Daily Digest

Daily Digest 8/2 - Russell on Gold & Dollar, JPM Covering Silver Shorts, State Retirement Woes

Monday, August 2, 2010, 9:53 AM
  • Richard Russell: Gold, the Dollar and Loss of Confidence
  • The Committee To Save The World
  • The Committee To Defraud The World
  • Economic Recovery for the Few
  • JP Morgan Covering Its Silver Shorts Like Crazy
  • Ron Paul Goes After The SEC's FOIA Exclusivity, Introduces SEC Transparency Act
  • John Paulson Will Be Wrong This Time
  • Stressed States Are Forcing Workers to Retire Later
  • What You Need to Know About Present and Future Value
  • HSBC Profits More Than Double To $11.1bn
  • U.S. And Greek Cities Refuse To Service Debt As Next Stage Of Solvency Crisis Shifts From Sovereign To Local Governments
  • First Gold Rush Of Century Ignites West
  • Uncle Sam Has Worse Woes Than Greece
  • Hot Political Summer As China Throttles Rare Metal Supply And Caims South China Sea
  • China's Growing Energy Demand "Legitimate": IEA Economist
  • Russia: Drought Hammers Agriculture
  • Rubbish Threatens To Jam World's Largest Dam

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Richard Russell - Gold, the Dollar & Loss of Confidence (Davos)

When the Bretton Woods system was cracking in the early 1970s the price of a troy ounce of gold, in dollar terms, was raised in two steps from $35 to $42.22. This was, in effect, a devaluation of the dollar.

The Committee To Save The World (bandv)

Eleven years ago, the cover of Time Magazine featured Alan Greenspan, Robert Rubin, and Lawrence Summers posing heroically over the headline: “The Committee to Save the World.” The sidebar was: “The inside story of how the Three Marketeers have prevented a global meltdown—so far.” The reverent tone of the 1999 article strikes a note of discord in the sour investment climate of today. The article gushed: “In the past six years the three have merged into a kind of brotherhood ... What holds them together is a passion for thinking and an inextinguishable curiosity about a new economic order that is unfolding before them...”

In today’s less exuberant world, the picture, the headlines, and the content of the article are laughable and mildly irritating.

The Committee To Defraud The World (bandv)

Glass-Steagall fell after a decade long campaign involving hundreds of millions in lobbyist money spread lavishly around the Congress, led by Sanford Weil of Citibank, supported by key banking and political figures in the Congress and at the Fed. It involved Senator Phil Gramm, who helped to put a stake in the heart of the financial regulatory process under the Reagan free markets banner, and who recently said the problem is that the middle class were a bunch of whiners. As did his wife Wendy, who as the chairperson of the CFTC had exempted Enron from regulatory oversight, and then left to take a position there on its board of directors.

Economic Recovery for the Few (bandv)

During 2009, as tens of millions lost their jobs, the number of High Net Worth Individuals rose by 17.1 per cent and their combined wealth rose by 18.9 per cent. They had a genuine "recovery." HNWIs regained in wealth most of what they lost in 2008. No wonder they celebrate "recovery" while the rest of the world wonders (or rages at) what they are talking about. In the US, for example, the HNWI population grew by 16.6 per cent in 2009 while the US GDP fell by 2.4 per cent.

JP Morgan Covering Its Silver Shorts Like Crazy (bandv)

JP Morgan holds a massive short position in silver, some of which it is said to have inherited as a concentrated speculative position from Bear Stearns. Retreats from such overextended positions are never easy, and therefore never straightforward. Having such a position can be very profitable in the short term since it gives one remarkable control over the paper price of a commodity, paricularly if the regulators are willing to turn a blind eye to certain trading practices.

Ron Paul Goes After The SEC's FOIA Exclusivity, Introduces SEC Transparency Act (bandv)

Recent attempts by Senator Kaufman to bring some honesty to stocks have so far been met with failure as the Sisyphean task is far too great for any one individual. Which is why we are glad to learn that Ron Paul has joined those few who still hold the long-forgotten dream that the market should be fair and impartial for all (and yes, that means eliminating discount window access for the chosen few Bank Holding Company hedge funds out there) and has introduced the SEC Transparency Act of 2010 (HR 5970), a bill designed to force greater transparency in the Securities and Exchange Commission.

