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Use the above link to subscribe to the paid research reports, which
include coverage of several smallcap companies
positioned to rise during the ongoing panicky attempt to sustain an
unsustainable system burdened by numerous imbalances aggravated by global
village forces. An historically unprecedented mess has been created by
compromised central bankers and inept economic advisors, whose interference
has irreversibly altered and damaged the world financial system, urgently
pushed after the removed anchor of money to gold. Analysis features Gold,
Crude Oil, USDollar, Treasury bonds, and
inter-market dynamics with the US Economy and US
Federal Reserve monetary policy.
For the last couple weeks,
my attention has been given to the amusement and desperation behind
propaganda, bluffs, and the utter desperation of the USFederal
Reserve in the orchestrated rumors of a new
position wherein they would soon or eventually raise the official interest
rate in order to combat the horrendous price inflation brought about by the
falling crippled USDollar. What utter nonsense! To
hear that the investment community actually accepted and embraced this notion
was laughable on its face, and
served as continued evidence that the loose collection of investors,
speculators, and observers simply cannot wake up reality despite the events
that began last August 2007 when the mortgage debacle ripped the banking
system wide open with gaping wounds. The USFed
needs to arrest the falling USDollar, no doubt. But
it cannot. The USFed needs to stem the price
inflation, no doubt. But it cannot. This parasite central banker organization
has its own track record of inflation boom & bust, complete with profound
destruction. The USFed does not control the shallow
and ineffective USGovt policies on ethanol, trade
sanctions, geopolitical isolation, crackdown on oil speculators, and delay
for actual mortgage bailout programs. The USGovt
collectively is responsible for the chronic budget deficits and huge USTreasury Bond sales every year. The USMilitary
is the largest single non-govt user of gasoline, diesel, and jet fuel in the
world, yet nobody seems to point a finger at endless war as another reason
why the crude oil price is high.
The US Federal Reserve
oversees the sequences of credit explosions, fails in its rational
regulation, orders hidden subsidies to Wall Street banks, justifies the
colossal inflation permitted, and under-writes the last bubble bust with more
liquidity. It fails to comprehend that the sequence has gutted the national
economy. The ongoing drama must be watched closely. The USFed
on Wednesday was laid bare in its legless weakness and incapacity. They
revealed they are in a corner, trapped, stuck in an unresolvable dilemma. Its propaganda was stripped. Its
bluffs were called and they blinked. Its desperation is vividly and
tragically clear. Enough on these guys, these charlatans, these improperly
revered destructive parasites on the body economic!
STARK
MARKET RESPONSE TO THE USFED
The effect on four key markets was pronounced
and loud since Wednesday, when the USFed sheepishly
blinked in profound weakness. Its bluff is over now. The euro currency jumped
up sharply in a reversal, now at 157.30 or so. The 2-year USTreasury
Bill yield fell down sharply in a reversal, now at 2.70% or so. The gold
& silver prices jumped up sharply in reversals, now at 913 and 17.3 or
so. Anyone who cannot see in basic terms what happened in response is not
awake, plainly put! On June 25, everything changed and reality entered the
room again!
The stage is set for the next two to four
months for a broader banking system deterioration,
most likely the bankrupt collapse of a few big banks, and a good chance of
lost control of portions of the credit derivative complex. A big broad
powerful liquidation sequence is coming soon for the biggest of bloated money
center and investment banks. They have tried in
vain to sell most of their overpriced mortgage bonds and related financial
securities. They cannot find truly stupid parties anymore to buy them. Past
rescues are all showing big losses for participants. The bonds lack true
price discovery. In many cases no market exists for them, such as with the
Collateralized Debt Obligations that leverage mortgage bond in reckless
fashion. In an increasing number of cases, many of the mortgage securities
cannot be properly associated with ‘perfected titles’ to the
actual properties. The big banks might soon choose to dump the bonds on
the market in a race to be first, BEFORE class actions are taken by the
public to block the foreclosure process. They can and are blocking their
own foreclosure, dispossession, and eviction, as they properly and legally
demand for the banks or financial agencies to produce perfected property
title. In many cases, the banks cannot. In its haste during the Go-Go
years of 2003 through 2006, the Wall Street bond dealers, purveyors of fraud, conmen to the pension funds and insurance
firms, did not bother to file the documents and connect the asset backed
bonds with the properties that backed up the securities. They were concerned
about fast bond sales and ripe fees earned. Now they are vulnerable to class
action and civil disobedience, which will possibly accelerate disorder and
chaos. Enough on these guys, these untouchable conmen felons, these
destructive parasites on the body economic!
