Monday, November 23, 2009

Fed Secrecy At Waterloo?

Sunday night in Asia has once again spawned gaps higher in the Precious Metals. Gold last night opened up $8 above Friday's New York close. Silver opened up .18 above Friday's New York close breaking a three day trend of lower prices as Gold powered higher. A break above 18.87 opens Silver to a major move into the 20s, that should prove unabated.

Caution is advised with options expiration today, but the CRIMEX Cabal looks to have their backs firmly against the wall, powerless to thwart the "big money" pouring into Gold now.

As Le Metropole Café's Bill Murphy put it on Friday in his characteristically conspiratorial way: "The Gold Cartel's traders don't realize, or don't know how to handle, the 'new buyers.' In days of old, they would suck in the spec longs, getting shorter and shorter as the price went higher and higher. Then they would pull the plug by dumping physical gold into the market and bombing the derivatives paper market. Eventually fund longs would sell as the technicals turned bearish. The market would cascade down with a number of funds eventually going short. The Gold Cartel would cover and up we would go again."

"This time the buyers are the biggest of money ... countries, largest hedge funds, etc. They are competing against each other and want to buy more gold on any dips the Gold Cartel hands to them. It shows in the price action."

War games in Iran and recent Congressional defeats for the Fed could fuel far higher moves in the Precious Metals as traders AND investors thumb their noses at the CRIMEX goons games in the futures pits. Both central banks AND investors want possession of REAL gold now, and have tired of the the derivative, paper based, version of a Gold "safety net". The Mother Of All Short Squeezes continues in earnest, and tightens it grip on the balls of the CRIMEX crooks that have stolen from Precious Metals traders AND investors for years. May they all die a horrible, painful, and penniless death.

Fed Beaten: Bill To Audit Federal Reserve Passes Key Hurdle
In an unprecedented defeat for the Federal Reserve, an amendment to audit the multi-trillion dollar institution was approved by the House Finance Committee with an overwhelming and bipartisan 43-26 vote on Thursday afternoon despite harried last-minute lobbying from top Fed officials and the surprise opposition of Chairman Barney Frank (D-Mass.), who had previously been a supporter.

The measure, cosponsored by Reps. Ron Paul (R-Texas) and Alan Grayson (D-Fla.), authorizes the Government Accountability Office to conduct a wide-ranging audit of the Fed's opaque deals with foreign central banks and major U.S. financial institutions. The Fed has never had a real audit in its history and little is known of what it does with the trillions of dollars at its disposal.

The amendment expressly blocks Congress from interfering with the independence of monetary policy decision-making, but opponents of the measure said that the political pressure would inevitably follow.

The GOP broadly backed the amendment, though Frank chided them for finding their love of Fed transparency only after they lost power, noting that Paul has been introducing some version of the measure since 1983.

Frank said he was opposing the Paul amendment because it could be perceived as influencing monetary policy, which can have inflationary pressure. "Perception is very important in monetary policy," said Frank.

He urged a no vote, yet 15 Democrats bucked him, voting with Paul. Key to winning Democratic support was a letter posted early Thursday from labor leaders and progressive economists. The letter, organized by the liberal blog, called for a rejection of the Watt substitute and support for Paul.

Grayson was able to show Democratic colleagues that the liberal base was behind them.

"Today was Waterloo for Fed secrecy," a victorious Grayson said afterwards.

Iran war games to defend nuclear sites
Iran has begun five days of large-scale war games to simulate attacks on its nuclear sites, officials said, warning it will retaliate if provoked.

The head of Iran's air defence said the aim of the exercises was to thwart aerial reconnaissance and air attacks.

Another official warned Tehran would retaliate with a missile strike on Tel Aviv, if it was attacked by Israel.

Iran is under intense pressure over its nuclear programme, which critics say is intended to produce nuclear weapons.

The US and Israel have not ruled out the prospect of a military attack to prevent Iran developing nuclear bombs. Tehran insists its programme is peaceful.

The head of Iran's air defence, Brig Gen Ahmad Mighani, told state media the aim of the war games, which will cover an area of 600,000 sq km (230,000 sq miles), was "to display Iran's combat readiness and military potentials.

"Due to the threats against our nuclear facilities it is our duty to defend our nation's vital facilities," he said.

Meanwhile, Mojhtaba Zolnoor, an aide to supreme leader Ayatollah Ali Khamenei, warned Iran would respond to any Israeli attack.

"If the enemy attacks Iran, our missiles will strike Tel Aviv," he was quoted as saying by the official Irna news agency.

The commander of the elite Revolutionary Guards' air force wing said Iran's air defence forces would "annihilate" Israeli warplanes if they attacked.

"Their [Israeli] F-15 and F-16 fighters will be trapped by our air defence forces and will be annihilated," Amir Ali Hajizadeh told Iran's Fars news agency.

"Even if their planes escape and land at the bases from which they took off, their bases will be struck by our destructive surface-to-surface missiles."

