Tuesday, November 30, 2010

China approves gold fund of funds


China’s securities regulators have given the go ahead for a mutual fund to invest in foreign exchange-traded gold funds, potentially tapping interest among mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation.

The state-run China Daily said Tuesday that the new gold fund was the first of it its kind to be available to mainland investors. 

More funds could be on the way soon, as several other fund providers have pending applications for similar products, seeking to tap rising interest among mainland Chinese investors for precious metals, the report said.

An I.M.F. Announcement On The Completion of Gold Sales Due Soon


Banks Resisting Fannie, Freddie Demands to Buy Back Mortgages

It's Goliath vs. Goliath, and it won't end well.  In one corner is Freddie Mac and Fannie Mae.  In the other corner are banks, big and small, refusing to take back bad loan portfolios.


Fannie Mae and Freddie Mac are facing growing resistance as they attempt to push failed home loans off their books and onto the balance sheets of banks including Bank of America Corp. and JPMorgan Chase & Co.
The two government-owned mortgage companies are enforcing contracts that require lenders to buy back loans that didn’t meet underwriting standards. At the end of September, the companies reported, banks hadn’t responded to $13 billion in buyback requests. A third of those were at least four months old and Freddie Mac has begun to assess penalties for the delays.

The gold standard never dies


Contagion strikes Italy as Ireland bail-out fails to calm markets

In case you've been in a deep slumber for a year, you'd know that Greece and Ireland have defaulted on their sovereign debt and received bailouts from the European Central Bank and International Monetary Fund, the world's central bank.  You'd also know that the bond vigilantes have Portugal and Spain in their crosshairs.

What's less known is Italy and Belgium are also teetering on the brink of a sovereign debt crisis of their own.  For forward thinkers, look at France and Germany itself.  The ECB and IMF are running out of life boats.


Monday, November 29, 2010

Europe's debt domino effect

WikiLeaks Will Unveil Major Bank Scandal

I wonder if the bookies are taking odds on which major bank will be unveiled by WikiLeaks in the next major financial scandal.


Sean Boyd: gold headed to $2000, silver to $60 to $75

Sure, Sean Boyd is admittedly talking his book, as he is the CEO of Agnico Eagle, a gold producer.  But he has been right for more than a decade, and Agnico has a $13 billion market capitalization.  You might want to sit up and take notice.


Putin ditches the dollar, backs the euro and Germany


Peter Schiff: Ireland should default


EU rescue costs start to threaten Germany itself


The escalating debt crisis on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.
"Germany cannot keep paying for bail-outs without going bankrupt itself," said Professor Wilhelm Hankel, of Frankfurt University. "This is frightening people. You cannot find a bank safe deposit box in Germany because every single one has already been taken and stuffed with gold and silver. It is like an underground Switzerland within our borders. People have terrible memories of 1948 and 1923 when they lost their savings."
The refrain was picked up this week by German finance minister Wolfgang Schäuble. "We're not swimming in money, we're drowning in debts," he told the Bundestag.

Sunday, November 28, 2010

Fake "bogeyman" and artificial "security"


Lies across America


Putin: Russia will join the euro one day


State's secrets


Ireland bailout: fears mount that eurozone fund is too small

It's hypocritical for European finance ministers to  bash the Fed for applying quantitative easing several weeks ago, and then turn around and announce bailouts of Ireland, with Portugal and Spain waiting in the wings.  Printing money is printing money, and central banks from both sides of the Atlantic will do whatever it takes to save their respective economies from collapsing.


Asking China to Act Like the U.S.

Thanks to Kitty for finding this editorial on Sino-American foreign policy.


Friday, November 26, 2010

The Rules Of The "Multi-Trillion Shell Game" And What To Expect Next


"under the rules of this multi-trillion shell game, the sovereigns guarantee the ECB which funds the banks which buy the government debt which provides for everyone else's guarantees."

"...The latest move to contain excess liquidity and the forceful measures that the central government has taken to stabilize prices show the determination of Chinese policymakers to fight inflation. Though these moves may not be enough to tame inflation once and for all, they are a good start before more aggressive actions become necessary to battle inflation that is unlikely to end anytime soon, as debt-laden rich countries keep flooding the world economy with their newly printed money."
While the developed world continues to inflate with quantitative easing, the emerging world will apply quantitative tightening to ease inflationary pressures.  This may cause a temporary pause in rising prices of commodities, including precious metals.

