COILED
SPRINGS AND DARK SHADOWS
by Jim Willie CB
October 25,
2006
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Jim Willie CB is the editor of the “HAT TRICK LETTER” For specific detailed analysis of the Gold, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and Fed monetary policy, see instructions for subscription to my newsletter research reports, which include stock recommendations positioned to rise in the commodity bull market. In the last few years, a dangerous trend has occurred, whereby hidden machinations, secret dealings, and devious activities have grown to become commonplace. What has become more alarming is that so few people seem bothered by the trend. Foreigners watch in disbelief. Once upon a time, people used to suspect devices and policies in place to control financial markets. Official denials and misdirection was the order of the day. No more. They are openly admitted nowadays, often justified as protecting our systemic vitality and integrity itself. To compound the twists to the system, information in the form of official statistics have been tampered or doctored, if not withheld, all for the greater good. However, the end result of all the market interference, as well as distorted information, is a giant opportunity to exploit the coiled springs. Profit motives seem to return to life after elections. In my gut lies a firm conviction, that something might change course within specific markets after the US elections in early November. That gut feeling extends to the belief that Goldman Sachs and JPMorgan might be motivated to profit from rising prices after the key votes are cast, all the machines execute according to their programmed software, and freedom is defended. That gut sense extends to a firm trust in the human desire to wage war, destroy structures, and provoke tears. “Cry havoc and let slip the dogs of war! That this foul deed shall smell above the earth with carrion men groaning for burial.” (Shakespeare, Julius Caesar). Regardless of how it started, the warfare outside Beirut is highly likely to resume. It is human nature, especially against an intractable backdrop. Oil is to be exploited, er, ah, threats to border security are seen. HIDDEN COILED SPRINGS The end result of all this drama behind the curtains and behind the large hardwood doors is a series of coiled springs, soon to find a more calm equilibrium. Gold has been kept down in price, the effort aided by massive tonnage dumped by European member central banks. Silver was ambushed on Sunday night, down over a buck in price suddenly. Crude oil has found a much lower floor with OPEC ministers threatening and confirming output cuts. Natural gas has bounced off its floor, only to blow higher by over 50% even before any harsh weather. Great potential exists to profit personally. The potential for the coiled springs to seek a lower state of potential energy will enable substantial upward price movement. My favorite pair is silver and natural gas. Gold and crude oil are so subject to the ugly procession of political power geopolitics, shenanigans, and maybe even foul play. They fight the political battles, while silver and natural gas simply work behind the scenes apart from the fray. Don’t get me wrong, as both gold and crude oil are preparing for a nice recovery. But the gains for their close cousins will be superior.
Notice how silver has both the slower and faster moving average (red, blue) in rising mode. Gold cannot make such a boast, since its 20-week moving average is still in decline. Notice how the September weekly close low at 10.80 is higher than the June weekly low at 10.28 on close. Gold cannot make such a boast either. For gold it saw the Sept low at 577 versus the June low at 580.
The picture for natural gas is highly optimistic, with a strong reversal in progress. Its momentum is building with the onset of winter. Better yet, an industry response has begun to occur. Producers have already shut down some production fields whose costs exceed the current price. Many natgas producers are caught in a bind, in unhedged contracts, thus lost money. Some natgas industry culling is in progress. Details for such participants as Chesapeake and EnCana are provided in recent Hat Trick Letter reports. The dynamics behind the operating fundamentals will provide power to the upside in price recovery, as supply is hindered, the market response. The technicals look excellent. Moving averages have turned positive. Look out on the upside if and when the blue 20-week MA (blue) crosses above the 50-week MA (red). Technical traders notice these things, and ignore the intentionally deceptive banter. The crude oil market remains in turmoil, seeking a bottom. It is embroiled in political battles involving the OPEC cartel sheiks, the corrupt royal multi-billionaire monarchs who are our allies. They are trying to decide upon output cuts, as they lie on their current output and struggle to maintain output, as major oilfield depleted output is concealed. PLUNGE PROTECTION TEAMS The Plunge Protection Team (PPT) has been confirmed in its existence by US Federal Reserve Chairman Ben Bernanke in testimony before Congress. This is not so shadowy a group, formally called the Working