Author: Elite Forex Blog - Market Research & Analysis

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2 Swiss banks to end 200-yr secrecy and publish financials

Elite Forex Blog - Market Research & Analysis
Two Geneva-based banks that have kept their finance sheets shrouded in secrecy since 1796 will publish their earnings amid pressure from abroad.
Lomard Odier and Pictet, two of Switzerland’s largest independent private banks, will report financials in August, Bloomberg News reports, citing a source from Odier.
Lombard Odier, Geneva’s oldest wealth management firm, will report August 28, with Pictet also due to report by the end of the month.
Together the banks oversee about $630 billion in asset management, both private and institutional, according to Bloomberg.
Pichet is under investigation by the US Justice Department, along with a dozen other Swiss banks for helping Americans dodge taxes. Lombard Odier has voluntarily agreed to swap information with US authorities.
After much delay, last year Switzerland, the world’s largest offshore wealth center, signed an agreement to share financial data with tax authorities in the US and Europe.
In October 2013 a convention with the Organization for Economic Cooperation and Development (OECD) and agreed to exchange data with 60 member countries, including neighbors Germany andFrance looking to track down tax evaders.
The US has an especially tumultuous relationship with Switzerland over tax evasion, and has threatened billions in claims if the country didn’t make banking more transparent.
Switzerland’s oldest private bank, Wegelin & Co., shut its doors after it pled guilty to helping Americans hide more than $1.2 billion from the International Revenue Service (IRS).
In February 2014, Credit Suisse was accused by the US Senate of storing more than 12 billion Swiss francs for more than 22,000 American clients.
Pressure reached a peak in 2009 when Switzerland’s biggest lender UBS admitted to helping 52,000 American clients evade taxes.
Switzerland is home to more than $2 trillion in assets that are held in more than 300 private banks.
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Council On Foreign Relations: The Ukraine Crisis Is the West’s – Not Putin’s – Fault

Elite Forex Blog - Market Research & Analysis
We’ve previously reported that it’s the West’s encirclement of Russia [8] – breaking a key promise [9] which led to the break-up of the Soviet Union – which is behind the Ukraine crisis.
We’ve also noted [10]:

The U.S. State Department spent more than $5 billion [11] dollars in pushing Ukraine towards the West.  The U.S. ambassador to Ukraine (Geoffrey Pyatt) and assistant Secretary of State (Victoria Nuland) were also recorded plotting the downfall of the former Ukraine government in a leaked recorder conversation [12].  Top-level U.S. officials [13] literally handed out cookies [14] to the protesters [15] who overthrew the Ukrainian government.

And the U.S. has been doing everything it can to trumpet pro-Ukrainian and anti-Russian propaganda. So – without doubt – the U.S. government is heavily involved with fighting a propaganda war regarding Ukraine.

The news is starting to go mainstream …
Specifically, the Council On Foreign Relations (CFR) is a very mainstream, hawkish [16] group.
CFR’s flagship publication – Foreign Affairs [17] – has just published a piece blaming the Ukraine crisis on the West.
The piece by John Mearsheimer – in it’s September/October 2014 issue – accurately notes [18]:

The United States and its European allies share most of the responsibility for the crisis. The taproot of the trouble is NATO enlargement, the central element of a larger strategy to move Ukraine out of Russia’s orbit and integrate it into the West. At the same time, the EU’s expansion eastward and the West’s backing of the pro-democracy movement in Ukraine — beginning with the Orange Revolution in 2004 — were critical elements, too. Since the mid-1990s, Russian leaders have adamantly opposed NATO enlargement, and in recent years, they have made it clear that they would not stand by while their strategically important neighbor turned into a Western bastion. For Putin, the illegal overthrow of Ukraine’s democratically elected and pro-Russian president — which he rightly labeled a “coup” — was the final straw. He responded by taking Crimea, a peninsula he feared would host a NATO naval base, and working to destabilize Ukraine until it abandoned its efforts to join the West.  Putin’s pushback should have come as no surprise. After all, the West had been moving into Russia’s backyard and threatening its core strategic interests, a point Putin made emphatically and repeatedly. Elites in the United States and Europe have been blindsided by events only because they subscribe to a flawed view of international politics.

***

U.S. and European leaders blundered in attempting to turn Ukraine into a Western stronghold on Russia’s border. Now that the consequences have been laid bare, it would be an even greater mistake to continue this misbegotten policy.

***

The West’s final tool for peeling Kiev away from Moscow has been its efforts to spread Western values and promote democracy in Ukraine and other post-Soviet states, a plan that often entails funding pro-Western individuals and organizations. Victoria Nuland, the U.S. assistant secretary of state for European and Eurasian affairs, estimated in December 2013 that the United States had invested more than $5 billion since 1991 to help Ukraine achieve “the future it deserves.” As part of that effort, the U.S. government has bankrolled the National Endowment for Democracy. The nonprofit foundation has funded more than 60 projects aimed at promoting civil society in Ukraine, and the NED’s president, Carl Gershman, has called that country “the biggest prize.” After Yanukovych won Ukraine’s presidential election in February 2010, the NED decided he was undermining its goals, and so it stepped up its efforts to support the opposition and strengthen the country’s democratic institutions.

When Russian leaders look at Western social engineering in Ukraine, they worry that their country might be next. And such fears are hardly groundless. In September 2013, Gershman wrote in The Washington Post, “Ukraine’s choice to join Europe will accelerate the demise of the ideology of Russian imperialism that Putin represents.” He added: “Russians, too, face a choice, and Putin may find himself on the losing end not just in the near abroad but within Russia itself.”

The West’s triple package of policies — NATO enlargement, EU expansion, and democracy promotion — added fuel to a fire waiting to ignite. The spark came in November 2013, when Yanukovych rejected a major economic deal he had been negotiating with the EU and decided to accept a $15 billion Russian counteroffer instead. That decision gave rise to antigovernment demonstrations that escalated over the following three months and that by mid-February had led to the deaths of some one hundred protesters. Western emissaries hurriedly flew to Kiev to resolve the crisis. On February 21, the government and the opposition struck a deal that allowed Yanukovych to stay in power until new elections were held. But it immediately fell apart, and Yanukovych fled to Russia the next day. The new government in Kiev was pro-Western and anti-Russian to the core, and it contained four high-ranking members who could legitimately be labeled neofascists.

