InvestMacro Forex News

By MoneyMorning.com.au

The standard version of how money came to be goes like this: First, there was barter. (A handful of nails for a pint of ale!) Then, along came various forms of money. An evolutionary derby eventually crowned gold and silver as the supreme money.

And finally, credit (or debt) was born. This is the apex of man’s ascent from knuckle-dragging barterer to tie-wearing mortgage holder.

It’s a nice little story…except it’s completely wrong.

Busting the ‘Founding Myth’ of Economics 

‘Our standard account of monetary history is precisely backward,‘ writes David Graeber in Debt: The First 5,000 Years. ‘We did not begin with barter, discover money and then eventually develop credit systems. It happened precisely the other way around.‘

Graeber’s book Debt came out in 2011. I didn’t pay much attention to it then. After all, who needs to read another book about debt? But Graeber is an original thinker and provides a perspective you’ve probably not seen, since Graeber is not an economist. So he draws from unfamiliar wells on the topic of money and credit.

David Graeber is an anthropologist. He’s studied the record of human civilisations. It’s nothing like the economists imagine it. Graeber quotes from numerous economic textbooks to show how economists perpetuate the mythic progression of barter, money and then credit.

 (My own favourite, The Mystery of Banking by Murray Rothbard, also opens with the same story.) But anthropologists have long known that the historical evidence does not support this view. It’s just that economists seem to have ignored it.

Graeber calls the barter-money-credit story ‘the founding myth’ of economics. Instead, what really happened first was credit. In small villages and communities, trade happened on credit. Graeber presents a lot of evidence on this, which I’ll skip in the interest of space.

I’ll just say it is convincing. And when you think about it, it’s hard to imagine it happening any other way. ‘It’s not as if anyone actually walked into the local pub,‘ Graeber writes, ‘plunked down a roofing nail and asked for a pint of beer.‘

No. What happened was you ran up a tab. When the occasion permitted, you settled the debt in some way – perhaps with a bag of nails or tobacco or a chicken. All across the village, there would be numerous such ‘tabs’ or, essentially, credits (debts) for all kinds of goods and services. People settled these debts in broadly agreed-upon ways.

The Real Truth

‘To this day,‘ Graeber writes, ‘no one has been able to locate a part of the world where the ordinary mode of economic transaction between neighbors takes the form of ‘I’ll give you 20 chickens for that cow.’‘

When people resorted to barter, Graeber says, it was usually to conduct trade with strangers, or even with enemies. Barter is not even particularly ancient, but found more in modern times in societies familiar with the use of money but lacking actual currency or coinage.

‘Elaborate barter systems often crop up in the wake of the collapse of national economies,‘ Graeber writes. Russia in the 1990s is an example, when rubles disappeared. And sometimes a kind of currency will emerge in place of the old, such as cigarettes in POW camps and prisons. But all of these are cases where people were already familiar with one form of money and learned to make do without it.

Not all economists ignored the historical record of anthropology. Graeber gives a tip of the cap to one Alfred Mitchell-Innes (1864-1950). He was a British diplomat, economist and author.

While serving in the British Embassy in Washington, DC, from 1908-1913, he wrote two essays about the origin of money and credit for The Banking Law Journal. (I’ve read these essays, which you can find online. The first is ‘What is Money?’ and the second is ‘The Credit Theory of Money’.)

Mitchell-Innes laid out the fallacies in the popular story. He relied on numismatics and the commercial history of ancient and medieval societies. He showed how credit came first. The sanctity of debt spun the wheels of commerce. Coins (and money) came later.

‘At this point,‘ Graeber writes of the time of Mitchell-Innes, ‘just about every aspect of the conventional story of the origins of money lay in rubble. Rarely has a historical theory been so absolutely and systematically refuted.‘ Yet the myth persisted.

Here, I am barely out of Chapter 2 in my summary of Debt. The book is 500-plus pages. I can’t do it justice here, but I’m going to go to one conclusion that may alter how you think about money. Graeber, though acknowledging that we can’t know definitely how money came about, writes approvingly of one historical theory that says states created money to finance wars. As Graeber writes:

‘Say a king wishes to support a standing army of 50,000 men. Under ancient or medieval conditions, feeding such a force was an enormous problem… On the other hand, if one simply hands out coins to soldiers and then demands that every family in the kingdom was obliged to pay one of those coins back to you [to pay taxes], one would, in one blow, turn one’s entire national economy into a vast machine for the provisioning of soldiers, since now every family, in order to get their hands on the coins, must find some way to contribute to the general effort to provide soldiers with the things they want.‘

Admittedly a ‘cartoon’ version, Graeber says that cash markets did spring up around ancient armies. The creation of a national debt, then, is essentially a war debt. A central bank is merely the institutionalisation of the needs of the state and the interests of financiers to keep the whole machine going.

When Nixon took the US off the gold standard in 1971, it was in part to help finance the war in Vietnam. (Think, too, about what this means for gold. It is no more ‘real money’ than the ink-stained paper governments turn out. If this is right, gold became money only because states once stamped it and made it money and accepted it to settle debts and taxes. Otherwise, it’s just another commodity.) The US debt made possible a huge military-industrial complex.

