GOLD INVESTMENT REPORT
PRECIOUS METAL & ENERGY
CURRENCIES & STOCK INDEXES

* Golden Nuggets
* European Defaults & Downgrades
* Europe Drowns in Discord
* Currencies Brace for Shocks
* Growing Global Gold Demand
* Fraud in Gold Market
* Gold Caught in Crossfire


HAT TRICK LETTER
Issue #91
Jim Willie CB, 
“the Golden Jackass”
23 October 2011
"We have an Exchange Stabilization Fund here in the US and Europe has a stability mechanism over there. Call me a purist but since when did government have the right to interfere in any markets to make them more stable. My view is that all of the instability currently in these markets is being caused by the government. If they got out of the way, we would actually have a trend and it would be a stable one. The only problem for them is that the trend would be DOWN. That is something that these meddling clowns cannot tolerate. That is where the instability is coming from, while traders try to guess what these fools are going to do next." ~ Dan Norcini
 
"The United States and Europe have always suppressed the rising price of Gold. They intend to weaken gold's function as an international reserve currency. They do not want to see other countries turning to gold reserves instead of the US dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the US in maintaining the US dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold." ~ Shijie Xinwenbao (April 2009)
 
"The Germans announce they are re-introducing the DeutschMark. They have already ordered the new currency and asked that the printers hurry up." ~ Philippa Malmgren (President & Founder of Principalis Asset Mgmt, confirmed by my best source)
 
"From the German perspective, the situation is salvageable if the government focuses on recapitalizing the German banks, and a recapitalization will be necessary when Greece or one or two other Euro members default. A Greek default is only a matter of time, and the repercussions are probably going to be worse than September 2008 when Lehman Brothers collapsed. If the Lehman event was the earthquake, what we are hearing now are the rumblings of the tsunami headed our way. The only uncertain thing is: On which side of the Atlantic will a major bank collapse? Because there are so many insolvent and fragile institutions around, it is hard to say which domino will topple first. Investors do not fully understand at this point the potential ramifications." ~ James Turk
 
"The US Fed might control the fire hydrant that supplies water but they do not hold the nozzle at the end of the hose any longer. The situation is out of control and the event driven scenario is taking place in an increasing hostile and threatening environment." ~ German Banker (with ties to Euro Central Bank)
 
GOLDEN NUGGETS
◄$$$ EXCHANGE TRADED FUNDS ARE GENERALLY NO SMALL FRAUD. MANY LAZY INVESTORS ARE BEING DUPED. THE FLAGSHIP G.L.D. FUND IS THE WORST PERPETRATOR, A COLOSSAL FRAUD. THE FLAGSHIP CRUDE OIL ETFUND HAS LOST OVER HALF ITS VALUE RELATIVE TO TRACKING THE COMMODITY PRICE. FUNDS ARE ABUSED BY MANAGERS TO SHORT THE COMMODITY AND KEEP THE PRICE DOWN, AN OLD GAME WITH AN EASY FINGERPRINTS. THE INVESTORS THINK THEY ARE INVESTING IN GOLD OR CRUDE OIL IN A FUND, BUT THEY ARE SHORTING IT INDIRECTLY. $$$
 

 
The total volume of Exchange Traded Funds is fast approaching $2 trillion, not well invested. The GLD fund managed by HSBC receives the most attention on widespread illicit activity, from fraudulent drainage of its gold inventory toward the COMEX to meet delivery demands. Another big fraud is the crude oil investment tracker. The United States Oil Fund (USO) was introduced as a vehicle for investors to track the crude oil price. When it began, the ETF had a 1:1 price relationship with the New York crude oil from the futures exchange, a close match. Its expense ratio was a mere 0.45% in overhead. What a huge change since inception! The active month crude oil contract trades between $85 and $90, but the USO fund has been bobbing around recently between the lowly range of $32 and $35, with a plunge below $30 in October. The penalty for investing in the oil ETF has come to 60% to the dopey lazy investor.
 
Analysts defend the fund, claiming that rollover from current nearby contracts has eaten up value, along with administrative costs. That is a lie. The successive monthly contracts do ramp down, but by the month's end, the difference in very small. In all likelihood, just like GLD but to the extreme, the USO fund is being brutally abused to short the crude oil price on the West Texas contract. Recall that the WTIC oil price has consistently been $20 to $25 below the North Sea Brent oil price for months. Blame is placed for the gross differential on surplus storage at the Cushing Oklahoma facilities, but that too it a lie. Notice in the ratio of USO/WTIC, the quantum decline in early 2009 corresponded to the extreme drop from $135 to $40 per barrel. Conclude that the USO fund was instrumental in generating some extreme profits when they drove down the crude oil price. Even more leverage is deployed with futures options.
 

 
One can see the other smaller quantum declines circled on the graph. Even they are outsized, since 6% is not the cost to roll into the current nearby month. The spread from successive months is typically only 30 to 60 cents, well under 1%. However, between those sudden drops one can notice a steady ramp in decline. That is where the fraud and abuse lies, since they should be flat horizontal, since a tracker. Funds are removed regularly in illicit shorting programs, to sell the crude oil contract with investor funds. This is an old game. A final comment on the lavish expense ratios. For the SPDR Gold Shares (GLD) it is 0.40%, which does not seem like much. However, the size of the fund is about $55 billion, bringing 0.40% to $220 million. That is a heavy fee to charge for investor fraud, from shorting the shares, the money drawn out to sell into the gold market. The metal inventory from short programs also goes straight to the COMEX. So investors are raped coming and going. Only total idiots and morons invest in such funds, of course with lazy folks, cheered on by intellectual clowns like Adam Hamilton of Zeal Intelligence (not too intelligent, quote me please). Thanks to Andy Hecht of the Sovereign Investor. It must be said, that he overlooks the fraud from shorting by its own managers. This has become utterly basic. His offered explanation on rollover of crude oil contracts is incomplete.
 
◄$$$ HEDGE FUND REDEMPTIONS SHOULD BE MEASURED AS AN AVALANCHE. ANALYSTS ANTICIPATE A 25% REDUCTION IN THE SIZE OF HEDGE FUND VOLUME. THE OCTOBER 1ST DEADLINE HAS COME. THE RECOGNIZED RECESSION AND DECEPTIVE USFED STALL TOOK A HEAVY TOLL. $$$
 
On October 1st, investors faced a deadline to call for fund redemptions, partial or whole. The $2 trillion in assets under management will shrink by an expected 25% after the new year. The public investors will make decisions. Stock market distress is going through one final enema as hedge funds settle after demanded sales. The world's largest Man Group fund was down on a single day recently by 25% on plain redemptions. Most large managers of long-only equity and bond funds posted outflows in the last week of September, data provider EPFR Global reported. Investors are taking risk off the table, licking their wounds, as the recognized recession and ordered USFed stall combined to take a heavy toll. The rock shivering crisis in Europe adds to the toll.
 
◄$$$ SINGAPORE ADVISES THE WEALTHY TO INVEST IN GOLD. CAUTION WAS GIVEN ON TANGIBLE COMMODITY ASSETS DURING A GLOBAL DOWNTURN. $$$
 
Reuters hosted a Wealth Mgmt Summit in Singapore. The main message at the Singapore conference was that wealthy individuals should buy Gold since offered as an attractive investment. The price discount is an added incentive. Marcel Kreis is the Credit Suisse head of private banking for the Asia Pacific region. He said, "Gold at $2000 is absolutely, potentially on the uptrack, despite the selloff. That is sort of the immediate target." That mark was the Credit Suisse 12-month target, almost reached. Another speaker was Tan Su Shan, head of wealth management at DBS Group, the biggest Southeast Asian lender by assets. She said, "It is your insurance policy if all hell breaks loose. We did advise caution closer to $1900. At around $1600 and below, it would be time to start looking to going back into Gold again." They presented Gold as a financial investment. The Singapore bank has been giving more caution on other commodities during the cyclical downturn in the global economy. See the Reuters article (CLICK HERE).    
 
◄$$$ CHINA PLANS TO INSTALL 2000 VENDING A.T.M. MACHINES THAT DISPENSE GOLD COINS. THEY ARE STILL ENCOURAGING THE PUBLIC TO BUY GOLD, AS PART OF A COORDINATED PLAN. IN HEDGING AGAINST INFLATION, CITIZEN DEMAND ENHANCES THE CHINESE GOVT STRATEGY TO APPLY CONSTANT ELEVATED PRESSURE ON THE US & UK BANKERS. BY CONTRAST, INDIA MEETS GOLD DEMAND WITH A VAST NETWORK OF POST OFFICES SELLING GOLD. $$$
 
According to Digital Journal, some countries including China are installing automated teller machines (ATM) that dispense gold bullion rather than paper currency. In response to a rising gold price and associated rising demand, against a backdrop of relentless decline and instability of fiat currencies, the Chinese metropolis of Beijing has installed its first gold ATM in a shopping mall. Over 2000 gold ATM machines are due to be installed throughout the country. Citizens will be able to exchange their rapidly degrading cash for precious metal. Zheng Ruixiang is president of Gongmei. He said, "The people in Asia have a unique taste for gold, especially in China and India, and the channels of investment in China are way too narrow right now. To put cash deposits from residents into gold deposits can reduce cash flow and reduce pressure on commodity prices." For the past several years, the Chinese Govt has consistently been encouraging its citizens to invest in Gold & Silver in order to protect their wealth against inflation and an unraveling world economy. The besieged USDollar as the world reserve currency has been in a wrecking ball on economies, raising entire cost structures. Precious metals are an effective hedge in protecting against the USDollar and other major currencies, all of which are suffering deep debasement.
 
Not left out, India has its own retail demand for gold. To satisfy demand, the Indian post offices have begun to distribute coins and small pieces of gold. Over 700 post offices are set up in the rural areas servicing 90,000 customers, a number expected to grow. This market is worth pursuing, as a huge wealth creation wave is developing in India. The Gold market in India is on the verge of doubling in the next decade. In the United States, the post offices are struggling to stay alive, but they do sell commemorative stamps and money orders. China & India lead the world in growth of global gold demand. The United States is lagging badly, deceived by constant rubbish in the financial press, that obstructs protection of life savings from monetary decay and basic inflation.
 

 
◄$$$ ARGENTINA IS IMPLODING FROM HIGHER INFLATION AND CAPITAL FLIGHT AMIDST ECONOMIC DOWNTURN WORSENED BY HIGH INTEREST RATES. THEIR ECONOMY IS CHOKING. THE EXPORT TRADE IS HAMPERED. HISTORY REPEATS ITSELF AGAIN AND AGAIN. $$$
 
In an effort to stem capital flight, the 30-day bank deposit rates in Argentina for accounts over 1 million Pesos rose 150 basis points on October 13th (the last data available) to 17.4%. The rise is a full 6.0% higher since the end of June. Approximately US$2 billion is leaving Argentina each month. Price inflation has risen sharply. The true inflation is 24% versus the 9.9% officially stated. The national FX reserves have dwindled, especially after being shut out of the international bond market for capital finance. Speculation grows that President Cristina Fernandez de Kirchner, the front runner in the October 23rd elections, will accelerate the Peso depreciation. Once more, the plan is to lift exports, when internal implosion occurs. Higher deposit rates attract capital required within the economy, leading to a choke effect. The 6.4% decline in the Peso over the last year is far below the pace of rising consumer prices. Therefore, Argentina's products are rendered more expensive relative to its competitors in a race to ruin. Witness another casualty of the Competing Currency War.
 
◄$$$ THE CRY FOR SOUND MONEY IN FRANCE COMES FROM THE POLITICAL CORNER OF CONSERVATIVES. THE OUTCRY IS TURNING GLOBAL. $$$
 
The working classes are emerging as the most demanding and eager for France to abandon the Euro currency. It has wrecked the continent, perhaps the original plan. An IFOP poll shows that almost half of blue collar workers want a return to the French Franc. This stems from reaction to economic hardship, job insecurity, and bank ruin, as well as nationalism. The sentiment in Germany and the Netherlands is similar. Right wing and nationalist politician Jean-Marie Le Pen is a Frenchman who wants a return to a metallic currency standard that would include Gold & Silver, in order specifically to prevent uncontrollable money printing. Another proposal floating around in France, seen as pure heresy for the French Govt, is to make possible funding of federal deficits with cheap loans from the central bank. The rising bond yields have made paying market rates to banks or bondholders unattractive. In France, to be clear, the political far right has capitalized on Euro financial crisis with demands for sound money. See the Yahoo news article (CLICK HERE).
 
◄$$$ BANK OF AMERICA DUMPED ITS DERIVATIVE BOOK, POSSIBLY PREPARING FOR A RESTRUCTURE. THE DUMP IS A PITSTOP EN ROUTE TO THE USGOVT TOXIC VATS. THE USFED APPLAUDS WHILE THE F.D.I.C. COMPLAINS. RAIDS OF ASSETS PRECEDED THE LEHMAN BROTHERS FAILURE. THIS EVENT MIGHT BE NO DIFFERENT. $$$
 
Bank of America engaged in devious accounting. Not only did they call their own corporate bond decay a phony profit, but the firm shifted a large part its mountain of derivatives held on its balance sheet as of June 30th to its retail bank. Just last week, Moodys downgraded the holding company from A2 to Baa1. The retail bank was downgraded more gently to A2 from Aa3. The collateral backstopping will next done fully and effectively by the bank's $1.041 trillion in deposits. A bank run has been rumored at the big lumbering insolvent bank. Its website was down for several consecutive days, inhibiting usage of funds. Furthermore, the insurance agency to the depository base in the FDIC is very angry. The USFed favored the shift on the books, so as to give relief to the bank holding company (in their words). Conclude that depositors are forced to backstop its $53 trillion derivative book, as clients continue to depart. Savings accounts and certificate holders might be wiped out on a liquidation. See the Zero Hedge article (CLICK HERE).
 
Bank of America already had the threat of failure looming due to deep insolvency from mortgage and litigation losses. Until now, the operations like the retail banks would not be affected and could be spun out to a new entity, even sold. Shareholders would be wiped out and holding company creditors like the bondholders would take losses. The derivative shift changed everything. Bank analyst Chris Whalen calls it either criminal incompetence or abject corruption by the USFed. Dumping derivatives into the depository business segment goes in diametric opposition to Dodd Frank resolutions. The US Federal Reserve and Federal Deposit Insurance Corp are in deep disagreement over the transfers. The USFed favors moving the derivatives to benefit the bank holding company, while the FDIC objects since it must pay off depositors upon a bank failure made more likely. The FDIC will attempt to reject this brazen move. The corrupted USFed will argue not to disrupt the financial markets further. Witness the justification for a Dodd Frank resolution.
 
The 2005 bankruptcy law was revised to permit derivatives counter-parties the first in line position. They grab assets first. This truly devious bold move amounts to a direct transfer from Merrill Lynch derivatives risk to the USGovt via the FDIC. It means depositors will be made whole only after derivatives counter-parties have seized collateral. Recall back in September 2008, that Lehman Brothers failed over a weekend after JPMorgan grabbed its collateral in a basic daylight raid. Expect another TARP type of bank bailout, as the Wall Street firms jockey to cover their derivative exposure. That bad news for them is that they have over $200 trillion left, even after this ugly maneuver to shift the ML exposure.
 
◄$$$ PROFITS ANNOUNCED BY THE BIG US-BANKS ARE PHONY. A LAUNDRY LIST OF CORRUPTED SUPPOSED PROFITS CAME IN THE LAST TWO WEEKS TO THE ENTIRE CREW OF GIANT INSOLVENT US BANKS. SEE THE DEBT VALUE ADJUSTMENT DECEPTION. $$$
 
JPMorgan posted $1.9 billion in Debt Value Adjustments, the same amount posted by Citigroup for DVA. This item is so corrupt as to be indefensible by any rational person. They take the fallen value of their own corporate debt, cite how they could buy it back at a lower cost, and book the difference as profit, when not bought back. Similar games are played with bond spreads widening. So if the corporate bond fails and goes to zero, the DVA would maximize the profit for the dead firm. Bank of America posted a $1.7 billion DVA profit, but the winner was Morgan Stanley, which has the highest risk of death. They posted a hefty $3.4 billion DVA profit. Without such tainted profits, the big US banks would have shown their dead decaying matter more clearly. Worse, during a time when mortgage assets and lawsuits are all the rage, they raided their Loan Loss Reserves, more phony profits. Bank of America even listed litigation losses while raiding LLReserves in the amount of $1.6 billion. Citigroup snatched back $1.4 billion in LLR, while Wells Fargo snatched back $0.8 billion. The big US bank quarterly reports were worse than dreadful, as they were corrupted and dreadful, the rot visible. Amazingly, the Bloomberg financial news identified the practice as questionable but legal, calling them poor quality profits!!
 
◄$$$ PENSION FUNDS HAVE A $500 BILLION HOLE IN US-CORPORATION BALANCE SHEETS, AND A BIGGER $4.4 TRILLION HOLE IN THE STATE & LOCAL GOVERNMENT SECTOR. WITNESS A FIELD OF VANISHING DREAMS. THE PENSION HOLE JUST KEEPS GETTING BIGGER. THE SLASHING OF LOCAL GOVT BUDGETS HAS MADE WORSE THE LABOR MARKET WITH MANY JOB CUTS. $$$
 
Pension funds have suffered big declines in assets owned, while their liabilities have been relentlessly rising. The Mercer consultancy estimates the shortfall in American corporate plans was $512 billion at the end of September, the highest figure in 70 years. The average corporate pension plan had a funding of just 72%, down from 81% at the end of 2010. That ratio is defined as the proportion of liabilities covered by assets. Worse, growth estimates are kooky, so the real funding ratio is lower. Contrast the shortfall to the public sector pension deficits. In 2009, business school professors Joshua Rauh of Northwestern Univ and Robert Novy-Marx of the Univ of Chicago estimated the deficit of US state & local government pension plans was $3.1 trillion. Rauh has updated his estimate of the deficit to $4.4 trillion currently. In other words, a hefty $1.3 trillion has been added in two years. See the Financial Armageddon article (CLICK HERE). The Mercer analysts place some blame on the Quantitative Easing initiatives devised by central banks to revive the economy, for growth in the pension holes.
 