Although the full extent of U.S. involvement has not yet come to light, it is clear that Washington backed the coup. Nuland and Republican Senator John McCain participated in antigovernment demonstrations, and Geoffrey Pyatt, the U.S. ambassador to Ukraine, proclaimed after Yanukovych’s toppling that it was “a day for the history books.” As a leaked telephone recording revealed, Nuland had advocated regime change and wanted the Ukrainian politician Arseniy Yatsenyuk to become prime minister in the new government, which he did. No wonder Russians of all persuasions think the West played a role in Yanukovych’s ouster.

***

Putin’s actions should be easy to comprehend. A huge expanse of flat land that Napoleonic France, imperial Germany, and Nazi Germany all crossed to strike at Russia itself, Ukraine serves as a buffer state of enormous strategic importance to Russia. No Russian leader would tolerate a military alliance that was Moscow’s mortal enemy until recently moving into Ukraine. Nor would any Russian leader stand idly by while the West helped install a government there that was determined to integrate Ukraine into the West.

Washington may not like Moscow’s position, but it should understand the logic behind it. This is Geopolitics 101: great powers are always sensitive to potential threats near their home territory. After all, the United States does not tolerate distant great powers deploying military forces anywhere in the Western Hemisphere, much less on its borders. Imagine the outrage in Washington if China built an impressive military alliance and tried to include Canada and Mexico in it. Logic aside, Russian leaders have told their Western counterparts on many occasions that they consider NATO expansion into Georgia and Ukraine unacceptable, along with any effort to turn those countries against Russia — a message that the 2008 Russian-Georgian war also made crystal clear.

***

In [a] 1998 interview, [the top American expert on Russia, George] Kennan predicted that NATO expansion would provoke a crisis, after which the proponents of expansion would “say that we always told you that is how the Russians are.” As if on cue, most Western officials have portrayed Putin as the real culprit in the Ukraine predicament.

Mearsheimer gives a way out of this mess:

There is a solution to the crisis in Ukraine, however — although it would require the West to think about the country in a fundamentally new way. The United States and its allies should abandon their plan to westernize Ukraine and instead aim to make it a neutral buffer between NATO and Russia, akin to Austria’s position during the Cold War. Western leaders should acknowledge that Ukraine matters so much to Putin that they cannot support an anti-Russian regime there. This would not mean that a future Ukrainian government would have to be pro-Russian or anti-NATO. On the contrary, the goal should be a sovereign Ukraine that falls in neither the Russian nor the Western camp.

***

The United States and its European allies now face a choice on Ukraine. They can continue their current policy, which will exacerbate hostilities with Russia and devastate Ukraine in the process — a scenario in which everyone would come out a loser. Or they can switch gears and work to create a prosperous but neutral Ukraine, one that does not threaten Russia and allows the West to repair its relations with Moscow. With that approach, all sides would win.

Will saner heads prevail, and back away from the abyss [19] before it’s too late?
And see this [20].
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“The Financial System Is Vulnerable,” NYFed Asks “Could The Dollar Lose Its Reserve Status?”

