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March 30, 2012
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The transcript from Jim Grant's address to the Federal Reserve of NY on the 100th anniversary of the Fed.
Must Read: Jim Grant Crucifies The Fed; Explains Why A Gold Standard Is The Best Option
The Federal Reserve Bank of New York has invited some of its public critics to visit the bank to unburden themselves of their criticisms. On March 12, it was Jim Grant's turn. The text of his remarks follows. (highlights ours)
Piece Of My Mind
My friends and neighbors, I thank you for this opportunity. You know, we are friends and neighbors. Grant’s makes its offices on Wall Street, overlooking Broadway, a 10-minute stroll from your imposing headquarters. For a spectacular vantage point on the next ticker-tape parade up Broadway, please drop by. We’ll have the windows washed.
You say you would like to hear my complaints, and, on the one hand, I do have a few, while on the other, I can’t help but feel slightly hypocritical in dressing you down. What passes for sound doctrine in 21st-century central banking—so-called financial repression, interest-rate manipulation, stock-price levitation and money printing under the frosted-glass term “quantitative easing”—presents us at Grant’s with a nearly endless supply of good copy. Our symbiotic relationship with the Fed resembles that of Fox News with the Obama administration, or—in an earlier era—that of the Chicago Tribune with the Purple Gang. Grant’s needs the Fed even if the Fed doesn’t need Grant’s.
In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act? The authorizing legislation projected a body “to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes.” By now can we identify the operative phrase? Of course: “for other purposes.”
You are lucky, if I may say so, that I’m the one who’s standing here and not the ghost of Sen. Carter Glass. One hesitates to speak for the dead, but I am reasonably sure that the Virginia Democrat, who regarded himself as the father of the Fed, would skewer you. He had an abhorrence of paper money and government debt. He didn’t like Wall Street, either, and I’m going to guess that he wouldn’t much care for the Fed raising up stock prices under the theory of the “portfolio balance channel.”
It enflamed him that during congressional debate over the Federal Reserve Act, Elihu Root, Republican senator from New York, impugned the anticipated Federal Reserve notes as “fiat” currency. Fiat, indeed! Glass snorted. The nation was on the gold standard. It would remain on the gold standard, Glass had no reason to doubt. The projected notes of the Federal Reserve would—of course—be convertible into gold on demand at the fixed statutory rate of $20.67 per ounce. But more stood behind the notes than gold. They would be collateralized, as well, by sound commercial assets, by the issuing member bank and—a point to which I will return— by the so-called double liability of the issuing bank’s stockholders.
If Glass had the stronger argument, Root had the clearer vision. One can think of the original Federal Reserve note as a kind of derivative. It derived its value chiefly from gold, into which it was lawfully exchangeable. Now that the Federal Reserve note is exchangeable into nothing except small change, it is a derivative without an underlier. Or, at a stretch, one might say it is a derivative that secures its value from the wisdom of Congress and the foresight and judgment of the monetary scholars at the Federal Reserve. Either way, we would seem to be in dangerous, uncharted waters.
As you prepare to mark the Fed’s centenary, may I urge you to reflect on just how far you have wandered from the intentions of the founders? The institution they envisioned would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash— temporarily. This it would do according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism— as today’s Fed seems to do at every available opportunity—but yield to it.
My favorite exposition of the sound, original doctrines is a book entitled, “The Theory and Practice of Central Banking,” by H. Parker Willis, first secretaryof the Federal Reserve Board and Glass’s right-hand man in the House of Representatives.
Writing in the mid-1930s, Willis pointed out that the Fed fell into sin almost immediately after it opened for business in 1914. In 1917, after the United States entered the Great War, the Fed set about monetizing the Treasury’s debt and suppressing the Treasury’s borrowing costs. In the 1920s, after the recovery from the short but ugly depression of 1920-21, the Fed started to implement open-market operations to sterilize gold flows and steer a desired macroeconomic course.
“Central banks,” wrote Willis, glaring at the innovators, “…will do wisely to lay aside their inexpert ventures in halfbaked monetary theory, meretriciousstatistical measures of trade, and hasty grinding of the axes of speculative interests with their suggestion that by doing so they are achieving some sort of vague ‘stabilization’ that will, in the long run, be for the greater good.”
Willis, who died in 1937, perhaps of a broken heart, would be no happier with you today than Glass would be—or I am. The search for “some sort of vague stabilization” in the 1930s has become a Federal Reserve obsession at the millennium.
Ladies and gentlemen, such stability as might be imposed on a dynamic capitalist economy is the kind that eventually comes around to bite the stabilizer.
“Price stability” is a case in point. It is your mandate, or half of your mandate, I realize, but it does grievous harm, as defined. For reasons you never exactlyspell out, you pledge to resist “deflation.” You won’t put up with it, you keep on saying—something about Japan’s lost decade or the Great Depression. But you never say what deflation really is. Let me attempt a definition. Deflation is a derangement of debt, a symptom of which is falling prices. In a credit crisis, when inventories become unfinanceable, merchandise is thrown on the market and prices fall. That’s deflation.
What deflation is not is a drop in prices caused by a technology-enhanced decline in the costs of production. That’s called progress. Between 1875 and 1896, according to Milton Friedman and Anna Schwartz, the American price level subsided at the average rate of 1.7% a year. And why not? As technology was advancing, costs were tumbling. Long before Joseph Schumpeter coined the phrase “creative destruction,” the American economist David A. Wells, writing in 1889, was explaining the consequences of disruptive innovation.
“In the last analysis,” Wells proposes, “it will appear that there is no such thing as fixed capital; there is nothing useful that is very old except the precious metals, and life consists in the conversion of forces. The only capital which is of permanent value is immaterial—the experience of generations and the development of science.”
Much the same sentiments, and much the same circumstances, apply today, but with a difference. Digital technology and a globalized labor force have brought down production costs. But, the central bankers declare, prices must not fall. On the contrary, they must rise by 2% a year. To engineer this up-creep, the Bernankes, the Kings, the Draghis—and yes, sadly, even the Dudleys—of the world monetize assets and push down interest rates. They do this to conquer deflation.
But note, please, that the suppression of interest rates and the conjuring of liquidity set in motion waves of speculative lending and borrowing. This artificially induced activity serves to lift the prices of a favored class of asset—houses, for instance, or Mitt Romney’s portfolio of leveraged companies. And when the central bank-financed bubble bursts, credit contracts, leveraged businesses teeter, inventories are liquidated and prices weaken. In short, a process is set in motion resembling a real deflation, which then calls forth a new bout of monetary intervention. By trying to forestall an imagined deflation, the Federal Reserve comes perilously close to instigating the real thing.
The economist Hyman Minsky laid down the paradox that stability is itself destabilizing. I say that the pledge of a stable funds rate through the fourth quarter of 2014 is hugely destabilizing. Interest rates are prices. They convey information, or ought to. But the only information conveyed in a manipulated yield curve is what the Fed wants. Opportunists don’t have to be told twice how to respond. They buy oil or gold or foreign exchange, not incidentally pushing the price of a gallon of gasoline at the pump to $4 and beyond. Another set of opportunists borrow short and lend long in the credit markets. Not especially caring about the risk of inflation over the long run, this speculative cohort will fund mortgages, junk bonds, Treasurys, what-have-you at zero percent in the short run. The opportunists, a.k.a. the 1 percent, will do fine. But what about the uncomprehending others?
I commend to the Federal Reserve Bank of New York Financial History Book Club (if it doesn’t exist, please organize it at once) a volume by the British scholar and central banker, Charles Goodhart. Its title is “The New York Money Market and the Finance of Trade, 1900-1913.” In the pre-Fed days with which the history deals, the call money rate dove and soared. There was no stability—and a good thing, Goodhart reasons. In a society predisposed to speculate, as America was and is, he writes, unpredictable spikes in borrowing rates kept the players more or less honest. “On the basis of its record,” he writes of the Second Federal Reserve District before there was a Federal Reserve, “the financial system as constituted in the years 1900-1913 must be considered successful to an extent rarely equaled in the United States.” And that not withstanding the Panic of 1907.
My reading of history accords with Goodhart’s, though not with that of the Fed’s front office. If Chairman Bernanke were in the room, I would respectfully ask him why this persistent harking back to the Great Depression? It is one cyclical episode, but there are many others. I myself draw more instruction from the depression of 1920-21, a slump as ugly and steep in its way as that of 1929-33, but with the simple and interesting difference that it ended. Top to bottom, spring 1920 to summer 1921, nominal GDP fell by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was inexactly measured, topped out at about 14% from a pre-bust low of as little as 2%. And how did the administration of Warren G. Harding meet this macroeconomic calamity? Why, it balanced the budget, the president declaring in 1921, as the economy seemed to be falling apart, “There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures.” And the fledgling Fed, face to face with its first big slump, what did it do? Why, it tightened, pushing up short rates in mid-depression to as high as 8.13% from a business cycle peak of 6%. It was the one and only time in the history of this institution that money rates at the trough of a cycle were higher than rates at the peak, according to Allan Meltzer.
But then something wonderful happened: Markets cleared, and a vibrant recovery began. There were plenty of bankruptcies and no few brickbats launched in the direction of the governor of the New York Fed, Benjamin Strong, for the deflation that cut an especially wide and devastating swath through the American farm economy. But in 1922, the first full year of recovery, the Fed’s index of industrial production leapt by 27.3%. By 1923, the unemployment rate was back to 3.2%. The 1920s began to roar.
And do you know that the biggest nationally chartered bank to fail during this deflationary collapse was the First National Bank of Cleburne, Texas, with not quite $2.8 million of deposits? Even the forerunner to today’s Citigroup remained solvent (though for Citi, even then it was a close-run thing, on account of an oversize exposure to deflating Cuban sugar values). No TARP, no starving the savers with zero-percent interest rates, no QE, no jimmying up the stock market, no federal “stimulus” of any kind. Yet—I repeat—the depression ended. To those today who demand ever more intervention to cure what ails us, I ask: Why did the depression of 1920-21 ever end? Given the policies with which the authorities treated it, why are we still not ensnared?
