Monday, November 12, 2007

Financial Wizard Manipulation

I have to give some credit to our Global Financial/Wall-Street Wizards. Today’s engineered price drop in commodities (Oil, Gold, Silver, etc) was pretty impressive, and the fact that it was executed on a thin trading holiday (Veterans Day) was no mere coincidence, as it provided them with a tremendous amount of leverage.

Don’t be alarmed though. This sell off, engineered by Central Banks to strengthen the dollar vs. nearly every currency except the Yen, is temporary in nature, and was done to (1) take some trade pressure off countries with strengthening currencies (2) restore some confidence back into the dollar, (3) reduce the nearly vertical ascent in gold/oil prices and (4) bring some green signals back into the ailing US equities market... They absolutely had to do this, because FASB 157 is to take effect on Thursday, Nov. 15. These new FASB provisions will make it much harder for banks to avoid “mark-to-market” pricing on their level-3 (off balance) securities, triggering much larger financial write-offs and potentially exploding into a new financial panic…

From Barrons:RBC Capital Markets interest-rate strategist T.J. Marta says that additional write-downs are coming and adds the U.S. banking sector is "embarking on its third major crisis since the 1920s." He adds: "Not only have the 'go-go' days of structured products come to an inglorious end -- at least temporarily -- but vast swaths of the financial system lie in ruins,"

The Financial Wizards understand that this is coming and they absolutely have to try to shore up investor confidence in the U.S. system beforehand… Today was a compelling, yet futile attempt at their manipulative ways.

So how did they engineer this?

As you all know by now, the Dollar has been bleeding badly and has been setting new record lows against almost every currency daily—except for the Yen. The Japanese for years have been trying to keep their currency artificially low to (1) enhance trade and (2) supply the global system with an endless spigot of cheap money. The Yen Carry Trade has evolved (Yen borrowed at .5% and leveraged at high multiples to invest in other areas) and has provided nearly free money for all who wish to blow big beautiful bubbles.

As previously stated, the Yen was practically the only currency NOT strengthening in direct relationship to the falling dollar. Therefore, in order to strengthen the dollar against the currencies it was falling against, make the Yen stronger… Voila! The dollar strengthens… Additionally, this Yen-Dollar manipulation was being rigged while concurrently having OPEC work to bring down Oil Prices.

With regard to the Dollar, just look at what Central Banks are up against (Bloomberg snippets below)

Nov. 12 (Bloomberg) – “Central banks from Bogota to Mumbai are imposing foreign-exchange curbs to take control of their soaring currencies from traders dumping the dollar.”

``Central banks are struggling to find new ways to intervene against their currencies and some of the proposals simply can't work,'' said Mirza Baig, an analyst in Singapore at Deutsche Bank AG, the world's biggest currency trader. Some plans are ``truly bizarre,'' he wrote in a report.”

`More Violent Correction'” An index tracking the dollar against seven major trading partners dropped to 71.11 on Nov. 2, the lowest ever, a week after the Fed reduced its target rate for overnight loans between banks by a quarter-percentage point to an 18-month low of 4.5 percent.””

Stephen Jen, head of currency research at Morgan Stanley in London, said on Nov. 2 that the dollar's slide threatens to turn into a ``more violent correction'' that may require joint intervention by the U.S., European Union and Japan. The dollar will trade at $1.51 per euro by year-end, Jen said on Nov. 8.”`

`The weaker dollar causes central banks to look at foreign inflows differently,'' Robert Fullem, vice president of U.S. corporate-currency sales at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. ``The market is pushing the central banks into corners. I don't have faith in them. They may have to push the envelope further.''


So, where do we go from here?

I wouldn’t put much faith in the Financial Wizards, as they are putting a band-aid on a gaping wound where a tourniquet is required. Sure, they can help to slow the bleeding, but with over 400 billion in toxic waste to be written down soon, bleeding to death will be the final outcome.

Bottom line: don’t worry about the noise generated by our Financial Wizards today. Over the mid-long term, this will be regarded as merely a blip... The dollar, financials and many equities are going much, much lower while real assets (Gold, Silver, Oil, etc) are going much, much higher.


For all our soldiers who are still in harm’s way today, let us give thanks and say a prayer for their safe return.

Best regards and Happy Veteran’s Day to all!

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13 Comments:

At 11/12/2007 4:49 PM, Blogger Jim Twamley said...

I like your ideas. Keep up the good work! Jim Twamley, Professor of RVing

 
At 11/12/2007 5:34 PM, Blogger contrarian2day said...

