Mish's Global Economic Trend Analysis

Marc Faber "I love the Fact that Gold is Finally Breaking Down"; Gold vs. Apple; Patience, Gold, Japan
Inspired By Economic Madness
Liar, Liar, Pants on Fire; Spoon-Fed Demands by the Number
Wells Fargo Reports 28% Jump in 401K Borrowing; Reflections on the Economy

Marc Faber "I love the Fact that Gold is Finally Breaking Down"; Gold vs. Apple; Patience, Gold, Japan

Posted: 12 Apr 2013 05:04 PM PDT

Marc Faber loves that gold is finally breaking down. The reason is not to gloat, or a prediction. Rather "gold will offer an excellent buying opportunity".

Link if video does not play Faber: Gold Isn't Down as Much as Apple.

Marc Faber on Bloomberg TV on the Fall in Gold Prices

"I love the markets. I love the fact that gold is finally breaking down. That will offer an excellent buying opportunity. I would just like to make one comment. At the moment, a lot of people are knocking gold down. But if we look at the records, we are now down 21% from the September 2011 high. Apple is down 39% from last year's high. At the same time, the S&P is at about not even up 1% from the peak in October 2007. Over the same period of time, even after today's correction gold is up 100%. The S&P is up 2% over the March 2000 high. Gold is up 442%. So I am happy we have a sell-off that will lead to a major low. It could be at $1400, it could be today at $1300, but I think that the bull market in gold is not completed."

"$1300. Nobody knows for sure but I think the fundamentals for gold are still intact. I would like to make one additional comment. Today we have commodities breaking down including gold. At the same time we have bonds rallying very strongly. If you stand aside and you look at these two events, it would suggest that they are strongly deflationary pressures in the system. If that was the case, I wouldn't buy stocks or sovereign bonds because the stock market would be hit by disappointing profits if there was a deflationary environment."

On gold falling lower if we have a deflationary environment:

"Yes, I agree. That's why I said if the gold market collapse is saying something about deflation and at the same time we have this sharp rise in bond prices and the signals are correct that we have deflation, I wouldn't buy stocks because in a deflationary environment, corporate profits will disappoint very badly."

On whether a deflationary environment is possible right now:

"Everything is possible…In the economy of the cuckoo people that populate central banks, everything is possible. What you have is gigantic bubbles, the NASDAQ in 2000, then the housing bubble and then commodities in 2008 when oil went from $78 to $147 before plunging to $32 within sixth months. That kind of volatility comes from expansionary monetary policies from money-printing."

"All I'm saying is that I think we're going to have a major low in gold in within the next couple of weeks. Gold, as of today, you should actually buy as a trade. I think it can rebound in the next two days by $40."

On why gold will rebound $40 in the next two days:

"Because we are about in gold as oversold and we were essentially during the crash in 1987. From there we have a strong rebound. All I am saying as a trader I would probably enter the market quickly for a rebound of $20 or $40. From a longer term perspective, I would give it some time. We may go lower. I am not worried. I am happy gold is finally coming down, which will provide a very good entry point."

On whether investors should also stay in cash:

"My argument is that you should always have in this kind of high volatility environment a fair amount of cash because opportunities will always arise again and again and if you have cash you can then buy assets at a reasonable price. I think Patience is very important in this environment. The question is, how do you hold your cash? Hopefully not with a Cyprus bank."

Patience, Gold, Japan

Patience, Gold, and Japan were my central themes in the speech I gave at the Wine Country Conference. I hope to have the speech up soon.

When I am in general agreement with Faber, we tend to be correct.... eventually. Like Marc, I am not at all worried about the precise timing.

If you have not yet read Faber's book, Tomorrow's Gold: Asia's age of discovery, I advise you to do so. It's not about gold per se, rather about long-term investment opportunities.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Inspired By Economic Madness

Posted: 12 Apr 2013 01:07 PM PDT

Do not expect any government or central bank to learn much from history, especially Japan and especially now.

For example, please consider this bit of "inspirational madness": Bank of Japan Finds Inspiration in a 1930s Iconoclast.

The bank's governor, Haruhiko Kuroda, announced a "new dimension in monetary easing," vowing to double the purchases of government bonds and expand the monetary base. The BOJ also formally adopted a previously announced two-year target of 2 percent inflation. Quantitative easing will be the bank's core business for the near future, a strategy that resembles the Federal Reserve's response to the collapse of Lehman Brothers Holdings Inc.

