Deepcaster LLC

DEEPCASTER LLC
DEEPCASTER FORTRESS ASSETS LETTER
DEEPCASTER HIGH POTENTIAL SPECULATOR
Wealth Preservation      Wealth Enhancement
Financial and Geopolitical Intelligence

PROFIT & PROTECTION FROM CARTEL INTERVENTION
— Including New Interventional Tools Description

“The fact that the mid-March, 2008 financial markets crisis (capped by the demise of Bear Stearns) and the Financial Crises and “Bailouts” of August through November, 2008 were accompanied by substantial drops in Gold and Silver prices is quite significant.  After examining the evidence, how can a rational observer conclude anything other than that the price of Gold, Silver, other key commodities and equities markets are manipulated?

“Essential to maximizing profits and to avoiding losses is to recognize that the Fed-led Cartel manages two complementary Interventional Regimes – – one quite public, and the other dark one, at least as powerful, covert.  Thus, a critical key to profit and loss is tracking the Dark Interventions as best one can, as well as the public ones.”

Deepcaster, December 3, 2008

“Charlie and I are of one mind in how we feel about derivatives and the trading activities that go with them:  we view them as time bombs, both for the parties that deal in them and the economic system.”

Warren Buffet, February 21, 2003

It is understandable that over 300 of the Members of the U.S. House of Representatives have signed on to a Bill (H.R. H.R. 1207, subsequently watered down by The Powers that be) to audit the private for-profit U.S. Federal Reserve.

That is because, whether all the signatories are fully aware of it or not, Fed Policies and actions are the Primary Cause of the Economic and Financial Crises from which we suffer today, as we show below.

Moreover, there is clear and convincing evidence that The Fed leads a Cartel* of key Central Bankers and favored Mega-Financial Institutions in an ongoing Regime of Overt and Covert Manipulation of the Precious Metals, Equities, Strategic Commodities and other Markets, as we  demonstrate below.

*We encourage those who doubt the scope and power of Overt and Covert Interventions by a Fed-led Cartel of Key Central Bankers and Favored Financial Institutions to read Deepcaster’s December, 2008 Letter containing a summary overview of Intervention entitled “A Strategy for Profiting from the Cartel’s Dark Interventions & Evolving Techniques” and Deepcaster’s July, 2009 Letter entitled  “A Strategy For Profiting From The Cartel’s Dark Interventions & Evolving Techniques – II” in the “Latest Letter” Cache at www.deepcaster.com. Also consider the substantial evidence collected by the Gold AntiTrust Action Committee at www.gata.org for information on precious metals price manipulation. Virtually all of the evidence for Intervention has been gleaned from publicly available records. Deepcaster’s profitable recommendations displayed at www.deepcaster.com have been facilitated by attention to these “Interventionals.”

This December, 2009 Special Alert is the ninth in a series of Deepcaster’s work originally entitled “Juiced Numbers”. It provides an updated Overview of Market Intervention and Data Manipulation.  It analyzes the recent Releases from (and actions of) the BIS (Bank for International Settlements – The Central Banker’s Bank), BLS (Bureau of Labor Statistics) and The U.S. Federal Reserve, as well as Highlights of recent Interventions culminating in the Fall, 2008 and ensuing financial crises and accompanying Takedowns of Gold and Silver, and The Cartel* “End Game.”

Bailouts and Stimuli have afforded The Cartel a whole panoply of additional tools for Market Intervention which they did not possess two years ago. This has resulted in the apparent adoption of new Interventional Techniques in recent months. As we demonstrate, these developments dramatically increase Systemic Risk and Cartel Power and also reflect the significance of The Cartel’s creating (and/or having available) more OTC Derivatives in order to affect market outcomes.  In sum, this report provides even more evidence of Increased Risk of Systemic Collapse, and of the beginning of the attempted implementations of The Cartel’s Nefarious “End Game.”

Indeed, the OTC Derivatives figures through June, 2009 released recently by the BIS indicate that even greater Markets Turmoil and Systemic Risk are likely in 2010. They also indicate that The Cartel* and its Favored Financial Institutions gained some $11.9 Trillion in Profits while Investors lost Trillions in the Fall, 2008 Market Crash – see below.

In conclusion, Deepcaster provides a Strategy for profiting and protecting from the Interventional Regime’s actions and policies, and coping with its ‘End Game’ Strategy.

The Covert Interventional Context – – Overview

Deepcaster is periodically asked to explain, and provide evidence for, our view that a U.S. Federal Reserve-led Cartel* (apparently composed of the U.S. Federal Reserve, Major Central Bankers and key Primary Dealers manipulates a wide variety of markets.  [Apparently one “Operational Vehicle” through which The Cartel works is called “The Working Group on Financial Markets” established after the 1987 crash, and which is often informally and widely referred to as “The Plunge Protection Team” or PPT.]

So it is important to explain what we mean by our claim of Cartel Intervention and to indicate how Deepcaster takes account of that in our Portfolio Recommendations.

Essential to maximizing profits and to avoiding losses is to recognize that the Fed-led Cartel* manages two complementary Interventional Regimes – – one quite public, and the other dark one, at least as powerful, covert.  Thus, a critical key to profit and loss is tracking the “Dark Interventionals” as best one can, as well as the public ones.

Moreover, whether an Intervention is Overt or Covert is often a matter of degree.  Overt Intervention often has a Covert aspect (e.g. how is that TARP Bailout Money being used and who receives it?), and Covert ones are often difficult to detect, but nonetheless can often be tracked using publicly available information.

It is important to note also that by “Cartel Intervention” we do not (usually) mean that the Cartel totally controls prices in any particular market, at all times. Various markets are affected in varying degrees, at varying times, by Cartel manipulation attempts.  Cartel actions can substantially affect, but often do not totally control, prices in many markets – – though they certainly have that capacity much of the time.  The price of Crude Oil is relatively difficult to manipulate, for example, but there has been substantial effective manipulation (as we shall show) for several years.

