GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES


* Golden Nuggets
* Great American Drought
* Gold Scramble Accelerates
* Price Smells August Rush
* Domestic Economy a Mess
* Global Economy a Mess


HAT TRICK LETTER
Issue #101
Jim Willie CB, 
“the Golden Jackass”
19 August 2012

"Lenin was certainly right. There is no more positive, or subtle means of destroying the existing basis of society than to debauch the currency. By a continuing process of inflation, governments can confiscate secretly and unobserved an important part of the wealth of the citizens. The process engages all the hidden forces of economics on the side of destruction, and does it in a manner that not one man in a million can diagnose." ~ John Maynard Keynes (the Jackass is one in a million, along with many colleagues and enlightened Hat Trick Letter subscribers)

"My firm belief is that JPMorgan & Goldman Sachs will be the kings of an isolated nation that is forced into the Third World and made barren as it suffers massive economic damage from global USDollar abandonment, price inflation, and horrendous shortages, followed by price controls from market intervention and rationing programs made part of law." ~ the Jackass

"We have reached a profound point in economic history where the truth is unpalatable to the political class. The truth is that the scale and magnitude of the problem is larger than the system's ability to respond, and it terrifies them. Bad things are going to happen." ~ Hugh Hendry

"The Deflationists have done all the logic and have been correct except for one minor detail. The Dollar is not even a shadow of its former self, no longer good as Gold and not the Savior to the system. No, quite the contrary. It is at the heart of problem! They explain that a Currency Crisis will follow the deflation but that hyper-inflation cannot happen. I am sorry but a Currency Crisis not only including but focusing on the reserve currency is the definition of hyper-inflation. I have just one question to ask the Deflationists. 'Why exactly did the Dollar perform so well back during the Great Depression?' Because the Dollar was backed by GOLD. The Dollar was as good as Gold. Because Gold is the best money there is, and ever has been throughout history! " ~ Bill Holter

"Investors remain so addicted to the temporary high of monetary intervention that they continue to ignore the very real downturn in global economic indicators, to an extent that we have not seen since the 2007-2009 recession. This is particularly evident in the deterioration of new orders and order backlogs, which are short leading indicators of production, which in turn is a short leading indicator of employment." ~ John Hussman

## GOLDEN NUGGETS

◄$$$ PAYPAL IS BECOMING A WEAPON WIELDED BY THE SYNDICATE. SINCE A POPULAR PAYMENT DEVICE USED BY THE PEOPLE, THE BANKERS HAVE SEEN FIT TO USE IT TO BLOCK ITS OPPONENTS. $$$

Most people love Paypal for its convenience. The Jackass hates Paypal, which has caused some critical problems for the Hat Trick Letter business. Some of its features play directly into the Syndicate hands. Benjamin Fulford is a key player on the Good Guy team. He wrote recently, "Our website is under attack by people who are trying to cut off our finances. Paypal has unilaterally cut off payments from our subscribers. We have complained to Paypal repeatedly and have provided them with all the documentation they have asked for but they continue to freeze payments. We are working on solving the problem." Harken back to previous similar event where payments were cut off for Assange and his intrepid work with Wikileaks. The Jackass sees almost no benefit to using Paypal except for online auction houses like EBay. In almost all cases, a Mastercard or VISA transaction can be done instead.

◄$$$ THE FACEBOOK STOCK IS A GIGANTIC FRAUD. EVEN AFTER ANOTHER SIZEABLE QUANTUM DISCOUNT, IT IS STILL MORE EXPENSIVE ON A PRICE-EARNINGS BASIS THAN GOOGLE OR LINKEDIN. THEIR BIG GAMBLE IS ON THE MOBILE DEVICES, WHICH OFFER SLIM PROFIT POTENTIAL. EXPECT ANOTHER 50% CUT IN THE SHARE PRICE, ALREADY CUT ALMOST IN HALF FROM ITS DECEPTIVE CORRUPTED LAUNCH. $$$

The Facebook fraud continues. Only dupes bought its Initial Public Offering, as most insiders at the participating brokerage houses committed fraud from inadequate disclosure. They were big hidden sellers. Most social networks are infiltrated by the US security agencies for monitoring purposes. Facebook is helpful in halting the Occupy Wall Street movement. The Jackass hates Facebook and all the social network media tools, even though they are great for keeping in touch with friends, family, and colleagues. They cannot protect from US security agency inflitration. Recall that Goldman Sachs bought a sizeable stake, your clue of invasion. In every instance where invited to be friended, the Jackass hits the delete key. The tracking of my movements is not for sale. People have no idea what they provide the USGovt passively for data.

On Friday July 27th, shares of Facebook fell hard again in a quantum drop of 12%. Their first ever earnings report threw cold water of reality on the public faces. Even after the massive selloff, the FB shares are trading at a considerably higher multiple than stocks like Google and LinkedIn. In the segment of Motley Fools, the guys analyze challenges facing Facebook. The company must contend with the struggle to make significant revenue from its mobile platform, where its member growth lies. Almost no profit comes on the platform, partly because the screen image is very small on portable devices. Despite the absent profit potential, CEO Mark Zuckerberg stresses the company's big bet investment in mobile. Methinks Facebook is running out of time, as do many experts. The fraud is in the open. Lawsuits will be another potential costly expense in the future, but probably for the IPO brokers who failed in disclosure their two-faced aspect in the Facebook launch. See the Motley Fool article (CLICK HERE). Facebook is a $7 stock, no more. After cut in half since its nasty ugly IPO, the share price fights to stay above the $20 level. The company must face stern challenges ahead as a 1.4 billion shares end lockup for insiders. They will be free to sell. The company will have more difficulty, like Microsoft did in the 2000 decade, in holding key talent who wish to realize wealth from stock options.

The scummy story goes further. The participating Wall Street firms earned $176 million in fees as lead underwriters, all part of ordinary IPO issuance that resulted in sales of $16 billion in Facebook stock. It involves work to set up securities in trading platforms, to line up investors, and to sell the story with publications. That is where the collusion and treachery came in. Several firms were actually involved shorting the stock, abusing the 15% share over-allotment block (called green shoe). They have reaped over $100 million in profits from the short positions, taking the other side to their own clients. Some lawsuits are certain to hit the court dockets, since so many investors suffered heavy losses, many very quickly. See the Business Insider article (CLICK HERE).

◄$$$ THE LONDON OLYMPIC BOOST TO THE UKECONOMY FAILED TO MATERIALIZE. BIG CROWDS AND EXPECTED PREMIUM PRICING ENDED UP DETERRING THE NORMAL TOURIST TRADE. SHOPS WERE EMPTY. THE FIVE YEARS OF PREPARATIONS AND CONSTRUCTION DID NOT PREVENT A RISE IN THE JOBLESS RATE. THE MUTED BENEFIT TO THE UKECONOMY IS EXPECTED TO REVERSE NEXT YEAR, BRINGING ABOUT A NEGATIVE EFFECT. A FOOTNOTE BRINGS ATTENTION TO THE LONDON 2012 BADGES FOR HONAV ARE MADE IN CHINA. $$$

Numerous key points and facts can be cited regarding the London Olympics. It brought joy to the Jackass to see athletes from scores of nations competing. My habit never changes, rooting for the US athletes, putting aside national issues. It also brought a sigh of relief that no US security agency sponsored a false flag attack of violence occurred, blamed on some faraway Arab or Persian nation. Their last outward action was the bombing in Oslo Norway in July 2011, after managers of their gigantic $1.3 trillion sovereign wealth fund refused to invest the mountain of money in the London banks. The fund grew over decades from the North Sea energy projects. It was the work of MI and CIA in a joint effort. No incident occurred during these Olympics. The only tears were from lost medals, stripped medals, and unfortunate injuries. One other tearful incident involved a competitor who had the wrong time for the event, sadly. Back to the economic effect, which did not benefit the Metro London Economy much at all. The host nation of England did realize a surprising lift from its usual harvest of medals, a common effect. Cheers to the victors!

London has a huge tourist trade, with over 7.5 million foreign tourists visting the City and environs in 2011, almost equaling the resident population. More than one third came during the peak summer months. One in twelve UK jobs is currently is in some respect supported by tourism. Tourism is the nation's third highest export earner behind chemicals and financial service. Tourists spend more than 16 billion Pounds annually and contribute over 3 billion Pounds to the Exchequer.

The impact to ordinary tourism has been devastating. The European Tour Operators Assn said last November that advance bookings for late-July to early-September were down 90% from the same period for 2011. Even in early August, central London hotels were reporting summer bookings down by one third. Some popular hotels were reportedly near empty. Room rates were slashed, further denting the tourism bump. Regular tourists were scared off by the expectation of crowds and premium pricing. Worse, even theater bookings were apparently down by 20% from 2011.

England spent officially 9.3 billion Pounds (perhaps up to 24 billion Pounds) clearing, rebuilding, preparing, and staffing some of the UK's most depressed and deprived boroughs for the Olympic Games. The trickle down benefit is a pittance. Five years after the spending began, 2010 data show that unemployment across the five boroughs hosting the Olympics had risen from 6.9% to 7.7%, peaking above 9.0% in Newham. Nearly 18% of those working people were making less than 7 quid per hour. For the total spending estimated for all public costs, the central government could have employed 98,000 people for each of the seven years since the time when London won the Games with its Olympic bid.

Goldman Sachs estimates the net boost to UK output during the July to September period will be worth 1.2% to 1.6% of GDP annualized. The benefit appears fleeting if illusory before the Games began in August. The venerable firm expects the short-term benefit will be largely reversed in Q4, leaving the UK firmly inside the depression. Perversely, the tourism visits from the Olympics and followers supplanted the already high profile city for tourism and investment. The politician jabber was commonly heard by the commoners, with assurances that the Olympics legacy would lift the poor East London so that it shared fully in the capital's growth and prosperity. Maybe so but at a monstrous cost. See the Market Oracle article (CLICK HERE) and the Business Insider article (CLICK HERE).

◄$$$ US-POSTAL SERVICE MIGHT MISS DELIVERY OF A PENSION PAYMENT. IT IS LOSING MONEY FASTER THAN THE TITANIC TOOK ON WATER. THE ICEBERG FOR THE U.S.P.S. IS THE RUINOUS USECONOMY AND THE MATURING OF THE INTERNET, LIKE WITH EMAIL (INCLUDING ATTACHMENTS). FOR INSTANCE, THE HAT TRICK LETTER DOES NOT ARRIVE BY SNAIL MAIL. $$$

The USCongress is distraught over how to fix the crippled US Postal Service, whose financial problems grow worse by the quarter. Its plight contradicts the recovery cited by propaganda horns. If the USEconomy were indeed in recovery mode, the postal service would not be in hemorrhage mode. The USPS has come before the USCongress, hat in hand, to declare that without significant help, it will default on a legally required annual $5.5 billion payment, due August 1st. The independent company must pitch into a health benefits fund for future retirees. They encountered a buzzsaw of slugs and disinterested dogs in the USCongress. The agency said a default on the 2011 payment would not directly affect service or its ability to pay employees and suppliers. Then came the announced $5.2 billion Q3 loss, which makes it doubly difficult for any federal aid to come eagerly into a perceived ship sinking in red ink. In my view the USPostal Service will be lucky to be in operations by 2014 in its present form. The emails and faxes and conference network technology is putting them out of business like an lumbering obsolete dinosaur. Their primary customer base (just a guess) is older folks without a computer email account, plus mail order junk services. Also, the professional courier services are faster, more reliable, and offer tracking services, but at much higher cost.

Congress could have done something. The Postal Service concocted a package of proposals that could perhaps lead it to some kind of stability. Ron Nixon of the New York Times wrote, "The Postal Service said losses were expected to continue until legislative changes are made to help it return to financial stability. It has asked Congress for several changes like refunding $11 billion overpaid into one of its pension funds, eliminating Saturday mail delivery, eliminating pre-funding for future retiree health benefit,s and replacing it with its own health insurance program."A bill outlining such provisions passed the Senate but died in the House without a floor vote. Then the slackjaw Congress did nothing and adjourned for end of summer vacation. The partisan war steeped in nasty polarization caused the legislative process to grind to a halt once more. See the SFGate article (CLICK HERE) and the Wall Street Journal article (CLICK HERE). Perhaps the free franking privilege (free mail) afforded to Congressional members could be suspended.

◄$$$ THE VINDICATED COUNTRYWIDE MORTGAGE WHISTLEBLOWER HAS REVEALED RAMPANT MORTGAGE FRAUD, A PART OF EVERYDAY BUSINESS STILL. NOTHING HAS CHANGED. THE INTERNAL PROCESS FOR CONTROLS WITHIN THE MORTGAGE GIANT REVEALED NO DESIRE FOR REFORM OR CONTROL. EILEEN FOSTER WAS VINDICATED AND SERVES AS AN EXAMPLE OF FEDERAL LAWS AGAINST DISCRIMINATION AND ABUSE OF WHISTLE BLOWERS. FOSTER IS GIVING INTERVIEWS AND TELLING HER STORY. $$$

Countrywide Financial was one of the subprime lenders at the heart of the financial crisis, a principal in the vast criminality of mortgage underwriting and related bond fraud. Its predatory lending practices enabled obscene large payouts for executives while putting low-income borrowers with adjustable rate mortgages that were guaranteed to explode into defaults. Gretchen Morgenson of the New York Times called Countrywide, "Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once hot business ice cold and has touched off a housing crisis of historic proportions." The US housing market has never recovered, and the Jackass expects it will not before the USGovt debt default. Eileen Foster was an internal investigator in charge of Fraud Risk Mgmt at Countrywide when its bad loans finally ruptured a massive hole into the company's finances. She discovered shocking practices, revealed on a "CBS 60 Minutes" television show segment. Their theme for interview last December was the total lack of prosecutions of any of the bankers responsible for the crisis.

