Thursday, September 15, 2011

What Exactly Happened Today?

I don't have time to explain the details, but essentially over the past few days the Fed, ECB, Swiss National Bank and Bank of England have been working in concert in order to make liquidity available to prevent the European banking system from collapsing - similar to what happened here in the autumn of 2008.  To simplify things, what has happened is that European banks have dollar liabilities (shorter term loan funding of various sorts denominated in dollars) that are being used to finance non-dollar income-producing assets (mostly denominated in euros).  Greek and Italian sovereign debt securities, for instance.  The assets are falling way short of being able to support the cash flows required to fund the liabilities (repos, for instance).  So, the European banking system is at the brink of "freezing up" and collapsing.

You can read about the details HERE  In addition, our Fed has made $500 billion swap "liquidity" facilities available for use - this has been in place for awhile.  And even more startling, it turns out that some big U.S. banks have been engaging in private market repo transactions with some big Euro banks, who have been using crappy collateral.  Zerohedge sourced this article:  LINK 

I was actually stunned when I saw that because it shows how desperate European banks have become for cash.  But why are the big U.S. banks willing to take crappy collateral in exchange?  Traditionally repos are done using very short term Treasuries or Agency debt as collateral.  Why would U.S. banks be willing to take this shit to keep Euro banks solvent?   And why is the Fed extending half a trillion of Taxpayer-backed funding to keep the Euro system from collapsing?

I don't know for sure, and we'll never know until everything collapses, but I suspect that if countries like Greece and Italy and Spain collapse, then the big too-big-too-fail Euro banks collapse.  And if that happens, I suspect that our too-big-to-fail banks - primarily Citi, JP Morgan and Goldman - would collapse under the weight of a very large amount of credit default derivatives and interest rate swaps that require Euro bank counterparties to be able to fund in the event the default parameters are triggered.  In other words, U.S. banks and our Fed are just as desperate to keep the Euro banks alive as are the ECB/SNB/BOE bank members desperate to stay alive.

This scenario is startlingly similar to what happened right before Lehman was allowed to tank, which triggered the big bailouts here.  Only this time the scale is Lehman x 50 or 100 because it includes a couple of countries and all of the U.S./UK/European/Swiss To-Big-To-Fail Banks.  I also believe that what I just surmised has a very high probability of being pretty close to what is actually going on.  It also is interesting to me that some big, anonymous banks/Central Banks are lending/swapping out their gold holdings in order get their hands on badly needed U.S. dollars to meet dollar liquidity needs:  LINK 

What would be frightening to me with these gold swap transactions is that there is a high probability that a lot of this gold being leased out may actually be coming from the same HSBC vault that "safekeeps" the GLD gold.  HSBC is one of the largest LBMA depository banks, which contain a large percent of the world's 400 oz. gold bars.  This is exactly why Hugo Chavez wants Venezuela's gold removed and delivered to Venezuela.  Remember the CNBC video in which Bob Pisani is standing in the HSBC vault and supposedly picking up a bar from the GLD "allocated" section?  Remember how that bar was NOT actually a bar on GLD's gold list but was purported to be a GLD bar?  More than anything else you read, that event underscores why you can't trust ANY of the gold in that HSBC vault and you can't trust that GLD truly has 100% backing of unencumbered bars (i.e. leased out or used in derivatives deals).

I said in my original GLD research report back in Feb 2009 that one day we'll wake up and the price of gold will be up $200 and the opening price of GLD will be down 50% (you can see that report HERE ).  What is happening right now in the financial system is exactly the kind of scenario and events that I envisioned would cause GLD to ultimately be exposed for what it is.  We could be closer than any of us realize to this type of situation actually occurring.  In other words, if you own GLD and think that you own gold, you don't.  Get rid of your GLD and buy the real stuff.

Finally, do not let this latest 2-day smack on the price of gold shake you out of your positions or scare you off from buying more physical gold/silver.  This hit on gold, I believe, was nothing more than a coordinated Central Bank intervention in order to get the price lower ahead of all of the above massive fiat/liquidity operations.  This is what happened in the summer of 2008 as well.  It also means that the global financial system is in far worse trouble than anyone not inside the Central Bank nerve centers realizes.


  1. Gee Dave, I thought we could summarize today's events in simple terms. "Global Central Banks put taxpayers around the world to bail-out EU banks... again." This action is not supportive of the taxpayers' governments. Those governments still face massive implosion and the taxpayers face crippling losses when the EU comes apart due to a PIIGS default. This move was done to insulate the banks. I am amazed there is no rioting.

  2. Isn't this article wrong?..don't etf's employ swaps and derivatives to gain exposure...does anyone really believe this?

    UBS Joins the Delta Farce

    The products provided by Delta One desks don't immediately look life-threatening. After all, rather than being complex derivatives, they are relatively simple trades around things such as exchange traded funds. Other products typically provided include equity swaps or dividend swaps, where payouts to purchasers are related to either the movements in, or dividends paid by, an index or basket of equities. Delta One activities can also include the execution of program trading.

  3. The corporate psychopath

  4. I concur with your assumptions here 100%. And it is refreshing to hear the truth sir, and I commend you for it.

    I would add that these manipulations, to string out the paper gold even further, in these "swap" and "lease" arrangements only tightens the noose around the "systems" neck.

    I believe it was J.S. Kim who calculated that in fact it is probable that the global fractional reserve of all paper gold to above ground physical is 160 to 1.

    Consider also that the TRUE cost of oil needed to run these mining operations is not lost upon the bakers of the interbank market cake.

    Not something fit to be digested by some public "Wall Street".

