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Amidst Bullish Hoopla: A "Behind the Curtain" Look at Fed Desperation and Intervention Wizardry
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The Fed made its 13th consecutive rate cut since Jan 2001 on
June 25th, lowering the Federal Funds rate 1/4% to 1%, the lowest level in 45
years. The U.S. stock market finished a second quarter resurgence with a
historically high 75% bullish rating of investment advisors and a 95% fully
invested level for mutual funds. The volatility indices (VIX and VIN) show high
levels of investor complacency. With every effort being made by President
Bush's "war economy" spending and the central bank to stimulate the
economy, the national media asks why any bear would dare to "fight the
Fed?" Ken Fisher titled his July 21, 2003 Forbes column "Dumb Bears
II" and CNBC's Louis Rukeyser told Fidelity Investor's Weekly in
June "Not only do I think the bear market is over, I think it has been
over for several months now." (1)
Is this situation for real, or is it more analogous to quiet
forest murmurs in the Ardennes not long before the Battle of the Bulge? James
Puplava of San Diego-based Puplava Securities and www.financialsense.com points out that
insider selling, an important contrarian indicator, has not been this high
since the market peak in early 2000. He feels this rally fits the pattern of a
countertrend rally within the context of a long term secular bear market trend.
First there is intervention (discussed later), then hedge funds and other short
sellers buy back to cover their positions driving prices higher, then
institutions and momentum players add to the up trend, and then lured in by
national media hype, Mr. and Mrs. John Q. Misinformed Public get in last to
hold the bag as the pros clear their positions. 75% bullishness and 95% fully
invested figures can be a contrarian indicator that the pros have already
committed their reserves and are now looking to take profits. Rising commodity and gold prices and the
eighteen month sliding dollar trend are all negative indicators. If interest
rates make a major move back up to complete this dismal picture, we may see an
eerie similarity to the conditions that preceded the 1987 crash. (2)
With the funds rates at 1%, the Fed hopes to drive out some portion
of the $5 trillion in money market funds to prop up the market. But if the Fed
cuts below .75%, notes James Puplava, this would threaten to wipe out money
market fund managers, so the Fed is running out of bullets with rate
reductions. He notes that Fed officials now appear to be discussing
"unconventional means" at their meetings. Bloomberg and the Wall
Street Journal have run stories revisiting the idea of instituting a carry tax
to flush more money out of savings and cash to prop up the stock market and
other asset areas. In the long run, history shows that markets always win out
over central bank and government intervention, which means that
"unconventional means" might ultimately only succeed in turning more
average American investors into cannon fodder for failed Fed policies.
(3)
Fed Chairman Alan Greenspan is concerned that stimulus
measures have been increasingly pushing on a string to revive the overall
economy. In recent years more and more debt has been required to produce GDP
growth. It now takes about five dollars of debt to produce each new dollar of
GDP growth. In April the Fed pumped more money into the economy at a $1.1
trillion annualized rate (about $1 trillion was injected in M3 between 2001 and
2002, or about 10% of GDP). Other money creation sources such as bank loan
departments and Government Sponsored Entities (Freddie Mae and Freddie Mac)
have also been expanding liquidity at a torrid rate. Ballooning total debt
(government, personal, and corporate) now totals about $34 trillion. According
to the Grandfather Economic Report, this comes to around $119,442 per
individual American. It is almost hard to imagine that the American economy
once grew at a much faster average annual rate when Americans focused on
savings and prudent investment in the 1800s before they got saddled with a
privately-owned central bank, confiscatory taxes, and the welfare state.
(4)
Greenspan cannot control where all the Fed's stimulus will
go or whether it will be productively put to use. America's manufacturing base
has dropped from 30% down to less than 15% of the work force since 1970, and
real productivity growth has slowed from an average 2.5% a year from 1947 to
1973 to somewhere closer to 1% a year since then. Manufacturing and
productivity growth provide a vital bedrock for the creation of jobs and for
the service economy. America has changed enormously in terms of such factors as
demographics (immigration since the 1960's has been massively tilted towards
less skilled Third World peoples, and California is now majority Mexican in
origin), its level of savings (now nearly zero), trade policy (running
historically high trade deficits), size of government (growing at about two to
three times the rate of the overall economy with 60 percent devoted to entitlements),
and energy self-sufficiency (declining). When Americans get extra spending
power, they frequently buy goods made overseas rather than "buy
American" and reinvest in American industry. They keep going further out
on personal and corporate debt, yet no country has ever been able to
perpetually borrow its way to prosperity. Too many corporate leaders unwisely
use the time that "stimulus" buys them to subsidize malinvestment and
overcapacity (currently 25%) or to carve out more perks for themselves rather
than pursue the disciplined and prudent investment policies required for
sustainable growth. Last but no least, Greenspan's liquidity pump has major
hose leaks even on the asset level. James Puplava notes the beginning of a
trend similar to the 1970's, where investors started losing confidence in
"paper" (to include credit-related financial instruments) and started
shifting their investment focus towards "things" (commodities).
(5)
Regardless of intermarket spillovers and malinvestment
issues, keeping the real estate and stock market asset bubbles inflated remains
a top priority for Greenspan. His lowered interest rates help to reduce market
rates of return on capital and support financial models with higher valuation
multiples for the stock market. The S&P 500 is trading at about 32 times
trailing one year Generally Accepted Accounting Principles (GAAP) earnings, and
is still more overvalued than where most bear markets in American history have
begun. Housing prices are straining historical relationships to income levels
and rent rolls. American banks tend to be highly leveraged, and they
desperately need for real estate and the stock market prices to stay propped
up. Americans have more of their wealth in their homes than in the market, and
rising housing prices have somewhat offset bear market losses over the last few
years. Since consumer spending constitutes about 75% of gross domestic product,
the Fed is worried that a sharp drop in both home values and stock market
prices could trigger a "negative wealth effect," scaring people into
spending less. This could slow down the economy. This in turn could create a
vicious circle involving more layoffs, more bankruptcies, and more
foreclosures. This could cause more asset prices to come down, resulting in even
more fear and even less spending, leading to a steady downward spiral effect.
(6)
James Puplava points out that when the Fed talks about
deflation, what it really means are the bubble values in the stock and real
estate markets that help prop up our dangerously leveraged financial system,
and not the prices of things you buy every day in the store which have
generally been steadily going up in price. Fed Governor Ben S. Bernanke gave a
speech last November declaring that the Fed is prepared to inflate without
limit if necessary to prevent [asset] deflation. Financial commentator Jim
Rogers wrote an article for a summer 2002 issue of Worth magazine titled
"They Are Lying to Us Again" about how the numbers that go into U.S.
