Hmmm…

THINGS THAT MAKE YOU GO

A walk around the fringes of finance

“The economy depends about as much on econo-

mists as the weather does on weather forecasters”
– PAUL KAUFFMANN

“ It’s taken almost two centuries for bankers to pull the

wool over Americans’ eyes, but today you and I are work-
ing for intrinsically worthless paper that can be created
by bureaucrats — created without sweat, without creative
ability, without work, without anything but a decision by
the Federal Reserve. This is the disease at the base of to-
day’s monetary system. And like a cancer, it will spread
until the system ultimately falls apart. This is the tragedy
of the great lie. The great lie is that fiat paper represents a
store of value, money of lasting wealth.”
– Richard Russell

“ Every crowd has a silver lining”

– P.T. Barnum

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 THINGS THAT MAKE YOU GO Hmmm... 2.

“This Time Next Year We’ll Be Millionaires”

This past weekend, England lost one of its greatest comedy writers when John Sul-
livan sadly passed away aged 64.
For those Englishmen amongst you, the name John Sullivan is synonymous with such classic sitcoms
as Citizen Smith (the adventures of Wolfie Smith, the would-be Marxist revolutionary leader of the
Tooting Popular Liberation Front) and Just Good Friends which followed a commitment-averse ladies
man, Vince Pinner and his jilted fiancee Penelope Warrender. But the jewel in Sullivan’s crown was
the story of a south-London market trader and his slightly gormless brother.
Only Fools and Horses is one of the most successful British television series of all time – the Christmas
Special in 1996 was watched by 24 million viewers, making it the highest-ever audience for a sitcom
episode. To put that into perspective for American readers, that would translate to an audience of
109 million viewers versus the 105.94 million who, according to Nielsen, tuned in to watch the finale
of M*A*S*H on February 28, 1983.
OFAH, which followed the misadventures of Del Boy Trotter and his younger brother, Rodney, captured
the era of Thatcherism in Britain and dealt with a wanna-be magnate and his perpetual attempts to
‘make it big’. Issues such as buying property and owning one’s own business were developed at a time
when such ideas were far from commonplace in the UK and the failures of
these schemes provided many comic set-pieces which are now enshrined
in popular British culture – none more so than the moment
when Del Boy, in an attempt to impress a couple of well-to-do
ladies in a wine bar, managed to do the complete opposite.
As trivial as it may seem, this scene was, quite remarkably,
voted the seventh greatest television moment of all time in the
Click The Van To Watch UK – ahead of the Kennedy Assassination, the Queen’s coronation
and Churchill’s funeral. Perhaps that says a little TOO much about us Brits…..
Del Boy’s Finest Hour
Alongside a series of misused pretentious French phrases aimed at creating
an air of sophistication, one of Del Boy’s most oft-used and resonant catchphrases – the one that
tapped into the ethos of Britain in the 1980s – was:

“This time next year, we’ll be millionaires”

A million pounds was seen as an amount of money that would set anyone lucky enough to earn it up
for life - but what exactly IS a pound?

Well, the ‘Pound Sterling’ is so-called because it was just that – a pound of silver
(comprising 240 silver pennies), a unit of account that dates back to Anglo-Saxon times. The earliest
pennies were fashioned from ‘fine’ or ‘pure’ silver (at least in so far as it was the finest silver that was
available) and weighed 22.5 grains. This standard stood firm until 1158, when King Henry II became
something of a trailblazer.
Henry Plantagenet, Count of Anjou, Count of Maine, Duke of Normandy, Duke of Aquitaine, Duke of
Gascony, Count of Nantes and Lord of Ireland was the great-grandson of William the Conqueror and
the first of the House of Plantagenet to rule England. He was also the first monarch to use the title

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 THINGS THAT MAKE YOU GO Hmmm... 3.

“King of England” (as opposed to “King of the English”) – and he also had another, slightly less wel-
come title - the first known currency debaser.
In 1158, Henry introduced the Tealby Penny which, instead of .9999 silver, was minted from .925 silver
- and so began a long, slow and altogether insidious debasement process.
This .925 silver became known as ‘sterling silver’ and it remained as the backbone of English coinage
until, during the reign of Henry IV, the debasement continued as the weight of a penny was reduced
first to 15 grains (0.97g) and then to 12 grains (0.78g).
Henry VIII and Edward VI took the art of debasement to new levels by introducing copper to the mix.
In 1544, a new penny was introduced that consisted of only .333 silver with the balance being made
up of copper before, in 1552, a return to sterling silver was effected – But with a catch. The catch was
that the new sterling silver coins were reduced in weight; first to 8 grains (0.52g) and later (in 1601 to
be precise) to 7 23/31 grains (0.50g).
Finally, in 1663, a new gold coinage was introduced based on the 22 carat fine guinea. Fixed in weight
at 44½ to the troy pound from 1670, this coin’s value varied considerably until 1717, when it was fixed
at 21 shillings. However, despite the efforts of Sir Isaac Newton, Master of the Mint, to reduce the
guinea’s value, this valuation overvalued gold relative to silver when compared to the valuations in
other European countries. British merchants sent silver abroad in payments whilst goods for export
were paid for with gold. As a consequence, silver flowed out of the country and gold flowed in, lead-
ing to a situation where Great Britain was effectively on a gold standard. In addition, a chronic short-
age of silver coins developed.

