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The feverish positive sentiment has left the Gold
& Silver market in the last two months. Raised margin requirements during
falling prices alongside naked short ambushes in the COMEX, coupled with
permitted asset damage from debt monetization conducted more in secrecy will
always help to dampen enthusiasm. But with the billboard message on the
European subway walls and boulevards and news magazines stating the obvious,
that the European debt crisis has no solution, that Germany has no more
checks to write in funding the bailouts, that Greece is set to default, that
leaders in political spheres are opposed by bank leaders where the final
decisions are made, the GOLD & SILVER PRICES ARE SET TO ZOOM. Only the
dummies sold in the last round of ambushes and interrupted recoveries. The
precious metals have suddenly awakened. The old defended range for the two
metals was easily overrun as a splash of reality hit the market faces. A mad
scramble is likely from here onto the end of year, as people realize that
hyper-inflation is the solution on any massive bailout with clearer gigantic
needs, and as people realize that a broad string of bank failures will drive
gigantic flows into safer places since sovereign bonds will go from sacred to
toxic. The powerful decline in September, down $200 in gold
and down $10 in silver suddenly have presented a ripe easy recovery
without resistance. A powerful reversal is near and coming. Many investors
will rush back in, paying higher prices than where they unwisely sold. Many
investors will rush in, seeing banks and government bonds as ugly options.
FRAUD LACED IN
THE SYSTEM
Before delving into the easy 15% upside opportunity
in gold and easy 25% upside opportunity in silver, a topic begs to be
covered. The topic is fraud. While discussion and analysis of fraud in US
high finance can fill volumes, an entire set of encyclopedias, from just the
last generation, direct attention to the fraud of investment funds and
fraudulent bank accounting. My desire is to cite specifics on how investors
have been duped into not participating in major moves up in commodity prices,
like crude oil and precious metals gold & silver. My desire is to cite
specifics on how the big banks avoid reporting 75% cuts in profits by
fabricating the most absurd of accounting profits that even financial
newscasters dispute as valid. The various funds to participate in the black
gold and yellow gold asset plays have been congames.
The defense by the big US banks against utter and complete
insolvency have been congames. The public
must avoid the ETFund investments. The public must
avoid the perception that the big US banks are anything but dead.
PINPOINT
FAILURE OF U.S. CAPITALISM
A opening
argument against fraud and misrepresentation goes far beyond the Wall Street
practice of pandering toxic bonds with AAA ratings. It goes far beyond
promoting a fund that actually is critical in shorting oil and gold, rather
than investing in them as investors intend. It goes far beyond deceiving
about a price inflation between 7% and 11% since
year 2005. It goes far beyond hiding an economic recession that started in
2007 and never ended. It goes far beyond news coverage of foreign wars like
in Libya, when $90 billion in Qaddafi parked funds have been frozen, probably
never to be released by Western banks. It goes far beyond $50 billion gone
missing from the Iraq Reconstruction Fund with direct $2.3 billion payment
handed to a fellow who received the highest medal of honor to a private
citizen. The biggest problems that plague the United States Economy, its
financial system, and its capitalist structure relate to ineffective usage of
brainpower, co-opted assets & capital, and enormous investment in the corrupted
system.
Clearly the United States has untapped resources,
deep riches, broadly spread. The nation has significant land, including
agriculture, timber, and water resources. The nation has significant
untouched oil & gas deposits, and natural energy in wind, sun, and
geothermal pockets. The nation has significant knowledge and technology, some
of which has never been used that could dramatically reduce a wide range of
expenses. The nation has 300 million people who have a great deal of their
time and energy ready for productive usage. The nation has enormous untapped
resources. However, the investment and capital devoted to support the
fraudulent system is staggering. Just look for instance at the CNBC and
Bloomberg financial news center facilities. They are not devoted to industry
that produces jobs directed at value added enterprise. Just look at the
entire Wall Street and hedge fund and asset management sector. It is not
directed at value added enterprise, but rather to shuffling of securities certificates.
