THINGS THAT MAKE YOU GOHmmm…A walk around the fringes of finance

07 November 2011 1

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“I believe that there’s been violations of the law, The Commodity Exchange Act... They’ve taken place in the silver market and I think any such violation, of course, should be prosecuted to the full extent of the law. I believe there has been repeated attempts to influence prices in the silver market. And there’s been fraudulent efforts to persuade and deviously control the price.”

– Bart Chilton, CFTC Commissioner, November 4, 2011

“In September of 2008, the Commission announced the existence of an enforcement investigation into the pos-sibility of unlawful acts in silver markets. Since that time, the staff has analyzed over 100,000 documents and interviewed dozens of witnesses and obtained ex-pert advice. It has been a long, detailed, and thorough investigation, and it continues in an appropriate and considered manner.”– CFTC, November 4, 2011. FULL statement on the ongoing THREE-YEAR inves-tigation into manipulation of the silver market

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I had promised not to talk about europe this week and I am, by and large, going to keep that prom-ise, but before we delve into a couple of other things, it wouldn’t be right to skip over the events

of this past week without a few words on the latest chapter in what has, sadly, become a true Greek Tragedy.

At some point last week, Prime Minister Papandreou finally decided he’d had enough of sitting out-side the Principal’s office with a book stuffed down the back of his shorts in a forlorn attempt to lessen the pain of the next beating that was to be administered by Principal Merkel or Vice-Principal Sarkozy. At that precise moment, in a breathtaking example of:a) brinkmanshipb) Lunacyc) Exasperationd) All of the above

he declared he would table a vote of no confidence in his government and, at the same time, offer the Greek people the opportunity to voice their opinions on the bailout packages and continued mem-bership of the Eurozone via a national referendum.

In the pandemonium that ensued we finally got a complete understanding of just what is worrying markets as this sorry charade in Europe finally moves towards its inevitable denouement.

It was assumed by most that, were they given the opportunity to make their feelings known, the Greeks would choose to leave the Eurozone, return to the Drachma and be allowed to devalue their currency in order to begin the revival of their moribund economy. Of course, this wasn’t GUARAN-TEED, by any means. Such a move by Greece would undoubtedly lead to unbelievable hardship and make the austerity they are having forced upon them currently seem closer to charity. The only dif-ference in Greek eyes would be that it didn’t feel like the hardship was being forced upon them by Germany.

Ultimately, the actual question that would be asked in any referendum would hold the key to the answer and, as even the most casual observer of surveys of any kind would tell you, the question can usually be shaped to ensure the answer given is the one required. However, the anger in Greece is such that the outcome of offering them a vote on what course of action they wished to take would be so unpredictable as to be dangerous.

And this from the country that gave the world democracy:

(Wikipedia): Democracy is generally defined as a form of government in which all the people have an equal say in the decisions that affect their lives. Ideally, this includes equal (and more or less direct) participation in the proposal, development and passage of legislation into law. It can also encompass social, economic and cultural conditions that enable the free and equal practice of political self-determination.

The term comes from the word Greek: δημοκρατία – (dēmokratía) “rule of the people”, which was coined from δῆμος (dêmos) “people” and κράτος (Kratos) “power”, in the middle of the 5th-4th century BC to denote the political systems then existing in some Greek city-states, notably Athens following a popular uprising in 508 BC.

In another astounding development, the Greek defence minister replaced the heads of all the armed services on the same day amidst whispers that he was attempting to head off a military coup - some-thing not unfamiliar to Greeks going all the way back to 411 BC when a number of wealthy and promi-nent Athenians overthrew the government and replaced it with a group of oligarchs known as ‘The Four Hundred’:

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(Wikipedia): The oligarchs plotted two coups: one at Athens and one at Samos, where the Athe-nian navy was based.

The coup at Athens went forward as planned, and “[o]n the fourteenth day of the Attic month of Thargelion, June 9th, 411, ... the [conspirators] seized the reality of power.” The city came under the control of The Four Hundred oligarchic government.

Unlike in Athens, the plotters in Samos were thwarted by Samian democrats and pro-democratic leaders in the Athenian fleet. The men of the fleet, upon learning of the coup at home, deposed their generals and elected new ones in their place. They announced that the city had revolted from them, not they from the city.

And so it was that the powerful intentions of a few rich men were thwarted by the intervention of high-ranking members of the Navy (the Athenian airforce at that time consisted solely of Wing Com-mander Icarus, whose attempts to intervene met with an unfortunate end) and Democracy was once again the winner.

Clearly, somebody in the greek government has been reading their Greek history (or, as they call it in Greece, ‘history’), and that someone is Panos Beglitis:

(B92.net): Greek Defense Minister Panos Beglitis has dismissed the country’s entire military brass – chief of the general staff and Army, Air Force and Navy commanders.

Public is in shock and the opposition has requested an explanation, adding that such political maneuver is “indicative in the moment when Prime Minister (George) Papandreou is losing trust in his own party and among the people”, especially after the decision to hold a referendum on EU bailout.

According to some sources, the shakeup in the Greek military was a surprise both to the military and the members of the government and it is assumed that it is directly connected to the instabil-ity in Greece.

As Friday’s no-confidence vote approached, things began to spiral out of control and the events of Thursday bore testament to just how unhinged things had become in Greece. As I sat having

dinner on that evening, the email alert in my iPhone began to sound like a video game as report after report of shifts in the status quo broke:

*PAPANDREOU MAY WITHDRAW REFERENDUM PROPOSAL: PARTY OFFICIAL

*GREECE’S PAPANDREOU TO STEP DOWN, BBC REPORTS

*PAPANDREOU TO PROPOSE LUCAS PAPADEMOS TO HEAD GREEK GOVT: BBC

*FORMER ECB VICE-PRESIDENT PAPADEMOS TO HEAD GREEK GOVT: BBC

*GREEK SPOKESMAN SAYS COUNTRY HAS AN ELECTED GOVERNMENT

*GREEK SPOKESMAN MOSIALOS: COUNTRY HAS ELECTED PRIME MINISTER

*GREEK GOVERNMENT SPOKESMAN MOSIALOS COMMENTS LIVE ON NET TV

The graph on the following page illustrates perfectly the rollercoaster day that Europe suffered on the back of the soap opera playing out in the Old Palace.

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Of course, the following day, all this was consigned to the dustbin of history as backroom deals were struck, Papandreou stayed in power, the referendum was cancelled and the government went on to successfully defeat the no-confidence vote, ensuring things remained ‘stable’ - at least INSIDE the parliament buildings of Athens.

Outside? It was a different matter:

(RT): Thousands of anti-austerity protesters have gathered outside the Greek parliament, as law-makers start debating a confidence vote for embattled Prime Minister George Papandreou.