A shortage of silver. What

would that look like, I wonder?
Well, today in Asia, with Europe on holi-
day, we got perhaps a sneak preview of
what that could look like as silver pow-
ered higher looking for all the world like
it would take out the ‘magical’ $50 level.
A couple of early sell-offs were obliter-
ated as the price soared through $47.50,
then $48, on to $48.50, $49, $49.50 and
up to the high print of $49.79 before fran-
tic phone calls to sleeping European and
American investors finally sourced the
selling that would send the price back
SOURCE: BLOOMBERG/ TTMYGH down to $48.50.
In all, silver rocketed 4.25% higher in 45 minutes
It was plain to see the stops being triggered as the price rose in parabolic fashion and, despite the fact
that this meteoric rise occurred in thin volume, it gave us a clue as to the direction silver wants to go
and the manner in which it wants to get there.
As Dan Norcini has observed (see story in this edition of TTMYGH), there has been some extremely
interesting action in the open interest numbers in the CFTC COT reports during this latest run higher in

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 THINGS THAT MAKE YOU GO Hmmm... 4.

silver. It looks for all the world as though meaningful short positions are being stopped out or forced
to cover into a strongly rising market. As Dan observes:
If I had nothing to go on but price action, I would say that a large short or shorts are in serious
trouble and are attempting to get out but are not being allowed to by some very big and com-
mitted buyers who are going after them. I have seen enough cornered shorts being hounded by
wolves who smell blood in the water during my trading career to be fairly confident that this is
behind some of the price action in silver.
However, there are increasing open interest positions at various points in the move that suggest an-
other possibility:
...based strictly on the changes in open interest it is unclear if this is actually occurring. The sharp
push from $34 to $42 was accompanied by a rather sizeable increase in open interest indicating
that it was not primarily driven by short covering. If anything, fresh shorts were piling in, each
of them attempting to pick a top or with other purposes in mind and kept on coming in as silver
moved an incredible $8 higher in less than a month’s time.
It would appear that there have been multiple attempts to ‘pin the top’ as well as potentially several
points where trapped shorts looked to double down to try and mitigate any damage being done to
their positions.

We have discussed at length in the various iterations of this publication going all
the way back to my BTIG days, the various ‘conspiracy theories’ surrounding alleged shorts in the sil-
ver futures market which are allegedly held by, amongst others, JP Morgan and HSBC. Initially, these
...JPMorgan’s motivation theories were dismissed as the ramblings of the insane and, speaking as one who
was called insane many times, even I have to admit that the stories were some-
for suddenly and greatly what far-fetched.
increasing its silver short
Far-fetched? Certainly. Impossible? Hardly. Implausible? Less so now.
position is less clear and
more troubling. There have been all sorts of assertions about the fact that the short positions pur-
ported to be in place on the COMEX couldn’t, in fact, exist. These assertions, like
the accusations which they attempt to answer, are all offered without proof - the general defence
being along the lines of “it’s too preposterous to be true” which, to me at least, is an extremely weak
offering.
As silver has exploded higher, various estimates have been made at the potential losses being accu-
mulated by those parties short of silver futures. The sums are astronomical.
If we take JP Morgans alleged short position as an example, and we assume there is some truth to the
assertions about the size of that position, a move to $50 could potentially cost JP Morgan upwards of
$4 billion - or, as it’s still known, ‘real money’.
As recently as March 5th this year, with silver trading at $35, Ted Butler (the doyen of silver conspiracy
theorists), noticed some strange action in both the COT and BIS Bank Participation Reports. In an es-
say entitled ‘Silver Shocker’ he wrote:
The big surprise was in the silver COT, where the big 4 increased their net short position by 3000
contracts on the previously mentioned reduction of 1300 contracts in the total commercial net
short position. This increase in the big four’s short position broke the pattern of a reduction in the
concentrated short silver position that had been in force for months. The increase in the concen-

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 THINGS THAT MAKE YOU GO Hmmm... 5.

