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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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"He looks Happy"
He lives in a teflon bubble filled with unicorn horn dust.
He is toast, a one-ond-done wonder.
Obama speaking live now in Cincinnati near the Brent Spence Bridge - I can see him from my office window. He looks happy. All the frickin roads are shut down so there goes frickin rush hour. Why me?
stateside
Think we are close to a bottom in gold. Maybe another 35 bucks. But long term, so what.
Yes, $1700 is a nice round support line, but we won't know until a few days.
If they really want to be cruel, they will let it rise tomorrow and then crush it on Monday and Tuesday, destroying the market timers. TPTB want the gold traders to fear and abandon the safety trade.
Be careful.
Seems to me that Gaddafi lost control of Libya to the NATO/al Qaeda 'rebels' and right after we started seeing massive drops in gold and silver...
I had hoped that Gaddafi would have spread his reserves out to his peeps instead of trying to keep his hoard for the future, but it seems like he kept hoping he would prevail, regardless of the impossible odds. What a terrible tragedy: his country and people were viciously destroyed and the NATO bastards even managed to make out with tons of gold and silver...
Having flown in NATO exercises in the Med, I never in my wildest dreams could have imagined the day would come when the term “NATO bastards” would not be immediately offensive to me.
mike i like you, i like you your videos and your spriit and what you believe. i'm in agreement with you on everything, but your writing is terrible. horrible.
content aside. you write like trash.
and your content is pretty void also. yes, gold is valuable. central banks are gaming everyone. thanks.
All these outcomes point to a stengthening dollar. Why is the dollar stronger? IMO there is still plenty of demand for reserve currency (U.S. dollars), but the QE has stopped or at least it has slowed dramatically causing a contraction.
I spend most of my day in the Bernank’s head.
That would be a horror I can't imagine.
Indian guy at my work just bought 5 oz of 24k for his family to celebrate the Indian feasts coming up. Your article makes sense and world citizens (like Indians) seem to have a better handle on this then many Americans from what I read.
Win enough of the battles, then winning or losing "the war" is academic, superfluous, a non-event.
Agreed, unless the currency collapses, then your winning battles are irrelevant because you lose everything. I don't think it will come to that. I think they will reset the system.
SHEAR THE SHEEP!!!
P&F Chart predicts gold is likely to hit $1520 price target. Folk, start to get your truck key now because you need to back up the truck soon.
"Ben will...still be naked and impotent, but don't count on him admitting it. And that's the real problem here, isn't it? Surely there must be some neuron in that bald scalp that realizes it's attached to nothing but a chubby flubby naked body. That neuron, then, will also realize that the body has no balls either."
from Ilargi @ automatic earth. Just about says it.
Thanks for the discount Silver Uncle Ben.
I think I will celebrate with some Swiss chocolates today.
These financial types like Mike see financial warfare when they are personally affected. For example, any action by CBs such as the recent devaluation of Swiss cheese money is viewed as Capital Offense because it unravels their illusion of safe heaven for their 'financial loot'; however, the 40 year old war that they waged on the middle class is not.
Ironically these types along with the elites fail to understand that one must distribute Swiss cheese in order to maintain the status quo. So Krugman is a fool but Pete Peterson is a wise man? Ho ho said a man in lifeboat paddling away from the 'ship of fools.'
If you understand the intent is to confiscate wealth in all forms, it all makes sense.
quote
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) ....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.
unquote
not sure i follow his reasoning. Actually i dont agree! Anyone holding ZKB gold and silver silver products saw an overnight rise of 15% in their mark to market gold and silver holdings (expressed in CHF of course) when the SNB came out with their pegging initiative.
As for the first part of his comment, lets be more precise. The only speculators who got damaged by the swiss franc were, as one might expect, the ones who bought the franc less than 20% before the peg announcement.
Speaking of financial warfare. here is an interesting perspective from, the Pan Pacific. http://www.news.com.au/business/shares-stocks-wall-street-joins-global-m...
(paste from mike K): "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."
hmmm...that's 'bout exactly what ol' slewie said...12 days ago! but i was dead wrong (again!) 'bout the implied cap on the USD's rise, ...for a day or two till i realized my mistake, there, and admitted it, ok?
Interest Rates
Don’t worry about the jobs. We have to replace all the technology equipment and recycle all the old transmission equipment. There will be plenty of jobs for everyone. Right now, we need to establish infrastructure direction, which will be that which remains once the algebraic reduction is complete.
We can carry the old for some time, but the heads have to be chopped off. We can have an infrastructure bank, but the proprietors have to measure performance, effective priorities, not control, efficient scale replication. Currency is a transaction mechanism with no intrinsic value without intelligence to back it up.
