Wall Street Threatens Washington as Reform Vote Approaches; Europe Acts Pre-emptively Against Fraud

Naked shorting is illegal in the US, and for very good reasons. On a larger scale, it is used for price manipulation, and is the equivalent of counterfeiting. The removal of the uptick rule by the SEC on July 6, 2007, which had been created in 1938 as part of the New Deal regulatory reforms, cleared the way for its more heavy handed uses and control frauds.

The ban on naked short selling was not enforced by regulators who were willing to turn a blind eye to blatant market manipulation. Under the DTCC regime it turned epidemic. The alarm was raised by many whistle blowers who were either ignored or vilified by the corporate media.

Let me be clear on this. I am not opposed to short selling. It is a trade that has many legitimate uses. It is naked short selling that lends itself so readily to abuse, particularly when there are not limits on position sizes and massed selling to drive down prices. The deregulatory movement, based on such lofty principles, has become nothing more than a means to a fraud, systematically knocking down all the regulatory safeguards that were put in place to protect the public during the Great Depression.

And this was the result of a long and expensive campaign, led by the wealthy elite and the Wall Street banks, to lobby the Congress and dupe the people to energize their frauds. As such, it shows premeditation and deliberate intent, the organized corruption of one of the most connected of all global resources, the US financial system and control of the international monetary reserves.

It became so outrageous that the US had to intervene during its banking crisis that triggered this global financial crisis, and selectively enforce the law to protect its banks from each other and the packs of unregulated hedge funds led by Goldman Sachs.

Germany recently stepped in to ban NAKED short selling, which was being used to attempt to take down certain prices to trigger the highly lucrative and largely unregulated Credit Default Swaps.

And commentators were outraged and even hysterical over this action by Germany, which was the kind of responsible market regulation that the US reserves to itself, and only when it is in support of protecting its banking oligarchs.

This surprise and shock indicates how low our standards have fallen, and how given over to Stockholm syndrome so many otherwise intelligent people have become regarding the speculators and the banks. Death by professors, chief strategists, and the pampered princes of the corporate media.

I found it interesting that the heavy selling today in US equities, triggered by the selling of large tranches of SP futures near the open, in addition to news indicating the recovery is not gaining traction, and the threat of another flash crash was tied by traders this morning over ‘unease the the Congress has not yet killed Blanche Lincoln’s amendment to prohibit the banks from dealing in Credit Default Swaps.’

Regarding the recent gold action John Brimelow says:

"Waves of selling hit gold on Wednesday in the European and NY midmornings. As noted earlier, apparent CME volume pre-open was 90,000 lots, and estimated volume between 9AM and Noon NY, during which time gold dropped some $21, was a heavy 95,000 lots. ScotiaMocatta simply refers to gold being “bludgeoned down” and Reuters quotes a COMEX gold floor trader, “the big banks just put in sell orders that hit the market."

Anyone close to the market can see this manipulation. It is neither sophisticated nor clever. That is the shame of the regulators and insiders, who find their coverage in pleading ignorance. And what they do in gold they are doing in equities and other markets, while working their way up the food chain to the sovereign debt markets. None are safe when corruption partners with government.

All this pain and uncertainty is designed to maintain their impossibly perfect trading results for their proprietary accounts as their customers bleed for their bonuses. And what makes this such a perfect con is that they are bullying the public using the money taken from the Federal Reserve and the Congress, the public's own money.

I would that Obama and the Congress had half the courage of Merkel. And that commentators and the middle class would realize the sorry state that their economy is in, held hostage by a bunch of spoiled brats and well heeled thugs, and a government by and for the highest bidder.

"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 yourselves, and when you lost, you charged it to the Bank... Beyond question this great and powerful institution has been actively engaged in attempting to influence the elections of the public officers by means of its money...

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, I will rout you out."

Andrew Jackson on The Second Bank of the United States which was the Central Bank of his day.

A dangerously simplistic view? More like common sense, and the plain spoken truth, at last. You have been given a Republic, indeed, if you can keep it, if only for the honor of your fathers, and the sake of your children.

Gold Is In a Classic Cup and Handle Formation Targeting 1,450

A "Cup and Handle" is a bullish continuation pattern in an uptrend.

The 'cup' is best shaped as a "U" and the broader the bottom the better. The 'handle' is a retracement when the right side of the 'cup' reaches its prior highs. The handle often resembles a bullish pennant.

The retracement usually does not exceed 1/3 of the advance of the cup to its second high, although it can go as deep as 1/2 in a volatile market.

Here is a textbook picture of a 'cup and handle formation' from Investopedia.



Here is the daily chart of Gold. It is in a classic cup and handle formation, with the handle having dropped down today near the 1/3 retracement target of 1183. A number of technicians have been watching it form. The advance to a new high, and the subsequent pullback, have made it now worth noting.

The handle has been shaping for four days from the peak at 1249.30. The handle generally takes from four days to two weeks to form before price advances again with fresh buying to retest the resistance around the prior high.

