By David Barr, on July 31st, 2009
Robert Kaplan’s article in the Atlantic concludes with this dire warning;
Defense policy will be increasingly geared toward protecting the homeland, even as globalization makes for a smaller, more intricately connected world. America, in the final analysis, will be better protected, even as its global reach wanes.
I am supposed to worry because… Maybe, I’m just a left wing nut case, but isn’t the protecting the homeland the primary reason that most Americans are willing to spend hundreds of billions of dollars on the military. I didn’t realize the goal of US defense policy was to ensure that American diplomats get to sit at the cool table at international summits.
I have yet to hear a compelling argument why I should care about America’s global dominance. Even if China were to develop a military that could threaten ours, would it really be so bad? I don’t think anyone in either country is eager to start a war. Same with India, the EU or any other country that could theoretically challenge America’s military. (Not that anyone is even close to challenging us in this area.)
By Bhagwad Jal Park, on July 31st, 2009
I discussed in a previous article how the the economic system has become an entity unto itself, and how it needs to feed itself to keep alive. The irony is that it has no consciousness. It is a machine that we have made with our own hands, that has turned against us. Today, we will see how it makes us Zombies without us realizing it, and in fact, makes us think that we’re free agents!
In order to keep the wheels moving, every single person in even the not so developed countries, has been fed the fallacy of success. Years ago, success was living the ‘American Dream’. Nowadays, when so many people are well off, they are required to achieve more and more. In fact, they are required to achieve the impossible.
 Image Credit: RobW_
What is this ‘Impossible’ achievement? Short Answer – Success. Success, as portrayed by every bill board, and TV advertisement refers to a state of wealth, good looks, career satisfaction, and loads of free time. Take the average billboard advert depicting a successful man. He invariably has the following characteristics regardless of what is being sold:
- Good Looking
- Rich, or drawing a huge salary
- Well Dressed
- Lots of women falling for him
- Lots of free time (Either Golfing, or Yachting, or just loafing generally)
- Young
- Physically fit
- Talented
- Knows what he is doing, and is confident
This image is so compelling, that most don’t take the time to look at it carefully, and realize it’s stupidity. First of all, it is practically impossible for a man to be so naturally good looking, and fit. Second, it portrays a lie, in the sense that, in real life, successful people are overworked, and rarely have the luxury to focus on anything other than their work. Third, the attributes that are displayed often have nothing to do with the product that is being advertised.
There are so many things wrong with this picture, that the deeper one looks at it, the more ridiculous it seems. It is wrong to assume that all this is obvious. People are fed this lie, and most people aspire to be like that. And when they can’t, they feel inferior to something that they can never achieve. To feed this complex, they are driven more and more into buying themselves items that they feel will push them towards that ideal.
The ideal depicted above, is just one sort of ideal. There are others like a father with his kids, having a great life because he has Life Insurance! Anyone reading this, will understand what I’m talking about.
These lies go unchallenged by our “Commonsense”, because they engage our emotions instead of our rational thought. If people were to logically decide whether or not they need something, they would be able to make an objective assessment, that would frequently lead them to reject the item being pitched. By engaging the emotional cravings people have, marketeers bypass their logic, and go straight to that part of their nature that is illogical by definition.
This is why I say we are slaves. Thinking ourselves free, we are manipulated by ‘the system’, of which, the corporates who feed us these lies, are unwitting tools. It is not to be supposed that they have any choice in the matter. They are doing what they are being forced to do by the economic system. Which is why it is so difficult, if not impossible to lay the ‘blame’.
I feel that human society, just like a single person, has stages of maturity. These stages can last for hundreds of years. It is my hope, that one day, we will all see the lie for what it is. I have faith in man. This cannot last forever. And what will we do when the lie is exposed? I cannot even imagine.
By Eldon Mast, on July 30th, 2009
Many economists have warned of continued unemployment — an economic indicator that always lags even as the economy rebounds and returns to growth.
With that in mind let’s again focus on what employment opportunities are out there. Particularly those positions that are likely to be recession proof.
For instance, many of Western New York’s largest accounting firms are sticking with their plans to hire new college graduates. While other sectors of the marketplace cut back on new hires, NY area CPA firms are tending to honor offers made last fall to college seniors.
Additionally as more and more companies look to social networks to promote their brands, they are hiring staff who can head these efforts. New positions are opening up in companies dedicated to social network marketing — social media experts who can build relationships and find customers on sites such as Twitter and Facebook.
Construction companies that have received contracts for projects funded by the economic stimulus bill are beginning to hire new workers or rehire laid-off employees, according to Associated General Contractors of America (AGC).
“Early reports indicate that the infrastructure piece of the stimulus is beginning to do exactly what was intended, put construction workers back on the job,” said AGC Chief Economist Ken Simonson. Simonson also reported that other contractors are canceling planned layoffs because of stimulus-funded contracts.
