Posts Tagged ‘Morgan Stanley’
by Tyler Durden
07/26/2011 18:01 -0400
Morgan Stanley has released its comprehensive quarterly metals outlook update for Q3, which while traditionally furiously wrong in its price targets for the assorted metals under consideration, represents one of the best reference materials for the underlying fundamentals behind each hard asset including base and precious metals, steel and bulk commodities, mined energy, rare earths, even such arcania as zircon and titanium dioxide. We suggest readers avoid the conclusion by Morgan Stanley which ultimately will be based on the firm’s prop trading bias, and instead focus on the key supply/demand mechanics in any given product. For the sake of reference, we break down MS’ outlook on gold, silver due to the special place these hold in the modern geo-political and voodoo economic discussions.
Investment demand is strengthening again…
- Identified and implied investment has become the main driver of demand in the gold market over the past decade and has become essential to absorb the fundamental surplus resulting from mine production, secondary supply, any net sales from central banks and producer hedging, and the long-term decline in jewellery fabrication demand.
- As the transparency of reporting of bar hoarding demand has increased along with the growth in physically backed ETF demand, the depth and structure of the physical investment market has become more visible. In our view, assessing the sustainability of this investment flow has become critical to the gold price outlook.
- According to GFMS, total identifiable investment demand for gold reached a record 1,514t in 2011, or 1,675t if implied investment demand is included, for a new annual record of US$66bn.
- More dramatic growth in investment demand for gold can be pinpointed to 2008-09 and the global financial crisis, which raised serious concerns about a debt deflationary spiral and the long-term purchasing power of the world’s major fiat currencies, especially the US dollar and the Japanese yen.
…as sovereign debt concerns highlight fiat currency risks
- More recently, a sharp rise in inflationary pressures partially driven by a surge in oil prices since February 2011 and the growing risk of sovereign debt default in peripheral countries of the Eurozone have given added impetus to investment demand growth as the fear of sovereign debt contagion has also raised questions over the long-term future of the euro.
- Even more recently, the impending threat of technical default by the US government if the government debt ceiling is breached, and the associated risk of a sovereign debt rating downgrade if a satisfactory long-term debt reduction program is not established have added to investor concerns about the long-term outlook for US treasuries and “risk-free assets.”
- In these circumstances, we expect the long-running bull market in gold will receive further impetus, even if there is no return to QE in the US. However, QE3 is a potential further upside risk to prices in the current environment.
- A further illustration of the growing quasi-monetary role of gold in the current global financial environment has been the persistent trend in official sector sales from net selling to net buying, a trend that we expect to continue, especially now that the sale of the IMF gold tranche has been completed.
- We have increased our annual gold price forecasts by 8%, 22% and 24% for 2011, 2012 and 2013 respectively to US$1,511/oz, US$1,624/0z and US$1,550/oz.
Global supply / demand
May 2011 correction has reduced risks of demand destruction…
- As GFMS observed in the 2011 World Silver Survey published for the Silver Institute, silver’s “hybrid” precious and industrial nature leads to links with gold, copper, and the CRB index, which can vary greatly.
- In the course of 2011, silver’s precious metal status and therefore its links with gold have been strongly reinforced by investors’ preference to hedge systemic financial risk, rising inflationary pressures, and resurgent political risk in MENA through a cheaper vehicle with characteristics similar to gold as a store of value.
- Driven by a spectacular rally between late March and May led by retail investors, the gold:silver ratio narrowed sharply, reaching its lowest point since October 1980 in early May 2011 at 30:1.
- Closing prices for silver at the peak of the rally in late April 2011 at US$48.70/oz came within 1.5% of the all time high established in January 1980 during the Hunt brothers’ squeeze. Successive increases in the Comex margin requirements then saw prices trade between US$33 and US$36/oz and the gold:silver ratio stabilize around 40 to 44:1.
…helping sustain investment demand going into 2012
- In our view, the 2,000t outflow of silver from ETF funds that has followed this correction is likely to be temporary, as all of the drivers for the initial 3,500t surge in ETF inflows between September 2010 and late April 2011 are still in place.
- Furthermore, the lower trading range for prices since the crash in early May should be an incentive for investors to return to the physical investment market now that the impact of the violent correction has largely been discounted.
- Investor sentiment should also be encouraged by evidence of strongly rising fabrication demand, especially in the brazing alloy/solder and jewellery markets, which are forecast to grow by 8.2% and 3.7%, respectively, in 2011.
- As a result, we have made significant upgrades to prices throughout the forecast period. For 2011, we now expect an average price of US$36.21/oz, up 15% from our previous forecast, and in 2012 we see prices averaging US$36.90/oz, 30% higher than our previous estimate.
- For 2013, we have raised our forecast 32% to US$32.98/oz.
Global supply / demand
Read the entire article HERE.
May 9, 2011
As we warned our readers on May 1, 2011, when silver had clawed its way back to about $48 per ounce: “We expect another massive price attack in the next few days.”