Group for Financial Markets. It is composed of the USFed, the Dept of Treasury, the Securities & Exchange Commission, and a select few large bank & brokerage houses on Wall Street dubbed worthy to profiteer. Their unspoken but understood mission is to prevent meltdowns like on Black Monday of 1987. The group was established immediately after that date of breakdown when the wizards lost control. One would have to be brain dead, or more naďve than a kindergarten child, or politically corrupted to the core not to observe clear pervasive patterns of PPT effects. Some call it the “10am lift” or “3pm lift” at work. Critical support and stimulation has been delivered routinely to the stock market via S&P futures contracts, major stock index options, USTreasury Bonds, gold, euro currency, yen currency, and probably even crude oil. Of course, they take action with intrepid skill to preserve the American way. You know, life, liberty, and the pursuit of happiness, in addition to basic hedonism. Be advised on how to chase wealth, to drive a huge oversized wasteful SUV (sometimes for that boat not owned), to party hearty, and to eat oneself into oblivion. Harken back to colonial days by contrast, when corpulence was considered a badge of aristocratic honor (able to eat), and similarly when untanned skin was considered a badge of idle wealth, a sign of NOT working in the field. If we must live upside down, let’s at least make the best of such inverted life. It gets deeper, as hedge funds are under intense attack in some corners by key Wall Street players. Their agenda is to bring down the energy costs nationwide, perhaps regardless of the littered dead casualties among hedge funds. Heck, hedge funds are fair game. They are unregulated. They are toys of the very wealthy. Their unbridled leverage at times puts the entire financial system at risk. So who cares if some of them are killed? Not the public. For every dead hedge fund humiliated with press coverage, my guess is 10 to 20 died a quiet death without publicity. There is a problem though. Most hedge funds set up their financial structure with 20% ownership by the managers of the fund. Their principal credit and equity partners tend to be Wall Street firms. Enter the Counterparty Risk Mgmt Policy Group (PPT2), designed to preserve the stability of the hedge fund community. Taxpayers are doubly exploited to protect the wealthy Ruling Elite players, the Manhattan Made Men. Heck, no worries, as the Aussies say. The PPT2 probably draws ample supply of green water liquidity from profoundly deep funds. No need for details on the source of funds, especially during prime time with children among us watching. CORPORATE PARTNERSHIPS The usual pattern in US politics is to grant a tax cut a few months before the national elections, in a shameful display of buying votes. Heck, that is so passé, very much yesterday, no imagination. The past few years have been nothing but one grand tax break, primarily for the wealthier, more privileged members of our society. The money was intended to be plowed back into the economy, in the form of business expansion and the associated effect of job growth. Well, expand it did, but on foreign shores. The primary expansion within the USEconomy was debt growth. One would not find cause to complain, unless one was not wealthy. Worse still, the last couple years have seen an unprecedented parade of legislation which engage and enlist major US corporations as partners. More accurately, it formalizes existing partnerships and creates immunity for those partners. For the passive and active observers alike, it is increasingly difficult to find where USGovt ministries and agencies end and US corporations begin. The Impunity Law (whose formal name escapes me) was passed earlier this year, to protect large partner US-based firms from investigation, accounting audit, legal discovery phase, lawsuit, and prosecution. For such a law to be passed 20 or 30 years ago, laughter would result on its preposterous, outrageous, and bizarre likelihood. Not today. Youthful idealism has been replaced by youthful aggression. The stated legislation is to prevent US firms from being forced to divulge sensitive national secrets, information pertinent to national security. The same law which protects a firm from revealing a proper national hidden tactical position also, by contrast, enables improper deeds, unsavory relationships, or even illegal activity which cannot be prosecuted. Foreigners are bewildered at our lunacy. Personally, my radar continues to look for any inkling on what the 2000 National Energy Commission study concluded, and how it might conform to our current agenda. One could call the Impunity Law a license to steal for any major corporation doing business with the USGovt. Heck, that might be too cynical. Companies have proven themselves to be honest in recent years, pillars of noble honorable behavior, upstanding officers for shareholders, competent representatives to their customer base. The blemishes of internal multi-million$ theft of company money, insider trading, purchased research, accounting fraud to benefit stock options, and lately the back-dated executive stock options are certainly very isolated