that the US Federal Reserve’s “protectionist” move to roll out more quantitative easing will reignite the currency wars with potentially drastic consequences for the rest of the world.  LINK
Brazil?  A lot of people might dismiss commentary like that from Brazil's Government.  But Brazil is one of the faster growing economies of the world right now, it's a large trading partner with the U.S. and it has begun to economically and financially ally itself with China/Russia.  This China alliance includes the implementation of a currency swap facility which enables China and Brazil to conduct trade in their respective currencies, thereby bypassing the U.S. dollar as the trading medium and rendering the dollar irrelevant for such purposes. The point here is that the U.S. dollar is losing its status as the world's reserve currency.  And more quickly than most realize, I might add.

The only way to protect your wealth against the incipient currency wars (see the quote above), is to move as much of your paper wealth as possible into gold and silver.  It seems this is becoming a trend among the so-called 1%'ers - of the world:
Gold has historically been considered to be a store of value and an inflation hedge and increasingly it is being utilized as a monetary instrument,” said Mark Smallwood, head of Asia-Pacific wealth-management solutions. “There is a growing interest among our clients to gain exposure,” he said, with an increased preference for physical holdings
Here's the source of that quote from Bloomberg News:  LINK  Please note the direct and explicit reference to "physical holdings."  That is the most important aspect of holding gold as a currency and wealth hedge.  This is a point that is completely dismissed and ignored by 99% of all financial advisers and 99% of all people who think they own gold by owning GLD, SLV, CEF, GTU.   With those vehicles you only own a security certificate and when you sell it you are left with - fiat dollars.  This is a tragic misunderstanding of the gold dynamic and it will end badly for those who remain blind to it.

It's a football Friday and the Broncos have another tough match-up this week, hosting a big game this Sunday vs. the Houston Texans.  Manning had a rough outing last week against the Falcons, but despite four 1st half turnovers, the Broncos had a shot at winning that game late in the 4th quarter.  The Texans won't be as lucky as the Falcons were against Manning and I expect that Denver will easily cover the 2 points Vegas is giving them.  Have a great weekend:

Wednesday, September 19, 2012

A Paradigm Shift

We suspect last week’s events, in which both the ECB and Fed committed to open-ended base money creation – against a geopolitical environment in which China’s USD reserves are being held astride an increasingly dynamic domestic political regime and in which the petro-dollar regime of the past forty years seems under attack – may be the catalyst that begins to raise public awareness of the link between monetary inflation and price inflation.   -  Lee Quaintance/Paul Brodsky, QB Asset Mgmt  LINK
"Raise public awareness of the link between monetary inflation [i.e. QE] and price inflation" (real price inflation, not the insidiously corrupted Government CPI).  Paul Brodsky's writing, in my view, is intellectually and stylistically brilliant.   That one sentence captures the "essence" underlying the reasons the broad public has not yet understood the role gold plays as both a currency and an investment and why the latest round of Central Bank balance sheet expansion could begin to trigger the much-awaited massive move of public/institutional/pension money into gold and silver as an asset class.  I've linked the entire essay and it's worth a close read (c'mon, it's less than four full pages).

I wanted to post and comment on a few news items released yesterday but not widely publicized.  But first I want everyone to see that the Government is already spending the money being printed from the Fed's latest mortgage purchase QE.  Fannie Mae has rolled out new mortgage product that enables the borrower to refinance up to 105% of the appraised value of the home.  The program has the appearance of implementing some control over assessing the borrower's credit quality, but it leaves plenty of room for mortgage brokers to go outside of the "guard rails."  Furthermore, it provides Taxpayer subsidized mortgage principle insurance.

Maybe on the surface this sounds okay.  Why not let good credit mortgage borrowers refinance an underwater home at a lower rate and stretch out the amortization schedule, thereby lowering the monthly payments.  But there's several problems with this scheme, two of which can put the Taxpayer at substantial risk.   First, how trustworthy are the appraisals?  Egregiously inflated appraisals were rampant during the housing bubble.  Why has this changed, especially with a mortgage broker who is incentivized to process as many applications as possible and banks who underwrite the mortgages can flip them into Fannie Mae and take their skim?  Second, the program is based on the assumption that housing values have bottomed.  Let's assume my view is correct, which it is, and we have another 25-30% of downside.  Now the Government/Taxpayer is sitting on a large pile of mortgages that are 30-35% underwater.  That's a Taxpayer obligation if the homeowner decides to "strategically" default.  Once again Government intervention into the marketplace is going to end up in serious misallocation of Taxpayer money and huge losses for everyone involved - except the mortgage brokers...

