Curried Wealth Building
Finding an Edge

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November 20, 2011
Issue 174  -  Duct Tape and Tie Wraps
 
The financial system is literally being held together with nothing.  It's all a mirage.  What you see in your account could be gone tomorrow.  Faith in the system is leaving.  Here is what the Ticker Guy says:
 

We're done folks.

CNBC is reporting that there are now clients running out of the markets entirely because they do not believe their customer funds are safe.

That's the end of it. The belief that there are more MF Globals has now taken hold. The thieves have pushed it too far and now we've got the start of a global liquidity run, and with good reason.

The authorities both in the regulatory side and on the prosecutorial side have refused to put a stop to the thievery and now the risk factors have turned into realized risk.

The market is done folks. You can be right but if you make your bet in the markets, are right, and then get screwed anyway when someone steals the money and nobody goes to jail there comes a time when people begin to understand that it can happen to them and will unless they depart the market.

We're there folks.

Oh sure, there will be rallies and there will be selloffs. But there is no longer a market, there is no longer a thing to trade, and there is no longer a reason to believe that superior analysis will lead to profit or even safety.

This isn't just about speculators - it is also about farmers, shippers, airlines, manufacturing concerns, everyone in business who has a need to hedge.

More than four years ago I said that the government had to step in and demand that both off-balance sheet games be ended permanently and in all forms and that all derivatives had to be put on an exchange, without exception, and that every dollar of underwater position had to be backed by an actual dollar of capital in real money, held and known to be safe.

The regulators refused and now it appears that what was put up on a regulated exchange was effectively stolen.

Well folks, then none of your investment accounts -- not your IRA, 401k, not even your bank account -- is safe.

Diversification is a strategy but the risk remains. It is up to you to decide how much you're willing to risk losing to a crook. If the answer is "none" or you cannot reduce the at-risk portion of your assets to what you're willing to lose to fraud then you can no longer participate in the market at all, in any form, nor even do business with a bank.

That sucks, but it is what it is and if this meme spreads -- and it will until it's stopped -- we run the risk of a "sudden stop" economic event.

I hope you're ready for it -- I am to the best of my ability, and you ought to be.

 
If Karl is right, and I think he is, then EVERY account is at risk.  So what do you do?  Is there anything you can do?  The answer is unfortunately, not much.  Especially with the 401k and other retirement accounts.  Unless you take the draconian tax hit, there is no way to get the money out.  In taxable accounts there is an answer.  Physical gold and silver.  Think about it, they have NO counterparties.  They are stand alones.  The rely on no one.   When in you hands, they are the ultimate insurance policy.  At this time, the insurance may be actually needed.  To know that beforehand is a big bonus.    Here is another view of situation:

Renowned economist Martin Armstrong says, "What this is really about is it’s the entire Western civilization that’s starting to crumble." In an interview Monday on King World News, Armstrong warned, "Everything is falling apart and the politicians will not address it because it means having to change the system and that’s what they do not want to do. The real big money that I speak to, they are really starting to look beyond Italy, Greece, Spain and Portugal. They are starting to look at France and Germany." (Click here for the complete KWN Armstrong interview.) Armstrong goes on to say, "They have borrowed year after year with no intention of paying it back. The US had $1 trillion of debt when Ronald Reagan took office in 1980. We are now pressing $15 trillion of debt." The debt crisis throughout the Western world will push the price of the yellow metal higher even though it is currently range bound. Armstrong says, "Basically what you are doing is you are building a sideways type of base. Eventually gold is going to take off to the upside, but largely when people begin to see the Emperor has no clothes and we’re getting close to that. I would only give it a few more months."

When the next financial calamity hits, the Fed and other central banks will have two choices. They can print money to try and save the system they love, or let it implode. That means this is really all about gold now.

So why is gold going down?  It's a threat to the system and it must be destroyed.  It's really that simple.  Those in charge of the "game" are controlling it with the paper market.  Of course this won't last forever.  Eventually, the game will be over and gold will be king. 
 
The system is so rigged that there is almost no point in playing the game anymore.  I have considerably lowered my stock positions.  This is time to be safe.  I'm not saying to sell everything willy nilly.  Reduce your positions in a smart way.  If you have specific questions, just email me. 
 
