Orwell’s “2016:” The System Is Completely Rigged

It is what it is – and what “IT” is, is that we’re living in the vision of the future laid out by George Orwell 70 years ago.   The markets are rigged, elections are rigged; Congress is completely owned by wealthy corporations and individuals;  the power of the Oval Office is owned by wealthiest and most ruthless corporations and individuals:  Wall Street Big Banks, Big Oil, Big Defense, Big Pharma and Big Tobacco.

Most Hillary Clinton supporters know she defines the word “criminality,”  but will vote for her as a vote against Trump.  Think about how absurd that it is.   The system is so completely rigged that even individual thought-process has been hijacked.

Looming on the horizon is a massive financial system nuclear melt-down.   It’s not a question of “If” but of “when.”  It looks like Deutsche Bank will be the catalyst that triggers the daisy-chain of hidden nuclear financial bombs.

In today’s episode of the Shadow of Truth, we explore the degree to which the rigged financial, economic and political system is approaching an event of collapse:

Untitledmining-stock-journal-header-border

The Debate Verdict: The American Public Loses

Lester Holt was an absolute embarrassment to the debate moderation profession.  At times it seemed as if Trump was debating Holt and Hilary.  I have to believe even Donna Brazile was blushing on Lester’s behalf.  – Investment Research Dynamics

The only winners in last night’s debate were Trump and Clinton. Win or lose, Trump is getting free advertising for his business organization. He may not be spending much on his campaign, but he’s getting $10’s of millions worth of free corporate promotion.

Hillary win or lose is getting a “Get Out of Free Jail” pass for the numerous felonies she’s committed, some of which are punishable by death. If she loses, Obama will undoubtedly hand her a blanket pardon. How do we know? Because Hillary’s capos have already received pardons.

The losers last night were American public. Notwithstanding the fact that 99% of the viewers skipped Monday Night Football and were watching to see whether or not Hillary would pass out again, neither candidate offered any definable ideas for preventing what is now the inevitable collapse of the United States.

Instead, the debate for the most part circled around whether or not Trump pays taxes or supported the original Iraq war. Trump never did press the issue of the Hillary’s 33,000 deleted emails after referencing them in response to her boorish request for his tax returns – I think we all would like see what’s in those emails:

Perhaps the biggest disgrace and most serious assault on the viewer intelligence is when Hillary Clinton regurgitates the fraudulent Government economic statistics as evidence that the Democratic political agenda has made the country better over the last 8 years. If she truly believes that the unemployment rate is 4.9% then she’s the only person amongst everyone watching who buys into that insidious lie. More likely whe’s using that fraudulent statistic for the purposes of political expedience. “Let them eat cake, for godsakes.”

The easiest pitchfork for Trump to throw at Hillary on the jobs/economic front is to point out that it was Bill Clinton’s “strong dollar policy” that triggered the massive exodus of U.S.  manufacturing to China.  No one can debate that point.  NOT coincidentally, the policy was pushed hard by Walmart – one Bill’s “Padrinos.”

The easiest step toward job repatriation and a balanced trade deficit would be to eliminate the Fed and let the U.S. dollar drop a lot lower vs every other fiat currency. That’s a no-brainer.  Abolishing the Fed should be Trump’s number one platform because that act in and of itself will begin to fix a lot of problems.

The debate failed on all fronts. What was promoted to be politic’s version of an Ultimate Fighting duel turned out to be the Kindergarten version of “No, YOU have cooties.” Neither candidate is fit for the Presidency.

The three conclusions that can be drawn are:  1)  your vote does not matter;  2)  the time spent watching the debate is regrettably 100 mins of my life that I’ll never get back; and 3) The United State as we know it is doomed.

Famous Last Words – Deutsche Bank: “We Don’t Need A Bailout”

“[The] share price is low but that is not what is worrying us and that is not what we are looking at. What is really important to us is our credit story which is very strong, it is fundamentally strong.” – Jorg Eigendorf, head of communications at DB on CNBC (sourced from Zerohedge)

“The credit story is strong?”  To begin with, I’m not sure what the head of communications is doing on bubblevision talking about “credit.”  If he understood the meaning of the words he was regurgitating from script, he would not have made that statement if he were under oath.

From a German politician (as reported in Zerohedge):  “you can’t compare Deutsche Bank with Lehman. The bank is in a position to get out of this situation on its own.”  As the adage goes:  A rumor is confirmed as fact once that rumor is denied three times by politicians…

DB stock is down over 7% today.  It’s likely the primary reason that the SPX is down 13 points as I write this (that plus the dismal new home sales report).  DB stock has hit another all-time low.  DB has lost 51% of its market value this year.  The BKX bank stock index is down only 4% this year.  The relative performance isn’t just a red flag, it’s a “code red” five-alarm danger signal.

