Soros: Gold In Bubble; But Keep Stimulus Going…..

Always nice to see people talk out of both sides of their mouth.

Here is currency speculator George Soros (ex of legendary hedge-fund Quantum) at the World Economic Forum at Davos:

“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment. The ultimate asset bubble is gold.”

So far so good. Mis-price money (cheap interest rates) and people don’t want to keep their savings in it. They want it in something that isn’t subject to mis-pricing (so they hope) – hence gold.

But then Soros shows how disingenuous he’s being by adding this:

“I think that since the adjustment process to the recession is incomplete, there is a need for additional stimulus. Some countries, like the US and European countries, have plenty of room to increase their deficits. The political resistance to doing so increases the chances of a double dip in the economy in 2011 and after that.”

That is, he’s suggesting running more deficits and keeping the money spigot going, just the thing that’s caused the gold price to rise.

So how do we understand this?

Gold is due for a technical correction, but it’s also probably responding to deflation in the general economy. It’s not going down that fast, because a lot of people are also buying it speculatively.

That’s the tug of war.

Meanwhile, who know what Soros’ holdings are and who knows what his motivations are in making such contradictory statements.

But anyone who takes these sorts of pronouncements as any kind of lead for their own investments/speculations, should be prepared to part fairly soon from their money.

More From The Easter Bunny…

I’ve been curious about the identity of the Easter Bunny, although, strictly speaking, it doesn’t affect the validity of the anti-NSS campaign.

The Bunny has zeal. Bunny-speak is brave, plain-spoken and easy to read:

The SEC was created to reassure the unwashed masses that it was safe to invest in the markets, after the Great Crash of 1929 proved it was anything but. It was a PR firm for Wall Street, slipped through as an alternative to a regulator who would or could actually do anything to curb the real crookery on Wall Street. At the helm was one of the greatest stock manipulators of all time, Joe Kennedy, who along with Percy Rockefeller and others amassed incredible fortunes running stock pools in the 1920’s.

For those who don’t know what a stock pool is, it’s a hedge fund whose sole purpose is to manipulate stocks, first up, then down, making money in both directions. Which was enormously lucrative for the operators of the pools, and the investors therein – the only losers were always the general investing public, and other participants who weren’t on the inside. I would argue that’s precisely what some of the most lucrative hedge funds of modern times also do – there aren’t a lot of ways to beat the market with 30 or 40% returns, year after year, that don’t involve larceny and criminal behavior, at least in my study of the last century of market history.”

The Bunny doesn’t mince words:

“I concluded a while ago that the rot in the system is pervasive, runs from top to bottom, and is largely unfixable. You have oligarchs, powerful and rich families and corporations, who are having their bought-and-paid-for politicians operate the country for their personal enrichment, at the direct expense of everyone else…..

“My point is that absolute power and wealth enable one to control the safeguards that were put into place to protect populations. By co-opting politicians and capturing regulators, the bad man is allowed to come into the room and do whatever he wants, whenever he likes – and the captured media merely pretends that it can’t hear the cries for help or investigate the countless damaged lives. It’s as bad as Russia under the communists, or perhaps worse.”

The Easter Bunny stays under wraps for a reason I can guess… but maybe not express publicly.

I asked a couple of people in a position to know if it was so-and-so. They denied it stoutly.

I could, of course, go the route of the New York press, which likes to stake out, tap phones, access medical records illegally, go undercover,or violate court orders, or any number of other things.

Including hounding erstwhile presidential candidates long after they have ceased to be of political importance.

(If only John Edwards knew how lucky he was to avoid a life as a national figure, official prey for every predator with a pen)

But that particular game doesn’t seem worth either the moral or social candle. And, most often, almost as much can be learned by reading between the lines and studying public evidence as by sleuthing.

But, while sleuthing only requires elbow grease and chutzpah, analysis requires a degree of knowledge, judgment, and intellect that is simply beyond the pay-grade of some journalists, however exalted their professional status. These petty despots have pens and they have power, but they have no clothes, as surely as the emperor they shill for.

A few have figured that out. More will follow suit.

To make the story short, I went and reread a few public records that reference NSS and replayed the stout denials in my mind, recalling as best I could the silences, the gaps, the tone of the answers. I reread The Bunny carefully.

