War With Iran has Begun, Gold to Break $2,000: Jim Rickards

Here's a GATA release from yesterday...

Our friends at the Philadelphia law firm of Berger and Montague this week brought a class-action lawsuit in federal court in New York, charging theft and misappropriation, against people connected with the failed commodity brokerage firm MF Global, including its former CEO, former New Jersey U.S. Sen. and Gov. Jon Corzine; MF Global's enabler and supposed regulator, CME Group; and the investment bank JPMorganChase. The lawsuit is brought under both the Commodity Exchange Act and the Racketeer-Influenced Corrupt Organizations Act -- the famous RICO.

How to participate in this lawsuit...and a pdf copy of the complaint itself...is contained in this GATA release...and the link is here.

The collapse of MF Global has wreaked havoc on farmers, ranchers and other investors who were clients of the brokerage firm, prompting a loud outcry over the disappearance of $1.2 billion in customer cash.

But they are not the only ones to suffer. The financial information giant Bloomberg L.P. lost about 600 subscriptions to its computer terminals — which translates to nearly $1 million in monthly revenue — after MF Global filed for bankruptcy on Oct. 31. The sudden loss of business caused Bloomberg employees to miss their target sales by 12 percent in 2011, people briefed on the matter said, a shortfall that could take a toll on the firm’s bonuses.

While $1 million sounds like a rounding error for Bloomberg, which generates nearly $7 billion in revenue a year, the hit underscores the symbiotic relationship between Wall Street and Bloomberg.

I understand their pain, but somehow I just can't bring myself to feel sorry for them. Reader Phil Barlett sent me this Bloomberg story at 4:01 a.m. Eastern time this morning...and the link is here.

As the chart below vividly demonstrates, the traditional diagonal rise in foreign holdings of US paper has not only plateau, but it is in fact declining: a first in the history of the post-globalization world.

Well as of today's H.4.1 update, the outflow has increased by yet another $8 billion to a new all time record of $85 billion, in 6 consecutive weeks, which is also tied for the longest consecutive period of outflows from the Fed's Custody account ever. This week's sale brings the total notional of Treasuries in the Custody account to just $2.66 trillion (down from a record $2.75 trillion) and the same as April of last year.

This zerohedge.com piece from yesterday was sent to me by West Virginia reader Elliot Simon. The graph is worth a quick look...and the link is here.

The US Federal Reserve fretted about a slowdown in housing in 2006, but never considered the possibility that it could cause a financial crisis, according to complete transcripts of that year's meetings.

The transcripts, released on Thursday, highlight the failure of the Fed -- one matched by most other central banks, commentators, and economists around the world -- to spot dangers to the financial system from subprime mortgage lending. That complacency set the stage for the devastating crisis that began in the summer of 2007.

Indeed, a number of Fed officials saw the housing slowdown as welcome news that would help resolve a potential threat to the economy.

"As to housing, we are in fact, as all have noted, squeezing out of that sector the speculative excesses that developed with the low interest rates of recent years -- and doing so is unavoidable if we want to correct the sector," said Thomas Hoenig, then president of the Kansas City Fed, at the September 2006 meeting of the FOMC.

This story was filed in the Financial Times yesterday...and is well worth the read. It's posted in the clear in this GATA release...and the link is here.

As government, federal regulators and big-money private investors try to figure out a plan for bulk sales of foreclosed properties, big banks are already making deals, but they are few and far between.

The trouble is, they are looking at even bigger write-downs than forecast if they sell these distressed properties in bulk.

"One of the things that might be holding these bulk sales back is that the assets might not have been fully written down by the banks," says Rick Sharga of Carrington Mortgage Holdings, a private equity firm. "The problem for the banks is that in that scenario, when they sell off these assets in bulk, they have to recognize pretty significant losses all at once, rather than spread those losses out over a longer period of time."

This cnbc.com story from yesterday is another Elliot Simon offering...and the link is here.

2011 was a merry-go-round of more bailouts, more deferrals and more denial. Everyone is tired of the Eurozone. It’s not fixable. There’s too much debt. The politicians don’t know what’s going on. Nothing has structurally changed. We’re still on the wrong path. There’s more global debt than there was a year ago, and it’s the same old song: extend and pretend, extend and pretend,… around and around we go,… and it isn’t fun anymore.

