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good afternoon welcome to capital account i'm lauren lyster here in washington d.c. these are your headlines for friday january fourth two thousand and thirteen in the stock market partying like it's nineteen ninety nine i don't know what explains the market gains over the last year despite the risks and arguments from some corners of central bank rigging and was buying when so many americans have been pulling out we'll ask pete prosperities chris martenson and get his outlook for two thousand and thirteen zero and talk about this. warn. me do you. want to show you. yes or how about a trillion dollar magic coin solution to the debt ceiling will discuss plus after the fed minutes came out yesterday gold humbled some are arguing the gold these this in general is shaken some gold traders according to bloomberg expect prices to

rebound from the longest weekly losing streak in eight years here to talk about what is going on in the precious metals markets is keith wiener he is president of the gold standard institute and c.e.o. of monetary metals and our discussion of the dairy cliff sent some viewers over the you tube comments are cliff will pull the conversation back from the ledge and your feedback and deliver a special message just for your audience you won't want to miss it let's get to today's capital account. when it comes to the macro environment central bank policy and economic risks and their actual impact on stocks or any asset class the results don't always make

sense or follow logic don't we all wish in those situations we had appreciate knowledge of the future like this one more you sure knowledge of the future to play the stock or we could make truly want to make truly and when we could make. a trillion is more than a billion. our exhibit. may resign we will want everyone to zip it because it kind of seems people some of them often do not take into account the true value of billions or trillions when they get thrown around just carelessly right and left like six hundred billion dollars in new government revenue over ten years that's how much the debt ceiling deal reportedly will raise does this really amount to much more than squat in the grand scheme of more than sixteen trillion dollars there it is trillions and public debt and a trillion dollar coin or two because that really magically solve

a debt ceiling crisis or stalemate if it comes to that well chris martenson author of the crash course is here to talk some sense about billions and trillions and give us his two thousand and thirteen forecast there is his book the crash course you can see it right there he also has a great series that you can watch online very instructive and thank you so much dr morrison as always so great to have you on the show thank you pleasure to be here again yet so let's talk about the stock market because i have to say if you look at the macro news that i've been reporting over the last year and then i look at the gains of the stock market as seen in the last year i go this is just not add up and retail investors we know we've seen report after report of them pulling out being on the sidelines so the questions that you raise which are good ones which is the interesting questions are why are people pulling their money out of a market that they no longer trust and then who is doing the buying so what are your answers to those particularly the second one who is doing the buying well there has to be three hundred billion dollars question because that's how much money retail investors that pulled out over the two years equity mutual fund

programs they've been putting their money over the money market or bond funds or other places where they're obviously getting their poultry i think certainly lower rate of interest thanks to ben bernanke he so who's doing the buying listen when you have forty five billion in treasury purchases forty billion m.b.'s purchases every month that's money that's going into the twenty. or having a few problems with dr martens audio we're going to work on getting him out dr martin can you hear me i can hear you helen good good ok so just echoing you left off you were saying that when you have the fed buying forty five billion dollars at another forty billion m.b.'s when you have them buying these kinds of bonds and mortgage backed securities that has an impact on the stock market what is that well it's really driving the market higher than it should be look we have the russell two thousand thing at all time new high the dow is within

a percent of two of all time highs same with the s. and p. but the macro day of the stuff that you've been pointing out on the show is just sitting there with weak retail spending with all sorts of measures that are clearly saying that the economy is stumbling along now with this new tracks feel that same place sixty billion dollars a year coming out of people's pockets that it's just about everybody that's a drag on the economy and then whatever spending cuts should any obviously materialize that will be another drive so i don't see anything here on a fundamental basis that supports where the markets are but the prices are where they are because we now know the price of everything but i think the value of nothing the price of everything but the value of nothing so then how do you look at the stock market for two thousand and thirteen when when you think about your outlook you know is this an indication that it's going to continue this trajectory and shake off whatever bad macro news comes our way which is likely to happen or does it mean hey two thousand and thirteen really watch out because this could really collapse there could be

a huge correction well if the old maxim was don't. i think we have to multiply that by some whole number maybe ten because it's really we're not just fighting the fed at this point in time where we're fighting the last all of the leverage that the rest of the financial industry can provide on top of eighty five billion a month or more and if you told me this was going to be happening like teleported me here from five years ago i would be running around with my hero on fire. any money a difficult money to market to make any money and so then where do you advise or think about when you when you talk to just normal folks about where maybe they should be thinking about investing where they can both have their money safe in two thousand and thirteen but maybe hopefully get something for it you know unlike these low yielding instruments whether it's bonds or in some cases where we've seen negative yields in the last year. you know i'm not

