David Craig, on May 6th, 2016No time to write today’s blog about “Turkish Delight” as it needs a bit of research and I don’t have time. A neighbour is planning some building work which will knock about £150,000 off the value of my home. Trying to prevent the building work is taking quite a bit of my time.
Will blog again tomorrow, Saturday.
In the meantime, here’s a repeat of a cartoon which pretty much sums up what is happening in Europe:
Category: 
The Brink of Economic Collapse? How Did This Happen?
The politically correct euphemism “financial engineering” has two specific purposes overall. The first purpose is to present assets, generally, as a better and more attractive value proposition than traditional economics might otherwise suggest. The second is to move the control and timing mechanisms of these asset prices away from the impassive, neutral, market and, instead, grant power over such mechanisms to the very same groups of individuals who developed these dubious techniques in the first place.
Moreover, the icing on the cake, all of this has somehow happened with the full consent and blessing of the very regulatory bodies that one might otherwise have expected to intervene to protect the market mechanisms that were being so badly abused.
I have written on several occasions that quantitative easing (QE), for example, is merely a crude magic trick that even a fifth grader could see through—the left hand issues the debt and the right hand snaps it up so quickly that Mr. Market is “fooled” into thinking demand for that debt is so outrageously high that the interest rate offered should (correspondingly) be outrageously low.
Globalintelhub recently made the following observation: “We’ve known for a long time about the infamous ‘Plunge Protection Team’ designed to prop stock markets in the event of a 1987 style crash. They even have entities in the Caymans funded by the Fed ready and waiting — they’ll start with buying futures on the S&P, then options, then if that fails, they’ll just go into the market directly. Anyway, technically speaking, DTCC owns 99% of US securities being the only custodian for investors. Why should it be surprising that the Fed operates a Cayman based hedge fund specifically designed to prop the markets in the event of a crash?” (Source: “America’s Big Red Button,” Zerohedge, May 1, 2016.)
Commodities: Again, the action in the precious metal pits is evidence that if you can monkey with one commodity market via paper trading at (arguably) insane levels, you can, in theory, monkey with any commodity that has a paper trading component—which, of course, is all of them.
Generations of the future may well ask if oil prices would have risen as high as they did without paper oil markets (including off-the-books derivatives) and if, correspondingly, they would have fallen so far and so fast without those same paper machinations?
Thank you, politicians of all stripes and parties (both elected and UN-elected, hey, just look at the EU!) for doing something in my lifetime I would have thought otherwise impossible. I just wish you would’ve done it on a theatrical stage in Vegas rather than on the economic stage of the world I actually have to live in!
Thank you for damaging all economic markets so badly that it is no longer a question of “when” they can be fixed, but rather of “if” they can indeed be fixed at all?
(The secondary irony, of course, is that the very same politicians who caused this problem in the first place are themselves painfully aware of how entrenched the damage is, which is why they tried to side-step the issue in 2006 by telling the voters—as if they were addressing small children—that the behemoths they have allowed to take over civilization as we know it were, in fact, too big to fail.
As I have remarked before, this is similar to the story of the young teenager who kills his parents to get access to the estate and, when caught, asks the judge for leniency “because he is an orphan.”
http://www.profitconfidential.com/economy/the-brink-of-economic-collapse-how-did-this-happen/
Comex Gold Open Interest.
Now here’s where the fraud begins. The Banks, acting in their capacity as “market makers”, have a virtually unlimited power to create from thin air as many Comex paper derivative contracts as they’d like. In doing so, The Banks take the risk of being short while the Specs, in taking the other side of the trade, take the risk of being long. The fraudulent game that The Banks play is in never being forced to deliver upon of their paper obligations. The Specs simply seek gold “exposure” so they buy the paper derivative contract and The Banks sell it to them. If prices go up, the Specs make fiat and The Banks lose fiat. If prices go down, The Banks make fiat and the Specs lose fiat.
Again, though, very little physical gold is ever delivered. Thus, the only price “discovered” is the price of the derivative itself, not the actual physical metal.
Having the unlimited ability to create new contract supply gives The Banks the nearly unlimited ability to control price, too. How? Think of it this way:
•You call up your broker at Merrill Lynch and tell him to buy you 200 shares of Coca-Cola. A market order is submitted and someone, somewhere sells their existing 200 shares of Coca-Cola to you. The supply of Coca-Cola shares is finite on any given day so price must find an equilibrium where buyers and sellers meet.
However, as we laid out at the beginning of this post, that’s NOT how it works on The Comex. Oh sure, most of the volume each day is an exchange of existing contracts. However, volume is also supplied by The Banks simply creating new contracts to sell to buyers. Go back to the bullet point above. How fair and legal would it be if your broker, instead of finding a seller of existing Coca-Cola shares, decided instead to simply create some new shares out of the blue and sell them to you? You’d have your long exposure to Coke and your broker would take the risk of being short Coke.
