The Golden Truth

Friday Fraud Transitioning Into Friday Perfection

2012-01-27T11:05:00.003-07:00

Gold provided the best returns of all commodities in the past five years when adjusted for volatility, and Goldman Sachs Group Inc. says the rally will continue as options traders signal no change in the metal’s relatively low risk. LINK

I hate to beat a dead horse but I wanted to share the truth about Obama's policies with the people out there who still give him some benefit from doubt, especially as I'm sure his latest round of hot air and empty promises last Tuesday evening was probably well-received by the dopes who still have Hope. It turns out that ABC News ran a brief news report a while ago detailing how billions of publicly funded infrastructure projects are going to Chinese companies who are bringing over Chinese workers to do the work. Here's the LINK That story speaks for itself and I really can't believe Obama isn't being held more accountable for this. It certainly is a reality that is completely different from the promises on which he got elected...

Before we get to the Friday gold bug porn, I wanted to post a quick report on the new home sales number released earlier this week, mainly because the mainstream media headlines reported a small gain in new home sales from November to December. The Truth is that new home sales dropped 2.2% from December 2010 to December 2011, and that's the "seasonally adjusted" number. The actual number was 21,000 homes, the lowest since Jan 2011 and on par with the lowest monthly home sales on record. The actual number was actually below November's 22,000, so the Truth belies the headlines reported. In fact, annual sales in 2011 hit a new record low going all the way back to 1963, when the Government first started keeping records. The median and average price continues to plummet as well. Here's the LINK

One more piece of fraud. Earlier this week it was reported by a DC rag, The Hill, that another one of Obama's pet "green" energy "investments" filed for bankruptcy: LINK This one only cost Taxpayers around $118 million. Since this country's Government is currently on a run-rate of borrowing over $200 million per hour to fund operations, I guess Obama can brush this aside as only being 30 minutes worth of borrowing/printing. While this is getting zero mainstream media attention, I'd love to know how much of that $118 million was funnelled back to Obama's campaign fund...

Now for the good stuff. Below is a 1-yr daily chart of the price of gold. Those of you who are familiar with doing technical analysis on stock charts will recognize this particular chart as being nothing less than bull market full-on chart pornography. When gold breaks above $1800, we will really be off to the races. I think gold is going to make some moves to the upside that will shock most gold bears and surprise many bulls.

(click on the chart to enlarge)

Have a great weekend.

Re-Living The Fall Of Rome

2012-01-26T12:46:00.007-07:00

The Fed stating that it will keep interest rates exceptionally low through 2014 is a symbolic act, like Warren Buffett stating that he would like to pay more taxes. - The King Report

The topic for this post came to me from an exchange of emails with a friend and colleague. After he had digested Obama's pathetic excuse for an election campaign speech the other night and had figured out all of the lies embedded in the rhetoric, he made the observation that "our problems in this country are far worse than even we can imagine." The "we" being the people who actually bother trying to figure out what's going on and have moved a lot of money into precious metals based on what they are seeing.

I responded with this:

"The fact that our country is being looted like it is - and as openly as it is by insiders who see even more than "we" do - is the clearest of any possible signal that things behind the scenes in this country are far worse than anyone outside the inner circle of looters can possibly know. It's getting beyond trying to paper it over and hide the truth for much longer and that's why there's the kind of money-grab going on by the big banks like the one being done at MF Global."

If you have even a shallow knowledge of history, you know that right before any empire collapses, there is a big wealth grab by anyone in a position to do so. It's no different than what is going on now in this country. And Obama is the perfect cover for what's going on because his speech-making abilities mesmerize the ignorant, stupid and desperate who support him and there's plenty of others out there who choose to believe him out of political and societal correctness. Sorry but that's the Truth.

And the Truth of the matter is that - in a way - we get to watch "the Fall of Rome." That's really what's going right now. It's kind of cool in a way, in the context of trying to "make lemonade out of lemons." Isn't it great? JP Morgan gets to keep $1.2 billion in funds that legally belong to customers of MF Global, who knows what Jon Corzine gets besides a free pass from jail and we get the lemons Obama threw at us the other night...

Geithner Is Getting Canned

2012-01-25T18:03:00.001-07:00

I will be throwing a big celebration party when he's gone: LINK The cover story is that Obama is not going to ask him to remain if TOTUS (Teleprompter Of The U.S. - zerohedge original) gets re-elected. But I'm sure the only reason is that Obama is trying to polish up his image with respect to amount of bending over he's done for Wall Street and the amount of Taxpayer money that Geithner has transferred like a good stage monkey to the too big to fail banks.

I can honestly say that Geithner has got to be one of the dumbest, most useless high-ranking public officials I have ever observed. I hated Bush's three Treasury Secretaries, but they all were of high intelligence. Geithner is nothing more the equivalent of mafia dumb goombah meathead who does whatever the big banks ask him to do. Seriously. I also truly believe that Geithner does not have one molecule of ethics in his body.

I'm sure he'll end up being a highly paid back office clerk for Goldman or JP Morgan (maybe a fluffer for Blankfein or Dimon) as his reward for giving the big banks $100's of billions.

No Time To Say Anything Today

2012-01-25T13:41:00.002-07:00

Obviously the Fed was joke.

But, is anyone on CNBC, Bloomberg or Fox Biz talking about the precious metals and miners today? I don't watch those channels so I don't know, but I would bet good money they are not. The HUI is up 6.8% right now. If the the Dow were up 6.8% it would be up 868 points from yesterday's close. I'm pretty sure that every single TV business reporter/anchor would be doing naked cartwheels, popping bottles of Dom and talking about the new economy.

Buffet Spoons With Obama; Holder Spoons With Big Banks

2012-01-24T10:52:00.002-07:00

“Whatever people bring to us, we’re ready to haul,” Krista York-Wooley, a spokeswoman for Burlington Northern, a unit of Buffett’s Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A), said in an interview. If Keystone XL “doesn’t happen, we’re here to haul.”

I had been trying to figure out why Obama nuked the pipeline proposed by Canada's TransCanada Corp that would have transported oil from oil sands in Canada to refineries in the Gulf of Mexico. The cover story was "environmental factors." Hmmm. I don't believe that I've ever in my life heard any politician or environmentalist anywhere give a rat's ass about the eco-system in Nebraska. It turns out that Warren Buffet's railroad will potentially get the business to haul that oil now.

But check this out: "Railroads too present environmental issues. Moving crude on trains produces more global warming gases than a pipeline, the State Department said." The real reason is because Buffet sleeps with Obama and the CEO of TransCanada does not. Here's the story LINK

Anyone besides me wondering why Obama has not taken on more of an activist role in going after the big banks who have been raking people over the coals with massive mortgage fraud and abuse/breach of foreclosure laws? It turns out that Obama's hand selected Attorney General, Eric Holder, and the head of the Justice Department's criminal division, Lanny Breuer, were partners at a big law that represented a "Who's Who" of the big banks like Wells Fargo, JP Morgan and Bank of America that are the main perpetrators of the massive mortgage fraud that has engulfed our country.

A lot of people don't even know who Eric Holder is. But he was an assistant AG in Clinton's Justice Dept and the guy who wrote the pardon letter for tax-evader Marc Rich and put in front of Clinton to sign as Clinton was walking out of the Oval Office for the final time. Eric Holder is about as corrupt and sleazy as they get. Here's the story from Reuters: LINK

Next time you read about wrist-slapping State settlements with mortgage banks, know that Obama and his Justice Department are behind this selling out of justice to the Too Big To Fail, Too Close To Obama To Prosecute big banks. Funny, because Warren Buffet is going to benefit from both the quoshing of the oil pipeline AND the failure of Eric Holder to do his job. Just curious, to everyone who voted for Obama and still support him: is this what you had in mind?

As you're watching Obama read his teleprompter tonight - delivering the words with Martin Luther King verve and vigor - also keep in mind that when he turns out the lights tonight he will be spooning with Warren Buffet and his Attorney General will be spooning with Jamie Dimon.

Is America Really De-Leveraging?

2012-01-23T17:03:00.005-07:00

Reeeaaally? I've been noticing a lot of reports in the media - especially Wall Street cheerleader telecasts like CNBC and Bloomberg - that make the claim that America and Americans are de-leveraging. This particular spinmeister claim really bugs me because it's so easy to fact-check.

But it's not just the media. Zerohedge featured a report published by the consulting firm, McKinsey & Company, which makes the case that Americans are reducing their debt load. Those who went to top business schools know McKinsey as being the most sought after place to go if you want to work in a big, bureaucratic consulting firm. In this case the well-groomed MBA's who work for McKinsey have either intentionally misled their readers or can't do proper due diligence.

Let's take a look at the numbers - and therefore the truth. To do this all you have to do is go to the St. Louis Fed website. It has been obvious to me for over three years since the credit crisis blossomed and the housing bubble popped that on a combined Government + private sector basis, the U.S. has not de-leveraged. When I fact-checked the numbers, however, I was a bit surprised that the overall debt load in this country has actually increased since 2008. This, despite the billions that have been completely written off to zero by banks and credit card companies and bankruptcy courts.

But to look at McKinsey's claim, I checked the St. Louis Fed website and went to the "Debt Outstanding by Sector" link. There I find "Household Credit Market Debt Outstanding." This will include all debt extended to households, not just mortgage debt. On Jan 1, 2008 this number was $13.891 trillion LINK. As of July 1, 2011, the latest monthly number available, the amount outstanding was $13.21 trillion. So yes, there has been a slight reduction in household debt. But a significant portion of this slight debt reduction comes from banks transferring that household debt to the Fed and the Treasury. I can't readily quantify that number but I would bet good money that if you added that debt back the truth is that households really haven't de-leveraged but shifted the burden to future household generations.

The other main area of debt I like to look at, and this does not include total corporate debt, is financial sector debt. I like to look at this because, yes, the financial sector has reduced its debt load over the last three years. The debt load per the St. Louis Fed for the financial sector declined from $16.4 trillion in '08 to its current $13.7 trillion LINK. HOWEVER, everyone needs to keep in mind that a big portion of the amount reduced was transferred directly from the banks to the Treasury, courtesy of Obama and Tim Geithner (yes, Bush would have done the same thing and so would have McCain, et al). Please do not overlook this fact. In fact, it can probably be shown that a meaningful percentage of that debt transferred to the Government was debt related to Households. Therefore, it's not clear that the Household sector reduced its debt at all - it was just shifted to the Government. Rearranging the deck chairs on the Titanic does not change the outcome.

Finally, there's the Government. Over the same 3-year period, which transitioned Bush to Obama, the Government debt increased from $9.4 trillion to $14.8 trillion LINK. And right now we know it's around $15.3 trillion. FURTHERMORE, you have to include the roughly $7 trillion in Fannie Mae and Freddie Mac debt assumed by Obama/Geithner AND the GMAC debt these two idiots took on. I don't have a number handy the GMAC debt so I'll leave it out. THEREFORE, the total amount of direct Government debt outstanding is over $22 trillion (FNM/FRE debt is not included in the Financial Sector numbers, in case you were wondering). Again, my analysis does not include the nonfinancial corporate debt, which has increased quite a bit over the last three years: LINK

So, good people at McKinsey, where's the de-leveraging you are talking about? The numbers clearly show that, not only is our country NOT de-leveraging, the amount of total debt outstanding in the economy/system as a whole is starting to accelerate at an accelerating rate. I don't know about anyone else, but I find these numbers horrifying. The only thing more horrifying is that fact that these highly paid, well-trained dweebs at McKinsey do such crappy work. Then again, studies have shown that monkeys can become well-trained too...

Got Silver? An Overlooked Factor That Will Affect Supply This Year

2012-01-20T11:57:00.003-07:00

Although the Bureau of Economic Analysis (BEA) reports that general business activity in the United States has recovered its pre-recession levels, no major independent economic series confirms that circumstance. Only the BEA’s overstated and heavily-politicized gross domestic product (GDP) measure makes that claim. December readings on real (inflation-adjusted) retail sales, production and housing all showed patterns of slowing growth or contractions, either month-to-month or year-to-year, with levels below pre-recession highs. - John Williams, Shadow Statistics

Silver is having a nice move higher today. Those of us who trade it on a daily basis have been of the view that the trading action is indicative of "coiling" action, in which sell-offs are bought greedily by the buyers who understand how cheap silver truly is. Today's action is a partial "uncoiling," as buyers are buying silver through resistance levels and short-sellers - like JP Morgan - are covering their shorts.

I have to say with utmost sincerity and experience as a trader that anyone shorting silver at these levels - and with the underlying fundamentals supporting substantially higher price levels - is either a complete trading novice or a complete idiot with a wish to lose a lot of money.

Of course, one of the technical factors that will drive silver higher for awhile is the money raised by Sprott to buy 10,000,000 ounces silver. Although they have already accounted for the silver on their NAV website, it will be interesting to see how long it takes for the silver to actually be delivered. Ted Butler has issued a comment in which he thinks that this time around delivery will made quickly, as Sprott and Embry were quite vocal about how long it took to get delivery last time around. Based on everything I see, hear, read and experience as a trader with regard to the silver market and readily available supply, I respectfully disagree with Mr. Butler.

The United States produces about 35 million ounces of silver per year. Already U.S. Mint silver eagle sales are running at a 60 million ounce run-rate. This will undoubtedly slow down, but I think it's safe to say that silver eagle investment demand alone will easily exceed the 40 million ounces sold in 2011 and thus the mining supply from this country in 2012. Add on to that the 10 million ounces Sprott is contracting to purchase and those two buying entities alone create a big supply deficit in this country.   Of course, silver is mined globally and, based on reports out of London, the international demand for actual, delivered physical silver is enormous and waiting times for delivery are stretched.

There's one of other factor the I'm surprised has not been mentioned in silver market commentary. Hecla Mining, one of the largest pure silver miners in the world, had to shutter one of its mines in order to comply with safety regulations and clean out the access shaft. Although this is a temporary situation - Hecla managment has said that this will reduce its silver production from 9 million ounces in 2012 to 7 million ounces.    So the mined output of silver in the U.S. will be around 33 million instead of 35 million ounces.

It would be a big mistake to assume that this 2 million ounces taken of the market this year will not affect the supply/demand situation, reducing supply and therefore adding to the demand forces that will force the price of silver higher this year.   A lot higher...

Have a great weekend.                 Etta James Rest In Peace (1939 - 2012)

Bank Of America Earnings Comedy

2012-01-19T09:09:00.001-07:00

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 LINK

John 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?

Wells Fargo Earnings?

2012-01-17T11:50:00.003-07:00

U.S. debt and deficits are running over $1 trillion per annum and amount to over 700% of Federal revenue. And just last week, we learned that the monthly budget deficit climbed to $85.97 billion in December, from $78.13 billion in the same month a year earlier. The only relief from such debt will be a default on the part of the United States. A sovereign U.S. default would be pernicious for the dollar and massively bullish for gold. - Michael Pento, on King World News

I see Wells Fargo's earnings report was greeted by much fanfare by Bubblevision and the mass media slavishly followed by the hoi polloi. I was curious to see if I could figure out where Warren Buffet was fudging the truth about WFC's earnings, so I took a quick peek at the 8-K filed with the SEC this morning.

Let me qualify this by saying that I only looked in the obvious spots - of course ignoring the fancy marketing charts and spin data attached to the 8-K - to see where I could deflate WFC's inflated earnings report. I don't have time to go through WFC's numbers with a fine tooth comb, but just looking at the hot spots of GAAP manipulation will show you why WFC stock makes a better short than long.

First, versus 2010, WFC reduced its allowance for credit losses from $23.6 billion in 2010 to $19.6 billion in 2011. If they had just kept that number the same, WFC would have reported break-even results for 2011 - i.e. no net income.

Here's why I believe that a scrutinizing analyst should look at WFC's earnings report but use the same allowance for loan losses as in 2010: WFC actually increased the number of loans 90 days or more past due to $22 billion, from $18.5 billion in 2010. That's a 19% increase in non-paying loans (mostly mortgages). We also know that these banks are letting a significant portion of their delinquent mortgages "slide," without classifying them as delinquent or in default. So assume that WFC's number is actually larger than $22 billion. On that basis alone WFC's allowance for losses should have been closer to the $23 billion reported in 2010 than the $19 billion they reported this year

Furthermore, WFC has $37 billion in underwater "pick a pay" mortgages. These are the notorious "pay option ARM's" that allow the borrow to skip payments and that payment is then added on to the outstanding loan balance. These mortgages get bigger while the underlying housing collateral continues to shrink. Most of Well's pick a pays are in California and Florida. I think you can see that these mortgages will eventually be a big source of losses for WFC and WFC should therefore be reserving for losses associated with these mortgages at a faster rate, not a slower rate.

Even uglier, WFC as $106 billion in home equity loans. 35% of these are in Californian and Florida. When a 1st mortgage is, best case, just barely covered by the value of the underlying home, it means the home equity debt attached to that home is worth ZERO. If Warren and WFC were to be honest with the market and investors, the value of that home equity portfolio would be written down by at least 50%. That's $56 billion in losses. But since "new" GAAP and the "new FASB" allows these banks to hope and pray for a housing market miracle, lenders like WFC get to kick the can down the road and pretend that their home equity portfolio is really worth $106 billion. Anyone want to take Wells' side of that bet?

My point here is that Wells should be much more aggressive in recognizing allowances for credit losses. But since our ponzi system allows them to report b.s., it's b.s. we get when these banks reports earnings. Needless to say eventually Warren will call up his good buddy Barack Obama and see to it that the taxpayer gets the tab for the eventual mortgage bloodbath on WFC's balance sheet. But in the meantime, please understand that the earnings reported by Wells Fargo today were total bullshit.

Here's a link the 8-K if you would like to do your own research: LINK

And bear in mind, I only had time to look at obvious areas of GAAP manipulation. I'm sure if you combine today's filing with the 10-K and look at the off-balance mess in the footnotes, you will conclude the Wells probably should have reported an accounting loss.

Yes, The Broncos Were Humbled + Romney's Top Contributors

2012-01-15T11:08:00.001-07:00

Just as Wall Street and the Government like to release bad news on 5 p.m. on Friday, when the markets have been closed for a few hours globally and everyone is focused on the weekend, I offer up my congratulations to the New England Patriots today, who thoroughly trounced the Broncos.

Having said that, I feel good about next season, as it looks like Tim Tebow has shown the ability over the course of the season to learn the pro-style passing game. What all of his critics fail to mention as they hurl unfounded insults at him is that, not only was he tossed in as the Bronco starter at halftime of the Bronco's 5th game, but because of the player strike he was unable to work on his game with his teammates during the off-season and he had very little practice time with the first team offense until preparations were being made for the team's 7th regular season game. The Broncos were 1-4 when Tebow took over. Denver has the 2nd youngest team in the league and it will be a good bet that they'll be back in the playoff picture next season...

I thought it would be interesting to point out Romney's biggest contributors so far, as sourced from zerohedge.com. Goldman Sachs is number #1, followed by Credit Suisse and Morgan Stanley rounding out the top 3. Bank of America is #7 and JP Morgan rounds out the top 10. Five of his top 10 contributors are Too Big To Fail Banks. Goldman is #1 contributor for both Romney and Obama. Goldman's actions remind me of the Rothschild family's actions in World War 2. The Rothschild's - Europe's extraordinarily wealthy Anglo-Jewish family - financed BOTH the Third Reich/Germans and the Allies (the good guys). Most people are unaware that they were bankers to Hitler.

It just goes to show that it doesn't matter what political party is in "power," the real power behind the politicians are the ones who throw the most money at them. Goldman doesn't care which party is in the White House as long as they have purchased control. Quite frankly, if Obama really truly stood for the principles on which he campaigned, he would not accept money from Wall Street. Of course, we know Romney has already revealed himself as a true whore early on. Democracy is dead and has been for quite some time...

It's Broncos/Tebow Time (see below); But First, Don't Believe The Hype

2012-01-13T11:39:00.004-07:00

Just got an e-mail from a still-wealthy friend in the house remodeling biz--he says vendors are crying for business and looking for jobs for their workmen--product can be bought cheaply - longtime market colleague

about housing. Despite the ebullience and bullishness surrounding the real estate/mortgage sector, the facts belie the spin. There is a lot of yield-starved hedge fund money flowing into distressed mortgage securities - there was an article on Bloomberg News today about how the (in)famous John Paulson is pouring money into and doubling down on his big mortgage/real estate bet. Judging by the ass-kicking his funds took in 2011, and observing the facts, I would continue to bet against him. I know someone in Denver who runs a commercial real estate investment firm who's been selling down his portfolio. He referred to the hedge fund pools of money buying them from him as "dumb money." Here's a nice warning from Moody's about jumbo mortgage defaults:

With home prices likely to slip further in 2012 the risk of jumbo mortgages, yet to refinance out of security pools, will be at a growing risk of strategic default, Moody's Investors Service said in a forecast Thursday.

Here's the article: LINK I personally know of a few people who are sitting in their McMansions waiting for the bank to pull the foreclosure trigger. The homes are hopelessly under water and housing values will continue to decline. I really don't know how John Paulson figured out to short the whole sector back in 2007/8. Maybe he's the hedge fund version Rain Man, and now he's gone off the deep end after getting buried in big long positions in BAC and Citi. Speaking of Citi...

Again, actual data and evidence shows that the real estate/housing market - and the mortgage paper financing them - continues to plummet: "Chase mortgage servicing expenses near $1 billion." This is up from expenses of only $59 million from the previous quarter. Here's the LINK In their Chase says they expect further declines in the housing market in 2012. Recall that there has been a big slowdown in actual foreclosures - not because people started paying their mortgages - from lawsuits and because banks slowed down foreclosures significantly to fabricate earnings and shore up regulatory capital. But losses from bad real estate loans will become a big theme in 2012 and these banks will have to start foreclosing on again the growing number of truthfully non-performing mortgages. And these articles are not something you'll see reported in the mainstream media. Instead you'll read about how big investors like Paulson are putting even more money into this crap...On to the fun...

Now, the Broncos are in the AFC Divisional Playoffs and face a heavily favored New England Patriots...well, Dave from Denver has your Tom Brady for ya right here:

GO BRONCOS

GOLD BLESS!

Two and half months ago the Broncos were in the suck for Luck sweepstakes - local Denver sports radio host, Mark Goodman

Interesting Observation On Mining Stocks

2012-01-12T12:48:00.002-07:00

I just noticed to day that two days ago Blackrock filed a 13G with the SEC, reporting a 10.4% ownership position in Agnico Eagle (AEM) stock. We won't know for sure if this is part of a larger wave of big institutional money flowing into the extraordinarily cheap mining stock sector, but just like hedge funds are "monkey see, monkey do," big institutions tend to run in herds...

Taxpayer Money For Mortgages; More Foreclosures in 2012

2012-01-12T11:15:00.000-07:00

"Mitt Romney is a conservative - just like George W. Bush is a real cowboy"

- Unknown source

I need to unload two huge sources of irritation today based on reports that I guarantee you will not be presented on Fox News, Fox Business, CNBC, Bloomberg, CNN etc.

I sourced these from an excellent source for housing market news, http://www.housingwire.com/. I mentioned the other day that FRE had implemented a program to enable those without a job to go for up to 12 months without making a mortgage payment. While the thought of this is nice, make no mistake, the expense of this will be funded by you, the Taxpayer. Now Fannie Mae has implemented the same program. And, all you need for the first six months is a phone call to your mortgage servicer. Here's the LINK

So now, if you lose your job, you can get jobless benefits for up to 2 1/2 years and if you have a Fannie or Freddie funded mortgage you can live in your home for free for 12 months. Maybe in Tim Tebow's spiritually ideal world of charity for anyone in need this is a great way to run society. But the expense of both the jobless claims and the housing welfare is something that our country and taxpayer base just can not afford. But just like the $278 million per hour that the Obama Government borrows every day, why not spend now to get votes and worry about paying for it later. This mortgage "forbearance" program is nothing more than another layer being added to the Government's welfare State. Given that this is a program being implemented without much in the way of a public announcement, you need to ask yourself if you would have voted for Obama knowing that this was coming...

The second item of agitation is the report that FICO, the most widely known assessor of credit scores, is out with a warning that it expects student loan and mortgage defaults to rise in 2012: LINK Given that we know that the evaluators of credit ratings are always way behind the curve when it comes to warning about debt payment problems and impending bankruptcy, I would suggest that student loan and mortgage defaults are already a lot higher in the "shadow" credit system. I define "shadow" credit system as the situation where banks and other lenders are giving borrowers several months beyond what the established accounting rules call for in declaring a borrow to be "in default." I know for a fact the banks are playing this game with mortgages and I have no reason to assume that student loan servicers are not doing the same thing:

Evidence is mounting that student loans could be the next trouble spot for lenders, said Dr. Andrew Jennings, chief analytics officer at FICO. A significant rise in defaults on student loans would impact lenders as well as taxpayers, who could be facing big losses due to these defaults.

Quietly, the amount of student loans outstanding and guaranteed by the Taxpayers is now larger than the amount of credit card debt outstanding. The article linked puts the number at $750 billion, but I believe that the actual amount now per the latest consumer credit report is even larger - and its growing at an accelerating rate because many people are taking out student loans and going back to school when they drop out of the labor force because they can't find a job. Even worse, a large majority of students now graduate with a massive debt load and no way in hell of ever hoping to pay it off. A friend of mine who is a professor at Denver University Law School said that 90% of the class graduating last year did not have jobs.

So the public debt load continues to grow at an increasing rate on a daily basis and the ability to pay off this debt declines - at an increasing rate. Which brings up another point. The reported amount of Federal debt outstanding - and the amount used for purposes of calculating the debt limit test - is $15.2 trillion. However, this number is incorrect. There is $7 trillion in Fannie/Freddie debt guaranteed by the Government, plus roughly $2.5 trillion of "special" Treasury bonds in the Social Security trust plus, and most people are unaware of this, a few $100 billion in guaranteed GM and Chrysler loans (I don't know the exact number). So the next time you see a debt to GDP number of 100% for the U.S., know that the golden truth is that the real number is at least 160%.

The Debt Limit Ceiling and Insanity

2012-01-11T13:01:00.006-07:00

"Insanity is doing the same thing over and over and expecting different results." - Ben Franklin, Albert Einstein, et al...

The debt spending by the Government - and even worse, the acceptance of it by Taxpaying Americans - is completely insane - by any definition of the word. But first I wanted to comment that yesterday I had speculated that the cost of Bernanke's housing market support proposals sent to Congress a week ago would cost Taxpayers in the range of $500 billion to one trillion dollars. Barclays is out today saying that Bernanke's Fed alone is likely to spend $500 - $750 billion buying mortgages. But Bernanke is also asking for Obama to chip in Taxpayer money. It remains to be seen just how much QE + deficit spending will total on this next round of economic "stimulus," aka big bank bailout confetti. Here's the report from Bloomberg this morning: LINK

I don't know about anyone else, but the situation surrounding the latest request by Obama to raise the debt ceiling had me a bit confused. I had thought that the deal reached in August ultimately raised the ceiling to $16.4 trillion. So I researched it a bit because the media is making it sound like what Obama is asking for is in addition to what was done in August. So here's how it works: In Feb 2010 the debt ceiling was set at $14.294 trillion. On August 2 it was raised to $14.694 trillion so that the Government didn't have to shut down until a new ceiling was reached. Then in September, a deal was reached that put the ceiling at $15.2 trillion but would ultimately take the debt ceiling up to $16.4 trillion, contingent on budget cuts. So right now the Treasury is at the $15.2 trillion limit and Obama has to get Congressional approval in order to utilize the final $1.2 trillion of capacity.

What's getting lost in all of this is that since August 2, the Government has borrowed $200 billion per month ($15.2 - $14.2 divided by 5 months). This is insane. The debt limit agreement in September was intended to take the Treasury thru 2013. Theoretically by then the Government was supposed to agree on massive budget cuts. I would bet my last silver eagle the budget cuts will never happen. In the meantime, the Government is borrowing at a record rate, spending at a record rate and tax revenues - the ultimate indicator of economic health - are coming in lower than was forecast when the fiscal 2012 budget was proposed.

Just think about this number for a minute: the Federal Government is borrowing at a rate of $200 billion per month right now. That's $278 million per hour in a 30 day calendar month. That is insanity. Based on that, the math from the original debt limit deal is tragically wrong and Obama and his happy Government spenders will run out of borrowing capacity by the end of June 2012. That's insane. California is a great microcosm and reflection of the fiscal insanity at the Federal level. Yesterday an hour and a half after the stock market closed, California announced that its current fiscal budget deficit is $2.5 billion wider than was forecast 6 months ago. I honestly don't know how California's Government stays open. Here's the LINK

The situation in California can easily be extrapolated to the national level. Despite the smoke and mirrors being used by the Government number crunchers and readily reported by the mainstream media, this country will not stop borrowing to spend until the rest of the world no longer accepts the dollar. You are insane if you don't think that can happen - just ask anyone who is familiar with the collapse of the German mark in 1923...

