-- Posted Friday, 5 December 2008 | Digg This Article
| Source: GoldSeek.com
DEEPCASTER LLC
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DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation Wealth Enhancement
Financial and Geopolitical Intelligence
“Essential to maximizing profits and to avoiding losses is to recognize that the Fed-led Cartel manages two complementary Interventional Regimes - - one quite public, and the other dark one, at least as powerful, covert. Thus, a critical key to profit and loss is tracking the Dark Interventions as best one can, as well as the public ones.”
“The fact that the mid-March, 2008 financial markets crisis (capped by the demise of Bear Stearns) and the Financial Crises and “Bailouts” of August through November, 2008 were accompanied by substantial drops in Gold and Silver prices is quite significant. After examining the evidence, how can a rational observer conclude anything other than that the price of Gold, Silver, other key commodities and equities markets are manipulated?”
Deepcaster, December 3, 2008
“Washington intervening in the stock market is the biggest financial story of our generation.”
John Crudele, N.Y. Post, December 4, 2008
This article is the eighth in a series of Deepcaster's work originally entitled "Juiced Numbers" providing an Overview of Market Intervention and Data Manipulation. It analyzes the recent Releases from (and actions of) the BIS (Bank for International Settlements), BLS (Bureau of Labor Statistics) and The U.S. Federal Reserve, as well as Highlights of recent Interventions culminating in the Fall, 2008 financial crises and the accompanying Takedown of Gold and Silver, and The Cartel* “End Game.”
IMPORTANT NOTE: The aforementioned recent releases are quite astounding. They reflect a considerable acceleration of Market Intervention and ongoing Data Manipulation, as well as the apparent adoption of new Interventional Techniques, just this year. They also reflect dramatic increases in OTC (Over-the-Counter) Derivatives (Dark Liquidity), and in Exchange-Traded Derivatives, and an apparent intensification of Data Manipulation. As we demonstrate, these developments dramatically increase Systemic Risk and also reflect the significance of The Cartel’s creating (and/or having available) more OTC Derivatives in order to affect market outcomes. In sum, this report provides even more evidence of Increased Risk of Systemic Collapse, and of the beginning of the attempted implementations of The Cartel’s Nefarious “End Game.” Deepcaster has developed a Strategy for coping with these challenges.
The Covert Interventional Context - - Overview
Deepcaster is periodically asked to provide evidence for our view that a U.S. Federal Reserve-led Cartel* (apparently composed of the U.S. Federal Reserve, Major Central Bankers and key Primary Dealers) manipulates a wide variety of markets. [Apparently one “Operational Vehicle” through which The Cartel works is called “The Working Group on Financial Markets” established after the 1987 crash, and which is often informally and widely referred to as “The Plunge Protection Team” or PPT.]
So it is important to explain what we mean by our claim of Cartel Intervention and to indicate how Deepcaster takes account of that in our Portfolio Recommendations
Essential to maximizing profits and to avoiding losses is to recognize that the Fed-led Cartel* manages two complementary Interventional Regimes - - one quite public, and the other dark one, at least as powerful, covert. Thus, a critical key to profit and loss is tracking the “Dark Interventionals” as best one can, as well as the public ones.
The parallel and complementary Interventional Regimes dramatically increase The Cartel’s power, far beyond the degree to which it is already visible.
Moreover, whether an Intervention is Overt or Covert is often a matter of degree. Overt Intervention often has a Covert aspect (e.g. how is that TARP Bailout Money being used and who receives it?), and Covert ones are often difficult to detect but nonetheless can often be tracked using publicly available information.
It is important to not also that by “Cartel Intervention” we do not (usually) mean that the Cartel totally controls prices in any particular market, at all times. Various markets are affected in varying degrees, at varying times, by Cartel manipulation attempts. Cartel actions can substantially affect, but often do not totally control, prices in many markets - - though they certainly have that capacity much of the time. The price of Crude Oil is relatively difficult to manipulate, for example, but there has been substantial manipulation (as we shall show) for several years.
Also notable is the evidence that the degree of manipulation, and, therefore, control, varies from time to time and market to market.
In markets such as the (relatively) Small Cap markets for Gold and Silver Bullion and Securities, Cartel manipulation attempts can have much more impact and are, at times, and for certain time periods, tantamount to control. Typically, Interventions in the Precious Metals Markets depress prices dramatically.
To answer the exceedingly important question regarding how the wide varieties of markets are manipulated one must recognize that there are two main methods of manipulation, Direct and Indirect. Direct Manipulations are of two sorts: Overt and Covert.
Here we do not focus on the Overt Interventions since they are described at length in various financial newspapers, except to note certain of the most visible ongoing ones as described by Agora Financial:
“…The U.S. Treasury is considering a proposal to offer new mortgages at 4.5% through Fannie Mae and Freddie Mac…
Should this mortgage plan come to pass, we note that the U.S. government would be manipulating prices in almost every major market.
They are now the dominant force in commercial paper. They are propping Libor through the Fed’s multi-trillion-dollar lending facilities. And through equity purchases in the TARP, they’ve inflated shares of nearly every bank engaged in the mortgage-backed security trade - - the very stocks the market hates the most.
…You can add the bond market to that list,…The Fed is systematically deciminating the yield on U.S. government bonds and notes. It is blitzkrieging its way through the U.S. yield curve, buying, or threatening to buy, U.S. bonds and notes in order to lower rates…” (emphasis added)
Agora Financial’s 5 Min. Forecast, December 4, 2008
I. COVERT DIRECT INTERVENTION
Covert Direct Intervention to manipulate a variety of markets appears to be accomplished primarily via three vehicles:
1) “Repo” Injections from The Fed
2) Over The Counter (OTC) Dark Derivatives (reported at www.bis.org, see below)
3) “Bailout” monies and authorizations which Congress unwisely gave the Fed without requiring full disclosure and, in particular, via the TSLF (Term Securities Lending Facility) injections by The Fed..