Elite Forex Blog - Market Research & Analysis
When a tin-foil-hat-wearing blog full of digital dickweeds suggest the dollar’s reserve currency status is at best diminishing, it is fobbed off as yet another conspiracy theory (yet to be proved conspiracy fact) too horrible to imagine for the status quo huggers. But when the VP of Research at the New York Fed asks “Could the dollar lose its status as the key international currency for international trade and international financial transactions,” and further is unable to say why not, it is perhaps worth considering the principal contributing factors she warns of.
Could the dollar lose its status as the key international currency for international trade and international financial transactions, and if so, what would be the principal contributing factors?
Speculation about this issue has long been abundant, and views diverse. After the introduction of the euro, there was much public debate about the euro displacing the dollar (Frankel 2008). The monitoring and analysis included in the ECB’s reports on “The International Role of the Euro” (e.g. ECB 2013) show that the international use of the euro mainly progressed in the years prior to 2004, and that it has largely stalled since then. More recently, the euro has been displaced by the renminbi as the debate’s main contender for reducing the international role of the dollar (Frankel 2011).
This debate has mainly argued in terms of ‘traditional’ determinants of international currency status, such as country size, economic stability, openness to trade and capital flows and the depth and liquidity of financial markets (Portes and Rey 1998). Considerations regarding the strength of country institutions have more recently been added to the list. All of these factors influence the ability of currencies to function as stores of value, to support liquidity, and to be accepted for international payments. Inertia also plays a role (e.g. Krugman 1984, Goldberg 2010), raising the bar for currencies that might uproot the status quo.
We argue here – building on discussions we began during the World Economic Forum Summit on the Global Agenda 2013 – that the rise in global financial-market integration implies an even broader set of drivers of the future roles of international currencies. In particular, we maintain that the set of drivers should include the institutional and regulatory frameworks for financial stability.
The emphasis on financial stability is linked with the expanded awareness of governments and international investors of the importance of safety and liquidity of related reserve assets. For a currency to have international reserve status, the related assets must be useable with minimal transaction-price impact, and have relatively stable values in times of stress. If the risk of banking stress or failures is substantial, and the potential fiscal consequences are sizeable, the safety of sovereign assets is compromised exactly at times of financial stress, through the contingent fiscal liabilities related to systemic banking crises. Monies with reserve-currency status therefore need to be ones with low probabilities of twin sovereign and financial crises. Financial stability reforms can – alongside fiscal prudence – help protect the safety and liquidity of sovereign assets, and can hence play a crucial role for reserve-currency status.
The broader emphasis on financial stability also derives indirectly from the expanded awareness in the international community of the occasionally disruptive international spillovers of centre-country funding shocks (Rey 2013). We argue that regulatory reforms can play a role in influencing these spillovers. Resilience-enhancing financial regulation of global banks can help reduce the volatility of capital flows that are intermediated through such banks.
On financial stability and reserve-currency status
International reserve assets tend to be provided by sovereigns, notably due to the fiscal capacity of the state and the credibility of the lender of last resort function of the central bank during liquidity crises (see also De Grauwe 2011 and Gourinchas and Jeanne 2012). Systemic financial events can be accompanied by pressures on the government budget, however. While provision of a fiscal backstop to the banking sector is not the best ex ante approach to policy, fiscal support will tend to be forthcoming if the risk and estimated welfare costs of a systemic fallout are otherwise deemed too high.
Yet banking sector risks – and inadequate capacity within the banking sector to absorb these risks – can end up exceeding a government’s ability to provide a credible fiscal backstop without adversely affecting the safety of its sovereign assets. The fiscal consequences of bailouts may result in increased sovereign risk and the loss of safe-asset status, with implications for the status of the currency in question in the international monetary system.
To increase the likelihood that sovereign assets remain safe during systemic events, the sovereign can undertake financial and fiscal reforms that decouple the fiscal state of the sovereign from banking crises. Such reforms should achieve, in part, a reduction in the likelihood of and need for bailouts through increased resilience and loss absorption capacity of the financial system, and by ensuring sufficient fiscal space for credible financial-sector support (see also Obstfeld 2013).
Reform initiatives
A number of current reform initiatives already take steps in this direction. These include:
  • Reforms to bank capital and liquidity regulation, which reduce the likelihood that financial institutions, and notably systemically important ones (SIFIs), become distressed;
  • Initiatives that seek to counteract the procyclicality of leverage, and to strengthen oversight; and
  • Recovery and resolution regimes for distressed systemically important financial institutions (SIFIs) are being improved.
Importantly, initiatives are underway to improve recovery and resolution in the international context. While a global agreement on cross-border bank resolution is currently not in place, bilateral agreements among some pairs of countries are being forged ex ante to facilitate lower-cost resolution ex post. Further, the resilience of the system as a whole is being strengthened, to better contain the systemic externalities of funding shocks. Examples include:
  • The strengthening of the resilience of central counterparties and other financial market infrastructures; and
  • The foreign currency swap arrangements among central banks to provide access to foreign currency funding liquidity at times when market prices of such liquidity are punishingly high.
Nevertheless, the financial system contains vulnerabilities – globally, as well as in individual currency areas. The negative sovereign banking feedback loop may be weakened in many countries, but has not been fully severed. Moreover, reforms are not necessarily evenly implemented across countries. Fiscal capacities to provide credible backstops of the financial sector during stress vary widely. The consequences of recent reforms for the future of key international currencies are therefore open. Scope remains for countries vying for reserve-currency status to use the tool of financial stability reform to protect the safety and liquidity of their sovereign assets from the contingent liabilities of financial systemic risk.
Financial stability reforms matter for spillovers and capital flows
International capital flows yield many advantages to home and host countries alike. Yet the international monetary system still faces potential challenges stemming from unanticipated volatility in flows, as well as occasionally disruptive spillovers of shocks in centre-country funding conditions to the periphery. With the events around the collapse of Lehman Brothers, disruption in dollar-denominated wholesale funding markets led to retrenchment of international lending activities. Capital flows to some emerging-market economies then recovered with a vengeance as investors searched for yield outside the countries central to the international monetary system, where interest rates were maintained at the zero lower bound. After emerging markets were buoyed by the influx of funds, outflows and repositioning occurred when markets viewed some of the expansionary policies in the US as more likely to be unwound.
While macroprudential measures – and in extreme cases, capital controls – are some of the policy options available for addressing the currently intrinsic vulnerabilities of some capital-flow recipient periphery countries (IMF 2012), we point out that these vulnerabilities can also be addressed in part by financial stability reforms in centre countries.
Consider, for example, the consequences of the regulatory reforms pertaining to international banks that are currently being proposed or implemented. Improvements in the underlying financial strength and loss-absorbing capacity of global banks could have the beneficial side-effect of reducing some of the negative spillovers associated with unanticipated volatility in international banking flows – especially those to emerging and developing economies. Empirical research suggests that better-capitalized financial institutions, and institutions with more stable funding sources and stronger liquidity management, adjust their balance sheets to a lesser degree when funding conditions tighten (Gambacorta and Mistrulli 2004, Kaplan and Minoiu 2013). The result extends to cross-border bank lending (Cetorelli and Goldberg 2011, Bruno and Shin 2013).
While financial stability reforms may reduce the externalities of centre-country funding conditions, they retain the features of international banking that promote efficient allocation of capital, risk sharing and effective financial intermediation. By enhancing the stability of global institutions and reducing some of the amplitude of the volatility of international capital flows, they may address some of the objections to the destabilising features of the current system.
Cross-border capital flows that take place outside of the global banking system have recently increased relative to banking flows (Shin 2013). Regulation of global banks does very little to address such flows, and may even push more flows toward the unregulated sector. At the same time, however, regulators are considering non-bank and non-insurer financial institutions as potential global systemically-important financial institutions (Financial Stability Board 2014).
Conclusions
We have argued that the policy and institutional frameworks for financial stability are important new determinants of the relative roles of currencies in the international monetary system. Financial stability reform enhances the safety of reserve assets, and may contribute indirectly to the stability of international capital flows. Of course, the ‘old’ drivers of reserve currencies continue to be influential. China’s progress in liberalising its capital account, and structural reforms to generate medium-term growth in the Eurozone – as examples of determinants of the future international roles of the renminbi and the euro relative to the US dollar – will continue to influence their international currency status. Our point is that such reforms will not be enough. The progress achieved on financial stability reforms in major currency areas will also greatly influence the future roles of their currencies.
Authors: Linda Goldberg, Vice President of International Research at the Federal Reserve Bank of New York and Signe Krogstrup, Assistant Director and Deputy Head of Monetary Policy Analysis, Swiss National Bank; Member of the World Economic Forum’s Global Agenda Council on the International Monetary System
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Putin Says The Petrodollar Must Die, “The Dollar Monopoly In Energy Trade Is Damaging Russia’s Economy”

Elite Forex Blog - Market Research & Analysis

On one hand, despite initial weakness following Europe’s triple-dip red alert, futures declined only to surge higher after some headline or another out of Russia was again spun to suggest imminent Ukraine de-escalation (something which Russia whose onl…

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Fed Vice Chair Fischer On U.S. Bailin “Proposals”

Elite Forex Blog - Market Research & Analysis
Fed Vice Chair Fischer On U.S. Bailin “Proposals”
Federal Reserve Vice Chairman Stanley Fischer delivered his first speech on the U.S. and global economy in Stockholm, Sweden yesterday.

Fischer headed Israel’s central bank from 2005 through 2013 and is now number two at the Federal Reserve in the U.S. after Janet Yellen.
 [14]
Janet Yellen and Stanley Fischer
In a speech entitled, The Great Recession: Moving Ahead [15], given at an event sponsored by the Swedish Ministry of Finance, Fischer said that the economic recovery has been and remains “disappointing.”

“The recession that began in the United States in December 2007 ended in June 2009. But the Great Recession is a near-worldwide phenomenon, with the consequences of which many advanced economies–among them Sweden–continue to struggle. Its depth and breadth appear to have changed the economic environment in many ways and to have left the road ahead unclear.”

Speaking about the steps that have been taken internationally in order to “strengthen the financial system” and to reduce the “probability of future financial crisis,” Fischer said that the U.S. was preparing proposals for bank bail-ins for “systemically important banks.”

