Tuesday, July 28, 2009

US Economic Policy On Display

A bit short on time this evening, so just two items for consideration.

Silver Steeped in Mystery
All readers know that Economic Disconnect is a huge fan of the precious metal silver. I hold various positions in it (some SLV, PAAS, and physical mainly) so I have a bias for the shiny stuff to be sure. That said, there is yet another item out this evening that shows some possible issues with how the Silver ETF's are accounting for their physical silver which if this an area of interest to you is well worth the time.

Zero Hedge has a report up described as "a paper on statistical and factual anomalies in silver ETFs". With a title like that, you have to dig in!
Conclusion excerpt:
During our research into the inventory lists of the iShares SLV and London-based ETFS physical silver funds, we discovered multiple anomalies which cannot be easily dismissed. These included the presence of internal duplicates, rough internal duplicates, weight duplicates, statistical clustering, and cross-reference duplicates. Taken together, these anomalies are cause for concern, and we suggest that more capable teams conduct further research into these issues, as they effect price discovery within the precious metals market, as these ETF shares are being used for settlement and possibly price suppression on the COMEX.

If these problems are caused by accounting errors, they are disturbing and perhaps profoundly incompetent, and we suggest both these funds should have their senior management replaced.

In our opinions, the only way for all of these anomalies to occur together as noted in this paper, is via systemic fraud or gross accounting error bordering on jaw-dropping incompetence.

The paper references a post by the writer Mark Anthony (not J-Lo's husband!) which found some glaring problems with the silver ETF's holdings. I found the article here so please read as a follow up. For a taste of the mysterious, Zero Hedge notes that:
Unfortunately, our private considerations are for the former,
especially considering 'revisions' published to the ETFS bar list
after the appearance of Mark Anthony's July 14th 2009 article on
Seeking Alpha regarding possible ETF fraud. The ETF Securities bar lists were changed after the Anthony's discovery of duplicate bars in the Great Wall brand.

I think I have mentioned that silver holds the highest short position of any metal ever. Very interesting.

US Economic Policy On Display
Today brought several items that are very revealing in the arena of just how the US plays the game of economic fantasy land. That this kind of bold lying is both accepted, and then acted upon as truth by the rest of the world is the single most perplexing observation I have seen in my entire life.

First up, Federal Reserve Bank of Philadelphia President Charles Plosser tries to give some help to the massive bond sales this week by saying the FED may raise rates soon:
A FED Inflation Hawk Speaks
“I think we will probably have to begin raising rates sometime in the not-too-distant future,” Federal Reserve Bank of Philadelphia President Charles Plosser told Dow Jones Newswires and the Wall Street Journal in an interview.

A renowned inflation hawk at the Federal Reserve is at it again, trying to pull more dovish Fed officials under his wingspan of influence to get them to do more to battle incipient inflation.

And the timing of Plosser’s comment is interesting, notes Charles Brady, senior editor of the Fox Business Network.

The Fed is selling a record amount of weekly debt, $115 billion now coming up, a sum that tops the previous weekly record of $104 billion set just last month. The bond glut pushes yields higher because so many bonds means a lot of competition, which means the Treasury has to offer enticing, come-hither yields to lure investors in.

“The impending glut of supply has been pushing Treasury yields higher,” says Brady. “What better way to try and keep a lid on rates ahead of this debt sale than to have a Fed official say that policy makers are likely to begin raising rates sooner rather than later.”

Brady adds: “It’s also interesting to note that Plosser is not a voting member of the Federal Open Market Committee, which helps distance Plosser’s comments from the policy makers who actually do vote on rates.”

Just last week we had Ben Bernanke state with no doubt that rates would be accommodating for, well basically forever. Now another FED player tries to say the opposite. This is another example of how the US just has to say things and not do them for them to be real. Nice work if you can get it.

Next in line for the pantomime if our own Treasury head Tim Geithner. Geithner is over on tour in China saying all the right things, like this quip:
Geithner: US to address deficits after recovery
WASHINGTON (AP) -- Treasury Secretary Timothy Geithner says he has reassured China that the United States will take steps to address rising budget deficits once the economic recovery is firmly in place.

China has huge investments in the United States and has worried it could be undermined by U.S. budget deficits. Geithner says the Obama administration plans to reverse the spending of hundreds of billions of dollars devoted to stimulating the economy and propping up a teetering financial system.
Geithner spoke at a news conference Tuesday capping two-days of high-level talks between Chinese envoys and U.S. officials.

Geithner says the Chinese agreed to take steps to increase domestic consumption of its products.

Geithner pretends that US deficits are a temporary phenomena, while in fact surpluses are like a rare Amazonian animal that is rumored to exist, but never captured on film. If I was at one of these events I would roll over laughing at stuff like this.

