09 November 2015

An Almost Perfect Storm of Incompetence and Felony

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.

But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

John Kenneth Galbraith, Age of Uncertainty

“Misdeeds, once exposed, have no refuge but in audacity. And they have accomplices in those who are fearful in their complicity.”

Tacitus, Annals

I was discussing the markets this morning with my friends Dave and Bill Murphy as we generally do.  This is what I just wrote back in response to a question from Bill.

I read his columns at LeMetropoleCafe.com every day.  His is an amazing crossroads for discussion of things that are interesting about precious metals.  I have been a subscriber since 2000. Dave has a new site at Investment Research Dynamics that is quite good and different since he has a very different background in the heart of darkness as a NYC bond trader from mine as a Bell Lab rat and Silicon Valley roustabout.

We just saw a very historically significant decline in the precious metals in terms of days lower without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the Swiss franc that cannot possibly be good for the real economy of the US, when every other developed nation is trying to devalue their currencies to stimulate their exports and inhibit imports.

I believe that a portion of the gold selling in particular is an effort to knock down the open interest in gold for December. If there was any serious attempt for holders of those contracts to stand for delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer' in that market, would not be able to cover the demand.

JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+ ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.

As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold, 400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even now their inventories remain somewhat depleted.

The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering so that they can raise rates.  A strong dollar and higher rates are very harmful to what is almost undoubtedly a fragile economic recovery in the US.

And it is fantasy to think that the US can somehow go it alone, and continue to improve while the rest of the world is cutting rates because their economies are slowing.

The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy.

There will be another financial crisis as the IMF warned today. There will be a serious dislocation in several financial markets, including the precious metals and the bonds at some point, that will rock the current system to its foundations.

It is the credibility trap which ensnares the ruling class that inhibits any meaningful remedy and reform.

It is an almost perfect storm of incompetence and felony.