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When history books are written, last week may be described as the turning point in the – war between TPTB’s five-year deception – via money printing, market manipulation, and propaganda – and the reality that the terminal stage of history’s largest Ponzi scheme has arrived.  Sure, they still have a few tricks up their sleeve – like last night’s 54th “Sunday Night Sentiment” attack of the past 55 weeks, and 259th “2:15 AM” raid of the past 292 trading days, whilst the only material overnight “news” was the COMEX not raising PM trading margins, but lowering them.  However, with each passing day, the façade breaks down further.  As Yoda would describe it, the “shroud of the dark side has fallen.”

Following last week’s collapse of Austria’s largest financial institution, Erste Bank (left), and this week’s collapse of Portugal’s largest bank, Espirito Santo (right), there can be no doubt the European banking collapse we have warned of is in motion; and clearly, that Mario Draghi was well aware when the ECB instituted negative interest rate policy last month (with the promise of significant, near-term QE).

AH 7 15 a

Today, we discuss TPTB’s desperate attempt at “damage control,” as disingenuine as it is transparent.  Sort of like Kevin Bacon in Animal House, screaming “all is well” to the stampeding throng.  To wit, mere hours after Thursday’s revelation that Espirito Santo is on the verge of bankruptcy, the “clown posse” that is the Bank of Portugal told depositors to “stay calm,” whilst Goldman Sachs said a domino effect is unlikely, and RBS averred the situation is “more likely than not, an isolated incident; and thus, should not be mistaken for systemic stress.”

To start, answer me this.  Exactly why are we listening to these people?  And does it not appear they “doth protest too much?”  To wit, the Bank of Portugal has resided over the all-out collapse of the Portuguese economy and banking system; whilst Goldman Sachs was bailed out, and RBS nationalized – in all cases, following catastrophic economic misjudgments.  Unquestionably, all three will be vaporized if they are wrong about such “containment”; and thus, never has the term “talking one’s book” been more apropos.  In our view, such “predictions” have the potential to be among history’s worst; not to mention, Goldman’s laughable misdirection forecast of $1,050 gold.

Frankly, it reminds me of Ben Bernanke’s infamous May 2007 quote that “we do not expect significant spillover from the subprime market to the rest of the economy or financial system”.  Or better yet, his January 2008 quote that “the Federal Reserve is not currently forecasting a recession”; his July 2008 belief that “GSEs are adequately capitalized, and not in danger of failing”; and the granddaddy of them all, his January 2009 lie that “the Federal Reserve will not monetize the debt.”  Rounding off the brilliance of said “clown posse,” it was just two months ago when both Moody’s and S&P upgraded Portugal; the IMF said Portugal was in a “strong position”; and Angela Merkel predicted Portugal was on the verge of exiting its bailout.  Alas, the lies people believe, and the liars that tell them.  To the contrary, the Erste and Espirito Santo crises cannot, and will not be “contained” – as the toxic European banking system has never been more intertwined, nor vulnerable to inexorably weakening economic activity.  Whether this is event catalyzing the lack of “containment,” only time will tell.  But if not, something similar inevitably will.

To that end, we’re reminded of the fatal flaw in TPTB’s efforts to whitewash reality with intervention; which is, that even history’s most maniacal effort to disguise systemic insolvency has not been able to cover all bases.  To wit, the “Dow Jones Propaganda Average” and S&P 500 may be supported every second of every trading day, but the vast majority of “lesser stocks” have not kept up.  Which, by the way, explains why hedge funds have vastly underperformed for years.  And the same goes for bond markets, where Treasuries and mortgage-backs have been specifically targeted by QE, but many other fixed income instruments have not managed to “ride the tide.”  Or, for that matter, real estate, where bubbles in “1%” homes above $1 million have not fostered similar gains in the remaining 99%.

With each passing day, the gap between government-supported “big caps” and thousands of “lesser” financial assets has become more obvious.  In last week’s “state of the world, in one horrifying chart,” the gaping wound this disparity has become was depicted in all its glory, as one of the industry’s largest municipal bond funds recently broke below its 2008 crisis lows.  And by the way, this chart was published before Thursday’s Espirito Santos crisis.

AH 7 15 b

In other words, while TPTB’s market and media interventions are indeed powerful, they clearly don’t have enough “band width” to mask all the system’s warts.  If they did, they wouldn’t have “allowed” Puerto Rican, Argentinian, and Ukrainian sovereign bonds to plunge; much less, hundreds if not thousands of suspect municipalities and corporations.  Frankly, the manipulators’ failure to protect the largest banks in peripheral – but not insubstantial – nations like Austria and Portugal is quite ominous; let alone, Argentina and Puerto Rico, America’s “51st State.”

Back in the 1990s, I was a buy-side trader for a hedge fund; so believe me, I know a thing or two about “sympathy investing.”  That is, buying (or selling) companies or sectors are similar to others flashing bullish (or bearish) signals.  And trust me, this is exactly what TPTB have been hoping to accomplish, assuming that via sympathy trading, traders would “finish the job” of artificially propping markets for them.  Unfortunately, this is decidedly not working; and thus, even if they do manage to support, or even hyper-inflate, the widely watched indices, they most likely will lose the “deception war” as one by one, individual issues’ warts become too large and ugly to cover up.  First Erste Bank and Espirito Santo; and next, something higher up the food chain – until eventually, the disease migrates up the totem pole to its symbolic “head,” the U.S. dollar itself.

This coming week could be even more volatile than last, especially as gold and silver, little by little, are showing signs of emerging from the three-year “bear market” created by the most vicious, suicidal suppression efforts to date.  Remember, on Tuesday and Wednesday – at 10:00 AM EST, of course – Whirlybird Janet will give her semi-annual “Humphrey-Hawkins” economic testimony to Congress.  She’ll do her best to misdirect regarding the party line propaganda of “recovery”, “tapering,” and “low inflation.”  However, given the extreme dovishness proffered in last June’s FOMC statement, as discussed in “Yellen’s Last Stand,” and the broadening European financial crisis, the odds of such misdirection succeeding appears quite low.  And don’t forget that COMEX “commercials” have been maniacally naked shorting PMs for the past month, making them extremely vulnerable to a short squeeze if the aforementioned crisis worsens.

At the end of each week’s Audio blog, I note how the “holes in the dyke” are getting larger and more abundant with each passing week.  In our view, the expanding European banking crisis has the potential to “blow the damn up” as much as any issue TPTB have encountered to date.  Consequently, the reasons to own PHYSICAL gold and silver have never been more urgent – as once the “big one” hits, it will already be too late to protect yourself.  And, if you do decide to act, we humbly ask you to call Miles Franklin at 800-822-8080, and “give us a chance” to earn your business.