a big fan of bonds at this point i think they're absolutely going to be certificates of confiscation again at some point i'm not a huge fan of the stock market not of these multiple maybe in some very select sectors but just definitely not generally across the whole index universe at this point in time commodities don't look like they're going to have to run at some point here because the association between commodity prices and their money printing very tight in the series that still looks good and they look forward in time i'd still like gold and silver here even though they've been getting some pretty extraordinary bear rates that have been going on lately but right now the best investment for somebody with a small amount of money is still in their own infrastructure in their home very close to home this is a period of time worry more about return of principle that return on and i advise people to have some powder dry at this point in time because they do think that the chance of the downside risk here is a lot higher than missing out on a bull run ok that's that's a good warning and i'm sad to hear that trend still be one of looking for return of

capital versus return on capital people should get some return on capital we've had the mansour repression first so long i especially when you look at the tax breaks that are coming this set that everybody payroll tax holiday is over this is something that affects middle class americans that in fact affect everybody and of course we hear so much about the tax increases for the top bracket of those making more than four hundred thousand dollars my question the revenue that that raises the six hundred billion dollars new we're writing about how this is kind of ridiculous you know what does this really need when you look at the grand scheme of the u.s. debt and deficit budget deficit problems. so what's the mode in the u.s. budget deficit in the vicinity of a trillion dollars for next year sixty billion dollars of all of that came next year it won't because this thing is sort of staggered layered out over time but if we even got that sixty billion next year represents about five percent of the deficit so to put this in context we had a or hundred billion dollar deficit back at the start of this crisis and now we've got one that's more than two times larger than that this is an extraordinary event

when washington can't even find a way to trim more than five percent of that now the spending cuts if they actually do materialize are anywhere from one percent to maybe as much as nine percent of the deficit so the total range here is going to be in the vicinity of let's average it out maybe ten percent of the existing deficit that's all that could be found at this point in time it just means that we have a dysfunctional process as i mentioned when we were running up these massive deficits years ago i said listen don't be surprised when they turn out to be permanent washington can find ways to spend they have a devil of a time trying to figure out how to save and i don't think they're going to start saving until they're forced to market conditions are going to have to force this is some ploy but with bernanke you maybelline them there could be a while ago so it could be a while which is certainly a model we've seen in japan for example my question for you and the midst of this is that you talked about the dysfunction one idea that we've been seeing and tossed around a lot today especially on the blog it's fair and by some economists to that i've

seen actually advocate this is this idea that the treasury could have a trillion dollar platinum coin deposited in their account at the fed there you go heidi well actually i think summed up pretty well when she said in her article we can bring up the headline just process today people got real emotional about this too we do have it i hope we can bring it up but she said an article meant the point why the platinum coin or the title was why the platinum coin it doesn't even work as satire and she says missing a new point is very much in the interventionist mode of the past four years but the fed programs don't require scouring the u.s. reserves for plan. creating some unnatural currency beast it can at least masquerade as an intellectual exercise at least with the fed creating new money we kind of have this idea of some kind of intellectual exercise going on she's arguing you know with the treasury just making this magical point this is just a new era of absurdity whether people are kidding about it or serious about it what are the actual implications of doing that kind of thing in terms of inflation and

also intervention. it would simply be for optics so why spend the money on even five hundred dollars worth of platinum to run this coin just minted out of plastic or something it's the same exact situation we already have the treasury prints up these treasury bonds bills notes the fed buys them the fed holds them and then the fed needs all of the excess introspect to the treasury anyway what's the difference between doing that and the treasury going over just getting money directly well they forego the tiny bit of interest that the fed skims to run its operations which by the way is not a lot of money so really there would be no difference it's just optics it would just be a way for washington to say aha we've avoided this pesky thing called the debt ceiling through some work but it would just be it's just mental gymnastics it's just a more clever way and one word about it looks like our nation's seeking to be clever rather than prudent if we're looking for tricks and gimmicks rather than a fundamental addressing of the of the seriousness of the condition the fact that

we print money through one complicated mechanism or some corking mechanism through the treasury with a coin but it's the same process so that's the fundamental question we should be asking which is how much is too much is there a bright line in the sand that we don't dare cross but if there isn't how or what are we really entertaining is riskier we already punished sabre's transferred about a trillion in lost revenue to savers through reduced interest payments transfer that same benefit over to debtors so that's really there are a lot of messages coming through this that are very profound such as what's our country really stand for here yes and that trillion dollar coin optics i think will be a new low of what our country stands for but it doesn't change the fundamentals as you point out or the high jinks that really are going on when you really look at the fed doing thanks so much chris martenson author of the crash course a pleasure. and so head how founded are the claims of gold market manipulation is there more than meets the eye or not all talk to keep wineries present in the gold

standard institute and we have a very important message for all of you at the end of the show first our closing market numbers. are the worst if you are going through. the white house to give it to the radio guy in fort lauderdale in a minute. i want you to watch what we're about to give you never seen anything like this armstrong.

