Spain’s Stock Exchange Has Been Halted For Over 4 Hours Due To “Technical Glitch”

via: ZeroHedge
by: Tyler Durden
August 6, 2012

Update: IBEX resumes for trade with a nearly 5 hour delay, last seen higher at 1.68%. We can only hope the Knight algo is not to blame for yet another round of headless chicken buying. Last week it was Knight, today it is the Spanish stock market. Following a halt for a “technical glitch” just after 4 am Eastern time, Spain’s stock exchange, the IBEX, is still not trading as of this posting. So how will Spain and the ECB declare victory if they are unable to demonstrate the daily ramp in Spanish stocks (where shorting financials is once again forbidden…. because Europe continues to be “fixed”). Continue Reading At: ZeroHedge.com

Libor May Be Manipulated, But Silver Is Not, CFTC To Conclude

via: ZeroHedge
by: Tyler Durden
August, 5, 2012

In what may be the most amusing news of the day, according to the FT the CFTC will shortly drop its 4 year old investigation into silver manipulation, “after US regulators failed to find enough evidence to support a legal case, according to three people familiar with the situation.” How about evidence to support an “illegal” case? Of course, that this is happening after the recent discovery that the world’s most pervasive fixed income benchmark was manipulated for years, if not decades, can only be reason for laughter and wonder if the CFTC used the same assiduous diligence methods in pursuing the alleged perpetrators of precious metal manipulation as it did in letting the fraud at PFG slip through its fingers for two decades. We will probably never know, or at least not until an email mentioning bottles of Bollinger and silver price “fixing”, (or “banging the close” for that matter) in the same sentence inexplicably turns up and makes a complete mockery of the CFTC yet again.

Continue Reading At: ZeroHedge.com

The Problem With Fractional Reserve Banking

via: ZeroHedge
by: Tyler Durden
August 3, 2012

Submitted by James E. Miller of the Ludwig von Mises Institute of Canada

John Tamny and the Problem with Fractional Reserve Banking

John Tamny of Forbes is one of the more informed contributors in the increasingly dismal state of economic commentating.  Tamny readily admits he is on the libertarian side of things and doesn’t give into the money-making game of carrying the flag for a favored political party under the guise of a neutral observer.  He condemns the whole of the Washington establishment for our current economic woes and realizes that government spending is wasteful in the sense that it is outside the sphere of profit and loss consideration.  In short, Tamny’s column for both Forbesand RealClearMarkets.com are a breath of fresh air in the stale rottenness of mainstream economic analysis.

Much to this author’s dismay however, Tamny has written a piece that denies one of the key functions through which central banks facilitate the creation of money.  In doing so, he lets banks off the hook for what really can be classified as counterfeiting.  In a recent Forbes column entitled “Ron Paul, Fractional Reserve Banking, and the Money Multiplier Myth,” Tamny attempts to bust what he calls the myth that fractional reserve banking allows for the creation of money through credit lending.  According to him, it is an extreme exaggeration to say money is created “out of thin air” by fractional reserve banks as Murray Rothbard alleged.  This is a truly outrageous claim that finds itself wrong not just in theory but also in plain evidence.  Not only does fractional reserve banking play a crucial role in inflationary credit expansion, it borders on being outright fraudulent.

So what exactly is ethically wrong with fractional reserve banking?  In his book Money, Bank Credit and Economic Cycleseconomist Jesus Huerta de Soto explains that the clear distinction between what would be considered demand deposits and savings available for loans has been enforced in banking history dating all the way back to ancient Greece.

Demand deposits were considered those deposits which banking customers believe they have direct access to at any time.  Because of the fungible nature of currency, identical gold coins did not have to be redeemable to the original depositing parties.   Deposits which were used to lend to entrepreneurs for a fixed amount of time were understood to be off limits by the patrons who provided them.  Typically the saver who placed his money in a bank for a specified period of time would do so to profit from a predetermined rate of interest. Under this system of strict separation between demand deposits and deposits used for lending, a duration mismatch, or a bank not having enough money on hand to pay all demand deposits, will not occur.  Back in the days of Ancient Greece and Rome, it was always considered fraudulent for bankers to lend out money put in their possession for safekeeping though that didn’t stop some who couldn’t resist earning a nice profit.