“Additional steps have been taken in some countries. For example, in the United States, capital ratios and liquidity buffers at the largest banks are up considerably, and their reliance on short-term wholesale funding has declined considerably. Work on the use of the resolution mechanisms set out in the Dodd-Frank Act, based on the principle of a single point of entry–though less advanced than the work on capital and liquidity ratios–holds the promise of making it possible to resolve banks in difficulty at no direct cost to the taxpayer.

As part of this approach, the United States is preparing a proposal to require systemically important banks to issue bail-inable long-term debt that will enable insolvent banks to recapitalize themselves in resolution without calling on government funding–this cushion is known as a “gone concern” buffer.”

Bail In Infographic International Edition.JPG
See guide to coming bail-ins here [14]Protecting Your Savings in the Coming Bail-In Era [14]
Fischer’s comments that the U.S. is “preparing a proposal” for bail-ins is at odds with Federal Deposit Insurance Corporation (FDIC) and Bank of England officials who have said that bail-in legislation could be used today.
The U.S. already has in place plans for bail-ins in the event of banks failing. Indeed, the U.S. has conducted simulation exercises with the U.K. in 2013 and again this year.
On October 12 2013, Art Murton, the FDIC official in charge of planning for resolutions, and the Bank of England’s Deputy Governor Paul Tucker, both confirmed that the U.S. system is ready to handle a big-bank collapse.
The Bank of England’s Tucker, who has worked with U.S. regulators on the cross-border hurdles to taking down an international bank said that “U.S. authorities could do it today — and I mean today.” 
There is speculation that were Yellen to retire early Fischer would be anointed as the new Federal Reserve Chairman. 
Fischer who previously was chief economist at the World Bank, also makes it clear that he expects ultra loose monetary policies to continue in the U.S. which will be bullish for gold and silver.
MARKET UPDATE
Today’s AM fix was USD 1,311.00, EUR 982.76 and GBP 781.75 per ounce.Yesterday’s AM fix was USD 1,308.25, EUR 977.33  and GBP 779.37 per ounce.

Gold fell $2.30 yesterday to $1,309.10/oz and silver rose $0.07 or 0.35% to $20.04/oz.

Gold popped higher today as equities fell on news that a Russian aid convoy is heading to Ukraine and on signs that the new deepening tensions and risk of conflict with Russia is hurting confidence in the euro zone economy.
 The Zew think tank in Germany reported a drop in investor confidence to its lowest level since 2012 due to the risk that economic sanctions pose to fragile economies. This helped push European shares and the euro lower, while boosting German bunds and gold.
Gold is marginally higher in London this morning after gold in Singapore [16] fell to test $1,305/oz overnight again. Futures trading volume was 36% below the average for the past 100 days this morning as Wall Street remains on vacation.

Gold in U.S. Dollars – 1 Year (Thomson Reuters)

Spot gold was up 0.3% at $1,312.70/oz at 1230 GMT, while U.S. gold futures for December delivery were up $1.80/oz at $1,312.30.

Silver for immediate delivery rose 0.1% to $20.18 an ounce. Spot platinum was flat at $1,473.63 an ounce, while palladium edged closer to multi year nominal highs and was 0.5% higher at $882 an ounce.
Russia said a convoy of 280 trucks had left for Ukraine today carrying humanitarian aid. U.S., EU and NATO officials warned that the help may be a pretext for a Russian invasion.
Gold has climbed about 9% this year, mostly on geopolitical tensions between the West and Russia over Ukraine, and violence in the Middle East. Gold is seen as a safe haven investment to hedge riskier assets such as equities.

Many market participants are surprised that gold has not seen greater gains and is flat since February. Given the degree of geopolitical uncertainty and the fact that this uncertainty is likely to disappear anytime soon, gold should have seen greater gains.
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“US Sanctions On Russia May Sink The Dollar,” Ron Paul Fears “Grave Mistake”

Elite Forex Blog - Market Research & Analysis
The US government’s decision to apply more sanctions on Russia is a grave mistake and will only escalate an already tense situation, ultimately harming the US economy itself. While the effect of sanctions on the dollar may not be appreciated in the short term, in the long run these sanctions are just another step toward the dollar’s eventual demise as the world’s reserve currency.

Not only is the US sanctioning Russian banks and companies, but it also is trying to strong-arm European banks into enacting harsh sanctions against Russia as well. Given the amount of business that European banks do with Russia, European sanctions could hurt Europe at least as much as Russia. At the same time the US expects cooperation from European banks, it is also prosecuting those same banks and fining them billions of dollars for violating existing US sanctions. It is not difficult to imagine that European banks will increasingly become fed up with having to act as the US government’s unpaid policemen, while having to pay billions of dollars in fines every time they engage in business that Washington doesn’t like.

European banks are already cutting ties with American citizens and businesses due to the stringent compliance required by recently-passed laws such as FATCA (Foreign Account Tax Compliance Act). In the IRS’s quest to suck in as much tax dollars as possible from around the world, the agency has made Americans into the pariahs of the international financial system. As the burdens the US government places on European banks grow heavier, it should be expected that more and more European banks will reduce their exposure to the United States and to the dollar, eventually leaving the US isolated. Attempting to isolate Russia, the US actually isolates itself.

Another effect of sanctions is that Russia will grow closer to its BRICS (Brazil/Russia/India/China/South Africa) allies. These countries count over 40 percent of the world’s population, have a combined economic output almost equal to the US and EU, and have significant natural resources at their disposal. Russia is one of the world’s largest oil producers and supplies Europe with a large percent of its natural gas. Brazil has the second-largest industrial sector in the Americas and is the world’s largest exporter of ethanol. China is rich in mineral resources and is the world’s largest food producer. Already Russia and China are signing agreements to conduct their bilateral trade with their own national currencies rather than with the dollar, a trend which, if it spreads, will continue to erode the dollar’s position in international trade. Perhaps more importantly, China, Russia, and South Africa together produce nearly 40 percent of the world’s gold, which could play a role if the BRICS countries decide to establish a gold-backed currency to challenge the dollar.

US policymakers fail to realize that the United States is not the global hegemon it was after World War II. They fail to understand that their overbearing actions toward other countries, even those considered friends, have severely eroded any good will that might previously have existed. And they fail to appreciate that more than 70 years of devaluing the dollar has put the rest of the world on edge. There is a reason the euro was created, a reason that China is moving to internationalize its currency, and a reason that other countries around the world seek to negotiate monetary and trade compacts. The rest of the world is tired of subsidizing the United States government’s enormous debts, and tired of producing and exporting trillions of dollars of goods to the US, only to receive increasingly worthless dollars in return.

