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October 11, 2009
Issue 65  -  The Dumbest Government Program
in the History of the Earth
No, I'm not talking about the TARP program, because although that was stupid, it was deliberate theft and had some very smart people writing it.  The program I'm referring to is the "cash for clunkers" bill.  I don't know about you but when I hear the word clunker a picture pops into my head that looks something like this:
That's a clunker!  I want you to watch a video.  It runs about 4 minutes but you can fast forward to about 2:30 to see the action.  Basically they drain the oil out of the car and then pour a "clunker bomb"
into the engine.  The car is then started and "floored" until the car ceases up.  I found this video a little disturbing:

So let's think about this for a second.  The government took money it DIDN'T have and gave it to people to buy a new car.  A lot of these people probably had no car debt and now they have a nice big car liability.  Then the cars were given to the poor..... no wait, sorry, I was thinking logically.  No, they DESTROYED them!  They blew up their engines.  How many times was this hideous waste of resources performed.......let's look that up ........are you ready?  Are you sitting down?  690,411 times!!!!!!!!!!  Also please note the line of cars behind the Volvo.  Do they look like clunkers?  Why didn't we give them to people who really have crappy cars and couldn't qualify for a car loan?  Does that make too much sense?  Have we gone mad?  What's next, cash for wimpy windows?  The government pays you to smash your house windows so that you can get a rebate on new windows.  Don't laugh, if I had told you they were going to pay people to destroy perfectly good car engines, to sell new cars, you would have looked at me like I was nuts.
Now we find out that the government can lie?  I'm shocked!: 

"October 5, 2009

Report on Bailouts Says Treasury Misled Public

WASHINGTON — The inspector general who oversees the government’s bailout of the banking system is criticizing the
Treasury Department for some misleading public statements last fall and raising the possibility that it had unfairly disbursed money to the biggest banks.

A Treasury official made incorrect statements about the health of the nation’s biggest banks even as the government was doling out billions of dollars in aid, according to a report on the
Troubled Asset Relief Program to be released on Monday by the special inspector general, Neil M. Barofksy…

Mr. Barofsky’s office also says that regulators were wrong to tell the public last year that the earliest bailout recipients were all healthy.

Former Treasury Secretary
Henry M. Paulson Jr., for instance, said on Oct. 14 that the banks were "healthy," and that they accepted the money for "the good of the U.S. economy." The banks, he said, would be better able to increase their lending to consumers and businesses.

In truth, regulators were concerned about the health of several banks that received that first bailout, the inspector general writes.

The inspector general said government officials need to be more careful when describing their actions and rationale. In a letter included with the report, the Federal Reserve concurred with Mr. Barofsky’s concern about the statements made last year, but the Treasury Department said that any review of announcements last year "must be considered in light of the unprecedented circumstances in which they were made."

So it's ok to lie about things if the circumstances are bad enough?  What?  Does that make sense?  Lying is ok.  The ends justify the means.  What you have to remember is that the government is used to lying:

" calculates the numbers the old-fashioned way they were calculated before the era of “Political Statistics” began in earnest in the 1980’s and 1990’s. An apparent goal of this distortion of key Statistical Realities is to hide Unpleasant Facts (e.g. the dramatic reduction in $U.S. Dollar purchasing power) from Investors world-wide.

Indeed, it is essential for Investors today to get the Real Numbers versus the gimmicked Official Statistics.

Consider, for example, the Official Statistics versus the Real Statistics courtesy of

Official Numbers vs.                           Real Numbers
Annual Consumer Price Inflation reported September 16, 2009
                                5.5% (annualized September Rate)
U.S. Unemployment reported October 2, 2009
U.S. GDP Annual Growth/Decline reported September 30, 2009

The numbers in the left column are the "massaged" numbers and the right side has the real numbers.  You see, it is ok for the government to lie.  Starting to see a pattern?  Notice that the "real" unemployment rate is over 20%.   Don't think the stock market would be rallying if the real numbers were being reported, would it? 
How about that famous government entity, Goldman South?  (the treasury department is known as Goldman South due to it's large number of former Goldman Sachs employees, the last treasury secretary was CEO of Goldman)
Well lookie here, Goldman gets a big payoff if another bank dies:

Goldman to be paid $1bn if CIT fails

By Henny Sender and Saskia Scholtes in New York

Published: October 4 2009 22:30 | Last updated: October 4 2009 22:30

Goldman Sachs stands to receive a payment of $1bn – while US taxpayers would lose $2.3bn – if embattled commercial lender CIT files for Chapter 11 bankruptcy protection, people familiar with the matter said.