trated short silver position was so unexpected by me that I thought, at first, it must have been a
mistake....
If the silver COT was a surprise, then the Bank Participation Report was a shocker. There was a
net increase in the US bank category of 6000 contracts to 25,000 held net short in silver. JPMor-
gan’s net silver short position, which had decreased by 11,000 contracts over the preceding three
months to 19,000, had suddenly ballooned to 25,000 contracts (125 million ounces).
Ted’s attempts to make sense of the big increase in short positions led him to make some assumptions
about the motivation behind JP Morgan’s increased short position:
JPMorgan’s motivation for suddenly and greatly increasing its silver short position is less clear and
more troubling. My own guess is that the JPMorgan silver trader thought he had no choice but to
sell many more contracts short in order to control the price and protect their existing short posi-
tion. That’s because there was no one else left to sell. If JPMorgan didn’t sell, no one else would
have (at prevailing prices). That’s the problem and it goes to the heart of the crime. The raptors
didn’t want to sell, nor did the 5 thru 8 large traders. Ditto for basically all the other silver trad-
ers. That left JPMorgan as the sole silver seller, as the COT and Bank Participation Reports clearly
document...
What Ted called the ‘key point’ in this essay turned out to be somewhat prescient:
...what would have happened if JPMorgan hadn’t sold short the additional 6,000 silver contracts
(30 million oz) when they did? Asked differently, in the current market conditions, what price would
have been required to induce other market participants to sell the
...“I believe there have been repeated 6,000 contracts if JPMorgan hadn’t sold? My guess is that would have
attempts to influence prices in the taken a price over $40 or $50 to attract that much legitimate selling.
silver markets... there have been In the few, short weeks since Butler wrote his essay, silver has spiked
fraudulent efforts to persuade and from $35 to today’s high print of $49.79 and has left even the most
deviously control that price” experienced of market-watchers scratching their heads in disbelief.
Every day I have been asked what is going on in silver by people who
are becoming more drawn to the possibility that there may, just MAY,
be some truth to all the conspiracy talk.
Back in October of 2010, with silver hitting the heady level of $24.95, CFTC Commissioner Bart Chilton
had the following to say (on the record) about alleged manipulation of the silver price:
“I believe there have been repeated attempts to influence prices in the silver markets... there have
been fraudulent efforts to persuade and deviously control that price,”
Commenting on Chilton’s comments in a Bloomberg article, Mark O’Byrne of GoldCore Ltd., a pre-
cious metals brokerage in Dublin had this to say about Chilton’s comments:
“If the CFTC prosecutes those who may have manipulated gold and silver markets, as Chilton urged
today, and violated commodities laws, then it could lead to further volatility and higher prices.”
Further volatility? Check. Higher prices? Check.

The CFTC investigation into silver manipulation continues behind closed

doors. The deadline for position limits in, amongst other commodities, silver, gets postponed seem-
ingly indefinitely, margins get hiked and hiked again and the vehicles that give guaranteed access to
physical silver such as Eric Sprott’s PSLV, trade at hefty premiums to the underlying spot price.

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 THINGS THAT MAKE YOU GO Hmmm... 6.

What’s missing here?

Well, it seems to me that the only missing ingredient is a nice simple announcement from those par-
ties holding the alleged shorts that details exactly how their shorts on the COMEX are, in fact, bona
fide hedges and how the conspiracy theories are nonsense. That in itself should ease the pain at a
stroke and send the tin-foil hat brigade scurrying for their spam and shotgun cartridge-laden bunkers
and bring the silver price back down to fair value.
Of course, if there IS some truth to the rumours, maybe the government can step in and save the day
by delivering some of their own silver into the shorts.

SOURCE: CPM GROUP/SILVER WHEATON

Or maybe not.
This time next year, as Del Boy promised, maybe we WILL be millionaires (after all, Zimbabwe has
plenty of them), but, if we use the high print of silver today, a single ‘pound sterling’ will cost us
£482.98.
Now THAT’S what I call inflation.

Back-to-back editions of Things That Make You Go Hmmm..... will give you with an awful lot to get
through this week so I’ll leave you to it for a few days. In the meantime, I offer up articles on Chinese
inflation worries, Michigan mortgage fraud, a smackdown between Larry Summers & Gordon Brown,
an IMF bombshell and some thoughts on the science of economics, as well as plenty on gold & silver.
Throw in a couple of charts and three fascinating interviews - none of which involve Glen Beck - and
you have a little of everything to keep you busy this week.

Hi-Yo Silver. Away!

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 THINGS THAT MAKE YOU GO Hmmm... 7.

Contents 25 April 2011

China Strikers Win Concessions, As Ugly Protests Underline Inflation Fears

Can $11K Buy The Support Of A Former Michigan Lt. Governor’s Daughter?
Richard Russell - The Great Gold Tsunami Lies Ahead
A Brief Consideration Of Silver’s Open Interest
Gordon Brown Vs. Larry Summers: Battle of Global Economic Titans
Economics Is Far Too Important To Be Left In The Care Of Academics
Into The Economic Abyss
The Bipartisan March To Fiscal Madness
Imf Bombshell: Age Of America Nears End
UK Nears Swiss Tax Deal
Is Buffett’s Teflon Finally Wearing Off?
Charts That Make You Go Hmmm.....
Words That Make You Go Hmmm.....
And Finally.....

