Gold Daily and Silver Weekly Charts - Audacious Oligarchy

"But there is a sort of 'Ok guys, you're mad, but how are you going to stop me' mentality at the top."

Robert Johnson, Audacious Oligarchy

Intraday commentary about the December smackdowns in the precious metals and why they might be happening, Same Time Last Year.

The cup and handle formation is now inactive and off the charts. It looks more like a trading range from here. It could be reactivated, but in a different form.

There is no reasonable doubt in my mind that this is not price manipulation. There may be some legitimate selling in this pile of manure, but what we are seeing is pretty brazen. The only questions are the details, of who and why exactly.

I think it is not a currency thing so much as a 'gaming the end of year' thing, and an 'buying some valuable mining properties on the cheap' thing.

Last year silver was smacked down quite hard into the end of December, for example, but was back up to its original level and even a little higher by the end of January.

Maguire: Physical Silver and Paper Markets Diverged to Extreme.

Maguire: Who's Buying and Who's Selling

Maybe it is the government driving this. But if the price decline turns around and goes back up after year end and the fiscal cliff passes, then we have to ask, 'Why would the government do this?' Why would they have done it last December when we saw almost exactly the same thing, and the price of silver had fully recovered by the end of January?

No matter which way you wish to account for it, it looks like audacious oligarchy, a partnership of elites in both the public and private sectors.

SP 500 and NDX Futures Daily Charts - Reindeer Games

A divergence of sorts between the SP 500 and big tech NDX.

This is a year end bonus rally.

And it is a reasonable bet that it ends in tears, and a TARP-like showdown over the so-called fiscal cliff.

Gold and Silver Smackdown: Same Time Last Year

The takedown in gold and silver is fairly obvious, so much so that all but a career bureaucrat might have trouble not noticing it.

So how does one explain it away.

Who is selling this time? Soros? Paulson? And for what reason? Liquidation, redemptions, profit taking, tax selling?

Tax selling is fruitless unless you see a big change in the position coming anyway and are going to sell in the short term, because you sell and then have to buy back in.

Its possible to do it for pure capital gains considerations, but you have to be able to time/set the market price to suit yourself to allow a buy back in without losing on the price. Or you could shift assets from one market to another more adeptly without incurring the wash rule, that is, derivatives and stocks, playing the same fundamental direction if the regulators are asleep at the switch and don't have a look across your positions.

I have been hit several times in the past three weeks by people who claim to have talked to a insider friend who heard from 'high level money managers' in NYC, London, or Tel Aviv, that say that Paulson is facing redemptions and is selling off his GLD position. Everyone wants to be 'in the know.'

Well, I should like to think that these fellows are not cretins, just dumping positions carefully timed in ways to maximize the downside price movements. Unless of course it is purposeful, which there is almost no doubt in my mind that this is. There could be a squeeze on, and front running of forced sales, but the timing makes this a little problematic in my mind.

More likely this is the same thing which we saw last year. The bottom two charts are for gold and silver from last year.

There are any number of ways to explain this.

The one which I favor is that if a certain party is carrying a enormous, and losing, short position, one of the ways to manage the end of year mark to market would be to smack the price down as much as possible, and cover at least part of the short position going into year end, ending around Dec 26 or 27 given the "Buy to Close" rules.

This also provides a method of gaming that long term short position. Not only do you get to mark it at a lower price, but you can 'trade around it,' picking up metal on the cheap as weaker longs capitulate and toss it at the bottom. And the momentum wise guys get in on the action, the trading desks start spreading their rumours and deploy their useful idiot analysts and talking heads, and we have a major price bottom in the making.

For this and some other reasons, I think we see the usual rally in January, as the market starts to correct back to something roughly reflecting physical reality.

The complicating factor is that this time we have the 'fiscal cliff' to consider, and the potential for a liquidation event. That is a littler harder to play.

But Jesse, wouldn't other players in the market see this obvious manipulation and buy against the artificial price declines?

Yes in a theoretical model of independent players in an efficient market with transparent information and the rule of law this would happen. And how many moons orbit your planet, if you think this is reality given all that we have seen in the past five years?

How many scandals do you have to see and try to ignore before you 'get it.' The financial system is broken and corrupted.

As for now, there may be more downside, but most of it is over. Currency manipulation tends to overshoot. And this looks like a manipulation given the way in which all the usual correlations were pitched, and the downward movements were played in dull markets with concentrated selling. 

And I suspect we will be seeing the same thing next December, if the 'big shorts' in the metals are still on and being held by two or three of the big banks. As I recall HSBC is one of the big shorts.  A bank of their size and reputation could not possibly be involved in anything dodgy, with the officials turning a blind eye, could they?

So as always, the message is one of reform. Until there is justice and transparency and the rule of law, you may as well get used to this sort of thing, affecting an increasing portion of your daily lives. Not just precious metals, but the price of gasoline, electricity, natural gas, food, water, other staples, and your children's education.

