October 11, 2007
By John Galt
For the uninitiated, I am a historian by training and hobby, an op-ed writer and blogger by habit. Yes, to many this is a bad habit like smoking a pack of Camels per hour, but I continue to persist in this endeavor to harass the naysayers and those on the cruise ship sailing into disaster on the Denial River. After reading “The Black Swan” by Nicholas Taleb, one has to reflect on years ending in ‘7’ and the unfortunate habit of October being the month of financial doom for the equity markets. If you look at the build up of bad news, the absolute fallacy and price inflation along with the obscene cheer leading with false news and rumors to pump and dump the markets up on the average schmuck investor, it makes rational people think “where’s the crash”. The heck with “rational people” the technicians are befuddled also, as every indicator flashes “Danger Will Robinson, Danger” when reviewing the charts and listening to their commentary. The reality is that the introduction of a “Black Swan” event seems to be the catalyst everyone is waiting for to cause a market decline. Yet day after day, hour after hour, the white swan of stability swims in the equity pool side by side with the bulls.
“What me Worry?”
Logically speaking, if any one of us follows the day to day gyrations of gold, the dollar and the credit markets we should be in absolute and total panic by now. The price of oil should be sending the consumer into their bunkers and Santa Claus into abject panic as everything the kids ask for has been recalled because those evil Chinese Communist elves cut costs and use all that lead paint we left over in China during World War II. But the Alfred E. Neuman market continues to attain new highs, where bad news is good, good news is good, and no news is good. Where strikes by auto workers, Israeli Air Force bombing attacks in Syria, and a Congress looking to raise taxes on anything that’s a mammal have no effect on equities. The “what me worry” approach to investing seems logical faced with the what else are you going to do with those worthless dollars and your mutual fund theory of investing, but the fear the Fed will quit cutting rates and undercut the market momentum hangs out there. So how do the big banksters and investment houses insure that somehow, some way, the cheap money keeps flowing, the dollar and those baby boomers be damned?
Break out the Spray Paint
In the theories of random chaos or random event occurrence, it seems that the market psychology is to ignore these events and gloss over them in the hopes that the average investor and especially the foreigners do not get upset and start closing accounts and cashing out. Since the idea of suing for fraud has pretty much been laughed out of the courtrooms and the politicians are bought and sold by these prim and proper business folks like you and I change our shorts, the idea of painting black swans white has been the practice, whether via the idea of news suppression or the concept of “creative accounting” to prevent crashes from happening. After all, we can not upset the masses who need to maximize their level of debt so they can keep buying more stuff they can not afford and retire into programs which promise huge payouts when they turn 65, even thought the dollar will practically be worth 75% less by that time. This brings me to a disturbing but quite potentially realistic theory on the next two weeks; the most dangerous I have seen in these markets since October 1987. You see, there is a lot hinging on the continued idea of a Federal Reserve rate cut on October 31st. The bettors who call themselves brokers are convincing themselves and everyone else that all the banksters will hold hands, sing songs and cause the karma to cut rates. As well as the fact they promised Ben cheap gas for his chopper to insure a successful money drop. The snag in this theory occurred of their making though, in the last three weeks.
They Believe Their Own Fake Numbers
The title above is neither incorrect, nor a work of fiction, but a frightening reality. The Federal Reserve banksters have made recent statements to indicate that the phony numbers published by the BLS are believable and maybe, just maybe, they were a tad bit overzealous about cutting rates that much in the last meeting. In reality, by committing this act of dollar suicide, they bailed some banksters out with their arbitrage investments they have perfected using the Yen carry and other exotic trades, but in no way did this stop the real estate bleeding which is just beginning. In fact it did more to aggravate the long term interest rates and cause them to skyrocket than to moderate the A.R.M. resets or velocity of foreclosures in the pipeline. Along with the involuntary foreclosures, there is little public data to indicate the severity of failed land deals, voluntary surrenders or commercial defaults which have impacted the bankster’s bottom line. This means the Federal Reserve actually has to talk to its member banks and the hedge funds to get a feeling of panic. Yet the public pronouncements on Bubblevision have done little to calm the backroom hysteria still under way. You can only put so much lipstick on that pig before the squealing gets too loud and right now, that’s one ugly cherry lipped pig screaming “cut” right now.
