Gold Ambush Tactics & Potpourri

Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Jul 25, 2008

Use this link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise 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.

For the second time in the last several weeks, the gold market has been on the receiving end of ambushes. Leading up to their July 3rd announced rate hike, the Euro Central Bank strong hints prompted the last ambush. The gold futures contracts bear this out easily, as the big cartel players sold down the gold price with heavy paper supply simultaneously. They had to do so. When physical is in reduced supply, resort to trusty paper. After stabilizing in the 920 to 925 range, gold promptly rose to exceed 980, only to be ambushed yet again. The ambush consists of an unexplainable sudden $20 decline in midday, cheered by the majority but without any analysis of where the decline originated. The motive for the early July ambush was simple. The EuroCB revealed their intention to hike rates by 25 basis points, thus exposing the USDollar to even more risk of decay, degradation, and depreciation. Without more corrupt interference in its market, the gold price would have surely vaulted past 1000 in July. So enter JPMorgan and their vile henchmen comrades. Who ever said the only noisy communists resided in Moscow and Beijing and Pyongyang? Central planning and market control have migrated as tools from communists to those conmen posing as capitalists and defender of freedom! Let's call the US Federal Reserve and its partners in collusion what they really are:  better dressed and younger Politburo members equipped with better sales pitches. These guys resemble the Gosbank goons, whose three featured henchmen should have substituted Bernanke, Paulson, and Cox. So they whacked gold immediately before the EuroCB decision to hike rates three weeks ago, since the news was to be so very harmful to the USDollar.

The next ambush came late last week and this week. What was the risk posed to the USDollar? This time the dire bank situation had turned desperate in its bloody atmosphere, laden with many ugly features and developments. First, the corrupt block of legitimate shorting of bank stocks coupled with selective enforcement of naked shorting of bank stocks coupled with improper blame of bank stock woes assigned to those nasty short speculators. So they engineered a short cover rally in the bank stocks that truly defies any claim as absurd that the US stock markets are fair, open, and driven by equilibrium, or free from scum. Speaking of scum, consider that the new SCUM = Sacred Cow Untouchable Mountains of banking manure. See the Sacred Cow SCUM list of banks forbidden from shorting, led by Goldman Sachs, JPMorgan, Fannie Mae, Freddie Mac, Merrill Lynch, Morgan Stanley, and Lehman. Do you think their bank executives loaded up on option calls before the news, all tipped off? Sure!

Lost somewhere along the way was the legitimacy of shorting a stock when the company behind the stock was insolvent and fending off bankruptcy. The protected few sacred cows have one thing in common, being all related to the London Bullion Market Assn (LBMA). Thanks to Seeking Alpha for that jewel of information, details in next month's newsletter issue. So those very banks most closely associated with corruption of the precious metals market are the sacred cows most protected by totally obscene selective regulatory enforcement. By the way, few have thought this through. By limiting legit short procedures, the regulators have interfered with legitimate option trading activity, as managed by dealers. They typically short a stock after taking the opposite position to a legitimate option put short position. So look for the options market to be all mangled as well. Free market? Not a chance!

