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Everything Is Rigged: The Biggest Price-Fixing Scandal Ever

April 26th, 2013 | Author: Michael Piromgraipakd

The Illuminati were amateurs. The second huge financial scandal of the year reveals the real international conspiracy: There’s no price the big banks can’t fix

by Matt Taibbi

April 25, 2013 1:00 PM ET

Conspiracy theorists of the world, believers in the hidden hands of the Rothschilds and the Masons and the Illuminati, we skeptics owe you an apology. You were right. The players may be a little different, but your basic premise is correct: The world is a rigged game. We found this out in recent months, when a series of related corruption stories spilled out of the financial sector, suggesting the world’s largest banks may be fixing the prices of, well, just about everything.

You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that’s trillion, with a “t”) worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it “dwarfs by orders of magnitude any financial scam in the history of markets.”

That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world’s largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world’s largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.

Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It’s about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget.

It should surprise no one that among the players implicated in this scheme to fix the prices of interest-rate swaps are the same megabanks – including Barclays, UBS, Bank of America, JPMorgan Chase and the Royal Bank of Scotland – that serve on the Libor panel that sets global interest rates. In fact, in recent years many of these banks have already paid multimillion-dollar settlements for anti-competitive manipulation of one form or another (in addition to Libor, some were caught up in an anti-competitive scheme, detailed in Rolling Stone last year, to rig municipal-debt service auctions). Though the jumble of financial acronyms sounds like gibberish to the layperson, the fact that there may now be price-fixing scandals involving both Libor and ISDAfix suggests a single, giant mushrooming conspiracy of collusion and price-fixing hovering under the ostensibly competitive veneer of Wall Street culture.

The Scam Wall Street Learned From the Mafia

Why? Because Libor already affects the prices of interest-rate swaps, making this a manipulation-on-manipulation situation. If the allegations prove to be right, that will mean that swap customers have been paying for two different layers of price-fixing corruption. If you can imagine paying 20 bucks for a crappy PB&J because some evil cabal of agribusiness companies colluded to fix the prices of both peanuts and peanut butter, you come close to grasping the lunacy of financial markets where both interest rates and interest-rate swaps are being manipulated at the same time, often by the same banks.

“It’s a double conspiracy,” says an amazed Michael Greenberger, a former director of the trading and markets division at the Commodity Futures Trading Commission and now a professor at the University of Maryland. “It’s the height of criminality.”

The bad news didn’t stop with swaps and interest rates. In March, it also came out that two regulators – the CFTC here in the U.S. and the Madrid-based International Organization of Securities Commissions – were spurred by the Libor revelations to investigate the possibility of collusive manipulation of gold and silver prices. “Given the clubby manipulation efforts we saw in Libor benchmarks, I assume other benchmarks – many other benchmarks – are legit areas of inquiry,” CFTC Commissioner Bart Chilton said.

But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants’ incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place.

“A farce,” was one antitrust lawyer’s response to the eyebrow-raising dismissal.

“Incredible,” says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.

All of these stories collectively pointed to the same thing: These banks, which already possess enormous power just by virtue of their financial holdings – in the United States, the top six banks, many of them the same names you see on the Libor and ISDAfix panels, own assets equivalent to 60 percent of the nation’s GDP – are beginning to realize the awesome possibilities for increased profit and political might that would come with colluding instead of competing. Moreover, it’s increasingly clear that both the criminal justice system and the civil courts may be impotent to stop them, even when they do get caught working together to game the system.

If true, that would leave us living in an era of undisguised, real-world conspiracy, in which the prices of currencies, commodities like gold and silver, even interest rates and the value of money itself, can be and may already have been dictated from above. And those who are doing it can get away with it. Forget the Illuminati – this is the real thing, and it’s no secret. You can stare right at it, anytime you want.

The banks found a loophole, a basic flaw in the machine. Across the financial system, there are places where prices or official indices are set based upon unverified data sent in by private banks and financial companies. In other words, we gave the players with incentives to game the system institutional roles in the economic infrastructure.

Libor, which measures the prices banks charge one another to borrow money, is a perfect example, not only of this basic flaw in the price-setting system but of the weakness in the regulatory framework supposedly policing it. Couple a voluntary reporting scheme with too-big-to-fail status and a revolving-door legal system, and what you get is unstoppable corruption.

Every morning, 18 of the world’s biggest banks submit data to an office in London about how much they believe they would have to pay to borrow from other banks. The 18 banks together are called the “Libor panel,” and when all of these data from all 18 panelist banks are collected, the numbers are averaged out. What emerges, every morning at 11:30 London time, are the daily Libor figures.

Banks submit numbers about borrowing in 10 different currencies across 15 different time periods, e.g., loans as short as one day and as long as one year. This mountain of bank-submitted data is used every day to create benchmark rates that affect the prices of everything from credit cards to mortgages to currencies to commercial loans (both short- and long-term) to swaps.

Gangster Bankers Broke Every Law in the Book

Dating back perhaps as far as the early Nineties, traders and others inside these banks were sometimes calling up the company geeks responsible for submitting the daily Libor numbers (the “Libor submitters”) and asking them to fudge the numbers. Usually, the gimmick was the trader had made a bet on something – a swap, currencies, something – and he wanted the Libor submitter to make the numbers look lower (or, occasionally, higher) to help his bet pay off.

Famously, one Barclays trader monkeyed with Libor submissions in exchange for a bottle of Bollinger champagne, but in some cases, it was even lamer than that. This is from an exchange between a trader and a Libor submitter at the Royal Bank of Scotland:

SWISS FRANC TRADER: can u put 6m swiss libor in low pls?…
PRIMARY SUBMITTER: Whats it worth
SWSISS FRANC TRADER: ive got some sushi rolls from yesterday?…
PRIMARY SUBMITTER: ok low 6m, just for u
SWISS FRANC TRADER: wooooooohooooooo.?.?. thatd be awesome

Screwing around with world interest rates that affect billions of people in exchange for day-old sushi – it’s hard to imagine an image that better captures the moral insanity of the modern financial-services sector.

Hundreds of similar exchanges were uncovered when regulators like Britain’s Financial Services Authority and the U.S. Justice Department started burrowing into the befouled entrails of Libor. The documentary evidence of anti-competitive manipulation they found was so overwhelming that, to read it, one almost becomes embarrassed for the banks. “It’s just amazing how Libor fixing can make you that much money,” chirped one yen trader. “Pure manipulation going on,” wrote another.

Yet despite so many instances of at least attempted manipulation, the banks mostly skated. Barclays got off with a relatively minor fine in the $450 million range, UBS was stuck with $1.5 billion in penalties, and RBS was forced to give up $615 million. Apart from a few low-level flunkies overseas, no individual involved in this scam that impacted nearly everyone in the industrialized world was even threatened with criminal prosecution.

Two of America’s top law-enforcement officials, Attorney General Eric Holder and former Justice Department Criminal Division chief Lanny Breuer, confessed that it’s dangerous to prosecute offending banks because they are simply too big. Making arrests, they say, might lead to “collateral consequences” in the economy.

The relatively small sums of money extracted in these settlements did not go toward reparations for the cities, towns and other victims who lost money due to Libor manipulation. Instead, it flowed mindlessly into government coffers. So it was left to towns and cities like Baltimore (which lost money due to fluctuations in their municipal investments caused by Libor movements), pensions like the New Britain, Connecticut, Firefighters’ and Police Benefit Fund, and other foundations – and even individuals (billionaire real-estate developer Sheldon Solow, who filed his own suit in February, claims that his company lost $450 million because of Libor manipulation) – to sue the banks for damages.

One of the biggest Libor suits was proceeding on schedule when, early in March, an army of superstar lawyers working on behalf of the banks descended upon federal judge Naomi Buchwald in the Southern District of New York to argue an extraordinary motion to dismiss. The banks’ legal dream team drew from heavyweight Beltway-connected firms like Boies Schiller (you remember David Boies represented Al Gore), Davis Polk (home of top ex-regulators like former SEC enforcement chief Linda Thomsen) and Covington & Burling, the onetime private-practice home of both Holder and Breuer.

The presence of Covington & Burling in the suit – representing, of all companies, Citigroup, the former employer of current Treasury Secretary Jack Lew – was particularly galling. Right as the Libor case was being dismissed, the firm had hired none other than Lanny Breuer, the same Lanny Breuer who, just a few months before, was the assistant attorney general who had balked at criminally prosecuting UBS over Libor because, he said, “Our goal here is not to destroy a major financial institution.”

In any case, this all-star squad of white-shoe lawyers came before Buchwald and made the mother of all audacious arguments. Robert Wise of Davis Polk, representing Bank of America, told Buchwald that the banks could not possibly be guilty of anti- competitive collusion because nobody ever said that the creation of Libor was competitive. “It is essential to our argument that this is not a competitive process,” he said. “The banks do not compete with one another in the submission of Libor.”

If you squint incredibly hard and look at the issue through a mirror, maybe while standing on your head, you can sort of see what Wise is saying. In a very theoretical, technical sense, the actual process by which banks submit Libor data – 18 geeks sending numbers to the British Bankers’ Association offices in London once every morning – is not competitive per se.But these numbers are supposed to reflect interbank-loan prices derived in a real, competitive market. Saying the Libor submission process is not competitive is sort of like pointing out that bank robbers obeyed the speed limit on the way to the heist. It’s the silliest kind of legal sophistry.

But Wise eventually outdid even that argument, essentially saying that while the banks may have lied to or cheated their customers, they weren’t guilty of the particular crime of antitrust collusion. This is like the old joke about the lawyer who gets up in court and claims his client had to be innocent, because his client was committing a crime in a different state at the time of the offense.

“The plaintiffs, I believe, are confusing a claim of being perhaps deceived,” he said, “with a claim for harm to competition.”

Judge Buchwald swallowed this lunatic argument whole and dismissed most of the case. Libor, she said, was a “cooperative endeavor” that was “never intended to be competitive.” Her decision “does not reflect the reality of this business, where all of these banks were acting as competitors throughout the process,” said the antitrust lawyer Sokol. Buchwald made this ruling despite the fact that both the U.S. and British governments had already settled with three banks for billions of dollars for improper manipulation, manipulation that these companies admitted to in their settlements.

Michael Hausfeld of Hausfeld LLP, one of the lead lawyers for the plaintiffs in this Libor suit, declined to comment specifically on the dismissal. But he did talk about the significance of the Libor case and other manipulation cases now in the pipeline.

“It’s now evident that there is a ubiquitous culture among the banks to collude and cheat their customers as many times as they can in as many forms as they can conceive,” he said. “And that’s not just surmising. This is just based upon what they’ve been caught at.”

Greenberger says the lack of serious consequences for the Libor scandal has only made other kinds of manipulation more inevitable. “There’s no therapy like sending those who are used to wearing Gucci shoes to jail,” he says. “But when the attorney general says, ‘I don’t want to indict people,’ it’s the Wild West. There’s no law.”

The problem is, a number of markets feature the same infrastructural weakness that failed in the Libor mess. In the case of interest-rate swaps and the ISDAfix benchmark, the system is very similar to Libor, although the investigation into these markets reportedly focuses on some different types of improprieties.