A Chinese economist remarked a year or more ago that of the $14 trillion US
Gross Domestic Product, perhaps half was not legitimate since merely related
to transfers of debt securities and other debt paper products. What a great
point! The USEconomy might be exaggerated by double
in legitimate size, a fact underscored by the industrial base that has been
moved to Asia since 1980, first with the Pacific Rim and finally with the
Chinese buildup. Just look at the vast network of consumption centers, like
Wal-Mart and Target and Best Buy, the retail chains that do not invest in
value added enterprise. Recall that 70% of the USEconomy
is devoted to consumption, as some sort of sick religious exercise that all
too often has resulted in home equity converted to things bought. America has
spent its capital tragically and now finds its many sectors insolvent. The
conclusion is that a large part of American capital is devoted to the
syndicate and beholden to the advertisers. Resources do not mean much when the
capital and brainpower is co-opted and dedicated to fraudulent enterprise and
even to self-destruction.
Let's consider some specifics. Larry Ellison of
Oracle, Steve Jobs of Apple, and Bill Gates of Microsoft never finished
college. They were productive, as Gates is given a pass for innovation in
monopoly development and marketing theft to build a stodgy empire that has
stagnated in the last decade happily. When young minds attend college, they
emerge hungry to make a mark, to put a stake in the ground, to create an
organization, to build wealth and to make a legacy. All too often, the best
& brightest are hired by the bad guys. An entire generation of brilliant
young minds has been largely co-opted. Microsoft took genius minds, as the
Jackass knew of several who applied there. They produced co-opted software
technology, source code theft during partnership ventures, little or no
innovation unless one considers bundling to smother Netscape and Norton. Also
Goldman Sachs took genius minds, as the Jackass knew none, but a couple wannabees. They produced insider trading in finance
technology, derivative devices that enabled concealed debt, exchange traded
funds that enable control of a market, and so much more. A Forbes Magazine
editor once sat next to Gates on an airline flight. During the conversation,
Gates admitted that his chief rival in hiring the best minds that America had
to offer came from Goldman Sachs. So the best graduates pursue permitted
monopoly and fraudulent finance. Also the Defense Contractors took genius
minds, as the Jackass knows of one in particular. They specialize in weapon
systems and the attendant equipment. The trickle down benefits are an
illusion, as the end product is a structure in smithereens. Benefits trickle
down in seven to ten stages. Destruction trickles down in two or three
stages, with Senate kickbacks and cost overruns the chief icing.
The biggest problems in the US are
- diverted intellect toward fraud, theft,
and monopoly enterprise
- war and destruction, in pursuit of
dominance over rubble landscape
- absent industry after 30 years of
off-shoring factories to Asia
- really dumb kids, whose perspective is both
shallow and limited.
When the Jackass was in Digital Equipment Corp from
1980 to 1993, many of us shook our heads when Intel, then many others,
including DEC, opened manufacturing plants in the Pacific Rim. Ours were
Taiwan, Hong Kong, and Singapore. One of my little accomplishments was to
streamline online testing of factory output in quality control procedures. We
had one major success with clients on their manufacturing sites that produced
monitors and memory among others. The initial strategy on the national
movement to off-shore was "just manufacturing" but many of us kept
shaking our heads, thinking "no way, next comes
Research & Development." Within only two years, the DEC site in
Taiwan had a leading R&D center that ultimately developed a world class
computer monitor, a smart monitor with loads of options. Patents were filed,
and the business segments upstream were set to flourish. Capital was
attracted to Asia by the boatload. The United States has huge resources. But
as we have see in the last two decades, they have
been tapped, and they will be tapped, but by foreign nations and foreign
firms. For a disgusting sign of the times, look to the California high speed
rail project. The California Legislature eventually had to install new laws
to limit the contract funds and contract jobs going to China. Most stimulus
aid foreign jobs. Even stimulus toward the infrastructure in a key project
aided China more than the US. Sadly, most new jobs in the USEconomy
are devoted to health care and retail. So we are becoming a nation of
hospital orderlies and cash register clerks, whose products tend to be
bedpans and checkout lines. No need for college on those fronts.