The protest comes a day after Papandreou scrapped a referendum he had proposed on whether his country should remain in the eurozone, the Associated Press reported.

Greece has been witnessing strikes and mass protests over harsh government austerity measures including tax hikes, pay cuts, and job cuts.

Protesters argue that these measures will only plunge the debt-ridden nation into further poverty.

I promised I would talk about something other than Europe, and I will, but before I do, a quick sum-mary of where we are is probably in order.

The actions of Papandreou, Merkel and Sarkozy this week have been reckless and have, in my opinion at least, not only pushed the Euro project to the point of destruction, but have also

CLICK TO ENLARGE SOURCE: BUSINESS INSIDER

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ensured that point is reached in very short order. I would be shocked if the Euro survives in its present form for another three months. Time will be the judge.

The Greeks are incensed at what they see as German interference in their sovereign affairs and the threats to put EU (read: German)‘monitors’ on the ground in Athens will only intensify that anger

By offering a vote to the people of Greece about a subject that stirs up an incredible amount of pas-sion in their hearts, only to then withdraw that offer is one of the most foolish pieces of politicking that I have had the misfortune to witness. Yes, Papandreou may have temporarily shored up his ailing power base within the government itself (although I sincerely doubt that will last more than a matter of days), but at what cost? I believe we will see the rioting in Athens escalate to far higher levels than we have seen to date, and I strongly suspect that Papandreou has increased the chances of a military coup in Greece tenfold. But then maybe that wouldn’t be such a bad idea after all?:

(Forbes): There’s a not very funny joke going around the financial markets at the moment, that the real solution to the Greek problem is a military coup. (Just to make it clear, no, of course I’m not advocating a coup. See below) Instead of Germany trying to fund the Greek debt they should instead sponsor such a coup:

Only half in jest is it sometimes said that a better use for Germany’s money than pouring it down the drain of further bail-outs would be to sponsor a Greek military coup and solve the problem that way…..

The reason being that a military dictatorship cannot be in the European Union. Thus, if there was such a military coup Greece would immediately have to leave the EU and thus whatever happened to its economy would simply be someone else’s problem.

What’s so sad, or bitter if you prefer, about the joke is that, if we ignore the little problem of it being a military dictatorship, this would in fact be a good solution to Greek woes. They simply can-not, under any circumstances, pay the current debts so they’re going to have to default.

One thing is for certain - far from calming things down, this week has raised the stakes significantly and a look at Europe’s calendar for the rest of the month shows just how many speedbumps there are in the weeks ahead:

• Monday, Nov. 7: Meeting of Eurogroup finance ministers. EFSF issuance expected within two weeks of this date. IMF/EU officials start second quarterly evaluation of Portugal’s bailout pro-gram implementation. Should also last two weeks.

• Tuesday, Nov. 8: EU finance ministers meeting. Greek T-bill auction.• Thursday, Nov. 10: Italian T-bill auction.• Friday, Nov. 11: EUR2.0 billion of Greek T-bills mature.• Monday, Nov. 14: Italian bond auction.• Tuesday, Nov. 15: Greek T-bill auction.• Wednesday, Nov. 16: Portuguese T-bill auction.• Thursday, Nov. 17: Spanish and French bond auctions.• Friday, Nov. 18: EUR1.3 billion of Greek T-bills mature.• Sunday, Nov. 20: Spain holds general election.• Thursday, Nov. 24: General strike in Portugal.• Friday, Nov. 25: Italian T-bill/zero coupon bond auction.• Tuesday, Nov. 29: Italian bond auction. Final Portuguese budget vote.

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Papandreou’s days at the head of Greece’s governments are numbered. That is for sure. What his political demise will mean for both Greece and the rest of the Eurozone we will soon find out. It won’t be pretty.

While Europe has once again muscled its way to the forefront of my thoughts, what I HAD planned to write about this week was uranium. So let’s get things back on track.

Ever since December 20, 1951, when the Experimental Breeder Reactor EBR-I in Arco, Idaho, USA, became the first nuclear facility to produce electricity - illuminating four light bulbs - nuclear power has been at the centre of a raging debate about its stability. Five years later, on June 26, 1954, at Obninsk, Russia, the nuclear power plant APS-1 with a net electrical output of 5 MW was connected to the power grid - making it the world’s first nuclear power plant that generated electricity for com-mercial use.

Almost 60 years to the day since EBR-I illuminated those four bulbs in Arco, the nuclear industry’s future is once again under a cloud (for want of a better phrase).

I have been following uranium for a number of years now - even more closely in the wake of the ter-rible events in Japan earlier this year - and the dynamics of the industry are fascinating to say the

least. Wherever you find investment ideas in areas where emotions run high, you can guarantee that at some point in time, those ideas will travel to the two extremes of the fair value scale. This year has seen the uranium industry take one such journey as the fallout from the earthquake and tsunami that swept through Eastern Honshu has decimated uranium producing stocks and, to a lesser extent, cer-tain power companies that rely on the miracle of nuclear energy to provide energy to their customers.

SOURCE: BLOOMBERG

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Immediately after Fukushima, most uranium producers were cut by more than 60% by a market that feared for the future of the nuclear industry. Shortly thereafter, as the sector began to stagger to its knees once again, Germany threw a rabbit punch:

(BBC) May 30, 2011: Germany’s coalition government has announced a reversal of policy that will see all the country’s nuclear power plants phased out by 2022.

The decision makes Germany the biggest industrial power to announce plans to give up nuclear energy.

Environment Minister Norbert Rottgen made the announcement following late-night talks.

Chancellor Angela Merkel set up a panel to review nuclear power following the crisis at Fukushima in Japan.

Mr Rottgen said the seven oldest reactors - which were taken offline for a safety review immedi-ately after the Japanese crisis - would never be used again. An eighth plant - the Kruemmel facil-ity in northern Germany, which was already offline and has been plagued by technical problems, would also be shut down for good.

Six others would go offline by 2021 at the latest and the three newest by 2022, he said.

Mr Rottgen said: “It’s definite. The latest end for the last three nuclear power plants is 2022. There will be no clause for revision.”

Obviously, the news that one of the world’s industrial powerhouses would be shutting their nuclear plants for good sent the uranium sector to the canvas once again - bleeding profusely - and there, by and large, it has stayed.

However, if we take a look at some of the facts surrounding the nuclear industry, there are many reasons to think that, once the emotional elements of the situation recede, to be replaced with more logical ones, things may change significantly.

According to the International

Atomic Energy Agency (IAEA) there are cur-rently 440 nuclear re-actors operating across the world with a further 65 in various stages of completion. More im-portantly, despite the shuttering of Germany’s 17 power plants, there are currently 65 new power stations under construction worldwide (including 27 in China, 11 in Russia and 5 in both India and South

SOURCE: WORLD-NUCLEAR.ORG

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Korea).

