Market Manipulations Become More Extreme, More Desperate Paul Craig Roberts and Dave Kranzler Prison Planet.com February 8, 2014
In two recent articles we explained the hows and whys of gold price manipulation. The manipulations are becoming more and more blatant. On February 6 the prices of gold and stock market futures were simultaneously manipulated. On several recent occasions gold has attempted to push through the $1,270 per ounce price. If the gold price rises beyond this level, it would trigger a flood of short-covering by the hedge funds who are “piggy-backing” on the bullion banks’ manipulation of gold. The purchases by the hedge funds in order to cover their short positions would drive the gold price higher. With pressure being exerted by tight supplies of physical gold bars available for delivery to China, the Fed is growing more desperate to keep a lid on the price of gold. The recent large decline in the stock market threatened the Fed’s policy of taking pressure off the dollar by cutting back bond purchases and reducing the amount of debt monetization. Thursday, February 6, provided a clear picture of how the Fed protects its policy by manipulating the gold and stock markets. Gold started to move higher the night before as the Asian markets opened for trading. Gold rose steadily from $1254 up to a high of $1267 per ounce right after the Comex opened (8:20 a.m. NY time). The spike up at the open of the Comex reflected a rush of short-covering, and the stock market futures looked like they were about to turn negative on the day. However, starting at 8:50 a.m., here’s what happened with Comex futures and S&P 500 stock futures:
At 8:50 a.m. NY time (the graph time-scale is Denver time), 3,225 contracts hit the Comex floor. During the course of the previous 14 hours and 50 minutes of trading, about 76,000 total April contracts had traded (Globex computer system + Comex floor), less than an average of 85 contracts per minute. The 3,225 futures contracts sold in one minute caused a $15 dollar decline in the price of gold. At the same time, the stock market futures mysteriously spiked higher:
As you can see from the graphs, gold was forced lower while the stock market futures were forced higher. There was no apparent news or market events that would have triggered this type of reaction in either the gold or stock market. If anything, the trade deficit report, which showed a higher than expected trade deficit for December, should have been mildly bullish for gold and bearish for the stock market. Furthermore, at the same time that gold was being forced lower on the Comex, the U.S. dollar index experienced a sharp drop in price and traded below the 81 level of support. The fall in the dollar is normally bullish for gold. The economy is getting weaker. Fed policy is obviously failing despite recent official pronouncements that the economy is improving and that Bernanke’s monetary policies succeeded. A just published study by Jing Cynthia Wu and Fan Dora Zia concludes that the the positive impact of the Federal Reserve’s policy of quantitative easing is so slight as to be insignificant. The multi-trillion dollar expansion in the Federal Reserve’s balance sheet lowered the unemployment rate by little more than two-tenths of one percent, raised the industrial production index by 2 percent, and brought about a mere 34,000 housing starts. http://econweb.ucsd.edu/~faxia/pdfs/JMP.pdf The renewal of the battle over the debt ceiling limit is bullish for gold and bearish for stocks. However, with the ongoing manipulation of the gold price and stock averages via gold and stock market futures, the normal workings of markets that establish true values are disrupted. A rising problem for the manipulators is that the West is running low on gold available for delivery to China and other Asian buyers. In January China took delivery of a record amount of gold. China has been closed since last Friday in observance of the Chinese New Year. As China resumes purchases, default on delivery moves closer. One way for the Fed and bullion banks to hold off defaulting on Chinese purchases is to coerce holders of gold futures contracts to settle in cash, not in delivery of gold, by driving down the price during
heavy Comex delivery periods. This is what likely occurred on Feb. 6 in addition to the Fed’s routine price maintenance of gold. As of Thurday’s (Feb. 6) Comex report for Wednesday’s (Feb. 5) close, there were about 616,000 ounces of gold available to be delivered from Comex vaults for February contracts totaling slightly more than 400,000 ounces, of which delivery notices for 100,000 ounces were given last Wednesday night. If the holders of the other 300,000 contracts opt to take delivery instead of cash settlement, February contracts would absorb two-thirds of Comex gold available for delivery. The Comex gold inventory has been a big source of gold shipments from the West to the East, resulting in a decline of the Comex gold inventory by over 4 million ounces–113 tonnes–during the course of 2013. We know from reports from Swiss bar refiners that the 100 ounce Comex gold bars are being received by these refiners and recast into the kilo bars that the Chinese prefer and shipped to Hong Kong. With the amount of physical gold in Comex vaults rapidly being removed, the Fed/bullion banks use market ambush tactics such as those we describe above to augment and conserve the supply of gold available for delivery. Readers have asked if gold can continue to be shorted on the Comex once no gold is left for delivery. From what we have seen–the fixing of the LIBOR rate, the London gold price, foreign exchange rates, the price of bonds and the manipulation of gold and stock market futures prices–we don’t know what the limit is to the ability of the Fed, the Treasury, the Plunge Protection Team, the Exchange Stabilization Fund, and the banks to manipulate the markets. Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available. Alex Jones: A Real Banking Solution VIDEO BELOW http://www.youtube.com/watch?v=OAzKhGCrknM
