Wednesday, November 30, 2011

Gerald Celente - Trends Journal: I Got Effed by MF Global. Who’s Going to Eff You?

KINGSTON, NY, 28 November 2011 — The MF Global bankruptcy has more far reaching implications than are currently being acknowledged. Not simply an isolated instance of corporate mismanagement resulting in disastrous and irreparable effects on options and commodity futures markets, the MF bankruptcy – the eighth-largest in US history – is a harbinger of much worse to come.

Don't be taken in by today's stock market bounce that's based on the belief that Europe is coming closer to resolving its debt crisis, and that strong US Black Friday retail sales are a sign recession has been averted.

The European debt crisis is a long term-trend with no quick fixes. And the retail surge is no more than a flash mob spending spree hyped by a corporate media. The more they hype it and the more consumers spend, the more advertising space the media sells to retailers.

The MF meltdown, however, is symptomatic of a global economic system on the verge of collapse. No financial sector will escape unscathed: banks, brokerages, hedge funds, insurance companies, stocks and stock markets are all at risk.

When the evidence is pieced together, it proves how corrupt, bankrupt and dishonest the financial/political cabal that runs America is, and reveals the complicity of the media in covering up their masters’ misdeeds.

How I got Effed by MF Global, And Why it is Important to You I’ve been trading and buying gold since 1978. I am not a “speculator.” I buy coins and bullion as well as futures contracts. My involvement with MF Global went like this:

I made an agreement with the well-respected firm Lind-Waldock (subsequently bought by MF Global) to purchase gold future contracts, with due date for delivery of the gold in December 2011. Holding the gold “contracts” entailed a substantial “margin” requirement … in essence a deposit (similar to a layaway plan at a retail store).

From the time I bought the contracts, I kept building my account so that when it came time to take delivery in December, I would have a substantial amount of money in my account to complete the purchase. But that’s all gone now. My segregated account was raided and emptied, as were tens of thousands of other clients who trusted MF and the entire commodity futures exchange. Indeed, as evidenced in the video link, the CME Group that runs the exchange reneged on its promise as “
guarantor of every transaction that happens in our markets.” (Click here for CME Group’s statement of “guarantee”)

I had been Effed through no fault of my own, and I had a lot of company.

I want to make this absolutely clear: Buying gold to take delivery is NOT speculation! And it is delusion to believe that
you are immune to the systemic criminality that pervades virtually every aspect of the financial sector. MF Global, Lehman, Merrill Lynch, Washington Mutual, IndyMac Bank, Bear Stearns, Northern Rock, Countrywide, Dexia, Anglo Irish, Wachovia, Goldman Sachs, Citigroup, Bank of America, Wells Fargo, Morgan Stanley, Fidelity, Schwab, Vanguard … do you really know what went on, or is now going on behind the closed doors of these firms?

The Big EFF is Coming Which will be the next crooked insurance company, bank, brokerage, savings and loan, or financial institution to go belly up? If and when it happens, what assurance do you have that you won’t be robbed and victimized? Sure, sure, your savings and checking accounts, up to $250,000, are protected by the FDIC in the event of bank failure. But how long will it take to get your money when banks start falling like dominoes? Sure, sure, under SIPC rules, stock accounts are partially protected when your broker/dealer goes bankrupt. But will you still be alive by the time the legal fight is over?

Trends Journal subscribers have just been sent an “Urgent” Trend Alert. In our 20 years of publishing, we have rarely sent out an Alert that demands such immediate consideration.

In a few weeks, we will be releasing a synopsis of our
Top Trends for 2012. Among them will be a warning of a high probability for “economic martial law."

We are confident we know what will trigger it, what form it will take, and how Trends Journal subscribers can be among the few who will have the tools to escape its consequences.

Do you know where your money is? Will you get it back? Are you prepared?

Remember! The business and mainstream media will do everything in their power keep the “confidence game” going. By the time the general public realizes that "economic martial law" has been declared, it will be too late to act.

Prepare, survive, prevail …
renew your subscription now (Click here.) You won’t want to miss the “Urgent” Trend Alert subscribers received today … and you certainly won’t want to miss the Top Trends of 2012 coming soon.

Gerald Celente

PS: Times are tough and they are going to get a lot worse. If you are unable to pay the full subscription price, fill out this
discount request form. We will do our best to provide you with vital trend forecasts at a price you can afford … but cannot afford to be without.

60 Minutes: Hidden America

The following must-see 60 Minutes segment further highlights the deteriorating economic conditions across the United States.

MUST LISTEN: Eric Sprott Financial Crisis Worse Than 2008, and More…

King World News released the audio of their interview with Eric Sprott: Chairman, CEO & Portfolio Manager of Sprott Asset Management.

Eric has over 40 years of experience in the investment industry and manages over $10 billion. He has been stunningly accurate in his writings for over a decade, and is one of the most respected industry professionals who accurately foresaw the current crisis. Eric chronicled the dangers of excessive leverage as well as the bubbles the Fed was creating, while correctly forecasting the tragic collapse. Sprott Asset Management is one of the top firms in the world. The firm has become well known not only for its performance, but also for creating a gold and now silver trust.

You can listen to the interview HERE. (On the left side of the page, half way down, click on the small purple logo that reads, “Listen to MP3 – CLICK HERE”)

Eric Sprott: Investment Outlook (November 29, 2011)

Silver Producers: A Call to Action

by Eric Sprott and David Baker

November 29, 2011

As we approach the end of 2011, the silver spot price has admittedly endured a tougher road than we would have expected. And let’s be honest – what investment firm on earth has pounded the table on silver harder than we have? After the orchestrated silver sell-off in May 2011 (please see June 2011 MAAG article entitled, “Caveat Venditor“), silver promptly rose back to US$40/oz where it consolidated nicely, only to drop back below US$30 within a two week span in late September.1 The September sell-off was partly due to the market’s disappointment over Bernanke’s Operation Twist, which sounded interesting but didn’t involve any real money printing. Like the May sell-off before it, however, it was also exacerbated by a seemingly needless 21% margin rate hike by the CME on September 23rd, followed by a 20% margin hike by the Shanghai Gold Exchange – the CME’s counterpart in China, three days later.

The paper markets still dictate the spot market for physical gold and silver. When we talk about the “paper market”, we’re referring to any paper contract that claims to have an underlying link to the price of gold or silver, and we’re referring to contracts that are almost always levered. It’s highly questionable today whether the paper market has any true link to the physical market for gold and silver, and the futures market is the most obvious and influential “paper market” offender. When the futures exchanges like the CME hike margin rates unexpectedly, it’s usually under the pretense of protecting the “integrity of the exchange” by increasing the collateral (money) required to hold a position, both for the long (future buyer) and the short (future seller). When they unexpectedly raise margin requirements two days after silver has already declined by 22%, however, who do you think that margin increase hurts the most? The long buyer, or the short seller? By raising the margin requirement at the very moment the long contracts have already received an initial margin call (because the price of silver has dropped), they end up doubling the longs’ pain – essentially forcing them to sell their contracts. This in turn creates even more downward price pressure, and ends up exacerbating the very risks the margin hikes were allegedly designed to address.

