The End Game

We have around 6 months left of trading in Western markets to protect ourselves,” according to Raoul Pal, founder of Global Macro Investor and former Goldman Sachs hedge fund manager. “The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives.”  See entire presentation below.

It’s now more important than ever to protect your hard-earned wealth from being destroyed by inflation or even outright theft by financial and government institutions. Please see our Protect Your Assets series to learn about ways to secure your wealth in the coming economic collapse.

The End Game

Gold Becoming Widely Recognized as a Collateral Asset

Gold may not “do anything but just sit there on the shelf” but it is becoming more recognized as a safe haven for investors and now, it seems, for bankers too!   There is so much outstanding debt in the global banking system that finding ‘good’ collateral to back it is becoming more difficult. Furthermore, as the debt increases, and maturing debt is rolled over into new debt, traditional asset-backing collateral becomes more scarce.  The Basel Committee for Bank Supervision (BCBS) is considering making gold a Tier-1 asset, which would escalate the desire for banks to hold more of it in their vaults to provide backing for all their debt activities.  Read more at SafeHaven.

John Exter's Inverted Pyramid

Is More QE Coming, Or Not?

With the Fed purchasing 61% of all the US debt, it’s somewhat confusing why potential precious metals investors want to see more QE before making their move. And as the following chart from the St. Louis Fed shows, the money supply is still at uncharted, nose-bleed levels and showing no signs of decreasing.

US Dollar Money Supply

Nevertheless, analyzing a derivative of the TIPS Spread to identify when the Fed might reintroduce even more easing is what the economists over at Agora Financial have been doing.  As the chart below shows, the Fed may be waiting for the “Breakeven Inflation Rate” to drop below 2.2% prior to accelerating those printing presses.

Five-Year Forward Break-Even Inflation Rate

JP Morgan’s $2 Billion Loss Possibly Indicative of Bigger Problems Behind the Scenes

Update May 16, 2012: In contrast with Jim Willie’s speculation below, a much more renowned Jim Rickards has a much more probable thesis on the JP Morgan loss. The trade was actually a bet on the spread between the bond index and the bonds themselves. Time ran out, resulting in the loss. Read about it at USNews.

Here’s an interview with Jim Willie (TheGoldenJackass) discussing his speculation on what’s really going on regarding JP Morgan’s $2 billion dollar ‘whale trader’ loss.  Jim speculates that JPM’s declaration that it involved European bond investments that have gone bad doesn’t make sense because in the last 6 weeks those bonds haven’t changed so much to warrant such huge losses. More likely, according to Jim, is that these losses are much larger and they reflect losses in the credit derivatives markets. Furthermore, eastern nations like China are likely causing the rout in precious metals because they’re forcing the western commercial banks to sell to cover these losses in the derivatives markets.

Eric Sprott on CNBC

Eric Sprott is interviewed on CNBC and gives some new perspectives on gold and silver investing for main-stream viewers.  He mentions how the central banks of the world do not like to see the price of gold go higher because that would be a sign of the true weakness in their fiat money as they continually print more to fight the contagion in their economies.  He also expects silver to out-perform gold and gives some interesting statistics for his reasoning.

Ron Paul on CNBC

Which presidential candidate would you be most be confident would NOT lie to you?  Here’s Ron Paul on CNBC taking up the philosophical arguments no other candidates are discussing, including one hell of a debate on gold and the debasement of the dollar with Morgan Stanley’s Stephen Roach.

JP Morgan Stockpiling Physical Silver

JP Morgan Physical Silver Stock - www.chartsrus.comJP Morgan has taken delivery of almost 10 million ounces of silver over the last month bringing its current holdings to just under 14 million.  As the chart shows, something has changed and JPM is adjusting its strategy in the silver market.

According to analysis by Ted Butler, JPM has had an abnormally large short position of paper silver in the futures markets ever since they acquired Bear Stearns in 2008.  He estimates JPM’s current short position to be 18,000 contracts, which represents 90 million ounces of silver.

The new strategy being employed by JPM is likely to be one of the following:

  1. Acquire as much physical silver as possible to dump on the market, forcing silver prices to fall and enable JPM to unload its short position in the futures market.  JPM takes a small loss on the physical silver and a huge profit on their paper futures contracts.
  2. Acquire as much physical silver as possible prior to covering their futures positions. Depending on how quickly JPM covers, the loss on the paper contracts could be limited, while the long-term growth potential of the physical silver remains.
  3. Acquire as much physical silver as necessary to enable delivery to those parties taking the opposite side of JPM’s short issues.
  4. Perhaps some combination of all of the above.

Judging from past behavior of these Wall Street giants, one would suspect that JP Morgan is likely to chase after whatever gives them the most profits in the shortest time (option 1).  However, Mr. Butler has noted that over the past year of frantic turnover in COMEX silver inventories (in and out movement) there has been some big underlying demand that has not been so obvious to the main stream. Whether JPM plans to dump their accumulated physical silver at some point is unknown, but generally folks buy when they expect something to go up.

 

New Record for Number of Americans NOT in the Work Force

Here’s a chart from the St. Louis Federal Reserve showing Bureau of Labor Statistics (BLS) data on persons not in the work force.  Record numbers!!!  One of the reasons the statistics on unemployment have shown decreases lately is that there are fewer persons counted among the total. When one compares the total population to the number of employed, one can see that there’s a real problem here.

St. Louis Federal Reserve - BLS Not in Labor Force Statistics

Geithner Admits Gold is Not a Relic

U.S. Treasury Secretary, Timothy Geithner and Federal Reserve Chairman, Ben Bernanke testified at the House Committee Oversight and Government Reform on March 21, 2012. In discussing the European debt crisis and responding to questions regarding IMF funding, the Treasury Secretary suggested that a default by the IMF or any of its borrowers was highly unlikely because the loans are backed by “a substantial amount of IMF gold …”

More commentary from Swiss America can be found here.