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John Paulson Will Be Wrong This Time (JimQ)

We have arrived at critical juncture in the ongoing financial crisis. Have the government actions of the last year successfully spurred the animal spirits of Americans, resulting in a self-sustaining recovery?

Stressed States Are Forcing Workers to Retire Later (TR)

"It's a very positive change that the age for receiving full benefits is increasing," said Alicia Munnell, director of the Center for Retirement Research at Boston College. "Increasing the retirement age is the single most important thing [states] can do" to tame future pension costs, because it reduces the number of years the state is paying a benefit, she said.

What You Need to Know About Present and Future Value (pinecarr)

Discussions about the impact of future deflation or inflation tend to be quasi-ideological rather than pragmatic. Today we look at the consequences in numbers we can all understand.

HSBC Profits More Than Double To $11.1bn (pinecarr) 

HSBC, Europe's biggest bank and one of the largest in the world, reported first-half profits more doubled to $11.1bn (£7bn) pre-tax, helped a sharp fall in bad debts.

U.S. And Greek Cities Refuse To Service Debt As Next Stage Of Solvency Crisis Shifts From Sovereign To Local Governments (pinecarr)

In realizing that creditors don't really have a loaded gun pointed at their heads, US cities are finally waking up to what has been all too obvious to Europe for many months now. Look for the domino chain of state and municipal failures to really pick up in earnest over the next several quarters now that the creditor vs debtor battle lines have been openly set.

First Gold Rush Of Century Ignites West (pinecarr)

"I know a lot of people who actually hold gold now in the mint. Instead of investing in property they've been investing in gold and actually hold physical gold in the mint safes," Mr McFadzean said.

Uncle Sam Has Worse Woes Than Greece (pinecarr)

The spectre of Greek default continues to rattle global financial markets. Greek long-term government bond yields are running 700 basis points above comparable US Treasuries. The inference is that America is in far better fiscal shape than Greece. Nothing could be further from the truth.


Hot Political Summer As China Throttles Rare Metal Supply And Caims South China Sea (pinecarr)

The United States and Europe have been remarkably insouciant about supplies of rare earth minerals so crucial to frontier technologies, from hybrid engines to mobile phones, superconductors, radar and smart bombs.

China's Growing Energy Demand "Legitimate": IEA Economist (pinecarr)

China's outstanding economic expansion is the major driving force behind climbing energy demand, Birol said. "It's legitimate," he said. "It's a very normal development. There is nothing surprising here."

"When we look at the economic development process of the United States or Europe, they also needed a lot of energy. Now it is China's turn to grow," Birol said.


Russia: Drought Hammers Agriculture (pinecarr)

Cracking soil and dead plants – such apocalyptic pictures can be seen in many Russian regions. The heat has burnt out more than 10 million hectares of grain-fields. The wheat harvest may fall by a quarter this year.

Rubbish Threatens To Jam World's Largest Dam (damnthematrix)

"The large amount of waste in the dam area could jam the mitre gate of the Three Gorges Dam," China Three Gorges corporation official Chen Lei said in the newspaper. More than 150 million people live upstream from the dam. In several nearby cities, household garbage is dumped directly into the river - China's longest - because municipalities are not equipped for trash disposal.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...

"Aug. 2 (Bloomberg) -- Banks in Europe’s most indebted nations need to refinance $122 billion of bonds this year, likely paying high interest costs even after receiving a clean bill of health from regulators.

Italy’s Intesa Sanpaolo SpA has the most debt coming due at $28 billion, followed by UniCredit SpA with $21 billion, according to data compiled by Bloomberg. Italian banks must refinance a total $69 billion of bonds this year and $157 billion in 2011, while Spanish lenders have $28 billion and $73 billion of debt that needs to be paid.

Banks in so-called peripheral European countries from Greece to Ireland have been largely shut out of debt markets since April amid concern their governments will struggle to cut budget deficits. Banco Santander SA, the countries’ third- biggest debtor, and Banco Bilbao Vizcaya Argentaria SA took advantage of a thaw following the European Union’s stress tests to sell bonds last week, though at relative yields that were as much as double what they paid before the crisis."

"ALBANY -- While state leaders fear a $1 billion hole could be blown in the state budget if federal Medicaid money isn't approved, the same worries are trickling down to county governments.

