GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Potpourri
* Contagion & Fracture in Europe
* Extreme Winds of Disruptive Change
* Precious Price Mart Gallery


HAT TRICK LETTER
Issue #89
Jim Willie CB, 
“the Golden Jackass”
21 August 2011

"On March 6th 2009, the SPX made its intraday low of 666. Gold on that day was $965. Thus, the S&P500 bought 0.69 ounces of gold. Today, At the high of gold intraday today and the low of the major stock index, the S&P500 bought 0.72 ounces. Therefore, in gold terms or in real terms as opposed to nominal, today's action in the S&P500 has us basically back to the March 2009 low." ~ Barry Ritholtz (latest August 20th close has S&P500 buying only 0.606 ounces Gold, worse than 2009)

"The fact that sovereign debt is among the last to fail does not mean that it will not fail. This is the truth investors are just now beginning to realize. As their faith in the bankers paper scheme collapses, the price of Gold will exponentially rise. That Gold has risen for ten successive years is a sign that confidence in the bankers confidence game is waning. When the public finally catches on, and it will, the handwriting on the wall will be clear for all to see as will the bloodbath in financial markets." ~ Darryl Schoon (the pyramid at work, gold the anchor)

"In the past couple of years there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries. Those events combined with some of the other fragilities in the nature of recovery have pushed us into a new danger zone. I do not say those words lightly." ~ Robert Zoellick (World Bank president)

"The United States lives beyond its means, taxing the global economy with its problems, and living like a parasite off the global economy and the monopoly of the dollar." ~ Vladimir Putin (prime minister of Russia)

"The USDollar currency is gradually discarded by the world. The process will be irreversible." ~ Guan Jianzhong (chairman of Dagong Global Credit Rating)

"All of the Western world save for maybe Australia and Canada is swimming in debt. So I do not know how anyone can feel good about what is occurring. It seems almost impossible to think that this paper money regime that we have been on for the last forty years is not in the very end game." ~ Bill Fleckenstein (perma-bear with great hair in the gold lair)

"It has taken two years. We are almost at $2000 which is very intriguing, and the price of Gold continues in a structural bull market. Actually it is outperforming almost all the equity indexes. We had a very steady progression from the breakout of 2009, a 20% advance, a little consolidation, another 20% advance with a little consolidation three times and now again. If we continue on this current trajectory, we could see Gold at $5200 by 2018." ~ Louise Yamada (superstar technical analyst)

"Like the Fed, the Bank of England has an unfettered printing press. By eschewing membership in the European Union, Britain has the ability to print Pound Sterling in the same unchecked manner as the Fed prints dollars. However, by not having a reserve currency like the USDollar, the UK cannot pawn off its inflation to China and other creditor nations. Hence, England has some of the highest real inflation levels on earth, and not shockingly a rising level of social unrest." ~ Andrew Hoffman

"There is no floor to the fiat currencies as they keep printing them. So there is no ceiling for Gold either. People will lose more money in bonds than in stocks. Gold is the one place there is not a bubble because Gold is reflecting the loss of purchasing power of fiat currencies. Gold is money. Everything else is a poor substitute." ~ Peter Schiff

"The economic data is not there yet, to claim the United States being in a recession. But if a recession does occur, we economists with Fed pedigree will be the last to know since we forecast looking backward, not forward. After all, we have been wrong about everything for four years running, and take pride in consistency, especially in those expectations." ~ Randall Krozner (first sentence actually his, the rest all mine in surefire mockery tone)

GOLDEN POTPOURRI

◄$$$ THE RATIONALE FOR GOLD HAS MANY SUPPORTING LEGS. GOLD IS THE METERED REFLECTION OF A DESTROYED MONETARY SYSTEM. SUPPORT FOR THE SYSTEM IS FRACTURING OPENLY. ERIC SPROTT EXPECTS A SERIES OF GLOBAL DEPOSIT BANK RUNS THAT LIFT THE GOLD PRICE. $$$

Gold has been chosen over the millennia as money because it is a great store of value, widely recognized, transportable, and fungible (easily exchanged in equal parts). It is stable, inert chemically over time, not to undergo alteration. It is shiny. The historical trigger for the Gold bull market is ultra-low interest rates, like what have been seen in the US, UK, and Europe for three full years. It is stuck at or near 0%. The mine supply has flattened out in recent years, as mine deposits are more difficult or yield less. Even jurisdictions threaten the projects, sometimes going so far as confiscation and seizure. At the same time, major governments have reacted to historically unprecedented insolvency laden with debt saturation by printing more money, added to the monetary aggregate in a dangerous practice. The solution is seen the same as the disease origin, ironically and pathetically, if not tragically. The supply of major currencies is rising, but the supply of gold is barely rising. Gold is the constant, which means currencies are being debased. The foundation of the global currency system is sovereign debt. It is crumbling before our eyes, working at the periphery initially, working toward the core inexorably. Just like the subprime mortgages began the rotting process, eventually working to the prime mortgages and Option ARMs, the sovereign debt is working toward a climax ruin of USTreasurys, UKGilts, and EuroBonds. The Western Economies are equally insolvent as the Western big banks.

The current condition has an unfixable condition without widespread liquidation and removal from power the big US and London banks, an event that will never happen. Therefore, the collapse will be complete and unstoppable despite all feeble actions. Competition with Chinese labor in globalization is a proximal cause. Bad economic principles is a chronic problem. Bank sector fraud on a massive scale is another key factor. As the global financial crisis enters its fourth year, it is being recognized by the astute analysts, fund managers, and otherwise mavens as not being fixable under the current leadership using any current tools. The system will degenerate into a climax crisis of historic proportions. A great Paradigm Shift is in progress regarding both wealth and power. Wealth moves toward hard assets. Power moves East. In the process of this entire pathogenesis, the Gold price will rise many times further, far past $2000 per ounce. And the Silver price will follow, far past the $100 level. People are protecting themselves from the global ruin of money itself, a great awakening process marred by fear. They are moving from the toxic fiat currency system to hard bullion metal for protection and survival. As events continue to unfold, and more grandiose rescue bailouts are declared, the ruin of money will be clear. The productivity of new debt has turned counter-productive, with negative results. Gold is not in a bubble. By definition gold is never in a bubble. It is the messenger recording the sickness and impairment of the world financial structure. To claim Gold is a bubble is like telling a man with leprosy that his mirror is flawed and disgusting.

What has begun in Greece is going to spread to Western banks. Big powerful bank runs will occur, like night following day. The confidence in the stock market has been slowly eroding, as fear grips the population in the next chapter of the crisis. In time that distrust will extend to sovereign bonds of all stripes. Then comes the big bank failures. When trust and confidence erode, the sequence of events feeds the fury. The process is well along, the debt bust having begun over a year ago in Dubai and Greece. The PIGS debt so far has been devastated, the latest door of ruin opened to Italy and Spain, some initial triage dressings applied. The result of bond and bank runs will be a gigantic lift to the Gold price. See the Zero Hedge article (CLICK HERE). Another warning signal is flashing. The Southeby auction house has served a great predictor of imminent crisis over the last few decades. The collector art sector is hurting, as easy money dries up. See the Zero Hedge article (CLICK HERE).

◄$$$ THE STANDARD & POORS DOWNGRADE OF USGOVT DEBT MIGHT HAVE BEEN A POLICY MOVE, ORDERED BY THE USGOVT ITSELF IN ORDER TO SHOCK THE SYSTEM SUFFICIENTLY FOR POLITICAL COVER. THE USGOVT MIGHT DESIRE A SERIOUS REDUCTION OF WEALTH, A MUCH WEAKER USECONOMY, AND SIGNIFICANTLY LOWER FINAL DEMAND. THE MAIN GOAL COULD BE TO FORCE A MUCH LOWER USDOLLAR EXCHANGE RATE, TO REDUCE FOREIGN HELD USTBOND DEBT SECURITIES VIA INFLATION. THIS APPEARS TO BE THE PLAN, WHICH WILL FAIL. $$$

A growing belief has come that the Standard & Poors debt downgrade of the USGovt was part of the official government policy itself. Some hints were given last month when several stories floated that officials were frustrated and angry that the financial markets were not taking the fiscal crisis seriously, regarding business as usual as the norm. They desired a very mild panic atmosphere. The recognition of a certain surefire USEconomic recession has awakened and shocked the financial markets, realizing no solution in three years after all that futile effort. The camp has growing members that S&P was given a green light to issue the debt downgrade. The USGovt wanted a lower USDollar, wanted the political impasse to be visible, wanted the financial markets to notice in a glare. But more importantly, the USGovt wanted to direct traffic on the financial freeways from stocks to bonds. This is the most pernicious of vested interests, something cited in the Hat Trick Letter before on multiple occasions. If the USEconomy can be wrecked, then ample demand for USTreasury Bonds will be assured. This is a suicide pact scribed on Wall Street. Ironically, the USFed balance sheet will be wrecked.

Two important events took place, one public and the other secret. The US Federal Reserve gave heavy emphasis the the extreme weakness of the USEconomy, and announced 0% as policy almost forever. My forecast made in 2009 was for the USFed to maintain its 0% official rate (Zero Interest Rate Policy) for years, a correct forecast. By assuring ZIRP forever, it gave the green light for investors to flock into USTBonds with safety, even though bonds serve as the most obvious and prominent global asset bubble since the housing market. This is the final asset bubble, since it sucks the capital life out of the USEconomy and Western Economies generally. Capital destruction is the internal effect of central bank policy. As the recession became a lit billboard, complete with a cast of horrendous repeated data points, the stock declines of magnitude resulted in extravagant investment in USTBonds. The 10-year yield fell toward 2.0%, even briefly going below that level. Lower borrowing costs would be handed the USGovt officials, a desperate desire. In addition, some asset appreciation would be handed the wrecked USFed balance sheet. It could conduct an extended QE2 with gains from its toxic mortgage bonds that mature. See the Zero Hedge article (CLICK HERE).

◄$$$ THE INTEREST RATE SWAP IS A KEY CONTROL DEVICE, WHICH HAS A DUAL ROLE TO ENABLE MANAGED INTEREST RATES AND STAGGERING USTBOND FRAUD. $$$

Hidden in the tall weeds is the Interest Rate Swap device. Bear in mind that Morgan Stanley was exposed for its gargantuan $9.1 trillion in additional credit derivative placements. In general figure over 80% are Interest Rate Swaps, born out over recent history. So this bucket shop firm, subsidiary bitch to the Wall Street syndicate, was chosen to load up on the leveraged devices. The swap is designed to take the free money and buy long-term USTBonds. They start the rally in USTBonds that the sheep follow. People join the asset bubble with now AA+ approval, just like they marched over the cliff in the approved housing bubble. The financial media has been enjoying the contrived story of the bond market contradiction of the S&P downgrade, adding to the great deception. The IRSwap represented the railway switch pulled. The controlled train track simply directed the traffic onto the bond rails. This asset bubble however, sucks up capital needed by the USEconomy and starves it to death. The bubble requires increasing funds over time. The stock market will be drained of blood for a while longer. The process is not reversible. It will continue until crisis climax conclusion. Bank equity is in shock suddenly. The lower USDollar will cause cost inflation to surge again. Expect exchange rates to stabilize among the major currencies though, and cause cost inflation uniformly across the United States, the United Kingdom, and Western Europe. A shared crisis is regarded by leaders to reduce the political risk of disorder. The resentment from USGovt creditors is moving to the next stage, as they seek an alternative to the USDollar and its arrogant desperate custodians.

Keep in mind that the Failures to Deliver in USTBonds, a story that emerged in 2009, has not gone away. Only the reporting of the fraud has vanished. The sum was cited as $1 trillion. The blame was given for slowness to deliver as a result of the chaos from the Lehman Brothers failure. That was a facade of lies. My view is that Wall Street firms found a way to produce amplified liquidity from bond fraud in USTBond sales with no risk of prosecution. They lost their investment banking business and hefty fees. The Failures to Deliver continue in high volume, but the bond purchases for the naked shorting by Wall Street firms has a new buyer. It is the Interest Rate Swap machinery turned on with $trillions in phony end demand produced. In time the volume will be even greater. In time the Office of the Comptroller to the Currency might stop reporting credit derivative data, much like the M2 money supply data, for national security purposes. The IRSwap closes the loop to Wall Street $trillion naked sales of USTBonds, to keep the liquidity flowing, the pay the bills, the fund the bonuses, to rape the system. For an excellent update on the colossal Wall Street fraud with naked USTBond sales, see the ML Implode article (CLICK HERE). Great work by friend and colleague Aaron Krowne.

◄$$$ THE USFED IS SEEN IN THE CORNER, ITS TOOLS EXHAUSTED. THE STOCK MARKET INDEXES ACT AS THE CORONER, DECLARING THE PATIENT DYING. HUSSMAN SHARES CRITICISM ON BERNANKE AND THE DESPERATE USFED WITHOUT OPTIONS. THE CENTRAL BANK HAS CHOSEN TO EXTEND THE GAME, TO PLAY THE Z.I.R.P. CARD BUT NOT YET THE Q.E. CARD. THIS IS A LOSER'S GAME. CAPITAL DESTRUCTION WILL BE DONE FROM THE OTHER TOOL. $$$

John Hussman is a fund manager and economic analyst of high distinction. He summarized the Bernanke behavior very well, not in kind or flattering terms. He said, "Ben Bernanke's objective of distorting the investment opportunity set and suppressing all risk aversion is dangerous, and is ultimately hopeless as a strategy to improve economic performance. In our view, the prospect of QE3 is questionable. It would be unlikely to draw the same market response as QE2 anyway, given that investors now have more information about its ineffectiveness. The latest iteration of Fed distortion was last week's explicit promise to suppress interest rates for two more years, until mid-2013. Even that action was met by more opposition from FOMC members than any other decision under Bernanke's tenure. Nevertheless, the promise to extend zero interest rates for two more years is simply a further attempt, now becoming desperate, to distort the financial markets by dressing up the same pig with lipstick and a flirty dress." See the Hussman website article (CLICK HERE). Instead of launching another Quantitative Easing round, the USFed has decided to make semi-permanent the Zero Interest Rate Policy. They will kill capital with the right hand with more gusto in the next several months, instead of with the left hand as they had in the last several months. This is blessed capital destruction by a central bank that has no concept of capitalism anymore. The hope of capital formation by the business sector in this environment of distorted cost of capital is a fiction, a dream, a nightmare. The low yield offered to savings contributes to the general suppression in the USEconomy. Encouragement of market speculators and big bank carry trade specialists is preferred. Pension income is gone.

