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Stock Market, Bond and Gold Manipulation. The End of Fundamental and Technical Analysis? by Daniel Bruno, Chartered Market Technician

Posted on Saturday, 19th July 2014 @ 01:28 AM by Text Size A | A | A

The caption shows the one trillion dollar coin proposed to create money out of nothing and resolve unsustainable government spending.

 

The following article by Paul Craig Roberts and Dave Kranzler, one of many on this theme, is very troubling.  The implication is that technical analysis and indeed, fundamental analysis of financial markets is no longer possible.   I quietly reached this conclusion myself in early 2011 as I tracked and traded market index futures such as the s and ps and the dax using all the standard TA tools as well as ichimoku and found that these markets could not be predicted on a daily basis better than a random walk.   Since then, the meteoric rise in equities and eternally depressed bond yields can only be explained by government intervention, i.e. politics.

In early 2007 I became aware of Obama´s candidacy and was intrigued.  I started investigating presidential election cycles and discovered that election outcomes are highly predicable years in advance.  It became apparent deflation is highly cyclical and always presages political upheavels….and wars.   In my 2007 book Why Obama Will Win in 2008 and 2012,  I showed that Obama would probably win the following year and five years hence.  His politics and debate skills would be irrelevant just as his race would be proven irrelevant.   Nor would it make any difference who the Republican nominee were.    I wrote this before Obama had even won the vote in Iowa and the Democratic Party nomination itself…  Billary Clinton was the favorite in the polls.  But polls are of no value until the week of the election.

Of course, with hindsight it is obvious that Obama is just a talented actor-orator and his real power base is the Trilateral Commision, the Council on Foreign Relations, the Israel Lobby and Wall Street.  How ironic that the financial industry, notorious for not hiring or promoting Black stock brokers, would spend billions to get a Black man elected to the White House.  They didnt spend this money for the benefit of others.  It was an investment.

  Obama is the real White House Press Secretary.  America has lost her chance to be redeemed after the catastrophe of Bush the Younger.  The American polical system is useless, non-reformable and wrecklessly self-destructive.

Later,  I will examine using thought experiments and Cui Bono to pierce smokescreens and discover probable causes and culprits, e.g. the downing of a commerical airliner in Ukraine yesterday.  One starts by eliminating the impossible.  This is how the disadvantage of incomplete  information can be overcome.

That same year of 2007 I surmised that financial panics can be forseen years, decades and even centuries in advance  http://hpub.org/the-great-crash-of-2014-as-predicted-using-cycles-on-august-7-2007-by-daniel-bruno-chartered-market-technician/

A key part of the presidential prediction machinary rests on economic data.  Dr. Roberts has repeatadly shown that the statistics from BLS and the Labor Department are illusory.   Thus we have manipulated markets and funny economic numbers designed to deceive and confuse. 

My view today is that if equities dont fall dramatically by the end of 2014 then either my theories are wrong or markets are engineered.  Either way, technical analysis is in trouble.  The same cycles charts I published also suggest that war should occur about now.  Events in Ukraine do seem to be leading the world to a major military showdown.

If financial markets are indeed engineered then we have entered into a post-Capitalism era as well as a post-constiutional one.

Daniel Bruno, Chartered Market Technician, Post-Graduate in Financial Strategy, Oxford University

 

Insider Trading and Financial Terrorism on the Comex, by Dr. Paul Craig Roberts

July 16, 2014. The first two days this week gold was subjected to a series of computer HFT-driven “flash crashes” that were aimed at cooling off the big move higher gold has made since the beginning of June. During this move higher, the hedge funds, who typically “chase” the momentum of gold up or down, built up hefty long positions in gold futures over the last 6 weeks. In order to disrupt the upward momentum in the price of gold, the bullion banks short gold in the futures market by dumping large contracts that drive down the price and make money for the banks in the process.

As we explained in previous articles on this subject, the price of gold is not determined in markets where physical gold is bought and sold but in the paper futures market where contracts trade and speculators place bets on the price of gold. Most of the contracts traded on the Comex futures market are settled in cash. The value of the contracts used to short gold and drive down the price is well in excess of the actual amount of physical gold that is kept on the Comex and available for delivery. One might think that regulators would pay attention to a market in which the value of contracts outstanding exceeds by several multiples the amount of physical gold available for delivery.

The Comex gold futures market trades 23 hours per day on a global computer system called Globex and on the NYC trading floor from 8:20 a.m. EST to 1:30p.m. EST. The Comex floor trading session is the highest volume trading period during any 23 hour trading period because that is when most of the large U.S. financial institutions and other users of Comex futures (jewelry manufactures and gold mining companies) are open for business and therefore transact their Comex business during Comex floor hours in order to achieve the best trading execution at the lowest cost.