Tampa General Hospital has doubled the number of pharmacists on its staff since 2001 and is looking for more. There’s a continuing shortage of pharmacists nationwide, and Florida, with its above-average number of senior citizens, ranks among the states most in need of professionals who dispense medications. The Florida Agency for Workforce Innovation has projected employment in the field of pharmacy to grow by 23 percent between 2008 and 2016.
Staffing firms around Albuquerque, NM are reporting that after a tough first quarter, the downturn shows signs of bottoming out, with hints of a rebound in the past few weeks. The firms are particularly seeing hiring demand return in professional fields, such as accounting and information technology.
Health Payment Systems Inc., a three-year-old health care billing firm in Milwaukee, also is looking for more workers. “We’ve been hiring people on a regular basis for the past three or four months and we are currently adding jobs,” said Bruce Lefco, the firm’s CEO. The firm is looking to fill openings in customer service, billing and information technology.
Despite the news of job losses and unemployment numbers, there is indeed strong employment opportunity in selected parts of this economy. In fact several industry segments have actually continued to add jobs throughout this whole recession. Indeed the jobs data shows bright spots — expanding industries that promise new, stable career opportunities.
By Bron Suchecki, on July 30th, 2009
Tyler Durden of Zero Hedge has posted an analysis of SLV’s bar list by “Project Mayhem Research” (PMR for short) that concludes:
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.
It would probably have helped perceptions of impartiality if PMR hadn’t made references to “world silver price management and a functional oligopoly for the elite” and “one might expect Western governments and megabanks to be openly hostile towards silver” in their introduction, but I suppose in these times it is best if one is transparent about one’s biases. In that spirit, I should point out that as an employee of the Perth Mint, the gold and silver ETFs are competitors of our Depository facility so it would be in my/our commercial interests for SLV or GLD to be revealed as a scam.
Unfortunately, I operate under the ethic of reciprocity, otherwise known as “do unto others as you would have others do unto you” so I’ll have to be fair and factual in my analysis of this analysis. This may mean that, shock horror, I say some things in defence of SLV.
At this time I would also like to issue a warning that what follows is some technical nit picking probably only of interest to myself, PMR and a few other nerds, done on the basis that the PMR analysis is a working paper. If this sounds a bit too boring, and you are of a conspiracy bent, may I suggest this article to reinforce your prejudices. For those who think gold and silver “enthusiasts” are nutters, you’ll find this article more to your liking.
Firstly, it is worth noting the London Bullion Market Association’s (LBMA) delivery standards for 1000oz silver bars, as this is the standard to which the bars on the lists have been produced:
Minimum weight: 750 troy ounces
Maximum weight: 1100 troy ounces
Minimum purity: 99.9%
Weight rounding: rounded down to the nearest 0.10 of a troy ounce
Marks:
* Brand
* Serial Number
* Year of Manufacture
* Purity
* Weight (optional on the bar but not on the bar list of course)
PMR makes reference to a choice of “primary key”, in other words, how does one uniquely identify a bar? I think it would be obvious to most that Brand and Serial Number together are needed, as we cannot assume that each manufacturer uses a totally unique numbering range or system.
However, it is crucial to note that many manufacturers restart serial numbers each year. By way of explanation, I quote from a letter dated 8 Dec 2004 from Johnson Matthey to the World Gold Council:
I am writing to confirm the marking protocol for Johnson Matthey Good Delivery Gold bars produced in the UK. Prior to 2002 all bars were stamped with a two letter code and number, i.e:– BT 12345 for a bar produced in 1999, CT 12345 for a bar produced in 2000. Therefore, some bars will have the same numbers but with different Pre-Fixes. Both the letter AND number combination need to be taken into account to identify the bar. After 2002 we moved to a year stamp i.e. 2003 and a number sequence.
This means that we must ensure a year designator is included along with the Brand and Serial Number in our Primary Key. In the case of the pre-2003 Johnson Matthey gold bars, the inclusion of the two letter prefix performs this function for us; for post-2002 bars, we would have to ensure there is a year prefix in the serial number.
Now this is where we come into a problem. A scroll through the 7000+ page SLV bar list reveals many occurrences of the same Brand and Serial Number but different weight (see page 509 for an example). The different weight implies that these are different bars and that the person originally recording the bar’s details failed to include the year prefix (either as letters or the actual year) in the serial number or as a separate field in the bar list. This means we are unable to conclusively create a unique identifier.
I would note at this point that it is necessary to know which manufacturers restart serial numbers each year and also their serial number/ marking protocol. This is the only way to know if a serial number we see for a bar on a listing is complete or is missing the year prefix.
As an alternative to contacting each manufacturer for their serial numbering protocol, I would suggest combining all published silver bar listings and then analysing for what PMR calls “Internal Duplicates” (common Brand and Serial Number). Manufacturers with no restarting policy would show no (or few, if you’re expecting fraud) duplicate serial numbers. Those with many duplicate serial numbers and differing weights would imply a restarting policy (Britannia Refined Metals is one clear example). Further analysis may reveal patterns in the serial numbering enabling confidence which part of the serial number represents the year.
