Hat Trick Letter – červen 2010

Vynucená konverze US penzijních fondů? – Forced Conversion of US Retirement Accounts?

THE RUN ON SPANISH BANKS HAS BEGUN IN EARNEST, WITHOUT DOUBT. THE PROCESS IS AT AN EARLY STAGE. IT WILL END IN A FULL BLOWN PANIC. THE EURO CENTRAL BANK WILL BE POWERLESS TO STOP IT. THE SOLUTION WILL INVOLVE DEPARTURE FROM THE EURO CURRENCY. THE DOMINO FALLS THREE WEEKS AFTER THE SPANISH GOVT ORDERED LARGE BANK ASSET WRITEDOWNS, LIKE 30% ALMOST ACROSS THE BOARD ON OLDER VINTAGE PROPERTY LOANS. THE LATEST NEWS IS GRAND CONFUSION OVER A 250 BILLION RESCUE, AGAINST A BACKDROP OF BREWING CONFLICT WITH GERMANY.

A bank run in Spain has gigantic destabilizing ramifications for the entire European Union. Early signs are unmistakable, certain to escalate rapidly. The people have changed their perceptions. In response, Spanish banks are borrowing record amounts from the Euro Central Bank. Spanish banks borrowed 85.6 billion Euros (=US$105.7B) from the EuroCB in May. The amount was double the volume before the collapse of Lehman Brothers in September 2008 and a shocking 16.5% of net EuroZone loans offered by the central bank. The proximal cause to the high level credit flow is the shutdown of the bond markets used typically to fund their financial sector. The liquidity starvation grew into an aggravated condition as a result of loss of access to Commercial Paper, forced to adapt to 18 billion Euros in asset writedowns, a factor with severe adverse impact on Spanish banking sector as it has funneled through the system. The liquidity needs have gone unmet. Nick Matthews is a European economist at Royal Bank of Scotland. He concluded, „If the suspicion that funding markets are being closed down to Spanish banks and corporations is correct, then you can reasonably expect the share of EuroCB liquidity accounted for by the country to have risen further this month.“ On one end is the steady withdrawal by the public from the banks. On the other end is the absence of bond market funding to fill the giant voided vat. Witness the run on the Spanish banking system, a vivid signal that so far has not been publicized. Bear in mind the stubborn refusal for two years by banking authorities to mark down credit assets linked to property portfolios. Think big air pockets.

GERMANY AND FRANCE ARE EXAMINING A TWO-TIER EURO CURRENCY STRUCTURE. THE INTERMEDIATE STAGE OF THE NEW NORTHERN EURO CURRENCY IS IN PROGRESS. THE MOTIVE IS PROTECTION FROM THE SOUTHERN INSOLVENT P.I.G.S. NATIONS. A GROUP SOUTHERN SOLUTION PROTECT BANKS EXPOSED TO SOVEREIGN DEBT, RATHER THAN A SINGLE NATION BEING EXPELLED.

Germany and France Finance Ministers are attempting to design a Two-Tier Euro currency system to separate stronger Northern European countries,  protecting them from being dragged down by the weaker insolvent Southern states. Word has leaked to the UK Daily Telegraph of the dramatic option. Senior politicians do not believe they can withstand another crisis like the recent events in Greece. They are preparing for Spain and Italy next, even bigger shocks. The creation of a Super-Euro zone would initially include Germany, France, the Netherlands, Austria, Denmark, and Finland. The broken parts in Portugal, Italy, Greece, and Spain, even Ireland, would be relegated to the Mediterranean under-class. In minister offices among the 16-member EuroZone, it is being called Plan B. An unnamed official spoke freely, saying „The philosophy is the stronger countries might need to move away from countries they cannot afford to bail out. As a way of containing the damage, they may have to do something dramatic, though obviously in the short term implementation is difficult. It is an act of desperation. They are not talking about ideal solutions but the lesser of evils. Helping Greece could be done relatively cheaply, but Spain they cannot afford to let fail or bail out. And putting more pressure on the people of France and Germany to save other countries is politically unfeasible… [Sarkozy] would prefer to keep the Euro in place but if Spain, Italy, and Greece are dragging him down, he accepts he may have to cut them loose. They are trying to contain the contagious effect, but they do not have a solution yet. [Failure by markets to resolve the situation] will trigger a response by Germany and France.“ The official stressed how France has lent $750 billion and Germany $500 billion to Spain respectively. Lead nations are frustrated by being attached by a ball & chain to the wrecked PIGS nations. Politicians have suffered lost support in elections, are deeply concerned about lost power, and seek alternative solutions of radical type, since their finances are being ruined slowly.

