By Bron Suchecki, on July 13th, 2011
The new Pan Asian Gold Exchange (PAGE) has got Andrew Maguire into hyper mode claiming that it “will ultimately destroy the remaining short positions in both gold and silver” and “in very short order affect current precious metals price discovery dynamics.” This all based on his wishful thinking that “if just 1% of their [Agricultural Bank of China] customers bought a single 10 ounce contract, that would equate to 1,000 tons of physical gold being drawn down.”
As Kid Dynamite comments in a FT Alphaville article on Maguire “a 10 ounce contract is worth well more than the average annual income in China, right? There was a stat recently that 40% of Americans couldn’t come up with $2k if they needed it for emergency bills… I wonder what % of Chinese can afford to buy 10 ounces worth of gold?” I tend to agree. While it is always positive to have more ways people can buy gold, if you think that “this new gold and silver exchange has flown under the radar” of the big short players like Andrew does, then you are severely underestimating them, at your cost.
It reminds me of the hype that circulated some time back about the new vault in Hong Kong (by the way, what happened to all that metal was that clients were supposedly going to pull out of London and move to Asia, bringing down the LBMA?) Anyway, the impression (meme?) given by that story and the spin on PAGE is that there are few exchanges/markets around the world apart from the “fake” COMEX and London. Certainly, the story is that there are few places where “real” prices for physical metal can be found. In respect of that, you may find this list of gold markets from Sharelynx a useful reality check:
US- New York Open Outcry; Electronic Trading CME
UK- London LBMA
China – Shanghai SGE; SHFE
Hong Kong CGSE; HKEX; HKMEX
India – Mumbai NCDEX; MCX; NMCE
Indonesia – Jakarta JFX; ICDX
Japan – Tokyo TOCOM
Pakistan – Islamabad NCEL
Turkey – Istanbul IGE
United Arab Emirates – Dubai DGCX
Europe EUREX
Nepal – Kathmandu MEX
Russia – Moscow RTS
Singapore SICOM
South Africa – Johannesburg JSE
Taiwan – Taipei TAIFEX
Thailand – Bangkok TFEX
Brazil BMF
Between these, the 25+ ETFs that Sharelynx also tracks daily, and retail bullion dealers, I’d say it isn’t too difficult for investors to buy gold these days. China certainly hasn’t had access to these methods of buying gold to-date, but by the amount of physical metal we’ve seen being shipped into China over the past few years, I don’t think Chinese investors (savers, more like) have had any problems getting all the gold they need. 
By B.P.T., on July 13th, 2011
The Mortgage Bankers’ Association purchase index will be released at 7:00 AM EDT, providing an update on the quantity of new mortgages and refinancings closed in the last week.
At 8:30 AM EDT, the Import and Export Prices index for June will be released, providing some data that can be used to monitor the threat of inflation.
At 10:00 AM EDT, Federal Reserve Chairman Ben Bernanke will testify before the House Committee on Financial Services regarding the Semiannual Monetary Policy Report.
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 Treasury budget for June will be released. The consensus is a deficit of $60 billion, which is about $64 billion larger than the historical average, and about $8.4 billion less than last June.
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By The Gold Report, on July 12th, 2011
  Opportunities abound in small- and mid-cap silver companies, according to Sprott Inc. Chairman Eric Sprott. In this exclusive interview with The Gold Report, Eric Sprott and Sprott Money Ltd. President Larisa Sprott say the fundamentals that drive the price of silver are as strong now as before the spring selloff—maybe even stronger—even though volatility is causing buyers to hold back a bit.
The Gold Report: The Greek economy is making headlines again, with the Greek Parliament recently voting in extreme austerity measures that include budget cuts of $40B plus a selloff of $72B in assets. When we spoke in March, Eric, you were quite worried about collapses in Greece, Ireland and Iceland. Do you see these new austerity measures as another step toward collapse, or do they signal a reprieve?
Eric Sprott: It’s the European troika advancing the money that’s really preventing the collapse, from the financial market point of view. The austerity program will create a collapse in Greece economically, but it at least gives them the opportunity to get the troika bailout. I refer to the troika as the ECB (European Central Bank), the IMF (International Monetary Fund) and maybe the BIS (Bank for International Settlements).
I think Greece is not much different from others that have gone before, whether Iceland or Ireland. Most governments in the world have taken on added monetary and fiscal responsibilities because of the financial collapse. For example, the U.S. wouldn’t be running a $1.5T deficit had there not been the collapse in 2008 because we wouldn’t have had the programs that we now have, trying to support the banking system that everyone thinks is too big to fail.
For quite a long time, my view has been that the banking system has been over-levered. The assets on the books aren’t worth what they would be in a normal monetary environment, and if they had to sell the assets, most banks in that situation would become insolvent. Who would you sell those assets to?
Imagine a Greek bank knocking on the door of any other bank in the world saying that they have Greek mortgages, loans to Greek companies and Greek bonds they’d like to sell. There’s no buyer, so the government basically has to step in, as happened in Ireland, Iceland, the U.K., the U.S. and Japan. It’s happened in almost every country, where the governments have come in to bail out the financial system.
This country with all of 11M people—as many people as live in Ontario—has almost taken down the whole system, as Lehman Brothers almost took down the whole system. What was Lehman? It was like a pimple, and on a relative scale, Greece is not a big situation either. But they want to prevent the falling of the first domino, because if the first one goes down, I can assure you what will happen. That’s what everyone’s guarding against. It would just spread amongst various banking systems.
TGR: Is there a possibility that Greece and other countries with debt issues could negotiate for pennies on the dollar to reduce their debts by 20%, 40%, or whatever? It would have an impact, of course, but not as bad as a default.
ES: That would be defined as a default for all intents and purposes. Some rating agencies have suggested that the voluntary rollover they’re talking about might still be officially a default because everyone knows that what they’re getting for what they’re giving up isn’t worth 100 cents on the dollar.
If a new party comes to power in Greece, they might say they’re going to rip up that agreement and take the default because Greece might be better off defaulting. Of course, the powers-that-be don’t want that. It’s as much the troika that doesn’t want it as the government in Greece. They’re all trying to prevent this contagion from starting.
TGR: But you’re suggesting that eventually the contagion will take hold.
ES: It’s kind of taken hold already, right? The weakest—Iceland and Ireland—have been knocked off already. Greece was the third weakest. Who knows where we go from here?
TGR: When we had our conversation in March, you said that sooner or later people will realize that it’s better to have real assets in physical metals than bank accounts.