The US government has always relied on the cooperation of other countries to maintain the dollar’s preeminent position. But international patience is wearing thin, especially as the carrot-and-stick approach of recent decades has become all stick and no carrot. If President Obama and his successors continue with their heavy-handed approach of levying sanctions against every country that does something US policymakers don’t like, it will only lead to more countries shunning the dollar and accelerating the dollar’s slide into irrelevance.

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G20 Showdown On Dollar Hegemony

Elite Forex Blog - Market Research & Analysis
Obama canceled his scheduled meeting with Russian President Vladimir Putin last week. Although Obama didn’t give his reason for the cancellation, the media stoogery speculated it was because of Russia’s protection of whistleblower-patriot Edward Snowden. What is not being reported is that Russia has been warning its citizens and institutions since last March’s Cyprus bail-in to divest assets out of western banks.
Additionally, last week Yao Yudong of the PBoC’s monetary policy committee called for a new Bretton Woods system to strengthen the management of global liquidity. In an article in the China Securities Journal, Yao called for more power to the IMF as international cooperation and supervision are needed.
Because of the U.S. dollar hegemony, the lion’s share of all global dollar-denominated transactions pass through the New York. This includes those that have absolutely nothing to do with the U.S. In turn, these transactions are monitored by the New York State Department of Financial Services, which was created in 2011. This agency plays a special role in the exposure of bank and company wrongdoers, real or imagined.  Around 4,500 organizations, with assets of $6.2 trillion, are under the direct control of this agency.
This circumstance, the unnecessary power and the unlimited surveillance/invasion of privacy are powerful incentives for non-U.S. banks and companies to replace the U.S. dollar with the currencies of other countries when making international payments, while at the same time creating their own regional systems of international payments.
Thus, recent Western self-inflicted wounds have opened the Pandora’s box for China and Russia as well as other BRIC nations to pressure hard for non-dollar settlement of trade, and in particular oil. I submit that this agenda and the G20 meeting Sept. 5-6 is the venue for this to be revealed. THAT should be the real concern for the U.S., and it ties direct into my earlier article, China Maneuvers to take Away US’ Dominant Reserve Currency Status. 
As far as the timing, there are just too many coincidences happening on the gold and other fronts to assume the yellow metal does not play a role here. Is it a coincidence that JP Morgan has literally cornered the gold market [see Banker’s Participation Report].
The Shanghai Gold Exchange has had deliveries equal to the world’s production for months straight.
The Comex registered gold is only at a mere 2% of open interest.
Chart source: Garrett Goggin
Is it a coincidence that GOFO has been negative for 25 straight days, and gold in backwardization?
Is it a coincidence that the stock market witnessed four Hindenberg Omens in the last week?
The end of Dollar hegemony is going to be a “gap” game-changer. 
*Gold Forward Offered Rates:
When it is negative, you will receive more interest when you lease your gold than your dollars. Primarily it means that gold leased out today is worth more than the gold delivered at the end of the three months.
The negative GOFO rate means someone wants to get their hands on gold.  There is speculation that the elevated high levels of demand we’re seeing in Asia has emptied the London Market.
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Americans Giving Up Passports Jump Sixfold as Tougher Rules Loom

Elite Forex Blog - Market Research & Analysis
Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.
The U.S., the only nation in the Organization for Economic Cooperation and Development that taxes citizens wherever they reside, is searching for tax cheats in offshore centers, including Switzerland, as the government tries to curb thebudget deficit. Shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act, more of the estimated 6 million Americans living overseas are weighing the cost of holding a U.S. passport.Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Registerfigures published today. That brought the first-half total to 1,810 compared with 235 for the whole of 2008.
“With the looming deadline for Fatca, more and more U.S. citizens are becoming aware that they have U.S. tax reporting obligations,” said Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich. “Once aware, they decide to renounce their U.S. citizenship.”
Fatca requires foreign financial institutions to report to the Internal Revenue Service information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. It was estimated to generate $8.7 billion over 10 years, according to the congressional Joint Committee on Taxation.

Delaying Implementation

The 2010 Fatca law requires banks to withhold 30 percent from “certain U.S.-connected payments” to some accounts of American clients who don’t disclose enough information to the IRS. While banks can sign agreements to report to the IRS individually, many are precluded from doing so by privacy laws in their jurisdictions.
The Treasury Department last month announced that the IRS will delay the start of Fatca by six months until July 1, 2014, to give foreign banks time to comply with the law. The extension of the act follows a previous one-year delay announced in 2011.
Financial institutions including Canada’s Toronto-Dominion Bank (TD) and Allianz SE ofGermany have expressed concerns that Fatca is too complex.
The latest delay comes after the Swiss government agreed in February to simplifications that will help the country’s banks implement Fatca.

Penalty Threat

“The United States wishes to ensure that all income earned worldwide by U.S. taxpayers on accounts held abroad can be taxed by the United States,” the Swiss government said on April 10.
Since 2011, Americans, who disclose their non-U.S. bank accounts to the IRS, must file the more expansive 8938 form that asks for all foreign financial assets, including insurance contracts, loans and shareholdings in non-U.S. companies.
Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.
The implementation of Fatca from July next year comes after UBS, Switzerland’s largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax-evasion dispute with the U.S. Whistle-blower Bradley Birkenfeld was sentenced to 40 months in a U.S. prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS AG. (UBSN)

Compliance Costs

The additional compliance costs for companies to ensure that Americans they hire are filing the correct U.S. tax returns and asset-declaration forms are at least $5,000 per person, said Ledvina.
For individuals, the costs are also rising. Getting a mortgage or acquiring life insurance is becoming almost impossible for American citizens living overseas, Ledvina said.
“With increased U.S. tax reporting, U.S. accounting costs alone are around $2,000 per year for a U.S. citizen residing abroad,” the tax lawyer said. “Adding factors, such as difficulty in finding a bank to accept a U.S. citizen as a client, it is difficult to justify keeping the U.S. citizenship for those who reside permanently abroad.”
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Stock Market Bubbles And Record Margin Debt: A (Repeating) History Of Ignoring All Warnings