These power stations - both existing and new - will require uranium in order to provide the roughly 400 GW of electricity demanded by a world that becomes ever-more dependent upon the provision of energy to power its continued urbanization.

Dr. Michael Dittmar, a physicist at ETH, Zurich, and working at CERN in Geneva recently put some clear-headed analysis around the nuclear industry for those willing to ignore the hyperbole that has swirled around uranium for the last 8 months:

Operating nuclear reactors require the equivalent of about 68 000 tons of natural uranium ore every year. Yet, over the past 20 years, no more than 40–50 000 tons of uranium ore have been extracted annually from mines around the globe. Even taking into account accumulated stocks, de-mand for uranium could soon exceed supply, especially if the number of plants doubles by 2030. If nuclear power is no more sustainable than fossil fuels, what does that imply for our energy future?

A valid question indeed.

In the search for an answer, Dittmar first proceeded to establish some cold hard facts about uranium - and they are compelling to say the least:

About 97% [of the world’s extracted uranium ore] comes from just 10 countries and 85% from 26 mines. The three largest uranium-producing countries are Kazakhstan, Canada and Australia, in descending order. Together, they produced about 63% of the total in 2009. The next three, Na-mibia, Russia and Niger, together produced 23% and another 11% came from Uzbekistan, the USA, Ukraine and China.

The largest mine in Canada alone produces about 15% of the world total. The three largest mines together extracted about 31% of all uranium in 2009 and the 10 largest mines 59%. The next 16 mines together produced another 25%. Thus, global uranium production is closer to a monopoly than any other energy source today.

About 30% of nuclear fuel currently comes not from mines but from an obviously unsustainable source, civilian and military uranium stocks accumulated during the Cold War and, to a much lesser extent, from fuel reprocessing.

Before the accident in Japan, several countries were planning to construct a large number of nu-clear power plants in the coming 20 years, the most ambitious plans being presented by China (see graph). If all these projects can be realized in time and only a few of the ageing nuclear power plants are closed by 2030, the number of plants worldwide will nearly double, requiring a similar increase in uranium mining.

Dittmar proceeds to explain the supply/demand situation of uranium; painting a picture of a lack of one and a surplus of the other:

... one should distinguish between the known deposits of about 4 million tons of assured uranium and the 2.3 million tons of inferred extractable uranium. Given that one-third of the ‘known’ de-posits are only an estimate, a more accurate interpretation would be that perhaps enough ura-nium exists to operate the existing nuclear power plants for about 70 years...

...essentially three scenarios have been considered for the future of nuclear-produced electric power: a so-called fast-growth scenario of more than 2% a year, a reference scenario of 1.5% growth and a constant or slow phase-out scenario of -1% capacity per year. If we choose the refer-ence scenario of 1.5% growth, annual uranium requirements in 2030 would come to circa 90 000

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tons, about 35% more than today.

Assuming a totally unrealistic growth scenario of, say, 5% per year, about 180 000 tons of uranium would be needed to fuel nuclear power plants in 2030 and the ‘known’ uranium resources would be exhausted by about 2047. It is important to realize that even a 5% annual growth scenario would still result in nuclear power contributing only about 2.5 times more nuclear energy by 2030 than today. Assuming that all other fuel types remained at 2010 levels of 86% of the total electrical energy mix, this unrealistic increase would still only provide about 30% of electrical energy in 2030.

So clearly, unless a viable alternative to nuclear energy can be found - and quickly - the world’s stockpiles of uranium will soon be irretrievably depleted (irresistible uranium-based pun there

- sorry)My friend, Thomas Drolet, has forgotten more than I shall ever know about the nuclear indus-try so I turned to him for some perspective surrounding the possible alternatives in a world without nuclear power. His answer was comprehensive:

Currently, in most electrical supply systems, nuclear power, hydroelectric power and geothermal power supply the base load component required for the core needs of the electricity supply system. Coal and natural gas fired plants are used as sustained peeker units in the daytime working hours for the increased demands of industry and commerce. In the last two decades plus, renewable en-ergy has made dramatic in-roads into some supply systems, especially in Europe and in some areas of the USA. Despite the incredibly fast growth curve for installed renewable units, solar and wind still represent in the order of 1 to 2% of actual electricity generation worldwide. Its higher capital costs and the variability of sunshine and wind will eventual limit their contribution to the electrical grids until, and if, excess electricity generation storage systems for solar wind power are proven and become economic. I would argue that another decade of R&D will result in more economic solar and wind electricity supply systems, wherein their growth trend will resume its upward climb.

Shale Gas is proving to be an incredibly prolific (and worldwide too, i.e., USA, Mexico, Europe, Aus-tralia, China, Canada, South America) new source of natural gas that has turned its supply from one of worry, to one of great hope for potentially becoming ‘the’ bridge source of electricity supply in the mid term future.

Hydroelectric power has been substantially built out and is currently supplying about 15% of the world’s electricity. It is a mature electricity supply source.

Another excellent renewable source - Geothermal power electricity - today is limited to tectonic plate interfaces (aka--the Pacific ring of fire, the Rift Valley in Africa etc). However, new develop-ments using innovative new technologies promise much more democratically dispersed worldwide available base load electricity supply systems.

So, what to do for the future of electricity supply we ask ourselves. The current worldwide invest-ment of some $14 + Trillion (that’s with a ‘T’) in electrical system generation, transmission and distribution hardware, I would argue, cannot and should not be changed radically and quickly without in-depth thought and debate. The economic size of this magnitude in equity investment in current electricity infrastructure is too much of a core need for society to function properly and safely without real consideration. A radical change in power supply systems must be for reasons of economics, sustainability, environmental impact and operational safety. Substantial changes in its make up must be an incremental and deliberate process.

It would appear as though the realistic chances of the world giving up on nuclear power any time soon

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are close to zero - we are just not ready to abandon a power source that, despite the post-Fukushima hysteria, is infinitely cleaner and has killed far fewer people than coal over the years.

Coincidentally, a mere nine days after Fukushima (confirmed direct death toll from the meltdown itself now precisely zero) the following story appeared in the world’s media (if you looked hard enough):

(Reuters): The death toll from Sunday’s methane gas explosions in a coal mine in Pakistan’s southwestern province of Baluchistan rose to 45 on Monday, gov-ernment officials said, as hopes faded there would be any survivors from the disaster.

More than 50 miners were in the mine when three big explosions triggered by methane gas ripped through the caverns.

“Forty-five miners have died. We have retrieved 25 bodies so far,” Aslam Bizenjo, provincial irrigation minister, told the provincial assembly.