The official Federal Open
Market Committee statement said, “Although downside risks to growth
remain, they appear to have diminished somewhat, and the upside risks to
inflation and inflation expectations have increased.” Their
statement actually stated that the USEconomy was
continuing to grow, although slowly. One must wonder what statistics they are
reading. Perhaps these clueless guys believe the $165 billion in handouts to
US households will sustain the economy. In my view such handouts are very
similar to Third World Nations delivering handouts of rice and beans to the
impoverished citizens. The next ugly resemblance will be dead cars used as
lawn ornaments.
Four specific reactions
occurred after the USFed took no action, did not
raise the official FedFunds rate, mentioned ongoing
housing weakness, and basically tipped its hand that it cannot conceivably
raise rates as long as the housing market, financial markets, and USEconomy remain so weak. They actually cited weakness,
but understated the actual weakness. The economic stagflation underway is
powerful, and like nothing seen in seven decades. Even Greenspan expects a
recession to last for a much longer time in a break from past patterns. Let’s
proceed with four key markets, as reality entered the room. The next phase is
almost ready. The spring deception is now completed, a closed chapter. The
next bank bond gigantic losses are soon to come. The next selloff retest of
the USDollar critical support is coming soon. The
next gold & silver runup toward the critical
resistance levels of 1030 and 21.50 is coming next. Prepare for fireworks
running from July 4th all the way into the autumn
in steady fashion, with some assured climaxes in two to four months.
THE EURO JUMPS
IN REVERSAL
Even the EuroCB is guilty of phony messages disseminated. It was
bluster! They perhaps should raise their official interest rate, but they
will not. They too must contend with rising price inflation, but they too are
stymied by housing declines, economic slowdowns, and banking crises also. In
the past few weeks, they have been displaying a position of bravado, as the
Germans defiantly claim they might hike their official interest rate soon,
further straining the USDollar, as they work to
manage and protect the economy across the European Union. If they really
cared about inflation, they would halt the 12% annual euro money growth. It
is all talk, gamesmanship, in a grand struggle to wrest banking leadership
from the reckless corrupt Americans who continue out of control. On Wednesday
in Europe,
the EuroCB head Jean Claude
Trichet was on the defensive. He found himself
dismissing the notion that the ECB would install three separate rate hikes
before December. He tried to make the case that the ECB would perhaps order
just one rate hike. They will not hike at all. They will be forced to
deal with a growing conflict within the European Monetary Union, covered in
the Hat Trick Letter in recent monthly reports. The southern nations are
crippled by housing declines, mortgage disasters, and associated economic
harsh slowdowns. They need lower interest rates, but the Germans who run the EuroCB refuse to budge. A potential breakdown of the EMU
and euro looms.
The euro currency had been
weakened in the last few weeks by accepted beliefs in the propaganda, that
the USFed would next cut its official short-term
interest rate. That would have narrowed the differential between the 4.0%
official Euro Central Bank rate and the 2.0% official USFed
rate. As stated in my article last week, neither central bank will be hiking
interest rates in the foreseeable future, not with economic weakness, housing
vulnerability, and bank crisis continuing to wreak havoc. The euro had been
down to slightly flat on Wednesday in trading. When the news broke on the USFed statement to do nothing, and to paint the picture
of helplessness on defense of the USDollar as engrained policy, the euro jumped up. It is
now 150 basis points higher. The Goldman Sachs statement pushed the euro
higher still, highlighting the US
bank weakness. The contrived USDollar bounce is
officially done, cooked, stick a fork in it. A more complete analysis will
appear in the July Hat Trick Letter in a couple weeks. For now, just view the
tremendous single day movement in the euro. The opposite occurred in the USDollar DX index, weighted by over 50% in the euro.
