Major Structural Changes In One Year
By Jim Willie CB
Aug 5 2010 2:37PM
Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.
A theme of frequent mention has been the Paradigm Shift in the financial world. It refers more specifically to the global shift away from a USDollar-centric alignment. The major industrialized nations of the world, along with major energy producers, struggle to develop a monetary and commercial system that is not based upon the seemingly crippled and certainly bloated USDollar. The challenge is daunting, since expertise on financial structures, even in an honest legitimate fashion, is somewhat lacking outside the Anglo world. Changes indeed come. Many observers, investors, and participants in the global economic and financial world who had held firm to much hope of bonafide structural improvements and of improved prices in valuable traditional assets find themselves slowly fading in that hope. Many less sophisticated people, who are involved in stalled investments and who observe the constant machinations, point to the landscape as simply not changing much. Great discouragement comes when the system seriously broke down, yet no important substantial alterations took place to the power structure or the foundational structure to the system. The high priority to maintain both the system and the power merchants is evident. The compliant financial press is a subtle weapon. Many point to price levels of their favorite or most respected assets or indexes, and conclude not much has changed. Many point to the incessant stream of deceptive economic assessments about a fictitious recovery, like Green Shoot nonsense, like Jobless Recovery contradictions, like Second Half Recovery that never arrives. Many point to the same old same old in legislation that favors those entrenched with power, like the wealthy tax cuts certain to see extension. In many respects, the appearance of sameness is prevalent.
Indeed, some elements like a cancer remain in place. The USGovt financial ministries are still dominated by Goldman Sachs, despite their primary role in the death of the US banking system in October 2008, despite their primary role in the broad almost gratis leasing of Fort Knox gold during the Rubin Era, and despite their culpability in civil lawsuits over mortgage bond fraud laced with conflict of interest. The gold & silver market is still weighed down by powerful shorting (almost surely without posted collateral) and concentrated non-economic positions (hardly forward selling as agents) by the Big Four banks. The exchange traded funds remain in widespread usage, promoted heavily, despite controversy. The USDept Treasury is still flooding the bond market with supply without any evidence of bond vigilantes to keep the bond yield from falling. The endless wars overseas for private gain still march to the beating drums. The New York Stock Exchange still benefits from the regular and frequent lifts by the Working Group for Financial Markets (aka Plunge Protection Team). The lobbyists still write the USCongress legislation, the latest being the Financial Regulatory Bill that bears an 82% opposite correlation to its original motivation and intention, thus solidifying the banker control and neutralizing the threat of independent audit at the US Federal Reserve. Original motives have no bearing on final legislation. The mortgage bond fraud from Wall Street remains without consequences leading to incarceration, a benefit of controlling the USGovt financial, regulatory, and legal apparatus. Sure, it seems that nothing changes in the tarnished landscape that shows vast spoilage if not ruin where banksters ply their trade.
SIGNIFICANT CHANGES LOCKED IN
Great changes have taken place, important changes, powerful changes, clues of much deeper systemic change that is part & parcel not only to a Paradigm Shift away from the USDollar, but also to significant changes to inner workings, levers, platforms, communications lines, and other structural equipment that control the American financial system from the elite helm. The United States, United Kingdom, and Europe have seen great changes worthy of direct and specific identification. No turning back from these changes, as the machinery shows sequential damage heading toward the next stage of systemic failure. Collectively, they indicate the Powerz are actually losing control in crucial ways. Public angst and the struggle to survive have come forth. See the 21% actual jobless rate (ref Shadow Govt Statistics) and the Food Stamp program, where 12% of Americans are on the bread line. My claim of Third World and its advent to the United States must seem a stretch to some, but only to those who lack comprehension of its definition and traits. The latest telltale Third World signs are commitment to hyper-inflation, ruination of the southern ecosystem, endless war profiteering, legal challenges to investment bankers, and regulatory legislation written by the bankers. No great detail will be offered in the following lengthy list of significant changes to the complexion and control towers of key aspects. The sheer volume of the list contradicts the baseless claim of no change. As my key banker source likes to say, "Things are breaking progressively in important places. Those in power are being pushed onto their own swords." These are changes that gold investors can believe in the march to a $2000 price. Some semblance of order is given, ranked by impact and importance. Details on all these topics can be found in the Hat Trick Letter reports. None of the snapshots existed 12 months ago. The 0% rate is stuck perhaps permanently. The monetization will resume in powerful form, again stuck perhaps permanently. The financial and monetary systems are broken and require permanent props with desperate supports, a tragedy in progress without proper recognition. They all mean one thing clearly: much higher gold prices directly ahead!