incidents, surely not evidence of pervasive engrained endemic malfeasance or fraud on a systemic level. After all, how many pinstriped criminals live in your neighborhood? Let it be known that foreigners regard the United States as being the embodiment of institutionalized dishonesty. Heck, even the greatest tragedy since World War II was tarnished by fraudulent episodes. The World Trade Center attack was followed by fraud within the Red Cross and United Way funds for victim relief. Is nothing sacred? Surely, much good is done in not-for-profit agencies. Heck, even the New York Stock Exchange was once such a company, and Dick Grasso is a distinguished public philanthropist. The Impunity Law was devised and designed to protect. The public must now figure out who is being protected. The conclusion reached by the inquisitive types depends on whether one wears red or blue skivvies. The nation is under assault. We must determine by whom, whether inside our walls or outside them, that is all. The intrepid media should be helpful, as their motive is clearly to provide unbiased objective information on broad issues. We must discern how they help, or better yet, whom they help. Let it be known, my continued trust in the American Way, at least its profiteering motives. The United States remains the beacon of liberty, the path for poor and wretched, the hope for democracy, the pillar of capitalism. We still earn the highest marks on all ideals, right? Nothing has changed, except the fortification of its security. One can rest easy, that no companies are squeezing profits from either tightened security or the endless war. We are being protected and served, just like the motto. Heck, my tie must be too tight. GROWING SHADOWS One distinctly effective method to obstruct keen observers from monitoring interference with free markets is to turn the lights off, to extend shadows, and to confuse by rendering certain important statistics hinky. Clinton had geniuses in this game at work, whose craft has been improved in recent years. Under his aegis, the Consumer Price Index changed its formula, kept inflation measures down. No need for goofy details. Heck, it reduced USGovt expenses by cutting down on dreaded raises to government pensions, military pensions, judicial pensions, and Social Security payments. Isn’t that an American ideal, to keep a lid on costs? Like a true double-edged sword, the suppressed CPI offered a double-dose benefit. It helped to exaggerate the USEconomic growth, boasted from rooftops to be the strongest in the world. By lying down 4% on CPI, we lied up by 4% of Gross Domestic Product. Add some absurd quality improvements, call them “hedonic adjustments” to impress the ignorant legion in our society (many of whom educated), and poof, the GDP is lifted by 5% over reality. No recessions to be declared again, since we must endure a 5% backslide in order to turn this distorted number negative. We have blessed the entire creative accounting exercise as low-tech financial engineering. The heavy leveraged derivative price caps are our high-tech financial engineering. These are American strengths. Heck, we have rewritten the economics AND accounting textbooks, our impressive imprint to the modern age. Accounting must keep up with the times, must experience upgrades in progress so as to match the upside down pyramids of derivative monsters. Long live the shadows, where our national integrity is preserved, or undermined, whatever. Let’s not get technical, judgmental, or too circumspect. The newest development in growing shadows has come in just the last year, in breathtaking fashion. Compare it to removing the cardiac stethoscope, body thermometer, and weight scales in a triple quick one-two-three sequence, complete with rationalization which might impress Joseph Goebbels himself. He was a critical information minister (see major quotes) in an empire of yesteryear, undoubtedly a meaningless name to 95% of Americans. Good thing too, since knowledge is power, and ignorance, well, it is the opposite. If we as a nation are to continue to be world leaders, we must control markets. After all, our enemies (aka credit masters) might attack them and turn us into poor people. Only the nations with enormous, uncontrollable debts suffer the ravages of poverty from foreign abandonment. They did not control their data very well. Geopolitics sure can be confusing to mere mortal citizens and taxpayers. It might be a good thing that information flow is controlled so as to ward off attack, and managed by those in power to protect us. The latest victims of darkness are the Money Supply, the Commitment of Traders, and the TIC reports (Treasury International Capital System). Reasons sound rather convincing for allowing these incredibly crucial statistics to be thrown off the information bus. The supply of total USDollars in circulation is important. Management of the USDollar foreign exchange rate is vital for imposing a ceiling on rising costs within the economy. The oppositional tally of futures contracts by commercial and speculative groups is important. If the mountain of naked shorts is to be kept in place, which impose that same ceiling on rising costs, then big corporations must be