Harry Markopolis - Bernie Madoff and bank fraud whistleblower

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/10/8_Harry_M._Markopolos_files/Harry%20Markopolos%2010%3A8%3A2011.mp3

Central bank and BIS intervention--circa 1983

This should lay to rest any questions whether central banks intervene in foreign currencies, interest rates, and gold markets.

http://www.edwardjayepstein.com/archived/moneyclub.htm

Greece, the Euro, and supermodels

The bond vigilantes are attacking Greek bonds and the Euro, as further credit downgrades are inevitable.

Gisele Bundchen should consider getting paid in gold, instead of Euros.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aUdDmoYyZhdY

Supermodels should stick to modeling, and leave speculation to the foreign currency traders. While I agree with the USDollar continuing it's decades-long decline, the Euro will tank even further from the EU fracturing.

Central bankers' secret meeting

An excerpt from Ed Steer:

Central banks meeting in secret it Australia... it sounds like The Creature From Jekyll Island all over again. Greece, Portugal and Spain et al on the brink. A stock market [the Dow] that wants to die. It appears that the central banks are watching their control of world financial and monetary events slip away... and are in a full panic mode.

From what I can see at this juncture, there are only two possible ways this economic, financial, and monetary situation is going to resolve itself, and they are... a hyper-inflationary depression... or a complete deflationary collapse. Both of which will result in the destruction of most of the world's currencies. But, somewhere along either of those paths, or a combination of the two paths... individually or collectively, the central banks will be forced back into using gold as a convertible currency. When [and notice I didn't say 'if'] that happens, gold will have to be revalued to some fantastically high price. At that moment, the Golden Rule will come into play... He who has the gold, makes the rules!

Then, and only then, will we find out which countries and their respective central banks have gold reserves of any kind... and how much they really have left.

In the interim, things are going to get incredibly ugly. And, without doubt, the world's central banks will resort to anything to prevent 'all of the above' from happening.

Deflation or inflation?

With much of the focus in the commodities sector on crude oil and the precious metals gold and silver, what's been somewhat lost among the mainstream media and audience is the surge in the "red" metal, copper. Since copper is used in many industrial, housing, and information technology industries, it's been dubbed the bellweather for economic activity and inflation.

http://stockcharts.com/h-sc/ui

The deflationists correctly claim economic activity is dormant in the US and other developed countries, but they are not accounting for the unintended consequences of the carry trade, where Fed easy monetary and interest rate policies are causing asset bubbles and booming economic activity in emerging countries such as China, India, and Brazil. In essence, the hot money is borrowing at 0% interest rates in the USDollar, and investing in commodities and equities in foreign currencies, hence driving asset values higher.

Deflationists also point to official consumer price index (CPI) numbers--benignly low at 0.1% in November, 2009, as further proof that inflation is not an imminent threat.

To which I say "hogwash", as the increase in copper and commodities prices overall reflect inflationary pressures. Banking lending has not returned to nominal levels and wage labor prices have not increased due to a loose employment market; these two scenarios should be keeping a lid on prices. But commodities prices continue to rise despite an absence of these two inflationary factors. When and if the two components do return, inflation could potentially soar due to the exploding monetary base and resultant increased money supply.

While I expect asset values in US housing and equities in certain sectors to continue to be under pressure, the Fed's easy money policies will continue to debase the USDollar, deteriorating the purchasing power of consumers.

Jim Rogers

Legendary billionaire investor and hedge fund manager Jim Rogers gives his summary on asset classes in a CNBC interview. It is instructive to watch the whole video to the end.



Rogers is especially critical of Fed Chairman Bernanke, US Treasury Secretary Geithner, and President Obama for printing too many USDollars, and castigates central banks worldwide for turning on the printing presses.