In the wake of the mortgage crisis blowup, the big US banks conducted a shell game, permitted some bankruptcies, enabled some acquisitions, while the crisis went into hyper mode. Bank of America purchased Countrywide in what the Wall Street Journal calls "one of the worst deals ever struck in corporate America." The companies involved have never admitted guilt, never cleaned house, never removed the criminal practices, never dismissed the worst players. They cannot, since much of the deep criminality remains under USGovt lockbox protection in Fannie Mae, the grand clearing house for mortgage fraud and the site of past president pilferage. Their objective is not remedy and reform, but rather coverup and continuation with damage control. Only one third of the mortgage bond crime scene has been examined. The bond counterfeit, the duplicate income stream usage in mortgage bonds, the abuse of the MERS title database scam, the pilferage of Fannie Mae and supply to Black Ops programs, all those are still kept under the federal wing of protections. Instead, the players like Countrywide attempted to smear Foster, to drive her out of the firm, and to discredit her findings.

In 2011, the USDept Labor ruled that Foster had been illegally fired. The outlaw firm was ordered to reinstate her, deeming her release to be retaliation for her whistle blowing activity against criminal activity. She has been given compensation. However, no prosecutions have taken place, and none will until the USGovt debt default occurs. No USGovt agencies or Congressional committee heads have requested her story to be told in testimony. Therefore Foster has taken her story public, at risk of her life. Murders and fatal violent accidents are commonplace for such people around WashingtonDC and New York. The best blanket of protection is the bright light of publicity and the press. She has been given awards like the Ridenhour prize for truth from the National Institute and the Fertel Foundation. The AlterNet folks conducted an exclusive interview.

Foster discussed what she witnessed at Countrywide Mortgage, as in rampant fraud that never stopped, even after the crisis hit. Foster was hired as the head of the internal investigations department after 18 months at the Countrywide corporate office. Multiple divisions were responsible for investigation and little oversight. Worse, investigators reported within the organization to the salespeople they were investigating, a lunatic concept. She said, "This is a mountain that people think is a molehill. As far as this type of financial crime, things are far worse than I would have ever imagined. In my furthest imagination, I would have been challenged to come up with the things I have seen play out. [Official reporting chains] created quite a conflict, a general inability to do an effective job." A grand reorganization plan within Countrywide turned out to be a grand sham instead. The Fraud Re-engineering Plan  was supposed to reform investigations and provide better oversight. Foster attempted in vain to win support from executives in each division to agree that there should be a single group that did investigations, with investigators reporting to Foster instead of to them. She was after all, head of internal investigations. The plan was abandoned, since few executives wished to have tighter or effective oversight.

The revelations by Foster in the course of her fraud investigations are eye opening, the scrutiny occurring through the end of 2009, well past the climax in 2007. The story reads like a scene from Animal House turned entrepreneurs. The internal fraud hotline supplied Foster a tip from a former Countrywide employee of the subprime division. The person described rampant fraud in the subprime mortgage division in Boston. The story told was of rampant fraud going on for years, with no changes, no enforcement by internal checks. A team of investigators went to Boston to explore, and to look into the complaints. They were shocked by what they found. Foster said, "Typically when you are looking for fraud you have got to really look hard because one of the primary components of a fraud is concealment. These people were not concealing it. They were concealing it from corporate, but every person who walked into those branches every day was a participant. One process was to cut a signature off one document, paste it and make a photocopy so it looks like an original signature. A part and parcel of everyday business was to do anything it took to fund a loan. I initially was thinking this is a big problem. It is not one little thing where you send an email out and it fixes it. I recognized it as a huge problem but in my mind I was questioning if this was why they put together this Fraud Re-engineering Plan."

The devices were many, like in an efficient production line. They had templates for fabricating documents, even cases of White-Out for changing names. They used a method for gaming the automated underwriting system, plugging in income values until they got one that worked and allowed them to underwrite the loan. They would keep a template bank statement from each bank, then insert different borrower names and an asset amount to prove that the borrower could make the payments on the loan. Whatever worked was done to win a loan, and thus participate in the grandest housing bubble in American history. Everybody was doing it, until it all broke.

The USDept Labor report that vindicated Foster described conditions inside Countrywide, which reeked of mortgage fraud. It was an astounding vindication to make US history. They mentioned "multiple incidents of egregious fraud spread throughout the entire region, including loan document forgery and alteration, manipulation of borrower's assets and income, manipulation of the company's automated underwriting system, the destruction of valid client documents, and evidence that blank templates of bank statements from several different financial institutions were emailed back and forth among loan officers in various branches for use in forging proof of borrower income and assets." Not a single prosecution for the Countrywide Mortgage underwriting fraud ever took place. Foster is on the speaker trail and interview circuit to tell her story. See the FedUpUSA article (CLICK HERE). It is great to see the anti-whistle blower law work properly. Let's see if it can be efficiently applied in ten cases against JPMorgan, Goldman Sachs, Citigroup, Bank of America, and Wells Fargo. Pressure is fierce to prevent internal employees from going public with their stories of profound fraud and corruption. Lives and families are threatened, as well as perks like health care, pensions, even citizenship.

◄$$$ SOME COMMENTARY FROM MY GERMAN GOLD TRADER, WHO DROPS NUGGETS AT UNEXPECTED TIMES. THEY ARE RICH COMMENTS CONTAINING CLEAR PERSPECTIVES ON THE CURRENT SITUATION AND VALUABLE NUGGETS OF THE FUTURE UNFOLDING. EXPECT BIG JUMPS IN THE BANKER BRUSH FIRES OF MAJOR FINANCIAL CRIMINAL EXPOSURES. $$$

As preface, in late July a remarkable event happened on the cover article of a prestigious German business journal. It would be the equivalent of a Barrons or Economist publication. The German gold trader wrote, "Remarkably sober and nonsense article in Germany's Manager-Magazine. The message was amazing and blunt. The USofA is standing at the cliff's edge. Pretty much calls it as it is. The USofA are near fiscal collapse. The Federal Reserve is with its back against the wall and even QE3 will not do the trick. The kill shot is already loaded in the gun, and the finger is on the trigger. It will not be pretty, for certain. They will start a war in the Middle East. They always start wars when they reach the end of the rope. It is all unfolding as we have been predicting for a couple of years now. However, hardly anyone wanted to listen. Now it is too late." See the Manager Magazine article from Germany (CLICK HERE).

His many comments were organized by topic and retained. Allow the Jackass to write in his hand, using his phrases, perceptions, imagery, and forecasted views. They are as enlightening as entertaining. He is called Mein Herr, or The Voice by me.

Regarding the bankers in seemingly high position, as the Jackass has stated many times, they were chosen (like Bernanke as USFed Chairman, like Geithner as Treasury Secy) to take the fall, blinded by their own ambition. The Voice is in full agreement, adding more color. All these clowns are expendable. That is why they are in their current jobs in the first place. Consider them collateral damage. The banker hogs are loaded on the 18-wheeler truck and are on the way to the knocking station. There appear to be multiple events unfolding in multiple places, which the bankers cannot stop. They know they are finished. Rest assured, hard assets such as precious metals will be the only assets left standing. As for the planned banking system seizures (from Stuxnet-like viruses), you might get some clues watching the movie Swordfish with John Travolta again. It involved computer system hacking and mega-thefts.

Regarding the new global financial structure to supplant the corrupted crippled failing US$-based system, he has given warning for two years of its replacement. Once the system craters, we shall see barter trade spring up out of nowhere. The system collapse and implosion will happen in the rearview mirror for those who see what is coming. This new system will automatically emerge once the old system implodes. It is a logical consequence. For all others, it will happen in front of them with all the debris flying into their faces coming through the windshield. Refer to the many bilateral swap facilities run by China, but much further. Formal barter integrated systems will come into usage, with a gold core payment system, layered by nation, by corporation, and by retailers. It will be de-centralized and be capable of running on mobile devices like Blackberry. The new barter system will require a huge gold inventory for stability, but priced properly (much higher), not under the current corrupt scheme. Look for a new gold-based vehicle to facilitate trade. The new system will brush the USDollar aside. The Jackass corrollary is that the new system will push the United States into the Third World as a result of isolation and corruption, in retribution. The USGovt will attempt to cling to the old system even after it is obvious that the old will crumble and disappear, when the rest of the world will adopt the new, leaving the US behind.

Regarding the attempts by the Swiss central bank to hold back the tide of European money in flight seeking safe haven in the Swiss hills, he agreed with the Jackass. My thoughts are that the Swiss Franc versus Euro currency peg is bound to fail. Forcing or holding an FX currency peg is futile and moronic. The Swiss banks are going to suffer badly from their Franc-Euro enforced peg, which will break from natural forces building to immense levels. So the smart money will buy the SFranc and wait for the quantum jump in value up 20% to 25%. The German gold trader said he could not agree more. In fact, the reverting to national currencies will be driven by internal, domestic, and national necessities.

On the Syrian tumult, many items have come in messages. The Saudi head minister of security Prince Bandar (aka Bandar Bush) has apparently been assassinated. Some photographs of him in public recently appeared to be tampered and edited. The Voice has been warning for over a year that the stability of the Saudi Royal Family is perilous and awkward, that the entire Persian Gulf will face turmoil and chaos when (not if) the Saudi regime falls. My belief is that event will mark the end of the Petro-Dollar defacto standard, a critical milestone event. Prince Bandar was likely eliminated for his meddling in the Syrian political front, even his bloody hands in certain assassinations high within the Assad regime. The best intell claims that HezBollah killed Prince Bandar in vengeance. The United States is in a standoff with the Russians in Syria. Like an emaciated gorilla pounding his weakened chest, the USGovt has proclaimed a No-Fly Zone over Syria. The Voice states clearly that any No-Fly Zone over Syria would fail, since the Russian Navy commands a mega naval base in Syria. The Jackass has pointed out for years that in Iran, like Syria, the Russian and Chinese presence neutralizes any dominant position by the United States. The Eastern superpowers learned a lesson from Iraq. They sit in the room visibly, and will not permit the Anglo powers to dictate outcomes.

◄$$$ MINING STOCKS ARE PAPER TOO, DEBASED STOCK SHARES JUST LIKE USGOVT AND THE USDOLLAR FROM COVERING NEW DEBT WITH USTBOND SECURITIZATION. MINING STOCK INVESTORS ARE WAITING FOR AN OPPORTUNITY TO GET THE HELL OUT AND CUT THEIR LOSSES. THEY WILL EXIT MINING STOCKS AND PURSUE OTHER COMMODITY AND PRECIOUS METAL INVESTMENTS. $$$

Just a Jackass editorial. Since early 2008, my distaste for the mining stock sector has been plainly stated. It has turned out to be correct in spades. The paper inflation to mining shares is a tragedy, as new issuance covers costs of new projects, ongoing costs of old projects, and executive option plans. In a world where paper assets are under powerful assault from systemic insolvency, trust in mining stocks falters also. The corrupt practices are becoming well known from ample publicity, like naked shorting by Canaccord, like sector shorting by Goldman Sachs using their infamous GDX index, and like collusion between Wall Street firms with hedge funds to apply powerful spreads that keep the majors afloat while smothering the small stocks. Investors tend to forget that mining stocks are paper assets, and all things paper are under assault.

My personal belief is that if and when the gold price rises, along with silver, the mining stocks might enjoy a burst. The runup might be sustained for a while, as it in unclear. But a while after the wondrous burst, an army of mining stock investors will exit and cut their losses, breaking even if possible. They will abandon the beleaguered sector and feel good about it. The sector is under siege, and even armed investors become exhausted from battle fatigue and weariness, even lost faith. The sector in my view will not recover much since the exit will be a veritable flood. They will move to physical metal, to energy plays, and to an assortment of new investor equity projects that strive to exploit the commodities and precious metals. Limited partnership deals will be the path taken by smart resource money. Those exiting stocks for physical metal holdings will provide a valuable push to the Gold & Silver metal prices. Smart money has been wasted in mining stocks, just like in corrupt ETFunds (see GLD & SLV).

