goldmap

The Intersection - 1/31/12

  

Dear All,

On Friday the Commerce Department reported 2.8% annualized GDP growth.  The New York Times reported this on its front page as follows:

ECONOMY GREW AT QUICKER PACE IN 4TH QUARTER  -- RECESSION FEARS FADING.

Shadowstats reported the story a bit differently:

'Net of Involuntary Inventory Build-Up, GDP Growth Was 0.8% Instead of 2.8%.'

The Fourth Estate is thoroughly complicit in conveying government propaganda.  Worse, with few exceptions economists are content using false data as the basis for their work. 

NYTimes: U.S. Banks Tally Their Exposure to Europe’s Debt Maelstrom  Here the New York Times ignores and whitewashes the central truth to the story, which is that the 5 largest banks in the U.S. are actually the obligors on the very insurance the Times is describing. This has been a cute game whereby the banks have been creating gigantic paper earnings by writing worthless insurance and shuffling premiums. Game over. The unthinkable has happened -- Greece is defaulting.  The ISDA (a wholly owned agent of these banks) cannot formally declare a default without bringing down these banks. A mountain of paper is the only way out. This alone assures the price of gold going parabolic.

Reporters Without Borders  publishes its annual review of worldwide media and compares journalistic freedom internationally.  The latest index ranks the United States 47th in press freedom, barely nudging out Latvia and Haiti but trailing Ghana and Botswana: Press Freedom Index 2011-2012

 

Misccellaneous...

Janet Tavakoli is an authority on structured finance and leading critic of the derivative culture: TheHuffingtonPost: Gold and Silver Price Manipulation

Murray Pollitt: Gold - The Uninvited Guest

As a measure of global shipping demand, the Baltic Dry Index serves as a gauge of economic activity. In the past 30 days the Index has dropped more than 60%:

Bloomberg: Shipping Index Plunges Below 1,000 for First Time Since 2009

 

  

The trend...

The days of the dollar's supremacy are fading. The east is thumbing its nose at the west. Recall that several months ago the head of the U.S.' central bank proclaimed that gold is not money:

India to pay gold instead of dollars for Iranian oil. Oil and gold markets stunned

ChinaDaily: China tiptoes to Petrodollar Recycling, 'raising eyebrows'

 

Bloomberg: Iran, Russia Replace Dollar With Rial, Ruble in Trade

 

 

 

And what precisely would you have expected with 11,000 civilians and 5,000 security contractors remaining in Iraq after the U.S.'  'withdrawal.'

NYTimes: U.S. Drones Patrolling Its Skies Provoke Outrage in Iraq

 

Wikipedia: The Embassy of the United States in Baghdad is the largest and most expensive of any embassy in the world. At 0.44 square kilometers it is nearly as large as Vatican City.^[1] It also employs 15,000 people and cost $750 million to build. The Embassy opened in January 2009 following a series of construction delays. It replaced the previous embassy, which opened July 1, 2004 in Baghdad's Green Zone in a former Palace of Saddam Hussein.^[2]

  

Regarding gold and silver...

No respectable money manager or mainstream financial publication dares talk-up the incredible investment potential for precious metals; the bull market in gold and silver is antithetical to Wall Street's interests. So long as hushed-tones are the rule though, the wall-of-worry is firmly in place. The source here is quite correct -- "[G]old is at the intersection of money trends."   Barron's: 'Anonymous' Hedge Fund Guru Sees Gold Price Soaring

Position yourself for the inevitable and ignore the daily noise. The Fed must lower the value of the dollar and raise the value of gold. The Federal Reserve's particular brand of paper has been -- for far longer than any Open Market Committee member can recall -- the Coca Cola of currencies.  The fizz is gone.

All the best,

Jeff

1/17/12 Update: Eric King source -- "Staggering gold demand"

 

Dear All,

I am reprinting here in its entirety a piece run today by Eric King of Kingworld News with a source identified as "London Trader." Note the source's description of the deterioration of the Comex -- the backbone of paper gold pricing -- as a "credible marketplace." This impairment was no doubt hastened by MF Global's collapse but more particularly the refusal (or more likely, financial inability) of CME Group, Comex's parent, to stand behind MFGlobal's customer obligations. These are the observations of a professional who understands markets, the deceit which often belies reality and the noise that distracts from fundamentals.

- Jeff

1/17/12

London Trader - Staggering Gold Demand Creating Shortages

With many global investors still concerned about the price of gold and silver, today King World News interviewed the “London Trader” to get his take on these markets. The source stated,

“We’ve still got a very, very compressed spring because the shorts are still trying to defend their positions, their naked short positions in both the gold and silver markets. As an example, in the silver market, you saw that type of activity in the silver ETF (SLV). Shorts borrowed another 3 million ounces to cover immediate delivery concerns. There are 25 million ounces now borrowed from SLV. It is getting worse and worse for them.”

“They are naked short on the COMEX and to meet immediate delivery demand they are having to borrow it from the SLV. It is still unwinding and it’s still got a long way to go. Yes, you will still see games being played and yes you can create paper gold out of thin air. But there comes a point where each time you do that the physical buyers are taking it and it has a lagging effect that will catch up, and eventually it gets reflected in the price.

The demand for euro gold here in London is so intense it’s shocking to some of the players. This is what has left some market participants in the US wondering why the price of gold has risen along with the dollar. It’s because demand in the eurozone is unimaginably strong. The euro physical gold demand is off the charts and it is creating shortages for metal, in size, here in London.

The physical gold market is actually being drained by euro gold buyers. People are converting their euros to gold and there is only a finite amount of physical gold available. Again, that’s why you are seeing the dollar and gold rallying together.

We are also seeing very strong markets in Asia with solid premiums. Silver is in backwardation. There are huge premiums for size (large tonnage orders) in silver and you are going to wait 3, 4 or 5 weeks for delivery. There is constant backwardation into the March futures contract. For the most part, the bid on silver spot has been higher than the ask on March futures.

These paper markets are a joke. Nobody who is seriously in the business of taking physical delivery is trading on the COMEX anymore. That is big news. The COMEX is no longer a credible marketplace.

You now have international funds, whose compliance departments are saying to them, ‘You can no longer trade on the Comex because the CME did not back client accounts.’ There are a tremendous number of international funds and hedge funds that can no longer trade on the COMEX as of the first of this year because of compliance reasons and no one is talking about this. This is huge news.

Back to gold, if we get a pit close above $1,650 you could see a lot of scared shorts begin to cover. This could create a very quick move higher in the gold price. Also, if we get a pit close above $1,650, we are going to see a very large tranche of unfilled wholesale orders moving a lot higher with their bids, and that will become a base. There are massive orders for sovereign entities under the market here.

The Chinese are long-term thinkers and they really don’t care whether they are paying $1,600 or $1,700 for gold. What they do is get the best price they can. When the new floor eventually becomes $1,700, they will buy everything available at that price. When it becomes $1,800 they will buy at that price. They are just looking to accumulate gold and they are never sellers, never.

There are two things here. Yes, China wants a cheap gold price and they’ve been enjoying the fact the gold market was taken down. They have recently taken another roughly 150 tons away from the Western central banks. The Western central banks essentially donated that gold in an attempt to prop up their paper currencies. Yet again these traitorous Western central bankers have given away more power.

I see gold as power and once again they have given it away to the Eastern Hemisphere. The Chinese continue to laugh. As much as the Chinese would like to have a cheap gold price and have this manipulation keep going, they also want to bring the renminbi to the center stage.

To them, it’s more important the Chinese currency becomes the world’s currency. The dollar, despite the latest rally, is dying, we all know it’s dying. So, the Chinese are moving to become the international currency of the world and the best way to do that is through gold. It’s a very clever tactic. Every time more gold arrives in China, the more their currency is backed, the closer they move technically to becoming the world’s reserve currency.”

The flow of gold from Western vaults to Eastern vaults is the most important symbol of the decline of the West. As the East rises, the West falls. “So goes the gold, so goes the power.” Remember to be your own central bank by owning physical gold. Many in Europe have apparently figured this out as gold demand is, “off the charts.”

© 2011 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.

An Abundance of Complacency - 1/17/12

 

"You've got insolvent banks supporting insolvent sovereigns and insolvent sovereigns supporting insolvent banks." - Robert Prince, co-chief investment officer at Bridgewater Associates in a January 3rd Wall Street Journal interview.

 

Dear All,

On October 22, 2010 the Commodity Futures Trading Commission held a 'Roundtable Discussion' on "Individual Customer Collateral Protection." The purpose was to assist the CFTC in determining how to apply the Dodd-Frank Act in protecting customer funds. Participating were various industry experts including Edith O'Brien, treasurer at MF Global. As you will note, Ms. O'brien was quite assertive in her view of the adequacy of "the current safeguard system" in protecting customer assets.