If you want Apple to become a utility to replace Comcast, etc., no problem, but you have to value it as a utility, not a center of innovation. Currently, its innovation structure is being liquidated into a cash cow on the back of collapsing globalization(Wal-Mart).
The consumption aspiration economy is being replaced by an investment aspiration economy on the event horizon, which the former cannot see because the political looking glass stands in the way. The landlords are beginning to come around on the margin, but the employers are still acting like idiots. You’ll have that until the nucleus is sufficiently threatened, which will be when agreement is reached, interest rates are increased, and credit becomes available at a relative discount to those systematically denied equity under the consumption regime.
The last piece for young men:
Bring your wife to orgasm, but do not orgasm yourself, at least every other session. This will give you control over your body again, health will resume, and you will be able to ignore stimulus from other female advertisers. Once you have bodily control, watch other men as the consumption stimulus in their environment triggers autonomic response. That will give you control over your brain and clear the pathway to your spirit (your sex life will improve dramatically and you will never need a pill).
The obey clause in the standard marital contract with God is very important and misunderstood. The point is that your wife must want to obey you with no form of coercion. At that point, you may both pass through the looking glass and focus all of your attention on the business at hand, raising your family, which replaces consumption with investment as the anxiety positive feedback trigger.
For the religious (legal cognitive dissonance):
1 Corinthians 14:15; Luke 22:40; Mark 11:25; 2 Corinthians 3:17; Matthew 18:21.
You want the spirit to direct the brain to direct the body, and most of you have it exactly backwards most of the time, turning the hypothalamus into a disposable dc receptacle for the nexus.
The most important thing you will ever do in your life is to provide an effective example of authority/responsibility for your children, freeing them, in contrast to the laws of Caesar. Choose your battles carefully to maintain position on the event horizon.
The more you follow the laws of Caesar, like the majority, and do nothing else, the faster central government goes bankrupt, because it is in the business of subsidizing non-performing assets, gravity leverage, like Apple. You have 2 lives to balance, the passive life Caesar sees and the active life that only you can see. Reward Caesar for respecting your privacy by allowing the denizens to steal your less-than-performing assets on the margin.
Congress threatening Palestinian free speech is going to backfire.
Its funny how no matter where the paper bugs drive the price my physical oz keeps going up and up and up. The only thing that changes is the rate of increase which is now just a touch faster thanks to the paper bugs.
Seriously though, after the ‘physical’ market finally gets the price discovery upper hand on these 50/1 levered paper fraudsters, what prevents them from making the holding and or exchange of physical by the common man illegal again?
That to me is the bigger concern, not all these interim foreplay paper games they are playing along the way. Remember this is same group of crooks that bribe our representatives to change the laws so that it’s always tails they win and heads we lose even in the paper world.
If they can do that in the fraud fantasy land of paper promises and caviar dreams, why not the real world of metal? Again they don’t have to go door to door and take it, they just need to make it crime to hold it or use it as money.
If we are made to take our fiscal medicine aka austerity, the people would demand justice for what the bankers and politicians did.
Mike, don't make it more complicated than it is. Like many people today, he looks first for some grand "take my hat off to them" master plan, especially when it caught him blindside. On top of that, he writes for an audience, and he knows the one key rule: conspiracy first.
Maybe Mike is correct, but there might be a slightly less nefarious explanation: the Swiss were simply trying to save themselves, nothing more.
First, that the Sfr should be considered a safe haven is a bit odd in itself, since a rapidly rising SFr would in and of itself hobble the country that produces the SFr.
Switzerland is much like a Japanese zaibatsu or a South Korean chebol. It is two banks, a couple of pharma companies, and a confectionary company all under a single banner. Its banks are massive relative to the size of the economy, with UBS and CS holding assets that are a 5x multiple of Swiss GDP (~$2.6 trillion combined assets vs. $525 billion Swiss GDP). In contrast, the largest (by assets) US bank---BAC---holds about 13% of US GDP in assets. Relative to its home economy, UBS is 23x larger than BAC. These two Swiss banks also have at least 30:1 leverage.
On top of this, Swiss banks have the GDP equivalent of 25% in exposure to emerging markets, where many of the loans are SFr loans (e.g., Polish, Hungarian mortgage markets). That equates to more than $135 billion. A very small decline in the value of those assets would wipe out the entire Swiss banking system. Those loans were made when the SFr was below dollar parity, and considerably weaker vs. the emerging market currencies.
One need not do too much analysis to see that a SFr of $1.40+ put the entire Swiss economy in jeopardy. No conspiracy needed, Mike.