International Forecaster Weekly

The Fed and its Mad Money

liquidity problems and the Fed, markets counting on the ill informed outsider investor, spot gold goes up, stimulus stops the negatives, market gains vaporized, dont ignore the positive fundamentals of gold, get ready for change

Bob Chapman | June 28, 2008

Poof!  Virtually all stock market gains for the past two years have just gone up in smoke.  That is because all those gains were falsely and fraudulently created and contrived by the President's Working Group on Financial Markets, a/k/a the Plunge Protection Team (PPT), in a deceitful and unprecedented "Puff-the-Fluff" rally extravaganza which pushed stock markets into a state of suspended animation that was both totally unjustified and in complete and utter contravention of every market fundamental known to man.  This stock market anti-gravity machine was powered principally by multiple billions of dollars of liquidity provided daily by the Fed through its repo pool.  The Fed would pay billions in cash to its primary treasury bond dealers to purchase their securities in return for a repurchase agreement wherein the primary dealers would promise to buy back the securities they just sold to Fed at a specified future date, usually under one month.  These primary dealers, being cartel insiders, would then use the liquidity from the Fed to purchase stocks across the board as well as to purchase options, futures and derivatives related to those stocks and to their various indices, thereby driving the stock markets up with the Fed's "mad money."

Other sources powering the PPT's stock market anti-gravity machine were the following:  Liquidity provided to yen carry traders through the creation of outrageous and ludicrous yen weakness courtesy of the Illuminist lapdogs occupying the executive suites in Japanese banks; out-of-control, maniacal increases in money and credit by the Fed; ludicrously low interest rates engineered by the Fed that generated cheap funds for stock supportive leveraged buyouts and stock buy-backs as well as for other speculative purposes using leverage factors normally reserved for raving madmen; corporate earnings growth falsely inflated by profligate creation of money and credit, speculation and rampant inflation; continual jaw-boning and disinformation from the Fed, Wall Street, the fane-stream media and our lunatic government; patently false government statistics across the entire spectrum of economic data (known as "hedonics"); market support from Illuminist insiders in the banks and investment banks of Wall Street; the continual execution of short-squeezes by the PPT on all positions across the board which stood to gain if the stock markets declined; and totally contrived asset bubbles that were used to create deceitfully underwritten real estate mortgages and other consumer debt accounts which were then used to generate the overrated, fraudulent asset securitizations, now known as toxic waste derivatives, thus producing gargantuan bank and broker profits that were used by the Wall Street pirates to go on a mad spending spree in the stock markets.

Notwithstanding all of the foregoing, the main PPT weapon, which they count on implicitly, is the oafish and vapid stupidity of non-insider private and institutional traders and investors who gullibly choose to believe the pathological lies emanating from the reprobates and sociopaths on Wall Street, at the Fed, in our corrupt government and/or in the fane-stream media, despite copious amounts of obvious factual evidence to the contrary, evidence which would include their price observations during their weekly trips to their local grocery stores and gas stations!  It's time to get a freaking clue, people!!!  YOU WERE GIVEN AMPLE, ADVANCED WARNINGS ABOUT WHAT HAS JUST HAPPENED IN PREVIOUS ISSUES OF THE IF!!!

Large specs who took our advice to maintain ample protective derivatives such as stock index puts to cover their precious metals positions have made a fabulous fortune which they can now use to power the current gold and silver rally.  Why do you think that gold and silver are going up just as rapidly as the stock markets are coming down?  On Thursday, as the Dow was being pile-driven into the earth's bedrock to the tune of 358 points, spot gold had its largest single day increase since 1985 as it ripped the cartel a new one to the tune of $32.85 per ounce!!!  That is not the outcome that used to result from a PPT-orchestrated stock market crash, which used to drain large specs of their liquidity.  The withdrawal of stock market support by the PPT in order to hit precious metals has completely failed.  Remember, gold suppression is JOB ONE for the Fed and the gold cartel.  All the Fed and cartel care about is the containment of gold and silver, the rescue of the Wall Street fraudsters and support-at-all-costs for the bond markets.  The stock markets can drop into a bottomless pit for all they care as was so amply demonstrated this week.

Because defaults and rampant inflation are driving real interest rates up and bond prices down, and because the Fed funds rate is already ludicrously low, the Fed will now attempt to support the dollar and the bond markets by crashing the stock markets and forcing the proceeds into bonds and treasuries to reduce yields. Apparently, they have not yet figured out that this will send gold and silver to the moon as investors try to diversify into gold, silver and other commodities to hedge against inflation and to seek safe-havens outside of what could become a bear market in bonds very quickly.