When reviewing the performance of silver this year, it’s important to acknowledge that nothing fundamentally changed in the physical silver market during the sell-offs in May or mid-September. In both instances, the sell-offs were intensified by unexpected margin rate hikes on the heels of an initial price decline. It should also come as no surprise to readers that the “shorts” took advantage of the September sell-off by significantly reducing their silver short positions.2 Should physical silver be priced off these futures contracts? Absolutely not. That they have any relationship at all is somewhat laughable at this point. But futures contracts continue to heavily influence spot prices all the same, and as long as the “longs” settle futures contracts in cash, which they almost always do, the futures market-induced whipsawing will likely continue. It also serves to note that the class action lawsuits launched against two major banks for silver manipulation remain unresolved today, as does the ongoing CFTC investigation into silver manipulation which has yet to bear any discernible results.3

Meanwhile, despite the needless volatility triggered by the paper market, the physical market for silver has never been stronger. If the September sell-off proved anything, it’s the simple fact that PHYSICAL buyers of silver are not frightened by volatility. They view dips as buying opportunities, and they buy in size. During the month of September, the US Mint reported the second highest sales of physical silver coins in its history, with the majority of sales made in the last two weeks of the month.4 Reports from India in early October indicated that physical silver demand had created short-term supply issues for physical delivery due to problems with airline capacity.5 In China, which reportedly imported 264.69 tons (7.7 million oz) of silver in September alone, the volume of silver forward contracts on the Shanghai Gold Exchange was more than six times higher than the same period in 2010.6,7 It was clear to anyone following the silver market that the physical demand for the metal actually increased during the paper price decline. And why shouldn’t it? Have you been following Europe lately? Do the politicians and bureaucrats there give you confidence? Gold and silver are the most rational financial assets to own in this type of environment because they are no one’s liability. They are perfectly designed to protect us during these periods of extreme financial turmoil. And wouldn’t you know it, despite the volatility, gold and silver have continued to do their job in 2011. As we write this, in Canadian dollars, gold is up 23.4% on the year and silver’s up 6.8%. Meanwhile, the S&P/TSX is down -12.3%, the S&P 500 is down -5.1% and the DJIA is up a mere +0.26%.8

So here’s the question: we think we understand the value and great potential in silver today, and we know that the buyers who bought in late September most definitely understand it,… but do silver mining companies appreciate how exciting the prospects for silver are? Do the companies that actually mine the metal out of the ground understand the demand fundamentals driving the price of their underlying product? Perhaps even more importantly, do the miners understand the significant influence they could potentially have on that demand equation if they embraced their product as a currency?

According to the CPM Group, the total silver supply in 2011, including mine supply and secondary supply (scrap, recycling, etc.), will total 1.03 billion ounces.9 Of that, mine supply is expected to represent approximately 767 million ounces.10 Multiplied against the current spot price of US$31/oz, we’re talking about a total silver supply of roughly US$32 billion in value today. To put this number in perspective, it’s less than the cost of JP Morgan’s WaMu mortgage write downs in 2008.11

According to the Silver Institute, 777.4 million ounces of silver were used up in industrial applications, photography, jewelry and silverware in 2010.12 If we assume, given a weaker global economy, that this number drops to a flat 700 million ounces in 2011, it implies a surplus of roughly 300 million ounces of silver available for investment demand this year. At today’s silver spot price – we’re talking about roughly US$9 billion in value. This is where the miners can make an impact. If the largest pure play silver producers simply adopted the practice of holding 25% of their 2011 cash reserves in physical silver, they would account for almost 10% of that US$9 billion. If this practice we’re applied to the expected 2012 free cash flow of the same companies, the proportion of investable silver taken out of circulation could potentially be enormous.

Expressed another way, consider that the majority of silver miners today can mine silver for less than US$15 per ounce in operating costs. At US$30 silver, most companies will earn a pre-tax profit of at least US$15 per ounce this year. If we broadly assume an average tax rate of 33%, we’re looking at roughly US$10 of after-tax profit per ounce across the industry. If GFMS’s mining supply forecast proves accurate, it will mean that silver mine production will account for roughly 74% of the total silver supply this year. If silver miners were therefore to reinvest 25% of their 2011 earnings back into physical silver, they could potentially account for 21% of the approximate 300 million ounces (~$9 billion) available for investment in 2011. If they were to reinvest all their earnings back into silver, it would shrink available 2011 investment supply by 82%. This is a purely hypothetical exercise of course, but can you imagine the impact this practice would have on silver prices?

Silver miners need to acknowledge that investors buy their shares because they believe the price of silver is going higher. We certainly do, and we are extremely active in the silver equity space. We would never buy these stocks if we didn’t. Nothing would please us more than to see these companies begin to hold a portion of their cash reserves in the very metal they produce. Silver is just another form of currency today, after all, and a superior one at that.

To take this idea further, instead of selling all their silver for cash and depositing that cash in a levered bank, silver miners should seriously consider storing a portion of their reserves in physical silver OUTSIDE OF THE BANKING SYSTEM. Why take on all the risks of the bank when you can hold hard cash through the very metal that you mine? Given the current environment, we see much greater risk holding cash in a bank than we do in holding precious metals. And it serves to remember that thanks to 0% interest rates, banks don’t pay their customers to take on those risks today.

None of this should seem far-fetched. One of the key reasons investors have purchased physical gold and silver is to store some of their wealth outside of a financial system that looks increasingly broken. The European banking system is a living model of that breakdown. Recent reports have revealed that more than €80-billion was pulled out of Italian banks in August and September alone. In Greece, depositors have taken almost €50-billion out their banks since the beginning of 2010.13 Greek banks are now completely reliant on ECB funding to stay afloat. The situation has deteriorated to the point where over two thirds of the roughly 500 billion euros that banks have borrowed from the ECB are now being deposited back at the central bank.14 Why? Because they don’t trust other banks to stay afloat long enough to get their money back.

Silver miners shouldn’t feel any safer banking in the United States. Fitch Ratings recently warned that the US banks may face severe losses from their exposures to European debt if the contagion escalates.15 There’s very little at this point to suggest that it won’t. The roots of the 2008 meltdown live on in today’s crisis. We are still facing the same problems imposed by over-leverage in the financial system, and by postponing the proper solutions we’ve only increased those risks. We don’t expect the silver miners to corner the physical silver market, and we know the paper games will probably continue, but the silver miners must make a better effort to understand the inherent value of their product. Gold and silver are not traditional commodities, they are money. Their value lies in their ability to retain wealth in environments marked by negative real interest rates (), government intervention (), severe economic uncertainty () and vulnerable banking institutions (). Silver’s demand profile is heightened by its use in industrial applications, but it is the metal’s investment demand that will drive its future performance. The risk of keeping all of one’s excess cash in a bank is, in our opinion, considerably more than holding it in the more enduring form of money that silver represents. It’s time for silver producers to embrace their product in the same manner their shareholders already have.

For more information about Sprott Asset Management’s investment insights and award-winning investment capabilities, please visit

Low Risk Stocks With Quality Upside: ETN, INTC, LNCR, MSFT

Today's stock market is nothing more than a risky way to put capital to work. Yet, the degree of risk assumed in investing is ultimately borne by the investor when he makes a decision to buy or sell. For most of 2008, when valuations were stretched, risk of capital loss was at an all time high. Yet in 2009 when every one was hiding from stocks and businesses were being given away at low prices, actual risk of capital loss was much lower.

