Is It Possible Snooki Is Sara Palin's Child?

I was having a conversation with a good friend yesterday about how John McCain impaled his election chances in 2008 when he selected the brain-dead, illiterate Sara Palin as his running mate.  Even following Bush's disasterous last term for Republicans, it would have been hard to lose to an African-American community organizer with almost no DC experience and a name that sounded Islamic.  I really think Palin was McCain's achille's heel.

Now Bill Maher has come up with a reasonable theory that Jersey Shore's "Snooki" may actually be an offspring of Sara Palin's:

It surely makes sense to me: Inbred idiocy begets mongolism begets MTV's "Jersey Shore." I tried watching it once and you truly have to be a caveman to understand the grunting that passes for dialogue...

Gold Isn't Just For Goldbugs Anymore...

I don't think China really cares about the Comex other than the fact that the Comex operators do a great job keeping the price of gold and silver artificially low for China as the world's largest buyer of gold and silver.  - Dave in Denver

Anyone who buys into the "gold is in a bubble/bear market" proclamations being tossed out on CNBC, Bloomberg and other mainstream disinformation sources needs to examine the real evidence.  The real evidence does not come from some asswipe working for a big bank brokerage firm who examines pretty lines drawn on a chart or has spent the last 10 years conning the public into buying stocks like Facebook.

The real evidence comes from looking at what the big buyers of gold are doing.  I think many of you have already seen the recent articles which report the latest Central Bank gold accumulation in primarily eastern and southern hemisphere countries.  As I mentioned yesterday, China imported the equivalent of about 10% of the world gold production in 2011.   In Q1 2012, China imported 50% of the amount it imported for all of 2011. 

Venezuela has repatriated most of its gold (200 tonnes) that was being held outside of the country by western country Central Banks (England, U.S., Switzerland).  Mexico has been recently accumulating physical gold.  And Viet Nam is now known in global gold circles as "little Switzerland."  In other words, it seems that every country other than the U.S., Japan and EU countries are actually aggressively accumulating physical gold (and silver).

One reason is that the B.I.S. - Bank for International Settlements, the Central Bank for all global Central Banks - is looking into reclassifying gold as a Tier 1 asset:  LINK  What this means in short is that it would elevate gold held by banks to the same asset class status as paper currency.  In other words, "gold is cash."  Currently gold is classified as Tier 3 asset, which means that any gold held by a bank gets a 50% haircut to market value in accounting for a bank's required capital reserves held against liabilities.  Tier 1 status would elevate gold to 100%, same as cash.  Hmmm...

What this means is that banks/Central Banks which own and hold physical gold (not GLD, mind you) would be incentivized to see the price of gold go a lot higher.  This would put the big accumulators (China, Russia, India, Gulf States, South America/Mexico) in direct conflict with the big manipulators (Fed, Bank of England, ECB).  This could get interesting. 

Another point of note is Germany is now proposing that, in return for bailout support from Deutscheland for the ailing southern EU countries, EU members would be required to use their gold as collateral in order to participate in a fund that would be established to bail out troubled Governments: 

Germany would have a lockhold over the fund, able to enforce discipline. Each state would have to pledge 20pc of their debt as collateral. "The assets could be taken from the country’s currency and gold reserves. The collateral nominated would only be used in the event that a country does not meet its payment obligations," said the proposal.

Here's the entire article from the Telegraph:  LINK

What the above developments signal to me is that - contrary to the bubble/bear market idiocy spewing from the paper pushers in this country - gold is actually getting ready to move much higher in price against the dollar/euro/yen/yuan.  In fact, the incentives are being implemented to make sure that happens.  Think about that for a bit.

The next time your trusty financial advisor calls up to tell you to sell your GLD and buy some muni bonds or a stock market ETF, ask him how come the B.I.S. is looking into making gold a Tier 1 asset and Germany wants to require gold to be used as lending collateral?  You may hear a dial tone after that inquiry...

Is The Bell Tolling For The U.S. Dollar?

