Attraction Is In the Eye of the Beholder While I will never be accused of agreeing with Professor A. Fekete on every point he makes, as a proponent of sound money, his is a voice that deserves to be heard.  Thus, I was saddened to hear that Professor Fekete’s Gold Standard University Live was losing the support of its “angle investor” Eric Sprott as a source of funding: Mr. Eric Sprott said in his letter that "we weren't attracting enough interest to justify that ongoing expenditure". I have no idea to what extent Gold Standard University Live was being subsidized, but what I can say is this; promotion/education of the true state of our current financial system, which is seriously broken – and discussion regarding practical alternatives - is vital.  What I found particularly disturbing, was the manner in which Professor Fekete summed up the reasons for his effort’s perceived failure: “To give you an idea of the odds I am facing let me quote from the article in Wikipedia (June 9, 2008) captioned under my name: “It should be noted that mainstream economic theorists criticize gold standard-oriented monetary economists and monetary reformers such as Professor Fekete as ‘fringe’ or ‘amateur’ economists, not worthy of serious study. Professor Fekete has never held a teaching position in the economics department of any prominent university”. As a researcher/writer myself – one who shares many of the same core values as Professor Fekete – I’ve all-too-often heard the same commentary from ‘mainstream’ analysts and the mainstream financial press – that my work was too conspiratorial or even kooky - and only had appeal to like minded conspiracy theorists or kooks.  In short, his cause is the same as mine. Since the nature of my research is best described as both forensic and macro-economic, I can personally attest and am pleased to provide – through ‘mining’ data from my own web-log [kirbyanalytics.com] – a list of kooky institutions that have read at least one of my articles and visited my web site over a recent 3 month period.  You see folks, when these entities visit my web site – they leave an electronic ‘foot print’ or their URL in my web log statistics. [more.....signup] [open pdf....members]

Benedict Benjamin Bernanke Do any of you ever wonder who this guy is really working for anyway?  Well, in case anyone cares, here’s what he’s supposed to be doing: Mission The Federal Reserve System is the central bank of the United States. It was founded by Congress in 1913 to provide the nation with a safer, more flexible, and more stable monetary and financial system. Over the years, its role in banking and the economy has expanded. Today, the Federal Reserve’s duties fall into four general areas: conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers maintaining the stability of the financial system and containing systemic risk that may arise in financial markets providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system [more.....signup] [open pdf....members]

Something[s] That Need To Be Said  Articles like the following have begun surfacing in recent days:              RBS issues global stock and credit crash alert By Ambrose Evans-Pritchard, International Business Editor Last Updated: 1:23pm BST 18/06/2008  The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets…. Interestingly, these dire market pronouncements coming from “establishment sources” – if we took them at face value – would be consistent with fiat cash [and bonds] being “king”. [more.....signup] [open pdf....members]

Setting the Record Straight  Last week began, on Monday, June 9, with Lehman Brothers announcing a worse than expected 2.8 billion quarterly loss and a simultaneous announcement that they were going to raise 6 billion in new capital: [more.....signup] [open pdf....members]

The Science of Scape-Goating  Economics is often referred to as the ‘Dismal Science’.  The moniker is alleged to have originated in the nineteenth century when historian Thomas Carlyle responded to the writings of The Reverend Thomas Robert Malthus, who had grimly predicted that starvation would result as projected global population growth exceeded the rate of increase in the food supply.  For the past one hundred and fifty years, give-or-take, the mainstream has scoffed at Multhus and his dire predictions; but to be honest, I’m now wondering if he might have simply been early with his call. [more.....signup] [open pdf....members]

Fish or Cut Bait  Last week the buzz was all about Scott McClellan’s new tell-all book, What Happened.  One of the key points former Press Secretary McClellan made in his book – which is frequently mentioned on this site and in this space - was ‘the failure of the press to ask the critical questions and report accordingly’.  In referencing how the Bush Administration generally viewed the press, McClellan added,  “If the press had any useful role at all, writes McClellan, it was as intermediaries in a propaganda campaign……” [more.....signup] [open pdf....members]

In Who’s Best Interest? Last week the Federal Reserve’s FOMC [Federal Open Market Committee] met and bestowed upon us their latest decision in monetary policy – a further cut of 25 basis points to lower the Fed Funds rate to 2 %:                     As MSNBC reported: “The rate reduction, the third this year, was needed to energize national economic growth, Fed officials explained. The deepening housing slump is affecting the behavior of consumers and businesses alike.” Put another way; the FED is cutting rates in hopes of spurring credit demand which in turn spurs on an up-tick in now moribund economic activity. [more.....signup] [open pdf....members]

Further Thoughts on Bear Stearns  A couple of interesting issues relating to Bear Stearns were raised in reader comments on John Olague's site: First, isn’t it interesting that the New York Attorney General Elliot Spitzer, who had a history of investigating and prosecuting corporate malfeasance at the highest levels, was sand-bagged (by the FBI!) and forced to resign on 12th March. It would have been very uncomfortable having him around during such shenanigans. Questions might have been asked, make that WOULD have been asked. And this one I find particularly interesting: You say that the market makers opened way OTM strikes on BSC puts. Fair enough. But do you think that the Options Market Makers were going to just take the other side of those trades without offsetting their own risk?[more.....signup] [open pdf....members]

Still Not Your Average Prospect[s] At PDAC 2006 I had the pleasure of meeting one of Canada’s most celebrated prospectors, Don McKinnon.  With more than 45 years of experience in the international mineral exploration industry, Mr. McKinnon is renowned for the discovery of Hemlo, one of Canada's largest and richest gold mining camps.  I had a lengthy chat with McKinnon and learned he had just published a book, THE SCHOLARLY PROSPECTOR, and then went on to explain what else is occupying his time these days. Baltic Resources [TSXV: BLR]– Chaired by Canadian mining icon Don McKinnon – is one of Canada’s newer juniors, who then had 3 projects underway in Northern Ontario, Canada. I wrote at the time, who would want to bet against Baltic’s chances for success in Northern Ontario; it’s McKinnon’s ‘own backyard’. Baltic’s three Projects were: Martison Lake Project The company owns a 50% joint venture interest in a world-class phosphate deposit with a resource estimate of 113 million tonnes averaging 21% P2O5 — high-grade ore by industry standards. For 2006, the Company plans to conduct a pre-feasibility study to update the capital and operating costs, the desired product mix and operating rate of both the mine site and phosphoric acid plant. The phosphate resources will also be brought up to National Instrument 43-101 standards. Pending the results of the pre-feasibility, a bankable feasibility will be undertaken in 2007. [more.....signup] [open pdf....members]