Techs Two
Technology has come a long way since the high flying Internet bubble days of the late 1990s. In fact, some of the more established technology names today represent some of the best low risk opportunities for investors. Leading chip maker Intel (Nasdaq:INTC) is basically like a rich annuity with a bonus option of capital gain from the stock. Trading around $23, shares yield nearly 4%, or double that of 10 year Treasuries. The company pays out around $3 billion in dividends, but collects over $9 billion in annual free cash flow. The balance sheet has approximately $7 billion in cash, and the stock trades for around 10 times earnings. If one were to hold Intel for 10 years, odds are very high that shares would easily outperform Treasuries with very low risk. (For related reading , see Measuring And Managing Investment Risk.)

Microsoft (Nasdaq:MSFT) is another cheap cash gushing tech giant. The business sits on over $40 billion in cash. Microsoft seems inclined to return more of that cash to investors via dividends each year. With only $5 billion a year being spent on dividends, no dividend is safer today. And a 3.3% yield is nothing to sneeze at in this low interest rate world.

Safe and Steady
Industrial giant Eaton Corp (NYSE:ETN) is another safe and steady stock that continues to move along for investors. A little capital appreciation in the share price along with the 3.4% dividend yield is all you need for a quality total return in this environment. The company's industrial electronic equipment is used in hundreds of industries and long-term demand will be stable for years to come. An aging population will require increased services from Lincare Holdings (Nasdaq:LNCR) which provides respiratory and oxygen tanks for the home health care market. Lincare's products are not only used by the elderly but also in prenatal nutrition, chemotherapy and other conditions that can affect anyone, regardless of age. Cash flows at Lincare are solid as evidenced by the 3.6% dividend yield. At approximately $22 a share, the business is trading around 10 times forward earnings.

The Bottom Line
The degree of risk assumed in investing is determined by one's own investment decisions, not by the stock market. One should not assume that the market is always risky or not. Rather, participate in those stocks where risk is low relative to the price you pay in exchange for future return.

Jay Taylor: Turning Hard Times Into Good Times

11/29/2011: The Next Government Sachs Scam. This Time it’s Housing

Is China going bankrupt faster than U.S.?

WASHINGTON – Here's a shocker.

China is going broke faster than the U.S., according to economic planner Kirk Elliott – who is making this point the lynchpin of a live webinar he's conducting for WND viewers today at 12:30 p.m. Eastern.

Here are some shocking facts Elliott discusses in a WND column today on which he will expound during the webinar:

  • China's debt is about $36 trillion yuan (or $5.68 trillion USD). This number is astronomical considering that it is just a little more than one-third of the U.S. total debt, but the difference between the U.S. and China is that the U.S. national income per capita is $47,140, whereas China's national income per capita is $4,260 – not even one-tenth of the U.S. amount. To be on par with the U.S., China's total debt should be around $1.5 trillion USD, but it is three times that! Considering that the U.S. has an unsustainable debt position, China's is ridiculously out of control and puts that country in extreme danger of a financial collapse of epic proportions.
  • China's officially published interest rate of 6.2 percent is fabricated. In reality China's inflation is 16 percent. This is eerily similar to the United States as well. The U.S. official inflation of around 3 percent is nowhere close to unofficial inflation estimates of 10-13 percent. What does this mean for China? This means that cost of living, wages and cost of goods sold in China will have to rise, and instead of exporting deflation, China will be exporting higher priced goods, thus affecting the rest of the world that purchases its goods. The world is on the verge of an inflationary cycle like we have never seen. Additionally, central banks around the globe are printing money on a massive scale to try to stimulate liquidity and spending (this is the definition of inflation!). Add to this a rising price structure in China, the major exporter to the world, and we could be preparing for a global hyperinflation.
  • Excess capacity in the economy and private consumption is only 30 percent of economic activity. Of course this is the case, as China's population is extremely poor and China is an exporting nation. The vast majority of its goods should not be private consumption. But, what the excess capacity indicates is that there is a global economic slowdown. Since China's growth is dependent on the rest of the world purchasing its goods, a global recession does not bode well for China's economic future.
  • China's officially published GDP growth of 9 percent is fabricated. The real number is a negative 10 percent! China's robust GDP has always been a pipe dream, as the country has been building infrastructure (railroads, highways and real estate development – including ghost cities). Since personal spending is only 30 percent of China's GDP, roughly 70 percent of China's GDP can be attributed to this massive build-up. It will dry up, as has already started. The regime is about to be exposed, as people are starting to wake up to the fact that the "emperor has no clothes."
  • China's taxes are too high. Taxes on Chinese businesses – indirect and direct – are 70 percent of earnings. Individual tax rates are 81.6 percent. There is no way China can remain strong with these high taxes. We thought our taxes were high – because they are! But we are like schoolboys compared to China. It is the big boy on the taxation block. It's just economics 101 – a country cannot remain strong or viable with tax rates this high. The population will ultimately revolt. I really believe China is ripe for revolution given these numbers; it's just a matter of time. Sadly, for the Chinese citizens, their strong-arm government will not look kindly on any kind of political or social opposition.

Elliott concludes: "There is an economic tsunami about to engulf China, and because of the size of China's economy and its manufacturing might, the impact of the tsunami will be felt far and wide. The United States will feel it in the form of inflationary pressures that we can't afford right now. Periphery countries to China may feel its military might or cower to political pressure as governments that run out of money start to do irrational things (look at the United States, or Greece, or the European Union)."

Total OTC Derivatives in $Billions

How To Prevent Identity Theft While Traveling

Identity theft doesn't just happen when you're at home. In fact, you may be even more vulnerable to it while traveling because you're carrying your valuable personal information around with you in unfamiliar and distracting environments. In this article, we'll give you some tips for keeping your identity safe while you're on the road.

Don't Perform Sensitive Transactions over Public Wi-Fi
Whether you pay for access or not, public Wi-Fi networks are not secure. It's tempting to log on in airports, hotels and airplanes whether you want to kill some time, check your email or make sure you have enough money in your bank account to pay for the rest of your trip.

Don't do it. Criminals can use a technique called Wi-Fi sniffing to intercept data transmitted insecurely over a wireless network, and programs that facilitate Wi-Fi sniffing are readily available online. Even accessing your Facebook account could be a bad idea. If someone hijacks your account, they could send embarrassing messages to your friends, post inappropriate status updates and do other things that might damage your reputation. Smartphone users can protect themselves by using their carrier's secure 3G or 4G service. Otherwise, handle any sensitive online business on your secure home network before you leave town.

Use a Different Computer Exclusively for Travel
Laptops and netbooks are so cheap these days that you might be able to afford more than one. If you travel enough to make such a purchase worthwhile, get a new computer that you will use exclusively for travel. Since it's not possible to completely erase data from a computer, strictly limit the amount of sensitive data that goes onto your travel computer. If it's lost or stolen, you won't have as big of a problem as if you had lost your main laptop with all your tax returns on it.