"I think that a number of individuals from this table don't have the benefit of the extensive experience of the FCM structure, and I've heard two hours of dialogue about seg customer movements between the clearinghouses and the exchanges, and as the conversations continued, it appears that this is extraordinarily myopic view of the current safeguard structure that operates in America and has effectively worked to the best of my knowledge for years."

Ms. O'brien is now a "person of interest" in the FBI led investigation into the missing MF Global customer funds and is reportedly refusing to speak with investigators unless she is granted prosecution immunity: NYTimes: U.S. Inquiry of MF Global Gains Speed

 

It well deserves its market share...The press may demonize the Mafia for exploiting a shortage of capital and charging free-market interest rates but frankly it has assumed its dominance by more capably managing its capital than the nation's banks. OTB: Mafia Now The Biggest Lender In Italy On a somewhat related note, a class-action lawsuit has been filed in the U.S. under the RICO [Racketeer-Influenced Corrupt Organizations] Act against the various players in the MF Global theft. Predatory lending, extortion and other varients of organized crime -- franchises dominated in recent decades by banks, have given way to the Mafia, which conducts itself in a more straitforward and honorable manner than the sociopaths running the country's banks and governments.

 

The Bureau of Labor Statistics reported that 200,000 new jobs were created in December, exceeding consensus expectation of 155,000 and lifting investor  optimism (at least until the release of the subsequent lousy Claims Report). John Williams of Shadowstats, apparently one of the few economists who actually reads the footnotes as well as the headlines informs: "The reported seasonally-adjusted 200,000 jobs surge in December 2011 payrolls included a false, seasonally-adjusted gain of roughly 42,000 in the "Couriers and Messengers" category."

The widely touted better-than-expected December labor report was anything but and as Williams also points out -- had the BLS used the same methadology in calculating the unemployment rate that it used prior to 1995, the bureau would have reported the December unemployment rate as 22.4%.  Economists, Wall Street and the media continue to rely on bogus economic statistics.

How many Keynesians does it take to screw up an economy?...NYTimes: Inside the Fed in 2006: A Coming Crisis, and Banter  Here the Fedeal Open Market Committee, the most important monetary body in the United States is revealed as a fraternity of inept and self-congratulatory sycophants. Imagine a few carloads of sauced teenagers out on a Friday night with the keys to mom and dad's vehicles. The difference is that under a worst-case scenario for the kids, they would inflict far less damage than the 12 men and women comprising the FOMC.

  

On December 13th CNBC's resident "commodities expert," Dennis Gartman pronounced the 11 year gold bull market over and "the beginnings of a real bear market." Exactly three weeks later on the first business day of the new year a contrite Gartman appeared on CNBC saying just the opposite and expressing a desire to re-enter the market: "It's still a long term bull market." 

How's that for conviction?  The reason these charlatans provide their opinions is not because their views are of any particular value but rather, because they are asked to. Mark Fisher, a genuinly savvy trader who happened to be on the program when Gartman pontificated, gently took the guru to task: “If gold’s good, it’s not going to give Dennis a chance to get back in...If the market's good it's going to force people to get in at higher and higher prices. It’s sort of like, if everyone can get in, then why bother?..Markets that are really good, stocks that are really good, positions that are really good, you get one chance.”

  

Groupon vs. Obamacare... Nothing undermines the goal of reducing rising health-care costs than the expansion of insurance coverage and third-party providers. Medical costs have risen broadly and rapidly in all medical specialties except two.  It is not a coincidence that when the medical market is forced to price its services based strictly on the ability of its customers/patients to pay for them (as opposed to the willingness of insurance companies to do so) prices decline. In the face of escalating medical costs in virtually every specialty the prices of veterinary medicine and cosmetic surgery -- which insurance companies do not cover -- have declined.  If the number of Americans lacking healthcare coverage were to increase, medical costs would drop.   MailOnline: Uninsured bargain hunting Groupon for health care ...with some savings better than insurance!

  

Highly reccomended...

From the world's largest hedge fund: WSJ: Bridgewater Takes Grim View of 2012

 

Besides being the largest insider trading operation in financial history, Goldman Sachs is the most prolific pump-and-dump machine on Wall Street. Matt Taibbi's latest -- RollingStone: Goldman's Latest Boiler-Room Stock: America

 

The trend...

FARS: Iran, Russia Replace Dollar with National Currencies in Trade Exchanges

Central banks have accelerated their net purchasers of gold:

 

China's Gold Imports From Hong Kong Surge to Highest Ever‎ 

 

 

Regarding gold and silver...

Every report I read and all the anecdotal information I am able to access confirms that physical demand for gold and silver is rock solid.  Complacency abounds, particularly among retail investors. MF Global is surely not an isolated case and the duration of the "investigtion" without result should be causing far more alarm than it apparently is. Retail investors are not properly assesing counterparty risk at the most basic level. 

Greece is going to default one way or another.  The question is what the International Swaps Dealers Association's position will be; its voting members are appointed by the very banks that are on the hook if the swaps are triggered. Europe's troubles are serving as a great temporary diversion from the U.S.' own problems. The theater however is coming here. Only gold and silver will protect you from the destruction of paper asset prices and the rampant fraud and rot in the financial system.

This is no time for complacency. Opt out of the financial system and avoid counterparty risk with physical precious metals. Load the boat on mining stocks for fabulous profits. 

 

My best, 

Jeff 

Remain seated - 1/2/12

 

"It was never my thinking that made the big money for me. It was my sitting, my sitting tight."  -- Jesse Livermore, 'Reminiscence of a Stock Trader ' by Edwin LeFevre.

 

Dear All,

In three years the European Central Bank has swelled its balance sheet by nearly 90%. Nearly half of this expansion to its now record 2.8 trillion euros occurred within the past 6 months, the hastened increase in leverage being commensurate with Europe's accelerating deterioration. The nearly one trillion euros that has found its way onto the ECB's balance sheet since mid-year has done so against a backdrop of tough talk by the ECB, parroted by a financial press that seems more interested in serving as a technocratic propaganda conduit than in conveying the dry numbers.

 

The fear of stigmatization that banks once held for availing themselves of central bank lines is long gone. On December 21st the ECB announced that over 500 European banks had signed up for 37-month, 1% term loans aggregating $489 billion euros. Not only is this the largest such take-down ever in a central bank liquidity operation and two thirds greater in size than what analysts anticipated, the 3-year plus term is unprecedented for a central bank. Bloomberg: ECB to Lend Greater-Than-Forecast $645 Billion as Banks Line Up for Funds.  CNBC cheerleader Bob Pisani referred to the operation as "a big success."  Big success?  The European central bank gave away nearly-free money to distressed banks, which would presumably return the favor by purchasing otherwise unsalable government debt at record high interest rates .The desperation demand was so great that 523 institutions showed up for the handouts.  It is remarkable what passes for success in today's financial markets.   

The government debt that the ECB is attempting to force upon the disastrous balance sheets of banks already doped up with toxic sovereign paper would however push a fair amount of positive interest spread onto bank income statements, while serving the ECB's purpose of circumventing its restriction on directly purchasing its members' debt.  This circuitous disingenuity characterizing the approach of the European Central Bank in dealing with the insolvency of its member states and their private banks makes perfect sense if you're a cornered Keynesian trying to concoct every alternative to facing the music. Insolvency is not curable with artificial liquidity; it in fact compounds the problem. It would however buy its implementers some time, the sole motivator behind this sham. It is Quantitative Easing by misdirection and there is plenty more of it coming, both in Europe and the U.S.

A funny thing happened though on the way to positive-carry nirvana.

From a former Fed vice-president...

"America's central bank, the Federal Reserve, is engaged in a bailout of
European banks. Surprisingly, its operation is largely unnoticed here."

WSJ: The Federal Reserve's Covert Bailout of Europe

 

Sometime in the early part of 2002, only a few months after the terrorist attack on Manhattan I found myself walking uptown on Broadway in the west 40's. For reasons unknown, there was on this particular day some type of extremely intense security action in that part of town. It may have been an exercise or an actual threat, I have no idea -- but the activity was like nothing I had ever witnessed nor seen since. In addition to city police there was a heavy state police presence and many of both forces were in riot gear brandishing serious automatic weapons. Most disturbing was the presence of non-uniformed armed federal agents. The myriad of identification badges led me to believe that they were from a multitude of agencies. In the midst of the most intense police mobilization I had ever witnessed I had two depressing thoughts: 1) I had no idea that the U.S. had so many armed agencies, and 2) If any action had to be taken, with the large number of separate armed agents on top of local and state police -- who the hell could co-ordinate such cross- jurisdictional weaponized fiefdoms? In any action all hell would break loose with agents and police likely firing upon one another.