How did the dollar die? First it died slowly — then all at once...No asset is safe now. The only choice to hedge risks is to hold hard currency — gold (Zhang Jianhua from China's Central Bank) - source of quotes LINK

The economic numbers reported this morning showed continued deterioration in housing and the overall economy.  In addition, consumer and investor confidence is starting to plunge again. 

The Case-Shiller 20 city index of housing showed that the small bounce in housing prices that was expected in March from February was actually a lot smaller than expected.  Year over year for March, prices declined 2.6%.  The year over year number is likely more statistically relevant that month to month, because it doesn't reflect seasonal "noise" the way a month to month measure will.  Also, the Case-Shiller index de-emphasizes distressed/foreclosure sales, so the pricing is skewed to the high side.  In other words, despite the Fed/Govt's attempt to reinflate housing with artificially low interest rates and new programs which enable buyers with decent credit to make no-down-payment purchases, housing is still in serious decline.  It is unlikely that most media outlets will delve into details or report the year over year number, so please do not fall into the trap of buying into the widely pimped idea that housing has bottomed and is bouncing.

In addition to housing, the widely followed Conference Board's measurement of consumer confidence plunged in May.  The prior reading was 68.7, consensus expectation was 69.7 and the actual reading was 64.9.  That's ugly.  Also, the State Street institutional investor confidence index was lower than expected and the Dallas Federal Reserve manufacturing index absolutely plunged from the consensus expectation. You can review this data here:  LINK

The quote above about the death of the dollar is a play on a famous Ernest Hemingway quote from "The Sun Also Rises:"  "'How did you go bankrupt?' 'Two ways, gradually then suddenly.'"  I wanted to include this because I had a conversation with a friend and investor in my fund this past weekend about the timing of the eventual collapse of the dollar.  My view is that the dollar will be held up, while the elitists rape and pillage every last crumb of wealth, for longer than most believe is possible but the collapse of the dollar will be sudden and unexpected by most.

The relevant analogy of what to look for as indications of an impending collapse is one of my favorite analogies of all time from one of my finance professors at the University of Chicago, Richard Leftwich, who likened investors looking for answers to a drunk in who had been sleeping on a bench but was looking for his lost wallet under the street light:  "'Why are you looking over there for it?' - 'Because that's where the light is shining.'"  It's the same thing with the dollar.  The dollar is slowly eroding in value everyday and the signs are all around us to be seen if you know where to look.  But by the time the obvious signal of its demise hits - an outright collapse - it will be too late.  It's the same situation as in Weimar Germany.  On November 13, 1923, many wealthy people had most of their wealth in the bank when they went to bed but woke up the next day as paupers because the German mark collapsed and was devalued away over night, as the rest of the world would no longer accept it as payment.

I bring this up because a news item was announced late Friday evening, after most people has shut their business eyes and ears for the long holiday weekend, that will have significant consequences for the U.S. dollar's reserve currency status.  China and Japan announced that they are going to start directly trading in their respective currencies - the yuan and the yen - and completely bypass using the U.S. dollar as the currency for exchange.  This news report is dated from Sunday, but the first reports hit the newswires on Friday evening:  LINK.  It blows my mind that more is not being commented on or reported about this.  China is methodically and slowly withdrawing from its use of the U.S. dollar. This is a significant step to that end, as China is now the world's largest importer/exporter and Japan is a major trading partner for them.

Most people in this country are completely clueless about what China is doing with regard to the dollar, instead preferring to look under the light that CNBC or their trusty financial adviser shines for them for knowledge on the markets.  Remember, the collapse of the dollar will happen gradually, then suddenly. 

For the relevance of the quote above from the PBOC official, see this article:  LINK  China's demand for gold surged 51% in 2011.  What the article doesn't contain is that in Q1 2012, China imported 138 tonnes of gold - more than half of the total amount hoovered up by China in all of 2011.  I would like to point out that China's gold consumption in 2011 represents about 10% of the total global gold production...Don't let the sudden collapse of the dollar leave you holding worthless paper and no gold/silver...

