Financial Warfare

Tyler Durden's picture

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,

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Motorhead's picture

Precious metals, bitchez!

bigdumbnugly's picture

"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.

Cash_is_Trash's picture

It's not left versus right, dollars versus euros or pakis versus indians, it's the state versus YOU.

daxtonbrown's picture

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.


I Got Worms's picture

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!

RockyRacoon's picture

You got worms... and the squirts.   Boy, you're in a real pickle.

ratso's picture

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

Smiddywesson's picture

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.

CompassionateFascist's picture

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.

Nothing To See Here's picture

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.

Pegasus Muse's picture

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. 

RockyRacoon's picture

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.

Smiddywesson's picture

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.

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.

theinebriatedsot's picture

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 what makes you happy to forget about'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>..... :-(

Henry Hub's picture

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.

Aguadulce's picture

I hope you said the same thing about natty a few weeks ago mr. Hub

CompassionateFascist's picture

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.

caconhma's picture

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


  1. So, Will Gold see $1,500 or $2,000+ by the yearend? I bet on $2,000+
  2. It appears to me that Obama's reelection in 2012 will result in a second American civil war. The US society just cannot function as it is for much longer. We are approaching the endgame.
Ghordius's picture

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...

CitizenPete's picture

Kitco says 17 of the 45 was due to USD increase...

Edward Fiatski's picture


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.

toothpicker's picture

Bernanke, Geithner, Obama = Puppetshow

Edward Fiatski's picture

I wouldn't dare naming their masters, because I support the Agenda. :)

El Gato's picture

Paranoid, paranoid bullshit this Mike Krieger writes

Edward Fiatski's picture

el gato, but it works!

Inflation being exported: peasants have their food taked away -> less people on the planet in the future.

El Gato's picture

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.

fdisk's picture

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.. :)))

Zola's picture

So was said of GM at a certain point... Most assuredly on a long enough timeline all stocks go to 0

fdisk's picture

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.

MsCreant's picture

And then he would shit gold!! Think about it.

Edward Fiatski's picture

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.

CompassionateFascist's picture

"King", i.e., last port in the storm....

Nothing To See Here's picture

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.

Edward Fiatski's picture

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.

Cash_is_Trash's picture

I am long towelhead helmets.

Kashmir, bitchez

I Got Worms's picture

Looking for a bread helmet ETF.

slewie the pi-rat's picture

slewie's goin w/  the sourdough round & the cinnabon ear protectors

cali-egyptian chic


unky's picture

Silver will be lower than the magical $36 any minute now..

Ms. Erable's picture

Silver below $36 is what's called a 'discount purchasing opportunity'.

tmosley's picture

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.

Snidley Whipsnae's picture

'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.

pods's picture

Is Wynter Benton any relation to Leo Wanta?


SilverRhino's picture
Silver Bid: 35.84 Ask: 35.94 Change:  -4.55


Looks like they reset the clock.   Fuckers. 

I Got Worms's picture

Check out Ebay - folks are still paying 43$ for an oz. $46, if you include 3$ for shipping.

IQ 145's picture

Bought December Silver this morning, @36.74; 4;03 HST; guess again.

RockyRacoon's picture

Ooooh.   Electronic silver.  Now there's a sound "investment".

polak potrafi's picture

thanks for the warning

hope the slide is over for the week

Robslob's picture

Silver bitchez?

SumSUN's picture

Even though silver dropped 4 dollars today, it only came down 2 dollars at the place I buy coins.