"It was never my thinking that made the big money for me. It was my sitting, my sitting tight." -- Jesse Livermore, 'Reminiscence of a Stock Trader ' by Edwin LeFevre.
Dear All,
In three years the European Central Bank has swelled its balance sheet by nearly 90%. Nearly half of this expansion to its now record 2.8 trillion euros occurred within the past 6 months, the hastened increase in leverage being commensurate with Europe's accelerating deterioration. The nearly one trillion euros that has found its way onto the ECB's balance sheet since mid-year has done so against a backdrop of tough talk by the ECB, parroted by a financial press that seems more interested in serving as a technocratic propaganda conduit than in conveying the dry numbers.
The fear of stigmatization that banks once held for availing themselves of central bank lines is long gone. On December 21st the ECB announced that over 500 European banks had signed up for 37-month, 1% term loans aggregating $489 billion euros. Not only is this the largest such take-down ever in a central bank liquidity operation and two thirds greater in size than what analysts anticipated, the 3-year plus term is unprecedented for a central bank. Bloomberg: ECB to Lend Greater-Than-Forecast $645 Billion as Banks Line Up for Funds. CNBC cheerleader Bob Pisani referred to the operation as "a big success." Big success? The European central bank gave away nearly-free money to distressed banks, which would presumably return the favor by purchasing otherwise unsalable government debt at record high interest rates .The desperation demand was so great that 523 institutions showed up for the handouts. It is remarkable what passes for success in today's financial markets.
The government debt that the ECB is attempting to force upon the disastrous balance sheets of banks already doped up with toxic sovereign paper would however push a fair amount of positive interest spread onto bank income statements, while serving the ECB's purpose of circumventing its restriction on directly purchasing its members' debt. This circuitous disingenuity characterizing the approach of the European Central Bank in dealing with the insolvency of its member states and their private banks makes perfect sense if you're a cornered Keynesian trying to concoct every alternative to facing the music. Insolvency is not curable with artificial liquidity; it in fact compounds the problem. It would however buy its implementers some time, the sole motivator behind this sham. It is Quantitative Easing by misdirection and there is plenty more of it coming, both in Europe and the U.S.
A funny thing happened though on the way to positive-carry nirvana.
From a former Fed vice-president...
"America's central bank, the Federal Reserve, is engaged in a bailout of
European banks. Surprisingly, its operation is largely unnoticed here."
WSJ: The Federal Reserve's Covert Bailout of Europe
Sometime in the early part of 2002, only a few months after the terrorist attack on Manhattan I found myself walking uptown on Broadway in the west 40's. For reasons unknown, there was on this particular day some type of extremely intense security action in that part of town. It may have been an exercise or an actual threat, I have no idea -- but the activity was like nothing I had ever witnessed nor seen since. In addition to city police there was a heavy state police presence and many of both forces were in riot gear brandishing serious automatic weapons. Most disturbing was the presence of non-uniformed armed federal agents. The myriad of identification badges led me to believe that they were from a multitude of agencies. In the midst of the most intense police mobilization I had ever witnessed I had two depressing thoughts: 1) I had no idea that the U.S. had so many armed agencies, and 2) If any action had to be taken, with the large number of separate armed agents on top of local and state police -- who the hell could co-ordinate such cross- jurisdictional weaponized fiefdoms? In any action all hell would break loose with agents and police likely firing upon one another.
My observations of these largely armed, overlapping (and assuredly clueless and ineffective in the event of an actual threat) security agencies can be applied to the multi-responsible/irresponsible, finger-pointing regulating agencies supervising the securities and commodities markets. What should by now be clear to all is that it is the regulated that are doing the regulating. Jon Corzine successfully lobbied Mary Schapiro to stonewall the CFTC from addressing the very type of misuse of customer funds he ultimately engaged in. The agencies are headed by elitist cronies from Goldman Sachs and other places and are there to serve the banks, not the public. Dodd-Frank has now been layered over Sarbanes-Oxley which ultimately only burdens innocent companies and investors while doing nothing to address real fraud. The agencies point fingers at one another, taking no responsibility when things go wrong all the while protecting their turf and insisting that any of their failures are due to budget restraints and under-staffing (Documentation of SEC under-staffing here). Reuters: Special Report: The watchdogs that didn't bark
The incestuous relationship between regulators and their subjects was assaulted in a November 28th ruling by Judge Jed Rakoff in which he rebuked an SEC approved slap-on-the-wrist fraud settlement. Questioning exactly who is running the regulatory asylum the Judge decried the proposed settlement in which the inmate -- in this case Citigroup -- admitted no wrongdoing and paid a fine far less than their gains from the alleged fraud:
"A] consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies...In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."
The only thing that makes MF Global unique is that it failed. Many of its practices, including fraudulent silver and gold fractional reserve operations run through ETF's and allocated "warehouse receipt" metal storage, is commonplace on Wall Street: Barron's: MF Global customers see their silver bars vanish
What separates CNBC Europe from its domestic counterpart is more than just several time zones. Where the broadcast emanating from New Jersey serves up mostly banal chit chat and official drivel, the Continental version often features substance for the thinking man and woman. Cheviot's Ned Naylor-Leyland appeared recently and was permitted to mention on air that the gold market is rigged -- something verboten on U.S. financial TV.