Second, the US Federal Reserve announced on Tuesday that their lending facilities would be made available to selective large hedge funds. Again, the keyword is selective. This opens many new questions. Certainly some hedge funds are working in concert with many entitled Wall Street firms as they busily wreck the national financial structure by supporting the unsupportable USTreasurys and by trying to destroy the indestructible gold & silver market. If not for acting as USGovt agents in price control, the system would give them up for carved dinners on the bankruptcy table. Give credit where due. These conmen wizard control freaks have wielded leverage and corruption for longer than the 31-year record for previous fiat currency survival. Alright, so hedge funds will be given access to bond swaps by the USFed benefactor. Will some hedge funds be slaughtered much like Bear Stearns, for the same motive? The Bear Stearns book contained too much short USDollar positions and too many long gold positions. When they appealed to the USFed for help, the USFed killed them instead. Now hedge funds will be in the same predicament. A big hedge fund might be intentionally targeted by privileged Wall Street syndicated bank operators for a kill, with the fund's unwanted positions liquidated, but its desired positions in need of protection seized by JPMorgan. A hedge fund that is loaded with almost all unfriendly positions will just be killed outright, a typical tactic being a cutoff of credit by the Wall Street firm itself. The USFed will come to lend a helping hand, assuming some of the necessary load. This is American financial capitalism at its most desperate, most scummy, most bound by elite welfare, and most despicable. This is the Fascist Business Model on display, showing yet another new facet of corruption. Few realize that USFed bond swaps are temporary, and cannot alleviate bank woes unless the USFed makes the swaps permanent. THAT WILL NOT HAPPEN, since the USFed is not a charitable organization willing to kill itself for the public good. The public remains clueless, bewildered, and too confused even to respond or to object. It understand little of inflation, and less of banking procedures.

Amidst the latest situation with a bank system reeling, their stocks in need of a corrupt engineered bounce, and announcement of a broader rescue from USFed swaps to hedge funds, the news was so bad that gold had to be ambushed yet again. The BKX bank stock index bounced very close to my stated 57 target, for which the bear triangle deserves the credit. Give the banks another couple weeks, and the gravity force will push its rancid juices to the bottom line again. This sector amazingly enjoys the benefit of accounting quiet darkness in the middle months of quarters, precisely when lies and false spin can be promulgated safely, with more willingness by sheeple to gobble it up as valid research, when it is pure deceptive promotional propaganda. THE BANKS WILL BE DILUTED INTO OBLIVION, AIDED ONLY BY RESTRICTIONS TO TRADES, that is my ongoing mantra. Within a couple weeks, gold will rise again unfettered by the illicit assault on real money. The basic underlying problem has not gone away. The housing prices continue down. The formal collateral for bank-held mortgage bonds continues to fall in value. When the USEconomy was heretically built atop a housing bubble by Greenspan policies and US corporation coopted acquiescence, a systemic breakdown was assured. England shares in this destruction outcome being assured. In the Untied States, expect a housing bear market of double strength, since the first one in year 2001 was interfered with. It was not eliminated, only delayed.

GOLD & ITS SUPPORT BOWL

Notice the rounded support bowl that eventually will lift the gold price upward significantly. Notice how the two key moving averages are still rising. The 20-week moving average should offer key support here. The strong long-term trendline points the way still. The MACD cyclical index shows a downside crossover, a minor victory for the evil ones, but actually only a delay. The gold price does not usually benefit from the summer season, and this is no exception. Beware when the summer gives way to autumn, as the gold price will fire beyond the 1000 mark with ease. Reaching 1200 before year end should be easy. Anyone who thinks the bank sector is out of the woods is as stupid as a fence post, as corrupt as a Wall Street bond dealer, or as asleep as Rip Van Winkle. Also, a very smart lady from San Francisco told me this morning that no contract rollovers in gold & silver will occur between next week and December. Silver will have almost as long an advantage. The evil ones saw some easy money to grab from options over the 930 price, which was ripe for the picking, provided they could corruptly push the gold price down away from 1000. Regulators permit it, all for the greater good. That greater good objective has managed to take a monetary inflation avalanche in the last several years, and deliver unprecedented price declines in many important asset groups like housing and asset backed bonds. Put that in economics textbooks!

Curiously, watch the gold price recover after the crude oil stops its decline, and very likely before oil stabilizes. The bank problems are not tied to oil, but to housing and mortgage bonds. The next stage of bank crisis will indeed contain both an economic and oil shock component, since some businesses are already failing due to costs. Really lousy housing data today serves as a reminder that the sector needs to be put back on the radar. Existing housing sales were down 2.6% sequentially, with inventory remaining huge at 11.1 months supply. To those who said lower home prices would alleviate inventory supply, wrong! My analysis has steadily claimed that housing inventory would rise to much worse levels, pushed by foreclosures. As housing continues to swirl down in a spiral to the bottom of the toilet, gold will be lifted by the Third Law of Motion by Newton. With every action comes an equal and opposite reaction.

