Wednesday, November 30, 2011

You Know How You Get To Carnegie Hall?

Practice.  After practicing short term gold and silver forecasting for 10 years, I tend to shy away from posting my short term views on here because it only leads to readers busting my balls when my calls are wrong.  It's safe to assume that - in general - my longer term outlook (3-5 years) is for at least $200-300/oz. silver.  Likely higher but that's what I'll go on record publicly with.

Having said that,  I do believe that the silver market - after the vicious manipulated take down that took silver from $50 in April to a recent intra-day low of $26 and change on Sept 26, I am confident that silver is ready to take-off again.  Now, having said that, we will still get a lot volatility because of the market manipulation to which even CFTC board member Bart Chilton publicly admitted (note: of course, he did not explain why the CFTC does not crack down on it).  I know many of you have read the recent uber-bullish price calls by James Turk and John Embry.  I purposely have not read those yet because I like to form my own convictions before I see how they match up against the trading convictions of people whom I highly respect.  After looking at hourly and daily silver charts yesterday before the market closed, I decided that most of the downside risk has been washed out and that there is a high probability silver will begin to make a big mover higher.  We started accumulating AGQ in our fund and we lifted all of our bullion hedges.

While the risk of a manipulated take down always exists, if silver can grind thru the mid-40's it should easly and - as John Embry termed it - "cleanly" move well above $50.  I know Turk is calling for $70 silver and Embry is looking for high $60's in the "short term."  I won't put out a specific price target but I will say that I believe the price outlook of both Turk and Embry are achievable - if they do occur - by May.  Now, if I'm wrong about this go ahead and bust my balls and I'll post those comments unedited.

************
I wanted to comment quickly on the currency swap deal announced by the Fed today.  In a nutshell, what this facility does is make available a massive quantity of U.S. dollars to non-U.S. banks who have immediate dollar liability requirements (payments) that are not being funded by their income producing assets (i.e. they are insolvent, for the most part).  To cut through the spin, it is likely that there were one or more very large European banks that were close to collapsing and the Fed bailed out the situation.  From the Fed statement today: 
[T]hese central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar...
That tells me that one or more big banks were on the brink of default.  The Fed also cut the interest rate charged for use of the swap facility from 1% to 1/2%.  This really underscores the severity and immediacy of the problem.  Interestingly, a friend from NYC called me this morning and told me that Deutsche Bank is trying to sell its asset management division.  This is a cash cow asset and it tells me that, not only is DB desperate to raise liquidity, but it has to resort to unloading good, core assets because there is no bid in the market for its crappy assets.  In other words, Deutsche Bank is running out of room with which to hang itself...these problems are also impending in the U.S.  The stock price of Bank of America nearly lost the $5 level yesterday and I fully expect Bank of America to either be bailed out by the Taxpayer or collapse within 12 months.

One more little tidbit for those watching for history to either rhyme or repeat:  when the Fed initiated a massive global dollar liquidity credit line like this in December 2007, it was followed by the collapse of Bear Stearns three months later in March 2008.  The entire U.S. banking system nearly collapsed a few months after that.  The point here is that this Federal Reserve - ultimately U.S. Taxpayer back-stopped - liquidity bailout is nothing more than kicking the can down the road.  The question is, for how long?

One more point of note:  China announced just prior to the Fed action that they were lowering their bank lending reserve requirements.  Both the move by the Fed and by China are moves that will likely have to be followed up sometime soon (i.e. within 2-4 months) by a very massive Quantitative Easing - aka money printing - program.  The money printing - aka currency devaluation - is on the verge of becoming globally viral.  This is why gold and silver are moving very strongly today, as well as fiat/risk-based assets like stocks and junk bonds.

It's on the basis of this fundamental back-drop that I am confidant that my outlook for silver (and gold) is quite justified and highly probabilistic.

Tuesday, November 29, 2011

Just When You Think It CAN'T Get Uglier Out There...

Before I get started on what I had intended to post, I want to present two items of acute interest.  First, I hope everyone - Democrat or Republican - is aware of just how tight Jon Corine is with President Obama and the Obama White House insiders:  LINK  Not that it will matter for the Presidential race because the leading Republican candidates are thoroughly unelectable, but I sincerely hope that the conservative media makes Obama wear Jon Corzine the way that Republicans made Michael Dukakis wear Willy Horton in the 1988 Presidential race vs. George H. Bush (everyone remember that?).   I am sure that we are not seeing immediat investigative actions being taken on Corzine because of his inside connections to Obama.  He's not even scheduled to appear before Congress until next month. If this were a drug-dealer busted in Harlem, this case would already be before the magistrate and the perp would be waiting for his trial in jail.

Second, many of you have read this by now, but here's a textbook example of the ways in which the insider elite and those connected to the insiders are raping our system wholesale and stealing what they can, while they can: 
"How Paulson Gave Hedge Funds Advance Word"  LINK  The article goes on to describe how Henry Paulson - then Secretary of the Treasury under George W Bush - met with several large hedge fund managers - many of them Henry Paulson cronies from Goldman Sachs - and revealed  the Government plans for bailing out Fannie Mae and Freddie Mac - several months before the bailout actually occurred. 

Some bird-brain professors are quoted in the article as saying that this is not inside information, but that is total horse shit.  If I had possession of that information when Paulson doled it out to his buddies, I would have gone out bought up every single discounted Fannie Mae and Freddie Mac bond I could find and I would have leveraged those purchases with as much money as I could borrow.  I'm sure the trading records of those at the Paulson insider trading pow-wow will never be investigated.  What Paulson did was unequivovally illegal and he won't be prosecuted for it.  Hell, Bush signed an executive order that gave all of his cabinet members a perpertual get of jail free card. Obama was supposed to repeal that EO but never did.

This shit just keeps piling higher and higher...quite frankly, I have become unusually doomish and gloomish in my outlook for what is coming our way.  And the outright fraud, corruption, raping and pillaging and theft that is actually being enabled by our Government is an obvious signal to me that very bad things are headed our way...

In fact, I'm so disgusted by the information and implications of the two above articles that I'm going to abbreviate my original post.  In short, the market yesterday was all giddy about the Black Friday sales estimates and the new home sales.  However, everyone should know that when the real numbers are tallied, there will be substantial downward revisions of the Black Friday initial sales estimates.  In fact, one of the widely reported sales reports is based on measured foot traffic at malls not based on anything concrete, like money going into the cash register.  For those of you who didn't see it, here's a fantastic summary why the Black Friday initial sales numbers are nonsense:  LINK  Moreover, it was pointed out today that every year more and more stores participate in Black Friday.  In fact, many of them open up either at midnight or before midnight.  This makes year over year same-store-sales metrics - which are the relevant numbers if you want to see real growth - impossible.  Furthermore, it is highly likely that the pervasiveness of sales deals and give-aways has "pulled" a substantial portion of holiday budget spending into Black Friday and the ensuing weekend, which means that it is likely that overall sales for the entire holiday period will be anemic at best.  After all, we have seen that real monthly income for workers has been declining and consumers are cutting back on credit...who is left to spend?

Regarding my gloomy outlook - look at it this way:  this country is not capable of dealing with the economic and standard of living plunge that would occur IF the Government were to implement the type of policies and spending cuts required to fix the system.  Just think about the implications for joblessness and the massive increase in poverty that would occur if the Government were cut itself down by the at least the 50% required to start balancing real spending.  This country would look like a 3rd world country on steroids.  So that being the case, the people on top and inside know this so they are looting what they can, while they can.  And no one is around to stop this because the people who were voted into office to enforce the laws - of the people, by the people and for the people - are the same ones who are engaged in the mass looting of our system.

Your best shot at seeing what "the other side" of what is coming will look like is to move as much of your wealth as you can into physical gold and silver - NOT GLD, CEF or PHYS (unless you have enough money to take delivery of 400 oz bars and a place to store them safely).  This includes liquidating as many of your retirement fund accounts as you can (obviously if you have a 401k and currently work at your 401k provider, you can't liquidate that).  Beyond that, sailing away from this country on a boat, the way my buddy did who introduced me to the precious metals 10 years ago, is your best option.

Sunday, November 27, 2011

The Stench From MF Global Gets Worse - Should James Giddens (Bankruptcy Trustee) Recuse Himself?