Clean out Your Wallet
Pare down the contents of your wallet to only the essential items you'll need on your trip. If your wallet is lost or stolen while you're traveling, it will be easier to clean up the mess if you know exactly what your wallet contained and if it only contains a few items. You'll need your driver's license or other ID, two different credit cards, some cash and that's about it. Leave your debit card at home if at all possible. Credit cards offer superior theft protection. You also shouldn't need your health insurance card, numerous credit cards or any checks. You certainly shouldn't bring your Social Security card with you. In fact, it should never be in your wallet.

Use a Money Belt
A wallet isn't that hard for a pickpocket to snatch, but a money belt that's worn under your clothes and against your body is considerably more difficult to grab. As long as you avoid getting into your money belt in public, a potential thief won't know where to look for it, and you'd likely feel it moving against your body if a pickpocket did manage to find it. Not all money belts are worn around the waist. Some can be worn around the leg or around the neck. Get one that feels comfortable and secure.

Put Mail Deliveries on Hold
Nothing says "we're not home" like a pile of newspapers in the driveway. And while you may not care if someone steals your newspaper while you're gone, you will care if they steal a package you ordered or anything out of your mailbox. You also don't want to signal that there's no one inside your home - if someone can steal your identity out of your mailbox, think of the damage they can do with all the documents that are probably lying around your house. It's free and easy to place a hold on your postal service deliveries at the USPS website, and many newspapers will also let you put your subscription on hold through their websites. Ideally you would also have a neighbor, friend or relative check your house once or twice a day for any flyers that get hung on your front door or left on your doorstep.

Be Cautious
No one wants to spend his or her entire vacation looking over his or her shoulder, and you don't have to be suspicious of everyone you meet. At the same time, you shouldn't be too trusting around strangers. Don't ask someone at the airport to watch your bag while you run to the restroom (that's a bad idea anyway given airport security procedures). Make sure no one is trying to observe what you're doing on your laptop or smartphone, be careful what you reveal in cell phone conversations in public places and be aware that strangers asking for help are sometimes trying to distract you while an associate picks your pocket.

The Bottom Line
Don't put yourself at high risk of identity theft when you travel. Identity theft is not a crime you can entirely prevent, but you can take basic precautions to minimize your risk of becoming a target.

The Economy Doesn't Matter To These Stocks: DG, FDO, ORLY, WMT

A good economy is certainly good for the stock market. Unfortunately, the reality of capitalism is that for all the good it does in terms of allocating capital to the most efficient sources, capitalism does come with setbacks. As the U.S. witnessed in 2008, some of those setbacks can be severe and prolonged.

Strong Economy Not Necessary

Every business wants to operate under a strong, growing economy; it's a tailwind that provides a great growth boost. However, since reality is such that no economy can remain consistently strong, investors can not rely on strong macro conditions. In any regard, investors should be focusing on the company and the quality of management first, and the macro situation second.

To be sure, weak economies always pose a degree of risk for companies, but there are businesses that continue to demonstrate they can prosper, whether or not the economy is strong. O'Reilly Automotive (Nasdaq:ORLY) is one of largest auto parts retailers in the U.S. Looking at O'Reilly's financial statements shows little indication that the economy suffered a heart attack in 2008. Net sales grew from about $3.5 billion in 2008, to almost $5.4 billion in 2010. Profits more than doubled from $186 million, to over $419 million over the same time period.

What Consumers Want
If you want to find out which companies are likely to continue to do well, just look at what consumers want and continue to buy; consider both individual and corporate consumers. Whether the economy is strong or weak, consumers are now very much interested in bargains, especially for basic commodity-like necessities.

Retailers like Dollar General (NYSE:DG) and Family Dollar (NYSE:FDO), which sell products like soap, towels, socks and other basics at rock bottom prices, are prospering and will continue to do so. Even certain food items can be bought for less at DG and FDO. With over 9,500 locations, DG has more locations than Wal-Mart (NYSE:WMT) and offers consumers the convenience of being nearby.

The reality is that no one really cares where they buy their brand of toothpaste or laundry detergent; all that matters is the price. Ultra discount retailers have managed to successfully compete with Wal-Mart on price and consumers continue to visit these stores, more and more.

The Bottom Line
Investors are better served by keeping things simple, especially when trying to navigate the choppy seas that characterize the current market environment. Look for businesses that create value or fulfill a need desired by today's consumer, then look for a good price point to investment. Add in a little patience and successful results are very attainable.

Money Found in Britain May Belong to MF Global

About $200 million in customer money that vanished from MF Global is believed to have surfaced at JPMorgan Chase in Britain, according to people briefed on the matter. The discovery could be the most significant breakthrough in a monthlong hunt for the missing funds.

During MF Global's last chaotic days, the brokerage firm overdrew an account at JPMorgan, according to another person who is close to the matter. Some investigators now believe the firm used customer funds to patch at least some of the hole, which would have been a significant breach of federal law.

MF Global transferred the roughly $200 million in the days before the firm filed for bankruptcy, said the people, who requested anonymity because the investigation was incomplete.

Some investigators suspect that the transfer to JPMorgan was the first major misuse of customer money at MF Global, the commodity brokerage powerhouse once run by Jon S. Corzine, the former Democratic governor of New Jersey. Authorities are also looking into whether JPMorgan initially questioned the source of the cash and sought proof from MF Global that it was complying with regulations, one of the people said.

The authorities believe MF Global failed to give JPMorgan full documentation for the cash, the people briefed on the matter said. But the bank's concerns hardly mattered because the money had already been transferred to the account in Britain. It is unclear whether investigators can recover the $200 million.

Representatives for both MF Global and JPMorgan declined to comment. A spokesman for the MF Global trustee, James W. Giddens, declined to comment.

JPMorgan has long been thought to hold some of the money that disappeared from MF Global. As one of MF Global's primary banks, JPMorgan has been a persistent presence in the firm's demise and the messy aftermath. The bank loaned to MF Global until its waning days and has been a vocal and tenacious presence as a creditor during the firm's bankruptcy hearings.

Rumors circulated briefly this month that the missing money had turned up at the bank. The reports were dispelled later in the same day, however, when investigators disclosed those funds had already been accounted for.

Some of the funds MF Global used to shore up its account with JPMorgan may have been legitimately transferred. Firms often keep a cushion of cash to protect customer accounts, which they are allowed to tap with certain restrictions. While the firm ultimately blew through that buffer, it is unclear when that happened and if it intentionally used customer money.

Some industry lawyers liken JPMorgan's role in the MF Global bankruptcy to the bank's position in the messy collapse of Lehman Brothers, albeit on a smaller scale. As the nation's largest bank, JPMorgan is intimately involved in many large bankruptcies. In 2008, as Lehman Brothers was struggling to survive, JPMorgan officials demanded several billion dollars in collateral to meet margin calls. Lehman acquiesced, severely draining its liquidity.

In the case of MF Global, the process is further complicated since the roughly $200 million is believed to be in Britain, which has its own bankruptcy rules.

The transfer came after a relatively routine overdraw of an account MF Global held at the bank, the person close to the matter said. JPMorgan systems picked up the shortfall and sent an automated message to MF Global, said the person, who requested anonymity because the information was private. The firm complied with JPMorgan's request and transferred the money, the person said.

