Tuesday, April 28, 2009

The Average American Is In The Dark

"But this flu seems to move too slowly to be a major threat. People are able to see it coming, and take precautions. The next major epidemic will probably move much faster. When you will see the TV news reporter drop dead in front of your eyes, you will know trouble is coming."
- Bill Bonner, The Daily Reckoning

Reactions in Gold and Silver today were a bit heavier than anticipated. However, as I type this, both metals sit on the support of their 10 and 20 day moving averages. I say both because the 10 day is about to cross above the 20 day moving average in both metals. A bullish signal. This looks like a possible "shakeout" of the weak Bulls to coincide with Last Day Of Trading and First Notice announcements in the CRIMEX contracts this week. Buy the dips. If they want to give the stuff away, take it from them with a smile, and an eye on the big picture.

Consumer confidence soars in April
NEW YORK (AP) -- Hopeful signs that the worst may be over for the economy boosted Americans' moods in April, sending a closely watched barometer of sentiment to the highest level since November.

The New York-based Conference Board said Tuesday that its Consumer Confidence Index rose more than 12 points to 39.2, up from a revised 26.9 in March. The reading marks the highest level since November's 44.7 and well surpasses economists' expectations for 29.5.

The consumer confidence survey showed a substantial improvement in consumers' short-term outlook, including even their assessment of the job picture.

Some encouraging news in areas like retail sales and housing have helped fuel a recent stock rally. A housing index showed Tuesday that home prices dropped sharply in February, but for the first time in 25 months the decline was not a record -- another sign the housing crisis could be bottoming. The Dow Jones industrial average rose 17.12 to 8,042.12 by midday as investors set aside worries about spread of swine flu and the viability of banks.

Improvements in the stock market have helped boost shoppers' moods, said Gary Thayer, chief economist at Wachovia Securities, but major economic problems remain -- and that means that confidence could bounce up and down for awhile, he said.

"We can't say we have seen the bottom of the economy," he said. "We still have some economic concerns that we have to work through."

Economists closely monitor consumer sentiment because consumer spending accounts for more than two-thirds of economic activity.

The huge jump in confidence follows a small increase in March, following a freefall in February. Still, the index remains well below year-ago levels of 62.8.


Optimism About US Economy May Be Wishful Thinking
Consumers hoping that the worst of the recession is over may be setting themselves up for disappointment as the US economy continues to deteriorate, a panel of economists and financial experts said Tuesday.

Surging unemployment and the slow-moving impact of the government stimulus program will stall any real economic recovery until 2010 or even later, the panel said. Consumers fearful of losing their jobs are likely to continue to spend less while the housing and financial crises continue to unwind.

"I'm fairly pessimistic about the near-term future," said Dean Baker, co-director of the Center of Economic and Policy Research in Washington, D.C. "I can't imagine a situation where unemployment doesn't go to 10 (percent). My guess is we're going to cross 11 by sometime next year."

The Conference Board's consumer confidence index jumped in April to the highest level this year, reflecting consumer hopes that the economy is nearing a bottom even if the index itself shows the economy remains weak.

But speakers at a New York State Society of Certified Public Accountants briefing said the future remains murky.

Government officials' talk of "green shoots" in the economy-a term introduced several weeks ago by Fed Chairman Ben Bernanke and which optimists have used widely since-was highly premature and even irresponsible, Baker said.

"Economically and politically I thought it was poor judgment by the Obama administration to start talking about that," he said. "If I were President Obama I'd be very worried about this. You don't want to be the one saying my program is working and four, five months out there unemployment is really bad and they're going to start blaming you."


Housing: 'Better' doesn't mean 'good'
Is the U.S. housing market approaching bottom? The rate of decline in U.S. house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities.

That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.

Better isn't synonymous with good. The decline is less dramatic than January's 2.6% fall, but it's still an awful figure. Prices have fallen 18.8% over the past year, according to the index.

But let's be optimistic an say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that's to say a 2.1% decline instead of a 2.6%).

Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower - worse than the baseline case under the stress tests.


As The Flu Panic gets quickly pushed to "page 4", the media turns it's headlines back to the great "confidence game" being played by the US Government in a never ending attempt to "con" the American people into believing that the "government has evrything under control", and "the economy is not as bad as it seems". Yeah, and pigs with lipstick can fly. I'm sorry, let's leave pigs out of this, they've been wrongly blamed for too much already this week.

"Consumer Confidence Soars" cry the headlines. Like a lead balloon maybe. Ever seen a white man jump? Soars...LOOOOOOOOOOOL. And people believe this drivel, that's the truly sad part.

The bottom in housing? LFMAO! Not even close...and it's absurd to even suggest so. But we've got to firm up that confidence! Hosing prices DROPPED AGAIN in February. If prices are yet again lower than the previous month, it's pretty damn obvious that they have NOT bottomed.

"But we've got to convince the sheep, I mean people, that housing prices have bottomed so that people will start buying them again, " a distant voice behind me whispers.

"Buying them with what?" I ask out loud.

If it wasn't so sad and pathetic, this would be hilarious.

"Monkeys spend all their time picking bottoms. I refuse to pick bottoms as I don't live in trees."
- Hugh Hendry, Chief Investment Officer at Eclectica

Time to Face the Facts (Part 1) [MUST READ]
By Mike Stathis
For anyone who believes any positive earnings reports from the banks, you probably also believe there will be a real recovery in the economy. These “earnings” are even less credible than those reported by the banks during the height of their Ponzi scheme in 2007. Earnings? From the banks? It’s laughable. Let me now state what I consider to be facts related to the bigger picture of this economic fiasco.

Fact #1. All Major Banks Are Insolvent.

Fact #2. We Are Witnessing the Largest Theft in World History.

Fact #3. There is NO Escaping the Depression.

Fact #4. There Will Be No Real Recovery for 90% of Americans.

Time to Face the Facts (Part 2) [MUST READ]

Fact #5. Most of the Lost Jobs Will Not Return.

Fact #6. The Media is the Most Dangerous Force in America.

Fact #7. Washington Continues to Hide Economic Data.

Fact #8. Most of the “Experts” Are Absolutely Clueless.

Fact #9. There is Much More Risk than Opportunity.

Largest silver players positioning for tight supplies
By Gene Arensberg
When the silver LCNS:TO is under 30% like it was in the last COT report and the COMEX commercial traders are at historically low net short levels; when the gold:silver ratio is still closer to 70 than it is to 50 (or lower); when we have been witness to company after company announcing production cutbacks or outright closures meaning much less silver will be produced ahead; when the largest silver ETF has to name (and is late in naming) a new custodian because they have run out of storage space and the silver to put in it (and that’s from the largest possible custodian there is); when premiums for anything and everything silver are sky-high on the Street and some products are just plain scarce to boot and when the contango for COMEX futures has a razor-thin, six-cent difference between the near active May contract and the December contract, we have to have a fully bullish, buy-on-weakness bias for silver metal, silver futures and ETFs.

We simply cannot find anything of substance that argues with our thesis that the smartest and largest silver traders on earth are positioning as though they believe a sure-enough physical shortage of silver metal is developing, or about to surface.

World Gold Markets: How Lack of Transparency Translates into Poor Analysis
By J.S. Kim
Just a few days ago, I wrote an article about deflation and gold investments in which I stated, “We’re likely to see some downward pressure in the gold and silver futures markets in the very near term and specifically next Monday [Monday April 27th]“. Indeed yesterday, gold dropped in the COMEX markets by $6.80 an ounce (the ask price closed at $907.20 an ounce), though silver actually ended up closing just about even, higher by one penny an ounce.

Furthermore, today, Tuesday, April 28th, I predict that the downward pressure in COMEX gold markets is likely to continue and I would not be surprised to see gold pushed below $900 an ounce at some point in intra-day trading today (author’s note - I released this article about 11 hours before COMEX markets opened in New York on Tuesday).

However, these two days of downward pressure (if another downward day materializes today as I believe to be likely) do not negate the likelihood of another strong leg higher in both gold and silver in May or June. While the gold markets were obviously buoyed at the end of last week as a result of China’s revelation, knowing that the gold markets would dip yesterday and very likely today, while also understanding that these dips do not signify a reversal in trend has nothing to do with fundamental nor technical analysis, but rather with understanding the complexities of the price suppression schemes that the U.S. Federal Reserve and the U.S. Treasury execute.

One has to understand all the games that are played in these markets to not be misled by the massive amounts of “white noise” that exist in precious metals markets that are purposely created by the financial oligarchs that control the U.S. Federal Reserve and her sister Central Banks. Unfortunately, the analytical world of gold is full of gold neophytes that have not put in the considerable amounts of research necessary to understand either the fundamentals of the gold market that drive its long-term behavior or the complex relationships among Central Banks’ gold reserves, currency markets, and the U.S. Treasury that drive its short-term behavior.