A couple of news items caught my attention yesterday which have implications for the economy.  Phil Anschutz is putting his sports entertainment empire on the market:  LINK  I find the timing of this move interesting because I've noticed that historically Anschutz is one of the savviest market timers in terms of selling at peak valuations.  The value of sports entertainment assets is based on the ability to generate large broadcasting contracts, advertising revenues and all the other consumer-based spending associated with sports viewing (ticket sales, concessions, parking, team paraphernalia, etc).  For Anschutz to be selling now, he must have the view that consumer disposable income, and therefore the ability to generate the consumer spending vital to sports franchises, is going to go into decline.  It's something to keep in mind the next time you read or hear a bullish economic forecast.

Also yesterday American Airlines announced 11,000 layoffs related to its emergence from bankruptcy: LINK  The implications there for the economy are obvious.  It would be interesting to know if some of the employees who receive notice file for social security disability before they lose their job.  As we know, Obama has made that an easy option for many LINK  I'm sure the BLS will figure out a way to not include the 11,000 lost jobs in its monthly employment report.

Finally, non-US/European/British Central Bank buying of gold is becoming a widespread monthly occurrence.  South Korea, which has been buying gold now for at least a year,  has become the 40th largest in sovereign gold holdings LINK   In addition, the State Oil Fund of Azerbaijan announced the purchase of 10 tonnes of gold  LINK  I find this very interesting, especially when considered in light of the reports that China has started selling its oil in yuan, not U.S. dollars.

There's a structural paradigm shift going on and most people in this country are not only unaware of it, but will be blind-sided by it.  Those who position themselves in gold and silver (not GLD, SLV, etc), will benefit greatly from the dynamic described in the quote at the top...

Monday, September 17, 2012

What Now?

While the prospects for hyperinflation and the general outlook on the economic and systemic-solvency crises are unchanged, general circumstances have continued to advance towards the ultimate demise of the dollar.  The most recent development was yesterday’s (Septembers 13th) announcement by the Federal Open Market Committee (FOMC) of a new, open-ended round of Federal Reserve quantitative easing (QE3)  -  John Williams, Shadow Statistics

Well, tonight is a big night for the Peyton Manning-led Denver Broncos.  More on that later.  Last week Bernanke set the wheels in motion for QE to infinity.  QE to infinity is really just a flashy metaphor for the concept of competitive global fiat currency devaluation - i.e. the race to see which Central Bank can most quickly devalue its currency to zero.   In a sense, Bernanke just gave the U.S. a commanding lead in that race by making the Fed's new mortgage purchase program "indefinite."

The Fed's actions clearly signal to the world that the real economy is in much worse shape than is being conveyed by overly manipulated Government and industry association economic statistics.  This view is affirmed by this morning's Empire State manufacturing survey.  This widely followed metric released by the NY Fed came in at -10.41 vs an expected reading of -2.  It was the weakest reading in nearly two years.  Especially troubling was the plunge in the new orders index.  Here's the report:  LINK

The action in gold and silver reflected the market's "vote" on the FOMC policy decision.  Technically the metals and mining stocks are a bit "overbought" after starting a big move higher since the last week in July.  I am expecting a period of pullback/consolidation while the market digests its recent gains.  Having said this, the eastern hemisphere physical market buyers have started to ramp up their buying again, as seasonal factors in India come into play and, as is being reported by several European bullion banks, the Chinese have begun to aggressively move into the silver market.

Also, I suggested about a month ago that eventually the Indian rupee would start to reverse its long sell-off and move higher and unleash a torrent of pent-up gold demand.  This appears to be occurring and import premiums in India have gone from being negative for a few months to now being mostly positive.  This means that the Indians are buying again.  This demand is being further boosted by strength from the Indian stock market and a recovery of the crucial Monsoon season, which determines the extent to which Indian farmers will make money which is typically converted into gold.

The seasonal/fundamental factors in India and China could easily curtail the degree and length of market consolidation.  In fact, every intra-day sell-off during Anglo/U.S. trading should be seen as an opportunity to accumulated more metal.  Aggressive traders can try to market time the volatility by buying the dips and selling the spikes, but the real risk at this point is being left out of a market which could easily take gold well over $2,000 and silver well over $50 before the end of the year - and even higher this spring.

Today is a great example, as  post-Comex electronic market, which tends to be relatively illiquid, was used to knock silver below $34 to $33.84, after which silver took less than 15 minutes to rally back over $34 and is trading at $34.20.  Buy all dips.

As for tonight, I am looking forward to a competitive football game between Denver and Atlanta.  As a homer of course I expect the Broncos to win, but win or lose I want to see good game.  Denver has  a better defense than Atlanta and they both have potent offenses.  The Falcons hammered a very bad Kansas City Chiefs team last week, so we don't know how good Atlanta really is.  Denver's tough win over the Steelers speaks for itself, especially if you were betting on Denver and laying the 1 point spread!                                    

