Two Things On My Mind

Tue, Jul 24, 2012 - 9:33pm

Earlier today, I spent about an hour visiting with Jim Willie. As usual, the conversation was enlightening and thought-provoking. Along those lines, two items have been stuck in my head all day. I thought I'd get them stuck in your head, too.

First, someone asked me in the previous thread if I had asked Jim lately about his statement that gold would soon fall 20% before rising several fold. In all honesty, I never thought to ask him. We generally discuss "big picture" things when we talk so short-term prices fluctuations don't usually come up.

OK, so here are the two things that are on my mind. First (and I mentioned this in the previous thread and in detail at TTM), is this idea of a U.S. treasury market "Black Hole". You may recall that Jim started using this metaphor back in early June. For a refresher, you should read this and maybe listen to this

The idea behind the "black hole" is that its gravity is so strong that it sucks in everything around it. Back in early June, the 10-year note was yielding about 1.70%. Today it fell through 1.40%. As money flows toward the "safety" of treasuries, it flows out of other assets like corporate bonds, stocks, municipal bonds, sovereign bonds, high yield funds and on and on. Treasuries increase in price (yield drops) while the selling of every other asset causes their prices to fall. This, in turn, feeds into the crisis atmosphere, causing more selling of everything in order to purchase more treasuries. This makes treasury rates sink even further. This accentuates the crisis atmosphere and causes even more "flight to safety" until the "treasury black hole" has sucked in almost everything. It's a very interesting concept and we may be seeing it play out in real time. Ponder, please, the consequences of all this and what the world may look like with a 10-year below 1% and a 30-year near 2%.

The other thing we discussed was the LIEbor scandal and Barclays. Jim will be releasing a new, public newsletter with this as subject matter in a few days. Until then, here's the perspective he offered me.

LIEbor is a huge, major scandal. New details are emerging every day and the size and scope of the manipulation is growing. It is now a simple matter of time before the lawsuits begin....and that's very important. In the discovery phase of these lawsuits, layers of Banking Cartel schematic will be laid bare. Not only will lawyers and investigators find damning, new information on LIEbor, it is inevitable that they will also unearth information regarding the decades of fraudulent and deceptive bullion banking activities. It is when this happens that the proverbial excrement will begin to hit the rotating blades.

What is the difference between allocated and unallocated gold? How many times over have bullion banks leveraged and "rehypothecated" unallocated gold? How many claims are there in the world to the same gold bar? How many folks/institutions/funds/central banks/countries think they own physical gold but, in fact, only own paper certificates? How much gold is really in GLD or the plethora of other U.S. or European ETFs? This is where it could get really interesting. As these investigations dig deeper and as new details come to light, how might price react? If it is finally revealed that non-existent physical metal has been methodically and fraudulently "sold" to the world for years, will this ultimately lead to the collapse of the entire Western World banking system? Can you see why I've been thinking about this all day???

While I was on vacation, the LIEbor scandal grew and morphed into the significant scandal that it has become. The idea that it could ultimately lead to far greater consequences than simple fines and embarrassment is something we all need to immediately consider.


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