◄$$$ THE SINGAPORE MERCANTILE EXCHANGE HAS LAUNCHED. IT OFFERS COMPETITION TO THE COMEX. ITS VOLUME IS LOW BUT WILL GROW. $$$

The SIMEX has refined its bullion contract specifications. Minimum deliverable grade of Singapore Gold contract are to be revised to 999.9 purity levels. Additional monthly expiry contracts are to be introduced. The trading unit is to be reduced to 1000 troy ounces. The SIMEX has launched its Gold futures and Gold Cash and Silver Cash futures contracts as of August 8th of 2011. The trading units of Gold Cash & Silver Cash futures contracts would be reduced from 100 troy ounces and 5000 troy ounces, next to 32 troy ounces and 1000 troy ounces respectively. The exchange has more than 50 members including 7 clearing members and 11 contracts. Among the leading clearing members onboard are Newedge, Ong First, Morgan Stanley, UOB, ICICI Bank, Citibank, and Phillip Futures. The prominent trade members include Glencore, Total Global Steel, Trafigura, Vitol, and TransMarket. The SIMEX trading sessions span Asian, European, and US business hours, with central counter-party clearing performed by SMXCC. This is major league, but volume is low, sure to ramp up.

◄$$$ MAX KEISER PROCLAIMS THE BATTLE CRY. THE JPMORGAN STOCK SHARE PRICE FELL HARD AND HAS REMAINED BELOW THE SILVER METAL PRICE. A BACKFIRE OF RECENT STRATEGY HAS OCCURRED. EVERYTHING THE COLOSSUS DOES WITH SILVER TURNS SOUR. $$$

For the third time this year, the Silver price moved above the JPM stock price. This is significant for more than symbolic reasons. As the outspoken and irrepressible Max Keiser has revealed, the JPM stock shares are being used as feedstock in certain programs by the big insolvent corrupted bank to short the Silver metal price. Not only are the JPM naked Silver short futures position underwater by an estimated $25 average per contract at least, but their usage of company stock has backfired. They are the proud owners of over 3 billion ounces of uncollateralized (naked) short positions in Silver, a figure cited by insiders. That translates to $70 billion in red ink on their USDollar defensive position. Their JPM share feeder shorts of Silver are losers also, a nasty twist. When the big US bank stock share prices took a beating in the last two weeks, it reflected badly on their Silver shorts as an added kick in the goolies. JPMorgan has been counterfeiting USTreasury Bonds for many years, doing the Italian method of double sale per serial number. Records for both their deep Enron involvement and their USTBond forgery were submerged in Building #7 of the World Trade Center in a carefully designed demolition. Keiser openly despises JPMorgan. He serves as a great litmus test for Wall Street tendency toward violence in silencing its harshest critics.

If and when the Silver price hits $100/oz, the death of JPMorgan might be visible the world over. The calamitous event will coincide with a USTreasury default in some queer form. Expect an impact to the USFed itself, since the colossus JPMorgan is the USFed behind the curtain, apart from the retail bank operations. The damage to JPMorgan is a national disaster and very ugly blemish of deep corruption. When death to JPM comes, already an insolvent bank, JPM will take the USDollar and USTreasury Bond down with it. They escaped the down draft and ill effects of the Enron collapse, although a main architect of its structure and engineer of its operations. The worst aspect of the Glass-Steagall Law repeal was the new combination of a $multi-trillion casino bank with the USFed itself.

Ironically and out of the blue, metals analyst Colin Fenton from JPMorgan came out this month with a very bullish Gold target. He forecasted Gold would reach $2500 by year end. Fenton paid note to the rise of Gold during the blistering global stock declines, a major contrast. He said, "Gold and sugar have potential to run a lot higher. It has been clear for weeks that the prompt CMX gold price has been building in a rising probability of a reflaring financial crisis, gaining by 9.7% since June 30th as the MSCI World Equity index dropped by 10.1%. The correlation in daily price changes between these two assets has dropped to 0.09 from +0.29 over the prior year. The Gold correlation against TIPS has doubled to 0.35 from 0.18. Against Italian and Spanish 5-year sovereign Credit Default Swap prices, the gold correlation has moved to 0.27 and 0.32, and from 0.07 and 0.04 respectively. Before the downgrade, our view was that cash Gold could average $1800 per oz by year end. This view will likely now prove to be too conservative. Spot gold could drive to $2500 per oz or higher, albeit on very high volatility." See the Zero Hedge article (CLICK HERE). As Gold surges to new heights, it will pull Silver with it, with a delay that has already been evident.

◄$$$ BANK OF NEW YORK MELLON WILL CHARGE INSTITUTIONAL CLIENTS A FEE FOR VERY LARGE CASH DEPOSITS IN AN EFFORT TO STEM A FLIGHT OF CAPITAL INTO THE SAFETY OF BANK DEPOSITS. THE HOT MONEY COSTS THE BANK MONEY IN F.D.I.C. INSURANCE. WITNESS THE PRELIMINARY STEPS OF BANK RUNS AND CAPITAL CONTROLS IN THE UNITED STATES. NEXT COME BANK FAILURES. $$$

The Bank of New York Mellon, the world's largest custody bank, will charge institutional clients a fee for extraordinarily high cash deposits. They wish to stem a flight of capital into the safety of bank deposits. The move is without precedent in 25 years. Other banks could follow the BNY Mellon lead. Investors seek safety of bank accounts, but without the commitment of bank certificates. The quagmire stalemate carnival display with the USGovt over the debt limit motivated institutions to pull $103 billion from money funds in the week ended August 2nd, the most since the Lehman Brothers failure in September 2008. Money market rates have dropped below 0%. Recall the warnings last month about the money market being in the crossfire between European and US banks. BNY Mellon made the policy change because they have little opportunity and latitude to reinvest deposits in short-term debt. The money is hot money, quick to move. Consequently, banks like BNY Mellon have been stuck to bear the cost of deposit insurance with the Federal Deposit Insurance Corp. Wholesale customers actually cost the banks money. This has never happened before in the United States, but never has the US banking system been insolvent, and never has the USTreasury Bond market been captured by an asset bubble, and never has the global monetary system been fractured. See the Bloomberg article (CLICK HERE).

◄$$$ ANOTHER THIRD WORLD TRAIT SHOWS FOR THE AMERICAN LANDSCAPE. US-COLLEGE STUDENTS RESORT TO PROSTITUTION FOR COVERING COSTS AND COMPLETING THEIR EDUCATION. THE ONLINE WEBPAGES ENABLE HOOKUPS. $$$

They hook up online, with special connections on internet dating webpages graced with false names and flirty ads. Young women pay for their education costs with dates. The older men subsidize the unmanageably high school costs. The women must contend typically with $15 to $30 thousand in costs that will not go away, bills that cannot be paid in this weak sliding USEconomy. They also tend to carry some heavy credit card debt. They seek a college tuition sugardaddy, as they create a sugarbaby profile. Photos online often do not reveal the facial identity, but reveal enough to entice the men eager to come to the table. Taylor from New York City hopes to line up an arrangement that yields $1000 to $3000 per month. Saddled with an excess of student debt amidst a scarce stingy economy, current college students and recent graduates are selling themselves to pursue a diploma and to get down their costs, even to pay off loans. The websites are growing in number of online suitors or wealthy benefactors, willing to exchange sex or companionship for assistance with oversized bills. One such website is Seeking Arrangement, which contains 800 thousand members, of whom at least 35% are students. The women typically enter the listings free, but the men pay $50 per month. The membership ranks are booming in growth. Not overtly presented as a prostitution digital bordello, the website pushes its role as facilitating mutually beneficial relationships. To many women, it is a difficult means to an end, with compromises made on the psychological front. To many men, it is a route to find more educated and less drug dependent partners. This entire side of working through school is a mainstay in the Third World, including Costa Rica. See the Huffington Post article (CLICK HERE).

CONTAGION & FRACTURE IN EUROPE

◄$$$ THE FRENCH BANK SOCIETE GENERAL MIGHT BE AN EXCELLENT SINGLE BANK INDICATOR OF THE NEXT ERUPTION IN THE FINANCIAL CRISIS, NOT IN ITALY BUT IN FRANCE. THE NATION IS TOO CLOSE TO THE P.I.G.S. PEN AND FAR TOO COMMITTED TO THEIR RUINOUS DEBT. SOCGEN IS THE CANARY IN THE NON-PIGS COAL MINE OF SWINE COUSINS. $$$

Societe General is the third largest bank in France. The deep distress signals are plain to see. The Societe Generale stock fell more than 40% since mid-July and contributed to tarnish the entire platter of European bank stocks in the last couple weeks. Among all the big European banks, this French giant stood out as a principal recipient of TARP bailouts and AIG insurance payouts in heavy volume. Since the months of late 2008, it had been off the radar and out of the news, except when USFed $trillion disclosures were made. The SocGen plunge has been a major factor behind the 15-day ban on short-selling the financial and insurance company stocks. To put SocGen in the class of Wall Street control freak manipulators that desire to intervene and mastermind the global financial structures is a fair classification. They are nowhere as large as the Wall Street syndicate players, but they are of good size as a derivative participant. They appear along with HSBC and Barclays from the London crowd, to fill out the mastodon uglies. They are a bank that does regular business across the Atlantic Ocean with Goldman Sachs and JPMorgan Chase in keeping market order, and even within the continent with Deutsche Bank. They have systemic importance.

Some key data points from the recent past put into perspective their role in the global financial system. The bank achieved notoriety during the last financial crisis when Jerome Kerviel, a rogue trader lost his employer EUR 4.9 billion (=US$6.7 billion) in stock derivatives. He claimed his bank superiors knew about the extensive practices when placed, but disavowed them when the loss become known. Societe General was involved in a disastrous entanglement of derivatives contracts with the insurer American Intl Group. Those Credit Default Swap contracts protected SocGen from its large stake in ruinous American mortgage securities, but only after the USGovt bailed out AIG in 2008 payouts of 100 cents on the dollar. All those payouts on bond insurance would have gone wanting if not for the USGovt bailout. When Societe Generale was shown to be one of the largest recipients of the AIG bailout funds, many critics were bewildered why a French bank was allowed to cart off $11.9 billion in USGovt money. The answer is simple. They are a Wall Street cousin player, attempting to contain the fiat monetary system, a derivatives monster, which carries privileges. The primary focus on SocGen in the last few weeks has been its heavy exposure to both Greek Govt debt and its majority stake in a troubled Greek bank, intensified by other sovereign bonds in Southern Europe. It even holds significant French Govt bonds deemed recently at risk. A rating downgrade of French Govt debt would inflict a quick blow to SocGen, possibly enough to topple the bank, or at least require a massive sudden bailout.

The Too Big To Fail castle marquee for big banks is alive and at work in Europe. Like in the United States, it is a mantra that eliminates the foundation steps for a true recovery, namely bank liquidation and the clearing of a badly impaired market. Regard the stream of denials about the SocGen poor financial health as verification. See the New York Times article (CLICK HERE). Consider the Societe Generale bank to be the canary in the coal mine outside the PIGS pen of Southern European nations. All hell will break loose when (not if) SocGen falters, along with a dozen other big banks outside the PIGS pen. The fuse is the debt default of any PIGS nation, or the mere large request for bailout by Italy or Spain. They have both occurred.

◄$$$ A QUICK ASIDE. THE MOST VULNERABLE LONDON BANK FOR A FAILURE MIGHT BE THE ROYAL BANK OF SCOTLAND. BEING UK-OWNED SHOULD NOT PREVENT A BUST AND CAREEN INTO THE DITCH. WITH LONDON BURNING, THE HIGH & MIGHTY R.B.S. COULD BURN AS WELL. THIS IS THE BRITISH BLACK HOLE. $$$

The Royal Bank of Scotland reported a very big half-year loss, a shattering disclosure. It was pushed into loss by the Greek crisis and Payment Protection Insurance (PPI) costs, the two ledger items resulting in almost $3 billion in losses. They took a half-year loss after a 733 million Pound provision for Greek Govt Bonds, equal to $1.2 billion. They also recorded a 850 million Pound loss provision for abuses on PPI sales, equal to $1.4 billion. The statutory reported loss for the giant bank before tax was BPS 794 million, compared with a BPS 1.2 billion profit in 2010. Recall that RBS is a sacred cow, 84% owned by the UKGovt. Gordon Brown came from RBS. His resume includes heading the Bank of England and selling out their gold hoard at the rock bottom price in 2001. Whatever these guys touch turns to fecal droppings. Look for much more losses to come. The CEO hand puppet Stephen Hester advised of 2000 job cuts in the next year. Expect triple that, if their peers are any indication. RBS has already cut 27,500 jobs since the financial crisis unfolded. Its stock price has been in a downward spiral, like many US and French banks. The stalwart Barclays is crippled, but like RBS, it will receive endless bailout funds to keep it propped. Another candidate for failure might be the venerable Lloyds, especially if more of London burns to the ground. See the BBC article (CLICK HERE).

◄$$$ FOUR NATIONS IN EUROPE HAVE IMPOSED A SHORT SELLING BAN ON FINANCIAL STOCKS, PAINTING A GRAND FLASHING BILLBOARD OF DISTRESS. THE MANEUVER FAILED IN THE UNITED STATES, REPEATED IN EUROPE. EXPECT THE INTER-BANK LENDING MARKET TO FREEZE IN EUROPE, JUST LIKE IT DID IN THE UNITED STATES. DUMB MOVE BY STUPID OFFICIALS. $$$

The nations of Belgium, France, Italy, and Spain entered bizarre ground as they overruled the European regulator. These nations, deeply affected by the stock market and bond market plunges, decided to impose standalone short-selling bans. They are following the script from the Lehman Brother chapter in the United States, having learned nothing, ignoring the same signals all along the pathway. Abraham Lioui is a professor at the Edhec Business School in France. He said, "It is the worst thing to do right now. This would signal to the market there may be something fundamentally bad that is happening." Something is fundamentally very wrong, as in airpockets below the foundation stage, due to deep insolvency and accounting games. Soon it will break. Never under-estimate bureaucrats, even bankers, from making a bad situation worse. They have poured blood in the shark infested waters. Short selling of financial stocks has been banned. The Financial Markets Authority (AMF) has banned short selling of financial stocks listed in France for a period of 15 days. Their actions impose rules on eleven banks and insurance companies listed on the French market. US financials fell hard after the September 18th imposition against shorting bank stocks in 2008. See the Zero Hedge article (CLICK HERE). Jim Chanos has built a reputation for shorting a variety of walking dead entities. He said, "EU policy makers do not seem to understand the law of unintended consequences. The vast majority of short-selling financial shares is by other financial institutions, hedging their counterparty risks, not speculators. The interbank lending market froze up completely in October to December 2008, after the short-selling bans." Expect the same to occur in France and neighboring countries. The denial of reality and avoidance of proper action toward bank liquidation will result in a repeat episode with very predictable outcomes. Insolvency is spreading like cancer.

