Posts Tagged ‘Main Street’
by Agustino Fontevecchia
Jul. 13 2011 – 11:26 am
Chairman Ben Bernanke faced-off with Fed-hating Representative Ron Paul during his monetary policy report to Congress on Wednesday. The head of the Fed was forced to respond to accusations of enriching already rich corporations while failing to help Main Street, while he was pushed on his views on gold. When asked whether gold is money, Bernanke flatly responded “No.” (See video below).
While most of Bernanke’s reports to Congress serve politicians to pursue their own agendas by gearing the Chairman towards their issues, with Republican Rep. Bacchus talking of the unsustainability of Medicaid and Rep. Frank (D, Mass.) asking about the need to raise the debt limit without cutting spending, it was a stand-off between Bernanke and Ron Paul that took all the attention. (Read Apocalyptic Bernanke: Raise The Debt Ceiling Or Else).
Rep. Ron Paul, Republican for Texas, asked Bernanke why a capital injection of more than $5 trillion “hasn’t done much” to help the consumer, who makes up about two-thirds of GDP in the U.S., and prop up the economy, while it helped boost corporate profits. “You could’ve given $17,000 to each citizen,” Ron Paul claimed.
Bernanke, clearly on the defensive, told Rep. Ron Paul that his institution hadn’t spent a single dollar, rather, the Fed has been a “profit center” according to the Chairman, returning profits to the federal government. As Bernanke began to sermon Rep. Paul on the history of the Fed (“we are here to provide liquidity [in abnormal situations],” the Chairman said), he was interrupted.
“When you wake up in the morning, do you think about the price of gold,” Rep. Paul asked. After pausing for a second, Bernanke responded, clearly uncomfortable. that he paid much attention to the price of gold, only to be interrupted once again.
“Gold’s at about $1,580 [an ounce] this morning, what do you think of the price of gold?” asked Rep. Paul. A stern-faced Bernanke responded people bought it for protection and was once again cut-off, with Ron Paul once again on the offensive.
“Is gold money?” he asked. Clearly bothered, Bernanke told the representative, “No. It’s a precious metal.”
After Paul interrupted him to note the long history of gold being used as money, Bernanke continued,”It’s an asset. Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”
“Is gold money?” he asked. Clearly bothered, Bernanke told the representative “no, gold is not money, it’s an asset. Treasuries are an asset, people hold them, but I don’t think of them as money,” said Bernanke.
Rep. Ron Paul again jumped in, noting the long history of gold being used as money, and then asked Bernanke why people didn’t hold diamonds, clearly hinting at his fiat money criticism of the U.S. monetary system. The Fed Chairman told Rep. Paul it was nothing more than tradition, and, as he was attempting to develop his argument, Rep. Ron Paul quickly asked the acting authority of the House of Representative’s Committee on Financial Services, Rep. Bacchus, to excuse him for exceeding his time, as he returned the floor to the Committee. (Read Bernanke To Rep. Paul Ryan: QE2 Created 600,000 Jobs).
The interesting exchange served as one of the few times Bernanke has been publicly pushed off his comfort zone by an elected official. Rep. Ron Paul brought up the issues that he’s famous for, namely, a sort of allegiance between the Fed and the nation’s most powerful institutions, the illusion of fiat money, and the gold standard. Bernanke, angered and bothered, had no option but to respond. (Read Bernanke’s Contradiction: Minutes Reveal QE3 Talk And Exit Strategy).
Read the entire article HERE.
By Greg Robb
June 20, 2011, 10:19 a.m. EDT
The Federal Open Market Committee, which on Tuesday starts a two-day meeting, is widely expected to make the formal decision to end the current program of buying $600 billion of Treasury securities on June 30. It is also expected to maintain its existing policy to reinvest principal payments from maturing securities to not let its balance sheet shrink, and to keep the target range for the federal funds rate at between 0% and 0.25%.
That decision, due at 12:30 p.m., should hold few surprises, though the accompanying statement will be eyed. But the fireworks will start at 2:15 p.m., when Bernanke holds his second post-rate-decision press conference.
Bernanke’s challenge this week will be to calm financial markets, Corporate America and Main Street, all jittery about what’s in store for the U.S. economy.
A recent soft patch of economic data has only added to existing concerns about the fate of the U.S. once the Fed’s Treasury bond purchase program, frequently called QE2, comes to an end.
A stock market that has slumped for six weeks out of seven, a sky-high unemployment rate of 9.1% and the biggest 12-month inflation rise since Oct. 2008 has provided ammunition of all sorts for the Fed’s many critics.
“What Bernanke needs to do is build confidence in the economy. He has got to be able to step up there and say things are going to get better,” said Robert Brusca, chief economist at FAO Economics.
Bernard Baumohl, managing director of The Economic Outlook Group, said that Bernanke will need solid arguments to convince investors.
“I don’t think he is going to be a cheerleader. I think he’s going to have to be practical and realistic,” Baumohl said.
“He’s got to be straight,” agreed Scott Anderson, senior economist at Wells Fargo.