With 'Synthetic Banking' Just Around the Corner Enjoy 'The Liechtensteiner' on 'Fed Monday'

The mad scientists are venturing back out into the deep end of the pool, having learned nothing from overleveraged derivatives gone wild.  As one commentator stated, "this will end very badly."


...there are no 'traders' at all, just 'synthetic traders' immersed in 'continuous risk management' with no 'exchange trading' or 'position management' costs or risks. Employing 'commercially prudent leverage' within 'continuous risk management',...
Where have we heard this before?  Whoever buys these structured financial vehicles has got to the dumbest nitwit of the 3rd order--or possesses a PhD in Economics from Princeton.

ECB's Weber Says Europe's Rescue Fund Could Be Increased If More Needed

As Jim Sinclair points out repeatedly, expect QE to infinity in the Euro zone and here in the States.


European Central Bank council member Axel Weber said governments can increase the size of the European Union-led bailout fund if necessary to restore confidence in the euro.
“Seven hundred and fifty billion should be enough to assure the markets,” Weber said at the German embassy in Paris late yesterday. “If not, it will have to be increased.”

Russia buys Canadian dollars, may add Australian dollar


Russia has reportedly added the Canadian dollar to the basket of currencies that comprise its international foreign-exchange reserves and indicated the Australian dollar will likely be the next addition.

Ulyukayev reportedly said Russia plans to increase the size of its Canadian dollar holdings in coming months as part of changes to its reserve holdings, also made up of the U.S. dollars, euros, British pounds, and Japanese yen. 

Ulyukayev also said the Russia central bank is still considering whether it should add the Australia dollar to its reserves’ holding, reaffirming statements earlier this year that it may add the commodity-backed currency as it diversifies away from the U.S. dollar.

Hungary Follows Argentina in Pension-Fund Ultimatum, `Nightmare' for Some

This is a real live example of what happens when underfunded pensions become nationalized.  This article also depicts other eastern EU countries' state pension funds are severely underfunded.


Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Thursday, November 25, 2010

The Euro game is up!

And apparently, so will the financial games of the rest of the developed world.


Wednesday, November 24, 2010

How hedge funds have profitted from QE

With the Fed and the Euro Central Bank applying QE, excess liquidity has to flow somewhere, and that somewhere is emerging countries with strong economies, sound currencies and trade surpluses.  This capital flow is causing price inflation, forcing countries like Brazil and China to impose price controls, which always ultimately fail.   But they have to do something to choke off the hot money.

Meanwhile, the savvy hedge fund managers (even the ones looking over their shoulders at the FBI) are buying emerging market equities and commodities, and plowing their profits into buying credit default swaps on European debt, profiting on sovereign debt crises in Greece, Ireland, Portugal, and Spain.  As the prospects for sovereign debt default increases, the CDS insuring said default appreciates in value.  In other words, these bond speculators are betting on these countries defaulting on their debt obligations.

These so-called bond vigilantes have no conscience:  when they smell blood, they drive up yields on these sovereign bonds, making it harder for these countries to service their debts, and practically ensuring a default.  Of course, the respective government officials will blame the speculators for driving their countries into the ground, but they conveniently ignore the fact that it was the government that recklessly spent money they didn't have, and hence, attracted the bond vultures in the first place.

The problem intensifies when the debt contagion spreads to Italy, France, and eventually Germany, the last stronghold in the Euro community.  The UK, Japan, and the US will not be far behind.

The day the dollar died


China, Russia quit dollar

I wonder why this wasn't reported by US media outlets.


St. Petersburg, Russia - China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.
"About trade settlement, we have decided to use our own currencies," Putin said at a joint news conference with Wen in St. Petersburg. 

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.
Sun Zhuangzhi, a senior researcher in Central Asian studies at the Chinese Academy of Social Sciences, said the new mode of trade settlement between China and Russia follows a global trend after the financial crisis exposed the faults of a dollar-dominated world financial system.

Pang Zhongying, who specializes in international politics at Renmin University of China, said the proposal is not challenging the dollar, but aimed at avoiding the risks the dollar represents.

Irish Rescue Accord Turns Investors' Focus to Spain, Portugal

Sovereign debt crises started in Iceland, Latvia, Hungary, Dubai, and reached the shores of Greece.  Ireland is the latest victim, with Portugal and Spain in the crosshairs of bond vigilantes.  For the forward-thinking, Italy and France will be next to catch the contagion.  Germany must be bewildered at the spreading collapse around them.  German taxpayers will force the break up of the Euro, in my opinion, because they are absorbing the brunt of the bailouts.  With IMF participating in bailouts, so are American taxpayers.