After receiving the money, JPMorgan raised questions about its origins but received few answers. Some investigators suspect that MF Global transferred the customer money to another unit of the firm and mixed it with the company's capital before sending it to JPMorgan.

Such a transaction would have masked that it was customer money. It also would have violated a guiding principle of the futures industry: never mingle customer money with firm money.

The roughly $200 million that is believed to be at JPMorgan is a fraction of the money thought to be missing. The total amount of cash that is unaccounted for is itself the source of much debate.

Shortly after Oct. 31, when the firm filed for Chapter 11, authorities suspected that about $600 million in customer cash was nowhere to be found. Last week, Mr. Giddens's office put the number at $1.2 billion. Some regulators and the CME, the exchange where MF Global did much of its business, have disputed the larger estimate.

The missing money has prompted a wide-ranging federal investigation. The Commodity Futures Trading Commission is leading the search for the cash while the Federal Bureau of Investigation and federal prosecutors in New York and Chicago are examining potential criminal wrongdoing.

Neither the firm nor Mr. Corzine has been accused of wrongdoing. The lengthy search is owed in part to shortcomings in MF Global's recordkeeping .

Representatives for the F.B.I. and the C.F.T.C. declined to comment.

Next month, a pair of Congressional committees will examine MF Global's collapse, which came after investors and customers fled the firm amid worries over its risky wagers on European sovereign debt. The Senate Agriculture Committee will hold the first hearing on Dec. 13, followed by the oversight panel of the House Financial Services Committee on Dec. 15.

For the first time, lawmakers are looking to publicly question Mr. Corzine, who spent five years on Capitol Hill as a Democratic senator from New Jersey. He resigned as head of the firm earlier this month. In addition, they hope to call as a witness MF Global's chief operating officer, Bradley Abelow, who served as Mr. Corzine's chief of staff when he was governor of New Jersey. Mr. Abelow and Mr. Corzine have not responded to the request from lawmakers on the House committee, according to a person with knowledge of the matter who was not allowed to speak publicly. It is unclear if the two men will agree to attend.

The deadline for a response is approaching. Should Mr. Corzine and Mr. Abelow decline, the committee can subpoena the executives.

Tuesday, November 29, 2011

SocGen Sees $600 Billion QE3 Starting In March 2012 Sending Gold Up Between $1900 And $8500/Oz

SocGen has released its much anticipated Multi Asset Portfolio Scenario/Strategy guide titled simply enough "Patience: bad news will become good news" where, as the insightful can guess, the French bank makes the simple case that the worse things get, the stronger the response by global central banks will be. Here is the key quote for those worried that : "A major liquidity crisis should not occur this time, as we think we are on the eve of major QE in the UK, US and (a bit) later on in the EZ." We don't disagree and if there is anything that can send BAC higher it will be the announcement of QE3. Of course, BAC will first drop to a $2-3 handle so question is who has the balance sheet to hold on to the falling knife. The next question is "How big will QE3 be"? Well, according to SocGen, the Fed will preannounce it in the January 2012 FOMC statement, the monetization will last from March 2012 until the end of the year, and will buy a total of $600 billion. We believe the actual LSAP total (not to be confused with the "sterilized" QE3 known as Operation Twist) will be well greater, probably in the $1.5 trillion range as the Fed will finally say "enough" to piecemeal solutions. As to what to do, besides going long some financial stock and hoping it is not the one that is allowed to fail, SocGen has some simple advice: "Buy gold ahead of QE3 as money creation has a strong impact on prices" - in other words just as we suggested yesterday courtesy of the Don Coxe correlation chart. Why gold and not BAC? Because, "Gold is highly sensitive to US QE, as every dollar of QE goes into M0, triggering the debasement of the USD. Gold = $ 8500/Oz: to catch up with the increase in the monetary base since 1920 (as it did in the early 80s). Gold = $1900/Oz: to close the gap with the monetary base increase since July 2007(QE1+QE2)." So go long a bank that may well go bankrupt and return nothing before it at best doubles, or go long a real asset, which will always have value and may quadruple in short notice? The answer seems simple to us...

From SocGen:

A combination of weak Q1 2012 GDP and softening inflation could push the Fed to another round of monetary expansion.

SG economists look for a two-step easing process:

1) In January 2012, a major announcement with the Fed promising to keep rates at zero until unemployment falls below 7.5% or inflation moves above 3% on aa sustained basis.

2) In March 2012, the announcement of another round of QE. We expect the next round of QE to be concentrated on MBS purchases and be worth about $600bn over six to eight months. This would increase the Fed’s securities portfolio from currently $2.65trn to $3.25trn by the end of 2012.sustained basis.

The specifics of what to expect from the Fed:

And why gold:

And the full presentation:

Socgen Patience - Bad News Will Become Good News

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Is the Sovereign Debt Crisis a Replay of the Versailles Treaty?

Here at The Daily Bell we track dominant social themes of the Anglosphere power elite (the only elite that matters) and recently we’ve been pointing out that much of what is going on in the (Western) world is a repeat of the early 20th century.

In an article entitled “Parallels Between Early 20th Century and Present Are Scary,” we pointed out that history is indeed seemingly repeating itself. You can see the link here, and some previously created charts below.

We’ve pointed out these parallels in order to make the argument that much of what’s going on now is intended to speed up the process of creating one-world government. We regularly try to explain that there is likely a power elite behind this state of affairs – a small group wielding enormous Money Power via its control of central banking.

It is this “cabal” that seeks formal world government and – then – control of it behind the scenes. In order to implement world government, this impossibly rich cabal or mafia uses dominant social themes (fear-based promotions) to frighten middles classes into giving up power and authority to specially prepared globalist institutions.

But it is not enough to use themes. These themes have to be reinforced by ACTIONS. That is, if one wants to scare people about, say, an oil crisis, one has to implement measures to raise prices by creating an oil shortage. This has been done (even in the recent past) by restricting oil exploration, creating wars in sensitive oil-producing areas, etc.

Here at DB we call the strategies of the power elite in aggregate “directed history” – the idea that the powers-that-be are orchestrating a maximum amount of CONTROLLABLE chaos. Once the chaos has been created, authoritarian solutions can be applied. These solutions are presented as dominant social themes.

The elites use dominant social themes that are not scarcity-based as well. A different kind of theme is one that leads to political unrest and authoritarian solutions that can then be used to advance either one-world government or wars.

Today, we have what is called a “sovereign debt crisis” wracking Europe. Many believe this crisis is merely a coincidental outgrowth of what came before, in the booming, early 2000s.

We’ve gone back and forth on this issue, but increasingly we come down on the side of directed history. Increasingly, we think the elites are planning and creating economic chaos in order to do what they’ve done before – implement authoritarian solutions as result. Out of chaos … order.

Are there historical parallels? Maybe so. The question I want to address today is whether the current “sovereign debt crisis” is actually a replay of the infamous Versailles Treaty. The Treaty was “forced” on the Germans, and conventional history tells us that this was a “mistake.”

Was the Treaty of Versailles such an innocent mistake? There are three major issues to consider here: First, German leaders were made to agree to a “War Guilt Clause” in which they admitted Germany had stared the war.

