"'I beg you, father, send Lazarus to my family, for I have five brothers. Let him warn them, so that they will not also come to this place of torment.’ Abraham replied, ‘They have Moses and the Prophets; let them listen to them.’ No, father Abraham,’ the rich man said, ‘but if someone from the dead appears to them, they will repent.’ And Abraham said, ‘If they do not listen to Moses and the Prophets, they will not change and repent, even if someone were to rise from the dead.’”
Luke 16:27-31
JPMorgan, the nation's largest bank, receives an explicit federal subsidy (deposit insurance) and a much larger implicit federal subsidy. It's improper for the megabank to use these subsidies to speculate in derivatives. And yet it can do so with hardly any serious regulatory consequences.
Financial institutions such as JPMorgan love to buy derivatives because they are opaque, create fictional income that leads to real bonuses and when (not if) they suffer losses so large that they would cause the bank to fail, they will be bailed out.
The Dodd-Frank Act's Volcker Rule was designed to solve the problem.
However, JPMorgan led the effort to gut the Volcker Rule and the provision that requires transparency. JPMorgan is the world's largest proprietary purchaser of financial derivatives -- precisely what the Volcker Rule sought to end. The bank claims that it does not engage in proprietary trading and that it purchases derivatives solely to hedge. That claim is an example of what Stephen Colbert meant when he invented the term: "truthiness."
William K. Black
What the spokesmodels deftly avoid is the discussion that JPM is not a privately financed hedge fund, but a government supported entity using insured deposits, subsidized funds, and the protection of the Federal Reserve as a bank holding company.
Why was it that the investment banks like Goldman suddenly wanted to become bank holding companies during the financial crisis? Oh yeah, that.
If these jokers want to gamble fine. But Jamie Dimon's mentor Sandy Weil led a lobbying effort that spent hundreds of millions to overturn Glass-Steagall, and now JPM is leading the fight aginst the Volcker Rule.
People don't mind if you bet and lose. They do mind if you cheat and win, and they mind it even more if you keep the money when you win, but you charge it to the public trust when you lose. And that is exactly the game that Wall Street led by JPM is playing right now. And these people know better.
I had read Casey's piece, but quickly lost interest in it at the argument that the gold market is so big it cannot be manipulated by the poor weak central banks and their surrounding commercial banks who are practically bankrupt.
If someone is a value sophisticate in a segment of the market, but does not understand and have concern for the power of the Federal Reserve and its associated banks being able to print money at will, then it is probably good advice to stick what you do know, and leave the economics for someone else. The saying that control of the money supply is a powerful tool has been around so long that it has become proverbial.
As for the size of the gold market, it is tiny relative to the financial markets. Consider the enormous size of the international currency markets. Or the bond markets. Do the central banks manipulate them? Did Citi not get caught blatantly shoving Euro bond prices around a few year ago? Of course they did. And as the sanctioned trader protested, it was nothing out of the ordinary. They just don't get caught at it unless they get clumsy.
Prices in a market are set at the margin or 'on the float' in the day to day trade. All a large trader or group of traders has to do is manage that marginal trade and the market will follow. If one looks at the amount of daily trading done on the LBMA in daily volume relative to the amount of physical gold changing hands, the answer is fairly glaring.
Market operators may not be able to resist the primary trend, but given deep enough pockets and high enough leverage, and cooperation from like minded manipulators, and they can make a good game of it for quite a long time. That is an old and familiar story for those who know the history of the markets.
As for the why of the manipulation there are many reasons. But as just one example, if I and a group of associates could knowingly push the bullion price around in the short term, we could make enough money skinning speculators in the ancillary markets, derivatives such as options and in mining stocks for example, to make it a very lucrative trade. This is Markets 201.
All that is required is that the regulators turn a blind eye to the manipulation in the markets. And if anyone close to the markets still doubts that they do that today after all that has happened, you will excuse me if I don't take them very seriously. The big trading desks have been using the markets like their personal ATMs, and every time they do get caught in some slip up it is a slap on the wrist and a nominal fine, and a promise not to do it again.
Has this fellow ever read anything from Ted Butler or Harvey Organ or Bart Chilton?
Forget gold for a moment, what about silver? Is that market too big to manipulate? How about the energy markets in the US? Remember Enron?
Academics like Paul Krugman might not readily understand this, because this is not what they do, and they tend to approach the world through simplified, abstract models that are without the dark alleys and rough edges of the real world.
