Financial Warfare
Submitted by Mike Krieger of KAM LP
Geithner seems to abhor austerity and sacrifice, preferring any strategy which keeps debt growing to fund the investment banking, security, prisons and war industries on which the American economy now depends for so much of its GDP.
- From “London Banker” Blog, link to full piece is here
It takes a PhD in economics not to be able to understand the obvious.
- Irving Kristol
Financial Warfare
Unfortunately, I spend a good portion of my day trying to get into the mind of a deranged, academic, conflicted and panicked central planner. In other words, I spend most of my day in the Bernank’s head. August 2011 was an extraordinarily important month in the history of the financial world. It is when I believe the “system” blew up for good. The sovereign rating of the United States was downgraded by Standard & Poors and although treasuries have rallied ever since, it was 100% the equivalent of someone yelling the “emperor has no clothes” and the world indeed noticed. It was also at this time that the European banking system and in reality the entire Euro project started to blow up. Equities plunged and gold soared. It was the worst of all scenarios for the Central Planner in Chief, the Bernank.
As all of you know, I think it is nearly impossible to make money in this market (if you want to call it that) unless you assume all things are gamed and manipulated. I think that if you are under the assumption that there is a free market and that there are rules when it comes to the government, the banks (Central and TBTF) then you can’t succeed because you are operating on an entirely false macro assumption. August absolutely scared the living daylights of the central planners and all of us in the “fight the Fed” camp knew that they would have to pull something together to exact revenge on those that are betting against them. One of the other things that happened in August that scared the living daylights out of the central planners was the massive flow of fiat money into what was perceived to be a “hard” fiat currency – the Swiss Franc. This provided these guys with the perfect opportunity to launch a massive counteroffensive in what has clearly become a gigantic Financial War. In what was an extremely well planned and aggressive move, the cabal of Western Central bankers convinced the Swiss to make the incredible announcement that they would print unlimited Francs to peg the currency at 1.20 to the dying euro.
You have to hand it to these guys. The move was a stroke of central planning genius. Not only did they destroy people with major long Franc positions versus virtually any other currency (the Franc went down 25% versus the dollar in a one month period and 20% versus the euro) which was a way for the central planners to extract a pound of flesh from those betting against them, but it also was just as much if not more so directed at the gold market. Let me explain. Anyone with a large long franc position also likely has a long gold position as they are (rather were) essentially the same macro bet. Such a massive move in a currency such as the franc would have been so unexpected and such an outlier event that it would have wrecked severe havoc on many portfolios. The central planners knew this and they used it to their advantage to stop gold in its tracks as it was headed to $2,000/oz and beyond. This was no coincidence. It was financial warfare. You MUST know your enemy to survive and win the war because the central planners can win battles but not the war.
Total Currency Chaos
What has ensued since the Swiss intervention has been nothing short of total currency chaos throughout the emerging markets world. Here are some numbers to put things in perspective. Since the beginning of August here this is how much various currencies has depreciated versus the U.S. dollar. The Brazilian real - 20%, the Indian rupee -13%, the Korean won -13%, the Mexican Peso -20%! I could go on, but you get the point. Now, I am not going to say that these currency moves were also caused deliberately by the central planners although I wouldn’t put it past them. More likely, they are the symptoms of a massive global economic slowdown and the view that the monetary policy in these countries will have to be loosened materially. However, is this an appropriate conclusion?
While current inflation data may be brushed off as yesterday’s news the figures have continued to come in pretty hot in the emerging markets. Moreover, the massive depreciation in these countries currencies lately has likely only made the inflation situation worse. For example, let’s take a look at the most important commodity to global economic growth, oil, in the currencies of these various markets.
