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In today’s market far too much has become based on financial engineering rather than making money. Prior to the Great Depression share buybacks and margin lending was a huge factor in lifting stocks to an unsustainable level. We must remember this today because for years we have seen a slew of stories and articles about how companies buying back their own stock are driving the market higher. I would be amiss not to comment on this and point out the impact and importance of stock buybacks and how they add to both low volatility and at the same time support “crazy high” valuations.

For decades stock buybacks were illegal because they were considered to be a form of stock market manipulation. They were legalized in 1982 by the SEC and since then have become a tool for companies and management to boost share prices. Buybacks have been described as “smoke and mirrors,” because when a company buys back shares of their own stock they reduce the “share float” and increase earning per share.

Stock Buybacks Just Keep Coming

Buybacks should be viewed as a double-edged sword with great power in that they reduce the number of shares over which earnings are divided at the same time they add to market demand. Buybacks can give the impression the companies earnings are increasing while in reality, overall earnings may be flat or even on the decline. The deregulation of buybacks years ago has returned to haunt us because it tends to create a dangerous illusion that draws less sophisticated investors into a market that is not nearly as strong as it appears. …click on the above link to read the rest of the article…

Three-Card Monte, Wall Street-Style

February 1, 2021

Three-Card Monte, Wall Street-Style

Their operation was in jeopardy, their ‘business model’ at risk. Their reaction was typical for the brazen barons of finance, writes Michael Brenner.

Surer than Three Card Monte, from the Tricks with Cards series (N138) Duke, Sons & Co. to promote Honest Long Cut Tobacco, 1887. (Metropolitan Museum of Art/Jefferson R. Burdick Collection)

This week witnessed an historic event – one that deserves to be memorialized. A band of financial speculators were beaten at their own game, losing $3 billion. A bunch of clever young guys used the hedge fund’s own methods to turn the tables on them.

For years, those white-collar cheats have been dealing 3-card monte on Wall Street with impunity. Now, their operation was in jeopardy, their ‘business model’ at risk. Their reaction was typical for the brazen barons of finance.

They rushed to Washington to complain to their retainers, demanding protection of their constitutional right to pillage the American economy.

What they are demanding is a police escort to secure their 3-card monte scam by screening out anyone who might know their tricks. So, what happens?

Nearly everyone in power from Nancy Pelosi to the head of the SEC quickly pledges to investigate this affront to the country’s financial markets – evidently having no other affronts to tend to.

“Guilty is a word unspoken except where innocence dares to plead.”

The electronic trading services went so far as to bar the mavericks from using their facilities; only marks welcome. All agree that it is a national emergency.

I am shocked! Shocked to hear reports of an attempt to manipulate the financial markets – the most transparent, fairest in the world. Some of my best friends are hedge fund directors; they’re the finest, most honest people you’d ever want to know!

…click on the above link to read the rest of the article…

Regulators Expand Already Massive Precious Metals Manipulation Probe To Other Markets

September 18, 2019

Regulators Expand Already Massive Precious Metals Manipulation Probe To Other Markets

Just two days after the DOJ took the unprecedented step of designating the JPMorgan precious metals trading desk as a “criminal enterprise” using unusually aggressive language which reminded legal experts of indictments utilizing the RICO Act, and which hopefully ended years of precious metal manipulation by the group formerly headed by Blythe Masters, CNBC now reports that the probe is set to spread significantly as Federal prosecutors and regulators “are expanding their already aggressive investigations of fraudulent precious metals trades at J.P. Morgan Chase to other U.S. markets and financial firms.”

The inquiry into market manipulation of all kinds comes amid a spike in criminal prosecutions and civil actions in the past year involving so-called “spoofing” in the precious metals markets, which we now find had been taking place with reckless abandon for years at JPMorgan and virtually all other major banks.

The prosecutors broadened their investigation thanks to information received from traders questioned for spoofing-related charges, and as in most RICO cases, the information obtained from those traders has led to criminal charges against other individuals.

In short: what we for many years said was blatant manipulation of precious metals was precisely that, and now the participants in said manipulating cabal are being treated as a mafia syndicate by the DOJ.

