We have entered the eye of the storm as the BLS takes this opportunity to give us another lie about inflation, which is so preposterous that they have become the laughing stock of the financial community. If you can believe that core CPI was .1% and regular CPI was .2% last month, then you probably still believe in the Easter Bunny, Santa Claus and the Tooth Fairy, and by the way, we have a bridge for sale over the East River that connects Brooklyn and Manhattan - real cheap. This latest Paul Bunyan tale comes to you from the most recent performance of the fane-stream media's acting troupe at Theatre Bizarre courtesy of the pathological liars and script writers in the BLS who are in charge of compiling our economic data, a show which is of course sponsored by the Illuminati. This so-called "information" comes to us following news that March PPI and April Import Prices (ex-oil!!!) both increased by 1.1%, which is an annualized rate of 13.2%, while our own statistics about actual inflation show 12.375% for the CPI, and our calculations for M3 top 18%, which means that actual inflation is still rising to play catchup with M3. Food is up 37% yoy (which means an average monthly increase of 2.66%) while oil has rocketed from $101.58 per barrel on March 31 to $113.46 per barrel on April 30, an increase of 11.7% in one month (over 140% annualized!!!) after peaking at $119.93 per barrel on April 28. So that means one of two possibilities. Either the government is flagrantly lying about inflation, or corporate earnings are about to explode and go down in flames to a level so negative that the resulting anomalies in analysts' predictions will give the appearance that they have all collectively turned into crack addicts. If you are absorbing a 13.2% increase in the cost of your production, and then only passing on 2.4% out of that 13.2% to your customers in the form of increased prices, may we suggest that you have a gargantuan problem with your profitability. The tellers of tall tales can't have their cake and eat it too, although the Illuminist reprobates continually try because they know how dumb the sheople can be. As you can see from our actual inflation statistics, as you might expect, very few cost increases are now being eaten by the producers and most cost increases are being passed on to consumers. To do otherwise would be financial suicide, plain and simple. And may we add that either way, Goldilocks gets eaten by the Three Bears.
The eye of the storm we have alluded to above has been sensed by precious metals traders some of whom have started to roll over their gold futures contracts from June to August much earlier than is normally the case, although this Thursday there was a slight up-tick in the June open interest. On April 30 there were 248,355 June contracts and 47,406 August contracts. This past Thursday, the count stood at 217,243 for June and 84,645 for August. So June has been reduced by 31,112 contracts while August has increased by 37,239 contracts. Just this week through Thursday, June lost 11,800 contracts while August gained 20,037. This means there may have been some short-covering to protect the prices of the many short gold positions held by the commercials which have greatly increased in value as ETF's and central banks have sold and leased their gold in the latest round of gold suppression, and such short-covering could account for some of the recent gains in gold this week. Those gains were capped by Fridays surge past 900 to a high of 904.80 followed by a close at 899.25, a hair below the crucial 900 level. The cartel must have had a baby when this happened. We wonder if it was a boy or a girl. Cigars, anyone?
So what is the strategy here concerning these early rollovers?
First, the dollar has been spiking upward as bonds worldwide have been hit due to rising rates partly boosted by a Fed pause, causing foreign traders to leave bonds and low-return money market funds denominated in other currencies. A portion of this money is being converted to dollars by which are deposited into dollar-denominated money markets to be invested over time in the US stock markets in support of the rally made possible by the weaker yen as everyone continues to chase better yields. This process, along with direct currency intervention by the collusive central banks, has strengthened the dollar despite the fact that the ECB and Bank of England held on their rates to fight inflation, thereby bringing the pound and euro down against the dollar to help export prices out of the UK and Europe. Gold is now stalling this stock rally with more yellow fever, which is ticking the cartel off to no end, and the dollar has been sputtering as a result. The specs are waiting for this process of dollar support to subside, and they figure one more rollover may do the trick.
