Gold Action Vindicates Caution

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All the bugs who were rah-rahing and telling people to buy gold over $1000, instead of cautioning them to take profits and watch out must be feeling subdued. Despite the thrust upward to yearly highs, the gold action this year never struck me as spectacular at all. Considering everything that’s gone on, it’s been rather staid.

The most common explanation for that from the gold bug community is manipulation.  GATA has recently got confirmation of Federal Reserve gold swap arrangements that would certainly fall under the category of market intervention.

A second reason is that we still haven’t come out of the deflationary movement of the economy. We had the first wave of contraction last year, followed by an artificial bounce provoked by stimulus money and a lot of happy talk from the pundits. Now the second contraction has begun. Gold might do well in a deflation relative to other commodities, but so far it’s tended to sink when the market sells off, and that’s precisely what happened yesterday. No surprise there for me at all.

But it seems to have been a surprise to some traders out there. Rick Ackerman at Rick’s Picks expresses his puzzlement over the rush to dollars – it’s a rush to the Titanic, he argues.

Well – that’s why fundamental analysis is something you need to put on the back-burner when trading. I don’t care how bad fundamentals are. Nothing moves in a straight line down or up. Besides that, Ackerman, like many American commentators, assumes that his view of the dollar is the world’s view. That simply isn’t so. The dollar has terrible problems, but at least for now, there aren’t that many currencies that are free of problems – some of them worse than the dollar’s. And since the dollar is the currency used in a majority of transactions, moving out of them (which would be the case if you felt the economy was contracting) would entail buying dollars. It’s simple logic.

Finally – never pile onto a trade that has too many people on one side. That’s logic too.

Gold rose, but only wishful thinking would call it as powerful an upthrust as the gold experts have claimed it was. If you watch gold prices regularly, you’ll know it’s nothing for gold to move $40-50 in a day. It’s volatile. That’s its nature.

Add to its inherent volatility, the other things going on – the G20 meeting, much talk about altering the SDR’s backing, Bernanke’s comments about the recession ending, international tensions over Iran, the fact that September is usually a strong month for gold, Chinese comments about walking away from derivative contracts, China’s instructions to its population to buy gold — put all of that together and it’s not surprising that gold should have moved up by about $70.

If you bought earlier, you should have taken profits and you should be watching to see how things play out. I didn’t buy earlier, so I’m just watching.

I still firmly believe we are due for a correction – and a relatively big one. I’ll buy then (with reluctance – since I think it’s a terrible industry in many ways).  But what if we don’t correct, and gold shoots up?

Well, what if? Then I’ll be out. So what? if it goes up, it’s likely to go to $1200 or so. That’s a 20% upside. It could also go down to $800. Equal downside.

That’s not a good ratio of reward to risk. There are any number of stocks which will give you that kind of movement if you like gambling. But if you’re investing – and not gambling – then you should act like an investor and ask if you really want to buy at prices that high at the end of a long upthrust.

It doesn’t make investing sense.  So wait and buy on dips.

That said, I’m prepared to eat my words…

PS: Seems like Ackerman is in the deflationist camp (along with Shedlock, Prechter and others) – as opposed to the hyperinflationists like Schiff. [Correction: I accidentally had this in reverse, with Shedlock as inflationist. I’ve posted on why both Schiff and Shedlock are correct – and why that sort of face-off is misguided. Deflation in some areas and over a certain time frame can certainly take place with inflation over other areas. But if you consider inflation to be only the kind that shows up in CPI and on the grocery shelves then obviously, we haven’t see the kind of hyperinflation that gold bugs are waiting for. One thing I fail to see from a lot of people is an awareness that what’s anticipated from the Fed might already be priced into the dollar.]

Rick Ackerman’s Response:

RE: gold and the titanic?
From: Rick Ackerman
Sent: Fri 9/25/09 10:00 PM

Hey, Lila!