The widening inquiry is being led by the Justice Department and the U.S. Commodity Futures Trading Commission as they continue their pursuit of individuals and firms for manipulating U.S. markets.

The crackdown may result in one of the biggest conviction rings for the DOJ since the financial crisis, with CNBC adding that the scope of the investigations has grown to the point where the criminal fraud division of the Justice Department expects to add personnel to the existing team to assist with the investigations and prosecutions of cases.

…click on the above link to read the rest of the article…

Could GE’s Slow Collapse Ignite A Financial Crisis?

December 3, 2018

Could GE’s Slow Collapse Ignite A Financial Crisis?

Will GE be the proverbial “black swan?” – It had come to my attention that General Electric was locked out of the commercial paper market three weeks ago after Moody’s downgraded GE’s short term credit rating to a ratings level (P-2) that prevents prime money market funds from investing in commercial paper. Commercial paper (CP) is an important source of short term, low-cost, liquid funding for large companies. At one point, GE was one of the largest users of CP funding. As recently as Q2 this year, 14.3% of GE’s debt consisted of CP. Now GE will have to resort to using its bank revolving credit to fund its short term liquidity needs, which is considerably more expensive than using CP.

Moody’s rationale for the downgrade was that, “the adverse impact on GE’s cash flows from the deteriorating performance of the Power business will be considerable and could last some time.” Keep in mind that the ratings agencies, especially Moody’s, are typically reluctant to downgrade highly regarded companies and almost always understate or underestimate the severity of problems faced by a company whose fundamentals are rapidly deteriorating.

As an example, Moody’s had Enron rated as investment grade until just a few days before Enron filed bankruptcy. At the beginning of November 2001, Moody’s had Enron rated at Baa1. This is three notices above a non-investment grade rating (Ba1 for Moody’s and BB+ for S&P). Currently Moody’s and S&P have GE’s long term debt rated Baa1/BBB+. In the bond market, however, GE bonds are trading almost at junk bond yields.

…click on the above link to read the rest of the article…

JPMorgan Chase Trader Pleads Guilty to Gold Manipulation, Turns State’s Evidence

November 13, 2018

JPMorgan Chase Trader Pleads Guilty to Gold Manipulation, Turns State’s Evidence

Gold and silver investors got a rare bit of good news on the enforcement front last week.

A trader from JPMorgan Chase pled guilty to rigging the precious metals futures markets.

John Edmonds admitted to cheating the bank’s clients and plenty of other people naive enough to expect fair treatment on the COMEX and other exchanges.

While this is by no means the first time a banker has been caught cheating, some aspects of this case are certainly worth noting.

Below is some detail on the who, what, when, why, and how of Mr. Edmonds’ activities at JPMorgan.

As part of his plea, Edmonds admitted that from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.

Edmonds and his fellow precious metals traders at the Bank routinely placed orders for precious metals futures contracts with the intent to cancel those orders before execution (the Spoof Orders), he admitted.

This trading strategy was admittedly intended to inject materially false and misleading liquidity and price information into the precious metals futures contracts markets by placing the Spoof Orders in order to deceive other market participants about the existence of supply and demand. The Spoof Orders were designed to artificially move the price of precious metals futures contracts in a direction that was favorable to Edmonds and his co-conspirators at the Bank, to the detriment of other market participants.

In pleading guilty, Edmonds admitted that he learned this deceptive trading strategy from more senior traders at the Bank, and he personally deployed this strategy hundreds of times with the knowledge and consent of his immediate supervisors.

…click on the above link to read the rest of the article…

More Evidence The Economy Is Deteriorating

August 27, 2018

More Evidence The Economy Is Deteriorating

“Financial-market and economic prospects remain far shy of the hype and headlines, amidst tanking consumer optimism and negative revisions to recent reporting.” – John Williams, Shadowstats.com

The economy may seem like it’s doing well if you are part of the upper 10% demographic. Though, in reality, for most of the upper 10%, doing “well” has been a function of having easy access to credit. NASA Federal Credit Union is offering 0% down, 0% mortgage insurance for mortgages up to $2.5 million.

