TTMYGH 2014 Nov 24 PDF

Hmmm...
THINGS THAT MAKE YOU GO
A walk around the fringes of finance

By Grant Williams
25 November 2014
How Could It Happen?

How could this have happened when everything
was normal?
Joan Didion, The Year of Magical Thinking
I was walking along the road with two friends the sun was
setting suddenly the sky turned blood red I paused, feeling
exhausted, and leaned on the fence there was blood and tongues
of fire above the blue-black fjord and the city my friends walked
on, and I stood there trembling with anxiety and I sensed an
infinite scream passing through nature.
Edvard Munch
Whats happened to me, he

thought. It was no dream.
Franz Kafka, The Metamorphosis
Well, this is basically the end, so the answers should be in these

next few pages. I doubt they will surprise you, but you never
know. I dont know how smart or thick you are. You could be
Albert Einstein for all I know, or some literary prizewinner, or
maybe youre just middle of the road like me.
Markus Zusak, Underdog
Copyright Mauldin Economics. Unauthorized disclosure prohibited. Use of content subject to terms of use stated on last page.
Hmmm...
Contents
AN IMPORTANT ANNOUNCEMENT ..........................................................3
THINGS THAT MAKE YOU GO HMMM... ...................................................4

Xi Puts the Willies Up Chinas Super-Wealthy .....................................................21
The Signal in Silver ....................................................................................23
Switzerland May Give Every Citizen $2,600 a Month .............................................25
Oil Industry Risks Trillions of Stranded Assets on US-China Climate Deal ..................26
The Right Call ..........................................................................................28
Japans Stimulus Plan Is Not Courageous But Foolhardy ........................................29
Mario Draghi: ECB Must Now Raise Inflation As Fast As Possible .............................30
Unusual Gold Moves in Asian Hours Puzzle Jittery Traders ......................................32
The Low Official Found with Towering Pile of Cash, Gold and Properties ....................34
Do We Achieve World Order through Chaos or Insight? ..........................................35
CHARTS THAT MAKE YOU GO HMMM... ..................................................37
WORDS THAT MAKE YOU GO HMMM... ...................................................41
AND FINALLY... .............................................................................42
25 November 2014 2
Hmmm...
AN IMPORTANT ANNOUNCEMENT
for readers of Things That Make You Go Hmmm...
This will be the penultimate edition of Things That Make You Go Hmmm... ...at
least in its current form.
Ive been writing and distributing Things That Make You Go Hmmm... free of
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The time devoted to the reading, research, graphic design, and writing that go
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charging an annual subscription fee.
Things That Make You Go Hmmm will no longer be published by Mauldin

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Thank you.
And now back to our regularly scheduled programming...
25 November 2014 3
Hmmm...
Things That Make You Go Hmmm...

How could it happen, Grandad?
The old mans eyes misted over as he looked down at his grandson, who sat at his feet, his
young eyes alive with questions as he turned the heavy gold bar over in his hands.
Ive told you the story too many times to count, said the man, half-pleading, but knowing
full-well hed soon be deep into the umpteenth retelling of a story hed lived through once in
reality and a thousand times more through the eager questioning of the young man now tugging
at his trouser leg. Why dont I tell you the story of how I met your Grandma instead?
Because thats boring. The reply was borne of the

honesty only a ten-year-old could possibly still possess.
OK, OK, said the old man, a smile creeping into the
corners of his mouth, you win.
It began in early November of 2014, when a man

called Alasdair Macleod published a report on how the
Chinese had been secretly buying gold for 30 years.
Most people believed what the Chinese Central Bank

had been telling the world that they owned just 1,054 tonnes. That number, first published in
2009, had remained unchanged for over five years; but there was a group of people who refused
to accept that the Peoples Bank of China were telling the truth, and those people set about
diligently doing their own analysis to try to determine what the real number might be.
In early November of 2014, Macleods report which went largely unnoticed because
most people were busy celebrating new highs in the stock market and the fact that a newly
strengthening dollar was forcing down the price of gold laid out the case for there having
been an astounding amount of gold bought by the Chinese over the previous three decades.
According to Macleod, China saw an opportunity at a crucial time and, with a view on the
longer term, they took it.
Grandad dipped his thumb and forefinger into his vPad, which hovered just above the table, and
pinched and cast a paragraph into the air before them. At the same time, they heard the voice
of Alasdair Macleod himself read the words aloud:
25 November 2014 4
Hmmm...
(Alasdair Macleod): China first delegated the management of gold policy to the
Peoples Bank by regulations in 1983. This development was central to Chinas
emergence as a free-market economy following the post-Mao reforms in 1979/82.
At that time the west was doing its best to suppress gold to enhance confidence in
paper currencies, releasing large quantities of bullion for others to buy. This is why
the timing is important: it was an opportunity for China, a one-billion population
country in the throes of rapid economic modernisation, to diversify growing trade
surpluses from the dollar.
Macleod explained why what he was about to explain to the world was going to come as
something of a surprise to most people. Grandad dipped his fingers and cast again:
To my knowledge this subject has not been properly addressed by any private-
sector analysts, which might explain why it is commonly thought that Chinas gold
policy is a more recent development, and why even industry specialists show so
little understanding of the true position. But in the thirty-one years since Chinas
gold regulations were enacted, global mine production has increased above-ground
stocks from an estimated 92,000 tonnes to 163,000 tonnes today, or by 71,000
tonnes; and while the west was also reducing its stocks in a prolonged bear market
all that gold was hoarded somewhere.
But Grandad, why was the West selling its gold? Thats just stupid! the young boy interjected,
right on cue.
Again the old man smiled. Every time he told the story, his grandson would pepper him with the
same questions, with a regularity that brought a familiar rhythm to this very private dance the
two of them had performed so many times.
He paused, as he always did, to create just the right amount of dramatic tension before
answering.
I know it seems stupid NOW, but dont forget, you know what you know. Back then, the people
in charge in the West werent really all that smart; and, besides, when the Golden Domino
finally fell, it became obvious that they had been... the old man paused, choosing his words
carefully, almost theatrically; but when they came, they were the same carefully chosen words
he used every time ... a little less than honest about a few things.
Now, he continued with mock indignation, if youll allow me to get back to the story...
The boy smiled, and his grandfather pushed on.
Macleods report concentrated on the period between 1983 and 2002, because in 2002 two
important things happened: the Chinese people became free to own gold, and the Shanghai
Gold Exchange was established. He wrote that the reason they allowed these two events to
take place was that theyd already accumulated enough gold for what he called strategic and
monetary purposes, and they were happy to keep adding to their stockpile from their domestic
mine production and scrap, rather than buy more in the market...
25 November 2014 5
Hmmm...
The old man held up a hand to head off the question he knew was coming I know, I know...
you want to know how much the Chinese would have had to accumulate in order to be able
to do this, dont you? Well, Mr. Macleod told us, remember? He reached once more into vPad
space, waggled his fingers a bit, and cast the following:
(Alasdair Macleod) Between 1983 and 2002, mine production, scrap supplies,
portfolio sales and central bank leasing absorbed by new Asian and Middle Eastern
buyers probably exceeded 75,000 tonnes. It is easy to be blas about such large
amounts, but at todays prices this is the equivalent of $3 trillion. The Arabs had
surplus dollars and Asia was rapidly industrialising. Both camps were not much
influenced by Western central bank propaganda aimed at side-lining gold in the new
era of floating exchange rates, though Arab enthusiasm will have been diminished
somewhat by the severe bear market as the 1980s progressed. The table and chart
below summarise the likely distribution of this gold:
SIMPLIFIED GOLD SUPPLY 1983-2002 Tonnes

Official Sales by Central Banks 4,856
Estimated Leasing (Veneroso) 14,000
Mine Production 41,994
Net Western divestment (bullion, jewelry & scrap (est.) 15,000
TOTAL 75,850
Possible Destinations For World Gold Production

1983 - 2002
30000
25000
20000
15000
10000
5000
0
Middle East India Turkey SE Asia China Others
Governments & Source: Alasdair Macleod
individuals
The old man clipped his last sentence short to allow his young audience to make the (quite
grown-up, the man thought) point that he always did at this juncture:
25 November 2014 6
Hmmm...
But Grandad, you cant just say things like probable and make assumings like that. We
always get told at school that you have to show your workings-out.
His grandfather let the grammatical error slide one more time.
Ah yes, but THAT was the problem, wasnt it? Everybody wanted proof that numbers like
Macleods were accurate, but NOBODY wanted proof that the official figures were true, and
THAT turned out to be the key lesson that the world learned from this whole sorry debacle.
But Grandad, YOU didnt get hurt, did you?
The old man looked through the window and out at the snowflakes settling on the tall pines
that surrounded the ski field not 40 yards from where he sat, and smiled.
Thats true, he said, but only because I was willing to think for myself and allow for
possibilities that most people wouldnt believe for a moment could actually happen. It wasnt
easy, and it wasnt fun for many years, believe me. Now, where was I?
You were at the part where Mr. Macleod explained where all that gold had gone and...
Might have gone, the man interrupted. Remember, back then we didnt know for sure.
He smiled again and went on with the story.
Macleods work suggested that, while a huge amount of gold had gone flooding into the Middle
East during the oil boom of the 1970s (much of it ending up in Switzerland, which, back then at
least, was famous around the world as being a safe haven for financial assets), in the mid-90s,
after the gold price had languished for many years, sentiment had changed.
(Alasdair Macleod): In the 1990s, a new generation of Swiss portfolio managers