I’m using a $1074 target for Comex December Gold and have told my subscribers, many of whom are hard-money guys, that I can’t promise them any higher than that, at least not based on the evidence of GCZ’s daily and weekly charts. My gut feeling is that this is not the rally cycle that will take gold into the Promised Land, assuming it gets there at all. I’m still a hard-core deflationist who believes hyperinflation must ultimately play out, but not in time to save 80 million underwater U.S. homeowners from going through the ringer.

No matter what happens, the Baby Boomers’ retirement plans have already been deflated away to nothing. And concerning the dollar, I’ve moved beyond the idea that the currency is fundamentally worthless, accepting the reality that it trades, simply, as a share in USA, Inc.

With kind regards,

Rick

That’s a pretty good take on things from one of the more astute traders around.

Matthew 24:33

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Matthew 24:33

“Heaven and earth shall pass away, but my words shall not pass away. And take heed to yourselves, lest at any time your hearts be overcharged with surfeiting and drunkenness, and cares of this life; and so that day come upon you unawares. For as a snare shall it come on all them that dwell on the face of the whole earth. Watch ye therefore, and pray always, that ye may be accounted worthy to escape all these things that shall come to pass, and to stand before the Son of man.

But of that day and that hour knoweth no man, no, not the angels which are in heaven, neither the Son, but my Father only.”

My Comment:

And that pretty much takes care of anyone who says that specific historical events can be foretold from the Bible…

[Correction: “specific historical events” – means, in this context, the “last days” of the apocalyptic passages in the Gospel.]

Even the scripture that they claim as infallible in its literal sense contradicts them..

New Findings About Race in India..

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This news item republished at the genetics blog, Gene Expression, is likely to have some impact in India, where there’s been a long-standing debate about the North Indian-South Indian divide, also known as the Aryan-Dravidian divide.

There are several theories about the origin of the different peoples of India. The most popular one and the one that’s favored by the most prominent historians is the Aryan invasion theory.This theory suggests that there was a substantial difference between a preexisting population of shorter, darker people in South India (called Dravidians) and an invading bronze- age culture of taller, fairer people (Aryans) that brought in Vedic or Hindu culture.

This theory, of course, has had a lot of repercussions not only for history and anthropology, but also for politics. The Aryan invasion theory depicts Hindu culture as having a foreign origin, so it was considered colonial, if not racist, by many Indian scholars.

Anthropologists consider Indians to be a branch of a widely dispersed Indo-European group that sent out branches to Persia (Indo-Iranian), Europe (Indo-European) and India (Indo-European). Race theories that developed in the 19th century tended to use this Aryan theory as their foundation (if I’m not mistaken).

However, many Hindu nationalists have considered the Aryan invasion theory a colonial distortion and have argued instead that the movement of people was in the opposite direction. In other words, the Aryans moved outward from India. This would make India the mother culture of the Aryans

Critics of this Indian origin theory call it an outgrowth of Hindu chauvinism. The debate has been a pretty heated one, as a consequence.

Now comes new research.

The Times of India notes:

“The great Indian divide along north-south lines now stands blurred. A pathbreaking study by Harvard and indigenous researchers on ancestral Indian populations says there is a genetic relationship between all Indians and more importantly, the hitherto believed “fact” that Aryans and Dravidians signify the ancestry of north and south Indians might after all, be a myth.

“This paper rewrites history... there is no north-south divide,” Lalji Singh, former director of the Centre for Cellular and Molecular Biology (CCMB) and a co-author of the study, said at a press conference here on Thursday.

Senior CCMB scientist Kumarasamy Thangarajan said there was no truth to the Aryan-Dravidian theory as they came hundreds or thousands of years after the ancestral north and south Indians had settled in India.

The study analysed 500,000 genetic markers across the genomes of 132 individuals from 25 diverse groups from 13 states. All the individuals were from six-language families and traditionally “upper” and “lower” castes and tribal groups. “The genetics proves that castes grew directly out of tribe-like organizations during the formation of the Indian society,” the study said. Thangarajan noted that it was impossible to distinguish between castes and tribes since their genetics proved they were not systematically different.