‘The debt crisis was a direct result of the need to pay for bombs,‘ Graeber writes, ‘or, to be more precise, the vast military infrastructure required to deliver them.‘ Nixon ordered more than 4 million tons of explosives dropped on Indochina. In a sense, the US military was the only thing backing the US dollar – then and now.

‘The U.S. debt remains,‘ Graeber writes, ‘as it has been since 1790, a war debt.‘ It is a debt that cannot, and will not, ever be repaid. It is simply rolled over indefinitely, until the day comes when something else supplants the US dollar.

In the last chapter (‘The Beginning of Something…’) Graeber concludes that we live in a new financial age, ‘one that nobody completely understands.‘ It is an age of credit. But unlike the credit of old – dependent on trust and honour – it is one based on military power and debt servitude. It is one held together by the threat of violence.

How this latest phase ends – as government debts continue to pile up – is the great financial question of our times. Graeber’s book is a thoughtful (and well-written) addition to the discussion. I enjoyed it. It challenges long-cherished assumptions and makes you think – the mark of a good book!

Chris Mayer
Contributing Editor, Money Morning

Join Money Morning on Google+

By OilPrice.com

General El-Sisi may have found the solution to Egypt’s economic woes. It is called war.

During the weeks up to the coup, General El-Sisi had much to consider. With his access to the presidential palace and the trust of the Muslim Brotherhood, the general would have known the well-kept secret that Egypt was facing in a few short months a currency collapse and a famine that would very likely throw the country into a bloody revolution that his soldiers would be forced to quell.

Throughout the growing crisis, the Brotherhood offered no solid plan to revive the economy. Sixty billion dollars had been sent offshore for safety and nothing being done would lure any of it back. Qatar, Libya, and Turkey had contributed twelve billion dollars, but Egypt would require a billion dollars per month to remain solvent and there was no sign that would be forthcoming.

Something had to be done quickly and whatever was to be done would require the agreement of General El-Sisi. He was the Minister of Defense and the commander of the half million strong Egyptian military. He was the most powerful man in Egypt.

Regardless, a coup would not solve the economic stresses. Egypt needed a benefactor with a full purse and a willingness to spend. Only one country fitted that picture, Saudi Arabia; and the king has reason to favor the Egyptian general.

King Abdullah of Saudi Arabia had watched Mubarak removed from office and replaced by Mohammed Morsi. He had seen the Muslim Brotherhood grow from a problem to a threat. The Brotherhood was not only active in Egypt. It was involved in Tunisia, competed with the forces supported by the Saudis in Syria, and had been seeking to overthrow the King of Jordan. The Saudi king had proposed that the Gulf Cooperation Council be expanded to include Jordan and Morocco in an alliance of the monarchies in an effort to blunt the spread of the Arab Spring and the Muslim Brotherhood.

One of General El-Sisi’s many admirers might go so far as to say that he had been chosen by a Divine Hand to save Egypt. The general had been based at the Egyptian Embassy in Saudi Arabia and knew many of the leaders of the Kingdom who could provide the desperately needed funds that would make a coup possible. On the other hand, the Saudis had found the one man who could break the Muslim Brotherhood after which they would be free to focus on the destruction of their other enemy, Iran and the Shia.

There is nothing new in the objective. It is the continuation of a war that the Saudis have been pursuing for four decades that dates back to the reign of the Shah. Saudi Arabia had manipulated the oil price on several occasions in order to inflict economic damage upon the Iranians.

Beyond the economic arena, they have battled each other through proxies in Lebanon, Yemen, Iraq, and currently in Syria. In spite of all of those efforts, the Saudis are still confronting their traditional foe and seeing Iran a more dangerous rival than ever before with the Shia control of Iraq and through the growth of the Iranian Revolutionary Guard’s asymmetric warfare skills, and penetration by Al-Qud of the Shia communities throughout the Middle East.

Seven hundred billion dollars in foreign reserves gives the impression of an economic powerhouse, but the Saudi future is dire. A twenty-five percent unemployment rate among the youth and little prospect for improvement present a potential source of social unrest. After depending upon the strength of the United States for seventy years, their American protector is no longer a reliable ally. Looming in the not too distant future, new technological improvements are increase quantities of recoverable oil that will force down world prices, unless Saudi Arabia can restrict Middle Eastern supplies to compensate for the increased worldwide production

King Abdullah called for the beheading of the Iranian snake in the midst of the Arab Spring and heightened conflict with Iran. He would have liked to have seen the U.S. accomplish it before Iran developed nuclear weapons, but it did not happened and appears that it never will happen. If the kingdom is going to become the dominant power in the region that will give it control over the flow and cost of oil, it must do so before Iran acquires nuclear weapons and before the American shield is withdrawn. The current willingness by the Iranians to negotiate a settlement over the nuclear program is treated in Riyadh as diplomatic theatrics intended to deceive an eagerly to be deceived United States.

The Saudi outburst at the United Nations when the Kingdom refused to take its Security Council seat that it had struggled to acquire was a tactic and not a tantrum. The Saudis were sending the message that the unsolved problems that have been long festering in the region would have to be resolved. If the others would not act, then Saudi Arabia would deal with the issues without the aid of the retreating United States or the impotent UN. What they were saying was that they are being forced to do whatever they are going to do; and their actions would come in many forms.