less committed to gold was advising clients, including those in the Middle East,
to sell. At the same time, discouraged by golds bear market, a Western-educated
generation of Arabs started to diversify into equities, infrastructure spending and
other investment media. Gold stocks owned by Arab investors remain a well-kept
secret to this day, but probably still represent the largest quantity of vaulted gold,
given the scale of petro-dollar surpluses in the 1980s. However, because of the
change in the Arabs financial culture, from the 1990s onwards the pace of their
acquisition waned.
By elimination this leaves China as the only other significant buyer during that era.
Given that Arab enthusiasm for gold diminished for over half the 1983-2002 period,
the Chinese government being price-insensitive to a Western-generated bear market
could have easily accumulated in excess of 20,000 tonnes by the end of 2002.
Now, I know this is all back-of-the-envelope stuff assumings, as you call them but
remember, back then, in 2014, none of the other stuff had been exposed.
But, Grandad, why were the Chinese buying all that gold? And why did the Westerns let them
have it? I mean, its worth so much. Why didnt they just keep it?
25 November 2014 7
Hmmm...
This was always the old mans favourite part, and he leaned forward in his seat as his
enthusiasm for the story returned. With a twinkle in his eyes, he beckoned the boy closer.
Strategy, he said, then, after a pause (and with

(WSJ, Oct 13, 2014): Russia and China have opened
what even he felt was a little more relish than
a currency-swap line, paving the way for further
usual) ... and STUPIDITY!
trade and investment between the neighboring
The Chinese had become very rich during those countries, Russias central bank said on Monday.
years, but most of that wealth had come in the form

The Bank of Russia and the Peoples Bank of China
of dollars...
agreed to open a yuan-ruble swap line worth 150
What, US dollars? the boy asked, incredulously. billion yuan ($24.47 billion or 984 billion rubles)
But why would they ever have wanted lots of for three years. This will offer both countries
those? access to each others currencies without the need

to purchase them on the currency markets, Russias
Because, the old man chuckled, there was a time central bank said.
long before you were born when everybody
wanted US dollars. I know thats hard to believe (WSJ, Jul 21, 2014): The Swiss National Bank and
NOW, but it was true. If I may...? Peoples Bank of China have agreed to set up a
currency swap line designed to boost trade and
So-rry Gran-dad, the boy answered rhythmically investment between the two countries, joining a
and with mock apology. parade of countries hoping to become offshore hubs
for trading the yuan.
Anyway, the Chinese were great students of history
and knew that, over thousands of years, what used The Swiss and Chinese central banks said Monday
to be called fiat currency had always ended up that the three-year agreement will allow them to
worthless; and so they planned for the day when buy and sell their currencies up to a limit of 150
that fate would befall the dollar. They began billion yuan, also known as renminbi, or 21 billion
accumulating euros instead of dollars not because Swiss francs ($23.4 billion).
the euro was better but because they didnt want to
own too much of any one currency. (BBC, Oct 11, 2013): China and the ECB have signed
a currency swap agreement worth 350bn yuan
Whatever happened to the euro, Grandad? ($57bn; 36bn), state-owned Xinhua news agency
inquired the boy. has said.
One story at a time, little fella! replied the old Such agreements mean the central banks can
man. Now, where was I? Oh yes, then, in the mid- exchange currencies and firms can settle trade in
2010s, China began signing all sorts of agreements local currencies rather than in US dollars.
with other countries, like Iran, Turkey, Russia...
The deal is one of the largest for China as it looks
And Switzerland! the boy eagerly interjected. to build a more international role for the yuan.
It will last for three years and can be extended if
... and Switzerland, his grandfather agreed.
both parties agree.
25 November 2014 8
Hmmm...
Those agreements enabled them to swap goods and services for currencies other than the US
dollar all so they could eventually break their ties to what they saw as a doomed currency.
And all the while, quietly, in the background, they were swapping as much of that paper money
as they could for...?
GOLD!!! Right on cue the boy blurted out the answer, raising both hands in triumph.
Gold, the old man said, softly. Remember what Mr. Macleod wrote? He cast it up:
(Alasdair Macleod): Following Russias recovery from its 1998 financial crisis, China
set about developing an Asian trading bloc in partnership with Russia as an eventual
replacement for Western export markets, and in 2001 the Shanghai Cooperation
Organisation was born. In the following year, her gold policy also changed radically,
when Chinese citizens were allowed for the first time to buy gold and the Shanghai
Gold Exchange was set up to satisfy anticipated demand.
The fact that China permitted its citizens to buy physical gold suggests that it had
already acquired a satisfactory holding.
Since 2002, it will have continued to add to gold through mine and scrap supplies,
which is confirmed by the apparent absence of Chinese-refined 1 kilo bars in the
global vaulting system. Furthermore China takes in gold dor from Asian and African
mines, which it also refines and probably adds to government stockpiles.
Since 2002, the Chinese state has almost certainly acquired by these means a
further 5,000 tonnes or more. Allowing the public to buy gold, as well as satisfying
the publics desire for owning it, also reduces the need for currency intervention
to stop the renminbi rising. Therefore the Chinese state has probably accumulated
between 20,000 and 30,000 tonnes since 1983, and has no need to acquire any more
through market purchases, given her own refineries are supplying over 500 tonnes
per annum.
A man called Simon Hunt, who had extremely good connections in China and, more
importantly perhaps, a willingness to entertain possibilities most people couldnt, told a
fascinating story once about a visit paid by a friend of his to an army base in China...
(Simon Hunt, Nov 14, 2014): China is in the process of making the RMB acceptable as
an international currency. It wants its trading partners and others to see the RMB
as a stable currency that does not play the game of devaluation when difficulties
arise. It is the long-game in which Beijing hopes that their currency not only
becomes acceptable in financing trade but that central banks can feel secure in
adding the RMB to their reserves, as some are now doing.
As we have discussed in earlier reports, China, not just the PBOC, holds far more
gold than the market has been assuming, probably in the region of 30,000 tonnes,
compared with the USA holding very little of its reported 8,300 tonnes.
25 November 2014 9
Hmmm...
10,000 WGC: Official Gold Reserves (tonnes)

2014
8,000
6,000
4,000
2,000
0
ia ela l s
ai
n on UK rab ga an CB key dia nd pan and ina ssia nce aly MF any SA
Sp ba
n
A e zu rtu aiw E ur I n rla Ja er
l
Ch Ru Fra It I m U
Le di Ven Po T T e itz er
u e th w G
Sa N S Source: World Gold Council
Whilst in Japan we were told an interesting if not amusing story that supports this
contention. A friend of ours has several factories in China and thus knows many
senior people in different disciplines, one of which is a senior PLA officer. He was
invited down to their HQ for drinks. After a few hours, his friend suggested they
take a walk around the compound ending up at the entrance of a large warehouse.
The door was opened and to my friends astonishment the warehouse was stacked
from floor to ceiling with gold bars.
One day, when the timing suits Beijing best, the PBOC will link the RMB to gold. The
West may dislike gold, or at least some of their central banks [do], preferring to
operate with fiat currencies, but Eastern governments have a history of seeing gold
as a store of value.
NOW, of course, it seems that what Simon said should have been completely obvious; but all
the way back in 2014, believe it or not, the idea that the Chinese would peg their currency to
gold was something that most people here in the West just couldnt even comprehend. I cant
even begin to tell you the number of times I talked to people about this stuff. For years it was
obvious how things would end, but only a small group of people listened. Mostly, people just
laughed and told me I was a fool. They said I should be buying shares and that a return to ANY
kind of gold standard was a ridiculous idea. Do you know what I did?
Bought more gold? The boy phrased it like a question even though he knew the answer. He
just liked to let his grandfather have his moment.
25 November 2014 10
Hmmm...
Bought more gold, the old man said matter of factly. He threw up a chart they both knew
well:
WGC: Gold Reserves as % of Total Reserves