Here’s the biggest indicator that DB not only has credit problems, but its assets are significantly overvalued by its auditors and internal financial people:   DB’s stock market capitalization is 30% of it’s book value – i.e. DB trades at less than 1/3 its book value.   The amount of cash on DB’s balance sheet is nearly 7x greater than its market cap.

There’s no telling just how catastrophically insolvent DB is because we can’t look at its off-balance-sheet “assets,” which are primarily very risky OTC derivatives.  I also do not believe that DB is the infamous “black swan” because we all see it coming – especially the Central Banks.

But at some point some counter-party to DB is going to ask the bank to post more collateral against some type derivatives contract.  That’s when the fun will begin.  My bet is that right now the Bundesbank – with help from the Fed – is helping DB reinforce its collateral positions.   But if DB’s stock keeps dropping, the collateral calls will likely intensify and come from places that are hidden from even Central Bank view.

untitled

As I was writing this, DB stock has been continuously hitting new lows.  Note the huge increase in monthly volume in the graph above (yellow box).  That’s institutional investors jumping off the sinking Titatanic into life rafts.  There has not been any insider share activity in the last 12 months because insiders don’t own any shares, other than a meaningless amount of unvested compensation shares.

Something ominous in the financial markets is unfolding behind the “curtain,” off-balance-sheet and out of the view of anyone who might care to know the truth.  DB’s balance sheet is a weapon of mass financial destruction in and of itself.  But the hidden financial bombs a DB blow-up will trigger is what the market should really be worried about…

IRD On Kennedy Financial: Janet Yellen Is A Complete Embarrassment

Predictably, the FOMC once again fell flat on its face with regard to its continuous threats over the last month to hike rates. Despite the politically motivated rhetoric about the strengthening economy and tight labor market flowing from Yellen’s pie-hole, the fact that the Fed is afraid to raise rates just one-quarter of one percent tells us all we need to know about the true condition of the economy.

If I didn’t despise the fact that Yellen has been an incompetent political hack originally inserted into the Federal Reserve system as a political tool since her first tenure as an economist at the Fed in 1978, I would almost feel sorry for her. But the fact that she can stand in front of the public and read off of a sheet of paper scripted with lies about the state of the economy forces me to despise her as much as I despise the entirety of Washington, DC

This analysis of Yellen underscores my view that Yellen is either tragically corrupt or catastrophically stupid:  How Yellen Rationalizes Financial Bubbles

Phil and John Kennedy invited onto their podcast show to discuss the FOMC, Yellen, Gold, Deutsche Bank and some other timely topics:

mining-stock-journal-bannerNewSSJ Graphic

Global Supply Of Gold Tightens After Barrick Mine Closure

An Argentinian judge has ordered an indefinite suspension of mining at Barrick’s Veladero gold mine in Argentina due to a serious cyanide leak.  To underscore the severity of the situation,it is being speculated that Barrick’s mine manager – who is no longer working at the site – has fled to Canada to avoid any possible prosecution.

Lawrence Williams provides a good analysis of the situation here:  LINK.   However, it is also worth reading an article in the Buenos Aires Herald, which reports that the Government has filed a complaint against Barrick:  LINK.

This is an interesting development because the Valedero mine produces 10% of ABX’s 6 million ounces per annum – or 17 tonnes.  This represents approximately .6% of the annual global gold mine production.

It’s not clear how long this mine will remained close.  Certainly longer than the couple weeks that Barrick CEO, Kelvin Dushnisky, asserted after making light of the issue at the Denver Gold Forum.

In the opinion of this blog and the Mining Stock Journal,  Barrick is a corporate abortion of a company and should be avoided at all costs as an investment.

mining-stock-journal-header-border

The Short-Sell Report On First Majestic Silver Is Fraudulent

In my last issue of the Mining Stock Journal (Sept 15), I featured trading opportunities in three large-cap mining stocks plus I explained why a recent buy recommendation from the National Inflation Association was a nothing more than a pump-n-dump operation.