Local governments have slashed 535,000 positions since September 2008 in budget cut decisions, as deficits are caused by sharp declines in property tax receipts. The figure exceeds the 413,000 local government jobs cut from 1980 to 1983, during another big downturn in local government employment. Christopher Hoene, research director for the National League of Cities, estimates an additional 265,000 jobs could be cut by the end of 2012.
 
◄$$$ MINING STOCKS STILL CORRESPOND TO A GOLD PRICE PERHAPS $300 TO $400 LOWER PER OUNCE. PROFITS ARE RISING, BUT STOCK VALUES ARE FALLING. PAPER SECURITIES ARE DISTRUSTED. $$$
 
Gold mining stocks are valued on much lower gold prices than the current market value. The prices of gold mining stocks versus the gold price seem to be drifting further apart. Distrust of paper securities is the culprit in my view. Even at a $1600 to $1700 gold price, the mining firms can make huge profits at current prices. The major financial institutions tend to be conservative in calculations. The Bloomberg median figures in June of the $1500 gold price suggests that the stocks at that time were probably being valued on a gold price of $1200, a 20% discount to the gold price. The miners themselves tend to run their profit projections on still lower gold prices. The practice offsets their consistent under-estimation of costs in this tough climate. The net result is that gold mining enterprises tend to make huge profits in excess of sensible forecasts. The miners will realize in the September quarter sales at an average gold price of more than $1600 per ounce. If unhedged by forward selling, the average sales price could be $1700 or more. The profits would have been about $200 to $300 per ounce higher than in the June quarter, when mining firms scored record revenues and profits. But the price decline hurt profitability. By point of example, the Newmont stock price is lower than where it was a year ago. With 1.2 million ounces gold in output, it is on the cusp for huge profits with a rise in the Gold price. See the MineWeb article (CLICK HERE).
 
◄$$$ USGOVT HAS NO MONEY FOR THE I.M.FUND AS IT TALKS TOUGH AND CARRIES NO STICK AT ALL. THE TROIKA APPEAR TO BE THREE EMPTY CHAMBERS WITH SHRILL VOICES AND NO SUBSTANCE. THE UNITED STATES PROMISED TO MAKE ITS CONTRIBUTION TO THE FUND, BUT MIGHT PREFER THAT EUROPEANS AND CHINA CARRY THE LOAD. THE INTEGRITY OF THE UNITED STATES IS FAST ERODING. IT SHOULD LECTURE LESS. $$$
 
The so-called Troika consists of the Euro Central Bank, the EU Commission, and the Intl Monetary Fund. The EuroCB is the proud owner of over EUR 1 trillion in toxic sovereign bonds and a raft of impaired bank stocks. The commission presides over a union that no longer has unity, is loaded with economists and bank agents, but has no control of a purse. The IMF is in disarray, sits on heavy commitments but only commands funds that are donated. And lately, many national pledges for funds have had no follow-up delivery. The new head Christine Lagarde must be regretting her decision to depart France to preside over an empty trough. But the Lagarde departure might be a strong hint that the French financial situation is rapidly falling apart, growing more insolvent by the month. The IMF has numerous pledges from member nations that have not materialized, as reported in the Hat Trick Letter. The latest news on that front is the United States showing abject neglect, as the USDept Treasury will leave the European bailout to the Europeans to deal with. The US has decided against expanding the IMFund account, the news being cowardly released after 6pm on a Friday afternoon. The group of the United States, Canada, and Australia have poured cold water on the plan to inject $350 billion into the IMFund coffers, even though Geithner spoke so confidently about the infusion. He also lectured other finance ministers brazenly. And to think the G-7 Meeting in Poland did not show him respect. They have cause to distrust the American bankers. Clearly, over 80% to 85% of new funds would have come from the US. The reality is that the US as the newest Third World applicant, thus cannot afford the payment. The US financial ragtime media offered numerous stories about the certainty of the US contribution. Then again, the media has little vested interest in truth and accuracy. The Global Ponzi is unraveling. See the Zero Hedge article (CLICK HERE).
 
◄$$$ THE HEIR TO THE SAUDI ROYAL THRONE HAS DIED OF COLON CANCER. SUCCESSION IS IN DOUBT. THE PETRO-DOLLAR HINGES ON SECURITY ASSURANCES MADE BY THE UNITED STATES, NOW FURTHER IN DOUBT. SULTAN ABDEL AZIZ WAS IN CHARGE OF SAUDI SECURITY. HIS DEATH COULD DESTABILIZE SAUDI ARABIA AT A VERY VULNERABLE TIME. $$$
 
The heir to the Saudi throne, Crown Prince Sultan bin Abdel Aziz Al Saud, died in a New York City hospital on Saturday, confirmed by the palace spokesman. Questions will be raised about the critical succession for the oil-rich US ally. Sultan was the half-brother of Saudi Arabian King Abdullah, and had been receiving treatment for colon cancer since 2009. Sultan had served as the kingdom's deputy prime minister and the minister of defense and aviation. The mechanism of selecting the next crown prince is not clear. Possibly for the first time the aging king will put the succession heir decision to the Allegiance Council, a body Abdullah created a decade ago as one of his reforms, made up of his brothers and nephews with a mandate to determine the succession. The king's other half-brother Nayef (aged 78 years), powerful interior minister in charge of internal security forces, will still be the leading candidate. When Sultan became gravely ill, the king gave Nayef an implicit nod in 2009 by naming him second deputy prime minister, traditionally the post of the second in line to the throne. Saudi Arabia has been ruled since 1953 by the sons of the nation's founder, King Abdul-Aziz, who had over 40 sons by multiple wives. Even promiscuous Costa Rica would be jealous. Below is a photo of Sultan a couple years ago when strong.
 

 
Nayef is considered a rough individual, if not a hard liner. He led an aggressive campaign against Islamic militants following the 911 attacks in the United States, in which 15 of the 19 hijackers were supposedly from Saudi Arabia, the scapegoats selected by the Syndicate in the false flag attacks. Nayef has maintained close ties to the Saudi religious establishment. This could bring tensions within the Saudi leadership if Nayef is named crown prince. Nayef also keeps a hard line against regional rival Iran, the Shiite power center. He has long claimed that Tehran has fomented protests among Saudi Arabia's minority Shiites. He led the decision in March to send military forces into Bahrain. The tiny island nation has a Shiite majority, where reforms have been sidetracked consistently. Nayef is steeped in controversy. In August, he won undisclosed libel damages from the British newspaper (The Independent) over an article that accused him of ordering police chiefs to shoot and kill unarmed demonstrators in Saudi Arabia. Sultan has harbored deep ambition for the throne. When Fahd became king in 1982, Abdullah was named crown prince. Sultan challenged the decision, but the matter was settled by the many sons of Abdul-Aziz, itself a large debating body. Abdullah has served as king for the last several years, since August 2005. See the BuzzFeed article (CLICK HERE).
 
This is very big news. New doubt in the line of succession could not have come at a more delicate inopportune time for the oil-rich nation, a critical economic ally to the United States. Saudi Arabia lies at the center support for the de-facto Petro-Dollar standard. It is vulnerable. Abdul Aziz was in charge of security. The other side to the Petro-Dollar pact is security offered by the USMilitary. If the Jackass were a puppeteer playing games to create instability, removing Abdul Aziz would have been a move that would cause disruption. Some fallout will happen. The Saudi Royal Family has not been this unstable in many years, but it will be held together by a remaining strong figure. Bandar bin Sultan bin Abdul-Aziz is a key figure, glue to hold the throne intact. Very big unstable changes come if he does not survive. Regardless, the House of Saud is in deep trouble on multiple fronts.
 
EUROPEAN DEFAULTS & DOWNGRADES
◄$$$ ANOTHER GERMAN BUND AUCTION FAILED. THE CONTAGION HAS REACHED THE STABLE CORE, WITH HEIGHTENED CONCERN OVER GERMANY PROVIDING THE LARGEST SHARE OF THE REPLENISHED STABILITY FUND. AID TO THE BIG EUROPEAN BANKS IS IN DEEP DOUBT. $$$
 
A German 10-year Bund auction did not manage to cover the total issuance. Unable to provide secretive bidders from the printing press room like the Americans, Germany had another failed Bund auction. The country sold EUR 4.075 billion in Bunds, but attempted to sell EUR 5.0 billion in total. It actually received EUR 4.55 billion in bids, but refused some (at higher yields). The auction was technically uncovered, reflecting the widespread fear in the market. Bond investors must be extremely concerned that Germany might bear the burden of the EFSF expansion, the bailout stability fund. In reaction to this poor result, the French-German bond spread rose to an all time record of 115 basis points overnight. The Bid/Cover ratio at the sale was 1.1, below the previous 1.5 ratio at the last auction held in September. The 2011 average on 10-year Bund sales was 1.61 on the ratio, stronger still. See the SingStock article (CLICK HERE).
 
◄$$$ MOODYS SET THE STAGE TO DOWNGRADE FRENCH GOVT DEBT, AS THEY DESCRIBED THEIR POSITION AS NO BETTER THAN P.I.G.S. NATIONS. FRANCE HAS THE BIGGEST EXPOSURE TO SOUTHERN EUROPE DEBT ON SOVEREIGN BONDS. THEIR FINANCIAL STRUCTURE IS WEAKENING BADLY, THE OBJECT OF SCRUTINY BY MOODYS. EVEN DEUTSCHE BANK EXPECTS FRANCE TO BE DOWNGRADED SOON, OR BE ON TRACK TO DOWNGRADE. THE EFFECT ON GERMAN AND SWISS BANKS WOULD BE DIRECT AND STRONG. $$$
 
Moodys has declared the French Govt debt to be the weakest of all the Aaa-rated nations. It came as unwelcome news going into the G-20 summit, whose finance ministers gave an ultimatum to make progress on its sovereign debt crisis. Deutsche Bank expects the rating agencies to eventually put France on downgrade review. Moodys announced that the financial position of the official French debt has suffered a deterioration. They plan to monitor and assess any potential adverse economic or financial market developments, which means watch the economy, bond market, and bank stocks. It was an update, rather than a ratings action. While Moodys believes the large diversified economy with a history of innovation and sizeable savings can absorb shocks, they note the government financial strength has weakened, like with other EuroZone sovereigns, as the global financial and economic crisis tumbles along. France has been labeled the weakest of their Aaa peers. They remain comfortable with the cost of debt, namely the bond yield. France could face further challenges from banks exposed to other European sovereigns or to its own banking system. The French banks are the biggest creditor to the PIGS nations, the largest exposure. The deterioration in debt metrics and the potential for further liabilities to emerge are exerting pressure on the stable outlook of their Aaa debt rating. Their balance sheet has no room to maneuver on any expansion. See the Zero Hedge article (CLICK HERE).
 
Deutsche Bank warned that France could be placed on downgrade review before January. Earlier, Credit Suisse estimated 66 European banks will fail the next stress test, which might not be so shoddy a test. They will require hundreds of $billions in fresh capital. DBank wrote, "We highlight in this note that the French corporate sector is already financially stretched, with poor profitability and large borrowing requirements. We consider that the deterioration in economic conditions is now creating a distinct risk that France could be put under Negative Watch by the rating agencies before the end of this year. We think that France has the wherewithal to react to such an outcome and could avoid an outright downgrade by taking corrective measures quickly, but this naturally would be a very sensitive political decision a few months before a major election." Some analysts wonder aloud why Credit Suisse and Deutsche Bank would jeopardize declines in their own balance sheets with such comments, since exposed to risks they point out. Neither bank can survive a vigilante attack on French spreads, as the shift in contagion would move directly to Germany. See the Zero Hedge article (CLICK HERE).
 
◄$$$ SPANISH GOVT DEBT WAS GIVEN A RATINGS CUT BY MOODYS AND FITCH. THEY CITED ECONOMIC RISK, BANKING SYSTEM DETERIORATION, LIMITED CREDIT FACILITY ACCESS, LOWER TAX REVENUE, AND DRAINED CASH RESERVES. THE POOR PROSPECT OF SOVEREIGN DEBT SOLUTIONS AGGRAVATES THE ENTIRE PICTURE. $$$
 
Moodys delivered a nasty blow to Spain, as they gave a double downgrade, two notches down to A1 with a negative outlook as well. No credible resolution of the sovereign debt crisis has been offered or has come with economic developments. Moodys pointed to a potential further escalation of the EuroZone debt crisis. The rating agency expects that the makeup of the next parliament after the November 20th elections will be strongly committed to continued fiscal consolidation. Another debt downgrade would come if the new makeup was not so committed. Any decisive credible fiscal and structural reform plan would provide aid to a stable outlook. Long-term economic strength in Spain is no longer considered to be viable, as the lengthy economic rebalancing process unfolds. Moodys noted that most sovereign issuers with a Aa3 rating have much stronger fiscal and external positions than Spain, such as very low public debt, sound public finances, and a net creditor status. Hence, Spain is considered more vulnerable to a funding crisis from vanishing confidence. Standard & Poors slapped Spain with its third rating cut in three years, down one level to AA-, the fourth highest investment grade. It cited slowing growth and rising defaults that threaten banks and undermine efforts to contain the EuroZone sovereign debt crisis. They kept the negative outlook, expecting their banking system to weaken further and balance sheet of impaired assets to grow. See the Zero Hedge article (CLICK HERE) and Bloomberg article (CLICK HERE).
 
Moodys reiterated the undeserved French Aaa rating, even gave them an undeserved stable outlook.  The debt ratings agency downgraded nine Spanish regions, two Basque provinces, and five government related entities, only one day after it downgraded Spanish sovereign debt, in a massacre. It downgraded the Castilla La Mancha by five notches, from A3 to Ba2. The Man of LaMancha (Zero Mostel) must be angry. The gravity of the debt crisis has deepend in Spain, which along with Italy remain highly vulnerable to banking contagion. One must wonder if the US financial forces are piling on, working in unison with a mission, so the USDollar is lifted. Perhaps ten big US banks also deserve steady ratchets of downgrades.
 
The rating actions concluded the review for possible downgrade initiated for eight ratings on 29 July 2011. Some details. The Spanish Govt debt went to A1 from Aa2 with a negative outlook. Moodys cited growing liquidity pressures and large financing needs with constrained access to long-term funding sources, depleted cash reserves, extensive usage of short-term credit lines, and expanded commercial debt obligations. They stressed persistent fiscal imbalances and lower expected tax revenue, as the Deficit/GDP ratio rose to 1.2% in the first six months of 2011. See the Business Insider article (CLICK HERE).
 
◄$$$ STANDARD & POORS DOWNGRADED 20 ITALIAN BANKS, AS THEIR BANKING SYSTEM WAS DECLARED UNFIXABLE. IT WAS A LOUD SLAM, A NASTY TABLE POUNDING EVENT HEARD CLEARLY. S&P GAVE STRONG INDICATION THAT THEY EXPECT ITALIAN BANKS TO RECEIVE A HUGE CAPITAL BOOST, MEANING SOME NEAR DEATH EVENTS FROM FAILURES. $$$
 
Standard & Poors downgraded a slew of more than 20 Italian banks, calling the climate difficult and describing the future prospect as neither transitory nor easily reversed. Italy has been spared much attention until the last few weeks. They left no doubt on a dim negative outlook. To sure to know that Italy is the next PIGS shoe to drop. It seems that on each day, yet another debt downgrade comes to the Southern Europe group of wrecks that increasingly includes France. The official S&P statement read, "In our opinion, renewed market tensions in the EuroZone periphery, particularly in Italy, and dimming growth prospects have led to further deterioration in the operating environment for Italian banks. The cost of funding for Italian banks will increase noticeably because of higher yields on Italian sovereign debt. Furthermore, we expect the higher funding costs for both banks and corporate bonds to result in tighter credit conditions and weaker economic activity in the short-to-medium term. We do not believe that this difficult operating climate is transitory or that it will be easily reversed. In our view, funding costs for Italian banks and corporates will remain noticeably higher than those in other EuroZone countries, unless the Italian government implements workable growth enhancing measures and achieves a faster reduction in the public sector debt burden. Consequently, we envisage a situation where the Italian banks may well be operating with a competitive disadvantage versus their peers in other EuroZone countries. At the same time, we think all banking systems across the EuroZone, including Italy, may raise their commitment to reinforcing bank capitalization." They expect a big aid package to come to Italian banks, which is a nice way of seeing some near death failure events forcing the capitalization process. See the Zero Hedge article (CLICK HERE). The 10-year Italian Govt Bond went above the important 6.0% level on Friday, but settled below it. The high yield seen was 6.05% for the day. The effect has worn off after the Euro Central Bank announced two months ago that it would buy the Italian Bonds and prevent a crisis from spreading. The contagion continues, with the fever rising. Danger!!
 

