By B.P.T., on July 16th, 2010
At 8:30 AM EDT, the Consumer Price Index report for June will be released. The consensus is that CPI decreased by 0.1% last month, with a 0.1% increase in CPI when food and energy are removed.
At 9:00 AM EDT, the Treasury International Capital report for May will be released, showing the flow of capital in and out of the United States economy.
At 9:55 AM EDT, Consumer Sentiment for the first half of July will be announced. The consensus is that the index will be at 75, which would be a slight decline from level reported in the second half of last month.
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By Bron Suchecki, on July 15th, 2010
A reader asked me to comment on A GLD contango strategy by Izabella Kaminska. It talks about Paulson & Co earning a return on its $3.4bn woth of GLD shares.
Holding GLD, meanwhile, is cheaper and more cost efficient than buying bullion outright.
I would note that most gold ETFs have management fees around 0.4%. Considering that Bullion Vault’s storage fee is 0.12% and that Paulson would likely be able to get better rates than that from a bullion bank on $3.4bn worth of gold, it would be clear that GLD is not cheaper.
is it actually beginning to vacuum the world’s known gold supply float? Gold supplies, which previously, we might add, would have been put to work by central banks and bullion banks that owned them.
If you look at all ETFs and other storage services for which we have public numbers, together they only total 6.5% of all privately held gold. On top of that you can add the 30,000 or so tonnes of central bank gold. GLD is hardly vacuuming “known gold supply float”.
Given the low costs associated with holding GLD versus pure bullion, as well as the permanent contango in the market — it is quite clear the asset lends itself favourably to the ever popular contango storage strategy
Because GLD is at least 4 times more expensive to hold than an allocated account for someone of Paulson’s size, I’m not sure he could out arbitrage other players.
you buy GLD (perfect proxy for gold, but with no storage costs) you create a hedge by selling front month gold futures. You then lock in the spread further down the curve, and sit and collect the contango premium.
Firstly, GLD does have “storage costs”, that is the 0.4% management fee. The problem with the strategy she proposes is that by selling a futures contract she has hedged the GLD long position. So while you may earn the contango, you won’t make any money on the increase in the gold price because if the gold price increases, then you are losing on your short futures contract.
She has confused trading the basis (gap between spot and futures) with trading the price. You are either doing one or the other, but can’t do both at the same time with the same capital. 
By B.P.T., on July 15th, 2010
At 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 445,000 new jobless claims last week, which would would be a slight improvement from last week, and would be the lowest number of claims since early May.
Also at 8:30 AM EDT, the Producer Price Index for June will be released. The consensus is that the index decreased 0.1% over last month, and increased 0.1% when food and energy are excluded.
Also at 8:30 AM EDT, the Empire State manufacturing index for July will be released. The consensus is that the index value will be 18, which would be an decrease of almost 1.5 points from June.
At 9:15 AM EDT, the Industrial Production report for June will be released. The consensus is that there will be a decline 0f 0.2% in production and a decline of 0.7% in industrial capacity utilization.
At 10:00 AM EDT, the Philadelphia Fed Survey report for July will be released. The consensus is that the index will be at 12, following a decline of 8 points in June.
At 10:30 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
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By Trace Mayer, on July 14th, 2010
Welcome to the RunToGold.com Podcast. Today’s interview comes to us via the Korelin Report, in which Al Korelin and Steve Carr talk to David Tice of the Prudent Bear Fund and Trace Mayer at the Freedom Fest which took place in Las Vegas this July, 2010.
I do not necessarily like being a bear. My mom has chided me in the past about why I cannot be more optimistic, and Americans love to be optimistic. But with your money you need to be prudent. And you need to be neither optimistic nor pessimistic. You need to be realistic about your money.
Al: Okay welcome back, you’re listening to the second hour of the Korelin Economics Report. I am Al Korelin, I appreciate you joining me. Starting out with a couple of folks, one of whom has been on the show numerous times, Trace Mayer, a very, very interesting guy. I guess I should say Trace Mayer J. D. because that’s how on all the other websites you are introduced. You know a lot about the resource industry, you know an awful lot about conservative politics, etc. But joining us also is David Tice. David is the purveyor, for lack of better terms, of the Prudent Bear Fund. Among people of our philosophical bent it is a very, very popular place to invest money, tell us a little bit about it.
