Currency Wars Part II

"All war is based on deception. Of all those close to the commander, none is more intimate than the secret agent; of all rewards none more liberal than those given to secret agents; of all matters none is more confidential than those relating to secret operations."

Sun Tzu


"Let Hercules himself do what he may,
The cat will mew, and dog will have his day."

William Shakespeare, Hamlet

There is a currency war underway.

The international trade clearing mechanisms are tottering. Countries are using their economic power, their banks and currencies, as a part of overall foreign as well as domestic policy.

This is a huge source of the tensions and problems which are are seeing both economically and militarily in the world today.

The current trade system based on the US dollar reserve currency is not sustainable. It has had a good long run, but like the euro it has reached the end of its rope. The US cannot continue to print enough money and increase its debt balance through trade any further. See Triffin Dilemma. Yes I am familiar with Eichengreen's counter argument.

And I am also aware of the already written and vetted proposals for a 'single world currency' with independent local governments,  an arrangement which is even more fallacious and ill founded than the euro.  Yes I know that there could be a series of agreements that could kick this down the road five or ten years.   But something has got to give.  The charade is getting a bit thin but the deception must go on.

I still think the only tenable solution, if one still wishes to cling to the notion of 'free trade' internationally, is an SDR based on a wider basket of currencies with a gold and silver component.  And I am of the opinion as you know that much of these international theatrics and sword hammering is just the 'negotiations' phase with regard to the composition of the new SDR, and the ownership of its maintenance.

There are some who would treat the dollar as an arm of the military strategy, but that becomes a bit dramatic, in the Dr. Strangelove sense, but is nevertheless a good source of Defense Department consulting fees for those who promote the idea.

And I would hope that it goes without saying that the currency war is intimately tied in with the oil/energy situation, via the petrodollar. If you are going to send your country into multiple preemptive wars, one might take the time to understand the reasons why they are doing it. It is about the oil, and the positioning for it.

The problem is that there is no mechanism in place to bring the disputing parties together for an expedient resolution, given their conflicting interests. And those interests run deep, particularly for the Anglo-American banking cartel in NY and London. The dollar is the basis of their power.

And so we are locked in a 'currency war,' a resolution of differences in interest by other, less destructive, means than war itself. After all, nine-tenths of diplomacy is economic, if money is power.

If this notion is alien to you, then one can sympathize, because it is like watching an opera in a foreign tongue without a libretto to help you to understand the action on the stage. To have such knowledge of the basic plotline might not only help your understanding, it could be good for your investment portfolio.  For in this currency war, your accounts and your savings are cannon fodder.

If you wish to read one pivotal post on the subject read the first part of this: Currency Wars.

If you click on the label 'currency wars' at the bottom of this post, it will bring up all the other posts here that touch on that subject, some admittedly only tangentially.

I think the currency war will intensify quite a bit before it resolves.  I have been tracking this since 1999.  It is the reason I first became interested in gold.  I went looking for something like it, and only gold really fit, and to a lesser extent silver.

Gold and silver are intimately involved in the unfolding currency war, because they take no sides, and have no counterparty risk.  No one can print them.  And this is why I think GATA is right, not because of the evidence they have, which is more substantial than one might suspect given obsessive secrecy and the disinformation campaigns, but because it is exactly what one would do if there was to be a currency war, and such things as gold and silver existed.   It is basic strategy of war:  seek to control the high ground.  And along with oil, gold and silver are strategic high ground in a currency war.  And the first victim in a war is the truth.

If one does not understand these things, and the scope of what is happening with the dollar and the euro, then the significance of the important things that are happening will be missed and dismissed.  People will connect the dots that they see and draw their pictures accordingly and they will be wrong. And what is particularly Machiavellian is that some of that is being done by intent.

And even with all sorts of technical trading knowledge, one will be in the dark, literally be fighting 'the last war,' in their understanding of what is happening in the world as it is today.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds

GTU must be a difficult borrow, since it maintains a robust premium during an obviously calculated raid on the metals.  It is thinly floated as these things go, and there are no options on it that I can find.

Subsequently I am told there are no shares available for borrow by several brokers.  Whether this is a general condition everywhere I do not know.

The financial firms obtain a number of Sprott shares from the underwritings. This can be used for the borrow game, and are probably subject to leverage and naked shorting at that given the condition of the shorting and clearing in these equity markets.

More On the German Gold Reserves Controversy - Where Is the Gold?

"Another amusing incident arose from the fact that the Reichsbank maintained a not inconsiderable gold deposit in the Federal Reserve Bank in New York.  Strong was proud to be able to show us the vaults which were situated in the deepest cellar of the building and remarked:

'Now, Herr Schacht, you shall see where the Reichsbank gold is kept.'

While the staff looked for the hiding place of the Reichsbank gold we went through the vaults.We waited several minutes: at length we were told:

'Mr. Strong, we can't find the Reichsbank gold.'

Strong was flabbergasted but I comforted him. 'Never mind: I believe you when you say the gold is there. Even if it weren't you are good for its replacement.'"