European markets are on course to repeat through imitation the American errors during the US financial crisis eruption. Many of the bank and insurance stocks can be shorted on the New York Stock Exchange. Maybe Wall Street firms lobbied or coerced the short sale ban in order to short the stocks themselves from the safety of Manhattan offices. No clearer sign of aggravated distress exists than when governments and bankers place blame on short-sellers, journalists, speculators, or credit-rating companies for their problems. Christopher Cox is the former Securities & Exchange Commission chairman in the US. He actually admitted to the Washington Post in December 2008 that the biggest mistake of his tenure was agreeing in September 2008 to a three-week ban on shorting financial stocks. Even his successor Mary Schapiro at the SEC top post admits to having no information that manipulative short selling was the cause of the collapse of Bear and Lehman, the cause for other investment banks during the fall of 2008. My view is that bans attempt to enable the syndicate to make the money on the shorting process. In fact, Goldman Sachs profited heavily from the ban, as they continued to short the financials at that time, the corrupt bank given an exemption on the short sale ban. The actual source of distress for the banks in these four nations is toxic debt, profound losses from PIGS sovereign debt, and real estate losses. Their losses continue with stubborn persistence. The regulators blamed false market rumors in combination with speculative trades. Kind of like spreading a rumor that Italy is broke, or the US banks are broke, or London banks are broke. All true. Watch the French banks suffer Lehman-like deaths. It is my contention that 20 Lehmans lurk in Europe to die a horrible death, complete with grand fallout. Watch Societe General and Credit Agricole.

◄$$$ MORE DOMINOS ARE GOING TO FALL, LIKE FRENCH GOVT DEBT, WHICH IS NOT WORTHY OF AAA RATING. LOOK FOR A SPATE OF SOVEREIGN DEBT DOWNGRADES TO FOLLOW THE UNITED STATES, AS THE DEEP DECAY MOVES FROM THE PERIPHERY TOWARD THE CORE NATIONS. $$$

France with its undeserved AAA debt rating is obviously vulnerable after the USGovt downgrade. Not only does France look as damaged as the USGovt for its debt, but the nation looks very similar to PIGS members as to fundamentals. Worse, the French banks contribute to their national debt weakness as a direct extension of huge exposure to PIGS debt in neighboring nations. For some cockeyed insane reason, France served as a lender of last resort to Greece and Portugal. In so doing, the nation joined the PIGS to be submerged, in a grandiose haughty display of strength it does not possess. The decision by Standard & Poors to downgrade the United States has left France as twisting in the wind by comparison. It hardly merits a AAA rating either, and stands as the industrial nation most likely next to lose its top grade, according to awakened analysts. Consider its position relative to debt default insurance. France is more expensive to insure against default than governments such as Malaysia, Thailand, Japan, Mexico, Czech Republic, the State of Texas and the United States, which have lower debt ratings bestowed upon them. France must finance its own debt, nor is it treated with AAA respect in the financial markets. The core in Europe is surely shrinking. Expect France to sooner or later be subjected to an insulting shock, left to defend itself without a protector, shoved into the PIGS pen instead of held under the more staid German wing.

Consider the fundamentals, always revealing. The French Govt debt is 84.7% of national GDP, far less than Italian Govt at 120.3% of GDP. However that does not tell the full story. Focus on recent years. As a percentage of economic output, their debt has risen twice as fast as Italian debt since 2007. France has had a larger budget deficit than Italy every year since 2006. S&P rates Italy A+, four levels below France. The total debt is worth review in volume terms. The French Govt debt totaled EUR 1.59 trillion (=US$2.3 trillion) at the end of 2010. Compare to Italian Govt debt at EUR 1.8 trillion. On the basis of recent degradation slippage, France does not deserve AAA, certainly not four levels above Italy. Intense scrutiny has come by Standard & Poors, along with other nations. Their chief economist for Europe is Jean-Michel Six. He affirmed the greater scrutiny, saying "EuroZone countries like France, Italy, and Belgium, and even the United Kingdom, are vulnerable to downgrade." See the Zero Hedge article (CLICK HERE). Never lose sight of the fact that German banks own 85% of French Govt debt. So they will likely continue to request French squires to carry the bags.

◄$$$ FRENCH BANKS ARE HIGHLY VULNERABLE TO THE PIGS SOVEREIGN DEBT FALLOUT. FRANCE LOOKS LIKE A PIGS NATION AND WALKS LIKE A PIGS NATION. CREDIT DEFAULT SWAP RATES HAVE RISEN ACROSS THE SOUTHERN EUROPEAN THEATER. $$$

Traders and investors see smoke and suspect fire. Risk exposure has been cut on some big French banks. They have huge assets stuck in domestic real estate and in sovereign debt holdings, all in deep trouble. The flagship under attack is Societe Generale, whose stock share value has fallen over 20% in just the last several days. The other sister flagship is Credit Agricole, down hard but not as much. Bank stocks have taken a powerful blow across Southern Europe. The decline in bank capitalization aggravates their insolvency. Just like in the US, the banks lead the general stock market down. Internal reports indicate that Asians are pulling big funds out of French banks. The Euro Central Bank has announced a commitment of EUR 850 billion toward purchase of Spanish and Italian Govt bonds. In so doing, it has jacked up its bank lending suddenly from EUR 300 million to EUR 4 billion. See the Bullion Desk article (CLICK HERE).

Some details on Credit Default Swap rates. France is the most costly AAA country to protect against default. CDSwaps on France trade at 150.9 basis points, almost triple the United States. In Spain, the debt insurance rate was 407.6 basis points one week ago, with Italy at 386.8 basis points. The safest perceived country in Europe is Switzerland, whose rate was 35.3 basis points. One basis point equals $1000 annually on a swap contract to protect $10 million of debt. The French Credit Default Swap can be monitored (CLICK HERE). The process of contagion has begun to spread widely. It will continue until a natural conclusion. That chapter will feature a skein of bank failures across Europe that will involve both London and New York banks. Expect 20 Lehman-type failures. See the Zero Hedge article (CLICK HERE).

◄$$$ ITALIAN & SPANISH GOVT BOND YIELDS ARE JUMPING. THEY REVEAL THE NEXT TROUBLE ZONE. THE CONTAGION IN SOUTHERN EUROPE CANNOT BE STOPPED, SINCE GREECE HAS NOT BEEN FIXED DESPITE THE WRONG-FOOTED SOLUTIONS. THE EURO CENTRAL BANK BUYING RUMOR/FACT HAS REDUCED BOND YIELDS BY 1% OR SO. SOME RELIEF HAS COME FROM THE EURO CENTRAL BANK BAILOUT. $$$

 

Spanish and Italian Govt bonds have recovered some ground from central bank bailouts. The source of funding is both uncertain and in questionable volume. Their distress has not been removed in the immediate term. The fundamental cause for the yield rise has not gone away. This is not a liquidity problem, but a structural insolvency problem that will return.

◄$$$ ITALY REMAINS FRONT & CENTER ON THE CRISIS TABLE, DESPITE CLAIMS OF A FIX. THE ITALIAN GOVT SUSPENDED BOND AUCTIONS. THE EURO CENTRAL BANK HAS ANNOUNCED SUPPORT FOR SOVEREIGN BONDS FOR BOTH ITALY AND SPAIN. BUT THE STABILIZATION FUND IS WOEFULLY LOW AND GROSSLY INADEQUATE. SOME TURMOIL HAS STRUCK THE CREDIT DEFAULT SWAP CONTRACT MARKET. THE MAIN OBSTACLE IS REALITY, POINTED OUT BY GERMANY, WHICH COMPREHENDS ITALY IS TOO BIG TO BAIL OUT. $$$

Italy is isolating itself, and creating a dependence upon the Euro Central Bank much like a drug addict. The Italian Treasury announced on August 5th that it would not sell 3-month Bills in an auction scheduled on August 10th. More auctions were set for August 12th as well, of medium and longer maturity. Things were going out of control until the Euro Central Bank announced it would buy a large block of Italian Govt bonds. Step by step, by removing itself from the capital markets, it rendered its own bond market an outcast into Never Never Land. Like taking oneself off a food diet and onto a heroin intravenous line, Italy is sick. Then suddenly, the Euro Central Bank sprung into action. Prime Minister Berlusconi led some loose promises on spending reforms with Parliamentary cooperation, and poof, the big EUR 850 billion super-fund program was launched. Its steady funding is not assured, only its initial purchase. A massive reversal occurred in financial markets to the South, in a V-shaped spectacle. The EuroCB expects Italy to fast track welfare reform and more fiscal strictness in a land that has never known either. That is OK, his word is enough to satisfy the central bankers eager to put five fingers in the leaking dike. The addict promised to limit his heroin abuse, so to speak. The narcotic parallel is easy. The QE floodgates were opened on a weak premise of assurances. The central banks are in control of crackhouse party. The net result was a nice move up by 100 bpts in the Euro currency US$ exchange rate, a halt to the market plunge, and a relaxation of the Italian Govt bond yields. Since a contagious element, the Spanish Govt bond also relaxed in yield even more. All these bond buyers will be burned eventually. Calm had been restored though. In this topsy turvy world, do not expect the calm to last for long. They might have bought a few weeks of quiet waters. The bank dominos might next dictate the tempo. See the Zero Hedge article (CLICK HERE).

◄$$$ THE RESISTANCE MOVEMENT AMONG GERMAN BANKERS HAS GROWN OPENLY HOSTILE. A GRAND RIFT HAS FORMED. THE LACK OF INTERNAL GERMAN POPULAR SUPPORT WILL EVENTUALLY PROVE TO BE THE WEDGE THAT BREAKS THE EUROPEAN UNION APART, MADE FINAL BY GERMAN BANKERS. RECOGNITION IS COMING GRADUALLY THAT A FULLY FUNDED EUROPEAN BAILOUT FUND WILL REQUIRE $5 TRILLION. THAT PERCEPTION IS ENOUGH TO FRACTURE THE UNION ITSELF. $$$

The next event in the saga was a sledge hammer tossed into the works by German bankers on August 6th. They knocked the central bankers almost into a frozen position. They objected and halted the insanity, claiming with forceful Teutonic style that Italy was way too big for the big Stability Fund to save. They refused to carry the main burden to the bailout, a common chorus coming from Berlin for a solid year or more. One should never be spared hearing that German savings has been drained by between $3000 and $4000 billion since the Euro experiment was hatched in a kooky unification of the un-unifiable continent. Alex Weber is an icon. He argued in favor of unlimited liquidity provision, but at the same time he fiercely opposed the purchase of government bonds. That seems contradictory and confusing. He warns of the EuroCB integrity at stake. The division is apparent. The Spiegel magazine ran a series of intrepid articles reporting the quickened situation in alert style, ahead of the pack. Doubts are splattered all over the walls that the EFSFund is sufficient to cover PIGS debt that links nations between Greece and Portugal. Obviously bailouts cannot succeed without a gigantic fund on the order of $5 trillion in commitments. Loading the fund would deeply damage the German finances.

A consensus opinion is forming quietly that the Stability Fund is grossly inadequate, even if funded by the incremental $1 billion or so. A fully funded EFSFund will need to issue EUR 3.5 trillion, equal to US$5 trillion in new debt or new money, which is beginning to be regarded as confetti. My prediction over a year ago was that at least $3 trillion would be needed to bail out the PIGS nations and their rotten sovereign debt. It is happening. When factoring in the stimulus urgently needed on the fiscal front in order to avert recessions that could gallop out of control, the funding requirements will be even greater. Whether new debt or new money, the effect is largely the same, hyper-inflation. An inflation zone is being created, whose alternative is a wrecking zone for the big European banks. See the Zero Hedge article (CLICK HERE).

The stopgap announcement by the EuroCB to expand its purchases of secondary market Italian and Spanish bonds was merely as a prelude to full EFSF monetization. That largesse could be expected to come online in high volume in September. The EuroCB is daring the Bundesbank not join, to be branded the bad guys if not refuse since chaos would come. The dream is for a vastly expanded format between EUR 1.5 and EUR 3.5 trillion in the SuperFund. Methinks the Euro Central Banks have been sipping far too much cognac. Not gonna happen. A consensus opinion had been formed that the aid fund could only conceivably aid smaller nations. The warning made in the Hat Trick Letter all along was that the Big Enchalada in Spain and the Big Pasta in Italy would ruin the entire bond bailout game once they erupted in need. They have erupted in need, and the entire game will eventually see ruin. The process just needs time. The crescendo will be big European bank failures, lots of them. See the Zero Hedge article (CLICK HERE).

The Merkel regime is in great danger of toppling. The defiance of the Bundesbank in their refusal to comply with any new Stability Fund demands could generate a complete split between the German banks and the Euro Central Bank. Some popular polls within Germany are worthy of note. Their mindset is not behind the Euro Monetary Union at all. Consider that

  • 59% wish to end all bailouts of PIGS nations
  • 75% disapprove of the performance by Merkel
  • 58% wish to expel Greece from the Euro Monetary Union
  • 86% of Germans think the Euro currency is at risk
  • 71% of Germans are doubtful about the common currency viability
  • 56% of Germans say the Euro has brought them economic disadvantages.

Phoenix Capital Research believes the oversized German financial backstop ends very soon. The public face is presented that  French President Nicolas Sarkozy and German Chancellor Angela Merkel share an absolute determination to defend the Euro. They are out of touch with their own people, and do not have any unified support by bankers either. They are like Anglo banker puppets on a string soon to have their strings cut or burned with fire. The European bailouts of Greece and Portugal were always ultimately constructed by Germany. Without their support, neither a bailout nor a union would exist. Recall that the Merkel political party was obliterated in the broad March 2011 elections, due to her steadfast support of bank bailouts and the Euro currency. The next round of German elections comes in September (4th, 11th, and 18th). Constitutional reform would be necessary to pull off what Merkel pursues. The deranged new concept of fresh Eurobonds serves as evidence of lunacy and desperation without political underpinnings. Austerity has not been an issue in Germany. But their economy is showing strain and sluggishness. Flat growth (accurately measured, unlike in the USA) has been led by export slide on the order of a 4% decline. A contraction will force hard decisions, a blind eye to Southern Europe, and more stubborn resistance.

