FRAUD: Federal Reserve Is Selling Put Options On Treasury Bonds To Drive Down Yields

The enclosed video is a long, but good explanation of how the Fed is committing fraud, causing the US government to default on its debt.  The Fed is selling put options against its own debt in order to suppress long-expiry US Treasury bond yields.  Keeping interest rates low is necessary to keep the government's borrowing costs low, and to stimulate the economy, as low rates encourage borrowing and consumption.  Manipulating markets is not only fraudulent, it is also perilous to global financial market stability.  The Fed is taking the wrong side of the bet, hoping interest rates won't rise in the future.  If I was 99% certain the US government will default on its obligations, I am 99.9% certain now after watching the video.

Tragically, this manipulation of interest rates will backfire, causing yields at the long end of the curve to eventually soar.  The Fed can control short-term interest rates (they are currently pinning them down to nearly zero), but cannot control longer-dated bond yields, which move in tandem with market expectations on inflation.  In other words, as inflation rises, so do bond yields, and inversely, bond prices drop.  Rising bond yields (interest rates) will result in the US government defaulting on its debt, which will cause the global financial system to collapse.

Banks became insolvent after making outsized bets that turned sour.  They took on too much leverage, and needed a bailout in 2008 in order to avert bankruptcy.  AIG similarly was over-leveraged and under-capitalized based on the amount of default insurance they wrote (in the form of credit default swaps).  Many hedge funds were liquidated due to insufficient hedging.

Hedging infers risk mitigation against a bet that goes the wrong way.  Many hedge funds, the too-big-to-fail banks, and AIG were insufficiently hedged.  In fact, they INCREASED their risk profile, instead of decreasing their exposure.  Instead of hedging, they levered up to obscene levels, which increased their returns when they bet right, but caused massive losses when they bet wrong.  Not only were the players in the casino losing, but the casinos themselves on Wall Street were losing big, betting on a perpetually rising housing market.

The bank bailouts merely transferred the toxic balance sheets of the failed banks into the Fed's balance sheet, which meant the Fed was now over-leveraged.  Just like home prices can't appreciate forever, interest rates can't drop forever.  And when interest rates do rise, the debt the Fed carries will implode, much like mortgage-backed securities did in 2008.  But this time, there will nobody left standing to bail out the Fed.

http://www.youtube.com/watch?v=ZnZnkaq8Nf8&feature=player_embedded

Texas University Endowment Storing About $1 Billion in Gold Bars

OK, where are all the people that called me stupid, reckless, dumb, and crazy two years ago?

http://www.bloomberg.com/news/2011-04-15/texas-university-endowment-holds-almost-1-billion-in-gold-bars.html

My next prediction:  the University of Texas endowment fund will surpass Harvard's within the next few years.  Why?  Gold vs. derivatives.  Physical vs. paper.  Tangible assets vs. USDollar.  No contest.

By the way, I blogged about this last August, 2010:  <click here>.  Gold is up 30% since then, while silver has almost tripled, leaping almost 200%.

Motorists, gambling on finding a better price, are running out of gas

Here we go again.  Poverty effects of soaring food and energy prices are outdistancing the wealth effect of rising stock markets.  Our government economists just don't get it--they are impoverishing the poor and working class with unadulterated money printing, while enriching the financial elite who benefit from rising asset prices.

Since the Fed's announcement of QE 2.0 on August 27, 2010, Brent crude oil prices have rising 67.4%, while the S & P 500 equities index has risen just 26.3%. 

http://graphics.thomsonreuters.com/11/04/GLB_MKTQEP.html

http://latimesblogs.latimes.com/money_co/2011/04/motorists-gambling-on-finding-a-better-price-are-running-out-of-gas.html

One of the Dumbest Things I Have Ever Read About Gold

Speaking of rants on the dumbing down of the masses, and lack of critical thinking... 

http://www.theundergroundinvestor.com/2011/04/one-of-the-dumbest-things-i-have-ever-read/comment-page-1/#comment-46295

Let's talk bubbles

Many pundits and experts completely missed the decade-long bull market in gold and silver, so they are now declaring a bubble in precious metals (it's interesting that they now consider themselves experts in asset bubbles, considering they completely missed the bubbles in internet stocks and real estate).