If you object to using the template of 1920-21 as a guide to 21st-century policy because, well, 1920 was a long time ago, I reply that 1929 was a long time ago, too. And if you persist in objecting because the lessons to be derived from the Harding depression are unthinkably at odds with the lessons so familiarly mined from the Hoover and Roosevelt depression, I reply that Harding’s approach worked. The price mechanism is truer and enterprise hardier than the promoters of radical 21st-century intervention seem prepared to acknowledge.
In notable contrast to the Harding method, today’s policies seem not to be working. We legislate and regulate and intervene, but still the patient languishes. It’s a worldwide failure of the institutions of money and credit. I see in the papers that Banca Monte dei Paschi di Siena is in the toils of a debt crisis. For the first time in over 500 years, the foundation that controls this ancient Italian institution may be forced to sell shares. We’ve all heard of hundred-year floods. We seem to be in a kind of 500-year debt flood.
Many now call for more regulation— more such institutions as the Treasury’s brand-new Office of Financial Research, for instance. In the March 8 Financial Times, the columnist Gillian Tett appealed for more resources for the overwhelmed regulators. Inundated with information, she lamented, they can’t keep up with the institutions they are supposed to be safeguarding. To me, the trouble is not that the regulators are ignorant. It’s rather that the owners and managers are unaccountable.
Once upon a time—specifically, between the National Banking Act of 1863 and the Banking Act of 1935—the impairment or bankruptcy of a nationally chartered bank triggered a capital call. Not on the taxpayers, but on the stockholders. It was their bank, after all. Individual accountability in banking was the rule in the advanced economies. Hartley Withers, the editor of The Economist in the early 20th century, shook his head at the micromanagement of American banks by the Office of the Comptroller of the Currency—25% of their deposits had to be kept in cash, i.e., gold or money lawfully convertible into gold. The rules held. Yet New York had panics, London had none. Adjured Withers: “Good banking is produced not by good laws but by good bankers.”
Well said, Withers! And what makes a good banker is more than skill. It is also the fear of God, or, more specifically, accountability for the solvency of the institution that he or she owns or manages. To stay out of trouble, the general partners of Brown Brothers Harriman, Wall Street’s oldest surviving general partnership, need no regulatory pep talk. Each partner is liable for the debts of the firm to the full extent of his or her net worth. My colleague Paul Isaac, who is with me today—he doubles as my food and beverage taster— has an intriguing suggestion for instilling the credit culture more deeply in our semi-socialized banking institutions.
We can’t turn limited liability corporations into general partnerships. Nor could we easily reinstate the so-called double liability law on bank stockholders. But what we could and should do, Paul urges, is to claw back that portion of the compensation paid out by a failed bank in excess of 10 times the average wage in manufacturing for the seven full calendar years before the ruined bank hit the wall. Such a clawback would not be subject to averaging or offset one year to the next. And it would be payable in cash.
The idea, Paul explains, is twofold. First, to remove the government from the business of determining what is, or is not, risky—really, the government doesn’t know. Second, to increase the personal risk of failure for senior management, but stopping short of the sword of Damocles of unlimited personal liability. If bankers are venal, why not harness that venality in the public interest? For the better part of 100 years, and especially in the past five, we have socialized the risks of high finance. All too often, the bankers who take risks don’t themselves bear them. By all means, let the capitalists keep the upside. But let them bear their full share of the downside.
In March 2009, the Financial Times published a letter to the editor concerning the then novel subject of QE. “I can now understand the term ‘quantitative easing,’ wrote Gerald B. Hill of Stourbridge, West Midlands, “but . . . realize I can no longer understand the meaning of the word ‘money.’”
There isn’t time, in these brief remarks, to persuade you of the necessity of a return to the classical gold standard. I would need another 10 minutes, at least. But I anticipate some skepticism. Very well then, consider this fact: On March 27, 1973, not quite 39 years ago, the forerunner to today’s G-20 solemnly agreed that the special drawing right, a.k.a. SDR, “will become the principal reserve asset and the role of gold and reserve currencies will be reduced.” That was the establishment— i.e., you—talking. If a worldwide accord on the efficacy of the SDR is possible, all things are possible, including a return to the least imperfect international monetary standard that has ever worked.
Notice, I do not say the perfect monetary system or best monetary system ever dreamt up by a theoretical economist. The classical gold standard, 1879-1914, “with all its anomalies and exceptions . . . ‘worked.’” The quoted words I draw from a book entitled, “The Rules of the Game: Reform and Evolution in the International Monetary System,” by Kenneth W. Dam, a law professor and former provost of the University of Chicago. Dam’s was a grudging admiration, a little like that of the New York Fed’s own Arthur Bloomfield, whose 1959 monograph, “Monetary Policy under the International Gold Standard,” was published by yourselves. No, Bloomfield points out, as does Dam, the classical gold standard was not quite automatic. But it was synchronous, it was self-correcting and it did deliver both national solvency and, over the long run, uncanny price stability. The banks were solvent, too, even the central banks, which, as Bloomfield noted, monetized no government debt.
The visible hallmark of the classical gold standard was, of course, gold—to every currency holder was given the option of exchanging metal for paper, or paper for metal, at a fixed, statutory rate. Exchange rates were fixed, and I mean fixed. “It is quite remarkable,” Dam writes, “that from 1879 to 1914, in a period considerably longer than from 1945 to the demise of Bretton Woods in 1971, there were no changes of parities between the United States, Britain, France, Germany—not to speak of a number of smaller European countries.” The fruits of this fixedness were many and sweet. Among them, again to quote Dam, “a flow of private foreign investment on a scale the world had never seen, and, relative to other economic aggregates, was never to see again.”
Incidentally, the source of my purchased copy of “Rules of the Game” was the library of the Federal Reserve Bank of Atlanta. Apparently, President Lockhart isn’t preparing, as I am—as, may I suggest, as you should be—for the coming of classical gold standard, Part II. By way of preparation, I commend to you a new book by my friend Lew Lehrman, “The True Gold Standard: A Monetary Reform Plan without Official Reserve Currencies: How We Get from Here to There.”
It’s a little rich, my extolling gold to an institution that sits on 216 million troy ounces of the stuff. Valued at $42.222 per ounce, the hoard in your basement is worth $9.1 billion. Incidentally, the official price was quoted in SDRs, $35 to the ounce—now there’s a quixotic choice for you. In 2008, when your in-house publication, “The Key to the Gold Vault,” was published, the market value was $194 billion. Today, the market value is $359 billion, which is encouraging only if you personally happen to be long gold bullion. Otherwise, it strikes me as a pretty severe condemnation of modern central banking.
And what would I do if, following the inauguration of Ron Paul, I were sitting in the chairman’s office? I would do what I could to begin the normalization of interest rates. I would invite the Wall Street Journal’s Jon Hilsenrath to lunch to let him know that the Fed is now well over its deflation phobia and has put aside its Atlas complex. “It’s capitalism for us, Jon,” I would say. Next I would call President Dudley. “Bill,” I would say, pleasantly, “we’re not exactly leading from the front in the regulatory drive to reduce the ratio of assets to equity at the big American financial institutions. Do you have to be leveraged 89:1?” Finally, I would redirect the efforts of the brainiacs at the Federal Reserve Board research division. “Ladies and gentlemen,” I would say, “enough with ‘Bayesian Analysis of Stochastic Volatility Models with Levy Jumps: Application to Risk Analysis.’ How much better it would please me if you wrote to the subject, ‘Command and Control No More: A Gold Standard for the 21st Century.’” Finally, my pièce de résistance, I would commission, staff and ceremonially open the Fed’s first Office of Unintended Consequences.
Let me thank you once more for the honor that your invitation does me. Concerning little Grant’s and the big Fed, I will quote in parting the opening sentences of an editorial that appeared in a provincial Irish newspaper in the fateful year 1914. It read: “We give this solemn warning to Kaiser Wilhelm: The Skibbereen Eagle has its eye on you.”
Read the piece online here: Must Read: Jim Grant Crucifies The Fed; Explains Why A Gold Standard Is The Best Option | ZeroHedge
One can think of the original Federal Reserve note as a kind of derivative. It derived its value chiefly from gold, into which it was lawfully exchangeable. Now that the Federal Reserve note is exchangeable into nothing except small change, it is a derivative without an underlier. Or, at a stretch, one might say it is a derivative that secures its value from the wisdom of Congress and the foresight and judgment of the monetary scholars at the Federal Reserve. Either way, we would seem to be in dangerous, uncharted waters.
Must Read: Jim Grant Crucifies The Fed; Explains Why A Gold Standard Is The Best Option
The Federal Reserve Bank of New York has invited some of its public critics to visit the bank to unburden themselves of their criticisms. On March 12, it was Jim Grant's turn. The text of his remarks follows. (highlights ours)
Piece Of My Mind
My friends and neighbors, I thank you for this opportunity. You know, we are friends and neighbors. Grant’s makes its offices on Wall Street, overlooking Broadway, a 10-minute stroll from your imposing headquarters. For a spectacular vantage point on the next ticker-tape parade up Broadway, please drop by. We’ll have the windows washed.
You say you would like to hear my complaints, and, on the one hand, I do have a few, while on the other, I can’t help but feel slightly hypocritical in dressing you down. What passes for sound doctrine in 21st-century central banking—so-called financial repression, interest-rate manipulation, stock-price levitation and money printing under the frosted-glass term “quantitative easing”—presents us at Grant’s with a nearly endless supply of good copy. Our symbiotic relationship with the Fed resembles that of Fox News with the Obama administration, or—in an earlier era—that of the Chicago Tribune with the Purple Gang. Grant’s needs the Fed even if the Fed doesn’t need Grant’s.
