These guys are seriously overplaying their hand so something must be up. – John Embry email to me in reference to the blatant intervention in the stock and gold futures markets
The Cliff’s Notes explanation to John’s comment: The Fed knows the economy is technically in a recession and will be forced to take Fed Funds negative sometime in early 2016. Yellen floated that trial balloon earlier today. That’s an event that should launch gold.
First, in reference to the extreme degree of anti-gold propaganda currently being vomited by the western media – see this article from Mark Hulbert LINK and this article from the new Jon Nadler LINK – here is what is going on in the physical gold market:
Reuters has reported that the China Gold Association has announced that Jan/Sept gold production was up 1.48% to 356.9 tonnes and consumption was up 7.83% to 813.89 tonnes. This is the biggest gap between production and consumption growth that JBGJ can remember. The huge Chinese output growth has been going on for well over 10 years and with the early mines getting old sustaining the trend must be getting increasingly difficult. A leveling off or even more a decline in Chinese gold output could increase import demand dramatically. – John Brimelow from his Gold Jottings report
Typically when there’s bad news coming, the Fed/banks engage in an extreme degree of market intervention to keep the stock market aloft and a heavy lid on the price gold. After all, they can’t have a rising price of gold alert the world to the degree to which the U.S. system is one big fraud.
The stock market has become historically overvalued. David Stockman discusses this in his latest article – This Time Is The Same – And Worse. In his analysis, he reports that the trailing 12-month P/E ratio on the S&P 500 is 22.49x, or higher than it was at the peak of the stock market in 2007.
However, there’s one big flaw in Stockman’s analysis. He’s using current GAAP accounting numbers. In order to compare current S&P earnings with earnings and P/E ratios, we have to adjust the earnings by employing “apples to apples” GAAP standards. Generically, the latest significant GAAP changes in 2010 enabled the big banks to include a significant amount of non-cash “adjustments” as part of their reported net income. In some quarters, more than 90% of the GAAP net income reported by major banks and financial firms is based on non-cash, discretionary “adjustments.”
In truth, and admittedly this is somewhat imprecise but not wholly inaccurate because the same dynamic applies to the tech sector S&P 500 companies as well (note: IBM is currently being investigated by the SEC for revenue recognition issues – this fact supports my assertion), it is highly probable that the $93.80 per share EPS cited by David Stockman is substantially less than $93.80 using 2007 or 2000 or 1987 GAAP standards. I would hazard a highly educated guess that if we did the exercise of adjusting today’s S&P 500 earnning using the GAAP rules in place in 2000 that the $93.80 EPS would be cut in half.
In fact, I know of someone who did that exercise back in 1998, using 1987 GAAP standards, and this person determined that the reported earnings in 1998 were less than half of what was reported that year if 1987 GAAP standards were employed.
In other words, the true P/E ratio on this current stock market is, in all probability, the highest in history.
I want to show the gold market intervention that occurred blatantly today and then I’ll suggest a good possibility for the current extreme degree of market intervention (click on each to enlarge):
The ratio of paper gold to deliverable physical gold reported to be in Comex vaults almost hit 300 earlier this week. After yesterday’s long-side liquidation/bullion bank short-covering operation the ratio “mellowed” out a mere 278x.
As you can see, gold moved higher after a series of gold-friendly comments from the ECB’s Mario Draghi. It was promptly slapped back down about 10 minutes before he Comex floor trading in gold commenced. This occurs about 90% of the time. No news or events occurred that would have prompted the sell-off in gold. After starting to recover from the obligatory Comex floor trading smack, Janet Yellen issued tourettes syndom outbursts loaded with incoherent nonsense about how great the economy was doing, the labor market was tight and the FOMC was going hike rates in December.
Yellen’s comments, other than being the drool of a babbling idiot, had no basis in provable fact. Nearly every private-sector compiled economic data series is reflecting a precipitous decline in economic activity that is back down the activity levels of 2008/2009. As for a “tight” labor market? Yes, I suppose if you just ignore the 93 million who have left the labor force – i.e. 28% of the total U.S. population – then I suppose it’s a bit easier to manipulate the data to reflect a low rate of unemployment. Make no mistake, the unemployment rate number being reported is an unmitigated fraud, which makes Janet Yellen an unmitigated fraud.
This brings me back to my explanation for the extreme and blatant stock/gold market manipulation this week. A friend and colleague of mine from NYC does great work on how the BLS uses its fraudulent “birth/death” model to manipulate the non-farm payroll report every month. The employment report for October comes out Friday this week. Historically the BLS inserts a big bump up in the birth/death jobs additions in October. My colleague believes that the number reported will be manipulated higher than the 177k estimate in order to support Janet “Tourettes Syndrome” Yellen’s rate-hike in December fairytale:
BD model adds 145,000 jobs. NFP for October comes in at 190,000. Mark Zandi gets quoted in every wire service saying it’s a clear indicator of the underlying strength and improvement in the economy All jump even harder on the consensus December Fed rate hike band wagon Stock market rips lower and Gold gets hammered to under $1100 Stock market rips at 3:30pm into the Friday close as they force massive short covering into green and Gold goes unchanged on the day. A bullish comment from Jim Bullard is optional…
This view is well-crafted and will likely be right. However, with each passing non-Government economic report which shows jobs being cut, especially in the manufacturing, energy and financial sectors, the big job additions reported by the BLS take the Government numbers deeper into the credibility hole. The extreme manipulation and intervention in the U.S. stock/gold market reflects the extreme degree of desperation which the Fed/Treasury/banks are exerting in order to prevent the markets from revealing the truth about the degree to which the U.S. political/financial/economic system has been completely engulfed in fraud and corruption.
Expect a big “beat” on Friday from the NFP report, followed by beat-down of gold. That smack in gold should be bought with both hands.
One more point, Yellen referenced the possibility of taking rates negative. Talk about an obvious trial balloon. This tells us that she and her band of FOMC stooges understand the truth about the economy. This is an event that should send gold on a moonshot. They are working to make sure that the lift-off platform is as low as possible.