Monday, April 22, 2013


     If the FBI can track down two homicidal Chechen nobodies inside of forty-eight hours of their Boston bombing caper, you kind of wonder how come the Bureau can't detect the odor of racketeering, insider trading, and wire fraud in this month's orchestrated smackdown of the gold futures markets, including the parts played by the Federal reserve, one or more too-big-to-fail banks, self-interested big money players such as George Soros, slumbering regulators at the Commodities Futures Trading Commission, and tractable editors at The Wall Street Journal andThe New York Times
     Of course, US Attorney General Eric Holder, who oversees the FBI, has done a fair imitation of a Brooks Brothers store window mannequin for four years, but surely somewhere in the trackless labyrinth of American law enforcement there exists some dogged rogue investigator with a filament of nagging curiosity who might piece together the clunky train of events that may amount to the financial crime of the century. For instance, it can't be so difficult to determine who was behind the several hundred ton mass dump of paper gold contracts a week or so ago. There must be a pretty simple record of the transaction, retrievable with a warrant or a subpoena. Whatever entity did it -- still ostensibly unknown -- knowingly generated losses in the neighborhood of a billion dollars for itself. Was this just the cost of doing business? Or a favor owed, say, from a bank to its godfathers at the Fed, carried out to make the dollar look relatively a lot less unsound than it really is? Or a ruse to allow the custodians of bullion in US depositories re-acquire at bargain prices gold that has been stealthily hypothicated into oblivion? Or just to divert attention from their inability to make good on contracted deliveries of actual physical gold.
     No official has yet answered why the Federal Reserve Bank of New York told the German government a couple of months ago that it would take seven years to return that country's gold held in safekeeping (across the ocean from the Russians) since the Cold War. The NY Fed must have a vessel under contract that makes the proverbial slow boat to China look like an ICBM.
      Doesn't anybody want some answers to these questions, including how come the two aforementioned major newspapers published front-page stories calculated to justify, if not provoke, the most extreme negative sentiment in the precious metals markets, seemingly coordinated with Goldman Sachs advisories to short those markets? And what about a glance at the trading records to see who executed massive naked shorts? Wouldn't it be interesting if they were the same parties as the dumpers? And why? -- other than a strenuous intervention in the markets to make those markets look unreliable? Does anyone even remember that the purpose of financial exchanges is to verify and authenticate the clearing of trades to provide confidence that markets are honest so that real business can be conducted?
     What the interveners have accomplished is only to prove that the gold and silver derivatives markets are unreliable. They may have smashed the trade in that kind of paper, but only achieved a firmer divergence between the derivatives markets and the bullion markets where, for example, the premiums on delivery of silver ounces makes the price exactly equal to the pre-smackdown price. Anyway, nobody believes that the London Bullion Market Association (LBMA) or that the New York Commodity Exchange (COMEX) can deliver. Meanwhile, runs on bullion contracts were starting to uncover a contagion of swindling in precious metals obligations that pervaded the western banking system. It was not a coincidence that the smackdown happened three weeks after the Dutch bank ABN Amro notified clients that it would only satisfy demands for redemptions of gold held in its custody with equivalent cash payments. "No gold for you today!" A fair inference based on subsequent events would be that all the custodians of physical gold bullion have misreported their holdings. And now that actions by the European Union and its agents have ventured into the dangerous territory of plain confiscation, there is not a whole lot of faith throughout the western world by people who are paying attention that an account of any kind in any financial institution is safe. There is good reason to fear runs on everything.
     Because the smackdown organizers pulled off their operation in a panic, they probably ignored the potential further negative consequences of their stratagem, namely a worsening loss of confidence in banks generally and in the trade of abstract financial instruments in particular, including currencies. Nervous public officials may be brooding on imminent "bail-ins" and currency controls, but the public may be ready to bail out of the prevailing banking model into things that have been considered more money than "money" for a few thousand years, namely real gold and silver. The basic fact remains: there isn't enough to go around.