◄$$$ FRANCO NEVADA IS REGARDED BY SOME TO BE A PROXY FOR THE DIRECTION OF GOLD PRICES. ITS CHART LOOKS VERY PROMISING IN A BREAKOUT. SILVER WHEATON LIKEWISE IS A SOLID SILVER PROXY. ITS CHART ALSO LOOKS PROMISING. TOGETHER THEY MIGHT FORETELL A STRONG UPWARD MOVE, AS METAL PRICE LEADING INDICATORS. $$$

Franco Nevada (FNV) is a strong royalty firm that benefits from the gold output at mines. It buys future production of Gold from mining firms and then sells at higher prices. FNV is an excellent leading indicator for the gold price. Notice its price is setting new highs, when the gold price is stuck in a range. Some miners generate cash flow for operations by hedging with Franco Nevada. The company was found by Pierre Lassonde, a legend in the gold mining business. Another prominent royalty company is Silver Wheaton (SLW). Its chart looks much more favorable than the Silver chart. In the past month, the SLW share price has jumped almost 25%. It moved impressively and easily above both weekly moving averages, which offered no resistance. Something is brewing, and the twin indicators FNV and SLW smell it.

## GREAT AMERICAN DROUGHT

◄$$$ A NATIONAL DISASTER HAS OCCURRED WITH DROUGHT. THE WORST HEAT WAVE IN OVER A CENTURY HAS HIT. THE CORN AND SOYBEAN CROPS ARE NEAR RUIN. FURTHERMORE, FISH ARE DYING EN MASSE IN NEBRASKA AND OTHER STATES, APPARENTLY FROM RIVER WATER AS HIGH AS 97 DEGREES. THE EASTERN STATES ARE PROTECTED BY THE APPALACHIAN MOUNTAIN RANGE. THE WEST IS SEEING DAMAGE. $$$

July was the hottest month in the lower 48 US states in records going back 117 years. Worse, the last 12 months have been the hottest ever in the continental United States, according to the National Oceanic & Atmospheric Admin. The average temperature in the 48 states was 77.6 degrees Fahrenheit (25.3 Celsius), or 3.3 degrees above normal, stated the NOAA in detail. The previous record was set in July 1936. From August 2011 to July, the average temperature in the contiguous US was 56.1 degreesF, breaking the previous record set in July 2011 by a smidgeon. Average precipitation (rain) in the contiguous US was 0.19 inch below normal for a total of 2.57 inches in July, extending drought conditions to 62.9% of the region by the end of the month, according to the US Drought Monitor. The areas with extreme drought markings is the majority in the Central Plains and Mountain region. Notice the line of protection offered in the East by the Appalachian Mountain range extending from Tennessee to Pennsylvania. In contrast, the Rocky Mountain range did not prevent the drought from hitting the Western states.

The primary corn and soybean agriculture belt has been especially hard hit by drought. It Grain Belt experienced its 8th driest July ever, its third driest June-July period, and its 6th driest April-July growing season in the 1895-2012 record. The combination of drought and heat has caused 50% of US corn crop to be rated poor to very poor, while 39% of soybeans have the lowest ratings, according to the USDept Agriculture. The drought conditions are highly correlated with higher temperatures. The hope is for a miracle of El Nino. A warming ocean pattern in the central Pacific later this year, if it develops, could change the weather across the United States. The heat and lack of rain have also created ideal wildfire conditions, which match the brush fire effect for the big US banks. More than 2 million acres across the US burned during July, nearly 500,000 more than the annual average and the fourth most since year 2000. See the Huffington Post article (CLICK HERE).

◄$$$ PHOTOS OF DROUGHT STRICKEN MISSISSIPPI RIVER, NO LONGER A MILE WIDE. ONE MUST WONDER IF THE H.A.A.R.P. USAGE (WEATHER ALTERATION BY THE USGOVT AGENCIES) HAS SHOWN VENGEANCE THROUGH MOTHER NATURE. THE INTERRUPTION TO COMMERCE FLOW IS CLEAR AND VIVID, A DIRECT PARALLEL TO THE PALTRY FARM OUTPUT. THE PRICE EFFECT IS NOT WELCOME. POWERFUL STAGFLATION COMES. $$$

 

 

 

The drought is tragic. One must wonder where the locusts are. The Arkansas River depth chart shows the horrendous impact. For a nightmarish but vivid depiction of the Mississippi River effects, and various minor rivers, see the Google search catalog of photos (CLICK HERE). My Chicago based farm belt expert claims that during last winter, the USGovt agencies altered with the snowpack and caused a big rise in its normal water content, probably putting to work the overused HAARP device. They earned a warm winter, but the summer drought is the payback by Mother Nature. Their project did not reach the US news networks, but their investment in leveraged soybean, corn, and wheat contracts probably netted huge Syndicate profits.

◄$$$ THE GLOBAL BREAD PRICE IS SET TO RISE DUE TO US DROUGHT. $$$

The soybean price will rise also, hitting cattle feed costs. The ripple will hit the beef prices. The corn price is sure to rise also, which will whack many Latino economies, where tortillas are the table staple. But bread in some form is a global staple (leavened or not), highly visible on the dinner table. Rising bread costs are coming, in the aftermath of the US drought, the most widespread in more than half a century. Grain prices are poised to rise sharply. The global market is exemplified by Australia's biggest baker Goodman Fielder. Its managing director confirmed that bread prices would rise to recover higher costs, as the consumer would have to pay for that increase. The company is soon to ditch their contract with Coles private label, which supplied bread at a mere $1 per loaf. The deal was a big money loser.

The United States nationwide corn harvest is forecast to plummet by 100 million tonnes to 274 million tonnes because of drought, causing grain prices to rise sharply since mid-May. The price of wheat has also risen. At the same time the price of Australian east coast wheat of milling grade shot up by almost half, from A$214 a ton to A$310 a ton, expected to remain around A$300 by the end of the year. The nearly 50% increase has slammed many Australian food producers. It is unclear how much the final bread loaf prices will rise. Watch for the loaves to be a little smaller, a hidden price inflation packaging trick. Profit margins in baking have been crushed by discounting in the supermarket wars and by a shift to home brands. The industry is in agreement of the urgency to restore a sustainable model in baking. See the Sydney Morning Herald article (CLICK HERE). The exact same pricing pressures will be felt in the United States, Canada, England, Europe, South America, Asia, and the Middle East.

◄$$$ SPEAKING OF DROUGHT, THE DRIED UP LIQUIDITY FROM THE US-STOCK MARKET IS REACHING ALARMING LEVELS. THE RETAIL INVESTOR EXODUS IS HISTORICALLY WITHOUT PRECEDENT. ALL THAT REMAINS IS THE HIGH FREQUENCY (FLASH) TRADING, THE WALL STREET ONANISM RITUAL PERFORMED IN A CIRCLE. $$$

Outflows from domestic equity funds continue with extreme persistence. Since inflows are non-existent, the conclusion is simple and easily discerned by all except the US-based financial news networks (aka propaganda public address horns). In the past two years of market data, massive outflows have dominated, for a total of $300 billion. A mere 17 weeks of inflows have been recorded during that timespan, amounting to $31 billion. More recent data shows no difference in the pattern. For the 32 weeks of money flows so far in 2012, only five weeks of inflows have occurred, with a registered total of $3.6 billion. That is a drop in the Wall Street piss bucket. To the credit of private investors, the biggest outflows occurred just as the market hit interim highs.

The old contrary patterns so evident in the past for retail flows no longer apply, as it has turned into smart money. Wretched USEconomic data combined with nasty Flash Trade publicity has frightened them off. They surely are worried about job security and future income. They might be worried about the futures trading account thefts like MFGlobal spreading to stock accounts. The private investor crowd is not buying into the fake financial flim-flam markets any longer. The S&P500 and Dow Jones Industrials Index are at multi-year highs, and the public could not care less. They either recognize that the market is dominated by USGovt props or banker prop desks or Wall Street flash trading. Perhaps worse, the people are nearly broke with extracted no home equity to put on the casino tables. By simple arithmetic, the volume can be explained by the USGovt and Wall Street, nothing more, nothing less, as the US stock market has become a hall of facebook mirrors and bearded lady booth, complete with obnoxious carnival barkers. They are probably chasing the rally in USTreasurys, which itself is a fake, but it offers an easier opportunity for return of capital. For now!

## GOLD SCRAMBLE ACCELERATES

◄$$$ THE USGOVT DEBT & OBLIGATIONS GREW BY A RIPE $11 TRILLION IN THE LAST YEAR, THE TOTAL COMMITMENT THAT RESULTS IN COSTS. THIS IS ACCORDING TO THE REALISTIC LONG-TERM BUDGET FORECAST BY THE ALTERNATIVE FISCAL SCENARIO WITHIN THE CONGRESSIONAL BUDGET OFFICE. HARSH TAX MEASURES AND BOLD SPENDING CUTS ARE REQUIRED, NEITHER OF WHICH WILL OCCUR. THE GOLD PRICE IS HIGHLY CORRELATED WITH USGOVT DEBT. $$$

In the course of the year 2011, the USGovt fiscal gap, the true measure of the nation's indebtedness that includes future pension and other obligations, rose by $11 trillion. That is correct, a single year and $11 trillion more in debt in under total obligations. The fiscal gap is defined as the present value difference between projected future spending and revenue. It captures all government liabilities, whether they are official obligations to service Treasury bonds, commitments for Social Security or Medicare, even unofficial promises for food stamps. Much quibbling occurs over terminology, but with each passing year, the deficits mount from the commitments and promises as they transform to realized costs, then deficits. The solution in the last few years, since the annual deficit has been over $1.3 trillion, has been to print money and cover the bills with debt monetization. Without QE and other devices, the USGovt would suffer sudden debt default.

Witness the dangerous growth in the practical national debt. The total USGovt fiscal gap, calculated using the realistic long-term budget forecasts at the Congressional Budget Office, the Alternative Fiscal Scenario, stands at $222 trillion. Last year, it was $211 trillion. The $11 trillion difference, the cited total fiscal gap growth last year, is 10 times larger than the official published USGovt deficit and as large as the entire stock of official debt in public hands. This rapid dangerous growth in the fiscal gap is not new to scrutiny. However, official deficit figures grossly understate the red ink torrent. If obligations convert to spent costs, then they should figure in the calculations on gross deficits. In 2003 and 2004, the economists Alan Auerbach and William Gale extended the CBO's short-term forecast and measured fiscal gaps of $60 trillion and $86 trillion, respectively. Back in 2007, the first year the CBO produced the Alternative Fiscal Scenario, the gap was measured at $175 trillion. By 2009, when the CBO began reporting the scenario regularly, the fiscal gap was at $184 trillion. In 2010, it was $202 trillion, and on to today. Those who expect avoidance of a USGovt debt default are not capable of detecting a pattern out of control.

The villains within the fiscal gap growth are extensions to Medicare, the expansion of defense spending, and the natural population aging effects hitting Social Security. The fiscal gap measures the extent to which budget constraint is violated and specifies the amount required to bring the USGovt intertemporal budget into balance. Closing the gap essentially kills the system, shuts the doors, snuffs the candles, and turns out the lights. Nobody would sponsor a bill to raise federal income taxes by 64% or to transfer costs to Social Security and Medicare benefits by 40% to recipients. Nobody is proposing a wiser course of action to shut down some of the several hundred USMilitary bases on foreign soil, or to halt the endless foreign wars. The odd ducks are the Food Stamp programs and the worker Disability programs that have grown out of control. Some harsh fiscal medicines could be combined with radical fiscal reforms that make the tax policy much fairer and the economy much stronger. See the article by Laurence Kotlikoff on his website (CLICK HERE), covering a review of his book co-authored by Scott Burns, entitled "The Clash of Generations."

What cannot continue is the current path of USGovt spending and taxation. The nation cannot grow itself out of the intractable bind. The nation cannot tax itself out of the nasty bind either. Expect almost no progress in spending cuts and taxation measures. Lower taxes would expand the USEconomy and produce in elastic fashion greater tax revenues. So the new higher taxes will make the economy shrink, like in the past three decades. The current political polarization and deadlock will not permit anything constructive to be accomplished. The broken system will march toward failure and ruin, with climax the USGovt debt default. As analyzed in the past reports, the Gold price is highly correlated with the USGovt cumulative debt. As the cumulative federal debt rises out of control, the Gold price will be pulled to great heights. No amount of fancy devices like derivatives, or blunt smothering tools like naked shorting can stop the flight upward in the Gold price, nothing!

◄$$$ HONG KONG WILL PUT INTO SERVICE A NEW 1000-TON VAULT FOR PRECIOUS METALS STORAGE. CAPACITY WILL ACTUALLY BE GREATER. ITS CONSTRUCTION SIGNALS A NEW CENTER OF GOLD GRAVITY IN CHINA. $$$

In Hong Kong, work is almost completed on its largest gold vault to date. It is due to open in September. Its capacity is cited as 1000 metric tons. To put it into perspective, the new HK vault can hold 22% of what once was held in the US facility Fort Knox before it was pillaged. The new secure storage facility will compete with vault facilities set up by the Airport Authority Hong Kong in 2009 that serviced governments, commodity exchanges, bullion banks, refiners, wealthy individuals, and Exchange Traded Funds. The construction signals the growing interest from China, currently the world's second largest consumer of gold and whose institutions have diverse ownership of physical gold bullion. See the Zero Hedge article (CLICK HERE). My excellent gold trader source, who does business in Hong Kong among other locations, pitched in with a comment, that the new HK vault facility will actually have a much higher capacity than 1000 tons.

