DesiTraderComments Off on CREDIT SUISSE: Here’s how high-frequency trading has changed the stock market
The rise of high-frequency trading in the US stock market has been nothing if not controversial.
The practice, which uses complex algorithms to analyze multiple markets and execute orders based on market conditions, has divided Wall Streeters into two camps: those who think the stock market has benefited from their existence, and those who argue to the contrary.
What’s not in doubt, however, is their overall impact on the stock market.
“They’ve firmly established their place in the market ecosystem, primarily serving as a facilitator connecting buyers and sellers through time, but also frequently criticized in that role for being superfluous, or worse, predatory,” Credit Suisse strategist Ana Avramovic said in a recent note.
“Whatever your view, their impact has been wide and, likely, lasting,” she added.
In a note, titled We’re All High Frequency Traders Now, Avramovic ran through four ways HFTs have impacted the market.
Higher trading volumes are HFT’s “largest, longest lasting, and most visible impact,” according to Credit Suisse.
The report said:
“We estimate that volume from money managers and investors, both active and passive, has remained fairly consistent for at least a decade (between about 3 and 4 billion shares per day). Total US volumes today, however, are more than double what they were in the pre-crisis, largely pre-HFT years. The difference is mainly due to HFT and high speed trading strategies.”
There are complaints that this activity isn’t “real” activity, but rather that this increase is down to unnecessary trading, or is designed to take advantage of slower moving investors.
“While that can be true … a majority of HFT activity serves to connect those natural buyers and sellers and reduce waiting times, often substantially so,” Credit Suisse said.
Bid-ask spreads for large cap stocks have tightened
A bid-ask spread is an important concept on Wall Street. It refers to the difference between the price at which someone wants to buy an asset (bid price), and the price at which the seller wants to sell that asset (ask price). The tighter the better, in theory.
The rise of HFT has seen a divergence between bid-ask spreads for large cap stocks (they’ve tightened) and small caps (they’ve widened), suggesting a concentrating of trading in the most liquid, biggest stocks.
Credit Suisse said:
“Bid-ask spreads for largecaps and smallcaps generally move in the same direction, meaning they both widen or narrow in accordance with volatility. However, we find that the dispersion in spreads between the most liquid and least liquid stocks has grown since mid-2009.”
There is more volatility in large cap stocks at the end of the trading day
Large-cap stocks and small-cap stocks also see the most volatility at different times of the day.
“At the beginning of the day, small caps tend to be more volatile as they take a bit longer to establish fair price,” Credit Suisse said. “But, at the end of the day, they actually have slightly lower volatility than large caps.”
The note said:
“Small caps do seem to experience larger price gaps, yet they tend to have less of the small fluctuations; largecaps, by contrast, with their large presence of market makers, may experience something like “flickering quotes” as the price bounces rapidly between the bid and ask, particularly at the end of the day.
“Both of these phenomena may be attributed to HFT – their absence in the case of smallcaps and busy back-and-forth trading in the case of largecaps.”
DesiTraderComments Off on Theresa May Will Trigger Article 50 On March 29, Starting Brexit Process
It appears that the long-awaited Article 50 trigger, officially beginning the Brexit process, will take place next Wednesday, March 29, because moments ago a Theresa May spokesman confirmed a report in the UK’s CityAM, reporting that Article 50 will be triggered next Wednesday.
U.K. TO TRIGGER BREXIT ON MARCH 29, MAY’S SPOKESMAN SAYS
THERESA MAY WILL TRIGGER ARTICLE 50 NEXT WEDNESDAY: CITYAM
Some more details from Bloomberg:
U.K. envoy to European Union Tim Barrow informed European Council President Donald Tusk’s office of Brexit trigger date Monday, Prime Minister Theresa May’s spokesman James Slack tells reporters in London.
Slack says Britain will trigger Article 50 of the Lisbon Treaty, formally starting Brexit process, on March 29, via letter to EU
Slack: “After we trigger, the 27 will agree their guidelines for negotiations and the Commission’s negotiating mandate”
Says: “President Tusk has said he expects an initial response within 48 hours. We want negotiations to start promptly”
EU Council president Donald Tusk is now expected to respond formally within 48 hours although the detailed EU negotiating position is not expected to emerge until later in the spring.
David Davis, the UK’s Brexit secretary added that “The Government is clear in its aims: a deal that works for every nation and region of the UK and indeed for all of Europe – a new, positive partnership between the UK and our friends and allies in the European Union.”
As the FT adds, the pre-announcement of the timing of the Article 50 letter is partly aimed at preparing financial markets for the formal start of the Brexit process which will last at least two years. Downing St has been anxious in recent months to counter the risk that major Brexit announcements are inevitably accompanied by falls in the value of the pound.
Meanwhile, cable has not reacted to the news, with the pound trading at a three-week high against the dollar at $1.2410 on Monday.
Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2017-03-20/theresa-may-will-trigger-article-50-march-29
US Mint Releases New Fort Knox “Audit Documentation”: First Critical Observations
In response to a FOIA request the US Mint has finally released reports drafted from 1993 through 2008 related to the physical audits of the US official gold reserves. However, the documents released are incomplete and reveal the audit procedures have not been executed proficiently. Moreover, because the Mint could not honor its promises in full the costs ($3,144.96 US dollars) of the FOIA request have been refunded.
Thanks to my readers that donated to the crowdfunding campaign I’ve been able to force the US Mint through a Freedom Of Information Act (FOIA) request to hand over documents related to the physical audits of the US official gold reserves stored at the Mint; also referred to as Deep Storage gold. Although the PDF-package digitally sent to me is redacted, incomplete, includes pages copied twice and materials I didn’t ask for, it’s the closest thing that I’ve ever seen to physical audit documentation of gold at Fort Knox and the other Mint depositories drafted in between 1993 and 2008.
