Category: Weekly Articles 2011

Let’s Talk Markets

Chaos is not dangerous until it starts to look orderly.
- Max Gunther

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.
- Thomas Jefferson

Anyone with eyes open knows that the gangsterism of Wall Street — financial institutions generally — has caused severe damage to the people of the United States (and the world). And should also know that it has been doing so increasingly for over 30 years, as their power in the economy has radically increased, and with it their political power. That has set in motion a vicious cycle that has concentrated immense wealth, and with it political power, in a tiny sector of the population, a fraction of 1%, while the rest increasingly become what is sometimes called “a precariat” — seeking to survive in a precarious existence. They also carry out these ugly activities with almost complete impunity — not only too big to fail, but also “too big to jail.”

The courageous and honorable protests underway in Wall Street should serve to bring this calamity to public attention, and to lead to dedicated efforts to overcome it and set the society on a more healthy course.
- Noam Chomsky

The Worst Generation

Anyone that has been a long time reader of mine knows that in the past year or so I have transitioned much of my writing away from financial markets and toward social and political issues.  There are several reasons for this but the primary driver is the fact that money in the bank doesn’t mean anything if we lose our freedom.  The message I have been trying to get across to leaders of business in all industries is stop making these deals with the devil in order to take one more large bonus or beat EPS for another quarter.  Your choices in pursuit of transitory wealth and status will be paid for by the loss of liberty and the tears of your children and grandchildren.  Sadly, very few in positions of power in America seem to be listening and the lack of high profile/powerful people coming out and risking their own treasure for the long-term benefit of the Constitution and sacred values of this once great nation has been shockingly disappointing.  To the so called “leaders” of America of today I send you a warning from the grave of the great Austrian economist and author of “The Road to Serfdom,” Friedrich Hayak.  You will as a class be remembered as the worst generation in American history.  A generation of leaders so filled with greed, hubris and selfishness that you sold out your nation without ever thinking twice about the tragedy that your silence would bring.  A generation that never had the guts to risk any of their power or possessions for the good of their country.  As Hayak so perfectly put it so many years ago about the rise of Nazi Germany…

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The SDR: The Same Demented Regime

War is just a racket. A racket is best described, I believe, as something that is not what it seems to the majority of people. Only a small inside group knows what it is about. It is conducted for the benefit of the very few at the expense of the masses.

- Major General Smedley Darlington Butler

The Constitution supposes, what the history of all governments demonstrates,  that the executive is the branch of government most interested in war, and most prone to it. It has accordingly with studied care, vested the question of war in the legislature.
- James Madison

If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy.
- James Madison

The SDR: The Same Demented Regime

It’s fascinating to watch things play out as we rapidly approach the final rounds in the end game of the great game.  The great game is of course the never-ending global struggle for power and dominance.  The current entrenched powers that be have been in their positions for a very long time and they have no intention of giving up that role.  What the moral and decent percentage of humanity need to understand in no uncertain terms is that these folks and their minions have no conscience.  They could care less how many starve to death, get blown to bits in war or waste their lives away in front of the television set watching Snookie on the Jersey Shore.  In fact, I am certain that they totally get off on these things.  Degrading humanity into an animal-like state clearly appears to be their aphrodisiac.  Notice how the media encourages people to go out and trample each other for a $2 waffle maker on Black Friday.  The scenes of people running into Wal-Mart or Best Buy in the early morning hours when they should be at home with their families having conversation after Thanksgiving dinner reminds me of scenes of cattle being shuffled into a sorting pen.  Actually if you look at this video the cattle appear much more civilized http://www.youtube.com/watch?v=C71324F_Q-8 (just go a minute and a half in).  I think the second step after one sees the insane matrix we are trapped in is to free yourself from it mentally and emotionally.  It is the mental and emotional control that they are really after.  That is the most powerful and effective tool of control so don’t give them the satisfaction.  Try to buy local and support your communities.  It may cost more but in that case just buy less.  You will feel good about it.  More specifically, anything encouraged by the mainstream media, like spending money you don’t have on superfluous items made in China with slave labor and sold to you at a giant tax dodging corporation should be avoided if possible.

