Cautions for Investors and Traders Regarding Interventions
Stock-Markets / Market Manipulation Jul 11, 2009 - 07:06 AM GMTBy: DeepCaster_LLC
Continues from Part1 - Banking Cartels Engineered Financial Crisis Endgame
We issue a word of caution to our readers. So long as The Cartel is in a very active interventional mode (e.g. as in taking down the price of Gold and Silver) do not be lured into thinking that the periodic up spikes in the prices of Gold and Silver necessarily present a "breakout" or a buying opportunity. As a practical matter, technical breakouts are sometimes a lure designed to suck in more "longs" prior to a subsequent deeper Takedown.
Nonetheless, it is essential to study the Fundamentals and Technicals even though the Interventionals can override the Fundamentals and Technicals. One must study the Fundamentals not only for all the usual reasons but also because Fundamentals somewhat constrain the timing and effectiveness of Interventions by The Cartel.
Similarly, one should study the Technicals for all the usual reasons and, in addition, because it is in The Cartel’s interest to make its actions seem technically plausible in order to continue to “run mainly under the radar.” It is not in The Cartel’s interest to make its Interventions any more visible than they already are. Indeed, there is powerful evidence that The Cartel often uses and/or helps create technical patterns which lure certain investors (such as hard asset investors) into getting “off sides” before Cartel actions such as taking down the price of Gold or Silver.
Thus one primary Deepcaster goal is to identify approximate interim bottoms of Gold, Silver, Oil and other sectors, through the use of Fundamentals, Technicals, and Interventionals, and thus to help readers profit from their inevitable resurgence and ascendance to new heights. For example, Deepcaster’s profitable recommendations displayed at www.deepcaster.com were facilitated by attention to the Interventionals, as well as Fundamentals and Technicals.
Significant and Increasing Systemic Threats Via Derivatives
(See Deepcaster’s December, 2008 Letter at www.deepcaster.com and click on the ‘Latest Letter’ cache for details.)
So now let us take a brief look back to see how all this "Interventional Firepower" is manifested in the Markets.
Gold and Silver Market Manipulation
The profound impact of these market manipulation efforts has been most well documented regarding the price capping of the Gold and Silver markets. For those who have any doubts whatsoever about the fact and extent of government (Central Banks) manipulation, we have (thanks to Bill Murphy, Chris Powell, and other leaders of the Gold Antitrust Action Committee - - www.gata.org) the following June, 2005 blatant admission of manipulation by the Head of the BIS (Bank for International Settlements - - i.e. the Central Bankers' Bank) Monetary and Economic Department, W.R. White:
"…It is perhaps worth spending a minute on what is meant by Central Bank cooperation…{it includes]…last, the provision of international credits and joint
efforts to influence asset prices (especially gold and foreign exchange) in
circumstances where this might be thought useful…"
Among the many items of evidence are those cited by GATA Secretary Chris Powell in his superb article “There Are No Markets Anymore, Just Interventions,” all of which are matters of public record, and which can be found at www.gata.org.
Interest Rate Manipulation
Clearly the fact that Intervention occurs is amply documented, but Intervention is not limited to the Gold and Silver Markets.
Fed Chairman Bernanke’s statement in his academic paper "Zero Rate Bound Economies" can reasonably be taken as a justification for the Fed purchasing its own paper, otherwise known as monetizing the debt. Specifically, regarding overt and continuing covert long bond purchases, the purpose of this would be to boost the 10 and 30-year bonds, and, therefore, reduce long-term interest rates.
(For details regarding interest rate manipulation see Deepcaster’s December, 2008 Letter at www.deepcaster.com and click on the ‘Latest Letter’ cache.)
…
Thus, what would otherwise be the markets’ “normal” reaction to the ongoing and worsening credit, subprime, and other financial crises - - dramatically rising interest rates, especially on the long end - - has been suppressed by The Cartel’s Interventional Regime.
Specific Interventions
For a full discussion of the following Interventions, see Deepcaster’s July, 2008 and December, 2008 Letters posted in the ‘Letters’ Archive at www.deepcaster.com:
The Spring 2006 Interventional Takedown
The August through October, 2006 Interventions
The August and September, 2007 Market Interventions.