What is worrying is that the reports now in my possession reveal the audit procedures have not competently been executed. Combine that with the fact the documents are incomplete and redacted, and the result is suspicion of fraud. In this blog post we’ll have a first critical look at the reports and the problems to be found within.
For starters, allow me to expand on what I think happened at the Mint’s headquarter on the 8th floor at 801 9th Street NW Washington DC, before these documents were sent to me.
It should be clear that the US Treasury (owner of the gold), US Mint (main custodian), Federal Reserve Bank Of New York (second custodian), and the Office Inspector General of the US Treasury (head auditor), are reluctant to disclose information about the audits of the gold at the four largest depositories that store over 8,000 fine metric tonnes. Consider that the most seasoned gold analysts aren’t even aware this gold is audited.
What nobody knows is that according the US government 100 per cent of the Deep Storage gold has been audited in between 1974 and 2008 (page 4). This period can be divided in two chapters: the first runs from 1974 until 1986 when the Committee for Continuing Audit of the U.S. Government-owned Goldverified the majority of the Deep Storage metal. The second chapter covers 1993 until 2008 when the residual was examined under the supervision of the Office Inspector General of the US Treasury. In my previous posts on this subject we focused on the first chapter, what is written below skims the surface of the second. As promised, eventually I will publish a full in-depth analysis of all chapters (there are additional chapters in the fifties, from 1986-1993, in 2009, 2010 and 2011).
Over the years my inquiries at the US government though regular channels have produced little intelligence about the physical audits of the Deep Storage gold. Some departments cooperated at first, but eventually they stopped replying emails or just hang up the phone while I was talking. The second layer of defense was raised when I started submitting FOIAs. Instead of honoring my requests they tried to delay and dodge most appeals. Clearly, the US government prefers not to answer my questions than to flaunt with the audit results.
However, in 2016 I embraced the motivation to push through and find out how many gold bars were counted, weighed and assayed in between 1993 and 2008, when allegedly the last series of physical audits was conducted. Not surprisingly, zero US government departments could provide me the information I was looking for, but through certain FOIAs I obtained leads to submit new FOIAs, and so on 12 Augustus 2016 I demanded, inter alia, the “memoranda submitted by the US Mint Director’s representative regarding audits of the Mint Schedule of Custodial Gold and Silver Reserves to the Chief Financial Officer drafted from 1993 through 2008”. The Mint replied this request would costs me $3,144.96 dollars because it would take 40 hours to search the respective documents, 8 hours for review, and additional costs would be incurred to duplicate 1,200 pages. I thought this was hogwash – 1,200 pages seemed out of proportion for such memoranda, how hard can it be to find a few pages and how did they know it were going to be 1,200 pages if they had to search 40 hours for it – but decided to start a crowdfunding campaign to collect the money.
Within 24 hours the campaign was completed and late August 2016 I sent the Mint a check, in the hopes to receive the documents a.s.a.p.. After the Mint pretended the check was missing for a few weeks, they communicated on 28 September 2016 the funds had arrived and they were working to get the requested documents out to me (exhibit 1).
Months past but nothing happened. I sent several emails and called the Mint three times, but time and time again I was maintained with false excuses. Then, finally, on 23 December 2016 the Mint delivered the documents I paid for. Sort of. Instead of 1,200 pages I received 223 redacted pages that contained 68 pages of reports I didn’t ask for and 21 pages that were copied twice. Effectively, I got 134 pages related to my FOIA request.
When I confronted the Mint I paid $3,144.96 dollars for a meager 134 pages they agreed the costs had been estimated to high and a refund was reasonable. Actually, they told me they never cashed the check. So, quickly I told my bank to cancel the check and ordered my crowdfunding platform to refund all my donors.
As of now all donors to my crowdfunding campaign should have received their money back (if not, please write me an email, see below for my address). From the bottom of my heart I would like to thank everyone for the loan that made this operation possible1!
For me a slight doubt remained if the Mint had tried to fend me off by asking a disproportionate amount of money for a few pages that I assume are alphabetically archived, or that they handled my case in all honesty. A skeptical mind would think the former. To find out I read the internal emails of the Mint employees that handled my FOIA. Those are not directly publicly available, but I was told a trick by more experienced FOIA scholars that reached out to me after I published my previous blog posts on this subject, to ask the Mint for internal emails through, what else, a Freedom Of Information Act request (exhibit 2).
And it worked! On 10 January 2017 I received all (I hope) emails from the Mint I was looking for. Including one wherein Audit Liaison at the United States Mint Tom Noziglia makes an estimate for the costs of my FOIA request of 12 August 2016. Read below (exhibit 3).
At first sight it seems Noziglia and his office stick to prudent protocols. But possibly this email is a veil, meant to deceive me if I would ever read it. Actually, yes, I think it’s a cloak and I’ll share my theory.
We can read from Noziglia, “as Audit Liaison at the US Mint, I [Noziglia] am responsible for the coordination of all external audit initiatives … I have extensive experience in precious metal inventory, … I … coordinate the execution of the annual OIG [Office Inspector General] Joint Seal Inspection of the Custodial Gold at the US Mint”. This page tells us Noziglia is one of the auditors of the US official gold reserves. So, the email above (exhibit 3) was written by the auditor who was involved in the procedures of which I requested the documentation. Noziglia must have known my inquiry could be simply honored by sending just a few pages of documentation, as he was a co-author of the documents in question.