 
◄$$$ MOODYS SLAMMED ITALIAN GOVT DEBT WITH A GIANT TRIPLE DOWNGRADE. THEIR ACTION CAME WITH A COMPREHENSIVE CRITIQUE THAT LEFT NO DOUBT ON THE DETERIORATING CONDITION. THEY CITED RISK OF BEING LOCKED OUT OF THE BOND YIELD FOR FUNDING, A DIFFICULT POLITICAL CLIMATE TO MAKE AGREEMENTS, AND ENGRAINED INEFFICIENCIES. $$$
 
Moodys gave a huge nasty triple downgrades to Italian Govt debt, from Aa2 to A2, and lowered the outlook to negative. The main drivers that prompted the rating downgrade were higher funding risks with higher levels of public debt and higher bond yields paid out, increased downside risks to the economy due to macroeconomic structural weaknesses, and risks to the implementation of budget cuts. Another loud comprehensive slam. They were kind in soft words, since the Italian Govt and prime minister have been defiant in spending cuts. The leader Berlusconi once said this summer that big budget cuts were not to come, since if he wanted to preside over a field of shit, he would run a farm. Moodys pointed to continued significant imbalances in the economy and severe pressure on private financial and non-financial sector balance sheets. The Italian financial system remains vulnerable to financial shocks, as a result of a structural shift in market sentiment regarding EuroZone countries with high debt burdens. In other words, Italian Govt bond yields have risen. Concern was expressed for the country's access to the public debt markets. If locked out of external sources of liquidity, the debt rating could be put substantially lower.
 
Moodys gave details on the related drivers to their downgrade decision. High debt levels put at risk the finance costs and funding risks. Italy has refinancing needs of more than EUR 200 billion in 2012. As indicated by the A2 rating, the risk of default by Italy remains remote. However, the structural shift in sentiment in the EuroZone funding market implies increased vulnerability, as in high bond yield or being locked out. The Italian Economy continues to suffer from structural weaknesses such as low productivity alongside rigidities in the labor and product market. The problems have dogged the nation for a full decade. The structural impediments are only recently being discussed and addressed. The Italian Govt seems intractible in achieving fiscal targets, meaning budget cuts. Even a mild economic downturn would adversely hit the budget and bring much larger deficits. Political consensus on additional expenditure cuts can be difficult in this highly charged emotional nation. Moodys expects the Italian public Debt/GDP ratio to reach 120% by yearend. They cite risk to bond market shocks. See the Zero Hedge article (CLICK HERE).
 
◄$$$ SOME LARGE EUROPEAN BANKS WILL PROCEED WITH LIQUIDATIONS, AND NOT RAISE CAPITAL IN THE CURRENT LOW VALUE ENVIRONMENT. FRUSTRATION HAS GROWN OVER THE BAILOUT FUND, THE REQUIRED INFUSIONS, BANK CAPITAL REQUIREMENTS, AND NECESSARY STEPS TO RECAPITALIZE. SOME BANKS ARE QUITTING AND HAVE DECIDED TO SELL ASSETS. THEY TOO WILL BRING LOW VALUES. TWO GIANT FRENCH BANKS LEAD THE PROCESS. LOOK FOR IMPAIRED US-MORTGAGE BONDS TO BE IN THEIR PORTFOLIOS, LED BY THE PRIME-X BONDS THAT FELL HARD. $$$
 
Some big European banks ddmit they have refused to raise capital in the current environment. They will proceed with asset liquidations instead. The Financial Times confirms the development. But the price of sales will be depressed, just like the bank stock shares for secondary sales. The European banks have balked at the prospect of recapitalizing at current levels, not wanting to raise capital at these depressed share price levels. The average European bank equity is trading at only 60% of its book value. The banks have made commitments behind closed door and instead will opt for asset liquidations. The big banks cringe at the thought of massive dilution from additional stock shares issued and sold. Meanwhile, the short-term funding markets appear to shut out banks for the fourth month in a row. They are stuck between a market rock and a balance sheet hard place. The key prerequisite to any recapitalization plans is absent. The higher capital needs are to fund ratio requirements per Basel III, a big thorn in their side. The ugly truth is that banks desperately need capital just to operate, apart from newly enforced Basel strictures to hit in 2016. Expect a potential wave of liquidations, especially of US$-denominated assets. Watch to see who sells first, since they will sell at the best price. They own many assets in common, so a race out the door is coming.
 
The Financial Times reported on the radical approach, led by French banks BNP Paribas and Societe Generale. The two French giant banks have signalled plans to offload a combined EUR 150 billion of risk weighted assets. Other businesses could be sold. The troubled Unicredit from Italy and Commerzbank from Germany are seen as under the most pressure to deleverage and undergo divestiture of assets. Expect the approach to be copied by lenders across Italy, Spain, and Germany, the internal banker sources described. The shrinkage strategy will surely prove controversial with politicians and regulators when bankers lend less still to customers, tossing a major damper on the EuroZone economic recovery. Better stated, a damper on the EU Economy already in recession. EU Commission Barroso emerged from a disappointing session, in which no specifics on the EU bank recapitalization plan were offered, since none existed. Much talk had come on debate between the US and EU finance ministers over leverage used to replenish both the stability bailout fund and implicitly the bank rescues. The regulator body, the European Banking Authority, is prepared to set a higher bar than expected at a 9% ratio of core Tier-1 capital to assets for banks across the continent. A deadline of six to nine months would be set for forceable recapitalization by governments, unless the banks completed the process on their own volition. Investors are extremely unwilling to commit to fresh equity injections, knowing the new money would be soaked up by sovereign debt writedowns. This is a very important point. Rescues go down a black hole!! Such is the nature of collapsed Ponzi schemes, as is the entire Western economy, built upon debt and derivatives. The public might be treated to more stress tests. Some analysts expect them to contain some actual stress, but it is unlikely. Watch for European banks to mention commercial mortgage bonds and Prime-X assets, the prime mortgage bonds whose values are diving down. See the Bloomberg article (CLICK HERE).
 
◄$$$ THE EURO CENTRAL BANK BLOCKED A DEXIA BAILOUT. SOLUTIONS ARE HARD TO COME BY. THE TROIKA IS NOT WORKING SMOOTHLY, AS THEY BATTLE EACH OTHER AND BLOCK MOST ACTIONS. THE EURO-CB WANTS TO SCUTTLE THE DEXIA PLAN, AS MOTIVE IS UNCLEAR. RISK TO MEMBER SOVEREIGN DEBT OR PRESTIGE OF THE CENTRAL BANK COULD BE THE FOCUS. $$$
 
The Euro Central Bank has urged the Belgian Govt not to backstop the Dexia interbank deposits. They cite a conflict with the European Union charter. That sounds silly if not absurd, since almost all purchase by the EuroCB of impaired sovereign bonds goes against the same charter. The Brussels officials were warned to avoid providing guarantees on debt maturing within three months because it risks interfering with the monetary policy. The actual risk, and at issue might be the sovereign debt from member nations, which could suffer downgrades. Also, the prestige and conviction in the EuroCB itself could be subject to tarnish. The central bank is operating as an exclusive hedge fund, a wrecked one at that. The ECB stated that the planned debt guarantees for Dexia might last as long as 20 years, inconsistent with European Union guidelines for temporary support. These guys are all clowns who could not fix a piece of furniture.
 
◄$$$ GREEK DEBT DEFAULT IS A LOCK, AN ASSURED EVENT. THE ONLY QUESTION IS WHEN AND THE RESPONSE WHEN IT HITS. THE INTELLIGENT PLAN. THE DULLARDS WILL BE SURPRISED AND TAKEN OFF-BALANCE. THE FORECAST OF RECESSION HAS INCREASED TO THE DEPRESSION LEVEL FOR POCKETS OF EUROPE. $$$
 
Ernst & Young is one of many consulting firms that regard Greek Govt debt default as unavoidable. The business services group in their quarterly EuroZone forecast added that the chance of recession in the EuroZone has increased sharply. Rising financial distress and a stall of economic growth presents a real danger that quick events will overtake sluggish policymakers. E&Y forecasts a 35% chance of the EU economy falling into recession. They believe the key question is when a default occur and how it will be managed. The Ernst & Young report concluded, "Authorities have been slow in trying to tackle the problems facing Greece, Ireland, and Portugal. It was hoped that the rescue package for Greece announced in July would bring to an end the long period of indecision and uncertainty. The EuroZone sovereign debt crisis shows no sign of abating. The European Central Bank should lower interest rates to below 1%, should the EuroZone fall back into recession. It is the only institution with some room for maneuvre since governments cannot or do not want to relax fiscal policy." Expect a depression in most PIGS nations as they are forced to default on debt, kicking and screaming. Where debt is restructured, expect powerful inflation, as the solution is merely a trade to a different monster. See the BBC article (CLICK HERE).
 
◄$$$ A EUROPEAN FINANCIAL SYSTEM BREAKDOWN IS VERY CLOSE, PERHAPS NOT IMMINENT. BUT THE DAY IS APPROACHING FOR A SUDDEN MELTDOWN. ALL CORNERS ARE WEAKENING ON THE PERIPHERY, WHILE THE TROIKA FAILS TO LEAD OR GUIDE. $$$
 
Expect an imminent end of the EuroZone and a grand shock wave to emanate from the European continent as debts default and banks topple, taking down the economy. The consensus is growing. The Euro currency is a dead man walking, nevermind its occasional dance step. The Euro is beyond rescue. The sovereign debts are growing more toxic, not less. Recall the Greek Govt short-term bond hit 10% on yield. The bond markets are more reluctant to fund new and rollover debt. The main issue in debate is how long the hopeless rearguard action of European governments and the European Central Bank can the system going. It is running on fumes. A Greek default will trigger an immediate magnitude 10 earthquake across Europe and its banking structures, leading to the failure of several financial firms. The worst pain will come to those firms with big exposure to Greek Govt bonds, who will be forced to write off their entire investment.
 
Some Southern European nations will have to halt paying salaries and pensions. Many automated teller machines (ATM) in the country will be drained within minutes during a cash crunch. At the flash point all Greek teachers, doctors, police, army, ministry, and local government employees will not receive a salary. The shock waves will reverberate and outrage will hit the streets. The protests and disorder will coincide with a string of bank failures, which in my view will go out of control quickly, and spread to London and New York. The entire supply chain will be put at risk, built on credit. The Western financial system went insolvent in late 2008. Sometime in 2012, expect the final impact to be felt in the form of debt defaults, bank runs, bank failures, and supply chain disruption. The politicians seem helpless. The bankers seem frozen. See the Zero Hedge article (CLICK HERE).
 
EUROPE DROWNS IN DISCORD
◄$$$ THE RETURN OF THE DEUTSCHE MARK CURRENCY HAS BEEN ANNOUNCED FINALLY. ITS VALUE WILL BE EXACTLY WHAT IT WAS AT THE EURO CURRENCY INCEPTION IN 1999, AT TWO D-MARKS PER EURO. THE P.I.I.G.S. WOULD NOT LEAVE, SO GERMANY WILL. LOOK FOR THE D-MARK TO SERVE AS A TRANSITIONAL CURRENCY DURING A CRISIS FILLED TIME. IT SHOULD TRANSFORM INTO THE NORDIC EURO LATER ON, AS THE PETRO-DOLLAR IS PHASED OUT. $$$

The return of the Deustche Mark is finally coming, long anticipated by intrepid analysts and informed types. FT Deutschland has given the announcement. The Euro will be convertible to 1.95 D-Marks in exchange rate for preliminary purposes, called When Issued. As the EU bond bailout bank mess blossoms into a full-blown erupting boil, as politician hands are tied, the German finance ministry has leaked the return launch of the D-Mark. Many in high places, speaking freely, believe the Euro rescue has turned into a farce. Ironically, the 1.95 rate is exactly what it was at the Euro currency inception. The trade weighted FTD index will be valued at 4.11 D-Marks. The majority of the German population was openly in opposition to the Euro from day one, but the supra-nationals imposed it, with full agenda in my opinion to cause destructive damage. So stick a fork in the Euro, cooked, and prepare for a wild ride on the USDollar. It might rise and rise, then die suddenly, banished as a rejected currency unable to compete, crippled by toxic fundamentals. Large portions of narco money is locked in USDollars, both by USGovt agencies and rival cartels (like Mexico, Colombia, and Triad). See the Zero Hedge article (CLICK HERE).
 
My theory has been consistent and simple. If the weakest PIIGS would not depart the Euro, for whatever reason, then the strongest Germans would. The southern nations will become bagholders. The Netherlands, Austria, Luxembourg, Liechtenstein, and Finland will struggle to keep pace with Germany, either join them or fend for themselves with former native currencies. They will not join the ruinous PIGS pen. The banker power was too great for the badly impaired PIIGS nations to leave the Euro and revert to their native Escudo, Punt, Lira, Drachma, and Peseta. The big Euro banks did not wish to see a slaughter in numerous bank failures, since reversion would go hand in hand with sovereign debt default and restructure. They have also avoided necessary forced bond writedowns, since doing so would reveal numerous dead insolvent banks. So Germany will be leaving the Euro.
 
My theory is that the D-Mark will act as a transitional currency, to enable movement away from the crippled Euro, and to establish a strong core European currency, a stable base. The Germans are sick of dealing with the USDollar as much as with the Euro. The D-Mark will be used for both trade and reserves, without doubt. Notice how the Swiss Franc was not desired by the Swiss bankers in the reserve role. More importantly, the new D-Mark will make the USDollar quit relying upon Euro weakness to find lift in valuation. The US DX index rises only because of European turmoil, not from fundamental strength in the USGovt or USEconomy. That encourages Wall Street sabotage of Europe. With certainty, the D-Mark will rise in value rapidly, like up 20% to 25% in its first several months. That will interfere with German trade, so they will be highly motivated to complete the transition further, to a legitimate hard asset currency that will offer stability, even if disruptive to the US & UK sphere. The new German currency will not rise as much as the USDollar will fall in rejection. Trade deals have already been forged with Russia and China, in addition to the tagalong Persian Gulf. The final step will be for the D-Mark be transformed into the Nordic Euro, the gold-backed currency that could also have a crude oil component. The Nordic Euro is the USDollar Killer. In the next couple months, watch for Saudi and OPEC posturing relative to the D-Mark. If Saudi oil can be purchased in either D-Mark or USDollars, then the end of the Petro-Dollar is near. The Persian Gulf security umbrella is increasingly held by the Chinese, with Russian support. The fabric of that security is woven in trade, not in military equipment.
 
◄$$$ PIPPA MALMGREN PROVIDED COMMENTS ON GERMANY AND EUROPE. THE EURO DOOM INSIDER INFORMATION COMES ACCORDING TO WHITE HOUSE ADVISOR WITH LONDON TIES. SHE HAS PART OF THE PICTURE. $$$
 
Malmgren paints an interesting credible picture, with news to expect in the coming weeks. See her website article (CLICK HERE and HERE).
  • Greece defaults on its sovereign debt.
  • Germany protects the German banks but other countries like France cannot protect their banks. Multiple sovereign defaults and bank failures follow. The global banking system suffers a major crisis on payments. Derivatives are particularly at risk in terms of operation and execution.
  • The Euro currency falls in value especially against the USDollar.
  • The Germans announce they are re-introducing the Deutsch Mark. They have already ordered the new currency and asked that the printers hurry up.
  • The Euro falls even more on any news that Germany is withdrawing from the European Monetary Union.
  • Legal wrangling addresses the legality of Germany's decision. Resolution takes years.
  • Germany insists that the Euro continues to exist even they do not use it any longer. They emphasize that European unification will continue and suggest new legal instruments to strengthen European Unification including new EU Treaties. 
Pippa concluded, "The European project will move forward much more robustly once everyone finally realizes that the Euro in its current format is unworkable. Nothing stops Europe from moving forward other than public opinion. The fact is that Germany's social contract is very different from the social contract between the citizens and the state in any of the peripheral countries. What is required to satisfy Germany brings riots in Southern capitals. What is required in Southern capitals breaks the social contract in Germany." Excuse the Jackass, but something is missing in her viewpoint, like Germany divided, like DeutscheBank (the giant flagship bank) dying a horrible death or requiring Herculean efforts to recapitalize it, like the full impact chain reaction of dead European banks affecting the German Economy as customers die off, like a critical camp in Germany waiting for the right moment to announce a major alliance with Russia and China. Some German banks like Commerzbank will fail. To be sure, the introduction again of the D-Mark will cause great turmoil, and lock the political players in a hornet's nest. However, the D-Mark will arrive. It must or else the German financial system implodes. National interest will indeed demand self preservation to kick in.
 
The next theme in Europe will be de-centralization, in direct conflict with Pippa's view on the project. Nations will form groups of strong and weak, but separately. Pippa makes a great analogy in a mountain climber who must cut the rope that supports other climbers below, or else all fall to their deaths. Unfortunately, those climbers are not to be revived in the project. The union preserved is the banker goal, since exploitation would continue. Tremendous unknowns out there, huge unintended consequences too. Note her connection to the Council on Foreign Relations. If that organization is badly weakened, it would be good for liberty in the Western world.
 
