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.

Matt Taibbi and Eliot Spitzer Discuss Eric Holder's (and Obama's) Failure: Credibility Trap

The failure of Obama's Justice Department to engage in any systemic investigations and indictments of a thoroughly rotten and corrupt financial system that has laid waste to the real economy is an almost perfect example of the credibility trap.

A credibility trap is when the regulatory, political and/or informational functions of a society have been compromised by a corrupting influence and a fraud, so that they cannot address the situation without implicating, at least incidentally, a broad swath of the power structure. The status quo has at least tolerated the corruption and the fraud, if not profited directly from it, and most likely continues to do so. The power brokers have become susceptible to various forms of blackmail. And so a failed policy can become almost self-sustaining long after it is seen to have failed, and even become counterproductive, because admitting failure is not an option for those in power.

Another example is the blatant fraud, and principles not of productivity but of prey, that prevail on the financial asset exchanges and the monetary system, the stealing of customer funds, and the manipulation of commodity markets such as silver. And it expresses itself in the frivilous coarseness of spectacle, and careless brutality of decline.

"Happy Hunger Games. And may the odds be ever in your favor."

Normally a two party system or a balance of powers would correct such a situation, but if the fraud is pervasive and enduring enough, those remedies can lose their effectiveness since the fraud binds even seemingly diverse elements in its grasp. And therein lies the trap.

There is a general loss of honor, a disparagement of moral principles, the common welfare, and a sense of 'service.' People in power are creatures of the system, 'getting their ticket punched' in Washington, as resume builder on their way to an even more lucrative position back in the corrupt system where they can leverage their connections and knowledge of the system to further undermine the rule of law. Their guiding principles are self-referential greed and power.

After one of the most outrageous periods of widespread fraud in a major developed country, prosecutions for fraud are at twenty year lows.  Who expected this outcome from an election in which the theme was change and reform?

Here is a recent article, Why Can't Obama Bring Wall St to Justice, asking the broader question inferred by this video interview. Why?  And the answer is not to be found in making excuses and allowing him to hide behind the incompetency or disengagement defense so popular in American management circles.

And if you think that voting for the other guy in this case, the emotinally engaging but fatally flawed red v. blue paradigm, is going to provide a cure you are sadly mistaken. The other guy in this case is the poster child for most of the problems that face a nation under siege by a financial elite engaged in an economic, ideological, and political coup d'etat.

As Glenn Greenwald recently put it:

"You can often, and I would say more often than not, in leading opinion-making elite circles, find an expressed renouncement or repudiation of that principle [of the rule of law]...All of these acts entail very aggressive and explicit arguments that the most powerful political and financial elites in our society should not be, and are not, subject to the rule of law because it is too disruptive, it is too divisive, it is more important that we should look forward, that we find ways to avoid repeating the problem...the rule of law is not that important of a value any longer...

The law is no respecter of persons, but the law is also a respecter of reality, meaning if it is too disruptive or divisive that it is actually in our common good, not the elite criminals, but in our common good, to exempt the most powerful from the consequences of their criminal acts, and that has become the template used in each of these instances."

And thanks to the apathy of the people and the gullibility of the badly used, self-proclaimed 'patriots' they are winning.

“The disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least to neglect, persons of poor and mean condition is the great and most universal cause of the corruption of our moral sentiments.”

Adam Smith

Such unsustainable social arrangements are backed by force and fraud. And as the fraud loses its power over time, force must increase, until there is an end in genuine reform, or evenutal self-destruction.

Net Asset Value Premiums of Certain Precious Metal Trusts and Funds - The Oddest Thing

My net asset value premium indicator shows that gold is commanding a higher premium over NAV as compared to silver, for the first time that I can ever recall.

I do not remember seeing the premium on gold higher than the premium on silver, as shown in the Sprott precious metal funds. Ever.

At least not while the funds are not in the midst of implementing a shelf offering. Sprott silver (PSLV) recently completed a major buy and the premium there often lags in such a period of time.

When I saw the results my jaw dropped. I have checked and rechecked them. And my own estimates of their NAV track perfectly with their indicative intraday indicators, so I am fairly sure there is not an error in the fund calculations.

And as confirmation, the premium of the Central Gold Trust (GTU) is higher than the premium of the Central Fund of Canada (CEF), which is a mix of silver and gold. That is also strange.

In early August the premiums in the funds had pulled equal, but I tended to dismiss that as a drag on effect from the Sprott silver expansion. CEF and PSLV have some correlation in premiums with the larger PSLV being the price leader.

Something is a bit odd in this market.

Last week someone notified me of some unusual trading patterns in the gold funds. I have been keeping an eye on them, but never expected this.

Silver has a much higher beta than gold. If this continues, if the gold premium continues to exceed silver, it would suggest a clear signal that at least some market participants are pricing in an unusual financial event.

What that might be, I cannot say. I do not even know if it is positive or negative for the precious metals market or their related markets, except to speculate.

On one hand it could represent some manipulative action in the silver market, some unusual effort to cap its tendency to rally.

On another hand it might be a precursor to a dramatic market decline in equities, with a safe haven move into gold ahead of time.

And it could also merely be particular buying pressure from official sources in gold that has not yet spilled over into the silver market.

Take your pick. They are all equally defensible at this point, until we obtain more data.

SP 500 - Telling Action

Unnaturally tight upward ranges like this are generally the sign of a 'market operation' to take equities higher.

The question of course is by whom and for what reason.