Firstly, with the benefit of hindsight we know Noziglia was lying in his email because by now I have the documents that count only 134 pages, and he was the coordinator of the annual inspections of custodial gold at the Mint. He must have known there were no “1,200 pages in 80 boxes” and so his $2640.00 dollar estimate is a hoax. I think Noziglia wrote the email expecting I would NOT pay the ludicrous amount of dollars, but possibly DID submit a new FOIA to view the Mint’s internal emails. Chances are slim someone could pay $3,144.96 dollars right? But I’m not the first who submits an additional FOIA to obtain internal emails. Hundreds of people went before me, this is a well-known trick for FOIA pundits, and many public servants in the US must be aware of this hazard. Hence I reckon public servants consciously write emails to colleagues, as if these will be publicly released some day. I’ve come to understand submitting and answering FOIAs is nothing but a cat and mouse game.
Second, the Mint never cashed the check. If they really thought they would have to search 40 hours, why not cash the check immediately and get busy? I guess they knew very well there was no searching required.
Third, in case Noziglia had never seen a “memoranda submitted by the US Mint Director’s representative regarding audits of the Mint Schedule of Custodial Gold and Silver Reserves to the Chief Financial Officer”, which is not likely but let’s give him the benefit of the doubt, he could have viewed the most recent version at his office that wasn’t sent to the National Archives (NARA) yet. By doing so he would have learned very effectively these annual memoranda count only a few pages.
Fourth, Noziglia states in his email (exhibit 3) he’s not sure if he will find the documents at all. But this is impossible because he’s a dedicated Mint auditor so he must know what documents the Mint sends to NARA every year. In addition, there was no need for Noziglia to “order off site” boxes, because he simply could have commanded NARA staff to deliver specific documents – this is common practice.
Fifth, in the CC of Noziglia’s email is Kenyatta Fletcher, who is the Chief of the Accounting Division of the Mint. If, which is a big if, Noziglia didn’t know what I was looking for, Fletcher would’ve known these documents wouldn’t count 1,200 pages. But still I was charged a laughable $3,144.96 dollars.
Sixth, Noziglia’s estimate is $2.640.00 dollars, but I have no emails that clarify why $504.96 dollars were added for a total of $3,144.96 dollars I was charged. This indicates, Mint staff communicated in person or through phone calls to finalize my request, and so could have done likewise to handle it in general. Concluding, Noziglia’s email doesn’t paint the full picture of the internel communication.
Seventh, please read what Noziglia’s colleague Grimsby replied to him after 4 minutes.
“Great email”? Why would Grimsby praise Noziglia for his email? If Grimsby would have written,“I agree”, I can understand. But,“great email”? Perhaps Grimsby meant to write, “great calculation that makes no sense, but is likely deceive an ignorant FOIA requester if he would ever read it!”? It sure looks like it.
My guess is that Noziglia, Grimsby and Saunders-Mitchell met in the hallway in the afternoon of 15 August 2016 and agreed for Noziglia to write a phony email that arrives at an amount of dollars aimed to scare me off. In the email below you can read Noziglia suggested to Grimsby to discuss in person in the afternoon of 15 August 2016 the estimate for the costs.
So far we’re confirmed, again, that the US gold is held in secrecy. No surprises there. Moving on to the content of the documents.
Audit Documents Released Are Incomplete
When one walks into a US Mint repository the main barrier will be the door to the vault room. In the case of Fort Knox this a 20-tonne door of which no one person is entrusted with the combination. Once inside the vault room the gold is stored in segregated compartments that are sealed since at least the fifties.
The official narrative is that by 2008 the load of all 42 compartments had been physically audited. Every compartment had been opened, the gold inside counted, weighed and assayed, after which the gold was stacked in an adjacent compartment in the vault room (in several documents it’s described this is the way the gold is physically audited). Subsequently the target compartment door was closed and placed under Official Joint Seal, if during the verification no discrepancies had been found with the Mint’s bullion ledger. In most years until 2008 one or two compartments were opened for a physical bar examination, while the other compartments were merely inspected for any tampering of the Official Joint Seal (OJS). The purpose of joint seals is to avoid the necessity of verifying all assets in each annual audit.
Thus the audits of the Deep Storage gold consist of two conventions gold verifications, which are the physical audits of gold bars inside the compartments. And OJS inspections, which are checks of the seals placed on the compartment doors. The superintendent in the audit procedures is the Office Inspector General of the US Treasury, in short, the OIG.
When reading the audit documents delivered to me (the Memoranda hereafter) the distinction between gold verifications and OJS inspections is clear. Let me show you an example of Fort Knox. The first screen shots below are from a gold verification at Fort Knox in March 1998.
Exhibit 7.1. Gold verification at Fort Knox March 1998, page 1.
Exhibit 7.2. Gold verification at Fort Knox March 1998, page 2.
Exhibit 7.3. Gold verification at Fort Knox March 1998, page 3.
Exhibit 8.1. OJS inspection at Fort Knox June 1998, page 1.
Exhibit 8.2. OJS inspection at Fort Knox June 1998, page 2.
Exhibit 8.3. OJS inspection at Fort Knox June 1998, page 3.
Exhibit 8.4. OJS inspection at Fort Knox June 1998, page 4.
Click here and here to download all Memoranda sent to me by the US Mint.
After I had organized the documents and imported all data in spreadsheets I noted the 134 pages exclude 27 OJS inspection reports and at least 3 gold verification reports. I’ve asked the Mint to deliver the missing Memoranda, although I’m not expecting them to ever comply.
The fact 30 Memoranda are missing is of course highly problematic. Bear in mind, I offered the Mint $3,144.96 dollars to produce these documents.
In case you’re wondering how I know what gold verifications reports I’m missing, this is because references are made to these physical audits in succeeding gold verification reports. Fort OJS inspection reports, those should be done every year.
Below is an example of an Official Joint Seal. I obtained nearly all OJS copies from a separated FOIA request at the OIG.
Exhibit 10. OJS Fort Knox compartment 29.