A few days ago I opined that the stench coming from MF Global had taken on the distinct and nauseous odor of dog shit.  Well now the smell has elevated to the level of the kennel area at the Westminster Dog Show.  It turns out that the law firm of James Giddens - who is the very highly paid bankruptcy trustee - just so happens to do legal work for both Price Waterhouse, MF Globals' audit firm, and JP Morgan, MF Global's largest creditor.  Quite frankly, I find it extremely hard to believe that the bankruptcy court would appoint and allow Gidden to be the bankruptcy trustee in this case, as the conflict of interest has the smell of dog shit all over it.

But it runs even deeper.  I find it very interesting that no one has mentioned Refco or Goldman Sachs in this whole ordeal.  After all, MF Global purchased the assets of Refco after it tanked in colossal fashion.  However, there were many questions which were conveniently swept under the rug and buried.  For instance, Refco filed for bankruptcy literally two months after Goldman Sachs took it public.  Typically, when a large company like Refco is taken public, the underwriter and audit firm involved, Grant Thornton, perform very detailed and thorough legal and accounting due diligence.  The fact that Refco filed bankruptcy literally 60 days after it went public raises all kinds of questions, all of which were neatly and conveniently dismissed.  If memory serves me correctly, Goldman threw out about $300 million in "nuisance" settlement money, thereby somehow avoiding billions in liability actions.  It also made a lot more money off of Refco and it's IPO than the$300 million in "hush" money that it coughed up.  Goldman Sachs' audit firm:   Price Waterhouse, the client of the MF Global bankruptcy trustee James Gidden.

Bloomberg writer, Jonathan Weil raises some interesting questions about the credibility of Price Waterhouse and its competence as an auditor of MF Global and ultimately Goldman Sachs.  Kudos to the commenter who provided the link, which you can read HERE

I don't know about anyone else, but I find it quite fascinating and intriguing that ultimately there is a direct connection from MF Global to Goldman Sachs that goes beyond the Jon Corzine connection.  And there is a direct connection to MF Global, Corzine and the ability of the Government to cover up a lot of this mess via Gary Gensler, Corzine's butt-buddy at Goldman Sachs and the Chairman of the CFTC, the regulatory body of the U.S. Government that was in charge of monitoring and regulating MF Global.

Quite frankly, among James Gidden and his law firm, Hughs Hubbard & Reed, Goldman Sachs, JP Morgan, the CFTC, Price Waterhouse and the ashes of Refco, there is far too much "coziness" and conflict for me to believe that there is not one massive cover-up going on here.  At the very least the Obama Administration should step in and force Gidden to step aside as bankruptcy trustee.  In addition, Attorney General Eric Holder should open up a wide-ranging inquiry into this whole dog shit show, including appointing an independent audit firm responsible for conducting a very thorough forensic audit of every party mentioned above.  Gary Gensler should also be removed at Chairman of the CFTC.  This is the very least that the President who got elected on the promise of cleaning up DC and creating a more level playing field for all should do.

Don't hold your breath on that, but make sure you keep your nose covered, because the smell of dog shit emanating from Wall Street and DC has become unbearable.
This thing stinks worse than a bunch of rotting dead bodies covered in rat shit and I find it quite appalling that the Obama Administration has issued no meaningful statements nor is it taking any meaningful actions to enforce the laws and investigate this matter. It leads me to conclude that the Obama Administration is being complicit in the cover-up.

Wednesday, November 23, 2011

Have A Great Thanksgiving Holiday

I wanted to post an excerpted commentary from Richard Russell, which I sourced from Ed Steer's Gold and Silver Daily.  Richard Russell has been "doing" the markets for longer than most of us have even been alive.  An expert in the Dow Theory theory and stocks in general, in the last few years he's been shifting his investible assets into physical gold.  He understands as well as any of us the degree to which fiat currencies globally are being destroyed by greedy bankers, disasterous Government fiscal policies and - foremost - accelerating corruption and fraud.  Here's Russell's comments: 
My advice: We are moving closer and closer to what I call "survival period" -- the period where the magic of compounding turns into what will be the poison of compounding. This isn't a time for timing. This is a time for action. Reduce your exposure to bonds and all items that provide fixed interest rates. Similarly, reduce your exposure to stocks except the gold miners. Look to expand your positions in inflation-protected assets, especially gold.

Those who are holding stocks in the hopes of the usual rebound are going to be terribly disappointed in the years ahead. This bear market is going to be unlike anything we've ever seen before. In the end my survival vehicle will be gold. I say again, timing is hopeless. Gold will have purchasing power and true wealth as almost everything else is destroyed by this unprecedented bear market. The US Government is now so loaded with ever-growing debt that it has become a mathematical freak. We return to different times, when rising interest rates will eat up the US government. With $55 trillion in assorted debts, the US is in no shape to deal with rising interest rates. We are in a state of reverse compounding, leading to inevitable bankruptcy on a massive scale.
There you have it.   Happy Thanksgiving and remember:  enjoy what you can, as much as  you can, while can.

Tuesday, November 22, 2011

Update On Jefferies

The SilverDoctors blog was the first place I saw this story (god knows I don't watch Fox Business - not sure who does).  It turns out that apparently Jefferies CEO is looking for a large white-knight firm to take them over.  Translation:  "our balance sheet is hopelessly insolvent unless we get bailed out and I still might be able to sucker a big bank to buy our firm while the stock still has value to insiders who own a lot."  Here's the LINK  I would initiate an account transfer out of there tomorrow if I had money at Jefferies...

To be quite frank, I'm not sure why Jefferies would be of value to any buyer.  I firmly believe that on a market-to-truth basis that Jefferies has a substantial net worth.  The brokerage and investment banking model can be replicated anywhere.  The asset management business and banker relationships probably have good value on a stand-alone basis, but they are entwined in the roach motel that is Jefferies balance sheet and who knows what other hidden and contingent liabilities are lurking off-balance-sheet and "in the closet."   The asset management business can be plucked out of bankruptcy and the bankers who have valuable relationships will go to the highest bid from other firms...

The United Banana Republic of America

The outright corruption and thievery at the highest levels of business and Government have gotten to the point at which its hard to not think of our country as little more than a glorified banana republic.  I remember that I had a friend in business school who's father was an ambassador to a Central American country.  My buddy told me that Central American high level bureaucrats at official cocktail parties achieved honor, social status and bragging rights based on the relative amount of U.S. aid that each guy diverted into their own pocket.  I get the feeling that the same thing happens now among the banking and business elite, as they achieve social status based on the amount of taxpayer and investor money that they walk away with.  Obviously this is predicated on their ability to plant key people into key spots in the Presidential administration.  With the Bush administration it was defense companies, who had their de facto President sitting in the office of the Vice President (that would be Cheney).  In the current administration, it's Obama's chief of staff, a former JP Morgan director, the Treasury Secretary - who is in effect a big bank puppet - and the Chairman of the CFTC - a former Goldman Sachs partner and butt-buddy of Jon Corzine.

And the thievery gets more blatant and obvious.  Just take for instance the plundering of MF Global.  Right now there's at least $1.2 billion in missing customer funds.   Where did this money go?  A friend of mine who has been in the banking industry for 20 years can not believe that there are absolutely no electronic traces to that money.  If the money had been transferred out of MF Global, it would have had to have been reported to FINRA and it would have had to travel at some point through the Federal Reserve bank wire system.  So where is it?  At first, $600 million of it was "found" at JP Morgan.   But JP Morgan has denied that this was MF Global customer money.  Why can't we see a history of money transfers between MF Global and JP Morgan?  Did they vanish into thin air?  There is a large-scale cover-up going on here and I have to believe that Jamie Dimon is laughing right now because JP Morgan appears to have gotten away with hijacking funds from MF Global.  Where's Jon Corzine in all of this?   And it just so happens that the former Soros trader who MF Global hired in early 2011 to expand its proprietary trading business has gone missing...Oh, and just to kick a little more sand in our faces, JP Morgan has emerged as the winning bidder of MF's stake in the London Metals Exchange.  This was a highly coveted asset on MF's books and it gives JPM a powerful 10% ownership stake in the largest physical metals trading venue in the world.  Usually when I smell the stench of dog shit, I watch where I'm stepping.  This one doesn't exactly smell kosher, does it?

Speaking of watching where you are stepping, if you have your investment account and IRA at either Merrill Lynch or Jefferies, you might want to get it out of there.  I've been warning about this for over week now and the smell of dog shit is getting stronger.  This report about regulators warning B of A to get its act together hit the tape today:  LINK  It would appear that B of A is starting to have liquidity problems and it turns out that B of A has several billion in bonds that it has to pay off over the next few months. These bonds were issued under the 2008 bank bailout and are guaranteed by the Taxpayers via the FDIC.  This is near-zero debt that will have to be refi'd using much more expensive debt issued (not sure who would buy it - maybe Buffet) or payed off using I don't know what capital.  I believe that the noose of insolvency is closing around B of A's neck, and given the way that MF Global has been handled, I do not believe that investment accounts at Merrill Lynch are safe.

