We're back in the offices of Sound Of Cannons Towers East this coming Monday. Hope your Christmas holiday was joyful and satisfying. We'll take this opportunity to wish our dear readers a Happy 2012 and rest assurred it will be a WILD year both politically and economically! We'll hope to be at the forefront of it all with timely postings and viewpoints as they happen.
Be good dear readers, hug your family and friends as we see 2011 fade in the mists of time. Enjoy good food and libations if that is your desire. But most of all, please, please, please, DO NOT DRINK AND DRIVE! Don't risk your life or anyone elses. Don't compromise your finances for a DWI. Don't sully your reputation for an "Under The Influence." In plain English: IT'S JUST NOT WORTH IT! Get a cab, bring a sober friend or have someone to call WHO HAS YOUR BACK! One night's drinking doesn't need to make a major mess in your life if you're smart about it. Don't get behind the wheel if you've been drinking. Stay smart and safe for 2012 so we can chronicle the new year together witrh no regrets from a New Year's Eve party, Capiche?
Sound Of Cannons Towers East is closing up shop for a short winter's nap, dear readers. Thanks for your support in 2011 and we look forward to a rollicking 2012! Ron Paul in Iowa! Obama doing his best Jimmy Carter impression! Europe on the edge of financial destruction/implosion! There's too much stuff not to write about!
But please use any free time you have over the holidays to hug your kids and tell your family members that you love them. Discuss survival efforts should tough times arise (they have) and how you can all work together to pull through. Inventory your emergency supplies and make an assessment as to retreats and escapes in the case of societal unrest. Conduct some tax loss selling of securities and make every effort to secure your physical gold and silver purchases. Do some honest appraisal of your own health. (Drop that weight, start a health regimen, start cooking healthy....) your family and community may need you to be in good health to help out. Make necessary repairs to your house to make it more efficient and strong. Take a firearms safety course and bring a sane and responsible friend/family/relative with you. Learn basic EMT procedures and restock your first aid kits.
The Greater Depression is here folks. The politicians will only throw more gasoline on the fire. You need to be self-sufficient and strong to get yourself and your loved ones through this crapstorm, Capiche?
And lastly, say a few prayers to God to help us through. We've made some mistakes putting the wrong people in charge for a while now and we need God's help and forgiveness to get us through this.
“Why are liberals so desperately unhappy with the Obama presidency?” asks New York Magazine’s Jonathan Chait, a self-proclaimed “Obama apologist.”
He answers his own question: “ Liberals are dissatisfied with Obama because liberals, on the whole, are incapable of feeling satisfied with a Democratic president.”
See? It isn’t Obama’s fault. It’s something in the so-called liberal, or progressive, psyche. (“Liberalism” originally meant a philosophy of maximum individual freedom, free markets, and minimum government, not today’s support for intrusive, comprehensive bureaucratic management.)
One wades through the 5,000-word essay hoping to witness Chait at least acknowledge that Obama has let his supporters down with his “war on terror” policies. But all we get is this:
Obama … has enjoyed a string of foreign-policy successes—expanding targeted strikes against Al Qaeda (including one that killed Osama bin Laden), ending the war in Iraq, and helping to orchestrate an apparently successful international campaign to rescue Libyan dissidents and then topple a brutal kleptocratic regime.
Excuse me? Progressives — who properly savaged George W. Bush for his autocratic presidency, civil-liberties flouting PATRIOT Act, undeclared war on Iraq, use of detention and torture at Guantanamo and elsewhere, and warrantless surveillance — are supposed to be happy with Barack Obama, who has essentially carried on most Bush policies, even kicking them up a few notches?
If we listen to Chait, there is nothing at all disappointing about Obama’s expansion of drone attacks in Pakistan and Somalia, with their routine “collateral damage” to innocents; his flagrant violation of the War Powers Resolution (not to mention the Constitution and his campaign promise) with his intervention in Libya; his intensification of the war in Afghanistan; his sanctions (an act of war) against Iran; his broken pledge to close Guantanamo; his support of indefinite detention without charge; his policy of assassinating even American citizens abroad without due process; his renewal of the PATRIOT Act; his placement of Marines in Australia with the words, “The United States is a Pacific power, and we are here to stay”; his failed attempt to lift the UN ban on cluster bombs; or his invocation of state secrets to keep torture victims out of court.
Chait thinks Obama should get credit for “ending the war in Iraq” — but hold on. The December 31, 2011, withdrawal date is set in the Status of Forces Agreement negotiated between the Iraqi government and the Bush administration. Obama tried — but failed — to persuade Prime Minister Nouri al-Maliki to let U.S. troops stay longer. As it is, they will simply be moved down the road to Kuwait, and a large contract mercenary force will likely be left behind at the humongous embassy in Baghdad.
For Chait and his ilk, these all must count as “foreign policy successes.”
And what about torture? Nothing upset Progressives more during the Bush years. Toward the end of the administration, the criminal policy was abandoned and was forsworn by Obama. Yet the detention center at Bagram airbase in Afghanistan has been called “worse than Guantanamo” by Daphne Eviatar, an attorney for Human Rights First. Adds John Glaser of Antiwar.com,
There are now 3,000 detainees in Bagram, up from 1,700 since June (!) and five times the amount there when Barack Obama took office. Many of them have not been charged, have seen no evidence against them and do not have the right to be represented by a lawyer, aren’t given fair trials, and the U.S. claims it is not even obligated to explain why these people are caged.
A U.S. special operations “black site” at Bagram features “sleep deprivation, holding detainees in cold cells, forced nudity, physical abuse, detaining individuals in isolation cells for longer than 30 days, and restricting the access of the International Committee of the Red Cross,” according to Jonathan Horowitz’s investigation for the Open Society Institute.
Finally, in a move that bodes ill for the future, Obama refuses to criminally or civilly investigate Bush administration officials for illegal torture of prisoners. He won’t even empanel a “truth commission” to bring the facts before the American people. Future administrations will thus have little to fear when they break the law.
Most progressives are silent about Obama’s shameful record. But it may explain the disappointment Chait can’t understand.
“Ron Paul is not the answer to all our problems. He is simply the only candidate who’s convinced that neither is government.”– Eric Olsen “In Washington, D.C. it costs $7,000 in city fees to open a pushcart. In
California, up to eighty federal and state licenses are required to open a
small business. In New York, a medallion to operate a taxicab costs $150,000.
More than 700 occupations in the United States require a government license.
Throughout the country, church soup kitchens for the homeless are being closed
by departments of health. No wonder so many people turn to crime and violence
to survive.”– Jarret Wollstein
Source: The Tyranny of Gun Control, 10 (Future of Freedom Foundation 1997).