A Flight to No Where  Had lunch last weekend with a friend and his wife- they’re in their 70’s but could pass for 15 years younger – a really nice couple.  He is a retired airline pilot. Used to fly 747’s inter continentally for a national airline. As an ex air force fighter pilot – he was taught about monetary economics by a co-worker back in the 70’s – just after President Nixon took the U.S. Dollar off the gold standard. His co-worker explained to him how price inflation would categorically and necessarily ensue as a result of the revocation of gold convertibility.  The advice he received at the time, in the early 70’s: ·                     Buy the biggest most expensive house ANYONE would finance. ·                     Buy GOLD He and his wife did both – purchasing the bulk of their bullion at sub-100 dollar per ounce prices. [more.....signup] [open pdf....members]

In Who’s Best Interest? Last week the Federal Reserve’s FOMC [Federal Open Market Committee] met and bestowed upon us their latest decision in monetary policy – a further cut of 25 basis points to lower the Fed Funds rate to 2 %:                     As MSNBC reported: “The rate reduction, the third this year, was needed to energize national economic growth, Fed officials explained. The deepening housing slump is affecting the behavior of consumers and businesses alike.” Put another way; the FED is cutting rates in hopes of spurring credit demand which in turn spurs on an up-tick in now moribund economic activity. [more.....signup] [open pdf....members]

Further Thoughts on Bear Stearns  A couple of interesting issues relating to Bear Stearns were raised in reader comments on John Olague's site: First, isn’t it interesting that the New York Attorney General Elliot Spitzer, who had a history of investigating and prosecuting corporate malfeasance at the highest levels, was sand-bagged (by the FBI!) and forced to resign on 12th March. It would have been very uncomfortable having him around during such shenanigans. Questions might have been asked, make that WOULD have been asked. And this one I find particularly interesting: You say that the market makers opened way OTM strikes on BSC puts. Fair enough. But do you think that the Options Market Makers were going to just take the other side of those trades without offsetting their own risk?[more.....signup] [open pdf....members]

Still Not Your Average Prospect[s] At PDAC 2006 I had the pleasure of meeting one of Canada’s most celebrated prospectors, Don McKinnon.  With more than 45 years of experience in the international mineral exploration industry, Mr. McKinnon is renowned for the discovery of Hemlo, one of Canada's largest and richest gold mining camps.  I had a lengthy chat with McKinnon and learned he had just published a book, THE SCHOLARLY PROSPECTOR, and then went on to explain what else is occupying his time these days. Baltic Resources [TSXV: BLR]– Chaired by Canadian mining icon Don McKinnon – is one of Canada’s newer juniors, who then had 3 projects underway in Northern Ontario, Canada. I wrote at the time, who would want to bet against Baltic’s chances for success in Northern Ontario; it’s McKinnon’s ‘own backyard’. Baltic’s three Projects were: Martison Lake Project The company owns a 50% joint venture interest in a world-class phosphate deposit with a resource estimate of 113 million tonnes averaging 21% P2O5 — high-grade ore by industry standards. For 2006, the Company plans to conduct a pre-feasibility study to update the capital and operating costs, the desired product mix and operating rate of both the mine site and phosphoric acid plant. The phosphate resources will also be brought up to National Instrument 43-101 standards. Pending the results of the pre-feasibility, a bankable feasibility will be undertaken in 2007. [more.....signup] [open pdf....members]

A National Disaster  I was made aware of the existence of this article this evening.  The author’s name is John  Olagues.  Here is his bio:              John Olagues is the owner and principal consultant for Truth IN Options and a recognized authority on listed and employee stock options. After graduating from Tulane University (where he captained the baseball team and set many of Tulane's pitching records), John applied his B.A. in mathematics and his competitive spirit to the real world of stock options. In 1976, John became a member of the Pacific Stock Exchange in San Francisco trading and managing options positions in scores of different stocks. John joined with Blair Hull to create Options Research, the first service to provide theoretical options values to market-makers and to the general public. In 1980, he became a member of the CBOE, where he personally traded more options in more diverse situations than any other trader. After reading the piece, I contacted Mr. Olagues and asked for permission to repost his article with his bio.  Additionally, I was curious, so I asked whether or not anyone from the mainstream financial press had contacted him regarding an interview or giving his article greater exposure? His reply to me:  You can do with it what you wish. I have not had any calls or emails from the main stream media as they will not criticize the FED or J.P. Morgan.  I am saying the J.P. Morgan essentially stole $30 billion from the tax payers through the FED and did a big favor for the short sellers, who probably made a few billion. From Cox to Bernanke, to Dimon and Cramer, they all played their roles. [more.....signup] [open pdf....members]

The following was prepared for GATA’s recent conference in Washington, D.C. The Elephant In the Room My name is Rob Kirby – proprietor of Kirbyanalytics.com, proud GATA supporter and frequent contributor to Bill Murphy’s LeMetropolecafe.com.  I would like to extend a warm welcome to GATA delegates from all over the world to Washington, D.C. I’d like to delve into the numbers, or math, showing how J.P. Morgan’s derivatives book cannot be ‘hedged’.  As per their call reports filed with the Comptroller of the Currency’s Office, we know J.P. Morgan’s derivatives book grew by a cancerous 12 Trillion from June 07 to Sept. 07.  The OCC’s Quarterly Derivatives Report serves as the public’s only peek into the opaque and murky world of derivatives-flim-flammery. Flim Flammery is the understatement of the century.  In fact, dealer notionals have EXPLODED parabolic-ally in recent years while END USER demand has been static and virtually non-existent. [more.....signup] [open pdf....members]

Getting Real Last week saw China renew a contract with Potash Corp. of Toronto which calls for shipment of 1 million metric tons of potash at $576 per metric ton, which appears to be a $400 per metric ton increase over the 2007 price: Chinese agree to pay extra $400 U.S. per tonne for fertilizer Apr 17, 2008 04:30 AM Dana Flavelle Business Reporter In another sign that global demand for food is going through the roof, the Chinese have agreed to pay three times as much for fertilizer this year to boost crops. Shares in the world's largest fertilizer supplier, Potash Corp. of Saskatchewan, jumped 5.5 per cent to $198.50 a share on the news, helping take the Toronto Stock Exchange higher yesterday. Potash Corp. is now the second largest publicly traded company in Canada, after Research In Motion and ahead of the Royal Bank of Canada and Manulife Financial, with a market value of $62 billion. Its stock has gained nearly 1,000 per cent in value over five years. Potash Corp. announced yesterday the Chinese had agreed to pay $400 (U.S.) per tonne more for potash as supplies tightened. That's on top of the $176 they paid last year. And there are few signs this trend is likely to reverse any time soon. "Significantly higher potash prices and extraordinarily tight supply have become much more firmly entrenched since China's previous contract was signed 14 months ago," said Potash Corp. CEO Bill Doyle……. Perhaps China’s willingness to pay has something to do with the dollar growth in their international reserve account: [more.....signup] [open pdf....members]