The study was conducted by CCMB scientists in collaboration with researchers at Harvard Medical School, Harvard School of Public Health and the Broad Institute of Harvard and MIT. It reveals that the present-day Indian population is a mix of ancient north and south bearing the genomic contributions from two distinct ancestral populations – the Ancestral North Indian (ANI) and the Ancestral South Indian (ASI). ”

Weak Housing Figures Hit Gold, Boost Dollar

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“Resales of U.S. homes dropped 2.7% in August to a seasonally adjusted annual rate of 5.1 million, the first decline in five months, prompting the National Association of Realtors to again plead for more taxpayer subsidies for their business.”

That’s sent spot gold below $1000 and pushed the dollar higher.

Aha. So Ben Bernanke finishes his little piece of quackery yesterday, delivering it in the best bedside manner (the patient is doing so much better etc. etc..), and the silly patient refuses to cooperate and slides right back into his coma…

Read the whole piece at Market Watch, if you can do it without popping a blood vessel.

Here’s Lawrence Yun, chief economist of the National Association of Realtors (which is the lobby for the real estate agents) “pleading” for more tax payer moolah in order to have a “self-sustaining” recovery.

How does a recovery based on taxing people amount to a “self-sustaining” recovery?
Huh?

Slap on the forehead. Silly me. Subsidized self-sustaining recovery is exactly the right phrase. Goes right along with war is peace, strength is ignorance and the rest of the Orwelliana lining the cabinets of US Govt. Incorp.

And how about this gem:

“Most economists had not been anticipating a decline in sales.”

Oh really? Most economists hadn’t? And why hadn’t they?

After all, IO loans (interest only loans) are waiting to be reset, the tax payer rebates from April have been used up, commercial real estate is collapsing, foreclosures are spreading to the higher end of the market, the impact of the first wave of government finance and mortgage subsidies is about to run out, so why in the world (heavy sarcasm alert) would economists worry about anything, right? Why in the world would they anticipate anything?


Thinking bad, evil thoughts about the economy is the job of us bloggers. It’s our unpatriotic, unprofessional duty to tell you what’s really going on instead of the moonshine being handed out.

Professional economists it seems are too busy professing economics to actually tell you anything marginally helpful about the economy.

Obama Heads UN Security Council..

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“Barack Obama will cement the new co-operative relationship between the US and the United Nations this month when he becomes the first American president to chair its 15-member Security Council.

The topic for the summit-level session of the council on September 24 is nuclear non-proliferation and nuclear disarmament – one of several global challenges that the US now wants to see addressed at a multinational level.

“The council has a very important role to play in preventing the spread and use of nuclear weapons, and it’s the world’s principal body for dealing with global security cooperation,” Susan Rice, US envoy to the UN, said last week.

Her remarks were the latest by the Obama administration to emphasise a shift from the strategy of the previous Bush administration, sometimes criticised by its UN partners for seeking to use the world body principally to endorse its own unilateral policies. The US currently holds the month-long rotating presidency of the Security Council…”

More at the Financial Times.

My Comment:

Did I read that right? The way to shift away from the Bush administration’s tendency to use the UN to endorse its own unilateral policies is to put Obama at the head of the UN Security Council??
Am I missing something here? How does this represent a shift away? Isn’t it more like coming out of the closet on it?

Spring In the South

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Spring is here. I walked the four miles or so to the Old Town (Ciudad Vieja) and renewed my visa. The office is at Misiones 1513, a few blocks from the sea. In Plaza Libertad there were people strolling around sight-seeing and buying food, though street food isn’t the way of life it is in India or Malaysia or Morocco.

Actually, you don’t need a visa with a US passport. But I was told I’d have to leave the country and reenter after 90 days, so I’d been planning on making the boat trip back to Buenos Aires. That would have been about $70. Fortunately, I googled and found that all you need to do is show up at Immigration and ask to extend your stay. That cost was roughly $15.

Moral of the story: Sometimes the information on the web is wrong and you need to talk to people to find out the real deal, Other times, people are repeating misinformation and you need to verify from the web.

