Eric Sprott On The "Golden Opportunity" Submitted by Tyler Durden on 02/27/2014 21:15 -0500 Capital Markets Central Banks China Deutsche Bank Eric Sprott Hong Kong India LIBOR Moving Averages New York Stock Exchange Precious Metals RBC Capital Markets Reality Sprott Asset Management Turkey lang: en_U in Share 0 Submitted by Eric Sprott of Sprott Asset Management Don't Miss this Golden Opportunity Gold declined from $1,900 in September 2011 to $1,188 on December, 19, 2013. Silver declined from $48.50 to $18.50 over approximately the same time frame. Precious metal equities declined by approximately 70% over this period.1 This move down played out exactly as was scripted. However, let us review the causes of this decline. We start out with the most important words ever written by a regulator: BaFin, the German equivalent of the SEC, said that precious metals prices were manipulated worse than LIBOR .2 What are we to read into this, particularly the word “worse”? Obviously, worse than LIBOR could not mean that more money was fraudulently earned since the LIBOR markets are many orders of magnitude larger than the precious metals markets. Then it must mean that the egregiousness of the pricing dysfunction was materially larger in precious metals. The chronology goes as follows: November 27, 2013, BaFin announces an inquiry into precious metals manipulation on the London Bullion Market Association (LBMA).3 Mid-December 2013, BaFin is reported to have seized documents from Deutsche Bank (DB).4 January 17, 2014, BaFin announces that the manipulation is “worse” than LIBOR.1 On the same day, DB also announces its withdrawal from the LBMA gold and silver price fixings.5 Let’s imagine how this played out. Our guess is that BaFin, having reviewed DB’s trading practices, reported their findings to DB’s senior management. They are horrified at the findings (cough, cough) and decide a retreat from LBMA is required. This seems logical to us. Let’s now discuss why bank traders get involved in price manipulation. In the most simple of all analyses, they don’t do it for the bank, but they do it to fraudulently receive higher bonuses. Otherwise, why take such personal risk? If we assume that manipulation of precious metal prices was the reality, as a bonus seeking trader, when do you want the price to be the most favorable? The answer is simple: by year-end and mid-year periods, when bonuses are calculated. Figure 1: Gold Price Bottoms at Mid-Year and Year-End Source: Bloomberg, Sprott Asset Management LP If we look at what happened in 2013, the two lowest gold prices were on June 27th and December 19th (Figure 1). Perfect! And perfectly obvious… Now let’s deal with some reality in the real physical gold market in 2013. As we discussed in 2013, the supply/demand data suggests to us that physical demand was overwhelmingly greater than mine supply (Figure 2. See Markets at a Glance January 2014, October 2013, July 2013, May 2013 and February 2013 for more information on the shortage of physical gold). Figure 2: World Gold Supply and Demand 2013, in Tonnes6 It is obvious to us that precious metals markets were manipulated in 2013. It is also obvious that demand far exceeded annual mine supply. Now let’s analyze what should happen, going forward, with these revelations. If gold prices are back on their long-term trend, ex-manipulation, a linear progression of the gold chart from 2000 to 2014 would suggest a price of $2,100 now (62% higher than the current $1,300 level) and $2,400 by year-end (Figure 3). Figure 3: Gold Price is far from its Long-Term Linear Trend Source: Bloomberg and Sprott Estimates Figure 4 shows estimates of cash flow per share (CFPS) for different sized gold miners under gold prices at both $1,300 and a $2,000 per ounce. As you will note, the potential returns vary from 180% for the lumbering seniors to 420% for some of the smaller producers. Figure 4: Upside Scenarios For Different Types of Gold Miners Assumed Cash Flow multiple: 10. All Figures in US dollars. Estimates are for FY2014. Source: Sprott Estimates and RBC Capital Markets. For illustrative purposes only. Eric Sprott and/or Sprott Asset Management Funds beneficially (directly or indirectly) may own in excess of 1% of one or more classes of the issued and outstanding securities of the above issuer). Are these gains likely to materialize? So far in 2014, the senior miners are up 27%1, while the junior miners are up 42%7. Not a bad year. But, we are only seven weeks into the year. Gold and silver have broken their downtrends and have surpassed their 200 day moving averages. The golden cross (i.e. the fifty day rising through the 200 day) still awaits, but it is most likely to happen within weeks. When was the last time that an obvious reversal of an anomalous, yet explicable market dysfunction allowed you to imagine that you could expect multi-hundred per cent returns over a short time period? Again, don’t miss this Golden Opportunity! 