Second, Germany, having started the war, would pay reparations – a figure that ended up at an impossible (for the times) £6,600 million. Third, a League of Nations was to keep world peace. (This failed, leading to World War II and the establishment of the United Nations.)

Let’s look at the parallels between the Treaty and the “sovereign debt crisis” in Europe. Do they exist? Are they identifiable? I think an argument can be made that there are. Here’s a broad chart that seems to show parallels.

Versailles Treaty Sovereign Debt Crisis
• German Leaders Admit Guilt • PIGS Leaders Admit Profligacy
• Impossible Reparations • Impossible Austerity
• League of Nations IMF/ECB/SDR Expansions
• Rise of Fascist Leaders • Rise of Technocrats

The overall aim of this historical manipulation in my view is to reinforce the progress the elites are making toward a one-world order. Just as in the 20th century, economics are being manipulated to create misery, despair and ultimately further concentrations of elite power. You can see a related article on this issue here: The Technocrat Meme Descends.

The back story to all of this is the incredible aggressiveness with which elite commercial banks lent to Europe’s Southern PIGS. This is perhaps the “smoking gun.” If one accepts this was a deliberate effort to create first a boom and then a terrible, international bust to bring the PIGS further under control of Brussels, then the rest of the manipulation becomes clearer. It is a kind of economic terrorism aimed at creating a European super state.

Are the top elites capable of such malevolent manipulations? This strategy does not seem without precedent. One could argue that the Versailles Treaty (which determinedly doomed millions to poverty and even starvation) was a deliberate attempt to ensure that certain sociopolitical events took place in Germany, and that Germany, in fact, would turn in an authoritarian direction that would eventually, perhaps, lead to another war.

The end game, it seems to me, is formal world government. It seems on its way to happening, though the Internet Reformation is, as we often mention, proving an obstacle to its progress, in our view. In fact, the elites have taken a great risk in implementing their economic destabilization – if that’s what they’ve done. They risk undermining the very Union they wish to consolidate. That’s an article we’ve already written and will return to on another day.

Anyway, within the context of these larger suppositions, the above chart may prove useful. It shows, I think, how the power elite really tends to work. Those involved repeat the same historical patterns in order to achieve the intended result (consolidation of power).

Of course, those who wish to rebut such arguments will simply claim that the parallels are coincidences. When it is pointed out that modern history is replete with such coincidences, the response will be that what looks suspicious is merely a “mistake.”

But there are so many mistakes! Strangely enough, the Yalta Treaty that gave away half of Europe to the Soviet Union was a mistake. The Gulf of Tonkin incident that led to the Vietnam War was also a mistake.

From an economics standpoint, the over-inflating of the New York Fed that led to the Crash of ’29 and the subsequent Depression was a mistake. The great mortgage bubble of the 2000s was a mistake. The sovereign debt crisis itself was also a mistake.

EVERY time a mistake is made, the solution seems to involve increased centralization of power at the top, increased global governance, increased authoritarianism.

Here are two other charts we’ve presented recently. Coincidence or deliberate historical manipulation? You decide.

Progressive Movement Occupy Wall Street
• Trust Busting • Breaking Up Big Banks & Big Corporations
• Wall Street regulation • Re-regulating Wall Street
• Voting through referendum • Direct Democracy
• Graduated Income Tax • Making the Rich Pay their “Fair Share”

Early 20th Century Early 21st Century
• Central Bank Inflation (Roaring ’20s) • Central Bank Inflation (Housing Bubble)
• Depression & Progressive Movement • Depression & Youth Movements Worldwide
• Occupy Washington DC (WW I Veterans) • Occupy Wall Street (Disaffected Youth)
• Reichstag Fire • 9/11
• Second World War War on Terror Escalating to Bigger War
• FDR-Like Figure to Provide Leadership Obama, who Models Himself on FDR

James Turk - Bullish Flag Pattern to Quickly Send Silver to $70

With gold, silver and stocks all moving strongly to the upside, today King World News interviewed James Turk out of Spain to get his take on what is happening. When asked about the action in gold and silver, Turk responded,
“What a great way to start the week, Eric. This move is going to catch a lot of people by surprise as evidenced by the extremely low sentiment readings. Those low readings are a clear indication that there is a lot of money on the sidelines that is waiting to jump on board.”(more)

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John Williams: Hyperinflation Warning, Preserve Value with Gold

The Gold Report: When we talked in May, you predicted that hyperinflation could be a reality as soon as 2014, something you addressed at length in your Hyperinflation Special Report. Have six months of euro debt crises, Middle East revolts and U.S. Treasuries' downgrading altered your outlook?

John Williams: Not a bit. We still seem to be moving down that road to a relatively near-term break toward hyperinflation. The most important thing that's happened since we last talked was the global response to the U.S. legislators' negotiations over the debt-limit ceiling and the deficit reduction problems at that time. Clearly, no one controlling the White House or Congress was serious about addressing the nation's long-term solvency issues. That sparked a panic selloff on the dollar against currencies such as the Swiss franc, and of course gold, which made the gold price rally sharply.

TGR: Did the politicos learn anything from those "negotiations," as you just described them?

JW: Not at all. In fact, I'll contend that everything that's happened since then has been just a playing out of what resulted in a complete collapse in global confidence in the dollar. The ensuing rapid shift of market focus to crises in the euro area was really more of a foil to distract the global markets from the dollar. Following that horrendous performance by Congress and the White House, the global markets indicated a major loss of confidence in the dollar that had been coming. I think that's now established and in place. The dollar is doomed to lose its reserve status eventually, and any day now, we may see things heat up again over the deficit negotiations.

TGR: What steps would we see on the way to the dollar losing its reserve status?

JW: Probably the biggest thing would be heavy selling pressure against the U.S. dollar, along with a spike in the stronger currencies such as the Swiss franc. The more the pressure builds for selling of the dollar, the more expensive and disruptive it will be for the Swiss National Bank to keep supporting the euro so I don't think that intervention will last long.

As heavy selling of the dollar develops against the Swiss franc, the Canadian dollar and the Australian dollar, and the gold price rallies, we'll see a very strong effort by those who are dependent on the dollar—such as the Organization of the Petroleum Exporting Countries (OPEC)—to have the dollar removed from the pricing of oil. Along with that will come a movement to change the dollar's reserve status. (more)

Did JP Morgan Just Convert 614,000 Ounces of MF Global Clients' Silver into JPM Licensed Vaults?

Blythe just tried to sneak a massive 613,738 ounce silver adjustment past the market this afternoon on one of the thinnest trading days of the year, but The Doc's all over it like white on rice- and WAIT TILL YOU SEE WHERE THE RABBIT TRAIL THE DOC JUST RAN DOWN LEADS!

The Morgue adjusted 613,738 ounces of silver from eligible vaults into REGISTERED vaults on Wednesday!
Not to be beaten, Scotia topped its 1.2 M oz deposit reported Wednesday, by receiving a massive deposit of 2,395,835 ounces!
Rather coincidental seeing Brink's had a nearly identical withdrawal Tuesday of 2,346,587 ounces!