100
2014
Declared Buyer
80
60
40
20
0
ia ela l s
ai
n on UK rab ga an CB key dia nd pan and ina ssia nce aly MF any SA
Sp ba
n
A e zu rtu aiw E ur In rla Ja er
l
Ch Ru Fra It I m U
Le di Ven Po T T e itz er
u e th w G
Sa N S Source: World Gold Council
But, but, youve jumped ahead, Grandad! The part where the Chinese link their currency to
gold isnt for ages yet. You skipped the bit about the Swiss gold! AND you left out the best part
the missing gold?
Sheesh! the old man said in mock exasperation, Im coming to that part now! You are one
impatient little fella, arent you?
But this is the best bit! the boy replied excitedly.
Well, if youll just stop interrupting...? Thank you! So... in November of 2014, the Swiss people
had a referendum to decide whether the citizens of that once monetarily sound country wanted
to take the first step towards returning to their historical position as a place where money
actually meant something. Prior to the vote, some folks had warned of dirty tricks being used in
the media to try to ensure the vote was a No.
(Smaulgold): If Save Our Swiss Gold passes, the SNB would have to sell billions worth
of Euro assets that they bought in recent years to support the 1.2 Swiss Franc to
Euro peg in order to buy gold. Such an action would have a negative impact on the
Euro.
25 November 2014 11
Hmmm...
As such expect statements from central banks regarding the danger that
Save Our Swiss Gold presents to the entire global monetary system... Expect the
propaganda to be ratcheted up as November 30th approaches and to hear the terms
right-wing, far right and racist bandied about in the mainstream media when
discussing Save Our Swiss Gold, its sponsors and supporters... expect the SVP to be
labelled financial terrorists...
Well, this warning proved to be well-founded. This Reuters article (one of a number of such
articles) ticked all the boxes... The old man dipped again and again into v-space.
(Reuters): The Save our Swiss gold proposal, spearheaded by the right-wing Swiss
Peoples Party (SVP), aims to ban the central bank from offloading its reserves and
oblige it to hold at least 20 percent of its assets in gold.... The SVP argues it would
secure a stable Swiss franc....
The chairman of the SNB, which had already expressed its opposition to the
proposal, said it would make it harder for the central bank to do its job.
The initiative is not in Switzerlands interest because it wants to fundamentally

change the rules of our monetary policy, Thomas Jordan was quoted as saying in
Swiss newspaper Neue Zuercher Zeitung.
It would be disastrous if Switzerland limited its own capabilities to react to

disorder and maintain the stability of its currency.The SNB also argues that
Save our Swiss Gold could reduce the SNBs annual profits that it distributes to
Switzerlands cantonal governments.
Fritz Zurbruegg, SNB board member warns The higher the gold content, the smaller
the income from interest or dividends, he said.
But some people, the old man said, his voice taking on a defiant edge, were having none of
these arguments...
(Smaulgold): This is a disingenuous argument, since the misguided goal of European

banks is to reduce interest rates to zero or have them negative if possible, in order
to boost inflation and economic growth. If the Save our Swiss Gold initiative were to
pass, the loss in interest payments to the Swiss cantons would almost certainly be
de minimus.
Anyway, as the vote got closer, the dire warnings from the establishment picked up steam
even though technically they werent supposed to be able to campaign. In a development
that surprised nobody who followed the gold market closely and understood the various forces
at work, the gold price fell like a stone from precisely the day the first poll which showed
significant support for the initiative was published (after all, who would want to vote to
hold more of something that was making headlines for falling in price?); and a few weeks later
another poll was published that showed a suspiciously large swing from Yes to No...
25 November 2014 12
Hmmm...
Gold Price (US$)

1400 June 2014 - November 2014
1350 21ST OCTOBER 2014:

POLL RESULTS
PUBLISHED
SHOWING
YES VOTE
1300
WITH A LEAD
1250
1200
1150
1100
JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER
Source: Bloomberg
(Marketwatch): Gold retreated on reports Wednesday that support for a Swiss

referendum to require the countrys central bank to hold 20% of its reserves in gold
bullions is losing momentum.
Swiss Gold Initiative Polling
Only about 38% of those polled plan to vote 7-15 November
for the Swiss gold measure, according to the

Daily Mail, while Bloomberg reported that
Yes
about 47% are likely to vote against it. The No
referendum, scheduled for Nov. 30, must 27
secure more than 50% support to pass. 36
Strangely, at the time, the comments sections of most

online news sites in Switzerland were awash with pro-
11
SGI sentiment. Anyway, that didnt matter because the Likely
referendum passed with a clear majority, surprising the Yes
15 11
establishment and causing a massive tremor in gold and
currency markets. It was that day which led indirectly Likely
Undecided No
to what they call the Golden Domino falling. Source: GFS.bern
Tell me about the Golden Domino, Grandad!!, said the boy, now unable to contain his
excitement as his favourite part of the story approached.
25 November 2014 13
Hmmm...
Well, said the old man, relishing the tale and milking the tension for all it was worth (if
dramatic tension were still possible in a story hed told the young man so many times), despite
all the attempts to derail the Swiss gold vote, it passed; and the market had to react to the
sudden realization that, not only was there now a buyer of 1,700 tonnes of gold in the market,
but that same buyer had to defend an unlimited currency peg against the euro.
The signs had been there in the run-up to the referendum, of course, but only a few people
had been paying attention. People like Koos Jansen, who had been following the amount of gold
leaving London, Hong Kong, and finally Switzerland for other countries. Koos saw the writing on
the wall, and heres his writing for you in the air...
(Koos Jansen, Nov 20, 2014): From looking at rising SGE withdrawals and Indian
import in recent months, we knew demand was increasing consistently and huge
amounts of physical gold had to be supplied from somewhere. As Ive written in
a previous post, this type of gold demand cant be met by mine supply and so
the metal has to be sourced from countries that have large stockpiles, the usual
suspects: the UK, Hong Kong and Switzerland.
In 2013 the UK was severely drained (net 1424 tonnes), last week we learned
Hong Kong became a net exporter since August 2014, the latest trade data from
Switzerland shows the Swiss net exported 100 tonnes of fine gold in October. 75
tonnes net to India and 45 tonnes net to China.
Koos even told people that this couldnt go on forever, but unfortunately very few people
listened to him.
25 November 2014 14
Hmmm...
Customs data of the usual suspects (Switzerland, the UK and Hong Kong) is getting
exciting; they cant net export gold forever. We know there are often shortages in
these trading hubs, its only the price of gold that tells us otherwise. The Financial
Times reported there are currently shortages in London, from November 14:
As one refiner told me: Over the past four weeks my cost of hedging has risen
by 30 per cent. Not only that, but there is not enough liquidity in the physical
market in London to settle my obligations as they come due. I have to fly
gold from Zrich to London, because there just is not enough gold on offer in
London. You never used to have to do that.
Everybody focused on the fact that the Swiss would have to buy 1,700 tonnes of gold and
tried to jump in front of the price, but nobody really worried about the repatriation of the
Swiss gold after all, it was only 312 tonnes 104 held in Canada and 208 held at the Bank of
England.
But Grandad...
Did you know I can read minds? the old man asked mysteriously before the boy could finish
his thought.
No you cant! the boy exclaimed in the tone of a young child whod heard similar outlandish
claims from a grandparent one too many times.
I can, asserted his grandfather. In fact, I know EXACTLY what you are thinking right NOW.
The boy looked on, his wide eyes tinged with a favoured grandchilds inherent skepticism.
You are just about to say But what about the German gold? said the old man casually,
before settling back into his chair, enjoying the silence. It didnt last long.
No... I was... I was going to ask you about... something else, the boy fumbled, but you can
tell me about that anyway. If you like.
Well the German Bundesbank, after getting just 5 of their 300 tonnes back from the Federal
Reserve in 2013 and laying off their plans for repatriation, had a sudden change of heart. They
decided they needed to get their hands on their gold as fast as they could. They knew the Swiss
had no choice but to force repatriation, and they also knew that the more people they let in
front of them in line, the smaller their chances were of ever getting their gold back.
Nick Laird, the Australian Prime Minister, was an analyst back in those days who ran a website
called Sharelynx. Like Koos, he was one of the few people paying close attention to what was
going on. Nick published two charts right around the time of that Swiss referendum, showing
that gold had once again begun to leave the Federal Reserves vault something that had
happened only twice in any size in the previous two decades: once right around the bursting of
the NASDAQ bubble and the second time during what was then called the Great Recession, in
2008, but which we now know as...
25 November 2014 15
Hmmm...
The Great Head Fake! Once more, the young man couldnt help but interrupt, such was his
excitement at the story as it unfolded
The Great Head Fake, yes, his grandfather patiently affirmed. Nicks charts showed that a
few central bankers were maybe starting to get nervous and didnt want to be the last ones
looking for a chair or in this case, their gold when the music stopped. He cast them up:
25 November 2014 16
Hmmm...
Now, do you remember the difference between eligible gold and registered gold? the old man
asked his young charge, knowing the lad knew the answer but wanting to give him a chance to
impress.
The boy sat bolt upright and recited, word for word, what hed learned by rote at his
grandfathers knee: Eligible gold is gold that meets exchange requirements but isnt available
for delivery, whilst registered gold is fully available to anybody who stands for delivery on the
exchange, he beamed.
Bravo! the old man said enthusiastically. Well, on the COMEX the number of claims for every
registered ounce had once again crept up to almost 60, whilst the mystery around why gold
kept pouring out of one ETF as silver poured into another continued to baffle people.
Total Known ETF Holdings of Gold & Silver

