When I was a buy-side analyst at a NYC hedge fund from 1996-98, our portfolio consisted primarily of small-cap, over-the-counter stocks. Many had large bid-asked spreads, tempting the fund’s managers to “paint the tape” by purchasing small lots with “market on close” orders at the end of each quarter. That way the portfolio was “marked up” in time for our quarterly fee assessments – which, naturally, were based on fund’s size. This practice, though not “illegal,” was – and still is – common practice; yet another reason why I eventually left Wall Street, kicking and screaming. Such “tape painting” is not only unethical but manipulative and borderline felonious.
Tape painting, of course, is not just limited to sniveling “hedge bombs,” but corporations, municipalities and sovereign nations as well. For corporations, Lehman Brothers was the poster child of “window dressing” its balance sheet at quarter’s end, engaging in overnight repurchase agreements that temporarily boosted its balance sheet before being unwound the following day. Sadly, this practice is not only alive and well, as “TBTF” banks are, in reality, far more insolvent than in 2008. And thus, the below graph of Federal Reserve initiated repurchase agreements over the past five quarters shouldn’t surprise anyone. To wit, when Lehman Brothers engaged in such deception, it did so via overnight “repos” with other banks; while today, the Fed itself is initiating!
Similarly, the government “paints the tape” in numerous ways, such as its quarter and year-end finances. Yesterday marked the end of its (September) fiscal year, and you can bet a slew of pork-barrel spending was jammed into the past few weeks, driving the national debt sharply higher. Not to mention, attacking gold and silver prices to maximize losses on PM-holding portfolio managers’ holdings; thus, discouraging them from holding them when they “start fresh” today. To that end, it should surprise no one that last year’s gold lows – in the $1,180-$1,190/oz. range – occurred on…drum roll please…June 28th and December 30th, respectively. Or that yesterday, amidst a swarm of PM-bullish news, the Cartel ended Wall Street’s third quarter and the nation’s fourth quarter with a massive gold and silver smash – naturally, at the “key attack time” of 10:00 AM EST. Silver was taken as low as $16.85/oz., and rest assured, if this were year-end, mining write-downs would have been unfathomable; as at such prices, I’d guess more than half the world’s mines would be deeply in the red.
And finally, there’s paint taping of other sorts, like the politically-motivated manipulation of economic data ahead of elections. Not that the “island of lies” doesn’t pervade all data publication these days, but especially periods ahead of key elections – like the upcoming mid-terms. Which, to be honest, was the initial catalyst for this article, before yesterday’s “fortuitous” coalescence of the aforementioned factors broadened its scope.
Recall two years ago, when the “unemployment rate” mysteriously plunged in the last NFP report before Obama’s re-election. At the time, the numbers appeared so rigged even mainstream commentators like former GE CEO Jack Welch – ironically, the king of corporate accounting shenanigans – accused the Obama Administration of fudging the numbers. And voila; a few months later, a census bureau whistleblower emerged, admitting he was told to produce a positive jobs number – which, as it turned out, placed the “unemployment rate” exactly 0.1% lower than when Obama took office.
This morning’s decidedly boring ADP employment report certainly doesn’t provide encouragement that Friday’s NFP report will be much better than last month’s disaster. Nor, for that matter, will yesterday’s “trifecta” of miserable data, of consumer confidence, the Chicago PMI, and the Case-Shiller real estate index; or today’s “superfecta” of horror, starting with mortgage purchase applications, followed by the PMI and ISM manufacturing indices and concluding with a catastrophic “unexpected” plunge in construction spending.
In fact, as I write, stocks are getting crushed, gold has recouped all of yesterday’s losses, silver is up sharply, and the benchmark 10-year Treasury yield has plummeted to 2.42% enroute to the 2.30% low achieved when the Fed “painted the tape” by goosing rates into the September 17th FOMC meeting, when absolutely “Nothing!” hawkish was uttered. In other words, the Fed put on a full-court press to prevent universal realization of the “most damning proof yet of QE failure” – but decidedly failed, when rates were promptly capped at the key 2.6% level we wrote of five months ago before promptly plummeting anew. In other words, they have already failed, which will become painfully evident after the elections, when U.S. economic data will, most likely, really plunge. And this time around, if the BLS attempts to BS the world with a fabricated September employment “surge,” methinks the market won’t “agree” with the same fervor as two years ago – particularly if the BLS is foolish enough to report another “unemployment rate” plunge accompanied by new Labor Participation rate lows.
As for the rest of today’s “horrible headlines,” what could be more symbolic than the first verified Ebola case in the States? Or how about this? Fannie Mae, which despite being nationalized, somehow has a new publicly traded stock is down 40% today and 80% from its March 2014 high, enroute to ZERO yet again. Talk about the adage, “some people never learn.” And speaking of stocks, recall our recent discussion of how nearly half of NASDAQ were in bear markets, despite the PPT-supported index’s largest stocks hitting record highs. Well that was nearly a month ago, just before the “Alibaba top” that clearly has the PPT on the run. Momentum stocks are getting attacked, the small-cap Russell index is in freefall, and pressure on even the big caps is intensifying – particularly homebuilding stocks, which are badly breaking down despite the so-called housing “recovery.” And oh yeah, high-yield bonds which just completed their worst quarter in three years.
Let’s face it, the global economy is weakening so rapidly and interest rates and currencies plunging so dramatically, that even history’s most maniacal scheme of money printing and market manipulation is straining under the pressure. Today’s news that Germany’s manufacturing PMI fell below 50 only fuels speculation of a return to the “Great Recession”; not to mention, rumors that the ECB will be buying up huge swaths of toxic PIIGS bonds following today’s scheduled QE launch. Heck, the IMF is vocally calling for massive deficit-funded European “infrastructure spending”; which if enacted, would likely serve as the coup de grace of unsustainable, unproductive debt accumulation before the Euro’s inevitable implosion. Which, by the way, may be accelerated if Catalonia votes to secede from Spain on November 9th or Switzerland to re-engage the gold standard November 30th.
As for precious metals, I’m not sure how much more we can speak of the urgency to own ounces before the cratering global financial system inevitably implodes. Prices have been so dramatically smashed, it’ll be a wonder if the mining industry survives much longer in its present form. Production has no doubt peaked – enroute to what I believe will be a 20%+ plunge in the coming years; while capital spending has virtually disappeared, capital availability vaporized, and the Majors on the verge of consolidations that will stall mine development for years to come. Unquestionably, the Cartel has already committed “suicide”; and frankly, it’s difficult to believe any of the world’s “big money” doesn’t know it.
Conversely, PM demand is now surging and will only accelerate as the Chinese and Indian holiday seasons approach. U.S. Mint Silver Eagle Sales doubled from August to September, Shanghai silver inventories are down to essentially nothing, and COMEX silver open interest has never been higher relative to prices – and inventories. Looking at the downright comical plunge in silver prices – even compared to the base metal prices that depict true industrial demand, the gap between silver’s value and “price” has never been wider.
And thus, we can only “pound the table” so loudly, to “paint your own financial tape” with the only assets proven to protect one’s net worth throughout history. And for those wise enough to act, we humbly ask you to call Miles Franklin at 800-822-8080 and “give us a chance” to earn your business.