Even as EU leaders said Ireland’s bailout will stem contagion in the euro region, investors are turning their attention to Portugal, which hasn’t cut government spending and has barely grown for a decade. A rescue of Portugal may increase pressure on its high budget-deficit neighbor Spain, whose gross domestic product is almost twice the size of Portugal, Greece and Ireland combined.

After Portugal “the next question would be Spain and then Italy and then France and then the EU,” said Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London. “Spain is a bit too big to be bailed out, the size of a rescue required would use up all the funds available and then you have Italy with contagion as well,” prompting “a situation where the euro itself is put into question,” he said.

QE in Europe


QE in Europe— the European sovereign debt situation
It is not surprising that Europe’s short embrace of austerity has been unsuccessful.  There is never a choice for austerity until all other alternatives have been exhausted.  History is replete with examples.  Why don’t some of these stock market commentators read some global economic history?  It is obvious now and has always been obvious that Europe will go for QE.  It does not matter what they say about austerity.  We have been advising investors to watch what they do.  They are bailing out Ireland; Portugal is right behind and will be followed by Spain, Italy, and even France in the future.  There is no solution that politicians will embrace other than QE [money printing] because a program of austerity means the end of their political careers.  They will put their careers above the national interest.
It is absurd to believe that the U.S. dollar will be a safe haven over the intermediate term
An even more absurd belief is the one that puts U.S. dollar and U.S. debt as a safe haven.  There is not any convincing economic evidence that the U.S. dollar is well managed, and there is no reason to believe that the dollar will rise in value.  In fact, it is the U.S. governments’ intention to devalue the dollar and to print money to avoid a deflation in the U.S.  Why do some global commentators see the dollar as a safe haven?  In our opinion, the only safe haven is precious metals, energy, food and other assets which will hedge against the inevitable inflation that the above policies create.

Tuesday, November 23, 2010

Is China Betting Against a U.S. Housing Recovery

It looks like the Chinese are backing off the US bond market buffet table, and investing in other assets.


FDA criminal investigations chief resigns


The head of the Food and Drug Administration's criminal investigation unit is stepping down, months after the latest round of criticism directed at his department by congressional investigators.

Earlier this year the Government Accountability Office said that the FDA must exercise more oversight over Vermillion's unit, which has operated largely independent of agency leadership, despite growing into a $41 million operation with 230 staffers over the last decade. In 2008, House and Senate Republicans questioned the priorities of the criminal investigations unit, specifically its focus on drug abuse cases instead of broader misconduct by large companies.

"I hope that with new leadership, this office will contribute more to the FDA's overall mission of protecting public safety," said Sen. Charles Grassley, R-Iowa, in a statement Tuesday evening. Grassley requested the GAO investigation of FDA's criminal investigation unit.

In September, Grassley brought to light additional complaints against Vermillion in a letter to the GAO.

Grassley said that an anonymous FDA whistleblower contacted his office complaining that the GAO's findings were "less than stellar" and did not include a number of questionable practices by Vermillion.
The whistleblower alleged that Vermillion directed that reports "be changed to sanitize them of derogatory information" about former colleagues from the Secret Service now working at the FDA.

Euro Weakens to Below $1.34 as Merkel Says Currency in `Serious' Situation

I like German Chancellor Angela Merkel.  She tells it like it is, no beating around the bush.


North Korea attacks South Korea


Uuuummmm, let's see, now the US has to park sitting-duck aircraft carriers next to Korea as well as in the Strait of Hormuz to protect oil shipping lanes in the Middle East (and against that great scourge of Iran).

Anybody see a problem with this?  We don't have the money to fight two wars in Iraq and Afghanistan (never mind Iran), and now the US will be stretched even thinner.  I'm referring to our military forces and the US taxpayer.

The solution?  Print more dollars.  Only this time, no one will protest, because well, we're so patriotic.

All markets crashed today:  especially stocks, Euro bonds, commodities, energy.  All except for gold and silver, despite a surging USDollar as investors rushed into "safe" havens.

Happy Thanksgiving everybody.

The biggest holder of US debt is now Ben Bernanke


...the Fed's official holdings of US Treasury securities now amount to $891.3 billion, which is higher than the second largest holder of US debt: China, which as of September 30 held $884 billion, and Japan, with $864 billion.