Also notable is the evidence that the degree of manipulation, and, therefore, control, varies from time to time and market to market.

In markets such as the (relatively) Small Cap markets for Gold and Silver Bullion and Securities, Cartel manipulation attempts can have much more impact and are, at times, and for certain time periods, tantamount to control.  Typically, Interventions in the Precious Metals Markets depress prices dramatically.

To answer the exceedingly important question regarding how the wide varieties of markets are manipulated one must recognize that there are two main methods of manipulation, Direct and Indirect.   Direct Manipulations are of two sorts:  Overt and Covert.  Here we do not focus on the Overt Interventions since they are described at length in various mainstream financial publications.

COVERT DIRECT INTERVENTION

Covert Direct Intervention to manipulate a variety of markets appears to be accomplished primarily via three categories of vehicles:

• “Repo” Injections from The Fed (TOMO’s & POMO’s)
• Over The Counter (OTC) Derivatives (reported at bis.org, see below)
• “Bailout” monies and authorizations which Congress unwisely gave the Fed without requiring full disclosure and, in particular, the TARP and TSLF (Term Securities Lending Facility) injections by The Fed, and other Vehicles such as the Primary Dealer Credit Facility (PDCF).

Regarding Repos, The Fed makes injections of Repos (Repurchase Agreements – – usually TOMOs – – Temporary Open Market Operations typically expiring in 1 to 30 days) into the market most business days.

Repurchase Agreements are loans (at Fed Fund rates) issued daily, in amounts typically ranging from U.S. $1 to U.S. $20 billion, by the Federal Reserve to Primary Dealers, the proceeds of which can be used to buy, for example, Dow index futures, if the Fed seeks to boost the Dow.  The total amount of un-expired Repos on any given day constitutes the “Repo Pool.”  Monitoring changes in Repo Poll levels (which is publicly available information) is crucial to determining how the Interventions will likely affect the markets.

While the Repo Pool is one vehicle for manipulating the markets it is not the only one – – Interventions can and do occur without changes in the Repo Pool.  It now appears that The Fed uses the PDCF, TSLF injections and TARP funds (among other vehicles) to intervene as well!

Thus, the several Primary Dealers (e.g. Goldman Sachs, J.P. Morgan Chase), who apparently work under the Fed’s direction, are able to use these loaned funds and/or “TSLF/Bailout Funds” and/or OTC Derivatives and/or the PDCF to buy or sell various securities and futures to affect the markets.  The fact that the loaned funds can be used to purchase Derivatives (as well as plain equities) gives the manipulators the tremendous leverage which derivatives afford.

But along with that tremendous leverage comes great and greatly increasing (as the recent data releases described below indicate) Systemic Risk.

For full details regarding Cartel use of Repos, Derivatives, Bailout Monies and other Vehicles see the July, 2009 Letter.

The Challenge:  Determining the Impact of The Interventionals

The challenge for Investors and Forecasters is to determine where (i.e. in what Sector/s) and how (immediately, in increments, etc.) the Repo-backed funds and/or TARP/TSLF/Bailout Funds and/or OTC Derivatives (“Interventional Funds”) etc. will be employed.  Deepcaster and those very few others, who monitor the Interventional Funding (and related Cartel and Allies’ actions) to the extent that is feasible, make educated Forecasts of where and how such funds are likely to be used based on patterns, tendencies, and judgments.  But no outsider can know for sure (So where is the transparency, Ben?).

Those who doubt whether the Cartel has the capacity to manipulate the markets (and especially the larger markets like the multi-trillion dollar currency and bond markets) are invited to inform themselves about the tens of trillions of OTC Derivatives at Fed Primary Dealer J.P. Morgan Chase, or Fed Primary Dealer Citibank, or the U.S. $604 trillion (as of in June, 2009 up from U.S. $370 trillion in June, 2006) total Dark OTC Derivatives positions at the Bank for International Settlements (the Central Banker’s Bank).  See www.bis.org, then follow the path: Statistics>Derivatives>Table 19).  Note that Dark OTC Derivatives total has increased by over U.S. $230 trillion in just three years!  Unlike publicly visible and clearinghouse-guaranteed Exchange Traded Derivatives, OTC Derivatives are not generally publicly revealed, except in the aggregate.

Indeed both Opportunities for and Threats to Investors are generated by Cartel Policies and the Massive OTC Derivatives positions. Consider:

 

“With Key Mega-Financial Institutions around the World claiming in 2008 that they risked collapse if they were not bailed out, one must ask which ones benefited from the $13 Trillion plus Increase in Gross Market Value of their OTC Derivatives in the six months between June, 2008 and December, 2008 when the Equities Markets were crashing and Investors around the world were losing trillions? A logical Conclusion: Key Central Bankers and Favored Financial Institutions of The Fed-led Cartel*, quite possibly including the shareholders of the private for-profit U.S. Federal Reserve” (See Chart below) (N.B. profit figure later revised down to a “mere” $11.9 Trillion by the BIS)

Deepcaster, May 29, 2009

For further details see our July, 2009, Letter.

IMPORTANT NOTE: Here and throughout we must for the sake of brevity refer readers to our July, 2009 (and occasionally earlier) Letters and Articles for additional detail. Those Letters and Articles are available in the ‘Latest Letter’ cache and ‘Articles by Deepcaster’ cache at www.deepcaster.com.

Clearly, given the foregoing:

1. acquiring Gold and Silver as Safe Haven Assets is the Prudent Course. However, Gold and Silver are subject to price Manipulation by the Fed-led Cartel* of Central Bankers and Favored Financial Institutions as we explain below. But we also explain that there is a Strategy to Profit from these Interventions while acquiring an increasing core Position in these Precious Metals.
2. A substantial portion of the aforementioned $604 Trillion in OTC Derivatives is available to The Fed-led Cartel* to continue to overtly and covertly manipulate the Precious Metals, Strategic Commodities, and Equities Markets.

These remarkable developments reflected in the BIS Gross Market Value of OTC Derivatives figures (below) for period June 2008 through December 2008 prompt certain questions.

