Gold Daily and Silver Weekly Charts - December Option Expiration Tomorrow

"Of all forms of tyranny the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of plutocracy."

J. Pierpont Morgan

As you may recall I warned several times over the past two months that this option expiration would get 'hit' because December is a big delivery month.

And so it has.

I am going to reset the upward curve on the gold daily chart to wherever this takedown ends up, after the shenanigans are over.

As you can see on the more detailed gold futures chart, the last low in October was reached a day or two before the option expiration. I am not so sure it will play out that way this time because of the delivery issues and the holiday shortened week. But let's see how the charade progresses.

It says a lot about a society where customers can be openly robbed, and markets can be blatantly rigged, and even more about the people who defend it and hold it up as an ideal for the rest of the world.

This is what the average American mind cannot yet grasp, but those outside the system see it clearly. And it is puzzling to them. How can a reasonably educated and well off people act as such willing fools for those who take such shameless advantage of them?

Well after all, it is a currency war.

SP 500 and NDX Futures Daily Charts - Much Ado About Nothing

“The boom, not the slump, is the right time for austerity at the Treasury.”

John Maynard Keynes, 1937

Light volumes and the markets were in the profit-taking mood on the back of JPM's slam on metals.

Anyone who was surprised in the least by the Super-Committee's inability to reach a deal should not be allowed to roam about without a chaperone, as they might hurt themselves.

The whole point of the Super-Committee was to fail. It's failure is a useful tool for the politicos in the Beltway. It allows them to put military spending cuts on the table and point fingers at each other until next November.

Bernanke For A Day

The San Francisco Fed has provided us an online game that is presumably meant to be instructional as well as 'fun.'

After a few tries to test out its assumptions, I have been able to 'win it' pretty regularly, winning being defined as appointed to another term. It is very one dimensional so it gets old rather quickly.

One is hit with various oil and currency and fiscal shocks and surprises, and must adjust to them as you go along in a particular episode.

I imagine the point of this is to educate people to the lags in policy effects, and the dangers of over-reacting to secular events and causing problems for yourself downstream.

At this point I am having some fun examining their assumptions, which are built into the game's algorithms, for what they can tell me about their own thoughts in designing the game. I like to play strategy games on my laptop while the children inflict the latest tweenie programs on me before packing them off to bed.

I was disappointed because there is no option to exercise your role as bank examiner, no metrics for the dollar and trade, and of course, you have no ability to fire Timmy.

Enjoy.

Play The Fed Chairman Game

Trustee Says MF Global May Have Stolen $1.2 Billion in Customer Funds

"The infectiousness of crime is like that of the plague."

Napoleon Bonaparte

Ironically a reader sent me their analysis yesterday that showed that the losses were $1.2 Billion. The twist here is that the Trustee may be accruing those losses to the customers even where there is some discretion.

One would think that the customers should be paid first out of all MF Global creditors. But I suspect that where it is possible, their loss will be subordinated to the unsecured creditors like JPM who have a powerful influence with this Trustee and the courts. The customers of consequence, like the Koch brothers, appear to have been tipped off weeks in advance.

This is the perversity of law without justice.

If that happens, then nothing is safe. If a customer in cash and Treasuries can be robbed, and then be made to stand in line with unsecured creditors, then your 401(k)s are not savings but loans to the custodians of your plans.

Now may be the time to exit all arrangements not specifically guaranteed directly by the government, and bring your money home. And better yet if no guarantees are required, and no parties standing between you and your wealth.

If they steal from one unpunished, they can steal from any and all almost at will. You are not an insider, and there is no honor among thieves. You are prey.

And what are a few customers, and the stewardship of funds, to a group of financiers intent on taking down whole nations and their Treasuries?

Reuters
MF Global trustee says shortfall may be bigger
Mon Nov 21, 2011 11:20am EST

Nov 21 (Reuters) - The trustee liquidating MF Global Holdings Ltd's broker-dealer unit said on Monday that the apparent "shortfall" of customer funds may be larger than the futures brokerage had reported prior to its bankruptcy.

"The trustee believes that even if he recovers everything that is at U.S. depositories, the apparent shortfall in what MF Global management should have segregated at U.S. depositories may be as much as $1.2 billion or more," the trustee, James Giddens, said in a statement. He added that the amount could change.