Unfortunately, political reality has met financial reality in the Fantasyland Hotel and the ugly pig they birthed has mired their flexibility in a quicksand of lies. The politically approved and motivated numbers have to indicate a growing economy with low unemployment and inflation to insure the election year disaster facing the incumbent party is mitigated and controlled so the election is not another “it’s the economy stupid” moment, which would spell disaster for the Republicans. The financially fallacy side of the trade is just as devious, as they can not report super negative numbers in their financials to induce a panic prematurely until the hedgies and ultra wealthy nations and clients have had time to reposition their assets in safer instruments. The obvious clashing of the two lies has had the effect of neutralizing and paralyzing the markets into moving on thirty stocks or big caps and little else. The financial reporting period is well under way and with the Denial River crowded with Level Three accounting nonsense, all we need is some seed and the fertilizer they spew will feed the world for three decades to come. This means that the publicized reports by both the government and corporations are so politically motivated, so corrupted, that only those with a large amount of money or insider connections can get the true skinny as to find out what is next. But what if the news is so typical; the reporting so “Goldilocks”, that is causes the Fed to pause? That base just might as well have been covered also, and that’s why this writer is so concerned, that I felt motivated to pen this little ditty…..
Paint it Black
The Federal Reserve meets in two weeks and the deliberate destruction of the dollar must be insured so the markets do not crash, the monetary conversion process can continue unabated, and the banksters can continue to extract wealth from the middle and lower class via the inflation tax. So how does one induce the Federal Reserve to act without raising suspicion, bribery, or some other devious action? If there are no “black swans” migrating into the picture the solution is simple:
Paint a white swan, black.
The ability to manipulate your own accounting practices and principles allows anyone the flexibility to create a crisis at will. This is pure speculation on my part, but what if over the next seven to ten days a large investment bank was able to generate a temporary crisis by reporting numbers so bad, you know, by actually reporting the losses they incurred in the derivatives market, it caused a 5-12 percent stock market correction? Although you the reader might “gasp” at that concept keep in mind, the mysterious world of “mark to model” is still under wraps with the full blessings of the Fed and our government because no one wants to look behind the curtain in Oz. But if a disastrous loss could be reported that generates just enough market instability to force the Fed to act, then the profits realized by off shore hedge funds affiliated with the reporting company and overseas interests could well offset the immediate financial and political pain. In other words, instead of the “white swan” mundane Bubblevision “well we had a few write downs” nonsense reports we get on a daily basis, just before or after the markets open, someone drops a bombshell. Before you get all excited and say it is not possible, keep in mind these actors do not operate in the dark. If they expect or desire bad news, they simply dial 1-800-CAY-MANS and have their hedge funds borrow some Yen, load up on puts on their own company and others in their industry, and initiate the action to cash in. Add in a Fed rate cut and some currency plays and the “announced” losses could be offset with a boatload of cash in just a week, while also profiting from buying puts on their competitors who would share in the profits and inside information. This kind of synthetic crash also enables one bank to acquire another weaker sister that normally would not be allowed due to competitive restrictions under the guise of “depositor integrity” or some other such nonsense. While there is a lot of denial about this type of coordination, keep in mind that if it were not for these banksters and their pet hedgies in the islands, the U.S. government bond market probably would have crashed years ago. So to keep the illusion intact, everyone has been working together to keep this thing cobbled together.
There is no reason to doubt they are still working hand in hand, to keep it intact now, especially since Christmas and annual bonus time is right around the corner. For this personal investor, uh, that’s “me” the author, I’m loading up into safety. While a lot of people think safety means a Kevlar bullet proof vest, I’m making my vest out of silver and gold. With this upcoming potential manipulation, we could see a sharp correction in the precious metals as margin calls squeeze out some hedge funds and investors who have been raking in huge profits in the recent move. That being said a ten percent correction in gold and silver would be healthy and final. If the market crashes twelve percent in a week, look for the metals to do the same. Then the minute the Fed cuts rates, be it 25 or 50 basis points, watch out. The dollar crash will be resumed with a ferocity unseen in history as by Christmas we should approach the 72 level if there is one more cut for the holidays. This will trigger the last buying opportunity and final chance to profit in the precious metals before the hyperinflationary cycle engages in overdrive.
The Danger of Unintended Consequences
While this idea of painting the white swan black seems logical, controllable, and sane, there is a wild card. Should a major world geopolitical event trigger an actual “black swan” or random event simultaneously with the painted swan, then we could experience an actual equities and bond market crash that would be unrecoverable for over a decade. There is a lot of historical precedence to indicate that market manipulations can trigger or coincide with true, unexpected real world events outside of the puppet master’s control. No one anticipated Hitler’s rise to power starting in 1932, the start of World War One in 1914, nor the creation of a group of Islamic power centers in the 1970’s as a result of attempted market and economic system manipulations of those time periods. The blunders and gambles blew up in the face of the players and the refrain “we’ve learned our lesson” is always the same, no matter how bloody the results. Keep this in mind in the weeks to come.