Brent Crude in Mexican Pesos
Brent Crude in Indian Rupee 
Brent Crude in Brazilian Real
Brent Crude in Swiss Francs
Those Charts are BAAAD
The point of the charts above is to show you that things aren’t as they seem. While crude oil in dollars has indeed come down, what is actually going on is a massive devaluation of emerging market currencies. This is why as you can see, oil is basically at the highs in the peso, rupee and real. While not at highs in francs it did jump a striking 35% in a month after the devaluation was announced. So the KEY point I am trying to make is that this is not 2008. Yes, we are looking at a pretty significant cyclical slowdown globally; what I would call a recession within a depression. However, what is happening is it is simply the emerging market currencies’ turn to devalue in the global fiat currency death spiral game. The fact that oil is at highs for these countries at this point in the cycle is absolutely devastating. Anyone “playing” overseas revenue names better revisit their thesis and fast. Luxury names are supposed to hold up on emerging markets growth? Please. Luxury names are commodities in 1H08. It is the same thing. I called that right and I am saying it here. I hear ALL the same arguments in that sector. It is not immune. It is not decoupling. It will crash.
Gold is Falling? Really??
Ok, so let’s take a step back from propaganda and look at what is really happening. Gold is down a little over $150/oz from the highs in U.S. dollars. That said, let’s look at gold in the currencies above that have recently experience devaluation.
Gold in Mexican Pesos
Gold in Brazilian Real
Gold in Indian Rupee
Gold in Swiss Franc
See, once again things aren’t as simple as they may seem. Gold is not falling, emerging market currencies have just been devalued. This is what might be expected within the current macro environment of general fiat currency death as the globe enters a recession within a depression. Things are going to be very, very choppy and I would be extremely cautious in all markets but physical precious metals should absolutely be accumulated on weakness. The system has already blown up and while that makes thing extra volatile and confusing, as JP Morgan said in 1912 “gold is money, everything else is credit.” It shall be seen to be true again.
Peace and wisdom,
Mike
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Precious metals, bitchez!
"You MUST know your enemy to survive and win the war because the central planners can win battles but not the war."
but how bloody the battles and how many?
individual soldiers don't always come out whole.
It's not left versus right, dollars versus euros or pakis versus indians, it's the state versus YOU.
Yup, we are in a civil war over debt bondage, made necessary by the welfare state but supported by the central banks. The problem, as everyone on zerohedge knows, is that this Ponzi scheme is a dead chicken and the welfare state is in utter collapse. So there will be a flight to Gold and commodities that continues despite the hits we are taking today, because those are the only solids left in this financial diarhea.
So we are headed towards a civil war over the financial destruction wrought by the central banks and politicians, and it will be over slavery again (debt slavery, bondage of your children to $666k per capita in unfunded debt). I wrote a book on what this new type civil war will look like, it will be fought with proxy armies (unionists, anarchists, illehgals) and especially with monetary manipulation. Long term one way out may be cybercurrency like Bitcoins, though don't hold your breath.
jttp://www.futurnamics.com/civilwar.php
So there will be a flight to Gold and commodities that continues despite the hits we are taking today, because those are the only solids left in this financial diarhea.
Just wanted to make sure this gem got some love. Poetry. Bravo!
You got worms... and the squirts. Boy, you're in a real pickle.
The net result of the SwissFranc devaluation was to reassert the position of the USD a the world's reserve currency along with gold. The direction of the dollar since then is evidence enough for anyone. Exactly what is going on behind the curtain at the present time however, is far from clear despite all the differing opions found on zerohedge. Three months should unravel the mystery
Everyone has to deflate their currencies, but currencies have to deflate against other currencies, so they are taking turns. When the USD takes it turn in the tank, gold will start to rise again.
Informative site, DB....tho I think the eventual CW will be somewhat more "military" than you predict: when whole states secede, National Guard units go with them and that means heavy, hi-tech weaponry will be deployed on both the Free State and State Socialist sides; plenty of local anarchy too along the way. And it may come sooner than most of us think. One probable scenario has the Republican Pty going the way of the Whigs, fragmenting into Tea Party vs RINOS during the 2012 election season, which will occur in an atmosphere of converging political and economic crises. Obama could win in the EC with no more than 40% of the popular vote, with Texas then leading 20-30 heartland and southern states out of the USA before inauguration. 1860------>2012.
Indeed my friend. I must confess that I'm hurting from this past month, and today is a killer since I am long silver. About to give up now, and it pains me. I know we must not get our eyese off the ball long-term, but you've got to make it there first... These central bitches are making it tough I must admit. There is just no sense or logic in what's happening in the PMs. Logic and sense tell me they should go up, but as things are, the masters might as well manage to take them to the floor. Can't rule it out now.
