Things That Make You Go Hmmm September 3d, 2012

7/31/2019 Things That Make You Go Hmmm September 3d, 2012

1/26

THINGS THAT MAKE YOU GO

HmmmA walk around the fringes of nance

02September2012 1

For AFREE Subscription to Tings Tat Make You Go Hmmm..... clickHERE

Does anything in nature despair except man? Ananimal with a foot caught in a trap does not seem

to despair. It is too busy trying to survive. It is allclosed in, to a kind of still, intense waiting. Is thisa key? Keep busy with survival. Imitate the trees.Learn to lose in order to recover, and rememberthat nothing stays the same for long, not even pain,psychic pain. Sit it out. Let it all pass. Let it go mAY SArtON,JO UR NAL OF A SOLI TU DE

I would feel more optimistic about a bright futurefor man if he spent less time proving that he canoutwit Nature and more time tasting her sweetnessand respecting her seniority E. B. White

Do no angy wih h ain; i sily dos noknow how o fall uwads Vladimir Nabakov

Adopt the pace of nature: her secret is paence. Ralph Waldo Emerson
mailto:subscribers%40mauldineconomics.com?subject=Please%20Subscribe%20Me%20To%20Things%20That%20Make%20You%20Go%20Hmmm.....mailto:subscribers%40mauldineconomics.com?subject=Please%20Subscribe%20Me%20To%20Things%20That%20Make%20You%20Go%20Hmmm.....


2/26

2.THINGS TH AT MAKE YOU GOHmmm...

02September2012 2

A little overThree years ago, when I started wring Things That Make You Go Hmmm.....it was a vastly dierent product that was distributed to a small group of mostly friends of mine who,

for some strange reason, had a passing interest in my thoughts on a variety of subjects.

For me it began as a way to share informaon that was a lile below the surface with people who,

like me, were trying to gure out how to put together a jigsaw without the picture on the box lid andas a means to engage in a dialogue with sharp minds all around the world in an aempt to gure

out not only what was happening but, more importantly, what was going to happen.

What began as an experiment became a labour of love and then morphed into something I hadnt

ever envisioned it would become as the internet took over and I found myself exchanging thoughts

and ideas with dierent people from all walks of life all around the globe. It was upliing, inspiring

and deeply humbling in equal part.

As my subscriber list has grown, so has the me taken to try and make sure that what I send out

every week is as good as I can possibly make it. If I cant think of anything of interest to write about,

I would rather not write anything than send out something I wasnt happy with because I felt a need

to be out there every week.Thankfully, travel aside, the weeks I havent been able to nd a topic worthy of discussion have been

very few and far between (and for that I owe a debt of gratude principally to Jean-Claude Juncker,

Mario Draghi, Franois Hollande and the rest of the inhabitants of Europes clown car).

Through all the madness of the last few years, I have been a one-man show; wring, designing and

publishing Things That Make You go Hmmm..... then sending it out as a somewhat cumbersome .pdf

aachment to a subscriber list that has become larger than I had ever considered possible.

It has become increasingly clear over recent months, however, that, in order to connue producing

Things That Make You Go Hmmm....., I was going to need help from people far more savvy than me

in the world of publishing as it was apparent I had now reached the point where I needed to address

the various shortcomings that are part and parcel of being a one-man band.

One o therst investment leers that I began reading on a regular basis was JohnMauldins thoughs Fo th Fonlin. It was mely, insighul, extremely well-wrien and very

educaonal. It was the inspiraon behind my decision to begin wring things tha mak You Go

Hmmm.....

Over the past few years I have been fortunate enough to have goen to know John personally

through my wring and our shared desire to try and navigate a safe passage through the invesng

mineeld in which we nd ourselves. He has been extremely generous with his me and always gra-

cious in the donaon of his advice to a neophyte in an area where he is the consummate profession-

al and so it was to John that I turned for help in trying to take Things That Make You Go Hmmm.....

An Important Announcementfor readers of Things That Make You Go Hmmm.....


3/26


02September2012 3

to the next stage of its development.

As of next week, the team at Mauldin Economics will be taking over the publicaon ofthings tha

Make You Go Hmmm..... and I am really excited about the changes you will see.

My amateur eorts at design and publicaon have been replaced by those of a slick team of profes-

sionals who make the dierence between enthusiasc hack (me) and people who know what they

are doing (them) embarrassingly apparent.

But what does this mean for you, dear reader?

Well, frankly, not an awful lot apart from the fact that you will receive a vastly-improved product.

Most importantly, the content and style of this piece absolutely will not change. My voice will not

be altered or fltered in any waya good thing in some eyes, maybe not so in others. It will just look

an awful lot beer and be far easier for readers to access.

From next week, subscribers will receive Things That Make You Go Hmmm..... directly from Mauldin

Economics.

It will be delivered in the form of an email with links to a downloadable PDF le as well as the HTML

format which will be hosted at the Mauldin Economics website (www.mauldineconomics.com). This

will make reading on iPads and mobile devices far easier. There will also be an archive of past issues

available.

Please add the following email address to your whitelist if you dont want me to end up in your spam

folder:

[email protected]

Joining the Mauldin Economics team will help me devote more me to wringand, hopefully, expand my readership whilst making the whole experience more enjoyable for the

people who maer mostthe readers.

In addion to Things That Make You Go Hmmm..... John and I are working on what we think will be

another excing collaboraon that will be unveiled soonbut more on that a lile later.

Unl then, Id like to thank all of you for your support over the last few years and I look forward to

the next few with great ancipaon.

For now, though, its back to business...

Grant
http://www.mauldineconomics.com/http://localhost/var/www/apps/conversion/current/tmp/scratch_6/[email protected]://localhost/var/www/apps/conversion/current/tmp/scratch_6/[email protected]://www.mauldineconomics.com/


4/26


02September2012 4

Te list ofhuman phobias is compre-hensive to say the least. Over the centuries the

human race has managed to nd a way to be

afraid of just about everything around it. Some

of the fears are familiar ones such as the fear

of conned spacesclaustrophobia, or that

of open spacesagrophobia, and some are a

lile morehow can I put this so as not to up-

set any katagelophobes out there?eccentric.

Did you know, fo xal ha Ghydoho-

bia is the fear of crossing bridges? Or that Dex-trophobia is a fear of objects at the right side

of the body? Having Consecotaleophobia (an

innate fear of chopscks) is certainly a handicap

if you han o liv in his a of h wold

and if you suer from Bolshephobia, your fear

of Bolsheviks would have made Octobers prey

rough growing up in Russia.

You hink hos a sang? How aou h

specicity of these phobias (which I think we

can safely le under irraonal):

Arachibutyrophobia - Fear of peanut buer

scking to the roof of the mouth.

Zemmiphobia - Fear of the great mole rat.

Rhabdophobia - Fear of being severely

punished or beaten by a rod, or of being

severely cricized. Also fear of a magic wand

Pteronophobia - Fear of being ckled by

feathers

Peladophobia - Fear of bald people

I could go on for a long, long me with these,

u ha would only us h haasohos

amongst you so lets get back to business.

The reason I bring this up is that each and every

huan hoia is a land sons ha a fw

(in the case of kyphophobia, the fear of stoop-

ing) or indeed many (in the case of thanatopho-

bia, the fear of death) develop over the course

of their lives, and yet each and every one of us

came into this world with the same two iden-

cal fears; loud noises (ligyrophobia) and falling

(bathophobia).

This innate fear of falling, common to all humanings, ay go so way owads xlaining

h osssion h wold ss o hav wih

prevenng recessions and avoiding deaon.