David: Well, I was the founder, Al. I actually sold the fund to Federated Investors, so it’s now the Federated Prudent Bear Fund. Did that back in December of 2008. I am now the strategist for Bear Markets at Prudent Bear. And Prudent Bear is a negatively correlated fund, we make money when the market declines, we also invest in gold and silver mining companies along with being short stock, and we’re negatively correlated, we make money when the market declines.
Al: Trace, how did you guys get to know each other? I mean, I know that you guys are good buddies, and I know that philosophically you probably are coming from the same spot, but how did you guys get to know each other?
Trace: David is a very sharp investor and we happen to be invested together in some ventures, so I get to ride on his coattails.
Al: What do you guys think right now, when you talk about making money in a bear market, which I think your philosophy is great, what do you think about what’s going to happen in the midterm, let’s say in the next 12 to 18 months in the resource segment of the stock market?
David: Well Al, I think the next even six months are going to be profoundly bearish. I think we had a significant rally off the March low, it’s a kind of a reflex rally, should not have been unexpected, we had our first decline about five months ago, we rallied back, we’ve declined again, now we are experiencing an oversold rally bounce. But I think we are right at the cusp of breaking through a thousand on the S&P and we’re going to go lower for a while. Now, the resource sector. We’re fighting a tug of war between inflation and deflation. The gold price is going to go down in the first part, in my opinion, of the deflationary scare, and therefore resource stocks could go down for a while.
Al: Trace, what do you think?
Trace: I agree with David. Gold, when you look at what has happened with the Dow; it is actually below 8 ounces to buy the Dow. Even though the Dow was actually up nominally, it’s down significantly in terms of real value, and at RunToGold.com, that is primarily what we focus on is looking at performing mental calculations of value, and using gold as that numeraire, or the denomination to use for your balance sheets or income statements. So when you look at the real ability of Americans to earn, priced in gold, that’s going down too. For example, when David came out of school, you probably would have earned $400,000 a year as a recent college graduate in terms of today’s dollars….
David: I wish! It wasn’t quite that.
Trace: Well, when my father when he came out of school, he was offered 25.7 ounces of gold per month. In terms of currency, the two offers were $900 at the railroad or $700 at one of the big accounting firms. Today, an average American coming out of school, with 19.6% unemployment, and those that are going to be lucky enough to get a job, are going to earn about five ounces of gold a month. And so that’s going to have to keep going down because Americans, unfortunately, they’ve borrowed too much, they’ve spent their future earnings, and now they are going to have to be able to live with some austerity programs of their own, personally, so that of course is going to put a lot of drag on corporate earnings, because people are just not going to be able to buy things.
Al: So you are agreeing with John Williams’ The Shadows Stats, when he says that 9.5% unemployment is just a pipe dream.
Trace: Yeah, well I mean 9.5%? Recent graduates with a Masters degree are now at 4.2% unemployment up from 3.4 % We are talking about the 2009 graduates having to compete with the 2010 graduates. So unfortunately there’s this huge misallocation of capital with higher education and that’s because the entire US economy is going to need to be retooled.
Al: You know David, I have been tracking your fund for years and years, and I have seen you on interviews, especially a number of years ago when you were actually ridiculed, mocked, heckled…recently, not the same reception. More and more people are saying “hey, this guy maybe was a little ahead of himself, or ahead of where we are at” but there’s a lot more openness to that. Talk with our listeners about what they can do today to help protect themselves, their loved ones, in this environment that we are in worldwide.
