Friday, May 31, 2013

How Strong Is Your Password?

How Criminals Guess Your PIN


When Genius Fails – The Underbelly of Markets

Long-Term Capital Managment
The Long-Term Capital Management (LTCM) collapse in 1998 has been often referred to as When Genius Failed. The collapse of LTCM was instigated by the collapse of Russia. Everyone and their 5th ex-wife was long Russian bonds as bribes were paid to people in the IMF to ensure the loans would keep flowing to Russia so they could earn huge guaranteed interest payments on Russian debt.
1998 LTCM Crash
The collapse of LTCM illustrated the problem that I have been warning about – everything is connected. The collapse came within weeks of the turning point on the ECM – July 20th, 1998. The US share market peaked precisely that day. The crisis in LTCM was in fact that they were at least traders. They had positions in everything, Once Russia collapsed, they needed cash and this they start to sell other positions that had nothing to do with Russia just to get liquidity. This is why you cannot forecast ANYTHING in isolation or look at a simple one-dimensional cause and effect. It is far more complicated than that.
On top of this, we have the problem with the New York “Club” of Untouchables. They are the cause of rising taxation, increased aggressiveness on the part of government against our rights, all because they have convinced the government if they fail, governments will fail because they will be unable to sell their debt. Why do you think Obama was trying to get rid of guns when there are plenty of laws concerning drugs, crime, and guns pretending background checks are necessary when guns are sold on the street everyday. Why is homeland security buying 1.6 billion bullets and tanks and there are civil unrest exercises? This is all because government fears the day when they cannot sell their debt and will default on their obligations thanks to the bankers.
Because the “Club of the NY Untouchables” think if they rig the game, risk management is not necessary and that is why the blow up all the time and turn to government. When they lose, hell it was a Rogue Trader the board had no idea he lost $8.3 billion dollars. HSBC bought Republic bank for $10 billion. Come on. If banks do not know their people have that kind of risk, then their internal controls are worthless. Are they that incompetent when they claim to be the smartest ever and that is how they make money? Something is not right and just because a trader confesses means nothing for he can be compensated to do so to save the bank.
Then there was Madoff and his $60 billion fraud the bankers claimed they had no idea! Right! The degree of due diligence just to open and account is outrageous. Even Madoff from Prison said the banks knew. Lets get real. Anyone who claims the banks did not know what Madoff was doing are paid off by the banks. I personally spoke to Isabel Ring  of the NY Post who interviewed me and asked if I thought Republic was illegally trading in my accounts laundering money for the Russian mafia and Colombian drug cartel “as they were doing in Madoff?” I said I had no idea. I just knew they were illegally trading but had no idea what they were doing with my collateral Fannie Maes other than they disappeared. She knew something, but that interview never appeared. Somebody squashed that one. Wonder who? And if you think banks do not launder money, look at HSBC. They are accused of additional money laundering in Argentina. They always rush to settle to make sure it goes away.
The banks ALWAYS blow up because they try to get the guarantee trade. They pretend to be traders – it is just a front

This country has become so corrupt, it makes Mexico look like the Boy Scouts.  The U.S. has become the most corrupt country in the world.  - "Don" in Denver - May 31, 2013
I wanted to post this essay by Alasdair Macleod.  After over 12 years of researching, trading and investing in the precious metals sector, there are only a few writers to whom I pay credence.  Macleod is one of them.   He references the Shanhai Cooperation Organization (SCO).  Most of you probably have not heard of it.  I first read about it in Bill Buckler's "Privateer" about 5 years ago.  Led by Russia and China, it's comprised largely of eastern hemisphere countries.  I view it as the eastern "blocs" counterpart to NATO and IMF rolled into one organization.  The countries all have one thing in common:  they are aggressively accumulating physical gold and they are systematically working towards eliminating the use of the U.S. dollar in trade.   This is a must-read essay by Macleod:

The Geopolitics of Gold  LINK

Western central banks have got themselves horribly wrong-footed as a result of not adjusting their anti-gold policies to allow for the realities of Asian gold demand. Though their dealings are shrouded in secrecy, there is compelling evidence that much – if not most – of Western central bank gold has been quietly sold over the last three decades.