25 April 2011 7
 THINGS THAT MAKE YOU GO Hmmm... 8.

Striking Chinese truck drivers have won concessions in their battle against ris-
ing costs that threatened to disrupt Shanghai, the world’s biggest port.
The regional Government has intervened to reduce some of the increase in fees that triggered strike
action in an attempt to take the heat out of an issue that has demonstrated China may be encounter-
ing growing social unrest as it wrestles with an inflationary surge.
Drivers were protesting against the increase in port service charges linked to dearer fuel. There were
ugly scenes when some striking drivers threw stones at lorries driven by non-strikers.
The Shanghai Municipal Transport and Port Authority has also agreed to cancel a fuel surcharge and
lower others in the container and road transport business.
Government officials are due to meet truck driver representatives on Monday to try to end the strike.
Some drivers said they would continue to strike unless they were offered a better deal and there were
reports that text messages threatening violence against non-strikers are still circulating.
No mention was made about the strikes in official announcements about the fee concession but the
decision to defuse the situation reflects concern about the spread of industrial action as the increase
in inflation starts to run through the economy.
A 12pc annual increase in the cost of food and an inflation rate now running at 5.4pc has led the Bei-
jing administration to raise interest rates and pressure companies into delaying price rises.
Prime minister Wen Jiabao is worried that the inflation “tiger” could lead to
...Prime minister Wen Jiabao social instability. The authorities are attempting to counter the growing volume
is worried that the inflation of online traffic calling for a “Jasmine Revolution” and dozens of dissidents have
“tiger” could lead to social been detained.
instability. Foreign buyers are feeling the knock-on effects as Chinese manufacturers blame
rising labour and commodity costs for sizable increases in the cost of a wide
range of products. Visitors to Chinese trade fairs say they are being faced with either reducing orders
or trying to pass on the higher costs to their western customers.
O O O UK DAILY TELEGRAPH / LINK

This freshman member of the Michigan House of Representatives received

nearly $11,000 from the real estate and banking lobby during her campaign last year. Now she has
introduced legislation that appears to have been written by the banking lobby. This legislation would
make it easier for lenders to take possession of a home even if the lender lacks legal authority to do
so and by eliminating the 6-12 month post-foreclosure redemption period.
But before I get into that, here’s a Reader’s Digest version of how foreclosures in Michigan work.
Unlike most states, Michigan has a 6-12 month post-foreclosure redemption period. A homeowner
gets a 6 months redemption period if they own less than 3 acres and a twelve month redemption
period if they own more than 3 acres and if they owe less than 10% of the value of the home. This
redemption period was included in the law because Michigan is what is known as a non-judicial fore-
closure state which means homeowners are denied their day in court unless they decide to shell out
large amounts of money to sue their lender over issues regarding their foreclosure. Michigan does
their foreclosures by a method referred to as “Foreclosure By Advertisement”. This means the the
mortgage servicer (as a representative of the holder of the mortgage) or the note holder must serve

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 THINGS THAT MAKE YOU GO Hmmm... 9.

the homeowner by tacking the notice on the door or by mail notifying them of the foreclosure sale,
the law firm handling the foreclosure is then responsible for advertising the sale in a local publication
for 4 consecutive weeks prior to the sale date.
In an attempt to allow families a fighting chance to keep their homes during these uncertain economic
times, the Michigan House of Representatives in 2009 voted to modify the state statutes that govern
how foreclosures in Michigan for 24 month. It was erroneously assumed the the financial crisis would
be over in 24 months.
In July of 2009, revisions were made to MCL 600.3204 and MCL 600.3205 which are the statutes
that regulate foreclosure procedures in Michigan. These revisions require attorneys of the mortgage
servicer and/or lender to notify home owners they have the right to a judicial foreclosure if they go
to homeowner counseling. It also allowed the homeowner a 90 postponement of the foreclosure if
they notified the lender’s attorney they wanted a conference with the lender to discuss foreclosure
alternatives.
O O O MFI MIAMI / LINK

The desperate battle to keep gold below 1500 continues. I watched the erratic ac-
tion of gold near yesterday’s close. I’m fascinated to see whether June gold can close above 1500 or
whether the anti-gold contingent can manage to knock gold down (again) below 1500.