In the not quite 100 years since the founding of your institution, America has exchanged central banking for a kind of central planning and the gold standard for what I will call the Ph.D. standard. I regret the changes and will propose reforms, or, I suppose, re-reforms, as my program is very much in accord with that of the founders of this institution. Have you ever read the Federal Reserve Act? The authorizing legislation projected a body “to provide for the establishment of the Federal Reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper and to establish a more effective supervision of banking in the United States, and for other purposes.” By now can we identify the operative phrase? Of course: “for other purposes.”
You are lucky, if I may say so, that I’m the one who’s standing here and not the ghost of Sen. Carter Glass. One hesitates to speak for the dead, but I am reasonably sure that the Virginia Democrat, who regarded himself as the father of the Fed, would skewer you. He had an abhorrence of paper money and government debt. He didn’t like Wall Street, either, and I’m going to guess that he wouldn’t much care for the Fed raising up stock prices under the theory of the “portfolio balance channel.”
It enflamed him that during congressional debate over the Federal Reserve Act, Elihu Root, Republican senator from New York, impugned the anticipated Federal Reserve notes as “fiat” currency. Fiat, indeed! Glass snorted. The nation was on the gold standard. It would remain on the gold standard, Glass had no reason to doubt. The projected notes of the Federal Reserve would—of course—be convertible into gold on demand at the fixed statutory rate of $20.67 per ounce. But more stood behind the notes than gold. They would be collateralized, as well, by sound commercial assets, by the issuing member bank and—a point to which I will return— by the so-called double liability of the issuing bank’s stockholders.
If Glass had the stronger argument, Root had the clearer vision. One can think of the original Federal Reserve note as a kind of derivative. It derived its value chiefly from gold, into which it was lawfully exchangeable. Now that the Federal Reserve note is exchangeable into nothing except small change, it is a derivative without an underlier. Or, at a stretch, one might say it is a derivative that secures its value from the wisdom of Congress and the foresight and judgment of the monetary scholars at the Federal Reserve. Either way, we would seem to be in dangerous, uncharted waters.
As you prepare to mark the Fed’s centenary, may I urge you to reflect on just how far you have wandered from the intentions of the founders? The institution they envisioned would operate passively, through the discount window. It would not create credit but rather liquefy the existing stock of credit by turning good-quality commercial bills into cash— temporarily. This it would do according to the demands of the seasons and the cycle. The Fed would respond to the community, not try to anticipate or lead it. It would not override the price mechanism— as today’s Fed seems to do at every available opportunity—but yield to it.
My favorite exposition of the sound, original doctrines is a book entitled, “The Theory and Practice of Central Banking,” by H. Parker Willis, first secretaryof the Federal Reserve Board and Glass’s right-hand man in the House of Representatives.
Writing in the mid-1930s, Willis pointed out that the Fed fell into sin almost immediately after it opened for business in 1914. In 1917, after the United States entered the Great War, the Fed set about monetizing the Treasury’s debt and suppressing the Treasury’s borrowing costs. In the 1920s, after the recovery from the short but ugly depression of 1920-21, the Fed started to implement open-market operations to sterilize gold flows and steer a desired macroeconomic course.
“Central banks,” wrote Willis, glaring at the innovators, “…will do wisely to lay aside their inexpert ventures in halfbaked monetary theory, meretriciousstatistical measures of trade, and hasty grinding of the axes of speculative interests with their suggestion that by doing so they are achieving some sort of vague ‘stabilization’ that will, in the long run, be for the greater good.”
Willis, who died in 1937, perhaps of a broken heart, would be no happier with you today than Glass would be—or I am. The search for “some sort of vague stabilization” in the 1930s has become a Federal Reserve obsession at the millennium.
Ladies and gentlemen, such stability as might be imposed on a dynamic capitalist economy is the kind that eventually comes around to bite the stabilizer.
“Price stability” is a case in point. It is your mandate, or half of your mandate, I realize, but it does grievous harm, as defined. For reasons you never exactlyspell out, you pledge to resist “deflation.” You won’t put up with it, you keep on saying—something about Japan’s lost decade or the Great Depression. But you never say what deflation really is. Let me attempt a definition. Deflation is a derangement of debt, a symptom of which is falling prices. In a credit crisis, when inventories become unfinanceable, merchandise is thrown on the market and prices fall. That’s deflation.
What deflation is not is a drop in prices caused by a technology-enhanced decline in the costs of production. That’s called progress. Between 1875 and 1896, according to Milton Friedman and Anna Schwartz, the American price level subsided at the average rate of 1.7% a year. And why not? As technology was advancing, costs were tumbling. Long before Joseph Schumpeter coined the phrase “creative destruction,” the American economist David A. Wells, writing in 1889, was explaining the consequences of disruptive innovation.
“In the last analysis,” Wells proposes, “it will appear that there is no such thing as fixed capital; there is nothing useful that is very old except the precious metals, and life consists in the conversion of forces. The only capital which is of permanent value is immaterial—the experience of generations and the development of science.”
Much the same sentiments, and much the same circumstances, apply today, but with a difference. Digital technology and a globalized labor force have brought down production costs. But, the central bankers declare, prices must not fall. On the contrary, they must rise by 2% a year. To engineer this up-creep, the Bernankes, the Kings, the Draghis—and yes, sadly, even the Dudleys—of the world monetize assets and push down interest rates. They do this to conquer deflation.
But note, please, that the suppression of interest rates and the conjuring of liquidity set in motion waves of speculative lending and borrowing. This artificially induced activity serves to lift the prices of a favored class of asset—houses, for instance, or Mitt Romney’s portfolio of leveraged companies. And when the central bank-financed bubble bursts, credit contracts, leveraged businesses teeter, inventories are liquidated and prices weaken. In short, a process is set in motion resembling a real deflation, which then calls forth a new bout of monetary intervention. By trying to forestall an imagined deflation, the Federal Reserve comes perilously close to instigating the real thing.
The economist Hyman Minsky laid down the paradox that stability is itself destabilizing. I say that the pledge of a stable funds rate through the fourth quarter of 2014 is hugely destabilizing. Interest rates are prices. They convey information, or ought to. But the only information conveyed in a manipulated yield curve is what the Fed wants. Opportunists don’t have to be told twice how to respond. They buy oil or gold or foreign exchange, not incidentally pushing the price of a gallon of gasoline at the pump to $4 and beyond. Another set of opportunists borrow short and lend long in the credit markets. Not especially caring about the risk of inflation over the long run, this speculative cohort will fund mortgages, junk bonds, Treasurys, what-have-you at zero percent in the short run. The opportunists, a.k.a. the 1 percent, will do fine. But what about the uncomprehending others?
I commend to the Federal Reserve Bank of New York Financial History Book Club (if it doesn’t exist, please organize it at once) a volume by the British scholar and central banker, Charles Goodhart. Its title is “The New York Money Market and the Finance of Trade, 1900-1913.” In the pre-Fed days with which the history deals, the call money rate dove and soared. There was no stability—and a good thing, Goodhart reasons. In a society predisposed to speculate, as America was and is, he writes, unpredictable spikes in borrowing rates kept the players more or less honest. “On the basis of its record,” he writes of the Second Federal Reserve District before there was a Federal Reserve, “the financial system as constituted in the years 1900-1913 must be considered successful to an extent rarely equaled in the United States.” And that not withstanding the Panic of 1907.
My reading of history accords with Goodhart’s, though not with that of the Fed’s front office. If Chairman Bernanke were in the room, I would respectfully ask him why this persistent harking back to the Great Depression? It is one cyclical episode, but there are many others. I myself draw more instruction from the depression of 1920-21, a slump as ugly and steep in its way as that of 1929-33, but with the simple and interesting difference that it ended. Top to bottom, spring 1920 to summer 1921, nominal GDP fell by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was inexactly measured, topped out at about 14% from a pre-bust low of as little as 2%. And how did the administration of Warren G. Harding meet this macroeconomic calamity? Why, it balanced the budget, the president declaring in 1921, as the economy seemed to be falling apart, “There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures.” And the fledgling Fed, face to face with its first big slump, what did it do? Why, it tightened, pushing up short rates in mid-depression to as high as 8.13% from a business cycle peak of 6%. It was the one and only time in the history of this institution that money rates at the trough of a cycle were higher than rates at the peak, according to Allan Meltzer.
But then something wonderful happened: Markets cleared, and a vibrant recovery began. There were plenty of bankruptcies and no few brickbats launched in the direction of the governor of the New York Fed, Benjamin Strong, for the deflation that cut an especially wide and devastating swath through the American farm economy. But in 1922, the first full year of recovery, the Fed’s index of industrial production leapt by 27.3%. By 1923, the unemployment rate was back to 3.2%. The 1920s began to roar.
And do you know that the biggest nationally chartered bank to fail during this deflationary collapse was the First National Bank of Cleburne, Texas, with not quite $2.8 million of deposits? Even the forerunner to today’s Citigroup remained solvent (though for Citi, even then it was a close-run thing, on account of an oversize exposure to deflating Cuban sugar values). No TARP, no starving the savers with zero-percent interest rates, no QE, no jimmying up the stock market, no federal “stimulus” of any kind. Yet—I repeat—the depression ended. To those today who demand ever more intervention to cure what ails us, I ask: Why did the depression of 1920-21 ever end? Given the policies with which the authorities treated it, why are we still not ensnared?
If you object to using the template of 1920-21 as a guide to 21st-century policy because, well, 1920 was a long time ago, I reply that 1929 was a long time ago, too. And if you persist in objecting because the lessons to be derived from the Harding depression are unthinkably at odds with the lessons so familiarly mined from the Hoover and Roosevelt depression, I reply that Harding’s approach worked. The price mechanism is truer and enterprise hardier than the promoters of radical 21st-century intervention seem prepared to acknowledge.