The corrupt selective enforcement by the Securities & Exchange Commission of the short stock rules will come to an end, since limited, and since under fire from numerous unexpected camps. The season will turn to autumn, something the evil ones cannot overturn. The futures expiration rollovers will soon eliminate the temptation to steal option player money that sits waiting to be stolen. The broad rescue packages are soon to kick in, complete with astounding inflation consequences and implications. Gold responds to the profound assured USDollar supply consequences. So far, the great majority of the USFed rescues have been directed toward elite bond subsidies to bankers connected to the inner sanctum. The next round of bailouts will be for mortgage holders, homeowners, and lenders who live closer to the Main Street economic circles and commerce rotaries, far from the ivory towers of unspeakable and worsening corruption.

SOME IMPORTANT POTPOURRI

The new housing & mortgage rescue plan has some missing pieces. The Federal Housing Administration had asked specifically for some risk price protection. They were denied. So the FHA risk is open-ended. For those who are unaware, the FHA controls the under-water mortgage bailout mechanism. The official package, which took eleven months to prepare, when it should have taken no more than three or four months, is entirely inadequate out of the gate. It is 5% of what will ultimately be needed. The US Congress is very likely to fall for the bait of a quasi unlimited bailout tab for its quasi-govt guarantees for the Fannie Mae enterprise, which in no way is quasi-honest. It is the quintessential colossus of corrupt US mortgage finance, the blackest of black eyes ever to grace the US financial landscape in its modern history. For the Congress to offer any substantial backstop will guarantee not its survival, but instead the zoom of the gold price well past the $2000 price level, as in two thousand dollars per ounce. We are witnessing the gradual process of granting a blank check to Fannie Mae for losses that in my estimation will amount to over $1 trillion. Even Bill Gross of PIMCO just yesterday raised his estimate to a cool $1 trillion in mortgage losses for banks as a group. He said, "Nearly one trillion dollars of cumulative losses will finally mark the gravestones of this housing bubble."

The Three Stooges of Bernanke, Paulson, and Cox appeared before the US Congress in order to gather in near total power to control the system they succeeded in destroying, and to force the USGovt to bail out the conmen who remain unprosecuted for bond fraud. They appear before the nearly equally compromised august body of legislators in order to appeal for extending the regulatory powers, especially the SEC, without any new formal legal approval. Rarely do they appear as duos, yet alone threesomes, a testament to their utter desperation. Notice that the Congressional members still lick their boots, even though they are more responsible for the bank destruction than almost anybody. Their reward will be total power, bestowed by the sleepy servants, or at least their acquiescence. Those responsible for the bank breakdown want total authority in a queer audacious maneuver. Today Cox from the SEC was all alone in the congame before Congress. Imagine corrupt conmen making a major appeal before compromised legislators who are mainly beholden to special interest lobbies. Cox disrupted the bank rally by advising regulatory differences to continue for commercial banks versus investment banks. Or was it the horrendous housing news that sent the Dow Jones Industrial Index down over 200 points? Perhaps it was realization that the bank sector short cover episode has ended almost as suddenly as it began? The opportunities for graft and fraud will be huge and ripe. Look to the FHA to become the focus of that corruption, which writes the bailout check given to the original loan underwriter, since all it requires is paperwork from an appraisal for a hefty check written to the originator. Research the Hurricane Katrina relief effort, if you wish to observe corruption. One dollar in three is stolen are tainted by corruption.

The Fannie Mae bailout and eventual New Resolution Trust Corp will represent the largest relief effort known to modern mankind. It too will be corrupt to the core. Give it time to become larger, assuredly more corrupt. A Fascist Business Model requires ever greater corruption, fraud, and criminal activity, much like a Ponzi Scheme, in order to continue. It spreads like a cancer, and does not offer any protection whatsoever from external threats, but rather subjects the nation to immense internal threats.