Finance 101:  when interest rates rise, bond prices decline.

Monday, November 22, 2010

Friday, November 19, 2010

Currency war brews

It's also Rickards vs. Roubini. Understand that while Roubini correctly called the financial crisis, so did Rickards. But Roubini also said gold was in bubble territory at $1100/oz, or thereabouts. Here's proof that he dismissed gold's prospects last year:


He may be considered a great economist by many, but that's also why the field of economics is called the "dismal science." The best ones are often wrong.

And the best ones can't even figure out the basic economic laws of supply and demand. Trillions of dollars are created with one computer keystroke by Blackhawk Ben Bernanke. Yet, it takes years of sweat, man, machine, and luck to produce an ounce of gold and silver. Paper currencies may be created out of thin air instantaneously, but precious metals are found and mined at an excruciatingly slow pace.

I'm glad Roubini isn't managing my money.

What could trip gold up?


Thursday, November 18, 2010

American t-shirt entrepreneurship at its best


China considers increase in gold reserve holdings


BOB RUBIN: "US In Terribly Dangerous Territory," Bond Market May Be Headed For "Implosion"


How ironic is it that former Treasury Secretary Rubin is issuing warnings of bond market implosions when he was one of the most instrumental in creating the bond market bubble in the first place, with his encouragement of levering up the economy via derivatives.

JPMorgan: Dollar to become world's weakest currency

This infers precious metals will be the strongest currency.


Official inflation statistics are understated in China


Mark-to-Make-Believe Perfumes Rotten Loans


Wednesday, November 17, 2010

CME raises precious metals margins requirements--again


In another desperate attempt to knock down the futures prices of gold and silver, the CME raised the margin requirements on gold and silver futures contracts.

I hope they raise the margin requirements to 100%, so there will be no leverage allowed. Although that would bankrupt the GLD and SLV ETF's, which are not 100% backed by physical inventory.

The more they play the price suppression game, the tighter the noose around their own necks. Buy physical.

De-facto unemployment rate


Hilarious parody of Fed Chairman Bernanke


Does QE really stimulate economic activity?


The effects of rising cotton prices


Wednesday, November 10, 2010

Paul Krugman gives up


Asian buyers have silver shorts checkmated

As described previously, it's a battle between the paper short sellers and the physical buyers. Eventually, physical bullion inventory dissipates, and the shorts will get trampled.


Pentagon can't explain apparent mystery plume off California coast


"Why the government is so badly organized that they can't get somebody out there to explain it and make this story go away ... I think that's the real story," Pike added. "I mean, it's insane that with all the money we are spending, all these technically competent people, that they can't get somebody out there to explain what is incredibly obvious."

When has the Pentagon not been able to explain flight-based objects? Perhaps it was that Daylight Savings Time thing.

Tuesday, November 9, 2010

CME Group Announces Money and Margin Requirement Increases

This is a good read on the dangers of trading in markets.


Three's company: silver margin change


This is a pointed reminder to the readers and listeners of King World News and something we have discussed before. Most markets consist of two parties, the buyer and the seller. But in futures markets there's a third party in every trade which is the exchange and more specifically the rule making bodies and margin setting panels on each exchange. They act not in the best interests of buyers or sellers but in the best interests of the exchange itself and its statutory duty to maintain orderly markets.

Invariably the parties disadvantaged by these moves complain that the exchange is "changing the rules in the middle of the game". That's a naive and pointless perspective. The fact is that the ability to change the rule is itself a rule. The exchange is not changing the rules, they are just utilizing an alternate set of rules that are already in place. Traders should stop complaining and read the rule book. It's all there.

What is more intriguing is what motivates the exchange officials to use these rules? Is it truly a disorderly market (the usual reason) or is it part of a larger coordinated effort involving Federal regulators and policymakers to do whatever it takes to push up prices of risky assets such as housing, stocks and junk bonds and push down prices of safe-harbor assets such as gold and silver?

The point is, when buyers and sellers transact in futures markets, they're never alone. Exchange monitors are always looking over your shoulder. Never ignore the power of the exchanges and regulators and always remember they will use this power when it suits them, not you.

Increase in margin requirements cause silver prices to tank


Of course, only margin requirements for non-member speculators were raised, while member firms' margin requirements were not. Gee, while some members are accused of rigging the game, the CME decides to punish the non-members. How's that for justice?

Competitive devaluation: friends bickering

Even our "friendliest" trading partners get it. Our not-so-friendly partners have understood it for years. Time for US leaders to get it.