The payment stems from the structure of a $3bn rescue finance package that Goldman extended to CIT on June 6 2008, about five months before the Treasury bought $2.3bn in CIT preferred shares to prop it up at the height of the crisis. The potential loss for taxpayers would be the biggest to crystalise so far from the government’s capital injection plan for banks.
You just shake your head in disbelief at the outlandishly out in the open theft.  I wonder if anyone is short (betting a stock goes down) Citibank?  I'll bet Cramer's friends in the hedge industry are:

When Is The SEC Going To Investigate Jim Cramer?

CIT's stock price plunged 45% today as the company collapses under the weight of billions of dollars of distressed assets (bad loans) and appears headed for some flavor of bankruptcy. YESTERDAY, however, CIT stock ramped up over 31% as a rumor circulated the market that a $10 billion bank loan was being arranged to save CIT from bankruptcy. The majority of that ramp up occurred AFTTER Jim Cramer came on to CNBC and pounded the table for viewers to load up on CIT stock. Here's the link (hat tip to Cramer: CIT to the Moooooon

Anyone who has been following the CIT soap opera knows that Pimco effectively tied up most of the decent collateral, as it engineered (some would say "forced") a $3 billion debt swap in which unsecured bonds were exchanged for super-collateralized bonds. This basically negated any hope of a larger, secured bank debt deal and would put Pimco in prime position to profit handsomely from any future financial reorganization/liquidation.

How come Cramer did not know these facts? Why is Cramer allowed to go onto CNBC and continually issue table-pounding stock buys on imminent train wrecks? He did the same thing a few days before Bear Stearns collapsed. We know by his own admission that he used to front-run stocks on inside information when he managed a hedge fund. How do we know he's not pumping up stocks like CIT and Bear Stearns in order to allow his Wall Street cronies to get out of them before they vaporize?
My question is, WHEN IS THE SEC GOING INVESTIGATE CRAMER AND CNBC? Why is Cramer much different that Madoff? Both are corrupt snake-oil salesmen. I hope some burned investors from the current CIT abortion pursue this matter in court.


Cramer's friends are some of the most notorious naked short selling operators on Wall Street.  These hedge funds take a stock and "run" it down by selling shares they don't have and never deliver.  Cramer has admitted on his internet show that they would call CNBC and float a rumor to trash a stock.  I wonder if that is what happened here?  This guy is a crook, plain and simple.  As a matter of fact, most of these talking head clowns have conflicts of interest.  DON'T watch CNBC!  It is very detrimental to your net worth. 
Last week I promised to talk about gold and since it's back up to new highs, I think it is a good time.  I want to start with a story about treasuries:

"For release at 10:00 a.m. EDT  (Oct. 6)

On October 5, 2009, the Federal Reserve conducted an auction of $50 billion in 70-day credit through its Term Auction Facility. Following are the results of the auction: Stop-out rate: 0.250 percent

Total propositions submitted: $24.830 billion

Total propositions accepted: $24.830 billion

Bid/cover ratio: 0.50

Number of bidders: 75 The awarded loans will settle on October 8, 2009, and will mature on December 17, 2009. The stop-out rate shown above will apply to all awarded loans.

The key thing here is the bid to cover ratio. This is the percentage of bonds/bills sold.  Here, they only sold 50% of the debt available at a .25% interest rate.  Hmmmm...  I wonder why nobody wants that?  As the interest rates sink, the allure of gold grows because it doesn't pay interest.  This is a huge boost to gold's demand.  This is also not good news for future government debt sales.
GATA, the Gold Anti Trust Action Group, has been the leading proponent of gold and silver ownership and they have spot lighted the very high odds that the Federal authorities have been secretly manipulating the price of gold and silver.  I wanted to show a few graphics that show pretty strongly, that that is indeed the truth.  Here is the first:

This chart shows how much you have to pay to borrow silver for various periods of time.  To borrow it for one year will cost you about .5% interest.  That doesn't seem very high.  How about for 6 months?  Let's see here......0%, not bad, they will let me take the silver for 6 months for free.  How about 2 months?  How about -.3%.  They will PAY you to borrow silver.  How can that be?  It's all part of the game to control the price.  If they lend it out for nothing, the borrower can sell it, driving down the price in the process, and buy a safe investment like treasury bills or CDs and make FREE money.  Don't think that the precious metals are controlled?  Look at this chart from GATA:
What you are looking at is a chart of the price of gold overlayed on the price of silver.  What this clearly shows is computer generated trading.  This is programmed trades made to look "random", and they do look random, in isolation.  When you overlay them the con becomes obvious.  There is clearly nothing "random" about these price movements at all.  NO two markets will move in exactly the same pattern unless they are being controlled.  This is how the game is played for now.  Still don't believe governments would get involved in a market to control a price?  How about this little old letter?
This a letter from the Vatican to Paul Volcker confirming that it's ok to sell gold.  Why would the Vatican ask about that?  Also notice that they mention two separate gold markets.  A public and private market.  Wonder what goes on in that "private" market.  Look, this has been going on for a LONG time.  Gold is the enemy of paper money.  I wonder how much "paper" gold and silver are floating around the world to control the prices like that?  Here's a little idea from GATA:
"A note on the gold and silver derivatives game from my good friend Rhody:

“Futures contracts were introduced in gold and silver for the first time in 1974 in Winnipeg, Canada as a trial system. It worked so well, it was shipped to New York the next year and that began the paper gold, multiple selling of each ounce system.....