In notable contrast to the Harding method, today’s policies seem not to be working. We legislate and regulate and intervene, but still the patient languishes. It’s a worldwide failure of the institutions of money and credit. I see in the papers that Banca Monte dei Paschi di Siena is in the toils of a debt crisis. For the first time in over 500 years, the foundation that controls this ancient Italian institution may be forced to sell shares. We’ve all heard of hundred-year floods. We seem to be in a kind of 500-year debt flood.
Many now call for more regulation— more such institutions as the Treasury’s brand-new Office of Financial Research, for instance. In the March 8 Financial Times, the columnist Gillian Tett appealed for more resources for the overwhelmed regulators. Inundated with information, she lamented, they can’t keep up with the institutions they are supposed to be safeguarding. To me, the trouble is not that the regulators are ignorant. It’s rather that the owners and managers are unaccountable.
Once upon a time—specifically, between the National Banking Act of 1863 and the Banking Act of 1935—the impairment or bankruptcy of a nationally chartered bank triggered a capital call. Not on the taxpayers, but on the stockholders. It was their bank, after all. Individual accountability in banking was the rule in the advanced economies. Hartley Withers, the editor of The Economist in the early 20th century, shook his head at the micromanagement of American banks by the Office of the Comptroller of the Currency—25% of their deposits had to be kept in cash, i.e., gold or money lawfully convertible into gold. The rules held. Yet New York had panics, London had none. Adjured Withers: “Good banking is produced not by good laws but by good bankers.”
Well said, Withers! And what makes a good banker is more than skill. It is also the fear of God, or, more specifically, accountability for the solvency of the institution that he or she owns or manages. To stay out of trouble, the general partners of Brown Brothers Harriman, Wall Street’s oldest surviving general partnership, need no regulatory pep talk. Each partner is liable for the debts of the firm to the full extent of his or her net worth. My colleague Paul Isaac, who is with me today—he doubles as my food and beverage taster— has an intriguing suggestion for instilling the credit culture more deeply in our semi-socialized banking institutions.
We can’t turn limited liability corporations into general partnerships. Nor could we easily reinstate the so-called double liability law on bank stockholders. But what we could and should do, Paul urges, is to claw back that portion of the compensation paid out by a failed bank in excess of 10 times the average wage in manufacturing for the seven full calendar years before the ruined bank hit the wall. Such a clawback would not be subject to averaging or offset one year to the next. And it would be payable in cash.
The idea, Paul explains, is twofold. First, to remove the government from the business of determining what is, or is not, risky—really, the government doesn’t know. Second, to increase the personal risk of failure for senior management, but stopping short of the sword of Damocles of unlimited personal liability. If bankers are venal, why not harness that venality in the public interest? For the better part of 100 years, and especially in the past five, we have socialized the risks of high finance. All too often, the bankers who take risks don’t themselves bear them. By all means, let the capitalists keep the upside. But let them bear their full share of the downside.
In March 2009, the Financial Times published a letter to the editor concerning the then novel subject of QE. “I can now understand the term ‘quantitative easing,’ wrote Gerald B. Hill of Stourbridge, West Midlands, “but . . . realize I can no longer understand the meaning of the word ‘money.’”
There isn’t time, in these brief remarks, to persuade you of the necessity of a return to the classical gold standard. I would need another 10 minutes, at least. But I anticipate some skepticism. Very well then, consider this fact: On March 27, 1973, not quite 39 years ago, the forerunner to today’s G-20 solemnly agreed that the special drawing right, a.k.a. SDR, “will become the principal reserve asset and the role of gold and reserve currencies will be reduced.” That was the establishment— i.e., you—talking. If a worldwide accord on the efficacy of the SDR is possible, all things are possible, including a return to the least imperfect international monetary standard that has ever worked.
Notice, I do not say the perfect monetary system or best monetary system ever dreamt up by a theoretical economist. The classical gold standard, 1879-1914, “with all its anomalies and exceptions . . . ‘worked.’” The quoted words I draw from a book entitled, “The Rules of the Game: Reform and Evolution in the International Monetary System,” by Kenneth W. Dam, a law professor and former provost of the University of Chicago. Dam’s was a grudging admiration, a little like that of the New York Fed’s own Arthur Bloomfield, whose 1959 monograph, “Monetary Policy under the International Gold Standard,” was published by yourselves. No, Bloomfield points out, as does Dam, the classical gold standard was not quite automatic. But it was synchronous, it was self-correcting and it did deliver both national solvency and, over the long run, uncanny price stability. The banks were solvent, too, even the central banks, which, as Bloomfield noted, monetized no government debt.
The visible hallmark of the classical gold standard was, of course, gold—to every currency holder was given the option of exchanging metal for paper, or paper for metal, at a fixed, statutory rate. Exchange rates were fixed, and I mean fixed. “It is quite remarkable,” Dam writes, “that from 1879 to 1914, in a period considerably longer than from 1945 to the demise of Bretton Woods in 1971, there were no changes of parities between the United States, Britain, France, Germany—not to speak of a number of smaller European countries.” The fruits of this fixedness were many and sweet. Among them, again to quote Dam, “a flow of private foreign investment on a scale the world had never seen, and, relative to other economic aggregates, was never to see again.”
Incidentally, the source of my purchased copy of “Rules of the Game” was the library of the Federal Reserve Bank of Atlanta. Apparently, President Lockhart isn’t preparing, as I am—as, may I suggest, as you should be—for the coming of classical gold standard, Part II. By way of preparation, I commend to you a new book by my friend Lew Lehrman, “The True Gold Standard: A Monetary Reform Plan without Official Reserve Currencies: How We Get from Here to There.”
It’s a little rich, my extolling gold to an institution that sits on 216 million troy ounces of the stuff. Valued at $42.222 per ounce, the hoard in your basement is worth $9.1 billion. Incidentally, the official price was quoted in SDRs, $35 to the ounce—now there’s a quixotic choice for you. In 2008, when your in-house publication, “The Key to the Gold Vault,” was published, the market value was $194 billion. Today, the market value is $359 billion, which is encouraging only if you personally happen to be long gold bullion. Otherwise, it strikes me as a pretty severe condemnation of modern central banking.
And what would I do if, following the inauguration of Ron Paul, I were sitting in the chairman’s office? I would do what I could to begin the normalization of interest rates. I would invite the Wall Street Journal’s Jon Hilsenrath to lunch to let him know that the Fed is now well over its deflation phobia and has put aside its Atlas complex. “It’s capitalism for us, Jon,” I would say. Next I would call President Dudley. “Bill,” I would say, pleasantly, “we’re not exactly leading from the front in the regulatory drive to reduce the ratio of assets to equity at the big American financial institutions. Do you have to be leveraged 89:1?” Finally, I would redirect the efforts of the brainiacs at the Federal Reserve Board research division. “Ladies and gentlemen,” I would say, “enough with ‘Bayesian Analysis of Stochastic Volatility Models with Levy Jumps: Application to Risk Analysis.’ How much better it would please me if you wrote to the subject, ‘Command and Control No More: A Gold Standard for the 21st Century.’” Finally, my pièce de résistance, I would commission, staff and ceremonially open the Fed’s first Office of Unintended Consequences.
Let me thank you once more for the honor that your invitation does me. Concerning little Grant’s and the big Fed, I will quote in parting the opening sentences of an editorial that appeared in a provincial Irish newspaper in the fateful year 1914. It read: “We give this solemn warning to Kaiser Wilhelm: The Skibbereen Eagle has its eye on you.”
Read the piece online here: Must Read: Jim Grant Crucifies The Fed; Explains Why A Gold Standard Is The Best Option | ZeroHedge
Goldman commodities crown slips as traders exit - Yahoo! News
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Goldman commodities crown slips as traders exit
Yahoo! News
LONDON (Reuters) - At least 20 commodities traders, several senior, have left Goldman Sachs in the past months, dealing a blow to Wall Street's long-time king of commodities as talent moves to better paying trading houses and hedge funds.
The departures, according to around a dozen insiders and trading sources, mirror the exodus of traders from rival banks over the past two years.
The outflow is driven by shrinking profits and tighter regulation of banking, which gives funds and trading houses greater scope to trade and to reward success.
Goldman said the departures will not have an impact on its standing in commodities.
"We are not downsizing our commodities business. It remains a core part of our franchise," a spokesman for Goldman said. "The positions we need to refill, we will refill".
A source at Goldman said the departures were a combination of resignations and regular annual headcount reductions, and were not specific to commodities but happening across all the bank's businesses.
But insiders say some of the departures were triggered by unusually low bonuses at Goldman, widely recognized over the past 20 years as the most prestigious and well paying of the big five banks in commodities alongside JP Morgan , Morgan Stanley , Deutsche Bank and Barclays .
Earlier this month, Reuters reported that Goldman had ceded leadership in commodities trading revenues to JPMorgan, according to regulatory disclosures by the banks.
March 28, 2012
Dollar the underlying tide in gold price performance - WHATS NEW - Mineweb.com | The world's premier mining and mining investment website Mineweb
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Commodities,
News
Dollar the underlying tide in gold price performance
A re-emphasis that the gold price is primarily dependent on the intrinsic value of the U.S. dollar and moves like waves on a seashore around an incoming, or outgoing tide.
Author: Julian Phillips
Posted: Wednesday , 28 Mar 2012
BENONI -
Perception makes prices not realities in the very short-term and traders in the developed markets of the world decide the short-term level of prices. In the past we have used an analogy of the seashore to describe this situation. The currents and the tides are the deciding factors on whether there is a flowing or ebb tide and current. But on the seashore itself this is difficult to see except by looking at the waterline. Waves go in and out some further than others irrespective of the direction of the tide. Now add to this the wind, which can whip up the size of the waves and the surf. Add some spray and you can see a furious display by the waves, but they remain under the dominance of the tides, no matter how furious they get. Such is the gold market.