"Don't Panic" - Blythe Masters, JPMorgan head of commodities

"Don't Panic. No one's going to get screwed." declared Blythe Masters, JPMorgan Chase's head of commodities.

Given JPMorgan is allegedly the biggest short in the LMBA and COMEX silver markets--while silver prices are soaring, she has every reason to panic. Oh, and add in the mounting lawsuits against JPMorgan for manipulation of silver prices, and Blythe herself may be out of a job soon. Perhaps she can hang on until the end of the year to ensure collection of her million-dollar bonuses.


Silver manipulation whistle-blower Andrew Maguire re-emerges


Exchanges are accepting gold bullion as collateral

Yes, but you can't eat gold.


Trick play


Mystery missile launch off the coast of LA



"The Federal Reserve will not monetize the debt" - Ben Bernanke

This video clearly shows Ben Bernanke lied under oath--again.


Monday, November 8, 2010

Ron Paul says the Fed will self-destruct

Insidedefense.com article headline

Army Officials Think Through The What-Ifs Of A 'Global Economic Collapse'

Army officials met outside Washington last week for a thought experiment about the implications of a large-scale economic breakdown that would force the Army to absorb significant funding cuts and prepare the service for an increased role in keeping domestic order amid civil unrest.

Is GLD Overdue To Buy Two Hundred Tons Of Actual Gold?

Is GLD about to buy 200 tons of gold? For the nth time, beware the ides of the GLD ETF. It's potentially a ponzi scheme not backed 100% by gold. The same is true with the SLV ETF. Read the prospectuses. Realize who the custodians are. Do a search on this blog site. I can't spoon feed you every time.


Dallas Fed Governor on Richard Fisher on QE 2.0

By now, anybody who hasn't woken up from their American Idol-induced zombie status knows that Fed Chairman Bernanke last week announced US Treasury bond purchases of approximately $75 billion/month until the end of June, 2011--or $600 billion.

Which makes Dallas Fed Governor Fisher's proclamation that the Fed will actually purchase US Treasuries at a pace of $110 billion/month extremely curious and alarming. Did Bernanke just commit perjury before the world? In case the website is altered for an "oversight", I have included the following text. And if my blog gets taken down, well, it's not like it hasn't occurred before at "strategic times." I hear black helicopters above.


My perspective, as with those of all other members of the FOMC, was given a thoughtful and fair hearing at the table. After deliberation, the majority of the committee concluded that under current and foreseeable conditions, the better approach was to purchase $600 billion in Treasuries between now and the end of the second quarter of next year, on top of the amount projected to replace the paydown in mortgage backed-securities. The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt.

OK, let's do the math: 8 months x $110 billion = $880 billion. Not $600 billion. The Fed isn't just lying to us anymore behind fancy phrases and shadowy statistics. THE FED IS OUTRIGHT LYING TO OUR FACES.

China eliminates death penalty for smuggling gold and silver


Conspiracy Theory: Wall Street, the whole segment

Citi: Central banks will dump USDollars


Bankruptcy of U.S. is ‘Mathematical Certainty' - former CEO of BB & T bank


Bernanke defends bond purchases

I like how the title of this article obfuscates the true message from finance ministers worldwide: they believe QE 2.0 will be disastrous.


Bernanke came under fire yesterday from officials in Germany, China, and Brazil, who said his plan to pump cash into the banking system may jar other economies and fail to fuel U.S. growth. Critics including Michael Burry, the former hedge-fund manager who predicted the housing market’s plunge, have said Fed policy is encouraging investors to take on too much risk and threatens to undermine the dollar.

“It’s our problem as well if the U.S. is no longer certain that the old recipes don’t work anymore,” German Finance Minister Wolfgang Schaeuble said yesterday in Berlin. The Fed’s injection of $600 billion was “clueless” and won’t revive growth, he said.

Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.” In China, Vice Foreign Minister Cui Tiankai said “many countries are worried about the impact of the policy on their economies.” He also said the U.S. “owes us some explanation on their decision on quantitative easing.”

Not just inflation fears boosting gold

What if GATA is right--and not just paranoid?


World Bank President considers gold in overhaul of Bretton-Woods

This can't be. The World Bank, the financial bastion of old world economics is touting gold as a reference for currency values. The World Bank isn't some random group of lunatic fringe conspiracy theorists. Historically, they have certainly not been gold bugs--if anything, they have been anti-gold for decades. Now this:


The development of a monetary system to follow on from 1971’s Bretton Woods II will take time, but it’s time to start, World Bank President Robert Zoellick writes in the Financial Times.

