Whenever we are subjected to a farce like today, I remind myself of David Schectman’s words, suggesting I would “melt” without the Cartel to play my foil. From a business standpoint, he makes a strong point, as the greatest value proposition of my entire career has been my ability to translate its actions to less accomplished “Cartel-watchers.” I believe my knowledge of this space surpasses 99.9% of the world’s population, and given that it is the only asset that can provide salvation from the HYPERINFLATION that awaits us, I can perform no greater service than to expand your knowledge of the causes, machinations, and projected results of history’s greatest Ponzi Scheme, the fiat-based “dollar standard.”
As noted in prior RANTS, today was destined to be historic, and not because it is a relatively rare “leap day.” Three major events were scheduled the ECB’s “LTRO 2” MONEY PRINTING announcement, Bernanke’s semi-annual “Humphrey-Hawkins” Congressional testimony, and the ISDA’s deliberations about the impact of the Greek bailout proposal on the status of Greek CDS insurance.
Of the three, the least relevant is the ISDA deliberations, not just because they have been delayed until tomorrow but because there is little doubt this “self-regulating trade group” would rule in a manner contrary to their interests. Given that five U.S. banks have written 97% of all European CDS instruments (remember AIG?), and that these five banks – Bank of America, Goldman Sachs, JP Morgan, Citigroup, and Wells Fargo – control the ISDA, the odds of it declaring Greece to be in default are essentially ZERO.
No matter that Greek bonds and CDS’ are pricing in defaults, nor that Standard & Poor’s downgraded Greece to “default” yesterday, the ISDA will whistle past the graveyard, pretending a “voluntary 53% haircut” is not a default until the markets forces such a “decision” on them. And I assure you it will, either by the reality of a 100% default (voluntarily or via collapse of the bailout proposal), or by the market for Greek bonds and CDS’ going NO BID.
More importantly – and incredibly relevant, particularly in Jim Sinclair’s view – is that the PROCESS of determining Greek’s default status will expose the ISDA for the fraud it is, a government-sanctioned racketeering organization that collects CDS fees but doesn’t pay out claims. Not only will it reduce the CDS market’s ability to be considered “insurance,” but bankrupt countless financial institutions that believed Greek CDS’ would protect them. To Sinclair, this act will officially “kick the can into the wall,” guaranteeing “QE to Infinity” due to the MASSIVE liquidity required to prop up the aforementioned bankrupt institutions, not just for their “non-exposure” to Greek CDS’, but the entire fraudulent CDS industry.
I maintain that the current Greek bailout proposal is an unadulterated sham, with the odds of the Greek people allowing it to be enacted as written slim to none. The opposition party leader – heavily favored to win the upcoming April elections – has already vowed to renege on any EU-led bailout immediately, and when that occurs, even the criminal ISDA will be forced to admit Greece is in default, triggering hundreds of billions – if not trillions – of CDS’ payable by the aforementioned five criminal banks.
As I write, a Greek bank run is ongoing, as many will in some way, shape, or form be shuttered in the coming year. Not only that, it is inevitable Greece will depart from the Euro currency – voluntarily or not – unleashing massive hyperinflation on the Greek people. Take a guess what they’re buying with their bank-withdrawn Euros, and I’ll give you a hint, it’s NOT dollars, pounds, or Francs.
Secondly, we had the ECB’s “LTRO 2” MONEY PRINTING announcement this morning, as described in yesterday’s RANT.
The total HANDOUT of essentially indefinite 1% “loans” was €529 billion, in the middle of the “expected” range of €300 billion to €1 trillion, but more alarmingly, 800 different banks received such “loans” compared to just 523 in November’s “LTRO 1.” This news was out hours before gold and silver were bombed, and consequently PMs rose when it was announced, particularly silver which just before the “LEAP DAY VIOLATION” was initiated, was up $0.50 to $37.50/ounce.
In other words, not the slightest bit of “surprise” emanated from “LTRO 2” – which by the way stands for the euphemistically named “Long-Term Refinancing Operation” – so the ENTIRETY of today’s attack was engineered around Bernanke’s Humphrey-Hawkins testimony, which NO ONE could possibly anticipate would result in anything remotely hawkish (don’t worry, it wasn’t).
So here was the setup, and why the Cartel did what it “had to do” today. For the past two months, surging global PHYSICAL demand had successfully undone the damage from December’s “OPERATION PM ANNIHILATION II,” while simultaneously global QE operations accelerated, with the Fed, ECB, BOE, BOJ, and PBOC ALL announcing significant MONEY PRINTING initiatives while worldwide economic activity stagnated. The only things materially rising over this period – other than gold and silver – have been DEBT and OIL prices, compounding an already horrific stagflation brew. Just last week, gold and silver broke the Cartel’s ULTIMATE lines in the sand at $1,750/oz and $34.00/oz, respectively, that had been staunchly defended with naked shorted PAPER for the past five months, and yesterday silver had a killer up move portending a rapid surge toward its all-time highs.
Worse yet, seemingly each time Bernanke has made public statements in recent weeks, PM prices have SURGED, prompting numerous media outlets to call Bernanke a “goldbug’s best friend.” Such open mockery kicked the institution of the Federal Reserve when it was down, further undermining confidence in its ability to “lead” the world to prosperity through MONEY PRINTING.
Thus, with Helicopter Ben essentially regurgitating the same “ZIRP until at least late 2014” drivel that was announced just last month, validated by calls for further “aggressive action” from voting FOMC members are recently as last week, the Cartel was terrified that today could result in a “disorderly” surge in Precious Metals, particularly in the very PHYSICAL markets threatening its very existence. In other words, they truly feared a watershed day for PM momentum, and thus were forced to go back to the well for yet another “named storm” attack.
