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According to faulty interpretations of Mayan
calendars, 2012 is supposed to bring with it the demise of humanity.
Fortunately for us, this apocalyptic myth, like so many, is based on a superficial
interpretation of the Mayan calendar. Like many stories based on a lie, this
one nonetheless gains traction in the popular imagination thanks to our
fascination with anything apocalyptic.
Besides Mayan disinformation, there are many
commentators who advise selling all gold, while acknowledging that gold is
going higher in 2012. The lunacy of such advice is self-evident to me, and I
presume, to the vast majority of readers. But lets not dwell on mainstream financial media: the
credibility of that institution is non-existent going into 2012, and most
intelligent people understand that story assignments originate in board room
conversations and on golf courses, and filter down through editorial
management. Thus, whose who sit on the boards of
directors of banks and media conglomerates are easily able to transmit their
requirement for negative sentiment towards precious metals easily and without
public scrutiny.
There is no point in arguing whether gold and silver
price manipulation exist – even Bart Chilton acknowledges that it does.
But we are forced now to consider that manipulation as a
“fundamental” influence on the future price of gold. The problem
is that as a fundamental factor, is not quantifiable like supply and demand
metrics, because its intensity is arbitrarily (at least, to public view)
decided, and so all we can say for sure is that supply and demand drivers
are, in the futures market, seconded to the fundamental influence of futures
market manipulation. And since the futures market is exponentially greater
than the spot markets, the spot price is determined by such manipulative
shenanigans.
I often wonder when I hear people like Dennis Gartman, Jon Nadler and others for whom it would seem
that it should be within their interest to be bullish on gold, are bearish
because they have factored in that fundamental and participate on the short
side more so than the long. How else to justify the main commentator on a
site that sells gold being uniformly and relentlessly negative in his
comments about it?
Thus, despite the fact that Europe’s
Quantitative Easing ship has been launched, and the U.S. QE3 stands by in a
hidden harbour, those fundamental facts that are
intensely gold price positive must considered in the light of certain facts
pertaining to the futures market. These are:
1. Oversight of the futures and derivatives market,
presently the domain of the Commodities Futures Trading Commission, is in
reality a collusive accomplice in the exploitation of futures markets along
with the major financial institutions who represent that vast majority of
futures contacts each month. In the future, this criminal activity will be
identified and exposed publicly, and properly categorized as criminal
manipulation. Nobody will be indicted, however, as
the United States government is also an accomplice in shielding the
perpetrators from prosecution.
2. Whereas the original purpose of the continued
downward manipulation of the gold price was to induce a general perception
that the U.S. dollar was and is a sound currency, the major banks who are
regularly short silver and gold in significant volume have since understood
that through the control of markets and associated volatility, they can regularly
reap huge profits, but continuously rolling over losing contracts in their
“dark” market, while waiting until the price can be driven
downward sufficiently to put short contracts in the red into the black.
3. There is no intention nor interest
in curbing the manipulative schemes on the part of the CFTC, because while
they have been tasked with oversight, their powers of investigation, and most
importantly, their ability to indict or even investigate such criminal
activity is limited.
Europe is already printing money technically, in
that it is purchasing weak sister bonds where no private entity dare wade in
for less than 7% risk premium. While the line item accounting might trace the
cash for the purchase of the bonds from a pre-existing balance, following the
money leads to a quagmire of murky road forks that wear obscurity as a mark
of intention. That the ECB has already decided to yoke its last resort bank
backstop to the most larcenous countries’ bad loans is, to some, proof
positive that solving the problem is not the priority: keeping the game going
is the number one goal of current Eurozone management.
As the European Central Bank prepares to launch a
program to replace frozen bank lending with thinly and delusionally
configured quantitative easing as a last-option defense against the seizing
up of the European banking system, markets rally, alebeit
temporarily, lending the impression that there is a solution to the problem
available. Quite the opposite is true. Succumbing to the last ditch
fabrication and distribution of capital in a system that is choking on an
excess of capital is merely deferring the inevitable while amplifying the
severity of future market implosion on the near horizon.
The blinking red light on this latest ham-fisted
implementation of perception management was the absence of confirmation that
systemic risk appetite was back in the form of anemic bond market activity.
If there was a real rise in confidence unfolding, then interest rates should
arguably be dropping and private appetite for sovereign bonds materializing.
Neither is the case.
If it were possible to stimulate real economic
growth (as opposed to nominal economic growth that appears as profit on bank
and financial sector-related companies as a direct result of free government
money), then stimulus and government lending might be considered advisable.
Consider the effect of TARP, Bailouts, and the
various QE’s that started in 2008 in the U.S. in repsonse
to the freeze-up of credit markets. At the onset of the stimulus, stocks
rallied and the “recovery” was declared officially underway.
But after injecting a total of $1.5 trillion into
bank bailouts and stimulus, we are three years down that road with zero
economic growth, banks who used the funds mostly for proprietary transactions
that have created the illusion of market stability through reported earnings,
and a fabulously expanded Fed balance sheet. The debt crisis in Europe is on
a par with the debt crisis in the United States, and the value of money is in
terminal decline. The lesson is that while QE and other forms of stimulus are
superficially satisfactory treatments for the symptoms, they are far from a
cure, and at the end of the day, have only compounded the problem. The
effectiveness of stimulus and easing, most importantly, exponentially
increasing the quantity of currency in the system, is now known to have a
finite window of influence, and, once exhausted, begins to affect the economy
negatively. That’s because the emergent perception is that stimulus
only benefits the top layer of the financial system, and benefits the broader
economy negligibly.
Extending credit facilities and replacing private
sector capital sources with public ones, while at the same time inflicting
austerity measures on the general population, is a recipe for absolute
disaster in the long term, for the weaker economies. A population that finds
itself expected to work harder, pay higher taxes, amid diminished
infrastructure, services, and opportunities is going to respond with outrage,
and will not work harder, or pay higher taxes, or tolerate social safety net
destruction. They are going to take to the streets, and further paralyze
economic activity.
We’ve seen riots in France, Spain and Greece,
and as economies continue to deteriorate in 2012, violence and protests will
escalate, and at some point, it may pass the threshold of public protest into
civil war.
If the Occupy Wall Street movement were to seek some
relevance, targeting the causes of economic disparity – primarily the
protection of predatory financial institutions who
control governments in North America and Europe through corrupt and collusive
political systems – would yield a far more effective dividend than
protesting against the outcome of such activity.
Maybe that’s what we can look forward to in
2012…an end to the corrupt governments of the United States and Europe,
and a dismantling of the largest financial institutions, whose boots rest on
all of our throats.
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Midas Letter is the Journal of Investment Strategy
of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment
Fund that specializes in Canadian-listed emerging companies in the resource
sector with a focus on precious metals explorers and miners. James West is
the Portfolio and Investment Advisor to the fund.
Every month, James West’s MidasLetter
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