It could just be the tendency of the wiseguys to take it higher in the absence of real activity, just because they can, until it becomes priced for fantasy.

Or it could be some of the better connected banks and trading desks front running the Fed.

It certainly is not justified by the economic fundamentals. But that may be an artifact from the old days in which the market reflected the real economy, and allocated capital according to its needs to enable efficient use of productive resources.

In these days of fading empire when the major activity of the US is making money from money, the market is the economy, and its primary function is to redistribute wealth from the bottom to the top.

Guide to the Confused: SP 500 Futures Intraday - 'Technical Trade'

When I talk about the 'technical trade,' I mean that fairly literally.

The market, in the absence of a major exogenous event, is running on autopilot, with the algorithmic computers and trend following traders driving it back and forth within pre-programmed levels of support and resistance.

There is always some reason that can be used to justify a big up or down day. In this case market action creates market commentary. Today it is the 'good numbers' from JPM. No mention of the raiding of loss reserves and other gimmicks that banks today use to paint their pretty pictures on rotten paper.

The SP 500 futures are just an example. This same market rigging thing takes place in many other markets including important world markets such as metals, energy, and foodstuffs.

In low volume environments with no important exterior factors in the short term, the technical game tends to have a bias higher, because in this type of paper market there is no upward limit, and one wishes to draw in the 'suckers.'  The word goes out in the pit that the trading desks 'want to try to take it up.' This is how the 'pools' operated in the 1920's.

The drops tend to come quickly and pass even faster, since that is the reaping, not the planting and growing of the scam.

And because of their collocation and speed, the computer trading algos can front run almost every transaction and skim a small percentage off it, and absent real volume use wash trades to drive the price where they will. And in the aggregate at least, their market positioning allows them to 'see what is in your hand, what cards you are holding.'

If there is any change, the well-capitalized professionals with very high priced, high speed collocated computers and departments of brainy quants are driving the smaller scamsters to the sidelines, and sometimes into the ranks of the pundits and hangers-on. The price of computers, politicians, media, and regulators provides an effective barrier to entry against competition.

Yes there is always corruption in markets, despite what the naturally efficient markets theorists from the monied interests' bastions of intellectual folly and deception might maintain. But at certain times in history the distortions in the markets become so great, so predominant, so extreme, that they crowd out much of the productive and creative investment activity.  In the resulting outcome, the inevitable return to normalcy,  society in general can suffer greatly for the greed of the few.

And if anyone should ever warn about manipulation in the markets, one responds, 'oh no, they would never allow that!  Who could be so low?' And then some mouth a few appropriate slogans supplied by the market manipulators using comic book views of the world from Ayn Rand, for example.

People deny what they cannot bear to admit. And one denial leads to another, and another, until the truth becomes not only unspeakable, but almost unthinkable. And so one deflects to another thought, a diversion and distraction, a person or group, and finally another reality. That is the way to madness, that is the credibility trap.

The LIBOR scandal, and the trainwreck of revelations about market corruption which I forecast would happen, are making the true believers a little hesitant, uneasy. But the hard core are resilient, faithful to the myth, to the end.

It's a lucrative business, and if unforeseen events intrude, you can always have the public cover your losses.

"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out."

Andrew Jackson

What a wonderful world we have created with the gifts that have been given to us.

De trop pour l'éternité. Enjoy.

Credibility Trap: Barclays' Bob Diamond Threatens British Parliament With 'Embarrassing Revelations'

"Oh what a tangled web we weave,
When first we practise to deceive."

Sir Walter Scott, Marmion

This is the credibility trap for government regulators and officials who have played fast and loose with market manipulation when it suited their purposes in the past.

I wonder if Jamie Dimon has similar 'dirt' on the Congress and the regulators. JPM would be in a good position for that, given their past involvement with the Exchange Stabilization Fund and their major role in the metals markets.

The power brokers say that bribery is good, but blackmail is better, more reliable. And so it may be.

Let's see if Mr. Diamond can intimidate the British Parliament and make them dance to his tune. He has certainly thrown down the gauntlet as they say.

Financial Times
Barclays chief threatens to hit back
By Patrick Jenkins, Brooke Masters and George Parke

Bob Diamond is threatening to reveal potentially embarrassing details about Barclays’ dealings with regulators if he comes under fire at a parliamentary hearing on Wednesday over the Libor rate-setting scandal, according to people close to the bank’s chief executive.

“If he is attacked, he will fight back,” said one person familiar with preparations for the Treasury select committee hearing...

Read the entire story here.

Charles Biderman and Chris Martenson: The Problem With Rigged Markets

Here is a fascinating Chris Martenson interview with Charles Biderman.

This interview highlights the Ponzi-like, artificial nature of the current stock market rally.

It reminds me very much of the 2003-2007 bull market that ended in tears. I have included a chart of what I called at the time 'The Great Reflation' at the end.

Charles Biderman: The Problem with Rigged Markets
Friday, March 30, 2012

"Even Wile E. Coyote had to come back down to earth sooner or later", says Charles Biderman, founder of TrimTabs Investment Research. In his opinion, the prices of stocks and bonds - enabled by excessive financialization of our economy and central bank money printing - have been defying gravity for a dangerously long time.

If we continue to do all we can to preserve the status quo -- to maintain "phony" asset price levels as Charles calls them -- at best we will restrict overall growth and handicap the economy.

The problem isn't so much the unfairness and malinvestment evident in a rigged market. As Charles shrewdly asks: what happens when the market becomes un-rigged?