Government inflation statistics regarding the things that consumers ordinarily
buy are so edited, re-massaged, and understated that they are a joke. The cost
of living has risen to about 60% of average consumer income, and discretionary
income continues to shrink. It is possible to see deflation (in assets) and
inflation (in consumer goods) and stagnation (in the overall economy) all at
the same time. In the 1970's this combination was referred to as
"stagflation.".(7)
Bears worry that if Fed intervention and national media spin
doctoring were to stop tomorrow, and if free markets and normal intermarket
relationships were allowed to work themselves out, 30 year bonds would sink,
interest rates would rise back up towards high single digit or double digit
levels, gold would rise to over $600 an ounce, the S&P would drop by over
50%, housing prices nationwide would crack by at least 20%, and the dollar
would slide another 20-30%.(8)
It is possible that deep down inside, Greenspan agrees with
the Bear viewpoint, but is concerned that if any market corrects too quickly,
it could precipitate a crash, spook the other markets, and shock the economy
into a downward spiral? Greenspan, and the Wall Street firms and banks
that are closely intertwined with the Fed, would all prefer a "soft
landing." An example of a "soft landing" market is one that
declines at a steady angle, zigzagging between parallel top and bottom channel
lines on technical charts. This is the kind of bear market the S&P has in
fact been through in the last three years with the help of interventions. A
soft landing market allows major banks and Wall Street insiders time to adjust
their most vulnerable positions, tweak some profits out of up and down market
swings, and pawn their riskiest "matured" positions off on Mr. and
Mrs. John Q. Misinformed Public.(9)
THERE MAY BE AN EVEN DARKER SIDE TO THE DARK SIDE
The most likely enemy of a "soft landing" scenario
might be summarized as the "rogue wave" phenomenon. We have seen
numerous examples in the last ten years, although none large enough yet
to decisively crash the overall US stock market. In his excellent
"Perfect Storm" series, James Puplava discusses how an unexpected
shock to the market, (analogous to freak tidal waves that can appear out of
nowhere in the open ocean) such as the Russian default and Asian crisis in
1997-1998, can cause the behavior of markets to radically change from the
outcomes predicted by theoretical computer models. This is somewhat analogous
to the way in which a radical change in temperature can cause the properties of
water to change into the hard properties of ice or the randomness of vapor.
Sometimes rogue waves are spontaneously generated by external economic or
political events, and sometimes they are created by malfeasance, or "rogue
trader" situations.(10)
A major rogue wave detonator that could bring the markets
quickly crashing down involve unregulated derivatives. Derivatives now total an
estimated $127 trillion, or roughly 13 times the size of the U.S. economy. A
large portion of derivatives are unregulated and unlisted, and they are
typically created and valued by computer models. Derivatives are essentially
time sensitive "bets" designed to leverage reward and shift risk.
Their creators assume "normal" market behavior in which people and
institutions act rationally without excessive fear or greed and have the
financial strength to settle their contracts under all conditions. Major banks
and Wall Street firms promote derivatives because under normal conditions they
are extremely profitable. America's largest banks, which hold perhaps a third
of all derivatives, can use unregulated credit derivatives to get around
conventional reserve and margin requirements to support ever expanding lending
activities. Hence, the "derivatives" lobby has enormous power on
Capitol Hill.(11)
Billionaire investor Warren Buffet has reported from his own
experience in trying to unwind the derivatives of acquired company General
Reinsurance that even under normal conditions they can be very tricky, time
consuming, and treacherous to deal with. This is why Warren Buffet has publicly
denounced unregulated derivatives as "Weapons of Mass Financial
Destruction." (12)
To get a truer understanding of Greenspan's predicament, one
must first appreciate his contradictions. Here is a man who frequently uses the
term "soft landing" in his Congressional testimonies, yet he has
lobbied to keep the derivatives market unregulated and beyond the scrutiny of
the Financial Accounting Standards Board (FASB). In doing this, he has defended
a financial system with escalating levels of risk that encourage the opposite
of soft landings. Greenspan once wrote a pro-gold and pro-hard money paper in
1966 titled "Gold and Economic Freedom" while a member of Ayn Rand's
libertarian, pro-laissez-faire inner circle, yet he has helped to suppress gold
in favor of pumping out more fiat money currency and has frequently used
heavy-handed central bank interventionist policies while Fed Chairman. He
publicly decried "irrational exuberance" in market valuations in late
1996, yet he refused to raise margin rates to constrain speculators and has
presided over one of the largest credit and monetary expansions and speculative
stock market bubbles in history. (13)
In his book "Secrets of the Temple: How the Federal
Reserve Runs the Country," author William Greider points out how the Fed
Chairman is arguable more powerful than the President of the United States,
particularly when it comes to monetary policy. He also compares the Fed
Chairman to a temple priest, who must maintain a quasi-religious level of
public confidence in the currency and economy for things to function smoothly.
The children's story and social satire "The Wonderful Wizard of Oz"
written by L. Frank Baum in 1900 captured this magical dimension when it
depicted a professor behind a curtain manipulating the smoke and mirrors image
of Oz. Baum meant for Oz to symbolize the President of the United States, but
as Greider suggests, the Fed Chairman may be more appropriate.(14)
A Pre-Halloween Trip Through the Rogue
Wave, Rogue Trader, Derivatives Cemetery
A review of derivates casualties in the last decade may give
us a better feeling for the growing level of risk permeating the financial
system, and the credibility of financial industry leaders who reassure us that
they have everything under control. In 1993, mismanaged derivatives caused
Wisconsin's State Investment Board to lose $95 million. They lost for Japanese
company Showa Shell Sekiyu over $1 billion and cost German company
Metallgesellschaft $1.3 billion. In 1994, suddenly rising bond interest rates
lost $1.6 billion for the leveraged bond positions managed by Orange County
Treasurer Robert L Citron and put Orange County, California into bankruptcy.
1994 was also a bad year for Proctor and Gamble ($157 million derivatives loss)
and Air Products and Chemicals ($122 million loss) which also made leveraged
bets on interest rates. The following hedge funds took hits (estimated losses
in parentheses): Askin Capital Management ($420 million), Argonaut Capital Management
($110 million), and Vairocano Limited ( lost $700 million or 60% in six months,
blowing a good six year track record). In 1994 PaineWebber spent $268 million
to bail out a money market fund marketed as a safe and secure investment, and
Bank of America and Piper Jaffray (now owned by US Bancorp) took similar
actions. In 1995, a 28 year old trader named Nick Leeson lost $1.3 billion,
wiping out Barings Bank, a 233 year old British institution. In 1995, Fenchurch
Capital Management lost $1.3 billion or 50% in three months, blowing a six year
21% a year track record. In 1996, the trading losses hidden by Joseph Jett at
Kidder Peabody were enough to cause GE to sell his company to PaineWebber.