Thursday, September 13, 2012

FOMC: This Is The Beginning Of "The Big Print" - Unlimited QE

The fact that enough people still listen to Cramer is the perfect indicator of just how stupid part of our population is and it explains how we - the people - let our country lapse into systemic collapse.  At it's base level, Government intervention in our lives prevents the Darwinian mechanism of natural selection from doing what it's supposed to do.  That Cramer still sells his crap and that CNBC is still on the air is a perfect testament to that...Dave in Denver
For the first time since QE first started, today's FOMC announcement stunned me.  Not because I was expecting something other than what was announced, but because of what was actually announced and the timing of the announcement.  I have been expecting eventual global QE to infinity since like 2003.  Seriously.  I didn't think we would get the first indication that it's coming today, two and a half months ahead of a Presidential election, and I didn't think it would come first in the form of a direct attempt to reflate the housing market with subprime mortgage paper.

Let me explain.  Here's the only important part of today's announcement (the low-rate extension to mid-2015 was highly telegraphed and is about as useless as the new iPhone 5 on Mars):
The New York Fed said it will start buying agency mortgage-backed securities on Friday, at a rate that is expected to total $23 billion over the remainder of September. It will then purchase securities at a clip of $40 billion each month. The New York Fed said it will concentrate its purchases in newly-issued agency MBS in the to-be-announced market, although it may purchase other agency MBS if market conditions warrant (LINK)
Furthermore, the Fed said it will add to its purchases if the labor market doesn't improve, it will keep its policy stimulative for a "considerable time,"  and it left the duration of the mortgage purchase program open-ended.  De facto QE to infinity.

The question is why?  The Fed is specifically targeting the monetization of new mortgage issuance by the GSE's.  But we've been told up and down Wall Street and from the industry promoters - Nat'l Association of Realtors and Nat'l Association of Home Builders - that the housing market is bottomed and moving higher. I have heard countless TV economists get on CNBC/Bloomberg/Fox Biz and tell us that now is a great time to buy a home (see the cover of last Friday's "Barron's").

So why target housing specifically?  We lose manufacturing jobs in this country every single month.  Why not target that?  The two biggest problems with housing are 1) the massive shadow inventory, as detailed on this blog; and 2) the rapid decline in the average weekly income of the middle class, which means there are less people who can afford to buy a home or stay in the one they own.   A mortgage purchase program will not address either issue. 

What makes this specific QE program frightening is that to the extent that there is growth in housing mortgage finance, it's coming from the FHA.  The FHA, as I've detailed on this blog recently, is a  subprime lender disguised as a GSE.  It requires only 3.5% down to purchase and someone who refinances can take down a mortgage that exceeds the value of their home and receives mortgage payment insurance at a rate that is heavily subsidized by the Taxpayer.

What the FOMC policy decision, and the timing of the decision, tells me is that the overall economy is in big trouble and the Fed is going to try and stimulate economic growth by reflating the housing bubble using sub-prime paper.  That fact that the program is entirely open-ended, with no defined goals or parameters, tells me that we are on the insidious path to complete fiat currency devaluation via unlimited QE, because if this policy does not do anything, which it won't (other than generate bigger commission checks for a few mortgage brokers) - the Fed will be forced to implement even more drastic policy measures.

And this is why gold and silver have reacted so sharply today.  The low on silver ahead of the policy announcement was $32.72 and $1720 on gold.  As I write, silver is at $34.72 and gold is at $1769.  This is an incredible reversal.  It also tells you the degree to which the market agrees with my assessment.  I want to conclude with a great quote from Austrian-School Economist, Murray Rothbard, which I hypothecated from my friend and colleague Jesse of Jesse's Cafe Americain: 
Gold was not selected arbitrarily by governments to be the monetary standard. Gold had developed for many centuries on the free market as the best money; as the commodity providing the most stable and desirable monetary medium...I see a great future for gold and silver coins as the currency people may increasingly turn to when paper currencies begin to disintegrate.