Regarding Repos, The Fed makes injections of Repos (Repurchase Agreements - - usually TOMOs - - Temporary Open Market Operations typically expiring in 1 to 30 days) into the market most business days.
Repurchase Agreements are loans (at Fed Fund rates) issued daily, in amounts typically ranging from U.S. $1 to U.S. $20 billion, by the Federal Reserve to Primary Dealers, the proceeds of which can be used to buy, for example, Dow index futures, if the Fed seeks to boost the Dow. The total amount of un-expired Repos on any given day constitutes the “Repo Pool.” Monitoring changes in Repo Poll levels (which is publicly available information) is crucial to determining how the Interventions will likely affect the markets.
While the Repo Pool is one vehicle for manipulating the markets it is not the only one - - Interventions can and do occur without changes in the Repo Pool. It now appears that The Fed uses TSLF injections (in a similar manner as the Repo Pool) to intervene as well!
Thus, the several Primary Dealers (e.g. Goldman Sachs, J.P. Morgan Chase, Citibank), who apparently work under the Fed's direction, are able to use these loaned funds and/or “TSLF/Bailout Funds” and/or OTC Derivatives to buy or sell various securities and futures to affect the markets. The fact that the loaned funds can be used to purchase Derivatives (as well as plain equities) gives the manipulators the tremendous leverage which derivatives afford.
But along with that tremendous leverage comes great and greatly increasing (as the recent data releases described below indicate) Systemic Risk.
The Challenge: Determining the Impact of The Interventionals
The challenge for Investors and Forecasters is to determine where (i.e. in what Sector/s) and how (immediately, in increments, etc.) the Repo-backed funds and/or TSLF/Bailout Funds and/or OTC Derivatives (“Interventional Funds”) will be employed. Deepcaster and those very few others, who monitor the daily Interventional Funding (and related Cartel and Allies’ actions) to the extent that is feasible, make educated Forecasts of where and how such funds are likely to be used based on patterns, tendencies, and judgments. But no outsider can know for sure (So where is the transparency, Ben?).
Those who doubt whether the Cartel has the capacity to manipulate the markets (and especially the larger markets like the multi-trillion dollar currency and bond markets) are invited to inform themselves about the tens of trillions of OTC Derivatives positions at Fed Primary Dealer J.P. Morgan Chase, or Fed Primary Dealer Citibank, or the U.S. $683 trillion in June, 2008 (up from U.S. $370 trillion in June, 2006) total Dark OTC Derivatives positions at the Bank for International Settlements (the Central Banker's Bank). See www.bis.org, then follow the path: Statistics>Derivatives>Table 19). Note that Dark OTC Derivatives total has increased by over U.S. $300 trillion in just two years! Unlike publicly visible and clearinghouse-guaranteed Exchange Traded Derivatives, OTC Derivatives are not generally publicly revealed, except in the aggregate.
Attitudes of The Fed/Treasury/BIS Toward Intervention
The positive attitude of the leaders of the U.S. Federal Reserve and the U.S. Treasury concerning manipulation of markets and public perceptions is quite revealing - - see Deepcaster’s July, 2008 Letter for details.
Brief Anatomy of the “U.S.” Federal Reserve
An excellent analysis of the defects of the “U.S.” Federal Reserve - - so far as the United States’ National Interest (and the interest of investors around the world) is concerned - - is well documented in G. Edward Griffin’s superb book, The Creature From Jekyll Island: A Second Look at the Federal Reserve).
Indeed, the Profit Motive lies behind Fed Actions. Even the most causal student of Economic History knows that the United States’ Federal Reserve system, or “The Fed” as it is called, is not a U.S. government owned or controlled entity.
Various international private banks, several of which are headquartered in Europe, own “shares” in the “United States” Fed. Moreover, this “United States” Fed leads a Cartel of Central and Private Banks* who collectively intervene in a wide variety of markets, as Deepcaster demonstrates here. All this is obviously quite financially incestuous.
These International Bankers, acting through their “U.S.” Fed, profit both by creating money out of “thin air” and by collecting “interest” from U.S. Taxpayers on the Treasury Securities it has bought with U.S. Dollars (Federal Reserve Notes) it has created out of thin air. The Dean of the Newsletter Writers, Richard Russell, eloquently describes all this:
“I still can’t get over the whole Federal Reserve racket.
Consider the following - - let’s take a situation where the U.S. government needs money. The U.S. doesn’t just issue United States Notes, which, of course it could. These notes would be dollars backed by the full faith and credit of the United States. No, the U.S. doesn’t issue dollars straight out of the U.S. Treasury.
This is what the U.S. does - - it issues Treasury Bonds. The U.S. then sells these bonds to the Fed. The Fed buys the bonds. Wait, how does the Fed pay for the bonds? The Fed simply creates money “out of thin air” (book-keeping entry) with which it buys the bonds. The money that the Fed creates from nowhere then goes to the U.S. The Fed holds the U.S. bonds, and the unbelievable irony is that the U.S. then pays interest on the very bonds that the U.S. itself issued. (With great profit to the private owners of The Fed - - Ed. Note) The mind boggles.
The damnable result is that the Fed effectively controls the U.S. money supply. The Fed is …not even a branch of the U.S. government. The Fed is not mentioned in the Constitution of the United States. No Constitutional amendment was ever created or voted on to accept the Fed. The Constitutionality of the Federal Reserve has never come before the Supreme Court. The Fed is a private bank that keeps the U.S. forever in debt - - or I should say in increasing debt along with ever rising interest payments.