Monday, April 27, 2009

Lies To The Left Of Me, Lies To The Right

Please forgive my insensitivity, but I find it profoundly pathetic that the financial media chose to blame every twist and turn in the global markets today on the flu. ONLY the United States Government could fan the fear of a "flu pandemic", and find a way to blame it for the failure of their phony economic recovery. Despicable! Even more daunting, amusing actually, was the "rush to the US Dollar" for safety from the flu.

"Here, eat two of these, and you'll feel better in the morning."

The US Dollar would be worth more to a flu victim as toilet paper...

It is completely irresponsible for the government and the media to try and use the potential for a global pandemic as a crutch, and an excuse, for their crumbling economic facade. Two of the world's biggest auto makers are on the brink of bankruptcy. Bumbling Ben Bernanke and Hanky Panky Paulson have been busted by the New York Attorney General deceiving the shareholders of Bank America and forcing it's CEO into a merger that was bad for them. Perhaps these two "current events" among many others were to blame for the markets weakness today. It was clear that following last weeks drubbing of the Dollar that the Fed had to do something "behind the curtain" to boost the Dollar as this week began. I thought this kinda magic only came from Hollywood.

Lies to the left of me, lies to the right.

"The last duty of a Central Banker is to tell the public the truth."
- Alan Blinder, Former Vice-Chairman of the Federal Reserve

The Big Lie
By Rob Kirby
Because the United States is a debtor nation, running huge fiscal budget deficits as well as massive, seemingly perpetual, current account [trade] deficits, they require massive amounts of foreign capital injections to finance these shortcomings. In recent years the amount of foreign capital REQUIRED by the United States has been conservatively running in the neighborhood of +70 billion per month.

Here’s a list of net TIC flows over the past 12 months:

Mar '08 -48.2b
Apr '08 -60.6b
May '08 -2.5b
Jun '08 +51.1b
Jul '08 -74.8b
Aug '08 -0.4b
Sep '08 +143.4b
Oct '08 +286.3b
Nov '08 +56.8b
Dec '08 +74.0b
Jan '09 -148.9b
Feb '09 -97.0b
Net aggregate capital inflows for past 12 months: +179.2b

...or a woeful average of 14.93 billion per month when simple math tells us 70+ billion per month is required.

The strength that the dollar exhibited last fall was at best a technicality - a stage illusion.

If we zero in, specifically on January and February 2009, the MASSIVE TIC OUTFLOWS are telling us that hedge fund de-leveraging has run its course. This has necessitated that the Federal Reserve resort to other means to make the U.S. Dollar look strong.

The Federal Reserve only publicly disclosed that they had opted for QUANTITATIVE EASING at their FOMC meeting mid March [Wednesday, the 18th], 2009:

Fed Opts for Quantitative Easing in the Face of Somber Economic Outlook

The main question about the outcome of today's FOMC meeting was whether there would be any shift in the Fed position on the outright purchases of longer-term government Treasuries. Today's [March 18, 2009] statement provided the answer that "Yes" it would undertake these purchases to the tune of $300 billion during the next six months…

What hubris; the Federal Reserve has apparently been printing up unaccounted for and undisclosed BIILLIONS [or Trillions, perhaps?] for who-knows-how-long? Based on the data presented above, it's evident that the Fed has been engaged in quantitative easing LONG BEFORE their public acknowledgement of the same. Despite claims to the contrary, the Fed’s actions to date have been elitist, favorable to the banks at the expense of the public and deceptive. So, perhaps it should not come as a surprise to anyone that former Fed Chairman and senior economic advisor to President Obama, Paul Volcker, speaking at a financial markets conference Friday night at Vanderbilt University in Nashville, Tennessee uttered these words,

"For better or worse, we are at a point where the Federal Reserve Act is going to be reviewed."

Ladies and gentlemen, this is a review that is long overdue.


Six Egregious Lies!
by Martin D. Weiss, Ph.D.
The truth hurts. But it also heals.

Our leaders know this. Yet they do nothing about it.

They know that without full disclosure of the truth, public confidence can never be restored, this great debt crisis can never end, and a sustainable recovery can never emerge. Yet they’re still pouring out lies, lies, and more lies. Here are just six of the most egregious …

LIE #1 The government is conducting stress tests on the nation’s 19 largest banks, assuming a worst-case scenario. — Banking regulators

The truth: The bank stress tests are based on such blatantly mild premises, the word “stress” itself is a misnomer.

LIE #2“Most U.S. banking organizations currently have capital levels well in excess of the amounts required to be well capitalized.” — Federal Reserve.

The truth: For the reasons we cited in our white paper, “Dangerous Unintended Consequences,” and based on the updated data cited in our recent press conference, six of the nation’s ten largest banks are currently at risk of failure, including JPMorgan Chase, Goldman Sachs, Citibank, Wells Fargo, Sun Trust Bank, and HSBC Bank USA. This is their current status even without assuming a worst-case future scenario.

The Fed knows this. But its headline statement above camouflages the truth with the clever use of the words “most” and “currently.”

LIE #3 Big banks made solid profits in the fourth quarter. — Citigroup and others

The truth: They used a combination of three deceptive accounting gimmicks to report bogus profits. In reality, many have suffered continuing large losses.

LIE #4 Your insurance is safe. And even if your insurance company fails, your state insurance guaranty association will back it up. — The insurance industry

The truth: Many insurers are safe; many are not.

AIG is not the only one at risk: “Systemic risk afflicts all life insurance and investment firms around the world. Thus, what happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means.”

LIE #5 The economy is showing signs of recovery. — Washington and Wall Street economists.

The truth: Economic downturn gaining momentum: “The economic downturn has gathered momentum, resulting in a deterioration in macroeconomic risks. The IMF’s baseline forecast for global economic growth for 2009 has been adjusted sharply downward to the slowest pace in at least four decades.”

Debt losses much larger: The debt crisis could cause $4.1 trillion in losses at global financial institutions, of which only $1 trillion have been written down so far.

LIE #6 Since your stocks will eventually recover, you should just hold on through thick and thin. — Most brokers

The truth: Investors lacking the foresight and the courage to sell now may never recover.

“If you bought the average stock in 1929 and held on until 1932, you wound up with about 10 cents on the dollar. And that’s if you bought the good stocks — the ones that survived. If you bought the bad stocks — in bankrupt companies — you’d be left with nothing, a big fat zero.

“Then, even if all of your companies survived, it wasn’t until 1954 — 25 years later — that you could finally recoup your original investment, provided you could stick it out that long. Unfortunately, most people couldn’t. They lost their jobs. They risked losing their house and home. So they were forced to cash in their stocks with huge losses. The idea of ‘holding on for the long term’ was a joke, an insult, or both. They didn’t have that choice. Later, when the market eventually recovered, they never got the chance to recoup their losses.”

Insane Psycho-Sociopathic Court Economists
By: Trace Mayer, J.D.
Gregory Mankiw, professor of court economics at Harvard and economic advisor to President George W. Bush, proposed negative interest rates in a recent New York Times article.

“Imagine that the Fed were to announce that, a year from today, it would pick a digit from zero to 9 out of a hat. All currency with a serial number ending in that digit would no longer be legal tender. Suddenly, the expected return to holding currency would become negative 10 percent. … The idea of negative interest rates may strike some people as absurd, the concoction of some impractical theorist. Perhaps it is. But remember this: Early mathematicians thought that the idea of negative numbers was absurd. Today, these numbers are commonplace. Even children can be taught that some problems (such as 2x + 6 = 0) have no solution unless you are ready to invoke negative numbers. Maybe some economic problems require the same trick.”

Notice that Mankiw suggests that ‘the Fed were to announce that …. would no longer be legal tender.’ This talk about the Fed determining what is and is not legal tender baffles me. Perhaps Mr. Mankiw should open up a copy of the Constitution and read it.

Under Article 1 Section 8 Clause 5 Congress is given the power to ‘Coin Money, regulate the Value thereof’. Notice the Constitution does not say what money is only that it is something that is coined rather than printed. The Tenth Amendment states, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The Constitution operates on the principle that if a power is not specifically delegated then it is prohibited.

In this case the Federal Government is given no authority to make anything legal tender. The Federal Reserve Act was enacted by Congress creating the Federal Reserve. Because Congress does not have the power to declare anything legal tender and because the Federal Reserve was created by Congress therefore it follows that the Federal Reserve cannot declare anything legal tender. The individual States do retain the power to declare things legal tender but are restricted under Article 1 Section 10 Clause 1 from making any ‘Thing but gold and silver Coin a Tender in Payment of Debts’. The creature cannot exceed the creator.

The trick to get out of the current economic problems is really founded in morality. Decades ago Ludwig von Mises wrote in The Theory of Money and Credit, “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments.