He’s an erudite man, it’s clear. I came to my conclusion about who he was. Right or wrong, time will tell.

I only bring it up to show how looking at the big picture and developing the correct perspective can be as useful and is far more cost-efficient than private-eye sleuthing that reporters think is the one and only credible way to tell a story. Baloney. And morally dangerous baloney. Dirty tricks, even for some intended good you believe in, inevitably corrupt the people who play them, in the same way  black ops corrupt intelligence agencies.

Sleuthing is good to add the footnotes and the QED at the bottom of a piece of research and critical analysis. But as a way of curing social cancers – and financial racketeering is more social cancer than legal infraction – it has limited use. By the time you have written your expose to your editor’s satisfaction and done what it takes to avoid libel litigation, the story is old, the crooks have covered their tracks in paper dirt, and a new game is afoot.

Far better to play Sherlock and deduce your conclusions. Leave the investigative reporters to do their thing. You do yours but you do it to appease your own conscience, out of love for what human beings might be (hard to love them as they are, frankly), out of sheer intellectual curiosity (a great part of what drives me), glee at pelting stones at arrogant predators, and…yes…because after life’s fretful fever, we really don’t know what comes next. It might be wise to hedge our bets, as Pascal did.

There may or may not be Judgment Day. But should it roll around, we want to be able to pass muster. Well, at least, we want the She: Who Is Probably Not There to know we tried…

And  then of course, we write mainly because it’s fun…

How, my dear Mary, — are you critic-bitten
(For vipers kill, though dead) by some review,
That you condemn these verses I have written,
Because they tell no story, false or true?
What, though no mice are caught by a young kitten,
May it not leap and play as grown cats do,
Till its claws come? Prithee, for this one time,
Content thee with a visionary rhyme.

(Percy B. Shelley, “The Witch of Atlas”)

Sith-Lord Sweep: AG’s Pending Indictments Cover Major Hedgies, Journalists, and Regulators

Corporate finance generalist, investment banker and expert in derivatives, Austin Burrell, sums up last week’s announcement by Attorney-General Eric Holder that there are 5000 pending indictments [sic] arising out of the investigation of fraud in the capital markets:

[Note: the DOJ is involved in some 5000 odd cases of fraud related to the financial industry… Continue reading

Hedge Funds: Top Ten Earners in 2007/2008

New York Magazine had a piece in 2007 that sorted the hedge-fund elites into categories like “brainiacs” (like James Simon and Jim Chanos) and “bad boys” (like Daniel Loeb).

The category “Top dogs” (that is, the very best hedgies) includes SAC Capital Advisers/Steven Cohen ($12 b); Cerberus Capital/Stephen Feinberg ($19.5 b); Appaloosa Mgt/David Tepper ($5.3 b); ESL/Eddie Lampert ($18 b); Citadel Investment Group/Kenneth Griffin ($13.5 b); Manhattan/Michael Novogratz ($4.6b).

[Note: the figures were as of 2007].

This is the short list of the managers whom the industry thinks are top dogs, and of these six, one (Feinberg) is directly connected to Drexel Burnham Lambert, convicted junk bond financier Michael Milken’s bank; another (Cohen) is connected indirectly to Milken through Gruntal & Co.; and three are alumni of Goldman Sachs(Tepper, Lampert, Novogratz).

Five out of six and that’s just a cursory examination. I didn’t do anything more than google to get that.

And the financial press thinks there are no Sith Lords?

A more conventional ranking is found below: Continue reading

Xmarks’ Top 20 Corruption Sites List Includes Deep Capture

I just happened to notice this ranking of the most popular corruption sites and thought I’d post it as more evidence that the campaign against naked short selling isn’t some marginal “freak” show, as some of the financial blogs have tried to claim it is. Continue reading

DTCC Board Stuffed With Kleptocrat Banks/Funds

The DTCC (Depository Trust and Clearing Corporation) is the largest depository in the world, and, along with its subsidiaries, the place where all transactions in equities, money market funds, corporate and muni bonds, MBSs and derivatives are cleared and settled.  Activists have been demanding detailed release of trades which haven’t been settled or have failed to deliver (FTD), because of the obvious potential for manipulation, A glance at the board of directors, which consists of leading figures from the banks and funds, many of whom profited hugely from the government bail-out, shows that concern is amply warranted.