◄$$$ CHINESE GOLD MINING FIRM TAKEOVERS ARE ON THE RISE. THE CHINESE COMPANIES HAVE TURNED AGGRESSIVE. KEEP IN MIND THAT NO GOLD HAS BEEN EXPORTED FROM CHINA IN THE LAST SEVERAL YEARS. THE ACQUISITIONS HAVE INCREASED OF FOREIGN FIRMS AND THEIR DEPOSITS. WITH SUCH STRATEGY, CHINA IS ACCUMULATING GOLD BELOW THE SPOT PRICE. $$$

The principal acquiring corporation is the Zijin Mining Group, through its wholly owned subsidiary Jinyu International Mining. Zijin is the nation's top gold producer by output. The company is likely to refine 50 metric tonnes of gold in 2012. Listed in Shanghai and Hong Kong, Zijin has a market cap of over $12 billion and has facilities to produce gold, copper, zinc, lead, tungsten, and iron ore. The conglomerate is aggressive. The Chinese gold producers are looking beyond their borders, making acquisitions, cutting deals. Most are panning out successfully. When going straight to the gold mine for acquisitions, they accumulate the produced gold and prevent it from reaching the international market. In doing so, China is able to purchase gold below the spot gold price in heavy volumes. Look for the supply lines to the gold market to diminish.

The Zijin subsidiary purchased over 50% of Australia-listed Norton Gold Fields in May. It was the first successful example of a Chinese company taking over a large gold mine in production. The deal involved a $190 million cash takeover offer. Then came the task of obtaining approval from Australian regulators. In July, Chinese news agencies announced that the company had received a notice from the Foreign Investment Review Board of Australia that it had no objections to the purchase by Zijin or its subsidiaries of all issued shares of Norton Gold. It was a definitive green light across the panel. Zijing has also won approval for the deal from National Devmt & Reform Commission in China. Zijin already held 17.0% of Norton Gold Fields.

The Aussie outfit is in possession of mining rights covering an area of 693 square kilometers with total estimated gold reserves of 185 tons. In year 2011, it produced 4.7 tonnes of gold. From its open cut and underground operations at Paddington in Western Australia, Norton reportedly produced 152,000 ounces of gold. In recent months, it added the Homestead underground mine and the Navajo Chief open cut, which will send ore to its processing facility. In the future, the output will go to Aussie ports, load onto ships, and be sent to China, where it will accumulate in vast vaults, bypassing the gold market. Past deals are being sorted out. In 2011, Zijin acquired 60% of miner Altynken based in Kazakhstan, which has access to a gold mine in Kyrgyzstan. Through its steady growth, organic and with acquistions, Zijin has moved the country toward more recognized global strength.

◄$$$ CHINA HAS TAKEN AIM AT A MAJOR AFRICAN GOLD MINE PRIZE. BARRICK GOLD IS IN TALKS TO SELL THE ENTIRE 74% STAKE IN ITS AFRICAN MINING BUSINESS. CHINA IS OFFICIALLY AGGRESSIVE AND ON THE BOARD. THEY WISH TO SECURE A MAJOR GOLD SUPPLY CHAIN. THEY ARE PREPARING FOR A GOLD-BACKED YUAN CURRENCY IN MY VIEW. $$$

China has set its sights into taking over a large African gold mine concern. Barrick Gold is the world's largest gold producer. The firm is in talks to sell the 74% percent stake they own in their subsidiary spinoff, an African mining business. The bidder is China National Gold Group Corporation, a state-owned enterprise in China. The deal is a vivid display of China's desire to establish strongholds in Africa, to secure commodities in a supply chain. The entire African gold output by Barrick would be removed from the global market. The African company, named formally African Barrick Gold, was taken public by the parent company Barrick Gold in 2010. It trades on the London FTSE stock exchange. Barrick Gold has retained a large majority interest in the 73.9% stake in the stock since its spinoff. African Barrick Gold is located in Tanzania. The prize would make a major addition to the Chinese global mining portfolio. See the Business Insider article (CLICK HERE). Since China has an established pattern of not exporting a single ounce of gold produced, expect the same hoarding. In fact, the news of acquisition reinforces the notion of a gold-backed Yuan currency. The strategic move requires vast gold holdings in reserves, their national priority.

◄$$$ FROM ACQUISITIONS AND HONG KONG EXPORTS, CHINA IS SETTING ITSELF UP FOR VAST GROWTH IN CONSUMER GOLD DEMAND. WHILE AMERICANS ARE DEVOTED TO HOUSING AND MORTGAGE ASSET BUBBLES, WITH YEARS OF STOCK FASCINATION, OBSTRUCTED FROM LEGITIMATE GOLD INSTRUMENTS, THE CHINESE ARE GATHERING THE GOLD. THE MIDDLE KINGDOM IS READY TO SURPASS INDIA IN GOLD CONSUMPTION IN A QUICK SWEEP. $$$

The Gold rush in China could see it sweep past India. Indications are that China might have overtaken India as the world's #1 consumer of gold in 1Q2012. Together China and India account for 54% of the world's gold purchases. But China is set to overtake India for the lead position, as the dynamics have changed this year. The Indian Rupee currency has fallen noticeably, resulting in higher realized gold prices for the Indian consumers. Good for those who already bought gold though. Gold demand in China is set to jump by as much as 30%, to between 900 and 1000 metric tons in 2012 from 769.8 metric tons last year. By sharp contrast, gold demand in India is expected to decline to 700 to 800 metric tonnes, from 933.4 metric tons last year. In the first three months of 2012, demand in China totalled a record 255.2 tons, up a hefty 9.8% from a year ago. China replaced India as the world's top gold consumer at the end of 2011.

The road from Hong Kong to China has wide berth. In the first two quarters of 2012, China's gold inflows from Hong Kong rose an astonishing six-fold. The growth is hyperbolic, as China's gold imports from Hong Kong were 65% higher in April than in March, the third consecutive monthly rise according to Commerzbank. Inside the Chinese Economy, the nouveau riche have turned to gold in wealth protection strategies, a direct response to the problems with property prices and the ordered curbs on its investment by the Beijing government. With further stimulus sure to come, the wealthy are devoting more attention to gold purchases. Se e the MineWeb article (CLICK HERE), for this story and the Zijin story above.

◄$$$ A GRAND CHINESE GOLD SCAM COULD TRANSLATE INTO HIGHER DEMAND. AFTER THE MESS IS SORTED OUT, THE CUSTOMERS WILL PURSUE LEGITIMATE SOURCES FOR INVESTMENT IN A FORTUITOUS WHIPSAW. IT IS THE BIGGEST SCAM TO HIT CHINA IN MANY YEARS, FOCUSED ON GOLD FUTURES. $$$

Call it a Chinese Madoff Gold scam, not reported in the Western media. The news hit in late July, of a massive illegal gold futures trading scam in China. Two messages are clear, 1) great appetite and demand for gold in the newly wealthy Chinese middle class, and 2) the benefits of owning physical gold. Since 2008, over 5000 Chinese investors were bilked out of 380 billion Yuan (=US$59.62 billion) in a scheme involving Loco London gold, as reported by the China Daily. Details have not been revealed on the dynamics of the scam. However, the implications could be bullish for gold in a number of ways. Surely gold prices would be at higher levels if the funds had been properly invested in physical gold. The sums of money are very significant, on par with the infamous Madoff Fund ponzi scheme. The public reaction will lead the Chinese public to focus better attention on physical gold like bars, ingots, coins, taels, and biscuits in various sizes. The reaction could be fierce on the physical side with a near total shun of the gimmicky paper devices. See the Forbes article (CLICK HERE).

◄$$$ SOUTH AFRICAN POLICE SHOT AND KILLED AT LEAST 18 MINERS ON STRIKE, AS PANIC ERUPTED. THE POLICE WERE SURROUNDED BY 3000 MINERS. MINE OUTPUT IS ASSURED TO GO LOWER. CONVERSELY, THE MINING STOCKS FOR THE NATION WILL LIKELY SEEK LOWER VALUES. $$$

South African police opened fire on striking miners at the Lonmin Marikana platinum mine northwest of Johannesburg. The angry miners were armed with machetes and sticks. At least a dozen men were killed in a deadliest weeklong chapter of union violence. A local SAPA reporter counted 18 bodies after the eruption and panic. It occurred near a squatter camp close to the mine. Police had attempted to lay barricades of barbed wire, but they were outflanked by some of an estimated 3000 miners massed nearby. See th e Reuters article (CLICK HERE). Worker unrest is one more reason why precious metals prices are going higher, due to impaired supply chains via production output. However, the converse is more damaging, as mining firms will be at risk of interupted operations. The mining stocks will remain depressed, as the jurisdiction risk is growing acute across South America and South Africa. The global recession is raising economic pressures among the worker communities, imposing great hardship upon them. They want more of the pie from perceived colonialists. The Jackass hates mining stocks and warns against them. Invest in metal, as in coins or bullion vaulted accounts. Best kept in Hong Kong.

◄$$$ THE I-SHARE SILVER TRUST (S.L.V.) HOLDINGS ARE CLIMBING BACK, HAVING ALMOST REACHED RECORD LEVELS. THE CORRUPT FUND IS BEING ACTIVELY PROMOTED AS SAFE. SOME FRESH SCANDAL ON INVENTORY RAIDS COULD CHANGE THAT PERCEPTION. $$$

The silver backed Exchange Traded Funds are climb back toward record levels in bar inventory. Silver held in exchange traded products has risen for three months and is now valued at $16.2 billion, according Bloomberg News. Investors bought 797 tons through silver backed ETFunds this year, the total held at 18,093 tons. The amount equals over eight months of global mine output. On a net basis, the funds sold 812 tons from ETFunds last year. The reversal is positive news for general demand concepts. Total assets are now 2.9% below the record 18,639 tons reached in April 2011. The $8.8 billion iShares Silver Trust (symbol: SLV) is the largest ETF with about 9742 metric tons of silver. However some ugly revelations about JPMorgan's dirty greedy hands in the SLV inventory pocket will change any positive perception. Our bank scandal coming soon will feature the London gold price fix and frequent raids of the GLD & SLV inventories by the big US banks. Never under-estimate the tendency of the public to be duped by the media when the crisis intensifies. See the ETF Trends article (CLICK HERE).

◄$$$ THEFT OF FILM FOR ITS SILVER CONTENT IS BECOMING A NATIONWIDE RAGE. REMINISCENT OF COPPER THEFTS IN OUTLYING AREAS OF THE US-WEST A FEW YEARS AGO. $$$

In Virginia, two men driving a moving van truck are accused of stealing more than 200 pounds of X-ray film from the Sentara Virginia Beach General Hospital. The suspects entered the hospital on August 1st around 1am and boldly snatched the film from the radiology department. They had knowledge of film locations in the hospital, along with the recycling center. They barged through the Emergency Room area. Hospital officials say the men claimed they worked for a recycling company. Police say silver was the object of the theft. Apparently police authorities report film being stolen nationwide for its silver content. Harken back in 2007 and 2008, when huge copper thefts took place from utility trucks and utility poles exposed to public risk in Colorado and Nevada.

## GOLD PRICE SMELLS AUGUST RUSH

◄$$$ THE WILD CARD FEW ARE TALKING ABOUT, EVEN INSIDE THE GOLD COMMUNITY IS THE ALLOCATED GOLD ACCOUNT SCANDAL BREWING. IT LIES JUST BENEATH THE SURFACE, YET IS NOT NOTICED BY MOST ASTUTE GOLD ANALYSTS. OVER 40,000 METRIC TONS HAVE BEEN ILLEGALLY SEIZED BY THE BIG WESTERN BANKS, REPLACED WITH GOLD CERTIFICATES. THE LAWSUITS HAVE BEGUN, BUT IN PROTECTED SWITZERLAND. WHEN THE SCANDAL BREAKS, AND IT WILL, THE GOLD PRICE WILL DOUBLE, THEN DOUBLE AGAIN AND CONTINUE UPWARD. $$$

A gem of a note came from my source, the German gold trader. He rarely if ever is wrong about important things. Maybe about tomorrow's weather, or the restaurant menu, but not concerning matters on Gold. His insider dealings and contacts are unmatched worldwide. He has billionaire clients on every continent. What makes his integrity and wisdom so beyond reproach is the hatred that Swiss bankers have for him. They are the principal violators of Allocated Gold accounts. Together with the London bankers and New York bankers, they have illegally taken for their own gold structured deals well over 40,000 metric tons of private account gold. Several important lawsuits are in progress in Switzerland, class action cases with over $1 billion in gold accounts challenged where the Gold bars are gone. Some day before long, obviously uncertain when, the Western bankers will be obligated to return the gold via open market purchases or vast taps on either Basel or the Vatican. If those dark corners are tapped, bankers will be found hanging in basements as vengeance. The Eastern nations will not help them. They will tell them to go to hell, where most worship anyway. As footnote, a German finance delegation was turned away by the New York Fed in late July, when they inquired as to the whereabouts of a German Govt gold account. The noose is tightening on the bankers.

