Financial topics

[Higgenbotham]

It is larger than Bens thesis. This has been a prelude only H.

A couple things I would add to my last comment about gold. One is there is risk of panic in either direction (the high wire). Second, in your link above, when Jesse talks about stagflation as far as the eye can see, the extreme has likely been reached. Forum psychology tends to be the most extreme at the extremes, as reading this forum in late 2008 and early 2009 would attest - deflation as far as the eye can see was what was seen and predicted here almost unanimously. What we're seeing yesterday and today may be the beginning of the last attempt to take the choo-choo up the hill.

[aedens]

For many the deflation is ongoing and many more are never going to make it back to the station
since the car was unhitched. Meanwhile, overvalued assets in a pro-cyclical setup is on.
Vanilla is walking into a snakepit IMO. I would be very, very carefull.

[Higgenbotham]

I would be very, very carefull.

Quote from a well known trader's blog last week.
"Timing is always critical once a true recognition of the danger is realized. First, a rational person will look to common sense to realize a path that has withstood civilization stupidities throughout centuries. Rational people become prudent people by delving into their conscience to truly derive what is right from what is wrong. An open mind is the fertile soil for right. A closed mind is as fertile as a rock in the desert. Ben Bernanke’s mind is closed which is a fact that investors must be aware. Constructing a plan based on common sense must be made and endured. The tulip craze of centuries ago is an interesting intriguing read. Has anything changed from that scenario albeit a time passage of hundreds of years? No!"

[Reality Check]

http://www.bloomberg.com/news/2012-10-1 ... cmpid=yhoo

China is spending 2/10ths of 1% of it's 300 Billion annual trade surplus with the U.S. to buy up, this U.S. based manufacturing plant, which President Obama promised would compete with China based companies in the same industry. China will likely shut this plant in the U.S. down ( after moving any valuable tangible/intellectual property to China.) This is the type of thing the U.S. did to the British Empire after World War I and during the Great Depression.

A123 Systems Inc. (AONE), the electric car battery maker that received a $249 million federal grant, filed for bankruptcy protection after failing to make a debt payment that was due yesterday.

A123, which received a $249.1 million federal grant in 2009 to build a U.S. factory, needed a financial lifeline after struggling with costs from a recall of batteries supplied to Fisker, the plug-in hybrid luxury carmaker. A123 announced in August that it was working on a deal with Wanxiang Group Corp., China’s largest auto-parts maker, for financing in exchange for a majority ownership stake.

Wanxiang plans to invest as much as $465 million in A123, giving the Hangzhou, China-based company a stake of as much as 80 percent, A123 said in an Aug. 16 statement. In yesterday’s filing, A123 said it was considering strategic alternatives including “one or more potential transactions” to address its liquidity problems. There is “no assurance” that A123 will be able to find a way to continue to operate its business as a going concern, the company said.
The company and its debtor and non-debtor affiliates, collectively, have about 1,763 active employees, located in 10 facilities across the U.S., China and Germany, according to court papers. Its businesses consist of three primary business segments: transportation; grid energy storage; and commercial.

A123 Securities Corp., a non-operating company that holds a large portion of the company’s cash, and Grid Storage Holdings LLC, a shell entity formed “for the sole purpose of facilitating certain contemplated grid projects which ultimately were not completed,” also sought protection, according to court papers.
Obama’s Call

President Barack Obama called A123 Chief Executive Officer David Vieau and then-Michigan Governor Jennifer Granholm during a September 2010 event celebrating the opening of the plant in Livonia, Michigan, that the company received the U.S. grant to help build.

“This is about the birth of an entire new industry in America -- an industry that’s going to be central to the next generation of cars,” Obama said in the phone call, according to a transcript provided by the White House. “When folks lift up their hoods on the cars of the future, I want them to see engines and batteries that are stamped: Made in America.”

Electric-vehicle sales since 2011 totaled fewer than 50,000 through September, just 5 percent of Obama’s target to have 1 million such vehicles on U.S. roads by 2015.

http://www.bloomberg.com/news/2012-10-1 ... cmpid=yhoo

[vincecate]

I think we will get more than a factor of 3 increase in gold in the next few years.

Under the conditions Bernake has created a panic could easily happen. If that happens, gold could overshoot its value by a lot. As brought up previously, the paper dollars are gold backed about 40%, in theory, based on what the Fed claims is on their balance sheet, which would put a maximum price on gold of about $4500. But if people panic and don't believe the dollar supply will grow slowly or that the dollar will really be backed by that gold, then the price can go a lot higher. Bernake has taken unbelievable risk in my opinion, like a drunk on a high wire.