Kidder Peabody sued Jett for nearly $100 million in damages. Following the
Asian and Russian debt crises of 1997 and 1998, the hedge fund Long Term
Capital Management blew up ($3.6 billion bailout required) when normal
intermarket relationships went haywire; at one point the fund had $3 billion in
equity leveraged to $140 billion in debt and $1.25 trillion in derivatives,
totally beyond what it disclosed to its capital sources. Three Nobel laureates
were on its staff. It required a Fed-orchestrated bailout by 14 banks and Wall
Street firms to avoid a financial system melt down. Continuing with the
casualty list: Michael Smirlock's leveraged Shetland fund ($300 million loss)
in 1998; got sued for hiding $71 million in losses by the
SEC. Michael Berger's leveraged Manhattan Investments lost over $400
million in 1999. During a 13% dip in the Dow in 1997, Everest Capital
lost $1.3 billion or 50% of its funds. Everest burned the Brown, Yale, and
Emory university endowments. In the 1997-2000 period the casualty list included
some top hedge fund celebrities: Victor Niederhoffer completely blew up his
$130 million fund in three trading days in Oct 1997, Julian Robertson's Tiger
Management suffered a combination of losses and withdrawals that dropped his
fund from $22 billion to $6 billion by 2000; Robertson had made a 32% average
annual return for 18 years, then suddenly dropped 43% in less than six months
and decided to retire. Soros Fund Management suffered perhaps a $3 to $5
billion loss by May 2000 blamed in part on unusual Nasdaq volatility. In 2001
Enron, which had morphed from an energy company into a derivatives trading firm
and de facto hedge fund, imploded and wiped out $70 billion in shareholder
equity and tens of billions in debt. In Jan 2003, a Japanese hedge fund called
Eifuku Master Fund, which was up 70% in 2002, lost over 98% of its $200 million
capital in only seven trading days.(15)
As discussed later, the Fed forms an axis with major banks
and Wall Street firms, which in turn closely support hedge funds. Hedge funds
provide an estimated 25% to 30% of daily trading volume on the exchanges. They
are also major players in derivatives and provide a major source of earnings
for Wall Street firms (when they do not blow up). Hedge funds are unregulated,
just like most derivatives themselves. Their very highly compensated managers
are the envy of mutual fund managers and research analysts, who often
view hedge fund managers as the "rock stars" of
the financial system and as the focus of their next career step.(16)
In his book "Infectious Greed: How Deceit and Risk
Corrupted the Financial Markets," law professor Frank Partnoy describes
how the ability of certain hedge fund managers to make staggering amounts of
money very quickly has influenced supposedly unrelated entities in America to
imitate their highly leveraged, speculative, and short term-oriented style,
such as the aforementioned cases of Proctor and Gamble, Orange County, and
Enron. Professor Partnoy also describes how certain ace traders have been able
to build their own fiefdoms and escape scrutiny by their employers and the SEC
because their derivatives transactions are so complicated that the authorities
feel too intimidated to try to figure them out and take disciplinary action.
(17)
Unlike the "engineering" mentality that is central
to manufacturing industries, which encourages ferreting out and solving
problems with scientific precision, the hedge fund culture actually encourages
the reverse. In many ways it is a "wise guy" culture. Hedge fund
managers have to always keep up the appearance that they are "lucky,"
insinuate that they have special relationships with inside information sources,
and have the "magic gut" to profitably interpret and trade erratic
and complex market developments. A hedge fund study conducted by Yale professor
William Goetzmann highlights the luck element, claiming that the probability
that a hedge fund will survive seven years is only 20%. That kind of mortality
rate makes both the Wall Street firms that profit off hedge fund managers and
the hedge fund managers themselves who collect high fees from investors look
like casino operators. (18)
On a deeper philosophical level, one can even wonder if the
Fed encourages productive use of capital as opposed to a destructive use or a
"zero sum game" with a wealth redistribution function similar to a
casino. In his book "When Corporations Rule the World." David Korten
wrote: "Joel Kurtzman, former business editor of the New York Times and
editor of the Harvard Business Review, estimates that for every $1
circulating in the productive world economy, $20 to $50 circulates in the
economy of pure finance --though no one knows for sure....in the international
currency markets alone, some $800 billion to $1 trillion changes hands each
day, far in excess of the $20 billion to $25 billion required to cover daily
trade in goods and services....this money is unassociated with any real value.
Yet the money managers who carry out the millions of high-speed, short-term
transactions stake their reputations and careers on making that money grow at a
rate greater than the prevailing rate of interest. This growth depends on the
ability of the system to endlessly increase the amount of money circulating in
the financial economy, independent of any increase in the output of real goods
and services. As this growth occurs, the financial or buying power of those who
control the newly created money expands, compared with other members of society
who are creating value but whose real and relative compensation is
declining....There are two common ways to create money without creating value.
One is by creating debt. Another is by bidding up asset values. The global
financial system is adept at using both of these devices to create money
delinked from the creation of value." (I hope to expand on David Korten's
observations in a later article). (19)
We're Off to See the Wizard
Getting back to the Oz analogy, we need to part the
wonderful wizard's curtain and take a closer look at the market casino levers
that Greenspan has his hands on. Keeping interest rates artificially low in the
bond market helps the housing market and supports lofty valuation models for
the stock market. Keeping gold suppressed helps reduce the slide of the dollar
in the currency markets and calm fears about rising interest rates and
inflation. As mentioned, the stock market appears decoupled from an economy
that is still experiencing high unemployment, overcapacity, and a lack of
quality earnings growth visibility. Encouraging interventions in the stock
market at strategic moments might prevent a downward slide from turning into a
crash. Below are examinations of the aforementioned three major areas of Fed
intervention: (20)
Buying bonds outright to artificially keep interest rates low
In his May 21, 2003 testimony before Congress, Greenspan
testified that the Fed is prepared to make massive open purchases of both short
and long term bonds to prop up their prices and continue to suppress interest
rates. This is a big step beyond the extreme step already taken of dropping the
short term Fed Funds rate down to 1%. Buying bonds outright is the Fed's
ultimate way of saying, "We really mean business." The Fed is
authorized to do this, incidentally, just like it can make direct purchase
interventions in the currency markets. (21)
While this policy helps keep interest rates artificially
suppressed in the short run, it can have disastrous effects in the long run.