FUND GROWTH
DESPITE INEFFECTIVENESS
Exchange Traded Funds are generally a profound fraud
laced with deception and extremely slippery prospectus language. Many lazy
investors are being duped. The flagship GLD fund is the worst perpetrator in
my view. Many analysts and industry experts have offered details on all
manner of problems, irregularities, and anomalies, like unstable bar lists,
like shorted shares by management, like bullion metal inventory shipped to
the COMEX, like vault fees without stored metal. Turn to the flagship crude
oil fund. The popular crude oil ETFund has lost
over half its value relative to tracking the commodity price. Funds might be
regularly abused by managers to short the commodity and keep the price down,
an old game with an easy fingerprints. Such practice
would fly in the face of investors, who sometimes feel betrayed, when they
discover what is happening under their desks. The investors think they are
investing in gold or crude oil in a fund, but those in charge of management
and fiduciary responsibility are working hard toward the opposite objective.
Investors are duped into shorting the same assets they invested in,
indirectly. The total volume of
Exchange Traded Funds is fast approaching $2 trillion, but not well invested.
The invested funds all too often support the system that wishes to keep down
the commodity prices, so that paper financial products are encouraged. The
GLD fund managed by HSBC receives the most attention on widespread illicit
activity, from fraudulent drainage of its gold inventory toward the COMEX to
meet delivery demands through massive shorting. The fund has never been
subjected to the scrutiny of a full audit by an independent agency.
EXCHANGE TRADED
FUNDS DO NOT TRACK
Another big fraud is the crude oil investment
tracker. The United States Oil Fund (USO) was introduced as a vehicle for
investors to track the crude oil price. When it began, the ETF had a 1:1
price relationship with the New York crude oil from the futures exchange, a
close match. Its expense ratio was a mere 0.45% in overhead. What a huge
change since inception! The active month crude oil contract trades between
$85 and $95, but the USO fund has been bobbing around recently in a lowly
ratio to crude oil below 40%, with a plunge below 30% in October. The penalty for investing in the oil ETF
has come to 60% to the dopey lazy investor. The investors did not invest
in crude oil at all. They benefited not at all from any rise in crude oil
over the last three years.
Analysts defend the fund, claiming that rollover
from current nearby contracts has eaten up value, along with administrative
costs. That seems a lie. The successive monthly contracts do ramp down, but
by the month's end, the difference should be very small. In all likelihood, just like GLD but to the extreme, the USO fund is
being brutally abused to short the crude oil price on the West Texas
contract. Recall that the WTIC oil price has consistently been $15 to $25
below the North Sea Brent oil price for months. Blame is placed for the gross
differential on surplus storage at the Cushing Oklahoma facilities, but that
too seems a lie. Look instead for a fishy finger on extreme Wall Street
activity with futures contract shorts, perhaps even backed by the official
Strategic Petroleum Reserve storage supply on oil slick cover. Notice in the
ratio of USO/WTIC, the quantum decline in early 2009 corresponded to the
extreme drop from $135 to $40 per barrel. Conclude that the USO fund might
have been instrumental in generating some extreme profits on the downside
when they drove down the crude oil price. Even more leverage
is deployed with futures options.
One can see the other smaller quantum declines
circled on the graph. Even they are
outsized, since 6% is not the cost to roll into the current nearby month. The
spread from successive months is typically only 30 to 60 cents, well under
1%. See for yourself from the INO website on the CL crude oil futures
contract (CLICK HERE).
However, between those sudden drops one can notice a steady ramp in decline.
That is where the fraud and abuse lies, since they should be flat horizontal,
acting like a true tracking fund. There is no tracking. Funds are in high
likelihood removed regularly in illicit shorting programs, to sell the crude
oil contract with investor funds. Just speculating, but this is an old game.
