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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

Posts Tagged ‘market manipulation

The Nightmare after Christmas

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by Detlev Schlichter
of The Cobden Center
Posted December 26, 2011

THE PATHETIC STATE OF THE GLOBAL FINANCIAL SYSTEM WAS AGAIN ON DISPLAY THIS WEEK. Stocks around the world go up when a major central bank pumps money into the financial system. They go down when the flow of money slows and when the intoxicating influence of the latest money injection wears off. Can anybody really take this seriously? On Tuesday, the prospect of another gigantic cash infusion from the ECB’s printing press into Europe’s banking sector, which is in large part terminally ill but institutionally protected from dying, was enough to trigger the established Pavlovian reflexes among portfolio managers and traders.

None of this has anything to do with capitalism properly understood. None of this has anything to do with efficient capital allocation, with channelling savings into productive capital, or with evaluating entrepreneurship and rewarding innovation. This is the make-believe, get-rich-quick (or, increasingly, pretend-you-are-still-rich) world of state-managed fiat-money-socialism. The free market is dead. We just pretend it is still alive.

There are, of course those who are still under the illusion that this can go on forever. Or even that what we need is some shock-and-awe Über-money injection that will finally put an end to all that unhelpful worrying about excessive debt levels and overstretched balance sheets. Let’s print ourselves a merry little recovery.

How did Mr. Bernanke, the United States’ money-printer-in-chief put it in 2002? “Under a paper-money system, a determined government can always generate higher spending…” (Italics mine.)

Well, I think governments and central banks will get even more determined in 2012. And it is going to end in a proper disaster.

Lender of all resorts

Last week in one of their articles on the euro-mess, the Wall Street Journal Europe repeated a widely shared myth about the ECB: “With Germany’s backing, the ECB has so far refused to become a lender of last resort, …” This is, of course, nonsense. Even the laziest of 2011 year-end reviews will show that the ECB is precisely that: A committed funder of states and banks. Like all other central banks, the ECB has one overriding objective: to create a constant flow of new fiat money and thus cheap credit to an overstretched banking sector and an out-of-control welfare state that can no longer be funded by the private sector. That is what the ECB’s role is. The ECB is lender of last resort, first resort, and soon every resort.

Let’s look at the facts. The ECB started 2011 with record low policy rates. In the spring it thought it appropriate to consider an exit strategy. The ECB conducted a number of moderate rate hikes that have by now all been reversed. By the beginning of 2012 the ECB’s policy rates are again where they were at the beginning of 2011, at record low levels.

So why was the springtime attempt at “rate normalization” aborted? Because of deflationary risks? Hardly. Inflation is at 3 percent and thus not only higher than at the start of the year but also above the ECB’s official target.

The reason was simply this: states and banks needed a lender of last resort. The private market had lost confidence in the ability (willingness?) of certain euro-zone governments to ever repay their massive and constantly growing debt load. Certain states were thus cut off from cheap funding. The resulting re-pricing of sovereign bonds hit the banks and made it more challenging for them to finance their excessive balance sheets with money from their usual sources, not least U.S. money market funds.

So, in true lender-of-last resort fashion, the ECB had to conduct a U-turn and put those printing presses into high gear to fund states and banks at more convenient rates. While in a free market, lending rates are the result of the bargaining between lenders and borrowers, in the state-managed fiat money system, politicians and bureaucrats define what constitutes “sustainable” and “appropriate” interest rates for states and banks. The central bank has to deliver.

The ECB has not only helped with lower rates. Its balance sheet has expanded over the year by at least €490 billion, and is thus 24% larger than at the start of the year. This does not even include this week’s cash binge. The ECB is funding ever more European banks and is accepting weaker collateral against its loans. Many of these banks would be bust by now were it not for the constant subsidy of cheap and unlimited ECB credit. If that does not define a lender of last resort, what does?