Though interest-rate swaps are not widely understood outside the finance world, the root concept actually isn’t that hard. If you can imagine taking out a variable-rate mortgage and then paying a bank to make your loan payments fixed, you’ve got the basic idea of an interest-rate swap.

In practice, it might be a country like Greece or a regional government like Jefferson County, Alabama, that borrows money at a variable rate of interest, then later goes to a bank to “swap” that loan to a more predictable fixed rate. In its simplest form, the customer in a swap deal is usually paying a premium for the safety and security of fixed interest rates, while the firm selling the swap is usually betting that it knows more about future movements in interest rates than its customers.

Prices for interest-rate swaps are often based on ISDAfix, which, like Libor, is yet another of these privately calculated benchmarks. ISDAfix’s U.S. dollar rates are published every day, at 11:30 a.m. and 3:30 p.m., after a gang of the same usual-suspect megabanks (Bank of America, RBS, Deutsche, JPMorgan Chase, Barclays, etc.) submits information about bids and offers for swaps.

And here’s what we know so far: The CFTC has sent subpoenas to ICAP and to as many as 15 of those member banks, and plans to interview about a dozen ICAP employees from the company’s office in Jersey City, New Jersey. Moreover, the International Swaps and Derivatives Association, or ISDA, which works together with ICAP (for U.S. dollar transactions) and Thomson Reuters to compute the ISDAfix benchmark, has hired the consulting firm Oliver Wyman to review the process by which ISDAfix is calculated. Oliver Wyman is the same company that the British Bankers’ Association hired to review the Libor submission process after that scandal broke last year. The upshot of all of this is that it looks very much like ISDAfix could be Libor all over again.

“It’s obviously reminiscent of the Libor manipulation issue,” Darrell Duffie, a finance professor at Stanford University, told reporters. “People may have been naive that simply reporting these rates was enough to avoid manipulation.”

And just like in Libor, the potential losers in an interest-rate-swap manipulation scandal would be the same sad-sack collection of cities, towns, companies and other nonbank entities that have no way of knowing if they’re paying the real price for swaps or a price being manipulated by bank insiders for profit. Moreover, ISDAfix is not only used to calculate prices for interest-rate swaps, it’s also used to set values for about $550 billion worth of bonds tied to commercial real estate, and also affects the payouts on some state-pension annuities.

So although it’s not quite as widespread as Libor, ISDAfix is sufficiently power-jammed into the world financial infrastructure that any manipulation of the rate would be catastrophic – and a huge class of victims that could include everyone from state pensioners to big cities to wealthy investors in structured notes would have no idea they were being robbed.

“How is some municipality in Cleveland or wherever going to know if it’s getting ripped off?” asks Michael Masters of Masters Capital Management, a fund manager who has long been an advocate of greater transparency in the derivatives world. “The answer is, they won’t know.”

Worse still, the CFTC investigation apparently isn’t limited to possible manipulation of swap prices by monkeying around with ISDAfix. According to reports, the commission is also looking at whether or not employees at ICAP may have intentionally delayed publication of swap prices, which in theory could give someone (bankers, cough, cough) a chance to trade ahead of the information.

Swap prices are published when ICAP employees manually enter the data on a computer screen called “19901.” Some 6,000 customers subscribe to a service that allows them to access the data appearing on the 19901 screen.

The key here is that unlike a more transparent, regulated market like the New York Stock Exchange, where the results of stock trades are computed more or less instantly and everyone in theory can immediately see the impact of trading on the prices of stocks, in the swap market the whole world is dependent upon a handful of brokers quickly and honestly entering data about trades by hand into a computer terminal.

Any delay in entering price data would provide the banks involved in the transactions with a rare opportunity to trade ahead of the information. One way to imagine it would be to picture a racetrack where a giant curtain is pulled over the track as the horses come down the stretch – and the gallery is only told two minutes later which horse actually won. Anyone on the right side of the curtain could make a lot of smart bets before the audience saw the results of the race.

At ICAP, the interest-rate swap desk, and the 19901 screen, were reportedly controlled by a small group of 20 or so brokers, some of whom were making millions of dollars. These brokers made so much money for themselves the unit was nicknamed “Treasure Island.”

Already, there are some reports that brokers of Treasure Island did create such intentional delays. Bloomberg interviewed a former broker who claims that he watched ICAP brokers delay the reporting of swap prices. “That allows dealers to tell the brokers to delay putting trades into the system instead of in real time,” Bloomberg wrote, noting the former broker had “witnessed such activity firsthand.” An ICAP spokesman has no comment on the story, though the company has released a statement saying that it is “cooperating” with the CFTC’s inquiry and that it “maintains policies that prohibit” the improper behavior alleged in news reports.

The idea that prices in a $379 trillion market could be dependent on a desk of about 20 guys in New Jersey should tell you a lot about the absurdity of our financial infrastructure. The whole thing, in fact, has a darkly comic element to it. “It’s almost hilarious in the irony,” says David Frenk, director of research for Better Markets, a financial-reform advocacy group, “that they called it ISDAfix.”

After scandals involving libor and, perhaps, ISDAfix, the question that should have everyone freaked out is this: What other markets out there carry the same potential for manipulation? The answer to that question is far from reassuring, because the potential is almost everywhere. From gold to gas to swaps to interest rates, prices all over the world are dependent upon little private cabals of cigar-chomping insiders we’re forced to trust.

“In all the over-the-counter markets, you don’t really have pricing except by a bunch of guys getting together,” Masters notes glumly.

That includes the markets for gold (where prices are set by five banks in a Libor-ish teleconferencing process that, ironically, was created in part by N M Rothschild & Sons) and silver (whose price is set by just three banks), as well as benchmark rates in numerous other commodities – jet fuel, diesel, electric power, coal, you name it. The problem in each of these markets is the same: We all have to rely upon the honesty of companies like Barclays (already caught and fined $453 million for rigging Libor) or JPMorgan Chase (paid a $228 million settlement for rigging municipal-bond auctions) or UBS (fined a collective $1.66 billion for both muni-bond rigging and Libor manipulation) to faithfully report the real prices of things like interest rates, swaps, currencies and commodities.

All of these benchmarks based on voluntary reporting are now being looked at by regulators around the world, and God knows what they’ll find. The European Federation of Financial Services Users wrote in an official EU survey last summer that all of these systems are ripe targets for manipulation. “In general,” it wrote, “those markets which are based on non-attested, voluntary submission of data from agents whose benefits depend on such benchmarks are especially vulnerable of market abuse and distortion.”

Translation: When prices are set by companies that can profit by manipulating them, we’re fucked.

“You name it,” says Frenk. “Any of these benchmarks is a possibility for corruption.”

The only reason this problem has not received the attention it deserves is because the scale of it is so enormous that ordinary people simply cannot see it. It’s not just stealing by reaching a hand into your pocket and taking out money, but stealing in which banks can hit a few keystrokes and magically make whatever’s in your pocket worth less. This is corruption at the molecular level of the economy, Space Age stealing – and it’s only just coming into view.

This story is from the May 9th, 2013 issue of Rolling Stone.

See original article HERE: http://www.rollingstone.com/politics/news/everything-is-rigged-the-biggest-financial-scandal-yet-20130425page=4#ixzz2RbBknhvd
Follow us: @rollingstone on Twitter | RollingStone on Facebook

Posted in Blog | Tags: Banking, Ben Bernanke, End The Fed, Federal Reserve, gold, Gold and Silver, Illuminati, Libertarian, matt taibbi, Obama, Price Fix, Reptilian, Rolling Stone, Silver |

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Positioning To Profit From The Pan Asia Gold Exchange

December 13th, 2011 | Author: Michael Piromgraipakd

by Sol Palha
December 7, 2011
Seeking Alpha

China is getting ready to challenge the hegemony/monopoly of the London Metals exchange and COMEX in New York. The Pan Asia Gold exchange (PAGE) is set to open in June 2012, and after that things might never be the same again. Six major Chinese banks will fix the gold price every morning at 8am their time, which means that the world could now turn to China to get its price for Gold. Each contract will represent 10 ounces of Gold; that is the size of the PAGE contract currently. Individuals who purchase contracts on PAGE will receive a 90-day http://mikepiro.com/wp-admin/post-new.phpInternational Spot Contract and actual title to the gold; it will not be some worthless futures contract or an unsecured note from a bullion bank/international banking institution.

Why is this a big deal?

PAGE will for the first time allow individuals to trade futures contracts that are fully backed by Gold. These contracts are not going to be the paper type future contracts that trade on the London and New York Gold exchanges. This single development is a huge game changer; for increasingly investors are turning to gold due to the uncertain times they find themselves in. Now they won’t have to worry about taking delivery; delivery will be guaranteed.
The contracts will trade in Yuan, which means that Yuan and not US dollars will for the first time become the dominant currency used in one of the most speculative commodity markets. In June, the world could be looking at China instead of New York or London. We think it will be a game changer. For example, when COMEX suddenly raises the margin requirement (one could call this almost illegal as it is done with such short notice and usually when the market appears to be soaring to new highs), forcing many traders out of their position, China will not have to follow suit. In fact, they will most likely act independently. Traders are sick of being at the mercy of COMEX and the London metals exchange. Thus, this degree of separation will serve as a magnet to attract all these dissatisfied and disenfranchised traders.
The biggest game changer is that Citizens of China will now be in a position to purchase Gold via futures contracts with the click of a mouse. Initially, these contracts will only be available to the Agricultural bank of China’s 320 million customers. If just 2% of their customers bought one contract, it would equate to 2,000 tons of physical gold being drawn down (taken out of the markets). This is a massive development on its own, but soon these contracts will be open to the world. Now that the Chinese have such an easy means to speculate, demand for Gold could truly spike. I was recently in Indonesia and could openly see the love Asians have for Gold. In the small towns, you will find that everyone knows what the daily price of Gold is but very few know or care to pay too much attention to the daily exchange rate of the Indonesian Rupiah to the dollar. This exchange is going to allow the Chinese and eventually individuals from all over the world to speculate via the futures markets with contracts that are fully backed by Gold.

Once this exchange is up and running it will provide gold investors with an alternative playing field, who up to now have had to rely on unsecured Gold futures contracts, bullion banks and international banking institutions to set the price of Gold. This monopoly is about to come to a screeching halt.

Conclusion

As the Gold market has been heavily manipulated by the Bankers in the west, PAGE could truly turn out to be a huge game changer and potentially displace London and New York as the premier Gold exchange in the world. Asians love gold and with the opening of this exchange they will soon have the ability to purchase futures contracts that are backed by gold with the click of a mouse. As the contracts will be trading in Yuan, China will be the first country to directly challenge the dollar in one of the most speculative and lucrative markets today. We believe this is another slow and subtle move by China to prepare the world for a new reserve currency.