Officials said the chances of finding the trapped workers alive were very slim because of a fire, which had consumed all the oxygen. Witnesses said the bodies had severe burns from the huge fire.

The number of deaths from coal mining is staggering - particularly when its ef-fect on the environment is considered - but it fails to garner anything like the attention that deaths from any kind of nuclear accident generate. A look at the number of coal mining-related deaths in the US and China over the past 30 years proves this point dramatically (table, left).

But back to uranium and Prof. Dittmar’s thoughts on whether nuclear energy af-fords the countries that use it energy independence:

...sooner or later, the Japanese nuclear disaster will be forgotten and the argu-ment of energy independence will resurface. Yet, just how independent are France and the USA? Many countries import close to 100% of their uranium needs today; this is especially true for the USA, France and the rest of the European Union. Thirty years ago, the USA produced about 16 000 tons of uranium ore annually; today, that has declined to less than 2000 tons, whereas its power plants require about 20 000 tons. Thus, less than 10% of their needs are satisfied by mines on their huge territory.

So both the USA and France (along with the rest of the EU) - some of the larg-est users of nuclear-generated electrical power - are already dependent on for-eign largesse to supply them with the uranium they require to fuel their existing nuclear power grids. Competition for this fuel is only going to intensify as more

reactors come online in the next decade. China’s increasing demand for a commodity that is largely produced in extremely China-friendly jurisdictions such as Kazakhstan, Australia, Namibia and Russia may prove troublesome for the US and Europe as they come to rely more heavily on Canada’s good graces.

But there is one other aspect of the tightening supply dynamic that is particularly curious when viewed from a US perspective and that is America’s reliance upon, of all places, Russia to supply the necessary uranium to keep the home fires burning. Professor Dittmar explains:

Year USDeaths

ChinaDeaths

1980 1331990 661991 611992 551993 471994 451995 471996 391997 301998 291999 352000 38 5,3002001 42 5,6702002 27 5,7912003 30 7,2002004 28 6,0272005 23 5,9862006 47 4,7462007 34 3,7862008 30 3,2152009 18 2,6312010 48 2,433

SOURCE: FRANK WARNER

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It is especially interesting to note that 50% of US nuclear reactors are currently running thanks to the goodwill of the Russian government, via a contract that expires in 2013. Every year, the USA has to import about 10 000 tons of natural uranium equivalent nuclear fuel from Russian military reserves. This dependence on uranium imports has become much stronger in recent years because many US mines have been depleted and the country’s civilian stocks of uranium have essentially been used up.

The US relying on a contract with Russia that expires in a little over a year to provide them with 50% of their uranium needs from decommissioned nuclear weapons? That in itself sounds like the founda-tions for a Tom Clancy novel, but throw into the mix China’s increasing desire to secure Uranium sup-plies, India’s growing power sector along with those in the UAE and, despite the horrors of Fukushima this year and the subsequent knee-jerk reactions by Germany, Switzerland and Italy in closing their power plants down, you have the recipe for much higher uranium prices going forward.

Cameco and Rio Tinto’s ongoing bidding war over Hathor and the recent comments of one uranium producer’s CEO who declared the sector’s shares to be oversold and expressed his fears that his com-pany would be a takeover target are testament to the fact that those within the industry are focusing squarely on the future rather than the here and now.

Love it or loathe it, nuclear power is here to stay (at least until a viable alternative can be found) and that alternative currently seems a long way away - something that is definitely not reflected in the price of either uranium, or the share prices of the companies that produce it.

ΩΩΩ

So what do we have for you today? Well, in keeping with our introduction, we visit Japan to take a look at life in the post-Fukushima Twilight Zone courtesy of The Economist, travel to China to

take a look at the paradox of Communist Capitalism, journey to Texas to see how drastic the move to Credit Unions has been and, of course, spend some time in Europe looking at Italy’s bond problems and the ever-more desperate measures being employed by the G-20 to fill the empty box that is the EFSF.

Gillian Tett explains sovereign debt’s impending ‘subprime moment’, Chris Puplava looks at some good, bad and ugly charts, and Bart Chilton breaks ranks with the CFTC in a truly astounding interview about manipulation in the silver market.

We look at charts of Operation Twist, the Eurozone’s complex web of dependency, US federal debt, Portuguese bond yields and see how the market tends to fare in October.

James Turk talks about the London Gold Pool and Niall Ferguson talks about Russian Roulette and that pretty much wraps things up for another week. Interestingly enough, since I started writing this on Saturday, it would appear that PM Papandreou’s tenuous grip on power has evaporated. That will teach me to be slow in hitting the send key...

Before I leave you though, an apology and a word of thanks. Normally I try to send Things That Make You Go Hmmm..... on Sunday but clearly, this week I am delayed 24 hours. The reason lies

in a place called Semara Uluwatu.

A very good friend of mine invited me to spend the weekend at the villa complex he and his partners have just finished building near Uluwatu on the southern tip of Bali. It was a perfect chance to play a little golf, kick back and relax while I wrote Things That Make You Go Hmmm..... Or so I thought.

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The big problem was that the place was so beautiful that I got no work done whatsoever. I sat atop a cliff gazing out across the beautiful azure sea and, surprisingly enough, found myself struggling to concentrate on putting my thoughts down in writing.

This is not a plug, nor is there any compensation coming my way for mentioning it, but if any readers are contemplating a trip to Bali at any point in time, my heartfelt recommendation would be to check out Semara Uluwatu.

Thanks Steve!

www semarauluwatu.com

As a result of my role at Vulpes Investment Management, it falls upon me to disclose that, from time-to-time, the views I express and/or the commentary I write in the pages of Things That Make You Go Hmmm..... may reflect the positioning of one or all of the Vulpes funds - though I will not be making any specific recommenda-tions in this publication.

The Vulpes Testudo Fund does hold long positions in uranium stocks

Grantwww.vulpesinvest.com

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Contents 07 November 2011

Bart Chilton - There Is Manipulation In The Silver Market

The Euro Crisis Has Turned Us Into Wile E Coyote...

Subprime Moment Looms For ‘Risk-Free’ Sovereign Debt

The Good, The Bad And The Ugly

The China Paradox: Communist Capitalism?

ECB Debates Ending Italy Bond Buys If Reforms Don’t Come

Tens Of Thousands Flow Into Texas Credit Unions

Bundesbank: Central Bank Reserves Will Not Help Fund EFSF

The Twilight Zone

Groupon Insiders Are Already Rich

Charts That Make You Go Hmmm.....

Words That Make You Go Hmmm.....

And Finally.....