Baumohl said Bernanke will try to soothe markets by saying there is not going to be any fundamental change to policy in either direction for the foreseeable future.
While the hurdles to a third round of bond purchases are high, the same is true for an exit from the current ultra-low policy stance, Baumohl said.
“He will convey the message that the Fed is going to take a wait-and-see approach, Baumohl said.
But Bernanke will stress that the end of the QE2 program is not the equivalent of pulling the plug on the economy, said Michael Moran, chief economist at Daiwa Securities in New York.
In another step to build confidence, Bernanke will pledge to very closely monitor conditions to see if any of the threats facing the U.S. economy materialize such as a financial crisis in Europe, Baumohl said.
On inflation, Bernanke is likely to be a bit more hawkish than previous meetings, said Maury Harris, chief economist at UBS Securities, in a comment echoed by a number of analysts.
Core consumer price inflation, excluding food and energy prices, rose 0.3% in May, the biggest gain since June 2008. Many see core inflation rising near 2% year-over-year by the end of the year.
“Bernanke will have to acknowledge that,” Harris said.
Mike Englund. chief economist at Action Economics, said the public is so upset about higher energy prices that Bernanke is not likely to “pop the cork” about the recent small drop in gas prices.
“It is hard to be optimistic about $98 per barrel price of oil,” he said.
Ray Stone, economist at the forecasting firm Stone & McCarthy Research Associates, said he was intrigued by some news reports that the Fed might adopt a formal inflation target. Atlanta Fed President Dennis Lockhart this month backed an inflation target, and Bloomberg News reported that Fed officials were seriously discussing it. The Wall Street Journal said action isn’t likely at this meeting.
At the moment, the Fed has an implicit target of roughly 2% inflation.
But with inflation moving higher while Fed policy is accommodative, an inflation target might be one way for the Fed to stress it remains vigilant, said economists at Barclays Capital Research.
Stone said the odds are “less than 50-50” that the Fed would adopt a formal target “but I wouldn’t be knocked out of my chair if they did it,” he said.
The Fed also is expected to cut its economic growth forecast, which currently calls for growth between 3.1% and 3.3% this year.
Read the entire article HERE.
By Margo D. Beller
Special to CNBC.com
Wednesday, 1 Jun 2011 | 11:06 AM ET
Wall Street is having a hard time figuring out what to do now that the U.S. economy appears to be sputtering and yields are so low, Peter Yastrow, market strategist for Yastrow Origer, told CNBC.
“What we’ve got right now is almost near panic going on with money managers and people who are responsible for money,” he said. “They can not find a yield and you just don’t want to be putting your money into commodities or things that are punts that might work out or they might not depending on what happens with the economy.
“We need to find real yield and real returns on these assets. You see bad data, you see Treasurys rally, you see all bonds and all fixed-income rally and then the people who are betting against the U.S. economy start getting bearish on stocks. That’s a huge mistake.”
Stocks extended losses after the manufacturing fell below expectations in May and the private sector added only 38,000 jobs during the month.
“Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything,” Yastrow said. “We’re on the verge of a great, great depression. The [Federal Reserve] knows it.
“We have many, many homeowners that are totally underwater here and cannot get out from under. The technology frontier is limited right now. We definitely have an innovation slowdown and the economy’s gonna suffer.”
However, he said he wouldn’t sell stocks.
“Any bears out there better be careful because the dividend yields on these stocks look awesome relative to all the other investment vehicles out there,” Yastrow said. “So bears are going to have to find a new way to express their discontent with the U.S. economy.”
Read the entire article HERE.
By Matt Taibbi
Rolling Stone Magazine
February 16, 2011 9:00 AM ET
Over drinks at a bar on a dreary, snowy night in Washington this past month, a former Senate investigator laughed as he polished off his beer.
“Everything’s fucked up, and nobody goes to jail,” he said. “That’s your whole story right there. Hell, you don’t even have to write the rest of it. Just write that.”
I put down my notebook. “Just that?”
“That’s right,” he said, signaling to the waitress for the check. “Everything’s fucked up, and nobody goes to jail. You can end the piece right there.”
Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world’s wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people.
This article appears in the March 3, 2011 issue of Rolling Stone. The issue is available now on newsstands and will appear in the online archive February 18. Here is Matt Taibbi being interviewed on MSNBC:
The rest of them, all of them, got off. Not a single executive who ran the companies that cooked up and cashed in on the phony financial boom — an industrywide scam that involved the mass sale of mismarked, fraudulent mortgage-backed securities — has ever been convicted. Their names by now are familiar to even the most casual Middle American news consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Most of these firms were directly involved in elaborate fraud and theft. Lehman Brothers hid billions in loans from its investors. Bank of America lied about billions in bonuses. Goldman Sachs failed to tell clients how it put together the born-to-lose toxic mortgage deals it was selling. What’s more, many of these companies had corporate chieftains whose actions cost investors billions — from AIG derivatives chief Joe Cassano, who assured investors they would not lose even “one dollar” just months before his unit imploded, to the $263 million in compensation that former Lehman chief Dick “The Gorilla” Fuld conveniently failed to disclose. Yet not one of them has faced time behind bars.