...The battle about gold closing The action is now so blatant that it literally screams of manipulation. At
its high yesterday, June gold sold at 1506.50. At yesterday’s close, June
above $1500 is that once above gold was trading at 1498.10. It’s almost embarrassing to watch the ac-
$1500, technically gold will be tion. What we’re seeing is the anti-gold crowd and the manipulators vs.
on its way to $2,000. And from the great primary trend of gold.”
there $5,000 will be the target “I’ve tried to emphasize this, but the key here is PURCHASING POWER.
When the dollar price of a loaf of bread rises from $1.90 to $2.10 that
means something to the average American. But when the Dollar Index drops from 75 to 73.97 the
average American doesn’t understand it and isn’t the least bit interested.
Why the battle to keep gold below 1500? Markets tend to stop at big even numbers. Many of us old
timers remember the battle of “Dow one thousand.” We remember how the Dow fought month after
month to close decisively above 1,000. Then, once above 1,000 the Dow was on its way to 2,000,
3,000, 4,000 and finally 5,000. From there the Dow battled to move above 5,000 -- on its way to
10,000.
The battle about gold closing above 1500 is that once above 1500, technically gold will be on its way
to 2,000. And from there 5,000 will be the target. So 1500 is a psychological barrier that, from the
bull’s standpoint, must be bettered. But from the anti-gold crowd’s standpoint, gold must be held (on
a closing basis) below 1500.
The answer: As I see it, the primary trend of gold remains bullish. In due time, gold will gather the
strength to close above 1500. The gold-bears will be defeated. It’s only a matter of time...
We’re moving nearer and nearer to the edge of the hurricane. I can feel it in my bones. Every news-
paper now carries an ad for gold.
Is there a gold bubble? Are you kidding me? Here’s an ad that somebody paid for suggesting that
people should turn in their gold (!!) for Federal Reserve Notes. They’re not telling you to buy gold dur-

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 THINGS THAT MAKE YOU GO Hmmm... 10.

ing one of the greatest bull markets in history -- hardly, they’re asking you to throw parties in which
the object is to get ignorant people to SELL their gold.
I can feel them caressing my face -- the early breezes. They are blowing gently and hinting of the
forthcoming gold hurricane that will sweep across the US and the planet with all the force and power
that was seen when gold was first discovered at Sutter’s Creek during the California gold rush of 1849.
The gold rush of the 2000s is in the wings. The old phrase is ringing in my ears again (I haven’t heard
it since the late ‘70s), “There’s no fever like gold fever.”
O O O RICHARD RUSSELL / LINK

At some point the top pickers are going to get it right but as long as they keep coming
in and the determined buyers keep showing up, we should see more bouts of this sort of change in
open interest - namely - it increases as these fresh shorts take on the new buyers only to see the same
shorts run for cover and close out their short positions with large losses as the market buying pressure
forces them out. The process can then repeat with open interest rising and then subsequently falling
and then repeating again.
If we do indeed get a serious short squeeze, and
I mean one in which we see a total capitulation
of the large short that has ruled this market for
many years previously, we are not going to see
any increases in open interest but rather a sharp
fall in the total OI as they finally and completely
give up. Whether that happens is anyone’s guess.
I would have thought it would already have com-
menced seeing the enormority of the paper loss-
es that are accruing to those on the short side of
this market. The margin calls and the need to con-
stantly raise more cash to maintain these deeply
underwater short positions must boggle the mind
at this point. Just the run from $34 to $42 was a
loss of $40,000 per single contract! Imagine hold-
ing hundreds if not thousands of these!
Having been on the wrong side of a market at
CLICK TO ENLARGE SOURCE: DAN NORCINI
various times in my career I can tell you from first-
hand experience, the emotions that one deals with run the gamut from fear to despair to panic and
total desperation. It is a horrid thing to live through mainly because the losses mount at such a rapid
clip. What makes matters worse is that you keep waiting for a setback in price, any setback, to try to
buy back those shorts and it never seems to come. Prices just keep going up and up and up and up.
You learn very quickly the terrible, awful power of leverage gone awry.
We will just have to wait and see how this all ends but for now, with so many apparently eager top
pickers coming in, it is difficult to say that this thing has run out of upside just yet. They are providing
the firepower to take it higher as they are forced into buying it all back at a higher level and taking
their losses with them. Perhaps when we see an end to efforts to pick a top, this thing will actually top
out. Either way, it has been one helluva ride already. The thing is that if you look at silver in inflation
adjusted terms, the gray metal is still cheap by comparison to where it was in late 1979, early 1980.
O O O DAN NORCINI / LINK

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 THINGS THAT MAKE YOU GO Hmmm... 11.

Welcome to the new and much improved Gordon Brown. He has undergone a trans-
formation few would have thought possible only a few months ago. When called to deliver his key-
note address at the 2011 Bretton Woods conference in early April, the former British prime minister
did not hide behind, or lean on, a lectern.
Assuming that the current IMF chief, Dominique Strauss-Kahn, will eventually resign to run for Presi-
dent of France, Mr. Brown would be a credible replacement.
No, he confidently strode onto the stage and positioned himself with open arms in front of his audi-
ence. Few would have ever believed he could possibly be a funny man. Fewer yet would have imag-
ined that he would ever be able to portray humbleness.
And yet, here he was. Gone, at least for now, was his characteristic inclination to connive, conspire,
scheme and worry.