And now for Jefferies.  JEF has issued several denials and rebuttals to various commentaries and analyses that suggest that Jefferies has financial problems.  The best defense JEF has offered up is to present its revised GAAP financials, which don't show anything meaningful.  So today, per zerohedge, the rating agency of Egan Jones - probably the most truthful credit rating organization - issued the latest warning on Jeffries:  LINK

Interestingly, most critiques of Jefferies have focused on its sovereign bond holdings and derivatives exposure.  But a quick glance at the latest 10-Q shows an even bigger problem:   its holdings in residential and commercial mortgage paper.  Of $18 billion in longer term financial instruments,  $2.6 billion (14%) is in sovereign paper BUT $4.4 billion (24% is in mortgage paper).  It is likely this is private label garbage that is maybe worth 30 cents on the dollar.  Maybe.  And it's almost all classified as "Level 2" assets, which means that they have some bullshit computer model that spits out a pricing value for these assets that Jeffries expects us to believe is realistic.  It's not.  Jefferies has $3 billion in book equity.  If we were to apply a very conservative 50% write down of its reported sovereign and mortgage holdings, this would wipe JEF's net worth.  And we're not addressing the reality that should be associated with its off-balance-sheet garbage, which is likely several multiples larger than its reported mortgage and sovereign debt issues.

But you know, all this wouldn't be as much of a problem for me if Jefferies wasn't run by a guy who used to work directly under Michael Milken at Drexel Burnham.  In fact, Jefferies is to a large degree a reincarnation of the rats who got away without punishment from corrupted firms like Drexel.  All I can do is present the facts as I am able to dig them up.  I know that after watching with complete horror at how the MF Global situation is being covered up and is screwing over the customers - whose money should be under the highest standard of protection - I would not leave my money anywhere near B of A or Jeffries.  For sure it's not safe to leave your fate in the hands of the Government regulators who are paid to protect you.  The reason:  they are getting paid even more by big banks to screw you.

Lie down with dogs, wake up fleas. And the stench of dog shit is getting a lot stronger out there...

Monday, November 21, 2011

You Heard It Here First:

MF Global trustee: $1.2 billion missing

I reported back when this story first broke about three weeks ago that I had heard from Street "chatter" that the missing amount of customer money was at least double the $600 million being reported.  Now the Truth is leaking out:
the apparent shortfall in what MF Global management should have segregated at US depositories may be as much as $1.2 billion or more," the trustee said in a statement
Here's the latest:  LINK

I can't emphasize this enough:  If you have brokerage and commodity accounts at big Wall Street firms that are also owned by bank holdiing companies - get your money the hell out of there.  I'm dead serious about this.  This is especially true if your account is at Jeffries, Morgan Stanley or Bank of America/Merrill.  Fidelity and Schwab are the safest alternatives to outright physical gold and silver.

Friday, November 18, 2011

I Like Winning So I Don't Trust Wall Street

"I like winning - I wish it wasn't quite that stressful" 
 - Tim Tebow after leading the Denver Broncos to a last-minute
comeback win over the heavily favored NY Jets

Silver investors probably feel like serious underdogs given the enormous amount of market manipulation exerted on the silver market by JP Morgan, especially since the CFTC is fully aware of this manipulation and does nothing to enforce the laws. 

But then again, yesterday was somewhat of a victory for the silver longs because JP Morgan's ambush on the market appears to have failed.  You are probably wondering why I say this.  Typically when the metals get taken out back and shot, like yesterday, the open interest declines substantially as the large spec longs have their sell-stops triggered, thereby enabling a big short like JP Morgan to cover part of its short position profitably.  But a curious thing happened yesterday:  the open interest in silver actually increased by 1156 contracts  And the open-interest in December silver only declined by 527 contracts, which is quite small relative to the open interest for December and the approaching first-notice date on November 30.  Recall from yesterday, the open interest in December silver is currently over 5 times the amount of "registered," or deliverable, silver sitting in Comex depositories.

Now, it's possible that the large spec hedge fund traders jumped on the short side of the market, as this group often likes to follow momentum.  I actually hope this might be the case because historically the "momentum" based hedge funds tend to be terrible market-timers in metal futures.  In fact, typically once the hedge funds start shorting into rapid market declines in gold and silver, it historically has signalled the bottom of the market and the start of a fairly rapid reversal up to higher levels.  In other words, in close to 100% tried-and-true fashion, the momentum funds are perfect contrary indicators in the precious metals market.  Similar to Dennis Gartman, I might add.  Oh, I see Dennis Gartman announced that he cut his gold position recommendation today...

Having said this, I do expect JP Morgan to take another crack at pushing the silver market lower next week because: 1)  as it stands now there's not enough silver to meet potential physical delivery demands, of which JP Morgan represents at least 50%; 2)  market volume will be light next week and usually during light-volume periods the bullion banks try to take the metals market lower; and 3)  if JP Morgan can push the market lower in order to cover part of its short position, it will create short term trading profits that will be recognized in its Q4 earnings and help JPM to reduce its overall extraordinarily unprofitable short position.  I'm not saying that I think it's a done-deal that the market heads lower next week, but it would be consistent with past manipulative patterns - just ask any of the directors at the CFTC because they know as well as any of us.

Finally, I found it interesting that Brinks - another Comex vault custodian - received nearly 1.2 million ounces of silver into its "eligible" inventory.  Recall that "eligible" silver is not yet certified for delivery and can be either silver that is intended for eventual delivery or is just silver being safekept by Brinks on behalf of investors/traders.  But per the futures delivery data, this silver was likely moved in from an external source and as such there is a high degree of probability that it was moved in for possible December futures delivery.   Again, at this point in the calendar cycle, there are a lot of open silver contracts and only 6 trading days before the first notice (a week from Tuesday).  Between JP Morgan and Brinks, there has been a lot of movement in inventory at the Comex.  This could be coincidental but my bet is that we could see some unusually high delivery stress in December, which will push prices quite a bit higher than where they are now.

On to MF Global and custodial risk - Bruce Krasting, with whom I often agree, wrote a commentary in response to some ridiculous comments about MF Global by St. Louis Fed head, James Bullard.  You read it HERE  I was quite shocked at how naive and unintelligent Bullard's remarks were and I agree with Krasting that the follow-up after-shocks caused by MF Global may actaully be worse than the MF disaster itself.  Bullard clearly has no understanding of how markets actually work, his understanding is limited to simple theory, and that was evident in his remarks.

However, Krasting opined that he believes that "money in segregated accounts at the likes of Merrill and Morgan Stanley is safe."  Au contraire, Bruce.  Ironically Krasting singled-out two of the firms which I believe have the highest risk of going under and at which I believe customer accounts are at high risk.  The third being Jeffries.  In fact, the credit default swap spreads for the debt of Bank of America (Merrill) and Morgan Stanley have really blown out to wide levels recently, signalling that the market is pricing in a much higher degree of credit risk at these two firms.  I have not seen this data for Jeffries paper, if it even exists, but the downward action in Jeffries stock price suggests that market also perceives a high level of solvency risk for Jeffries.  I will reiterate my statement from an earlier post that if you want to put your securities investment account in the best possible position of preservation - outside of investing in pure physical gold and silver - you should consider getting rid of your accounts at those three firms and move it to a brokerage firm that does not engage in proprietary trading or investment banking, like Fidelity or Schwab.  At most other brokerage firms your account runs the risk of being "MF'd" just like the Jets were "Tebow'd" last night...

Have a great weekend!


Thursday, November 17, 2011

The Situation Developing With Comex Silver Could Get Interesting...

The volatility in silver trading is ramping up this week and with good reason:  JP Morgan (this name keeps popping up in connection with fraud and corruption - just coincidence I guess - it's a good thing JP Morgan has an ex-director in the White House advising Obama daily in order to make sure JP Morgan receives proper treatment from the authorities) - JPM  is hopelessly short Comex silver futures and by the explicit admission of one of the CFTC directors, JP Morgan manipulates the silver market illegally.

Interestingly, JP Morgan recently decided to make itself one of the Comex custodians for Comex silver and opened up a vault for that purpose.  The Comex inventory of gold and silver is reported on a daily basis and breaks out the inventory between "eligible," which is metal being "safekept" at the Comex by investors who have taken delivery, and "registered," which is the metal that has been certified by the Comex to meet its delivery standards and is being held for the purposes of delivery. 