Hjalmar Schacht, Autobiography: Confessions of 'The Old Wizard',  p.245

Is history rhyming once again?

One can only hope not so fully, as the central banker Schacht later became an integral part of a notoriously despicable regime after the fall of the Weimar Republic.

And if the gold is misplaced or otherwise preoccupied, is the Fed still 'good for it?' Perhaps not, in these times of rather tight and multiply allocated physical supply.

At least the German people are beginning to hold their politicians and bankers accountable, unlike their Western counterparts.

What has been hidden will be revealed, and what has been secret will be brought to light.

The Associated Press
Unease About Germany's Unchecked Gold Reserves
By Juergen Baetz
October 22, 2012

BERLIN (AP) — Germany’s central bank has failed to properly oversee the country’s massive gold reserves, which have been stored abroad since the Cold War in case of a Soviet invasion, independent auditors say.

The central bank must renegotiate its contracts to gain the right to inspect its gold bars, which are worth tens of billions of dollars and are stored in the United States, Britain and France, the Federal Auditors’ Office said in a report to lawmakers obtained by The Associated Press on Monday.

The report says the gold bars ‘‘have never been physically checked by the Bundesbank itself or other independent auditors regarding their authenticity or weight.’’ Instead, it relies on a ‘‘written confirmations by the storage sites.’’

Most of Germany’s gold reserves — some 3,400 tons worth an estimated $190 billion at current rates — have been kept in the vaults of the U.S. Federal Reserve, the Bank of France and the Bank of England since the postwar days, when Berlin worried about a possible land war with the Soviet bloc.

The auditors maintain that the central bank must be able to at least inspect samples of its gold bars in regular intervals to verify their book value.

The report acknowledges that such inspections might be logistically complicated, but it stresses that ‘‘this cannot discharge from the necessity to carry out an inventory.’’

The central bank said in a reaction to the report that was also sent to lawmakers Monday that it sees no reason for a physical inspection of the bars. ‘‘There is no doubt about the integrity of the foreign storage sites in this regard,’’ it stated.

The debate on most of the gold reserves being held by foreign authorities has caused some inevitable conspiracy theories questioning their very existence, but several German politicians have also voiced unease.

Philipp Missfelder, a leading lawmaker from Chancellor Angela Merkel’s center-right party, has asked the Bundesbank for the right to view the gold bars in Paris and London, but the central bank has denied the request, citing the lack of visitor rooms in those facilities, German daily Bild reported.

Given the growing political unease about the issue and the pressure from auditors, the central bank decided last month to repatriate some 50 tons of gold in each of the three coming years from New York to its headquarters in Frankfurt for ‘‘thorough examinations’’ regarding weight and quality, the report revealed.

An initiative backed by some German economists, industry leaders and a few lawmakers dubbed ‘‘bring home our gold’’ launched in May has attracted some 10,000 supporters online so far.

But Finance Minister Wolfgang Schaeuble and others maintain that there is no reason to worry.

‘‘I currently have no doubt about the stock and the storage of the gold reserves,’’ said Priska Hinz, the opposition Greens top lawmaker on the budget committee. ‘‘I do not doubt the reliability of the foreign central banks,’’ she told the AP.

Several passages of the auditors’ report were blackened out in the copy shared with lawmakers, citing the Bundesbank’s concerns that they could compromise secrets involving the central banks storing the gold.

The report said that the gold pile in London has fallen ‘‘below 500 tons’’ due to recent sales and repatriations, but it did not specify how much gold was held in the U.S. and in France. German media have widely reported that some 1,500 tons — almost half of the total reserves — are stored in New York.

GATA had this to day about that last paragraph concerning the decline in the amount of gold held in London for Germany.

"So despite the lack of official announcement, Germany lately has been selling gold from London -- perhaps as part of the secret "strategic activities" grudgingly acknowledged two years ago by the Bundesbank to GATA's friend, the German financial journalist Lars Schall.

The lack of announcement of the sale of the German gold in London suggests that the sale was actually part of a gold swap with another central bank -- like the New York Fed.

That is, the powerful implication here is that German gold in London was sold at the behest of the United States and in exchange Germany took title to United States gold vaulted in the United States -- or title to gold supposedly vaulted in the United States. This way the Bundesbank could continue to claim ownership of the same amount of gold without lying, at least not technically."

Gold Anti-Trust Action Committee, German gold report reveals secret sales that likely were part of swaps

Gold Daily and Silver Weekly Charts - Gold Tags the Handle Target of 30% - Germany's Gold

Last night gold broke down to tag our 30% correction objective (about 9 PM EST) which is just shy of 1710 spot, and then turned around and moved higher. Gold and silver were actually reasonably resilient most of today even as stocks moved lower led by the SP.

There was a rather interesting story in Der Spiegel today, reporting that a Federal Court has ordered the Bundesbank to undertake thorough audits of German gold, including the gold held in London and New York.  They may bring back 50 tonnes or so to verify it more closely.  Rechnungshof fordert Inventur der Goldreserven. Here is a translation courtesy of my friend Peter.