Recessions are always seen as a bad thing for

the economy and, since the days when Alan

Greenspans bony ngers were wrapped around

the Federal Reserves monetary levers, there

has n a wa wagd on h downwad half

of the business cycle in an aempt to literally

abolish it as though that were a) possible or b)

desirable.

Just as a world lled with only sunshine would

vnually uninhaial o a fos wihou

the occasional re would ulmately se itself,

the business cycle needs the occasional bust to

counteract the booms that cause overheang

and excess. Thats just the way it is Im afraid.

We may not like it. We may be afraid of falling,

but nature need take its course.

by fa h iggs fa of h as sval yas

has been that of deaon.

SOURCE: MATT GROENING


5/26


02September2012 5

(Investopedia): Deaon: A general decline

fall in prices, oen caused by a reduc-

onfall in the supply of money or credit.Deaon can be caused also by a decrease

fall in government, personal or investmentspending. The opposite of inaon, deaon

has the side eect of increased unemploy-

ment since there is a lowerfall in the levelof demand in the economy, which can lead

to an economic depression. Central banks

aempt to stop severe deaon, along with

severe inaon, in an aempt to keep the

excessive dropfall in prices to a minimum.

The declinefall in prices of assets, is oenknown as Asset Deaon.

Scary stu. All that falling.

The word Depression, when used in an eco-

nomic context, seems to spark the kind of fear

amongst the cizens of developed economies

that can only be borne of a phobia.

Grainy photos of long lines of men clad in

greatcoats and homburg

has lining u fo ih jos

or soup are etched in thecollecve conscious and

the fear that we could fall

back there again is enough

o k vn h os sanguin of n awak

at night. For central bank heads it is the pure

embodiment of terror.

Collecve bathophobia amongst central plan-

ners has led in recent years to an extraordinary

set of measures which have been enactedwe

are constantly toldwith the explicit purpose

of avoiding a Depression.

Non oh han bn bnank xlaind his

recently to a group of students at George Wash-

ington University in one of a series of lectures

designed to explain just what an amazing job

bnny and h Fds had don ov h as sv-

eral years in avoiding another you-know-what:

(Polico): The subtext in Ben Bernankes

third college lecture was clear: his Fed

helped stop a second Great Depression.

Appearing before students at George Wash-

ington University on Tuesday, the Federal

Reserve chairman contrasted his academicexpersethe depressionagainst his per-

sonal experiences.

The Great Depression was much worse

than the recent recession, the former Princ-

eton University professor said. Without a

forceful policy response, we would have had

a much worse outcome....

If the Fed had not leapt into the crisis as the

lender of last resort, Bernanke said Tuesday,

the enre global economy would have melt-

ed down as was the case in 1929. Suddenly,

there was no trust whatsoever, even among

the largest nancial instuons, he said.

This emove term is always used in the con-

text of what they are trying to stave o, but

interesngly enough, whenever the possibility

of a Depression is discussed in real terms as

oosd o i ing sohing ha us

defeated, the possibility of one occurring is

quickly dismissed in sooth-

ing toneswe cant havepeople frightened now, can

w?

bu wha a h oigins of

this quest to avoid such falls and why is there

such a huge desire to immediately put a stop to

recessions of any kind? Aer all, they are just

natures way of healing a broken economy. The

fact that they somemes break to the upside

is no lss dangous han whn hy ak o

h downsid and y noody ss o hav

any ga dsi o o uls whil hy ainang.

If the economy wasnt allowed to get ahead of

itself in the rst place, any recessions would be

far less dramacbut of course, in such a sce-

naio, nih would h xansions and ha

we just cant have now, can we?

by now, you ay wll wonding jus wha

the hell is happening in the le-hand margin of

this page. Well, Ill tell you.

... Without a orceul policyresponse, we would have had amuch worse outcome.,

1797

1800

1810

1820

1830

1840

1850

1860

1870

1880

1890

1900

1805

1815

1825

1835

1845

1855

1865

1875

1885

1895


6/26


02September2012 6

The meline you see there is a representaon

of recessions (yellow) and panics or depres-

sions (red) in the United States of America from1797 to the present day. As can be clearly seen

from the rst part of this chart, between 1797

and 1900, the United States was in recession or

depression (or even full-on panic) for 54 years

versus 50 years of normal economic condi-

ons.

As you can see on this page, things got a lot

more stable during the 20th centuryal-

though, between the turn of the century and

h nd of h Ga Dssion in 1933, h

bad years (seventeen) sll outweighed thestable (sixteen).

It was only aer the Great Depression that

things became far steadier andif we omit

the WWII yearsthe period where the rao

of recessionary condions to expansionary is

easily the lowest is clearly aer 1971 (which of

course, quite coincidentally, saw the abolion

of the dollars peg to gold).

But what did the US economy look like through

all these booms and busts, I wonder? Well, if

w ak a look a noinal GDp on a logaih-

mic scale over roughly the same period as the

charts in the margins of pages 5 and 6, it may

come as something of a surprise:

th daag don y h Ga Dssion is

clearly apparent but what is quite extraordinary

is the relave smoothness of the progressionwhich is shown by the overlaid red trendline.

Booms/busts, recessions/depressions and even

the odd panic for the most part did lile to stop

the US juggernaut. They felt good (or bad) at

the me, no doubt, but like most events, once

viwd hough h is of hisoy, hy a

compressed into brief moments in me.

I have no doubt that the last ve years along

with the next ve will spawn more books than

any period in history since WWII and for those

of us living hough his uuln iod of

modern history, it seems endless, but y years

on, ol will osv wha w hav lald

the Global Financial Crisis as a moment in me

just as we do the Great Depression. I am sure

it will be a moment in me that will doubtless

teach a lot of lessonsthough I

fa h lssons land hough

h isaks w ad will fa

ouwigh hos lssons land

from brilliant decision-making or

decisive acon.

Oddly nough, h an a h

hl of h US Fdal rsv

as w naviga hs soy sas

is widely recognized as one of

the worlds greatest authories

on The Great Depressionwhich

makes many of his acons all the

more troubling. History, I suspect,

will no kind o hi, u fo

now the jury remains out.

In 2008, as the GFC threatened

to drag the world into a Depression (see, I

told you), the Chairman of the Federal Reserve

and renowned Great Depression scholar, Ben

Bernanke, set about instung the plan he was

convinced would avert the great fall of which he

was petried.

His extensive studies had led him to the con-

vicon that the most serious mistake made

duing h 1930s was ha h Fdal rsv

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

1905

1901

1915

1925

1935

1945

1955

1965

1975

1985

1995

2005

SOURCE: ZEROHEDGE


7/26


02September2012 7

of the day, under the combined stewardship

of Roy A. Young (1927-1930), Eugene I. Meyer

(1930-1933) and Eugene R. Black (1933-1934)failed to step hard enough on the smulatory

dal, and ha o ensure the same thing didnt

han again, all h had o do was, wll, in

money basicallya belief he outlined in his

most famous speech to date, delivered at the

Naonal Economists Club, Washington, D.C. on

November 21, 2002:

I am condent that the Fed would take

whatever means necessary to prevent

signicant deaon in the United States

and, moreover, that the U.S. central bank, incooperaon with other parts of the govern-

ment as needed, has sucient policy instru-

ments to ensure that any deaon that

might occur would be both mild and brief...

But the U.S. government has a technology,

called a prinng press (or, today, its elec-

tronic equivalent), that allows it to produce

as many U.S. dollars as it wishes at essen-

ally no cost. By increasing the number of

U.S. dollars in circulaon, or even by cred-

ibly threatening to do so, the U.S. govern-

ment can also reduce the value of a dollar

in terms of goods and services, which is

equivalent to raising the prices in dollars ofthose goods and services. We conclude that,

under a paper-money system, a determined

government can always generate higher

spending and hence posive inaon.