• First question: which financial institutions in the world experienced an increase in $13 ($11.9 as revised) trillion of market value in their OTC Derivatives Positions in the last six months of 2008 while the Equities Market were crashing?
• Why do we not see anyone publicizing this information (Tongue-in-cheek-intended) much less the private for-profit U.S. Federal Reserve, which has declined to respond to inquires from Members of Congress about the specific amounts of, or parties to, their transactions and holdings.
• Can we not logically conclude that some Mega-financial entities profited immensely from the market takedowns of the Fall 2008 – specifically profiting in the amount of $11.9 Trillion in increase Gross Market Value of derivatives owned?

Consider too that the aforementioned figures were generated by the Ultimate Official Source. They come from the Bank of Central Banks itself, The Bank Of International Settlements, Switzerland, housed in the Tower of Basel. Of course, not all “official” statistics are accurate as we demonstrate below. Indeed, some are intentionally misleading. (See chart below)

But an increase of $11.9 trillion in gross market value of Derivatives held by major Financial Institutions, is testimony to the Resources and Power of The Fed-led Cartel*. See Deepcaster’s article “Coping with the Superpower-Cartel Threat!” (1/30/09) at www.deepcaster.com.

INDIRECT MANIPULATION

Key Statistics continue to be gimmicked by Official Sources much to the detriment of American Citizens and Investors Worldwide. One result of this is that the extent to which Mega-Bank Policies result in the confiscation or devaluing of investor wealth, is hidden.

Indeed, the True State of the Economy is much worse than the Official Figures suggest.

Indeed, Investors and citizens-at-large are misled by Official Statistics which have been gimmicked, as shadowstats.com demonstrates.  All of the following Genuine Numbers are calculated by shadowstats.com, which calculates them according to traditional methods used in the 1980s, and early 1990s, before The Political Adjustments currently being utilized began.

As the Real Numbers mentioned below demonstrate, our ongoing economic and financial crisis is not merely a “normal” business cycle Recession, but a System-Threatening Crisis.  Indeed, we have entered into a Depression. (see below)

Consider the following Real Numbers from shadowstats:

U.S. Consumer Price Inflation (CPI) actually averaged about 11% annualized for much of 2008, rather than the 5% to 6% figures, which have been reported as Official Statistics.  Thus, the consumer must cope with diminished purchasing power and the threat or reality of job loss.

Real CPI today is 8.77% rather than the 1.84% Official Figure.

U.S. Unemployment has (according to Official Numbers) been ranging 4% to 6% from 1995 to 2007, spiking “only” to about just under 7% in late 2008, and 10% in 2009.  In fact, Real U.S. Unemployment in 2009 now about 21.8% and is still increasing! (shadowstats.com) Thus the consumer (70% of U.S. GDP, we reiterate) is increasingly unemployed, under-employed, and indebted.

As well, the Delusion of Economic Growth claimed by Official Statistics is just that – – a Delusion.  Real GDP growth has been negative since 2004.  Indeed, in early 2009 GDP “growth” is a negative 5%. (shadowstats.com) Thus the consumer is faced with a deteriorating economy, as well as diminishing job prospects and purchasing power.

As well, the U.S, Federal Deficit is over $12 trillion.  And, if downstream-unfunded U.S. obligations are included, the U.S. National Debt is $70 trillion and rising!

Knowing these Real Numbers facilitated Deepcaster’s recommending “Opportunities in the Impending Perfect Storm” – – the title of his early September, 2008 (pre-Crash) Article warning of the impending Crash (available in the Articles Cache at www.deepcaster.com) and his making five short (and subsequently quite profitable) recommendations to subscribers at about that time.

To consider Deepcaster’s Strategy for Profit and Protection read “Opportunities & Threats In Derivatives Shocker” (5/29/09) in the ‘Articles by Deepcaster” cache at www.deepcaster.com.

To understand the motives for Fed and Cartel Policies and actions consider:

A Brief Anatomy of the “U.S.” Federal Reserve

Indeed, the Profit Motive lies behind Fed Actions.  Even the most causal student of Economic History knows that the United States’ Federal Reserve system, or “The Fed” as it is called, is not a U.S. government owned or controlled entity.

Various international private banks, several of which are headquartered in Europe, own “shares” in the “United States” Fed. Moreover, this “United States” Fed leads a Cartel of Central and Private Banks* who collectively intervene in a wide variety of markets, as Deepcaster demonstrates here. All this is obviously quite financially incestuous.

These International Bankers, acting through their “U.S.” Fed, profit both by creating money out of “thin air” and by collecting “interest” from U.S. Taxpayers on the Treasury Securities it has bought with U.S. Dollars (Federal Reserve Notes) it has created out of thin air. The Dean of the Newsletter Writers, Richard Russell, eloquently describes all this:

 “I still can’t get over the whole Federal Reserve racket.”

“Consider the following — let’s take a situation where the U.S. government needs money.

“The U.S. doesn’t just issue United States Notes, which, of course it could. These notes would be dollars backed by the full faith and credit of the United States. No, the U.S. doesn’t issue dollars straight out of the U.S. Treasury.

“This is what the U.S. does – – it issues Treasury Bonds. The U.S. then sells these bonds to the Fed. The Fed buys the bonds. Wait, how does the Fed pay for the bonds? The Fed simply creates money “out of thin air” (book-keeping entry) with which it buys the bonds. The money that the Fed creates from nowhere then goes to the U.S. The Fed holds the U.S. bonds, and the unbelievable irony is that the U.S. then pays interest on the very bonds that the U.S. itself issued. (With great profit to the private owners of The Fed – – Ed. Note) The mind boggles.

“The damnable result is that the Fed effectively controls the U.S. money supply. The Fed is …not even a branch of the U.S. government. The Fed is not mentioned in the Constitution of the United States. No Constitutional amendment was ever created or voted on to accept the Fed. The Constitutionality of the Federal Reserve has never come before the Supreme Court. The Fed is a private bank that keeps the U.S. forever in debt         – – or I should say in increasing debt along with ever rising interest payments.