◄$$$ THE SEQUENCE OF EVENTS CENTERING ON THE GERMAN PARTICIPATION IN THE STABILITY FUND REPLENISHMENT IS FULL OF DRAMA. IT WILL RESULT IN THE END OF ANGELA MERKEL AS CHANCELLOR. THE BANKERS WILL PULL THE REINS ON THE POLITICIANS. $$$
 
First, the German Parliament voted to extend and expand the giant bailout fund, known as the European Financial Stability Facility. In short, the politicians voted, but the bankers will delay and say nein (no in German) eventually, which is what happened. The bankers told the Members of Parliament to stop the madness, or else Germany would sink. The growing consensus among the enlightened was in funding the EFSF fully, that Germany would be on the hook by an unprecedented amount of money. On September 29th, the German lawmakers voted to approve expanded powers for a European bailout fund. Chancellor Angela Merkel urged the move, calling it critical to ensuring economic stability on the continent. She actually demanded a renegotiated July agreement with Greece on a second bailout, based upon the findings of an inspection team. The stock markets rejoiced, but over nothing, as usual. Merkel hung her hat on the bailout, but it will end her career. Her party has been dealt horrible defeats in one election after another. The German people want no more of bailouts, period. The goal for the delayed bailout was expansion of the EFSFund to reach $600 billion. See the Washington Post article (CLICK HERE).
 
◄$$$ THEN GERMANY SHOT DOWN DREAMS OF A EUROPEAN SOVEREIGN DEBT CRISIS SOLUTION. BUT WITHIN DAYS THEY AGREED AND MADE NICE. FRANCE & GERMANY SHOOK HANDS ON A WHOPPING 2 TRILLION EURO RESCUE FUND. THE BIGGER FUND WAS BLESSED AS GOOD, HAILED AS FUNCTIONAL, ONLY TO BE SHOT DOWN. $$$
 
The intelligentsia of Germany shot down the expansion plan as quickly as it was cobbled together clumsily. Professor Ansgar Belke of the DIW Institute said that any leveraging of the EFSF would be poisonous for France's AAA rating and would set off an uncontrollable chain of events. A leveraged EFSFund was seen as venemous. Swift severe consequences would come if EuroZone leaders decided to leverage the EUR 440 billion fund into the trillions of Euros. The politicians hailed a comprehensive solution, but did not invite German bankers to the meeting. At issue is first loss guarantee. The premise of AAA ratings for a large number of European nations would be cast away, causing instability. Even the German Govt impeccable AAA rating would be put at risk. But then suddenly, France and Germany announced with fanfare an agreement on EUR 2 trillion in the rescue fund, as heads of state dominated the discussions. That amount was cited as the implied size of first loss guarantees. Specifically the deal included a five-fold leverage feature to increase the fund's capability. The deal also circumvented a Euro Central Bank concern, that it not become a bank insurer. The announcement resulted in a nice rise in the Euro currency, but based on hope and hot air. EU Commissar Jose Barroso blessed the deal, but in doing so lost what little credibility and stature he had left.
 
The leaders of France and Germany hoped to agree on a deal that would calm market nerves going into the G-20 summit in Cannes early in November. The objective has been to ring fence the inevitable Greek debt default, which is impossible due to strong links to French and other banking systems. The hastily drawn proposal accomplished only one thing in the Jackass view. It provided a solid estimate of EUR 2.5 trillion minimum on the bank bailout requirements. More would be needed in further recapitalization. Meanwhile, the French Govt bond yield is rising. Then a slam came from both as did Royal Bank of Scotland and Citigroup, which each took potshots at the entire plan. Even Willem Buiter put forth the metaphor that did damage, calling the solution not a big bazooka but a small pea shooter, entirely inadequate. Allianz has been identified as a shorting candidate, badly exposed on default insurance contracts. See the UK Guardian article (CLICK HERE) and the Zero Hedge article (CLICK HERE).
 
◄$$$ LASTLY MERKLE POSTPONED THE MEETING, RESCHEDULING THE BANK RECAPITALIZATION PLAN FOR THIS WEEKEND, BUT POSTPONED. A 7-DAY MARATHON SEEMS PLANNED, BUT IT MIGHT END SUDDENLY WITH NO ACTION TAKEN. THE GERMAN BANKERS HAVE FINALLY SAID NEIN, AND AN END TO THE CHANNEL OF FUNDS TO THE SOUTH HAS COME TO AN END. $$$
 
The entire process has played out repeatedly. The politicians desperately make deals, since beholden to the biggest banks. They sign accords, but hope their governments and bankers follow suit and endorse the plans, finally to ratify them into law and action. The German bankers, at least a few very powerful bankers, do not seem to be in the forefront, yet they wield powers. They have said NEIN, enough, no more. A German banker with intimate knowledge of their politics summarized. He said, "The Bundestag nailed Merkel to the cross, refusing her the authority to negotiate any deal with the French and EU. She cancelled her Government Speech (State of the Union) and the EU top summit is off for Sunday, postponed to Wednesday. If she forces a separate broader vote on her authority, she will be tossed aside in 'No Confidence' and then she is done, career finished. Greece is definitely going bankrupt. This confirmation comes from deep inside the Greek belly." With each formal announcement of a delay to the regional Summit, or a delay to a German banker conference, or a delay that puts in doubt previous accords, they mean the Merkel career has ended. It is that simple. She has risked her career on the bailout of the biggest Euro banks, which is her constituency, not the people. She will be tossed aside, and that will signal an open road to a new Deutsche Mark currency, and movement toward the alliance with Russia and China that has been in the works, developing in secrecy.
 
◄$$$ EXTREME HEIGHTENED CONFLICT BREWS BETWEEN GERMANY & FRANCE. SARKOZY KNOWS THAT FRANCE WILL BE FORCED TO JOIN THE P.I.G.S. APART FROM GERMANY. ABUSES ARE BEING IDENTIFIED. GERMANY HAS LOST PATIENCE, AND HAS FORGED TIES WITH RUSSIA. THE NUCLEAR SECURITY LINK HAS COME FROM RUSSIA TO THE EAST. $$$
 
Much intrigue has entered the room. Major junctures are being negotiated. No turning back, as France has lost its bid to remain with Germany. What follows is a summary from messages by a German banker whose contacts touch the banks, security networks, regional alliances, and high level figures. He wrote, "A serious disagreement between Paris and Berlin over the rescue fund has come. The French betrayed the rest of Europe into agreeing to the publicized EU rescue fund, against the will of many important figures in Europe. It has become apparent that they wanted to drain those funds in order to support the French banks, understood to be technically and practically bankrupt. This is the stuff that wars are started over. A while back, Sarkozy tried to bully Berlin but was rejected and badly humiliated. The French President offered Berlin the French nuclear umbrella for unconditional support. The reply by Berlin shocked them, as high stakes chess proceeds. They stunned Sarkozy by telling him (and France): Why do we need your nuclear umbrella if we have already Russia's? It is clear who has threatened Germany, which has been made clear by means of missiles easily directed at Central Europe. If anyone threatens German,y they threaten Russia. The German Bundesbank holds about 92% of French government debt. Germany de-facto owns France." Wow!! The threat to Germany is from an American ally, which has made clear their missiles reach to Central Europe.
 
France in full view has no austerity plan, equally arrogant as the Americans. Instead, Sarkozy wants to tap the EFSF to bail out French banks without political fallout. Tremendous tension exists between Berlin and Paris, which grows every week. The cords that link Germany to Russia are not only trade but nuclear security. It has come to crunch time for excluding the French and casting them into the PIGS pen. They resemble the PIGS too much, having weakened themselves fatally as PIGS creditors. They might have earned the Chief Pig role. The French have betrayed the Europeans generally and the Germans specifically, acting like prima donnas. Their arrogance has finally caught up to them. Ambrose Evans-Pritchard proposed this spring a Mediterranean Central Bank to be located in Marseilles France. It could be the central bank for the PIGS nations. It is a great idea really, but a grand insult and banishment for France. No longer can France serve as the German squire to carry bags to meetings. The French banks are far too broken, their leaders too beguiling. The process of seeing France banished to the PIGS pen will be full of intrigue, as well as public outrage.
 
◄$$$ THE EUROPEAN UNION HAS MUCH BIGGER PROBLEMS THAN FUNDING THE STABILITY FACILITY FOR THE BANKS WEIGHED DOWN BY TOXIC SOVEREIGN BONDS. THE PROBLEMS RELATE TO HUGE DEBT, HUGE LEVERAGE, HUGE FINANCE NEEDS, AND HUGE UNFUNDED LIABILITIES.$$$
 
Some excellent analysis offered by Graham Summers of Phoenix Capital Research on the European sovereign debt crisis and the bailout fund usage. He presents great points. Summers believes the European Financial Stability Facility is given far too much attention as the nexus of any solution. The problems in Europe are enormous, intractable, and worsening. They parallel the changes in the United States and United Kingdom. Summers claims the stability fund is irrelevant, since the problems are too large to contain a solution. He makes logical sense. Another round of bailouts or an expansion to the emergency stability fund will not matter. The problems in Europe go way beyond Greek debt or French banks. He argues that the entire European banking system is primed for a systemic collapse. The Jackass agrees totally. My belief has been that EUR 4 trillion would buy time for the Euro banking system, but not fix much the insolvency and imbalances. The same is true of the US banking system. The same is true of the British banking system. The West is operating with a failed banking system and a failed monetary system, both integrally tied. Summers presents the following four postulates.
 
#1: The entire European banking system is leveraged at a 25:1 ratio, nearly twice the US leverage levels. Such leverage is unsustainable. The smallest (4%) decline in asset prices wipes out all equity, in a brutal display. Their leverage is almost as great as seen with Lehman Brothers (30 to 1). The actual level of leverage is much higher than reported, since the asset values the banks claim are very generous, estimated themselves. A bust comes.
#2: European financial corporations collectively operate with debt equal to 148% of the total European Union GDP. The financial firm debt levels in Europe exceed the size of their entire economy. Over $23 trillion in debt sits on the balance sheets of European financial firms. Add in corporate debt from industrial, retail, property, shipping, airline, and other firms, and the leverage is much greater. Add in sovereign debt, household debt, credit card debt, and the leverage is insanely higher. Add in off-balance sheet debt, like hidden toxic assets and derivatives, and the situation is hopeless. Bear in mind that the EU with its $16 trillion GDP and 360 million population is the largest economy in the world. A bust comes.
#3: European banks have staggering rollover finance needs by the end of 2012, of between 15% and 50% of their total debt. They must roll over a huge amount of their debt in the next fourteen months. That does not count new debt, only maturing debt. That does not count new debt to fund recapitalizing the banks. Even the supposedly strong German banks must raise over $140 billion in new capital alone. It is difficult to raise capital to fund bonds when bank runs occur, when bond auctions fail, when street riots are in the news. A bust comes.
#4: Most European nations have enormous current unfunded liabilities, for pensions, healthcare, and welfare. They cannot meet the obligations without defaulting or cutting benefits. The average EU nation requires over 400% of its current GDP sitting in a bank account earning interest, in order to cover the future costs. This calculation comes from Jagadeesh Gokhale, Senior Fellow at the Cato Institute, former consultant to the US Treasury, and former advisor to the Federal Reserve Bank of Cleveland. He has worked at a high level on the inside studying sovereign finance. A bust comes.
 
Summers concluded, "Folks, the EFSF, the bailouts, China coming to the rescue, all of that stuff is 100% pointless in the grand scheme of things. Europe's entire banking system (with few exceptions) is insolvent. Numerous entire European countries are insolvent. Even the more rock solid countries such as Germany (who is supposed to save Europe apparently) have real debt to GDP ratios of over 200%. The Germans still have not recapitalized their banks. Again, it does not matter what Sarkozy and Merkel say. It does not matter how much leverage the EFSF gets. Europe is broke, end of story. Those investors who get suckered into betting this mess will work out well are very likely going to lose everything. The impact of the fallout from this will make 2008 look like a joke. The EU is the largest economy in the world. So if its banking system collapses (and it will), we are facing a full-scale global financial meltdown, that even the IMF has warned about. What happened in 2008 was literally just the warm up. The real deal is coming in the next 14 months. It is going to involve corporate, financial, and sovereign defaults."
 
◄$$$ A CHAPMAN SUBSCRIBER REPORTS THAT WALL STREET KILLER GAMES WITH EUROPE ARE ACTIVELY AT WORK. THE WALL STREET BOYZ ARE APPARENTLY BLACKMAILING THE EUROPEAN BANKERS WITH OPTIONS TRADES, FAKE DERIVATIVES, AND FOREX POSITIONS, USING HEAVY LEVERAGE. THEY WISH TO EXPLOIT THE CRISIS, SURELY TO MAKE IT WORSE IN THE PROCESS, BUT PROFITABLE TO THE FIRMS. $$$
 
A well-informed client of Bob Chapman, with apparent connections from Wall Street, has shared some ugly information. The note was a little obscure, so it was cleaned up into more readable form, without changing the content. It read, "Hi Bob, Rumor has it that Geithner is blackmailing the top EU big boys, the Elite food chain. Something along the following lines. The Wall Street with the USFed and Goldman Sachs and JPMorgan (as in fear, porn, supernova) are somehow writing put options on the Euro. Then they are somehow using these Euro put options as leverage to create fake derivatives on the Japanese Yen. These two daisy chained maneuvers above somehow temporarily bail out JPMorgan and Goldman Sachs jointly, themselves roasted chestnuts, and their combined exposure to the Greek banking armageddon." Keep in mind that writing Euro put options is a bullish leveraged Euro trade, but the key is that it raised funds. By linking to the Yen currency, they are putting the global monetary system at risk for their exploitation. Typical Wall Street.
 
The global financial crisis is badly misnamed. It is a global financial war to defend the USDollar against attacks to kill it. It is a war against wealth in legitimate bond instruments, and against wealth hiding in narcotics structures (not sanctioned by the USGovt). It is a war by the USGovt to confiscate wealth that seeks to escape the black hole and its power. It is a war to undermine organized attempts to create an alternative trade system not dependent on the USDollar, where trade and oil sales would be denominated in other vehicles. It is a war to avoid Wall Street and London predatory activity that utilizes manipulative tactics to move price and exploit with leveraged instruments. It is a war against Gold & Silver, the true bonafide effective safe havens, actual real money. The vile tactics used by the US & UK bank masters, in the follow-up act after the bond fraud in the mortgage market, in the current act that centers on fraudulent derivatives, invite a powerful counter-attack from Asia and Europe.
 
Resentment in Europe over Wall Street complicity in concealing PIGS debt as currency swaps invites reaction. This is going to blow up in US banker faces before long, with some nasty gigantic whiplashes. When Greece blows up, banks in Europe, London, and the United States will fall like dominos rapidly. The Wall Street brethren have built a list of powerful enemies. The JPM and GSax tagteam make for very big targets, easier targets than people might think. See what happened to Union Bank of Switzerland, as it was killed off. The Wall Street titans are going to be at risk of having themselves made targets by extremely powerful and adept adversaries with huge resources. The potent twist this time around involves China, Hong Kong, and Arab billionaires joining forces with honest brokers players in the US, UK, and Europe to bring down those in positions of abused power who commit fraud, and act in predatory roles. As a mere footnote, keep in mind that $90 billion in Qaddafi funds was confiscated and frozen. That is one motive for the origin of the war in Libya. Other motives are to disrupt the crude oil output, and to eliminate fledgling initiatives to install a gold-backed Moslem dinar. The Germans, Russians, and Chinese observe the attacks against the currency alternative, under the guise of attacks to end tyranny and its diverse atrocities. The US & UK are clever aggressors.
 
◄$$$ THE GREEK GOVT DEFICIT ROSE 15% MORE, AS THE POISON PILLS AND OTHER AUSTERITY MEASURES MAKE MATTERS WORSE. THE PROPERTY TAX HIKE HAS CAUSED THE MOST UPROAR AND OUTRAGE. RESISTANCE GROWS. AS STRIKES HIT, CHAOS BUILDS AND DAMAGE TO PROPERTY HAS COME. RIOTS HAVE BECOME PART OF EVERYDAY LIFE. THE VIOLENCE IS SPREADING ACROSS SOUTHERN EUROPE. $$$
 
The Greek budget deficit has grown in first nine months of the year as revenues fell. This is not surprising to Hat Trick Letter followers, as the Poison Pills of austerity budgets specialize in wrecking fragile economies. They cause massive job cuts and terminated projects, with a strong trickle down effect. The Greek Govt deficit stood at EUR 20 billion (=US$26.1 billion) for January to September, compared to EUR 16.65 billion in the same period last year. Blame for the 15.1% shortfall was placed on a deeper recession, but the idiots in charge actually expect tax hikes to result in higher tax revenues. They will not. The controversial property levy will soon kick in, complete with riots in the street that already have begun from its anticipation. In effect, the bankers have attacked the vassals' land. Garbage piles in the streets from lack of collection in many parts of Athens. The budget measures have opened wounds on the body of society, as the nation struggles against resistance in the form of tax evasion. The country has been dependent since May last year on a total EUR 110 billion (=US$150 billion) bailout package from the Troika. That entity consists of the Intl Monetary Fund, the European Commission, and the European Central Bank. Other aid was given by EuroZone countries like French banks.
 
The embattled Athens stronghold admits it will run out of funds to pay salaries and pensions in mid-November without the bailout money. Expect the default around that time. In order to qualify for the funds, Greece has had to push through a series of austerity measures, including salary and pension cuts in the public sector, and repeated tax hikes. All will make the situation much worse and give the downward spiral momentum. Some ministries have walked off the job in protest. Strikes like with ferries, lawyers, tax collection, customs officers, state hospital workers, teachers, and bank workers have been planned. Chaos builds. Greeks have hit their limit. See the Yahoo Finance article (CLICK HERE). When the riots hit Germany, it is game over and chaos will reign supreme on the continent.
 
