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January 12, 2006

Snake Oil, Carnies and Four Flat Tires
by Rob Kirby

Why is it that firms such as Goldman Sachs [as recorded from 'Midas' commentary at the James Joyce Table - [Jan. 5/06] - at Lemetropolecafe.com] - can conduct themselves in the following manner with virtual impunity? Better yet, why is it that such action goes unreported?

Bill;
Goldman Sachs position on TOCOM [Gold - Tokyo Commodities Exchange] as of Dec 21 was 7,088 contracts short and 3636 contracts long. As of today Jan 5, 2006 they are 13,905 contracts short and 3611 contracts long. On Dec 21 gold was $489 and today it is $533. In other words gold has increased $44 and Goldman Sachs has increased their net short position by 6842 contracts!!

This is VERY significant. Goldman on Jan 3 came out with a statement that gold was one of their "top trading picks" and they forecast an AVERAGE gold price for 2006 of $515. This is FRAUDULENT. They are publicly making statements and advising their clients on the future of gold which is absolutely 100% different from how they are invested for their own account. Notice that their long position even CONTRACTED with a gold price that went up $44. The short position has increased in the OCT 2006 contract. When that was put on between $489 and $533 how can they publicly predict an average gold price of $515?This is like Merrill Lynch when they were advising clients to buy certain dot.com stocks while their analyst was sending e-mails to his friends to dump them.

Is it possible that this is not GS trading but them acting on behalf of a client? Unlikely because with such a move in gold the long position would have to increase if the general public were buying these positions. One would not see clients build up a 6842 contract short in a single contract month. Also it was Goldman who just joined the TOCOM and immediately shorted 50 tonnes of gold and then covered on a price break they created by shorting another 20 tonnes. They covered the whole 70 tonnes position and went long by one tonne. This is not a pattern consistent with acting on behalf of clients. This is a pattern totally consistent with FRAUD. This is the sort of activity that they should be sued for. This warrants a complaint to Spitzer and the SEC. You can not recommend to your clients to go long gold and predict $515 gold price and then reduce your longs and go short almost 7000 contracts. It is simply outrageously and blatantly criminal. GS is so used to doing their criminal acts in secrecy on the COMEX they have overlooked that their positions are a matter of public record in Japan. [RK emphasis]

- Adrian Douglas -

Where are you Eliot? How bout you dudes at the SEC or the INS - you surely have the time and resources to "look into" this apparent, highly visible obscene act of corporate bamboozlement? The actions outlined above - put simply - make the Enron debacle look like child's play.

The Hoax We All Refer To As the Treasury [Yield] Curve

While I must admit that Alan Greenspan has done more to discredit the field [and I use the term lightly] of economics - first with his irrational exuberance, followed by the productivity miracle [tech boom] of 90's only to be outdone this side of the millennium by proclaiming [soon to be discontinued] M3 money supply reporting data to be outmoded and irrelevant? And now he's railing on with a repudiation of the significance of the yield curve? C'mon guys? What's next? Is he going to be given a Congressional Medal of Honor if he proclaims The National Debt has 'vanished down one of Uncle Al's rabbit holes' - please!

The sensational hype that the Federal Reserve's FOMC [group that sets short term interest rate policy in the U.S. of A.] is afforded by purportedly "educated" individuals on Wall Street and most of the main stream financial press is beyond shameful. Does anyone not question how this most distinguished academically accredited group of individuals can come across as such a comical, bumbling, bobbling, madcap group of soothsayers?

The secrets as to why long term interest rates have not risen are admittedly multi faceted - but you do not need to be a Ph. D to understand that 200+ TRILLION worth of "unregulated/off balance sheet" interest rate derivatives [swaps] has had some hand in this. Then, let's not forget, the Caribbean Pirates - a persuasive argument outlining how officialdom has likely already "monetized" a good deal of U.S. Debt obligations - creating a good deal of the inflation we are empirically experiencing today.

Why Would They, You Say?