More On Facebook And Fiat Promises

When any Governmental system rests on a monetary system which uses a paper derivative of the wealth created by that system - also known as a "fiat" monetary system - that paper derivative is only as valuable as the promise that stands behind the paper which is used to represent systemic wealth creation.  At the end of the day, a fiat monetary system depends on the degree to which you trust the person or entity making the promise.  - Dave in Denver

Most people have no clue what the word "fiat" means in reference to the U.S. dollar or any other paper currency.  The word "fiat" is a Latin word which meant "let it be done."   For the purposes of Modern English, the word "fiat" means "a command or act of will that creates something without or as if without further effort;  an authoritative determination or 'dicatate;' or an authoritative or arbitrary order, a 'decree.'  Thus, as it is used in reference to a currency system, "fiat" means a command or decree that creates something without further effort and is an authoritative mandate.

In other words, the U.S. dollar (euro, British pound, yuan, etc) is nothing more than a piece of paper that must be used by all citizens as currency by order and dictate of the U.S. Government (supra).  This currency is thereby mandated for all economic transactions.  Because the value of the currency is based on the decree of its value by the Government, everyone who accepts its use is exposed to the risk that some day the Government will not be able to uphold its decreed value.

I hope that helps explain why it is said that the U.S. dollar exposes the user to counterparty risk.  There is counterparty risk embedded in the U.S. dollar because to the extent the U.S. Government allows the value of the U.S. dollar to erode, there is an event of default.  The value of the U.S. dollar as measured against gold has eroded over 95% since the creation of the Federal Reserve in 1913.  Why?  Because the amount of dollars printed and outstanding has increased since then by a like amount in excess of the net wealth created by the U.S. system.  

How is this possible?  Because the net wealth of the U.S. system is the economic value of the entire system LESS the amount of debt and other outstanding liabilities racked up over the years.  In fact, since Obama assumed the White House, the amount of Treasury debt issued is almost as much as the total amount of Treasury debt issued by all previous Presidents before Obama.  And with each additional Treasury auction, which occurs now every two weeks in three maturity tranches, not including the weekly T-Bill "rollover" auctions, the risk increases that the U.S. Government will never be able to uphold the value of the U.S. dollar as a fiat currency.  Is that a risk you are willing to bear?

Facebook is the classic example of the "derivative" risk embedded in a fiat system.  The value of Facebook stock is supposed to represent the inherent economic wealth of Facebook as a business.  But what happens when the "counterparty" making representations of the amount of this wealth makes differing representations of the amount of Facebook's value to different segments of investors participating in the Facebook IPO?  What happens when promises from management get conveyed on different levels to different investors?

This is exactly what happened in the Facebook IPO.  And what was supposed to be the crown jewel embodiment of the U.S. system of "capitalism" turned out to be a complete cesspool of fraud and corruption.  Let's cut to the tape:

Capital Research & Management wanted to buy into the Facebook Inc. FB +0.38% initial public offering. But days before the IPO, an underwriting bank on the deal warned the big investment firm about Facebook's dimming revenue prospects...The Los Angeles firm, armed with information from a May 11 "roadshow" meeting with underwriters and Facebook, along with similar estimates of its own, slashed the number of shares it intended to buy. The night before trading began, a Capital Research manager told a banker at Morgan Stanley, MS +0.37% the lead underwriter, that the deal's pricing was "ridiculous," according to a person familiar with the situation. Some Capital Research fund managers didn't buy into the IPO at all...

Jennifer Kohne received no such warning. The 52-year-old retired medical-device salesperson in St. Louis bought 3,000 Facebook shares Friday at $42 through an online brokerage and now sits on losses of $30,000 based on Wednesday's closing price of $32

You can read the play-by-play in this reprint of the Wall Street Journal article:   LINK

I had suggested the other day that Morgan Stanley had seriously violated SEC and FINRA regulations in their underwriting of the Facebook IPO.  The above article confirms it.  And based on my extensive involvement during the 1990's on Wall Street in underwriting, selling and trading new issue securities, I could probably write a detailed article on what happened behind the scenes in the last few weeks leading up to the Facebook IPO.