800,000,000
2006 - 2014
100,000,000
Bundesbank
Repatriation
Request
700,000,000
80,000,000
600,000,000
GOLD
500,000,000
60,000,000
400,000,000
40,000,000
300,000,000
200,000,000
SILVER
20,000,000
100,000,000
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Bloomberg
25 November 2014 17
Hmmm...
Anyway, right before the Swiss referendum, the Dutch, of all people, dropped another
bombshell when they announced that they had, without making a fuss or telling ANYBODY,
brought home 122.5 tonnes of gold from New York to Amsterdam.
DNB Adjusts Gold Reserves Allocation Policy
Press release, date November 21, 2014.
De Nederlandsche Bank has adjusted its allocation policy for its gold
reserves. To achieve a more balanced distribution of gold over the various
locations, DNB has shipped gold from the US to the Netherlands.
In the old situation 11% of the gold reserves were located in the Netherlands,
51% in the US, with the remainder in Canada (20%) and the UK (18%). The
location distribution according to the revised policy is as follows: 31% in
Amsterdam, 31% in New York, while the percentages for Ottawa and London
with 20 and 18% remain unchanged.
This adjustment of DNB joins other central banks that store a larger share of
their gold reserves in their own country. Next to a more balanced distribution
of the gold reserves over the different locations, this can also contribute to
more trust towards the public.
So, some people refer to that as the Golden Domino,

while others point to 2016 when the EU broke apart
after British Prime Minister Nigel Farage withdrew the
UK and it was discovered that Greece and Spain had
both been cooking the books again. Thats when Italy
demanded their gold be repatriated, which of course
led to a whole bunch of other countries doing the same
thing.
Which one do you think was the Golden Domino,

Grandad? the boy asked.
Me? Well personally I think the day Deputy Fed Chairman Jon Hilsenrath went before the
cameras and announced that the Fed was refusing to repatriate any more gold and would settle
in cash instead was the real Golden Domino. Some people said there were literally hundreds of
claims on the gold supposedly held in safe custody, but we wont know for sure how many there
actually were until 2075, when the findings of the Krugman Commission are unsealed. Ill be
long gone by then, but at least youll get to find out I hope.
Of course, it was hardly a surprise that, with the gold price rising like a rocket, the Western
central banks banned people from holding gold and capped the price; but that just played into
Chinas hands; and when the PBoC announced that they did, in fact, own not 25,000 tonnes of
gold, as Mr. Macleod had estimated, but 38,000 tonnes, and that they were going to back the
yuan with it, it was game over.
25 November 2014 18
Hmmm...
Dinner time, you two, called a soft voice from across the expanse of the great room.
But Grandma, were just getting to the bit where Grandad swaps one of his gold bars for this
house! the boy protested.
Well Im sure Grandad can tell you the rest of the story once youre in bed. Goodness knows
its the best way I can think of to put anybody to sleep.
The boys grandmother winked at him as she put three steaming plates of stew on the table.
With mock indignation, the boy carefully put the gold bar back on his grandfathers desk and
headed towards the dining room. Behind him, his grandfather looked out of the window at
the Chinese flag fluttering over the large gatehouse down the hill and smiled to himself as he
hauled his weary body out of his comfortable but weathered armchair.
How did it happen? he mused to himself as he rose. How could it not?
Gold Price
2016 -
Source: Hal Lucination
*******
So, what else do I have for you this week? Well, in China, not only did the PBoC blink
and cut interest rates something The Economist thinks is the right call but President Xi
Jinping is sending tremors through the upper echelons of society with his ongoing corruption
purge, and we find out that even those the Chinese call low officials can end up with very
nicely feathered nests if theyre prepared to hold out their hands and look the other way.
25 November 2014 19
Hmmm...
In Europe, Mario Draghis calm facade is clearly starting to crumble as deflationary concerns
pick up; and in Switzerland, whilst the government battles against the honesty the Swiss Gold
Initiative would impose upon them, there are plans afoot to start doling out cash lots and
lots of cash. Meanwhile, William White, former economist at the BIS, has a few choice words
for Messrs. Abe & Kuroda; Henry Kissinger has a few thoughts on how to achieve what he calls
world order (careful there, Hank...); and Ambrose Evans-Pritchard weighs in on the possible
fallout from a US-China climate deal.
Asian traders see strange goings-on in the gold markets; the always-brilliant Charles Gave
delivers a perspective on silver that makes for sobering reading; and we get an exclusive
update from Egon von Greyerz on the progress being made in Switzerland as the Swiss approach
the November 30 referendum.
Charts? Well we got those, of course this week, money in politics, the good old Swiss
Referendum (again sorry but its important!), and my pal Greg Weldon shows us just how far
off the beaten track the dollars recent strength is causing havoc.
Koos Jansen is interviewed on a Dutch TV show talking about you-know-what; ex-Goldman

luminary Jim ONeill explains why hes far more concerned about Japan than China; and yours
truly talks to Lars Schall about... well, lets just say it isnt the weather and leave it at that,
shall we?
Until next time...
*******
The Swiss Gold Initiative: An Update from Egon von Greyerz

The Swiss Gold Initiative now only has a few days to go to the final day on Nov 30.
A new opinion poll came out last week showing a

lead for the No vote. See attached graph.
This swing is really not surprising because the

government and the Swiss National Bank is
conducting the most aggressive campaign in
the history of Swiss Private Initiatives (as far
as I know). And they are not even supposed to
campaign but are so desperate that they ignore
this.
Government ministers and especially Widmer-Schlumpf are in the media daily

preaching what a disaster it would be for Swiss jobs and exporters with a Yes win.
25 November 2014 20
Hmmm...
SNB President Jordan has done the same thing with daily interviews on the
importance of the independence of the SNB in order to continue to manage-
manipulate monetary policy and the economy.
Same with the Cantons. Since they own the majority of the SNB and also are
dependent on the dividend from the Bank, they are totally against the SGI. Same
with industry who are worried about jobs and CHF strengthening. (Both you and I
know all the arguments against this scaremongering).
Due to past success of the policy of the SNB, the public still has great confidence
in them. The Swiss dont understand that the SNB has changed from the a very
conservative strategy backed by 40% gold to a speculative hedge fund with a
leverage which is too big for the country. They are short CHF 470 billion and long
mainly Euros but also dollars and other currencies of the same amount. They can
never get out of this of course. This position is too big to trade and this is why they
are so frightened of the SGI winning.
So with this massive propaganda campaign by the establishment, the swing to the
NOs is not surprising.
But the ordinary Swiss has a great affinity with gold and a small swing of 5% or a
few of the undecided voting in favour can still easily turn the Swiss Gold Initiative
to a win.
Despite the closing of the SGI Paypal account 24 hours after I published the link to it a few
weeks ago, it is still possible to donate to the initiative via bitcoin or bank transfer. You can find
out more HERE.
*******
Xi puts the willies up Chinas super-wealthy

Chinese president Xi Jinpings crackdown on corruption and excess is clearly worrying the
countrys wealthy, especially if the latest Wealth-X and UBS report is anything to go by.
China ranks a lowly 14th among Asian nations in terms of the growth in number this year of
so-called ultra high-net-worth individuals (UHNWIs) people with $30 million or more in net
assets. It is also an unimpressive 15th for wealth growth.
Although Chinese UHNWIs are still seizing opportunities through their large domestic market,
many are choosing to relocate outside of China, or at least diversify their business interests
internationally, according to the report, which was published on Wednesday.
Chinas UHNWI population, the worlds youngest on average at 53, grew 3.7% to 11,070 in 2014,
while their wealth grew 3.3% to $1.565 trillion. This doesnt sound too bad but Asias overall
respective growth numbers of 4.8% and 5.8% tell a different story.
25 November 2014 21
Hmmm...
Wealth flowing out of China is nothing new. According to US-based Global Financial Integrity
Group, $1.08 trillion was taken illegally out of China from 2002 to 2011.
Of course, there is no suggestion UHNWIs take part in such chicanery, nor the demi-UHNWIs
who make up the next tier down, but Xis crackdown has stirred up a hornets nest.
Tens of thousands of people including politicians and businessmen have so far been
investigated. Many have fled and the ramifications have hit business, with sales of luxury goods
in particular hit.
Add this purge to slowing economic growth at home and it is not difficult to see why some
Chinese UHNWIs might want to look elsewhere. After all, what and who might Xi turn his
attention to next?
According to a report by Barclays in September, almost half of Chinas rich want to emigrate
within five years. The desire for a better economic situation was cited as a main reason by 73%
of respondents.
The theme of leaving home base is one that has hit Asia generally this year, according to the
report.
Asias UHNWI population growth for 2014 is 4.8% compared with 6.2% in the US, 6.5% in Europe,
12.7% in the Middle East, 5.4% for Australia/New Zealand and 8.3% in Africa.
Theres a trend of diversifying outside of home markets to developed markets such as the US,
Amy Lo, UBS country head for Hong Kong, said at the Wealth-X and UBS reports launch.
No such problems for Hong Kong though, despite the debate sparked by pro-democracy
protesters on the importance of the city to China, and vice versa.
According to the report, Hong Kong saw about four-times the growth of mainland China in terms
of wealth generation in 2014 and the citys figure was four times more than it posted last year.
The combined net worth of Hong Kongs UHNWIs rose 12.3% to $595 billion this year, while the
average net worth rose 7% to $178 million almost $40 million more than the global average.
The number of HNWIs rose 4.9%.
Hong Kong is a very important hub. It is the gateway to China and investors are using the city
to increase their exposure to the mainland market, Lo said.
Hong Kong is the third densest location for UHNWIs globally, behind Luxembourg and
Switzerland, according to Mykolas Rambus, chief executive of Wealth-X (pictured below with
Lo).
As such, Lo said UBS had hired close to 100 frontline bankers in Hong Kong this year and will
continue to invest in the city.
25 November 2014 22
Hmmm...
Interestingly, the gender gap appears less of a problem in Greater China, with the proportion
of female UHNWIs in Hong Kong at 26%, double the global average of 13%. Meanwhile, Chinas
female UHNWI population is larger than South Koreas entire UHNWI population.
Patriarchs and matriarchs providing funds for children, including daughters. Thats a part of it
but we also see the self-made numbers growing and we simply see more women building and
growing businesses, Rambus said.
And overall the trend remains upwards. The report estimates that in 2019 there will be 24%
more UHNWIs globally and 29% more UHNWI wealth than now.
Indeed, Asia is expected to surpass Europe by 2027, the report estimates.
We are at the beginning of a 150-year wealth creation cycle, and that is centred in Asia, said
Rambus.
Thats what I keep telling my bank manager.
*** FINANCE ASIA / LINK
The Signal In Silver