My observations of these largely armed, overlapping (and assuredly clueless and ineffective in the event of an actual threat) security agencies can be applied to the multi-responsible/irresponsible, finger-pointing regulating agencies supervising the securities and commodities markets. What should by now be clear to all is that it is the regulated that are doing the regulating.  Jon Corzine successfully lobbied Mary Schapiro to stonewall the CFTC from addressing the very type of misuse of customer funds he ultimately engaged in. The agencies are headed by elitist cronies from Goldman Sachs and other places and are there to serve the banks, not the public.  Dodd-Frank has now been layered over Sarbanes-Oxley which ultimately only burdens innocent companies and investors while doing nothing to address real fraud. The agencies point fingers at one another, taking no responsibility when things go wrong all the while protecting their turf and insisting that any of their failures are due to budget restraints and under-staffing (Documentation of SEC under-staffing here).  Reuters: Special Report: The watchdogs that didn't bark

The incestuous relationship between regulators and their subjects was assaulted in a November 28th ruling by Judge Jed Rakoff in which he rebuked an SEC approved slap-on-the-wrist fraud settlement. Questioning exactly who is running the regulatory asylum the Judge decried the proposed settlement in which the inmate --  in this case Citigroup -- admitted no wrongdoing and paid a fine far less than their gains from the alleged fraud:

"A] consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies...In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."

 

The only thing that makes MF Global unique is that it failed.  Many of its practices, including fraudulent silver and gold fractional reserve operations run through ETF's and allocated "warehouse receipt" metal storage, is commonplace on Wall Street: Barron's: MF Global customers see their silver bars vanish

 

What separates CNBC Europe from its domestic counterpart is more than just several time zones. Where the broadcast emanating from New Jersey serves up mostly banal chit chat and official drivel, the Continental version often features substance for the thinking man and woman. Cheviot's Ned Naylor-Leyland appeared recently and was permitted to mention on air that the gold market is rigged -- something verboten on U.S. financial TV.

 

Charles Hugh Smith has an excellent piece on the financial machine that lubricated the fraudulent college bubble: Risk and the Indentured Servitude of Student Loans.

"The key dynamic here is the transference of risk from the lenders, who stand to reap immense profits from these loans, to the students. This transference is enforced of course not by the banks but by their partner, the Savior State, which obliterated the right to bankruptcy for students while guaranteeing profits to the banks via Sallie Mae, another guarantor of private profits backstopped by taxpayers."

  

Yra Harris had this to say recently on his excellent blog, Notes from Underground: OBAMA GIVES THE FINGER TO MAIN STREET AND OWS

"Today, President Obama placed two names forward for the Federal Reserve Board of Governors. Harvard University’s Jeremy Stein and the Carlyle Group’s Jerome Powell. At this time I don’t know enough about the work of Professor Stein but I am very bothered by the nomination of Mr. Powell. The power of the Carlyle Group and its connections to the upper echelons of various governments makes the choice very questionable. President Obama likes to give verbal support to the Occupy Wall Street crowd but when it comes to delivering some sense of fairness to the corrupt Washington/Wall Street nexus Obama returns to business as usual. Carlyle Group is the poster child of two complexes: Eisenhower’s Military-Industrial Complex and Simon Johnson’s Financial/Political Complex."

  

Worth the read...From Israel: Vote Ron Paul and Let My People Go!  

 

 

Lexapro Alert...Mattathias Schwartz's piece in The New Yorker detailing how the U.S. Dept. of Homeland Security assisted in the massacre of 73 Jamaican civilians is a must read.  The pointless war on drugs has merged with the inane war against terrorism, creating a nebulous international battlefield whereupon foreign police actions are being coordinated with U.S. agencies. While U.S. military operations receive press coverage there is an unreported growing shadow U.S. police presence around the world making mischief and facilitating murder.

 

Meanwhile at home, the Keystone Cops are expanding their terrain: Congress To Fund Massive Expansion Of TSA Checkpoints

 

On December 31st President Obama signed into law the National Defense Authorization Act under which the President may order the indefinite detention of American citizens without a judicial order, trial or legal counsel for the accused. The Act cancels the protected rights of Americans under the 4th, 5th, 6th and 8th amendments to the United States Constitution.  The White House issued this signing statement from the President:  

"The fact that I support this bill as a whole does not mean I agree with everything in it. In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists...My Administration will aggressively seek to mitigate those concerns through the design of implementation procedures and other authorities available to me as Chief Executive and Commander in Chief."

In other words, 'Trust me.'  And thank you, Mr. President for your patronizing and pointless assurance that you will not abuse your newly acquired perogative to terrorize Americans in the face of having neatly paved the way for future administrations to do so.

220 years ago the  "Bill of Rights," comprising the first ten amendments to the U.S. Constitution formally became law.  The Bill's preamble "expressed a desire, in order to prevent misconstruction or abuse of [government's] powers." by adding to the Constitution's main body "declaratory and restrictive clauses." Among the essential liberties and rights asserted and protected thereunder are the restriction on unreasonable seizure, the restriction on the detention of an individual without a charge by indictment or grand jury, the restriction of deprivation of liberty without due process of law, the prohibition of cruel and unusual punishment, the right to a speedy and public trial and the assistance of legal counsel for defense. The application of the Bill of Rights is an 'all-or none' proposition; the protected rights and restrictions were intended to be absolute and available to all. Any exceptions to the broad application of these provisions destroys their purpose and effect entirely.  By signing this bill into law, President Obama has seen fit to override the U.S. Constitution. By vesting in himself and future presidents the power to selectively apply the assured rights and protections formerly guaranteed under the Bill Of Rights as he/they so choose, he has effectively revoked them entirety.

 

The trend...

WSJ: Turkey Boosts Gold Reserves

China, Japan Agree to Reduce Reliance on U.S. Dollar

ChinaDaily: "No asset is safe now. The only choice to hedge risks is to hold hard currency - gold."

 

Regarding gold and silver...

Pessimism is rampant regarding the longevity of the bull market in precious metals, particularly so with respect to the share prices of gold and silver equities.  Markets are meant to confuse but when you add in the fact that gold and silver are the most manipulated markets on the planet it is easy to understand why many investors are bewildered and disoriented.  With the post-Labor Day take-down in the prices of the metals it is easy to lose sight of the fact that gold nevertheless just completed its11th consecutive year of price increase. Gold and silver prices remain far closer to their 2000 lows than the levels they will see over the next few years. The fundamentals of gold and silver cannot be denied by paper market shenanigans which have short term effect but no lasting influence on price direction. The shares will explode once again; the gains come in waves.  The past three years in the shares are reminiscent of the period of 1998 - 2001. Take a look at what happened to the shares from 2002 - 2007. It more than made up for the wait.  The fact that sentiment is so poor is extremely bullish.  The greatest moves in price commence from precisely such low levels of enthusiasm. 

The bull market has years to run. The paper silver and gold markets are being revealed -- along with so many other aspects of our financial system -- as fraudulent operations. As 2012 starts prepare for tremendous volatility -- and record silver and gold prices.

 

All the best,

Jeff

 

FREE LILY - 12/18/11

 

"If we can finally be truthful with ourselves as a nation, then we must admit that our financial system is fundamentally based on lies, fraud, embezzlement, misinformation, perverse filters and incentives, shadow systems that mock transparency and regulation, class privilege and the systemic flouting of the rule of law." - Charles Hugh Smith, 12/15/11

 

Dear All,

Much is made of the formality of an awaited Federal Reserve announcement that it is initiating another round of Quantitative Easing. The variants of easing and the fungible nature of money make much of this moot. There are a number of less overt measures with which central banks can accommodate the financial system. The prior week's announcement of dollar swaps as well as the lengthening of maturities under 'Operation Twist' are modified versions of QE, and then there are those actions that are simply not announced, some of which are later revealed under Freedom of Information Act filings.  The idiotic deflation mentality is back in play while Shadowstats, using the exact methodology the U.S. Labor Department used in 1980  (the year it commenced its manipulation of the index) places current annual consumer price inflation above 11%.  Even Shadowstats' 1990 based Labor Dept. statistics place CPI at 6.5%, double the current "official" rate. Meanwhile, the Fed references inflation as "at or below expectations."  Deflationary forces are at play solely in real estate and debt markets. The bogus inflation backdrop will provide cover for the Fed when it announces QE3.

 

When politicians cry...

Channeling her inner John Boehner, Elsa Fornero, the Italian welfare minister, breaks down at a news conference while explaining the provisions to increase the pension age to 66, and increased taxes on housing and luxury items

  

"Ora devi realmente funzionano. Terribile, sì, lo so. ... Ma voi? Hai la tua negozi e la tua trattorie.. Me? ... Io sono solo un politico ... Non ho competenze. Ci non è molto denaro per me, per rubare ora. ho nessuna formazione, nessun abilità. Che ne sarà di me? ... Che sarà di me?