Someone I know suggested the tax cut stimulus had run its course. But the narrative that the tax cuts would stimulate economic activity was pure propaganda. The tax cuts stimulated $1 trillion in expected share buybacks and put more money in the pockets of corporate insiders and billionaires. The average middle class household spent its tax cut money on more expensive gasoline and food. Since the tax cut took effect, auto sales and home sales have declined. Retail sales have been mixed. However, it’s difficult to distinguish between statistical manipulation and inflation. I would argue that, net of real inflation and Census Bureau statistical games, real retail sales have been declining.

As an example, last week Black Box Intelligence released July restaurant sales. While comparable store sales were up 0.54% over July 2017, comparable restaurant traffic was down 1.8%. On a rolling three months, comp sales are up 0.46% but comparable traffic is down nearly 2%. With traffic declining, especially a faster rate relative to the small increase in sales, it means the sales “growth” is entirely a function of price inflation. If Black Box Intelligence could control it’s data for price increases, it would show that there is no question that real sales are declining. I have been loathe to recommend shorting restaurant stocks because, for some reason, the hedge funds love them.

…click on the above link to read the rest of the article…

The Yield Curve Is The Economy’s Canary In A Coal Mine

July 7, 2018

The Yield Curve Is The Economy’s Canary In A Coal Mine

The economy has hit a wall and is now sliding down it. I don’t care what bullish propaganda may or may not be bubbling up in the headlines from the financial media and Wall Street, the hard numbers I look at everyday show accelerating economic weakness. The fact that my view is contrary to mainstream consensus and political propaganda reinforces my conviction that my view about the economy is correct.

As an example of the ongoing underlying systemic decay and collapse conveyed by this week’s title, it was announced that General Electric would be removed from the Dow Jones Industrial Average index and replaced by Walgreen’s. GE was an original member of the index starting in 1896 and was a continuous member since 1907.

GE is an original equipment manufacturer and industrial product innovator. It’s products are used in broad array of applications at all levels of the economy globally. It is considered a “GDP company.” GE was iconic of American innovation and economic dominance. Walgreen’s is a consumer products reseller that sells pharmaceuticals and junk. Emblematic of the entire system, GE has suffocated itself with poor management which guided the company into a cess-pool of financial leverage and hidden derivatives.

As expressed in past issues (the Short Seller’s Journal), I don’t put a lot of stock in the regional Fed economic surveys, which are heavily shaded by “hope” and “expectation” metrics that are used to inflate the overall index level. These are so-called “soft” data reports. But now even the “outlook” and “expectations” measurements are falling quickly (see last week’s Philly Fed report). The Trump “hope premium” that inflated the stock market starting in November 2016 has left the building.

…click on the above link to read the rest of the article…

How High Is The Risk of a Currency Crisis?

April 24, 2018

How High Is The Risk of a Currency Crisis?

“The reports of my death are greatly exaggerated”, quipped Mark Twain in response to a newspaper report that said he was on his deathbed. The same could be said about many fiat currencies. Whether we are looking at the US dollar, the euro, the Japanese yen or the British Pound: In the wake of the financial and economic crisis of 2008/2009, quite a few commentators painted a rather bleak future for them: high inflation, even hyperinflation, some even forecast their collapse. That did not happen. Instead, fiat money seems to be still in great demand. In the United States of America, for instance, peoples’ fiat money balances relative to incomes are at a record high.

How come? Central banks’ market manipulations have succeeded in fending off credit defaults on a grand scale: Policymakers have cut interest rates dramatically and injected new cash into the banking system. In retrospect, it is clear why these operations have prevented the debt pyramid from crashing down: 2008/2009 was a “credit crisis.” Investors were afraid that states, banks, consumers, and companies might no longer be able to afford their debt service — meanwhile, investors did not fear that inflation could erode the purchasing power of their currencies as evidenced by dropping inflation expectations in the crisis period.