The March 2008 Crisis-Induced Takedown of Gold & Silver
(For further details see Deepcaster’s December, 2008 Letter at www.deepcaster.com -- click on the ‘Latest Letter’ cache.)
…
Just prior to Bear Stearns’ demise, the Fed’s March 11, 2008 establishment of a new Term Securities Lending Facility (TSLF) was merely a short-term Band-Aid for a Structural Systemic Crisis. The TLSF allowed Federal Agency and non-Agency (i.e. private entity) AAA/Aaa Residential Mortgage backed (and otherwise illiquid) securities (some of which is irretrievably illiquid “bad debt”) to be used for collateral.
…
Allowing questionable “illiquid” (i.e. bad) debt to be used as collateral began the significant weakening of the security and legitimacy of U.S. Treasury Securities (as reflected in Credit Default Swap Premiums) and, ultimately, the U.S. Dollar. Moreover, it helped only Fed-favored financial institutions while further diminishing the purchasing power of the middle class and working poor.
Thus the Big Fed-favored Financial Institutions are being insulated from the consequences of their Reckless Securities and Derivatives Speculation. Result: we are in the midst of a crisis.
…
So the result of the TOMO and POMO “juice” injections was to create the interventionally generated 400-point Equities Rally (of Tuesday, March 11, 2008). That Fed Action turned many of the Equities Markets Technicals from down to up. But on the next two days, Wednesday & Thursday, there was no significant follow-through “bounce” - - an ominous sign indeed! Couple that fact with the consideration that The Fed Action “provided a long-term solution for none of the aforementioned ongoing problems, one had to reasonably ask how long such a rally could last. The answer is it probably would not last.
In sum, at that time, if one considered only the Fundamentals and Technicals, Gold and Silver prices should have skyrocketed.
…
However, The Cartel Interventions stopped that rocket.
All this occurred against the backdrop of Gold’s hitting $1000. Had Gold broken out conclusively over $1000 that would have generated even more interest in it. And with Crude Oil and Silver also at record highs, the Fed-led Cartel would truly be at a crisis point in terms of their legitimacy as financial market and monetary managers.
Thus the conclusion was foregone - - these Interventions succeeded in dramatically taking down Gold and Silver in the next very few days.
It is not hard to see to see the motivation for these Takedowns. The power of the Fed-led Cartel of Key Central Banks (and allied Major Financial Institutions) depends on continuing legitimacy of their “paper” including first and foremost their Treasury Securities and Fiat Currencies.
Increasing Gold, Silver, Crude Oil and other Tangible Commodities prices threaten this Power because they compete for legitimacy as Stores and Measures of Value with The Cartel’s paper. Therefore, we can expect The Cartel to continue to attack Gold, Silver, Crude Oil and the Other Strategic Commodities with a vengeance. The main question is, can they continue to succeed? That depends on whether the Fundamentals will overwhelm Cartel attempts at market manipulation.
In addressing that question, consider the “Rule” that ‘The Biggest Player in the Market makes the Market Price.’ The Cartel’s multi-trillion dollar Derivatives Positions make it The Biggest Player in the aforementioned Markets.
But, for sure, the countervailing consideration is the ever-more-bullish Fundamentals.
June 2008: The Cartel Catalyzes a Volatility Fog to Mask Interventions and Worsening Fundamentals
But it is also certainly not in The Cartel’s interest to have its Interventional Market Rigging “Game” revealed. That explains why it is increasingly apparent that The Cartel uses a variety of techniques (e.g. “lures”) including catalyzing Volatility “Fogs” to mask its Interventions.
See the December, 2008 letter for further details.
“Earned” Liquidity versus “Borrowed” Liquidity
A key point is that the Fed/Treasury Actions of 2008 are not long-term fixes. The reason this is not a long-term fix is that it “fixes” a liquidity problem in a way that allows insolvent or nearly insolvent financial institutions to have liquidity that would allow certain normal but often deleterious operations (i.e. the continuation of even more lending based on borrowed liquidity). Deepcaster has previously demonstrated the perils inherent in an economy relying on “borrowed liquidity” (i.e. debt) rather than “earned liquidity” (i.e. savings) – see Deepcaster’s January, 2008 Letter.