We came to this conclusion based upon a number of factors, including the impending opening of the Hong Kong Merchantile Exchange, which will be controlled by many of the same international players who control NYMEX. Like clockwork, a vicious attack, perhaps the most ferocious one ever mounted in the history of precious metals, began on Monday, May 2, 2011. We knew it was coming, but to be honest, we didn’t expect the level of ferocity. Following our own suggestions, when silver had tanked by about 18%, we entered into a small speculative long position, using the SIVR silver trust. The price punched right through the minor support level we had chosen, and continued down.
Had we realized the depth of the silver short seller despair, we would have played the game a bit differently. We would have waited longer, bought a lot more later on, and created a much longer term position. As it is, we have lost nearly nothing, and will do it anyway. Nevertheless, as irrational as this kind of thinking is, and as much as we warn people against it, human beings are human beings and we are not happy about putting on a little bet, no matter how small, that fails to catch the bottom of a dip.
The level of despair among short sellers, which is motivating this attack, is growing. Anything could happen at this point. They could give up entirely, or the attack could become more ferocious. We don’t know. What we do know is that the short sellers’ predicament has just grown worse. They will eventually become even more desperate than they are now as weeks and months pass by. We will explain why shortly.
New and ever larger performance bond deposit requirements are being announced by the NYMEX so-called “clearing house risk committee” (performance bond committee) almost every other day. On top of these substantial increases, the individual clearing members are often making even bigger demands and hiking up performance bond requirements even higher.
We cannot help but wonder if some of these clearing members are themselves short silver, or if they are deathly afraid that other clearing members will default, leaving them footing the bill? Or are they trying to help attack their own customers? To the extent that a clearing member is raising performance bonds above the level of the exchange, customers should say goodbye and never do business with them again.
According the official spokesperson for CME Group, which owns NYMEX, the performance bond increases are designed to address “increased risk”. If this were so, however, such changes would apply only to short sellers and new long buyers who purchased up in the higher price ranges. Most of the older long buyers were sitting on huge profits from the upward movement of silver, when the new bond requirements were imposed in the $49 range. They posed no greater risk at all than they did back when they made their purchases at $18, $20, $25 per ounce, etc.
But the exchange and its dealers don’t play the game that way. Instead, they apply these changes to everyone, even people who may have bought when silver was down near $18 per ounce, even though these older position holders pose no greater risk of defaulting than before. The exchange committee members are quite expert at all this, and are well aware that the net effect of what they were doing would be to throw people involuntarily out of positions. The effect is carefully calculated and thought out, and is part of the overall process used to artificially control silver prices.
Coupled with the sudden increased performance in bonds, there has been an all-out media effort to convince people that a “bubble is bursting” even though, as we will shortly explain, anyone who is worth his salt as an analyst knows it isn’t true. There has NEVER been any bubble in silver in 2011, and therefore, it cannot possibly “burst”. There has simply been an unwinding of a grossly underpriced asset that has been subject to a multi-year price suppression effort.
Be that as it may, this downturn provides, for the first time in a long time, more than mere gambling opportunities. Highly leveraged and undercapitalized speculators have been kicked out of their positions, and they had pushed the price of silver up very fast. It would have gone to the same levels, anyway, and beyond, but the process would have been slower and steadier if the market had been limited to cash buyers and well-capitalized investors.
We have been carefully observing the methods used in this attack and have reached some conclusions. The attack is not sophisticated. It is NOT rocket science. The method is so simple that it is astounding that so few people see it for what it is. Regulators could put an end to it any time they want to. They simply don’t want to. That means, of course, that they are essentially complicit. There are genuine folks over at CFTC, like Commissioner Bart Chilton, but they are operating at an agency which is structurally corrupted, with a revolving door swapping employees to and from the regulator and those who are supposed to be regulated.
The current price attack involves an overwhelming creation of transient short positions that last less than one day. This is expensive to do in terms of upfront cash. But it isn’t quite as expensive as it may seem at first glance. Each day, except on Friday, May 6th, more than 10,000 short positions appeared to be transiently created, closed and recreated during the trading day. This must have required posting at least $180 million in performance bonds. However, to give credit to the ingenuity of the manipulators, most cash is recouped by the end of the trading day. With access to Federal Reserve loan windows, putting up an infinite amount of upfront fiat cash in the morning of a trading day is no deterrent.
From what we can see, this is what they are doing, in a highly coordinated fashion:
1) Either using control over the exchange committee system to induce sudden hikes in performance bond requirements, or opportunistically using such hikes. The hikes soften up the market by causing an initial destabilization of accounts of overleveraged long position holders. Some of the big clearing members of NYMEX have enhanced this effect by raising their own requirements higher than the exchange committee, and thereby softening up their own customers more substantially;
2) Using analysts to make extensive commentary to the mass media to the effect that the “silver bubble has burst” in the hope of inducing fear in the marketplace, further softening it up, in preparation for step 3.