The speech was entled Deaon: Making

Sure It Doesnt Happen Here.

Its hard to be sure about anything except

dah, axs and h ms lowing any kind of

a lead, but this speech more than just about

any other given by the man Marc Faber calls

Meeester Bernaaanky gives us a valuable

insight into the workings of the central bankers

brain.

They are sure they can do what they need to

do.

Thus far, Bernankes certainty has led to two

rounds of Quantave Easing followed in short

order by Operaon Twist.

Claly, i sands o ason ha Qe1 was il-

mented with the rm belief that it alone wouldbe enough to provide the necessary jolt to the

SOURCE: BLOOMBERG


8/26


02September2012 8

system and stave o deaon. Aer all, when

you are sure that the only mistake made by

Depression-era central bank chiefs was toolile, rather than too much, why would you

go o half-cocked? Aer studying for so long,

bnank was hadly likly o ak h sa

mistake as his predecessors.

Except, QE1 didnt x things. Sure, it made

some things beer; the S&P soared over 50%

during the experiment (but then the Feds man-

date doesnt extend to ensuring equity markets

are as high as they can possibly beor so I

thought) and bond prices inially rallied sharply,

hough y h nd of h xin, hy hadretraced all their gains as the chart on the previ-

ous page demonstrates (red

aows show h ovn

in hprice of US 10-ya

asuys whils yllow a-

rows measure the price of

the S&P500 during the vari-

ous Fed intervenons).

this us hav n af-

ing for Ben Bernanke.

Aer all, he knewexactlywhat the errors in policy

w hough h Ds-

sion and h knewwith absolute certainty that

he could make sure deaon couldnt happen

here... and yet, his measures had failed to al -

leviate the problem. How bizarre.

As can clearly be seen in the aforemenoned

chart, immediately QE1 stopped, bond and

equity prices moved sharply. The S&P500 fell

15% in three months whilst bonds, having fallen

through most of QE1, began rising in ancipa-on of some addional smulus.

Markets were frontrunning the Feds next

easing. Its amazing how quickly this adapve

haviou hans, huh?

Qe2 was onlynecessary because QE1 had failed

to sasfactorily address the problems facing

the US economy and so it stands to reason that,

based upon his extensive research, the Fed

Chaian would now do nough o ensure a

sasfactory outcome. Aer all, knowing exactly

what was needed, youd hardly be likely to go

o half-cocked twice now, would you?

Sure enough, aer the aking of so havy

prots due to the largesse of the Fed sha fall

in equity prices, the onset of QE2 propelled the

S&P500 almost 30% higher once again, but the

eects on the bond marketground zero for

intervenonwere even more illustrave.

As soon as the announcement was made that

Qe2 would gin, h ond ak slid -

cipitously as those who had bought bonds in

ancipaon of more acon happily cashed in

and sold to the greatest of fools; the Fed.

th nd of Qe2 ough

about the predictable

sell-o in equies but for

the rst me, bonds were

starng to actually do what

the plan had intended and

increase in price.

Perhaps the medicine was

nally reaching the paent?

Perhaps.

Now, it isnt the kind of thing that is talked

about at cocktail pares at the Marriner S.

Eccles building, but the rise in US government

bond prices just happened to coincide with a

sudden rise in the worlds understanding of two

things:

1) The degree to which Europe was in trouble

2) The true level of incompetence of its lead-

ers

As equies slumped, bonds kept on rising

(though this was in large part due to the onset

of coulrophobiaa fear of clowns; in this case,

those running Europe) and, despite prices being

aially high han a h ginning of Qe1,

Operaon Twist was announced to target a

specic part of the interest rate curve because,

by now, things sll werent working out quite as

bnank had n sure they would.

... Now, it isnt the kind othing that is talked about atcocktail parties at the MarrinerS. Eccles building, but the risein US government bond prices

just happened to coincide witha sudden rise in the worlds un-

derstanding o two things...


9/26


02September2012 9

One can almost imagine his creeping atychipho-

bia (fear of failure) becoming too much to bear.

And so it was that, as August 2012 came to a

close, the S&P500 was a lile under 10% from

its all-me high (set in the halcyon days of 2007

when debt was abundant and cheap, the only

fa was ha of issing ou and h had nv-

er been a naonwide fall in housing prices), the

US government could borrow money at lower

rates than just about any me in its history.....

and the world was praccally begging for QE3.

Wha us hav n going hough h ind

of bn bnank?

H was a an who knw exactlywha h

ndd o do o ensure a favourable outcome

and y all h sd o hav don was o g

the world hooked on a steady dose of smulus.

US unloyn was suonly fusing o

drop which was denitely not in keeping with

a successful execuon of one half of the Feds

mandate, but inaon wasif you believe the

ocial stascs at leastbenign.

Surely he could hardly jusfy intervenonin ond aks wih h US al o oow

ony all h way ou o 7 yas fo having

to pay more than 1%? Or with a TIPS curve that

in the past two years had gone negave out to

TWENTY years (Green curve, chart, below. The

red curve is this week in 2010)?

Surely there was no way the non-polical Fed

Chairman could intervene in markets with only

66 days le unl a Presidenal elecon, was

h?

Suly, wih oinn s of his own

Federal Reserve system decrying both the suc-

cess (or lack of it) of previous QE as well as the

likely eect of further rounds he couldnt go

again?

*DJ Feds Plosser: Dont Think More Easing Is

Needed Right Now CNBC*DJ Feds Plosser: Consumers Want to Save

More CNBC

*DJ Feds Plosser: Businesses Dont Want to

Invest Because of Uncertainty CNBC

*PLOSSER: MONETARY POLICY CANT FIX

ECONOMY HEADWINDS

*DJ Feds Plosser: Monetary Policy Is at an

Extraordinary Level of Accommodaon

CNBC

*DJ Feds Plosser: When Excess Reserves

Flow Out, Risk of Inaon Will Grow CNBC*DJ Feds Plosser: Unl Uncertainty Decreas-

es, Headwinds Will Connue CNBC

*PLOSSER SAYS SIZE OF BALANCE SHEET IS A

RISK DOWN THE ROAD

*DJ Feds Plosser: No Point in

Growing Balance Sheet Further

CNBC

*DJ Feds Plosser: Accommoda-

on Creates Risks -CNBC

Surely he couldnt?

Ofcourse he could!

(WSJ): A deant Ben Bernanke

sought to shoot down cricism

of the Federal Reserves easy-

money policies and strengthen

the case for new eorts by the

central bank to bring down what

he described as gravely high

unemployment.

Markets have been on edge forSOURCE: BLOOMBERG


10/26


02September2012 10

months about whether the Fed will launch

another large bond-buying program. Fed

Chairman Bernanke, speaking Friday at thecentral banks annual retreat here, oered a

vigorous defense of the Feds $2.3 trillion in

bond purchases since 2008, esmang they

helped lead to more than two million jobs

and signaled that he is strongly considering

another installment.

Central bank securies purchases have pro-

vided meaningful support to the economic

recovery, he said adding later that, we

should not rule out the further use of such

policies if economic condions warrant.

Now, at this stage I should point out that it

is, for the moment, just talk on Bernankes

partaer all, why ease when you get exactly

the same eect merely by talking about doing

so?but the Fed is playing a very dangerous

game.

With stock market volumes at generaonal

lows while markets crawl to within coo-ee

of their all-me highs, it is readily apparent

that those parcipants sll playing are doingso in ancipaon of geng a nice, juicy Fed-

induced bump into which to sell their holdings.