 

 ("Now you must actually work. Terrible, yes, I know. ... But you? You have your shops and your trattorias. Me? ... I'm just a politician ... I have no skills. There is not much money for me to steal now. I have no training, no skills. What will become of me? ... What will become of me?")

 

When Al Jazeera is on the forefront of editorializing on the breakdown of the U.S. Constitution (Detaining US citizens: How did we get here?) while the U.S. press is largely asleep, we are in a terrible place. The Fourth Estate is barely interested and boobus americanus (hat tip, Mencken) is too preoccupied with reality television to realize that President Obama is about to sign into law the National Defense Authorization Act (NDAA), which Congress passed this week. Under the new law, the entire country is being declared a military battlefield and all it will take is a mere unsubstantiated accusation (i.e. no evidence - no judge - no hearing) and the U.S. government may now imprison Americans indefinitely without trial. 

As far fetched as it may seem, it will now be perfectly legal for the President of the United States to order the arrest of his political opponents. Seeing fit to subordinate liberty to the boogeyman, Congress passed the bill this week rationalizing that in this instance an accusation of support of terrorists (whatever that means) is a permissable exception to the extension of due process. Senator Carl Levin revealed that it was President Obama who required that the bill be re-drafted to contain sufficiently broad language so that detentions apply to U.S. citizens. The President's initial threat to veto the bill it now appears was centered not on its trampling of the protected rights of citizens under the 4th, 5th, 6th and 8th amendments to the United States Constitution, but rather on the initial draft's having contained language restricting the military's authority to arrest U.S. citizens. RollingStone: Matt Taibbi - Indefinite Detention of American Citizens: Coming Soon to Battlefield U.S.A

 

The Nanny State -- no longer hungry...

I apparently missed the memo informing that hungry people are to be referred to henceforth as "food insecure." It seems its now inappropriate to refer to those without sufficient food as 'hungry" or to use that old catch-all, 'poor.'  OK, I get that there are hungry people in this country. It is difficult to believe though that federal programs providing free meals need to be promoted; somehow I suspect that those wishing to avail themselves of free food, such as the 46 million Americans currently receiving food stamps know where to find it. And as the politically correct left feels compelled to bastardize the English language by continually inventing absurd and unwieldy hyphenated substitutions where single words have sufficed in clarity for centuries, so too does it disingenuously rationalize the benefits of federal programs. Here we have an under-aged Sesame Street character named Lily being exploited (yes, exploited -- Muppets are innocent hand puppets being hijacked here by leftist thugs) and forced to promote free buffets as a "deficit reduction program." Note the oily and condescending manner of her adult abductors in this clip. CNSnews: Sesame Street Muppet Pitches Government Dependence: Free Food at School

The radical left's indulgence in the sanitization of hardship has never been so grotesque.  So what's really behind the perpetual "re-branding" of the symptoms of poverty and other variants of human struggle so as to appear compassionate and to 'remove the shame' of a government assisted lifestyle?  It is almost never about the victims directly but always about those who promote and seek to validate the perpetuation of a dependency culture.  Today 25% of American children receive food stamps and child hunger is being promoted not as a tangible deficiency but as an emotion -- "insecurity."  Rather than sending the message to children that hunger is a terrible thing and a great motivation to work hard at school, kids are being infused with false self-worth by having their most superficial and least worthy attributes -- which are neither their fault nor their destiny -- aggrandized.  There is nothing compassionate about this, in fact it is cruel.

 

Recommended...Charles Hugh Smith: ofTwoMinds: The Truth Hurts--And Heals

 

Silver and gold...

Increasingly the day-today precious metals pricing is a poker game. The Federal Reserve is doing its best to create a 'dis-inflationary' set-up from which to stage its next overt QE program. In the interim it is liquefying Europe through dollar swap operations and covertly monetizing. The Fed has effectively become the western world's de facto sovereign debt market, providing dollars to purchase European sovereigns in the absence of market demand; the lone conduit supporting otherwise failed auctions. The run on European banks has created dollar shortages, providing a temporary bid for the U.S. currency.  With central banks' need to raise dollars (and simultaneously push down the gold price) gold lease rates (the interest rate central banks charge bullion banks that borrow its gold in exchange for dollars) went negative prior to the large precious metals price take-down this week.

The European Central Bank is talking tough but its walk is something quite different -- it has been rapidly expanding its balance sheet.  The financial press is more interested in parroting the headline-making propaganda that central bank officials and political leaders spew than in examining what is actually occurring. It is all a setup. Many gold and silver bulls have been shaken out. It has happened time and again in this bull market.  The winners have been those who remain steadfast. Short-term counter-intuitive price action is something one must endure in precious metals.

There is nothing counter-intuitive about gold's long term bull market price action however. Gold is poised to complete its 11th consecutive year of higher prices.

Gold and silver equities require nerves of steel and the price paid for greater upside leverage to the price performance of the metals themselves is manic price behavior and extraordinary volatility.  It is not for the faint of heart.  The right gold and silver stocks will however continue to outperform the metals over time, as evidenced by the goldmap index (current reading 14.1) which in spite of this year's poor performance, has since the commencement of the index in 1998 cumulatively outperformed the price movement in the metals (The GOI currently reads 3.0). Silver and gold stocks have become stunningly cheap.

I don't really know Rick Rule --  I met him briefly years ago at a gold conference and have participated in several private placements in which he also invested. I do have respect though for several people who speak highly of his acumen. KingWorldNews: Rick Rule - I Personally Bought Over $10 Million This Week

Note the comment of this Wall Street goat quoted in Friday's Wall Street Journal: "Gold is no longer a safe haven," said Adam Grimes, chief investment officer at Waverly Advisors LLC, a Corning, N.Y. firm that advises pensions and mutual funds. "The bigger picture really shows me that gold is trading as a risk asset."  This is the prevailing sentiment in the institutional investment world, the pasture for the dumbest of the dumb of investment professionals. Institutional and retail ownership of gold remains minuscule.  Having likely never known anything in his career other than a strong reserve dollar, Adam will soon get a lesson in currency debasement. His perception and those of his brethren will change and like lemmings they will follow each other into precious metals. Bull markets require new buyers and the dearth of institutional and public participation to date in the precious metals bull market provides powerful rocket fuel for price.

Contrary to much of what is reported, the banking system is in worse shape than it has ever been, including in 2008. There is nothing in the DNA of central bankers and politicians that will facilitate their taking any course of action to address the disaster we are in the midst of other than expanding the monetary base and debasing currency. Once Quantitative Easing goes full throttle gold and silver will begin the launch to their next record levels. In the interim, expect volatility to rule the day.

Be calm. Be patient.

 

All the best,

Jeff

Discarded Denominators -- 12/4/11

  

 

"You know how screwed up Europe is when you have a German pope and an Italian central banker." -- Kyle Bass, 11/15/11 in a BBC interview

 

 

Dear All,

  

The New York Times yesterday began its reporting on the paranormal drop in the unemployment rate contained in Friday's BLS release by suggesting, possibly without intention that sleight-of-hand may be at play. "Somehow the American economy appears to be getting better, even as the rest of the world is looking worse" (Emphasis mine).  The BLS reported 120,000 jobs added in November and a huge drop in the unemployment rate from 9.0% to 8.6%. 

  

Let's begin by pointing out that the country needs to add 150,000 new jobs each month just to keep up with population growth. So without a reduction in the number of people seeking jobs, anything less than 150,000 new jobs added each month raises the unemployment rate.  So what is to be made of an employment report that fell short of the requisite number of new jobs created for the unemployment rate to have remain unchanged, yet miraculously shows a sharply higher rate of employment? If you're among the alchemists at the Ministry of Propaganda Bureau of Labor Statistics you're familiar with a game known as Shrink the Denominator, in which a certain category of Americans barely able to make their Zoloft co-pays under their soon-to-be-expiring COBRA benefits are simply removed from the ranks of the unemployed and crane-lifted onto a growing heap of flesh the BLS calls "discouraged workers," which according to the way the BLS figures things, makes them non-unemployed.  From this constantly swelling aggregation these non-working individuals shall -- statistically at least -- never return; forever unproductive and permanently disheartened. If in fact the size of the designated demoralized grows sufficiently, the rate of unemployment can be manipulated downward -- managed according to the speed of the crane operator (coupled of course with the 'birth-death' models concocted in the BLS' animation department).

  

Let us not be as presumptive as the BLS in assigning an emotional state to the former workers that are dropped on to this pile each month. We'll label them without the patronizing sentiment the Bureau of Labor Statistics ascribes. By the manner and motivation of the Bureau's assessmentt of these foks we'll call them, correctly and objectively --'discarded denominators.'  Some would consider the progression of a human being from employed, to unemployed, to former devisor as cold-hearted indignity. To the government statisticians charged with creating happy numbers though, it is a blessing.  Discarded denominators are among the fastest growing segments of Americans lacking W-2's.