The news that Fed Chairman Mr. Ben Bernanke will keep accommodative policies in place to further encourage the recovery sparked the latest surge in the gold price in New York but as we have said many times before, the state of the U.S. economy is not a major fundamental factor in the gold price. It is the state of the U.S. dollar in terms of value and structure that remains the underlying tide in the gold price, together with demand from the emerging world.
In India the jewelers strike is on again as they object to the government's duty hikes. The recent move to reduce tariff value has been termed an infinitesimal gesture. Over the weekend, the Indian government has reduced the import tariff value of gold by 7.50%. Though the announcement was made through a notification from the Ministry of Finance, the small reduction will not counter the impact of increased customs duty.
History shows that the government eventually backs off their position because the gold market is far more that just a gold market. It is a fundamental aspect of Indian financial life with strong doses of religion and family thrown in. This means it affects votes. We expect the government to again back track on its position.
Juliam Phillips for the Gold and Silver Forecasters - www.gtoldforecaster.com and www.silverforecaster.com
See the article online here:
Dollar the underlying tide in gold price performance - WHATS NEW - Mineweb.com | The world's premier mining and mining investment website Mineweb
A re-emphasis that the gold price is primarily dependent on the intrinsic value of the U.S. dollar and moves like waves on a seashore around an incoming, or outgoing tide.
Author: Julian Phillips
Posted: Wednesday , 28 Mar 2012
BENONI -
Perception makes prices not realities in the very short-term and traders in the developed markets of the world decide the short-term level of prices. In the past we have used an analogy of the seashore to describe this situation. The currents and the tides are the deciding factors on whether there is a flowing or ebb tide and current. But on the seashore itself this is difficult to see except by looking at the waterline. Waves go in and out some further than others irrespective of the direction of the tide. Now add to this the wind, which can whip up the size of the waves and the surf. Add some spray and you can see a furious display by the waves, but they remain under the dominance of the tides, no matter how furious they get. Such is the gold market.
The news that Fed Chairman Mr. Ben Bernanke will keep accommodative policies in place to further encourage the recovery sparked the latest surge in the gold price in New York but as we have said many times before, the state of the U.S. economy is not a major fundamental factor in the gold price. It is the state of the U.S. dollar in terms of value and structure that remains the underlying tide in the gold price, together with demand from the emerging world.
In India the jewelers strike is on again as they object to the government's duty hikes. The recent move to reduce tariff value has been termed an infinitesimal gesture. Over the weekend, the Indian government has reduced the import tariff value of gold by 7.50%. Though the announcement was made through a notification from the Ministry of Finance, the small reduction will not counter the impact of increased customs duty.
History shows that the government eventually backs off their position because the gold market is far more that just a gold market. It is a fundamental aspect of Indian financial life with strong doses of religion and family thrown in. This means it affects votes. We expect the government to again back track on its position.
Juliam Phillips for the Gold and Silver Forecasters - www.gtoldforecaster.com and www.silverforecaster.com
See the article online here:
Dollar the underlying tide in gold price performance - WHATS NEW - Mineweb.com | The world's premier mining and mining investment website Mineweb
Is The Coup In #Mali Creating A Contrarian Buying Opportunity For #Gold Stocks? - Seeking Alpha
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Is The Coup In Mali Creating A Contrarian Buying Opportunity For Gold Stocks?
A big piece of news likely to be of interest to those investing in gold stocks is the coup that is ocurring in Mali. The EU has responded by suspending development operations; likewise, the US has cut off aid until what it deems is a democratic government is restored. China has condemned the coup as well. Basically, no one is a fan.
Which of course begs the question: is this a contrarian buying opportunity? Major miners with significant operations in Mali -- namely Randgold (GOLD), AngloGold Ashanti (AU), IAMGOLD (IAG), and Gold Fields Limited (GFI) -- have sold off a bit following the advent of the Mali coup. Randgold, a company with a market cap of $8 billion, positive earnings, and dividends, had a particularly strong sell-off; it managed to fall over 17% in the past week.
For what it's worth, these firms in Mali remain committed, and say the coup is not affecting their operations and there is no cause for concern. I'm not inclined to believe them here, and think they are understandably just trying to allay shareholder concern and preserve confidence in their operations. I'm bullish on Africa as a whole, but this is primarily because I view China as the smart money that will push opportunities in Africa up. From this perspective, if China is not supportive, I grow much more concerned about the ability of value to be created and price to rise accordingly. With that said, if there is a really, really strong sell-off, I may look to buy; some of these stocks, like AngloGold, are trading at a P/E of just above 10 and have a dividend yield of 2.73%. If price can fall by at least another 30% without any impact in earnings, I may find the opportunity to be sufficiently cheap. But thus far the coup in Mali has not provided an opportunity I would regard as particularly worthwhile for contrarian buyers. And given that stocks have done quite well thus far in 2012, I think any additional buying, especially for those who are already reasonably well-positioned in stocks, should be done with extra caution.
So while I'm generally not that interested in a contrarian opportunity in Mali at this time, there is one exception: Merrex Gold (MXGIF.PK). Merrex has a market cap of under $30 million, so we're dealing with an especially tiny stock here. IAMGOLD is a major partner of the firm on some of their operations and has a 15% stake as well. The NI 43-101 report for its Siribaya Project claims over 316,000 ounces at 3.31 grams per ton -- an especially high grade, in my opinion, which I regard as a sign that its final cost per ounce produced may be low enough to yield exceptional profit margins. With this project (in addition to others), IAMGOLD's support, and its low market cap, I think this is a particularly worthwhile opportunity. It should be noted that the stock has not really declined since the start of the Mali coup, and it is still close to its 52 week low; it's currently trading at around $0.24, while its 52 week low is at $0.20. That the stock is not reacting negatively to this news suggests me to the bottom is in, and if it can deliver on its promising exploration efforts with the assistance of a major partner like IAMGOLD, shareholders could be in for some great returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
See the article online here: Is The Coup In Mali Creating A Contrarian Buying Opportunity For Gold Stocks? - Seeking Alpha
A big piece of news likely to be of interest to those investing in gold stocks is the coup that is ocurring in Mali. The EU has responded by suspending development operations; likewise, the US has cut off aid until what it deems is a democratic government is restored. China has condemned the coup as well. Basically, no one is a fan.
Which of course begs the question: is this a contrarian buying opportunity? Major miners with significant operations in Mali -- namely Randgold (GOLD), AngloGold Ashanti (AU), IAMGOLD (IAG), and Gold Fields Limited (GFI) -- have sold off a bit following the advent of the Mali coup. Randgold, a company with a market cap of $8 billion, positive earnings, and dividends, had a particularly strong sell-off; it managed to fall over 17% in the past week.
For what it's worth, these firms in Mali remain committed, and say the coup is not affecting their operations and there is no cause for concern. I'm not inclined to believe them here, and think they are understandably just trying to allay shareholder concern and preserve confidence in their operations. I'm bullish on Africa as a whole, but this is primarily because I view China as the smart money that will push opportunities in Africa up. From this perspective, if China is not supportive, I grow much more concerned about the ability of value to be created and price to rise accordingly. With that said, if there is a really, really strong sell-off, I may look to buy; some of these stocks, like AngloGold, are trading at a P/E of just above 10 and have a dividend yield of 2.73%. If price can fall by at least another 30% without any impact in earnings, I may find the opportunity to be sufficiently cheap. But thus far the coup in Mali has not provided an opportunity I would regard as particularly worthwhile for contrarian buyers. And given that stocks have done quite well thus far in 2012, I think any additional buying, especially for those who are already reasonably well-positioned in stocks, should be done with extra caution.
So while I'm generally not that interested in a contrarian opportunity in Mali at this time, there is one exception: Merrex Gold (MXGIF.PK). Merrex has a market cap of under $30 million, so we're dealing with an especially tiny stock here. IAMGOLD is a major partner of the firm on some of their operations and has a 15% stake as well. The NI 43-101 report for its Siribaya Project claims over 316,000 ounces at 3.31 grams per ton -- an especially high grade, in my opinion, which I regard as a sign that its final cost per ounce produced may be low enough to yield exceptional profit margins. With this project (in addition to others), IAMGOLD's support, and its low market cap, I think this is a particularly worthwhile opportunity. It should be noted that the stock has not really declined since the start of the Mali coup, and it is still close to its 52 week low; it's currently trading at around $0.24, while its 52 week low is at $0.20. That the stock is not reacting negatively to this news suggests me to the bottom is in, and if it can deliver on its promising exploration efforts with the assistance of a major partner like IAMGOLD, shareholders could be in for some great returns.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
See the article online here: Is The Coup In Mali Creating A Contrarian Buying Opportunity For Gold Stocks? - Seeking Alpha
March 26, 2012
March 20, 2012
Illegal #Coltan mining in #Venezuela - Buhoneros del coltán - EL UNIVERSAL
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Very interesting article on the illegal Coltan mining trade in Venezuela. The article is in Spanish.
Buhoneros del coltán - Nacional y PolÃtica - EL UNIVERSAL
________________________ The MasterBlog
Buhoneros del coltán - Nacional y PolÃtica - EL UNIVERSAL
________________________ The MasterBlog
March 19, 2012
Exclusive: #Congo under scrutiny over #Hezbollah business links | Reuters
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News
Exclusive: Congo under scrutiny over Hezbollah business links | Reuters
By Dino Mahtani
LONDON | Fri Mar 16, 2012 10:40am EDT
(Reuters) - Democratic Republic of Congo has awarded lucrative forestry concessions to a company controlled by a Lebanese businessman who also runs a firm subject to sanctions by the United States as a front for Hezbollah.