Witness the precursor to the New Northern Euro. The wealthier Northern European nations seek to protect themselves, while simultaneously setting up the necessary structure that would enable reform and restructure to the indebted Southern Europeans. Germany would lead a group of countries out of the existing Euro into a new single currency. The old Euro would become the Latin Euro or Southern Euro. It would decline sharply against the newly hatched German-centric Euro. The devaluation would render great economic stimulus to the Southern nations. Important difficult decisions would have to be made regarding debt writedowns, forgiveness, and restructure. A perceived driving motive in the plan is to provide Southern nations some security from remaining within a group, so individual distressed nations like Spain or Italy would be spared the stress of being forced to contend with their situations alone. Think group thrashing instead of single trashing. A two group monetary setup would assist the exposed banks also. The consequences for any expelled nation would be catastrophic to bankers holding the sovereign debt. The only assurance in this chaotic crisis is change coming to the EuroZone, radical change. In time, each Southern Europe nation could opt to go it alone, to revert to the old native currency, to devalue it more, and inflate with abandon with spectacular deficits incurred.

SOME UNCERTAINTY EXISTS OVER WHETHER FRANCE WILL BE INCLUDED OR EXCLUDED FROM GOLD-BACKED NEW NORTHERN EURO CURRENCY. THE STORY HAS EMERGED FROM GERMANY, BUT IT IS NOT ENTIRELY CORRECT. MY GERMAN SOURCE INVOLVED DIRECTLY SETS IT STRAIGHT.

GREECE WAS URGED TO LEAVE THE EURO CURRENCY. GRADUALLY A MOVE COMES TOWARD A RESTRUCTURING OF GREEK DEBT, AS PART OF A DEFAULT PROCEDURE. THE FLIP SIDE IS A STIMULUS FOR THE GREEK ECONOMY.

Doug McWilliams is chief executive of the CEBR. He said „Leaving the Euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in Euros, this would raise the debt from its current level of 120% of GDP to 140% overnight. So part of the package of leaving the Euro must be to convert the debt into the new domestic currency unilaterally… The only question is the timing. The other issue is the extent of contagion. Spain would probably be forced to follow suit, and probably Portugal and Italy, though the Italian debt position is less serious.“ McWilliams called the move virtually inevitable (in his words) but he minimizes the devaluation potential. Any conversion of debt to the Drachma would obviously be accompanied by debt restructure and reduction, as part of a default.

Greece must pursue economic expansion, but cannot while wearing the Euro straitjacket. The only workable path is for Greece to return to its own currency, the Drachma. To date, the EU Bailout is a poorly disguised rescue for German and French banks, even London banks. The dirty secret across Europe is that the major nations all own a huge raft of PIGS debt, and each nation within the PIGS pen all own a huge raft of the same debt. Any departure by Greece from the Euro would create a grand shock for banks across all of Europe, cause great disruption, and subvert the banker plan for their latest welfare program in continuation of public governmental adoption. It all ends in ruin. The advantages are as numerous as they are deep, all significant. ALL PIGS NATIONS WILL FOLLOW THE SAME PATH OF CURRENCY REVERSION AND DEBT WRITEDOWN. The purpose of returning to their old currencies is to devaluate, then force a debt reduction. The advantages are powerful and shared across Portugal, Italy, Greece, and Spain. The proposed solutions and remedies are all cockeyed, lunatic, destructive, and disastrous, such as the IMF/EU sponsored Poison Pill presented as an austerity plan. The PIGS nations will choose inflation instead, but to do so they must revert to the Escudo, Lira, Drachma, and Peseta currencies.

THE MANAGEMENT AND CUSTODIANS FOR THE G.L.D. FUND ARE IN A HEATED INTERNAL BATTLE, GROWING WORSE BY THE MONTH. DEEP DIVISIONS AND CONFLICTS MIGHT ERUPT AT ANY TIME.