   

 

                                       

 

 

 

 

 

  

 

  

  

European banking and market risks are now fully absorbed into the United States banking system through derivative agreements backstopping the Continent. These guarantees dwarf the financial capabilities of the largest U.S. banks that are on the hook for them and so it is that the Fed has effectively come to underwrite Europe. The dollar swap line announcement Wednesday was yet again, a thinly disguised bailout of European banks (at least one of which was about to fail) as capital flight in the European banking system had reached a critical juncture. The European and U.S. banking systems are systemically now one-in-the-same. The banks will continue to be propped up with rolling liquidity injections although it resolves nothing. Solvency issues cannot be cured with liquidity and once the fix wears off central banks will be back with more of the same, continuing to throw gasoline on a fire they cannot allow to burn out. Quantitative Easing will rule the world.

There is also the back-story. The role of the ISDA in the Greek 'non-default default was discussed here in the 10/29 post. Take note that the maneuvering continues in order to prevent a cascade of Greek credit default swaps from blowing up. This initial desperate short term gimmick to avoid an avalanche of default triggers on Greek swap contracts had immediate consequence. In the aftermath of the ISDA's refusal to permit default insurance on Greek debt to perform as required, yield spreads on all European debt promptly soared: NYTimes: Scare Tactics in Greece .

  

On December 19th one billion euros of Greek debt comes due, the first tranche of 8.8 billion maturing between then and Dec. 30th.  It is hard to imagine:

  

a) Holdouts from the "voluntary" 50% haircut being paid par,

b) Holdouts from the voluntary haircut not being paid under their credit default insurance, and

c) Credit default insurance performing at all. 

 

Anything is up for grabs. We live in interesting times.

  

 

In for a penny, in for a pound...The OTC derivatives debacle has no practical resolution and keeps growing. The latest Bank for International Settlements report indicates that there are now $700 trillion in notional private derivative contracts outstanding -- an increase of 18% or $107 trillion in 6 months. We are talking gargantuan numbers here so perspective is in order. The notional value of OTC derivatives written in just the last 6 months is 7 times greater than annual U.S. GDP.  It is utter madness and can only be explained by an exponentially deteriorating financial system and the impunity with which contracts are written. The six TBTF banks that account for virtually all (96%) of the total derivatives outstanding can never be called to perform, for they are insuring nothing less than the entirety of life as presently constituted on the planet. Their collective lack of capital is problematic however only for the Federal Reserve, which will allow neither the global financial system nor these banks to collapse.

 

The Fed takes care of its bank wards nicely -- facilitating the banks' need to appear profitable by permitting their retention of the entirety of derivative fee (insurance premium) income, while the Fed wholly absorbs the corresponding risk. Were it not for the missing step of premium transfer to the party actually incurring the risk, it might otherwise qualify as the largest reinsurance operation in history. All the regulatory chatter about transparency and moving OTC derivatives to clearinghouses is well and good but existing OTC derivative contracts are bespoke and therefore cannot be clearing-housed.

 

As is the case in the U.S., European banks are overstating the value of assets to such a degree that selling them for what they're actually worth would force massive write-downs and the acknowledgement that they have negative capital. Take note of their attempted solution -- a European version of TARP -- sell the garbage to taxpayers at inflated prices in order to mask the real value: Business Insider: European Banks Frantically Trying To Dump $7 Trillion Of Crap Assets -- But No One Will Buy Them.

 

  

 

Gerald Celente's account at MF Global was among the tens of thousands of accounts looted by former U.S. senator and Goldman Sachs head, Jon Corzine: "I got a call on Monday, and they said I needed to have a margin call. And I said, what are you talking about, I’ve got a ton of money in my account. They responded, oh no you don’t, that money’s with a trustee now.” Gerald Celente: 'They took my money out of my account' MF Global's collapse should have you scrambling to assess the safety of the entities at which you maintain securities accounts. Better yet, have the transfer agent of the companies in which you own securities directly register them in your name, particularly if you're not an active trader. MF Global illustrates that when a firm has financial problems customer assets are up for grabs. The SEC and CFTC have demonstrated that they are thoroughly useless in protecting the public. They only protect the industry: WSJ: Purgatory for MF Global Customers

 

"Certainly going with a Morgan Stanley, Merrill Lynch or a Goldman Sachs is a far better alternative than going with a firm you've never heard of."  Under the theory that the firms cited are too big to fail, perhaps so. However the securities attorney dispensing this advice should note that all these firms have their own trading operations, as did MF Global and Lehman Brothers. More prudent advice might be to avoid any firm that has a proprietary trading or mortgage banking unit unless you're convinced it enjoys TBTF status. Be reminded though that quite a few clients presumed Lehman Brothers to be TBTF: NYTimes: In Commodities World, Safe and Secure Sometimes Isn’t

 

You will recognize Mr. Gensler as the same Goldman Sachs alumnus who is protecting fellow bankers in a 4 year CFTC investigation of silver price manipulation that he refuses to end: WSJ: Mr. Corzine and His Regulators  

"Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), has a lot of explaining to do...if they do nothing else CFTC regulators have to make sure that nobody is digging into the customer cookie jar...In previous beltway shifts [Messrs. Corzine and Gensler] had helped to write the 2002 Sarbanes-Oxley law that was also supposed to help protect investors....Mr. Gensler for his part, has a response to the cronyism charge. Since the firm went bankrupt he has announced that he will recuse himself from issues affecting MF Global., Now?"

 

A single accusation of rape made by a hotel maid against Dominique Strauss-Kahn resulted in a flamboyant arrest on an airliner, a handcuffed perp-walk and outright media frenzy. Jon Corzine, a former Goldman Sachs head, politician and thief (redundant) raped the accounts of tens of thousands of his customers to the tune of -- at last estimate -- $1.2 billion.  Why was Bernard Madoff's theft any more egregious? Why isn't the media hounding this guy?  They never seem to miss a Lindsay Lohan court appearance. Bloomberg: MF’s Missing Money Makes You Wonder About Goldman: Jonathan Weil

 

 

Old habits die hard...Goldman Sachs is the largest insider trading operation in the history of financial markets. His tenure as U.S. Treasury Secretary upon retiring from that firm did not however preclude Henry Paulson's continued participation in the sport: Bloomberg: How Paulson Gave Hedge Funds Advance Word

 

 

 

The powerful are no longer being sent to prison for their crimes -- the rule of law has broken down. We have become a nation of men, not laws. Former bank regulator William Black: Banking System Rotten to the Core

"In the Savings and Loans crisis, which was 1/70^th the size of this crisis, our agency made over 10,000 criminal referrals and that resulted in the conviction on felony grounds of over 1,000 elites in what were designated as major cases...In this crisis, the same agency that I worked with that made over 10,000 criminal referrals in a tinier crisis made zero criminal referrals."

 

 

His is a voice in the wilderness but libertarian Nigel Farage is a rare example of courage in a politician. He pulls no punches and speaks the blunt truth to his constituents, never pandering or playing to the lowest common denominator: Nigel Farage: "We are now living in a German dominated Europe."

  

  

  

Return free risk...This is rich. Here we have two competing ETF promoters debating which of their products is less crappy. Wall Street markets these fractional reserve frauds as 'convenient' vehicles through which to invest in a particular asset or sector, the only manifestation of which is the ease with which fees and stock-lending profits are conveniently extracted from the pockets of investors, who bear unnecessary risks. In the tradition of other such innovative Wall Street schemes ostensibly intended to make investing more convenient (think collateralized mortgage obligations) ETF's are vehicles for Wall Street abuse. Why any investor would own one is beyond me: Bloomberg: BlackRock’s Fink Attacks Societe Generale in Row Over ETF Risks

If you buy a Lyxor product, you’re an unsecured creditor of SocGen,” Fink, who heads the world’s largest asset manager, said at a conference held in New York by Bank of America Corp.’s Merrill Lynch unit. Providers of synthetic ETFs should “tell the investor what they actually are. You’re getting a swap. You’re counterparty to the issuer.”

  

Physical ETFs “expose their holders to undisclosed levels of counterparty risk to typically undisclosed counterparties,” Nizam Hamid, deputy head of Lyxor ETFs, said in an e-mailed response to Fink’s comments. “The unregulated use of securities lending has resulted in meaningful losses in the past.”