Ron Paul had a very impressive showing in New Hampshire. He finished 2nd with 23% of the votes. In 2008 I think he had something like 2% of the votes. Romney was expected to runaway with the NH primary anyway. Despite the "Live Free or Die" slogan on the NH license plate, it seems that voters in NH love insanely corrupt free-spending liberals masquerading as Massachusetts Republicans. That's insane too.

Gold and silver are putting on an impressive recovery from their post-MH Global manipulated collapse in December. Yesterday I mentioned that Jim Sinclair stated in an interview that "something is going on behind the scenes that is not yet evident" and that it was being reflected by quiet buying in the gold and silver markets. I would concur with this analysis and right now every sell-off intra-day in gold and silver is being bought.

If you don't think that the Government and the Fed are going to have to print a lot more money in order to feed the $278 million per hour borrowing - and to prop up the de facto insolvent banking system - you are crazy. If you don't start moving as much as can into gold and silver (and the extraordinarily undervalued mining stocks), you are insane.

Stand-by For Massive Housing Subsidies

2012-01-10T12:04:00.008-07:00

What you have is a picture of broken economic systems that are operating on life support," Mr. Prince says. "We're in a secular leveraging that will probably take 15 to 20 years to work through and we're just four years in. - Robert Prince, co-chief investment office, Bridgewater and Associates

I mentioned yesterday that the head of the NY Fed, Bill Dudley, was going around lobbying for fiscal and monetary "stimulus" for the housing market.   Really in effect what this "stimulus" would end up being is a bailout for the Fed's member banks who still have massive exposure a housing market that gets worse by the day. Already Freddie Mac is letting deadbeat borrowers go a year without making mortgage payments: LINK People, the cost of this is coming from YOUR pocketbook.

The problem is actually pretty simple: too many homes were built during the last decade in response to the demand created for homes, which was enabled by the money printing and lending policies spear-headed by Alan Greenspan and later proliferated by Ben Bernanke.   The political leaders signed off on this whole-heartedly because it meant re-election votes. But the housing bubbly frenzy created a huge illusion of demand that was never there. Even worse, it put millions of people into homes for which they over-payed and could not afford to keep.

So now we have a system that has substantially more homes in supply than there is rational economic demand. This economic imbalance will extend for at least a decade, probably longer. This housing stock was financed with debt, a large part of which remains on bank balance sheets and trillions of which are guaranteed by you, the Taxpayer, in the form of $7 trillion in agency debt issued by agencies that are now owned outright by the Government. The golden truth is that we are looking at the slow-motion collapse of the housing market in terms of true valuation and the massive defaulting on probably close 1/3 of the $7 trillion in Taxpayer funded agency debt and $100's of billions of private-label debt sitting on bank balance sheets or guaranteed by bank servicing companies. This is a serious disaster that was made worse by the monetary and fiscal programs enacted by Bernanke and Obama in 2009.

Now the same people who are responsible for creating the massive problem in the first place are now pushing hard to have "new" policies enacted that will help bailout the big banks who are sitting on $100's of billions of real estate and housing exposure, rendering them de facto insolvent even before figuring in other bad assets like foreign Government and bank exposure and off-balance-sheet OTC derivatives.

Six days ago Bernanke sent a letter to Chairman of the House Financial Services Committee in which he stated that the housing market was a roadblock to economic recovery and in which he offered proposals for "stimulating" the housing market. His primary solutions would entail mortgage principal reductions and Government subsidized refinancing programs. Of course Bernanke's fancy paper does not identify at all the cost of implementing his proposals. I would suggest that looking at the amount of delinquent and defaulted but not foreclosed debt at banks and the mortgage agencies would suggest that ultimate cost of Bernanke's proposals would fall somewhere between $500 billion and one trillion.   We know from "trial balloons" that have been floated that the Fed has been looking at implementing a $500 billion mortgage purchase program. Now it's Obama's turn to throw hard taxpayer money into the bank bailout kitty.

Here's a copy of Bernanke's letter: LINK

Let's face the golden truth. The housing market is part of a larger overall debt accumulation problem in this country that will take decades to fix, just like it took 6 decades to create the problem. If the free market is allowed to do what it does, the problem will fix itself over time and the ultimate consequences and destruction to our system will ultimately be a lot less severe than if the Federal Reserve and Government take action to further push the problem into the future.

The strategy being floated by the policy makers will do nothing more than place a lot more of the burden of this problem on those left in the middle class who pay taxes, unfairly subsidize those who made poor borrowing decisions and, worst of all, bail out the banks and bankers who created the problem.

Jim Sinclair did an interview today in which he said, in reference to the move in gold and silver overnight, that "something is taking place [behind the scenes] that is not obvious." He referenced "quiet" buying going on in the metals. I have noticed a lot of volume coming into the extremely undervalued junior mining shares yesterday and today. But, I would suggest that part of what is taking place is that the savvy investors who understand the difference between gold and printed fiat currency are moving printed fiat currency into the metals ahead of what is going to be big year for QE and fiscal spending, deficits and Federal debt accumulation.

Keep The Faith

2012-01-09T13:56:00.003-07:00

"We'll never let Tebow beat us passing the ball" - Fabled Pittsburgh Steeler defensive coordinator, Dick LeBeau, before the Denver Bronco/Pittsburgh Steeler playoff game

I'm having a bit of trouble focusing on something interesting and informative to write about today, not that I'm saying my posts in general are interesting and informative, as I'm still basking in the warmth of Denver's huge upset win yesterday over the Pittsburgh Steelers. Needless to say it was Tim Tebow's passing heroics that proved to be what beat the Steelers...keep the faith.

Having said that, I wanted to throw out here that while everyone is watching the day to day vicissitudes of the situation in Europe, the U.S. leaders are quietly putting together a gameplan for rolling out a massive fiscal and monetary stimulus program. "Fedwire," a Wall Street rag that puts out gossip about the goings on at the Fed reports that one of the newest voting members of the FOMC is going to push hard for more QE: Fedwire says keep an eye on Williams, who is handy with a printer - here's a the report from FT Alphaville, the handy blog of London's Financial Times: LINK

Second, head of the NY Fed, William Dudley, who also happens to be a former Goldman Sachs partner, has been promoting policy that calls for the Government - i.e. the Taxpayer - to pay for a massive subsidization of the housing industry. Not sure that you'll read about this in the U.S. mainstream media, but the Financial Times has written a detailed article: LINK (you may need to sign up for free login to access the entire article).

The fact of the matter is that the first round of massive bank bailouts - TARP - was a de facto massive Taxpayer bailout of the housing industry via the monetization of all of the fraudulent and bad loans made by the likes of Countrywide, Washington Mutual, Wachovia, Wells Fargo, JP Morgan, Citibank, Lehman, Merrill Lynch and Bank of America. Needless to say - and as predicted by this blog and others - the first few trillion served no purpose other than to fund the continued issuance of huge Wall Street bonuses. So now Wall Street, led by Bill Dudley, is back for more. I would bet my last gold eagle that sometime before this summer we will see both Obama-sponsored legislation that transfers several billion from the Taxpayers to the banks and a massive program by the Fed to buy mortgage paper from the Too Big To Fail Banks. This program, like the previous bad asset purchase program by the Fed, will be back-stopped by the Treasury. After-all, Tim Geithner is of course Wall Street's (and Bill Dudley's) official fluffer.

You can look up the definition of "fluffer" HERE - Definition of Fluffer I was actually surprised that Tim Geithner's picture was not part of the definition. But keep the faith, Dick Le Beau and everyone else, that's why we play the game and one day Geithner's picture will be the poster definition of "fluffer"...

I Got Your Pittsburgh Steelers For Ya In My LEFT Hand

2012-01-06T14:05:00.003-07:00

GO BRONCOS

GOLD BLESS!

A Couple Ominous Signs

2012-01-05T11:42:00.004-07:00

Of course, there are many. But first I had to get this off my chest, after reading the report that Jon Corzine and his wife were at some party in Paris shortly before MF Global collapsed and they announced that they were looking for a country French chateau to purchase. Perhaps the bankruptcy trustee, who's law firm counts JP Morgan - the primary non-customer creditor to the bankruptcy - should take a look at all cash flows that flowed from MF Global to Jon Corzine. It's a given that will never happen. But it occurred to me that one of the primary co-conspirators in this whole situation is CFTC Chairman Gary Gensler. In my book he is a total failure as a Government regulator and enforcer of laws. He is an employee of the public and should be fired. As a human being he is a loser. Quite frankly, in my book Gary Gensler's status as a human being is between whale shit and the ocean floor. And I extend this to AG Eric Holder for not initiating an independent investigation into this whole mess and to Obama for not forcing Holder to do so and for not removing Gensler from his position. I guess that in and of itself is a very ominous sign for our system and way of life.

As for an ominous economic sign - one which points toward even higher Government spending deficits and debt issuance - this was the headline on the front page of today's Denver Post: Medicaid rolls in Colorado at "all-time historical high" in November. This is not a good sign for the country as a whole because Denver has one of the stronger regional economies, lower unemployment rates and an economy that is not dependent on heavy manufacturing. When something emerges as a demographic trend in Denver, it usually precedes the same trend countrywide:

We've had a mushrooming of clients," Sue Birch, director of the state Department of Health Care Policy and Financing...There are just so many people who have lost their jobs — even those in my family who had really good jobs," said Dolores Rodriguez, while waiting for assistance at Denver's Westside Family Health Center

Here's the article: LINK

The Government is going to have to either cut back on other big areas of spending to maintain funding of entitlement programs like Medicaid and the perpetualized jobless benefits or it's going to have to resolve to create even larger deficits and raise the soon to be reached debt ceiling limit even sooner than we pessimists expected. Any way you look at it, it's an ominous sign and it creates even more fuel for the next the leg higher in the precious metals.

One other ominous sign I wanted to point out. And this is a statistic that is generated by Mastercard, not by the Government and industry association Phd data manipulators (hint: the ADP payroll number released today was total bullshit). It turns out that gasoline consumption during the last week of 2011 sank to its lowest level on record - at least the records kept by Mastercard. Here's the story as reported by zerohedge: LINK I can't think of a better economic health indicator than energy consumption - either electric power consumption or fuel sales. Speaking of electric power consumption, that has taken a nose-dive this year as well. You can see the graphs in this excellent commentary by Mark Lundeen: LINK

I wanted to finish today by re-emphasizing a point that I've been trying to hammer home for quite some time. I was discussing the markets with a friend, who commented that "all eyes are on Europe." My response was, "yes, all eyes are being deflected by Europe when they should in reality be scrutinizing the the ongoing collapse being hidden by the Government's Orwellian fog in this country." Got gold?

Happy New Year (LOL)

2012-01-04T12:05:00.002-07:00

This is a crime on the same level as that of Bernie Madoff, only it involves an ex-Senator/Governor, the two most prestigious Wall Street investment banks, the CME, the CFTC, politicians, judges and even the Obama Administration. That this crime is going unprosecuted and the main perpetrator, Jon Corzine, is not waiting his justice in jail, is the latest, largest and most obvious signal that the United States as it was created and has existed is in full-scale collapse - Dave in Denver on MF Global

On that cheery thought, Happy New Year!

By now most of you have read the story about how MF Global sold assets to Goldman Sachs and JP Morgan "cleared" the trades right before MF Global filed. JP Morgan refuses to give up the funds that it is holding from these trades. Please keep in mind that the bankruptcy trustee could force JP Morgan to relinquish these funds but is not. Coincidentally (wink wink) JP Morgan happens to be a significant client of the bankruptcy trustee's law firm. Let's see: Jon Corzine was the CEO of Goldman Sachs and his number one lieutenant was Gary Gensler, who happens to be the chairman of the CFTC, the regulatory body that oversees firms like MF Global. Jon Corzine also happens to have been Vice President Biden's financial adviser and has spent plenty of time with Obama in the Oval office. See where this is going? This is grand scale theft in the billions and it is being enabled by those who were entrusted to enforce the laws and prevent this from happening, all the way up the President.

In other words, the United States is now a full-scale banana republic and we are watching the full-scale historic collapse of an Empire. From an intellectual standpoint, I find this thoroughly engaging and fascinating to observe. Fortunately I have come to the conclusion that there is nothing that can done about it so I've decided to look at it with a healthy dose of humor - the type of humor that is derived from the appreciation of the absurd. Try to enjoy your life as much as possible and don't let the full-scale theft and corruption going on agitate you. There's nothing you can do about it and Obama has made it crystal clear that not only is he not going to try and CHANGE it, he's actually become part of it. Period.

*************

Still wanna believe the garbage that Obama, Geithner, Bernanke and Wall Street are preaching about an "economic recovery?" To begin with, I'm sure many of you have already seen the articles published that detail how retail sales from Black Friday on through the end of the year were not nearly as strong as the hypesters were projecting and reporting. Even more disturbing, it now looks like a lot of the buying was nothing more than "retail therapy" and it now appears as if there will be a record number of returns. I thought I had saved an article link but I guess not. You can google the topic to see for yourself.

But this is even MORE interesting and it comes from a grass-roots source. An acquaintance of mine works for the IRS and sent me this email the other day:

I wanted to tell you a little information concerning taxes that is not on anyone's radar (sort of like a stealth aircraft of information). Since about late 2008 early 2009, the requests for payment plans to the IRS has tripled. People out there just don't have the money to pay their taxes in full, so they need a payment plan to keep IRS at bay. Even with a payment plan in place, the interest on taxes due keep adding up and the penalties for not paying on time and not paying in full keep adding up, keeping taxpayers in debt to Uncle Sam, meaning they have less disposable income to spend and invest meaning less money for the economy to grow. I have seen the requests for payment plans to the IRS triple with my own eyes...

So there you have it. The economy is bad, it's getting worse and the Government will have no choice but to print a lot more money. Like trillions. Got gold?

Bubble/No Bubble - And Happy 2012

2011-12-30T10:19:00.006-07:00

I don't know that it happens right away, but I think the "snap-back" move we get in the sector will shock a lot of people, even long-time metals and mining stock participants.

I have never ever in close to 30 years of observing, studying and participating in all aspects of the financial markets seen an investment opportunity in which the fundamentals that support the undervaluation of an investment sector permeate every aspect of the system AND in which these fundamentals are right out in the open for everyone to examine - and yet, the same fundamentals and evidence are ignored by the vast majority of investors and analysts. It's beyond stunning. It's also the unequivocal exact opposite of the conditions that would support the view that the precious metals sector is in a bubble. Right? When a sector is in a bubble you have almost EVERYONE in every part of the investment universe looking for literally insane reasons to justify paying a ridiculous valuation level for a stock/asset. "Clicks and eyeballs?" Please. Facebook is a bubble. In fact, we are several factors removed from even thinking about the term "bubble" or "perma-bull" in connection with the precious metals sector. The facts and evidence just do not support the assertion, not the least of which is the FACT that less than 10% of the investment universe has ANY money invested in the metals sector. But that will change over time and the price levels we are evaluating for gold/silver/mining stocks today will be a mere fraction of the level at which these investments will be trading once the term "bubble" can be justifiably discussed in connection with this sector.

I was on a blog yesterday linked by a commenter that referred to James Turk and John Embry as "perma bulls." So I started thinking about that in the context of the technology/internet and finance sector perma-bull phenomenon that has littered CNBC etc for most of the last 12 years. There is a significant difference: the perma-bullishness we saw during the internet/housing/finance bubble was NEVER NEVER NEVER supported by justifiable fundamentals. Remember "clicks and eyeballs?" Ask Clusterstock's Henry Blodget about that because that was his mental masturbatory slogan. There were never any real true economic fundamentals underpinning any of the actual investment bubbles that destroyed our system. Moreover, the valuations became insane. There were internet stocks trading with $10 billion market caps that never had one dime of revenue or owned balance sheet assets that could be logically valued. What the hell is "intellectual" capital? And banks? If we were to apply the accounting standards that were used 30 years ago, every too big to fail bank would be reporting millions in losses every quarter and would have a balance sheet net worth that goes negative by 100's of millions. I've done that latter exercise and have posted the proof on this blog. What we see on CNBC is perma-bullishness.

But we don't get to see the Turks and Embrys on CNBC. The media does not want the masses to start thinking about the Truth. And the "truth" is that the fundamentals underpinning the precious metals as "value" investments would be a Ben Graham wet dream. Not only that, but the true fundamentals, if thoroughly analyzed and understood, would dictate that every money manager and investor out there should dump all of their tech and banking stocks and move everything into the metals and mining stocks. That's how undervalued the precious metals sector is in relation to the fundamentals. And I'm not going to run down the list. Sort through this blog and every other website that discusses these issues ad nauseum. Is the fact that Embry and Turk are willing to stake their reputation by continuously pounding the table on the sector mean they are perma-bulls? It would but ONLY if the fundamentals did not justify the assertions.

Gold has in no way topped. The gold reaction per day in terms of percentage was nothing whatsoever. We have in no way reached the level called “thrilling with bullish bliss” common of a top. Every dollar we have won has been paid for in blood. All the short of gold wunderkin Masters of the Universe will have to be destroyed before gold is fully priced. The community, if you can still call it that, is in a psychotic episode that is soon to end. - Jim Sinclair

Love him or hate him, Sinclair has been as right as anyone in calling the path of the precious metals bull. And although I believe his public price target for gold is too conservative, as it has been over the past 10 years, he's playing the high probability part of the game as he learned it from his father's friend, Jesse Livermore. Sinclair's public target for now is $4500. He will be wrong, but only because he is too low. His level is 99.9% certain. If gold goes beyond that level, we will not care how high it goes because it also means that life has gotten to be quite painful.

I'm taking the bus and you will not see me at the pancake social tomorrow!

On that cheery note, I thought I would leave you all with what I think is the funniest commercial this holiday season. I started thinking about this ad playing tennis yesterday and I dropped 5 straight games after going up 2-0. (I won 7-6 in a tiebreak lol):

The Bottom Is Either Here Or Near

2011-12-29T12:53:00.006-07:00

Dave, thanks as ever for your posts and the great blog. We're dying out here and need the encouragement of someone who's lived through it before - Comment yesterday

I don't have much more to say about the current price correction in the metals/miners. Please keep in mind that most of the damage has been inflicted since Christmas Eve, when most traders and money managers are on vacation and the volume is extremely light. This is the ideal type of market for someone to manipulate. But having said that, and we'll know more tomorrow, I'm pretty confident that most of the selling this week has been coming from the "large spec" COT category - the hedge funds - who have sold down a substantial portion of their long position and are piling into the short side. I believe these traders are chasing the downward momentum of the market with aggressive short-selling in a very thin market. They will pay dearly, like they have every time they have engaged in this strategy over the last 10 years. Conversely, the "commercial" COT category has substantially reduced their short interest, especially in silver where the net short interest position of the big banks is as low as its been since 2001. In other words, the sellers are largely washed out of their longs and the short-side manipulators have largely covered their short position and have been taking on a bigger long position. The large specs will soon be squeezed into covering. This is uber-bullish. Those of us who have been involved in this sector since the inception of the bull over 10 years ago have seen this pattern repeated several times. Wash. Rinse. Repeat...then on to a new high in gold and silver.

As for the mining stocks, I received an email from a colleague this morning who, like all of us, likes to track the $BPGDM index on http://www.stockcharts.com/. Based on today's downdraft at the open, this index hit single digits, which reflects extreme bearish sentiment and an extremely oversold condition in the mining stocks. You can see the 3-yr chart HERE He timed a big move back into the mining stocks in October 2008 using this index and he's moving a lot of money back in now.

Beyond that, I thought I would post some quick comments from some highly respected analysts who study the market as much or more than me:

Ted Butler: "It’s no fun for silver investors to have to live through the current slam down in prices. Knowing that the sell-off is intentional makes the pain more acute. The sell-off this week, in particular, has taken on the characteristics of an historic bottom. Since the predominance of the evidence indicates that silver is oversold on an absolute basis and relative to just about everything else, the most logical investment approach is to treat it as a bottom. A deliberately created bottom, but a bottom nevertheless. That means holding or buying, not selling."

John Hathaway: “I think it’s games being played and you can always play games in thin markets. The bigger picture is, first of all, we are in a bottoming process for the stocks and the metal. Sentiment is rock bottom. I think we are seeing a number of different things that are indicative of a bottom."

John Embry: "It’s interesting, I’ve just been writing something internally here for our people. It really focuses the mind when you have to put this down for posterity. I was just going over it and when you do that exercise, the fundamentals are so compelling for gold and silver going forward. It amazes me the degree of human stupidity here, that people are parting company with the one thing that is going to save them in the future.”

Egon Von Grayerz: "I’m not really surprised because last time I talked to you I did say gold could go down to $1,550 support and maybe even $1,420. In my view that would be quite normal in a very thin market and I said that would probably happen by the year end...I wouldn’t be surprised to see several thousand dollars (for gold), let’s say between $3,000 and $5,000 next year. I see that as the next move and fundamentally everything supports that.”

I can't say it any better than that. I will say once again that the selling I'm seeing out there is coming from the amateurs who are afraid of their own shadow when it comes to the markets and it makes absolutely no sense to me - or any of the above market pros - to be moving from physical to cash. I can guarantee you that the professionals are buying (I'm one of them).

Couch Time For Precious Metals Investors

2011-12-28T14:33:00.002-07:00

There is no doubt in my mind that the degree to which the bullion banks/Fed are hammering the precious metals reflects the relative severity underlying hidden problems in our system that will have to be papered over with printed money. But it also reflects the degree to which the metals will rebound once that printing gameplan is revealed.

A lot of metals/miners investors are starting to freak out. It's not easy watching an investment seemingly melt down the way the metals have in the last few weeks. Of course, if you take a slightly longer perspective than the one that the instant gratification Americans who have been trained like a bunch of monkeys by the media to take, this current metals correction started at the end of April. And so far this correction is not even close to the severity of the 2008 correction. Look at the charts to see for yourself, but I'll quickly recap the numbers.

In March 2008 silver peaked ever so briefly at $21 and gold around $1030.  By late October that year, silver had hit a bottom just below $9 and gold just below $700. That's a 57% decline for silver top to bottom and 33% for gold - in a 7 month correction period. Imagine paying $19 for silver and $1000 for gold back then and then watching as it sold off over the next seven months. I don't have to imagine that because my partners and I seeded our investment fund with 100% silver bullion right about $19/oz.

If the current price correction gets that severe, and I really don't think it will, it would take silver down to about $21 and gold down to around $1273.  This time around I've reserved some money to invest if the market offers up a gift like this.

I pointed this out before, and I'll point it out again: Even if you happened to have high-ticked the market back in 2008 (like we pretty much did with our own money), if you rode it out you are still up 33% over the three and half year period (March '08 - today) in silver. You are up over 50% in gold (based on buying at $1030 in March '08). Does anyone seriously have any investments that have fared better over the period? The S&P 500 is down about 7.6% over the same time period. And your house is down well over 30% from then. And I'm basing these comparisons on the assumption that you high-ticked the metals market. I bought silver at $19 back then, so I'm actually up 42% over the time period. And actually I happened to buy some "personal stash" silver for $9 (silver eagles from Tulving). I'm up 300% on those.

My point is that, while this current price action feels bad and looks ugly, it is likely setting up the next move to even higher levels. Please do not overlook the fact that the last big price correction in 2008 preceded the massive QE and Government stimulus programs at the end of 2008 - ERGO (therefore) my opening quote above. And do not overlook that the printing and Government stimulus has already commenced with the $500 billion to potentially $1 trillion Fed currency swap facility - which is a de facto bailout of EU banks - and the fact that Obama has extended the payroll tax cut AND he's asked for permission to take the Treasury debt load up to within $100 billion of the debt limit hike passed just 4 months ago.

What happens next? I can't say for sure if this is the bottom of the current price correction in metals or not. I will say that anyone selling now will wish they hadn't a year from now and anyone who is thinking about buying but didn't will wish they had.   What I find interesting is that my thinking on this is not quite unique. While I was writing this post, I happened to see the latest freebie piece issued by Casey Research. They have come to the same conclusion I just laid out. You can what their version HERE I don't always agree with Doug Casey and Jeff Clark, but when they see the same dynamic as I do it reinforces the strength of my own conviction. I know Jim Turk and John Embry also have the same view.

And finally, the one guy to whom everyone should listen is Jim Rogers. This interview was aired on Australia's Finance News Network. Rogers makes comments that would NEVER be aired in American mainstream media. Rogers is short stocks, long commodities, farm land and precious metals:

Countdown To 2012

2011-12-27T10:59:00.005-07:00

How does everyone like reading about Nancy Pelosi taking her vacation at a $10,000/night place in Hawaii? She purports to defend the well-being of the poor and needy, but in reality she is a reverse Robin Hood: she uses her power to take from the Taxpayers and give to her family and wealthy supporters. I can't wait until she finally drops dead.

I have a feeling the fears people have about the Mayan calendar prophecies will be unfounded. HOWEVER, everyone should have a lot of fear over what is coming our way economically and politically. The MF Global disaster and all of the fraud, corruption and Government enablement connected with that event should have people scrambling for physical gold and silver and making sure their weapons are well-oiled and easily accessible.

I want to say that gold and silver are setting up for a big move higher in 2012. Again, the reasons underlying this move are the kinds of things that we can actually touch, feel and see - as opposed to the voo doo of the Mayan warnings. One of the big drivers of gold going forward will be the accelerating accumulation by China - it's Central Bank and the population. In fact, just today a senior official of the PBOC (China's Central Bank) made a statement urging the Government to increase its gold holdings on price declines:

The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation LINK

There are several other factors that lead me to conclude that the metals are getting ready to move a lot higher. Not the least of which is the fact that the net short position in Comex silver futures of the bullion banks in silver is at a low level not seen since 2001. As those of you who follow the COT report on a weekly basis know, when the big banks cover their shorts and increase their net long positions, it always leads to a big move higher:

(click on chart to enlarge)

In addition, the sentiment levels in silver are a low as they were back in October 2008 at the lows of the last big, painful correction. The sentiment indicator is one of the best indicators I know of in predicting the next move in the metals, especially at points of extreme readings. I also know of some precious metals investors who are new to the game over the last couple of years who are throwing in the towel and moving back into cash. This is something that makes absolutely no sense to me, especially given that we know for a fact that the Fed/Bernanke/Geithner are engaged in devaluing the U.S. dollar on a daily basis. Of course, weaker-handed investors who exit are typically my number one contrarian indicator, COT reports notwithstanding.

One more point of note: the bottom of the last major correction in precious metals - October 2008 - also happened to precede the first massive round of money printing and Government bailouts. I would argue that - given what we know about the financial condition of the Treasury, declining tax revenues, bigger Government expenditures than budgeted just 3 months ago and collapsing bank balance sheets - we are on the cusp of another big round of QE. I don't know exactly when it will come and what form it will take, but it is coming. I would suggest that this is the reason that the big bullion banks are covering up their short positions and Fed is working overtime to keep a lid on the metals.

The last indicator that I wanted to point out - one that is over and above the obvious indicators - is the Austrian True Money Supply graph. This metric measures the true supply of cash that is readily available in the financial system and is subject to less manipulation and more transparency than some of the other usual metrics. You can read about it HERE

(click on chart to enlarge)

This chart is telling me that I should be fearful of inflation in 2012. I will point out that the prime rib I purchased last December for $35 cost me $60 this year (roughly same weight, same store). So the next time Bernanke or Geithner try to tell you there's no inflation in the system you can tell them to shove it up their ass by adding to your physical gold and silver holdings. This chart is not something you will find on CNBC, CNN, Bloomberg, Fox News, Fox Business or in your local newspaper. But this chart tells me that gold and silver are getting ready to make a big move.

Happy Happy Merry Merry!!!

2011-12-23T13:16:00.002-07:00

To Jon Corzine, Obama, Geithner, Bernanke, et al:

To All Tebow Doubters:

And for everyone else (caution: don't listen to this with kids around):

Andrew Dice Clay - The Diceman Cometh - The most amazing home videos are here

Think Your IRA Is Safe? Better Think Again...

2011-12-22T10:20:00.009-07:00

The MF Global bankruptcy is a blueprint for how the Government and wealthy bankers will begin to take everything that is kept within the confines of the financial system.