We've lived through worse. This is but a flesh wound. A scare tactic. Another failed effort to manipulate. I still believe we will be near all time highs in both gold and silver by year's end.
If you don't have physical, you don't have silver. You paid for paper silver.... and didn't even get paper. Hell, you can't even wipe with that.
Your problem is contained in that statement. You acknowledge that the central banks are manipulating silver, but then admit you are trading based on logic about what is good for silver. The manipulators know what your logic is, therefore they know when you are clustered on one side of the trade with all the other silver longs. If you cluster with them on one side of the trade, the central banks will run your stops. It's as simple as that. You can't take any positions that are obviously good for silver. You have to cover when a scheduled event arrives that should be good for silver. You have to use reverse logic, because that's what the central banks are doing.
The gators in the swimming pool are lingering under the diving board, because they know where you are going to jump in.
man that's crazy talk. You're letting your emotions rule you; the worst possible thing you can do. IF THE CENTRAL PLANNER MOFOS OF THE WORLD REALLY COULD MANAGE LIKE YOU THINK, GOLD WOULD STILL BE AT $275 / OZ. Tell you what: go out, have a beer [or 6], see or rent a movie....do what makes you happy to forget about this......it'll pass! It always has and always will. In fact, I can see maybe 50 more Canadian Maples in my future - like tomorrow! Now c'mon, get your shit together <kick in the gluteus>..... :-(
I'm sorry to hear you took a hit today, I sympathize.
But I would suggest that you keep an eye on the gold chart from now on. The gold chart was showing a classic double top. It was time to head for the hills a few weeks ago. It's only temporary. A buying opportunity is coming. Accept you losses and move on.
I hope you said the same thing about natty a few weeks ago mr. Hub
It's not complicated. Buy the dips, then hold. Stop trying to "make money"; the dollar might be the last to burn, but burn it will. This is going to be about raw survival.
The last "hard" fiat currency Swiss Frank (SF) has proven once and for all to all investors (including to all various hedge funds managers) that it is still a fiat currency easily manipulated and devalued by Central Bankers.
Consequently, the only real "store of value" that is left is Physical Gold and nothing else!
As for the SF holders, it is the time to more into the real money, i.e., PM
PS
the swiss franc is a fiat currency - yes
may I humbly point out that the swiss were not willing to jeopardize their economy so that a few investors could do highly leveraged bets on their currency?
I just want to point out that some commentators give me sometimes the idea they have lost their grip on what reality and real economy is...
Kitco says 17 of the 45 was due to USD increase...
http://www.kitco.com/kitco-gold-index.html
Brilliant.
Looking at the price of oil in India's rupees, Mexico's pesos - brilliance.
Well done, Bernanke. I share the views of the genocidal maniacs behind the printing press in this regard, that the planet is over-populated and Ben is doing everything he can to promote hunger, revolutions and war.
I tip my hat to Ben, you old Jekyll Island chap you.
Bernanke, Geithner, Obama = Puppetshow
I wouldn't dare naming their masters, because I support the Agenda. :)
Paranoid, paranoid bullshit this Mike Krieger writes
el gato, but it works!
Inflation being exported: peasants have their food taked away -> less people on the planet in the future.
So that was the whole goal of the SNB the whole time? How nefarious, how intriguing, how unlike-them -- print the theory immediately!
The Swiss are a country of 8 million who have never involved themselves in international politics or organizations (with rare exceptions of complacent acquiesence) and all of a sudden, because they decided to peg their currency to the Euro, they are out to maim and kill people?
What about the more obvious explanation that no one could afford their exports and they were getting killed? This venerable website posted an article about a Big Mac costing >$14 in Zurich. At some point, even the epitome of the conservative central bank realizes that having such a strong currency is no good either.
Those guys never heard about buy low sell high. Those who pile up in frank at 0.75 to USD what the f*Ck they were thinking? It's going to ZERO? Or GOLD? Going to 10k non stop? Buy MSFT now it's still AAA and dividend just been raised Ain't going to go to ZERO.. :)))
So was said of GM at a certain point... Most assuredly on a long enough timeline all stocks go to 0
Dude, if everything what you've said was true. you would probably leave in the stone age walking in the woods naked and eating your GOLD.