Although the sell-off in AG stock was attributed to a highly negative report issued by Kerrisdale Capital, the truth is that the recent price correction in AG is a function of AG revising its full-year production outlook lower plus the correction in the overall sector. In fact, the short report issued by Kerrisdale – headed by a sleazy financial operator who was recently busted for a DUI and cocaine possession – was nothing more than a fraud-filled hit-job:

I noticed several problematic errors in his analysis. In fact, Adrange’s thesis and conclusion is an analytic disaster. I don’t know whether or not this guy has any experience with mining stock analysis but it was clear to me that he does not know what he is doing in this sector. Perhaps the most glaring error – in fact I have to wonder if it was intentional for the purposes of supporting his thesis – is that in valuing AG vs. other miners based on resources, he only uses measured & indicated resources. This is outright incompetence or fraud, or both.Mining Stock Journal, September 15, 2016.

I further lay out the case for why the current sell-off in AG stock is a great buying opportunity plus I recommend two other large-cap stocks (note: the Mining Stock Journal primarily focuses on relatively unknown junior exploration companies).

The NIA recently was promoting a junior mining stock with which I was not familiar. I did some research on it and had discovered that the NIA had been promoting it. The basis for the “strong buy” was entirely incorrect data presented. In fact, the assertions and data presented were either a product of unintentional incompetence or intentional misrepresentation.  I explain in my analysis:

The bottom line with the NIA report is that is almost entirely inaccurate and full of hyperbole. It’s clearly a report that was designed to facilitate a pump and dump operation. If you own this stock, take advantage of the recent move in the stock triggered by the NIA, and fueled by stock-trading chat board childishness, and unload your shares. I don’t want to assert that this company is a sham, but if it has any intrinsic value, it’s far below 10 cents/share.

In the next issue of MSJ, I’ll be featuring a little-known silver exploration company trading well below $1 that, in the words of the CEO, will eventually be $10-15 stock (Canadian $’s). After reviewing the story with CEO yesterday, I’m amazed that this stock receives almost no attention, even on trading chat-boards. You can access MSJ with this link, which includes receiving all the back-issues (via email):  Mining Stock Journal Subscription.

China Buys More Gold While The Fed Prints More Paper

About a week ago, Reuters reported that Russia’s second largest bank, VTB Bank, had agreed to supply 15-20 tonnes of gold to China over the next 12 months.  VTB also plans on increasing the amount of gold supplied to China over time, up to 80-100 tonnes.  Without a doubt, the PBOC’s demand for gold now exceeds the 450 tonnes produced by China.  This agreement with Russia underscores that view.

At the same time, it was apparent from yesterday’s post-FOMC presser with Janet Yellen that the Fed is backed into a corner with regard to its options on monetary policy.  Anyone who believes that rhetoric about a “stronger economy” and a “tight labor market” has a calcified brain.   Unless the Fed intends to let the financial system collapse, the only option left is to print more money.

We discuss both of these developments in this latest episode of the Shadow of Truth:

mining-stock-journal-header-border

Russia To Supply China With Up To 100 tonnes Of Gold Annually

Russia’s second largest bank, VTB Bank, announced a deal to supply Russia with 12-15 tonnes of gold in the next 12 months.  The amount supplied will increase over time and eventually reach 80-100 tonnes annually:  Reuters Link.

Perhaps the most interesting aspect of this will be to see if the World Gold Council acknowledges this gold as “Chinese imports.”   The WGC and other entities which purport to track global gold “consumption” have been reporting declining demand for gold in China, based on declining imports from Hong Kong.   Of course, these “official” sources completely ignore the fact that China imports an unknown amount of gold through the ports of Beijing and Shanghai…move along, nothing to see there…

The unarguable scheme by western Central Banks to suppress the price of gold with paper gold is contingent on the ability to deliver actual physical gold into China and India.   In this blog’s educated opinion, the supply of gold available to make this happen is running low:  Central Bank gold stock plus investor custodial gold that has been hypothecated.

This report out of Russia supports the thesis that China’s Central Bank is accumulating, and has accumulated, significantly more gold than it is willing to disclose.  As reported in the South China Morning Post when China announced opening Beijing, after also opening Shanghai,  for gold imports:

Opening the capital as the third shipment point will help the PBOC keep purchases discreet as it is believed to be adding to its bullion reserves…The mainland has begun allowing gold imports through the capital, sources familiar with the matter said, in a move that would help keep purchases by the world’s top bullion buyer discreet at a time when it might be boosting official reserves.  South China Morning News

This is likely why the Fed/ECB/BOE are collectively having a difficult time pushing the price of gold lower after its big move starting in mid-December.   At some point, gold is going launch out its current lateral consolidation and move much higher by the end of the year. Especially once the market fully understands that the ONLY policy choice left for the Fed is to keep printing money at an accelerating rate or risk complete financial collapse.

