Thursday, March 1, 2012

Nothing Is But What Is Not*

The events my old colleague and I talked about back in 2002 that we anticipated that would blow our minds are happening now.  ISDA - controlled by the issuing banks - has determined that the Greek bond deal has not resulted in an even of default event though the new bonds being issued will result in about a 35% recovery rate - initially.  When Greece hits the wall again these bonds will be worthless.  And the corruption, fraud and crime at MF Global will go unprosecuted.  Jon Corzine will walk away with little more than slight embarrassment.  In fact, at Wall Street "elitist" cocktail parties, getting away with the theft of billions like this is probably awarded a high degree of social status.  This stuff blows my mind...
*This is a quote from Shakespeare's "Macbeth," Act 1, Scene 3.  For me this famous and much discussed line from the play pretty much encapsulates and describes the realities of our political and economic system.  Let's look at one of Bernanke's comments yesterday from his Humphrey Hawkins testimony.  Bernanke defended the Fed's massive currency swap [sic, bailout] of the EU banking system by stating that "the ECB is well capitalized."  Hmmm...let's take a look at the EU balance sheet (data source from zerohedge, it's accurate].   On a "book" basis after the latest LTRO operation, the ECB has $3 trillion in "assets."  The large portion of these "assets" are direct liabilities of ECB counterparties - national Central Banks and gold lease obligations.  Supporting this garbage is $82.2 billion in net capital.  That's a leverage ratio of nearly 37 to 1.  Banana Republic-esque.  A bona fide mark to market of the ECB "assets" would completely wipe out that net capital and the ECB would be in an unequivocal position of insolvency, but for its ability to print money. Unequivocal.  It certainly is not "well capitalized."  Bernanke stated under oath in front of Congress that the ECB is "well capitalized."  It is not.  Nothing is but what is not.  You can peruse the ECB balance sheet HERE.  Zerohedge has nice leverage chart HERE

Curiously, no one has said anything about the "Gold and gold receivables" asset account on the ECB balance sheet.  The key term is "receivables."  Unbeknownst to many, and in affirmation of the massive Central Bank gold leasing program used to try and keep a lid on the price of gold, several years ago the BIS changed its accounting rules and permitted Central Banks to account for gold leased out as a "receivable" and part of the gold asset account, rather than as a "lease receivable."  Any accountant and financial analyst will tell you that a lease receivable is not of the same quality of asset as the actual asset.  But what is even more deceptive about this re-classification of leased out gold is it eliminates the fact that the gold lease receivable is actually a counterparty liability.  Given the poor credit quality of the EU member banks, the gold lease receivables on the ECB balance sheet are therefore very poor in quality.  They certainly are not worth face value.  Nothing is but what is not...

And one more point about this gold leasing business.  No one really knows for sure how much of the ECB's gold is actually leased out.  Based on the collective observations of several well respected market analysts who have looked at this issue for close to 20 years, it is likely that most of the ECB's gold is leased out.  But lets assume only 1/2 of it is leased and the lessees ultimately default on those leases and are unable to return the gold that was leased out and sold (perhaps some to Venezuela, who recently took physical possession of its 200 tonnes of gold - now you know why).  You can see that the claim that a gold "receivable" can be valued at face value is quite questionable.  For me this underscores that fact that the entire asset quality of the ECB's (and the U.S. Fed's) balance sheet is like not what it appears to be on paper.  Nothing is but what is not...

One more interesting tidbit I want to get out of my "in" box.  Many of you have seen this already but many have not.  A big source of irritation for me has been the way the media, Wall Street and politicians have been focusing everyone's attention on Greece/Europe and making it seem like that's the problem we have.  Keep your eye on the ball, not the shell-game operator.  I think this chart will settle the issue for anyone who cares to look at the truth.  It turns out that on a per capital basis, the United States has the highest amount of debt per capita of any country in the world:  LINK  I think that statistic pretty much speaks for itself and it highlights for me why the real problem facing our system is us.  It turns out the China, the U.S's largest creditor by far, agrees with my assessment.  Per this WSJ article, China is starting to shift its foreign reserves away from the U.S. dollar:  LINK.   We know per the revised TIC data that China dumped over $100 billion in U.S. Treasury holdings in December.  This is not good.  And it further underscores the fact that Bernanke's attempt to deflect the probability of more QE3 yesterday was total bullshit.  I'm still waiting for someone, anyone, to explain to me how the U.S. Treasury can possibly fund the Governmnet's spending in 2012 without a significant amount of money printing...