Wednesday, September 12, 2012

MF Global On Steroids

There is no way over, under, around or through the fact that no progress will be made as long as the world is divided up between the rulers and the ruled and the ruled accept their lot...There has never been any shortage of those who want to rule. The problem has always been with the vast majority who are content to be ruled. Today’s global outcry for the manufacturing of more and more “money” out of thin air is an eloquent testimony. It shows that most people have no understanding of freedom, markets or money. Lacking such understanding - and having no desire to gain it - most people have accepted government as their masters.  - Bill Buckler, The Privateer
Before I get to the subject of the title, I wanted to just say that it's spiritually rewarding for me to make an assertion about something and then to be rewarded by being right once all the facts come out.  Last week Henry Blodget, unconvicted violator of securities laws, tried to pump up Facebook stock by saying that the Company's decision to buyout and retire employee stock at $19/share that was held back from the IPO was a stock buyback and signaled to the market that the stock was cheap.  I immediately called b.s. on that and suggested that it was nothing more than a disguised form of required W2 compensation tax-withholding: LINK

Turns out I was right and Blodget once again revealed his true nature as corrupt pump-n-dump stock analyst.  You can read about the details here:  LINK  In brief, FB's little manipulative maneuver there represents a required 45% State and Federal tax withholding on employee compensation that took the form of restricted stock units rather than a standard paycheck.  Henry, veritas liberabit vos, the truth will set you free...

With regard to my title, Bloomberg published an article Sunday night which described the new Wall Street gimmick called "collateral transformation:"  LINK  A big problem in the financial markets in Europe and in the U.S. is the scarcity of high quality "collateral" that can be used as margin "equity" against derivatives positions.  For the average retail brokerage customer, collateral is in the form of cash or a percentage of the value of stocks held in an account.  There are very strict regulations in place and actually enforced with retail broker accounts.

It's a whole different ballgame when it comes to multi-billion dollar bank repo transactions and multi, multi-billion dollar OTC derivatives transactions.  With repos, which give large banks short term liquidity funding, banks originally had to post Treasuries as collateral. Same with OTC derivatives. Over time, because of the growing demand and scarcity of Treasuries and Euro-sovereign bonds due to the growth in OTC derivatives and expansion of repo programs,  the Fed and ECB began to allow "lower quality" forms of collateral like mortgage-backed securities.  In fact, the ECB now allows an even wider basket of collateral.  And of course, now the Central Banks and clearing houses allow the use of gold as collateral.

But the market continues to be hampered by a lack of collateral.  And if banks and big investors can't post collateral for margin calls, the whole global Ponzi house of cards will collapse.  In order to address this, Wall Street had to figure out a way to repackage crap assets so they could be utilized as collateral that could be posted against extremely risky OTC derivatives positions. Ergo, "collateral transformation."  Just let that term roll around your tongue and the right side of your brain for a few moments.  It's such a grandiose and exalting term.  Like, the geniuses on Wall Street are going to metamorphize good collateral out of bad.

The way it works is that "collateral transformation" desks at the big bank will take crappy assets from big investors who are required to post more collateral against losing derivatives positions and exchange them for Treasuries.  The crap assets will be assessed some kind of discounted value, so if you need $100 million in Treasuries to post as collateral, you might have to come up with $120 million of "assessed" value in the crap assets.  Does this sound at all familiar?  Hint: AIG, Bear Stearns, Lehman, etc.   

In reality, "collateral transformation" is just fancy name for hypothecation.  In other words the big Wall Street banks will find Treasury bonds that can be posted as collateral and charge the counterparty a nice fee for this.  Theoretically the Treasuries can't come from customer accounts, but we saw with MF Global just how rigid this law turned out to be.  This is adding another layer of hypothecation in the financial market Ponzi scheme, only the collateral being posted to "back" the hypothecated Treasuries will crater in value in a bad market and there will be massive losses.  The fact is, Wall Street has taken the MF Global/JP Morgan model for collateral posting and injected it with steroids.  You can thank the Obama Government for enabling and allowing this.

One last point, if you read through the Bloomberg report, you'll note that Calpers (the California public pension management firm) has $224 billion under management, of which $30 billion is in the form of OTC derivatives.  I'm not really sure why Calpers has OTC derivatives in its pension portfolios, but OTC derivatives are completely inappropriate and unsuitable for pension funds.  I would be terrified if I were a Calpers pension fund stakeholder.  That aside, Calpers proudly announced that it will side-step the costs of "collateral transformation" by using Treasuries from its own in-house portfolios.  Again, this is a horrifying idea.   To play this out:  let's say you have your money in a Calpers Treasury fund;  Calpers needs to post more collateral against a losing OTC derivatives position in one of its super-duper high risk/high return funds;  Calpers will take Treasuries from your fund (hypothecate them) and use them as collateral for the other fund;  if the OTC derivative blow up, the counter-party to the trade keeps the Treasuries and your Treasury fund loses the Treasuries.

Now, this is an example in isolation, and ultimately if it were only on instance, the super-duper fund would have to compensate the Treasury fund for the loss.  But OTC derivatives blow-ups don't happen in isolation.  There is a very high degree of systemic correlation and the blow up in the Calpers trade will likely be accompanied by a daisy-chain of similar trades blowing up system-wide.  And then we have what happened in 2008 x 10...