Der Spiegel
BundesbankRechnungshof demands inventory of the gold reserves
22 October 2012

Berlin - Germany's gold is safely kept in Central Bank vaults in Frankfurt am Main, New York, Paris and London. Apparently, nobody has verified that. The German General Accounting Office has now demanded a regular review and inventory of the huge gold reserves abroad by the Bundesbank.

The Auditors justified this in a report to the Budget Committee of the Bundestag on Monday citing the "high value of the gold reserves". The German gold reserves stored at other banks have never been audited by the Bundesbank itself, or by other independent auditors, that is, "physically tabulated and with their authenticity and weight verified." Indeed, numerous conspiracy theories abide on the topic -- the US gold reserves in Fort Knox were taken a long time ago.

The Bundesbank has, after the United States, the second largest gold reserves in the world. At the end of 2011 it was 3396 tons worth 133 billion euros. After the soaring of price of gold, it should be realistically even about 142 billion euros. The gold bars are kept by the Bundesbank in safes in Frankfurt am Main and three storage places abroad: at the US Federal Reserve (Fed) in New York, the French National Bank in Paris, and the Bank of England in London.

Bundesbank is retrieving tons of gold from New York

The Court of Auditors has to ascertain, on behalf of the Bundestag, whether the Bundesbank is precisely scrutinizing the gold it is storing abroad. It is controversial whether the practice by the Bundesbank for years is sufficient, to only rely on a written confirmation as to the gold bars by the foreign central banks.

The Court of Auditors therefore recommends that the Bundesbank negotiate a right to the physical examination of stocks with the three foreign banks. With the implementation of this recommendation the Bundesbank started according to the report. Also the bank has decided in the next three years to bring to Germany 50 tonnes of gold these from the Fed in New York, to make a detailed examination here. The report contains speculation in several passages. So is not clear from the paper, how much gold is exactly stored at which foreign Central Bank.

The bullion held at the Bundesbank headquarters consist of 82.857 bars, mostly stored in sealed containers with 50 bars each, which, according to the report, are kept in four separately sealed safes. A part of them (6183 ingot) are outsourced in the so-called gold Chamber being stored on open shelves in a separate safe. To secure the gold, according to the report: "The safes external shutter is double, the internal closures and the gold Chamber is under a triple lock. "

So what next? That's all anyone ever wants to know.

The handle target was touched in the overnight, but a few more tests to 'set it' would not be unlikely. And recall that a drop below that target is not a big deal, unless you are short term and highly leveraged, unless the spot price should happen to drop below the 50% correction level.

So let's see what happens.

SP 500 and NDX Futures Daily Charts

Stocks were wobbly after Catepillar came in with a weak revenue report, although that stock remarkably enough was up on the day.

Stocks reached a low in the early afternoon, led by the SP 500, and then rallied back to a gain on the day. Gold and the NDX never broke so there was the 'tell.'

So what next? Let's see how the debate goes tonight since some people seem wound up about that, and what new earnings reports this week may bring.

The Great Depression in Ten Pictures

Some of these slides are from my previous blog site, when I was considering some of the policy decisions and data from the first Great Depression in the US. This study was from 1999 to 2001. It was fully fleshed out in my mind by Bernanke's (in)famous essay of 2002, The Fed Has a Printing Press. That pretty much cleared the air for me on the future investment path for gold.

Although I do not list it here, you may also be interesting in the posting, Why the Feds Seized the Gold in 1933. The purpose was to devalue the dollar AND to use the proceeds to recapitalize the banks that were remaining after the FDR bank holiday.

Since the US is not on a gold standard now, the Fed has no need for the gold. It can expand its balance sheet with a few keyclicks, as long as that is their policy decision. Any wide scale confiscation of private property at this point would be purely gratuitous and rather unlikely, recent hysteria not-withstanding.

The plunge in the stock market was 90% into its trough.  The initial decline was made much worse by the austerity that Hoover and his Treasury Secretary Mellon pursued.   

This is a busy chart but it shows the interplay of several key metrics.  In particular, it shows the disaster that is austerity in response to a financial credit crisis such as we are seeing today.

This is the kind of result produced by austerity.  There is a lot of misery in this chart until 1933 when Roosevelt took a more modern approach combining monetary and fiscal actions.  The increase in unemployment in 1938 was a direct result of the premature tightening of the Fed as can be seen on their balance sheet slide a few charts below.

Roosevelt's policies got the American economy back on track.  It was a sound marriage of monetary and fiscal policy.   What made it sustainable was the financial reform, the settling of the banking system, and the emphasis on jobs and growth in the median wage.

The Fed kept expanding the balance sheet into the 1938 period when they prematurely drained reserves out of a fear of inflation and triggered another recession.  That was a clear policy error and can be seen as clear as a bell on this chart below.

Perhaps this chart is what gave Bernanke the idea for 'Operation Twist.'  If so, he is fighting the last war.