The Gonnie, Gonnie Banks

# Bank Assets ($m) Deposits ($m) Cost ($m)

86 Mid City Bank, Inc., Omaha, NE 106.1 105.5 12.7

87 SunFirst Bank, Saint George, UT 198.1 169.1 49.7

Total Cost to FDIC Deposit Insurance Fund 62.4

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With many lawsuits having been filed against JP Morgan for alleged manipulation of the silver market, today King World News interviewed CFTC Commissioner Bart Chilton. Com-

missioner Chilton was incredibly candid throughout the entire interview. As an example, when asked if there is nefarious activity (manipulation) going on or that has gone on in the silver market, Chilton responded, “I think there has been, Eric. I talked last year about this, I urged the agency to say some-thing. I just think it’s fair that after so long, on an investigation that you’ve publicly announced, that you give some sort of update.”

Bart Chilton continues:

“I mean nothing that would jeopardize the furtherance of the investigation. We do a really poor job of communication at this agency. People don’t respond to emails, we don’t put out informa-tion. I think this goes back, by the way, to something that we were talking about earlier, are we captives of the exchanges or the banks?

I think by and large we haven’t been a very retail, consumer that is, focused agency. Here’s what I can tell you about silver, Eric, I have been contacted, for years, by some folks that I think have a lot of credibility. It’s one thing when they say this and that is going on and I check it out and maybe some of it’s true and maybe some of it’s not.

But when people email me and say, ‘You watch the market (silver) between 9:15 and 9:45 tomor-row and it’s going to tank or it’s going to do this or it’s going to do that.’ I hold on to it and I watch the market and what they say happens, and I’m not saying this always happens, but it happens even 50% of the time, 60% of the time, there’s no way that doesn’t raise my antenna, like major, electric antenna goes up.

So to me that was the reason why I thought we needed to look at this (silver), investigate it. That’s why I called for it, Commissioner Dunn also called for the investigation, but I can tell you based on what I have been told by members of the public and reviewed in publicly available documents, I believe that there’s been violations of the law, The Commodity Exchange Act.

They’ve taken place in the silver market and I think any such violation, of course, should be prose-cuted to the full extent of the law. I believe there has been repeated attempts to influence prices in the silver market. And there’s been fraudulent efforts to persuade and deviously control the price.”

O O O BART CHILTON / LINK

No matter what we do at work - if we have a job - our futures look bleak, and this fear of what lies ahead seems almost as bad as

whatever financial Armageddon finally oc-curs.

We’re busy at work just now, busy in a good way; project plans hatched years ago are coming to fruition, and we should be approaching 2012 with a sort of prepared determination, aware that long days of la-bour lie ahead, but with the promise of a rewarding outcome, one that would make all the work worthwhile.

SOURCE: REX

15.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 15

And yet, given the news pumped over the Channel, from whence ineffectual heads of government meeting follows unbelievable euro rescue plan on a near-hourly basis, it’s hard to shake the suspicion that all economic activity – not just what we’re doing in our own office – is pointless.

I shared this nagging worry with a friend: that I feel growing paralysis through an overwhelming sense of contingency, on the fact that my – our – future is dependent on the historical actions of banks over which, apparently, we had no control; on the current plans of – God help us – Nicolas Sarkozy; and on the outcome of a Greek referendum (cancelled at the time of writing – but who knows what the day will bring?).

She has small children, and agreed with me, and told me of a cartoon she’d watched with her girls. When Wile E Coyote ran off a cliff, but kept spin-ning his legs, unaware of the void into which he would shortly plummet – when she saw that, she said, she’d thought about all the people in all the offices, running fast to pay their bills, waiting to hear what’s going to happen with Greece.

“I don’t understand why our banks bought their debt,” I said. “You don’t need to understand gravity in order to fall off a cliff,” she replied.

Fear of what lies ahead seems almost as debilitating as whatever financial Armageddon finally occurs. Given the limited understanding we have of the implications of a more-likely-than-not Greek default – what it would mean for the companies we work for and the incomes we depend on – then behaviour which at other times would appear merely quaint takes on an era-defining edge.

Both the guitar-plucking youngsters outside St Paul’s, willing a better world into existence through the inhabitation of tents, and the absurd headless-chicken response of the Church of England clergy to their presence, exemplify this. The existential pointlessness I feel – that no matter what we do at work, our future is bleak – is, I guess, not that many degrees different to responding to an urge to gather outside a church and yell, impotently, at forces beyond my control. Too late, we are learning a harsh lesson on the interdependence of things. Lesson learnt: so what’s the point of doing anything? What, even, is the point of being proved correct, and not – pace late 20th-century Received Opinion – a pathetic Little Englander, with regard to the euro? We’re all going to hell in a handcart anyway.

O O O UK DAILY TELEGRAPH / LINK

When future financial historians look back at the early 21st century, they may wonder why anybody ever thought it was a good idea to repackage subprime securities into triple A

bonds. So, too, in relation to assumptions about the “risk-free” status of western sovereign debt.

After all, during most of the past few decades, it has been taken as a key axiom of investing that most western sovereign debt was in effect risk-free, and thus expected to trade at relatively undifferenti-ated tight spreads. Now, of course, that assumption is being exposed as a fallacy. Just look at those Greek haircuts, or the scale of future losses now being implied in the credit derivatives markets for Portugal, Ireland and Italy.

As the turmoil in the eurozone spreads, forcing a paradigm shift for investors, the intriguing question now is whether we are on the verge of a paradigm shift in the regulatory and central bank world, too. After all, it is not just investors who have tended to assume that mainstream sovereign bonds are risk-free; this assumption has also acted as a pillar of the entire regulatory structure, and many central bank operations.

“...“I don’t understand why our banks bought their debt,” I said. “You don’t need to understand gravity in order to fall off a cliff,”

16.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 16

When regulators drew up the Basel I capital adequacy framework in the 1980s, for example, they gave western sovereign bonds a “zero” risk weighting, in terms of how capital is calculated. This was subsequently modified in Basel II, to give banks some theoretical discretion to raise reserves against sovereign risk. In practice, this zero-risk weighting policy has prevailed. In some senses it has been actually reinforced in the past five years because regulators have demanded that banks raise their holdings of liquid, safe assets, following that subprime turmoil. Those “safe” assets have been – you guessed it – mostly government bonds.

But as Greek woes mount, there are now some hints that we may be on the edge of a paradigm shift. One straw in the wind can be seen in recent comments from Sharon Bowles, head of the monetary committee at the European parliament, who is now urging regulators to remove the risk-free sov-ereign tag, not just in relation to reserves (ie for any holdings of Greek bonds, say, or loans) but for counterparty risk in trading deals, too.

