Failed CB Franchise & Gold Explosion

Jim Willie CB
Jim Willie CB is the editor of the "Hat Trick Letter"
Nov 26, 2008

Use this link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The OMEN for a powerful shift in the gold market in my playful mind was the very real earthquake on November 18 here in Costa Rica, a clear signal from the financial gods, no minor tremor, measured at 6.0 on the Richter scale. The tremor confirmed the tectonic shifts to come to the gold market without question. This was the biggest earthquake in my life, no damage at all though, roof and toys intact. Numerous stories testify in aggregate to a severe tightening of the physical market, certain to put pressure on the corrupt paper market managed by the COMEX and its parent NYMEX.

Be sure not to miss the spectacular conjunction of planets and the moon in the southwest sky, over the next few days. The opportunity is for those in the Northern Hemisphere, sorry Australians and New Zealanders. Venus will converge with Jupiter, seen in nearly equal magnitude of brightness. When they are close in a few more days, the moon will enter the picture as a crescent in a spectacular display. For the description of the highly unusual event, check the NASA website (CLICK HERE). One could regard this event as another omen for a COMEX gold default, a stretch, but a legitimate one.

THE GLOBAL SHAME OF CENTRAL BANKS

On October 29, the US Federal Reserve cut by 50 basis points the official Fed Funds rate down to 1.0% flat. Do not expect the USFed to be done cutting rates. One week later, the entire globe of beleaguered central banks also cut their official interest rates in a parade of ignominy. They coordinated rate cuts on October 8, and again followed the USFed in early November. The important Euro CB cut by 50 basis points to the 3.25% level, surely in reluctant fashion given their firm defiant stance. The most desperate CBs are clearly England and Switzerland among the majors, and Australia and New Zealand in the second tier. The Bank of England (BOE) cut by 150 basis points unexpectedly, now at a 3.0% low level. The Swiss National Bank cut by 50 bpts with the pack, but on November 20 surprised all by cutting another full 100 bpts down to the ultra-low 0.5% level. The Reserve Bank of Australia cut by 100 bpts in October and plans to cut again this month. The Reserve Bank of New Zealand cut by 100 bpts in October and also plans further cuts. The Bank of Canada cut by 25 bpts in October and plans another 25 bpt cut in December. The Riksbank of Sweden cut by 50 bpts to 3.75% in October and plans another 25 bpt cut in December or soon afterwards. With global monetary inflation raging, and official interest rates converging to zero, the global central bankers must hang their heads in shame. THIS IS THE MOST VISIBLE, OBVIOUS, PREVALENT SIGNAL OF THEIR FAILURE.

The contained messages are four-fold:

• ABSOLUTE CONTAGION: the global economy is suffering from broadly felt toxic shock due to US bonds, a process that has a few more quarters of severe crisis pathogenesis
• POLICY EXTORTION: the major and secondary CB heads want to cut so that the US$ does not fall, coerced with a monetary gun at their heads
• INFLATION EXPLOSION: global monetary growth has gone ballistic, no longer a priority to control, with all talk about limiting price inflation relegated to mumbling in the corner
• ENDLESS RESCUES & BAILOUTS: the government sponsored bailouts are nowhere near finished, sure to be an endless parade of patchwork and stimulus with eventual climax of mortgage aid.

Just think of it. The USGovt, after a coup d'etat pulled off by Wall Street and fraudulent climax diversion of TARP funds, has yet to address the mortgage problem at all. Mortgage aid in meaningful and necessary terms is actively avoided, since it must come with a price tag up to $2000 billion in the United States alone. The nationalization of the US banking, if not financial system, is highly likely to be followed by an eventual virtual nationalization of the entire mortgage system. Such a decision and desperate socialist action will be the death knell for the USDollar, if it survives to the point when such a program is enacted.

The unbridled monetary inflation is a powerful bull market signal for gold, once asset prices stabilize. Monetary explosion always pushes gold upward in price, but this time much money is directed into a multi-channeled black hole. Today, yet another program was announced, finally to enable more lending capital to banks. They have been starved to date, drained in order to supply the corrupt Wall Street conmen in charge. The coordinated interest rate cuts reveal the strong impact of Competing Currency Devaluation. Foreigners wish to avoid further aggravation to their economies from even lower domestic currency exchange rates. They inflict higher prices upon their economies. Later, foreign governments will order their reserves and sovereign wealth funds to dump USTBonds in order to bolster their domestic currencies, the great counter-attack. The USEconomy has a worse problem to fix by an order of magnitude. My view is that the powerful US ailments are not fixable, since the financial engineering is too deeply rooted and the manufacturing industrial base has been removed in several stages over a 25-year period. Besides, the credit derivatives loom like a series of hidden bombs whose fuses intersect in the dark.

