A2A With Jim Willie
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Access2Access allows Vault subscribers the opportunity to interact and ask questions of leaders within the metals community. Today's guest was Jim Willie and it seemed to go pretty well.
Of course, it only "seemed" to go well if you managed to deal with my technical issues. (Hey, what do you want for $10/month? I'm chief cook AND bottle washer here. Maybe if we raise the vig to $100/month I could afford to hire an assistant??) Regardless, I've edited out the major gap that we had and the horrific, satanic echo that accompanied my voice disappears at about the 17:00 mark. So, please have patience. The perspective that Jim provides is well worth the frustration of dealing with my amateurish technological skills.
As mentioned toward the end of the show, Jim and I will also be recording a traditional "public" podcast next week where we will primarily discuss his latest article, which is copied below.
FLASH TRADING HITS U.S. TREASURY BONDS
The USTreasury Bond market breakdown is in progress, all part of the general USDollar global rejection that is taking the world by storm. Of course, residents inside the US Dome do not notice, since they only perceive it as the native currency. From conversations with common folk, discussions with investor types, and general observations for over 20 years, the Jackass belief is that only 5% to 10% of Americans are aware that the USDollar serves as a global financial instrument in contracts, the basis for trade settlement (mostly crude oil), with some extremely important consequences. A major development has begun, much like a metabolic life support system in concert with the Interest Rate Swap derivative contract. For two years or more, the USTreasury Bond market has been deeply dependent upon artificial demand derived from the derivatives. Entire bond rallies have been fabricated with 50:1 leverage, fully supported by the financial network propaganda. Without derivative flying buttress support, the giant USTBond Tower would have collapsed a couple of years ago. Now a new support system has been begun, a dangerous musical chairs long entrenched in the stock market. It has entered the bond market finally. Flash Trading!!
The USFed, the USGovt, and the Big US Banks urgently needed to stop the move in the 10-year bond yield (aka TNX). They needed to prevent a move above 3.0% on the USTreasury yield. They needed to avoid a calamity with both Interest Rate Swaps and USTBond carry trade reversals. They needed to avoid a trigger of sell stops. They needed to prevent the rest of the world selling off USTBonds within their reserves management systems, the foundation of their national banking systems. So the USFed and Big US Banks called upon themselves to place artificial high bids on USTBonds sold among themselves in a circle jerk of Flash Trading. They pushed the TNX below 2.9% quickly in the corrupt process. USFed Chairman Bernanke then backed off the Taper Talk threat, and the USTBonds rushed in a pathetic rally. The Jackass forecasted his retreat exactly, a bluff after a failed trial balloon. The bankers then resorted to the hidden work of computer algorithms. They altered the constructive dynamics of the bond market. They corrupted it one deeper level. The Flash Trade defense is pathetic, and will be revealed in coming weeks. The United States is in the process of being isolated on numerous fronts, as its monetary policy has merged with its military policy, both having merged long ago with its banking policy.
SICKNESS SEEN IN ONE POWERFUL GRAPH
As preface, consider a highly telling graph. No graph better demonstrates the failure of the last five years in monetary policy, and absent USEconomic recovery. The falling Money Velocity means the system is collapsing gradually. The infusion of phony new money is not addressing the key fundamental problem, insolvency of banks, businesses, households, and the USGovt. Putting a $20 bill in the hand of a manager of a broken business does not remove the insolvent condition. It only enables the manager to pay a part-time worker another few hours. The clueless cast of corrupt economists cannot notice, nor admit, that the QE & ZIRP monetary policy (hammer & sickle) is destroying capital by raising the cost structure. The capital destruction comes from businesses losing their profit margin, shutting down a business or business segment, cutting jobs, and putting equipment in mothballs or liquidating it. This is the biggest blind spot to economic policy. Obviously, the economists serve the syndicate, which benefits from toxic bond redemption with free money. The USFed is not engaged in a stuck stimulus, but rather a stuck destruction. The hammer & sickle are symbols of communist Politburo, no difference in contrast to the planned financial structure in the United States.
