Think GLD Is Legit? Better Twice About That

Readers who have followed my work for several years know that I have been quite vocal about the illegitimacy of the GLD gold ETF.   James Turk was the first analyst in 2004 to bring attention to flagrant legal loopholes which enable the GLD custodian (HSBC) to play the “shell game” with GLD’s gold bars.

Certainly highly illegal activities by HSBC are de rigueur, as evidenced by its conviction for laundering drug money – for which a $1.9 billion settlement with the Justice Department failed to deter HSBC’s money laundering activities – LINK. What the heck, $1.9 billion is merely the cost of conducting a high-margin business endeavor.  Just ask the big banks funding Hillary Clinton’s Presidential campaign.

In 2009 I published an extension of Turk’s 2004 GLD evisceration – one which Turk actually helped me edit – in which I concluded:

I have no problem with the concept of using GLD for daytrading to make directional bets, long or short, on the short term swings in the price of gold. But if you invest in GLD with the intent of making a long term investment in gold, please be aware that GLD is NOT an investment in actual physical gold. GLD is nothing more than a piece of paper which proclaims, but does not promise, to have gold on the other side of its highly structured legal barriers. Furthermore, for the reasons shown above, there is the possibility that you might wake up one day to find out that the price of GLD has suddenly dropped well below the spot price of gold and that GLD could even end up worthless.

At some point I will update this research piece because GLD has made some changes to the prospectus which widened the legal loopholes into  legal sewage holes.

The bottom line is that GLD (and SLV) was created to “trap” billions of institutional cash that might otherwise have been used to purchase actual physical bars.  It was a tool to enhance the price manipulation of gold using paper derivatives.  I have no doubt that at some point in time GLD held a lot gold bars in its vault.  But I think it’s also pretty clear to anyone who has been through the prospectus with fine-tooth comb that GLD was set up as a “holding pen” of sorts for gold bars that would eventually be used to put out physical demand fires once the Central Banks ran low on or out of gold bars used in Central Bank leasing activities.

I mentioned to a colleague yesterday that the information about the economy and the markets published by “official” sources is not interesting.  The Government and big banks report the information they want us to see.  It’s the information content “behind” the official reports that is of interest.

Unfortunately we end up having to connect a lot of “dotted lines” in order to draw reasonable inferences about the truth that lies beneath the surface.   With GLD, the prospectus itself is a treasure trove of “dotted lines.”  So too is the fact  that the Bank of England is now a vault “sub”- custodian for GLD.  Yes, the Bank of England that is one of the original participants in the development of the gold leasing market.  My GLD research piece explains why the “sub-custodian” mechanism in the GLD legal structure readily enables gold bar leasing.

Adding to the intrigue is the fact that GLD’s “Sponsor,” World Gold Trust Services – a subsidiary of the World Gold Council – has had four different CEO’s in less than three years from 2013-2016.  The CEO previous to these three CEOs had been in place for four years, from 2009-2013.  BullionStar’s Ronan Manly is the first to report this strange event – LINK.

While I laud Manly for his diligent research of the events, I find his rationale for the CEO revolving door at GLD to be circumspect.   For me the dotted lines connecting the CEO revolving door at GLD are threefold – all of which point to the accelerated use of GLD as a source for leasing and hypothecating gold bars since 2012 in order to manipulate the price of gold:  1) the 2012 alteration of the prospectus which further loosened the already tenuous degree of legal accountability of the custodial vaults;  2) the massive draw-down and subsequent “replenishment” of gold bars reported to be in held by the ETF;  3) the inclusion of the Bank of England as one of the highly unaccountable vault sub-custodians.

My “dotted line” view is that each CEO was in the position long enough to understand the true nature of GLD’s dealings and decided they were not getting paid enough to hang around long enough to go down with the ship.

The final  conclusion for me is that GLD (and SLV) is the precious metals market’s equivalent of Enron or MF Global.  The 3-yr CEO revolving door at GLD since 2012 likely reinforces this viewpoint.   When the real scramble for physical gold that can be possessed immediately takes place – an eventuality we all know is coming sooner or later – the truth about GLD will be revealed and the clueless, hope-strangled GLD shareholders will be helpless as they watch the value of GLD plummet while the market price of gold goes parabolic.