COMEX reportedly has only enough Gold to cover 10% of the total contracts traded. In other words, for every 100 ounces of paper gold, there is only 10% in real gold backing them. Some other analysts such as Eric Sprott claim that if individuals took delivery of just 5% of the traded contracts it would be enough to deplete COMEX of its entire inventory. Regardless of what the actual figure is, it is highly unlikely that COMEX could come up with enough Gold to cover 20% of the contracts. Now contrast this to PAGE, where every contract is going to be backed by 10oz of Gold, and it wins hands down. The Chinese love to speculate/gamble and with the opening of this exchange not only will be they be able to speculate, but they will also be in a position to buy a commodity that is highly priced in their society.

Even George Soros thinks this is a big event for he has bought back nearly all the Gold he sold when it was trading around $1600 an ounce. The long term picture for Gold has just become even more attractive. How should investors position themselves to take advantage of this development? First of all, let us start of by stating that in the intermediate time frames (6-12 months) we believe that Gold will continue to correct/consolidate before resuming its upward trend. We turned bullish on Gold in late 2002 when it was trading under 300 and bullish on Silver when it was trading roughly at $4 per ounce; this development further cements the view that the long term bull market in precious metals is still not over.

If you believe that the precious metals market still has a lot of upside potential, then you could implement the following strategies:

If you have no position in Bullion, then it would be wise to allocate some of your money to bullion (Gold, Silver and Palladium bullion); use pullbacks to establish a position. Those that already have positions can wait for stronger pullbacks to add to them. In addition, opening up positions in some key Gold and Silver companies could put you in a position to lock in substantially larger gains.

In the Gold sector, investors could deploy some money into the following three companies; on a relative strength basis, they are among the strongest companies in the gold sector.

Royal Gold (RGLD) has quarterly earnings growth (yoy) of 42%, Gross margin (ttm) of 95.49% and an EPS of 1.48. Gross profits have increased significantly for the last three years. In 2009 gross profits were $73 million, in 2010, they were $136 million and in 2001 it jumped to $216 million.

Franco Nevada Corp (FNV) has quarterly earning’s growth (yoy) of 443%, EPS of 1.04 and levered free cash flow rate of 185 million. It also pays a dividend of roughly 1.2%

Rand Gold Resources (GOLD) has quarterly earnings growth (yoy) 149%. Gross profits for the last three years are as follows, $76 million for 2008, $148.8 million for 2009 and $148.9 million for 2010 Net income has increased at a much faster pace; $47 million in 2008, $84 million in 2009 and $120 million in 2010. It also pays a dividend of 0.8%.

In the silver sector, investors might find the following 2 companies interesting. On a relative strength basis they are among the top companies in the silver sector.

Silver Wheaton Corp (SLW) has quarterly earnings growth rate (yoy) of 99.5% and a gross margin rate of 87%. Gross profits have increased nicely for the past three years; in 2008 they came in at $122 million, for 2009, they were $175 million and for 2010 gross profits almost doubled to $340 million. It pays a dividend of 1.1%

First Majestic Silver Corp (AG) has quarterly earnings growth rate (yoy) of 88.3% and a ROE of 34.65%. In 2009, gross profits amounted to $23 million and in 2010; they more than tripled to $71 million.

I am not stating that one needs to get out of companies such as Google (GOOG) and Apple (AAPL) which are great long term plays and still have a lot of upside potential; both are dominant players and both have great forward PEs of 14 and 10 respectively. They are also sitting on boat loads of cash and have great quarterly earnings growth rate (yoy) rates – 53.7% for AAPL and 25.9% for GOOG. However, it would not hurt to put some money into the above-mentioned companies as the long term demand for precious metals is set to increase in the years to come; PAGE has just made it a lot easier for citizens of the most populous country on earth to purchase Gold. There is an old adage which states one should never put all of one’s eggs in one basket.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GOLD, FNV over the next 72 hours.

Read the entire article HERE.

Posted in Blog | Tags: COMEX, Gold and Silver, Physical Gold, Physical Silver, Positioning To Profit From The Pan Asia Gold Exchange, Seeking Alpha |

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Physical Silver Metal Becoming Scarce

December 12th, 2011 | Author: Michael Piromgraipakd

We are at an economic crossroads like we’ve never seen in the history of the world. Oil production and Silver production have both hit their peaks and we are sliding on the down slope. As Oil peaks we will be moving into alternative power sources here in the U.S. and solar remains the preeminent option to take it’s place. Of course, with Solar Power comes the need for physical silver because of it’s superior reflective properties.

Today Silver is more undervalued than any commodity in existence today, yet it remains suppressed by banking and money powers. When speaking of precious metals, all media analysts state that Gold and Silver are in a bubble, but all their analyses are not based on physical supply. As you will see below, Silver is also becoming the most scarce commodity. Here is a clip by Mr. Vision explaining where we stand in the situation with silver and where we will be headed.

Submitted by SRSrocco

The world is about to peak in global silver production. This will not occur due to a lack of silver to mine, but rather as a result of the peaking of world energy resources, declining ore grades, and a falling Energy Returned On Invested – EROI. The information below will describe a future world that very few have forecasted and even less are prepared. This is an update to my previous article Peak Silver and Mining by a Falling EROI. In my first article I stated that global silver production may peak in 2009 if we were to enter a worldwide depression. We did not have the global depression as massive central bank printing and bailouts have thus far postponed the inevitable.

Full report (pdf)

Peak Silver Revisited

Read the original article HERE.

Posted in Blog | Tags: Gold and Silver, goldman sachs, jp morgan, Peak Oil, Peak Silver, Physical Silver More Rare than Gold, Physical Silver Scarcity, Physical Silver Shortage, Silver American Eagles, Solar Panels |

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MF Global: Was It A Hit?

November 18th, 2011 | Author: Michael Piromgraipakd

Another example of why you should choose physical gold and silver rather than the paper counterpart. These derivatives are simply way too over leveraged and when the music stops someone is going to be left without a chair and the one sitting will most likely be JPMorgan or Goldman Sachs. And don’t expect the government to do anything about it. Lawrence Lepard describes the heist below:

By Lawrence Lepard
November 18, 2011
ZeroHedge

Imagine you are Ben Bernanke, or on the Board of Governors of the Federal Reserve. The time frame is July and August of 2011 and the price of gold is on a tear. Commodities inflation has been persistent and is breaking out everywhere. Your prediction that inflation “is contained” and is a “temporary phenomena” are beginning to look absurd. What do you do?

Simple. Hint that QE3, the primary drive of inflation, is coming and then fail to deliver at the September FOMC meeting. That takes care of the price of gold and the gold stocks. Ah, but those pesky commodities speculators keep making money and trading against what you want the markets to do. So what is to be done there? Hey Jon Corzine, how about you tank the largest broker for the small commodities punters in the world, and we let them twist in the wind? That will serve them right. Teach them to bet against the government approved scenario.

Think it did not happen? Well think again. All of the pieces fit. It sure is convenient that all those commodities speculators are now out of the box. Also, who will want to speculate on commodities in the future given customer funds are no longer protected. Furthermore, commodities speculators are not a very “All American” group. From the authorities point of view they can say: screw them, who will feel sympathy? Hell, James Bullard, Fed Governor, in an interview on CNBC yesterday said the MF Global collapse proves that the system works. Yes it does Jim, for you. Personally, I have $90,000 at MF Global and I would like to have my honestly earned money returned. Unfortunately, the odds of that happening any time soon seem slim. In part because when MF Global entered bankruptcy the judge appointed a Trustee whose law firm has done substantial work for JP Morgan, a deeply interested party. We will probably never find out what happened here. But for those of us whose eyes are open the results speak for themselves.

This whole mess stinks to high heaven. I am with Gerald Celente, if the largest commodity broker in America can go bankrupt and nothing is done, then where can you put your money and expect it to be safe? I, for one, do not accept that Jon Corzine is stupid enough to lever up MF Global 40:1 and use the proceeds and customer money to bet on European sovereign debt. This was a hit, pure and simple. That is why there is no resolution to the problem, and it is just another example of the deeply corrupt US political/financial axis. It may take money away from a bunch of commodities speculators, and it may cool down the perceived inflation, but it is just another hole in the dike which is The US Financial System. A dike whose life can probably now be measured in months, not years.

Read the entire article HERE.

Posted in Blog | Tags: Ben Bernanke, Board of Governors of the Federal Reserve, Commodoties Inflation, Federal Reserve, Gold and Silver, goldman sachs, Government Corruption, Jon Corzine, jp morgan, MF Global, MF Global: Was It A Hit?, MFGlobal, World Reserve Currency |

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Turd Ferguson: The Inexorable March Higher For Precious Metals

November 13th, 2011 | Author: Michael Piromgraipakd

by Adam Taggart
November 10, 2011, 10:14 pm
ChrisMartenson.com

Turd Ferguson is a funny guy.

But there’s one thing this irreverent, acerbically goofball forecaster is stone-cold serious about: the need to build personal exposure to the precious metals.

For him, it’s a straightforward mathematical certainty that the global economy must collapse under the weight of the excessive (and exponentially compounding) credit amassed over the past several decades. The debt is simply too large to be serviced.

As a growing number of analysts (including Chris) are predicting, Turd sees the replacement of the world’s current monetary regimes as the endgame to this story. And he believes we are watching that endgame unfold in real-time now.

In this interview with Chris, Turd discusses his reasons why gold and silver offer the best prospect for preserving wealth through the coming devaluation of world currencies, despite his strong conviction that the markets for these metals are heavily price-manipulated.

In fact, it’s precisely due to this manipulation that Turd is able to predict short-term price movements in gold and silver as confidently as he does:

Believe me, if you looked at my trading account and looked at my success in trading corn, or soybeans, or crude, or something like that: I make choices just as badly as the average guy. The reason why I am successful in forecasting gold and silver is because they are manipulated.

Because once you understand that the bullion banks, particularly JPMorgan in silver, are in there trying to stack the deck in their favor, then you use some simple technical analysis. And you begin to see where they’re going to act, where they’re going to place some sell orders to try to start cascading waterfall selling by tripping stocks. It’s not real hard. I mean, its pretty basic stuff. But once you admit to yourself that if this does take place, it makes forecasting where price is going pretty easy…

We see this quite often where the prices of gold and silver – they decline rather sharply after hours, after COMEX trading hours, on the Globex because volume is so thin there. A little bit of money thrown at the market – any new paper shorts can have a rather dramatic impact…

And that is where the manipulation has a lasting impact. And you can’t get that money back… And it takes a whole bunch of new buy orders, a whole bunch of new speculative longs and commercial longs to come in and bid it back up to where it was before that raid. And so, they’re always going to be in there. Again, I guess the ultimate question is at who’s behest are they doing this? But, nonetheless, they’re in there controlling price, managing the assent, if you will, to create this illusion that there’s still confidence in the dollar, that all is well. And that it’s okay to go buy a new car.

Turd sees the precious metals as a true barometer of the dollar’s devaluation as the Fed pursues its policy of negative real interest rates — which is challenging for the average consumer to see, when the dollar may strengthen on a relative basis versus other fiat currencies and the government-published CPI is artificially low. In his opinion, the government is well aware of the signaling function of the PMs, and therefore feels it needs to manage their ascent in as drawn-out and orderly a process possible in order to prevent the frogs in the pot (i.e., the citizenry) from noticing that the water is getting a lot hotter.

