It has been said “truth” is a funny concept. What is truth to one may not be to another because opinions vary from one person to another. “Truth” in this context consists of one’s opinion or point of view. By this definition truth can be altered, changed or even “made”. For example, the truth believed and espoused by MSNBC is far different than that of FOX News, both by the reporters themselves and by viewers. Real truth however cannot be “made”, massaged or opined as it is mathematical in origin and more an issue of black and white.
The global financial system has gone awry where economic truth
must be masked and hidden to cover the reality. Somehow our central
planners think if the people “believe” something …then it “is”. I am
here to tell you, no it is not. A perfect example of something
completely out of whack but melded into the new “normal” are negative
interest rates throughout much of Europe. These negative interest rates
are no longer for only short dated maturities. Rates are negative in
some cases out past 7-10 years!
How can this be? Investors are willing to lock in a guaranteed
loss for 10 years or more? Rates have been pushed negative of course
because the central planners want people to spend their money rather
than save it. You see, “velocity” has crashed because people have
tightened their belts in a move toward austerity …something the
sovereign treasuries and central banks cannot even spell. Please keep in
mind whether it be euros, yen or dollars, the central banks have the
ability to print as many of these currency units as they choose to.
Negative interest rates guarantee less “units” returned upon maturity
and give less than zero risk compensation to offset the “printing” that
has already been promised. In essence, savers are PAYING for the
privilege to lose “units” even when central banks are promising to do
their best to reduce the value of these units. The madness of crowds I
Another example “truth” just does not add up is in the area of
“swaps”. Just as GOFO rates in gold should never ever be negative, this
also holds true for the swaps market. Currently, rates have gone
negative which means the bankers and brokers perceived credit quality is
actually rated higher than the issuing Treasury. Common sense would
tell you if the U.S. Treasury were to default then no bank or broker
with Treasuries in their portfolio would be left standing. I do not
believe swaps have gone negative out of value “judgment”, I believe
unencumbered collateral has become so scarce that mathematical insanity
has become reality. Six months ago we were given a tip off this was
coming. I wrote about it here titled “The Mother of all Margin Calls”
http://silverseek.com/commentary/mother-all-margin-calls-14328 …and now
the ugly truth has arrived!
I would of course be remiss commenting without including the
farce in the gold and silver markets. Yesterday’s post-Thanksgiving and
illiquid trading day saw some 18,000 contracts sold at the COMEX within a
30 minute timeframe.
In fact, there were 4 single minutes which saw a total 7,000
contracts dumped on the market. For perspective, 18,000 contracts
represents 1.8 million ounces of gold …while COMEX claims to have a
grand total of 150,000 ounces available for delivery! 1.8 million ounces
of gold is equal to well over one week’s production of every gold mine
on the planet, 150,000 on the other hand is just over 16 hours! For
further perspective, China has been importing over 1.3 million ounces of
real physical gold each and every week and amounts to nearly 80% of all
gold produced. Why is this important? China is importing each week
nearly 10 times the total amount of gold COMEX has for delivery in
total. Put another way, COMEX gold “pricing” rests on a foundation 10
times smaller than what China imports each and every week! How is it
credible that COMEX can sell 12 times as much “gold” …in just 30 minutes
as they claim to have available for delivery?
COMEX currently has a problem in my opinion. Their registered
(dealer deliverable) category has not received any gold over the last
two plus months and has done nothing but shrink to a level equal to just
16 hours of global production. First notice day for December gold is
this coming Monday. With just one day left there are still 24,000
contracts open. If history is any guide, Monday will see a drop of
12,000 contracts and a 40% bleed down during the month. If this were to
occur, we will see over 600,000 ounces standing with only 150,000 ounces
available for delivery. We have seen this potential situation several
times over the last couple of years but never with an available
inventory as feeble as it is now.
My point to writing about the current COMEX conditions is simple.
Though COMEX currently “prices” gold, they have little to no inventory
to back them up. China imports more in a single day than what COMEX
claims they have to deliver. Nearly any Black Swan, be it a financial,
geopolitical or military event will strip the COMEX of any ability or
credibility to continue as “manipulator in charge”. I have asked in
several writings why the CFTC has allowed the pricing mechanism to be so
corrupt after each blatant raid such as this past Friday’s. They found
“nothing actionable” in the silver market which in my opinion is code
speak for “we can’t arrest the government” …therefore “not actionable”
in the interest of national security.
As for COMEX, I would ask this. Why is it allowed for any
institution or group of institutions to sell in 30 minutes, twelve times
the amount of paper contract gold than is claimed to exist for
delivery? The December month alone looks to be quite problematic, why is
this practice allowed as a failure to deliver could be created by a
mere 1,500 contracts? Is the final solution a force majeure and just go
on down the road?
As for you as an individual investor, can you see the danger
here? A failure to deliver or a “caused” failure ending in a force
majeure will be catastrophic. The candy store will be closed …and then
what? Do you really believe metal will be available for you to purchase
at any price even resembling the current? I have said all along, the
entire game will change when the last ounce available for delivery is
gone. When I say the “entire game” I am speaking to ALL of it. When the
fraud in gold is exposed and understood, do you understand that the
confidence in the entire financial system of dollars, Treasuries and all
the rest will be broken for our lifetimes?
To finish, much of what we see in our daily lives is nothing more
than a fraudulent mirage. Our way of life and standard of living
depends entirely on this mirage and collective madness to continue.
However, some very ugly truths that come naturally as a gift from Mother
Nature herself have been appearing. These “ugly truths”, each and every
one of them should be an impossibility in logical nature but they exist
and are appearing with more frequency. Can you handle the ugly truth?
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