Thus, the “borrowed liquidity “cure” is worse than the disease. Thus, what The Fed has given us is a flawed Financial Band-Aid, and only a Band-Aid for the Big Boys at that.
We must not forget another fundamental factor which demonstrates that The Fed Actions are neither a long-term, nor an adequate, remedy.
“This Fed injection does nothing for households. And it is households that will determine if we avert depression or not. Consumer spending is 70 percent of GDP. Households need the money, and they can’t get it. Credit card companies are cutting lines. Banks are raising lending standards. House values are dropping below outstanding mortgage and home equity debts. Incomes can’t keep up. Jobs are shrinking. Trickle down won’t work. We need trickle up this time. The Fed’s announced plan today is to monetize bad debt from Wall Street banks, to accept their securities baked by bad loans in exchange for cash. This in lieu of a drastic further drop in interest rates. Once again, save Wall Street and to blazes with households. Because they are not doing a thing here for households, this plan will fail. Households get more inflation and that is it. Wall Street gets a free ride. Somebody ought to be arrested. What a heist. Of course Spitzer can’t do anything. He’s preoccupied.” (emphasis added)
Robert McHugh, Tuesday, March 11, 2008 Briefing
And there is yet another structural problem which is a fundamental contributor to The Crises and which will cause The Crises to continue for months at least. At the urging of those pushing a misunderstood “free market” ideology, the Glass-Stegall Act (which separated the commercial banking from the securities business) was repealed in 1999. That Act was passed in 1933 in the midst of The Great Depression to prevent securities speculation from further destroying bank capital and shrinking deposits.
Since 1999, the Banking and Securities businesses have become increasingly merged, with today’s disastrous results being quite apparent. [Note: truly “free” markets mean markets that have better regulations, not “no regulation” - - Freedom of choice requires a structure which provides meaningful alternatives. To enhance freedom one needs to improve a structure, not abolish it. A basic philosophical point, thanks for which we owe to the philosopher Immanuel Kant.]
Recent Interventions and Evidence
Recent Covert Interventions in the Gold, Silver, Equities and Bond Markets have been quite dramatic as well. Indeed, evidence for Cartel Interventions in many Markets becomes ever stronger. Consider…
Silver: Noted Silver analyst Ted Butler has compiled evidence that two large banks (both Primary Dealers for The Fed) are manipulating (downward) the price of Silver and are being protected by the supposed government watchdog group CFTC (Commodity Futures Trading Commission):
(For details see Deepcaster’s December, 2008 Letter at www.deepcaster.com and click on the ‘Latest Letter’ cache.)
Consider also…
The Bond Market: Some pundits claim the multi-trillion dollar Bond Market is “too big to manipulate.” But Deepcaster notes that the BIS reports there are a $418 trillion in Dark OTC Interest Rate Contracts Outstanding and further notes that the Biggest Player in the Market typically makes Market Price. (For details see Deepcaster’s December, 2008 Letter at www.deepcaster.com and click on the ‘Latest Letter’ cache for details.)
Cartel Intervention is the only explanation, is it not, that while the Credit Default Swaps Market attributes (via its premiums) a record-high risk-of-loss to U.S. Treasuries, the actual interest rates on U.S. Treasury Notes and Bonds has dropped to record lows.
And consider the following sensible comment posted at LeMetropoleCafe:
“It is absolutely inconceivable that the bonds are rallying (disappearing yields) due to a ‘safe haven flow of funds’ when their risk of default is being assessed at an all-time high!!! What is wrong with this picture???…
The December 1, 2008 Interventions and Precious Metals Takedowns
One could reasonably claim the Interventions of December 1, 2008 “Take the Cake.”
One would expect that that day’s news that it was officially confirmed that the U.S. had been in a recession for a year coupled with the ongoing agony of the Big Three Automakers and laid off workers, and the news that the Taxpayers’ “Bill” for the Bailouts, loans, guarantees, etc., totaled $7.7 trillion according to Bloomberg, would substantially take down the Equities Markets. But what is utterly inexplicable (absent Intervention) is that that very day in December the price of Gold was taken down nearly $50! Only Cartel Intervention can explain such a development!