Yesterday, in a move which raised eyebrows throughout the precious metals trading community, JP Morgan moved 1.1 million ounces of silver from the the "eligible" bin and into the "registered" bin.  This amount represents nearly 50% of JPM's "eligible" silver.  (Please note:  this commentary will not address questions about the verifiability and validity of the reported Comex inventory of gold and silver, as there have been many questions raised about this, it is not audited independently and, as we have seen with MF Global, et al, Wall Street tends to invent its own accounting standards).

Having said that, in studying the Comex open interest and inventories for nearly 10 years, I can say that the outright size of this inventory move by JP Morgan is unusually large and would suggest that JP Morgan is anticipating the probabilty of having to deliver a lot of silver for the December delivery month, of which JP Morgan is likely short at least 17k of the current 34k open interest, or 85 million ounces.  Please note that there are still 9 trading days until the "first notice" day, November 30th, for December silver and I expect that the open interest will decline substantially between now and then.  However - remember I like to look at the truth behind "however" - in order for the December open interest to get down to a level which represents just the total amount of registered silver - roughly 33 million ounces - the December open interest will have to bleed down to 6600 contracts.  This is a big liquidation in just 9 days.  I would suggest that JP Morgan's inventory behavior implies that delivery supply could get very tight this month. 

I would also suggest that JP Morgan is making a very aggressive effort to manipulate the market lower.  Make no mistake about it, every unusually large price-spike down in the intra-day trading is irrefutably JP Morgan traders manipulating the market for the purpose of trying to create selling by the funds who are long silver futures and thereby alleviate any delivery stress and accountability on JP Morgan and its CTFC certified illegal market activity.  Oh ya, and ultimately accomplishes the ultimate Wall Street goal of taking money from your pocket and putting it in their own pocket.

The key here is to understand that the action between now and first notice day for December delivery has nothing to do with market fundamentals or outright global demand for silver and everything to do with JP Morgan's ability to try and force the silver market lower to protect its short position AND the unwillingness of our Government to enforce the laws in place to prevent this kind of market manipulation.  Furthermore, the key to trading and investing in silver when the market goes through phases like this is to either hold what you got and don't watch the intra-day volatility or buy the down-spikes aggressively and take some profits on the rebound, but make sure you take full advantage of this market inefficiency and wealth-enhancing opportunity and increase your overall holdings. 

One of these days the market is going to blow up in JP Morgan's face because they won't have enough physical supply of silver to meet delivery demands and we'll be reading about JP Morgan the same way we are reading about MF Global, only it will be many multiples more severe.  It will potentially be catastrophic to the U.S. dollar and any remaining faith thereof.  You want to make sure you have as much of your paper money moved into gold and silver because when the market does blow up like that, the end-game will be near and gold and silver will undergo a breathtaking move higher.  I would suggest that behavior like we are seeing by JP Morgan this week indicates that the "blow up" event is getting closer.

Wednesday, November 16, 2011

More On Legal Stealing - The Infamous CFTC Rule 1.29

Obfuscate - transitive verb:  Darken, to make obscure;  Confuse;  intransitive verb:  to be evasive, unclear or confusing  (Merriam Webster)
Time to cut to the chase.  Let me just preface this with my belief that the missing $600 million from MF Global was money taken from segregated customer accounts and used by MF Global to satisfy a massive margin call issued by JP Morgan on MF Global proprietary accounts.  I say JPM ultimately has the funds in question because if you have been following all of the news from the beginning, including the initial proclamation that the missing funds were found in the basement of JP Morgan followed by the slightly delayed statement of denial by JPM, then it makes sense to me that the dotted lines ultimately connect that missing money to JPM.

If the court rules that JP Morgan's claims are superior to that of the customers, whose assets were supposed to be in a segregated account and arguably should be treated with a greater degree of superiority and protection than that of a general creditor, then the MF Global bankruptcy is indeed a case of legal stealing.

Everyone is discussing this nefarious CFTC rule 1.29 and pointing to it like it's the culprit.  In order to understand exactly what 1.29 is, it requires a review of the CFTC regulations with respect to "Safeguarding Customer Funds," which starts with rule 1.20 and includes the subsequent rules through 1.30, plus rule 1.32.  A definitive summary of these rules can be found HERE starting on page 8.  Reading and understanding this is crucial to understanding the degree to which MF Global acted illegally and fraudulently and to understanding why my view is that the segregated customer funds should be treated as "superior" to any and all other creditor claims by the bankruptcy court. 

The nefarious rule 1.29 simply says that any profits from customer funds which are hypothecated for purposes defined in 1.20-1.28 may be kept by the broker (FCM - Futures Commission Merchant aka commodities broker).  Whether or not you agree or disagree with this ruling, and I disagree with it, the rules outlined in 1.20-1.28 set forth very specific procedures which must be followed in order to keep customer funds not only definitively segregated but clearly defined in terms of amount and market value.  Here's some examples from the link:
- the books and records of an FCM shall at all times accurately reflect the FCM's interest in total assets on deposit in segregated accounts, which is the amount of funds in segregation in excess of the amount of funds required to be segregated (CFTC Regulation 1.23)
- each FCM that invests customer segregated assets must keep a record of such investments that shows certain information for each investment (CFTC Regulation 1.27)
- each FCM must prepare, as of the close of each business day, by noon the following business day, a record showing the total amount of customer assets required by the Act to be deposited in segregated accounts, the total amount of assets deposited in Section 4d(2) segregated accounts, and the amount of the FCM's residual interest in such segregated customer assets (excess funds in segregation) (CFTC Regulation 1.32)
As you can see, the procedure for segregating and accounting for this segregation is very well defined and explicit.  It's essentially the "mother's milk" of the securities industry.  Furthermore, pursuant to the following, at any given point in time firms like MF Global should know exactly how much each customer has in its segregated account, how much can be hypothecated or repo'd and how much is hypothecated or repo'd AND what the usage is of those hypothecated funds - these are all legally defined procedures which are computerized and backed-up on a separate server, typically:
Whenever an FCM knows or should have known that the total amount of its funds on deposit in segregated accounts on behalf of customers is less than the total amount of such funds required to be segregated on behalf of customers, CFTC Regulation 1.12(h) requires the FCM to report immediately such deficiency to the CFTC and to either NFA or the exchange having primary responsibility for compliance surveillance of the firm
In effect, these rules dictate that the customer funds should not be missing and that tracking down what happened to them should have been a few mouse-clicks away.  This is true regardless of whether or not 1.29 enables MF Global to accrue profits on the funds.  Moreover, the CFTC and CME, the exchange having primary responsibility for compliance surveillance, should have been on top of this.  I guess since Goldman Sachs people (Corzine and CFTC Chairman Gary Gensler, Corzine's buddy from Goldman) are used to throwing around and losing $10's of billions, they couldn't be bothered with mere pocket-change like $600 million.

The bottom line here is that ultimately the flow of funds should have been very easy to track.  And given that $600 was initially traced to JP Morgan, I believe that JP Morgan needs to be given the financial accounting equivalent of a proctology exam to convince me that they were not the beneficiaries of the $600 million missing from the customer accounts.  Finally, Corzine and every staff member responsible for oversight on this matter needs to be held accountable and punished accordingly.  There is a massive amount of fraud and theft going on here that is systematically being covered up and obsfuscated by the CME, the CFTC and JP Morgan.

The problem with this situation is that if it is not settled in a manner which creates a vast overhaul of the CFTC regulations and rules regarding the treatment of customer funds and if JP Morgan and other Wall Street creditors to the bankruptcy are treated with superiority with respect to the liquidation claims and distribution, what's to stop this method of legal stealing from being implemented on a widescale basis by every large securities broker who is about to go under anyway?  (Think:   Jeffries, Bank of America/Merrill, Morgan Stanley...)

Tuesday, November 15, 2011

Hmmm...Does Herman Cain = Sara Palin (Katie Couric interview)?

"Let me try to determine so as to ascertain just what exactly you be axing me so I can assess my opinion based upon the nature of what it is we're talking about so that I can tell you what it is that I'm trying to say"

Legal Stealing

One of my themes is that the business and political elite are stealing money from the middle class and nothing is being done about it by the people voted in office who are in charge of enforcing Rule of Law.  Obama was elected overwhelmingly on his promise to clean up DC and restore some semblance of Constitutional-based justice in this country.  He has failed miserably.  In fact, I see no evidence that he's even made any attempt to honor his campaign promises.