For instance, I suggested the other day that not only did Morgan Stanley warn its best institutional investors that the numbers being used represent Facebook's wealth (revenue and income projections) were too high, but that the retail brokers and investment advisers failed to make the same representations to their retail investors when they phoned them up to tell them the "good" news that they could buy a lot more than 500 shares.  I know this happened because I participated in this charade on bad deals from the institutional side and I know what we told our retail outlets in order to move paper that we couldn't move to the big boys.  This is all fact.

To tie this in to my diatribe on "fiat" currency, stocks and bonds are risky because they are "derivatives" of currency.  Not only are stocks and bonds "promises" based on a represented underlying representation of wealth, but their promise is "derived" from the promised value of the currency used to satisfy the claim represented by stocks and bonds.  And that currency is in turn based on the promise of the Governmental body to uphold its value.  So when you buy a stock or a bond, you are relying on the promise of the issuer to pay back the value of that stock or bond (obviously there are differences between an "equity promise" and "debt promise," but that is beyond the scope of this blog post).  In turn, you are ALSO relying on the promise by the Government that the currency you are getting also has its representational value intact.

Thus, when you buy a stock or bond, there are two counterparty promises standing between you and the value of your investment.  And it all boils down to this:  to what degree do you trust Morgan Stanley - or any Wall Street firm - and to what degree do you trust the U.S. Government?

Re-read my blog post from the other day explaining why Facebook is a bigger Ponzi than Madoff. Then read that Wall Street Journal article and tell me if you trust Morgan Stanley or any other Wall Street firm?  If you do you are an idiot.  If you don't, it means our system of trust - of currency and investment by "fiat" - is collapsing.

Based on some recent Rasmussen polls released, I would say that trust in our Government is also in serious decline.  We know less than 10% of the public trusts Congress.  You can google it, but it looks like based on the latest Rasmussen polls, less than 40% of the public trusts Obama.  If this is the case, it also means that trust in the ability of the Government to uphold the value of the U.S. dollar should also be in serious decline.

If you don't trust Congress and you don't trust the current Presidential administration, or the one before it and likely the next one, then why in the hell would you trust the U.S. dollar?  Or any fiat currency for that matter?   From Zerohedge.com:

 

Is Facebook A Bigger Ponzi Scheme Than Madoff?

Facebook is turning out to be the poster child for everything that is corrupt on Wall Street.  From fraudulent representation of financials to the fleecing of widows and orphans.

The Facebook stock offering was priced at $38 per share, giving it a $104 billion market cap.  Before the stock freed up to trade, Bloomberg News' Trish Regan tweeted that the opening indication was in the $53-$55 range.  No doubt she was just regurgitating the fraudulent representation of the demand for the stock from her "sources" at Morgan Stanley, the book-runner for the deal.  The opening trade was $42.05 - a market cap of  $113.5 billion and the high-tick trade was $43, a market cap of $116 billion.  Currently the stock is trading at $31.32, down another 7.8% on the day and a market cap of $84.5 billion.  Facebook stock has lost almost $32 billion in market cap since its opening day peak.

While someone at Morgan Stanley was texting Trish Regan about how strong the demand was and that the stock would open up about 40% above the IPO price, Morgan Stanley was busy raising the retail broker limit on stock allocation from 500 shares to 5,000 share.  Let's examine this for a second.  One thing I would like to know is how much stock was directed into Morgan Stanley's retail brokerage stock distribution network AFTER the allocation limit was raised to 5,000 shares.  Trish Regan should learn to do some intelligent due diligence before she allows Wall Street to use her as a spunk receptacle again.  I've always thought she was an idiot and a Wall Street harlot, but now a lot more people will realize the truth about her and about financial media in general.