My theory from the start has been that the bank bailouts in Europe would continue until the popular protests became broad and turned violent. The process has accelerated. See Portugal and Spain after Greece. Most violence is centered in Athens and Madrid and Lisbon so far. Some enormous anti-austerity rallies have come to shake Portugal, also stricken by the financial crisis. Organizers estimate an attendance of at least 130,000 in Lisbon and 50,000 in Porto in Portugal. The people are angry and demonstrate. The politicians will find new bank bailouts difficult to approve. See the RoarMag article (CLICK HERE).
 
CURRENCYS BRACE FOR SHOCKS
◄$$$ THE CHINESE GOVT ANNOUNCED AN OFFICIAL BAILOUT OF THEIR BIGGEST BANKS IN THE FORM OF A STOCK PURCHASE PROGRAM. THE RUIN OF MONEY CONTINUES WORLDWIDE. MARKETS REFLECT GOVT POLICY TO AN INCREASING DEGREE, AND LESS TRUE VALUE. THE BEIJING LEADERS REACT TO MARKET DISTRESS, WHILE THE ECONOMY COOLS FROM A TORRID PACE BUT YET IS STRONG. $$$
 
The Chinese Govt has taken steps toward its own bank and financial market bailout. Capital markets are increasingly reflecting government policy more than inherent actual value. They are all distorted by massive interventions and new money creation. China will join the bailout parade, but to a lesser extent. This spring they provided ample funding for the regions. Beijing has decided to purchase more shares in the nation's biggest banks, in order to shore up confidence in the slowing economy. Central Huijin, the domestic arm of their sovereign wealth fund, will buy the shares to help stabilize the pillars of their financial system. After the Chinese stock market closed at a 30-month low, the move will work to restore confidence in equity prices and the economy. Less an indication of profitability, employment, income, growth, or price inflation, stock market valuations are driven by something other than capitalism even in China. The growth story in the Middle Kingdom remains on track, although growth is less robust. Their problem has been the flight and movement of fast money from the stock market, some wreckage in the property market, and associated bank sector damage. The Western economic slowdown has hurt them to some extent. Price inflation is running at three year highs, and debt levels have expanded. Bank stocks have been the target of sellers, who must scramble to cover. The government through Huijin is already the majority shareholder in all major Chinese banks. The unstated goal is to halt the roughly 30% slide in bank stocks in recent months. The Chinese Yuan currency continues its slow upward climb, to confound domestic investors, to harm export industries somewhat, and to render the USGovt lawmakers fools for their currency charges. See the Zero Hedge article (CLICK HERE).
 
The data shows China GDP growth at 9.1% for 3Q2011, industrial production of 13.8%, retail sales up 17.7%, and fixed asset investment up 29.4%, all quite strong. The United States would be ecstatic to have such economic data, yet the critics call the data evidence of a stall or possibly an imminent crash. Those who say China is stalling badly are out of touch with reality. Challenges remain fixed. Their export growth slowed to the slowest pace in seven months. As the Yuan gains strength, more headwinds will be faced. The total trade surplus fell to $14.51 billion in September from $17.76 billion in August. Domestic demand is still quite strong, as the slowdown in import growth was driven mainly by weakening purchases from companies processing goods for re-export as final finished product. Demand for goods in domestic consumption remained strong. Imports rose to $155.2 billion, just below the August record. Imports rose 20.9% in total, less than forecast. Purchases of copper climbed to the highest level in 16 months as lower prices lured traders to place orders and replenish stocks.
 
◄$$$ THE CHINESE ARE VERY DISTRACTED BY DOMESTIC EVENTS AND PATIENT ON WESTERN FOCUS. DEVELOPMENTS ARE HAPPENING SLOWLY. $$$
 
The Jackass has a theory to explain certain slow developments. China has two major issues right now. 1) Their system is breaking down slowly, but not anywhere near as badly as in the West. So they are tending to their banks and financial markets, dealing with regional governments, and holding the fort during an escalating trade war with the nitwit desperados in the United States Govt. 2) They see the US & UK & EU as in ruins, with momentum building in the pathogenesis. The breakdown is total in the West, as events demonstrate absent leadership, and worse, absent solutions. The Chinese have chosen to stand aside, take little action, talk less, and let the bust inevitably continue. So they are content in buying $1600 to $1700 gold and $30 to $33 silver. What the American observers do not know is when the supply is gone at these extremely attractive bargain prices. The Chinese are content to also use the back door. Their purchase of discounted PIGS sovereign bonds is soon to pay off handsomely in asset seizure. My gold trader source told me several months ago that they will take central bank gold directly later on. Later on is coming soon. He knows what he is talking about because he was in all likelihood involved in the counsel to purchase discounted PIGS debt. Some buyers were his clients.
 
◄$$$ THE USGOVT DEBT IS EXPECTED TO SURPASS THE SIZE OF THE ECONOMY BY END OCTOBER. THE UNITED STATES WILL THEN HAVE A 100% DEBT / GDP RATIO, LIKE THE INFAMOUS P.I.G.S. NATIONS. FEDERAL DEBT WILL OVERTAKE THE $15.012 TRILLION ECONOMY IN SIZE. $$$
 

 
◄$$$ US-SENATE HAS EMBRACED AND TRIGGERED A FINANCIAL TRADE WAR WITH CHINA, VERY UNWISELY. CHINA IS A CREDITOR NATION. CHINA IS A PRODUCTION SUPPLIER. THE CHINESE YUAN HAS RISEN VERY SLOWLY FOR SIX YEARS. CHINA WILL NEXT LOSE PATIENCE WITH THE USGOVT THAT CANNOT DEAL WITH ITS OWN PROBLEMS, AND CASTS GRENADES OVER THE TRADE WALL. THE PLANNED FULLY MOTIVATED LABOR ARBITRAGE HAS BACKFIRED TO CONTRIBUTE TOWARD USECONOMIC AND FINANCIAL RUIN. THE AMERICAN LEADERS SEEK A SCAPEGOAT, BUT PRESIDENT OBAMA DOES NOT PUT HIS FULL WEIGHT BEHIND THE GRANDSTAND GESTURE. FEW SEEM TO REALIZE THAT A HIGHER CHINESE YUAN CURRENCY MEANS HIGHER IMPORT PRICES ALL THROUGH THE US-RETAIL CHAIN. $$$

Trade wars if continued lead to hot wars invariably. The USGovt cannot come to grips with its own failed policy, and insists on beating the Chinese partner. The relationship has gone from partner to ally to rival to opponent to adversary in a steady progression. Few realize that the Most Favored Nation status granted in 1999 was led by Wall Street. They wanted to lease the Chinese gold & silver treasury. They made the Chinese promise to recycle trade surplus into USTBonds, which permitted debts without controls. In 2002 and 2003 alone, the US corporations invested $23 billion in plant & equipment. By 2006 and 2007, almost 65% of all Chinese trade surplus was derived from US corporate subsidiaries operating out of China. So why blame China for a policy that has come to fruition, led by the US leaders? This is the basis of lunacy, compounded by the fact that the Chinese own over $1 trillion in USTBond securities. The United States is biting the hand that lends it money and fills its shelves. This is stupidity. The USCongress seeks votes and a scapegoat for much of its dumb policies, as members seek votes that tap into citizen anger. This is shallow and destructive. The entire process invites backlash. The trade with China was originally designed, and continues toward the exploitation of cheaper Chinese labor, with full awareness of the cost advantage. The US leaders all across the spectrum hailed the industrial shift to China ten years ago as a low cost advantage that would aid the USEconomy. It was pure labor arbitrage then, and remains pure arbitrage, with ruin as its outcome. The Jackass thought they were stupid then, and would cause a systemic failure in the United States from lost legitimate income. That has come to pass exactly.
 
The US Senate passed a bill aimed at punishing China for maintaining with motive a low Yuan exchange rate. It is named Senate Bill 1619. The Chinese officials warned the measure risks damaging trade relations. The aggrieved US companies would be permitted to seek duties to compensate for misaligned currencies. The legislation requires them to identify Chinese goods rendering damage from an artificially undervalued Yuan. Governments that undervalue their currencies and fail to take corrective action would face penalties, including increased dumping duties, and a ban on federal procurement in the United States. The bill must pass the House of Representatives in order to become law. The lower House is not in favor of the bill. House Speaker John Boehner has called the bill dangerous, and works to prevent the bill from making progress into law. He does not wish to risk a deeper trade war. The Yuan has made great gains since 2005, up 35%. In just the last year since mid-2010, it has appreciated 10%. The Chinese are blamed for slow progress, as they impede a quantum leap in value. USFed Bernanke shows his ignorance of economics. He believes the failure to allow faster gains in the Yuan against the USDollar has impeded a shift in demand toward emerging markets that would bolster the global economy. What a blockheaded viewpoint! Instead, a higher Yuan would shut down one third of Chinese industry, cutting down their income levels like with a swift sharp sword. Secretary Treasury Geithner shows his naive amateurish ways, by claiming 10% appreciation in one year is inadequate. That is highly disruptive. He must not comprehend the profit structure of the Chinese export industry either. These are truly hack economists occupying important positions in US banking. They care about appearance.
 
The various ministries inside China naturally resist the entire protectionist notion. Their foreign ministry claimed, "This proposal in the name of so-called currency misalignment is protectionism and a serious violation of World Trade Organization rules, and will not be able to resolve America's own economic and employment problems." The Chinese Govt limits currency conversions for investment purposes and purchases USDollars to slow the Yuan advance, thus preserving the competitiveness of their export trade. The Yuan is not fully convertible, but progress has been made every single year in that direction. The Peoples Bank of China cited risks to bilateral trade and the global recovery. A perennial champion of demagoguery has been Senator Charles Schumer, who has proposed similar measures against China over the past six years. All measures have failed to be put to vote on the Senate floor, partly because the concept is so destructive and laden with stupidity. The most ignorant hostile position among presidential candidates come surprisingly from Mitt Romney, my old state. He has extensive business experience and successes. With much bluster and bravado, but little common sense or foresight, he said "When people have pursued unfair trade practices, you have to have a president that will take action." One must wonder if he is aware of the enormous fixed direct investment from US firms like Wal-Mart, which owns 160 manufacturing plants in China, most built from scratch. One must wonder if short-sighted American economists and politicians comprehend that Japan has also invested significantly in China. Extensive trade between the two nations results in a grand flow of consumer products into Japan. The technology transfer has also been significant. China has quickly become a world leader in machine tools.
 
Some intelligent minds have obstructed the bill, and wisely so. Opponents believe that protectionism and trade conflicts would inflict global economic damage at a time when the US housing market cannot recover and the European sovereign debt crisis blossoms rancid. The legislation is opposed by business groups, such as the Chamber of Commerce, that say it may cause a trade dispute. Look for the proposed bill to stall in the House Ways & Means Committee, where trade legislation is controlled. Some bright minds understand that simply looking at currency manipulation misses the larger points. President Obama showed some leadership in his practical caution. He said, "China has been very aggressive in gaming the trading system to its advantage and to the disadvantage of other countries, particularly the United States. [However, laws should be avoided that] are symbolic, knowing that they are probably not going to be upheld by the World Trade Organization." Few bright lights appear among the leadership of loud anger merchants, who fail to realize higher import prices will render more harm to the USEconomy, all through the retail chain, extending to Wal-Mart. The damage would be similar to the QE2 effect from the USDollar decline. The US export trade did not pick up, as hailed, as only costs rose. There is no way out.
 
◄$$$ THE UKECONOMY HAS SEEN A SURGE IN PRICE INFLATION. AVOIDING RECESSION AND BANK FAILURES HAS ITS PRICE. $$$
 
The UK Economy has reported price inflation up notably to 5.2%, in a skein of rises. The loose monetary policy from the Bank of England has a follow-on effect on prices. The market for the peripheral European nations has seen bond yields rise in response to default risk. But in England, they rise from creeping price inflation. UK inflation rose to match a recent record high. Moreover retail price inflation accelerated to 5.6%, up 40 basis points and the highest since June 1991. The retail measure is widely used in cost of living used in wage negotiations. The BOE is the culprit, in defense of a wreck on housing and banks. Their extremely loose monetary policy is designed to ward off both recession and systemic seizures. Few realize that loose monetary policy caused the current disaster, by promoting a housing bubble.
 
◄$$$ GERMANY WILL LEAVE THE EURO MONETARY UNION AT THE RIGHT MOMENT. THEY WILL ABANDON THE COMMON EURO CURRENCY. THE DECISION WAS MADE OVER A YEAR AGO. THE D-MARK TRANSITION IN THE WORKS, THE COMMITMENT HAVING BEEN MADE. THE PRINT SHOP OUTPUT OF FRESH CURRENCY HAS ALREADY BEEN DELIVERED. LOOK FOR THE D-MARK TO SERVE AS A TRANSITIONAL CURRENCY, AS THE USDOLLAR CONTINUES TO DIE OFF, WHILE THE GOLD-BACKED NORDIC EURO TAKES SHAPE. THE PROCESS WILL BE EXTREMELY DISRUPTIVE, STORMY, EVEN FILLED WITH INTRIGUE. WATCH OUT FOR THREATS OF TERRORISM. $$$
 
Max Keiser with his usual bombastic overt manner, has announced that Germany has commited to leaving the Euro currency. You heard it here first! Except for Hat Trick Letter subscribers. My best German banker source confirmed, with details as scant as Max. He wrote, "The Germans do not want to leave, but they have to. If they do not, they die by being bled to death. The wealth has largely been drained by the basket cases to the South. The print shops have delivered the product in heavy volume over several months. The decision was actually made in April 2010, and shortly after Berlin was instructed accordingly." The German source has provided tidbits in update steadily over the course of the last few months regarding the inevitable move away from the Euro. It seems the Southern PIGS of Europe refuse to leave the Euro Monetary Union, or more accurately the European bankers refuse to permit the PIGS to depart the Euro currency. So Germany will lead an exodus from the EMU and common Euro usage. They will force the PIGS to carry the Euro alone, and implicitly invite the other Central Europe nations with strong fundamentals and balance sheets to join them. The movement will eventually become the Nordic Euro in my opinion. It demands a process.
 
The D-Mark currency will serve as a transitional device. Later, the introduction of the Nordic Euro currency, backed by a gold component with UAE bullion, backed by crude oil with Russian supply integration, will be essentially a USDollar killer. So the D-Mark will permit the transition to occur. Regional trade must adapt to the new currency. It is doubtful that Germany and Russia will conduct trade in the USDollar afterwards. Central Europe purchases great volumes of Russian energy and industrial metals. It is doubtful that Germany and China will conduct trade in the USDollar afterwards. China purchases from German a robust supply of finished industrial machinery. The integration of the Nordic Euro will be complicated. Its groundwork has largely been laid, but it requires a transition period and device. My gut tells me that Germany, along with Russia and China, will be threatened, but probably in subtle tones. Expect the United States to urge solidarity in public messages, as the Nordic Euro is proposed and slowly takes shape. Look for claims of instability and the USGovt issuing warnings of potential terrorist attack in the Eastern Hemisphere as its introduction finally arrives. For a clue, check out the Oslo bombing incident and the pursuit of their $1.5 trillion in sovereign wealth funds of Norway. US & UK banking and Petro-Dollar defense have been tied to terrorism by Anglo security organizations for decades. Check out the "Confessions of an Economic Hitman" by John Perkins (2005) for reference.. This topic is beyond the scope of the report.
 
◄$$$ THE DIRECTION OF GERMANY IS CRITICAL IN DETERMINING HOW EUROPE MOVES TOWARD THE NEXT FINANCIAL STRUCTURE. THE POLITICS WILL FOLLOW THE TRADE AND MONETARY LEADS. GERMANY WILL TURN TOWARD RUSSIA ON THE NATIVE CONTINENT, BUT FRANCE WILL BE CUT OFF. HERE IS A GLIMPSE. $$$
 
A very well connected German banker offered an opinion that integrates politics, finance, and the security developments. He has close ties from a previous role with the European Central Bank. He knows the German banker mindset, and has followed politics at the high level during his entire life. He provided a very valuable glimpse into the crux of the European directional movement, namely Germany. He said, "Someone mobilized constituents put heavy legal pressure on the Bundestag representatives, since 90% of the German people were against the EFSF [stabilization fund]. People take to the streets in Germany. The Occupy Wall Street crowed is very well educated and very articulate. They are not a bunch of marxists as was the case in the 1968 days. Helmut Schmidt, a former SPD chancellor (now publisher of Die Zeit) came out the other day and ripped the Berlin leaders to shreds, all of them including the SPD crowd. Sarkozy's unannounced visit to Frankfurt last week is unprecedented and against all protocol. He met there with Merkel who gave a farewell speech for outgoing ECB head Trichet. The fact is that Sarkozy is scared witless, since with imminent Greek bankruptcy the big French banks will go bankrupt in a blink of an eye. He wants to avoid the fallout.
 
Everybody is looking to Berlin for the solution. This is far too much for Berlin to shoulder, even if they wanted to do it. Germany has an agreement in place with Russia and China to pick up the pieces after the meltdown & implosion. However, the system has to collapse first before the political circumstances and conditions are right to proceed. France does not play a role in this scenario and Sarkozy knows that. He is faced with elections at home. If he is not re-elected, he could face prosecution for high treason. The French are known to drag their upper echelon people to the guillotine in a heartbeat. The US Fed might control the fire hydrant that supplies water, but they do not hold the nozzle at the end of the hose any longer. The situation is out of control, and the event driven scenario is taking place in an increasingly hostile and threatening environment. The politicians have lost touch with the people, which leads to extremely dangerous times. Today's protesters have cell phones and BlackBerry devices, as well as being the best educated masses ever. They might be wrong in some ways, but they are articulate. Mass collaboration is a new phenomenon most people in power do not really fully understand yet."
 
