news rocked the global gold market when an almost obscure line item in
the back of a 216 page document released by an equally obscure
organization was recently unearthed. Thrust into the unwanted glare of
the spotlight, the little publicized Bank of International Settlements
(BIS) is discovered to have accepted 349 metric tons of gold in a $14B
swap. Why? With whom? For what duration? How long has this been going
on? This raises many questions and as usual with all $617T of murky
unregulated swaps, we are given zero answers. It is none of our
Considering the US taxpayer is bearing the burden of $13T in lending,
spending and guarantees for the financial crisis, and an additional $600B
of swaps from the US Federal Reserve to stem the European Sovereign Debt
crisis, some feel that more transparency is merited. It is particularly
disconcerting, since the crisis was a direct result of unsound banking
practices and possibly even felonious behavior. The arrogance and lack of
public accountability of the entire banking industry blatantly
demonstrates why gold manipulation, which came to the fore in recent CFTC
hearings, has been able to operate so effectively for so long. It operates
above the law or more specifically above sovereign law in the un-policed
off-shore, off-balance sheet zone of international waters.
Since President Richard Nixon took the US off the Gold standard in 1971,
transparency regarding anything to do with gold sales, leasing, storage or
swaps is as tightly guarded by governments as the unaudited gold holdings
of Fort Knox. Before we delve into answering what this swap may be all
about and what it possibly means to gold investors, we need to start with
the most obvious question and one that few seem to ask. Who is this Bank
of International Settlements and who controls it?
came to an end at the same time: the administration’s policy to Extend &
Pretend has run out of time as has the patience of the US electorate
with the government’s Keynesian economic policy responses. Desperate
last gasp attempts are to be fully expected, but any chance of success
is rapidly diminishing.
Before we can identify what needs to be done, what the administration is
likely to do and how we can preserve and protect our wealth through it, we
need to first determine where we are going wrong. Surprisingly, no
one has assessed the results of the American Recovery & Reinvestment Act
2009 (ARRA) which was this administration’s cornerstone program to place
the US back on the post financial crisis road to recovery.
We can safely conclude either:
The administration completely under estimated the
extent of the economic crisis, even though we were well into it when the
ARRA was introduced.
The administration was unable to secure the
actually required stimulus amount which was likely four to five times that
The administration failed to implement the program
in a timely manner.
The administration failed to diagnose the problem
correctly and that in fact it is a structural problem versus a cyclical
and liquidity problem, as they still insist it to be.
The Steering Group of the Veteran Intelligence Professionals
for Sanity (VIPS) which consists of Phil Giraldi, former CIA (20
years), Larry Johnson, former CIA; DoS, (24 years), W. Patrick
Lang, Col., USA, Special Forces (ret.); Director of HUMINT
Collection, Defense Intelligence Agency (30 years), Ray McGovern,
US Army Intelligence Officer, CIA (30 years), Coleen Rowley, FBI
(24 years), and Ann Wright, Col., US Army Reserve (ret.), (29
years); Foreign Service Officer, Department of State (16 years),
have penned a memo to the president in an attempt to alert him "to
the likelihood that Israel will attack Iran as early as this
month. This would likely lead to a wider war." Read on for the
full memo by the activist group.
First appearing in
TruthOutObama Warned Israel May Bomb Iran
MEMORANDUM FOR: The
Intelligence Professionals for Sanity (VIPS)
SUBJECT: War With Iran
We write to alert you to the likelihood
that Israel will attack Iran as early as this month. This would
likely lead to a wider war.
THIS IS A LONG READ BUT WORTH THE
TIME FOR THE INSIGHT IT OFFERS
Pending home sales came in at -2.6%, on hope and faith of even
a modest rebound to the tune of 3.9%. This of course came after
last month's plummeting (and revised) -29.9%. Factory orders also
dropped to -1.2%, versus expectation of -0.5%, after the prior
-1.4% reading. Lastly, the trifecta of ongoing bad news was
completed as the June durable goods number was revised from -1.0%
to -1.2%. And that giant slurping noise you hear in the background
is the printers at the Marriner Eccles building loading up with
ZERO HEDGE: Raoul Pal, who retired from managing money at the
ripe age of 36, after co-managing GLG's Global Macro Fund, and the
hedge fund sales business in equities and equity derivatives at
Goldman among others, and has been publishing the attached Global
Macro Report since, has just come out with the most condensed
version of truth about our economic reality we have read in a long
time. The attached report provides the most in depth observation
on the "future recession in an ongoing depression" which is
arguably the best way the describe the current economic
predicament. Raoul goes all out in describing he worst recovery in
history, touches on he complete disconnect between the bond world
and the imaginary equity surreality, provides countless evidence
the economy has not only not left the recession but is getting
progressively deeper into it, shares several trade
recommendations, and on occasion swear like a drunken sailor. A
must read report for everyone who is sick of the
CNBC/sellside daily onesided propaganda.