The Inside Scoop On Libor  In the latest Office of the Comptroller of the Currency – Quarterly Derivatives Report [Q4/07], we learn that outstanding notionals for reporting banks declined by 8 Trillion.  Furthermore, we are told that the overall decline was “driven by a 9.2 Trillion reduction in interest rate contracts – mostly swaps with maturities of less than one year.” What everyone needs to understand is that short term interest rate swaps are ALL hedged against 3 month Eurodollar futures – a Libor based product.  But look at what is revealed here: [more.....signup] [open pdf....members]

Inflation Revelations We all read and hear from officialdom that the prospects for inflation, while elevated somewhat recently, always remain anchored and / or subdued on a forward looking basis:  ….if the public experiences a spell of inflation higher than their long-run expectation, but their long-run expectation of inflation changes little as a result, then inflation expectations are well anchored. If, on the other hand, the public reacts to a short period of higher-than-expected inflation by marking up their long-run expectation considerably, then expectations are poorly anchored.     ~ FED Chairman, Ben Bernanke, July 10, 2007 In this speech titled, Inflation Expectations and Inflation Forecasting, Mr. Bernanke goes on at length about the influence that ‘expectations’ have on inflation but he fails [intentionally, perhaps?] to mention its true cause:  “Inflation is a phenomenon caused by the increase of money supply relative to the growth of production capacity for goods and services.” [more.....signup] [open pdf....members]

Seeing the Forest Through the Trees Eliot Spitzer is no more. While I have never been accused of being a Spitzer supporter, I do admit to being curious as to the manner in which he fell, so swiftly, from grace.  As a forensic researcher – I couldn’t help but notice how well timed Mr. Spitzer’s very public demise came on the heels of his very public ‘outing’ or laying blame on the incumbent Republican Administration for the U.S.’s current financial woes:  Predatory Lenders' Partner in Crime How the Bush Administration Stopped the States From Stepping In to Help Consumers  By Eliot Spitzer Thursday, February 14, 2008; Page A25 Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets. Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers…. [more.....signup] [open pdf....members]

Dubious Deliberations Imagine yourself taking one of your family’s most valuable heir-looms into a professional appraiser and having them offer you an expert opinion of, say, “X”. Believing the professional evaluator – you contract with him to sell your asset and it sells to the evaluator’s relative for 100 % of “X”. Now imagine that the ‘same buyer’ of your asset turns around and gets a “new” professional opinion of value for your former asset – the very next week - for 5X. Would such a bizarre scenario – if it were to actually occur – not raise some serious questions regarding motives along and cat-calls for a through investigation? One week ago Sunday – the Federal Reserve forced Bear Stearns into a shot-gun marriage with J.P. Morgan Chase [an institution related to the Fed], whereby, J.P. Morgan Chase was to acquire Bear for $2 per share. [more.....signup] [open pdf....members]

The World’s Worst Kept Secret When bond maven Bill Gross openly writes about it – as he did in his January Investment Outlook - it’s perhaps inappropriate to use the word “secret”: Pyramids Crumbling “But today’s banking system as pointed out in recent Investment Outlooks, has morphed into something entirely different and inherently more risky. Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever. Financial derivatives of all descriptions are involved but credit default swaps (CDS) are perhaps the most egregious offenders.” Perhaps it was a Freudian slip, Gross naming this piece Pyramids Crumbling, but he surely hits the mark – albeit from a narrow bond / credit centric point of view – that today’s financial system is an elaborate and grotesque ponzi scheme with its hallmark being the ‘crafty dodge’. But it goes much deeper than this. If one takes a moment to consider this from Investopedia, the Top 5 Reasons For A Stock Slide, you would see that all reasons for sharp price declines are precipitated by a “crystallizing event” with the bottom line being: There is almost always a tangible reason behind the downward movement in a given share [or market] price after earnings are released, but it's up to the investor to play the role of detective and to try to determine what that reason is. The Role of the Detective and Forensic Economics When markets experience sharp or dramatic price movements – there is usually an identifiable cause or reason.  Bill Gross illustrates how the bond / credit complex has denigrated into the morass of an alphabet soup of derivative defaults – all under the watchful eye of regulators and at the tacit direction of the Federal Reserve. So, when we see market movements like this one in the silver market – with no discernable reason - that we were ‘treated to’ this morning:   Odds are - we’ve witness been witness [or victims, perhaps?] to what Bill Gross terms “a crafty dodge” or worse. What folks would be well advised to remember is this: market moves like the one depicted above are “paper plays” – achieved through selling futures [derivatives] in a thin market.  We are given further evidence that these “paper plays” are orchestrated manipulations due to the fact that the market for ‘physical tangible silver’ remains tight and in short supply – evidenced by the stiff price premiums of physical metal over the futures price. Price manipulations – like the one above - involving “selling down” the paper price of a commodity have historically failed when manipulators run-out-of or are unwilling to part with dwindling physical supply. There are many who follow the metals markets closely who feel that time is now close at hand.

Precious Power  I attended the Canada-South Africa Chamber of Business 9th Annual Mining Breakfast at this year’s PDAC seeking clarity on the extent and implications of power curtailment [brown-outs] by South Africa’s national power utility, Eskom. South Africa's power shortages threaten growth Gold and platinum futures hit record highs; miners' shares drop sharply By Polya Lesova & Steve Goldstein, MarketWatch Last update: 4:25 p.m. EST Jan. 25, 2008  NEW YORK (MarketWatch) -- Worsening electricity shortages in South Africa halted mining operations Friday, propelling gold and platinum prices to record highs and threatening to seriously dent the country's economic growth prospects…..  Mining companies are dealing with cut backs of 10% of the electricity they formerly used and I wanted to hear how this was impacting their businesses and specifically, if recent price increases in precious metals [platinum group in particular] stemming from this situation are justified and / or sustainable. [more.....signup] [open pdf....members]

Road Map to Successful Retail Investing  I attended the first day of the PDAC convention yesterday with a very close friend.  This friend of mine was kind and sincere enough to share with me the stellar results he had achieved in his personal investment account over the past 2-1/2 years investing in a basket junior exploration and resource stocks – he had doubled his money, making multi-six figure gains, over this period of time.  These results impressed me enough that I wanted to report on how, or, better stated – what he attributed these returns to?   Specifically, I wanted to know what methodology, or system, he used to select the individual investments in his portfolio.  Here’s a precis of what my close friend has to say:  To get the big picture correct he uses Kirbyanalytics proprietary macro-economic research, Lemetropolecafe’s Midas daily market commentary and then he browses and reads articles at Financial oriented web sites like Financial Sense and always listens to Jim Puplava’s weekly radio show.  As a filter – for a geological perspective and to narrow down to a short list which companies he invests in, he uses analyst Lawrence Roulston’s, Resource Opportunities, a subscription news-letter. [more.....signup] [open pdf....members]