THE SHORT-TERM
USTREASURYS JUMP
In the last few weeks, the
2-year USTreasury Bill yield has climbed rather
suddenly. The bond traders accepted the notion of an eventual USFed rate tightening, in response to painful price
inflation. They overlooked the weakness in housing, economic slowdown, and
worsening bank balance sheets, all of which render impossible any official
rate cut. Sure, the Germans and Americans are at odds and in conflict. Each
has talked tough on price inflation, stealing from each other the mantle of
leadership. But despite the rhetoric and bravado, the facts remain. The two
economies of Europe and the Untied States
cannot possibly tolerate a rate tightening episode. To order higher rates
would push both economies over the edge into a downward spiral. To accept the
notion of rate hikes is an exercise in embarrassing naivete
at best, and reckless stupidity at worst. In the ensuing minutes following
the USFed public announcement, the short end of the
USTreasurys rallied. The USTBill
yields are showing more clearly the economic slowdown and ongoing endless
recession. The gap between the 2-year TBill yield
and the FedFunds 2.0% target has been reduced. They
realized the jig was up. The USFed blinked as
the gold longs and dollar shorts called their bluff successfully. Below
is the bond principal chart in minute ticks. The 2-year TBill
yield had been flirting above the 3.0% level. After the announcement, it fell
sharply toward 2.8% and stands at 2.7% now. The short-term USTreasurys are screaming recession again. Consistent
with such loud cries is the associated painful notion that the USFed will almost certainly LOWER the official FedFunds rate reluctantly. Give them a few months. With
the next official rate cuts, all USFed leadership,
all USFed credibility, and all USDollar
integrity will be thrown out the window.
GOLD JUMPS IN
REVERSAL
The gold price has been
doing repeated tests of the critical support. At least three or four such
successful tests have been completed. The uptrend in the gold price remains
clearly evident, very firm in its support, as it prepares for the next summer
and autumn fireworks. The silly
notion of a USDollar
rebound led by USFed vigilance to price inflation
is now cast aside like last month’s Sunday newspaper. Recycle both the
newspaper and the failed propaganda that has become like a rancid sugarcoating upon the financial markets, endlessly
repeated deceptions heaped upon the public. The housing weakness will spur
continued inflationary responses to deal with it. Any mortgage rescue
platform program will be extraordinarily packed with inflation medicine. Gold
will respond. The USEconomic weakness will spur
continued inflationary responses to deal with it. Any further USFed stimulus and rescue packages will be
extraordinarily packed with inflation medicine. Gold will respond. The
bank crisis and upcoming bank failures will spur The USEconomic
weakness will spur continued inflationary responses to deal with it. Panic
will soon enter the financial markets and banking world. Gold will
respond. Not a single bank run by depositors has occurred, at least not yet. There
will be many. The reversal on Wednesday, continuing into Thursday, was plain
as day. For believers in real money, and advocates of sound money, the gold
response was reassuring and soothing, not to mention promising.
Some credibility had been
accepted within the FedFunds futures market in the
last few weeks, that a rate hike or series of rate hikes would come before
the end of the year. This is patently nonsense. The financial markets in the
Untied States have swallowed the notion of bank system recovery, mortgage
market stability, and immunity of the USEconomy
from the housing decline. All three notions are absurd on their face, with
much worse distress and losses to come in the near future. The USTreasury Bonds on the short end are finally reflecting
the USEconomic recession that is growing worse by
the month. The news on housing was terrible this week, as the Case Shiller housing price index over 20 cities fell 2.0% in
April, registering a hefty 15.3% decline in the last full year. Also, the
consumer confidence index by the Conference Board fell hard to 50.4 in June from 58.0 in May. The June
reading is the lowest in its history. The next bank failure will put the
final nail in the Rate Hike Coffin, dispelling any doubt. The inevitability
of a General Motors bankruptcy has
begun to take root. Perhaps Ford Motors will go bust also. Car sales, SUV
sales, and truck sales are down badly. The entire car industry supply chain
is suffering. Claims of growth in the USEconomy by USFed Chairman Bernanke defy reality.
