Feds Probe JP Morgan’s Silver Trades

By MICHAEL GRAY

Federal regulators have launched both a criminal and civil investigation against JPMorgan Chase for its trading activity in precious metals market.
The Commodities Futures Trade Commission is looking into civil charges and the Department of Justice’s Antitrust Division are handling the criminal probe, according to sources who did not wish to be identified due to the sensitive nature of the information.

See More information in New York Post Sunday Business section:

http://www.nypost.com/p/news/business/feds_probing_jpmorgan_trades_in_gZzMvWBqOJpB55M7Rh9vwM

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Goldman’s Stooge

By MICHAEL GRAY

Let’s put the fraud charges against Goldman Sachs and its employee, Fabrice Tourre, in perspective. Because unlike Fabrice, I think it stinks.

Mr. Tourre is a trader and vice president in London for the bank. He is one of many hundreds of vice presidents sitting in cubicles around the world for Goldman Sachs.

To believe this 31-year-old trader was acting alone within the firm that created this scheme is unbelievable.

Similar to Mr. Jerome Kerviel of Société Générale and his rouge $3.7 billion stock trades in late 2007.

Mr. Tourre is being hung out by the firm as the force behind the trade. It is alleged that Mr. Tourre set up a fund with subprime derivatives in collabration with hedge fund maven John Paulson for investors.

Mr. Paulson is the subject of a book, “The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History,” by Gregory Zuckerman, detailing how he made a killing in the market by going short on these same subprime derivatives.

So the fraud was that Goldman was setting up an subprime investor fund with a person who choose the derivatives in the fund and who was going to short this same fund.

And all this was set up by a 31-year-old trader from London who just happen to have Paulson’s contact information and conspired with him to set up this house of cards, with no Managing Directors or other management being aware.

Sounds very incredulous to me.

Additional context: This week Washington is revving up its financial reform circus, what better way for the Securities and Exchange Commission to prove its worth then by trotting out a big fraud case against the new Anti-Christ, Goldman Sachs.

Rumors were also rife in the market on Friday morning that Goldman had huge short positions in the S&P futures and its own stock as word filtered through the firm that the SEC charges were about to be filed.

The prop desk guys would score huge on the firm’s indictment, which is a further indictment on the firm.

Gold fingers

As whistleblower Andrew Maguire told me last week, JPM and HSBC will use news events to take down the precious metals markets.

Well Friday was a banner day for that. Gold lost more than $23 and silver was down more than $0.75. Now with the possible exception that John Paulson has a large Gold ETF position, there really should have been little downward movement in the precious metals.

But it appears the SEC’s action was good for the dollar and the 10-year yield moved lower which had a cascading effect in the metals pits. It just gets curiouser and curiouser.

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The EU Must Feed the PIGS

European Union regulators are facing a huge problem with Portugal, Italy, Greece and Spain (PIGS). The Mediterranean countries have a huge debt load that has existed since these sun-drenched areas joining up with the EU.

As I wrote last year, these countries will take down the euro, because the PIGS cannot service its debt. Ireland and Iceland to a somewhat lesser extent have the capacity to hurt the euro as well, but appear to be moving to reduce its long-term obligations.

Historically the PIGS have had no manufacturing base to rely on. Excluding northern Italians, which if you speak to them, say their economy to more closely tied to Germany, Switzerland and France than southern Italy.

Prior to the EU the PIGS were always running on budgetary deficits and that only accelerated when the PIGS needed to get their economic house in order to fall under the rubric of the EU. There is a very small manufacturing base in the PIGS and the area relies heavily on tourism as its economic growth industry.

What happens when the rest of Europe catches an economic  cold and stays home the PIGS have to wallow in the muck.

So you have the PIGS, which historically been the soft underbelly of the continent wanting to join the EU.

So in the late ’80s you have Northern European countries trying to unify the area under one currency and economic system for trade, although they know their southern cousins don’t warrant  inclusion, how would it look if Europe was not united to compete against the United States..

In steps Wall Street and Goldman Sachs to goose the books and slap a new coat of paint on the PIGS so Goldman can flip the debt and bring these companies inline with debt restrictions of the EU.

With easy credit during the last ten years in the EU the PIGS used that credit like a revolving line of credit to pay last year’s debt with this year’s revenues. and it worked til it didn’t.

Now the Northern European countries — Germany, England and France — need to bail them out or see the euro go away.

Germany can survive quite nicely going back to the Deutsche Mark. Not sure if the English and French economies can say the same.

I see a declining euro versus the dollar this spring. The euro breaking lower than $1.30 by April 1 with gold rising against the strengthening greenback.

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Behind the Fed’s Rate Hike

By MICHAEL GRAY

Thursday’s discount rate hike by the Fed to 0.75 percent had little to do with any economic recovery in the US.