Obama’s Job Numbers: No Reason To Celebrate Infowars.com February 7, 2014
Earlier today Obama praised a reported increase in job numbers. The government will use the spike – which is, the establishment media notes, below expectations – to say we’re back on the road to recovery. But we’re not back on the road to recovery. In fact, the job numbers cited by Obama represent about a third of what is needed to get the unemployed back to work – and more worrisome, especially if socalled amnesty is enacted – even less of what will be needed if a large influx of immigrants become legally able to look for work. “In 2010, 1,042,626 legal immigrants came to the U.S. (We’ll use the same number for 2012, since it’s the latest data available). This gives us 2,932,026 new workers in 2012,” a post of Skeptics notes. “So to maintain our current employment rate, we’d need to create, on average, 244,336 jobs every month.” Plus, adding salt to the unemployment wound, researchers said last September that illegal immigration is on the upswing after a downturn following the Great Recession beginning in 2007.
Economy Added Only 113,000 Jobs In January Ylan Q. Mui The Washington Post February 7, 2014
This was supposed to be the year the economy took off. Instead, new data released Friday show that 2014 stumbled out of the gate. Only 113,000 jobs were added in January, the Labor Department reported, the second straight month of lackluster hiring. Some analysts said that the wickedly cold weather was freezing out jobs. But others say that the results reflect a genuine slowdown in economic growth. There was some good news in the data: The January unemployment rate inched down to 6.6 percent. The labor force expanded, and hourly wages rose 5 cents. But there was also broad agreement that the new year is not off to a spectacular start. “It looks to me like a pause,” said Robert Shapiro, chairman of economic advisory firm Sonecon and a former top official at the Commerce Department. “We need two, three, four more months of weak numbers before we say there’s any real problem.” Several factors have fueled hopes that 2014 would break the recovery out of its long slog. The federal budget deal struck in December means there will be no big new spending cuts or tax hikes this year. And the economy grew at the fastest pace in a decade during the second half of last year thanks to a robust private sector. Together, economists expect those dynamics to clear the runway for the recovery. But January’s employment report — the first major piece of economic data for this year — has clouded the picture. Job growth was constrained by a sharp decline in the public sector. The federal government shed 12,000 jobs, while states and localities cut 17,000 workers. Economists were also surprised by a drop in educational services, which has been one of the drivers of job growth, even during the
recession. Another engine of hiring — health care — added a meager 1,500 jobs in January. The picture was brighter elsewhere: The construction industry expanded by 48,000 workers, the biggest gain since March 2007. Manufacturing clocked in with a respectable 21,000 jobs. The growth in those industries, which are particularly sensitive to bad weather, served as a counter to arguments that January’s record cold temperatures hurt job growth. Still, some economists said that the decline in retail employment could be the work of Old Man Winter. Stuart Hoffman, chief economist for PNC Financial Services, said he expects January’s results to be revised upward when the government releases updated tallies next month. He also remained optimistic that hiring will soon pick up. “We won’t strike out three months in a row,” he said. “Keep the faith, baby, keep the faith.” The White House used the report to urge Congress to revive federal unemployment benefits, which were cut off in December. A proposed three-month extension failed Thursday in the Senate. In an interview, Labor Secretary Thomas Perez said that the benefits, along with proposals to raise the minimum wage and overhaul federal immigration laws, are the major components of the Obama administration’s plan for expanding the economy. “If at first you don’t succeed, try, try again,” Perez said. “If you cut these benefits, you not only hurt those people but you also create a further drag on the economy.” There had been signs that January job growth might not meet expectations. A closely watched index of manufacturing activity tumbled last month. Auto sales were not as strong as