This week’s summit of the Group of 20 leading economies in Seoul presents a test of international cooperation offering an opportunity for a key group of G20 countries to agree on parallel agendas of structural reform, Zoellick writes.

The system should evaluate using gold as a reference point of market expectations about inflation, deflation and future currency values, Zoellick writes, noting that while textbooks may view gold as “old money,” markets use it today as an alternative monetary asset.

Is this a further sign the global, fiat-based currency system is on the brink of collapse? This announcement by the head of the World Banks is like the Pope declaring religion is dead.

Who still thinks gold is a "barbaric relic"--because "you can't eat it"? Try eating green paper, and see how that tastes.

Once more--Gold, bitchez!

Saturday, November 6, 2010

Kaplan Fox Sues JP Morgan and HSBC on Behalf of Investors for Silver Futures and Options Contract Losses Caused by Market Manipulation

The lawsuits against JPMorgan and HSBC for the suppression of silver prices are mounting. There is no one else to thwart aggressive buyers. Shorts are being taken to the wood shed. This couldn't happen to a better lot.


Mort Zuckerman: America's Love Affair With Obama Is Over


It is Nobel Laureate Paul Krugman who has been wrong on everything

Krugman worked as a consultant for Enron, declaring them a great company, instead of the fraud they were. Jim Rogers has been incredibly correct on his calls, and his net worth reflects it. Krugman has a statue on his desk, and wants the Fed to print $10 trillion more.


How Ben Bernanke Sentenced The Poorest 20% Of The Population To A Cold, Hungry Winter


TruTV's Conspiracy Theory show on Wall Street

Friday, November 5, 2010

Let them eat mud pie


The monetary and financial system that we are enslaved under at the current moment in human history has recently transformed itself into one of the most immoral and destructive forces the world has ever seen. The reason many citizens in America cannot see the extent of it at this time is because the Federal Reserve in coordination with Washington D.C. and the money center banks are doing everything in their power to keep you blind and complacent while they rob you blind. Many of the people in these institutions are not cognizant of the theft they are engaging in as they are either useful idiots or so wrapped up in their ego and false belief that they are making the paycheck they are based on some useful skill rather than simply working at the institutions that are instrumental in carrying out the ponzi scheme. You see, at the highest levels the elite must understand that the U.S. is flat broke; however, an admission of this would mean loss of power and possibly criminal prosecution. As a result, they have zero, I mean ZERO interest in the outcome for the general public and will do “whatever it takes” to quote Ben Bernanke to cover up their economically fatal mistakes and keep the mirage alive. As I mentioned above, there are two main segments that are crucial to keeping the ponzi scheme going, Washington D.C. and the big money center banks. This is why the Federal Reserve is quite purposefully directing all of the new money they are creating out of thin air into these two already bloated and corrupt cancers on the American landscape.

The QE 2 debate

According to Barton Biggs--the guy with more titles on his resume, the Fed's charter is to boost the stock market. Great--he just implicitly admitted that the Fed's job is to manipulate markets higher in order to paper over the structural problems of our economy. Two quarters of higher equity returns balance out the pending long-term destruction of the global economy. Wonderful.

Fed may go bankrupt


Right now the Fed’s balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money-printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital. Put differently, it only takes a 2% drop in the average value of assets on the Fed’s balance sheet for the Fed to go bankrupt. And this is in an environment where various markets frequently go up and down 3% in a single day.

The Fed is saying don’t worry about mark to market losses because we will hold the bonds. The Fed is saying don’t worry about inflation because we will sell the bonds. Both of those statements cannot be true at the same time. You can hold bonds and you can sell bonds but you can’t do both at once. You will want to sell when rates are going up but that’s when losses will be the greatest. So the time when you most want to sell is the time when you will most want to hold.

So, here’s the bottom line on money printing, or QE if you prefer. If nothing happens, the whole thing was a waste of time. If inflation takes off, the Fed will have to choose between holding bonds and letting inflation get worse or selling bonds and going bankrupt in the process. Since no entity goes down without a fight, the Fed will naturally hold the bonds and let inflation take off. Do not ask about the exit strategy from QE; there is no exit.

