"If we can finally be truthful with ourselves as a nation, then we must admit that our financial system is fundamentally based on lies, fraud, embezzlement, misinformation, perverse filters and incentives, shadow systems that mock transparency and regulation, class privilege and the systemic flouting of the rule of law." - Charles Hugh Smith, 12/15/11
Dear All,
Much is made of the formality of an awaited Federal Reserve announcement that it is initiating another round of Quantitative Easing. The variants of easing and the fungible nature of money make much of this moot. There are a number of less overt measures with which central banks can accommodate the financial system. The prior week's announcement of dollar swaps as well as the lengthening of maturities under 'Operation Twist' are modified versions of QE, and then there are those actions that are simply not announced, some of which are later revealed under Freedom of Information Act filings. The idiotic deflation mentality is back in play while Shadowstats, using the exact methodology the U.S. Labor Department used in 1980 (the year it commenced its manipulation of the index) places current annual consumer price inflation above 11%. Even Shadowstats' 1990 based Labor Dept. statistics place CPI at 6.5%, double the current "official" rate. Meanwhile, the Fed references inflation as "at or below expectations." Deflationary forces are at play solely in real estate and debt markets. The bogus inflation backdrop will provide cover for the Fed when it announces QE3.
When politicians cry...
Channeling her inner John Boehner, Elsa Fornero, the Italian welfare minister, breaks down at a news conference while explaining the provisions to increase the pension age to 66, and increased taxes on housing and luxury items
"Ora devi realmente funzionano. Terribile, sì, lo so. ... Ma voi? Hai la tua negozi e la tua trattorie.. Me? ... Io sono solo un politico ... Non ho competenze. Ci non è molto denaro per me, per rubare ora. ho nessuna formazione, nessun abilità. Che ne sarà di me? ... Che sarà di me?
("Now you must actually work. Terrible, yes, I know. ... But you? You have your shops and your trattorias. Me? ... I'm just a politician ... I have no skills. There is not much money for me to steal now. I have no training, no skills. What will become of me? ... What will become of me?")
When Al Jazeera is on the forefront of editorializing on the breakdown of the U.S. Constitution (Detaining US citizens: How did we get here?) while the U.S. press is largely asleep, we are in a terrible place. The Fourth Estate is barely interested and boobus americanus (hat tip, Mencken) is too preoccupied with reality television to realize that President Obama is about to sign into law the National Defense Authorization Act (NDAA), which Congress passed this week. Under the new law, the entire country is being declared a military battlefield and all it will take is a mere unsubstantiated accusation (i.e. no evidence - no judge - no hearing) and the U.S. government may now imprison Americans indefinitely without trial.
As far fetched as it may seem, it will now be perfectly legal for the President of the United States to order the arrest of his political opponents. Seeing fit to subordinate liberty to the boogeyman, Congress passed the bill this week rationalizing that in this instance an accusation of support of terrorists (whatever that means) is a permissable exception to the extension of due process. Senator Carl Levin revealed that it was President Obama who required that the bill be re-drafted to contain sufficiently broad language so that detentions apply to U.S. citizens. The President's initial threat to veto the bill it now appears was centered not on its trampling of the protected rights of citizens under the 4th, 5th, 6th and 8th amendments to the United States Constitution, but rather on the initial draft's having contained language restricting the military's authority to arrest U.S. citizens. RollingStone: Matt Taibbi - Indefinite Detention of American Citizens: Coming Soon to Battlefield U.S.A
The Nanny State -- no longer hungry...