At this point I would also make a small point about human error. In the last audit of GLD Inspectorate International Ltd did a random check of 7772 bars out of a total of 88445. They found 22 bars with incorrectly recorded serial numbers (a 0.28% error rate). I quote this not to make excuses, but as a reminder there is such a thing as human error. In a case of duplication we must therefore consider the possibility of recording error. What is a reasonable error rate can be debated, but I would note that in the surface finish of 1000oz silver bars can be heavily pitted, resulting in digits of the serial number or weight not stamping clearly. In my previous roles in the Perth Mint I have done many stocktakes and can confirm that the quality of some manufacturers leaves a lot to be desired and have had some difficultly confirming bar markings.
Given the above, for those manufacturers with no restarting policy, one can confidently use a Primary Key composed of Brand and Serial Number only. Therefore I would suggest that PMR first needs to prove/establish which manufacturers have no restarting policy. Then, if they find the existence of an identical weight for such branded bars, they have clear proof of a duplicate, or double counting.
The rest of the discussion below focuses on those manufacturers with a restarting policy. In this case one first has to look at the recording accuracy of the serial numbers. A cursory look at the SLV list reveals that Britannia Refined Metals, Cominco Ltd Tadanac Canada and Russian State Refineries operate under a restarting policy due to the existence of many duplicate serial numbers with different weights. Therefore, for these manufacturers the occurrence of a duplicate serial numbers with the same weight is not conclusive proof of itself that we have a duplicate bar, as the serial number may be incorrectly recorded.
As a result, I do not feel that PMR’s “Perfect Internal Duplicate” (identical brand, serial number and weight) rate of 0.0242% for SLV (69 bars out of 285479) is not conclusively proven at this stage. I would note that removing the three manufacturers mentioned above brings this duplication rate down to 11 bars.
One way around the problem of restarted serial numbers, but incomplete recording of year to distinguish duplicated serial numbers for a manufacturer, is (apart from custodians producing a decent/detailed bar list to start with) to look at the frequency of what PMR calls “Rough Internal Duplicates” (identical brand and weight with an almost-identical serial number (eg AB1024 vs 1024). Effectively this is the process of stripping out the year identifier from the serial number so that all serial numbers for that manufacturer are on “equal footing”, so to speak.
PMR makes reference to the technique of removing prefixes in this comment and this comment. But for this to be valid PMR must first prove/establish which manufacturers restart their serial numbers each year and then their serial number/ marking protocol. If for a certain manufacturer the prefix is not a year designator but just part of the sequential serial number, then removing it creates false duplications. It would be the same as removing the first digit from identical weighted bars with serial numbers 1234 and 2234 and concluding they are the same bar.
It is worth noting at this time that the LBMA standards round down actual weights to the nearest 0.10 of a troy ounce. This means that two bars with a reported (bar listing weight) of 1001.1 could actually be two different bars with weights of 1001.11 and 1001.19 when put on scales. This complicates things so lets park this to the side for now.
PMR notes that “To find the same manufacturer with an identical bar weights is not unusual, but beyond some expected statistical occurance it is”. This statement depends on one crucial assumption – the normal distribution of bar weights. As PMR says, “If these exceed what would be predicted by the Gaussian bell curve, one explanation which may be considered is bar ‘cloning’”. I would caution here that normal distributions assume random variables.
Remember that the LBMA standards accept bars with weights between 750 troy ounces and 1100 troy ounces. The reason for this is that is make manufacture of the bars cheaper as one does not have to accurately weigh out granules/shot of silver for each bar – these are industrial wholesale bars after all.
The minimum of 750 is in reality too low and in my experience the distribution of weights is not so wide. One commentator has noted that “there seem to be two categories of weights, one with target weight of 970 oz., the other one 1030 oz”, which does not surprise me. The point I would like to make is that I think a proper statistical analysis of the weight distributions will show that they are not normally distributed and have a material amount of skewness and peaks around certain weights.
To understand why this is the case, consider that pouring bars is much like making cupcakes or muffins. You have standardises moulds in which you pour your cake mixture. One can expect that first time cooks will put too much or too little in, and their resulting muffins are too big or too small. However, over time one builds up skill to the point that we would observe that each muffin is very much the same size.
There is no difference with pouring bars. If you have an experienced pourer, you can expect that they sequence of bars they pour have little variation in weight. You can also expect that some pourers err on the side of underweight bars (too much and the silver may spill on the floor) whereas other more experienced pourers are confident with attempting to fill the mould. If you had an entire sequence of serial numbers, you may also find a group where the bar weights are all over the place – this being when the apprentice pourer had their first go. Wide bar weights could also indicate a workplace where the staff don’t have any pride in their job, so don’t care about accuracy, or maybe where the expected work rate is high so it is not possible to be accurate.
The result is that even within manufacturers their may be significant variances in what constitutes a “normal distribution” of bar weights. I am sure statisticians have ways around this, and PMR needs to get a bit more sophisticated in this regard if it is to make a conclusive case.
Finally, I’d like to make some comments on the three other types of duplicates PMR referred to in their analysis.