Submitted a whole bunch of FOIA request at US government departments regarding Fort Knox today. #gold
Fort Knox Compartment 31 Was Opened In 1996 For Dubious Reasons
There are a couple of disturbing lines written in the Fort Knox OJS inspection report of 1996. Although for an OJS inspection seals should only be examined for tampering, on 12 August 1996 at the Fort Knox OJS inspection two representatives of the General Accounting Office (GAO) showed up in the vault room and decided to select “a single joint sealed compartment for opening and inspection”.
Unfortunately the report doesn’t say what was in the vault compartment; how many bars and fine troy ounces (FTO) it contained. Based purely on this document it would impossible to decipher what the GAO exactly did. However, by combining the info in the 1996 OJS inspection report with documentation obtained through a FOIA requests at the OIG, we do know what happened.
Have another look at exhibit 10. We can read Fort Knox compartment 29 was sealed in 1998. But the content, 19,800 gold bars weighing 6,470,624.049 FTOs before assays samples were taken, was sourced from compartment 31 that was sealed on 12 August 1996. Was compartment 31 the one opened by the GAO in 1996? Yes, without a doubt.
By examining all OJS copies – such as demonstrated in exhibit 10 – it shows there was no other vault segment freshly sealed on 12 August 1996 other than compartment 31. Moreover, the 1996 OJS inspection report mentions only one joint sealed compartment was breached. Therefore we know the GAO representatives opened Fort Knox compartment 31 comprising 19,800 gold bars weighing 6,470,624.049 FTOs on 12 August 1996.
Furthermore, in the 1995 OJS inspection report we read there was one compartment – the number is redacted – that contained 19,800 gold bars weighing 6,470,624.049 FTOs. And in 1995, 1996 and 1997 there were no gold verifications at Fort Knox as far as I know, other than the GAO incident. Have a look below at a screenshot from the 1995 Fort Knox OJS inspection report.
What happened is that on 12 August 1996 compartment 31 was opened by the GAO to “check a few bars”, but then two years later in 1998 the same gold was verified by the OIG; all the gold inside taken out of compartment 31, counted, weighed and assayed, to be stored across the hall in compartment 29. This is suspicious. I quote, “the purpose of joint seals is to avoid the necessity of verifying all assets in each annual audit”.
I do not possess the official rules for US Mint OJS inspection and gold verification for the year 1996 (“MD 8H-1”), but based on the rules that prevailed in 1975, what the GAO did on 12 August 1996 was not done. Read with me.
How come the GAO could open a compartment? The OIG stated under oath in 2011, “since 1993, when we assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold” (page 4). If the OIG is responsible how come the GAO could break a seal?
Let’s contemplate this: if the “random checks” the GAO performed in 1996 in compartment 31 formed an adequate gold verification, why did the OIG re-audit the exact same gold in 1998? And what was the intention of the GAO in 1996? The GAO couldn’t fully audit compartment 31, because they were present at Fort Knox only for one day (12 August), and no single person or flock of auditors can verify 19,800 large gold bars in one day. The fact these 19,800 gold bars were re-audited in 1998 underlines what the GAO did in 1996 was inappropriate at best.
One theory is that the gold in compartment 31 was prepared in 1996 to be physically audited down the road. Remember what the Fort Knox gold verification report of 1998 stated (exhibit 7.2)? In 1998 the OIG, “selected predetermined individual bars to be drilled for assay”. Possibly, the OIG selected the exact bars in 1998 that were put in in 1996. If this is true the names and autographs of the perpetrators of this crime are on the seal of compartment 29 (exhibit 10).
My succeeding post on this subject will expose that many other Deep Storage compartments at the Mint have been opened for dubious reasons as well. Which could be the reason the Mint didn’t provide us ALL the OJS inspection reports from Denver and West Point from 1993 through 2003 (exhibit 9).
Weighing Sample Size Remarkably Low
We need to discuss the sample size of the gold verifications. In 1998 at Fort Knox 19,800 gold bars were inspected but only 105 of them were weighed and assayed (exhibit 7.2). That’s not much in my humble opinion. In any case, I expected a higher sample size.
In the 1953 audit at Fort Knox (download report here) in total 88,000 bars weighing 48,506,985 FTOs were counted for verification. About 10 % of those were weighed.
During the Continuing Audits from 1974 through 1986 it seems 2 % of the gold counted was weighed. A huge decline from 1953.
Although gold bars tested to be out of tolerance during a Fort Knox audit in 1977 at a sample size of 2 %, by 1998 the sample size had been further debased to 0.53 %. I’m not a professional auditor (if you are one please contact me), but common sense suggests that when irregularities are found the sample size should be increased, not decreased.
To make matters worse, in 1999 at West Point the sample size was 0.52 %, and again, a melt appeared to be out of tolerance.
Was the sample size increased after 1999? Not really. At Fort Knox in July 2000 the samples size was 0.65 % (93 bars weighed of 14,262 bars counted). But wait until I show you what numbnuts were entrusted handling the scale for the audits of the world’s greatest gold hoard.
Scale Didn’t Work, Repeatedly
Let’s study the 2004 physical audit at West Point. Please read:
Exhibit 15.1. Gold verification report West Point 2004.
Exhibit 15.2. Gold verification report West Point 2004.
When all parties tried to reconcile the weight of samples on 22 and 23 July 2004, they found out, “the scale was reading at ounces rather than fine troy ounces”, because, “a setting on the scale had not been properly changed”. Allegedly this is what caused alternative readings in the books of the Director of the Mint’s Representative and the OIG’s Representative. And presumably because nobody could figure out how to use the scale correctly they decided to postpone re-weighing the samples until 24 August 2004. This failure of how to use a scale is a colossal disaster for the credibility of the Deep Storage audit procedures.