 

  

Lexapro Alert... The following is quite instructive. There are 736 members of the European Parliament (MEP's) from 27 European Union countries. Each MEP receives the equivalent of roughly $230,000 in annual compensation, some of it tax exempt. This expose' comes not from the BBC or a mainstream media outlet (the media sources least likely to confront those in power) but from an alternative Czech media site. Here MEP's are shown running like rats when cameras catch them showing up to collect their daily "allowances" and then leaving without doing any work. If you think that there is something particularly unusual about the ethics or character of this group, think again. There are after all 27 different countries represented in this legislative body. This is government in action. The circumstances of their corruption may vary, but politicians are the same everywhere including in the United States, particularly the ones that come from investment banks. MEP's caught on camera lining their pockets

 

 

  

About that Arab Spring (be careful what you wish for)...A secular dictatorship (supported by the U.S.) was overthrown by revolutionaries (supported by the U.S.) and is being replaced by a democratically elected religious orthodoxy in which reactionary Islamic puritans will wield large influence.  Lashings and stoning will now be officially condoned and women will be treated as per the will of the majority.  The people have spoken...Long live democracy!...Ladies, cover yourselves:

"But a big surprise was the strong showing of ultraconservative Islamists, called Salafis, many of whom see most popular entertainment as sinful and reject women’s participation in voting or public life." 

 

NYTimes: Islamists Claim Egypt’s Mandate in Early Voting

 

 

The trend...

  

* Russia Officially Adds 19.5 Tonnes of Gold Reserves in October Alone

  

* Reuters: S.Korea buys more gold in Nov in cbank gold spree  The central bank bought 15 metric tons in November alone.

 

* This is quite something. Zimbabwe had the worst hyper-inflation in recent world history. In 2009, in order to end the country's monetary anarchy it abandoned its own currency in favor of the U.S. dollar.  The head of the country's central bank who was a principal player in the utter destruction of the Zimbabwe dollar is today expressing reservations about his country's link to the U.S. dollar, suggesting that the Chinese yuan may be a better choice. A reforming banana republic is pontificating about the future of the U.S. dollar:  "At the moment the US dollar is going down the tube owing to the Euro-zone debt crisis and as a country, we are also going down the tube because we do not have control of that currency." Zimbabwe may move off dollar to yuan

  

* Bloomberg: Gold shipment arrives in Venezuela as Chavez begins to remove reserves from European, US banks  Nelson Merentes, the president of Venezuela's central bank describes gold's attributes and function quite differently than does the Chairman of the U.S. Federal Reserve, Ben Bernanke, who insisted in congressional testimony that gold is not money....11/26 UPI -- "Our gold is being stored in the vaults...It has historic value. It has symbolic value [a]nd it has financial value...It's a guarantee...If there's some problem in the international markets, here it's going to be safe... The country's finances will be backed by autonomous wealth, so we are not subject to pressure from anyone."  Such is the state of affairs that a Marxist government is more forthright than the United States in articulating the truth about the oldest and purest international currency.

 

 

I have three excellent interviews to recommend, the first being this BBC interview with Kyle Bass, wherein an old chestnut is revived; 'Capitalism without bankruptcy is like Christianity without hell.'

 

Chris Martenson's made this presentation at the Madrid gold and silver conference, He discussed the human tendency to extrapolate data in a myopic manner, resulting in the failure to recognize major changes to historical patterns. Martenson primarily discusses the sea change that is about to hit the world from the shift in the dynamics of oil discovery, although as you will learn later in the broadcast, he has 75 percent of his personal assets invested in gold and silver.

 

Steve Keen is an independent thinking economics professor very much worth paying attention to. His innovative thinking may strike some as radical. He was interviewed by the BBC  "[The protesters] should be occupying the economics departments of universities...You don't get into as disastrous as situation as we are in now without extremely bad thinking."

 

Gold and silver... 

Does this look remotely like a bubble to you?

  

 

 

Uh-oh... "We expect gold prices to continue to climb in 2011 given the current low level of US real interest rates."

Goldman Sachs/CommodityWatch 11/14/11

 

 

As you endure the air pockets, refer to this chart for a perspective of what previous turbulence over a decade has meant to gold's long term trend ...

 

  

.

John Embry offers his analysis of the price action the last few months. As you would expect, spot on: Collapse of gold and silver points to skullduggery

  

I have little to add to John's piece.  Predicting how things will play out is as much about human nature and examining history as it is about analyzing current affairs. As complicated as the problems may be, the end-game is really not so obscure. Politicians and central bankers are motivated by self interest. Figure out what they believe is best for them, and rely less on media analysis and daily market price action to guide you -- you'll be thrown off course, particularly in the face of manipulated markets and banal financial pundit commentary.  Your nasal instincts are far more valuable.   

  

We are being led by political and banking sociopaths who have no interest in ending a system that continues to benefit them.  The dizzying parade of collapses, government insolvencies, bailouts, and scandals can easily numb you, but pay attention.  These scandals never occur in isolation.  There is too much complacency over the MF Global collapse. $billions in customer funds were looted from a major clearing firm that has collapsed (an unprecedented event in itself) and exchanges are refusing to cover the victims. The firm was run by a man who is a former U.S. senator, former state governor, former head of the most powerful U.S. bank and the largest Wall Street fundraiser for the President of the United States. If there was ever a moment to recognize that there is a rot far deeper than you might have imagined then this was it.  

 

Be careful where you keep your assets. Take no comfort from legal restrictions and prospectuses which recite investor safeguards. As the MF Global collapse establishes, law serves no purpose if there is no enforcement.   A run on Europe will continue despite the Fed led rescue this week, which merely bought a few days.  Now what?  The banks and markets require much more. There will be massive printing of currency throughout the world.  There is stealth but unmistakable anxiety as well about U.S. financial institutions. Geopolitical risk continues to be a wild-card. Extricate yourself from the banking system as much as possible by converting paper assets to physical gold and silver and taking possession of the metal. 

 

All the best,

 

Jeff

FLASH: The Fed blinks - 11/30/11

Dear All,

It was only a matter of when. The system was locking up, preparing to enter a deflationary death spiral with a collapse of the Euro. Kudos to Germany for playing a superb game of financial chicken with the U.S., which has once again bailed out the planet. Even so, this does very little until the next freeze-up. The Fed will never allow the system to face the music, despite apparant political pressures. This will happen again and again.

More this weekend...

Jeff

For release at 8:00 a.m. EDT -- The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.

 

 

UPDATE: Richard Russell's advice - 11/17/11

 

Dear All,

I thought I'd circulate these brief comments by a man who has seen as many cycles and possesses as keen an understanding of market behavior as any living practitioner of investing. 

Richard Russell, 87 has been publishing Dow Theory Letters for over half a century.  He is as astute as they come:

Richard Russell: Accumulate Gold

 

Jeff

Cookie dunking - 11/12/11

 

"Its constipated, its socialized, its highly, highly regulated, it has the wrong philosophical values, it's been going downhill since World War I. Europe is going to be no more than a petting zoo for the Chinese -- its going to be a source of maids and houseboys for them." -- Doug Casey, Sydney, Australia, October 2011.

 

Dear All,

When analyzing anything put forth by the U.S. Bureau of Labor Statistics one must recognize that it serves as is its country's economic ministry of propaganda. Michael Pento however made a keen observation this week by contrasting at least the trend of the BLS' official inflation reports -- if not the figures themselves -- with the complete nonsense spun by the U.S. Fed chief at the conclusion of the last FOMC meeting: 

"Mr. Bernanke’s words last week uttered during his prepared statement and press conference indicated that inflation pressures have eased and will continue to subside...But the data from the Bureau of Labor Statistics directly conflicts with his words. The following is the YOY increase in Consumer Price Inflation from January thru September of 2011: 1.7%, 2.2%, 2.7%, 3.1%, 3.4%, 3.4%, 3.6%, 3.8% and 3.9%."

Although it dramatically understates the true inflation rate, the sequential BLS reports capture a sharp accelerating inflationary trend, something Mr. Bernanke not only denies but insists is moving in the opposite direction.  The Fed chairman (who apparently freeloads off relatives for his Thanksgiving meal, for were he to play holiday host he might notice that a traditional turkey dinner costs 13% more than a year ago - USA Today) also made this absolutely bizarre comment: Low interest rates benefit savers too - Bernanke 

Forty-two percent (530,000) of the jobs the Bureau of Labor Statistics has reported as formed in 2011 were "created" using a "Birth/Death Adjustment."  102,000 Birth/Death Adjustments accounted for the entirety of the jobs the BLS reported as having been created in October.

 

The Commodities Futures Trading Commission, headed by the former protege and Goldman Sachs partner of MF Global's just-resigned CEO. was so busy working out the details of new enforcement regulations to expand its authority and powers under the Dodd-Frank Act , it had little interest in enforcing laws already on the books which might have prevented the now bankrupt MF Global from defrauding its customers.

The MF Global collapse ought to throw cold water on the belief that SIPC and excess insurance coverage can be relied on to make you whole under unfortunate circumstances, as was made clear by SIPC this week.  SIPC recoveries in prior failures have often been lengthy while customer assets remained at risk with no appreciation potential on account gains exceeding SIPC limits. The MF Global collapse also calls into question the entire notion of "segregated" customer accounts. If a customer cannot know with certainty that his account assets are segregated from those of his broker (and the MF Global collapse demonstrates that he cannot), prudence requires him to assume otherwise. In the final analysis, when you open an account at a broker you incur counterparty risk.