Collateral transformation....remember portfolio insurance in the mid 1980's?  Remember the "flawless" derivatives hedging utilized by Long Term Capital in 1998?   The housing bubble/OTC derivatives bust in 2008?  These financial market disasters continue unabated and get worse successively.  "Collateral transformation" - I wonder when the "I can turn lead into gold" myth will be revived....

Monday, September 10, 2012

Public Employees: They Are Different From You and Me...

(Note: for those unaware, my title is a play on F. Scott Fitzgerald's quote: "Let me tell you about the very rich. They are different from you and me.")
We live in a self-entitled society and no sector is more self-entitled than those who work for the Government, supported by taxpayers with guaranteed salaries and pensions.  Their sense of self-entitlement is worse than that of the lumbering herd of overweight middle class houseswives who drive around in their gas-guzzling, over-sized SUVs, running up credit card debt and chatting on their cellphone the second they get into their car...  - Dave in Denver, 9/10/12
Teachers in Chicago went on strike today over demands for a 19% pay raise and refusal to accept a teacher evaluation system which would hold teachers accountable for performance.  The first thing that needs to be pointed out is the obvious:  Illinois is running neck and neck with California over status as the most bankrupt State.  Illinois operates in a deficit on a daily basis and, even if teacher pay hikes were warranted, can not afford it.

But here's some numbers that will shock you:  The average teacher pay in Chicago is $71,000, not including benefits.  The average Chicagoan makes $30,203 and the city's unemployment as measured by the Government is 11%.  I don't think the teachers will get any support outside of their own kind for higher pay, especially when you factor in the fact that teacher pensions are guaranteed by the taxpayers and they are eligible for retirement benefits after 20 years of service.  And don't forget that teaching is a 10 month endeavor, at least for the ones that care about the product they produce - the rest of them coast along at the end of the summer until they have to walk into the classroom. 

In hearing from teachers I know who are hard-working and care about their classroom performance, the tenure system needs to be completely overhauled.  Teachers should be required to demonstrate competence and good performance.  I know a few teachers who rarely use up their full allotted time off during the school year and feel compelled to make up the for laziness and incompetence around them. On the other hand, I personally know a teacher who takes more than her allotted personal time and sick leave days, exploiting the willingness of the school principal to look the other way.  I know this dynamic is pretty common in the school systems in Colorado, I can only imagine how bad it is in the major cities like Chicago, L.A. and NYC.

This is the kind of crud that needs to be weeded out the teachers union and the system for hiring and retaining teachers.  The fact that teachers can feel entitled to big pay raises, while their private sector peers are struggling is beyond absurd.  Compensating teachers based on tenure is the recipe for poor results.  The education system in the United States ranks 14th, 25th and 17th globally in reading, math and science respectively, according the OECD (Organization for Economic Cooperation and Development).  Given the level of pay and benefits for teachers in this country, that fact is just appalling.

And this problem is not just with teachers, although it hits home the hardest because the teachers in our public school system spend almost as much time with our kids from age of 5-18 as do parents. But every category of Government employee demands a much higher level of pay than is given in the private sector.  How many private sector jobs have guaranteed pay and benefits? (note: I'm talking about pay for rank and file, not Wall St. or upper management, but that's another issue).  I do not know of any.  And a lot of large-company 401k plans are comprised of a high degree of corporate stock.  No guarantee there either.  Teacher pensions are essentially deferred cash payments guaranteed by the Taxpayers.

I don't know when and how Government employees in general assumed the mantel of self-entitlement, but the salary and benefit packages given to public servants is another "bubble" in our economic/political system that is contributing to the overall collapse our country.  It starts with Congress with things like Congressmen having their own healthcare plan, thereby avoiding the highly disastrous Obamacare.  And it continues with  teachers demanding more pay when States can't afford it under any circumstances and with refusal to implement pay for performance compensation plans in lieu of pay for tenure.

It makes me sad to see the Chicago teachers exhibit this high degree of self-entitlement with their contract demands.  But it speaks volumes about the degree to which our system has deteriorated and is in a state of collapse...

Friday, September 7, 2012

Friday Comedy - Obama Show

I buy every month, and I will never, ever sell it as long as people such as Mitt Romney, Paul Ryan, Obama, Biden, Bernanke, and Geithner are in government.  I will never sell it.  Never.  - Marc Faber, Swiss Investor, King World News
I couldn't let the monthly Non-Farm Payroll Report go by without shooting it down, however an easy target it may be.  It's easier than shooting fish in a barrel, really.   At first blush on the headlines, in which the supposed number of jobs gained, 96k, badly missed the consensus expectation by 29k, I was shocked that Obama would let the BLS release a number that was that bad on the heels of his big teleprompter reading last night.  But then the unemployment rate crossed that tape at 8.1% vs. 8.3% last month and 8.3% expected.  It then occurred to me that it was a perfect number for Obama.