Not only did Morgan Stanley enable its retail broker network to stuff retail investor accounts with this crappy deal, but Morgan Stanley's Facebook stock analyst, Scott Devitt significantly cut his revenue forecast while the stock was being marketed to investors, LINK.   Did Morgan Stanley's brokerage force tell retail stock investors about this BEFORE stuffing them with more of this overvalued piece of garbage?

As to whether or not Morgan Stanley and its brokers violated SEC and FINRA laws would be very easy to investigate.  All sales and trading phone lines are taped and it would be simple to subpoena all retail brokerage statements for investors who were sold Facebook stock.  The question is, will Barack Obama order SEC Chaircrook Mary Shapiro and Attorney General Eric Holder to investigate this financial rape and pillage of the public?  Please note that is merely a rhetorical question, as we all know the answer, based on Obama's dismal record of investigating a prosecuting financial fraud.

What does this have to with Madoff?  It looks like the actual amount of losses from the Madoff Ponzi Scheme was somewhere around $15 billion.  We'll probably never know the truth, but I bet the Wall Street firms who were custodians and fund conduits for Madoff's operation know.  So far, Facebook has raped investors for about  $18 billion based on a $38 issue price, and about $32 billion based on the high tick after trading commenced.  This is a direct transfer of $18 billion from the pockets of investors to the pockets of Mark Zuckerberg, Facebook employees and Morgan Stanley (and the other underwriters).  This is a de facto Ponzi scheme.

What do my insights on the Facebook Ponzi scheme have to do with gold?  I'll let Ayn Rand explain, through the voice of Francisco D'Anconia in "Atlas Shrugged:"

Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.

The Facebook Belly Flop + Is JP Morgan Technically Insolvent?

JP Morgan will ultimately hit the wall on its enormous derivatives book and become technically insolvent.  But because JPM is the primary bank doing the Fed's manipulative bidding, the Fed will monetize it behind the scenes because otherwise JPM's catastrophic, fraudulent predicament will bring down the entire system.

That is pretty much a verbatim accounting of a discussion regarding JPM's off-balance-sheet, hidden-from-sight-debt and derivatives exposure between myself and a long-time colleague back in 2002, before 99% of those who now understand what is going on had any clue.  Gold was bouncing around the mid $300's at the time and I had just purchased my first 10-pack roll of 1 oz. Austrian Philharmonics.  Friends to whom I showed my gold bounty looked at me as if I had descended from Mars.

Quick note on Facebook:  the stock traded down over 13.5% from Friday's close at one point today.  It's currently down almost 11%.  This is the biggest follow-up trading failure for an IPO that I can ever recall seeing.  I've seen junk bonds go into default within a year of issuance, but even those never traded down like this on the 2nd day of public trading.  The people most hurt by this are the moronic retail daytraders and unsuspecting casual "investor" who chased this bubble.  As we learned ex post facto, Morgan Stanley created a lot of "spin" on this by limiting IPO orders in retail brokerage accounts to 500 shares, but right before issue they raised the limit to 5,000 shares.  Honestly, Morgan Stanley should be sanctioned and punished by FINRA and the SEC for this, but they won't be.

Needless to say, once QE3 hits - under whatever form it materializes - with the help of CNBC and an extensive network of captive retail investment advisers - I'm sure the underwriting syndicate will be able to juice some performance out of this stock with the help from the fresh flood of the QE3 liquidity...

Speaking Fed liquidity, we will likely never see any sign of it other than a big move of gold and silver, but based on some extensive reading and conversations about the JP Morgan situation, I believe the "tempest in a teapot" bad hedge loss at JP Morgan is running into the $10's of billions on a true market to market and collateral call basis and that it extends to many areas of JPM's derivatives positions.  Again, this is something that we will never know unless the Government forces JPM to open its books - something that will NEVER happen.