He is affectionately called by me Mein Herr, but informally among friends and colleague, he is 'The Voice' in order to protect his identity. His experience is over 30 years in the gold industry with countless contacts. He probably has done business with Bill Murphy's Monaco billionaire. He has billionaire clients among royal families across the Persian Gulf. He has clients in control of $billions in Chinese Sovereign Wealth Funds. He is on a first name basis with finance officials in the Kremlin. He indirectly advised Chavez of Venezuela to retrieve his nation's gold, and the same for Ghana. He has been bullied by the USGovt, to no avail. He is in possession of deeply damaging information of multi-$billion thefts from the Iraqi Reconstruction Fund by the USGovt officials, men given medals of honor by President Bush II. So when he talks, the Jackass stops and listens, even takes notes. He offered a note a couple weeks ago, when the topic was raised of jumping brush fires from the LIBOR forest to the Money Laundering forest to the Allocated Gold forest. He believes all are inevitable and will intensify, the climax being the 911 bank heist revelations in full glory. The protective layers for the bankers are coming off, piece by piece. The Western bankers are wedging themselves in bunkers, under siege. Their entire maze of platforms is collapsing on them. The Voice wrote the following.

"I had a very long conversation with an old trusted friend with the most impressive ties to the gold industry. We shared information and feedback that we obtain from various people from very deep inside the system. One of the issues we explored in great depth was where the precious metal market will be heading, due to certain developments. My friend is pretty certain that we shall see a price of at least US$50,000 per oz in today's dollar, once the gold fraud perpetrated by the banks in selling Allocated certificates (having no metal behind them) and the ETF fraud by Zurich Kantonalbank blow into the open. This will happen with the beginning run by ETF certificate holders. They will someday before long make a run on the bank(s) demanding their metal to be delivered. This run has now started and is gaining momentum in Switzerland. At the same time banks are pulling lines of credit they previously had granted to mining companies. We also agreed that the current Au/Ag ratio of currently approx 54:1 will come down to anywhere between 18:1 and 25:1 over time. This will be happening as the price for Au will go through the roof, as in when it will be defined by the market." Wow!

That is how important the Allocated Gold scandal will be, since owners must be reinstated for the gold illegally taken from their accounts. Astonishing shortage of Gold is coming, with truly massive demand. The entire Supply & Demand dynamics are skewed beyond description in the Gold market. Ditto for the Silver market. All the attention given to the Big Four naked short position is valid, but overwhelmed in importance and magnitude by the Allocated Gold scandal coming in the next several months or year.

◄$$$ ASTUTE COMMODITY TRADER AND TECHNICAL ANALYST DAN NORCINI SEES SIGNALS FOR A LIKELY SILVER SURGE IN PRICE, BEGINNING IN AUGUST. $$$

The signals are many: A) food, energy, and bond moves, B) Chinese put the floor on gold just below the $1600 level, C) swap dealers became net long in gold. Norcini made numerous excellent points in logical flow. The Gold & Silver markets seems like they are waiting for Godot, but the arrival will be done like a thief in the night.

"We have a surge in crude oil and gasoline. At the wholesale level, gasoline has already surged more than 20% higher. WTI Crude oil is up to near $95 a barrel, and Brent crude is significantly higher. Not only do we have energy on the move, but we also have grains on the move as well. Soybean prices are making record highs, corn is making record highs, and wheat has soared. The impact of these higher grain prices is going to be with us for quite some time. So you have rising food, rising energy, and now we are seeing a breakdown in the bond market. Bonds have made a low going all the way back to May. So we are definitely seeing a very important and major shift here. There are increasing fears about price increases. We may be getting away from the deflationary scenario, and the very real fears of slowing global growth, to what is going on with prices now. If food and energy prices head higher, along with bond yields, that signals a shift, finally, to the onset of significant inflation.

If that turns out to be the case, investors will need to keep an eye on silver. Silver will actually lead gold higher in that environment. We could very well see silver ignite to the upside. And of course gold will have a strong response as well. This is the type of scenario that can take both the gold and silver markets right out of these long consolidations and into a trending move to the upside. The first thing we need to see is a strong weekly close on gold above the $1640 level. Above $1640 you are going to see a great deal of short covering from the speculative camp because there is still a significant speculative short position in gold. Those shorts will start to panic and cover if we see a weekly close above $1640. This will also bring in the momentum crowd, which would only exacerbate the panic for the shorts. Remember, when we see gold break decisively above $1700, it will move quickly and violently to $1800.  We have spoken very recently about the massive Chinese buying in the $1500's. This buying rebuffed all of the bears attempts to break the gold market below $1500.

There came a point where the sovereign buyers actually started raising the level of their buy orders [to show control of the gold market]. At that point we began to see a series of higher lows in gold. We also chronicled the structural changes on the COT which were extremely bullish for both gold and silver. We saw the swap dealers become net longs, and quite frankly this really should have been a red flag for the shorts. Now we also know that billionaires Paulson and Soros were adding to their respective gold stashes during that time period. The bottom line here is we have a combination of bullish indicators that may very well signal the gold bears are going to be crushed and overrun. This is the type of environment where we may see a major move to the upside in both gold and silver. The real shock for market participants will be if this move takes place during the typically sleepy month of August." See the King World News interview (CLICK HERE).

◄$$$ THE BENEFICIAL EFFECT ON THE GOLD PRICE FROM PERSISTENT NEGATIVE REAL RATES IS WELL KNOWN. IT IS THE PRIMARY CYLINDER TO THE GOLD BULL MARKET. GOLD VERSUS REAL RATE OF INTEREST, AND GIBSON PARADOX WORK TOGETHER TO POWER THE GOLD PRICE UPWARD. A MASSIVE GOLD BUYER FROM THE EAST CONTINUES TO APPLY PRESSURE. $$$

Simon White is head of Risk Management at Hinde Capital, working alongside Brad Hinde. White summarized the stagnant gold price. He wrote, "Gold has been caught in a very tight range since the 16% rally at the start of the year and the subsequent sharp sell off in late February and March. Often when prices in any asset become compressed, they invariably break out of the range emphatically. With gold, the fundamentals remain supportive which suggests that Gold should break out from its range to the upside. Specifically, global liquidity conditions are very accommodative, and global interest rates are being lowered ubiquitously. Currently, the Variant Perception expected real interest rate is -2.75% which implies a subsequent year-on-year return for gold of over 20%." Check out the outstanding graph of the noted Gold price gain versus the interest rate adjusted for price inflation. Gold is poised for an upside breakout from its current range. Put aside the distortion to CPI measurement, since the relationship is established on the posted CPI apparently. The Jackass often cites the real rate of interest between minus 7% and minus 9% in the world of reality. Pressures are fiercely strong for a Gold price rise of $300 per ounce, which is resisted heavily by corrupted means with naked shorting, raids to Allocated Gold accounts, and other leveraged devices tied to currencies. Time will erode their meddlesome devices.

Furthermore, the Gold is conspicuously underperforming relative to guidelines dictated by Gibson's Paradox. White wrote, "The rule states that for every percentage point the real interest remains below 2%, the Gold price tends to realize an annual rise by an amount equal to 8% times that multiple. Real rates are currently -1.45%, which implies a 28% performance for gold over the next year." The explanation goes like this. The minus 1.45% amount is 3.45% below the 2.0% positive mark. So 8% times 3.45 equals 28% for the estimated rise. Rest assured, White and Hinde Capital are bullish.

Lastly, Hinde Capital reminds that China has sharply increased its imports of gold. In Q2 this year, China imported 248 tonnes of gold, a 21% increase from the same period last year. The volume is significant, the 248 tonnes matching the entire annual gold output coming from Australia mining operations. Through May this year, China has imported more gold than the entire official gold holdings of the UK, a point noted in early reports. With supply being swallowed up by the official sector in Asia, and central banks making their ZIRP a solid fixture of monetary policy to assure negative nominal interest rates as far as the eye can see, the Gold price will face extraordinary upward price pressures. Either the Gold price rises sharply, or radical shortages will arise that put pressure on market defaults. See the Hinde Capital article (CLICK HERE).

Ben Davies is co-founder and CEO of Hinde Capital. He reports the strong pressure from a massive buyer in the gold market from the East. The buyer has been steadily increasing the price level of their bids. Davies wrote, "We want to state there has been a strong buyer in the Gold market these past few months. Also we want to reiterate the buyer in the room is Asian and has been stepping up their buy order, 1545, 1575 now 1600?" See the King World News interview (CLICK HERE). Another consistent message is given by the so-called London trader. He claims thee game is over for rigging the Gold market. Attention could soon come to the London Gold price fix, possibly shifting like a jump in the brush fires burning hot in the LIBOR forest. A new scandal in the Gold price fixing is overdue. See the King World News interview (CLICK HERE).

◄$$$ A NEW ELEMENT IN THE GOLD PRICE, A MAJOR CHINA BANK. $$$

News come from a Hat Trick Letter subscriber who works at BNParibas in London. He wrote in early August, "US authorities are now going after RBS and Standard Chartered for money laundering. The crack between the Anglo-Saxon bankers is now apparent. Maybe bigger news will be coming out after the Olympics are over. Just another observation. On my Bloomberg terminal, the bid/offer for Gold being quoted used to be dominated by Deutsche Bank and UBS. The waterfall declines were usually the handiwork of DBank. Over the last week or so, a new ticker has popped up making quotes, which has started to set the price. It is ICBC (Industrial & Commercial Bank of China)." Wow! The Chinese banks are entering the room to counter the corrupt London protectors of the free world whose stock & trade consists of naked short contracts from corrupted accounts, criminal raids on Allocated Gold accounts, and illicit leveraged strategies emanating from putrid office buildings bearing monikers from the gold cartel.

◄$$$ A MAJOR LONDON TRADER CLAIMS A BIG AUGUST MOVE COMING IN SILVER, AS JPMORGAN IS TRAPPED IN THEIR NAKED SILVER SHORT POSITIONS. A BIG WHIG MONACO BILLIONAIRE FORETELLS OF BIG GOLD MOVE IN AUGUST FROM MAJOR REVELATIONS ABOUT THE UNTENABLE JPMORGAN POSITION. SIMILAR DYNAMICS ARE SHAPING UP LIKE IN AUGUST 2010, WHEN CONTRACT RESTRICTIONS WERE PUT UPON JPMORGAN. $$$

SGT Report has released a story with Bill Murphy of GATA, who cites his source in London, one of the wealthiest men in Europe, is telling him that JPMorgan is having a hard time extricating itself from their huge naked silver short position. He believes that Gold & Silver will begin a new powerful upleg in price, beginning sometime in the month of August. However, many are the corrupt devices employed by the Syndicate giant to forestall the free market, all in the name of making America strong and the envy of the world. Keep in mind that regardless, even if the precious metals prices do not rise on cue, the extreme pressures are not only present but building to dangerous levels. Eventually they will overrun the corrupt castles to produce heavy casualties and calamity upon their houses. Nothing can stop the Gold & Silver prices from rising in the long-term. The cartel devices are falling apart. A footnote, the Jackass has more patience than Bill Murphy, who is very eager to see justice served. The Syndicate once put him in the hospital for three days with a broken jaw. That changes perspective.

From August 2010 to March 2011, the JPMorgan machine was forced to the sidelines, not to interfere with the Silver price. The restriction is not clear on its exact nature, what contract was in force, who controlled the chains. The Monaco billionaire, a reliable player, has seen documents that indicate JPMorgan is stuck in its vast Silver short position. He was explicitly clear that precisely the same forces and restrictions that tied JPM hands in the autumn months of 2010 are at work again. He shared the story with Bill Murphy in the details permitted. He is very connected and one of the wealthiest men in all Europe. He expects the same handcuffs to be placed on the JPM desk operators in the next several weeks. He therefore expects the Silver price will resume its natural rally. However, this time, the Silver price will not stop at $50 per ounce, since the JPM desk will be halted more permanently. See the Silver Doctor article (CLICK HERE). Ok, so the US Intelligence agents stepped in to rescue JPMorgan and halt whatever was to be revealed, an unmasking of the giant bank for its criminality. They saved the nation the embarrassment of revelations of deep criminality at the top of US banking leadership, even the US Federal Reserve central bank. The JPMorgan machinery is too vast to control, its apparatus too far along in falling apart. All the security agency can do is buy some time and blow more intimidation.

Silverwulf on a weblog reported, "Interesting, I seem to recall pastor Lindsey Williams stating some months ago that the inside information he gets from a source inside the globalist circles claims that they want Silver up to $75 per oz by the end of this year."Perhaps they are going to use JPM as a sacrificial goat. Perhaps JPM must yield in one arena in order to protect a much larger arena like the USTreasury Bond, where the Tower of Babel teeters, threatening to create a vast Black Hole. The Syndicate might have powerful enemies in the East, whose accounts they have routinely raided like a child's piggy bank. Enter the next chapter, where the big Western banks might be forced to eat their own kind, attack their allies, in order to survive another year.