Over in Washington, a behind-the-scenes debate has started at the International Monetary Fund, too, about what risk-free means in regulatory systems. Last week, Hervé Hannoun, deputy director general of the Bank for International Settlements, gave a fascinating – and startling – speech which called for a shift “from denial to recognition of sovereign risk in bank regulation” to “help to restore confidence and to foster fiscal discipline”.* More specifically, Hannoun wants banks to incorporate realistic assessments of credit risk when they make reserves for sovereign debt and calculate capital adequacy; and not just in the eurozone (which is belatedly moving that way in relation to Greece) but in countries such as Japan or the US, too.

If these ideas gather pace, they could have big implications in the longer term. For one thing, more realistic assessments of sovereign risk would probably force the banks to hold more capital, and raise sovereign borrowing costs. They might also force the central banks to change how they conduct money market operations, and impose tougher haircuts not just for obviously impaired debt (such as Greece), but bonds carrying potential risk, too (how about Japan, with a debt to gross domestic product ratio 220 per cent?).

O O O GILLIAN TETT / LINK

Back in June I highlighted some troubling developments occurring that suggested the global economy and financial markets were at risk. Some of those developments proved to be early

warnings as to what lay ahead before the July-October swoon. Since the October bottom most equity markets have recovered and it appears an update is in order to see if the key markers that warned of

the global and financial market trouble ahead have improved. A quick chart review below will show a mixed bag of the good, the bad, and the ugly, which unfortunately provides a mixed pic-ture at this point.

The Good: Perhaps one of the most encourag-ing developments over the past few months is that the South Korean Kospi Index held its bull-ish 2008-present channel after a brief dip below and appears to continue to be in a bull market. This is encouraging in the sense that the Kospi provides a great read on global growth, and China in particular, given that most of their ex-

CLICK TO ENLARGE SOURCE: PFS

17.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 17

ports end up in China. While the Kospi has held its bullish trend channel, it remains below its key 200 day moving average (200d MA) and is thus not out of the woods. A failure to exceed its 200d MA followed by a subsequent break of its channel would pose an ominous sign for global economic growth.

The Bad: Since China is seen as the global eco-nomic growth juggernaut, it is disturbing to see the Shanghai Index of Chinese stocks stuck in a bear market that began in 2009 when their government began to raise interest rates and bank reserve requirements. That said, the

Shanghai has so far successfully retested its 2010 lows as well as held the 2005-2009 trend line. The Shanghai will need to be watched in the weeks ahead to see if its recent lows hold and potentially signal China’s bear market is over, which would imply that China’s economy may accelerate, and with it global growth. However, a break of the 2005-2009 trend line and 2010 lows would likewise send a very bearish message.

The Ugly:...?O O O CHRIS PUPLAVA / LINK

It wasn’t the most charming example of “Chinglish” I’ve seen. It didn’t hold a candle to delightfully mystifying phrases like “Far Out But Classic” or “Show Mercy to the Slender Grass.” But the words

I saw stenciled over and over again on concrete fences outside Shanghai, China, in the mid-1990s seemed to capture the Chinese spirit:

“Praise profit. Praise profit. Praise profit. Praise profit. Praise profit.”

The same nation that Mao Zedong had exhorted only two decades earlier to “Practice Marxism and not Revisionism” was being commanded into full-throated pursuit of capitalism.

China is the wonder of the age. If you were around in the 1960s, the China you knew was both tragedy and threat. Every few decades it seemed to devour itself. Millions died in Mao’s Great Leap Forward. Millions during his Cultural Revolution. Heavy-handed propaganda skewered capitalists, imperialists, and the always handy “running-dog lackeys.”

Then came one of the most astounding turnarounds in history. In the same way that communist lead-ers once ordered the proletariat to build a socialist workers’ paradise, the Communist Party ordered millions of Chinese to go out and make money. The Chinese people didn’t look back. China became the hottest economy on the planet. Its exports are ubiquitous. Its appetite for raw materials enormous. China finances a big chunk of the US national debt. Increasingly, Europe is looking to it for help with its debt. Chinese dealmakers can be found in remote parts of Africa, Manhattan, and the Amazon.

At home, the Chinese people are growing in material wealth, creature comforts, education, even physical stature thanks to higher protein consumption. China’s rise has been a material blessing to millions of its people. What China wants most is for nothing ever to change – for growth to continue and prosperity to increase. For despite its remarkable economic progress, China has 500 million citi-zens who still make less than $2 a day. If the Chinese economy ceases to grow, those 500 million will be stuck in poverty. A mild slowdown could return millions to poverty as well.

CLICK TO ENLARGE SOURCE: PFS

18.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 18

But as with Japan in the 1980s or the United States in the first decade of the 21st century, China is by no means guaranteed continued good times. Some elements of the Chinese boom are looking like a bubble. Vacant malls, excess factory capacity, and ghost cities are plentiful. Five of the 10 largest office buildings under construction globally are in China.

Everything China has done over the past six decades has been massive – a massive attempt to create a communist society and now a massive effort in pursuit of profit. This is not a nation reflecting the will of its people. It is a government command center telling its people what to do. Right now, that looks like a shiny, happy world of capitalism. Less than 50 years ago, it was a mad world of little red books, ruinous five-year plans, and socialist conformity.

If the current freedom to choose consumer goods becomes an expectation of free speech or self-government, the command center is in trouble. That is why China’s rulers imprison dissidents, moni-tor and regulate Internet usage, and control what is said on TV and in the press. While the Communist Party is more lenient than it was during Mao’s day, it is still careful not to let anything challenge its authority.

O O O CS MONITOR / LINK

The European Central Bank often discusses the possibility ending the purchase of Italian gov-ernment bonds if it concludes Italy is not adopting promised reforms, ECB Governing Council

Member Yves Mersch said.

“If we observe that our interventions are undermined by a lack of efforts by national governments then we have to pose ourselves the problem of the incentive effect,” Mersch said according to extracts

of an interview with Italian daily La Stampa to be published on Sunday.

Asked if this meant the ECB would stop buying Italy’s bonds if it did not adopt reforms it has promised to the European Union, Mersch, who heads Luxembourg’s central bank, replied:

“If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist, it is free to change that decision at any moment. We discuss this all the time.”

Since the ECB resumed its bond buying programme (SMP) around three months ago it has purchased some 100 billion euros of government bonds, a majority of which are thought to be Italian BTPs.

Mersch said the ECB did not want to become a lender of last resort to help the euro zone solve its debt crisis and said it was concerned that its job could be made more difficult by governments that “don’t meet their responsibilities.”