If you want government to intervene domestically, you’re a liberal. If you
want government to intervene overseas, you’re a conservative. If you want
government to intervene everywhere, you’re a moderate. If you don’t want
government to intervene anywhere, you’re an extremist.– Joseph Sobran (1995)
“If I see a person in need of food, what if I walk up to another person and, through threats, intimidation and coercion, take his money and give it to the needy person? I believe and hope that most Americans would see such an act as theft. Would the conclusion differ if we collectively agreed to take one person’s money to feed the needy person? It’d still be theft. Immoral acts such as theft, rape and murder don’t become moral when done collectively through a majority decision.”– Walter Williams
“The whole gospel of Karl Marx can be summed up in a single sentence: Hate the
man who is better off than you are. Never under any circumstances admit that
his success may be due to his own efforts, to the productive contribution he
has made to the whole community. Always attribute his success to the
exploitation, the cheating, the more or less open robbery of others. Never
under any circumstances admit that your own failure may be owing to your own
weakness, or that the failure of anyone else may be due to his own defects -
his laziness, incompetence, improvidence, or stupidity.”– Henry Hazlitt
(1894-1993) American economist, philosopher, literary critic and journalist
The pronunciation in English is lay-say-fair. Its French origins date back to the late Renaissance. As the story goes, it was first used about the year 1680, a time when the nation-state was on the rise throughout Europe. The French finance minister, Jean-Baptiste Colbert, asked a merchant named M. Le Gendre what the state could do to promote industry.
According to legend, the reply came: “Laissez-nous faire,” or “let it be.” This incident was reported in 1751 in the Journal Oeconomique by the free-trade champion Rene de Voyer, Marquis d’Argenson. The slogan was codified finally in the words of Vincent de Gournay: “Laissez-faire et laissez-passer, le monde va de lui même!” The loose translation: “Let it be and let goods pass; the world goes by itself.”
We’ve rendered this in the form you see on our masthead: Leave the world alone, it manages itself. You could shorten it: Let it be.
All these renderings express not only the idea of free trade — a main subject of dispute in 18th-century European politics — but also a larger and more-beautiful vision of the way society can be permitted to work.
This idea can be summed up in the phrase “laissez-faire,” or in the doctrine of what was once called simply liberalism, which today is clarified as classical liberalism. This idea is this: Society contains within itself the capacity for ordering and managing its own path of development. It follows that people should enjoy the liberty to manage their own lives, associate as they please, exchange with anyone and everyone, own and accumulate property and otherwise be unencumbered by state expansion into their lives.
In the centuries that have followed, millions of great thinkers and writers have elaborated on this core idea within all disciplines of the social science. Then as now, there stand two broad schools of thought: those who believe in state control of one or many aspects of the social order and those who believe that such attempts at control are counterproductive to the cause of prosperity, justice, peace and the building of the civilized life.
These two ways of thinking are different from what is called the right and the left today. The left is inclined to think that if we let the economic sphere be free, the world will collapse, which advances some theory of the disaster that would befall us all without government control. The right is similarly convinced that the state is necessary lest the world collapse into violent, warring, culture-destroying gangs.
The laissez-faire view rejects both views in favor of what Claude Frédéric Bastiat called “the harmony of interests” that make up the social order. It is the view that the artists, merchants, philanthropists, entrepreneurs and property owners — and not the cartelizing thugs of the state — ought to be permitted to drive the course of history.
This view is now held by millions of thinkers around the world. It is the most exciting intellectual movement today, and in places where we might least expect to find it. There are institutions in every country devoted to the idea. Blogs and forums are everywhere dedicated to the conviction. Books are pouring out by the week and the day. The revolt against the state is growing.
The growth of the idea of laissez-faire in our times is infused by a digital energy. But the idea itself is not new in world history. Though it is mostly associated with 18th-century British thought, it is a view of society that has much-deeper roots in the Christian Middle Ages and early Jewish thought. Nor is laissez-faire somehow a Western idea alone. The deepest roots of laissez-faire actually trace to ancient China, and even today, the thoughts of the masters offer a fine summary.
Here are some examples:
Lao Tzu (6th century B.C.): “The more artificial taboos and restrictions there are in the world, the more the people are impoverished...The more that laws and regulations are given prominence, the more thieves and robbers there will be...”
“The Sage says: ‘I take no action, yet the people transform themselves, I favor quiescence and the people right themselves, I take no action and the people enrich themselves...’”
Chuang Tzu (369-286 B.C.): “I would rather roam and idle about in a muddy ditch, at my own amusement, than to be put under the restraints that the ruler would impose. I would never take any official service, and thereby I will [be free] to satisfy my own purposes.”
“There has been such thing as letting mankind alone; there has never been such a thing as governing mankind [with success].” The world “does simply not need governing; in fact, it should not be governed.”
Pao Ching-yen (4th century A.D.): “Where knights and hosts could not be assembled, there was no warfare afield...Ideas of using power for advantage had not yet burgeoned. Disaster and disorder did not occur...People munched their food and disported themselves; they were carefree and contented.”
Ssu-ma Ch’ien (145-90 B.C.): “Each man has only to be left to utilize his own abilities and exert his strength to obtain what he wishes...When each person works away at his own occupation and delights in his own business, then like water flowing downward, goods will naturally flow ceaseless day and night without being summoned, and the people will produce commodities without having been asked.”
These early beginnings of the idea began here but can be traced through thinkers of ancient Greece and Rome and through the Middle Ages, until the notion swept the world in the 18th and 19th centuries, giving rise to unheard-of prosperity, liberty and peace for all. In the 18th century and in large parts of the world (other than the English-speaking world), laissez-faire has been called liberalism or classical liberalism, a doctrine of social organization that can be summed up in the words of Lord Acton: Liberty is the highest political end of humankind.
To be sure, the notion of liberalism was already corrupted early in the 20th century. As Ludwig von Mises wrote in his book Liberalism (1929), “The world today wants to hear no more of liberalism. Outside England, the term ‘liberalism’ is frankly proscribed. In England, there are, to be sure, still ‘liberals,’ but most of them are so in name only. In fact, they are rather moderate socialists. Everywhere today, political power is in the hands of the anti- liberal parties.”
That remains true today. And the revolt against this is often termed “libertarian,” a word that has long been associated with a primary concern for human liberty. In current understanding, it refers to a tightening and radicalizing of the old liberal view. It asserts the inviolability of property rights, the primacy of peace in world affairs and the centrality of free association and trade in the conduct of human affairs. It differs from the old liberal view in dispensing the naive view that the state can be limited by law and constitutions; it imagines the possibility that society can manage itself without a state, defined as the one institution in society that is permitted the legal right of aggression against person and property. Libertarians are consistently against war, protectionism, taxation, inflation and any laws that interfere with the right of free association.