Thursday, November 4, 2010

David Stockman says the Fed is injecting monetary heroin


"An independent Fed is what we had when I was in the government. Volcker was the head of it...Today the Fed is scared to death that the boys and girls and robots on Wall Street are going to have a hissy fit. And therefore these programs, one after another, are simply designed to somehow pacify the stock market, and hoping to keep the stock indexes going up, and that somehow that will fool the people into thinking they are wealthier and they will spend money. The people aren't buying that. Main Street is not stupid enough to believe that engineered rallies as a result of QE2 stimulus are making them wealthier and so they should go out and buy another Coach bag. This is really crazy stuff that I can't say enough negative about...The Fed is telling a lot of lies to the market... it is telling all the politicians on Capitol Hill you can issue unlimited debt cause it doesn't cost anything. We have $9 trillion of marketable debt. Upwards of 70% of that has maturities of 5 years or less down to 90 days. All of those maturities are 1% down to 10 basis points. So from the point of view of Congress, the cost of carrying the debt is essentially free. When you tell politicians they can issue $100 billion of debt a month for free, how do you expect them to do the right thing, and ask their constituents to sacrifice... I think the Fed is injecting high grade monetary heroin into the financial system of the world, and one of these days it is going to kill the patient."

Commercial shorts at the LBMA getting margin calls

This will intensify the melt up in silver prices.


QE2: the day after


News of the return of McRib is bigger than the Fed and gold


You'd think the introduction of at least $600 billion by the Federal Reserve would be a hot search topic for Americans trying to protect the currency in their pockets.

A visual summary of yesterday’s “hot” Google search trends suggests otherwise.

The news that McDonalds will be reintroducing McRib generated massive search volume. The following charts illustrate how the McRib news dwarfed both the Fed’s Decision and Price of Gold queries.

Zimbabwe stock market soars, 2008 headlines


While markets across the world have been crashing, the Zimbabwe Stock Exchange has being seeing record gains as citizens turn to equities to protect their money from the country's hyperinflation.

The benchmark Industrial Index soared 257 percent on Tuesday up from a previous one day record of 241 percent on Monday with some companies seeing share prices increase by up to 3,500 percent.

But before Wall Street traders start packing their bags and heading south, they should bear in mind that these figures are just another representation of Zimbabwe's collapsing economy and are almost meaningless in real terms.

Zimbabwe, once a regional breadbasket, is staggering amid the world's worst inflation, a looming humanitarian emergency and worsening shortages of food, gasoline and most basic goods. Inflation is at 231 million percent, but some experts put it more at about 20 trillion percent.

Goldman Sachs has been long gold for years


This explains why John Paulson, a Goldman Sachs client who profited big-time from the collapse of the subprime mortgage market, also went long gold in 2009. JPMorgan and HSBC have outsized short positions in gold and silver. I'm betting on the vampire squid winning.

See disclaimers in the side bar.

Disclosure: precious metals and precious metals mining shares.

QE2 is like open-air PPT

Since 1987, conspiracy theorists have maintained that the government operates a secret “plunge protection team” (PPT). Like most conspiracy theories, the PPT is hogwash and not much different from the guy who screams “the race was fixed” when his horse lost. I have listed the many reasons why the PPT is all smoke and mirrors over the years. So to save space, I won’t repeat.

That having been said, QE2 is beginning to look like an open-air multi-month version of the PPT. It looks like one of the primary assets the Fed wants to inflate is the stock market. That might produce a wealth effect as 401Ks heal and higher highs make the economy appear to be moving even as it plods along.

Art is a smart guy, but not all conspiracy theories are hogwash. See silver manipulation indictments against JPMorgan and HSBC. See silver prices explode upward now that the light is shone on the bullion banks.


Why was QE reported at $600 billion when it is really $900 billion?

“Because that’s management of perspective economics.”

Wednesday, November 3, 2010

The fuzzy logic of useful idiots

This applies to many people, easily duped by MOPE (Management of Perspective Economics).


useful idiot

RICO laws invoked in silver manipulation lawsuit against JPMorgan and HSBC


For the uninitiated, RICO laws are invoked to prosecute organized crime.

JP Morgan Chase & Co. (NYSE: JPM) and HSBC Securities Inc. (NYSE: HBC) face charges of manipulating the market for silver futures and options in violation of federal commodities and racketeering laws, according to a new lawsuit filed Tuesday in the U.S. District Court for the Southern District of New York.