More recently all members of the Shanghai Cooperation Organisation, a common security and trading bloc led by Russia and China and incorporating the bulk of Asia’s land mass, have been accumulating gold. Between current SCO and future members (India, Iran, Afghanistan, Mongolia, Belarus and Sri Lanka), with their citizens numbering over 3 billion people, they have together cornered the global market for physical supply, without even taking account of demand from the rest of South East Asia’s gold-hungry population.

The result is that gold markets are now failing to clear. The outcome is a choice: the West will either have to stop intervening and allow gold to find a level where physical and derivative markets interact properly with each other, or capital markets in the West will face a growing crisis likely to spill over into other markets. While these outcomes were always going to be a choice to be made at some time in the future, the disconnection between physical gold and derivatives has become so great that it is now an immediate concern.

At the government level it is a geopolitical clash of the titans. Russia and China are almost certainly aware of the lack of gold in Western central bank vaults: they are fully capable of thorough due-diligence in this respect. They have so far been careful not to disrupt capital markets because it has not been in their interests to do so; however, the current hiatus in gold markets is almost certain to modify their view.

Fundamental to all this is their attitude to Western currencies: the yen is now collapsing, the euro area is in deep trouble and the US economy is at very best stagnating. Until now, payment for Russian energy and Chinese goods in foreign currencies has been welcomed, because it has allowed the Russian and Chinese elites and middle classes to accumulate wealth. This balance of interests can only be maintained for so long as Russian and Chinese governments and their citizens can hedge foreign currency risks through an offsetting accumulation of foreign-owned gold.

This is no longer the case, because to all intents and purposes western capital markets are cleaned out of physical supplies, and the ability of the Western central banks to supress gold prices appears to be ending. And with the West’s financial system no longer able to deliver their most prized commodity, hitherto passive attitudes in Asia to Western currencies are likely to be reassessed.

The gold question has become central to east-west trade. The sensible approach for Western central banks is to defuse the problems arising by taking positive steps to ensure that gold markets operate properly. This is conceptually difficult, because the most likely result, a higher gold price, would risk undermining confidence in the major currencies and most probably damage the bullion banks in London.

Despite these difficulties, realities have to be faced.


UK taken to court by EU for not paying non-Brits Social Services

The Eu is like a guy in drag. All dressed up as a woman, but when you look under the dress you get more than a surprise in a Crackerjack Box. On the one hand they created a single currency, laws that allowed freedom of movement, and the right to receive social benefits from all countries if you moved. There were all dressed up, but underneath was the old Europe with barriers and the refusal to consolidate debts that prevent the Euro from being a serious reserve currency. Institution invest buy the dollar by federal bonds. In Europe, they have to look at the credit rating of every state. That is no different that investing in state bonds in the USA. Yes a single currency, but are Texas and Louisiana  bonds the same? You cannot make state bonds reserves for the banks in the USA without risk and chaos. That is what Europe created, the old Europe merely in drag.
No the EU is taking the UK to court for not paying EU citizens in the UK benefits. Here is where the tensions start to rise. One debt – there would not have been an issue. Failure to do that forcing other states to bailout yet others, and you have chaos.