David: Well, first of all I think they should invest in education. Really learn and listen to this radio show, you guys do a great job in bringing in guests who see the world correctly. Trace and I are both believers in the Austrian school of Economics, go to the Von Mises website: Mises.org, and on the other side, once you have convinced yourself that this Keynesian theory is simply flawed and that we’re going to have a price to pay for all the money printing that Trace has talked about, then you’re going to be inclined to be negatively correlated, and you aren’t going to buy in to the theory that you ought to be 70% in stocks all the time. And then you will realize that gold represents the real money that’s out there, because the rest is fiat. And once you do that, the investment picture becomes a lot clearer. And I think you will invest in funds like federated prudent bear, which is negatively correlated, makes money when the market goes down. I don’t necessarily like being a bear, I mean my mom has chided me in the past, about when I can’t be more optimistic, and Americans love to be optimistic, but with your money you need to be prudent. And you need to be not optimistic and not pessimistic either. You need to be realistic about your money.
Steven: Well, you’ve been right David. I mean, our partner Clyde Harrison has said that we’re going ingot is in a moose market, and if you look at since ’98 it’s been flat. I mean the S&P basically has gone nowhere, so on that side of the equation, you’ve definitely called it right. On the precious metals side of the equation, what are we looking at? $285 gold, $4 an ounce silver? So you’ve definitely been right about that side of the equation. I don’t equate pessimism with not making money, I equate optimism with making money and understanding what’s happening, and being able to protect ourselves and our loved ones. You know, I have told Al my favorite video is tech-ticker, Yahoo Tech Ticker. I know you’ve been on there. And now it’s amazing about half of all the guests who are on there are now basically talking about what you’ve been talking about for years and years and years.
David: Interesting. Going back to that optimism comment, I say that I want to be optimistic and that I want to have money left so that I can do good things for the world. And frankly, many people are going to get this wrong, but if people can get it right, and invest correctly, and have some money when the market does bottom, and I don’t think the market will bottom until we’re at 400 on the S&P and I think that Trace and I both feel like, he likes to measure things in terms of ounces of gold, which is very, very smart. In terms of the Dow to gold ratio getting back to one or so. When the market gets back to that level, you’re going to want to have some money left, so you can invest then. That’s when you really make a fortune, and then you can do great things and help out your friends and families that are destitute, do great things with your charitable contributions I mean you can really do some great things, you should be optimistic about that.
Al: You know, I think that’s something that’s really worth talking about. What I would like to do is get Trace and David back here in the next segment because I want to elaborate on how we don’t talk here much about doom and gloom on this show, we talk about defensive investing, and we talk about how you can protect your families and your loved ones, you know, and we can take it one step further as David just did and how you can help out society, in general because I have to tell you, I’m convinced that right around the corner, if you’re not invested in the proper segments of the financial market, you know what, it’s almost embarrassing to see how much money you’re going to lose.
DISCLOSURE: Long physical gold, silver and platinum with no interest the problematic SLV or GLD ETFs or the platinum ETFs.
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By B.P.T., on July 14th, 2010
The Mortgage Bankers’ purchase index was released at 7:00 AM EDT, and there was a week to week decrease of 3.1% in the Purchase Index and a week to week decrease of 2.9% in the Refinance Index as the housing market continues to show weakness since the second financial stimulus program for home sales came to a close at the end of April, but refinancing remains strong due to low interest rates.
At 8:30 AM EDT, the Retail Sales report for June will be released. The consensus is that retail sales decreased 0.2% from May.
Also at 8:30 AM EDT, the monthly Import and Export Prices index for May will be released, providing some data that can be used to monitor the threat of inflation.
At 10:00 AM EDT, the Business Inventories report for May will be released. The consensus is that inventories increased 0.2% from April, which would be the fourth month of increases in a row as businesses rebuild inventory to handle increasing demand, but the rate of increase has been on the decline.
At 10:30 AM EDT, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.
At 2:00 PM EDT, the Federal Open Market Committee will release its minutes for the meeting held on June 23, 2010. This report contains quarterly economic forecasts from the Federal Reserve and policy changes that were discussed.
At 10:00 AM EDT, the Business Inventories report for April will be released. The consensus is that inventories increased 0.5% from March, which would be the fourth month of increases in a row as businesses rebuild inventory to handle increasing demand.
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By Bron Suchecki, on July 13th, 2010
Regular readers of my blog know my main objective is to educate. Unfortunately, this often finds me having to take objection to something GATA has written.