How did the Fed get away with this outrage? A tiny secretive group of bankers sneaked through a bill in 1913 at a time when many in Congress were absent. Those who were there and voted for the bill didn’t realize (as so often happens) what they were voting for (shades of the shameful 2002 vote to hand over to President Bush the power to decide on war with Iraq).”
Richard Russell, “Richards Remarks,” dowtheoryletters.com, March 27 2007
After President Wilson signed the Federal Reserve Act into law in 1913, he reportedly said, “I am a most unhappy man, I have unwittingly ruined my country…a great industrial nation is now controlled by its system of credit…the growth of the nation, therefore, and all of our activities are in the hands of a few men…”
Insightful economic forecaster Ian Gordon notes several negative consequences of the nearly 100-year reign of The Fed, consequences with which we cope today.
“Since its inception in 1913, the Federal Reserve Board has been responsible for almost 95% devaluation of the U.S. Dollar. All this has been achieved through its ability to continually inflate the money supply.
And, between 1985 and 2005, the Federal Reserve Board has increased the money supply by five times. This extraordinary money creation is merely the catalyst for debt creation. In a fiat money system, money is debt…there is absolutely no way this money can ever be repaid except by continued inflation. But, now that the credit bubble is blown up, inflation is no longer an option; bankruptcy looms.”
“The Federal Reserve…What Has It Done For You Lately?”
Ian Gordon, December 29, 2007 (www.axisoflogic.com)
[Historical note: recall that President Kennedy was unhappy with Fed policy and therefore caused U.S. Notes to be printed by the U.S. Treasury as Constitutionally Authorized and as a substitute for Federal Reserve Notes. The issuance of these Notes ceased shortly after President Kennedy's assassination.]
The one conclusion that one can make from the foregoing is that the failure to take account of the power, force and pervasiveness of Fed-led Cartel Manipulations (i.e. The Interventionals) is an invitation to financial and investment suicide.
The Interventional Regime – Motive, Causes and Consequences
But The Interventional Regime is showing increasing signs of stress which are reflected in accelerating Derivatives Creation, and thus in Increasing Systemic Risk. The record-high $680 trillion plus OTC Derivatives Colossus (see www.bis.org, path: statistics-derivatives-Table19 and following) on which the Interventional Regime is built is increasingly subject to counterparty defaults and to Darkly Liquid OTC Derivatives turning illiquid (resulting, inter alia, in the ongoing credit freeze-up) among many symptoms.
Clearly, The Cartel has created a Financial System subject to ever-greater Systemic Risk. Why?
Harry Schultz, the wise Eminence Grise of the Financial Newsletter writing fraternity, puts the question in this way - - what is the reason for this “seemingly random monetary mess that multiplies its momentum every day? The answer, in one word, control. The elite/insiders already have control of the financial system, but they wanted more, much more…and it was not random, it was planned.” (emphasis added)
And what is the effect of all of this on the average investor? In the inimitable words of Harry Schultz, “How will all the above manifest itself in your life? The answer: “All you own will shrink...your income, assets, net worth, will shrink year after year in real terms inflation adjusted and possibly also nominally.”
Harry concludes by advocating that we all try to shrink less “relative to the herd” so that we hold our position. Part of the strategy for shrinking less, according to Harry, is “it will, over 10 years, involve moving in and out of investments as price action will be very dramatic. Buy and hold will not work in any area, including gold.” HS Letter, April 27, 2008.
Indeed, Deepcaster has been sounding the theme that the “Buy and Hold Strategy Increasingly Fails” since the inception of Deepcaster’s newsletter.
Thus, Deepcaster has developed a strategy for coping with and profiting from not only Cartel Intervention in the Precious Metals Market but also the “Shrinking Assets” problem. That strategy can best be employed in the Precious Metals Sector, with Gold and Silver bullion and shares. It is entitled “Defeating The Cartel…With Profit” and was published on 3/28/08 and can be found in the Articles Cache at www.deepcaster.com.
Since the cornerstone of The Cartel’s power lies in maintaining the legitimacy of their Fiat Currencies and Treasury Securities, the last thing they want is to have Gold, Silver and Tangible Assets held by investors to increasingly be seen as the Ultimate Stores and Measures of Value. Thus they will continue Takedown attempts of Gold and Silver prices.
Deepcaster must issue a Word of Caution here: The paper based edifice of increasing Fiat Currencies, OTC Derivatives and the Repo Intervention is not indefinitely sustainable. It will collapse, and that is why The Cartel has begun to plan and implement its ominous ‘End Game’ referred to below.
Cautions for Investors and Traders Regarding Interventions
We issue a word of caution to our readers. So long as The Cartel is in a very active interventional mode (e.g. as in taking down the price of Gold and Silver) do not be lured into thinking that the periodic up spikes in the prices of Gold and Silver necessarily present a "breakout" or a buying opportunity. As a practical matter, technical breakouts are sometimes a lure designed to suck in more "longs" prior to a subsequent deeper Takedown.
Nonetheless, it is essential to study the Fundamentals and Technicals even though the Interventionals can override the Fundamentals and Technicals. One must study the Fundamentals not only for all the usual reasons but also because Fundamentals somewhat constrain the timing and effectiveness of Interventions by The Cartel.
Similarly, one should study the Technicals for all the usual reasons and, in addition, because it is in The Cartel’s interest to make its actions seem technically plausible in order to continue to “run mainly under the radar.” It is not in The Cartel’s interest to make its Interventions any more visible than they already are. Indeed, there is powerful evidence that The Cartel often uses and/or helps create technical patterns which lure certain investors (such as hard asset investors) into getting “off sides” before Cartel actions such as taking down the price of Gold or Silver.