Since mid-July the price of silver has slumped by -25%. These days silver is mostly an industrial
metal. But down the decades it has retained some of its monetary characteristics. Whats more,
for more than a century silver has traded freely in the market, unlike gold which only started to
float in the 1970s. So the question I am trying to answer is very simple: Is there a relationship
between variations in the price of silver and variations in the US inflation rate? In simple terms:
does a big move in the price of silver foreshadow big moves in either the US consumer price
index or producer price index? Even more simply: within the price of silver, are there any
embedded inflation expectations?
To answer these questions, I looked at the 12 month rate of change of the price of an ounce of
silver, smoothed over six months. Whenever the decline in this measure was greater than -20%
YoY, the graph in the web version is shaded pink. In the last 100 years there have been nine
such periods:
1) 1920: The US went into a nasty post-war depression between 1920 and 1922, with
both the PPI and the CPI dropping into negative territory.
2) 1930: This was the start of the great depression. Both the PPI and the CPI fell year-
on-year, and remained low.
3) 1937: The US economy, which had recovered nicely since 1934, relapsed into a deep
double dip depression which only ended with the Second World War. Both PPI and CPI
fell once again.
25 November 2014 23
Hmmm...
4) 1970: At no point between 1937 and 1970 did we see silver fall by more than 20%.
After 1970, following heavy government spending on the Great Society program and
the Vietnam War, inflation started to rear its ugly head in the US. The government
refused to tackle it and instead floated the US dollar. This led to the inflationary 1970s.
5) 1981: Paul Volcker at the Federal Reserve took the decision to stamp out inflation.
CPI inflation fell by half from 12% to 6%, while the PPI turned negative year-on-year.
6) 1984: Silver fell again, but what broke downward initially was not the general price
index, but one very important price, the price of oil, which in 1985 went from US$30 a
barrel to US$10. The CPI halved again and the PPI turned negative.
7) 1991-1992: German reunification led to extraordinarily high real rates all over the
world. The CPI declined, the PPI went negative.
8) Then came 2009... and both the CPI and PPI turned negative.
9) Finally we have 2014. Today both the CPI and PPI are still positive.
A few observations:
Following every previous significant decline in the price of silver, the PPI fell steeply
and on six occasions it turned negative for a time. Similarly, in every case the CPI at
least saw its growth rate decelerate, and on four out the eight occasions, it turned
negative (1920, 1930, 1937, and 2009).
During or after every one of the previous eight declines, US long rates (10 year)
declined.
On every one of the previous eight occasions, the spreads between BAA-rated corporate
bond yields and 10-year US government bond yields increased, sometimes markedly.
As far as equities are concerned, following seven out of the previous eight slumps in the
price of silver the US stock market went down. The only exception was 1985, when the
market rallied in response to the fall in the oil price.
So, to cut a long story short, it seems logical to expect the US PPI to turn negative year on year,
long rates to fall (even though they are down a lot already), and perhaps corporate spreads to
widen (they have already started to widen for the most risky corporate bonds). As for the stock
market, the hope is that oil prices will continue to fall fast enough to deliver an early effective
tax cut, in which case we shall see a repeat of the 1985 scenario.
*** CHARLES GAVE / LINK
25 November 2014 24
Hmmm...
Switzerland May Give Every Citizen $2,600 a Month

Switzerland could soon be the worlds first national case study in basic income. Instead of
providing a traditional social netunemployment payments, food stamps, or housing credits
the government would pay every citizen a fixed stipend.
The idea of a living wage has been brewing in the country for over a year and last month,
supporters of the movement dumped a truckload of eight million coins outside the Parliament
building in Bern. The publicity stunt, which included a five-cent coin for every citizen,
came attached with 125,000 signatures. Only 100,000 are necessary for any constitutional
amendment to be put to a national vote, since Switzerland is a direct democracy.
The proposed plan would guarantee a monthly income of CHF 2,500, or about $2,600 as
of November 2014. That means that every family (consisting of two adults) can expect an
unconditional yearly income of $62,400 without having to work, with no strings attached. While
Switzerlands cost of living is significantly higher than the USa Big Mac there costs $6.72its
certainly not chump change. Its reasonable income that could provide, at the minimum, a
comfortable bare bones existence.
The benefits are obvious. Such policy would, in one fell swoop, wipe out poverty. By replacing
existing government programs, it would reduce government bureaucracy. Lower skilled workers
would also have more bargaining power against employers, eliminating the need for a minimum
wage. Creative types would then have a platform to focus on the arts, without worrying about
the bare necessities. And those fallen on hard times have a constant safety net to find their
feet again.
Detractors of the divisive plan also have a point. The effects on potential productivity are
nebulous at best. Will people still choose to work if they dont have to? What if they spend
their government checks on sneakers and drugs instead of food and education? Scrappy abusers
of the system could take their spoils to spend in foreign countries where their money has more
purchasing power, thus providing little to no benefit to Switzerlands own economy. Theres also
worries about the programs cost and long term sustainability. It helps that Switzerland happens
to be one of the richest countries in the world by per capita income.
The problem, as with many issues economic, is that there is no historical precedent for such
a plan, especially at this scale, although there have been isolated incidents. In the 1970s, the
Canadian town of Dauphin provided 1,000 families in need with a guaranteed income for a short
period of time. Not only did the social experiment end poverty, high school completion went up
and hospitalizations went down.
If you have a social program like this, community values themselves start to change, Evelyn
Forget, a health economist at the University of Manitoba, told The New York Times.
25 November 2014 25
Hmmm...
Similar plans have been proposed in the past. In 1968, American economist Milton
Friedman discussed the idea of a negative income tax, where those earning below a certain
predetermined threshold would receive supplementary income instead of paying taxes.
Friedman suggested his plan could eliminate the 72 percent of the welfare budget spent on
administration. But nothing ever came to fruition.
Its what makes the potential experiment in Switzerland so compelling. Developed countries
around the world are struggling to address the issues of depressed wages for low-skilled workers
under the dual weight of automation and globalization.
For German-born artist Enno Schmidt, one of the founders of the proposal, a living wage
represents continued cultural progress along the lines of womens suffrage or the civil rights
movement by providing dignity and security to the poor, while unleashing creativity and
entrepreneurial spirit.
I tell people not to think about it for others, but think about it for themselves, Schmidt told
the Times. What would you do if you had that income?
*** MOTHERBOARD (VIA ZEROHEDGE) / LINK
Oil industry risks trillions of stranded assets on US-China

climate deal
Brazils Petrobras is the most indebted company in the world, a perfect barometer of the crisis
enveloping the global oil and fossil nexus on multiple fronts at once.
PwC has refused to sign off on the books of this state-controlled behemoth, now under
sweeping police probes for alleged graft, and rapidly crashing from hero to zero in the Brazilian
press. The state oil company says funding from the capital markets has dried up, at least until
auditors send a comfort letter.
The stock price has dropped 87pc from the peak. Hopes of becoming the worlds first trillion
dollar company have deflated brutally. What it still has is the debt.
Moodys has cut its credit rating to Baa1. This is still above junk but not by much. Debt has
jumped by $25bn in less than a year to $170bn, reaching 5.3 times earnings (EBITDA). Roughly
$52bn of this has been raised on the global bond markets over the last five years from the likes
of Fidelity, Pimco, and BlackRock.
Part of the debt is a gamble on ultra-deepwater projects so far out into the Atlantic that
helicopters supplying the rigs must be refuelled in flight. The wells drill seven thousand feet
through layers of salt, blind to seismic imaging.
25 November 2014 26
Hmmm...
The Carbon Tracker Initiative says the break-even price for these fields is likely to be $120 a
barrel. It is much the same story for different reasons in the Arctic High North, off-shore
West Africa, and the Alberta tar sands. The major oil companies are committing $1.1 trillion to
projects that require prices of at least $95 to make a profit.
The International Energy Agency (IEA) says fossil fuel companies have spent $7.6 trillion on
exploration and production since 2005, yet output from conventional oil fields has nevertheless
fallen. No big project has come on stream over the last three years with a break-even cost
below $80 a barrel.
The oil majors could not even generate free cash flow when oil prices were averaging $100 ,
said Mark Lewis from Kepler Cheuvreux. They have picked the low-hanging fruit. New fields are
ever less hospitable. Upstream costs have tripled since 2000.
They have been able to disguise this by drawing down legacy barrels, but they wont be able
to get away with this over the next five years. We think the break-even price for the whole
industry is now over $100, he said.
A study by the US Energy Department found that the worlds leading oil and gas companies were
sinking into a debt-trap even before the latest crash in oil prices. They increased net debt by
$106bn in the year to March and sold off a net $73bn of assets to cover surging production
costs.
The annual shortfall between cash earnings and spending has widened from $18bn to $110bn
over the last three years. Yet these companies are still paying normal dividends, raiding the
family silver to save face.
This edifice of leverage all too like the pre-Lehman subprime bubble will surely be tested
after the 30pc plunge in Brent crude prices to $78 since June.
Prices could of course spike back up at any moment. Data from the US Commodity Futures
Trading Commission show that speculators have taken out big bets on crude oil futures. NYMEX
net long contracts have reached 276,000. This is a wager that the OPEC cartel will soon cut
output.
Yet there is little sign so far that the Saudis are ready to do so on a big enough scale to make a
difference....
*** AMBROSE EVANS-PRITCHARD / LINK
25 November 2014 27
Hmmm...
The Right Call