Ideologically it belongs in the same class with political constitutions and bills of rights.”
The solution to the current economic problems is to be found by picking up an extremely short document, the United States Constitution, and strictly applying its powers and disabilities in accordance with the Non-Aggression Axiom. Of course, doing so would drastically limit the ability of those who desire looting and killing.

If you look at every single problem we are facing today almost all are the result of a lack of respect for the rule of law and the Constitution. The solution can only be applied if society changes its idea about what the role of government ought to be. If society thinks that the role of government is to take care of individuals from cradle to grave and police the world by spending hundreds of billions of dollars on a foreign policy that cannot be managed then the greater depression will only exacerbate. Thus the true budget deficit and balance sheet deficiencies appear to be moral and not economic.

National currencies are like the common stock of nations. So long as the United States and its people continue violating these basic laws of morality and engaging in immoral policies the FRN$ will continue to decline. The price of the monetary metals, gold and silver, will increase. But if you think the United States is a rogue elephant on the world stage now just wait until she is truly panicked.

Cycle Revisited
By Howard Ruff
John Williams publishes the Shadow Government Statistics newsletter (http://www.shadowstats.com/). He is an amazing professional economist with a great grasp of the real economy.

I am now in John’s home in Oakland, California, looking past the government numbers to get his views on the world as it really is.

I trust John’s numbers because the government has been manipulating and restating these numbers for purely political purposes.

HJR: Right now, Obama is spending money – I won’t say like a drunken sailor, because a drunken sailor spends his own money – but he is throwing trillions of dollars at the economic downturn, assuming it will stimulate us out. My personal opinion is that they are only stimulating government growth, and some day the average person may get a job, but his employer will be Uncle Sam.

What is the end result of creating all this money and throwing it at the problem?

JW: It will not stimulate the economy. The cost of all this is inflation. We will see inflation levels not seen in our lifetime by as early as the end of this year. Eventually we will see liabilities of $65 trillion – more than four times U.S. GDP, more than global GDP. There will be a hyper inflation where the dollar becomes worthless, where the paper is worth more as wall paper than as currency.

HJR: They couldn’t even use the money as toilet paper because it is a bad absorber of water. So we will have hyper-inflation. How can we protect the value of our assets, assuming that people have some discretionary money? Should they buy growth stocks because they are cheap, assuming “buy low, sell high?” Or are there better alternatives?

JW: We are headed into a hyper-inflationary depression that will become a Great Depression. When hyper inflation hits, it will disrupt the normal flow of commerce and turn it into a Great Depression.

What about paper assets based on the dollar? You want to get into something like gold or silver –physical gold or silver, not paper. Perhaps get some assets outside the dollar. It’s a time to preserve your wealth and assets, not to start speculating on the stock market. There is a lot of volatility ahead. Over the long term, gold and silver are your best hedges.

How to Determine the End of the Current U.S. Dollar Rally
By J. S. Kim
Often the behavior of the U.S. dollar is very curious given its terrible fundamental outlook but when you consider that its major competitors, the British Pound Sterling and the Euro, are fundamentally as terrible currencies as the dollar, then it is easy to understand why the U.S. dollar can experience mini-rallies despite its awful fundamental outlook. However, the rallies of the USD are only curious to those that don’t understand the actions taken behind the scenes by the U.S. Federal Reserve and the U.S. Treasury to prop up the dollar.

When Wall Street giant Lehman Brothers filed for bankruptcy on September 15, 2008, in order to appease the world’s concerns about the soundness of the U.S. financial system and to specifically prop up the U.S. dollar, the U.S. Federal Reserve increased its swaps with foreign central banks nearly four times in a span of just two weeks to $233 billion.

Simply explained, the U.S. Federal Reserve engages in foreign currency swaps to increase the global supply of dollars to ensure that credit markets in foreign countries do not freeze up, as most large commercial transactions still occur in U.S. dollars and not foreign currencies. Thus the swaps not only ensure liquidity in foreign countries but also help support the U.S. dollar by ensuring that the fates of other foreign economies remain tied to the fate of the U.S. dollar.

Recently, on April 6th, the U.S. Federal Reserve again announced that they would be increasing the existing $314 billion of foreign currency swaps by another $287 billion of availability in Euros, Yen, British Pounds and Swiss Francs. The addition of $287 billion of availability brings the combined potential size of this foreign swap market to $600 billion, a figure that coincidentally matches the size of the foreign currency swaps assumed by the Federal Reserve last December, when the U.S. Dollar index plummeted below 78.

Back then, the huge accumulation of foreign currency swaps on behalf of the Federal Reserve quickly provided support to the collapsing dollar and was able to reverse its downward trend. Since it worked so well back then, the U.S. Federal Reserve is employing the same tactic to continue fueling a U.S. dollar rally now.

The only thing for certain at this point is that the long-term trend of the U.S. dollar is still downward and that the Feds are employing the help of other Central Banks to keep the U.S. dollar propped up. Yesterday, the European Central Bank [ECB] revealed the breadth of U.S. dollar manipulations when it reported that it had sold gold reserves to buy more dollar reserves in 2008. Ludicrously, in light of these revelations, the ECB also simultaneously reported that it had not intervened in currency markets since 2000. As the sale of gold and the additional purchase of U.S. dollar reserves support U.S. dollar strength, how the ECB can state that their conversion of gold reserves into dollar reserves does not qualify as currency market intervention is baffling.

Given the behind-the-scenes actions in the currency markets, we can be sure that the U.S. Dollar’s current rally has been artificially created and is not a product of free markets. However, the one characteristic common to all free-market interventions, whether executed by Central Banks or governments, is that while they can cause assets to buck the trend in the short-term, they almost always fail in the long-term.


Sunday, April 26, 2009

Eye Of The Storm

I drew the chart of Silver posted above near the close of trading Friday. This evening [Sunday], Silver is trading strongly higher at 13.15 and strongly outpacing Gold. This is very unusual on a Sunday evening.

I have a Monday Gold target of 916. Failure to break and close above 916 could result in a very brief pullback in price before proceeding higher. Support is at 904 with 895 below that.

Silver support rests at 12.75 and 12.60.

Volcker says economy recovery a "long slog"
NASHVILLE, Tenn (Reuters) – Paul Volcker, senior economic adviser to President Barack Obama, said on Saturday that the U.S. economic recovery will be a "long slog" but that the rate of decline "is going to slow."

The United States may not be in a Great Depression but it is "in a great recession for sure," following the economy's unprecedented tumble in late 2008, Volcker said at a financial markets conference at Vanderbilt University in Nashville, Tennessee.

Volcker, a former chairman of the U.S. Federal Reserve, did not give a time-frame on his expectations for when the United States will pull out of the recession that started in December 2007.

"None of us has seen a decline in economic activity at the rate of speed seen late last year," Volcker said.

For now, troubles in the financial system continue to plague the economy, and vice versa.

"The lack of a good strong recovery works against a strong financial system," he said. The financial system "is not quite comatose, but it's on life support."

Volcker said a review the Federal Reserve's role, something traditionally regarded as taboo, now seems inevitable given the fallout from the long-running financial crisis.

"For better or worse, we are at a point where the Federal Reserve Act is going to be reviewed," said Volcker.

Summers Says U.S. Economy to Decline ‘For Some Time’
April 26 (Bloomberg) -- The U.S. economy will continue to contract “for some time to come,” said Lawrence Summers, director of the White House National Economic Council.

“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said today on “Fox News Sunday.”

Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”

I drive a 20 year old Mustang GT...and I drive a 16 year old Ford Ranger pick-up. What makes Mr. Summer so sure consumers will replace aging cars. It's stoopid to buy a new car every five years. Besides Larry, where are all these unemployed people going to get the money to buy all these new cars?

These clowns running the government best wake up soon to the fact that the consumer is going to be playing possum for years to come. Consumer demand for anything is going to be weak for the next 3-5 years at the VERY LEAST. It will take that long just to pay down their albatross of debt. And considering the inflation the financial wizards are in the process of "engineering", who'll even be able to afford a new car...even if they have a job?

Larry Summers is a buffoon. He should be banished from government and indicted for crimes against the American Public and the US Constitution.

I can only hope to live to see the day that the US Federal Reserve is investigated and subsequently disbanded.

Peter Schiff hits it out of the park in the public speech at an Anti-Fed Rally in New York city:

Peter Schiff Addresses End the Federal Reserve Rally in New York City[video]

Debt Issuance is a Rapidly Growing Problem
The Congressional Budget Office has projected a $1.85 trillion budget deficit in 2009 and that may prove to be a rather conservative estimate. While the government is pumping trillions of dollars into the economy in the form of fiscal stimulus and various bailouts, more and more American workers are finding themselves without jobs.

As the unemployment rate has risen, tax receipts have plummeted. At the same time, government spending on safety-net programs -- like unemployment insurance, food stamps and various Health and Human Services plans -- has soared.