HOUSING DECLINE & BANK OWNED FORECLOSURES
Almost 50 thousand homes per month are being seized by bankers in the foreclosure process. Most end up on the bank balance sheet, an obstacle that drips acid. In just five years, the Bush Ownership Society has turned into the American Tragedy, thanks to predatory loans, job loss, time limits, and foreclosures. The big difference in the last year has been the flood of REO (real estate owned) by bankers. This flood aggravates the already significant inventory glut of unsold homes, adding to a gigantic supply overhang. With the end of the interim band-aid tied to the home buyer tax credit, watch a reversion to Supply vs Demand dynamics in the housing market. The price direction is down, in a resumption of the bear market decline that took a pause. As bankers grow weary of carrying dead loans and homes that bear negative equity, they will unload their inventory on the housing market. They must, unless Fannie Mae accepts the paper acid vats. Meanwhile, the appraisal process serves as the bridge between the wreckage of bank sponsored foreclosures and short sales (sale price below seller's equity stake), as that process pulls down sale prices and forces the abort button to many pending sales contracts in progress. The REO home inventory was not a factor one year ago, but now it pressures home prices downward. The housing market resumed decline will put tremendous pressure to maintain a 0% interest rate (ZIRP) for home loan demand purposes. The degradation assures further bank losses that will put great pressure to keep the presses running in bond monetization (QE2), both of which will force the gold price to $2000, all in time.
SOVEREIGN DEBT UNMASKED AS BAD PAPER
In the wake of the Greek Govt debt massacre, bank losses, squabbles over rescue packages, and inability to rectify the fiscal ship of state, the end effect is recognition of numerous nations being in similar dire straits across Europe and beyond in the Western World. Spain is stuck in the deep throes of a banking crisis, and has no functioning banking system right here & now. All credit flow originates from the Euro Central Bank, not any Spanish bond market. It is surely next in line for crisis focal point. Astute financial analysts point out how the United States sovereign debt resembles the PIGS nations very closely (Portugal, Italy, Greece, Spain). But the US is granted a pass by virtue of the Printing Pre$$ that its banking leaders abuse to the extreme, with all its tendencies toward fraud schemes and counterfeit programs. The frequency of failed government debt security auctions in Europe is no longer an isolated event, a blemish that befell even Germany. The sovereign debt declines and defaults were not a factor one year ago, but now they pressure all government debt downward except the USTreasurys. The explosion of USGovt deficits will put tremendous pressure to maintain a 0% interest rate (ZIRP) for borrowing cost purposes. The explosion of deficits will keep the presses running in bond monetization (QE2) as buyers vanish, both of which will force the gold price to $2000, all in time.
GOLD VIEWED AS CURRENCY
As the sovereign bond chapter continues to be written in the financial crisis chronicles, a clear practical and perceptual change has occurred regarding gold. Gold is widely seen and mentioned as a safe haven asset, a reserve asset, and an effective asset that avoids counter-party risk as well as any debt obligation. The USTreasurys have long served as the safe haven asset, but that is changing, while USGovt deficits strain the federal debt limit, crush the bond auction process, and render damage to some primary bond dealers. The outsized debt securitization supply crowds out investment capital for actual growth, a great surprise to chaired US economists. The mere volume of USGovt deficits and debt issuance is mind numbing. All major industrial nations, including China, are dealing with huge debts, injurious asset bubbles in retreat, and strains to labor markets. The view of gold as a currency and reserve asset was not a factor one year ago, but now it pressures the gold price upward in direct competition with the USTreasurys. The explosion of all major nations in debt production (led by the USGovt) will put tremendous pressure to maintain a 0% interest rate (ZIRP) for borrowing cost purposes, with gold the clear beneficiary during broad currency debasement. Gold will continue to benefit as the monetary presses keep running full tilt during monetization (QE2), both of which will force the gold price to $2000, all in time.