Just as we wrote back in October 2007, and again in September 2008, we feel compelled to state the obvious: that the financial system is a farce. It’s a complete, cyclical farce that defies all efforts to right itself. This past year continued the farcical tradition with some notable scandals, deferrals and interventions that underscored the system’s continuing addiction to government interference. With the glaring exception of US Treasuries and the US dollar (which are admittedly two of our least favourite asset classes), it was not a year that rewarded stock picking or safe-haven assets. Many developments during the year bordered on the ridiculous, and despite some positive news out of the US, we saw little to test our bearish view. If anything, our view was continually re-affirmed.

January's Market's at a Glance commentary is posted over at the sprott.com website...and the link to this must read 4-page pdf file is here.

Spain sold nearly €10bn of three and four-year debt - nearly twice the targeted amount - at the cheapest rate for months in a move that was seen as a vote of confidence in new prime minister Mariano Rajoy's austerity efforts.

Italy sold €12bn of bills at a yield of 2.735pc - less that half the rate at a bond auction last month.

Italy's stock market rose more than 2pc, the euro rose against both the dollar and sterling, and the implied borrowing costs for Rome and Madrid fell to their lowest levels since March and September respectively.

Some analysts hailed a turning point in the debt crisis amid claims that the auctions proved that the European Central Bank's (ECB) radical lending programme was working.

This Roy Stephens offering was posted in The Telegraph yesterday...and the link is here.

Italian Prime Minister Mario Monti has said from the beginning of his seven-week tenure that the government’s efforts to pay down its massive debts would include across-the-board pain that would impact everyone equally.

This month, he turned his bazooka toward the super-rich, where tax evasion appears to be rampant.

The group is an easy target. According to Italian newspapers, people reporting incomes of less than 20,000 euros (about $26,000) per year cumulatively own 188,000 supercars, (such as Ferraris, Lamborghinis, Porsches, or BMW couples), 518 private airplanes or helicopters, and some 42,000 yachts.

All together, 15 million Italians — about 1 out of 4 citizens — declared no income last year. Reports indicate that nearly a fifth of that group own at least three homes.

On Monti’s orders, tax police swooped down on a half a dozen ski resorts and seaside spas, gathering evidence of tax evasion. A single raid on five-star hotels and Michelin-starred restaurants in the Dolomite ski resort of Cortina found 42 so-called supercars with an average price tag of 200,000 euros registered to owners squeaking by on less than 20,000 euros each year.

Needless to say, this businessinsider.com story from yesterday is a very interesting read. I thank Casey Research's own Alex Daley for sending it along...and the link is here.

Even before the euro crisis, people were worried about Europe’s pension bomb.

State-funded pension obligations in 19 of the European Union nations were about five times higher than their combined gross debt, according to a study commissioned by the European Central Bank. The countries in the report compiled by the Research Center for Generational Contracts at Freiburg University in 2009 had almost 30 trillion euros ($39.3 trillion) of projected obligations to their existing populations.

Germany accounted for 7.6 trillion euros and France 6.7 trillion euros of the liabilities, authors Christoph Mueller, Bernd Raffelhueschen and Olaf Weddige said in the report.

“This is a totally unsustainable situation that quite clearly has to be reversed,” Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington, said in a telephone interview.

This Bloomberg story was posted over at the businessweek.com website yesterday morning...and is Roy Stephens second offering of the day. The link is here.

As the weakest of the EU's three major institutions, the European Parliament has often been viewed as little more than a rubber stamp for the others. But Martin Schulz, the German Social Democrat who will become its president next week, plans to change that -- and he's not afraid of ruffling feathers in the process.

Even the boost it was given by the Lisbon Treaty has done nothing to change its relative position. Its weakness already starts with the fact that it isn't marked by the classic division into governing and opposition factions. The parliament has 736 members, known as MEPs, from 27 countries, who are haphazardly divided according to interests, and their political alliances change depending on the issue at hand.

Now more than ever, in the midst of the greatest crisis the EU has ever faced, one would think there would be a need for a strong parliament to make sure the people of Europe are on board. But the fact is that most people are barely aware of the parliament. The most important decisions are made among the heads of state and government comprising the European Council -- provided, of course, they haven't already been decided upon behind the scenes by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

This story showed up on the German website spiegel.de yesterday...and is also courtesy of Roy Stephens. The link is here.

China could be the next country to go bust, if its headlong rush to build ever-taller skyscrapers is a guide to its future economic health.

According to a study by Barclays Capital, the mania for skyscrapers over the last 140 years is a sure indicator of an imminent crash. It points out that the construction boom that threw up New York's Chrysler and Empire State buildings preceded the New York crash of 1929 and Great Depression.

More recently, Dubai built a forest of skyscraping offices, hotels and apartment buildings, including the world's tallest, the Burj Khalifa, before it got into terrible financial difficulties. In 2010 Dubai had to be bailed out by its neighbour, Abu Dhabi, to avoid going bankrupt.