“Our job is not to remedy the errors of politicians,” he said.O O O REUTERS / LINK

Many Texas Credit unions had a steady stream of new accounts open on Saturday as “Bank Transfer Day” drew attention online and on the streets across the state. While statistics for

Bank Transfer Day are not yet available credit unions reported a surge in traffic. Statewide, credit unions reported 47,000 Texans had joined, and $326 million was moved by November 2 - four times the usual growth rate, reports the Texas Credit Union League. Nationwide 650,000 people opened accounts in the same period.

“... “If the ECB board reaches the conclusion that the conditions that led it to take a decision no longer exist, it is free to change that de-cision at any moment. We discuss this all the time.”

19.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 19

“Bank Transfer Day,” is an online phenomenon launched by a single unhappy Bank of America cus-tomer, but since embraced by the Occupy movement and other grass roots efforts across the country.

Carol Cain with Velocity Credit Union in Austin Texas reported that every branch was “humming” and every new account representative was busy from open to close. Amber Magee with First Community Credit Union in Houston, which has seen a 43% increase in new accounts, reported members actively posting updates on Facebook, encouraging friends to make the switch.

Across the state credit unions offered incentives to encourage people who might be contemplating making the change. From free lunch to a little extra in their new checking accounts, the build up to bank transfer day has energized credit unions throughout the state - and their members. Many indi-vidual members on the Bank Transfer Day Facebook page endorsed their own personal credit union and others noted they “attended” the online event by joining a credit union of their choosing.

These newest members of credit unions are likely to have switched for good . According to a Harris Interactive poll released before Bank Transfer Day, credit unions, which are not-for-profit and owned by members, had the best scores in customer satisfaction - more than 70 percent of credit union users were highly satisfied. By comparison, when asked how valued they felt by their financial institution, 42 percent of respondents rated Bank of America as “fair” or “poor,” compared with 30 percent for both JPMorgan and Wells Fargo.

O O O MARKETWATCH / LINK

Germany on Saturday rejected media reports that Bundesbank reserves would be used to fund the euro zone’s rescue facility after German newspapers said Group of 20 leaders had

discussed the idea of tapping central banks.

The Frankfurter Allgemeine Sonntagszeitung (FAS) reported that Bundesbank reserves -- including foreign currency and gold -- would be used to increase Germany’s contribution to the crisis fund, the European Financial Stability Facility (EFSF) by more than 15 billion euros ($20 billion).

The European Central Bank (ECB) would own the reserves, according to the paper, citing sources at the G20 meeting held in Cannes this week.

The Welt am Sonntag newspaper, citing similar plans, said 15 billion eu-ros would come from special drawing rights (SDR) that the Bundesbank holds.

“Germany’s gold and foreign exchange reserves, which the Bundesbank administers, were not at any point up for discussion at the G20 summit in

Cannes,” government spokesman Steffen Seibert said.

G20 leaders in Cannes discussed the idea that the European System of Central Banks could pawn their total foreign exchange reserves of 50-60 billion euros to a trust of the European crisis fund in the form of special drawing rights from the International Monetary Fund (IMF), the newspapers said.

“We know this plan and we reject it,” a Bundesbank spokesman said.

Seibert said several partners had raised the question in Cannes whether SDRs could be used to strengthen the EFSF but Germany had rejected this plan and discussions at Monday’s Eurogroup on Monday would not discuss this topic.

The newspapers had said the issue was taken off the agenda at the G20 following Bundesbank opposi-

“... “Germany’s gold and foreign exchange reserves, which the Bundesbank administers, were not at any point up for discussion at the G20 summit in Cannes,”

20.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 20

tion but that it would be debated on Monday at a Eurogroup meeting of euro zone finance ministers.O O O REUTERS / LINK

Ii is another world beyond the roadblocks stopping unauthorised traffic from entering the 20km (12.5-mile) exclusion zone around the Fukushima Dai-ichi nuclear power plant. The few people

inside are dressed in ghostly white protective suits. Town after town was abandoned after March 11th, and spiders have strung webs across the doorways. An old lady’s russet wig lies in the road, lost perhaps as she took flight after the earthquake, tsunami and nuclear disaster. Outside the “Night Friend” nightclub in Tomioka, 9km from the nuclear plant, this correspondent was confronted by an ostrich with a feral glint.

Journalists are supposedly barred from the exclusion zone, though sympathetic evacuees, many furi-ous with the authorities about their state of limbo, help provide access. Some of the 89,000 displaced

residents have been given one-day permits to go home and each collect a box of valuables. To an outsider, the size and recent prosperity of the abandoned communities is striking. As well as the rice paddies, now overrun with goldenrod, are large businesses and well-built schools for hundreds of children.

Patrol cars stop passing vehicles. The police are particularly vigilant in preventing unauthorised people getting near the stricken plant, owned

by Tokyo Electric Power (Tepco), Japan’s biggest utility. The air of secrecy is compounded when you try to approach workers involved in the nightmarish task of stabilising the nuclear plant. Many are not salaried Tepco staff but low-paid contract workers lodging in Iwaki, just south of the exclusion zone.

It is easy to spot them, in their nylon tracksuits. They seem to have been recruited from the poorest corners of society. One man calls home from a telephone box because he cannot afford a mobile phone. Another has a single front tooth. Both are reluctant to talk to journalists, because a condi-tion of their employment is silence. But they do share their concerns about safety. One, who earns ¥15,000 ($190) a day clearing radioactive rubble at the plant, says he was given just half-an-hour of safety training. Almost everything he has learned about radiation risks, he says, came from the televi-sion.

A strict hierarchy exists among the workers at Fukushima. Tepco’s own salaried staff are in a minor-ity. The firm employs a top tier of subcontractors, from the builders of reactors such as Toshiba and Hitachi. They, in turn, subcontract work to builders and engineers, who subcontract further, down to small gangs of labourers recruited by a single boss. Some lower-ranking companies may have ties to the yakuza, Japan’s mafia, and among the lowest-paid recruits are members of the burakumin minor-ity, who have long been discriminated against.

O O O THE ECONOMIST / LINK

Initial public offerings are often watershed events for a company’s founders, finally the big pay-day after many years of hard work.

During the last technology boom, which peaked in 2000, entrepreneurs and venture capitalists sought out IPOs as their key liquidity event. At the time, top-tier venture funder John Doerr acknowledged the power of the public markets, saying the Internet and its dot-coms were “the greatest legal cre-ation of wealth in history.”

“... The air of secrecy is compounded when you try to approach workers involved in the nightmarish task of stabilising the nuclear plant.

21.THINGS THAT MAKE YOU GO Hmmm...

07 November 2011 21

Since then, secondary markets and further rounds of capital investment have emerged to allow found-ers and early investors in various privately held businesses to flip their shares for cash. With regard to Groupon, set to go public Friday, the company’s backers and executives already have become rich, and in some cases very rich.