For starters, it introduces more "moral hazard" or speculative risk
into the market and the overall economy. Feeling that they have price support
from the Fed, more speculators can jump in and play the "carry trade"
in which they borrow short term instruments at around 1% and buy longer term
notes at around 4%, and then leverage up the 3% spread (5:1 leverage would
provide a 15% annualized rate of return) . In the short run, this assists the
Fed policy of suppressing short and long term bond interest rates, because when
speculators buy long bonds as part of their "carry trade" maneuver,
this helps to bring down long term interest rates and transmit drops in the
short term Federal Funds rate out the yield curve. The bad part is that when
interest rates eventually start moving back up, there are usually a lot of
speculators who do not get out of the way in time. The S&L crisis in the
late 1980's that cost taxpayers $160 billion was an example of a "moral
hazard story" in which various S&L's gambled that risky commercial
lending would be a "heads I win" scenario and that FSLIC deposit
insurance would cover the "tails you lose" side. The $1.6 billion
lost by Orange County Treasurer Robert L. Citron in 1994 was an example where
highly leveraged "carry trade"-type bond portfolios getting whacked
by rising interest rates. (22)
Another big negative, incidentally, is that when the Fed
bolsters its policy by making direct purchases of short and long term bonds,
these "Open Market Operations" create money out of nothing and inject
it into the system. Money injection contributes to inflation. Remember, please,
that inflation is always a hidden form of taxation on Americans. When your
money buys less as a result of inflation, it hurts you the same way as if your
money can buy the same amount of goods, only you have less of it to spend
because the government is taking more away from you. Greenspan's bond-buying
operations that gun the money supply are like saying, "Whip out your
wallets, citizens!" (23)
This creates taxation without representation issues.
Congress "reviews" Fed policy and "confirms" the
appointment of the Fed Chairman, but it does not vote on and control money
creation issues on a case by case basis the same way that the House
Appropriations Committee reviews U.S. Government expenditures. Congress
abdicated the direct money creation powers that it once had under the original
Constitution when it created the Federal Reserve Banking System in that fateful
year 1913, the same year, incidentally, that it created the permanent income
tax. (24)
Gradually removing the lid on gold
The fall in gold prices from around $380 in early 1996 down
to lows around $252- $256 in the 1999- 2001 time frame was for many investors a
complete enigma. Gold got so low it threatened to put half the gold mines in
existence out of business. Here was a metal that had spiked to around $850 in
Jan 1980 during the height of stagflation and Middle Eastern tensions. Since
around 1990, global gold demand has exceeded mine and scrap supply. Since 1995,
various charts of different forms of the U.S. money supply (M1, M2, and M3)
have shown 25 to 35 degree upward trends. The steady slide in gold prices
defied all of these bullish fundamentals for gold. (25)
This episode was not only bad for mining companies, but it
also helped to distort the markets. Gold has historically been a barometer of
inflation. Downward sliding gold prices sent a false signal to the financial
markets that inflation was no longer an issue. The message: Do not worry about
dividend yield levels on stocks. (Indeed, dividend yields dropped to their
lowest levels in American history, and are still at lows characteristic of historic
bull market tops). We are in a new era. Bid up the internet and telecom stocks
and S&P index funds, and let the good times roll!
(26)
To muscle down gold prices, the Fed has played a key role in
orchestrating a global campaign to get central banks around the world to divest
about half of their gold hoards to date, or about 16,000 tonnes. The Fed played
this game once before beginning around 1960 when it orchestrated the sale of
3,000 tonnes through what was called the "London Gold Pool" until the
program was officially disbanded in 1968. After the lid came off, gold began an
irregular and ragged up trend that persisted for about 12 years until gold hit
its spike peak at around $850 an oz. and Fed Chairman Paul Volcker finally
turned the tide on double digit interest and inflation rates.
(27)
The anti-gold propaganda line has gone something like this:
"Gold is a barbarous relic. Historically countries have hoarded it as a
last ditch form of monetary `insurance' to defend their currencies or pay for
defense in time of war. But in this new era, all it does is sit in the vault
and do nothing. You can't eat it, and it does not "go to work"
growing things like technology. It will never again be used as real money,
particularly now that money is becoming increasingly "electronic."
The European countries that have joined the EU no longer need to maintain their
own gold hoards because they have "denationalized" and merged
their currencies into the Euro and have opened their borders within the
EU. Furthermore, today you can use derivatives to hedge currencies rather than
rely on gold as a back-up. Derivatives are particularly necessary since the US
went off the gold standard in the early 1970s. You can trust government to
maintain the integrity of your fiat currencies without any backing to tangible
assets."
When the dollar was backed by gold, it wound up being worth
about 50% more in 1900 than in 1800, despite bursts of inflation typically
generated by war-related spending during that period. In his
video "Money, Banking, and the Federal Reserve," Lew Rockwell,
President of the Ludwig von Mises Institute, said that in addition to
experiencing dollar value appreciation, the US economy grew quite nicely at
about 4% a year on average for twenty years beginning in 1871 when the dollar
was returned to the gold standard. This took place in the wake of
massive Civil War inflation that had nearly cut the value of the dollar in
half. When the Fed was created in 1913, the public expected it to
help stabilize the currency. The opposite has happened. The dollar has lost
over 95% of its value since the Fed's inception. In 1729, Voltaire observed
that "Paper money eventually goes down to its intrinsic value
--zero." Governments and central banks since his time have continued to
prove that they can not discipline themselves. Gold can provide an important
intangible form of "insurance" and "discipline" for the
integrity of a nation's financial system. Gold has not only been used as a form
of money, but has also been used for jewelry and for industrial applications.
(29)
Resistance to the anti-gold trend is growing. European
central bank gold sales have been slowing as EU members focus on the problems
of getting along with each other. Central banks in general tend to get nervous
as their dollar reserves decline in value and their appreciating gold hoards
dwindle. America's largest bullion dealer, Blanchard & Co. filed an
anti-trust law suit against JP Morgan Chase and Barrick Gold in December 2002
alleging that the companies made $2 billion in short-selling profits by
suppressing the price of gold, thereby victimizing individual investors.
Newmont mining, the largest gold mining company in the world, has been
aggressively unwinding hedges, particularly in regard to various properties
that came with its acquisition of Normandy Mining of Australia. One of these
acquired companies shorted more gold than it could produce, creating a
speculative over hedge to try to milk a little more profit out of declining
gold prices. When gold prices moved back up, the hedge went under water and
gave the company negative net worth. Some critics charge that since the banks
egged on the over hedging problem, it served them right when Newmont threatened
to abandon the problem back into their laps (30)
It is bad enough that citizens of the US, UK, and other
countries have allowed their central bankers to divest their national gold
stocks at fire sale prices while manipulating the gold barometer downwards. But
what is even worse is that banks have created a huge overhang of short and
derivative positions to keep the price of gold smothered with
"paper." Bill Murphy, Chairman of the Gold Anti-Trust Action
Committee (GATA), said that as major gold mining companies have unwound
their hedges since November of last year, gold derivatives have gone up instead
of down, growing from $279 billion to $315 billion today. In Mr. Murphy's
opinion, this is a smoking gun that shows how big banks and Wall Street firms
such as Goldman Sachs, Citibank, and JP Morgan Chase have stepped up their
derivatives exposure to do the Fed's bidding to suppress gold, working in round
robin tag teams. (31)
The Fed has to ease out of a horrible problem of its own
making. According to GATA, total global gold short positions stand at about
15,000 tonnes, six times annual mine and scrap supply, which run about 2,500
tonnes a year. Global demand for gold is about 3,900 tonnes a year, or 1,400
tonnes over mine and scrap supply. To keep gold prices from spiking up, the Fed
has to find ways to fill that 1,400 tonne deficit every year, and it appears to
be getting harder and harder. Bill Murphy said in his May 31, 2003 interview
with James Puplava that he thinks the Fed may be arranging payments to foreign
banks prices for gold that are way above current market prices in order to get
them to disgorge more gold into the market at below market prices and keep the
price of gold suppressed.