The 2011 concessions issued by Congo's environment ministry to the Trans-M company, seen by Reuters, could complicate Washington's efforts to curb what it says are the Lebanese militant movement's growing business activities in Africa.
The concessions cover 25-year leases for hundreds of thousands of hectares of rainforest in the central African country, the world's second forest "lung" after the Amazon. The concessions are capable of generating hundreds of millions of dollars in revenues over 25 years, if fully exploited, forestry experts say.
Trans-M is controlled by businessman Ahmed Tajideen (whose name is also given as Tajeddine in U.S. Treasury documents). He also runs another company, Congo Futur, which the U.S. government says is a front for Hezbollah. Congo Futur cites sawmilling as one of its businesses.
The U.S. Treasury Department put Congo Futur under targeted sanctions in 2010, saying the firm was part of a network of businesses ultimately controlled by Tajideen's three brothers, Kassim, Husayn and Ali, and that this generated "millions of dollars in funding" for Hezbollah.
The sanctions aim to block U.S. dollar transfers linked to the trio, part of wider U.S. efforts to counter what Washington sees as increasing business activity in Africa by Hezbollah, which it calls "among the most dangerous terrorist groups in the world". Hezbollah has denied U.S. accusations that it is linked to money-laundering and the international narcotics trade.
Ahmed Tajideen, who is not subject to U.S. Treasury sanctions, says his brothers have no share of Congo Futur or Trans-M and that the companies are neither directly related to each other nor act as front companies for Hezbollah.
"I am the majority shareholder of both companies," Tajideen told Reuters earlier this month.
"I created both companies independently of each other", he said. "My brothers have nothing to do with the companies".
EMBARRASSING FOR KABILA
But leaked U.S. diplomatic cables produced in 2000 quote Ahmed Tajideen as saying Congo Futur established Trans-M, which is also described as a "subsidiary" of Congo Futur on the website of Congo's official investment authority, ANAPI.
"The question for the Congolese government is whether they really want to continue doing business with a company that is linked to a terrorist organization?" said a U.S. official who monitors Congo, but asked not to be named.
John Sullivan, a U.S. Treasury spokesman, told Reuters that if Trans-M was majority owned by Congo Futur, it would face sanctions. He would not comment on the immediate status of Ahmed Tajideen or Trans-M.
"Treasury does not comment on possible enforcement actions or designations," he said.
The Trans-M forestry concessions are an embarrassment for the government of President Joseph Kabila, who was returned to office in last year's troubled presidential elections that were criticized by the United States as "seriously flawed".
Seraphim Ngwej, a senior advisor to president Kabila, told Reuters the U.S. government had not officially communicated any allegations about the concessions to Congo's government.
He said he would be willing to assist. "But there must be proof," Ngwej said.
Leopold Kalala Ndjibu-Kalema, a senior legal adviser to Congo's environment ministry, said in an official statement that there is "no concrete proof" that Trans-M is involved in Hezbollah activities and insisted its concessions had nothing to do with Congo Futur.
But a European Union-funded forestry publication in 2011 refers to Congo Futur as the "parent company" of Trans-M. Employees and a business partner of Congo Futur contacted by Reuters have also stated Trans-M is a "subsidiary" of Congo Futur and is owned by all the Tajideen brothers.
"WEAK STATES"
U.S. officials are concerned that Congo, whose location in the heart of Africa makes it important for the continent's stability, may become a safe haven for Hezbollah financiers looking to take advantage of weak financial regulation in the lawless and commodity rich central African giant.
"We do have major concerns about all weak states, and especially places like Congo," said one U.S. official who asked not to be named. "The attention here in Washington is pretty high," he added.
U.S. authorities last year put the spotlight on Hezbollah's Africa-based activities by unveiling a Drug Enforcement Administration (DEA) probe alleging the Iranian-backed group was involved in money laundering activities in West Africa linked to the narcotics and second hand car trade.
The Tajideen family has operated real estate, diamond export, supermarket and food processing businesses across Angola, Gambia and Sierra Leone and Congo for many years, the U.S. Treasury says.
West and Central Africa host significant and long-established Lebanese diaspora communities. But U.S. interest in the Tajideen family sharpened in 2003 when Belgian police raided the Antwerp offices of a company managed by Kassim Tajideen and accused it of "large scale tax fraud, money laundering and trade in diamonds of doubtful origin". No charges were brought in Belgium.
The U.S. Treasury made Kassim Tajideen subject to sanctions in 2009 and in 2010 also sanctioned Husayn Tajideen and Ali Tajideen, who it says was once a Hezbollah commander in Lebanon. The Treasury says Husayn and Ali are amongst Hezbollah's "top financiers in Africa".
A Hezbollah official declined to comment on the U.S. allegations. When the Treasury sanctioned some of the family's companies in 2010, U.S. citizens were barred from doing business with them. But some of the companies continued to operate freely in their host countries, including Congo Futur.
Israel has also expressed concern about what it says are growing Hezbollah financial interests in Africa.
Ron Prosor, Israel's ambassador to the United Nations, told the Security Council last month that he was particularly concerned that West Africa had become a "hub" for Hezbollah. But he did not refer to central Africa or Congo.
Powerful Israeli businessmen still retain good relations with president Kabila, notably Dan Gertler, a wealthy diamond merchant who controls numerous mining and other interests in Congo, many managed via offshore companies.
(Additional reporting by Jonny Hogg in Kinshasa; Editing by Pascal Fletcher)
See thé article online here: Exclusive: Congo under scrutiny over Hezbollah business links | Reuters
By Dino Mahtani
LONDON | Fri Mar 16, 2012 10:40am EDT
(Reuters) - Democratic Republic of Congo has awarded lucrative forestry concessions to a company controlled by a Lebanese businessman who also runs a firm subject to sanctions by the United States as a front for Hezbollah.
The 2011 concessions issued by Congo's environment ministry to the Trans-M company, seen by Reuters, could complicate Washington's efforts to curb what it says are the Lebanese militant movement's growing business activities in Africa.
The concessions cover 25-year leases for hundreds of thousands of hectares of rainforest in the central African country, the world's second forest "lung" after the Amazon. The concessions are capable of generating hundreds of millions of dollars in revenues over 25 years, if fully exploited, forestry experts say.
Trans-M is controlled by businessman Ahmed Tajideen (whose name is also given as Tajeddine in U.S. Treasury documents). He also runs another company, Congo Futur, which the U.S. government says is a front for Hezbollah. Congo Futur cites sawmilling as one of its businesses.
The U.S. Treasury Department put Congo Futur under targeted sanctions in 2010, saying the firm was part of a network of businesses ultimately controlled by Tajideen's three brothers, Kassim, Husayn and Ali, and that this generated "millions of dollars in funding" for Hezbollah.
The sanctions aim to block U.S. dollar transfers linked to the trio, part of wider U.S. efforts to counter what Washington sees as increasing business activity in Africa by Hezbollah, which it calls "among the most dangerous terrorist groups in the world". Hezbollah has denied U.S. accusations that it is linked to money-laundering and the international narcotics trade.
Ahmed Tajideen, who is not subject to U.S. Treasury sanctions, says his brothers have no share of Congo Futur or Trans-M and that the companies are neither directly related to each other nor act as front companies for Hezbollah.
"I am the majority shareholder of both companies," Tajideen told Reuters earlier this month.
"I created both companies independently of each other", he said. "My brothers have nothing to do with the companies".
EMBARRASSING FOR KABILA
But leaked U.S. diplomatic cables produced in 2000 quote Ahmed Tajideen as saying Congo Futur established Trans-M, which is also described as a "subsidiary" of Congo Futur on the website of Congo's official investment authority, ANAPI.
"The question for the Congolese government is whether they really want to continue doing business with a company that is linked to a terrorist organization?" said a U.S. official who monitors Congo, but asked not to be named.
John Sullivan, a U.S. Treasury spokesman, told Reuters that if Trans-M was majority owned by Congo Futur, it would face sanctions. He would not comment on the immediate status of Ahmed Tajideen or Trans-M.
"Treasury does not comment on possible enforcement actions or designations," he said.
The Trans-M forestry concessions are an embarrassment for the government of President Joseph Kabila, who was returned to office in last year's troubled presidential elections that were criticized by the United States as "seriously flawed".
Seraphim Ngwej, a senior advisor to president Kabila, told Reuters the U.S. government had not officially communicated any allegations about the concessions to Congo's government.
He said he would be willing to assist. "But there must be proof," Ngwej said.
Leopold Kalala Ndjibu-Kalema, a senior legal adviser to Congo's environment ministry, said in an official statement that there is "no concrete proof" that Trans-M is involved in Hezbollah activities and insisted its concessions had nothing to do with Congo Futur.
But a European Union-funded forestry publication in 2011 refers to Congo Futur as the "parent company" of Trans-M. Employees and a business partner of Congo Futur contacted by Reuters have also stated Trans-M is a "subsidiary" of Congo Futur and is owned by all the Tajideen brothers.
"WEAK STATES"
U.S. officials are concerned that Congo, whose location in the heart of Africa makes it important for the continent's stability, may become a safe haven for Hezbollah financiers looking to take advantage of weak financial regulation in the lawless and commodity rich central African giant.
"We do have major concerns about all weak states, and especially places like Congo," said one U.S. official who asked not to be named. "The attention here in Washington is pretty high," he added.
U.S. authorities last year put the spotlight on Hezbollah's Africa-based activities by unveiling a Drug Enforcement Administration (DEA) probe alleging the Iranian-backed group was involved in money laundering activities in West Africa linked to the narcotics and second hand car trade.
The Tajideen family has operated real estate, diamond export, supermarket and food processing businesses across Angola, Gambia and Sierra Leone and Congo for many years, the U.S. Treasury says.