LONDON METALS EXCHANGE STRAIN
Significant numbers of gold futures contracts have settled in cash in London since December. Often the event occurs with a 25% cash bonus incentive, but amidst scant publicity. Stories are widespread abuse of the SPDR exchange traded fund circulate about borrowed bullion from its vaults. Less debated is the usage by London short gold futures contracts to satisfy GLD shares. Some recent stories of thefts at the LBMA inventory warehouses have sprung up, but of copper plates. The public is being set up in my opinion for a cover story that attempts to explain the absent gold & silver supply in London inventory. Any story that brings attention to absent inventory supply will aid the gold & silver prices, whether from theft or huge delivery demand, even a false story. Either way, the delivery of gold & silver from the LBMA and COMEX has never been greater, demanded by contract holders. Even the Bank For Intl Settlements has entered the picture, with an extraordinary Gold Swap of highly suspicious origin and vaguely stated motive. The gold shortage at bullion banks and the metals exchanges is acute. The strained London gold inventory and pressure to drain the London metals exchange were not a factor one year ago, but now the gold price is pressured upward from pure shortage standpoint. Demand for gold will continue in direct response to the monetary presses that keep running full tilt during monetization (QE2) of outsized global deficits, which will force the gold price to $2000, all in time.
ZIRP & QE ARE PERMANENT FIXTURES
The Jackass has consistently found the claims of an Exit Strategy away from 0% (Zero Interest Rate Policy) to be laughable, full of deception, and an utter impossibility. The steady public statements by USFed Chairman Bernanke were merely for crowd control, shaping perceptions, and maintenance of the USTreasury bubble. The man must notice the failure of the Printing Pre$$ under his tenure, despite his academic apologetic publications. It is the last asset bubble, all of which have broken. The USTBond bubble might not break, but extreme measures to support it will surely inflict mortal wounds to the USDollar as alter ego. The Jackass consistently found the claims of an end to the Quantitative Easing (QE) to be laughable, full of deception, and an utter impossibility. They must maintain via vast monetization the USTreasury bubble, as creditors are fast disappearing. It has lost its foreign buyers at the bid, led by China. The British ally has stepped in to fill the void. Two explanations for the $170 billion push by the United Kingdom in USTBond net accumulation in a mere five months have been offered. Perhaps the Persian Gulf wealth has shifted toward USTreasurys, or perhaps Wall Street and its documented naked shorting of USTreasurys shows up on the UK ledger. The wounded US-based financial institutions lack the wealthy standing necessary to bid up USTreasurys. The main tools to produce USTBond demand are stock declines and Printing Pre$$ operations, and poorly hidden monetization efforts. The permanence of ZIRP & QE were not a factor one year ago, but now the tandem (epitaph on the USDollar tombstone) pressures the gold price upward from zero cost of money and undermine of currency. The path to a USTreasury default is being laid out. Demand for gold will continue while the monetary presses keep running full tilt within the 0% climate (ZIRP) and during monetization (QE2) initiatives, which will force the gold price to $2000, all in time.
RECESSION AFTER 0%
Never in US history has a recession struck after several extended months of emergency ultra-low interest rates. This will be the first such occurrence, a clear stage of systemic failure. The policy response from the USFed must therefore be limited. They cannot reduce the official interest rate, unless below 0% (which did happen briefly in Japan). The nation stands on the doorstep of hyper-inflation. The only available tool within the USFed toolbag is Printing Pre$$ activity, pure monetization of both USTreasurys and USAgency Mortgage Bonds. The USFed can tweak bank reserve ratios, even continue to use the private bank reserves it holds. The inventive USFed will probably find new assets to monetize during dire conditions, the diametric opposite of a recovery signal. The risk is extreme of leakage of the new tainted voluminous money into the mainstream. Be sure that the true economic growth figures (see GDP) will continue to be much weaker in reality than posted by the USGovt. Notice the stream of recession denials, a perverse confirmation. The lost commitment for USGovt stimulus will be reluctantly revived, at great cost. The galloping storm of recession under the dark cloud of 0% rates was not a factor one year ago, a vivid contradiction of Green Shoots in discredit of chaired economists. The economic recession will put tremendous pressure to maintain a 0% interest rate (ZIRP) for economic stimulus purposes. The distress and sluggishness will put great pressure to keep the presses running in bond monetization (QE2) as bank losses mount, both of which will force the gold price to $2000, all in time.