And the corruption and theft is becoming more open and egregious now that the crooks are the same ones who are supposed to be enforcing the laws. As many of you know, 60 Minutes ran a story on the "legal" insider trading going on in Congress:  LINK  It was no surprise to me that Nancy Pelosi, who has a long resume of graft, nepotism and corruption, was one of the more conspicuous perpetrators. House Rep Spencer Bauchus - a ranking member of the House Financial Services Committee - has a long documented record of personal stock account trades that correlate with information he received in private meetings as part of his position on that infamous Committee:  LINK  What's most shocking for me about this is that this story should be front and center in the news and there should be a strong public cry for justice.  But to whom do you cry?  You gonna write a letter to your Congressman?  LOL

This is a blatant example and it's hilarious to me that the Pelosi's and Bauchus' of the world have chosen to hide behind a feigned veil of Congressional immunity.  But what about JP Morgan's role in the MF Global collapse.  It would appear that JPM is connected to the disappearance of the at least $600 million in missing customer funds.  But JPM's role has been obscured and the it looks like the restitution is being negotiated behind the scenes, out of sight:  LINK  Where's Jon Corzine these days?  I would surmise that he is being kept well-hidden and protected by his powerful political cronies.  He knows where a lot of "bodies" are buried throughout the system and he represents a clear and present danger to all the "legal" criminals both on Wall Street and in DC.  

Meanwhile, back at the collapse, Jefferson County Alabama filed the largest municipal bankruptcy of all time:  LINK  The funny thing is that most Americans, even the ones who make a half-hearted attempt at following the news, likely never saw this report.  And even the ones who do know about it have no clue that JP Morgan is the party responsible for putting Jefferson County into financial collapse. 

The same names keep coming up in connection with extreme financial fraud and corruption:  JP Morgan, Goldman Sachs, Bank of America, AIG.  It is just unbelievable that a former Goldman Sachs partner is the chairman of the CFTC - the entity responsible for the oversight of MF Global.  It's even more inconceivable that Obama's White House chief-of-staff is a former JP Morgan director.
When you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed  (Atlas Shrugged)
Our system is collapsing.  And the people who are in position to steal as much as they can, while they can, are now doing so openly and without shame.  The ones who blow it like Corzine walk away with shame but no punishment.  It's true that our system assumes innocence until guilt is proven.  But the evidence against Corzine is overwhelming and he should at least be incarcerated while the pieces are sorted out.  But that will never happen because the people in a position to enforce and create laws to protect our system are the Pelosi's and Bauchus' of the world.  Our society is doomed.

Monday, November 14, 2011

Sunday, November 13, 2011

Now Back To The Collapse

The nation that once held the creed that greatness is achieved by production is now told that it is achieved by squalor  - Francisco D'Anconia, Altas Shrugged
Against my better judgement I posted on the Penn State tragedy Friday.  But this blog serves as "couch therapy": for me and I had to get that off my chest.  Interestingly, it generated the highest amount of comments of any post in the history of this blog (since late 2009).  The only other one that came close is when I skewered Glenn Beck and his defenders came out of the woodwork.  Glenn Beck just happened to be essentially fired from Fox a few months later...

But the fact of the matter is that the Penn State tragedy, the collapse of MF Global and the fraud and theft engulfing that situation, the fact that a sexual assault perp like Harold Cain can persist as a Republican Presidential candidate front-runner and the fact that the people who control the big banks and manufacturing companies can openly and illegally steal $100's of billions from the public with very little resistance all have the same common underlying dynamic:  the collapse of an empire.
When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask, 'Who is destroying the world?' You are.  (Francisco D'Anconia, Atlas Shrugged)
Enjoy what you can, while you can, as much as you can, because the way of life we have come to take for granted in this country for the last 50 years is not going to be around much longer...

Friday, November 11, 2011

The Pope Of Penn State

I really didn't want to go here but the more that comes out on this story the more I'm infuriated and it starts with Paterno.  It's not clear to me why Paterno didn't call in the police the second the assistant went to him and told Paterno what he had seen.  But the facts are starting to flow and it's becoming more clear to me that this smells just like the Ted Kennedy Chappaquiddick murder cover-up.  This story is immersed with the same stench of moral hazard and corruption that permeates our whole system.

I heard the story first reported on the local sports radio last Saturday, a couple days before it was blown wide open.  My first reaction was to assume that Paterno's legacy was safe.  But as this story unfolds, I now believe that Paterno is guilty of covering up this whole situation and that if he had done the right thing when he first heard about the incident it would have saved a lot of young boys from extreme abuse by a mentally ill monster.

But this is about money, greed and power.  Paterno was good about hiding his money and greed but everyone knew that he was the most powerful administrative figure at Penn State, responsible for billions of dollars flowing into the school during his time there.  Now it turns out that Paterno has the financial means to defend himself  as thoroughly as possible, as he has reached out to the same powerful DC  criminal defense attorney who defended George Bush in the Iran Contra affair.  That in and of itself reeks of implied guilt.
 
Unfortunately this means that the facts as they exist will be sufficiently obscured by a highly skilled legal technician in order to exonerate Paterno from legal culpability, even though I firmly believe, without any doubt, that Paterno knew exactly what Jerry Sandusky was doing the whole time.  In fact, legendary Oklahoma coach Barry Switzer is in public saying that because of the closeness of college football coaching staffs, the whole damn staff knew what was going on.

The bottom line is that Paterno sacrificed the sanctity and innocence of the lives of every child Sandusky violated for the sake of ego and money - for the sake of protecting his own legacy, which in my mind is now incinerated forever.  This whole crime involves Paterno and this is worse than murder because the victims have to live their entire life with the mental torment of what was done to them and that no one gave a shit because the Pope of Penn State was protecting money, power and fame. Paterno may be able to financially buy his way out legal liability here, but he can't buy his way out of going to hell. There is no room for forgiveness here.  Period.

Thursday, November 10, 2011

Fool Me Once, Shame On You

Fool me twice, shame on me.  Fool me three or more times shame on...insanity?  I thought about this reading Ted Butler's latest newsletter discussing the MF Global situation and the problematic role of the CME and the CFTC in this financial catastrophe.  Butler ends by saying, to paraphrase, maybe this is the event that will get the CFTC to crack down on the CME.  Watching Butler year after year espouse hope and optimism for the eventual reform of our system and the restoration of Rule of Law and property rights with respect to our financial system is even more hilarious than watching the video of that shit-for-brains Governor from Texas in the debate last night.

Make no mistake about it, Butler does cutting edge, brilliant analysis on every aspect of the technicals and fundamentals of the silver market.  But for some reason he goes blank on his ability to analyze human nature and the completely corrupt nature of our system.  It's gone way past the point of no return and there will never be real change until the system collapses and a new one is formed from ground zero.

One would have thought that after Long Term Capital way back in 1998, Enron, Refco, Amaranth, Madoff, Bear Stearns, Lehman, AIG, ad nauseum that our system would have been properly reformed by now.  Not only do the disasters get worse, the outright theft and corruption become more blatant. That's insanity. One of the board members of the CFTC just the other day admitted in public that the silver market is manipulated.  And of course nothing will done about this.  GATA has bombarded the CFTC and other Governmental entities with evidence for at least a decade now in support of the precious metals market manipulation.  Nothing has been, is being or will be done about it.  Bank on that.  Jon Corzine should end up in jail over the MF abortion.  But both myself and a person smarter than me would be very surprised if he gets much more than a wrist-slapping and a ban from the securities industry for 10 years, or something like that.

What will happen is that eventually the market forces will overwhelm the paper manipulators and there will be a move higher in the precious metals and mining stocks that will shock everyone.  It will make some of the moves seen with internet stocks during the tech bubble seem like non-events.  What will trigger this?  I don't know.  I do believe that at some point China will say that it will be happy to continue exporting goods to the United States of Walmart shoppers but that it wants gold or silver for settlement and is not interested in dollars.  I would say that the process has already started given that China openly has trade agreements with several large trading partners (Iran, for instance) in which the dollar is not used.

Until then, the best way to play this market is to learn to adapt to the manipulation and corruption.  I plan my core investing and my trading around the expectation that the market is always manipulated.  But that notwithstanding, I know that the precious metals sector is still in the nascence of a long term bull market and this means that I buy corrections and take profits on big moves higher.  I always keep a core position because one of these days the manipulation attempts will fail and this market will embark on a truly parabolic move that I don't want to miss.

