Profit, Protection Despite Cartel Intervention — Update

“Is the gold price being manipulated?  There are those who say no, while others say yes – notably The Gold Anti Trust Association (GATA) – and on balance it looks to an impartial observer (relatively) that the answer is probably in the affirmative.  But perhaps no more so than any other commodities and some stock prices.  There is a whole mammoth industry out there – the big banks, hedge funds etc. – whose whole purpose is to make money from money and the more you have in the first place the easier it is to do.  Not by producing anything useful, but through manipulation of prices through short selling in huge volumes to drive prices down, buying on the turn, allowing prices to rise back up, taking profits, then more short selling to drive prices down again and the cycle continues.  This works better in a bull market, which gold has been in for the past ten years or so.

The amount of money that can be devoted to such exercises is almost beyond belief – and the regulators turn a blind eye to such blatant manipulation that works strongly against the small or even medium-sized investor in favour of the really big ones.  If there is anything that may bring the capitalist system crashing down it is, perhaps, the power of big money to rule all our lives…

Sometimes they get it wrong… as happened with the subprime mortgage fiasco (basically another financial institutions’ manipulation affair).  But do the people who caused the problem in the first place suffer – for the most part no.”

“Opinion: Gold price manipulation – probably. Conspiracy – a matter of semantics!”
Lawrence Williams, Mineweb.com, 6/29/10

 

“We have had a Fed engineered serial bubble, that has created the appearance of wealth, that has caused people to consume beyond their means through borrowing, and that has flushed the income and wealth of our society up to the top, as a result of the Fed turning the financial markets into a casino. These are pure casinos, they are not capital markets, they are not adding to the productive capacity of our economy, they simply are a bunch of robots trading with each other by the millisecond as a result of the Fed giving them zero cost overnight money, and giving them all kinds of hand signals on what to front-run.

The Fed is destroying prosperity by funding demand that we can’t support with earnings and productions causing massive current accounts deficits and the flow of funds overseas and the build up in China, OPEC and Korea of massive dollar reserves which is a totally unsustainable, unsupportable system, and we are coming near the edge of where that can continue to remain stable.”

David Stockman, Former Reagan OMB Director, December, 2010

 

“This report (Q1 2010 Bank Derivatives report – ed.) contains more evidence that a flood of paper gold and silver instruments are being used to divert investor capital away from the purchase of the actual physical metals in order to suppress prices…

Two bullion banks, JPM and HSBC, continue to dominate the precious metals derivatives market with positions that are outrageously oversized compared to the underlying metals markets…”

“Manipulative Gold & Silver Derivative Positions Continue to Grow!”
Adrian Douglas, Marketforceanalysis.com, 6/26/10

 

“Going through recent bullion bank shorting information, Adrian Douglas has stumbled across a nugget that may explain the sudden willingness of JPM to admit to the FT, via proxies as obviously the bank would never expose itself to even remote market manipulation claims, that it has collapsed its silver short. The reason: even as US bank silver (and gold) shorts by US banks have been gradually declining, those positions established by non-US bank, and thus entities not under the CFTC’s control, have seen their silver shorts surge, increasing by orders of magnitude over the past several months. Is there a stealthy transfer of precious metals market manipulation taking place, one that exonerates the domestic, and therefore regulatable, suspects, while making foreign banks carry the burden of suppressing silver and gold prices? The reason: hand over the silver shorts to entities that would not be subject to the CFTC’s upcoming size limit rules. Per Douglas:

“The sudden and massive increase in their short positions in both metals is conspicuous when compared with historical trading patterns. The fact that it occurs at a time when the US banks that are mega-short appear to be covering makes it doubly intriguing. It looks like a strategy to shift suppression and manipulation of the market to banks that are not under the direct supervision of the CFTC. Will these non-US banks be expecting to receive an exemption to position limits where US banks might not be successful?” We hope to get an answer to all these questions soon – Douglas has sent out the following letter to the only honest man at the CFTC, Bart Chilton, which explains Douglas’ findings, and demands an inquiry into just who these foreign banks are that are suddenly shorting silver and gold on the margin at alarming rates.”

