ducati998

There is still interest, but not as high as the high price of $1000/oz. That’s a positive for gold bulls. There has not yet been the parabolic blow off-top. It is still to come. It’s the width of the range that makes this trade difficult.

This chart doesn’t visualise the concept of a parabolic chart move terribly well, but essentially that may well be what is present. Despite the underlying fundamental arguments for a higher price, simply, it may be in a bubble that will ultimately deflate back to the $400/$500/oz level.

I’ve closed all GLD positions while I have a think about the possibility of instigating a SHORT position. Possibly a flip-flop on gold.

flip-flop-fly is on the twitter recommended list, my main man!

The_Real_Fly Jun. 29 at 11:27 PM # reply ATTENTION BEARS: Tomorrow you get skull fucked. Sleep tight. $$

Classically wrong.

To be fair, I’ve only just found him, so I’ll follow his calls a little more closely and see how long he lasts.

Inflation defined as TM = FM + [MV*CM] under the current policies of Bernanke and the Federal Reserve is alive and well.

MV*CM refers to the market value of credit money which with the collapse in late 2008 of asset prices, crushed the asset price inflation contained within residential real estate, commercial real estate, stockmarkets and commodity markets worldwide.

The massive money creation, measured by M2, has stabilised all those markets save residential real estate, although commercial real estate is looking decidedly wobbly currently.

What should have happened is that the massive inflation should have collapsed into a truly epic deflation. The massive overcapacity built on inflationary money, would have proven unsustainable with a natural rate of interest being charged for capital.

Thus the current inflation is invisible. It is visible only in what is not happening: viz. the absence of a true deflation being allowed to run it’s natural course.

The primary victims of such a deflation would have been the Banking system, both visible [traditional] and the so called shadow banking system. Currently, what we have are the banks most guilty of egregious lending practices being supported, while prudent banks are being squeezed through not being allowed to pick-up market share via inability to access the cheap capital available to the cretins at Citi et al.

At first glance, there isn’t much of a correlation between the series under review. However, if a closer look is taken at series’ underlying trends, which strip out short-term fluctuations and “noise,” two findings stand out.

First, trend money growth of M2 and trend changes in consumer prices are pretty much on the same wavelength, and they are positively and highly correlated. Second, trend changes in the money stock seem to affect trend changes in prices with a time lag, and trend money growth seems to lead trend changes in prices.

The (admittedly arbitrary) trend lines suggest that consumer prices will go up and that the latest drop in rising consumer prices should be interpreted as a temporary downward blip (driven by lower commodity prices).

Why might inflation continue to increase, so much so that it again becomes visible to the mainstream via rising prices? Simply, government, when it cannot raise money legitimately through either debt and or taxation, must, essentially expropriate the property through theft.

The previous post details the levels of deficit spending that are being projected and the level of debt required to pay for this. The numbers are simply not tenable – thus, inflation is the only answer that government will seriously consider in their grab for ever increasing power.

Should the current deficit spending continue at the projected rate or higher, the US debt will become unsustainable [assuming the debt could even be sold at these levels] If it can’t [be sold] and printing is used as an alternative, total disaster.

Under current law, CBO projects debt held by the public will rise from less than 40 percent of GDP before the economic crisis to nearly 100 percent by 2040 and 300 percent by 2083. If current policies are continued, CBO projects the debt will rise to 100 percent by the early 2020s, to 200 percent before 2040, and eventually to 750 percent.

Gold looks to gap up on tomorrows open. This seems to be a pattern, trading up in Asia, selling off in the US. Anyone who wants to test this relationship, let me know the results, if it’s tradeable.

June 30 (Bloomberg) — Gold climbed above $940 an ounce in Asia, heading for a third quarterly increase, as the weakening dollar fueled demand for the precious metal as a store of value.

Bullion, which typically moves inversely to the U.S. currency, has climbed 2.4 percent in the quarter, while the dollar fell against all 16 major currencies as increased investor risk appetite spurred demand for higher-yielding assets. Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a second day at 1,125.74 metric tons yesterday.

“The main driver of gold at the moment is moves in the U.S. dollar and its impact on Comex and over-the-counter investors,” John Reade, UBS AG’s head metals strategist, said in an e-mail. “Exchange-traded fund flows remain subdued, jewelry demand is weak, coin and investment bar buying is subdued.”