The BOJ's actions also mark a return, at least partly, to the unorthodox efforts of Japan's finance minister in the early 1930s, Korekiyo Takahashi, who was praised by Fed Chairman Ben Bernanke for "brilliantly rescuing Japan from the Great Depression through reflationary policies."

Takahashi has recently received renewed attention from economists, historians and policy makers. In Japan, the number of popular publications on him suggests a Takahashi following. A biography by Richard Smethurst, "From Foot Soldier to Finance Minister: Takahashi Korekiyo, Japan's Keynes," became an academic hit when it was published in Japanese in 2010.

Rest of the Story

My friend Pater Tenebrarum on the Acting Man blog shared these thoughts via email.

"For some reason, no-one seems to want to talk about how Korekiyo Takahashi's policies ended. Here's the rest of the story.... Eventually Japan went into war that ended in hyperinflation and total destruction of the Japanese economy. Praising the economic policies of Takahashi is quite a bit like praising the economic policies of Hitler. It's totally absurd."

Yet here we are in the throes of Keynesian absurdity.

Historical Yen Chart

click on chart for sharper image

More Revised History

While on the subject of revisionist history, I would like to point out a correction to a statement expressed by Wolfgang Münchau in Eurointelligence Founder Wolfgang Münchau, Once a Staunch Euro Supporter, Now Welcomes the Anti-Euro Party "Alternative for Germany".

Münchau stated "Thatcher's Industry Minister Nicholas Ridley said in 1990 in a careless interview in The Spectator that the planned monetary union was a German conspiracy with the aim of seizing power in Europe."

Tenebrarum responds "This was and is nonsense. Germany was practically forced into the euro by the French, who wanted to emasculate the Bundesbank. They threatened to hold back their support of German reunification if Germany didn't agree with adopting the euro."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Liar, Liar, Pants on Fire; Spoon-Fed Demands by the Number

Posted: 12 Apr 2013 10:39 AM PDT

On Wednesday I reported Fools in Cyprus to Sell Gold, Hike Corporate Taxes to Finance Small Part of Bailout.

That rumor was quickly (but unbelievably) denied.

On Thursday, the International Business Times reported Cyprus Denies Rumor It Will Sell Its Gold To Raise Funds; Option Raises Same Question For Others.

A Central Bank of Cyprus spokesperson said Wednesday that rumors stating that it would sell 75 percent (approximately 10 tons or $523 million) of its gold were inaccurately reported by Reuters. Aliki Stylianou told the Cyprus News Agency, or CNA, that no such deal was ever "raised, discussed or debated" with the bank's board of directors.

No Such Deal Ever Raised! Really?

In spite of denials that any such deal was ever "raised, discussed or debated" I knew what was about to happen. Sure enough ....

Cyprus Gold Sale Must Cover Emergency Loan Loss

ECB President Mario Draghi says Any Cyprus Gold Sale Must Cover Emergency-Loan Loss

European Central Bank President Mario Draghi said the profits of any gold sales by the Cypriot central bank must be used to cover losses it may sustain from emergency loans to Cypriot commercial banks.

European creditors today left a possible gold sale in the hands of the Cypriot central bank, which manages 13.9 metric tons of the metal, according to the World Gold Council.

"The decision is going to be taken by the central bank," Draghi said after a meeting of euro-area finance officials in Dublin. "What's important, however, is that what is being transferred to the government budget out of the profits made out of the sales of gold should cover first and foremost any potential loss that the central bank might have from its ELA."

ELA stands for Emergency Liquidity Assistance, a lifeline that can be offered by national central banks in the euro region to commercial banks that can't get funding.

Asked about a letter he wrote to Cyprus President Nicos Anastasiades, Draghi said the letter is "very, very clear." He said the government must abide by the central bank's handling of the gold stock, since it is independent from political control under European rules.

More Lies Than One

Did you catch that last statement? Draghi says central bank handling of gold is "independent from political control under European rules".

Apparently independence is relative. The Central Bank of Cyprus has no such independence. It is being forced to sell its gold to cover Emergency Loan Assistance programs by the ECB.

Want more lies? Check this out.

Speaking alongside Draghi, Dutch Finance Minister Jeroen Dijsselbloem said "selling gold has always been an option put forward by the Cypriot authorities. But as mentioned in the program documentation, this is a decision to be made independently by the Cypriot central bank. And it's not any demand from the troika or the eurogroup."