Amazon Dot CON: The Bezos Con Grows With Revenues

The mainstream financial media headlines reporting Amazon’s Q2 earnings release were shamelessly pathetic:  “Amazon crushes Street forecast,” “Amazon beats again in Q2 thanks to cloud services.”  It was beyond nauseating.  The entire spectacle reminds me of the tech bubble, when companies like Cisco, Sun Microsystems and Intel would intentionally “guide” Street analysts into publishing a low consensus forecast the CFOs knew could easily be topped with accounting gimmicks.

Bezos applies all the traditional accounting gimmicks plus he’s created his own, Bezosspecifically with regard to his definition of “free cash flow.”

I don’t want to spend a lot of time on this.  I’ve wasted most of my evening untangling AMZN’s numbers as reported in its 8-K filing.  Let’s just say that if you dissect AMZN into its “product” and “AWS” components, the results are underwhelming.

Nothwithstanding the fact that AMZN intentionally guides the Street to low-ball estimates ahead of its quarterly earnings report, as you can see from the graphic below, which I created by dissecting and rearranging the sales and operating income numbers from AMZN’s 8-K filed today, AMZN’s growth numbers are underwhelming (click to enlarge):

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The sales growth rates for AMZN’s AWS (cloud computing) revenues and operating income are declining rapidly.  AWS is a new business started from scratch a few years ago.  Of course it’s going to show a high rate of growth initially.  But stock analysts and the mainstream financial media make it sound like AWS is a money tree.  Yahoo Finance reports that AWS is “massively profitable” LINK.

Well, look for yourself.  The sales growth on a year over year quarterly basis has dropped precipitously from 81.5% in Q2 2015 to 58.2% in the latest quarter. This is a rapid slowdown in growth.  The yr/yr quarterly growth rate for AWS operating income, which was $718 million in the latest quarter, has plunged from 407% to 83.6%.   “Massively profitable?”  You can see that AWS’ operating income actually declined from Q4 2015 to Q1 2016.  Declined.  Cloud computing services are not seasonal.  So that would not explain the drop.

Furthermore, AMZN does not disclose how much of its “technology and content” expenses are attributed to AWS.  But its total line-item cost for this in Q2 was $3.8 billion.  Yet, AWS’ total revenues for Q2 was $2.9 billion.  To be sure, a significant portion of that $3.8 billion in tech costs go with AMZN’s online product sales.  But it’s possible that none of the expense is amortized into AWS’ cost of sales.  Bezos won’t break that out.    He was doing a similar trick with “fulfillment” before the SEC forced AMZN to include fulfillment as a separate line item in the early 2000’s.

Let’s drill down into AWS’s numbers, to the extent that Bezos’ disclosures will allow:

AMZN AWS

The chart above shows the quarter to quarter growth rates for AWS.  Again, recall that cloud computing services are not seasonal.   From 2014 to 2015, AWS’ annual growth rate was 70%.  But on an LTM basis thru Q2 2016, that growth rate has collapsed to 26%.  With operating income the decline is even more dramatic.  From 2014 to 2015, operating income grew 182%.  But this growth rate on a quarter to quarter basis for Q2 2016 has plunged  to 19%.

Bezos is the master of deceptive presentation.  But as you can see, rearranging the numbers into a more traditional financial analysis format removes any “sizzle” Bezos imposes on the numbers and reveals that AWS’s growth rate is collapsing.

Circling back to the first chart, you can see that AMZN’s overall profit margin on 90% of its revenues base – its product sales – is more or less 2%.   This profit margin is less than half the profit margin of two of AMZN’s primary competitors, Walmart and Target.  In general, retailers produce 4-5% operating profit margins.  In other words, 90% of AMZN’s revenues significantly underperform that of AMZN’s competitors.

For this investors are paying a 186x trailing p/e for a business with a rapidly declining growth rate and profit margins well below average for retailers.

Finally, the Bezos’ shamelessly promoted Free Cash Flow metric  turns out to be borderline fraudulent.   In fact, buried deep inside the footnotes to AMZN’s SEC-filed 10-K/Q is a disclosure that states that the “free cash flow” number used in AMZN’s promotional slide is not a GAAP-derived number.