Let's talk bubbles.  The US national debt ceiling has already been raised 92 times, on the eve of it being raised again.  It is baked in.  The first debt ceiling was $45 billion.  It is now $14.277 trillion, an INCREASE OF 31,627%!

Gold and silver are not in bubble territory, in my opinion.  The bubble is forming in US Treasury debt--and the USDollar.  Hold on to cash, and you're losing purchasing power with each additional dollar the US Treasury prints.  And they are printing trillions, there's no mistaking that.

Why gold could hit $5,000

I agree with the macro themes of supply and demand, and why gold will surge higher, but the ETF recommendations are not optimal. 

http://money.msn.com/investment-advice/why-gold-could-hit-5000-dollars-mirhaydari.aspx?page=0

Did The World’s Largest Futures Exchange Enable $200 Oil?

Another nail in the coffin of USDollar hegemony.  The answer to the question is "yes."

http://www.zerohedge.com/article/guest-post-did-world%E2%80%99s-largest-futures-exchange-enable-200-oil

Since most countries rely on oil imports, they are forced to maintain large stockpiles of dollars ^2,3,4 in order to continue imports. ⁵ This creates a consistent demand for US dollars and upwards pressure on the US dollar’s value, regardless of economic conditions in the United States.  This in turn allegedly allows the US government to issue currency below cost of currency production (seignorage) and bonds at lower interest rates than they otherwise would be able to.⁶ As a result the U.S. government can run higher budget deficits at a more sustainable level than can most other countries.  A stronger US dollar also means that goods imported into the United States are relatively cheap.  It appears to be to the US’ advantage to maintain US dollar hegemony.⁷

If the denomination of oil sales changes to another currency, such as the euro, many countries would sell dollars and cause the banks to shift their reserves, as they would no longer need dollars to buy oil. ⁸ Forty years of petrodollars would start to get flushed from central bank reserves.  This shift in petrocurrency reserve status would lower the volume and velocity of US dollar recycling and thus weaken the dollar relative to the Euro.  The EU would accrue the same benefits from Euro-denominated oil sales that the US.

Inflation explained

I urge everyone to watch this video, since most people don't like to read.  I've been saying that inflation has reared its ugly head for a while, but since government statistics understate real inflation, use your common sense.  Readers of my blog have known for over 2 years what to do to protect their purchasing power, and have already loaded up on said protection against this hidden tax.  Skip this video at your own peril.  It's a potential life-saver, and I am not being hyperbolic.


http://www.youtube.com/watch?v=VL7V9BnJXO8&feature=player_embedded

Flashback: Previous Debt Limit Votes Have Not Been Good Ones

Obama indicted himself in 2006.

http://rpc.senate.gov/public/_files/alternativestothedebtlimitincreasev20.pdf

This was the last stand-alone debt limit vote on which then-Senator Obama voted. He was one of 48 members to vote against the increase, which passed with 52 votes.i He said: “The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government's reckless fiscal policies. … Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.” - Senator Barack Obama, May 20, 2006

"Failure by Congress to raise the U.S. debt limit "could plunge the world economy back into recession," - President Barack Obama, April, 2011

Gold Daily and Silver Weekly Charts - Gold, Silver and Stocks in a Financial Panic

http://jessescrossroadscafe.blogspot.com/2011/04/gold-daily-and-silver-weekly-charts-no.html

I will repeat as I have done so over and over, that if there is a general liquidation of all financial assets, gold and silver will take a hit as well, along with most other commodities. Silver will decrease further because it has a high beta or variability.  Since the miners have a correlation to stocks they will take a hit depending on their beta.

This will most likely represent a buying opportunity if you have the right time horizon and capitalization, and of course depending on your economic outlook, because gold and silver tend to  recover more quickly than stocks if there is an economic recovery.

Spot prices decoupling from mining equities

While physical spot prices for gold and silver continue to surge, some of the mining shares are stagnant, which prompted me to take partial profits in SLW yesterday <click here> .  One possible reason is that the big money hedge funds are long the metals, but short the mining shares as a hedge.  These shorts put a cap on the prices of mining equities.