Academy Betrays One of Its Own Some say love it is a river that drowns the tender reed……….. So how does an American Patriot - a guy who won a Grammy, a Tony and an Emmy – who introduced motion picture audiences to the iconic Bette Midler producing films like ‘The Rose”, along with the unforgettable “Trading Places” starring Eddie Murphy and Dan Aykroyd - not get a mention at the Oscars – televised Feb. 24, 2008 - having passed, untimely of cancer at the age 64, on August 24, 2007? You can’t figure it out either?  Please, Tell Me More: Some say love it is a razor that leaves your soul to bleed…. Well, if that wasn’t enough, along the way this self-made-entrepreneur was a driving force in the music business, where he helped created and managed The Manhattan Transfer, introduced to America many legendary performers, such as Led Zeppelin, whom he brought to America for the first time. Some say love it is a hunger an endless aching need……. And let’s not forget his films were nominated for six Academy Awards, as well as seven Golden Globes [winning 3]. Could it be that Aaron Russo’s name was purposely omitted from the televised list of departed luminaries because he had the guts to take on the establishment?  Was he slighted because he he wrote, produced, and directed a feature film/documentary titled America: Freedom to Fascism, billed as an expose questioning the legality / constitutionality of the IRS and the Federal Reserve? Has Hollywood finally become ‘the ministry of truth’ – a group of glamorous tools shilling for the money spinning banks? [more.....signup] [open pdf....members]

Derelicts and Their Derivatives  Who remembers when the effects of the sub-prime contagion and subsequent freeze-up of the debt markets began to make itself visible?   For those of you who might be unaware, it was the summer of 07 – and I’d like to present this little picture of how the DOW JONES reacted to the impending financial seizures and ‘broke down’ as a little refresher: Remember any of those huge down days in July and early August last summer [07]?  I sure do. [more.....signup] [open pdf....members]

Numbers That Do Not Add Up  Having just learned about the plans of U.S. financial elites to cease publication of another swath of economic data, producing this short report took in a timely fashion has taken on new meaning – after-all, in another month or two – the data on which it is based may have disappeared too.  The Latest Data Scheduled to Disappear Behind the Iron Curtain: Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov) will be discontinued effective March 1, 2008.  Advance Monthly Sales for Retail and Food Services Advance Report on Durable Goods Construction Put in Place Gross Domestic Product Manufacturers' Shipments, Inventories, and Orders Manufacturing and Trade: Inventories and Sales Monthly Wholesale Trade New Residential Construction New Residential Sales Personal Income and Outlays Quarterly Financial Report Quarterly Services Retail E-Commerce Sales U.S. International Trade in Goods and Services U.S. International Transactions A few more bones to hide in the closet, ehhh? [more.....signup] [open pdf....members]

Getting A Handle On Inflation  Isn’t it amazing how officialdom preaches to us that inflation is under control – generally running in the 2 – 3 % range per year.  Isn’t it also amazing how the mainstream press [mostly print and television] gives unlimited amounts of face-time and exposure to a long list of ‘experts’ who espouse these views?  Equally amazing is how pundits in the contrarian’s community have painstakingly documented how the most widely reported inflation data has had systematic adjustments made to it so as to corrupt it beyond belief.  An alternative measure of inflation with a long history which is tabulated by private sources – beyond the direct influence of officialdom – is the CRB Index.  The CRB index [short for Commodities Research Bureau].  From their homepage on the web:  Since 1934, Commodity Research Bureau (CRB) has been the world's leading commodities and futures research, data, and analysis firm. CRB delivers information on the futures markets to interested parties via a number of data products, email and print publications, fundamental services and B2B products. It also is home of the CRB Price Index, a global benchmark for measuring commodity price movement and developed by one of CRB's founders, Bill Jiler. [more.....signup] [open pdf....members]

An Inverted Pyramid Scheme  Last week, on Feb. 5, the Australian Central Bank raised interest rates by a quarter-point to 7.00 % in an “effort” to rein-in inflation.   Two days later, on Feb. 7, the European Central Bank [ECB] held rates steady at 4.00 % while the Bank of England [BOE] lowered interest rates by a quarter-point to 5.25 %.  Both the ECB and the BOE were reported in the mainstream financial press as ‘weighing concerns’ of inflation against those of a global economic slowdown. These actions along with this reporting, taken together, almost makes you want to believe that interest rates are the sole determinant of inflation, eh? Sadly – almost everyone believes this – usually because some accredited news outlet like Bloomberg or Reuters says so.  Interest rates – unto themselves – have very little to do with Inflation.  Money Growth – on the other hand – has everything to do with inflation.  This is why the Federal Reserve canceled M3 Money Supply reporting – they quite simply do not want us to know how fast they are growing the money supply because it would make a complete mockery of their “officially published” inflation reports in the 2 – 3 % range: [more.....signup] [open pdf....members]

Myth vs. Reality  Much was made of Iran’s announcement back in December, 2007 – that they would no longer be accepting U.S. Dollars as payment for their chief export, crude oil:  Iran stops selling oil in dollars Tehran moves closer to confrontation with U.S.  Posted: December 8, 2007 12:46 p.m. Eastern By Jerome R. Corsi © 2007 WorldNetDaily.com Iran today announced a decision to end all oil sales in dollar transactions, moving one step closer to confrontation with the United States….. Perhaps fewer people would remember a pre-cursor to this announcement – back on July 13, 2007 – when Iran put Japan [its largest oil trading partner] on notice that they would only conduct their crude oil trade in Yen going forward:             Times Online July 13, 2007 Iran demands oil pay in yen not dollars The dollar fell against the yen this afternoon on reports Iran has asked Japan to stop paying for its oil in dollars Robert Lindsay The dollar was driven down against the Japanese yen this afternoon, hit by the news that Iran had asked Japan to pay for its oil purchases in the Japanese currency and not in dollars. Iran has sent a letter to Japanese refiners, signed by Ali A Arshi, the general manager of crude marketing and exports for Iran's national Iranian Oil Company, according to a report by Bloomberg. The letter asks for yen payments "for any/all of your forthcoming Iranian crude oil liftings." The request is for all shipments "effective immediately". One might logically think this would have quite an impact on countries that buy Iran’s 2.5 million barrels per day of exported oil. [more.....signup] [open pdf....members]

Stuff That Doesn’t Add Up Last week global capital markets gyrated in fashion I’ve never seen before.  Intra-day business-cycle-in-a-day movements in equity markets included disparaging collapses as well as stunning “flagpole” rallies.  It made for some gripping, televised, real-time, fantasy-land, main steam financial reporting.  I must admit, I became exhausted just watching / listening to it all happen.  By Thursday of last week, the mainstream financial press had “more or less” arrived at the conclusion that the wild-ride-proceedings we experienced earlier in the week was all the work of a “lone trader” - a junior employee working for French banking giant – Societe Generale: [more.....signup] [open pdf....members]

