What Big US Banks are Suddenly Buying and an Important Interview
I am going to keep it short this week because we have an important interview with Jos Schmitt, the CEO of Canada’s newest proposed stock exchange, Aequitas Innovations that I would like to share.
Getting right to it.
You all know that I believe gold has legs in the long term. I have always said that it is next to impossible to predict the short-term swings of gold in a manipulated paper market.But I think we’re finally getting somewhere.
Let me quickly explain.
Gold rises in times of financial instability.We’re nowhere near as stable as it appears on the financial front. U.S. debt-to-GDP is over 100% and Japan is well above 200% and climbing.
The U.S. national debt is near $17 Trillion and every U.S. citizen now owes on average (personal debt per person) over $50k.
Overall, the U.S. total debt is now over $59.6 trillion. For that debt to be paid off, every family in the nation would need to contribute $748,099.
But that’s all peanuts when compared to the amount of currency and credit derivatives, which nears a whopping $632 trillion. That’s nearly 9 times the world’s nominal 2012 GDP.
We have already seen Greece, Portugal, Ireland and Cyprus receive bailouts. Spain’s banking sector has already received a bailout, and Italy will likely require a major bailout within the next six months.
But that’s not all. One of the world’s leading banks could also be in trouble.
Bloomberg revealed to us that Germany’s largest bank, and one of the top three in global credit markets, Deutsche Bank AG, made billions of dollars of loans to banks worldwide since 2008 but somehow kept it off its balance sheets – much like that of the sub-prime mortgage in 2007.
Germany’s largest bank managed to lend to firms from Brazil to Italy while making the transactions disappear from its balance sheet, even though it still is owed the money.
(I got to say that this lending practice is really no different than the Fed, which I must emphasize again has never been audited.)
The loans are among 395.5 billion euros in assets – representing 19% of the company’s reported assets of 2.03 trillion euros – that Deutsche Bank excludes from its balance sheet by offsetting them with equivalent liabilities.
|click to see video|
These off-record balance sheet transactions may have a lot of risk tied to them.
Kian Abouhossein, a JPMorgan Chase & Co. analyst in London, estimated in a July 4 note to clients that Deutsche Bank may face a capital shortfall of 12.3 billion euros under a proposal by the Basel Committee on Banking Supervision, if it had to include assets that are off banks’ books in leverage calculations.Next week, I’ll get into more details on how they did it, but this goes to show you that while Germany’s biggest bank appears financially sound, a lot of their “hidden-assets” could carry a lot more risk than they show on paper.
What’s worse is not only did the bank “hide” many of the transactions, they profited from them by arranging side trades around the loans, including selling credit-default protection on government bonds that were later hammered by Europe’s sovereign-debt crisis.
What Big US Banks are Suddenly Buying
The world’s real financial system is a complete mess, hidden by accounting procedures and complex derivatives. That, combined with continued worldwide monetary stimulus, should send gold prices soaring.
But it hasn’t.
That’s because many of the big banks have manipulated and forced the price of gold down so they can rebuild their position. Of course, I can’t be sure this is happening but all evidence points to that being the case, and there really is no other answer for how gold has been forced down.
Big banks like JP Morgan continue to lose gold from their vaults, dropping its total inventory to a fresh record low last week, according to recent COMEX updates. Combined with the moves in JPM and HSBC inventory, the total Comex gold holdings have now dropped to a new low not seen for the first time since 2006.
A couple of weeks ago, Brinks saw 24% of its entire registered gold holdings, or 133k ounces, withdrawn. That number has now dropped from 570,000 ounces on July 3rd to 257,000 ounces last week, representing a decline of 55% in just one week.
But here’s where it turns.
U.S. banks are now starting to rebuild.
According to the CFTC’s Bank Participation Report, U.S. banks – which includes JP Morgan – are now net long gold contracts as of July 2, 2013:
In May, trading value for Japan’s biggest bullion-backed ETF, Mitsubishi UFJ Trust’s gold ETF, amounted to 7.23 billion yen and became the most-traded commodity fund listed in Japan.
It has grown by 10 percent this year in terms of volume and bullion held by the ETF exceeded 6 metric tons on July 5, nearing a record reached in October.
On the retail front, Japanese consumers are also now poised to become net buyers of gold for the first time in eight years as the yen’s decline and looming inflation drive them to seek refuge in bullion.
Since Germany asked for its gold back in January, the New York Fed has likely been scrambling to procure the gold (likely through the open market) for the return to its rightful owner as promised.
Since then, JPMorgan’s gold holdings have plunged by 75% and have hit new record lows on a weekly basis while the price of spot gold keeps sliding ever lower.
Hmm…They did tell us the process of returning the gold from the New York Fed to Germany would take 8 years…
If that wasn’t enough to tell us that there’s a major supply shortage…
Meanwhile, the world’s gold reserve loses about 2.5 ounces of gold every second, even with current gold production. If gold prices continue to drop, expect that number to jump even higher.
Canada’s Newest Stock Exchange Set to Tackle High Frequency Trading
Recently, I talked about Canada’s newest proposed stock exchange, Aequitas Innovations.
Their mission statement:
“To create an exchange in Canada that provides an innovative and cost-efficient marketplace, which protects the interests of all investors and reflects the fundamental purpose of markets: the efficient allocation of capital between issuer and investor as a central force driving the Canadian economy.”
As I mentioned in a past newsletter, Aequitas Innovations is looking to make trading a fair playing field once again by imposing restrictions on High Frequency Trading (HFT) and introducing many new innovations that are supposed to provide a more efficient market.
Of course, I was skeptical. I’ve heard of enhanced trading before. But before I made my judgement, I wanted to speak with the head of the new exchange, Jos Schmitt, to give them a fair shot.
Jos and I had a very candid conversation about my skepticism and how Aequitas would actually be different. I asked him many questions regarding regulatory concerns, transparency issues, high frequency trading, the junior market, and lots more.
I strongly suggest you read the interview piece by CLICKING HERE.
Once you have fully read the interview, I encourage you to leave a comment and keep the dialogue open.
Jos has clearly told me he wants to hear from the retail investment crowd and if we don’t speak our concerns, there is simply no way for us to be heard.
Until next time,
The Equedia Letter