In 2004 a mere 71 bars were weighed and assayed, but it appeared that none of the auditors present knew how to rightly use the scale. The Memoranda mentions they found out the scale wasn’t properly functioning when weighing the assay samples, but what about the weighing of the actual bars? What about the weighing of every Deep Storage gold bar under the supervision of the OIG from 1993 until 2008? We have no guarantee this has ever been executed competently.
To repeat, the official explanation for this blunder reads, “the scale was reading at ounces rather than fine troy ounces”, because, “a setting on the scale had not been properly changed”.
First, in my mind there can be no imaginable circumstances in which setting of the scale should have been changed. The scale should read troy ounces to as many decimals all day long. That’s it. Why change the settings?
Second, they say, “the scale was reading at ounces rather than fine troy ounces”, but scales don’t read fine troy ounces so this statement is fake. A scale reads troy ounces, or digital ones can be set to reading grams; it cannot smell what is the purity of the gold and thus display fine troy ounces. That’s what the assay test is for.
In 2008 at West Point a similar disaster happened. Read with me:
Exhibit 16.1. Gold verification report West Point 2008.
Exhibit 16.2. Gold verification report West Point 2008.
The auditors couldn’t clearly read the decimal point. After assay samples were drilled to be taken out, the auditors weighed the same amount of gold granules to replace the samples, in order for the Deep Storage FTOs to remain flat in 2008. But the assay lab, White Sands Missile Range, which is a division of the US Army, found out from the paper work that the weight of the assay samples didn’t match the weight of the granules. And so West Point compartment 10-H had to be re-opened on 22 September 2008 to put an exact 10.346 ounces of gold in, instead of 1.0346 ounces.
What a catastrophe! Be aware that before weighing the granules the auditors weighed 86 gold bars and the assay samples. How do we know they properly weighed the assay samples and the totals of the 86 bars? The short answer is, we don’t.
Thereby, anybody with a sense for gold can see the difference between 10 ounces and 1 ounce of yellow metal.
From the examples above it should be clear that the Deep Storage gold has not been audited by professionals, but the precious metals have been verified by imbeciles. Clearly the scale was repeatedly handled by amateurs, which throws a wrench at the integrity of the entire US official gold reserves auditing project. I’m not at all surprised the US Mint has tried everything to keep the records of the auditors out from the pubic domain. Fortunately most of it will be out in the open eventually. The citizenry of the world deserves to know everything there is about the Deep Storage gold.
Let’s finish with one more comment from the West Point 2006 audit report.
Exhibit 17.1. Gold verification report West Point 2006.
The auditors couldn’t figure how to use the drill to take assay samples (how about pointing the tip to a bar and press the button). They also were oblivious how to calculate fine troy ounces. We must wonder if these people would be capable of tying their own shoelaces. In any case, the fact the US government chose to assign very inexperienced people widely opens the possibility that the audits are a complete hoax.
Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2017-02-28/us-mint-releases-new-fort-knox-%E2%80%9Caudit-documentation%E2%80%9D-first-critical-observations
Swing voters are a fickle bunch. One election they vote Democrat. The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon.
The primacy of the wallet.
They don’t give a rip about questions of small government or big government. Nor do they have any druthers about the welfare or warfare state.
In effect, they really don’t care. What’s important to the swing voter is much simpler. In fact, it can be boiled down to the following essential question. What have you done for me lately?
The answer to this question, of course, comes back to money. As far as the swing voter’s concerned, if their brokerage account’s growing they vote the incumbent party. If it’s shrinking, they vote the challenger party.
It doesn’t matter if the source of the stock market inflation is a fraud. Nor does it matter that a stock market correction will help reestablish financial markets on a firmer foundation.
In this respect, the mere trajectory of the swing voter’s portfolio tells them everything they need to know about whom to vote for.
Truth and Denial
Earlier this week Republican Presidential Candidate Donald Trump took issue with the Federal Reserve’s stock market inflation games.
He remarked on CNBC that the Fed has created a “false stock market,” and that Fed Chair Janet Yellen and central bank policymakers are very political, and should be “ashamed” of what they’re doing to the country, “The Fed is not even close to being independent.”
Certainly, the idea that the Federal Reserve influences elections is not a novel concept. For this reason, at the recent central banker’s summit in Jackson Hole, Wyoming, former Democrat Congressman, and overall repulsive being, Barney Frank, told the Fed, “Don’t raise rates before election.”
With his tireless work for the poor and the middle class finally done, Barney Frank waved good-bye, to sail off into the well-appointed retirement of a Congressman. Recently he felt the need to pipe up again, dispensing advice to the “independent” Federal Reserve.
Obviously, a monetary policy change toward tighter credit, and the subsequent stock market swoon prior to an election can mean death for an incumbent party. Just ask former President George H.W. Bush. He’ll tell you that former Fed Chairman Alan Greenspan cost him the 1992 election.
From an axiomatic perspective, the truth of a political accusation is equal to the denial that follows. In other words, the greater the subsequent denial is, the greater the truth of the allegation.
Shortly after Trump’s shaming of Fed Chair Yellen, Minneapolis Fed President Neel Kashkari took to Squawk Box to offer this denial:
“Politics simply does not come up,” said Kashkari. We suppose Kashkari had his fingers crossed behind his back when he uttered this. Because given his checkered past, he’s simply not a man to be trusted.
Kashkari, without question, is an extreme economic interventionist. If you recall, as federal bailout chief, he functioned as the highly visible hand of the market. In early-2009, he awoke each morning, put on his pants, drank his coffee, and rapidly dispersed Henry Paulson’s $700 billion of TARP funds to the government’s preferred corporations.