The regulators and central bank are pushing for more power after their own failures. Only in America! And these clowns wonder why the crude oil price is rising! And wonder why the USDollar is falling! Watch the USDollar and gold price respond to precisely these Congressional decisions. This is what my analysis has pointed to for several months, the extension of the USFed bank bailout to a Congressional bailout of mortgage holders and loan originators. Why? Because this is the mechanism for delivering monetary inflation directly into the USEconomy, which will officially permit better household finances and spending, officially enable more credit extension and lending by smaller bankers. Finally, the general economy might realize some of the inflation benefits, like higher wages and more discretionary income and more spendable cash. It is all a ruse though, since costs will continue up. A race will ensue, with costs rising and wages chasing them.

Few seem to complain about the assault on free market capitalism. One could detect Larry Kudlow from CNBC decrying the short sale restrictions in a rare moment of criticism. The restrictions seem to be very consistent with the pathogenesis that is the Fascist Business Model. It is ok to buy bank stocks, but not ok any longer for energy stocks or crude oil contracts. One of the primary objectives (admittedly finally) of the Iraq War was to boost via control the price of crude oil and secure cozy oil service contracts. Now that the USEconomy is reeling from the bitter fruit of their success, energy investments are shunned, in favor of bank investments. Selective enforcement is a hallmark of a rigged system. The rigged game has been going on for a long time. Just look at the Commodity Futures Trading Commission (CFTC) and their selective hegemonist directives laid against precious metals in the past, their tacit approval (lack of formal recognition) of outsized short positions in precious metals on an ongoing chronic basis. The US financial markets are now globally regarded as the most lopsided, unfair, and corrupted in the developed world. Find a more fair financial market in Colombia or Brazil, and perhaps more worthwhile investments. Talk about Brazil! Wow! They have achieved energy independence from ethanol based on sugar cane, which contains four to five times as much energy as corn per acre of land.

Then you have the Exchange Traded Fund proliferation. Some call it progress, to make it easier for investors to pursue broad strategies. Anything to make it easier for investors to do anything is a ruse. The ease to invest goes hand in hand with the ease to corrupt the same market. The growth in ETFunds to match the price for commodities such as oil or natural gas or coal or gold or silver or grains or financial stocks or water stocks, this growth enables corruption by their managers. The GDX, for instance, managed by Goldman Sachs, is reported the vehicle for suppressing the very stocks it managed and that many precious metals advocates invest in. My rule of thumb is that any fund managed by firms with a scummy reputation for fraud, market suppression, and other unprosecuted criminal activity is in no way, shape, or form legitimate, and probably the vehicle for further price suppression in a broader manner. This rule eludes many smart folks in the gold community, who still believe JPMorgan runs a legitimate honest GLD gold metal fund and Barclays still runs a legitimate honest SLV silver metal fund. Their supposed proof is that the rise in the gold and silver prices. That argument is about as stupid and lame as the claim that my Sioux rain dance conducted on my balcony produces rain every day here in Costa Rica during the month of July. In the statistics world we call this the confounded effect trap. The odd fact omitted is that July is smack dab in the middle of the rainy season. Me encanta lluvia! Que asca, las fascistas!

One might take some solace that the powerful evil maestros from the 'In Crowd' have suffered some staggering bank & bond losses. Focus not just on the bank stocks and their bank bonds. Look to the stock exchange IPOs that are way down. They were all the rage a year or two ago, now down significantly. Of course, the maestros might have sold out earlier. Look also to the private equity groups like Blackstone, whose shares have been slaughtered, to the dismay even of the Chinese Govt. The Asians will think twice before plunking down more money to any US financial firm, let alone an insolvent bank. Leave that fool's errand to the Arab sheiks and Singaporeans. Qatar did not invest in Barclays, a total lie. They were secretly bailed out by the Bank of England, with Qatari collusion. So goes the rumor from Europe.