Central banks can no doubt cope with a credit default scenario: As the monopoly producer of money, central banks can provide financially ailing borrowers with any amount deemed necessary to keep them afloat. In fact, the mere assurance on the part of central banks to bail out the financial system if needed suffices to calm down financial markets and encourages banks to refinance maturing debt and even extend new credit. Cheap and easy central bank funding prompted lenders and borrowers to jump right back into the credit market. The debt binge could go on.

…click on the above link to read the rest of the article…

The Fed Targets Stock Prices – Here’s Why

February 18, 2018

The Fed Targets Stock Prices – Here’s Why

The week before the Dow/SPX quickly plunged 10%, the Fed had reduced its SOMA account (the SOMA account is its “QE” account) by $21 billion. Just as quickly as the stock market dropped, it has sharply recovered more than half of its losses from the previous week. As it turns out, the Fed added $11 billion back to its SOMA account. That’s an $11 billion injection of cash directly into the banking system. Clearly the Fed’s actions were a large factor in the 10% plunge and the subsequent bounce.

The Federal Reserve is targeting stock prices with it’s monetary policy because, if it did not, the financial system would collapse led by collapsing pension funds and the housing market. The pension collapse alone would run into the trillions of dollars.

I have a good friend/colleague who works at big public pension fund. He did a “stress test” study with the data available to him on all big public pensions. He concluded that, based on the current stated amount of underfunding at every big pension fund, if the Dow/SPX declined 10% or more over a sustained period of time – where “sustained period” is defined as 3-4 month – every public pension fund in the country would collapse.

You’ll note in the graphic above that the three 10% drops in the Dow since August 2015 were followed with sharp, “V” recoveries. Each one encompassed 10% drawdowns which were remarkably brief. The latest 10% plunge has been met with an equally forceful recovery, with the 10% decline allowed to persist for less than three trading days.

Craig Hemke – aka “Turd Ferguson” – invited me to discuss the the massive financial pressures building in the U.S. financial and economic system. It’s 2007 before the de facto financial system collapse on steroids. The factors discussed explain why the Fed will not let the stock market sustain a meaningful sell-off – visit TF Metals for the podcast link.

Whistleblower Exposes “Rampant Manipulation Of VIX”

February 13, 2018

Whistleblower Exposes “Rampant Manipulation Of VIX”

We first exposed the “conspiracy fact” that VIX manipulation runs the entire market back in 2015 as the ubiquitous VIX-crushing algo-runs coincided with a non-stop shorting of VIX futures by a seemingly bottomless-pocketed player in the market… which happened to coincide with the arrival of Simon Potter as the head of The New York Fed’s trading desk…

Probably just a coincidence, right?

Then, in May of last year we academic confirmation of the rigged nature the US equity market’s volatility complex, when a scientific study found “systemic VIX auction settlement manipulation.”

Two University of Texas at Austin finance professors found “large transient deviations in VIX prices” around the morning auction,“consistent with market manipulation.”

Griffin and Shams calculate that “the size of VIX futures with open interest at settlement is on average 5.7 times the size SPX options traded at settlement, and it is 7.3 times for VIX options that are in-the-money at settlement.”

So if you are a trader who owns a lot of the market in VIX futures, you could push around a large dollar value of futures by trading a small dollar value in options. This is particularly true because the S&P option volume is divided among many strikes, and the illiquid deep out-of-the-money S&P 500 options have a big influence on the VIX: You can move the price of those options a lot with relatively small trades, and those price changes have a disproportionate effect on the VIX.

While this was immediately played down by CBOE, and the subject quickly disappeared from the headlines – because VIX was dropping incessantly and stocks were going up, up, up – until VIX flash-crashed rather awkwardly into the morning auction settlement in mid-December, bring the chatter of manipulation back to life…

…click on the above link to read the rest of the article…

EXCLUSIVE: Cramer admits the markets are manipulated

February 11, 2018

EXCLUSIVE: Cramer admits the markets are manipulated

The markets are manipulated. All markets are manipulated. What’s the ‘take away’ ? You have several choices:

A Get a job at one of the manipulators, break off and start your own manipulation firm
B Find out how they are doing it and do it yourself (if you have a really rich Uncle, otherwise this option won’t work for you)
C Find a crack in the market manipulation engine and exploit it
D Day Trading (but this is really, really, really tough and even if you can manage it, your years are limited.)