Ten years ago I tried to tell many friends and acquaintances that housing prices would collapse and this country was headed for disaster and that the only only way to protect themselves financially was to load up on gold and silver. Almost everyone looked at me like I needed my own floor in the mental health wing at Belleview Hospital in NYC. Of course, that was back when gold was around $300/oz. and housing prices were on average about 50% higher than they are now.

As I run into these folks these days, they compliment me for my ability to see into the future and immediately want to know what I think will happen next. My only logical response is to say that they don't want to know what I think because, just like 10 years ago, they'll think I'm crazy. I add that I hope I'm wrong this time about what I think is coming but that I doubt that I am.

I bring this up because one of the things that I believe will eventually happen is that the Government will find a way to confiscate all retirement assets (IRA's/401k's). But rather than outright taking them, they'll substitute them with some kind of retirement "annuity" that is funded with good old Treasury bonds. Of course, by that point in time, the Treasury bond printing press will be working overtime to print currency the Government can use to stay afloat.

If you think I'm Belleview-bound, then I would urge you to consider what is happening with the MF Global collapse and bankruptcy situation right now. I preface this by saying that the theft of private property that is taking place with this is enabled because so very few people are paying attention to what is happening and how it is taking place. But this is fundamental to understanding exactly why this is likely just the beginning of the Government/Wall Street partnership effort to steal everything they can before the country collapses.

If you are interested in understanding how JP Morgan, the court system and Government regulators are stealing private property in broad daylight, please take the time (18 minutes for the first part) to listen to this interview by Peter Schiff of a woman, Ann Barnhardt, who closed down her commodities advisory business and returned client money in response to the MF Global disaster. Here's the LINK

As I have written previously, the handling of the MF Global liquidation is riddled with conflict of interest and a complete lack of transparency at the expense of the clients who kept investment accounts at MF Global. These accounts were supposed to be legally immune to the problems that took MF down. For instance, let's say you had $100,000 in only cash sitting in your account at MF Global - no market exposure or securities risk. When everything is settled, it is likely that you'll only get $50-60,000 returned. How is this possible? Listen to the interview and read some of my previous posts. But, make no mistake about it, the Government and court system is completely complicit with the illegal methods that are being employed by the bankruptcy trustee. Completely complicit.

In my inherent appreciation of the absurd, I commented to a long-time colleague that "the best part about this MF Global situation is that most people aren't paying attention because they think that the illegal liquidation of a commodities and futures broker doesn't apply to them because they don't have investment accounts at commodities brokers. But the real issue is the legal system enabling the people who control the MF Global disaster to confiscate private property (listen to the interview if you don't understand why this is so). Furthermore, anyone who thinks that this can't happen with their IRA's and 401k's is completely ignorant of the facts and fails to understand exactly what is going here."

Someone asked me earlier today if our clients understand just how bad everything is. I responded by saying that many of our clients do not really understand just how bad it is. I also think most people - i.e. 90% of the country - maintain some thread of faith that somehow everything will be fixed. After all, we have lived, breathed and eaten nothing but "America is the greatest, jerk off with the red white and blue" for the last 60 years.

In my experience, very few people truly understand why you should have most of your investable net worth in the metals and miners. How many people do you think are actually trying to follow and understand what exactly is going on with MF Global? Anyone who understands that will be liquidating their IRA's and 401k's tomorrow.

Either people get it or they don't. By the time most people get it, it will be too late to jump on the metals train. I think most of our clients have a small portion of their money in our fund "just in case." They will lose everything not in our fund. But they will be Biblically thankful that they have the metal in our fund when that time comes AND that the metal is being safe-kept outside of the financial system in a private depository.

I said about 8 years ago to a colleague at the time, after I really started to grasp just how fraudulent and corrupt the entire financial and political system was becoming, that the people who are in a position to do so will confiscate every last crumb of middle class wealth on the table. I said the biggest "crumb" was IRAs and 401k's. For definitional purposes, "middle class" means anyone who does not have enough cash to buy their own Senator or House Rep - that means 99.5% of the country. The MF Global bankruptcy is a blueprint for how the Government and wealthy bankers will begin to take everything that is kept within the confines of the financial system.

The Comex Exposed

2011-12-21T12:14:00.001-07:00

I just saw another "worse than 2008" post linked on Zerohedge.com. I don't know about anyone else, but I just don't find that commentary helpful. That's old news. It's no-value-added to comment on that.

I was going to post on the ECB Long Term Refinancing Operation (LTRO) today and explain why it's just another "back door" QE operation, but I'm too busy to get into that at the moment. I'll try to post something on it tomorrow. I explained in a comment response under yesterday's post what the basics are.

At any rate, celebrity hedge fund manager Kyle Bass has been commenting lately on the reasons to be diversifying heavily into physical gold and silver and why it is important to avoid using Comex futures contracts and ETFs for this purpose. The bottom line is that they are derivatives of owning real gold, not valid substitutes. In fact, they are fraudulent substitutes and we have seen from the MF Global abortion that even owning warehouse receipts entitling you to delivery of bars is no longer a valid claim on Comex gold.

Bass' firm apparently went to do an informal audit of the Comex: The Comex had $80 billion of open interest vs. $2.7 billion of actual gold inventory. That means that actual gold at the Comex is less than 4% of the potential outstanding claims. It will only take one big delivery month 4% of the open interest decides to stand for delivery and the Comex is busted. You'll see he also comments that the bars that were owned and supposedly allocated for Bass' firm were scattered all over the vaults. This is bad.

If this concept doesnt' horrify you, then carry on watching reality TV and worry about Kate Middleton's pregnancy. Those are the important topics anyway, right? Who cares about the fact that bankers and politicians are openly stealing your wealth.

Here's the video and it's well worth taking a 2-minute break from MTV to watch:

Time To Jump On Board The Gold Train - It's Warming Up To Leave The Station

2011-12-20T13:27:00.004-07:00

After an 8 month price correction that has been mistakenly taken to be a new bear market by those who are clueless, like Dennis Gartman, it appears that the gold bull is kicking at the gate:

Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold. They don’t understand what is happening in the physical market. The bullish fundamentals I just described to you have enormous implications - London bullion trader

Here's the short interview which is the source of that quote: LINK It is a must-read and the report of large "entities" going directly to gold producers in order to source large quantities of bullion is consistent with other industry insider accounts of this. I linked one a couple weeks ago.

"Interesting" from my viewpoint because I have pointed to some indicators that likely signal that we are near or at a bottom and that the next extended move higher in gold will likely take us to a new record nominal high in gold.

One of these signals as discussed yesterday is gold breaking its 200 dma to the downside. Currently the 200 dma is around $1618 using the Comex continuous futures contract (this would correlate to around $1615 on a spot price basis).

Another signal would be the current long/short Commitment of Traders (COT) structure of the hedge funds (large specs) and the big banks (commercials). For the duration of the gold bull market, market bottoms have been associated with a low relative net long position being taken by the large specs and a low relative net short position being taken by the price manipulating bullion banks. That this is the case is indisputable. Currently the large specs have a very low net long position and the banks have low net short position. I rehypothecated Ted Butler's latest remark on the COT structure from Ed Steer's Gold & Silver Daily:

I think the gold COT structure is back to a bullish set up, especially if the improvements after the cut-off are what I think them to be. As such, gold may also be at a price bottom, especially considering the bullish signals (or lack of bearish signals) coming from the gold physical market (ETF holdings, etc.). But to be fair, while gold is near bullish COT readings over the past year or so, on a much longer historical basis there may still be room for further liquidation. My personal sense is that we probably shouldn’t see big further speculative long liquidation in gold and may, in fact, be good to go to the upside. But if the COT structure in gold is bullish (as I think), then silver’s structure is screamingly, super-duper bullish.

Combined, the 200 dma plus the COT signals are quite bullish for gold.

One indicator that I have not seen commentary on is the COT set-up in the euro, and tautologically, the inverse set-up in the dollar. Currently, the large spec hedge funds are record short the euro, which means they also are very long the dollar vs. the euro. Conversely, the big banks are primarily the entities which would take the other side of the hedge fund bet, meaning the big banks are very long the euro and very short the dollar. This is very very bullish for gold. Take a look at this chart rehypothecated from http://www.barchart.com/

(click on chart to enlarge)

The green line that goes below zero starting in May is the short position of the large specs. You can see how the hedge fund position has shifted from long to short this year. The red line is the long position of the big banks. Why would the euro begin to move higher again rather than collapse, like everyone seems to think will happen? Because I have said all along that I wouldn't be surprised if the EU figures out a way to save itself from extinction. Hell the U.S. is already printing money to bail out Europe via the up to $1 trillion currency swap facility arranged by the Fed. This is a de facto QE because it increases the size of the Fed balance sheet until the swap unwinds, if it ever does. This is printing and this is dollar bearish. Just wait until the Fed has to start printing to fund 2012 Government spending programs...Don't forget, what's bearish for the dollar is bullish for gold...

Gold vs. The 200 Day Moving Average

2011-12-19T11:52:00.003-07:00

Let's set the record straight. I really didn't want to spend time on a post today but I've been inundated with a lot of really reckless, ignorant research over the past few days about the "technicals" of the gold market. Lately there's been many many blogs and research reports which make the claim that once gold breaches its 200 dma to the downside, the party is over. But let's look at the 10-year track record of gold vs. its 200 dma, after all there's nothing like showing the hard data in all of its glorious golden truth:

(click on the chart to enlarge)

That chart pretty much speaks for itself. Gold has breached its 200 dma to the downside many times over the last 10 years. Ironically, once that has occurred - in each and every occurrence - gold has always resumed its bull trend and powered to new nominal record highs. That evidence is indisputable. Any research that forecasts bad news for gold based on it breaking its 200 dma is unequivocally incorrect and therefore useless to the goal of making money and preserving wealth in the precious metals market. Unequivocally.

Let me repost the rGold metric chart, which shows the daily price of gold relative to its 200 dma. Whenever this metric has gone below 1, which means that the price of gold is below its 200 dma, it has signalled a table-pounding - unequivocal - "buy" signal. Here's the chart, which unfortunately ends in 2008 and I don't have the time right now make it current, but you'll get the picture:

(click on the chart to enlarge)

Currently the rGold metric is around .94. That is super-bullish for gold.

Any questions? Any research on the gold market that is worth spending time on will instead focus on analyzing the fundamentals which are unpinning this ongoing historic bull market in gold. Is there any indication that Governments are reigning in spending and debt issuance and fixing their financial markets and economies anywhere in the world? As point of reference, let me just reiterate that the U.S. Government is on track to issue close $2 trillion in new debt this year. The only way this will get funded, barring some Moses-parting-the-Red-Sea event - is for the Fed to fund that new debt issuance using the printing press. That is uber-bullish for gold. Similarly, real interest rates are negative by a record amount here and globally. That is rocket fuel for gold.

And the best short-term indicator for gold is the current sentiment. The investment sentiment for gold right now is at the low end of its range over the last 10 years: LINK Again, this indicator has always marked a turning point in the direction of gold. I expect it will this time as well. Furthermore, the Indians and Chinese have been out of the market for the past couple of weeks, but per that linked report, they are starting to buy again. One more thing. On Friday the COT report showed that hedge funds are record short the euro. The big bullion banks are taking the other side of this trade, which means they are very long the euro. Would you bet on the hedge funds or the banks, who have inside info? I would suggest that this is one of the reasons that JP Morgan and HSBC have been working hard to reduce their short positions in the gold and silver futures market. I would further suggest - although don't expect gold to all of a sudden rebound straight up - that all of the technical and fundamental indicators are pointing toward the genesis of gold's next big move higher.

All bull markets end when with a massive parabolic blow-out to the upside in which almost everyone has thrown their money into the market. Currently less than 10% of ALL institutional and retail investors will even consider investing in gold, especially gold of the physical variety. I rest my case.

More Proof That The Gold Sell-Off Was Manipulated

2011-12-16T13:57:00.008-07:00

This will be a quickie today. Kudos to the commenter who alerted me that the OCC - Office of the Comptroller of the Currency - released its quarterly report on bank trading and derivative activity for the 3rd quarter of 2011 today. Here's the LINK Please note that the "precious metals" category is primarily silver derivatives. So the report is largely about gold and silver. There is very little if any trading in platinum and palladium OTC derivatives.

It has been documented by over time that a large increase in the amount of gold and precious metals derivatives outstanding for the 5 largest banks is highly correlated with a big price "correction" in gold and silver. Interestingly, JP Morgan and HSBC are considered to be the primary metals market manipulator in this country Even more interesting, you can see from the latest OCC report that over 99.6% of the precious metals OTC derivatives positions held by all banks is attributable to JP Morgan and HSBC. Hmmm...

Looking at the quarter-end end outstanding amount from Q2 to Q3 this year, you'll see that the JP Morgan's gold and precious metals OTC derivatives positions increased from Q2 to Q3 by 15.2%. Even more interesting, JPM's gold derivatives position with a maturity of less than 1 year increased by 28.5%. HSBC's derivatives position in gold and precious metals increased by 24.8%. It's needless to say - but I'll say it anyway - JPM and HSBC made millions for their proprietary trading positions on their derivatives postions in gold and silver in the last two weeks.

Please note that the OTC derivatives market, thanks to Robert Rubin, Bill Clinton, Alan Greenspan and the current Treasury Secretary Tim Geithner is largely unregulated and unsupervised and is riddled with a high degree of illegal activity.

There's not much more to say about this other than the fact that this high correlation between large increases in the derivatives positions in gold and silver derivatives by JPM and HSBC and the extreme downward price movements in gold and silver has persisted for a long time. Anyone who looks at this data and does not admit that the big market corrections we experience in gold and silver are the product of illegal manipulation is an idiot.

Eventually the sheer force of demand in the physical gold and silver markets will prevent JPM and HSBC from manipulating the market using paper securities. That's when the real fun begins for those us of who truly understand what is going on and own a lot of gold and silver. When this does happen, GLD and SLV won't be of help as they will perish in fraud. Having traded and lived through several other manipulated market sell-offs like this over the last 11 years, I can say with conviction that the counter-move to this manipulated sell-off will be new highs in both gold and silver within 12 months. Have a good weekend. Go Broncos...

Rgold Is Golden: Sit Tight And Be Right (Or Add To Your Positions)

2011-12-15T11:46:00.002-07:00

"This is my favorite time of the year and I'm in a great mood for receiving this year" - Mike Greenberg, Mike and Mike in the Morning on ESPN.

I'm in a great mood right now to receive any news whatsoever that the CFTC is going to crack down on the illegal manipulation that has been going on in gold and silver futures trading on the Comex for a couple decades now. But I know that won't happen - just ask the customers of MF Global what they think about the willingness of the CFTC to enforce the law. And so the saga of the United States of Banana Republic continues. I'm really excited to receive the eventual newscast that shows Jon Corzine walking away from his MF Global crime with little or no consequences.

I don't want this post to be a rant about the Government's complicity with the massive manipulation of the markets, especially gold and silver, but anyone who does not understand that this plays a big factor in the short term movements of gold and silver is unequivocally a complete idiot. The golden truth is that on a longer term basis, the manipulation doesn't work other than to scare the shit out of most people and keep them from taking advantage of the enormous wealth-building opportunities it presents. Here's a quick comment from Ted Butler on the matter - I've included a chart below that shows the technical aspect of the market Butler describes:

What I didn’t explain in my weekend commentary on Saturday was that the next logical downside trigger point in gold for selling by the technical funds and traders was the 200 day moving average ($1610). This particular moving average had not been broken in gold for almost three years, back to when gold was under $900. The longer a moving average remains unbroken, the more significance it holds to technical traders. This level has now been broken as well, encouraging those holding gold on technical or price movement grounds to sell. This selling begets other selling as fear of further losses resonates through the market as prices plunge. The price declines step up demands for more margin, prompting further long liquidation.

Given human nature and our collective demand for easy to understand explanations for why prices are falling there will be, for sure, all manner of supply/demand explanations given to justify the price rout. But there have been scant signals from the real world of supply and demand to account for the decline in gold and silver prices. At the core, this is strictly another COMEX-commercial rig job. That it has been highly successful for the commercial crooks is unfortunate in many ways, but encouraging in other ways. The proof that it is another COMEX rig job is fairly easy to demonstrate in past and future Commitment of Traders Reports (COT), as the commercials are always big buyers on these price smashes. We have only gone down in price so that the commercial could buy. It’s not possible that the commercials can always be big buyers on such declines for any other plausible explanation. That the CFTC sits by, even though it has been armed with new anti-manipulative regulations is as shameful as it gets.

Here's a 6-year daily chart of the Comex gold futures continuous contract:

(click on chart to enlarge)

THAT, my friends, is a snapshot of one of the most perfect bull market charts that you will ever see. You really couldn't make one up that was better. The red line is the 200 day moving average (200 dma) to which Butler refers. You'll note that the corrections in 2006 and 2008 on a percentage basis were much worse than what we are in right now. That's not to say that I'm calling a definitive bottom here, but the data suggests that IF gold does break the 200 dma to the downside, it doesn't stay there very long. I have been lucky enough to start adding to my positions every time this happens in the last 11 years and feel that it's a bit more than luck that it's worked out for me.

Now we've all heard the Dennis Gartmans and CNBC retards and others proclaim the end of the gold bull market. I can't tell you have many times I've heard that in the last 11 years. I remember vividly when gold ran thru $350 in early 2003 and started to correct. Robert Prechter of Elliot Wave fame issued a definitive warning that the gold bull market was over and gold was going to fall back to $50. Hmmm...The common theme between Prechter and Gartman is that NEITHER of them manage a fund or commit their own money. They make a lot of money selling newsletters with shitty advice in them to ignorant financial advisers and frightened, lemming investors. Neither of them has any skin the game.

Here's a "technical" chart that you won't find in Gartman's letter but I will give it to you for free. Unfortunately Eric Hommelberg does not freely publish his work anymore but he follows a metric known as Rgold. This is the spot price of gold divided by the 200 dma of gold. The chart I have only shows 2004-2008, but you'll note that whenever the Rgold metric goes above 1.20 it is a definitive "sell" signal AND whenever it goes below 1.00 it is a definitive "buy" signal. Right now that measurement is .93. .93 = BUY with both hands. Here's the chart:

(click on chart to enlarge)

I have several articles to cite in my argument that gold is likely close to reaching a bottom in this price correction, which actually began at the end of April. To keep this post reasonably short, I'm going link the articles with very little commentary.

The highly respected Peter Grandich has issued a $1mm bet challenge to Dennis Gartman, Jon Nadler and Jeffrey Christian - three morons who routinely issue doom warnings about gold and yet who are always wrong in their market calls. None of them have skin in the game but Grandich is giving them an easy opportunity. Please read this link in its entirety - Grandich has arranged for a law firm to set up an escrow account if any of these three dopes decide to show some conviction behind their drool: LINK

Zerohedge has posted an excerpt from a Citicorp market research report that explains why they see gold going anywhere from $3400 to $6000 over the next two years. They cite technical as well as the usual fundamental reasons for this. This is very significant because it is the first time in 11 years that a large, Too Big To Fail Wall Street bank has issued a bullish call like this on gold: LINK (no, this isn't the end of a bubble because Citi has become bullish - there's still 10 other Too Big Big To Fails that are extremely bearish on gold).

This could be one of the best signals yet that gold is getting ready to form a bottom and turn around:   the sentiment index as measured by Marketwatch's Mark Hulbert is registering very high levels of negativity. Please note that Hulbert points out this contrarian indicator is right more often than it's wrong, which means that the negativity of investors toward gold is actually very bullish: LINK I can confirm this measurement because there's been an usually high number of commentors lately on this blog who are thinking about dumping their holdings. I will buy what they sell.

Whenever I need a little "conviction-check" - some "couch time" - with regard to my fear levels, I like to spend time reading what Jim Sinclair has to say. Eric King made it easy with this interview of Sinclair. Please note that he thinks this high volatility in gold right now indicates that gold will go higher than he expects. This quick interview is well worth reading: LINK

Finally, please keep in mind that ALL the fundamental variables that are driving the gold bull market keep getting stronger by the day.   Congress and Obama are getting ready to pass a huge spending bill which extends the payroll tax cuts and extends jobless claims. This means that the spending deficit for 2012 will be much larger than projected back in September and the amount of debt the U.S. Treasury has to issue will be even greater than projected when the debt ceiling was lifted. Expect another debt limit ceiling extension fight before the November 2012 elections or just after. This means that Fed will be forced to roll the printing presses or the Government will not be able to fund all of this new debt issuance. Hell, we didn't even have debt ceiling limits and massive deficit spending and high unemployment as problems when the gold bull market began. As these problems get worse, the case for gold going several multiples higher from here gets better.

One more thing to think about: how many of you have financial advisers calling you to tell you that it's time to sell your gold? How many of you have advisers calling you and telling you it's time to buy or add? I would bet my last nickel that over 90% of all advisers are calling and telling their clients to sell. I would also bet that those are the very same advisers who advised their clients to stay away from gold for the last 11 years. If I had an adviser like that, I would hang up the phone and find a new one.

Full Faith And Credit?

2011-12-14T10:05:00.004-07:00

As I see it, if you don’t own some physical gold and silver, you are going to be in a bad way as the impact of the MF Global collapse continues to ripple through the markets. All of us are facing some difficult times in the weeks and months ahead as this global financial bust plays itself out, but trying to contend with this fallout without owning physical gold and silver is like going into a war without any bullets. - James Turk

This current market "correction" in gold and silver is an absolute gift. I say "correction" because there is no doubt that the Fed/Wall Street is piling on in order to make the metals look undesirable to the unsuspecting. Time and again they've done this over the last 10 years. But to be able to go out and move more of your increasingly devalued U.S. dollars to acquire physical gold and silver at prices that are 15% cheaper for gold and 40% cheaper for silver cheaper than 8 months ago is an absolute gift.

I had an interesting conversation with a good friend earlier this week. He was thinking about liquidating all of his investment accounts and moving everything to cash, fearing that all "investments" were going to get annihilated. My response was, why would you move into a pile of cash that you keep in a bank? Do you really trust the banking system? Just like customer cash accounts at MF Global vaporized overnight, your bank account is nothing more than an electronic entry in a bank computer that is not really any more secure than an a cash account at a brokerage firm. Seriously.

But even more troubling would be the idea that someone would want to move into cash - into U.S. dollars. By law - a law which is in direct violation of the U.S. Constitution, mind you - all money issued by the Government is backed by the "full faith and credit of United states Government." Think about that statement for a moment. Let's break it down to its basic meaning.

"Full credit" of the Government. The credit rating of the U.S. Government was recently downgraded from triple-AAA by S&P. This means that the credit rating of the U.S. Government is deteriorating. It is actually deteriorating quite rapidly. In fact, if it weren't for the fact that the U.S. Government - unlike the individual countries of the EU - has the ability to print money in unlimited quantities, the actual credit rating of the U.S. Government would be "CCC-," which means that it is on the cusp of default. So when you keep your wealth in the form of U.S. dollar "cash," on a de facto basis you are storing your "wealth" in an "investment" that is on the verge of bankruptcy.

Now, let's examine the idea of "full faith" in the U.S. Government. This implies the notion that we collectively have complete "faith" in our Government and the leaders that implement our Government. Is that true for you? Do you have "faith" in the Obama administration? Would you have "faith" in a Gingrich or Romney administration? How about Congress? We know from recent polls that the approval rating for Obama is at an all-time record low for any President with one year remaining in his first term. Record low. We also know that the approval rating for Congress is now well below 10%. Do those ratings convey the idea that Americans have "faith" in their Government?

Now, I'm dead serious about this. IF the implicit credit rating of the U.S. Government is, realistically, near the level of default and IF the overwhelming majority of the people in this country have little or no faith in our Government, the HOW THE HELL CAN THE U.S. DOLLAR HAVE ANY REAL LONG TERM VALUE AND HOW CAN IT BE CONSIDERED A STORE OF WEALTH? Seriously? Why the hell would you want to move your wealth into U.S. dollar-based "cash?"

So what are the alternatives? Other than gold and silver, I really don't know of any alternatives. Actually, again I'm being serious, guns, ammunition, canned food and other "hard usables" would also maintain their value if things get really bad. But gold and silver have been "transaction/barter currencies" for the better part of 5000 years. This is not going to change. Despite what looks like a lot of volatility, or risk, with gold and silver, over the last 10 years the U.S. dollar has gone down in value 80% against gold and silver. 80%. It has another 20% to go before it goes where every other paper fiat currency in history has gone - extinct. On that obvious basis, why would you put your wealth in the U.S. dollar?

We have seen much worse market corrections/manipulated hits in the precious metals over the last 10 years. And yet, over that time period, gold and silver have outperformed every other possible investment. Every single one, without exception. But we're getting to the point at which you need to start looking at gold and silver as being the best shot you can have at financially surviving what is coming our way. 2008 was bad but what is about to happen globally will be even worse. Don't take it from me, consider what James Turk has to say. James Turk is one of the smartest, most forward-looking market commentators that I have ever come across. It just so happens that his views have paralleled mine over the last 10 years. Although I don't know what his "off the record" true assessment would be, his vision publicly is not as gloomy as mine. I think I'm going to be right. But here's Turk's latest comments from Eric King's daily blog interviews: LINK

Consider that, if you had a billion marks in the bank in Germany on November 13, 1923, when you woke up the next day you had one mark. That is the power of a Government that issues fiat currency by enforcement of law and that is trying to survive. But also consider that if you had all of your wealth in gold and silver, on November 14th your wealth position was the same as it was the day before. Our Government is trying to survive right now and yet it keeps increasing its deficits and debt load. Soon enough the Fed will be firing up its printing press yet again and your dollar in hand will become worth even less. Gold will soon be probing new highs even though it may not seem like it at this exact moment.

I have laid out the truth and the facts today as they are. My statements are backed by the events of history for 5000 years. If you think that it's going to be different this time, then go ahead and keep your wealth in U.S. dollars and Government bonds. But if you think and know, like I do, that eventually the ability of the U.S. Government to maintain any value in the dollar is going to disappear, then you need to use opportunities like the current one to move even more of your paper wealth into physical gold and silver. Not GLD, not SLV, not any other ETF.

Upon Further Review

2011-12-13T11:07:00.003-07:00

The bottom line is that the money needed to bail out Europe and to fund America’s spiraling debt and future unfunded obligations is in the ten of trillions. IT DOES NOT EXIST. It has to be created by printing money in massive quantities, and despite all the rhetoric you will hear against such policies, in the end it’s the path of least resistance. Printing money is an invisible tax on savings, much easier to initiate, than, say, raising taxes or cutting back on services and entitlements. - Frank Guistra, founder of Silver Wheaton

Here's the link for the source of that quote, it's a very good article on gold and negative real interest rates: LINK

Remember how "jiggy" everyone got over the reports of incredibly robust Black Friday weekend sales? Recall that those initial reports were based on subjective measurements such as "foot traffic" recorded at malls. Well, the retail sales report released for November today came in well below the Wall Street Einstein analyst consensus forecast of .6%. In fact, it is likely that retail sales for all of November may have gone negative had it not been for the very heavily price-discounted and advertised push for Black Friday weekend sales. Here's the LINK Even more foreboding for the economy, a poll out last week of consumers suggests that the majority of people have already made their holiday purchases for the year, suggesting that the bounce we get the week for Christmas will likely be a lot less than expectations and initial hyped-up indications.

And here's another key economic indicator that needs to be further reviewed. The existing home sales report - a well-spun, highly massaged data series published by the hyper-promotional National Association of Realtors - will be downwardly revised going all the way back to 2007. Hmmm. This particular economic report in the last few months has been giving many "hope" that a rebound in the housing market is developing. However, I have noticed - because I tend to read the whole news release and not just the headline plus the first few sentences - that the NAR chief economist has actually been uncharacteristically demur in the comments he issues that usually get buried toward the bottom of the press release. Now we know why. As you'll see in this news release, which I have not seen anyone mention, especially in the mainstream media, the NAR issues a well-spun "cover" explanation for the fact that their systems have "double-counted" home sales in many areas:

The NAR said the "up-drift in sales projections developed over time between the fixed model for calculating sales rates and the actual marketplace, including growth in multiple listing service coverage areas, geographic population shifts, a decline in for-sale-by-owner transactions, some new-home sales trickling into MLS data and some individual sales being recorded in more than one MLS."

Here's the LINK Obviously, they don't use the term "double counted" in that explanation but that is what that convoluted statement says.