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Three Card Monti

We are grateful to the Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years.  It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.

– David Rockefeller

The interests behind the Bush Administration, such as the CFR, The Trilateral  Commission — founded by Brzezinski for David Rockefeller — and the  Bilderberger Group, have prepared for and are now moving to implement open world dictatorship within the next five years. They are not fighting against terrorists. They are fighting against citizens.

– Dr. Johannes B. Koeppl

Chancellor Angela Merkel said that Germany is ready to cede some sovereignty to strengthen the euro area and restore confidence in the common currency…“Germany sees the need in this context to show the markets and the world public that the euro will remain together, that the euro must be defended, but also that we are prepared to give up a little bit of national sovereignty,” Merkel said. Germany wants a strong EU and a euro “of 17 member states that is just as strong and inspires confidence on international markets.”

– Bloomberg article November 16, 2011 http://www.bloomberg.com/news/2011-11-16/merkel-says-germany-ready-to-cede-some-sovereignty-to-eu-for-closer-ties.html

Three Card Monti

Just like the con (confidence) game Three Card Monte through which people have been swindled out of their hard earned money in alleyways and street corners all over the world for half a millennium, the previously sovereign nations of Greece and Italy have now officially been placed into the receivership of “technocratic governments” and are now in the final phase of their looting.  It truly is sad to watch these proud nations whose histories form the very core of Western civilization be taken down one by one but what is even more nauseating is watching the corporate media pundits, Wall Street analysts and financial experts cheer the news because it is ostensibly “good for markets.”  First of all, it doesn’t take a genius to see that the people that screw up the most get promoted and advanced in the Western world’s current political/economic structure.  The primary reason for this is that there is a very serious agenda of TPTB and that consists on using crisis to consolidate power in a one-world government, headed by a global central bank that issues a global fiat currency.  People have been saying this on the fringe for decades and have been called conspiracy theorists the whole time but if you look at how things are progressing today you’d have to be asleep to not notice that the guys in charge are completely and totally determined to bring this sick, twisted dream into place.  That is why the agenda moves forward despite the repeated, desperate cries of the citizenry for them to stop.

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It Takes 5 Minutes

Power concedes nothing without a demand. It never has, and it never will.

- Frederick Douglass

Fairly quickly, Corzine accumulated a massive net long sovereign debt position that eventually totaled $6.3 billion, or five times the company’s tangible common equity as of the end of its fiscal second quarter. I’m told Corzine’s move was highly controversial within the firm. But no one overruled him, maybe because after all, he was Jon Corzine. In a mark of just how much Corzine mattered to the market, in early August, MF Global filed a preliminary prospectus for a bond deal, in which the firm promised to pay investors an extra 1 percent if Corzine was appointed to a “federal position by the President of the United States” and left MF Global.

Did accounting help sink MF Global?

It Takes 5 Minutes

Alright I am going to kick things off with Europe and get that out of the way as quickly as possible.  Nothing has changed and absolutely nothing has been accomplished.  There is no “solution” to the crisis that will not result in massive pain, confusion and wealth decimation.  The reason is patently obvious.  At least half the continent is completely and helplessly bankrupt.  There are only two outcomes to the entire situation.  Either the sovereign debts are written off aggressively and the banking system declared insolvent and restructured or the ECB decides to turn on those printing presses to the tune of trillions and destroys the purchasing power of the union in Zimbabwe-like fashion.  People will read this and think I am exaggerating .  The phrase “it takes 5 minutes” keeps running through my head because all it takes is a small amount of time to see the situation for what it is.  I am not that smart.  This is obvious.  The scary thing is that it is abundantly clear that the vast majority of U.S. investors have not bothered to take the 5 minutes necessary to understand how extreme and binary the outcomes to all this is.  Their clients will suffer massively in the months and years ahead as a result of their laziness and lack of macro curiosity.