It is likely that Treasury will need to issue more than $2 trillion in new bills, notes and bonds in FY2009 to cover the shortfall. So far, interest in US Treasury auctions remains pretty good as a result of the safe-haven appeal of US debt in an environment of global economic uncertainty.

A fair amount of that faith may be misplaced. I think the Chinese and Japanese realize that reduced participation in US auctions puts their existing reserve portfolios in substantial jeopardy.

Nonetheless, one has to wonder; at what point does supply completely overwhelm demand?

If -- or perhaps it's really a question of when -- that happens, Treasury, the Fed and the Obama administration are faced with a rather interesting set of choices:

Do you slash spending, thereby reducing the amount of debt issuance necessary to reduce supply? Or, do you raise interest rates to increase investor demand for US debt?

Either choice presents substantial risks to growth and recovery for an economy already on the ropes. Further blows to the economy will likely result in more job losses, which in turn will lead to an increased need for debt issuance for all the reasons already outlined. It is doubtful that there is sufficient political will in Washington to take either path.

The third alternative, which may unfortunately be the most politically expedient option, is to artificially increase demand for our debt. In other words, ramp up the quantitative easing operations that are already underway. Print more dollars and use them to buy more of our own debt.

This of course puts us ever deeper in debt. The secret to getting out of a hole is to first stop digging. That simple fact seems to be lost on those who work inside the beltway.

IMF head says it will sell bonds to raise funds
WASHINGTON (AP) — The International Monetary Fund will sell bonds as a way to raise funds to lend to struggling nations, the head of the organization said Saturday, in a victory for developing countries.

Emerging economies such as China, Brazil and India pushed for the move as an alternative to providing longer-term loans to the IMF. Those countries want a greater voice in the institution before providing additional resources.

IMF Managing Director Dominique Strauss-Kahn said China and other countries have expressed interest in purchasing the bonds. The IMF has never issued bonds before, although the idea was explored in the 1980s.

The move, announced after the IMF's annual spring meeting, indicates the world's leading economies are having difficulty following through on a pledge made in London April 2 to boost an IMF emergency lending facility by $500 billion. The bonds will contribute toward that goal but will provide shorter-term financing than the loans that Japan, the European Union and the United States have promised.

The Group of 20 nations, which includes wealthy and developing countries, pledged in London to provide a total of $1.1 trillion to the IMF and other international lending institutions.

"The major emerging markets have made it clear that they ... will no longer be pushed around by the advanced economies," said Eswar Prasad, an economics professor at Cornell University and former IMF official. While "the net effect" on IMF resources of loans or bond sales is the same, Prasad said, "the symbolic difference between these two types of contributions is huge."


Interest in Gold Surges as Investors Seek Diversification
“One reason the financial crisis has been so devastating for investors is that many alternative assets did not deliver on the promise that they would provide portfolio diversification,” said Natalie Dempster, Head of Investment, North America for World Gold Council and author of GID. “The same cannot be said for gold. Gold has been one of the few assets that has genuinely provided investors with diversification throughout the financial crisis.”

For the first quarter 2009, the gold price ended at US$916.50/oz, on the London PM fix, representing a moderate increase of 5%, contrasted against a 12% decline in US stock prices during the period.

Regarding the broader economic backdrop, commentators expressed two distinct views with respect to where consumer prices are headed. One sees inflation coming, as a consequence of the staggering increase in public spending and the quantitative easing measures being put in place by central banks around the globe. The other view argues that deflation is the more likely prospect, pointing to recent inflation figures - US consumer prices were unchanged on an annual basis in January for the first time since 1954 - and the continued deterioration in consumer confidence and spending. Both scenarios have possible positive implications for gold:

“Gold is not just effective during a financial crisis. The unique and diverse drivers of gold demand and supply mean that changes in the gold price do not correlate with changes in the prices of other financial assets, regardless of the health of the financial sector or broader economy,” Dempster said. “Gold is an effective portfolio diversifier regardless of the stage of the economic cycle.”

GDP Probably Shrank as Companies Cut Back: U.S. Economy Preview
The U.S. economy probably plunged again in the first quarter, reflecting a drop in inventories that may set the stage for a return to growth later this year.

“The more forward-looking you are, the better the world looks,” said Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York. “Almost half of the drop in GDP is due to a collapse in inventories, and once they fall far enough, production has to rise back up to meet sales.”

Data in recent weeks, including signs of stability in home sales, residential construction and demand for business equipment, signal the world’s largest economy may contract at a slower pace this quarter. Finance chiefs from the Group of Seven nations last week predicted a “weak” economic recovery will start to take hold in coming months as evidence mounts that the worst of the recession is over.

Wishful thinking at best. Basing ones "hopes" for a recovery to take hold soon on US Government data isn't even laughable...it's absurd. I'd call "current events" the "eye of the storm". The front side of a hurricane is bad enough, but it's the back side that knocks everything down. Today's financial hurricane is FAR FROM OVER. Hope must be destroyed before this US Federal Reserve induced financial disaster passes. Recall that it was lost hope following a financial disaster in the very early 1900s that led to demands from the public for a central bank to prevent financial crisis in the future. Obviously that idea has been a repeated disaster. When all hope is lost, the people will demand the disillusion of the US Federal Reserve. Then and only the can the "All Clear" be given.

The US Federal Reserve must be destroyed!

Thursday, April 23, 2009

The Truth Hurts

"Instead of a bull or a bear market, I call this a “fish market”. It really stinks."
-James West

Bob Chapman, The International Forecaster[BULLSEYE]
The Truth Movement has become a real thorn in the side of the Illuminati. So many people are now finally catching on to their sinister plans that their usual strategies are not working. The facts and predictions divulged to the public via the Truth Movement have proved to be too accurate for the Illuminati to counter with their usual bogus rhetoric because no one believes them anymore. The public, via the elitist-controlled fane-stream media, has listened to Illuminist marionettes, Buck-Busting Ben Bernanke, Hanky Panky Paulson, Caligula (Bush, Jr.), Dead-Eye Dick Cheney, and now our "beloved" Emperor Romulus Augustulus (Obama) and Tiny Tim Geithner, continue to lie to them pathologically, make ridiculous predictions that never come true and regale us with inane platitudes and silly pep talks about things like "hope," "change," "we see signs of improvement" and "recovery is just around the corner," when they know darn well that not only are things getting worse, these miscreants are doing everything they can to intentionally make matters worse by order of the Puppet Masters.

People have caught on to the fact that the economic statistics produced by our government and its various agencies have no basis in reality, and that most of the so-called economists, shills, pundits and moronic talking heads on the fane-stream media are almost always wrong because being right means a trip to the unemployment lines, which are growing ever larger by the minute. So the sheople are now finally starting to look to the people who have demonstrated more accuracy and integrity, and who are still miraculously given coverage by the fane-stream media, such as Jimmy Rogers, Peter Schiff, Michael Hudson, Joseph Stiglitz, Rick Santelli, Meredith Whitney and Elizabeth Warren, to name but a few. These people are becoming virtual folk heroes because they are among the few people given wider coverage by the media who can still be looked to for some reasonable answers and explanations.

If you want to get rid of the Illuminist blight forever, leave your government officials, who are nothing more than pathetic little puppets, alone. Putting anything other than political pressure on those who are in office would play right into the hands of the Illuminati and give them the excuse they need to implement martial law. The ones to go after are the Puppet Masters in the top echelons, who do not currently hold public office, and whose names appear on lists of organizations such as the Trilateral Commission and the Council on Foreign Relations. Let them know in no uncertain terms that they, their filthy wealth, their dark influence and their seditious machinations to subvert our Constitution and implement world government are no longer welcome in the United States of America. We leave the methodology up to the American public, and their limitless ingenuity. Once the Puppet Masters are run out of town, their marionettes will fall to the stage floor in a heap of strings and wooden sticks as their benefactors are no longer there to support them with limitless amounts of cash, equipment, media coverage, brain trusts and human resources. We can then start over and try to get it right this time like our Founding Fathers. Simply applying the Constitution the way it was intended to be applied should prove sufficient for this purpose.

The stock market rally is in the process of coming to an end. All stocks should be sold except gold and silver shares. The rally was engineered by Wall Street, forced short covering, government market manipulation and smoke and mirrors. All we hear from the media, especially CNBC, is the credit crisis is over – stop worrying. The real estate crisis is over. The worst is behind us and the economy is about to take on a new life. A 14,100 Dow is only a stroke away.

While this propaganda spews forth the IMF of all people tells us things are really much worse than we have been told and that we have already experienced $4 trillion in global credit losses. That doesn’t cover the trillions of dollars in losses in residential real estate, commercial real estate and the collapse in the market yet to come. Consumers and business are pulling back and increasing unemployment. U6 unemployment is almost 20% and capacity utilization has fallen to 69.3% from 85%. How can there be a robust recovery? At best with all the injections of capital the economy can move sideways temporarily. Yes, deflation is here, but it for now is being held in abeyance by those massive injections of capital that in the end will prove fruitless and even more damaging.


