One of my viewers has sent me a warning note to be passed on to all traders and investors please be aware that the “Flash Crash” of May 6th. was not an isolated incident.
I attach two recent examples of similar “events”. The forces that worked in May last are still alive and well see PDF Doc ” Dark Pool“
Archive for the ‘Stock Markets’ Category
One of my viewers has sent me a warning note to be passed on to all traders and investors please be aware that the “Flash Crash” of May 6th. was not an isolated incident.
In response to David Mc Williams excellent new article
With all the western countries now carrying huge debts
I have to question who exactly is behind the buying all this debt?
I mean where do they get all this money?
I know that the US is printing so many Dollars that the real value of the dollar is now probably only worth less than a cent!
And the Euro, well just read the newspapers!
Total EU External Debt 18,302,319.trillion $
Total US External Debt 13,703,567.trillion $
These mountains of debt cannot be repaid and the markets will have to wake up to this fact soon or later!
There isn’t enough gold in the ground to cover these vast amounts of debt
The only thing that is keeping the financial markets stable is the use of obscure derivatives tools, but these are just promissory notes with nothing behind them, something
Like the emperor with no clothes syndrome.
Which brings us to another question and that is why is gold so cheap!
It should be somewhere around 6,000 an ounce at least.
Somewhere, sometime the market will face up to this reality and we will see the mother of all crashes then.
make no mistake the ball is already rolling!
As worries over Greece rattle world markets, records and interviews show that with Wall Street’s help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.
Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November — three months before Athens became the epicenter of global financial anxiety — a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.
The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.
It had worked before. In 2001, just after Greece was admitted to Europe’s monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial drama.
As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.
In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.
Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.
Some of the Greek deals were named after figures in Greek mythology. One of them, for instance, was called Aeolos, after the god of the winds.
The crisis in Greece poses the most significant challenge yet to Europe’s common currency, the euro, and the Continent’s goal of economic unity. The country is, in the argot of banking, too big to be allowed to fail. Greece owes the world $300 billion, and major banks are on the hook for much of that debt. A default would reverberate around the globe.
A spokeswoman for the Greek finance ministry said the government had met with many banks in recent months and had not committed to any bank’s offers. All debt financings “are conducted in an effort of transparency,” she said. Goldman and JPMorgan declined to comment.
While Wall Street’s handiwork in Europe has received little attention on this side of the Atlantic, it has been sharply criticized in Greece and in magazines like Der Spiegel in Germany.
“Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it,” said Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies.
Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal. Few rules govern how nations can borrow the money they need for expenses like the military and health care. The market for sovereign debt — the Wall Street term for loans to governments — is as unfettered as it is vast.
“If a government wants to cheat, it can cheat,” said Garry Schinasi, a veteran of the International Monetary Fund’s capital markets surveillance unit, which monitors vulnerability in global capital markets.
Banks eagerly exploited what was, for them, a highly lucrative symbiosis with free-spending governments. While Greece did not take advantage of Goldman’s proposal in November 2009, it had paid the bank about $300 million in fees for arranging the 2001 transaction, according to several bankers familiar with the deal.
Such derivatives, which are not openly documented or disclosed, add to the uncertainty over how deep the troubles go in Greece and which other governments might have used similar off-balance sheet accounting.
The tide of fear is now washing over other economically troubled countries on the periphery of Europe, making it more expensive for Italy, Spain and Portugal to borrow.
For all the benefits of uniting Europe with one currency, the birth of the euro came with an original sin: countries like Italy and Greece entered the monetary union with bigger deficits than the ones permitted under the treaty that created the currency. Rather than raise taxes or reduce spending, however, these governments artificially reduced their deficits with derivatives.
Derivatives do not have to be sinister. The 2001 transaction involved a type of derivative known as a swap. One such instrument, called an interest-rate swap, can help companies and countries cope with swings in their borrowing costs by exchanging fixed-rate payments for floating-rate ones, or vice versa. Another kind, a currency swap, can minimize the impact of volatile foreign exchange rates.
But with the help of JPMorgan, Italy was able to do more than that. Despite persistently high deficits, a 1996 derivative helped bring Italy’s budget into line by swapping currency with JPMorgan at a favorable exchange rate, effectively putting more money in the government’s hands. In return, Italy committed to future payments that were not booked as liabilities.