ES: I’ve always believed that, and it’s even truer today. Would you rather have your money in a Greek bank or in gold? Would you rather have your money in an Egyptian, Irish or Icelandic bank or gold? Iceland took a devaluation; if the people in Iceland had their money in gold, they wouldn’t have lost a damn thing.
You also take a currency risk when you own a bank deposit. Even a U.S. resident who owns gold instead of a bank deposit would be better off, because the purchasing power of the dollar is going down on an international basis.
TGR: That’s why you called gold the investment of the last decade.
ES: Right.
TGR: And you’ve called this the decade of silver, saying that on the basis of the historical gold-to-silver ratio, silver may even triple the performance of gold. Do you still believe there’s the potential for outperformance at that level? And, if so, over what timeframe?
ES: It’s very difficult to pick timeframes, because so many events can transpire, but I really believe that silver will trade at a 16:1 ratio to gold. I certainly believe that gold can get to $1,600/oz. this year, and while I’m not suggesting that silver will make it to $100/oz. this year, it’ll certainly trade at a 16:1 ratio to gold within three to five years. By then, who knows? Gold could be at $2,500/oz.
TGR: The gold price has been climbing neatly along the 200-day moving average, while the silver price has been all over the place. Do you foresee a time where metals just go hyperbolic?
ES: Yes, I think that will happen. When people ask when I’d get off the gold train, I say that it would cause me to reconsider things if governments and central banks appeared to be getting responsible. I’d say if it evolved into a mania ala NASDAQ 2000, you might decide to exit the investment. Of course, if they made gold the official reserve currency, I wouldn’t need to own it anymore because I could convert my currency to gold or silver at any time.
So, it’s hard to define when it’s going to happen. Earlier this year, I was totally convinced that silver would easily make $50/oz., and for all intents and purposes, it has. I think silver will rally pretty powerfully from this little selloff we’ve had, and hit a new high this year.
TGR: Larisa, has Sprott Money seen a corresponding increase in silver to gold this year?
Larisa Sprott: When we last spoke in March, in terms of dollars, silver was outselling gold by a ratio of about 5:1—we were selling five times more dollars of silver than dollars of gold. The silver market has had a price correction and it’s been a volatile commodity over the last month or so. I’ve seen a rather dramatic shift in sales toward gold. In terms of dollars, gold is now outselling silver on a 3:1 ratio.
It’s not that people have lost their taste for silver, but they’re holding back on purchasing silver because of the increased volatility in the market. I think that once the silver price demonstrates less volatility, our sales will return to the aforementioned ratios.
TGR: Do people still tend to take possession of their purchases, or are more keeping it in your storage depository?
LS: They’re taking possession simply because at this time we only offer storage in the United States. Some of our U.S. clients fear that a 1933-type confiscation scenario will happen again, so they would prefer to store in Canada or internationally. I’ve even seen people drive from places such as Florida and Washington to take possession of their bullion so that they may store it in a safety deposit box in Canada.
We’re opening a storage depository in Canada, but that’s still three to six months out. I’ve had a lot of interest from clients who say that as soon as that facility opens they’ll be moving their bullion up here.
TGR: What else is new at Sprott Money?
LS: We are working on increasing our U.S. presence. We anticipate opening our New York office by October of this year. We are also minting a Sprott silver bar and coin set to be ready for sale in early 2012. And as a proud supporter of GATA (Gold Anti-Trust Action), I am pleased to announce that we will be selling the GATA gold coin at their upcoming conference in London this August.
TGR: We’ve seen that Sprott Money is the major sponsor of the GATA Gold Rush 2011 conference coming up in London in August. How did your organization get interested in GATA and what it has to say?
ES: When I started investigating an investment in gold and silver in 2000, among the most outspoken—to whom I’m ever so thankful—were the GATA people, who suggested that central banks, in a somewhat coordinated fashion, were suppressing the gold price. There seemed to be some compelling evidence for that because central bankers were huge sellers of gold, which retrospectively looks like the dumbest thing they could ever have done. With 20/20 hindsight, that decision looks like one of the greatest knucklehead moves of all time. Here we are 10 years later and where they were sellers of 400 tons of gold a year, now they’re buyers of 400 tons of gold.
GATA was prepared to challenge the system and to explore the data behind various government moves, why they did it and why they always advertised that they were selling gold, which almost necessitated getting the worst price possible instead of the best price. The whole attitude they were taking to gold seemed ridiculous.
The GATA people have been a big influence on the increasing interest in gold. They’ve been incredibly helpful in terms of keeping people focused on what’s going on in the precious metals markets. They had a wonderful conference in Dawson City in 2005.
The people who spoke there—and who will speak at this GATA conference in London—are all independent thinkers who aren’t swayed by the conventional. They’re typically contrarian. You have to work hard to be a contrarian, because you have to win what would seem to be very difficult arguments. They’re just top-notch people. When I look back over the last decade, I think those who were skeptical and outspoken are the true heroes.
If more people had listened to them, they wouldn’t have suffered the kind of financial damage that has transpired in the last decade. Certainly, if they owned gold and silver in lieu of any other investment, they would’ve been better off.
TGR: You noted that when the central banks started selling gold about a decade ago, they pretty much locked in the worst possible price by announcing their intentions ahead of time. Is it the same now that they’re announcing in advance their buying intentions?
ES: They only announce after they’ve bought. For example, in either 2008 or 2009, the Chinese Central Bank revealed that it had purchased 400 tons of gold over about four years, but that was well after the fact. Obviously those purchases were an active force in the market. China hasn’t announced anything in the last three or four years, but I suspect it’s been a buyer all this time. The Central Bank of Mexico recently announced buying 93 tons, which undoubtedly concluded its purchasing program.
There probably should be transparency in these transactions anyway. The central banks should be telling the populations they represent where they are investing their money.
TGR: You’ve indicated that GATA was founded on evidence of collusion among financial institutions that resulted in suppressing the gold price. We also hear about market manipulation through derivatives. Tell us a little bit about this.
ES: First, understand that commodity markets rarely settle in physical commodities; they’re really paper markets. Let me give you an example.
We produce 900 Moz. (million ounces) of silver in a year. When silver was up around $48/oz., between the London Bullion Market Association (LBMA), the COMEX, the SLV Silver Trust and some vehicles in China, we were trading 1 Boz. (billion ounces)/day silver in the paper market. We produce just a little over 1 Moz./day for consumption as an investment. So we trade 1 Boz. of paper silver and yet there’s only 1 Moz. of physical quantity available for investment. That makes you wonder.