Then there is the energy market. The XLE properly foretold the current decline in the crude oil price, as mentioned in the May Hat Trick Letter report. All the focus on mean dirty speculators pushing up the oil price is misdirected. How else can large fortunes be properly hedged from huge USDollar risk, except in a huge and highly liquid market? Pity the hedge funds and all those guys wearing propeller hats. They have been using recent strategies to go long energy and short financials. They are taking big losses now. The goofballs sitting as network anchors believe the US can drill its way out of trouble, by releasing obstacles from offshore locations, like the gorgeous California coast. The golden state has become a wasteland, a fire zone both from nature and humankind. Its economy is in a depression. Its state budget can be expected to be slashed every several months, two done already. Job layoffs are staggering. To think that drilling will offer any relief in oil or gasoline or diesel prices in the next two years is moronic. Drill rigs require up to five years lead time. By then the crude oil price might be above $200 per barrel, with celebration on Wall Street when it goes below that level and is perceived to be cheap.

My eyes continue to be trained on the rising USTreasury Bond yields. The 2-year TBill yield has gone from 2.40% as a recent low up past 2.7% just in time for an important Treasury auction on Wednesday and today Thursday. Bad timing! That yield has come down somewhat. The USGunment must pay up for borrowed funds, and a hefty amount is was, over $50 billion. The long-bond, the 10-year USTreasury Note, saw its yield jump from 3.8% as a recent low to 4.10% before relaxation. The ugly side effect is that 30-year mortgage rates hit 6.5% this week, a far cry from a more friendly 6.14% earlier in July. Removal of talk about further USFed rate cuts has a built-in backfire on the housing market. Thus the USFed might find that it MUST cut rates in order to help banks and housing. The cost to the USEconomy be damned! Higher costs must be accommodated. Such is the tragic policy option afforded the inept gang of inflation engineers and economic statistic endorsement agents, who are left with two ugly choices, Sophie's Choices. Kill the USDollar or kill housing, not much of a choice.

A new chapter to the mythology treatise has been written. The slow motion collapse of the US financial system proceeds on schedule. The claim nowadays is made, that the USEconomy will remain protected from the bank system woes. What a crock! No, the planned destruction all started with Greenspan's acquiescence to irrational exuberance in 1994. He decided to amplify the US$ money supply out of step (faster) than economic growth, so long as the (rigged) Consumer Price Index remained calm. The export of inflation helped to keep it down for a decade, but now that policy has backfired. The destruction required a key push by the 1999 grant of Most Favored Nation status to China. That enabled removal of a large chunk of the US industrial base. The resulting poverty kept down the power of the proletariat laborer, a key opponent to Politburo central bankers. Doesn't anyone realize central bankers are more communist in nature than capitalist? Sadly, Americans learned little in school, surely not how communists identified, and not how fascists are identified. The absence of viable income from added value enterprise gave birth to the Asset Based Economy, wherein the Untied States took the deadly pill. This was not a red pill versus blue pill, but a hemlock pill. It built the economic foundation atop a housing bubble, and laced the entire banking system with an unstable temporary mortgage latticework. The risk price model formed the glue, and that too has begun to dissolve.

THE UGLIEST PART OF THE ENTIRE FINANCIAL PATHOGENESIS IS THAT MOMENTUM IN THE BREAKDOWN IS FIERCE, AND FEEDBACK LOOPS ARE UNSTOPPABLE, AS THEY FORCE DE-LEVERAGING AND POWERFUL CONTINUATION OF THE PRICE DECLINE FOR ALL ASSOCIATED ASSETS. In its wake lie gold & silver, which benefit from the retreat from a burning collapsing building built of paper girders and paper walls, held by faulty risk price model glue.

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Jul 24, 2008
Jim Willie CB

Jim Willie CB is the editor of the "HAT TRICK LETTER"
email: jimwilliecb@aol.com
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