International Forecaster Weekly

Massive Gains Wiped Out in Markets Despite Everyone Being Warned

Subscribers to the IF were warned for serveral years about the financial crisis that is now upon us,five years of gains wiped out, Congress approves the Paulson Ponzi Plunder Plan, there is no intention of supporting the stock markets, credit default swaps are at the root of the big losses, Plan was approved only by adding 150 billion in pork to thelegislation

Bob Chapman | October 8, 2008

Indeed, the party is over.  You have all watched in horror as five years worth of stock market gains have been vaporized since the peak on October 9, 2007, almost exactly one year ago, when the Dow closed at a bogus 14,164.53.  Yesterday, on October 7, 2008, the Dow closed at 9,447.11, a loss of an astonishing 4,717.42 points, or 33.3%, precisely a one third loss in only one year.  The last time the Dow closed at a lower level than this was September 30, 2003, when the Dow closed at 9,275.06.  As astonishing as these losses are, they should come as no surprise, especially to our subscribers, who have been warned that this was coming for several years running.  All the gains for the past 8 plus years have been illusory, and the losses suffered over the past year are the direct outcome of an economy that has been based on nothing but smoke and mirrors ever since the collapse in 2000.  All of our financial markets have been propped up falsely by the illegal manipulators who comprise the Plunge Protection Team (PPT), also known as the President's Working Group on Financial Markets, and by false economic statistics so warped and inaccurate by virtue of hedonics that they read more like a fiction novel than the official statistics of what was once the world's greatest economic power.

Hey Congress.  Guess what?  You have all just been purchased, compromised, threatened and/or duped by the same satanic trillionaires who manipulate your puppet strings from their ivory towers in our evil shadow government.  You have sold out the American people, who you falsely purport to represent, by approving the Paulson Ponzi Plunder Plan (PPPP), a gift of $700 billion to the same elitist scum who have intentionally and malevolently ruined our economy to pave the way for their precious New World Disorder, after packing this traitorous piece of legislation with $150 billion of pork, no less.  The approval even occurred contrary to well established Constitutional procedure.  You all had myocardial infarctions when the PPT took the Dow down 777 points on the day of your first vote on September 29 to extort your approval of their filthy bailout money, scaring your constituents by trashing their savings and pension plans.  You then turned the plan down only because you thought you might be lynched by constituents in November.  Then the PPT did this to you again, after pushing the Dow up almost 500 points the following day, by trimming off almost 500 points in the two days leading up to your second vote on October 3.  The Dow was again pushed up about 300 points in the early going in anticipation of a positive vote on October 3, making you believe that you had to pass the plan to save the markets.  Then surprise, surprise, the markets get trashed, after you approve the PPPP.  This was the plan all along.

They led you to believe that the markets would recover if you passed the PPPP, but they had no intention of supporting the stock markets, which are now being sacrificed once again to support the dollar and the bond markets, and to suppress precious metals, all in anticipation of a worldwide reduction in interest rates.  The Fed is going to lower rates again, and they said as much in their most recently released statement.  And the world is going to follow suit very soon.  Some, like Australia, have gotten a jump on the Fed.  That is why gold and silver have been trashed the way they were.  They wanted to do as much technical damage to gold, silver and their related shares as they could, thus lowering the bar and forcing the precious metals to rally from a much lower vantage point than would have been set by free and fair markets, without interference by the fascist players in the PPT.

Yes folks, that's right, the stock markets have yellow fever once again.  You would think they would have become immune by now after having several severe cases over the past couple of years.  We suspect that stock markets do not function quite like human bodies, unfortunately.  We have told you all along the gold suppression is JOB ONE at the Fed, and that the bond and derivative market is their source of power.  The bond market includes treasuries, the perceived quality of which is directly related to the performance of the dollar.  And that perceived quality is all-important in order to maintain the successful auction of treasuries to foreigners, and to keep their exports to the US competitive, which is especially important as trade slows due to a worldwide credit-crunch and recession.  Knowing these priorities of the Illuminati makes it quite easy to figure out what they are up to.

So here is what they are doing:  The idea is to boost the dollar to support the treasury market by instilling confidence in these dollar-denominated assets, increase the value of bonds by strengthening the dollar and by lowering rates, thereby improving balance sheets of financial institutions which own such bonds, and to simultaneously suppress precious metals by virtue of the strengthening of the dollar and the liquidations of metals and other commodities positions to cover margins generated by crashing stock values.  By falsely suppressing precious metals and boosting the dollar, the Illuminist hope is that the real damage that has been done to our economy and to our dollar by inflation of the money supply by the Fed, and by free trade, globalization, off-shoring, outsourcing and both legal and illegal immigration, will be successfully hidden until it no longer matters whether such damages remain hidden or not.  This is also why they won't admit to a recession.

The strategy then, is to use the stock markets and the oil and commodity markets as the sacrificial lambs for the bond and derivative markets, and as support for the dollar.