Understanding Cycles – the Two Extremes – Why We must Crash & Burn

Understanding that everything in nature moves in a cyclical manner is vital to comprehending the world around us. This is how energy moves. The waves in the ocean give the impression the water is moving when in fact if you throw a bottle that floats into the water you will notice that the bottle rises and falls but does not move with the waves that pass below. WHY? Because the wave is just energy moving THROUGH the water, not the water itself moving. Water movement is the current that takes place separate and distinct from the wave movement.
Once you wake up and begin to see that energy moves THROUGH the medium be it space, the air, or crowds of people causing collective behavior we call panic, then you can begin to see the world in a whole new light. This fall, we will see more chaos in weather.
We are headed into a period of wild weather that will be marked by extreme swings in both directions. The deadliest tornado was the Tri-State Tornado of March 18, 1925 that killed the most and the most destruction was the St. Louis-East St. Louis Tornado of May 27, 1896. The recent outbreak of tornadoes from a cyclical perspective is a bull market. We are building in intensity that many have tried to usurp calling it global warming claiming man has caused this. The data shows before automobiles there were cyclical weather patterns that we have not yet reached – but will insofar as intensity.
Our correlation models indicate that whenever we get a cold spring then we move to a violent storm like hurricanes in the fall. It is like a pendulum. The more you swing to the extreme on one side the more you will move to the extreme in the opposite side. Markets function in the same identical manner.
Here is a photo of starlings flying. Not only do they comply with the cyclical movement patterns, but the group is neatly formed that even complies with the science of chaos. Look at this illustration of the Chaos formation of weather data. There are boundaries that confine all movement at the extremes. Chaos was discovered by weather. What on the surface appeared to be random, actually contained hidden order.
Edward Norton Lorenz (1917–2008) was an American mathematician and meteorologist, and a pioneer of chaos theory. He discovered the strange attractor notion and coined the term butterfly effect. His strange attractor illustrated that within what appeared to be random chaos, there was actually incredible hidden order. His discovery has illustrated that predicting the future is highly complicated because (1) we are dealing with a massive amount of variables not a single cause and effect, and (2) this complexity constitutes a nonlinear system that produces the unpredictability yet within defined outer parameters.
Within any data series if we are talking about weather or markets, to the uninitiated  observer who does not see patterns in charts like the the movement of starlings, they only see trajectories that appear to jump around making hair-pin turns and reversing direction only to swing back and re-reverse without warning. This is the majority who buy or sell because the group in doing so and feel comfort in collective reinforcement.
Nevertheless, their chaotic random appearance of weather or markets with respect to the behavior is like Lorenz’s strange attractor always orbiting within the shape of the system in a orderly manner confined by the outer-boundaries. The strange attractor is the actual map of all the possible states within the system yet conform to the fascinating shape defined by those outer-boundary limitations on all movement.
The entire economy is still a non-linear system that on the surface is massively unpredictable from moment to moment, yet is strangely bound within predetermined confines. This is why I state that you CANNOT predict gold or any market in isolation. Everything is connected and there is a form to this madness.
Every price movement, no matter how alarming in its twists and turns, always collapses and then recovers. This is the energy that creates everything around us – the swings between two extremes like the beating of your heart. Even our economies are a complex system that cannot be manipulated by government and it is why Marxism/Keynesianism have utterly failed. The bureaucrats and the bankers hate my guts because I stand to expose what they do is only aggravating the system and is causing us to move to the extremes of the outer-boundaries on each side. This leads them to seize even more power to put their hands around the neck of the economy and choke it to death so they can retain power. The more they react in this manner, the greater the volatility causing them to chase it even more until they become their own worst enemy. That is why I say big governments always fall by their own hand – it is economic suicide. They become more draconian the more they lose power. This is the fate of all empires, nations, and city-states. They cannot see that their greatest enemy is always themselves.
London Destroyed
The politicians would rather destroy centuries of civilization before rationally ending socialism that does not work. The banks want to be the man with the one-eye in the land of the blind. But rigging the game to create the perfect trade, only results in destroying society. They may become the one-eyed man in the land of the blind counting all their wealth, but there will be nothing left and no place to spend it. At that moment in time, historically even gold has lost all value as was the case after the fall of Rome.
Just before John Maynard Keynes died in 1946, he told Henry Clay, a professor of Social Economics and Adviser to the Bank of England of his hopes that Adam Smith’s Invisible Hand would help Britain out of the economic depression that it is in: “I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
Even Paul Volcker in his Rediscovery of the Business Cycle conceded that the idea that government could manage the economy under this age of “New Economics” failed. Nobody in government is willing to hand back power once taken. It is like the conviction rate in New York City – 99%. Citizens cannot ever win anything against the banks of government. Politicians will NEVER admit they are the source of the problem. So it looks like we must simply crash and burn.