The notion that markets cannot be manipulated are a corollary to the efficient market hypothesis, and idealized markets that naturally tend to stable clearing prices.
But I would expect someone who considers themselves a seasoned speculator and market savvy to know that markets do not behave in this manner, and that as long as there are markets, there will be those who will bend the rules and cheat whenever and wherever they can.
The Wall Street demimonde does not care if the markets are corrupt because if you get enough information to see the 'bezzle you can make money on the swings, or if not by trading then by serving the interests of the trading desks of the large funds. But market distortions can play hell with investors, and is destructive of the real economy because of the malinvestment that long term market distortion cultivates.
I don't like to dwell on the manipulation when investing as opposed to speculating. As I have repeatedly said here, take your investment positions based on logic and the fundamentals, and a long term financial portfolio plan, and ignore the short term noise and wiggles. Thinking back I have always made the most, if not all the profits on balance, when I took a solid position and then just rode it, sometimes for years. So if I were in the game of mining stocks I would not want to see people distracted from them IF they were in it for the long term and they were properly fit in a portfolio. And so I understand why some people get frustrated by talk of market manipulation.
Chris Powell makes a good show of answering these sorts of things, but I do not think that the effort here will be worthwhile. Anyone who can trot out the canard that a 'market is too big to be manipulated' does not engage my interest for very long. All will be revealed in time whether we argue about it or not.
But the real economy is in dire need of serious and meaningful financial reform, which includes cleaning up the markets and taking the pampered princes off the malinvestment feedbag. And that is something that matters greatly.
"In an essay posted Thursday at GoldSeek, financial writer Doug Casey of Casey Research asks for evidence of gold market manipulation and some explanation of its purpose. Casey's essay is headlined "Precious Metals Market Manipulation?" and it's posted here.
The evidence and explanation have long been posted in the "Documentation" file at GATA's Internet site here.
Maybe the most comprehensive treatment of the subject is the latest version of your secretary/treasurer's "stump speech" here.
But we're always adding to the "Documentation" file, like the acknowledgment by the late Dutch central banker and Bank for International Settlements President Jelle Zijlstra that Western central banks rig the gold market show here, so if he's at all curious Casey might want to drop by occasionally for updates."
Facebook priced after the bell, 421 million shares @ $38 with a PE of 107 and a Price/Sales of 25.
This is "the largest internet IPO in history" (Ring Ring Ring).
It will start trading in the public markets, as opposed to dark pools and private deals, tomorrow after 11 am Eastern Time. That will make share acquisition a bit problematic in Europe.
The wiseguys are geared up for a multiday pop and drop. The drop part may not arrive for a few weeks, and could mark a watershed event if it happens. More relies on Ben Bernanke than Mark Zuckerberg. I think Facebook will place somewhere between Google and Groupon. I would not buy at the $60 price I expect to see print tomorrow. It will probably see sub 20 before it sees 100.
Shares for borrow and shorting may not show up in size until next week after the settlement for shares being sold tomorrow. But I would not underestimate the 'special arrangements' that might be made for short selling into the close of trade on Friday.
Gold and silver soared today. I had intraday commentary in which I show the metrics I have been watching that showed gold at a major oversold condition that has marked at least short term bottoms for at least the last year.
So what next. Gold and silver must continue to diverge from stocks as a safe haven despite weaker economic news and troubles in Europe. I think that this is possible.
I thought the selling of the last three days was utterly artificial judging by the behaviour of the open interest which stayed steady and even rose! Gold and silver were passing from weak to strong hands in the face of blatant price manipulation designed to frighten the average investor.
Let's see how equities do tomorrow in the face of option expiration, and the uncertainty of Europe and the weekend.
Facebook may ring a bell. Let's hope that the nonsense in gold and silver is over at last.
Big down day in the US markets today as the trading desks flushed out their weaker positions and got ready to pump up Facebook tomorrow for what could work out to be the mother of pump and dump operations. I do not expect the fat lady to sing tomorrow, but I think she will start warming up for what could be remembered in a few years as the end of an era, a watershed event.
Let's see what happens. I do not expect a down day in the stock markets tomorrow but I could be wrong. Equities are short term oversold.
Let us pray for those whose hearts are hardened against His grace and loving kindness by greed, fear, and pride, and the seductive illusion and crushing isolation of evil.
We pray that we all may experience the three great gifts of our Lord's suffering and triumph: repentance, forgiveness, and thankfulness. And in so doing, may we obtain abundant life, and with it the peace that surpasses all understanding.
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