Wall Street’s Next Ticking Time Bomb: Pensions

Make no mistake, the criminality and fraud of most, if not all, DC politicians that is being exposed now is also occurring in corporate America and at pension funds, especially with regard to fraudulent financial reporting.   As an example, Exxon is now being investigated by the SEC over its asset valuation and accounting practices.   The same concept can be applied to pension funds (public and private).  The Dallas Fireman and Police Pension fund is the postcard example of both investment and accounting fraud:  LINK.

The pension time bomb has been activated for a long time but it’s now in the final countdown.   Pensions are woefully underfunded even if we give them the benefit of doubt on their current use of market-to-market.   Every pension fund under  the sun in this country – because rates are so low – has monthly negative outflows of cash:   beneficiaries are being paid more money than is flowing into the fund.  If the stock market declines more than 10% for an extended period of time, nearly every pension fund in the country would blow up.   This is why the last two stock plunges, which took the S&P 500 down over 10%, were met by heavy, if not blatant, Fed intervention which produced a steep V-bounce in the stock market both times.

Yesterday I spoke to a friend/colleague who works at a public pension fund.  He said the latest fad in pension management land is to shift money out hedge funds – which are woefully underperforming the market – and to put even more money into private equity funds.  This allows the pension funds to subject that capital to a quarterly mark to market test rather than an daily or monthly valuation accounting.  The only problem:  private equity investments are highly illiquid and the valuation of the underlying investments is an “art” that is not at all based on actual market transactions.   This private equity investment mark-to-market “Picasso”  leads to extreme “over-marking” of private equity investment valuations at pension funds.

This is also one of the primary reasons that the Fed can not raise interest rates even if it were true that the economy was improving and the labor market was tight, both conditions of which we know are not even remotely close to accurate but everyone seems content to play along with the joke.  

Many pensions have now allocated as much as 20% of the fund to private equity.   This is because they can control to a degree where the investments are marked and as long as the stock market does not decline, they never have to market them down.  But with the example of the Dallas pension fund above, if the beneficiaries are allowed to withdraw all of their money, the fund will have to unload its illiquid private equity investments to meet the outflow requests.   Good luck getting anything close to where those investments are marked in the fund.  The beneficiaries won’t receive anything close to the current stated value of their pension account.

If the status quo in the markets were to continue for the foreseeable future – which it won’t – pensions funds will run out of cash to pay beneficiaries well in advance of the “foreseeable future.”  Without cutting benefits drastically or, in the case of public pension funds raising taxes steeply to cover pension beneficiary outflows, some public pensions will hit the wall within 12-24 months.

Away from private equity investing – which is just another of the many asset bubbles spawned by the Fed’s near-zero interest rate and money printing policy (by the way, the Fed unbeknownst to many is still printing money) – Wall Street has been busy stuffing a plethora of  high-fee generating asset-backed “investment” securities into the market. These securities exploit the need by pensions to generate much higher investment income.   When you hear the term “reach for yield,” think:  pigs are greedy, hogs get slaughtered.   These securities are hog food.

The only problem is that interest rates are so low now the risk embedded in the underlying asset pools are much greater than the interest rate compensating the investor for buying these securities.   Ratings agency fraud is also present again. This is another instance of the current period of financial insanity “rhyming” with the Wall Street-fueled insanity that led to the 2008 financial collapse.

A perfect example is the latest “brain child” of Wall Street in which the payables from cell-phone bills (the mobile carrier’s receivables) are packed into pools and securitized into “bonds” – LINK.  Verizon is the first to do a deal like this.  It’s receivables from cell-phone bills were packaged into bonds, received a triple-A rating and were priced at 55 basis points over the benchmark triple-A corporate index.  That means it was issued around a 2.67% yield.

Think about this way, would you lend money to a stranger to pay his cellphone bill in exchange for receiving the amount you loaned plus receive a 2.67% annualized rate of interest on the loan next month?  There’s a reason the bonds were priced at 55 basis points over standard triple-A bond.  If the implied reason were apparent to all, the bonds would be yielding substantially more.  Eventually that reason will come to light and the bonds will tank in price.

The Dallas police and firemen had the right instinct:  if you are eligible, contact your pension administrator and demand to receive any pension money that can claw out of fund now.   Your alternative is to face substantial payment cuts at some point.  Eventually your fund will collapse and you will otherwise receive nothing more than an “Oops, Our Bad” letter from your pension fund.