At the end of October, the newly formed Saudi supported Army of Justice, Jaish Al-Adl killed fourteen Iranian border guards in the Province of Baluchistan. The organization declared that the attack was retaliation for Iranian involvement in Syria.

Baluchistan was merely a pinprick compared to the confrontation at the beginning of August between President Vladimir Putin and Saudi intelligence chief and former ambassador to the United States, Bandar Bin Sultan. The Saudi prince came with carrots and sticks to have the Russians drop their support of Bashar Al-Assad. According to the leaked news report, Washington was in full agreement with the Saudi offer.

What the prince presented was an agreement for Russia and the Organization of Petroleum Exporting Countries to set production quotas and prices. Combined, they control forty-five percent of oil production.

The Saudis would not interfere with Russian gas sales to Europe and would guarantee Russia’s presence in the Port of Tardus in Syria. How the Saudis could keep their promises was a question that President Putin must have been asking and not liking the answer.

The stick in the prince’s bag was to unleash Chechen Terrorist that he claimed to control to disrupt the Winter Olympics in Sochi. The Saudis threatened to escalate the conflict to the point that it would be too costly at home for Russia to bear, but the Russians were already bearing it. The Shia-Sunni conflict in the form of bombings and assassinations has come to the Dagestan and Chechnya regions several years ago.

In spite of the likelihood of violence at the Olympics, Putin shows no inclination to appease Prince Bandar. Instead, suspected potential women bombers are having saliva samples taken in order to identify their body parts and security measures are being intensified as the Sochi Olympics to be held in February.

Border raids in Baluchistan or terrorist attacks in Dagestan to disrupt the Olympics will create anxiety in Iran and Russia, but the actions will not force either to alter the strategy in Syria. In order to accomplish that, Saudi Arabia must put into operation tactics that will overwhelm the opposition. The first sign to achieve that was a statement on August 8, 2013 by the chair of the National Syrian Coalition, Ahmad al-Jarba that Saudi Arabia was to form a national army outside of Syria.

All of this was announced more than two months before the United States agreed with Russia to a program of destroying Al-Assad’s chemical weapons and before Presidents Obama and Rouhani were chatting on the telephone. Deputy Defense Minister Prince Salman bin Sultan bin Abdulaziz was selected to organize the national army. His plan is to build a force of forty to fifty thousand troops and is prepared to spend several billion dollars on the project.

The ultimate goal is the organizing of the Army of Mohammed. It is to merge numerous smaller units into an army of two hundred and fifty thousand to be ready by March of 2016, but there are problems with the plan. The Pakistani military that has been training smaller size units on bases in Jordan cannot provide the instructors for a quarter million size force; and Jordan cannot accommodate that many troops.

If Al-Assad is the target of the Army of Mohammed, the Saudis are calculating that it will take two more years and an army double that of Syria’s to defeat the regime. If there is another enemy on the agenda, then we have to ask on which country are the bunker busting bombs that are included in a eleven billion dollar order placed recently with the United States to be dropped; and at what targets are the CCS-2 missiles with their nuclear warheads that the BBC says that Pakistan has supplied been aimed. Then, there are those quarter of a million troops in the Army of Muhammad to be send somewhere.

The Saudis have no doubt who their enemy is. A recent attack by tank supported Houthi troops against a Wahhabi madrassa in the Yemen town of Damaj near the Saudi Arabian border is a clear reminder. So is a bombing in the Shia majority Kingdom of Bahrain that is a near province of Saudi Arabia. Of course, the Saudis are certain that there is an Iranian hand stirring the pot of trouble.

The Saudi see the Houthis as a dangerous threat on the southern border that could give the Iranians through a proxy a direct route into the Saudi oil fields that are the sole source of the national wealth. It is a good reason for the Saudis to worry, especially because a large percentage of the workers in those oil fields are Shia.

In 2009, the Houthis crossed into Saudi Arabia. It was mainly with Pakistani forces that they were driven back. During the first Iraqi War, while Saudi and other armies were focused upon the Iraqi forces in Kuwait, Pakistani troops guarded the southern border and other troops have been held at ready in Pakistan to come to protect the vital oil fields and installations.

The Saudis have been supporting Pakistan with generous grants for decades. Now, Pakistan is facing an unusual convergence of problems that it making it impossible for the Pakistanis to provide their customary military support for the Saudis.

At the end of November, the chief of army staff General ashfaq Parvez Kayani will retire. His successor has not been named. Whoever he is, he will have to deal with the consequences of the withdrawal of U.S. and NATO forces from Afghanistan. Only the most optimistic are expecting the days to follow to be peaceful and that violence is likely to spill over the borders where it will be necessary for the army to be waiting to confront it.

Saudi Arabia will be vulnerable without Pakistani support. The skirmish in Damaj and the bombing in Bahrain have to be taken as a forerunner of what will be coming on a greater scale.