I apparently missed the memo informing that hungry people are to be referred to henceforth as "food insecure." It seems its now inappropriate to refer to those without sufficient food as 'hungry" or to use that old catch-all, 'poor.' OK, I get that there are hungry people in this country. It is difficult to believe though that federal programs providing free meals need to be promoted; somehow I suspect that those wishing to avail themselves of free food, such as the 46 million Americans currently receiving food stamps know where to find it. And as the politically correct left feels compelled to bastardize the English language by continually inventing absurd and unwieldy hyphenated substitutions where single words have sufficed in clarity for centuries, so too does it disingenuously rationalize the benefits of federal programs. Here we have an under-aged Sesame Street character named Lily being exploited (yes, exploited -- Muppets are innocent hand puppets being hijacked here by leftist thugs) and forced to promote free buffets as a "deficit reduction program." Note the oily and condescending manner of her adult abductors in this clip. CNSnews: Sesame Street Muppet Pitches Government Dependence: Free Food at School
The radical left's indulgence in the sanitization of hardship has never been so grotesque. So what's really behind the perpetual "re-branding" of the symptoms of poverty and other variants of human struggle so as to appear compassionate and to 'remove the shame' of a government assisted lifestyle? It is almost never about the victims directly but always about those who promote and seek to validate the perpetuation of a dependency culture. Today 25% of American children receive food stamps and child hunger is being promoted not as a tangible deficiency but as an emotion -- "insecurity." Rather than sending the message to children that hunger is a terrible thing and a great motivation to work hard at school, kids are being infused with false self-worth by having their most superficial and least worthy attributes -- which are neither their fault nor their destiny -- aggrandized. There is nothing compassionate about this, in fact it is cruel.
Recommended...Charles Hugh Smith: ofTwoMinds: The Truth Hurts--And Heals
Silver and gold...
Increasingly the day-today precious metals pricing is a poker game. The Federal Reserve is doing its best to create a 'dis-inflationary' set-up from which to stage its next overt QE program. In the interim it is liquefying Europe through dollar swap operations and covertly monetizing. The Fed has effectively become the western world's de facto sovereign debt market, providing dollars to purchase European sovereigns in the absence of market demand; the lone conduit supporting otherwise failed auctions. The run on European banks has created dollar shortages, providing a temporary bid for the U.S. currency. With central banks' need to raise dollars (and simultaneously push down the gold price) gold lease rates (the interest rate central banks charge bullion banks that borrow its gold in exchange for dollars) went negative prior to the large precious metals price take-down this week.
The European Central Bank is talking tough but its walk is something quite different -- it has been rapidly expanding its balance sheet. The financial press is more interested in parroting the headline-making propaganda that central bank officials and political leaders spew than in examining what is actually occurring. It is all a setup. Many gold and silver bulls have been shaken out. It has happened time and again in this bull market. The winners have been those who remain steadfast. Short-term counter-intuitive price action is something one must endure in precious metals.
There is nothing counter-intuitive about gold's long term bull market price action however. Gold is poised to complete its 11th consecutive year of higher prices.
Gold and silver equities require nerves of steel and the price paid for greater upside leverage to the price performance of the metals themselves is manic price behavior and extraordinary volatility. It is not for the faint of heart. The right gold and silver stocks will however continue to outperform the metals over time, as evidenced by the goldmap index (current reading 14.1) which in spite of this year's poor performance, has since the commencement of the index in 1998 cumulatively outperformed the price movement in the metals (The GOI currently reads 3.0). Silver and gold stocks have become stunningly cheap.
I don't really know Rick Rule -- I met him briefly years ago at a gold conference and have participated in several private placements in which he also invested. I do have respect though for several people who speak highly of his acumen. KingWorldNews: Rick Rule - I Personally Bought Over $10 Million This Week
Note the comment of this Wall Street goat quoted in Friday's Wall Street Journal: "Gold is no longer a safe haven," said Adam Grimes, chief investment officer at Waverly Advisors LLC, a Corning, N.Y. firm that advises pensions and mutual funds. "The bigger picture really shows me that gold is trading as a risk asset." This is the prevailing sentiment in the institutional investment world, the pasture for the dumbest of the dumb of investment professionals. Institutional and retail ownership of gold remains minuscule. Having likely never known anything in his career other than a strong reserve dollar, Adam will soon get a lesson in currency debasement. His perception and those of his brethren will change and like lemmings they will follow each other into precious metals. Bull markets require new buyers and the dearth of institutional and public participation to date in the precious metals bull market provides powerful rocket fuel for price.
Contrary to much of what is reported, the banking system is in worse shape than it has ever been, including in 2008. There is nothing in the DNA of central bankers and politicians that will facilitate their taking any course of action to address the disaster we are in the midst of other than expanding the monetary base and debasing currency. Once Quantitative Easing goes full throttle gold and silver will begin the launch to their next record levels. In the interim, expect volatility to rule the day.
Be calm. Be patient.
All the best,
Jeff