Gold for immediate delivery gained 0.4 percent to $941.42 an ounce at 9:40 a.m. in Singapore. The metal is up 6.7 percent this year as longer-term inflationary expectations boosted demand for a hedge against accelerating consumer prices. Gold futures for August delivery were little changed at $941.30 an ounce on the New York Mercantile Exchange’s Comex division, up 1.8 percent this quarter.

“Latest positioning data indicates that speculators have reduced net-long positions in the market significantly, which should limit downside risks somewhat,” Stefan Graber, analyst at Credit Suisse Group in Singapore, said in a note today. “As long as the important support at $925 holds, the short-term outlook remains positive.”

Net-long positions in New York gold futures decreased by 5 percent in the week ended June 23, according to U.S. Commodity Futures Trading Commission data. Speculative long positions, or bets prices will rise, outnumbered short positions by 166,294 contracts in New York.

Silver climbed 0.8 percent to $13.9775 an ounce, up 7.8 percent since March 31 and heading for second quarterly increase.

Gold, due to its subjectivity, is notoriously difficult to assign a valuation to. However by viewing the data, some objective conclusions may be drawn.

Jewellery consumption has fallen by 24% This may, or may not be significant. Jewellery particularly in India and China have traditionally and currently remained a store of wealth. That gold has reached $900+ and not fallen below $850 for a while now, might be construed as an acceptance of a higher base price. This of course is highly subjective.

Where we have a much more objective look at a subjective view is within the investment community. Here demand has increased by 242% That is significant. [These are Q1 2009 over Q1 2008] In fact the entire trend over 2008 was upwards.

The most significant cause of increase was within the financial markets and the GLD ETF. This went from Q1 2008 buying 72.7 tonnes @ $2.1 Billion dollars to 465.1 tonnes @ $13.5 Billion dollars.

So we have essentially the price of gold being driven by the financial markets. Financial markets are prone to boom/bust scenarios. Certainly due to the credit crisis and currently highly inflationary policies emanating from Central Banks the world round, inflation and unsound money certainly are major contributors to the current price.

If the current Central Bank policies are to continue, and it seems increasingly likely that they will need to do so, we can expect an accelerating inflation at some point. The current price of gold prices in a 4.4% compounded inflation rate from 1933. This is very low inflation rate for the amount of monetary and fiscal stimulus that is being imparted to the system and has been monetary policy since The New Deal.

In conclusion, until a major shift in government policy and Central Bank commitment to providing inflation, buying the dips in this bull market will probably work out well. The end, when it arrives, will possibly arrive quickly due to the tremendous liquidity of investment holdings via the GLD ETF. Investors, speculators will be able to not only exit very quickly, but actively reverse their positions by selling short.

Barry Ritholtz issued a $100K challenge. It would seem that this topic has been a source of frustration on the BP.

I’ve run out of patience with tired memes and discredited claims by fools and partisan.

The rhetoric of those pushing nonsense on the public in an attempt to confuse rather than illuminate — the phrase is “agnotology” – only serves to aid the lobbyists working on behalf of the Banks and Investment houses to maintain the status quo.

All is well, nothing to see here, move along.

Well, its time to put up or shut up: I hereby challenge any of those who believe the CRA is at prime fault in the housing boom and collapse, and economic morass we are in to a debate. The question for debate: “Is the CRA significantly to blame for the credit crisis?”

A mutually agreed upon time and place, outcome determined by a fair jury, for any dollar amount between $10,000 up to $100,000 dollars (i.e., for more than just bragging rights).

The nonsense rhetoric blogged about has no cost to those pushing these discredited memes — but interferes in the societal attempts to understand how these problems arose and then how to fix them. Perhaps this will help clarify the issue by forcing those with partisan agendas to stand behind their claims.

Which of the many “CRA was a major factor” proponents have the courage of their conviction to step forward?

So let’s have a look at the evidence, if there is any, that supports the assertion of the Community Reinvestment Act 1977 in contributing [in a major way] to the debacle.

The entire history of this Act can be followed on Wikipedia.