Look at those real interest rates.  No wonder the country almost ground to a standstill.  The Fed and the Hoover Administration, particularly Treasury Secretary Mellon, ought to have been ashamed of this policy error.   The action of Roosevelt in 1933 in breaking the dollar against gold and recapitalizing the banks after shutting down the weak ones, and substantial investigation and reforms, did the trick.

The Smoot-Hawley Tariff was enacted on 17 June 1930.  Exports had already been plunging before that because when demand goes slack in a deep recession both imports and exports tend to drop with demand.  I think some of the rhetoric surrounding the issue of global trade in this case is nonsense.  In the Great Depression tariffs did not matter because no one was really standing as the buyer of last resort.  And if the tariffs went into effect in the middle of 1930, they certainly did not have an untoward impact on imports relative to the plunge in exports, again due to prevailing economic conditions.  Notice that net exports remain largely flat throughout the period.   To state this more precisely, the negative effects of Smoot-Hawley are vastly overstated by globalist advocates.  

 

Here is what the real exports and imports figures looked like until 1939.  Again, it is economic recovery and aggregate demand that makes all the difference.   Until tariffs are outsized and predatory, one-sided if you will, they will have much less impact than real economic growth.  And do not overlook the currency devaluation of the dollar to gold in 1933.

Personal Consumption along with Government Program spending and the currency devaluation were obviously factors to the real recovery in GDP especially since it did not come from net exports.  As can be seen from other slides in this series the dip in GDP in 1938 was due to the Fed's draining reserves by increasing bank reserve requirements out of a misplaced fear of inflation.

Greg Smith And Goldman Sachs

"Ad hominem (also called personal abuse or personal attacks) usually involves insulting or belittling one's opponents in order to attack their claims or invalidate their arguments, but can also involve pointing out true character flaws or actions that are irrelevant to the opponent's argument. This is logically fallacious because it relates to the opponent's personal character, which has nothing to do with the logical merit of the opponent's argument."

I have not been following the Greg Smith story closely, although I was aware he had resigned from Goldman quite publicly, and had read the op-ed which he wrote as his fare thee well. There is nothing in there that was surprising to those who follow the financial fraud on Wall Street.   It was actually fairly mild compared to the widely ignored information obtained by the Levin committee.

What was new was that a Goldman employee was saying it, and Goldman is the most highly politically connected of Wall Street Banks, in the US and in Europe.

But the absolute trashing and personal attacks on Greg Smith in the past week that were orchestrated by Goldman and supported, heavily, by the US financial networks got my attention. Generally ad hominem attacks are used by those who consider the facts of the case to be dangerous ground, and wish to do anything that they can to avoid discussing them. So instead they seek to discuss the person bringing them to light.

The 'news channels' do have not spent much time discussing what Greg Smith is saying, but instead turn their focus to discrediting Greg Smith personally as a loser, a fool, a person who was naive to be surprised by the ruthless predatory culture on Wall Street.  He was disgruntled because he did not get a raise, and so has an ax to grind.

The media are working from the talking points memos released by Goldman, and a growing cultural disposition against whistleblowers as being inherently disloyal malcontents.

The rationales in favor of Goldman quickly take on the character of the schoolyard.  Everyone does it on Wall Street, and singling out Goldman isn't fair.  And what was Greg Smith expecting?  Everyone knows Wall Street is predatory and will do whatever it takes, even abuse their customers and make millions out of it. And if the customers are dumb enough to fall for it, they deserve it.  Don't be a fool like him, be a sophisticate and move along.

What people do not realize is that the fraud cuts so deep and wide that it hard to escape it, even if one has no dealings personally with any of these firms.   These Wall Street financiers have their hands in everyone's pocket through the manipulation of the financial system, the price discovery mechanisms, and the money supply.  And if you do not understand this by now, you understand nothing.

For me the takeaway, that gets lost in the color coverage, is that the efficient markets theory is nonsense, and that self-regulation does not work when such enormous sums of money are at stake.  The answer is ultra-transparency and effective regulation, particularly to rein in the financial cowboys who can use money to game and control the political, judicial, and analytical processes of society. 

And I do not see any way to accomplish this except to separate commercial and investment banking, and ring fence the activities of the investment banks and speculators, and prohibit them from selling anything except exchange vetted products to any public institution such as a retirement fund.

I was amused by the comparisons of Greg Smith to a 'rat' who breaks the laws of omerta in the Mafia.

This is the theater that passes for 'news' in the corporate media who are live streaming the American Hunger Games.  May the odds be ever in your favor, especially when you are constantly rigging the game.

Here is Greg Smith's first public interview on US television.

Thoughts From a Patron On a Saturday Afternoon

"Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people. Lacking any other purpose in life, it would be good enough to live for their sake."

Garrison Keillor, The Prairie Home Companion

I linked to this latest video from Chris Hedges last night, but did not feature it because I had several personal things to do. The first part of Hedges description of the reaction of the status quo to Occupy Wall Street in particular describes the credibility trap quite well.