Continue Reading At: ZeroHedge.com

Promises Of More QE Are No Longer Sufficient: Desperate Banks Demand Reserves, Get First Fed Repo In 4 Years

via: ZeroHedge
by: Tyler Durden
August 3, 2012

While endless jawboning and threats of more free (and evenpaid for those close to the discount window) money can do miracles for markets, if only for a day or two, by spooking every new incremental layer of shorts into covering, there is one problem with this strategy: the “flow” pathway is about to run out of purchasing power. Recall that Goldman finally admitted that when it comes to monetary policy, it really is all about the flow, just as we have been claiming for years. What does this mean – simple: the Fed needs to constantly infuse the financial system with new, unsterilized reserves in order to provide bank traders with the dry powder needed to ramp risk higher. Logically, this makes intuitive sense: if talking the market up was all that was needed, Ben would simply say he would like to see the Dow at 36,000 and leave it at that. That’s great, but unless the Fed is the one doing the actual buying, those who wish to take advantage of the Fed’s jawboning need to have access to reserves, which via Shadow banking conduits, i.e., repos, can be converted to fungible cash, which can then be used to ramp up ES, SPY and other risk aggregates (just like JPM was doing by selling IG9 and becoming the market in that axe). As it turns out, today we may have just hit the limit on how much banks can do without an actual injection of new reserves by the Fed. Read: a new unsterilized QE program.

Continue Reading At: ZeroHedge.com

Goldman Murders Muppets, Tells Them To Stay Long Spanish, Italian Bonds

via: ZeroHedge
by: Tyler Durden
July 23, 2012

Curious just how we were 100% certain that the June 29 summit was an epic disaster, in addition to the obvious? Because in a note from that morning we said the following: “Below is Goldman’s quick take on the E-Tarp MOU (completely detail-free, but who needs details when one has money-growing trees) announced late last night. In summary: “We recommend being long an equally-weighted basket of benchmark 5-year Spanish, Irish and Italian government bonds, currently yielding 5.9% on average, for a target of 4.5% and tight stop loss on a close at 6.5%.” By now we hope it is clear that when Goldman’s clients are buying a security, it means its prop desk is selling the same security to clients.” Sure enough, its prop desk was selling, and selling, and selling. Since then Spain and Italy have blown out, and only the strange tightening in Ireland has prevented yet another stop loss from the squid which is now known for cremating clients more than anything else. The stop loss is certainly not far: the basket is now at 6.20%, and has just 30 bps to go until yet another batch of Goldman clients is slaughtered. Which is now only a matter of time – Goldman just told its clients it has a little more of its 5 Year exposure left to sell, and then it will be done. Of course by then another muppet murder scene will have to be cordoned off.

Continue Reading At: ZeroHedge.com

A Fast And Furious Return To Reality: Spanish Stock Market Plummets By 12% In Two Days

via: ZeroHedge
by: Tyler Durden
July 23, 2012

A few hours ago, the IBEX hit a level of 5905, the lowest since April 2003. The irony is that as recently as weeks ago, various momentum chasing self-professed stock “experts” saw some technical formation or another, making them believe that the bottom is finally in for the IBEX, which is “fixed.” Turns out it wasn’t; it also turns out the market was completely wrong and the result is a 12% slide in the Spanish stock market in two days as reality’s return is fast and furious. If this happened in the US, it would be the equivalent of 1500 DJIA point collapse in 48 hours, and unleash mass panic and civil disobedience as people realized their 201(k) is really a +/- 001(k).

Read More At: ZeroHedge.com

Falling Interest Rates Destroy Capital

via: ZeroHedge
by: Tyler Durden
July 21, 2012

Submitted by Keith Weiner of ‘Gold and Silver and Money and Credit’ blog,

I have written other pieces on the topic of fractional reserve banking (http://keithweiner.posterous.com/61391483 andhttp://keithweiner.posterous.com/fractional-reserve-is-not-the-problem) duration mismatch, which is when someone borrows short-term money to lend long-term and how falling interest rates actually encourages duration mismatch (http://keithweiner.posterous.com/falling-interest-rates-and-duration-mis…).