Weight Duplicate (brand and weight): Of itself, this is the most useless of the duplicates. Considering the weight variances discussed above, it is inevitable that for any manufacturer over many years of production there will be many duplications of weight. The real use of this is to establish the distribution of weights (histogram) for a manufacturer as a basis against which to check whether an observed frequency of duplicate weights is “normal”.
Internal Duplicate (serial number and brand): Given that some manufacturers restart numbering each year, the lack of a year designator (either as letter prefix or year incorporated into the serial number) means that this duplicate is of no use in proving double counting. It is clear from the Britannia bars (see page 509 of the SLV listing) where there are many occurrences of duplicate serial numbers (but different weights) that the year or year prefix has been left off the bar listing. This use of this duplicate is in determining which manufacturers restart serial numbering and which do not.
Cross Reference Duplicate (brand and serial number on two different ETFs): Again, because we have established that serial numbers are not consistently incorporating the year of manufacture, this duplication is not conclusive proof. For those manufacturers with restarting serial numbers, you also need the addition of weight. I would also note that both lists are not issued at the same time: ETFS bar list is dated 29 July 2009 whereas SLV bar list is dated 24 July 2009, which does allow for the fact that bars redeemed by market makers out of one ETF could have been reallocated to the other ETF (note that both ETFs store their metal in London and allow for sub-custodians, so it is possible that one custodian holds bars for both ETFs).
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By R. O., on July 29th, 2009
In the U.S. today, approximately 360,000 people have brain cancer. In 2002, 40% of the 40,000 patients diagnosed with this disease died within one year. Brain tumors are the second leading cause of cancer-related deaths in children under the age of 20 as well as men under the age of 39. In women between 20 and 39, it ranks fifth in cancer-related deaths. In 2007, this meant 3,750 children under 20 were diagnosed with either a benign or malignant brain tumor and 70% of those were under the age of 15. In 2008, over 52,000 new cases are expected to be found. Additionally, of those with cancer elsewhere in their body, 100,000 patients are expected to see the cancer spread to their brain. Of those that survived their initial diagnosis in 1996, only 34% lived at least five years. Luckily, the survival rate has been steadily increasing from 21% in the 1970s to 31% in the 1990s. This is still abysmally low, however.
Patients Lose More than Their Health
The cost of this disease to its victims can be unrelenting. According to a study by the National Brian Tumor Foundation, of patients with brain cancer, 59% said their medical expenses were a financial hardship. Many families felt financially drained and had to borrow money (42%), increase their credit card debt (47%), accept a second or third mortgage (15%) or went completely bankrupt (7%). The cost of prescriptions, deductibles, increased insurance premiums and delayed disability funding exacerbated their medical costs and made expenses more difficult to pay. In fact, 15% of the patients assessed paid more than $1,000 each month for treatment. Making things more difficult, while 91% of patients were able to work before their diagnosis, only 33% were able to work afterwards. Furthermore, the disability insurance which was intended to help patients only makes things worse due to long, complicated forms that usually assure an initial denial. Even after acceptance, patients were required to wait two years before any benefits would take effect. During this interlude, patients were left to scrape by as best they could. Of the patients interviewed, 62% lacked disability insurance. The medical debt never failed to grow however, as it was found that a significant correlation existed between the time since diagnosis and the patient’s credit card debt.
Hope for Help in the Near Future
Brain cancer is notoriously difficult to diagnose and treat due to its location in the body. Usually, patients are forced to undergo invasive biopsy procedures for doctors to assess which type of cancer the patient has. This increases medical costs by increasing the time spent in the hospital during the operation and recovery, the drugs used for sedation and pain afterwards, and of course, the number of doctors required for such a procedure. However, it may soon be possible to find the same answers through a simple blood test.
Cancer cells, like other cells, “talk” to each other. Often a cell will accomplish this by secreting a protein that is recognized and acted upon by another cell. Cancer cells, for example, can send signals in this way to cause blood vessels to alter their normal route and instead, grow near the cancer cell. This redirection of blood vessels is what feeds the cell and allows it to grow. In cancer cells, these signaling factors are called microvesicles.
After the discovery of these signals as imperative for breast cancer cell growth, Dr. Johan Skog of Harvard Medical School began studying the microvesicles secreted by brain tumor cells. What turned this into a potential diagnostic method were the small bits of RNA found in the microvesicles. Previously, neither DNA nor RNA had been observed which made any diagnosis based on these signaling secretions impossible. However, when RNA was found, it opened the door to a blood-based genetic test. Skog and Dr. Xandra Breakefied, a neurologist also at Harvard Medical School, hypothesized that if the brain tumors were releasing signaling factors with RNA, they might be found in the blood where sensitive tests could detect them and distinguish between the types of brain cancers.