Reading Tea Leaves Tomorrow, Jan. 15, 2008, the Bureau of Labor Statistics [BLS] is due to release their report for December Producer Price Inflation [PPI].  Last month at this time the BLS reported a steep rise in prices for November led by stiff increases in prices of crude oil. As the updated chart below will attest, the energy component of Nov. PPI reported last month – as measured by the proxy West Texas Intermediate [WTI] - indeed reflects a large price increase in the Oct – Nov time frame. When this news broke – stock markets dropped, bonds experienced a mild sell-off [temporarily higher yields] and the price of gold attempted to rally. Seeing as we already know that the price of crude oil – as measured by WTI – decreased between Nov. and Dec. sample dates – one might surmise that the energy component of tomorrow’s PPI report will likely show a favorable [lower than expected] headline number.  Expect cat-calls in the mainstream financial press that inflation is tame and under control - giving the FED more flexibility to lower rates. [more.....signup] [open pdf....members]

Fiction at its Finest  Today, the Bureau of Labor Statistics [BLS] released their report on December Non Farm Payrolls: THE EMPLOYMENT SITUATION:  DECEMBER 2007 The unemployment rate rose to 5.0 percent in December, while nonfarm payroll employment was essentially unchanged (+18,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today.  Job growth in several service-providing industries, including professional and technical services, health care, and food services, was largely offset by job losses in construction and manufacturing.              Average hourly earnings rose by 7 cents, or 0.4 percent. [more.....signup] [open pdf....members]

Invested or Induced?  Since this is New Year’s Eve, let’s all hoist one for the Oracle of Omaha – shall we?  On Friday the Oracle’s Berkshire Hathaway announced it was purchasing the reinsurance unit of ING [NRG] for 435.7 million in cash and also notified the free world that it expected to be granted a license Monday [today] to open a new bond insurance business – Berkshire Hathaway Assurance Corporation.  Maybe it’s just me but doesn’t this announcement – coming on a Friday with the expected granting of a license by regulators on Monday reek of shotgun marriage? [more.....signup] [open pdf....members]

A Crude Conundrum  Over the past few weeks much has been written about the Bernanke led Federal Reserve and whether or not the Fed has been “ahead” of the game where monetary stimulus is concerned in an economy that is showing increasing signs of systemic stress.  I have even read articles claiming that money growth has in fact been stagnant for much of this year – from market analysts such as John Hussman - arguing that the Fed is perhaps “behind the curve” and generally only injects money into the system on a “temporary” [repo] basis: “So it's difficult to understand why investors would get all excited about the Fed temporarily buying up a few billion in government securities, when we've got a Federal government that's simultaneously and permanently issuing and then constantly rolling over many, many times that amount. It‘s an escape into dreamland to believe that Fed actions have any chance at all of providing more “liquidity” when the Federal government's deficits suck up in a matter of weeks every bit of liquidity that the Fed has provided in a year. These Fed actions are nothing but marginal tinkering around the edges of the global financial system, and investors are starting to catch on.“ [more.....signup] [open pdf....members]

Where the Bones Are Buried  This past weekend I was reading a snippet of the Privateer; a brilliantly prescient newsletter that was re-iterating the words of financial journalist Ambrose Evans-Pritchard in describing the unprecedented and coordinated Central Bank actions last week, “Never before have the central banks of North America, Europe, and Britain acted together as such a unified phalanx, but never before have transatlantic credit markets seized up with such violent effect.” The folks at the Privateer went on to add, Behind Closed Doors – Frankfurt Expodes In Rage:  “The European Central Bank [ECB] is a full-scale participant in the desperate global attempt to get the western world’s banking and financial system restarted.  In Frankfurt, the officials are seething at the enormous scale of borrowing by British banks at the European Central Bank’s window, calling much of it “central bank arbitrage”.  The main British banks are doing this because it is cheaper and easier to borrow from the ECB’s window than it is for them to borrow in the London Libor market or in any other market.  But in the process of borrowing from the ECB, the British banks cause the ECB to create new volumes of Euro currency vastly beyond the Eurozone’s own needs.  That inflates the Euro.” [more.....signup] [open pdf....members]

The Invisible Hand Today I telephoned the good folks at the Bureau of Labor Statistics in Washington, D.C.  I phoned to find out a little bit more about how one of the key inputs – CRUDE OIL - in PPI [Producer Price Index] is determined each and every month. Here’s the nuts of what I was told: “Crude oil price data inputs for the PPI are measured from sources of the subject month on the Tuesday of the week that contains the 13th day.” Sounds good to me. [more.....signup] [open pdf....members]

The Best Case Yet For Gold  Despite continuing assertions from officialdom to the contrary, inflation is alive, well and unfortunately – flourishing. Continued claims that we live in a 2 – 3 % inflationary environment fly in the face of broad money growth rates [M3] of 14 % in the U.S. and annualized growth rates in excess of 27 % in countries like Russia:   Money Supply I2 (National Definition) in 2007 (billion rubles) Date M2 Money Supply1 end of period Money Supply Growth Rates, % Total Including: against previous month against 01.01.2007 cash (I0) non-cash funds 01.01.2007 8,995.8 2,785.2 6,210.6 12.3 — 01.02.2007 8,700.8 2,630.1 6,070.6 -3.3 -3.3 01.03.2007 8,902.0 2,682.0 6,220.1 2.3 -1.0 01.04.2007 9,412.6 2,741.2 6,671.4 5.7 4.6 01.05.2007 10,006.0 2,859.4 7,146.6 6.3 11.2 01.06.2007 10,699.3 2,896.6 7,802.6 6.9 18.9 01.07.2007 10,857.7 3,027.5 7,830.2 1.5 20.7 01.08.2007 10,923.5 3,087.0 7,836.5 0.6 21.4 01.09.2007 11,156.8 3,170.6 7,986.2 2.1 24.0 01.10.2007 11,494.0 3,220.9 8,273.2 3.0 27.8 01.11.2007 11,421.7 3,259.1 8,162.6 -0.6 27.0  1 M2 is defined as total cash in circulation (outside banks) and balances in the domestic currency on accounts of resident non-financial organizations and individuals.The methodology for calculating M2 and its structural components is detailed in the Summary Methodology (Section 1) of the "Bulletin of Banking Statistics". And Here’s Why We All Should Care [more.....signup] [open pdf....members]

Capitalism: Derailed, Dumbed-Down or Deceased? When the Berlin Wall fell back in November 1989, many in the west looked upon the event as being symbolic of the triumph of Capitalism over Communism.  Remember the warm and fuzzy feeling? Our collective attention, albeit for a brief moment, was redirected toward the great debate of how the peace dividend would be spent. The peace dividend is a political slogan popularized by US President George H.W. Bush and UK Prime Minister Margaret Thatcher in the early 1990s, purporting to describe the economic benefit of a decrease in defense spending. With the United States mired in conflict[s] throughout the Middle East, some of you might now be wondering if indeed there ever really was a ‘peace dividend’. If we take a cursory look at “official government numbers” [see below], we can empirically see that YES, there has been a discernable peace dividend with the defense budget dropping from the 6 - 8 % range to the high 3 % range of GDP: [more.....signup] [open pdf....members]

