Midas Special - A Financial Scandal Unfolding Slowly Before Your Eyes
www.lemetropolecafe.com
This is not meant to be the comprehensive analysis of all that we intend to put together to illustrate to you that we believe a financial scandal of epic proportions will be revealed in time. This is summer time and I had no intention of writing this Midas, but in light of the events of yesterday, I thought I should recap some of our previous commentary and alert you as to what talk is making the rounds and what it means to you as a precious metals investor.
It is my opinion that what is going on in the U.S. markets RIGHT NOW is the crux of the gold problem. The current turbulence is the "raison d'etre" behind the manipulation of the gold price. In the Midas on Thursday I alluded to the fact that it was becoming clearer by the week, day, hour. Yesterday, it really was by the hour.
Yesterday began with a benign producer price index accompanied by retail sales that were a bit stronger than the consensus predictions. In addition the previous month's retail sales were revised upwards. The bond market fiddled up and down on the news and then swan dived, finishing the day down a point. Yields soared to 6.15%. An unthinkable number at the beginning of the year ( except to the Café's Charles Peabody and one other mainstream analyst ).
Even as the bonds swooned, the CNBC commentators remarked all day how boring everything was and the bond action was just ho hum and the general commentary was it was only a matter of time before they would recover and thus, the stock market would come roaring back.
Then, rumors started to swirl that the Fed was having, or would over the weekend, an emergency meeting concerning a hedge fund bailout. Stocks then headed straight south until the end of the day when "Mr. White Hand" showed up for the umpteenth time to lift the Dow 50 points late in the going.
Well, as all of you know we have been alerting you to hedge fund problems all week. No sense going into more of that. But what is of significance is that GATA has told the press and U. S. Congress that there are lurking financial problems ( of the Long Term Capital Management type ) lurking beneath the surface that were never resolved after that crisis. We told them that it was a time bomb and that we felt it was only a matter of time before they could be contained no longer. We told them that the gold price was being manipulated lower in order to: 1) protect certain financial entities that were short "leased gold" as part of a "gold carry trade", 2) to allow various financial institutions to continue to use gold as a cheap source of financing 3) to prevent "force majeurs" as the borrowed gold loans have risen to such a degree that they could not be covered without a major debacle if the gold price were to rise sharply 4) to discredit gold so much that its sinking price would serve to not draw attention to serious financial problems gurgling out of sight from public view and understanding.
The Fed denied to comment the press on the rumors yesterday, which is standard for them, but that headline, that they had no comment, was all over the wire services. We have no further comment either on the hedge fund bailout story except to alert you once again that something is very wrong out there. You might recall we just told you about the big banking meeting in Philadelphia in which all the participants were "strongly requested" to reveal NONE of the substance of the meeting. Alan Greenspan ( Mr. By Himself with Briefcase ) was rushed from that meeting surrounded by a "phalanx" of Secret Service agents. A clue that the financial problems are real is the fact that the bond yields have been soaring while the movement in the Philadelphia Utility Index seemed to be oblivious to the bond market retreat. An obvious divergence. The recent bond debacle, and that divergence, is telling you that the bonds are not tanking just on inflation fears. There are liquidity problems out there.
On Thursday, we alerted Café members that where there is so much smoke there is probably fire. Charles Peabody told you 5 months ago that there would be unintended consequences from the Greenspan led LTCM bailout and series of rate cuts. He told you that the un-parallel shift in the yield curve (short rates staying down and long rates moving up would not be good for the banks ). The bank stocks have already been hit sharply and if Charles is right, are just starting their descent. He told you many months ago that the financial problems were shifted, not fixed, and that these problems would most likely surface in late spring.
Midas has told you that the manipulation of the gold market started in earnest right after the LTCM bailout. That is clear. That is when the bullion dealers started roaming around South Africa, etc, offering unheard of credit terms and begged the producers to sell forward. That is when the got together to stop gold rallies at $306 or so, $296, and then $290. Out of bullets at $290, our officialdom called on the English Poodle ( Treasury ) to make its pathetically obvious announcement about its dumping 415 tonnes of gold. Clearly, this was done to demoralize the entire industry and it worked as gold dropped $30.