I would add as well that quite a few folks mistakenly believe their assets are safer in a cash account than in a margin account. Do not confuse your inability to employ leverage, or the prohibition of a brokerage house from accessing shares in a cash account for its 'stock-lending' activities, with the safekeeping of your cash and securities therein.  MF Global's collapse demonstrates that it is not possible to know if your broker is in compliance with regulations or if regulators are regulating. 

The reality is that your brokerage account is merely a virtual concept as securities in your account are never actually "in" your account to begin with. Account securities are not registered with the issuer in your name; rather they are titled in the name of your broker or what is referred to as "street name."  Now with the MF Global collapse you see as well that cash in your account belongs to your broker until it is back in your possession.

I will be pleasantly surprised if the MF Global debacle turns out to be an isolated event.  Rely on regulators for protection at your own peril. Here is how the SEC spends most of its day.  Under a worst case scenario if your broker fails you become a general creditor in bankruptcy and if you fail to consider the worst case scenario you're already a step closer to it.

 

Bloomberg: Selling More CDS on Europe Debt Raises Risk for U.S. Banks

“The big problem with all these gross exposures is counterparty risk. When the CDS is triggered due to default, will those counterparties be standing? If everybody is buying from each other, who’s ultimately going to pay for the losses?”

 

NYTimes: Distortions in Baffling Financial Statements  The Federal Accounting Standards Board ought to be renamed the "Fraud Facilitation Board." The FASB has its hand in every instance of deceit at financial institutions: WSJ: Three Lessons from the Collapse

 

In the face of a 23% U.S. unemployment rate, this is simply disgusting: MSNBC: Federal hiring proves to be recession-proof

 

Housing Bubble Redux...Political give-away artists learned absolutely nothing from the housing bubble (More likely, they simply don't care). As housing prices kept rising over several decades, Fannie Mae continually raised its lending limits in order to keep pace with the escalating costs. In such fashion it was Fannie Mae itself (accompanied by myriad government financing programs) that played the principal role in driving up U.S. housing prices. Abundant government financing drives up prices. Politicians then cite those higher prices and decreasing affordability as a rationale for ever more financing, conveniently ignoring their role in fueling the cycle to begin with.

President Obama is doing to the college market precisely what government did to the housing market. Peter Schiff is absolutely correct: EuroPacific: President Obama Announces Plan to Boost College Tuitions

 

The trend...

MarketWatch: China advocates Europe borrow in renminbi

Bloomberg: Indian Investors Fleeing Bonds, Savings Spur Record Flows into Gold

FinancialSense: Chinese Silver Investment Going Parabolic

FT: China’s September gold imports jump six fold

 

Gold and silver...

The German people understand what gold is, having experienced hyper-inflation in their recent past. Their regard for the metal is something that Americans will soon develop. Bloomberg: German Gold Reserves ‘Untouchable’ for EFSF

Central bank intervention (price suppression) in the gold market could not have been more obvious this week as the rapidly deteriorating European saga ought to have propelled the price up a good $100. per ounce. As has been the case for over a decade, the price suppression only delays the inevitable. There's nothing to do but patiently wait it out. If it makes you feel better, write your congressman although unless you plan to personally deliver your letter and include cash in the envelope, don't waste your time.

Those in the gold community have long known that Bart Chilton is the only Commodities Futures Trading Commissioner with any integrity, the rest being pawns of the bullion banks. Last week, in the face of a silver investigation that the CFTC for years refused to commence and now refuses to conclude, Chilton again went on record stating that the silver price is manipulated: "I believe there ha[v]e been repeated attempts to influence prices in the silver market. And there’s been fraudulent efforts to persuade and deviously control the price.”  This prompted this pathetic response from the CFTC which after three years of investigating silver manipulation  -- despite voluminous evidence and the assistance of whistle-blower Andrew Maguire -- still cannot conclude that a crime has taken place. It is reminiscent of the SEC's refusal to pursue Bernard Madoff when presented with the case on a silver platter by Harry Markopolis.

A British GATA supporter by the name of James Bern received a response from the Bank of England to a Freedom of Information Request he made for clarification on the Bank's gold swapping and leasing activities. You can view the Bank's response here and this GATA dispatch in which Chris Powell lays out the proper interpretation of the BOE's response: Markets mustn't learn about our gold transactions, Bank of England says

 

 

Dilemma resolved...

In the face of a global financial meltdown without solution there exists straight forward methodology that neatly sorts out life's smaller complexities. Accordingly, I present what is known as the Washburn Formula: 

                                              L^{2 ₌} yDt/4n

Wired Magazine's November issue reviews the critical matter of the joining of cookie and milk for the purpose of softening the former prior to consumption: Wired: Dunk a Cookie in Milk.  I offer no judgment as to the appropriateness or benefits of the practice commonly referred to as "dunking."  It has likely been going on for as long as there has been bread, having evolved into its modern  confectionary incarnation one guesses, in the mid to late 17th century. The duration of submergence is where the controversy lays -- i.e. the matter of a biscuit's length of contact with liquid before crumbling takes effect. Wired explains how the Washburn formula leads us to an understanding of optimal submergence (3.5 - 5.0 seconds), which in turn leads me to this headline from Friday's New York Times...

 

GREECE AND   ITALY                                                                                                                                                                        ASK TECHNOCRATS                                                                                                                                            TO FIND SOLUTION

_____________

MARKETS AWAIT ACTION                                                                                                                    ______________

Issue is Whether Experts Can Succeed                                                                  After Politicians Failed 

 

This then is what it has come to.  I wish it were satire. As though the politicians and technocrats are something other than two wings of the same pigeon the Times informs that the western financial system's fate has been advanced from the political class's oily hands to those of the bureaucratic stratum -- those "experts" bearing advanced economic degrees from the now thoroughly discredited academic institutions which propagated the Keynesian horror and malinvestment that has befallen the west in the first place.  These financial arsonists, among whom the architecture of a Frankenstinian common currency sprouted, have been recruited to assess the crime scene. God help us.

There is a story told of an economist who upon leaving the academic setting and spending some rare time in the real world makes a startling observation of economic law in practice that had never occurred to him during all his years in academia.  When he returns to campus and enthusiastically approaches a colleague to report his observation the colleague responds, "Yes, but will it work in theory?"     

Having far exceeded the time allotment under the credit based equivalent of the Washburn formula, Keynesian dunkers have overseen the destruction of the assortment box comprising the doomed currency union, reducing the contents to crumbs.  Panicked and confused technocrats on both continents can be relied on to continue doing the only thing they know --  returning to the monetary oven of central banking and printing lots of cookies.

 

My best,

Jeff 

'A Day at the Airport '- 10/29/11

 

Dear All,

Eurozone authorities this week gave the Euro-calamity a mighty kick down the road with a Greek "rescue plan" that -- should it be funded, buys them a day or two before the next act in the drama begins.  It is a farce and it is only the beginning of what will be successive rescues.  Led by the IMF (i.e. the United States) European political leaders are piling new debt upon debt, further exasperating the problem and calling it a plan. While Europe's debacle is made more complex by this bailout, the disastrous finances of Ireland, Portugal, Spain and Italy will come to a head as France likely loses its AAA rating.  Massive Euro and dollar printing is coming. European banks are toast.

It's practically a waste of time following the plan details, press conferences, cancelled meetings, spin-laden communiques and other meaningless gyrations characterizing the crisis. The plot is entirely predictable and the politicians seem always the last to get it. Perhaps the most revealing aspect of the Greek default is the International Swaps and Derivatives Association's (ISDA) assertion that the default is not really a default.  While the sane world might understandably question how a deal in which creditors are only receiving 50 cents on the dollar is not a default, the ISDA (the determining authority on declarations of default for the purpose of triggering default insurance payments) has its own view on the matter. It may not come as a surprise to learn that the voting members of the ISDA's 'Determinations Committee' on default triggers are the very TBTF banks that are on the hook for them.  If a Greek default were to be declared the ISDA's committee members would themselves become defaulters on credit insurance, causing untenable puking throughout the financial system. Alas, the ISDA stipulated that the 50% haircut was not a default but rather "voluntary" acceptance by the creditors, who were after all, "invited" to take these losses.