“Derivatives are a very useful instrument,” said Gustavo Piga, an economics professor who wrote a report for the Council on Foreign Relations on the Italian transaction. “They just become bad if they’re used to window-dress accounts.”
In Greece, the financial wizardry went even further. In what amounted to a garage sale on a national scale, Greek officials essentially mortgaged the country’s airports and highways to raise much-needed money.
Aeolos, a legal entity created in 2001, helped Greece reduce the debt on its balance sheet that year. As part of the deal, Greece got cash upfront in return for pledging future landing fees at the country’s airports. A similar deal in 2000 called Ariadne devoured the revenue that the government collected from its national lottery. Greece, however, classified those transactions as sales, not loans, despite doubts by many critics.
These kinds of deals have been controversial within government circles for years. As far back as 2000, European finance ministers fiercely debated whether derivative deals used for creative accounting should be disclosed.
The answer was no. But in 2002, accounting disclosure was required for many entities like Aeolos and Ariadne that did not appear on nations’ balance sheets, prompting governments to restate such deals as loans rather than sales.
Still, as recently as 2008, Eurostat, the European Union‘s statistics agency, reported that “in a number of instances, the observed securitization operations seem to have been purportedly designed to achieve a given accounting result, irrespective of the economic merit of the operation.”
While such accounting gimmicks may be beneficial in the short run, over time they can prove disastrous.
George Alogoskoufis, who became Greece’s finance minister in a political party shift after the Goldman deal, criticized the transaction in the Parliament in 2005. The deal, Mr. Alogoskoufis argued, would saddle the government with big payments to Goldman until 2019.
Mr. Alogoskoufis, who stepped down a year ago, said in an e-mail message last week that Goldman later agreed to reconfigure the deal “to restore its good will with the republic.” He said the new design was better for Greece than the old one.
In 2005, Goldman sold the interest rate swap to the National Bank of Greece, the country’s largest bank, according to two people briefed on the transaction.
In 2008, Goldman helped the bank put the swap into a legal entity called Titlos. But the bank retained the bonds that Titlos issued, according to Dealogic, a financial research firm, for use as collateral to borrow even more from the European Central Bank.
Edward Manchester, a senior vice president at the Moody’s credit rating agency, said the deal would ultimately be a money-loser for Greece because of its long-term payment obligations.
Referring to the Titlos swap with the government of Greece, he said: “This swap is always going to be unprofitable for the Greek government.”
For those of you that haven’t the time to go scouring around the internet for good articles on the Stock market, I sometimes take the time and do it for you!
Here is a great article and if you are getting into the market anytime soon,
I suggest you read this piece; it just might save you a lot of money!
Even this main article was written in 2007, just look at the bottom chart of the Dow!
We do appear to have a strengthen of the dollar but I don’t see as of yet a strong enough deterioration of the Transports or the Dow-Jones as of tonight, we still have an upward trend in place
(My personal opinion)
End of the Boom – DJIA 3000
By Paul Lamont
April 19, 2007
“In a bull market and particularly in booms the public at first makes money which it later loses simply by overstaying the bull market…The big money in booms is always made first by the public-on paper. And it remains on paper.” – Edwin Lefèvre, Reminiscences of a Stock Operator. 1923.
To the investment community the sell-off in February came as a complete surprise. Readers of our report understand what is happening. In our article on October 17th of last year, titled Credit Extreme Emotion;
“As a result, financial institutions will come under severe strains as the credit bubble bursts. The rise of mortgage defaults will signal the beginning of this deflationary spiral. Unfortunately, interest rate markets are setting up homeowners for this exact scenario.”
Also in 7 Reasons To Sell,
“In addition, all 14 “Strategists” at the largest Wall Street Firms are calling for a higher market in 2007. The last time this bullish consensus occurred was at the start of 2001. The DJIA subsequently fell ~40% over the next 2 years.”
Promoters of the boom (Wall Street Firms) cannot be relied upon for independent investment advice. They profit by selling investments that are in demand. When demand is high for any investment, so is price and therefore these are not wise investments.