GOLDMAN SACHS
PAINTS THE PICTURE
Some clear indications are
coming to light. The Wall Street firms are both banding together and at odds
with each other. First a preface. The Bear Stearns kill job engineered by
JPMorgan has numerous stories behind the public face story told. Some of my
views have been shared. Here is more. Bear Stearns did not participate in the
LongTerm Capital Mgmt emergency bailout rescue in
1998. They were punished ten years later. Furthermore, when the USFed opened the Bear Stearns books in March, they found
a giant position that was short the USDollar. They
found a giant position that was betting on a higher gold price. So Bear
Stearns was killed, with the liquidation of their gold position responsible
for a huge gold price drop, aided by the cover of their US$ position.
See the mid-March gold price and US$ action. The Wall Street firms took
notice of the message. If they bet against the US$ and bet in favor of gold, they would not have any further access to
the USFed discount window or lending facilities.
So now the Wall Street firms might be helping each other to stand up. If one
fails, they all might fail and go bust. That is why the Lehman Brothers story
and the Merrill Lynch story are so important. They are being propped up.
Enter Citigroup. My guess is that a huge amount of mortgage bonds are to be
sold soon by Citigroup, and maybe another big bank, in the initial stage of a
bond liquidation scheme and exercise. Citigroup is busted, and will portray
their bankruptcy as a restructuring procedure, complete with liquidation. We
will have to wait to see what remains.
Goldman Sachs on Thursday
downgraded Citigroup with a short stock recommendation. Why would they do
that? They put Citi on their ‘Americas
Conviction Sell’ list, which just has to evoke laughter
for its name. They expect another gigantic bond loss to be admitted by Citi, more cash to be raised as they sell capital and
undermine stock equity value, and even more dividend cuts. Up to May, the
total amount of cash they raised by selling off capital to foreign entities
was a robust $42 billion, thus undermining US
control of the biggest US
bank. One can only speculate. Perhaps GSax finally
has a big short position in place against Citi, and
wants the public to climb aboard the selling parade. Perhaps GSax has inside word of the big Citigroup bond
liquidation fire sale upcoming. People need to remember that GSax is not a charitable organization. They make money by
legitimate trades, but also by lying, cheating, and sometimes stealing, all
legally. Just to prove that GSax remains a corrupt
information source, they downgraded the entire brokerage sector from
‘Attractive’ to ‘Neutral’ in laughable
style. The US
brokerage industry is fast approaching extinction. Check their bond and stock
issuance lately. Their ugly position matches the US banks, which on average are
insolvent. Sanford Bernstein analyst Brad Hintz forecasted a $3.5 billion Q2 writedown for Merrill Lynch, matched by Bank of America
analyst Michael Hecht. The Goldman Sachs analyst Richard Ramsden said just a week ago that the US banks must
produce $65 billion more capital to cope with the destruction to their
balance sheets before the peak of the crisis sometime in 2009. So have we
seen the worst yet? No way! Once again, they are not raising capital. They
are raising cash. They are selling capital in the form of stock equity and
long-term debt. As they do so, control of the banks goes into foreign hands
more so.
STRANGE TIDBITS
Yet another excellent quote
came from Art Cashin of UBS, from the New York
Stock Exchange floor. Two weeks ago he responded to the crude oil mania when
he said, “Goldilocks is thinking about a career change. She is
considering a new job renting out and operating a drill rig.” Today
he said simply, “The Fed cuts before it raises,”
which surprised the anchors on the financial advertisement public address
system known as CNBC. Even Ron Insana, yesterday
afternoon said, “The Fed offered nothing for everyone.” The
smart guys out there have figured out the helpless and desperate situation
that the USFed finds itself. It cannot raise rates,
since that would harm the stock market, further cripple the mortgage and
housing markets, and worsen the rapidly advancing USEconomic
recession. Sure, it needs to raise rates in order to defend the USDollar, but the US$ is not defensible. It has
been totally ruined by three decades of mismanagement, corruption, pork
projects, sacred war budgets, socialist programs like Medicare, and reckless
creation of bubbles in serial fashion.