HIDDEN PANIC AT THE USFED
A recent event has occurred, which was brought to the table by an unexpected corner, but a reliable source, who has a banker friend. The bond market has converted into a Flash Trading arena within the bank syndicate to maintain bond prices. This is an explosive development, indicative of unsustainable sovereign bond prices kept up by round robin marked by internal sales within the Federal Reserve banks themselves. Worse, speculation is about to rise that the USFed as a financial firm is suddenly subject to capital rules, with inherent risk of failure. It has stacked up over $3 trillion in impaired assets, much of which are truly toxic. The Taper Talk at the USFed was a ghastly disaster, with financial feces flung in the central bank's faces. The big new engine that will work to fracture the USFed itself is the reversal of the Big US Bank carry trade in USTBonds. Recall all their boasting about replenishing balance sheets with easy leveraged profits, spouted like junkie morons in 2011 and 2012. It has now backfired to force flatulence into the banker faces in addition to the flung feces. Of course, the financial networks report none of this. The unwind of bond carry trade is a basic phenomenon that any worthwhile bond analyst can observe and anticipate. It is the flip side to easy money gains, namely massive losses.
Two weeks ago, an extraordinary memo was received from a trusted colleague. It could be important in yet unknown ways. The USTBond market is broken, and the USDollar cannot be defended. The memo read as follows. "I spoke with an old banking friend of mine on Saturday who now works as an Executive Officer in the Regulatory Division of the Dallas Federal Reserve. The gist of the conversation was this. There was a panic teleconference among all of the Regional Federal Reserve banks on Thursday afternoon [Sept 5th]. The subject of this emergency teleconference was USTreasury Yields. The perilously low capital of the Federal Reserve was at issue in this meeting, and the fact that they could no longer afford to defend the USDollar at this point. All of the regional Federal Reserve Banks were ordered to unload as many USTreasurys and Mortgage Backed Securities as they could, even though they are selling at a loss, to provide immediate liquidity even at the expense of capital! Eventually, late Friday night a tranche of Treasurys was sold above market price to several Federal Reserve Member banks in order to drive down the yield! You can plainly see this sale on the 10-year USTreasury chart." Big news! Panic setting in! Unsustainable bond arena! Flash Trading has hit bonds!
More important, WE HAVE NOW SEEN THE BEGINNING OF FLASH TRADING ON USTREASURY BONDS!! A grand round robin closed circle selling program will be relied upon in desperation to maintain price, just like with NYSE stocks in Algorithm Trading. The internal trading volume will grow and dominate the system, just like with the stock market where 80% of NYSE volume is from the perverse Algo Trading. No computer based trading like with Algo Trading is regulated, as the computers run wild. The dangerous times and the instability of bond markets will become major spectacles and news items. The risk will be transferred to stocks, which rise in value from more QE volume flowing into asset purchases, but which fall in value from creeping bond yields. Great instability will be a regular fixture in the US Stock market, and possibly many other national bourses around the world. The next several months will see some important bond market events and likely outsized derivative losses, complete with revelation of USTBond market rigging devices.
REVERSE OF USTBOND CARRY TRADE
Make several conclusions right away. Panic has finally hit the USFed. They cannot defend either the USDollar or its obverse USTBonds, the trading vehicle. They are both at improper high valuations. Rising interest rates will next cause more sales, the dreaded convexity to come into play. The big US banks must unwind their leveraged USTBond carry trade, based upon the bond futures contracts. Watch big US banks sell their leveraged positions that in the past three years provided them supposedly easy profits. The positions are locked in high leveraged structures. The breakdown of the USTBonds and USDollar has begun, a long process having come full circle after the highly destructive ZIRP & QE, both engrained in monetary policy.
The breakdown in the currency and sovereign bond will be aggravated by Interest Rate Derivative dismemberment and colossal losses. The USTB & USD duo breakdown is the visual impact and reaction to the gradual geopolitical isolation of the United States. It was seen in a glaring glimpse with Syria, a call to war, a refusal, and the US looking like a deceptive player with blood lust. The world is reacting to misguided monetary policy maintained by the USFed that supports the Western banks (in toxic bond redemption) but causes nasty problems across the world (in higher food prices). As the USFed and its devoted big US banks conduct bond trading among themselves, the left hand selling to the right hand, it becomes more evident that the USTBond asset bubble is being revealed. The irony is that the aggravating factor is the big US banks unwinding their bond carry trade. Their leveraged sales will result in over-shoots in the bond yield, called Convexity in the trade. Beware of Convexity, and its destructive impact!
USFED INSOLVENCY SCRUTINIZED
Normally the USFed has avoided the need for capital, in justification of its own solvency. It has not been subject to financial requirements, since not an operating financial firm. It is instead a financial fortress standing as headquarters to coordinate bank activity within a vast crime syndicate. Back in 2009, the USFed broke from tradition, by offering a small interest yield for big US bank excess reserves. Doing so raised many questions. The Jackass concluded soon afterwards that the USFed was insolvent, and desired the assets from big nearby banks to disguise and obscure its insolvency. Capital is of concern only when a liquidity crunch is anticipated. Therefore, the USFed appears very worried about a liquidity threat, perhaps from vast demands of USTreasury Bond redemption, perhaps from a breakdown of its own Primary Bond Dealer team.