Someone please slip some lithium to the ES trading desk at
Liberty 33. While all of last week the general public had to
endure the Fed's various public talking heads' platitudes
threatening an imminent round of massive liquidity infusions
unless Joe Sixpack went and bought the highest beta stocks
available, here come the bipolar futures traders from the FRBNY,
saying that Bullard and Bernanke were only kidding, and instead
they are about to go ahead and withdraw liquidity in the form of
various triparty reverse repos. Only this time the Fed will also
allow assorted MBS of dubious quality to be tested for collateral
purposes, which we are certain the banks will be delighted to
provide the Fed cash against: "Beginning tomorrow, New York Fed
intends to conduct a similar series of small-scale, real-value
reverse repurchase transactions with primary dealers using all
eligible collateral types, including, for the first time, agency
mortgage-backed securities (MBS) from the SOMA portfolio." At this
point the Fed's behavioral psychology experiment has reached such
grand proportions that it is willingly shotgunning the most
contradictory statements in the open just to see if the ES will
rise a few bps without Liberty 33's intervention.
As noted in the October 19, 2009 Statement Regarding Reverse
Repurchase Agreements, the Federal Reserve Bank of New York (New
York Fed) has been working internally and with market participants
on operational aspects of triparty reverse repurchase agreements
to ensure that this tool will be ready if the Federal Open Market
Committee decides it should be used. In the November 30, 2009
statement, New York Fed announced a series of small-scale,
real-value transactions with primary dealers using U.S. Treasury
and direct agency debt securities from the System Open Market
Account (SOMA) portfolio as collateral.
Beginning tomorrow, New York Fed intends to conduct a similar
series of small-scale, real-value reverse repurchase transactions
with primary dealers using all eligible collateral types,
including, for the first time, agency mortgage-backed securities
(MBS) from the SOMA portfolio. Of note, in contrast to the SOMA
holdings of U.S. Treasury and direct agency debt securities which
are maintained in an account at New York Fed, the SOMA holdings of
agency MBS securities are currently maintained at a custodian. As
a result, certain operational and legal arrangements for
transactions involving agency MBS collateral differ from those in
place for transactions involving U.S. Treasury and direct agency
debt securities as collateral.
Like the earlier operational readiness exercises, this
work is a matter of prudent advance planning by the Federal
Reserve. It does not represent any change in the stance of
monetary policy, and no inference should be drawn about the timing
of any change in the stance of monetary policy in the future.
These forthcoming operations are being conducted to ensure
operational readiness at the Federal Reserve, the triparty repo
clearing banks, and the primary dealers. The operations have been
designed to have no material impact on the availability of
reserves or on market rates. Specifically, the aggregate amount of
outstanding transactions will be very small relative to the level
of excess reserves, and the transactions will be conducted at
current market rates.
The results of these operations will be posted on the Federal
Reserve Bank of New York's public website where all temporary open
market operation results are posted. The outstanding amounts of
reverse repos are reported as a liability item in tables 1, 10,
and 11 in the Federal Reserve System's H.4.1 statistical release.
Right now, one of the core questions perplexing markets is how
U.S. treasury rates on long term debt can remain so low, even
though the U.S. government continues to add more and more debt to
The simple answer is that right now, the demand for that debt
continues to outpace supply, reducing interest rates.
It becomes more clear when Bloomberg (via Zero Hedge) tries to
explain the reasons behind this abnormally high level of demand.
They chalk it up to:
Reduced growth expectations for the U.S. economy
Expectations for U.S. inflation decreasing
A downward revision in expectations for U.S. interest
The chart shows the supply of debt increasing (B little s) and
the demand curve (B little d) moving outward reducing rates. Right
now, Bloomberg suggests we are at C on this graph, where yields
are very low.
Eventually, at point E, yields would be much higher, if the
government keeps increasing debt.
The article discusses how intermarket correlations prove that
the U.S. equity markets have been more concerned about
deflation than inflation since 1998 and how the same
correlations predict the current rally in equities should
fail, with new corrective lows should follow.