Thus a primary Deepcaster goal is to identify approximate interim bottoms of Gold, Silver, Oil and other sectors, through the use of Fundamentals, Technicals, and Interventionals, and thus to help readers profit from their inevitable resurgence and ascendance to new heights. For example, Deepcaster’s profitable recommendations displayed at www.deepcaster.com were facilitated by attention to the Interventionals, as well as Fundamentals and Technicals.
Significant and Increasing Systemic Threats Via Derivatives
Dramatic increases in two major species of Derivatives emphasize the increasing magnitude of systemic risks.
Exchange-Traded Derivatives: Exchange-Traded Derivatives are in the hundreds of trillions. But they are not our focus here because they are publicly disclosed and typically their performance is clearinghouse exchange-guaranteed. They perform a valuable, indeed an indispensable, function in our markets.
Yet that other main category of derivatives -- Over The Counter (OTC) - - is not visible, except for the BIS and other disclosures and inferences. Yet the inherent risks are greater, much greater.
Over The Counter (OTC) Derivatives: Consider the import of the data from the BIS' own website www.bis.org. Note that as of June, 2006 the following OTC Derivatives Contracts were outstanding:
- $5.938 trillion Commodities Contracts (excluding gold)
- $38.127 trillion Foreign Exchange Contracts
- $262.526 trillion Interest Rate Contracts
But consider the stunning increases in OTC Derivatives in just the twenty-four months between June, 2006 and June, 2008. As of June, 2008 there were:
· $12.580 trillion in Commodities (excluding gold) Contracts Outstanding, a $6.642 trillion (approx.112%) increase in only 24 months
· $62.983 trillion in Foreign Exchange Contracts, a $24.856 trillion (approx. 65%) increase in only 24 months
· $458.304 trillion in Interest Rate Market Contracts, a $195.778 trillion (approx. 75%) increase in only 24 months
What is also obvious from a comparison invited by Table 19 - - comparing June, 2006 figures with June, 2008 figures - - is the increasing Systemic Threat this interventional regime imposes.
Interventions Increase Systemic Risk
For an analysis of why the kind of liquidity injections The Fed has been making or catalyzing (e.g. the $40 billion “fund” made available to banks on December 12, 2007, the March 11, 2008 establishment of the new Term Securities Lending Facility TSLF and the Monster $700 billion Bailout pushed through Congress by The Fed and U.S. Treasury) in the Fall, 2008 increase the systemic (and other) threat(s), see “The Fed Cure Worsens the Disease” later in this document. With similar negative long-term effects are the various provisions regarding lending. For example, the March establishment of the TSLF occurred during the crisis which resulted in the (de facto taxpayer guaranteed) takeover of Bear Stearns.
Indeed, The Fed/Treasury had already made $7.7 trillion in capital injections, purchases, loans and guarantees as of November 24, 2008, according to Bloomberg News.
So now let us take a brief look back to see how all this "Interventional Firepower" is manifested in the Markets.
Gold and Silver Market Manipulation
Increases in the amounts of OTC derivatives outstanding for the Gold Market are perhaps the most stunning:
From the $456 billion outstanding at end-June 2006 they increased nearly 50% to $649 billion at end-June, 2008.
The profound impact of these market manipulation efforts has been most well documented regarding the price capping of the Gold and Silver markets. For those who have any doubts whatsoever about the fact and extent of government (Central Banks) manipulation, we have (thanks to Bill Murphy, Chris Powell, and other leaders of the Gold Antitrust Action Committee - - www.gata.org) the following June, 2005 blatant admission of manipulation by the Head of the BIS (Bank for International Settlements - - i.e. the Central Bankers' Bank) Monetary and Economic Department, W.R. White:
"…It is perhaps worth spending a minute on what is meant by Central Bank cooperation…{it includes]…last, the provision of international credits and joint
efforts to influence asset prices (especially gold and foreign exchange) in
circumstances where this might be thought useful…"
Among the many specific items of evidence are those cited by GATA Secretary Chris Powell in his superb article “There Are No Markets Anymore, Just Interventions,” all of which are matters of public record, and which can be found at www.gata.org.
Bond Market/Interest Rate Manipulation
Clearly the fact that Intervention occurs is amply documented, but Intervention is not limited to the Gold and Silver Markets.
Fed Chairman Bernanke’s statement in his academic paper "Zero Rate Bound Economies" can reasonably be taken as a justification for the Fed purchasing its own paper, otherwise known as monetizing the debt. Specifically, regarding long bond purchases, the purpose of this would be to boost the 10 and 30-year bonds, and, therefore, reduce long-term interest rates.
But in light of increasing Real Consumer Price Inflation of about 12% annually (per shadowstats.com - - see “Indirect Manipulation” below) one can reasonably ask: So why haven’t the storied “Bond Vigilantes” pushed interest rates (and especially long-term interest rates) up to account for the massively expansionary monetary inflation of recent years?
That is because the Fed-led Cartel* of Central Bankers and Allies has quite apparently been using “interest rate swaps” and other Derivatives (via their Chosen Primary Dealers) to suppress what would otherwise be dramatically rising interest rates, both short and long term, according to Rob Kirby. Consider that there were $458 trillion in Outstanding Dark OTC Interest Rate Contracts as of June, 2008 according to the BIS, up from $262 trillion in June, 2006.
Kirby’s excellent paper, “The Elephant in the Room,” demonstrating how interest rates (which would, if there were no suppression, be dramatically rising) have been suppressed by The Cartel, was presented at the Spring 2008 Washington, D.C., GATA (Gold Anti-Trust Action Committee, www.gata.org) Conference. Kirby concluded:
“Monetary authorities have long been pursuing expansionary monetary policies while attempting to cloak their actions by suppressing rising interest rates and other natural market reactions.
This has completely perverted our whole banking and monetary system.
This is why false values have been assigned to a host of financial instruments.