you know how sometimes you see a story and it seems so you think you understand it and then you glimpse something else and you hear or see some other part of it and realize everything you thought you knew you don't know i'm tom harvey welcome to the big picture. of the world. science technology innovation all the latest developments from around russia we've gone to the huge earth covered. thank you. gold has been on the move down since last october and it tumbled after the federal reserve minutes came out yesterday the idea being that rumblings of an

end in sight for q.e. among them fed members was not good for gold now folks like dennis gartman publisher of the gartman letter writes that gold bugs who have operated on the thesis that the fed has lost control of the money supply are in tatters other gold traders according to bloomberg expect prices to bounce back as concerns mount that u.s. lawmakers are not doing enough to control budget deficits and people want to protect their wealth one question. or more to the if the i or.

agree with them one yes absolutely first i want to say i'm coming from the same side of friendly to gold and monetary metals we are about producing new york on gold earning money that we are in real money that the gold standard institute were about promoting the use of gold as money and so my criticism of the conspiracy theories comes from the friendly side saying yes we believe in gold but in the mainstream we have some perception issues and i think these conspiracy theories are not necessarily helpful what do you have that does prove them why why do you disagree with them discount them as conspiracy theories ok so i brought a couple of graphs can we put those on the screen yeah we can get out of those so we can take up the graph where the gold price overlaid with the number of gold futures contracts we have that right now so what do you think that this shows. i think i think it's important for people to understand when aig so this is

a graph showing the number of the open interest that's called the number of gold contracts that contra contracts excuse me outstanding is the green line in the gold price overlaid with a yellow line and it's important for people to understand that when you sell there are two different ways of selling a gold future there is a sell to close so if let's say you bought a future on speculation because you thought the price was going to rise and then the price starts to go against you you sell that contract and that. the other party on the other side will buy it back and then they make a profit on that the other way is of course what's alleged in the conspiracy theory which is you could create another contract out of thin air and sell it so what this graph is showing if you put that back up on the screen for a moment yeah sure is that according to the conspiracy theory the price falls because the big banks are creating new contracts and selling them but what we see is as the prices falling and particularly want to focus on the latter part of

december when i put this together this was the most recent price drop in gold so. i didn't have a chance to see the price action this week when i prepared this material but we see that open interest the number of gold contracts is falling and that suggests that it's what i call naked longs people who speculate with leverage on gold futures or buying their contracts back selling their contracts and that's why we see the open interest declining ok so the the the conspiracy theory doesn't fit the data so let's look at it what i suggested sorry no go ahead we're going to show what i suggest is that people think of this a different way then the conspiracy theory says well the banks are naked shorting it and they present the banks as having a lame excuse well we are hedging our our metal it doesn't make any sense why would you buy the metal and head it so what i suggest that people consider is that the banks aren't hedging their mettle they're arbitraging in order to make a profit the banks are captive like everybody else to wall street and they have to

have a good quarterly earnings report and so what the market is doing is that saying ok if anybody out there that has a credit of vailable to them you can buy a gold bar and simultaneously sell a future against it and order to make a profit for carrying that bar holding that bar and so i think it's important and this is my second graph to take a look at the difference between where the spread between the futures price and the spot price yeah it's called the basis yes so let's bring us up so this is and this shows the gold price and it's overlaid with what you just explained is the basis which is this spread between the price of gold futures and the price of gold medal in the stock and the spot market so how does this show there is not manipulation going on in the market as you contend. so first of all it's really interesting to note this is so the basis is quoted as an annualized percentage this is what a bank can earn by buying spot gold in any given day you can see the green line shows you the value and it roughly is between point six percent and point six five

percent pretty much now then that's for a whole that's for buying spot gold let's say on the eighteenth of december two thousand and twelve and selling a twenty december two thousand and thirteen gold contract so it's roughly one year so by comparison if the bank were to buy a one year treasury security those things yield less than point two percent so from the bank's perspective it's simply much more profitable to carry gold than it is to carry a one year treasury note or treasury bill but the other thing that graph shows is that if the banks were so the conspiracy theory says the banks are selling. futures naked if that were true then what and driving the price down as you can see from the gold mine you know the prices has been dropped over one hundred dollars certainly from september and i think that you know peak to trough from mid november to december over there is almost one hundred dollars eighty dollars something like that. if that were true that would push that green line down because the banks are