Libertarianism came of age in the early 1970s with the writings of Murray Rothbard and, later, with the founding of Laissez-Faire Books and the work of Robert Nozick and Tibor Machan. Libertarians are not necessarily anarchists or anarcho-capitalists, but the main strain of thinking in the libertarian world today revolves around the idea of statelessness as an intellectual benchmark. This view is not utopian or far-flung; it is only the hope for an ideal in which theft, murder, kidnapping and counterfeiting are not legally sanctioned by the state.
Nor is such a society historically unprecedented. Rothbard wrote about Colonial America as an example of a wildly successful experiment of society without a central state. Medieval Europe made the first great economic revolution without recourse to the power of the nation-state. David Friedman has documented anarchism and competitive legal orders in medieval Iceland. Other writers go so far as to say that given how we conduct our lives day to day, relying on the productivity of private institutions and associations, we never really leave anarchy.
As Mises says, liberalism/libertarianism/laissez-faire is not a completed doctrine. There are so many areas remaining to be explored and so many applications to make both in history and in our time. The most-exciting books of our time are being written from the vantage point of human liberty. The state is on the march, but the resistance is growing.
It is my great honor to be involved in the Agora effort to revive Laissez-Faire Books as the international distribution and publishing house for the greatest ideas of our time. It is a debilitating thing to watch the state on the march, but it is a source of joy to know that ideas are more powerful than all the armies of the world. Reason, literacy and relentless work for what is right and true will eventually lead the idea of laissez-faire to victory.
Providing his traditional dose of snark, tragedy and realism, the Gloom, Boom and Doom report author spoke to Bloomberg TV, and when asked what his outlook for the euro is, dispensed the following pearl: "I have a very special stock tip for you. The symbol is g-o-l-d. That is what I prefer to hold. Both the euro and the dollar are long-term undesirable currencies, especially given zero interest rates in the U.S. Equities to some extent become like cash because they become a store of value compared to cash at a zero interest-rates. Paintings become a store of value, stamps become a store of value." Needless to say, this is the kind of response that will get him banned from CNBC for life when Bartiromo breathlessly asks him, "ok, you think the world is ending, so what five stocks would you buy." As for his latest report, "It's actually quite gloomy but if you're very gloomy what do you invest in: Treasuries, Italian bonds or commodities or equities? I happen to think U.S. equities are not terribly expensive, so relatively speaking to other assets, they may for a while actually do quite well." Considering the ridiculousness of the market over the past two weeks when it has gone up on nothing but lies, Faber just may have a point. On the market now:
"Right now, the market is in neutral territory. It was very oversold on October 4th when the S&P dropped to 1,074. Now around 1260, the upside in my opinion will be between 1,280 and 1,350 because there's a lot of supply around that area. But if there is some good news coming out of Europe, and good news would simply mean postponing the problems for another few years with some kind of money printing operation, either by that ECB or IMF or EFSF, [that] lift stock prices higher."
"[Postponing problems] is not good news, but it is better news than if the whole eurozone falls apart. It gives some time to maybe find better solutions. I doubt they will be found, but with money printing you can hide a lot of things and you can postpone problems as we have seen in the U.S." On whether he'd rather own euros or dollars:
"I have a very special stock tip for you. The symbol is g-o-l-d. That is what I prefer to hold. Both the euro and the dollar are long-term undesirable currencies, especially given zero interest rates in the U.S. Equities to some extent become like cash because they become a store of value compared to cash at a zero interest-rates. Paintings become a store of value, stamps become a store of value." On emerging markets:
"There is close correlation between all markets in the world. This year, the U.S. has grossly outperformed the emerging markets In Asia, we're down between 15% and 25% in markets. In Eastern Europe, even more. The U.S. this year is a wonderful market relative to the rest of the world. "
"I think this outperformance may go on for a while. Some emerging markets could rebound more strongly than the U.S. because they are more oversold. Like India, the currency is down 18% since July and the market is down 22%. Currency adjusted, the market has been extremely weak and is oversold. It could rebound somewhat here, but forget about new highs. It's not going to happen anytime soon." On China:
"The reason I'm not very keen on China at the present time [is because] we had a credit bubble, we still have artificially low interest rates and a huge fiscal deficit in orders words artificial stimulus. That's coming to an end. Yes, the government can further stimulate and slash interest-rates again and reduce reserve requirements, but it will just postpone the problem and aggravate the problem in my opinion."
"When you have an economy like China that becomes so big so quickly, you can have a more meaningful setback. If the U.S. economy grows at 3% or contracts that 3%, it has no impact on the price of copper to speak of….In the case of China, whether the economy grows at 10% or 5% as a huge impact on the demand for iron ore and copper and aluminum, steel and coal. The Chinese economy today has a much larger impact on the rest of the world than is generally perceived economically speaking."
Here are some deep thoughts from the great Richard Russell that will give the bears something to chew on for a while:
“I talked with my good friend, Joe Granville, over the weekend, and Joe is as bearish as I’ve ever seen or heard him, based on his OBV volume figures. This checks with my own work and studies. While fundamentalists scour the news for indications of bullish news, the internals of the stock market continue to deteriorate. Even the action of the stock market is bearish as the market rallies on dull volume but declines on higher volume. Furthermore, rising breadth is narrow on rallies while declining breadth is broad when the market heads down. I don’t know what more I can do or say to convinced subscribers that we are seeing the resumption of the bear market. This means that we should be OUT of all stocks. As for gold mining stocks, this is a personal choice. In due time, I expect gold to fully express itself with a huge upside blow-off. At that time I expect gold mining stocks to follow, but between now and then gold mining shares will probably be hit like every thing else by the fury of the bear market. I should add that I am expecting this bear market to be far worse than most people expect or are prepared for. The fact is that I don’t believe that Americans expect any thing more than a temporary spate of difficult times, an annoying patch that should be over in a year or so. This is not what I am expecting or predicting. Once the Dow breaks under 10,000, I believe that the analysts and the PUBLIC will become frightened and start to cut back on their buying. The newspapers will halt their bullish stance, and a great stillness will envelope that land. That stillness will be the result of shock as it dawns on Americans that they are seeing something far different than what they were expecting. By the way, the Dow is now trading below its 200-day moving average, which stands at 11,938. The 50-day MA is bearishly below the 200-day MA (50-day is 11,811). Spiritual — While in rehab and after my hip operation I had a lot of time to think. And I wondered why I was still alive. I had survived combat in World War II. I had survived two heart attacks and a stroke. I had survived a mastoid infection and operation. I had survived 50 years of riding motorcycles with one dangerous crash. I had survived two divorces. I have survived (and believe me it was survival) a severely autistic daughter who almost drove me mad. I have survived the years, since I will be 88 (the Chinese lucky number is 8). So why, I ask myself, am I still here with my brain still functioning. My conclusion, arrived at after a lot of hard thinking, is that I’m supposed to be the messenger of changing times. I have 8,034 subscribers. What percentage of these ladies and gentlemen take me seriously and follow my advice, and what percentage of this group think I am a self-opinionated loonie I don’t know. In other words, some body wants me to hang around. I know this based on e-mails and kind letters I have received from many subscribers. My advice over the years on gold and various bull and bear markets has resulted in changing some lives for the better. Which is a source of great satisfaction to me. So that’s my story. I’m afraid it may sound prideful or mystical, but it is what I think, and when a man is 87 years old, he’s long past the need or the desire to lie. “
Anyone seeking joyous holiday greetings and cheerful forecasts for the new year is advised to avoid the following most recent Mark Faber interview, in which in addition to his predictions for 2012 (led with "more printing" by the dodecatupling down central planners, and far less prosperity), we get the following: "I am convinced the whole derivatives market will cease to exit. Will become zero. And when it happens I don't know: you can postpone the problems with monetary measures for a long time but you can't solve them... Greece should have defaulted - it would have sent a message that not all derivatives are equal because it depends on the counterparty." And on the long-term future: "I am ultra bearish. I think most people will be lucky if they still have 50% of their money in 5 years time. You have to have diversification - some real estate in the countryside, some gold and some equities because if you think it through, say Germany 1900 to today, we had WWI, we had hyperinflation, WWII, cash holders and bondholders they lost everything 3 times, but if you owned equities you'd be ok. In equities in general you will not lose it all, it may not be a good investment, unless you put it all in one company and it goes bankrupt." As for gold: "I am worried that one day the government will take it away." As for the one thing he hates the most? No surprise here -government bonds.