It may work for a while, but with any arbitrage, if the market wakes up to the reality of higher profits for mining companies going forward, the shorts will be carried out in a body bag.  In other words, this separation between the physical and equities markets is only temporary, and mining equities may not only catch up to the spot markets, but slingshot past the physical markets in the event of a huge short squeeze.

Gold Celebrates Complete Lack Of Inflation By Surging To New Record

http://www.zerohedge.com/article/gold-celebrates-complete-lack-inflation-surging-new-record

Food and gas costs push consumer prices higher

Who here still believes inflation is only 2.7%?

http://news.yahoo.com/s/ap/20110415/ap_on_bi_ge/us_consumer_prices

BRIC Leaders Pledge to Boost Trade in Local Currency

This signals the continuation of a disturbing trend (as least for Americans' standard of living):  sovereign nations, specifically in emerging markets, are diversifying away from the USDollar as a transactional currency--despite its still tenuous status as the global reserve currency.

http://www.bloomberg.com/news/2010-04-16/bric-leaders-pledge-to-boost-trade-in-local-currency-as-meeting-shortened.html

Translation: with trading nations abandoning the USDollar as the currency of choice, expect further dollar debasement, higher inflation, and a reduced standard of living for Americans.

Jim Grant - US Will Resolve Debt by Returning to Gold Standard

I've referenced Jim Grant's Interest Rate Observer newsletter many times, because he is well-read on Wall Street, and is an icon on the Street.  Not all institutional investors are sheep. 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/14_Jim_Grant_-_US_Will_Resolve_Debt_by_Returning_to_Gold_Standard.html

Will Silver Surge Following The Nationalization Of Bolivia's Silver Mines By Embattled President Evo Morales?

Dammit!  It looks like I shouldn't have sold off any of my silver positions today, however slight.  Yes, it's nice to lock in a big profit, and yes, it's smart to reduce risk exposure, but if Bolivia nationalize's their silver mines, the current physical shortage in silver will rise exponentially.  That crystal ball would have come in handy today. 

http://www.zerohedge.com/article/will-silver-surge-following-nationalization-bolivias-silver-mines-president-evo-morales

See disclaimers in the side bar.

Disclosure:  long mining equities, and looking for a re-entry point.

Corrupted!: 5 Shocking Examples Of Government Corruption That Will Blow Your Mind

This would be funny since the author of this article mentions some of the same events I have, except the content is not funny--it's sad and dangerous. 

http://theeconomiccollapseblog.com/archives/corrupted-5-shocking-examples-of-government-corruption-that-will-blow-your-mind

Inflation Nears 10 Percent Under Old Methodology

http://www.moneynews.com/StreetTalk/Inflation-Near-10-percent/2011/04/13/id/392703

If given the choice of who to believe regarding economic statistics, go with John Williams of shadowstats.com in lieu of the Federal Reserve Bank authorities.  Why?  History.

Silver and uranium

See disclaimers in the side bar.

Disclosure:  Sold a little SLW today and bought CCJ to replace it.  Uranium is so beaten up, and unless the world stops using nuclear power, I don't think CCJ is going out of business anytime soon.

Gold and silver spot prices continued to rise today, but the mining equities didn't rise as much proportionately, so perhaps the trade is getting heavy, and the precious metals are due for a breather.  If SLW drops to the 30's, I'm buying the trading shares back, but I did not sell my core position in SLW.

Holders of physical gold and silver made some money today.  I'm still bullish long-term, but looking for a short-term correction, that may or may not occur.  In other words, since I don't have a crystal ball, either way, I'm still in SLW, but I did lighten up today, with an eye toward re-entering at a lower price point.

I tried this tactic when SLW was at $22 last year, looking to get back in if it dipped into the teens (bought original shares in the $2's and $3's), but SLW gapped up and never hit my buy price target.  Do I have regrets, since SLW has soared as high as $47?  Absolutely, but it was still a good trade, from a risk management stand point.  In other words, when you're right, don't get greedy.  I've been burned by greed before.

Having said that, this is now house money (twice), so I can afford to have exert more patience, able to withstand the higher volatility, and wilder price swings.  In other words, I didn't have to sell any SLW today, but I truly believe I can buy back in at a lower price.  We shall see--I've been wrong before, but when I buy right, it masks my selling mistakes.