Monday, April 15, 2013

Smack Down Time

     What a humdinger last week was in a money world that is chugging toward maximum velocity and turbulence. Readers know (and may be sick of hearing) that I'm allergic to conspiracy theories, but my allergy is not absolute or total and there are excellent reasons to believe that the smack down of gold and silver was an orchestrated event. By whom? So far, in the opaque realm of paper gold sales, we don't know, except that it was a 500-ton dump that set off the larger skid, and it is even quite possible, as one anonymous wag put it on James Sinclair's website, that the buyer and seller were virtually the same entity -- meaning that the probable naked short transaction only amounted to a mere bookkeeping jot when all was said and done. 
     Anyway, the 500-ton all-at-once dump could only be calculated to drive the price down. Any rational strategic sale of so much gold would be parceled out in smaller amounts over time so as not to drastically impair the sales revenue, as this sale did. And, by the way, who even has the roughly $25 billion holdings in paper gold besides a major government, a major central bank, or one of the Fed's Too Big To Fail handmaidens (Goldman Sachs, JP Morgan, Morgan Stanley)? Or who could afford to eat the $billion-plus loss on the smacked-down sales value? In other words, the usual suspects. 
        I hate the term The Powers That Be, with its odors of recycled paranoia and lumpen extremism, but signs of collusion abounded last week. First, on Wednesday, Goldman Sachs issued an advisory to short gold as the price flirted with $1600/oz. Then on Thursday, The New York Times planted a front-page story headlined: "GOLD, LONG A SECURE INVESTMENT, LOSES ITS LUSTER." The story featured a quote by supreme market manipulator and world-class schmikler George Soros: "Gold was destroyed as a safe haven, proved to be unsafe," Mr. Soros said in an interview last week with The South China Morning Post of Hong Kong. "Because of the disappointment, most people are reducing their holdings of gold." 
     Well, there you have it. Soros sez: Gold = shit. If you get some on your shoe, scrape it off. All that set the stage for the Friday smack down. Notice how falling gold and silver prices make the US dollar look good -- it takes fewer dollars to buy more precious metal. The dollar must therefore be sound! And this is in the interest of whom? Say, perhaps, a Federal Reserve busy systematically melting away the value of dollars through so-called quantitative easing (money "printing" or  promiscuous credit creation) plus financial repression (interest rate chicanery), and also a US government so deep underwater on its debt obligations that Treasury Secretary Jack Lew shares office space with the giant squid of the Aleutian Trench.
    To complicate matters, the day of the gold smash, rumors flew of a plan by the Cyprus government to sell off its relatively small gold holdings to pay off its EU debt -- didn't happen -- but the rumor had the effect of further queering the gold price some more by implying that the EU would soon come calling on all the PIIGS nations to settle up their vigs with yellow metal.
    Thursday, interesting things happened in another ring of the circus. The novelty investment called Bitcoin, having developed a hockey-stick chart profile, shooting up from about $60 a month ago to $260, got smacked smartly back down to $60. It had been attracting a lot of attention as a shelter from international monetary shenanigans -- and hypothetically as an eventual rival to funny-money central bank currencies. Bitcoin is a web-based species of virtual "money" invented by a shady character (or cohort of characters) called Satoshi Nakamoto whose true persona remains mysterious. Bitcoin's supposed virtue is that it can't be confiscated by governments -- though experienced programmers know any website can be hacked -- or otherwise meddled with, making it a more reliable store of value than the traditional "safe harbor" investments such as sovereign bonds and precious metals. Well, okay, but it raises a couple of questions: 1) Does the world need an even more abstract form of "money" than fiat currencies, CDOs, Fannie Mae promissory notes, and JC Penny stock? I don't think so. If anything, the world needs more tangible instruments to represent a store of value, a medium of exchange, and an index of price. Bitcoin is little more than a bundle of algorithms. Granted, math helps with the management of money, but is math "money?" 2) what happens if you can't get online to access your Bitcoin "wallet?" Is Bitcoin, after all, just another example of the techno-narcissism infecting contemporary culture?
     That idea is just off the radar screens of Bitcoin pimps such as Jon Matonis of Forbes Magazine who said last week that "civilization won't regress to the state of having no electricity." Really? You think so? Just watch. Electric grids all over the world are aging and decrepit -- the USA's in particular -- and the capital is not there to renovate them. And perhaps you haven't noticed the gathering scarcity problem with fossil fuels. You bet society could regress to, first, spotty electrical service and then possibly no electricity at all in many places. But that is an extreme case because in the meantime all it would take is a "denial of service" incident to render Bitcoin useless -- and the mysterious Mr or Ms Nakamoto him/her/itself induced a half-day time-out in Bitcoin last week, taking its Mt.Gox trading platform off-line.
     The week ahead in world money matters looks bloody and gruesome. Japan is committing financial hara-kiri by central bank desperation. In artificially suppressing the gold price, the American Powers That Be (yccchhh....) give China, Russia and other rivals the opportunity to buy gold cheaply, and to do so by dumping some of their US Treasury holdings, weakening the dollar's international exchange value -- which the gold smack down was supposed to enhance! China and Russia have both been steadily accumulating their gold holdings in plain sight, with the possible motive of backing currencies with more appeal in international trade settlements than the dodgy US dollar.
     The weeks ahead could be a bloodbath for the four horsemen of monetary apocalypse: the dollar, the Japanese yen, the Euro, and Great Britain's pound -- that is, the core of the so-called advanced economies of the world. What a prankster history is! 