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Rogue Government Traders

Federal employees whose compensation averages more than $126,000 and the nation’s greatest concentration of lawyers helped Washington edge out San Jose as the wealthiest U.S. metropolitan area, government data show.  The U.S. capital has swapped top spots with Silicon Valley, according to recent Census Bureau figures, with the typical household in the Washington metro area earning $84,523 last year. The national median income for 2010 was $50,046…The flow of federal dollars in and around the nation’s capital helped the region weather the economic slump better than most areas and is contributing to its recovery. The unemployment rate in the Washington metro area in August was 6.1 percent, compared with 10 percent in San Jose, according to Labor Department figures. Nationally, joblessness was 9.1 percent in September for a third straight month.  “The region did experience a shorter, shallower recession than San Jose,” said Sara Kline, a Washington analyst at Moody’s Analytics Inc. in West Chester, Pennsylvania. “The federal government stepped in to take efforts to dampen the recession. It was focused to some extent in the D.C. area as well, given the presence of federal workers there and contractors. That insulated it from more of a downturn.”
- Bloomberg article from yesterday http://www.bloomberg.com/news/2011-10-19/beltway-earnings-make-u-s-capital-richer-than-silicon-valley.html

As a result of an amendment by Sen. Bernie Sanders to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Government Accountability Office completed its second audit of the Federal Reserve. This report focuses on the enormous conflicts of interest that existed at the Federal Reserve during the financial crisis. 

Here is what the GAO found:

-       The affiliations of the Federal Reserve’s board of directors with financial firms continue to pose “reputational risks” to the Federal Reserve System.

-       The policy of the Federal Reserve to give members of the banking industry the power to both elect and serve on the Federal Reserve’s board of directors creates “an appearance of a conflict of interest.”

-       The GAO identified 18 former and current members of the Federal Reserve’s board affiliated with banks and companies that received emergency loans from the Federal Reserve during the financial crisis including General Electric, JP Morgan Chase, and Lehman Brothers.

-       There are no restrictions on directors of the Federal Reserve Board from communicating concerns about their respective banks to the staff of the Federal Reserve.

-       Many of the Federal Reserve’s board of directors own stock or work directly for banks that are supervised and regulated by the Federal Reserve. These board members oversee the Federal Reserve’s operations including salary and personnel decisions.

-       Under current regulations, Fed directors who are employed by the banking industry or own stock in financial institutions can participate in decisions involving how much interest to charge to financial institutions receiving Fed loans; and the approval or disapproval of Federal Reserve credit to healthy banks and banks in “hazardous” condition.

-       The Federal Reserve does not publicly disclose its conflict of interest regulations or when it grants waivers to its conflict of interest regulations.

-       21 members of the Federal Reserve’s board of directors were involved in making personnel decisions in the division of supervision and regulation at the Fed.


-  The Sanders Report on the GAO Audit on Major Conflicts of Interest at the Federal Reserve.  You MUST READ THIS.  http://sanders.senate.gov/imo/media/doc/101911%20-%20THE%20SANDERS%20REPORT%20ON%20THE%20GAO%20AUDIT%20ON%20MAJOR%20CONFLICTS%20OF%20INTEREST%20AT%20THE%20FEDERAL%20RESERVE.pdf

Rogue Government Traders

Everything that is happening around the world right now reminds me of the  movie “Rogue Trader.”  In case you haven’t seen it, it is the 1999 film where Ewan McGregor plays the role of Nick Leeson, the Barings Bank trader whose trades gone bad brought down Barings Bank, the oldest merchant bank in London at the time.  The reason why this story is so compelling and why I recommend everyone go watch it is because it demonstrates what can happen when a small loss or mistake is ignored and then covered up in a futile attempt to get back to where you were.  In this case, Nick Leeson started losing money trading futures in Singapore and rather than cutting his losses he kept trading more and bigger.  Pretty quickly, the losses became so enormous he knew he would be forced to close them out if someone noticed and he might even be fired.  So what did he do?  He decided to transfer the losses to a hidden account.  The 88888 account.  He figured he would hide the losses there and then close the hidden account when he got back to even.  He never got back to even and Barings went bankrupt.