We've never experienced the unwinding of an entirely manipulated financial system, so we can't predict for sure. But at this point, a painful collapse of our markets and loss of the US dollar as the world's reserve currency seem entirely plausible...

Read the rest here.

Intraday Tweet From PIMCO on the Market 'Action' and the Economy

Modern Monetary Baloney, Fundamental Values, and the Unaddressed Requirement for Reform

I agree with David Lindorff in his excellent piece, An Oh Please Moment, that the timing of the SP downgrade of US debt is highly questionable.

"Either S&P has been pressured by powerful Republicans and/or Wall Street Bankers to issue this warning, in order to add to national hysteria about the national debt and win more drastic cuts in social programs, or S&P is simply blowing it again."

Since the Ratings Agencies quite obviously have been in the pocket of the Wall Street monied interests for some time now, generating ratings on command for pay, there is much less question in my mind about which of the two alternatives are correct.

The bankers, having obtained huge sums of personal wealth by buying the government and looting the Treasury, are engaged in an aggressive campaign to make sure they can keep their ill gotten gains, without indictment, and pigs that they are, without any of the pain to be obtained from gaming the US financial system in a massive fraud and causing its collapse. They seek to direct that pain quite squarely and unashamedly on the lower and middle classes, while increasing their wealth by promoting even greater tax benefits and indirect subsidies from the public.  When one does not prosecute crimes, it emboldens the perpetrators to ever greater excesses.

 But I find myself, as always it seems, in the middle again, not being quite comfortable with some of the counter-arguments being made about the SP downgrade and its dodgy motivations.

"As Galbraith explains it, “US debt consists of bonds issued in US dollars, which I assume the S&P analysts know. How can the US possibly default on its own currency? The obligation is in nominal dollars, which is to say when the bond retires, the US issues a check in dollars to cover it.”

Since the US prints its own currency (or actually just issues electronic payments to create new money) whenever it needs it, as Galbraith puts it, “As long as there is diesel fuel to power up the back-up generators that run the government’s computers, they will have the money to back their own bonds.”

This is technically correct, and underpins much of what is described of late as modern monetary theory.

Since the interest and bonds are denominated in dollars, the US has the ability to print dollars at will without an effective external constraint since it 'owns' its currency.  The US is not answerable to some external standard like gold, or even a foreign central monetary authority with its own set of rules per se as in the case of Greece and the ECB.  On paper at least the US is answerable to the Fed, which in theory is an independent constraint on limitless spending emulating a gold standard, in the words of that monetary whoremaster Greenspan.

And so the particular prognosis of SP not only smells of rank politics, pandering to the money class, but it is also patently absurd in what it says.  The US is not risk of default.  But it is at risk of a de facto default. 

David Lindoff goes on to say quite insightfully:

"The problem will come when the dollar starts to seriously erode against other currencies because too much of the currency has been put into circulation. When that happens, there may be a shift away from the dollar as the world’s “reserve currency.” Looking further, one could then imagine the US being unable to issue debt to foreign investors, because they would no longer want to be left holding dollars, and the US would have to either drastically reduce its debt, or borrow in foreign-denominated debt--say Yen or Euros or Renminbi."

As I have said many times before, the limiting factor on the Fed's ability to create money is the value at exchange of its bonds, and the dollar which is merely a note of zero coupon and duration. 

The debt will be discharged, whether through payment or default.  And monetary inflation is most often the soft default method of choice.  The debt will be discharged.  The crux of the matter is how the discomfort if not outright pain will be allocated.  So far it is all carrot and few sticks to the creditors.

Mark Thoma captured the essence of the entire situation brilliantly and in a few words, quite nicely here:

"I am not as worried about the ability of the political process to deal with our long-run debt problem as S.&P. appears to be. One way or the other, the process will resolve this, especially since the public is demanding action.   (I have to admit I am not quite so confident that they will not just kick the can down the road even further given the opportunity. Political campaign reform is needed, and badly, and the Fourth Estate is in occupied territory. - Jess)

Don't let the downgrade allow those with wealth and power to push through the wrong solution. I am more worried about who will be asked to pay the costs of reducing the long-run debt to a more manageable level. Will we balance the books on the backs of those least able to pay and least able to defend themselves in the political process -- the sick, the poor, the elderly and children? Or will we ask those higher up on the income and wealth ladders to pay a significant part of the bill?"

What concerns me is that the focus of the discussion seems to be solely on allocating the pain, with the monied interest pressing their advantage, but few are talking anymore about the need to reform the system as the sine qua non.  

We can pour stimulus and subsidy into this broken and distorted system until the cows come home and the US resembles postwar England. But on the other hand, we can engage in draconian austerity until we recreate Dickensian London, with scarecrows of children doing awful labor until they meet an early death, with heartbroken families living in the streets and debtors prisons, while the Scrooges of Wall Street glory in their superior intellectual and predestined moral fiber to have avoided such a fate, which they cleverly promoted themselves through their financially based criminal enterprises.

But it will not, ever, result in a sustainable economic recovery, and a stable society without significant government abuse of individual freedoms.

Most likely the result will be a protracted stagflation, similar to what Japan endured and continues to endure, but with inflation replacing deflation because the US is a net importer running a trade deficit.  There will be endless war because besides financial fraud that is the US' other major industry.  And behind it all will be a growing domestic unrest and official repression, provocation and reaction.