And then he would shit gold!! Think about it.
You don't know who the Swiss actually are. Remember those j00s' teeth being smuggled via BIS in good ole 1939-1945 times?
The CHF semi-peg viewed via the exports angle is a valid one, but there are never such trivial matters at stake when such moves are being made. The Swiss frank was pegged to the Euro in the event of a financial collapse in Europe, which the Swiss already knew would happen and have discussed with their colleagues at the ECB.
USD is king now.
Think very carefully for a second about this Novus Ordo Seclorum.
"King", i.e., last port in the storm....
What I suggested at that time was not that they realized that they had a too strong currency, but rather that the weak currency policies everywhere else forced their hand. And in some way, I get to agree with you that you can see why they chose to do something.
It's a bit like a country which has a good regulatory environment is likely to attract more investments and is thus going to suffer more in a worldwide crash even though it had the good policy.
What this tells me is that free markets work if everyone plays the game. Otherwise, the thugs always create the incentives to cheat the game and it spirals out of control. We're fucked.
Ho ho ho, almost forgot: with oil being traded in USDs and all, major towelhead countries are getting their trade balances collapsed, thus we can get a genocidal war or two in that general region of the world.
I am long towelhead helmets.
Kashmir, bitchez
Looking for a bread helmet ETF.
slewie's goin w/ the sourdough round & the cinnabon ear protectors
cali-egyptian chic
BiCheZ!!!
Silver will be lower than the magical $36 any minute now..
Silver below $36 is what's called a 'discount purchasing opportunity'.
It is "magical" because that is the level that "Wynter Benton" claimed would trigger the execution of silver derivatives contracts (after silver traded above that level for 60 trading days straight). Dipping below $36 supposedly resets that clock.
Probably BS, if you ask me.
'London Trader' claimed that support for gold would be good around $1730 because many high tonnage buy orders were waiting in that area. Big buy orders mostly from China, SE Asia, Mid East... the usual people that know what real money is.
So far, looks like LT is correct.
Meanwhile, more PMs flying away to the East.
Is Wynter Benton any relation to Leo Wanta?
pods
Looks like they reset the clock. Fuckers.
Check out Ebay - folks are still paying 43$ for an oz. $46, if you include 3$ for shipping.
Bought December Silver this morning, @36.74; 4;03 HST; guess again.
Ooooh. Electronic silver. Now there's a sound "investment".
Bouncy bouncy.
thanks for the warning
hope the slide is over for the week
Silver bitchez?
Even though silver dropped 4 dollars today, it only came down 2 dollars at the place I buy coins.
Try to sell your dealer a coin and you'll get a more clear idea of how far silver fell. I'm guessing it is pretty darn close to that "paper price".
This is not impressive, it's a rationalization. If you'd written that the Swiss would put a floor under EUR/CHF and that gold would immediately fall, that would have been something. This is hand-waving after the fact.
QE^(1/0): Spot fucking on. Like people who follow the cult of Jesus Christ: "In retrospect [and 2,000yrs since the dude was alive], he probably DID perform all those miracles."
in 2000 years will that comment make sense?
I think in 2,000 years people will have moved on to one of many of their next gods
The Easter Bunny, Santa Claus, the Tooth Fairy and Jesus Christ - NONE of them ever existed outside of the imagination.
Jesus Christ is simply the Sun anthropomorphised.
Hmmm. Maybe you don't exist outside my imagination. Boooyahhh!
You must not be aware of Josephus.
Another thing that was impressive was me coming on this blog and telling you to sell CHF/USD at the day and the hour when you could do this without even having a stop loss; this was huge, huge trade. This was the day it went vertical above 1.40; The authors statement that you can't make money in these markets is complete shit. It's the same as always; short the tulips when the sheeple all run in one direction; and buy the dips when they are full of remorse and they all blow out together. NOthings any different , at all.
Are you still short treasuries?