One of the first occurrences of “technical” evidence
that Japan was fighting deflationary forces came in 1994
when Japan’s equity prices began to correlate with global
bond yields. Typically, bond prices tend to correlate with
stock prices. In the latter stage of a normal business
cycle bond prices turn down first, leading the equity
market. The result is higher yields that eventually
compete with stock prices and pull equity indices lower.
Conversely, during periods when investors view deflation
as a greater economic threat than inflation, the
relationship between equity prices and bonds invert so
that equities consistently correlate with bond yields.
"the market has sided with the deflation argument for
more than ten years and is showing no indication of
there are several ways we have used the above
information to support our conclusion that the
April high marked the end of the rally from the
March, ’09 low.
* The change in trend
of the US equity market is supported by a similar
change of trend in the Nikkei 225 * The
April high in equity prices was led by a decline
in US Treasury Yields that continues today.
* The Nikkei 225 is displaying similar relative
weakness to the S&P 500 that it did during, and
just prior to, the 2000 and 2007 bull market tops.
as long as the relative performance of the
Nikkei 225 remains weaker than the S&P 500 it
is likely that the U.S. markets are in a
topping process with very limited upside
potential or, more likely, the early stage of
a new bear market trend.
The Fed has foreclosed on some properties and is facing the
prospect of more—from homes to commercial buildings—as a result of
its souring Bear Stearns portfolio. Now, under the watchful eye of Congress, the New York Fed must recoup a $29
billion loan secured by the Bear assets.
"For the Fed to come in and foreclose
on properties puts it at some reputational and political risk,"
said Vincent Reinhart, a former senior Fed staffer who is now an
economist at the American Enterprise Institute. "If the Fed can't
figure out how to recast the terms of these mortgages and work
with borrowers—it's emblematic of the problems the government has
had with other programs over the last year and a half," he added.
The New York Fed's holdings of commercial-real-estate debt lost
35% of their value over the two years ended March 2010, while a
pool of residential loans fell about 60%, according to New York
Fed documents and people familiar with the matter.
As the first of the 80 million Baby Boomers have begun to
retire, it has become increasingly apparent that the United States
is facing a pension crisis of unprecedented magnitude. State
and local government pension plans are woefully underfunded,
dozens of large corporate pension plans either have collapsed or
are on the verge of collapsing, Social Security is a complete and
total financial disaster and about half of all Americans
essentially have nothing saved up for retirement. So yes, to
say that we are facing a retirement crisis would be a tremendous
understatement. There is simply no way that we can keep all
of the financial promises that we have made to the Baby Boomer
generation. Unfortunately, the crumbling U.S. economy simply
cannot support the comfortable retirement of tens of millions of
elderly Americans any longer. The truth is that we are all
going to have to start fundamentally changing the way that we
think about our golden years.
Once upon a time, you could count on getting a big, fat pension
if you put 30 years into a job. But now pension
plans everywhere are failing. State and local governments
are cutting back and are raising retirement ages. A majority
of Americans have even lost faith in the Social Security system,
which was supposed to be the most secure of them all.
The reality is that we are moving into a time when there is not
going to be such a thing as “financial security” as we have known
it in the past. Things have fundamentally changed, and we are all
going to have to struggle to stay above water in the economic
nightmare that is coming.
Part of the reason we have such a gigantic economic mess on the
way is because we have promised vastly more than we can deliver to
future retirees. When you closely examine the numbers, it
quickly becomes clear that a financial tsunami is about to hit us
that is going to be so devastating that it will change everything
that we know about retirement.
The following are 22 statistics about America’s coming pension
crisis that will make you lose sleep at night….
Private Pension Plans And Retirement Funds
1 - One recent study found that America’s 100
largest corporate pension plans were underfunded
by $217 billion at the end of 2008.
2 – Approximately half of all workers in the
United States have
less than $2000 saved up for retirement.
6- Pension consultant Girard Miller recently
told California’s Little Hoover Commission that state and local
government bodies in the state of California have
$325 billion in combined unfunded pension liabilities.
When you break that down, it comes to $22,000 for every single
working adult in California.
7 – According to a recent report from Stanford
University, California’s three biggest pension funds are as much
$500 billion short of meeting future retiree benefit
8 – In New Jersey, the governor has proposed
not making the state’s
entire $3 billion contribution to its pension funds because of
the state’s $11 billion budget deficit.