Falling interest rates are a feature of our current monetary regime, so central that any look at a graph of 10-year Treasury yields shows that it is a ratchet (and a racket, but that is a topic for another day!).  There are corrections, but over 31 years the rate of interest has been falling too steadily and for too long to be the product of random chance.  It is a salient, if not the central fact, of life in the irredeemable US dollar system, as I have written (http://keithweiner.posterous.com/irredeemable-paper-money-feature-451).

Here is a graph of the interest rate on the 10-year US Treasury bond.  The graph begins in the second half of July 1981.  This was the peak of the parabolic rise interest rates, with the rate at around 16%.  Today, the rate is 1.6%.

Pathological Falling Interest Rates

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Scandal At The IMF: Senior Economist Resigns, Says “Ashamed To Have Had Any Association With Fund At All”

via: ZeroHedge
By: Tyler Durden
July 20, 2012

The rats everywhere are now jumping furiously off the titanic, but few had taken the time to write a letter explaining in detail just how cracked and broken the hull really was. This has now changed, with the departure of Peter Doyle, formerly a division chief in the IMF’s European Department responsible for non-crisis countries and currently an adviser to the Fund. Not content with quietly slinking off the scandal ridden organization which has become the butt of all jokes in the international community, where humor about Lagarde’s Louis Vuitton panhandling bag is as pervasive as punchlines about just how incompetent the organization is at actually doing its duty, Doyle has penned the following scathing letter which tears down every myth about the IMF: from its impartiality, to the selection process of its head, to its effectiveness. The letter also contains the following gem: “After twenty years of service, I am ashamed to have had any association with the Fund at all.” Pretty much says it all. This is a scandal in the making, and one which may shake to the core the credibility of the IMF in the context of international organization.

Full letter (pdf)

European Department
Washington DC
June 18, 2012

To Mr. Shaalan, Dean of the IMF Executive Board

Today, I addressed the Executive Board for the last time—because I am leaving the Fund.

Accordingly, I wanted first to formally express my deep appreciation to the Swedish, Israeli, and Danish authorities with whom I have worked recently, as well as all others with whom I have worked earlier, for their extraordinary generosity towards me personally.

But I also wanted to take this opportunity to explain my departure.

After twenty years of service, I am ashamed to have had any association with the Fund at all.

This is not solely because of the incompetence that was partly chronicled by the OIA report into the global crisis and the TSR report on surveillance ahead of the Euro Area crisis. Moreso, it is because the substantive difficulties in these crises, as with others, were identified well in advance but were suppressed here. Given long gestation periods and protracted international decision-making processes to head off both these global challenges, timely sustained warnings were of the essence. So the failure of the Fund to issue them is a failing of the first order, even if such warnings may not have been heeded. The consequences include suffering (and risk of worse to come) for many including Greece, that the second global reserve currency is on the brink, and that the Fund for the past two years has been playing catch-up and reactive roles in the last-ditch efforts to save it.

Continue Reading At: ZeroHedge.com

The Hedge Fund Trail In Liborgate Gets Hotter: Mega Fund Brevan Howard Next?

via: ZeroHedge
by: Tyler Durden
July 20, 2012

Two days ago we made the “missing link” connection between traders in Libor manipulating banks (all of which curiously had a hub in Singapore: something else for the media that has been about 4 years too late on this topic to focus on) and hedge funds (most of which curiously centering on the otherwise sleepy bastion of banking: Geneva, Switzerland). The immediate aftermath was the loss of trading privileges of one Michael Zrihen. We are fairly certain this is just the beginning of the hedge fund bust: when all is said and done, many more funds will have terminated traders they hired for reasons (and kickbacks) unknown over the past 2 years as Lie-bor manipulators sought to put a clean firewalled break between their old employer and current one. Because apparently sometimes the regulators arethat stupid and can be confused by a simple job change. And while many have assumed (and even calculated based on completely groundless assumptions) that only BBA member banks have benefited from Libor manipulation, the reality is that hedge funds were just as complicit and benefited just as much if not more. What is worse, they took advantage of their whale client status with manipulating banks, and courtesy of Total Return Swap and other leveraged gimmicks, made far more money when they co-opted two or more banks to do their bidding. Impossible you say: hedge funds would never be so stupid. Oh very possible: we present exhibit A - Brevan Howard, a “fund, with assets of $20.8 billion as of Dec. 31, has never had a losing year and returned 14.4 percent annualized from its April 2003 inception through the end of 2008″ as Bloomberg said in a made to order profile of the funds recently. Perhaps there is a very simple reason for this trading perfection: “Brevan Howard telephoned on 20 Aug 2007 to ask the defendant to change the Libor rate,” according to a paper filed with the Singapore High Court cited by Bloomberg.”