Reform is not being discussed because the status quo is already moving on, and the few real reformers have been artfully co-opted by the ultra-rich, with the result as Matt Taibbi, himself a star in the truth-telling firmament, so colloquially puts it here:

"My own personal view on this is not so much that Tea Partiers are racists, but more that they're tremendous pussies. They have no problem puffing out their chests and screaming bloody murder about Mexicans or single black Moms taking their tax money for emergency room care or school lunches. But when John and Christy Mack rob them to buy mansions on the Upper East side, you suddenly can't find a Tea Partier within a thousand miles -- can't find one with the Hubble space telescope. For all their bluster and aggressiveness, billionaires make them go weak in the knees."

I personally don't think they are cowards at all, having shown the guts to face a hard life and carve a living out of it.  Rather, and I have cited this phenomenon several times in the past, it is the vulnerability of the dark side of human nature to temptation, and being badly used. When the going gets tough, it is a natural reaction among many to kick the guy below you in the face, and try and knock him off the ladder before he can knock you off, and curry favor with those above in the hopes that they will accept you.  

That is why there are things like religion and education and societal values which try to help people outgrow their schoolyard mentalities, and baser impulses to cheat and steal and lie,  and to mature as human beings.  Or at the very least, why there are laws and regulations to restrain those who for one reason or another are broken people but still functional enough to do others harm.  Anyone who believes in the natural goodness of people in crowds lives in a world of theory and delusion, and at the very least must have never driven on a modern freeway in rush hour.

I also think there is quite a bit of prejudice and unfairness directed at the Tea Partiers by the bi-coastal elite, who are not all that different from them except in taste and fashion, not so much as they might like to imagine anyway.  People are indeed sinful creatures, and one can find something wrong with anything that is wrought by them.  But there is a redeemable wonder in most people as well, if one will only seek for it, cultivate it, and not try and push them down and use them badly, and enslave them.

And perhaps the real cowards are those of the privileged and the educated class who had taken the oaths and accepted the stewardship, noblesse oblige, and were in the best position to actually speak out when the Fed and the government started creating serial asset bubbles, and allowing rampant fraud, and egregious government lies that took the country to unfunded wars, and maintained their silence either out of complicity or fear or a reflexive desire to defend the status quo which had kept them and sustained them, rewarded them.  Greenspan was able to engage in monetary and regulatory abuses for a long time because the thought leaders and power brokers were beneficiaries of his actions and fearful of his increasingly powerful bureaucracy, almost in the manner of a latter day Herbert Hoover.

Where are these people now, except for a few brave and notable souls deserving of encouragement and support, with regard to the increasingly obvious and blatant manipulation of the markets and prices, the legal abuses of the foreclosure process, the excessive fees and dangers of the leviathan banking system, and the growing body of evidence to support it?  Who is asking for the CFTC and SEC to do their proper job?  The Tea Partiers are the class of the overlooked and the relatively powerless, who know something is wrong, but are not sure what to do about it.   The apathetic timidity of those who know better allows a vacuum to be filled by the new Huey Longs of the Right whom they descry.  Could the mainstream media be any more compliant or benign to corruption, when not performing the function of outright propaganda and cheerleading for it?

Although a fiat currency might give Americans the euphoric feeling of independent and limitless wealth on command, it just does not work that way. The US has been gifted a deep and resilient economy and culture, bought over many years by blood and sweat and sacrifice.

It will take a monumental effort to bring it down, but I think the crony capitalists and oligarchs are up for the job if the people allow it, through complicity and sheer mean-spirited foolishness, but most likely apathy.  The problem with this sort of large, complex system is that it collapses so slowly and in stages that the participants don't seem to notice it happening, until some weight reaches a critical point, and the bough breaks, and the heavy burdens of the past all come down in a rush that none can withstand, or probably even understand, until they are standing in ruins.

Massive Silver Withdrawals From The Comex

It will be interesting to see how the CFTC, the Obama Administration, and the Comex deal with this situation with silver, including the disposition of the massive paper short positions that appear to be undeliverable.

It could prove to be a watershed event, or at least an interesting scandal to observe as it unfolds.

Harvery Organ's commentary:

"And now for the big silver report.

We witnessed a massive withdrawal of silver unprecedented in the history of the comex. First there was a smallish 6507 oz of silver deposited to two customers, one being 497 oz and the other 6010 oz). But just look at the huge withdrawals:

Four customers (not dealers) withdrew a total of 1,019,310 oz from the comex vaults. This is real silver leaving from 4 registered vaults. The individual withdrawals are: 579,081, 30,380, 399,994 and 9855 oz.

The dealer (our bankers) also were involved in the withdrawal of silver to the tune of 769,941 oz (there were 2 dealers involved removing 102,866 and 667,875 ozs). When you see this massive drain of silver, the fire is raging. The total silver withdrawal by both dealer and customer totalled an astronomical 1,789,251. The Brink's trucks must have been very busy yesterday.

The comex folk notified us that an amazing 85 notices were sent down for servicing for a total of 425,000 oz of silver. The total number of silver notices sent down so far total 323 or 1,615,000 oz. To obtain what is left to be served, I take the open interest for January at 153 and subtract 85 deliveries leaving a total of 68 notices or 340,000 oz left to be serviced.

Thus the total number of silver ounces standing in this non delivery month of January is as follows:

1,615,000 oz + 340,000 = 1,955,000 oz (Thursday total = 1,625,000). As promised to you, this number is rising and will continue to rise until the end of the month as our banker cartel scrambles to get any morsel of silver to satisfy the massive demand for this metal. Our bankers are stunned to see such a huge amount of silver options in a traditionally slow month.

I hope everyone caught the Eric Sprott story on Kingworld news that he is having trouble locating silver."