The continent has turned into high drama. Phoenix calls the Euro currency properly the most heavily manipulated investment in existence. The Jackass points to the USTBond instead with its attendant Interest Rate Swap heavy lever. The dynamics among the US Federal Reserve, the European Central Bank, and the Swiss National Bank make for a maelstrom of instability and too many captains holding thick cords in helm control. Germany cannot and will not bail out all of Europe. The immediate decisions are short-term moves, mere drama. Some of the bailout loans so far might result in large collateral seizures, with more resentment and street violence. My call two months ago was that the bailouts of bankers would continue until riots occurred. They have occurred, due in part in response to collateral grabs. The EU in its current form has entered the End Game, forced by Italy on the table and Spain in the waiting room. Expect the breakup in some form to occur in the next 12 to 18 months.

◄$$$ INSIDE SWITZERLAND, THE WORD HAS BEEN LEAKED THAT A SPLIT OF THE EUROPEAN UNION IS IN THE PLANNING STAGES. THE FLIGHT TO SAFETY HAS LIFTED THE SWISS FRANC CURRENCY, PERHAPS THE FRANC CAN SERVE AS A LITMUS TEST INDICATOR ON EUROPEN UNION BREAKUP. THE REAL TEST THOUGH IS THE BERLIN WINDSOCK, POINTING EAST TO RUSSIA AND CHINA. THE GERMANS ARE BUILDING A NEW AXIS WITH THE EAST. $$$

The rumors run thick and fast. The European Union faces an inevitable breakup, the outcome assured, the timing not so clear. The Grupo Gernali bank CEO Giovanni Perissinotto has been the agent of a leak. Perhaps it is not his responsibility, but it was his words taken during an important conference call. The Italian bank executive spoke freely about the Eurozone at risk of breakup. Such ideas are widely understood, even accepted, but nobody dares to discuss them openly. Perissinotto must be careful since his bank's CDSwap insurance trades in lockstep with Italian Govt debt insurance. Meanwhile, back on the FOREX tables, the Swiss Franc currency continues had gone out of control until their central bank intervened with drastic action. Investor funds are flocking to Switzerland in a quest for safe haven. The nation has served as safe haven for a century, even for very dirty money. This is a paper money exodus across Europe, not a gold bullion effect. So the Swiss Franc has risen relentlessly, the rise halted only last week. The irony abounds really. The Swiss are not part of the European Union or the group that shares the common Euro currency. Yet the Franc currency is the beneficiary of unstable and faulty foundation under the Euro currency. The Swiss Economy is at risk of great harm from a rising currency that puts its export trade at risk. My view is to regard the Swiss Franc as a litmus test indicator of EU breakup. It is inevitable, only the timing in doubt. The Swiss bankers will next help the breakup process along, but bank failures will make that process very messy and convoluted. See the Zero Hedge article (CLICK HERE).

The US press, and Western European press for that matter, report nothing on the new alliance being forged between Germany and the major Eastern powers, Russia and China. It is important. It is real. It is natural. It is powerful. It is not stoppable. It fulfills a large purpose. To this end, consider a comment from a German banker involved in high level consulting with foreign sovereigns. He said, "The Euro currency as we know it is already dead. Just watch the axis from with Berlin, Moscow, Beijing. They are forced to fill the vacuum left by the collapsing axis with Anglos, Americans, and French. The French try to jump the boat and hope to be tagged and dragged along by Berlin. This adoption and fostering is not going to happen. It will get very ugly, very quickly." He does not expect the French to remain in the Northern European core and to become a principal partner in the Eastern Alliance, as it has come to be called.

◄$$$ THE EUROPEAN BANKING SYSTEM IS SEIZING. THE US-MONEY MARKET IS WORSENING THE PROBLEM, AS FUNDS WITHDRAW. THE BANKING AND CREDIT CRISIS EMERGING FROM EUROPE COULD BE WORSE THAN THE SUBPRIME CRISIS IN THE UNITED STATES. THE GERMANS ARE SHOWING THE RIFT WITH THE EURO CENTRAL BANK THAT HAS BEEN THE CAUSE OF FRICTION BEHIND THE SCENES. MEANWHILE, THE GREEK BOND DEAL SERVES UP A TECHNICAL DEFAULT. $$$

The money market could act as a contagion bridge between the US and Europe, since interest rates are lower in the US, the result of Euro Central Bank defiance. John Mauldin gave a fine analysis of the financial distress to internal systems in Europe. The Italian and Spanish interbank lending is freezing up. The hot spot appears to be France, where finance officials and bank leaders have held emergency meetings all last week. They focus upon EuroZone interbank market stress. IMF and EU officials have given warning that France might also face downgrade without much larger spending cuts. The Finance Ministry staff has been warned to be available around the clock during their sacred August holidays. Crisis knows no holiday. The big European stability fund is being reloaded but not without some high level skirmishes. German Finance Minister Schauble threw a wrench into the works by saying the European Financial Stabilization Fund would not have a blank check to purchase sovereign debt in the secondary market. It should be clear to anyone with half a brain that the EFSF is not large enough to bail out Italian and Spanish sovereign debt, as the scale is too great. The statement by Schauble highlights the precarious support within the German Parliament and Bundesbank for the recent expanded Summit package handed to Greece. While the EFSF has uncertain funding, the interbank channels are gradually seizing up. The bank stock short sale ban adds to the pressure of seizures. Look for a big bluff by the EuroCB on purchase of Italian and Spanish bonds, as Germany stands by watching, hands in pockets, not dispensing cash.

Mauldin points out that US money market funds have been taken in withdrawals from Eurozone bank commercial paper, leaving Eurozone banks with a big gap in availability of short-term funding and a severe shortage of dollars. The funds went to Europe in the first place because US yields paid out were miniscule. Now those funds are vacating Europe, scared hot money, causing a vacuum and big problems. The United States is the source of great wreckage globally. The principal parties in the banking system do NOT want a repeat of the 2008 crisis, where the USFed directed huge liquidity support for Europe with the massive swap line facilities. The growing belief is that the EuroCB will not be able to function as lender of last resort on the scale required to cope with an interbank lending breakdown. It is preoccupied with sovereign bond bailout support. Worse, the EuroZone is due to suffer a shortage of USDollars for its interbank credit markets. Demand for them will surely escalate, during a phase where confidence in EuroZone financial institutions falls. Mauldin believes this factor could actually push higher the USDollar exchange rate. It will also push up the Gold price. The bankers in Europe are equally unwilling to let their biggest banks fail, just like the Americans. They will throw good money after bad and work to transfer the debt from the banks onto the EuroCB and taxpayers as long as the voters will permit the process. This first tranche for the next Greek bailout payments will be another EUR 109 billion. That will last a couple years.

Witness a technical debt default at work concerning Greek Govt debt. Repayment extensions are to become normal, with payments extended to 15 or 30 years. This represents a selective default in the parlance being used by authorities. The Global Macro Monitor reports details on the voluntary debt rollover. The plan claims bond loss haircuts will only be 21%. Serious deception in such calculus, since it assumes the new bonds are sold at a 9% interest rate, sure not to happen. If the interest rate required by the market is 15%, closer to reality, the haircuts in this selective Greek default are closer to 67%, in rapid fire after an initial 20% cut. Watch the price paid by the EuroCB for this toxic paper. The buyer of last resort might severely overpay for the bond redemption, in order to keep the crisis chatter down. Any and all institutions should be expected to immediately shove those bonds down the EuroCB throat. What ugliness!! It will be intruiging to watch for claims of Credit Default Swap contract holders, demanding payment on the default. Expect some battles.

◄$$$ GERMAN ECONOMIC DATA HAS BEEN WEAK. THE SOUTHERN EUROPE PIGS NATION GROWTH WAS PROBABLY A BIG FAT LIE ON GROWTH. EUROCB RATE HIKES HAVE DONE DAMAGE. NO MORE OFFICIAL INTEREST RATE HIKES WILL OCCUR. THE CENTRAL BANKERS HAVE NO WORKABLE OPTIONS AT ALL. $$$

The global economic slowdown has hit Germany, or at least the axe is on the downswing in movement. The entire European Economy registered a big miss on growth estimates, even Germany. After the insolvency issue had been drummed as a solid theme, the banks walking hollow trees, the German slowdown has hit the news headlines. Both the German and European Union GDP missed consensus estimates, a surprise to the major braindead trusts but not to Gold Sound Money advocates. The stagflation that has infected the US, the UK, even China, has entered Germany and planted roots. The German Economy over 2Q2011 scored a GDP growth of only 0.1% versus the usual clueless economist expectations of 0.5% growth. The weak result was attributed to weaker net trade and consumption. When the strongest of nations, powered by solid export dynamos cannot generate growth, then the global growth indication is due for unambiguous slowdown. The global recession is taking root, soon to be recognized by the year end. The EuroZone grew at only +0.2% against expectations of +0.3% on a quarterly basis. It was dragged down in the sandy corner by Greece, whose GDP logged in at minus 6.9% for the quarter. Think Poison Pill. Many argue that the Euro Central Bank rate hikes were folly from a growth standpoint. But the ECB hikes were motivated by warding off price inflation and a desire to create some distance from the USFed and its reckless insanity, better characterized by its march toward capital destruction. The futility of central bank options, lacking in workable alternatives, is becoming painfully evident. See the Zero Hedge article (CLICK HERE).

If export focused Germany cannot generate enough growth through these two core sources of economic output, then nobody can. The latest datapoint was Commerzbank analysts lowering their GDP forecasts for 2011 to 3% from 3.4%. The more realistic forward GDP estimate should be zero, but such forecasts are not permitted by hidden banker law. Germany is still expected to grow faster than the rest of the Eurozone as the latest decoupling thesis starts to implode. And speaking of Eurozone GDP, it too surprised to the downside, printing at 0.2% on expectations of 0.3% on quarterly sequence, down from 0.8% previously. GDP is up 1.7% on yearly basis versus expectations of 1.8% growth. The accelerating contraction of the European (and German) economy proves that just like in 2008, the ECB's series of rate hikes was the most misguided decision possible by the world's most clueless central bank, and anyone hoping for more rate hikes can kiss such dreams and aspirations goodbye. But that were cornered.

EXTREME WINDS OF DISRUPTIVE CHANGE

◄$$$ A GRAND SHIFT IS TAKING PLACE. THE INVESTOR IS SELLING STOCKS, EVEN CRUDE OIL, AND BUYING GOLD & SILVER. MUCH MONEY IS GOING FROM STOCKS TO USTREASURY BONDS, BUT THEY ARE MISGUIDED SHEEP JOINING THE ASSET BUBBLE WITH OFFICIAL APPROVAL. THE RUIN OF MONEY IS ACCELERATING. THE GOLD CARTEL IS LOSING CONTROL. THE EFFECT OF MARGIN HIKES ON FUTURES CONTRACTS IS BRIEF WITH MINIMAL LASTING IMPACT. THE TONE WILL CHANGE TO ALARM AND PANIC BY OFFICIALS WHEN GOLD REACHES THE $2000 MARK. GREAT CHANGES ARE HAPPENING RAPIDLY. A PERCEPTION SHOCK COMETH. $$$

Last week, for the first time the powerful stock market declines in the United States, London, and Western Europe have resulted in a RISE in the Gold price. Its prestige grows, as it wins the war over money. The Europeans are debasing money in a huge way with more stability fund usage to bail out PIGS debt from Italy and Spain. The United States will soon be forced to debase money again, whether in a QE3 or a Economic Stimulus package, or a formal program to support the US Stock market in a manner never seen before. The big new billboard is the USEconomy in recession, only the most blind unable to see it. Perceptions are growing that this recession could grow into a death spiral, after failure to revive the USEconomy and US banking system in three years. An awareness is becoming clear that the USGovt is controlled by malevolent bankers who issue chronic wrong forecasts. They have lost credibility, evident in the financial media. Bigger USGovt deficits should be expected. More stimulus spending should be expected, not spending cuts. The systemic failure in the United States is advancing in noticeable fashion in a nightmare, an acceleration. Gold & Silver are rising.

The separation of Gold from the stock market is a big new wrinkle. The separation of Silver from the industrial bet is a big new wrinkle. The Japanese and Swiss central banks are being exposed for a grand waste, colossal sums of money in defense of their fast rising currencies. Clownish analysts call the maneuvers successful. The debasement and ruin of major currencies and the crumbling of the monetary system are important themes, gaining broad comprehension. Central banks in their desperation, especially with the new evidence of recession, will succeed in debasement of all major currencies, led by the USDollar. Just since the year 2001, price inflation in the United States has risen by 80%, forcing people to find a hedge against profound asset erosion, housing long gone as an option. Gold will continue to rise from the flood of money created, absent any hint of solutions. Without big bank liquidations, no solution is even attempted, the most important concept of the crisis.

The cartel is fast losing control. Futures margin hikes have proved futile. The CME gold futures contract margin hikes of 22% resulted in a price decline under 0.5% to issue a nose snub to the corrupted exchange officials. After hitting a new all time high of $1815 in spot gold, the CME immediately sent out a notice to members advising that gold margins for Tier 1 members were increasing on both initial and maintenance positions, from $4500 to $5500. Their latest attempt to disrupt the Gold Fever managed to push the gold price down only modestly. In just a few days, it was once again trading above the $1800 level. The half life of central bank interventions seem to be between one hour and four days maximum. Their gambit to subdue precious metals prices failed again spectacularly. The cartel succeeds in rendering harm to the speculative elements while reinforcing the strong hands. They also provide a discount on physical purchases by the Asians led by the Chinese, a grand backfire that rips apart the COMEX itself. The tone will change to alarm, desperation, and open accusations of central bank failure when the Gold price hits $2000 per ounce. Lastly, keep in mind that the USTreasury Bond futures contract has been given no margin hike, even though a clear asset bubble. It is the approved asset bubble. It is the final asset bubble on the paper chase. A fair comment must be made about the margin requirements. Sometimes they are not so punitive, since the margin to post is a set fixed amount cost for the futures contract. As the Gold price has risen from $1500 to $1800, that is a 20% rise. So a similar hike to margin to post on the contract makes sense. The COMEX is just making up for lost time and metal price gains. In this respect, gold players are crybabies and new media anchors distortion experts.

