Bonds & Interest Rates

The fewest workers applied for U.S. unemployment benefits over the past month since before the last recession, indicating the labor market is making progress.

The economy will expand at a 2.5 percent annualized rate from July through December, up from a 1.4 percent gain in the first six months of 2013 and little changed from the pace projected last month, according to a Bloomberg survey of 59 economists conducted Aug. 2 to Aug. 6.

….read more HERE

U.S. stock-index futures rose, indicating the Standard & Poor’s 500 Index will rebound from three days of losses, after U.S. jobless claims fell in July and China’s trade data rose more than estimated last month.

Tesla Motors Inc. surged 14 percent after reporting second-quarter results that surpassed analysts’ estimates. Groupon Inc. jumped 26 percent after the daily-deals company appointed a new chief executive officer and reported a smaller-than-projected loss. McDonald’s Corp. jumped 0.9 percent after same-store sales topped analysts’ estimates as new wraps and breakfast food attracted U.S. diners.

Futures on the S&P 500 expiring in September rose 0.3 percent to 1,693.90 at 8:37 a.m. in New York. Contracts on the Dow Jones Industrial Average increased 55 points, or 0.4 percent, to 15,497 today.

Today’s data “could be a sign that we see some stabilization in Chinese activity,” said Patrick Moonen, who helps oversee $244 billion as senior strategist at ING Investment Management in The Hague. “I don’t think the U.S. equity market is only a matter of monetary policy. As the economy recovers, the earnings backdrop will become the most important element.”

….read more HERE

The firm is among more than a dozen financial institutions, including Morgan Stanley (MS) and Citigroup Inc., accused by the European Commission last month of colluding to curb competition in credit derivatives. 

…..read more HERE

Gold Under The Microscope

This is the second installment of a five part series on gold.

In part one of my series on gold,Was Gold In A Bubble, I discussed why I thought that the gold price had gotten ahead of itself, like any asset in a bull market, but was not in a bubble. I compared it with bubbles of years past and showed the distinction between gold’s price action and that of true bubbles. Today I will talk about what caused the unnaturally sudden, dramatic drop in the price of gold.

For one thing, there is India, the world’s biggest consumer of gold for jewelry, with an astonishing 25% share. (China bought more gold last year, but was not tops for jewelry use.) The current Indian government continues to try to improve its balance of trade by raising taxes on the metal and restricting gold imports in various ways.

Not only does this add costs that impinge on demand, but the regulations change month to month and are so confusing and byzantine that the red tape alone curtails trade. The regulations also have gotten even more burdensome recently.

Still, this has been going on for years, and the incremental effect of the latest heightened aggravation does not account for the majority of the anomalous movement we see in gold prices. We have to move back to America to find an explanation for that.

There have long been accusations of manipulation of the prices of precious metals. Coming in fresh off the Street, one has to wonder how much of these charges are sour grapes, spawned by losses in trading positions. Let’s examine the evidence and make our own decisions.

First, let us recognize that even without any deliberate manipulation, commodity prices can move radically due to factors that have nothing to do with supply and demand and everything to do with speculation in the futures market.

The clearest recent example of this may be the price of crude oil in 2008. After being driven to nearly $150/bbl, West Texas Intermediate crude plunged to below $40 within a few months. Had demand for oil dropped that much? Did a majority of cars, buses, trains and planes stop moving? What about oil-fired power plants and the chemical industry. Did these uses dry-up overnight? Clearly they did not.

The huge drop in oil prices came from the action of traders who had bid up the price of crude in the futures market by momentum trading based on unrealistic assumptions about demand growth. When the price started heading in the opposite direction, traders couldn’t catch a bid on their positions, and the whole market went drastically net short, bidding down the price of the commodity.

A few years later we see that WTI is back around the $100 mark. A look at production and usage statistics will readily show there was no proportional change in those metrics to match the radical price shifts. We can see from this that without the slightest bit of skullduggery, the futures market can greatly affect commodity prices in ways that have nothing to do with supply and demand.

That said, it would be beyond naïve to think that manipulation is not possible. Just recently the Commodity Futures Trading Commission told Goldman Sachs and a few other entities to retain internal documents and e-mails relating to their commodities warehousing activities. That is often the first step on the road to a formal investigation. Meanwhile, the Senate has scheduled hearings looking into the commodities operations of major banks such asJPMorgan Chase JPM -0.34%, Morgan Stanley MS -0.88% and Goldman Sachs.

After the tech crash, all of the major investment banks settled with the SEC on charges they misled investors for their own profits. The lawsuits stemming from the actions of the big banks during the 2008 crash are still going on, with hundreds of millions of dollars already paid out in validated claims of misconduct.