The Community Reinvestment Act (or CRA, Pub.L. 95-128, title VIII, 91 Stat. 1147, 12 U.S.C. § 2901 et seq.) is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.[1][2][3] Congress passed the Act in 1977 to reduce discriminatory credit practices against low-income neighborhoods, a practice known as redlining.[4][5] The Act requires the appropriate federal financial supervisory agencies to encourage regulated financial institutions to meet the credit needs of the local communities in which they are chartered, consistent with safe and sound operation. (See full text of Act and current regulations.[1] To enforce the statute, federal regulatory agencies examine banking institutions for CRA compliance, and take this information into consideration when approving applications for new bank branches or for mergers or acquisitions.[6]

The subsequent revisions to the Act.

1989
The Financial Institutions Reform Recovery and Enforcement Act of 1989 (FIRREA) was enacted by the 101st Congress and signed into law by President George H. W. Bush in the wake of the savings and loan crisis of the 1980s. As part of a general reform of the banking industry, it increased public oversight of the process of issuing CRA ratings to banks.

Enter Fannie & Freddie

Legislative changes 1992
Although not part of the CRA, in order to achieve similar aims the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 required Fannie Mae and Freddie Mac, the two government sponsored enterprises that purchase and securitize mortgages, to devote a percentage of their lending to support affordable housing.

Legislative changes 1994
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which repealed restrictions on interstate banking, listed the Community Reinvestment Act ratings received by the out-of-state bank as a consideration when determining whether to allow interstate branches

The agencies jointly reported their final amended regulations for implementing the Community Reinvestment Act in the Federal Register on May 4, 1995. The final amended regulations replaced the existing CRA regulations in their entirety

In the fall of 1999, Senators Christopher Dodd and Charles E. Schumer prevented another impasse by securing a compromise between Sen. Gramm and the Clinton Administration by agreeing to amend the “Federal Deposit Insurance Act” (12 U.S.C. ch.16) to allow banks to merge or expand into other types of financial institutions. The new Gramm-Leach-Bliley Act’s FDIC related provisions, along with the addition of sub-section § 2903(c) directly to Title 12, insured any bank holding institution wishing to be re-designated as a financial holding institution by the Board of Governors of the Federal Reserve System would also have to follow Community Reinvestment Act compliance guidelines before any merger or expansion could take effect

In early 2005, the Office of Thrift Supervision (OTS) implemented new rules that – among other changes – allowed thrifts with over $1 billion in assets to tweak the long standing 50-25-25 CRA ratings thresholds by continuing to meet 50 percent of their overall CRA rating through lending activity as always but the other 50 percent could be any combination of lending, investment, and services that the thrift wanted.

With the passage of the Higher Education Opportunity Act into law, Pub.L. 110-315, on August 14, 2008, each appropriate Federal financial supervisory agency shall now consider, as a factor in assessing and taking into account the record of a financial institution’s CRA compliance, any & all low-cost education loans provided by the financial institution to low-income borrowers

In 2007 Ben Bernanke suggested further increasing the presence of Fannie Mae and Freddie Mac in the affordable housing market to help banks fulfill their CRA obligations by providing them with more opportunities to securitize CRA-related loans

According to a 2000 United States Department of the Treasury study of lending trends in 305 U.S. cities between 1993 and 1998, $467 billion in mortgage credit flowed from CRA-covered lenders to low- and medium-income borrowers and areas. In that period, the total number of loans to poorer Americans by CRA-eligible institutions rose by 39% while loans to wealthier individuals by CRA-covered institutions rose by 17%. The share of total US lending to low and medium income borrowers rose from 25% in 1993 to 28% in 1998 as a consequence

In October 1997, First Union Capital Markets and Bear, Stearns & Co launched the first publicly available securitization of Community Reinvestment Act loans, issuing $384.6 million of such securities. The securities were guaranteed by Freddie Mac and had an implied “AAA” rating.[48][89] The public offering was several times oversubscribed, predominantly by money managers and insurance companies who were not buying them for CRA credit

In an article for the New York Post, economist Stan Liebowitz wrote that community activists intervention at yearly bank reviews resulted in their obtaining large amounts of money from banks, since poor reviews could lead to frustrated merger plans and even legal challenges by the Justice Department.[92] Michelle Minton noted that Chase Manhattan and J.P. Morgan donated hundreds of thousands of dollars to ACORN at about the same time they were to apply for permission to merge and needed to comply with CRA regulations.[81]

According to the New York Times, some of these housing advocacy groups provided early warnings about the potential impact of lowered credit standards and the resulting unsupportable increase in real estate values they were causing in low to moderate income communities. Ballooning mortgages on rental properties threatened to require large rent increases from low and moderate income tenants that could ill afford them. [