The one percent cannot answer or even genuinely acknowledge what OWS is protesting, because it endangers the shaky underpinnings of a fearful but still very powerful elite who have slithered their way into an unsustainable position of power without the people fully realizing what has happened.

And today I receive an email from a regular patron of Le Cafe, a member of the invisible community of those who care for the things of the mind and of the Spirit, which provides an insightful commentary on Hedges and what he has to say, and why he is so frightening to our naked Emperors of money and power. He prefers to remain anonymous, like the many who live quiet, gentle lives, tending the campfires against the gloom and the darkness.

And now I know how my wife feels such welcome joy when the girls surprise her by cleaning the kitchen while she is out. The work for today is done, and I can enjoy my coffee and a good book in peace.

Have a pleasant weekend.



From a reader:

"The Hedges video is superb. He is referring to this article, as I’m sure you’re aware: Why the Occupy Movement Frightens the Corporate Elite

The article indicates that he has far better answers than anyone else at this point in my opinion. The Elite have significant weaknesses. They are psychologically stunted, adolescent and in effect if not actuality sociopathic, as you have made clear with your posts and links. And corporations are artificial, fictional people, created by the state, which can be as “easily” undone as done, a stroke of the pen.

So long as people see themselves as things, “labor”, metabolic lumps without meaning, we are lost because the Darwinian model, which is the bastard progeny of Materialism, prevails.

Nihilism is an appropriate description of the world, the point being that those who have bought into this worldview have no underlying motive to act unselfishly, and not for immediate gain or sensation. They sometimes, perhaps often, lose themselves in alcohol, drugs, TV, pornography, greed, the lust for power, or suicide to escape. Terminal violence is easily justified if we are simply disposing of things.

I think I know that you understand this through your lens of Christianity. I also have a very strong belief, knowledge in God, but “He” is far less well defined and far more powerful and all-encompassing, truly incomprehensible, in my world than Christian dogma would describe. Nor are we apart from "Him". In my humble view, we will not find our way successfully through this travail without a thorough reexamination, and new understanding of, both politics and faith, and the true nature of the human condition.

Plutocracy Rising: Moyers, Freeland, and Taibbi

I was struck by the comparison that Taibbi makes between post-Soviet Russia and the emerging US plutocracy. I have drawn the same conclusion some years ago, that post-empire America may face the same outcome. The merging of private and state power is well underway. And everyone lost the Cold War, except a predatory few.

Is that too big of a statement? A presidential candidate, Jill Stein of the Green Party, is denied access to the 'debate.' She goes to the debate to protest this peacefully, is arrested, and is then gratuitously handcuffed to a chair for eight hours, just to show her how things are. A Wall Street fund manager refuses to pay a cabdriver his legitimate fare, stabs him, and flees the scene. All charges are dropped by the prosecutor despite the protests of the cabbie. A powerful friend of the President breaks every taboo against stealing millions in customer money, and no one knows anything, and no one is charged.

As they used to say in show biz, you ain't seen nothing yet.



Bill Moyers concluding remarks:

"Here’s a significant revelation of which you may not be aware. The plutocrats know it and love it, and the rest of us should be forewarned. When the Supreme Court made its infamous Citizens United decision, liberating plutocrats to buy our elections fair and square, the justices may have effectively overturned rules that kept bosses from ordering employees to do political work on company time. Election law expert Trevor Potter told us that now “corporations argue that it is a constitutionally protected use of corporate ‘resources’ to order employees to do political work or attend campaign events—even if the employee opposes the candidate, or is threatened with being fired for failure to do what the corporation asks.”

Reporter Mike Elk at In These Times magazine came across a recording of Governor Mitt Romney on a conference call in June with some business executives. The Governor told them there is quote, “nothing illegal about you talking to your employees about what you believe is best for the business, because I think that will figure into their election decision, their voting decision and of course doing that with your family and your kids as well.”

And here’s Governor Romney two months later, campaigning at an Ohio coal mine:

"This is a time for truth. I listened to an ad on the way here. I’ll tell you, you got a great boss. He runs a great operation here. And he—Bob? Where are you Bob? There he is."

Look at all those miners around him, steadfastly standing in support, right? They work for a company called Murray Energy and attendance at the rally, without pay, was mandatory. Murray Energy is notorious for violating safety regulations, sometimes resulting in injuries and deaths. And the company has paid millions in fines. The CEO, Bob Murray, a well-known climate change denier and cutthroat businessman, insists that his employees contribute to his favorite anti-regulatory candidates, or else. In one letter uncovered by “The New Republic” magazine, Murray wrote quote, “We have been insulted by every salaried employee who does not support our efforts.” So much for voting rights and the secret ballot at Murray Energy.

Mike Elk discovered that the Koch Brothers, David and Charles – who have pledged to spend $60 million defeating President Obama – have sent a “voter information packet” to the employees of Georgia Pacific, one of their subsidiaries. It includes a list of recommended candidates, pro-Romney and anti-Obama editorials written by the Koch’s and a cover letter from the company president. If we elect the wrong people, Dave Robertson writes, “Many of our more than 50,000 US employees and contractors may suffer the consequences, including higher gasoline prices, runaway inflation, and other ills.” Other ills? Like losing your job?