Word came from a veteran gold banker, who held his ear to the wall concerning the Street Tracks SPDR gold fund, which trades under GLD corrupted shares. Internal conflict and dissension are raging inside the GLD fund team. Here is what he reported. He said, „I am told that the GLD people are not acting in lockstep internally, as it might appear to the outside observer. There are allegedly enormous frictions within GLD management due to broken commitments, fraud amongst the members, and massive threats being made against each other. If this is true, which I have no reason not to be, it is safe to assume that the GLD people are going to bring their house of cards down all by themselves. There are also rumors, unsubstantiated, that there is a group of ex-bullion dealers who have virtually unlimited funds to draw from, who might be the ultimate game changer in the way precious metals are going to be traded in the future. These guys are allegedly old school professionals who do not suffer bankster idiots lightly. They are known to make life for certain market participants and big commercial banks living hell. They recently were very close to shutting major Swiss banks down that defied their legitimate desire to reallocate very substantial amounts of precious metal. When the bank tried to stall them, they just ran over the banks and shoved them into the corner. They had it their way by the end of the day, and were given their delivery. Not even the pleas from their bank CEO’s had any effect on this group of powerful players. No one seems to know where these guys operate, but they are allegedly out there. We shall see if there is truth to these rumors or not. If these guys really exist, the big boys are technically toast.“ Be assured that none of the GLD internal conflicts and friction will ever make the news, until the fund is dissolved amidst lawsuits and deep controversy. The GLD fund might be part of a confiscation project conducted by the USGovt, hidden for a while longer, then made public, couched in a national security emergency initiative.

MORE REALITY FOR THE G.L.D. EXCHANGE TRADED FUND. THREAT OF GOING ‚NO BID‘ IS VERY REAL, AS MORE NEGATIVE FOCUS HAS BEEN DIRECTED TO THE CORRUPT FUND. THE SPOTLIGHT BREEDS BAD ATTENTION.

Permit the Truth in Gold journal to lay out the threat to GLD investors, the corrupt Exchange Traded Fund managed by State Street but whose gold custodian is JPMorgan. They wrote, „For the record, until GLD can prove that its custodian and the subcustodians possess every single bar of gold listed on the GLD website, that these bars are not just paper swap transactions with US and European central banks, the GLD shareholders are highly exposed to an Enron/Refco/Bear Stearns type of price collapse. The instant a big holder of GLD tries to exchange its shares for a couple hundered tonnes of the GLD gold bullion, and GLD blinks with hesitation on the delivery, the price of spot gold will shoot to the moon, and the price of GLD will have an air pocket plummet. A long-time investment advisor colleague of mine remarked that he had put his clients in GLD today.  I replied, ‚I hope you are not holding GLD when it is exposed.‘ He replied that he needed the relative liquidity of GLD for the size he was buying. I replied that the second GLD is exposed, GLD will go No Bid, and the only thing liquid will be the brown substance in your boxer shorts. Not only that, your phone will start ringing off the hook from lawyers who are filing Breach of Fiduciary Duty lawsuits.“

Permit me to speculate, to offer a scenario, gilded in conjecture, on the operations of the GLD corrupted fund. Nothing can be proved, the result of numerous conversations and memos with well informed people deep in the fray. The foundational practice is that GLD leases its gold bullion to the Wall Street and London banksters, which sell it immediately in the open market. This practice acts to suppress the gold price. More, much more, occurs behind the scenes. GLD must pay a premium to locate gold, maybe from hidden supplies like at the Vatican. GLD also might have a lock on the majority of Barrick Gold output for instance. GLD receives occasional gold delivery from COMEX and LBMA, from normal channels like any fund claiming to own gold, but it earns favors in the reverse direction. GLD then puts the gold bullion on their books. These corrupt exchanges routinely refuse to deliver on legitimate claims, offering cash bonuses (technical default). The metals exchanges actually receive some gold bullion from GLD illegally in emergencies, part of a cozy relationship that after all, involves JPMorgan as custodian. Yet the gold bullion remains on the GLD books. Perhaps some of future Barrick production is part of the GLD stated account of holdings. GLD earns some extra money from the leasing and maybe bribes taken, to offset the premiums paid to share holders. Then they lease the gold to the JPM, GSax, and Barclays crews. Such maneuvers aid helps both the GLD balance sheet and the falling gold price.

This topic will not go away until it erupts like a volcano. It is just a matter of time. Exposure is gradually chipping away at its corrupt facade. The liquidity sought by the investment advisor is an illusion, since its basis is fraud. Actually the GLD liquidity offered is exactly the same as any Ponzi Scheme. A trap is laid, much like the subprime mortgage bonds that traded so freely before they stopped trading altogether. It seems the fund managers never learn. If a price collapse comes, it will be matched by a run on the GLD gold bullion inventory. At that time, my forecast is for the GLD to take on a price discount of 30% to 40% to the gold price.