“How did the Fed get away with this outrage? A tiny secretive group of bankers sneaked through a bill in 1913 at a time when many in Congress were absent. Those who were there and voted for the bill didn’t realize (as so often happens) what they were voting for (shades of the shameful 2002 vote to hand over to President Bush the power to decide on war with Iraq).”

Richard Russell, “Richards Remarks,” dowtheoryletters.com, March 27 2007

 

After President Wilson signed the Federal Reserve Act into law in 1913, he reportedly said, “I am a most unhappy man, I have unwittingly ruined my country…a great industrial nation is now controlled by its system of credit…the growth of the nation, therefore, and all of our activities are in the hands of a few men…”

Insightful economic forecaster Ian Gordon notes several negative consequences of the nearly 100-year reign of The Fed, consequences with which we cope today.

“Since its inception in 1913, the Federal Reserve Board has been responsible for almost 95% devaluation of the U.S. Dollar. All this has been achieved through its ability to continually inflate the money supply. (Ed. Note: This “devaluation” is a de facto Wealth Tax on Savers and Investors.)

“And, between 1985 and 2005, the Federal Reserve Board has increased the money supply by five times. This extraordinary money creation is merely the catalyst for debt creation. In a fiat money system, money is debt…there is absolutely no way this money can ever be repaid except by continued inflation. But, now that the credit bubble is blown up, inflation is no longer an option; bankruptcy looms.”

“The Federal Reserve…What Has It Done For You Lately?”
Ian Gordon, December 29, 2007 (www.axisoflogic.com)

[Historical note:  recall that President Kennedy was unhappy with Fed policy and therefore caused U.S. Notes to be printed by the U.S. Treasury as Constitutionally Authorized and as a substitute for Federal Reserve Notes.  The issuance of these Notes ceased shortly after President Kennedy’s assassination.]

An excellent analysis of the defects of the “U.S.” Federal Reserve – – so far as the United States’ National Interest (and the interest of investors around the world) is concerned – – is well documented in G. Edward Griffin’s superb book, The Creature From Jekyll Island:  A Second Look at the Federal Reserve).

The one conclusion that one can make from the foregoing is that the failure to take account of the power, force and pervasiveness of Fed-led Cartel Manipulations (i.e. The Interventionals) is an invitation to financial and investment suicide.

The Interventional Regime – Motive, Causes and Consequences

But The Interventional Regime is showing increasing signs of stress which are reflected in accelerating Derivatives Creation, and thus in Increasing Systemic Risk.  The $604 trillion plus OTC Derivatives Colossus (see www.bis.org, path:  statistics-derivatives-Table19 and following) on which the Interventional Regime is built is increasingly subject to counterparty defaults and to Darkly Liquid OTC Derivatives turning illiquid (resulting, inter alia, in the ongoing credit freeze-up) among many symptoms, as The Crash of 2008 indicated.

Clearly, The Cartel has created a Financial System subject to ever-greater Systemic Risk.  Why?

Harry Schultz, one of the Eminence Grises of the Financial Newsletter writing fraternity, puts the question in this way – – what is the reason for this “seemingly random monetary mess that multiplies its momentum every day?  The answer, in one word, control.  The elite/insiders already have control of the financial system, but they wanted more, much more…and it was not random, it was planned.” (emphasis added)

And what is the effect of all of this on the average investor?  In the inimitable words of Harry Schultz, “How will all the above manifest itself in your life?  The answer:  “All you own will shrink…your income, assets, net worth, will shrink year after year in real terms inflation adjusted and possibly also nominally.”

Harry concludes by advocating that we all try to shrink less “relative to the herd” so that we hold our position.  Part of the strategy for shrinking less, according to Harry, is “it will, over 10 years, involve moving in and out of investments as price action will be very dramatic.  Buy and hold will not work in any area, including gold.”  HS Letter, April 27, 2008.

Indeed, Deepcaster has been sounding the theme that the “Buy and Hold Strategy Increasingly Fails” since the inception of Deepcaster’s newsletter.

But Deepcaster is not satisfied with a strategy which merely accepts “shrinking less” as a goal.

Thus, Deepcaster has developed a strategy for coping with and profiting from not only Cartel Intervention in the Precious Metals Market but also the “Shrinking Assets” problem.  That strategy can best be employed in the Precious Metals Sector, with Gold and Silver bullion and shares.  It is entitled “Defeating The Cartel…With Profit” (3/28/08) and can be found in the Articles Cache at www.deepcaster.com.

Since the cornerstone of The Cartel’s power lies in maintaining the legitimacy of their Fiat Currencies and Treasury Securities, the last thing they want is to have Gold, Silver and Tangible Assets held by investors to increasingly be seen as the Ultimate Stores and Measures of Value.  Thus they will continue attempts at Takedowns of Gold and Silver prices.

Deepcaster must issue a Word of Caution here: The paper based edifice of increasing Fiat Currencies, OTC Derivatives and the Repo Intervention is not indefinitely sustainable. It will inevitably collapse, and that is why the evidence increasingly indicates that The Cartel has begun to plan and implement its ominous ‘End Game’ described below.

Cautions for Investors and Traders Regarding Interventions

We issue a word of caution to our readers.  So long as The Cartel is in a very active interventional mode (e.g. as in taking down the price of Gold and Silver) do not be lured into thinking that the periodic up spikes in the prices of Gold and Silver necessarily present a “breakout” or a buying opportunity.  As a practical matter, technical breakouts are sometimes a lure designed to suck in more “longs” prior to a subsequent deeper Takedown.

Nonetheless, it is essential to study the Fundamentals and Technicals even though the Interventionals can override the Fundamentals and Technicals.  One must study the Fundamentals not only for all the usual reasons but also because Fundamentals somewhat constrain the timing and effectiveness of Interventions by The Cartel.