I have learned that watching what people do is much more important than listening to what they say. Back in 2008, financial authorities in the United States insisted that everything was gone to be okay. But we all know now that was a lie. Well, right now financial authorities in the U.S. and Europe are once again trying to assure us that everything is under control and that we are not headed for a global recession. Unfortunately, their actions are telling a very different story. All over the world, bailouts are flying around as if the end of the world is coming. Governments and central banks are stepping in with gigantic mountains of money to prop up bond yields, major banks and even stock markets. What we have seen over the past few months has been absolutely unprecedented. So why are such desperate measures being taken if everything is going to be just fine? Unfortunately, debt problems are never solved with more debt, so these bailouts really aren't solving anything. We are still headed for a massive amount of financial pain. It would just be nice if the authorities would quit lying to us and would actually admit how bad things really are.
Today it was announced that the European Central Bank has agreed to make $638 billion in 3 year loans to 523 different banks. Never before (not even during the last financial crisis) has the ECB loaned so much cheap money to European banks at one time.
This move by the ECB made headlines all over the globe. CNBC is calling them "ultra-long and ultra-cheap loans".
European authorities are hoping that European banks will use this money to make loans to businesses and to buy up the debt of troubled European governments.
But as we have seen in the United States, bailout money does not always get spent the way that the authorities intend for it to be spent.
The truth is that the banks could end up just sitting on the money. That is what happened with a lot of bailout money in the United States during the last financial crisis.
European authorities hope, however, that European banks will take this super cheap money and lend it to European governments at much higher interest rates.
Unfortunately, global financial markets were not terribly impressed with this move by the ECB. European bond yields actually rose and the euro just kept on falling.
Every few days another major "solution" to the European debt crisis is put out there, but so far nothing has worked.
For example, the European Central Bank has already spent over 274 billion dollars directly buying up European government bonds, and yet bond yields continue to hover in very dangerous territory.
But without ECB intervention, we probably would have already seen a major financial collapse in Europe.
The financial system of Europe is a total mess right now, and everyone is becoming incredibly dependent on the ECB. The following comes from a recent Reuters article....
One of the key factors certain to have boosted demand is that banks are now more reliant than ever on central bank funds. The ECB said on Monday, in its semi-annual Financial Stability Review, that this dependency could be difficult to cure. French banks have almost quadrupled their intake of ECB money since June to 150 billion euros, while banks in Italy and Spain are each taking more than 100 billion euros.
At this point, the ECB has the weight of the entire world on its shoulders. One false move and we could see a huge wave of bank failures and we could be plunged into a major global recession.
But even with all of this unprecedented assistance, we have already seen some big time European banks fail.
Back in Obtober, Dexia was the first major European bank to be bailed out, and the cost of that bailout is going to exceed 100 billion dollars.
The funny thing is that Dexia actually passed the banking stress test that was conducted earlier this year with flying colors.
So what does that say about all of the other major European banks that did not do so well on the stress test?
In addition, it was recently announced that Germany's second largest bank is going to need a bailout.
The following comes from a Sky News report....
Germany's second largest bank, Commerzbank, is reportedly in discussions with the German government about a bailout after regulators said it needed to raise more money to cope with a potential default on its loans to governments. "Intense talks" have been going on for several days, according to sources who spoke to the news agency Reuters.
Even with unprecedented intervention by the ECB, the truth is that the European banking system is rapidly failing.
In Greece, a full-blown run on the banks is happening. According to a recent Der Spiegel article, funds are being pulled out of Greek banks at a pace that is astounding....
He means that the outflow of funds from Greek bank accounts has been accelerating rapidly. At the start of 2010, savings and time deposits held by private households in Greece totalled €237.7 billion -- by the end of 2011, they had fallen by €49 billion. Since then, the decline has been gaining momentum. Savings fell by a further €5.4 billion in September and by an estimated €8.5 billion in October -- the biggest monthly outflow of funds since the start of the debt crisis in late 2009.
In all, approximately 20 percent of all deposits in Greek banks have been withdrawn since the start of 2011.
Other European nations are implementing draconian measures in an attempt to protect their banks. For example, in Italy all cash transactions over 1000 euros have been permanently banned. People will either have to use checks, debit cards or credit cards for large transactions. This will "encourage" people to keep more money in the banks, and this will also make it much easier for the Italian government to track transactions and to collect taxes.
But it is not just in the EU where we find unusual steps being taken.
In the UK, the Bank of England is acting like the end of the world is about to happen. The following comes from a recent article on the This Is Money website....
The deputy governor of the Bank of England today warned the situation surrounding the single currency was ‘worrying’ and that the Bank was making preparations to support British banks, should the eurozone collapse. A temporary loan facility has been introduced as a precaution, for use in the event of contagion from the eurozone crisis endangering UK institutions, Charlie Bean said in an interview on BBC Radio 4’s World at One.