A final comment on the lavish expense ratios. For
the SPDR Gold Shares (GLD) it is 0.40%, which does not seem like much. However,
the size of the fund is about $55 billion, making 0.40% a hefty $220 million.
That is a big fee to charge for mismanagement. At best it is bad investment
decisions, but at worst it is fraud such as from shorting the shares, the
money drawn out to sell into the gold market. The metal inventory from short
programs would go straight to the COMEX, as some intrepid reporters have
revealed from insider sources. Conclude that investors are violated coming
and going. Only total idiots and morons invest in such funds, of course along
with lazy folks, cheered on by intellectual clowns like Adam Hamilton of Zeal
Intelligence, who seems never to have identified a fraud in his entire
career.
BIG BANK
FRAUDULENT ACCOUNTING
Let me introduce you to my little friend, said the
infamous Scarface. The little
friend for the giant US banks is the Debt Value Adjustment, which fabricates
profits from bond decay. The success is in placating really stupid investors,
who rush in, only to see the bank stock fall by the afternoon sesssion. The
accounting fraud committed by JPMorgan is typical. Instead of taking a loss
on their own declining corporate bonds, or doing nothing, they posted a
queer profit in a Debt Value Adjustment of $1.9 billion, equal to 29
cents per share. The JPM bond yield spread has widened by 200 basis
points versus the USTreasury Bond. The bank
colossus paid out $1 billion in legal expenses for bond investor lawsuits.
They raided $96 million from Loan Loss Reserves, which will be needed later,
like in bond fraud investor settlements. They cut 1100 in bank staff. They
posted a $700 million decline in investment banking profit. Their biggest
line item of profit was the fiction of a $1.9 billion profit from their
decaying corporate bonds. It is not a profit & loss event at all. If they
default on the corporate bond, imagine the accounting profit could be
maximized. Only in American bank accounting!! Blessed as good by the FASB and
USCongress!! JPMorgan is a wreck, as their
businesses are tanking. Their tight grip on the Silver market could be
loosened in time.
Profits announced by the big US banks are phony. A
laundry list of tainted supposed profits came in the last two weeks for the
entire crew of giant insolvent us banks. The Debt Value Adjustment (DVA)
deception is the main common thread of deception. Citigroup posted $1.9 billion in Debt Value Adjustments, the same
amount JPMorgan posted for DVA in a parade. This item is so corrupt as to
be indefensible by any rational person. They take the fallen value of their
own corporate debt, cite how they could buy it back at a lower cost, and book
the difference as profit. But the debt is not bought back, only pretended.
Similar games are played with bond spreads widening, but keep the argument
simple. Imagine a corporate bond rising in principal, but not as fast as USTBonds, booked as a profit since the spread has
worsened. So if the corporate bond fails altogether and goes to zero, the DVA
would maximize the profit for the dead firm. In my book, dead firms do not
buy back their debt. As a statistical analyst, the Jackass always prefers to
carry an argument or method to the extreme to reveal its legitimacy or flaw.
Bank of America
also posted a $1.7 billion DVA profit, but the winner was Morgan Stanley,
which has the highest risk of death. They posted a hefty $3.4 billion
fictional profit from a non-event adjustment to their corporate debt, the
same Debt Value Adjustment. Without such tainted profits, the
big US banks would have shown their dead decaying matter more clearly. Worse,
during a time when mortgage assets and lawsuits are all the rage, they raided
their Loan Loss Reserves, more phony profits. Bank of America even listed
litigation losses while raiding LLReserves in the
amount of $1.6 billion. Citigroup snatched back $1.4 billion in LLR, while
Wells Fargo snatched back $0.8 billion in LLR. The big US bank quarterly
reports were worse than dreadful, as they were corrupted and phony, the rot
visible. Amazingly, the Bloomberg financial news identified the practice as
questionable but legal, calling them poor quality profits!! Poor quality
indeed. They are too kind. In March they called outgoing Egyptian leader
(emperor) Mubarek a prolific saver, for having
accumulated $60 billion. Maybe they will call the pilfered Libyan funds
sticky, when not returned.