II. INDIRECT MANIPULATION
The other major form of government (including agency) market manipulation can most accurately be called indirect. It consists of "massaging" or hiding various statistical measures and data to create results that suit the manipulator's (usually, whatever Presidential Administration has power at a given time) preferences, insofar as it’s political, economic, or financial or market goals are concerned. It is the U.S. Federal Reserve Bank’s (a privately owned “national” bank) and the United States government agencies’ generation of "creative statistics" on which we focus here.
Refer to the beginning of this Article to consider today’s massaged government and agency data in comparison with today’s data calculated the “old fashioned way” (i.e. sans contemporary statistical gimmickry).
III. SYSTEMIC RISKS
On the Brink of a Cartel-Facilitated Systemic Meltdown
The August, 2007 credit freeze-up and the Fed’s bailouts of August 17 & September 18, 2007, mid-March 2008 and August through November, 2008 illustrate just how increasingly close to the brink of a Systemic Meltdown we are.
See the December, 2008 Letter at www.deepcaster.com for details regarding how Prophetic words indeed!
The Fed’s “Cure” Worsens the Disease
The Systemic Solution
Allowing the International Economy to be based on a Fiat Reserve Currency is unsustainable. No Fiat Currency Regime in the history of the world has ever survived indefinitely.
So The Systemic Solution is apparent. We outline it as follows:
1) Re-link the world’s Reserve Currency (the U.S. Dollar) to Gold and Silver, the Monetary Metals which are both stores and measures of value, tangible value.
Failure to re-link currencies to Gold and Silver will allow a continuing massive and unsustainable inflation of the money supply by the Fed-led Cartel* of Central Bankers. Unless such re-linking to Gold and Silver is accomplished the U.S. Dollar is likely doomed in the long-run, with severely negative consequences.
Money supply inflation ultimately leads to price inflation and the continuing extraordinary rate of increase in the money supply, (as a number of commentators have pointed out) is leading us down the path to a Hyperinflationary Depression. (c.f. shadowstats.com). And, more ominously, it is leading us to an attempt to implement The Cartel “End Game” (see June 2007 Letter “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” at www.deepcaster.com.).
But the private for-profit U.S. Federal Reserve and its Cartel Allies are not likely to give up their Fiat Currency and “un-backed” Treasury Securities that easily - - they are the source of its power. The Fed and associated International Financial Allies will strenuously resist. Thus,
2) Legendary investor Jim Rogers recently neatly expressed The Solution to the problem of The Fed: “The Fed should be abolished and Chairman Bernanke should resign.” (March, 2008, CNBC)
An excellent idea. Indeed, The Fed is a private for-profit group of International Banks, whose main motivation is in providing profits for, and protecting the interests of, The International Bankers Cartel and favored institutions and parasites, not in serving the needs of U.S. citizens (or most citizens of other countries for that matter).
- To replace The Fed, and in order to protect ordinary citizens interests, the U.S. Congress should create a genuinely National Bank under the auspices of the U.S. Treasury Department as authorized by the U.S. Constitution. That truly National Bank should be the money issuer for the United States, not the private for-profit Cartel of International Bankers known as The Fed. Note that the nonprofit group http://www.carryingcapacity.org is conducting an “Abolish The Fed; U.S. Treasury Instead’ campaign.
This is not such a radical idea. President Kennedy caused U.S. Notes to be issued late in his presidency as a replacement for Federal Reserve Notes. [He was killed a few months after the issuance was started and the U.S. Notes subsequently disappeared from the market.]
The Cartel End Game
We are facing at an international crisis of unprecedented proportion. It is also clear to Deepcaster that those who run the Fed-led Cartel cannot be so stupid as to not know where their hyperinflation of the money supply (according to shadowstats.com M3, as of the June 12, 2009 Report, was increasing at an annual rate of about 7.5% which is nearly a ten year doubling time!), and other bubble-crisis-creating policies are leading us.
Thus if The Cartel leaders know what they are doing what is their End Game? For details regarding The Cartel End Game see “Investor Advantage: Revisiting the Cartel's 'End Game'” (3/6/09).