They get after the silver speculators who are long. I can understand being long silver, because maybe those speculators think they’d like to own it. What are those who are selling the billion ounces thinking when there’s no physical silver to settle with?
TGR: What might change to slow this down?
ES: There should be position limits, and trading limits per day. What’s the net effect of trading 1 Boz. when the stuff doesn’t even exist on the face of the earth? The short position in the silver market was so concentrated amongst the four largest bank-owned firms that it was shocking. Why they should be short that much silver is beyond me.
TGR: Let’s talk a little about options for the individual investors.
ES: I’m very comfortable having a very large weighting in precious metals, which are way more likely to hold their value than paper assets. And I feel so involved in trying to get people to own more precious metals because I think it’s the one thing that will save them in a very difficult financial time. But most won’t take the steps of getting a little bit of insurance by owning precious metals.
TGR: If another financial trauma is coming, should investors be more weighted with the actual physical metals or should they continue with the equities too?
ES: People worry about the banking system, and I think ultimately they’ll put their money into gold and silver. If the prices of gold and silver go up because of that, notwithstanding a short-term decline in the market, ultimately people also will realize that gold and silver stocks are good things to invest in. But you may have to go through a six-month swoon.
We went through a swoon like that in 2008. Gold was probably $900 at the time. Owning gold and silver would’ve been very propitious. Today it’s $1,500. I think this next time around, as we see gold and silver gaining more recognition as to their intrinsic merits, that will get transmitted into the gold and silver shares.
TGR: As you look forward, are you holding or considering some equities that you feel will swoon less than the market?
ES: Let’s face it—if you use the HUI Index, precious metal stocks have gone up by a factor of about 12 to 13 times from the 2000 bottom. On a long-run basis, there aren’t many losers in those stocks, and certainly on a relative basis, they’re all winners.
Until a few months ago, any silver stock on the board had such a massive run that everybody could sell at a profit. It’s important to know that most people like to sell their winners. At the first sign of problems, you sell the stock that’s got the biggest profit for you. And, it’s very easy to sell it. Maybe it’s not so easy to sell some bank stock that’s still 60% from its high, but it’s not too tough to sell a gold and silver stock that’s 5% from its high because it has had a good run.
We get more volatility in this group because of that. Any stock that has gone up a lot will be more volatile than one that hasn’t. That’s just the way it is. The high flyers always get knocked down the most, because they’re easy to sell. That’s the situation we find ourselves in. Most of these stocks have been the best performers of the last decade.
Every time there’s a little hiccup in the market, people sell them. It doesn’t mean that the fundamentals have changed. That’s just the way people react in a market selloff. Give it time. People will get calm again about where they should have their money.
TGR: We were talking with Rick Rule and Brent Cook a couple of weeks ago about the fact that most juniors are off 10%–20% since April and May. They suggested it might be a good time to own some mid-caps and seniors. Considering the profit-taking you just described, do you agree?
ES: I’ve been investing in small-cap stocks for roughly 40 years, and the opportunities in small caps are far superior to those in big-cap stocks on a sustainable basis. It’s always been the case because they’re under-owned, under-followed and under-capitalized. You can do a lot in the small- to mid-cap area that you can’t do in the large-cap area. You can buy a junior gold stock on a relative valuation of probably a third of any major stock just because they’re seasoned and that’s where the big money goes. Opportunities abound in the small- to mid-cap area, so that’s where I’m going to stay. In a sustainable rally, I guarantee you they’ll outperform the large caps.
TGR: Peru is one of the best mining addresses on the planet, but we’ve seen a lot of decrease in share prices in some of the Peruvian mining equities. You have some interests there, too, that have been specifically affected by government action. Could you comment on that?
ES: Bear Creek Mining Corp. (TSX.V:BCM) has been one of my favorites because of its two ore bodies. It’s unfortunate the governments have made the decisions they’ve made. We see this in different places, not just in the less-developed countries, where governments come in and change the rules. If it’s not Ecuador, it’s Peru. If it’s not Peru, it’s Bolivia. Somebody’s always doing something.
TGR: In the case of Peru, though, this was an injunction signed by outgoing President Alan Garcia that halted Bear Creek’s Santa Ana silver project specifically.
ES: You take those risks with any country. People always ask if I think the U.S. government will confiscate gold. You hear chatter about the U.S. government nationalizing the gold mines someday. If you want egregiousness, that’s almost as bad as Ollanta Humala (Peru’s new president) declaring that one property is not going to continue to be owned by somebody. It could happen anywhere. That’s one of the problems you face when you’re an investor; you don’t know exactly what the political flavor is.
If I were a betting man, I’d bet the Santa Ana mine comes into production within the next 10 years. The stock market doesn’t like delays, but they don’t detract from the merits of the property. When people calm down and know the regulation is in place to try to prevent environmental problems, it will ultimately get the go-ahead.
TGR: Do you feel just as bullish on small caps in gold as you do in silver?
ES: Because I think the price of silver probably will outperform gold by maybe 2.5 times, I have to look much harder for silver equities than gold equities. That’s what we’ve done in the last 18 months. So I prefer silver junior equities to gold for sure.
When I look at the demand and supply fundamentals, it’s all in place as far as I’m concerned. Lots of times the market doesn’t corroborate your view for a while, but the important thing is the market corroborates your view along the way. Yes, we had to deal with that gut-wrenching selloff in the gold stocks in 2008, but when you look back at it now you wonder what the hell the market was thinking.
TGR: What are some of the good silver small caps you found in your search?
ES: We’ve been in lots of companies. We’ve been involved with Fortuna Silver Mines Inc. (TSX:FVI; Lima Exchange:FVI), First Majestic Silver Corp. (TSX:FR; NYSE:AG; Fkft:FMV), Argentex Mining Corp. (TSX.V:ATX; OTCBB:AGXM), SilverCrest Mines Inc. (TSX.V:SVL), Silver Quest Resources Ltd. (TSX.V:SQI), Aurcana Corp. (TSX.V:AUN) and Mirasol Resources Ltd. (TSX.V:MRZ). I’ve got a long list.
TGR: Those names have assets all over North America and South America.
ES: Most of them tend to be in North America, particularly Mexico, Central America and South America. But I own stocks in companies with silver in other places, too. One example is Minco Silver Corp. (TSX:MSV), which has its Fuwan silver deposit in China. I’ll buy a silver asset wherever it is located.