That's fine if all you care about is the next 36 hours. This time IS different - it's much, much worse. Not one of the '08 problems has been solved, merely postponed, and new ones crop up everyday.
Which is not to say Armageddon is coming in 37 hours. We used to live under constant threat of nuclear war. If the entire global financial system crashes, it will be bad, but it won't be as bad as that. (However, your BAC shares at 6.07 probably won't be a great deal of use.)
How hard is it to understand that everything with a $-price tag, will go down in price now we are experiencing a massive credit crunch as the FED does not engage in more QE (for the moment). This has nothing to do with "manipulators trying to hold the price of gold down". Sooner or later, the FED might engage another huge printing program, until that time expect everything priced in $ to go down (including gold).
Only an idiot would take the TLT as a greater safe haven than gold or dividend paying gold stocks
Its not about "fundamentals" or "investing". This is about 1) liquidity => US Treasuries are still the most liquid market in the world. So if you hold those, it's very easy to start buying cheap things in a while (like high dividend paying quality stocks) and 2) return OF your money not ON your money. Where would you rather put your money? In an insolvent fuked up bank, or a liquid instrument that (for now) has no default risk. Everybody knows US has budget issues, but defaulting is simply impossible in the foreseeable future. People don't buy bonds to hold them for X years.
Of course this is correct; but you're disturbing the Zeroists; who are having fun predicting the end of the world again. They have successfully predicted the last 13 ends of the world, you know.
With your IQ you should understand the implications of the following press release, (if confirmed)
By FRANK JORDANS
Associated Press
GENEVA (AP) -- Scientists at the world's largest physics lab say they have clocked subatomic particles traveling faster than light, a feat that - if true - would break a fundamental pillar of science.
For the record, I predict the end of the world, eventually.
Warp
sub atomic gold particles, bitches!!!!!!!!!!!!!!!!!!!
... ucieszyc sie z wielkiego odkrycia
Finally, the curvature of space gives us back some time. The conference from CERN
New results from OPERA on neutrino propertiesscheduled for tomorrow 16-18 local time (with a webcast).
Good bye flatsos - you may join the flat-Earth section together with Ajnsztajn.
There may be some serious shifts in some fat research funds pretty soon.
Neutrinos are not massless.
Even light can move faster than light.
Thanks for the only good news today
ps. by the way, even those Feynman path integrals were going over all possible paths assuming unbounded speeds... we'are living in an age with no limits :)
Dammit! When did they deregulate Physics? I musta missed it...
Acknowledging that fiat currencies fail is not predicting the end of the world.
Acknowledging that financial systems fail is not predicting the end of the world.
Acknowledging that highly specialized and fragile civilization fail is just acknowledging history.
These things have happened to every fiat currency, financial system, and civilization in recorded history. If you want to trivialize the discussion by saying it is alarmist, you will be proven wrong in the end, probably a whole lot sooner than you appear to believe.
Sorry, this argument fails in 'real terms'. Bonds are subject to the same price shocks as any other investment if you don't hold them to maturity (as you suggest). Bonds mirror the dollar in investment brilliance- i.e., it sucked, sucks, and will suck. And unless you get on and out of these instruments with precision, you will be in no better position to buy things 'cheaper' than anybody else
I dunno Kimberly Clark KMB down today 0.60%
I sold it when Market was higher and it's even higher today.
Nice div. too. Poor Silver, I'm loosing BIG today.. Few k
OZ and drop 4+$ making a large dent.
That's odd. The stack of American Silver Eagles here on my desk hasn't changed a bit.
Absolutely Rocky, every time I get burned playing with paper, I just go home and count my physical. Paper is for trading, physical is for the end game.
No. We are at the point major companies will go out of business soon. If supply of products goes down, that will obviously be inflationary for real goods. That is your hyperinflationary depression right?
Bring out your dead.
I agree with you HP. This is deflation. Many posters here talk about "money printing." Well look at money supply, it's nothing compared to the credit markets and the dark derivative pools. It's credit that is getting crushed. You can see it in your neighboorhood, with home prices getting crushed.
Everything is going down in price, which is why king dollar may reign supreme for quite a while. For those with cash, we may have buying opportunities of a lifetime.