Saudi Arabia needs a replacement for the Pakistanis; and Egypt is the only choice. Large cash grants to Pakistan over many years have cemented those bonds of mutual dependents. Saudi Arabia has been generous as well with Egypt through the decades of Mubarak’s rule and with El-Sisi without receiving much in return. Now, both are in need and Egypt has debts to repay; and those debts are increasing by the billions.

Within a few days of the reduction of aid by the U.S. to Egypt, the Egyptians signed an agreement with Russia to purchase fifteen billion dollars in military equipment that includes MIG-29 fighters. By financing the purchases, the Saudis are demonstrating to the Egyptian how important they are in Saudi plans and are sending a message to Washington that the separation has begun.

The Egyptian Foreign Minister Nadil Fahmy said in an interview that Egyptian and Saudi Arabian security are bound together . “The Egyptian-Saudi relationship is one of identity. No matter how much we agree or disagree regarding part of this relationship, it’s a relationship of identity. But the Egyptian-US relationship is one of interests, regardless of our work it is not a relationship of identity. Egyptian national security is directly linked to Saudi national security, and vice versa. Whether we agree or disagree, national security in the two countries is linked.”

Saudi Arabia has risen to the forefront in Egypt’s dealings with other nations and recognition of their dependence upon Saudi largess was reflected by the interim president of Egypt, Adly Mansour making his first state visit to Saudi Arabia . King Abdullah made it clear where the kingdom stands if Egypt is threatened. “Standing against any attempts to touch Egypt’s internal affairs, particularly by the terrorists.” “Terrorist” is the term used to describe the Muslim Brotherhood.

While the Egyptians were celebrating the generosity of their benefactors, there was a not so subtle warning that a subsidized lunch is not a free lunch. On Oct. 27, Sheikh Mansour bin Zayed Al Nahyan, the deputy prime minister of the UAE and the minister of presidential affairs, said, “Arab support for Egypt will not last long, and Egypt must think about innovative, unconventional solutions.”

This warning came in the face of a ten percent inflation rate and a thirteen percent budget deficit. Heavy borrowing just to maintain spending without investing in the economy has pushed the national debt to eighty-nine percent of the GDP with an economic growth rate of a mere two percent. At least six percent is needed to absorb the increase in the labor force .

The violence and the political instability have blocked any investment in the economy. What Egypt requires is a powerful economic stimulus. The formation of the Army of Muhammad might be just what the economic doctor has ordered. Supplying, training, and commanding an army of a quarter of a million could see a vast infusion of capital into the Egyptian economy.

Saudi Arabia does not want two hundred and fifty thousand foreign mercenaries even if they are Moslem mercenaries inside of the Kingdom. The Saudis need to base them where there are facilities and control over them. The only place that fills the qualifications is Egypt; and what is a more “innovative, unconventional solutions” to Egypt’s economic strife?

Source: http://oilprice.com/Geopolitics/Middle-East/Egypt-Marches-to-a-Saudi-Drummer.html

By. Felix Imonti for Oilprice.com

by John Paul Whitefoot, BA

While many retailers in the United States might be having visions of sugar plums, a lot will be left holding a chunk of coal. And in spite of the economic pressures facing American retail stocks, this piece of coal will not turn into a diamond.

Even though the U.S. economy is reportedly on stronger footing, you wouldn’t be able to tell by the number of people out shopping. Traffic to U.S. retail stores is expected to slip 1.4% this November and December. In the last two months of 2012, traffic increased by 2.5% after falling 3.1% in 2011. (Source: Wohl, J., “U.S. holiday sales expected to rise less than last year: Reuters web site,” September 17, 2013.)

This cannot help but translate into weaker-than-expected sales. In fact, sales at U.S. stores are projected to rise just 2.4% in November and December, compared to three percent for the same period in 2012, four percent in 2011, and 3.8% in 2010.

Granted, these miserly 2013 holiday sales projections came out ahead of recent economic data that showed the U.S. added more jobs than expected in October. However, even that observation is missing the bigger picture; after all, shoppers need money to shop.

In 2012, the country’s supplemental poverty rate was 16%; despite the great strides made on Wall Street over the last two years, the supplemental poverty rate remained unchanged from 2011. The 2012 official poverty rate in the U.S. was 15%, unchanged from 2011. (Source: “Supplemental Measure of Poverty Remains Unchanged,” U.S. Census Bureau web site, November 6, 2013.)

The supplemental poverty measure accounts for the impact of different benefits and necessary expenses based on the resources currently available, plus differences in housing costs, based on location. For example, for children, the supplemental poverty rate of 18% would rise to 24.7% if refundable tax credits were excluded. And if we exclude Social Security, the majority of Americans 65 and older (54.7%, or 23.7 million) would be in poverty.

Not surprisingly, consumer confidence levels are down. In October, the Conference Board Consumer Confidence Index slipped more than 11% month-over-month, from 80.2 in September to 71.2. The widely followed University of Michigan Consumer Sentiment Index sits at the lowest levels this year, and has been in sharp decline since July. (Source: “Consumer Confidence Decreases Sharply in October,” The Conference Board web site, October 29, 2013.)

Thanks to a weak economic environment and a stubbornly high unemployment rate, consumers are reluctant to spend money. According to one survey, one-third of consumers expect to spend less on electronics, toys, and jewelry than they did last year; on top of that, 27% say they will spend less on clothing. This is significant when you consider that 70% of the U.S. economy is fuelled by consumer spending. (Source: Ibid.)