Big bank profits are bogus! Massive public deception!
by Martin D. Weiss, Ph.D.
...the nation’s banking troubles are many times more severe than the authorities are admitting.

The authorities SAY that all of the 14 largest banks have earned a “passing” grade in their just-completed “stress tests.” But just six months ago, the authorities swore that, without a massive injection of taxpayer funds, those same banks would suffer a fatal meltdown.

Was the bad-debt disease magically cured? Did the economy miraculously turn around? Not quite. In fact, we have overwhelming evidence that the condition of the nation’s banks has deteriorated massively since then.

How can our trusted authorities be so blatantly deceptive and still keep their jobs? Perhaps you should ask Fed Chairman Ben Bernanke. Not long ago, for example, he declared that the total losses from the debt crisis would not exceed $100 billion, while conveying the hope that most of those losses could be soon written off. Also around that time, the International Monetary Fund (IMF) estimated the losses would be $1 trillion, with only a small percentage written off.

The IMF’s latest estimate: $4 trillion in losses, with only one-third of those written off so far. Bernanke’s error factor: He was 4,000 percent off the mark, in a world where 50 percent errors can be lethal.

Meanwhile, based on fourth quarter Fed data, we find that, among the nation’s megabanks, six are at risk of failure in our opinion (seven if you count Wachovia and Wells Fargo as separate institutions).

What Explains the Huge Gap Between Official Declarations and Our Analysis?

We all use essentially the same data. And conceptually, the analytical approach is also similar.

The primary difference is that the regulators have an agenda: Instead of protecting the people from bank failures, they’re trying harder than ever to protect failed banks from the people. Specifically …

They have forever hidden the names of the banks on the FDIC’s “Problem List,” making it almost impossible for average consumers to get prior warnings of troubles.

They have never disclosed their own official ratings of the banks — the CAMELS ratings — making it difficult for the public to find safe institutions they can trust.

They have religiously underestimated — or understated — the depth and breadth of the debt crisis.

They have rigged their recent stress tests to give passing grades to all of the nation’s 14 largest banks, sending the false signal that even the most dangerous among them are somehow “safe.”

Wall Street is aglow with the latest “better-than-expected” earnings reports by major banks. But take one look below the surface, and you’ll see three of the most egregious accounting gimmicks in recent history.

Gimmick #1. Toxic asset cover-up.

Gimmick #2. Reserve flim-flam.

Gimmick #3. The great debt sham.

Consider this scenario: A financially distressed real estate developer owes the bank $4 million. His revenues have plunged. He’s lost a fortune in his properties. And he’s on the brink of bankruptcy.

Therefore, in the secondary market, traders recognize that loans like his are worth, say, only half their face value, or about $2 million. So far, a very common situation, right?

But now imagine this: He walks into the bank one morning and claims that he really owes only $2 million. Why? Because, in theory, he says, he could buy back his own loan for that price, thereby reducing his debt in half.

In practice, of course, that’s a pipedream. If he actually had the cash to buy back his own loans on the market, then he wouldn’t be financially distressed in the first place. And if he weren’t financially distressed, his loans wouldn’t be selling on the market for half price.

The reality is that he can’t buy back his own debt and never will. And even if he could someday, he will still be on the hook for the full $4 million unless and until he files for bankruptcy and the bankruptcy judge decides otherwise.

That’s why the government would never let real estate developers — or hardly anyone else, for that matter — mark down the debts on their books and still stay in business. But guess what? The government lets banks do precisely that!

It’s the ultimate double standard: The banks get away with inflating their toxic assets. But at the same time, they’re allowed to mark to market their own debts, which happen to be trading at huge discounts on the open market precisely because of their toxic assets.

Accountants call it a “credit value adjustment.” I call it cheating.


So the banks have returned to profitability have they?
By Dan Denning
That was the theme on the market last week. And if it were true, a recovery in bank balance sheets is just the sort of thing that might precede a recovery in the economy. But it probably isn't true. Here's why...

The big three banks reporting last week-Citibank, Goldman Sachs, and JP Morgan-all reported huge revenues from their trading desks. As we reported last week, Goldman's $6.6 billion in trading revenues was not only 70% of total revenues, but it was also a ten billion dollar improvement on a $4 billion loss in the fourth quarter.

JP Morgan reported nearly $5 billion in revenues from fixed income securities trading. And Citigroup reported $4.69 billion in fixed income trading. In fact, all of Citigroup's other major operating segments reported declining revenues for the quarter. Its global credit card revenues fell by 10%. Consumer banking revenues were down 18%. And Citi's Global Wealth Management revenues were down 20%.

But something magic happened in the fixed income trading group for Citi. This is pure gold if you like arcane financial statements packed with fictional earnings. If you dig into the quarterly report, you'll learn than fixed income trading revenues were boosted by a "net $2.5 billion positive CVA on derivative positions, excluding monoclines, mainly due to the widening of Citi's CDS spread.

That takes some sorting out. A CVA is a "credit value adjustment." As you can learn here
http://www.federalreserve.gov/SECRS/2007/February/20070213/R-1266/R-1266_17_1.pdf, it's the credit risk premium of a derivative contract. Once you sort it out, you learn that Citi "made" $2.5 billion on a derivatives position designed to profit when the companies own credit default swaps spreads widen.

Or, in plain English, Citi profited because it made a bet that the cost of insuring itself against a default would go up. The credit default swap market is the place where you can bet on the credit worthiness of a firm, or, essentially, the chance that a firm might default on its bonds. Citi appears to have reported a $2.5 billion trading gain in the fourth quarter precisely because the market thought the company stood a good chance of failing (hence the widening CDS spread).

As far as we can tell, if you use this kind of perverted logic, the closer Citi gets to bankruptcy, the more money it would "make" on its derivatives. That shows you how bogus the quarterly number was. The company reported declining revenues in its core banking and lending activities. But thanks to fixed income and this handy $2.5 billion CVA, the company was able to report $1.5 billion in net income.


Too Big To Survive
By: John BrowneSenior Market Strategist, Euro Pacific Capital, Inc.
On April 20th, Bank of America announced a first quarter surge in earnings to $4.2 billion. At first blush, it looked like the kind of news that would ignite a stock market rally. Instead, the Dow closed down 289 points. Could it be that, despite the apparent good news, investors don't trust the banks or the economy?

In recent months, the Administration has poured billions of dollars into those banks that it has deemed "too big to fail". B of A alone received some $45 billion. Perhaps now it is time to examine whether the liabilities of these same banks make them, conversely, too big to survive.

Importantly, B of A's sale of China Construction Bank, a much-prized future earner, resulted in a one-time-only earnings contribution of $1.9 billion, or 45 percent of their just posted quarterly profit figure.

In addition, $2.2 billion in gains were contributed by certain mark-to-market bank "adjustments" to Merrill Lynch's structured notes. These gains appear to be the result of recent changes in the accounting rules that now allow banks to "officially" inflate the value of toxic assets and thereby erase billions of dollars of paper losses.

In short, the so-called surge in the earnings of Bank of America had little to do with real, repeatable earnings, and much to do with sales of promising assets and accounting gimmickry.

Goldman Sachs Shook Tens of Billions Out of Tax-Payers -- Now They're Whining All the Way to the Bank
By Dean Baker, AlterNet
Lloyd Blankfein, the CEO of Goldman Sachs, is very upset with the Troubled Asset Relief Program (TARP). Last fall, Mr. Blankfein borrowed $10 billion through the TARP at below market interest rates. Now, the government is starting to tie some real conditions to this money, for example, by limiting what Goldman can pay its executives. Mr. Blankfein argues that such conditions are making it impossible to run his business and is now anxious to return the TARP money.

It is great to see that Goldman is finally prepared to go forward into the market without its government training wheels of TARP aid, but, unfortunately, Mr. Blankfein isn't yet confident enough in his business acumen to actually forego government assistance. Goldman Sachs has benefited and continues to benefit enormously from other forms of government aid.

For example, last fall Mr. Blankfein also took advantage of the opportunity to borrow $25 billion with an FDIC guarantee to his creditors.

Goldman Sachs also has the opportunity to borrow at several of the Federal Reserve Board's special lending facilities at below market interest rates.

Mr. Blankfein also got a big wad of taxpayer money from the A.I.G. bailout. It was the biggest single beneficiary of the government's largess, pocketing more than $12 billion.

In short, Mr. Blankfein is not at all prepared to go out on his own in the rough and tumble of the market; he just doesn't like government programs that come with conditions, like the TARP. He would much rather get his government money with no strings attached. And, since there are channels through which Goldman can get government money without any strings, it is perfectly understandable that Mr. Blankfein would opt out of a program with strings.