DERIVATIVES
DUMPED ON DEPOSITORS WITH USFED BLESSING
Bank of America dumped its derivative book, possibly
preparing for a restructure. The dumping ground is likely a pitstop en route to the USGovt
toxic vats. The USFed applauds while the FDIC
complains. Raids of assets preceded the Lehman Brothers failure, alert
students of history note. This event might be no different. Bank of America
engaged in devious accounting. Not only did they call their own corporate
bond decay a phony profit, but the
firm shifted much of its mountain of derivatives held on its balance sheet as
of June 30th. They moved it to their retail bank. Just last week, Moodys downgraded the bank holding company from A2 to Baa1.
The retail bank was downgraded more gently to A2 from Aa3. The collateral
backstopping will next be done fully and effectively by the bank's $1.041
trillion in deposits. A bank run has been rumored at the big lumbering
insolvent bank. Its website was down for several consecutive days, inhibiting
usage of funds. Furthermore, the insurance agency to the depository base is
very angry, namely the Federal Deposit Insurance Corp. The FDIC is another
dead entity, devoid of funds, posing as a Wall Street harlot, this time
betrayed by its brethren. The USFed favored the
shift on the books, so as to give relief to the bank holding company (in
their words). Conclude that depositors
are forced to backstop its $53 trillion derivative book, as clients continue
to depart. Savings accounts and certificate holders might be wiped out on
a liquidation.
Bank of America already had the threat of failure
looming due to deep insolvency from mortgage and litigation losses. Until
now, the operations like the retail banks would not be affected and could be
spun out to a new entity, even sold. Shareholders would be wiped out and
holding company creditors like the bondholders would take losses. The derivative
shift changed everything. Bank analyst
Chris Whalen calls it either criminal incompetence or abject corruption by
the USFed. Dumping derivatives into the depository
business segment goes in diametric opposition to Dodd Frank resolutions.
So much for Financial Regulatory Reform if not enforced. The US Federal
Reserve and Federal Deposit Insurance Corp are in deep disagreement over the
transfers. The USFed favors moving the derivatives
to benefit the bank holding company, while the FDIC objects since it must pay
off depositors in the event of a bank failure made more likely. The FDIC will
attempt to reject this brazen move. The corrupted USFed
will argue not to disrupt the financial markets further. Witness the
justification for a Dodd Frank resolution and ruling.
The 2005 bankruptcy law was revised to permit
derivatives counter-parties to be given the first in line position. They grab
assets first in a little known feature of the bankruptcy reform that favored
the banks. This truly devious bold
move amounts to a direct transfer from Merrill Lynch derivatives risk to the USGovt via the FDIC. It means depositors will be made
whole only after derivatives counter-parties have seized collateral.
Depositors are lined up for a legalized raid, better yet a theft. Recall back
in September 2008, that Lehman Brothers failed over a weekend after JPMorgan
grabbed its collateral in a basic daylight raid. Expect another TARP type of
bank bailout, as the Wall Street firms jockey to slide their derivative
exposure under carefully crafted shells. The bad news for them is that they
have over $200 trillion left, even after this ugly maneuver to shift the
Merrill Lynch exposure.
GOLD &
SILVER READY TO REBOUND
The Gold market is on the verge of a powerful move.