That’s not lost on U.S. retailers that are going to the ends of the Earth to make the kickoff to Black Friday as profitable as possible—even if that means saying a fond farewell to Thanksgiving as we know it. U.S. retail stocks, including Wal-Mart Stores, Inc. (NYSE/WMT), Target Corporation (NYSE/TGT), Sears Holdings Corporation (NASDAQ/SHLD), and The Gap, Inc. (NYSE/GPS) are now starting to celebrate Black Friday on Thanksgiving at 8:00 p.m. Not to be outdone, U.S .retail stock Best Buy Co., Inc. (NYSE/BBY) is opening its doors at 6:00 p.m.—right around the time most Americans are sitting down to carve the turkey.

Obviously, not all U.S. retail stocks are created equal, or can diversify quickly enough to take advantage of the changing economic tide. Discount variety stores may be at the top of some lists this year, including U.S. retail stocks like Dollar Tree, Inc. (NASDAQ/DLTR), Ross Stores, Inc. (NASDAQ/ROST), Dollar General Corporation (NYSE/DG), and Wal-Mart.

At the other end of the spectrum are luxury brands that have been performing consistently well, including U.S. retail stocks such as Michael Kors Holdings Limited (NYSE/KORS) and Tiffany & Co. (NYSE/TIF). Even U.S. retail stock Coach, Inc. (NYSE/COH) is showing signs of renewed strength, having recently bounced off a support level.

While some investors may think they missed their chance to take advantage of U.S. retail stocks ahead of the holidays, there are a number of U.S. retail stocks that could be a bargain as we head into the end of the quarter.

This article Are These Retail Stocks Pre-Holiday Bargains? Was originally published at Daily Gains Letter

By CentralBankNews.info
    Shadow banking assets grew by an estimated $5 trillion in 2012 to a total of $71 trillion, mainly due to the general rise in financial markets, according to the Financial Stability Board (FSB).
    In its third annual survey of the world of shadow banking, which has been expanded to include hedge funds along with insurance companies, pension funds and public financial institutions, the FSB said the rise last year measured on a broad basis amounted to 8.1 percent, up from an 0.6 percent rise in 2011.
    In general, shadow banking – or non-bank financial intermediaries – forms a large proportion of financial systems in advanced economies and was largely stable last year but the FSB said shadow banking had grown strongly in emerging markets, up by over 20 percent, though from a small base.
    In China, for example, shadow banking assets grew by 42 percent in 2012 while in Spain they shrunk by 11 percent, the FSB said.
    The rise in shadow banking assets last year is in contrast with the banking system where assets were relatively stable as the effect of higher asset values was counterbalanced by shrinking balance sheets.
    Globally, the assets of the shadow banking system represents an average of some 24 precent of total financial assets, about half of banking system assets and 117 percent of the Gross Domestic Product of the 25 jurisdictions and the euro area as a whole that were monitored by the FSB.

    Among the various sectors within shadow banking, the FSB said real estate investment trusts and funds grew the fastest, or by 30 percent, while other investment funds grew 16 percent and the assets of hedge funds grew by 11 percent.
    For the first time, the FSB also sought to use more detailed data available from 20 jurisdictions to filter out non-bank activities that have no direct relation to credit intermediation or that are prudentially consolidated into banking groups.
    Using these more “granular data,” the FSB said shadow banking was estimated at $35 trillion compared with an estimate of $55 trillion using the broader basis. For this smaller sample, the growth rate in 2012 was 2.9 percent.
    The Swiss-based FSB, which coordinates global financial regulation and brings together authorities from 24 countries and jurisdictions, aims to strengthen the oversight and regulation of the shadow banking system. The monitoring exercise helps the FSB identify the risk to financial stability from shadow banking due to the use of leverage, maturity and liquidity transformation.
    “Improving bank regulation is not enough to fully address the weaknesses of the financial system revealed by the crises,” said Agustin Carstens, chairman of the FSB Standing Committee on Assessment of Vulnerabilities.
    “The shadow banking system continues to transform and innovate,” added Carstens, who is also governor of the Bank of Mexico.
    In August the FSB published policy recommendations to strengthen the oversight and regulation of shadow banking, aiming to reduce the overall risks to financial stability while still allowing the evolution of some of the system’s financial models that do not pose any risks.
    The FSB’s proposals included minimum haircuts for securities financial transactions.

    www.CentralBankNews.info
   
   
 

by George Leong, B.Comm.

It’s been over a month since I looked at gold, so perhaps it’s time to review my evaluation on the yellow precious metal. To recall, I didn’t like the metal at $1,800 an ounce, or even after its declines to $1,600 and $1,500. I didn’t even like it at $1,300.

Even when gold rallied from below $1,300 to $1,365 after the Federal Reserve decided to not begin tapering its bond buying at the September Federal Open Market Committee (FOMC) meeting, I refused to jump on the band wagon. It just wasn’t the right time.

The problem, in my view, was a lack of reasons why I should buy. In fact, buying into equities in mid-September would have offered investors returns, while losses mounted in gold.