The game must have changed recently and suddenly. One must speculate that perhaps the USFed balance sheet might eventually be wound down, causing some deep damage. The USFed might suddenly be scrutinized as a financial firm, where it is suddenly subjected to capital rules with risk of failure. Conclude that the USFed received a phone call from a higher power like Basel. As footnote, bear in mind that the public has long maintained an incorrect perception that that the USFed can defend itself from insolvency by padding its balance sheets with assets. This is not correct. This belief of infinite creation of electronic wealth to ward off deep insolvency is a baseless myth. They can add assets with equally offsetting debts, net zero. The USFed is going down the tubes into the sewer, next door to Fannie Mae.
USA CONFRONTS HOT MONEY RISK
The USFed is trapped. It has two lousy alternatives, to continue bond purchases within Quantitative Easing or to taper the QE bond monetization volume. Both result in total wreckage and systemic failure. Continuation is a slow death. Tapering is a quick death. They will choose the slow death, and deny the capital destruction effects all the way to an economic depression. Back in 2009, the Jackass was loud and vocal about the USFed being stuck with no Exit Strategy. At that time, they were trying to extricate themselves from the ZIRP corner, the zero bound interest rate. My forecast was for its continuation almost forever, since damage to the USEconomy would otherwise be quick, and rising borrowing costs to the USGovt debt burden would be intolerable.
The point was also made that the longer ZIRP is in place, the more likely it would remain as permanent, since a huge amount of bond purchases were being made, all to suffer big losses in a backup of rates. Worse, continued ZIRP would affect asset prices, which they could not afford to undergo a correction. In 2011, the USFed began the QE initiatives marked by bond monetization. The QE program itself was a correct Jackass forecast, denied openly by the USFed for months. The point was made that buyers of USTBond issuance would vanish, and the teetering USEconomy would not generate indigenous wealth to save in USTBonds. In 2012, the Jackass was loud and vocal about the USFed being stuck with no Exit Strategy from that destructive disastrous monetary policy again, as in ZIRP Forever and QE to Infinity. Both forecasts are being seen to come true. The FOMC meetings and recent Bernanke speech highlight their plight, no options, no exit, no relief, stuck with destructive monetary policy which cannot be halted or even reduced. In fact, QE to Infinity will be ramped up, with double the volume of USTBond purchases in the next several months. The foreign nations will diversify out of their USTBonds held in reserve, and foreign corporations will dump outright USTBonds, in what will become the grandest vote of no confidence toward US-UK bankers in modern history. The USFed must sop up the supply. The alternatives are truly horrendous.
TWO HORRIBLE CHOICES FOR USFED
PLAN A: BEING IMPLEMENTED: The USFed can continue QE and its heavy volume bond monetization. Doing so will sustain the rise in the cost structures, including food prices. As a result, the national economies suffer capital destruction, a direct (but unrecognized) consequence of shrinking profit margins and shrinking disposable household income. The mainstream news and bank leadership insists on calling it stimulus, when it is the exact opposite. It is the most powerful force to destroy capital in modern world history. The fierce recessions are assured to continue, the incomes fall, store liquidations to persist, systemic failure assured. The United States eventually will be faced with hot money exits in a very unique new development. The United States will be eventually shunned and the USDollar rejected, as global alternative to the US$-based trade will develop until a formal launch next year in 2014. However, the US will continue its usual path of creating (boogeymen) enemies, creating new wars, blasting the propaganda networks, but deny being the cause of the broad wreckage. The destruction of the US system will not come from fast rising rates, but instead from accelerating capital destruction, job cuts, recession identified as depression. In this Plan A scenario being adopted and embraced, the USFed will be compelled to amplify its QE bond buying volume, to lie about it, but it will be caught in the lies. The United States and the USFed will be blamed for the climax of collapses, which will occur gradually. The United States will rapidly be shunned, the USDollar rejected, and the US declared a global pariah.