Invasion of the Home Snatchers
Instead, federal regulators and prosecutors have let the banks and finance companies that tried to burn the world economy to the ground get off with carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing. To add insult to injury, the people who actually committed the crimes almost never pay the fines themselves; banks caught defrauding their shareholders often use shareholder money to foot the tab of justice. “If the allegations in these settlements are true,” says Jed Rakoff, a federal judge in the Southern District of New York, “it’s management buying its way off cheap, from the pockets of their victims.”
Taibblog: Commentary on politics and the economy by Matt Taibbi
To understand the significance of this, one has to think carefully about the efficacy of fines as a punishment for a defendant pool that includes the richest people on earth — people who simply get their companies to pay their fines for them. Conversely, one has to consider the powerful deterrent to further wrongdoing that the state is missing by not introducing this particular class of people to the experience of incarceration. “You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street,” says a former congressional aide. “That’s all it would take. Just once.”
But that hasn’t happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.
Just ask the people who tried to do the right thing.
Here’s how regulation of Wall Street is supposed to work. To begin with, there’s a semigigantic list of public and quasi-public agencies ostensibly keeping their eyes on the economy, a dense alphabet soup of banking, insurance, S&L, securities and commodities regulators like the Federal Reserve, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC) and the Commodity Futures Trading Commission (CFTC), as well as supposedly “self-regulating organizations” like the New York Stock Exchange. All of these outfits, by law, can at least begin the process of catching and investigating financial criminals, though none of them has prosecutorial power.
The major federal agency on the Wall Street beat is the Securities and Exchange Commission. The SEC watches for violations like insider trading, and also deals with so-called “disclosure violations” — i.e., making sure that all the financial information that publicly traded companies are required to make public actually jibes with reality. But the SEC doesn’t have prosecutorial power either, so in practice, when it looks like someone needs to go to jail, they refer the case to the Justice Department. And since the vast majority of crimes in the financial services industry take place in Lower Manhattan, cases referred by the SEC often end up in the U.S. Attorney’s Office for the Southern District of New York. Thus, the two top cops on Wall Street are generally considered to be that U.S. attorney — a job that has been held by thunderous prosecutorial personae like Robert Morgenthau and Rudy Giuliani — and the SEC’s director of enforcement.
The relationship between the SEC and the DOJ is necessarily close, even symbiotic. Since financial crime-fighting requires a high degree of financial expertise — and since the typical drug-and-terrorism-obsessed FBI agent can’t balance his own checkbook, let alone tell a synthetic CDO from a credit default swap — the Justice Department ends up leaning heavily on the SEC’s army of 1,100 number-crunching investigators to make their cases. In theory, it’s a well-oiled, tag-team affair: Billionaire Wall Street Asshole commits fraud, the NYSE catches on and tips off the SEC, the SEC works the case and delivers it to Justice, and Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and off to 36 months of push-ups, license-plate making and Salisbury steak.
That’s the way it’s supposed to work. But a veritable mountain of evidence indicates that when it comes to Wall Street, the justice system not only sucks at punishing financial criminals, it has actually evolved into a highly effective mechanism for protecting financial criminals. This institutional reality has absolutely nothing to do with politics or ideology — it takes place no matter who’s in office or which party’s in power. To understand how the machinery functions, you have to start back at least a decade ago, as case after case of financial malfeasance was pursued too slowly or not at all, fumbled by a government bureaucracy that too often is on a first-name basis with its targets. Indeed, the shocking pattern of nonenforcement with regard to Wall Street is so deeply ingrained in Washington that it raises a profound and difficult question about the very nature of our society: whether we have created a class of people whose misdeeds are no longer perceived as crimes, almost no matter what those misdeeds are. The SEC and the Justice Department have evolved into a bizarre species of social surgeon serving this nonjailable class, expert not at administering punishment and justice, but at finding and removing criminal responsibility from the bodies of the accused.
The systematic lack of regulation has left even the country’s top regulators frustrated. Lynn Turner, a former chief accountant for the SEC, laughs darkly at the idea that the criminal justice system is broken when it comes to Wall Street. “I think you’ve got a wrong assumption — that we even have a law-enforcement agency when it comes to Wall Street,” he says.
In the hierarchy of the SEC, the chief accountant plays a major role in working to pursue misleading and phony financial disclosures. Turner held the post a decade ago, when one of the most significant cases was swallowed up by the SEC bureaucracy. In the late 1990s, the agency had an open-and-shut case against the Rite Aid drugstore chain, which was using diabolical accounting tricks to cook their books. But instead of moving swiftly to crack down on such scams, the SEC shoved the case into the “deal with it later” file. “The Philadelphia office literally did nothing with the case for a year,” Turner recalls. “Very much like the New York office with Madoff.” The Rite Aid case dragged on for years — and by the time it was finished, similar accounting fiascoes at Enron and WorldCom had exploded into a full-blown financial crisis. The same was true for another SEC case that presaged the Enron disaster. The agency knew that appliance-maker Sunbeam was using the same kind of accounting scams to systematically hide losses from its investors. But in the end, the SEC’s punishment for Sunbeam’s CEO, Al “Chainsaw” Dunlap — widely regarded as one of the biggest assholes in the history of American finance — was a fine of $500,000. Dunlap’s net worth at the time was an estimated $100 million. The SEC also barred Dunlap from ever running a public company again — forcing him to retire with a mere $99.5 million. Dunlap passed the time collecting royalties from his self-congratulatory memoir. Its title: Mean Business.