Prescient Pronouncements  For those of you who ascribe to the notion that hindsight really is 20 / 20, I offer you these words uttered by Richard W. Fisher, Chairman and CEO of the Federal Reserve Bank of Dallas, on June 14, 2006: “Faith is certainly the basis of your confidence in the Federal Reserve. I have spoken in previous speeches of our “faith-based currency,” a term I use only slightly tongue in cheek. The dollar—like the euro, the yen, the British pound and other currencies—is what economists call a fiat currency. It is backed only by the federal government’s power to raise the revenues needed to meet its obligations and by the rectitude of the U.S. central bank. If the market were to lose faith in either assumption, the dollar would be debased.”[more.....signup] [open pdf....members]

Derivatives Dirigible Last week I penned a quip highlighting data contained in the latest Quarterly Derivatives Report from the Office of the Comptroller of the Currency. Specifically, I wanted to draw attention to the new growth [10 Trillion in Q2/07] being reported in outstanding notionals in J.P. Morgan Chase's derivatives book: [Source: table 2 on page 23 of pdf doc – Quarterly Derivatives Report] I was somewhat surprised by some of the comments and feedback I heard and read regarding this issue. One informed market watcher named ‘Sabre' - who happens to be a regular editorial contributor at Bill Murphy's LeMetropole Cafe - chimed in with this observation: [more.....signup] [open pdf....members]

HANK'S HOUSE OF HORRORS   U.S. Treasury Secretary Hank Paulson recently proposed the establishment of a $75bn-plus ‘superfund’ to buy unwanted asset backed commercial paper in hopes of accelerating the return of ‘liquidity’ to the marketplace. Mr. Paulson’s proposal has been endorsed by financial market heavy-weights J.P. Morgan Chase, Citibank and Bank of America. I’d like to examine how we got here in the first place. As evidenced in the charts of U.S. money supply growth below, Central Banks around the world have been creating money at a blistering pace for better than 10 years:   Fed Res. Chart compliments of Jesse: http://www.geocities.com/arthurcutten/jesse.html Folks should understand that the act of printing new money dilutes the existing monetary stock. [more.....signup] [open pdf....members]

A National Disgrace As a Canadian, I would first like to voice my disgust with actions taken by my fellow countrymen [Alberta’s Provincial Government] yesterday – who saw fit to ‘rewrite’ royalty agreements they had entered into with the oil industry.  A very sad day for Canada’s honor and reputation. As disgusting as all of this is, it still pales in comparison to an even bigger, much more preposterously glaring disgrace that I’d like to draw your attention to. A little over a year ago I penned an article titled, Everyone Loves A Parade.  The article chronicled the growth of J.P. Morgan derivatives book from Q4/05 to Q1/06 of 5.5 Trillion.  Just today, the Office of the Comptroller of the Currency released their latest Qrtrly. Derivative Fact Sheet for Q2/07.  In the latest reporting period [Q2/07], J.P. Morgan Chase’s derivatives book has swelled by a cool 10 Trillion in notional:[more.....signup] [open pdf....members]

Who Bought What? According to the U.S. Treasury – the latest TIC data [August] tells us the following: October 16, 2007 HP-611 Treasury International Capital (TIC) Data for August Treasury International Capital (TIC) data for August are released today and posted on the U.S. Treasury web site ( www.treas.gov/tic ). The next release, which will report on data for September, is scheduled for November 16, 2007 . Net foreign purchases of long-term securities were minus $69.3 billion. · Net foreign purchases of long-term U.S. securities were minus $34.9 billion. Of this, net purchases by foreign official institutions were minus $24.2 billion, and net purchases by private foreign investors were minus $10.6 billion. · U.S. residents purchased a net $34.5 billion of long-term foreign securities. Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been minus $85.5 billion. Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $33.9 billion. Foreign holdings of Treasury bills increased $21.0 billion. Banks' own net dollar-denominated liabilities to foreign residents decreased $111.4 billion. Monthly net TIC flows were minus $163.0 billion. Of this, net foreign private flows were minus $141.9 billion, and net foreign official flows were minus $21.1 billion. Who am I to argue with the U.S. Treasury? [more.....signup] [open pdf....members]

Inconvenient Truths I'd like to spend a few minutes on a topic that Jim Puplava frequently covers on his radio program – Peak Oil. It bears mentioning – over-and-over – because too many folks are still caught up in the notion that Peak Oil is something “we all” don't have to worry about in the here-and-now. Nothing could be further from the truth. Let's stop and consider just how wrong the ‘don't worry be happy crowd' have been where the current / observable oil market situation is concerned – shall we: World Oil Prices The world oil price cases in this report are the same as those in EIA's Annual Energy Outlook 2007. In the reference case, world oil prices decline from $68 per barrel in 2006 to $49 per barrel in 2014, then rise to $59 per barrel in 2030 ($95 per barrel on a nominal basis). When one stops and considers that the pronouncement above was made – 5 months ago - in May of 2007 – it's hard not to wonder just how, or why, ‘experts' could be clinging to a hypothetical-reference-case so clearly, utterly and empirically WRONG. [more.....signup] [open pdf....members]

Derivative Applications In the Real World Although I've written a fair amount on derivatives – it seems that quite a number of folks still aren't sure as to what's really going on. I understand that many can be easily confused by the term “derivative” – particularly owing to the fact that the term ‘derivative' can apply to everything from an exchange traded futures contract to a ‘bundled' OTC security. I received this query today from an individual who apparently works in the Treasury of a corporation. If these guys don't “get it” – you have to ask yourself who really does? So I thought I'd share the correspondence with you all and I hope it is of use. [more.....signup] [open pdf....members]

The Night They Drove Ole Dixie Down "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." – Charles Prince, CEO, Citigroup Virgil Caine was not his name He was Sir Easy Al of Greenspan fame And he served at the Fed Reserve. After Y2K the markets they fell, so he lowered rates, it was a time I remember oh so well. Na, na na na na na na, na na na na na na, na na na na na na Instead of me singing my whole way through this [ although you're welcome to ], I thought I'd share a few stanzas from Robert Morley's , The Con That Turned the World Against America; [more.....signup] [open pdf....members]

A Short Research Note On a Material Change For those of you who did not notice, China 's new 200 billion sovereign fund ‘officially opened for business' on Saturday, Sept. 29, 2007 . Article here : BEIJING : China 's sovereign wealth fund opened for business on Saturday, promising not to take excessive risks and to be sensitive to international concerns as it goes about investing $200 billion of the nation's vast reserves. The agency, called China Investment Corp Ltd (CIC), has the potential to grow into one of the world's biggest funds but faces the short-term challenge of recruiting experienced managers and earning enough on its overseas assets to offset the steady appreciation of its home currency, the yuan. “The strategy of CIC will be based on active, sound management to maximise returns for our shareholders within an acceptable bound of risk,” Lou Jiwei, a former vice finance minister who is chairman of the fund, told a ceremony…….. [more.....signup] [open pdf....members]

