One Chart to Rule Them All

Here is the chart of the day …

The dollar is ruling everything right now, and low volume, combined with a brewing financial panic in Europe, is really giving the dollar index some legs.

The Fractional Reserve Aspects of Gold ETFs

One of the best explanations of fractional reserves comes from a polemical essay written in 1995 by Murray Rothbard, one of the prominent champions of the Austrian School of Economics: “Banks make money by literally creating money out of thin air, nowadays exclusively deposits rather than bank notes. This sort of swindling or counterfeiting is dignified by the term ‘fractional-reserve banking,’ which means that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem.”’

Much has been said and written about whether the gold supposedly backing the ETFs really exists. Questions have been raised by me and others whether the banks acting as custodians for the gold backing the ETFs have really been storing that gold instead of lending it. A thorough reading of the GLD prospectus, for example, makes clear the many loopholes arising from the dark art of legal double-talk. Here are some interesting observations about GLD suggesting that these analyses of various ETFs’ gold-backing may be on to something.

XX Sean’s note – there are alternatives to the GLD if you can invest outside the U.S. For example, ETF Securities has just launched a gold backed ETC on the London Stock Exchange.

Update:  And here in the US, you can buy the ETFS Gold Trust (SGOL: 110.42 0.00 0.00%)

Oil, gas co’s to hike new project spending

Global spending on oil and gas exploration is expected to rise 11% to $439 billion in 2010, reversing a drop in 2009 according to a survey from Barclays.

XX Sean’s note – oil exploration plays aren’t exactly cheap, but there are still some good buys out there.

4 Big Mortgage Backers Swim in Ocean of Debt

Even as the biggest banks repay their government debt in what is being heralded as a successful rescue program, four troubled giants of the financial world remain on government life support.

XX Sean’s note – thus setting us up for the next financial catastrophe, one that looks more and more unavoidable – especially because of what’s going on with sovereign debt (see below).

Sovereign Debt: Will It Be Payback Time in 2010? (hat-tip The Automatic Earth)

We are not sure if this is a well known “fact”, but the U.S. government has a record$2.5 trillion of its debt, including bills, bonds and notes, rolling over in 2010. That,my friends, is 35% of the outstanding level of Uncle Sam’s marketable obligations having to be refinanced in one single year. One has to wonder how the Fed is going to be able to raise interest rates in such a backdrop of massive rollovers;and if it doesn’t and the economy manages to exceed expectations or we get some inflation, how it is that the near-record steepness in the yield curve doesn’t continue in the coming year.

US Needs Plan To Tame Debt Soon, Experts Say

The U.S. government must craft a plan next year to get its ballooning debt under control or face possible panic in financial markets, a bipartisan panel of budget experts said in a report on Monday. Though the government should hold off on immediate tax hikes and spending cuts to avoid harming the fragile economic recovery, it will need to make such painful changes by 2012 in order to keep debt at a manageable 60 percent of GDP by 2018, according to the Peterson-Pew Commission on Budget Reform.

XX Sean’s note – I see this happening eventually, but will it happen in 2010? I think they have plenty of more illusions to put on parade.

The Dark Gray Swan: No More Foreign Dollars With Which To Buy US Treasuries

In a nutshell, in printing trillions of assorted securities, the Treasury has soaked up the world’s dollars, which due to US banks not lending, is sitting and collecting dust in the form of bank excess reserves. These excess reserves can not be used to buy Treasuries and MBS as that would be literal monetization (as opposed to the figurative one which is what QE has been). And the world is running out of dollars with which to buy Treasuries.

XX — And in the “well, duh!” category for today …

Study Shows High Fructose Corn Syrup May Cause Obesity, Diabetes, Heart Disease

XX Finally, the picture of the day comes via The Automatic Earth, a great site that you should read …

National Photo Co. My man Foghorn May 29, 1923
“Foghorn Clancy Jr., youngest member of the rodeo to perform in Wild West show during the Shrine convention, Washington, D.C.”

XX Sean’s note – somebody named their son “Foghorn”? Really? Wasn’t that child abuse, even in 1923? And it happened twice in a row, apparently – note that he’s a junior.

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