Meanwhile, the crooks are free to play:

16 November 2011

US Federal Prosecutions For Financial Fraud In the Obama Administration Fall to Record Lows

The declines in US Federal prosecutions for financial fraud that began under G.W. Bush have followed that down trend that in the first three years of the Obama Administration. That might make more sense if Obama had not been elected as a reform president in response to one of the greatest financial frauds in American history.

In the first three years of the Obama Administration, federal prosecutions have been running at new highs. Over half of the prosecutions involve illegal immigation. Another 17% are drug related.

Illegal immigrants and drug dealers have the reputation for being notoriously cheap in providing campaign contributions.

Prosecutions for financial fraud however have dropped to the lowest levels in over 20 years.

Not ONE person has gone to jail in regards to the 2008 debacle.  NOT ONE!  Trillions of taxpayers dollars were needed to "save" the bankers.....err the system.  Yeah, that's it, we had to "save the system."  And now this MF Global mess is raising all types of quesitons:

Wall Street Journal: Where was the CFTC?

Submitted by cpowell on 07:32PM ET Wednesday, November 2, 2011.
 

How are the regulators going to explain this one?

MF Global, the failed firm whose chairman and CEO is Jon Corzine, has already destroyed the wealth of its investors and roiled the banking world. But now we are learning that it may have lost customer funds as well.

A major Wall Street broker in derivatives markets with $41 billion in assets, MF Global filed for bankruptcy on Monday after Mr. Corzine made disastrous bets on bonds issued by European governments. It initially appeared he was (only) gambling with his firm's own capital, but a federal official tells the Journal that MF Global has admitted diverting money out of customer accounts, which may be a violation of federal law.

This follows a report from futures exchange operator CME that MF Global was not complying with federal rules on segregating client funds. In bankruptcy court yesterday an MF lawyer said, "To the best knowledge of management, there is no shortfall" in customer accounts. But the Journal reported late yesterday that the FBI is investigating the matter.

If reports of missing funds are true, it's a significant embarrassment for the firm's regulators at the Commodity Futures Trading Commission. CFTC Chairman Gary Gensler has been leading the Beltway chorus for years in reciting the (false) story that the absence of regulation allowed AIG and its credit-default swaps to wreak havoc in 2008.

Never mind that the Treasury Department's Office of Thrift Supervision did regulate AIG, and that an OTS official testified before Congress that the agency signed off on the swaps because it didn't expect Armageddon in the housing market. Mr. Gensler nonetheless succeeded in gaining for himself and his agency broad new powers over the derivatives market as part of Dodd-Frank in 2010.

The MF Global case involves business that was unambiguously regulated by the CFTC long before Mr. Gensler built his new regulatory empire. In fact, the alleged MF Global failure goes to the basic regulatory blocking and tackling that the CFTC is supposed to perform, which includes ensuring that companies aren't raiding customer funds for their own trading.

It is also no small irony that MF Global was among the cheerleaders for Mr. Gensler's plans for new clearing arrangements under Dodd-Frank. Maybe if the regulators hadn't been so busy writing new rules, they would have checked if MF Global was following the old ones.

It was always fanciful to believe that the regulators who failed to prevent the last financial meltdown would somehow prevent the next one. The surprise is that this mirage of regulatory competence has been exposed so quickly.
The CFTC is bought and paid for by the elites.  This is just the way things are set up now.  They take your money and you just have to take it.  In fact, the amount of money that MF Global has stolen is rising:

MF Global Trustee Says Commingling Shortfall May Be Double Previous Estimate, Could Reach "$1.2 Billion Or More"



The day after MF Global filed, we calculated that contrary to widely accepted media expectations that the client theft at MF Global was limited to "only" $600 million, the true client loss (and thus, MF Global executive felony) was in fact up to $1.5 billion. Sure enough, three weeks in the Trustee has come to see things in a comparable light. From Reuters: "The trustee liquidating MF Global Holdings Ltd'sbroker-dealer unit said on Monday that the apparent "shortfall" of customer funds may be larger than the futures brokerage had reported prior to its bankruptcy. "The trustee believes that even if he recovers everything that is at U.S. depositories, the apparent shortfall in what MF Global management should have segregated at U.S. depositories may be as much as $1.2 billion or more," the trustee, James Giddens, said in a statement. He added that the amount could change. Giddens also said he expects in early December to transfer 60 percent of what is in segregated customer accounts for U.S. futures positions, pending court approval. He said the transfer would require $1.3 billion to $1.6 billion to implement, exhausting much of the assets under the trustee's control. MF Global was run by former Goldman Sachs & Co chief and New Jersey governor Jon Corzine before its Chapter 11 filing on Oct. 31. The filing came after the New York-based company revealed that it made a $6.3 billion bet on European sovereign debt. Corzine resigned on Nov. 4." In other news, major Chicago-based exchanges are fine (no seriously: they got some very sweet preferential terms in the account transfer... to the detriment of former MF Global accounts). And it goes without saying that Corzine has not even been questioned yet.
 
