Peabody, Tice and Murphy Predict Coming Chaos in the Financial Markets
Three of the prominent contributors to www.lemetropolecafe.com have issued
commentary, alerting Le Metropole members to severe financial market stress that
looms on the very near horizon.
Charles Peabody is one of the most highly regarded banking analysts on Wall Street and
is often quoted by Alan Abelson, Editor in Chief of Barrons. Peabody, in his recently
posted commentary at the Hemingway Table:
" As for the fundamental themes, I shifted my emphasis earlier last fall when the Fed
began to ease in an effort to bail out the capital markets and when the world's
government bodies set out to rescue Brazil. As I state back then, significant changes in
government policies will create unintended consequences and it is our job as analysts to
anticipate when the next sea change will be"…..After a brief Fed-induced rally, bank
stocks are likely to resume their descent….I see no value in bank stocks and at current
levels and expect at least two more years of price weakness and 60% to 80% of
downside….it will unfold in the form of a CRASH".
David Tice is often seen on CNBC, articulating the bear case. He has a vast array of
institutional clients and also is the portfolio manager of the Prudent Bear Fund, which
was the number one performing mutual fund in the United States in the third quarter of
last year. Tice, in his recently posted commentary at the Dos Passos Table:
"Recent data provide clear evidence that Japan and Asian economies are still in
depression, Latin America is quickly sinking into recession and acute financial stress,
European (and particularly emerging East European economies) economies are slowing
rapidly, and the American manufacturing and agricultural sectors are faltering".
"The reality remains that the global crises has made it very close to home just as we
have reached the climax of an unprecedented speculative mania and economic bubble.
We are in the very early stages of a Latin American crises that will prove much more
troubling for the US financial markets and economy than the bulls believe today".
Bill Murphy was written up in the Wall Street Journal in August 1988: "Trader Bill
Murphy's Correct Call On Rise in Price of Copper Pays Off". He also thinks we are
headed for financial market turmoil and believes that after many years of benign neglect,
both the gold and silver markets are poised for dramatic bull market moves.
It is his opinion, the gold market has been controlled by "officialdom and their
henchmen" for some time, but that there are very recent signs that times could be
changing. In his commentary at the James Joyce Table, Murphy has presented a great
deal of anecdotal evidence over a period of time that Goldman Sachs ( Secretary
Treasury Rubin's former firm ), for many reasons, has led a price capping attack on gold
along with other New York financial institutions.
The first sign of a change of this environment was the recent break out in silver. Second,
is a recent Goldman Sachs foreign exchange department release predicting a " a gold
breakout". Third, is a Goldman Sachs conference call calling for a major fall in the
dollar. Fourth, is the urging by U.S. officials to the Brazilians to devalue their currency
after congratulating the Chinese for not doing so.
To review all this commentary:
lemetropolecafe.com
January 15, 1998 - Spot Gold $286.90 up 10 cents - Spot Silver $5.12 down 4.5
cents
Special Commentary
We have identified Goldman Sachs and JP Morgan as the "Leaders of the Gold Selling
Pack". We also believe, that for various reasons, U S officialdom and some highly
visible financial entities have orchestrated the capping of the gold price to keep it below
$300.
For months we have documented anecdotal evidence for you that this is so.
Recently, Goldman Sachs replaced John Corzine as its CEO. A new regime was
installed. One of our more plugged in and astute www.lemetropolecafe.com members
suggested to me at the time that there would be changes in Goldman policies. He told
me right after the change of leadership was made to also look for a change in their gold
shorting policies at some point, because if the gold loans are as dangerously large as we
think they are, the newly appointed Goldman regime would not want to be caught
heavily short in a gold buying panic. We have been on that alert. Until late yesterday we
heard nothing, and saw nothing, but more Goldman selling.
We also suggested to you that if JP Morgan and Goldman Sachs were going to try and
extricate themselves from their very large gold short positions ( along with some others
in the "Crises Management Team" ), they might first do everything they could to attract
shorts to the market, so that when they wanted to start buying, the price would be a
good deal lower and there would be willing sellers around that they could buy size from.