The important mission here, in Turd’s mind, is to realize that the economic reality we have come to accept as “normal” is over, and to take protective action. And once you have done so, to try to help those around you wake up to that fact — a major challenge, as most people don’t want to think about it, and the entrenched status quo powers are aggressively marketing that ‘return to normalcy’ is just around the corner:

The last thing I would add to that, Chris, and one that’s challenging, and I’m sure you’ve seen this too in working with your subscribers is where we are headed is unlike anywhere where we’ve been, at least in recent memory. I mean, there may be some octogenarians out there that remember what it was like before the Great Depression and during the Great Depression and before World War II. But it’s a world like that where we’re headed to.

All I’ve ever known, all my friends and family, even my parents really have ever known is this hegemonic United States that was the world power, and provided the world’s reserve currency. And we could print as much as we wanted to, and then export the inflation to all the other poor staff that had to – took our dollar. And so we bought their cheap stuff. And those days are over, and it’s a really hard concept.

If you haven’t had personal experience with something else, it’s a really hard concept to get your arms around. That the United States isn’t going to be this huge economic and military superpower. Just because it always has been doesn’t mean that it always will be. And as we talked about, the numbers and the fundamentals suggest that it’s not always going to be.

And so you got to kind of prepare yourself that tomorrow’s not going to be like today, that we’re in a new paradigm. And try to intellectually figure out, okay, how do I survive and prosper in this new world knowing that it’s coming? And that’s what we try to do. I know that’s what you try to do. And it’s our job, Chris, to try and help as many as we can.

Click the play button below to listen to Chris’ interview with Turd Ferguson (runtime 47m:19s):

Read the entire article HERE.

Posted in Blog | Tags: Federal Reserve, Gold and Silver, Hyperinflation, inflation, precious metals, Turd Ferguson, Turd Ferguson: The Inexorable March Higher For Precious Metals |

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Richard Maybury: The War that Will Kill the Dollar

November 8th, 2011 | Author: Michael Piromgraipakd

Interview by James Turk
The Gold Report
November 7, 2011

A war-mongering U.S. government could be less than 18 months away from decimating the last 5% of value left in the dollar, says Richard Maybury, the author of the U.S. & World Early Warning Report. Until some new exchange-traded-fund-like basket of natural resources provides a store of value, this “juris naturalist” has some advice about how to protect your wealth during the coming collapse.

The Gold Report: Richard, last month, you made a presentation at the Casey Research/Sprott Inc. “When Money Dies” Summit entitled “The War that Will Kill the Dollar.” You explained that the corrupting influence of power had sent our country’s leaders shopping for war, disregarding Westphalian respect for sovereignty and hastening the collapse of society. What are the signs that we are reaching a critical point? And, is there any way we can change course?

Richard Maybury: You can see the signs very clearly in the Middle East and North Africa. The Federal government is involved in several wars there that have nothing to do with America. One of the best examples is Libya. U.S. officials are taking credit for Moammar Gadhafi’s death just a year after they were bragging about having tamed the threat. Now Libya is a mess. It will very likely be taken over by some sort of Islamic government that isn’t going to be very friendly to America.

TGR: Why do we, as a country, do this? If it’s not going to end well for us, what’s the economic or political reason to get involved?

RM: The U.S. government gets into wars in far corners of the world that have nothing to do with America because the leaders like getting into wars. That is how presidents achieve greatness in the history books. A president has no prayer of going down in history as great unless he has won a war. Look at Mount Rushmore. All four presidents featured there won wars. That seems to be the number one criteria historians use for deciding whether someone is a great president. It constitutes an automatic incentive to go out looking for wars.

TGR: What is the incentive for the American people to go war shopping?

RM: Nothing. It’s absurd. During the First Gulf War, people had a tremendous good feeling about going to war with Iraq. They would come home from work, order a pizza, sit in front of their TV sets and watch the war like it was a football game. War became a form of entertainment.

TGR: Is there anything we could do to incentivize our presidents to act peacefully?

RM: I doubt it very much. People go into politics because they seek political power. Once they get the power, they naturally want to use it on somebody. What is the point of having power if you can’t use it? So, no matter what kinds of controls you put on, future presidents will find a way around it.

The ideal situation would be one where war is used as a last resort. Westphalian sovereignty, a set of agreements dating back in the 1600s, established the precedent that the European powers would only go to war in self-defense. You had to have a clear and present danger before you could go to war. And, even then, it was supposed to be the last resort. That was the basis of international law up until this year. That isn’t to say that the Westphalia treaties weren’t violated a lot of times, but they helped. After Iraq, Serbia and now Libya, it is pretty clear that the policy is we can just go out and hit anybody we want for any reason we want as long as we believe the other guy is up to no good.

TGR: If this is the new reality, then let’s talk about some of the economics around it. War is expensive. You have pointed out that since the Federal Reserve was created in 1913, the dollar has lost 95% of its buying power. You said, “War destroys currencies.” It usually leads to governments printing more dollars to pay for guns and tanks. How much debt and overprinting can the country take before the velocity of economics, which is something that you also talked about in association with how quickly dollars are exchanged, catches up with reality and the dollar loses that last 5% of its value?

RM: Velocity refers to the speed at which money changes hands, and it is a measure of money demand. When people don’t really want the money, they start trading it away faster, trying to get their hands on things they do want, things that have value that they trust. The cost of this war in the Islamic world will continue going up. At some point, it’s going to be a major contributor to people losing what confidence is left in the dollar and people all over the world will start dumping it. This is a psychological thing. It’s about emotions, so it is hard to pinpoint when they will lose all confidence in the dollar.

TGR: What would it look like if that last 5% were gone? Are we talking about hyperinflation? Are we talking about banks collapsing? Are we talking about bartering? What would it look like?

RM: We are talking about all of that. It would be chaos. We saw it in Zimbabwe when the Zimbabwean dollar became worthless because the government printed so many that people wouldn’t accept them anymore. The country experienced enormous runaway inflation where prices were rising 50% a day before the Zimbabwe dollar collapsed.

It would probably start with someone somewhere in the world selling off his dollars and begin trading them for whatever it was he had confidence in. The foreign exchange value of the dollar would fall. Other people would notice; they would get scared and start selling their dollars. The foreign exchange value of the dollar would drop more. This process would continue until you have panic around the world to get out of dollars. Americans would be the last ones to get involved. We are always the last to know what is happening to America. Suddenly Americans would wake up one morning and find that a gallon of milk that cost $4 the day before costs $6 today. The next day they would find that it costs $12. And the next day they would find that it costs $36. That is when Americans would realize that they are in deep trouble; their dollars are about to become worthless.

TGR: Of course the Fed wants to avoid that scenario. You describe yourself as a follower of Austrian economics made famous by the Nobel laureates Friedrich Hayek and Ludwig von Mises. They describe financial systems as complex processes run by billions of constantly changing individuals rather than something that can be manipulated from a central point, which seems to be what is being attempted right now. If that is the case, what will be the outcome if the central government tries to force a more Keynesian control of the flow of money?

RM: They will mess it up even worse than they already have. The world has been living under Keynesian economics since 1971 when Nixon took the dollar off the gold standard. John Maynard Keynes was a semi-socialist. He believed that the way to fix the economy was to print a whole bunch of dollars and dump them out there. This has been standard procedure for the past 40 years. All currencies have been dropping in value during that time. Another round of quantitative easing (QE) could further speed the rate at which the money circulates, something that has the same effect as increasing the supply of dollars, creating a larger demand for goods and services and having an inflationary effect. I think Fed officials are dropping hints about the next QE because they are trying to cause velocity to rise, a secret QE if you will.

TGR: What if the stealth QE campaign doesn’t work? What form might a real QE3 take?

RM: It is hard to tell what they will do. One of the myths that everyone is taught is that the government has some sort of tremendous understanding of economics and the ability to make adjustments to economic activity. The term fine-tuning is used sometimes. Actually, we are talking about a group of human beings who don’t know much more about real economics than anybody else. They think they do, but they don’t. They just bounce around from one attempt to control things to the next, making a mess of the country. The economy is not a machine. It is people, human beings. It is a biological system, not a mechanical system. But, the government treats it like a mechanical system, so they are always making mistakes.

TGR: If war and hyperinflation are the inevitable future, how can investors survive or maybe even thrive during a time like this? What are the opportunities? Natural resources? Commodity equities? Where can we be safe other than putting that $100 bill under the bed?

RM: Well, I wouldn’t put $100 under the mattress, at least not for very long, because it will soon become worthless. But commodities, stocks of raw materials firms, gold and silver and platinum coins have value. Generally, I try to see the world in terms of two kinds of investments: dollars and non-dollars. You definitely want non-dollars, things that do not have their value tied to the value of the dollar. An example of a dollar asset is something like a bond or bank CD. Their values are tied directly to the value of the dollar. If the dollar falls, then their values fall.

Gold is a non-dollar asset. When the dollar falls, usually gold rises. The same is true with silver and oil. All of these things have values that are not tied to the dollar. My advice is to invest in non-dollar assets. Gold would be at the top of the list, silver and platinum and then oil.

TGR: In your Early Warning Report Newsletter, you predicted that gold will top $3,000/ounce (oz), silver will hit $50/oz and oil will exceed $300/barrel. Gasoline will go to $9/gallon. When will we see these rises? And what will be the catalysts that take them there?

RM: The next QE, which I expect to come along no later than March, could set off a flight from dollars. Then we could see those predictions realized within 18 months.

TGR: You said that once we have had this loss of the entire value of the dollar and people are looking for another way to trade, money could be based on some collection of metals with currency acting as a receipt for the tangible gold, silver, platinum and whatever else happens to be in that basket. What would that transition look like? How painful would that be? How would it be orchestrated?

RM: It doesn’t have to be painful. The markets are moving in that direction. People trade exchange-traded funds (ETFs) for practically everything now. I can envision a mutual fund or an ETF that is a collection of various things. It could be gold, silver and platinum. It could have oil in there. It might include Swiss francs. It could even have various patches of real estate. The ETF itself would then become a currency, not because anybody has it planned that way, but because the markets will see that there will be a demand for something that is a non-dollar asset that is easily tradable and seen as a store of value. There would probably be hundreds of these baskets of assets at the start. Some would work better than others would; the less workable ones would shake out. You might wind up with maybe a half dozen ETFs or mutual funds that are baskets of various assets circulating in the world. They would essentially become the currencies.

TGR: Would investing in ETFs now be a good way to prepare?

RM: No. I don’t know of any that are arranged that way. It may be a while until somebody catches the idea and decides to give it a try.

TGR: What about the precious metal equities? Would that be a good way to prepare?

RM: Yes. There are lots of good precious metal stocks. I own quite a few. That is another way to protect yourself. However, be sure to deal with a broker who really knows natural resources. You have to have some skill in picking those stocks. It’s not like going down and buying a gold coin where you just walk into the coin dealer and tell him I want a handful of American Eagles or Canadian Maple Leaves. You really have to know what you are doing when you are buying gold stocks.

TGR: Any final thoughts you want to leave with The Gold Report readers?