THE FRANCHISE OF CENTRAL BANKING HAS FAILED, AND GRAND RATE CUTS CONFIRM THIS NOTION EMPHATICALLY!!! THE COLLECTION OF CONCLUSIONS ADDS UP TO ONE POWERFUL FORECAST: GOLD & SILVER PRICES WILL RISE 10-FOLD IN THE NEXT FEW YEARS. SOON THE CLUTCH WILL BE RELEASED AND THE 10000 RPMS ENGAGE THE ECONOMIC TRANSMISSION TO PRODUCE PRICE SKIDMARKS. Ignore for now the paper price heavy-handed influence, which in my view will suddenly disappear in a volcano of controversy and tumult! The US paper system has falsified the entire global pricing structure. Instead of price discovery, we have been subjected to price controls and tyranny. Next comes the counter-attack.

Lost faith in USFed has finally come. Chairman Bernanke has learned the hard way that usage of the printing press is not the boasted solution. He is sending good money after bad, redeeming criminal fraud, endorsing checks for a broken system, and creating numerous delivery channels into a vast black hole. The US Federal Reserve has accomplished a bizarre feat. They have made short-term lending virtually free, but offer a yield over 3% on long-term bonds. So US banks are deeply engaged in a queer carry trade.US banks borrow short and lend to the USGovt long, and thus exploit the steep USTreasury yield curve. The US banks are trying to liquefy from this perverse mechanism, using incredibly large volumes of money. In the process, the USFed balance sheet is testing whether it can grow a tree to the sky. The USGovt has contributed to the ugly mountain of rancid paper with bad precedent after bad precedent, from poorly written deals. No private investor in right mind would step forward to help an ailing industrial or financial firm on the absurd blockheaded terms established by the USGovt. A record setting 25% of high-powered money, as in bank assets, that the USFed has provided, actually sit idle as excess reserves. Hence, money velocity has sharply dropped, typical of a recession. Failure has many symptoms. The USEconomy aggregates are falling off a cliff in unison.

Europe has entered a recession, but the US has entered disintegration, while England is close behind with a galloping leap off the Dover Cliffs. Kenneth Clark [Clarke] is a highly respected former conservative Chancellor of the Exchequer (finance minister) from 1993 to 1997 in England. He delivered an urgent warning for a "catastrophic crisis [that will be] far worse than anything that has occurred in my lifetime" for Great Britain. Clarke even slammed Gordon Brown as having received undue credit for his role in attempting to shore up the global economy. He warned policymakers should beware of a "full-blown depression will have on public finances" for its effect. A major error has been committed by both the US & UK. Neither nation has succeeded in passing on lower interest rates to home loans, and repayment plans are not happening in volume. The elite in both the US & UK are protecting their bankers, but killing the system in the process. Housing prices are careening downward, while job losses mount in large numbers, in both nations. The death of the AngloSphere is nigh, as status of debtor nations comes soon with all its penalties. A simple move to cut rates does nothing to address insolvency of both banks and households. This basic truism is totally lost on clownish inept US & UK economists and bankers. They both built an economy atop a housing bubble, blessed it, and encouraged the debt orgy process, only to see the entire system melt down. This was fully forecasted during the last two years by the Hat Trick Letter.

A VERY QUEER ANOMALY

We are working toward a nasty climax of historic proportions. Notice that the USTreasury Bill has an artificially high price, with staggering huge volume, which is backwards. This condition defies Mother Economic Nature. Notice that gold has an artificially low price on the paper contracts, with staggering huge demand for physical metal, which is also backwards. This condition defies Mother Economic Nature.

The USTreasurys, given the staggering high volume, should be valued lower. The gold bullion, with its staggering high demand, should be valued higher. Something must break, and break soon. Regard these two anomalies as temporary distress symptoms of ass-backward price mechanisms. The natural tendencies of man, full of human emotions like vengeance and retribution, will soon be unleashed to correct the PHONY HIGH USTBILL PRICE AND PHONY LOW GOLD PRICE. All kinds of key evidence points to a COMEX default in December, discussed in the November Gold & Currency Report. The keys are in the Open Interest, which for gold is collapsing. But the December OI is holding up at relatively high levels. The interpretation from Mr Market, who is a distant cousin of Mother Economic Nature, is "The paper gold market is flawed, and people want no part of it. What physical gold becomes available is being grabbed immediately."