JPM and HSBC Sued for Silver Market Manipulation

As I recall when Blanchard sued Barrick and JPM for manipulating the gold market one of the first motions to dismiss came from Barrick who claimed that they were acting at the behest of the government and the central banks.

I believe the law firm representing this was the one who was successful in the Sumitomo copper litigation.

Reuters
JPM and HSBC Sued for Alleged Silver Market Manipulation
By Jonathan Stempel

NEW YORK, Oct 27 (Reuters) - JPMorgan Chase & Co (JPM.N) and HSBC Holdings Plc (HSBA.L) were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.

The banks, among the world's largest, were accused of manipulating the market for COMEX silver futures and options contracts from the first half of 2008 by amassing huge short positions in silver futures contracts that are designed to profit when prices fall.

"Defendants reaped hundreds of millions of dollars, if not billions of dollars in profits" from the conspiracy, one of the complaints said.

The respective plaintiffs, Brian Beatty and Peter Laskaris, each said they traded COMEX silver futures and options and contracts, and lost money because of the alleged manipulation.

Beatty lives in Connecticut and Laskaris in New York, court records showed. The lawsuits seek class-action status, damages that may be tripled and other remedies. The defendant banks are major participants in the silver market.

JPMorgan declined to comment. An HSBC spokeswoman had no immediate comment.

The lawsuits were filed one day after the Commodity Futures Trading Commission proposed regulations to give it greater power to thwart traders who try to manipulate prices.

The CFTC began probing allegations of silver price manipulation in September 2008.

"Going back to the early 1980s, silver has been an extremely volatile market," said Bill O'Neill, managing partner at Logic Advisors, an Upper Saddle River, New Jersey investment firm specializing in commodities. "I often describe it as a speculative playground. You have to be a big boy to play."

FRAUD, DEVIOUSNESS ALLEGED

Only once in its 36-year history has the CFTC successfully concluded a manipulation prosecution, in a 1998 proceeding concerning prices for electricity futures.

Speaking on Tuesday, Chairman Gary Gensler said the proposed regulations would give the regulator greater power to police "fraud-based manipulation."

Commissioner Bart Chilton added that there had been "fraudulent efforts to persuade and deviously control" silver prices.

A CFTC spokesman said the regulator does not comment on investigations, and would not discuss the investor lawsuits.

Earlier this year, the CFTC began looking into allegations by a London trader that JPMorgan was involved in manipulative silver trading, the Wall Street Journal said on Wednesday, citing a person close to the situation.

Silver prices have faced regulatory scrutiny in the past, perhaps most prominently after the Hunt brothers in Texas in 1980 attempted to corner the market, driving prices above $50 an ounce. The price later plunged.

Since the CFTC began its probe, spot silver prices XAG= have ranged between $8.42 and $24.90 an ounce, Reuters data show. They traded Wednesday at roughly $23.53. Silver futures prices SIc1 are up 39.1 percent this year.

Full Text of CFTC Commissioner Bart Chilton's Statement on Market Manipulation

Has the US financial media mentioned or even discussed this? Today the Bloomberg television news people are busy discussing the World Wrestling Federation, a caricature of sport analagous to the Comex and NYSE as financial markets.

Statement of Commissioner Bart Chilton
U.S. Commodity Futures Trading Commission
Public Hearing on Anti-Manipulation and Disruptive Trading Practices
Washington, D.C.
Tuesday, October 26, 2010

I take this opportunity to comment on the precious metals markets and in particular the silver markets.

More than two years ago the agency began an investigation into silver markets. I have been urging the agency to say something on the matter for months. The public deserves some answers to their concerns that silver markets are being, and have been, manipulated.

The legal definition of manipulation under the law is a high bar to prove. It is a much different test than what the average person might consider as manipulation. Under existing law, to prove manipulation, the government is required to demonstrate not only specific intent; we also need to prove that as a result of the intent and market control, that activity caused an artificial price -- a point that can certainly be debated by economists.

Attempted manipulation is less difficult to prove -- requiring an intent to manipulate and some overt act in furtherance of that intent. There are also other violations of law that could contort markets and distort prices.

I believe that there have been repeated attempts to influence prices in the silver markets. There have been fraudulent efforts to persuade and deviously control that price. Based on what I have been told by members of the public and reviewed in publicly available documents, I believe violations to the Commodity Exchange Act have taken place in silver markets and that any such violation of the law in this regard should be prosecuted.

In saying this, I am fully aware of the prohibition from divulging trader names or information about their positions I am extremely careful not to violate the law in this, or any, regard. I also cannot pre-judge anything the agency may do with regard to our silver investigation, or any other matter.

The Wall Street Reform and Consumer Protection Act, which I strongly supported, contains new manipulation provisions as well as anti-disruptive trading rules. These new authorities, along with the implementation of thoughtful position limits in metals, will go a long way toward ensuring more efficient and effective metals markets devoid of fraud, abuse, and manipulation.

Thoughtful investigations take time. The CFTC staff has worked extremely hard on the silver investigation. That said, there is a point at which it is our responsibility to say something. Within the law, I have done so. I am hopeful that the agency will speak publicly about the investigation in the very near future and when they do so that it will be in a more granular fashion than I am permitted from doing at this time.

CFTC Commissioner Raises Alarm Over Silver Market Manipulation

The manipulation in the silver market with two or three banks holding enormous undeliverable short positions was obvious, for years.

