THE GREAT BAMBOOZLE: Selling Garbage For a Premium

There is something very strange taking place in the financial markets presently.  Main Stream Media has actually convinced the majority of investors in the west that gold is now in a bear market while the real value is found investing in stocks and bonds.  It’s one thing to invest in equities or treasuries when they are undervalued, but to promote these assets when they have become the biggest bubble in history… is quite insane.

On the other hand, gold and silver prices have been severely beaten down and are now extremely undervalued.  This is actually the right time to be buying precious metals while exiting positions in stocks and bonds.  However, the exact opposite is taking place in the west as investors dump precious metal contracts and purchase overpriced equities.  Furthermore, hedge funds now hold the highest number of gold short positions ever.

So, the question remains, how on earth can gold and silver be selling off when the broader markets are in a massive bubble and the rest of the financial world is a compete mess?  There’s a simple answer.

Banks Selling Garbage for a Premium

Ever since the collapse of the Real Estate Market, Investment Banks and Government Sponsored Entities in 2008, the financial system has not grown stronger as the Fed and the Treasury would like the public to believe.  On the contrary, the U.S. banking system today is much weaker than ever and is behaving more like the walking dead — basically Zombie banks sucking life out of the system.

So, if these banks are waking zombies, how were some of them able to state record profits in the first quarter of 2013?  This was accomplished by the two following methods:

1) They list junk on the balance sheet as assets

2) They trade and sell garbage for a premium

That is exactly how dead banks can state record profits.  It doesn’t seem fair now does it?  The precious metal investors have seen their investments get crushed while the big banks are rolling in the dough.  When you turn on CNBC and watch some of the CEOs smile and discuss what a great recovery is taking place, it makes you feel a bit cheated, doesn’t it.  They seem like one big happy family over there on Wall Street, making nice profits and receiving huge bonuses.

So, what kind of garbage are the banks selling for a premium:

1) MBS – Mortgage Backed Securities

2) Exotic Derivatives of all types

3) U.S. Treasuries

This doesn’t include the entire list, but it represents the majority of the worthless assets the banks buy and sell for a premium.  While “Garbage” is a pretty blunt word to describe these financial products, it’s actually a perfect label to represent supposed assets in which the majority will never be repaid or settled.  I explain why many assets such as these above will become increasingly worthless in the article, The Greatest Fundamental Reason to Own Precious Metals.

To be able to sell this trash to the unsophisticated investors and the public, the work of three different players are necessary

Charlatans, Cut-Throats & Two-Bit Analysts

The world always had and will continue to have charlatans, cut-throats and two-bit analysts run amuck in the system.  If you are living in an advanced social and economic system, there will always be a certain percentage of these characters to entertain, amuse and defraud the public. Unfortunately, there’s no getting rid of them.

Anyhow, the Charlatan is best known for being in charge at the top slapping backs, talking out of both sides of his mouth, smoking cigars, smiling and shaking hands.  This is what the Charlatan does best.  According to Wikipedia:

Charlatan:   is a person practicing quackery or some similar confidence trick in order to obtain money, fame or other advantages via some form of pretense or deception.

If we realize that the zombie banks are really not what they appear to be, a Charlatan is actually the perfect fit to run this sort of high class establishment.  That being said, the Charlatan does not carry out the actual selling of the garbage to the investors or public.  Having spent many years cutting shady deals, greasing palms and moving up the corporate ladder, this activity is now beneath the Charlatan’s work description.  The peddling of banking waste falls into the purvey of the Cut-throat.

The Cut-Throat, is the kind of salesmen best described in Frank Partnoy’s book, “F.I.A.S.C.O, Blood in the Water on Wall Street”, by one of his fellow salesman (paraphrasing):

A month after the salesmen sold the insurance company $85 million in worthless PERLS (derivative product), the senior treasury official from the company called to find out the present value of the investment.  The salesman replied, “Your bonds had plummeted to a fraction of their value.”  The senior treasury official replied, “But how did we lose so much money on this bond?  It’s only been a few weeks.  My boss is going to kill me.”

The salesman had earned a giant commission on this PERLS trade, and he laughed uncontrollably when he shared this story with Partnoy.  He asked Partnoy if he knew what the term was called when salesmen did this to their clients.  Partnoy replied “I don’t know.”  He told Partnoy it’s called “Ripping their face off.”

This is the domain of the cut-throat broker salesmen — peddling garbage and ripping the faces off their clients.  Of course not all the banker salesmen share this same sort of behavior.  I would imagine when a client’s multi-billion dollar derivative trade goes bad, a team of banker salesmen show up at their clients business with a plan on how to repay the losses over a ten year time frame.  Basically, the cut-throat salesmen bleed the client dry while doing it with a straight face and professional smile.

So, the question that pops in the head of the gold and silver bug… how does the zombie bank get away with selling this trash for a premium?  It’s quite simple.  In walks the third member of the group… the two-bit analyst

In order for the zombie bank to be able to peddle garbage for a premium, the institution needs to receive a high rating from the Two-Bit Analyst.  There are two ways the independent analysts can provide the zombie bank with triple A+ rating:

1) by receiving a sweaty palm of cash

2) or, the ability to remain employed

You see, one of the problems rating agencies are forced to deal with is that in order for them to stay in business, their clients, the zombie banks have to stay in business as well.  It’s a cozy relationship with a great deal of fraud, forgery, rubber stamping, and cheating to keep everyone happy and wealthy. 

Of course, not all analysts on Wall Street fall into this category.  However, it’s true for those who keep the zombie banks alive.  Zombie banks need a constant source of the Living (money and assets).  So a high rating, such as a triple A+ is necessary in allowing the Horror Show to continue.