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Useful Idiots

First they ignore you, then they laugh at you, then they fight you, then you win.
- Mahatma Gandhi

There isn’t a cohesive message coming from the protestors other than the system is rigged in favor of the top .01%. Those who think they are in control are losing their grip. They see their power and wealth slipping away. They’ve had their way for decades and will not willingly submit to a change in the existing social order. Last night Jim Cramer voiced the concerns of the .01% by saying the Occupy Wall Street protests were worrisome. They are worrisome to the moneyed interests. They are a reason for hope to the 99.9%. We are approaching our moment of truth. There is something terribly wrong with this country. A new American Revolution has begun. It is time to stop being afraid and take this country back. What happens next? The choice is ours. 

- Jim Quinn (Read this http://www.zerohedge.com/news/guest-post-what-country-needs-now-hope)

But the banking elites that led these frauds have been able to do so with impunity from prosecution.  Take on federal agency, the Office of Thrift Supervision (OTS).  During the S&L debacle, the OTS made well over 10,000 criminal referrals and made the removal of control frauds from the industry and their prosecution its top two priorities.  The agency’s support and the provision of 1000 FBI agents to investigate the cases led to the felony conviction of over 1,000 S&L frauds.  The bulk of those convictions came from the “Top 100″ list that OTS and the FBI created to prioritize the investigation of the worst failed S&Ls.  In the ongoing crisis — which caused losses 40 times larger than the S&L debacle, the OTS made zero criminal referrals, the FBI (as recently as FY 2007) assigned only 120 agents nationally to respond to the well over one million cases of mortgage fraud that occurred annually, and the OTS’ non-effort produced no convictions of any S&L control frauds.  OTS’ sister agencies, the Fed and the OCC, have the same record of not even attempting to identify and prosecute the frauds.  The FDIC was better, but still only a shadow of what it was in fighting fraud in the early 1990s.  If control frauds can operate with impunity from criminal prosecutions, then the perverse Gresham’s dynamic is maximized and market forces will increasingly drive honest banks and firms from the marketplace.
- Bill Black

The Tea Party and Occupy Wall Street are Two Sides of the Same Coin

I am extremely disappointed by the way most people are belittling the Occupy Wall Street protests, which I firmly believe is an extraordinarily important moment in American history that will be seen as the moment when rebellion arrived on the streets of America.  Despite my frustrations regarding how pretty much every commentator out there is trying to spin it negatively, this simple fact convinces me without a shadow of a doubt that this is the real deal and we are merely in the second stage of transformative change that Gandhi describes in the quote at the top.  We are in the ridicule phase.  That is good since like anything else, a transformative rebellion manifests as part of a cyclical process just like anything else.

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Rebellion Has Arrived in America

The Bill of Rights is a literal and absolute document. The First Amendment doesn’t say you have a right to speak out unless the government has a ‘compelling interest’ in censoring the Internet. The Second Amendment doesn’t say you have the right to keep and bear arms until some madman plants a bomb. The Fourth Amendment doesn’t say you have the right to be secure from search and seizure unless some FBI agent thinks you fit the profile of a terrorist. The government has no right to interfere with any of these freedoms under any circumstances.
- Harry Browne

The inherent right in the people to reform their government, I do not deny; and they have another right, and that is to resist unconstitutional laws without overturning the government.
- Daniel Webster

It does not require a majority to prevail, but rather an irate, tireless minority keen to set brush fires in people’s minds.