And if it keeps going up, well, I can't complain, because I am still in.  End of my rambling thoughts.

Jim Rickards - Institutions Are Way Under-Invested in Gold

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/4/13_Jim_Rickards_-_Institutions_Are_Way_Under-Invested_in_Gold.html

Jim Rickards is one of the smartest guys around, with vast knowledge in foreign affairs, geopolitics, the defense industry, finance, and economic history.

Las Vegas home prices fall below 2000 levels with no relief in sight

http://www.lvrj.com/business/las-vegas-home-prices-fall-below-2000-levels-118839369.html

Commodities resume price hikes

Commodities, including the precious metals complex, resumed their climb today, which perhaps validates my suspicion that Goldman Sachs' call for a top in commodities prices earlier this week was just another head fake--and an opportunity for them to buy in at lower prices after enabling a price crash.  Modus operandi:  get their retail clients and the gullible public to fall for another of their "prescient" market calls.  Score another profitable win for Goldman Sachs, and another "learning lesson" for their followers.

Click <here> for yesterday's blog entry.  Put me in the cynic category.

Energy

	PRICE*	CHANGE	% CHANGE	TIME
BRENT CRUDE FUTR (USD/bbl.)	122.920	2.000	1.65%	16:29
GAS OIL FUT (ICE) (USD/MT)	1,019.000	8.500	0.84%	16:27
HEATING OIL FUTR (USd/gal.)	320.500	3.240	1.02%	16:31
NATURAL GAS FUTR (USD/MMBtu)	4.149	0.051	1.24%	16:26
GASOLINE RBOB FUT (USd/gal.)	324.090	7.680	2.43%	16:31
WTI CRUDE FUTURE (USD/bbl.)	107.140	0.890	0.84%	16:29

Agriculture

	PRICE*	CHANGE	% CHANGE	TIME
CANOLA FUTR (WCE) (CAD/MT)	570.300	5.100	0.90%	14:39
COCOA FUTURE - LI (GBP/MT)	1,946.000	9.000	0.46%	12:05
COCOA FUTURE (USD/MT)	3,070.000	14.000	0.46%	14:00
COFFEE 'C' FUTURE (USd/lb.)	283.700	6.800	2.46%	14:00
CORN FUTURE (USd/bu.)	761.000	3.500	0.46%	14:15
COTTON NO.2 FUTR (USd/lb.)	180.640	-4.930	-2.66%	14:47
FCOJ-A FUTURE (USd/lb.)	163.400	-0.600	-0.37%	14:18
WHEAT FUTURE(CBT) (USd/bu.)	788.000	-4.250	-0.54%	14:15
WHEAT FUTURE(KCB) (USd/bu.)	895.500	-9.000	-1.00%	14:15
SUGAR #11 (WORLD) (USd/lb.)	23.650	-0.720	-2.95%	14:00
SOYBEAN FUTURE (USd/bu.)	1,345.000	4.000	0.30%	14:15
LUMBER FUTURE ($/1,000 board ft.)	276.000	10.000	3.76%	14:14
OAT FUTURE (USd/bu.)	395.500	-4.000	-1.00%	14:15
ROUGH RICE (CBOT) (USD/cwt)	13.950	0.260	1.90%	14:15
SOYBEAN MEAL FUTR (USD/T.)	347.600	0.200	0.06%	14:15
SOYBEAN OIL FUTR (USd/lb.)	57.990	0.120	0.21%	14:15
WOOL FUTURE (SFE) (cents/kg)	1,315.000	12.000	0.92%	04/13

Industrial Metals

	PRICE*	CHANGE	% CHANGE	TIME
COPPER FUTURE (USd/lb.)	430.050	-10.250	-2.33%	16:10

Precious Metals

	PRICE*	CHANGE	% CHANGE	TIME
GOLD 100 OZ FUTR (USD/t oz.)	1,457.300	3.700	0.25%	16:29
SILVER FUTURE (USD/t oz.)	40.590	0.524	1.31%	16:31

Livestock

	PRICE*	CHANGE	% CHANGE	TIME
LIVE CATTLE FUTR (USd/lb.)	115.900	0.300	0.26%	16:30
CATTLE FEEDER FUT (USd/lb.)	136.650	1.250	0.92%	16:31
LEAN HOGS FUTURE (USd/lb.)	101.675	2.325	2.34%	16:28

Commodities trade on different exchanges with different trading sessions. Change always shows the change from previous close price.