Now, I keep reading about how China is buying more and more gold. Rumor has it that the country is building a big safe-house in Shanghai that could store up to 2,000 pounds of the shiny metal. Sorry, but I’m still not quite convinced that gold is a buy right now. I’m still not impressed.

China has over $3.0 trillion in cash and needs to do something with it. For China, buying U.S. Treasury bonds may not be the best idea, given that the U.S. government appears to be a mess and debt levels just keep rising. So that just leaves gold—luckily, the Chinese love the metal.

Tensions in the Middle East appear to be quiet, but you never know when a conflict could arise, especially with Syria being accused of playing the rest of the world with its agreement to allow the destruction of its chemical weapons. On top of that, Iran is still a major threat with its nuclear development. These tensions could strain supply, inevitably driving gold higher.

Yet for now, gold is only a speculative trade. I would not be adding the yellow ore as a buy-and-hold strategy. However, investors can consider buying on weakness as it falls towards $1,250 and selling on surges above $1,300.

Chart courtesy of www.StockCharts.com

The one big negative for those bullish on gold has been the absence of strong inflation around the world, in spite of the trillions of dollars of easy money pumped into the global economy. The theory was that record-low interest rates and cheap money would drive massive consumer spending worldwide; hence, prices would rise and voila, inflation. So far, however, this has not occurred. Consumers just aren’t spending enough to significantly boost inflation.

In reality, I’d say we’re actually more under the threat of deflation and declining prices than we are close to inflation. Without rising inflation and threats that would normally shove me closer to gold bullion as hedge, I just don’t see a reason to buy and hold the yellow ore.

The only way I see gold moving higher right now is via speculation. But again, I doubt prices would hold after a spike, unless the underlying market fundamentals change. With markets heading higher on a lack of fundamentals, this could, of course, easily change with a market correction.

In the end, the bottom line is that I would not be buying gold as a buy-and-hold strategy at this time. However, investors could trade it on weakness down toward $1,250 and sell on strength. If prices surge to above $1,300 to $1,350 or above, shorting the yellow metal as a speculative trade may be an option.

This article Update: Gold a Boon for Speculative Traders was originally published at Investment Contrarians

By George Leong, B.Comm.

Imagine letting a losing trade run, and before you even realize it, the position is down 20%, 30%, or more. Your $10.00 stock declined 30% to $7.00; you decide to hold the position, hoping for a rebound, but deep down you know the stock would need to rally more than 40% just for you to break even. Clearly, it’s not easy when a stock falls to greater depths.

But that’s why you should take the opportunity to dump losers when the stock market rallies, as is the case at this time. Avoiding a loss is just as good as making profits.

As many of you know, I believe the stock market is vulnerable to some selling and a stock market correction, based on my technical analysis of the charts. The S&P 500 is fighting resistance to advance higher, and the Dow Jones Industrial Average, while setting anther record-high on Monday, continues to show the potential of a stock market correction of at least six percent.

Think about how the stock market has moved to these levels. The easy money policy pushed by the Federal Reserve has been a key driving force behind this four-year run-up. But now, with the Fed expected to begin tapering in December or early 2014, the focus will shift to the economy and corporate revenue growth—which aren’t so stellar. In fact, in both cases, they’re flat.

Even the surge in the initial public offering (IPO) market is a red flag in my view. When I see an IPO double on its first day, it reminds me of the euphoria that I witnessed in late 1999, just prior to the stock market’s implosion. (Read “2013 IPO Frenzy an Omen for the Stock Market?”) I’m not saying it’s going to be the same this time around, but you need to be on guard. The NASDAQ traded above 5,000 at its height in 2000. Now 13 years later, the index—despite being up over 30% this year—is still more than 20% from its high.

While taking some profits off the table prior to the year-end always makes sense, I also understand why you’d be hesitant to do so, given the recent gains.

As an alternative to selling, you can always buy put options as a hedge against stock market weakness. I’m a big believer in hedging the risk; you should be, too.

Whether you have a few stocks or many, there’s always a hedge you can put together. From small-cap stocks to big-cap stocks, there are many put options available.

The majority of S&P 500 and Dow Jones industrial stocks have put options to buy. If you are heavily invested in the technology sector, you can buy the put options for the NASDAQ 100 or even for specific areas of the technology sector.

For investors, the key to a good investment strategy is to make sure you have some put options in place, just in case the stock market corrects—and trust me: it will.

This article Proactive Approach Is Key to Investing in This Stock Market is originally publish at Profitconfidential

London Gold Market Report

from Adrian Ash

BullionVault

Thurs 14 Nov 08:50 EST

The WHOLESALE price of gold recovered all this week’s previous 2.1% drop by Thursday morning in London, trading back at $1288 before slipping $5 per ounce as the US Dollar steadied on the currency market.

World stock markets also stood higher for the day, and bond yields fell as prices rose, after both the current and next US Fed chiefs said money-printing and zero interest rates “[have] more work to do” yet.

“Gold’s price is closely tied to investor sentiment,” write John Hathaway and Doug Groh, co-managers of the Tocqueville Gold mining-stock fund.