Read the entire article HERE.
Founder and Managing Director of SmartKnowledgeU
02/07/2011 05:36 -0500
I have stated this for many years now and I’ll continue to stand by this statement: Technical and fundamental analysis are of limited utility in predicting short-term trends in manipulated markets when analyzed in a vacuum absent of the context of government and bank manipulation. This not only applies to US stock markets but also to two of the most manipulated markets of all, the gold and silver futures markets. Often, with technical analysis, two analysts with multi-years of experience may offer widely diverging analyses when interpreting the exact same chart. However, if an analyst refuses or fails to take into account the massive amount of fraud and manipulation when interpreting charts of the S&P 500 or the Gold & Silver Continuous Contracts, then I would fathom that analyst would be off the mark at a much higher clip than he or she would be on the mark. For the past decade, it has been foolish to deny that massive fraud and manipulation existed in these aforementioned markets. Refusing to account for the “X factor” of fraud and manipulation, as it is frequently the single most important factor that moves these markets in the short-term, is what ultimately turns some gold/silver analysts into nothing more than weather forecasters.
During sharp corrections and/or consolidation periods in gold and silver, I inevitably stumble upon comments posted by gold/silver investors online that become greatly worried by some article posted by some analyst online that states that the silver and gold bull run has ended and that silver and gold prices are now going to crash. When this happens, gold/silver investors need to keep their focus on the big picture to avoid being led astray by the white noise that will constantly surround them during every single gold and silver pull back. As for the subset of gold and silver investors who, by nature, are worrisome creatures, they will always find analysts in the mainstream media that will gladly fuel their anxiety during every gold and silver correction or consolidation period. For ten years in a row now, gold and silver analysts come out of the woodwork to state that gold and silver are going to crash every single time these particular assets suffer a decent, rapid short-term correction or consolidation period.
To begin, it is quite easy to dismiss many of the analysts that call for a crash in gold and silver simply by conducting an internet search of their past predictions. Doing so will reveal that some of theses analysts have called for a crash of gold and silver every single year since the gold and silver bull run began. Other searches will reveal that many of these analysts are just flat-out terrible and that they have made many other severe warnings about commodity crashes just about at the exact time they bottomed and then proceeded to soar higher. Why waste energy worrying about an analyst’s calls when that analyst has proven himself or herself to be massively wrong multiple times year in and year out?
But what about analysts whose calls have been fairly accurate in the past and whose current calls create a level of concern for you? Then use this second process of separating the wheat from the chaff. Search the internet, find this analyst’s blog, and read about this analyst’s calls in the same asset class over a multiple numbers of years. If you can’t find any public record of past calls for this analyst regarding the specific asset class he or she is speaking of, then dismiss this analyst. Sure, a lot of analysts will want to reserve their most detailed and best analysis for their paying clients only and perhaps this is why they lack any kind of past track record. I reserve my best and most detailed calls and strategies for my paying clients only as this makes good business sense. If an analyst posted his best calls online all the time, why would anyone every pay the analyst for information they can receive for free?
However, if any analyst ever wants to develop his or her business, he or she needs to establish a track record in the public arena as well to prove he or she indeed is worthy of a following. After establishing a track record for at least two or three years, then such an analyst can begin to pull back his public predictions and reserve them more exclusively for the privacy of his or her clients only. Thus, I believe that any analyst worth his or her salt will have a decent public track record.
Given the rise of gold/silver in the public consciousness for the past several years, there is now a plethora of self-proclaimed gold and silver analysts online now that have no discernible track record of accurate past predictions regarding past movements in the gold and silver markets or even public comments about gold or silver markets until just two or three years ago. First of all, if such a person was truly an expert in gold and silver, realizing that we are in the midst of one of the largest gold and silver bulls of our lifetime only after gold has risen from $250 an ounce to $1000 an ounce and silver from $4 to $16 an ounce should automatically disqualify that person from ever being able to proclaim they are an “expert”. Furthermore, if an analyst has discussed gold and silver markets before but never once discussed fraud and manipulation in gold and silver futures markets until the past couple of years when it became “chic” and mainstream to do so, then his or her credibility should be highly questionable. The job of an analyst is to dig deeper than the level of public understanding and to not be afraid of taking a stance that he or she knows to be true even if the rest of the world disagrees with him or her at the time. How could a gold/silver analyst refuse to acknowledge the single most important factor - fraud and manipulation – that frequently moves these markets in the short-term, for years and call him or herself a gold/silver analyst? The equivalent scenario would be a US stock market analyst that refuses to acknowledge the massive effect of US Federal Reserve POMO schemes on the current short-term market behavior of the S&P 500, the DJIA and NASDAQ.