The reversal base has been created. The $1620 level was tested successfully a
few times. The uptrend has been defended and should continue in a powerful
surge upward. The Chinese have been buying with both hands on the physical
market, as the London traders report. They took full advantage of the
horrendous display of market interference, as the gold contract margins were
hiked in repeated fashion during the price declines. It was engineered. The
nasty ambush appears over. A bullish divergence is clear, as the daily stochastix showed positive signals while the price was
forming a flat bottom near the $1600 level. A powerful reversal is in
progress, one that echoes the reversal in the Euro currency from 132 up to
140. Gold had fallen on the back of the Euro decline. Now the Gold price is rising from lack of resolution witnessed and
confirmed in Europe. The gap to fill should be swift, easy, and loud. The
gap from $1670 to $1770 is a full hundred points. As it is filled, the
naysayers on Gold will have to defend why they advised clients to abandon the
only true safe haven in the financial universe, Gold, along with its little
brother Silver.
The growing economic recession will reveal many dead
objects in the flotsam & jetsam, much like a tide going out to sea. That
is a primary function of recessions, to clear the deck of bad debt and start
anew, to plow the soil and permit nutrients to work again. Gold will shine. Gold is not loaded with the fraudulent
traps and snares built by Wall Street from the devious risky paper realm.
Gold has no fraud from counter-party risk. Gold is legitimate money. The
United States will be forced back to the Gold Standard, but it will be the
currency used over a landscape that features rubble, ruin, and discontent. Be
sure that every measure will be taken to save the current system, to debase
the major currencies in every way possible, at the greatest allowable volume.
The USDollar and other majors will be wrecked in
the process, and Gold will be lifted in value in corresponding opposite
fashion. The Western leaders have no desire to reform, to yield power, and to
install a viable sound monetary system. Banks should become utilities, not
casinos and helms of market control. A
grand disruption cometh!!
The Europeans provided the trigger on Tuesday for
the big $50 move up in the Gold price, and the $1.50 move up in the Silver
price. Their bankers, politicians, and commissioners are in deep discord. No
solution exists. Big bond losses are coming. Big banks that are already
insolvent will topple. The Greek Govt debt will
default. They are trying to make the default orderly. The gang in crisis
resolution talks could not be more in discord. The Germans want out of the
obligation of being the savings account of last resort to use. The Germans
are actually working toward a new alliance with Russia and China, with
Persian Gulf support. They look East as they see the West in shambles. If the Euro banks benefit from a big
bailout from a $2 trillion filled fund, at minimum, then the monetary
debasement will be great for Gold. Tremendous leverage would be the
only means of supplying that volume of funding. The Europeans dislike the
Geithner concept of heavy leverage usage. If the Euro banks do not fail to
secure funding, and cannot recapitalize, a string of bank failures will rock
the continent. The contagion will slam London and New York like a tsunami. The crisis would intensify to a new dangerous
level that brings talk finally of systemic failure from banking system
collapse, which will be great for Gold. Those who jumped or were
pushed off the Gold locomotive in September are the real losers. If they
relied upon the leverage inherent to the rigged futures contract game, shame
on them. Let them climb aboard on the legitimate rail cars that feature
physical Gold bullion benches, not the paper fake asset.
Finally, attention has grown on the gathering storm
of Italy. Their debt is being downgraded steadily, just like Spain. The
Italian prime minister seems like a clown in a suit, calling the crisis a
fiction written by the press. They reject austerity measures, as their debt
runs out of control. The nation of
Italy must fund over EUR 200 billion of debt before the end of 2012, from
rollover. Their bond yield has surpassed the 6.0% level known to serve as the
alarm bell. Then tack on fresh debt. The Greek domino could easily push
over the Italian domino, which lies next to the fragile Spanish domino. The
European Monetary Union will break. Germany announced the return of the Deustche Mark, the date unclear for re-launch. It will be
priced for conversion at one Euro to 1.95 DMarks,
the same as the 1999 exchange rate when the ill-fated Euro was born. Regard
this vehicle as a transitional currency to a new gold-backed currency, the USDollar Killer, the ticket to the Third World. Details
are in the October Gold & Currency Hat Trick Letter report. These are
exciting times, but dangerous times, full of risk, but full of opportunities.
Jim Willie CB, editor of the “HAT TRICK LETTER”
THE HAT
TRICK LETTER PROFITS IN THE CURRENT CRISIS.
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