Throughout this period we have identified Goldman Sachs as "Goon Squad Leader", hit man designate for the gold market. And to capsulize: we know that former N.Y. Fed Governor, Ed Corrigan is a top exec at Goldman; their international economist Gavyn Davies is tied to England's Leader of the Pack, Tony Blair; sources say it was uncovered that Goldman Sachs was found to have a 1,000 tonne gold short position on their books, and one could say that Treasury Secretary Robert Rubin has some pretty close ties to Goldman as he used to be their CEO. Then of course you have Jon Corzine former Goldman Sachs top dog all buddy, buddy with John Meriwether, LTCM Chairman.
Do we really want to pick on Goldman Sachs? No! It is just that everywhere we turn, there they are. Needless to say, they have been noticeably on the sell side almost everyday since the BOE announcement. Yesterday ( with Fed emergency meeting rumors all over the street ), they were finally buyers.
The point of going all over this again is that it would appear we are here, or at least going into the period when all that we have been talking about in the Café is going to begin to surface. The bond yields surging to 6.15% is most likely the tip off that what we have been saying is correct. Liquidity is likely to become a big issue. For example:
We have been alerted by Charles Peabody that 4 to 5 weeks ago that many of the hedge funds put on the yen carry trade. They borrowed money in yen and then bought Treasury bonds thinking yields were going back down. A successful trade such as that could help them with any redemption problems, or cash flow problems, they might have. It backfired and they have been exiting this trade the past few days. That we know for sure.
Meanwhile back at the ranch, Britain's Finance Minister, Gordon Brown, was all over the tape yesterday talking about the righteousness of his gold decision and also that he was confident of an agreement about IMF gold sales by autumn. What timing! Just as bond yields are surging and there was to be news about potential hedge fund problems. This is more than redundant and sad, it shows desperation. Gold has dropped $30 and he has to come out with this headline, U.K.'s Brown Sees Wide Support for IMF Gold Sales.
Then, there is this little tidbit which may have everything to do with everything, or just be a coincidental anecdote. We received information yesterday morning that the President of one the largest hedged gold producers was in New York telling hedge funds that were short that the game had changed. I will leave that one alone for the time being. But, I submit to you that the jig is up for the colluders. We are on to them and it is most likely that events will begin to unfold in time that will expose their nefarious activities and their role in this big scandal.
The scandal is that there has been a great manipulation of the gold market that involves certain segments of the present U.S. administration, foreign administrations and various bullion dealers. The resulting suppression of the gold market has been put into place to mask failed, fiscal policies and to buy time for greedy financial institutions that want riches, but are unwilling to face the consequences when trading strategies go bad. It is about hubris that would make Zeus blush.
All the while, an entire industry is being devastated, many gold producing countries that are poor, or need the gold revenue, are being squeezed. An entire segment of investing shareholders is suffering terribly all because they were not informed the game was going to be rigged against them.
Unbelievably, while all this goes on, the financial press is completely asleep at the switch, or worse, just plain cowed to the money powers. They say that the bonds are tanking because of inflation expectations and say gold is tanking because of lack of inflation expectations. ?????????? I could go on and on here, but you know my spiel.
Instead, and to enhance to what I am referring to, I present an article this past Monday by John Crudele of the New York Post called "Feds pass Fraud Buck to Brokerages". While it is on a different subject, it captures the essence of what one faces when one presents information that takes on big money. The mainstream press ( wire services included ) loves to talk about the First Amendment and dissent, but present them with a solid story that goes against mainstream big money or the power structure in Washington and they retreat into a shell. My naivete is gone forever. My disappointment in the U.S. press grows and grows.
No wonder financial bombshells erupt out of nowhere. John Crudele's N.Y. Post story:
ONE defendant in a recent securities fraud case said he tried to cooperate with prosecutors by giving up damning information about two big Wall Street investment firms.
The U.S. Attorney's office in New York said "no thanks."
A second defendant said he, too, was willing to give damaging leads to prosecutors about one of those same firms. He was also told the feds weren't interested.
Then there is the case of a third man who recently came to my attention - a guy named Edward Manfredonia who's been carrying on a five-year correspondence with federal prosecutors in hopes he'll get someone interested in corruption on Wall Street.
"In the beginning, they were very interested. They wired me. They were going to tap my phone. And then it died," said Manfredonia, who was a trader on the floor of the American Stock Exchange before he turned into a whistle-blowing, letter-writing reformer. Some members of the Amex "bragged that it wouldn't be investigated. It went too high" - involved important people - said Manfredonia, whose accusations have been partly aired already in a series of Business Week stories.