(32)
Many financial writers are nervous about JP Morgan Chase,
one of America's three largest banks, which apparently has heavy exposure to
unregulated gold derivatives. In addition, JP Morgan Chase has a total exposure
to derivatives of all kinds of about $25 trillion, which is somewhere over six
times its equity base. The total gold market capitalization is relatively small
compared to other markets. A massive flood of capital into gold bullion and
gold stocks might spark a sudden run up in prices, which in turn might threaten
to serve as a "detonator" if any major banks with massive unregulated
gold derivative exposure turn out to be "hedge funds" or
"Enrons" in disguise. (33)
Incidentally, there is evidence that the Fed has been
involved with the suppression of silver, also known as the poor man's gold, but
that is a topic for another article.
(34)
Stock market intervention
The Fed is linked to a "Plunge Protection Team"
(PPT) that covertly creates sharp rallies to prevent market crashes. Bob
Pisanti on CNBC has talked about "Big buyers in the S&P futures pit
that pulled this market higher." Index futures are a very efficient way to
spark a rally because they have a lot of leverage, can be easily entered and
exited without full ownership disclosure, and can move underlying stocks
through the arbitrage programs of Wall Street firms.
(35)
As a possible real life behind-the-scenes example of the PPT
in action, during his May 3, 2003 Financialsense News Hour interview with
writer/investigator Nelson Hultberg, James Puplava said that earlier that week
he had received an anonymous e-mail from an individual who claims to be a
senior trader at a top three Wall Street firm who executes orders for large
institutional clients. This person said that last summer he began to get
abnormally large orders every few months that are quietly relayed by the senior
manager of the entire department. No one is permitted to speak with the client,
nor does this client have a name or letter code (typically used with clients
who wish to remain anonymous), and at the end of the day the manager goes into
the order management system and personally moves the client executions out of
the desk accounts. The orders are executed at market without regard to price,
they are notable for their size, are typically placed at technical market
bottoms, and each time they have moved the market significantly. James Puplava
noted that he has seen numerous V-shaped "flag pole rallies" over the
last couple of years that seem decoupled from market news and fundamentals and
this e-mail may provide some background regarding what he is seeing.
(36)
The article "Plunge Protection Team" by Brett
Fromson, that appeared in the Feb 23, 1997 Washington Post, describes the
Working Group on Financial Markets (WGFM), created by the Reagan administration
in early 1988 in reaction to the 1987 crash. It consists of the Secretary of
the Treasury, Fed Chairmen, and the heads of the SEC and Commodities Futures
Trading Commission (CFTC). "[The] quiet meetings of the Working Group are
the financial world's equivalent of the war room. The officials gather
regularly to discuss options and review crisis scenarios because they know that
the government's reaction to a crumbling stock market would have a critical
impact on investor confidence around the world." According to E. Gerald
Corrigan, former president of the NY Federal Reserve Bank who became an
executive at Goldman Sachs & Co., "The first and most important
question for the central bank is always, `Do you have credit problems? The
minute some bank or investment firm says, `Hey, maybe I'm not going to get paid
--maybe I ought to wait before I transfer these securities or make that
payment,' then things get tricky. The central bank has to sense that before it
happens and take steps to prevent it."
(37)
During the 1987 plunge, "A final critical moment came
that day when the Fed decided not to shut down a subsidiary of the Continental
Illinois Bank that was the largest lender to the commodity futures and options
trading houses in Chicago. The subsidiary had run out of capital to provide
financing to that market." According to Fromson, "The SEC, CFTC and
Treasury have market surveillance units. They monitor not only the overall
markets, but also the cash positions of all the major stock and commodity
brokerages and large traders." In fact, in 1987 the Fed, "Encouraged
big commercial banks not to pull loans to major Wall Street houses...flooded
the banking system with money to meet financial obligations... announced it was
ready to extend loans to important financial institutions."
(38)
Bill Murphy of GATA described in his May 31, 2003 interview
with James Puplava why he believes the Fed and Wall Street firms are currently
exercising the "PPT" on a continuing basis. The Fed has a repurchase
agreement pool about $40 billion in size, to which it can add another $30 or
$40 billion from an Exchange Stabilization Fund (created in the 1930s),
totaling $80 billion. Major Wall Street firms such as Merrill Lynch, Goldman
Sachs, JP Morgan Chase, and Citigroup (Salomon Smith Barney) have access to
this money through the Fed's repurchase desk, in which they can borrow billions
of dollars for up to 28 days, and then they have to return the money to the
Fed. Sometimes the Fed is willing to keep rolling part of the money over, as if
making a permanent loan. Although the Fed is restricted from buying stocks and
index futures directly, the major investment houses are not, so Wall Street
firms can use the repurchase money they borrow from the Fed to support the
stock market any way they want, ranging from buying index futures to buying
individual stocks. Mr. Murphy claims that when the repurchase agreement pool
falls below $20 billion, that is a clue that the market is likely to fall,
since so much of the market seems to be held up by liquidity pumps and media
hype rather than US economic fundamentals. Once the markets keep falling to the
point that fear begins to grip Wall Street, sudden spike ups in the amount of
repurchase agreement money made available seems to be a tacit signal for one or
more of the "PPTs" of major Wall Street firms to get into action.
Hedge funds that engage in heavy short-selling have learned to quickly cover
their positions and buy back, driving market rallies yet higher.
(39)
Fed research paper 641 written in 1999 discusses the
possibility that policymakers could consider resorting to unconventional means
such as buying stocks or real estate outright if lowering interest rates proves
ineffective. The Fed seems to be one short step away from actually buying
stocks itself, which is in fact a policy currently being openly practiced by
the Bank of Japan to bolster the Japanese market. As long as CEOs of Wall
Street firms and banks that form an axis with the Fed know that their plunge
protection teams will always be supported by endless Fed liquidity pumps, that
last step may not be necessary. That is, unless speculative excesses, supported
by increasing moral hazard, create a rogue wave that is just too big for the
financial system to contain. Put another way, while Fed intervention may
effectively stave off or even help solve problems in the short run, its
interventions are counterproductive if they support moral hazards that lead to
overwhelming problems later on (40)
.