With regard to the opening quote above, I have been wondering now since the summer how the U.S. Government is going to find buyers for the - at minimum - $2 trillion in new debt issuance it will have to do this fiscal year. Why do I say $2 trillion when the published deficit forecast is something like $1.8 trillion? Because I saw a report last week - sorry I don't have the link - that said that the Government is already running behind forecast in tax revenues and is already running above estimates in deficit spending. The former metric - tax revenues - is black and white evidence that the economy is much weaker than is being promoted by Wall Street, politicians and mainstream media.

But that said, who the hell is going to buy all the new Treasury debt? I'm not. I wouldn't touch a Treasury or muni bond even if I had a gun held to my head. It sounds like China isn't interested in doing that either. The answer is that one way or another the Fed is going to be the buyer of last resort. And that means a lot more QE. More than is already being floated by those who know that the Fed is going to start buying several hundred billion in mortgage paper soon.

And THIS is why the price of gold is weak right now. The paper money promoters do not want gold moving higher going into the roll-out of big money printing programs in Europe and here. There was a report last Friday from a European media source that the Bank of England and the ECB were selling gold. They retracted that report yesterday but it turns out that is it half-true. It turns out that these two Central Banks were likely "leasing" gold out to member banks in order to enable these banks to raise much-need liquidity without having dump crap assets that have little or no bid. How do we know that the CB's were leasing gold? Take a look at the lease rates for gold, which can be found here: www.kitco.com You'll see that there are two distance downward spikes into negative territory. This indicates that Central Banks are making a large supply of gold available for lease to member banks. Imagine that, borrowing gold AND getting paid a small rate of interest to borrow that gold so you can sell it into the market place and use that money to pay your bills...

central banks stand ready to lease gold in increasing quantities should the price rise.

That quote is from Alan Greenspan's testimony to the House Banking and Finance Committee on derivatives from 1998. Here's the LINK I threw that in there for anyone who doesn't believe that the gold market is manipulated.

Silver Investors Will Make A Lot Of Money

2011-12-11T11:53:00.000-07:00

I MF Global'd (i.e. embezzled) this video from http://www.zerohedge.com/ this morning. For those who have not watched it yet, it is a great explanation of why there will be a massive move higher in silver at some point in the near future (don't ask me for a timeframe).

We know the market for large deliveries of physical silver is getting very tight per the Sprott Asset comments that they have to wait several months for delivery when they buy a large amount of silver. It certainly calls into the question the reliability of the "reported" silver inventories on the Comex. Currently the U.S. Mint is producing enough silver to meet investor demand. But all of the silver used in silver eagles has to come from U.S.-based mines. The annual demand for silver eagles is getting close to exceeding the annual output of U.S. silver. Once this happens, I expect all hell to break out in the price of silver. Silver mining stocks will move up many multiples in price in just a few days. Here's the video (about 4 mins.):

QUOTE OF THE YEAR

2011-12-09T10:45:00.002-07:00

Gold is cheap relative to the idea that you could have a life’s fortune on a statement from a clearing agent [your brokerage account] and find out that you don’t have a penny left anywhere. Which should you have had, physical gold or that clearing house statement? Gold is cheap because of the condition of other things

- Jim Sinclair www.jsmineset.com

How can you have your money anywhere...and expect and feel certain that this money will be returned to you when you see the inner workings of finance and Wall Street through the eyes of the collapse of MF (Global)? LINK

Moral Hazard

2011-12-09T09:53:00.000-07:00

There will be no private sector involvement. In other words, the banks are too big to fail and public sector wealth will be expropriated for the use of bailing out the catastrophic investment decisions of the wealthy individuals who operate the world's largest banks. - Dave in Denver

Moral Hazard - In general: Circumstance that increases the probability of occurrence of a loss, or a larger than normal loss, because of a change in an insurance policy applicant's behavior after the issuance of policy. It may be due to the presence of incentives that induce the insured to act in ways that incur costs the insurer (but not the insured) has to bear.

Moral Hazard - As it applies to the growing financial crisis: refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk. Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. (Wikipedia)

Moral Hazard is embedded deeply in the root, the very core, of the global catastrophic financial crisis that continues to accelerate in scope and severity on a daily basis. Specifically as applied to the United States, the fact that our Government has created and enabled the idea of a bank that is "too big to fail" that will always be bailed out by the public sector - really, each individual Taxpayer in this country - is the perfect embodiment of that exact nature of moral hazard as it applies to the ongoing financial collapse of the United States.

And the contagion is indeed spreading, though not from the Greek source that is readily identified and blamed by most. Rather, the EU member countries have adopted principles to facilitate the use of public sector money, ultimately to be enabled by additional debt issuance and money creation - aka "QE" - in order to bailout the big banks which control the political process here and in Europe. In other words, the "contagion" is spreading because moral hazard has been allowed to infect and permeate every aspect of the global financial industry to the point at which it threatens to cause systemic collapse throughout Europe and the United States (and in Canada, from what I'm now hearing).

"EU Leaders Drop Demands for Investor Write-Offs"

As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines,” EU President Herman Van Rompuy told reporters at a briefing. “Or, to put it more bluntly, our first approach to PSI, which had a very negative effect on debt markets is now officially over.

This report from Bloomberg related to the agreement reached by the EU members to "save" the euro describes the decision to use additional debt and public sector funds (taxpayer money) in order to bailout the failed risk-taking endeavors of the largest global financial institutions. The "spin" put on this by the politicians and establishment-controlled media uses the term "private sector involvement" to describe what is ultimately a decision made by the bank-controlled politicians that the big banks will be bailed out. Here's the report from Bloomberg: LINK This is the epitome of moral hazard - the moral hazard which is the terminal cancer destroying the global financial system and ultimately will destroy many countries including the United States.

Please make no mistake about this, the reason that Tim Geithner is over in Europe to participate in the agreement reached last night by the EU leaders is that the biggest U.S. banks are not only exposed to many tens of billion of dollars in actual European sovereign loans, but the risk exposure is magnified into the trillions because of the off-balance-sheet derivatives issued and underwritten by the biggest firms on Wall Street. For instance, Morgan Stanley's derivatives book grew by $9 trillion in the latest reporting period. This is why Morgan Stanley's stock was down nearly 10% yesterday. JP Morgan and Goldman Sachs have even bigger derivatives exposure to Europe than Morgan Stanley. THIS is why the U.S. Government has been involved in the agreement reached last night and THIS is why the Federal Reserve, unilaterally and without any Congressional oversight OR approval, has extended $500 billion in U.S. taxpayer money to help prevent the collapse of the too big to fail banks using the "cover page" of a seemingly complicated tool labelled "currency swap agreement."

This is moral hazard in the extreme. It's why Long Term Capital, Enron, Worldcom, Global Crossing, Enron, Refco, Amaranth, Bear Stearns, Lehman, Washington Mutual, Countrywide, Wachovia, Merrill Lynch, etc. all collapsed. One would have thought at the very least that after Enron the system would have been drastically amended, reformed and fixed. But it was not. And now the Jon Corzines, Henry Paulsons, Jamie Dimons and Lloyd Blankfeins of the world have figured out how to steal billions from the system and get away with it. That was the message from yesterday's shit-show on Capitol Hill. THAT is why our system is collapsing. THAT is why, if you will, Atlas shrugs.

Have good weekend. And remember: try to enjoy what you can, as much as you can, while you can because life in this world at some point is going to become very unpleasant for most people.

Jon Corzine Is Full Of Shit And A Liar

2011-12-08T06:32:00.006-07:00

Jon Corzine has released the written testimony that he will make before Congress today. It has been highly polished up by his legal advisers and contains so many "I can't recall's" that even Bill Clinton would blush. While the entire testimony has very little credibility with regard to substantive issues, I just want to address one specific quote from the testimony because I know - for a fact - that Corzine is lying. From page 17 of the prepared testimony:

I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral. Nor was I an expert on the complicated rules and regulations governing the various different operating businesses that comprised MF Global. I had little expertise or experience in those operational aspects of the business.

Here's the full testimony: LINK If you take the time to read the full testimony, please try not to puke like I nearly did over the obvious lies and legally refined statements which are designed to obfuscate and cover-up the truth.

Now, earlier in the testimony, Corzine lays out his history of employment and experience in the securities industry. For much of his career, he was in oversight and management roles which would have required that he passed certain industry exams. One of them is the Series 24 principal's exam. Having just studied for and passed this particular exam, I know for a fact that the material covers the rules regarding "movement of cash and collateral." I spent a few hours making sure I understood exactly what the regulations prescribe. For Corzine to have been promoted into the positions he lays out in his testimony, it means he had to pass the Series 24 exam and he spent part of his time at Goldman having to deal with the issues from a practical standpoint covered by the material in the Series 24. In other words, he knows the regulations and mechanics and he's lying in his testimony.

Moreover, having worked as a trader on a big bond trading desk, as Corzine did at Goldman (he ultimately ran the Government bond trading operations at one point), I know for a fact he had to have been intimately aware of and knowledgeable about "back office" (the functions to which he refers to as "clearing and settlement") functions and mechanics. It would be impossible that he would have risen through the ranks at Goldman in the bond trading business and not have spent a good part of his of time understanding and dealing the "back office operations" of the securities trading business. Impossible.

Unfortunately for justice - but fortunately to prove my contention that he will extract himself from facing prison by exploiting the inability of Congress to ask the right questions - the people who will be grilling him, Senators and Reps, have no knowledge of how Wall Street functions and they will not take the time to figure out the right questions to ask. Nor will they make an earnest attempt to hold him accountable.

There's plenty of other statements that can likely be proved to be false. For instance he claims to have not made contact with NY Fed Chairman Bill Dudley during his time at MF Global. Those two worked together at Goldman Sachs. MF Global was admitted to the Fed as a primary dealer under Corzine. I find Corzine's statement therefore exceedingly difficult to believe. Let's see the phone and email records. But the best shot this country has seeing justice served against Corzine is having private lawsuits waged against him which will bring in expert witnesses to educate the courtroom and jury as to exactly why Corzine's testimony today is one big lie. Let's hope and pray that happens.

Austrian Economics vs. Keynes

2011-12-07T12:51:00.003-07:00

Why is Keynes tragically and horrifyingly wrong? Here's why:

THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS A RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION, OR LATER AS A FINAL OR TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED (Ludwid Von Mises)

And that explanation is why the Austrian School of economics is correct.

Many of you have read commentary by Egon von Grayerz. He is the chief strategist for a Swiss asset management firm and his writing is not only highly insightful and polished, but should be examined carefully. I've strung together some quotes from his latest interspersed with my own commentary. But I hope everyone reads the von Grazerz piece its entirety (linked below - it's not long).

The reason that Keynes' model does not works is that "governments worldwide are totally incapable of stopping the money printing. This is their only means of staying in power and buying votes. But not only that, this is the only method they know. This has been their patent solution to all economic problems in the last decades. Not that this is new in history."

Politicians and government organizations are one massive drag on the economy: "The transfer of capital from private enterprise to government by massive taxation is approaching 50% in many countries. The average for 18 industrialised countries is almost 40%. This means that on average 40% of the productive economy is transferred to a non-producing entity (government) which wastes most of the money in the process of redistribution."

In addition, despite the repeated promises of austerity and fiscal restraint, the governments here and in Europe have proven repeatedly to be completely incapable of cutting spending and reigning in deficits: "There will be no lasting austerity programmes in any country that can print money. Governments are incapable of sticking to austerity measures since in the end that is a guaranteed way of losing power. As power is the main purpose of all governments, they will use any method to retain it."

This Keynesian system has created a gigantic welfare class that gets bigger by the day. Every god damn month in the United States the percentage of people who get food stamps increases: "For a great many people it is now totally natural to rely on the state for their needs rather than on themselves."

Fool me once, shame on you. Fool me twice, shame on me. Fool me three times...you are a criminal and I'm insane. Anyone who continues to have faith in the United States Government and buys into the promises being delivered by our leaders is certifiably insane. Absurdly, Obama was on national television yesterday giving a "fiery" (as it was described by the media) speech which contained a reconstituted version of the same f*%king promises he issued in 2008, but on which he has resoundingly failed to deliver. You want to believe him yet again?

There is nothing we can do - unless we do something collectively that goes well beyond voting - to change this. If you want to give yourself the best shot at surviving what is coming financially, then the ONLY way to achieve this is by moving as much of your wealth as you can into physical gold and silver. As von Grayerz puts it:

In order to preserve wealth and keep capital intact, it is critical to keep a major part of investment assets in precious metals held outside the banking system. But for investors who continue to follow conventional wisdom, they will sadly find that their investment strategy was merely conventional and contained no wisdom.

But be prepared to hold your gold for the long haul and expect that there will be vicious corrections (like the current one):

Governments are creating credit and paper money and consequently through their fraudulent actions “stealing” from the people whilst at the same time increasing the people’s dependence on the state. And the people does not understand that the value of paper money is declining continuously. But gold reveals the deceitful destruction of paper money. This is why governments do not like gold and try to suppress the gold price.

Use these corrections to move even more paper fiat currency into physical metal. And don't listen to your idiotic investment advisor when tries to tell you that gold is risky and is in a bubble. That is utter bullshit. Ironically, gold is the safest thing you can hold on to right now. Want proof? If gold was risky and at the top of a bubble, why aren't the European countries who are in a state of collapse selling their gold to raise money? Italy is one of the larger sovereign holders of gold in the world...As von Grayerz states:

Gold is money and reflects the total destruction of paper money. But most investors do not understand gold. Common arguments I hear is that “you can’t eat gold” or that “gold pays no return.” It seems that these investors prefer to eat paper money. And as to the argument that there is no yield on gold, who needs yield on an asset that has massively outperformed all major asset classes in the last 11 years.

Here's von Grayerz's piece: LINK - Deus Ex Machina

The reality is that - and forget about Europe for a moment - the United States has created a debt and spending bomb that gets worse by the day. Our banks are still technically insolvent - after the Taxpayers shelled out a few trillion to bail them out in 2008 - and are headed for another collapse. Europe is being used as the excuse but it's really just part of the problem - the problem of which the United States is the largest component.

You can sit by and hope and pray that things turn around in this country. But that's insane thinking because they won't. The spending deficits, economic decay and corruption will continue to get worse until the U.S. dollar collapses. Your best "hope" is to continue or commence accumulating as much physical gold and silver as you can - not GLD, not CEF and not PHYS (unless you have enough money to convert your PHYS into 400 oz. bars of gold). At least PHYS can make good on that delivery. GLD and CEF can not.

MF Global And The Safety Of Brokerage Accounts

2011-12-06T11:27:00.003-07:00

Anyone who thinks the MF Global situation can't happen to whatever custodian their financial advisor uses is brain-dead. The integrity of our system is eroding. As it further erodes there is going to be a serious flood of money into physical gold and silver - Dave in Denver

I'll try to make this my last post on MF for awhile. It's really yesterday's news and, as I said back when the initial details were first released, this is substantially more fraudulent than is being reported. It turns out that Jon Corzine kept doubling down on bad bets on European sovereign paper - largely Greece and Italy I would bet - despite the protests of the chief risk officer, who resigned in March over this: LINK At least a few people on Wall Street still have scruples.

There's a more comprehensive story about this in the Wall Street Journal, but the WSJ will not the report the behind-the-scenes truth. That truth is that Corzine illegally used customer funds to shore up big margin calls on MF's principal trading account. Furthermore, because of Corzine's relationship with the CFTC Chairman, Gary Gensler - who reported directly to Corzine and was promoted by Corzine and likely let Corzine sleep with his wife (you get the idea of the nature of the relationship) when Corzine was CEO of Goldman - Corzine was able to halt the CFTC from passing regulations that would have made it more explicitly illegal for Corzine to even think about touching customer funds for the purposes of short-term firm use.

This relationship with Gensler - and the exertion of influence on Gensler - should be immediately investigated by Attorney General Eric Holder. But it won't be. I truly hope that some investors file big class-action lawsuits against Gensler and the CFTC. I really would love to see what kind of documents, emails and phone records that would be unearthed in the due process of discovery and document production. Gensler does not want that to happen, and neither does Obama after the Solyndra abortion and the mess Eric Holder is in with the Fast and Furious scandal. Unfortunately Big Bank Wall Street will be exerting its influence to prevent the truth from coming out because that will expose some of the underbelly of fraud that is occurring on a daily basis. Furthermore, IF the MF Global trustee claws back customer funds who got their money out of MF before MF filed, then the trustee should ALSO clawback the money JP Morgan received as collateral against MF's positions. I suspect this won't happen either though.

This brings me to my quote above. I have said in the past that Wall Street is a monkey-see/monkey-do type of place. As such, if Corzine decided that it was okay to illegally "borrow" customer funds and use them to make high-risk bets in the markets, then it tells me that this is actually a common practice on Wall Street. I know from direct experience as a junk bond trader that it is not difficult to work around compliance and risk management (we called them "the risk Nazis"). And if it was being done back in the 1990's, it's being done on a much larger-scale basis now. I don't care about Dodd-Frank because it is nothing more than "window dressing" for the most part.

Having said this, I want to make it crystal clear that eventually we are going to see the MF Global event at much bigger firms. In fact, in a way, that's what the 2008 near-collapse was all about. The ONLY difference is that Henry Paulson (another Goldman guy), Tim Geithner (a Goldman brainless puppet) and a few others decided that those banks were too big to fail so Taxpayer funds would be used to cover up the fraud and massive defaults. But just like Refco was a prelude to MF Global - and we never did get to see what the real story was behind the Refco default - this MF situation is a prelude to much bigger securities industry scandals. And it will involve the massive expropriation of customer money and securities at big Wall Street firms. If you don't think this can and will happen, you are either ignorant of the facts or interminably naive.

At some point a lot more people who are becoming informed and willing to look at the truth will start moving their paper assets from these criminal enterprises known as Too Big To Fail banks and brokerages and move that money into physical gold and silver that is safekept with a verifiable trustworthy custodian. Right now is as good of time as any to get in ahead of the eventual mad scramble for real safety and security.

MF Global And The Truth About Our Entire System

2011-12-05T14:01:00.003-07:00

MF Global would not have been able to do what they did without Corzine's close relationship with CFTC Chairman Gary Gensler (see this: LINK) - Dave in Denver

My thoughts for this blog just sort of flowed from a back and forth exchange I had earlier with long-time market colleague and GATA Chairman Bill Murphy, aka "Midas" of http://www.lemetropolecafe.com/ We had been discussing why the metals sold off today despite the fact that it's becoming more obvious by the day that both the Fed and the ECB will have to print a lot more money OR be willing to accept the consequences of system collapse.

With regard to the market in gold and silver, I said that when I woke up and saw gold down with no real news I assumed it was what Jesse says it is ("Jesse" of http://www.jessescrossroadscafe.blogspot.com/):  It's become crystal clear that the Government has absolutely no intention whatsoever to stop the illegal manipulation of the metals market. The best thing to do is keep accumulating physical on these dips and be careful with margin.

Bill pointed out that the action in the shares on Friday - unexplainably lower - forecast today's action in the metals, as the big bank manipulators - left unregulated by the regulators - usually hit the mining shares before they try to raid the metals. I agreed with that for the most part except that the hit on silver didn't work on Friday. It's true the hit on the shares forecast this but the reason for it is to try and reduce the amount of actual Comex gold and silver deliveries they have to make, especially if the receivers (stoppers) ask for the metal to be delivered off the Comex. I think there's a real inventory stress building on the Comex. I think the advent and growth of SLV and GLD alleviated this for a few years but now more investors are understanding the difference between ETFs and real metal and the risks of leaving your metal with a questionable custodian. Just the movement of the reported inventory of metal at the Comex over the past couple of weeks tells us something unusual is going on.

And don't underestimate the stress that the Venezuela move has put on the physical market  (Venezuela President Hugo Chavez has recalled 200 tonnes of gold being stored in England, Switzerland and New York and had it shipped back to Venezuela out of justified distrust of the custodians in those countries). Chavez is no dummy. He didn't do that to try and squeeze the market, he did that because he wants to make sure Venezuela has its gold and there's no risk of an MF-type event at the big bullion custodians like HSBC and JP Morgan. Which brings me to one more point, even though the MF thing will probably be minimized by the media and the perps will walk relatively unpunished, there is no doubt in my mind that it's "raising the eyebrows" of smart, wealthy investors all over the world. This will be a problem for the fractional bullion custodians if I'm right.

Furthermore, for what it's worth, my partner and I think most of the risk of big hits on the metals has been washed out. We think we will see a significant move to the upside over the next 3-6 months and have started positioning our portfolio accordingly. There's no doubt in my mind they are working like hell to contain the risk of a possible run on Comex metal. Again, we should not be underestimating the trust/confidence factor that has been introduced by the MF situation. You would have to be absolutely brain-dead to believe that this can't happen at one of the big Too-Big-To-Fail banks.
Regarding my above-statement about MF, hilariously the CTFC today passed "tougher" regulations with regard to commodity and futures brokers abilities to use customer funds. Interestingly:

The Commodity Futures Trading Commission, which voted unanimously to approve the rule, originally planned to finalize it months ago. But the agency delayed the overhaul amid fierce push-back from Jon S. Corzine, who at the time was the chief executive of MF Global. LINK

It's been my contention all along that MF Global would unequivocally have NOT been able to embezzle customer funds the way they did if it were not for the tight relationship between Jon Corzine and CFTC Chairman Gary Gensler. In fact, I strongly believe that Gensler should be forced to resign his position and AG Eric Holder should open an investigation into his link to Corzine. Anything short of this and you can be assured that the integrity of our system is rapidly collapsing.

The truth of the matter is that as people who are paying attention start to really lose faith in the system - the banking and brokerage industry, traditional wealth safekeeping custodians and the entitie which make money insuring their integrity (clearing agents like the CME), and the Government regulators who are supposed to be enforcing the rules already in place but are more likely in bed with the corrupt operators like Corzine - we will see a massive sweeping of money from of all paper wealth depositories that will be channelled into in the world's oldest currency and the only one that does not have any counter-party risk - gold and silver.

For those who are wondering how the dollar has "counterparty risk," understand that the dollar is backed by the "full faith and credit of the U.S. Government." The Government is therefore the counterparty obligated to maintaining the value of the U.S. dollar and guaranteeing its use as a currency. Given that the dollar has lost 96% of its value since the 1913 establishment of the Fed, I would say that the risk of the U.S. Government as a counterparty to the dollar is substantial. Eventually the dollar will completely collapse, as have ALL "fiat" currencies in the entire history of human existence. In the meantime, those who are in a position to do so are stealing as much wealth from the people in this country as they can - and they are often enjoined in this venture by those in charge of preventing the theft. Corzine/Gensler is the perfect example and proof that I am right about this. Got gold?

You CAN'T Be Serious

2011-12-02T09:27:00.002-07:00

Before I get to the ridiculous non-farm payroll report the BLS released this morning (believe me, it's a serious pile of dog shit with chocolate cupcake frosting spread all over it to mask the stench), I wanted to point out that the media is finally starting to scrutinize CFTC Chairman Gary Gensler with regard to his oversight - or lack thereof - and role in the MF Global fraud. I want it noted that this blog outlined Gensler's unscrupulous ties to Corzine a month ago: Gensler and Corzine - Two butt-buddies, with reach-arounds

I'm starting to think that "BLS" - instead of Bureau of Labor Statistics - stands for Bureau of Ludicrous Shit. The monthly non-farm payroll report was released to today and the numbers they are reporting are so absurd that they go well beyond any possible tiny shred of credibility. The headlines scream: "Jobless rate falls to 8.6%, 120,000 jobs added." Sounds wonderful, right? Go out and spend! However, let's look at the truth behind the headlines.

Here's the numbers you won't see being reported by most news media sources. The unemployment rate dropped from 9% to 8.6%. This is a very highly manipulated number and it is determined by taking the size of the labor force - as reported and defined by the BLS - and dividing that number into the number of unemployed. But first understand that the labor force is defined as "those employed plus those who are actively looking for a job." There is a large amount of leeway for manipulation in this metric. At any rate, in order to make the unemployment rate better, all the BLS is does is somewhat arbitrarily reduce the size of the defined "Civilian labor force." If you go to page 5 of the link I provide below, you will see that from Oct 2011 to November 2011 the "civilian labor force" indeed declined from 154.198 million to 153,.883 - or by 315,000. This means that according to the Government, 315,000 people stopped looking for work (or possibly got fired from their Walmart greeter job and slithered away into a cave). Also on page 5 is the "labor force participation rate." This shows the percentage of people in the economy who are considered to be part of the labor force. This number dropped to 64%, the lowest rate since 1983. Given that the population is substantially larger now than in 1983, this means that there are a record number of people out "there" who are not working and not looking for a job. That is, they are largely living off of the Government entitlement programs. Another startling metric is the average duration of unemployment, which rose to a new record of 40.9 weeks, up from 39.4 weeks.

More significantly, the BLS has a metric titled "Not in labor force." This number increased from 86.07 million to 86.558 million, or a whopping 487,000. So the Government is reporting to us that 487,000 people have decided that things are so good with their finances that they have decided to just stop working altogether. I find this exceedingly hard to believe, especially since the supporting data that would support this metric show the complete opposite. For instance, real wages have been plunging. The point is, you would expect that more people would be looking for work, because the population is growing and people are earning less, on average, which would indicate to me that size of the real labor force should actually be growing, not shrinking. Also on page 5 you will find "Duration of unemployment." If you scroll down to page 6 in the link below you will see that average weekly earnings declined, as did average weekly hours worked. These numbers are unequivocally not consistent with the positive jobs report that is being promoted in the headlines. BLS - LINK

To sum it up, here's the truth that you will not see reported in your daily newspapers tomorrow or hear on your nightly local news, CNN, CNBC, Bloomberg or MSNBC: There are less people working as a percentage of the total population, the total number of employed people as a percent of the population continues to decline, it's harder to find a job for those still looking, and those who do find a job are earning less - especially after factoring in inflation. Sounds a bit different that the rosie headlines reported by the media and promoted on CNBC.

Have a great weekend. I am playing in my last tennis tournament this weekend as a USTA/NTRP 3.5-rated player, as I was bumped up to 4.0 by the NTRP. I haven't decided if I will appeal this LOL.

David vs. Goliath

2011-12-01T13:51:00.001-07:00

I wanted to bring to your attention how the SEC goes after small investment advisory firms and then issues grand press releases which announce the fines and punishment doled out to these "criminals." As you are reading thru this, keep in mind that while the SEC and other financial markets regulatory offices, like the CFTC for instance, are looking the other way while big investment firms rape and pillage freely, the big bad SEC is clamping down on small firms that fail to "adopt and implement written compliance policies and procedures." Oh boy, it's okay to embezzle $1.2 billion in customer assets to make margin calls on your firm trading account, but if you don't have your internal written policies handy for the SEC to walk in and look at whenever they want you get in big trouble. Here's the LINK

I can guarantee you that this fact has a lot to do with how, and against whom, the Government decides to enforce the laws:

Lobbying outlays by the five biggest spenders in the commercial banking sector increased 12 percent in the first three quarters of 2011 over the same period last year, a McClatchy/Tribune analysis of federal lobbying disclosure records shows.

Here's the LINK

This is just more evidence that is piling up which points the fact that this country is deteriorating into a large-scale banana republic. I can vividly recall in the 1970's reading countless stories about the way in which Governments and businesess operated in Central and South American "banana republic" countries. If you were wealthy and owned your own politician, you could essentially operate your enterprise with absolutely no regard for the laws or fear of prosecution. All it took was big "donations" to the politicians. How is that any different from what is now happening in this country? Seriously. Why does Jon Corzine get wait a month before he has to appear before Congress to answer questions about MF Global? Why is he not in District Court right NOW answering questions from a judge? He hasn't even issued any public statements? Leads me to wonder if he's hiding in the closet of his good buddy Barack Obama and peeling bananas to feed to the politicians...

On another note, I have been fielding several inquiries about silver and the recent price action of silver vs. gold. Well this comment from Ted Butler sums it up as well anything and rather than reinvent the wheel and create my own similar comment, I embezzled this from Ed Steers Gold & Silver Daily (which you can get for free everyday by email):

The recent underperformance of silver relative to gold and other commodities presents an added reason to consider silver as undervalued. While many investors view relative price weakness as a reason to avoid purchase, that reaction is incorrect for a market already manipulated to the downside, like silver. In fact, an objective analysis of the relative price moves this year in gold and silver should bring that out. Silver and gold have more in common than any other commodity, making them an ideal relative comparison. As I write this, gold is up $325 (23%) year to date, while silver is up $2 (6.5%). (Admittedly, silver has generally outperformed gold on different time spans). Since there are 3 billion ounces of gold bullion in the world (out of 5 billion oz total), the value of those bullion ounces have increased this year by almost $1 trillion, to over $5.2 trillion. The total value of the world’s one billion ounces of silver bullion has increase ed by $2 billion to $33 billion. In other words, the increase alone in the value of the world’s gold bullion this year is 30 times greater than the total value of all the world’s silver bullion. Please think about that for a moment.