PLAN B: TESTED WITH TAPER TALK TESTED, NOT TO BE DONE: The USFed could taper QE and reduce sharply the bond monetization. The results would be felt very quickly and suddenly, like what was seen in July and August. It was painful and shocking, but revealed the deep dependence upon the USFed easy money spigot, from the financial market perspective (quickly) and the economic perspective (more slowly). The financial markets would suffer incredible declines bordering on historical events like a sequence of Black Mondays (1987) and post-Lehman crashes (2008). The surprising direct effect from a strong tapering of QE would be something never seen before in the United States history. It would cause very well publicized hot money moves out of the US financial market in addition to the emerging markets. The global tightening would make for a global catastrophe. The investors in USTreasury Bonds would rapidly vacate the arena, since bond yields would rise quickly, putting strain on the interest rate derivative control levers to the point that the rate swaps could not prevent the rates from going up out of control. The big US banks would unwind their leveraged USTBond carry trade, and suffer outsized losses. The rapid rise in rates would deliver a well recognized death blow to corporate paper flow, the US housing market, the US car market, and put an end to student loans. The national USEconomy would suffer from higher interest rates, the fierce recession continue. A systemic failure would result within 12 to 18 months. The United States and the USFed would be blamed for the climax of collapses, which would occur rapidly. The United States would rapidly be shunned, the USDollar rejected, and the US declared a global pariah. Same outcome, faster pace.
The USFed is desperately trying to balance two horrible destructive options. The look of frustration and defeat is apparent on outgoing Chairman Bernanke's face in press conferences. He realizes finally that his Doctoral Thesis is disproved by experiment, by his own hand at the USFed control panel. Yet the bankers must appear to be in control. They must defend the USDollar and USTBond, along with major paper currencies. They must defend the franchise central bank system. They must buy time to escape with their lives before they are forced to vanish, either willingly or by order.
Many are the pillars that support the current USTBond & USDollar phony fractured folly. In the Jackass view, The USTreasury Bond aint a market, but rather an empty room filled with market rigging machinery. It is an asset bubble. Tragically and inexorably, once an asset bubble is pricked, it cannot be held together. The prick event occurred with the Taper Talk, a highly misguided action taken. Perhaps the Basel masters wish to see the system collapse and banker fascist states honored openly. However, as the pillars fall, the Gold Price will rise like a phoenix and offer a breath-taking event to behold. The pillars are all breaking down, which will release the Gold Price. New pillars are being erected in support of the Gold Price. They mark tremendous changes, as in Paradigm Shift in the global structure of commerce and finance
1) USTreasury Bond Tower of Babel is breaking. The interest rate derivatives have offered the USTBond asset bubble hidden illicit deceptive support for over two years. Morgan Stanley is the chief agent for its application. The London Whale event (complete with greatly falsified losses) emerged in May 2012 as a result on such derivative losses, not the sovereign bond losses as JPMorguen liars reported. The losses are not $8 billion, but rather $100 billion. If the London Whale losses occurred after a mere 60 basis point rise leading to the May event, then imagine the derivative losses suffered from a 130 basis point rise from 1.65% in May 2013 to 2.9% in early September 2013. The Flash Trading practice is a last ditch to defend the USTBond & USD twin towers in South Manhattan. History repeats, transformed from physical towers to financial towers, but without the false flags waving atop the crumbling towers.
2) The Petro-Dollar defacto standard is breaking. Since the late 1970 decade, this standard has been at work. The Arab oil producing nations, led by the Saudis, have sold crude oil in US$ transactions, then cooperated in recycling the vast surpluses in USTreasury Bonds, with a fair amount in big US bank stocks as well. The OPEC cartel is showing signs of fracture, slowly disbanding amidst regularly spouted lies from the flairs of member nation mouths. The new dynamic is powerful and disruptive, the natural gas pipelines. The Syrian conflict is all about the natgas pipelines, with smokescreens created in the usual way. Watch Gazprom lead a consortium of NatGas Coop members, flex its muscles, and eclipse OPEC to the point of obsolescence. The irrelevance of OPEC will usher in the rejection of the Petro-Dollar, and threaten the House of Saud (where regime change is nigh). The other victim will be the USTreasury Bond, with accelerated sales from Persian Gulf abandonment.
3) USTreasury Bond diversification & rejection. Many are the channels of USTBonds returned to sender from emerging market nations and elsewhere. The USFed monetary policy has motivated many nations to diversify out of the very USTBonds being purchased with printed money in phoney baloney manner, due to perceived debasement, deeply resented. The Westerners call it euphemistically Quantitative Easing, but the Jackass prefers to call it hyper monetary inflation off the printing press with a Weimar nameplate. Entire national banking reserves management systems are in the process of undergoing change. Much USTBond sale volume will be returned from Indirect Exchange, in the payment for large asset acquisitions (like Chinese buying an African energy deposit, or Chinese payments for Russian oil). Much USTBond sale volume will come from conversion to Gold bullion. These players will be building the BRICS Bank, or replenishing sickly Western banks, maybe even central banks.
