Dear All,
Barack Obama insisted on a national broadcast on Sunday that he "did not run for office to be helping out a bunch of fat cat bankers on Wall Street.” Well actually, he did. Goldman Sachs’ PAC was the Obama campaign's second largest contributor. Forget the phony theatrics and the disingenuous ridicule but rather, take note of the paybacks Obama has made since taking office to large cash providers such as the UAW and the banking industry. Change you can believe in? Watch what politicians do, not what they say.
The futility of believing that there is a government solution to the financial crisis can be seen in the inconsistency of the White House calling for stronger bank balance sheets while at the same time pushing the banks to do more lending. For all their bluster and promises, talk of solutions and cure-alls, in the final analysis politicians and Keynesian economists have but one effect on the financial system -- to burden and distort markets and encourage the mis-allocation of capital.
The TIP "rip": Imagine lending long term money at a variable rate to an entity that has the discretion to determine, throughout the loan term what the interest rate that it pays you will be . -- using a formula that it can alter as it pleases. While absurd on its face that is precisely what a fair number of sophisticated investors are doing by buying the badly misnomered TIPS ("Treasury Inflation-Protected Securities"). Because they are tied to the bogus CPI figure TIPS significantly understate the inflation rate. Contrary to offering inflation protection to its holders, TIPS are future inflation victims masquerading as an antidote. In the same manner that social security recipients this year were denied their legal right to a cost of living increase due to a fraudulent Consumer Price Index, owners of TIPS are going to be badly burned and insufficiently compensated by the bond coupon once inflation rages --entirely aside from the currency risk of holding dollar denominated debt. With an increasing number of people catching on to the fraudulent methodology of CPI computation one would expect to be reading more about the danger in buying TIPS. Not the case. Never rely on the financial press or my favorite species -- "The Wall Street Professional" to protect your financial health.
His is the only sane voice in the Obama circle which is precisely why they keep him in the circle's outer-most ring: Volcker: "ATM's more worthwhile than derivatives"
Three particular years during the mid 14th century -- 1348 to 1350 were no fun. The bacterium Yersina pestis swept through Europe and much of the world with a fury and dread virtually incomprehensible today. This month's issue of Foreign Policy contains a piece by Robin Cook chronicling the agony of Black Death.
"...One cringes at having to contemplate the horror, the excruciating pain, and the terror its victims had to suffer. Knowing the pain involved with a tiny boil, it is almost impossible to know what it was like being deathly ill with most of one's lymph nodes swelling to the point of becoming visible, blackened lumps with their interiors necrotizing and liquefying -- and all of that happening without antibiotics. If David Letterman presented a top -10 list of the worst possible ways to leave the world, dying of the plague on the 14th century would have to be at the top."
OTC derivatives, the 21st century 's financial equivalent of the Plague, have worked their devastation on public and private balance sheets across the planet. The Fed, with the assistance of the cowards at the Financial Accounting Standards Board (FASB) has managed to keep the liquefying contractual lymph nodes from public view -- but the stench of death is unmistakable. The derivative problem is the largest and most intractable element of this entire debacle and it has no known cure. Antibiotic resistant though it is, Yersina pestis "XXI's" symptoms can however be masked with a financial anesthetic --currency -- in massive doses.
Most on Wall Street are waiting for the FED to start withdrawing liquidity from the system. Note to Wall Street: Get ready for the the liquidity injections to accelerate. Everything is being spun -- from phony TARP repayments to bogus BLS statistics to improved FASB 'induced and goosed' bank earnings. The financial crisis is still very much here. OTC derivatives are hovering nuclear devices that are being neutralized by the Fed's liquefaction program. The Fed knows the dollar is going lower and despite its protestations, wants it so.
There are three public officials most responsible for the worldwide financial disaster; Robert Rubin and protege Lawrence Summers were successive Treasury Secretaries during the Clinton Administration and architects of the repeal of the 1933 Glass-Steagall Act , which opened the floodgates for the insane leverage and speculation and "financial innovation" undertaken by the banks. Alan Greenspan was the Republican appointed Fed chief who repeatedly praised the expansion of Over-the-counter derivatives for spreading risk "outside of the banking system." Matt Taiabbi, writing in Rolling Stone nails the perversion of Obama's having brought the same crew back to the White House to again run economic policy, under the direction of Lawrence Summers --heir to the Rubin regime
"The irony of Bob Rubin: He's an unapologetic arch-capitalist demagogue whose very career is proof that a free-market meritocracy is a myth. Much like Alan Greenspan, a staggeringly incompetent economic forecaster who was worshiped by four decades of politicians...Rubin has been held in awe by the American political elite for nearly 20 years despite having fucked up virtually every project he ever got his hands on....leaving behind a trail of historic gaffes that somehow boosted his stature every step of the way." Rollingstone: Obama's Big Sellout
A poignant assessment of the country we have left our children.... "American-purgatory"
On to gold...
Human beings by nature desire not only instant gratification but constant as well. No matter how many times I repeat that gold is a long term secular play, when the inevitable market corrections come people become filled with doubt. You may want to take a look at the various charts on this link: gold charts Pay particular attention to the multi-year charts -- especially the 10-year. Then compare them to the 30-day chart. While the long term charts are as clear as can be that gold is in a solid bull market, the 30 day chart tells you nothing of the sort. The point is that unless you step back to view the big picture, you'll entirely miss what's transpiring, and end up viewing the painting (and making decisions) from the vantage point of the paint.
The dollar is currently in the midst of a strong counter-trend rally. There have been many of these over the past decade but they are precisely that -- bear market retracements. The dollar is still in a solid long term downtrend and gold is in a solid long term bull market, as is silver.
Take advantage of these retracements to add to your physical gold and silver purchases and quality precious metal companies..
Best,
Jeff
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