-- Posted Monday, 2 January 2012 | | Disqus
By James West
According to faulty interpretations of Mayan calendars, 2012 is supposed to bring with it the demise of humanity. Fortunately for us, this apocalyptic myth, like so many, is based on a superficial interpretation of the Mayan calendar. Like many stories based on a lie, this one nonetheless gains traction in the popular imagination thanks to our fascination with anything apocalyptic.
Besides Mayan disinformation, there are many commentators who advise selling all gold, while acknowledging that gold is going higher in 2012. The lunacy of such advice is self-evident to me, and I presume, to the vast majority of readers. But lets not dwell on mainstream financial media: the credibility of that institution is non-existent going into 2012, and most intelligent people understand that story assignments originate in board room conversations and on golf courses, and filter down through editorial management. Thus, whose who sit on the boards of directors of banks and media conglomerates are easily able to transmit their requirement for negative sentiment towards precious metals easily and without public scrutiny.
There is no point in arguing whether gold and silver price manipulation exist – even Bart Chilton acknowledges that it does. But we are forced now to consider that manipulation as a “fundamental” influence on the future price of gold. The problem is that as a fundamental factor, is not quantifiable like supply and demand metrics, because its intensity is arbitrarily (at least, to public view) decided, and so all we can say for sure is that supply and demand drivers are, in the futures market, seconded to the fundamental influence of futures market manipulation. And since the futures market is exponentially greater than the spot markets, the spot price is determined by such manipulative shenanigans.
I often wonder when I hear people like Dennis Gartman, Jon Nadler and others for whom it would seem that it should be within their interest to be bullish on gold, are bearish because they have factored in that fundamental and participate on the short side more so than the long. How else to justify the main commentator on a site that sells gold being uniformly and relentlessly negative in his comments about it?
Thus, despite the fact that Europe’s Quantitative Easing ship has been launched, and the U.S. QE3 stands by in a hidden harbour, those fundamental facts that are intensely gold price positive must considered in the light of certain facts pertaining to the futures market. These are:
1. Oversight of the futures and derivatives market, presently the domain of the Commodities Futures Trading Commission, is in reality a collusive accomplice in the exploitation of futures markets along with the major financial institutions who represent that vast majority of futures contacts each month. In the future, this criminal activity will be identified and exposed publicly, and properly categorized as criminal manipulation. Nobody will be indicted, however, as the United States government is also an accomplice in shielding the perpetrators from prosecution.
2. Whereas the original purpose of the continued downward manipulation of the gold price was to induce a general perception that the U.S. dollar was and is a sound currency, the major banks who are regularly short silver and gold in significant volume have since understood that through the control of markets and associated volatility, they can regularly reap huge profits, but continuously rolling over losing contracts in their “dark” market, while waiting until the price can be driven downward sufficiently to put short contracts in the red into the black.
3. There is no intention nor interest in curbing the manipulative schemes on the part of the CFTC, because while they have been tasked with oversight, their powers of investigation, and most importantly, their ability to indict or even investigate such criminal activity is limited.
Europe is already printing money technically, in that it is purchasing weak sister bonds where no private entity dare wade in for less than 7% risk premium. While the line item accounting might trace the cash for the purchase of the bonds from a pre-existing balance, following the money leads to a quagmire of murky road forks that wear obscurity as a mark of intention. That the ECB has already decided to yoke its last resort bank backstop to the most larcenous countries’ bad loans is, to some, proof positive that solving the problem is not the priority: keeping the game going is the number one goal of current Eurozone management.
As the European Central Bank prepares to launch a program to replace frozen bank lending with thinly and delusionally configured quantitative easing as a last-option defense against the seizing up of the European banking system, markets rally, alebeit temporarily, lending the impression that there is a solution to the problem available. Quite the opposite is true. Succumbing to the last ditch fabrication and distribution of capital in a system that is choking on an excess of capital is merely deferring the inevitable while amplifying the severity of future market implosion on the near horizon.
The blinking red light on this latest ham-fisted implementation of perception management was the absence of confirmation that systemic risk appetite was back in the form of anemic bond market activity. If there was a real rise in confidence unfolding, then interest rates should arguably be dropping and private appetite for sovereign bonds materializing. Neither is the case.
If it were possible to stimulate real economic growth (as opposed to nominal economic growth that appears as profit on bank and financial sector-related companies as a direct result of free government money), then stimulus and government lending might be considered advisable.
Consider the effect of TARP, Bailouts, and the various QE’s that started in 2008 in the U.S. in repsonse to the freeze-up of credit markets. At the onset of the stimulus, stocks rallied and the “recovery” was declared officially underway.
But after injecting a total of $1.5 trillion into bank bailouts and stimulus, we are three years down that road with zero economic growth, banks who used the funds mostly for proprietary transactions that have created the illusion of market stability through reported earnings, and a fabulously expanded Fed balance sheet. The debt crisis in Europe is on a par with the debt crisis in the United States, and the value of money is in terminal decline. The lesson is that while QE and other forms of stimulus are superficially satisfactory treatments for the symptoms, they are far from a cure, and at the end of the day, have only compounded the problem. The effectiveness of stimulus and easing, most importantly, exponentially increasing the quantity of currency in the system, is now known to have a finite window of influence, and, once exhausted, begins to affect the economy negatively. That’s because the emergent perception is that stimulus only benefits the top layer of the financial system, and benefits the broader economy negligibly.
Extending credit facilities and replacing private sector capital sources with public ones, while at the same time inflicting austerity measures on the general population, is a recipe for absolute disaster in the long term, for the weaker economies. A population that finds itself expected to work harder, pay higher taxes, amid diminished infrastructure, services, and opportunities is going to respond with outrage, and will not work harder, or pay higher taxes, or tolerate social safety net destruction. They are going to take to the streets, and further paralyze economic activity.
We’ve seen riots in France, Spain and Greece, and as economies continue to deteriorate in 2012, violence and protests will escalate, and at some point, it may pass the threshold of public protest into civil war.
If the Occupy Wall Street movement were to seek some relevance, targeting the causes of economic disparity – primarily the protection of predatory financial institutions who control governments in North America and Europe through corrupt and collusive political systems – would yield a far more effective dividend than protesting against the outcome of such activity.
Maybe that’s what we can look forward to in 2012…an end to the corrupt governments of the United States and Europe, and a dismantling of the largest financial institutions, whose boots rest on all of our throats.
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Midas Letter is the Journal of Investment Strategy of the Midas Letter Opportunity Fund, a Luxembourg-based Special Investment Fund that specializes in Canadian-listed emerging companies in the resource sector with a focus on precious metals explorers and miners. James West is the Portfolio and Investment Advisor to the fund.
Every month, James West’s MidasLetter Premium Edition deconstructs the economic and political events of the past and upcoming week, and identifies risks and opportunities to investors seeking to profit while the majority of investors are losing money.
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-- Posted Monday, 2 January 2012 | Digg This Article
| Source: GoldSeek.com