Perfect because the supposed jobs "growth" is slow enough to justify a lot more economic stimulus - at least from a political standpoint, certainly not from a law of economics standpoint - and the supposed decline in unemployment rate is the perfect marketing device for Obama.  Now, we know there's no such thing as a free lunch, but our Ministry of Truth (Bureau of Labor Statistics) has written a free lunch script that will be heartily consumed by many.  It so closely follows the Orwellian script, laid out by George (Eric A. Blair) in the late 1940's, that it's frightening how prophetically accurate his vision was.

Let me shed some truth on the numbers, at least on the statistical vomit thrown at us by the Obama Team.  I say this because the data sampling and mathematical calculations used to produce the report are largely accepted as being wildly inaccurate by most who have studied them with an eye for truth and accuracy rather than the goal of public perception management.

The headline number was 96k jobs added in August.  Supposedly 103k private sector jobs were added vs. 142k expected.  Of that, 87k came from the nefariously fraudulent "birth/death" model.  The durable goods manufacturing sector actually lost 17k jobs.  The number of people employed in residential construction jobs is down 20k from August 2011.  Do you really believe the reports that the housing market has bottomed?  Really?

The unemployment rate supposedly dropped to 8.1% from 8.3%.  But remember, this number is calculated using the Government's very narrow definition of "those looking for a job" divided by the total workforce.  If you can make the numerator decrease relative to the size of the denominator, or vice versa, you can statistically engineer a lower unemployment rate.  Follow that?  Here's how Team Obama engineered a lower unemployment rate:   They claim that the civilian employment workforce (the denominator) declined in size by .2%;  however, they decided that the number of unemployed declined by 2%.  Voila!  A smaller numerator relative to the change in size of the denominator!

All of the hypothetical action in the employment numbers can be found here:  LINK  The saddest part of this is that the casualty in these calculations - a casualty of which zero reporting is done by the mainstream media - is the labor force participation rate, which is the number of people working or want work as a percent of the definitional workforce.  This metric declined to 63.5% - the portrait of a tragic and catastrophic decline in the number of people who actually work in this country.

Where do the rest go?  Well, in the context of all the entitlement programs run by the Government and financed by the Taxpayers, the Chinese and the Japanese, 165 million people in this country are to some degree dependent on Government handouts to make ends meet:  LINK  Last month under Obama's stewardship, food stamp usage spiked up to a new record:  LINK  Did Barack happen to mention that metric in his full-of-bullshit speech last night?  I've discussed the Social Security disability program on this blog.  The number of people, and especially younger people, claiming disability and sponging off this program has climbed significantly under Obama.  I'm dead serious about this, about all you have to do is claim chronic head-aches that prevent you from working and you can qualify.  And I know a doctor who tells me new medicaid horror stories every time I see him.  Did Obama happen to mention that?  Finally, this one really blew my mind:  the Government announced recently that it will be giving $100 million to States in order to prevent State Governments from laying off employees:  LINK   Ummm, did Obama happen to mention that? Talk about getting paid not to work...I guess these facts didn't scroll across his teleprompter.  

The reason Obama has ramped up the entitlement programs and Student Loan lending is that any new recipient of something like social security disability or a SLMA guaranteed student loan immediately gets dropped from the Labor Force metric. The amount of SLMA loans has soared to $1 trillion during the last 4 years.  This will be more defaulted debt guaranteed by the Government.  These programs enable the Government to somewhat justify showing a smaller number of unemployed and a lower unemployment rate.  The rest is statistical fairy tales told with a very Orwellian spin.  Even the Government's own U-6 report, buried in the BLS report, admits to a more realistic unemployment number of 14.7%  Newspapers and cable news shows will not report this number.  Given the bulge in the various entitlement program participation, I would bet the true unemployment number is north of 20%.   As many know, John Williams (Shadow Statistics), calculates an alternative unemployment number which is north of 20%.

The truth is that it doesn't matter whether a Republican or Democrat sits in the Oval Office. They are both the same Manchurian Candidate with a slightly different "spin" coming from the text they read off the teleprompter sitting in front of them. The only way to solve the problem is with a gold-backed currency system and a complete econmic/financial "reset." A "reset" is coming - it's just a matter of what it looks like and how violent it gets. That's the ulitmate end of this story. Until then, the only way to have a shot at seeing what the other side of this "reset" looks like with a full belly is to move as much of your paper wealth as possible into physical gold/silver (and get a gun).

Have a great weekend, it's the start of NFL football!!!!