$38 Billion In Cuts? Make That $353 Million

http://www.zerohedge.com/article/38-billion-cuts-make-353-million

To give it scale, let's use numbers the average Joe can relate to.  Say my total household debt is $75,000, but since I'm the government, I won't include long-term debt (Social Security, Medicare, Medicaid, Fannie Mae, Freddie), and will only count my immediate obligations and declare my official debt is only $14,400.  My income this fiscal year is $2,160, while I am spending $3,760, which equates to an annual deficit of $1,600.

So I finally convince my wife that we need to tighten our belts, as well as somehow increase our income in order to reduce/zero out that $1,600 deficit--because every annual deficit adds to our total debt level.  After many rounds of theatrics and arguments so loud our neighbors can hear us, we finally congratulate ourselves by declaring to the world that we have managed to trim $38 from our annual budget.  I repeat:  $38.

It gets worse.  Upon further inspection, our CPA, who is allegedly independent--despite having a track record of being easily influenced by our exhortations to doctor our books, declares the actual savings will only amount to $ 0.35.

That's it:  despite a $75,000 household debt, and spending $1,600 above my income (highly optimistic since the deficit calculation doesn't take into account total debt servicing expenses), I'm celebrating because I have managed to save 35 cents.

That's the true scale of the charade Congress and the Obama Administration have been partaking in "solving" our debt problem.  The only difference in my example is I've lopped off a bunch of zero's (i.e., I moved the decimal point 9 places to the left).

NOW do you understand why I've kept banging the drums that whatever action our government takes going forward:  cutting taxes, increasing taxes, increasing spending to stimulate the economy, and/or reducing spending in an attempt to get our fiscal house in order, it is too little too late.  No matter what stimulative or austere measures our politicians and monetary authorities take, it is GAME OVER.  The interest expense to service our humongous debt will overwhelm whatever tax revenues our government takes in.

Why is this important?  Pretty soon, our government's interest expense will outpace funding for our national defense.  Even if everything remained static and debt levels don't climb from here, every 1% rise in interest rates, increases our interest expense $144 billion (and interest rates WILL rise, since they're zero right now).  And pretty soon after that, that same debt-servicing expense will completely overwhelm every other vital government service.  The government will be paying off that debt before allocating funding to protect us, educate our children, feed the hungry, the retired, the disabled, and our veterans.  There will be no government services left = bankruptcy.  The difference being the government won't be around to bail out a bankrupt entity like GM or the banks like they did in 2008.  Because this time around, it will be the government itself that is bankrupt.

So how will the government feign solvency and creditworthiness?  They will keep printing increasingly worthless dollars, giving it fancy names and acronyms in order to hide the true nature of their counterfeiting schemes.  Meanwhile, savers, investors, Treasury bond owners, and anybody holding cash will all be wiped out.

Gold to break $2,000/oz barrier

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/8444766/Gold-to-break-2000oz-barrier.html

"Our base-case forecast is that prices rally to peak at an average of $2,107/oz in 2014, although our modelling suggests a possible ‘super-bull’ scenario of gold prices rallying up to $4,869/oz by 2020, should current relationships between Asian demand and gold persist," the analysts wrote.

The bank said there was a "powerful relationship" between income per head in Asian emerging markets and the gold price.

Big banks are government-backed: Fed's Hoenig

Hoenig has historically been the lone Fed governor who isn't afraid to speak the truth on the fictional solvency of banks.  Too bad he is retiring in October.  Like Volcker <click here>, the former hawkish Fed Chairman who recently stepped down as Obama's economic adviser (something I predicted when he was appointed), Hoenig's retirement augurs in a fresh round of "stimulus" spending which will ultimately further drown the US in debt and cause the collapse of the global financial system.  Welcome to Amerika. 

http://ca.news.yahoo.com/big-banks-government-backed-feds-hoenig-20110412-112137-434.html