TGR: So clearly, you still do see this as silver’s time to shine.
ES: I do. And I’d refer readers who’d like to know about why I believe the robust fundamentals for silver are only getting stronger to the Caveat Venditor! article we’ve just posted to Markets at a Glance on our website.
TGR: We’ll be sure to check that out, too. Thank you both for your time.
Eric Sprott is chairman of Sprott Inc., CEO, CIO and senior portfolio manager of Sprott Asset Management LP and chairman of Sprott Money Ltd. He has more than 40 years’ experience in the investment industry. After earning his designation as a chartered accountant, he entered the investment industry as a research analyst at Merrill Lynch. In 1981, he founded Sprott Securities. After establishing Sprott Asset Management Inc. as a separate entity in December 2001, Eric divested his entire ownership of Sprott Securities to its employees. Eric has been stunningly accurate in his predictions, including foreseeing the current financial crisis. He chronicled the dangers of excessive leverage and the bubbles the Fed was creating, while also correctly forecasting the tragic collapse of the housing and financial markets in 2008. Eric’s predictions on the state of the North American financial markets, as well as macroeconomic analyses have been presented in Markets at a Glance, a monthly investment strategy newsletter.
Larisa Sprott joined Sprott Money Ltd.(www.sprottmoney.com) in the role of President in December 2009. As one of Canada’s largest owners of gold and silver bullion, the company’s goal is to facilitate ownership of precious metals to the general public. Larisa has more than 15 years experience in the financial industry, having worked at Sprott Securities Inc. (now Cormark Securities), first as an office administrator in the Vancouver office, and later in roles in research and corporate finance at the Toronto headquarters. Larisa then spent five years with Sprott Asset Management in the capacity of client services, sales and marketing. In November 2007, she became an investment advisor responsible for servicing and managing high net worth clients.
By Simon Grey, on July 12th, 2011
Sarah Palin has trademarked her name. The former Alaskan governor turned Fox News commentator, Going Rogue author, TLC reality star and SarahPAC founder – wait, do I really have to tell you who Sarah Palin is? – submitted an application to the U.S. Patent and Trademark Office that is due to be approved within the next few weeks. When it is, Palin’s name will be trademarked for “educational and entertainment services” as well as “motivational speaking services in the field of politics, culture, business and values,” according to her patent applications. Her daughter Bristol, 20, has also trademarked her name for motivational speaking, but in the field of “life choices.”
“Essentially what they are doing is trying to commercialize themselves,” says Neil Friedman, a New York trademark attorney. It’s rare for politicians to trademark their names, but Palin left office in 2009 and has since become a successful media and entertainment figure. She has trademarked her name the way someone like Calvin Klein might trademark his.
Though trademark is part of IP, I generally tend to ignore it because it has very little in common with patent and copyright. Patent and trademark are concerned with ideas while trademark is primarily concerned with identification.
Incidentally, trademark is more useful for corporations than individuals because a corporate entity is abstract and contextual whereas an individual entity is concrete and absolute. As such, the need for trademark is mostly due to the market distortion of the corporate entity, which occurs because corporations are not generally identified with specific individuals. The theory behind trademark is that brands need to be able to distinguish themselves from their rivals, and their ability to distinguish themselves is essential to ensuring the market performs efficiently. This sounds good, but it is predicated on a fallacy: namely, it is assumed that people “own” their reputation. The idea is that businesses must be able to protect their reputation in order to serve consumers properly. Businesses must, then, be able to prevent others from claiming to be them when they really aren’t, especially when fakers are offering shoddy products.
But this assumption is false because one’s reputation consists of what other people think. To own one’s reputation requires one to police other people’s thoughts and/or actions. This presents a conflict of rights that cannot be resolved. This, in turn, indicates that one cannot own one’s reputation, and cannot therefore use the law to force others to think a certain way.
This further means, getting back to the topic at hand, that Sarah Palin’s attempt to trademark her name is nothing short of ludicrous. In the first place, the trademark system as a whole is predicated on a fallacy, and so any action attempting to make use of the system is likewise predicated on the same fallacy. (And isn’t it interesting that Sarah Palin is attempting to make use of a system that allows her to exercise some measure of control over what people say about her?)
In the second place, Sarah doesn’t really need to trademark her name. Unlike a corporation, she is a concrete entity, which means that consumers will be able to tell quite easily whether it is, in fact, Sarah Palin that is speaking at a conference (this is the relevant metric since her trademark is to be used in the context of public speaking and appearances). As such, she really has no need to trademark herself since she is already easily and unmistakably identifiable.
By Andrea Woroch, on July 12th, 2011
The summer travel season is finally in full swing. While gas prices remain high, many major retailers are taking steps to cut costs for
disgruntled drivers. Wal-Mart is leading the charge, reducing their fuel prices by 10 cents per gallon for the summer months. The retail giant will offer discounted prices at gas stations in 18 states until September 30. Many other stores have followed suit with their own deals. Here’s a list of other major merchants helping Americans save at the pump this summer.
CVS
The drug store chain is offering a free $10 gas gift card to ExtraCare Rewards members when they purchase $30 worth of select
products. The promotion runs through August 28, so there’s still plenty of time to cash in.
KROGER AND SHELL
The grocery chain has been offering discounted gas for quite awhile now, but their partnership with Shell has really turned up the
savings. With 100 points on your rewards card, you’ll get 10 cents off per gallon on a fill up at both Kroger and Shell stations. If you’re
not satisfied with that discount, Kroger also offers $1 off per gallon when you earn 1,000 points on your rewards card.
KELLOGG’S
Do you eat a bowl of cereal every morning for breakfast? If so, you’re well on your way to saving on fuel. When you collect 10 UPCs
from cereal boxes and mail them in, Kellogg’s will send you a $10 prepaid gas card. Submissions must be received by December 31 and there’s a limit of five cards per household.
WAREHOUSE CLUBS
Big warehouse stores like Costco and Sam’s Club keep popping up all over the place. While they typically have some of the lowest gas
prices around, a fill-up still requires a membership. Joining the club can be done for around $50, so if your car guzzles gas, the long-term savings are worth it.
Gas discounts aren’t the only way to save, though. Here are a few more general savings tips to help you travel for less this summer.
GIFT CARDS
Gift cards are becoming a currency all of their own. Cards for popular fuel stops like Shell can be bought and sold at sites like
GiftCardGranny.com. Also, with merchants like Wal-Mart reducing gas prices for the summer, a discount Wal-Mart gift card can really compound the savings.