*Delaware had a small withdrawal of a single bar (999 ounces) from eligible vaults

*HSBC had a small withdrawal of 2,035 ounces from eligible vaults

*No Changes for Delaware

*Scotia Mocatta reported a massive deposit of 2,395,835 ounces into eligible vaults!

*JP Morgan adjusted 613,738 ounces out of eligible vaults and into REGISTERED VAULTS!
Don't forget this number, we'll get back to it at the end up the inventory update.

*TOTAL COMEX REGISTERED SILVER increased to 34,051,874 ounces
*TOTAL COMEX ELIGIBLE SILVER increased to 73,893,167 ounces
*TOTAL COMEX SILVER INVENTORIES increased to 107,945,041 ounces

Ok. Now back to the 613,738 ounce adjustment by The Morgue. This silver is the 613,738 ounces that was deposited into The Morgue's eligible vaults last Friday, Nov 18th.
Where might this silver have come from?
This is not an ignorant client depositing his phyzz at The Morgue, because it was adjusted today into REGISTERED inventory-meaning its silver that is available for Blythe's delivery needs.

We have been updating readers that 1,420,916 of registered silver is currently unavailable as it is nowhere to be found in the aftermath of the Corzine/ MF Global scandal.
With today's update from The Morgue, The Doc decided to break down the numbers of the unavailable/stolen silver .

Here are the numbers again:

*Registered ounces of metal currently not available for delivery
as of 11/4/11 due to MFGI bankruptcy. Included in above totals.

Brinks 210,320
Delaware 65,706
HSBC 793,734
Scotia Mocatta 351,156
Total: 1,420,916
Now I'm not sure why I never noticed this previously, but isn't it interesting that in the wake of the MF Global client silver theft, there is registered silver missing from EVERY SINGLE VAULT EXCEPT JP MORGAN'S!?!

The Doc decided to break the numbers down one step further, by removing the missing MF Global silver in the HSBC vault (HSBS is the other big bullion back allegedly manipulating the price of silver to the downside) from the totals.

Outside of The Morgue's manipulation buddy HSBC, there are 627,182 ounces of MF Global clients' silver that remain missing.

Now for the timeline:
MF Global is taken down on Oct 31st/Nov 1st. About a week later the CME begins reporting that 1.4 million ounces of registered silver is unaccounted for and unavailable for delivery-including 627,182 ounces from non-cartel banks.
Roughly 7-10 days afterwards, JP Morgan suddenly reports a deposit of 613,738 ounces into eligible vaults.
Exactly 7 days later, JP Morgan adjusts this silver into registered vaults.
JP Morgan has not had a significant silver deposit in MONTHS prior to this 613,738 deposit if my recollection serves me.

This is not an allegation:
Make your own conclusions, I've made mine.

Still think that your silver is safe ANYWHERE OUTSIDE OF YOUR OWN POSSESSION!?!
The F***ing Morgue can burn- this is BANKSTER WAR PEOPLE!

Jim Rogers: Japan Stocks Are ‘Very Cheap’

International investor Jim Rogers says buying Japan's bourse is a bargain these days, and domestic investors incurring losses overseas are likely to repatriate funds into the local equity market.

“They will soon start losing money on the money invested abroad so a massive amount of that money is going to come back home,” Rogers, chairman of Rogers Holdings, said at a forum in Tokyo, The Taipei Times reports. “I doubt that will go into bank deposits or bonds because interest rates are so low."

"Then at least they can go to commodities or stocks.”

Rogers said he holds shares of Sanrio Co., the Hello Kitty brand licenser, and toymaker Tomy Co. Sanrio has soared 110 percent this year, but Tomy, the Japanese maker of Transformer and Pokemon toys, has slid 27 percent.

Despite these buys, Rogers remains pessimistic about most of the global economy as it faces the prospect of inflation and currency-market turmoil, noting that, in Japan, problems associated with a declining population and a swelling public debt will grow in 10 to 20 years.

Rogers added that he is “very, very bullish on Asia, especially China,” but is waiting for a rout in the Chinese stock market before buying more China shares.

India isn’t attractive because of the nation’s high debt, says Rogers, but Myanmar, with its abundant natural resources and ongoing government reforms, is the “most promising and exciting” Asian market of all.

RTT News reports that Myanmar's recently elected parliament has passed a bill allowing citizens to stage peaceful protests, marking the latest in a series of reforms initiated by the civilian government.

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Good Time to Buy? Housing Cheaper to Own vs. Rent in 12 U.S. Metro Areas

Five years after the market peaked, the housing market remains depressed. October new home sales, released this morning, totaled 307,000, slightly below estimates. Meanwhile, prices rose slightly.

But, as your real estate broker will happily mention - 'Now is a great time to buy!' Unlike 2007, when that obviously was not the case for most, now it might actually be true. Ironically, the reluctance for many to buy a home is what makes it a good (relatively) time to purchase.

As Aaron and Henry discuss in the accompanying clip, owning a home is now more affordable than any time in the last 15 years, based on a new Wall Street Journal survey. In fact -- with the average price of a home $242,300 -- it is now cheaper to own than rent in 12 metro areas including Atlanta, Chicago, Detroit, Las Vegas, Miami, Orlando and Phoenix.

As the WSJ article points out, the discrepancy between buying and renting can be extreme in some areas:

"In Atlanta, which had the most favorable values for owning versus renting, the monthly payment on the average home was $539 assuming a 20% down payment during the third quarter. By contrast, the average asking rent stood at $840."

Sagging prices and sub-4% interest on a 30-year fixed mortgage are the biggest drivers behind the trend of record housing affordability. However, unlike the glory days when buying a home merely took a pulse, securing a loan today is much tougher. And, flipping property is a dead game.

No Laws Were Broken

It looks like the EU is getting a bailout from the IMF that could be nearly $800 billion. Gold is going straight up, and I am sure global stock markets will also surge on the bailout news. This will not really fix what is wrong. It will also not put an end to the chronic crisis mode Europe and the U.S. have been in for the past 3 years. I mean, if all the global bailouts didn’t fix the problem, including $16 trillion pumped out by the Fed after the 2008 meltdown, what’s another $800 billion going to do? The reason why things are not going to get better is that corruption is rampant and the financial system is totally broken. Bailouts are treating the symptom, but the disease is unbridled fraud. Many people don’t realize this because the corporate controlled mainstream media will not report on crimes of the financial elite.

Last week, I wrote a piece called “False Narrative.” I was stunned by a comment from a guy named Jim that said, “It amazes me that you maintain the narrative of the “guilt” of private business that asked for consideration from Congress and the president and it was granted. Nobody has gone to jail because no laws were broken.” This is the most false of the false narratives. The 2008 meltdown is 70 times bigger than the S&L crisis of the 1980’s and early 1990’s. Back then, more than 1,000 financial elites were convicted of felonies. According to Professor William Black, the reason why we have “recurrent intensifying crises . . . is these epidemics of fraud from the C-Street—from the CEOs and CFOs.” Professor Black holds duel PhD’s in economics and law, but he is not just some run-of-the-mill academic. Professor Black is also a former bank regulator who spearheaded the cleanup of the S&L crisis. In a speech Black gave last week, he said, “In the Savings and Loans crisis, the inevitable National Commission said that fraud was invariably present at the typical large failure. In the Enron era, always frauds from the very top of the organization, and in this crisis the frauds came from the very top of the organization again. But what’s different in this crisis? In this crisis, the same agency that I worked with that made over 10,000 criminal referrals in a tinier crisis made zero criminal referrals. They got rid of the entire function. And so there are zero convictions of anybody in the elite ranks of Wall Street. And if they can defraud us with impunity they will cause crisis after crisis and they will produce maximum inequality. . . . And that’s why we have a crisis and it came from the very top of these organizations, and it went through—as the FHFA said in its complaint—the largest banks in the world were endemically fraudulent. It is not a few rotten apples. It is an orchard of one percenters who are rotten to the core.” (Click here to read his complete speech.)