◄$$$ UPDATE BY BILL MURPHY OF G.A.T.A. ON THE ANTICIPATED AUGUST SILVER PRICE RISE. HIS SOURCES EXPECT A FAST RISE MUCH LIKE LATE 2010. THE FLOOR HAS BEEN FIRMLY SET FOR GOLD. FAST DYNAMICS ARE AT WORK BELOW THE SURFACE. $$$

On August 10th, Bill Murphy of GATA received some new input, shared to his LeMetropole Cafe. It supports other original sources like the Monaco billionaire. This item comes from somebody with solid Chicago contacts, someone Murphy has known for a long while, whom he presents as the same highly reliable caliber as his other sources. His new input confirms what the other three sources have been saying. Conditions should shift in August. He emphasizes that all original contacts claim that JPMorgan has a big problem with their Silver short position and that this problem will reveal itself in a public way in the near future, in his words. His CBOT contact Peter provided an update. He wrote, "I have spoken before about my contact on the Board of Trade who trades mainly the metals and is in touch with New York minute by minute. He has been saying for several weeks that the metals would have one more big drop (1525-1550) before they really took off. Today he changed his mind. They saw heavy covering of shorts in Chicago and New York. This should show up in next week's COT. They see an explosion of huge proportions and are adding four more floor traders as they see August as a record month for them. The CBOT guy closed by saying 'WE COULD SEE A 100% INCREASE IN 90 DAYS.' Tie this in with other things that we have read and heard." Again, if the powerful move does not arrive on time, the pressures remain and the ground will eventually show the eruption like a silver geyser before too many more weeks.

◄$$$ A EUROPEAN ELITE INSIDE PLAYER HAS TIPPED OFF THE GOLD ANTI-TRUST ACTION COMMITTEE ON HUGE PRESSURES THAT COULD GIVE THE GOLD PRICE A POWERFUL LIFT IN AUGUST. THE DYNAMICS ARE IDENTICAL TO THOSE IN LATE 2010, WHEN ENORMOUS MOVES OCCURRED. $$$

This is the same story of the billionaire contact, but with more detail. Huge pressures are building. Big moves in the Gold price could begin in August, so claims an elite insider  from Monaco who leaked the news to GATA. Powerful forces are building, pressure mounting against JPMorgan which is trapped in its silver positions. They had to resort to US Intelligence agency aid, which reveals how desperate their condition is. The European tycoon explained why the Silver price soared approximately 150% to nearly $50 over an eight month period from September 2010 to April 2011, from contract restrictions that were not fully revealed to the public. Bill Murphy of Gold Anti-Trust Action Committee (GATA) said a longtime contact who works in Britain told him that the month of August will usher in an event which will shock the precious metals traders. Aggressive buying in the market could return.

Murphy said, "The fellow I spoke with I have known for years, one of the wealthier men in all of Europe. He has got a lot of connections. It will be tough for the Gold and Silver markets [during the month of July], but starting in August they would start to 'go nuts' and they would 'stay nuts' for a long time. Big big moves are coming, starting in August." Murphy expected the August price moves could possibly be triggered as a result of an announcement by the CFTC, regarding its investigation dragging over four years into charges of silver market manipulation practices leveled against mega-banks JPMorgan and HSBC. These two banks have been accused by Murphy and his associates at GATA for more than a decade as operating as the kingpins of the Gold & Silver market cartel. Murphy trusts commissioner Bart Chilton, whom he has met twice. Chilton shared that an announcement on the Silver market and JPMorgan could come around the August timeframe.

The Jackass belief is firm rigid and consistent. No action by the CFTC will come, not today, not tomorrow, not ever. The commission is steeped in corrupt links at the top, where orders come from. The Chilton contact might be forthright and sincere, but it is of little value in my view. Gensler at the CFTC head is in the Goldman Sachs camp, branded by the pedigree and bound by it. No doubt as to the validity of the reported pressures. But as we saw, the US Intelligence showed their control and smashed the investigation. The pressures remain, and surely they will shift to other vulnerable centers. But expect nothing to ever come from the pathetic lapdog CFTC that is plagued by the mange from sitting on big bank laps too long and too often. This disease ridden dog could not run down Jamie Dimon's car, let alone piss on its tires. However, the forces are building, whether the CFTC does its job or not. The new sheriff from the East, along with a powerful well equipped and well funded Eastern Coalition will enforce the rules by backing the gold cartel into the corner, then drain their life of gold.

C.F.T.C. DOG

James Turk from Gold Money pitched in with some encouraging words regarding the late summer. He believes the factors that led to precious metals prices soaring in 2007, 2008, and 2010 are back in place for another impressive move to the upside this summer. According to Turk, in addition to the volatile credit markets in Europe, prices of food commodities are expected to jump sharply in August in response to global drought conditions, the worst hitting the United States central plains. He expects the commodities market to spark another riveting move in the precious metals, where Gold and Silver will become exciting once again. See the Beacon Equity article (CLICK HERE).

◄$$$ THE GOLD PRICE IN EURO TERMS IS NEAR A BREAKOUT AFTER A YEAR-LONG CONSOLIDATION. THE NEXT BIG POWERFUL GOLD MOVE MIGHT ORIGINATE FROM EUROPE, WHERE THE CRISIS HAS WROUGHT THE MOST DAMAGE. THE US$-BASED GOLD PRICE IS CAUGHT IN THE SYNDICATE VISE GRIP, BUT THE PRICE IN EUROS MIGHT BE MORE IMPORTANT. IT IS CLOSER TO THE CRISIS BOILING CAULDRON, WHERE MONEY FLEES FOR SAFETY. $$$

◄$$$ THE SILVER PRICE IS STUCK IN MUD. THE SYNDICATE FEARS SILVER MORE THAN GOLD, AS ANNUAL DEFICITS AND SHORTAGES PLAGUE THE MARKET. JPMORGAN IS TRAPPED AND CANNOT EXIT ITS SHORT SILVER POSITIONS. HEAVY SUPPRESSION MIGHT BE LOSING ITS GRIP. A RISING CURVE IS SHOWING ITSELF. $$$

◄$$$ CRUDE OIL SHOWS HEAVY HEDGING AGAINST THE USDOLLAR. ITS PRICE DOES NOT INDICATE A GLOBAL ECONOMY FALLING INTO A RECESSION. THE FLAGGING BALTIC DRY INDEX FOR SHIPPING COSTS REVEALS THE GLOBAL RECESSION, AND MAKES THE HEDGE FACTOR CLEAR. THE B.D.I. IS NEAR A DECADE LONG LOW. AN AVOIDED GLOBAL RECESSION WOULD SEE THE SHIPPING INDEX MUCH STRONGER, TO CONFIRM A RESILIENT OIL PRICE. THUS THE PROMINENT USDOLLAR HEDGE. $$$

## DOMESTIC ECONOMY A MESS

◄$$$ US-IMPORT PRICES CONTINUE TO FALL STEADILY. RATHER THAN POINTING TO RELAXED INFLATION PRESSURE, IT SIGNIFIES GLOBAL RECESSION WITH THE STILL PREVALENT INFLATION PRESSURE FROM A UNIVERSALLY ADOPTED Z.I.R.P. DUE TO THE MAJOR CENTRAL BANKS. FREE MONEY AND DROUGHT CONDITIONS WILL PREVENT SUSTAINED LOWER COSTS. $$$

Prices of goods imported into the United States unexpectedly fell in July for a fourth consecutive month. The 0.6% drop in the import price index followed a 2.4% decline in June, according to the USDept Labor. Costs excluding fuel decreased 0.4%, the biggest decline in two years. US-based companies and consumers should enjoy the limited cost pressures as the slowing global economy reduces demand for raw materials. The signal is dire of global recession, not heeded. The USFed actually celebrates the global recession, as it offers them political cover for their reckless endless 0% free money policy. They preside over a perfect storm of strong price inflation and economic downturn. Witness a perfect prescription for massive stagnancy, as they succeeded in their push to bring down final demand as a toxic policy blanket. Evidence is clear on the USEconomic recession (not admitted), as the Institute for Supply Mgmt index fell to 49.8 in July from 49.7 in June.

Nowhere is the global recession indicator more stark than in the cost of imported petroleum products. They decreased 1.6% in July from the prior month, and are down 12% from a year earlier. That is the biggest 12 month decrease since September 2009. A beneficial wind comes from abroad on food prices. Imported food and beverage prices were 1.2% lower last month, thus helping offset building pressures in the US marketplace. Expect the usual slingshot effect with beef prices. More expensive corn feed directs ranchers to send more of their cattle to market for slaughter. The decision means temporarily lower beef prices today, but a smaller herd and higher prices early next year. Herd rebuilding will take several years. See the Bloomberg article (CLICK HERE).

◄$$$ US-BASED CAPITAL EXPENDITURES (CAPEX) IS ON THE DECLINE STILL. IT IS THE MOST RELIABLE INDICATOR OF FUTURE SLOWDOWN. BUSINESS CAPEX REFLECTS DIRECT BUSINESS INVESTMENT, THE ALL IMPORTANT CAPITAL FORMATION THAT LEADS TO HIRING, PRODUCTION OUTPUT, AND CASH FLOW. $$$

New orders for US factory goods fell again in June, confirming the slowdown in the nation's manufacturing sector. The press reports prefer to use the word unexpectedly each month, since the economists are usually wrong, and the baseless hope of a recovery is dashed consistently. The Jackass never believed the nonsense. New orders for manufactured goods dropped 0.5% during the month. New machinery orders dropped 2.1%, whereas orders for motor vehicles and parts fell by 0.7%. The overall decline was tempered by a 14.2% lift in new orders for civilian aircraft. Excluding transportation, orders were down 1.8% for a more stable series. Orders for non-defense capital goods excluding aircraft slipped 1.7% in June. This series is the most important, since it is pure business that excludes the extremely volatile and somewhat politicized aircraft sector. The Business CAPEX is on a skids, continuing since the 1.9% decline posted in April. With consecutive retreat in business investment, the recession that has gripped the USEconomy will continue. It is fascinating to watch the major financial networks almost totally ignore the CAPEX in decline, yet maintain their growth message with utter morons. Better yet, highly paid compromised puppets. They are transfixed by worthless indicators like confidence.

New orders have shown declines in three of the last four months. In June, shipments of factory goods fell 1.1%, to demonstrate a trend that economists cannot perceive. Economists in a Reuters poll had forecast orders rising 0.5%, a sign of their incompetence. They must believe the ZIRP (0% rate) to be stimulative, like wretched professionals. American factories are a vulnerable sector to the domestic recession blamed largely upon the festering European debt crisis, precisely as the Jackass stated earlier this year. The report showed broad weakness across industries making everything from machinery and appliances to cars and electronics. America's factories have been a vivid reflection of the country's non-existent recovery from the 2007 to 2009 recession. Anyone with a mere Bush-level 90 IQ could see the US industry was dispatched to China. See the CNBC article (CLICK HERE).

◄$$$ THE CONFERENCE BOARD LEADING ECONOMIC INDICATOR FELL  IN JUNE. BEAR IN MIND THAT THE US-STOCK INDEXES ARE STILL A MAJOR COMPONENT. $$$

The Conference Board is the competent professional and relevant source of Leading Economic Indicator Index calculation. Its index contains too much emphasis in the S&P500 stock index to be sure, but it has a good track record. The prestigious group said its leading index fell 0.3% in June after a slight uptick revision in May. Once again, the word unexpected was used, since no economists foresee recession or downturns. They must be paid not to see the dour horizon. Ken Goldstein of the Conference Board economist crew summarized, "The leading index is pointing to no strengthening over the next few months, as the economy continues to sail through strong headwinds domestically and internationally." In June, four of the 10 leading indicators increased. The most positive indicator was the interest rate spread, which should be ignored, given the powerful application of Interest Rate Swap contract abuse. The biggest negative was the new orders index compiled by the Institute for Supply Mgmt, a reliable component not subject to foul play.

◄$$$ CALCULATION OF US-BASED PRODUCTIVITY GAIN IS A TOTAL FRAUD. USING MONETARY (LAZY) METHODS, ALL OUTSOURCING GOES STRAIGHT TO THE PRODUCTIVITY BOTTOM LINE ERRONEOUSLY. $$$

The productivity of US workers grew in April through June, even as labor costs moved higher. That is a basic contradiction. Non-farm business productivity, the output per hour of all workers, supposedly rose at a 1.6% annual rate in 2Q2012, according to the stat merchants at the USDept Labor. Unit labor costs were up 1.7% during the period, a nasty trend in the making. Caveats must be heeded related to productivity calculations. The following point was new to the Jackass, and came from the diligent research of RobH in Washington state. Productivity is determined using monetary criteria, and does not recognize outsourced worker hours. Therefore, if a business cuts half of its workforce by outsourcing a component of the business, whether in production or service, a mythical 50% productivity improvement would be realized. Notice the spike in 2011 on labor costs, which could be attributed to health care costs, or worker training programs, or the cost of attracting higher skilled foreign workers when dealing with shortages. More likely the recent rise in Unit Labor Costs could be a result of perverse statistical models that rely upon faulty Non-Farm Payroll data that is the object of intense distortions. See the Wall Street Journal article (CLICK HERE).

◄$$$ THE JULY JOBS REPORT REVEALED A RANCID UNDERBELLY IN THE USECONOMY. ITS WEAKNESS IS FINALLY RECEIVING SOME ACCURATE DEPICTION IN THE MEDIA. THE PROPS ARE COMING TO THE FORE. $$$

No detailed Non-Farm Jobs Report will be offered, a waste of effort. The government sector is the primary job engine, a horrible ongoing sign. The Birth-Death Model has been an integral device to avert a disastrous report on the labor front. The B-D Model device has added 548,000 jobs from a statistical tool intended to fill the small business gap, jobs from a mythical chamber steeped in propaganda. The sector is in fast retreat, hardly producing new jobs. The small business sentiment indexes are all in the crapper. The jobless rate benefits from people falling off at the end of their 99 weeks in extended insurance. The Shadown Govt Statistics folks do creditable work, explaining the real jobless rate is 22.9%, the discouraged U.6 jobless rate is reported as 15.0%, and the nonsensical official jobless rate is 8.3% in absurdum. The United States is as bad as Spain. See the Fox News video as a surprising reality check (CLICK HERE).