While the PPT is only a nickname and is not officially tied
to the Working Group on Financial Markets, the ongoing "war room"
meetings, scenario planning, and coordination efforts of the WGFM provide the
perfect cover for banks and investment firms to talk to each other, collude,
and cooperate. The banking industry is unique in America by the extent to which
it routinely engages in behavior that would constitute clear antitrust law
violations in other industries. The most extreme special privileges start with
the Federal Reserve and its ability to create money.
(41)
Morphogenesis of the Fed Axis
Subterfuge and collusion are an old story regarding the Fed
axis. In his book The Creature from Jekyll Island, G. Edward Griffin
describes how financiers representing Rockefeller, JP Morgan, and Rothschild
interests, which directly or indirectly controlled about 25% of the world's
wealth, agreed to congregate on Jekyll Island, Georgia in 1910 to put the final
touches on their plan for the Federal Reserve Act that got passed by Congress
in 1913. At that time, Jekyll Island was a privately owned resort community in
which many "Robber Barons" of the era maintained vacation mansions.
Later, after the Fed had achieved enough public acceptance to feel safely
institutionalized, many participants and their descendants wrote books with
revelations about the Jekyll Island conference. The Federal Reserve, which in
actuality is a private banking cartel, was sold to the public as a way to
curtail the money trusts, stabilize the currency, avoid panics, and solve many
of the problems that fractional reserve banking systems had shown on a state
level. (Critics charge that the Fed's track record since inception belies all
of this). Certain politicians felt that the currency needed to become more
"elastic" because money grounded on gold made credit too tight,
particularly for farmers who at that time still represented the majority of
America's population. One example was populist leader William Jennings Bryan
who once gave his famous "crucified on a cross of gold" speech in
which he advocated linking currency to silver rather than gold to provide more
liquidity. (In the original "The Wonderful Wizard of Oz," in which
"Oz" originated as the abbreviation for "Ounce," the
"yellow brick road" and Dorothy's silver slippers symbolized a gold
and silver standard respectively) The "money trust" saw the change
coming, and figured it was better to create their own Trojan Horse opposition
rather than confront the changes recommended by genuine reformers and risk a
defeat. But they were concerned that if the public found out that it was the
money trust itself that was behind the Congressional legislation that was
supposed to curtail the powers of the money trust, in other words, that it was
the foxes who were designing the security system for the chicken house, their
plan would blow up. For security reasons, the financiers agreed to arrive one
at a time under the cover of darkness to ride in a private rail car from a NJ
station to Jekyll Island and only refer to each other by either their first
names or assumed names so that loose lips from attendants may not be so likely
to make connections. One participant was Paul M. Warburg, a partner of the
investment house Kuhn, Loeb and Co. and a representative of Rothschild
financial interests in England and France. He carried a big black shot gun case
to give the appearance that he was going on a duck hunting trip, even though he
never owned or fired a gun in his life. Many sources consider him the principal
architect of the Federal Reserve Banking System.
((42)
Are we heading into a box canyon?
One gets the sense that we may be approaching some endgames,
or as James Puplava puts it, "storm fronts" are converging on us. For
one thing, from the sharp upward angle on graphs of monetary expansion and
credit creation, he thinks we could eventually see a hyperinflation rate as bad
if not worse than what we had in the 1970's. After all, inflation is ultimately
a money supply phenomenon, and as mentioned earlier, it is possible to see a
simultaneous deflation in major assets combined with inflation in consumer
goods and stagnation in the overall economy. (43)
The ultimate endgame may lie more with foreigners than with
the Fed. With America's continuing massive balance of trade deficits and dollar
slide, foreigners are in essence accepting depreciating America paper in return
for their goods. The dollar has declined around 30% in the last eighteen
months, wiping out any gains foreigners have made in their US bond positions as
interest rates have come down. Imagine the disaster if US interest rates start
heading back up, causing the value of bonds to go down and the stock market to
go down further, and on top of that foreigners continue to lose from a sliding
dollar. Foreigners have owned as much as 45% of US Treasuries, and since the US
government is so dependent on their purchases to fund its ever growing debt,
the Fed may be forced to hike rates to continue to attract their capital. This
would be similar to the desperate interest rate hikes used by various Latin
American countries to keep attracting capital and slow down their sliding
exchange rates after they have debauched their currencies with massive spending
and have distorted their economies with massive malinvestments. Currently
Japanese and Chinese central banks are buying US dollars to arrest the dollar
slide. They are trying to keep their currencies relatively cheap to help
maintain the competitiveness of their exports. How long they will be willing to
continue doing this is anyone's guess. But the unfortunate trend is that
Americans are becoming ever more dependent on the "charity of strangers"
and less and less capable of determining their own destiny.
(45)
The ultimate endgame may also involve massive social and
political upheaval within America. Michael Bolser, a protégé of Bill Murphy at
GATA, hardly pulled his punches during his May 31, 2003 interview with James
Puplava, "We are looking at a situation now that Bank of England President
Sir Eddie George referred to as an abyss. He said in his own words, "We
were staring into an abyss as the price of gold rose in September 1999."
He wasn't talking about a temporary abyss, Jim Puplava, he was talking about
the permanent destruction of the value of the United States dollar. It doesn't
come back. You do not come back from where the Argentina peso has fallen. But
it is worse than that, because you have a situation where not only is the
present value of investors funds diluted down towards zero, and their current
present life is taken away from them; their future is also taken away from
them. The social security promise evaporates. And all the military retirement
promises evaporate. This is a nation breaking event that the Federal Reserve is
trying desperately to stop. And of course they have created the conditions to
get us into this jam. And it has taken them since 1987 when Alan Greenspan was
first appointed to do it. He has been on the wrong path for that long. And he
has refused to get off this path. His answer to every single problem was to
print more money. And here we are at the end game of a one way box canyon, at
the end of which is a financial disaster."
(45)
One of the ironies used in ancient Greek tragedy was the
concept that they who the gods would destroy, the gods would first grant their
wishes. America's representatives asked for some extra intervention and safety
by voting in a central bank in 1913. What they got has taken on a life of its
own --and has been able to get its own way. Would we be Pollyannaish to hope
that our central bank wizards know what they are doing, are somehow working for
our best interests, and are somehow different in character from hedge fund
managers? Or have things become so totally out of control that we are now
forced to stand by and watch a financial system geared towards the endless
creation of what David Korten calls "money without value" hang itself
the same way that the Russian people were forced to ride through the last
self-destructive phases of communism? If nothing else, the analyses of
individuals such as Messrs Bolser, Korten, Murphy, Puplava, and Rogers lead me
to think that Americans should have stayed with the original Constitution and
the advice of Thomas Jefferson, Andrew Jackson, John Adams, and other early
American leaders. They admonished us to maintain a fully transparent and
decentralized financial system with a currency backed by hard assets. The
Founding Fathers put the power to create money in the hands of Congress in the
original Constitution, so quite frankly, I think that is where they really felt
it should be. For over ninety years we have disregarded their sage advice. We now
find ourselves way off the yellow brick road, hallucinating on poppies (that
is, disinformation disseminated by the Federal Reserve and the national media),
and in danger of attack by wicked witches and flying monkeys.