On January 25th, in this article I posted an article titled “Will Junior Mining Stocks be THE Investment of 2011?” on my online investment blog, the Underground Investor.
I iterated that my outlook for gold’s ongoing correction would be for a short-term bottom to form “somewhere around the $1,300 an ounce mark…and not with a further $250 an ounce correction and the $1,090 an ounce mark called for by Seabreeze Partners Management’s GP Doug Kass.” I further stated, “I’m going to directly contradict Kass and predict a pop higher of at least $40 to $50 an ounce in gold sometime during the 10 trading days between January 28th and February 11th.”
To my Platinum Members, to whom I provide much more detailed analysis than anything I publish in the public arena, I granted them even tighter timeframes for the turnaround on January 25th -
“I believe that this correction will end by Friday of this week [January 28th] if not sooner and that we are very close to a strong reversal now. Look for a bottom to form, and a rebound from gold at about $1,300 and the HUI at about 495”.
In regard to these predictions, I provided subsequent actionable strategies regarding gold/silver mining stocks as well. For the time being, gold bottomed at about $1,308 an ounce on January 28th in Asia, and the HUI bottomed in New York at 492.04 later on the same day (I issued my bulletin to my members before market open in New York that day). Between January 28th in Asia and February 4th in New York, gold popped higher by $51.70 an ounce, meeting my call for a $40 to $50 bounce between January 28th and February 11th.
I based these short-term predictions and dates of short-term reversals not by blindly picking numbers out of a hat, but by studying the behavior of the bullion bank manipulators that continuously manipulate gold (and silver) markets and by combining this information with technical chart analysis. Of course, we’re not completely out of the woods yet with gold and silver, and I’ll have to track and interpret both technical charts and the movements of bullion bank manipulators on a daily basis to understand whether this reversal in gold/silver markets will now stand its ground or not. Below, I’ll provide further examples of how I’ve been incorporating fraud and manipulation analysis into my technical analysis to accurately foresee both the short-term and long-term direction of gold and silver markets for years.
With gold and silver futures markets, one must understand the mechanisms of the likely fraudulent paper gold and silver ETFs, the GLD and SLV, and the fraudulent paper gold and silver futures markets and how both of these paper markets influence gold/silver prices independent of free market supply and demand mechanisms. Of course, this is just the tip of the iceberg when it comes to understanding the difference between the mechanisms of how markets truly operate and the false mechanisms that business schools worldwide teach to the future analysts of the world. An analyst must always keep in mind fraud and manipulation whenever using technical charts to predict future behavior in manipulated markets or that analyst’s technical analysis will ALWAYS be distorted and inaccurate. Whether it’s by design, sheer arrogance or plain ignorance, this is why a five-year-old child’s predictions about future US market behavior during the last five years would have stacked up very well against the predictions made by supposedly very learned men like US Fed Reserve Chairman Ben Bernanke.
On September 16, 2006, in my article “Has the Commodities Bubble Burst? No, No, No!”, I stated:
“Everywhere in the media, you have pundits saying that the commodities Bull Run is over – including even chief global economists of major investment firms like Steven Roach of Morgan Stanley. THEY’RE ALL WRONG…I’ve dug deep enough down into the rabbit hole to know that gold will rise much much higher in the future.. Yes, oil has slipped to below $60 a barrel but again, this doesn’t mean that oil is done either.”
At the time I made the above prediction, gold had tumbled nearly 14% in the previous two months to $573 an ounce, oil had tumbled 25% from $80 a barrel to $60 a barrel and many global commodity analysts had called for people to sell out of all commodity based stocks across the board. In particular, a few precious metals analysts used this steep correction to foment fear among gold investors and called for gold to retrace all the way back down to its initial starting point in this gold bull run at $250 an ounce.
So what happened?
Gold, by the end of 2007, soared from its September 2006 correction that was supposed to usher in a collapse, by more than 45%, to $833 an ounce!
And for those of you that believe I am always positive on gold and silver because many of my public postings happen to be posted near interim bottoms when gold and silver are set to rebound, this is hardly the case. In my last 2010 Crisis Investment Opportunities newsletter issue, I warned of an impending gold/silver correction to begin 2011:
“The likely time frame for the likelihood of a Central Bank engineered attack against gold and silver prices has now been pushed out until January or February 2011.”
Interpretation of fraud and manipulation can help one identify warnings about short-term pullbacks in the price of certain assets as well as help in the identification of short-term bottoms.
On December 6, 2007, subscribers to my free online investment newsletter received this warning:
“Over the past six months, soaring oil prices are much more directly connected to a devaluing dollar than decreasing oil supply or peak oil. Had the Gulf Nations declared this week that they were going to unpeg their currencies from the U.S. dollar, I guarantee you that oil would have shot up beyond $100 to $120 a barrel within a matter of weeks [oil was trading at $88 a barrel at this time]. And that would have had nothing to do with supply and demand and everything to do with feared U.S. dollar weakness.”