Further hints are offered by the Chinese, who announced a stimulus plan worth over $500 billion. They will use their USTBonds before they are trashed. The next phase is feeding off the USTreasury much like a dead elephant. However, the signature event must come first. THE COMEX GOLD MUST BE VANQUISHED. This is the Achilles Heel to the USDollar.

ATTACK OF COMEX GOLD & SILVER

Powerful foreign entities are preparing a massive major assault on the US financial corruption, at key spots. All signs seem to point to the gold futures contracts traded at the COMEX and NYMEX, whose prices are routinely suppressed by a high volume of uneconomic short contracts by two to four banks. The COMEX is a division of the New York Mercantile Exchange. A highly leveraged sequence is soon to be unleashed, one that should bring back thoughts of asymmetric attack. Think small cost of a weapon, heavy damage to costly equipment. Something big comes to the gold market, with big angry players! If successful, severe damage will be done to the USDollar. Their goal is to kill the COMEX gold market, the key location for gold price suppression. Major Russian, Chinese, Arab, and European bankers and billionaires are angry beyond words. The giant portion of gold vaulted resides in Central Europe. A plan is in place. The key here and now is COMEX gold futures contracts, where many big players are demanding delivery for their December contracts. North American investment houses have also targeting them for delivery demands. With newly energized Russia & China building their gold treasures, with Arabs turning from distrusted Western paper and more toward gold & silver, look for the new players to offer support to the primary thrust attacks. If successful, it will be a defining moment in US financial history. The first delivery notice for the December gold contract is given on November 28.

Recall that Russians and Arabs each have severe damage done to the crude oil price and petro revenues. The futures contract games conducted by US price systems and Wall Street tactics used against hedge funds are largely responsible. Russians and Arabs are angry. Their financial markets are in turmoil, their economies are disrupted, their property markets are in disarray. Furthermore, Russians and Arabs own a large amount of acquired gold, whose value is also pushed down by corrupt US paper mechanisms. The Persian Gulf lusts to put in place a gold trading center of world repute. A brutal powerful trap has been set, to be executed upon the paper engineers without mercy. If you have noticed the facial expression on some Wall Street heads, like Paulson, change in the last few weeks, this is one reason why. They have no shame in confiscation of Congressional funds. But they dread presiding over a failed pricing system for gold, and dread the prospect of being unmasked, not to mention bankrupted. Keep the focus on the JPMorgan garbage can, where the illegal futures contracts are stored, the very same contracts that are never marked to market on their balance sheet. A COMEX blowup reveals their grotesque distortion of market forces, underpinned by gold and USTreasurys. More details are provided in the November Hat Trick Letter report, like the movement by the Chinese and Iranians to vastly increase their gold reserves.

Veteran warhorse Max Keiser, has a video worth watching. See his video (CLICK HERE). He discusses the upcoming COMEX default for the December gold futures contract. He believes that in its wake, the gold price will rise suddenly to $2000 per ounce, perhaps in a single day. The main impetus in his view for the breakdown is pressure exerted by Russia, in his view. He describes their motive. Russia is very angry over the oil price, down 60% from its peak, driven largely by liquidations from Wall Street targeting of hedge funds. Russia regards the paper game to be out of control. Russia has suffered from both reduced energy revenues from export sales, and notable currency decline in their ruble exchange rate. Financial markets, banks, and corporations have suffered in Russia as a result, prompting a severe reaction by Putin and Medvedev. These are not guys known to take ambushes and sucker punches well without a response.

AWAKENED GOLD PRICE

The USDollar DX index has topped. Conversely, the gold price has bottomed. Each has experienced a clear vivid pronounced reversal off the extreme. Signs point to December as being a battleground month. The moving averages have begun to reverse, a more stable signal. A MACD crossover is near, which would give a billboard notice to technical traders. Beware that this is the phony paper gold price. Actual large physical gold transactions are conducted at prices in excess of $1,000 per ounce. The undue influence of paper price discovery is soon to end. As the Gladiator said in the 1999 movie by the same name, to the phony emperor who usurped power, "The time will soon come to an end for you to honor yourself." Expect severe discontinuity in the gold price in the next few months, maybe sooner. If Keiser and others are correct, and the assault on the COMEX gold succeeds to liberate its price, a gap up is assured, a big gap up, like a few hundred dollars per ounce. Now is the time to hold firm your gold and silver metal. Sell the children, but do not sell the precious metal.

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Nov 26, 2008
Jim Willie CB