And as I pointed out recently, the ECB’s self-imposed limit of €20 billion in weekly government bond purchases (an exercise in market manipulation and subsidization of spendthrift governments but shamelessly masked as an operation to allow for smooth transmission of monetary policy) is hardly a severe restriction. It would allow the ECB to expand its balance sheet by another €1 trillion a year. (The ECB is presently keeping its bond purchases well below €20 billion per week.)

Deflation? What deflation?

It is noteworthy that there still seems to be a widespread belief that all this money-printing will not lead to higher inflation because of the offsetting deflationary forces emanating from private bank deleveraging and fiscal austerity.

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Printing and Propaganda

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From Mike Krieger of KAM LP
Posted May 19th, 2011

Desolate and without purpose
Radiating from so many septic sources
Forming the fabric of a wayward people
Disappearing as the vestiges of our past

Scratched like tartan into virgin soil
A substrate for progress and disarray
A spreading network of broken dreams
Searching for a thoroughfare to take us away

Just a little tale from the streets of America
Sparkled promises paved with pathos and hysteria
Trenchant, weary native sons
Step back, step back
And see the damage done
Shoot straight to the horizon
The streets of America

– Bad Religion, “Streets of America”

A nation that is afraid to let its people judge truth and falsehood in an open market is a nation that is afraid of its people.
– John F. Kennedy

AS I HAVE BEEN SAYING FOR THE PAST SEVERAL YEARS, the misguided Keynesian witch doctor central planners unfortunately in charge of our economic fate are attempting a grand experiment on us based on completely insane and nonsensical theories that have no chance at success. These clowns claim to have all sorts of “tools” but in reality they have nothing. When faced with a complete credit collapse of proportions never seen before in recorded history there were and are only two “tools.” It’s the two P’s: Printing and Propaganda.

While I have written about both of these “tools” before I am going to focus on the propaganda part today since it is the most applicable to the current state of the financial markets. We all know by now that the centrals planners believe the tail wags the dog. So the economy doesn’t lead to higher stock prices but higher stock prices will lead to a better economy. Insane? Absolutely. Is it their religion? 100%. The other important thing for investors to be aware of now when they are comparing the current state of affairs to what many lived through in the 1970’s is that the central planners have learned some lessons. What we must always remember about central planners is that they will never renege on their core philosophy which is that an elite academic and political class in their wisdom are better stewards than free humans interacting in a marketplace.

That said, most people do not share their worldview for obvious reasons (who wants their lives micromanaged?) so the trick of the central planners is to micromanage your life while you think you are in charge. As Goethe said “None are more hopelessly enslaved than those who falsely believe they are free.” He didn’t just make up this clever quote, it is a tried a true method of the most successful control systems throughout history.

So even the brainwashed masses out there understand that price controls were tried in the 1970’s and failed. We also know why. Therefore, the last thing the current group of central planners will want to do is announce price controls. That doesn’t mean they don’t attempt them anyway. They have been rigging stocks in the United States consistently for the past two years and most people get this and accept it as a part of the current state of disunion we are in. However, as I wrote last week we have now entered Phase 2.  This was represented by the raid on commodities.

A tried and true strategy that TPTB have used in precious metals for years has been to create such tremendous volatility in gold and silver and especially the shares that most investors stay away since they can’t stomach it. This strategy is now seemingly being employed to a much wider spectrum of commodities, hence my warning on trading futures last week. The entire game was perfectly summarized by a quote in the most recent 13D report where it was stated:  “Unfortunately, this battle between finding a safe haven and the authorities’ desire to render it ‘unsafe’ is only in its earliest stages. Our mantra since 2007 – governments can and will do anything to survive.”

The Bernank Bluff    

So part of the propaganda “tool” used by the central planners is the manipulation of financial markets, which seems to increased in emphasis in recent weeks. The other consists of outright lies and disinformation. Put yourself in The Bernank’s shoes for a moment. This guy loves printing more than Hewlett Packard. He is despondent beyond belief that the markets and an increasing amount of financial commentators have criticized his precious QE insanity. Meanwhile, the economic data is starting to roll over and housing looks set to launch into another spiral lower. So what is a Bernank to do? Bluff the heck out of the markets. He knows that the only way he can have cover for his printing party is to smash commodities because the rise in commodities is the biggest point of contention amongst the masses.