I thought the Treasury and Fed together had like $400 billion in gold and there were like $3 trillion dollars out. This 40% backed by gold ended in 1933 I think. Now it is more like $13,000 /oz if they share the gold they have for all the dollars they have. Note that next year we know there will be more dollars, so it would be even higher then. And if they started giving out the gold they would have even less gold for the future money printing to share.

I think Bernanke is doing what all central bankers before him have done when the government was desperate for money, buying government bonds. Note that Fannie and Freddie are really part of the government at this point.

- Vince

[Higgenbotham]

I thought the Treasury and Fed together had like $400 billion in gold and there were like $3 trillion dollars out.

None of the electronic dollars are backed by gold. If they are in a regular bank, they would be backed with whatever assets are on the other side of the ledger.

The paper Federal Reserve Notes are like banking with the Fed except you have a piece of paper instead of electronic digits on a bank statement. Those dollars are also backed by whatever assets are on the other side of the ledger. Reading the Fed's balance sheet, they have the gold listed on there valued at $35 per ounce. Taking the market price of gold, it calculates out to about 40% gold backed on the notes they have in circulation.

[vincecate]

I thought the Treasury and Fed together had like $400 billion in gold and there were like $3 trillion dollars out.

None of the electronic dollars are backed by gold. If they are in a regular bank, they would be backed with whatever assets are on the other side of the ledger.

The paper Federal Reserve Notes are like banking with the Fed except you have a piece of paper instead of electronic digits on a bank statement. Those dollars are also backed by whatever assets are on the other side of the ledger. Reading the Fed's balance sheet, they have the gold listed on there valued at $35 per ounce. Taking the market price of gold, it calculates out to about 40% gold backed on the notes they have in circulation.

I think you will find the whole $3 trillion on the Fed's balance sheet, not just the paper dollars. Also, any bank can convert their electronic dollars to paper dollars by withdrawing paper dollars from the Fed. If the Fed needed to it would print more dollars so that all the electronic dollars were backed by paper dollars.

It is not your local bank's assets that give the local dollars value. I think that is not a valid way to look at things. Their assets just determine if they will be able to give you dollars or if they are bankrupt and won't give you dollars. Not the value of the dollars.

[Higgenbotham]

I think you will find the whole $3 trillion on the Fed's balance sheet, not just the paper dollars. Also, any bank can convert their electronic dollars to paper dollars by withdrawing paper dollars from the Fed. If the Fed needed to it would print more dollars so that all the electronic dollars were backed by paper dollars.

It is not your local bank's assets that give the local dollars value. I think that is not a valid way to look at things. Their assets just determine if they will be able to give you dollars or if they are bankrupt and won't give you dollars. Not the value of the dollars.

The whole $3 trillion is on the balance sheet. Then (I haven't looked today) the Federal Reserve Notes are broken off as to what they are collateralized by, which is the gold, etc.

The electronic dollars can be converted but watch for the banks and the Fed to refuse to issue more paper dollars if there are runs, etc. I am betting that is more likely than not. Already, there are limits and they make it hard to get paper dollars. You are subject to ATM limits, federal reporting, and criminal charges for structuring. My bank manager told me finding cash in a bank nowadays is a joke.

What you said about the local bank is true for the fraction of dollars you can get out of there or what the FDIC might give you. In theory, without FDIC, if the local bank went bankrupt and your money was still there, then by backed I mean the depositors would get what was left over after the assets were sold.

10. Collateral Held against Federal Reserve Notes: Federal Reserve Agents' Accounts
Millions of dollars

Federal Reserve notes and collateral Oct 10, 2012

Federal Reserve notes outstanding 1,312,753
Less: Notes held by F.R. Banks not subject to collateralization 217,965
Federal Reserve notes to be collateralized 1,094,788
Collateral held against Federal Reserve notes 1,094,788
Gold certificate account 11,037
Special drawing rights certificate account 5,200
U.S. Treasury, agency debt, and mortgage-backed securities pledged (1,2) 1,078,551
Other assets pledged 0
Memo:
Total U.S. Treasury, agency debt, and mortgage-backed securities (1,2) 2,571,487
Less: Face value of securities under reverse repurchase agreements 75,387
U.S. Treasury, agency debt, and mortgage-backed securities eligible to be pledged 2,496,101

Note: Components may not sum to totals because of rounding.

