June 19, 2013
- Behold the Maestro: Scholarly research reveals how Alan Greenspan moved the gold market. Sort of…
- Chinese line up for gold, both physical and paper… while Indians opt for smuggling to get around new government gold limits
- “A very messy situation”: Big-money energy analyst affirms Byron King’s geography-centric oil outlook
- The untimely death of a real reporter… and what the public reaction says about “trust in government”
- The Rum Diary approach to business regulation in D.C…. an object lesson for Obama’s retirement cap… a critical distinction when Zero Hour arrives… and more!
“Did the tone adopted by Alan Greenspan in speeches on monetary policy move world gold and silver prices?”
This out-of-left-field question leads off a Financial Times article this morning, analyzing a study just issued by Edinburgh University.
“The researchers,” according to Toronto’s Globe and Mail, “used text analysis software Diction 6.0 to analyze some 400 speeches and comments between mid-1999 and mid-2012, looking at ‘certainty, optimism and realism’ in the comments of the world’s most powerful central bankers.”
Aside from proving conclusively that the researchers have way too much time on their hands, the study found a 1% increase in the amount of certainty in Greenspan’s voice could move the gold price 0.1%.
Greenspan, commanding the gold price to move microscopically.
“However,” says the FT, “a similar rise in Ben Bernanke’s tone did not move the markets.”
Aw, bummer. And on the very day we’re treated to a Bernanke press conference. Not even the “maestro” did those when he was in charge…
Gold and, indeed, nearly every asset class is in suspended animation this morning, awaiting the Federal Reserve’s latest dog-and-pony show — a policy statement that should be out around the time this episode of The 5 hits your inbox, followed by Bernanke’s session with reporters.
In the meantime…
- Major U.S. stock indexes are ruler-flat, the S&P at 1,651
- Gold is up barely at $1,374
- Oil has barely budged at $98.49
- The yield on a 10-year Treasury sits at 2.18%
- The dollar index has edged down to 80.6.
And now a quiz for your Wednesday. The people shown in the photo below are…
a) Silent “standing” protesters in Turkey
b) Angry bus riders about to start a riot in Brazil
c) Customers lined up to buy gold in China
The answer is (c). The Chinese news agency Caixin estimates 10,000 people were lined up to buy gold outside one shop last week during the three-day Dragon Boat Festival.
And Chinese who aren’t patient enough to buy real metal are willing to settle for the paper variety.
HuaAn Asset Management Co. plans to launch a gold exchange-traded fund (ETF) later this year, hoping to attract $400 million in funding.
“Gold hasn’t lost its appeal as a store of value in China,” fund manager Xu Yiyi tells Bloomberg. “Investors here usually like to buy on dips, so a decline in the bullion prices this year should work in our favor.”
From the “saw that coming” file, gold smuggling into India is on the rise.
Earlier this month, we’d mentioned the Indian government jacked up the import duty on bullion from 6% to 8%. Sure enough, customs at the New Delhi airport has arrested two men trying to sneak in nearly 85 ounces of gold from Dubai.
“The seizure also revealed a unique modus operandi,” according to the Times of India: Police say one of the men “converted the gold into silver-colored pins and stapled them on the box of a TV he was legally importing from Dubai.” The other man tried to wrap jewelry around his legs.
The Reserve Bank of India “has declared a war on gold,” says Sprott Asset Management star analyst and Vancouver regular David Franklin, supplying the helpful background.
“With the Indian rupee plumbing new lows against the U.S. dollar and the country’s current account deficit at record levels, the Reserve Bank of India (RBI) is taking the easiest route to tackle both.”
All those Indians importing gold have thrown the country’s trade balance seriously out of whack…
“Gold is synonymous with savings and security for many of India’s 1.24 billion people,” says Mr. Franklin. “Only about 36,000 of India’s 650,000 villages have a bank branch, which means the working class holds much of their assets in gold coins and jewelry.
“We suspect that there is very little the RBI can do to suppress the consumption of gold, and the central bank’s efforts will serve only to push the gold trade underground through smuggling and offshore trading centers.”
“I have a dim view of the Middle East in general,” says Fadel Gheit, the top energy analyst at Oppenheimer & Co.
We see Mr. Gheit echoing a long-standing thesis of our own Byron King: You don’t want energy companies with high exposure to the Middle East in your portfolio.
“The situation in Syria could drag the world into war, and that’s the last thing we need,” Gheit tells The Energy Report. “The troubles have spilled over into Lebanon and Iraq. Now Turkey, Russia and Iran are getting involved.
“This is really a very messy situation, which is going to get worse. Investing in North America is preferable because it’s safer.”
As it happens, Byron has built a solid collection of North American energy plays in the Outstanding Investments portfolio. Learn how to grab your share of the bounty at this link.
“In this age of shoddy journalism of news spin by talking heads,” writes a commenter at Rolling Stone this morning, “Mr. Hastings’ death leaves a gaping hole in newsprint.”
The world lost a real reporter yesterday: Michael Hastings was killed in a car crash in Los Angeles. He was 33. “Hastings’ hallmark as reporter was his refusal to cozy up to power,” says the obit at Rolling Stone, where he published his best-known piece “The Runaway General.”