◄$$$ THE CHRONIC TRADE GAP CONTINUES TO BLEED CAPITAL. $$$
 
The August trade gap suggests a positive contribution to the third quarter GDP. That is the only good news in the entire report. The July trade deficit in goods & services was revised higher to $45.6 billion. The August trade deficit was also $45.6 billion, unchanged sequentially. The net export has come down a little, suggesting a positive contribution to the quarterly GDP number. The import numbers reflected a small decline in oil prices, but a jump in physical oil import volume. The 3Q2011 total is on pace to be a little smaller than Q2. The conclusion is the same as previous months, attesting to an imbalance never to go away. The USEconomy discharges half a $trillion annually in capital. Any recovery means a wider trade gap, since the nation lacks an adequate industrial base and must import its growth. A great case in point is the high speed railways. California has pursued the project, which should produce jobs, but not so much in the United States. The equipment comes predominantly from China. The vaunted US technology industry has turned into a net importer, although by a small margin. So has US agriculture. The United States bleeds capital, and its expansion produces foreign jobs.
 
GROWING GLOBAL GOLD DEMAND
◄$$$ SOME BIG FUNDS ARE BEING BLAMED FOR A KEY ROLE IN THE GOLD SELLOFF. NOT ONLY THE PAULSON FUND BUT LITTLE KNOWN SALIDA CAPITAL WERE BIG SELLERS UPON REDEMPTIONS BY INVESTORS. PAULSON HAS BEEN HUMBLED BUT CARRIES ON. THE UGLY SIDELINE STORY IS THAT PAULSON WAS TRAMPLED BY THE G.L.D. FUND, WHOSE MANAGERS UNDOUBTEDLY SHORTED ITS OWN SHARES AND LEFT VICTIMS AS ROADKILL. $$$
 
The giant Paulson Fund has received much unflattering attention, even blame for the gold selloff. A sliding gold price was aggravated by the fund as investors bailed out. Also, another less known fund named Salida Capital has tumbled badly, with gold part of its portfolio. It fell 37% in September, and about 50% year to date. The Toronto-based fund, whose focus is on gold, energy, and resources, has been on a death watch. Rumors of its hasty demise were refuted and fought off, as liquidation did not happen. Its chances of survival ultimately might not be so great, another matter. The fund lost value suddenly when the QE3 program did not kick in, and the USFed backed off the printing press, or at least stopped talking about it and chose to lie more effectively on stage before microphones. The money supply continues to grow leaps & bounds, making history. The Salida strategy seems on target, but the eventual market response to run of the mill hyper-inflation on the monetary side can be a game that kills many a player. They must not have been hedged in the hedge fund, a common occurrence that belies the label. Salida repeated their strategy, "With an election year looming, a sputtering economy, and a Fed Chairman who has in the past touted the ability of unconventional monetary policy to cure such economic woes, we believe the [QE3 Large Scale Asset Purchases] announcement will come. True money printing QE3 will come. Timing is the question." See the Zero Hedge article (CLICK HERE). The Salida fund might be dead when the powerful gold rise occurs.
 
The Paulson funds are under pressure and scrutiny. The Recovery Fund, Credit Opportunities Fund, and Advantage Fund under his guise are on the defensive, preparing for more month-end redemptions. Past success in gold investments have turned into losses which fed on themselves. Paulson gained prominence by huge wins against the US housing market, his net worth estimated at $15.5 billion by Forbes magazine. Bets against subprime mortgages and financial shares paid off bigtime. The fund dedicated to gold investments lost 16.4% in September, versus a smaller 11% fall for the gold price. The Paulson gold fund now boasts only a 1% gain through September 2011. Compare that to a sturdy 16% gain year-to-date in gold. The disparity is due to investment in gold mining companies, which the Jackass has warned about for three years. The Paulson Recovery fund relies upon investments that rise as the USEconomy improves. It lost more than 14% in September and is negative 31% in 2011. His stubborn belief in a recovery seems to be his emblem of ignorance in an otherwise brilliant few years. He must not comprehend insolvent systems nor cost structures. Then to the largest funds. The Paulson Advantage Fund has declined by 12.1%, down over 32% this year. The Paulson Advantage Plus supercharges with an applied layer of margin leverage. It fell by 19.4% in September. The fund is down nearly 47% on the year. The Advantage funds had attracted a crowd of pension funds and institutional investors in recent years. Earlier this year, Paulson & Co had $38 billion under management. After losses and redemptions, the sum is down to $30 billion. See the Yahoo Finance article (CLICK HERE).
 
One must not overlook the Paulson factor in his love affair with the GLD exchange traded fraudulent fund. In this respect, Paulson is lazy, careless, and possibly liable for failed fiduciary responsibility, leaving investors vulnerable to fraud since he is unwilling to own vaulted allocated accounts. Its managers most likely went into overdrive shorting the GLD shares, all very illicit and possibly illegal, taking victims and running them over with trucks outbound loaded with gold bullion inventory heading for the COMEX. The Paulson investor backs are turned, since trust is given to the GLD fund. They are run over by the shorting programs. His reliance upon GLD backfired in my opinion, which might have added, due to its size, $50 to the gold price decline. His own selling fed upon itself in a vicious cycle. Evidence is always difficult, but Paulson is well known to be the largest GLD shareholder. That is not a favorable distinction, but rather an extreme disadvantage since the fund is corrupt, a playground by the gold cartel. Paulson was trampled by Wall Street and London on an engineered sequence of ambushes following the billboard lies told by the USFed Chairman Bernanke on no QE3. The extreme bond monetization continues, the hyper monetary inflation continues, the deception continues, the ambushes to gold continue. Paulson was a victim, as investor redemptions will amplify the decline or determine the bottom before a strong recovery. Most gold investors are smart and firm, at least those who ignore the fraudulent GLD fund. Paulson ate it with both hands and suffered from food poisoning. He did not eat the real gold plate meal.
 
◄$$$ THE CHICAGO MERCANTILE EXCHANGE RAISED THE ALLOWABLE AMOUNT OF GOLD USED AS COLLATERAL. THEY ARE LEGITIMIZING THE GOLD USAGE AS CURRENCY, AND BRINGING MORE EFFICIENCY INTO THE EXCHANGE. A HIDDEN DESPERATE MOTIVE LURKS. THE EXCHANGES WANT TO ENABLE MORE PERFECTLY LEGAL GOLD CONFISCATION. $$$
 
In early October, the CME quietly validated gold as currency. In fact, they implicitly declared gold to be the most stable and powerful of cash forms. The Chicago Mercantile Exchange raised by a factor of 150% the amount of gold bullion that customers can post as collateral. In doing so, they raised the credibility of gold in the global monetary system in a legitimacy stroke. It has increased from $200 million to $500 million. The formal policy indicated that the change will allow market participants to better manage their risk and to take advantage of lower gold lease rates. What a crock!! The CME wants more gold flowing through its corrupted sclerotic veins to seize in margin calls. The largest US futures exchange loves gold. If speculators are dumb enough to use gold, instead of cash, to collateralize reckless transactions which result in margin calls, the collateral will be confiscated. Regard this lame gesture in a similar light as the USGovt asking for voluntary donations to reduce the national debt.
 
Harriet Hunnable is the CME Group managing director of metals products. She made a lame claim that placing physical gold as collateral is highly effective for market participants in a low interest rate environment. An bizarre comment came from the exchange, which assured of enough liquidity in the physical gold market for its customers to post bullion to the exchange as collateral. She said, "It really shows that people in the gold market want to use gold more efficiently. We are very comfortable with the amount of gold that we hold as collateral." Some analysts believe gold has been given additional credibility as the alternative currency. The expanded policy might lessen liquidation of gold, since it would not have to be sold. It would just be seized from the inside. Only blockhead nitwits and oafish gamblers will use gold as collateral in this manner. Expect the Shanghai Gold Exchange to follow suit similarly. What is happening is the major exchanges are desperate for gold. They are running out of gold in inventory. They want to seize as much gold as possible from the losers on the floor. They wish to see more physical gold collateral at risk in margin accounts, which would put the fate of the physical gold at the mercy of paper market manipulation game. It is tilted and always will be tilted. See the Zero Hedge article (CLICK HERE).
 
◄$$$ USMINT SILVER COIN SALES HAVE EXPLODED IN VOLUME. THE USMINT IS SELLING COINS AT A FURIOUS PACE. EACH YEAR NEW RECORDS ARE SET. THE DRAIN OF PHYSICAL METAL IS STRONG, ADDING TO THE ANNUAL SUPPLY DEFICIT. $$$
 

 
The USMint has sold 32.9 million ounces of silver this year through September. The projected 2011 physical sales number is as much as the first six years of physical sales from 1986 to 1992, which totaled 46.2 million ounces. On the first day of October, the USMint sold an impressive 737,000 Silver Eagle 1-oz coins. Put this number in perspective. In the entire month of December 2010, a total of 1,772,000 Silver Eagles were sold, while the price of silver was in the mid-$20 range. So on day #1 of October, half the previous December monthly volume was recorded. Very impressive, solid demand. Sales totals for September are tallied at a massive 4,460,500 ounces for the month. That is the highest monthly sales total since January 2011. For the year, the total will exceed the record annual sales achieved last year. This will mark the fourth consecutive year of record breaking sales for the popular one ounce silver bullion coins. See the Silver Doctors article (CLICK HERE) and the Dont Tread on Me article (CLICK HERE).
 

 
In August 2010, the Jackass bought such a coin from a street vendor selling hand painted art work. The toothless fellow spoke some English and asked what it was worth. He was told $20 or so, but hang onto it. He had no concept of investing, more interested in avoiding hunger for the day. The coin has been kept next to vitamin pills for over a year, felt and touched once in a while for inspiration. Every time, its beauty and heavy weight impresses the Jackass.
 
◄$$$ QATAR PLANS TO MAKE A GIANT GOLD INVESTMENT OF $10 BILLION. IT WILL INCLUDE SIGNIFICANT BULLION BUYS AS TRIMMING. THEY WANT THE METAL AND A SOURCE TO THE METAL. THE QATARI ROYALS HAVE AMBITIOUS PLANS THAT FOCUS ON GREEK ASSETS, SUCH AS A MINING FIRM AND AN OLD ATHENS AIRPORT. $$$
 
The Qatari wealth fund plans a $10 billion gold buying spree. The story has it that the emphasis is on acquisition of major stakes in gold producers through their sovereign wealth fund. The fund seeks to invest in diverse natural resources, but physical gold access is its stated top strategic priority. Qatar Holdings, the controlling entity for the royal family wealth, confirmed it would invest about $775 million in European Goldfields, which amounts to a 9.9% stake. The mining firm is listed in London, involved in development of the largest gold mining project in Greece. The deal should give them the working capital to proceed with production at three key mines, the most notable Olympias. That mine is expected to produce between 100,000 and 200,000 ounces of gold per year. Full production is scheduled to begin in the second quarter of next year. Qatar Holding was advised by Credit Suisse in the deal. Final formal approval for its mines from Greek authorities was given in July. Their stock price is down by 40% this year, presenting a bargain. Qatar Holdings will also provide a $600 million loan facility at 7% interest. After securing the investment, about 1500 jobs will be created in Greece. The Qataris intend to invest as much as $5 billion in Greece and are pursuing the former Athens airport at Hellenikon. The Greek Govt has offered it for sale as part of a grand privatization initiative. Subject to shareholder approval, the deal was ratified at a meeting between George Papandreou (the Greek prime minister) and Sheikh Hamad Bin Khalifa Al-Thani (the ruling Emir of Qatar). The Qataris are known to put focus on opportunities in Africa and Russia. They regard valuations of North American gold miners as too high. See the UK Telegraph articles (CLICK HERE and HERE).
 
A direct query was made to a gold trader in the Persian Gulf with broad contacts and knowledge of activity. The query was on whether the Qataris were purchasing gold bullion in any quantity as well. The answer was a firm YES. The response was, "They are indeed buying a lot of gold bullion. Qatar is also the largest shareholder in VW/Audi/Porsche and all the other brands they own. The Sheika (Sheik's wife) is incredibly smart and powerful. She asks the right questions and has no time for investment banker nonsense. Decision turnaround times are 72 hours max. If she finds that important facts have been withheld, she sends people packing." Most excellent!
 
◄$$$ GOLD DEMAND HAS TRIPLED IN HONG KONG. BEIJING LEADERS PRESS TOWARD THE GOAL OF MAKING THE YUAN A RESERVE CURRENCY. AS TIES WITH THE PERSIAN GULF CONTINUE TO STRENGTHEN, LOOK FOR A PETRO-YUAN BEFORE TOO MANY MORE MONTHS. $$$
 
Hong Kong stands as the world's third largest gold trading center. It has broken ground and offered gold trading in Yuan currency, capitalizing on the tripled volume in gold sales. The move positions the Yuan (renminbi) as a potential global reserve currency. The introduction has come from the Chinese Gold & Silver Exchange Society in HK, a century old bullion bourse. The wealthy individuals and the banks can invest in gold bullion in hedge devices and basic store of wealth. HK has a large proportion of millionaires. The Beijing leaders continue to push for a more international role for its currency, in particular as an alternate reserve currency to the embattled USDollar and the distressed Euro. Next look for crude oil to be traded in Yuan. The entire Persian Gulf has built strong connections with the Chinese in commerce on many levels, including banking. The development of a Petro-Yuan is just a matter of time. The Gold Yuan mart reinforces Hong Kong's status as an offshore hub for the Chinese currency and as a rival to New York, London, Tokyo, and Frankfurt. Hong Kong is a global financial capital. See the Zero Hedge article (CLICK HERE).
 
◄$$$ CHINA IS BUYING GOLD IN BIG VOLUME, CAPTURING THE LOWER PRICES OFFERED BY CORRUPTED PRICE MECHANISMS SET BY THE C.O.M.E.X. PAPER GAMES. PRICE AMBUSHES FROM NAKED SHORTING ENABLE CHINA TO GOBBLE UP VAST SUPPLIES AT LOWER COST. THE COMMERCIALS ARE BUYING AFTER THE PRICE AMBUSHES. WEALTH IS MOVING FROM WEST TO EAST, WITH THE AID OF CENTRAL BANKERS. $$$
 
The Chinese are enforcing a $1610 gold bottom and a $31 silver bottom. Last week, those lows were tested again, as precious metals bounced off of the lows due to massive buying from the Chinese. A trader out of London gave rough cuts, but without detailed data. Corrupt price discovery from futures contracts once again enabled significant Chinese purchases at prices driven down by naked shorting techniques permitted (if not encouraged) by the USGovt. The historic transfer of wealth from the West to the East continues unabated, aided by prices made attractive by Wall Street and London. The West has central planners throwing mountains of money away, trying to save an unfixable system, enriching the bankers. They wish to keep the broken system functioning. The ultimate cost to the West is that the gold vaults go empty, shipped to the vaults in the East. See the King World News article (CLICK HERE).
 
The London Trader said, "The price discount in gold is the most welcome thing to the entire Eastern Hemisphere. The Chinese are buying very relentlessly because they know what is going to happen. We had a major, major physical buy order today [October 20th]. The Chinese bought a massive amount of physical at the lows. The Asians are aware of how tight physical supply is. They buy in London towards the fix event because they know there is an 80% chance the commercials will take it down and they will get a better price. The Asians sit there and say, BRING IT ON BECAUSE WE HAVE SOME ORDERS TO FILL. They just want out of their dollars. The commercials are doing some surgical moves at key times during the day. This is an attempt right now to get the tech funds and momentum traders into going short. But guess who is down there competing to buy along with the physical orders? The commercials, the same ones who kicked off the selling. The commercials want out of their shorts. What we are seeing now is this consolidation pattern where the commercials are getting out of their short positions whenever possible. All the while they are squeezing fresh shorts. They take the metals down, then make the charts look bearish to bring in fresh shorts. Later they squeeze them out of their positions on a rally and pocket the money. We had a major physical buy order today. The Chinese bought a massive amount of physical at the lows and that is why the market turned where it did because of the intensity of Chinese buying. Most of the physical orders are sitting under the market now. There are major buy orders that did not get triggered yet that sit between $1585 and $1605. We are talking about massive tonnage."
 
◄$$$ THE INDIAN FESTIVAL DIWALI HAS NOT BEEN A DISAPPOINTMENT. PRECIOUS METAL BARS HAVE HAD A BRISK SALE, WITH STRONG GROWTH. THE INDIAN NATION HAS EFFECTIVE MEANS TO PROTECT FROM PRICE INFLATION. $$$
 
Food price inflation for the Indian Economy is back over 10% annually. Prices of vegetables and other staples have surged. The millions of poor are suffering, which creates big problems for the government. Food inflation in India rose to 10.60% as of October 8th, versus one year ago, according to the commerce ministry. The rise was driven by vegetable costs (up 17.6% year-on-year) while fruit prices were up more than 12%. The Indians protect themselves by purchasing small bars, affordable to households with savings. Demand for gold bars is up 10.7% annually, but more impressive is the 20.8% annual silver demand growth. This is real physical demand from perhaps millions of people cumulatively. It affects the supply, making worse the global silver deficit.
 