Why?  Because Bezos conveniently excludes the cash AMZN’s spends every quarter to pay for property and capital equipment that AMZN finances with capital leases.  He also excludes stock-based compensation, which turns out to account for about 50% of AMZN’s salary expense.   It’s highly misleading.   To give you an example, the very first slide which is shown in AMZN’s quarterly investor presentation is the  Bezos-concocted “Free Cash Flow” bar chart shown on a trailing twelve month basis:

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This is the very first slide Bezos hits the market with. Talk about shameless promotion, I’ve never seen anything like this in over 30 years of financial market experience. This is more absurd than any type of misleading hype that I saw in the junk bond market.   And I thought junk bond presentations stretched the limits of credibility.

But here’s the best part.  If you strip out the ongoing cash outflows used for capital equipment and building expenditures by AMZN each quarter for the last four quarters, that “free cash flow” of $7.3 billion LTM shrivels down to $2.5 billion.   THEN, if you net out stock-based compensation for the trailing twelve months, which is a GAAP number, that Free Cash Flow metric of Bezos’ disintegrates down to just $85 million.

Pundits will argue that capital lease payments are eventually non-recurring and therefore should not be included in a free cash flow calculation.  But that argument is entirely disingenuous and highly flawed because these payments have grown from $1.8 billion in 2013 to $5.4 billion on an LTM basis through Q2 2016.   I like to call these, sarcastically, recurring “non-recurring” expenses because it falls into the “non-GAAP” earnings category that every big corporation gets away with presenting now.  Bezos clearly stretches this to the limits of the imagination.

Now, Bezos’ promoters would argue that stock-based compensation is not a use of cash and therefore should not be included in the Free Cash Flow number.  But that is patently false.  Here’s why.  The definition of free cash flow is that amount of cash flow that is available to shareholders after all cash payments are accounted for.  With stock-based compensation, AMZN hides this cash-cost to shareholders because this economic cost to shareholders does not show up until the employee registers its shares and sells them.  This increases the shares outstanding – or dilutes shareholders.

Employee stock compensation shares are registered and sold every quarter.  The amount per quarter is increasing at an increasing rate because the nominal amount of shares given as part of AMZN’s payroll increases every quarter.  Thus, the amount of shares outstanding at the end of every quarter increases.  This effectively reduces the amount of free cash flow per share that would otherwise be available to shareholders. Therefore the cost of employee stock compensation should be treated as cash cost each quarter and should be netted out from “free cash flow” just like it would be if the employee compensation were paid in cash instead of shares.  

There are several other areas in which Bezos uses creative accounting in order to bamboozle the market.   Unfortunately Wall Street, Capitol Hill and the SEC look the other way.  Wall Street because AMZN is a perpetual source of revenues.  Washingon, DC because Bezos spends millions buying Congressman and because has the use of the Washinton Post as political weapon.

There’s no way to know when the AMZN Ponzi scheme will collapse.  They all do eventually.  But I can say with certainty that, perhaps other than Tesla’s Elon Musk, Bezos is the greatest Ponzi scheme operator in history.

Mining Stocks Look Ready To Explode Higher Again

The news that China has been to some degree crowded out this year by Western demand for gold is of minor importance compared to this further evidence that the mighty double-digit growth 15+ year surge in Chinese domestic gold production seems at last to have topped out. This means Chinese appetite for gold will increasingly have to be met from overseas.  – John Brimelow   JB’s Gold Jottings report  LINK

It was reported by Reuters Africa yesterday that Chinese gold production in the first half of 2016 was up slightly from the same period in 2015.  2015 production was down .4% from 2014.

If the amount of China’s domestically produced gold begins to decline, China’s enormous demand for gold will require a lot more gold imported from the rest of the world.  This will make things interesting – given the already enormous supply/demand deficit in deliverable physical gold  – because we know that, based on retail gold coin sales in the  U.S., Canada, England and Australia,  retail demand in the west is picking up quickly.

Let’s examine the phrase, “deliverable physical gold” for a moment.  It’s well understood that the amount of legal claims to deliverable gold written on pieces of paper – Comex futures, LBMA forwards, lease agreements, hypothecation agreements, OTC derivatives, etc – exceed the amount of available deliverable physical gold by an unaccountable amount.