An article posted on Business Insider a while back says that Switzerland is also preparing for "a euro collapse"....
The Swiss government is preparing for a collapse of the euro, according to Swiss Finance Minister Eveline Widmer-Schlumpf. She told parliament that a work group was studying the imposition of capital controls and negative interest rates to protect Switzerland from the capital flight that a euro collapse would engender
Frightening stuff.
On the other side of the world, the government of China is also taking action. In fact, China is actually injecting money into the stock market in order to prop up stock prices.
The following comes from an article in the China Post....
In a movement considered “long overdue” by some analysts, the injection of government money into the tanking stock market to prop up stock prices has been given the green light, government officials announced yesterday. Vice Premier Chen, the topmost government official charged with the country's financial stability, however, insisted the fundamentals of the economy and the stock market are sound, expressing his hope for continued optimism among the people.
Of course the Federal Reserve is not going to stand on the sideline while all of this is going on. In a recent article, I described how the Federal Reserve is helping to bail out European banks....
The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Canada, the Bank of Japan and the Swiss National Bank have announced a coordinated plan to provide liquidity support to the global financial system. According to the plan, the Federal Reserve is going to substantially reduce the interest rate that it charges the European Central Bank to borrow dollars. In turn, that will enable the ECB to lend dollars to European banks at a much cheaper rate. The hope is that this will alleviate the credit crunch which has gripped the European financial system by the throat. So where is the Federal Reserve going to get all of these dollars that it will be loaning out at very low interest rates? You guessed it - the Fed is just going to create them out of thin air. Our currency is being debased so that Europe can be helped out.
If the global financial system was in good shape, all of these bailouts would not be happening.
These desperate measures are a clear sign that something is up.
The financial authorities of the world are doing their best to keep the system together, but in the end they are not going to be able to prevent the collapse that is coming.
The world is heading for incredibly hard economic times.
So is the end of the world coming?
No.
But to many in the financial world it may feel like it. The coming global recession is not going to be fun.
We have now reached a point where it has become "normal" for governments and central banks to throw money at one financial crisis after another.
At one time, bailouts were so unusual that they provoked a great deal of outrage.
Today, bailouts have become standard operating procedure.
The bailouts will continue to get larger and larger, and authorities all over the globe will do their very best to keep the house of cards from coming crashing down.
Unfortunately, they will not be successful.
You don't have to look far to find evidence that the glue that binds us together is losing its grip. Blame the years of economic turmoil and hardship. The volatility. The booms and busts. The persistent joblessness. The increasingly narrow path to financial independence.
For the vast majority of us -- dare I say, the 99% -- the social contract seems like a raw deal these days. Witness the anger shown in polls toward both President Barack Obama and House Republicans; depending on your political bent, you likely hate one and are disappointed by the other. Look at the ongoing, evolving natures of the Occupy Wall Street protests and the earlier Tea Party movement.
This isn't happening just here at home.
The most acute examples of popular rage can be seen overseas. Earlier this year, Arab Spring movements raged against despots across the Middle East and North Africa. More currently, a backlash against Vladimir Putin's shenanigans in Russia has erupted, and China is facing outrage over the less-serious problem of falling condo prices.
But above all, the unrest that has economists the most unsettled is in Europe -- the consequences of which will reverberate throughout the global economy and could very well pull the United States down into a new recession in 2012.
Frighteningly, to some economists, a new recession is the upside. How bad could the downside get?
Well, a pair of economists working in Spain have looked at the overriding issue in Europe -- austerity being forced on unwilling, overburdened populations -- and ranked the odds of various forms of unrest. And all signs point to chaos.
The chaos theory
Jacopo Ponticelli and Hans-Joachim Voth of Universitat Pompeu Fabra in Barcelona, have studied the social impact of government budget cuts in Europe since 1919. They found that "austerity has tended to go hand in hand with politically motivated violence and social instability" and revealed a strong link between the severity of budget austerity and the level of popular discontent.
They used this data to create a chaos metric representing the sum of events including assassinations, attempted revolutions, strikes, riots and demonstrations that occur per year.
The evidence finds that the deeper the budget cuts, the more severe the chaos. And deeper budget cuts certainly lie in Europe's future -- and eventually, the United States', too. We've had only a taste of these events thus far; Europe has seen most of them.
Demonstrations against the official response to the eurozone debt crisis -- including dramatic public-sector layoffs, retirement age increases and emergency property taxes tied to electric bills, among other things -- have helped topple the governments of Portugal and Ireland, brought new leadership into power in Spain and resulted in the installation of unelected technocrats in Greece and Italy.
Why? Because history hinges on protests like these -- protests spurred by economic weakness made worse by budget austerity, higher taxes and lost benefits.
Bread riots, combined with corruption, massive government debt and increased taxation, resulted in the French Revolution and the loss of King Louis XVI's head. American patriots fought for independence after the imposition of harsh new taxes on things like tea. And Adolf Hitler's rise to power was birthed by the turmoil and hardship created by the Great Depression, the gold standard's tight money and Germany's insistence on austerity to pay its World War I debts.
We haven't seen chaos just yet. But based on this economic view, and given the contents of last week's big eurozone agreement, Europe could be close to serious trouble. And we're headed that way.
The road to chaos
First, some context. I've written frequently about the eurozone problems and their structural underpinnings over the past few weeks. Last week's agreement by European Union leaders did nothing to change the situation, with its one-sided emphasis on stricter enforcement of budget austerity.
The outcome, an intergovernmental treaty, will create yet another layer of supranational governance in Europe to accompany the European Union, the European Economic and Monetary Union, the European Parliament, the European Council and the European Commission.
Hopes and dreams of a massive increase in the eurozone's bailout power and/or massive intervention by the European Central Bank crashed into the rocks of reality. Germany insisted that the maximum bailout power be capped at 500 billion euro, roughly $659 billion. And the ECB continues to resist all calls for it to engage in belligerent monetary financing of the likes of Italy and Spain -- pointing out that its existing bond purchase program is "limited in scope and longevity" and that there is "no possibility of greatly expanding ECB bond purchases" according to an official.
Essentially, it all boils down to this: Germany and France are asking Greece and Portugal to embark on an impossible task of "internal devaluation" to boost export competitiveness at a time of fiscal vulnerability. Greeks would take a hit to protect French and German bankers.
It won't work. You can't ask an entire country to take pay cuts and work longer hours for less at the same time you offer fewer social benefits and increase taxes. Not only will the economy not grow, but your deficits will get even worse. And your banks will get hit with more deposit outflows and loan losses.
This last point is key.