Here is The Telegraph with a smoking gun that was promptly buried in the avalanche of sudden media coverage in the aftermath of the Barclays Liborgate settlement.

Tan Chi Min, a former RBS trader who claims he was wrongfully dismissed by the bank after it fired him for allegedly trying to manipulate Libor – the average rate at which banks lend to each other – said he had received the request in 2007 from Brevan Howard. 

“Brevan Howard telephoned on 20 Aug 2007 to ask the defendant to change the Libor rate,” according to a paper filed with the Singapore High Court cited by Bloomberg.

Oops.

Continue Reading More At: ZeroHedge.com

The Seeds For An Even Bigger Crisis Have Been Sown

via: ZeroHedge
by: Tyler Durden
July 11, 2012

On occasion of the publication of his new gold report (readhere), Ronald Stoeferle talked with financial journalist Lars Schall about fundamental gold topics such as: “financial repression”; market interventions; the oil-gold ratio;  the renaissance of gold in finance; “Exeter’s Pyramid”; and what the true “value” of gold could actually look like. Via Matterhorn Asset Management.

By Lars Schall

Ronald Stoeferle, who is a Chartered Market Technician (CMT) and a Certified Financial Technician (CFTe), was born October 27, 1980 in Vienna, Austria. During his studies in business administration and finance at the Vienna University of Economics and the University of Illinois at Urbana-Champaign in the USA, he worked for Raiffeisen Zentralbank (RZB) in the field of Fixed Income / Credit Investments. After graduating, Stoeferle joined Vienna based Erste Group Bank (http://www.erstegroup.com), covering International Equities, especially Asia. In 2006 he began writing reports on gold. His five benchmark reports on gold such as “A Shiny Outlook” and “In Gold We Trust” drew international coverage on CNBC, Bloomberg, the Wall Street Journal and the Financial Times. Since 2009 he also writes reports on crude oil. The latest gold report by Stoeferle was published today.

Lars Schall: What is “financial repression“ according to Ronald Stoeferle?

Ronald Stoeferle: Financial repression as a perfidious form of redistribution. It always means a combination of incentives and restrictions for banks and insurance companies, which cause the investment universe to be substantially reduced for investors. This means that capital is channelled away from the asset classes that it would flow into in a more liberal environment.

I sincerely believe that financial repression will continue to crop up in many shapes and sizes over the coming years. However, the long-term costs of the lack in efforts made towards consolidating national finances are substantial. While low bond yields in the short run suggest that the saving measures are on course, one has to bear in mind that this has mainly been achieved by market interventions.

Therefore, we regard the gradual transfer of assets as a disastrous strategy in the long run.

What happens is that none of the previous problems of misallocation are resolved, but instead redistribution takes place (at the beginning mostly invisibly) and problems are dragged out,  having to be addressed later. As the dependence on these measures rises, so does the collateral damage to be expected later, and the seeds for an even bigger crisis have been sown.

L.S.: What does all that mean for gold?

R.S.: Negative real interest rates are an important cornerstone of financial repression. And negative real interest rates represent the perfect environment for the gold price. During the 20 years of the gold bear market in the 1980s and 1990s, the average real interest rate level was around 4%. Real interest rates were negative in only 5.9% of all months. The situation in the 1970s, however, was completely different: real interest rates were negative in 54% of the months. Since 2000 real interest rates have been negative for 51% of the time, which constitutes an optimal environment for gold. Due to the overindebtness (that I am also discussing in my report), I believe that this trend will continue.

Continue Reading At: ZeroHedge.com