Sunday, September 27, 2009

Go For The Jugular

The Price of Pretense in Pittsburgh
By: Peter Schiff, Euro Pacific Capital, Inc.
As another G20 meeting rolls around, this time on home soil, the time comes once again for the economically curious but politically unconnected to wonder what is really happening behind closed doors. But while admiring the pageantry, chuckling at the awkward group photos, and parsing the joint communiqu├ęs like newly found Dead Sea scrolls, the overwhelming majority of observers will miss the meeting's dominant theme: hypocrisy.

Everyone agrees that the principal agenda item in Pittsburgh will be the need to rein in the 'global imbalances' that created the late economic crisis. Everyone also agrees that these imbalances involve too much spending and borrowing by Americans and too little of both by the Chinese and other developing nations. In his remarks this week at the United Nations, President Obama used his peerless rhetorical skill to frame the issues clearly and plainly. Noting that a return to pre-crisis economics is impossible, the president assured the world that his administration will pursue policies to increase savings and decrease spending at home and challenged his Chinese counterparts to enact measures with the opposite effect in their own country.

While this is roughly what needs to happen, President Obama is actually doing everything in his power to prevent it. In point of fact, every policy move undertaken by his administration has exacerbated the very imbalances he supposedly wants to curtail. To so seamlessly profess one goal while simultaneously undermining it is an impressive piece of political theater. Unfortunately, this particular drama is likely to have an unhappy ending – and the ticket price will be staggering.

Obama: G20 brought economy back from brink
PITTSBURGH — World leaders on Friday issued sweeping promises to fix a malfunctioning global economic system in hopes of heading off future financial meltdowns. President Barack Obama said actions taken so far "brought the global economy back from the brink."

"We leave here today confident and united," Obama said at the conclusion of a two-day gathering of the world's 20 top economies to deal with the worst financial crisis since the 1930s.

The leaders agreed to keep stimulus plans, which include government spending and low interest rates, generally in place in their respective countries for now to avoid derailing still-fragile recoveries. Obama had pressed for just such a course and praised the decision.

"Our coordinated stimulus plans played an indispensable role in averting catastrophe. Now we must make sure that when growth returns, jobs do, too," he said at a wrap-up news conference. "That's why we will continue our stimulus efforts until our people are back to work and phase them out when our recovery is strong."

In a statement, all the G-20 leaders declared major progress from what they called their coordinated efforts and "forceful response."

"It worked," they said.

Although many of the pronouncements and actions taken by the leaders lacked specifics or details on follow-through, leaders were bold in pronouncing the gathering - the third G-20 summit in a year - as a big success.

Or so they would like you to believe. By continuing government stimuli across the board, the G20 has guaranteed the global economy will be propped up at best, and collapse under the weight of massive global inflation at worst. In short, they accomplished nothing, and fixed even less.

Hearings Held on Ron Paul's "Audit the Fed" Bill
Thomas Wood argued that the Fed’s independence is a myth. “The bill is not designed to empower politicians to increase the money supply, choose interest-rate targets, or adopt any of the Fed’s central planning apparatus, all of which is better left to the free market than to the Fed or Congress.” Moreover, “ with its chairman up for reappointment by the president every four years…. Fed chairmen have been known to ingratiate themselves into the president’s favor close to election time by means of loose monetary policy and the false (and temporary) prosperity it brings about.”

Woods intimated that the Fed is “independent” in ways that ought to alarm a free people who base their economic lives on an assumption that their money is sound: “The Fed may reward favored friends and constituencies with trillions of dollars in various kinds of assistance, while keeping the public completely in the dark. If that is the independence we are talking about, no self-respecting American would hesitate for a moment to challenge it.”

He argued further that monetary policy is already politicized and favors the well-connected: “Most Americans, not unreasonably, seem convinced of another thesis: that Goldman Sachs, for instance, might be just a little bit more politically well connected than the rest of us.”

Finally, if the Fed is already adequately audited, then “why is the Fed in panic mode over this bill? It is the broad areas these audits exclude that the American public is increasingly interested in investigating, and these are the gaps that H.R. 1207 seeks to fill.”