LOW OCTANE GAS
Unless you’re driving a top of the line sports car, premium gas probably isn’t necessary. Most cars on the road will perform just fine
with lower octane gasoline and it’ll save you a couple of bucks on a fill.
SLOW & STEADY
If you want to save some extra money, let up on that lead-foot for just a little while. Driving at high speeds and starting and stopping
quickly burns more fuel.
RESEARCH
Instead of waiting to hit the pump until you’re down to the last drop, plan your purchase in advance. Websites like GasBuddy.com
will help you find the lowest local gas prices. They even have a mobile app to help you save on the go.
RIDE SHARING
A combination of frugality and going green has led to a resurgence of carpools. If you’re trying to track one down, websites like
eRideShare.com and CarpoolConnect.com are useful resources for both drivers and riders.
PUBLIC TRANSPORTATION
As long as you’re not still in high school, riding the bus probably isn’t as torturous as you remember. If public transport isn’t an
option, you can always dust off the old bicycle. It costs next to nothing to maintain and it’ll get your blood pumping better than a cup
of coffee in the morning.
SHOP ONLINE
The easiest way to save on gas is to just stay at home. Most shopping needs, including groceries, can be satisfied online which keeps you from burning gas outside in the blazing heat.
By B.P.T., on July 12th, 2011
At 7:30 AM EDT, the NFIB Small Business Optimism Index for May will be released, providing information regarding the health and confidence of small businesses in the United States.
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 $42.7 billion, which would be $1.0 billion less than the previous month.
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 FOMC Meeting Minutes will be released, which will provide insight into how the Federal Reserve board governors and bank presidents view the economy.
By The Gold Report, on July 11th, 2011
Eric Hommelberg has called a few in his day. In 2009, he predicted gold would reach $1,300/oz. the following year. And it did. But $1,800/oz. gold by the end of the year? Gold has recently come off its high of $1,580/oz., but Hommelberg, a principal of ValcambiGold.com, isn’t discouraged. In this exclusive interview with The Gold Report, Hommelberg makes a few more predictions.
The Gold Report: Metals and commodities guru, Jim Sinclair, says that gold is acting as a barometer of economic anxiety at the moment. Do you agree with that assessment?
Eric Hommelberg: I am more apt to call gold a barometer of our financial system’s health. When things get out of control and people start losing confidence in what governments and central banks are doing, then gold will start to outperform all fiat currencies in the world. That’s the transition from gold as a commodity to gold as currency. Today, gold has already reasserted itself as currency of choice since gold has outperformed all world currencies already for quite some time now.
TGR: But gold has come off its high of $1,580/oz. to settle around $1,500/oz. If you were to put your finger on the pulse of the global economy, with 10 representing complete panic and one representing sedate, where would you say we are now on the anxiety scale?
EH: I would say seven at this point in time.
TGR: What is underpinning that anxiety?
EH: People are losing confidence in what governments are doing. Just look at what is happening in Europe, Greece and Spain. People are protesting against their own governments and that’s certainly underpinning the anxiety there.
TGR: As someone who lives in Europe, do you think there is more fear there than there is in North America?
EH: No, it’s terrible in both places and that’s why I believe gold will continue to perform well. It’s not a matter of dollar versus euro, or what currency is better. Both the dollar and euro are in terrible shape. There’s no real alternative for holders of global currency at the moment. That’s why gold will perform well in the coming years, because gold is the only alternative.
TGR: What are some tangible ways that gold is crawling back into the currency system?
EH: A lot has happened over the last couple of years. A few international leaders, including those in Russia and China, have called for a super-currency to replace the U.S. dollar as a reserve currency and they believe that gold should play a role in that. This was illustrated in 2009 during the G8 press conference, when Russian President Dmitry Medvedev held a single shiny gold coin that he said represented a symbol of unity and a possible future world currency.
The idea of gold playing an important role in a new monetary system is picking up steam quickly. Last year former Federal Reserve Chairman Alan Greenspan said that fiat money has nowhere to go but gold; World Bank President Robert Zoellick called for a return to a kind of gold standard; and last week Columbia University Professor Robert Mundell, the father of the euro and a 1999 Nobel Laureate, proposed gold convertibility for the euro and the dollar. Also the central banks are turning back to gold. In the euro zone last year, central banks became net gold buyers for the first time since the inception of the euro. That trend will continue.
TGR: What are some key reasons to own gold?
EH: The most important reason to own gold is the protection of wealth. Paper currencies always disappear over time, but gold will always retain its purchasing power as it has done for more than 6,000 years.
TGR: Our culture teaches that gold is a commodity and that it has no real use. Is this something that needs to be fundamentally changed?
EH: That will change by itself. The current monetary system is just an experiment that started in 1971 when President Nixon was forced to abandon the gold standard. It seems that the experiment is coming to an end these days as people are losing faith in paper currencies and fleeing into gold. Look at Greece today where citizens are buying gold because of fear of a sovereign default and run on the banks. The Greek people certainly don’t view gold as a commodity, but as a hedge against the government.
TGR: I agree with you to a point, but it’s largely impractical to use gold as a currency. Could we reach a point when there is “digital gold,” such as a bank account based on a deposit of gold?
EH: That’s already happening. Look at Gold Money, for example. More of these kinds of things are coming into the market. I am not sure that digital gold will be the standard in the future, but these kinds of things already exist. I am not sure what kind of monetary system there will be, but it’s almost certain that gold will play an important role in that system.
TGR: Are the reasons to own silver essentially the same as the reasons to own gold?
EH: Yes, silver has always played a similar role as gold; it has been used as a monetary metal for centuries, just like gold. It moves in the same direction as gold—although in a much more volatile way. On the upside, silver will outperform gold in a significant way, which makes it a very attractive alternative for people who cannot afford to buy gold. That’s why silver is often called the poor man’s gold.
TGR: You use the Dow:gold ratio chart as a tool to time the market to some extent. In an article entitled, “Gold: $200 or $10,000,” you wrote, “It’s simple: when the Dow:gold chart tops, you buy gold; when the Dow:gold chart bottoms, you buy equities.” What’s the chart saying now?