(46)
Bill Fox
VP, Investment Strategist
America First Trust Financial Services
Vancouver, WA, USA 98682 wfox@sammonsrep.com toll free: 866-945-5369
Contact Information
Bill welcomes phones calls and other responses to this
article. His address is VP, America First Trust Financial Services, Registered
Rep., Sammons Securities Co., LLC, PO Box 820669, Vancouver, WA 98682,
telephone: 360-882-5369, toll free: 866-945-5369 (866-WILL FOX), email. Securities offered through Sammons
Securities Co. LLC, member NASD and SIPC
APPENDIX:
paragraph
1
·
McCoy, Andrew
P. "Louis
Rukeyser: Is This Rally for Real? Fidelity Investor's Weekly, June 13,
2003, click on market commentary and Expert analysis in left tool bar, and
scroll down to McCoy article. Also, McCoy
posted another June 27th article with Rukeyser comments.
·
Fisher,
Kenneth L., "Dumb
Bears II," Forbes, July 21, 2003
paragraph
2
·
James Puplava
interview with Richard Russell June
28, 2003. Russell stated: “Actually one of the big questions I am
asking myself is I am beginning to think the consumer is finally starting to
cut back. I felt all along that the one thing that would scare consumers even
more than a market going down is unemployment, you losing a job or your
neighbor losing a job. Here in La Jolla I noticed just recently that the
restaurants are emptying out, all the storekeepers are complaining. It does
seem to be slowing down, at least here. The other thing I am watching is the
almost collapse of the transportation average, and this tells me that what we
are probably seeing now is the manufacturing going on, inventories building and
so forth, but the goods are not being shipped out. I think that
this is the beginning of a real slowdown in the economy. And I am convinced
that Greenspan sees this and it is really scaring him. That is why he continues
to drop the rates and that is why he continues to surge the liquidity and the
money supply.” Although the Dow
Transports broke down from June 3rd – June 25th, they
started to rebound back above the 50 day moving average a week after this
interview, clouding this indicator in the near term, but the longer term dollar
slide and rising gold and commodity price trends appear to remain in tact.
paragraph
4
·
Federal
Reserve Economic Database II (FRED II) chart of M3
growth. Economic research, Federal
Reserve Bank of St. Louis. Money
supply growth data also taken from James
Puplava commentaries during Financial Sense Newshour
·
Grandfather economic report provides total indebtedness
statistics
paragraph
5
·
Baker,
Dean, "The U.S. Wage
Gap and the Decline of Manufacturing," Economic Policy Institute,
Washington, DC, discusses decrease of manufacturing employment from 30% to less
than 15% and declining in productivity growth from 2.5% to 1% a year
·
"How Does Uncle Sam (tentatively) Plan to Spend Your Tax Dollar in
2003";
Tax Foundation, discussion of 60% of US Government budget that goes to
entitlements.
paragraph
6
·
Rose,
Judy, "House
Prices Out Jump Income," Detroit Free Press, July 5, 2002.
Discusses how home prices and equity has a greater impact on consumer spending
than the stock market, and how housing price gains have exceeded income gains
paragraph
7
·
Rogers,
Jim, "They Are Lying to Us Again"
click on articles archive at www.jimrogers.com
paragraph
10
·
James
Puplava's Perfect Storm series
·
James
Puplava's interview with
Kent Osband, author of "Iceberg Risks: An Adventure in Portfolio
Theory" discussed change of state properties in the market.
paragraph
12
·
Associated
Press, "Fed Chief Differs
With Buffet Over Threat of Derivatives" International Herald Tribune,
May 9, 2003
·
Buffett,
Warren, “Avoiding
a `Mega-Catastrophe’," Fortune Magazine, March 3, 2003 (in
premium content archives)
paragraph
13
·
Gold-eagle.com
editorial, ”Bank
Derivatives Exposure Update 2Q 2000” discusses how Greenspan blocked FASB.
·
Greenspan,
Allan, "Gold
and Economic Freedom" from "Capitalism: The Unknown
Ideal," 1966.
·
Rogers,
Jim, "For Whom the Closing Bell Tolls,"
Oct 22, 2002, click on articles archive.
Has an excellent critique of Allan Greenspan’s performance as Fed
Chairman,
paragraph
14
·
Littlefield,
Henry M., "The Wizard of Oz: A
Populist Parable?" also published in Barnes Review, Jan/Feb 2003.
paragraph
15
·
James
Puplava has mentioned the case of the Executive Life Insurance Company that got
hit with the tail end of a recessionary market in 1991 and could only get 50
cents on the dollar in its junk bond portfolio, causing it to go bankrupt.
·
AIMR
Advocacy, ”Corporate
Risk Management: The Financial
Analyst’s Challenge” Discusses Proctor and Gamble, Air Products and
Chemicals, Gibson Greetings
·
Stanko,
Brian B. A discussion
of derivatives-related losses.
Includes State of Wisconsin, Metelsgesellshaft, and Showa Shell Sekiyu.
·
Korten,
David "When
Corporations Rule the World" description of the PaineWebber, Piper
losses in 1994 and Barings Bank disaster at: pages 185-247
·
Wilmotte
magazine, discussion
of losses by Vairocano and Fenchurch Capital.
·
Cash,
James M. "No
Hedging Here," Forbes, April 6, 2001: Quote of Vanguard manager John
Bogle reading from a UBS Warburg booklet: "Let me comment on Long-Term
Capital Management. Isolated is not the right word. UBS-Warburg has this wonderful
book I read from cover to cover, and they're promoting hedge funds in it. They
have a list of losses. Askin Capital Management, 1994, $420 million; Argonaut
Capital Management, 1994, $110 million. Vairocana Limited, 1994, $700 million.
By the way, they have the reasons the funds went wrong. In Askin's case,
"Hedge did not work. Liquidity squeeze. Could not meet margin calls. Did
not inform investors." Vairocana: "Change of strategy from duration
neutral to directional plays on falling interest rates." Global Systems,
Victor Niederhoffer, 1997: "Market losses. Short puts in market
correction. Margin calls." Long-Term Capital management, $3.6 billion
loss: "Market losses. Excess leverage. Margin calls. Fund was under funded
(or over-leveraged)." Manhattan Investment Fund: "Managers sent
fictitious statements for three years." Tiger Management, loss unknown.