given free rein to get the job done in the trading pits. Effective usage of leverage is a sign of smart people and an advanced society. The list of major foreign holders of USTreasury securities is important. If foreign official savings accounts (reserves) are to be maintained in USTBonds, then we must demonstrate how their foreign neighbors find US$-based securities to be appealing. The Almighty Dollar must reign supreme. Heck, who needs these three statistics? They just get in the way. Call it information overload. Shadows are preferable to bright lights, and all that glare. We need for the flood of information to be properly packaged and delivered in manageable form to the public, so as to avoid confusion. We must be given the right message in order to wax patriotic. If not, before you know it, distrust is bred by informed people who fail to comprehend the need to control financial markets. Our entrusted national leaders, from the Congress to the ministries to the leaders themselves compete for the name of Prince of Darkness. Ok by me, since we are protected, in need of only a warm meal and warm bed, not mention a few toys. Daddy, don’t take my T-Bird away! Appropriately, one might wish to examine the Shadow Government Statistics by John Williams. Beware that their compilation (see Shadow Stats link) of statistics is gathered by untrained amateurs, rather than by agency professionals within the USGovt, whose job is to serve the nation. Those following in the footsteps of founder Williams might have a very different agenda, one not in lockstep (or goose step) with our policy makers. A little story as an aside. When Dept of Treasury Secy Hank Paulson visited Beijing last week, what was the agenda? We are told he wanted to win concessions that Chinese leaders would permit their yuan currency to rise in value, and they would open markets to our corporations. After all, the official Chinese foreign reserves have grown to tip the $1 trillion mark, an embarrassment of riches. Upon return, we learn that the US Congress has dropped its threatened 27.5% trade tariff levied against Chinese imports. Instead, the US has won assured collection of intellectual property royalties from China for our trademarks on music, software, movies, and patents. Is this a victory for the United States? Is this not the umpteenth time we have won such assurances? Complicating the mission, former Goldman Sachs CEO might have paved the way for the Industrial & Commercial Bank of China (ICBC), whose initial public offering was priced last Friday and will begin trading this Friday Oct 27. Only those standing far a field from patriotic ground might suggest a conflict of interest for Paulson, and a trip to Beijing not reported correctly for its agenda. The press did show Paulson speaking to Chinese audiences about the virtue of more openness in its financial sector. The ICBC $21.9 billion IPO is huge. It locks in a $3.9 billion profit for the Goldman Sachs investment in ICBC. Paulson does not have any stock options, any more than VP Cheney has stock options for Halliburton. That would be a conflict of interest, or a USGovt official lobbying for a private firm. Heck, isn’t that in the American tradition? Perhaps Paulson was assured of health of the Chinese state enterprise, assured of a government bailout if a bank failure were imminent, or assured of reduced risks which have yet to be disclosed to imminent investors. This might be a fine example of the Impunity Law at work, as it protects our nation. USGovt leaders and partners are affirming freedom. RECENT MARKET SKEW Since late summer, the energy market has been the subject of vast and powerful forces. Four birds were hit with a handful of stones, in what can best be described as a brilliant stroke. Vital signs on the national level has been fortified. The body economic must therefore be healthy. We mere mortals need not be fully informed of true nature of the handful of stones. Suspicions can certainly turn the cranial gears, motivate brain blood flow, to such an extent as to discern, detect, and distill some highly likely actions taken behind the curtain. Whatever happened, it was for the greater good. The cease fire between Israel and HezBollah began the virtuous sequence. The crude oil price began to fall. Rumors from the energy trading pits cannot be confirmed or substantiated. However, they beat hard on the walls and dripped steadily along the grape vine, to the effect that the US Military has been selling both crude oil and diesel fuel. They are the largest single entity on the planet in energy consumption. The exaggerated natural gas inventory report in late August helped. Apparently, heretofore never used components were added to the NG inventory. Toss in some lower global energy demand forecasts from OPEC mouthpieces and EIA tools, and perceptions come down. Pressure from the regulatory bodies on energy traders has taken the luster off their enthusiasm for all things energy related. An official USGovt report divulged that nasty energy speculators might have added $15 per barrel in the oil price, having inflicted harm on the USEconomy and consumers alike. The most brilliant deft stroke came early, from Goldman Sachs. Their managers