Similarly, one should study the Technicals for all the usual reasons and, in addition, because it is in The Cartel’s interest to make its actions seem technically plausible in order to continue to “run mainly under the radar.”  It is not in The Cartel’s interest to make its Interventions any more visible than they already are.  Indeed, there is powerful evidence that The Cartel often uses and/or helps create technical patterns which lure certain investors (such as hard asset investors) into getting “off sides” before Cartel actions such as taking down the price of Gold or Silver.

Significant and Increasing Systemic Threats Via Derivatives

Dramatic increases in two major species of Derivatives emphasize the increasing magnitude of systemic risks.

Exchange-Traded Derivatives:  Exchange-Traded Derivatives are in the hundreds of trillions.  But they are not our focus here because they are publicly disclosed and typically their performance is clearinghouse exchange-guaranteed.  They perform a valuable, indeed an indispensable, function in our markets.

Yet that other main category of derivatives — Over The Counter (OTC) – – is not visible, except for the BIS and a few other disclosures.  Yet the inherent risks are greater, much greater.

For additional details regarding the total $604 Trillion OTC Derivatives Outstanding see www.bis.org and our July 2009 Letter.

Gold Derivatives – See July, 2009 Letter

Interventions Increase Systemic Risk – See July, 2009 Letter

Gold and Silver Market Manipulation

The profound impact of these market manipulation efforts has been most well documented regarding the price capping of the Gold and Silver markets.  For those who have any doubts whatsoever about the fact and extent of government (Central Banks) manipulation, we have (thanks to Bill Murphy, Chris Powell, and other leaders of the Gold Antitrust Action Committee – – www.gata.org) the following June, 2005 blatant admission of manipulation by the Head of the BIS (Bank for International Settlements – – i.e. the Central Bankers’ Bank) Monetary and Economic Department, W.R. White:

“…It is perhaps worth spending a minute on what is meant by Central Bank cooperation…{it includes]…last, the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful…”

Among the many items of evidence are those cited by GATA Secretary Chris Powell in his superb article “There Are No Markets Anymore, Just Interventions,” all of which are matters of public record, and which can be found at www.gata.org.

Interest Rate Manipulation & The Bond Market

Clearly, the fact that Intervention occurs is amply documented, but Intervention appears not to be limited to the Gold and Silver Markets.

Fed Chairman Bernanke’s statement in his academic paper “Zero Rate Bound Economies” can reasonably be taken as a justification for the Fed purchasing the government own paper, otherwise known as monetizing the debt.  Specifically, regarding long bond purchases, the purpose of this would be to boost the 10 and 30-year bonds, and, therefore, reduce long-term interest rates.

But in light of increasing Real Consumer Price Inflation now at over 8% annually (per shadowstats.com – – see “Indirect Manipulation” above) one can reasonably ask:  So why haven’t the storied “Bond Vigilantes” pushed interest rates (and especially long-term interest rates) up to account for the massively expansionary monetary inflation of recent years?

That is because the Fed-led Cartel* of Central Bankers and Allies has quite apparently been using “interest rate swaps” and other Derivatives (via their Chosen Primary Dealers) to suppress what would otherwise be dramatically rising interest rates, both short and long term, according to Rob Kirby.  Consider that there were $437 trillion in Outstanding Dark OTC Interest Rate Contracts as of June, 2009 according to the BIS, up from $262 trillion in June, 2006.

Kirby’s excellent paper, “The Elephant in the Room,” demonstrating how interest rates (which would, if there were no suppression, be dramatically rising) have been suppressed by The Cartel, was presented at the Spring 2008 Washington, D.C., GATA (Gold Anti-Trust Action Committee, www.gata.org) Conference.  Kirby concluded:

“Monetary authorities have long been pursuing expansionary monetary policies while attempting to cloak their actions by suppressing rising interest rates and other natural market reactions.

“This has completely perverted our whole banking and monetary system.

“This is why false values have been assigned to a host of financial instruments.

“This explains why the gold price has been suppressed.  It’s another canary in the coal mine that was vigorously and nefariously silenced.

“If you’re wondering why J.P. Morgan never seems to get caught up in any sort of hideous market-to-market losses concerning their derivatives or hedge book – consider that back in the spring of 2006, Business Week’s Dawn Kopecki reported, “President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.  Notice of the development came in a brief entry in the Federal Register, dated May 5, 2006, that was opaque to the untrained eye.”

Thus, what would otherwise be the markets’ “normal” reaction to the ongoing and worsening credit, subprime, and other financial crises – – dramatically rising interest rates, especially on the long end – – has been suppressed by The Cartel’s Interventional Regime.

Some pundits claim the multi-trillion dollar Bond Market is “too big to manipulate.”  But Deepcaster notes that the BIS reports there were $437 trillion in Dark OTC Interest Rate Contracts Outstanding June, 2009 and further notes that the Biggest Player in the Market typically makes Market Price.

Cartel Intervention is the only explanation, is it not, that while the Credit Default Swaps Market attributes (via its premiums) a record-high risk-of-loss to U.S. Treasuries, the actual interest rates on U.S. Treasury Notes and Bonds has dropped to record lows.

“…The cost of hedging against losses on U.S. Treasuries surged to an all-time high after the Federal Reserve’s new $800 billion effort to combat the financial crisis raised concern about ballooning government debt.  Benchmark 10-year credit default swaps on U.S. government bonds jumped six basis points to 56.  The contracts have risen from below two basis points at the start of the credit crisis in July 2007.  ‘There is a lot more money to be spent and it is not clear how it is going to be financed,’ said Tim Brunne, a strategist at UniCredit SpA.”