Soros Fund, loss unknown. Ballybunion Capital Partners, long-short equities,
2000 failure. Only cost $7 million of somebody else's money. A lot of money to
somebody. "Reporting of false performance figures, wrong information on
Web." These are, together, not isolated instances."
·
Pramik,
Mike, ”Hedging
Their Bets: Universities Ivy-Covered
Endowments Clipped by Fund Debacle, Market Dip” Columbus Dispatch, October
11, 1998. Everest lost half its funds
or over $1 billion.
·
Galts,
Chad “The Long
Haul,” Brown Alumni Magazine, Nov/Dec 1998. Yale, Brown and Emory listed as
victims of 1.3 billion Everest Capital loss.
·
Hunter,
Robert, “Victor
Niederhoffer’s Garage Sale”
DerivativesStrategy.com, Feb 1999.
·
Task,
Aaron L., “Requiem
for a Heavyweight” Street.com,
March 29, 2000. discusses how Julian
Robertson’s Tiger Management dropped from $22 billion to $6 billion
·
Karchmer,
Jennifer, "Tiger
Management Closes" CNNfn,
March 30, 2000.
·
Tilson,
Whitney, “Should
Warren Buffett Call It Quits” Fool.com,
April 3, 2000, about Robertson decision to retire.
·
Lopez,
Joe, “Soros
Withdrawal, A Sign of Things to Come”
World Socialist Web, 5 May 2000, Soros loss estimated close to $3 billion
due to decline in tech stocks.
·
Max,
Kevin and Brett Fromson: “Multibillionaire
Speculator Soros Exiting the Risk Business,” The Street.com, April 28,
2000. Estimate of $5 billion in losses
of Soros Fund management.
paragraph
16
·
Hudson,
Chad, "What
Are Hedge Funds Hedging?" by Chad Hudson, Mid Week, Analysis, www.prudentbear.com;
Feb 19, 2003; Raymond Killian, CEO of ITG, estimated that hedge funds account
for 25% to 30% of daily trading volume.
paragraph
17
·
Profile of Frank Partnoy at Financialsense.com
paragraph
18
·
Clash,
James, "No Hedging
Here," Forbes, April 6, 2001.
The 20% survival statistic for hedge funds in 7 years.
paragraph
19
·
Quotes
from David Korten's book "When Corporations Rule the World"
paragraph
22
·
“The Savings and
Loan Crisis and Its Relationship to Banking,” Chapter 4 from History of
the Eighties, Lessons for the Future.
$160 billion cost of the S&L crisis.
·
Haubrich,
Joseph G., “Risk
Management and Financial Crises,” Federal Reserve Bank of Cleveland
Economic Commentary, Feb 21, 2001.
Discusses cause of S& L crisis.
·
Jorion,
Professor Philippe, “Orange
County Case: Using Value at Risk to Control Financial Risk.” Discusses total cost and causes of Bob
Citron Orange County fiasco.
paragraph
25
·
Landis,
Bob: "Once and
Future Money“, www.goldensextant.com
, March 12, 2003, Charts of gold price
vs. rising M1, M2, M3 money indicators in article.
paragraph
27
·
Howe,
Reginald H., with charts by Michael Bolser;
"Not Your
Father's Gold Market" at www.goldensextant.com.
June 15, 2003
·
Judge,
Philip, “Lessons
From the London Gold Pool” www.gold-eagle.com,
May 21, 2001.
paragraph
29
·
“The Federal Debt, Budget, and
Spending: The Constitutional Dollar –What is it Worth Today?,” by web site
Common Sense Americanism. Depicts
dollar index throughout US history.
·
Ron Paul archive at Lewrockwell.com.
Lew Rockwell comment from interview clip in internet video titled
"Money, Banking, and the Federal Reserve" that also includes
clips of Texas Congressman Ron Paul and economist Murray Rothbard. It can
be found a few listings down from the top in the Ron Paul article archive.
·
Landis,
Bob, "Once
and Future Money" provides Voltaire quote.
paragraph
30
·
James
Puplava interview of
Bill Murphy May 31, 2003. “Serves
them right” was the opinion expressed by Bill Murphy regarding Newmont’s threat
to abandon the “stand alone” Yandal mine with underwater hedges back to the
banks.
·
Wan,
Alan, “Barrick
Gold and J.P. Morgan Chase & Co. Accused by Blanchard and Company of $2
billion Illegal Gold Market Manipulation,”
Business Wire, Dec 18, 2002, archived at CBS Marketwatch under key word
“Blanchard” (free registration;
password required)
paragraphs
37 and 38
·
Fromson,
Brett D.: "Plunge
Protection Team," Washington Post, Feb 23, 1997. Discusses Working Group on Financial
Markets.
·
James
Puplava interview
of G. Edward Griffin , author of “The Creature From Jekyll Island,” Nov 30,
2002.
·
Griffin,
G. Edward, excerpts from
Chapter One of “The Creature From Jekyll Island.” Discusses secrecy measures taken to get to Jekyll Island.
·
Pounders,
John, “Jekyll Island and
the Federal Reserve”.
·
Whitehouse,
Michael A., “Paul
Warburgs Crusade to Establish a Central Bank in the U.S.” Federal Reserve Bank of Minneapolis, May
1989.
paragraph
44
·
McDonald,
Joe, “China
Faces Heat Over Currency Controls,”
Associated Press, Newsday.com, July 3, 2003. According to McDonald, “Even though the Chinese Yaun has been
pegged at 8.28 Yuan to the dollar since 1994, "The state newspaper 21st
Century Business Herald reported on June 30 that China's central bank, even
with currency controls, has to buy huge amounts of dollars every day to
stabilize the yuan, though the report didn't disclose how much it has to
purchase."
DISCLAIMER: Not all views referenced
in this report are necessarily those of the author, America First Trust
Financial Services, or Sammons Securities Co., LLC. Sometimes the author
provides opposing viewpoints to give the reader a greater sense of perspective.
This report is intended for informational purposes only and should not be
considered specific investment advice. It is not intended to be a
recommendation to buy or sell securities in the absence of specific knowledge
regarding the financial situation and suitability requirements of a reader. The
information has been obtained from sources believed to be reliable but whose
accuracy can not be guaranteed. Past performance is no guarantee of future
results. There can be no guarantee that the market will perform according to
the author's opinion or that his investment ideas will be effective under all
market conditions. His opinion can change without notice. Investment returns
will fluctuate and the value of an investor's shares may be worth more or less
than the original cost when redeemed. Market data presented here is subject to
change daily. Sammons Securities Co., LLC is a member of the National
Association of Securities Dealers (NASD) and the Securities Investor Protection
Corporation (SIPC).
© 2003 Bill
Fox All rights reserved.
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