[Reality Check]

10. Collateral Held against Federal Reserve Notes: Federal Reserve Agents' Accounts
Millions of dollars

Federal Reserve notes and collateral Oct 10, 2012

Federal Reserve notes outstanding 1,312,753
Less: Notes held by F.R. Banks not subject to collateralization 217,965
Federal Reserve notes to be collateralized 1,094,788
Collateral held against Federal Reserve notes 1,094,788
Gold certificate account 11,037
Special drawing rights certificate account 5,200
U.S. Treasury, agency debt, and mortgage-backed securities pledged (1,2) 1,078,551
Other assets pledged 0
Memo:
Total U.S. Treasury, agency debt, and mortgage-backed securities (1,2) 2,571,487
Less: Face value of securities under reverse repurchase agreements 75,387
U.S. Treasury, agency debt, and mortgage-backed securities eligible to be pledged 2,496,101

Note: Components may not sum to totals because of rounding.

http://research.stlouisfed.org/fred2/series/WGCAL

Source: Board of Governors of the Federal Reserve System
Release: H.4.1 Factors Affecting Reserve Balances
Notes:

The gold certificate account reflects the receipts issued to the Reserve Banks by the Treasury against its gold holdings. In return, the Reserve Banks issue an equal value of credits to the general account of the Treasury, computed at the statutory price of $42.22 per troy ounce. Because nearly all of the gold held by the Treasury has been monetized in this fashion, the Federal Reserve Banks' gold certificate account of $11 billion represents the nation's entire official gold stock.

http://research.stlouisfed.org/fred2/series/WGCAL

If the $11,037,000,000 represents the value of the gold at $42.22 a troy ounce,
then that would be slightly more than 261,416,390 Troy Ounces
or just over 8,130 Metric Tons

Revalued at $1,745 per Troy Ounce that would be $456,171,601,137 ( 456 Billion )

The Gold Certificate accounts if revalued at $1,745 per troy ounce is about 456 Billion
That is about 34% of the 1.312753 Trillion shown as Federal Reserve Notes Outstanding

It is also about 41.65% of the 1.094788 Trillion "Federal Reserve Notes to be Collateralized"

Item 10 is clearly not trying to collateralize 3 Trillion in Federal Reserve Notes - but that does not mean the 3 Trillion does not represent some other measure of U.S. currency

[aedens]

http://www.zerohedge.com/news/2012-09-2 ... e-go-least Start here then take the next logical step...

http://prudentbear.com/index.php/credit ... t_id=10718

Note futures on real commodity's. Dry powder protects dry flour. Reserves in the U.S., the largest grower and exporter, will fall 37%
The shadow asset inventory are being eaten by unchecked macro parasites. If you had any sense on Hedges you would be paying attention right now.
We posted that the jaws are closing and now they have. First word Stock and second is Market. What is stock should be your first reality
about now and after that word is Up. Very few remember the face of hunger we seen in the early seventy's. If you had any forboding at all prepare now.

In short: the more the Fed actively relevers using conventional conduits that spur the threat of inflation, and the more that shadow conduits delever
the greater the risk that inflation will finally come to roost. Because that $3.9 trillion in incremental reserves (and recall that already both BofA and Goldman, following our example, determined that the Fed will need to do at least another $2 trillion in QE, which means much more in reality) that will be created to offset the ongoing shadow deleveraging will simply pump up various asset classes, until the hard asset spillover finally hits, and no matter how much SPR jawboning, no matter how many CME margin hikes, no matter how many Saudi rumors of increase crude production, prices of hard assets will finally explode. tyler

The actual burn rate is in play now since hard assets are not being replaced timely and trajectory spending "has" is impossible to reconcile now.
Good luck with the blue dogs that killed what ever was left also with the coke and pepsi .gov employees returning to eat what only they can.
You cannot break glass to replace reality without consequences. The half turning we discussed will not focus on wooden floors since they
wish to focus only on dirt floors as targets to enable credit formation of bulldozers. I heard a discussion that noted
"well we got 300 million out of poverty this way" as we fund those who wish as soon as possible that we simply cease to exist.
The next year will be interesting to say the least on Egypt staying stable and the basic material constructs.

Sample: C as an entity is purely dysfunctional. A agglomeration of hyper internally competitive fiefdoms who attempt to survive by raiding each other's revenue streams (Experience, BTW) Culturally they fight one another 4 1/2 days a week and talk about the competition during the remaining hours on Friday before skedaddling. It is impossible to manage. h/t knu
Scope and scale we already know around here at GD since expectations are others reality ignored.