International Forecaster, November 29, 2008

And consider the following sensible comment posted at LeMetropoleCafe:

“It is absolutely inconceivable that the bonds are rallying (disappearing yields) due to a ‘safe haven flow of funds’ when their risk of default is being assessed at an all-time high!!!  What is wrong with this picture???…The risk premium that the) market is assigning to U.S. Government bonds is now wider than the risk premium the market was using to price the highest rated corporate bonds as recently as November 2007!!!  What this is saying is that the market is now assessing the probability of a U.S. Government default at a higher rate than was being assigned to the highest quality corporate debt just 12 months ago.  Incredible!!!  (Words fail me! – Ed)”

Specific Interventions

For a full discussion of the following Interventions, see Deepcaster’s July, 2008, December, 2008 and July, 2009 Letters posted in the ‘Letters’ Archive at www.deepcaster.com:

The Spring 2006 Interventional Takedown

The August through October, 2006 Interventions

The August and September, 2007 Market Interventions

The March 2008 Crisis-Induced Takedown of Gold & Silver

June 2008:  The Cartel Catalyzes a Volatility Fog to Mask Interventions and Worsening Fundamentals

But it is also certainly not in The Cartel’s interest to have its Interventional Market Rigging “Game” revealed.  That explains why it is increasingly apparent that The Cartel uses a variety of techniques (e.g. “lures”) including catalyzing Volatility “Fogs” to mask its Interventions.

See the December, 2008** letter for further details.

A NEW INTERVENTIONAL TOOL: Fed Intervention in the Equity Markets Via the Primary Dealer Credit Facility

Over the past year and a half the U.S. Congress has unwisely given The Fed even more power and tools for Market Manipulation.

In particular The Private for-Profit Fed has used the Primary Dealer Credit Facility (PDCF) as a Prime Tool for manipulating Equities Markets as Tyler Durden of Zerohedge.com describes:

“Recently, Zero Hedge presented a snapshot analysis [1] of the various securities that made up the triparty repo agreement involving JPM, Lehman and the Fed. We uncovered numerous bankrupt companies’ equities that were being pledged as collateral for what ultimately was taxpayer exposure. To our surprise, this discovery is not an exception, and in fact in the days immediately preceding the collapse of Bear Stearns first, and subsequently, Lehman Brothers, the Federal Reserve established and refined a program that permitted banks to pledge virtually any security as collateral, including not just investment grade bonds and higher ranked securities, but also stocks of companies, the riskiest investment possible, and a guaranteed way for taxpayer capital to evaporate in the context of a disintegrating financial system, all with the purpose of bailing out Wall Street’s major institutions. On two occasions last year: on March 16, 2008, and subsequently on September 14, 2008, the Federal Reserve first established what is known as the Primary Dealer Credit Facility (PDCF), and subsequently amended it, so that the Fed, in becoming the lender of last resort, would allow any collateral, up to and including stocks, to be funded by the Federal Reserve’s credit facility, in order to prevent the $4.5 trillion repo financing system from imploding. By doing so, the Federal Reserve effectively gave a Carte Blanche to primary dealers  [2]to purchase any and all equities they so desired, with such purchases immediately being funded by the US taxpayer, via the PDCF. In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent…

“A last side-effect of the credit bubble, was the increasing use of subpar and illiquid securities to make up the collateral of repo transactions…

“The deterioration in underlying collateral quality made the subsequent repo implosion a virtual certainty. Originally focused on the highest quality collateral… by 2008 repos were using junk bonds, whole loans, trust receipts and even equities for collateral purposes. A side effect of more distressed collateral is less liquidity, and of course, when one most needs access to liquidity…

“… Then came that fateful weekend of September 13th about which so much has been written. In advance of the Lehman collapse, and what the Fed knew would quickly become a lock-up of not just money markets (which nearly occurred), but of the entire repo system, bringing practically all leveraged institutions to a halt and prompt liquidation, the Federal Reserve announced this little discussed amendment to the Primary Dealer Credit Facility [8]:…

“The collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities.”

“The bolded text is all you need to know to find the smoking gun for any and all allegations of “plunge protection” or however one wishes to frame the invisible market bid. On September 14th, 2008 the gloves came off, when the Fed, stated in a press release no less, that it would provide virtually free taxpayer capital to banks so that they could go to the market and purchase equities!…

“Beginning in March 2009, the Fed was now running the capital markets directly, by pushing prices of “riskless” assets ever higher through its $1.7 trillion Quantitative Easing program, thereby making it all too clear to PDs and other financial institutions that moral hazard was once again tolerated and encouraged…Furthermore, by being a self-professed “lender of last resort” as well, providing a perpetual backstop for an indirect way to bid up equities at a 50 bps funding cost, the Federal Reserve has now managed to singlehandedly take over the entire capital market…

“Alas, Mr. Bernanke, that has to be the weakest non-explanation explanation ever proffered by the Federal Reserve. Far from answering the question, it avoids it entirely by stating that the PDCF makes lives tolerable for those who, when the next credit implosion comes around, were not as greedy as the new Bears and the Lehmans of Credit Crunch v2. Yet in the meantime, PDs and banks should take full advantage of the Fed’s market manipulating generosity courtesy of such middle-class devaluing constructs as Quantititve Easing, which all it does is kick the can down so the consequences of dealing with Wall Street’s near collapse can be the next administration’s problem, and the PDCF…

“Lastly, the bigger question is when will Gramm-Leach-Bliley finally be repealed. As long as commercial banks and dealers are allowed to commingle their balance sheets, and as long as firms like Goldman which have yet to open even one deposit branch exist and have a riskless balance sheet courtesy of the American taxpayer, nothing will ever change. The Gramm-Leach-Bliley act from 1999 was the precursor for the current symptom of Too Big To Fail. And the administration’s response to date has been to make the firms at the top, even more systematically critical, when it should be focusing only on how to disintermediate them from the very fabric of America’s capital markets.” (emphasis added)

“An Overview Of The Fed’s Intervention In Equity Markets Via The Primary Dealer Credit Facility”
Tyler Durden, Zerohedge.com, October 25, 2009

Thus, the net-result of Fed/Treasury auctions have been to increase long-term Systemic Risk rather than diminish it.

