Monday, May 25, 2009

...And The Sh*t Moves Closer To The Fan

Loud Paradigm Shift Rumblings
By: Jim Willie CB,
Numerous events have taken place of global importance. Alone, each story seems of some significance. Together, they paint a mosaic of extreme change in a very dangerous sequence of events that fit together. The greater aggregate story is that a tremendous paradigm shift is underway, with early steps and major moves by global players in clear view. The Western analysts and pundits and mavens are missing it. A PARADIGM SHIFT HAS BEGUN, WITH BANKING POWER SHIFTING TO THE CREDITOR NATIONS AS THE USDOLLAR IS SUPPLANTED, MADE POSSIBLE BY SEVERAL NEW INSTITUTIONAL PILLARS AS WELL AS NEWLY FORGED ALLIANCES. The consequences are significant and will change the face of global banking and commerce. Some in the United States and England believe that a return to normalcy comes. They are wrong by 180 degrees. The G20 Meeting of finance ministers and heads of state was the warning. The message from that meeting in London has been long forgotten, a call made in my public article immediately after its conclusion. This article provides an outline of events that have occurred only in the last few weeks, as the pace is accelerating for transformation that begins at the foundation. Piece it all together, use some mental power, sprinkle with only a little imagination, connect some dots easily, and take a look at the global picture that is emerging. Yesterday came the crowning blow, as the United Arab Emirates rejected the Saudis in the Gulf monetary union. My belief is that the rising power in the UAE wants Russia instead of the Saudis, who are tied at the US hip.

Numerous events mark major milestones.

1) The US-UK banking systems are shattered by deep bond asset losses, shrouded in fraud, deep with leverage, teeming with collusion, which renders them as insolvent and in need of transfusions. The reality is that Wall Street firms remain in control of the USGovt financial operations despite their responsibility for both the collapse and clear legal violations. The USDollar image is badly tarnished.

2) Incredible volumes of money have been committed by the US Federal Reserve and the USGovt, much already delivered, with staggering future rescues, bailouts, and stimulus packages assured. The sums total $12.8 trillion at last count. The undermine, if not debauchery, to the USDollar and its vehicle the USTreasury Bond is vividly clear, a palpable threat to foreign creditors.

4) Foreign creditors have owned over half the US$-based government and mortgage agency bonds for almost a decade. With the dependence upon foreign institutions (central banks and sovereign wealth funds), the United States has quietly lost control of its fate. It can no longer make decisions without consulting major creditors.

11) Numerous nations have stated publicly that they regard the USDollar as inadequate and unqualified to serve any longer as the sole global reserve currency. The isolated revolt has turned into a uniformly global revolt. They are blaming the US$ for their internal crises

14) The Germans have demanded all of their gold held in custodial accounts inside the United States to be returned to German soil. The story is not public, but details have come to me from a private source close to the action. The Germans have also given counsel for Dubai to demand all of their gold held in custodial accounts inside London to be returned to Dubai, where a new gold trading center will spring up. In my view, THIS IS THE BIGGEST NEWS FOR GOLD THIS ENTIRE YEAR. The hidden arch-enemy for the US-UK on all matters pertaining to gold bullion is Germany. This is not a well-known concept. Insults were hurled at the US delegation during the London G20 by their ministers. Germany is also advising the Chinese on currency and gold matters. Can one detect some coordination?

16) A near default was averted at the Eleventh Hour when Deutsche Bank found almost a million ounces of gold to cover its (naked) short in gold futures at the COMEX at the end of March. Thanks to the Euro Central Bank, which happened to sell over a million ounces for some reason. My conjecture is that the Germans decided the time was not right to bust the COMEX. From sources, that date might be this September in a coordinated attack that requires preparations to remove the levers and kick out the pillars that support the COMEX.

18) The Chinese announced an increase in their gold reserves from 400 tonnes to 1050 tonnes in the last five years. At the same time, they have been harping on the extreme risk to their $2000 billion in savings, held in USTreasury Bonds, USAgency Mortgage Bonds, and USCorporate Bonds. They openly complain about US$ mismanagement, unbridled USGovt spending (for numerous crisis projects), and the resulting risk to the US$ exchange rate. They have engaged a war of words, precursor to trade war, with USDept Treasury officials, one that has lasted for at least two years. The Chinese have openly talked about a covert USTreasury Bond default, which is a very serious accusation to make.