Don’t believe the professor, then how about the “maestro” Alan Greenspan. The former Fed Chief admitted the system was fraudulent and needed to be cleaned up last November. He said, “If you cannot trust your counter-parties it won’t work and . . . it didn’t.” He was sitting on set with Ben Bernanke when he said it. Look at the video below, and watch Mr. Bernanke’s face when Greenspan dishes the dirt.

Look at the latest blowup with MF Global. There is more than $1 billion of segregated customer funds missing and not a single criminal charge. Does anyone think Jon Corzine is going to get prosecuted? I’ll be shocked if he is because he has friends in high places including the White House.

Just because nobody has gone to jail doesn’t mean everything is going to be ok and we all get a free pass. According to Karl Denninger at, the markets will be the ultimate regulator. Denninger wrote last week, “Without enforcement of the law — swift and certain — there is no deterrent against this behavior. There has been no enforcement and there is no indication that this will change. It will take just one — or maybe two — more events like MF Global and Greek CDS “determinations” before the entire market — all of it — goes “no bid” as participants simply stuff their hands in their pockets and say “screw this.” It’s coming folks, and I guarantee you this: Whatever your “nightmare” scenario is for such an event, it’s not bearish enough.” (Click here for the complete Denninger post. It’s really good!)

You cannot have a thriving economy that is shrouded in fraud and mistrust. Crimes continue to go unpunished, and mistrust is growing. No bailout, no matter how big, will ever fix that.

Is Frontier Communications’ 14% Dividend Yield Safe?

I’ve always been a big fan of Frontier Communications (NYSE:FTR). It’s a quiet little independent telecom company that handles regional services in just a few states like Northern California, Nevada, Arizona, Utah, Minnesota and New York. It’s the classic under-the-radar play that has done very well for investors over several years — the kind of play you have to find in a specialized screen and one that also must execute its business well.

Things have gotten tough for the company, though. In its recent third-quarter report, the company told of a 30% decline in net income, and an 8% decline in revenue, led by a 12% drop in local and long-distance service revenues. Talk about a hang up! So what’s going on with Frontier and, more importantly, will its 13.7% yield remain intact?

The problem is that, like most other phone companies, Frontier is losing subscribers to cell phone service as folks cut their landlines. Residential customer count fell by 2.3% over the sequential quarter and 10% over the previous year. Business customers fell by almost the same rates. When you lose subscribers like that, you can expect to see revenue and net income get slammed as they did.

What’s hidden in these numbers is that the company bought almost 5 million landline customers from Verizon (NYSE:VZ) several quarters back and, as you might expect, that temporarily boosted revenue and earnings. Now, however, it’s comparison time and the chickens have come home to roost on those telephone wires, so to speak. The company has started new initiatives such as expanding Internet service and satellite TV services by partnering with the big players in that arena.

Still, the problem facing Frontier is that landlines are going the way of the dodo bird. They won’t disappear entirely, but the company may continue losing customers until this trend abates. We’ve already seen Frontier cut its dividend — it did so last year when it chopped it from a buck per share to 75 cents. The company had to do it because it had some big capital expenditures coming down the pike after buying those Verizon lines. Is there another cut in the company’s future?

I like to look at free cash flow to determine if a company is using too much of its assets to pay shareholders. So far this fiscal year, the company has had FCF of $1.21 billion and has paid out dividends of $560 million. That’s about a 2-1 ratio, so about 50% of free cash flow is going to dividends. That’s a perfectly acceptable ratio.

If Frontier continues to lose customers in large numbers, this dividend could be cut. However, if that happens, I don’t suspect it would be more than 50%, which means it would still pay a healthy dividend of almost 7%. Investors looking for rock-solid safety may want to avoid buying now since the future is uncertain. Holders of the stock or those watching the company and trying to decide may want to think about holding for the next two or three quarters to see what develops.

Average New House Price Drops To Lowest Since 2003

Today's new annualized home sales print was 307k, below expectations of 315k (yet oddly better than last month's downward revised which moved from 313k to 303k, wink wink nudge nudge Census bureau). This is not to be confused with the actual number of houses sold which came at a whopping 25k, and the third month in a row in which under 500 homes sold in the over $750,000 category. Yet the most notable data point was the average new house sale price which dropped to $242,300. This is the lowest price since 2003! Something tells us that an MBS LSAP is pretty much guaranteed at this point.

Average New House Sale:

Number of houses in the $750,000 category:

And why the actual sales print was very much irrelevant:

Billionaires’ Top 10 List for Success

Barbara Walters on 20/20 (via The Wealth Report) interviews four billionaires, and culls out some wisdom for managing success.

You may recall that this is an area I have some interest in. Back in June, I wrote up something along similar lines: 7 life lessons from the very wealthy.

Back to The Wealth Report: Here is the top 10 list culled from billionaires:

1. Figure out what you’re so passionate about that you’d be happy doing it for 10 years, even if you never made any money from it. That’s what you should be doing.
2. Always be true to yourself.
3. Figure out what your values are and live by them, in business and in life.
4. Rather than focus on work-life separation, focus on work-life integration.
5. Don’t network. Focus on building real relationships and friendships where the relationship itself is its own reward, instead of trying to get something out of the relationship to benefit your business or yourself.
6. Remember to maximize for happiness, not money or status.
7. Get ready for rejection.
8. Success unshared is failure. Give back — share your wealth.
9. (A secret so powerful, we simply cannot tell you)
10. Successful people do all the things unsuccessful people don’t want to do.

Not a bad list . . .

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Monday, November 28, 2011

TED Spread Keeps Surging Higher As Banks Freak Out About Lending To Each Other

As the European crisis gets worse, banks are getting more cautious about lending to one another.

The "TED Spread," which is the difference between Treasury yields and LIBOR (the London Interbank Offered Rate), is thought to be a good indicator of the direction of credit availability in the economy. When the TED Spread is rising, as it is now, banks are demanding higher interest rates for lending to one another and credit is tightening. When the TED Spread dropping, credit is becoming looser.

The TED Spread has been rising all year.

From Bloomberg, here's the TED Spread over the past month:

TED Spread

And here's the past year:

As the longer term chart below shows, we're nowhere near the extreme levels we hit in the 2008 crisis, but we've now hit the upper bound of normal. And as the longer term chart also shows, we can go from "concern" to "crisis" literally overnight.

Here's the past 5 years:
TED Spread 5 year