The Chart Wall Street Doesn’t Want You to See
The chart above from Steven Williams at CyclePro.com shows the Dow Jones Industrial Average adjusted for inflation since 1800. As you can see, when the effects of inflation have been extracted, the DJIA is much more cyclical than Wall Street promoters would care to admit. In optimistic peaks of 1834, 1906, 1929, and 1966 the DJIA subsequently moved to the bottom of the long term trend channel. These bear markets were either inflationary, such as the 1966-1982 bear market or deflationary such as in 1929-1932. We have also noticed that inflationary/deflationary crashes tend to alternate. We suppose this is because Mr. Market likes to fool even the bears. Today we are again at the top of the trend channel. How will we fall? Most bears remember and fear the stagflation of the 1970s. However with debt levels currently high, inflation cannot be maintained for an extended length of time. Debtors would merely file for bankruptcy or foreclosure (as they have begun recently). Instead a deflationary spiral similar to 1929-1933 or 1834-1842 is likely. It appears the rule of alternation will continue.
This chart also shows possible future levels for the Dow Jones Industrial Average. According to the trend lines followed since 1800, the DJIA could reasonably fall to 3000 by 2012. This is our target.
What’s Happening Now?
Astute chart watchers have recognized that markets follow elliptical curves. Currently, we are finishing up an ellipse that started in October of 2005. Notice the chart of the DJIA below, price is riding up the side of the ellipse. This is similar to price action in late 2003. (Another example of the elliptical curve is the 5yr chart of the Shanghai Index.) When price snaps out of this ellipse, the DJIA will be pursuing a new direction: down or sideways. Of course, readers know our bias is down. We believe the decline will be swifter than February’s sell off.
Institutions on a Bubble
Bank failures in the Great Depression were caused by savings lost in the stock market bubble. Today our banks are prevented from investing in the stock market, instead restricted to a “safer” asset class: real estate. To see the illiquid bubble that some of our financial institutions are now dependent on, see the chart below of U.S. home prices adjusted for inflation back to 1890.
Speculativebubble.com has created a rollercoaster video of this chart, which we recommend because it reflects the emotional aspect of markets. Financial institutions that are based on the real estate market will face serious problems as the boom unwinds. Mortgage lenders are already going bust. As home prices continue to fall, aided by regulatory and market restrictions on credit, baby boomers will put investment properties, in which they hold little equity, on the auction block. Alt-A mortgages which fueled these properties will fall in value. Current ‘thinking’ is that financial institutions have passed on much of the mortgage risk to hedge funds. However when hedge funds fail, ‘prime brokers’ historically have been forced to accept the hedge fund’s losing positions. Illiquid arrangements (for instance credit derivatives) will then be the responsibility of the prime brokers. They will be forced to sell at any price as they try to prevent losses on their own books. As the editor of The Commercial and Financial Chronicle in November of 1929 reported on the Great Crash, ‘the crowd didn’t sell, they got sold out.’ The trading desks of the Wall Street Firms will cash out as the panic develops, the lady in Omaha will be stuck on the phone with a busy signal.
As the chart above states, we expect the sharp sell-off over the next few months to develop into a crash this summer. In the meantime, we expect the U.S. dollar to continue its uptrend. Things should heat up as European countries continue to experience tougher credit conditions. As expected, wild spending from politicians usher in the next wave of crisis. Losses in weaker countries will spread into the stronger nations through the global banking system. As detailed in Global Margin Call, individual investors who in the last few months were wiring their funds to far off lands have arrived just in time to experience maximum losses.
Copyright © 2010 Paul J. Lamont
Let’s consider a well publicized recent sale of Russian gold bullion to itself:
I noticed this article to-day by Rob Kirby
And it is a very worrying development indeed!
Russia sells gold to itself
December 14, 2009 3:47pm by Emma Saunders
The Russian central bank data table appended below is the World Gold Council. It states that Russia possesses 607 [actually, now officially 640 tonnes with the addition of the recent 30-ish tonne purchase from itself] metric tonnes of gold bullion.
will spend $1bn next week, buying 30 metric tons of gold from Gokhran, the state repository. Gokhran had planned to sell 20-50 MT on the open market, but cancelled after news of the sale leaked. The sale would have helped plug Russia’s budget deficit, and, apparently, purchase some diamonds from state-run miner Alrosa….
Does this not strike you as being odd?
In case you missed it, Russia announced that they are selling gold to THEMSELVES!?!?
The source of the gold
The revelation that Russia is “selling gold to itself” and lack of acknowledgment that Gokhran exists – is a MAJOR omission by the World Gold Council in their aggregate gold bullion data.
++Additionally, the World Gold Council also reports that as of October 2009, gold exchange-traded funds held 1,750 tonnes of gold for private and institutional investors.