Now that we understand how the zombie banks are able to make huge profits, let’s take a look how this impacts the “Real Banks”… the gold and silver miners.

Gold & Silver:  The Inverse Zombie Bank Trade

There was a time when the Wall Street banks functioned like real banks and held the public’s money — gold in their vaults.  Today, we have a much different situation.  The only money held in the bank is a fraction of worthless paper called fiat notes to cover daily cash transactions.  If there is any gold in the bank vault, it’s owned by private individuals, not the public.  Furthermore, each bar of gold that is stored in the vaults may actually have several claims on each without the owners realizing it.

So, for the public to be able to acquire precious metals today, they can do so by the metal supplied by the real banks — the gold and silver miners of the world.  These precious metal miners actually act more like real banks than the zombie banks we are stuck with today.  It is for this very reason, we are seeing a divergence in zombie banks and the precious metal industry.

This can be clearly seen in the two charts below:

Zombie Bank Index2

Gold Real Money2

Since the FED announced QE3 in September, 2012, there has been an inverse relationship between the Dead Banks and Real Money (gold & silver).

Furthermore, this divergence can be seen in the beginning of December, 2012 when the price of gold continued to decline while the zombie bank index increased.  This is even more apparent when we look at the next chart:

Zombie Stock Market2

It doesn’t matter how many lousy economic indicators are released by the press, the stock market just keeps on rising along with the banks.  Two dead entities climbing higher hand in hand towards the inevitable cliff of reality and Newton’s law of gravity.

For all the investors who are concerned about the recent weakness in precious metals and the gold and silver mining stocks, you shouldn’t be.  We have to remember, if zombie banks are going to sell garbage for a premium, then it only makes sense that the gold and silver miners sell their premium metals for garbage prices.  

After all… It is the Inverse Zombie Bank Trade.

A Nice Twist:  The Living Stealing From the Dead

Fortunately, like all trades, they don’t last forever.  When the zombie banks along with the FED engage in naked shorting to crush the paper price of gold and silver, it brings in all the “Living Entities (Eastern Central Banks and etc)”, to snatch up whatever physical bullion that is available.  So… the lower the paper price is pushed, the more the LIVING steal from the DEAD.

We continue to see more evidence of record gold buying in India, Asia and the Middle East.  At some point in time the GREAT GOLD DRAIN GAME will come to an end and the world will wake up to new trade settlement system backed by gold rather than garbage.

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6 Comments on "THE GREAT BAMBOOZLE: Selling Garbage For a Premium"

  1. market cap of jp morgan(fake money producer) is close to the entire market cap of gold/silver miners sector, the real money producers.

  2. The greatest scandal of all time. The American citizen tricked into giving up their freedoms and hard assets for pieces of paper which are losing value every single year. We have taken on tremendous amounts of debt and our lives are suffering because of it. In my opinion our family lives are ruined because of inflation. In the 50’s-60’s Dad went to work and made a decent living just by working hard. In the 80’s Mom and Dad went to work but Mom only worked part time. In the 90’s Both Mom and Dad worked full time. In the 2000’s both parents are working full time and an extra job just to make ends meet. Maybe even 2 or 3 part time jobs because no one can afford to pay benefits. The hammer is coming down on America for all of this. It will be one of the most painful experiences Americans face, but it might also be what is needed to bring people back to reality. I do think shares mining companies will be worth owning in certificate form. Kind of like trading a deed at a poker game. I would like to hear anyone’s thoughts about mining companies. Thanks for the great articles SRSROCCO. SIncerely, Mr.T

    • judejin.. that’s something else isn’t it? JP Morgan is a dead bank, but its market cap is higher than most of the gold and silver mining sector.

      Mr. T… I think a good portion of the gold and silver miners will be a good investment here shortly. At some point in time pension plans, retirement plans, hedge funds and etc will be moving into these stocks in a big way. After all, they are the real money producers in the world.

      Also, I believe the best candidates to own are those mining companies with the best margins. I will be writing about this and presenting this data on the public area and in the membership section of the site.

      Cash costs are not a good indicator for profitability of a mining company. I get into estimated break even cost for the miners as well as financial metrics.

      steve

  3. Kind of difficult to wrap one’s head around. They’re zombies but they live the most obscenely lavish existences. How about I get to be a zombie for a couple of months so I can afford to fix up my house. They’re losing control, yet they control everything. Their model is fraud, yet people trust them with trillions in 401Ks, deposits, pensions etc…

  4. There are simply NO words I can find to express my thanks for your work. Seriously SRS… You not only bring sense, perspective, and calm reason to the table…. But you might just be helping to keep a few people from really losing it… And, no, I am not kidding

    • Wayne,

      Thanks for the reply. I have been investing in the precious metals since early 2000’s. I have been through the gut wrenching 2008 take-down when silver hit $8.90 that year. However, this has been a much different animal. We have a quick “V” chart in gold and silver which recovered nicely in the first six months of 2009.

      This has been nearly a two year SLOW GRIND DOWNWARD since the middle of 2011. I don’t pay attention to the so-called “supply & demand” forces being regurgitated by the large syndicates. In reality, these forces no longer make sense when you have the FED printing money and buying Treasuries.

      The financial system is in much worse shape than 2008. However, the only way to kill investment demand in gold and silver is to destroy the price. The 2008 “V” shaped decline and recovery did not stop investment demand, so this time the Central Banks and Fed made sure that the SLOW GRIND would curtail investment demand… and it has.

      I believe Jim Sinclair is right that at some point in time here in the next 6 months, things are going to get very crazy in the financial markets. I wouldn’t be surprised to see gold and silver move up substantially by the end of the year.

      steve

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