“[So] the current run-up of the equity market has turned investors’ attention to stocks and away from commodities. [But] when commodity prices are advancing as a result of inflation or increased demand, investors often gravitate to gold, and we expect that to be the case as a result of accommodative monetary policies.”

US consumer price inflation was last seen in September at 1.2% per year, near its lowest since the mid-1960s.

The US stock market’s 23% rise so far in 2013 matches the 23% decline in gold prices since January.

Wholesale gold bullion is now showing a strongly negative correlation with the US Dollar’s trade-weighted index on the currency markets, moving higher as the Dollar falls and vice versa, says a note from Swiss bank and London market-maker UBS.

Hitting a 4-month low of -0.74 last week, the daily correlation of gold with the USD index “suggests gold will likely continue to look closely to Dollar moves for direction,” explains UBS.

But “choppy price action” is likely to predominate it says, “given the persistent focus on US economic data and headline risks coming from Fed member comments.”

Fed vice-chair Janet Yellen, defending her nomination as the US Federal Reserve’s next chief later today, will tell lawmakers “I believe the Federal Reserve has made significant progress toward its goals,” according to prepared remarks released Wednesday

“But [the Fed] has more work to do.”

“We’re missing on both” parts of the Fed’s dual mandate, current chairman Ben Bernanke said at an event Wednesday to mark 100 years of the US central bank, pointing to weak jobs growth and weak price inflation below the central bank’s 2.0% target.

“We need a stronger, more rapidly moving economy.”

Back in the gold market Thursday, new data from the World Gold Council showed the first spring-to-summer drop in world gold demand since 2007.

Gold demand from the world’s former No.1 consumer, India, fell to its lowest Q3 level since 2005 at 148 tonnes, says the market-development group’s new Gold Demand Trends, down by one third from July-Sept. last year.

New world No.1 China saw its gold demand rise by 18% year on year.

Today, reports Reuters, “Supplies coming through legal channels [to India] are very expensive,” said one Mumbai dealer.

“Buyers need to pay more than $100 premium over London prices” – the world benchmark for physical gold bullion.

China’s gold premiums meantime held firm today at $4.50 per ounce in Shanghai.

“Looking to the fourth quarter,” says the World Gold Council’s new report, pointing to typical stockpiling ahead of the strong Chinese New Year, “anecdotal reports are of cautious optimism among banks and retailers.

“Investment should nonetheless improve during the traditionally strong [year-end] period.”

“Should we see a pick-up in [Asian] physical demand,” says Standard Bank analysis today, “we would expect gold to rise above $1300.  First because ETF liquidation [by Western funds] is likely to be better matched by demand from Asia, and second, the futures market is likely to short-cover.”

Adrian Ash

BullionVault

Gold price chart, no delay | Buy gold online

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online,

where you can fully allocated bullion already vaulted in your choice of London, New York, Singapore, Toronto or Zurich

for just 0.5% commission.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money,

and any decision you make will put your money at risk. Information or data included here may have already been

overtaken by events – and must be verified elsewhere – should you choose to act on it.

By CentralBankNews.info
    The central bank of Belarus maintained its benchmark refinancing rate at 23.5 percent to ensure an “attractive rate of return” on ruble deposits that exceeds the yield on foreign currencies, helping the bank maintain stable foreign exchange markets and curb inflation.
    The National Bank of the Republic of Belarus, a former Soviet Republic that borders Poland, has cut rates by 650 basis points this year, most recently in June, due to falling inflation. But Belarus’ inflation rate was 15.5 percent in October, slightly up from 15.42 in September and 15.0 in August.
    The central bank also said in a statement from Nov. 14 that the growth in ruble time deposits was not stable enough despite an increase during October.
    In August the central bank said it would continue its “rigorous” monetary policy in the second half of the year in order to reach its inflation target, stabilize the currency market and the deposit market.
    The bank’s goal is to bring inflation down to 12 percent and below, with interest rates kept positive to insure a steady inflow of ruble deposits. The bank has asked commercial banks to offer attractive deposit terms and introduce new instruments to help attract deposits.

    Another goal of the central bank is to raise the country’s international reserves.
    Belarus’ currency, the ruble, has been depreciating steadily since April 2012, and is down 8 percent against the U.S. dollar this year, trading at 9.30 per USD today from 8.55 end-2012.
    Belarus went through a balance of payments crises in May 2011 and the country devalued its ruble by about half, igniting inflation that exceeded 100 percent in late 2011 and early 2012. The central bank responded by raising interest rates from 10.5 percent in January 2011 to a high of 45 percent in December 2011.
    But by February 2012 the bank started cutting its refinancing rate in response to a steady decline in inflation from a high of 109.73 percent in January 2012.
    Belarus’ Gross Domestic Product contracted by an annual 0.5 percent in the second quarter compared with a 3.8 percent expansion in the first quarter.
   
    www.CentralBankNews.info

by Sasha Cekerevac, BA

Why is the average American falling behind in our economy?

Millions of Americans feel as though they are being left behind while the disparity between themselves and the rich continues to grow.

Over the last few years, the Federal Reserve has enacted the most aggressive monetary stimulus program in the central bank’s history. But even with the Fed’s trillions of new dollars thrown into the economy, most Americans do not feel any more financially secure or wealthier than before.