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Morning Update/Market Thread March 14 – OMG Edition…

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by Nathan A. Martin
Originally posted Monday, March 14, 2011

Good Morning,
Which disaster should we talk about first, the earthquake, the tsunami, our markets, or our economy?

Let’s start with the obvious stuff. To me the reaction in our futures markets is simply too muted to match reality. It is quite obvious to me that our markets are complete nonsense, taken over by computers fueled by money that’s simply made on other computers. None of it is real, the market I see more closely resembles a marketing tool in the hands of the “Fed.”

From my perspective, “investing” in THEIR markets at this juncture is as riskless as a stroll through the Fukushima Reactor #3 parking lot… you know, the one with the plutonium fuel.

The U.S. Navy has detected radiation up to 100 miles away, and they are repositioning their ships to avoid the fallout. Seventeen sailors who participated in rescue operations have tested positive for nuclear contamination.

The effects of the earthquake and tsunami are huge, both in terms of life and money. But the effects of the damage done to the nuclear energy industry will be felt for decades to come. America has not built a nuclear power plant since after the Three Mile Island accident – the last reactor was completed in 1974. And yet, the United States still gets nearly 20% of its electricity from nuclear plants. What will be the future with these events? I see this as further pressuring organic based fuels, although the initial reaction has the oil markets lower. Again, the markets are not real, so I would not pass judgment on any short term move.

And as I predicted, these events are equating to even more money printing as the Japanese central bankers jumped right in to provide 15 Trillion Yen stimulus and have said that they will DOUBLE the amount of debt they are buying up (which equals more printing). The numbers in Japan are momentous and getting larger by the day.

Our own “FED” meets today in their regular FOMC meeting and will make their indebt you further announcement tomorrow. I think these events in Japan equal even more market manipulation and more money printing here and around the rest of the debt saturated globe. They can’t stop, and the numbers will only get bigger. These disasters then, are a triggering/ accelerating event.

And what I’m seeing of the natural world is that we are not living in an era that’s as calm as the recent past for the human experience. We have to not be afraid to connect the dots: large increase in solar activity, large increase in volcanic activity, bigger and stronger storms in a more energized atmosphere, strange and unexplained animal deaths/behaviors, large increase in earthquake activity with stronger earthquakes and more damaging results.

Take the Japanese reactors for example, they were designed 40 years ago and benchmarked the largest earthquakes in recorded history up to then – and then they added a safety margin and built them to 7.9 earthquake standards. Boom, a 9.0 (revised up from 8.9) comes along. And this follows on the heals of TWO devastating earthquakes in New Zealand, one in Haiti, one in Peru, and not too long ago one of the largest ever recorded, a 9.2 that struck Indonesia.

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Trigger Points, Black Swans, and other unpleasant realities

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by Giordano Bruno
Originally posted October 27, 2010

Neithercorp Press

AN AVALANCHE IS NOT AN “EVENT”, IT IS AN EPIC; A SERIES OF SMALLER EVENTS DRIFTING AND COMPACTING ONE AFTER ANOTHER until the contained potential energy reaches an apex, a point at which it can no longer be managed or inhibited. A single tremor, an inopportune echo, an unexpected shift in the winds, and the entire icy edifice, the product of countless layered storms, is sent crashing down the valley like a great and terrible hand.

In this way, avalanches in nature are quite similar to avalanches in economies; both events accumulate over the long span of seasons, and finally end in the bewildering flash of a single moment.

The problem that most people have today is being unable to tell the difference between a smaller storm in our economy, and an avalanche. Very few Americans have ever personally witnessed a financial collapse, and so, when confronted with an initiating event, like the stock market plunge of 2008, they have no point of reference with which to compare the experience. They misinterpret the crash as a finale. Untouched, they breathe a sigh of relief, unaware that this is merely the beginning of something much more complex and threatening.