Yet another shadowy story
came to light (for those who know how to flash the spotlight), certainly not
mentioned by the intrepid lapdog US financial press networks. Lehman
Brothers and the London Stock Exchange announced plans to set up a
pan-European trading platform steeped in darkness (click here). The joint
venture is called Baikal, named after the world’s deepest fresh water
lake in western Siberia within Russia. It is known as the
‘Blue Eye of Siberia’ in exotic terms. It is famous for holding a
volume of water larger than all the North American Great
Lakes combined. At 1637 meters (5371 feet), Lake Baikal
is the deepest lake in the world, and the largest freshwater lake in the
world by volume, holding approximately 20% of the total surface fresh water
on earth. How appropriate! The new Dark Pool Trading Platform will offer
access to securities across 14 European countries, featuring computer driven
trading schemes. The claim is to address complexity of order execution, but
the real intention is to minimize market impact and avoid the scrutiny of
public disclosure. Wall Street and London
firms, as in investment banks, large money center
banks, and hedge funds, are anxious to dump huge positions without attention.
Those who claim the US and
London
financial markets have transparency are dead wrong! Those who claim they have
price discovery that seeks equilibrium are dead wrong!
A bizarre story was just
told to me by a friend from Philadelphia.
On a daily basis, his wife travels the New Jersey Transit Train line as many
commuters do, from Philly to New
York City. In the last month alone, three suicides
have taken place, almost never heard of before. Some men without hope jumped
in front of the train. Each time the usual 2-hour trip by train suffered
delays, including today. The delay added 2-1/2 hours, making the commute over
four hours. The entire NJ Transit line was interrupted, which included the
Amtrak Metroliner and Keystone Service. People
trying to avoid cars, gasoline, and its nightmare face a different nightmare.
Contrast this story to a recent analysis that points to how many US citizens
earning under $25k in annual income will be forced to stop driving
altogether. In typical overextended US style, over 30% of them have
more than one car. The perceived right of Americans to drive will slowly
endure a transition toward the privilege to drive. Japan has made its investment in
electric cars and hybrids for well over ten years. The Untied States made its
investment in Sport Utility Vehicles piglets, Hummer true hogs, and light
trucks. The US has not
made any meaningful investment in commuter railways, and especially not high
speed railways like Japan,
London, and Europe.
The US
is horrendously mismanaged and corrupt. The 60% share of new vehicle sales
that were from SUV and light trucks will be cut in half in the next year. Shocks
to the US
landscape will be ongoing, regular, and severe. Expect shocks to become
routine.
The strange new world is
emerging, with more onerous extensions of the Fascist Business Model. My view
is that the financial markets will declare the shock filled status as normal
very soon. Panic will slowly seep into the environment. This late summer or
early autumn, some really nasty
bank failures are assured. GOLD WILL REACT VERY STRONGLY, AS WILL SILVER. The
next USDollar decline is coming soon, right on
schedule for those who ignore the propaganda, nonsense, and blatant deception
promulgated by Wall Street. Has anyone noticed that the Dow Jones Industrial
index has fallen below critical long-term support, but the S&P500 index
is near critical long-term support levels??? Each is falling badly. This
occurs while gold rises!!! The criminal prosecution has begun finally. They
started with the small fries at Bear Stearns. Look for these little guys to
roll over, to turn state’s evidence, and to attempt to bring down some
executives for criminal fraud
felonies. The process is very early here. Bad publicity like CFO or CEO
indictments akin to WorldCom, Enron, and Tyco lies in the future. Gold will respond.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
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By : Jim Willie CB
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Jim Willie CB is the editor of the
“HAT TRICK LETTER”
Jim Willie CB is a
statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics.
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