The only problem is the fact that those on the

sidelines arent chrematophobes, (afraid of

money) nor are they waing for prices to climb

another 15% before they step in to buy. They

are waing for what they see as an inevitable

correcon to more aracve levels once either

common sense about the global slowdown that

is clearly underway asserts itself, or the

Fed disappoints.

QE3 IScomingfolks. Maybe not quite yet,

u soon and whn i dos,

it will be a coordinated

blitz between the Fed,

h eCb, h boe and

h pbOC wih h

boJ agging along

because... well,

why no? No

only will it be coordinated, but it will be gigan-

c. Its really all they have le now.

The fear of falling that surrounds deaon has

paralyzed the world for the last four years and

drasc measures have been taken to stave o

that which central planners fear the most.

Lately, the big problem the world has faced has

been Europes unwillingness to g is had ou

of is a** come to a collecve decision about

how to tackle the suocang debt, but in recent

weeks Mario Draghi has seemingly lost paence

with polical leaders and has begun to force

the issue.

Coincidentally, this week, as he opted not to

aend Jackson Hole, in an op-ed published, im-

portantly, in Germanys Die Zeit, Draghi signaled

just how Europe was going to nally turn on the

prinng presses:

The ECB will do what is necessary to ensure

price stability. It will remain independent.

And it will always act within its mandate.

Yet it should be understood that fullling our

mandate somemes requires us to go be-yond standard monetary policy tools. When

markets are fragmented or inuenced by

irraonal fears, our monetary policy signals

do not reach cizens evenly across the euro

area. We have to x such blockages to en-

sure a single monetary policy, and therefore

price stability for all euro-area cizens.

This may at mes require exceponal mea-

sures. But this is our responsibility as the

central bank of the euro area as a whole.

In essence?

In order to uphold the

law, Your Honour, some-

mes we have to

break the law

Daghi has o-

isd o always act

wihin his an-

dateexcept

when circum-
http://www.medterms.com/script/main/art.asp?articlekey=40542http://www.medterms.com/script/main/art.asp?articlekey=40542


11/26


02September2012 11

stances dictate that he go outside it.

Temporarily of course.

That sound you heard? That was the dust-cov-

ered tarp being hauled o the prinng press in

the ECB basement.

Aer four years of aggressive, yet ulmately

fule smulus by the Federal Reserve, BoE and

PBOC, the ECB is about to join the prinng party

and when that happens, the inaon/deaon

debate is basically over.

Dont believe me? Ask gold which broke out this

week in the wake of Bernankes speech aerstaunchly (and somewhat surprisingly) refus-

ing to wilt in the face of a lot of commentary in

the run-up to Jackson Hole that had suggested

there would be no QE3.

Noally ha alk alon would hav n

enough to send gold scampering lower but not

this me.. Its almost as if someone knew some-

thing? But that would be crazy talk.

So... will the combined might of the Avngs

worlds central bankers be enough to quell the

fa of falling ha all of us a on wih? Wll,one thing is for certain, it will not be for the

wan of ying and in h nx fw onhs hy

seem likely to unleash the quantave Kraaken

once and for all.

By lining up the kind of unlimited smulus mea-

sures that the likes of Draghi and the Feds Eric

Rosengren have been advocang, the deaon

trade will be over and we can all go about our

lives safe from our fear of falling.

Of course, at that point, the human race will

have another irraonal fear to deal with:

Zimbabwephobia

*******

OK.... so aquick rundown of whatsin store this week and then Im oua here:

Spain

More Spain

Dutch socialists

Rampant food price inaon

An $8 trillion budget decit A French naonalizaon (perish the

thought)

The closing of a dierent gold window

An assessment of Indias economy

Draghis bales with Eurocrats

An OECD endorsement for ECB bond-

buying

An interview with Jens Wiedmann

Monetary transmission blockages

Gold & Silver charts

A history of hyperinaon CPI..no, wait...PCE..no. Wait...which are

we using now?

Jim Grant

Jon Stewart

Michael Steele

and John Mauldin

Thats it from me, but before I go, can anyone

ll whos ida of a jok i was o ak h

name for a fear of long words:

hippopotomonstrosesquipedaliophobia

Thats just not fair.

Until next time...

Gold

SOURCE: BLOOMBERG


12/26


02September2012 12

Contents 02 S 2012

Your Window To Buy Gold Below $1,700 Is Closing

Daghi plan Und tha Aid eU Sli

World Food Prices Jumped 10 Percent In July: World Bank

Goldman: US Faces $8 Trillion Budget Shorall Through 2022

India: Is This The Boom?

French Government Agrees Rescue For Mortgage Lender

Sain Loss bank Suo

Spains Debt Buyer Of Last Resort Becomes Seller In Scramble To Fund Deposit Oulows

Dutch Embrace Radical Le As European Dream Sours

OECD Backs Plans For ECB Bond Market Intervenon

Too Close To State Financing Via The Prinng Press

Charts That Make You Go Hmmm.....

Words That Make You Go Hmmm.....

And Finally.....


13/26


02September2012 13

I think theres a good ason obuy gold if you can, and as soon as possible.

Heres why:

Based on the data I chart below, I believe the

window of me to buy gold for less than $1,700

an ounce is very limited.

I examined golds three largest correcons since

the bull market began in 2001, including how

long it took to recover from those correcons

and establish new highs.

The conclusion that emerged is that the current

lull in gold prices will almost certainly end soon,if it hasnt already.

Gold set a record on September 5, 2011 at

$1,895 an ounce (London PM Fix) and to date

has fallen as low as $1,531 (December 29,

2011), a decline of 19.2%. Gold has tested that

level several mes since but never broke below

it.

In order to determine how long it might take

to breach $1,895 again, I measured the me it

took to mount new highs aer big correconsin the past.

The following chart details the three largest cor-

recons since 2001, and calculates how many

weeks it took the gold price to a) breach the old

high, and b) stay above that level.

In 2006, aer a total decline of 22.6%, it took a

ya and fou onhs fo gold o suass is old

high. Aer the 2008 meltdown, it was a year

and six onhs la fo h al hi a nwrecord. The 16.2% drop in 2003 lasted seven

onhs, and anoh wo onhs fo h

price stayed above it.

You can see that our correcon has lasted just

shy of a year. If we matched the recovery me

of 2006, gold would hit a new high on Christmas

Eve (Merry Christmas!).

But heres the thing: thats how long it would

take gold to breach $1,900 again it will take

a couple months or more for the price to work

up to that level, meaning the remaining me to

uy gold und $1,700 will likly asud

in days or weeks, not months.

This is bolstered by the fact that the price

moved up strongly last week.

And just as importantly, were on the doorstep

of the seasonally strongest month of the year.

This is an educated guess, of course, but what

the data make clear is that all correcons even-

tually end even the bloodbath in 2008.The current lag will come to an end too, and

were certainly closer to the end of this correc-

ve period than the beginning.

This has direct investment implicaons.

First, once gold breaches its old high, youll

probably never be able to buy it at current

prices again in this cycle.

O O O JEFF CLARK/ LINK

Pressure is mountingonh euoan Cnal bank o wa down

emergency measures to prop up Spain and

Italy, aer reports that the chief of Germanys

bundsank hand o qui in os a

the plan.

Pressure is mounng on the European Central

Bank to water down emergency measures to

prop up Spain and Italy, aer divisions within

the eurozone were laid bare by reports that
http://www.caseyresearch.com/articles/your-window-buy-gold-below-1700-closing?ppref=GRA410ED0812A


14/26


02September2012 14

the chief of Germanys Bundesbank threatened

to quit in protest at the plan.