So this was an independent decision made by the central bank of Cyprus, yet denied by the central bank of Cyprus. Apparently the gold sale just happens to be the only way Cyprus can cover losses on ELA, no other method would do.

So Cyprus is forced to dump most of its "excess" gold reserves. A reader asked me yesterday what was meant by "excess" gold reserves. Certainly the name is strange. It implies central banks can have too much of the stuff. They can't.

In reality, the term means whatever the hell ECB wants it to mean. In this case, the term is a convenient way to make sure the noose in Cyprus' nose is as tight as can be.

I discussed that idea two days ago in the link at the top. Here is the pertinent snip.

Road to Hyperinflation

Raising taxes in the middle of a recession is bad enough. Cyprus actually needs a lower tax rate to attract business following its banking debacle.

Selling gold is downright idiotic. Gold backing can prevent a currency from going completely worthless. Should Cyprus leave the eurozone, its small holding of gold would at least put some bid on its currency.

Selling of gold and hiking of corporate taxes puts another noose through the nose of Cyprus (just what the nannycrats in Brussels wants and precisely what the average Cypriot should fear).

A Greek-like implosion with massive unemployment and endless recessions is on the way.

Leaks and Still More Lies

About that Cyprus shortfall... As I expected, it's a lot bigger than the Troika expected, assuming you believe the Troika was telling the truth about the size of the needed bailout.

The Guardian reports Cyprus forced to find extra €6bn for bailout, leaked analysis shows

Cypriot politicians have reacted with fury to news that the crisis-hit country will be forced to find an extra €6bn (£5bn) to contribute to its own bailout, much of which is expected to come from savers at its struggling banks.

A leaked draft of the updated rescue plan, which emerged late on Wednesday night, revealed that the total bill for the bailout has risen to €23bn, from an original estimate of €17bn, less than a month after the deal was agreed – and the entire extra cost will be imposed on Nicosia.

Visiting Athens, the Cypriot parliament's president, Yannakis Omirou, said the tiny island nation had been "served poison" by its EU partners.

The €23bn overall bill is larger than an entire year's output from the Cypriot economy.

Cyprus Hammered Into Submission

Step by step, Cyprus has been hammed into submission. Its economy has been ruined for at least a decade.

Recall the original deal was €13bn. It is now €23bn.
Recall that Cyprus Popular Bank, Laiki, was supposed to have 30% losses. Guess what?

Spoon-Fed Demands by the Number

Laiki 100% wiped out
Capital controls
Losses exceed the size of the entire Cypriot economy
Cyprus would have to sell its gold
The Cypriot Central Bank would lose its independence
Cyprus will go into an economic depression for a decade to pay for the "bailout"

Cyprus has been spoon-fed a pack of escalating demands by the Troika.

Had Cyprus initially understood the totality of what was going to happen, Cyprus may have done the right thing which should now be obvious: Tell the Troika to go to hell, default, exit the eurozone.

It's still not too late, but Cyprus needs to do so before it sells its gold.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Wells Fargo Reports 28% Jump in 401K Borrowing; Reflections on the Economy

Posted: 11 Apr 2013 11:33 PM PDT

In spite of the alleged recovery, in spite of falling unemployment numbers, and in spite of a stock market boom, Wells Fargo 401(k) Loans Jump 28% as Older Workers Borrow.

The number of people taking loans from their 401(k) retirement accounts increased 28 percent in the fourth quarter from a year earlier as older workers tapped their savings, according to Wells Fargo (WFC) & Co.

The number is based on 1.9 million survey participants who have 401(k)s administered by the company, of which 34,987, or about 1.8 percent, took out loans, the San Francisco-based bank said today in a statement. The average new loan balance rose 7 percent to $7,126.

"The increased loan activity particularly among older participants is concerning because those are the years when workers can start to make 'catch-up' contributions and really need to focus on preparing for retirement," Laurie Nordquist, director of Wells Fargo Retirement, said in the statement. "This age is also the 'sandwich' generation, caught between paying for their kids' education and supporting elderly parents."

Reflections on the Economy

401K borrowing provides more evidence the economy is not as good as presented and that people are struggling in their jobs, much closer to the edge of oblivion than the Fed or Obama wants to admit.

The borrowing surge happened in the 4th quarter, before the increase in payroll taxes this year, so expect matters to get worse. And if for any reason those 401K borrowers lose their jobs, they are going to be in deep trouble tax-wise.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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