Second, the Fed has called for the payment of interest on commercial bank reserves. If granted, this could help put a floor under the Fed funds rate by allowing banks to earn more profits on their reserves from the new interest payments instead of getting it on the increase in the spread being earned on hoarded reserve assets that would result from a lower Fed funds rate. The rates to be paid on reserves of commercial banks held by the Fed would only be .10% to .15% below the Fed funds rate, which means you could borrow reserves at say 2.00%, and then earn 1.90% on those reserves from the interest paid by the Fed while holding your reserves. Basically, the loan would be virtually free, like lease rates on gold and silver. Too bad you or I can't borrow money to meet our obligations at .1% interest, eh? In any case, this means that the destruction of the dollar by the lowering of the Fed funds rate might be delayed for a short while, and a rollover would take the specs past that short amount of time because they know that eventually interest rates will rise regardless of what the Fed does due to ever-increasing risk and risk reassessment as the real estate markets and real estate-related derivatives continue their precipitous drop into the tank. This could force the Fed to start lowering rates again to prevent a bond market disaster, and send gold to the moon. Another consideration is that rising interest rates and a host of other negative factors could send money flying away from the stock markets again. But where will that money go? Into money markets paying next to nothing as inflation rages at over 12%? Or how about into bond markets that are imploding as higher rates of return destroy principal value? No, our dear subscribers, at that time there will be only one place left to go - into precious metals and their related shares! And that also means less dollar support on the back-swing, because fewer and fewer proceeds from liquidations of stocks denominated in foreign currencies will make their way back to dollar denominated bonds and treasuries.
Third, some kind of war, be it Lebanon, Syria, Iran or Kosovo, is likely in the near future due to favorable weather conditions and the need for a diversion of attention from our imploding economy as people start to burn Dumbos in effigy. A low level proxy war in Lebanon between Israel and the US against Hezbollah, which is funded by Iran, is the most likely outcome, and might be similar in nature to what we saw in 2006. A rollover of gold futures would take us squarely into this potential period of conflict, which could send gold into the next galaxy along with oil. As oil continues to skyrocket, gold will be boosted even more, and will benefit both as a safe-haven and as a hedge against inflation.
Fourth, the specs know that several hundred bank failures are on the horizon as the bank regulators gear up for these debacles by rehiring old employees from the Resolution Trust era, and we could be getting news on some of these this summer. So again, a rollover could take us into this new era of bank destruction, thereby enhancing the value of gold as a safe-haven.
Fifth, the stimulus package will temporarily help the economy for a month or two, and you can bet that the fane-stream media will be piping praise about how wonderful the economy is doing on account of the stimulus package. The stimulus will last a few months and then peter out. A rollover would take us past what little positives we can reap from the stimulus package, and will send inflation caused by the influx of money created out nothing to fund the stimulus package on an even greater rampage.
Sixth, OPEC dollar pegs are on the verge of being broken and US treasuries continue to be shunned by foreign nations that have had enough of our beggar-thy-neighbor policies. A war could aggravate this situation even further, and once the pegs are broken and the treasuries are abandoned, the US would be inundated with all the dollars we've exported over the past several decades, making Caligula the next Mugabe. Dollars would then make an interesting wall paper we suppose. Just think, you could light a cigarette or cigar with a one hundred dollar bill and not even flinch! Once again, a rollover could take the specs closer to this potentiality.
Finally, inflation is going to get progressively worse, and earnings for the next quarter are going to be even worse than in the second quarter, so a rollover puts us much closer to more elevated levels of these ongoing disasters. As these problems worsen, fear will grip shareholders and they will look for a safe place to hide their money as they bail from the stock markets and send them plunging. Gold and silver will be the only game in town when they do.
We expect more upward action in May as futures continue to be rolled over and we get some more short-covering. Basically, the most recent pounding of gold and silver by the cartel was intended to drive gold down far enough so that the short-covering that occurs near rollovers will not take gold past 1,000 again. This effort to keep gold under 1,000 will soon fail, and we see gold going much higher, way past 1,000 before the end of the year, especially if there is some kind of war, but even more especially after the November elections have concluded and the need for this profligate and prohibitively expensive Goldilocks charade abruptly ends.