China has cut interest rates for the first time in more than two years, a powerful signal that
the government wants to step up support for the slowing economy. As fate should have it, a
rate cut was the very thing we had called for in our leader on Chinese monetary policy this
week. But we cannot claim to be clairvoyant. We had not expected the central bank to move
so quickly. Nor, for that matter, had most analysts or investors hence the big gains for
stocks, commodities and currencies sensitive to Chinese demand in the hours following the
announcement.
It is tempting to look at the rate cut through the simple lens of GDP: lower rates mean China
is switching policy to a pro-growth footing, or so the conclusion would go. While there is
undoubtedly some truth to that, two aspects of the decision show it is more complicated, and
indeed more interesting.
First, the Peoples Bank of China was at pains to stress that it was not, in fact, about growth.
The economy is growing within a reasonable range, it said. Instead, it emphasised the need
to reduce corporate financing costs to help struggling companies. A knee-jerk criticism of the
rate cute is that debt in China is already too high and this will only encourage yet more
borrowing. But over the past year, rates have been too lofty for companies to be able to
deleverage. Because producer prices are in deflationary territory, the real financing cost for
many has been above 8%. With lower rates and a little more inflation, companies will be able
refinance more cheaply and, in time, lessen their debt burdens.
This is certainly not the first attempt by the Chinese

government to reduce financing costs. Since September
it has provided nearly 800 billion yuan ($131 billion)
in medium-term loans to banks on the condition that
they lower borrowing rates for small businesses. Just
this week the State Council, or cabinet, promised to
loosen a rule that limits banks loans as a proportion
of their deposit base, freeing up more cash for them
to lend. The central bank has also been quick to make
short-term cash injections whenever the money market
has been gummed up. But as we wrote in this weeks
article, these efforts have come up short. They have
been far too narrowly focused and the PBOCs lack of transparency has caused confusion about
its real aims. Fridays announcement is a welcome change in tack. It would now be surprising if
China did not follow up with more rate cuts and more cash injections.
25 November 2014 28
Hmmm...
Second, this is an important step on the path towards interest rate liberalisation in China.
Previously, banks were allowed to set deposit rates 10% above the benchmark level; that has
now been raised to 20%. Competition among banks to attract savers should ensure that banks
offer the highest-possible rates. One-year deposit rates were effectively 3.3% before the rate
cut (10% above the 3% benchmark). They are likely to remain 3.3% (20% above the new 2.75%
benchmark). At the same time, the benchmark one-year lending rate has been cut to 5.6%.
Theoretically, lending rates have already been liberalised, with no floor on them; in reality,
bankers say they still price loans off the benchmark....
*** ECONOMIST / LINK
Japans stimulus plan is not courageous but foolhardy

In a world of unprecedented expansionary actions by central banks, the Bank of Japan is set to
outdo them all. Its plans to expand significantly the scale of its asset purchases imply that the
size of its balance sheet relative to gross domestic product will far outstrip that of others.
Some suggest such courage is to be emulated, not least by the European Central Bank. Others
rightly suggest the plan is not so much courageous as foolhardy. It is not needed and it
will not succeed in stimulating growth. Moreover, it carries risks that could seriously affect the
global economy.
First, the reason it is not needed. Japans recent slow growth has been largely driven by
demographic trends. Since 2000 growth in GDP per person of working age has been significantly
above that in the US. As for anxieties over persistent deflation, the level of Japanese
consumer prices has fallen less than 4 per cent in the past 15 years. There is no evidence of an
accelerating deflationary trend, nor of consumers delaying spending in anticipation of lower
prices. Indeed, the household saving rate has fallen since the 1990s from a traditionally high
level to zero.
Second, why it will not work. The underlying intention is to induce businesses to invest and
export. Neither seems likely to happen. Japans smaller companies export little and face higher
costs of imported goods and services as a result of a weaker yen. Its bigger ones have long
had the advantage of favourable financing conditions and large cash balances. They have not
responded with more domestic investment. Why should they do so now in the absence of the
significant structural reforms promised by Shinzo Abe, the prime minister?
The weaker yen has increased corporate profits but exports have responded sluggishly. All this
suggests policies aimed at raising consumer spending would have been more effective.
25 November 2014 29
Hmmm...
The BoJs policy of announcing a higher inflation target assumes expectations will ratchet up
accordingly. Even if it works, the policy could easily backfire. Indeed, recent weakness in the
economy might partially reflect this. Consumers have long faced falling nominal wages. If they
expect this to continue, while believing that inflation will rise, it implies lower real wages and
likely lower consumption. This likelihood will be increased, given terms of trade losses because
of a weaker yen and fears of higher sales taxes.
As for capital markets, expectations of faster inflation should normally result in higher nominal
interest rates on government debt. However, holders of government bonds might believe this
effect will be offset by central bank purchases of government bonds. Unfortunately, this belief
also points to the associated risks. Rates on government bonds have been very low for a long
time but things might be changing. Low bond rates and a relatively strong yen which, taken
together, equate to a low-risk premium were initially supported by high household saving, a
strong bias to investing in yen-denominated assets and a large current account surplus.
All three of these supports have disappeared. With the yen markedly weaker, any rise in the
risk premium for yen-denominated assets could push bond rates higher. This could trigger a
sequence of events leading to higher inflation rates.
Japans fiscal deficit is about 8 per cent of GDP and its stock of gross debt about 230 per cent
of GDP. Were the average rate on government bonds to increase to 2 per cent, and should
potential nominal growth fail to rise, the deficit would rise above 10 per cent of GDP. The pace
of government bond purchases announced by the BoJ, almost twice the size of the general
government deficit, would then have to rise further. Fears of still more monetisation and sharp
price rises would put more upward pressure on bond rates, and downward pressure on the yen,
in a self-fulfilling spiral that could quickly take inflation to very high levels. Such processes have
been seen often in the past 100 years, not least in Latin America....
*** WILLIAM WHITE / LINK
Draghi: ECB must now raise inflation as fast as possible

A prolonged period of low growth and weak inflation in the eurozone must now be reversed, the
chief of the European Central Bank (ECB) has warned.
Eurozone inflation rose to 0.4pc in the year to October, up from 0.3pc in the preceding month.
At that level, price growth remained stuck well below the ECBs medium-term target of close to
2pc.
It is essential to bring back inflation to target and without delay, Mario Draghi, president of
the ECB, said in a speech in Frankfurt on Friday.
The central bank official made reference to the quantitative easing schemes launched by
the Federal Reserve and the Bank of Japan, noting that they had reduced the strength of the
countrys respective currencies.
25 November 2014 30
Hmmm...
Traders sold the euro on Mr Draghis dovish comments, as the currency fell by more than three-
quarters of a percentage point to less than 1.25 against the dollar.
Crisis in the eurozone is hitting small companies confidence and cash flow, experts have
warned, with European suppliers demanding cash up front for orders while exporters are being
caught by customers delaying payment.
Mr Draghi stressed that while there had been improvements in the financial sphere, these had
not transferred fully into the economic sphere, where the situation remains difficult.
The currency bloc has an eye-wateringly high unemployment rate of 11.5pc, while economic
growth has ground to a near-halt .
The eurozone managed to dodge a third technical recession since the financial crisis, but it now
appears that the euro area economy is unlikely to pick up speed by the end of the year.
The ECB has made a number of interest rate cuts across the year in an attempt to boost the
economy, consequently bringing one of its three main rates the deposit facility rate into
negative territory.
The rate is currently maintained at -0.2pc, meaning that banks that park their money with the
ECB overnight have to pay the central bank for the privilege.
Mr Draghi has also announced a number of additional stimulus measures, some of which are yet
to be fully deployed including a scheme to purchase asset-backed securities.
If on its current trajectory our policy is not effective enough to achieve this [increase in
inflation], or further risks to the inflation outlook materialise, we would step up the pressure
and broaden even more the channels through which we intervene, the central bank chief said.
25 November 2014 31
Hmmm...
Gizem Kara, an economist at French bank BNP Paribas, said that the speech was clearly a step
up in rhetoric from Mr Draghi, signalling that he was willing to take further steps to boost the
economy.
The central banks credibility is likely to be challenged further by its own updates to forecasts
for growth and inflation, Ms Kara said, which should pave the way for additional easing,
possibly as early as the December policy meeting.
Financial markets have consistently predicted below target inflation in the eurozone since early
September, suggesting that price growth would be lower than 2pc in the period five to 10 years
away.
Mr Draghi suggested that longer-term indicators are on the whole within a range that we
consider consistent with price stability, while over shorter horizons these forecasts have
declined to levels he would deem excessively low.
*** UK DAILY TELEGRAPH / LINK
Unusual gold moves in Asian hours puzzle jittery traders