10-YEAR USTREASURY YIELD UNDER 3%
Low bond yields are a typical incentive to purchase gold. The financial advisors must next promise investors of USTBonds in the next year a move to 2%, which seems weak in the knees. Credit must be given to JPMorgan for its powerful usage of Interest Rate Swaps for pushing down long-term rates to 3% since the USGovt deficits spiraled out of control. A federal deficit over $1.3 trillion next year is my forecast, setting up acknowledgment of a chronic condition. Great bond supply was accompanied by a bond rally, as a result of leveraged financial engineering, not a return to a healthy normalcy. In the process, the USTBond has been exposed as a dangerous ominous over-arching asset bubble, with less likely investment returns, angry creditors in retreat (see China), and worrisome fundamentals. Gold thrives with low USTreasury yields across its spectrum of maturities, a factor overlooked by the myopic mainstream. The pitifully low USTreasury yield was not a factor one year ago, but now its exposure as a bubble is profound and dangerous. The measly low bond yields will put tremendous pressure to maintain a 0% interest rate (ZIRP) for structural reasons linked to credit derivatives. The lack of buyers into a bubble asset will put great pressure to keep the presses running in bond monetization (QE2), both of which will force the gold price to $2000, all in time.
FDIC WARNING OF NEW WAVE, LED BY CRE
The Federal Deposit Insurance Corp has recently warned that the bank failures are nowhere finished. They expect perhaps 1000 more banks to fail. The principal proximal aggravation is commercial real estate property loans. The acid from residential loan losses remains a permanent drip on the bank balance sheets. The Commercial Real Estate (CRE) sector is the latest edifice to collapse, taking a huge toll on banks, which prefer the myth of extending terms while pretending that redemption cometh. It will not. They live a fantasy world that avoids honest accounting, but they are consistent in accounting fraud. The big banks recently returned to calling a fallen corporate bond a profitable event instead of an asset writedown (see Debt Value Adjustment). Home loans, CRE loans, and Option ARM loans each carry different type of corrosive liquidity that destroys the banks. The FDIC chronic loss from unending bank failures was not a factor one year ago, but now it forces usage finally of a gigantic credit request from the USDept Treasury. The bank failure skein will put tremendous pressure to maintain a 0% interest rate (ZIRP) to finance the bailouts and to help the Extend & Pretend fantasy. The failures will put great pressure to keep the presses running in bond monetization (QE2) from the FDIC deficit component, both of which will force the gold price to $2000, all in time.
MERS & STRUCTURAL MORTGAGE DEFAULTS
The Mortgage Electronic Registration Systems (MERS) is a property title database turned hostile on its inventors, the Wall Street bond merchants. MERS has been determined to have zero legal standing in a string of state court cases. MERS has proven to be the point of extreme legal vulnerability for corrupt Wall Street merchants. Title transfer through the MERS database cannot be executed in the displacement of homeowners in the foreclosure process. Therefore, home mortgage owners are legally permitted to defy the banks, not make the monthly payments, and remain in their homes without fear of foreclosure and removal. Enter Civil Disobedience. The MERS vulnerability was not a factor one year ago, but now it has exposed a banking balance sheet hemorrhage without end. The need to relieve homeowners will put tremendous pressure to maintain a 0% interest rate (ZIRP) for home loan demand purposes in price support. The bank loss hemorrhage will put great pressure to keep the presses running in bond monetization (QE2), both of which will force the gold price to $2000, all in time.
JPMORGAN & GOLDMAN SACHS OUTED
The Maguire story before the USCongress concerning the frequent silver price manipulation and control of the silver market was a game changer. He was actually invited for testimony. Great pressures have come to the Commodity Futures Trading Commission, but its head Gary Gensler is of Goldman Sachs pedigree, a team player. The civil lawsuits against Goldman Sachs in recent bond fraud and misrepresentation cases added to the game changer effect. GSax settled the case, paid a hefty fine, admitted no guilt, and continued on its established path. However, in the process, damage came to the image of the venerable crime syndicate titans. Perhaps a legal precedent has been set. Regardless, target practice has begun at a time when Interpol has been working on the ground with full subpoena power granted by President Obama since January 2010. The legal challenge to the JPM/GS twin pillars was not a factor one year ago, but now it pressures the integrity of the USTreasurys & USDollar. Great pressure will continue to permit them to operate the USDollar presses running parallel to the bond monetization (QE2), which will force the gold price to $2000, all in time.