Woods asked “if our monetary system were really as strong, robust, and beyond criticism as its cheerleaders claim, why does it need to rely so heavily on public ignorance? How can it be a sound banking system that depends on keeping the public in the dark about the condition of its financial institutions?”

In closing, he turned on its head a remark that is often made by those of an authoritarian stripe who believe we should trust our political and financial overlords in all things, including when we believe our rights and privacy are being violated: “The Fed should take to heart the words of consolation the American people are given whenever a new government surveillance program is uncovered: if you’re not doing anything wrong, you have nothing to worry about.”

Does the Fed Manipulate the Stock Market? Where's the Gold? Rep. Alan Grayson SLAMS Alvarez[video]
I see that Rep. Alan Grayson really laid the lumber on the Fed's General Council, Mr. Alvez, about whether they rig the markets and how much gold the Fed really has. It was an electrifying exchange to say the least.
-Ed Steer

Who is this worm the Fed sent up to the Hill to defend their "independence". Watch this mans body language and listen to the tone of his this man not absolutely full of shit? Rep. Alan Grayson. God bless this man. He is a shark and he smells blood. If only more of our elected officials were as voracious about defending the public and the constitution. More light has now been shed on the Fed's Gold market manipulations.

Ron Paul - Bernanke hasn't averted a crisis, he's made it that much bigger[video]
Ron Paul on Kudlow & Company discusses his questioning of Ben Bernanke and the Audit The Fed bill. This aired on CNBC July 21st, 2009.

Alan Grayson slices, dices, chops and smashes little Benny Bernanke![video]
Alan Grayson reveals through his questioning how the FED appropriates your money AS IT PLEASES to select elite groups. You of course bear the risk and the losses. Grilling date: July 21, 2009.

Senator Sanders asks Bernanke WHERE IS THE MONEY[video]
Senator Sanders puts the screws to the duplicitous Ben Bernanke.

The Fed - Out of Control - End the FEDERAL RESERVE. Audit the FED[video]

The Federal Reserve Has Attempted A Market Corner
Daniel Aaronson and Lee Markowitz
During a market corner, a buyer accumulates an asset with the intention of driving the price higher without any regard for its true value. Additionally, the buyer amasses such a large holding that market prices cannot remain elevated without continuous buying. For example, when the Hunt Brothers cornered the silver market, silver rose from $11 per ounce in September 1979 to nearly $50 an ounce in January 1980. Eventually, the Hunt Brothers stopped buying silver as they ran out of capital and the market for silver dried up. As happens with all market corners, when the buyer disappeared from the market, the price of silver spiraled downward. The Federal Reserve, knowingly or not, has cornered the credit market.

At the beginning of the credit crisis the Federal Reserve lowered short-term interest rates in an attempt to ease financial market strains. With the credit markets still not functioning properly, despite the Federal Funds rate being set in a range of 0 – 0.25%, the Federal Reserve devised a new plan to lower market interest rates for individuals and corporations. This plan, otherwise known as quantitative easing, called for the Federal Reserve to print money in order to buy bonds on the open market as well as guarantee investors from losses on other bonds.

Currently, the Federal Reserve is in the process of buying $1.25 trillion of agency mortgage-backed securities, $200 billion of agency debt, and nearly $300 billion of private credit (this excludes the $300 billion of Treasury purchases and also assumes that all buying programs are completed as stated by the Federal Reserve). To put this $1.75 trillion buying spree into perspective, PIMCO, the world’s largest bond fund manager, managed $841 billion as of June 30, 2009. Essentially, the Federal Reserve has not only become a new bond market participant, but also will have grown to twice the size of the largest market participant in approximately one year. The entrance of such a large indiscriminate buyer helps to explain the rapid resurgence of credit markets.

The end of the Federal Reserve’s credit market corner (assets that are cornered always collapse) could be sparked by a number catalysts. First, private investors may realize that bond prices are unjustifiably high and will sell them into the market faster than the Federal Reserve can buy them. Secondly, the Federal Reserve could slow its purchases, leading to lower marginal demand for bonds if not eliminating demand entirely. A third and more devastating outcome that could result from the Federal Reserve’s quantitative easing would be a Dollar collapse.