To accomplish this, the US stock markets are allowed to crash by the PPT which withdraws its support, allowing the stocks to fall based on horrendous negative fundamentals and de-leveraging.  Everyone runs for treasuries, pushing bond prices up and rates of return down.  The US stock markets then usually cause a sympathetic explosion in the Japanese markets, and everyone in the Japanese and Asian stock markets start to sell their stock and run for the cover of Japanese bonds in much the same way as we run (stupidly) for US treasury paper in the event of a crisis.  The non-yen currencies, which are obtained via these stock liquidations are then converted to yen and used to purchase Japanese bonds and treasuries.  This process strengthens the yen, thus starting the cascade of losses as carry traders run to cover their margins.   As the carry traders bail out of foreign stock holdings, they convert the proceeds, which are in foreign currencies, into dollars, so that they can purchase US treasuries, where the money is then temporarily and (they think) safely parked.

In the current case, the PPT withdrew its support on Friday after the PPPP was approved.  This, together with a worldwide banking and liquidity crisis caused Japanese markets on Monday to react badly to the US markets' treatment of the PPPP on Friday, and the yen became super yen once again, soaring from 105.76 yen per dollar to 101.26 yen per dollar, and from 146.118 yen per euro to a stupefying 136.782 yen per euro (that's almost 10 yen per euro in one day!)  With the bloodied carry traders in full retreat, the European and US markets also got taken to the cleaners on both Monday and Tuesday.  So what happens as a result of all this financial carnage is that many traders located abroad, or even here in the US, liquidate their foreign stock holdings into whatever currencies they are denominated in, and then use that currency to purchase dollars which are then parked in US treasuries for perceived safety.  That process bids up the value of the dollar, thus suppressing precious metals and increasing the attractiveness of US treasuries.  The increased demand for US treasuries also boosts their value, thus strengthening the balance sheets of Wall Street fraudsters, who now own a considerable number of treasuries, which they have received in exchange for their toxic waste.  Meanwhile, institutional carry traders are also in a mad dash to cover their margins as well, and precious metals and commodities get liquidated to raise the cash needed to cover.  This is why we have recommended for over a year now that those dealing in precious metals and commodities maintain un-leveraged, long-term, stock index puts and yen calls, to counteract these PPT maneuvers by maintaining liquidity via these puts and calls without selling off their metals and commodities.

The oil market is a special case, not only due to its vast size, but because the hammering of oil prices is the only financial manipulation available to the Illuminati which has the effect of simultaneously suppressing precious metals while supporting the value of the dollar and boosting the economy.  No other manipulation can accomplish all three objectives simultaneously as powerfully as oil can.  Take a rate change by the Fed for example.  If the Fed hikes, precious metals are suppressed and the dollar is boosted, but the economy suffers.  If the Fed cuts, the economy gets some relief, but the dollar gets hit and precious metals rally.  This special case for oil is due to the euro effect of petrodollars and the extensive use of oil in the production of goods and services.  Because OPEC nations tend to spend their money in Europe, as opposed to spending it in the US, they take their gargantuan sums of petrodollars and convert them to euros, thus weakening the dollar.  When oil prices decline, the flow of petrodollars is slowed and there are less petrodollars to convert. This process supports the dollar by lessening the number of dollars that are being sold to purchase euros.   The resulting stronger dollar then has the effect of suppressing precious metals.  Any decline in the price of oil also decreases the cost of goods and services, thus supporting the economy and giving the appearance of less inflation.  The perceived diminution of inflation also suppresses precious metals, which are often bought as a hedge against soaring oil costs.

Due to the special case for oil described above, we see oil going much lower unless some new military conflict to keep the phony "War on Terror" going is in the cards, such as an October surprise.  If you are long oil, we strongly suggest hedging your positions.  The coming decline in oil will help to boost resource stocks substantially by reducing the cost of production.  Lindsey Williams could still be right about $50 per barrel oil, but for reasons different from those he was told, although we do not yet see oil going quite that low.  We also ask Mr. Chavez of Venezuela what he is going to do now that oil is in the process of being slaughtered, considering that he has stopped all the gold and silver projects in his country just when gold and silver are due to explode to new highs.  We warned these governments about having one dimensional economies.  Russia and the Middle East will have similar problems if oil continues to drop as we enter recession and depression on a global scale.

Also note that a dramatic decline in commodities in general would have an impact similar to a decline in the price of oil, but with less power due to the smaller size of the non-oil commodity markets compared to the oil market and due to the lack of a pronounced euro effect.  That is why the commodities sector has taken such a pounding recently, in furtherance of these elitist objectives.