Some of the biggest price moves in gold since late October have, unusually, occurred in Asian
hours and traders more accustomed to following the lead of their Western counterparts suspect
a big increase in algorithmic trading may be to blame.
Sensitivity to the dollar-yen exchange rate may also help explain the moves, although some
traders speculated that the timing looked suspiciously like attempts to catch Chinese traders
off-guard during their lunch break.
Liquidity in Asia tends to be thin until Europe wakes up but recent weeks have been different:
COMEX gold futures, the busiest gold contract in the world, have suffered sharp sell-offs in Asia,
sometimes sparked by the news flow or currency moves but often for no identifiable reason.
It is unusual for Asia to be seeing these busy trading sessions, said David Govett, head of
precious metals at broker Marex Spectron in London.
I have spoken to a lot of people about it and the general consensus seems to be that there is a
big increase in algorithmic and high-frequency trading in this time zone nowadays as it can be
quite easy to push about, he said.
The trend began on Oct. 31, when U.S. gold futures fell through a major technical level of
$1,180 an ounce at around 3 p.m. Singapore time.
They fell $11 in a minute and nearly 9,000 lots were traded in five minutes, compared with just
535 lots in the five minutes preceding the drop.
25 November 2014 32
Hmmm...
Some of the dips in price have tracked dollar-yen movements, including that one on Oct.
31, when the Bank of Japan announced a surprise increase in monetary stimulus and the yen
tumbled.
The breach of $1,180 the lowest level hit by gold during last years 28 percent slide
sparked a huge sell-off in the precious metal over the next two weeks.
In the days following the first dip, gold tumbled 1 percent or hit new lows almost every other
day around the same time, between 12:45 p.m. and 1:45 p.m. Singapore time.
The slide took gold all the way down to $1,130.40 an ounce, its lowest since March 2010,
reached in Asian hours on Nov. 7, when nearly 4,000 lots changed hands in just one minute.
It has since recovered and is back trading near $1,180.
The price lurches that took the market lower often happened when traders in top gold
consumer China, which usually provides support for the metal, were out for lunch.
Someone is utilising these thin trading volumes to get a turbo steroid move, said a precious
metals trader in Hong Kong.
Traders in Tokyo have also noticed that the falls tend to happen a few minutes before their
markets are set to close.
Gold has seen a flurry of trading activity since the first break below $1,180 and its volatility is
currently at its highest in 2014.
A growing awareness of the new Asian trend may have served to intensify it.
At one point in the last two weeks, there was huge selling at around the same time every
other day, said a trader in Tokyo. Some people noticed that and went short just before that
particular hour.
This trader and others speculated that the selling could be coming from hedge funds.
The simplest explanation for the volatility in Asia remains the rise in the dollar to a seven-year
high against the yen. A stronger greenback makes dollar-denominated bullion more expensive
for holders of other currencies.
There is definitely more Japanese participation. Gold could be sold off along with the yen
so that Japanese investors could put money into the Nikkei, said Tan Tien Leong, chief
investment officer of Singapore-based hedge fund AN Commodity.
We are taking much smaller positions in gold and keeping it very simple because there is lots
of uncertainty out there.
*** REUTERS / LINK
25 November 2014 33
Hmmm...
The Low Official Found with Towering Pile of Cash, Gold and
Properties
The Communist Partys anti-graft watchdog recently found 37 kilograms of gold, documents
showing ownership of 68 properties and 120 million yuan in cash at the home of an official in
the northern province of Hebei who is facing a graft inquiry.
Ma Chaoqun, a deputy researcher in the Qinhuangdao City urban management bureau and
general manager of the water supply company in the citys Beidaihe district, is facing charges
related to taking bribes, embezzlement and misappropriating public funds, the official Xinhua
News Agency reported.
The Chinese public has become used to seeing high officials fall from grace amid a party
crackdown on graft that started in late 2012. The public witnessed a soap opera-like saga
engulf Bo Xilai, the former boss of the southwestern municipality of Chongqing who aspired to
hold even greater power.
It has also seen the party announce it is investigating Zhou Yongkang, a former member of the
partys highest decision-making body, the Politburo Standing Committee, and been amazed by
reports that an official in the National Energy Administration stashed 100 million yuan a figure
later raised to 200 million yuan at a home in Beijing.
But Mas case is different. He is among a number of low-ranking Hebei officials accused
of corruption after a recent central government inspection uncovered irregularities. He is
receiving a great amount of public attention not just because of the huge amounts of assets
involved, but also because he is such a minor official. Graft busters have perhaps summed
the situation up best, describing the episodes involving people like Ma as little official, giant
corruption.
People in Qinhuangdao a major coal-importing port city that is also home to the Shanhaiguan
tourist area where the Great Wall meets the sea say the investigation into Ma was triggered
by a report from a hotel that said he was using his power over water supplies to ask for a bribe.
Ma wanted millions of yuan from a new luxury hotel in exchange for a secure water supply,
Xinhua said. A representative of the hotel recorded Ma making the request and sent a copy of
the recording to the authorities.
The hotel is the Huamao Sheraton in Beidaihe, local source says. The hotel, which is owned by
Beijing Guohua Real Estate Co., opened in 2013.
Employees of the Huamao Sheraton Hotel denied any link to Ma when contacted by Caixin in
mid-November.
Ma has for years used his power as head of Beidaihe Water Supply Co. to enrich himself, a local
source said. The employee of a local hotel said that Ma once threatened to cut off the water
supply if he was not paid.
25 November 2014 34
Hmmm...
The Beidaihe Water Supply Co. was established in 2011 under the Qinhuangdao Urban
Management Bureau. It is responsible for supplying tourist resorts in the Beidaihe and Nandaihe
districts, as well as in new urban areas. The Beidaihe District is home to a summer resort for
central government leaders.
A source in Xigucheng Village on the outskirts of Beidaihe said Ma owns a hostel there on land
he got almost free from village heads. An employee of the villages party committee confirmed
that Ma owns the building and said the land was rented to him for a relatively low price.
Mas family has denied he is corrupt. His mother, Zhang Guiying, said at a press conference on
November 13 that Ma was being framed by his supervisor, Ma Zhuang, the chief of the citys
urban management bureau. She said Ma Zhuang joined the bureau in May 2013 and has not
gotten along with Ma Chaoqun. The two had even had physical confrontations, she said.
On November 14, Ma Chaoquns sister-in-law, Meng Qiuhong, publicly accused Ma Zhuang of

corruption and said he framed their relative to prevent his own graft from being exposed.
Zhang and Meng also said that Ma Chaoqun did not own any of the assets.
All of this money and property was seized from the home of Mas parents and accumulated in a
legitimate way by Ma Chaoquns late father, Ma Bingzhong, Zhang said. She said Ma Bingzhong
died more than a year ago.
Caixin contacted prosecutors in Qinhuangdao and in the Beidaihe district, but they refused to
comment on the case, saying the investigation is still underway.
Zhang and Meng said that prosecutors raided apartments owned by Mas parents in February.
Mas younger brother and sister were also taken away by investigators and had many of their
assets seized. The authorities have not told them where Ma is....
*** CAIXIN / LINK
Do We Achieve World Order Through Chaos or Insight?

SPIEGEL: Dr. Kissinger, when we look at the world today, it seems to be messier than
ever with wars, catastrophes and chaos everywhere. Is the world really in greater
disorder than ever before?
Kissinger: It seems that it is. There is chaos threatening us, through the spread of
weapons of mass destruction and cross-border terrorism. There is now a phenomenon
of ungoverned territories, and we have seen in Libya, for example, that an ungoverned
territory can have an enormous impact on disorder in the world. The state as a unit is
under attack, not in every part of the world, but in many parts of it. But at the same
time, and this seems to be a paradox, this is the first time one can talk about a world
order at all.
25 November 2014 35
Hmmm...
SPIEGEL: What do you mean by that?
Kissinger: For the greatest part of history until really the very recent time, world order
was regional order. This is the first time that different parts of the world can interact
with every part of the world. This makes a new order for the globalized world necessary.
But there are no universally accepted rules. There is the Chinese view, the Islamic view,
the Western view and, to some extent, the Russian view. And they really are not always
compatible.
SPIEGEL: In your new book, you frequently point to the Westphalian Peace Treaty of 1648
as a reference system for world order, as a result of the Thirty Years War. Why should a
treaty dating back more than 350 years still be relevant today?
Kissinger: The Westphalian Peace was made after almost a quarter of the Central
European population perished because of wars, disease and hunger. The treaty was
based on the necessity to come to an arrangement with each other, not on some sort of
superior morality. Independent nations decided not to interfere in the affairs of other
states. They created a balance of power which we are missing today.
SPIEGEL: Do we need another Thirty Years War to create a new world order?
Kissinger: Well, thats a very good question. Do we achieve a world order through
chaos or through insight? One would think that the proliferation of nuclear weapons, the
dangers of climate change and terrorism should create enough of a common agenda. So I
would hope that we can be wise enough not to have a Thirty Years War.
SPIEGEL: So lets talk about a concrete example: How should the West react to the
Russian annexation of Crimea? Do you fear this might mean that borders in the future are
no longer incontrovertible?
Kissinger: Crimea is a symptom, not a cause. Furthermore, Crimea is a special case.