A lot of gold bullion was sold over the past month or so in order to tamp gold down while the yen was weakened to bring in carry trader support for the general stock markets. Note that from April 21-24 alone, the Streettracks Gold ETF, which holds 19 million ounces of the 26.3 million ounces held by the 5 largest gold ETF's, reduced their holdings by some 1.63 million ounces, a sizeable amount of bullion which amounts to more than 50 metric tonnes of gold. This was done to hit gold as it broke past 950 on April 17. Now you know why we told you to shun purchasing gold through ETF's and to take physical possession instead. The ETF's are just the latest incarnation of bullion and central banks. Supporting ETF's is like putting a gun to your head and then pulling the trigger. We would not recommend it. Note how the yen was weakened again through the middle of the week to try to put some points back on the stock markets while the cartel hit gold and silver with more sales and leasing. That ended when gold went on a rampage in the second half of the week, shooting up $33 per ounce, possibly from short-covering but also due to unstoppable oil and the potential for an upcoming military conflict or false-flag attack. After gold tore the cartel a new one, super-yen came back for a yen-hitting cameo appearance and the stock market rally stalled. Traders must be sick of watching the stock markets get yellow fever over and over again, ad nauseam. They are such gluttons for punishment.
You can expect anything from the arrogant neocons. After being rejected by local citizens surreptitiously Blackwater – the mercenary company – used two shell companies to get permits for a vocational training facility three blocks from the Mexican border. This probably will precede border security contracts.
As a result, San Diego Mayor Jerry Sanders has ordered the city’s C.O.O. to launch an investigation into how these permits were allowed. This is a nonpartisan effort to get to the bottom of who was behind all this. Obviously Blackwater has inside information that mercenaries will be used for border security. Blackwater has to be stopped. If this is allowed to happen we are liable to have Blackwater running our local police departments.
After hearing Citigroup lost $51 billion in the first quarter and being told Citi had no need for further funds, they are selling another $2 billion in preferred stock. Yes, and Citi wrote off $12 billion of toxic garbage. That last supposed stock sale at $25 plus is now selling just above $23.00. This makes $30 billion Citi has raised in four months. Wow, what delusion for shareholders. In the meantime Citi is selling hundreds of billions in assets to keep from going under. It is cutting $15 billion in operating expenses and firing more than 13,200 workers. This is the biggest bank in the US, a bank that is trying not to go down for the third time. If Citi survives the Illuminists will have to pay a terrible prices.
Wall Street and Washington live in a make believe world. They sigh relief when GDP is 0.6% when they know the figure is bogus and it is really minus 2-1/2%. They are waiting for the monetary stimulus to snap in – in July. What will they say when 60% is spent on reducing debt and not driving the economy?
Monetary policy has been in inflationary high gear for seven years under the Fed, that is why the Fed lies about why they terminated publishing M3 almost 26 months ago and that is why we and a few others have to tell you M3 creation is over 18%. As you know M3 at 18 of 20 major central banks is up 14% and has been at that level for more than three years. This stimulus, although new seems to be perpetual, it still takes 6-months to 1-1/2 years to show up in the system and in statistics. After the election inflation is really going to boom. Today 12-5/8% inflation, yes we just bumped it up again, will be over 15% by New Years. If you want further proof of what we are seeing take a look at commodity prices, which are up 25% since last September when the Fed opened its doors and windows to essentially financial top corporate borrowers, such as banks, Wall Street and transnational corporations.
We see an absolute minimum of two to three years of higher commodity and gold and silver prices as well as higher inflation. Before 2008 is over the government and Wall Street are going to be forced to admit that inflation is over 10%. Once this occurs Ben Bernanke will be on his way out, probably sometime early next year. That timing will hit at the same time the stock market finally collapses.
In the fall just before elections real interest rates will climb higher. In 2009 the 10-year US Treasury note should yield at least 6%, up from today’s 3.90%. In current frameworks that would put the 30-year fixed rate mortgage at 8-1/4% and jumbos at 9% to 11%. Not many in today’s ultra debt atmosphere will be homebuyers, which means no housing recovery. In fact those rates will doom the market to lower prices.