The whole thing took about an hour, mainly because I had to go out and change money. The Uruguayan peso has strengthened a bit recently, trading at 21 and 22 (compra and venta). So I didn’t want to change any more than I absolutely had to. The man at the cambio seemed to understand my cheese-paring mentality. No problem, he said in good English, as I handed him a hundred. I’ll change twenty for you.

It’s what I like about people here. They seem to understand the notion of “making do.” It’s not a shame. In the US, at least until the market-crash wised people up, a lot of my friends would consider this unseemly haggling.

So far, things have turned out much as I expected, except for rent (higher than expected) and food (much higher than expected). The weather really is temperate. The environment really is pristine. The people really are easy-going. The roads really are safe and good. And it’s not crowded or scruffy or polluted or noisy, as parts of Buenos Aires are. (It’s also not as much of a party scene).
Electronics are expensive – but I expected that. Few places in the world are as cheap as the US for electronics.

My one gripe is keeping in touch with everyone. Skype is relatively inexpensive but the sound isn’t great. I keep calling landlines in the US and in India and getting all sorts of background noise and distractions. The connection disappears. And sometimes it takes ages to get through. If this is the replacement for telephones, I’m not impressed.

The Indian government and a number of private companies have got around to Latin America and are investing in land here. The idea is to produce food more cheaply than can be done in India, even after adding shipping costs.

So maybe Indian pensioners and retirees won’t have to spend their entire savings on food and water in the future, as I’ve been afraid they might.

Maybe also, India won’t be destabilized by the bombing in Afghanistan…

Maybe China and India will be able to see eye to eye on their riparian disagreements…maybe…
Maybe…

But I’m not holding my breath.

India’s Man at the IMF: Arvind Virmani

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The global crisis has had the effect of making over the IMF and giving it renewed power.

Until recently, the Fund had lost its international reputation for  what was seen as mishandling of the debt crises in Argentina, Asia, and Russia in the 1990s.

Now, however, with a universal cry of “do something” going up, it’s the IMF to the rescue. The Fund has had its monies tripled, and is at the center of a new global regulatory regime, ostensibly working with the G20 (the Group of Twenty, a forum that includes the twenty countries with the greatest GDPs).

The idea is that the G20, which has room for countries like Argentina, Brazil, China, India, and Indonesia, among others, will be more inclusive than forums limited to the developed nations. To check if this is actually the case, I’ve been looking at the structure and organization of the IMF and its affiliated groups, and will be posting what I find as I go along.

Exhibit A is India’s representative to the IMF. That’s Arvind Virmani, Chief Economic Advisor in the Ministry of Finance. Virmani, according to this article in the Indian Express, was educated at Harvard (PhD in Economics), was the Principal Adviser to the Planning Commission, and was also a contender for Vice President of the Reserve Bank of India. Before joining the government, he was a Senior Economist at the World Bank research department.

It’s always the case. The people who end up representing countries like India are all trained in the elite schools in the West, where the faculties are drawn from the US government, as well as the very corporations and international institutions that the representatives will interact with, and often be responsible for monitoring or regulating.

How independent can they be? And even if they’re personally ethical people, how easy will it be for them to even think outside the parameters set by the institutions in which they’ve trained and operated all their lives? Not easy at all. In fact, impossible.

Let’s see if we can trace some of the connections:

Virmani is an alum of Harvard.

It so happens that Larry Summers, current head economic adviser of President Obama, was the 27th President of Harvard (2001-2006).

Summers is said to have been behind Harvard’s investment in interest rate swaps that eventually lost the university over a billion dollars.

Before that, Summers was Chief Economist of the World Bank (1991-1993) – where Virmani worked before 1987- and then Undersecretary and Deputy Secretary of the US Treasury, before becoming Secretary in 1999..

Summers’ long-time mentor is Robert Rubin, whom he succeeded at Treasury Secretary.

In the 1990s Summers was a leading advocate of the Washington consensus–the proposition that free financial markets, “free” trade and fiscal discipline would bring prosperity to the world.