My point is that there is not much difference in the investment merits of gold and silver to warrant such a mismatch in the value of each. Both are precious metals valued by world investors in times of economic stress and loss of confidence. That the dollar value of gold is almost 175 times greater than the dollar value of silver is absurd. Let me be clear in what I am saying. I am not saying that gold is valued at absurd levels; I am saying that silver is being valued at absurdly low levels relative to gold. It is absurd that a ten dollar change in the gold price is equal to the total value of all the world’s silver bullion. The true absurdity is that this mismatch in relative values is not yet recognized by the world’s investors, even the big and sharp hedge fund operators. As and when it is recognized, those investors will rush to buy silver. In a very real sense, the higher gold prices climb, the better it is for silver. A higher gold price is the silver investor’s best friend.

That pretty much says what needs to be said. And since I said yesterday that I felt that silver would minimally go to $200-300/oz., and on the assumption that we will ultimately see the gold/silver ratio regress back to at least 16, you can back into an implied price target $3200 - $4800 for gold. But remember, $200-300 is only my publicly disclosed view...

Finally, I realized last night that I had made a comment about Bank of America's stock nearly breaching $5/share to the downside and that the comment might have puzzled a few people. Typically once a big cap stock goes below $5 and holds there it is because it is less than 12 months from filing bankruptcy. But this comment sums it up, and I forget the source from which I embezzled this early today (apologies in advance to the source):

If BAC had fallen below $5, there could have been avalanche selling because some institutions cannot buy or hold a stock that is less than $5 per share. A cascading BAC could have generated an ‘Emperor has no clothes’ moment for BAC. Buffett would have been chagrined. So it was imperative that someone closed BAC above $5 on Tuesday and that some scheme had to be implemented to drive the price higher on Wednesday.

You Know How You Get To Carnegie Hall?

2011-11-30T13:13:00.002-07:00

Practice. After practicing short term gold and silver forecasting for 10 years, I tend to shy away from posting my short term views on here because it only leads to readers busting my balls when my calls are wrong. It's safe to assume that - in general - my longer term outlook (3-5 years) is for at least $200-300/oz. silver. Likely higher but that's what I'll go on record publicly with.

Having said that, I do believe that the silver market - after the vicious manipulated take down that took silver from $50 in April to a recent intra-day low of $26 and change on Sept 26, I am confident that silver is ready to take-off again. Now, having said that, we will still get a lot volatility because of the market manipulation to which even CFTC board member Bart Chilton publicly admitted (note: of course, he did not explain why the CFTC does not crack down on it). I know many of you have read the recent uber-bullish price calls by James Turk and John Embry. I purposely have not read those yet because I like to form my own convictions before I see how they match up against the trading convictions of people whom I highly respect. After looking at hourly and daily silver charts yesterday before the market closed, I decided that most of the downside risk has been washed out and that there is a high probability silver will begin to make a big mover higher. We started accumulating AGQ in our fund and we lifted all of our bullion hedges.

While the risk of a manipulated take down always exists, if silver can grind thru the mid-40's it should easly and - as John Embry termed it - "cleanly" move well above $50. I know Turk is calling for $70 silver and Embry is looking for high $60's in the "short term." I won't put out a specific price target but I will say that I believe the price outlook of both Turk and Embry are achievable - if they do occur - by May. Now, if I'm wrong about this go ahead and bust my balls and I'll post those comments unedited.

************

I wanted to comment quickly on the currency swap deal announced by the Fed today. In a nutshell, what this facility does is make available a massive quantity of U.S. dollars to non-U.S. banks who have immediate dollar liability requirements (payments) that are not being funded by their income producing assets (i.e. they are insolvent, for the most part). To cut through the spin, it is likely that there were one or more very large European banks that were close to collapsing and the Fed bailed out the situation. From the Fed statement today:

[T]hese central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar...

That tells me that one or more big banks were on the brink of default. The Fed also cut the interest rate charged for use of the swap facility from 1% to 1/2%. This really underscores the severity and immediacy of the problem. Interestingly, a friend from NYC called me this morning and told me that Deutsche Bank is trying to sell its asset management division. This is a cash cow asset and it tells me that, not only is DB desperate to raise liquidity, but it has to resort to unloading good, core assets because there is no bid in the market for its crappy assets. In other words, Deutsche Bank is running out of room with which to hang itself...these problems are also impending in the U.S. The stock price of Bank of America nearly lost the $5 level yesterday and I fully expect Bank of America to either be bailed out by the Taxpayer or collapse within 12 months.

One more little tidbit for those watching for history to either rhyme or repeat: when the Fed initiated a massive global dollar liquidity credit line like this in December 2007, it was followed by the collapse of Bear Stearns three months later in March 2008. The entire U.S. banking system nearly collapsed a few months after that. The point here is that this Federal Reserve - ultimately U.S. Taxpayer back-stopped - liquidity bailout is nothing more than kicking the can down the road. The question is, for how long?

One more point of note: China announced just prior to the Fed action that they were lowering their bank lending reserve requirements. Both the move by the Fed and by China are moves that will likely have to be followed up sometime soon (i.e. within 2-4 months) by a very massive Quantitative Easing - aka money printing - program. The money printing - aka currency devaluation - is on the verge of becoming globally viral. This is why gold and silver are moving very strongly today, as well as fiat/risk-based assets like stocks and junk bonds.

It's on the basis of this fundamental back-drop that I am confidant that my outlook for silver (and gold) is quite justified and highly probabilistic.

Just When You Think It CAN'T Get Uglier Out There...

2011-11-29T10:31:00.003-07:00

Before I get started on what I had intended to post, I want to present two items of acute interest. First, I hope everyone - Democrat or Republican - is aware of just how tight Jon Corine is with President Obama and the Obama White House insiders: LINK Not that it will matter for the Presidential race because the leading Republican candidates are thoroughly unelectable, but I sincerely hope that the conservative media makes Obama wear Jon Corzine the way that Republicans made Michael Dukakis wear Willy Horton in the 1988 Presidential race vs. George H. Bush (everyone remember that?).   I am sure that we are not seeing immediat investigative actions being taken on Corzine because of his inside connections to Obama. He's not even scheduled to appear before Congress until next month. If this were a drug-dealer busted in Harlem, this case would already be before the magistrate and the perp would be waiting for his trial in jail.

Second, many of you have read this by now, but here's a textbook example of the ways in which the insider elite and those connected to the insiders are raping our system wholesale and stealing what they can, while they can:
"How Paulson Gave Hedge Funds Advance Word" LINK The article goes on to describe how Henry Paulson - then Secretary of the Treasury under George W Bush - met with several large hedge fund managers - many of them Henry Paulson cronies from Goldman Sachs - and revealed the Government plans for bailing out Fannie Mae and Freddie Mac - several months before the bailout actually occurred.

Some bird-brain professors are quoted in the article as saying that this is not inside information, but that is total horse shit. If I had possession of that information when Paulson doled it out to his buddies, I would have gone out bought up every single discounted Fannie Mae and Freddie Mac bond I could find and I would have leveraged those purchases with as much money as I could borrow. I'm sure the trading records of those at the Paulson insider trading pow-wow will never be investigated. What Paulson did was unequivovally illegal and he won't be prosecuted for it. Hell, Bush signed an executive order that gave all of his cabinet members a perpertual get of jail free card. Obama was supposed to repeal that EO but never did.

This shit just keeps piling higher and higher...quite frankly, I have become unusually doomish and gloomish in my outlook for what is coming our way. And the outright fraud, corruption, raping and pillaging and theft that is actually being enabled by our Government is an obvious signal to me that very bad things are headed our way...

In fact, I'm so disgusted by the information and implications of the two above articles that I'm going to abbreviate my original post. In short, the market yesterday was all giddy about the Black Friday sales estimates and the new home sales. However, everyone should know that when the real numbers are tallied, there will be substantial downward revisions of the Black Friday initial sales estimates. In fact, one of the widely reported sales reports is based on measured foot traffic at malls not based on anything concrete, like money going into the cash register. For those of you who didn't see it, here's a fantastic summary why the Black Friday initial sales numbers are nonsense: LINK Moreover, it was pointed out today that every year more and more stores participate in Black Friday. In fact, many of them open up either at midnight or before midnight. This makes year over year same-store-sales metrics - which are the relevant numbers if you want to see real growth - impossible. Furthermore, it is highly likely that the pervasiveness of sales deals and give-aways has "pulled" a substantial portion of holiday budget spending into Black Friday and the ensuing weekend, which means that it is likely that overall sales for the entire holiday period will be anemic at best. After all, we have seen that real monthly income for workers has been declining and consumers are cutting back on credit...who is left to spend?

Regarding my gloomy outlook - look at it this way: this country is not capable of dealing with the economic and standard of living plunge that would occur IF the Government were to implement the type of policies and spending cuts required to fix the system.  Just think about the implications for joblessness and the massive increase in poverty that would occur if the Government were cut itself down by the at least the 50% required to start balancing real spending. This country would look like a 3rd world country on steroids. So that being the case, the people on top and inside know this so they are looting what they can, while they can. And no one is around to stop this because the people who were voted into office to enforce the laws - of the people, by the people and for the people - are the same ones who are engaged in the mass looting of our system.

Your best shot at seeing what "the other side" of what is coming will look like is to move as much of your wealth as you can into physical gold and silver - NOT GLD, CEF or PHYS (unless you have enough money to take delivery of 400 oz bars and a place to store them safely).  This includes liquidating as many of your retirement fund accounts as you can (obviously if you have a 401k and currently work at your 401k provider, you can't liquidate that). Beyond that, sailing away from this country on a boat, the way my buddy did who introduced me to the precious metals 10 years ago, is your best option.

The Stench From MF Global Gets Worse - Should James Giddens (Bankruptcy Trustee) Recuse Himself?

2011-11-27T10:07:00.002-07:00

A few days ago I opined that the stench coming from MF Global had taken on the distinct and nauseous odor of dog shit. Well now the smell has elevated to the level of the kennel area at the Westminster Dog Show. It turns out that the law firm of James Giddens - who is the very highly paid bankruptcy trustee - just so happens to do legal work for both Price Waterhouse, MF Globals' audit firm, and JP Morgan, MF Global's largest creditor. Quite frankly, I find it extremely hard to believe that the bankruptcy court would appoint and allow Gidden to be the bankruptcy trustee in this case, as the conflict of interest has the smell of dog shit all over it.

But it runs even deeper. I find it very interesting that no one has mentioned Refco or Goldman Sachs in this whole ordeal. After all, MF Global purchased the assets of Refco after it tanked in colossal fashion. However, there were many questions which were conveniently swept under the rug and buried. For instance, Refco filed for bankruptcy literally two months after Goldman Sachs took it public. Typically, when a large company like Refco is taken public, the underwriter and audit firm involved, Grant Thornton, perform very detailed and thorough legal and accounting due diligence. The fact that Refco filed bankruptcy literally 60 days after it went public raises all kinds of questions, all of which were neatly and conveniently dismissed. If memory serves me correctly, Goldman threw out about $300 million in "nuisance" settlement money, thereby somehow avoiding billions in liability actions. It also made a lot more money off of Refco and it's IPO than the$300 million in "hush" money that it coughed up. Goldman Sachs' audit firm: Price Waterhouse, the client of the MF Global bankruptcy trustee James Gidden.

Bloomberg writer, Jonathan Weil raises some interesting questions about the credibility of Price Waterhouse and its competence as an auditor of MF Global and ultimately Goldman Sachs. Kudos to the commenter who provided the link, which you can read HERE

I don't know about anyone else, but I find it quite fascinating and intriguing that ultimately there is a direct connection from MF Global to Goldman Sachs that goes beyond the Jon Corzine connection. And there is a direct connection to MF Global, Corzine and the ability of the Government to cover up a lot of this mess via Gary Gensler, Corzine's butt-buddy at Goldman Sachs and the Chairman of the CFTC, the regulatory body of the U.S. Government that was in charge of monitoring and regulating MF Global.

Quite frankly, among James Gidden and his law firm, Hughs Hubbard & Reed, Goldman Sachs, JP Morgan, the CFTC, Price Waterhouse and the ashes of Refco, there is far too much "coziness" and conflict for me to believe that there is not one massive cover-up going on here. At the very least the Obama Administration should step in and force Gidden to step aside as bankruptcy trustee. In addition, Attorney General Eric Holder should open up a wide-ranging inquiry into this whole dog shit show, including appointing an independent audit firm responsible for conducting a very thorough forensic audit of every party mentioned above. Gary Gensler should also be removed at Chairman of the CFTC. This is the very least that the President who got elected on the promise of cleaning up DC and creating a more level playing field for all should do.

Don't hold your breath on that, but make sure you keep your nose covered, because the smell of dog shit emanating from Wall Street and DC has become unbearable.

This thing stinks worse than a bunch of rotting dead bodies covered in rat shit and I find it quite appalling that the Obama Administration has issued no meaningful statements nor is it taking any meaningful actions to enforce the laws and investigate this matter. It leads me to conclude that the Obama Administration is being complicit in the cover-up.

Have A Great Thanksgiving Holiday

2011-11-23T11:24:00.001-07:00

I wanted to post an excerpted commentary from Richard Russell, which I sourced from Ed Steer's Gold and Silver Daily. Richard Russell has been "doing" the markets for longer than most of us have even been alive. An expert in the Dow Theory theory and stocks in general, in the last few years he's been shifting his investible assets into physical gold. He understands as well as any of us the degree to which fiat currencies globally are being destroyed by greedy bankers, disasterous Government fiscal policies and - foremost - accelerating corruption and fraud. Here's Russell's comments:

My advice: We are moving closer and closer to what I call "survival period" -- the period where the magic of compounding turns into what will be the poison of compounding. This isn't a time for timing. This is a time for action. Reduce your exposure to bonds and all items that provide fixed interest rates. Similarly, reduce your exposure to stocks except the gold miners. Look to expand your positions in inflation-protected assets, especially gold.

Those who are holding stocks in the hopes of the usual rebound are going to be terribly disappointed in the years ahead. This bear market is going to be unlike anything we've ever seen before. In the end my survival vehicle will be gold. I say again, timing is hopeless. Gold will have purchasing power and true wealth as almost everything else is destroyed by this unprecedented bear market. The US Government is now so loaded with ever-growing debt that it has become a mathematical freak. We return to different times, when rising interest rates will eat up the US government. With $55 trillion in assorted debts, the US is in no shape to deal with rising interest rates. We are in a state of reverse compounding, leading to inevitable bankruptcy on a massive scale.

There you have it. Happy Thanksgiving and remember: enjoy what you can, as much as you can, while can.

Update On Jefferies

2011-11-22T20:17:00.001-07:00

The SilverDoctors blog was the first place I saw this story (god knows I don't watch Fox Business - not sure who does). It turns out that apparently Jefferies CEO is looking for a large white-knight firm to take them over. Translation: "our balance sheet is hopelessly insolvent unless we get bailed out and I still might be able to sucker a big bank to buy our firm while the stock still has value to insiders who own a lot." Here's the LINK I would initiate an account transfer out of there tomorrow if I had money at Jefferies...

To be quite frank, I'm not sure why Jefferies would be of value to any buyer. I firmly believe that on a market-to-truth basis that Jefferies has a substantial net worth. The brokerage and investment banking model can be replicated anywhere. The asset management business and banker relationships probably have good value on a stand-alone basis, but they are entwined in the roach motel that is Jefferies balance sheet and who knows what other hidden and contingent liabilities are lurking off-balance-sheet and "in the closet." The asset management business can be plucked out of bankruptcy and the bankers who have valuable relationships will go to the highest bid from other firms...

The United Banana Republic of America

2011-11-22T12:13:00.002-07:00

The outright corruption and thievery at the highest levels of business and Government have gotten to the point at which its hard to not think of our country as little more than a glorified banana republic. I remember that I had a friend in business school who's father was an ambassador to a Central American country. My buddy told me that Central American high level bureaucrats at official cocktail parties achieved honor, social status and bragging rights based on the relative amount of U.S. aid that each guy diverted into their own pocket. I get the feeling that the same thing happens now among the banking and business elite, as they achieve social status based on the amount of taxpayer and investor money that they walk away with. Obviously this is predicated on their ability to plant key people into key spots in the Presidential administration. With the Bush administration it was defense companies, who had their de facto President sitting in the office of the Vice President (that would be Cheney). In the current administration, it's Obama's chief of staff, a former JP Morgan director, the Treasury Secretary - who is in effect a big bank puppet - and the Chairman of the CFTC - a former Goldman Sachs partner and butt-buddy of Jon Corzine.

And the thievery gets more blatant and obvious. Just take for instance the plundering of MF Global. Right now there's at least $1.2 billion in missing customer funds.   Where did this money go? A friend of mine who has been in the banking industry for 20 years can not believe that there are absolutely no electronic traces to that money. If the money had been transferred out of MF Global, it would have had to have been reported to FINRA and it would have had to travel at some point through the Federal Reserve bank wire system. So where is it? At first, $600 million of it was "found" at JP Morgan.   But JP Morgan has denied that this was MF Global customer money. Why can't we see a history of money transfers between MF Global and JP Morgan? Did they vanish into thin air? There is a large-scale cover-up going on here and I have to believe that Jamie Dimon is laughing right now because JP Morgan appears to have gotten away with hijacking funds from MF Global. Where's Jon Corzine in all of this?   And it just so happens that the former Soros trader who MF Global hired in early 2011 to expand its proprietary trading business has gone missing...Oh, and just to kick a little more sand in our faces, JP Morgan has emerged as the winning bidder of MF's stake in the London Metals Exchange. This was a highly coveted asset on MF's books and it gives JPM a powerful 10% ownership stake in the largest physical metals trading venue in the world. Usually when I smell the stench of dog shit, I watch where I'm stepping. This one doesn't exactly smell kosher, does it?

Speaking of watching where you are stepping, if you have your investment account and IRA at either Merrill Lynch or Jefferies, you might want to get it out of there. I've been warning about this for over week now and the smell of dog shit is getting stronger. This report about regulators warning B of A to get its act together hit the tape today: LINK It would appear that B of A is starting to have liquidity problems and it turns out that B of A has several billion in bonds that it has to pay off over the next few months. These bonds were issued under the 2008 bank bailout and are guaranteed by the Taxpayers via the FDIC.  This is near-zero debt that will have to be refi'd using much more expensive debt issued (not sure who would buy it - maybe Buffet) or payed off using I don't know what capital. I believe that the noose of insolvency is closing around B of A's neck, and given the way that MF Global has been handled, I do not believe that investment accounts at Merrill Lynch are safe.

And now for Jefferies. JEF has issued several denials and rebuttals to various commentaries and analyses that suggest that Jefferies has financial problems. The best defense JEF has offered up is to present its revised GAAP financials, which don't show anything meaningful. So today, per zerohedge, the rating agency of Egan Jones - probably the most truthful credit rating organization - issued the latest warning on Jeffries:  LINK

Interestingly, most critiques of Jefferies have focused on its sovereign bond holdings and derivatives exposure. But a quick glance at the latest 10-Q shows an even bigger problem:   its holdings in residential and commercial mortgage paper. Of $18 billion in longer term financial instruments, $2.6 billion (14%) is in sovereign paper BUT $4.4 billion (24% is in mortgage paper). It is likely this is private label garbage that is maybe worth 30 cents on the dollar. Maybe. And it's almost all classified as "Level 2" assets, which means that they have some bullshit computer model that spits out a pricing value for these assets that Jeffries expects us to believe is realistic. It's not. Jefferies has $3 billion in book equity. If we were to apply a very conservative 50% write down of its reported sovereign and mortgage holdings, this would wipe JEF's net worth. And we're not addressing the reality that should be associated with its off-balance-sheet garbage, which is likely several multiples larger than its reported mortgage and sovereign debt issues.

But you know, all this wouldn't be as much of a problem for me if Jefferies wasn't run by a guy who used to work directly under Michael Milken at Drexel Burnham. In fact, Jefferies is to a large degree a reincarnation of the rats who got away without punishment from corrupted firms like Drexel. All I can do is present the facts as I am able to dig them up. I know that after watching with complete horror at how the MF Global situation is being covered up and is screwing over the customers - whose money should be under the highest standard of protection - I would not leave my money anywhere near B of A or Jeffries. For sure it's not safe to leave your fate in the hands of the Government regulators who are paid to protect you. The reason: they are getting paid even more by big banks to screw you.

Lie down with dogs, wake up fleas. And the stench of dog shit is getting a lot stronger out there...

You Heard It Here First:

2011-11-21T09:44:00.001-07:00

MF Global trustee: $1.2 billion missing

I reported back when this story first broke about three weeks ago that I had heard from Street "chatter" that the missing amount of customer money was at least double the $600 million being reported. Now the Truth is leaking out:

the apparent shortfall in what MF Global management should have segregated at US depositories may be as much as $1.2 billion or more," the trustee said in a statement

Here's the latest: LINK

I can't emphasize this enough: If you have brokerage and commodity accounts at big Wall Street firms that are also owned by bank holdiing companies - get your money the hell out of there. I'm dead serious about this. This is especially true if your account is at Jeffries, Morgan Stanley or Bank of America/Merrill. Fidelity and Schwab are the safest alternatives to outright physical gold and silver.

I Like Winning So I Don't Trust Wall Street

2011-11-18T13:05:00.001-07:00

"I like winning - I wish it wasn't quite that stressful"

- Tim Tebow after leading the Denver Broncos to a last-minute

comeback win over the heavily favored NY Jets

Silver investors probably feel like serious underdogs given the enormous amount of market manipulation exerted on the silver market by JP Morgan, especially since the CFTC is fully aware of this manipulation and does nothing to enforce the laws.

But then again, yesterday was somewhat of a victory for the silver longs because JP Morgan's ambush on the market appears to have failed. You are probably wondering why I say this. Typically when the metals get taken out back and shot, like yesterday, the open interest declines substantially as the large spec longs have their sell-stops triggered, thereby enabling a big short like JP Morgan to cover part of its short position profitably. But a curious thing happened yesterday: the open interest in silver actually increased by 1156 contracts And the open-interest in December silver only declined by 527 contracts, which is quite small relative to the open interest for December and the approaching first-notice date on November 30. Recall from yesterday, the open interest in December silver is currently over 5 times the amount of "registered," or deliverable, silver sitting in Comex depositories.

Now, it's possible that the large spec hedge fund traders jumped on the short side of the market, as this group often likes to follow momentum. I actually hope this might be the case because historically the "momentum" based hedge funds tend to be terrible market-timers in metal futures. In fact, typically once the hedge funds start shorting into rapid market declines in gold and silver, it historically has signalled the bottom of the market and the start of a fairly rapid reversal up to higher levels. In other words, in close to 100% tried-and-true fashion, the momentum funds are perfect contrary indicators in the precious metals market. Similar to Dennis Gartman, I might add. Oh, I see Dennis Gartman announced that he cut his gold position recommendation today...

Having said this, I do expect JP Morgan to take another crack at pushing the silver market lower next week because: 1) as it stands now there's not enough silver to meet potential physical delivery demands, of which JP Morgan represents at least 50%; 2) market volume will be light next week and usually during light-volume periods the bullion banks try to take the metals market lower; and 3) if JP Morgan can push the market lower in order to cover part of its short position, it will create short term trading profits that will be recognized in its Q4 earnings and help JPM to reduce its overall extraordinarily unprofitable short position. I'm not saying that I think it's a done-deal that the market heads lower next week, but it would be consistent with past manipulative patterns - just ask any of the directors at the CFTC because they know as well as any of us.

Finally, I found it interesting that Brinks - another Comex vault custodian - received nearly 1.2 million ounces of silver into its "eligible" inventory. Recall that "eligible" silver is not yet certified for delivery and can be either silver that is intended for eventual delivery or is just silver being safekept by Brinks on behalf of investors/traders. But per the futures delivery data, this silver was likely moved in from an external source and as such there is a high degree of probability that it was moved in for possible December futures delivery. Again, at this point in the calendar cycle, there are a lot of open silver contracts and only 6 trading days before the first notice (a week from Tuesday). Between JP Morgan and Brinks, there has been a lot of movement in inventory at the Comex. This could be coincidental but my bet is that we could see some unusually high delivery stress in December, which will push prices quite a bit higher than where they are now.

On to MF Global and custodial risk - Bruce Krasting, with whom I often agree, wrote a commentary in response to some ridiculous comments about MF Global by St. Louis Fed head, James Bullard. You read it HERE I was quite shocked at how naive and unintelligent Bullard's remarks were and I agree with Krasting that the follow-up after-shocks caused by MF Global may actaully be worse than the MF disaster itself. Bullard clearly has no understanding of how markets actually work, his understanding is limited to simple theory, and that was evident in his remarks.

However, Krasting opined that he believes that "money in segregated accounts at the likes of Merrill and Morgan Stanley is safe." Au contraire, Bruce. Ironically Krasting singled-out two of the firms which I believe have the highest risk of going under and at which I believe customer accounts are at high risk. The third being Jeffries. In fact, the credit default swap spreads for the debt of Bank of America (Merrill) and Morgan Stanley have really blown out to wide levels recently, signalling that the market is pricing in a much higher degree of credit risk at these two firms. I have not seen this data for Jeffries paper, if it even exists, but the downward action in Jeffries stock price suggests that market also perceives a high level of solvency risk for Jeffries. I will reiterate my statement from an earlier post that if you want to put your securities investment account in the best possible position of preservation - outside of investing in pure physical gold and silver - you should consider getting rid of your accounts at those three firms and move it to a brokerage firm that does not engage in proprietary trading or investment banking, like Fidelity or Schwab. At most other brokerage firms your account runs the risk of being "MF'd" just like the Jets were "Tebow'd" last night...

Have a great weekend!

The Situation Developing With Comex Silver Could Get Interesting...

2011-11-17T10:00:00.000-07:00

The volatility in silver trading is ramping up this week and with good reason: JP Morgan (this name keeps popping up in connection with fraud and corruption - just coincidence I guess - it's a good thing JP Morgan has an ex-director in the White House advising Obama daily in order to make sure JP Morgan receives proper treatment from the authorities) - JPM is hopelessly short Comex silver futures and by the explicit admission of one of the CFTC directors, JP Morgan manipulates the silver market illegally.

Interestingly, JP Morgan recently decided to make itself one of the Comex custodians for Comex silver and opened up a vault for that purpose. The Comex inventory of gold and silver is reported on a daily basis and breaks out the inventory between "eligible," which is metal being "safekept" at the Comex by investors who have taken delivery, and "registered," which is the metal that has been certified by the Comex to meet its delivery standards and is being held for the purposes of delivery.

Yesterday, in a move which raised eyebrows throughout the precious metals trading community, JP Morgan moved 1.1 million ounces of silver from the the "eligible" bin and into the "registered" bin. This amount represents nearly 50% of JPM's "eligible" silver. (Please note: this commentary will not address questions about the verifiability and validity of the reported Comex inventory of gold and silver, as there have been many questions raised about this, it is not audited independently and, as we have seen with MF Global, et al, Wall Street tends to invent its own accounting standards).

Having said that, in studying the Comex open interest and inventories for nearly 10 years, I can say that the outright size of this inventory move by JP Morgan is unusually large and would suggest that JP Morgan is anticipating the probabilty of having to deliver a lot of silver for the December delivery month, of which JP Morgan is likely short at least 17k of the current 34k open interest, or 85 million ounces. Please note that there are still 9 trading days until the "first notice" day, November 30th, for December silver and I expect that the open interest will decline substantially between now and then. However - remember I like to look at the truth behind "however" - in order for the December open interest to get down to a level which represents just the total amount of registered silver - roughly 33 million ounces - the December open interest will have to bleed down to 6600 contracts. This is a big liquidation in just 9 days. I would suggest that JP Morgan's inventory behavior implies that delivery supply could get very tight this month.

I would also suggest that JP Morgan is making a very aggressive effort to manipulate the market lower. Make no mistake about it, every unusually large price-spike down in the intra-day trading is irrefutably JP Morgan traders manipulating the market for the purpose of trying to create selling by the funds who are long silver futures and thereby alleviate any delivery stress and accountability on JP Morgan and its CTFC certified illegal market activity. Oh ya, and ultimately accomplishes the ultimate Wall Street goal of taking money from your pocket and putting it in their own pocket.