In Adrian Douglas’ latest dispatch he says that “the process by which only a portion of an investment is used to purchase bullion — what is politely called “fractional reserve bullion banking” — is fraudulent because it acts against the investor’s interests. … because the consequence of fractional-reserve bullion banking is undeniably price suppression.”
This is a dramatic, but exaggerated and somewhat misleading statement typical of GATA. I understand their motivation to generate passion in their readers, but I don’t think it excuses imprecision with the truth.
Fractional reserve bullion banking is not necessarily or inherently against an investor’s interest and means price suppression. For example, an investor buys 100oz from a bullion bank, who then buys 100oz of physical. If the bullion bank then lends 50oz of that physical to jeweller, it has engaged in fractional banking as there is now only 50% of the investor’s claim on the bank backed by physical. However, the other 50% of physical is with the jeweller and, most importantly, it has not been sold.
Yes, the investor is exposed in that the bank’s lending has “locked out” 50oz of physical to the jeweller for the term of the loan as well as the possibility that the jeweller may go bankrupt (assuming the bank has no form of security). However, this sort of fractional banking does not result in a sale and therefore there is no price suppression.
My point is that it is the use (or to whom) the bank puts the metal backing its unallocated liabilities to that determines whether fractional banking = price suppression. Of itself, fractional banking does not necessarily mean price suppression as Adrian would have you believe.
Having said that, I should note that the majority of lending of metal (and I do not know the exact percentage) ultimately involves the sale of that physical to back some sort of short instrument (eg a miner selling forward). On this basis Adrian probably feels his black and white statement that fractional = price suppression is justified. I don’t think it is. You may consider I’m being picky but I have a problem with this sort of rhetoric for two reasons:
1. GATA is a “tax-exempt educational and civil rights organization”. It is supposed to be about educating people. I think this is important, because a lack of understanding about how the market operates can lead people to exposing themselves to risks they may not be aware of. However by making these types of black and white statements, GATA is furthering misunderstanding. How difficult would it have been to say “because the majority of fractional lending is for short selling, it is a form of price suppression that acts against the interests of the (long) investor”? These sorts of qualifiers do not detract from the point being made, but give notice that the issues are more complex.
2. Adrian laments that “attempting to convince industry insiders … meets a lot of resistance”. Have GATA considered that simplistic statements and conclusions are interpreted by industry insiders not as rhetorical devices but read as ignorance of how the market really works. GATA therefore appears to insiders as lacking credibility, making it easy for them to ignore GATA and label what they say as “rants”.
This is the crux of my frustration with GATA and I don’t think it does them, or investors, any good.
As an aside, I note the dispatch refers to an earlier dispatch where Adrian Douglas says “a document published by the CPM Group in the year 2000 came to my attention recently”. The document is “Bullion Banking Explained” and I made reference to this document in my London unallocated: Fractional Fubar or Benevolent Banking? post of 11 April. I considered it an obscure document, buried in CPM Group’s website and had not seen it referenced to before. If you search google for “Bullion Banking Explained” with a date prior to 11 April there are only two other references to it in 2001 and 2004.
Coincidence that it comes to Adrian Douglas’ attention in his 10 May dispatch one month after I reference it? By the way, this FOFOA blog attributes my post in a discussion of fractional gold banking in a discussion about whether the backing of fractional unallocated is actually physical or just further paper.
Another claim I was particularly intrigued by was when Adrian Douglas says that “as a consequence of my article it appears that Christian has realized how damning his paper was, and while it was posted at the CPM Group Internet site for 10 years, it recently was removed mysteriously.” I was disappointed to find that it was just a website reorganisation. The document still exists at this link.
It would have been most amusing if CPM Group had been prompted to remove the paper as a result of GATA. Possibly Mr Christian no longer reads GATA – he did vow recently to never engage with them again after the debate on Financial Sense. Personally I think the paper CPM Group should remove is the two I reference at the end of my post on fractional banking where they say that bullion banks “take the opposite side of the hedge transactions, have inherent conflicts of interest, and always keep their own best interests in mind, even if these are the short-term best interests and arguably not in the banks’ own long term best interests.” Mr Christian is the expert on the gold market, who are we to argue? 