- Samuel Adams

Rebellion Has Arrived in America

As most of you know, I spend almost as much time studying social changes and geopolitics happening around the world as I do studying markets.  While carefully observing those areas are always important to a macro investor such as myself, when you are smack in the middle of a Fourth Turning they take on an increased level  of importance.  What has shielded the U.S. from a lot of the social strife sweeping the rest of the globe at the moment has been the U.S. dollar’s reserve status since this allows us to print seemingly infinite amounts of paper dollars and shove them down the throats of the rest of the world for their resources.  This keeps the populace fat, happy and most importantly asleep and apathetic.  Well I am pleased to announce that those days are OVER.  The American populace is now in the very beginnings of a state of open peaceful rebellion against the criminal oligarchic mafia that runs the nation through fraud and corruption.  The status quo is likely to become increasingly defensive as a result and may lash out aggressively like a cornered rat, but they cannot and will not win.  They can only really win when they own your mind and that battle has already been lost.  Six months from now the state of rebellion will have moved from just beneath to the surface to the forefront of everyone’s mind.  It will be a peaceful and constitutional rebellion and it will end with new ways of doing things, more freedoms and a very long road toward rebuilding a safe, fair, free and localized society once TPTB’s prison planet grid of control has been torn down forever.

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Financial Warfare

Geithner seems to abhor austerity and sacrifice, preferring any strategy which keeps debt growing to fund the investment banking, security, prisons and war industries on which the American economy now depends for so much of its GDP.

- From “London Banker” Blog, link to full piece is here: http://londonbanker.blogspot.com/2011/09/deficit-attention-disorder.html

It takes a PhD in economics not to be able to understand the obvious.

- Irving Kristol

Financial Warfare

Unfortunately, I spend a good portion of my day trying to get into the mind of a deranged, academic, conflicted and panicked central planner.  In other words, I spend most of my day in the Bernank’s head.  August 2011 was an extraordinarily important month in the history of the financial world.  It is when I believe the “system” blew up for good.  The sovereign rating of the United States was downgraded by Standard & Poors and although treasuries have rallied ever since, it was 100% the equivalent of someone yelling the “emperor has no clothes” and the world indeed noticed.  It was also at this time that the European banking system and in reality the entire Euro project started to blow up.  Equities plunged and gold soared.  It was the worst of all scenarios for the Central Planner in Chief, the Bernank.

As all of you know, I think it is nearly impossible to make money in this market (if you want to call it that) unless you assume all things are gamed and manipulated.  I think that if you are under the assumption that there is a free market and that there are rules when it comes to the government, the banks (Central and TBTF) then you can’t succeed because you are operating on an entirely false macro assumption.  August absolutely scared the living daylights of the central planners and all of us in the “fight the Fed” camp knew that they would have to pull something together to exact revenge on those that are betting against them.  One of the other things that happened in August that scared the living daylights out of the central planners was the massive flow of fiat money into what was perceived to be a “hard” fiat currency – the Swiss Franc.  This provided these guys with the perfect opportunity to launch a massive counteroffensive in what has clearly become a gigantic Financial War.  In what was an extremely well planned and aggressive move, the cabal of Western Central bankers convinced the Swiss to make the incredible announcement that they would print unlimited Francs to peg the currency at 1.20 to the dying euro.

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My Message to Europe

It can be difficult for non-Europeans to un­derstand the various dynamics that coexist in the densely-populated housing estate that is Eu­rope, but by way of a beginners’ guide, I’ll place my tongue loosely in my cheek and attempt to explain it to our American and Asian friends through the application of the normally toxic combination of British humour and sweeping generalization. Here goes:

The Dutch hate the Germans.

The Greeks hate the Germans.

The Germans hate the French, the Dutch, the Poles and the British.

The British hate everybody.

The French hate the Germans.

The Spanish hate the French.

The Italians don’t really hate anybody.

The Belgians hate the Dutch and the French but nobody cares.

The Greeks hate the fact that the rest of Europe doesn’t REALLY consider them European.

…and the Swiss, are neutral.