◄$$$ TECH JOB LOSSES HAVE SURGED, MUCH WORSE THAN A YEAR AGO. THE TECH SECTOR IS PARTICULARLY WEAK. CONTINUING CLAIMS JUMPED HIGHER. WORKERS ARE RUNNING OUT OF TIME, FALLING OFF THE BENEFIT WAGON. THIS EFFECT ACCOUNTS FOR THE FALL IN CLAIMS AND THE DECLINE IN THE REPORTED DISTORTED JOBLESS RATE. $$$

The planned layoff of 30,000 workers at Hewlett-Packard pushed the layoff count at the technology firm to a three-year high, according to Challenger, Gray & Christmas. The HP business is suffering from lost competitiveness across several of its business segments. John Challenger assessed, "Many point to HP's inability to compete with Apple on the tablet front, while failing to keep up with IBM and Accenture on the consulting side." In all, US tech firms planned to slash 51,529 jobs during the first six months of year 2012, which is a stunning 260% increase over the same period last year. The total tech firm job cuts for the first six months of 2012 are an alarming 39% higher than the total for the full year 2011. The tech sector is a significant drag on the entire USEconomy. See the Biz Journals article (CLICK HERE).

A minor jolt hit when late July continuing jobless claims were reported. They shot up by 53k to 3.332 million for the week ended July 28th. That translates to an equivalent to 2.6% of employed workers paying into the system. The weekly jobless claims over the last two months have ranged between 352k on the week ending July 7th to 388k on the week ending July 14th. When jobless claims reached 366k for the August 11th week, again hopes were dashed. The consensus 12 to 18 months ago was that the jobless claims had to come under 500k per week, to show recovery signs. They have, but without recovery signs. In an ordinarily healthy USEconomic system, job creation increases when layoffs decline. Except that this time is different, since the system is suffering from profound insolvency. Business investment is discouraged by Obama Health Care and dislocation in factories sent to China. Rising costs reduce profit margins, aggravating current businesses and dampening prospects for new business. The lower interest rates matter little, when insolvency and inflation are the twin plagues. A central bank failure is playing out in the deteriorating economic system and financial structures.

◄$$$ AN EGREGIOUS DISPLAY OF SEASONAL ADJUSTMENT EXPLOITED AN ABSURD JULY MONTHLY LIFT IN THE CALCULATIONS FOR RETAIL SALES. THEY PRODUCED A BOGUS GAIN OVER THE NOMINAL DATA, IN CRAFTY STATISTICAL ENGINEERING. IN FACT, THE NOMINAL RETAIL SALES DECLINED. THE USUAL ADJUSTMENT SHOULD HAVE REDUCED IT FURTHER AS IN PAST YEARS. THE VIOLATION IS PLAIN FOR THOSE WHO MOVE BEYOND THE HEADLINES. $$$

A grand mystery related to the July retail sales has been uncovered by the always alert Tyler Durden. The villain once again in the seasonal adjustment fudge factor. As a Staples sales analysts, the Jackass was in charge of seasonal adjustment. We used a hard fast rigid rule. Change the coefficients used in the calculations only every three years, and massage the singular events carefully (like major snow storms or earthquakes). The USGovt stat labs instead change the seasonality coefficients almost every month, and thus can tailor any result. The press never picks up on the charade. The rise in retail sales came from a blatant abuse whereby the July seasonal adjustment was put into reverse so as to engineer a benefit. Clear blatant abuse, with the pattern plainly visible.

The July retail sales beat came as a surprise to many, reported as an 0.8% increase. The expected amount was more like flat sales. A quick spot check was done to see if the Census Bureau had adopted a bad BLS habit often abused by the Bureau of Labor Statistics, namely fudging seasonal adjustment factors. The Not Seasonally Adjusted (NSA) retail sales data in July actually declined by 0.9% from $405.8 to $402 billion, very rarely seen. Check the July seasonal adjustment variance over the past decade, and the fly in the milk is obvious. The average July seasonal adjustment factor had been subtracting from each month a substantial amount from the NSA number, averaging at -$5.2 billion shown above. However, the engineers reversed gear in deception. Since the start of 2012, the seasonal adjustment has added value to the NSA number. The July final retail figure resulted in a seasonally adjusted number that was $1.941 billion higher than the NSA number at $403.9 billion.

For the first time in a decade such statistical fraud abuse has been committed. It is desperately needed to avoid the recession story heading into a presidential election. If instead, the Census Bureau had used the last decade average factor of $5.2 billion, instead of rising by 0.8% the adjusted retail sales would have declined from $400.7 billion to $395.5 billion, or a 1.3% decline. Nice lesson on fudged data. Worse, the data is not adjusted for inflation, which would take the final retail sales data even lower. See the Zero Hedge article (CLICK HERE). Great detective work, Durden!

◄$$$ A SHOCKER. CALIFORNIA STATE SALES TAX RECEIPTS FELL BY 40% OVER LAST YEAR. THE RECESSION IS STRONG AND DEADLY. MANY AREAS OF THE USECONOMY ARE IN A SERIOUS SUDDEN DECLINE. $$$

In a disaster sequence, California sales tax receipts for July were 34% below the budgeted expectation. They were also 40% below July 2011 levels. The national retail sales data produced by the USGovt are absurdly false, egregiously distorted, and plain incorrect. Furthermore, the July Producer Price Index rose by 0.3%, adding costs pressures. The USEconomy is falling off a cliff. Several states have suddenly encountered marked declines. The fireworks and crashing sounds should arrive by the time of the presidential election.

◄$$$ HIGH END RETAILERS IN THE LOS ANGELES AREA ARE IN DESPERATE SHAPE. THEY ARE OFFERING HUGE BARGAIN DISCOUNTS FOR MULTIPLE PURCHASES IN ORDER TO GAIN LIQUIDITY. THEY ARE SET TO LOSE BIG MONEY FROM THE DISCOUNTS. THE USECONOMY IS SHOWING DIRE SIGNS OF RECESSION AND DISTRESS. $$$

Consider one such high end retailer, Intermix. The clothing retailer is sponsoring a Spend & Save big splash sale. Spend over $4000 and save $600, or spend between $2000 and $3999 to save $300, or spend between $1000 and $1999 to save $150, or spend between $500 and $999 to save $50. On top, add a 40% discount to the above promotion. Better yet, take free shipping for all online orders. A subscriber DavidA in Los Angeles competes in this line of business. He states, "These guys are high end retailers like me. Check out the deal Intermix is giving on new merchandise, stuff that just came in! This should tell you how screwed up the economy is! These guys are not manufacturers, nor wholesalers, but retailers and very high end. Just click and look at what they sell. From experience, if you carry these designers, your margin at the end of the day is 15% if you are excellent. For most it is 10%. So these guys who are national have huge overhead. My guess is their running margins are at 10% at the very best! So they are losing money here so they can just win cash flow! Things are dire. The media has people in a stupor. One can see more deterioration in all fields around me in the economy."

◄$$$ NEW FORECLOSURE WAVE HAS BEGUN IN NEW JERSEY, ALONG WITH OTHER STATES WHERE THE COURTS DELAYED THE PROCESSING. THE DRAG ON HOUSING PRICES AND THE USECONOMY IS CLEAR. THE HEAVY OVERHANG OF HOME SUPPLY PERSISTS, ALTHOUGH NATIONWIDE THE FORECLOSURES ARE SLOWING DOWN FROM A TORRID PACE TO A STEADY DAMAGING PACE. $$$

A second wave of foreclosures has hit in the New Jersey region. It is long awaited and expected. This continuation wave of foreclosures is manifested in states where courts delayed their mortgage processing due to legal restraints and voluntary bank practices to mollify public disgust. Foreclosure filings in Atlantic County of New Jersey were up 80% from the second quarter last year. Increases were seen of 33% in Cape May County, 53% in Ocean County, and 66% in the state overall, according to RealtyTrac. New Jersey is among 22 states that make foreclosure a judicial process. From 2010 to the autumn months of 2011, foreclosures were largely halted by the courts in response to reports of broad processing irregularities (euphemism for contract fraud). A certain broker at Century 21 Alliance in Wildwood Crest handles many foreclosures and other distressed properties. He reports doing a lot of bank inspections for pre-foreclosures and short sales, as many as 25 to 35 per week, double last year at this time. Many such cases are headed to the foreclosure market in the next six months. Once again, the foreclosure inventory is starting to increase, and not come down. The dynamic will push prices down further, no relief since the supply will not reduce. A wave of foreclosures is expected within the next six months, once the banks start to let loose the backlog they hold.

Nationwide, foreclosures in 2Q2012 were actually down 8%, due to progress in backlog in the judicial states, and restraint in the states that delay the processing. Brandon Moore is CEO of RealtyTrac. He stated, "Additional scrutiny on how lenders and servicers process foreclosures, along with aggressive foreclosure prevention efforts by the federal government and several state governments, continue to keep a lid on the foreclosure problem at a national level. Lenders and servicers are slowly but surely catching up with the backlog of delinquent loans that under normal circumstances would have started the foreclosure process last year." The flip side is full of intrigue and civil disobedience. Tens of thousands of homeowners behind on their mortgages observe the process, notice the legal obstacles imposed upon the banks, and are taking advantage. They are not making monthly loan payments, challenging the banks to produce legal title, and in some cases winning court cases with full loan forgiveness. Others not challenging the title are simply living with no payments, like civil deadbeats. See the Atlantic City Press article (CLICK HERE). The housing market is broken, as the Jackass has described for over four years. It is the most glaring visible broken component to the USEconomy.

◄$$$ HALF OF THE PRIMARY US-HOUSEHOLDS ARE ZOMBIES. THE BURDEN OF NEGATIVE EQUITY IS PROLIFIC AND DEADLY TO THE USECONOMY. FACTORING IN SECOND LIENS MAKES THE EFFECT EVEN MORE DREADFUL. THE HOUSING MARKET WILL GO THROUGH SPURTS FROM STIMULUS FROM OFFICIAL PROGRAMS, FOLLOWED BY HANGOVERS WHEN LEFT TO FEND FOR ITSELF IN A MARKET SETTING. $$$

Housing market experts have begun to chime in with the Jackass assessment, a forecast of another decade before any hope of recovery. The market is a Zombie. Nearly 50% of all mortgaged homeowners in the nation suffers under the extreme duress of effective negative equity. They become orphans within the USEconomy. Note Nevada is at 77%, and Arizona at 66%, which explains why resales are drying up in the desert. Nationwide, 44% of homes have an additional burden of home equity loans and lines of credit, the dreaded second liens. Impaired household credit is a plague of insolvency. Lastly, 40% of all US homeowners are either unqualified, or borderline not creditworthy. It means they probably are not qualified to buy a home if they sell out. In the chart below, the term Effective Negative Equity factors in a 80% Loan To Value requirement. If a homeowner has only a 12% equity stake, no refinance can be done. The person is stuck. See the Ritholtz article (CLICK HERE) for an excellent but depressing summary of the housing market equity condition.

◄$$$ DECEPTIVE HOUSING DATA CAN BE CONTRADICTED. HOUSING START DATA IS WRONG. SALE COMPLETION DATA TELLS THE CORRECT STORY. THE HIDDEN HOME INVENTORY WILL SWELL AGAIN. HOME BUILDERS MAKE THE PROBLEM WORSE AND RENDER CLEARANCE IMPOSSIBLE. BUT THE BANKS PERSIST IN AVOIDING THE NECESSARY STEPS TOWARD INVENTORY CLEARING AT OBVIOUS REQUIRED LOWER PRICES. THE HOUSING MARKET WILL REMAIN IN DECLINE AND CRISIS MODE FOR A FEW MORE YEARS. NO NATIONAL POLICY TOWARD SOLUTION, REMEDY, AND LIQUIDATION WILL EVER COME. $$$

Dave from Denver offered an insightful account. The Housing market remains a gigantic Black Hole. The harm done to the USEconomy is devastating. The lack of home equity from which to draw upon points out the absent legitimate factory income, which went to China. The United States was left with asset bubbles, deep debt, and recent ruin. Worse, it undertook fresh endless war fronts. A recent toast was raised over a deceptive report on rising housing starts. It is directly contradicted by another report citing a decline in mortgage purchase applications. Believe the second, since it is produced by a private organization with no agenda. Disconnects are easy to spot. Mortgage purchase applications do not correlate with sales and starts. The ever vigilant Zero Hedge shows the number of homes actually completed is well below the run rate of starts. Maybe some are see-through homes, as in never finished. A form of channel stuffing for home builders is evident, to start a lot of homes in construction but to take a long time to complete them. The home builders actually aggravate the housing market glut, a Jackass point for five years in succession.