Again, my statement above had nothing to do with fundamentals or technical charts but everything to do with the fraudulent nature of the US dollar and my understanding of the fraudulent nature of currency and oil markets. Sure enough, several Gulf Nations unofficially and quietly temporarily unpegged their currencies from the US dollar over the next few months, following Saudi Arabia’s lead of temporarily unpegging the Riyal from the US dollar at the end of 2007. During the next six months that followed my above statement, oil rose from just $88.40 a barrel to more than $120 a barrel. In mid-2008, oil peaked out at more than $140 a barrel, though a certain Wall Street firm’s opportunistic positioning in the oil futures markets based upon their knowledge of a single U.S. hedge fund that was short 260 million barrels of oil was largely responsible for the final spike in prices (again, just another example of how short-term price behavior was driven by manipulation of the banks and not supply-demand based).
Today, I’ve read in newspapers from the Americas to Europe to Asia, the attempt of many country’s finance ministers once again to deflect blame away from their Central Banks’ fiat currency devaluation policies as the root cause of rising commodity and oil prices. Today finance ministers worldwide have colluded to keep the people in the dark about reality by stating unilaterally that rising commodity prices are responsible for inflation versus stating the reality that currency manipulation is the main culprit of massive inflation.
This same type of “fraud and manipulation” analysis can be extended to another massively manipulated market, the US stock market. When predicting the future behavior of US stock markets, an analyst must always incorporate the fraud of Federal Reserve POMO schemes and the artificial propping up of a handful of core index stocks that keep entire indexes afloat into one’s technical analysis.
On March 21, 2007, on my investment blog, I pricked quite a few investors’ nerves when I wrote the article “The Short-Term May be Rosy, But Beware the Financial Crisis that is Building Steam”. In fact, back then, the rise of US stock markets on the back of massive fraud and manipulation was remarkably comparable to today’s current state of US stock markets four years later. In that article, I stated:
“Everywhere global stock markets have rebounded whether in China, Australia, Europe, or the US , short positions have decreased dramatically, and the bulls are back in full force. However, there are still two scenarios that every investor should be wary of, one that is very likely, and one that is near inevitable…I know that a lot of people will think that any talk of a future global economic crisis is ludicrous but that is why so few people actually build wealth through investing. Only the handful of people that take the time to really understand the economics that brew well below the surface of the Bloomberg reports and CNBC and the Wall Street Journal will readily prepare their investment portfolios for this crisis.”
“And this crisis that seems inevitable to me will be much bigger than the U.S. Great Depression of the 1930’s and much larger than the Asian Financial Crisis of 1997 because the conditions that are creating this crisis will have a much wider and more significant global impact than either of these two previous crises. Before those two crises hit, the overwhelming majority of investors believed that those people that believed a crisis was imminent were crazy. And during those times, salesmen and women in the financial industry were able to leverage the naivete of the thundering sheep herd to get them to do things that led to certain financial ruin.”
The “economics that brew well below the surface of the Bloomberg reports and CNBC and the Wall Street Journal” that I referenced in my above prediction was, of course, the real levels of key economic indicators versus the fraudulent, “official” government-reported economic statists that governments disseminate to the public via mainstream media distribution channels. Because I have always focused my analysis on government and banker levied fraud and manipulation of capital markets, even in March of 2007, at a time when many commercial investment advisors were taking advantage of the steady 9-month advance in US stock markets to tout their usual “get on board [the US market bull] or get left behind” propaganda, the precarious nature of the situation at that time was crystal clear to me.
So what happened after I made this prediction?
US markets continued to be rosy in the short-term as the title of my article indicated before eventually topping out in October of that year and falling by more than 20% by March of the next year. As far as the remainder of 2008, we all know the disastrous year that 2008 ended up being worldwide. How did we do in 2008? Our Crisis Investment Opportunities newsletter portfolio still ended up just positive for the year (barely positive, but still positive). Due to my prediction that a crisis would unfold, we avoided the 40% haircuts that nearly all commercial investment firm clients suffered that year. Furthermore, just a few weeks ago, Reuters reported that “home prices fell for the 53rd consecutive month in November, taking the decline past that of the Great Depression for the first time in the prolonged housing slump” and that “home values have fallen 26 percent since their peak in June 2006, worse than the 25.9-percent decline seen during the Depression years between 1928 and 1933”.
But what about my prediction that this unfolding crisis would be “much bigger than the US Great Depression”? I still believe that the prediction I made on March 21 of 2007 will come to fruition over the course of the next several years and this global crisis will become much bigger than the US Great Depression as at some point this year, we will move from the eye of the economic hurricane back into the turmoil of the hurricane. In fact, we may already be witnessing the first signs of my prediction above that this current crisis would “have a much wider and more significant global impact than either [the Great Depression or the 1997 Asian Financial Crisis]” in the food and unemployment riots that have already started this year in Egypt, Tunisia, Algieria and India.
By April 23, 2008 as the signs of an imminent US stock market crash were becoming clearer, I posted another warning shot on my investment blog titled “Will US Markets Crash Now or Later?”