RM: The world has changed. When you look at the news and you say to yourself, “My God, America isn’t what it was; the world isn’t what it was,” have the confidence to know you are right. We are probably not going back to what America or the world was anytime in my lifetime. Therefore, you want to start learning everything you possibly can about this new condition and adapt to it.

TGR: Thank you for sharing your thoughts.

RM: Thank you, JT. I appreciate being here.

Posted in Blog | Tags: Dollar Collapse, Dollar Devaluation, Gold and Silver, Gold Money, How to buy gold, Hyperinflation, inflation, Iran, Israel, Israel Bombs Iran, James Turk, Learn about Hyperinflation, Richard Maybury, War, World Reserve Currency |

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Gold & Fraudulent Traps

October 27th, 2011 | Author: Michael Piromgraipakd

BY JIM WILLIE
10/26/2011
Financial Sense

The feverish positive sentiment has left the Gold & Silver market in the last two months. Raised margin requirements during falling prices alongside naked short ambushes in the COMEX, coupled with permitted asset damage from debt monetization conducted more in secrecy will always help to dampen enthusiasm. But with the billboard message on the European subway walls and boulevards and news magazines stating the obvious, that the European debt crisis has no solution, that Germany has no more checks to write in funding the bailouts, that Greece is set to default, that leaders in political spheres are opposed by bank leaders where the final decisions are made, the GOLD & SILVER PRICES ARE SET TO ZOOM. Only the dummies sold in the last round of ambushes and interrupted recoveries. The precious metals have suddenly awakened. The old defended range for the two metals was easily overrun as a splash of reality hit the market faces. A mad scramble is likely from here onto the end of year, as people realize that hyper-inflation is the solution on any massive bailout with clearer gigantic needs, and as people realize that a broad string of bank failures will drive gigantic flows into safer places since sovereign bonds will go from sacred to toxic. The powerful decline in September, down $200 in gold and down $10 in silver suddenly have presented a ripe easy recovery without resistance. A powerful reversal is near and coming. Many investors will rush back in, paying higher prices than where they unwisely sold. Many investors will rush in, seeing banks and government bonds as ugly options.

FRAUD LACED IN THE SYSTEM

Before delving into the easy 15% upside opportunity in gold and easy 25% upside opportunity in silver, a topic begs to be covered. The topic is fraud. While discussion and analysis of fraud in US high finance can fill volumes, an entire set of encyclopedias, from just the last generation, direct attention to the fraud of investment funds and fraudulent bank accounting. My desire is to cite specifics on how investors have been duped into not participating in major moves up in commodity prices, like crude oil and precious metals gold & silver. My desire is to cite specifics on how the big banks avoid reporting 75% cuts in profits by fabricating the most absurd of accounting profits that even financial newscasters dispute as valid. The various funds to participate in the black gold and yellow gold asset plays have been congames. The defense by the big US banks against utter and complete insolvency have been congames. The public must avoid the ETFund investments. The public must avoid the perception that the big US banks are anything but dead.

PINPOINT FAILURE OF U.S. CAPITALISM

A opening argument against fraud and misrepresentation goes far beyond the Wall Street practice of pandering toxic bonds with AAA ratings. It goes far beyond promoting a fund that actually is critical in shorting oil and gold, rather than investing in them as investors intend. It goes far beyond deceiving about a price inflation between 7% and 11% since year 2005. It goes far beyond hiding an economic recession that started in 2007 and never ended. It goes far beyond news coverage of foreign wars like in Libya, when $90 billion in Qaddafi parked funds have been frozen, probably never to be released by Western banks. It goes far beyond $50 billion gone missing from the Iraq Reconstruction Fund with direct $2.3 billion payment handed to a fellow who received the highest medal of honor to a private citizen. The biggest problems that plague the United States Economy, its financial system, and its capitalist structure relate to ineffective usage of brainpower, co-opted assets & capital, and enormous investment in the corrupted system.

Clearly the United States has untapped resources, deep riches, broadly spread. The nation has significant land, including agriculture, timber, and water resources. The nation has significant untouched oil & gas deposits, and natural energy in wind, sun, and geothermal pockets. The nation has significant knowledge and technology, some of which has never been used that could dramatically reduce a wide range of expenses. The nation has 300 million people who have a great deal of their time and energy ready for productive usage. The nation has enormous untapped resources. However, the investment and capital devoted to support the fraudulent system is staggering. Just look for instance at the CNBC and Bloomberg financial news center facilities. They are not devoted to industry that produces jobs directed at value added enterprise. Just look at the entire Wall Street and hedge fund and asset management sector. It is not directed at value added enterprise, but rather to shuffling of securities certificates. A Chinese economist remarked a year or more ago that of the $14 trillion US Gross Domestic Product, perhaps half was not legitimate since merely related to transfers of debt securities and other debt paper products. What a great point! The USEconomy might be exaggerated by double in legitimate size, a fact underscored by the industrial base that has been moved to Asia since 1980, first with the Pacific Rim and finally with the Chinese buildup. Just look at the vast network of consumption centers, like Wal-Mart and Target and Best Buy, the retail chains that do not invest in value added enterprise. Recall that 70% of the USEconomy is devoted to consumption, as some sort of sick religious exercise that all too often has resulted in home equity converted to things bought. America has spent its capital tragically and now finds its many sectors insolvent. The conclusion is that a large part of American capital is devoted to the syndicate and beholden to the advertisers. Resources do not mean much when the capital and brainpower is co-opted and dedicated to fraudulent enterprise and even to self-destruction.

Let’s consider some specifics. Larry Ellison of Oracle, Steve Jobs of Apple, and Bill Gates of Microsoft never finished college. They were productive, as Gates is given a pass for innovation in monopoly development and marketing theft to build a stodgy empire that has stagnated in the last decade happily. When young minds attend college, they emerge hungry to make a mark, to put a stake in the ground, to create an organization, to build wealth and to make a legacy. All too often, the best & brightest are hired by the bad guys. An entire generation of brilliant young minds has been largely co-opted. Microsoft took genius minds, as the Jackass knew of several who applied there. They produced co-opted software technology, source code theft during partnership ventures, little or no innovation unless one considers bundling to smother Netscape and Norton. Also Goldman Sachs took genius minds, as the Jackass knew none, but a couple wannabees. They produced insider trading in finance technology, derivative devices that enabled concealed debt, exchange traded funds that enable control of a market, and so much more. A Forbes Magazine editor once sat next to Gates on an airline flight. During the conversation, Gates admitted that his chief rival in hiring the best minds that America had to offer came from Goldman Sachs. So the best graduates pursue permitted monopoly and fraudulent finance. Also the Defense Contractors took genius minds, as the Jackass knows of one in particular. They specialize in weapon systems and the attendant equipment. The trickle down benefits are an illusion, as the end product is a structure in smithereens. Benefits trickle down in seven to ten stages. Destruction trickles down in two or three stages, with Senate kickbacks and cost overruns the chief icing.

The biggest problems in the US are

diverted intellect toward fraud, theft, and monopoly enterprise
war and destruction, in pursuit of dominance over rubble landscape
absent industry after 30 years of off-shoring factories to Asia
really dumb kids, whose perspective is both shallow and limited.

When the Jackass was in Digital Equipment Corp from 1980 to 1993, many of us shook our heads when Intel, then many others, including DEC, opened manufacturing plants in the Pacific Rim. Ours were Taiwan, Hong Kong, and Singapore. One of my little accomplishments was to streamline online testing of factory output in quality control procedures. We had one major success with clients on their manufacturing sites that produced monitors and memory among others. The initial strategy on the national movement to off-shore was “just manufacturing” but many of us kept shaking our heads, thinking “no way, next comes Research & Development.” Within only two years, the DEC site in Taiwan had a leading R&D center that ultimately developed a world class computer monitor, a smart monitor with loads of options. Patents were filed, and the business segments upstream were set to flourish. Capital was attracted to Asia by the boatload. The United States has huge resources. But as we have see in the last two decades, they have been tapped, and they will be tapped, but by foreign nations and foreign firms. For a disgusting sign of the times, look to the California high speed rail project. The California Legislature eventually had to install new laws to limit the contract funds and contract jobs going to China. Most stimulus aid foreign jobs. Even stimulus toward the infrastructure in a key project aided China more than the US. Sadly, most new jobs in the USEconomy are devoted to health care and retail. So we are becoming a nation of hospital orderlies and cash register clerks, whose products tend to be bedpans and checkout lines. No need for college on those fronts.

FUND GROWTH DESPITE INEFFECTIVENESS

global etf Exchange Traded Funds are generally a profound fraud laced with deception and extremely slippery prospectus language. Many lazy investors are being duped. The flagship GLD fund is the worst perpetrator in my view. Many analysts and industry experts have offered details on all manner of problems, irregularities, and anomalies, like unstable bar lists, like shorted shares by management, like bullion metal inventory shipped to the COMEX, like vault fees without stored metal. Turn to the flagship crude oil fund. The popular crude oil ETFund has lost over half its value relative to tracking the commodity price. Funds might be regularly abused by managers to short the commodity and keep the price down, an old game with an easy fingerprints. Such practice would fly in the face of investors, who sometimes feel betrayed, when they discover what is happening under their desks. The investors think they are investing in gold or crude oil in a fund, but those in charge of management and fiduciary responsibility are working hard toward the opposite objective. Investors are duped into shorting the same assets they invested in, indirectly. The total volume of Exchange Traded Funds is fast approaching $2 trillion, but not well invested. The invested funds all too often support the system that wishes to keep down the commodity prices, so that paper financial products are encouraged. The GLD fund managed by HSBC receives the most attention on widespread illicit activity, from fraudulent drainage of its gold inventory toward the COMEX to meet delivery demands through massive shorting. The fund has never been subjected to the scrutiny of a full audit by an independent agency.

EXCHANGE TRADED FUNDS DO NOT TRACK

Another big fraud is the crude oil investment tracker. The United States Oil Fund (USO) was introduced as a vehicle for investors to track the crude oil price. When it began, the ETF had a 1:1 price relationship with the New York crude oil from the futures exchange, a close match. Its expense ratio was a mere 0.45% in overhead. What a huge change since inception! The active month crude oil contract trades between $85 and $95, but the USO fund has been bobbing around recently in a lowly ratio to crude oil below 40%, with a plunge below 30% in October. The penalty for investing in the oil ETF has come to 60% to the dopey lazy investor. The investors did not invest in crude oil at all. They benefited not at all from any rise in crude oil over the last three years.