Not only would this be patently illegal and fraudulent, think of the impact this would have on the price of the Coca-Cola shares. Since willing sellers wouldn’t need to be found for new buyers, price wouldn’t need to rise in order to entice sellers to sell. Your broker would simply take the risk of being short Coca-Cola, all with the hope and the plan of seeing you eventually give up and sell your Coca-Cola shares back to them, likely at a lower price and at a profit for your broker.
And, again, this is EXACTLY how The Comex operates.
Without having to supply any additional physical gold or other collateral, The Banks simply create new gold derivative contracts whenever demand for contracts exceeds available supply. This has the obvious effect of dampening price moves as “price” isn’t forced to find a true equilibrium between buyers and sellers. And this has played out for all to see here in 2016.
GROSS short position of The Comex Banks has more than doubled from 545 metric tonnes to as much as 1,100 metric tonnes today. This means that if The Banks were ever forced to make good on these paper short obligations, they’d have to physically deliver more than the entire stated holdings of Switzerland! Additionally, the entire Comex vaulting system only purports to hold 7,300,000 ounces of gold. So when The Banks are short 41,000,000 ounces of gold, aren’t they fraudulently selling something that they don’t own? (And please don’t give me that line of garbage about producers hedging and selling forward. That scheme ended years ago.)
Banks are short 41,000,000 ounces of gold, aren’t they fraudulently selling something that they don’t own? (And please don’t give me that line of garbage about producers hedging and selling forward. That scheme ended years ago.)
At the end of the day, you must understand the implications. The Banks are doing everything in their power to manage price…and why wouldn’t they?!? When you’re short 40,000,000 ounces of gold, every $10 move “costs” you $400,000,000. A $100 up move from here generates paper losses of $4,000,000,000 so they are fighting tooth-and-nail to keep that from happening by doubling down and putting “bad money after good” in the same way that a blackjack player thinks he will eventually win a hand and get all of his lost money back.
The Banks hope that eventually they can spark a Spec selloff. Once the Specs head for the exits, this Spec selling will be utilized by The Banks. They’ll take the other side of the trade and buy their shorts back. The Banks will then “retire” those contracts and total open interest will decline. The Banks will hope to engender enough Spec selling to allow them to cover (buy back) up to 100,000 of their ill-gotten shorts and drop total open interest back to the 450,000 level. The question is: Will they be successful? While this has been a foolproof business plan since 2013, it hasn’t worked thus far in 2016 as Spec fiat has continually flowed into the paper gold derivative market.
So watch price and open interest very closely in the days and weeks ahead. The increasingly-desperate Banks are apt to openly raid price in their efforts to spur some Spec selling. The upcoming jobs report of this Friday being an obvious starting point.
In the end, however, I’ll leave you with one, final thought. Now that the Chinese have pricing power in gold, they quite literally have the ability to completely screw and hammer the Comex and London Banks. They can raise the Shanghai Fix and enable the immediate arbitrage. They could use this tool to drain whatever gold is left and utterly crush every big, western Bank.
But the time is nigh. If The Banks successfully rig the price back down, squeeze out all the Spec longs and close back up 150,000 contracts of OI, The Chinese will miss their opportunity. So, will they take it? Maybe. Maybe not. Maybe they’re not yet ready. We’ll just have to wait and see.
Again, watch price and open interest very closely in the days ahead. It’s crunch time and things are going to get increasingly volatile. Prepare accordingly.
http://www.tfmetalsreport.com/blog/7605/comex-gold-open-interest
A new video shows how the German government is funding a program teaching migrants how to flirt with German girls.
Released on YouTube, the clip shows what so-called integration classes for migrants in Germany really look like. A youth centre in the town of Eichstatt is helping migrants to integrate in a very bizarre way, by showing them how to effectively flirt with and hit on German women.
The clip starts by showing several migrants in a room with a few German girls, all of whom appear to be very young. The migrants are being taught how to flirt with a German called called Jenny.
The leader of the project Christian Zech encourages the migrants to attempt to use their best pick up lines on the girl
http://www.breitbart.com/london/2016/05/05/watch-german-govt-funds-migrant-flirt-school/
EU To Fine States Quarter Of A Million Euros For Every Migrant They Reject.
The unelected executive arm of the European Union (EU), the Commission, wants to fine member states €250,000 for every migrant they refuse to resettle.
The draconian ‘pay-to-not-play’ sanctions are designed to revive and enforce their faltering mandatory relocation programme, to “fairly and equally” distribute hundreds of thousands of migrants across the continent.
If implemented, the fines would make it almost impossible for some states to keep their borders closed to non-EU migrants. Poland, for example, with its quota of 6,200 migrants this year, would have to pay €1.5 billion to uphold the democratic will of the Polish people by not admitting ‘refugees’.
http://www.breitbart.com/london/2016/05/05/eu-to-fine-states-quarter-of-a-million-euros-for-every-migrant-they-reject/