Wednesday, November 9, 2011

ROFLMAO - Don't Get MF'd by Blackrock

"Italian Government paper may as well be toilet paper" - unnamed source

Gotta love the entertainment being provided by our corrupt system right now.  The big money manager - Blackrock (many of you probably have retirment funds being managed by Blackrock) - has been accumulating a giant position in Italian Government bonds.  In response to questions about this, here was Blackrock's response:  BLACKROCK'S ROVELLI: ITALY SPREADS DON'T REFLECT FUNDAMENTALS  (source: zerohedge).   That is hugely hilarious.

Here's the Golden Truth:  that statement is correct - the spreads don't reflect fundamentals.  The yield on the 10-yr Italian sovereign bond should be 14.5%, not 7.25%.  What this means is that if the current market price of a generic 4% 10-yr Italian Govt bond is priced at 78, the fundamental price in my view should be 47.  This means that for every $100 million in intermediate term bonds that Blackrock is happily loading up on, fundamentally those bonds are worth $47 millon less than they paid for them.  If you have retirement funds being kept by your advisor or pension plan at Blackrock, you might want to think about liquidating your account and getting the money out before Blackrock turns into the next MF Global times 100.  I'm not kidding about this.

Stagflation Sets In

"At that point, nothing is left but gold. Now trading at $1790, it could zoom right past $2000 to $3000 an ounce"  LINK

"Inventories to result in big hit to Q3 GDP" - It looks like wheels are falling off the U.S. economy.   Of course, those of us who have been paying attention to the details beneath the headlines were expecting that the lipstick that the Government and Wall Street have been putting on the proverbial pig would soon wear off.  This was the first inventory decline since September 2009.  Here's the report: LINK

Recall that the Government has estimated that the 3rd quarter GDP had grown by 2.5%  Notwithstanding all of the problems we know about with this metric, the decline in inventory build-up - when the expectation was for another gain in inventory - will cause the revision of that 2.5% number to be lowered quite a bit.  Several forecasters are already reducing that 2.5% initial estimate by 25-30% down to 1.7-1.8%.  When you start to factor in the grossly underestimated inflation factor - the "GDP deflator" - you can pretty much assume that the GDP was negative on a real basis in Q3.

Another sign of the big decline in economic activity was the earnings report issued by GM today.  As has been detailed by zerohedge.com, GM has generated a large portion of its sales growth by stuffing its network of dealers with inventory.  Recall, GM itself books a sale when the car leaves the factory floor and is shipped to the dealer, who uses Government supported "warehouse financing" to pay for the car.  Sales reported by GM do not directly translate into actual sales to the end user, which means that the GM's sales are not necessarily indicative of true organic economic activity.   Despite "beating" Wall Street earnings estimates, GM's stock is down over 8% 10% today, as GM warned of future weakness and of course blamed Europe.  But I would also speculate that we will see greater than expected weakness in auto sales in the U.S. as well.  Note:  I would also bet that if I had the time to go through GM's financials and the footnotes to those financials that I would would an absolute accounting nightmare.  In my view GM stock is a great short-play here.

The inventory/GDP dynamic has been that large manufacturing companies like GM have been "pulling forward" sales using pricing and financing incentives.  This is de rigueur with the auto manufacturers, but pretty much permeates the entire manufacturing sector.  Eventually the end purchaser slows down and the distributor in the economic chain - the auto dealer or retailer - reduces its inventory stocking which causes the manufacturer to slow down.  The manufacturing to final sales cycle can be "sticky," but once it gets going in one direction it tends to have snowball effect.  So any kind of economic strength was exaggerated and now the slowdown could be ugly.

Why do I say this?  Let's take a look at the financial condition of the "end-user," the middle class.  To begin with, while most people were scrutinizing the problems in Europe because the media wants us to believe that's the real problem in the world, I noticed this report:  The figures from payroll taxes reported to the Social Security Administration on jobs and pay are, in a word, awful.  LINK  This particular data report is something that you won't see on CNBC or Bloomberg or Fox News.  The Government doesn't issue a press release and they want you to keep your eye on the European "ball."  But those numbers tell you that less Americans are working and they are earning less money.  A bit different story than the payroll and earnings numbers that are highly statistically massaged and released for CNBC to promote, huh?

So Americans in reality have less money to spend going forward and we know banks are not lending because the average credit profile of the average American sucks.  Here's proof of that:  The national mortgage delinquency rate (the rate of borrowers 60 or more days past due) increased for the first time since the end of 2009.  Here's that LINK  Call me crazy, but I'm guessing that if your neighbor isn't making his mortgage payments, he ain't rushing out to buy a sparkling new GM or Ford either.

Ultimately, the Government's response to all of this will be to print more money.  A former Bank of Japan board member is calling for Japan to put its printing press into overdrive:  LINK  This will be followed by the ECB and the Fed cranking up their Heidelbergs.  So we have the perfect recipe for much higher gold and silver prices:  negative GDP, negative interest rates, money printing and higher inflation.  Don't pay attention to the day to day or week to week price action in the metals - it's mostly traders and manipulators.  One of the board members of the CFTC is now openly admitting that the silver market is highly manipulated.  The price of gold and silver six months from now will be substantially higher than where it is now. 

Monday, November 7, 2011

ROFLMAO

Sorry, I hate to venture into the seedy world of "he said/she said," but where there's smoke, there's fire and with Hermain Cain there's now four sources of smoke.  Here's the fourth one to come forward:  "After losing her job, Bialek allegedly turned to Cain for help. Allred said on Monday, 'Mr. Cain instead decided to try to provide her with his idea of a stimulus package.'"   Here's the LINK

I have to say that I'm not disapointed to see Cain go down in the flames like this because he's little more than a tool of the elitist bankers and also a neocon.  However, this is the BEST entertainment in town right now and it's free!

According to an unnamed source of mine:  "the only thing Cain didn't try to put his sausage on was the pizzas he sold because he got that stuff directly from the pig farm."

The German Government Wants Its Gold

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around (these banks) will deprive the people of all property until their children wake up homeless on the continent their fathers conquered  - Thomas Jefferson
Interestingly Ben Bernanke testified under oath in front of Congress that gold is not a currency and that Central Banks stockpile gold out of tradition.  So if Germany could help fix Europe's current situation by unloading its gold reserves, why wouldn't it?
"German gold reserves must remain untouchable," Roesler, who is head of the Free Democrats (FDP), a junior partner in Chancellor Angela Merkel's coalition, told ARD television
Here's the Reuters story:  LINK  Interesting huh?  If gold is nothing more than an artifact of tradition - a barbarous relic according John Maynard Keynes - then why wouldn't Germany be more than happy to part with it?  Why did the Bank of England recently explain that the markets can not see what the Central  Banks are doing with their gold?  Why won't the Federal Reserve subject itself to a bona fide independent audit of the U.S. gold in full public view?  Why all this secrecy?  After all, Bernanke seems to think that gold is nothing more than a museum piece...

Those questions, of course, are strictly rhetorical.  Just as amusing is that the army of financial advisers in this coutnry are taught that gold is not an asset class.  This is straight from the answer key to the Series 65 Registered Investment Adviser Exam:   "An 'asset class' is a broad category of assets such as cash equivalents, stocks, bonds and tangible assets such as real estate...gold itself is not asset class."  That's the kind of garbage your trusty financial adviser not only wants you to believe, but believes himself. 

"You can not resist an idea whose time has come" - Victor Hugo...The idea of currency by fiat is starting to erode quickly.  Germany just denied the idea of gold as is promoted by the U.S. financial industry and the Chairman of the Federal Reserve.  Once the historically tested idea of gold comes into view by the masses, there will be an upside explosion in the price of gold and silver that will surprise even most current gold believers.  I feel bad, sort of, for all the people in this country who are being led over the cliff by the financial advisor industry...got gold?

Sunday, November 6, 2011

More On MF Global - It Gets Worse


We are staring into the dark abyss of our system - Dante's Inferno if you will - but it's being hidden by a veil of deceit and cover-up that may not disappear until the system has incinerated  - Dave in Denver, 11/5/11
I reiterate my call for justice in this situation by giving Jon Corzine a seat in jail in between Bubba and Bernie Madoff.  If this were the 1800's, Corzine would be subjected to a public hanging. I'd pay good money to see that. 