So it’s 10:00 AM EST, and TRUST ME it’s no coincidence that such testimony is scheduled for this KEY ATTACK TIME, representing the end of global PHYSICAL PM trading. Helicopter Ben shows up in front of Congress with the below prepared comments, which I wrote out – rather than simply posting a link – to make sure you read them. As dry as the comments are, you need to see them to realize ABSOLUTELY NOTHING incremental was said compared to the hyper-dovish remarks made after the FOMC’s last meeting on January 25th, just five weeks ago, and I truly mean ABSOLUTELY NOTHING. To make this droll exercise slightly more palatable, I have bolded certain lines to emphasize the utter lack of change in ANY of the FOMC’s previous statements, particularly the most important section, titled BERNANKE ON WHAT THE FOMC MEANS BY THE TARGET RANGE FOR THE FED FUNDS RATE.
The following are highlights from Federal Reserve Chairman Ben Bernanke’s prepared testimony on Wednesday to the House of Representatives Financial Services Committee on the U.S. economy and monetary policy.
BERNANKE ON THE ECONOMIC OUTLOOK
The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards. After minimal gains in the first half of last year, real gross domestic product (GDP) increased at a 2-1/4 percent annual rate in the second half. The limited information available for 2012 is consistent with growth proceeding, in coming quarters, at a pace close to or somewhat above the pace that was registered during the second half of last year.
BERNANKE ON THE RECENT IMPROVEMENT IN THE LABOR MARKET
The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend; continued improvement in the job market is likely to require stronger growth in final demand and production. Notwithstanding the better recent data, the job market remains far from normal: The unemployment rate remains elevated, long-term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high.
BERNANKE ON THE OUTLOOK FOR THE UNEMPLOYMENT RATE
With output growth in 2012 projected to remain close to its longer-run trend, participants did not anticipate further substantial declines in the unemployment rate over the course of this year. Looking beyond this year, FOMC participants expect the unemployment rate to continue to edge down only slowly toward levels consistent with the Committee’s statutory mandate.
BERNANKE ON DIFFERENT SIGNALS GIVEN BY LABOR MARKET AND FINAL DEMAND DATA
In light of the somewhat different signals received recently from the labor market than from indicators of final demand and production, however, it will be especially important to evaluate incoming information to assess the underlying pace of economic recovery.
BERNANKE ON ACTIONS BY EUROPEAN POLICYMAKERS AND CHALLENGES THEY FACE
A number of constructive policy actions have been taken of late in Europe, including the European Central Bank’s program to extend three-year collateralized loans to European financial institutions. Most recently, European policymakers agreed on a new package of measures for Greece, which combines additional official-sector loans with a sizable reduction of Greek debt held by the private sector. However, critical fiscal and financial challenges remain for the euro zone, the resolution of which will require concerted action on the part of European authorities. Further steps will also be required to boost growth and competitiveness in a number of countries. We are in frequent contact with our counterparts in Europe and will continue to follow the situation closely.
BERNANKE ON INFLATION PRESSURES
In the projections made in January, the Committee anticipated that, over coming quarters, inflation will run at or below the 2 percent level we judge most consistent with our statutory mandate. Specifically, the central tendency of participants’ forecasts for inflation in 2012 ranged from 1.4 to 1.8 percent, about unchanged from the projections made last June. Looking farther ahead, participants expected the subdued level of inflation to persist beyond this year. Since these projections were made, gasoline prices have moved up, primarily reflecting higher global oil prices – a development that is likely to push up inflation temporarily while reducing consumers’ purchasing power. We will continue to monitor energy markets carefully. Longer-term inflation expectations, as measured by surveys and financial market indicators, appear consistent with the view that inflation will remain subdued.
BERNANKE ON WHAT THE FOMC MEANS BY THE TARGET RANGE FOR THE FED FUNDS RATE
The target range for the federal funds rate remains at 0 to 1/4 percent, and the forward guidance language in the FOMC policy statement provides an indication of how long the Committee expects that target range to be appropriate.
BERNANKE ON THE FED’S BALANCE SHEET
The Committee reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in the context of price stability.
BERNANKE ON FEASIBILITY OF TARGETING EMPLOYMENT
While maximum employment stands on an equal footing with price stability as an objective of monetary policy, the maximum level of employment in an economy is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market; it is therefore not feasible for any central bank to specify a fixed goal for the longer-run level of employment. However, the Committee can estimate the level of maximum employment and use that estimate to inform policy decisions. In our most recent projections in January, for example, FOMC participants’ estimates of the longer-run, normal rate of unemployment had a central tendency of 5.2 to 6.0 percent. As I noted a moment ago, the level of maximum employment in an economy is subject to change; for instance, it can be affected by shifts in the structure of the economy and by a range of economic policies. If at some stage the Committee estimated that the maximum level of employment had increased, for example, we would adjust monetary policy accordingly.
BERNANKE ON BALANCING VIEWS OF EMPLOYMENT WITH THOSE OF INFLATION
The dual objectives of price stability and maximum employment are generally complementary. Indeed, at present, with the unemployment rate elevated and the inflation outlook subdued, the Committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives. However, in cases where these objectives are not complementary, the Committee follows a balanced approach in promoting them, taking into account the magnitudes of the deviations of inflation and employment from levels judged to be consistent with the dual mandate, as well as the potentially different time horizons over which employment and inflation are projected to return to such levels.
Continue Reading LEAP DAY VIOLATION and the Thursday Morning Commentary for 3/1/2012