The damage done by austerity
A few months back, I wrote extensively about fiscal austerity and the damage it causes a weak economy, and showed how this related to the fierce debates in Washington between Obama and the Republicans. I warned of focusing too intently on fiscal woes and the debt burden while ignoring the need to support the economy over the short term. This was the fool's errand behind the 1937 double-dip recession that made the Great Depression so terrible.
Instead, I recommended a focus on short-term growth (to fix the cyclical portion of the deficit) and a commitment to tackling the real, structural drivers of the medium-term budget problems, namely, health care spending. (For more, read "Why Obama needs to spend more" as well as the work of Francois Velde, senior economist at the Federal Reserve Bank of Chicago.)
The current predicament combines all these things into one fantasy, a delusion shared by elements of the Tea Party as well as the pushers of austerity in France and Germany: that you can cut your way to prosperity. You can't. New research by the International Monetary Fund, looking at efforts to close budget deficits in 17 wealthy countries since 1978, found a clear link between slower economic growth and higher taxes and lower spending.
This shouldn't be surprising, given the anecdotal evidence around us. The British economy is stagnating as its coalition government pushes through even more tightening measures. And the Greek government is experiencing firsthand the downward dynamic of recessionary austerity: Budget deficits were higher than expected for the first 11 months of 2011 as the economy weakened more than forecast, resulting in lower tax collections and higher spending on social programs.
Austerity just won't last
Of course, you can ignore some of my warnings about austerity for a simple reason: It won't last.
Recessionary austerity is a political nonstarter because it can lead only to more rioting, more protests and more government overthrows. In other words, people get so mad at austerity that it probably won't last long, even in a country as troubled as Greece.
I give it an additional six months before Athens gives it up, tells Berlin to back off, drops the euro and follows the example of Iceland by restoring its national currency (for Greece, the drachma) and devaluing it -- just as country after country in the 1930s abandoned the monetary straitjacket that was the gold standard.
Those that left first, including the United Kingdom and Sweden in the fall of 1931, suffered the least.
The way things are going, deeper budget cuts are coming, with predictable results. On current forecasts from the Organisation for Economic Co-operation and Development, Greece is on track to tighten its fiscal balance by an average of nearly 2% between now and 2013, Ireland by nearly 8%, Portugal by 2.3% and Spain by 2.1%.
According to the research by Ponticelli and Voth, budget cuts of 2% or more of gross domestic product increase the risk of chaos events by nearly two-thirds. A 3% cut doubles the risk. These countries are in the danger zone.
The U.S. economy faces something similar. According to Congressional Budget Office estimates, the U.S. budget deficit will tighten by more than 2% of GDP next year -- increasing the risk of unrest as the 2012 election approaches. Things get critical in 2013 if nothing is done as an automatic $1.2 trillion in budget cuts (triggered by the failure of the congressional supercommittee to trim the budget) combines with the possible expiration of the Bush tax cuts, the payroll tax cut and extended unemployment benefits. Together, this will create a harsh, European-style austerity program worth nearly 3% of GDP.
I'll say it again: You can't cut your way to prosperity.
As the euro falls
So, what now?
UBS economist Stephane Deo, who has spent a lot of time over the past few months exploring the fallout from a eurozone collapse, notes that unless German taxpayers acquiesce to a transfer of wealth to the Greeks, Portuguese, Italians, Spanish and Irish -- just as federal money here at home is reallocated from strong states to weaker ones -- the eurozone as it stands now is doomed.
And even if a country like Greece leaves, it will have a long, hard road to recovery. In a recent research report to clients, Deo wrote that "weaker countries exiting a monetary union have tended to move to more authoritarian forms of government, or on occasion moved towards civil war." Which sounds frighteningly like, well, chaos.
Next week, tune in for thoughts on how investors can navigate an increasingly chaotic environment in 2012. Here's a hint: Things are looking a lot like the 1960s and 1970s, according to Morgan Stanley researchers. Stay tuned.
"Each man of the three companies bore a rifle-barreled gun, a tomahawk, or small axe, and a long knife, usually called a ‘scalping knife’, which served for all purposes, in the woods." - John Joseph Henry, An Accurate and Interesting Account of the Hardships and Sufferings of That Band of Heros, Who Traversed Through The Wilderness in the Campaign Against Quebec in 1775
On Monday, Gordon Chang, the author of The Coming Collapse of China and regular contributor at Forbes.com, was interviewed on Yahoo’s Daily Ticker, where he observed, “If you look at all of [China’s] indicators, they all point down.”
Among those indicators were electricity consumption (flat), car sales (flat), property prices (collapsing), and industrial orders (down). And there is more to come, much more. The Chinese communist government is slowing the rate of growth of the money supply in order to “fight inflation,” the natural result of nearly 30 years of expanding that money supply in order to catapult the Chinese agrarian economy into the 21st century. And such slowing is having the same expected effect: As the economy slows down, bankruptcies increase, tax revenues decrease, and the economy slows down further.
Chang added, “We’ll see more obvious signs of deterioration in the Chinese economy over the next six months.” He noted that one of those signs is the increasing civil unrest including riots, bombings, and insurrections taking place across the country.
Entrepreneurs in China who have gotten rich by exploiting the government-fed demands to build cities and infrastructure to house the coming wave of residents are now getting out of China while the getting is good. Back in June Forbes magazine wrote that 60 percent of China’s high-net-worth individuals are either considering emigration or have already left the mainland for safer havens elsewhere. Global Financial Integrity estimates that the sums of money that have already left the country are huge, exceeding $2 trillion dollars through 2008. Such a financial exodus has naturally been criticized by the Chinese government. Writing in the communist newspaper Global Times, Zhong Dajun protested, “We have been working hard to develop the economy in the past 30 years, but now these elite members of society are fleeing with the majority of the wealth.”
It’s the financing of those efforts to “develop the economy” that is the problem. The Chinese government’s plan to move 350 million people from rural areas into cities required building those cities in advance. Here was their perfect opportunity to use the Keynesian approach to create wealth out of paper: The government set up 10,000 investment companies to build them, and provided financing through banks funded by the government. It would put people to work, stimulate the economy, and “provide for the common good” on communist terms. It was also designed to foster a change in the economy from rural to a demand-driven consumer society. It was “jump-starting” to a degree never seen in history — “pump-priming” to push the economy ahead.
The pending implosion is the natural result of such efforts. Twenty new cities were being built every year, but few citizens were moving into them. “Ghost cities” they were called, and thanks to Timemagazine’s photographer, Michael Christopher Brown, pictures of them can be seen here and here and of empty apartment buildings here.
China’s failed attempt at building a Disneyland for the World, called “Wonderland,” which now lies in ruins just outside Beijing, can be seen here.