EH: The Dow:gold ratio chart is not a perfect tool to predict gold movements in the short term. But it’s a very useful tool to see whether or not you’re close to the beginning of a bull market or almost at the end. Right now, the Dow:gold ratio stands at eight. Historical patterns of the chart show that it tends to bottom out at one. If gold and the Dow should come to parity, or 1:1, that would imply the gold price is going up to $10,000/oz. or more. It could also mean the Dow is coming down to less than 2,000. I don’t see the latter happening because of the depreciation of the U.S. dollar. It’s not only the Dow:gold ratio chart pointing to gold prices exceeding $10,000/oz. When you measure gold as a function of public debt, gold should exceed $12,500/oz. in order to counterbalance the total U.S. public debt held in foreign hands. Also, when gold’s long-term chart is adjusted for inflation using John Williams’ Shadow Government Statistics inflation figures, gold should rise to about $9,000/oz. in order to challenge its 1980 high. So yes, the idea of gold rising to $10,000+/oz. before gold’s bull run has run its course is not something that can be easily rejected.
TGR: In a 2009 interview, you said juniors were poised for a bull run and 2010 proved you right—it was an exceptional year for junior equities. However, so far this year, junior silver and gold equities have largely underperformed gold. What are the key reasons that is happening?
EH: It’s a combination of things. In the dramatic decline of the juniors in 2008, they were really decimated and lost 80% to 90% of their value. The CDNX gold chart shows that some of the junior sector is still recovering from that severe decline. By the end of 2008, the junior sector was so dramatically oversold that it had to rebound. In 2009 and 2010, many juniors went up 500%-to-600% or more. By the end of 2010, from a technical point of view, they were due for a correction again and that’s what happened at the beginning of this year. However, this recent correction has been accelerated by fear in the financial markets.
TGR: What was interesting about 2008 was that after a remarkable 2007 there was a fall-off in junior equities in the second quarter. That ended up being a bellwether of what was going to happen in the fall of 2008. Do you think it’s likely that we’re going to see that sort of collapse again in the fall of 2011?
EH: That’s what people are afraid of. It all depends on what happens in the next couple months. It’s difficult to predict. The charts do indicate a severely oversold condition from a technical point of view. It is almost equal to what we had in 2008. But in order to have a collapse in mining equities like what occurred in 2008, the gold prices should be coming down hard as well, and I don’t see that happening.
TGR: What are some principles that investors should follow in this particular down swing?
EH: Even though junior shares are severely oversold, that doesn’t mean investors should start buying them hand over fist. Keep watching them and wait until the downtrend is breached to the upside. As long as an item stays in a downtrend, don’t touch it. Just stay on the sidelines. The charts do suggest a rebound, however, sometime soon.
TGR: When you talked with us in October 2009, you expected Endeavour Silver to perform well; it was trading around $2.50 at that time. During the following 18 months its share price appreciated almost 400%. Do you still like Endeavour at current price levels?
EH: Yes, absolutely, it’s simple, Endeavour Silver Corp. (NYSE:EXK; TSX:EDR) is providing everything that an investor could expect from management. It keeps increasing its resource base, trimming production costs, and increasing its production quarter after quarter. The company has reported record production quarter after quarter for seven years now. The company is growing on the back of rising silver prices.
TGR: Endeavour put out a release recently that said it hit some high-grade, silver-gold intercepts. The highlight of the program was 404 g/t silver, plus 6.5 g/t gold over about 7.3m at Guanajuato. Do results like these give you hope that Chief Executive Brad Cooke and his team will outline a significantly larger resource at Guanajuato?
EH: I have no doubt about it because of what they’ve been doing for the last seven years.
TGR: One of the knocks on Endeavour has been that it doesn’t have overly significant resources for production. The numbers keep going up and there is lots of cash flow, but could these intercepts be that massive resource expansion that proves to be a catalyst for the share price?
EH: The results are very hopeful indeed, but exploration is always a very tricky business. Just one single drill hole doesn’t guarantee anything, but it is very encouraging.
TGR: In addition to Guanajuato, Endeavour also produces from the Guanacevi silver mine in Mexico. With cash coming from both of those operations, do you think the company might take some of that cash and expand its footprint?
EH: That wouldn’t surprise me. I can’t look into the mind of Brad Cook, but that’s what the company has done in the past. It has a strategy of increasing its resources and reserves first by drilling and exploration and then by means of acquisition. It wouldn’t surprise me at all if the company went with that route.
TGR: The flip side to that equation is that if the company has success and boosts its production numbers, it could become a takeover target.
EH: That could be a possibility as well.
TGR: Are there any other companies that you’re interested in right now?
EH: Yes, I like Victoria Gold Corp. (TSX.V:VIT). It’s tremendously undervalued and is almost a screaming buy at this moment. The stock recently trading at around $0.60. Victoria increased its resource base significantly this year and is sitting on more than 7 million ounces (Moz.) of gold. But it is not reflected in the share price.
Victoria had a bit of bad luck last year when it had to report an error in the resource estimate of its Cove Project. The stock was punished unfairly. I think the stock is about sold out and we can look forward now to lots of drilling news coming out from the Dublin Gulch property in the Yukon.
TGR: Dublin Gulch has a prefeasibility study underway. Do you think that will act as a catalyst for the stock once it’s published?
EH: The prefeasibility study on the Eagle gold deposit has already been done. It’s a bankable feasibility study, which will be coming out in the fourth quarter this year. That could give the company another boost because the new feasibility study could demonstrate a significant increase in Victoria’s resource base at Eagle. Part of the 2011 Eagle exploration drilling results will be incorporated into a revised resource estimation.
More importantly, the proven reserves, which are standing at 1.7 Moz, will be increased in a significant way. That’s not just hope; it’s simple math since the 1.7 Moz. reserves estimate is based on a $900/oz. gold price. At $1,500/oz. gold, a big chunk of Eagle’s 4.8 Moz. of indicated resources could be upgraded to proven reserves. Fueled by rising gold prices and growing resources and reserves, the Net Asset Value of Eagle’s gold project could jump toward the $1B mark. Victoria’s current market cap is just about $170M, it’s really so tremendously undervalued.
TGR: The board at the company is good, too. I know Leendert Krol a little bit. He sold Brazauro Resources to Eldorado Gold Corp. (TSX:ELD; NYSE:EGO) a couple years ago. The board certainly has some significant experience. Where do you think the share price could go by the time Victoria puts out that new feasibility study?
EH: Several things are working in favor of Victoria toward year end. First of all, I see a sector bounce for the entire junior sector. Second, Victoria just needs a few weeks of rising share prices to generate a new buy signal from a technical perspective. Previous buy signals triggered Victoria’s stock to double within two months. Third, I expect higher gold prices by year end. But the most important thing is the bankable feasibility study, which could show a significant increase in resources and reserves.