CITY & STATE BUST
State budget shortfalls have been scattered among the financial pages for a long time. California has been the poster boy on the state milk carton. New Jersey, New York, and Illinois are also featured on their fair share of milk cartons. State projects, standard police and teacher staffs, routine maintenance from basic services, and recently pension obligations have been the source of great distress. Funding various state programs and systems has become a festering wound, a veritable impossibility. Contractors go unpaid as accounts receivable mount. While the USCongress is dominated by Wall Street and the Pentagon directives, almost no attention or funds can be directed to Main Street. Any state aid that comes as handouts, either by plan or by accident, will exacerbate the USGovt deficit. The imminent point of state financial breakdown was not a factor one year ago, but now it pressures USGovt for federal aid and soon. The nationwide distress will put great pressure to keep the presses running in bond monetization (QE2) to cover any aid, which will force the gold price to $2000, all in time.
GULF OF MEXICO CATASTROPHE
Late April saw a tragic event. It has been called an accident. It has been labeled an example of ineptitude of regulators. It has been called the result of corruption at the office of Mining & Minerals Service. It has far too many international angles on motive to ignore. Its impact on the Gulf of Mexico ecosystem, fishing industry, and tourism is devastating and under study, but minimized by the Administration. Its impact on the Gulf Stream that affects the Atlantic Ocean could be much worse than officials currently anticipate. The damage done to the USEconomy along the southern shores will surely be very deep. The intangible damage is profound to the image of US leadership, to the image of corporate integrity, and to the amplified image of a Third World nation. The British Petroleum oil volcano, complete with methane, benzene, and hydrogen sulfide (typical of volcanoes) was not a factor one year ago, but now it pressures the USEconomy badly with further deterioration. The horrible drag on the coastal economy will put tremendous pressure to maintain a 0% interest rate (ZIRP) as the least effective ointment. The decline will put great pressure on survival, leading to gold demand amidst disaster, which will force the gold price to $2000, all in time.
CROP FAILURES & AGRICULTURAL STRAINS
For years the weather patterns worldwide have been stable and favorable. For years the world grain markets have operated with JIT (Just in Time) inventories. Reserve stocks have been on the low end compared to past historical data. However, times are changing. For the first time in years, dreaded drought has struck in a great many locations, such as Eastern Europe, the usual suspect places, but also to some extent the Midwest United States. Farm output is down in California. The consequent impact could be explosive. The deception on US agricultural output and storage silo data has been a hot topic, aggravated by chronic falsehoods put to paper by the USGovt. They wish to avoid a food price surge. The delicate situation in progress could play out very dangerously. Use your imagination against a backdrop of what is widely called a repeat of The Great Grain Robbery of 1972. California has dealt with the strain of water shortages for seven years. Next comes the toxin from the Gulf of Mexico, whose water will include Corexit (the toxic oil dispersant) along with basic petroleum ingredients (toxic too). Crops along with Southern Gulf Coast are already peppered and pocked with blemishes from toxic rain. And tainted fish products is yet another story. The food supply shortages challenge was not a factor one year ago, but now it pressures to lift food prices. The decline will put great pressure on survival, leading to gold demand amidst extreme hardship, which will force the gold price to $2000, all in time. (Thanks for contributions from a subscriber and friend, who has owned and managed corn belt farmland for decades.)
MANDY DRURY ON CNBC
Australia is well known for strong commodity supply and tangible asset investment opportunity. Since the spring months, the US financial flagship has featured a true Aussie asset. Amanda Drury is one of the smartest talking heads on the CNBC channel. Its production offers unfaltering Wall Street sell side stories, a steady stream of bankers bearing apologetics, clear support toward the fiat monetary system, repeated claims of attractive stock prices, some bias against all things gold, and lunchtime lessons on compulsive high speed trading. But Mandy brings much appeal. The Mandy factor was not present one year ago, but now it fosters viewer demand in disguised gold tips. If truth be known, Mandy loves gold. She once stated she thought the gold price would reach $1500 per ounce in the not too distant future. She has not mentioned her vision since. Her accent is enchanting.
Jim Willie CB
Editor of the "HAT TRICK LETTER"
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Aug 05, 2010
Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com