Analysts defend the fund, claiming that rollover from current nearby contracts has eaten up value, along with administrative costs. That seems a lie. The successive monthly contracts do ramp down, but by the month’s end, the difference should be very small. In all likelihood, just like GLD but to the extreme, the USO fund is being brutally abused to short the crude oil price on the West Texas contract. Recall that the WTIC oil price has consistently been $15 to $25 below the North Sea Brent oil price for months. Blame is placed for the gross differential on surplus storage at the Cushing Oklahoma facilities, but that too seems a lie. Look instead for a fishy finger on extreme Wall Street activity with futures contract shorts, perhaps even backed by the official Strategic Petroleum Reserve storage supply on oil slick cover. Notice in the ratio of USO/WTIC, the quantum decline in early 2009 corresponded to the extreme drop from $135 to $40 per barrel. Conclude that the USO fund might have been instrumental in generating some extreme profits on the downside when they drove down the crude oil price. Even more leverage is deployed with futures options.

uso wtic

One can see the other smaller quantum declines circled on the graph. Even they are outsized, since 6% is not the cost to roll into the current nearby month. The spread from successive months is typically only 30 to 60 cents, well under 1%. See for yourself from the INO website on the CL crude oil futures contract (CLICK HERE). However, between those sudden drops one can notice a steady ramp in decline. That is where the fraud and abuse lies, since they should be flat horizontal, acting like a true tracking fund. There is no tracking. Funds are in high likelihood removed regularly in illicit shorting programs, to sell the crude oil contract with investor funds. Just speculating, but this is an old game.

A final comment on the lavish expense ratios. For the SPDR Gold Shares (GLD) it is 0.40%, which does not seem like much. However, the size of the fund is about $55 billion, making 0.40% a hefty $220 million. That is a big fee to charge for mismanagement. At best it is badinvestment decisions, but at worst it is fraud such as from shorting the shares, the money drawn out to sell into the gold market. The metal inventory from short programs would go straight to the COMEX, as some intrepid reporters have revealed from insider sources. Conclude that investors are violated coming and going. Only total idiots and morons invest in such funds, of course along with lazy folks, cheered on by intellectual clowns like Adam Hamilton of Zeal Intelligence, who seems never to have identified a fraud in his entire career.

BIG BANK FRAUDULENT ACCOUNTING

Let me introduce you to my little friend, said the infamous Scarface. The little friend for the giant US banks is the Debt Value Adjustment, which fabricates profits from bond decay. The success is in placating really stupid investors, who rush in, only to see the bank stock fall by the afternoon sesssion. The accounting fraud committed by JPMorgan is typical. Instead of taking a loss on their own declining corporate bonds, or doing nothing, they posted a queer profit in a Debt Value Adjustment of $1.9 billion, equal to 29 cents per share. The JPM bond yield spread has widened by 200 basis points versus the USTreasury Bond. The bank colossus paid out $1 billion in legal expenses for bond investor lawsuits. They raided $96 million from Loan Loss Reserves, which will be needed later, like in bond fraud investor settlements. They cut 1100 in bank staff. They posted a $700 million decline in investment banking profit. Their biggest line item of profit was the fiction of a $1.9 billion profit from their decaying corporate bonds. It is not a profit & loss event at all. If they default on the corporate bond, imagine the accounting profit could be maximized. Only in American bank accounting!! Blessed as good by the FASB and USCongress!! JPMorgan is a wreck, as their businesses are tanking. Their tight grip on the Silver market could be loosened in time.

Profits announced by the big US banks are phony. A laundry list of tainted supposed profits came in the last two weeks for the entire crew of giant insolvent us banks. The Debt Value Adjustment (DVA) deception is the main common thread of deception. Citigroup posted $1.9 billion in Debt Value Adjustments, the same amount JPMorgan posted for DVA in a parade. This item is so corrupt as to be indefensible by any rational person. They take the fallen value of their own corporate debt, cite how they could buy it back at a lower cost, and book the difference as profit. But the debt is not bought back, only pretended. Similar games are played with bond spreads widening, but keep the argument simple. Imagine a corporate bond rising in principal, but not as fast as USTBonds, booked as a profit since the spread has worsened. So if the corporate bond fails altogether and goes to zero, the DVA would maximize the profit for the dead firm. In my book, dead firms do not buy back their debt. As a statistical analyst, the Jackass always prefers to carry an argument or method to the extreme to reveal its legitimacy or flaw.

Bank of America also posted a $1.7 billion DVA profit, but the winner was Morgan Stanley, which has the highest risk of death. They posted a hefty $3.4 billion fictional profit from a non-event adjustment to their corporate debt, the same Debt Value Adjustment. Without such tainted profits, the big US banks would have shown their dead decaying matter more clearly. Worse, during a time when mortgage assets and lawsuits are all the rage, they raided their Loan Loss Reserves, more phony profits. Bank of America even listed litigation losses while raiding LLReserves in the amount of $1.6 billion. Citigroup snatched back $1.4 billion in LLR, while Wells Fargo snatched back $0.8 billion in LLR. The big US bank quarterly reports were worse than dreadful, as they were corrupted and phony, the rot visible. Amazingly, the Bloomberg financial news identified the practice as questionable but legal, calling them poor quality profits!! Poor quality indeed. They are too kind. In March they called outgoing Egyptian leader (emperor) Mubarek a prolific saver, for having accumulated $60 billion. Maybe they will call the pilfered Libyan funds sticky, when not returned.

DERIVATIVES DUMPED ON DEPOSITORS WITH USFED BLESSING

Bank of America dumped its derivative book, possibly preparing for a restructure. The dumping ground is likely a pitstop en route to the USGovt toxic vats. The USFed applauds while the FDIC complains. Raids of assets preceded the Lehman Brothers failure, alert students of history note. This event might be no different. Bank of America engaged in devious accounting. Not only did they call their own corporate bond decay a phony profit, butthe firm shifted much of its mountain of derivatives held on its balance sheet as of June 30th. They moved it to their retail bank. Just last week, Moodys downgraded the bank holding company from A2 to Baa1. The retail bank was downgraded more gently to A2 from Aa3. The collateral backstopping will next be done fully and effectively by the bank’s $1.041 trillion in deposits. A bank run has been rumored at the big lumbering insolvent bank. Its website was down for several consecutive days, inhibiting usage of funds. Furthermore, the insurance agency to the depository base is very angry, namely the Federal Deposit Insurance Corp. The FDIC is another dead entity, devoid of funds, posing as a Wall Street harlot, this time betrayed by its brethren. The USFed favored the shift on the books, so as to give relief to the bank holding company (in their words). Conclude that depositors are forced to backstop its $53 trillion derivative book, as clients continue to depart. Savings accounts and certificate holders might be wiped out on a liquidation.

Bank of America already had the threat of failure looming due to deep insolvency from mortgage and litigation losses. Until now, the operations like the retail banks would not be affected and could be spun out to a new entity, even sold. Shareholders would be wiped out and holding company creditors like the bondholders would take losses. The derivative shift changed everything. Bank analyst Chris Whalen calls it either criminal incompetence or abject corruption by the USFed. Dumping derivatives into the depository business segment goes in diametric opposition to Dodd Frank resolutions. So much for Financial Regulatory Reform if not enforced. The US Federal Reserve and Federal Deposit Insurance Corp are in deep disagreement over the transfers. The USFed favors moving the derivatives to benefit the bank holding company, while the FDIC objects since it must pay off depositors in the event of a bank failure made more likely. The FDIC will attempt to reject this brazen move. The corrupted USFed will argue not to disrupt the financial markets further. Witness the justification for a Dodd Frank resolution and ruling.

The 2005 bankruptcy law was revised to permit derivatives counter-parties to be given the first in line position. They grab assets first in a little known feature of the bankruptcy reform that favored the banks. This truly devious bold move amounts to a direct transfer from Merrill Lynch derivatives risk to the USGovt via the FDIC. It means depositors will be made whole only after derivatives counter-parties have seized collateral. Depositors are lined up for a legalized raid, better yet a theft. Recall back in September 2008, that Lehman Brothers failed over a weekend after JPMorgan grabbed its collateral in a basic daylight raid. Expect another TARP type of bank bailout, as the Wall Street firms jockey to slide their derivative exposure under carefully crafted shells. The bad news for them is that they have over $200 trillion left, even after this ugly maneuver to shift the Merrill Lynch exposure.

GOLD & SILVER READY TO REBOUND

The Gold market is on the verge of a powerful move. The reversal base has been created. The $1620 level was tested successfully a few times. The uptrend has been defended and should continue in a powerful surge upward. The Chinese have been buying with both hands on the physical market, as the London traders report. They took full advantage of the horrendous display of market interference, as the gold contract margins were hiked in repeated fashion during the price declines. It was engineered. The nasty ambush appears over. A bullish divergence is clear, as the daily stochastix showed positive signals while the price was forming a flat bottom near the $1600 level. A powerful reversal is in progress, one that echoes the reversal in the Euro currency from 132 up to 140. Gold had fallen on the back of the Euro decline. Now the Gold price is rising from lack of resolution witnessed and confirmed in Europe. The gap to fill should be swift, easy, and loud. The gap from $1670 to $1770 is a full hundred points. As it is filled, the naysayers on Gold will have to defend why they advised clients to abandon the only true safe haven in the financial universe, Gold, along with its little brother Silver.

The growing economic recession will reveal many dead objects in the flotsam & jetsam, much like a tide going out to sea. That is a primary function of recessions, to clear the deck of bad debt and start anew, to plow the soil and permit nutrients to work again. Gold will shine. Gold is not loaded with the fraudulent traps and snares built by Wall Street from the devious risky paper realm. Gold has no fraud from counter-party risk. Gold is legitimate money. The United States will be forced back to the Gold Standard, but it will be the currency used over a landscape that features rubble, ruin, and discontent. Be sure that every measure will be taken to save the current system, to debase the major currencies in every way possible, at the greatest allowable volume. The USDollar and other majors will be wrecked in the process, and Gold will be lifted in value in corresponding opposite fashion. The Western leaders have no desire to reform, to yield power, and to install a viable sound monetary system. Banks should become utilities, not casinos and helms of market control. A grand disruption cometh!

gold 25 oct 2011

The Europeans provided the trigger on Tuesday for the big $50 move up in the Gold price, and the $1.50 move up in the Silver price. Their bankers, politicians, and commissioners are in deep discord. No solution exists. Big bond losses are coming. Big banks that are already insolvent will topple. The Greek Govt debt will default. They are trying to make the default orderly. The gang in crisis resolution talks could not be more in discord. The Germans want out of the obligation of being the savings account of last resort to use. The Germans are actually working toward a new alliance with Russia and China, with Persian Gulf support. They look East as they see the West in shambles. If the Euro banks benefit from a big bailout from a $2 trillion filled fund, at minimum, then the monetary debasement will be great for Gold. Tremendous leverage would be the only means of supplying that volume of funding. The Europeans dislike the Geithner concept of heavy leverage usage. If the Euro banks do not fail to secure funding, and cannot recapitalize, a string of bank failures will rock the continent. The contagion will slam London and New York like a tsunami. The crisis would intensify to a new dangerous level that brings talk finally of systemic failure from banking system collapse, which will be great for Gold. Those who jumped or were pushed off the Gold locomotive in September are the real losers. If they relied upon the leverage inherent to the rigged futures contract game, shame on them. Let them climb aboard on the legitimate rail cars that feature physical Gold bullion benches, not the paper fake asset.