Thursday, September 6, 2012

The Income And Substitution Effect

The gold/silver story is starting to seep into the masses.  It will happen slowly, but if just 5% of the masses start to buy real gold and silver and eschew the fraudulent ETFs, there will be a serious price explosion.  Imagine what will happen if 15-20% of the public start will be interesting to watch the gold/silver ratio, because as both metals get more expensive, there will be a serious display of the economic law of "income and substitution effect," and we'll see the "silver is poor man's gold" axiom on display in a major way.   - Dave in Denver
Bill Murphy was the feature interview on RT's "Capital Account."  The topic was manipulation in the precious metals market and the coming silver market squeeze.  This is a must-watch interview: LINK

For all of us who have researched, studied, traded and invested in the precious metals market for the duration of the bull market, there is no question that JP Morgan has illegally manipulated the gold and silver market, likely on behalf of the Federal Reserve, in order to support the dollar.  In the process, JP Morgan has reaped billions in ill-gotten, highly illegal gains.

In another era (see Drexel Burnham Lambert circa 1980's), JP Morgan would have been shut down and the upper management prosecuted and sent to jail.  But it's the "new" America and it's okay for the insider elitists to loot and pillage the system with the full complicity of the Government.

But the market does not discriminate against income or wealth levels.  Sooner or later the natural laws of the market will substitute in for the artificial manipulation and control being implemented.  It will be ugly for those who are short gold and silver.  China and Russia are aggressively accumulating the physical gold and silver that is being dumped on the market by western hemisphere Central Banks and bullion banks.  I suggest you do the same...

Wednesday, September 5, 2012

Want To See $40 Billion Disappear In Less Than 4 months?

(Click on chart to enlarge)

It took a little less than 4 months for Wall Street and the insiders at Facebook make $40 billion disappear.  It took more than 40 years for Bernie Madoff to accomplish the same feat.  Maybe it says something about the devaluation of the U.S. dollar, since Madoff got started before the gold standard was removed.  This waste in wealth might even make the Government blush.

This whole situation is just unbelievable.  I've never seen a large-cap, high profile IPO result in this degree of failure this quickly after it was issued.  Never.  This is truly a modern day Dutch tulip bulb event seeded in what is likely a high degree of illegality on the part of Morgan Stanley to get this deal done.  Does everyone realize how many individual retail investors got plugged on this one by their broker/financial adviser?  I just can't believe that Morgan Stanley is not investigated by the SEC and the Justice Department over the distribution of the FB IPO.

I know for a fact that Morgan Stanley violated all kinds of rules and regulations put in place by the SEC Act of 1933 and subsequent Investment Advisory and retail brokerage regulations put in place.  There's no way they did not.  Let me listen to the recordings of the brokers and institutional salesmen during the IPO distribution period.  Every one of those phone lines is recorded.  I know this because because I've spent many years in the industry. And I can guarantee you that the Obama Administration is looking the other way. 

Facebook made some announcements via an SEC filing yesterday which included the provision that the Company will be withholding and "retiring" a certain percentage of shares set aside as insider compensation and will be using the "proceeds" to pay the tax bill on employee stock sales.  The interminable Wall Street apologist, Henry Blodget - who by the way settled with the SEC for several million over his role in pumping during the internet bubble and really should have seen jail time - called this action a "stock buyback at $19 per share."  That's laughable if it wasn't such an ignorant comment coming from someone who is supposedly educated.  It's not a stock buyback.  It's called "required tax withholding on compensation."    

Blodget believes this is a signal that management thinks the stock is cheap.  This isn't a stock "buyback."  A stock buyback occurs when a company goes into the marketplace and buys back shares, usually over time.  This is retiring shares that haven't hit the market in order to avoid a massive IRS problem.  Without spending the time to look into all the details, I highly suspect that Facebook was required to do this.  Buyback - give me a break Henry.  Facebook will retiring 101 million shares at $19 share, leaving employees with another 133 million shares that will be distributed and dumped on the market on October 26th.  If you look at the withholding ratio there, it looks suspiciously like a W2 withholding.  Fuck you Henry.  If Facebook wanted to do shareholders a favor, they would wait another 3 months and retire the shares at an even lower price level on the stock - like $10-12, where it's headed soon.  

The fraud and corruption on Wall Street - and complicity of the Government - gets worse by the day.  It will continue to get worse no matter who gets elected in November.  Romney is a total Wall Street whore.  Obama became one.  The only way to protect your wealth from this is to buy physical gold and silver, which will be going much higher over the next several months.