“Is JP Morgan Shifting Its Silver And Gold Shorts To Non-US Domiciled, And Thus Unregulatable, Banks?”
Tyler Durden, Zerohedge.com, 12/20/10

 

“Banana Ben, like his equally pernicious predecessor, Easy Al, is trying to paper over declining US living standards by orchestrating asset bubbles. Ironically, Ben has driven the public into bonds and his QE 2.0 is now bursting the mother of all bubbles, the bond market.

Soon Ben will be at his Rubicon. He must then either monetize everything or allow short rates to explode higher. This of course would precipitate the dreaded debt deflation that solons have tried to avert.”

Bob Chapman, International Forecaster, 12/18/10

 

“Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them:  we view them as time bombs, both for the parties that deal in them and the economic system.”

Warren Buffet, February 21, 2003

 

“…All told, the Fed has bought billion worth of Treasuries in this fashion, .15 of which it purchased last week alone. With this kind of weekly money pumping in place, Bernanke and pals don’t need to continue their “behind the scenes” games (like the options expiration week money pumps).

Or do they?

Unbeknownst to most investors, last week Ben Bernanke pumped an additional .05 BILLION into the system ON TOP of the .15 pumped via the POMOs. In plain terms, the Fed juiced the system by + billion in a single week, bringing its liquidity pumps RIGHT BACK to QE 1 LEVELS.

If you want to know why stocks have rallied in the last month (September, 2010; Ed.) this is THE reason. The economy isn’t improving and the European Crisis isn’t over. Nothing has improved. All that has happened is the Fed funneled money into the Primary Dealers who ramped the market.

This is also the reason why the latest rally has almost entirely consisted of gap ups: the Primary Dealers ramp the market and then the computer trading programs take care of the rest.

In plain terms, the market is being juiced higher, plain and simple. There is no fundamental reason for stocks to be rallying. Moreover, we have numerous signs of a top forming (mutual fund cash levels, insider selling to buying ratios, negative divergence, etc). Those who choose to buy into the farce of a rally are going to get what’s coming to them. And when they do, it won’t be pretty.”

“The Only Reason Stocks Have Rallied This Month”
Graham Summers, Seeking Alpha, 9/28/10

 

“Today’s POMO has closed, with Brian Sack monetizing .8 billion of bond. This is a 3.5x Submitted to Accepted ratio as PDs realize various blogs are on their POMO funding needs and thus moderate their Submission amount. Yet what is simply surreal is that the second most monetized bond was PJ3, due 11/30/2015 [1]. This is the same issue that was just auctioned off by the Treasury last week! There is no longer even a pretense of avoiding direct monetization. It is time for Bernanke to go out and just buy bonds at auction. A one week turnaround is nothing less than criminal fraud which if anything is unnecessary and pads the PDs pockets. The result was so stunning it was not even included in last week’s frontrunning guide [2]as nobody had a clue that the Fed could be so brazen in its flaunting of direct monetization. For just holding the bond a whopping 168 hours, PDs made a few million dollars. This is criminal. But who cares. Eric Holder has still to prove that he is anything besides an organ donor.” (Ed. Note – PD=Primary Dealer) (Ed Note #2 – Which of these Primary Dealers are also Shareholders of the private for-profit Fed?)

“6.8 Billion POMO Closes: Brian Sack Monetizes .1 Billion Of Bonds Issued Last Week”
Tyler Durden, zerohedge.com, 11/30/10

 

Near the end of the Fall, 2008 Equities Market Crash (i.e. as of December 2008) there were about U.S. 8 Trillion in Notional OTC (i.e. Dark, Not Exchange Traded; thus traded mainly by Mega-Banks) Derivatives still outstanding worldwide.

Yet one and one-half years later (as of June 2010 – the most recently reported figures) that total was at about 2 Trillion which approaches the all-time pre-Crash (June, 2008) High of 4 Trillion, according to the Central Banker’s Bank, the Bank for International Settlements (www.bis.org, path: Statistics>Derivatives>Table 19).

Clearly, a Conclusion that Systemic Risk (generated by Derivatives Exposure which existed, e.g., at AIG) has somehow been substantially lessened by the actions of the private for-profit Fed, the European Central Bank, the U.S. Congress, or any other source, is wrongheaded.

Given the Massive

Tags: bond market, Eric Holder, U.S. Congress, interest payments, mortgage payment, End Game, Physical Gold