The Solution - - A Strategy for Investors & Traders
A major premise of The Strategy is that one can certainly remain a Hard Assets Partisan while at the same time insulating oneself from future Takedowns. The following points provide an outline of The Strategy (particularly as applied to the Gold and Silver Markets) and are designed to help avoid such unpleasantness, or even possible financial ruin, in the future, as well as to profit along the way:
- Recognize that The Cartel is still Potent, as difficult as that may be psychologically for Deepcaster and other Hard Asset Partisans to acknowledge. The Cartel is still the Biggest Player in many markets and, if the timing and market context are propitious, the Biggest Player makes Market Price. In addition, The Cartel has the advantage of de facto controlling the structure and regulation of various marketplaces and that is a tremendous advantage; just as the Hunt Brothers years ago discovered much to their dismay and misfortune, when they tried to corner the Silver Market.
- Accumulate Hard Assets near the Interim Bottoms of Cartel- induced Takedowns.
- In order to know when one is near the bottom of a Cartel-generated takedown, it is essential to take account of the Interventionals as well as the Technicals and Fundamentals.
- For example, regarding Gold & Silver, near such Interim Bottoms, accumulate a combination of the Physical Commodity (Deepcaster prefers “low premium to melt” bullion coins) and well-managed Juniors with large reserves. (Deepcaster provides a list of such Junior Candidates in our December 20, 2007 Alert “A Strategy for Profiting from Cartel Intervention” available in the Alerts Cache at www.deepcaster.com.) The “Physical” and “Juniors” are for holding for the long-term as a Core Position.
- Then, to the extent one wishes to speculate on the next “long” move, one should buy the major producers or long-term options on them. These latter positions are for ultimate liquidation at the next Interim Top and are not for holding for the long-term.
- Indeed, there will be a time when The Cartel price capping is ineffective and Gold & Silver make record moves upward. The benefit of this Strategy is that one will likely be long in one’s speculative positions when this happens.
- Near the next Interim Top, liquidate the long options and majors. Again, in order to know when we are close to the next Interim Top, it is essential to monitor the Interventionals, as well as Fundamentals and Technicals.
- At that Top, sell short or buy puts on Majors. We re-emphasize the Majors as preferred vehicles for trading positions because such positions are more liquid and tend to be quite responsive to Cartel moves.
- At the next Interim Bottom, cover your shorts and liquidate your puts and go long again to begin the process all over again. We emphasize that it is essential to consider the Interventionals as well as the Fundamentals and Technicals in order to determine the approximate Interim Tops and Bottoms.
- Finally, Hard Assets Partisans have the opportunity to become involved in Political Action to diminish the power of the Central Banker Cartel. It is truly outrageous that the average unsuspecting citizen, and prospective retiree, can and does put his hard won assets in Tangible Assets only to have those assets effectively de-valued by Cartel Takedowns. This is extremely injurious to many average citizens in many countries who are saving for the rainy day or retirement and have their retirement and/or reserves effectively taken from them. In order to help prevent this and similar outrages, we recommend taking three steps:
- Become involved in the movement to abolish the U.S. Federal Reserve (a private for-profit Cartel of International Banks) as Deepcaster, Presidential candidate Rep. Ron Paul, and legendary investor Jim Rogers, all have advocated.
- Join the Gold AntiTrust Action Committee which works to eliminate the manipulation of the Gold and Silver markets (www.gata.org). GATA is a non-profit organization which makes a great contribution by gathering evidence regarding the suppression of prices of Gold, Silver and other commodities.
- Work to defeat The Cartel ‘End Game.’ Deepcaster has laid out the evidence regarding the Ominous Cartel “End Game.” Clearly The Cartel is sacrificing the U.S. Dollar to prop up international financial institutions and to maintain its power. But this sacrifice cannot continue forever.
“Federal prosecutors accused a guy named Sergey Aleynikov of stealing proprietary "black box" computer codes from Goldman. The assistant U.S. attorney in charge of the case said the following in court: "The bank (Goldman) has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate the market in unfair ways."
What was Goldman doing with a program that could "manipulate the market in unfair ways"?
The answer: It was using it to manipulate the market.”
John Crudele: Influence is in the bag for 'Government Sachs'
John Crudele, New York Post, Thursday, July 7, 2009
Best regards,
Deepcaster
July 10, 2009
By DEEPCASTER LLC
www.deepcaster.com
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