The Housing Market Is Going To Crash Again

I’ve worked through four bubbles – they all end the same…I think the flippers in Denver metro are driving the under $400,000 price to a frenzy and the over $500,000 in the burbs are dropping in price. Some of these flippers have 8-10 houses at the same time. A little jiggle and they will dump. Then the part time rental landlords follow in selling as the rental market gets tough. A trashed house or eviction usually puts these houses on the market… – – Three decade-plus Denver real estate professional and subscriber to the Short Seller Journal

The homebuilders are getting hammered today – down 2.6% with the SPX up over 4 pts – on the news that housing starts for August dropped sharply, down 5.4% from July.  Of course the report missed Wall Street’s “hockey stick growth” consensus estimate.

Funny thing about housing starts, it’s kind of a useless statistic.  The data is collected and prepared by the Census Bureau, which is notoriously inept.  The numbers presented are “seasonally adjusted” and converted into an annualized rate.  Notwithstanding all other problems with the data sample and annualization calculation, presenting an annualized rate number for monthly report is idiotic.

But having said that, a housing start is counted when a shovel is inserted into a piece of land that has been permitted for building a home.  When the market goes bad, many of those “starts” never become much more than a small pile of dirt.

All of that aside, the housing market in most areas of the country is anywhere from “soft” to “crashing.”  Some of the high-end resort areas like Aspen and the Hamptons are experiencing 50% declines in year over year sales volume and prices are dropping like a rock.

The “inventory shortage” is a myth of epic proportions.  Inventory problems arise when flippers begin to outbid bona fide home owners and then flip the home into another bona fide buyer (or another flipper) who was qualified to take out an even bigger mortgage than the original bona fide buyer.  It’s the tulip bulb dynamic but fueled by debt.  As soon as prices start slipping, the flippers fold and there’s plenty of “for sale” signs everywhere.

I was on a radio show last week and the host happened to mention that he couldn’t believe the number of “for sale” signs he was seeing when he drives to work.  My response was that I’m glad I’m not the only person in Denver who has noticed that.  Interestingly, I was driving through a neighborhood yesterday that I began scoping out in January and noticed  three “for sale” signs, one with a “price reduced” sign – not “new price” but “price reduced.”  This is an area that did not have any existing home inventory from January to June – literally none (though it has an oversupply of unsold new homes).

As for the reports that there’s a shortage of new homes, those are seeded either in fraud or complete ignorance.  I look at the financials of every major public homebuilder every quarter and every quarter almost every single builder shows a new record in the value of its inventory. Some of that is attributable to price, but most of it is unit volume.

But don’t take it from me or the National Association of Realtors or the Census Bureau or the National Association of Homebuilders, the best housing market “canary” is Lending Tree stock (TREE).    Lending Tree is a “derivative” of the housing market.  TREE’s revenues are derived from fees paid to TREE by lenders who receive loan requests from borrowers, either via online clicks or call transfers.

Fees from mortgage products represent about 60% of revenues. Fees from auto, home equity, personal and student loans are about 40%. Auto loans would be the majority of its non-mortgage business. TREE’s revenues are 100% reliant on the number of borrowers who are looking to buy a home or car.

TREE reported Q2 results on July 28.  Revenues from Q1 to Q2 were flat BUT mortgage product fees declined from Q1 to Q2 (auto and personal loans made up the balance).   The drop in TREE’s revenues from mortgages in Q2 reflects the fact that less people were looking for mortgages, which means there’s less people looking to buy a home.  It’s as simple as that.

I presented TREE as a short in the Short Seller’s Journal on Sept 11 when the stock was at $101.50.   It’s trading as I write this at $89.90, down 11.4% in 6 1/2 trading days.  The SPX is actually up 17 points in the same time period.  There’s a message there about TREE and about the housing market.

In fact, the last 6 new ideas that I’ve presented in the Short Seller’s Journal have worked NewSSJ Graphicalmost right out of the gate.  I have not had this kind of streak since the stock market started tanking at the beginning of 2016.   My ideas have worked despite the blatant intervention by the Fed to keep the S&P 500 and Dow propped up.  This is because most of the “sub-sectors” of the market are melting down.

Another example is RL (Ralph Lauren), which I presented on August 14 at $108.  It’s trading right now at $98, down 9.3%.   I explain in my report why this stock will get cut in half from $108 within 12 months.  The Short Seller’s Journal is published weekly and the ideas I present are based on the deteriorating economic, financial and business fundamentals of the stocks I present.  You can subscribe by clicking here:   SSJ Subscription.   Note, it’s a monthly recurring payment subscription and you can cancel at any time.

By the way, TREE was a $5 stock at the beginning for 2012.  The company’s business model is nothing more than a pure creation of the massive debt bubble that was created by the Fed’s money printing and credit creation policies.   It will be back $5 in less time than it took for it to run up to its $135 all-time high in August 2015.