...We might enter a brave new Probably owing to the worst career mistake of his life, scheming for the post
of British prime minister (an impossible assignment for a dour Scot), his mind
world where an American is seems to have been cleared by having this heavy burden lifted.
not even second in command
Battle-scarred from his tenure as prime minister, he was able to joke about
at the IMF himself and be self-critical and reflective. He owned up to failures and doubts
about his past actions and admitted the limits of his knowledge as to future
global economic and financial challenges.
It was more than a good performance. It was a rehearsal speech for his application for the one job he
should have aimed for after serving as the UK’s Chancellor of the Exchequer — the IMF’s new manag-
ing director.
Assuming that the current officeholder, Dominique Strauss-Kahn, will eventually resign to run for
President of France, Mr. Brown would be a credible choice.
Mr. Strauss-Kahn has done much to rebalance the policies and concepts pursued by the International
Monetary Fund in a more socially balanced manner.
We might enter a brave new world where an American is not even second in command at the IMF.
And, by virtue of shifting voting rights, he has made sure that China, Brazil, India and other success-
ful emerging economies will never again allow a repeat of the “live or die by the precepts of the U.S.
Treasury” approach of the past.
In addition, the U.S. economic model is simply too discredited for that stranglehold over global eco-
nomic thinking ever to recur. The world has moved on.
That is an insight that certainly has not even entered the further reaches of the otherwise brilliant
mind of Larry Summers.
O O O GLOBALIST / LINK

I have been using the Easter holiday to think about something different from my usual
concerns – the state of economics itself.
This is not pure self-indulgence. In the depths of the financial crisis, many analysts pointed to the role
of economics in causing the debacle. They were right to. Since then, though, whereas the bankers

25 April 2011 11
 THINGS THAT MAKE YOU GO Hmmm... 12.

have been subject to continual harassment and threats of reform, the economists have managed to
slip away into the night. The searchlight needs to pick them out again. Having played a major role in
causing the financial crisis, heaven knows what future disasters they will spring on us.
The weakness of modern academic economics hasn’t been exposed simply because hardly any aca-
demic economist foresaw the financial crisis. They weren’t even looking in the right direction. Nor was
this a new phenomenon. Much the same thing happened with the fall of communism. It is as though
they think that such issues are beneath them.
It hasn’t always been like this. Pick up a copy of the Economic Journal of the early 20th century, and
you will find articles about the Iron and Steel industry or the problem of German reparations. Pick up
the leading journals today and even many economists cannot understand the titles, never mind the
articles. Open the pages, littered with algebra, and you could be forgiven for thinking that you were
looking at a musical score.
...The irony is that for the truly
The mathematicians have taken over. The irony is that for the truly gifted
gifted ones, the stuff econo- ones, the stuff economists do is child’s play. But it is sufficiently difficult to
mists do is child’s play. But it is put off ordinary mortals. The reason that this happened, I think, is that the
sufficiently difficult to put off subject’s leading practitioners suffered from physics envy.
ordinary mortals Yet the issues that many practical economists have to deal with do not yield
to bludgeoning by ever more complex systems of equations or intensive
torturing of the data by econometrics. They are issues rooted in our nature as human beings living in
society. What yields results is usually a mixture of deep understanding of society and its institutions,
close knowledge of all the relevant magnitudes, familiarity with the history – and good judgment.
How can these skills be acquired? Not by studying the modern academic subject called “Economics”.
In most cases that is almost like undergoing a self-administered lobotomy. Students of economics
today are force-fed theoretical models of startling banality and irrelevance, leavened only by doses
of econometric techniques of dubious validity and near-zero intellectual interest. Typically, they com-
plete their course knowing nothing about the British economy and untrained in how to think.
O O O ROGER BOOTLE / LINK

Over the past few years, mainstream analysts have shown a tenacious blind faith in the
U.S. economy and the dollar that goes far beyond religion to the point of mindless cultism, so, when
even they begin to question the future of American finance (as has been occurring more and more
everyday), you know its time to worry. For those that have been following my work since 2007, the
events of the past few months have not been a surprise at all, however, for those just waking up to
the ongoing implosion of our fiscal infrastructure, the bubbling inflationary meltdown just over the
horizon and the nightmare unfolding around our national debt is rather shocking. Living through a
full spectrum catastrophe is, to say the least, confusing, especially when you have no idea where the
whole thing began.
Until now, the mainstream media has provided nothing but economic fantasy for the masses. They
have satiated the public with what amounts to financial toddler talk for helpless preschool minds
averse to any research beyond their daily 15 minute sippy cup of New York Times, CNN, MSNBC or
FOX cable news sound bites. I mean, have you ever actually stopped and read a Paul Krugman article
more than once? Or listened carefully to an MSNBC economic piece? It’s like being violently accosted
by a band of slobbering mental deficients with securitized ARM mortgages stuffed in their pants. Of
course, fewer and fewer people are now buying what these hucksters are selling. With gasoline near-