This is only the tip of the ice berg.  These crooks, and that may apply to all large financial entities, are robbing people blind and they don't even realize it.  Until this thing blew up, those customers holding money in their accounts were none the wiser.  Here is the tale from one such customer:

MF Global mess

I have a modest commodity account at MF Global that I co-manage with a Chicago based futures guy. We do a lot of bull spread trading in gold and silver.

The account has been frozen and there is no way to get redemptions from the Bankruptcy trustee.

The positions were just transferred to a new small commodity brokerage in Chicago. That is the good news. I can trade them. The bad news is that none of the collateral was transferred and I need to either sell out or replenish my margin. Effectively the money at MF Global is now trapped. I am being told that there is a decent chance that I will receive 80-90% of my capital back.

What a colossal goat f*&%$k. I can afford the loss, but that is not the point. Criminality everywhere.

A perfect demonstration of counter-party risk.
LL

Imagine not being able to get your money.  This is a MONEY MARKET FUND.  What a scam.  Of course, it is now becoming obvious that this the WHOLE point of banking:

Former JPMorgan Banker: Exploiting Consumers Is ‘The Purpose Of The Banking Organization’

Wall Street continues to ignore America’s anger at it, sipping champagne from rooftops while protesters march below.
November 18, 2011 |
 

Wall Street banks, largely spared from the economic ruin felt by millions of Americans since the financial crisis of 2008, have returned to profitability, generating higher profits in the two-and-a-half years since the crisis than they did in nearly eight years preceding it. But that hasn’t stopped them from seeking new ways to generate revenue — like Bank of America’s proposed $5-a-month debit card fee or the millions banks have made from charging consumers to receive unemployment benefits or food stamps.

If all this makes Americans feel like Wall Street banks only view them as money-making tools, well, that’s because the banks apparently do. According to David Mooney, a former JPMorgan Chase employee, Wall Street banks see consumers as an “income stream” to exploit for profit-making purposes, Reuters reports:

David Mooney, chief executive officer of Alliant Credit Union in Chicago, one of the nation’s larger credit unions, used to work at a one of Wall Street’s top banks, JPMorgan Chase. There’s a vast cultural gap between Wall Street and his new world, he says: Old friends from the Street, he says, now jokingly refer to him as a “socialist.” A credit union is supposed to be run in the interests of all members, he says, while commercial bankers tend to see consumers as customers who can be “exploited” by layering on more fees.

Says Mooney: “I don’t say this lightly, but the consumer is simply an income stream and exploiting that is the purpose of the banking organization.”

 
So how does it feel to be a money making tool?  Not so good?  Tough, they win you lose.  At this point there is no way to tell if the financial entity you deal with is crooked or clean.  Most are probably dirty.  Unless you transfer all funds to gold and silver, there isn't much you can do.  Other than that, its just a hope and a prayer that your money is really there and safe.  If in fact there are large numbers of people redeeming their accounts, this could snowball into a gigantic collapse which could make 2008 look like a light tropical breeze.  We will see over the coming weeks.  I'm hunkered down waiting for the dust to settle.  I have considerably lowered all my stock holdings and am well over 50% cash. 
 
Positions
GORO (closed $20.05, down $2.20, average price paid $6)
 
Mexus Gold (closed $.08, down $.01, average price paid, $.22)
 
AXU (closed $6.66, down $.45, recommended at $7.90)
Stocks (Current status, short, short initiated October 15)
I have no stocks in any of my retirement accounts, all cash. 
Physical Gold (Closed $1719, down $54, average price paid $395)
Physical Silver (Closed $32.25.77, down $.52, average price paid $5.31)
 This week's video demonstrates two things:  what happens when Mentos Mints are added to Diet Coke and that some people don't have enough to do.  Have a great week!
Happy Thanksgiving!