Kashkari’s former partner in crime, Hank Paulson. They had to destroy the village to save it – or so they said, anyway.
Incidentally, the experience had an ill effect on Kashkari’s mental health. Following his position of federal bailout chief, he became a hermit, took to a cabin in the Sierra Nevada Mountains – near Donner Pass – and found his purpose in life chopping wood (for an image of Kashkari the wood-chopper, see here).
We thought we’d seen the last of him. But alas, after a failed gubernatorial campaign in California in 2014, Kashkari resurfaced earlier this year as Minneapolis Fed President. The world is a worse place because of it.
Why the Fed Destroyed the Market Economy
Kashkari’s a man with crazy eyes. But he’s also a man with even crazier ideas. After stating that politics is not part of presidential election year Fed policy, Kashkari explained how Fed policy is set.
Neel Kashkari: Crazy eyes and even crazier ideas.
“We look at the data,” he said. In hindsight, this clarification was more revealing than the initial denial.
Clearly, Kashkari has never thought about what exactly it is he is looking at when looking at the data. If he had, he’d likely conclude that the approach of using data to identify apparent aggregate demand insufficiency and perceived supply gluts is crazy.
Unemployment. Gross domestic product. Price inflation. These data points are all fabricated and fudged to the government number crunchers’ liking. What’s more, for each headline number there is a long list of footnotes and qualifiers.
Hedonic price adjustments. Price deflators. Seasonal adjustments. Discouraged worker disappearances. These subjective adjustments greatly affect the results.
Yet what’s even crazier is that Kashkari believes that by finagling around with the price of money the Fed can improve the output of bogus data. According to central planners, better data – i.e. higher GDP, greater consumer demand, 2 percent inflation – means a better economy.
But after 100-years of mismanagement, the last eight being in the radically extreme, the Fed has scored a big fat rotten tomato. The data still stinks – GDP’s still anemic. But the downside of their actions is downright putrid.
How much economic progress has monetary central planning actually cost us? This cannot be quantified, but we are willing to bet that in combination with the socialistic welfare/ warfare state that is partly funded by this surreptitious theft, we have lost the equivalent of one or two centuries of real wealth creation as a result of compounding effects and historical political developments (primarily war) that would have been impossible without limitless credit expansion. Once this gigantic bubble implodes for good the damage will become even greater – click to enlarge.
Policy makers have pushed public and private debt well past their serviceable limits. They’ve debased the dollar to less than 5 percent of its former value and propagated bubbles and busts in real estate, stock markets, emerging markets, mining, oil and gas, and just about every other market there is.
Aside from enriching private bankers, we now know the answer to why the Fed destroyed the market economy. According to Kashkari, the data told them to.
* * *
Addendum: Have you Seen this Man?
We came across this excellent mugshot of the above-mentioned Barney the Destroyer which we didn’t want to keep from you…
Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2016-09-17/why-fed-destroyed-market-economy
If Brexit marks the beginning of the end for the European project, Brussels will take its share of the blame
If Britain leaves the EU and if the reaction to Brexit causes years of uncertainty, the EU will reap what it has sowed. British discontent is only a precursor to unrest on the Continent, where populists from across the political spectrum feel they have lost control over their fate, and are gaining popularity.
We’ve seen the transfers of power to the European level after ignoring the referendums on the European Constitution in France and the Netherlands in 2004. We’ve witnessed the refusal to allow Grexit, which could have been an alternative for continued fiscal transfers and interventions into national budgetary decisions. Both have created a lot of discontent and anti-EU sentiment since 2010.
Last year, there was the decision to outvote Central and Eastern Europe on the sensitive issue of forcing countries to accept refugees, which isn’t even possible in a passport-free zone, as people can travel freely, but which was decided to divert attention from criticism on Angela Merkel’s controversial refugee policy and to organize yet another transfer of power to the EU level.
Finally, we could see how Prime Minister David Cameron’s proposals to bridge the gap between the EU and citizens were met with a lukewarm reaction. His proposal, for example, to allow national parliaments to block EU proposals was watered down to make it harder to implement.
If the British vote to ‘Remain’, they most likely won’t do so with a majority of more than 60%. That however is the threshold needed, according to pollster Comres, to really settle the debate for the next few years.
With a narrow victory for the ‘Remain’ camp, it is therefore more than likely that the debate would just start over the next day, very much like the Scottish demand for independence which has remained a prominent feature in UK politics after 44.7% of Scots voted to secede from the UK in a referendum in 2014.
If people vote to ‘Leave’ the EU, the government is likely to activate article 50 of the EU Treaty, which foresees that the status quo is maintained for two years and that both parties are given the chance to renegotiate their relationship.
Many think that two years will be much too short for this. The British government thinks that there could perhaps be 10 years of uncertainty, while EU Council President Tusk has mentioned seven years. Some in the ‘Leave’ camp have claimed that there may even be a second referendum after a Brexit vote, whereby Britain would get the chance to remain in the EU after all, but under better conditions than those negotiated by Cameron in February this year.
It’s unlikely that the UK would want a relationship similar to that between Norway and the EU. Norway may have complete access to the European single market because of its membership of the European Economic Area but in exchange it needs to comply with over a set of EU rules without having any influence over them within the EU institutions. That surely won’t be an option for a country which just would have left the EU because of a desire to have more sovereignty.
Also, to have the EU-Canada trade deal (CETA) as a model, as advocated by the ‘Leave’ campaign’s Boris Johnson, may not be appealing, given the lack of access the financial services industry would enjoy to the EU market.
The British may prefer something like the Swiss model instead, which means that the UK and the EU would negotiate which markets they would open to each other and which rules they would harmonise or mutually recognize. At the moment, a Swiss firm like Credit Suisse is based in London in order to be able to access the EU’s single market, so some extra hurdles may emerge.