The suit – which alleges violation of the Commodity Exchange Act and the Racketeering Influenced and Corrupt Organizations (RICO) Act – alleges that the two banks colluded to manipulate the market for silver futures starting in the first half of 2008 by amassing huge short positions in silver futures contracts they had no intent to fill, but did so to force silver prices down to their benefit.

The suit was filed on behalf of Carl Loeb, an independent investor in silver futures and options, by Seattle-based Hagens Berman Sobol Shapiro LLP, a class-action and complex litigation firm.

"The practice of naked short selling has long been a serious issue on Wall Street," said Steve Berman, co-counsel and managing partner at Hagens Berman. "What we know about the scope and intent of JP Morgan and HSBC's actions in this short-selling scheme dwarfs any other similar attempt to manipulate a commodities market."

SLV and GLD concerns

Here is another article raising questions regarding the GLD and SLV ETF's.


Revenge of the gold nuts


Nobel prize-winning economist Joseph Stiglitz, a frequent critic of the IMF, expressed some skepticism. "Without knowing anything about this, it's more likely a group of gold nuts, of which there many," he said of GATA.

Stiglitz sounds like another Nobel Laureate in Economics who sounds bitter since he's been on the wrong side of a trade--again. Is one of the criteria for winning a Nobel in Economics to be consistently wrong on forecasts? Paul Krugman, are you listening?

QE2: Fed pulls the trigger

QE 2.0 was built into market expectations (see previous blog). The next question is when to expect QE X.0. As Jim Sinclair opines, expect QE to infinity.


Tuesday, November 2, 2010

Economic myths and central banking heretics


QE expectations


You know QE expectations are getting a bit out of hand when...

1. Goldman calls for $2trn.
2. Rumours fly around that the Fed may eventually do $4trn.
3. China starts complaining that the Fed is about to purchase $1trn of USTs despite buying a similar amount themselves.
4. Xerox is up 36% since Jackson Hole.
5. Your Mom calls you asking what QE is.
6. The BoJ buys a promissory note from TMM for $1bn whose principal is equal to their combined yearend bonuses price in Gold today.
7. IBM issues a super long bond.
8. Mexico issues a really super duper long bond.
9. You find out that both of these organisations have a guy who had Bernanke as a thesis advisor in their Economics PhD program before joining their respective Treasury departments.
10. Greek tourist-tat shops sell QE wallets three times the size of normal ones.
11. The guy that trades European Telecoms on the Equity floor explains to you how QE works.
12. The TDI (Taxi Driver Index) flashes Red when your taxi driver starts using QE to justify the Gold he bought in May.
13. A word score of 36 in Scrabble is nicknamed "scoring a QE" in old folks homes.
14. Your FX sales shag starts giving you minute by minute updates about 10s30s, but doesn't know what "10s30s" is.
15. Handing out an extra 200,000 quid to all players when any one goes bankrupt is now mandatory and in the official rules of Monopoly.
16. The DPI (Dinner Party Index) flashes Red when you are in Islington and the Guardianistas around the table start debating just how much more QE is needed.
17. Your Mom calls you back and asks if she should put her 401k in Gold to hedge against inflation.
18. Bill Gross, an otherwise nice guy, goes on a rampage, and while not naming names is clearly not happy with the FOMC right now.
19. The UK decides to privatise the Royal Mint.
20. Your Mom calls you again and explains to you how QE works.

Monday, November 1, 2010

Unemployment offices add armed guards


I wonder if the 99-week expiration of unemployment benefits is coincidental with the addition of armed security guards.

Inflation is already here


Jim Grant, the host and editor of the excellent newsletter Grant’s Interest Rate Observer, said: “Don’t you sometimes get the feeling that the economists are pulling our leg? A bartender would call it watering the whiskey.”

Don’t pay attention to that thing called the Consumer Price Index, or CPI. It is running at about 2%. It is an engineered figure and not to be trusted. Oskar Morgenstern, who along with John von Neumann contributed so much to game theory, once described it as a “mere index of doubtful validity,” as Grant relayed.

Nonetheless, on the basis of this suspect fluff, the Fed tells us inflation is under control. In fact, it is complaining that the inflation rate may be too low. As Grant quipped, “That’s like the New York Police Department complaining about the lack of crimes.”

Bernanke would have us believe the Fed can calibrate inflation within tolerances of 100 basis points. But it way overestimates its powers. Once the inflation train gets going, it will be very hard to slow down. One day, the Fed will wish inflation were only 2%.

Socialism and reality


Silver Short Position Could Cost JP Morgan Billions in Losses, Says NIA