The BIS [Bank for International Settlements] issued data on the status of silver derivatives held by member banks this year. It was 111 billion dollars. The world produces $10 billion in new silver each year, of which ALL but $1 billion is consumed by industry. That means that these $111 billion represent debt instruments backed by only $1 billion of investor held silver. That's a 100 to 1 ratio. Keep in mind that the $111 billion does not count the derivatives held outside the banking sector.

There could easily be an additional $100 billion of derivative silver debt held by hedge funds, mines, jewelers and investors. This is why I say that each ounce of real silver is sold over 100 times, and by that, I mean it could be 200 times. And the guys who sold the derivatives are not the same guys who hold the $1 billion in real silver.

You must understand that the Western centric financial system in all its parts is a complete fraud. “

So... there are 100 ounces of "fake" silver for every free ounce of silver produced?  I'm betting THAT ends badly.  Won't find me holding any paper silver or gold like GLD or SLV.  I'll stick with the real deal, thank you.  Still doubting that paper gold is ruling the price now? 
How about this piece of evidence from GATA:

"Rob Kirby

Impeccably reliable sources have informed me that as recently as Sept. 30, 2009 – the last possible day of trade in the Sept. 09 gold futures – a number of well-heeled market participants “bought” substantial tonnage worth of gold futures on the London Bullion Market [LBMA] and immediately told their counterparties they wanted to take instantaneous delivery of the underlying physical bullion.

The unexpected immediate demand for substantial tonnage of gold bullion created utter panic in at least two banks who were counterparties to this trade – J.P. Morgan Chase and Deutsche Bank – because they simply did not posses the gold bullion which they had sold short [an illegal act which in trading parlance is referred to as a “naked short”].

Because these banks did not have the bullion to honor their contracted commitments, one or both of them approached the counterparties and asked if there was any way they could settle this embarrassing matter quietly on a “cash basis” to absolve the banks from fulfilling their physical bullion delivery obligations. The purchasers were not interested in a ‘cash settlement’ and demanded delivery of physical bullion giving these banks 5 business days to resolve the situation. A premium of as much as spot plus 25 % [that would be 1,250 – 1,300 per ounce of gold] was offered to settle this matter in fiat money instead of the embarrassment of a very public “failure to deliver” on the part of the London Bullion Market Association.

Earlier this week, no less than two Central Banks became involved in effecting the physical settlement of this situation. One of these Central Banks was British [that would be the Bank of England] – and reportedly, even they were only capable of providing less than pure, non-compliant gold bars that did not meet good delivery standards stipulated by the LBMA. Like it or not, this is a testament to lack of physical gold available, folks."

You see, there is a severe lack of REAL gold.  Paper can be printed until doomsday, but if someone wants the real thing, that's when the trouble starts.  This money manager from Germany, (you'll never hear this type of thing on American media) thinks the jig is almost up:  (again from GATA) 
"In an interview with Lars Schall of MMNews in Germany, Egon von Greyerz, managing partner of Matterhorn Asset Management in Zurich, Switzerland, remarks that he expects a hyperinflationary depression in the United States and Britain and expresses agreement with GATA's work. "My view," von Greyerz says, "is that very soon paper gold manipulation will be ineffective and only physical gold will count." You can read the interview at the MMNews Internet site here:
CHRIS POWELL, Secretary/Treasurer"
Interesting.  Ending very soon.  I like that.  Remember that gold is king.  Make sure you have yours.  How high can gold go?  How about in inflation adjusted terms?  Let's have look see:
This chart shows gold in inflation adjusted dollars back to 1720.  Notice that the peak in 1980 is over $7000.  Also notice that the average of the chart is about $2000.  We will trade over the all time high.  Bet on it.  I am.  Have a great week!
Note:  My biggest holding (by far) Gold Resources (GORO) is on a huge run as they are almost ready to fire up their gold mill.  The price has risen from about $4.50 to almost $9 in the past 8 weeks and while I wouldn't jump in right here, I still think the stock is undervalued and I'm not selling any yet.  Adding or starting a position on the next pull back would be my game plan if I wanted more.