Bernanke and the other governors are worried about the lowering rate of participation of the primary and indirect buyers of treasury notes and bills due to lower yields. So the Fed raised the discount rate in order to prop up the return marginally in order to entice foreigners to continue to feast on our debt. The discount rate and prime rate generally move in tandem.

This could cost the taxpayers more if the Fed is going to pay a larger interest rate to the banks on reserves being held by the Fed for the bankrupt Wall Street banks.

CITI’S GATING CHECKING ACCOUNTS

Citigroup has sent out an announcement to its checking customers that beginning in April the bank can take up to seven days before it clears a check or allows you to remove funds from the account. This appears to be a defensive method of protecting the bank from a run on it.

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Shop Near Home

By MICHAEL GRAY

If you are like me and have a powerless feeling over the pending financial collapse as well as being exploited by Wall Street and Washington on these huge bailouts.

Take control of the situation and do yourself and your neighbors a big favor. If you want to show Wall Street and the Obama administration that you are sick of the bank bailouts and bonuses, shop in local stores in near your house.

Why? Well what will keep your home value from cratering? A vibrant local economy.

Empty storefronts mean depressed home values. Is it not better to have your local hardware store, which stocks products your community needs specifically versus driving many miles to a Home Depot?

If you think you get more savings at the Big-Box store by purchasing a $5.00 shirt made overseas, then look at where your $5.00 goes.

WalMart will keep $2.50- $3.00 of the purchase price and will ship most of those earnings back to Arkansas.

The remaining balance will go to shipping and trucking companies and other WalMart suppliers with the smallest piece going overseas to China manufacturers.

None of the cash from your purchase has any benefit to your local community with the exception of perhaps 4-to-8 cents sales tax going into your state sales coffers.

Now look at the velocity of your money when you make a purchase at your local retail store.

Your local purchase saved you gas money, saved you from spending additional cash on a lunch or a dinner and you did not have to pay a babysitter.

You buy a shirt for $10.00, $5.00 of which will be the profit to your local merchant.

That $5.00 profit will then allow the merchant to hire your son or daughter to earn money perhaps by cutting the lawn of a local businessperson, who now also has the means also to hire a local person to help stock shelves.

Your local purchases at a Mom & Pop store will not show up in government stats or Wall Street earnings reports, so your are not contributing to the bogus numbers provided by Uncle Sam or allowing bankers to profit from your actions.

Shop In My Back Yard (SIMBY) will also allow you to use your purchasing power to provide your less-fortunate neighbors with greater job security through growing local employment opportunities.

On a macro economic level, local purchases at the dress shop, will spur spending at the local restaurant, deli and car repair shop. Purchases at the WalMart two towns over have little impact for your neighbors.

I cannot think of a better use of your dollars than by allocating 10 percent of your discretionary spending to go to local purchases to start. I would also talk to neighbors about this and even the local business association about organizing a Stay-Near-Home Shopping days to get the word out.

If as a community you get pledges to spend locally, then more storefronts will be occupied with businesses. Don’t just Buy American, Buy (place your town’s name here).

The closer to your front door you spend the better for your largest investment – your home. Do not believe that global trade is a benefit. Local purchases have always been the best economic model. Think globally, but act locally, is an economic model not just an environmental thought.

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Maiden Lane III

Treasury chief Tim Geithner will probably not have to worry about still having his Westchester, NY house sitting empty all this time.

Geithner will probably need a home in the New York area once he is bounced from Washington over his latest problem.

It appears from the little paperwork that could be released on the creation of Maiden Lane II and Maiden Lane III by the New York Fed while Geithner was the president, that he authorized the backdoor bank bailout of Wall Street through AIG.

AIG paid 100% on all these CDOs regardless of the traunche or value. This was done at the insistence of the NY Fed and Geithner.

Now the White House has come out and publicly backed Geithner — for the fifth time since hes was designated. This has to be getting old for Rahm Emanuel and Larry Summers.

Geithner does not have the pedigree to keep him in the job. I believe he was appointed to Treasury because of this bailout.

Yes his grandfather was an adviser to Eisenhowser. Yes he worked for the IMF and the World Bank. Yes he worked for Henry Kissinger.

But no he has no ties to the bankers on The Street. He also has no political power base in Washington. He was used as a pawn and will pay the price by President’s Day.

2010: A Continuation of the Naughts

By MICHAEL GRAY

Many economists are looking at 2010 and seeing the glass is half full. The data they use to forecast how the US economy is improving has been corrupted to such an extent that the time-honored formulas used to determine future growth are fraudulent.

The disconnect occurs when government statistics are skewed with assumptions that can only be described as lies if you and I stated them. The major culprit in this regard is the Bureau of Labor Statistics’ weekly and monthly employment numbers.

Between seasonally adjusting the jobs numbers using the birth/death model as well as looking historically for the assumption of how many jobs were created is more voodoo than sound economics.