This explains why the gold price has been suppressed. It’s another canary in the coal mine that was vigorously and nefariously silenced.
If you’re wondering why J.P. Morgan never seems to get caught up in any sort of hideous market-to-market losses concerning their derivatives or hedge book – consider that back in the spring of 2006, Business Week’s Dawn Kopecki reported, “President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations. Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”
Thus, what would otherwise be the markets’ “normal” reaction to the ongoing and worsening credit, subprime, and other financial crises - - dramatically rising interest rates, especially on the long end - - has been suppressed by The Cartel’s Interventional Regime.
Specific Interventions
For a full discussion of the following Interventions, see Deepcaster’s July, 2008 Letter posted at www.deepcaster.com:
The Spring 2006 Interventional Takedown
The August through October, 2006 Interventions
The August and September, 2007 Market Interventions.
The March 2008 Crisis-Induced Takedown of Gold & Silver – One Example Among Many
On March 14, 2008 Deepcaster reiterated that the risk to the U.S. Economy
…Is the greatest since The Great Depression. The Credit Default Swap Market agrees. March 11, 2008 was the first time ever that the risk of losses on U.S. Treasury Notes exceeded that of German Bonds according to the “judgment” of that market. U.S. Treasury Contracts traded at 16 basis points compared with German Bonds which traded at 15.”
Just prior to Bear Stearns’ demise, the Fed’s March 11, 2008 establishment of a new Term Securities Lending Facility (TSLF) was merely a short-term Band-Aid for a Structural Systemic Crisis. The TLSF allowed Federal Agency and non-Agency (i.e. private entity) AAA/Aaa Residential Mortgage backed (and otherwise illiquid) securities (some of which is irretrievably illiquid “bad debt”) to be used for collateral. Allowing these securities (containing bad debt) as collateral made it possible for banks to liquidate or transfer previously illiquid securities in their portfolios.
Allowing questionable “illiquid” (i.e. bad) debt to be used as collateral began the significant weakening of the security and legitimacy of U.S. Treasury Securities (as reflected in Credit Default Swap Premiums) and, ultimately, the U.S. Dollar. Moreover, it helped only Fed-favored financial institutions while further diminishing the purchasing power of the middle class and working poor.
Thus the Big Fed-favored Financial Institutions are being insulated from the consequences of their Reckless Securities and Derivatives Speculation. Result: we are in the midst of a crisis.
But The Fed clearly wanted to make the markets think that The Fed could achieve a Great Fix. To achieve this effect, in the week ending Friday, March 14, 2008, they injected $10 billion in POMOs which dramatically (in addition to the TOMOs) increased the Interventional Power of The Fed.
The Fed’s POMO injection is understandable considering that the Equities Market Technicals were looking quite ominous before the next day’s (March 11, 2008) Fed Action which propelled the Dow up over 400 points. The Dow Jones Industrials, just the preceding Friday March 7, 2008, had broken below the bottom boundary of a 26-year rising Trend Channel from 1982.
Moreover, a very bearish Equities Head and Shoulders Pattern had completed its right shoulder and fallen decisively below its neckline. Thus, before the March 11th Fed Action, the downside technical targets for the Equity Indices were 20-25% lower.
Predictably, Gold (that legitimate Safe Haven from all manner of catastrophes) had been hitting record highs in early March. Moreover, the HUI AMEX Gold Bugs Index was on a bullish breakout from its 15-month consolidation pattern, though the Monday, March 10, 2008 shares action put the HUI on a short-term sell signal.
And, in the Energy Markets, Crude Oil had hit $110-$111 range as the first technical target for a seemingly continuing upward ascent.
So the result of the TOMO and POMO “juice” injections was to create the interventionally generated 400-point Equities Rally (of Tuesday, March 11, 2008). That Fed Action turned many of the Equities Markets Technicals from down to up. But on the next two days, Wednesday & Thursday, there was no significant follow-through “bounce” - - an ominous sign indeed! Couple that fact with the consideration that The Fed Action “provided a long-term solution for none of the aforementioned ongoing problems, one had to reasonably ask how long such a rally could last. The answer is it probably would not last.
In sum, at that time, if one considered only the Fundamentals and Technicals, Gold and Silver prices should have skyrocketed.
However, The Fed Interventions stopped that rocket. The Fed, as leader of The Cartel*, pumped $15 billion and $9 billion in Temporary Open Market Operations (TOMOs) Repo Injections into the markets on March 10 and 11, 2008.
And, more significant (because many times more potent), on March 10, 2008, it added another $10 billion in POMOs (Permanent Open Market Operations) which have several times the effect of TOMOs (we now see this was priming the “pump” to generate the March 11, 2008 “market rally”).
All this occurred against the backdrop of Gold’s hitting $1000. Had Gold broken out conclusively over $1000 that would have generated even more interest in it. And with Crude Oil and Silver also at record highs, the Fed-led Cartel would truly be at a crisis point in terms of their legitimacy as financial market and monetary managers.
Thus the conclusion was foregone - - these Interventions succeeded in dramatically taking down Gold and Silver in the next very few days.
It is not hard to see to see the motivation for these Takedowns. The power of the Fed-led Cartel of Central Banks (and allied Major Financial Institutions) depends on continuing legitimacy of their “paper” including first and foremost their Treasury Securities and Fiat Currencies.
Increasing Gold, Silver, Crude Oil and other Tangible Commodities prices threaten this Power because they compete for legitimacy as Stores and Measures of Value with The Cartel’s paper. Therefore, we can expect The Cartel to continue to attack Gold, Silver, Crude Oil and the Other Strategic Commodities with a vengeance. The main question is, can they continue to succeed? That depends on whether the Fundamentals will overwhelm Cartel attempts at market manipulation.