In that article, I stated: “Should an extended rally of the Dow above 13,000 occur, it will serve no purpose other than to create the illusion of wealth, as opposed to the creation of real tangible wealth. The higher U.S. markets rise in today’s environment, the more likely it is that they will fall even harder in the future. Here’s why. Currently, the U.S. Federal Reserve is playing the same shell game that it has for decades, one in which they alternately inflate stock markets and real estate markets. If stock markets are crashing, then they inflate real estate markets, and vice versa. It’s a vicious circle that eventually will collapse under the weight of its own foolishness. In the late 1920s, in very simple terms, the U.S. Federal Reserve’s solution to forestall a mild U.S. economic contraction and to stop England’s gold losses was to print more money.”
The US DJIA started a steep decline just one month later, shedding almost 5,000 points between May and October of 2008!
In conclusion, I’m not stating that by studying fraud and manipulation, one’s predictions will be spot on year in and year out. There is no analyst, including myself, that has not made, or will not make a prediction or two at some point, that will appear silly in hindsight. No one is infallible, though some may infer as much. But I can guarantee you this. If an analyst incorporates an understanding of how bullion banks and governments operate fraud and manipulation schemes into his or her technical analysis of capital markets, his or her chances of making uncannily accurate calls in the behavior of capital markets year in and year out become exponentially better than if he or she were to attempt to predict future market behavior based on technical analysis alone.
At a time when everyone but the most naïve of the naïve understand how grossly distorted capital prices are both to the upside (in global stock markets) and to the downside (in gold and silver markets) due to massive manipulation schemes executed through collusive bullion-bank and government efforts, it makes zero sense to continue to put faith in technical and fundamental analysis alone. Though fundamentals may drive behavior in the long-term, fundamentals have had, at times, zero effect on the price discovery of assets in the short-term. Furthermore, with certain sectors such as the banking sector where insolvent bankrupt banks have been magically transformed into solvent profitable banks by corrupt regulatory agencies that have allowed banks to cook their books, the fundamentals of many sectors are not fundamentally sound! Fraud and manipulation analysis today is more critical than either fundamental or technical analysis if one wishes to avoid and even profit from the many pitfalls that remain ahead in the global economy.
Read the entire article HERE.
by Leigh Drogen
Founder of Surfview Capital, New York
Tom Friedman is one of my favorite authors. Not for his op-ed pieces in the New York Times, although many are good reads, but for three books. The first, “From Beirut to Jerusalem”, the second, “The Lexus and the Olive Tree”, and the more widely known third, “The World is Flat”. Tom isn’t a great writer or thinker because he is the first to discover a trend, because he often isn’t. Tom is a great writer because he is able to take broad and complex ideas, and boil them down into a series of stories through which he is able to lead the reader to see the forest amongst the trees. That is a skill not many have.
Tom’s book “The World is Flat” was certainly not the first to describe how modern technology was reshaping our world by opening up a few billion people to the global markets. But he was the first to put all the pieces of the puzzle together and make a story out of it. The world today is getting flatter at an accelerating pace, and it is disrupting societal, cultural, political, and economic norms. Different people will argue about whether some of these are positive advancements or negative outcomes. At the end of the day though their opinions don’t matter, globalization and a flatter world for everyone is like a tsunami, there’s no way to stop it.
But you can hide by running away from it. As this force sweeps around the world on the back of advancements in technology there are obviously still good portions of this earth that have not been overcome by it. Eventually they will be, in time. And there will be backlashes against it as Tom writes. Radical Islamic fundamentalism is part of that backlash, against a world moving against a closed culture that refuses to adopt to openness. Religious fundamentalism in general, and if you ask me, basic religion in fact, will continue to fight against this force of openness and information. In the end it’s obvious where we are going though, pandora’s box has been opened, the clock is ticking on them.
We see backlashes every day from countries who’s economies are being disrupted by this wave. Politicians throwing up trade barriers, blaming each other for currency manipulation, actually manipulating their currencies, shenanigans of every type and size. Just as the religious zealots will do anything to keep from admitting that they don’t offer a better future, politicians will do anything to keep from admitting that they must change their policies to fit a changing world and changing economies. It’s easier to blame the other guy than realize you must change.
The clock is ticking on the financial industry as well. A tsunami of social and technology is sweeping down Wall Street. I’m excited to be part of that force reshaping the landscape instead of standing in its way.
As I see it, three main things are changing or are about to change. First, access to information is coming to the far corners of the financial world, in real time. Yup, it’s already happening, things are getting cheaper, distribution is easier. Most of us run one or two strategies, we want our information a la carte, and we want each piece from the best source, not a bundle of mediocre ones. Through the interwebs you can now find just about every piece of premium financial info you want, anyone can access anything. And price points are coming down to reasonable levels. Everything is in real time, unless you are getting insider info from your “expert network” (cough cough SAC Capital cough cough), we all have access to the same news at the same time through services like Selerity and The Fly On the Wall at reasonable prices.