 
◄$$$ CENTRAL BANKS HAVE TURNED INTO NET BUYERS OF GOLD. THE EAST HAS DISCOVERED GOLD AS IT SHUNS THE USTREASURY BOND, NO LONGER A KNEE-JERK REACTION AS IN PAST YEARS. $$$
 
In the first six months of 2011, central bank gold purchases have risen to 216 tons, which is 200% over last year, according to the Gold Fields Mining Service. The rise is largely due to lower sales levels from the Washington Accord and the end of Intl Monetary Fund sales programs. Those were deceptive anyway, since nothing more than close-outs of USGovt shorts from the 1990 decade. Several nations have ramped up gold purchases in an effort to diversify reserves away from the USDollar. Scotia Capital estimates total purchases by central banks of gold will reach 248 tons for the full 2011 year. The East is catching up, building reserves, diversifying away from the USTBonds, and saving surplus wealth intelligently. The demand is led by China and Russia. Philip Klapwijk is global head of metals analytics at GFMS. He said, "We are in essence in chapter three of the central bank story. We have left behind a period of heavy net sales, then a short period of neutrality. Now we are in a new environment of heavy buying." See the Frank Holmes article on 321Gold (CLICK HERE).
 

 
◄$$$ THE RUSSIAN CENTRAL BANKS INTENDS TO INCREASE THE GOLD HOLDINGS IN RESERVES. PUTIN IS PREPARED FOR THE FINANCIAL CRISIS TO ESCALATE, BETTER THAN IN 2008. ECONOMIC GROWTH DEPENDS HEAVILY ON THE CRUDE OIL PRICE. THEY ARE READY TO DEFEND THEIR CURRENCY, AND MAKE ADDITIONAL CAPITAL INVESTMENT. $$$
 
The Russian Govt announced it will continue raising the percentage of gold in its total reserves. The central bank Chairman Alexei Ulyukayev made the statement to Parliament, "We are not planning to step away from this path. We are acquiring huge volumes of gold." They disclosed data on gold and FOREX reserves, the world's third largest. It rose to $517.7 billion as of October 14th. See the Reuters article (CLICK HERE).
 
Europe is on the edge of systemic failure, unable to either fund the banks or to abandon the Euro or to break into two parts. Leaders are indecisive since the banks do not wish to set off dominos of bank failures. In the meantime, watching from not too far away, Russia prepares for the next chapter of crisis. Prime Minister Putin urged Europe to deal resolutely with its sovereign debt crisis. He stated that Russia is better prepared to cope with the next chapter of crisis than in 2008. He will pursue a responsible fiscal course and seek foreign investment to drive a new Russian industrialization. He has lost patience with inaction and half measures. He said, "Now is not the time to talk. It is the time to take clear, well thought-out measures to avert those negative processes that experts are starting to call the second wave of the crisis. [Regarding the swapped roles with President Dmitry Medvedev,] changes are undoubtedly needed and they will happen. But it will be an evolutionary path. We do not need great upheaval. We need a great Russia. I will say straight away that Russia is better prepared than it was in 2008. We have built up serious experience, a reserve of durability, in the economy and in the financial sector. We have half a trillion dollars in reserves. Their volume is sufficient to control the situation in the foreign currency market. Our strategic goal is diversification of the economy. To change its structure, we need to open the way for thousands of new projects and business ideas. For that we need investment, both direct and in the portfolio. This should become the main resource for the new industrialization of Russia." That is ambition but bound in reality. The USGovt debt is 30 times larger than Russia's reserves.
 
Russia faces its own challenges. Their economy could fall back by 1.5% to 2.0% if the crude oil price declines to $60 per barrel, forecasts Economy Minister Elvira Nabiullina. The current growth rate is near 4%. Capital flight is a severe problem, perhaps scared by lack of contract confidence or fear of confiscation. Capital flight is expected by officials to reach $50 billion in 2011. The Russian Ruble currency is close to its August 2009 lows, despite USDollar sales by the central bank to support the currency. Putin promised that the country had sufficient funds to keep the exchange rate under control. Putin said maintaining fiscal discipline and low public debt would remain as government priorities, and promised a balanced budget by 2015. Such promises in the United States are nonsense, but in Russia they are possible. The Russian Economy might post a surplus next year, if oil price remains higher than conservative estimates. Putin wishes to increase the share of capital investment in the economy to 25% of GDP, above the current 20%. In the US, the capital investment is primarily for war, a destructive pursuit, and for failed solar firms. The Russian Economy is by a wide margin the largest outside the 153-member World Trade Organization. Mother Russia wants to complete its entry into the WTO body this year after 18 years of negotiations. See the Reuters article (CLICK HERE).
 
FRAUD IN THE GOLD MARKET
◄$$$ CENTRAL BANKS ARE DEEPLY IN HOCK OVER GOLD BULLION LEASES. THE AMOUNT OF TONNAGE IS ASTONISHING. THE STORY IS TOLD, BUT THE EXTENT OF LEASE VOLUME IS WAY WRONG. IT IS MUCH HIGHER. THE CRIMINAL BANKERS DEEPLY SHORT WILL BE FORCED TO COVER, TO LOCATE THE GOLD, AND TO DELIVER IN ORDER TO AVOID PROSECUTION AND LAWSUITS. WHEN THAT HAPPENS, THE GOLD PRICE WILL RISE MULTIPLES HIGHER. $$$
 
Information has typically been very sketchy on this important topic. Most people in the investment community yawn in boredom when it is cited. Nevertheless, the foundation of central banks and the monetary system will always find its strength from the collateral to money. Dimitri Speck is a gold market researcher and GATA consultant. From research, he estimates says central banks have leased out 4000 to 6000 metric tons of gold, excluding the United States. He specifically mentions the Swiss National Bank and the Bundesbank as involved in the gold leasing. The Swiss and Germans had for decades been the most responsible among the bankers, but no more. Beginning in the 1990 decade, they were lured by the Rubin gang in the USDept Treasury into easy money with leveraged gold sales, from leased gold bullion owned by their respective governmental treasuries. It is hard for the Jackass to perceive such activity as anything but theft and treason. The GoldMoney interview link no longer functions (CLICK HERE) for some reason.
 
My best gold banker and trader source claims the number is grossly incorrect. He has made repeated claims that the total volume that central banks, AND BULLION BANKS, are short from leases is more like 40 to 60 thousand tons, ten times more!! He fully expects a day of reckoning from these criminal bankers deeply committed in fraud. The Mexican central bank purchase of empty vaults is a prime example When they must cover the shorts, when they must honor contract commitments, when they must go out into the marketplace and purchase gold, they will force the price upward by multiples. They will resort to raids like on the Libyan hoard, which is sizeable but inadequate. They will first depend upon the gold repositories in Switzerland, but in time that source will refuse them, since they own the Mother Lode, much of it obtained (pilfered) during World War II. The Venezuelan demand by Chavez is a prime example. The Swiss titans will permit the gold price to find its true value multiples higher, after the system disintegrates completely. That process has begun, as the sleepy in our society do not see it.
 
◄$$$ BEHOLD THE MEXICAN PHANTOM GOLD PURCHASE. IT SEEMS LIKE MEXICO PURCHASED 110 TONS OF GOLD THAT DO NOT EXIST. THE LONDON BANKERS PULLED OFF ANOTHER FRAUD. THE BANK OF MEXICO OWNS CERTIFICATES, NOTHING MORE. IT IS NO WONDER THE RECENT BIG PURCHASES BY EMERGING NATIONS HAVE HAD ZERO IMPACT ON THE GOLD PRICE. THE LONDON BULLION BANKERS RAN A SCAM THAT IS BEING EXPOSED. AS THE MEXICANS DEMAND GOLD, THE LONDON BOYZ WILL SCRAMBLE TO OBTAIN IT AT SOURCE. THEY WILL LOOK TO BASEL SWITZERLAND AND THE MARKET. $$$
 
The following story about Mexico been duped and conned reveals the nature of the grand gold fraud game. The London Bullion Market Assn is a highly fraudulent enterprise, which sells what clients believe is gold, but is actually paper certificates, mere claims. They often are lured into deals that are loaded with complexity on the delivery side, as in almost never. The fraud is compounded by vault fees for gold bullion not actually held. The LBMA banks are well known to possess only about 1% of all the physical gold they have allegedly sold and supposedly stored, accounting for their vast unallocated storage shenanigans. They are deeply committed to fractional schemes. They play games in shuttling metal and concealing the absence of inventory. Enter Mexico, whose central bank this spring purchased what they thought was 110 tons of gold bullion. Observers of market activity knew the big acquisitions had no impact on the market price. Like many IMF sales, along with those of Thailand and Kazakhstan and India, they had less of an effect than an observer would otherwise have expected. The transactions merely meant paper contracts shifted from desk to desk. A persistent and diligent Mexican journalist named Guillermo Barba has investigated and provided the answer to this conundrum. He posed a number of questions to the Mexican Central Bank about the gold purchases. The initial forays were blocked on grounds of secrecy. Barba persisted, went to higher management officials, only to learn that the bankers were unable to provide the quantity of bars purchased, the bar serial numbers, the exact weight of each bar, or any other measures that would indicate to someone familiar with the gold industry that certain specific bars were titled in the name of Banxico. They own gold paper certificates in a complex maze designed by London conmen bankers. They bought unallocated gold, probably sold and leased, otherwise known as vault air. This is the same modus operandi seen before.
 
By entering into such contracts, the Bank of Mexico became an unsecured creditor of the bullion bank involved in the deal. The deep error was in trusting the London bullion bankers. They was duped into buying an unsecured bond that gives claim not on gold, but instead the general assets of the selling bank. Banxico is not exactly clear what it has bought. It is almost certain that neither legal title nor the actual bars of gold have been transferred to Mexico. Pressure will surely come to produce the gold bars from London sources. The Boyz will probably flash a few bars like stolen watches, owned by somebody else. As a central bank, Banxico should certainly take physical delivery. Mexico should tolerate nothing less. Selling imaginary gold to an emerging market central bank in a quasi-fraudulent unallocated storage scheme is a bold ugly move. But it is a specialty of London criminal bankers. Instead of owning a valuable gold asset, free from counter-party risk, Mexico owns nothing but paper and obligations to pay vault fees. Behind the curtain is a dead London bank posing as viable, entering into contracts, forcing cash flow, paying out executive bonuses. The selling bank is likely insolvent, playing out fraudulent games before declaring bankruptcy. Many of the LBMA banks were kept alive solely by generous government bailouts from their national governments. They have constructed a daisy chain of liability and fraud. Many analysts believe that if one such insolvent bank officially go bust, perhaps they will all go bust. The process will turn to the bullion bankers running scams being compelled to buy gold in the market or to obtain it from a big source like Basel Switzerland. Unallocated gold in storage is a mere claim to unspecified gold in the future, not held in possession. In the end, top Mexican officials will force delivery, and the conmen will drive up the gold price in a scramble to avoid harsh publicity. Unfortunately, often the ashamed victims wish to keep the crime quiet.
 
The top Mexican officials have been made aware of the swindle. They will next work to overcome any embarrassment. Mexico will demand that all physical gold bars be immediately identified and delivered into a vault in Mexico City. If wise, this demand will be made before the European sovereign debt crisis grows worse and takes down a string of major banks. As the financial banks topple, the gold bankers will follow in the destructive fallout. Upon great pressure, especially if the Mexican bankers enlist some heavy weight friends for assistance like the Chinese, the London bankers will be forced to scramble for delivery like they did with Venezuela, who had more professional consultants involved. The London bankers will turn Switzerland again. It will be extraordinarily difficult for the bullion bank to locate at source 110 tons of gold. The London Boyz are themselves desperately short on gold, multiples more short than even the gold community believes. The Western central bankers will be very angry for the formally placed request, and even more angry for the harsh light of attention. They are all acutely aware that they will likely need to recapitalize not only their ailing dead banks, but recapitalize the USDollar and Euro currencies. These new revelations, though late in coming, make perfect sense. The top Mexican officials will force the issue with motivation. The net effect from the forced delivery is going to be higher prices. Thanks to Avery Goodman of Seeking Alpha for his reported story.
 
◄$$$ GOLD E.T.FUND HOLDERS DID NOT BAIL OUT OF GOLD HOLDINGS DURING THE RECENT AMBUSH. THEY JUST SUFFERED LOSSES. THE GOLD INVENTORY LEVELS TELL A MISLEADING STORY. LEVELS DID NOT CHANGE DURING THE GOLD PRICE DECLINE, SINCE THE EARLIER RAIDS HELPED CREATE CONDITIONS FOR THE DECLINE ITSELF. THE DUST SETTLED. $$$

The ambush of the gold market in September caused much confusion. Resolving the murky situation with respect to the GLD fund, otherwise called the SPDR Gold Trust, is not easy. Not to integrate fraud in the analysis means the analysis is shoddy and worthless. Amidst the second largest gold selloff since 1983, it would be easy to conclude that small investors dumped their GLD shares. Many probably did, especially those on margin (using borrowed money). Consider the data. The gold price fell 10% in four days in late September. A major price correction took place. The biggest institutional holders of the SPDR Gold Trust were thought to be liquidated. The Paulson fund held 7.6% of the big shady $65 billion fund as of June 30th, data show. However, the physical gold holdings by the SPDR dipped only 0.8% during the sudden decline, despite prices falling by as much as 15% over that period before rebounding.
 
The story told is that GLD shareholders did not bail out during the decline, since the inventory levels were steady. That misses an important point. The abusive management of the GLD fund relies heavily on shorting its own shares, removing inventory, and supplying it to the COMEX and LBMA. That makes the gold price vulnerable to decline. The shorting and raid took place BEFORE the price decline. After it declines, the damage is done and the inventory levels do not change, obviously. It is not a sign of investor fortitude and resilience as much as permitting the dust to settle after the fraudulent raids on inventory in previous months that created the conditions for the decline. The GLD fund remains the biggest fraud in the precious metals sector of the stock market. The movements by Paulson were on paper, like shares sold, not with metal in inventory already raided a couple months prior.
 
◄$$$ THE FRIDAY OCTOBER 7th COMMITMENT OF TRADERS ACTIVITY IN SILVER SHOWED A BIG DRAIN IN COMMERCIAL SHORTS, BUT EXPOSED THE CONCENTRATED POSITION AMONG THE BIG US-BANKS. THE COMMERCIAL NET SHORT POSITION WENT BELOW 100 MOZ, AS THE BIG SHORTS COVERED. THE BOTTOM IS CLEARLY IN. $$$
 
Ed Steer is a savvy veteran who can read the various data sheets and make solid conclusions. He has been working on the Casey Team fringe for years. He dissected a Commitment of Trader report from early October that was highly revealing on the silver market. The COMEX repositories were reported to ship out 597,617 troy ounces, hardly a small amount. He cited the COT Report as a big surprise in both metals. For silver the unexpected turn was that another huge drop in the Commercial Net Short position occurred.  This time it was a sizeable 5339 contracts, equal to 26.7 million ounces. The resulting tally on the Commercial Net Shorts went down to 94.6 million ounces of silver. The last time it was below 100 million ounces was at least ten years ago. THE CONCLUSION IS BASIC, THAT THE BIG PLAYERS WHO ROUTINELY SHORT THE MARKET COVERED THEIR POSITIONS IN A BIG WAY. The next profit opportunity angle is on the upside. That is why the Silver market has bottomed and has begun to recover. The illicit ambush is over. Chinese buyers are probably in there too, since present for gold buying with both hands. The graph below is from very early October. Even then, the blue line shows the Large Commercial Net Short position in a steep decline. They covered. The bottom on the silver price is in.
 

 
Then onto the Commercial Traders. From the same cutoff, the 'Four Or Less' category of major traders was down to 150.1 million ounces short in silver, while the 'Five Through Eight' category was short 45.0 million ounces. The total short position on Commerical Traders adds up to 195.1 million ounces, equal to 39,020 contracts. Given the total Commercial short position in silver sits at 58,500 contracts, and how the leading eight firms have 39,020 contracts held short, the data is glaring how 66.7% of that total Commercial short position in the COMEX futures market in concentrated with the biggest firms. That is what the intense squabbles are all about with CFTC regulatory battles. Change will be very slow. Behold the ratios, which scream an important bottom. Large commercials and commitment of traders indicates important lows for gold & silver price. The short-long ratios for both gold & silver indicate record lows for the cycle. The big money players are preparing for a move higher.
 

 
◄$$$ THE COMMODITY FUTURES TRADING COMMISSION HAS MADE A RULING ON POSITION LIMITS. EXPECT MORE OF THE SAME OLD SAME OLD FOOT DRAGGING. OPTIMISTS CLASH WITH REALISTS. THE BIG FIRMS WORKING ON BEHALF OF SAVING THE USGOVT AND THE EXISTING SYSTEM WILL BE GIVEN A PASS. DELAYS FOR ENFORCEMENT HAVE BECOME ROUTINE. FERGUSON EXPECTS MORE AMBUSHES THAT ENABLE JPMORGAN TO COVER THEIR MASSIVE SHORT POSITION. THE JACKASS DOES NOT BELIEVE JPM WILL BE SUBJECTED TO THE RULES. PACIFY, DELAY, NOT REGULATE. $$$
 
Turd Ferguson gave a very adept summary of the CFTC position limit ruling. My view is simple. The invalid illegal corrupted practices by the Big Four US banks, working on behalf of defending the US system whereby the Wall Street banks maintain control, will continue to be defended. The violators will be permitted to continue, as a grandfather clause will be enforced. Those who expect otherwise with whips of justice are clueless idealists, as the last several months and few years have proved. Ferguson makes some excellent points, which should be accepted against the corrupt backdrop that will persist. Unfortunately, he harbors a large dose of optimism that seems unwarranted. Other points on the technical aspects are valuable though. A summary will be offered here.
 