9 – It has been reported that the $33.7
billion Illinois Teachers Retirement System
is 61% underfunded and is on the verge of total collapse.
13- Robert Novy-Marx of the University of
Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of
Management recently calculated the combined pension liability
for all 50 U.S. states. What they found was that the 50
states are collectively facing $5.17 trillion in pension
obligations, but they only have $1.94 trillion set aside in state
pension funds. That is a difference of 3.2
14 – According to one recently
conducted poll, 6 out of every 10 non-retirees in the United
States believe that the Social Security system will
not be able to pay them benefits when they stop working.
15 – A very large percentage of the federal
budget is made up of entitlement programs such as Social Security
and Medicare that cannot be reduced without a change in the law.
Approximately 57 percent of Barack Obama’s 3.8 trillion dollar
budget for 2011 consists of direct payments to individual
Americans or is money that is spent on their behalf.
35% of Americans over the age of 65 rely almost entirely on
Social Security payments alone.
19 - In 1950, each retiree’s Social Security
benefit was paid for by 16 U.S. workers. In 2010, each
retiree’s Social Security benefit is paid for by approximately 3.3
U.S. workers. By 2025, it is projected
that there will be approximately two U.S. workers for each
20 – The shortfall in entitlement programs in
the years ahead is mind blowing. The present value of
projected scheduled benefits surpasses earmarked revenues for
entitlement programs such as Social Security and Medicare
by about 46 trillion dollars over the next 75 years.
According to a recent U.S. government report, soaring interest
costs on the U.S. national debt plus rapidly escalating spending
on entitlement programs such as Social Security and Medicare will
absorb approximately 92 cents of every single dollar of federal
revenue by the year 2019. That is before a single dollar is
spent on anything else.
22 – Right now, interest on the U.S. national
debt and spending on entitlement programs like Social Security and
Medicare is somewhere in the neighborhood of 15 percent of GDP.
By 2080, those combined expenditures are projected to eat up
approximately 50 percent of GDP.
After the longest consecutive decline in the BDIY plunged the
Baltic Dry shipping index to record oversold levels, the
subsequent 200 point jump was sufficient for many to say that the
next dry bulk shipping renaissance has arrived. Alas, the latest
inflection point is here, a mere two weeks since the lowest point
in years, coming before the index could even reach the
psychological barrier of 2,000. The BDIY has now reversed its two
weeks of gains, dropping 0.7% from 1,977 yesterday, to 1,963
earlier, with a drop in all three index rates:
panamax and supramax. Is this the beginning of the second leg
down in the BDIY?
Meredith Whitney appeared on CNBC earlier and was about as
bearish as ever, not only on financials, but on housing as well.
In addition to saying that she expects the housing market to get
worse in Q3 and Q4, the maven again reiterated the blatantly
obvious, namely that all the recent earnings beats by financials
have been an accounting sham driven by:
Provisioning for less future losses, by reducing NPLs in
the current quarter, thus generating profits out of
manipulated air (particularly relevant for HSBC's results
yesterday, which were the main factor in pushing the market 25
Increasingly more difficult for consumers to get loans.
Not much of an issue - Obama will simply blame this on the
And the glaringly obvious, i.e., that all European banks
sit on bloated amounts of largely overvalued sovereign debt.
Should another sovereign risk flaring appear (and it is Zero
Hedge's belief that this will occur promptly, as soon as the
European vacation season is over), it will be time to dig up
the old skeletons of financial insolvency once again, only
this time with EUR LIBOR and Euribor about 100% higher than
where they were in May.
Gordon T Long is not a registered advisor and
does not give investment advice. His comments are an expression of opinion
only and should not be construed in any manner whatsoever as
recommendations to buy or sell a stock, option, future, bond, commodity or
any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, he recommends that you consult with a
qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment
decisions, and barring that, we encourage you confirm the facts on your
own before making important investment commitments.
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Gordon T Long
is not a registered advisor and does not give investment advice. His comments
are an expression of opinion only and should not be construed in any manner
whatsoever as recommendations to buy or sell a stock, option, future, bond,
commodity or any other financial instrument at any time. While he believes his
statements to be true, they always depend on the reliability of his own
credible sources. Of course, we recommend that you consult with a qualified
investment advisor, one licensed by appropriate regulatory agencies in your
legal jurisdiction, before making any investment decisions, and barring that,
we encourage you confirm the facts on your own before making important