only selling the future and they don't have especially in silver there they don't have the silver to sell so they're selling on the future that would drive the price of the future right right you know one hundred dollars down while the spot price is still holding steady so that green line that spread a future price amount of spot price would fall completely off the bottom of that graph and become negative and if you sold backwardation i was a that's called backwardation i know we don't have a lot of time to get into that but what you're arguing that here what's the relevance of it just a simple explanation well it's just like in physics you know and einstein says gravity is going to bend light a certain way or something like that you'd like to get to the point where you can then observer. real data and say well if the theory is true we're going to see like going to the left and if the theory is false we're going to see right like going to the right so we now have a situation where if this theory was true whenever the price dropped and the and the conspiracy theorist say that it's manipulation which is to the basis completely

falling off a cliff into the abyss and we don't so what i would suggest to viewers is on our website monetary dash metals dot com we're going to have a follow up piece for viewers we can present a lot more information about backwardation and i go into more depth and we can change our thinking and quickly i just have thirty seconds left but what do you attribute their job in gold recently to if not to manipulation what's your theory if you have one twenty seconds to about yeah here. that's interesting and obviously everybody enjoys having an opinion and myself included i think we have to resist the urge to say that every blip in the market has to have an easily point out of all reason that we can say oh well that's it personally i suspect it will go to the conditions are getting tighter both in china and in europe and people have to liquidate assets especially where there's a firm bid as there is in gold and silver versus you know bonds in europe and other things where as much harder to liquidate so they find whatever is not nailed down and they look at dative and you know you see these sell offs i think going forward

it's obvious that the price of gold and silver is going to continue to rise we shouldn't cheer that because that's really not gold going anywhere that's the dollar going down now and i'm cycling we should do what we're going to have to spend if there we're out of time i don't mean to cut you off but you got so much great insight and i really appreciate you being on the show really interesting stuff already thank you you to. let's wrap up with your feedback and dimitrius joining us for this one because what's more fun then having just me respond to your feedback what's more fun is having the enemy to respond so gibson the log said earlier this week i would love

to see colin roche come into the studio for an interview with some better audio his approach seems very interesting there's got so many likes it got more than a dozen at least the last time i checked which was a while ago and we're so sorry that his audio wasn't better but yes yes such interesting. insight and you can always go read more of it on his blog he has pragmatic capitalism that's his blog t w skeptic represents what many people felt about dimitri and my discussion about the dairy cliff he or she said r.t. is anti milk the argument is because we're the only mammals who drink milk of other animals how is that a good argument we also eat rice and beans which are receiving grains which can't be eaten raw and no animal eats if you can explain what the health issues are then why even give an argument there's nothing wrong with raw milk the problem is government doesn't allow farmers to sell it well thank you for feedback let me draw these people off the comment cliff because i would like to point out that there are plenty of health problems with milk demeter maybe you want to weigh in but i was

looking at the physicians committee for responsible medicine they say prostate and breast cancers have been linked to consumption of dairy products contaminants from pesticides drugs hormones both natural and since the synthetic are found in count type one diabetes is linked to consumption of the very products they pose risks for children encourage obesity got another mile north of this. i mean look the reality is if sixty percent of adults can't digest it and they end up passing gas nonstop as a result you know of something wrong there you should drink in it and i would put you to sleep walk as a coach your stomach yet more so than all of those health problems is then it was in the digital mixer it should be with you there are a lot of that unfortunately that's all the viewer feedback we have to get to because we have a very important announcement this is actually hard for me to say i'm going to get emotional this is our last capital account this is our last day on this show it's been an amazing run a little over a year year and some months feel like

a lifetime because we've really poured so much of our heart and soul into this and it's time to move on to new things and i just want to thank so much all of our viewers who have been so supportive all of our guests who have been so supportive the ones in the beginning who gave us a chance when they didn't even know who we are our staff for being amazing and putting up with us our producers our entire team dimitri you've made my dreams come true and i got that something called me like weather so that before then i guess i would just say and then i want you to continue because the audience has known you for so long i just say i'm very it was very grateful i'm very grateful to everyone and so the audit especially you guys have been really remarkable it's been a real pleasure to produce something that we all enjoyed something that i felt was missing before i came to our tea and worked on the show create a couple account and i feel you guys really i thank you for coming and watching

every day and and showing the the ability to. to look for something deeper something deeper and there's so much to our team for giving us the opportunity to do the kind of show that we wanted to do the kind of show that pushed the envelope and did some things that are conventional on t.v. like long in-depth interviews which ended up being a huge hit and so i just can't thank our team enough for the opportunity do that and let's we drag on and on and droll on about this we are going to say goodbye for good because that is our show for today thank you so much for watching to keep looking for ways to run a farm those two get going over mation you know you can follow us both on twitter at lauren lester and dimitri at covering delta go like our facebook page one last time facebook dot com slash capital account will have a message there in perpetuity you can watch our videos at youtube dot com slash capital account and hulu dot com slash capital dash account from everyone here at capital account thank you so much for watching and have

a great night. for . glory.