21) Meanwhile, the big US banks are maneuvering themselves to return T.A.R.P. funds when their insolvency is obvious, their balance sheet accounting is phony, and numerous events have begun or are planned to raise equity capital. They are rectifying their capital inadequacy and vanished loan loss reserves. The real reason they plan to return USGovt funds is to put an end to the extreme risk of underlings at the USDept Treasury, Congressional Budget Office, Govt Accountability Office, and various Congressional Banking Committees who have had access to records, the paper trails. Eight months have passed since TARP funds were injected into big banks, giving way too many eyes too much access. The situation is not manageable, an unexpected grand intrusion after fund confiscation. The financial (crime) syndicate must be protected. Quite a contrast event, in view of foreign actions listed above.

The Chinese strategy remains hidden, to execute a grand paradigm shift that will take tacit control of the United States, which is now in disarray. Its leadership is too busy being coopted by the Wall Street banksters. The objective by Beijing leaders is to avoid violence and military actions altogether. Sun Tzu would be proud. Beijing is gradually subjugating the USGovt as a vassal in debt, the risk to the US being a transition toward servitude to their credit master. We are in the midst of an historical global paradigm shift, to date a quiet process. Power is shifting from WashingtonDC and New York City and London directly to Beijing.

The United States has little choice but to acquiesce and comply with Beijing wishes. The insolvent indebted nation with little industry left and a destroyed banking system can endure the shameful process of bankruptcy receivership, forced by the creditors, or the nation can permit a ‘New Alliance’ with China that involves obedient hidden directives. The US possesses a powerful defense contractor industry, half the world’s agricultural output, and many spectacular locations for residence. The practical consequence of the US ‘listening’ to Beijing wishes on a regular basis will be for the European Union to be pushed into a ‘New Alliance’ with Russia. Such a deal is practical, due to distances and supply lines. The United Kingdom is in all likelihood to be left out in the cold.

Bob Chapman, The International Forecaster
US Treasuries and gold have waged a silent fight for dominance in investors’ flight to safety over the past 22 months. Gold has been suppressed over that period by manipulation by the President’s “Working Group on Financial Markets,” via the US Treasury and the privately owned Federal Reserve. In spite of this ongoing intervention into what are supposed to be free markets gold has held its own.

Since the beginning of the year when the 10-year Treasury note yielded 2.35% it has steadily lost ground. It recently rose to 3.36% and is currently at 3.27%. That is a lot of ground lost in spite of manipulation of that market by the Federal Reserve. The Fed’s efforts have been hindered by an enormous amount of debt issued by the Treasury in order to meet funding operations as well as to assist in funding commercial banks’ balance sheets. This is our Treasury taking funds from responsible Americans to finance and subsidize those in the financial world who turned our financial system into a vast gambling casino. In the process the Treasury and the Fed have crowed out commercial investment, which has led our economy into depression. You cannot have recovery without investment. When history studies what has gone on over the past 22 months it will be aghast that those who created the problem have been designated to fix it. These are the greedy, corrupt destroyers of capital that are about to serve us up hyperinflation as part of a cure to gain time in a senseless effort to save the unsavable, our financial system. A system that teeters on the edge of insolvency. Not only have shareholders and bondholders been wiped out, but so have depositors. If you are patient you will see what we mean. This charade cannot go on indefinitely. Sooner or later Murphy’s Law will come into play. That untoward event that no one expects takes place. The money has already been spent and the only way to continue is to issue more money and credit. That issuance currently is about 18% and climbing, and as a result daily the US dollar loses ground to other currencies and to gold. The sale of Treasury securities are absorbing domestic and foreign savings so much so that the Treasury has the Fed buying its bonds, notes and bills directly from the Treasury and from out of the market, along with collateralized debt obligations. The problem with that is that the Fed with limited assets has to create money and credit to do this, and in this process monetize the debt, which is very inflationary immediately.

Then there is another $900 billion to purchase CDOs, collateralized mortgage obligations, better known as toxic waste. These are also purchased by creating money out of thin air. When the Fed purchases these CDOs they are removed from the sellers’ balance sheets and replaced with cash. That cash is then deposited with the Fed and now earns interest. It sits there sterilized until used. When it is eventually used it is very inflationary. On the other hand rather than keep the money on deposit the banks can use the funds to buy Treasuries, which becomes immediately inflationary. The bottom line is the Treasury meets its deficit with manufactured money, the banks improve their balance sheets and the Fed’s balance sheet looks like a garbage pit.