This interesting story out of The Guardian yesterday was sent to me by Swiss reader B.G. The link is here.

The U.S. military said on Wednesday that a new aircraft carrier strike group had arrived in the Arabian Sea and that another was on its way to the region, but denied any link to recent tensions with Iran and portrayed the movements as routine.

The shift in the powerful U.S. naval assets comes at a moment of heightened tensions with Iran, which has threatened to close the Strait of Hormuz - the world's most important oil shipping lane - if U.S. and EU sanctions over its nuclear program cut off its oil exports.

The U.S. military has said it will halt any blockade of the strategic strait and the top U.S. naval officer acknowledged on Tuesday that preparing for a potential conflict there was something that "keeps me awake at night."

This Reuters story showed up in yesterday's King Report...and the link is here.

Eric King sent me this blog at midnight last night. It's an absolute must read, of course...and it's posted over at the King World News website. The link is here.

Although both the gold and silver markets have been subjected to extreme manipulation, it is clear that manipulation of the silver market has been much more severe. There are two related numbers which illustrate this point.

Knowledgeable investors know that the long-term price ratio of gold versus silver (i.e. over roughly 5,000 years) has averaged approximately 15:1. This closely coincides with the ratio of the natural occurrence of these two elements in the Earth's crust (approximately 17:1). Not only did this price ratio remain relatively constant over several millennia, but the fact that the price ratio so closely mirrors the rate of occurrence of the two metals shows that (in relative terms) our species has demonstrated a roughly equal preference for the two metals throughout recorded history.

These facts establish beyond any possible contradiction that over the medium or long term the price of silver must remain at close to a 15:1 ratio versus the price of gold. There is only one factor which could alter this arithmetic: if our preference toward the two metals changed. Has any such change in preferences occurred? Yes. Silver has become much more popular.

This short op-ed piece showed up over at thestreet.com website on Wednesday...and I thank reader Phil Barlett for sending it along. It's worth the read...and the link is here.

The surge in the U.S. Mint’s sales of American Eagle silver coins in January may signal an end to the bear market in the metal.

The Mint sold 4.60 million ounces of the coins to authorized purchasers Jan. 3 through Jan. 12. At this pace, full-month deliveries may reach 14.2 million ounces, more than twice the record 6.422 million ounces sold in January 2011.

“When people see dips now in silver they are going to get in,” said Terry Hanlon, president of Dillon Gage Metals. The Addison, Texas-based company is one of 11 dealers authorized to purchase silver coins in the U.S. directly from the Mint. “There are more fund managers who are pulling out of the exchange-traded funds and buying physical metals, which is a new trend. They want a product that they can liquidate quickly and in increments they want. People do feel comfortable being in control over storing the product.”

This businessweek.com story was posted on their website yesterday. I thank reader Matthew Nel for bringing it to my attention...and now to yours. The link is here.

Gold mining entrepreneur and gold advocate Jim Sinclair told King World News yesterday that gold's downside risk is gone and that five big U.S. banks have big derivatives problems.

I borrowed the title and the introduction from a GATA dispatch...and the link to this must read KWN blog, is here.

Premiums for gold bullion bars in Asia are rising again and are at their highest since October in Hong Kong and Singapore. Premiums are at $2.15/oz in Hong Kong and $1.65/oz in Singapore. Bullion’s strength was also attributed to the euro’s 16 month low, with Fitch warning the ECB to purchase assets to try to stabilize the euro.

This story showed up posted over at the goldcore.com website yesterday. I thank Roy Stephens for his final offering of the day...and the link is here.

Like haute couture, gold’s worth is very much in the eye of the beholder. Mix the two and, in valuation terms, you’re into CDS-squared territory.

But Jean-Paul Gaultier, the French fashion designer famous for putting Madonna in a bra that could take your eye out, has done exactly that. Fashionistas with a taste for the flamboyant but more than a little concerned about the side effects of quantitative easing can now buy a one-ounce 24 karat gold bar engraved with a heart, rays and Gaultier’s name on a banner.

Dillon Gage Metals, based in Dallas, TX, is the U.S. distributor. According to them, this is the first time a “fashion icon” has turned his hand to jazzing up gold ingots. The Jean-Paul Gaultier bar carries a slight premium because of its unique design and limited mintage.

Well, dear reader, the article may not interest you, but the photo of the gold bar is well worth looking at. I thank reader Erik Nelson for sending me this story out of yesterday's edition of The Wall Street Journal...and the link is here.