Lastly, a perception shock to the public and investment community is coming. It will hit hard, since the wall of deceptions will be smashed. Here are main illusions to fall to the hard ground of reality, presented in proper light, full or rot. The shock will have gigantic repercussions.

  • the people's savings and pension funds are not safe
  • the USEconomy has not recovered, and never was on a recovery path
  • the US banking system is dead and will not recover to function properly
  • the bankers in control of the USGovt do not even attempt a solution
  • the central bankers have no solutions or tools left, out of Keynesian rope
  • the national ailment is unaddressed insolvency, not lack of liquidity
  • a perverse control game is at work and nearing climax
  • the ruin of the global monetary system seems unavoidable
  • the United States of America is a land of wreckage, and debt dependence
  • the trials (debt, conflicts, riots) of Europe will spread to the United States.

◄$$$ AN IMPORTANT CHANGE IN THE WIND. PRECIOUS METALS HAVE BEGUN TO SEPARATE FROM THE EQUITY MARKETS, AS GOLD IS SEEN AS THE ULTIMATE SAFE HAVEN. THE GLOBAL Q.E. MOVEMENT IS WELL ALONG, AS FORECASTED. THE DEBASEMENT OF MAJOR CURRENCIES WILL ACCELERATE AT A TIME WHEN THEIR ECONOMIES ARE IN RECESSION AND REQUIRE STIMULUS. THE CENTRAL BANKS WILL SHOW MORE DESPERATION, AS THEY ATTEMPT TO MAINTAIN ORDER IN THE FOREX MARKET. THE GOLD BULL MARKET HAS BEEN UNLEASHED AGAIN. THE FLIMSY MARGIN HIKE OBSTRUCTION WAS OVERRUN. PREPARE FOR $2000 GOLD. $$$

It is interesting how Gold & Silver have been negatively correlated with the USDollar, but so has the US stock market. Both precious metals and stocks grew dependent upon US$ weakness perversely. Thus over the last 18 months, the S&P500 stock index became part of the USDollar Carry Trade. Cheap zero cost US$ credit funded speculation in the stock market. The mainstream monkey mavens failed to realize that the DJIA and S&P indexes merely preserved purchase power, hardly to constitute a bull market. Their claims of a bull market have been laughable, a travesty in journalism and economic perceptions. Until last week, Gold & Silver have typically fallen with the S&P500 stocks during panicky days loaded with fear and reams of sell orders. The awareness of recession for the USEconomy has hit the financial markets. My thinking was that it would take a couple months to separate the two, precious metals from stocks. The Jackass was in error, since the separation appears to have begun. The woeful wreckage of sovereign debt has created a fertile stable landscape for migration from foreign government bonds to Gold & Silver. On Thursday August 18th, the DJIA stock average fell 420 points (=3.7%) and the S&P500 stock index fell 53.2 points (-4.5%), and the Nasdaq Composite fell 131 points (=5.2%). It was yet another in a rather long string of disastrous days. However, Gold rose to a record high of $1825, up $36 on the day, and Silver rose to $40.7, up 45 cents on the day. This was the first day in my memory over three decades for precious metals to break from the equity markets and extend gains, even to set a Gold record high. No longer are investors selling their best asset in Gold to pay for losses and margin calls elsewhere. They are piling into Gold. The winds of change are here, part of the Great Paradigm Shift. To be sure, the long-term USTreasury market has rallied, with the 10-year bond yield going below 2.0% briefly in amazing fashion. The TNX will search out 1.5% perhaps as a low. As the USTreasurys offer puny pitiful yields, money will go to Gold instead. This confirms both the asset bubble and the USEconomy in recession. Neither perspective is healthy or worthy of braggadocio.

Richard Russell brought some historical data to the table. The US Stock market panic was the most severe in 80 years. He wrote, "The crashing stock market is terrifying US consumers, who immediately cut back on their buying and their orders. As consumers cut back, this impacts on the stock market. We have a case of two wild hyenas eating each other. It is a case of the stock market eating consumers, and consumers frightening the stock market. Conclusion: We have seen some extreme downside action. But Jim Stack of InvesTech Research reports that on the August 8th panic, the ratio of declining stocks to advancing stocks was 77 to 1, a ratio never seen before in the past 80 years. The closest incidents were the May 1940 ratio when France fell to Germany, when the ratio was 60 to 1. The second incident was on Black Monday during October 1987, when the ratio was 49 to 1. In both cases, those hugely high ratios marked a near-bottom, and within one month of those ratios the market was 10% higher." My expectation is for frequent bounces and worse continual declines, like the Great Depression.

The Global QE will in my opinion replace the US-rooted Quantitative Easing. In June and July, the Jackass forecast was for more of a global participation in the QE. The wider participation will take the heat off the USFed and the inept Bernanke Fed, which appears lost and without tools, not to mention broke. All that is lacking is a G-7 Meeting with the confused hapless central bankers to join hands and sing together. With Japan and Switzerland pushing down their rising currencies, the grand debasement process has spread. With the Euro Central Bank promising over EUR 850 billion (=US$1.2 trillion) in support for wrecked unfixable PIGS sovereign debt, a sure commitment to squander huge sums of money, the debasement process has spread. With the USEconomy rolling over, actually worsening in its recession, the USGovt deficits will grow worse and more misguided stimulus will resume. The US leaders have no concept of capitalism anymore, and will undoubtedly work very hard to put money in people's pockets, extend jobless benefits, and give tax breaks, more like a socialist program reeling into the abyss. They will reform and remedy nothing, as usual. The effect is to be a sure commitment to waste huge sums of money. The debasement process has spread.

◄$$$ TO BE SURE, THE LARGEST GOLD EXCHANGE TRADED FUND IS A GRAND FRAUD. BUT IT PROVIDES A RELIABLE SIGNAL EMITTED FROM ITS ROTTEN BELLY. THE G.L.D. PUKE INDICATOR HAS FLASHED BULLISH IN A LOUD WAY AGAIN. IT HAS OFTEN PRE-SAGED A POWERFUL UPLEG IN THE GOLD PRICE. THE COMEX RAISED GOLD FUTURES MARGIN REQUIREMENT AGAIN, THE EFFECT FLEETING, DONE IN ONE WEEK. $$$

Lance Lewis devised his GLD Puke Indicator a year ago. It has had a nearly flawless record at identifying price lows in Gold. The indicator generated another buy signal on August 11th. The GLD Exchange Traded Fund in gold fell over 2% on the day. The more striking item concerned its bullion holdings, which fell a huge 24 tonnes (1.8%) to 1273 tons. Any single day decline over 1% triggers this GLD Puke Indicator, a big flashing buy signal that portends higher price ahead. They tend to occur at or within days of important lows in the price of Gold. The last time this indicator flashed a bottom signal for gold was on January 25th. The reliable Puke Indicator flashed the bullish gold signal within two trading days of the 2011 bottom on January 27th. No such thing as a coincidence in such matters. Conclusion: a high degree of probability that the pullback that began two weeks ago in gold would be brief. It appears already completed, with the low recorded with print at $1725.8 on Friday August 12th in the December contract. Thanks to FOFOA website for a stream of outstanding work. The dots indicate the buy signal from the indicator.

Effective August 11th, the initial gold futures margin requirement for 100-ounce contracts increased from $6075 to $7425 while margin maintenance requirements jumped from $4500 to $5500. There were about 521,000 contracts open at the time of the increase. The downdraft was sudden but brief. The price recovery took less than one week. The effect of the margin hike in my opinion was to turn Gold profitaking into movement back to Silver. The rise in the Silver price is evident with a steady rise over $40. The cartel cannot win at this game. They are basically giving the physical buyers a cheaper price with discount through fraudulent naked shorting. The arbitrage of Gold versus Silver is a new game in the last couple months, as silver has been slower to establish new highs. All in time, especially since silver had made huge gains early this year, impressive huge gains. Digestion was needed.

◄$$$ HUGE POSITIVE CHANGES IN THE GOLD FUTURES MARKET HAVE BEEN SEEN IN JUST THE LAST FEW WEEKS. THE LARGE COMMERCIALS COVERED A RAFT OF SHORT POSITIONS TO PUSH UP THE GOLD PRICE. THIS GROUP USUALLY IS AGGRESSIVE IN THEIR SHORTING ACTIVITY. THE EVENT IS HIGHLY UNUSUAL AND VERY BULLISH FOR GOLD. $$$

Consider the closing table as a broad summary of the precious metals market, a snapshot from August 12th. It reveals a highly encouraging and extremely bullish picture for both Gold & Silver owners. Notice the glaring red figures in the CHANGE column for Gold Large Commercial Net Short (LCNS) with a reduction of 38,428 contracts, and similarly Silver LCNS reduced by 9247 contracts. Such is almost never seen!! The big players covered their shorts when they had an opportunity under gold 1800 and under silver 40. Therefore, those days are done, those prices not to be offered again anytime soon. The graph of just the Gold LCNS position versus the Gold price highlights the effect. Data is taken as of Tuesday, August 9th. The is unusual because the Gold price was rising sharply at the time, up $81 or 4.9% from Tuesday to Tuesday. The largest, best funded, and presumably the best informed traders of futures, the traders the CFTC classifies as commercial, who often throw their weight around, the big boys took the opportunity to reduce their collective net short positioning. Gold went higher, when Big Shorts went less net short. When gold rose nearly 5% in price, the powerful commercials abandoned over 38 thousand contracts, over 13% of their short bet positions. The Big Sellers of gold futures were in full retreat. Higher Gold prices were to be expected, and last week they came, with the price moving above $1800 in impressive fashion.

◄$$$ THE LARGE COMMERCIALS HAVE ALSO REDUCED THEIR SHORT SILVER POSITIONS AFTER THE MAY AMBUSH. INSTEAD OF ADDING TO THE PAINFUL DOWNDRAFT, THEY RESCUED THE PRICE FROM THE POUNCE, GIVING IT STABLE FOOTING. THIS GROUP USUALLY IS AGGRESSIVE IN THEIR SHORTING ACTIVITY. THE EVENT IS HIGHLY UNUSUAL AND VERY BULLISH FOR SILVER. $$$

The most recent Commitment of Traders report for the COMEX shows unusual short covering of short Silver positions by the Large Commercials, just like with Gold. Such is almost never seen!! The group put a floor under the Silver price at $37 or $38 per ounce. The Got Gold Report is intrepid and excellent in coverage of COT activity. As the Silver price fell $3.25 or 8% from Tuesday to Tuesday, closing at $37.52 on the cash market, the collective net short positioning of the large commercial LCNS dropped by a very large 9247 contracts, equal to 20.7% of their 44,588 contracts, down to 35,341 contracts net short. They have changed their activity, reversing the trend. In the five reporting weeks from June 28th to August 2nd, as silver moved from $33.91 to $40.77, the combined commercials that include the Producer Merchants and Swap Dealers increased their net short bets on silver futures by 15,422 contracts. In the past reporting week, as silver gave back $3.25 or roughly half of the 5-week price advance, the combined commercials covered (or offset) contracts representing 46.2 million ounces, equal to 60% of what they put on net short for the period. The Open Interest actually fell by 4446 contracts to 115,939 lots open. So the LCNS reduction means their net shorts fell from 37.0% to a low 30.5% of all futures contracts open on the COMEX bourse. Witness a strong loud indicator for a much higher Silver price.

The Got Gold Report summarized. "Bottom line: The COMEX combined commercial futures traders strongly reduced their net short positioning for Silver futures on that $3.25 drop in the price of Silver and the Swap Dealers increased their long position significantly. Since then the price of Silver has crawled its way back to almost where it was the prior Tuesday. So the commercials apparently had good instincts when they decided to get smaller on the short side with Silver in the $37s. We can say that their short covering and the Swap Dealers long position taking helped to put the floor under Silver in the $37s instead of a lower mark. It looks like the largest, best funded, and presumably the best informed traders of Silver futures were positioning more for higher prices than lower prices as Silver only dipped to the $37s. We certainly cannot say that the Big Sellers were even net sellers over the past week. They were net buyers instead."

My new affable colleague Turd Ferguson pitched in with a few comments. His viewpoint and mine coincide and dovetail nicely. He added that the Commitment of Traders report from the COMEX is very bullish, as is the growing Open Interest. He expects much higher Gold & Silver prices soon. He added, "The COT report and the current COMEX Open Interest are exceedingly bullish too. It is simply a matter of time. The criminal CME/ COMEX/ Cartel raised silver margins 5 times in 9 days back in May. For now, the minimal leverage in silver versus gold is keeping demand in gold and not silver. As the criminals desperately raise gold margins, they will unwittingly level the leveraged playing field for silver. So, these guys only temporarily stymied silver with their margin hikes. By using the same dirty tricks on gold, they will drive specs back into silver. It sure can be tough on sanity but we will prevail since prepared." Important factors are opening channels for Gold profit to migrate into added Silver positions.

◄$$$ A DEEP SOURCE IN THE GOLD BUSINESS COMMENTED ON SILVER. HE IS STILL HIGHLY BULLISH. THE SILVER MARGIN HIKE EFFECT WILL BE LONG FORGOTTEN SOON. THE ENTIRE GOLD PRICE DECLINE TURNED OUT TO BE VERY MINOR AFTER ITS MARGIN HIKE. THE C.M.E. MARGIN HIKES HAVE SHOWN TO MEAN LITTLE, EXCEPT TO REVEAL THE CARTEL DESPERATION AND HELPLESSNESS. THEY ARE BEING RUN OVER BY A BUS CARAVAN. $$$

A highly experienced and well connected gold banker from Europe has been helpful to the Jackass in the past three years. He has provided many tips on key events regarding the gold market and the sovereign debt market, all proved correct. His insights have taught me a great deal, and much gratitude is warranted. He offered an opinion on silver. He said, "Silver dynamics are poorly understood, since there are multiple applications besides the monetary metal aspect. The same is actually true for copper. Silver has a much higher upside potential and is as safe as Gold if looked at from the aspect of being a safe store, preserved value, and measure of value. I see Silver moving toward $200 and beyond it in a foreseeable, well measured time window, like 18 to 36 months. Once it gets on the upward tangent, it will take off like a space rocket. Eventually we shall see Gold above $10,000 per oz and the Au/Ag ratio going back to 1:20 or 1:25. You do the math. People, even learned ones, are totally oblivious to what is unfolding. Physical needs to be held in small denominations in order to be usable in times of need. Paper metal price discovery at the COMEX is total bullshit, a growing irrelevance and distraction. Furthermore, UBS and Credit Suisse both have $multi-billion lawsuits pending where disgruntled clients have demanded their physical being delivered. Both banks de-facto refused. Both banks have great difficulties in executing wire transfers from clients current accounts, for SFR 100 million and up." SFR means Swiss Francs. The Swiss bank heist continues, as do the counter-attacks by investors. For those who failed to heed the Jackass warnings in June 2010, they must wait and hope to see their gold from Swiss accounts. They will at least be given cash redemptions, but then lose in time and new purchase premiums paid. Maybe they should join the lawsuits. Act early upon reliable warnings or be burned. This same European gentleman pointed out the 25% price premium paid for gold investment grade in volume. This is the start of big divergence of COMEX paper prices from physical prices!!