One last note.  Mission accomplished yesterday.  I surmised that if yesterday's silver hit was just another run of the mill manipulation operation by JP Morgan, that we would see a massive reduction in the open interest of the March silver contract, of which very little would be accounted for by delivery notices.  It turns out that the open interest in silver in total declined by 1039 contracts.  Of that, March silver o/i actually declined by 1081 contracts.  Of that, only 160 of the March decline was accounted for my delivery notices. JP Morgan's silver market operation thus achieved its goal by substantially reducing the amount of silver that might have stood for delivery.  Forget rule of law in this country.  It's dead.  This illegal manipulation will go on until the Comex eventually defaults.  Obama was supposed supposed to reform Wall Street corruption and restore rule of law.  Not only has he NOT fulfilled this campaign promise, he enables the widespread corruption and looting.  Nothing is but what is not...


  1. Dave;

    Thank you for another well written piece. I stop by every day. Yesterday's PM destruction was absolutely fascinating. There was nothing to account for it other than manipulation.

    I began to think that perhaps someone somewhere had found the deus ex machina ending for our worldwide debt problem and that PM was going to return to 1971 price levels.

    The liars do what they do best.

  2. Regarding yesterday's smash in silver.....I gave up counting the amount of contracts being created and dumped on it when it hit 91K over the time frame of about one hour.

  3. “Sometimes the law defends plunder and participates in it. Sometimes the law even places the whole apparatus of judges, police, prisons and gendarmes at the service of the plunderers, and treats the victim, when he defends himself, as a criminal...But often the masses are plundered and do not even know it." Frédéric Bastiat

  4. we are at the blatant lie part of the timeline for collapse, probably past perception management point.

  5. Isn't this getting a little too much...??

    Next Leg Of The Ponzi Revealed - Foreign Central Banks To Begin Buying US Stocks Outright Starting Today

    We were speechless when we read this from Bloomberg.

    The Bank of Israel will begin today a pilot program to invest a portion of its foreign currency reserves in U.S. equities.

    The investment, which in the initial phase will amount to 2 percent of the $77 billion reserves, or about $1.5 billion, will be made through UBS AG and BlackRock Inc. (BLK), Bank of Israel spokesman Yossi Saadon said in a telephone interview today. At a later stage, the investment is expected to increase to 10 percent of the reserves.

  6. I can't help but wonder if the Fed's goal isn't to destroy the precious metals market, which it already clearly manipulates--along with the equities market, banking, interest rates, money supply, Dollar value, et cetera. If the Fed's incessant manipulation so discourages and disillusions precious metal investors that they desert the futures (paper) market, it would diminish market variables to the vanishing point. That would leave the Fed with unchallenged power to regulate, with Government approval, precious metal supply and pricing. Since Government doesn't like anything it can't control, it would offer no resistance to the Fed takeover of the commodities market and could then do away with the embarrassing charade of the CFTC. Though it would never be described as such, it would amount to nationalization of precious metals. We would then have to buy federal licenses to buy metals from -- and sell them to -- the Fed--at Fed prices--through its franchised chain of banks.

  7. Dave, this was one of your best pieces. I sent the link out to clients. Yesterday's smashing of PMs was yet another example of the economic tyranny we live with. It's truly laughable to hear Ben Bernanke say "not planning QE 3" when he's doing QE E with Europe since November. If you chart the spx at the start of QE1 and QE2 and compare it to the period since November... yes, he's QUEAZING. I don't know art but I do know pornography when I see it and the three charts look like stripper triplets on the top monkey bar. Its obscene! Anyway, we have the top banker in the US proving that he can "value," "re-Value," or "de-value" our wealth, our capital at his whim and fancy. He did this yesterday with his gold and silver "short" hit men.

    If I live in s system where a man, or psuedo agancy, or banking cartel can revalue my wealth... are they not re-valuing my labor? If they devalue my capital, aren't they stealing my labor and enterprise (which earned the wealth)???

    What is the name of the InStitution that allows one man to steal another's labor? SLAVERY. To me, this slavery is no less than the bondage of Abrahm's people in Egypt, or black kings in chains in the colonies, or the Jews and Poles in Aushwitz. It is sure not a capiatlist concept. Yesterday showed we cannot be safe and assured that our labor, capital and wealth is sacred property. More on this next week.

  8. Hi Dave,

    Not a regular contributer though a frequent reader. You state ''TIC data that China dumped over $100 million in U.S. Treasury holdings in December''
    I read it was 100 billion... Since we live in a billion and trillion world I think you mean billion. Still I would appreciate clearity :)

    1. Hugo, thanks for alerting to me to the typo. I usually only catch about 98% of them lol. I appreciate it and I hope anytime someone sees one they let me know.

      Thanks! And contribute as much as you want.

  9. Dave,

    Another well written article. I would like to point out one thing, however: regarding the chart on debt per capita, I think one should also compare that to a chart of production per capita. Some countries are more productive than others, thus can "afford" more debt per capita.