The big hedge funds primarily trade gold futures using computers and algorithm programs. When they buy, they set stop-loss orders which are used to protect their trading positions on the downside. A “stop-loss” order is an order to sell at a pre-specified price by a trader. A stop-loss order is automatically triggered and the position is sold when the market trades at the price which was pre-set with the stop-order.

The bullion banks who are members and directors of Comex have access to the computers used to clear Comex trades, which means they can see where the stop-loss orders are set. When they decide to short the market, they start selling Comex futures in large amounts to force the market low enough to trigger the stop-loss orders being used by the hedge fund computers. For instance, huge short-sell orders at 2:20 a.m. Monday morning triggered an avalanche of stop-loss selling, as shown in this graph of Monday’s (July 14) action (click on graph to enlarge):

Graph1

In the graph above, the first circled red bar shows the flash crash that was engineered at 2:20 a.m. EST, a typically low-volume, quiet period for gold trading. 13.5 tonnes of short-sales were unloaded into the Comex computer trading system. The second circled red bar shows a second engineered flash-crash right before the Comex floor opened at 8:20 a.m. EST. This was triggered by sales of futures contracts representing 27.5 tonnes of gold. A third hit (not shown) occurred at 9:01 a.m. This time contracts representing 40 tonnes of gold hit the market.

The banks use the selling from the hedge funds to cover the short positions they’ve amassed and book trading profits as they cover their short positions at price levels that are below the prices at which their short positions were established. This is insider trading and unrestrained financial terrorism at its finest.

As shown on the graph below, on Tuesday, July 15, another flash-crash in gold was engineered in the middle of Janet Yellen’s very “dovish” Humphrey-Hawkins testimony. Contracts representing 45 tonnes of gold were sold in 3 minutes, which took gold down over $13 and below the key $1300 price level. There were no apparent news triggers or specific comments from Yellen that would have triggered a sudden sell-off in gold — just a massive dumping of gold futures contracts. No other related market (stocks, commodities) registered any unusual movement up or down when this occurred:

Graph2

Between July 14 and July 15, contracts representing 126 tonnes of gold was sold in a 14-minute time window which took the price of gold down $43 dollars. No other market showed any unusual or extraordinary movement during this period.

To put contracts for 126 tonnes of gold into perspective, the Comex is currently reporting that 27 tonnes of actual physical gold are classified as being available for deliver should the buyers of futures contracts want delivery. But the buyers are the banks themselves who won’t be taking delivery.

One motive of the manipulation is to operate and control Comex trading in a manner that helps the Fed contain the price of gold, thereby preventing its rise from signaling to the markets that problems festering in the U.S. financial system are growing worse by the day. This is an act of financial terrorism supported by federal regulatory authorities. Another motive is to help support the relative trading level of the U.S. dollar, as we’ve described in previous articles on this topic. And, of course, the banks make money from the manipulation of the futures market.

The Commodity Futures Trading Commission, the branch of government which was established to oversee the Comex and enforce long-established trading regulations, has been presented with the evidence of manipulation several times. Its near-automatic response is to disregard the evidence and look the other way. The only explanation for this is that the Government is complicit in the price suppression and manipulation of gold and silver and welcomes the insider trading that helps to achieve this result. The conclusion is inescapable: if illegality benefits the machinations of the US government, the US government is all for illegality.

Dave Kranzler has years of experience in financial markets and spent 15 years on Wall Street. His site is www.investmentresearchdynamics.com

 

 

 

Why The Fed’s Outrageous Gift To Foreign Banks—- Risk Free Aribitrage

Source: David Stockman

 

This profit stripping operation is simple. Foreign banks on Wall Street borrow from money market funds at an infinitesimal 3-6 basis points and then shuffle the loot down to 33 Liberty Street where the New York Fed pays them 25 basis points on the same funds. This gift is known as the IEOR payment for excess reserves. It is a short-term trade which is rolled-over day after day and is absolutely risk free. Both ends of the arb represent money prices that are administered by the Fed, not set by price discovery in the market.
Indeed, as part of its “open mouth” communications policy, the Fed promises to give considerable advance warning as to when the yield on IOER and also overnight money market borrowings is going to change. Accordingly, any foreign bank caught napping long enough to run afoul of a well-telegraphed Fed change in the arb would likely be

operating on pre-telegraph technology. That is to say, this Fed sponsored arb is tantamount to owning a printing press. All it takes is a banking license from the state of New York or other US jurisdiction.