And they will use their media to turn your anger against---  regulation and the rule of law.

This is not the abuse of 'big government' but the partnership of the monied interests and a corrupted government that is also known as corporatism, or deep capture. And where their interests align, the people should beware. They are becoming ever more open in their actions. And if you wake up and object they say, 'So what? How are you going to stop us?' It is an audacious oligarchy.

There will be no sustainable recovery until the financial system is reformed and the grip of big money on the politicians and bureaucrats is removed.

"It is the neo-liberal idea that has given us deregulation and de-supervision; that has given us the notion that markets can function on their own without breaking down or blowing up..

This is the great illusion of the last generation, and it fostered a form of economic growth that was intrinsically unstable and unsustainable. Why?...

To put it in simple terms, it was based upon financial fraud, on the most massive wave of financial fraud that the world has ever seen."

Jamie Galbraith, IG Metall Conference, Berlin, 6 Dec 2012

Hedrick Smith: Who Stole the American Dream?

"Pulitzer Prize winner Hedrick Smith’s new book is an eye-opening account of how, over the past four decades, the American Dream has been dismantled and we became two Americas.

This is a book full of surprises and revelations—the accidental beginnings of the 401(k) plan, with disastrous economic consequences for many; the major policy changes that began under Jimmy Carter; how the New Economy disrupted America’s engine of shared prosperity, the “virtuous circle” of growth, and how America lost the title of “Land of Opportunity.”

Smith documents the transfer of $6 trillion in middle-class wealth from homeowners to banks even before the housing boom went bust, and how the U.S. policy tilt favoring the rich is stunting America’s economic growth.

This book is essential reading for all of us who want to understand America today, or why average Americans are struggling to keep afloat.

Smith reveals how pivotal laws and policies were altered while the public wasn’t looking, how Congress often ignores public opinion, why moderate politicians got shoved to the sidelines, and how Wall Street often wins politically by hiring over 1,400 former government officials as lobbyists."

Are people really waking up to what is going on? I don't think they are, except perhaps here and there. And that is to be expected. People go mad in crowds, but come back to their senses one at a time.

If anything contrary to prevailing opinion is revealed, most people run away rom it as quickly as possible, and bury their noses in some reality show, or a safely doctrinaire 'news channel' that comforts them, even if what it says is widely divergent from what is really happening.

It is no wonder reformers and progressives can become discouraged.

Michael Hudson: The Financialization of the Economy

I enjoyed this recent essay by Michael Hudson. It is a nice overview of the financialization process, and how the economic hitmen, who had ravaged the Third World, started coming home.

Of course I do not necessarily agree with everything in it. But the things he says make some real sense, and provide a balance to the prevailing economic mythos, and some would say propaganda, that comes out of the mainstream media in support of the financialization process.

Reality economics

December 19, 2012

By Michael Hudson

A review of Norbert Häring and Niall Douglas, Economists and the Powerful (London: Anthem Press, 2012).

“Whom the gods would destroy, they first make mad.”

And if they would destroy economies, they first create a wealthy class on top, and let human nature do the rest. The acquisition of power soon leads to its abuse, to economic and social hubris. By seeking to protect its gains, perpetuate itself and make its wealth hereditary, power elites lock in their position in ways that exclude and injure those below. Turning government into an oligarchy, the wealthy indebt and shift the tax burden onto the less powerful.

It is an ancient tale. The Greeks got matters right in seeing how power leads to hubris, bringing about its own downfall. Hubris is the addiction to wealth and power, an arrogant over-reaching that involves injury to others. By impoverishing economies it destroys the source of profits, interest, capital gains, and even recovery of the original savings and debt principal.

This abusive character of wealth and power is not what mainstream economic models describe. That is why economic theory is broken. The concept of diminishing marginal utility implies that the rich will become more satiated as they become wealthier, and hence less addicted to power. This idea of progressive satiation returns gets the direction of change wrong, denying the basic thrust of the past ten thousand years of human technology and civilization.

Today’s supply and demand approach treats the economy as a “market” in a crudely abstract way, as quantities of goods (already produced), labor (with a given productivity) and capital (already accumulated, no questions asked) are swapped and bartered with each other. This approach does not inquire deeply into how some people get the capital to “swap” for “labor.” To top matters, this approach gets the direction of technological growth and basic business experience wrong, by assuming conditions of diminishing returns and diminishing marginal utility. The intellectual result is a parallel universe, whose criterion for economic excellence is merely the internal consistency of its abstract assumptions, not their realism.  (Life imitates models lol - Jesse)

Häring and Douglas show that the economics discipline did not get this way by accident. They are leading organizers of the World Economic Association, which emerged from the Post-Autistic-Economic movement intended to provide an alternative to mainstream neoclassical and neoliberal economics. (Häring is co-editor of the World Economic Review.)