Another big myth propagated is the housing inventory reducing in size. In fact, Fannie Mae & Freddie Mac have been unloading their foreclosed inventory on institutional investors using federal subsidies on the transactions. What is left of reduced housing inventory has mostly been converted to rentals. When Dave recently helped a friend to find a home in Denver, he noticed rental costs fell by about 10% from just six months ago. This is empirical proof that homes have converted to rentals. No home inventory decline has really occurred; it merely shifted.

The nasty undercurrent is present, sure to grow this year. Expect the nasty Shadow Inventory of the housing market (held or claimed by banks) to start rising rapidly this year. This hidden inventory consists of homes in which the homeowner is in some form of delinquency or technical default. In the last year, this inventory has been less hidden, a result of increased attention and press coverage. Many such homes sit on the bank books since the lender or bank has opted to eat the ongoing costs since the mortgage holder no longer makes payments. The institutions choose not to begin the foreclosure process, costly in itself, but also to avoid adding to the inventory of unsold homes. Prices will continue down almost forever. The real estate tax and condominium association dues convert to bank expenses. If banks thought they could foreclose and sell quickly without incurring a big capital hit, they would. They are in business to make money and avoid loss. A growing class of homeowners actually scoff at the banks, make no payment, and live free, putting a challenge to the banks to foreclosure or better yet, to produce proper title. The banks are being beaten by scoffing homeowners, who must pay property taxes and dues when they apply. The scoff class is especially prominent in the jumbo mortgage segment, which is classified as over $417k on the home loan. Dave in Denver personally knows of several people who are sitting in high 6-digit and over $1 million value homes who have not made mortgage payments for at least a year.

The homes under delinquency or default mortgage homes are a main part of the shadow inventory. The other primary part is actual foreclosures. The moratorium in foreclosures delayed the process while the mortgage fraud litigation was being settled. FNM & FRE also delayed their foreclosure process while they unloaded substantial REO (bank owned home inventory) on the market. The shadow inventory is on the rise again, a further indication that the supply side will continue to aggravate the national disaster. According to RealtyTrac, foreclosure starts jumped 6% versus a year ago in 2Q2012, the first annual increase since 2009. There are roughly 4.16 million homes that could begin to flow to market. Some klaptrap has come that the housing inventory is smaller than publicly declared, since the very dilapidated homes should not be counted, those left in disrepair, with sabotage, even weeds out of control with trash in yards. What nonsense! The rot in the industry, the surplus of homes, and lack of finance for qualified buyers, the jobless masses unable to secure a loan, that is why the market sees transitions from nice homes today to dilapidated tomorrow.

The USGovt has not exited its role to create perfect storm conditions in the housing market, still meddling and distorting the market. The Federal Housing Admin filled the reckless lending void created by the massive financial troubles at FNM & FRE. The federal subsidization of the housing market simply shifted from FNM/FRE to the stalwart FHA. Just like the problematic past, the FHA became the predominant source for mortgages, rolling out several programs that featured either no down payment or a small 3.5% down payment. Predictably the fast forward has wrought a fresh mountain of FHA delinquencies, up a frightening 26% from last year. A new mortgage crisis is brewing under the idiotic USGovt roof. Again, no solutions are sought. No remedies are pursued. No liquidation is done. The problem persists like a powerful rot, a federal cancer. Expect more massive bailouts and heavy costs to bail out the FHA. The USGovt calls this progress. It will be impossible for the housing market to ever bottom and stabilize until this country recovers economically, and the market liquidates with bank participation. My forecast is for neither to occur for several years since no solution is pursued, and all difficult decisions are avoided. The leaders are cowards. They realize that steps toward real solutions will collapse their bank power base and expose the standing dead giant banks. It is that simple. It has been that simple since 2008. Forecasting the housing market has been simple since 2006.

Dave in Denver concluded, "But wait, isn't this supposed to be the seasonal peak of the home buying season? If home sales are declining through the peak selling season, imagine how bad it could get for the rest of the year. And combine that with seriously deteriorating economic fundamentals and we are setting up for another housing & bank catastrophe. It will be 2008-squared." The April through June season is the strongest of all months in the housing market. The slump continued, just like in 2011 during the spring months, just like in 2010 during the spring months. Industry experts are scared and depressed. The nation gambled to send industry to China, to rely upon low cost solutions, and then to depend upon home equity extractions for continued consumption turned out to be the biggest disaster in corporate and national policy in the history of the United States, PRECISELY as the Jackass warned in 2004 and 2005 and 2006 and 2007 and 2008. No nation can rely solely upon financial asset inflation. The arrogance laced with stupidity most assuredly would lead to systemic failure, as it seen in the United States.

## GLOBAL ECONOMY A MESS

◄$$$ McDONALDS POSTED LOUSY SALES RESULTS. REGARD THE NEWS AS A TELLTALE SIGN OF GLOBAL ECONOMIC DISTRESS, A BELLWETHER. SALES AT THE GOLDEN ARCHES FELL WORSE OUTSIDE THE UNITED STATES AND EUROPE, THE DIVISION THAT INCLUDES ASIA PACIFIC. $$$

The Jackass assessment is that lower McDonalds sales are 95% an economic effect, and at most 5% anti-American effect. Any boycott at work is of big US banks, not the lousy food that spreads obesity and diabetes to foreign soil, gobbled up by the cool and hip. Two weeks ago, McDonalds disclosed its gloomiest monthly same store sales comparison in nearly a decade. The world's largest hamburger chain surprised the financial markets with a flatline in July growth on a global basis. The comparable ('comp') sales were flat in July, far below the analyst forecast for a gain of 2.3%. The news marked the first lack of growth at the Golden Arches since April 2003. McDonalds said system wide sales slumped 3.2% last month. The lousy comp declines were highlighted by a 1.5% retreat at McDonalds in the Asia/Pacific, Mideast, and Africa division, worse than in turmoil ridden Europe. Sales in ravaged Europe slid 0.6%. Sales dipped 0.1% in the deteriorating United States, where promotional activity failed to stem the tide. See the Fox Business article (CLICK HERE).

◄$$$ THE SOUTHERN EUROPEAN ECONOMIES ARE IN FAST DECLINE. AS THE DECLINE ACCELERATES, THE NATIONS LOSE THEIR LEVERAGE IN DEALING WITH GERMAN AID. CONVERSELY, GERMANY LOSES ITS ABILITY TO PROVIDE AID. THE CONTINENT MARCHES INEXORABLY TOWARD A CLIMAX BREAKDOWN IN BANKS AND BONDS. $$$

The release in late July of European Manufacturing Confidence data showed that all the nations are in contraction mode. They described the decline as the strong core faltering to converge down to match the periphery in a vicious circle. The clock for a Euro Monetary Union break-up is suddenly accelerating, the vulnerable platforms being the banking system and the sovereign bonds. Every day that Germany delays to intervene and acquiesce on bailouts for the PIIGS, conditions change for the worse on both sides of the bargaining table. Germany is being dragged to their level, making it unable as well as unwilling to share the burden. A key economic index was cited. At the end of December 2010, the difference between the weakest and strongest manufacturing confidence was 35 points apart, the weak Greece and the strong Germany. The gulf was the widest on record. The recent index differential was measured at a mere 12 points. Moreover, all the EuroZone members are notably sporting negative indexes. The weakness in Germany ironically could contribute to the breaking point in Spain and Italy, as reality strikes. See the Zero Hedge article (CLICK HERE).

◄$$$ THE GERMAN ECONOMY IS FALTERING TO FLATLINE. FACTORY ORDERS DECLINED BADLY IN MAY. THEIR INDUSTRIAL SECTOR IS FACING A CONTINENTAL AND GLOBAL STORM. $$$

German industry is on a fast downward slide. Factory orders fell twice as much as forecast. Orders declined hard in June as sales to EuroZone countries slumped badly. Adjusted for seasonal swings and inflation, German orders dropped 1.7% from May. Compared to a year earlier, orders fell 7.8% when adjusted for work days. Last month, orders rose 0.7% as the pendulum swings. Orders from the Euro region alone dropped by 4.9% in June after rising 7.8% in May. Domestic orders within Germany fell 2.1%. The largest Europan economy is in a fierce cooldown as the sovereign debt crisis erodes demand for its goods, hurting earnings at major companies. The export led German industrial sector in no way will be spared from the reduced trade activity.

Daimler Benz last month reported a 13% decline in second quarter operating profit. Volkswagen, owner of the Audi brand, reported slowing earnings growth also. The problem has hit Bayerische Motoren Werke (BMW) and Siemens also, without exception. Curiously, rising wages and exceptionally low unemployment (a two decade low) are supporting domestic spending, which effectively offsets fading export demand. It is debatable whether Germany will enter outright recession. Their economy is incredibly robust and resilient. With the global economy cooling and the debt crisis hurting spending in the Euro region, German companies are feeling the pinch. China, the United States, and England are all on the skids. Germany does a tremendous trade in construction equipment in China.

◄$$$ A WORLD SHIPPING CRISIS THREATENS GERMAN DOMINANCE IN CONTAINER SHIPPING. BANKS ARE TIGHTENING CREDIT CONDITIONS WHEREVER POSSIBLE, WITH A KEEN EYE ON COVENANTS. THE MAORITY OF THE NATION'S MARINE FLEET IS IN DEEP TROUBLE, RUNNING AGROUND. $$$

The USGovt triggered a disruption in global shipping with bans on insurance for vessels. But the global recession is the crux of the problem. Over 100 German ship funds have already shut down as the simmering crisis in global container shipping has finally come to a boil. A further 800 funds are threatened with insolvency, according to Hamburg consultants TPW. Germany long ago displaced Greece as the superpower of container shipping, controlling almost 40% of the world market. The Germans might have gone astray on detecting the secular cycle change, which forces them to cope with a legacy of debt and a glut of ships. Credit is tight, especially for new debt that cannot exploit past banker relationships. An impossible climate has hit the single vessel owners. Shipping is the biggest casualty of the new regulations, in response to fierce pullbacks by the banks. They are reducing their portfolios, using any legal breach of covenant to terminate contract commitments. The used ship market has broken down. Both container vessels and tankers are valued lower than during the worst moments of the 2008-2009 crisis.

The crisis in German shipping can best be seen with Commerzbank, the world's second biggest provider of ship finance. They maintain an inventory, a veritable flotilla, of foreclosed ships. The bank has announced it will shut down its EUR 20 billion ship funding operations entirely. They strive to minimize risk and preserve capital under tougher EU banking rules delineated under Basel III. The fast timetable might force banks to raise capital ratios too quickly, resulting in a credit strangle to the real economy. Most of the 20 top banks for the shipping industry have curtailed all funding. German shipping experts say that two thirds of the country's marine fleet is in financial distress. An irony is thick, as the Greeks might overtake Germany once again in the container shipping business, in the wake of a reckless debt spree by the Germans. See the UK Telegraph article (CLICK HERE). One might wonder if collapse of the economies is the Basel goal, the center of the bank syndicate.

◄$$$ CAPITAL FLOWS ARE SIGNALING NEW STORMS THAT THREATEN EUROPE. THE FRACTURES ARE MANY, A MAIN CRACK COMING FROM SWITZERLAND AND EXTENDING TO GERMANY. THE CORE OF EUROPE IS FINALLY IN BIG TROUBLE, WHICH SHOULD FORCE THE ISSUE WITH THE TERMINALLY DAMAGED P.I.G.S. NATIONS. $$$

Significant capital coming out of the common Euro region foretells a major storm in the making, far worse than seen to date. Such is the opinion of Thomas Kressin of Pacific Investment Management Co (PIMCO), the world's biggest bond fund. The falling Euro is the proximal cause for outflows, but the banking wrecking field is also to blame as money seeks safety. The entire collection of players seeks to avoid having funds trapped in failed banks. The sovereign bond fever is the visible head. Unlike past European crises, the Euro is not holding steady, nor is capital flowing from peripheral nations into the core any longer. Translation, money does not feel comfortable in German arms, a major sea change. Considering that PIMCO is owned by German Allianz Insurance Group, the warnings should be taken seriously.

Investors are frantic to find safe haven. One such location is Switzerland, where the banks are desperately trying to enforce a Franc-Euro peg. The Danish central bank is charging for the use of its deposit facility. The UKGilt pays a paltry 0.14% on the two-year notes. The USTBond pays next to nothing, and comes with a printing press joined at its hip, along with other JPMorgan deriviative machinery attached to the gears.

PIMCO fund manager Thomas Kressin said, "Now there are growing signs that the crisis of confidence in the EuroZone has assumed a new dimension. Whereas initially investors fled to the safety of its core, now they are taking their capital out of the EuroZone altogether. When the storm clouds gathered over little Greece at the end of 2009, it seemed unthinkable that the debt crisis and the flight of capital would shake European monetary union, once proclaimed as irreversible to its very foundations. Now though, another storm could be about to break." It is amazing how descriptions like 'Nobody would have thought' and 'Unthinkable' or 'Inconceivable' are used so freely. The Jackass expected the entire periphery to sink in ruin back in early 2010, which would put tremendous stress on Germany. My expectation was for the trade from Southern Europe to harm Germany, and the flight of capital into German Bunds to cause fresh problems. See the Bloomberg article (CLICK HERE).

## THANKS

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.