And, yes, the parent bank owning a license to print profits in this manner should be domiciled outside the USA. That’s because foreign banks are generally not subject to FDIC levies designed to fund Uncle Sam’s deposit insurance programs—-fees which would bite into the risk free arb described above. By contrast, domestic banks which pay the FDIC fees are largely not involved in this particular free money gambit.
This seems like a screaming outrage that couldn’t be true—especially because the real beneficiaries of the Fed’s largesse are Europe’s giant banks which are insolvent but socialized wards of the state. But, alas, no less an authority than the Fed’s own unpaid spokesman, Jon Hilsenrath of the Wall Street Journal, confirms that this entire larcenous arrangement happens day-in-and-day-out on Wall Street:
The most striking feature of the Fed’s strategy is that it keeps in place an effective subsidy that the U.S. central bank is currently paying to foreign banks.
Here’s how:
In recent years foreign banks have been tapping U.S. money market funds for very cheap short-term loans. Unlike domestic banks, foreign banks don’t have domestic depositors to tap for funds, so they turn elsewhere for dollars. Money market funds make the funds available for a few hundredths of a percentage point. The foreign banks in turn park those loans at the Fed for 0.25% interest. They earn profits on the spread between the cheap cost of funds available from money market funds and the higher rate they get at the Fed.
It’s a trade that domestic U.S. banks have been unwilling to make because they have to pay additional fees to the Federal Deposit Insurance Corp. on their borrowings, fees the foreign banks don’t have to pay.
Here’s the thing, however. The profit capture by foreign banks is only the tip of the iceberg of financial deformation that has been generated by ZIRP and the Fed’s whole hog domination of financial markets where honest prices for money, debt and risk assets were long ago extinguished. In this instance, ZIRP has caused $2.6 trillion in money market mutual funds to be sequestered in financial limbo where these funds earn virtually nothing in the Fed administered money market.
Moreover, upwards of $1 trillion of this total is in retail funds where grandpa is today collecting 3 basis points at the PNC fund and 6 basis points at Schwab. In a word, this is willy-nilly income redistribution on steroids. Fed policy functions to sweep the assets of main street’s liquid savers into what are essentially ZIRP accounts. Having accomplished this un-voted tax levy on millions of US citizens, it then sponsors a profit stripping scheme for a handful of foreign banks which use these ill-gotten windfalls to augment their grossly deficient capital levels, thereby reducing the bailout exposure of their socialist wardens in Brussels and throughout the EU capitals.
And it doesn’t stop there, either. How does the Fed earn the money to participate in this off-balance sheet foreign aid program?  Why, from you and me—the taxpayers of America.  The Fed is now earning upwards of $100 billion per year on its swollen $4.4 trillion asset base—–a trove of Treasury and GSE debt that was funded by hitting the “buy” key on its digital printing press. Our taxes then pay the interest on all those Fed assets—-giving the monetary politburo in the Eccles Building nearly infinite walking around money for schemes of this sort.
Undoubtedly, Fed apologists would argue that this subsidy to foreign banks is a modest, collateral effect of god’s work performed by the FOMC as it deftly manages interest rates and other financial levers to shepherd labor markets and national output to the promised land of full employment and potential GDP. But that justification, in fact, is the essential and everlasting indictment of the entire enterprise of monetary central planning.
Free markets always and everywhere liquidate mis-priced spreads among financial assets, meaning that windfalls like the foreign bank subsidy are rapidly arbed-out. By contrast, central bank financial repression and interest rate pegging defeats these beneficent market forces and, instead, locks-in arbitrage opportunities that linger indefinitely. Indeed, the foreign bank subsidy is just a faint example of the carry trade dynamic which infects the entire financial system.
Just as the Fed instructs foreign banks to “come and get it” with its locked-in IOER/money market spread, it delivers the same message to the entirety of what has become the Wall Street gambling casino. By means of ZIRP it decrees that the cost of funding speculative portfolios is virtually free. At the same time, its explicit and aggressive commitment to asset price appreciation and “wealth effects” levitation of jobs and GDP has generated a massive one-way bid for assets like junk bonds with a yield or stocks and ETFs expected to appreciate. And like the foreign banks here essayed, Wall Street gamblers laugh all the way to the bank as they put on both sides of the Fed’s profoundly anti-market trade.
And this awful system of windfall gifts to speculators, and the capricious redistribution of wealth from savers to gamblers on which it depends, will not go away owing to the pending end of QE or the hinted at baby steps toward normalization of interest rates. The heart of the evil is interest rate pegging itself. That is, the replacement of market prices with administered prices—direct and indirect—throughout the financial system.
As Hilsenrath also explains the Fed intends to trap the money market in a 25 basis point corridor between the IOER and the offered rate on its reverse repo facility. If that corridor is set at a spread between say 25-50 basis points initially, or is even ratched-up in Greenspan like baby steps for years to come, the Wall Street carry trade is likely to remain in place for a considerable time. What counts is the certainty that near-term funding costs are fixed at rates which generate positive carry against the return on risk assets.
Now that is the essence of Fed policy. An all-powerful, un-elected arm of the state has transformed itself into a crooked croupier and has no intention of leaving the casino.

David Stockman was the Director of the Office of Management and Budget during part of the Reagan Administration, from 1981 to 1985. He is the author of The Great Deformation: The Corruption of Capitaism in America and The Triumph of Politics: Why the Reagan Revolution Failed.

 

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