Toward this end they provide a wealth of references tracing how economics was turned into a propaganda exercise for financiers, landlords, monopolists, insiders, fraudsters and other rent-seeking predators whom classical economists sought to tax and regulate out of existence. This state of affairs reflects the century-long drive of these free lunchers to fight back against classical economics by sponsoring self-serving fictions that depict them as earning their fortunes not in predatory and extractive ways, but by contributing to output as “job creators.”

Any given distribution of wealth and income is treated as an equilibrium reflecting voluntary choice, without examining the organizational and social structures of workplace hiring, production and distribution. The authors provide an antidote to this tunnel vision by pointing to the real invisible hands at work: insider dealing, anti-labor and anti-union maneuvering, and outright looting and fraud. What they mean by power is employers hiring strikebreakers, lobbying for special favors and insider deals, and backing the election campaigns of lawmakers pledged to act on behalf of the 1%.

Criticizing the textbook theory of the firm, they point out that that most production has increasing returns. Unit costs fall as fixed capital investment is spread over more output. As a producer with nearly zero marginal cost, for instance, Microsoft obtains a rising intellectual property rent on each program sold. On an economy-wide level, raising the minimum wage would enable most firms to benefit from increasing returns, by increasing demand.

Firms use political leverage to make sure that anti-labor referees are appointed to the courts and arenas that arbitrate disputes about employment, working conditions and firing. Capital-intensive industries outsource low-skill jobs to small-scale providers using non-union labor. Privatizing public utilities also aims largely at breaking labor union power. Marginalist supply and demand theory implies that each additional worker that is hired increases wage rates, prompting business to oppose full employment policies in order to keep wages low, even though this limits the market for their output.

So technology and diminishing terms are not the reason why wages have been pressed down – or why financial and other non-production costs have been rising for most Western economies. These cost increases are headed by debt charges for leveraged buyouts and corporate raiding, plus CEO salaries, bonuses and stock options. Labor also faces high costs of living as a result of the soaring mortgage debt taken on to obtain housing, student loan debt to obtain an education as a precondition for middle-class employment, and credit-card debt to maintain consumption standards, and rising wage withholding for Social Security and Medicare as taxes become regressive.

This personal debt service (including housing costs) and various taxes absorb more than two-thirds of the typical paycheck. So even if workers did not have to buy any of the goods and services they produce – food, clothes and other basic consumer needs – they still could not compete with labor in less financialized and debt-ridden economies.

At the corporate level, financial engineering is more about raising stock prices than new tangible capital investment. Even this is not being done in ways that serve stockholders’ long-term interest or that of the economy at large. Häring and Douglas give a scathing review of “motivating” managers by paying them in stock options. Managers maximize the value of these options by spending corporate revenue on stock buy-backs instead of new direct investment to expand their business. Even worse, companies borrow to buy their stock or even to pay out as dividends to bid up its price. The “capital” in this gain is financial, not industrial. It also turns out to be anti-labor, as loading companies down with debt enables corporate raiders use the threat of bankruptcy to demand pension downgrades and wage givebacks.  The problem with financial planning is its short hit-and-run time frame aiming at extracting income rather than taking the time to invest in new production and develop markets. Concealing this short-termism with Enron-style “mark to model” accounting fictions, managers take the money and run, leaving bankrupt shells in their wake.

Debt leveraging is encouraged by taxing asset-price gains at much lower rates than earnings (wages and profits), and permitting interest to be tax-deductible. This fiscal subsidy is by no means an inherent feature of markets. It reflects the financial sector’s capture of tax policy, along with regulatory capture to disable the government’s oversight so as to make fortunes by deregulating, privatizing, and popularizing the idea that economies can get rich by going into debt. Neoliberal doctrine demonizes government as the only power able to regulate and tax unearned income and prosecute fraud. This inverts the idea of free markets away from the classical meaning of markets free from unearned economic rent, to connote today’s arena free for predatory rentiers.

This strategy is capped by the power to censor. The misleading and deceptive depiction of the economy drawn by financiers, real estate speculators and monopolists is careful to conceal their own behavior from sight. This is the ultimate power of today’s mainstream economics: to shape how people perceive the economy. The starting point is to distract the public from noticing (and hence regulating or taxing) the real-world power structures at work. They prefer to make themselves invisible, above all the financial power to indebt the economy. It is by financial means, after all, that finance has shifted economic planning out of the hands of government to Wall Street and similar banking centers abroad.

Lobbyists for the 1% popularize a view that today’s economy is a fair and indeed natural inevitable product of Darwinian evolution. As Margaret Thatcher put it: There Is No Alternative (TINA). This narrow-mindedness is enforced by a censorial policy: “If the eye offend thee, pluck it out.” Häring and Douglas describe the academic process of weeding out any offending eyes that might introduce more realism when it comes to predatory behavior and rent seeking.