Patrick Chovanec is a professor at Tsinghua University in Beijing and regularly brings on-the-ground commentary via his website on China’s increasingly visible economic meltdown. He noted the first signs appearing in August when the top developers reported having difficulty selling their inventories, and consequently having to severely cut their selling prices for apartments and office buildings. This outraged citizens, who took to the streets to demand refunds on properties they had purchased prior to the fire sales. Chovanec lists 10 cities where developers have already slashed their prices in order to raise cash to meet demands from their lenders. And some of those lenders are “off the books” with unique enforcement procedures available to them for collection purposes.
Chovanec reports that prices are dropping in 57 of the top 100 cities in China and that in Beijing home prices dropped by an astounding 35 percent in one month. He quoted Business China in noting that in November in the city of Tianjin, the sixth largest city in the country, with 13 million people, “housing transactions shrank 57% y-o-y” while in Changsha, a city of 7 million, housing “activity dropped 79% from a year earlier.” Chovanec reported that he is hearing stories of serious financial difficulties facing the builders and even of some suicides.
The bills are coming due for those developers who owe gargantuan sums to local banks. The top 115 builders are suffering cash flow problems to the tune of nearly $21 billion, with loans that must be paid off or rolled over next year, much of it by the end of March. Real estate agencies are closing, and agents owed commissions for previous sales are having to wait six months to get paid.
Chovanec points out that what has happened is the change from greed to fear that has been almost instantaneous:
What this suggests to me is that the earlier dynamic — where prospective homeowners were desperate to buy at any price, for fear that prices would rise — has now changed, and even non-speculative buyers are adopting a wait-and-see approach, which undermines demand just as developers are becoming desperate to sell, creating a spiral of downward expectations.
What Professor Chovanec is describing is the popping of a bubble — that moment in time when expectations change suddenly — as at the top of a roller coaster just before the plunge into oblivion.
In the United States the real estate bubble was blown up with paper money financing totaling approximately 50 percent of the country’s GDP. In China, the total paper money financing, on- and off-book, totals about 200 percent of that country’s GDP. The popping of the China bubble will be heard ‘round the world.
Is America in decline? That is a very provocative question. I have found that most people that hate the United States are very eager to agree that America is in decline, while a lot of those that love the United States are very hesitant to admit that America is in decline. Well, I am proud to be an American, but I cannot lie and tell you that America is doing just fine. The pieces of evidence compiled below are undeniable. Our economy is deathly ill and is rapidly getting worse. We were handed the keys to the greatest economic machine in the history of the world and we have wrecked it. But until we are willing to look in the mirror and admit how bad things have gotten, we won't be ready for the solutions that are necessary. The truth is that there are things that we can do to reverse the decline. It does not have to be permanent. We have gotten away from the things that made America great, and we need to admit that we are on the wrong path and start fixing this country. But if we choose to continue down the road that we are currently on, it will lead us into the darkest chapters in American history.
The following are 40 undeniable pieces of evidence that show that America is in decline....
#1 Back in 1985, 11 million vehicles were sold in America. In 2009, only 5.4 million vehicles were sold in America. #2 In 1990, the median age of a vehicle in the United States was just 6.5 years. Today, the median age of a vehicle in the United States is approximately 10 years. #3 The average price of a gallon of gasoline in 2011 has been $3.50. That is a new all-time record. The previous record was $3.24 in 2008. #4 The average American household will have spent an astounding $4,155 on gasoline by the time the year is over. #5 The number of children in the United States without a permanent home has increased by 38 percent since 2007. #6 A decade ago, the United States was ranked number one in average wealth per adult. By 2010, the United States had fallen to seventh. #7 The U.S. tax code is now more than 50,000 pages longer than it used to be. #8 American 15-year-olds do not even rank in the top half of all advanced nations when it comes to math or science literacy. #9 The United States once had the highest proportion of young adults with post-secondary degrees in the world. Today, the U.S. has fallen to 12th. #10 After adjusting for inflation, U.S. college students are borrowing about twice as much money as they did a decade ago. #11 The student loan default rate has nearly doubled since 2005. #12 Our economy is not producing nearly enough jobs for our college graduates. The percentage of mail carriers with a college degree is now 4 times higher than it was back in 1970. #13 Our infrastructure was once the envy of the world. Today, U.S. infrastructure is ranked 23rd. #14 Since December 2007, median household income in the United States has declined by a total of 6.8% once you account for inflation. #15 Since the year 2000, incomes for U.S. households led by someone between the ages of 25 and 34 have fallen by about 12 percent after you adjust for inflation. #16 According to U.S. Representative Betty Sutton, America has lost an average of 15 manufacturing facilities a day over the last 10 years. During 2010 it got even worse. Last year, an average of 23 manufacturing facilities a day shut down in the United States. #17 In all, more than 56,000 manufacturing facilities in the United States have shut down since 2001. #18 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000. #19 Manufacturing employment in the U.S. computer industry was actually lower in 2010 than it was in 1975. #20 In 1959, manufacturing represented 28 percent of all U.S. economic output. In 2008, it represented only 11.5 percent. #21 The television manufacturing industry began in the United States. So how many televisions are manufactured in the United States today? According to Princeton University economist Alan S. Blinder, the grand total is zero. #22 The U.S. trade deficit with China in 2010 was 27 times larger than it was back in 1990. #23 The Economic Policy Institute says that since 2001 America has lost approximately 2.8 million jobs due to our trade deficit with China alone. #24 According to one study, between 1969 and 2009 the median wages earned by American men between the ages of 30 and 50 dropped by 27 percent after you account for inflation. #25 Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs. #26 The size of the economy in India is projected to surpass the size of the U.S. economy by the year 2050. #27 One prominent economist believes that the Chinese economy will be three times larger than the U.S. economy by the year 2040. #28 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th. #29 Back in the year 2000, 11.3% of all Americans were living in poverty. Today, 15.1% of all Americans are living in poverty. #30 Last year, 2.6 million more Americans dropped into poverty. That was the largest increase that we have seen since the U.S. government began keeping statistics on this back in 1959. #31 According to the U.S. Census Bureau, 6.7% of all Americans are living in "extreme poverty", and that is the highest level that has ever been recorded before. #32 The percentage of children living in poverty in the United States increased from 16.9 percent in 2006 to nearly 22 percent in 2010. In the UK and in France the child poverty rate is well under 10 percent. #33 As I wrote about the other day, since 2007 the number of children living in poverty in the state of California has increased by 30 percent. #34 A staggering 48.5% of all Americans live in a household that receives some form of government benefits. Back in 1983, that number was below 30 percent. #35 Back in 1965, only one out of every 50 Americans was on Medicaid. Today, one out of every 6 Americans is on Medicaid. #36 Between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent. #37 Today, the "too big to fail" banks are larger than ever. The total assets of the six largest U.S. banks increased by 39 percent between September 30, 2006 and September 30, 2011. #38 Since the Federal Reserve was created in 1913, the U.S. dollar has lost over 95 percent of its purchasing power. #39 During the Obama administration, the U.S. government has accumulated more debt than it did from the time that George Washington took office to the time that Bill Clinton took office. #40 The U.S. national debt is now nearly 15 times larger than it was just 30 years ago.