It turns out that several MF customers had requested their money from MF Global several days before MF hit the wall.  Usually you can - at your request - have this money wired.  MF Global sent out checks via the proverbial slow boat to China.  Now the checks have bounced and the money is gone: 
Those checks cut by the folks at MF Global began arriving in customer mailboxes this week, several days after the firm filed for bankruptcy on Oct. 31 in New York federal court. And by the time customers started depositing those checks, they were rejected as having insufficient funds.
Here's the Reuters news story:   LINK

The media is still reporting that only $600 million in customer funds is missing.  I still believe that it will be a lot more than that, if we ever get the hear the truth.  I know that if the rumor-mill is discussing twice that amount, I would err on the side of the rumor mill in this case.  I hope Corzine burns in hell. 

If anyone wants to get together a "ghoul pool" to speculate on which firm is next, I'll have to flip a coin to decide if I would pick Jeffries or Morgan Stanley.

Saturday, November 5, 2011

The CME Margin News Confusion

It turns out that once again in the urge to be sensationalistic, Zerohedge shot from the hip and is now getting shot down.  This is EXACTLY why I ALWAYS double-check anything zerohedge reports before I make any comments on it. I didnt even start researching this until a few minutes ago and it was apparent to me that it was a mis-worded statement that the CME clarifiied today. Tyler Durden does a good job with a lot of what he reports but he is an amateur in this market and shoots from the hip all the time.

Here is the best explanation of the situation, which is a non-event. If anything it makes for the MF account transfers to go more smoothly - see the "kid dynamite" write up:   LINK

I will note that I found an article in which IB - Interactive Brokers - has said that they want no part of the account transfers. Being that IB was the firm that almost bought the brokerage business from MF until they looked thoroughly under the hood - it tells me that MF is in much worse shape than can be determined from what is being publicly disclosed. I will say that the fact that the Govt sent the FBI in almost immediately tells me that there will be a cover-up similar to what happened with Solyndra.

In terms of market action on Monday, if the market sells off Monday its because the metals are still highly correlated with the SPX and both are highly correlated with the Europe situation. Also, India is closed Monday and it sounds like from industry reports on Friday that the physical demand is taking a breather. A brief pullback would be welcome in my view from a technical standpoint. I hate it when we go straight up w/out a break to consolidate. I do think we will break correlation in the metals/miners sometime soon, similar to early 2006. That could be the dynamic that takes silver to $60 and gold somewhere over $2000.

Friday, November 4, 2011

Could MF Global Be The Lehman/AIG Event Trigger?

 Segregated reserve bank accounts under SEC Rule 15c3-3:  The SEC Act of 1934 requires broker dealers to maintain "special reserve bank accounts" strictly for customers which are separated from the broker dealer's own accounts.
First off, I just want to say that if Jon Corzine does not see jail time over this then our system is seriously corrupt and fraudulent and we're all a bunch of lifeless serfs if we don't join the Occupy movement to protest the raping and pillaging our country by a select few.  That's the bottom line.

The brokerage accounts of MF are being moved to several different brokers who are presumably on sound financial footing.  Here's the problem:  it looks like there must be some missing collateral associated with those customer accounts to the tune of about $1 billion:
Call it the mother of all margin calls: Up to 50,000 former customers of bankrupt broker MF Global must post some $1 billion in additional collateral to new brokers almost overnight, or be forced out of their trades.
In other words, a large portion of the collateral that should be attached to each and every one of those accounts is not accounted for and the customer will have to pony up the funds to cover the margin requirements or have their accounts liquidated. Here's the story:  LINK  Tragically, if the markets for the various commodities and metals associated with those accounts experience some downside volatility during the transfer process, the account could be wiped out.  I know of at least one fund that is closing down because of this. The ONLY failure on this guy's part is that he trusted the firm being run by Jon Corzine, former Goldman CEO and former Governor of New Jersey.  I guess if you lie down with dogs you wake up with fleas.  In this case, if you lie down with someone who is BOTH a Wall Street executive AND a politician, you wake up with a combination of late-stage pancreas cancer and hep-C.

The bigger problem, at least for the rest of us, is what the hell happened to the collateral.  The missing collateral should be cash - readily liquid - and futures contracts and securities - mostly liquid.  Where is it?  Why are these customer accounts not being transferred intact?  According to the SEC Act of 1934, these funds and securities should have been in a separate account - not one penny of money should be unaccounted for.

I have said a few times that when one big financial firm starts doing something and gets away with it, they all start doing it.  Remember the repo game Lehman was doing to dress up its quarterly balance sheet for regulators and investors?  It turns out every big Wall Street firm does this, everyone knows it now and the regulators are doing nothing about it.  Well it turns out that MF was doing this too, among other things. But they were also likely illegally rehypothecating the customer collateral and misappropriating the funds obtained by rehypothecating customer collateral.  Now the collateral and the funds are gone.

Once people understand what hypothecation/rehypothecation is - if they care about their money they will, that is - the MF situation could lead to a confidence crisis in the brokerage industry.  Almost everyone who opens a margineable brokerage account, from little guys to sophisticated hedge funds, knowingly or typically unknowingly also signs a hypothecation agreement, which enables the brokerage firm to take the securities in your margin account and re-pledge them as collateral to obtain bank financing for your margin account.  It looks like MF was taking this collateral and obtaining financing but using that money for other purposes - like investing in short term Greek sovereign paper paying 50% now that pays 100%, which means MF's investment was wiped out and now the bank that provided the funds for those investments has the customer securities as collateral for the MF trade and the customer is screwed.  Please note, I don't know for sure that is exactly what happened, but I'm 90% certain that is generically what was going at MF and why at least $700 million in customer cash and $1 billion in collateral is missing and possibly more.

You know, if we were on a gold standard and did not have an extreme fractional banking system, this couldn't happen.  But I digress.  I will say that based on the most recent news flowing out of Jeffries securities, if you have an account there I would move it.  Jeffries was downgraded by Egan-Jones recently to BBB-.  S&P has not budged.  Usually the ratings agencies are way behind the curve in downgrading financial firms.  Moodys usually keeps a high rating intact until the day before a firm goes under.  Egan-Jones is typically a bit more ethical and forthright with putting out the truth.  The fact that  questions are being raised about Jeffries should raise the hair on the back of your neck if you have an account there.  Jeffries has an unsavory history and culture.   The current CEO originally worked as a junk bond trader directly for Michael Milken at Drexel Burnham.  Remember that saga?  A lot of ex-Drexel guys who didn't get thrown in jail ended up at Jeffries.  If you keep your brokerage account there just remember that "when you lie down with dogs..."

Thursday, November 3, 2011

Just Another Day In Our (Corrupt) Paradise

“When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self sacrifice - you may know that your society is doomed.” (Francisco D'Anconia, "Atlas Shrugged")
I use that quote quite frequently but every molecule of thought embedded in it describes the state of condition of our economic and political system with 100% precision.

Hopefully, if there is a hell, Jon Corzine will burn there.  A good friend of mine back in NY who is plugged into the Wall Street "whisper" news affirmed that the scuttlebutt about the real number in the MF Global missing funds case is $1.5 billion, not $700 million.  Not only that, but that the internal control systems had been designed to prevent regulators from detecting the illegal activity.  This means that both Corzine and the CFO should go down hard.  Unfortunately for the CFO, he was never CEO of Goldman Sachs or Governor of New Jersey, so he will likely go down in flames while Corzine skates away in shame because of this hidden code in our system:  "when you see money flowing to those who deal, not in goods, but in favors."

The Wall Street Journal ran an article questioning the CFTC in the MF Global abortion.  Here's the LINK  Here's what they don't question and examine:  What is the link between CFTC Chairman Gary Gensler and Jon Corzine?   I'll tell you what the link is.  Corzine became the CEO of Goldman Sachs in 1994 and it was in the mid-90's that Gensler, a Goldman partner, was elevated to the head of fixed income and currency trading in Japan and then co-head of finance, the second highest position in the firm after CEO.  Corzine worked his way up through Goldman as a fixed income guy.  If you don't think there was a very close relationship between the two of them then you are either naive or a moron.  Given the way Goldman's culture operates, it's possible they even happily slept with each other's wives.  They are both obviously highly placed in the Democratic party.  It's pretty clear to me that Gensler was tied tightly to Corzine because Gensler's  path to being CEO was clearly derailed when Henry Paulson shoved Corzine out of power.  With this trail of evidence, there is no question in my mind that Corzine was able to use his relationship with Gensler to deflect any scrutiny of MF's books:  "when you see money flowing to those who deal, not in goods, but in favors."