25 April 2011 12
 THINGS THAT MAKE YOU GO Hmmm... 13.

ing $5 a gallon, grain prices doubling, and shelf prices beginning to skyrocket, it’s hard for even the
most ignorant suburban schlep to remain oblivious to the problem anymore. We are no longer on the
edge of the abyss; we have fallen into it head first…
I make this statement not for effect, not to startle people out of their apathy,
...we have indeed crossed
not even to illustrate what “may” be coming around the bend in the near future.
the line between economic I make this statement as directly and sincerely as I know how; we have indeed
weakness and economic crossed the line between economic weakness and economic catastrophe. For
catastrophe those of you who have been asking when the final stage of the economic col-
lapse will begin, that time has arrived. Here is why…
Here’s how to tell when inflation is about to run out of control in your country; wait for the politicians
and bankers to begin making excuses for its consequences instead of pretending it doesn’t exist! Re-
member after the initial 2008 spike in oil prices when we talked about the prospect of “speculation”
as the culprit? Remember also that I have pointed out for the past three years at Neithercorp Press
that when the dollar eventually began to crumble, and the price of crude began to spike again, the
government would try to blame speculators as the scapegoat hoping that Americans would assume
the situation today was the same as it was in 2008?.
O O O BRANDON SMITH (VIA ZEROHEDGE) / LINK

IT is obvious that the nation’s desperate fiscal condition requires higher taxes on the
middle class, not just the richest 2 percent. Likewise, entitlement reform requires means-testing the
giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas
like Medicaid and food stamps.
Unfortunately, in proposing tax increases only for the very rich, President Obama has denied the first
of these fiscal truths, while Representative Paul D. Ryan, the chairman of the House Budget Commit-
tee, has contradicted the second by putting the entire burden of entitlement reform on the poor. The
resulting squabble is not only deepening the fiscal stalemate, but also bringing us dangerously close
to class war.
This lamentable prospect is deeply grounded in the policy-driven transformation of the economy dur-
ing recent decades that has shifted income and wealth to the top of the economic ladder. While not
the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of
wealth held by the top 1 percent of households has risen to 35 percent from 21 percent since 1979,
while their share of income has more than doubled to around 20 percent.
The culprit here was the combination of ultralow rates of interest at the Federal Reserve and ultralow
rates of taxation on capital gains. The former destroyed the nation’s capital markets, fueling huge
growth in household and business debt, serial asset bubbles and endless leveraged speculation in
equities, commodities, currencies and other assets.
At the same time, the nearly untaxed windfall gains accrued to pure financial speculators, not the
backyard inventors envisioned by the Republican-inspired capital-gains tax revolution of 1978. And
they happened in an environment of essentially zero inflation, the opposite of the double-digit infla-
tion that justified a lower tax rate on capital gains back then — but which is now simply an obsolete
tax subsidy to the rich.
O O O DAVID STOCKMAN / LINK

25 April 2011 13
 THINGS THAT MAKE YOU GO Hmmm... 14.

The International Monetary Fund has just dropped a bombshell, and no-
body noticed.
For the first time, the international organization has set a date for the moment when the “Age of
America” will end and the U.S. economy will be
overtaken by that of China.
And it’s a lot closer than you may think.
According to the latest IMF official forecasts, China’s
economy will surpass that of America in real terms
in 2016 — just five years from now.
Put that in your calendar.
It provides a painful context for the budget wran-
gling taking place in Washington, D.C., right now. It
raises enormous questions about what the interna-
tional security system is going to look like in just a SOURCE: IMF
handful of years. And it casts a deepening cloud over both the U.S. dollar and the giant Treasury mar-
ket, which have been propped up for decades by their privileged status as the liabilities of the world’s
hegemonic power.
According to the IMF forecast, whoever is elected U.S. president next year — Obama? Mitt Romney?
Donald Trump? — will be the last to preside over the world’s largest economy.
Most people aren’t prepared for this. They aren’t even aware it’s that close. Listen to experts of vari-
ous stripes and they will tell you this moment is decades away. The most bearish will put the figure in
the mid-2020s.
China’s economy will be the world’s largest within five years or so.
But they’re miscounting. They’re only comparing the gross domestic products of the two countries
using current exchange rates.
That’s a largely meaningless comparison in real terms. Exchange rates change quickly. And China’s
exchange rates are phony. China artificially undervalues its currency, the renminbi, through massive
intervention in the markets.
O O O MARKETWATCH / LINK

UK citizens will have to hand over millions of pounds in backdated taxes on secret
bank accounts, after it emerged that the Government is close to signing a disclosure deal with Swit-
zerland.
The European country is known for its banking secrecy and the Treasury estimates tens of thousands
of British people have stored £125bn in its institutions without paying UK tax.
Any deal is likely to include a withholding tax, taken by the bank on dividend and interest payments,
and a levy on previously untaxed income.
It is understood that the Swiss will hand over details of individual accounts if HM Revenue & Customs
can demonstrate they have been used to evade taxes.

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 THINGS THAT MAKE YOU GO Hmmm... 15.