Tuesday, September 4, 2012

Why Gold Is Going Much Higher

I believe it’s going a lot higher…it’s going to have a parabolic spike, caused by some event or some loss of confidence…a US dollar crisis would be a perfect example. That will cause gold to go through the roof, and then everybody will want to own it…I don’t think we’re even close to that yet…Gold will probably have a much greater run than some of the other hard assets–because it’s also a currency  - Frank Giustra, mining industry entrepreneur (one of the "architects" of Goldcorp)
That quote is from an incredible interview with Frank Giustra.  Well worth hearing:   LINK

My business partner was having a discussion about the current fiscal/financial situation in this country with an old friend of his.  I think his friend was trying to get his thought process around the scope of the problem and how to fix it.  His friend was trying to work out the math on the Federal budget deficit - well, essentially all of the numbers as they are presented by the Government.  He is also trying to understand why gold would be a large piece of the "solution puzzle."  What I sensed in his thought process was a high degree of "hope" and a misunderstanding of the numbers as presented by the Government.

But "balancing" the Federal budget isn't a matter of just cutting back on medicare and social security.  I don't know exactly which areas of the various Government websites that my partner's friend was getting his numbers from and I don't know to what degree he understands that the numbers are highly massaged and misleading.

You could cut all entitlements to zero and the Government still doesn't have a balanced budget.  You could cut all defense spending to zero and the budget isn't balanced.  The reported budget isn't even the true budget.  The cost of the FNM/FRE bailout is not included in the reported budget.  There's a lot of defense spending that is not included.   How about the highly underfunded status of the Federal pension system?  The reason it's underfunded is that the Government plays games with the contributions in order to "shave" expenses from the budget.  If the Federal pension were properly funded each year the budget deficit would be significantly wider.  Suffice it to say that that the Government is mathematically insolvent and the solution will not be found in working within the system as it currently exists.  There needs to be a huge "reset" of everything.  The "reset" process can occur in several ways, all of which will entail a substantial decline in the standard of living for the 99.5%'ers.

With regard to gold, gold isn't an investment.  Gold is a currency.  It's only an investment to the extent that its value as a currency is cheap relative to all other currencies.  The only value behind any paper fiat currency is the "faith" that the issuing Government will maintain supply of the currency relative to the wealth and economic output of the issuing country.  We're well beyond that ability now in every currency.  Right now the only "value" of the U.S. dollar is the Government's ability to print more currency in order to avoid default on the Government debt.

At some point the gold standard will be restored to the global economic system.  I don't know which country will force the issue and I don't know when.  But in order to create the financial "reset" that will be required to restructure and discharge inter-Governmental debt obligations, the value of gold will have to be reset to a much higher level in current dollar/euro/yen/yuan terms.  Much higher.  Ron Paul wrote a brief essay addressing this issue.  The essay summarizes how the dollar engineered into a pure fiat currency and was enabled to remain the world's reserve currency:  LINK  The only idea in this essay with which I disagree is the notion that it's not too late to save the U.S. dollar's status as the world's reserve currency.  There's been too much damage and our country has crossed the Rubicon of dollar destruction.

Whether or not the public ever jumps on this bandwagon and gets it before the reset occurs is irrelevant.  The public participation in driving a bull market is only relevant to the extent that it provides the buyer of last resort for the insiders and smart money to dump (greater fool dynamic).  That will not be required in this situation because it will be the Governments which determine the reset price, not the markets.

Look at just the U.S.  The U.S. supposedly owns 8100 tonnes of gold.  However, there is a question of to what degree the U.S. gold has been encumbered by financial transactions like swaps and leases. The Fed surreptitiously admitted that it uses the Treasury gold for swaps.  It is also likely that it has been largely leased out.  We don't know for sure and the Fed won't let anyone see the real books and records on this.  GATA has been waging a legal battle to force the Fed to release all of its records related to its management of the U.S. gold reserve but so far the Fed has prevailed in curiously maintaining the secrecy regarding the truth about the American taxpayer's gold.  And it is indeed curious...

But let's assume that the U.S. gold is intact.  And let's assume that the world were to resort to the old gold standard which required the value of any country's gold to represent 40% of the country's reserves.  In order for the U.S. to "monetize" its $16 trillion of on-balance-sheet debt, the price of gold would have to be reset to $23,500/oz.  That's just the direct U.S. Treasury debt and that doesn't include all the other non-direct, non-current debt obligations. It doesn't include the $7 trillion FNM/FRE debt guarantees.  And it doesn't address the private sector debt load in this country.

Now assume the U.S. gold is partially or fully encumbered by hypothecation transactions.  You can see where this is going.  The public will never understand this and the Government is doing its best to make sure this doesn't happen.

The bottom line is that the world is going to have to engage in a global "reset" in order to restructure and solve the massive global debt problem.  This will either be done peacefully using gold as the measuring standard for wealth or it will be done through war.  If you think I'm wrong, just look at the numbers presented in this article:  LINK