Jim, Thanks for stopping in for a read and I appreciate your feedback.

 
At 11/12/2007 5:52 PM, Anonymous 30A-Renminbi said...

Great write-up. Ok, I agree and I have been moving out of dollars for 2 years.. but, all of the offshore banks have toxic SIV waste, so can you name 2 international(or offshore) banks that are safe today? I am extremely(and I mean extremely) exposed with Citi, HSBC, and UBS offshore accounts. I can't find one bank not exposed.

 
At 11/12/2007 6:48 PM, Blogger contrarian2day said...

30a-I wish I could provide you with some advice, but I'd be shooting in the dark.

 
At 11/13/2007 12:38 AM, Anonymous tenquick said...

I agree, great job with your posts. I have a number of gold mining stocks and will be looking to move my money out of dollars in a few months when I can sell for long-term capital gains. My parents recently moved some cash over to Candos's at: http://www.tdcanadatrust.com/invest/moneymkt/icrcipct.jsp.
I still need to due some research, but it looks good from a quick glance.

I have also been thinking about opening an account at europacific.net because Peter Schiff has been spot on with his analysis.

TQ

 
At 11/13/2007 2:56 AM, Anonymous 30A-Renminbi said...

TQ good suggestion with Canada-trust. I called Peter Schiff's group sometime ago but I ran into a few issues:
-I wanted to wire funds other than USD to them and they couldn't handle them. Really weird since they are promoting international investing.
-The Europacific broker told me that they had 3% a min fee.
-Lastly, the broker sounded like they were running an old boiler room operation from the 1980's...so, I ask the guy where he was located.. and he stated South Florida.. that brought back bad memories of all the boiler room operations in South Florida.
-Net-net: Too many unanswered questions with Europacific.. what bank is the holding the underlaying currency(investments) because so many have SIV/CDO waste. Look at eTrade...I had small international account with those guys. (toast)

If Peter Schiff would clean up the backroom operations then would I invest tomorrow.

 
At 11/23/2007 4:26 PM, Anonymous Anonymous said...

A mere 10 days later, and commodity prices are right back where they were. The wizards are having less and less of an effect.
I actually used the little dip to buy some more silver. Imagine how high gold and silver are gonna go when they lose control and actually have to buy to sure up central bank reserves. I think gold will eventually get past 3K an ounce in todays dollar terms. Of course, with the dollar going off the cliff, in a hyperinflationary setting, who knows how high it could go?

 
At 11/25/2007 9:12 AM, Blogger contrarian2day said...

Anon,

I completely agree... If the dollar collapses, $3k may be a bargain.

 
At 12/02/2007 6:24 AM, Blogger Deborah said...

Good blog.

I keep trying to think though which seems more logical, deflation or hyperinflation.

What I keep coming up with is the change in leverage for money creation though risky and dangerous leverage by the banking system went from 12.5 to 1 to 30 to 1, or more than double, and I believe that is without taking into consideration what lowering interest rates did. So, we've had this massive increase in the money supply, far beyond anything the fed can do in a realistic time frame.

And now we have a credit crunch and a liquidity crisis. That means much of the created money is going to disappear and that is deflationary. Goldman sack estimates $2 trillion reduction.

I just can't see how gold goes up in what I think is more likely to be a deflationary environment than an inflationary one.

But, longer term there might be inflation, but I think in the window of the next say 2 years we have deflation.

At the same time I do see a much higher rate of increase for consumer goods, but wages, assets, etc are more likely to decline than increase.

Will people panic and get on the gold train and over value gold? That is so hard to say, but I'd be more inclined to jump back into the housing market at reduced prices that I have a much stronger sense of value for than buying gold.

 
At 12/02/2007 11:41 AM, Blogger contrarian2day said...

Thanks for posting up Deborah.

You could be correct, but I think Bernanke and friends will do ANYTHING to prevent Deflation. Personally, I think we will end up in a Hyperstagflationary economy.

Please see my recent post regarding the upcoming Rate cuts on Dec 11th, as it will explain my position better.

http://economicrot.blogspot.com/2007/11/will-fed-cut-rates-again-on-december-11.html

Thanks Again
Randy

 
At 12/06/2011 8:25 PM, Anonymous Arnold said...

Oh my god, there is really much worthwhile data in this post!
Golden Harvest Beef

 
At 2/12/2013 11:12 PM, Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

Creating more money will solve nothing.

 
At 3/28/2014 1:38 PM, Anonymous PENNY STOCK INVESTMENTS said...

Nice economic news.

 

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