The three men - all of whom I spoke with last week - have a simple question: Is someone protecting the Wall Street big shots while the government goes after the minnows ? That isn't to say going after any wrongdoing is bad. Anyone who ignores securities laws - whether they're home-based Internet traders or big firms - should be punished. But most of the enforcement lately has been against small fries- no big firms.
For instance, a former partner of Spear, Leeds & Kellogg last week was fined $100,000 for illegal trading on the Amex. Pasquale Schettino, that former partner, was barred for life by the National Association of Securities Dealers for trading without his company's or the Exchange's approval. That case came two months after a Spears trader was suspended and another was barred from the industry over violations at the New York Stock Exchange.
Spear Leeds wasn't cited for any wrongdoing in either case.
The NASD, the Amex and the NYSE wouldn't comment about it The NASD also declined to comment to the Journal on why Spear Leeds wasn't named or to confirm or deny any ongoing investigation.
The U.S. Attorney's office in Manhattan says it evaluates cases on an individual basis and that no deal exists for the securities industry to handle its own problems.
There are explanations for refusing to accept information.
The U.S. Attorney's Office in lower Manhattan, famous for going after every Wall Street violator back in the '80s when now-Mayor Rudy Giuliani was in charge, may simply think the information being offered wouldn't be useful. Or wrong.
Or, in not accepting information about big, powerful securities firms, the regulator/prosecutor establishment may understand that there are other ways for these matters to be handled - like the Schettino matter was, through disciplinary channels.
But if this trader breached securities laws, why wasn't he prosecuted the way someone would be if he was tipped off about an upcoming takeover?
While authorities say Schettino didn't make any money, the whistle-blowers - one of whom was intimately involved in that case - say there are plenty of examples of illegal profiteering by securities professionals.
One of the snitches says he volunteered to give authorities information on illegal activities of two major firms.
"They don't care," he said. Says another source: "We spoke about (one company). They didn't say anything. They didn't care. We didn't get an answer back."
The most prominent case in recent months has been the one against people connected with Oakford Corp., which wasn't a member of the NYSE but which did trade through brokers on the floor of that exchange.
In that case, charges were filed through criminal channels and not administrative ones. And people are going to jail.
Plus, published reports say that another 64 brokers on the NYSE floor are under investigation, some as offshoots of the Oakford probe.
But the betting is they will be handled through securities industry channels. And if wrongdoing is found, my three sources above believe something akin to the Schettino punishment - will be invoked.
In fact, the ambiguity of the rules may convince criminal authorities that it would be best to let the brokerage industry regulate itself.
That would be especially handy for everyone if large and powerful Wall Street firms suddenly find themselves in the target area. End
Yes, indeedy the stench grows. Which brings me back to when we were berated publicly by Long Term Capital Management's P.R. firm in a Dow Jones newswire story about GATA that was vanilla-ized by editors to such a degree that it was of interest to no one. In that story, Long Term decried the fact that they traded gold ( we never said they did, we said they borrowed gold ). Their senior counsel called our attorney making similar denials and said he would send a letter to our attorney making his denials official ( remember ? ). Well, we have waited long enough. The letter NEVER came. And yesterday, in a potential breakthrough, a source of ours confirmed to us that he knows a former trader at Long Term Capital Management who confirmed to him that they were up to their eye balls in the gold carry trade. We will protect our source, and the trader, just like any other journalist would. A bit like "Deep Throat" was protected.
It is now time to go out and enjoy the weekend, but from a gold family standpoint, this backdrop is all good news. A big, big move in the gold market is not far off. That is what the bonds, silver, oil market ( headed towards $19 per barrel and more again ), and XAU are telling us. When this financial scandal is exposed, the world will finally realize why gold has performed so badly. They will learn that it was not gold that performed so badly, it was the manipulators that have given us such a lousy performance. And they will get the hook for such scandalous behavior. Before they do, the price of gold will soar as they try and cover their shorts. There will be a breaking of the ranks; like rats leaving a sinking ship. It happened during the financial crisis of late last summer. There will be no honor in this den of thieves either. It will start as some will run for the hills as they learn the jig is up; that will be followed by panic gold buying.
Yes, our day is coming, and as I said in my speech to the Investment Conference, we are going to be the ones with the happy grins on our faces.
Bill Murphy ( Midas )
|