While Victoria has all these things working in its favor, I think the share price is difficult to predict because we don’t know if they will do a financing that could impact its share price. But I expect it will be a multiple of its current value.
TGR: When is Dublin Gulch expected to go into production?
EH: It’s expected to go into production by 2014. That’s what is scaring off some shareholders. They fear dilution since it takes a huge amount of money to build a mine. But on the other hand, look at how producers are being valued versus explorers. Most junior producers are valued at an average of about $300/oz. in the ground versus explorers, many of which are valued at less than $50/oz. Victoria is going to be a producer, but investors have to be patient for another three years. At that point, Victoria could very well be a $1B–$2B company.
TGR: Rising gold prices are an important part of your thesis for Victoria Gold, but there’s gold in Endeavour’s mines as well. Where do you forecast the gold price to be by the end of 2011?
EH: It could be as high as $1,850/oz.
TGR: That’s a dramatic increase! That’s about 20% between now and the end of the year.
EH: Exactly. Once fear of sovereign defaults kicks in again, we could see a dramatic increase in the price of gold. The period toward the end of the year is usually a gold-friendly period.
TGR: Well, when you talked to us in October 2009, your predictions proved remarkably correct. At that time, you said gold would hit $1,300/oz. by the middle of 2010, and sure enough, that’s exactly what happened. So, I guess investors can look forward to some dramatic numbers.
Eric Hommelberg is co-founder and CEO of ValcambiGold Inc., a bullion store for Valcambi precious metals products. Since 2002, Hommelberg has written many extensive gold market commentaries with a strong focus on junior gold mining companies, which he used to publish through his GoldDrivers Report. In 2011, Hommelberg and Swiss gold refiner Valcambi sa teamed up and launched ValcambiGold.
By Simon Grey, on July 11th, 2011
In a June 21 response, attorneys for the church indicated the church had strategically defaulted on the mortgage after learning its real estate – a 23,635-square-foot office building housing the church – is worth only $2.375 million vs. the $7.653 million owed to the bank.
This strategic default involved an analysis of whether it made sense to use church members’ donations to pay the underwater mortgage while also trying to save money for expansion needs.
I remember arguing with a preacher once over the morality of strategically defaulting on one’s mortgage. He was of the opinion that, per Romans 13:8, we each have an obligation to pay off our debt. His argument struck as somewhat asinine (but less asinine than the argument that Romans 13:8 forbids the Christian from going into debt).
Anyway, the flaw in this preacher’s thinking was that defaulting did not lead to repayment of the debt. Most mortgage agreements work like this: the borrower agrees to borrow a certain amount of money and repay it, plus a usury charge called interest. The borrower is generally expected to offer some property as collateral. If the borrower fails to pay per the terms of the agreement, then he is in default, and the lender usually reserves the right to confiscate the collateral in order to cover the remainder of the principal. For most mortgages, confiscation of property is generally considered sufficient compensation in the event of a default (which is predicated on the theory that housing prices always go up and never come down).
Thus, the lender is essentially saying that the property offered as collateral is equivalent to the value of the foregone cash. Whether this assumption proves to be true in the long run is not the concern of the church, in this case, but of the bank that makes the loan. And if the bank’s estimation of the future value of property is wrong, it does not follow to claim that the church must repay the bank for a mistake the bank made. Furthermore, the bank has already said that ownership of the property in the event of a default essentially marks the debt as paid, so there is nothing wrong with the church defaulting on its payments in order to save money (in fact, the church would do well to default and then repurchase the property once the bank sells it).
Therefore, it is not wrong for the church to default on its loan, for it is simply making a prudent financial decision and will, even by defaulting, pay its debt. The bank, not the church, is responsible for determining market risk, and the bank, not the church, should bear the consequences of making the wrong decision.
By Rok Spruk, on July 11th, 2011
The economic crisis of 2008/2009 had confronted the mainstream economic theory with an unpalatable task of revisiting the notions and perils of the ideas which dominated the course of economic theory in the last few decades. In 2003, delivering a speech to the American Economic Association, Robert Lucas famously noted that the central problem of depression prevention had been solved by mainstream macroeconomic theory which was built by combining the rational expectation hypothesis with New Keynesian macroeconomics. Although one should not obscure the achievements of new classical macroeconomics and new Keynesian macroeconomics, the criticism of contemporary macroeconomic theory is not uniform. It stems from the unrecognized role of systemic shocks in the financial sector and the spillovers from Wall Street to the Main Street. In contemplating the the linkages of over-leveraging and biased financial deregulation, it should not come as a surprise that early warnings of the financial crisis, mainly leveraged borrowing in the U.S subprime mortgage market, were earmarked in the mainstream economic theory.
In fact, in 1970, George Akerlof’s influential paper on the issue of adverse selection in the market for lemons, was a landmark achievement in the economic theory since it demonstrated the fallacies of perfectly competitive market mechanism when the information on quality of various commodities is distributed unevenly. In addition, a series of papers in 1970s by Joseph Stiglitz on screening theory and asymmetric information, has dealt exactly with the central origins of the 2008/2009 financial crisis. Subprime loans and highly-complex derivative schemes which enabled the exponential growth of overleveraging of the banking sector were most likely to be used by the least sophisticated and accordingly the most risky borrowers. The only difference is that in normal circumstance, banks would recognize adverse selection by rationing credit to risky borrowers but the continuous obsession with home-ownership and the reluctance of the Federal Reserve to “remove the bowl of punch when the party started” – to use the analogy of Preston Martin, former Vice President of the FED – added to the turbulence of overleverage that turned into the most disastrous financial meltdown after the Great Depression.
The fact is that contemporary macroeconomics had little to offer to predict the subsequent financial meltdown although Robert Shiller of Yale University has repeatedly warned against unstable stock market fundamentals, particular notorious price-earnings ratios after the dot-com bubble came to burst. However, the central element of the critic of mainstream economic theory should revisit the notorious paradigm of supply-side economics whose intellectual melange of fervent belief in tax cuts and a dangerous preoccupation with deregulation as the cure of the malaise which led to stagflation in early 1970s, have proved how dangerous the conclusions could become.