Giddens also said he expects in early December to transfer 60 percent of what is in segregated customer accounts for U.S. futures positions, pending court approval. He said the transfer would require $1.3 billion to $1.6 billion to implement, exhausting much of the assets under the trustee's control.

MF Global was run by former Goldman Sachs & Co chief and New Jersey governor Jon Corzine before its Chapter 11 filing on Oct. 31. The filing came after the New York-based company revealed that it made a $6.3 billion bet on European sovereign debt. Corzine resigned on Nov. 4.

Net Asset Values of Certain Precious Metal Trusts and Funds

Tomorrow is Comex Options Expirations for Gold and Silver.

Someone remarked this morning that the monied interests seem to be increasingly brazen in their actions.

I have had the opportunity to discuss these things with people more experienced than myself over the years. Before he passed on, a fellow Republican and economist Pierre Rinfret and I had a number of conversations about this.   We had common friends and experiences going back to the Nixon Administration.

It was his opinion there is always a minority element of the dishonest in any system. Their power waxes and wanes. But on a macro level, when the many are complacent and the power of the corrupt has grown, often through the capture and erosion of the law, many of the morally weak join in on the grand corruptions, and so the tenor of the age becomes more noticeably lawless.

And I think this is where we are today, at the natural conclusion of the greed cycle, where pretense is discarded, and theft becomes more brazen, and in the daylight.

It will continue until there is a reaction by the greater number of people, and they waken from their slumber. The course of corruption has momentum, because there are many who view it as their wealth and fortune, forgetting and forsaking all else for a few extra coins.

Those who mock and impede reform are not defenders of freedom, but the rot within the system, the dead wood that must be removed in order for growth to resume and flourish.

Update on MF Global: Interview with James Koutoulas of he Commodity Customer Coalition

"When bad men combine, the good must associate; else they will fall one by one, an unpitied sacrifice in a contemptible struggle."

Edmund Burke

James Koutoulas is CEO of Typhon Capital Management and recently founded the Commodity Customer Coalition (CCC), comprised of over 7000 customers of MF Global. As an attorney and spokesperson for the CCC, Koutoulas has an inside persective on the legal maelstrom that has erupted in the wake of the MF Global bankruptcy scandal -- he's leading the charge for the commodities trading community. We asked him for an update on the case.

You can listen to the Benzina radio interview here.

What is the latest from the proceedings?

I think JP Morgan realizes we made some really good points in our objection to their motion, and they are stalling the hearing on this as much as they can. As of Tuesday, they had continued that hearing from the 15th to the 22nd. They've gone ahead and continued that again, so our objection has been pushed back to the 30th.

It's our guess that they are probably going to throw $20 million at lawyers to figure out a way to beat our little grassroots coalition on it.

They are allowing MF Global Holdings to continue to use this $8 million, but they haven't gotten the "super-priority" liens that they have sought. From our perspective, let them stall as long as they want and let them throw $20 million worth of lawyers at us. It's our goal to have this situation resolved in two weeks.

Can they get the money back?

If they commingled funds with their own money, then customers would have clawback rights, similar to the Madoff case. So, that would be a fraudulent conveyance.

Customers, in my opinion, would have rights of recovery from the $1.2 billion in excess equity that sits in the holding company, which is why we are fighting to get on the creditor's committee, so we have a say in protecting recoveries on the holding company assets.

Moreover, if there was a crime committed, that opens up Corzine, MF Global directors, the $200 million directors and officers insurance policy--that opens all of that up to potential customer recoveries, and we will aggressively be going after all of those sources so that customers are made whole.

This seems like the kind of thing that could be dragged out for years.

It is a mess, and I think it definitely had that potential before we got involved, but I think the world has never seen an organization like ours, that has been put together so quickly--over 7,000 people in under two weeks, with some very experienced lawyers who are actually motivated by helping customers instead of collecting $891 an hour in legal fees.

We've gone in there and stopped the train for the moment on the JP Morgan cash collateral use. We've gotten the judge to realize the timeliness of the situation, and the judge is an honorable man. He is putting the pressure on the trustees to speed up the process.