When Iron was worth More than Gold

STONE-DBefore the Iron Age, Iron has been found in both the West and the East treated as a precious object that was more valuable than gold. Recently, the debate over whether these rare objects were meteorites has been settled. They are indeed meteorites that fell from the havens and thus were regarded as gifts from the gods and thus more valuable than gold. Pictured here is the famous Stone of Emesa, which is the modern city of Homs in Western Syria. This was a meteorite that fell to earth and they built a temple to it. The Roman Emperor Elagabalus (218-232AD) paraded it around in a chariot and pictured it on his coins.
Throughout history, there has never been a single relationship that ever withstands the test of time and circumstance. This is where there can be no gold standard where you fix the price of gold yet everything else floats. The mere fact that coins were minted of gold and silver does not make it a “standard” for they were free floating in value – never fixed. Diocletian(284-305AD) attempted Wage and Price controls to stop inflation. They too failed.
What we face is a serious issue – the monetary collapse. A medium of change can be anything for it only facilitates barter. In many third world economies, people still barter. You do this and I will do that. Labor and food have served as the medium of exchange more so than anything else.
If we understand this, then we can move forward. The future lies with the elimination of taxes, state borrowing, and term limits. Do those three things and we will restore liberty, justice, and economic freedom to all.

We lost our Central Bank

I have stated numerous times that a central bank is essential. Banks take depositor;s money on demand but lend long-term. When a crisis hits, depositors want their cash and the banks has assets no cash. This is why the Fed was created with an ELASTIC money supply authority. It was to create excess cash to satisfy demand and prevent the banks from liquidating the assets that were mortgages or business loans. Creating money was to ease the stress and lessen the volatility.
The Fed was correctly designed insofar it would stimulate the economy by purchasing corporate paper (NOT GOVERNMENT) thereby directly helping to save jobs lending to corporations when banks were cash poor. Each branch had its independence to maintain interest rates based upon local conditions. This combined with the ELASTIC powers made sense and was truly a brilliant concept that would have helped the economy.
Then came World War I and politicians. They directed the Fed to buyGOVERNMENT PAPER to fund the war. After the war, they never rescinded that order. Then comes the Great Depression and then World War II. They usurp the branch independence folding that into a single interest rate for the whole nation. Then the ordered the Fed to buy government paper at par to prevent interest rates from rising during the war that lasted until 1951. You can see that the bond market then crashed into 1981 for nearly 31 years.
Then comes the 2007 Crash. The Fed is now to support every sector within the economy and is by no means anything close to what it once was supposed to be, It is not a pure central bank. It is supposed to sterilize the wrong decisions of Congress. So Congress and do as it likes, and the Fed has to clean it up.
Now even Paul Volcker has come out and said the Fed as it is structured today is WRONG! We have lost our central bank and nobody knows what the Fed has become. It is just insane.

New York lost the Status of Financial Capital of the World. Who has it Now?

New York and the corruption of the courts and government that has made the bankers the new “Untouchables” has taken its toll. The actual financial capital is London despite the fact that the British economy is still headed lower. The hedge funds are buying up  Mayfair in London.
There is a Global Financial Centres Index where London now ranksNUMBER ONE and New York Number Two. Hong Kong has risen to Number Three and believe it of not, the tiny little country of Singapore is now Number Four. Undermine the Rule of Law, and what follows is ALWAYS an exit of capital. Why do business in New York if you have no court to go to to settle contract disputes.