Interestingly, on Wednesday, the Federal Reserve announced that it would slow its involvement in credit markets. Previously, the Federal Reserve was going to complete its $1.75 trillion program by December 2009, but now it has extended the program until March 2010. In doing so, the Federal Reserve has lowered its average purchases for the coming 3 months. This maneuver should prove problematic because the Federal Reserve’s buying power has been paramount in reinflating the credit market bubble. While the Federal Reserve hopes that the recovering economy allows for moderate tightening, the real reason for altering the purchase program is the Dollar’s continued decline and the Federal Reserve’s fear of ending its purchases too abruptly.

The Federal Reserve’s attempt to manipulate the credit market is a path to ruin. Although Ben Bernanke might believe that the recession and economic crisis are over, the Dollar’s decline to new 2009 lows is a signal that an orchestrated market corner cannot succeed. As a result, the Federal Reserve’s ability to continue its supportive endeavor is clearly being undermined. Despite the market corner appearing effective during the past six months with most asset prices having rallied, bond prices will one day begin to fall, and when they do, it will be clear that the market corner has failed.

Merkel heading for new coalition
Chancellor Angela Merkel has been returned to power in Germany, with forecasts showing her conservative bloc on course for a clear election victory.

Mrs Merkel told supporters they had achieved "something magnificent", but said she wanted to be a chancellor of all Germans at a moment of crisis.

Mrs Merkel's bloc now looks set to form a centre-right alliance with her preferred partner, the pro-reform FDP.

She says the alliance will get Germany out of its worst crisis in 60 years.

All of the last weeks roadblocks to Gold's continued rise appear to have been lifted, save one...the colossal short position COT has on both Gold AND Silver. Could the Precious Metals be setting up for a massive short squeeze much like in the Fall of 2005 when Gold finally rushed past the $450 marker and rose towards $700? This short squeeze of the COT shorts also coincided uncharacteristically with a rally in the US Dollar. The recent record short positions in COT broke the records set back in 2005. COT failed then to keep the Precious Metals from rising, will they fail again today. Will a rally in the US Dollar be ignored for the fraud that it is as global investors watch their own currencies sink in a US Dollar rally and turn to Gold locally to "protect their wealth"? Prepare NOW for the next leg up in Gold and Silver.

Robbed Blind
Warren Bevan
The week was highlighted by the G20 and federal bank non-decision. There was little said about Ron Paul’s bill to audit the fed. Would you have expected anything else. The mainstream tells you what they want you to know, not what you want and need to know.

Another ignored fact was the options expiry this past week for gold. The most blatant and disturbing occurrence that would outrage the public if they knew about it was how gold was moved below the $1,000 level just before the options expired, pocketing that much more cash for their efforts to push gold down lower. I don’t think this correction will last since their tricks are well known among traders. Now that the options expiry has closed it free’s the road for gold to move into all-time high territory in the very near future even though gold does look slightly weak right now. Dip buying has been taking place and should continue and it will move gold higher likely early Monday morning.

Gold only lost 1.66% on the week, but has panicked investors flooding my inbox. Dollar wise it may seem like a big move, but percentage-wise it’s not and that is what is to be focused on. If you owned a stock and it moved from $10, to $9.90 you wouldn’t even call it a correction.

All the indicators are showing bearish signs and sell signals, however this is good since it refreshes them for a fresh charge much higher. I firmly believe the $990 area will be the floor with no major long lasting moves lower. But if it does break that level significantly then the $970 area will be the next stop. The moving averages are trending higher with the 50 day just below support at $970 closing the week out at $9.66.

The COT report showed a minor change with the commercials reducing long futures positions by 1,044 and increasing shorts by 1,905. This leaves the group long 83,338 contracts and short 367,948 contracts, or net short 287,610 contracts. Lopsided would be an understatement.

This will be a crucial week for gold but I think that it will move back above the $1,000 level as buying occurs on dips. Buyers have been waiting for dips to buy lately and this one should be no exception. My stance remains cautiously very bullish.

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