The basic story is straightforward. The Wall Street crew thinks that they are entitled to pilfer as much as they want from the public and from the government. These people have no interest in a "free market"; they would be scared to death of being forced to work for a living in the absence of a government safety net.

The Wall Street crew has relied on its political power to rig the rules to make them incredibly wealthy. They are relying on this political power to ensure that the rules remained rigged, even though their crooked deck wrecked the economy, costing tens of millions of people their jobs, their homes and their life savings. So far, it looks like the Wall Street boys are winning.

Housing bubble smackdown: Huge "shadow inventory" portends a bigger crash ahead
Due to the lifting of the foreclosure moratorium at the end of March, the downward slide in housing is gaining speed.

The moratorium was initiated in January to give Obama’s anti-foreclosure program — which is a combination of mortgage modifications and refinancing — a chance to succeed. The goal of the plan was to keep up to 9 million struggling homeowners in their homes, but it’s clear now that the program will fall well short of its objective.

In March, housing prices accelerated on the downside, indicating bigger adjustments dead ahead. Trend lines are steeper now than ever before — nearly perpendicular. Housing prices are not falling, they’re crashing and crashing hard.

If regulators were deployed to the banks that are keeping foreclosed homes off the market, they would probably find that the banks are actually servicing the mortgages on a monthly basis to conceal the extent of their losses. They’d also find that the banks are trying to keep housing prices artificially high to avoid heftier losses that would put them out of business. One thing is certain, 600,000 “disappeared” homes means that housing prices have a lot further to fall and that an even larger segment of the banking system is underwater.

Here is more on the story from Mr. Mortgage “California Foreclosures About to Soar . . . Again”: “Are you ready to see the future? Tens of thousands of foreclosures are only 1-5 months away from hitting that will take total foreclosure counts back to all-time highs. This will flood an already beaten-bloody real estate market with even more supply just in time for the Spring/Summer home selling season . . .

“The bottom line is that there is a massive wave of actual foreclosures that will hit beginning in April that can’t be stopped without a national moratorium.”

The next leg down in housing will be excruciating; every sector will feel the pain. Obama’s $75 billion mortgage rescue plan is a mere pittance; it won’t reduce the principle on mortgages and it won’t stop the bleeding. Policymakers have decided they’ve done enough and are refusing to help. They don’t see the tsunami looming in front of them plain as day. The housing market is going under and it’s going to drag a good part of the broader economy along with it. Stocks, too.

Tuesday, April 21, 2009

Behind The Curtain

"Patience is bitter, but its fruits are sweet."
-Jean-Jacques Rousseau

Looking Behind The Curtain [absolute MUST READ]
By Martin Armstrong
To characterize Martin's report, it's as if the current financial system is a very large airplane, full of holes, crashing to earth at horrific speed, but those in power continue to wildly shoot their fellow passengers, and tear more holes in the plane, as they continue to jocky for position for the best seats in first class. Nobody in power is even thinking yet of dashing for the few remaining parachutes, being silver and gold.

It's as if those who are in charge are the decendants of the decendants of the decendants who set everything up, and are squandering their inheritance, because they have all totally forgotten that silver and gold are the only real money, and in short supply. They would know that silver and gold are in short supply if they paid any attention to fundamental analysis, but they do not.
-Jason Hommel

The Ususal Suspects
By Matthew Malone
The Goldman Sachs "conspiracy" to take over the U.S. financial system.

Believers point to the one degree of separation between Goldman bankers and recent financial events. Bush’s Treasury secretary, Hank Paulson, is a former Goldman C.E.O., and his replacement at Treasury, Tim Geithner, was mentored by Goldman alumni. Mario Draghi, who is leading the crisis response for the E.U., is a former Goldman vice chairman.

Merrill Lynch C.E.O. John Thain was once Goldman’s co-president, and Wachovia chief Robert Steel was a vice chairman. Ed Liddy, the new C.E.O. of A.I.G., was Goldman’s vice chairman. World Bank president Robert Zoellick was a managing director. Even Neel Kashkari, the 35-year-old tapped to oversee the $700 billion Troubled Assets Relief Program, served at Goldman as a vice president. Are they plotting to take over the world? Who knows. They sure are a tight-knit group, and potential conflicts abound.

When we asked the participants about their roles in the alleged conspiracy, some didn’t appreciate the joke. Goldman said that such claims are ludicrous. In fact, a spokesman said that the firm is at a disadvantage, since its alums must go out of their way to avoid the appearance of favoritism. Geithner, Paulson, the S.E.C., and others also dismissed the theories.

Jack Bauer can't stop 'The Goldman Conspiracy'
10 reasons why Wall Street has absolute power over America's democracy
ARROYO GRANDE, Calif. (MarketWatch) -- Two mind-numbing fast-paced dramas. Two parallel worlds. One real, one fiction, both deadly. Jack Bauer, mythic hero of "24." Dying from a deadly bio-pathogen leaked from weapons developed by Starkwood, a rogue mercenary army attacking the presidency, hell-bent on taking over America.

The other drama in play: "Hank the Hammer" Paulson, iconic Wall Street hero, a Trojan Horse placed inside Washington by Goldman Sachs as Treasury Secretary in control of America's $15 trillion economy. Goldman, a modern dynasty with vast financial powers much like those once used by the de' Medici, Rothschilds and Morgans to control nations.

Both dramas play high-stakes games with financial WMDs that have lethal consequences. Jack compresses thrills, kills and chills into 24 hours. Hank, Goldman and their army of Wall Street mercenaries move with equally blinding speed, heart-pounding action.

Drama? You bet. Six short months ago Hank led an assault on Congress. The scene parallels one in "24:" Sangala War Lord Juma's brazen attack inside the White House. But no AK-47s necessary. The Hammer assaulted Congress with just a two-and-a-half page memo in hand. Like a crack special-ops warrior, he took down the enemy, demanding $750 billion, absolute control, total secrecy, no accountability and emergency powers to act immediately ... warning that inaction was not an option, that collapse of America's banking system was imminent, would bring down the global monetary system, pushing world's economies into a "Great Depression II." Congress surrendered.

Here's the whole plot:


ECB invested 2008 gold sale proceeds in U.S. dollars
FRANKFURT, April 21 (Reuters) - The European Central Bank said on Tuesday it used proceeds from gold sales to boost its U.S. dollar reserves in 2008, although dollar holdings fell as a proportion of overall currency reserves.

Its foreign currency portfolio was worth 38.5 billion euros at the end of last year compared with 32.1 billion euros at the end of 2007, the ECB said in its annual report.

The ECB also confirmed it had not intervened in currency markets in 2008. The last time it intervened was in 2000.


Why Gold Owners Are Targets of the Government[Insightful]
By Gary North
There is a full-scale war against you. The politicians and central bankers who are conducting this war against you are determined to see that you lose money on your investment.

The reason why you are under assault is because you have demonstrated by your purchase of gold or a gold-related investment that you do not trust the monetary policies of your nation's central bank. If you are an American, this means you do not trust the monetary policies of the Federal Reserve System. You have taken a step that confirms your lack of trust in the government and its central bank. If you think the government and the central bank will sit quietly, while millions of citizens buy gold as a way to hedge against government and central bank policies, you are terminally naive.


Who is going to win the gold wars? Holders of gold. The big winners will be Indian wives whose fathers gave them a lot of gold as a dowry. The rest of us gold bugs will also do well. The general public will never catch on in time, and by the time that it occurs to even 10% or 20% of investors that they better by gold, it will cost them so much to get into the market that they will not make the kinds of profits that today's gold investors are going to make.

Governments and central banks can continue to fight the gold war by means of gold leasing, outright gold sales, and threats of gold sales, but for as long as they inflate the money supply to obfuscate the price of economic depression, they will be running out of ammunition. They are in a war in which ordinance is in fixed supply. They cannot go into the gold market and replenish the supply of gold without driving up price of gold.

Central banks are expanding the money supply, which is providing ammunition for those of us who want to fight the gold war by buying more gold. In contrast, central banks are not expanding their holdings of gold, but rather depleting them, and so they will not be able to fight this fight indefinitely.

They may be able to fight it for as long as the threat of recession hangs over the world economy. But when the recession ends, or appears to end, as a result of the massive monetary inflation and massive deficits that the governments of the world are running, there will be a new market for gold that is unprecedented in its intensity. This does not mean that everybody is going to buy gold. It probably does not mean that even 20% of investors will buy gold. All it will take is about 10% of investors decide to put 10% of their holdings in gold. Governments and central banks are going to lose the war on gold because they refuse to fight gold by the one technique that can give them victory: stop printing money.