The CFTC was complicit in turning a blind eye to this, stonewalling and whitewashing the corruption, as were many market commentators and participants. Ted Butler and GATA did a wonderful job of highlighting this enormous fraud but were ignored and even vilified for the past twelve years in the same vein as whistle blower Harry Markopolos was in raising concerns about Madoff's investment scheme.

Bart Chilton is speaking out as he said a few weeks ago he would if the CFTC was not making progress in correct this travesty. This is the sort of reform that the people were seeking when they swept the Democrats into office, a reform which they never received.

This obviously should be investigated by an independent body, given the regulatory capture held by the banks who manipulated the market to the detriment of the world in suppressing prices and creating an artificial shortage that will be painful to unwind.

This is not a partisan issue, but involves politicians of both parties going back twenty years or more, in both London and New York. And the corruption is pervasive and ongoing in multiple US finanical and commodity markets.  The regulators and ratings agencies have not been doing their jobs.

Some will attempt to dismiss what Mr. Chilton is saying here as inconclusive. Keep in mind that he is a high profile CFTC official, and what he says comes through a 50,000 watt megaphone, so he must choose his words with great care. But this is almost unprecedented for an official to speak out against his own administration.

The response to these sorts of revelations seem to be a blanket of media silence and whispered character assassination, which is the mark in trade of those who have no sense of duty, honor, and country. Their crime is betrayal of the public trust, and the public's fault is apathetic complicity.  'Silver did not rally on the news, it must not be significant. I did not hear about this on television, so it must not be true.'

But the dominos are starting to fall, and more revelations are to come. 

CFTC's Chilton raises alarm about silver market
WASHINGTON
Tue Oct 26, 2010 9:30am EDT

Oct 26 (Reuters) - There have been repeated attempts to influence prices in silver markets, Bart Chilton, a commissioner at the U.S. futures regulator, said on Tuesday.

"There have been fraudulent efforts to persuade and deviously control that price," Chilton said in prepared remarks before a Commodity Futures Trading Commission meeting.

Chilton said he could not pre-judge the outcome of the CFTC's ongoing investigation of the silver markets, but said public deserves some answers to their concerns.

Gold and silver are no bubbles. It is a reverse Ponzi scheme that goes back for decades, that has sold many more ounces of metal than can possibly be delivered at today's artificially low prices, that was tolerated and even promoted by those who were running a monetary control fraud, quite probably the greatest in history. The banks and insiders are trapped and desperate, trying to bluff and buy themselves out of another fraud yet again. They will never give up, but will have to be rooted out. It is unlikely that reform can come from within, since the righteous anger of the people and the will to change will be co-opted by those very forces that have manipulated the system and perpetrated the fraud.

Fortunes will be made and lost, and careers ruined, as the revelations of manipulation and corruption are made over the next ten years. And this will make for dangerous times, as an empire of deceit collapses not at once, but in stages. There will be new threats and more bailouts for the banks to be paid by 'austerity' for the common person who is caught up in their own web of petty diversions, apathetic cynicism and denial. There is little better example of this than Britain but America is not far behind.

But the tide has turned and change is in the wind.

Banks short 20,000 tonnes of gold.

Embry: Commercial Signal Failure in the Metals May Be Imminent

"A single breaker may recede; but the tide is evidently coming in."
Thomas B. Macaulay

SP 500 December Futures Intra-Day And General Comments

The market is playing around with these consolidation patterns that start off with a dire overnight trade, that gives way to an intra-day rally and a squeezing of the shorts.

Artificial to be sure, but likely to continue until something happens to stop it. It is unlikely that the government will intervene ahead of an election and in a fragile economy to stop the inflation of an obvious bubble. To the contrary, they are most likely deeply complicit.

This provides emphasis to our caution of waiting for a downturn to develop rather than trying to get in ahead of it. You will just feed the speculative increase.

The more the Fed and Treasury debase the global fiat currency, the higher gold and silver will rise.

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."

If the model of the former Soviet Union (empire) holds, at some point the oligarchs will start seizing hard and income producing assets for themselves using their command of fraudulent paper and a corrupt system of governance. This may already be underway when the Congress gave in to the Bankers' threats and passed TARP. I have heard that Wall Street will be taking about 8 percent of M1 as its bonus this year, despite being bailed out at enormous costs, both explicit and hidden, to the American public. Bernanke is transferring over a trillion dollars in interest earnings from savers, institutions, and retirees to Wall Street through this quantitative easing without reform and restructuring.

At some point this may erupt into a crisis with a resolution, but in the meantime it will continue to spread slowly like a wasting disease, concentrating more real wealth and assets in the hands of the politically well-connected few.

Obama is more like a business friendly Herbert Hoover than a reforming Franklin Roosevelt, and this lack of will and a vision forged by determined accomplishment against suffering, moral courage and certitude if you will, is his tragic flaw and America's misfortune.

SP Futures Up Sharply on 'Hopes of Chinese Yuan Strengthening'

While the SP 500 stock futures are indeed up about 15 handles, you'll forgive me if it seems like the rationale for this rally at a key resistance point is as thin as its volumes, or the integrity of its governance, and as contrived as the great reformer himself.

It looks like a fade, but we'll have to wait for tomorrow. Sometimes the trading desks and hedge funds like to probe higher in thin trade to find out where the stops are, and their position size, to determine the cost of a breakout, or a breakdown. You know, like the flash crash which the US capital allocation system most recently enjoyed.