I also think we've put a lot of pressure on CME. I've reached out to the CME. I told them, "Look, there are cases where you could (1) be liable for this," due to the way that they have advertised the sanctity of seg [related] funds in order to drive business through their exchange. I've said, "Look, your stock is down something like $2.5 billion in market cap this week, which makes the $600 million look like a drop in the bucket."

The CME could take this major problem that they are having and turn it into an opportunity for goodwill by going out and just putting up the rest of the shortfall. The customers get their money, everybody feels safe, they restore confidence to the futures market, and they get volume going through their exchange again.

I've offered to the CME vice chairman that I will go to court and recommend that the judge grant a lien to the CME on the holding company assets should they put up a temporary fund to cover the shortfall. That way, the CME would be pretty well-protected there. Essentially, they'd be putting up a loan rather than just giving away $600 million.

It seems like the CME is one of the parties with the most at stake here.

I think that is 100 percent accurate. Look, if I'm the CME, I don't look at this as a morality play. They are a publicly-traded company. It's good business to make customers whole as fast as possible, and it's not like they are going to cut a check they are never going to get back.

They could go in and get liens on holding company assets, pay people out, and get them trading ASAP. It's a great business decision.

The CME board is a big board. There is a lot of old-school people there, so I think it takes some time to form a consensus, but I think within a couple of days they are going to have to cave and step up to the plate here for the full amount.

That makes our job easier, it makes the customer's job easier, it deprives the trustee of being able to hold this thing up for three years. It makes them have to get the money out now, and everybody except the trustee and probably JP Morgan and Bank of America win. Guess what? I'm OK with that.

Is the CME big enough to win out over entities like JP Morgan?

"Honestly, it doesn't matter who is big enough if you have people on your side who know the law. The law favors the customers. The problem that normally happens is the customers don't have the quality legal representation they need to fight the big guys.

We're working with Barnes and Thornburg as co-councel and they've assigned some brilliant partners, both on the litigation side and on the bankruptcy side. We have Sam Tenenbaum, head of Northwestern Investor Protection Clinic, who has been litigating for 35 years. He has gone toe-to-toe with Goldman Sachs and won several times.

And you've got me, who truly understands the futures business, but is also an attorney, an organizer, and a good spokesman. And I think that legal team poses a challenge that these high-priced bank lawyers have never seen before."

What's going to happen next?

"I honestly think the CME is going to step up and make customers whole. If they don't do that, we're going to proceed with our plans. Yesterday we met with the Trustee at the judge's orders and we proposed a plan for distribution of partial customer assets that would move about 6-12 months faster than the Trustee's plan.

At this point, we're still open to working with the Trustee; I offered to work with them to implement this. They thus far have not been receptive to that, so unless there is a change of heart there, we're going to come forward and put our plan in front of a judge on Tuesday.

We're also going to continue our efforts to have the Commodity Customer Coalition represented on the creditors' committee in the holdings companies case to protect customers against [Bank of America, JP Morgan, and others] who, in addition to being on the committee, are trying to set up vulture funds where they can buy customers' claims for pennies on the dollar and then get paid out once this whole thing is resolved - which I think is a conflict of interest.

We're going to support Tim Butler's motion on Tuesday. Attorney Butler has filed on behalf of his brother to push for the release of 85 percent of funds now, since the stated shortfall is only 11.6 percent.

We also want to see Corzine in court, under oath, and we want to hear his answer to where he thinks the money is and give him the option to be honorable and forthright, or to be a coward and take the Fifth.

I want to show the American people that no matter how connected you are, no matter if you were the Governor of New Jersey, no matter if you were a senator, if you break the law you should go to jail. And quite frankly, I think it's a disgrace that no one went to jail over the crisis in 2008.

All the people who gave triple-A credit ratings to essentially junk securities, none of them went to jail, none of the people who sold those went to jail, none of the people who committed mortgage fraud went to jail - I think it's ridiculous. If [Corzine] did commit a crime, I want to see him behind bars."

James Turk Interviews Eric Sprott About Gold and Silver

Gold Daily and Silver Weekly Charts - Brother, You Ain't Seen Nothing Yet

"In a society built largely on confidence, with real wealth expressed more or less inaccurately by pieces of paper, the entire fabric of economic stability threatened to come toppling down."

New York World, October 25, 1929


"In economics, things take longer to happen than you think they will, and then they happen faster than you thought they could."