Anyone interested in Groupon’s debut who might be looking at buying shares might want to review how much money the co-founders and early investors have pulled out, long before the IPO.

How much? Nearly $1 billion, and it’s hurt the company’s balance sheet.

You may have heard before that Groupon’s co-founders and early in-vestors have cashed out some of their private shares. As investors con-tinue to scrutinize the nascent firm’s financials, it is worth noting that insiders and early investors have cashed out about $943 million out of

a $1.12 billion total raised in venture funding.

“It is highly unusual for founders and insiders to be allowed to cash out 84% of the entire company’s venture-capital round,” said Sam Hamadeh, chief executive of PrivCo.com LLC, which analyzes private companies.

There are two principles that are usually followed with respect to VC funding, according to Hamadeh: “Nobody cashes out until everybody cashes out (i.e., the company gets acquired or goes public); and where founders and early employees have been waiting over a decade for liquidity, VCs will permit a small secondary sale.”

A secondary sale, he noted, is when some of the venture funding goes to founders and employees rather than the company for working capital.

In January, Groupon raised $946 million from a group that included some new venture partners, including two well-known Silicon Valley firms, Andreessen Horowitz and Kleiner Perkins Caufield & Byers. In its S-1, Groupon said that of that round — one of the largest ever raised by a start-up — the company used “$132.4 million of these proceeds for working capital and general corporate purposes.”

The remaining $809.8 million from that round went straight into the pockets of the co-founders, early investors, two directors who are no longer on the company’s board and its former chief technology officer.

O O O MARKETWATCH / LINK

“... “It is highly unusual for founders and insiders to be allowed to cash out 84% of the entire company’s venture-capital round,”

22.CHARTS THAT MAKE YOU GO Hmmm...

07 November 2011 22

The NY Times has published a great set of graphs that outline

the various ways in which the multiple strands of Europe’s debt crisis affect each other.

A very useful reference...

That massive inversion in Portuguese bonds with the

10-Year bond yield at 11.88% and the 2-year bond yield at 20.14% is a sign Portugal may blow sky high any time. Ireland recovered from a similar setup, Portugal failed to do so.

SOURCE: MISH

CLICK TO ENLARGE SOURCE: NYTIMES

23.CHARTS THAT MAKE YOU GO Hmmm...

07 November 2011 23

This past week, bloomberg re-ported on a study that identified

thirty top companies, including General Electric, that profited without paying tax-es between 2008 and 2010.

The Bloomberg piece reminded me of a memorable quote I saw earlier this year in a CNN article on GE’s approach to tax policy: The Truth About GE’s Tax Bill.

It’s been 25 years since the last big tax re-form legislation, which cut the corporate rate to 34% from 46% and eliminated a lot of deductions and tax breaks. But a quarter-century of pushing by businesses -- of which GE has been among the most aggressive -- has left us with both the lower tax rate (now 35%) and lots more deductions and shelters and other tax-

reducing tactics than the 1986 legislation envisioned. GE’s current idea of “reform” as expounded by John Samuels, the head of its tax department, is to cut the rate, but to allow some of GE’s major tax-minimizing maneuvers to remain in place.

Thus we have two trends since 1986: Ballooning debt as a percentage of GDP and ballooning corpo-rate after-tax profits (first two charts below). The charts for personal consumption debt, household debt, all look similar too. The conclusion: Americans, both corporations and private individuals, have used outsized-leverage (debt) to grow profits for 30 years (a great time to be a shareholder or a homeowner!).

O O O JOHN GILLULY / LINK

Doug Short takes a detailed look at the background to and effects

of Operation Twist:

It’s too soon, of course, to tell how suc-cessful the “Twist” strategy will be for lowering interest rates; the program is barely off the ground. According to the Freddie Mac survey, the 30-year mort-gage rate has fluctuated between 3.94% and 4.18% since the first week in Sep-tember, and the most recent average (as of November 3rd) is 4.00%. But we will watch Treasury yields and mortgage rates in the weeks ahead to see if Opera-tion Twist lives up to the Fed’s expecta-tions.

O O O DSHORT / LINKCLICK TO ENLARGE SOURCE: ADVISOR PERSPECTIVES

CLICK TO ENLARGE SOURCE: JOHN GILLULY

24.CHARTS THAT MAKE YOU GO Hmmm...

07 November 2011 24

Despite the end of month 2 day slide in stocks, October 2011 ranks as one of the best Octo-bers ever in stock market history.

Here are some interesting facts regarding October’s returns:

• The S&P 500 returned 10.92% on a total return basis during this past month, marking the best Oc-tober since 1982.

• According to Doug Kass, the ten largest monthly gains have all occurred during secular bear markets.

• Merrill Lynch noted it was the third best October and the 23rd highest monthly return for the S&P since 1928.

• According to MarketBeat, October did not see back-to-back daily declines at all. The last time a month went without 2 consecutive days of declines was 5 years ago.

• On a seasonal basis, September and October are historically two of the three worst months to own stocks.

• November and December, on the other hand, rank as the fourth and second best months to own stocks, respectively.

Looking at the historical statistics, markets are likely to continue with an upward bias throughout November and December. Hedge funds are somewhat under-invested and playing performance catch up (but not Mutual funds — who are fairly loaded and dealing with equity outflows).

O O O BARRY RITHOLTZ / LINK

CLICK TO ENLARGE SOURCE: THE BIG PICTURE

25.

07 November 2011 25

WORDS THAT MAKE YOU GO Hmmm...

In an extraordinary interview, CFTC Commissioner Bart Chilton speaks out about an ongoing manipulation in

the silver markets - a manipulation thus far not recognized by the CFTC.

Explosive stuff...

And... whilst we’re on the subject of precious metals manipulation, here’s James Turk discussing the London

Gold Pool and manipulation in the gold markets...

Finally today, we hear from Niall Ferguson, who warns of the dangers of playing russian rou-lette with both debt and deficits

Ferguson says he is not in favor of radically chopping gov-ernment spending in the next year or two, clobbering the economy in the process. Rather, he says, the government should develop and implement a sound 10-year plan, one that phases in the cuts and eventually gets on solid footing.

And what happens if we don’t?

If we don’t, Ferguson says, we’ll eventually pass the point of no return. And then we’ll be forced to do what Greece has done: Make such drastic cuts that we get into a “death spiral” in which each new cut shrinks the economy and in-creases the deficit and debt — the very problems that such cuts are supposed to address.

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and finally…

07 November 2011 26

Yoram Bauman, Ph.D., - the world’s only stand-up economist - translates Mankiw’s Ten Principles Of Economics for the uninitiated...

Enjoy.

(Thanks AZ)

Hmmm…

CLICK TO WATCH

© GRANT WILLIAMS 2011