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I should point out that these are the tip of the iceberg. SEC actions and censures have been constant for decades. Most of them result in little in the way of fines, and, of course, the company shareholders take the hit. The responsible executives in the vast majority of the cases don’t even have to give up their bonuses, much less face prosecution. Hence, bad behavior has little if any negative consequences for the parties involved. That, of course, promotes such behavior.

So, this is the environment in which we operate. Now let’s see what’s been going on lately, directly relating to precious metals.

….read page 2 HERE

Martin Armstrong: Dow Double by Late 2015

Posted by Martin Armstrong via Jim Puplava of Financial Sense

on Thursday, 8 August 2013 12:25

In this special interview, Jim Puplava sits down with Martin Armstrong, the esteemed global investor and creator of the widely-cited Economic Confidence Model (see image below), to address a number of myths floating around in the financial community. Here we present a few excerpts of our interview with Martin Armstrong airing for subscribers Friday, August 9th.

armstrong-economic-confidence-model

Jim Puplava: Martin, there are many out there saying that we are either at or near a major top in the stock market and also warning of a catastrophic collapse. Do you agree with that sentiment?

Martin: If you just look back at all the major highs—1929, gold in 1980, any of the commodities; take a look at any chart—major highs are always associated with what are referred to as “spike highs”. We don’t have that in the stock market. And again, most of the analysis that people are hearing is largely from people that are focused only on the U.S. They are blind to what is happening globally, and it’s just an international economy…so, largely, the stock market has been pressing up because you have serious trouble out in Europe—it’s an absolute basket-case over there—and capital has been moving out. You have interest rates that have been so low, you have pension funds that are virtually on the brink of insolvency. And it’s been forcing them to go into equities where they’re at least earning 5-7% dividends. And essentially you have China starting to turn down; you have Japan where capital is starting to move out and go into South East Asia and creep back over here. So the stock market has actually been well supported. I mean there will be a correction here short-term, but [the market] has been crawling up toward major resistance, which is at 16,000, and we’ve not been able to get through. We should back off first and then, I’d say, we’re going to go back up and make major highs in this thing going into late 2015, to the point where the Dow may even double in value yet.

Jim: You mentioned tops are typically associated with spike highs, but they are also characterized by widespread euphoria. Do you see such widespread euphoria in the market right now?

Martin: No. Most of the analysts out there calling for a crash keep saying, “See, [the market] can’t possibly be going up—I’m right. It’s going to happen any day now.” And, that’s not a high. I mean, I was in Tokyo when the market was peaking there and you had the Nikkei at 40,000. The last week people were saying, “100,000—that next.” When gold was reaching $875 in 1980, people were saying, “$1000.” And silver was at $54, people were jumping to “$100—absolutely.” We don’t have any of that. So this market is far from being at a major high [in terms of sentiment]. We are going to go up significantly. And then you’ll draw everybody in and then we’ll see the crash, but that’s probably 2016.

Jim: You mentioned China, the problems in Europe and Japan, which has actually helped capital flow into the U.S. Additionally, there have been calls for a dollar crash. Let’s talk about the dollar and why you feel a dollar crash at this point is unlikely.

Martin: Well, again, you have these people that are running around and have been calling for the dollar to collapse all because the Fed increased the money supply and all this other nonsense; but they fail to understand that there are two sides to every coin. Yes, we had a tremendous crisis coming out of ’07—the Fed pumped in $700 billion—but you also have to take into consideration how much was lost. So, the deleveraging was actually about three times as large as what they put in. That’s why you didn’t see any inflation, and you’re not really going to. Also, because, the dollar is really the only currency in the world you’re going to use…there is no alternative at this point.

The remainder of this audio interview will be available for subscribers Friday, August 9th on the Newshour page. To gain full access to all our premium interviews and content, pleaseCLICK HERE to subscribe.

In the rest of this interview, Martin also explains:

  • How capital flight from Europe into the U.S. helped spur the roaring ‘20s and how this happening again
  • How the Fed has been moving into short-term debt and makes interest rate volatility much more important 
  • Why he’s not expecting gold to take off dramatically until 2015
  • How the government is slowly shutting down the underground economy, including the use of bullion
  • Why you don’t see hyperinflation in developed economies and why deflation is more likely in the U.S.

 

For a list of previous interviews and guests, CLICK HERE to see our archive.

CLICK HERE to subscribe to the free weekly Best of Financial Sense Newsletter .
 

About Financial Sense

Cited by Barron’s as one of the top financial websites to visit on the weekend, Financial Sense provides free educational resources to the broad public audience through editorials, current news and resource links on salient financial market issues. Begun in 1985 as a local talk radio program, Financial Sense Newshour is now a free weekly webcast with host Jim Puplava and top financial thinkers.