Bullion Bank Shenanigans Continue At The Comex
By David Duval, Trader Dan Norcini
When one looks at the present price at the Comex as of today and the short term technical chart pattern, it is not particularly encouraging for the bulls so you could say that Central Bank efforts in conjunction with their favored insiders at the bullion banks have been somewhat effective of recent weeks. However, there is one thing that no amount of market intervention and price manipulation can succeed in doing and that is in changing the basic structure of the futures market as evidenced by the relationship of the front month contracts to the later dated contracts.

In trading terms, we refer to the “spread” between the front month and a back month/months or the difference in price between the two, as a gauge of demand for that particular commodity. As a general rule, when the front month trades at a discount to the next month or to a later-dated month, the structure of that particular commodity futures market is normal or in contango. A market in contango will see those distant month contracts trading at enough of a premium to the front month to account for any storage charges, insurance against loss and interest rates. Simply put, a seller has to be recompensed for his/her expense in storing a commodity while they wait to sell it into the market at some point in the future.

Whenever a market begins to see this “spread” between the front month and the next month or more distant months begin to tighten or narrow, then something is beginning to change regarding the demand/supply picture in that particular commodity. Why is this? Because the market is ratcheting up the front month price and attempting to send a signal to potential sellers that demand is increasing and that they are better served by selling sooner rather than later. Economically speaking, the incentive to store the commodity, pay all those storage costs, insurance costs, etc,. is not worth the increased cost that they might hope to receive at some point in the future. “Sell it to us now and we will pay you more for it than if you try to sell it later”, is the message the market is sending.

When markets begin moving in this direction, narrowing the spread, they are said to be moving towards a condition known as, “backwardation”. True backwardation occurs when the front month moves to a PREMIUM over the next month and particularly over the next set of three or four different contract months ( a note here - generally a market will not go into backwardation more than a few distant contracts out because it is assumed that the increased demand will result in increased production at some point and induce producers of that particular commodity to increase production on out into the more distant future bringing the demand/supply picture into more of an equilibrium. That will serve to bring the market back into a more normal structure of contango).

Backwardation is a powerful signal of very strong demand that is attempting to send a signal to the market that it needs more of that commodity to satisfy existing levels of demand. While market price manipulation can be somewhat effective short term for fogging signals generated from a rising price in gold for example, it is generally unable to affect the spread structure of the entire set of futures contracts listed on the board at any given time.

Monday, April 20, 2009

The Gold Bug Delicacy Called Inflation

As a child, I was often told by my parents, "If you don't have something nice to say, then say nothing at all." Thus I have remained quiet, and ignored the Gold Market and the economy the past few days. Ahh, ignorance is bliss. America is a blissful nation.

Recently I have espoused "patience" with the Precious Metals Markets. Patience is a virtue. As a culture, we are a nation of people that want everything "right now". Our society of "instant gratification" has been instrumental in the debt bust we are experiencing now. I was also often told by my parents that "good things come to those who wait."

At times, it feels like I've been waiting forever for the Gold Market to lift off and soar. In fact though, the Gold Market has been soaring for the past eight years. It just hasn't been soaring for the reasons I thought it would, yet.

I began investing in the Gold and Silver Markets in 2003 as a play on rising inflation and rising commodity prices. The Gold Bull Market began in 2001 following the events of 9/11. Low interest rates and easy money fueled the early stages of the Gold Bull. Gold rose steadily on the back of a weak US Dollar thru 2005 and then shot to a peak near $750 in April 2006 on the back of a speculative fury despite a rising US Dollar in the second half of 2005.

A correction and consolidation in the price of Gold though out 2006 and into 2007 followed despite a falling US Dollar. Then in the summer of 2007 news broke of the failure of two sub-prime hedge funds at Bear Stearns. The spark that would ignite a global financial calamity began to smolder under the radar. Gold Bugs smelled smoke, and began to bid up the price of Gold again. Soon, new highs in Gold were seen as the two smoldering hedge funds at Bear Stearns became a five-alarm fire.

In September of 2007 Gold launched. Like the Space Shuttle leaving Cape Canaveral, Gold quickly and furiously rose on the back of rising fears of systemic financial infection due to the possible collapse of Bear Stearns and the potential repercussions the collapse could have on the "entire" financial system". Gold became, and was, the go to safe-haven as the fear of financial Armageddon spread around the globe.

The weekend of March 17, 2008, Gold's trip to the Moon was halted in it's tracks by the first of many bank bailouts to come was announced. Bear Stearns was married to JPMorgan by the Fed in a shotgun wedding. The Fed declared financial calamity averted, and the safe-haven of Gold was tossed to the wind. The price of Gold collapsed as the US Government began an unending series of bank bailouts and interest rate cuts at the Federal Reserve. The US Dollar soared as demand for it to cover debts around the globe exploded. US Treasury notes became the new "safe-haven".

Gold plunged for weeks on end finally bottoming in October 2008 as the realization spread that the US Government was losing it's battle against the failing banks, and the tumbling stock markets. Renewed fears of financial calamity began to surface, and Gold Bugs once again sought Gold as a safe-haven in the face of Global Financial Armageddon.

Coincidentally, Gold's collapse in the Summer and Fall of 2008 took it back to the point at which it had broken out the previous year when the five-alarm fire at Bear Stearns had sent Gold soaring. Gold again quickly roared towards $1000 on the very real fears that global governments would be unable to control the unraveling of the World's Financial System. Renewed fears that Citibank was about to fail, and Bank of America was teetering on collapse, had the financial community in a panic, and Gold Bugs smelled blood. But low and behold! Another huge bank bailout by the Fed in February 2009, and all was miraculously under control again. Toss in another huge "loan" to the floundering group at AIG, and everything was fixed [yeah, right]. And Gold's usefulness as a "safe-haven" was once again kicked to the curb.

As Spring began to unfold on Wall Street, news of "green shoots of growth" began to swirl in the financial press despite the growing ranks of unemployed across all sectors of the economy. Job loses in excess of 650k per month failed to dim the hopes of economic recovery and revival. New accounting rules that favor bank loss deception are passed after the FASB is blackmailed by the US Congress. Investor euphoria erupts, "Screw Gold, Buy Stocks!" Happy days are here again!

Not so fast. Only a fool would believe that the worst is behind us and clear sailing on the financial seas is in front of us. A financial crisis the scope of which we are enduring can not, and will not "end overnight". As I type this a headline comes across my screen on Yahoo Finance:

Stocks slide as investors dump financials
Stocks fall as investors worried about trouble spots on balance sheets dump financials

Wall Street fell sharply early Monday as investors sold financial stocks and looked to lock in profits after a six-week rally. Investors are having doubts about banks' profit reports and are wondering whether their better-than-expected performance masks larger problems with bad debt.

What? Investors are having doubts about banks profit reports? What happened to the investor euphoria following the announcement that banks could lie about their books on their financial statements? I tell you what happened to it, there never was any. The investor euphoria was all concocted by the financial press. The six week Bear Market Rally is coming to a fitting end, and is being revealed for what it has been...a short squeeze.

Traders, Not Investors, Fueling This Stock Rally: NYSE Chief
Wall Street's stunning six-week rally has been fed more by traders looking to take advantage of quick swings in the market than investors with a long-term view, NYSE Euronext (NYSE:NYX - News) CEO Duncan Niederauer told CNBC.

Because of that, the rally likely is to run out of steam as low volume eventually comes back to the bite the market, he said.

"It feels to me we're in a trader's market and not an investor's market," Niederauer said in a live interview from the exchange floor.

"The volume in March hasn't convinced me that it's the kind of volume that you need to see to believe it was the real beginning of a turnaround," he said. "Instincts tell me we're going to retrace one more time and the rally I believe is the summer rally."

Market rallies on low or falling volume are often signs of a short squeeze in the market. Considering the FASB mark-to-market rule change and the recent revelation that the SEC is looking to reinstate the "uptick rule", shorts were wise to cover their positions. In order for shorts to cover, they must "buy" stocks. The financial news media only focusing on rising stock prices and creating headlines interprets the markets moves for the financially challenged as "a sign of a bottom" and "green shoots of growth". "Buy stocks now!" "Don't miss the beginning of the 'next' Bull Market". On and on they go about "the bottom" in stocks when nothing could be further from the truth.

I've said it before, and I'll say it again. There is still too much "hope" in the equity markets for them to make a bottom. A bottom will be reached when ALL hope for stocks is lost, and nobody wants to own them. See the Dow circa 1982 for a "hopeless bottom" in the stock market.

Gold's reaction today is not unexpected. Financial calamity is still in the sights of investors. Gold as a safe-have is still viable. Financial calamity brings with it market volatility. Market volatility over the past year has been unprecedented in ALL market sectors. Expect it to continue.