3) Using trading “bots” to transiently create thousands and, sometimes, tens of thousands of intra-day short positions, designed to soak up opportunistic buying by better capitalized long side oriented investors. The flooding of the market with this paper supply of imaginary “silver” prevents futures based prices from rising and triggers stop-loss orders among leveraged customers.
4) Closing most intra-day positions into the mass of involuntary liquidations. Sometimes, “artillery” is left on the battlefield by the close of the day. This happens when transient short positions cannot be fully unloaded. In other words, the bots are competing with heavy buying from well-capitalized buyers who now want to pay the “bargain” prices created by the bots, and taking over those positions before the bots have the opportunity to buy them back. This shows up as a net increase in the “open interest” in silver, even as the price is falling. That aberrant result is impossible if a bubble were really “bursting”, because we would have run out of such buyers by now;
5) Rinsing and repeating the same process the next day, and on various days after that, allowing for a few “up” days centered around points of natural technical support, in order to preserve plausible deniability.
Again, CME officials claim that the sudden margin changes are motivated by “high volatility”, and that their actions are not a cause for the recent crash of silver prices. That is disingenuous at best. The changes are not “motivated” by high volatility — they are the initial cause of the volatility. They knowingly destabilized the accounts of highly leveraged buyers. Those buyers were highly leveraged because the exchange previously encouraged high leverage by marking down performance bond requirements. Sudden upward adjustment of performance bonds creates an opening for trading “bots” to move in, and helps make the manipulation less costly.
If performance bonds were never set in the first place, at ridiculous ultra-low levels, then suddenly raised, then suddenly lowered, over and over again – which is exactly what the exchange has done for years – prices would be stable. Substantial performance bonds, kept the same at ALL times, would mean no “pie-in-the-sky” undercapitalized long buyers drawn into the market. The ability of the manipulators to flush them out, collect their performance bonds, and periodically crash commodity prices would end.
In that scenario, silver and gold would transform back to their 10,000 year old role as the most stable stores of value that exist, and conservative investors would convert their fiat cash, stocks and bonds into precious metals. That is a nightmare scenario for western central bankers, because it is a severe threat to the long term profits of the commercial casino-banks they service, whose tight control over the world economy facilitates the sale of derivatives and control over the contingencies that trigger such derivatives. This tight control cannot exist in an honest money gold/silver base monetary system, and is based primarily upon control of paper and electronic money printing presses
But, in spite of the incredible power of the central banks standing behind them, short sellers are losing this war. Their surface “success” is an illusion. Instead of escaping from liability, their liability is growing. In spite of the propaganda machine, the attack by clearing members against their own customers, and the trading bots, buying interest has remained incredibly high. This is exemplified by the fact that not all of the tens of thousands of transient intra-day short contracts have been closed by the end of the trading day. That is NOT a sign of a bursting bubble but, rather, of just the opposite.
In a normal market, the cost of a relatively fixed supply of goods will always result in rising prices when the number of purchase contracts rise. This is because demand has increased while supply has stayed roughly the same. But, not in our corrupted futures markets. On Tuesday, May 3, 2011, CME Group records show that the silver bars underlying 23 contracts were delivered. That should have reduced “open interest” contracts by 23. Instead, there was a net INCREASE that day of “same-month” positions by 10 contracts. In other words, short sellers will now need to deliver 165,000 additional ounces of silver this month.
On Friday, May 6, 2011, the short sellers must have been proud of themselves. They were able to deliver 243 contracts, or 1.2 million ounces of silver, which is a huge amount. But, the open interest for May delivery only declined by 13 contracts, which means that the artificially cheap prices attracted 230 new long contract buyers who paid cash. The new contracts will need to be delivered this month. As hard as it must have been to find the silver for May 6th delivery, they are now forced to find another 1.15 million ounces somewhere.
The so-called “spot” price is now largely irrelevant, but short sellers have still not acknowledged that fact to themselves. Intense physical silver demand continues. This is amply illustrated by continued backwardation. Dealers at COMEX and the LBMA may create fake prices at will, but the cash market is their achilles’ heel. Short sellers have put paper silver on a fire sale at the futures exchanges. Yet they have not improved their position by doing so. They have, instead, insured a worse problem. Cash buyers put the fear of God in the hearts of silver manipulators. Cash buyers can put them into bankruptcy, destroy their power over the market, and discredit the futures markets, LBMA and the central bankers by inducing multiple defaults.
New “urban” myths about mysterious eastern billionaires buying up silver have spread quickly. On April 28, 2011, silver was selling for a high of $49 per ounce. The open interest had fallen to as low as 129,711 as short sellers slowly capitulated, and serious cash buyers took the bait. Allowing higher and higher fiat prices was effective in allowing open short positions to be closed, which is what short sellers must do before it is too late. On one day, for example, in early Asian trading, prices rose temporarily by over 10%. Asian short sellers were breaking ranks and buying back positions at any price. Then the bull-headed spirit of their European and American comrades awoke, and the current attack on silver prices began.
The market is NOT becoming dispirited or shell-shocked, as would have once been the case under similar conditions. Instead, we are seeing heavy buying by well capitalized long buyers who have probably read Andrew McGuire’s emails. They now know the score. They know that this is simply a manipulation event. As of May 5, 2011, the open interest had already risen to 134,804. The evil “Empire” is facing 5,093 new long positions. Two hundred sixty six of those are “same-month” positions, bought with a 100% cash, and need to be delivered this month.
Tens of thousands of other positions have changed hands. The trading “bots” managed to close most of their intra-day shorts into margin calls and stop loss orders, but have not accomplished much in terms of the level of open interest. Tens of thousands of existing contracts plus 5,093 additional hard long positions were unintentionally created by the trading bots, and all of these are now transferred from undercapitalized longs who would never have taken delivery, into much stronger hands.
The percentage of contracts, going forward, that will be forced into delivery as the months pass, will rise as a result of the transfer from weak to strong hands, and the silver short sellers’ problem is now bigger. New buyers have streamed in and bought at lower prices. That is the natural response of any bull market to a major manipulation event like this one. Silver is in a secular bull market. That has not changed as a result of a manipulation event. In fact, nothing has changed, except the unfavorable position of the silver short side manipulators, who are facing a much worse picture now than they did before they started this manipulation.
They have collected performance bond “candy” from undercapitalized investment “babies”. But, they need much more. Short sellers need to create the type of dispirited shell-shocked market they managed to create in late 2008. The effort, back then, made use of the demise of Lehman Brothers to offload hundreds of billions of dollars worth of short positions in all the precious metals in the OTC derivatives market. So far, however, this manipulation event isn’t working very well. The only way to bring the number of positions down is to allow the price to rise substantially.
If they abandon the effort now, as Friday’s action implies they might, it will be impossible for them to shift their short term price reduction into a longer term situation of altered market perceptions, which is their end goal. The Federal Reserve can give them as much cash as they need to mount as many paper-based attacks as they want, but it can’t give them physical silver. Short sellers will need to “put up” or “shut up”. They need to pay the price for their misconduct over many years.
Short sellers have proven to be so bull-headed that one has to doubt whether they will do the smart thing. The next move might be to flood physical markets with newly “cashed out” baskets of silver bars from the SLV silver trust stockpile. That might dampen pressure from increasing demand, and might even meet the immediate need for physical delivery in the OTC cash markets. Over the long run, however, assuming that the price remains discounted, the bars will quickly disappear and as they raid the stockpile, others will buy SLV shares and also raid the stockpile. SLV may end up stripped of its silver.
Does SLV really have the full amount of silver claimed? It does have a solid-seeming inspection report that says it does. If it doesn’t, we may be finding out soon enough. If those who have been dismissed as paranoid people end up being right, and there is not enough silver in the stockpile to cover claims, jail cells will be waiting. The CME Group clearing house risk committee can raise performance bonds to 100% of the amount that long buyers paid for their positions in silver. They can even raise it higher than that, but only at the risk of jail cells, and/or triple damages that cannot be discharged in bankruptcy for its individual members. Meanwhile, manipulators can continue to flood the market with bidding-bots and intra-day transient short positions. They can theoretically absorb all the buying pressure if they are stubborn enough.
They can continue to raid the SLV stockpile to make deliveries, and spin those withdrawals to the media as the “public getting out of silver”. But this is not 1980. No one remotely similar to Nelson Bunker Hunt is relying on bank financing to corner the silver market using leveraged positioning. Price pressure is from the cash physical market, not derivatives. COMEX is relatively irrelevant. Nothing the manipulators can do in derivatives markets will relieve the physical market pressure.
Short sellers have replaced weak hands with strong ones who are much more likely to take delivery. This manipulation episode will dramatically unwind, just as it dramatically began, when silver short sellers capitulate, as they must. Prices will shoot far beyond the recent high levels. “Bottom picking”, therefore, may be nice but it isn’t absolutely necessary. The prospective price appreciation over the next few months or years should overwhelm any differences in price right now. It won’t matter whether you bought at $50, $40, $35, $20 etc. In a few months, the price will likely be back up, and, in a few years, the price will be many multiples of all those numbers.
Technical support levels still have meaning because manipulators want it to be so. Cash fueled trading “bots”, filled to the brim with Federal Reserve funny money, can be programmed to open as many transient intra-day short positions as needed to punch right through any support levels. But manipulators must preserve an illusion of natural market movement. We can expect loose adherence to chart patterns, allowing bounces where appropriate, and then, punch-throughs.
The only way a psychologically depressed market could now be achieved is by crash prices beneath the long-term trend line, which is around $22.50 per ounce. This would require hundreds of millions of additional trading bot dollars to do. They might try it, at some point, but more likely, they will give up for the moment and return to a slow capitulation. Even if they do push prices down below $22.50, we doubt it would work for very long. Such a battering would cause heavy technical damage, but as noted, this market is not being driven by technical trends.
If they don’t achieve the sub-$22.50 level, even most technical analysts relied upon by the big non-manipulation-involved hedge funds and other big players will assume that the silver bull market is still running and that this is merely a deep correction. They will buy back in and run the price back up. In other words, if the manipulators do not achieve a sustainable self-perpetuating shell-shocked market, as was achieved in late 2008, the manipulators will not be able to close short positions without great losses.
It may be possible to use technical analysis to make intra-day, or multi-day gambles on bounces. We would not feel comfortable, however, with recommending that this be done with substantial capital, because the manipulators could suddenly attack again at any time. If they decide to punch through the strong technical support level at $33-34, they will do so with everything they’ve got. They will need to take down the price very quickly because they need to get it done before so much of the month has passed that they will be impaired in their ability to gather silver to make delivery in the OTC market.
You must think long term now before entering this silver market, because you may well get stuck with a silver position for a longer term than you may expect. But if the manipulators do press the price down below the $22.50 level, you should buy with every dollar you have available, because even though things will look bleak by then, with every media outlet heralding the “bursting of the silver bubble”, a few months later, the price will be back to way above $50 again. Prefacing the big fall will probably be a huge technical rally in the U.S. dollar, and a big fall in the stock market. These events may not happen until the end of QE-2 in late June.
On the other hand, if you don’t buy now, and, instead rely on the forlorn hope that manipulators will push hard enough to take prices into $20-22 level, you may well lose the excellent opportunities that now exist. There is no way to know, in a manipulated market, whether the manipulators will decide to punch through a particular support level. As we have stated in previous articles, the better way to deal with this is to pick a reasonable price level acceptable to your pocketbook, put in a buy order, and wait. If your buy order is successful, and the price turns up immediately, great. If not, be secure in knowing that you have a long term view, and a position in an asset destined for much more appreciation than we’ve ever seen before, over the next few years.
In short, it is time to stop thinking about short term gambling, because no metric you use is safe against the depredations of a manipulation that regulators refuse to stop. Buy with the long term in mind and wait for the market to punish the manipulators, which it will. Take physical delivery if you buy at the futures markets. Remember, the primary value of precious metals is NOT in making “big money” from gambling in the banker-controlled gambling casinos. We have always strongly suggested that only very small gambles like those you would make in Las Vegas should be made on a speculative basis. But buying on big dips, like this one, is not a speculative undertaking. It is long-term investing. The long term power of silver, like gold and platinum, is to preserve the buying power you’ve worked for all your life.
The powers-that-be want the U.S. dollar and all other paper fiat currencies to lose value every year. In fact, 2% inflation is their openly stated goal. If you consider compounding, that is an inflation rate that destroys the value of money very rapidly. But the true inflation rate in America is already closer to 6%, not anywhere near the low official numbers that the government likes to report to the media. With a huge increase in the amount of circulating funny-money liquidity around the world, including but not limited to the U.S. dollar, inflation is likely to rise much more sharply from here forward all over the world, not just in the U.S.A. The willingness to tackle this inflation, on the part of policy-makers, is very limited because serious efforts involve a lot of pain to powerful constituencies.
Investing in precious metals means converting U.S. dollars, pounds, euros, etc., into hard “money” that can be manipulated in price, but which cannot be debased. Manipulation has its limits, and since it appears to have been happening in the gold and silver markets for decades, in one form or another, the unwinding that is now beginning will just get more intense with time. No matter what technical support levels they target and take out, the short sellers are not going to extricate themselves without paying big bucks. Knowledge of how the price suppression scheme operates is in the public domain, and it is highly unlikely that manipulators will succeed in shell-shocking markets with their shenanigans, nor suppressing prices, for any significant period of time.
The next step to control prices for several more months will be borrowing enough money from the Fed’s loan windows to keep their trading bots active whenever some type of opportunity presents itself, and to become even more aggressive using control of exchange mechanisms to continue sudden increases in performance bonds. Because SLV shareholders tend to be unaware of the fact that they are dealing in a manipulated market, they continue to buy and sell the trust at whatever the spot price may be manipulated to. Thus, short sellers can use opportunistic futures markets attacks to raid SLV silver stockpiles “on the cheap”.
This should allow them to obtain enough silver to meet physical delivery demands, and even to periodically flood physical markets. Meanwhile, the reduction in the stockpiles will be spun into a claim that the “bubble is bursting” as “big players” “sell” SLV shares. In fact, they are not selling at all but, rather, cashing shares for silver to meet delivery demands. We doubt, for this reason, that the speculations about impending COMEX defaults have any basis in fact.
Silver investors should understand that the ride is going to be a roller coaster, as it always has been. Going forward, the intensity of that thrill ride is likely to increase proportionally to the desperation of short sellers. The biggest threat to silver prices will be the supposed end of QE-2. Short sellers are likely to view it as another opportunity to attack. But July is also a big delivery month in silver, and the delivery demand will be considerably higher than now, as a result of this price attack and the replacement of weak hands with strong ones.
If the manipulators had strong faith that the cessation of QE will save them, they wouldn’t have launched the ongoing attack we are now suffering through. The most likely outcome of the end of quantitative …
Read the entire article HERE.
By John Gittelsohn
May 8, 2011 9:01 PM PT
More than 28 percent of U.S. homeowners owed more than their properties were worth in the first quarter as values fell the most since 2008, Zillow Inc. said today.
Homeowners with negative equity increased from 22 percent a year earlier as home prices slumped 8.2 percent over the past 12 months, the Seattle-based company said. About 27 percent of homes were “underwater” in the fourth quarter, according to Zillow, which runs a website with property-value estimates and real-estate listings.
Home prices fell 3 percent in the first quarter and will drop as much as 9 percent this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. Prices won’t find a floor until 2012, he said.
“We get tired of telling such a grim story, but unfortunately this is the story that needs to be told,” Humphries said in a telephone interview. “Demand is still quite anemic due to unemployment and the fact that home values are still falling. And that tends to make people more cautious about buying.”
The U.S. unemployment rate rose to 9 percent in April, up from 8.8 percent in March, the Department of Labor reported May 6. Home prices have fallen almost 30 percent from their June 2006 peak, wiping out more than $10 trillion in equity, including $667.5 billion in the first quarter, Humphries said.
Dropping Home Values
Other analysts also expect homes to continue losing value this year. Oliver Chang of Morgan Stanley expects prices to fall as much as 11 percent, according to an April 25 report. Prices may fall “another 5 or 10 percent,” Robert Shiller, an economics professor at Yale University, said April 26 on Fox Business News. Home prices were 33 percent below the July 2006 peak in February, according to the S&P/Case-Shiller Composite 20-City Home Price Index, co-created by Shiller.
Prices will continue falling as more houses are lost to foreclosure, flooding the market with distressed properties, Humphries said.
Foreclosures fell to the lowest level in three years in the first quarter as lenders worked through a backlog of flawed paperwork, according to RealtyTrac Inc., an Irvine, California- based real estate information service. Foreclosure filings are likely to jump 20 percent this year, reaching a peak for the housing crisis, RealtyTrac predicted in January.
Las Vegas Highest
In Las Vegas, 85 percent of homes with mortgages were underwater, the most of any city tracked by Zillow. Other metropolitan areas in the top five were Reno, Nevada, at 73 percent; Phoenix at 68 percent; and Modesto, California, and Tampa, Florida, both at 60 percent. Zillow has tracked negative equity since the first quarter of 2009, when more than 22 percent of homes were underwater.
Property values rose in only three of the 132 regions tracked by Zillow: Fort Myers, Florida, where they gained 2.4 percent; Champaign-Urbana, Illinois, up 0.8 percent; and Honolulu, up 0.3 percent. Fort Myers prices increased after falling more than 60 percent from their 2006 peak because they “over-corrected,” Humphries said.
The first quarter’s U.S. home price decline was the steepest since the fourth quarter of 2008, when prices fell 3.9 percent, according to Zillow data. Values dropped almost 13 percent over the course of that year.
“It’s not going to be as bad as 2008,” Humphries said. “But it’s going to be worse than we thought it was going to be.”
Prices were propped up in 2009 and early 2010 by federal stimulus programs, such as tax credits worth up to $8,000 for first-time homebuyers, Humphries said. That program “was stealing demand from the future,” weakening shoppers’ appetites now even as housing affordability is at its three-decade high, he said.
“In the past, people felt more bullish in a post-recession recovery,” he said. “They’d go out and spend more on homes and that would ignite hiring in construction and the mortgage industry. And they’d start to get the flywheel moving more quickly. Unfortunately, now, that flywheel is broken.”
Read the entire article HERE.
Federal Banking Regulators Expose Massive Mortgage Backed Securities Fraud as Part of Fraudclosure Investigation
From the InterAgency Report:
The Federal Reserve System, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS), referred to as the agencies, conducted on-site reviews of foreclosure processing at 14 federally regulated mortgage servicers during the fourth quarter of 2010.1 This report provides a summary of the review findings and an overview of the potential impacts associated with instances of foreclosure-processing weaknesses that occurred industrywide.
Promissory Notes are “negotiable instruments” and have a face value similar to cash. The mortgage trusts all have clear criteria for the storage of the notes. All of the SEC filings I have read in regards to these trusts name a document custodian, usually the trustee. I have not yet seen even one trust prospectus or pooling and servicing agreement (PAS) where the servicer is named the document custodian. Here’s an example, of a trust where Bank of America is the servicer, Wells Fargo is the Trustee of Banc of America Mortgage 2006-B Trust (prospectus here). Note that instead of BoA as servicer for this trust, Wells Fargo as trustee is tasked with document custodian duties!
In addition, the Mortgage Loan Purchase Agreement will provide the Depositor with remedies against the Sponsor for the failure by the Sponsor to deliver the Mortgage Loan documentation required to be delivered to the Trustee or a custodian under the Pooling Agreement.
Wells Fargo Bank, National Association (“Wells Fargo Bank”) will act as Trustee and custodian under the Pooling Agreement.
Wells Fargo Bank will also act as custodian of the Mortgage Files pursuant to the Pooling Agreement.
In that capacity, Wells Fargo Bank is responsible to hold and safeguard the Mortgage Notes and other contents of the Mortgage Files on behalf of the Certificateholders. Wells Fargo Bank maintains each Mortgage File in a separate file folder marked with a unique bar code to assure loan-level file integrity and to assist in inventory management. Files are segregated by transaction or investor. Wells Fargo Bank has been engaged in the mortgage document custody business for more than 25 years. Wells Fargo Bank maintains document custody facilities in its Minneapolis, Minnesota headquarters and in three regional offices located in Richfield, Minnesota, Irvine, California, and Salt Lake City, Utah. As of June 30, 2006, Wells Fargo Bank maintains mortgage custody vaults in each of those locations with an aggregate capacity of over eleven million files.
Last fall, we got hints of the expected-yet-still-shocking revelation via a Countrywide/BoA employee, Linda DeMartini (testimony here), exposed the securities fraud practices in a depo taken during a NJ bankruptcy case, Kemp v Countrywide.
A direct quotation from the judge’s opinion in the bankruptcy case: “She [DeMartini] testified further that it was customary for Countrywide to maintain possession of the original note and related loan documents.” That assertion certainly seems to suggest that the failure to transfer a promissory note from Countrywide Financial to the security trust in this case was not an isolated error—but a matter of policy at Countrywide Financial.
If mortgage-backed securities aren’t in fact “mortgage-backed,” investors who bought these securities from Countrywide could hold Bank of America accountable.
“If Countrywide’s practice was to hold onto the note, then investors in this pool and others may question whether the security was constructed properly and legally and may be able to require Bank of America to buy back their securities,” Gretchen Morgenson of the New York Times explained.
FROM PAGE 3 OF THE INTERAGENCY REPORT: The reviews also showed that servicers possessed original notes and mortgages. (NOTE THAT THE SERVICERS, NOT THE TRUSTEES ARE IN POSSESSION OF THE ORIGINAL NOTES & MORTGAGES)
FROM PAGE 4 (oddly it appears third party vendors where tasked with negotiable instrument document custodian duties) Third-party vendor management. Examiners generally found adequate evidence of physical control and possession of original notes and mortgages.
FROM PAGE 6 Furthermore, concerns about the prevalence of irregularities in the documentation of ownership may cause uncertainty for investors of securitized mortgages. Servicers and their affiliates also face significant reputational risk with their borrowers, with the court system, and with regulators.
FROM PAGE 7 (Keep in mind the financial sector’s propensity to fabricate evidence. Note the slippery language “may not have been sufficient” & “generally was sufficient”.): ..examiners noted instances where documentation in the foreclosure file alone may not have been sufficient to prove ownership of the note at the time the foreclosure action commenced without reference to additional information. When additional information was requested and provided to examiners, it generally was sufficient to determine ownership.
Read the entier article HERE.
04/01/2011 16:08 -0400
While it is no surprise that the day after Lehman failed, every single bank scrambled to the Fed to soak up any and all available liquidity after confidence in the entire ponzi collapsed, what is a little surprising is that of the 6 banks that came running to papa Ben, and specifically his Primary Dealer Credit Facility, recently upgraded, or rather, downgraded to accept collateral of any type, two banks (in addition to Lehman of course which at this point was bankrupt and was forced to hand over everything to triparty clearer JPMorgan), had the temerity to pledge bonds that had defaulted (i.e. had a rating of D). As in bankrupt, and pretty much worthless. Now that the Fed would accept Defaulted bonds as collateral: or “assets” that have no value whatsoever is a different story. What is notable is that the two banks that did so were not the crappy banks such as Citi or Morgan Stanley, but the two defined as best of breed: Goldman Sachs and JP Morgan. It is probably best left to the now defunct FCIC to determine if this disclosure is something that should also be pursued in addition to recent disclosure that Gary Cohn may have perjured himself by not disclosing truthfully his bank’s discount window participation. However, we can’t help but be amused by the fact that of all banks, the ironclad Goldman and JPMorgan would be the only ones in addition to bankrupt Lehman to resort to something so low.
PDCF collateral as of September 15, 2008. (Click on picture for larger view)
And further analysis indicates that a few weeks later, this practice became pervasive, with virtually every banker pledging defaulted bonds in exchange for money good cash with which to pretend these banks were doing just fine (not to mention that $71.7 billion in collapsing equities represented nearly half the total collateral of $164.3 billion pledged to receive $155 billion in cash.)
(Click on picture for larger view)
At some point people will inquire, perhaps not in the most peaceful of terms, just why this travesty of fiduciary responsibility was happening when it happened. But not yet. And certainly not while the Chairman continues to successfully levitate the market singlehandedly.
Submitted by Tyler Durden
03/18/2011 11:11 -0400
Following the clusterflock of black swans that has hit world markets in the past month, the Fed has realized it needs to act quick to distribute money to undercapitalized bank shareholders ahead of the upcoming bank sector bail out, which will naturally be funded by taxpayers all over again. According to the Fed, the 19 worst banks in America (in other words those that are allowed to issue dividends) are: Ally Financial Inc. (no, really, f/k/a GMAC is healthy), American Express Company, Bank of America Corporation, The Bank of New York Mellon Corporation, BB&T Corporation, Capital One Financial Corporation, Citigroup Inc., Fifth Third Bancorp, The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Keycorp, MetLife, Inc., Morgan Stanley, The PNC Financial Services Group, Inc., Regions Financial Corporation, State Street Corporation, SunTrust Banks, Inc., U.S. Bancorp, and Wells Fargo & Company. The surge in share prices of the mentioned banks confirms that this is nothing but the latest round of Fed-endorsed taxpayer rape, which nobody can do anything against as the Fed is an “unsupervised” entity, DC is owned by Wall Street, and the peasantry is downloading porn on their iPad.
Full Fed press release:
The Federal Reserve on Friday announced it has completed the Comprehensive Capital Analysis and Review (CCAR), its cross- institution study of the capital plans of the 19 largest U.S. bank holding companies.
As a result of the CCAR, some firms are expected to increase or restart dividend payments, buy back shares, or repay government capital. The Federal Reserve on Friday will discuss the reviews and its decisions with firms that requested a capital action.
All 19 firms will receive more detailed assessments of their capital planning processes next month.
In February 2009, the Federal Reserve advised bank holding companies that safety and soundness considerations required that dividends be substantially reduced or eliminated. Since that time, the Federal Reserve has indicated that increased capital distributions would generally not be considered prudent in the absence of a well-developed capital plan and a capital position that would remain strong even under adverse conditions.
The Federal Reserve’s actions on capital distributions come after significant improvement in both economic conditions and the capital positions of financial institutions. From the end of
2008 through 2010, common equity increased by more than $300 billion at the 19 largest U.S. bank holding companies. Moreover, conclusion of the Basel III agreement to increase capital requirements and passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act have substantially clarified the regulatory environment in which these firms will be operating.
The return of capital to shareholders under appropriate conditions is a step in the process of improvement in the financial sector and will help to promote banks’ long-term access to capital. Such access will support lending to consumers and businesses. The capital plan reviews foster appropriate capital distributions in a measured fashion while still helping to ensure continued increases in firms’ capital bases.
These supervisory reviews by the Federal Reserve come in the context of a significant change in supervisors’ expectations for firms’ substantive capital policies and capital planning processes. Among other things:
Firms are expected to demonstrate their ability to remain viable financial intermediaries as they make the planned capital distributions, even under stressed conditions;
Firms are expected to continue to increase their capital base; In 2011, firms generally are expected to limit dividends to 30 percent or less of anticipated earnings;
Planned share repurchases will be reviewed if there are material adverse deviations from the revenue and loss assumptions in a firm’s capital plan such that capital is not increasing as anticipated; and in the event of a sharp deterioration in economic conditions that could have negative implications for safety and soundness, the Federal Reserve may require modification of previously submitted capital plans.
The CCAR involves a forward-looking, detailed evaluation of capital planning and stress scenario analysis at the 19 large bank holding companies. Although it was not standardized to the degree the Supervisory Capital Assessment Program (SCAP) was in early 2009, it builds on the experience gained during that exercise. In the CCAR, the Federal Reserve assessed the firm’s ability, after taking into account the proposed capital actions, to maintain sufficient capital levels to continue lending in stressed economic environments, including under an adverse scenario specified by the Federal Reserve. The adverse scenario was intended to represent developments in a typical recession, with a decline in economic growth, a rise in unemployment, and a sharp drop in risky asset prices (for details, please see Comprehensive Capital Analysis and Review: Objectives and Overview, attached). Federal Reserve supervisors carefully analyzed and adjusted as appropriate projections of stressed revenues and losses provided by the firms in the CCAR.
It is important to note that there are a number of reasons why firms participating in the CCAR may not be making capital distributions this quarter. For example, a firm may not have requested approval of any such action, Federal Reserve supervisors may have believed a requested distribution was too high at this time and could weaken the firm’s ability to weather adverse economic conditions, or supervisors may not have been comfortable with the capital planning process underlying the request. Firms may resubmit capital proposals each quarter, with their prospects for an answer of no objection dependent on their responses to any concerns raised during the CCAR.
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.