hoped, and data from the housing sector have been mixed. “The last two job reports could dampen the short-term economic outlook,” said Keith Hall, a senior research fellow at the Mercatus Center at George Mason University and former commissioner of the Bureau of Labor Statistics, which compiles the monthly numbers. The jobs data present a challenge for the Federal Reserve as it eases its support for the economy. The central bank began tapering the amount of money it was pumping into the recovery last month and expects to wind down its bond-buying program this year. In fact, the unemployment rate has fallen faster than the Fed has anticipated. The central bank has promised to keep its benchmark short-term interest rate near zero until “well past” the time the unemployment rate hits 6.5 percent. But with the nation rapidly approaching that threshold, investors will begin to demand more clarity from the Fed on how it will react after the line is crossed. U.S. stock markets rallied Friday despite the jobs data. Some analysts surmised that investors expected the weak reading to force the Fed to slow down its withdrawal of stimulus. Others suggested that Wall Street was focused on bright spots in the data and viewed the recovery as essentially on track. “Market reaction has been muted as this employment release changes few minds about the direction of the economy,” said Scott Anderson, chief economist at Bank of the West. Economy added only 113,000 jobs in January VIDEO BELOW http://www.washingtonpost.com/business/economy/economy-added-11300-jobs-in-january
The Fed’s Focus On The “Wealth Effect” Is Idiotic Washington’s Blog February 7, 2014 We’ve repeatedly noted that the Fed’s main strategy has been to artificially blow bubbles in asset prices. And we’ve repeatedly pointed out that one of the Fed’s main goals is to boost the stock market, yet the great majority of Americans – the bottom 90% – own less than 20% of all stocks and mutual funds. So the Fed’s effort overwhelmingly benefits the wealthiest Americans, and doesn’t help the general economy. Barry Ritholtz has a great post at Bloomberg about the Fed’s idiocy of the Fed’s focus on the “wealth effect”: When will these guys ever learn that maybe, just maybe, these Fed policies aimed at targeting asset prices at levels above their intrinsic values is probably not in the best interests of the nation? -Dave Rosenberg, chief economist and strategist at Gluskin, Sheff *** [What bugged me most about Fed policy] is the Federal Open Market Committee’s focus on the so-called wealth effect, and its corollary impact, the stock market’s reaction to Fed policy. Let’s begin with a quick definition: The wealth effect is an economic theory that posits rising asset prices leads to beneficial effects in consumer sentiment, retail spending, along with corporate capital expenditure and hiring. It is based on a belief in a virtuous cycle that begins with equity prices. As they rise, investors and senior corporate managers begin to feel more secure and comfortable in their financial circumstances. This improvement in psychology releases the “animal spirits,” along with a commensurate increase in spending.
Pretty soon thereafter, the entire economy is moving on the right direction. But Fed policy makers seem to have gotten this precisely backward. Their premise is based upon a flawed statistical error, one that confuses correlation with causation. Building an entire thesis upon a flaw is likely to lead to poor results. Why is the wealth effect a flawed theory? Start with that correlation error: What actually occurs during periods where stock prices are rising? As Benjamin Graham observed, over the long term, markets act like a weighing machine — valuing equities based on their cash flow and earnings. During periods of economic expansions, it is the rising fundamental economic activity that reflects the positive things wrongly attributed to the wealth effect. Companies can hire more and increase their capital spending. Competition for labor leads to rising wages. Employed, well-paid workers spend those wages on capital goods such as cars and houses, and discretionary items like entertainment and travel. Oh, and along with all of these economic positives, the stock market is buoyed as well, by increasing profits and more buoyant psychology. In other words, all of the same forces that drive a healthy economy, leading to happy consumers spending their plump paychecks, also drive equity markets higher. The Fed, though, seems to think that the stock-market tail is wagging the fundamental economic dog. *** The flaw in this thesis is even more obvious when we consider the distribution of equity ownership in the U.S. The vast majority of employees and consumers have only modest investments in equities. *** With so few people actually invested in the results of the stock market, how can it have such a broad effect on consumer spending? Which leads to a Fed policy that has become overly concerned with the markets reaction to well, everything. Fed policy, FOMC member speeches, even FOMC minutes are obsessively considered in light of how markets will react to them. This is a terrible and unique Fed error. No wonder only higher income brackets like Fed policy.
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