Speaking about bear markets, the Dow crossed into bear market territory on Friday with a loss of over 20% from its peak last October, before a PPT rescue prevented a close that would have technically confirmed the bear market.  Of course, we all know that we have been in a bear market since the bust and the false-flag attack of 911, especially when you adjust for actual, as opposed to official, inflation, and then take into account the rampant and ludicrous upward manipulation by the PPT as discussed above.  The Dow peaked at 14,164.53 on October 10, 2007.  On Friday, the Dow dropped below the 20% bear market loss marker of 11,331.62 all the way to 11,297.99, before being manipulated back above the 20% loss marker to a close of 11,346.51.  But of course we have free markets - yeah, right.

Also powering the precious metals up this week were the dollar, which collapsed, sending the spot USDX to 72.360 on Friday, right on cue just as we predicted (two weeks ago it closed at 74.146), record high oil prices with an all-time high of $142.99 per barrel and the first close above $140 at $140.21, also an all-time high, both set on Friday, and a bevy of bad economic news concerning consumer confidence, which included an all-time low for consumer expectations about the future of the economy.  Other factors included a tepid one percent annualized GDP which is actually negative when the hedonics are removed and actual inflation is factored in, as well as profit warnings, negative predictions and/or potential ratings reductions for GM, whose stock hit an all-time low, GM's suppliers, Oracle, Blackberry producer Research in Motion, Citigroup, Merrill Lynch and Morgan Stanley.  The resource stocks were the only winners - BIG winners!

Supposedly positive news that was ignored this week included the Fed's rate hold, because everyone knows they are stuck there and don't dare move one way or the other despite their laughable jaw-boning about rate hikes and a strong dollar, a 2% increase in existing home sales in May which is a big whoop considering that April's figure was one of the worst ever and the "experts" were expecting 2.2%, and a .8% growth rate for personal spending, growth which could be totally accounted for by rampant actual inflation which is running at just over 1% per month.  Without the stimulus, consumer spending would have been negative, and without another stimulus, it will remain negative.  The $168 billion stimulus package therefore produced a big goose egg and nothing was stimulated.  Where does that leave us?  You don't want to know.

Another supposedly positive factor was an increase in personal income of 1.9% for May from the previous month of April, as well as an after tax increase of 5.7% which was the highest in 33 years.  Of course, this sounds great except for the fact that the fane-stream media failed to tell you that this was due solely to the stimulus package.  Without the stimulus, the figure would have been a .4% increase for May over April, which is nothing to write home about since this is way behind the actual rate of inflation.  We wonder how long it will take to get back into the vicious cycle of pay hikes to keep up with inflation, followed by increased money supply from higher wages, leading to higher prices, which then leads to demands for higher wages, and on and on?

Let's see now.  The stock market gains for the past two years or so have just been vaporized.  Over the past two years, would you have made more money based on the advice you have received in the IF, to buy gold, silver and their related stocks, or would have made more listening to the inane, jackass pundits of the fane-stream financial media and their tips about the "bargains" that are out there?  Let's take a trip down memory lane to find out.

The last time the Dow was at 11,346.51 or lower was on September 7, 2006, when it closed at 11,331.44, which happens to also be almost exactly the precise figure for a 20% loss and the official start of a bear market.  So let's use that date for our comparison, and see what the returns look like for the 22 months or so between September 7, 2006 and June 27, 2008.

On September 7, 2006, the Dow closed at 11,331.44 as just stated, the S&P closed at 1294.02 and the Nasdaq closed at 2,155.29.  Also on September 7, 2006, spot gold closed at $618.30, spot silver closed at $12.58, the XAU was at 144.95, the HUI was at 347.92.

On Friday, June 27, 2008, the Dow closed at 11,346.51 as stated above, the S&P closed at 1,278.38 and the Nasdaq closed at 2,315.63.  Also on Friday, spot gold closed at $928.10, spot silver closed at $17.59, the XAU closed at 194.49 and the HUI closed at 451.06.

First, let's see how the jackasses (not to be confused with Democrats who are Jackasses with a capital "J") in the inane, fane-stream media did.  The Dow essentially gets a big goose egg.  The S&P posted a loss of 1.2%.  And the Nasdaq had a "whopping" gain of 6.9%, or about 3.5% annualized, way behind actual inflation and still short of official inflation.