Increased Systemic Risk and “Earned” Liquidity versus “Borrowed” Liquidity

A key point is that the Fed/Treasury Actions of 2008 and 2009 are not long-term fixes. One reason they are not long-term fixes is that they “fix” a liquidity problem in a way that allows insolvent or nearly insolvent financial institutions to have liquidity that would allow certain normal but often deleterious operations (i.e. the continuation of even more lending based on borrowed liquidity).  Deepcaster has previously demonstrated the perils inherent in an economy relying on “borrowed liquidity” (i.e. debt) as a result of Fed policies rather than the traditional “earned liquidity” (i.e. savings) – see Deepcaster’s January, 2008 Letter.

Thus, the “borrowed liquidity cure” is worse than the disease. Thus, what The Fed has given us is a flawed Financial Band-Aid, and only a Band-Aid for the Big Boys (and profit for The Fed which makes more money as borrowing increases) at that.

We must not forget another fundamental factor which demonstrates that The Fed Actions are neither a long-term, nor an adequate, remedy.

“This Fed injection does nothing for households. And it is households that will determine if we avert depression or not. Consumer spending is 70 percent of GDP. Households need the money, and they can’t get it. Credit card companies are cutting lines. Banks are raising lending standards. House values are dropping below outstanding mortgage and home equity debts. Incomes can’t keep up. Jobs are shrinking. Trickle down won’t work. We need trickle up this time. The Fed’s     announced plan today is to monetize bad debt from Wall Street banks, to accept their securities baked by bad loans in exchange for cash.  This in lieu of a drastic further drop in interest rates. Once again, save Wall Street and to blazes with households. Because they are not doing a thing here for households, this plan will fail. Households get more inflation and that is it. Wall Street gets a free ride.  Somebody ought to be arrested. What a heist. Of course Spitzer can’t do anything. He’s preoccupied.” (emphasis added)

Robert McHugh, Tuesday, March 11, 2008 Briefing

And there is yet another structural problem which is a fundamental contributor to The Crises and which will cause The Crises to continue for months at least. At the urging of those pushing a distorted “free market” ideology, the Glass-Stegall Act (which separated the commercial banking from the securities business) was repealed in 1999. That Act was passed in 1933 in the midst of The Great Depression to prevent securities speculation from further destroying bank capital and shrinking deposits.

Since 1999, the Banking and Securities businesses have become increasingly merged, with today’s disastrous results being quite apparent. [Note: truly “free” markets mean markets that have better regulations, not “no regulation” – – Freedom of choice requires a structure which provides meaningful alternatives. To enhance freedom one needs to improve a structure, not abolish it. A basic philosophical point, thanks for which we owe to the philosopher Immanuel Kant.]

Recent Interventions/Evidence

Recent Covert Interventions in the Gold, Silver, Equities and Bond Markets have been quite dramatic as well.  Indeed, evidence for Cartel Interventions in many Markets becomes ever stronger.  Consider…

Silver:  Noted Silver analyst Ted Butler has compiled evidence that two large banks (both Primary Dealers for The Fed) are manipulating (downward) the price of Silver and are being protected by the supposed government watchdog group CFTC (Commodity Futures Trading Commission):

“Certainly, with the release of the August Bank Participation Report, the case for manipulation grew stronger still.  This report indicated that one or two U.S. banks held a net concentrated short position of more than 25% of the world annual mine production of silver, a level of concentration never witnessed in any market.  Suddenly, the question become not if there was a manipulation, but how could such an historic extreme concentration not be manipulative?  No explanation has been offered.

“So obvious was this evidence and so strong was the public outcry over it, that the CFTC hastily convened a formal investigation around September 25.  But it has become obvious that this investigation was designed to diffuse public outrage by stalling the search for the truth.  This has allowed the big short manipulators (thought to be led by JP Morgan Chase) to complete their short covering during the epic sell-off.  In fact, at the time of announcement of the silver investigation, the price of silver was above $13 an ounce, down almost 3-% from the summer highs.  After the investigation was announced, silver fell an additional 30%.

“Let me be clear, I am alleging that the CTFC permitted JP Morgan to continue their manipulation of the silver market under the guise that the Commission was investigating.  In reality, the CTFC sided with and allowed JP Morgan to profit and clean up its shorts at the expense of great loss to the public…”

Ted Butler, November, 2008

And consider

The December 1, 2008 Interventions and Precious Metals Takedowns

One could reasonably claim the Interventions of December 1, 2008 “Take the Cake.”

One would expect that that day’s news that it was officially confirmed that the U.S. had been in a recession for a year coupled with the ongoing agony of the Big Three Automakers and laid off workers, and the news that the Taxpayers’ “Bill” for the Bailouts, loans, guarantees, etc., totaled $7.7 trillion according to Bloomberg, would substantially take down the Equities Markets.  But what is utterly inexplicable (absent Intervention) is that that very day in December the price of Gold was taken down nearly $50!  Only Cartel Intervention can explain such a development!

SYSTEMIC RISKS – See July, 2009 Letter

 

THE SYSTEMIC SOLUTION

Allowing the International Economy to be based on a Fiat Reserve Currency is unsustainable.  No Fiat Currency Regime in the history of the world has ever survived indefinitely.

So The Systemic Solution is apparent.  We outline it as follows:

1) Re-link the world’s Reserve Currency (the U.S. Dollar) to Gold and Silver, the Monetary Metals which are both stores and measures of value, tangible value.

Failure to re-link currencies to Gold and Silver will allow a continuing massive and unsustainable inflation of the money supply by the Fed-led Cartel* of Central Bankers.  Unless such re-linking to Gold and Silver is accomplished the U.S. Dollar is likely doomed in the long-run, with severely negative consequences.

Money supply inflation ultimately leads to price inflation and the continuing extraordinary rate of increase in the money supply, (as a number of commentators have pointed out) is leading us down the path to a Hyperinflationary Depression.  (c.f. shadowstats.com).  And, more ominously, it is leading us to an attempt to implement The Cartel “End Game” (see June 2007 Letter “Profiting From the Push to Denationalize Currencies and Deconstruct Nations” at www.deepcaster.com.).