In addressing that question, consider the “Rule” that ‘The Biggest Player in the Market makes the Market Price.’ The Cartel’s multi-trillion dollar Derivatives Positions make it The Biggest Player in the aforementioned Markets.
But, for sure, the countervailing consideration is the ever-more-bullish Fundamentals.
June 2008: The Cartel Catalyzes a Volatility Fog to Mask Interventions and Worsening Fundamentals
But it is also certainly not in The Cartel’s interest to have its Interventional Market Rigging “Game” revealed. That explains why it is increasingly apparent that The Cartel uses a variety of techniques (e.g. “lures”) including catalyzing Volatility “Fogs” to mask its Interventions…(for details see Deepcaster’s December, 2008 Letter posted under the Latest Letter at www.deepcaster.com)…
The Cartel was creating volatility “fog” (helped along by data manipulation) to mask its Interventions. That is, sometimes they allow markets to take their normal course and sometimes massively distort market results (particularly when it comes to capping the price of Gold and Silver when they should be launching up) to obscure their Interventions.
Yet as more negative news punished the markets in August through November, 2008 Gold was taken down into the $700s.
“Earned” Liquidity versus “Borrowed” Liquidity
A key point is that the Fed/Treasury Actions of 2008 are not long-term fixes. The reason this is not a long-term fix is that it “fixes” a liquidity problem in a way that allows insolvent or nearly insolvent financial institutions to have liquidity that would allow certain normal but often deleterious operations (i.e. the continuation of even more lending based on borrowed liquidity). Deepcaster has previously demonstrated the perils inherent in an economy relying on “borrowed liquidity” (i.e. debt) rather than “earned liquidity” (i.e. savings) – see Deepcaster’s January, 2008 Letter.
Thus, the “borrowed liquidity “cure” is worse than the disease. Thus, what The Fed has given us is a flawed Financial Band-Aid, and only a Band-Aid for the Big Boys at that.
We must not forget another fundamental factor which demonstrates that The Fed Actions are neither a long-term, nor an adequate, remedy.
“This Fed injection does nothing for households. And it is households that will determine if we avert depression or not. Consumer spending is 70 percent of GDP. Households need the money, and they can’t get it. Credit card companies are cutting lines. Banks are raising lending standards. House values are dropping below outstanding mortgage and home equity debts. Incomes can’t keep up. Jobs are shrinking. Trickle down won’t work. We need trickle up this time. The Fed’s announced plan today is to monetize bad debt from Wall Street banks, to accept their securities baked by bad loans in exchange for cash. This in lieu of a drastic further drop in interest rates. Once again, save Wall Street and to blazes with households. Because they are not doing a thing here for households, this plan will fail. Households get more inflation and that is it. Wall Street gets a free ride. Somebody ought to be arrested. What a heist. Of course Spitzer can’t do anything. He’s preoccupied.” (emphasis added)
Robert McHugh, Tuesday, March 11, 2008 Briefing
Recent Interventions and Evidence
Recent Covert Interventions in the Gold, Silver, Equities and Bond Markets have been quite dramatic as well. Indeed, evidence for Cartel Interventions in many Markets becomes ever stronger. Consider…
Silver: Noted Silver analyst Ted Butler has compiled evidence that two large banks (both Primary Dealers for The Fed) are manipulating (downward) the price of Silver and are being protected by the supposed government watchdog group CFTC (Commodity Futures Trading Commission):
“Certainly, with the release of the August Bank Participation Report, the case for manipulation grew stronger still. This report indicated that one or two U.S. banks held a net concentrated short position of more than 25% of the world annual mine production of silver, a level of concentration never witnessed in any market. Suddenly, the question become not if there was a manipulation, but how could such an historic extreme concentration not be manipulative? No explanation has been offered.
So obvious was this evidence and so strong was the public outcry over it, that the CFTC hastily convened a formal investigation around September 25. But it has become obvious that this investigation was designed to diffuse public outrage by stalling the search for the truth. This has allowed the big short manipulators (thought to be led by JP Morgan Chase) to complete their short covering during the epic sell-off. In fact, at the time of announcement of the silver investigation, the price of silver was above $13 an ounce, down almost 3-% from the summer highs. After the investigation was announced, silver fell an additional 30%.
Let me be clear, I am alleging that the CTFC permitted JP Morgan to continue their manipulation of the silver market under the guise that the Commission was investigating. In reality, the CTFC sided with and allowed JP Morgan to profit and clean up its shorts at the expense of great loss to the public…”
Ted Butler, November, 2008
Consider also…
The Bond Market: Some pundits claim the multi-trillion dollar Bond Market is “too big to manipulate.” But Deepcaster notes that the BIS reports there are a record-high $458 trillion in Dark OTC Interest Rate Contracts Outstanding and further notes that the Biggest Player in the Market typically makes Market Price.
Cartel Intervention is the only explanation, is it not, that while the Credit Default Swaps Market attributes (via its premiums) a record-high risk-of-loss to U.S. Treasuries, the actual interest rates on U.S. Treasury Notes and Bonds has dropped to record lows.
“…The cost of hedging against losses on U.S. Treasuries surged to an all-time high after the Federal Reserve’s new $800 billion effort to combat the financial crisis raised concern about ballooning government debt. Benchmark 10-year credit default swaps on U.S. government bonds jumped six basis points to 56. The contracts have risen from below two basis points at the start of the credit crisis in July 2007. ‘There is a lot more money to be spent and it is not clear how it is going to be financed,’ said Tim Brunne, a strategist at UniCredit SpA.”