To test their idea, Skog and Breakefield collected the secretions from 30 tumors that had been frozen for long-term storage. They also examined blood samples from the same patients the tumors had been extracted from. In 28% of the blood samples, RNA from the microvesicles was found. In the tumors, RNA was found in almost 50%. Although this may seem to leave a lot of room for misdiagnosis, it is significant since RNA is very fragile and unstable and can degrade very quickly. The fact that RNA was found at all is rather amazing. It is believed that if these same tests were run on fresh samples, rather than those that had been frozen, a much higher number would test positive for the tumor-specific RNA. The RNA released from these tumors could even help doctors determine the genetic abnormalities of the cancer, allowing for a more tumor-specific therapy.
Although doctors do not expect this new method to completely replace the need for other diagnostic procedures, it could lend a way to extract valuable information in a relatively non-painful and inexpensive way.
By Eldon Mast, on July 29th, 2009
Confidence among institutional investors rose sharply in July according to the State Street Index report released on Tuesday.
 Unlike other consumer and investor confidence surveys, the State Street Index measures institutional investor confidence by looking at actual levels of risk in their portfolios. This is not a subjective attitude survey. It measures confidence directly by assessing the changes in investor holdings of equities.
The index climbed 3.6 points to 119.4 for a five-year high. According to the State Street press release Tuesday, “Investors are now adding risk to their portfolios at an impressive rate, faster than we have seen in several years. In fact, this is the highest level the ICI Global index has reached since mid 2004. That is an impressive turnaround over last October, when the ICI Global reached its lowest-ever-recorded level of 82.1. Note the marked contrast with Consumer Confidence, which remains more focused on lagging unemployment.”
According to State Street, “the more of their portfolios that professional investors are willing to devote to riskier as opposed to safer investments, the greater their risk appetite or confidence.”
This is just one more set of data that demonstrates that most monetary experts see clearly that recovery has begun.
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By Eldon Mast, on July 28th, 2009
New home sales added to our run of good news in the housing market on Monday. Sales jumped 11.0 percent in June to an annual rate of 384,000 and the highest rate this year — well above any economists’ estimates. In fact the month-to-month percentage change was the highest in nearly 9 years. But the best news in the data was that the strong sales sucked down new home market supply. Supply fell precipitously from 10.2 months in May to 8.8 months in June for the lowest supply reading in 23 months. With the significant supply shrinkage, the total number of new homes now on the market is the lowest in 11 years.
Fishing for something negative, doomsayers continued to point to year over year home price declines. However, when closely examining data for the more recent 4-5 months, it should be no surprise that home prices have bottomed and that in many markets the prices are rebounding.
By Trace Mayer, on July 28th, 2009
“By the pricking of my thumbs, / Something wicked this way comes” is from Act 4, scene 1, lines 40-41 of the Bard’s Macbeth.
A year ago at Cambridge House when asked whether the economy was going to rebound I responded, “That light at the end of the tunnel is just the next train. Get out of the way!” Another commentator on stage responded that things would get better. What happened?
Lehman Brothers, AIG, Fannie Mae, Freddie Mac, Bank of America, Merrill Lynch, Citigroup, the Adjusted Monetary Base exploded from $800B to $1,800B as the Federal Reserve fails with quantitate easing, unemployment began to soar and the DOW crashed from 12,000 to 6,500 or 13.95 gold ounces to 7.
The prehistoric media wails about how no-one saw this crisis coming. Yet they are still praising Obama’s economic policies, heralding an economic recovery and living in denial. Why believe them? Why even read their newspapers or turn to their channels? Many people, coincidentally almost all of the Austrian school of economics, saw this financial and economic crisis coming.
There is another massive crash coming. For those people who do not see this coming crash the issue is not one of subjective or objective opinions. The issue is a personality block where the individual cannot handle the truth. If you see neither were we are nor where we are headed then you have a personality block and need professional therapy.
ASSET LIQUIDITY
Price is what you pay but value is what you get. During the Great Credit Contraction capital is seeking not only the safest assets but also the most liquid.
Market liquidity is a business, economics or investment term that refers to an asset’s ability to be easily converted through an act of buying or selling without causing a significant movement in the price and with minimum loss of value.
Famed value investor Warren Buffett managed to see his net worth fluctuate from $62B to $37B over the past year. His paper profit from bailing out Goldman Sachs has already earned about $2B. Despite his ‘massive losses’ there is a lot to learn from Buffett’s annual letter to shareholders. I have read them all. Particularly interesting is his view on market liquidity from 1993:
In assessing risk, a beta purist will disdain examining what a company produces, what its competitors are doing, or how much borrowed money the business employs. He may even prefer not to know the company’s name. What he treasures is the price history of its stock. In contrast, we’ll happily forgo knowing the price history and instead will seek whatever information will further our understanding of the company’s business. After we buy a stock, consequently, we would not be disturbed if markets closed for a year or two. We don’t need a daily quote on our 100% position in See’s or H. H. Brown to validate our well-being. Why, then, should we need a quote on our 7% interest in Coke?
NYSE Program Trading (Click here for full size)
At the end of the day, a buyer and a seller agree on a price. Prices in the public markets are always set at the margins. When the transaction is not consensual, such as with robbery, there is no price and such transactions are unsustainable because they are immoral and will eventually always fail.