One might watch for the current Comex option expiration to pass next Tuesday, given the large concentration of calls around the 1200 level before gold can make its move higher. There is always the possibility of a counter squeeze, but it is difficult to fight paper with paper given the wide availablility of derivatives, and the laxness of regulation by the CFTC despite recent noises made about reform. Nothing has changed yet.

There is a possibility of a triple top, although this is why it is important that the cup have a broadly tested bottom.



The target for a breakout in this cup and handle formation above would be a minimum of 1450. The breakout should be accompanied by increasing volume. The more volume the more bullish the post breakout run will be.

This is consistent with the weekly chart which we posted a few days ago that shows an inverse H&S continuation pattern targeting 1350 as a minimum objective. In fact, one could draw the cup more conservatively, ignoring the intra-day spikes, and strike a target much closer to 1350.

And what makes this gold manipulation such a perfect con is that they are bullying the public using money taken from the Federal Reserve and the Congress, the public's own money.

What levels might be expected after the intermediate targets are reached?

My friend Brian at the Contrary Investor has produced a series of targets based on the prior high deflated by a number of measures. Here is one that I thought had a certain 'ring' to it. Keep in mind that M2 is a moving target, and moving lower for now. If it turns around and begins to expand again, the price could be much higher. But for now it is in a firm downtrend. So it conceivably could be lower.

Gold Deflated By M2 Projects to $3,912 to Match Its Prior High



Here are targets for gold and silver based on their prior highs but adjusted for inflation using the Bureau of Labor Statistics CPI, and John Williams' (SGS) unadjusted CPI estimates.

If Silver were to reach $450 per ounce, and gold to $7,500, the junior miners might provide a quite impressive performance. lol.

Bear Raid In Gold Results in an Historic One Day Liquidation: Höllenmädchen Merkel und die Straßenschreier

According to John Brimelow:

"Open interest plunged 21,256 lots, 66.11 tonnes or 3.53%, one of the largest changes in history..."

And this was before the latest round today after this early report.

Open Interest is the total number of contracts for a given future category. When the Open Interest declines on a marked price decrease this is generally considered the net liquidation of long positions. And conversely, on a rising price it is considered short covering. The weekly reports give more insight into who was doing the buying and selling. The report should be daily, and should include specific position changes for traders with aggregate positions higher than 5 percent of any total market for a specific product.

Next Tuesday is the option expiration for Calls and Puts on the Comex gold futures. There was a particularly large concentration of contracts at the 1200 level which we were watching from Monday when we promised you many market shenanigans in the coming option expiration, for both the mining stocks and precious metals.

We also picked up quite a bit more activity on the part of 'posting trolls,' who are traders both independent and with hedge funds who set the stage for major bear raids with sensationalistic statements and exaggerated 'headlines.'

The impunity with which this bear raid was conducted makes us wonder if the CFTC and SEC will ever do anything to clean up these markets. The best defense is not to rise to the bait, and trade in the short term in markets so obviously given to manipulation by large trading interests with fraudulent intents. These markets are tainted.

If the trend is broken it will be time to step aside. Until then we sell strength and buy weakness, slowly. For most it is better to take small incremental positions and then just let them ride the ups and downs.

As an aside, the hysteria, or Straßenschreier, with which the actions of Germany to curb naked short selling were greeted was very funny last night, and highly entertaining.

As you may not realize, naked short selling has been illegal in the US for some time, as least as far as equities are concerned. It was not enforced as the regulators turned a blind eye to many abuses that crept into the 'naturally efficient markets' on their watch. It is tantamount to counterfeiting, and in the hands of a party with pockets deep enough to permit it to dominate small markets, it is a blatant form of control fraud.

By the way, I hear that there has been almost no coverage of William K. Black's highly credible and shocking revelations on the public media in the States, outside of a piece on Bill Moyers' Journal. Can anything be so obvious as the control wielded by the corporatists?

But what is of concern to the Wall Street demimonde are their beloved CDS, which are as foul a form of white collar criminal abuse as ever has been seen since the creation of the Federal Reserve Bank. Any attempts to limit them will be resisted with threats, promises of dire outcomes and ruin, and buckets of money for politicians and regulators.

The rest of the world is beginning to act with revulsion at the destructive corruption of Washington and New York, and the American oligarchs.

Merkel made them squeal with her own version of shock and awe, and it was music to many ears. You go, Höllenmädchen.


Merkel und die Banken (Sarkozy ist Salieri)

Merkel to The Banks and Hedge Funds: Sprechen Sie Deutsche? Then Droppen Sie Dead

There is much surprise that the German government has declared a ban on naked short selling, including CDS, as of midnight tonight, with no prior notice and the courtly deference demanded by the Banks when government chooses to regulate them. This action seems to have perturbed some and confused many.

The reason for this may be quite simple.

After tonight, when hedge funds and The Banks call upon German financial firms and European governments to make payments on Credit Default Swaps or other financial instruments that are subject to the ban, the Germans will have a rather large hammer in hand to help them to negotiate the terms, and respond to any threats and coercion.