The state's 62 counties could be out a combined $800 million in federal funding if Congress doesn't approve a six-month aid extension for Medicaid.

While some counties have stitched together budgets that do not bank on receiving the money, others have not. During a time of depleted fund balances, declining sales-tax revenue and increased state mandates, municipal government officials say they need the money more than ever.

Most county budgets for 2011 are not due until the end of the year. Congress isn't expected to vote on approving $16.1 billion for the program, known as the Federal Medical Assistance Percentages, until the end of August. The program provides Medicaid payments to the states and county governments.

"We have about two months to see whether or not that's going to really hurt the counties," said Stephen Acquario, executive director of the state Association of Counties. "Most of the counties are not in the position to take that loss.""

"Aug. 2 (Bloomberg) -- Miami lawmakers, facing a $110 million budget gap, are looking at the city’s parking system for revenue to replenish reserves and make bond payments.

Commissioners of Florida’s second-largest city unanimously authorized a Nov. 2 voter referendum to give the administration direct control of the Miami Parking Authority, a semi-autonomous department run by its own board. Taking over would allow the city to lease or sell parking assets without the board’s approval. It may also raise about $100 million by issuing bonds backed by parking revenue or by entering a public-private partnership, City Manager Carlos Migoya said.

Miami isn’t alone at looking to leverage parking assets as U.S. municipalities face budget shortfalls of as much as $83 billion through 2012, the National League of Cities said. Los Angeles, Pittsburgh and Harrisburg, Pennsylvania, have considered parking leases. They would follow Chicago, which got $1.2 billion of upfront payments from private investors in 2008 when it leased its parking system for 75 years.

“When everything was going great, we wouldn’t even look at the parking authority because we were happy and satisfied with whatever money they gave us,” Miami Mayor Tomas Regalado, who was elected in November, said in an interview. “It’s time now to look at every option.”"

"HARTFORD, Conn. (AP) - An education think tank says Connecticut has the second-highest unfunded pension liability per capita in the country, which could impair efforts by schools to recruit highly qualifed teachers and administrators.

A new report by Education Sector says the deficit in Connecticut's pension fund amounts to more than $4,500 per state resident, second highest behind Alaska's rate of $5,100.

Connecticut's unfunded liability, the difference between what the state owes current and future retirees and what it has saved, totals nearly $15.9 billion."

"Sonoma County is preparing to borrow an unprecedented sum of $300 million to pay off unfunded pension obligations, a move that some financial experts call risky, and pension-overhaul advocates say papers over major structural problems in the county employee retirement system.

County officials insist they know what they're doing because they've done it before, twice borrowing smaller amounts to pay unfunded pension costs.

The new loan, in the form of a pension obligation bond, would double the county's pension-related debt and push its current $30 million annual debt payment from the two earlier bonds to a peak of about $57 million in 2023.

Though the move is expected to produce some savings for taxpayers, it won't staunch the bleeding in the retirement system. The unfunded pension obligations are projected to continue rising by more than $100 million a year for at least the next two years."

"Real estate data provider Altos Research is taking a very bearish outlook on the housing market.

The California-based company says that ominous shadow inventory of distressed properties hanging over the

industry will lock home prices into a downward trajectory for the remainder of this year, with property values starting out 2011 even lower than they were in 2009.

Market trends charted by Altos show that inventory levels are indeed moving higher and the influx of shadow inventory is beginning to show in the market. The company’s VP of data analytics, Scott Sambucci, described a noticeable shift in housing supply dynamics in a Webinar earlier this week, in what he called “a sign of market weakness.” "

"Estimates of states' unfunded pension liabilities span a wide range, but some researchers put the figure as high as $2 trillion at the end of last year.9 States' unfunded liabilities are significantly higher than before the recession and financial crisis because many pension fund investments have declined in value, and because many states have found it difficult to maintain pension contributions while their budgets are under stress. Indeed, some estimates suggest that, on average, states would need to more than double their typical annual pension contributions over the next decade to avoid collectively exhausting their pension funds during the next couple of decades. 10 This daunting problem has no easy solution; in particular, proposals that include modifications of benefits schedules must take into account that accrued pension benefits of state and local workers in many jurisdictions are accorded strong legal protection, including, in some states, constitutional protection.11

In addition to pensions, states will have to address the burgeoning cost of retiree health benefits. Estimates of these liabilities are subject to significant uncertainty, largely because we have little basis on which to project health-care costs decades into the future. However, one recent estimate suggests that state governments have a collective liability of almost $600 billion for retiree health benefits.12 These benefits have traditionally been funded on a pay-as-you-go basis and therefore could entail a substantial fiscal burden in coming years as large numbers of state workers retire."