What this means is that either way any recovery is at risk because the absorption of government debt will push interest rates higher, monetary velocity will increase and hyperinflation will ensue. That unfortunately is underway as we write. The die is cast and again as in 2002 there is no turning back. The point of no return has past. There can only be one reason for this unsound monetary policy and that is the financial companies have to be bailed out at any cost and the public must foot the bill. The only time we know of that this has been attempted on this scale was in the Weimar Republic and we all know what happened in that experiment. Trillions of dollars of investment are being crowed out of the market stopping any recovery. There is no chance as well that excess liquidity will be withdrawn from the system. If it is withdrawn deflation will overwhelm inflation and collapse will ensue. As a result of monetization the liquidity is already in the system. When more liquidity is needed the exercise has to be done over and over again, unless sufficient savings are available. Even at 4.2% of GDP that is not nearly enough. The economy hasn’t improved one bit in the last 22 months and we see nothing that tells us that this is going to change for the better.

Gold Battle Lines Drawn at $1,000 Again
By James West
Here we go again. The forces of legitimate money versus the incumbent purveyors of the candy floss economy squared off at the $1,000 an ounce line over which yet another battle will be fought. Arrayed against either side are formidable new elements and tried and true old ones. As usual, the first volley has been catapulted over the walls of the hucksters by the defenders of the essential timeless truth of gold’s naturally stored value against the counterfeit paper currencies.

The liabilities of the enemy have increased, and the short positions in the COMEX market are sufficiently stacked that the big bank defenders simply cannot allow gold to win decisively. G7 governments are allied against gold to a man, while emerging economic behemoths China and Russia stand in opposition.

Goldbugs are salivating at the prospect of vindication, but seasoned veterans of the war know that the governments and central banks arrayed against gold are not fair fighters. Since the largest players in the futures market occupy both sides of the contract, and never take delivery of the physical gold, they can orchestrate a perpetual negative sentiment towards gold by driving the future price downward by simply amping up the short positions, thus making gold appear poised for a sell-off. This has been standard operating procedure for the last decade, and it is interesting to note that ever-bigger short positions are having less influence over shorter durations before the bulls shrug off the flimsy performance and take gold higher.

Critics and observers of this U.S. Dollar image management program point to the fact that such activity, while shoring up demand for U.S. Dollar debt in the short terms, effectively undermines the entire global economy, and is among the fundamental causes of financial crises such as the housing collapse and the whole current global financial fiasco.

Proponents of this manipulation, who are increasingly legion in number, correctly predict an inevitable bursting of the damn catalyzed by investment demand overwhelming the short positions, forcing them to buy and cover to limit losses, which will, in itself, stimulate the gold price even further.

According to Bill Murphy, intrepid soldier of gold wars and standard bearer for the Gold Anti-trust Action Committee,

"The Gold Cartel is giving it all they have no, as evidenced by the sharply rising gold open interest on the Comex ... up some 23,000 contracts on Wednesday and Thursday. They are doing all they can to counter new spec buying.

My hunch is the next time we see $1,000, and that could be very soon, gold ought to take off from there, giving us more upside dynamic daily moves. The reasons to own physical gold are off the charts ... HUGE investment demand, shrinking visible central bank supply (unrelated to the cabal), shrinking mine supply, shrinking dollar, concerns over sovereign wealth debt, a horrible US economy, and a US printing press that is going flat out and will have to for some time to come.

In my opinion, all gold has to do is to stay over $1,000 for a few days, and then all kinds of bells and whistles go off."

Bill is not the only one who thinks the breakthrough is at hand. Bob Moriarty of, himself a historically prescient oracle of market crashes agrees and warns that the stock market will be the first casualty of the new financial reality.

“If you take a look at the dollar and the long bond, it looks as if they jumped off a cliff. This isn’t gold going up, it’s the dollar and bonds going down. When the market wakes up the stock market is going to take a giant dump. No more fake rally.”

Investors by now should be well equipped to read the writing on the wall. Whether gold breaks through $1,000 and holds there, charts new territory at much higher levels, or is beaten back down through the offices of JP Morgan, HSBC and Goldman Sachs, is irrelevant.

Gold on verge of historic breakout?
By Peter Brimelow, MarketWatch
After Friday's $956.50 close, Martin Pring -- decidedly not a gold bug -- set the tone in his Weekly InfoMovie Report:

"Gold could be on the verge of a historical breakout. Watch that $990-1,000 area like a hawk."

Dow Theory Letters' Richard Russell said this:

"Ordinarily I would only add gold items on a correction, but gold seems on a roll now..."

The Privateer (whose free U.S.-dollar 5X3 Point-and-Figure chart looks very handsome after Friday) describes the situation:

"What is being traced ... is a gigantic 'reverse' head-and-shoulders formation. The trading range between US$900 and US$1,000 was broken early in April. Over the month of April, a tighter range between US$870-US$910 was established. Now, gold has broken back above that range. The 'right shoulder' on the 'reverse' head-and-shoulders formation is getting wider. ... There are two major resistance points. The first is at US$955 ... where the chart is now. The second is, of course, at US$1,000, the level reached in March 2008 and again in February 2009."
See chart.