By B.P.T., on July 13th, 2010
At 7:45 AM EDT, the weekly ICSC-Goldman Store Sales report will be released, giving an update on the health of the consumer through this analysis of retail sales.
At 8:30 AM EDT, the International Trade report for May will be released. The consensus is a deficit of $39 billion, which would be a increase of $2 billion over April. The expected increase in the trade gap is being attributed to imports by businesses as they become more optimistic about the economy.
At 8:55 AM EDT, the weekly Redbook report will be released, giving us more information about consumer spending.
At 2:00 PM EDT, the Treasury budget for June will be released. The consensus is a deficit of $70 billion, though the Treasury historically has run a small surplus in June.
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By Richard Daughty, on July 12th, 2010
Last Monday I couldn’t believe my eyes when I saw that the price of gold had dropped $44.20, which was weird enough since Kitco was showing the “Gold Price Change due to Weakening dollar” was up by $23.00, meaning gold should be going up thanks to the weakening dollar, while the “Gold Price Change due to Predominant Selling” was down a whopping $67.20! Wow! Selling!
Since most of the problems with my medications regimen seem to be finally solved, what could I do but laugh, although weakly, in a kind of dull, sedated babble, “Hahahahahahaha!” at the sheer incongruity of it all, instead of going off on a Manic Mogambo Tangent (MMT) of some kind, probably either about how the Federal Reserve has destroyed the dollar by creating too many of them, or, on a more timely topic, about what idiots the sellers of gold are.
Apparently, these market-timing geniuses have failed to understand that that this is the Perfect Freaking Time (PFT) to buy gold, because here they are, selling! Hahaha!
Observant Junior Mogambo Rangers (JMRs) have taken note of the fact that my laugh is less than the usual Loud Mogambo Laugh Of Scorn (LMLOS) of story and song, and instead is a weak, nervous, “I wish I was dead!” titter of laughter, like the time when you came sneaking into the house or office early in the morning or late in the afternoon, respectively, stumbling drunk, trying to be quiet, wearing your own underwear like a weird hat for some reason that you can’t recall, and your mom, wife or boss was waiting for you.
And the reason for my lack of uproarious mirth is that something is, in a word, weird. I mean, selling gold right now is so devoid of reason that I want to laugh heartily at the idea and at the stupid people that got the idea to sell gold, but I can just sit here, dumbfounded, shaking my head in disbelief and tittering nervously.
Obviously, I am now of the “buy and hold” camp instead of the “trader” type of person, as I have “discovered” many important things about trading stocks, bonds, commodities and their derivatives, and by “discovered” I mean “scarred and bloodied by slimy insiders, with still-festering open wounds and tender scars, both emotional and financial.”
And all of it could have been completely avoided if I had read Nassim Taleb’s book The Black Swan and found that the bell-curve of normal probability is not how things really work over the long term, or if I had internalized the related discoveries of non-linear systems (“Chaos Theory”), or if I had a wife that had said, “Don’t be an idiot! You are too stupid, too ignorant and full of too much Bizarre Mogambo Crap (BMC) for you to ever – EVER! – succeed as a trader of anything! Get a job and go to work, work, work!”
Instead, I made the mistake of having a real-life wife who said “Whatever you do, I will support you and love you!” which, now that I am looking back, makes me scream at her, “That’s the most stupid thing you have ever said because you know what a whack-job, paranoid, worthless, lazy lunatic I am! So all my failures are your fault! Your fault! All your fault!”
However, buying gold, silver and oil in defense against the horrific inflations in prices that will destroy us, thanks to the horrid Federal Reserve creating too much money so that the despicable Obama administration can deficit-spend us into bankruptcy and utter destruction, is all my idea.
I got the idea from 4,500 years of historical precedents of one moronic country after another doing this same, stupid “spending oneself into bankruptcy” thing, all you can do is say, “Whee! This investing stuff is easy!”
Irrational Gold Selling originally appeared in the Daily Reckoning.
By Winton Bates, on July 12th, 2010
In my last post I expressed disappointment that the authors of an article about material prosperity and life satisfaction did not acknowledge the sense of achievement that many people obtain from their work.