The quoted price for assets is becoming increasingly illusory because of the fake liquidity which will learn how to vanish. For example, the NYSE reported, “Due to an NYSE system error, Goldman, Sachs & Co. was inadvertently omitted from the chart of most active firms, but the firm’s program activity was included in the total level of programs as a percentage of NYSE volume, which remains unchanged at 48.6 percent.”
Naked short sales or FTDs (failure-to-deliver) that represent about 37.5% of the volume of securities that require delivery. The galavanting SEC has now taking steps against but it is probably a too little too late. Many investors would be flabbergasted to know that the 100 shares of YYY in their brokerage account were really failure-to-deliver IOUs for 100 shares of YYY. Combined with the fake liquidity that can be instantly withdrawn if serious selling starts it will create a very unfavorable marketplace for additional potential sellers.
ASSET VALUATIONS
There are many ways to value assets such as ownership of a company, real estate, etc. Some of the basics include discounted future cash flows, dividend payout ratio, price to earnings multiple, book value, etc. When assessing the health of a company I get a quick snapshot from the current ratio, acid test ratio, return on equity, free cash flow, net income and dividend payout ratio. I like dividends because when cash must be distributed it is much more difficult for management to play accounting games using the new generally accepted fair value lying standards.
The payout ratio is the percentage of earnings paid to investors and is calculated by dividing yearly dividends per share by the price per share and is the opposite of the plowback ratio. Think of cash like blood and dividends like blood donations. Extremely healthy companies can donate lots of blood without hindering their operations and the investor can then deploy the cash elsewhere for a higher return.
The S&P 500 is a value weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. Dividends are an important component of the total return from equities, accounting for a third of the total return of S&P 500 since 1926.
The S&P 500 earnings have collapsed while dividends have declined at a slower rate. As Ian McAvity has demonstrated, the dividend to earning ratio is now above 300%. This means companies are distributing $3 of dividends for every $1 of earnings. This is accomplished by burning through cash reserves, selling off assets, borrowing, etc. This is unsustainable.
One would think that only the New York Times is stupid enough to borrow money to pay dividends while gross revenue and net income decline. Likewise the current price to earnings ratio of the S&P 500 needs a reality check. When body mass is shrinking (declining gross revenue), blood is leaking (lower earnings or losses) the last thing those setting dividend policy should do is pull out another knife and cut themselves deeper to hemorrhage faster.
But perhaps they are listening to the propaganda organs that neither saw the gathering economic storms nor have taken shelter from the browbeating winds and think their earnings are going to recover which will bring the ratios back into normalcy.
UNEMPLOYMENT
This is no ordinary recession. Obama is intentionally exacerbating the greater depression. For the appetizer the American economy has lost over 4 million jobs. 30 June 2008 the Emergency Unemployment Compensation program began. Benefits have been extended twice. Obama may delay the first course of dinner by extending it a third time. The National Employment Law project estimates that, “Around the country, the number of people exhausting their benefits is piling up. By the end of September, more than 500,000 people will exhaust their benefits checks”.
The Great Depression lasted for over two decades and was not a single event. The early years were marked by lost jobs which were not replaced. As top lines evaporated they were not replaced. People and businesses began to deplete their savings before becoming destitute and getting corralled into soup lines.
In the present case, job losses have been piling up like a massive train wreck. The American consumer has slightly scaled back on their purchases because they still have access to liquidity such as unemployment benefits, credit cards, 401Ks (which have become 201Ks), etc. Those sources of liquidity are drying up as credit card limits are slashed, minimum payments are raised, HELOCs are denied, retirement plans collapse and now, in September, unemployment benefits will end.
The numbers on that chart are estimated to go from 50,000 to 1,500,000 by the end of the year or a 3,000% increase. The issue for the American families kicked out of their worthless homes and onto the street is becoming survivalism in the suburbs. People are not going to care about contributing to their retirement plans, buying name brands like Coca Cola, Proctor & Gamble, Wonderbread, etc. They are going to care about generic bread or Top Ramen on the table.
Consequently, gross revenues for the S&P 500, which are down 10% year over year, are going to be under even more pressure. With most of the slack already trimmed earnings are going to be under even greater pressure. To bring PE ratios into historical norms stock prices are going to have to tumble.
COMMERCIAL REAL ESTATE
The value of real estate is a function of the earning capacity of the underlying business base. With collapsing earnings, rapidly rising unemployment and a commercial real estate market ice age the value of commercial real estate is plummeting. Originations of commercial mortgage backed securities is almost non-existent. Financing for new purchases is almost impossible to secure. Being able to find comparables for appraisals is getting increasingly difficult. Real property taxes will likewise decline putting further strain on state budgets which are in chaos like California.
Many outstanding loans are non-performing and the lending banks are failing. From the 6th to the 27th of July another 12 banks have failed. In January 2008 I warned that the FDIC was preparing for massive bank failures. Lately I have warned about how the annual worldwide platinum production is valued at about $7.8B compared to the FDIC’s $12B of reserves to cover$4,831B of insured deposits. The monetary metals are one way to protect yourself from the risk of massive bank failures and a potential bank holiday.