Now hear this.  The dollar petered out when it hit 82, and that will be the last hurrah as planned rate cuts are implemented by the Fed.  The commercials have reduced their short positions in precious metals drastically in anticipation of these rate cuts and soaring safe-haven/inflation-hedge investment demand, coupled with physical shortages, decreased or sluggish production, a cessation of central bank selling, hyperinflation from bailouts, monetizations of treasuries and further increases to the money supply by the Fed.  And in case you did not notice it, lease rates for both gold and silver have soared to multi-year highs.  Gold lease rates are in the 2.42% to 2.88% range, while silver lease rates are somewhere between 1.35% and 1.68%.  When you consider that some of the shorter-term rates were negative not too long ago, these new higher rates speak volumes for what the elitists anticipate for gold and silver prices in the future.  If you want their gold and silver, you are going to have to pay some serious money for it, and also risk having to return it later at much higher prices if you sell it.  What this means is that the use of leasing as a method of precious metals suppression is now history, at least for the time being.  The ability to suppress gold and silver in this meltdown financial environment has become impossible, and soon the elitists will be joining us in our quest to acquire more gold, silver and their related shares.     

Congress was told by hundreds of economists that the PPPP would not work and that there were many far better, and far less expensive, alterative plans that could and should be tried before resorting to bailouts dripping with moral hazard.  But did they listen to the people who predicted that the current bloodbath would happen? Nooooooo!  Instead, they listened to the same people who created this debacle to begin with, and who have denied that anything was seriously wrong for over a year now.  These miscreants still to this day can not bring themselves to admit that we are in a recession!  They were all hot and bothered when the Dow fell 777 points.  And now the Dow has plunged 1696 points from its September 26 level!  What do ya think of them apples, Congress?!  Apparently, everyone in the world, with the exception of our members of Congress, can see through the subterfuge of the PPPP, which attempts to use fairytale sales to overvalue cesspool sewage paper so everyone can pretend that the killer subprime and credit-crunch debacles never happened. Everyone will now be expected to play the ostrich.  This is the most ridiculous thing we have ever heard in our over 40 years of financial analysis and commentary.  It's the credit default swaps, stupid!  Confidence will not return to the credit markets until the counterparty risk for credit default swaps and interest rate swaps is completely sorted out, which could take years, assuming it is even possible in such an opaque, unregulated environment.

If you were wondering what the PPPP is really all about, since the plan otherwise makes no sense as a mark-to-market value enhancer, this plan, coupled with another plan that the Fed and Treasury have put together, known as the Supplementary Financing Program, is, in essence, a stealth bailout of the Federal Reserve Bank itself, which was almost bankrupt.  Due to its various lending facilities, and especially its Term Securities Lending Facility for Primary Dealers where toxic waste is swapped for treasury paper, its balance sheet was either composed almost exclusively of toxic waste, or was on its way to becoming such in the very near future.  It could be that the PPPP was not so much a partial solution to the subprime debacle to improve bank balance sheets by the Treasury's purchase of toxic waste, as it was a convoluted bailout of the Federal Reserve.  The debt ceiling had to be raised by Congress to accommodate all the new programs the Fed had in mind, and $700 billion, a figure supposedly pulled out of the air, apparently is serving that purpose. We may be mere inches from having the Fed nationalized, thus jump-starting our transition to a corporatist, fascist police state.  And look at the almost god-like powers being given to the Fed.  They can make you or break you if you need their largesse to survive.  Remember, this is a private bank, totally unregulated by our government, which has been given this power via taxpayer funds, and this is probably unconstitutional.

Already the Fed has increased its Monetary Base by $150 billion over the past two weeks, and the Reserve Balances with Federal Reserve Banks also increased by a like amount over the same period of time, meaning that the Fed may be monetizing bank assets.  If so, this could be a true helicopter drop, which could produce hyperinflation, especially if it is loaned out to other banks and multiplied to $1.5 trillion of credit extended through the fractional reserve banking system.  These funds might also be used to help stem the tide of silent bank-runs.  These increases in the Monetary Base and Reserve Balances  were  apparently  made possible by use of the new Supplementary Financing Program, a program similar to what the Weimar Republic used, which allows the Fed to create cash assets out of thin air by auctioning off treasuries to fund its various facilities, which now include the purchase of unsecured commercial paper for non-banks and banks alike.  Such increases to the Monetary Base and to Reserve Balances are unheard of, and what they may have done here is they may have attempted to re-capitalized the banks, putting them in a position to start speculating all over again. The confidence problem still remains, however, so this is unlikely to work.

Do you remember the AIG bailout, where the Fed made an $85 billion loan to AIG guaranteed by the Treasury where the taxpayers were to receive an 80% interest in AIG as security for the loan in the event that AIG could not repay it?  Well, now with the PPPP, you may get to bail out AIG, and you can forget about having an 80% interest in return.  Hanky Panky will use the bailout money to buy all their toxic waste for far more than it is worth, and the proceeds will be used to pay off the Fed loan.   They had no intention of protecting the sheople taxpayers.  This was just a stopgap measure to keep the credit default swaps from imploding so they could dump the problem on the sheople later after the PPPP was slam-dunked down their throats by their traitorous representatives in Congress.  AIG shareholders could get a break if the PPPP is used to buy their toxic waste and get them out of their debt to the Fed, but then the credit default swaps are still an issue and losses from these derivative insurance policies may be too big to buy out through the PPPP.  AIG could potentially take down the entire European banking sector due to swaps it had insured on European banks.  To say that this is a huge problem would be the understatement of the century.