It follows an outline agreement between the UK and Switzerland in October, when it was agreed in
principle that a withholding tax would be imposed.
The two countries amended their tax treaty in 2009, but British officials wanted more disclosure from
the Swiss banks. Final details of the deal are expected within the next month.
O O O UK DAILY TELEGRAPH / LINK

Aside from maybe the odd cheeseburger stain on his tie, nothing much sticks to
Warren Buffett.
Whether his underlings are convicted of helping insurance companies inflate results or a major com-
pany he helps oversee is sanctioned for accounting shenanigans, his admirers don’t seem to care. Or
at least, they haven’t historically.
But with a key Buffett lieutenant resigning under a cloud recently, some sophisticated investors are no
longer willing to overlook the obvious. For all the shareholders who still consider Buffett the epitome
of American capitalism, there are others who wonder whether the time may be near for Buffett to
take a graceful bow and exit the stage.
Some will clamor for that this weekend, when 40,000 of his shareholders prepare to descend on Ne-
braska for the annual meeting of Berkshire Hathaway, the ice-cream-to-insurance conglomerate he
runs with absolute authority.
“I want to hear more about Sokol, I want to hear more about how they’re
...For all the shareholders who going to outperform the markets. I want to hear about what (Buffett’s re-
cent) trip to India leads us to believe about how the money is going to be
still consider Buffett the epit-
invested in the future,” said Michael Yoshikami, chief executive of wealth
ome of American capitalism, management firm YCMNET Advisors and a widely quoted Berkshire share-
there are others who wonder holder.
whether the time may be near Investor disappointment reflects not just the revelation that David Sokol,
for Buffett to take a graceful once Buffett’s presumed successor as chief executive, bought stock in a
bow and exit the stage company he then pushed Buffett to acquire. It is also because of Berkshire’s
lackluster performance recently, and questions about the firm’s ability to
thrive after its octogenarian chairman and chief executive moves on.
Berkshire Hathaway has grown exponentially over decades, but many investors question how it can
possibly do as well in the future. With the dozens of companies that Berkshire Hathaway owns having
had relatively little oversight for years (by Buffett’s own proud admission), some wonder how much
earnings power Berkshire actually has and whether future earnings can be as strong as past.
“Obviously Berkshire has intrinsic value but now I have to question that intrinsic value,” said Janet
Tavakoli, an expert on derivatives and author of “Dear Mr. Buffett,” a 2009 book laden with fulsome
praise for the legendary investor. Tavakoli, like many others, has revised her thinking sharply in the
intervening years.
Yet she, like so many others, added an important caveat about Buffett: “(His) brand is so powerful you
are reluctant to question.”
O O O REUTERS / LINK

25 April 2011 15
 CHARTS THAT MAKE YOU GO Hmmm... 16.

Which are you?

Thanks Kristen!

CLICK TO VIEW GRAPHIC SOURCE: MASHABLE

25 April 2011 16
 CHARTS THAT MAKE YOU GO Hmmm... 17.

Time has an in-

teresting report on a bub-
ble nobody seems to be
talking about...
O O O TIM IACONO / LINK

SOURCE: TIME

25 April 2011 17
 WORDS THAT MAKE YOU GO Hmmm... 18.

“The Fed can buy billions, even a trillion or so, but if and
when the market is moving against the policymakers then there is no stop-
ping. The Fed cannot stem that tide. There is only so much that they can
manage and so it is something that they have to watch very carefully. At
the same time, they are not terribly concerned. If the bond market is fall-
ing, you do not know whether it is because of more economic growth or
because of more inflation, and you really only know after the fact.
So for now people think “We have economic growth kicking in”, until the
next economic numbers are not as great as expected and so it is a bit like
a boiling frog syndrome. You print in all this money, you think everything is
great and you have some warning signs but you think “Things are moving
along” and by the time that you really see the damage you have created, it
is quite late to undo this damage and it is going to be very, very expensive
and painful.”
O O O AXEL MERK

CLICK TO LISTEN

John Hathaway is one of the best

precious metals investors on the planet so now seems
a pretty good time to listen to his opinions on the cur-
rent strength in gold and silver as well as the corner
the Fed finds itself in and the likely course of its ac-
tions, the weakness in the dollar and the strength in
oil amongst other things...

CLICK TO LISTEN

It’s always fun when Gerald Celente talks to Eric King and this
conversation is no different.
Celente is most definitely an acquired taste - but personally I think he’s a
very astute, if perhaps a little overly-theatrical commentator.
As always, Celente pulls no punches as he gives us an insight into his latest
Trends Journal

CLICK TO LISTEN

25 April 2011 18
 and finally…

As we started this edition of Things That Make You Go Hmmm..... with the Trotters
of Peckham, it seemed fitting to close the circle so here is another classic moment from Only
Fools And Horses.
If you haven’t seen it, enjoy it.
If you have, enjoy it again.

Hmmm…

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25 April 2011 19