  • Other news and headlines:

Gulf urged to control spending, shelve projects

Ghost estates haunt Ireland after property boom, bust

Ireland reports budget deficit of almost 19 percent

Sacramento County missing $17 million in payroll taxes

Texas Children's expects $25 million budget shortfall

White House's late push for $26B state aid bill

Other cities stuck with the tab for Bell officials' massive pensions

As spending by wealthy weakens, so does economy

Whoever Wins in Vt. Inherits $120 Million Deficit

Another lawsuit over Texas school funding expected

Chinese data add to global recovery fears

Hidden Charges Cause UK Pension Plans To Shrink By 50 Percent

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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...(hum, got



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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...
robie robinson wrote:



Many of you have a habit of posting links with no explanation or synopsis of why i should be interested in following the link.  I never click on the link, so please don't waste the time and space if you don't have time to at least give us some information about the content you are linking to. 

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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...

I apologize as one who neither likes to, nor is proficient at typing.  I'll refrain from posting and offering my ability to others on this site




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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...

Thanks for the link robie!  I LOVE Max Keiser!  Did you notice he (Jim Willie) was broadcasting from Costa-Rica?  Supposed to be good place to retire (outside the US).

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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...
Stuart Staniford's latest


Global Oil Supply Now Contracting?

It's too soon to remove the question mark from the end of the post title, but not too soon to be talking about the subject.

For a number of months now, I've been tracking the fairly rapid recovery in global oil production, after the end of the great recession.  I even pointed out that there was enough spare capacity in OPEC that it could potentially exceed the previous peak of monthly oil production back in July 2008.  I was careful to add this caveat, however, complete with bold font on the "if":

Therefore, if the global economic recovery continues, and in particular if OPEC is willing to restore their production cuts at prices that don't derail that recovery, then it appears likely that the July 2008 liquid fuel production level will be exceeded.

The data for the last few months now have me wondering whether the global economic recovery is not in fact continuing.  Here's the data from 2002 on:
 The purple, plum, and green curves have the raw data (from the three agencies that track global production) with thin lines and squares, and then a centered moving average as the thicker smooth curves.  This shows the major features of global production since 2002 - the rapid rise following the 2000-2001 recession, and then the "bumpy plateau" after late 2004, with a bump up in late 2007 and early 2008, followed by the contraction associated with the great recession in late 2008 and early 2009, then the subsequent recovery.

You can also see inflation adjusted monthly oil prices on the right hand scale (blue curve).  This shows the oil price shock of 2005-2008, followed by the recession-induced sharp fall below $40, and then the recovery as OPEC cut production in late 2008.  Prices more or less increased after that until they peaked in April of this year and then fell in May and June.

Focussing in just on the period since the beginning of 2008, here are the three main sources of global production data, together with their average (the heavy black curve):

As of today, we have data for June from two agencies (OPEC and the IEA), and data through April for the third (the EIA).  OPEC and the IEA agree that production has been declining at least modestly since February (see blue circle), while the EIA currently shows the peak month in 2010 as March.  Overall, the average is down about 600kbd, or around 0.7% from the February 2010 peak.

The all-time peak in global production (so far) is within the green circle.  The fall due to the great recession corresponded to a 5% reduction in global production by the trough in May 2009.  This is context for the current 0.7% contraction, which is much smaller at this time.

In the short term, global oil production is a sensitive indicator of the state of the global economy, and I'm not aware of any other publicly available proxies for the overall state of the world's economy that are as timely.

In this case, given that prices are falling rather than rising, and that OPEC undoubtedly has some spare capacity, the question becomes one not about whether supply is struggling to rise, but rather about whether demand is faltering or even declining.

Whether this presages a renewed contraction in the global economy, a stagnation, or just a transient hiccup in the ongoing recovery, I'm not certain of yet.  But certainly each passing month of lower oil production will add to the concern.