The only disagreement I have is on owning certain foreign currencies. He suggested the Swiss Franc, Japanese Yen, and Canadian Dollar. The Swiss Franc has traditionally been a stable currency due to their conservative monetary policies, but even Swiss banks have veered away from financial discipline, making bad real estate loans to the Baltic States and eastern Europe. Japan is in worse fiscal shape than the US, as their national debt has grown to monstrous levels relative to gross domestic product. On the other hand, the Canadian Dollar is a safe bet, as they are a resource-rich country which will benefit from the appreciation of hard assets (precious metals, rare earth metals, energy). The Brazilian real, Australian Dollar, and Norwegian Krona are other foreign currencies which should do well going forward, since they are creditor nations with sound fiscal policies and exporters of natural resources.

Disclosure: no position in foreign currencies, long gold and silver mining shares, long natural gas pipeline master limited partnerships.

Warren Buffett calls these instruments weapons of financial destruction

If the imploding of credit default swaps didn't put the fear of God in markets, this should:

Derivatives Market

The Bank for International Settlements (BIS) is an international organization which fosters international monetary and financial cooperation and serves as a bank for central banks.

According to BIS statistics, as of June, 2008 (before the financial meltdown), interest rate derivatives totaled $458 trillion, foreign exchange derivatives totaled $63 trillion, credit default swaps totaled $57 trillion, commodity derivatives totaled $13 trillion, equities-linked derivatives totaled $10 trillion, and unallocated derivatives $82 trillion. Total worldwide derivatives market: $684 trillion!

A quick glance at the figures reveals that credit default swaps, while huge in nominal numbers, is very small relative to interest rate derivatives (stock market derivatives are even smaller). If mispriced CDS can wreak such havoc on financial markets worldwide, what would happen if interest rate derivatives (fixed-income, i.e. bond markets) implode?

To connect the dots, easy monetary and fiscal policies arguably created the tech bubble, which burst 2000-2002. Those same ill-advised policies created a real estate and mortgage bubble, which popped in 2007-2008. Today, the government is embarking on another attempt to ease the credit crisis, but the unintended consequence is the creation of another bubble--the US Treasury bond market. But this time the magnitude of the interest rate bubble is orders of magnitude larger than the toxic credit default swaps which "insure" against US homeowners defaulting on their mortgages. The problem with CDS' is that they are not backed by any collateral (hence the ability to obscenely leverage up).

When the US Treasury bond bubble collapses--and interest rates soar, God help us all.

What to do going forward (part 1)

There's nothing confusing about this: Dave and I just made a ton of money today. Trust me, it's just the beginning. I'm not even referring to the stock market. As I said earlier, the buyers and sellers will continue to fight each other on where the exact bottom will be. Stocks will trade inside a range, albeit it a wide range, due to high volatility. Meanwhile, contrarians like he and I will be adding to our positions geared towards inflation and financial meltdown. Savvy investors will eventually see it, then CNBC viewers, and by the time the mainstream audience catches on, gold will be testing their all-time highs.

When you print money like toilet paper, something has to give. Don't just look at the $USD/gold relationship. Look at the price of gold from a foreign currency perspective. From their standpoint, the price of gold is at an all-time high already, because the $USD is temporarily gaining strength due to the flight to quality, as sovereign funds, hedge funds, mutual funds, and private equity firms face redemptions from investors selling. More banks and financial institutions will go under as a result. Companies will go bankrupt, due to lack of liquidity and lack of access to credit. If people insist on owning shares, the only ones I would trust are Wal-Mart, McDonald's, Coca-Cola, Berkshire Hathaway, Altria, ExxonMobil. Focus on dividends, cash flow, cash position, and ability to borrow. Microsoft will be able to tap into the corporate bond market at 2%....which is better than what the US government will be able to borrow at. Think about what I just said: Microsoft will be more credit-worthy than the US government.

In light of all these federal government bailouts, and solvency issues with banks, financial institutions, insurance companies, autos, airlines, etc. has anybody even thought of whether the government itself will be solvent? They continue to print money at a rate of $1 trillion extra a quarter. That devaluates the local currency. Once people wake up to this inflationary scenario (where the US Treasury will have to borrow at 8% or above), one where the $USD deteriorates, gold and silver will skyrocket. Right now, the markets are focused on deflation. That will change--it's only a matter of time. And when you have disinvestment AND inflation, you get stagflation like we experienced in the 70's, only this time, the overshoot will be even more severe.