Charles Hugh Smith has an excellent piece on the financial machine that lubricated the fraudulent college bubble: Risk and the Indentured Servitude of Student Loans.
"The key dynamic here is the transference of risk from the lenders, who stand to reap immense profits from these loans, to the students. This transference is enforced of course not by the banks but by their partner, the Savior State, which obliterated the right to bankruptcy for students while guaranteeing profits to the banks via Sallie Mae, another guarantor of private profits backstopped by taxpayers."
Yra Harris had this to say recently on his excellent blog, Notes from Underground: OBAMA GIVES THE FINGER TO MAIN STREET AND OWS
"Today, President Obama placed two names forward for the Federal Reserve Board of Governors. Harvard University’s Jeremy Stein and the Carlyle Group’s Jerome Powell. At this time I don’t know enough about the work of Professor Stein but I am very bothered by the nomination of Mr. Powell. The power of the Carlyle Group and its connections to the upper echelons of various governments makes the choice very questionable. President Obama likes to give verbal support to the Occupy Wall Street crowd but when it comes to delivering some sense of fairness to the corrupt Washington/Wall Street nexus Obama returns to business as usual. Carlyle Group is the poster child of two complexes: Eisenhower’s Military-Industrial Complex and Simon Johnson’s Financial/Political Complex."
Worth the read...From Israel: Vote Ron Paul and Let My People Go!
Lexapro Alert...Mattathias Schwartz's piece in The New Yorker detailing how the U.S. Dept. of Homeland Security assisted in the massacre of 73 Jamaican civilians is a must read. The pointless war on drugs has merged with the inane war against terrorism, creating a nebulous international battlefield whereupon foreign police actions are being coordinated with U.S. agencies. While U.S. military operations receive press coverage there is an unreported growing shadow U.S. police presence around the world making mischief and facilitating murder.
Meanwhile at home, the Keystone Cops are expanding their terrain: Congress To Fund Massive Expansion Of TSA Checkpoints
On December 31st President Obama signed into law the National Defense Authorization Act under which the President may order the indefinite detention of American citizens without a judicial order, trial or legal counsel for the accused. The Act cancels the protected rights of Americans under the 4th, 5th, 6th and 8th amendments to the United States Constitution. The White House issued this signing statement from the President:
"The fact that I support this bill as a whole does not mean I agree with everything in it. In particular, I have signed this bill despite having serious reservations with certain provisions that regulate the detention, interrogation, and prosecution of suspected terrorists...My Administration will aggressively seek to mitigate those concerns through the design of implementation procedures and other authorities available to me as Chief Executive and Commander in Chief."
In other words, 'Trust me.' And thank you, Mr. President for your patronizing and pointless assurance that you will not abuse your newly acquired perogative to terrorize Americans in the face of having neatly paved the way for future administrations to do so.
220 years ago the "Bill of Rights," comprising the first ten amendments to the U.S. Constitution formally became law. The Bill's preamble "expressed a desire, in order to prevent misconstruction or abuse of [government's] powers." by adding to the Constitution's main body "declaratory and restrictive clauses." Among the essential liberties and rights asserted and protected thereunder are the restriction on unreasonable seizure, the restriction on the detention of an individual without a charge by indictment or grand jury, the restriction of deprivation of liberty without due process of law, the prohibition of cruel and unusual punishment, the right to a speedy and public trial and the assistance of legal counsel for defense. The application of the Bill of Rights is an 'all-or none' proposition; the protected rights and restrictions were intended to be absolute and available to all. Any exceptions to the broad application of these provisions destroys their purpose and effect entirely. By signing this bill into law, President Obama has seen fit to override the U.S. Constitution. By vesting in himself and future presidents the power to selectively apply the assured rights and protections formerly guaranteed under the Bill Of Rights as he/they so choose, he has effectively revoked them entirety.
The trend...
WSJ: Turkey Boosts Gold Reserves
China, Japan Agree to Reduce Reliance on U.S. Dollar
ChinaDaily: "No asset is safe now. The only choice to hedge risks is to hold hard currency - gold."
Regarding gold and silver...
Pessimism is rampant regarding the longevity of the bull market in precious metals, particularly so with respect to the share prices of gold and silver equities. Markets are meant to confuse but when you add in the fact that gold and silver are the most manipulated markets on the planet it is easy to understand why many investors are bewildered and disoriented. With the post-Labor Day take-down in the prices of the metals it is easy to lose sight of the fact that gold nevertheless just completed its11th consecutive year of price increase. Gold and silver prices remain far closer to their 2000 lows than the levels they will see over the next few years. The fundamentals of gold and silver cannot be denied by paper market shenanigans which have short term effect but no lasting influence on price direction. The shares will explode once again; the gains come in waves. The past three years in the shares are reminiscent of the period of 1998 - 2001. Take a look at what happened to the shares from 2002 - 2007. It more than made up for the wait. The fact that sentiment is so poor is extremely bullish. The greatest moves in price commence from precisely such low levels of enthusiasm.
The bull market has years to run. The paper silver and gold markets are being revealed -- along with so many other aspects of our financial system -- as fraudulent operations. As 2012 starts prepare for tremendous volatility -- and record silver and gold prices.
All the best,
Jeff
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