For example, the total paper gold open interest on the Comex exceeds the amount of gold that has been made available for delivery by a multiple of 35.  But we can’t account for the amount of LBMA forwards, lease/hypothecation claims and OTC derivatives gold liabilities. Therefore,  the total physical gold supply deficit is unaccountable.

With gold in a state of scarcity and with the mining stocks historically undervalued in relation to the price of gold and silver, the mining stocks have the potential to make a move that will rival the move made by the internet stocks in from 1998 – 2000.  James Dines is the first to have made this prediction over 16 years ago. The only difference, of course, is that the revaluation in the mining stocks will be based on measurable intrinsic value whereas the move made by the internet stocks was a modern version of the Dutch Tulip bulb bubble.

All this is to suggest that mining stocks appear ready for another big upside move (click on graph to enlarge):

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At some point soon, the mining stocks are going to undergo another significant upward revaluation, which will reflect the increasing amount of stress that is going to be exerted on the market for deliverable physical gold. This “stress” will only be relieved by a much higher price for gold and silver.

While I’m not making an official price forecast, I would not be surprised to see $1500 gold and $25 silver by the end of October.

Click on the banner below to find out how you can take advantage of junior mining stock ideas that have significantly outperformed the market.

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Silver Refuses To Buckle – The News Doctors

Something interesting and unusual has been developing in the silver market for several months.  The Comex operators have been throwing a record amount  of Comex paper silver at the market in an attempt to control the price.   The last time the silver futures open interest was as high as it is now, silver was about to bust through $50.    Eric Dubin of The News Doctors published  a news brief today on the topic, reprinted below.

When we were laboring through the 2011-2015 bear market cycle, constant snap backs the likes of which silver is producing were never to be seen.

Last Thursday, I published, “Silver, Gold, Miners: Everyone, Back In The Pool.”  Mining shares witnessed a bit more pain than I had expected, but silver bottomed off the ~$19.20 level, as discussed. Even with Comex options expiration and central bank meetings this week, speculators taking on the bullion banks are buying every cartel smack-down, yesterday offering the latest example: Untitled

When we were laboring through the 2011-2015 bear market cycle, constant snap backs the likes of which silver is producing were never to be seen.

Today, the Japanese yen is appreciating relative to the US dollar as speculators – largely, algorithm-based trading – react to a Nikkei news report that fiscal stimulus plans will be smaller than expected.  The dollar fell as much as 1.4% in the early market session.  This is an ironic case where the short-term impact of the yen carry trade flow and long-term yen debasement from continued fiscal and monetary stimulus are Untitledboth positive catalysts for precious metals.

Taro Aso, Japan’s finance minister, talked down the report, saying that the government had not yet decided on the size of the package.  But the report was enough to send the FX algos into a frenzy, which spilled over into other markets.   Japanese policy makers flip-flop, ‘jawbone’ and massage the media just like the Federal Reserve.  The BOJ might announce smaller stimulus measures than expected, but Japan’s fate is sealed, and the helicopters are on the tarmac.

Will Americans Let Crime Pay? “Helen Keller Syndrome”

Everyday more evidence piles up against Hillary Clinton for illegal use of a personal Blackberry, personal computers and a computer server in her basement in Rye, NY to conduct official U.S. Government State Department business.  Business that should have been conducted using only super-secured State Department cellphones, computers and servers.

But of course, the director of the fbi, James Comey – long-time Clinton ally and a board Untitledmember of Hillary’s personal slush fund the Clinton Foundation, has given Hillary a get out of jail free card on that.

And now it’s revealed that Hillary and her gang at the DNC violated all kinds of laws and Democratic Party principles in order to rig the primaries.   Of course, Hillary has decided to deflect the truth by blaming the Russians for sabotaging her campaign by exposing the truth.   Of course that’s nonsense but does it really matter who exposes a crime as long as it’s exposed?  Isn’t the idea to impose Rule Of Law and justice on those who break the law?

It just gets worse for Hillary by hour.  Of course, slavish Hillary supporters all of a sudden have “Helen Keller Syndrome” when they are confronted with the facts and the truth.