4) Central Bank Franchise System is failing in recognized full view. After four and a half years of utter nonsense from the major central banks, dispensation of more toxic bond patch solutions, redemption of toxic bonds with freshly printed money, payoffs to big banks revealed (often gone to executive bonuses), support of USGovt deficits, refusals to inspect official Allocated Gold accounts, assists in derivative coverups, gigantic interest free loans to Fed partners in the multiple $trillions, the game is over, the jig is up, the public aware. Too many events have resulted in a pulling back of the curtain to reveal the criminality of the central bank franchise system. Hidden from view is the narcotics money laundering and their participation. Hidden from view is the phony project in the late 1990 decade to accumulate gold for a new USDollar, which made a U-turn at the last minute. Finally the Flash Trading practice reveals the sustained USTBond by a new more dangerous artificial prop, which had been a tool devoted mainly for the US Stock market, as in the New York Stock Exchange.
5) The death of the COMEX gold market is within view. With thefts of private accounts (see MF-Global), with refusals to deliver in gold COMEX futures contracts (see June and July and August), with drained COMEX inventories (see the massive decline since January), with drained JPMorguen inventories (see the massive decline since January), with the regular price ambushes led by naked shorting (see mid-April ambush, and subsequent ambushes), the death of the COMEX is within view. They will someday in the near future halt the gold futures contracts, since they will have no gold inventory, and since they have refused to deliver on gold futures contracts routinely. In fact, the refusal to redeem gold accounts at the GLD Exchange Traded Fund, even to qualified investors, might be the smoking gun, or (to mix metaphors) be the thread which when pulled, unravels the entire sweater.
6) Gold Trade Settlement is the coming, a return of the Gold Standard. It has been inevitable, its return, since it is the only solution with any merit or legitimacy. No phony paper debt bond solution has stuck since 2008, since all are illicit and meaningless circle jerks in a debt patchwork. The old sound money adage is so true (from Von Mises school), that no paper money solution can fix a failing paper money problem. However, the new trade settlement system will usher in a new Gold Trade Standard in a different route. It will enter on trade settlement from peer to peer, using Gold Trade Notes as letters of credit, using a vast distributed system. It will bypass the big bank SWIFT system which has been abused by the United States Govt and UKGovt. They have used the SWIFT codes as weapons. The East resents it, not just Iran. It will bypass the FOREX system of currency exchange, a regularly corrupted pit mangled by the Western bankers (see the Exchange Stabilization Fund managed by the USDept Treasury). The Europeans are in the middle, not such hardened adversaries to Iran, since Iran is willing to sell oil & gas in Euro transactions.
The major currencies will be forced to scurry like cockroaches in the dark to find and source gold bars for renovation of the currencies themselves. The crumbling sovereign debt serves as flawed foundation for the major currencies. The climax blow will be the conversion of USTBonds and EuroBonds and UKGilts and JapGovtBonds into Gold bullion that kills the current system and opens the door to the new system. With great disruption, the new Paradigm Shift is in progress, unstoppable, but offering hope for a better day, a better system, a more fair system, with participants and savers given a just system. For three decades, Gold has had a nemesis in the USTreasury Bond. The USTBond is dying, a wreck in progress. As the old pillars fall and the new pillars rise, The Price of Gold will be set free. It will reach $3000/oz when the COMEX defaults from empty inventory and Shanghai arbitrage, then reach $5000/oz when the great conversion begins in earnest from USTBonds to Gold bullion, then reach $7000/oz when the Gold Trade Settlement is installed in its full glory. It is written. It shall be done.
THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
Jim Willie is an original. If you want to be official about it, you can call Jim a "statistical analyst" as Jim has a PhD in statistics from Carnegie Mellon. Since 2004, however, he's simply been known as "The Golden Jackass".
Through his website http://www.goldenjackass.com/ Jim has developed a subscription-based newsletter service which is second-to-none in its quality and its "outside-the-box" thinking. Jim's very affordable service, The Hat Trick Letter, can be found here: http://www.goldenjackass.com/subscribe.html
p.s. As you can tell by his bio picture, he has an extraordinarily large brain, which he uses to all of our benefit.
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