In that article, Hastings quoted Afghanistan war commander Gen. Stanley McChrystal openly mocking his civilian commanders — including President Obama. The president cashiered McChrystal soon after.
The stenographic pool otherwise known as the Washington press corps was shocked that Hastings refused to play by their rules. Lara Logan from CBS said Hastings broke an “unspoken agreement” that reporters should not “embarrass [the troops] by reporting insults and banter.”
“Where did Logan go to journalism school,” quipped Rolling Stone’s Matt Taibbi at the time — “the Burson-Marsteller agency?
“If I’m hearing Logan correctly, what Hastings is supposed to have done in that situation is interrupt these drunken a**holes and say, ‘Excuse me, fellas, I know we’re all having fun and all, but you’re saying things that may not be in your best interest! As a reporter, it is my duty to inform you that you may end up looking like insubordinate douche bags in front of 2 million Rolling Stone readers if you don’t shut your mouths this very instant!'”
Panderer to power: CBS News “chief foreign affairs correspondent” Lara Logan
“So who has declared it to be an accident?” writes a suspicious commenter beneath the Hastings obit. “Could as well be a warning for any real journalist out there not to write about NSA files etc. ‘If you go against us, we will eventually get you.'”
The reaction to the news among ordinary folks says a lot about the zeitgeist in America circa 2013. Anywhere there’s a comment section below the story, people are speculating the single-car crash was no accident; some are invoking the sudden death of Andrew Breitbart last year.
We have no opinion ourselves… but we find the reaction revealing.
It reminds us of what Sen. Susan Collins said last month after the IRS scandal broke: “It contributes to the profound distrust that the American people have in government.”
Or the words of the president two weeks ago about the NSA scandal: “If people can’t trust not only the executive branch, but also don’t trust Congress and don’t trust federal judges to make sure that we’re abiding by the Constitution with due process and rule of law, then we’re going to have some problems here.”
We’d venture to say they have some problems now…
“Suppose, by way of example,” Hal Sanderson told Paul Kemp in the movie adaptation of Hunter S. Thompson’s Rum Diary, “you wanted to put up taxes by 5%.
“The smart way of doing it,” he explained, “is to float the idea of a 10% hike. Let them all shout about it, get themselves in a fuss. Then you offer ‘concessions.’ How about 7%?
“‘No way,’ they’ll say. All right, let’s stay friends and make a compromise at five.
“Bingo… they think they won something, and you’ve got the 5% you wanted in the first place.”
We were reminded of this scene this morning when we caught a glance at D.C.’s latest regulatory nightmare: the District’s vibrant food truck industry…
“For four years,” WJLA-TV reports, “D.C. food truck regulations have been hotly contested by vendors, brick-and-mortar restaurants, the District government and Council members.”
Yesterday, the D.C. Food Truck Association was on the hook for coming up with an agreement… based on the D.C. Council’s proposal, of course. This proposal included crippling regulations for the entire food truck industry. But as could be expected, a “concession” was on hand for each.
First, food trucks parked at an expired meter could face a $2,000 fine for their first offense, $4,000 for the second, $8,000 for the third and $16,000 onward. “In D.C.,” the Institute for Justice explains, “this would be a Class 1 infraction, the same legal category as possessing explosives without a license.”
Compromise: $50 fine.
Second, there will be a lottery for preset mobile roadway vending (MRV) locations. A lottery is set for a limited number of designated places. The trucks who win the spots pay a permit fee and can vend in that spot up to four hours, while other trucks — those who opt out or lose the lottery — may not operate within 500 feet of the MRV zone.
Compromise: 200 feet.
Third, a food truck can operate only in front of 10 feet of “unobstructed sidewalk.” Exemptions include trees and, of course, parking meters.
Compromise: 6 feet.
“But Tuesday,” WJLA goes on, “they reached a compromise that seems to make everyone involved happy.”
Bingo.
“Capping retirement accounts,” a reader writes on an ongoing thread, “reminds me of how the government ruined profit-sharing plans years ago.
“We were putting up to 15% of all our employees’ wages away in the plan. No contribution needed to be made by the employee; it was strictly money that came out of the profits of the business. There was no cap, so as the owner of the company, it was a valuable program for me. My employees benefited as well and were very happy with the plan.
“Then the government, in all its wisdom, decided that the higher-paid employees were deferring too much of our income, and they decided to cap how much of our salary we could use to put in the plan. Guess who got hurt? Yep, the employees, as we decided to discontinue the plan simply because the benefit to me, the owner, had been significantly reduced. The law of unintended consequences.”
“I understand what you’re saying about Zero Hour,” a reader writes, “but I have one question: Do you equate ETFs like the Sprott Physical ones in same regard as GLD and IAU?”
The 5: Not at all. Strictly speaking, the Sprott funds are not ETFs; they’re closed-end trusts. Ditto the Central Fund of Canada.
These trusts are backed by actual physical metal that’s “unencumbered” — that is, it hasn’t been lent out or promised to someone else. Your “counterparty risk” is considerably less — although, obviously, it’s still greater than with metal in your personal possession.
Bottom line: We anticipate the trusts would act more like real metal than the ETFs when Zero Hour arrives… and they’ll command a premium comparable to real metal.
Best regards,
Dave Gonigam
The 5 Min. Forecast
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