I put “free” in quotes because what it really amounted to was managed trade, manipulated by the US government with carrots and sticks of sorts…from nuclear weaponry to aid to penalties to sabre rattling  

While Summers was pushing the Washington Consensus, his mentor Robert Rubin, a former Goldman co-chair, was US Treasury Secretary, where he was instrumental in blocking legislation to regulative the derivative market.

Rubin also pushed through the repeal of the 1933 Glass-Steagall Act (keeping apart merchant banking and commercial banking), which enabled the consolidation of the banking industry.

Then, Rubin became the  director of Citigroup, one of the banks whose consolidation was made possible by that repeal. Citi shareholders have filed a lawsuit against Citi executives including Rubin charging that they sold shares at inflated prices, hiding the risks. Shareholders are said to have suffered losses over 70% since Rubin joined Citi.

Meanwhile, Rubin also has a Harvard connection, being a member of the executive governing board of the university, a position he landed a year after getting an honorary doctorate from Harvard.

Importantly, Virmani also shares his Harvard ties with current World Bank president, Robert Zoellick. Zoellick is also an alum of Goldman Sachs, a former US State and Treasury official, a Presidential assistant and US Trade Representative, and a double graduate of Harvard (JD and MPP).

Finally, the IMF position is known to be a sinecure for retiring Indian government economists, who can earn some hard currency for their retirement. 

Question: Even if Virmani were scrupulously honest himself (and he might be), how easy would it be for him to be able to stand up to policies carrying the imprimatur of some one like Rubin or Summers or Zoellick? Not easy at all. In fact, impossible…

The Carbon Credit Scam – Another Public-Private Boondoggle

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“Dr Alison Doig, senior climate-change advisor at Christian Aid, says, ‘Live’s investigation highlights exactly what’s wrong with this flawed system, which is focused only on exchanging carbon credit globally, with no accounting for other environmental or social damage. All carbon credits are doing is making some companies rich, while doing nothing to prevent global pollution. It needs either abolition or total reform.’”

That’s a quote from a piece on how the much-touted carbon-credit trading scheme actually works on the ground in combating pollution. The idea of the scheme is to give industries a cap below which they have to operate. To exceed the cap, they have to purchase carbon credits from manufacturers in the developing world, who receive them in exchange for every cut in emissions they make.

The credits trade in private and international exchanges like any security, one ton of CO2 emission being equivalent to one Certified Emission Reduction (CER).

Carbon trading was one of the fastest growing sectors in 2006 and 2007, doubling in value, but like everything else, when the market took a hit, it took one too. With manufacturing output falling, emissions also fell, and with them carbon, making it more profitable for companies to pollute and buy the credits rather than cut back on emissions from fossil fuels.

And how does the scheme work on the ground? As Carbon Trade Watch documents in this revealing account by Nadene Ghouri, a company can actually be receiving tax-payer funded “green reward points” from the UN, and using the money for operations that are highly polluting – which is  what GFL (Gujarat Fluorochemicals) was doing.

Police Overpower “Dangerous” Double Amputee

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Will Grigg at the Lew Rockwell blog:

“Responding to a domestic violence report, police in Merced, California helped child “protection” workers abduct the two-year-old daughter of 40-year-old Gregory Williams, a double amputee who is confined to a wheelchair.

Williams, a father of three who lost his legs to deep vein thrombosis six years ago and is currently unemployed, had been arguing with his wife. Rather than trying to defuse the situation, the police summoned a CPS worker who decided to seize the two-year-old, Ginni.

When Williams objected, the police placed him under arrest and attempted to force him into the familiar “prone-out” position….

This act of instinctive self-preservation was described as “resisting arrest”

So Officer John Pinnegar shoved his Portable Electro-Shock Torture device into Williams’ ribs and pulled the trigger twice.

At least one other officer, Sgt. Rodney Court, assisted the valiant Pinnegar in subduing the legless man. Hey, can’t be too careful — “officer safety” and all that. At one point Court shoved a knee into the middle of Williams’ back while Pinnegar cuffed the victim.

The double-amputee was left sitting on the pavement, handcuffed behind the back, with his pants pulled down below the waist — in broad daylight, in full view of the residents of his apartment complex.”