The minute this thing [Comex/LBMA/ETF paper fraud vs. actual physical demand] gets away and we start to have a real market and prices start to reflect real supply/demand, it will bring in a lot more demand at the same time supply is being diminished. This is why you’re going to have price moves of staggering dimensions. - John Embry, interview with King World News LINKJohn Embry is one of the few precious metals market participants that is worth paying attention to - at least that I've found in my 10+ years of doing exclusively this sector. I couldn't agree more with the comments he makes in the link above. It IS going to get very nasty out there and the increasing degree and blatantness of the fraud going on in our system is the number one symptom of the true state of collapse going on in this country (and globally).
At any rate, I didn't want to spend time with bank earnings this quarter but the manipulation and bullshit being reported by the likes of Wells Fargo, Bank of America, etc. is farcical to the point of tears. As you are probably aware, Bank of America reported a $2 billion in net income, or 15 cents/share. This was basically in line with Street guesstimates. However, as always, it pays to comb through the 8-k/10-k in order to wipe away the lipstick and see what horrors are being covered up.
In Bank of America's case it is just too easy to strip away the lies and deceit and conclude that beneath the headlines BAC is a dying bank. To start with - and I normally ignore the fancy slides attached to these 8-ks that are fabricated for the Wall Street analysts who do no more than regurgitate the vomit served up by bank CEO's - if you scan through the slide show you'll find an interesting comment about loss reserves. It turns out in this case that BAC is part of a group of banks being sued over guarantees made to investors who invested in the fraudulent mortgages originated by these banks during the housing bubble. In here, BAC acknowledges that they are under-reserved for this by at least $5 billion. In other words, if Bank of America were honestly applying GAAP accrual accounting, they would have taken at $5 billion charge against earnings, thereby wiping out the $2 billion net income stated and they would have reported a $3 billion loss. You can read about the litigation going on HERE and keep in mind that the judicial system is starting to deliver much more severe punishment to these banks. So the $5 billion acknowledged may be too low. You can see the slide show in the 8-k I've linked below.
The $5 billion reporting lie is the easiest to spot. The other really easy one is the general "provision for credit losses" charge. In 2010 they took $28.4 billion credit loss provisions (meaning, they estimate the loss expected on all of the crappy loans and mortgages not already sold to Tim Geithner's Treasury and create a loss reserve - a balance sheet item - which results in a GAAP income charge in the current year). Just to make this quick and easy, BAC has $387 billion total in residential mortgages and home equity loans. We know from past analysis that BAC is carrying the first mortgages on their books at too high of a valuation. Since 1st liens are likely still substantially underwater, that means home equity loans are worthless, on average and in general. BAC has $125 billion in home equity paper. Even in the best case economic scenario, we can safely assume most of that will have to be eventually written down to zero. But let's be spiritual and give BAC the benefit of doubt and say that only 1/3 will be written off completely. That still leaves $42 billion in write-offs. How about they start taking $4 billion per year in charges for this (and we know it will be a lot bigger) and run it honestly through their income statement? Add that to the $3 billion loss as defined above and you know have $7 billion in losses.
And $7 billion in losses does not take into account many other items of interest that I simply do not have time to look into. But you get the idea when I say that ultimately, with the test of time, the earnings released today will be revealed as a complete absurdity and fraud. Here is BAC's 8-k if you want to do some work yourself or see what I saw and wrote about: LINK
To compound the fraud going on - briefly - many of you have probably heard about the lawsuit filed against JP Morgan yesterday that alleges that JP Morgan fabricated and created documentation that has been used to collect on foreclosed mortgages, ahead of all other creditors in bankruptcy proceedings. This fraud, if proved in court, will run into the billions and the potential damages awarded will be astronomical. Here's a great summary of the circus proceedings from Yves Smith's http://www.nakedcapitalism.com/: LINK As she points out, it is likely JPM may offer up a big wad to settle this without admitting guilt. I hope the plaintiff does not settle and forces JPM to admit to the fraud. This case would not have been filed if the plaintiff didn't have rock solid evidence. If the plaintiff holds ground with a lot of paper money being dangled to settle, this could reach all the way up and bite Jamie Dimon in the ass legally.
Folks, the degree of fraud and corruption gets worse by the day. And even more troubling is that fact that the Obama administration enables it, rather than prosecuting it and cleaning it up. Obama himself has been putting pressure on the judicial system to settle these cases and make them go away. For those of you voted for Obama, is this what you voted for?