GFMS is the world’s foremost precious metals consultancy, specializing in research into the global gold, silver, platinum and palladium markets.
GFMS is based in London, UK, but has representation in Australia, India, China, Germany, France, Spain and Russia, and a vast range of contacts and associates across the world.
Our research team of fifteen full-time analysts comprises qualified and experienced economists and geologists; while two consultants contribute insights on important regional markets.
Executive Chairman Philip Klapwijk and CEO Paul Walker appear regularly at international conferences and seminars, and their articles have been widely published. All analysts travel regularly and extensively to stay in touch with GFMS’ unrivalled network of contacts and sources of information around the world.
With 15 full-time analysts, two consultants and “representation” in Russia – how is that GFMS [and by extension the World Gold Council] can omit such a large hoard as stored at Gokhran and materially misreport the nature of Russian gold reserves? They didn’t even mention the existence of Gokhran in a footnote.
Gold professionals who have been inside Gokhran [Russian] State bullion depositories have provided me with personal accounts of this bullion depository. They report scenes reminiscent of the movie Gold Finger – on steroids – literally countless metric tonnes of neatly stacked gold bullion.
So, a better question might be, what else – regarding GOLD – has GFMS and the World Gold Council not reported or omitted?
Getting A Beat On Where the World’s Physical Gold Is Stored
It is generally accepted that for the entirety of mankind’s existence on this planet – the earth’s crust has yielded roughly 160 thousand metric tonnes of gold. The World Gold Council / GFMS identifies where roughly 32 thousand tonnes of that total are located.
We might add to what’s listed above, the following:
“No one knows exactly how much gold has been passed from generation to generation and is now stashed in safe deposit boxes across India. But bullion analysts estimate Indian families are sitting on about 15,000 tonnes of gold worth more than $US550 billion ($A600 billion).”
Then, if we conservatively assume that the rest of the world has as much as India stored away in safe deposit boxes – that’s another 15,000 metric tonnes.
Therefore by using reported World Gold Council / GFMS data plus some very conservative assumptions, we can approximately account for 62,000 metric tonnes of the world’s roughly 160,000 metric tonnes ever mined.
By the process of elimination and adjusting for the 62 thousand metric tonnes referenced above, there is a residual 98 thousand metric tonnes of physical gold bullion; the location of which cannot be readily identified.
The very nature of World Gold Council / GFMS data may be characterized as being static and don’t tend to change much year-over-year. This demonstrates that the owners of gold bullion DO NOT GENERALLY
TRADE THEIR PHYSICAL STASHES – they sit on them!
The Conundrum That “IS” the London Bullion Market Association [LBMA]
The LBMA is considered to be the world’s foremost physical gold market. Here is their data on the number of ounces of gold “transferred” DAILY – by month, year-over-year – from Nov. 08 – Nov. 09:
|Month||Millions of Ounces Transferred / Day|
There are 22 business days per month, so the LBMA claims to have traded 151,046 metric tonnes of gold in the most recent 12 month period.
22 = 5,328 million physical ozs or 151,046 metric tonnes
The LBMA reports that they have “transferred” or traded 151,046 metric tonnes of gold – a commodity that when folks possess it, they are demonstrably inclined NOT TO trade it. Using another bench mark, annual global mine production is in the neighborhood of 2,500 metric tonnes. The LBMA claims to have sold last year’s global mine supply over 60 times in 12 months.
The LBMA claims to do this year-in, year-out.
This implies that ANY LBMA physical gold stocks are HIGHLY LEVERAGED through trade in paper gold
London is but one exchange where gold trades. Others include N.Y., Tokyo, Dubai, Bombay and different points in China. Don’t forget, physical ounces traded on ANY of these exchanges are additional ounces that London cannot be trading.
The reality is that every physical ounce of gold reported to be in the vaults of the LBMA and exchanges in general, is sold tens and perhaps more than a hundred times over in paper form. This paper selling suppresses what would otherwise be the freemarket gold price.
The Russians are known to be very shrewd and calculating. It makes one wonder whether the Russian announcement of a sale of gold bullion – TO THEMSELVES – might not have been a “tell” signaling their intention to not only withhold physical metal from the market and ensure that paper promises of delivery of real metal are honored.
Could it be that the Russians are really signaling that the assignment of false, arbitrary values [using futures / derivatives] to finite resources will no longer be tolerated?
If so, the real leverage is in owning physical gold bullion – not the paper promises.