From Citizen Economists:

DTCC BOARD OF DIRECTORS

The DTCC’s board includes 20 directors.

Art Certosimo, Senior Executive VP, Bank of New York Mellon
Norman Malo, President and CEO, National Financial Services LLC; Fidelity Investments
Stephen P Casper, Partner, Vastardis Capital
Gerald A. Beeson, Senior Managing Director, COO. Citadel Investment Group
Donald F. Donahue, Chairman and CEO, DTCC
William B. Airnetti, President and COO, DTCC
J. Charles Cardona,  CEO Bank of New York Mellon – Cash Investment Strategies,  President of the Dreyfus Corporation
Randolph L. Cowen, Co-Chief Administrative Officer, Goldman Sachs Group Inc
Norman Eaker, CAO, Edward Jones
Timothy J. Theriault, President – Corporate & Institutional Services, Northern Trust Company
Neeraj Sahai, Managing Director and Global Business Head, Securities and Fund Services, Citi
Gerard La Rocca, Chief Administrative Officer, Americas Barclays Capital
David A. Weisbrod, Managing Director and Risk Executive, JP Morgan Chase Bank
Stephen Luparellyo, Vice Chairman and Senior Executive Vice President of Regulatory Operations, FINRA
Mark Alexander, Managing Director, Global Wealth and Investment Management – Bank of America, Merrill Lynch, Head of Technology Operations, Broadcort Clearing
Ronald Purpora, ICAP Securities USA LLP
Robert Kaplan, Executive Vice President, State Street Bank and Trust Company
Michele Trogni, Managing Direcotr and Global Head of Operations, UBS Investment Bank
Ian Lowitt, Administrative Officer, Lehman Brother

Reverse Midas: SAC Spin-Offs Fail Even When They Succeed

Reading this report about SAC Capital by Reuters, I was struck by a few things.

But first, here’s the chronology (skip below for my argument):

  • 1980s: Steven Cohen allegedly involved in insider trading at Gruntal
  • 1999-2004, 2004-2007, 2007-2009: Insider trading at Spherix (ex-SAC trader Richard Lee’s own firm); and possibly at Stratix (founded by Goodman and Grodin in 2004, also ex-SAC traders, with SAC as a sizable investor); and (again, possibly) at SAC itself, by Richard Lee and Ali Far, also an alum of SAC.
  • 2006: SEC investigates SAC and two other firms for manipulation of Fairfax Financial stock. Investigation dropped in 2007
  • 2007-2009: Agent Kang investigates 20 hedge funds for insider trading
  • 2007: SEC investigates SAC over Andrew Tong’s sex charges. Case sealed in 2008. Reopened in Nov. 2009, this time focusing on insider trading. About this time, Richard Grodin’s and Ian Goodman’s firm Stratix (where Lee and Far worked) closes. Grodin then begins Quadrum, which also closes
  • Oct-Nov 2009: Galleon Group charged by Kang with insider trading and 14 traders arrested, including former SAC traders, Richard Lee and Ali Far
  • Nov-Dec 2009: Cohen’s ex-wife alleges insider trading when Cohen was at Gruntal & Co. in the 1980s
  • Dec. 2009: Ex-SAC trader and founder of Stratix Richard Grodin subpoenaed

**************************************************************************************************************

Now that you have that in mind, here are the things that struck me:

1. The high number of SAC traders who seem to have gone off into their own businesses.

You’d think with all that money and the fund’s record as the most consistently successful in the business (only one bad year on record), their traders would stay forever. Quite the opposite.  People seem to have been leaving all the time to form their own businesses.

But SAC was also said to be a very tough environment. You produced, or you left.

So maybe that’s why Lee and Far, Grodin and Goodman, all left to found their own firms?
Could be. But I’m not convinced.

2. None of the spin-off firms seems to have been very successful.

Why not? Why couldn’t these hot-shot traders make money on their own?

The Reuters piece suggests that perhaps the SAC experience didn’t foster business ability. And that perhaps SAC traders flounder without SAC’s huge supporting cast.