MARKET MANIPULATIONS
Chris Powell of the Gold Anti-Trust Action Committee has observed that “There are no markets anymore, just interventions.” Where would the manipulators get the massive amounts of capital needed? Perhaps Donald Rumsfeld knows.
The United States Constitution provided safeguards against these types of problems. This is one reason the barbarous relic known as the Federal Reserve should be razed. The unfair and immoral monetary system is complete opposition to a Constitutional monetary system. These interventions of manipulating both the supply and cost of currency are failing as is the Federal Reserve’s attempt at quantitative easing.
MONETARY METALS
During The Great Credit Contraction capital will seek the safest and most liquid assets. At all times and in all circumstances gold remains money. Because of the large aboveground stockpiles gold is the world’s primary monetary commodity. Likewise silver and platinum are also risk-free commodity currencies.
Two weeks ago I recommending buying platinum which has since risen $80 per ounce or about 9%. I also recently suggested buying silver around FRN$12.50 which is now over $14 or about a 12% gain.
I have found GoldMoney to be the best alternative to the current failing worldwide monetary system. I recently sold a few copies of The Great Credit Contraction for platinum. A Swedish buyer remarked, “I have now made my first payment in platinum  … I think we may have seen a glimpse of the future. … (And as a gold-bug I think it can be good.) Thanks a Lot!”
Many people may take for granted the liquidity of the financial markets, banking system and other grease for the wheels of commerce. How would your investments be affected if the financial markets closed for 1-2 years? How would your business be impacted if there was a bank holiday for an undetermined period of time?
Having an alternative system, completely independent on the current failing structure, in place and operational is good business sense. Eventually the Information Age alternative to the barbarous relics of central banks and fractional reserve banking become complete substitutes because of the lower costs, ease of use, lower risk and other superior attributes. As the liquidity of the monetary metals increases through their use in ordinary daily transactions, like being used to purchase books, their value will rise.
Additionally, gold’s technicals are looking extremely strong. The 200dma at $880 while the current price is about $955 or 1.08x. The 18 month consolidation above $900 has laid a very strong foundation for the next upleg. The reverse head and shoulders pattern is extremly bullish. Seasonally gold is weak during the summer and strong during the fall but lately it has been trading like power currency.
While massive short positions are being taken by commercials gold will likely easily breach and maintain $1,000 ounce this fall. With unemployment skyrocketing, bailout fever in Washington, earnings declining the FRN$ is going to be under tremendous pressure from ballooning budget deficits which will have to be monetized. All of this is positive for the ancient metal of kings.
CONCLUSION
The Great Credit Contraction, an economic climate change from an inflationary summer to a deflationary ice age, has barely begun. The remaining liquidity in the market is largely illusory. Residential real estate, commercial real estate, the major stock markets and even the banks are almost all zombie institutions anchored to fraudulent financial statements that are preventing the needed healing liquidation. The unemployment situation is escalating out of control and The Greater Depression is wearing on people and psychology is being changed. Earnings are collapsing and dividend to earning payout ratios are unsustainable. Meanwhile the monetary metals appear poised for a significant rise as the FRN$ continues evaporating.
Because there is no intelligible answer for what is a dollar therefore it is an unreliable instrument for performing mental calculations of value. This next crash which appears imminent but could take a while to materialize because of manipulations will likely see the DOW fall from its current 9.5 ounces to about 5 ounces of gold and the S&P 500 sliding from its current 1.3 ounces of gold to about 0.85 ounces.
Additionally, the really good buying opportunities will be enjoyed by those who can settle transactions because their assets are liquid, like with gold coins in a safe or a reputable third-party like GoldMoney, and not frozen in some closed market or holidaying bank. If you want real cash, not illusions like the FRN$, Euro, Yen, Pound, etc. which can evaporate in hyperinflation, then you better learn how to buy gold because it is the safest and most liquid asset. With gold you will always be able to buy something.
Disclosures: Long physical gold, silver and platinum with no positions in the problematic GLD or SLV ETFs, S&P 500, DOW, NYT, GS, Berkshire Hathaway, Coca Cola, Proctor & Gamble, Bank of America or Citigroup.
Copyright © 2008. This article was published on http://www.RunToGold.com by Trace Mayer, J.D. on July 27, 2009. This feed is for personal and non-commercial use only. Applicable legal information and disclosures are available. The use of this feed on other websites may breach copyright. If this content is not in your news reader then it may make the page you are viewing an infringement of the copyright. Please inform us at legal@runtogold.com so we can determine what action, if any, to take. If you are interested in how to buy gold or silver then you may consider GoldMoney.(Digital Fingerprint: 1122aabbLittleBrotherIsWatching3344ccdd)
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By Winton Bates, on July 27th, 2009
I find it hard to take seriously the concept of a happy planet. Is Earth happier than Mars? How would we know? It seems to me that only sentient beings can be happy, but that might just reflect the limited perspective of a sentient being. For all I know a rock might have a completely different perspective.