Ukraine was part of Russia for a long time. You cant accept the principle that any
country can just change the borders and take a province of another country. But if the
West is honest with itself, it has to admit that there were mistakes on its side. The
annexation of Crimea was not a move toward global conquest. It was not Hitler moving
into Czechoslovakia.
SPIEGEL: What was it then?
Kissinger: One has to ask ones self this question: Putin spent tens of billions of
dollars on the Winter Olympics in Sochi. The theme of the Olympics was that Russia is
a progressive state tied to the West through its culture and, therefore, it presumably
wants to be part of it. So it doesnt make any sense that a week after the close of the
Olympics, Putin would take Crimea and start a war over Ukraine. So one has to ask ones
self why did it happen?
25 November 2014 36
Hmmm...
SPIEGEL: What youre saying is that the West has at least a kind of responsibility for the
escalation?
Kissinger: Yes, I am saying that. Europe and America did not understand the impact of
these events, starting with the negotiations about Ukraines economic relations with
the European Union and culminating in the demonstrations in Kiev. All these, and their
impact, should have been the subject of a dialogue with Russia. This does not mean the
Russian response was appropriate.
SPIEGEL: It seems you have a lot of understanding for Putin. But isnt he doing
exactly what you are warning of creating chaos in eastern Ukraine and threatening
sovereignty?
Kissinger: Certainly. But Ukraine has always had a special significance for Russia. It was
a mistake not to realize that.
SPIEGEL: Relations between the West and Russia are tenser now than they have been in
decades. Should we be concerned about the prospects of a new Cold War?
Kissinger: There clearly is this danger, and we must not ignore it. I think a resumption of
the Cold War would be a historic tragedy. If a conflict is avoidable, on a basis reflecting
morality and security, one should try to avoid it....
*** BLOOMBERG / LINK
25 November 2014 37
Hmmm...
Charts That Make You Go Hmmm...
Money suffuses our [US] political system. Candidates must spend huge sums to get
elected, and once they do, well-funded interests spend huge sums to influence how they vote.
Campaign finance laws are being struck down, and money is rushing into outside groups that
dont have to disclose their donors. Some studies have found companies can get as much as a
22,000 percent return on their lobbying dollars, while a recent poll from the Global Strategy
Group found that more than 90 percent of Americans wants to reduce the role of money in
politics. Heres whats going on in charts, of course.
*** VOX.COM / LINK
25 November 2014 38
Hmmm...
The [Swiss gold] referendum, if passed, will mean that (1) The SNB must hold
20% of all assets as gold, (2) Switzerland will repatriate the 30% of their gold held abroad by
England and Canada, and (3) Switzerland may no longer sell any gold they accumulate.
In the most recent polling, 38% of respondents supported the initiative, 47% were against, and
15% were undecided. The poll has a 3% margin of error as well. While support is down from the
previous poll, anything is still possible on November 30th.
Switzerland currently holds 1,040 tonnes, or 7.7% of its reserves in gold. The country actually
holds the highest amount of gold per capita (4.09 oz per citizen). However, it used to be an
even bigger holder of the yellow metal. In 2000, the SNB held 2,500 tonnes of gold and it has
also been the biggest national seller since.
The implications of the vote are huge. With a yes, the SNB would have to purchase at
least 1,500 tonnes of gold to meet the 20% threshold for 2019. Thats about half the worlds
annual production. It would also put Switzerland back in the top three for most gold holdings
worldwide.
*** VISUAL CAPITALIST / LINK
25 November 2014 39
Hmmm...
Greg Weldon is not only a great guy, but hes whip-smart, and his technical analysis
is amongst the best youll find anywhere. Where else can you dig this deep into the knock-on
effects and the stresses being created by a wildly strengthening US dollar? Check out Gregs
service at www.weldononline.com youll be glad you did.
25 November 2014 40
Hmmm...
Words That Make You Go Hmmm...

Dutch TV this week took a look at the
SGI. On the plus side, they had the good sense
to interview Superhero Koos Jansen (and
though they revealed his true identity, the
location of the Kooscave is still a secret). On
the minus side, they dug up an economist who
explains why the Swiss have always been
perceived as a weird country. Throw in a
little cuckoo-clock ompah music and some
70s-throwback-lookin dudes and you have
some classic European TV...
CLICK TO WATCH
Jim ONeill, formerly of Goldman

Sachs...
CLICK TO WATCH
Lars Schall is one of the rising stars

of the precious metals space, and I was
delighted to chat to him this past week about
the Swiss Gold Initiative.
CLICK TO LISTEN
25 November 2014 41
Hmmm...
and finally...
Dont call me Nick...

On the right, sporting the moustache, is Nikola Tesla. On the left, a group of Silicon Valley VCs.
Never the twain shall meet but if they did...
Enjoy
(Thanks Kevin & Mark)
CLICK HERE TO VIEW VIDEO
Hmmm...
25 November 2014 42
Hmmm...
Grant Williams
Grant Williams is the portfolio and strategy advisor to
Vulpes Investment Management in Singapore a hedge
fund running over $280 million of largely partners
capital across multiple strategies.
The high level of capital committed by the Vulpes

partners ensures the strongest possible alignment
between the firm and its investors.
Grant has 28 years of experience in finance on the

Asian, Australian, European, and US markets and
has held senior positions at several international
investment houses.
Grant has been writing Things That Make You Go Hmmm... since 2009.
For more information on Vulpes, please visit www.vulpesinvest.com.
*******
Follow me on Twitter: @TTMYGH
YouTube Video Channel: http://www.youtube.com/user/GWTTMYGH
PDAC 2014 Presentation: Gold and Bad: A Tale of Two Fingers
ASFA Annual Conference 2013: Wizened in Oz
66th Annual CFA Conference, Singapore 2013 Presentation: Do the Math
Mines & Money, Hong Kong 2013 Presentation: Risk: Its Not Just a Board Game
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 fundsthough I will not be
making any specific recommendations in this publication.
25 November 2014 43
Hmmm...
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Hmmm...

THINGS THAT MAKE YOU GO

A walk around the fringes of finance

How Could It Happen?

Whats happened to me, he

Well, this is basically the end, so the answers should be in these

THINGS THAT MAKE YOU GO HMMM... ...................................................4

CHARTS THAT MAKE YOU GO HMMM... ..................................................37

WORDS THAT MAKE YOU GO HMMM... ...................................................41

AND FINALLY... .............................................................................42

Things That Make You Go Hmmm will no longer be published by Mauldin

And now back to our regularly scheduled programming...

Things That Make You Go Hmmm...

Because thats boring. The reply was borne of the

It began in early November of 2014, when a man

Most people believed what the Chinese Central Bank

The boy smiled, and his grandfather pushed on.

SIMPLIFIED GOLD SUPPLY 1983-2002 Tonnes

Possible Destinations For World Gold Production

But Grandad, YOU didnt get hurt, did you?

He smiled again and went on with the story.

(Alasdair Macleod): In the 1990s, a new generation of Swiss portfolio managers

Strategy, he said, then, after a pause (and with

years, but most of that wealth had come in the form

those? access to each others currencies without the need

10,000 WGC: Official Gold Reserves (tonnes)

WGC: Gold Reserves as % of Total Reserves

But this is the best bit! the boy replied excitedly.

The initiative is not in Switzerlands interest because it wants to fundamentally

It would be disastrous if Switzerland limited its own capabilities to react to

(Smaulgold): This is a disingenuous argument, since the misguided goal of European

Gold Price (US$)

1350 21ST OCTOBER 2014:

(Marketwatch): Gold retreated on reports Wednesday that support for a Swiss

for the Swiss gold measure, according to the

Strangely, at the time, the comments sections of most

Total Known ETF Holdings of Gold & Silver

2006 2007 2008 2009 2010 2011 2012 2013 2014

DNB Adjusts Gold Reserves Allocation Policy

Press release, date November 21, 2014.

So, some people refer to that as the Golden Domino,

Which one do you think was the Golden Domino,

How did it happen? he mused to himself as he rose. How could it not?

Source: Hal Lucination

Koos Jansen is interviewed on a Dutch TV show talking about you-know-what; ex-Goldman

Until next time...

The Swiss Gold Initiative: An Update from Egon von Greyerz

A new opinion poll came out last week showing a

This swing is really not surprising because the

Government ministers and especially Widmer-Schlumpf are in the media daily

Xi puts the willies up Chinas super-wealthy

Indeed, Asia is expected to surpass Europe by 2027, the report estimates.

Thats what I keep telling my bank manager.

*** FINANCE ASIA / LINK

The Signal In Silver

*** CHARLES GAVE / LINK

Switzerland May Give Every Citizen $2,600 a Month

*** MOTHERBOARD (VIA ZEROHEDGE) / LINK

Oil industry risks trillions of stranded assets on US-China

*** AMBROSE EVANS-PRITCHARD / LINK

The Right Call

This is certainly not the first attempt by the Chinese

*** ECONOMIST / LINK