This is snowballing. Timeshare king David Siegel of Westgate Resorts reportedly has threatened to fire employees if Barack Obama is re-elected and Arthur Allen, who runs ASG Software Solutions, e-mailed his employees, “If we fail as a nation to make the right choice on November 6th, and we lose our independence as a company, I don’t want to hear any complaints regarding the fallout that will most likely come.”

Back in the first Gilded Age, in the 19th century, bosses and company towns lined up their workers and marched them to vote as a block. As we said at the beginning of this broadcast, the Gilded Age is back with a vengeance. Welcome to the plutocracy. The remains of the ol’ USA.

That’s it for this week. On our website, BillMoyers.com, at your request, we’re starting a book club. Our first is Chrystia Freeland’s “Plutocrats.” Read the book, ask questions, share your thoughts. Then let’s have a lively conversation.

That’s at BillMoyers.com. I’ll see you there and I’ll see you here, next time."

Maybe the Banks will threaten to crash the stock market if their indentured servants, the American people, do not vote the right way. It worked when the noble Congressional bureaucrats were cowed into submission when the Banks demanded their 'no strings' bailouts and the people were adamantly against it.

Gold Daily and Silver Weekly Charts

Today was an option expiration for US equity markets.

Here are the key Comex Option and Futures Dates until the end of the year.

Oct. 27 Comex November E-mini silver futures last trading day
Oct. 27 Comex October silver futures last trading day
Oct. 27 Comex November E-mini gold futures last trading day
Oct. 29 Comex October gold futures last trading day
Nov. 27 Comex December gold options expiry
Nov. 27 Comex December silver options expiry
Nov. 28 Comex December miNY gold futures last trading day
Nov. 28 Comex December miNY silver futures last trading day
Nov. 30 Comex December gold futures first notice day
Nov. 30 Comex December silver futures first notice day
Dec. 27 Comex December gold futures last trading day
Dec. 27 Comex December silver futures last trading day
Dec. 27 Comex December E-micro gold futures last trading day
Dec. 31 Comex January 2013 silver futures first notice day

Intraday commentary on the gold markets here.

Have a pleasant weekend.

SP 500 and NDX Futures Daily Charts - Thoughts on the Anniversary of the Crash of 1987

Today is the anniversary of the Crash of '87.  As I recall it occurred on a 'Black Monday' after a 'Blue Friday' in which the DJIA lost 100 points for the first time I believe.  The markets were wobbly.

It is hard to remember exactly what happened in the market that day except in the retrospect in which I have studied it in detail.  But I remember vividly how I heard about what was happening that day. 

About three PM on Monday a colleague poked his head in the door and said, "The stock market is down 500 points."  And looking up from my work I said, "I don't really care, I do not own any stocks now."   And I did not.  I think most of my savings at the time were still in bonds even then as I had ridden them down from the Volcker highs in interest rates and was too disinterested to change them.  I do not recall now when I went to cash. 

I had been reading a paper from a colleague about a possible breakthrough solution to a problem which we called 'the last mile,' which was the ability to practically connect end users in homes and small business to the big data pipes on the backbone network.  And that solution is still evolving today.  And so as far as I was concerned the stock market could go hang.

As you may recall, Greenspan 'fixed' the Crash of 1987 by printing money, and the regulators took some steps to clean up the portfolio insurance mania, and whatever other harebrained ideas the monied interests were pursuing.  And life went on.

So you see, what concerns us so much today will also pass. One door closes, and another door opens.

Of course many more ordinary people will be affected by what happens in these markets of course, because of the TBTF Banks with their concentrated power and wealth, and the unfortunate financialisation of the real economy. 

The trick is to order your life and your priorities, and to take the appropriate precautions.  For the country the task and the labor is to put the genie back in the bottle, and bring the economy back into balance, changing the priority of the economic and public policy system from the redistribution of wealth by the financial sector to themselves and their friends,  back to encouraging productive and inventive efforts to create real things that solve real problems serving the interests of the people, and not a bunch of rotten hearted plutocrats.

The issue is not that the government is redistributing wealth.  The one percent have hijacked the financial system and public policy and they are redistributing the wealth of the nation to themselves with a reckless disregard for the long term consequences.  This type always seem to accuse the other of what they themselves are doing.   And they cannot stop themselves, because more is never enough.

SP 500 December Futures Daily Chart Intraday

Here is a closer look at the SP futures daily chart with today's action.

Bill Black Report: Inequality, Presidential Plans, and Voodoo Economics

Gold Shadow Chart 'Cup and Handle' - Metals Dealers and Market Complexity

A 30% correction would be reached at roughly 1710. A handle correction in a cup and handle formation is generally 20% to 30$, measured against the rally from bottom to rim. These measurements are rarely precise, given the fluctuating nature of intraday prices.