But the private for-profit U.S. Federal Reserve and its Cartel Allies are not likely to give up their Fiat Currency and “un-backed” Treasury Securities that easily – – they are the source of its power.  The Fed and associated International Financial Allies will strenuously resist.  Thus,

2) Legendary investor Jim Rogers recently neatly expressed The Solution to the problem of The Fed:  “The Fed should be abolished and Chairman Bernanke should resign.”  (March, 2008, CNBC)

An excellent idea.  Indeed, The Fed is a private for-profit group of International Banks, whose main motivation is in providing profits for, and protecting the interests of, The International Bankers Cartel and favored institutions and parasites, not in serving the needs of U.S. citizens (or most citizens of other countries for that matter). The nonprofit group Carrying Capacity Network (www.carryingcapacity.org) advocates Auditing and Abolishing The Fed.

• To replace The Fed, and in order to protect ordinary citizens interests, the U.S. Congress should create a genuinely National Bank under the auspices of the U.S. Treasury Department as authorized by the U.S. Constitution. That truly National Bank should be the money issuer for the United States, not the private for-profit Cartel of International Bankers known as The Fed.

This is not such a radical idea.  President Kennedy caused U.S. Notes to be issued late in his presidency as a replacement for Federal Reserve Notes.  [He was killed a few months after the issuance was started and the U.S. Notes disappeared from the market.

The Cartel End Game

We are facing at an international crisis of unprecedented proportion.  It is also clear to Deepcaster that those who run the Fed-led Cartel cannot be so stupid as to not know where their hyperinflation of the money supply (according to shadowstats.com M3, as of the June 12, 2009 Report, was increasing at an annual rate of about 7.5% which is nearly a ten year doubling time!), and other bubble-crisis-creating policies are leading us.

Thus if The Cartel leaders know what they are doing what is their ‘End Game’? For details regarding The Cartel ‘End Game’ see “Investor Advantage Revisiting the Cartel’s ‘End Game’” (3/6/09) in the ‘Articles by Deepcaster’ cache at www.deepcaster.com.

The Solution – – A Strategy for Investors & Traders

A major premise of The Strategy is that one can certainly remain a Hard Assets Partisan while at the same time insulating oneself from future Cartel Takedowns.  The following points provide an outline of The Strategy (particularly as applied to the Gold and Silver Markets) and are designed to help avoid such unpleasantness, or even possible financial ruin, in the future, as well as to profit along the way:

• Recognize that The Cartel is still Potent, as difficult as that may be psychologically for Deepcaster and other Hard Asset Partisans to acknowledge. The Cartel is still the Biggest Player in many markets and, if the timing and market context are propitious, the Biggest Player makes Market Price.  In addition, The Cartel has the advantage of de facto controlling the structure and regulation of various marketplaces and that is a tremendous advantage; just as the Hunt Brothers years ago discovered much to their dismay and misfortune, when they tried to corner the Silver Market.
• Accumulate Hard Assets near the Interim Bottoms of Cartel- induced Takedowns.
• In order to know when one is near the bottom of a Cartel-generated takedown, it is essential to take account of the Interventionals as well as the Technicals and Fundamentals.
• For example, regarding Gold & Silver, near such Interim Bottoms, accumulate a combination of the Physical Commodity (Deepcaster prefers “low premium to melt” bullion coins) and well-managed Juniors with large reserves. (Deepcaster provides a list of such Junior Candidates in our December 20, 2007 Alert “A Strategy for Profiting from Cartel Intervention” available in the Alerts Cache at deepcaster.com.)  The “Physical” and “Juniors” are for holding for the long-term as a Core Position.
• Then, to the extent one wishes to speculate on the next “long” move, one should buy the major producers or long-term options on them. These latter positions are for ultimate liquidation at the next Interim Top and are not for holding for the long-term.
• Indeed, there will be a time when The Cartel price capping is ineffective and Gold & Silver make record moves upward. The benefit of this Strategy is that one will likely be long in one’s speculative positions when this happens.
• Near the next Interim Top, liquidate the long options and majors. Again, in order to know when we are close to the next Interim Top, it is essential to monitor the Interventionals, as well as Fundamentals and Technicals.
• At that Top, sell short or buy puts on Majors. We re-emphasize the Majors as preferred vehicles for trading positions because such positions are more liquid and tend to be quite responsive to Cartel moves.
• At the next Interim Bottom, cover your shorts and liquidate your puts and go long again to begin the process all over again. We emphasize that it is essential to consider the Interventionals as well as the Fundamentals and Technicals in order to determine the approximate Interim Tops and Bottoms.
• Finally, Hard Assets Partisans have the opportunity to become involved in Political Action to diminish the power of the Central Banker Cartel. It is truly outrageous that the average unsuspecting citizen, and prospective retiree, can and does put his hard won assets in Tangible Assets only to have those assets effectively de-valued by Cartel Takedowns.  This is extremely injurious to many average citizens in many countries who are saving for the rainy day or retirement and have their retirement and/or reserves effectively taken from them.  In order to help prevent this and similar outrages, we recommend taking three steps:

1. Become involved in the movement to abolish the U.S. Federal Reserve (a private for-profit Cartel of International Banks) as Deepcaster, Presidential candidate Rep. Ron Paul, and legendary investor Jim Rogers, all have advocated. The non-profit group Carrying Capacity Network (www.carryingcapacity.org) advocates abolishing The Fed.
2. Join the Gold AntiTrust Action Committee which works to eliminate the manipulation of the Gold and Silver markets (www.gata.org).  GATA is a non-profit organization which makes a great contribution by gathering evidence regarding the suppression of prices of Gold, Silver and other commodities.
3. Work to defeat The Cartel ‘End Game.’  Deepcaster has laid out the evidence regarding the Ominous Cartel “End Game.”  Clearly The Cartel is sacrificing the U.S. Dollar to prop up international financial institutions and to maintain its power.  But this sacrifice cannot continue forever.

Best regards,

Deepcaster
December 23, 2009

** Archiving in Process