Rounding out the trifecta today is Fed governor Janet Yellen who went so far out into pretend-ville that Jesse over at the Cafe spilled some high quality ink (pixels) on the charade (varied excerpts, but read the whole thing!):
The mainstream media is reporting that Fed governor Janet Yellen, a noted dove on inflation as Fed governors go, just told a gathering of bankers in Idaho that "deficits do not cause inflation" and summarily dismissed any concerns in that regard.

So, consulting the source material which is included just below, I am struggling to understand what she is saying, and to believe that she said it with a straight face, and was not just jawboning...

...So, we can inflate our way to prosperity, provided that we control the perception of the results of our actions. Jigger the CPI so its no longer valid, suppress long term interest rates by buying the curve selectively and suppressing gold (See Gibson's Paradox by Larry Summers), and coerce the world's central banks through various means to support our monetary inflation step for step. After all, everything is relative. Until it is not.

OMG. Our entire financial system is based on the sufferance and good will of potential adversaries to do what is in our best interests because the fragility of our currency frightens them. And well they might be fearful, when they read this from Ms. Yellen, and see how many true believers in the omnipotence of the Fed take it seriously.

Jesse lays it out much better than I ever could!

Ever since starting my foray into the economic world I have been at first surprised and then just flabbergasted that the US can do whatever it wants and then just toss out a few token lines of sanity and all is well. If China thinks our deficits are a short term event (short term = 10 years plus?) just because we say so, then I guess the US is in better shape than I thought.

Have a good night.


terry said...

Timmy can shovel all the manure he wants to. China has DEEP problems internally. They are running a shall game as their growth is based on not much more than massive govt spending. For Petes sakes they are forcing their banks to make loans, into a DECLINING economy. To maintain a 10% growth rate China needs to create 20M jobs on an ANNUAL basis. It ain't happening and they have MANY of the same problems we do, unemployment, BAD commercial real eatate market, banks holding bad debt, govt trouble selling there short term debt, etc... Keep listening cause there will be the sound of KABOOM, across the globe. It will happen.
Regards, Will Profit

watchtower said...

“People can foresee the future only when it coincides with their own wishes, and the most grossly obvious facts can be ignored when they are unwelcome.”
George Orwell

George's quote seems fitting for the time that we are living in.

Anonymous said...

Germany in deflation for 1st time in 22 years: official

Behold the Toronto house pictured above.

The lot is 25 feet wide – not enough for a driveway, so there’s a parking pad for two vehicles on the front lawn. The exterior is stucco over mystery materials. The inside features a new kitchen, pot lights, fireplace, three bedrooms and ‘an interior and exterior sound system.’

Property taxes are just under $10,000 a year. 35 Coulson Ave. was listed for $1.329 million, and sold for $1.329 million. Days on market: 4.

God help us.

Bubbles to the left of me deflation to the right stuck in the middle with you.


GawainsGhost said...

I remember when the Hunt brothers tried to corner the silver market. I also remember when they attempted to build a major sports complex down here, in the hopes of bringing the Dallas Cowboys in for training camp. They failed at both.

As to your larger point, GYC, yeah, it is astounding, the audicity of Americans. People believe what they want to believe, not the facts in front of their face, when denial is the modus operandi.

The US deficit is simply unsustainable. Everyone knows it, but few will admit it, certainly not politicians.

The US is not in better shape. It won't be until or unless we rebuild our manufacturing base, restore job creation and wage increases, and return upward mobility to the middle class.

It's that simple and that obvious, but the sheeple are blind.

"Where there is no vision, the people perish: but he that keeps the law, happy is he." Proverbs 29:18

Anonymous said...

TREASURIES-Bonds fall as poor auction undercuts safety bid

They keep this up and one of these is going to fail launching long term rates and crushing the private sector. The US is just like the over leveraged Herby Homeowner with the same problem too much debt and not enough income.


Anonymous said...

NEW YORK, July 29 (Reuters) - The United States Natural Gas Fund LP (UNG.P) said on Wednesday it was reducing its position in the natural gas futures market to adhere to federal limits, adding that it may need to seek alternative investments to compensate.

The move by the giant exchange traded fund comes amid intensifying scrutiny of energy markets by lawmakers and regulators aimed at tamping down speculation that some blame for wild swings in the price of oil and gas in recent years.

The fund, which provides investors with exposure to the natural gas market without related margin calls associated with futures trade, has been rumored to at times hold as much as 80 percent of open interest in the front-month contract.

UNG may use alternative investments to meet its investment objective, including total return over the counter swaps that are intended to provide the economic equivalent of the return from ownership of the benchmark futures contract," it said.

There ain't no way in hell I would own one of these etf's


Jeff said...


ETF's are looking more and more fraudulent just like the rest of this bubble economy.


Great post.

America is definatley flexing its economic muscles and its working so far.

I wonder how much patience the ROW has as our economy continues to suffer.