The Genesis of OTC Interest Rate Derivatives Misinformation regarding the origin and genesis of the OTC Interest Rate Derivatives complex abound in the market. During the 1970's – after President Nixon took the world off the gold standard - the dramatic increase in the price of crude oil led to burgeoning balances of petro dollars [Euro-dollars] in the treasuries of banks involved in international trade. This immediately led to banks bolstering their treasury operations to deal with the influx of ‘inflated dollars'. In the beginning these petro-dollar balances were strictly lent or borrowed in the inter-bank market. Interest Rate Derivatives were initiated by the establishment [around 1980] of the four 3-month IMM Eurodollar Futures Contracts [Dec, Mar, Jun, Sept] on the Chicago Mercantile Exchange [CME]. These contracts settled against 3 month libor [London Interbank Offered Rate] for Eurodollar Time Deposits on the third Wednesday of the contract month. The 3 month libor rate is ‘set' daily by a group of banks selected by the British Bankers Association and represents where these ‘reference banks' are willing to ‘loan' their mostly recycled Euro Dollar [petro-dollar] as 3 month time deposits. [more.....signup] [open pdf....members]

A Reversion to the Mean How many of you have heard the saying or explanation by a technical analyst that a given market movement was nothing more than, “a reversion to the mean?” Let's examine just what that means, shall we: Mean reversion is a tendency for a stochastic process to remain near, or tend to return over time to a long-run average value. For example, interest rates and implied volatilities tend to exhibit mean reversion. Exchange rates and stock prices tend not to. Stock market returns, however, do tend to exhibit mean reversion. Exhibit 1 provides an intuitive illustration of the difference between mean reverting and non-mean reverting behavior. Mean Reversion Exhibit 1 Mean reversion is a tendency for a stochastic process to remain near, or return over time to a long-run average. [more.....signup] [open pdf....members]

Us and Them: An Interview With Catherine Austin Fitts I want to take everyone back to Saturday, August 18 th – 2007. On this night, COAST TO COAST AM's [world's most listened to late night talk-radio show] Ian Punnett interviewed Catherine Austin Fitts . The topic for discussion that evening was the US Tapeworm Economy & Black Budgets . Catherine Austin Fitts Here's an overview of the interview as provided by the editorial staff of Coast To Coast AM: In this interview , Fitts spoke about black budgets—money used by the federal government which is not reported in their financial statements—and how they are used to fund (on a non-transparent basis) corporations performing secret military and intelligence functions. She said the people who control these 'covert' cash flows end up manipulating the 'overt' world. She described how money can be laundered through publicly traded companies, using the European Union's lawsuit against RJR Nabisco as a case study. Fitts explained stock 'pump and dump' schemes, pointing out that not only can stocks be pumped up and dumped but so can real estate, countries ( Iraq ), and even the planet. Fitts noted problems with the central banking warfare model, which she said helped make America successful but is not sustainable and no longer works. She also explained what she calls the 'tapeworm economy,' in which a small group of insiders centralize political and economic power to make money in a way that actually destroys wealth. Fitts discussed the US Department of Housing and Urban Development (HUD), which she said is being run as a "criminal enterprise." According to Fitts, HUD reported $17 billion missing in fiscal 1998 as well as $59 billion in undocumented adjustments the following year. The HUD inspector general refused to produce financial statements, she said, noting that it is illegal to spend money that has not been appropriated by Congress. Fitts also talked about the last housing bubble, the current crisis in the housing and mortgage markets and how it was engineered. But apart from the interview being, on-the-whole, both illuminating and brilliantly conducted by host Ian Punnett – I found the most relevant and telling insight that was offered in the interview to be something a little bit more obscure. This ‘diamond in the rough' required some polish – by way of a fuller explanation. The precious insight I'm referring to is this: [more.....signup] [open pdf....members]

Show Me the Money The terms liquidity and liquidity add have been widely bandied about in the mainstream financial press in recent weeks. So I thought it might make a whole lot of sense to review exactly what constitutes liquidity injections. When the Fed conducts Open Market Operations they are classified under 2 broad headings: TOMO – Temporary Open Market Operations These purchase and resale agreements [hence the name Repo] typically range in duration from 1 – 14 days. A One day Repo would have the Fed purchase collateral [Treasury Bond, Agency Bond or Mortgaged Backed Sec.] from the dealer's inventories TODAY [at an implied yield] and have them sell it back to them tomorrow. This provides the dealer with temporary [overnight – 14 days] cash to fund their businesses. POMO – Permanent Open Market Operations These are outright purchases of bills, bonds and/or notes from the dealer's inventories and constitute permanent additions to money supply. Interested parties can actually keep track of the most recent 25 Temporary Open Market Operations from the web site of the Federal Reserve Bank of New York linked here . Lately, the Fed has been adding via TOMO – a combination of 1 day or over-the-weekend Repos in conjunction with multi-day Repos. [more.....signup] [open pdf....members]

Whistle While You Work I'd like to devote today's market wrap to a review of a few interesting and illuminating developments which have occurred over the past fortnight. First off, I'd like to shine a bit of light on this item which was published by Forbes this past Friday: Whistleblowers on Fraud Facing Penalties By DEBORAH HASTINGS 08.24.07, 3:16 PM ET One after another, the men and women who have stepped forward to report corruption in the massive effort to rebuild Iraq have been vilified, fired and demoted. Or worse. For daring to report illegal arms sales, Navy veteran Donald Vance says he was imprisoned by the American military in a security compound outside Baghdad and subjected to harsh interrogation methods…… [more.....signup] [open pdf....members]

Why NO – ONE Gets It Any attempt to use conventional metrics to make heads or tails of this unfolding complete-and-utter-failure of our financial system is a waste of time. Over the past few days, I've heard too many mainstream financial commentators trying to draw parallels between the current unfolding derivatives melt-down and the LTCM debacle of 1998. Also, these would-be experts – their ‘professional opinions' are largely predicated on the notion that we live and are operating in a free market capitalist system. But we are not. The experts are having a tough go-of-it explaining, because the fundamental differences are known to so few. What were once “free markets” are being [and have been for a long time] steered, scripted and cajoled by Central Bankers and Monetary Elites – the PLUNGE PROTECTORS - from behind a veil or black curtain. I reader contacted me a couple of days ago asking me how I would compare the current CDO / Sub-prime situation versus the LTCM debacle back in the late 90's. This was my reply: [more.....signup] [open pdf....members]