Since the CDS will be deemed to be no longer legal, at least in the quantity and leverage desired by those gaming the system, the opportunity to default on them with the backing of the government may be an option. This seems quite similar to the stance that the Chinese government took on behalf of some Chinese firms that were caught on the wrong side of energy derivatives.

I have heard from several sources that there was a general disappointment in Europe and in some parts of Asia at the lack of progress being made in the US Congress towards creating meaningful reforms in their financial system. In fact, there is a widespread belief that Washington is being dictated to by the Banks, and that their lobbyists are directing the conversation, and in many cases writing the actual legislation. The final straw was when the Obama Administration itself sought to water down and block key provisions of the legislation to limit the power and size of the Banks.

"To some degree this is a battle between the politicians and the markets," she said in a speech in Berlin. "But I am firmly resolved -- and I think all of my colleagues are too -- to win this battle....The fact that hedge funds are not regulated is a scandal," she said, adding that Britain had blocked previous efforts to do this. "However, this will certainly have taken place in Europe in three weeks," she said, without giving more details." Reuters 6 May 2010

"German Chancellor Angela Merkel accused the financial industry of playing dirty. 'First the banks failed, forcing states to carry out rescue operations. They plunged the global economy over the precipice and we had to launch recovery packages, which increased our debts, and now they are speculating against these debts. That is very treacherous,' she said. 'Governments must regain supremacy. It is a fight against the markets and I am determined to win this fight.'"UK Telegraph 6 May 2010

The financiers have been saying that 'Europe cannot print money faster than Goldman Sachs can create naked Credit Default Swaps.' Well, Goldman can still create those swaps, but they may have trouble finding counterparties for them in Europe. And those who buy them may do so at their peril, since Europe is obviously seeking to isolate itself from the consequences of speculative excess by an overleveraged financial system.

Merkel said she was going to reassert the primacy of government over the multinational speculators.

This is only the opening salvo. It will not be effective without further effort. And it is likely to draw the ire and criticism of the corporate media in NY and London, and the financiers' well-kept demimonde.

"Oh no, naked CDS are essential to price discovery. Naked shorting adds liquidity. The system will fall apart if you do not let the Banks have their way with the global economy. Oh my God, someone in government actually did something that was not vetted and pre-approved by the Wall Street Banks. They have actually outlawed naked shorting, which is tantamount to legalized counterfeiting. How dare that headstrong and impertinent frau Dr. Merkel attempt to protect her people from the gangs of New York!"

But one has to admit that the lady has style, and, unlike her American counterpart, is not afraid to occasionally take the wheel and drive, rather than sit in the back seat offering platitudes, and fine sounding words, and toothlessly petulant criticism.

Bloomberg
Germany to Ban Naked Short-Selling at Midnight
By Alan Crawford
May 18, 2010

May 18 (Bloomberg) -- Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.

The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.

The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on
financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.

“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”

Merkel, Sarkozy

Merkel and French President Nicolas Sarkozy have called for curbs on speculating with sovereign credit-default swaps. European Union Financial Services Commissioner Michel Barnier this week called for stricter disclosure requirements on the transactions.

Allianz SE, Deutsche Bank AG, Commerzbank AG, Deutsche Boerse AG, Deutsche Postbank AG, Muenchener Rueckversicherungs AG, Hannover Rueckversicherungs AG, Generali Deutschland Holding AG, MLP AG and Aareal Bank AG are covered by the short-selling ban.

“Massive” short-selling was leading to excessive price movements which “could endanger the stability of the entire financial system,” BaFin said in the statement.

The European Union last month proposed that the Financial Stability Board, the group set up by the Group of 20 nations to monitor global financial trends, should “closely examine the role” of CDS on sovereign bond spreads. Merkel said earlier today that she will press the Group of 20 to bring in a financial transactions tax.

Merkel’s ‘Battle’

“In some ways, it’s a battle of the politicians against the markets” and “I’m
determined to win,” Merkel said May 6. “The speculators are our adversaries.”

Germany, along with the U.S. and other EU nations, banned short selling of banks and insurance company shares at the height of the global financial crisis in 2008. The country still has rules requiring disclosure of net short positions of 0.2 percent or more of outstanding shares of 10 separate companies.

The disclosure of the rules drew criticism from lawyers who said that they should have been announced well ahead of time.

“The way it’s been announced is very irresponsible, and it’s sent many market participants into panic mode,” said Darren Fox, a regulator lawyer who advises hedge funds at Simmons & Simmons in London. “We thought regulators had learned their lessons from September 2008. Where is the market emergency that necessitates the introduction of an overnight ban?”

Short-selling is when hedge funds and other investors borrow shares they don’t own and sell them in the hope their price will go down. If it does, they buy back the shares at the lower price, return them to their owner and pocket the difference.

Credit-default swaps are derivatives that pay the buyer face value if a borrower -- a country or a company -- defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.