Finally, attention has grown on the gathering storm of Italy. Their debt is being downgraded steadily, just like Spain. The Italian prime minister seems like a clown in a suit, calling the crisis a fiction written by the press. They reject austerity measures, as their debt runs out of control. The nation of Italy must fund over EUR 200 billion of debt before the end of 2012, from rollover. Their bond yield has surpassed the 6.0% level known to serve as the alarm bell. Then tack on fresh debt. The Greek domino could easily push over the Italian domino, which lies next to the fragile Spanish domino. The European Monetary Union will break. Germany announced the return of the Deustche Mark, the date unclear for re-launch. It will be priced for conversion at one Euro to 1.95 DMarks, the same as the 1999 exchange rate when the ill-fated Euro was born. Regard this vehicle as a transitional currency to a new gold-backed currency, the USDollar Killer, the ticket to the Third World. Details are in the October Gold & Currency Hat Trick Letter report. These are exciting times, but dangerous times, full of risk, but full of opportunities.

Read the entire article HERE.

Posted in Blog | Tags: Banker Bailouts, Capitalism, ETF's, European Debt Crisis, Federal Reserve, Gold & Fraudulent Traps, Gold and Silver, Gold Manipulation, Greece Debt, How to Buy Gold and Silver, Hyperinflation, inflation, Silver Manipulation, timothy geithner |

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HOLY BAILOUT – Federal Reserve Now Backstopping $75 Trillion Of Bank Of America’s Derivatives Trades

October 19th, 2011 | Author: Michael Piromgraipakd

OCTOBER 18, 2011
The Daily Bail

This story from Bloomberg just hit the wires this morning. Bank of America is shifting derivatives in its Merrill investment banking unit to its depository arm, which has access to the Fed discount window and is protected by the FDIC.

This means that the investment bank’s European derivatives exposure is now backstopped by U.S. taxpayers. Bank of America didn’t get regulatory approval to do this, they just did it at the request of frightened counterparties. Now the Fed and the FDIC are fighting as to whether this was sound. The Fed wants to “give relief” to the bank holding company, which is under heavy pressure.

This is a direct transfer of risk to the taxpayer done by the bank without approval by regulators and without public input. You will also read below that JP Morgan is apparently doing the same thing with $79 trillion of notional derivatives guaranteed by the FDIC and Federal Reserve.

What this means for you is that when Europe finally implodes and banks fail, U.S. taxpayers will hold the bag for trillions in CDS insurance contracts sold by Bank of America and JP Morgan. Even worse, The Total Exposure Is Unknownbecause Wall Street successfully lobbied during Dodd-Frank passage so that no central exchange would exist keeping track of net derivative exposure.

This is a recipe for Armageddon. Bernanke is absolutely insane. No wonder Geithner has been hopping all over Europe begging and cajoling leaders to put together a massive bailout of troubled banks. His worst nightmare is Eurozone bank defaults leading to the collapse of the large U.S. banks who have been happily selling default insurance on European banks since the crisis began.

Original Article HERE.

*****Bloomberg By Bob Ivry, Hugh Son and Christine Harper – Oct 18, 2011*****

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation.

The Federal Reserve and Federal Deposit Insurance Corp. disagree over the transfers, which are being requested by counterparties, said the people, who asked to remain anonymous because they weren’t authorized to speak publicly. The Fed has signaled that it favors moving the derivatives to give relief to the bank holding company, while the FDIC, which would have to pay off depositors in the event of a bank failure, is objecting, said the people. The bank doesn’t believe regulatory approval is needed, said people with knowledge of its position.

Three years after taxpayers rescued some of the biggest U.S. lenders, regulators are grappling with how to protect FDIC- insured bank accounts from risks generated by investment-banking operations. Bank of America, which got a $45 billion bailout during the financial crisis, had $1.04 trillion in deposits as of midyear, ranking it second among U.S. firms.

“The concern is that there is always an enormous temptation to dump the losers on the insured institution,” said William Black, professor of economics and law at the University of Missouri-Kansas City and a former bank regulator. “We should have fairly tight restrictions on that.”

Accommodating Clients

Jerry Dubrowski, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment on the transfers or the firm’s discussions with regulators. The company “continues to accommodate the needs of our clients through each of our multiple trading entities, including Bank of America NA,” he said in an e-mailed statement, referring to the company’s deposit-taking unit.

Barbara Hagenbaugh, a Fed spokeswoman, said she couldn’t discuss supervision of specific institutions. Greg Hernandez, an FDIC spokesman, declined to comment.

Bank of America posted a $6.2 billion third-quarter profit today, compared with a loss of $7.3 billion a year earlier, as credit quality improved and the firm booked one-time accounting gains. The lender rose 7.3 percent to $6.47 at 1:54 p.m. in New York trading, making it the day’s best performer in the Dow Jones Industrial Average. Credit-default swaps on Bank of America eased 10 basis points to a mid-price of 380 as of 11:49 a.m. in New York, according to broker Phoenix Partners Group.

Moody’s Investors Service downgraded Bank of America’s long-term credit ratings Sept. 21, cutting both the holding company and the retail bank two notches apiece. The holding company fell to Baa1, the third-lowest investment-grade rank, from A2, while the retail bank declined to A2 from Aa3.

Moody’s Downgrade

The Moody’s downgrade spurred some of Merrill’s partners to ask that contracts be moved to the retail unit, which has a higher credit rating, according to people familiar with the transactions. Transferring derivatives also can help the parent company minimize the collateral it must post on contracts and the potential costs to terminate trades after Moody’s decision, said a person familiar with the matter.

Bank of America estimated in an August regulatory filing that a two-level downgrade by all ratings companies would have required that it post $3.3 billion in additional collateral and termination payments, based on over-the-counter derivatives and other trading agreements as of June 30. The figure doesn’t include possible collateral payments due to “variable interest entities,” which the firm is evaluating, it said in the filing.

Dubrowski declined to comment on collateral or termination payments after the downgrade.

‘Be Prepared’

Bank of America’s rating is now four grades below the one Moody’s assigned to JPMorgan Chase & Co. (JPM), the biggest U.S. bank by deposits at midyear, and a level below the rating given to Citigroup Inc. (C), the third-biggest. Bank of America is the only U.S. lender that lacks a rating of A3 or higher among the five firms listed by the Office of the Comptroller of the Currency as having the biggest derivatives books.

“We had worked very hard over the course of the last nine months to be prepared to the extent that we did receive a downgrade, and feel very good about the way that we’ve minimized the potential impact” Bank of America Chief Financial Officer Bruce Thompson said in a conference call today with analysts. “Since the downgrade, we have not seen any change in our global excess liquidity sources.”

Derivatives are financial instruments used to hedge risks or for speculation. They’re derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in the weather or interest rates.

Dodd-Frank Rules

Keeping such deals separate from FDIC-insured savings has been a cornerstone of U.S. regulation for decades, including last year’s Dodd-Frank overhaul of Wall Street regulation.

The legislation gave the FDIC, which liquidates failing banks, expanded powers to dismantle large financial institutions in danger of failing. The agency can borrow from the Treasury Department to finance the biggest lenders’ operations to stem bank runs. It’s required to recoup taxpayer money used during the resolution process through fees on the largest firms.

Bank of America benefited from two injections of U.S. bailout funds during the financial crisis. The first, in 2008, included $15 billion for the bank and $10 billion for Merrill, which the bank had agreed to buy. The second round of $20 billion came in January 2009 after Merrill’s losses in its final quarter as an independent firm surpassed $15 billion, raising doubts about the bank’s stability if the takeover proceeded. The U.S. also offered to guarantee $118 billion of assets held by the combined company, mostly at Merrill. The company repaid federal bailout funds in 2009 with interest.

‘The Normal Course’

Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.

The moves by Bank of America are part of “the normal course of dealings that we’ve had with counterparties since Merrill Lynch and BofA came together,” Thompson said today.

‘Created a Firewall’

Moving derivatives contracts between units of a bank holding company is limited under Section 23A of the Federal Reserve Act, which is designed to prevent a lender’s affiliates from benefiting from its federal subsidy and to protect the bank from excessive risk originating at the non-bank affiliate, said Saule T. Omarova, a law professor at the University of North Carolina at Chapel Hill School of Law.

“Congress doesn’t want a bank’s FDIC insurance and access to the Fed discount window to somehow benefit an affiliate, so they created a firewall,” Omarova said. The discount window has been open to banks as the lender of last resort since 1914.

As a general rule, as long as transactions involve high- quality assets and don’t exceed certain quantitative limitations, they should be allowed under the Federal Reserve Act, Omarova said.

In 2009, the Fed granted Section 23A exemptions to the banking arms of Ally Financial Inc., HSBC Holdings Plc, Fifth Third Bancorp, ING Groep NV, General Electric Co., Northern Trust Corp., CIT Group Inc., Morgan Stanley and Goldman Sachs Group Inc., among others, according to letters posted on the Fed’s website.

The central bank terminated exemptions last year for retail-banking units of JPMorgan, Citigroup, Barclays Plc, Royal Bank of Scotland Plc and Deutsche Bank AG. The Fed also ended an exemption for Bank of America in March 2010 and in September of that year approved a new one.

Section 23A “is among the most important tools that U.S. bank regulators have to protect the safety and soundness of U.S. banks,” Scott Alvarez, the Fed’s general counsel, told Congress in March 2008.

Read the entire article HERE.

Posted in Blog | Tags: $75 Trillion of Bank of America Derivatives, Bank of America, Banker Bailout, Ben Bernanke, BofA, Derivatives Bubble, Federal Reserve, Gold and Silver, goldman sachs, Government Corruption, Hyperinflation, inflation, jp morgan, Merrill, SHTF, Stagflation, timothy geithner |

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On the Threshold of the Greatest Bubble in History

October 10th, 2011 | Author: Michael Piromgraipakd

By Jeff Clark
October 5, 2011
BIG GOLD

It may not feel like it after a 12% correction in the past 30 days, but Mike Maloney – founder of GoldSilver.com – is convinced that we’re in a gold bull market that will be life changing for those who participate. I interviewed him for our current edition of BIG GOLD and am sharing some of what we talked about here. You may be shocked at what you read, because he’s devoted a larger allocation to gold and silver than we have. See why he’s convinced a bubble is ahead for precious metals, how high prices will go, and why he stores some gold overseas.

Jeff Clark: For those who don’t know you, why is Mike Maloney such a big believer in gold and silver?

Mike Maloney: Around 1999, my mother needed help with the estate my father had left her. My sister and I interviewed a dozen financial planners and picked the one that had the most glowing recommendations and gave him control of the assets. He lost about 50% of them in the next year and a half. What I’ve found is most financial planners get it wrong. They’re always chasing yesterday’s news. To be fair, there was a market crash, but with 50% of her assets gone by 2001, I ripped everything away from him, moved it to cash, and started studying the economy like crazy.

I discovered that the people concerned about budget deficits and trade imbalances at that time were in the precious metals sector, the hard money advocates. All the rest of the economists and newsletter writers didn’t really care. Concerns about international trade imbalances and how they were going to come back to bite us one day were coming from the hard money analysts. They also wrote about monetary history, something I just fell in love with. The fact that things just repeat over and over again is amazing.