So, without personal experience on our side to help us recognize a trigger point incident; the catalyst that brings down our meticulously constructed house of cards, how will we stand watch? Will we miss the danger parading right in front of our faces? Will we be caught completely off-guard?

The key in avoiding such a scenario is in identifying the primary pillars of our particular financial system, and tracking them carefully. Once we are able to cut through the haze of distractions and minor events promoted mostly by the mainstream media, and focus on that which is truly important, our ability to foresee danger greatly increases. But what are the crucial mainstays of our economy, and what kind of disastrous occurrence could possibly bring them tumbling down?

Mortgage Crisis Redux

The health of property markets is a vital indicator of the stability of almost any country, but most especially in the United States. The reason why the bust in mortgage values is so dangerous to our particular economy is because Americans allowed themselves to become completely dependent on debt in order to sustain their consumption. We have been surviving on mortgage loans and Visa cards for nearly two decades! The fantastical boost in stocks and retail during the late 90’s and early 2000’s was an illusion built on artificially low interest rates and easy credit. Of course, it doesn’t help that corporate interests outsourced most of our industrial foundation to the third world leaving us with an emaciated jobs market utterly reliant on the service sector. Many people were given few options besides taking loan after loan using homes they couldn’t afford in the first place as collateral.

Regardless, without the support of solid industry and innovation in a system to supply employment opportunities and create true wealth (not debt), we have only “derivatives” and toxic securities, worthless bits of paper representing liabilities that will never be repaid. Now that these contracts are known to be worthless, there is only one thing left to prop up the economy; fiat printing of the U.S. dollar.

Back in 2008, I called the bailout of Fannie Mae and Freddie Mac a “black hole” of debt which would siphon the last remaining vestiges of wealth from the American taxpayer, and this is exactly what has happened. Every quarter, MSM analysts claim the housing market has “bottomed” and is ready for a rebound, yet, every quarter the mortgage crisis gets just a little bit worse. It is now projected that Fannie and Freddie could end up costing taxpayers over $1 Trillion:

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The unbelievably rampant corruption on Wall Street

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from The Economic Collapse
Originally posted May 20, 2010
http://theeconomiccollapseblog.com/archives/the-unbelievably-rampant-corruption-on-wall-street

IN ORDER FOR A FINANCIAL SYSTEM TO BE ABLE TO FUNCTION PROPERLY, it is absolutely essential that the general population has faith in it. After all, who is going to want to invest in the stock market or entrust their money to big financial institutions if there is not at least the perception of honesty and fairness in the financial marketplace?  For decades, the American people did have faith in Wall Street. But now that faith is being shattered by a string of recent revelations. It seems as though the rampant corruption on Wall Street is seeping up almost everywhere now. In fact, some of the things that have come out recently have been absolutely jaw-dropping.

The truth is that the corruption on Wall Street is much deeper and much more systemic than most of us ever dared to imagine. As the general public digests these recent scandals, it is going to result in a tremendous loss of faith in the U.S. financial system. Once faith in a financial system is lost, it can take years or even decades to get back.  So how is the U.S. financial system supposed to work properly when large numbers of people simply do not believe in it anymore?

Just consider some of the recent revelations of Wall Street corruption that have come out recently:

• Bloomberg is reporting that a massive network of big banks and financial institutions have been involved in blatant bid-rigging fraud that cost taxpayers across the U.S. billions of dollars. The U.S. Justice Department is charging that financial advisers to municipalities colluded with Bank of America, Citigroup, JPMorgan Chase, Lehman Brothers, Wachovia and 11 other banks in a conspiracy to rig bids on municipal financial instruments. Read the rest of this entry »

Gold Manipulation goes Mainstream

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Posted at The Daily Bell
Tuesday, April 13, 2010

THERE IS NO SILVER LINING TO THE ACTIVITIES of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits. The banks, which do the Federal Reserve’s bidding in the metals markets, have long been the government’s lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association. Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment.