There are a lot of theories on how, what and why with regard to JPM's massive derivatives-related losses on a $100 billion portfolio of supposedly hedged positions.  Since it is likely that taxpayer insured money has been employed, there is no reason for there to be any speculation on what is going on.  JPM should be required to provide full disclosure and transparency in order to protect the interests of the taxpayers.

We do know that Facebook underwriter Morgan Stanley was out this weekend with an analysis that shows why JPM's losses extend to at least $5 billion:  LINK.  Of course, I wouldn't trust Morgan Stanley to do a thorough job analyzing anything to do with financials anymore than I would expect a drunk like Jamie Dimon to understand the complex nature of derivatives trading, market making and hedging. 

Another interesting tidbit that has emerged is that the person in charge of assessing the overall risk for JPM's CIO department has a history of losing money on Wall Street AND of front-running his trading desk trades in his personal account:  LINK  Although he wasn't charged with front-running, that's what he was doing.  Nice hire there, Jamie - why don't you throw back another cocktail and tell us about your firm's hedge book...

As I like to do, circling back to the opening quote, we can only surmise the extent of JPM's real losses given the little amount of information that the Government requires too big to fail banks to disclose.  However, the fact that they formally suspended their stock buyback program tells me that there is likely some budding liquidity issues behind the scenes, that we can't see.  Furthermore, we can expect that the Fed will make sure that JPM's solvency requirements stay funded.  After all, if JPM were to blow up, it would likely take down the global financial system.

Here's a long term chart of gold.  I am calling a bottom to this latest violent price correction.  As you can see from the chart, there have been two previous big price corrections since 2001 and they all have very similar chart pattern.  Each correction coincides with underlying problems embedded in the financial system that have deteriorated and are about to be monetized.  This time will be no different:

(click on chart to enlarge)

Facebook's IPO

There is a strong possibility that the Facebook IPO marks the beginning of the next big leg down in this secular bear market in stocks, which began in earnest in early 2000.  While the business of model of Facebook has validity, the value placed on it by investors is entirely absurd.  The only mechanism that will prevent a big flush in the stock market is the commencement of a massive QE3 initiative by the Fed.  If this should occur, gold will do a moon shot and purchasing value of the dollar will futher deteriorate.

(Please note:  technically this is not an IPO for Facebook.  Facebook sold shares to the public via the OTC market about a year ago at $15.  This was technically a secondary offering in order to enable the insiders at Facebook to unload appallingly overvalued shares on a wider public audience.  This means anyone who has their money stupidly invested in a general stock mutual fund or pension 401k plan.  This means most of you, as represented by your brain-dead financial advisors).

Re:  About Facebook’s IPO (sourced from cyberspace, I did not write this)

Dear Potential Investor:

For years, you’ve wasted your time on Facebook.  Now here’s your chance to waste your money on it, too. Tomorrow is Facebook’s IPO, and I know what some of you are thinking.  How will Facebook be any different from the dot-com bubble of the early 2000’s?

For one thing, those bad dot-com stocks were all speculation and hype, and weren’t based on real businesses.  Facebook, on the other hand, is based on a solid foundation of angry birds and imaginary sheep.  

Second, Facebook is the most successful social network in the world, enabling millions to share information of no interest with people they barely know.

Third, every time someone clicks on a Facebook ad, Facebook makes money.  And while no one has ever done this on purpose, millions have done it by mistake while drunk.  We totally stole this idea from iTunes.

Finally, if you invest in Facebook, you’ll be far from alone.  As a result of using Facebook for the past few years, over 900 million people in the world have suffered mild to moderate brain damage, impairing their ability to make reasoned judgments.  These will be your fellow Facebook investors.

With your help, if all goes as planned tomorrow (i.e. this morning) , Facebook’s IPO will net $100 billion (actually $104 billion).  To put that number in context, it would take JP Morgan four or five trades to lose that much money.

One last thing: what will, I, Mark Zuckerberg, do with the $18 billion I’m expected to earn from Facebook’s IPO?  Well, I’m considering buying Greece, but that would still leave me with $18 billion.  LOL.

Friend me,

Mark Z