Exactly, wait for dividend yields to reach 10% or Shiller P/E's below 8 and buy like a mad men. Same for HY, spreads might reach 12-14% again soon (now 8,5%) etc.
The only mad men would be those in paper while the world keeps inching ever closer to the Minsky Moment. Fail. There will be no deflation on Ben Bernank's watch. Think about what you just said!
In what way does that statement conflict "my" idea? I also think we won't have years of deflation, but at periods we will. Now is such a period. Did you read the ZH-piece about imploding of the shadowbanking sector in Q2? In a world of positive (but not ultrahigh inflation) quality stocks and HY will be good buys soon.
Yes Yes. It will be an ideal time. Those with GUARANTEED dollar streams -- welfare recipients, those on unemployment, social security, federal employees and those on those fat government pensions receiving FRNs are going to have a cashflow stream which will allow them to buy stuff on the cheap...They will inherit the earth...LOL
If you still think gold isn't manipulated after seeing it plummet like a stone seconds before the SNB move, then you never will.
This crisis has not produced false evidence of price manipulation. This is business as usual on a larger scale. The crisis has made the manipulators desperate, and it thereby revealed price manipulation that occurs on all time frames, all of the time.
A falling tide uncovers the rocks, including the ponzi schemes, corporate fraud, and price manipulation.
BAC down to 6.03, Moynihan BAC (blood alcohol content) to surpass stock, give it 2 months.
lulz
I like what is written, but I have been around too long to accept the premise that "they" can only win battles and not the war. BS. Sounds like you are talking your position.
A famous moron once said., "in the long run we are all dead". In one respect he was right. After I'm gone, what do I care about what happens? I care about the next trade.
Since the modern financial era [circa 1980] every time somebody says "this time it's different", they always end up eating short positions that are disastrous.
Maybe this time it is different, but betting on the end of the world is a wrong way bet. Remember, it can only happen once. Then what?
Agreed in all respects. If you bet on the end of the world and win, you lose along with everyone else.
"On a long enough timeline, the survival rate for everyone drops to zero."
Betting on gold isn't necessarily betting on the end of the world. Some may buy gold with that in mind. More rational, however, is the bet against the fiat money system. Fiat systems have always failed in the past. Every time.
Turning your assertion around, then, makes sense. Why should this time be different for fiat money systems? Why will this fiat money system survive when all others have failed?
In this sense, betting on gold isn't betting on the end of the world. To the contrary, its a bet that the world will survive the fiat money system.
Nara's right too. If you are a trader, then trade. In such a case, you really don't care if you are making money off of treasuries, LULU, or gold. Even if all currencies are being debased, you are racing ahead of the devaluation (if you win).
However, when a fiat currency fails, you darned well better be in a safe position. Usually that means another fiat currency. However, ALL fiat currencies are failing now. Fiat always fails. I think the average life span is something like 27 years. Nobody knows what will happen when they all fail together. Logic tells me that the more intertwined the system is, the larger the collapse and the less warning we will have. This makes preservation of wealth a risky proposition if one is 100% a trader.
Your positions are not inconsistent, so you can stop calling each other names. For maximum safety one must sit in PMs. For maximum return, one must trade. Eventually that will flip flop, and maximum returns will go to the holder of PMs, but not until the system comes to an end. That end is ensured, and it looks like it accelerating towards us. No, it's not the end of the world, but it certainly will be the end of the line for those who don't study history and say it can't happen, or rationalize and say the end of the financial system would wipe everyone out anyway so you go full retard into Netflix or LULU. If you choose not to hold PMs, that's your choice.
Agree w/Smiddy. "positions are not inconsistent" Perhaps we should look at "the end of the world" to mean "the end of this empire and its fiat currency". I think then the two above arguments would agree. It isn't the end of the world, but it sure as hell is not a continuation of life as we know it.
Furthermore, it doesn't matter if the Fed wins some battles before it loses the war. We are the ones in the trenches anyway, so we try to avoid being cannon fodder. In a war the goal is to survive minute by minute, and try to stand in a spot where fewer bullets are flying, not to bet wholly on the outcome of the entire battle/war.