Whatever trade relationships are pursued by a post-Brexit Britain, it’s very possible that a Brexit vote would unleash protectionist sentiment on the Continent and that the EU would want to punish the “naughty pupil” by means of limiting market access for British financial firms. Diplomats have already made clear that both France and the EU Commission are keen to “punish” the UK if it would vote to leave, while Germany, which exports a lot to Britain, is planning to be more conciliatory in the event of a vote for Brexit.
This protectionism would both hurt Britain and the Continent, given that the City of London can be seen as its financial lifeline. It would in any case be similar to the EU’s reaction to Switzerland, after the Swiss expressed in a referendum the desire to restrict free movement for EU citizens and the EU Commission essentially refused to negotiate.
British proponentsof EU membership have made the case that Cameron’s deal guarantees that the “high-watermark” of EU intervention in British policy has been reached.
But EU opponentshave questioned how legally bindingthe deal is, leading to obscure debates on the relationship between international and EU law. They have claimed that even after threatening the nuclear option – a referendum on Brexit – Cameron didn’t manage to obtain more than what they consider to be peanuts.
One thing is certain: if Brexit marks the beginning of the end of the EU project, many of those responsible are to be found in Brussels.
Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2016-06-22/british-discontent-about-eu-only-precursor-unrest-continent
Investors are fleeing hedge funds and moving their money to a handful of private equity funds.
A quarter of limited partners, or institutional private equity investors, plan to reduce their exposure to hedge funds in the coming year, according to a survey by investment firm Coller Capital.
The firm polled more than 100 private equity investors and found that 36% of them are pouring into private equity, while infrastructure and real estate are also proving popular.
It’s worth noting here that Coller Capital is a private equity secondaries firm, providing liquidity in private equity markets. As such, one could expect them to take a brighter view of private equity investments and have a somewhat less favorable outlook on hedge funds.
Regardless, these results seem to be more evidence for investors’ lack of confidence in hedge funds, which have taken a beating amidst volatile commodity price and losses from big, concentrated bets.
Prominent funds like Bill Ackman’s Pershing Square Capital and David Einhorn’s Greenlight Capital tumbled about 20% last year. Third Point’s Dan Loeb described the first quarter of this year as “one of the most catastrophic periods for the industry” and warned of a “hedge fund killing field.”
In contrast, 79% of investors in the survey said they will not change their commitment to private equity despite the recent market volatility. An appetite for private equity can be seen from the nearly $10 billion fund that Leonard Green & Partners raised, as well asBlackstone’s $18 billion global fund, and KKR’s $11 billion fund.
That may be explained by the 11% or higher annual returns that a majority of investors have enjoyed since the inception of their private equity portfolios. One in five of the investors saw net returns of over 16%, according to the survey.
Private equity firms have enjoyed startling growth over the past few years compared to hedge funds and other asset managers. Even though there may be a ‘new normal’ of slower growth going forward for the $3.5 trillion private equity industry, it still presents an attractive option for investors.
It’s notable that some of the fastest growing economies like India and Indonesia have less weight on the global economy, while the US economy is growing at a slower pace but has significantly more weight.
Another interesting comparison is China versus the EU. In terms of GDP, the EU is twice as big as China, but China’s (slowing) growth rate is still much greater than that of the EU.
And while both Russia and Brazil are looking at a grim year of growth, they are significantly smaller chunks of the global economy than many of the other countries on the chart.
Putting all of these growth forecasts together, Kleintop notes that, “the IMF expects faster global growth in 2016 than last year, tying the recent drop in the stock market to a growth scare rather than an oncoming global recession.”
After the carnage of the 2008 crash, former Federal Reserve Chairman Paul Volcker proposed a rule that would prevent banks from making short-term proprietary trades with financial instruments. In other words, no gambling allowed. This rule would become known as The Volcker Rule, and it went into partial effect on April 1, 2014. Full compliance is required by July 21, 2015. Of course, the bank lobbyists were hard at work, and numerous exceptions and loopholes were created. The definition of "financial instruments" did not include currencies, despite the fact that currencies are the basis of the modern financial system and should be considered the ultimate financial instrument. Also, banks were allowed to "hedge" their risks. As JPMorgan demonstrated in 2012, apparently, it is possible to lose $6 billion while hedging risks with credit derivatives.
JPMorgan is at it again – this time, with the Swiss franc. On January 15 of this year, the Swiss Central Bank sent shockwaves around the financial world when they abruptly abandoned the 1.20 EURCHF floor.
The Wall Street Journal reported that JPMorgan made up to $300 million in the ensuing trading chaos. With the FX market facing a severe shortage of liquidity, JPMorgan stepped in. However, as with any illiquid market, the dealers call the shots. Bid/ask spreads can explode, creating enormous transaction costs for anyone who has to trade. These parties included desperate retail FX brokers and small clients who were bankrupted by the Swiss central bankers. As the WSJ reported,
J.P. Morgan filled client orders at a certain rate, allowing them to quickly assess their position and continue trading when liquidity dried up in the market, this person said. The bank told clients it would fill orders at 1.02 francs per euro while the Swiss currency grew from 1.20 francs per euro to nearly .85 on Jan. 15, the person said. It is unclear how long the bank offered this rate to clients.
By setting the fill 15% away from the last price, JPMorgan was able to lock in any gains from a long franc position instantly. It also gave the firm's traders an anchor so they knew where they were at. What if the clients could get a more advantageous rate at another bank? It didn't matter. 1.02 was the price. If JPMorgan's traders saw a better rate elsewhere, they could trade with that third party and effectively arbitrage the market against their own clients. Of course, it was all transparent. You knew you were getting 1.02, but if your bankrupt broker is margin calling you at any price, there's not much you can do. It was JPMorgan's market.