Housing advocacy groups were also leaders in the fight against subprime lending in low- and moderate-income communities, “In fact, community advocates had been telling the Federal Reserve about the dangers of subprime lending since the 1990s”, according to Inner City Press. “For example, Bronx-based Fair Finance Watch commented to the Federal Reserve about the practices of now-defunct non-bank subprime lender New Century, when U.S. Bancorp bought warrants for 24% of New Century’s stock. The Fed, rather than take any action on New Century, merely waited until U.S. Bancorp sold off some of the warrants, and then said the issue was moot.” However, subprime loans were so profitable, that they were aggressively marketed in low-and moderate-income communities, even over the objections and warnings of housing advocacy groups like ACORN

Economist Stan Liebowitz wrote in the New York Post that a strengthening of the CRA in the 1990s encouraged a loosening of lending standards throughout the banking industry. He also charges the Federal Reserve with ignoring the negative impact of the CRA.[92] In a commentary for CNN, Congressman Ron Paul, who serves on the United States House Committee on Financial Services, charged the CRA with “forcing banks to lend to people who normally would be rejected as bad credit risks.”[99] In a Wall Street Journal opinion piece, Austrian school economist Russell Roberts wrote that the CRA subsidized low-income housing by pressuring banks to serve poor borrowers and poor regions of the country.[100] Jeffrey A. Miron, a senior lecturer in economics at Harvard University, in an opinion piece for CNN, calls for “getting rid” of Fannie Mae and Freddie Mac, as well as policies like the Community Reinvestment Act that “pressure banks into subprime lending.”[

Were Banks increasing their profitability during the housing boom? The categorical answer is that their profitability was collapsing.

Did the CRA contribute to this fall in profitability? If yes, why?

If the CRA contributed to the fall in profitability, is this evidence of the CRA contributing in a major way to the credit crisis?

Is the current controversy within the BP due to BR recently published book Bailout Nation simply missing one of the fundamental causes of the crisis, and now, via the blog, simply seeking to minimise the contribution the CRA made to the crisis?

In a later blog post BR posts:

I have an even simpler query: Who and what was at fault in the entire debacle, from Housing to Credit to Collapse? In what order would you assess the blame?

I don’t mean a soft, squishy, this influenced that who then influenced that guy; I mean a hard list, from most at fault to the least, numbered from 1-20. When you think about all of the moving pieces, and start to assess blame both in absolute and relative terms, the actual blame of real bad guys becomes more obvious.

In Bailout Nation (Chapter 19), my list went something like this:

1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
10. Congress
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18. President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk

Several names were omitted for reasons of avoiding repetition: CEOs of major banks and investment firms, the Crony Boards, the AWOL Mutual funds. While the the list in chapter 19 is somewhat incomplete, the book as whole is not.

Take a close look at that list, and then compare the players who contributed changes and ammendments with oversight to the CRA. You spot some familiar names. The same names that BR credits with responsibility for the crisis.

The CRA legislation simply looks like an important tool [legal] that was utilised to progress their agenda in expanding a housing bubble via unsound credit practices.

Numerous stockmarket blogs & bloggers have embraced Twitter recently and seem to like it. So, in the last couple of days I thought I’d give it a try.

The StockTwits site seemed a logical place to start. Lots of white noise. Out of that noise I’m sure there are good traders in there somewhere, but you’d have to watch for quite some time before you could identify them from the morass of average traders.

However, StockTwits does have a very useful function. They run a ticker cloud that identifies the most popular stocks that session, and if you cross-reference with the ticker cloud on Stockcharts, you have a reasonable idea of where the crowd is gathering and their potential timeframes.

As for the rest of it, I haven’t quite figured out if it has any value, or whether it’s simply an entertaining way to pass a little market time.

*Update.
I have just located flip-flop-fly on twitter.

Alan Greenspan from The Financial Times

The rise in global stock prices from early March to mid-June is arguably the primary cause of the surprising positive turn in the economic environment. The $12,000bn of newly created corporate equity value has added significantly to the capital buffer that supports the debt issued by financial and non-financial companies. Corporate debt, as a consequence, has been upgraded and yields have fallen. Previously capital-strapped companies have been able to raise considerable debt and equity in recent months. Market fears of bank insolvency, particularly, have been assuaged.