Ways to not win, or barely beat inflation:

X Buy and hold
Y Stock picking
Z Buy and hope

Both methods, statistically, will lead to ruin. You would have been right buying and holding the Amazon’s (AMZN) and the Google’s (GOOG) but how about the Worldcom’s, the Enron’s, the Kodak’s.. The Refco’s.. (we did HODL to Refco and we got a check for .30 cents on the dollar via bankruptcy court). Stock Picking and Market Timing (when will the market bottom or top) is also dangerous because even if you’re a well funded Genius, you can’t be right all the time. This blast from the past is inspired by a first screening of the original “Fight Club” with the family all together, the inspiration of the theme of this site. We tried to cover this topic on a high level in our work Splitting Pennies – but although this video is still on youtube, the meme remains well hidden from the masses. Even Zero Hedge, if you ask most people, think that we’re some political site. Is it left? Is it libertarian? No man, it’s just free. They don’t know what free is, being overwhelmed with thousands of ‘media missiles’ every day. Democrats, Republicans, and all in between are brainwashed by their own propaganda, their own Dogmas. This interview is just fascinating.. in many ways, most notably how Cramer easily switches from the ‘hedgie predator’ to ‘party line’ as if he’s 2 different people. Cramer is a smart guy, one wonders what a smart guy is doing as a TV personality, but then again, a TV icon recently became president.

…click on the above link to read the rest of the article…

Gold EFPs: Absolute Proof That Paper Gold Is A Fraud

December 22, 2017

Gold EFPs: Absolute Proof That Paper Gold Is A Fraud

IRD’s Note: In the past year, there has been a noticeably substantial increase in the use of the obscurely defined EFPs (Exchange for Physicals) and PNTs (Privately Negotiated Transactions) in the settlement of Comex gold and silver futures contracts. In simple terms, the EFPs and PNTs enable the counterparties a Comex futures contract or LBMA forward to settle the contract in an acceptable form other than the actual physical commodity as required by the contract specifications (e.g. one gold futures contract requires the delivery of a 100 oz. gold bar as qualified by the Comex). As an example, the counterparty that is required to deliver gold under Comex contract terms can deliver a comparable dollar amount of GLD shares if the counterparty standing for delivery agrees to take delivery of the GLD shares.

The EFPs and PNTs plunge the Comex operations into even greater opacity – likely intentionally. In all probability, the EFPs and PNTs are used to bridge the gap between the amount of gold (silver) that needs to be delivered and the amount of gold (silver) that is available to be delivered. The settlement of the contract occurs outside of the Comex. These contract settlement devices further enable the ability of the western Central Banks to execute the successful manipulation of the gold (silver) price.

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

In recent months, the issuance of gold Exchange for Physical (EFP) contracts has surged. EFPs convert a physically deliverable Comex gold contract into an LBMA or LME contract supposedly deliverable at a later date ex London and/or Hong Kong. As an incentive for Comex contract holders to accept EFPs, a cash bonus reportedly is paid. EFPs in silver are also being issued in vast quantities, but we will focus on gold for brevity.

…click on the above link to read the rest of the article…

The War on Gold Intensifies: It Betrays The Elitists’ Panic And Coming Defeat – Part 1

December 5, 2017

The War on Gold Intensifies: It Betrays The Elitists’ Panic And Coming Defeat – Part 1

Dictatorship (noun): Definition #3: absolute power or authority (Websters);
Def. #2: absolute, imperious or overbearing power or control (Random House);
Def. #3: Absolute or despotic control or power (American Heritage);
Def. #3: Absolute or supreme power or authority (Collins English Dictionary);
Def. #1: A type of government where absolute sovereignty is allotted
to an individual or small clique (Wikipedia).

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained, you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu, The Art of War

In recent weeks, the War on Gold, which is a subset of the broader War on Human Freedom, has sharply intensified, with massive, multi-billion dollar naked short price raids now being launched on a weekly and even daily basis by the criminal, state-sponsored price manipulators. This escalation proves the supreme importance to the Deep State financial elite of the maintenance of their gold price dictatorship, which is a vital component of their long term, systemic campaign of financial plunder.