The handle ought not to go deeper than a 50% correction, which is around 1665, in order to be properly called a 'handle' on a cup and handle. Intraday moves are not significant.

As an aside, I am also watching the SP 500 December futures which have support between 1415 and 1425 depending on timeframes and measurements. The correlation between the SP and gold is there, probably because of the weighting therein of the financials. Gold likes money printing for bailouts, and unfortunately gold acts as a thermometer for this type of financial engineering, to the dismay of the central bankers engaging in it.

If that 50% correction level in gold is broken successfully then we are looking at a trading range and the 'cup and handle' is not activated. A trading range is likely to be a continuing consolidation unless there is a market liquidation event.

A 'cup and handle' would be a suitable way to end this long consolidation in the gold bull market, which is now more than a year old. But we cannot quibble about timing, since that is something the market will decide, accommodating quite a few macro factors besides the gold market itself.

Lies, Damn Lies, and Modern Financial Speculation

Charts are merely reflective of the underlying reality. They don't "do" anything. They are more in the manner of a symbolic representation of many things, like a good road map. And in this case the road map is subject to short term disruptions designed to confuse and befuddle, as though people were changing street signs and putting up barriers on the road while you were trying to read the maps.

I linked to Sinclair's piece on Metals Dealers today because it helps one to understand the depth of these markets and the schemes that move them. Sinclair obviously knows what he is talking about. A large firm does not merely make and take a uni-directional market position in gold, rather it is taking more complex positions.

As Jim says they are not straight betting the ups and downs of those markets, but working on spreads and hedges, and their expansion and contraction. This is what gives rise to what I like to call the 'wash and rinse' or 'wax on wax off' technical trade in the market that whipsaws the unidirectional specs.

And even moreso today than days gone by the bigger players are making multiple markets, and trading relationships and spreads amongst those different markets, if they are more than mere day traders and scalpers and pool operators.

Even the system which Jim Sinclair describes is a bit simplified as it must be for his audience, given the activities of the 'quants' and their complex algorithms.  The recruitment of mathematicians and physicists and engineers by certain Wall Street firms is still hot and heavy, and particularly Goldman and to a lesser extent JPM.

We're not in Kansas anymore Toto. Fraud has risen to a whole new level, the like of which we have not seen in a long time, and never in this particular set of clothes.

They are not doing this massive investment in complex algorithms and computing power in support of simple schemes, but rather more elaborate and esoteric arrangements.  But as John Kenneth Galbraith pointed out some years ago, innovate as they will, the substance of the schemes and often their fraudulent nature is essentially unchanged, and relatively simple at their core once all the baroque accouterments of modernity are stripped away. One bribes and browbeats officials, befuddles the public, distorts the markets, and then cashes in for themselves, at least while the system that feeds them remains standing.

"The man who is admired for the ingenuity of his larceny is almost always rediscovering some earlier form of fraud. The basic forms are all known, have all been practiced."

But they do get quite a bit better at concealing and sustaining those frauds at least at the organizational level. Madoff was a relic, almost atavistic, of days gone by. Modern banks and funds are to Charlie Mitchell's National City Bank and the stock pools of the 1920's what the space shuttle Discovery is to the Ford Tri-motor airplane. They operate on the same basic principals, but the complexity and capability are profoundly different.

Flying devices fly according to certain principles of flight, and fraudulent financiers bully, bribe, steal, and cheat according to certain propensities of human nature.

The trades of today are increasingly complex, as different as calculators and high speed computers.  They are designed to capture both long term and short term profits, but in this case 'long term' is probably not more than a calendar quarter at most.  The front running of HFT and its defenders are shamelessly abusing the public trust, but this is only one simple example of the use of complex computing.

The complexity is used to invent opportunity and market imbalances, and to hide that activity from the other market players, from regulators, and less so the public who are well behind the curve.  And most general economists are well behind them given their backward looking bias, or acting as shills and spokesmodels and consultants if they are specialists in money and finance.

As you know, I am convinced that the system is going to blow up, blow itself up no matter how the Wall Street banks and funds try to assign the blame.   How and when is very much an open question. 

The solution is what some call ultra-transparency, and a change in the tax policies that incent speculation with subsidies.  And of course effective enforcement of regulations to achieve reform.  Regulations do not stop crime; regulators do. 

And because of the credibility trap and the corrupting power of money we are not likely to get it until something very bad happens.  And perhaps not even then.

The pursuit of the perfect system, whether it be in charts or the COT analysis or any other indicator is useful for making money for those who sell those systems, but really they are just aids in reading the likely tilt of the map, of figuring out where you are at any given point in time.

The bigger issue is the nature of the market and the fundamentals for it in the longer term. Are you in a bull or bear market? What time frames are you pursuing?  Unfortunately the markets are now the tail wagging the dog, as we saw in the case of Enron and their manipulation of the energy markets, particular

And as you know, I have said that in this market, given all the front running, gaming, spoofing, and lack of sound regulation a private person has no place in trading for the short term. This is a market dominated by machines, which is too bad, not because the amateur punters cannot make their quick and easy money from it, but because it distorts the real economy, hurting everyone.