The happy planet index constructed by the New Economics Foundation (nef) doesn’t actually attempt to compare the happiness of different planets. What it attempts to do is to assess how happy our planet is with what is happening in different countries. I hope that makes you smile because if you take the happy planet index too seriously I think you are at risk of becoming unhappy – and that might make the planet unhappy!
The countries that are given the highest ratings in nef’s index are Costa Rica, Dominican Republic, Jamaica, Guatemala and Vietnam. These places don’t seem to me to offer the ideal of a good life for the people who live in them, even though many of these people say they are satisfied with their lives.
The authors claim that the results show that a good life is possible without “costing the earth”. Andrew Norton has pointed out that the results do not support this conclusion. Average happiness levels are relatively low in several countries that are ranked among the top 50 in the happy planet index.
As defined by the nef the happy planet index is a productivity measure. The numerator (or output measure) is happy life years, measured by multiplying average life satisfaction levels by average life expectancy. The denominator (or input measure) is a linear function of the average “ecological footprint”, which is a measure of the total amount of land required to provide all resource requirements plus the amount of vegetated land required to absorb CO2 emissions.
The basic idea seems to be that “the planet” becomes happier when people in a particular country become happier without using more “land” or when people maintain their current happiness level while using less “land”.
How do we know that this is what makes the planet happier? How do we know that the planet cares whether or not humans are happy?
My point is that the happiness of the planet only exists in the mind of the human who thought up the idea of the happy planet index. There is nothing wrong with trying to imagine what it would be like to be a planet that has feelings, but this is a game that anyone can play. Some people could imagine, for example, that the happiness of the planet will rise if more CO2 is produced. After all, CO2 is food for plants and planets like plants. Don’t they?
It would be possible for everyone on earth to have their own happy planet index that takes account of the things that they imagine that the planet might value. It would probably be preferable, however, to come down to earth and acknowledge that there is potential for everyone on the planet to vary in the extent to which they value various things that are important to them.
If nef’s happy planet index serves a useful purpose I think it is to remind us that surveys that measure our subjective well-being do not necessarily take into account all the things that are important to us. When we report how satisfied we are with life we take account of the things that are most salient to us at the time. We don’t necessarily take into account our own future well-being and the well-being of future generations of family members, let alone the well-being of other relatives and friends, the well-being of other humans, the well-being of animal pets, the well-being of other living things, or other matters that might be important to us.
By Eldon Mast, on July 27th, 2009
In June, President Obama signed the CARS Act. It makes $1 billion available for Americans that trade their fuel inefficient vehicles for brand new, greener ones.
Some dealerships have accepted cars in the program since July 1. However, most dealers were waiting for Friday in order to closely examine the program’s final guidelines released by the National Highway Traffic Safety Administration. Dealership interest was so great on Friday and Saturday that the fed’s computer certification system crashed several times. Over the weekend, other federal sites that distribute consumer information about the program were also reportedly sluggish due to the overwhelming demand by new car buyers.
The program provides for up to a $4,500 consumer credit on an inefficient used car and applies that rebate to the purchase of a brand new fuel efficient vehicle. The motivation is to get more environmentally friendly cars on the road and at the same time boost new car sales. Judging from spot market reports on Saturday, the program may have hit it’s mark — initially at least.
Spokane, WA, Ford dealer Wend le Ford said that their car lot was the busiest it has been all year. “This is the biggest thing to hit the new car side of the business in a long time,” said Andy Keys their General Sales Manager. “We had probably 70 to 80 people in the store on the program yesterday.”
Clunkermania was also reported in the Los Angeles area. “We’ve clearly had traffic coming in that’s being driven by ‘cash for clunkers,’ ” said Marc Cannon, spokesman for AutoNation Inc., which owns 77 dealerships in California, “We started doing deals early this morning.”
At Koons Ford of Baltimore, Russell Martin reports that customer traffic at their dealership has picked up by 30 percent to 40 percent since the program was signed into law last month.
Additionally manufacturers are now stacking additional rebates atop the “clunker money” to create some of the best new car deals that drivers have ever seen. Chrysler, for instance, says it will match the government’s money for consumers who turn in a clunker and buy a 2009 model.
In St. Louis, MO, Steve Cancila, of Cancila Chrysler, exclaimed, “I never imagined that something the government came up with would be so successful… and I haven’t seen [manufacturers] rebates like this in 10 years. It’s insane the amount of money they’re offering right now.”
The new car sales kick-start followed surprise after surprise this past week. Early in the week conference board indicators gave more proof that recovery has started in the US Economy. Throughout the week, the vast a majority of stocks posted better than expected earnings, including a multi-billion dollar profitable quarter from Ford. US taxpayers got a 23% return on a huge TARP payback from Goldman Sachs. Existing home sales increased for the third straight month while starts of single-family homes have risen four straight months through June.
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