The elitists have no problems whatsoever with stratospheric stock and bond prices; 5,000 year low interest rates; $450 million Da Vinci’s; $250 million private homes; $50,000,000 annual salaries for circus masters, whose role in keeping the masses distracted and dumb is vital; $1.9 million Aston Martins; $100,000 Air Jordan sneakers, or any of the other prices that have now gone into outer space.

But there is one thing they will not accept: an honest, free market price for gold. Because while all debauchery under the sun is permitted and encouraged in the Castle of Fraud and Corruption they have constructed and in which they revel, one thing is strictly prohibited: the utterance of truth.

…click on the above link to read the rest of the article…

Get Ready To Party Like It’s 2008

October 20, 2017

Get Ready To Party Like It’s 2008

Apparently Treasury Secretary, ex-Goldman Sachs banker Steven Mnuchin, has threatened Congress with stock crash if Congress doesn’t pass a tax reform Bill. His reason is that the stock market surge since the election was based on the hopes of a big tax cut. This reminds me of 2008, when then-Treasury Secretary, ex-Goldman Sachs CEO, Henry Paulson, and Fed Chairman, Ben Bernanke, paraded in front of Congress and threatened a complete systemic collapse if Congress didn’t authorize an $800 billion bailout of the biggest banks.

The U.S. financial system is experiencing an asset “bubble” that is unprecedented in history. This is a bubble that has been fueled by an unprecedented amount of Central Bank money printing and credit creation. As you are well aware, the Fed printed more than $4 trillion dollars of currency that was used to buy Treasury bonds and mortgage securities. But it has also enabled an unprecedented amount of credit creation. This credit availability has further fueled the rampant inflation in asset prices – specifically stocks, bonds and housing, the price of which now exceeds the levels seen in 2008 right before the great financial crisis.

However, you might not be aware that Central Banks outside of the U.S. continue printing money that is being used to buy stocks and risky bonds. The Bank of Japan now owns more than 75% of that nation’s stock ETFs. The Swiss National Bank holds over $80 billion worth of U.S. stocks, $17 billion of which were purchased in 2017. The European Central Bank, in addition to buying member country sovereign-issued debt is now buying corporate bonds, some of which are non-investment grade.

…click on the above link to read the rest of the article…

Will The Fed Really “Normalize” Its Balance Sheet?

September 21, 2017

Will The Fed Really “Normalize” Its Balance Sheet?

To begin with, how exactly does one define “normalize” in reference to the Fed’s balance sheet? The Fed predictably held off raising rates again today. However, it said that beginning in October it would no longer re-invest proceeds from its Treasury and mortgage holdings and let the balance sheet “run off.”

Here’s the problem with letting the Treasuries and mortgage just mature: Treasuries never really “mature.” Rather, the maturities are “rolled forward” by refinancing the outstanding Treasuries due to mature. The Government also issues even more Treasurys to fund its reckless spending habits. Unless the Fed “reverse repos” the Treasurys right before they are refinanced by the Government, the money printed by the Fed to buy the Treasurys will remain in the banking system. I’m surprised no one has mentioned this minor little detail.

The Fed has also kicked the can down the road on hiking interest rates in conjunction with shoving their phony 1.5% inflation number up our collective ass. The Fed Funds rate has been below 1% since October 2008, or nine years. Quarter point interest rate hikes aren’t really hikes. we’re at 1% from zero in just under two years. That’s not “hiking” rates. Until they start doing the reverse-repos in $50-$100 billion chunks at least monthly, all this talk about “normalization” is nothing but the babble of children in the sandbox. I think the talk/threat of it is being used to slow down the decline in the dollar.

To justify its monetary policy, Yellen stated today that she’s, “very pleased in progress made in the labor market.” Again, how does one define progress? Here’s one graphic which shows that the labor market has been and continues to be a complete abortion:

…click on the above link to read the rest of the article…

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