Is $6,300 Fair Value for Gold?
The last parabolic spike in gold took off when central banks joined the fray in the 1970s, hoarding bullion with the same enthusiasm as gold bugs. Dylan Grice from Société Générale says it smells much the same today. He sees an eery similarity between the decision of India's central bank to buy half the IMF's entire sale of gold, and the move by France's central bank to start converting dollars into gold in 1965 - which was, of course, the start of the slippery slope leading to the collapse of Bretton Woods and the closure of the US gold window under Nixon. In the gold mania that followed, the price rose to levels that matched the US dollar monetary base (it reached 140% at the peak). If that were to occur today after Ben Bernanke's go at the printing press, gold would have to reach $6,300 an ounce. The US owns 263 million ounces of gold while the Fed's monetary base is $1.7 trillion. Simple equation. Gold has had its ups and downs, of course. It is trading today at roughly the same real price as in the mid-13th Century - when an ounce bought a light suit of chain mail. It doubled in the late Medieval bubble, before crashing 90% over the next 500 years after the Spanish gold discoveries by Cortes and Pizarro in the New World, and then the finds in California, Australia, and South Africa - bottoming around 1930. "Gold isn't intrinsically safer than any other asset. There is nothing mystical about it either," said Mr. Grice. However, precisely because gold is almost useless, it makes the perfect currency, and that is the role it is playing right now as flight from fiat paper leads to fresh records each day ($1150 yesterday). - UK Telegraph

Pure fiat currency, as we have today, is an unnatural manipulation of the market, counterfeiting if you like. The monetary elite keeps the balls in the air for as long as they can and eventually drop one, then two, then three. And gold and silver begin their relentless rise.

It happened in the 1970s and it's happening today. It is not luck, nor inflation, nor the jewelry market exploding. It has to do with the fiat bust and the resultant bull market for honest money. First the physical gets bid up, then funds and paper of all kinds, and finally even the stocks of junior mining companies. It is not rocket science, dear reader. Just go back to the 1970s and find out the kinds of multiples at which juniors were trading in the late 1970s, the last time a bull market in precious metals peaked. Then allow for inflation and make your calculations. When valuations hit those highs again, or come near them, you will know the market is probably peaking this time around. We have a suspicion there is a ways to go. (We're NOT giving you investment advice, this is just our opinion.)

Of course those in the mainstream want to make it a lot more complex. For them, the rise in gold and silver prices is oh-so-mysterious. They never learned this part in business school. Keynesian texts never explained it. They got ‘A's and graduated with honors, but somehow, someone left a hole in their education as valuable as a box-car of buillion.

Hm-mm ... Is it part of a general run toward commodities? Is it the Chinese and Indians buying for their wives? Are people just ... ah, diversifying for the hell of it? On and on. A million different explanations come to mind for why gold is going up (and silver too). And then when they run out of them, they just sort of fall silent. Because there is nothing to say. (And, yes, we await that blessed moment, even if it only lasts a few hours before the yammering starts again.)

WE know. We "get it" as, doubtless, you do, too. The free-market has simply reasserted itself. The central bankers and their monetary elite parent-surrogates are in retreat, depressed by the ferocity of the crisis and panicked by the Internet - a communications device the likes of which they haven't had to contend with since the Gutenberg press. Aye, the Internet ... It must be driving the monetary elite absolutely crazy.

Look for yourself. Just in the past couple of weeks the news has come that the Copenhagen Treaty that was supposed to usher in a new era of carbon rationing to control global warming has gone bust. Then there was the article we presented yesterday that showed that over 50 percent of Americans had no intention of getting the swine flue vaccine - a vaccine that had been HEAVILY promoted by the mainstream press. And now as gold continues its relentless climb, there will be more and more articles like this one, delving into the reality of gold (and silver) and attempting to figure out just why people are still attracted to it.

Here's some more from the Telegraph article:

The Fed Backed Itself into a Corner
By Tim Duy
The Fed's independence should have allowed it to be a leader, not a follower. Ideological objections to regulation, apparently, prevented the Fed from looking for problems in their own backyard. Rapid debt creation was justified as a response to asset appreciation, with little concern that the connection might just be a bit more self-reinforcing.

The resulting crisis left the Fed struggling to keep the ship afloat - and in that struggle the Fed stepped too deep into the realm of fiscal policy in an effort to keep the trains running on time. But that mission creep was simply incompatible with the Fed's desire for secrecy. This was all too predictable: Like it or not, you cannot commit literally billions of dollars of taxpayer money and in the process secretly funnel money through AIG to the investment banking community without expecting just a little blowback. The last I checked, this was still a democracy.

Worse now for the Fed is the impression that monetary authorities work first and foremost for Wall Street. Of course, Fed officials see this a bit differently - they see supporting Wall Street as their mechanism for supporting Main Street. Ultimately, without the former, the latter is locked out of capital markets, and economic chaos follows. The purpose of Wall Street is supposed to be to channel investment funds into Main Street. But most Americans no longer view Wall Street as ultimately working in their best interests - maybe correctly. This is the same Wall Street that aggressively pushed garbage loans onto the American people as policymakers praised the wonders of financial innovation. When did the purpose of finance evolve into simply a mechanism to enrich the relative few at the expense of many? And when did policymakers embrace this view? As Paul Krugman has noted, the Fed cannot envision a world not dominated by the magic of structured finance. Yet this is a world that failed us completely.

Ultimately, can you really blame Americans if they have lost their faith in the supposedly omnipotent Federal Reserve?

Now the Fed's relationship with the public is a mess. And I suspect it is going to get much worse.

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