ECB president Mario Draghi was expected next

wk o unvil a nw ond-uying oga

to help the two struggling eurozone states go

on without a formal bail-out. Analysts now

expect the measures to fall short of Mr Draghis

vow to do whatever it takes aer the German

government had to persuade the inuenal

Jens Weidmann to stay in his post.

Details of the ri emerged as economists

prepared to cut their growth forecasts for the

single currency bloc once again, following dis-

mal eurozone unemployment gures that saw

joblessness rise above 18m for the rst me. It

also came as Madrid signed up to a vital nan-

cial reform package to secure a 100bn (79bn)

eurozone bail-out for its banks.

m Daghi aad o hav

secured the authority to

ss ahad wih his ond-

buying programme aer

winning h suo of h

German chancellor, AngelaMerkel. With just days to

go, he has been confronted

with a new problem.

Sing u h ssu, fllow Gan eCb

policymaker Jrg Asmussen said the ECB should

only buy bonds if the Internaonal Monetary

Fund was involved in seng an economic

reform programme in return. Analysts expect

m Widann o ouvod on h eCb nx

wk, u his ha o qui would u ms

Merkel, the regions power-broker, in an awk-ward polical posion as the Bundesbank is

revered in Germany.

by ing so ousokn fohand, h hos

to limit the extent of the operaon, a senior

ECB source told Reuters. That would constantly

put a queson mark over how far we could go.

Berenberg Bank economist Holger Schmieding

said: Opposion from Weidmann and reserva-

ons from some other council members will

mean that ECB bond purchases could be highly

condional . . . and not bring yields down quite

as much as Italy and Spain might like to see.

Adding to the sense of uncertainty, ECB ocials

on Fiday nigh said govnos would -

sented with a list of opons for bond purchases

h day fo hy si down o dlia h

plan. Economists said the process increased the

chances of a decision being pushed back.

O O O UK DAILY TELEGRAPH / LINK

World food prices jud 10percent in July as drought parched crop lands

in h Unid Sas and easn euo, hWold bank said in a san uging govn-

ments to shore up programs that protect their

most vulnerable populaons.

From June to July, corn and wheat prices rose

by 25 percent each, soybean prices by 17 per-

cent, and only rice prices

went down, by 4 percent,

h Wold bank said on

Thursday.

Overall, the World Banks

Food Price Index, which

tracks the price of interna-

onally traded food com-

modies, was 6 percent higher than in July of

last year, and 1 percent over the previous peak

of February 2011.

U.S. soybean futures hit a record high of $17.78

per bushel in trading on Thursday, while corn

futures remained near the record of $8.49 set

earlier this month.

We cannot allow these historic price hikes toturn into a lifeme of perils as families take

their children out of school and eat less nutri-

ous food to compensate for the high prices,

World Bank Group President Jim Yong Kim

said. Countries must strengthen their targeted

ogas o as h ssu on h os

vulnerable populaon, and implement the right

policies.

Africa and the Middle East are parcularly

vulnerable, but so are people in other countries

where the prices of grains have gone up abrupt-

... An absolute majority oSocialists would increase theprobability that the government

will be able to deliver tougherscal austerity,
http://www.telegraph.co.uk/finance/financialcrisis/9513048/Draghi-plan-under-threat-amid-EU-split.html


15/26


02September2012 15

ly, Kim added.

A sv dough in h Unid

States has sharply cut corn and

soyan yilds his ya, whil a

dy su in russia, Ukain and

Kazakhstan has hurt wheat output.

th Wold bank said is xs do

not foresee a repeat of 2008, when

a food price spike triggered riots in

some countries.

However, negave factors -- such

as exporters pursuing panic poli-

cies, a severe El Nino, disappoint-ing Southern hemisphere crops, or

strong increases in energy prices

-- could cause signicant further

grain prices hikes such as those experienced

four years ago, the bank said.

Separately, nance ministers from the 21-mem-

ber Asia Pacic Economic Cooperaon (APEC)

group issued a statement at their meeng on

Thursday in Moscow urging countries to avoid

export bans in response to food price con-

cerns.

ApeC russia iosd a oay

embargo on grain exports two years ago aer

crops failed.

APEC leaders are expected to address food

security concerns when they meet next week in

Vladivostok.

I think this is one of the areas where APEC

member economies can really work together ...

to ensure the inaonary results of drought do

not impact the poorest and most disadvantaged

people in the world, a U.S. State Department

ocial told reporters on Wednesday.

O O O REUTERS / LINK

Goldmans latest analysisof h US udg shows a sagging ga of

$8 trillion in the next 10 years. This materially

diverges from the latest White House projecon

as well as from the CBOs baseline.

GS: - Through 2022, we forecast a cumulave

decit of roughly $8 trillion (3.9%) under a

business as usual assumpon that envisions

extension of most current policies but no fur-

ther decit reducon measures.

The queson of course is whether Goldmans

nightmare scenario could be altered by the

changing of the guard in Washington. The

answer isnt enrely obvious. The US govern-

ment clearly needs to shrink. But according to

Goldmans model, increased austerity - which

would presumably be a policy of the Romney

Administraon - is likely to slow economic

growth and reduce tax revenue. The lower tax

revenue would oset lower government spend-

ing. This is something we may unfortunately be

already witnessing in Europe (Italy for example).

GS: - The two main risks to the forecast are

related, but work in opposite direcons. First,there is a clear possibility of greater scal re-

straint than we assume in our forecast [presum-

ably due to a change in Washington]. While we

assume that most of the spending reducons

enacted in 2011 will be maintained, we make

no assumpon regarding the enactment of

another round of decit reducon measures in

2013. The second risk, working in the opposite

direcon, is that growth could come in under

our forecast, parcularly if the rst risk--ghter-

than-expected scal policy--does indeed mate-

CLICK TO ENLARGE

SOURCE: GOLDMAN SACHS
http://2.bp.blogspot.com/-AndlJ9CCA1Y/UEEeQcsZlfI/AAAAAAAALCM/m-M5JWnCkA8/s1600/Debt+to+GDP+ratio+forecast.pnghttp://2.bp.blogspot.com/-AndlJ9CCA1Y/UEEeQcsZlfI/AAAAAAAALCM/m-M5JWnCkA8/s1600/Debt+to+GDP+ratio+forecast.pnghttp://2.bp.blogspot.com/-AndlJ9CCA1Y/UEEeQcsZlfI/AAAAAAAALCM/m-M5JWnCkA8/s1600/Debt+to+GDP+ratio+forecast.pnghttp://www.reuters.com/article/2012/08/30/us-worldbank-food-prices-idUSBRE87T18P20120830


16/26


02September2012 16

rialize.

This does not bode well for the US public debt

levels going forward no maer who is in the

White House. The following chart shows Gold-

mans projecon (compared with the White

House and the CBO) of the US debt to GDP rao

- creeping toward mid 80s. A number of econo-

mists unaliated with the government or with

GS think Goldmans forecast is quite realisc

and may in fact be a bit opmisc.

O O O SOBERLOOK / LINK

India does not trust its economicstascs much. So far the economys saggingperformance has been the result of a collapse

in private-sector invest-

ment. The fear has long

n ha h ol will

spread from the countrys

oad oos o is ss,

with consumpon faltering.

Unasy aou h liailiy

of ocial data, for months

Mumbais analysts have

been scouring for clues thatpeople are penny pinching. The most recent

scare came from biscuits. Indias top manufac-

turer has complained of a sudden slowdown in

the numbers being munched in the countryside.