Sadly, most Americans are not fired up about turning this country around. Way too many of them realize that things are getting worse, but they have "checked out" and are just going through the motions of life.
A perfect example is posted below. In this video, a FedEx delivery guy just chucks a computer monitor over somebody's fence....
Can you believe he did that?
The sad thing is that the guy was actually home at the time and all the FedEx employee needed to do was ring the bell.
This is the kind of attitude that is killing America.
We all need to start caring again. We all need to start taking pride in what we do. We all need to start working hard again. We all need to make sure that we are living with a sense of personal integrity.
When a nation simply does not care anymore, even a con man can become president.
During a recent 60 Minutes interview, Barack Obama said that only 3 presidents in U.S. history accomplished more than he did during the first two years of his presidency....
“The issue here is not going be a list of accomplishments. As you said yourself, Steve, you know, I would put our legislative and foreign policy accomplishments in our first two years against any president — with the possible exceptions of Johnson, F.D.R., and Lincoln — just in terms of what we’ve gotten done in modern history. But, you know, but when it comes to the economy, we’ve got a lot more work to do.”
He had to be joking, right?
Sadly, he was not joking.
But it is not just Barack Obama. The truth is that both political parties are absolutely littered with con men, charlatans and corrupt politicians.
It is going to be up to the American people to get educated about how bad things have really gotten, to start demanding solutions, and to start voting much better people into positions of authority.
If dramatic changes are not made, our economy will continue to get worse and the decline of America will continue to accelerate.
We cannot stay on this road my friends.
It is only going to lead to a total nightmare.
Investors are furious that they can't get back the gold and silver they stashed with the failed brokerage.
It's one thing for $1.2 billion to vanish into thin air through a series of complex trades, the well-publicized phenomenon at bankrupt MF Global. It's something else for a bar of silver stashed in a vault to instantly shrink in size by more than 25%. That, in essence, is what's happening to investors whose bars of silver and gold were held through accounts with MF Global.
The trustee overseeing the liquidation of the failed brokerage has proposed dumping all remaining customer assets—gold, silver, cash, options, futures and commodities—into a single pool that would pay customers only 72% of the value of their holdings. In other words, while traders already may have paid the full price for delivery of specific bars of gold or silver—and hold "warehouse receipts" to prove it—they'll have to forfeit 28% of the value.
That has investors fuming. "Warehouse receipts, like gold bars, are our property, 100%," contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. "We are a unique class, and instead, the trustee is doing a radical redistribution of property," he says. Roe and others point out that, unlike other MF Global customers, who held paper assets, those with warehouse receipts have claims on assets that still exist and can be readily identified.
The tussle has been obscured by former CEO Jon Corzine's appearances on Capitol Hill. But it's a burning issue for the Commodity Customer Coalition, a group that says it represents some 8,000 investors—many of them hedge funds—with exposure to MF Global. "I've issued a declaration of war," says James Koutoulas, lead attorney for the group, and CEO of Typhon Capital Management. At stake is an unspecified, but apparently large, volume of gold and silver bars slated for delivery to traders through accounts at MF Global, which filed for bankruptcy on Oct. 31. Adding insult to the injury: Of the 28% haircut, attorney and liquidation trustee James Giddens has frozen all asset classes, meaning that traders have sat helplessly as silver prices have dropped 31% since late August, and gold has fallen 16%. To boot, the traders are still being assessed fees for storage of the commodities. Other kinds of problems are also surfacing. Investor Gerald Celente says he was hit with a big margin call when the gold contracts in his MF Global account were transferred to another brokerage. "I refused to put up more money," he explains, "so they closed out a number of my open positions at the current market price." The trustee, Giddens, couldn't be reached for comment for this story.
A substantial portion of MF Global's commodity clients cleared their transactions through the Chicago Mercantile Exchange and Comex, owned by CME Group(ticker: CME). The question now looming over CME's stock is whether the company will be liable for customer losses. CME, which also owns the Chicago Board of Trade and Chicago Board Options Exchange, runs markets for futures contracts and options on futures, interest rates, stock indexes, foreign exchange and actual commodities. CME's stock, which had been as high as $327 over the past year, has slid to a recent $242 as a result of low trading volumes and uncertainty about the MF Global scandal.
The Customer Coalition may eventually press its case with the exchange operator. "If it turns out the only way we get customer money back is [to] go after the CME, then we'll go after the CME," says Koutoulas.
Trader John Cassimatis of Philadelphia, who was a large client of MF Global, is furious at CME, now that his contracts for silver bars are stuck under the control of the trustee. "Ultimately," he says, "they have failed to be the backstop, anywhere, anytime." IT'S STILL UNCLEAR WHETHER CME will put its commodity-futures customers first—or its shareholders. The company has set aside a $550 million reserve for MF Global customers, and it has cash balances of more than $1.1 billion that it could tap, if needed. But CME Group's chief operating officer, Bryan Durkin, said last week that CME wouldn't guarantee the funds that remain missing from customer accounts at MF Global after they are reimbursed by the bankruptcy trustee. Such a move would be "unwise" and the CME has a "fiduciary responsibility" to its shareholders, Reuters quoted him as saying.
In congressional testimony last week, CME Executive Chairman Terrence Duffy pinned the blame squarely on MF Global, asserting that Corzine knew that untouchable, segregated customer funds had been used as collateral for loans. Corzine later denied Duffy's charge. At a minimum, it all makes for an intriguing, although risky, play on CME stock. ISI Group analyst Brian Bedell points out that the shares are changing hands at just 13 times estimated earnings for next year, a three-year low relative to the price/earnings ratio of the Standard & Poor's 500 Index. If the company dodges big payments to MF Global customers, the stock could be as good as gold.
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We're back in the offices of Sound Of Cannons Towers East this coming Monday. Hope your Christmas holiday was joyful and satisfying. We'll take this opportunity to wish our dear readers a Happy 2012 and rest assurred it will be a WILD year both politically and economically! We'll hope to be at the forefront of it all with timely postings and viewpoints as they happen.
Sound Of Cannons Towers East is closing up shop for a short winter's nap, dear readers. Thanks for your support in 2011 and we look forward to a rollicking 2012! Ron Paul in Iowa! Obama doing his best Jimmy Carter impression! Europe on the edge of financial destruction/implosion! There's too much stuff not to write about!