Second, the analysis, on two levels. The voice of Wall Street has been ruled by the banks forever. But their sell side research units are being blown up because information isn’t worth what it used to be. What were they really selling anyway? It was access to information, not good ideas or good analysis, they were lazy and they are paying the price now. Information all around the globe is getting cheaper, so you better give it away for free and find a way to sell something else once the reader is there, or you better offer damn good info if you want to sell it. The banks aren’t, obviously, they give bullshit ratings to stocks that mean little to nothing. They do analysis based on DCF models and then tell you the stock looks cheap so you better go buy it. They have little to no skin in the game, but they were getting paid as if they were. The public woke up, realized the ratings agencies and banks were just in cahoots with the stocks and fixed income products they were rating (oh yes people have gone to jail as well). It’s just about over, the walls are coming down, if you’re going to give something a buy rating the price better go up or you better admit you were wrong (there’s nothing wrong with being wrong), there’s no more hiding behind saying that you were just going by your statistical model. Yes, your model is important as a piece of information, just as every model be it fundamental, technical, or psychological is an important data point, but at the end of the day when you slap a buy rating on something you better be doing it because you think the price will go up, not because it looks better than the rest of the group based on some DCF analysis.
But the business model of the sell side analyst being destroyed isn’t enough to kill their voice. There needs to be a final blow. It will come from social, specifically StockTwits. The main stream analysts will join the conversation in order to be heard, and at that point they will have to live up to the same judgement as everyone else. They will be asked by the community, which will vote by following them or not following them, to provide quality information. And if their information doesn’t live up to someone else’s, it will be obvious. Yes, social is in some cases a popularity contest, but not nearly as much when it comes to money. If you are trading or investing, you want the best information and you don’t care who it’s coming from. I would trust an 20 year old kid trading at college the same as I would trust a Goldman Sachs analyst if the information he was sharing was better and I was able to make money off it. The big firm analyst will have to prove he or she deserves to be heard by sharing quality information, and being right. Yea, you heard that correctly, they are going to have to live up to being right, not just giving the info. And we will work with them at StockTwits to share the right way, it is my hope that instead of fighting the openness and accountability, they embrace it. You’ve heard me bash the industry time and time again, but it’s not the people that are the problem, they are extremely talented and have so much to offer to their clients and for free. It is the firms themselves which have propagated this culture which are to blame, they have done so because like the religious zealots, they refuse to change with the times.
Read the entire article HERE.
Submitted by Tyler Durden on 07/04/2010 21:27 -0500
I’m sure you know that the primary reason for the American War of Independence was to break from the English banking system of the time. The English Banks wanted the US government and corporations to borrow money from them in order to trade. This is really what the founding fathers of America fought against and won independence from. And so after the war had been won the US financial system was controlled, and all US Dollars were issued, by the US Government. The value of each Dollar was fixed (i.e. there was no inflation) and ALL the banks operated within the financial system. The most significant aspects were that the value of a dollar was FIXED and that the commercial banks were not empowered to create money. This is really what the English banks wanted to be in control of – the power to create money and lend it to the US entities at interest.
After the establishment of the Federal Reserve in 1913, however, the bankers finally got their way in the US. They took control of the US financial system and Fractional Reserve Banking became a reality in the US. What this means is that the financial system was essentially privatized and the commercial banks started to create money “out of thin air” by taking in deposits and then using these deposits to empower them to make loans significantly in excess of those deposits. I’m sure you can see how, through this scheme, the banks had shifted themselves out of a situation where they had primarily been an intermediary between savers and borrowers in the economy, to a situation where they had the authority to create and lend money into the economy.
Practically what this has meant to the American people is that as the banks have created additional units of currency, the value of their savings has been consistently undermined and devalued over time. One could argue that this has been compensated for by interest being paid on peoples’ savings, however the fact of the matter is that this rate has been manipulated down by the Federal Reserve over time, resulting in significant asset price inflation. In addition to this qualitative devaluation of money, as the capital and interest repayments of existing loans has been made, liquidity has been drained out of the economy thereby creating monetary shortages on “main street”. So I’m sure you can see from this that the American people have been hit on two sides, firstly the value of their money has been consistently devalued, and secondly the quantity of money in the real economy has also decreased relative to existing debt levels.
From a banking perspective the only real concern for them was the second issue highlighted above (i.e. the fact that the quantity of money in the real economy was decreasing relative to the existing debt levels). This had the effect of reducing the probability that their loans would be repaid. In dealing with this issue the US Government and the Federal Reserve de-linked money from gold in 1971 and since the early 1980s they have also consistently reduced interest rates. The intention behind these efforts was to ensure that firstly, there would be nothing to limit the growth in the money supply and secondly, to reduce the monetary withdrawals (via interest repayments) out of the system. These two steps have both prolonged the functioning of the system as it stands. The long-term fundamental issue of the financial system though is that it is a “closed” system that requires the economy (i.e. all economic entities) to assume greater levels of debt for it to keep functioning. At the end of day there is literally no way out without altering the nature of the system itself.
Read the entire article HERE.
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