West and Central Africa host significant and long-established Lebanese diaspora communities. But U.S. interest in the Tajideen family sharpened in 2003 when Belgian police raided the Antwerp offices of a company managed by Kassim Tajideen and accused it of "large scale tax fraud, money laundering and trade in diamonds of doubtful origin". No charges were brought in Belgium.
The U.S. Treasury made Kassim Tajideen subject to sanctions in 2009 and in 2010 also sanctioned Husayn Tajideen and Ali Tajideen, who it says was once a Hezbollah commander in Lebanon. The Treasury says Husayn and Ali are amongst Hezbollah's "top financiers in Africa".
A Hezbollah official declined to comment on the U.S. allegations. When the Treasury sanctioned some of the family's companies in 2010, U.S. citizens were barred from doing business with them. But some of the companies continued to operate freely in their host countries, including Congo Futur.
Israel has also expressed concern about what it says are growing Hezbollah financial interests in Africa.
Ron Prosor, Israel's ambassador to the United Nations, told the Security Council last month that he was particularly concerned that West Africa had become a "hub" for Hezbollah. But he did not refer to central Africa or Congo.
Powerful Israeli businessmen still retain good relations with president Kabila, notably Dan Gertler, a wealthy diamond merchant who controls numerous mining and other interests in Congo, many managed via offshore companies.
(Additional reporting by Jonny Hogg in Kinshasa; Editing by Pascal Fletcher)
See thé article online here: Exclusive: Congo under scrutiny over Hezbollah business links | Reuters
Cost overruns, write downs leave #Kinross Gold priced for takeover
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Cost overruns, write downs leave Kinross Gold priced for takeover
Conclusion: the article below published by Reuters this morning highlights the attractiveness of Kinross as an M&A target. BMO research shows that you can now buy Kinross and NOT pay anything for the growth assets ( Tasiast, FDN and Lobo-Marte).
Cost overruns, write downs leave Kinross Gold priced for takeover
With the miner's stock having fallen by nearly half since September, bankers see it a target for bigger players who are always on the hunt for deposits to replenish their reserves.
Author: By Pav Jordan and Euan Rocha
Posted: Monday , 19 Mar 2012
TORONTO (Reuters) -
Cost overruns and a massive writedown have knocked Kinross Gold's stock so low that some bankers see it as Canada's biggest potential takeover play, though obstacles to a bid for the senior gold producer may be too big to surmount.
Kinross, the world's seventh-largest gold miner, owns some huge, largely unexploited assets spread across four continents, making it an appealing target for bigger players who are always on the hunt for deposits to replenish their reserves.
Despite a huge reserve base its stock, which traded for nearly C$19 at the start of 2011, closed at C$9.90 on Friday as mounting concerns about the cost of developing its flagship project sapped investor confidence.
"We haven't seen anyone make a move on Kinross yet, but to me, I would think that for anyone who wants a company with a lot of growth assets, this makes a lot of sense," said Stifel Nicolaus analyst George Topping. "It's the cheapest senior by a long shot."
Bankers point to Barrick Gold and Goldcorp, Canada's top two gold miners, as companies with the means to consider an acquisition. U.S.-based gold mining giant Newmont Mining Corp was also named as a possible buyer.
On an in situ basis, the proven and probable gold reserves of Kinross are being valued by the market at less than $200 an ounce, well under Barrick's reserves at some $325 per ounce and even Newmont and Goldcorp at about $275 and $580 an ounce. Although this does not factor in capital and operating costs, it highlights the appeal for potential bidders.
At the BMO Global Metals and Mining Conference in Hollywood, Florida, last month, the future of Kinross was the subject of much speculation, from the meeting rooms to the bars.
Kinross Chief Executive Tye Burt got the ball rolling early, saying the company may consider selling its 50 percent stake in the Crixas underground gold mine in Brazil and its 25 percent stake in the Cerro Casale gold-silver-copper project in Chile.
"It was insane how many people were talking about a Kinross breakup at that conference," said one U.S. investment banker focused on the resource sector who spoke off the record because of company policy.
BLESSING TO BANE
But despite these selling points, bankers and analysts said that the factors keeping the stock appetizingly cheap may also drive prospective buyers away.
The main obstacles are the Tasiast gold mine in Mauritania and Chirano mine in Ghana, brought into the Kinross fold with considerable fanfare in its blockbuster $7.1 billion acquisition of Red Back Mining in 2010.
The assets have gone from being a blessing to a bane for the company, which has seen its market capitalization shaved nearly by half since September as concerns have mounted over the cost of developing Tasiast and other projects.
Kinross earlier this year said it would take a massive $2.94 billion non-cash goodwill impairment charge related to its acquisition of the Tasiast and Chirano mines.
"On a per ounce basis of reserves, they paid through the nose for Tasiast," Morningstar analyst Min Tang-Varner said of the asset, which now accounts for over 20 percent of the miner's combined gold reserves and resources.
"Time has passed and the market is just getting antsy," she said. "They've paid a steep price for it and we haven't seen anything that really justifies the acquisition price paid out."
Bankers said any acquisition approach for Kinross would likely have to be friendly because prospective buyers will want to see data on Tasiast before tabling an offer.
Kinross declined to comment about the takeover speculation.
"We would note that these rumors result from our share price being undervalued, which in turn suggests that Kinross currently presents a significant buying opportunity," said Steve Mitchell, the miner's head of corporate communications.
BIG SHAREHOLDERS COULD SPUR DEAL
Potential suitors for Kinross also have their own situations to consider before making a bid.
Barrick, the world's top gold miner, is still integrating the assets of copper miner Equinox, which it acquired for more than $7 billion less than a year ago. Another major takeover may not be well received by shareholders.
While some like Goldcorp's prospects as a buyer, skeptics note that the current assets of Kinross have much higher average operating costs. This means an acquisition would move Goldcorp up the cost curve, an unattractive prospect in a sector that is fighting to keep costs in check.
Goldcorp Chief Executive Chuck Jeannes has also stressed that his company intends to focus on growth in low-risk mining jurisdictions. The most promising Kinross assets are in more politically risky places like Ecuador and Russia.
Newmont, the world's second-largest gold miner, could be a more likely suitor, as the company may want new assets to sink its teeth into given setbacks on projects like Hope Bay in the Canadian Arctic and Conga in Peru.
Barrick, Goldcorp and Newmont all declined comment for this story, or were not immediately reachable.
In the end, the fate of Kinross may be decided by a handful of big institutional shareholders, who together control 20 to 30 percent of the stock in each of the four miners. If the Kinross share price stays depressed these investors could nudge management toward a deal.
Kinross typically holds its annual shareholder meeting in the first week of May. It has yet to set a date for this year.
"You can expect some shareholder activism in this case," said one Toronto-based investment banker, who declined to be identified because of company policy.
© Thomson Reuters 2012 All rights reserved
March 17, 2012
Rusoro says Venezuela will likely nationalise its gold assets, shares fall 12% - POLITICAL ECONOMY | Mineweb
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Rusoro says Venezuela will likely nationalise its gold assets, shares fall 12%
Vancouver-based Rusoro Mining is preparing to seek international arbitration to obtain compensation for the assets it expects to be nationalised after a deadline to negotiate with the government lapsed.
Author: By Nathan Crooks
Posted: Friday , 16 Mar 2012
VENEZUELA (Bloomberg) -
Rusoro Mining Ltd. (RML), the last remaining publicly traded gold miner in Venezuela, expects its gold assets in the South American country to be taken over after a deadline to negotiate with the government lapsed, Chief Executive Officer Andre Agapov said. The stock slid 12 percent.
Rusoro is preparing to seek international arbitration to obtain compensation for the assets as the Venezuelan government's joint venture offers undervalue the company's gold resources, Agapov said today in a phone interview from New York.
"As of today, all the assets will be nationalized and they will take control of operations," Agapov said.
Rusoro, based in Vancouver, began talks to form a joint venture with state oil company Petroleos de Venezuela SA and transfer 55 percent of its gold assets to the government in August after President Hugo Chavez nationalized the industry. Rusoro would be the fifth mining company seeking compensation from Venezuela through the World Bank's arbitration court following nationalizations.
The government made two verbal offers, including one presented two days ago, to compensate Rusoro for a reduced holding and didn't put any value on its gold resources or reserves, said Agapov. Yesterday was the negotiations deadline.
Rejected Offers
"In the past 180 days, we never saw an offer presented to us in writing," said Agapov. "There were several meetings and several proposals from their side and none of them were acceptable to Rusoro shareholders."
Rusoro fell 12 percent to 11 Canadian cents in Toronto trading as of 2:05 p.m. The stock has dropped 65 percent in the last year.
Rusoro, which has gold reserves of 5.6 million ounces, operates the Choco 10 mine and the Isidora mine in southeastern Venezuela, according to the company's website.
The company has the potential to produce a half million ounces of gold a year in Venezuela, Agapov said.
Rusoro officials met with Venezuela's Oil and Mining Minister Rafael Ramirez shortly after the gold nationalization law was passed and he promised to pay the company a fair value so capital markets would see that the Venezuelan government was willing to seek an adequate level of compensation, said Agapov.
Minister Meeting
"It was a very optimistic start, and then all the people who started to work with us on the settlement were proposing completely different things and much lower valuations," he said. "There was no way we could have accepted their numbers or conditions."
The company has until June 15 to file for arbitration with the ICSID, as the Washington-based arbitration court is known, said Agapov.
"If they would like to continue negotiations and reach an acceptable deal, of course we are willing," he said. "We have 90 days until we have to file for arbitration."
President Chavez in January said that Venezuela wouldn't accept ICSID rulings. The agency is overseeing about 20 cases filed since Venezuela in 2006 began nationalizing assets in industries including oil, mining, cement and telecommunications.