Y fo all h gis aou hi liailiy, h

latest GDP gures, published on August 31st,

paint a less worrying picture. For the rst me

in a year and half Indias economy has stopped

decelerang. GDP expanded at a rate of 5.5%

in the quarter ending June, compared with the

previous year. That is sll poorthe fourth-

slowest gure for a decade, and far below the

governments rose-nted forecasts. But it is

slightly beer than expected and also ahead of

the prior quarters 5.3% rate. A slump has not

turned into a rout. Bears had talked of growth

below 5%, at which point another bout of panic

and a sell-o of the rupee would have been like-

ly. Based on the breakdown of GDP by sector, a

surge in construcon seems to have helped li

performance a lile.

Whether this is an inecon point, though,

is far less clear. For a start there is, as always,

a stascal twist. Indias number-crunchersprovide an alternave breakdown of GDP by ex-

penditure, which is also calculated on a slightly

dierent basis (at market prices rather than

factor cost). This is not the benchmark measure

of growth in India and is said to be even less

reliable than most data. Sll, it shows overall

growth dropped to 3.9%. Private consumpon

did slow down. Capital investment remained

moribund. And the only thing showing animal

spirits was government consumpon.

Assume, however, that private consumpon isholding up. That sll leaves the original sin, the

governments decit. Including the central gov-

nn and h sas, i is

set to hit 8-9% this year and

iss h udg ags y

a mile. A rising oil price has

meant the cost of fuel sub-

sidies has soared. Despite

its promises, an embaled

government has lacked the

nerve to tackle them. A bigdecit is not about mere

book-keeping. The central bank, among oth-

ers, reckons it is at the root of Indias troubles,

crowding out more producve private invest-

ment and causing inaon. And, unless dealt

wih soon, high oowing ay o h

credit-rang agencies to carry out their threat

to downgrade India to junk status.

O O O ECONOMIST / LINK

Te French governmentsaid on Saturday it had agreed to rescue trou-bled mortgage provider Credit Immobilier de

France aer a fruitless search for a buyer for the

lender, which faced a liquidity crisis.

CIF had been up for sale since at least May

aer its future was thrown into doubt by the

evaporaon of once-cheap funding from credit

markets, on which it depends to nance its

operaons.

To allow the CIF group to respect its overall

... a run-o scenario is prob-ably not the preerred solutiono the French government dueto the importance o the bankslending activities to the Frenchhousing market...
http://www.economist.com/blogs/banyan/2012/08/indias-economyhttp://soberlook.com/2012/08/goldman-us-to-face-8-trillion-budget.html


17/26


02September2012 17

commitments, the state decided to respond

favoualy o is qus o gan i a guaan-

tee, Finance Minister Pierre Moscovici said in astatement.

The CIF rescue is the latest in a series of head-

aches for newly elected Socialist President Fran-

ois Holland, whos govnn is alady

struggling to minimise planned lay-os at other

crisis-hit companies like Peugeot and Carrefour,

as well as the nal wind-down of Franco-Belgian

lender Dexia.

The state guarantee to CIF, facing the expiraon

of a 1.75bn covered bond in early October,

was subject to approval by the European Com-

mission, Moscovici said.

On Tuesday, Moodys cut CIFs credit rang,

cing what it said was an increasing probability

that the banking group would be placed into a

run-o scenario rather

than being rescued as a go-

ing concern, raising risks for

its creditors.

The government, which said

CIFs business model hadbeen weakened by incom-

ing tougher bank capital

raos, did not say whether it would sll seek a

buyer or try to wind down the group.

Moodys said a run-o scenario is probably

not the preferred soluon of the French gov-

ernment due to the importance of the banks

lending acvies to the French housing market,

especially in assisng less privileged house-

holds.

Howv, a o y L Figao nwsa,

whose online edion broke the news of the

government rescue, said a winding down of the

group, which has about 300 branches, was the

most likely outcome.

Earlier this week, business daily Les Echos re-

od ha anoh govnn-ownd ank,

Banque Postale, was opposed to rescuing CIF

itself.

CIFs Chief Execuve Claude Sadoun is resigning,

to be replaced by Bernard Sevez.

The government, which did not menon Sa-

doun by name, said it would ask the companys

previous CEO to relinquish all potenal sever-

ance payments.

O O O FT / LINK

Spain is be-ginningo losh suo of is anks as

las-so uys of govn-

n d, wih lndsslling ou of hi holdings

at the fastest pace in more

than two years in July, ratcheng up pressure on

h euoan Cnal bank o s in and u an

end to the countrys burgeoning debt crisis.

The sales are a blow to Madrid, which was

increasingly reliant on domesc banks to buy its

debt aer an exodus of foreign investors. Do-

mesc lenders, under polical pressure to sup-

port the sovereign, used cheap loans from the

ECB to buy an extra EUR87bn of debt betweenDecember 2011 and March this year.

bu ha suo has gun o , wih Sanish

banks selling over EUR17bn of debt since then,

according to ECB data. In July alone, domesc

lenders reduced their holdings by EUR9.3bn,

in part to meet an oulow of deposits, signal-

ling that money is now too ght to support the

sovereign.

The spike in yields that we saw in July is con-

sistent with deposit oulows and a local sell-oCLICK TO ENLARGE

... An absolute majority oSocialists would increase theprobability that the government

will be able to deliver tougherscal austerity,

SOURCE: ZEROHEDGE
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/SPGBs.jpghttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/SPGBs.jpghttp://www.ft.com/intl/cms/s/0/885a6476-f456-11e1-9921-00144feabdc0.html#axzz25GRWrRdxhttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/SPGBs.jpg


18/26


02September2012 18

of sovign a, said Sohail malik, snio

porolio manager for European Credit Manage-

ments special situaons team. The rm hasUSD9.5bn in assets under management. Ul-

mately, you need one enty to assume a huge

amount of supply and that can only be the ECB.

Yilds on Sanish 10-ya govnn onds

hit a euro-era record high of 7.7% in July. While

they have since come down aer ECB President

Mario Draghi signalled the central bank might

willing o uy Sanish d, h a as y

no concrete plans for a rescue. The ECB meets

again this Thursday.

We saw some improvement aer the Draghi

speech, so the rally must have been backed up

by opportunisc hedge funds and trading books

of banks, said Malik. The yield on 10-year debt

is currently about 6.6%. But the endgame is

that we need an enty to

aso a hug aoun of

supply.

madid is lanning a fuh

seven debt aucons before

h nd of h ya, hnext coming on Thursday.

th sovign has alady

completed about two-thirds

of its planned EUR86bn of

debt issuance this year, but

the nal slog could be dicult if the ECB fails to

buy and domesc banks connue to shrink their

holdings.

Spanish banks are facing problems of their own.

Data released last week showed that custom-

ers withdrew EUR74bn of deposits in July alone- equivalent to 4.7% of total deposits and the

biggest monthly oulow since records began.

Since June last year, clients have withdrawn

EUR233bn, or 13% of the total then.

A need to raise cash to meet those withdraw-

als may have prompted the recent bond sales,

as oh asss ownd y anks - ainly loans

and mortgages - are far less liquid. Spanish bank

ond holdings a doinad y Sanish gov-

ernment debt, but also include those of other

countries.

O O O REUTERS (VIA ZEROHEDGE) / LINK

Te Dutch Socialist ay(SP) is an organisaon once known for its Mao-

is syahis and hai of howing oaos

at polical opponents. It now nds itself within

touching distance of becoming the biggest

parliamentary force, eclipsing its more moder-

ate rivals in the Labour party and on course to

gain at least 30 parliamentary seats. Just as the

unexpected success of the lewing Syriza party

in beleaguered Greece set alarm bells ringing in

Brussels, the SP has become another surprisepackage of European polics at a me when

more centrist policians seem to lack ideas.

