At the corner of Copperfield and Blaine
What a joke all of this is. It's all just an illusion. A manufactured theater of disbelief where the magicians convince you ignore your senses, distrust your eyes and rein in your sensibility. The current performance includes such mind-blowing feats as:
- The U.S. stock market is fast approaching a return to all-time high levels. Not because of corporate profits or any other, fundamental driver. Nope. In a market where over 80% of all trading volume is simple High Frequency Trading and "regular" investors have fled for the "safety" of cash, the stock market has become nothing but The Greater Fool Theory, writ large. One computer buys an issue in the hope that some other computer will buy it next, at a slightly higher price. What was once the greatest, most fair market in the world has been reduced to this: No price discovery, no efficient allocation of capital. Just bullshit computer gaming.
- For decades, the U.S treasury market rose and rallied because of a circular pattern of capital. The U.S. consumed nearly everything the world could produce and sent dollars careening around the globe in purchasing those items. Those dollars then returned to the U.S. when the producing nations purchased treasuries and were then used to finance the next subsequent, higher level of debt. It was all well and good until the music stopped. As it became clear that this couldn't go on forever, the "creditor" nations stopped buying treasuries. Faced with the prospect of rising rates and increased interest costs, official U.S. policy has become one of self-monetization. In 2013, The Fed will issue over 1,000,000,000,000 in dollar credits to the Primary Dealer banks. Those banks, in turn, will purchase treasuries at auction, thereby funding about 80% of the projected 2013 federal budget deficit.
- How about the appearance of currency stability through relative valuation and pegging? Is the dollar getting stronger or is the euro getting weaker? Conversely, if Fed policies lead to dollar weakness, shine the media spotlight on the euro in order to help the USDX find a bid. If your currency rises against your wishes, print a bunch of it like the BOJ or maybe peg it to some other fiat like the SNB.
The key to the game is to win the day and maintain the illusion a little longer. Future consequences be damned. All that matters is today and this week.
And this leads us to gold and silver. The prices of these metals have been manipulated and controlled for decades. Why, you ask? Again, it's all part of the illusion. What would the metals be telling you if gold was priced at $6,000/ounce, up from $3000 two years ago? And what would this signal about inflation and the relative quality of "establishment" money? If gold was shown to be more valuable that U.S. treasuries, would the 10-year bond still be yielding under 2%? If general inflation was accurately being reported at 10%, who in their right mind would lock up funds in a 30-year treasury at 3%?
So, here we are on this beautiful, early autumn Monday. Back on Friday, we were told that The Gold Cartel has shamelessly been allowed to create 2,500,000 ounce of gold from thin air in the time since the announcement of QE∞. Even more grotesque is the acknowledgment that, over the same time period, The Silver Cartel has created 70,000,000 ounces of paper silver. Our regulators, those arbiters of free and fair markets, simply avert their eyes to this crime in progress.
After reviewing Friday's CoT and the latest Bank Participation Report, Ted Butler has concluded that JPMorgan alone now holds short 34,000 contracts of Comex silver. If forced to deliver, this is the equivalent of 170,000,000 ounces or about 20% of the world's production for 2012. Additionally, after excluding the amount of open interest that comes from spreads, JPM now controls (on the short side) over 33% of the entire Comex silver market. If you add in the positions of their three largest partners in crime, the size of their position rises to over 50%! Think about this for a minute...Four banks control, on the short side, over 50% of all open contracts for a globally-important, industrial and monetary metal.
Again, the hopelessly-inept and likely-corrupt CFTC dawdles and does nothing. Can you imagine the outcry if four hedge funds managed to accumulate a 50%+ position in S&P futures? Or how would it play out if four countries had control over 50% or the crude oil market? But the CFTC turns a blind eye and does nothing.
But allow me to wrap this up on an optimistic note. Though all of the conditions exist for a sustained and coordinated price collapse, it hasn't yet happened. Why? I see two reasons:
- The two, separate 30%+ price drops in silver last year both occurred when QE was ending or had ended. At this particular moment in time, The Fed has thrown the banks a curveball by the initiation of QE∞. This is about priorities and, trust me, levitating the bond market is an almost infinitely larger and more pressing concern for The Fed than assisting JPM in their ongoing manipulation of the puny, little silver market.
- Because of the open-ended and infinite quality to this latest QE program, demand to exchange fiat for metal in London is unwavering. Every selloff in paper has been met with increased demand for physical. As long as this continues, sustained beatdowns in price are extremely difficult to accomplish.
So remain patient and buy the dip. Keep stacking and continue preparing. Though any quality magician can temporarily suspend your belief in reality, in the end it's all just an illusion. The laws of physics eventually trump the magicians skills just as the laws of economics will, one day soon, blunt the accumulated efforts of The Fed, the banks and their willing accomplices in government and the media.