Is this the beginning of a prolonged economic recovery or a false dawn? There are credible arguments on both sides of the issue. I conjectured over a year ago on these pages that the crisis will end when home prices in the US stabilise. That still appears right. Such prices largely determine the amount of equity in homes – the ultimate collateral for the $11,000bn of US home mortgage debt, a significant share of which is held in the form of asset-backed securities outside the US. Prices are currently being suppressed by a large overhang of vacant houses for sale. Owing to the recent sharp drop in house completions, this overhang is being liquidated in earnest, suggesting prices could start to stabilise in the next several months – although they could drift lower into 2010.

In addition, huge unrecognised losses of US banks still need to be funded. Either a stabilisation of home prices or a further rise in newly created equity value available to US financial intermediaries would address this impediment to recovery.

Global stock markets have rallied so far and so fast this year that it is difficult to imagine they can proceed further at anywhere near their recent pace. But what if, after a correction, they proceeded inexorably higher? That would bolster global balance sheets with large amounts of new equity value and supply banks with the new capital that would allow them to step up lending. Higher share prices would also lead to increased household wealth and spending, and the rising market value of existing corporate assets (proxied by stock prices) relative to their replacement cost would spur new capital investment. Leverage would be materially reduced. A prolonged recovery in global equity prices would thus assist in the lifting of the deflationary forces that still hover over the global economy.

I recognise that I accord a much larger economic role to equity prices than is the conventional wisdom. From my perspective, they are not merely an important leading indicator of global business activity, but a major contributor to that activity, operating primarily through balance sheets. My hypothesis will be tested in the year ahead. If shares fall back to their early spring lows or worse, I would expect the “green shoots” spotted in recent weeks to wither.

Stock prices, to be sure, are affected by the usual economic gyrations. But, as I noted in March, a significant driver of stock prices is the innate human propensity to swing between euphoria and fear, which, while heavily influenced by economic events, has a life of its own. In my experience, such episodes are often not mere forecasts of future business activity, but major causes of it.

For the benevolent scenario above to play out, the short-term dangers of deflation and longer-term dangers of inflation have to be confronted and removed. Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge. If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012; earlier if markets anticipate a prolonged period of elevated money supply. Annual price inflation in the US is significantly correlated (with a 3½-year lag) with annual changes in money supply per unit of capacity.

Inflation is a special concern over the next decade given the pending avalanche of government debt about to be unloaded on world financial markets. The need to finance very large fiscal deficits during the coming years could lead to political pressure on central banks to print money to buy much of the newly issued debt.

The Federal Reserve, when it perceives that the unemployment rate is poised to decline, will presumably start to allow its short-term assets to run off, and either sell its newly acquired bonds, notes and asset-backed securities or, if that proves too disruptive to markets, issue (with congressional approval) Fed debt to sterilise, or counter, what is left of its huge expansion of the monetary base. Thus, interest rates would rise well before the restoration of full employment, a policy that, in the past, has not been viewed favourably by Congress. Moreover, unless US government spending commitments are stretched out or cut back, real interest rates will be likely to rise even more, owing to the need to finance the widening deficit.

Government spending commitments over the next decade are staggering. On top of that, the range of error is particularly large owing to the uncertainties in forecasting Medicare costs. Historically, the US, to limit the likelihood of destructive inflation, relied on a large buffer between the level of federal debt and rough measures of total borrowing capacity. Current debt issuance projections, if realised, will surely place America precariously close to that notional borrowing ceiling. Fears of an eventual significant pick-up in inflation may soon begin to be factored into longer-term US government bond yields, or interest rates. Should real long-term interest rates become chronically elevated, share prices, if history is any guide, will remain suppressed.

The US is faced with the choice of either paring back its budget deficits and monetary base as soon as the current risks of deflation dissipate, or setting the stage for a potential upsurge in inflation. Even absent the inflation threat, there is another potential danger inherent in current US fiscal policy: a major increase in the funding of the US economy through public sector debt. Such a course for fiscal policy is a recipe for the political allocation of capital and an undermining of the process of “creative destruction” – the private sector market competition that is essential to rising standards of living. This paradigm’s reputation has been badly tarnished by recent events. Improvements in financial regulation and supervision, especially in areas of capital adequacy, are necessary. However, for the best chance for worldwide economic growth we must continue to rely on private market forces to allocate capital and other resources. The alternative of political allocation of resources has been tried; and it failed.