Then late yesterday, one of our members sent us the following:
"In a surprising departure from the brokerage community's neutral to bearish
near-consensus on the future price of gold, Goldman Sachs' investment bank released
its weekly FX report predicting that "the spot price of gold bullion is poised for an
upside breakout." Part of the reason for such a prediction is their belief that the
Australian dollar will rise sharply against the U.S. dollar, as it is close to breaking above
a downward sloping trendline. A strengthening Aussie dollar will make Australian gold
producers less eager to sell gold forward, as they will receive diminished U.S. dollar
returns"
Midas did not know what to make of it. Was it a planted comment as a result of even
the Financial Times knowing how short they were? Did they want to deflect some
attention away from their shorting? It was time to do some checking around, so I called
one of our Wall Street wizards, a Le Metropole member. It just so happened he was on
a Goldman Sachs conference call. What a coincidence!
To my surprise and delight, the gist of the conference call is that Goldman Sachs said
today that the dollar has to go down and go down a good deal. They see a good chance
of our trade deficit ballooning to $20 billion per month at the rate things are going. The
Brazilian devaluation and their allowing their currency, the Real, to float, can only
exasperate the situation. A Brazilian soybean farmer now receives 30% more for his
soybeans than a US farmer does. Thus, he can sell his soybeans to end users more
cheaply than the US farmer can. This is not a happy day for US farmers as they are big
losers - his soybeans are just not as competitive. US exports of soybeans have to suffer.
It is not a happy day for other types of US merchants. Profit margins will be squeezed.
And this is the first week of the devaluation. The Thai Bhat, Indonesian Rupiah and
Russian Ruble, all continued to devalue after their first round of devaluations. What if the
Brazilian Real goes down 50 to 100% against the dollar? "Beggar Thy Neigbor" is now
in full bloom. How does Mexico compete against Brazil? By the way, the Mexican
Peso slid about 6% this week. How about US companies that have to compete against
Mexican ones?
Then, there is the minor problem of Brazil's US demoninated debt which I understand
was $275 billion last week. That has to be paid in dollars. The debt service went up
30% in a week. Two Brazil states are not paying their own government. Russia
defaulted.
What if Brazil HAS to?
We, the US, are a debtor nation already and our debt is growing by leaps and bounds.
Debt has to be serviced. According to Goldman, the servicing of our own debt is going
to be a problem unless something is done about reducing it. Our trade deficit has to be
reduced. It is already too high - $20 billion per month is unacceptable. The dollar must
be depreciated to reduce this deficit.
Goldman Sachs is Secretary Treasury Rubin's former firm. You can be sure that if
Goldman Sachs is putting out this commentary, it has Mr. Rubin's blessing, and most
likely, his encouragement. The best way to start the selling of the dollar is to let the
hedge funds and Wall Street insiders know what the next deal is. If I know this now,
you can be sure the Wall Street big guns do too. The wink is on.
This also makes sense because you have the Japanese and Euro crowd calling for more
stability in the exchange rates among the dollar, yen and euro. Maybe our Treasury
officials and Fed are considering just that. If so, the dollar must be trashed first,
according to Goldman. It must be trashed enough to erase our monthly trade deficit.
Then, perhaps some acceptable range for the dollar, yen and euro can be structured.
This should be a very bullish development for the gold market. First, our assessment that
Goldman and JP Morgan did whatever they could to break gold down so that they
could buy gold in size at favorable prices, may be correct. Second, there should be
some substantial gold buying coming from Goldman very soon. That should attract other
"informed" buying. Maybe that is why the XAU is so steady. Third, it may encourage
the Asian official sector to step up to the plate and buy many hundreds of tonnes of
gold.
Why not? You can be sure that if I have knowledge of the Goldman Sach's conference
call, they surely do. The Asian's dollar reserves are very large and their gold reserves
are very small. Why not switch some of those dollar reserves into gold reserves -
especially when you desire to have the Yen acquire reserve currency status. The greater
gold backing the better. And why make 5% in US bonds if the currency is going to go
down 15% from here. That is a negative 10% return. Worse, if the dollar is headed
south, then the prices of bonds are probably headed south too. That represents another
loss. It only makes sense that this "outed" information will bring the Asian official sector
to the gold pits.
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