◄$$$ THE SWISS TAPPED THE USFED LIQUIDITY SWAP LINE. DETECT THE PANIC AS THE USFED HAS RESUMED THE SWAP LINES, AND LENT $200 MILLION TO THE SWISS NATIONAL BANK. THE AMOUNT IS THE MOST SINCE OCTOBER 2010, AND IS THE CUE FOR THE RETURN OF THE FINANCIAL CRISIS FEVER PITCH. KEEP AN EYE ON THE TWO BIG SWISS BANKS, DUE FOR A DEATH EXPERIENCE. $$$

Zero Hedge broke the news, first on the scene as usual, that a European bank was in dire need of USDollars, resulting in a quick $500 million loan from the Euro Central Bank. The news added to the assortment of dreadful news late last week. Not to be outdone in participation of panic reaction, the Federal Reserve Bank of New York has reactivated its USDollar Swap Facilities with Europe. The facility was responsible for over a $trillion in funds shipped to Europe in 2009. The FRBNY has announced that in the week ended August 17th, it lent $200 million to the Swiss National Bank. Once regarded as the pinnacle of stability, the venerable Swiss central bank is under siege of paper funds flocking IN from all corners of the continent, investment funds seeking safe haven from the crumbling sovereign debt, the ruin of money, and the imploding financial markets. But massive demands for Gold bullion has left them exposed as insolvent. Perhaps the next recipient under distress will be the Euro Central Bank or the Bank of England. Many analysts believe the FX Swap is the last ditch global bailout line. The swap usage indicates that a Swiss bank is at death's door. My sources tell the identities as definitely Union Bank of Switzerland or Credit Suisse. The European insolvency, liquidity flood, and bank run crisis is about to take an exponential step higher.

◄$$$ THE VENEZUELAN REPATRIATION OF GOLD BULLION, COMBINED WITH NATIONALIZATION OF DOMESTIC GOLD MINING OPERATIONS, COULD BRING A FRESH SPOTLIGHT TO THE GOLD MARKET AND ITS BADLY FRAYED CABLE LINES. CHAVEZ HAS DEMANDED RETURN OF GOLD HELD IN LONDON AND JPMORGAN VAULTS, WHERE STORED. IT IS PROBABLY GONE. IT HAD TO BE SOURCED AND DELIVERED FROM ELSEWHERE. IT SEEMS THE GOLD BULLION HAS ALREADY BEEN RETRIEVED, WITH GREAT PAIN TO THE EUROPEAN WING OF THE GOLD CARTEL. THE EFFECTS WILL RIPPLE THROUGH THE INDUSTRY, UNDER GREAT STRESS DUE TO ITS FRACTIONAL SYSTEM AND MISSING METAL. $$$

Dictator Hugo Chavez has retrieved the Venezuelan gold bullion held abroad. It is not planned, but rather done. He intends to nationalize the gold mining industry, since it is vital to monetary health during the global financial crisis, if not survival. The Chavez emissaries demanded the 99 tons of gold from their account at the Bank of England. The total amount was much more like 211 tons from the various accounts. The bankers had to appeal to the continent, which was successfully drained of gold bullion from other banks in the land of watches, chocolate, and yodeling. According to Bloomberg, other Venezuelan gold accounts are held under the trusty hands of banks in New York, London, and Toronto. The JPMorgan vault only contains 10.6 tons of physical gold. Actually from the CME update of metal depository statistics, JPM only has 338,303 ounces of registered gold in storage. Keep in mind that JPMorgan and other big US and London banks typically have pledged 100 times as much via their fractional banking and associated paper contract games. So the Bank of England and JPMorgan had to solicit substantial other supplies from Central Europe, where the sweat beaded on the foreheads and the glances were stern. But the gold was handed over in volume. Men armed with court action threats and other men armed with weapons were reportedly present.

A well connected source informed that "the logistics of the relocation of Venezuelan gold was known. They retained experienced and efficient professionals. The retrieval and delivery was done under the radar screen and published publicly as a time lagged news story, once all was completed. The retrieval will crush many of the major bullion banks. These criminals have sold in excess of 50 thousand metric tones of allocated metal they do not actually have to unassuming customers. That quantity equates to approx to 25 years of global production. If you think the subprime mortgage chapter was a mega-fraud, then what comes next will be a shocker." In no way did the London and European bank supervisors wish to deny a hostile client like Chavez, who would rant and rave about corrupt gold banking practices from his Caracas pulpit for the world to hear, for days on end, but with credibility. The key fact is that the majority bulk of Venezuelan gold bullion was retrieved quickly and quietly, without incident, efficiently, and then reported publicly. One should infer that great precision was deployed, and pressure exerted to extract the gold at pressure points. The ripple effects will be felt next, in my view as weakening the gold banking system in general. Savvy analyst Ben Davies believes the Chavez gold delivery demands make for a major Game Changer, exposing the fractional gold banking practices as corrupt, causing great problems. Some unexpected consequences will make their way to the surface in coming months, maybe weeks. Look for fresh evidence of massive drainage of GLD inventory, since designed for corrupted diversions and betrayal of its investors. Adam Hamilton of Zeal (non-)Intelligence is due for a rude awakening, cold water on its naive clueless face.

Implications are rather big. The Venezuelan Govt is alarmed at the monetary system breakdown and seeks preparation for the upcoming shocks. Foreign Minister Nicolas Maduro lectured about how the global financial system based on the USDollar had entered into a crisis of uncertainty. He claimed to be part of a plan to construct a new international monetary system, for particular usage in South America, to protect his nation from this situation. Such a vehicle would be incredibly difficult to manage and create. This bears watching, to see if a fledgling barter system is created at a high level. Details on the Venezuelan reserves makeup have been revealed. Official figures cite their total gold holdings at 365 tons, of which 211 tons are held overseas at the Bank of England, JPMorgan Chase, Barclays, Standard Chartered, and the Bank of Nova Scotia. Since 1980, Venezuela has held 99 tons of gold at the Bank of England, which is destined to come home. Strongman autocrat Chavez intends to eliminate the dictatorship of the USDollar as he calls it, by putting into action a plan to diversify its $28.7 billion in reserves away from US banks. Other cash reserves totaling $6.3 billion will be shifted into currencies from emerging markets where Venezuela feels loyalty and brotherhood. Funds will shift toward China, Russia, Brazil, and India, according to the central bank head Nelson Merentes. The 365.8 metric tons of gold reserves owned by Venezuela makes it the 15th-largest holder of the precious metal in the world, according the World Gold Council. Their gold holdings accounted for about 61% of the country's international reserves. Venezuela produces 11 metric tons of gold per year, and pirate miners extract an additional 10 to 11 tons a year, so claims the government. See the Bloomberg article (CLICK HERE).

Gold Silver Gold analysts piece together other ripple effects, which could reach the GLD corrupted fund and raid their inventory. The JPM vaults are about to be caught offside, if not already. Blogger Dave in Denver adds perspective. He wrote, "Here is how it works. JPMorgan sells COMEX gold to hedge funds, who then opt to safe keep it at JPMorgan's COMEX depository for a 15 basis point fee. That makes the purchase very simple, the storage inexpensive, and enables the hedge fund to seemingly have possession of physical gold. But in reality all the hedge fund gains is a security interest, or paper documentation [certificate], in the gold rather than the actual gold. This enables JPMorgan to make an electronic ledger entry and create an account statement showing the market value of the gold purchased. But it never has to actually produce the physical bars and deliver them. This dynamic permits JPMorgan to sell gold that the bank is never held accountable for. This is exactly the scheme Morgan Stanley used with their silver fraud on a much smaller scale, that GLD and SLV use and that the COMEX, and the LBMA bullion banks use for their futures & forwards business." It is part and parcel of the fraudulent fractional gold banking scheme. JPMorgan has given clues openly on the fraud scheme, buying up warehouses and vault sites, extending their cancer. The game will continue to unravel and eventually expose deep criminal banking activity. The downstream consequences become intense and dangerous for the banks because this acts just like a bank run, except with gold instead of cash. The run on the bullion banks has already commenced.

Harvey Organ goes further. Organ expects the ripple effects to extend into the GLD fund. He said, "You can now imagine what is going on behind the scenes. The Bank of England will recall its gold from the GLD [exchange traded fund]. If that gold from GLD is now gone to sovereign China, India, Russia, South Korea, Mexico, and to wealthy Europeans fleeing the Euro, then the Bank cannot retrieve its swapped gold to repay Chavez. Not only that but the Bank of England is not the ultimate owner of the gold. It is probably wealthy Arabs or oil barons like Chavez. You can now imagine the wild scenarios possible. Gold was at its nadir of the day and shot up big time on the news of the repatriation of gold. Many understand the significance of today's announcement." See the Silver Gold Silver article (CLICK HERE). The analysts might have the dynamics in firm grip, but the event is already over according to my source. The ripple effects are what come next.

The falling empire struck back quickly. Standard & Poors responded with a prompt debt downgrade of Venezuela's credit ratings. S&P cited its new methods that focus more heavily on political risk. They cut the oil producing nation's long-term sovereign rating to B+ from BB-grade. After retrieval and repatriation, a verification process in itself, S&P actually expressed concern about the actual level of gold and FOREX reserves owned by Venezuela. They stated, "When you have the reserves held abroad, you do have some level of confidence. That is not going to be the case anymore. They are going to be held at the central bank domestically. Then you fall in the same circle of lack of transparency that everything else has in Venezuela." So the United States, land of phony balance sheet accounting, corrupt mortgage foreclosures, fractional gold banking, insider trading, and bought off regulators, accuses tiny Venezuela of lack of transparency. By demonstrating a disclosure in effect through shipments, S&P accuses them of lack of transparency. Such an Orwellian display!!

◄$$$ THE SPROTT FUND PLANS TO SELL GOLD IN ORDER TO BUY SILVER, THUS ACHIEVING BALANCE AND EXPLOITING THE SITUATION IN PRUDENT MANNER. $$$

The Sprott Gold Trust has announced plans to sell $30 million in gold. They plan to plow the proceeds into silver. This is a shift from the PHYS (PHY in Canada) shares to the PSLV (PHS in Canada) shares, after the nice sprint in the gold price and the staid rise in silver price. Savvy investors will follow the Sprott lead and move weight from gold to silver in likewise maneuvers. The Sprott Foundation will sell two million units of its Sprott Physical Gold Trust, worth about $30 million on the date of the news. In its disclosure, Sprott said that the proceeds would be reinvested in the silver sector, which is not surprising. In recent interviews, Eric Sprott has been touting the story with earnest enthusiasm. In an interview with the GoldMoney Foundation, Sprott said, "Gold was the investment of the last decade, [but] Silver is going to be the investment of this decade." The Sprott gold fund has risen over 22% since July 1st. Its managers will take some profit off the table, so to speak. It is yet unclear whether the funds would be re-invested in the Sprott Physical Silver Trust or in silver bullion itself. See the Silver Doctors article (CLICK HERE) or the Globe & Mail article (CLICK HERE).

◄$$$ IN THE LAST TWO WEEKS, A PRICE SIGNAL HAS FLASHED BULLISH FOR SILVER. A BACKWARDIZED SILVER SCHEME HAS RETURNED. PRESSURE IN SUPPLY HAS INVERTED THE COMMON PRICE CONTANGO ONE YEAR OUT. THE TILT IS GOING STEEPER EACH WEEK. IT SIGNALS COMEX INVENTORY PRESSURES. IF THE FRONT MONTHS BEGIN TO TILT BACKWARDS, THEN A SIGNAL FLASHES OF DRAINAGE AND EXTREME SHORTAGE. $$$

The Silver backwardation has nearly doubled in the last two weeks. It should continue to twist toward the present month in a greater distortion. The differential in silver price out five years in futures contracts has jumped from around 80 cents to 150 cents in the last three weeks time. Such a movement is not typical ever. It signals great strain in the supply, as forward supply is brought to the present in reaction so that shortage can be met. The front 12 months in contract pricingremain in slight contango (rising). The backwardation appears from 2012 to 2016 in the future, where the effect is vivid and striking. The pace of the backward tilt is increasing each week and bears watching for a bigger bullish signal. The phenomenon is obscure, but it means the COMEX metals inventory is undergoing an important shift. The Silver Doctors said, "This increase in silver backwardation is a result of COMEX default risk, and not dollar aversion. The fact that back month backwardation continues to increase while silver has corrected $5 indicates that traders want their silver now. They are not comfortable holding a contract that matures further than 12 months out." Wow!!

George is a colleague with past COMEX logistics experience. He knows this topic intimately. He said, "Watch for serious backwardation in the front six months, to be indicative of a big push. The forward out years are not as irrelevant, not as indicative, particularly in a zero interest rate environment. One could make the case that the backwardation a year forward only reflects long-term carry charges beyond six months, but that in itself is not a full explanation. It really reflects money not playing Silver out beyond 6 to 9 months. Beyond then, there is less liquidity. With zero interest rates, clients have to pay storage fees. Anyway, keep your eyes up front on the nearby few months for the important signals. No doubt we are increasingly close to a loss of control. Since late last fall one could sense a change of sentiment, that could propel metals far higher. That has proven to be true. Powerful upward moves could come, probably not parabolic though, at least this year due to central bank actions. But on the other hand, prices might go wild because of people like Chavez suddenly in the picture. The carry costs factor into the backwardation. Under normal circumstances it is derived from implied interest and carrying charges. So in a normal interest rate environment of 3 to 5%, the forward curve is much steeper naturally. In this environment interest rates are essentially zero. So the curve is not as flat, or as close to inverting as people think. The main factor is the major spread & carry component (interest cost) going to near zero. That is not to say there is not pressure. There is, but maybe not quite as much as the curve implies." Makes sense, another 0% rate distortion.