Inflation numbers also seem to be devoid from reality even when you take out food and energy. This number has been so politically charged for so long that to look at it as a true barometer of economic activity is moot. My best guess would say that inflation is probably running at 8 percent right now and will climb much higher by the second half of this year as the dollar index slides into the low 70s.

Equity markets are skewed to the upside since becoming awash with cheap cash last spring. The high-frequency trading employed by Goldman Sachs and other government proxies do not create wealth or growth for companies but rather a quick profit for the firm’s prop desk.

This is the main driver for the indices to be closing almost flat. The lack of conviction to buy or sell are the hallmarks of HFT. If you are in and out of a stock after a two-cent gain, you will not see 100-point moves on the Dow very much.

I am also very suspicious of pre-market activity. I have seen at least 10 days in the last two months were there have been 100-point swings in the futures market on very little news. Perhaps the Plunge Protection Team is in the market or one of its proxies propping up equities before the markets open in the west.

The take away on all this is that economists — even if they had good data — are guessing on the direction of the economy. So if you give them flawed data they will never see a collapse until it hits — perhaps.

My biggest concern is to get past the first quarter. I believe with a very disappointing jobs number for January — because the BLS typically does not add bogus jobs into that month’s number — it will usher in a wave of sell offs in equities, bonds and the dollar. Commodities may sell off, except gold and silver which will benefit as another flight to hard currency will ignite.

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Masters of Destruction

Blythe Masters may not be a household name just yet, But this plucky Brit may yet become the Marie Antoinette of the 21st century.

Ms. Masters as a young banker in the City of London worked on the risk desk of JPMorgan Chase. She is said to be the mother of the credit default swap as a vehicle to push risk out to third parties and thereby allow the creation of exponential risk through leverage and diversifing the pool of available stooges clients. Ms. Masters team is “credited” with creating $4 trillion in credit derivatives annually for over 5 years.

I would think that a person with this on her resume would be persona non grata  in financial circles. If fact I would think such a person would be prosecuted for creating a multi-trillion dollar ticking time bomb with exposure that will take decades to unwind.

But let’s face it these are not normal. No not in the least.

Ms Masters, 39,  has moved on in her career at JPMorgan. She was promoted to CFO Investment Banking. She also has a new plan for “helping” the world.

It seems Ms. Masters is working on creating a market for carbon derivatives under the guise that her idea will lower greenhouse gases. Ms. Masters believes that if she can spread the exposure to carbon reductions she will be able to drop output further.

Now we all know that carbon trading is built on one premise to make banks rich on trading schemes. we also know that the following player are big in the trading platform in Chicago.

Goldman, JPM, Citi, Gore, Hank Paulson, MF, and hundreds of other players and companies that do not care a lick about GHG.

Some in Congress have raised a red flag to carbon derivative trading, but with the backing behind this and its pedigree, we should all keep an eye on this woman.

Scarier Nov. 2

Oct. 31 – Halloween – is a scary day but not because of the costumes or black cats. The 31st of October is the end of the fiscal year for the US government.

Once the fiscal year ends the books need to be produced and that’s what would make Nov. 2 even scarier, because that is the first day the stock and bond markets and dollar traders can react to the numbers.

As I write this the national debt stands at $12T  and a $1.29T budget deficit. I see the dollar hitting the low 73s on the dollar index in the week Nov.2 on this report.

Unfortunately with Fed chief Ben Bernanke, Treasury’s Tim Geithner and the plunge protection team in the markets there is no guarantee this mark will be hit.  But gold surging $20 could be attainable.

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Bernanke’s Back

By MICHAEL GRAY

President Obama is to reappoint Federal Reserve Chairman Ben Bernanke to another four-year term today on Martha’s Vineyard.

Bernanke will get a chance to finish what he started, though he may not enjoy getting his wish.

The next four years will be a defining era for the US, with unwinding of Bernanke’s policies being the least of it.

Overnight markets seem to shrug off the news, with Asian markets falling and US futures called 1% lower.

Bernanke, who will be the most powerful Fed chief should all the new Obama financial regulations be enacted, will return from Martha’s Vineyard to find a hostile majority-supported House measure that wants to look inside the Fed’s bank books, providing Barney Frank remembers what planet he is on and moves the measure out of committee.

And just yesterday a federal court ruled that under a Freedom of Information Act filing the Fed must release information on what troubled banks are coming to the discount window for funds within five days of their getting the cash.

My biggest wonder is if Ben will get a pass from the Senate Banking panel during his confirmation hearings. I would hope not, we need to know what Ben the kingmaker was doing during the Bear Stearns, Lehman Bros. and Merill Lynch weekends.

I’m also happy Obama is not breaking up the Plunge Protection Team, because it took Treasury’s Tim Geithner until March to ramp up and find the buy button under his desk.

I suppose Obama always has White House economic adviser Larry Summers asleep in the corner should Ben not pass muster.

Well I wish Ben well and perhaps we can hold a “bank holiday” when he gets confirmed by the Senate.

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