The prime directive is to depict financial planning as better than that of public agencies. In contrast to the Progressive Era’s endorsement of public infrastructure keeping costs down so as to better compete in global markets, the financial sector seeks to privatize public enterprises – on credit, preferably at distress prices to create new fortunes. The task of today’s mainstream economics, as the authors describe it, is to distract attention away from Balzac was more realistic, in observing that behind every family fortune lay a great, usually long-forgotten theft.

They focus on domestic power rather than spelling out the international dimension of how economic power is wielded. The IMF, U.S. Government and European Union bureaucracy wield foreign-debt leverage to impose the neoliberal Washington Consensus. This is how the European “troika” imposes austerity on Greece to replace democratic government with “technocrats” whose policies serve the 1% in today’s class war. This path leads in due course to the targeted assassinations by which the Chicago Boys imposed their kleptocratic “free market” on Chile under Pinochet, elaborated by Operation Condor assassinating labor leaders, land reformers and Liberation Theology priests and nuns throughout Latin America and in the United States itself. But I can understand that the authors evidently decided that they had to draw the line between economics and its military tactic somewhere, focusing on the economic core itself.

Finance has become the modern mode of warfare. It is cheaper to seize land by foreclosure rather than armed occupation, and to obtain rights to mineral wealth and public infrastructure by hooking governments and economies on debt than by invading them. Financial warfare aims at what military force did in times past, in a way that does not prompt subject populations to fight back – as long as they can be persuaded to accept the occupation as natural and even helpful. After indebting countries, creditors lobby to privatize natural monopolies and create new monopoly rights for themselves....

Read the entire essay here.

Gold Daily and Silver Weekly Charts

Just another day in the 'hood with the hoods.

I thought it was interesting that China has finally relaxed their ban on the movie 'V for Vendetta.' Stephen Leeb says that a diplomat told him that China Is Accumulating Gold to Back the Yuan.

Other than that, most everything else was noise, and that condition might remain until the end of the year.

The US markets as effective a discounting mechanism for the real economy as a three card monte game on Sixth Avenue.

Here is an interview by Tekoa Da Silva which you might find to be of interest.

Technical Gold Trader Gary Savage: “Big Players Use Panic Selling Events To Enter Billion Dollar Positions In Gold & Miners"

And in this video Lauren Lyster interviews Chris Powell and Bill Murphy of GATA

SP 500 and NDX Futures Daily Charts - Jamie Galbraith: Global Economic Crisis

The sound and fury of the pigmen, signifying nothing.

Have a pleasant evening.

Here is an excerpt from a recent talk by Jamie Galbraith:

"Five years ago when the great financial crisis broke into public view, those who claimed falsely that no one could have predicted it also claimed that our economies would recover. Standard forecasts foretold rapid growth and high employment within five years. Banks in America would start lending again. Confidence would return in Europe.

Those of us who said no, that there would be no return to normal, were for the most part ignored. Yesterday we heard Professor Nouriel Roubini give a magisterial and very high speed tour of the world situation making it clear of course that the promised recovery has not occurred. But if Nouriel is Sir Isaiah Berlin’s fox, who knows many things, let me try this morning to be the hedgehog who knows one big thing, and that one big thing is that what we are experiencing is a single, unified, global crisis of the economy and of the financial system.

It is not a cluster of distinct and separated events; a subprime crisis in the United States; a public debt crisis in Greece; a bank crisis in Iceland; a real estate bust in Ireland and Spain; nor are there distinct U.S. and European crises, nor can the financial be separated from the real, nor is Germany a country to which crisis has not yet come with the suggestion that there might be some separate way out. There is one crisis, only one crisis, a deeply interconnected crisis of the world system. This crisis has, I think, three deep sources going back not twenty years but forty years to the early 1970s and the end of what we sometimes call the “golden age,” the “glorious thirty” years in the immediate aftermath of the second World War...

And the third great source of our problem is ideological. It is the neo-liberal idea that has given us deregulation and de-supervision; that has given us the notion that markets can function on their own without breaking down or blowing up. It is this notion as applied especially to finance.

This is the great illusion of the last generation, and it fostered a form of economic growth that was intrinsically unstable and unsustainable. Why? Because it was based on declining standards for loans and on lax accounting of the proceeds of those loans. Or to put it in simple terms, it was based upon financial fraud, on the most massive wave of financial fraud that the world has ever seen.

And the world has seen a lot of financial fraud. It was known to be such to the lenders at the time. This was true of housing loans in the United States made by the tens of millions that were known to the lenders as “liar’s loans,” as “ninja loans,” no income, no job, no assets; as “neutron loans” destined to explode leaving the building intact but destroying the people. This was known at the time. These were loans that had to be refinanced or they would default..."

Read the entire speech here.