To contact the reporter on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net
To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net
Mineweb.com - The world's premier mining and mining investment website Rusoro says Venezuela will likely nationalise its gold assets, shares fall 12% - POLITICAL ECONOMY | Mineweb
Vancouver-based Rusoro Mining is preparing to seek international arbitration to obtain compensation for the assets it expects to be nationalised after a deadline to negotiate with the government lapsed.
Author: By Nathan Crooks
Posted: Friday , 16 Mar 2012
VENEZUELA (Bloomberg) -
Rusoro Mining Ltd. (RML), the last remaining publicly traded gold miner in Venezuela, expects its gold assets in the South American country to be taken over after a deadline to negotiate with the government lapsed, Chief Executive Officer Andre Agapov said. The stock slid 12 percent.
Rusoro is preparing to seek international arbitration to obtain compensation for the assets as the Venezuelan government's joint venture offers undervalue the company's gold resources, Agapov said today in a phone interview from New York.
"As of today, all the assets will be nationalized and they will take control of operations," Agapov said.
Rusoro, based in Vancouver, began talks to form a joint venture with state oil company Petroleos de Venezuela SA and transfer 55 percent of its gold assets to the government in August after President Hugo Chavez nationalized the industry. Rusoro would be the fifth mining company seeking compensation from Venezuela through the World Bank's arbitration court following nationalizations.
The government made two verbal offers, including one presented two days ago, to compensate Rusoro for a reduced holding and didn't put any value on its gold resources or reserves, said Agapov. Yesterday was the negotiations deadline.
Rejected Offers
"In the past 180 days, we never saw an offer presented to us in writing," said Agapov. "There were several meetings and several proposals from their side and none of them were acceptable to Rusoro shareholders."
Rusoro fell 12 percent to 11 Canadian cents in Toronto trading as of 2:05 p.m. The stock has dropped 65 percent in the last year.
Rusoro, which has gold reserves of 5.6 million ounces, operates the Choco 10 mine and the Isidora mine in southeastern Venezuela, according to the company's website.
The company has the potential to produce a half million ounces of gold a year in Venezuela, Agapov said.
Rusoro officials met with Venezuela's Oil and Mining Minister Rafael Ramirez shortly after the gold nationalization law was passed and he promised to pay the company a fair value so capital markets would see that the Venezuelan government was willing to seek an adequate level of compensation, said Agapov.
Minister Meeting
"It was a very optimistic start, and then all the people who started to work with us on the settlement were proposing completely different things and much lower valuations," he said. "There was no way we could have accepted their numbers or conditions."
The company has until June 15 to file for arbitration with the ICSID, as the Washington-based arbitration court is known, said Agapov.
"If they would like to continue negotiations and reach an acceptable deal, of course we are willing," he said. "We have 90 days until we have to file for arbitration."
President Chavez in January said that Venezuela wouldn't accept ICSID rulings. The agency is overseeing about 20 cases filed since Venezuela in 2006 began nationalizing assets in industries including oil, mining, cement and telecommunications.
To contact the reporter on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net
To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net
Mineweb.com - The world's premier mining and mining investment website Rusoro says Venezuela will likely nationalise its gold assets, shares fall 12% - POLITICAL ECONOMY | Mineweb
Gold should not be following the Euro - they are in a different universe - INDEPENDENT VIEWPOINT | Mineweb
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Gold should not be following the Euro - they are in a different universe
The Eurozone crisis and its effects on global currencies and gold and silver is far from over. Gold has been following the Euro downwards, but it shouldn't be doing so.
Author: Julian Phillips
Posted: Saturday , 17 Mar 2012
BENONI -
I thought we could ignore the Eurozone debt crisis for a while, but it was not to be. The tone in Europe is not good. Apart from Italy paying Morgan Stanley $3.4 billion to exit derivatives they thought would help their debt burden it is becoming clearer that the trail blazed by Greece may be the one that Spain and Portugal may have to follow to their harm.
Let's face it if the recession in Greece is a depression then the protracted debt solution now achieved for Greece just won't work. Greece must default. But at least the long negotiations allowed the banks to get rid of a lot of debt and the E.C.B. has ensured no banking crisis will occur, but solutions, still elusive!
The euro's performance this week has reflected that tone, but amazingly the gold price has moved with the euro but in a more exaggerated way. Silver has been taken along with gold.
Gold is in a completely different world to the euro so it should not be following it.
Most observers have been conditioned to believe that gold will move in the opposite direction to the U.S. dollar. That's happened this week as the rise in Treasury yields attracts ‘carry trade' business home. But there is no ‘fundamental' reason why the dollar should rise. Yield rises pose great dangers to the U.S. and its economy. That's why the Fed wants rates held down for the next couple of years. They don't want the trouble higher interest rates will bring to the world. But they are coming.
Do yourself a favor and look at the structure of Indian gold Exchange Traded Funds. We thought they would never take off because of the link between government and the banks and the distrust Indians have in their own government. But these are very different from those in the developed world. These offer physical redemption of gold to investors. This allows the lines between long-term holding investors and the gold manufacturing industry to be blurred somewhat. But this still leaves control over investor's gold firmly in the hands of the banks. The banks hold that gold in a ‘pool' or allocated state.
Julian Phillips for The Gold and Silver forecasters - www.goldforecaster.com and www.silverforecaster.com
See the article online here: Mineweb.com - The world's premier mining and mining investment website Gold should not be following the Euro - they are in a different universe - INDEPENDENT VIEWPOINT | Mineweb
The Eurozone crisis and its effects on global currencies and gold and silver is far from over. Gold has been following the Euro downwards, but it shouldn't be doing so.
Author: Julian Phillips
Posted: Saturday , 17 Mar 2012
BENONI -
I thought we could ignore the Eurozone debt crisis for a while, but it was not to be. The tone in Europe is not good. Apart from Italy paying Morgan Stanley $3.4 billion to exit derivatives they thought would help their debt burden it is becoming clearer that the trail blazed by Greece may be the one that Spain and Portugal may have to follow to their harm.
Let's face it if the recession in Greece is a depression then the protracted debt solution now achieved for Greece just won't work. Greece must default. But at least the long negotiations allowed the banks to get rid of a lot of debt and the E.C.B. has ensured no banking crisis will occur, but solutions, still elusive!
The euro's performance this week has reflected that tone, but amazingly the gold price has moved with the euro but in a more exaggerated way. Silver has been taken along with gold.
Gold is in a completely different world to the euro so it should not be following it.
Most observers have been conditioned to believe that gold will move in the opposite direction to the U.S. dollar. That's happened this week as the rise in Treasury yields attracts ‘carry trade' business home. But there is no ‘fundamental' reason why the dollar should rise. Yield rises pose great dangers to the U.S. and its economy. That's why the Fed wants rates held down for the next couple of years. They don't want the trouble higher interest rates will bring to the world. But they are coming.
Do yourself a favor and look at the structure of Indian gold Exchange Traded Funds. We thought they would never take off because of the link between government and the banks and the distrust Indians have in their own government. But these are very different from those in the developed world. These offer physical redemption of gold to investors. This allows the lines between long-term holding investors and the gold manufacturing industry to be blurred somewhat. But this still leaves control over investor's gold firmly in the hands of the banks. The banks hold that gold in a ‘pool' or allocated state.
Julian Phillips for The Gold and Silver forecasters - www.goldforecaster.com and www.silverforecaster.com
See the article online here: Mineweb.com - The world's premier mining and mining investment website Gold should not be following the Euro - they are in a different universe - INDEPENDENT VIEWPOINT | Mineweb
March 15, 2012
Chile’s mining woe supports #copper prices - FT.com
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News
Chile’s mining woe supports copper prices
“Declining ore grades” is not a phrase to set the heart aflutter. Even investors in the metals and mining sector may struggle to get excited about the subject after years of hearing it being deployed as a justification for higher prices.
But the issue has rarely been such a potent force in the market. The fall-off in ore quality at ageing mines is behind a stagnation in copper production in Chile, the world’s top miner of the metal with a third of global output, since 2006.
The start of this year has seen an acceleration of the trend: Chilean copper production was down nearly 8 per cent year on year in January, and by about 20 per cent from December.
That is a shockingly large number. To put it in context: the drop in Chilean production in January is equivalent in terms of its impact on the copper supply-demand equation to a 5 percentage point acceleration in Chinese consumption growth.
Analysts have been scratching their heads ever since the headline numbers were reported a fortnight ago by INE, Chile’s statistics institute, to determine what could be behind the sharp decline.
The grim reality is that no single factor drove the fall: instead, according to mine-by-mine data recently published by Cochilco, Chile’s state copper commission, nearly every large mine in Chile suffered a fall in production in January from December. Most of Chile’s largest mines saw double digit percentage falls in output year on year.
Read the rest of the article online here: Chile’s mining woe supports copper prices - FT.com
“Declining ore grades” is not a phrase to set the heart aflutter. Even investors in the metals and mining sector may struggle to get excited about the subject after years of hearing it being deployed as a justification for higher prices.
But the issue has rarely been such a potent force in the market. The fall-off in ore quality at ageing mines is behind a stagnation in copper production in Chile, the world’s top miner of the metal with a third of global output, since 2006.
The start of this year has seen an acceleration of the trend: Chilean copper production was down nearly 8 per cent year on year in January, and by about 20 per cent from December.
That is a shockingly large number. To put it in context: the drop in Chilean production in January is equivalent in terms of its impact on the copper supply-demand equation to a 5 percentage point acceleration in Chinese consumption growth.
Analysts have been scratching their heads ever since the headline numbers were reported a fortnight ago by INE, Chile’s statistics institute, to determine what could be behind the sharp decline.
The grim reality is that no single factor drove the fall: instead, according to mine-by-mine data recently published by Cochilco, Chile’s state copper commission, nearly every large mine in Chile suffered a fall in production in January from December. Most of Chile’s largest mines saw double digit percentage falls in output year on year.
Read the rest of the article online here: Chile’s mining woe supports copper prices - FT.com
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