Elite Forex Blog - Market Research & Analysis
It is well-known that as part of the S&P500’s ascent to new records, investor margin debt has also surged to all time highs, surpassing for the past three months previous records set during both prior, the dot com and the housing, stock market bubbles.
And as more attention has shifted to the topic of speculator leverage once more, inquiries into the correlation between bets upon bets and stock performance are popping up once more, in this case in a study by Deutsche Bank titled “Red Flag! – The curious case of NYSE margin debt.” Of particular note here is a historical comparison of margin-debt warnings that have recurred throughout history but especially just before major stock bubble crashes, such as in the period 1999/2000, 2007/2008 and of course today, which have time and again been ignored. Here is what was said then, what is being said now, and what is ignored always.
As DB says, “we prepared a collection of press articles which were published around the key events during the past financial crises. Our key finding is straight forward. Irrespective of the publishing date, the articles read alike throughout the two major crisis periods, i.e. the “new technologies market equity bubble” (1999-00) and the “Great/Global Financial Crisis” (2007-08). Most interestingly, literally the same content can be found in todays’ press. Universal phrases include:
  • “A rising stock market encouraged more investors to go into debt to buy stocks, sending margin debt levels past their all-time high”.
  • “The National Association of Securities Dealers (NASD) has asked members to review their lending requirements in a sign of increasing concern that rising levels of margin debt could exacerbate a stock market plunch.”
  • “The Fed is concerned about a sharp rise in margin debt but has been unwilling to attack stock market speculation as high levels of leverage do not necessarily translate into high risk. The last time the Fed adjusted the margin rules was in 1974, when when it reduced the down payment required for stocks to 50 percent of the purchase price, from 65 percent.” […] “The Fed should return to its pre- 1974 policy of actively changing margin requirements in response to stock market speculation”.
  • “High margin debts show the effect of over-leveraging and mispricing of risk”.
  • “The movements in stocks cause brokerages to stop allowing customers to buy some of the volatile stocks on margin or require clients to put up more cash.”
  • “Either the market rises dramatically to make those loans good or in any down move there is tremendous selling pressure”.
  • “Until recently, most investors ignored red flags raised by regulators”.
And more detail:
25 May 1999, Event: 1st MoM change in NYSE margin debt > 10%, Reuters News: “Soaring margin debt seen bad for Internet stocks.”
“Soaring margin debt is likely to trigger a debacle in Internet stocks”, Charles Biderman, chief executive of TrimTabs.com said Tuesday. “New online investors are buying heavily on margin and it looks like they’re buying Internet stocks”, Biderman said. TrimTabs.com is a Santa Rosa, Calif.-based firm which collects information on mutual fund flows and other market data. “When people borrow to buy (stocks) that’s a very bad sign for the future.” Biderman cited figures showing margin debt for customers of New York Stock Exchange (NYSE) member firms at $182 billion at the end of April, up from $156 billion at the end of March and $142 billion at the end of February. He said the nearly 30 percent increase over a two-month span was unprecedented. ” The wild price moves in Internet stocks, which can go up or down tens of dollars a day, have caused brokerages to stop allowing customers to buy some of these volatile stocks on margin or require clients to put up more cash. “Either the market has to rise dramatically to make those loans good or in any down move there’s tremendous selling pressure,” Biderman said. 
08 December 1999, Event: 2nd MoM change in NYSE margin debt >10%; The Cambridge Reporter: “Margin debt oddly overlooked “
“U.S. Federal Reserve figures show that margin debt has grown tremendously. Since 1993 the rate at which margin debt has grown is three times faster than the growth rate for U.S. household debt and overall debt in credit markets. According to a non-profit think tank, Financial Markets Centre, as a percentage of market capitalization or the total value of stocks, margin debt has reached the highest level since just before the 1987 market crash. Too, as a percentage of gross domestic product, margin debt is at the highest level in 63 years, and now of course the over-valued stock market makes that more worrisome. In Canada for reasons of privacy margin debt figures are not disclosed. The U.S. Federal Reserve has been unwilling to attack stock market speculation. Since January, 1974, the Federal Reserve has left margin requirements at 50 percent, despite the huge rise in the stock market. The unwillingness of monetary authorities to deal with the equity markets is unprecedented and puzzling. The failure to acknowledge the role of debt in the stock market surge, something so massive, is difficult to understand. Now, just sitting with folded hands is a prescription for disaster in thee long run for the U.S. and Canada as well.” 
21 December 1999, Event: 3rd MoM change in NYSE margin debt >10%; The Los Angeles Times: “Monthly increase, largest since 1971, adds to fears that level of speculation in stocks may signal near-term peak”
“The Federal Reserve is concerned about a sharp rise in margin debt, or money borrowed from brokers to purchase stocks, in the last two months of 1999, Fed chairman Alan Greenspan said on Wednesday. Greenspan said, however, that the Fed did not consider raising its margin requirements, currently at 50 percent, an effective way to address the problem. At a Senate Banking Committee hearing on his renomination, Greenspan was asked if the Fed was worried about data showing margin debt rose substantially in November and December. “Obviously,” he replied. “It is certainly the case that the numbers that you cite, especially for November and December, have caught our attention.” While there has been considerable conversation at the Fed about how to address the problem, Greenspan said changing margin requirements was not the solution. “All of the studies have suggested that the level of stock prices have nothing to do with margin requirements,” he said. The Fed has been reluctant to adjust requirements that would not affect large investors, who have other sources of financing, he said. “
26 February 2000, Event: (prior to) Margin debt peak; Reuters News: “NYSE, NASD call for review of margin lending rules.”
“The New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASD) have asked members to review their lending requirements in a sign of increasing concern that rising levels of margin debt could exacerbate a stock market plunge. […]Some firms add their own requirements to that rule in order to limit risk but the popularity of margin borrowing still causes concern. Indeed, Federal Reserve Chairman Alan Greenspan said recently that the central bank has been paying increasing attention to a surge in margin debt. Last fall, the NYSE said margin debt held by its member firms equalled $182 billion, or 2 percent of the U.S. gross domestic product. That compared with NYSE member firm margin debt of $30 billion at the start of the decade.”
17 May 2000, Event: (post) Margin debt peak, WSJE: “Margin Debt Fell Almost 10% in April – Turbulence in U.S. Market May Have Curbed Borrowing”
“Margin debt, which has been soaring, fell nearly 10%during the month. The drop marks the first time since August that investors pruned their debt loads. Investor borrowing reached record levels in recent months, drawing the scrutiny of securities regulators who viewed it as a sign of the market’s peculative fervor. But until recently,most investors ignored red flags raised by regulators. “The bottom line is that investors got their fingers burned during the recent market downdraft,” says Morgan Stanley Dean Witter & Co. analyst Henry McVey. The drop isn’t all that surprising, however, given last month’s sharp fall in stock prices. Many investors were forced to come up with additional cash or stock to meet margin calls; others had their stocks sold without notice as falling share prices eroded the value of their holdings. The decline in investor borrowing was sharp at some online firms. At Datek Online Holdings Corp., margin debt fell about 20% in April and “looks pretty flat in May so far,” says spokesman Mike Dunn. Margin debt also fell about 20% in April at Ameritrade Holding Corp. and is up about 1%or 2%so far this month, a spokeswoman says. About 80% of the decline is due to customers voluntarily cutting back on their borrowing, she adds. Some brokerage firms continue to make it tougher for investors to borrow to buy stock. TD Waterhouse Group Inc. plans to increase its base margin-lending rate to 35% from 30% on June 15. “We think the change is prudent and we think it protects customers, in light of the current volatility we’re seeing in the marketplace,” says TD Waterhouse spokeswoman Melissa Gitter. The online broker now has more than 800 stocks subject to higher margin requirements, up from 443 on April 13.”
19 December 2006, Event: 1st MoM change in NYSE margin debt > 10% DJ News Service, “Margin Debt Saw Big Spike In November”