While [Geert] Wilders [right-wing Freedom]

party made its name through divisive ideas such

as a ax on musli hads-

carves, a favourite SP slogan

reads: Theres enough to

go round for everyone. But

that inclusive message is

intended to carry menac-

ing implicaons for bank-s, usinss and h eU

powerbrokers of Brussels.

An-austerity and exasper-

ated by endless eurozone

bailouts, the SPs leader, Emile Roemer, 50,

has pledged to abandon the governments

plan to bring the budget decit below 3% by

2013, largely through healthcare cuts and wage

freezes, and face down German chancellor

Angela Merkel and the European commission if

they object.

Conservave plans to extend the rerement age

from 65 to 67 would also be torn up. And in an

echo of French president Franois Hollandes in-

tenon to raise more money from the very rich,

income tax would be raised from 52% to 65% on

those earning above 119,000 a year. A public

investment programme, partly nanced by the

proceeds, would be aimed at turning around

the ailing Dutch economy.

... Data released last weekshowed that customers with-drew EUR74bn o deposits in

July alone - equivalent to 4.7%o total deposits and the biggestmonthly outfow since recordsbegan
http://www.zerohedge.com/news/spains-debt-buyer-last-resort-becomes-seller-scramble-fund-deposit-outflows


19/26


02September2012 19

For an avuncular former teacher, known for a

toothy smile and somemes nicknamed Fozzie

Bear, it adds up to an uncompromising plat-form designed to cause palpitaons in both the

Amsterdam stock exchange and European com-

mission corridors.

On Europe, Roemer has sll more to say. A

eurozone banking union has been ruled out, as

has the so-called European stability mechanism

(ESM), which would allow nes to be imposed

on countries refusing to maintain balanced bud-

gets. There would be no more Dutch agreement

to bailouts of Greece, or any other country.

For a once-marginal party that used to stay

out of parliamentary polics, this twin strategy

targeng cuts at home and bailouts abroad

has struck a deafening chord. The Netherlands

no longer feels like a safe haven in the eurozone

storm. In May, the Euro-

pean commission predicted

that the economy would

contract by nearly 1% this

year. House prices are fall-

ing a an alaing a and

in July the rang agencyMoodys publically contem-

lad a downgad of h

countrys cherished triple A rang on govern-

ment debt.

Many voters have had enough. In one poll,

some 70% expressed a preference for greater

economic smulus and fewer cuts in 2013.

Another survey found that only 58% of Dutch

ol w now in favou of eU shi,

compared with 76% in 2010, a drop that rep-

sns a ajo wol in on of h foundmembers of the EU.

Ov a fw onhs, h ild-annd ro

has transformed the polical debate. Prime

minister Mark Rue has taken to warning that

an SP-led government would imperil the coun-

try. The SP has the economic themes, said

Aalberts. And the foreigners Dutch people are

concerned with at the moment are Polish and

Greek, not Muslim.

There was ample evidence of that at the Wes-

selerbrink market in Enschede, where the SP

was doing a thriving trade in symbolic foamos oaos, handd ou o asssy

in one of the citys poorer areas. In this eastern

city, which boasts a proud industrial heritage

but has a highly uncertain future, the talk

among the shoppers was of medical charges,

money worries and the malign inuence of

Brussels bureaucrats and proigate Greeks.

O O O UK GUARDIAN / LINK

Te OECD has wadd ino hdispute over emergency measures to prop upSpain and Italy, backing plans for the European

Cnal bank o uy u d of suggling uo-

zone naons.

euo us xloi h window of oou-

nity oered by the rela-

ve calm in the markets to

tackle the eurozone debt

crisis, the Organisaon for

Economic Co-operaon

and Development (OECD)

warned.

Wading ino h disu

over controversial acon to address the prob-

lems, the Paris-based think tank backed plans

for large-scale buying of government bonds, or

debt, by the European Central Bank.

I think it is now me that the European au-

thories push strongly toward a soluon, Pier

Carlo Padoan, the watchdogs chief economist,

said. It is me to exploit what seems to be a

credit-opening from markets on the Europeansituaon.

Pressure is mounng on the ECB to water down

the emergency measures to prop up Spain and

Italy, following reports that Jens Weidmann, the

chief of Germanys Bundesbank, threatened to

quit in protest at the plan.

Mr Padoan made clear his support for cen-

tral bank acon, arguing that the high yields,

or interest rates, faced by weaker southern

... the talk among the shopperswas o medical charges, moneyworries and the malign infu-ence o Brussels bureaucratsand profigate Greeks.
http://www.guardian.co.uk/world/2012/sep/02/netherlands-elections-socialist-party


20/26


02September2012 20

European naons did not reect their economic

fundanals, u ah h fa ha h uo-

zone could fragment.

So invning in ond aks, i is a vy

important temporary backstop to a wider

strategy, he told Reuters. If the ECB comes up

with proposals that provide concrete content to

h idas aou suo of ond aks, ha

would be extremely important.

ECB president Mario Draghi was expected next

wk o unvil a nw ond-uying oga

to help the two struggling eurozone states go

on without a formal bail-out. He appeared to

have secured the authority to press ahead aer

winning the support of the German chancellor,

Angela Merkel.

However analysts now expect the measures to

fall short of Mr Draghis vow to do whatever

it takes aer the German government had to

persuade the inuenal Mr Weidmann to stay

in his post. Stepping up the pressure, fellow

German ECB policymaker Jrg Asmussen said

the ECB should only buy bonds if the Interna-

onal Monetary Fund was involved in seng aneconomic reform programme in return.

Analysts expect Mr Weidmann to be outvoted

on h eCb nx wk, u his ha o qui

would put Ms Merkel, the regions power-

broker, in an awkward polical posion as the

Bundesbank is revered in Germany.

by ing so ousokn fohand, h hos

to limit the extent of the operaon, a senior

ECB source told Reuters. That would constantly

put a queson mark over how far we could go.

O O O UK DAILY TELEGRAPH / LINK

Jens Weidmann, the44-year-old head of Germanys central bank,

has made a name for himself by championing

price stability and opposing bond purchases

by the European Central Bank. In a SPIEGEL

interview, he cricizes the ECBs latest plans andinsists he only wants to secure the euros long-

term future.

SPIEGEL: Mr. Weidmann, US President

Barack Obama reportedly asked German

Chancellor Angela Merkel for your phone

number. Has he already called you?

Weidmann: I havent received a call from

President Obama. I occasionally talk on the

phone with US Treasury Secretary Timothy

Geithner, though. It s an important part

of my job to promote the posions of the

Bundesbank during conversaons with

monetary and nancial policy makers from

around the world.

SPIEGEL: That doesnt appear to have been

parcularly fruiul. In all Western capital

cies, from Washington to London, and from

Paris to Rome, you are regarded as the man

who wants to destroy the euro. Is this al-

legaon jused?

Weidmann: No, not at all. I want to help en-sure that the euro remains a stable currency.

The framework for this is laid out primarily

by the Maastricht Treaty, with its rules and

condions for European nancial and mon-

etary policy. I take that as my yardsck.

SPIEGEL: But the framework doesnt work

anymore.

Weidmann: The framework has been

stretched and, in some cases, disregarded.CLICK TO ENLARGE

SOURCE: DER SPIEGEL
http://www.spiegel.de/international/europe/bild-852285-394489.htmlhttp://www.spiegel.de/international/europe/bild-852285-394489.htmlhttp://www.spiegel.de/international/europe/bild-852285-394489.htmlhttp://www.telegraph.co.uk/finance/financialcrisis/9514153/Debt-crisis-OECD-backs-plans-for-ECB-bond-market-intervention.html


21/26

21.CHARTS THAT MAKE YOU GO Hmmm...