The key here is to understand that the action between now and first notice day for December delivery has nothing to do with market fundamentals or outright global demand for silver and everything to do with JP Morgan's ability to try and force the silver market lower to protect its short position AND the unwillingness of our Government to enforce the laws in place to prevent this kind of market manipulation. Furthermore, the key to trading and investing in silver when the market goes through phases like this is to either hold what you got and don't watch the intra-day volatility or buy the down-spikes aggressively and take some profits on the rebound, but make sure you take full advantage of this market inefficiency and wealth-enhancing opportunity and increase your overall holdings.

One of these days the market is going to blow up in JP Morgan's face because they won't have enough physical supply of silver to meet delivery demands and we'll be reading about JP Morgan the same way we are reading about MF Global, only it will be many multiples more severe. It will potentially be catastrophic to the U.S. dollar and any remaining faith thereof. You want to make sure you have as much of your paper money moved into gold and silver because when the market does blow up like that, the end-game will be near and gold and silver will undergo a breathtaking move higher. I would suggest that behavior like we are seeing by JP Morgan this week indicates that the "blow up" event is getting closer.

More On Legal Stealing - The Infamous CFTC Rule 1.29

2011-11-16T13:08:00.003-07:00

Obfuscate - transitive verb: Darken, to make obscure; Confuse; intransitive verb: to be evasive, unclear or confusing (Merriam Webster)

Time to cut to the chase. Let me just preface this with my belief that the missing $600 million from MF Global was money taken from segregated customer accounts and used by MF Global to satisfy a massive margin call issued by JP Morgan on MF Global proprietary accounts. I say JPM ultimately has the funds in question because if you have been following all of the news from the beginning, including the initial proclamation that the missing funds were found in the basement of JP Morgan followed by the slightly delayed statement of denial by JPM, then it makes sense to me that the dotted lines ultimately connect that missing money to JPM.

If the court rules that JP Morgan's claims are superior to that of the customers, whose assets were supposed to be in a segregated account and arguably should be treated with a greater degree of superiority and protection than that of a general creditor, then the MF Global bankruptcy is indeed a case of legal stealing.

Everyone is discussing this nefarious CFTC rule 1.29 and pointing to it like it's the culprit. In order to understand exactly what 1.29 is, it requires a review of the CFTC regulations with respect to "Safeguarding Customer Funds," which starts with rule 1.20 and includes the subsequent rules through 1.30, plus rule 1.32. A definitive summary of these rules can be found HERE starting on page 8. Reading and understanding this is crucial to understanding the degree to which MF Global acted illegally and fraudulently and to understanding why my view is that the segregated customer funds should be treated as "superior" to any and all other creditor claims by the bankruptcy court.

The nefarious rule 1.29 simply says that any profits from customer funds which are hypothecated for purposes defined in 1.20-1.28 may be kept by the broker (FCM - Futures Commission Merchant aka commodities broker). Whether or not you agree or disagree with this ruling, and I disagree with it, the rules outlined in 1.20-1.28 set forth very specific procedures which must be followed in order to keep customer funds not only definitively segregated but clearly defined in terms of amount and market value. Here's some examples from the link:

- the books and records of an FCM shall at all times accurately reflect the FCM's interest in total assets on deposit in segregated accounts, which is the amount of funds in segregation in excess of the amount of funds required to be segregated (CFTC Regulation 1.23)

- each FCM that invests customer segregated assets must keep a record of such investments that shows certain information for each investment (CFTC Regulation 1.27)

- each FCM must prepare, as of the close of each business day, by noon the following business day, a record showing the total amount of customer assets required by the Act to be deposited in segregated accounts, the total amount of assets deposited in Section 4d(2) segregated accounts, and the amount of the FCM's residual interest in such segregated customer assets (excess funds in segregation) (CFTC Regulation 1.32)

As you can see, the procedure for segregating and accounting for this segregation is very well defined and explicit. It's essentially the "mother's milk" of the securities industry. Furthermore, pursuant to the following, at any given point in time firms like MF Global should know exactly how much each customer has in its segregated account, how much can be hypothecated or repo'd and how much is hypothecated or repo'd AND what the usage is of those hypothecated funds - these are all legally defined procedures which are computerized and backed-up on a separate server, typically:

Whenever an FCM knows or should have known that the total amount of its funds on deposit in segregated accounts on behalf of customers is less than the total amount of such funds required to be segregated on behalf of customers, CFTC Regulation 1.12(h) requires the FCM to report immediately such deficiency to the CFTC and to either NFA or the exchange having primary responsibility for compliance surveillance of the firm

In effect, these rules dictate that the customer funds should not be missing and that tracking down what happened to them should have been a few mouse-clicks away. This is true regardless of whether or not 1.29 enables MF Global to accrue profits on the funds. Moreover, the CFTC and CME, the exchange having primary responsibility for compliance surveillance, should have been on top of this. I guess since Goldman Sachs people (Corzine and CFTC Chairman Gary Gensler, Corzine's buddy from Goldman) are used to throwing around and losing $10's of billions, they couldn't be bothered with mere pocket-change like $600 million.

The bottom line here is that ultimately the flow of funds should have been very easy to track. And given that $600 was initially traced to JP Morgan, I believe that JP Morgan needs to be given the financial accounting equivalent of a proctology exam to convince me that they were not the beneficiaries of the $600 million missing from the customer accounts. Finally, Corzine and every staff member responsible for oversight on this matter needs to be held accountable and punished accordingly. There is a massive amount of fraud and theft going on here that is systematically being covered up and obsfuscated by the CME, the CFTC and JP Morgan.

The problem with this situation is that if it is not settled in a manner which creates a vast overhaul of the CFTC regulations and rules regarding the treatment of customer funds and if JP Morgan and other Wall Street creditors to the bankruptcy are treated with superiority with respect to the liquidation claims and distribution, what's to stop this method of legal stealing from being implemented on a widescale basis by every large securities broker who is about to go under anyway? (Think: Jeffries, Bank of America/Merrill, Morgan Stanley...)

Hmmm...Does Herman Cain = Sara Palin (Katie Couric interview)?

2011-11-15T17:19:00.002-07:00

"Let me try to determine so as to ascertain just what exactly you be axing me so I can assess my opinion based upon the nature of what it is we're talking about so that I can tell you what it is that I'm trying to say"

Legal Stealing

2011-11-15T11:20:00.001-07:00

One of my themes is that the business and political elite are stealing money from the middle class and nothing is being done about it by the people voted in office who are in charge of enforcing Rule of Law. Obama was elected overwhelmingly on his promise to clean up DC and restore some semblance of Constitutional-based justice in this country. He has failed miserably. In fact, I see no evidence that he's even made any attempt to honor his campaign promises.

And the corruption and theft is becoming more open and egregious now that the crooks are the same ones who are supposed to be enforcing the laws. As many of you know, 60 Minutes ran a story on the "legal" insider trading going on in Congress: LINK It was no surprise to me that Nancy Pelosi, who has a long resume of graft, nepotism and corruption, was one of the more conspicuous perpetrators. House Rep Spencer Bauchus - a ranking member of the House Financial Services Committee - has a long documented record of personal stock account trades that correlate with information he received in private meetings as part of his position on that infamous Committee: LINK What's most shocking for me about this is that this story should be front and center in the news and there should be a strong public cry for justice. But to whom do you cry? You gonna write a letter to your Congressman? LOL

This is a blatant example and it's hilarious to me that the Pelosi's and Bauchus' of the world have chosen to hide behind a feigned veil of Congressional immunity. But what about JP Morgan's role in the MF Global collapse. It would appear that JPM is connected to the disappearance of the at least $600 million in missing customer funds. But JPM's role has been obscured and the it looks like the restitution is being negotiated behind the scenes, out of sight: LINK Where's Jon Corzine these days? I would surmise that he is being kept well-hidden and protected by his powerful political cronies. He knows where a lot of "bodies" are buried throughout the system and he represents a clear and present danger to all the "legal" criminals both on Wall Street and in DC.

Meanwhile, back at the collapse, Jefferson County Alabama filed the largest municipal bankruptcy of all time: LINK The funny thing is that most Americans, even the ones who make a half-hearted attempt at following the news, likely never saw this report. And even the ones who do know about it have no clue that JP Morgan is the party responsible for putting Jefferson County into financial collapse.

The same names keep coming up in connection with extreme financial fraud and corruption: JP Morgan, Goldman Sachs, Bank of America, AIG. It is just unbelievable that a former Goldman Sachs partner is the chairman of the CFTC - the entity responsible for the oversight of MF Global. It's even more inconceivable that Obama's White House chief-of-staff is a former JP Morgan director.

When you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed (Atlas Shrugged)

Our system is collapsing. And the people who are in position to steal as much as they can, while they can, are now doing so openly and without shame. The ones who blow it like Corzine walk away with shame but no punishment. It's true that our system assumes innocence until guilt is proven. But the evidence against Corzine is overwhelming and he should at least be incarcerated while the pieces are sorted out. But that will never happen because the people in a position to enforce and create laws to protect our system are the Pelosi's and Bauchus' of the world. Our society is doomed.

It's Tebow Time In Denver...

2011-11-14T12:07:00.001-07:00

Gold bless

Now Back To The Collapse

2011-11-13T10:26:00.002-07:00

The nation that once held the creed that greatness is achieved by production is now told that it is achieved by squalor - Francisco D'Anconia, Altas Shrugged

Against my better judgement I posted on the Penn State tragedy Friday. But this blog serves as "couch therapy": for me and I had to get that off my chest. Interestingly, it generated the highest amount of comments of any post in the history of this blog (since late 2009). The only other one that came close is when I skewered Glenn Beck and his defenders came out of the woodwork. Glenn Beck just happened to be essentially fired from Fox a few months later...

But the fact of the matter is that the Penn State tragedy, the collapse of MF Global and the fraud and theft engulfing that situation, the fact that a sexual assault perp like Harold Cain can persist as a Republican Presidential candidate front-runner and the fact that the people who control the big banks and manufacturing companies can openly and illegally steal $100's of billions from the public with very little resistance all have the same common underlying dynamic: the collapse of an empire.

When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are. (Francisco D'Anconia, Atlas Shrugged)

Enjoy what you can, while you can, as much as you can, because the way of life we have come to take for granted in this country for the last 50 years is not going to be around much longer...

The Pope Of Penn State

2011-11-11T07:44:00.007-07:00

I really didn't want to go here but the more that comes out on this story the more I'm infuriated and it starts with Paterno. It's not clear to me why Paterno didn't call in the police the second the assistant went to him and told Paterno what he had seen. But the facts are starting to flow and it's becoming more clear to me that this smells just like the Ted Kennedy Chappaquiddick murder cover-up. This story is immersed with the same stench of moral hazard and corruption that permeates our whole system.

I heard the story first reported on the local sports radio last Saturday, a couple days before it was blown wide open. My first reaction was to assume that Paterno's legacy was safe. But as this story unfolds, I now believe that Paterno is guilty of covering up this whole situation and that if he had done the right thing when he first heard about the incident it would have saved a lot of young boys from extreme abuse by a mentally ill monster.

But this is about money, greed and power. Paterno was good about hiding his money and greed but everyone knew that he was the most powerful administrative figure at Penn State, responsible for billions of dollars flowing into the school during his time there. Now it turns out that Paterno has the financial means to defend himself as thoroughly as possible, as he has reached out to the same powerful DC criminal defense attorney who defended George Bush in the Iran Contra affair. That in and of itself reeks of implied guilt.

Unfortunately this means that the facts as they exist will be sufficiently obscured by a highly skilled legal technician in order to exonerate Paterno from legal culpability, even though I firmly believe, without any doubt, that Paterno knew exactly what Jerry Sandusky was doing the whole time. In fact, legendary Oklahoma coach Barry Switzer is in public saying that because of the closeness of college football coaching staffs, the whole damn staff knew what was going on.

The bottom line is that Paterno sacrificed the sanctity and innocence of the lives of every child Sandusky violated for the sake of ego and money - for the sake of protecting his own legacy, which in my mind is now incinerated forever. This whole crime involves Paterno and this is worse than murder because the victims have to live their entire life with the mental torment of what was done to them and that no one gave a shit because the Pope of Penn State was protecting money, power and fame. Paterno may be able to financially buy his way out legal liability here, but he can't buy his way out of going to hell. There is no room for forgiveness here. Period.

Fool Me Once, Shame On You

2011-11-10T13:05:00.000-07:00

Fool me twice, shame on me. Fool me three or more times shame on...insanity? I thought about this reading Ted Butler's latest newsletter discussing the MF Global situation and the problematic role of the CME and the CFTC in this financial catastrophe. Butler ends by saying, to paraphrase, maybe this is the event that will get the CFTC to crack down on the CME. Watching Butler year after year espouse hope and optimism for the eventual reform of our system and the restoration of Rule of Law and property rights with respect to our financial system is even more hilarious than watching the video of that shit-for-brains Governor from Texas in the debate last night.

Make no mistake about it, Butler does cutting edge, brilliant analysis on every aspect of the technicals and fundamentals of the silver market. But for some reason he goes blank on his ability to analyze human nature and the completely corrupt nature of our system. It's gone way past the point of no return and there will never be real change until the system collapses and a new one is formed from ground zero.

One would have thought that after Long Term Capital way back in 1998, Enron, Refco, Amaranth, Madoff, Bear Stearns, Lehman, AIG, ad nauseum that our system would have been properly reformed by now. Not only do the disasters get worse, the outright theft and corruption become more blatant. That's insanity. One of the board members of the CFTC just the other day admitted in public that the silver market is manipulated. And of course nothing will done about this. GATA has bombarded the CFTC and other Governmental entities with evidence for at least a decade now in support of the precious metals market manipulation. Nothing has been, is being or will be done about it. Bank on that. Jon Corzine should end up in jail over the MF abortion. But both myself and a person smarter than me would be very surprised if he gets much more than a wrist-slapping and a ban from the securities industry for 10 years, or something like that.

What will happen is that eventually the market forces will overwhelm the paper manipulators and there will be a move higher in the precious metals and mining stocks that will shock everyone. It will make some of the moves seen with internet stocks during the tech bubble seem like non-events. What will trigger this? I don't know. I do believe that at some point China will say that it will be happy to continue exporting goods to the United States of Walmart shoppers but that it wants gold or silver for settlement and is not interested in dollars. I would say that the process has already started given that China openly has trade agreements with several large trading partners (Iran, for instance) in which the dollar is not used.

Until then, the best way to play this market is to learn to adapt to the manipulation and corruption. I plan my core investing and my trading around the expectation that the market is always manipulated. But that notwithstanding, I know that the precious metals sector is still in the nascence of a long term bull market and this means that I buy corrections and take profits on big moves higher. I always keep a core position because one of these days the manipulation attempts will fail and this market will embark on a truly parabolic move that I don't want to miss.

ROFLMAO - Don't Get MF'd by Blackrock

2011-11-09T13:31:00.007-07:00

"Italian Government paper may as well be toilet paper" - unnamed source

Gotta love the entertainment being provided by our corrupt system right now. The big money manager - Blackrock (many of you probably have retirment funds being managed by Blackrock) - has been accumulating a giant position in Italian Government bonds. In response to questions about this, here was Blackrock's response: BLACKROCK'S ROVELLI: ITALY SPREADS DON'T REFLECT FUNDAMENTALS (source: zerohedge). That is hugely hilarious.

Here's the Golden Truth: that statement is correct - the spreads don't reflect fundamentals. The yield on the 10-yr Italian sovereign bond should be 14.5%, not 7.25%. What this means is that if the current market price of a generic 4% 10-yr Italian Govt bond is priced at 78, the fundamental price in my view should be 47. This means that for every $100 million in intermediate term bonds that Blackrock is happily loading up on, fundamentally those bonds are worth $47 millon less than they paid for them. If you have retirement funds being kept by your advisor or pension plan at Blackrock, you might want to think about liquidating your account and getting the money out before Blackrock turns into the next MF Global times 100. I'm not kidding about this.

Stagflation Sets In

2011-11-09T11:33:00.004-07:00

"At that point, nothing is left but gold. Now trading at $1790, it could zoom right past $2000 to $3000 an ounce" LINK

"Inventories to result in big hit to Q3 GDP" - It looks like wheels are falling off the U.S. economy. Of course, those of us who have been paying attention to the details beneath the headlines were expecting that the lipstick that the Government and Wall Street have been putting on the proverbial pig would soon wear off. This was the first inventory decline since September 2009. Here's the report: LINK

Recall that the Government has estimated that the 3rd quarter GDP had grown by 2.5% Notwithstanding all of the problems we know about with this metric, the decline in inventory build-up - when the expectation was for another gain in inventory - will cause the revision of that 2.5% number to be lowered quite a bit. Several forecasters are already reducing that 2.5% initial estimate by 25-30% down to 1.7-1.8%. When you start to factor in the grossly underestimated inflation factor - the "GDP deflator" - you can pretty much assume that the GDP was negative on a real basis in Q3.

Another sign of the big decline in economic activity was the earnings report issued by GM today. As has been detailed by zerohedge.com, GM has generated a large portion of its sales growth by stuffing its network of dealers with inventory. Recall, GM itself books a sale when the car leaves the factory floor and is shipped to the dealer, who uses Government supported "warehouse financing" to pay for the car. Sales reported by GM do not directly translate into actual sales to the end user, which means that the GM's sales are not necessarily indicative of true organic economic activity. Despite "beating" Wall Street earnings estimates, GM's stock is down over 8% 10% today, as GM warned of future weakness and of course blamed Europe. But I would also speculate that we will see greater than expected weakness in auto sales in the U.S. as well. Note: I would also bet that if I had the time to go through GM's financials and the footnotes to those financials that I would would an absolute accounting nightmare. In my view GM stock is a great short-play here.

The inventory/GDP dynamic has been that large manufacturing companies like GM have been "pulling forward" sales using pricing and financing incentives. This is de rigueur with the auto manufacturers, but pretty much permeates the entire manufacturing sector. Eventually the end purchaser slows down and the distributor in the economic chain - the auto dealer or retailer - reduces its inventory stocking which causes the manufacturer to slow down. The manufacturing to final sales cycle can be "sticky," but once it gets going in one direction it tends to have snowball effect. So any kind of economic strength was exaggerated and now the slowdown could be ugly.

Why do I say this? Let's take a look at the financial condition of the "end-user," the middle class. To begin with, while most people were scrutinizing the problems in Europe because the media wants us to believe that's the real problem in the world, I noticed this report: The figures from payroll taxes reported to the Social Security Administration on jobs and pay are, in a word, awful. LINK This particular data report is something that you won't see on CNBC or Bloomberg or Fox News. The Government doesn't issue a press release and they want you to keep your eye on the European "ball." But those numbers tell you that less Americans are working and they are earning less money. A bit different story than the payroll and earnings numbers that are highly statistically massaged and released for CNBC to promote, huh?

So Americans in reality have less money to spend going forward and we know banks are not lending because the average credit profile of the average American sucks. Here's proof of that: The national mortgage delinquency rate (the rate of borrowers 60 or more days past due) increased for the first time since the end of 2009. Here's that LINK Call me crazy, but I'm guessing that if your neighbor isn't making his mortgage payments, he ain't rushing out to buy a sparkling new GM or Ford either.

Ultimately, the Government's response to all of this will be to print more money. A former Bank of Japan board member is calling for Japan to put its printing press into overdrive: LINK This will be followed by the ECB and the Fed cranking up their Heidelbergs. So we have the perfect recipe for much higher gold and silver prices: negative GDP, negative interest rates, money printing and higher inflation. Don't pay attention to the day to day or week to week price action in the metals - it's mostly traders and manipulators. One of the board members of the CFTC is now openly admitting that the silver market is highly manipulated. The price of gold and silver six months from now will be substantially higher than where it is now.

ROFLMAO

2011-11-07T13:46:00.003-07:00

Sorry, I hate to venture into the seedy world of "he said/she said," but where there's smoke, there's fire and with Hermain Cain there's now four sources of smoke. Here's the fourth one to come forward: "After losing her job, Bialek allegedly turned to Cain for help. Allred said on Monday, 'Mr. Cain instead decided to try to provide her with his idea of a stimulus package.'" Here's the LINK

I have to say that I'm not disapointed to see Cain go down in the flames like this because he's little more than a tool of the elitist bankers and also a neocon. However, this is the BEST entertainment in town right now and it's free!

According to an unnamed source of mine: "the only thing Cain didn't try to put his sausage on was the pizzas he sold because he got that stuff directly from the pig farm."

The German Government Wants Its Gold

2011-11-07T11:20:00.001-07:00

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (these banks) will deprive the people of all property until their children wake up homeless on the continent their fathers conquered - Thomas Jefferson

Interestingly Ben Bernanke testified under oath in front of Congress that gold is not a currency and that Central Banks stockpile gold out of tradition. So if Germany could help fix Europe's current situation by unloading its gold reserves, why wouldn't it?

"German gold reserves must remain untouchable," Roesler, who is head of the Free Democrats (FDP), a junior partner in Chancellor Angela Merkel's coalition, told ARD television

Here's the Reuters story: LINK Interesting huh? If gold is nothing more than an artifact of tradition - a barbarous relic according John Maynard Keynes - then why wouldn't Germany be more than happy to part with it? Why did the Bank of England recently explain that the markets can not see what the Central Banks are doing with their gold? Why won't the Federal Reserve subject itself to a bona fide independent audit of the U.S. gold in full public view? Why all this secrecy? After all, Bernanke seems to think that gold is nothing more than a museum piece...

Those questions, of course, are strictly rhetorical. Just as amusing is that the army of financial advisers in this coutnry are taught that gold is not an asset class. This is straight from the answer key to the Series 65 Registered Investment Adviser Exam: "An 'asset class' is a broad category of assets such as cash equivalents, stocks, bonds and tangible assets such as real estate...gold itself is not asset class." That's the kind of garbage your trusty financial adviser not only wants you to believe, but believes himself.

"You can not resist an idea whose time has come" - Victor Hugo...The idea of currency by fiat is starting to erode quickly. Germany just denied the idea of gold as is promoted by the U.S. financial industry and the Chairman of the Federal Reserve. Once the historically tested idea of gold comes into view by the masses, there will be an upside explosion in the price of gold and silver that will surprise even most current gold believers. I feel bad, sort of, for all the people in this country who are being led over the cliff by the financial advisor industry...got gold?

More On MF Global - It Gets Worse

2011-11-06T13:24:00.002-07:00

We are staring into the dark abyss of our system - Dante's Inferno if you will - but it's being hidden by a veil of deceit and cover-up that may not disappear until the system has incinerated - Dave in Denver, 11/5/11

I reiterate my call for justice in this situation by giving Jon Corzine a seat in jail in between Bubba and Bernie Madoff. If this were the 1800's, Corzine would be subjected to a public hanging. I'd pay good money to see that.

It turns out that several MF customers had requested their money from MF Global several days before MF hit the wall. Usually you can - at your request - have this money wired. MF Global sent out checks via the proverbial slow boat to China. Now the checks have bounced and the money is gone:

Those checks cut by the folks at MF Global began arriving in customer mailboxes this week, several days after the firm filed for bankruptcy on Oct. 31 in New York federal court. And by the time customers started depositing those checks, they were rejected as having insufficient funds.

Here's the Reuters news story: LINK

The media is still reporting that only $600 million in customer funds is missing. I still believe that it will be a lot more than that, if we ever get the hear the truth. I know that if the rumor-mill is discussing twice that amount, I would err on the side of the rumor mill in this case. I hope Corzine burns in hell.

If anyone wants to get together a "ghoul pool" to speculate on which firm is next, I'll have to flip a coin to decide if I would pick Jeffries or Morgan Stanley.

The CME Margin News Confusion

2011-11-05T13:39:00.000-06:00

It turns out that once again in the urge to be sensationalistic, Zerohedge shot from the hip and is now getting shot down. This is EXACTLY why I ALWAYS double-check anything zerohedge reports before I make any comments on it. I didnt even start researching this until a few minutes ago and it was apparent to me that it was a mis-worded statement that the CME clarifiied today. Tyler Durden does a good job with a lot of what he reports but he is an amateur in this market and shoots from the hip all the time.

Here is the best explanation of the situation, which is a non-event. If anything it makes for the MF account transfers to go more smoothly - see the "kid dynamite" write up: LINK

I will note that I found an article in which IB - Interactive Brokers - has said that they want no part of the account transfers. Being that IB was the firm that almost bought the brokerage business from MF until they looked thoroughly under the hood - it tells me that MF is in much worse shape than can be determined from what is being publicly disclosed. I will say that the fact that the Govt sent the FBI in almost immediately tells me that there will be a cover-up similar to what happened with Solyndra.

In terms of market action on Monday, if the market sells off Monday its because the metals are still highly correlated with the SPX and both are highly correlated with the Europe situation. Also, India is closed Monday and it sounds like from industry reports on Friday that the physical demand is taking a breather. A brief pullback would be welcome in my view from a technical standpoint. I hate it when we go straight up w/out a break to consolidate. I do think we will break correlation in the metals/miners sometime soon, similar to early 2006. That could be the dynamic that takes silver to $60 and gold somewhere over $2000.

Could MF Global Be The Lehman/AIG Event Trigger?

2011-11-04T12:26:00.002-06:00

Segregated reserve bank accounts under SEC Rule 15c3-3: The SEC Act of 1934 requires broker dealers to maintain "special reserve bank accounts" strictly for customers which are separated from the broker dealer's own accounts.

First off, I just want to say that if Jon Corzine does not see jail time over this then our system is seriously corrupt and fraudulent and we're all a bunch of lifeless serfs if we don't join the Occupy movement to protest the raping and pillaging our country by a select few. That's the bottom line.

The brokerage accounts of MF are being moved to several different brokers who are presumably on sound financial footing. Here's the problem: it looks like there must be some missing collateral associated with those customer accounts to the tune of about $1 billion:

Call it the mother of all margin calls: Up to 50,000 former customers of bankrupt broker MF Global must post some $1 billion in additional collateral to new brokers almost overnight, or be forced out of their trades.

In other words, a large portion of the collateral that should be attached to each and every one of those accounts is not accounted for and the customer will have to pony up the funds to cover the margin requirements or have their accounts liquidated. Here's the story: LINK Tragically, if the markets for the various commodities and metals associated with those accounts experience some downside volatility during the transfer process, the account could be wiped out. I know of at least one fund that is closing down because of this. The ONLY failure on this guy's part is that he trusted the firm being run by Jon Corzine, former Goldman CEO and former Governor of New Jersey. I guess if you lie down with dogs you wake up with fleas. In this case, if you lie down with someone who is BOTH a Wall Street executive AND a politician, you wake up with a combination of late-stage pancreas cancer and hep-C.

The bigger problem, at least for the rest of us, is what the hell happened to the collateral. The missing collateral should be cash - readily liquid - and futures contracts and securities - mostly liquid. Where is it? Why are these customer accounts not being transferred intact? According to the SEC Act of 1934, these funds and securities should have been in a separate account - not one penny of money should be unaccounted for.

I have said a few times that when one big financial firm starts doing something and gets away with it, they all start doing it. Remember the repo game Lehman was doing to dress up its quarterly balance sheet for regulators and investors? It turns out every big Wall Street firm does this, everyone knows it now and the regulators are doing nothing about it. Well it turns out that MF was doing this too, among other things. But they were also likely illegally rehypothecating the customer collateral and misappropriating the funds obtained by rehypothecating customer collateral. Now the collateral and the funds are gone.

Once people understand what hypothecation/rehypothecation is - if they care about their money they will, that is - the MF situation could lead to a confidence crisis in the brokerage industry. Almost everyone who opens a margineable brokerage account, from little guys to sophisticated hedge funds, knowingly or typically unknowingly also signs a hypothecation agreement, which enables the brokerage firm to take the securities in your margin account and re-pledge them as collateral to obtain bank financing for your margin account. It looks like MF was taking this collateral and obtaining financing but using that money for other purposes - like investing in short term Greek sovereign paper paying 50% now that pays 100%, which means MF's investment was wiped out and now the bank that provided the funds for those investments has the customer securities as collateral for the MF trade and the customer is screwed. Please note, I don't know for sure that is exactly what happened, but I'm 90% certain that is generically what was going at MF and why at least $700 million in customer cash and $1 billion in collateral is missing and possibly more.