International Forecaster, November 29, 2008
And consider the following sensible comment posted at LeMetropoleCafe:
“It is absolutely inconceivable that the bonds are rallying (disappearing yields) due to a ‘safe haven flow of funds’ when their risk of default is being assessed at an all-time high!!! What is wrong with this picture???…The risk premium that the) market is assigning to U.S. Government bonds is now wider than the risk premium the market was using to price the highest rated corporate bonds as recently as November 2007!!! What this is saying is that the market is now assessing the probability of a U.S. Government default at a higher rate than was being assigned to the highest quality corporate debt just 12 months ago. Incredible!!! (Words fail me! – Ed)
Deepcaster notes here only one of the several “markers” of Crude Oil price manipulations which are more fully described in documents at www.deepcaster.com.
Compare the Chart of Crude Oil Prices from the mid-summer, 2008 highs to December, 2008. The curve reflecting the price drop from $147 to the low $40s reflects a remarkably smooth descent and rate of descent, with only one modest bump up in September.
But the charts of the prices of virtually every other commodity and financial investments are quite choppy, reflecting the violent volatility of this period.
And if those statisticians among our readers chart the currency-adjusted price of Crude during that period, the curve is even smoother, that is, it is a curve which no free market action created.
Indeed, it is a curve which has a very high “regression analysis fidelity.” Thus it is highly probable that curve was created by The Cartel’s “computer management algorithm” as it daily deploys a chunk of the over $12 trillion in OTC Derivatives (cf. BIS, Table 19) devoted to daily control the Crude Oil price.
The December 1, 2008 Interventions and Precious Metals Takedowns
One could reasonably claim the Interventions of December 1, 2008 “Take the Cake.”
One would expect that that day’s news that it was officially confirmed that the U.S. had been in a recession for a year coupled with the ongoing agony of the Big Three Automakers and laid off workers, and the news that the Taxpayers’ “Bill” for the Bailouts, loans, guarantees, etc., totaled $7.7 trillion according to Bloomberg, would substantially take down the Equities Markets.
But what is utterly inexplicable (absent Intervention) is that that very day in December the price of Gold was taken down nearly $50! Only Cartel Intervention can explain such a development.
II. INDIRECT MANIPULATION
The other major form of government (including agency) market manipulation can most accurately be called indirect. It consists of "massaging" or hiding various statistical measures and data to create results that suit the manipulator's (usually, whatever Presidential Administration has power at a given time) preferences, insofar as its political, economic, or financial or market goals are concerned. It is the U.S. Federal Reserve Bank’s (a privately owned “national” bank) and the United States government agencies’ generation of "creative statistics" on which we focus here.
Let us consider today’s massaged government and agency data in comparison with today’s data calculated the “old fashioned way” (i.e. sans contemporary statistical gimmickry).
Overview
Mr. Walter J. (John) Williams operates an excellent and revealing website business named shadowstats.com in which he analyzes the U.S. government's and The Fed’s "manufactured statistics" and develops statistics which have a better correlation to reality (before gimmickry was introduced).
The following are the latest annualized Genuine Key Statistics according to shadowstats.com. For a discussion of the basis of shadowstats’ calculations, see Deepcaster’s July, 2008 Letter.
Real Consumer Price Inflation - - about 12%
Real Unemployment - - about 16%
Real GDP - - about a negative 3%
Real M3 - - about 11%
III. SYSTEMIC RISKS
On the Brink of a Cartel-Facilitated Systemic Meltdown
The August, 2007 credit freeze-up and the Fed’s bailouts of August 17 & September 18, 2007, mid-March 2008 and August through November, 2008 illustrate just how increasingly close to the brink of a Systemic Meltdown we are.
The Fed’s “Cure” Worsens the Disease
The key characteristics of the Fed/Treasury “cures” of 2007 – 2008 are in one way or another that they rely on more borrowing, whether by the taxpayers to fund the bailouts, banks to increase liquidity, or consumers.
For example, as a “temporary cure” on August 17, 2007, The Fed decreased the discount rate (whereby banks can borrow directly from The Fed) by ½%. The result was that borrowings (!) by banks (so they could do more lending) jumped from a daily average of $6 million to $1.3 billion in the two weeks ended August 29, 2007. A staggering 21,600% increase.
The key point is The Fed administered a cure (enabling even more debt) which, in the long run, worsens the “excessive lending disease.”
The Fed’s discount rate cut (i.e. enabling more borrowed liquidity) “cure” is simply creating more of what created the ongoing financial crisis in the first place, which was excessive borrowed liquidity. Coupled with non-transparency (e.g. hiding M3 – Where is the transparency, Ben?) and excessive (i.e. in excess of that justified by GDP increases) monetary printing reflected in M3, the liquidity increases and easy credit have led to, among other things, the moral hazard of lenders lending recklessly to borrowers who should not be borrowing to being with.
Even so, its “Solution” of allowing even larger injections of “borrowed liquidity” as opposed to “earned liquidity” (which is healthy liquidity achieved through savings out of earnings) temporarily calmed the markets. Yet it is increased “borrowed liquidity” which increases, perhaps fatally, mid and long-term Systemic Risks.
For this crucial “borrowed vs. earned” liquidity distinction we are indebted to Dr. Kurt Richebacher (R.I.P.) whose sensible prescriptions have been utterly disregarded by the U.S. Federal Reserve and which prescriptions, had they been followed, would have resulted in our not being in today’s liquidity and derivatives crises. [May the straight-speaking, realistic and erudite Dr. Richebacher Rest In Peace. He passed away in early August, 2007.]
Dr. Richebacher explains why credit (i.e. debt) financing, or “borrowed liquidity” as he calls it, is so pernicious:
“Available liquidity is, of course, most important. Nevertheless, we find it most important to distinguish, first of all, between two different sources of liquidity: borrowed and earned liquidity. Present excess liquidity in the United States and several other countries is of a peculiar kind.