US STOCKS-S&P futures surge at open after China's yuan move
NEW YORK
Sun Jun 20, 2010 6:14pm EDT

NEW YORK June 20 (Reuters) - S&P 500 stock index futures rose sharply at the start of trade on Sunday as investors bet China's announcement over the weekend to make the yuan more flexible will lift sales at U.S. multinationals over the long-term.

The rise suggests indexes will open higher on Monday and follows a strong start of trade for the Australian dollar and euro as China's move signals more yuan appreciation and was taken as a vote of confidence in the global economic recovery's staying power.

The revaluation will effectively increase the purchasing power of Chinese buyers and "the best bet would be for commodity-based companies and consumer goods companies," said Tom Sowanick, chief investment officer at Omnivest Group in Princeton, New Jersey earlier on Sunday.

S&P 500 futures SPc1 jumped 13.80 points to 1123.90 and were well above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract.

Official Gold Reserves As of June 10, 2010, and Truths Yet to be Told

It is important to remember that these are the 'official' numbers. And it does not show how the reserves are 'encumbered' by leases and loans.

For example, there is circumstantial evidence that the Reserve Bank of Australia loans up to 100% of its gold reserves to the bullion banks who subsequently sell it, and then 'owe' it to the Bank and the people of Australia. The trick of course is the significant counterparty risk in the event of a serious short squeeze.

And they are not the only ones. Since this is an asset owned by the people, a timely and transparent accounting by the Treasuries and the Banks is something that the people of every nation obviously deserve. Whether the financial engineers, who enjoy experimenting with Other People's Money and doing favors for their private sector cronies, will ever willingly provide that information is another story altogether. It will almost certainly be under force of law, or an independent audit.

World Gold Council
Official sector gold reserves as at June 2010

European central banks sold virtually no gold over the past quarter, save a small amount for minting gold coins. Total sales by European central banks have amounted to just 1.8 tonnes since the third central bank gold agreement began in September of last year. The only sales of note made via CGBA3 have been by the IMF, which has sold 38.7 tonnes since mid-February. We expect the IMF to sell at a similar pace this quarter.

Outside of the agreement, the main purchases reported over the last quarter have been by Russia and the Philippines, both of which have long-standing gold buying programmes. The Central Bank of Russia bought another 26.6 tonnes of gold over the past quarter, taking its total gold holdings to 668.6 tonnes or 5.5% of its total reserves, and remains the 9th largest official sector gold holder. The Philippines central bank bought 9.5 tonnes of gold in March, taking its gold holdings to 164.7 tonnes or 13.7% of total reserves.

The Saudi Arabian Monetary Authority reported last quarter that “gold data have been modified from First Quarter 2008 as a result of the adjustment of the SAMA’s gold accounts”, meaning SAMA’s gold reserves are now reported to be 322.9 tonnes or 2.8% of reserves, from 143 tonnes or 1.2% previously....

What Have They Been Doing Since the Financial Crisis Began?

"China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world's largest producer of the metal, China often buys gold from its own mines and doesn't report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.

Analysts suspect the country is continuing to buy gold and could in fact, be the world's largest buyer consistently. It simply doesn't reveal it's pro-gold stance proudly, however, because China is also the world's largest holder of U.S. Treasurys.

Announcing an aggressive gold buying spree is not in China's best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country's portfolio of U.S. government bonds, Schlossberg said."

Central Banks Join Gold Rush - CNN

Just as there are stealthy buyers, how can one refuse to acknowledge the body of evidence that there are also stealthy sellers, hiding behind official secrecy, derivatives arrangements, leases, and accounting frauds that will shock and anger the real owners of the assets when their hidden and conflicted dealings with their cronies in the private banking sector are revealed?

Anyone at this point who says that the Fed would never engage in such obviously compromised and conflicted transactions, and then go to great lengths to hide them, has either not been reading the real news, or is as compromised as the central bankers and their cronies in government and the mainstream media are, morally and intellectually.

And if they will allow the equity markets to be manipulated, as any even modestly sophisticated trader with decent access to tools must now recognize and admit, why would they hesitate to enable and encourage the manipulation of the sovereign bond markets, and those markets that affect them, which are by far the most important markets of all?

The world is not big enough for them to find a place to hide from justice after the truth is revealed. So they will lie and obstruct, extend and pretend, increasingly desperate for power, corrupting all that is corruptible, until the very end, and the final downfall and collapse. And then will come the crocodile tears, and the claims of ignorance, and finally weak apologies that they thought they were doing the right thing, but were honestly mistaken.

Such is the case in all control frauds, white collar crimes, official corruption, and Ponzi schemes.

The banks must be restrained, the financial system reformed, and the economy brought back into balance, before there can be any sustained recovery.

Federal Reserve Is Intervening in the Currency Markets While Wall Street Whines about Reform

I think we all already knew this, but I wanted to bookmark it on my site for some future occasion when the government and the Fed deny it, probably in a response to a question from Ron Paul.

The question I have in my mind is where does this show up on their books, and what other markets are they active in?

It also seems a bit ironic, since the current topic of discussion on Bloomberg TV is "investor trust in freefall?" The consensus of the talking heads is that Wall Street's holy men are under attack by evil governments, particularly those of the European persuasion, and the odd US regulatory agency.

Steve Wynn is gushing about the business friendly, stable atmosphere in the People's Republic of China, as opposed to the US and those anti-business fascists in Washington. Although it is funny that he thinks the place in the US that most closely resembles China for being 'business friendly' is Massachusetts because they are willing to give him tax guarantees for 15 years. I suppose that when you turn them upside down all corrupt oligarchies look alike.