You know, if we were on a gold standard and did not have an extreme fractional banking system, this couldn't happen. But I digress. I will say that based on the most recent news flowing out of Jeffries securities, if you have an account there I would move it. Jeffries was downgraded by Egan-Jones recently to BBB-. S&P has not budged. Usually the ratings agencies are way behind the curve in downgrading financial firms. Moodys usually keeps a high rating intact until the day before a firm goes under. Egan-Jones is typically a bit more ethical and forthright with putting out the truth. The fact that questions are being raised about Jeffries should raise the hair on the back of your neck if you have an account there. Jeffries has an unsavory history and culture. The current CEO originally worked as a junk bond trader directly for Michael Milken at Drexel Burnham. Remember that saga? A lot of ex-Drexel guys who didn't get thrown in jail ended up at Jeffries. If you keep your brokerage account there just remember that "when you lie down with dogs..."

Just Another Day In Our (Corrupt) Paradise

2011-11-03T10:01:00.006-06:00

“When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self sacrifice - you may know that your society is doomed.” (Francisco D'Anconia, "Atlas Shrugged")

I use that quote quite frequently but every molecule of thought embedded in it describes the state of condition of our economic and political system with 100% precision.

Hopefully, if there is a hell, Jon Corzine will burn there. A good friend of mine back in NY who is plugged into the Wall Street "whisper" news affirmed that the scuttlebutt about the real number in the MF Global missing funds case is $1.5 billion, not $700 million. Not only that, but that the internal control systems had been designed to prevent regulators from detecting the illegal activity. This means that both Corzine and the CFO should go down hard. Unfortunately for the CFO, he was never CEO of Goldman Sachs or Governor of New Jersey, so he will likely go down in flames while Corzine skates away in shame because of this hidden code in our system: "when you see money flowing to those who deal, not in goods, but in favors."

The Wall Street Journal ran an article questioning the CFTC in the MF Global abortion. Here's the LINK Here's what they don't question and examine: What is the link between CFTC Chairman Gary Gensler and Jon Corzine? I'll tell you what the link is. Corzine became the CEO of Goldman Sachs in 1994 and it was in the mid-90's that Gensler, a Goldman partner, was elevated to the head of fixed income and currency trading in Japan and then co-head of finance, the second highest position in the firm after CEO. Corzine worked his way up through Goldman as a fixed income guy. If you don't think there was a very close relationship between the two of them then you are either naive or a moron. Given the way Goldman's culture operates, it's possible they even happily slept with each other's wives. They are both obviously highly placed in the Democratic party. It's pretty clear to me that Gensler was tied tightly to Corzine because Gensler's path to being CEO was clearly derailed when Henry Paulson shoved Corzine out of power. With this trail of evidence, there is no question in my mind that Corzine was able to use his relationship with Gensler to deflect any scrutiny of MF's books: "when you see money flowing to those who deal, not in goods, but in favors."

It will be interesting to see how all of this unfolds. Unfortunately, I believe that Corzine will be able to wield enough influence with the key people in the Obama administration, specifically with Eric Holder - the scumbag who wrote the pardon letter for tax-evader Marc Rich - in order to facilitate the burial of the real paper trail that leads to proving the facts of this tragedy. As I mentioned earlier this week, the Taxpayers will be handed the bill for the cost of replacing customer funds that were illegally used by MF and likely most of JP Morgan's counterparty exposure, which is in the billions.
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Update on the ongoing wealth transfer in housing: Freddie Mac just reported a huge loss and has asked for ANOTHER $6 billion from the Taxpayers LINK . That the Government allows this to continue is completely appalling. There is no question in my mind that this money is ultimately bailing the big banks out of their billions in losses on mortgage paper (see the deal Bank of America cut with Fannie Mae, with the help of Geithner).

Has Bernanke Lost His MInd?

2011-11-02T13:52:00.007-06:00

I just saw this headline come across the tape: "Low interest rates benefit savers too: Bernanke." He goes on to explain that low interest rates are stimulating economic growth and savers won't get decent returns on their savings until the economy strengthens. Here's the LINK The dude lost me on that one. In fact, that has to be one of the most insanely idiotic statements I have ever heard - and everyone who heard and believed it is dumber for having done so.

One of the exercises I try to do is, when someone says something that seems stupid on the surface, I try to intellectually understand why they are making that particular statement. Let me get this straight: if I have my money in a CD earning a fixed 1%, my money will grow in value if the economy by some miracle of some other-world higher power grows? I can understand trying to sell an idea by spinning the logic, but Bernanke's reasoning there is outright retarded. I truly think the guy has lost his mind. Either that or he's treating some malady with high grade medical marijuana. Okay maybe he's not stoned because he would not be able to make that statement and keep a straight face - perhaps he takes copious amounts of prozac or xanax.

But nonsensical logic aside, let's look at some facts. Regardless of interest rates, the Fed is devaluing the dollar. Since Bernanke's QE began in 2009, the dollar index has lost 13% of its value. That doesn't reflect the lost purchasing value of a dollar due to real inflation, not the bullshit CPI data served up by the Government and shoved down our throats by Bernanke. All I know is that the cost of everything I use on a daily basis has gone up substantially over the last year, and now peanut butter is going up 30% this month.

I'm sure Bernanke knows the true rate of inflation. I also believe that the last shred of intellectual and academic integrity that supposedly comes with being the El Jefe of an Ivy League economics department is what is standing between Bernanke and his desire to send the printing press into overdrive. Furthermore, the fact of the matter is that if Bernanke pulled a Volcker 1980 and jacked rates up to where they should be, which would indeed benefit savers and would stimulate savings to an extent that might help fund real investment, we all know that it would throw the economy into a depression that would make the 1930's depression look like a Bernankean bong hit party.

And here's an even bigger problem: 15% of the country is now on food stamps: LINK I saw a news report the other day that depicted the trouble farmers in some southern States are having hiring labor to help harvest crops because of strict illegal immigrant laws being enforced. If the Government cut off food stamps to everyone except the worst of the hardship cases out there, I can guarantee you that these farmers would not have a problem finding domestic labor. In fact, I would argue that if the Government cut back on all welfare entitlement programs by at least 50%, it would solve BOTH the high unemployment problem AND the illegal immigrant problem.

But given that real interest rates will continue to be very negative for the foreseeable future and that the Government will continue borrowing and printing money and handing it out to potential voters, gold and silver will continue onward and upward. Jame Turk and John Embry are calling for $60 silver to happen a lot sooner than most people think it can happen. In the past few days I have come around to agreeing with them. I don't have a specific time frame for that other than to say that I think we could see $60 silver by May. That would imply $2400 gold if you think the gold/silver ratio can trade down to the 40 area.

What will drive this? Bernanke's zero interest rate policy which he says benefits savers and the massive monetization of European and U.S. banking and Government debt...In the spirit of trying to shed some humor on the tragedy that is our system, this clip from Billy Madison comes to mind after reading Bernanke's comments today:

The U.S. Banking System Is More Leveraged Now Than In 2008

2011-11-01T09:33:00.004-06:00

Before I get into what the title is about, I wanted to comment on the MF Global situation. By now I'm sure most of you have read/heard that about $700 million in customer funds are missing from MF. Legally, a brokerage firm is required to segregate its customer funds from all other capital/balance sheet items. This is one of the golden rules in the securities industry. This is supposed to be accounted for on a daily basis and reported weekly to regulators. My best guess is that Jon Corzine used customer funds to shore up the capital accounts at MF in order to avoid having credit lines pulled and to deflect regulator scrutiny. I can't think of any other reason those funds would be unaccounted for. And now I would bet that those commingled funds went down the drain with the other bad bets that destroyed MF.

Corzine is a scumbag. He ran the Government bond desk when I worked at Goldman Sachs in the late 1980's. I was in the fixed income division and was, on occasion, peripherally in strategy meetings he was leading. I can recall vividly thinking, "here's the kind of guy who would trade his mother for a nickel." Corzine is emblematic of the blood-sucking greed and corruption that has enriched many connected to Wall Street. Corzine should spend time in jail for this situation at MF. Unfortunately, through his political and business careers, he has made plenty of friends in high places, including many in key positions in the Obama administration, who will make sure he walks from all of this with nothing more than a slightly bruised ego. Oh, he will take away another $12 million from MF based on his compensation agreement as he walks out the door and hands the entire multi-billion dollar bailout tab to U.S. Taxpayers.

I will just add to this that if MF Global/Jon Corzine was commingling customer funds with non-customer funds, I would bet a lot of money that all of the big brokerage firms/banks are doing this. You still trust those gold/silver ETFs and other paper products being sold by your broker/adviser? I wouldn't trust ANY securities firm that is owned by a banking parent or has banking operations (that would be all of the big ones).

Just as I suspected, the big Wall Street banks have a significantly higher exposure to the European banking crisis than is apparent from the "on balance sheet" disclosures.   Bloomberg reports this morning that U.S. banks have $518 billion in credit default swaps (CDS) on European sovereign and corporate debt. That number increased by $81 billion in the 1st half of this year. JP Morgan, Goldman, Morgan Stanley, Bank of America and Citigroup write 97% of a CDS in the U.S. This data is reported to the Bank of International Settlements (BIS - the "central bank" of all central banks) but does not show up in the balance sheet numbers reported by the banks and marketed by Wall Street as being "fortress balance sheets." It shows up somewhat opaquely in the footnotes but is largely off-balance-sheet and unregulated. The regulations that are in place go unenforced. I got into an argument with a Wall Street meathead salesman a couple months ago who challenged my call that the U.S. banks were in much worse shape than reported. Looks like I was right and he's still a meathead. Here's the report: LINK

Despite the fact that these banks will say that they have arranged "net out" hedges against the CDS that they've underwritten, here's the bottom line: "The payout risks are higher than what JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc, the leading CDS underwriters in the U.S., report." The reason for this is "counterparty risk." That is exactly the risk that torpedo'd AIG and technically bankrupted Goldman Sachs in 2008.  These banks may well have their CDS bets hedged, but if the bank/insurance company/hedge fund/MF Global on the other side of the trade defaults, the hedge incinerates and the big bank is left completely exposed. That is, until the Fed and the Treasury come to the rescue and print money and use Taxpayer funds to bail out the big banks who underwrite these CDS trades.

At the end of the day, the big Wall Street banks are in even worse shape than they were in 2008 and their balance sheets are more highly leveraged.  The only "CHANGE" that 2008 accomplished was the putting in place of the mechanisms for these banks to better hide their fraud and ponzi schemes and the further impoverishment of the middle class taxpayer who has been sold out by the politician(s) that gave him "HOPE," as said politicians ended up shifting the entire burden of Wall Street's nuclear cesspool onto the public.

There is one way to at least insulate your wealth from this poisonous garbage going on in our financial system: physical gold and silver. Note: Not ETFs of any kind. Not Morgan Stanley, Monex or Kitco unallocated, pooled gold accounts. Not GLD, SLV, CEF or GTU (PHYS and PSLV are fine but only if you have the $100s of thousands required to turn in your shares and receive the actual bars). Gold/silver do not have any counterparty risk - any "promise" to pay by anyone. When you own gold and silver, you own the world's oldest currency and most time-tested reliable wealth preservation vehicle. If you own the paper your adviser sells to you that claims to be backed by gold, you don't own gold - period.

Today Was Ugly

2011-10-31T15:47:00.000-06:00

The S&P 500 index futures started selling off around midnight (Denver time) and steadily went lower from then until the 2 p.m (Denver) close of the NYSE. Both the SPX and the Dow closed on their lows of the day and the selling in the final 5 minutes of trading accelerated.

On the surface the analysts and media will blame the action on deteriorating situation with regard to the "bailout" agreement rolled out on Friday. I lifted my leg all over it on Friday and several high profile analysts released similar analysis over the weekend and this morning. While there is no doubt reality set in with regard to the latest kick the can down the road plan out of Europe and the market retraced some of the gains it had made in anticipation of some kind of holy grail deal, I believe that an even darker reality connected to the truth about the state of condition of the U.S. financial and economic system is starting to infect the markets.

To begin with, the GDP report on Friday looked great on a headline basis. "However," if you dissect the components, it looks like a one-time shot. To begin with, that highly manipulated and unbelievable "GDP deflator," which translates nominal economic growth into real growth was reported to be 2% vs. 3.3% in Q2. This number is so manipulated it's not even worth debating other than to know that the true rate of inflation is probably running at more like 10%. That is where the John Williams Shadow Statistics inflation number comes in using the methodology used by the Government in 1990 to calculate inflation. The big contributors to Q3 GDP were personal consumption expenditures and federal government spending. I'm sure the PCE reflected a much higher rate of inflation (i.e. higher amount of money spent on food and energy) than is accounted for by the GDP deflator. We also know that domestic auto manufacturers pulled forward auto sales to those who can still afford a new car by taking advantage of federally subsidized financing deals and dealer inventory stuffing (both as explained in a prior blog post). Both of those are unsustainable.

Here's some reasons why this "bump" in Q3 GDP is unsustainable and will likely be followed up in the next few quarters with a negative GDP print (also, don't forget that Friday's GDP report will followed up by several revisions and I would bet the revisions will be downward). Earlier last week some big industrial manufacturers reported better than expected earnings BUT also issued a gloomy outlook: LINK The Conference Board's consumer confidence index was released and showed the lowest level of confidence since March 2009: LINK Also, although it received no attention from the mainstream media, a non-profit research group released a study that shows that the aggregate debt level of the States is over $4 trillion: LINK Well, in the context of that number, does Greece's $400 billion debt really seem like the source of global financial demise?

Finally, the Treasury announced today that it was going to have borrow $20 billion more this quarter - for a total of $305 billion - than was originally estimated and $541 billion next quarter. Combined and annualized, that imply about a $1.8 trillion spending deficit for fiscal 2012 (which ends in September for the U.S. Govt). The primary reason is that tax revenues are coming in lower than forecast: LINK Looks like the budget deficit will come in higher than expected and the economy will be generating less growth than is being reported. Do you still trust the GDP number the way the Government calculates it? The market began to sell off even harder today about the time the Treasury borrowing report was released.

The bottom line is that, for sure, the European situation affected the markets today. But the fact remains that if the degree of problems in Europe are X, the degree of problems in this country are at least 3X, because the problems plaguing the European economy and political system are the same problems destroying ours, only those problems here in the U.S. are several multiples worse.

Was A Wrecking Ball Just Taken To The EU Taxpayer Bailout Agreement?

2011-10-28T07:53:00.003-06:00

Looks like the German high court has issued an injunction on the German Parlaiment's ability to deploy taxpayer money to fund the new EFSF funding agreement. Sourced from zerohedge quoting Spiegel Online:

Germany's Federal Constitutional Court on Friday expressed doubts about the legality of a new panel of lawmakers set up by the German parliament to reach quick decisions on the release of funds from the euro bailout mechanism, the European Financial Stability Facility (EFSF). The court issued a temporary injunction banning the nine-person committee in the Bundestag from taking any decisions on the deployment by EFSF of German taxpayer money.

Here's the direct LINK

As I commented yesterday, the "rescue agreement" has a lot of holes in it that can ultimately only be funded realistically by printing money and expropriating the Taxpayer wealth from countries that still have middle class wealth to steal and give to the banks under the guise of "saving" Greece. It's good to see a supreme court that is still independent enough from the tentacles of banking wealth that will take a closer look at everything. That would never happen in the United States these days...

But wait, there's more: The Italian banks are looking a gift horse in the mouth and are lifting their leg on any new capital raising requirements. This is absurd. Italy, on the cusp of financial collapse, gets an offer of a free lunch from German taxpayers (and U.S. per the terms of the rescue deal via the IMF), and all they have to do is pay the tip. Here's the article from the Financial Times LINK

This is crazier than last night's World Series game. I wouldn't short this market, but I wouldn't bet that yesterday's EU deal gets implemented the way it was drawn up...but I would get ready for A LOT more money printing by buying as much gold as possible below $2,000/oz and as much silver as possible below $40.

This was the German public's response to the EU rescue agreement:

The EU "Rescue" Plan: A Whole Lotta Nuthin

2011-10-27T10:58:00.001-06:00

Long on political hot air and rhetorical concepts, short on details and achievability. Eventually the EU will require a couple trillion more in money printing/currency devaluation and the EU banks will require a Taxpayer bailout. That's the bottom line if you don't want to read the rest and I've linked the actual plan below.

The Euro Summit produced the outline of a Greece/bank "rescue" plan that really is a fantasy plan of action more suited for children playing “slay the evil beast” video games with their Wii. In effect it does nothing to reduce absolute debt levels, it does nothing to address the core economic and financial problems that created the EU insolvency in the first place and it offers no real concrete plan for raising the necessary capital to fund the "rescue" plan. In short, this plan of action is about as real as that of the 2008 bank bailout by the U.S. Government/Taxpayer, which has actually led to a much bigger version of the same problems left unattended in 2008. The bottom line is that the EU game plan - unless Sarkozy can bamboozle the Chinese into coughing up $100's of billions in support, will require more money printing and EU Taxpayer wealth transfer to the big banks.

As I dig into and digest the detail of this Greek/EU bank bailout outline, it becomes obvious that this plan is very long on form and very empty on real substance. In addition to the 2008 U.S. bank bailout, it is also analogous to the debt limit extension agreement by Congress and Obama, which outlined a game plan to reduce debt over the next decade starting a few years from now, but enables further current increases in debt accumulation and money printing.

Briefly, the plan calls for a "voluntary" 50% write-down of the Greek debt held by the banks. It is "voluntary" because if it were mandatorily enforced, it would trigger $100's of billion in Credit Default Swap OTC derivatives, which would potentially bring down the global banking system. The derivatives rule enforcement agency - ISDA - has ruled that a default event will not occur as long as the writedowns are "voluntary." In order to pave the way for this capital hit the banks will take, the plan calls for the banks to raise in the range of $150 billion in fresh capital. I'm not sure where they think this money come from but I'm guessing that's why Sarkozy is headed to China to get on his knees and beg for help. On the assumption that the banks won't be able to raise this money, we should fully assume that the money will have to be printed up by the ECB and guaranteed by the EU Member State Taxpayers.

In addition to the bank requirements, the EU Members will contribute 30 billion euros (approx $42 billion) in new debt issued to Greece. The Member countries are not writing down their existing Greek debt holdings and the plan assumes that the countries that have bought Greek debt will be paid off in full. Hmmm - that's just plain funny. The non-writedown by the Sovereigns is nothing more than a charade to make the taxpaying citizens believe they won't be paying for this. But in the end it just gives “the can” another kick down the road to money printing and wealth transfers. The plan also includes a $140 billion financing program for Greece to be partly funded by the IMF - that is, on a pro rata basis by Taxpayers in every country which are IMF members, which means primarily pro rata by U.S. Taxpayers.

Furthermore, the plan calls for the European Financial Stabilization Fund (EFSF) to be increased from its current $440 billion to roughly $1.4 trillion. This will be funded by the issuance of new EFSF bonds, which would be guaranteed by the EU. I guess the two biggest questions would be: First and foremost, who the hell would buy those bonds? Second, just how good is the guarantee? Without expounding on the obvious answers to those questions for the sake of brevity, the bottom line is that this mythic $1.4 trillion will, at the end of the day, ultimately have be fulfilled by more money printing by the ECB.

How will the EU pay for this? To begin with, the plan is based on the assumption that EU countries will be able to generate a considerable amount of economic growth and employment. Not sure how that will be accomplished, given that the entire globe is either slowing down or slipping into recession for the foreseeable future. The plan also requires a high degree of fiscal reforms, which so far to date appear to be next to impossible to achieve, notwithstanding Italy's bold move to raise the mandatory retirement age from 65 to 67 by 2026. In other words, beyond the flawed debt relief agreement, the real way to solve the problem of too much debt is to let economic activity produce the wealth required to pay off the debt incurred or force the parties responsible for creating the debt to take a big financial loss for making bad investment decisions. The EU plan offers neither, and realistically it will be fatal to assume that economic growth will generate the wealth required to discharge the catastrophic amount of debt that has been issued over the last 20 years by all Governments globally.

You can read the details of the plan here: LINK

If you don't want to sift through that 15-page document, suffice it to say that it contains a lot empty rhetoric and absurd statements about austerity goals being established. I think the world has a better chance of seeing aliens from Mars than any of those goals actually occurring. For instance, the goal was set for Greece to reduce its debt to GDP ratio to 120% by 2020. This is a joke. Historically, whenever a country's debt to GDP exceeded 100% for any length of time, the country collapses. And Greece can't even pass measures to reduce its spending for a day right now. Short of more massive printing by the ECB, Greece will ultimately collapse. (By the way, the U.S. Treasury debt is on the cusp of exceeding 100% of GDP)

I could go on for a lot longer about how ridiculous - yet tragic - this latest Government financial chicanery has become. Suffice it to say that ultimately the ECB will be required to print a few trillion more euros and the European Taxpayers will be handed the final tab. I can guarantee you that the banks in some way will eventually be bailed out by the printing and the middle class.

As you can see, the stock markets love this plan. Gold and silver are up big as well, but for different reasons. When the lipstick wears off this pig, the markets will begin discounting the realities as outlined above and will make another upside down U-turn and head a lot lower. I fully expect when this occurs, most of the paper money that floods out of the global stock markets will, instead of flooding into near zero percent U.S. Treasuries, will flood into physical gold and silver and drive the price of each to much higher levels from here. And if gold and silver go up by X, the mining stocks will go up by 3X.

A year from now those who added to their gold/silver/mining stock positions will gratefully look back at the opportunity that has been presented by this latest price correction. Those who have not bought any gold or silver up that point will either jump in and chase it higher or dig their head further into the sand and pretend to not see their collapsing wealth or the growing financial disaster surrounding them.

Obama Was In Denver Today - "Four More Years!"

2011-10-26T15:23:00.002-06:00

He was prostituting himself to the college student constituency for votes, as they were a large part of his voting base in 2008. I happened to see this new campaign poster plastered around town:

He's hasn't followed thru on any of his campaign promises yet, but now he's telling his Denver student audience that he's adding student loan relief and mortgage relief for all who need it to his list of promises.

I can honestly say that, given the pathetic front-runners offered by the Republicans, Obama won't need to campaign or promise anything in order to get re-elected.

We just get four more years of the same policies started by Bush and expanded by Obama.

Housing Continues Its Death Spiral

2011-10-25T13:13:00.006-06:00

Oct 20 (Reuters) - The Russian central bank will continue raising the share of gold in its gold and foreign exchange reserves, the central bank First Deputy Chairman Alexei Ulyukayev said on Thursday. "We are not planning to step away from this path. We are acquiring huge volumes (of gold)," Ulyukayev told the parliament.

The Case-Shiller 20 city housing index for August was released this morning, showing a greater than expected 3.8% year over year decline. Here's an article LINK That kind of speaks for itself and I don't have a lot to say about it other than housing is still a long way away from finding some sort of "bottom" level. Obviously the housing market ballooned up on the hot air of massive debt financing. As the debt defaults continue to pile up, the value of the housing stock continues to implode. The Case-Shiller chart below shows graphically the degree to which housing values will likely fall:

(click on chart to enlarge)

This chart is a few months old. The latest index value was a little above 140. The average long term index value is 100. This index value is based on over 100 years of inflation-adjusted housing data. Unfortunately, just like bubble markets significantly overshoot their "intrinsic" value to the upside, when markets go through a "regression to the mean" correction they often overshoot once again to the downside. If you are a homeowner, you should hope that the mean index value of 100 is the bottom. Of course, as we know, "hope" is not a valid investment strategy.

I just heard another tragic short sale story. A friend of mine lives in an area of Denver that traditionally was very upper middle class, with the average home trading for north $1.5 million during the bubble. One of his neighbors had a huge house listed for $1.2 million. It went into a short-sale contract with $1.7 million of mortgage debt. Based on comps, we believe the contract price is around $800k. The bank will now have to mark to market the mortgage and eat around $900k. The house next to this one is in foreclosure. Apparently several homes in this neighborhood are in various stages of default/foreclosure/short sale. This isn't a newer "faux mansion" development - this is an older money area that had been considered financially stable.

This situation is not unique to just this neighborhood, just Denver, just Colorado. Most of the volume in foreclosures has occurred in the middle/lower end of the housing market. Now the banks are going to have to start working on the higher end. I know of at least 2 different people living in what were originally $1 million-plus homes who have not payed their mortgage for over a year and have not even been contacted by the bank about being in default. When you hear about this, it means the bank is still carrying the mortgage at full value. I have argued many times that the true, mark-to-market financial condition of U.S. banks is substantially worse than is being reported using GAAP financials and the numbers being pimped by Wall Street.

The moral of this is that our system - with or without the impending damage about to be inflicted on the global system by Europe - is headed toward a financial nuclear explosion that will make the Bear/Lehman/AIG explosion look like a hand grenade going off. The next time you drive by a big home with expensive cars piled up in the driveway and you wonder how they are doing "it," the truth is they likely are not and are living on borrowed time. And speaking of "overshooting" intrinsic value. Anyone care to hazard a guess at the price at which gold will be considered to have "overshot" its intrinsic value? I'm on record saying I can easily see $10,000 in intrinsic value for gold (that's for public consumption, I believe the price will be a lot higher). Based on that chart above, gold's "overshoot" price would be $20,000/oz...

How Many Of You Have Money With Janus Funds?

2011-10-24T15:23:00.004-06:00

NFLX update: The stock is down $42 to $76 - almost cut in half overnight and down 75% from the 52-wk high. Morgan Stanley, Vanguard, Janus, American Century. Those are the Einsteins that own a big piece of NFLX. The managers of these funds will get paid a lot money regardless of what happens to your wealth...

In yet ANOTHER of a long list of investments by Janus that turned into big blow-ups, Janus is the 4th largest holder of Netlix: LINK After hitting a high of $304 earlier this year, Netflix is down another $31 in after-hour trading today to $93, after providing disappointing revenue guidance. That's 70% decline in value. I think Janus has stepped on more stock landmines than any other large mutual manager. You lay down with dogs, you wake up with fleas...

It Gets More Unbelievable Everyday

2011-10-24T13:08:00.006-06:00

Obama is going to make a direct attempt to transfer more of this country's dwindling wealth from those who can still pay their bills to those who can't. It looks like he's going to be able to implement an initiative to use taxpayer money to help very underwater homeowners refinance their mortgages without any Congressional authorization. You know, it gets to a point at which you have to pull the plug on bad investments destined to get worse. Housing is one of those "investments." I'm still trying to figure out why the originators of those mortgages, a lot of them private banks, are not going to be required to eat the loss. If any of us make a bad investment we eat the whole loss. How come banks get bailed out by "us?"

He is also going to roll out some kind of plan to bail out student loan borrowers. You know, a lot of these student loans were granted to people enrolled at piece of shit for-profit colleges owned by corporate parents like Apollo Group (University of Phoenix) and Corinthian Colleges (DeVries). For sure, there's some legitimacy to the education provided at these schools, but they are first and foremost set up to be giant student loan processing factories.   Now Obama is going to bail these guys out too. The owners of these businesses generate a high level of revenues from student loans, take none of the risk associated with them and get all of the upside benefit. Sounds a lot like the banking model, huh?   If you don't believe me, consider that Goldman Sachs has a very big ownership position in this industry. It's some good mixed in with a lot of fraud and the Taxpayer gets the bad debt bill...here's the story LINK

Anyone who owns muni bonds is taking a lot risk that is not reflected in the rates being paid, even after the tax benefit effect. Harrisburg, PA has filed bankruptcy, it looks like Stockton, CA is next and probably some cities in Rhode Island:   LINK These are the "Greeces" of the United States - the relatively small problems which are getting all the focus despite the glaring fact that big States like California, Illinois and New York are hopelessly insolvent. At some point there will be an avalanche of municipal defaults and muni investors will get annihilated. The next time your genius financial advisor calls to pitch you on some "cheap" munis, you are an idiot if you don't hang up the phone and change advisers...

And now what, now that we know that it's not a question of whether or not the EU and our Fed will fire the printing press back up, but to what degree? I truly believe that the current spike in the stock market is a combination of a massive short-squeeze/cover rally (NYSE short interest hit a record a couple weeks ago, leaving it ripe for a short-squeeze rally) combined with knee-jerk anticipation of the next big money printing initiative (i.e. massive currency deval). We've seen glimpses of the size and format of the EU money printing program and the details of what the Fed has planned conceptually are starting to leak out. It is my view that the market is already pricing in this "event" with this straight-up move in the market and we'll get a "buy the rumor, sell the fact" type of dynamic. When the dust settles everyone will look around and see that the latest slug of printed money didn't solve any problems but left the paper fiat currencies further devalued.