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Nasa scientists braced for 'solar tsunami' to hit earth

Nasa scientists braced for 'solar tsunami' to hit earth



Nasa scientists braced for 'solar tsunami' to hit earth

The earth could be hit by a wave of violent space weather as early as Tuesday after a massive explosion of the sun, scientists have warned.


By Andrew Hough
Published: 9:00PM BST 02 Aug 2010

Sunspot 1092
Sunspot 1092 may combine with a large filament of cool gas stretching across the sun's northern hemisphere to produce interference with communication systems on Earth Photo: NASA

The solar fireworks at the weekend were recorded by several satellites, including Nasa’s new Solar Dynamics Observatory which watched its shock wave rippling outwards.

Astronomers from all over the world witnessed the huge flare above a giant sunspot the size of the Earth, which they linked to an even larger eruption across the surface of Sun.


The explosion was aimed directly towards Earth, which then sent a “solar tsunami” racing 93 million miles across space.

Images from the SDO hint at a shock wave travelling from the flare into space, the New Scientist reported.

Experts said the wave of supercharged gas will likely reach the Earth on Tuesday, when it will buffet the natural magnetic shield protecting Earth.

It is likely to spark spectacular displays of the aurora or northern and southern lights.

Scientists have warned that a really big solar eruption could destroy satellites and wreck power and communications grids around the globe if it happened today.

Nasa recently warned that Britain could face widespread power blackouts and be left without critical communication signals for long periods of time, after the earth is hit by a once-in-a-generation “space storm”.

The Daily Telegraph disclosed in June that senior space agency scientists believed the Earth will be hit with unprecedented levels of magnetic energy from solar flares after the Sun wakes “from a deep slumber” sometime around 2013.

It remains unclear, however, how much damage this latest eruption will cause the world’s communication tools.

Dr Lucie Green, of the Mullard Space Science Laboratory, Surrey, followed the flare-ups using Japan's orbiting Hinode telescope.

"What wonderful fireworks the Sun has been producing,” the UK solar expert said.

“This was a very rare event – not one, but two almost simultaneous eruptions from different locations on the sun were launched toward the Earth.

"These eruptions occur when immense magnetic structures in the solar atmosphere lose their stability and can no longer be held down by the Sun's huge gravitational pull. Just like a coiled spring suddenly being released, they erupt into space.”

She added: "It looks like the first eruption was so large that it changed the magnetic fields throughout half the Sun's visible atmosphere and provided the right conditions for the second eruption.

"Both eruptions could be Earth-directed but may be travelling at different speeds.

“This means we have a very good chance of seeing major and prolonged effects, such as the northern lights at low latitudes."

A Nasa spokesman was unavailable for comment.

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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...

can anyone here confirm or refute the real dangers/probabilities of today's solar flare?  over on reddit.com, (which has quite an even peppering of intelligence/stupidity), there seems to be no real concern- perhaps summarized best with this comment- "C class ejections are small with few noticeable consequences here on Earth".

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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...
robie robinson wrote:

I apologize as one who neither likes to, nor is proficient at typing.  I'll refrain from posting and offering my ability to others on this site




   Robie, there are those of us  here that appreciate  your knowledge  and do not have time to sit in front of the computer for long articles .   I personally  got a lot of info  out of the  quick, Max, video . Even though I do not have time to surf all the different Internet sites or to watch the T.V.   waiting for the few article that are of interest  to me  .  

You know, the swather  breaks  and it is time here  for third cutting of Alfalfa  . The  Moon is right for planting root crops, today and tomorrow,  so off we go to plant beets .   Oh and  thanks to other info on this site to  buy seed for next year's crops   and put in a fuel order   .  

 One Kansas farmer feeds 129 people  or so we are  told . Not enough farmers as I see it .


   Farmers, if you leave here let me know where you go so I can catch up with what you see in our future . So many of my neighbor see no change in the economy  because nothing has changed . They do not even want to think of change in fuel prices much less talk about  it  !   


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Re: Daily Digest 8/2 - Russel on Gold & Dollar, JPM ...

It's a class C3, which is quite small in all reality.  It'll give a good light show in the N and S poles, but won't effect anything else from what I'm reading out of NASA, EuroSpaceAgency, and Japanese Space Agency.

So it's not the end of the world.

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