    As I said earlier today at letthemfail: The clients of Charles Ponzi who FIRST pulled their “investment” out of the pyramid, did quite well. Then a few others got out a bit later, and made out even a little better, though their timing against the risk of a collapse in CONfidence was truly pushing the envelope. The next group of people, seeing the actions of the first two, and being much larger in number, COLLAPSED the pyramid and got NOTHING.

    Where are we in this global pyramid of CONfidence in the fiat currencies, whose fate is tied to the ultimate Ponzi of all time, the global reserve currency of the fiat dollar, and the unrepayable debt it represents, backed by a bankrupt nation whose gold reserves are questionable, whose productive infrastructure has been dismantled, and whose only real assets we would be hard pressed to part with, unless the global financial governance of the BIS central banking system could indeed “settle” matters beyond the age old solution of “We will now take from you what you owe.”?

    It does become boring from this view, to watch the ants acting so predictably.

    Yes, a good buying day for physical, and an even better day to sever any paper trail to the wealth reserve asset of last resort.

  5. What happened today? It happens everyday..
    side pocket illiquid loss meet oval office..
    .More Crony Capitalism?

    The liberal Daily Beast reports on a broadband project backed by a frequent Obama White House visitor and donor that has Pentagon officials concerned over potential military GPS interference. The Obama FCC took the lead in intervening on the donor, billionaire hedge fund manster Philip Falcone’s, behalf and granting his company called “LightSquared” one of those coveted Obama waivers from existing law. Then Obama officials reportedly pressured a general to alter his testimony about the company’s impact on military satellite transmissions.

    This is a SERIOUS charge if true.

  6. The "Perception Management" Economy (September 15, 2011)

    Rather than actually address the fundamental issues at the heart of the "jobless recession," the Status Quo has engaged in a massive campaign of perception management, a.k.a. propaganda.

    A number of euphemisms are used for the concerted Status Quo effort to convince the public to maintain their belief in faltering institutions and a debt-based consumerist economy. The most neutral euphemism is "persuasion," followed by the slightly more sinister "shaping the context" and "setting the agenda." More directly, the effort is known as propaganda.

    Perhaps unsurprisingly, perception management is a psychological-operations (psych-ops) term of Pentagon origins. The basic mechanisms are classic propaganda techniques. From the Wikipedia entry:

    There are nine strategies for perception management.

  7. That's what they want to know...

    Barack Obama For Sale: 50% Off
    Hi there - fundraising this quarter has been a struggle (as you can imagine give all the negative stuff around the President) - they are offering a one off opportunity to attend this small dinner on Monday for $25k instead of the full max out of $38.5k, or a couple at $38.5k instead of $77k. Just wanted to offer that in case you're interested!

  8. At some point gold is going to scream higher...

    Gold's Luster a Bright Spot in Tough Economy

    "Times are hard," said Virginia Rodriguez, a hospital technician and mother of two, explaining why she has used earrings, rings and a gold cross and chain bequeathed by her grandfather in exchange for loans of nearly $1,000.

  9. My first thought after reading your commentary was from the movie "Backdraft," where one fireman is trying to save another: "You go, we go." Honorable enough. But on second thought, certain bankers are not so honorable, so perhaps Benjamin Franklin's quote is more appropriate: "We must hang together, gentlemen...else, we shall most assuredly hang separately."

  10. hanging separately will suffice..

    Goldman, Sachs & Co. acted as exclusive financial advisor to Solyndra in connection with this loan guarantee application.This scandal is rapidly becoming the gift that keeps on giving...

    Solyndra Offered $535 Million Loan Guarantee by the U.S. Department of Energy

    Fremont, CA, March 20, 2009 – Solyndra, Inc. announced today that it
    is the first company to receive an offer for a U.S. Department of
    Energy (DOE) loan guarantee under Title XVII of the Energy Policy Act
    of 2005. Solyndra, a Fremont, California-based manufacturer of
    innovative cylindrical photovoltaic systems, will use the proceeds of a
    $535 million loan from the U.S. Treasury’s Federal Financing Bank to
    expand its solar panel manufacturing capacity in California.

    We need Joe Friday

  11. Hi Dave,

    Would you consider Sprott's PHYS and PSLV "safe?"

    I stay far away from GLD and SLV, yet I still must remain liquid as I manage money for my entire family. The premiums on physical bullion just kill me when I go to sell at a coin shop, and often they can't even buy the amount I try to sell.

    Personally, I hold physical in a safe.

    I've pored over the prospectus for each fund, and I can't find any provision for a disconnect between the paper price, and real price. This disconnection is coming, soon, and I expect a period of pandemonium.

    Mr. Sprott actually has the metal vaulted and bar lists are online. It's there.

    Opinions, please.

    All the best,


  12. Richard Russell: 12 Tips For The New Normal

    4 — Have faith in your gold. As confidence in the whole monetary system slowly fades, the desire for gold will heighten.

    5 — Remember, there’s often a large correction prior to the final speculative gold run.

    6 — This time there may not be a “final gold rise,” because large interests may just decide never to sell their gold. They’ll keep their gold as a symbol of “eternal wealth” that can’t be destroyed of go bankrupt.

  13. Great post, Dave. Lots of hard-core info that MSM bootlickers dare not reveal. Thank you.

  14. (Dave) Thanks sumo!

    Travis PHYS and PSLV are definitely safe and fully-backed. But unless you buy enough shares with the intent to convert the shares into actual physical (400 oz. bar on PHYS, I'm not sure what the minimum is on PSLV), then you don't really own gold/silver, you are just indexing the returns on them.

    It's hard to grasp an understanding of why you need to actually own the physical metal, but eventually those who do will be psyched that they do. And when the majority those who don't all of a sudden understand, the price will be many multiples higher and the availabiity will be scarce...