With free reign to trade currencies and under the guise of "market making," JPMorgan raped the accounts of retail FX brokers and small clients who never could have imagined that the Swiss Central Bank would turn the stable franc into one of the most volatile currencies of the decade. It also appears that The Wall Street Journal overstated the $300 million headline number. According to JPMorgan, they made about $200 million that day.
The fact that JPMorgan still takes value at risk (VAR) seriously is another irony. Wall Street anti-hero Nassim Taleb has made multiple fortunes betting on improbable events via out-of-the-money put options, and he remains one of the most steadfast critics of VAR. Taleb has an arcane style of communication, but the summary of his criticism is that VAR is based on the normal distribution, which underestimates the effects of extreme price moves. Furthermore, the very idea that wild events can be predicted by any model is an arrogant assumption, according to Taleb. A white paper by the Chicago Board Options Exchange (CBOE) verifies Taleb's assertions.
The chart shows the type of statistical distribution that Taleb described as "Extremistan" in his popular book "The Black Swan." The frequency is heavy in the middle and higher than expected in the "tails," or the far extremes of the distribution. What this means is that wild events like the Swiss Central Bank bluffing the entire world happen more frequently than risk models suggest.
In their 10-Q filing, JPMorgan boasts that there were no VAR band breaks. Translation: They never had a 1-day loss that exceeded their estimates of about $50 million – although they did come uncomfortably close in March. Just like a typical swashbuckling bank that throws around billions of depositors' FDIC-insured money on convoluted derivative bets, JPMorgan is only concerned about downside volatility while ignoring upside volatility. Yes, they didn't have any downside VAR breaks, but anyone can look at the chart and see there were multiple instances where they made more than $50 million in a single day, with the Swiss bank debacle being the most notable one. Veteran traders know that this kind of wild upside can be just as great of a risk as unexpected downside. If you can make $200 million in a single day, you can also lose the same amount – especially when the P/L comes from linear non-derivative sources like the spot currency market. In this case, JPMorgan happened to be on the right side of the tidal wave. However, Citigroup, Deutsche Bank, and Barclays got caught in the crossfire, and they lost a combined $400 million on the franc. Just another day in casino capitalism.
Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2015-06-15/what-volcker-rule-loophole-looks
Wishing it was true doesn't make it true–it makes you a chump who fell for the con.
Once upon a time in America, no adult could survive without possessing a finely tuned BS detector. Herman Melville masterfully captured America's fascination with cons and con artists in his 1857 classic The Confidence-Man, which I discussed in The Con in Confidence (October 4, 2006).
An essential component of the American ethos is: don't be a chump. Don't fall for the con. And if you do, it's your own fault. The Wild West wasn't just thieves shooting people in the back (your classic "gunfight" in the real West)–it was a simmering stew of con artists, flim-flammers and grifters exploiting the naive, the trusting and the credulous.
We now inhabit a world where virtually everything is a con. That "organic" produce from some other country–did anyone test the soil the produce grew in? It could be loaded with heavy metals and be certified "organic" because no pesticides were used during production. But what about last year? And the year before? What's in the water used to irrigate the crops?
The employment/unemployment statistics are obviously BS. 93 million people aren't even counted any more–they're statistical zombies, no longer among the living workforce. If the unemployment rate were calculated on the number of full-time jobs and the true workforce (everyone ages 18 – 70 that isn't institutionalized or in prison), the unemployment rate would not be the absurdly delusional 5.6% claimed by the bureaucratic con artists.
The corrupts-everything-it-touches bribe vacuum known as Hillary Clinton is still disgracing the national stage, 24 years after she first displayed her con-artist colors. Hillary's most enduring accomplishment is the Clinton Foundation–a glorification of bribery, chicanery, flim-flam and cons so outrageously perfected that it serves up examples of every con known to humanity in one form or another.
And as she learned from hubby Bill–if the smarmy charm-con fails, quickly revert to veiled threats. "You'll never work in this town again!"
Hillary would fit right into Melville's river boat teeming with con-artists. The accent she uses on the marks–oops, I mean audience–changes as readily as the camouflage on a chameleon. Upper Midwest, Noo Yawk, Fake-Southern–what you hear depends on the credulity of her marks.
The entire American political system is a con, a sleazy mix of legalized bribes, auctioning off of favors, revolving doors between government agencies and the corporations they enrich and the blatant hypocrisy of snake-oil salespeople who know the marks (voters) face a false choice between two parties that are the same poison sold under different labels.
Which brings us to China, one of the greatest credit bubble and financial cons ever. Please examine this chart of the Shanghai Stock Exchange (SSEC). Clearly, there is no upper limit to the Chinese stock market: 5,000 today, 10,000 next week, 50,000 the following month and 100,000 shortly thereafter. The sky's the limit, Baby!
Everybody who thinks China's economy is healthy because its stock market is soaring has been suckered. Every good con-man/ con-woman knows that the con only works if the chump/mark wants to believe the impossible is true–that the snake-oil remedy will actually cure their ailments, that the "hope" candidate will actually change the corrupt system from the inside (ha-ha, they fell for it), and that China's economy is on its way to becoming the world leader in everything.
But wishing it was true doesn't make it true–it makes you a chump who fell for the con. We want to believe our political system isn't an unreformable cesspool, that our economy is a vibrant creator of new middle class jobs and that China will manage the greatest credit bubble in history without a hitch. But these are all cons put over to protect the wealth and power of those benefiting from the con.
If your BS detector isn't shrieking, it's broken. You've been conned. Wake up.
Original source at: zero hedge - on a long enough timeline, the survival rate for everyone drops to zero | http://www.zerohedge.com/news/2015-06-09/if-your-bs-detector-not-screaming-its-broken