- Grant Williams of “Things that Make You Go Hmm”

My Message to Europe
I really don’t like having to write back-to-back emails about Europe but you must go to where the battle is being fought and so therefore I am compelled to do so.  We are right now engaged in a major conflict between TPTB and the rest of humanity (99.9%) of us and the key battleground right now is on the Continent.  As we all know by now the elites want a neo-feudalism on a global scale run by a global central bank that issues a global fiat currency that they control the creation and distribution of.  In other words, complete and total power on a global scale.  This is what these control freaks want and their playbook is “problem, reaction, solution” or to quote Rahm Emmanuel “you don’t ever want a crisis to go to waste; it’s an opportunity to do important things that you would otherwise avoid.”  The crisis is Europe is seen as a HUGE opportunity to further consolidate control over Europe by TPTB via a “fiscal union” in which democratic sovereign states would be eliminated in the name of the “general welfare” or to avoid “another Great Depression.”  This is why they are so panicked about the idea of the Euro breaking apart.  If that was to happen then their entire plans for the consolidation of Europe on the path to “global governance” would evaporate.  As we can see by the events transpiring today, the Euro system has already given too much authority to the ECB and Brussels (which by the way doesn’t seem to be a stable country in itself at the moment and could be on the verge of a political breakdown as the caretaker Prime Minister appears to be on the way out).  There are for now restrictions on what the ECB can or will do and the whole point of the current crisis is to create so much confusion and pain that the governments of the Eurozone capitulate and give even more power to the undemocratic dictators in Brussels.  We must never forget the quote by Mayer Rothschild: “give me control of a nation’s money and I care not who makes it’s laws.”  This is as true today as it was in his days and in all the days back throughout recorded history.  There is a very good reason that gold and silver came into use as money.  They give control to the producers of goods and the productive in society and away from the parasitic bankers and politicians.  The ultimate power resides in the ability to create fiat money at will.  Dictators and power hungry control freaks have known this throughout history and they know it today.  We must NEVER allow them to achieve this on a global basis as we can see the damage they have done when they simply have that ability at the national level.

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The Euro is Finished

There are two ways to conquer and enslave a nation.  One is by the sword. The other is by debt.
- John Adams

What lies behind us and what lies before us are tiny matters compared to what lies within us.
- Ralph Waldo Emerson

The Euro is Finished

To regular readers of my pieces over the last several years this may not seem like a particularly poignant statement.  After all, I have referred to the Euro and the U.S. dollar both as worthless political toilet paper for years.  The reason I bring it up right now is not to state the obvious long-term macro conclusion that the Euro is a foolish, unnatural creation that only political types twiddling their thumbs in a room could come up with.  No, rather the reason I say it now is because I believe the Sword of Damocles is now hovering right over it.

The only question in my mind at the moment regards the specifics of how it will end.  I would say that the majority of those that think there is a strong likelihood that the euro falls apart envision the PIIGS countries leaving or being thrown out.  While I certainly think this is a possibility, especially if Greece just calls it quits and then successfully transitions to its own highly devalued currency since this would for sure start the ball rolling and before long many of the other financially weak nations would also bail.  In such an event, I suppose what is left of the euro could be comprised of stronger Northern European nations and in that case what is left of the common currency could in fact strengthen materially versus other fiat currencies for which no such “restructuring” has occurred.  However, I am not convinced this is what happens.  The reason I am not convinced is because I don’t believe that the desired austerity measures will ever really go into effect in these nations and even if they did it would merely collapse those economies and the problem would not be solved.  As many have stated over and over (including myself) there is no conventional solution to this crisis.  There is far too much debt and there is no way real GDP growth can grow fast enough to counter this.  The debt will be defaulted on via restructuring/default or a dramatic destruction of the purchasing power of fiat currencies.  Nevertheless, the bureaucrats in Europe have such a deep love affair with their preposterous experiment they will turn a blind eye to all the transgressions of the PIIGS and continue to just pretend they have solved something with every new bailout scheme.

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