    Any idea how this take affects the message?



    1. Thanks Tony, with regard to your productivity comment, in truth that productivity metric the Govt publishes is a bullshit nunber made popular by the best economic bullshitter of all time, Alan Greenspan. No one really even pays heed to it anymore. It's as manipulated as any economic metric put out by industry or the Govt but no one cares about it because it's meaningless.

      The truth is that every month there are less people working as a percentage of the population and as a percentage of the number of people getting Government subsidy of some sort. Our debt per person is increasing at an increasing rate. This country in truth is in worse shape that Greece or any European member. The only difference is that this country can print without the approval of anyone. Each EU member can not print unilaterally.

  10. Hi Dave,

    Excellent post. Poetic even. I did have one question to stimulate thought: what is the per capita ability of people around the world to pay back their nations' debts? US citizens may owe the most, but is it more feasible for them to pay back than, say, the citizens of Greece with their debt? I guess another way to approach it would be to ask what is the per capita debt around the world compared to per capita earnings? Just a thought. Keep up the good work!

    1. Thanks for the feedback. I appreciate it. I don't think it's possible for any of the countries with on that chart to pay back their debt. We are headed for disaster globally. Let's just hope this time around history doesnt repeat and we avoid a world war.

      To specifically address the implication that maybe the U.S. can repay its debt, mathematically just with our economic output now, even if we stopped incurring Govt defificits it would take several generations to pay back the debt. Our economy on a real basis, has been shrinking for at least 10 years. Our labor force as defined is shrinking every month. Every month the ratio of those dependent on the Govt to those who produce increases. How can we possibly even slow the rate of debt accumulation down with those dynamics?

  11. Probability of central bank intervention against gold rattles Gartman Letter

    However, a note we received yesterday from a very longstanding friend and client of The Gartman Letter caught us off when it raised the very real possibility that something untoward took place Wednesday morning. Our friend, whom we've known for years and is not given to such speculation but who is at the center of such events, wrote:

    "Dear Dennis, hope you are well. Regarding yesterday's action in the precious metals, I have a different take on this than you do. As I have very intimate details of yesterday, I think it was indeed official selling. At the London fixing, an order came in to sell 3 million ounces of gold and it was explicitly ordered to be done in just a few minutes. No investor or speculator would 1) handle it this way and 2) do it at the fixing only.

    "This [has] happened this way three times in the last year, yesterday being the fourth time. Ben Bernanke had done nothing yesterday to trigger this the way it happened. I [have done] this now for 30 years and this was no free market yesterday. We will find out one day."

    We offer this explanation as it stands, but certainly it has our interest piqued. It may be idle speculation on our friend's part. It may even be wrong. But certainly it is interesting and worthy of some consideration. We shall leave it at that and we wish not to comment any further ... to the press, to clients, or to anyone else; nor shall we.

    I guess if they don't talk about it, it doesn't exist?

  12. "Obama was supposed supposed to reform Wall Street corruption and restore rule of law. Not only has he NOT fulfilled this campaign promise, he enables the widespread corruption and looting. Nothing is but what is not... "


    Obama's Wall Street

  13. Mike Krieger Asks Whether September 11, 2001 Is Our Big Lie

    Now here is a very telling clip to watch from that creep Joe Scarborough, who is probably a creation of Operation Mockingbird Here is the clip.

    Did you catch that? When confronted with the potential of Saudi involvement, this little weasel Steven Rattner (remember he was Obama’s car czar) comes out and states “I think it may fall a little bit into the category of things you just kind of don’t want to know.” Excuse me Rattner? Things WHO doesn’t want to know. I sure as hell want to know and I am pretty sure everyone else in America and world wants to know since this event is what led to a massive crackdown on civil liberties and wars all across the world. Not to mention the fact it has led to U.S. fiscal and economic ruin. What he means is that this is something the government doesn’t want YOU to know. Notice how right away he mentions how much oil the Saudis produce. This clip really exposes the mindset of the criminals that make up the U.S. social, political and economic elite.

    Then Donnie Deutch says “I don’t know where you go with this,” to which Scarborough states “I don’t think you go anywhere with this.” Go back to sleep America.

    Then there is the real kicker. They end the segment debating whether they will be summering in the Hamptons, Martha’s Vineyard or Nantucket. Laughing the whole time. Laughing at their audience for being such stupid sheep.

    ...and if that clip does not explain to you what the antithesis of honor and principle is...nothing will...bunch of weasels.

  14. Would someone please explain in layman's terms, how JP Morgan is manipulating the PM market? I.e. what it means to watch the Open Interest contracts for a future month... etc.

    Thank you.

    1. - go to that site and start reading the archives.