"The CFTC has finally acted and silver is headed significantly higher. Maybe not tomorrow but soon. Very soon. Position limits in silver will soon be enforced. Yes, there will be delays. Yes, there may even be legal challenges brought by The Cartel. However, there is a very high likelihood that, on a beautiful day in 2012, JPM et al will finally cede control of the silver market back to legitimate investors, speculators, producers, and hedgers. When this happens, silver will finally be freed of its EE-supplied shackles and price will move dramatically higher." In my analysis, JPMorgan will give up control when they are dead, and their fingers are cold, when the USGovt default is past. JPM is weaker than a year ago, even six months ago. But they continue to conduct massive naked short raids on the silver market. They sell silver they do not own, without posting collateral, driving the price down. Ferguson points out the Commercial Short position in silver is still over 58,000 contracts, down from a peak of about 90,000 contracts back in April. The estimated short position by JPM is between 15,000 and 20,000 contracts. My source tells that the JPM short position is multiples higher. They are NEVER required to cover it, just paper losses permitted by national security. JPM has never cited their silver losses on an earnings statement, as they grow and grow. Ferguson expects they will attempt to inspire more selling from relentless ambushes, before they cover large swaths of short positions. He and the Jackass are in synch with the belief that no other institution is going to want to significantly add to short positions, especially the smaller players. The new rule enforcement is likely to be directed at smaller players, with a pass given to the largest corrupt controllers of the USGovt finance ministries and partners to the USFed system. Their criminal actions will be grandfathered, and will continue, in my expectation.
 
Ferguson continues, "Speculative Longs peaked in early April near 50,000 contracts. In the subsequent decline from $48 to today's $32, we have lost over half of that spec long position. The latest COT spec long total was just 23,571. How many more specs can be chased from silver to drive price substantially lower from here? 2000? 5000? It is hard to say but prepare for more, even crazier volatility. There is really no other option. JPM et al need to force silver lower in the days and weeks ahead. Otherwise they will be faced with covering thousands of contracts at very steep losses. They must drive price lower just as they did three weeks ago. But with Open Interest and Spec Long positions so low, how can they get people to sell? The answer: Let the CME do the dirty work! Remember, the CME allegedly raises margins only in response to volatility. If The Cartel can create enough volatility, the CME will be forced to act. ​And, as we saw in April, margin hikes when combined with steep selloffs can create the conditions necessary to force spec longs out of the market.
 
So, the formula from here is simple: 1) Violently manipulate silver to create unprecedented volatility. 2) Have the CME raise margins again in response to this volatility. 3) Use dips in price to hurriedly cover short positions. And 4) If Cartel buying spikes price back up, this added volatility may inspire additional margin hikes. Eventually, two things will have been accomplished: a) JPM will have extricated themselves from the short position and brought themselves into compliance with the position limits mandated today. b) To help avoid a subsequent run on the CME-owned COMEX, margins will have been increased so significantly during the process that COMEX leverage will have dropped down to 3:1 or so. This, for all intents and purposes, will make the COMEX a physical-only exchange, which will preserve the viability of the exchange and limit the future liability of the CME Group." See the TF Metals Report article (CLICK HERE).
 
Ferguson makes a lot of sense on the need for more price ambushes, but the urgent requirement for JPMorgan to cover their short silver positions seems naive. They cannot do so without sending the silver price above $300 per ounce. Their short position is multiples bigger than people enter into their calculations. Besides, JPM will simply hand over their black hole to the USGovt, just like Fannie Mae on mortgages, just like AIG on CDSwap derivatives. The fact that to date, JPM has been forced to go it alone does not in any way mean they will avoid passing off a toxic bin to the USGovt for protection. The vast JPM shorts will probably never be covered. The other mandate is to cover up the decade of fraud. The mortgage bond fraud and shadow banking derivative fraud was effectively buried. The gold & silver fraud must next be buried. The other conclusion arrived at by Ferguson is hard to argue with. THE COMEX IS MOVING TOWARD A CASH ONLY MARKET. That direction (never a place, always a road) will essentially castrate the cartel. However, my disagreement centers on continued protection by grandfathering the old big guys, but limit the new players hoping to serve as vigilantes. Pacify, not regulate the masses as the billboard message. In truth, as my colleague Rob Kirby urges, the best path would be to take down the Big US Banks by RICO laws while they work in collusion. National security objectives block that best path.
 
◄$$$ JPMORGAN IS THE WALL BEFORE THE GOLD & SILVER MARKET. IT IS STORE FRONT FOR THE US-FEDERAL RESERVE. FOR THE STRANGLEHOLD BY THE FINANCIAL SECTOR AGAINST THE NATION TO BE REMOVED, THIS IS THE CENTER. $$$
 
The report shows that JPM has about 80% of the gold derivatives in the world on its book, with HSBC holding the other 20%. And in other commodities, JPM holds a similar position as well as part of their $78 trillion derivatives book. JPM is not just too big to fail. It is the market, and 95% of their transactions are still Over The Counter (meaning unregulated). Besides the increased concentration, the nominal leverage of Goldman Sachs is 537:1 ratio, more typical of an insane hedge fund with desktop cocaine snorted at intervals. Its quick conversion to a commercial bank was just to qualify for TARP money. Even Morgan Stanley runs at a modest 26:1 ratio on leverage. The futures markets are not included in this data. The argument about the notional exposure not telling the proper story, since netting removes much risk, is total nonsense. The big players do not protect each other. They fall together as counter-party risk like with a shared yoke, an unbearably heavy yoke. The Greek debt default will demonstrate this point convincingly.
 
Many years ago, Chase Manhattan Bank was the biggest player with about $14 trillion in nominal derivatives with a leverage to total assets of about 43:1 ratio. The gold market was a three way split among Chase Manhattan, JPMorgan, and Citigroup, with Fleet (of Boston) grabbing some scraps. Then suddenly the JPMorgan cancer consumed Chase. The silver market was dominated by a non-bank, the infamous failure AIG. Its head Hank Greenberg taught Warren Buffet about silver, but little Warren made big errors. He was forced to sell to Barclays all 129 million silver ounces, and the SLV exchange traded fund was born. Later, the silver fund was gobbled by JPMorgan, which was more eager to effectively manage the silver market under USGovt directives. No errors could be tolerated. AIG in turn became the largest trader in the silver market when Drexel Burnham Lambert went bankrupt in 1989. The DBL Trading Group was purchased by AIG, later to transform into its trading subsidiary, which currently operates out of offices in Greenwich Connecticut. Dutiful historians recall that DBL Trading was the subsidiary involved in the gold loan default with the Portuguese central bank at that time. Before moving over to AIG, the DBL Trading Group worked at Goldman Sachs in the early 1980 decade. The corrupt firms are interwoven, a den of thieves, honoring each other as brethren. See the Cafe Americain article by Jesse (CLICK HERE).
 
GOLD CAUGHT IN CROSSFIRE
◄$$$ THE OFFICIAL ATTACKS AGAINST GOLD ARE BECOMING OBVIOUS TO THE VETERANS. BLATANT ANTI-MARKET TACTICS ARE RECOGNIZED IN FULL VIEW. EMBRY OF THE SPROTT FUND CALLS SILVER FLUSHED OUT. PREPARE FOR MASSIVE MONEY PRINTING AND THE GRAND DEBASEMENT, WITH A HUGE POSITIVE EFFECT ON PRECIOUS METALS. GERALD CELENTE PERCEIVES A GOLD AMBUSH ENGINEERED TO DISCOURAGE INVESTORS FROM ENTERING GOLD. THE ATTACKS APPEAR CONCERTED, ORGANIZED, AND WITH MOTIVE, NOTICED IN THE TRENCHES. $$$
 
John Embry is chief investment strategist of the $10 billion Sprott Asset Mgmt fund. As the US Stock market struggles mightily under the weight of economic recession and bank insolvency, the Plunge Protection Team has a mission in Embry's view to tarnish gold precisely when financial market distress arrives. He accused the central banks with their big bank cohorts of slamming gold with naked shorting, accessing the GLD gold inventory for further abuse. The public is being driven away. He said, "But the fact is when this is going on, they cannot have gold look good, and so consequently they throw everything they can at the gold market. We were $1680 overseas and once the COMEX gets going they drop the price $50 like it is nothing. It is all just paper shenanigans. They are able to access from the various central banks and Exchange Traded Funds, enough gold to facilitate this activity. The longer-term sustainability of this tactic is zero. The price is going to go up to levels that nobody is going to be able to comprehend. When this is all over, many people who would otherwise be predisposed to gold will not be there, because all of this action will have driven them to the sidelines, and they will be sitting in the wrong stuff. The Open Interest in silver is back to what it was when silver was $7 to $10. So this has been effective in removing the paper speculators." Embry went on to describe a major silver coin dealer, who was selling Maple Leaf coins at $38 per ounce, versus the paper price $30 to $31. The smart guys are grabbing whatever silver is available as fast as they can. Embry expects to see another Lehman moment, when attempts to patch a solution together go out of control. He pointed to Morgan Stanley as likely to blow up, whose signal is their high priced Credit Default Swap. He said they are going to the wall, in his words. See the King World News article (CLICK HERE).
 
A similar perception came from Gerald Celente, the irrepressible editor of Trends Journal. He has been spot on with numerous dire trends over the past decade. He believes the recent plunge in the gold market was engineered by central banks, with motive to scare people out of investing in precious metals. See the article with linked radio interview on GoldSeek Radio (CLICK HERE). Contrast to a voice in the bush with a viewpoint in rhyme. David Levenstein of Lakeshore Trading in South Africa observed the Swiss Franc currency plunge. He believes that central banks intervened surreptitiously to push the gold price down in direct attacks. He wrote, "With regard to the recent selloff in gold, I am absolutely certain that there is a great deal of truth to the commentaries that suggest that this selloff was engineered by central banks and their agents the bullion banks, in an attempt to thwart the upward momentum in gold and thus take the spotlight away from the yellow metal. In a blatant attempt to drive the price of gold down, some large sell orders came onto the futures market during the time when the market was least liquid. The cherry on the top of the cake was the action taken by the CME. They hiked the margin for gold by 21% and in a falling market. Yet while the S&P plummeted, the CME reduced margins for this contract by 33%." Levenstein hit on several important manipulation themes in a single breath. See the Mineweb article (CLICK HERE). A footnote, as the 25% decline in the silver price was a full five standard deviations. Such extreme moves come along with odds of 1 in 1.74 million in the bell-shaped normal curve. Combine the high distress with powerful manipulation. This is fraud to the extreme, amidst desperation, during a time leading to systemic failure, fully forecasted by the Jackass for over four years.
 
◄$$$ GOLD IS OBVIOUSLY NOT A BUBBLE. THE CORRECTIONS ARE PROOF, AS THE PRICE CLIMBS A WALL OF WORRY IN A PERFECT STORM SETTING. A DURABLE LONG-LASTING BULL MARKET WILL CONTINUE UNTIL THE BANK FAILURES AND GOVT BOND DEFAULTS, AND BEYOND DURING THE REPAIRS. $$$
 
Gold is not a bubble, a message worth repeating. The pension funds in the United States have less than 1.5% investment in gold, hardly evidence of a bubble. Its rocky corrections mean it climbs a wall of worry in a powerful durable long-lasting bull market. It has been subjected to perception assaults regularly, grand messages of distortion pumped out by the propaganda machines operated by the Syndicate in power. The claims of gold being a bubble are shallow and tiresome, as the fundamentals easily contradict. See the chronic worsening USGovt deficits. See the chronic current account deficits. See the chronic denied USEconomic recession. See the chronically insolvent big US banks. See the endless stream of unworkable rescues in the Western nations. Gold can be regarded as an asset class or a device to preserve wealth. Its price is driven by an insane rate of new money creation and lost purchasing power of money. Mine output is flat compared to fast rising money supply. The USGovt deficits spiral out of control, to be worse next year as a $2 trillion deficit is possible. The US price inflation has been in the 8% to 11% range consistently since year 2003, demanding an effective gold hedge. If precious metals had kept pace with the honest CPI since 1980, then the Gold price would be several thousand dollars and the Silver price would be over $200 per ounce. Further debasement of the USDollar is assured, mitigated only by an equal debasement of other major currencies, all of them. The central banks have turned into net buyers. The trend in globalization and outsourcing has dealt deadly blows to the Western economies, which will continue to react and compensate by printing money to cover massive deficits. See the good summary article entitled "Gold Is Not In A Bubble: It's On Its Way To $10,000 An Ounce" by Nick Barisheff (CLICK HERE).
 
◄$$$ THE EURO GOLD PRICE IS CAUGHT IN THE EURO CURRENCY & EUROPEAN UNION WEB. THE EURO WILL RISE FROM THE RATE CUT THAT DID NOT HAPPEN. THE EURO WILL FALL FROM THE BANK RESCUE INITIATIVE THAT CANNOT BE AGREED UPON. GOLD WILL BE USED AS SAFE HAVEN IN EUROPE WHEN A SKEIN OF BANK FAILURES OCCURS. $$$
 
The Euro Central Bank reluctantly cut rates back in 2009, knowing it would cause speculative problems and a rising Euro exchange rate to damage German export trade. They defiantly hiked rates in very early 2011, angering the Americans by putting distance between them. They bristled at the Geithner appearance at the G-7 in Poland last month, for his hypcrisy and arrogance on urging an approach. The rate cut never happened. The expected cut had been an important short-term hammer to knock the Euro down 1000 bpts, from 142 to 132. The Euro currency has rallied from 132 to 139, but the toughest part is next. It will be hard to overcome the important 140 level, when the Euro banks are teetering, and when the EFSF rescue fund is in doubt. The EuroGold price could easily fall back toward the 1100 Euro mark, where it was before the big Euro currency decline. While the foundation has vanished from an ECB rate cut, a bigger foundation comes from a banking system that is set to endure some powerful shocks. Numerous banks are going to suffer failure. A runup in the EuroGold price could come from investors seeking the safety of Gold in Europe, especially after the Swiss bankers set up obstructions to hide in the Swiss Franc currency. Watch for support at the 200-day moving average, which coincides with support from the 11.3 level.
 

 
◄$$$ THE DECLINE IN GOLD & SILVER PRICE WAS ENGINEERED FROM UNPRECEDENTED TACTICS, JUST LIKE IN MAY. THE POLICY IS TO TARNISH THE PRECIOUS METALS AS THE GLOBAL MONETARY SYSTEM CONTINUES TO CRUMBLE. $$$
 
The COMEX decided to raise margin requirements in succession when price was falling, for both gold & silver. Such heavy handed methods have never been used before year 2011. Notice no USTBond futures margin hikes, even though an asset bubble. The USGovt deficits are heading toward $2 trillion annually, and the USEconomy is caught in a recognized recession. Western Europe is set to endure bank failures. The next chapter will include enormous bank recapitalization (motivated by failures), strong economic stimulus, and continued hidden USTBond monetization. These are all great for Gold. With all the threats staring the bankers and politicians, they were compelled to push down the Gold & Silver prices. The defense of the $1620 gold price is fierce. The Chinese are major physical buyers in huge volume, with more bids at $1600 and slightly lower. Defense of the uptrend continues. The worst case in my view is a move down to the $1550 level, as the Euro currency falters during the powerful threats to big Euro banks. It will take a miracle to avoid bank failures, triggered by Greek Govt debt default. They will default, as street riots persist, sure to interrupt their economy. The Greek Economy might suffer a 15% recession this year, as deficits grow.
 

 
◄$$$ CONDITIONS ARE SETTING UP FOR A BIG SILVER PRICE REVERSAL. THE ONLY OBSTACLE COULD BE A EUROPEAN MELTDOWN THAT BRINGS A NASTY DOWNDRAFT IN ASSET PRICES ALONG WITH A SUDDEN RECESSION. A GAP STARES AT THE TECHNICAL TRADERS, BEGGING TO BE FILLED. $$$
 
The Silver price is setting up for an emphatic display, an important reversal. The $30 level has made two successful defenses. Notice the moving averages aligning. The 50-day MA crossed over the 100-dMA, and is next to deal with the 200-dMA (in green). If it is a kiss rather than a crossover, technical traders will notice and react positively. The kicker to interrupt the reversal lies in Europe. If banks topple, if the bailout fund serves no purpose, if Europe turns into a chaotic cauldron, then both commodities and stock markets might suffer some strong downdrafts. Gold & Silver would be adversely affected. The Troika of bankers and commissioners will cobble something together to buy more time, but it might be pathetic without firm German cooperation. The financial system in Europe could easily be overrun by basic nature, as in pressure exerted on insolvent structures. The breakdown in Europe is gathering momentum and power.
 

 
◄$$$ THE SILVER PRICE RECOVERY COULD FOLLOW A PAST PATTERN THAT SEEMS WELL WRITTEN. HISTORY MIGHT REPEAT ITSELF, BUT THE SILVER MARKET NEEDS A FUSE TO BE LIT. THE PATTERN OF PAST ASCENTS COULD BE FOLLOWED CLOSELY. $$$
 
Put aside the devious and significant events, like raised margin requirements, global sell-offs, rising USDollar during Euro distress, naked shorting of precious metals, and squabbles over bank rescues. Those who believe in efficient market theory have been discredited easily. Strong support has come for the silver price, due for rapid rebound. After some consolidation, perhaps already seen, look for a possible launch back toward the $40 level. Check out a unique graph, where past recoveries in the silver price from three different years were consolidated for effect. The composite seems to be predicting a big reversal recovery. The graph shown was made a month ago, before the $30 to $33 price range found stable support.
 

 
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.