of the GS Commodity Index saw fit to reduce from 8.45% to 2.3% the weight for gasoline in the index. Since $100 billion is invested according to this index, fully $6 billion in forced gasoline contract sales resulted directly, as though by USGovt order. Countless interconnected trade schemes are employed within the energy complex, such as tying crude oil to gasoline, crude oil to heating oil, and crude oil to natural gas. The entire multi-faceted movement was given a wind at its back by the weather, which has delivered warmer weather to the northern states and provinces of North America. The end result has been crude oil falling from $77 to $58 in price, natural gas falling from near $10 to as low as $4.60 in price, and gasoline falling by 80 cents or so (depending upon fuel grade). The primary beneficiaries were 1) consumers who pay less for fuel, 2) voters who are encouraged to see red ballots as preferable, 3) Goldman Sachs, who undoubtedly (unless brain dead) profited from short gasoline and energy trades in the futures market, and 4) JPMorgan, who was bailed out of deeply underwater energy positions, according to press reports. One should in no way suspect that Goldman Sachs was motivated to help the incumbent hold majority power in Washington DC. Such thought is cynical, distrustful, and perhaps undermines the perception of fair markets, let alone the democratic process, upon which this nation was founded. One should in no way suspect that Goldman Sachs was motivated to offer a giant assist to its rival JPMorgan. Reducing the prices of many of JPM’s energy trades helped out this giant bank, but that is likely more a coincidence. After all, GSax and JPM are bitter rivals, set on winning dominance over the other, surely not cooperation. Except for a century-long close relationship with the US Federal Reserve, the private firm of JPMorgan is a private firm. More than meets the eye can be detected on the JPMorgan vulnerable energy positions, shared with partner Citadel Investments. The story deepens. Apparently, JPM threatened to pull the credit plug on Amaranth, one of its hedge fund clients. This hastened the Amaranth decision to liquidate much of its wrong-footed energy trades. Ouch, $6.5 billion in fund losses. It was purely to assure stability to the energy market itself that JPM bought at very heavy discount the Amaranth energy positions, thus bailing out their own JPM wrong-footed trades. One might suspect that written into the Amaranth investment prospectus is a hidden (clearly visible in font 4 size) clause to offer every possible assistance to their credit and equity parent partner JPMorgan. You gotta give CNBC some leeway. Surely, they wish to properly report the financial news, the news, the whole news, nothing but the news, with no bias toward their bevy of financial firm advertisers. They have gone out of their way in the last couple weeks to deny manipulation by the USGovt, its allies at OPEC, its major partners on Wall Street, and elsewhere, of the historic decline in prices for the entire energy complex. Of course, the oil market is bigger than any one person, or even the 11 million barrels of oil borrowed (not replaced to the US Strategic Petro Reserve). Of course, a slower global economy has taken the gusto out of speculative energy trades. Of course, a warm winter kept inventories high. However, CNBC managed to avoid any and all mention of the Goldman Sachs reduced weighting for gasoline in the GS Commodity Index. What a great story it would have made. Then again, maybe experts exaggerate the impact. Talk about asymmetric impact from a single numeric weight in late August by the largest and most successful hedge fund in the United States!!! THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS From subscribers and readers: “I think the last two public articles woke me up to the fact that I am
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having done this sooner. I've enjoyed only two other authors well enough
to subscribe to their newsletter. I felt that something was still
missing. The Hat Trick Newsletter was it, and it will round out and
complete my reading perfectly.” “As a relatively new subscriber I want to tell you I have learned A
LOT from your newsletter. Your ability to see through the fog and
distill the important information is quite a feat. There is also the
element of honest reporting without any axe to grind. Very refreshing in
today’s financial reporting atmosphere.” “You seem to be ahead of the curve. A lot of these other folks seem to
be on the curve, then come the shills who seem to be behind the curve.
Humbly submitted to you is my opinion that in so many different
instances you were SO 'spot on' that to list these instances would take
more time than I am able to devote in describing same.” “I trade silver
futures for a living, so try to keep up with the omnipresent
geopolitical and economic big picture, but can count on one hand the
gents I am willing to invest the time to study on a regular basis, and
you are one.” ©
2006 Jim Willie, CB
The opinions of FSU contributors do not necessarily reflect those of Financial Sense. |
Jim
Willie CB is a statistical analyst in marketing research and retail
forecasting.