But wait, it gets better:

The leaked emails have cost Debbie Wasserman Schultz her job as Chair of the DNC but other top DNC officials captured in devious plots against Sanders in the email exchanges still have their jobs – or at least no official firings have been announced. This makes the conspiracies seem more like a DNC business model…In addition to conjuring up ways to smear Clinton challenger Bernie Sanders during the primary battles, the leaked emails show a coordinated effort to cover up what the Sanders camp called “money laundering” between the Hillary Victory Fund and the DNC.

Hillary supporters need not bother reading this revealing article from Wall Street Parade, but for anyone interested in just the facts, this is a must-read piece:   Hillary Victory Fund Money Laundering

I guess if it’s not Isis then it must be the Russians, right?  At some point that shrew will start turning on Americans.

Make no mistake, I am not a Trump supporter.  I think he’s a human jock-strap.  In fact, I will continue my 24-year streak of not voting.   Most Trump supporters are supporting Trump because they hate Hillary and vice versa. The problem is, we know Trump is a jerk-off. But Hillary supporters – even the ones supporting her because they’d never vote Republican no matter what – refuse to recognize or for some reason can’t see the facts about her.   But she’s got a list full of crimes that makes Charles Manson look like a choir boy.

U.S.: Corrupt Money, Corrupt System

It looks like the Democratic Convention is getting off to a disastrous start after it was revealed that Democratic leaders, including DNC Chairman Debbie Wasserman-Schultz – along with, make no mistake about this, Hillary Clinton – conspired with the maUntitledinstream media to smear Bernie Sanders and perpetrated the civil unrest disruptions at Trump campaign rallies.

Can it get any more corrupt than this? In this episode of the Shadow of Truth, we connect systemic corruption to its root – a corrupt monetary system. We also explain why Hillary Clinton is probably the most corrupt public figure in history.

 

Buy Every Price Hit In The Metals And Miners

Eric Dubin (The News Doctors) and Doc or Silver Doctors, SD Bullion invited me on to their weekly Metals and Money Wrap last week.  We discussed signs that show the gold/silver manipulators are losing control of their ability to control prices, the record amount of paper being thrown at gold and silver on the Comex, the current seasonal “lull” in the precious metals market and the latest developments on Japan’s TOCOM futures exchange which could have a big effect on the price of gold and silver.  In short, we discussed why investors should be adding their positions on every price drop:

In fact, silver and gold were hit hard overnight last night (Sunday night, early Monday morning) and silver is now 40 cents off its low of the day and green vs its Friday close and gold is $8 dollar off its low of the day. Click on the link below to find underfollowed junior mining stock ideas with huge upside potential:

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Propaganda And Precious Metals

As gold reaches for higher prices and gains more attention, the propagandists are flooding the news outlets with articles on the virtues of investing in the stock market and the evils of precious metals – Silver/devil. The Ponzi must continue at all costs. The U.S. dollar, at present the worlds reserve currency, is a corrupt, blood-soaked instrument of debt. The privately owned Federal Reserve, who gets it’s marching orders from the Treasury Secretary, is working overtime to destroy the value of the dollar, enabling the elitists to use it as wealth confiscation tool. We find ourselves in the end game for this currency. How long can the end game continue? As long as it suits the corrupt banking cabal and corrupt politicians. Once these two groups of criminals have themselves positioned properly outside the U.S. dollar, the plug will be pulled. Until then, gather as much gold and silver as your budget will allow.

They’re Making It Easier To Buy Gold Cheap

To begin with, this statement by the Bank of Japan’s Kuroda validates my blog post yesterday about Japan’s monetary pivot to gold and to the east:  “no need and no possibility for helicopter money.”

My best guess is that the only productive activity for Bernanke on his last trip to Japan was eating blowfish sushi and hitting the teenage stripper establishments.

The manipulators are making it easier for us to accumulate gold at a cheap price.  I moved money from my fiat checking account into Bitgold every day this week and twice yesterday. I managed to catch what looks like the low of this latest manipulated pullback.  Every time they hit gold I buy.