We live in a land of lies and the misery they bring because we do not love the truth, more than our own selfish desires. And that is the oldest story of all.

Net Asset Value Premiums of Certain Precious Metals Trusts and Funds

Gold Daily and Silver Weekly Charts - It Never Gets Old

Gold and silver were capped by selling today.

I have included the gold 'shadow chart' to show the progress of what might turn out to be a handle type correction.

SP 500 and NDX Futures Daily Charts - Missing the Mark

Well, on the macro side both the Philly Fed and Leading Indicators were better than expected.

Earnings results were a hat trick of disappointments as Google, Chipotle, and Microsoft all turned in misses that took their stocks lower, less so for Microsoft the stodgy giant and greater for the flyers GOOG and CMG.

Microsoft is betting quite a bit on the Windows 8 software release, trying to regain a footing they are losing in the tablet and mobile world.

Microsoft and Chipotle released on schedule after the bell, but Google has a premature release during lunchtime as the publisher R. R. Donnelly accidentally released an filing prematurely.

It is not surprise that three consumer oriented stocks are lower. The financial system is strangling the real economy with the corruption of zombie rot.

GOOG was hurt quite a bit in revenue per click which may be a feature of the popularity of mobile apps which apparently do not provide as much revenue opportunity as conventional computing platforms. This may be explored on the conference call later this evening.

GOOG Boots Its Earnings Release and Shows Poor Results, Taking Tech Stocks Lower

In case you were wondering what happened to the US equity market, and in particular big tech like the NDX, trading was halted on GOOG until 3:20 PM EST after the premature release of their earnings which were lower than expected.

WSJ
Google Shares Fall on Premature Earnings
By John Letzing and Ben Fox Rubin

Google Inc. (GOOG) prematurely released its quarterly earnings midday Thursday, reporting that profit declined 20% as total costs jumped and advertising prices continued to slide.

The unexpected release, via a filing with the Securities & Exchange Commission, triggered a selloff in Google shares.

The stock dropped about 9% before trading was suspended and weighed on the broader Nasdaq Stock Market Indices...

Bill Moyers Fact Checks Bill O'Reilly's Misinformed Demagoguery

Bill Moyers is a gentleman. At one time I lived in his neighborhood. I enjoy watching his shows immensely. I am looking forward to seeing a video of his show with Matt Taibbi and Chrystia Rreeland discussing her new book Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else. I will almost surely feature it here when it does.

There is a link after Bill Moyers video to a short piece by Matt Taibbi. As Matt points out:

1) Bill Moyers doesn't work for NPR, and never has. He appears on television which is PBS. NPR is radio.

2) More significantly, Bill Moyers does not receive any money from PBS, or NPR from that matter. His show is entirely self-supported by donors as is stated at every broadcast.

If anything, Moyers supports public television.

This sort of flagrant abuse of the facts is nothing new for some of the major figures at Fox. I will watch some of their network shows, but I could not bear to listen to their news programs. I did at one time, but when the US entered into the Iraq war it become clearer to me that I was watching something that reassured me in a mythology that was growing increasingly foul.

I can only echo Moyers, that they create a dangerous bubble of misinformation, a "an alternate reality, where the truth is as elusive as a moonbeam and facts as alien as little green men with bug eyes."

No single source of news is good, but some are worse than others. And Fox has taken broadcast journalism to new lows, and encourages the other news departments to sacrifice their integrity in pursuit of corporate sponsors and ideology. MSNBC is to some degree their counterpart to the left. And the three major US financial networks are becoming little more than extended infomercials and political mouthpieces for the financial industry.

Money is power, and the corrupting influence of the monied interests is something that history warns us about again and again.

Some of this is due to the concentration of media ownership in corporate hands, and part is due to the repeal of the Fairness Doctrine and the downsizing of the FCC. I am no fan of censorship, because that is a two edged sword that always bites back.

Besides, it is fun to watch Jon Stewart and Steven Colbert parody the corporate media with their own words, and Fox in particular. As long as speech remains free, we will have the ability to learn what is and what is not, if we wish.



Matt Taibbi on the Moyers - O'Reilly Dust Up

Propaganda and Perception Management, and the Process of Dehumanisation

"Exploitation and manipulation produce boredom and triviality; they cripple man, and all factors that make man into a psychic cripple turn him also into a sadist or a destroyer."

Erich Fromm

Perception management and propaganda are the way in which the powerful speak to the rest of the people, and bend them to their will.

It becomes a process that dehumanises everything and everyone it touches, trapping them in deep wells of selfishness and subjectivity.

They think that they have no blood on their hands because they murder the weak and the helpless with money and fraud, rather than with knives and gas, and mislead and destroy many more souls with their lies and deceptions.

It would have better for them if they had never been born, so hard the judgement will be that is given to them.


Infancy



Vile Adolescence

"Why should we hear about body bags and deaths. Oh, I mean, it's not relevant. So why should I waste my beautiful mind on something like that?"