Now, when we look at the stock market, one could easily assume that the monetary stimulus brought on by our central bank is having a positive impact.

Let’s take a look at another country whose central bank has also been pushing a very easy monetary stimulus program for years; of course, I’m talking about the Japanese central bank.

We all know the Japanese economy has been in a slump for multiple decades. If monetary stimulus were the answer to all ills, why is Japan’s economy still weak? Let’s take a closer look at the average Japanese citizen for the answer.

According to a report by Japan’s central bank, 31% of Japanese households have no financial assets—a new record-high. This survey has been conducted since 1963. (Source: Bank of Japan web site, last accessed November 12, 2013.)

How could this be? The central bank in Japan has been pushing a very aggressive monetary stimulus program, which has led to a drop in the value of the country’s currency and an increase in the stock market in Japan of approximately 60% this year.

While monetary stimulus by the central bank did help push up stocks, it has done nothing for wages in Japan. Almost 41% of those surveyed reported that the reason why they had to pull money out of their savings was due to a lack of income growth from wages.

What’s the lesson?

We keep hearing from every central bank that if they could continue pumping monetary stimulus (money printing) into the economy, this will lead to a stronger jobs market and wage gains and everything will be perfect.

But looking at the actual evidence, we still do not see any wage growth in America or Japan. Both the Japanese and American central banks have put on massive monetary stimulus programs and still, no increase in incomes for the average citizen.

However, stock markets in both nations have soared. The wealthy have a large percentage of their assets in the stock market, and they have benefited. The average American, whose primary income comes from wages, has fallen behind.

You cannot get higher wages without a stronger jobs market and greater job gains. We need to hire millions of Americans before incomes begin rising.

When a central bank is determined to create inflation through monetary stimulus, I think it would be foolish for investors to ignore this. While inflation is still relatively low now, monetary stimulus means that the worst place for an investor to be is sitting on cash.

If a central bank is successful in creating higher asset prices, this means that everyone needs to have some investments that will also move up in value. We’ve already seen the stock market benefit; I would look to places where there is more room to the upside, such as precious metals.

For the long term, I always try to buy when others are selling and sell when others are buying. Investors are buying heavily into the stock market, while gold and silver are languishing. This is the perfect time to be rebalancing a well-diversified portfolio. Investors should consider taking profits in stocks and adding to the precious metals component of their portfolio.

This article Monetary Stimulus Leaving Average Americans and Precious Metals Behind was originally published at Investment Contrarians

By The Sizemore Letter

“We’re not in bear market territory, and we’re not really in a broad-based correction. But investors seem to be struggling to find that next great investment theme.”

I wrote those words this past June, when we were in the midst of the “taper tantrum.”  My, how little things change in five months. Now in mid-November — and with bond yields rising yet again due to Fed tapering fears — investors are looking for that next great investment theme … and mostly coming up short.

U.S. large-cap stocks continue to drift higher, but small- and mid-caps are lagging, and the sectors that showed the most strength in the early fall — such as Europe and emerging markets — are in correction mode. It’s a tough market to make sense of.

During times like these, it can be helpful to look over the shoulders of some of the best and brightest managers in the business to see how they are allocating their capital. I make a habit out of digging through the trading moves of managers I admire.

Investors looking for a one-stop “buy and forget” guru-following strategy now have a couple of exchange-traded funds to choose from.

In June, I compared the Global X Top Guru Holdings Index ETF (GURU) to its chief competitor, the AlphaClone Alternative Alpha ETF (ALFA). Today, I’m going to throw a new index competitor into the mix: the iBillionaire Index. An iBillionaire Index ETF is in the works as well, though the sponsor did not have a specific launch date.

Let’s take a quick peek at each of these guru-following strategies and highlight their differences. At first glance, you might think the strategies are interchangeable and that there is no value in adding another “me too” ETF. But the strategies each have unique features that can make each better than the others under the right set of market conditions.

ALFA was the first guru ETF to come to market, beating GURU by about a month. It also happens to be the most complex of the three. The AlphaClone index ranks hedge fund managers by a proprietary system and equally weights their top holdings. There is an allowance for overweighting if a stock has multiple guru owners. For example, a stock held by twice the number of managers would have twice the weighting in the index.

ALFA has one other noteworthy feature: It has a “dynamic hedging” mechanism that allows it to be up to 50% short during a prolonged market downturn. In ALFA’s case, the ETF will shift half of the portfolio into an inverse S&P 500 fund when the S&P ends a month below its 200-day moving average.

GURU, which is based on the Solactive Top Guru Holdings Index, runs a simpler strategy. GURU’s portfolio is simply an equally weighted mix of the “high conviction” picks of the hedge fund managers that Global X follows. Only managers that run concentrated portfolios are considered, but beyond that, there really is no other criteria.

The iBillionaire Index takes a slightly different approach. To start, it limited its pool of gurus to “financial billionaires,” or money managers who have amassed personal fortunes of over a billion dollars.

This article first appeared on Sizemore Insights as The iBillionaire Index: A Soon-To-Be New Guru ETF Option

Join the Sizemore Investment Letter – Premium Edition