I exchanged emails with Dr. Paul Craig Roberts yesterday about the  sell-off of the price of gold this week caused by the obvious “invisible” hand of the Fed.  Note this was a week in which Japan was supposedly going to drop $100 billion in helicopter money at Ben Bernanke’s behest – an announcement which should have sent gold soaring:

Me:   I agree this was a manipulated take-down of the price but,  you know as well anyone, markets never go straight up except the Dow/S&P 500 when the Fed wants to make those indices go straight up – like now.    Gold was overdue for a trading correction. I agree there’s some idiots out there who think the Fed is powerless now over gold – that’s ignorance or sensationalism.

Dr. Roberts:   Is there such a thing as a trading correction when the price is controlled and manipulated? Is it a trading correction when the bullion banks dump, as we have shown numerous times, massive paper shorts in the futures market?

Me:  I agree with your point there – but to be honest, I like to see any market pullback after it has the type of run that gold has had since early February. Should it be pulling back from a much higher price platform? Yes.  But gold was on the verge of going parabolic, which is never healthy in any market. The Fed is doing us a favor. I have been moving a lot of money from my checking account into my Bitgold account this week every morning. If gold was not being pushed down, I might not have added any.

The other interesting aspect of your point there is the amount of paper the Fed is needing to throw at gold to keep the price down. The open interest has been more or less at an all-time high on the Comex for a few weeks now. The last time the open interest was this high was when gold was pushing $1900.

In other words, it is requiring a much bigger relative effort for the Fed to prevent the price of gold from spinning out of its control now than it did when gold was about to launch over $2000.

They have not lost complete control yet, but they are much closer to that event now than they were in 2011.

On another note, the fact that the SPX spiked higher on the original Japan helicopter money announcement but has not sold off on the withdrawal of that threat underscores that fact that the Fed is pulling out all stops to push the market higher

But this is just the “marquee” indices – the Dow, SPX and Naz – as plenty of stocks have been and are heading lower because the core economy in the U.S. is falling apart.

 

MSFT: “I’m Rarely Left With Nothing To Say”

The stock market – specifically the S&P 500 and the Dow have become important propaganda tools of Fed/US Government.   After all, a rising stock market means that investors are “discounting” future economic and earnings growth, right?  As long as the stock market keeps hitting new records, any negative economic reports have to be invalid.

Of course, like everything else that hits the mainstream headlines these days, 90% of the time the opposite is the truth.  We can call this “Bernays’ Theorem.”   If you don’t know who Edward Bernays is, please use Google to look him up.

Corporate earnings have become mindblowingly fraudulent, which means that a fraudulent stock market is “discounting” fraudulent corporate earnings reports.

As an example, Microsoft reported earnings yesterday.  But companies can’t just report traditional GAAP earnings statements.   We get a highly unreliable version of GAAP that has been liberalized over the past 20 years to enable companies to distort the true earnings “snapshot,” enabling the presentation of reported net income that  exceeds actual net income.

But the policy deciders didn’t just stop with that bastardization of quarterly earnings reports.  They now permit companies to report “non-GAAP” numbers.   The literal translation of “non-GAAP” is, “if all this good stuff happened that didn’t really happen and might never happen, this what our earnings might look like.”   “Non-GAAP” is a complete fairy-tale.

So yesterday MSFT reports “GAAP” numbers, which we already know are distorted, in which its Fiscal Q4 operating income declined nearly 7% from FY Q4 2015.  Even worse, giving MSFT the benefit if using “non-GAAP” to compare against GAAP, MSFT’s net income plunged 38%.  The source of the decline in operating income was “revenue deferrals.”  Huh?  “Non-GAAP” allows MSFT to pretend the revenue deferrals never occurred.  This revenue that may or may not ever hit MSFT’s top line.

MSFT’s GAAP numbers missed the Street consensus expectations badly.  And yet through the magic of make-believe numbers, MSFT was able to smooth out any non-existing economic revenue and net income to that enables investors to act as if MSFT’s FY 4th quarter numbers were something they were not.

The Fed propaganda part:  MSFT is being attributed for driving the Dow and SPX to a new record close.   MSFT’s earings miss is now magically being reported as a “beat.”  Beat this.

Why was my colleague, Scott,” left speechless?  Because despite GAAP revenue and operating that declined measurably for its fiscal Q4 – AND revenues year over year declined nearly 9% – the stock  spiked up 5.3% today.   It’s inexplicable OTHER than the fact that the Fed is juicing the stock market  in  order to obscure the truth.  click to enlarge graphic

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