I have hard data from 1918 to today, and anecdotal evidence before 1918, that shows that throughout history a society has a certain amount of real money – gold and silver. Then they either come out with debased coinage, or paper representations of gold and silver and expand the currency supply, which eventually cause prices to rise. People then realize there was something wrong with the currency and they rush back toward gold and silver to protect their purchasing power… and in doing so, they bid up the value of the gold and silver in the country until it matches the value of the circulating medium.

It appears to me this process has been going on since 407 BC, with the first great inflation in Athens. I have charts in my book, Guide to Investing in Gold and Silver, starting in the year 1918, showing the value of the gold held at the United States Treasury compared to the value of all of the base money or paper currency, and it was a 1:1 ratio.

Jeff: So history shows that the value of gold eventually equals the value of all paper money in circulation?

Mike: Yes. Back then, the US dollar was a claim check on real money – gold. Base money was the number of US Treasury gold notes in circulation. Before World War I, base money equaled the value of the gold held at the US Treasury. Then we established the Federal Reserve and did a bunch of deficit spending for WWI, expanding the currency supply, so now there wasn’t enough gold to cover all the dollars they printed. In 1934 the price of gold was changed to $35 per ounce and the values of base money and gold at the Treasury were once again in equilibrium.

Then we expanded the currency supply to pay for WWII, Korea, and Vietnam, and in the ‘70s the price of gold rose until its value at the Treasury exceeded base money. But, for a short time in 1980, the value of gold at the Treasury not only exceeded the base money, it surpassed base money plus outstanding credit card balances. This is important because credit cards are replacing cash in circulation, so you must include it if you want to estimate a price target.

Jeff: So how high do gold and silver go?

Mike: When I finished the book, it required a $6,000 gold price to cover base money plus outstanding revolving credit. I’m not saying that that’s going to happen, but if history were to repeat, that would be the price.

However, since the book was written, Bernanke created a whole bunch of base money to bail out the banks, and now it takes a $15,000 to $20,000 gold price. One caveat is that $1.6 trillion of excess currency is sitting on banks’ balance sheets. It has yet to enter circulation, and if it never does, then this price target changes. My point is that prices are a moving target. Putting a dollar figure on them is an exercise in stupidity, I think, because the dollar is always changing. You can’t use it as a measuring stick.

My target for gold is that it should be equivalent to 1/40 of a single-family, medium-priced home, or two shares of the Dow. So gold will probably buy you about 12 times more stocks and 3 times more real estate in the future than it does now. So those are my prices.

And silver will leverage you to that. There is more gold on the exchanges and with the dealers that investors can buy than there is silver. Their current prices do not reflect this. Gold is way too cheap compared to dollars, and silver is too cheap compared to gold.

Jeff: Sounds like it’s not too late to buy gold and silver.

Mike: No. What investors need to be aware of is that we are on the last legs of our currency system. History shows that the world sees a brand-new monetary system every 30-40 years – and ours is 40 years old. Right now all currencies on the planet are backed by debt. All of the previous transitions were baby steps from something (gold) to nothing (debt). In order to give confidence back to the currencies, we’ll have to go from nothing (debt) to something (most likely gold again) in one big, huge, gigantic leap. This will cause an economic convulsion the likes of which the world has never seen.

The end of this precious metals bull market will be marked by panic buying. Gold and silver will be going into an astronomical bubble one day, probably the biggest bubble in financial history. That is why I think gold and silver are still fundamentally undervalued.

Jeff: Investors reading this might be a little skeptical that a bullion dealer is telling them to buy gold and silver. Do you mind sharing what percentage of your assets is held in gold and silver?

Mike: My personal portfolio is 100% in gold and silver. I have no other investments. I am completely committed to this because I absolutely believe it. I spent 2-1/2 years writing what is now a bestselling book on gold, and I opened a precious metals dealership. There isn’t anything I do, no action I take, that isn’t somehow connected to gold and silver.

Jeff: What separates GoldSilver.com from other bullion dealers?

Mike: Everybody at GoldSilver.com invests in gold and silver. They have all been invested in precious metals since I started the company in 2005. Everyone is absolutely committed and very knowledgeable. So we are all on the same side of the boat as Casey Research. If you become a gold and silver client, you’ll know we’re invested just like you are. We’re walking the walk and talking the talk.

We also have a team of researchers who are constantly analyzing where we are in this bull market. It’s in our best interest to try to find the top of this bull market and sell when the time is right. I believe we can multiply your winnings by letting you know what we’re doing when it comes time to sell. The way I’ve set up my company is that if you don’t win, I don’t win.

Another thing you should know is that I am not a gold or silver bug. I couldn’t care less about these metals. They are just in their cycle right now and will be the best performing asset for the coming years – period – just based on history.

There are these brief moments in history where the safe-haven asset also becomes the asset class with the single greatest potential gains in absolute purchasing power. We’re in one of these cycles right now; as the currency supply gets ramped up and people realize there is something wrong with it, they’ll rush back toward gold and silver and bid the price up until it matches the value of the currency supply.

Jeff: You’re increasing the number of storage facilities outside the US; why should a US citizen consider storing bullion outside the country?

Mike: Some investors are concerned about “confiscation,” which is technically incorrect. The US government never confiscated gold; they “nationalized” it. In 1933, they bought it from US citizens at full face so that the Treasury could hold it as an asset for the entire nation. That’s the very definition of nationalization.

Jeff: Are you saying you don’t think gold could be confiscated?

Mike: It’s possible, but I don’t believe it would happen in the United States. More than half of our currency resides outside the border. We’re the only country in that situation. If Obama passed an executive order today once again nationalizing gold, I believe that banks and brokerage houses around the world would suspect something was wrong with the dollar, and they would immediately dump their dollars and buy gold and silver. That would cause the dollar to fall to zero and send gold and silver to infinity in a matter of weeks. I would hope there is someone in the government smart enough to know this. If so, then it makes nationalization very unlikely.

Jeff: Good point.

Mike: But I do believe that it is good to have some geographical diversity. I think we’re going to see governments trying to limit our financial freedom even more than we’ve seen since 9/11. They’ll do this by instituting such draconian capital controls that today’s IRS will seem magnanimous by comparison. I want to be able to travel freely and have access to my funds no matter what happens. Therefore, I keep some of my gold in offshore storage accounts in several countries.

Jeff: But why go to the hassle and bother with the reporting requirements?

Mike: Because if you’ve got ownership outside the country, you may be able to retain it, even in a nationalization. The point is, we don’t know the future. All we can do is look at what’s happening, try to figure out what governments are going to do, and then protect ourselves with a little bit of diversity. And of all the assets you could own offshore, I believe none are safer than physical gold or silver.

Jeff: Do you think foreign storage puts a target on my back with government officials?

Mike: Well, they want to make sure you’re declaring any capital gain. And I do think that precious metals investors will see some sort of windfall profit tax when the government tries to punish those nasty gold speculators that caused the dollar to crash. They will always point the finger anywhere but where it belongs – which is squarely at the government and the Federal Reserve. People are just trying to protect themselves from government stupidity and the Fed by buying gold and silver.

I think the reason they require the reporting is to make it difficult for people to cheat on their taxes. I don’t think it’s going to make you any more of a target than anybody else if you report everything. If you play within the rules, you’re not a target. I myself walk the straight and narrow. I make sure I comply with everything the IRS and the Treasury require.

Jeff: What about the small investor? Do you have any advice for the person who has limited funds?

Mike: Yes. It only takes $40 to become a silver investor. Regardless of what your income level is, you’re going to come out much better in the end. And once you take the leap and become an investor, your mindset changes and you find yourself starting to plan. A lot of people are not really planning on the future that much – but once you buy an ounce of silver and become educated, you give yourself a tremendous advantage over the rest of the population.

So just buy small quantities of silver. It has such leverage to it. And silver will probably go into some sort of super-spike that you will want to catch, which means you probably need some sort of guidance. That’s where subscribing to newsletters such as yours is very, very important for anybody who’s going to get into this.

Jeff: Thanks for your time, Mike. And we appreciate the discount you’re offering our readers.

Mike: You’re very welcome.

Read the entire article HERE.

Posted in Blog | Tags: Bullion, Deflation, End The Fed, Federal Reserve, Gold and Silver, Greatest Bubble in History, How to Buy Gold and Silver, Hyperinflation, inflation, michael maloney, Physical Silver, Silver Short Squeeze |

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Obama Not to Blame for the Economy’s Collapse: Quadrillion Dollar Derivative Bubble

October 7th, 2011 | Author: Michael Piromgraipakd

by RickAckerman
October 7, 2011 12:47 -0400
ZeroHedge

We can’t recall ever having spoken a kind word about Barack Obama, nor do we even imagine him capable of saying or doing something that might bring us around. However, we do not – repeat, do not – blame him for the terminal state of the economy. It was headed irretrievably into a Second Great Depression long before he took office, and the things he has tried so far to forestall a day of reckoning are, for the most part, the same things that any president, Democrat or Republican, would have tried. Nothing would have worked, of course, because the deflation that the U.S. and the rest of the world have been trying so desperately to counteract is drawing irresistible force from an imploding derivatives bubble valued notionally at nearly a quadrillion dollars. Small wonder, then, that a relatively puny stimulus effort amounting to mere trillions of dollars has bought us only time, not growth, and done so in a way that will burden future generations with more debt than they will be able to service, let alone repay.

To be sure, a solution has always lain well outside the boundaries of political discussion. The best we could have hoped for was a legislative sausage pleasing to the tastes of Harry Reid and John Boehner alike. But nothing those two could conceivably have agreed on would have brought the economy around. Nor would a change at the top have helped. Put someone else in the White House not handicapped by Mr. Obama’s timidity, incompetence and cluelessness – New Jersey Gov. Chris Christie is our idea of the right guy for the job – and even he would have failed to slow the country’s slide into deepest recession, let alone reverse it. For in fact we face 30% unemployment, a wave of bank failures that will rival the 1930s, and a real estate washout that will double the devastation that has already occurred. All of this is coming, and even though a President Christie, in the heat of the banking crisis of 2008-09, might have proffered the only correct answer – i.e., let the banks fail, allowing the markets to clear and the economy to right itself – it is inconceivable that he could have sold this course of non-action to Congress.

What Will Be ‘Money’?

And so, we can only wait nervously for the trigger event that will cause the economy to implode, unsanctioned. There is no predicting when this will occur, but the May 2010 Flash Crash provides strong reason to think that it will be mostly over – at least, the digital-financial part of it – in time for the evening news. The morning after, the desperate concern of nearly every American will be…money. It doesn’t take a rocket scientists to recognize that credit cards will no longer be the coin of the realm at that point. And just what might be? Silver and gold coins would be our guess, along with what little U.S. currency happens to be circulating when the music stops. If you are not prepared for something like this now, you ought to be. We’ll conclude with a link to the best book we’ve read to help you get ready, Sean Brodrick’s The Ultimate Suburban Survivalist Guide.

Read the entire article HERE.

Posted in Blog | Tags: Deflation, Fiat Currency, Flash Crash, Gold and Silver, Hyperinflation, inflation, New Currency, Obama Not to Blame for Economic Collapse, Quadrillion Dollar Derivatives Bubble |

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