02September2012 21

...in post WII Hungary the equivalent daily inaon rate of 207%, the highest everrecorded, led to a price doubling every 15 hours, certainly one upping such well-known instance of

CTRL-P abandon as Zimbabwe (24.7 hours) and Weimar Germany (a tortoise-like 3.70 days)... What

we will point is that at no me in recorded history did a monetary regime end in hyperdeaon. In

fact there is not one hyperdeaonary episode of note...

O O O ZEROHEDGE / LINK

CLICK TO ENLARGE

SOURCE: CATO/ZEROHEDGE
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/Hyperinflations.jpghttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/Hyperinflations.jpghttp://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/08-2/Hyperinflations.jpghttp://www.zerohedge.com/news/monetary-endgame-score-date-hyperinflations-56-hyperdeflations-0


22/26


02September2012 22

A great graphicfo Jo usulas of bloo-

berg (via Barry Ritholtz) that

shows where the blockages are

in h onay ansission

system...

File this one under Gomer Pyle:The BEAs Personal Consumpon Expenditures (PCE) Chain-type Price Index for July, released yes-

terday, shows core inaon below the Federal Reserves 2% target at 1.65%. In contrast, the CoreConsumer Price Index, also data through July, is above the target at 2.10%. The Fed, of course,

is on record as using PCE as its

primary inaon gauge... Here

is a chart that helps us compare

the cumulave change in the

two indexes since 1960. Over

me, the PCE price index reects

signicantly lower growth in

inaon than does CPI.

O O O D SHORT/ LINK

CLICK TO ENLARGE

SOURCE: BRUSUELAS/RITHOLTZ

CLICK TO ENLARGE

SOURCE: D SHORT
http://ow.ly/i/TxWX/originalhttp://ow.ly/i/TxWX/originalhttp://advisorperspectives.com/dshort/charts/inflation/headline-core-comps.html?CPI-PCE-cumulative-change.gifhttp://advisorperspectives.com/dshort/charts/inflation/headline-core-comps.html?CPI-PCE-cumulative-change.gifhttp://advisorperspectives.com/dshort/charts/inflation/headline-core-comps.html?CPI-PCE-cumulative-change.gifhttp://ow.ly/i/TxWX/originalhttp://advisorperspectives.com/dshort/updates/CPI-PCE-Comparison.php


23/26


02September2012 23

wo charts from JessesCaf Americain:

Top: Silver weekly chart

Boom: Gold daily chart

As the much-lamented Swingout Sister

once said:

When explanaons make no sense

When every answers wrong

Youre ghng with lost condence

All expectaons come

The me has come to make or breakMove on dont hesitate

Breakout

Dont stop to ask

Now youve found a break to make at last

CLICK TO ENLARGE

SOURCE: JESSES CAFE AMERICAIN

SOURCE: JESSES CAFE AMERICAIN
http://3.bp.blogspot.com/-0ZlskDvZcFU/UEErqC540eI/AAAAAAAAYe8/E2s6fH8TNzo/s1600/golddaily5.PNGhttp://3.bp.blogspot.com/-0ZlskDvZcFU/UEErqC540eI/AAAAAAAAYe8/E2s6fH8TNzo/s1600/golddaily5.PNGhttp://1.bp.blogspot.com/-XtkX7M7LoGA/UEErqoRnMUI/AAAAAAAAYfE/ihlO4mcORyA/s1600/silverweekly4.PNGhttp://1.bp.blogspot.com/-XtkX7M7LoGA/UEErqoRnMUI/AAAAAAAAYfE/ihlO4mcORyA/s1600/silverweekly4.PNGhttp://1.bp.blogspot.com/-XtkX7M7LoGA/UEErqoRnMUI/AAAAAAAAYfE/ihlO4mcORyA/s1600/silverweekly4.PNGhttp://3.bp.blogspot.com/-0ZlskDvZcFU/UEErqC540eI/AAAAAAAAYe8/E2s6fH8TNzo/s1600/golddaily5.PNG


24/26

24.

02September2012 24

WORDS THAT MAKE YOU GO Hmmm...

wo guys in bowes. No, not Charlie Sheens lat-est sitcom, but Jim Grant talking to another man in a bowe

(Tom Keene) who, frankly, I wish would stop interrupng

him.

Jim lays out the case for a gold standard and explains some

(but certainly not all) of the Feds shortcomings in his usual

erudite and considered manner.

What we need is a central bank that has the humility not

to do what it cannot do. And the Fed cannot do what others

have failed to do, namely to plan an economy from a central

desk in the capital city.

Amen to that.(courtesy of zerohedge)

Ordinarily, Daily Showclips are reserved for the And Finally... page,

u his inviw wih fo rNC Chai-

man, Michael Steele deserves a place here.When the discussion turns to Ron Pauls

treatment by the current RNC, Steele pulls

no punches...

(courtesy of Robert Wenzel)

More Mauldin for you as John talks to Eric King about hisrecent travels through Europe, the upcoming German Constuonal Court ruling

and the chances of a Grexit (boy, I HATE that term). John also shares his thoughts

on China, gold and the US elecons. Parsanship aside, this is an excellent inter-

view.

CLICK TO WATCH

CLICK TO WATCH

CLICK TO LISTEN
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/8/24_John_Mauldin_files/John%20Mauldin%208%3A24%3A2012.mp3http://www.economicpolicyjournal.com/2012/08/wow-listen-to-former-rnc-chairman_31.htmlhttp://www.zerohedge.com/news/jim-grant-refuses-get-lost-hall-mirrors-market


25/26


26/26


As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from me-to-me,

the views I express and/or the commentary I write in the pages ofThings That Make You Go Hmmm..... ay

reect the posioning of one or all of the Vulpes funds - though I will not be making any specic recommen-

daons in this publicaon.

Grant

www.vulpesinvest.com

Grant Williams

Grant Williams is a portfolio and strategyadvisor to Vulpes Investment Managementin Singapore - a hedge fund running over$250million of largely partners capitalacross multiple strategies.

The high level of capital committed by theVulpes partners ensures the strongest possi-ble alignment between us and our investors.

In Q4 2012 we will be launching the VulpesAgricultural Land Investment Company(VALIC), a globally-diversied agricultural land vehicle which will provide truly diver-sied exposure to the agricultural sector through a global portfolio of physical farm-land assets.

Grant has 26 years of experience in nance on the Asian, Australian, European and

US markets and has held senior positions at several international investment houses.

Grant has been writing Things That Make You Go Hmmm..... since 2009.

For more information on Vulpes please visit www.vulpesinvest.com

*******

Follow me on Twier: @ttmYGH

YouTube Video Channel: hp://www.youtube.com/user/GWTTMYGH

California Investment Conference 2012 Presentaon: Simplicity: Part I : Part II
http://users/Grant/Library/Caches/Adobe%20InDesign/Version%207.0/en_GB/InDesign%20ClipboardScrap1.pdfhttp://www.vulpesinvest.com/https://twitter.com/ttmygh/http://www.youtube.com/user/GWTTMYGHhttp://www.youtube.com/watch?v=Ri6rIF40iSA&feature=plcphttp://www.youtube.com/watch?v=xoMAYAKHQqU&feature=plcphttp://www.youtube.com/watch?v=xoMAYAKHQqU&feature=plcphttp://www.youtube.com/watch?v=Ri6rIF40iSA&feature=plcphttp://www.youtube.com/user/GWTTMYGHhttps://twitter.com/ttmygh/http://www.vulpesinvest.com/http://users/Grant/Library/Caches/Adobe%20InDesign/Version%207.0/en_GB/InDesign%20ClipboardScrap1.pdf

Documents

Things That Make You Go Hmmm September 3d, 2012