Inflation [new money creation] is the lifeblood of any "un backed" fiat monetary system.
Money creation got "extremely out of hand" over the past 20 or so years in the U.S.
This created asset bubbles - real estate and stocks predominantly at first.
The fear of these bubbles "popping" led to loose monetary policy [low interest rates] under Greenspan's watch - all stuff that is highly inflationary.
To counter balance the inflationary money creation - The illusion [ruse] of a "strong dollar policy" was pursued by Treasury Secretary Rubin during the Clinton Administration.
The strong dollar policy was really a LIE - but rising CPI [inflation] data or a rising price of gold would have 'blown the cover' of the illusory strong dollar policy - so this data and the price of gold needed to be FIXED!
The boys fixed things alright; CPI is now under reported - perhaps to the tune of as much as 500 basis points and the price of gold IS STILL hundreds of dollars less than what it should be.

So now, as Sir Alan gets ready to ride off into the sunset - folding his tent and taking his carnie act to another town - Jane and Joe Sixpack are going to be left holding the bag, so to speak, with a dismantled or crippled manufacturing sector and Balance of Trade Deficit that was all, or largely brought on due to the severe distortions his stewardship helped create.

Flat Tires At GM and FORD, the Airlines and Now IBM Too....

For those of you who may think that misreporting CPI is beneficial - you are not only thinking with your own pocket book - but you are patently wrong. Interest rates should be set in the free market place at a 'spread' over the real inflation rate. Conceptually, this is how fixed income securities are supposed to work. So, if you say inflation is running at 2% and end up with bond rates yielding 4.3. BUT. If you report inflation at, say, 7% - you end up with bond rates in excess of 9% - or roughly 500 BASIS POINTS HIGHER.

Now consider this from CNN Money:

But the event was held this year against a darkening and bleak financial outlook for U.S. auto makers amid rising costs, shrinking market shares, mountainous costs for wages, health and pension commitments, and gigantic debt.

GM lost nearly $4 billion in the first three quarters of 2005 and will slash 30,000 jobs and close 12 plants in North America. Rival Ford Motor Co is expected on January 23 to announce its own round of plant closing and job losses. Both of have had their credit ratings slashed to junk.

GM [and FORD is in much the same boat], is being 'crushed' under the burden of escalating health care costs - now running in the neighborhood of 4 - 5 billion annualized.

Now, let's look at GM's pension fund assets:

General Motors has pension assets under management of roughly 100 billion. Their asset mix is roughly considered to be along traditional lines of 55% - 65% invested in equities and 35% - 45% invested in bonds [fixed income]. This means, by extension, that GM's pension assets have roughly 40 billion invested in bonds [fixed income] or equivalents.

Now, ask yourself what 500 basis points amounts to on 40 BILLION per year? The answer, of course, is easily a cool 2 Billion per year ball and chain that GM has been carrying around for the past 8-10 years. Amazingly, pundits refuse to see this sham for what it really is. I would like everyone to consider that when GM's pension funds were being established - many years ago - money was still linked to gold, which naturally kept debt [fiscal and trade] in check and therefore there was no need on the part of officialdom to "cheat" [or at least not nearly as much] with data reporting.

The dudes who set up GM's pension plan were really smart folks! When the system was set up, framers knew very well the long range aging demographics they faced in their labor force - and I would argue they planned accordingly. But how could they have ever 'budgeted' for anyone surreptitiously draining their coffers to the tune of as much as 2 billion per year? Given these realities, it's a wonder they did not throw up their arms in frustration as a result - years ago. Everyone should understand, the trap the GM finds itself in is not peculiar to just them. This predicament and outcome is likely a sure bet at any organization with a defined benefit pension plan^[1] - given enough time. These are the types of imbalances that are caused when markets are RIGGED - encouraging or forcing market participants to make inefficient choices when they allocate their capital - IT'S ALL REALLY THAT SIMPLE!

^[1] Perhaps with the exception of select [insulated] Defense Contractors, such as Lockheed Martin - as reported by Robert Bell , Chairman of the Economics Department, Brooklyn College, N.Y., author of seven books.

Rob Kirby
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