First, the rise of the supply-side economics in the political economy began in early 1980s. But the intellectual influence of the supply-side economics should not be confined to the theoretical paradigm itself. The field of the political economy of taxation manifested itself as the intellectual triumph of supply-side economics. The original idea of the Laffer curve, the relationship between tax rate and tax revenues, was not disputable after all. In fact, if tax rates reached predatory levels, decreases in total tax burden would yield considerable gains, not only in total tax revenue but also in terms of higher level of productivity. However, when average and marginal tax rates were at moderate levels, it would be foolish to believe immense revenue gains would ensue by reducing the rates of taxation to bottom-levels, arguing for significant gains in terms of employment growth, productivity boost and total tax revenues. Even though cross-country empirical evidence does suggest an increase in tax revenues amid the decline in average tax rate, the pattern is confined to the episodes where average and marginal tax rates were very high, exceeding 70 percent threshold. Once tax rates were reduced, there is no evidence of higher revenue gains.
The major peril of supply-side economics is the claim that tax reduction would boost the aggregate supply and stimulate productivity growth. On the other hand, the valuable contribution of supply-side economics is the notion that additional tax increases do not generate much higher revenue. One should not feel reluctant to recall the 1964 Kennedy-Johnson tax cut which decreased marginal tax rates substantially. Although supply-side economics has repeatedly blasted the intelectual heritage of Keynesian macroeconomics, the 1964 tax reform was itself a Keynesian prescription for the U.S recession in the years prior to Vietnam war. Back in early 1960s, Paul Samuelson wrote that “Congress could legislate, for example, a cut of three or four percentage points in the tax applicable to every income class, to take effect immediately under our withholding system in March or April, and to continue to the end of the year.” (link). Therefore, Samuelson’s mindful observation that additional spending would not automatically counteract the recession unless complemented by tax reductions, probably would not come due in the framework of supply-side economics. Moreover, what distinguished the supply-side economics from the framework of sound economic analysis taught in microeconomic and macroeconomic textbooks, was adverse propensity to enforce tax cuts for the rich while leaving the middle class and low-income households no pie from tax reductions. The striking features of income inequality in the U.S. suggest that from 1970s, median household income stagnated (link) while top 5 percent of households have received disproportionately windfall gains from tax reductions up the point where more than 85 percent of total income was earned by top 5 percent of households (link). Moreover, one should distinguish between patterns of good and bad inequality as Gary Becker recently suggested (link). It is envitable that income inequality has some great value in the society when market outcomes lead to better overall health, less stress and higher standard of living and the evidence is yet inconclusive whether the narrowing of income inequality would return health improvements for the poor – since poor health outcomes of low-income households are mainly attributed to deteriorating dietary habits and dangerous lifestyle.
While bad inequality, especially rents from non-market outcomes, have precipitated the decline in good inequality in the last two decades, there is an overwhelming evidence that stagnation of median household income (despite moderate productivity improvements) caused a somehow lower quality of the U.S. labor force and a widening gap in educational achievements of American children. The drawbacks of widening inequality were largely ignored by supply-side economics or justified on the hands-off approach to the issues of the poor. It should not be forgotten that negative income tax, which favored low-income families, was suggested by Milton Friedman, whom supply-siders have taken for the intellectual father without a detailed knowledge of his precious contribution to economics.
Second, supply-side economics has been perhaps known for favoring the deregulation as the cure for social ills and staggering income growth. Despite substantial euphoria caused by the pioneers of deregulation of banking and financial sector, the regulatory framework eventually jeopardized sound regulation that could prevent hazardous outcomes as shown in the seminal work of George Akerlof and Joseph Stiglitz. In fact, deregulation of the banking sector, hailed by supply-side economics as the triumph of its own ideology, laid the basis for rigorous financial innovation by special investment vehicles (SIV) and shadow banking institutions.
In fact, deregulation of the banking and financial sector was not the central issue per se. The main systemic flaw was rather the adoption of unsound regulation that did not predict the perils of over-leveraged banking sector and especially the system-wide spillovers during the financial crisis. Moreover, the loosening of the monetary policy and the series of fiscal stimulus have notified two main drawbacks in the macroeconomic outlook. The first is the invariant postponement of taxation fuelled by the mountain of government debt. And the second is the hidden explosive potential for inflation following the flood of money supply in the balance sheet of the banking sector.
Generally speaking, the intellectual adventure of supply-side economics has overlooked the possibility of pitfalls brought up by rigorous tax cuts to the wealthy and deregulation of banking and financial sector. It would not come due to label mainstream economic theory as a cataclysm which the financial crisis proved accordingly. It would be either insensible to tarnish the useful contribution of supply-side economics. In fact, tax cuts do generate systemic incentives, particularly in the response of the labor supply to tax reductions. However, the elusive quest for higher growth and job creation after reducing tax rates for the wealthy, is an important lesson we should learned from the unfortunate turn of supply-side economics in favoring deregulation without acknowledging the possibility of systemic banking collapse and the consequences carried over by society at large.
By Ajay Shah, on July 8th, 2011
The Competition Commission of India (CCI) has written an order on NSE and MCX-SX in the currency derivatives market. Even if you do not take interest in financial markets, this is an interesting episode in Indian governance. It illuminates the larger problems of
building regulatory agencies, and India’s middle income trap.
In an impressive show of strength with the media, there was a flurry of editorial and other commentary praising CCI for this order
- even before the order had been released. The files are now on the CCI website. Here is the main order and here is the dissent by two members of CCI.
Gautam Chikermane has written an excellent analysis of the order in the Hindustan Times. Unlike much of the other commentary on
this order, he has actually read the two PDF files above.
The order has breathtaking ramifications. If this works as a precedent, it would impose huge complexities upon an array of industries where some products and services are given out free. This feature is particularly prevalent in the new economy, where systems such as google search are free and have been free for the longest time, and where a blizzard of new product launches (e.g. google plus) are free. In India, regulatory organisations are still finding their feet. They have to gradually build up credibility and respect. When
a regulatory body signs on a breathtakingly large penalty which will have huge implications for the economy, they have to be absolutely sure they are right. Otherwise, the institution loses credibility. I fear that with this order, CCI is now in a soup. If the appeals process is half decent, the order will be overturned, which will make CCI look bad. If the appeals process is not half decent, CCI will be seen as a nutty source of trouble in the Indian regulatory landscape. In numerous industries, zero pricing will run into
trouble. More generally, such muggings will be a new dimension of the political risk faced by firms operating in India.
India’s crisis of governance is about the puzzle of building agencies like the Competition Commission of India or the Forward
Markets Commission, of taking these agencies closer to the competence and honesty seen at SEBI in recent years. How do we master the intricate recipe of public administration, so that such events don’t happen? Until this is done, the structure of incentives encourages a certain kind of entrepreneur.
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