But those things are likely to be true of other firms as well, not solely SAC.

Still not convinced.

Furthermore, consider this.

3. A spin-off fund that didn’t get money from Cohen ended up quite successful:

“Healthcor, a healthcare industry focused fund, had raised $3.2 billion by June 2009 since launching four years ago. The fund returned 25 percent in 2006, 18 percent in 2007, and was up 4 percent last year, when the average hedge fund lost 19 percent. In the first 10 months of 2009, Healthcor was up 7 percent.

Healthcor, founded by Arthur Cohen and Joseph Healey, opened without any financial support from SAC. In fact, soon after Cohen and Healey struck out on their own, SAC sued the pair, accusing them of breaching their employment contracts. The matter ultimately was settled. (Healthcor’s Cohen is not related to SAC’s Cohen).”

4. Even spin-offs that were doing well were shut down.

When Stratix started in 2004, it had $60 million given to it by SAC. When it shut down, in 2007, it was up 17% and had $530 million under management. Yet it shut down. Why did it shut down? Those numbers sound pretty good.

Another spin-off, Fontana Capital, started out in 2005 with $50 million of SAC money. It grew to $325 million by 2006.  But sometime in 2007, Cohen pulled out all his money. And in 2009, Fontana was down to $16.1 million, despite being down only 7.69%, compared to the average S&P Financial index loss of 57%. Again, that sounds like it wasn’t doing all that bad.

Reuters quotes someone familiar with the record of ex-SAC traders:

“So many of the ex-SAC people seem to have this model where they attract you with fantastic returns in the first year but in year two or three or four you get annihilated,” said a person who is familiar with several former SAC employees’ records.

Shades of Bernie Madoff….

Someone need to look closely at what happened to the money at these firms…

Dan Denning On Dubai, Copenhagen, And The Stock Market

Dan Denning, author of “Bull Hunter” (Wiley, 2005), in the Daily Reckoning (Australia):

“The S&P 500 hit a 14-month high overnight. The conventional wisdom is that two news events are responsible. This is probably wrong. But let’s look at both events anyway and see what happened.

The first is that Abu Dhabi extended a $10 billion in financing to debt-distressed Dubai. Hossanah! Remember, Dubai is not Lehman. It’s Bear Stearns. It’s merely the reminder that there are lot of leveraged investors in the world who’ve used borrowed money to buy assets that aren’t very productive. They’ll get theirs soon enough.

The second bullish item is that ExxonMobil (NYSE:XOM) made a US$41 billion all stock bid for Houston-based natural gas company XTO. This sent Exxon shares down 4.4%. Thus the Dow’s rally was a bit tepid (XOM is a Dow component)……

Exxon is either getting a bigger foot in the U.S. natural gas market or hedging against cap-and-trade legislation, or both. We vote for both. No one is in a better position to know about the constraints on global oil production and discovery of new reserves than a major company like Exxon. And Exxon has seen firsthand that unconventional natural gas can be a lucrative little market.

But are those two bits of news really enough to send the market higher? Probably not. Who knows why the market goes higher? It does what it does. There’s an alternative explanation.

The alternative explanation is that the Copenhagen climate talks look like they’re collapsing into confusion and President Obama’s legislative agenda is in tatters. The private sector absolutely loves this…..

Good policy? Bad policy? Who knows? All we know is that the more uncertainty you introduce into the markets, the more conservative and defensive investors are going to get……

That’s not to say that a deal won’t come out of Copenhagen. Maybe the planet will be saved. Or maybe Copenhagen is the sell signal for global warming as a big idea/moral issue with which to bash the public. But either way, we reckon the stock market actually likes the idea that no climate deal is imminent and that healthcare legislation in the U.S. Senate can’t seem to get 60 votes.

My Comment

Full disclosure: I worked for Agora two years ago. I receive no financial or other compensation ( trips, free food, passes to movies, restaurants, invites to exclusive seminars, commissions on real estate, insider deals etc. etc.) for mentioning them.  But, if you´re writing about financial contrarians, they´re the original ones ….

