Submitted by William Bonner, Chairman – Bonner & Partners
Missing Bull Markets
PARIS – As New York Mayor Ed Koch used to say: “How we doin’?”
A reader’s question suggests we’re not doing very well:
“How can we take your recommendations seriously when you missed the biggest bull market of our lifetimes?”
Miss this? How could you!
Image credit: Wes & Dotty Weber
He was referring to the big run-up in stock prices since 2009. We strongly object. That is a gross misrepresentation of our record! First, we don’t give recommendations; we just tell you what we’re thinking and doing. Giving advice requires far more confidence in our own opinions than we have.
Second, we didn’t miss one of the biggest bull markets of our lifetimes; we missed two of them! But wait. There’s more to the story. And (we can hardly believe it ourselves) it explains how we beat practically every investor in America… Continue reading
The attached column by Pat Buchanan could not be more spot on. It slices through the misbegotten assumption that Saudi Arabia is our ally and that the safety and security of the citizens of Lincoln NE, Spokane WA and Springfield MA have anything to do with the religious and political machinations of Riyadh and its conflicts with Iran and the rest of the Shiite world.
Nor is this only a recent development. In fact, for more than four decades Washington’s middle eastern policy has been dead wrong and increasingly counter-productive and destructive. The crisis provoked this past weekend by the 30-year old hot-headed Saudi prince, who is son of the King and heir to the throne, only clarified what has long been true.
That is, Washington’s Mideast policy is predicated on the assumption that the answer to high oil prices and energy security is deployment of the Fifth Fleet to the Persian Gulf. And that an associated alliance with one of the most corrupt, despotic, avaricious and benighted tyrannies in the modern world is the lynch pin to regional stability and US national security.
Nothing could be further from the truth. The House of Saud is a scourge on mankind that would have been eliminated decades ago, save for Imperial Washington’s deplorable coddling and massive transfer of arms and political support.
At the same time, the answer to high oil prices is high oil prices. Could anything not be more obvious than today when crude oil is hovering around $35 per barrel notwithstanding a near state of war in the Persian Gulf? Continue reading
The market for bankers’ acceptances was one of the first tasks of the Federal Reserve. There was a flourishing financial trade in acceptances in sterling which was purely a matter of the British pound being something like the global reserve currency, at least for a vast portion of global geography. With the United States becoming an industrial and trading power, American interests in financing trade from the point of view of the dollar were relatively uncontroversial. The Fed’s role in acceptances was to provide liquidity as “needed”, as the Fed was authorized to buy them with some discretion.
The point of these debt instruments was to finance global trade between relatively unknown systems and the private parties within them. An American exporting firm wishing to sell goods in dollars to a Chinese importer for the first time might be hesitant to engage since payment would not be due until delivery of the goods. With a bankers’ acceptance, however, the bank stands in between the transaction by essentially guaranteeing that funds have been deposited and that they will be available at the time of completion.
Markets for acceptances were robust especially in the first half of the 20th century. An acceptance would trade at a discount since the holder of the instrument might sell it before maturity. With the Fed implicitly standing behind the dollar acceptance market, they were, in essence, a form of quasi-money but one that was front-facing.
In the latter half of the 20th century, the acceptance market did not disappear as it was simply supplanted by the eurodollar market. The difference was the form of availability in eventual payment. In the acceptance market, the drawer of the acceptance is required to post funds on an individual basis immediately that become the bank’s shared liability; in eurodollars it gets more complicated.
The wholesale international paradigm of trade finance is moved to a more active intermediary basis. Take the example of firms not connected at all to the dollar directly; one in Sweden exporting goods to another in Japan. The Swedish firm must be paid in kronor, so the Japanese firm would contract with a Japanese bank to buy kronor at some specified time, usually three months forward timed to the expected delivery of the goods. If the Japanese bank carried reserves of kronor, not likely, the bank would simply charge its commission and everyone would move on. Holding reserves of this kind, however, is inefficient and costly. Instead, the Japanese bank would intermediate through eurodollars: buy dollars for yen and then sell dollars for kronor. Continue reading
A Historically Unique Event
We keep watching what is happening in Cyprus with morbid fascination. As a reminder, the unhappy island was the first major “haircut” victim in Europe. Its bankers, who had flagrantly over-traded their capital and won prizes for running “the best banks in Europe” along the way, erroneously believed the repeated promises of assorted EU commissars that Greece would never – never! – be allowed to go bankrupt. Consequently they stuffed their balance sheets to the gills with supposedly risk-free Greek government bonds, only to eventually see them get “haircut” twice in a row.
Desperate depositors queuing in front of Laiki Bank, the second largest Cypriot bank,
which was eventually wound up
Photo credit: Yorgos Karahalis / Reuters
With their capital thus depleted, the banks became dependent on “ELA” funding from the ECB in order to pay depositors who wished to withdraw their money. So as to avoid a panic, the Cypriot government and the EU lied for months to the customers of these banks, assuring them that their deposits were perfectly safe. This inter alia gave the friends and families of well-connected politicians and oligarchs (including close family members of the then president of Cyprus) the opportunity to get all their money out before the curtain came down.
Citizens of Cyprus would have done well to inform themselves about the fraudulent nature of fractional reserve banking. Many might perhaps have been able to avoid what happened next: they were expropriated overnight in an act of confiscatory deflation. Continue reading
Submitted by Mark O’Byrne – GoldCore
– Gold up 2.5% in January on stock falls, Korea nuclear test, Middle East tensions
– Gold up an average of 4.4% in January over past decade
– January positive month for gold and silver
Gold prices hit a four-week high today over $1,088 per ounce, extending gains for the third day and leading to a 2.5% gain year to date. Deepening concerns over the indebted Chinese economy saw falls in stock markets again and tensions rose in Asia and the Middle East.
Stocks globally fell for a fifth day as China added to fears about its economy by allowing the yuan to weaken further in the ongoing currency war, and a nuclear test by North Korea added to a growing list of geopolitical worries. Continue reading