So, he went public. Maguire – in an exclusive interview with The Post – explained JPMorgan’s role in the metals pits in both London and here, and how they can generate a profit either way the market moves. “JPMorgan acts as an agent for the Federal Reserve; they act to halt the rise of gold and silver against the US dollar. JPMorgan is insulated from potential losses [on their short positions] by the Fed and/or the US taxpayer,” Maguire said. In the gold pits, Maguire sees HSBC betting against the precious metal’s price without having any skin in the game in the form of a naked short. “HSBC conducts an ongoing manipulative concentrated naked short position in gold. Silver is much easier to manipulate due to its much smaller [market] size,” Maguire added. “No one at JPMorgan is familiar with Andrew Maguire,” said Brian Marchiony, a company spokesman. HSBC declined to comment. – NY Post

Free-Market Analysis:
Long ago at an international confab, the mainstream press was supposedly thanked by a powerful personage for keeping quiet about various maneuvers leading to world government. But today the mainstream media, led by “conservative” media titan Rupert Murdoch, is fighting furiously to retain its audience and cannot hush up power elite machinations for fear of losing credibility.

Of course, it is the Internet, in our opinion, that has forced this change. From a sociopolitical standpoint, the main importance of the Internet has been to introduce the alternative, free-market media. The blogs and news sites that make up the alternative media in America, alone, number in the thousands. The last time the alternative media blossomed was back in the 1970s, led by libertarian personages such as Harry Brown and Lord William Rees-Mogg. But that was via print. The Internet is electronic and its alternative media are far more ubiquitous.

But because of the Internet, the efflorescence of free-market thinking in the 2000s has been fairly explosive. It could be said that there is no other serious ideology to compete with it (certainly not Keynesianism), and this is a very difficult phenomenon for the power elite to combat. The only way for the elite to keep up with the Internet-based free-market conversation is to move the “goal-posts” down the field in a rush. We’ve analyzed this phenomenon (along with others) in numerous articles, including this one, as follows:

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The Catastrophic End of Market Manipulation

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by Bix Weir
Originally posted December 1, 2009

ON MARCH 9, 2009 THE DOW JONES Industrial Average hit its lowest point in this “Economic Downturn” touching 6,440 with no viable economic reason to expect a turn around in the economy or in the markets. The mood of the investing public was dire.
Over the next 3 days I notice some extreme market manipulation moves by the Obama Administration that I theorized was part of an official operation to manipulate the economy higher without any underlying fundamentals to support a rise.
On March 12, 2009 I published a Road to Roota letter in which I highlighted ten things the Obama Economic team was doing to try to fool the investing public in thinking that the recession was ending.

Three weeks later I wrote another article stating that this was no ordinary con job by the administration but a large scale and prolonged market manipulation plan executed on many fronts and including many government and public participants. Since these articles were written the DJIA has risen from a low of 6,440 to 10,300 with shouts heard far and wide that the recession is over and we survived the worst economic downturn since the great depression.

Meanwhile the unemployment rate has blown over 10%, the residential housing markets are still in major distress, the commercial real estate markets are imploding, the derivative markets continue to balloon and the middle class of America is being systematically beaten about the head such that one day they will be declared officially DEAD. Death by market manipulation. Death at the hands of our caretakers.
Now, 8 months later, we are saddled with markets so distorted and twisted that nobody knows where the “equilibrium price” of anything is any more. Stocks are too high. The USD is too high. Oil is too high. Gold is WAY too low and Silver is practically FREE! What’s going to happen when they stop pulling the leavers and prices find their natural supply/demand equilibrium? One thing is for sure… someone’s going to get a serious case of WHIPLASH when this manipulation ends!

So who has benefitted from the Obama Administration’s “Operation Confidence Con”?

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