In an email this morning my friend Janet T. dropped me a note about Vietnam's new bank friendly atmosphere, and wondered aloud if Jamie Dimon would take his operations to Ho Chi Minh City in the unlikely event that meaningful financial reform is passed in the US.

One can only hope. Should we take up a collection for airfare? I would love to see the terms of their bailout packages over there after the next financial crisis, which is sure to come. A water hose, bare steel bedsprings, copper jacketed ben wa balls, and a well charged car battery would probably serve for openers, instead of softball questions and false protests of indignation from Barney, Chris, and the boys which is what those meanies in the Congress frighten them with now.

German Econ Minister:
U.S. Fed Is Also Active In Currency Markets
By Roman Kessler

MAINZ, Germany -(Dow Jones)- The U.S. Federal Reserve is also active in currency markets, German Economics Minister Rainer Bruederle said Friday.

His comments come on the heels of remarks made by his Swiss counterpart who said that the Swiss National Bank purchased euros to buttress the single currency.

"It is a regular procedure of central banks," to intervene in currency markets, Bruederle said. "It is not a secret," that central banks have a foreign exchange rate target, he added.

Bruederle said "eruptive" movements have to be avoided. He previously said that China holds 25 percent of its foreign exchange reserves in euros.

-By Roman Kessler, Dow Jones Newswires, +49 69 2972 5514;

roman.kessler@dowjones.com

Read more: NASDAQ

It Doesn't Take a Whistleblower...

The most recent smackdown in Gold and Silver for the purpose of manipulating the price of metals for the COMEX option expiration was about as blatant and arrogant as I have seen. There was a big fat concentration of Calls at the 1200 strike price, and the temptation to make their expire worthless was an open invitation to the pigmen.

You do not need a whistleblower to spot these abuses. The banks and hedge funds are practically taking out billboards in their market price manipulation these days, and daring anyone to do something about it. Why are they so fearless under a 'reform administration?'

The gaming of the markets using derivatives and massed selling and buying, melt ups and flash crashes, is less a 'conspiracy theory' these days, and more like an IQ test.

And it's a damn shame. Especially when the enablers and the Wall Street demimonde ignore it and pretend it is not happening, or make up lame rationales attributing it to something else.

This sort of semi-official corruption grows like a cancer, until it subsumes all markets. And it has severe consequences in the real economy.

Shortly After the Comex Close Gold Is Allowed to Trade Above 1200

Gold traded all day below 1200, at times rising to within fifty cents of the key strike price of 1200 where a large concentration of call options were clustered.

Well, since the call options at 1200 have expired worthless, why bother using the energy to continue to suppress the price?

Blatant and arrogant price fixing is done with the cooperation of the regulators at the CFTC who are willing to turn a blind eye to repeated price manipulation by insiders in the US futures markets in precious metals, stock indices, and several key commodities including oil and foodstuffs.

Here is some commentary from the April expiration in silver. Release the Kraken.

SP 500 Daily Chart and The Planet of the Apes

The SP futures declined to briefly touch a channel trendline that goes all the way back to the intraday spike lows of October 2009!

The market is rallying sharply now, and if it can retake the old support, now resistance, around 1105 it has a good chance of setting a new uptrend back to the top of the channel. This could just be a dead cat bounce. I was looking at some of the indicators last night, and they were at record oversold levels going back at least four years, including the crash.

Was all this a trading gambit mixed with petulance over the financial reform package? In a normal market I would say "nonsense." But this market is thin, like a Ponzi scheme, driven by high frequency trading and artificial liquidity. The few genuine investors are being chased and shot down like the human beings in The Planet of the Apes. The Wall Street gorillas have all the horses, nets and rifles, courtesy of the government, the regulators, and the Fed.

The smackdown in gold and silver ahead of option expiration next week, and the miners' option expiration today, was some of the most blatant and heavy handed market manipulation I have seen in a long time.

The US is badly in need of adult supervision and behavioural modification. Not the much maligned people, the long suffering public which seeks only to go about its daily business creating wealth in the real economy in the face of mounting hardships, but rather the corrupt and irresponsible government, and the pampered princes of Wall Street, who are engaged primarily in wealth extraction and redistribution, primarily for themselves.

Washington can pass all the reforms it wishes. But until it obtains the will and the regulators to enforce the laws, including the existing laws, it is all merely a show to placate the public and maintain a misplaced confidence in 'extend and pretend' sustained by self-serving neo-liberal economic mythology.

"Meanwhile, the financial sector is to be enriched by the translation of junk economics into international policy. Living in the short run is the financial sector¹s time frame ­ while distracting the attention of indebted populations from calculations that Wall Street understands quite well: the debts cannot be paid in the end.

But they can be paid in the short run, with promises to pay someday ­ as if any economies ever have been able to grow by imposing austerity! It is all junk economics, of course. But it buys time for the bankers to pay themselves yet more bonuses this year. By the time the financial system collapses, they presumably will have put their money into hard assets.

Bank lobbyists know that the financial game is over. They are playing for the short run. The financial sector’s aim is to take as much bailout money as it can and run, with large enough annual bonuses to lord it over the rest of society after the Clean Slate finally arrives. Less public spending on social programs will leave more bailout money to pay the banks for their exponentially rising bad debts that cannot possibly be paid in the end. It is inevitable that loans and bonds will default in the usual convulsion of bankruptcy."

Michael Hudson

As the crisis continues unreformed, the frauds will become increasingly outrageous, and obvious, to all those with a willingness, and yes the courage, to see things as they really are.