This pretending of course has its consequences. If credit default insurers do not pay when borrowers default, purchasers of the protection will question what precisely it is they are paying for. Without the ability to hedge their investment with CDS protection, market appetite for sovereign debt will wane unless purchasers receive compensation for the increase in perceived risk, driving up borrowing costs for governments.  We do live in a world with consequences, a detail that politicians rarely seem to concern themselves with.  WSJ: Default Insurance Market Takes Hit

 

If you believe that the U.S. Federal Reserve's mandate is to serve the interests of the American people consider how the Fed has just shafted them. Over the objections of the FDIC the Federal Reserve has consented to Bank of America transferring its derivative obligations to its retail banking unit.  As reported by Bloomberg the transfers "are being requested by [derivative] counterparties." Apparantly a few folks on the receiving end of those obligations were a bit uneasy about the ability of BOA to make good on its promises under its absurd $53.2 trillion (as reported to the OCC as of June 30, 2011) notional derivative book, so the transfer was done to reassure the counterparties.  The reassurance came in the form of the counterparties' access to hard collateral, namely the retail banking unit's $1.04 trillion in cash deposits (as of 9/30/11). Understandably the severely undercapitalized FDIC is rather miffed at the prospect of losing access to said cash should it be required to step in to protect depositors in the event of the bank's failure. In theory so should depositors, who are as well in actuality, BOA counterparties (although moral hazard being what it is -- the presence of deposit insurance limits miffing to only the larger depositors). This $1 trillion cash margin call by the bank's counterparties (and the aforementioned refusal by the ISDA to declare a Greek credit default this week) illustrates what has been emphasized here for years -- the banking system has an untenable derivative problem.  For additional light on how this Fed blessed transfer is a violation by BOA management of its fiduciary duty to its banking unit, I highly recommend former banking regulator Bill Black's commentary.

 

Nassim Taleb as usual, nails it: Bloomberg: Nassim Taleb on Wall Street Protest, Banking

 

Here's something you may find interesting:  This broadcast interview on the Financial News Network with Richard Russell, Tim Wood, Peter Eliades, and the late Kennedy Gammag aired over eight years ago, well before the housing crash and financial collapse. The four covered a good deal of ground including the inevitability of a bursting of the housing and credit bubbles, the threat of massive concentrated derivatives holdings at the major banks, the dollar's fate, the fictitious CPI data, eventual protests/social unrest and the emerging bull market in gold (gold closed on the Comex at $345.50 per oz. the day prior to the broadcast; silver closed at $4.52), The broadcast aired on June 28, 2003 and I recall listening to it at the time. There were few places to hear this type of opinion then. Discussing a housing bubble was heresy in 2003. The word 'derivative' had not yet made it into the financial media lexicon and gold and silver were still considered silly things to invest in. As you listen to this bear in mind that Alan Greenspan and other political and Wall Street leaders would later claim that very few people could have predicted the collapse.

 

Housing bubble/college bubble....The drivers are the same -- an overabundance of credit. The platitude that every child should attend college is as absurd as the government promoted idea that every American should own his own home. Flooding any market with cheap, government-backed credit or credit guarantees artificially pushes up prices. Reduce the ridiculous amount of higher education lending and watch how quickly college costs fall. Too many higher learning institutions are run for the benefit of administration and faculty which with revenues goosed directly and indirectly by government financing have little incentive to run their schools efficiently. The current cash burden of overpriced colleges falls largely on those families who pay the majority of the costs themselves, subsidizing students who pay very little out-of-pocket and in many cases should not be attending college.  Later on the burden falls on the indebted borrowers who become saddled with debt that will not be justified by the earning value of their degrees. Total student loan debt at $950 billion has doubled in the past five years and now exceeds total U.S. credit card debt.   Abundant with fraud and borrower proceeds diversion, the student loan market is facing the same fate as the sub-prime market.

 

Anatomy of a Seizure (posted 1/14/10) addressed the degree of fraudulent asset carrying values across the banking system that can be gleaned from the FDIC estimates of its costs to cover insured deposits upon its seizing an institution -- currently the only point at which the system "comes clean" as to true market valuation. Here's a recent example of how nothing has changed since then. Great Southern Bank, Springfield, Missouri, assumed all of the deposits of Sun Security Bank, Ellington, Missouri on October 7th, under agreement with the FDIC as receiver. As of June 30th Sun Security had reported $355.9 million in total assets against $290.4 million in total deposits (i.e. its deposits were covered by assets of $1.22 for each $1.00 on deposit.) The FDIC estimated its cost of closure to be $118.3 million (i.e. that the assets covering the bank's deposits were in actuality worth only 59 cents for each $1.00 on deposit). The FDIC is valuing Sun Security's assets at less than half the value the bank claimed. On average the FDIC continues to value seized bank assets at about one third less than their carrying values prior to closure.

 

Note the rapid acceleration in the past 90 days:

 

 Concise and to the point...

~ Ron Paul's recent Wall Street Journal OP/Ed: Blame the Fed for the Financial Crisis 

~ I often refer to the Libertarian Party as 'the only pure pro-choice party' (believing for example in the right of a woman to choose to abort a fetus as well as her right to choose to ride a bicycle without a helmet). In this two minute video Harvard professor Jeffrey Miron quite neatly sums up the essence of what it means to be a libertarian.

~ Thomas Jefferson's words in 1802: "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered."

~ And...

     

 

The trend... 

Reuters: Russia central bank says will acquire "huge volumes" of gold for reserves

Reuters: China's gold frenzy triggers birth of small bourses

 

The Occupy Wall Street movement is a shot across the bow marking the beginning of social unrest in the U.S. It is the real deal insofar as the American masses beginning to reach their necessary breaking point and a move toward populism.  I am glad for this. OWS however is smelling increasingly of wider class warfare rather than the targeted search and destroy mission of shining light upon a concentrated and ruthless group within Wall Street that has so viciously screwed the country. The OWS movement might try focusing on the reinstatement of the rule of law as it pertains to elite white collar criminals, a point driven home in this DemocracyNow  interview with law professor William Black.   The OWS cited "99% vs. 1%" is off-base. In reality -- it's 99.999% vs. .001%, the latter measurement representing the elitists and parasites that crashed the banks and GSA's, pocketed billions, faced no criminal prosecutions and are still feasting on the bailed-out carcasses they destroyed.  There is also the matter of the hedge fund industry having bought off Congress resulting in an exemption from taxation of their earnings as "income" and instead subjecting it to taxation at the low 15% capital gains rate.

I suspect that none of this will ultimately matter because the coming horrendous debasement of the U.S. dollar will prove to be the single unifying factor to bring about tangible change. At that point social unrest will hit critical mass as competing ideologies widely lose confidence in government altogether. Throughout history -- other than in the rare cases where it has stepped in to protect the individual liberty and property of protectees who welcomed its presence -- government has only inflicted harm. The pending destruction of the American currency and living standard will necessarily drive this point home.

 

The chairman of the House Transportation and Infrastructure Committee, which oversees the Transportation Security Administration (TSA), has besmirched the reputation of the Marx Brothers in comments he made regarding a classified report detailing the inept TSA's failure rate: "[Representative John L.] Mica suggested that the TSA’s performance report would read 'sort of like the record of the Marx Brothers'."

The Keystone Cops might have been the more appropriate reference. The Marx Brothers were comedic geniuses. To compare these accomplished and skilled craftsmen to moronic government twits with no demonstrable skills and bad hygiene is insulting to the memory and tradition of vaudeville: House Transportation Chairman: Report on TSA failures "would absolutely knock your socks off'"

See the zany brothers in 'A Day at the Airport'

The TSA, which has not once in its history prevented nefarious activity from occurring on a commercial airliner (Trust me, you would have heard.) has commenced a new program in which travelers will be forced to succumb  to verbal interrogation by these former Wendy's tray collectors security professionals. The TSA calls it a "Chat-down" and you can view their questioning techniques and observation skills here.  

 

On to gold...

The Financial Times asks the question "Is there a shadowy plot behind gold?"  Gillian Tett is a highly respected financial journalist.  There was a time not so long ago that mainstream media refused to run such stories or mention GATA.

Gold bubble-heads take note...There are numerous metrics by which to estimate the fair market value of gold.  Among the simplest -- a computation of aggregate central bank foreign exchange holdings divided by their reported gold reserves -- is reflected in the following historical chart which James Turk included in commentary this week. You'll note that although gold began its current bull market in 2001, its valuation has remained flat under this metric due to the massive buildup of paper currency over the decade.

 

Artificially low interest rates and monetary policies are pushing liquidity into the equity markets and commodities, which will force food and other living expenses higher.  As the reality of how entirely beyond repair the financial system is takes hold, the biggest beneficiaries will be silver and gold.  The imperative of further global quantitative easing ensures building inflationary pressures.

As the Fed debases the U.S. dollar it will become increasingly important to measure the value of your assets in gold rather than in dollars.  Stock market investors will be prone to taking relief from the higher nominal indexes resulting from the excess of new global currency sloshing around, but it will prove illusory as investors' living standards drop at a faster rate than the increases in their portfolios. They might take note that the Dow Jones Industrial Average, which closed out the millennium on December 31, 1999 at 11,497 is today trading at 1,994, marked in gold. 

Gold must be the anchor of your capital and at the center of your thinking.

My best,

Jeff