How do I know that meaningful work contributes to life satisfaction? It would be easy enough to make a fairly long list of people I know who probably get a great deal of satisfaction from their work. I expect many readers could make similar lists. There is also some research evidence on this question.
It is well known that unemployed people tend to have much lower levels of life satisfaction than people in other workforce categories (including those who have retired). The Australian Unity Wellbeing Index indicates, however, that unemployed people also tend to have much lower levels of satisfaction with what they are achieving in life. There is also a marked difference in satisfaction with ‘achieving in life’ between employed people who are looking for alternative work and those not looking for work. Robert Cummins et al, authors of the report, suggest that low satisfaction with what they are achieving in life may be one of the main reasons why people seek to change their employment. The authors add: ‘Many employed people gain a great sense of ‘purpose in life’ from their employment, and having a sense of purpose is central to wellbeing’ (See: Report 17, April 2007, p. 164-5 and Figures 8.9 and 8.18).
Research on the relative contributions to life satisfaction of orientations to pleasure, engagement (the psychological state that accompanies highly engaging activities) and meaning (pursuit of a meaningful life) is also relevant. Christopher Peterson, Nansook Park and Martin Seligman have found (using data from an internet survey) that orientations to engagement and meaning have a greater impact on life satisfaction than does pleasure. The authors also found somewhat higher life satisfaction scores for respondents simultaneously near the top of all three orientations and notably lower scores for respondents simultaneously near the bottom of all three orientations (‘Orientations to happiness and life satisfaction: The full life versus the empty life’, Journal of Happiness Studies, 2005).
A short article by Amanda Horne on the ‘Positive Psychology News Daily’ site refers to research by Michael Steger and Bryan Dik which suggests that meaningful work is associated with people developing a sense of identity which comes from knowing ‘who they are, how their world works and how they fit in with and related to the life around them’ and ‘people’s identification of, and intention to pursue, particularly highly valued, over-arching life goals’ (Chapter on finding meaning at work in Oxford Handbook of Positive Psychology and Work).
One of the points emphasised by Peter Warr, the author of extensive research on happiness in the workplace, is whether individuals want to be in the role they have been assigned, the value to them of different role characteristics and the attractiveness of core tasks. He suggests that such matters can have major implications for individual happiness. Warr also notes:
‘ Some happiness is not actually accompanied by feelings of pleasure, or satisfaction of desires. This second form of happiness invokes reference standards of some kind, perhaps some realization of personal potential’ (‘ Searching for happiness at work’, The Psychologist, Dec. 2007). Some people might wonder why people who claim to get a great sense of achievement from their work often require high levels of remuneration for their services. I think this might have a lot to do with rationing of their time. Successful actors, sporting professionals, business leaders, artists etc. can be fairly sure that by requiring high levels of remuneration their services will be purchased by people who will appreciate them. They also know that can always give their wealth away if they feel embarrassed by the amount they are accumulating for doing things they might be happy doing for nothing.
Consideration of the way high-achievers allocate their time raises some obvious questions about the importance to life satisfaction of an appropriate balance between work and home life and between different domains such as ‘achieving in life’ and ‘personal relationships’. That might be a good subject for a later post.
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By Bron Suchecki, on July 9th, 2010
On a recent trip to Sydney I visited the Reserve Bank of Australia’s Museum of Australian Currency Notes. From the displays comes the following interesting information about prices in “the 1900’s”:
6 shillings a week for meat
16 shillings a week for groceries
25 shillings a week for rent
£250 for a Model T Ford
House equal to 10 times annual earnings
During war years average weekly earnings were £3
Given that there are 20 shillings in a pound and a pound is equal to a sovereign, which is equal to 0.2354 ounces, we can convert those prices at say AUD 1400 ounce into today’s money:
$99 a week for meat
$264 a week for groceries
$412 a week for rent
$82,500 for a Model T Ford
$514,800 for a house
Of course this is a bit imprecise given the prices are as at “1900’s” and wages are as at “war years”, but it is a reasonable holding of value and certainly more than if one had just held on to paper money for a hundred years. See also this post on the same theme regarding the 1966 50c coin.
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