Now let's see how our subscribers have done.  Spot gold is up an impressive 50.1%, which annualized is about 25%, way past inflation with enviable profits to spare.  Spot silver is up a very healthy 39.8%, which annualized is about 20%, again way past inflation with goodly profits to spare.  The XAU is up 34.2% and still exceeds inflation when annualized with room to spare, as does the HUI, which is up 29.6%.

Now for the kicker.  The dismal results posted for the general stock markets occurred despite the full support of the PPT which saved them from collapse numerous times.  The incredible results posted for gold, silver and their related shares came despite massive cartel suppression, which has been mercilessly applied to the metals and their shares in the most underhanded and illegal of fashions.  If this is what happens when the Goldilocks Matrix created by the cartel is still floating around in the vapid minds of the sheople, just try to imagine and wrap your mind around what will happen when reality finally sets in.  We can't wait to find out!!!

Based on the foregoing, we can only conclude that US and foreign traders and investors as a group have become ardent masochists.  How they can continue to invest in general stocks and obtain such terrible results when they could be cleaning up in precious metals and commodities is beyond us.  They must be world class gluttons for punishment.  They must drool and salivate when they are forced to absorb nice, big, juicy losses.  The negative rates of return on their bonds and treasuries due to rampaging inflation and the potential losses from such dollar-denominated assets from rising real interest rates and a plummeting dollar must get their hearts pumping in anticipation and fill their souls with unspeakable joy.  You just can't make this stuff up.   It is simply surreal.  It is a combination of The Twilight Zone, Theatre Bizarre and One Step Beyond all rolled into one.  It is truly unbelievable.

Precious metals have nothing but positive fundamentals.  Stocks, bonds, derivatives and the dollar have nothing but negative fundamentals.  Precious metals are trending one way - up, while stocks, bonds, derivatives and the dollar are trending one way - down.  The analysis is that simple, and the PPT is powerless to stop it.   Their delay tactics are becoming ever more weak and ineffectual.  The only thing running counter to these trends is illegal government and cartel intervention, which will soon become superfluous.  The de-leveraging has begun in earnest as it has become clear to all that the party is over and that the Fed is nothing but an irrelevant bag of wind.

General stock markets have broken crucial support and will now move sideways before continuing their descent into hyper-stagflationary hell.  We may get a dead-cat rally before the USS Titanic enters the briny deep.  You will never see 13,000, much less 14,000, on the Dow again.  And you will be lucky if you ever see 12,000 again.  The elitist gambit for a blow-off top in stocks has been defeated by their own pride, greed, deceitfulness and inept bungling which has led to the real estate, subprime derivative and credit-crunch debacles that have bankrupted the entire financial systems of western nations and which will end in utter destruction with an economy-destroying bear market in bonds and the thermonuclear meltdown of one quadrillion dollars worth of derivatives.  Gold and silver will explode before the elitists can bail, reducing the proceeds from their dark pool stock sales to useless dollar-denominated garbage.

As if to emphasize this most dire predicament, the elitists plan to go live on August 18 with the dark pool of liquidity set up as a European trading platform by a group of big investment banks, and known as Project Turquoise, which we have written about extensively in past issues of the IF.  And now we have another dark pool being formed which is a joint venture between The London Stock Exchange and Lehman Brothers which are planning to set up a pan-European, off-bourse trading platform called "Baikal" after the deepest, darkest, most voluminous fresh water lake in the world.  The elitists are now desperate to bail out of stocks and bonds outside the view of the public before these markets take their final plunge, because they know that utter destruction is at hand.  Their desperation could not be more palpable.

You must get out of stocks, bonds and derivative before it is too late.  Only Swiss franc government bonds are acceptable due to the substantial amounts of gold bullion held by the Swiss.  Buy gold and silver before they explode and you can no longer afford them.  Do not use ETF's, mint certificates or futures.  Take physical possession of all coins and bullion.  Take conservative resource stock positions in the big producers and outstanding juniors we recommend.  Get out of as much debt as possible, buy as much freeze-dried food as you can afford, and if you can, acquire some guns and ammunition.  Be ready to take the final plunge into the chaos of social unrest and revolution both of which draw nigh as food shortages worsen, as energy costs bury the economy, as potable water runs dry and as prices of essential goods go out of sight. So be ready.