Former White House Official – Expect More Government Theft

Today the former Special Assistant to the President of the United States for Economic Policy and former member of the U.S. President’s Working Group on Financial Markets issued a disturbing and even frightening warning to King World News to expect more government theft going forward.  While in the White House, Dr. Philippa “Pippa” Malmgren served as financial market advisor in the White House and functioned as the liaison between the White House and the Federal Reserve.  

Dr. Malmgren formerly headed the Global Asset Management business for Bankers Trust in Asia, out of Hong Kong, and was also Chief Currency Strategist for Bankers Trust Company, and former Head of Global Investment Strategy at UBS.  Dr. Malmgren was also a senior consultant to Deutsche Bank, and currently advises the largest sovereign wealth funds, hedge funds, and pension funds in the world.  Below is what Dr. Malmgren had to say in the third and final of a remarkable three part interview series which has now been released on King World News. 

Dr. Malmgren spoke about government theft going forward:  “Look, we are in a world where every major industrialized government doesn’t have the funds to deliver on the promises they’ve made to the public.  So they are going to reach for the public’s cash in different ways….

“Some of it is through higher taxes.  Some of it is what I would call ‘expropriation,’ although taxation and even inflation are a version of that.  But for example, Portugal, about a year ago, announced that they were nationalizing three of Portugal Telecom’s pension funds and placing the assets on the government’s balance sheet so that the government’s balance sheet would look better for the purposes of negotiating with the EU.

Now, were those pensioners expropriated?  Yes.  It made page 14 of the Wall Street Journal and the Financial Times, as if it was a non-event.  But I think what we saw in Cyprus, a really overt expropriation, we are going to see that come in lots of different forms (going forward).  Some of it will be obvious like Cyprus.  Some of it will be subtle like Portugal, but what’s sure is that it’s happening.”


Swiss To Vote On Gold Repatriation – “Gold Is The Only Valuable Asset On The SNB’s Balance Sheet”

A few weeks ago, we wrote of the Swiss People‘s Party’s efforts to gain enough signatures to force the Swiss National Bank (SNB), who ‘supposedly’ guarantees the price stability in Switzerland, to stop selling its gold reserves. This last week, as the FT reports, they reached the required 100,000 signature mark and on Thursday the federal chancellery confirmed Switzerland is to hold a referendum that would ban the central bank from selling its gold reserves, force it to keep at least 20% of its assets in the metal, and  repatriate gold reserves held abroad and keep them at home. Following Cyprus‘ forced sales and discussions of the net wealth in other European peripheral nations, proponents of the Swiss measure flatly reject the idea of sales, arguing that disposals of gold reserves at low prices between 2001 and 2006, as well as more recently, have cost Switzerland billions of Swiss francs. The “Save Our Swiss Franc” initiative proclaims, “today gold is almost the only really valuable asset left on the SNB’s balance sheet.” The SNB, however, is concerned at, “the monetary policy implications of the demands in the initiative.” A date for the referendum has not yet been set – but the FT notes that previous ‘referenda’ have taken up to several years from acceptance to actual vote.

Via The FT,

Switzerland is to hold a referendum on a popular measure that would ban the central bank from selling its gold reserves and force it to keep at least 20 per cent of its assets in the metal.

Under the terms of “Save our Swiss Gold”, which is led by members of the ultra-conservative Swiss People’s party, the Swiss National Bank would have to repatriate gold reserves held abroad and keep them at home.

Governments in the eurozone’s beleaguered southern periphery tend to hold a large part of their total foreign reserves in gold – the Italian central bank holds 2,451 tonnes, more than 70 per cent of its total reserves, while Portugal’s holding of 383 tonnes accounts for 90 per cent.

They insist that the SNB’s gold reserves, which stood at SFr49.5bn at the end of February, accounting for about 10 per cent of its balance sheet, are the best store of value available to the central bank.

…”Today gold is almost the only really valuable asset left on the SNB’s balance sheet,”…

“We have considerable concerns with regard to the monetary policy implications of the demands in the initiative,” the [SNB] said, adding that it would provide a fuller response “in due course”.

A date for the referendum has not yet been set. However, it is not uncommon for the period between an initiative being accepted for referendum and a vote being held to extend to several years.


Gold bounces back – but for good?

Gold is on the rebound after a 4.5% drop this week, and the plunge has triggered serious concern about the condition of the global economy.