1 NYSE Arca Gold Miners Index. 2 http://www.bloomberg.com/news/2014-01-16/metals-currency-rigging-worse-than-libor-bafin-s-koenig-says.html 3 http://www.bloomberg.com/news/2013-11-27/bafin-reviews-gold-silver-pricing-as-part-of-libor-review.html 4 http://www.ft.com/intl/cms/s/0/b386aa16-6358-11e3-886f-00144feabdc0.html#axzz2thaFxIiG 5 http://online.wsj.com/news/articles/SB10001424052702304603704579326202725433242 6 GFMS data comes from the WGC’s “Gold Demand Trends” publications for 2013 Q1, Q2, Q3 Q4. Chinese mine supply comes from the China Gold Association for 2013. Russian mine supply comes from the Union of Gold Producers and is up to 2013 Q4. Chinese data is taken from the Hong Kong Census and Statistics Department and covers the period Jan.-Dec. 2013. Changes in Central Bank gold reserves are taken from the IMF’s International Financial Statistics, as published on the World Gold Council’s website for 2013 Q1, Q2, Q3 Q4 and include all international organizations as well as all central banks. Net imports for Thailand, Turkey and India come from the UN Comtrade database and include gold coins, scrap, powder, jewellery and other items made of gold. The data is for 2013. ETFs data comes from GFMS as well. 7 MV Junior Gold Miners Index. Average: 0
"The Illuminati Were Amateurs" - Matt Taibbi Explains How "Everything Is Rigged" Submitted by Tyler Durden on 04/26/2013 20:38 -0400 Bank of America Bank of America Barclays Commodity Futures Trading Commission Corruption Gross Domestic Product JPMorgan Chase LIBOR Matt Taibbi Royal Bank of Scotland From Matt Taibbi of Rolling Stone , back to his best, most floral of writing styles: Everything Is Rigged: The Biggest Price-Fixing Scandal Ever The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There's no price the big banks can't fix Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world's largest banks may be fixing the prices of, well, just about everything. You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets." That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps. Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget. It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year , to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture. Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PBJ because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks. "It's a double conspiracy," says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. "It's the height of criminality." The bad news didn't stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. "Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry," CFTC Commissioner Bart Chilton said. But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place. "A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal. "Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases. All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation's GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it's increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system. If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it's no secret. You can stare right at it, anytime you want . Continue reading at Rolling Stone Average: 4.90909 Your rating: None Average: 4.9 ( 11 votes)
The Main Driver of GDP Growth: A Strong Rule of Law Submitted by George Washington on 07/30/2012 15:39 -0500 China Corruption Gambling Germany Global Economy Gross Domestic Product Hong Kong LIBOR national security Niall Ferguson Transparency United Kingdom World Bank Economist Woody Brock says that a nation's GDP growth is based mainly on whether or not it follows the rule of law. Economist and investment adviser John Mauldin notes : I had dinner with Dr. Woody Brock this evening in Rockport. We were discussing this issue and he mentioned that he had done a study based on analysis by an institution that looks at all sorts of “fuzzy” data, like how easy it is to start a business in a country, corporate taxes and business structures, levels of free trade and free markets, and the legal system. It turned out that the trait that was most positively correlated with GDP growth was strength of the rule of law . It is also one of the major factors thatNiall Ferguson cites in his book Civilization as a reason for the ascendency of the West in the last 500 years, and a factor that helps explain why China is rising again as it emerges from chaos. One of the very