“A rising stock market encouraged more investors to go into debt to buy stocks last month, sending so-called margin debt to a level not seen in more than six years. […] November was the first month since 2000 that margin debt has topped the $270 billion figure. The last time that happened was in March 2000, when margin debt set a record at $278.53 billion as the Nasdaq Composite Index was reaching its all-time peak. Last month’s rise, which left margin debt about 3% below its record, came as stocks continued to rise. The Dow Jones Industrial Average and the Standard & Poor’s 500-stock index gained 1.2% and 1.6%, respectively, during November, leaving both market barometers with double-digit percentage gains for the first 11 months of the year. That display has helped inspire margin trading, in which investors use funds borrowed from their brokers to help finance their transactions. “This market has been uni-directional” for a while, and “that gets a lot of money chasing performance,” said Art Hogan, chief market  analyst at Jefferies. “You’re not going to borrow to buy in a market where the trend has been downward.”
20 February 2007, Event: All-time high margin debt (Mar-2000) crossed;  Dow Jones Intl News: “Margin Debt Tops All-Time High; Reached $285.6B In January”
“A rising stock market continued to inspire investors to go into debt to buy stocks last month, sending margin-debt figures past their all-time high, which had been set several years ago in the waning days of the technology-stock boom.Margin debt as tracked by the New York Stock Exchange totaled $285.61 billion in January, the NYSE said Tuesday, up from $275.38 billion in December and moving past the previous peak of $278.53 billion. That high was set in March 2000, as the Nasdaq Composite Index was peaking. Margin debt’s recent advance has come as stocks moved higher.”
11 April 2007, Event: 2nd MoM change in NYSE margin debt > 10% The Globe and Mail: “Record level of margin debt prompts regulator warning”
“As thousands of homeowners in the United States are realizing it’s unwise to borrow more than they can afford, the National Association of Securities Dealers is offering a similar warning to investors: It’s risky to invest more than you have. The brokerage regulator said yesterday the amount of debt investors took on to buy securities, known as buying “on margin,” had soared to a record $321.2-billion (U.S.) in February. That topped the previous  record of $299.9-billion in March, 2000, at the peak of the last bull market in stocks. Margin debt has more than doubled from $141.3-billion in January, 2003, the NASD said, three months after the bottom of a bear market in stocks.” “When the Internet bubble imploded, many people were shocked to learn that firms can sell their stock, and they have no choice in what can be sold,” John Gannon, an NASD senior vice-president for investor education, said. Regulators, including the Federal Reserve, the New York Stock Exchange and the NASD, set minimum requirements for margin traders. Brokerages are free to set more stringent standards. Under the minimum requirements, before trading on margin, ordinary investors must deposit at least $2,000 or 100 per cent of the purchase price, whichever is less. Fed rules generally let investors borrow up to 50 per cent of the purchase price of securities that can be bought on margin. NYSE and NASD rules then require equity in an account to be at least 25 per cent of the securities’ market value in that account, known as a “maintenance margin.” “You can lose your money fast and with no notice,” the Securities and Exchange Commission said.
12 July 2007, Event Margin debt peak; The Wall Street Journal: “On the NYSE, ‘Margin Debt’ Jumps to Record $353 Billion”
“Investors are borrowing record sums of money to finance trades on the New York Stock Exchange, according to data due out from the Big Board today. NYSE officials attribute the trend to recent regulatory changes effectively allowing both small and big investors to take on more leverage, or borrowed money, from their brokers. So-called margin debt, a broad measure of leverage, jumped 11% to $353 billion at NYSE in May, up from nearly $318 billion in April.Wall Street has had a love affair with leverage in recent years, typified by hedge funds and private-equity firms that make use of it to buy companies and stocks and bonds. Such financing can also amplify losses if investors’ bets go the wrong way. But regulators say that doesn’t necessarily translate into more risk. “I wouldn’t necessarily say that leverage equates to risk,” said Grace Vogel, executive vice president for member regulation at NYSE. “We feel that the amount of margin being collected by the firms is appropriate, given the strategies in [their customers’] portfolios.” 
27 October 2007, Event: S&P 500 peak, SUNBUS: “Stock market vulnerable to sharp fall as margin debt remains high”
“It has become a source of concern to some investors who worry that it makes the stock market more vulnerable to a nasty tumble, particularly if equities’ resurgence continues. “High margin debts show the effect of over-leveraging and mispricing of risk in our financial system,” says Scott Schermerhorn, chief investment officer for Choate Advisors, which runs about $2.7bn (£1.3bn, e1.9bn). “It indicates that, despite the August runoff, there’s still more problems out there. This will take a long time to work through the system.” Based on historical levels, margin debt makes the market look risky and subject to a sharp downtick right now. It comes to 2.4%of total adjusted-market capitalisation – 3.4 times its 62-year norm of 0.74%. “These are certainly not the kind of numbers you see at the beginning of a bull market,” says Ed Clissold, an analyst for Ned Davis Research. In July,margin debt hit an all-time high of $381bn. But as worries about sub-prime mortgage loans set off a credit crunch in August, more than $50bn of the debt was erased. Almost half of the margin drawdown came from brokerages such as Merrill Lynch, which called loans backing two Bear Stearns hedge funds.What is particularly worrying to some is that margin debt is just one tool available to investors seeking leverage these days. Options and futures make it easier than ever to obtain leverage. So the near-record margin numbers may understate the situation. “As financial markets have grown and become more diversified, margin has become one of many ways to finance securities, so it represents less of a proportion of finance than it used to,” says Henry Kaufman. The one-time chief economist of Salomon Brothers now heads Kaufman & Co, an investment management and financial consulting firm. Granted, recent structural changes that take into account an entire portfolio’s risk have contributed to the gains. If an investor is using options to hedge his risk, new rules give him the ability to borrow more because he has lowered the risk profile of his entire portfolio. But the new rules do nothing to minimise margin lending’s inherent conflicts of interest or its potential to send the market down sharply as it did in August in a cascade of margin calls. Brokers sometimes give investors little or no time to cough up more cash before they liquidate a portfolio at bargain-basement prices. A brokerage firm may force a margin call on the one hand, while helping set the price on the securities sold to meet it on the other.” 
09 January 2013, Event: 1st MoM change in margin debt > 10%; DJ Newswire: “Margin Debt Soared in January; Sign of Top Nearing?”
“NYSE says margin debt jumped 10% in January alone to $364 billion, 32% higher than a year earlier and the third-highest ever, trailing just June and July 2007. The previous instances, of course, came just a couple months before US stocks last topped out before the ongoing rally, with margin then peaking at $381 billion. So it’s pretty clear where the record January rush of cash into equity products came from. Now, what happens if things get a little frisky and some margin debt turns into margin calls?”
06 May 2013, Event: All-time high margin debt (Jul-2007) crossed (1/2); The Wall Street Journal: “NYSE Margin Debt Raises Eyebrows”
“High levels of margin debt on the New York Stock Exchange are raising concerns about the state of the rally. Stephen Suttmeier, technical research analyst at Bank of America Merrill Lynch, notes leverage, as measured by NYSE margin debt, rose 28% in March from a year ago to $380 billion. That figure is slightly below the July 2007 peak of $381 billion.Market analysts track margin-debt activity as an indication of investors’ appetite for taking on speculative trading. It has been trending higher since bottoming out during the financial crisis and currently is hovering around all-time highs. “Leverage can be used as a sentiment indicator because it is related to investor confidence… Although it should not be used as a market timing tool, the implication is contrarian bearish,” Suttmeier says. ”Peaks in NYSE margin debt preceded peaks in the S&P 500 in both 2007 and 2000.” It’s no surprise people have been taking on more risk as the market has moved to record highs. But the question is what happens when the easy ride higher turns south and some of that margin debt turns into margin calls? A potential pitfall for those trading “on margin” is a sharp decline in stock prices, which can expose investors to margin calls, requiring them to post additional collateral lest their brokers sell their securities to cover the debt. A wave of margin calls can worsen selling pressure on stocks and was seen as partly to blame for the market’s woes during the financial crisis. “It’s rather alarming to see NYSE margin debt just shy of its all-time high as of the March reading,” Cullen Roche of Orcam Financial Group wrote on the Pragmatic Capitalism blog (hat tip Business Insider). “My guess is we’ve actually already surpassed the all-time high though we won’t officially know until April data is released. Fun times knowing we live in a world that is built on such a fragile foundation.” 
31 May 2013, Event: All-time high margin debt (Jul-2007) crossed (2/2):The New York Times “Shades of 2007 Borrowing”