James Turk recently warned that any backwardation in Gold would mean death to fiat money. He said, "Already, there is a small degree of backwardation developing in the Gold market with certain near-term futures contracts now trading at higher prices than longer term contracts." All in time, first silver, then gold, first outer months, then nearby months. This backwardation will be a front page story in the financial press by next year.

◄$$$ SOME TIDBITS ON GOLD, ITS PRICE, COINS, AND CENTRAL BANKS. $$$

  • Jim Sinclair believes $1764 is a very significant level for gold, just like $525 way back years ago. Above that level, the Powerz lose control and rapid upward moves take place. We are approaching a runaway phase in gold, and thus expect fierce defense. Alf Fields agrees with the Sinclair assessment and a potential for explosive price moves. With the US$ DX index stuck around the lowly 74 level, a gold correction seems unlikely. The USFed clearly has thrown the USDollar into the wind, in his words.
  • The very popular German tabloid Bild Zeitung is actively urging German people to invest in gold, as the global debt crisis continues to deteriorate and cause turmoil in global markets. The publication is Germany's #1 selling newspaper, and the best-selling newspaper outside Japan. It has the sixth largest circulation worldwide. Bild wrote, "While the companies listed on stock exchanges have lost about $8 trillion dollars in value over the past 14 days, the price of gold climbed to a record high. While money can be printed, gold reserves are limited. To date some 150,000 tonnes of gold have been mined. Gold is better than cash. While any amount of money can be printed, Gold is limited, [thus making it] one of the safest investments in crisis times." The mainstream European press does not usually mention gold, but the deepening crisis has prompted the coverage. The nation is acutely aware of hyper-inflation risks, unlike the United States.
  • The South Korean central bank has confirmed its first purchase of Gold in 13 years. With the purchase of 25 tonnes of Gold bullion, the bank is diversifying its foreign exchange reserves away from the USDollar. It is the first gold purchase by the bank since the Asian financial crisis. The purchase was done on the global market between June and July, and brought the Asian nation's total gold reserves to 39.4 tonnes.
  • Goldman Sachs is running an aluminum warehouse outside Detroit Michigan. They attempt to control the metal price. Regard the move as an extension of their heavy handed participation to exploit multiple markets like a vampire squid. The tell-tale signs of manipulation have popped up. Much less aluminum is leaving the depots than arriving, creating a supply pinch for manufacturers. Robin Bhar of Credit Agricole in London believes the conflict of interest is so acute that US and European anti-trust regulators should enter the fray, since the warehouse makes a mockery of the market. A Goldman spokeswoman claims they follow the LME requirements in terms of storing and releasing metals from our warehouses. The London Metal Exchange defends its rules.

PRECIOUS PRICE MART GALLERY

◄$$$ THE S&P500 VS GOLD RATIO HIT THE SAME MARCH 2009 LOW, THEN WENT LOWER. IN THE TITANIC BATTLE OF PAPER VERSUS TANGIBLE, OR SECURITIES VERSUS METAL, THE VICTORY LAP HAS BEGUN FOR GOLD. A STEADY DECLINE IN THE US-STOCK MARKET IS VIVIDLY CLEAR SINCE THE GLOBAL FINANCIAL CRISIS HIT THE SCENE. THE DOWNTREND THAT FAVORS GOLD IN THE RATIO WAS STRONG SINCE THE DUBAI AND GREEK INCIDENTS. BUT RECENTLY, WITH ITALY, SPAIN, AND FRANCE IN FOCUS, A BREAKDOWN HAS OCCURRED OBVIOUS TO THE MOST DEVOTED PAPER HANGER. $$$

The S&P500 / Gold ratio breakdown manifests far more than a declaration of recession. It heralds the final phase of the Fiat Paper Era in collapse. Reliance upon debt monetization to treat excessive debt burdens and toxic debt has proved a disaster. The private sector debt woes have been transferred to the government balance sheets, which are buckling. The big stock selloff is from awareness of the Grand Recession Redux, from the Dysfunctional Syndicate controlled USGovt, from the Ruinous USGovt Finances, and from the Endless Sacred Wars that smear prestige. The new awareness of the galloping USEconomic recession is important, enough to alter the entire panoramic picture. It will topple the US Stock market. If the masses only knew that 0% GDP on the official scorecard was actually a Minus 7% Recession in the real world.

◄$$$ THE STOCK MARKET VS COMMODITY INDEX REVEALS A BROKEN PATTERN. A CLEAR EFFECT OF THE QUANTITATIVE EASING DAMAGE CAN BE SEEN. IT RAISED THE ENTIRE COST STRUCTURE AS CITED HERE OFTEN AND REPEATEDLY. A CARDIAC ARREST EVENT HAS BEEN RECORDED IN RECENT WEEKS. THE DEPENDENCE UPON A WEAK USDOLLAR FOR RISING STOCKS IS A DISASTROUS FORMULA, NOT TO BE REPEATED AS THE CRISIS RAGES. $$$

Typically, the US Stock market goes hand in hand with strong stable commodity prices. Even when inflation is mild or a little stronger, the equity markets had responded with rising profit margins, and all is well in the Keynesian World. Those were past years. Not anymore. The advent of QE and the following debt monetization programs have caused significant damage to the USEconomy. Businesses suffer from a profit squeeze that causes worker cutbacks and interrupted expansion, while households suffer from a cost squeeze and reduce spending. The labor market has turned more sour. The gimmicks have ended. Austerity is the watch word, hard to implement still. The S&P500/CCI ratio using the continuous commodity index is usually very stable like an EKG heart rate recorded. No longer!! A notable decline with a cardiac arrest is evident. Expect more damage dead ahead, as the policy makers have absolutely no workable alternatives. As costs rise, the CCI reflect it. The squeeze is deadly.

The US Stock market has been tied with the weak USDollar trade for at least a year, and thus directly correlated with Gold & Silver. What irony! The major stock indexes have done nothing more than attempt to keep a constant purchase power in valuations, fooling the nitwit observers into thinking a bull market has been born. What stupidity! But in the last week, an important schism took place as the equity market plunged but the Gold price set record highs in its march to $2000. It will capture global attention. Witness the physical beast separating from the paper beast. Some misguided souls, unable to discern much, expect a repeat of 2009 when commodities plummeted and even precious metals sold off sharply for months. They recovered but pain was doled out. Not this time! The conditions are different, awareness higher, solutions attempted, a mountain of money wasted, populist anger at pitch levels over banker welfare and absent job initiatives, while the back doors for the Anglo bankers to escape have been nailed shut.

John Williams of Shadow Govt Statistics wrote, "Lack of confidence in the US dollar has been pushed to a new and more dangerous nadir in the last two weeks. Dollar selling has been exacerbated by the contentious and virtually meaningless debt deal negotiated by the President and Congress, by Standard & Poors downgrading the rating on USTreasuries to AA+ from AAA, and by mounting market recognition of the ongoing USEconomic and systemic solvency crises. Pending still is the Fed's move to QE3. The dollar's back is close to being broken. Despite near-term interventions and extreme volatility, the heavy dollar selling that follows will be highly inflationary." Given the debt downgrade and the recession awareness, very difficult times lie ahead. The chapter for a rising US stock market from USDollar weakness is done, a silly chapter at that. The strained planks for equity rallies have all vanished.

◄$$$ SILVER IS GRADUALLY PROVING NOT TO BE JUST ANOTHER INDUSTRIAL METAL. THE PAPER MERCHANTS AND DEFLATIONISTS ARE WRONG AGAIN, A TIRED SAW. NOTICE THE TREND WHERE SILVER SHOWS GREATER STRENGTH THAN COPPER, SINCE THE QE & QE2 PERIODS BEGAN. THE KEY IS EXTREMELY STRONG INDUSTRIAL DEMAND FOR SILVER. $$$

The consolidation phase for Silver has given compromised critics and lousy analysts an opportunity to denigrate the white metal, claiming it is exposed for its vulnerability as an industrial metal. While some significant portion of Silver demand comes from industrial processes, it is unique among metals. It is not replaceable despite a century of efforts. Besides, its investment demand has been equal in US$ volume as Gold demand, a remarkable fact pointed out by market buying agents Eric Sprott and James Turk, related to their businesses. Imagine a Gold price multiples higher than Silver but the amount of money placed on the table to purchase the two precious metals is equal. Amazing!! They argue that the Silver price will move higher and reduce the Gold / Silver ratio in the process naturally, due to equal volume flows. The true delegate industrial metal indicator is copper, not silver. Copper has earned the title of having a PhD in Economics, from its 3-legged stool of electronics, cars, homes. Silver stands out differently. Its investment demand extends to Asian and Indian households simply saving and warding off inflation. Silver will be the investment powerhouse of this decade. No doubt in my mind. Join the party!

Notice how Silver has outpaced the copper price in the last 18 months, when the USFed began its monetary policy to purchase bonds with printed money. They ushered in a death spiral. Even post-May when the COMEX ambush occurred with successive margin requirement hikes, the Silver / Copper ratio has risen steadily. Sorry, the industrial argument is a weak construct that does not bear weight or survive any scrutiny. Silver is unique and of multiple purposes. In 20 languages (including my new Spanish, plata) silver means money (same for my old schooldays French, argent). The Silver investment demand is due to a big important recognition that Silver is in the process of resuming and reclaiming its monetary role. The Chinese lead in that parade, adding silver to their reserves in management of their $3.2 trillion reserves booty. They are busy replacing their massive silver stockpile.

◄$$$ MINING STOCKS DO NOT KEEP PACE WITH THE BULLION METAL. THE ULTIMATE PROBLEM IS PAPER SECURITIES AND THE TRUST HELD IN THEM. THE MINING STOCKS REMAIN UNDER THE WALL STREET THUMB, WITH AID GIVEN BY HEDGE FUNDS IN VALUE SUPPRESSION. $$$

Mining stocks are not keeping pace with the bullion metal. The ultimate problem is paper securities and the trust held in them. Persistent stories about well supplied hedge funds shorting mining stocks, about naked shorting of small mining stocks (see Alpha Group), and about sponsored spread trades to support bullion metal over the mining stocks have all contributed to the decline in shares. The Goldman Sachs GDX index fund is a perfect tool abused by the consistently corrupt firm. The crooked GSax trading desks short the entire mining sector with a single keystroke, done easily, done often. The distrust in all things paper, as in financial securities, at a time when trust in sovereign debt is on the wane, when financial sector insolvency is argued, when bond fraud has gone unprosecuted, has created a hostile climate for investments and a dire need for self-protection. The shortage of credit and capital has exacerbated the condition. Mining firms respond by additional stock issuance, capital raised, which dilute the stocks.

The HUI index of mining stocks has not done well versus the basic precious metal, the gold bullion, since the spring months. The threat of USEconomic recession will only make the situation worse, certain to lead to more whacks to the equity markets. Gold bullion has no counter-party risk, no paper dependence. Stay clear of the fraudulent custodians and their GLD & SLV fraud-strewn funds designed for lazy investors who do no research and trust the system. They will be separated from their metal claims, handed cash in redemption, and sent away. One point toward proof of fraud is that GLD & SLV have a discount in share price to the metal, while legitimate funds like the Sprott Trust and Central Exchange Fund include a premium price to the metal. These corrupt funds are being abused and destroyed by their own managers. The proof of honest custodial management is a premium on price. That is because the big cartel banks, as custodians, are shorting shares of GLD & SLV, sending the metal inventory to the COMEX to satisfy delivery needs. The short shares are receipts for delivery of the metal. These funds are being gutted.

The HUI mining stock index suffers from the stock market virus of distrust. It will continue to lag the metals in my opinion. The index faces big overhead resistance at 600. Some investors a year from now will claim they did well with their mining shares. But they would do much better if they owned precious metal in bullion or coins. Some small mining firms will do extremely well, but expect the majority to be stuck in mud, left behind, out of cash, victims of naked shorting, heavy dilution, irrelevance, and fraud. Over the springtime months they showed themselves as vulnerable. Analysts cited how the mining stocks were trading as if Gold was $1200, when it was actually over $1500. They might be heading for a very substantial decline in a stock market rout. The mining stocks have not shown the ability to decouple from the overall stock market. During this next stage, the mining stocks might rise, but they will likely fall to a bigger discount to the underlying metal. Only later, when the USDollar makes a big downside move, after several months or a year, the mining stocks will be set to turn upward.

◄$$$ THE BANKER INDEX IS FINALLY UNDER GREAT STRESS, DESERVEDLY SO. THEY HAVE BENEFITED GREATLY FROM THE FANTASY OF PHONY ACCOUNTING PRACTICES. THEIR EXPOSURE TO EUROPE, US-HOUSING, AND BOND INVESTOR LAWSUITS COMBINES TO MAKE RENEWED RISK OF EVENTUAL WIDESPREAD BANK FAILURES. THE BKX INDEX AND BANKS ARE BEING CRUSHED. TIME FOR A TARP2 FUND EXCEPT THAT USGOVT RESOLVE IS ABSENT, SORELY LACKING. BANK BAILOUTS ARE IMPOSSIBLE ANYMORE. $$$

The banker index is finally under tremendous stress, signaling death events. They were revived from the cemetery gate by means of the fantasy of phony accounting practices, conducted by the Financial Accounting Standards Board, and blessed as good by the USCongress in April 2009. They have also benefited from a staged controlled USTreasury Carry Trade, taking free money and investing in long maturities. But that game is soon to end, with measly bond yields on the overbought end. The big US bank losses continue to mount in great volume. They will be forced to bring back from the USFed their loan loss reserves, improperly called Excess Reserves. They are vital reserves committed to cover profound losses. Their exposure to Europe sovereign debt, the US housing market, and mortgage bond investor lawsuits conspires to bring down numerous big banks. These insolvent zombies are due for a death experience, if only the markets were fair. Gold is blowing away the bank stocks. As Gold seeks the heavens, the corrupt bank stocks plummet to earth.