It will be interesting to see how all of this unfolds.  Unfortunately, I believe that Corzine will be able to wield enough influence with the key people in the Obama administration, specifically with Eric Holder - the scumbag who wrote the pardon letter for tax-evader Marc Rich - in order to facilitate the burial of the real paper trail that leads to proving the facts of this tragedy.  As I mentioned earlier this week, the Taxpayers will be handed the bill for the cost of replacing customer funds that were illegally used by MF and likely most of JP Morgan's counterparty exposure, which is in the billions.
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Update on the ongoing wealth transfer in housing:  Freddie Mac just reported a huge loss and has asked for ANOTHER $6 billion from the Taxpayers LINK .  That the Government allows this to continue is completely appalling.  There is no question in my mind that this money is ultimately bailing the big banks out of their billions in losses on mortgage paper (see the deal Bank of America cut with Fannie Mae, with the help of Geithner).

Wednesday, November 2, 2011

Has Bernanke Lost His MInd?

I just saw this headline come across the tape:   "Low interest rates benefit savers too:  Bernanke."  He goes on to explain that low interest rates are stimulating economic growth and savers won't get decent returns on their savings until the economy strengthens.  Here's the LINK  The dude lost me on that one.  In fact, that has to be one of the most insanely idiotic statements I have ever heard - and everyone who heard and believed it is dumber for having done so.

One of the exercises I try to do is, when someone says something that seems stupid on the surface, I try to intellectually understand why they are making that particular statement.  Let me get this straight:  if I have my money in a CD earning a fixed 1%, my money will grow in value if the economy by some miracle of some other-world higher power grows?  I can understand trying to sell an idea by spinning the logic, but Bernanke's reasoning there is outright retarded.  I truly think the guy has lost his mind.  Either that or he's treating some malady with high grade medical marijuana.  Okay maybe he's not stoned because he would not be able to make that statement and keep a straight face - perhaps he takes copious amounts of prozac or xanax.

But nonsensical logic aside, let's look at some facts.  Regardless of interest rates, the Fed is devaluing the dollar.  Since Bernanke's QE began in 2009, the dollar index has lost 13% of its value.  That doesn't reflect the lost purchasing value of a dollar due to real inflation, not the bullshit CPI data served up by the Government and shoved down our throats by Bernanke.  All I know is that the cost of everything I use on a daily basis has gone up substantially over the last year, and now peanut butter is going up 30% this month.

I'm sure Bernanke knows the true rate of inflation.  I also believe that the last shred of intellectual and academic integrity that supposedly comes with being the El Jefe of an Ivy League economics department is what is standing between Bernanke and his desire to send the printing press into overdrive.  Furthermore, the fact of the matter is that if Bernanke pulled a Volcker 1980 and jacked rates up to where they should be, which would indeed benefit savers and would stimulate savings to an extent that might help fund real investment, we all know that it would throw the economy into a depression that would make the 1930's depression look like a Bernankean bong hit party.

And here's an even bigger problem:  15% of the country is now on food stamps:  LINK  I saw a news report the other day that depicted the trouble farmers in some southern States are having hiring labor to help harvest crops because of strict illegal immigrant laws being enforced.  If the Government cut off food stamps to everyone except the worst of the hardship cases out there, I can guarantee you that these farmers would not have a problem finding domestic labor.  In fact, I would argue that if the Government cut back on all welfare entitlement programs by at least 50%, it would solve BOTH the high unemployment problem AND the illegal immigrant problem. 

But given that real interest rates will continue to be very negative for the foreseeable future and that the Government will continue borrowing and printing money and handing it out to potential voters, gold and silver will continue onward and upward.  Jame Turk and John Embry are calling for $60 silver to happen a lot sooner than most people think it can happen.  In the past few days I have come around to agreeing with them.  I don't have a specific time frame for that other than to say that I think we could see $60 silver by May.  That would imply $2400 gold if you think the gold/silver ratio can trade down to the 40 area.

What will drive this?  Bernanke's zero interest rate policy which he says benefits savers and the massive monetization of European and U.S. banking and Government debt...In the spirit of trying to shed some humor on the tragedy that is our system, this clip from Billy Madison comes to mind after reading Bernanke's comments today:

Tuesday, November 1, 2011

The U.S. Banking System Is More Leveraged Now Than In 2008

Before I get into what the title is about, I wanted to comment on the MF Global situation.  By now I'm sure most of you have read/heard that about $700 million in customer funds are missing from MF.  Legally, a brokerage firm is required to segregate its customer funds from all other capital/balance sheet items.  This is one of the golden rules in the securities industry.  This is supposed to be accounted for on a daily basis and reported weekly to regulators.  My best guess is that Jon Corzine used customer funds to shore up the capital accounts at MF in order to avoid having credit lines pulled and to deflect regulator scrutiny. I can't think of any other reason those funds would be unaccounted for.  And now I would bet that those commingled funds went down the drain with the other bad bets that destroyed MF. 

Corzine is a scumbag.  He ran the Government bond desk when I worked at Goldman Sachs in the late 1980's. I was in the fixed income division and was, on occasion, peripherally in strategy meetings he was leading.  I can recall vividly thinking, "here's the kind of guy who would trade his mother for a nickel."  Corzine is emblematic of the blood-sucking greed and corruption that has enriched many connected to Wall Street. Corzine should spend time in jail for this situation at MF.  Unfortunately, through his political and business careers, he has made plenty of friends in high places, including many in key positions in the Obama administration, who will make sure he walks from all of this with nothing more than a slightly bruised ego.  Oh, he will take away another $12 million from MF based on his compensation  agreement as he walks out the door and hands the entire multi-billion dollar bailout tab to U.S. Taxpayers.

I will just add to this that if MF Global/Jon Corzine was commingling customer funds with non-customer funds, I would bet a lot of money that all of the big brokerage firms/banks are doing this.  You still trust those gold/silver ETFs and other paper products being sold by your broker/adviser?  I wouldn't trust ANY securities firm that is owned by a banking parent or has banking operations (that would be all of the big ones).

Just as I suspected, the big Wall Street banks have a significantly higher exposure to the European banking crisis than is apparent from the "on balance sheet" disclosures.   Bloomberg reports this morning that U.S. banks have $518 billion in credit default swaps (CDS) on European sovereign and corporate debt. That number increased by $81 billion in the 1st half of this year. JP Morgan, Goldman, Morgan Stanley, Bank of America and Citigroup write 97% of a CDS in the U.S.  This data is reported to the Bank of International Settlements (BIS - the "central bank" of all central banks) but does not show up in the balance sheet numbers reported by the banks and marketed by Wall Street as being "fortress balance sheets."  It shows up somewhat opaquely in the footnotes but is largely off-balance-sheet and unregulated.  The regulations that are in place go unenforced.  I got into an argument with a Wall Street meathead salesman a couple months ago who challenged my call that the U.S. banks were in much worse shape than reported.  Looks like I was right and he's still a meathead.  Here's the report:  LINK

Despite the fact that these banks will say that they have arranged "net out" hedges against the CDS that they've underwritten, here's the bottom line:  "The payout risks are higher than what JPMorgan Chase & Co., Morgan Stanley and Goldman Sachs Group Inc, the leading CDS underwriters in the U.S., report."  The reason for this is "counterparty risk."  That is exactly the risk that torpedo'd AIG and technically bankrupted Goldman Sachs in 2008.  These banks may well have their CDS bets hedged, but if the bank/insurance company/hedge fund/MF Global on the other side of the trade defaults, the hedge incinerates and the big bank is left completely exposed.  That is, until the Fed and the Treasury come to the rescue and print money and use Taxpayer funds to bail out the big banks who underwrite these CDS trades.

At the end of the day, the big Wall Street banks are in even worse shape than they were in 2008 and their balance sheets are more highly leveraged.  The only "CHANGE" that 2008 accomplished was the putting in place of the mechanisms for these banks to better hide their fraud and ponzi schemes and the further impoverishment of the middle class taxpayer who has been sold out by the politician(s) that gave him "HOPE," as said politicians ended up shifting the entire burden of Wall Street's nuclear cesspool onto the public.

There is one way to at least insulate your wealth from this poisonous garbage going on in our financial system:  physical gold and silver.  Note: Not ETFs of any kind.  Not Morgan Stanley, Monex or Kitco unallocated, pooled gold accounts.  Not GLD, SLV, CEF or GTU (PHYS and PSLV are fine but only if you have the $100s of thousands required to turn in your shares and receive the actual bars).  Gold/silver do not have any counterparty risk - any "promise" to pay by anyone.  When you own gold and silver, you own the world's oldest currency and most time-tested reliable wealth preservation vehicle.  If you own the paper your adviser sells to you that claims to be backed by gold, you don't own gold - period.