My own difficulties with and criticism of them do not – and should not – prevent me from correctly attributing and acknowledging their work in populariazing nearly all the main issues that are now being debated in the media. Certainly, it was through them, and through Lew Rockwell, and Mises, not through establishment media or their blogs that I received an education in Austrian economics (I should add that I was always instinctively oriented to it, from childhood on).

Having deleted my facebook account after the social media wrestling-match between the Wall Street media mob (and backers) and Deep Capture´s investigative team (and backers),  I am now content with actually writing emails or making phone calls to people I want to contact. Thankfully, there aren´t many I do.

SEC To Look At High-Frequency Trading and Naked Access

From Reuters, a report shows sharp rise in “naked access” to markets after 2005:

“NEW YORK (Reuters) – A report says that 38 percent of all U.S. stock trading is now done by firms that have “naked sponsored access” to markets, the controversial trading practice said to imperil the marketplace, and which faces a regulatory crackdown.

Naked access gives trading firms, using brokers’ licenses, unfetted access to stock markets. The firms, usually high-frequency traders, are then able to shave microseconds from the time it takes to trade.

Aite Group, a Boston consultancy, found that naked access accounted for just 9 percent in 2005.

The U.S. Securities and Exchange Commission is set to make changes to naked access and less risky forms of so-called sponsored access, when it releases a document expected next month.

The document is also expected to look more generally at high-frequency trading — where proprietary trading firms, brokers, and others use algorithms to make markets and profit from narrow market inefficiency.”

Gold Sinks Further, Dollar Surges..

We will need to see a few more days of supporting action, but as of now, it looks like gold might be beginning the long-awaited correction.

How deep that will go is anyone´s guess, though the recent central bank buying is supposed to lay a floor for it above $1000. Now, normally I wouldn´t bet the house on that, but I´ve come to see that pronouncements from insider analysts (at GS) are no longer just market analysis to be weighed. They are announcements about the course of action the banking cartel is going to be supporting.

The trigger for this? I think it´s that upbeat jobs number, which is probably taking some speculative money out of gold …especially as gold is technically very overbought and institutional buyers want to lock in profits before the year end.

Dubai is more important than most commentators think, even Marc Faber. They say the numbers involved are  too small.

But, as I blogged earlier, they´re  not seeing the contagion possible.

Here´s what they´re discounting:

1 We don´t know what the numbers from Dubai really are.  We can´t be absolutely sure. They keep changing them.  $125 billion (the highest figure I´v heard) may not be enormous in a global context, but we don´t know how its tied up with investments and where. A firesale of Dubai Worlds real estate could have unsettling effects all over the world.

2. Dubai has an impact on the property market, not just in Dubai, but in London and New York where Dubai Worlds has holdings, and also in India, where real estate and employment could take a hit.

3. Banks have leveraged exposure through derivatives, beyond what they are admitting in public.

4. These are banks that are already broke, for all purposes.

5. When the banks involved are not themselves broke, they are backed by governments that are broke, or near-broke.

6. The government with likely the most exposure is Britain. Britain is on the verge of sovereign default.

7. This happens just as the second down-leg in real estate is unfolding, and along with it the just-as- leveraged commercial real estate market (see the recent zero hedge post on an ongoing  CRE failure in Chicago), where there´s little pressure for the Feds to step in.

8. This happens after a 10-month run up in the stock market in what is essentially a bear rally, according to many experts.

9. This happens when the government has escalated an unpopular war in Afghanistan, calling for more troop commitments and more money

10. This happens after massive further government commitments in health care and other social spending.

Would the dollar move up just on the back of an employment number that was widely acknowledged to be misleading? I don´t know.

Do I know if gold will sink below $1000? No.

But CB (central banks of India etc.) buying is said to have set the floor. Me, I  think that was a bit of help given by the RBI (CB of India, Sri Lanka, etc.) to the IMF, seat of power of the globalists. Even the IMF admitted it got lucky.

Will that bit of market manipulation to the upside be enough to stave off the deflationary effect of develeraging asset derivatives?

I don´t know, but I suspect it won´t.

I’m anticipating  a rush into the dollar like we had in 2008…maybe not as strongly…
maybe gold will sop up some of the rush this time. I think that´s what the CB´s are hoping will happen.

But again, one can´t be sure, for the simple reason no one knows how much more bad debt there is and where it is.