real problems we face is the growing feeling that the system is rigged against regular people in favor of “the bankers” or the 1%. And if we are honest with ourselves, we have to admit there is reason for that feeling. Things like LIBOR are structured with a very real potential for manipulation. When the facts come out, there is just one more reason not to trust the system. And if there is no trust, there is no system . Dr. Brock is not alone. Economists have thoroughly documented that failure to enforce the rule of law leads to a loss of trust ... which destroys economies. This is true whether it is in the West, in Nigeria or any other country. We're Number ... What? Economic historian Niall Ferguson notes : The World Economic Forum’s annual Global Competitiveness Index and, in particular, the Executive Opinion Survey on which it’s partly based ... includes 15 measures of the rule of law, ranging from the protection of private property rights to the policing of corruption and the control of organised crime. It’s an astonishing yet scarcely acknowledged fact that on no fewer than 15 out of 15, the United States now fares markedly worse than Hong Kong . In the Heritage Foundation’s Freedom Index, too, the U.S. ranks 21st in the world in terms of freedom from corruption, a considerable distance behind Hong Kong and Singapore . Perhaps the most compelling evidence of all comes from the World Bank’s Indicators on World Governance, which suggest that, since 1996, the United States has suffered a decline in the quality of its governance in three different dimensions: government effectiveness, regulatory quality and the control of corruption . Compared with Germany or Hong Kong, the U.S. is manifestly slipping behind . Indeed - as we've extensively documented - the rule of law is now as weak in the U.S. and UK as many countries which we would consider "rogue nations". See this , this , this , this , this , this , this , this , this , this and this . This is a sudden change. As famed Peruvian economist Hernando de Soto notes : In a few short decades the West undercut 150 years of legal reforms that made the global economy possible. How Did We Slip So Fast? Of course, the repeal of the basic laws which enforced the rule of law among financial players is a part of the problem. Virtually everyone - other than those currently working for the big banks or on their payroll - is calling for reinstatement of the separation between banks and speculative gambling. Free market libertarians - like everyone else - are demanding prosecution of criminal fraud using basic fraud laws. Yet the government has made it official policy not to prosecute fraud . People have lost trust in the system, because government corruption is as widespread as Wall Street corruption ... and those in power in D.C. have the same sociopathic traits as those they supposedly regulate on Wall Street. And as Professor Ferguson notes , draconian national security laws are one of the main things undermining the rule of law: We must pose the familiar question about how far our civil liberties have been eroded by the national security state – a process that in fact dates back almost a hundred years to the outbreak of the First World War and the passage of the 1914 Defence of the Realm Act. Recent debates about the protracted detention of terrorist suspects are in no way new. Somehow it’s always a choice between habeas corpus and hundreds of corpses. Of course, many of this decades' national security measures have not been taken to keep us safe in the "post-9/11 world": many of them started before 9/11 . And America has been in a continuous declared state of national emergency since 9/11, and we are in a literally never-ending state of perpetual war. See this , this , this and this . In fact, government has blown terrorism fears way out of proportion for political purposes, and "national security" powers have been used in many ways to exempt big Wall Street players from the rule of law rather than to do anything to protect us. Is it any wonder that we're still in an economic crisis? Average: 4.55 Your rating: None Average: 4.6 ( 20 votes) Tweet George Washington's blog Login or register to post comments 7499 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Niall Ferguson On China's Gold And The "Tremendous Flux In International Order" Niall "Hit The Road Barack" Ferguson Responds To The "Liberal Blogosphere" The Hoarding Continues: China Purchases A Record 100 Tons Of Gold In April From Hong Kong The Two Year Anniversary Of "China's Ghost Cities" Epic Keynesian Fail Guest Post: It's A Matter Of Trust - Part 1
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