The Comex index has passed the $1,400 mark, gaining 21.5 points to $1,412.60 an ounce at 15:17 DST.

“We are already seeing a strong response to the fall in prices, with a sharp pick-up in physical gold sales by investors and retail consumers in the two key consumer markets – India and China,” Mark Pervan, head of commodity strategy at Australia & New Zealand Banking Group, wrote to Bloomberg today.

While the value of the biggest gold producers declined by $169 billion, jewelers took advantage of the 30-year record-low gold prices to stock up for anticipated high demand retail and jewelry sales.

Chinese and Indian jewelers are optimistic that gold will rebound as much as 29% by December 2013, to as high as $1,800 an ounce, as demand increases, according to billionaire Indian jeweler T.S Kalyanaraman, Reuters reported.

“There’s been continued buying interest, particularly into China,” Nigel Moffatt, treasurer of Australia’s Perth Mint said on Bloomberg Television Friday.

Americans took advantage of the price dip to buy stock in a historically high yielding investment.

In April, the US Mint sold 153,000 ounces of American Eagle gold coins, a three year high, according to its website.

Red flag for continued recession

The recent slump in gold has been paired with disturbing economic data forecasting significant slowing in some of the world’s largest economies – the US, China, and Russia.

The gold drops are “signaling concerns about global growth,” said Mohamed El-Erian, the co-chief investment officer of PIMCO, which oversees $2 trillion in assets, Reuters reported.

“Commodities have been sending the signal on growth for a while, and now even louder,” El-Erian added.

Gold has certainly been the ‘loudest’ of the flailing indexes, after it plunged 14% in the first two April sessions, hitting a 30-year low as slowed growth data from the US and China trickled in. Prices also dropped as the Cypriot bailout payment plan toyed with the idea of selling 75% of their reserves to help finance the bailout, which spooked investors other cash-strapped European states, like Spain and Portugal, might do the same.

The economic slowdown was confirmed by the International Monetary Fund on Tuesday when it trimmed back its forecast on economic growth in 2013, down to 3.3% from the earlier 3.5% projection.

Citigroup predicted, and was correct, that 2013 would be the first year when commodity prices at the end of the year were lower than at the beginning.

Citigroup predicted the end of the ‘super-cycle’ – when rising prices commodities supersede demand.

As growth slows, governments are scrambling to find a way to stay afloat. Most governments are doing this via cash stimulus- simply printing more money to avoid deflation, the Bank of Japan the premier example.

The recent retreats in gold, oil, and other precious metals and energy stocks, are evidence to many of a weak – and maybe slightly unstable – economy. Because metals and energy are so closely tied to industrial growth, a decline in their demand can provide an accurate reading of an global economic performance.

Image from Thomson Reuters

The investors who saw it coming

As inflation falls, this in turn reduces the value of gold as a fortification against rising prices. If investors forecast an inflation dip, gold will also lose its value.

“Because the global economy is on the downside of a global credit bubble, it seems unreasonable to expect abnormal inflation,” said Richard Bernstein, the head of an investment advisory firm in New York, Reuters reported.

Gold, a major investment for both individuals and institutions, provides a viable alternative to currency that their government can just print more of. It also provides and investment alternative to stocks.

George Soros cut his holdings in SPDR Gold Trust by 55% last quarter. He predicted the prices would tumble, and wasn’t sure how quickly they’d recover.

Is it safe to follow the yellow brick road?

The title of JPMogran’s gold futures report is ‘The slide in global inflation may not be over.’

Morgan Stanley has cut its 2013 gold forecast by 16%, down to $1,487, as investors continue their selling frenzy.

The sell-off “has all the hallmarks of panic-driven, stale long liquidation, stop-loss and capitulation selling in the face of a concerted short sale” Peter Richardson, a Morgan Stanley analyst, wrote in a report.

According to JPMorgan’s report, it’s not a time to invest, or reinvest in gold.

Merrill Lynch recently warned that gold could fall to $1,200 before stabilizing, citing “fears of disinflation combined with news of potential central bank gold selling,” in their Tuesday report.

“Even at these levels, gold is still not attractive. The odds favor the bull market being over,” said Jim McDonald, chief investment strategist at Chicago-based Northern Trust Global Investments, which in early March told clients to stop allocating a position to gold, Reuters reported.