Monday, April 08, 2013

That Dreadful Day

      For the moment, the trend seems pretty clear. Money from far and wide rushes into the US stock markets because every other conceivable place to stash money produces no return, no interest, no increase, at a time when the value of central bank currencies is slip-slidin' somewhere south of Palookaville. The rush into equities gooses equities increasing the rush, goosing the goose. Consider, however, that trends by their nature must last longer than the moment to be trends in the first place. One thing you can be sure of: the trend will end.
     Another region of the trend concerns the recent peculiar behavior of gold and silver. Fear and greed may rule the trade in paper instruments, but something else rules the trade in hard metals: uncertainty. These days the uncertainty is very keen, not so much about the direction of the trade in paper - because the trend is up, up, and away - but whether the placeholders for the paper are for real, or whether you get to keep any of them when the dust settles at every dust-up. Markets can go wither they will, but it's another matter when the government slams on capital controls and you can't move your money or redeem it from your account.
     With the precedent of Cyprus now established (never mind MF Global), you'd think people all over the planet would be buying gold and silver as stores of value without counterparty risk, but the price keeps slowly sinking. I don't think it's because of the much chattered-about threat of confiscation. The US government could not be dumb enough to try to pull an FDR-style gold grab. This is a different land than it was in 1933. The people who hold gold are exactly the same people who are very heavily armed, and just because the Department of Homeland Security supposedly has been buying up all the ammo on God's green earth, virtually all the people who are heavily armed are already heavily stocked up on ammo, too, and have quite enough to start an insurrection if the treasury agents come calling for their life savings.
     Though I'm generally allergic to conspiracy theories, it smells like someone is engineering the downward behavior of the metals. The central banks of the US and Europe have a big incentive for driving the price down: it makes their currencies look stronger - despite the universal QE policies designed to make them actually weaker. That is, it gives the appearance that QE is not doing exactly what it is intended to do: wage currency war by driving down the value of money and incidentally inflating away the cost of debt denominated in these currencies.
     I think the Federal Reserve and its TBTF cronies will succeed in driving the price of gold down, perhaps as far as the $1350 range, for a while (a moment, let's say). But by the time it gets there they will have completely wrecked the economies they pretend to represent, and driven many citizens into penury. Now, consider that hyperinflation is always a rather sudden phenomenon. When it comes on, it comes fast and hard, by the day and then the hour. The Fed and its handmaidens will not be able to control it when it happens, because it will spring from all their previous actions, including the concealment of the loss of value of the dollar via manipulation of the gold and silver markets - and Ben Bernanke can't pretend that his helicopter is a time machine. There will be no going back to undo what he's already done. That's the point where you will see the price of gold very quickly head toward $3,500 or even $10,000 and beyond, depending on the damage done and the oafishness of the political response. QE to infinity really translates into dollar wreckage to infinity.
     History will record that this crisis of confidence in money was brought on by men who stupidly refused to acknowledge that the terms of daily human existence had changed in 2013. We could save the country and fashion a new economy appropriate to the new era of contraction, but it wouldn't look much like what you see out there now. It would be all about empty highways and empty WalMarts and people turning their energies elsewhere, to their communities, workshops, homesteads, and main streets. We'll get to that place, but the journey to it will be dark and lonely since it will be accomplished by individuals bravely venturing where no politician dares to speak of, and the lonely individuals will receive no support from their culture or any of the authorities who play at political leadership.
     There could well come a time, though, when those authorities will be disgraced, dragged down, and trampled, and I would tremble to be there on that dreadful day. That will be the day that the ultimate TV reality show debuts. Call it: Waterboarding the Real Housewives of Beverly Hills. When elites circulate, things get messy.