“AMERICAN investors have taken out more margin loans than ever before. That indicates that speculative investing has grown among retail investors, reaching levels that in the past indicated the market was getting to unsustainable levels and might be in for a fall. […]It was the first time the total had surpassed the 2007 peak of $381 billion, a peak that was followed by the Great Recession and credit crisis. […][T]he last time the Fed adjusted the  margin rules was in 1974, when it reduced the down payment required for stocks to 50 percent of the purchase price, from 65 percent.  …]Nonetheless,margin loans have remained popular among many individual investors, who tend to raise their borrowings during times of market optimism and to reduce them when markets are falling. Thus the margin debt levels now may provide an indication of popular enthusiasm for investments.” 

27 June 2013, Event: All-time high margin debt (Jul-2007) crossed = Did margin debt peak already? (1/2);Reuters: “U.S. stock market margin debt falls in May from record April level”
“The value of U.S. equities investors bought with borrowed money fell 1.7 percent in May from the previous month’s record high, marking the first monthly decline in margin debt in nearly a year. Margin debt accounts totaled $401.6 billion in May, down from a record $408.7 billion in April, data from the Financial Industry Regulatory Authority showed on Thursday. The level had increased every month since a 2.3 percent drop between June and July 2012. Margin debt is one way to measure how much risk hedge funds and other large investors are taking to enhance their returns through the use of borrowed cash. Extremely high readings are seen as a gauge of overly bullish sentiment. In April, the New York Stock Exchange reported margin debt hit $384.4 billion, surpassing the previous record of $381.4 billion in July 2007. On Thursday, the NYSE said its share of the May total was $377 billion.” 
27 June 2013, Event: All-time high margin debt (Jul-2007) crossed = Did margin debt peak already? (2/2); ARMNET: “Record margin debt points to a far wider Wall Street Crash coming soon”
“Don’t even think about jumping back into US stocks after the recent modest sell-off. If margin debt is any guide, and historically it has been an excellent guide then what we have just seen is just a warning of a much biggerWall Street crash around the corner. The last time margin debt was at present levels was at a previous peak in July 2007 at $381 billion, just before the global financial crisis struck. Yes it is hard to believe that confidence was that high in stocks just at the wrong moment. Record margin debt: It is the same story now. In March 2013 NYSE margin debt totaled $380 billion. You do not need to be much of a financial analyst to spot almost an exact parallel. But what you should also understand is that margin debt works in both directions. It accelerates the upside in stocks by allowing punters to buy with borrowed money but then it accelerates the drop in a stock market by taking it away from them. How does it do that? Well think about it. If you owe money then you will be forced to sell a perfectly good asset in a falling market to pay off your debt, and that sale accelerates the fall in stock prices. Besides with the bond market weakening the cost of margin debt is going up. That will also be triggering liquidation of this debt with an obvious impact on stock prices supported by this borrowing. […] The current weakness in gold and silver is also a sign of a coming crash in all major financial assets. Once the weaker investment holders of gold and silver have finished selling precious metals they will continue with other assets, and margin account requirements will force them to liquidate US stocks. Stock market crash: We think the sell-off of precious metals is almost done but it has hardly started with the overinflated US stock market. A historically high US price-to-earnings ratio still anticipates an economic recovery that is just not coming through. US GDP growth in the first quarter was revised down from 2.4 to 1.8 per cent, after the negative fourth quarter. The only economic recovery is in house prices and the stock market, both inflated by cheap money courtesy of the Fed. Rising mortgage rates are going to ditch the housing recovery and rising margin costs will do for the US stock market. Welcome to the liquidation sale of the century!”
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This time must be different.
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