J.P. Morgan Loving Their Market Manipulation Handiwork

By: Rob_Kirby

The following research paper was compiled as the basis for a radio interview with Patrick Timpone at One Radio Network .

Morgan is the quintessential leviathan in the Interest Rate arena through their obscenely sized Medium-Term Interest Rate Swap book which stood at 59 Trillion at June 30, 2008 .

The interest rate swap book, due to its sheer size, overwhelms the bond complex by creating artificial demand for government securities. This interest rate suppressive activity began in earnest back in the 1990's and has kept market rates of interest at artificially low levels. The FUNDAMENTAL [and ongoing] MISPRICING of CAPITAL – for many years – has led to a myriad of economic excesses like the Dot Com boom, subsequent housing boom and the financial asset boom itself.

Morgan's overbearing effect in the interest rate complex required the simultaneous suppression of the gold price. This was done to make falsified inflation data seem credible. It has often been said that, “if real inflation heats up – BOND VIGILANTES would raise market rates of interest reflective of real inflation”. The reality folks, the BOND VIGILANTES are extinct – they lost their jobs long ago – being swallowed by the black hole that is J.P. Morgan's derivatives book. This is documented in a laundry list of articles archived at Kirbyanalytics.com

In the energy area [crude] – J.P. Morgan was “granted” the rights to, effectively, set up the Central Bank of Iraq in Dec. 2003:

J.P. Morgan Chase was chosen by the Coalition Provisional Authority [CPA] to “set up” the NEW Central Bank of Iraq [specifically, the Trade Bank of Iraq ]. Take note how this TRADE BANK only became operational in December of 2003:

•  Trade Finance. The Trade Bank of Iraq (TBI) was established in July 2003 to facilitate trade of goods and services to and from Iraq by providing irrevocable letters of credit. The TBI officially became fully operational in December 2003 and has a services contract with a multi-international banking consortium led by JP Morgan Chase. Since opening in December , the Trade Bank of Iraq has issued or has pending 183 letters of credit, totaling $708.9 million in imports from thirty-one countries. Letters of credit have been issued on behalf of Iraqi Ministries as well as several state-owned enterprises.

In that capacity , Morgan was charged with developing the framework of collateralizing movable and immovable property for the nation of Iraq

When we take a look at “The Administrator's Weekly Report” – Feb. 28 – March 5, 2004 where it's all neatly explained for us:

V. LAY FOUNDATIONS FOR AN OPEN ECONOMY

Provide IG Staff Capability; Trade Bank ; WTO Observer Status; Draft Intellectual Property law to IGC by April 15, 2004; Develop Framework for Collateralizing Movable and Immovable Property  

Here's What They Did:

I'd now like to draw your attention to a research paper published just last week by the good folks over at the Commodity Futures Trading Commission [CFTC]:

CFTC's Office of the Chief Economist Releases Study on “Market Growth, Trader Participation and Pricing in Energy Futures Markets”

Washington , D.C. — The Commodity Futures Trading Commission's (CFTC) Office of the Chief Economist today released a study titled “ Market Growth, Trader Participation and Pricing in Energy Futures Markets .” This study provides an analysis of the composition of traders across different energy futures contract maturities and addresses questions relating to price discovery in these markets. Specifically,

•  The authors use CFTC data on futures trader positions to document major changes in the size and term structure of the U.S. crude oil (WTI) futures market. The authors find that as recently as 2000, trading activity in this market was heavily concentrated in nearby contracts. Since then, overall open interest has grown two-fold, with trader activity at the back end of the term structure increasing more than twice as much as the market as a whole.

•  The market growth in long-term (more than three years) positions generally started in 2004, which coincides with the growth in participation by commodity swap dealers.

We know Morgan was a major player because they admit it and brag about it:

To get your head around how ole J.P. Morgan trades energy futures, we need look no further than their own web site , [ article has since been removed from J.P. Morgan's site ] where they're more than happy to tell us,

Risk magazine, January 2006

J.P. Morgan was named Risk magazine's Energy derivatives house of the year  in their January issue. According to Risk , "J.P. Morgan has emerged as a key player in energy derivatives over the past year." Since 2004, under the guidance of Beau Taylor, global co-head of Energy, the firm has built a leading energy trading practice. Focus has extended from natural gas and crude exotic derivatives to include electricity, coal and emissions trading. [RK bold emphasis]

They wear it like a badge of honor, don't they? To “borrow” a cliché [pun intended] - these guys really are good, aren't they? 

The selling of “long dated” oil futures [ by guess who? ] began in earnest in 2004. We know this because the CFTC has told us. Long dated futures [similar to long dated bonds or Medium-Term Interest Rate Swaps] is where EXPECTATIONS are formed about the future price of commodities.

And we all know how important expectations are, where inflation is concerned, to folks like Chopper Ben Bernanke.

We all read and hear from officialdom that the prospects for inflation, while elevated somewhat recently, always remain anchored and/or subdued on a forward looking basis:

….if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored. If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored. ~ FED Chairman, Ben Bernanke, July 10, 2007

In this speech titled, Inflation Expectations and Inflation Forecasting , Mr. Bernanke goes on at length about the influence that ‘expectations' have on inflation but he fails [intentionally, perhaps?] to mention its true cause :

“Inflation is a phenomenon caused by the increase of money supply relative to the growth of production capacity for goods and services.”

Having firmly established themselves in the crude oil marketplace, in Dec. 2005 J.P. Morgan moved on to the Natural Gas Arena:

By Rob Kirby
http://www.kirbyanalytics.com/

Rob Kirby is the editor of the Kirby Analytics Bi-weekly Online Newsletter, which provides proprietry Macroeconomic Research. Subscribers to Kirbyanalytics.com are benefiting from paid in-depth research reports, analysis and commentary on rapidly unfolding economic developments as well as recommendations on courses of action to profit from chaos. Subscribe here .

Copyright © 2008 Rob Kirby - All rights reserved.

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