Rudy Dornbusch

Next week is a Thanksgiving Holiday week in the states, as the markets will be closed on Thursday and a light session on Friday.

Metals Option Expiration is next Tuesday. December is a big delivery month.

Several people have mentioned that the bankruptcy of MF Global takes a lot of large specs out of play for this delivery, with their positions trashed and funds frozen in both gold and silver.   And the failure of MF Global was a 'hit' or some ploy by the Wall Street wiseguys to break the speculative longs in the metals and take down the biggest retail futures firm that arranges physical delivery.  Talk about going the extra mile.

I don't know about that one, but wait until a major exchange defaults on some commodity like silver, and then forces cash settlements on the position holders at a price the big exchange members dictate.  And maybe not even in cash, but some kind of paper markers. If you don't think this can happen then you have not been reading enough about US market history.

That should set a few more minds free of their illusions about fair and efficient markets..

The Super-Committee has its deadline next week and a good resolution seems unlikely, which is what most expect. Obama helped to set this impasse up by extending the Bush tax cuts at the beginning of 2011, which are now a major sticking point.

I have an open mind to the theory that this is a bit of chess, with Defense Department cuts being set up by default if no resolution is reached, although they will only start in 2013. 

Most politicians are loathe to put military spending cuts on the table and take responsibility for them. A failure by the Super-Comm makes the cuts 'automatic.'

Headline risk in European sovereign debt remains very elevated.

I remain in a paired trade of short stocks and long bullion.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts

Some decent swings but overall a quiet stock option expiration today.

Next week is a holiday shortened week in the US.

It will be marked by a metals option expiration on the Comex, and the results of the Congressional 'SuperCommitte' on the US budget deficit.

Headline risk from Europe is very high.

US Corporate Taxes As a Percent of Corporate Profits

"Once upon a time, the corporate income tax generated a significant share of tax revenues; now, it’s bumping along in the 2%-of-GDP range. Yes, the marginal rate of corporate income tax is high, at 35%. But US companies are extremely good at not paying that.

But at least we know the aggregate amount that corporations pay in taxes. What we don’t know — because they won’t say, and no one’s forcing them to say — is how much any given public company pays.

Allan Sloan has a very good column on this today. Companies already report 16 different tax metrics; they should simply be required to add a 17th — the amount they pay the IRS in taxes — which in many ways is most important. The companies already file tax returns; the number’s right there, on lines 31 and 32. They just refuse to say what it is."

Charts of the day, Corporate Income-tax Edition, Felix Salmon

One thing that is true is that the US has a high 'headline' corporate tax rate at 35%. This was used to justify the distribution of corporate profits as dividends that were made tax free.

But like most things in America, the headline numbers are one thing, and the reality behind the headlines is a very different picture. Some of the loopholes that allow 'offshoring profits' are eating like acid into the real economy. Why is this? As Jack Abramoff recently admitted, Congress is a willing vassal to the monied interests.

"During my years as a lobbyist, I saw scores of congressional staff members become the willing vassals of K Street firms before soon decamping for K Street employment themselves. It was a dirty little secret. And it is a source of major corruption in Congress."

And nothing will make this more clear than the discussions about the US budget. All politicians will work for tips and favors and campaign funds. But if you cannot spot who is on the full-time payroll of the 1 percent, then you might need to change your news channel.

The corporate propagandists do a good job of managing the American people. As one of the more pre-eminent of the pigmen once privately told me: 'Old people are the easiest to handle. You just scare them.'

Greed draws people in, and fear keeps them in line. Its a well-worn script. It is the basis for most ponzi schemes and financial frauds. It is the well-spring of a credibility trap.

The reporting on NYC financial TV was particularly repugnant this morning, as they called the OWS movement over, with nothing left but a few professional agitators.

They contrasted its lack of strict purpose and organized ideology with the much more compliant Tea Party Movement, that allowed itself to be reorganized around corporate advertising principles. It morphed from a financial reform movement into obedient lobbyists for the Koch Brothers and the monied interests.

And it angers the Wall Street demimonde that the loose organization of OWS does not permit an easy foothold with a few influential leaders that can be easily bought and scripted.

Poll Results: What People Are Thinking

These are the top six themes from our poll.

There was a huge drop off in votes after number six.

There was a pleasant understanding of the role of money and corporations in the readers' selections.