Analysis of the Unfolding OTC Derivates Melt Down In the past few weeks we've all been ‘peppered' with reports about CDO's and growing contagion associated with sub-prime mortgages. For clarity's sake – everyone should first understand that these instruments are – for the most part – all broadly defined as OTC derivatives. What now appears to be ‘systemic problems' in the Financial System all began with revelations by Bear Stearns. Interestingly, in Bear Stearns latest 10-K filing with the SEC, they self-describe [at the top of page 54 if you want to play along at home] their activities conducted in off-balance-sheet-arrangements are described as follows: In the normal course of business, the Company enters into arrangements with special purpose entities ("SPEs"), also known as variable interest entities ("VIEs"). SPEs are corporations, trusts or partnerships that are established for a limited purpose. SPEs, by their nature, are generally not controlled by their equity owners, as the establishing documents govern all material decisions. The Company's primary involvement with SPEs relates to securitization transactions in which transferred assets, including commercial and residential mortgages, consumer receivables, securities and other financial assets are sold to an SPE and repackaged into securities or similar beneficial interests. SPEs may also be used to create securities with a unique risk profile desired by investors and as a means of intermediating financial risk. The Company, in the normal course of business, may establish SPEs, sell assets to SPEs, underwrite, distribute and make a market in securities or other beneficial interests issued by SPEs, transact derivatives with SPEs, own securities or other beneficial interests, including residuals, in SPEs, and provide liquidity or other guarantees for SPEs. I make mention of the use of SPE's – where the use of derivatives is concerned – because this term has a familiar “ring” to it. SPE's were the very same accounting structures which Enron used to hide a quagmire of fraudulent OTC derivatives transactions. As Trinity University 's Bob Jensen pointed out in a paper titled, What's Right What's Wrong With [SPEs], SPVs and VIEs : The Whitewing SPE is only one of the thousands of Special Purpose Entities set up by Enron CFO Andy Fastow with the assistance of its auditor, Andersen, and its law firm. The SPE appears to be almost hopelessly complex to hide risk as well as hide the trail of the millions of dollars Andy Fastow was making in double dealing at Enron. If nothing else, the preceding points out that – at the core - Bear Stearns latest troubles ALL stem from derivatives risk. [more.....signup] [open pdf....members]

Rinsing the “Spin” Out of the News Cycle What a world we live in, eh? Interesting times. In an increasingly wired world – we all suffer from information overload, don't we? Sometimes it seems “where to consume one's news” is just as important as the content. Isn't it amazing how two news gathering organizations can “cover” the same story or event and leave the consuming public with such subtly different impressions? Sometimes the differences in coverage are “GLARING” – other times, more subtle. Last week, for example, Bloomberg's John M. Berry produced a piece contrasting the “political nuances” of Federal Reserve against those of the European Central Bank. Interesting stuff if you are so inclined. But a subtly included passage in this piece made my blood boil. The offending passage in red : July 23 (Bloomberg) -- Contrasts between the Federal Reserve and the European Central Bank are striking, and not just because the ECB has raised interest rates five times in the past year while the Fed has been on hold. Last week, for instance, Fed Chairman Ben S. Bernanke was questioned at two hearings by dozens of members of Congress who, should they choose, have the power to give him and his colleagues marching orders on monetary policy. The Fed, after all, is part of the congressional branch of the U.S. government …. For those of you who may not know the difference, the Federal Reserve is no more “federal” than Federal Express. The Federal Reserve is PRIVATE corporation with has been granted a monopoly to produce the nation's currency out of thin air. It is irresponsible journalism that Bloomberg News has allowed this blatant falsehood to make it into print. [more.....signup] [open pdf....members]

Understanding the Great Disconnect Over the past several weeks and months, we've heard some of the financial industry's most respected experts/commentators weigh in on the developing sub-prime/CDO debt debacle. This week it was PIMCO's Bill Gross : NEW YORK (CNNMoney.com) -- Woes plaguing the subprime mortgage market are spreading to junk bonds, according Bill Gross, manager of the world's largest bond fund. Credit markets are facing a "sudden liquidity crisis" in the high-yield bond sector as a growing lack of confidence has frozen future lending, the PIMCO bond manager wrote in an August investment newsletter posted on the PIMCO Web site. "Both borrowers and lenders may have bitten off more than they can chew, and even those that swallow their hot dogs whole -- Nathan's Famous Coney Island style -- are having a serious bout of indigestion," he wrote. The Hat Trick Letter's Dr. Jim Willie is perhaps a little more cuttingly concise in his assessment of the ‘unraveling' situation: An unusual chart is presented, since the Broker Dealers sit at the nexus of the massive asset-backed bond ‘con game' perpetrated upon the nation and the world. The extent of possible fraud will be sure to be unraveled. They sold acidic bonds, over-rated, misrepresented, opaque as a stone in their fundamentals and inner workings. REVENGE IS BEING DOLED OUT TO THIS DEEPLY CORRUPT GROUP, which boldly write in covenants to obstruct lawsuits by limiting legal liability. As the Broker Dealer XBD stock index suffers deep wounds, the USFed will be compelled to rescue them, since their components are INSIDERS on Wall Street. Let Us Pray For Bumps In the Road [more.....signup] [open pdf....members]

Money Supply Musings In recent years, the relevance of different measures of Money Supply have been debated, scrutinized and in the case of the Federal Reserve – diminished and discarded : So why did they do it? Hard money writers have offered a variety of possible reasons, but I think it all comes down to one thing: M3 have during the last few years increased more than M2. Just like the Fed and pro-administration pundits makes sure to focus on whatever consumer price measure increases the least (currently the "core" PCE deflator ), the Fed wants people to focus on a money supply measure which increases less. The quote above references the Federal Reserve's decision to quit publishing M3 money supply aggregate data as of March 26, 2006 . So, is it really as simple as the ‘old' M3 was growing faster than M2? I suspect NOT. Instead, I now believe the Fed was trying to get-out-in-front-of demands to EXPAND the definition of the broadest measure of money - M3. Let me explain: [more.....signup] [open pdf....members]

Doing What It Takes These words uttered by Dallas Fed's Richard Fisher and reported by the Daily Reckoning's Bill Bonner have stuck in my craw, Bill Bonner - Other articles Thu 13 Apr, 2006 The unstable dollar "The Federal Reserve will do what it takes to maintain its credibility, which is central to preserving the integrity of the US dollar," Dallas Federal Reserve Bank President Richard Fisher said on Tuesday. This report, from Reuters, continues: "We seek to get it right. And the answer to your question is we will do what gets it right," said Fisher. Answering audience questions after a speech to the Dallas Friday Group, Fisher said the US dollar is a "faith-based currency" dependent on the credibility of a central bank. "In addition to a faith-based currency, we are the currency of the world and we must maintain its integrity..." So what exactly would you suppose “Doing what it takes” involves anyway? Any guesses?