It does not come, as would be normal, from unspent current income – in other words, from saving. In the absence of any new savings, all the liquidity creation occurring in the United States is borrowed liquidity. Generally, borrowing against rising asset prices is in diametric contrast to earned liquidity from savings out of current income. By definition, this is liquidity from credit inflation.
One thing is certain about borrowed liquidity: it depends on rising asset prices. Once asset prices stop rising (see current U.S. housing prices) this liquidity suddenly evaporates. Moreover, ever-larger credit injections are needed to keep asset inflation - - like any other inflation - rising. Nevertheless, there inevitably comes a point in which asset prices, for one reason or another, refuse to rise further and then the big selling without buyers begins. Never before in history has there been an exception from this disastrous end of asset inflation.”
Prophetic words indeed!
The Systemic Solution
Allowing the International Economy to be based on a Fiat Reserve Currency is unsustainable. No Fiat Currency Regime in the history of the world has ever survived indefinitely.
So The Systemic Solution is apparent. We outline it as follows:
1) Re-link the world’s Reserve Currency (the U.S. Dollar) to Gold and Silver, the Monetary Metals which are both stores and measures of value, tangible value.
Failure to re-link currencies to Gold and Silver will allow a continuing massive and unsustainable inflation of the money supply by the Fed-led Cartel* of Central Bankers. Unless such re-linking to Gold and Silver is accomplished the U.S. Dollar is likely doomed in the long-run, with severely negative consequences.
Money supply inflation ultimately leads to price inflation and the continuing extraordinary rate of increase in the money supply, (as a number of commentators have pointed out) is leading us down the path to a Hyperinflationary Depression. (c.f. shadowstats.com). And, more ominously, it is leading us to an attempt to implement The Cartel “End Game” (see June 2007 Letter “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” at www.deepcaster.com.).
But the private for-profit U.S. Federal Reserve and its Cartel Allies are not likely to give up its Fiat Currency and “un-backed” Treasury Securities that easily - - they are the source of its power. The Fed and associated International Financial Allies will strenuously resist. Thus,
2) Legendary investor Jim Rogers recently neatly expressed The Solution to the problem of The Fed: “The Fed should be abolished and Chairman Bernanke should resign.” (March, 2008, CNBC) And Rep. Ron Paul (R.-TX) has introduced an “Abolish the Fed” Bill in Congress.
An excellent idea. Indeed, The Fed is a private for-profit group of International Banks, whose main motivation is in providing profits for, and protecting the interests of, The International Bankers Cartel and favored institutions and parasites, not in serving the needs of U.S. citizens (or most citizens of other countries for that matter).
3) To replace The Fed, and in order to protect ordinary citizens interests, the U.S. Congress should create a genuinely National Bank under the auspices of the U.S. Treasury Department as authorized by the U.S. Constitution. That truly National Bank should be the money issuer for the United States, not the private for-profit Cartel of International Bankers known as The Fed.
This is not such a radical idea. President Kennedy caused U.S. Notes to be issued late in his presidency as a replacement for Federal Reserve Notes. [He was killed a few months after the issuance was started and the U.S. Notes disappeared from the market.
The Cartel End Game
Deepcaster agrees with Williams that we are facing at an international crisis of unprecedented proportion. It is also clear to Deepcaster that those who run the Fed-led Cartel cannot be so stupid as to not know where their hyperinflation of the money supply (according to shadowstats.com M3, as of November, 2008, was increasing at an annual rate of about 11% which is about a six year doubling time!), and other bubble-crisis-creating policies are leading us.
Thus if The Cartel leaders know what they are doing what is their End Game?
The only rational conclusion to draw is that they expect (and may even be pushing) the Dollar to go into further and further decline, and to continue their other policies, until there is a Systemic Crisis. (Very short-term, Deepcaster correctly Forecast the U.S. Dollar to “bounce” into the 4th Quarter of 2008, but that does not affect the fact that the primary trend for the U.S. Dollar is down.)
And we expect that Systemic Crisis will likely, as Deepcaster pointed out in his June, 2007 Letter, provide the catalyst to force one of the several components of The End Game on the populace - - adopting the Amero. This would give even greater de facto power to the International Cartel of Central Bankers. We encourage readers to review the evidence for the entire multi-faceted “End Game” Program in the following: Deepcaster’s Alert of 8/13/06 entitled “Massive Financial Geopolitical Scheme Not Reported by Big Media” and June, 2007 Letter entitled “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” - - both available at www.deepcaster.com. Fortunately there was even a Resolution introduced last Session in the U.S. Congress that would stop this “End Game” attempt.
The Solution - - A Strategy for Investors & Traders
A major premise of The Strategy is that one can certainly remain a Hard Assets Partisan while at the same time insulating oneself from future Takedowns. The details of this Strategy are outlined in Deepcaster’s December, 2008 Letter available at www.deepcaster.com and are designed to help avoid such unpleasantness, or even possible financial ruin, in the future, as well as to profit along the way.
The public action component of that Strategy is:
1) Become involved in the movement to abolish the U.S. Federal Reserve (a private for-profit Cartel of International Banks) as Deepcaster, Presidential candidate Rep. Ron Paul, and legendary investor Jim Rogers, all have advocated.
2) Join the Gold AntiTrust Action Committee which works to eliminate the manipulation of the Gold and Silver markets (www.gata.org). GATA is a non-profit organization which makes a great contribution by gathering evidence regarding the suppression of prices of Gold, Silver and other commodities.
3) Work to defeat The Cartel ‘End Game.’ Deepcaster has laid out the evidence regarding the Ominous Cartel “End Game.” Clearly The Cartel is condemning the U.S. Dollar and the economic health of the U.S. Middle Class to a long and painful destruction to enrich its favored international financial institutions and to maintain its power. How much longer will we continue to permit these sacrifices?