This currency devaluation, while not overt like the one implemented by the Swiss National Bank a couple of months ago, will manifest itself in the form of much higher prices for gold and silver. This would explain why the big bank manipulators have been covering their paper short positions on the Comex - especially in silver.  The best signal yet that the market has given us that this correction has run its course and a big, move higher will soon begin is that the large, speculative hedge funds have been selling down their long positions and adding to their short positions, taking the other side of the commercial manipulators. In 10 years of studying and trading the metals market, every time the hedge funds have taken the other side of the banks like this a massive move higher has soon followed. Remember, in 2008 silver went from $21 down to $8. But if you happened to buy in at $21 and held thru today, you are up 66% on your investment. Got anything else that has given you that kind of investment performance?   The next move up should be even more eye-popping - how come your investment advisor wants to sell you munis and treasury bonds instead of gold and silver?

The New CFTC Position Limits

2011-10-21T10:25:00.002-06:00

After taking a few days to read up on the new CFTC position limits, I wanted to post my thoughts. I am specifically expressing my views with regard to how the new rules will affect Comex gold and silver futures. Unfortunately, while the new rules may make it more difficult for the big banks who manipulate gold and silver futures trading - primarily JP Morgan, HSBC, Goldman Sach and a few others - for a short period of time, I believe that there are enough loopholes and gray areas of definition in the language of the rules that will enable the big bank manipulators to continue manipulating unimpeded. That said, I also believe that, as is always the case over 5,000 years of history, the natural forces of the market - Adam Smith's "invisible hand," if you will - will ultimately overwhelm any and all manipulation. Gold and silver will eventually find their "natural" level of trading and it will be many multiples higher price than where they trade now.

Without reinventing wheel, I've consolidated two posts from http://www.silverdoctors.com/ which summarize the new rules into the pdf below. I've slightly edited the original content and I've placed the key points in bold. I just want to say that the new rules leave A LOT of room for loophole behavior and "exemptions." I believe that those who are optimistic that this will sharply curtail JP Morgan's illegal manipulation of the silver market are placing entirely too much faith in our Government and in those who are in charge of enforcing the rules and laws already in place.

Einstein defined "insanity" as doing the same thing over and over and expecting a different result. To believe that the CFTC will do the right thing with regard to defining "swaps," and "position limits" and in granting "exemptions" is to once again repeat the mistake of placing faith in our Government - and is therefore insane.

Here's Silverdoctors' excellent synthesis of the "fine print" on the new rules:

(click on the "Full Screen" tab to see big beautiful print)

PositionLimits -

Even if Bart Chilton has the right intentions, I refuse to believe that one man will be able prevent the banks from exploiting the areas of the rule that are open to interpretation and subject to the judgement of those in charge of enforcing the rules. That notwithstanding. I fully expect the big banks to spend a lot of money challenging these rules in court. That notwithstanding, just like every other instance in the financial markets legislative history of this country, I fully expect that the big banks will figure out several ways to get around these rules. After all, I worked for a bank that had figured out a way to get around Glass-Steagall and had already been operating a securities underwriting and trading unit many years before G-S was repealed. The ability to do so was part of an "exemption."

As I mentioned earlier, ultimately the market will determine the price at which gold and silver should trade. The ticking time bomb for the paper market manipulators is the accelerating accumulation of, and demand for, the actual physical delivery of gold and silver. Venezuela is just the latest example of a large gold owner who has decided to stop placing faith in the London and U.S. depositories and is repatriating its gold by moving it back to Venezuela. As this trend accelerates, the paper manipulators will be squeezed out of business. And yes we will eventually see massive defaults by entities like the Comex and GLD.

Of course, by that point in time there will likely be much bigger problems to deal with than the collapse of the Comex derivatives markets...

Have great weekend and don't forget: IT'S TEBOW TIME IN DENVER!!!!

THIS Is Why We Own Gold - 10,000 Reasons

2011-10-19T13:29:00.005-06:00

The big question we always get about gold is, "how do you know when the bull market will be complete?" I have always said that will occur when a big country/entity rolls out a new gold-backed currency and concomitantly revalues the price of gold substantially higher such that it provides a credible backing for this currency. To me, China - or a China-led consortium - is the likely economic power to do this because it is large enough in terms of imports/exports to demand that all trade that occurs with it - and/or the consortium - has to be conducted in this new currency. In this manner, the new global reserve currency - gold-backed - will be born.

With this idea in mind, Paul Brodsky has expressed what I consider to be the best analysis for gold that I have come across that also includes this idea of new gold-backed reserve currency. This is a must-read and you can read that HERE Mr. Brodsky recently did an interview in which he laid the case for $10,000. Here's the LINK And finally, today the invaluable King World News published some more commentary from Brodsky in which he lays out the math for why $10,000 is his number:

We figured you should take the monetary base and divide it by official gold holdings. That would give you the price in terms of monetary inflation that it would be worth today. Coincidentally, after we came up with that theory we went back and looked at what they used to use, the formula for arriving at the Bretton Woods dollar exchange value with gold at $35 and it was the same formula. So if you were to divide base money by official gold holdings today, after QE2, you would come up with a price just north of $10,000 an ounce.

Here's the LINK

Now, there will always be hair-splitting debate over what variable to use in calculating where the reval of gold - and corresponding deval of fiat money - will take place. My publicly-expressed view is $10,000 but I can also make the case for a much higher number. To be sure, as this ultimate "reval event" draws closer, I fully expect that gold will easily go a lot higher than $10,000. But 10,000 is a very safe bet.

In the meantime, I thought I would treat everyone who has not seen it yet to the gold investor's version of pornography, presented by my friend and colleague "Jesse" of Jesse's Cafe Americain:

In the meantime, until the reval/deval event occurs, I have to say that the precious metals sector still represents the best value and the best investment opportunity I have seen in over 30 years of investing, studying and speculating in the financial markets. You can take that one to the bank - just don't use Bank of America.

Bank of America Takes Sleaze To A New Level

2011-10-18T13:45:00.001-06:00

If you keep your money at Bank of America, you are an idiot. BAC quietly moved $53 trillion in derivatives from its holding company to its subsidiary that holds $1 trillion in customer deposits and is insured by the FDIC. If any part of these derivatives blow up, the Taxpayer will then be on hook for the $1 trillion in deposits.

I said 8 years ago that we would eventually see things go on in this country that blow your mind. This is one of them. Although this kind of move is permitted to a very limited degree by the Federal Reserve Act, there is no way in hell that the loophole was intended to permit $53 trillion of shit to affect FDIC-insured deposits. Of course, the watchdogs who are supposed to prevent this kind of abuse are the same people who benefit from allowing it to occur.

That the BAC upper managment would be so completely devoid of ethics and do something like this is a tragedy. That Bernanke, Geithner and Obama would allow BAC to do this is a testament to the fact that our system is collapsing.

You can read the details HERE

Bank of America Takes Accounting Fraud A Step Further

2011-10-18T10:52:00.003-06:00

Bank of America's earnings report is more confusing than a Jackson Pollack painting. It certainly shows the chaos and subjectiveness reflected by Pollack's most famous works.
- Dave in Denver

Bank of America reported net income of $6.2 billion this morning. As explained in my posts on JPM and Citigroup, the banks are using non-cash, non-economic accounting loopholes that allow them to basically create paper income in order to dress up their earnings reports and make them look good to the majority of investors and analysts who only look at headlines and/or only analyze the useless GAAP income, balance sheet and cash flow statements.

In brief, here's what BAC did: of the $6.2 billion in net income, $4.5 billion was derived from their "fair value adjustment of structured liabilities" and $1.7 billion from the good old debt valuation adjustment. The "fair value adjustment" is the revaluation of those nefarious Level 3 assets and liabilities that we really have no way of determining what they are worth because there are not really any observable markets in them. They are the toxic crap that sunk AIG. Here's the description from a recent BAC 10K:

Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and are significant to the overall fair value measurement are classified as Level 3 under the fair value hierarchy established in SFAS 157. The Level 3 financial assets and liabilities include private equity investments, consumer MSRs, ABS, highly structured, complex or long-dated derivative contracts and certain CDOs, for which there is not an active market for identical assets from which to determine fair value or where sufficient, current market information about similar assets to use as observable, corroborated data for all significant inputs into a valuation model is not available. In these cases, the fair values of these Level 3 financial assets and liabilities are determined using pricing models, discounted cash flow methodologies, a net asset value approach for certain structured securities, or similar techniques, for which the determination of fair value requires significant management judgment or estimation.

So this "fair value" technique of "guessing" provided 72% of BAC's reported net income. The DVA of course is the income BAC is permitted to record when BAC's ability to repay its debt obligations declines. Both of those accounting tricks combined created BAC's $6.2 in reported net income. So BAC's entire reported income was the product of bullshit accounting maneuvers. Bonus compensation will be paid to upper management based on bullshit.

The bottom line is that using my "however" adjustments, Bank of America had zero net income. BAC also included a $3.6 billion one-time gain from the sale of China Construction Bank stock, which was used to more than offset a "mark to market" loss on its private equity portfolio. Again, the loss on the latter is completely arbitrary and subjective. If we net out the one-time gain and the private equity write-down, Bank of America actually would have reported a loss. In other words, netting out all the one-time arbitrary and capricious accounting gimmicks, Bank of America's core operations LOST money.

These accounting rules that enable the banks to report a bunch of fantasy income were put in place after 2008 with the intent to protect these too big to fail banks from the ravages of the marketplace. The people creating and enforcing these rules are the same people who have, do or will benefit from them. The people who pay for the damage these rules hide are the Taxpayers. It's getting really corrupt out there...

Citigroup 3rd Quarter Results Do Not Disappoint

2011-10-17T14:11:00.001-06:00

my expectations that it would be at least as fraudulent as was JP Morgan's. Caution: investing based on bank earnings headlines can be hazardous to your wealth.

True to his corrupt character, Citigroup CEO Vik Pandit ushered in Citi's headline-reported bullshit by exclaiming that "Citi continues to navigate a challenging economic environment and delivered another quarter of solid operating results."

Citi reported Q3 net income of $3.8 billion and revenues of $20.8 billion, both on a "headline" basis above Q3 2010 and 3 cents above Wall Street estimates. Now for my "however" reality analysis. Citigroup included $1.9 billion in its revenues by pretending to go out and buy back its debt at a discount (CVA) and it reduced its loan loss reserve by $1.4 billion. By pretending to buy back its debt, Citi boosted its reported net income by 39 cents per share. While it's not being discussed, probably because Citi didn't show the math in its earnings report like it did the debt buy back fiction, the loan loss credit is a direct add-in to net income, and thus contributed about 47 cents to its bottom line. Both the CVA and loan loss fraud boosted Citi's reported, headline net income per share by 76 cents. Both of these revenue/income add-backs are non-cash and did nothing to generate any kind of real cash flow or economic benefit for the company. They are pure, 100% unadulterated earnings "management" - i.e. fraud - maneuvers.

So the TRUTH of the matter is that a better GAAP estimate of Citi's earnings per share would be 37 cents per share, instead of the $1.23 per share headline report. A huge miss vs. Wall Street expectations. If you look at just the "organic" business numbers, Citi's revenues declined vs. the same quarter in 2010. It's business and net income are getting smaller. Shining a spotlight on the truth therefore makes CEO Vik Pandit a liar, because the true business results are anything but "solid." Here's the 8-K filed with the SEC, for anyone who wants to ruin their evening by looking through it: LINK

Remember, Citigroup is still partially owned by the Treasury/Taxpayer, so when Citi pays that scumbag a big bonus this year, it will be your tax dollars he receives, not any kind of "economic rent" - i.e. real cash flow - generated by Citi's business model.

Speaking of Taxpayer-owned "special needs" corporations, I see AIG is once again hosting lavish sales parties at expensive resorts. You can read about it HERE That's just more of your tax dollars going down the crapper in the form of expensive wine, food and - most likely at night - Charlie Sheen-style hookers.

One more point on the Citi financials. I don't have time to really go through the recent 8-K and latest 10-K and show where Citi is really committing fraud. But I can guarantee that on a true "cash basis" and "market value" basis, Citi is insolvent.

OccupyDenver - Saturday 10/15/2011

2011-10-16T17:57:00.002-06:00

Went down the check out the OccupyDenver scene across from the State Capitol building after seeing a couple of riot squad SUV's loaded with riot cops drive by. The crowd was larger than I had expected - about 1000 while we were there in the mid-afternoon and it expanded to an estimated 3,000 at night. The crowd was very peaceful and non-confrontational.

From what I saw, the cops - who were almost as many number as protesters during the day - were on edge and heavily harmed with billy clubs, guns and pepper spray, which was used to disperse the crowd at night and many people were arrested. Here's some of the pics we took:

I expect that this "Occupy" movement will continue to grow in number and expand into a lot more cities. Until Obama starts to deliver on the promises which got him elected, such as cleaning up DC and Wall Street and dismantling the totalitarian legislation implemented by the Bush neo-con Government, I expect that this movement will become restless and violent.

I had to laugh because Ann Coulter was on Fox News telling the viewers that Bush allowed Lehman to fail and that Obama was responsible for bailing out Goldman and AIG. I would like to correct that statement on behalf of the mildly retarded Coulter, because it was actually Henry Paulson, former Goldman CEO, who planned out - in conjunction with Tim Geithner - who was head of the NY Fed at the time - the game plan to let Lehman collapse and then devised the plan to bailout Goldman Sach and the other big banks who were catastrophically exposed to AIG - along with the scheme to have the Government takeover AIG. All this was set-up before Obama took office, although recall that Obama and McCain suspended their campaigns to help devise this plan. Geithner - despite being a confirmed tax cheater/dodger - was inserted into the Treasury Secretary position in order to oversee the implementation of the plan devised under Bush.

Obama - in a gesture of complete hypocrisy - claims to embrace the Occupy Wall Street agenda. If that were even remotely true, Obama would immediately stop taking campaign money from Wall Street firms - which are Obama's largest contributors - and give back any money not spent that has already been accepted.

Unfortunately, as I explained to my companion, we will not see any change until the majority of the citizens of this country engage in some kind of revolt/revolution, as this has been what it has taken all throughout history to effect the kind of change that is now required to change our system.

Don't Believe The Hype

2011-10-14T11:00:00.010-06:00

The monthly retail sales report was released to great media hype, as the "preliminary estimated" retail sales number for September was calculated to be up 1.1% from August and exceeded the Wall Street Einstein consensus estimate.

HOWEVER, and remember, with me "however" always surfaces when I pull up the actual data and take a closer look at it than does that babbling bald moron on CNBC. Here's the report if you would like to peruse the numbers yourself: LINK Now for "however:" First, please note that the reported headline number is a "seasonally" adjusted estimate using some fancy computer model, per the footnote to the report. I would love to see how the model calculates these "adjustments" so we can see if they are even reasonable. But this is a big problem with all Government economic reports.

Let's look at a few of the notable data points that the brainless wonders on television are self-flagellating over. Everyone is gushing about retail and auto sales. But if you look at the second table on the above link, you'll note that by far the largest jump in sales came from the gas pump. Has anyone noticed that despite a big drop in the price of oil, the price of gasoline seems to keep crawling higher? I would suggest that a large component of retail sales for September came primarily from gasoline sales. Is that good for the economy? To be sure, it looks like auto sales jumped a bit, and that was confirmed by the recent monthly auto sales report for September which was released at the beginning of October.

"However," it appears to me that the increase in auto sales, especially at GM and Chrysler, are being fueled by the big increase in subprime auto loans: LINK Wait a minute - didn't we get into the trouble that hit in 2008 because of subprime lending? We know that GMAC, the finance arm of GM, went bust and was taken over by the Obama Government. It was recently reincarnated with Taxpayer money (now called "Ally") and once again jumped heavily into subprime auto lending - this time backed by YOUR money. This is exactly why auto sales at GM and Chrysler appear to be strong. I might also note that, per the good due diligence of zerohedge.com, most of these auto sales end up in being shelved at dealers. Please note that an auto manufacturer books a sale once the car is loaded on a train/truck and leaves the factory lot. The dealer then pays for its purchase using "warehouse or floor" financing provided by...GMAC (You). This is not an attribute of real, organic economic growth.

Now for the final fork-insertion into the hyped retail sales report, which we now know is likely overstated by "seasonal adjustments" and inflation and is skewed toward gasoline sales. Shortly after the retail sales report, the Michigan Consumer Confidence Index was released and was substantially lower than the Einstein consensus estimate. In fact:   "Confidence among U.S. consumers unexpectedly dropped in October as Americans’ outlooks for the economy and their finances slumped to the lowest level since 1980." LINK

Hmmm, that's not good. The only remark I have to say about this is that this report further reinforces my view that the Government is overstating its retail sales estimates. After all, does it seem likely that people are out spending an increasing amount of money that they don't have if their attitude and outlook on the economy is the lowest that it's been since 1980?  The golden truth of the matter is that the Government is stuffing GM and Chrysler auto dealers with inventory using Taxpayer money to finance the stuffing (the Government subsidizes leases and backstops Ally's subprime loans), making auto sales look better than they really are. Moreover, it looks like most of the increase in retail sales, ex-autos, came from gasoline sales.

So for any of you who poisoned your mind by reading the calculated risk blog or watched CNBC/Bloomberg, please re-read the facts as I just presented them.  Then "here's what I wantcha all to do for me:"   celebrate the truth and Don't Believe The Hype:

Legalized Fraud

2011-10-13T10:19:00.005-06:00

And if all others accepted the lie which the Party imposed – if all records told the same tale – then the lie passed into history and became truth ("1984," George Orwell)

JPM reported $1.02 of earnings per share, ahead of the Wall Street Einstein consensus expectation of 92 cents. HOWEVER, 29 cents - or 28% - of the reported number included a non-cash accounting gain which resulted from JPM exploiting a very controversial accounting rule that lets a bank essentially create income when the market value of its outstanding debt goes down in value. Without this fictitious income, JPM would have reported 79 cents, well short of expectations. Please read that again if you don't believe that you really read what I just wrote. The truth is that if pour through JPM's earnings results with a critical eye, you'll see that underneath this accounting fiction that JPM's underlying business fundamentals are deteriorating.

How can serious investors trust ANY kind of earnings report that is put out by ANY financial institution? What's appalling is the way the financial media looks at the headline numbers reported by JPM and lauds it for "beating" earnings and revenue expectations and remarks at what a great job JPM is doing. And then casual investors turn on Bloomberg TV and see the accolades being tossed out or open the newspaper tomorrow and read how JPM's earnings report exceeded expectations, leaving said investor/observer with the impression that things are improving in our system.

The fact of the matter is that JPM's accounting presentation is legalized fraud. The reporting of it by the financial media - which is financially supported by the advertising and promotional revenues paid by banks like JPM - is outright Orwellian. Our entire economic and political system is on the very frightening slippery-slope toward the dystopic vision presented by writers like Orwell, Rand and Huxley.

Let's review how this legally fraudulent accounting gimmick works. To be honest, I'm not even sure how the Financial Accounting Standards Board (FASB) OR the SEC ever allowed this idea to be made into a rule. It's literally legalized fraud. Although it's available to use for any company/entity, it was designed to apply specifically to Wall Street banks - any entity "with available-for-sale and trading securities" (the quote is from "Summary of Statement 159," FASB). In other words, this rule was designed to permit banks to further manipulate their accounting income (i.e. non-economic, cash-based earnings).

Here's how it works: if the market value of a company's debt obligations (bank debt, bonds, etc) goes down in value, the company is permitted to recognize "accounting" income measured by the amount that the holding value (book value) of the debt obligation declines. In other words, the company can create income based on the amount the book value of their debt declines, even though this decline typically reflects a higher degree of risk and financial instability. The "income" is created by assuming that the company could go out into the market place to purchase and retire this debt at a big discount to what would be owed on the debt (the par or principal amount) at maturity. You may need to think about this for a minute to really understand how the rule works, so that you can understand how pathetically flawed the logic is behind the rule.

Here's the coup de grace of this rule's absurdity, straight from FASB: "The fair value option is applied only to entire instruments and not to portions of instruments." In other words, in order for a company to book this accounting gain, it must take the full amount of market value decline on the entire debt issue - for each debt issue being used for this purpose - under the completely mythical assumption that it could theoretically go out to the market buyback the entire amout of each debt issue at market value, thereby creating savings by retiring this debt at a discount rather than paying it off as it matures. Sound like anything that is anywhere even remotely close to being realistic, especially for companies with 100's of billions in debt outstanding? The fact is, that when the market value of a company's debt obligations declines like this, it becomes even less likely that the company has the ability to go out and spend any cash to repurchase its debt. This happens in reality very rarely.

I really can't believe that anyone, especially JPM CEO Jamie Dimon, can take JPM's earings with this accounting bullshit layered in and present them with a straight face. Seriously. The fact that reporters in the financial media are doing celebratory back-flips over this earnings report is a testament to the degree of absurdity and lack of accountability that has enveloped our system. That Dimon can present this garbage is an egregious insult to anyone who understands accounting and finance. It truly is Orwellian.

The golden truth is that most Wall Street analysts, if they even understand anything beyond simple GAAP accounting, will gloss over this earnings abortion and move on by explaining that JPM's balance sheet is stronger than is required by the regulators. Dimon refers to this as JPM's "fortress" balance sheet. Without having the time to delve into the research and calculations required, I would bet my entire net worth that if I went line by line through JPM's asset base and applied true market value standards to its assets, that its book capital would fall well below regulatory requirements. In fact, that's the reality for every Too Big To Fail bank.

Given that we've witnessed the big banks create massive paper earnings first using "mark to market" fair value accounting on their assets, creating gains for income reporting purposes and fictitiously marking up crap assets for regulatory purposes, and then use the "reserve release" gimmick to generate fictitious earnings last quarter, and now this "debt valuation adjustment" fraud to generate paper earnings this quarter, I can't wait to see what accounting fiction they roll out for the 4th quarter.

Rest assured that this is entirely fiction and fraud made possible by a system entirely based on paper currency and phony "accrual" accounting rules that have value based on what the Government decides to tell us its worth. So yes, JPM is only playing by the "rules." But it's also fair to say the big banks like JPM paid the politicians handsomely to have those rules put in place. We'll know we've truly transformed into Orwell's vision when the banks announce that the losses they are reporting are really gains. Oh wait, that's what DVA accounting is...got gold?

So Far "Operation Twist" Is A Colossal Failure

2011-10-12T12:26:00.003-06:00

...except for the Treasury - and for investors clamoring for the short term "safe" paper that the Fed is selling and while the primary dealers (Wall St. banks) sell back to the Fed the medium/long term paper that primary dealers have to eat in Treasury auctions in order for the Treasury to look like it is having no problem funding the Government's deficits.

Take today, for instance, the Fed auctioned off $8.87 billion in 18 month - 2yr paper that was met with nearly $70 billion in bid interest. Then the Treasury auctioned off $21 billion 10yr Treasuries in what was one of the poorest quality Treasury auctions in 2 years. The primary dealers, aka the Fed, had to swallow 58% of the auction. You see what's going on here? The Fed is selling short term "safe" paper into huge demand in order to make room on its balance sheet to indirectly monetize Treasury auctions. This is de facto money printing.

"OT" is supposed to reduce the yields on the "middle" part of the curve, thereby stimulating business investment and the housing market. In theory. It failed back in the early 1960's when it was tried the first time.  Let's take a look at what the market thinks of "Operation Twist." When the Fed announced the new monetary operation on Sept 21. Here's a "then and now" list of what the Treasury yield curve looked like:

                                                         9/21                        Today

                                   5-yr               .85%                         1.18%
                                    7-yr              1.27%                         1.74%
                                 10-yr               1.80%                         2.25%
                                 30-yr               2.85%                         3.25%

Hmmm....either the Fed's policy is a dismally brutal failure or all of a sudden the bond market decided that we might get some inflation.   Since the bond market has egregiously mispriced the true rate of inflation for the better part of the last 10 years, I would say the odds are greatly skewed toward the view that once again the Fed's trying to use monetary gimmicks to tinker with nature is appallingly flawed.

But let's call this "new" policy idea what it is. Circle back to what we know about the Fed's operation since December 2010, when QE2 was announced. We know that indirectly, via open market purchase operations, the Fed basically financed 100% of all new Treasury debt issuance. Hell, Bernanke didn't even wait for the ink to dry on the bond indentures of some of the auctions, as Treasury CUSIPS not even a week old would show up on the Fed's subsequent weekly Treasury purchase operations (POMO).

So this Operation Twist, is really just another disguised form of the Fed shifting paper around on its balance sheet to take advantage of the surreal demand for short term "safe" paper in order to create the funds needed to make sure that the Obama Government can fund its operations. Nifty footwork if you ask me, but quite obvious to the naked eye if you know where to look for the truth.

Hang onto to your gold and silver, because even if you ended up buying into the market at the recent top in September, I believe that a year from now you may have doubled your money from that point of investment. It's been that pattern for the last 10 years and the fundamentals and technicals supporting the continuance of that pattern get stronger by the day.

No Surprise Here For Me

2011-10-11T12:25:00.004-06:00

It was revealed yesterday that the Austrian bank - Erste Group - had $5.2 billion in undisclosed Credit Default Swap (CDS) derivative losses sitting on - or rather "off" - its balance sheet. Here's a link from zerohedge.com if you would like to read about the details: LINK

To zerohedge and its slavish readers, this is being described as a "stunner." But I've been arguing all along that the big banks have off-balance-sheet problems that are potentially far bigger and more destructive than what is revealed by the "on-balance-sheet" public financials. Indeed, this is no "stunner" to me - in fact I would bet good money that the true economic, what's the best bid for size/mark-to-market, losses are far larger than $5.2 billion.

What is a "stunner" to me is that the research arm of the Erste Group has written some of the most compelling and thorough research available in support of the precious metals market: In Gold We Trust One would think that an institution that so thoroughly understands the gold market and the dangers of the current fiat currency system would also understand the concept of "counter-party risk" and the fraud that belies the entire OTC derivatives market.

For some reason zerohedge wants to blame the Erste Group issue on its auditors. To be sure, the auditors probably know a little about the true condition of the CDS portfolio. But they operate within the confines of accounting and regulatory rules as set forth by the Government. Furthermore, accountants are just counters. It's not their job to go find out the true market values of these securities. If they conduct a sample audit, that would just consist of calling up the CDS trading desk at maybe two or three trading firms that make markets in these securities and getting price indications. Trust me, having traded junk bonds for 9 years, which are illiquid but considerably more liquid than CDS securities, a market "indication" often bears no resemblance to the true value of an OTC derivative, especially if the Erste Group (or fill in the bank U.S. TBTF bank) wanted to unload a big position in any specific security. And THAT dynamic is one of biggest problems with accounting for these types of securities. Its part of the massive accountability problem that has been destroying our system for quite some time. One would have thought that this would have changed after the damage inflicted by Long Term Capital and Enron...

Now, with the Erste Group we're talking about $5.2 billion. The Erste Group's balance sheet (assets/liabilities) is roughly $280 billion in size. And Erste is not exactly a big player in the OTC derivatives market. Let's look at one of the big U.S. TBTFs and just do a "broad stroke" comparison. Bank of America, for example, has a $2 trillion dollar balance sheet - over seven times the size of Erste Group. And Merrill Lynch - now owned by BAC, was one of the bigger players in the OTC derivatives market. So just on a "scale" basis, it's very safe to say that BAC is likely sitting ten times the amount of undisclosed losses in its derivatives book as the Erste Group. I would bet a lot of money that the actually losses are substantially larger than that.

But if you want to look at the work published by Wall Street research analysts showing the "financial ratios and condition" of U.S. TBTFs, nowhere will you see anything mentioned about off-balance-sheet liabilities. These wind-up circus monkeys simply transpose the GAAP balance sheet data onto a pretty spreadsheet and say "see, the water is fine, c'mon in." And then this garbage gets regurgitated in the financial media and through the world of financial advisors and brokers who want to take your money as they mindlessly reference this highly flawed research and tell their clients that the U.S. banks are in good shape...it's pathetic.

But the golden truth of the matter is that lurking below the surface are financial nuclear bombs that could detonate at any time. See Bear, Lehman, AIG for what this looks like. And 2008 will have been "the good old days" once this daisy chain of disaster is triggered. Today there's not only the massive exposure to financial sector Credit Default Swaps, there's the massive exposure to sovereign debt CDS. AND, the OTC derivatives holdings of the TBTFs are much larger than it was in 2008.

So yes, maybe the Erste Group disclosure was a bit of a surprise to some - and a "stunner" to the editor of zerohedge - but if we really dig for the truth and take a look at what's going on in our own backyard, there are not "stunners" buried, but massive catastrophes.