Gold as an inflation hedge. This is the number one reason I invest in the Gold and Silver markets. It should be the number one reason why you invest in the Precious Metals markets. Inflation is baked into the cake so to speak. The US Federal Reserve has seen to that. By spending or pledging to spend over $12 TRILLION of money conjured up out of thin air the Fed has sown the seeds of rampant inflation. Some suggest, and rightfully so, that "hyperinflation" may be the end result of all the government printing and spending of $12 TRILLION. $12 TRILLION is almost the equivalent of one year of US GDP. How can it not be inflationary?

The Fed is sowing the seeds of inflation with each bank bailout, with each multi BILLION dollar US Treasury debt purchase, with each handout to GM, AIG, or "debt swap". Like a farmer sowing his seeds in Spring, great patience is taken during the "growing season" before the farmer can harvest his crops, and cash in on the investment of his sown seeds. As the Fed sows its seeds of inflation, the Gold Bug, like a grasshopper, must wait for the crops to break the surface and grow before he can feast on the new crops. Inflation has yet to rear it's ugly head, but it will. And Gold bugs will feast in fine fashion once it does.

Corn crops in the Midwest begin to grow in earnest once they are "knee high by the Fourth of July". Expect the same for inflation this year. The "green shoots of growth" so often fawned over by the financial press of late could be better described as the "green shoots of inflation". For once true signs of growth come back to the economy, if they ever do, inflation will be sure to quickly follow. And this crop of inflation is sure to shock even its farmers, the US Federal Reserve. A bumper crop of inflation is certain, the Fed is counting on it. Buy Gold now while it's on sale, and reserve your place at the dinner table to feast on this fine crop of Gold Bug delicacy called inflation. Be patient, the crops will be in soon enough.

U.S. Global Hegemony – The Beginning … And the End[exceptional read]
By Andy Hoffman
President Obama’s “economic plan” is built on sand. Or worse, as there does not appear to be any “plan” at all.

It is just a series of such band-aids created by Wall Street and spearheaded by his head economic advisor, Larry Summers, and Treasury Secretary Geithner. Two of Obama’s top three campaign contributors were JP Morgan and Goldman Sachs, as was the case for most (if not all) of the Congressional figures involved in engineering the bailouts.

Larry Summers, as Treasury Secretary back in the Clinton Era, actually penned the “Gibson’s Paradox” essay that describes how keeping interest rates low fosters low inflation expectations, and the best way to keep interest rates low is to hold down the gold price. Meanwhile, Geithner, in his previous post as head of the NY Federal Reserve, was a key point man in the actions of the PPT and gold Cartel, a disciple of none other than Alan Greenspan. Fed Chairman Bernanke, by the way, has been so discredited by his ineptitude that he is hardly worth mentioning.

Right now, the only plan I see is a series of lies, frauds, and manipulations of financial markets and the public’s perception. “Operation Confidence Con”, as I have heard it described, is nothing more than an acceleration of the bastardized economic policies of the past three decades, aided and abetted by massive corruption from the Wall Street masters than now run Washington, and an exponential increase in the 24/7 activities of the PPT/Gold Cartel to try and fool the masses into believing that Obama’s “plan” is working, which it is not and which logically cannot work, EVER.

Regarding gold and silver, I have been watching these markets trade every day for the past seven years. Each day the manipulation in these markets has gotten worse, but nothing like what I’ve seen in the past month, particularly around the Fed’s “quantitative easing” announcement last month and the conclusion of the “G-20” meeting two weeks ago. Can you believe that, following these massively gold-bulliish announcements, that gold and silver are actually lower?

For those reading this missive; if you believe that the economy has turned, banks are now profitable, inflation is not a concern, jobs are about to become plentiful, and the dollar is a smart place to be, continue as you were.

But if not, which I suspect represents 99% of you, continue to PROTECT YOURSELF. Gold and silver are a gift at these levels, as are foodstuffs and other necessary consumables before accelerating (or god forbid) hyperinflation hits in the not so distant future. And continue to participate in “tea parties” or anything that enables you to assert your rights, while you still have them.

U.S. hegemony was significant. And real. But alas, for just a very brief period in the annals of history. It is nearly gone, and when it is, you will wish you have protected yourself. Life will go one, just not in the same way we have been accustomed to.


Thin Ice From Here to the Horizon[honest and insightful read]
On any rational assessment the popular new president is skating on thin ice. Pollyanna bulletins about the economy puff up from the White House and Federal Reserve, like auguries of a new Pope through the Vatican chimney. “Habemus spem.” We have hope. We’ve just heard it from President Obama: "We are starting to see glimmers of hope across the economy." From Fed Chairman Ben Bernanke, who’s so far unleashed $12 trillion in booster money, we get the always sinister reassurance, like Death giving the Appointee in Samarra a friendly tap on the shoulder, "the foundations of our economy are strong".

The economic news in the near and medium term is ghastly, as Mike Whitney outlined on this site last Thursday. Retail sales crashed again in March, nowhere worse than in the car market, though electronics and building materials were way off too. They now reckon there’ll be just over two million housing foreclosures in 2009, up 400,000 from 2008. Industrial output is going through the floor at an annual rate of 20 per cent, the biggest quarterly drop since the end of the Second World War. US industry is now running at only 70 per cent of capacity, the worst number since they started tracking this stat in 1967. Job losses are currently running at 650,000 a month.

Round the next corner is credit card delinquency and the long-heralded slump in commercial real estate, where vacancy rates are already running at 15 per cent,. Capital One, a huge issuer of Visa and Mastercard, just said the annualized net charge-off rate for U.S. credit cards -- debts the company reckons will never be paid -- rose to 9.33 percent in March from 8.06 percent in February. In other words, Capital One – whose credit card promotions take up hefty space in the mailbag of every US postman – is in big trouble, and under one in ten of these credit card holders will have a messed up credit rating for several years to come.

Wall Street and its boosters are trying to pretend that indeed the worst is over. The Dow and S&P Index have been rallying for five weeks. Wells Fargo, the huge San Francisco-based bank, second biggest home lender, announced that first quarter net income rose 50 per cent to $3 billion. No one seriously believes the bank is in anything other than continuing huge trouble, and will soon need – so Blomberg News surmises - $50 billion to settle near-term commitments. The profit figure stems from newly relaxed rules about the valuation of Wells Fargo’s assets.

In other words it’s thin economic ice from here to the horizon.


Fed Using Currency Swaps to Boost the U.S. Dollar[must read]
By: Eric_deCarbonnel
The news that the fed has secured more of currency swaps has some very disturbing implications:

1) There would be no need to secure these new agreements if the fed hadn’t already used most of its existing $308.8 billion in central bank liquidity swaps.

2) This implies that unwinding the Federal Reserves existing swaps would leave the US with close to 300 billion in foreign denominated debt.

3) This development also implies that much of the dollar’s recent rally has been artificially created by the Federal Reserve’s 300 billion currency swap intervention.

4) To date, the fed’s currency swaps have been presented as motivated by shortfalls in USD funding in foreign institutions. While this might have been true initially, it is now obviously false.

5) Considering that the fed is planning 15-fold increase in us monetary base, 300 billion in foreign debt could quickly turn into 3 trillion or more.

Conclusion: The fed’s use of currency swaps to boost the dollar shouldn’t surprise anyone. After all, this is the same fed which has let US Banks operate without reserve requirements, caused the housing bubble with low interest rates, and failed to regulate subprime mortgages. Opening credit lines which could help American banks finance a foreign capital flight falls right into place with the fed’s other actions undermining the US financial system.

The dollar bubble is reaching its final stages

Soon food prices will begin rising, as the world is headed for a Catastrophic Fall in 2009 Global Food Production. Weather and credit conditions are causing falling production around the globe, and the world’s three biggest grain producers are all headed for big shortfalls. In India, torrential rains have devastated wheat crops, while in the US drought and freeze have damaged winter wheat. Meanwhile, Northern China was hit by worst drought in 50 years, and Chinese authorities have ordered three-month, nationwide audit of grain stocks as they are obviously very worried about whether China’s grain reserves actually exist.

Inflation in food commodities will push up gold demand cause manipulation efforts to break down. Already, the NYSE has runs out of 1 kg gold bars, and default on COMEX gold contracts is a month or two away. The collapse of paper gold (futures, unallocated gold, GLD, etc…) would destroy what is left of confidence in the US financial system, starting a panic out of the dollar.

Lesson learned from the financial crisis

The truth of this world is that those, who, through stupidity, greed, and fraud, dig themselves into a hole, will keep digging deeper until they hit bedrock and run out of options. This is what happened with Bernard Madoff: he must have known for years his ponzi scheme was doomed to collapse, but he kept it going until he was down to his last 140 million. The United States, like Bernard Madoff, has for years been digging itself into a hole, and the fed's use of currency swaps to boost the dollar is the final part of this process. Unfortunately, the US, like Madoff, is about to hit bedrock.