As the Gartman Letter noted on Wednesday: "The dollar does look vulnerable. ... Pushing government steadily leftward, the Obama Administration has set up the possibility of a U.S. dollar rout. ... If this persists, commodity prices generally shall rise and rise materially, and gold shall too."

FGMR's James Turk is so intrigued that in this weekend's issue he considers altering his normally cautious trading style:

"I think we are very close (7-10 months) to the beginning of a hyperinflationary spiral. ... If I am right ... there obviously is an exceptional opportunity to load up (i.e., a leveraged position) by buying gold."

But Turk has his fair share of trading scars and more.

He warns: "Comex options expire this Tuesday, May 26th, and options in the much larger over-the-counter market expire a couple of days later. We all know what has happened regularly over the years on option expiry. The gold cartel slams gold."

Turk is part of a faction I call the radical gold bugs, because they watch not merely inflation but what they believe to be the authorities' manipulation of the gold price to preserve the illusion of financial stability. See Web site.

Their expectations of a gold breakout have been frustrated repeatedly.

Nevertheless, Turk adds: "One of these days (and there's at least a 50% chance now is that time), gold will just keep rising."

Hank Paulson Admits He Doesn't Understand Mortgage Securities
This quote, from Newsweek's piece on former Treasury Secretary Hank Paulson, strikes me as a bombshell:

Paulson--by his own admission--was not paying much attention to the way banks were slicing and dicing mortgages and selling them as complex securities. "I didn't understand the retail market; I just wasn't close to it," he told NEWSWEEK.
If Newsweek won't play prosecutor, I will: "Hank Paulson, you were Goldman's chief executive as mortgage securities boomed in 2004-5. Your earned an incredible severance, partly because of it. And you say you didn't understand mortgage securities? How is that remotely possible?"

I'd like to offer a bit of analysis, but all I've got is bewilderment. The reason I find the revolving door between Wall St. and Washington somewhat acceptable is that I think it's important that those who govern Wall Street understand it. But Paulson, by his own admission, didn't really. Think about this: A guy whose $46 million compensation package was made possible by leaving during Goldman's mortgage-security boom "was not paying much attention" to the mortgage-security boom! I don't know if Paulson is fibbing, or if mortgage-securities were such a specialized and esoteric money machine that basically nobody understood what was going on, but either way, this seems devastating.

Lehman Brothers disappeared with Hank Paulson's reputation. He wants it back
Hank Paulson, former master of the universe, sits in a nondescript office in northwest Washington, D.C. He is trying to work on his memoirs, but he is struggling. He doesn't seem like the onetime All-Ivy tackle at Dartmouth, the Harvard M.B.A. who ran Goldman Sachs, the prince of Wall Street who went on to be come secretary of the Treasury. He comes across more like an athlete who has lost a game and can't stop talking about the dropped pass, the missed shot. He is trying to explain the weekend last September when Lehman Brothers went down—and the financial world collapsed.

The conventional wisdom, he admits, congealed quickly: it was a mistake for the government to let Lehman die, and the blame rested squarely with Hank Paulson. On the day that Lehman filed for bankruptcy, Paulson had tried to get out ahead of the story. If Lehman couldn't save itself, he told reporters, then he wasn't about to ask the taxpayers to step up. "I never once considered it appropriate to put taxpayer money on the line," he said. The message was that the government would no longer bail out failing companies—that would just invite more foolish risk-taking. It would create a "moral hazard."

But of course, in the weeks and months since the fall of Lehman Brothers, the government has gone on to bail out banks and other financial firms to the tune of hundreds of billions of dollars. So why didn't it save Lehman? If only the government had rescued Lehman, a financial panic could have been averted. Or so the story goes. The narrative was set from the beginning by Paulson's moralizing tone, followed by a market crash—and, as the once mighty bankers crawled out of the wreckage, the anguished testimony before Congress of Dick Fuld, the CEO of Lehman, who portrayed Paulson as a backstabbing Judas. "Until they put me in the ground," Fuld said, leaning into the microphone and baring his teeth, "I will wonder."

Paulson insists that he did not turn his back on Lehman. "There's no company that I spent more time with and worked harder to save. That's sort of the irony of the narrative that we wanted them to go under," he told NEWSWEEK in one of his first extended interviews since leaving office.

1 comment: