Archive for April, 2009
Every precious metals trader that has analyzed gold prices over the past several decades knows that a common ploy the IMF and leading global Central Banks utilize to suppress gold prices in the COMEX futures markets is to announce plans to sell gold despite their total lack of commitment to executing their announced plans. For example, the Bank of Italy announced in late July, 2007 their plan to sell an estimated 1,740 tonnes of its gold reserves to help pay down its national debt. At this time, this announcement moved the gold futures markets lower because many analysts found this announcement shocking in light of the fact that Italy had always previously stated that its gold reserves were “untouchable”. However, any gold analyst worth his or her weight in salt immediately knew that this announcement was a complete sham because Italy’s announced sales, as considerable as they were, would never have significantly contributed to its declared end goal of solving their national debt problem. Thus, simply by drilling down to the facts behind the Bank of Italy’s surface level announcement, one would have easily deduced that an ulterior motive much different than the stated motive existed. Sure enough, the Bank of Italy never followed through its announcement to sell its gold reserves yet still achieved its likely ulterior motive of temporarily halting the rise in gold prices and driving them lower. Read more …
April 28th, 2009
In Part I of “The Gaping Hole”, I stated that “the valid argument against massive future inflation is the fact that this bailout money must eventually end up not just in the monetary base but in the monetary supply.” When money in the monetary base is converted to monetary supply then this indeed causes velocity as the institutions that store the monetary base (the banking system) have the ability to leverage this base by up to 100 times the amount of money represented by the monetary base (Not 10 times as many people erroneously believe that the RRR in the US is 10%. For a full explanation of the degradation of reserve ratio requirements to zero for many US banking accounts, please reference this article here).
Thus, the proponents of the prolonged deflation argument suggest that significant acceleration in money velocity is years away. Here’s why they are wrong. Read more …
April 24th, 2009
There are many people still bandying around the idea that we will suffer a prolonged period of deflation and their primary argument in support of this thesis is the fact that despite the ECB, the Federal Reserve, the Bank of England, the Bank of Japan and other Central Banks printing trillions upon trillions of currency out of thin air, the cumulative amount of this printing still does not equal the enormous wealth destruction that has occurred over the past several of years. In this article, I’ll explain why this argument as the justification for prolonged deflation holds no water. Read more …
April 23rd, 2009
The last time I wrote an article about the US dollar on March 4th titled the “US Dollar Vulnerable to a Sharp Decline Now”, the US dollar index promptly plunged from 89 to 83 less than one week later. In that article I stated a critical multi-year intermediate resistance point that had to hold to not trigger further deep declines. As it turned out, the USD index (EOD) approached the resistance line I pointed out but never breached it (for reasons I will explain below). Since mid-March, the USD has had a nice little rally to about 87. Though I’m not as confident as I was back on March 4th of the US dollar turning down right away again, I do believe that a significant downturn is imminent in the very near future (within a window of perhaps one month). Read more …
April 22nd, 2009
Many times when I run into old friends after a while, in reference to past conversations we may have had regarding global capital markets, they tell me something to the effect of: “Everything you said that was going to happen happened exactly like you told me. How did you know?” The key to my predictions is my understanding of the global monetary system. Often people ask me about questions beyond the realm of my expertise such as real estate. They inform me of countries where the real estate market still seems to be holding up well despite the global monetary crisis and ask me, “Do you think buying a house is a good investment right now in Country X (the name of a country with a healthy real estate market)?” My answer is always the same. I answer their question with a question of my own. “What’s the key interest rate in Country X (the interest rate at which banks lend to each other)?” I ask. If their answer is any figure between 0.00% and 1.50% to 1.75%, as it often is, I tell them to wait for much lower prices that will be coming very soon. Even though I would never claim expertise in real estate markets, I can still provide my colleagues with solid forecasts based upon my understanding of the global monetary system. Read more …
April 21st, 2009
Though I’m writing this article on the Saturday preceding the Monday Bank of America earning’s announcement, I am quite confident in stating that the chances Bank of America will not surprise and beat analysts on Monday is slim to none. I can state this without reading a single word about what the analysts are predicting in terms of earnings and without scrutinizing any pre-earnings hints from Bank of America executives. I can state this for the same reason that I knew Wells Fargo would surprise the market to the upside, why Goldman Sachs would surprise the market to the upside and why I wrote just last Friday on this very blog that Citigroup would surprise to the upside before they announced their earnings. Read more …
April 18th, 2009
In the past three years, while banks all over the world and Wall Street were imploding, while some $40-$50 trillion of capital was being destroyed in global stock markets, one financial market kept growing. That market is the financial derivatives market. According to the Bank for International Settlements (BIS), the global Over the Counter (OTC) derivatives market has grown almost 65% from $414.8 trillion in December, 2006 to $683.7 trillion in June of 2008. On the BIS’s own website, there are no updated figures for the notional derivatives market since June 2008, so we can likely assume, with some margin of safety, that this market has now grown to more than $700 trillion now. Comparatively speaking, the total market cap of all major global stock markets is approximately $30 trillion.
Before I discuss how financial products could grow more than 65% during a time period when financial companies were imploding all over the world, let’s review the definition of a derivative, because this will explain how this market of financial products keeps becoming more valuable at a time when the value of many capital assets are sinking like a rock in an ocean. Read more …
April 17th, 2009
The recent comments of many on our nation’s top banking executives have been so consistently disingenuous that the subject of this article has been long overdue for some time now. On March 20, 2009, Citigroup CEO Vikram Pandit issued a memo to all Citigroup employees in which he stated, “Our industry has recently seen a tide of negative sentiment rising in Washington, D.C. regarding compensation. Of course, some of it is warranted. But I take exception when there is a discussion about spreading the blame to each and every employee in the financial services industry. At our company, we removed the people responsible for Citi’s financial distress and acted fast to strengthen and streamline the business, and install new risk processes and new risk personnel. You have been invaluable in our collective efforts to put the company on solid footing… please rest assured that senior management and experts in Washington are focused on these developments and trying to address issues raised in the debate with clarity about the real facts.”
I take great offense to Mr. Pandit’s willingness to remove all responsibility for this crisis from “each and every employee” in the financial services industry. What made America a great country in the past was each and every American citizen’s willingness to take personal responsibility for his or her mistakes instead of sloughing the blame onto someone else. What made America a great country in the past was the courageous transparency of American leaders to discuss the truth with her citizens, as painful as that truth may have been, versus the cowardice of deception to dishonorably fool the masses into believing a picture of reality that is a lie. Read more …
April 15th, 2009
With FASB demonstrating no backbone this Thursday and voting to change mark-to-market rules with not a single dissenting vote (demonstrating that not a single FASB board member has the guts to stand up for what is right), the Big Deception is now in play for earnings season which starts tomorrow on April 7th. Despite the fact that the consensus is for earnings to be brutal and consequently, for the global stock market rally to end, here’s what I think will happen.
The timing of FASB’s ruling was in no part coincidental. There was a rush to approve the suspension of mark-to-market rules that allows US financial companies to use their “significant judgment” to value illiquid assets such as mortgage securities and mortgage-backed securities. I’m sure investors appreciate that valuation will be left to the significant judgment of financial executives since it was their fine judgment that helped fuel many of the steps of this global economic quagmire we find ourselves in at the present time. Read more …
April 6th, 2009