The big US banks are due to have their deep insolvency discovered again. The FASB rule change permitted them to bounce up in share price. They have submitted fraudulent quarterly reports and 10Q for two full years. The multiple threats to the banks will serve as material for the annals of history. A deadly combination of debt saturation, busted asset bubbles, depleted capital, the spotlight of bond fraud, and pursuit of investor restitution will result in numerous big failures. If only their narcotics money laundering were exposed. Ouch! The past extreme policy actions only delayed the inevitable death spiral. The events in Europe will probably serve as catalyst for the American bank failures to come. Exposure across the Atlantic is not small. Contagion from Greece, Italy, and France will be deadly.

Just before the dangerous vertical plunge in these first three weeks of August, the global banking crush was awful nasty ugly. Up to August 4th, the data read like a horror story. Among US banks, Bank of America was down 34.1% over the past 12 months, 34.51% over the past 6 months, 14.2% in just July. Citigroup was down 9.78% in the last year, 22.64% over 6 months, 13.22% in July. Morgan Stanley was down 24.23% in the last year, 30.12% over 6 months, 12.33% in July. Goldman Sachs was down 13.95% in the last year, 19.93% over 6 months, 3.53% in July. JPMorgan was down 3.21% in the last year, 12.54% over 6 months, 4.38% in July. Among foreign banks, same story. Societe Generale was down 34.82% year over year, 36.39% over 6 months, 30.28% in July alone. Credit Agricole was down 30.9% year over year, 31.66% over 6 months, 30.8% in July. Deutsche Bank was down 31% year over year, 17.61% over 6 months, 16.48% in July. Royal Bank of Scotland was down 35.61% year over year, 25.12% over 6 months, 17.73% in July. Then came August and even more deep declines. The signal is clear for those who have eyes open and ignore the spin cycle. A long list of big bank failures is coming. Their bus fell into the ravine, a deep ravine.

◄$$$ BANK OF AMERICA IS ON DEATH WATCH. WITH $8.5 BILLION IN MORTGAGE PUTBACKS, THEIR PROBLEMS ARE MUSHROOMING. SOME MAJOR BANK RESEARCH UNITS ARE PROMOTING A FIGURE OF $25 BILLION NEEDED BY B.O.A. IN ORDER TO STEM THE THREAT OF LOST CAPITAL. THEN COMES A $10 BILLION LAWSUIT BY A.I.G. CENTERED ON BOND LOSSES, WHICH MEANS FRAUD. THE IRONY IS INESCAPABLE THAT A DEATH BLOW BE DELIVERED BY THIS NATIONALIZED BOND INSURER BLACK HOLE. WITNESS THE BIRTH PROCESS OF TARP2, TO RESCUE THE BROKEN SYNDICATE BANKS. WATCH OUT FOR A SURPRISE CITIGROUP DEATH TO THE NORTH, POSSIBLY PLANNED. $$$

Some internet websites are starting a Bank of America death watch. The big broken bank has too much legal liability, too many homes on REO balance sheet, too much continued exposure to residential real estate in decline, too little equity or capital reserves, too much dependence on narcotics money laundering. The latest blows are powerful. Attempts to limit mortgage bond lawsuit exposure are not successful so far. The $25 billion proposed to recapitalize is a fraction of the real world figure. With a low low stock price, tapping of capital markets seems too little too late. Plaintiffs in the bond cases are Blackrock, MetLife, and New York Fed. The AIG demand for restitution is crippling, another $10 billion demanded. Before long, justification will come for TARP2 Fund to aid the dying big US banks, with BOA front & center in pauper rags. But this time, the mood for added deficits in the USGovt is not favorable, and the angry sentiment toward banks bearing obvious guilt over mortgage contract fraud and mortgage securities fraud is palpable. See the Naked Capitalism article (CLICK HERE). Monday August 8th saw the BAC stock lose 20% value on a single day, a total of 50% this year. It has not recovered but it has stabilized. Rumors have come that very heavy option put contracts have been placed as bets that BAC shares will hit $4 by yearend.

On August 9th, the BAC default risk was at 265 to 270 bpts on debt insurance. When the big plunge took place the day before, the bid/ask was 290/310. The executives issues pablum of bland variety that does not satisfy shareholders. They need help, but a TARP2 Fund to the rescue seems unlikely. Clowns continue to provide comedy, like Jim Cramer of CNBC. He loved BAC, then hates BAC, leading investors to great losses. He does not understand BAC. Do not expect any capital raise in the secondary stock market for downtrodden crippled corrupted broken Bank of America. This stock market would not show up for a stock offering. CEO Moynihan has a credibility problem with private label bond lawsuits and dividends, as well as the ruinous capital ratios. This is truly a death watch, starting with its CEO. Karl Denninger pointed out that BAC is trading at half of their claimed book value. There are only two possibilities to explain. The book value is a lie or the market is radically wrong about valuation. Their counter-party derivative exposure is the extra red herring.

However, turn to the north and observe Citigroup. My friend and colleague Rob Kirby is adamant that smoke pours out of the Citi basement. Here is a weird signal. The Citi retail clients are being herded over to Morgan Stanley, under the JPMorgan wing, in forced account changes. He believes Citigroup being positioned for a kill or an accidental death. The Wall Street maestros might be setting themselves up with heavy CDSwap contracts, to profit from heavy Citi fire damage that they set, being the experienced pyromaniacs. Also, a Citigroup death would enable a black hole for information and records losses on derivatives, flash trading, muni bond trades, sovereign bond trades, and much more. See the Citigroup stock decline, not as horrendous as Bank of America, but still painfully ugly.

◄$$$ A REMARKABLE RATIO GIVES PROPER ATTENTION TO SILVER, THE WONDER METAL, THE TRADE OF THE 2010 DECADE. THE SILVER VERSUS CCI INDEX EXPOSES A POWERFUL UPTREND. SILVER IS FAR MORE THAN A METAL COMMODITY. AS THE COMMODITIES THEMSELVES RISE FROM THE NEXT POLICY MANEUVER IN REACTION TO CRISIS, SILVER WILL JETTISON UPWARD. $$$

Tribute belongs to Dan Norcini, independent analyst, cohort to Jim Sinclair, and technical analyst of high caliber. He noticed the cycles for the commodity index, then super-imposed the silver price to notice that silver is doing much better than the commodities. A double-barreled bull thrust is coming in the Silver market, amplified by acute shortage. Its trigger could be TARP2, or QE3, or Gold margin hikes, or more stories like Chavez demanding his national gold. The continuous commodity index was kept in order to avoid the Wall Street attempts to change the weights for crude oil a few years ago with the old Commodity Research Bureau index. The CCI index preserves the historical trend.

Here is the Norcini analysis from two weeks ago on August 9th, still relevant. It is inter-mingled with Turd Ferguson analysis quoting Norcini, so forgive the impurity. They wrote, "Notice that the CCI has averaged one big drop per month for the past five months. Each drop has lasted from 4 to 7 trading days and has been followed by a rather significant rally. The current drop just finished its fifth day and, with all of the hubbub from the Fed today, is almost assuredly going to bottom tomorrow, if it did not already bottom today. Anyway, my point is, we are about to see another 2 to 4 week rally in all of the commodities. Yes, copper, crude and the grains are going to rally. More importantly, we can feel very confident that silver is not going much lower, if at all. In fact, I bet we saw the lows today, in the beatdown on the Globex [yes, true, nice call!]. Given that Silver rallied almost 25% in July, during the last CCI rally, a reasonable target for Silver is $44 before Labor Day. Adding to the ammunition are the utterly amazing Open Interest numbers in silver. The latest numbers are basis Monday and show a total Open Interest of just over 114,000 contracts. We almost certainly lost a few more today. For perspective, the last time OI was this low was late June, right about the time the CCI bottomed! So, there you go. I am sticking with it, a call of $44 silver by Labor Day." See the Norcini article (CLICK HERE). The cycles are favorable. Even the Large Commercials are covering their shorts in Gold, a good sign generally for precious metals. Norcini argues how the USDollar will be sacrificed for the greater good, a process well along.

◄$$$ GOLD IS TAKING THE WORLD BY STORM. PANIC HAS STRUCK THE FINANCIAL MARKETS. THE RECESSION IS STARING THE MARKET IN THE FACE, AND THE MARKET FLINCHED. USGOVT DEFICITS WILL RISE EVEN MORE. THE RUIN OF MONEY IS A CONSTANT THEME, TO BE AMPLIFIED VERY SOON IN RESPONSE TO CRISIS. NO REMEDY HAS EVEN BEEN ATTEMPTED SINCE 2008. THE WAGES OF CORRUPTION IS SYSTEMIC FAILURE. $$$

My firm belief is that soon, large blocks of money will move from Gold profits to Silver buys, a big new upcoming factor. This is the next important phenomenon, along with Large Commercials covering their short positions, preparing for their slaughter. The Jackass has stated many times that Gold fights the big important political battles, but Silver rides through on a white horse and reaps triple the gains in size. This time is no different and Gold has broken a wide gap in their criminal fortress wall. The Gold bull has trampled the COMEX and their flimsy margin hike fences in only one week time. To be sure, some claim Silver has too much of an industrial component. It does, but it is a staple with stable demand, cannot be replaced in industry, and finds new applications like photo-electricity for solar panels. The big added impetus is from investment demand, a powerful new global factor led by China and India. Silver demand continues to be nearly equal in US$ volume as Gold, an amazing fact. That dynamic will push the Gold/Silver ratio down toward 20:1, all in time. COMEX is slowly becoming irrelevant. The premium paid to obtain actual physical metal is increasing, a divergence at work. What might be happening is that the physical price to source metal is lifting the corrupted paper price, as the capitulation phase takes root for the ruined corrupted fractional gold bankers. Notice the puny yield offered by USTBonds nowadays. The 2% yield hits the channel switch and directs traffic to Gold. Even the bankers playing the USTreasury carry trade would do better buying Gold and selling option calls.

Ben Davies has been remarkably accurate in his short term calls for Gold & Silver over the past two years. He was almost exactly in the silver correction to $35 in May, predicting it days in advance. In June, when gold was trading in the low $1500 level, Davies forecasted boldly that Gold would break above $2000 by yearend 2011. The strong upward moves seen so far in August are impressive. If they continue into September, the forecast will be reached very early. A short-term correction could occur soon in Gold, but in my view, the Silver market would be the beneficiary. A migration is underway and easily carried out, devoted still to precious metals. Davies fine tuned his 2011 gold call, stating he expects Gold to reach $2100 by the end of December after first a correction to $1675. That would be a hefty pullback that will lose some faithful followers. See the King World News interview (CLICK HERE).

Expect an emergency policy speech by USFed Chairman Bernanke. It could come early next week before the Jackson Hole Conference of failed bankers. Corruption and failure are their calling cards, required for admission, along with pedigree often. A new USFed plan like QE3 might be announced to support the stock market. Look for a similar EuroCB plan that would support the flagging European stock markets also. That way the Euro and US$ currencies can circle the toilet and drain at the same exchange rate. My full expectation is for the cost structures to rise uniformly globally gradually in the next several months. The sound money battle cry must be revised. It is not INFLATE OR DIE but rather INFLATE AND DIE!!

◄$$$ SILVER IS READY TO RESUME ITS UPWARD FLIGHT. THE PROFITABLE TRADE IS ABOVE 40 FINALLY, AS GOLD PROFITS MIGRATE TO SILVER. CENTRAL BANK POLICY ASSURES HIGHER GOLD & SILVER PRICES FROM THE ENDLESS RUIN OF MONEY. THE SILVER PRICE COULD RETURN TO AN EXPLOSIVE PHASE. THE SUPPLY SHORTAGE IS ACUTE. THE GAMES TO KEEP THE LID ON THE POWDERKEG ARE RADICAL AND EXTREME. $$$

Let's be plain. Silver has toyed around and dithered under $40 long enough. It has built a strong base, and before last week it showed absolutely no desire in going below $38 anymore. That level was well tested by fire and time, a metal forge process. Therefore the only profitable trade presents itself on the long side, over 40. The Weak USDollar trade will be replaced by a Weak Western Major Currency trade, as a flight from sovereign bonds turns to the ultimate safe haven of Gold. The Euro Central Bank bailouts for Southern Europe sovereign debt will only add motivation to seek Gold & Silver as true safe haven. The battles between the EuroCB and the Bundesbank will frighten investors into buying Gold. The next desperate USFed initiative will also undermine the USDollar and add fuel to the Gold fires, which are burning hotter than at any time in history. Witness the death throes of the Fiat Currency system, a corrupt generation.

For now, the migration flight is from stocks globally to Gold, which had grown dependent on the twisted delusion of an economic recovery. That delusion has been stripped of its lies. The rising cost structure imposed by the QE, then QE-Lite, then QE2, courtesy of the USFed, assured a profit squeeze to all sectors of the economies. In the wake of business and household ruin, the flow has turned to Gold & Silver. The objective for central bankers is to save face and to maintain some level of trust, to avoid hostility and open revolt. Officials will attempt to portray the USDollar, Euro, and British Pound as having exchange rates calm controlled contained. But they are all circling the FOREX toilet. They will strive to claim that the FOREX market is stable, mission accomplished, even though the commodity prices will rise again. The great damage done to the economies could keep final demand down a little, and offset the rising costs from broad currency debasement. Time will tell, but the monetary effects will overwhelm the demand effects. Beneficiary of the discredited policies and deteriorating economies and absent corrective action will be Gold & Silver. The ruin of money is an ongoing unintended project that cannot be avoided. If they do not inflate, they die rapidly and with a global panic. If they inflate again, the system will still implode from a rising cost structure, but the collapse will be more controlled. The bankers want order.

John Embry is chief strategist of Sprott Asset Mgmt. He shared his extremely bullish and consistently accurate viewpoint. He said, "Silver is absolutely explosive. The bullion bank with the large short position has thrown everything but the kitchen sink at the thing on the downside. You had those five margin hikes a couple of months ago as an example. It was all an attempt to hold back something that cannot be held back. All it did was sort of buy two or three more months, and now Silver is building up power to roar through the $50 all-time high. Once Silver does break above $50, who knows where it is going to go? To be sure, Gold is going a lot higher and the Gold/Silver ratio is going down. That means Silver is going up a lot further than Gold. So prices are going to be dramatically higher for both of them."

Thanks to the following for charts StockCharts,  Financial Times,  UK Independent,  Wall Street Journal,  Zero Hedge,  Business Insider,  Calculated Risk,  Shadow Govt Statistics,  Market Watch.