Lehman Act II is Now; “The World is Not Expecting This”

On Friday, it’s now official: Greece defaults.  Zerohedge called the event: The biggest debt writedown in human history.  Sign-up for my 100% FREE Alerts

Strangely, or not, there was no press conference by the ECB, no bold-letter headlines about the event.  Nothing.  There was nothing but an innocuous statement issued by the International Swaps & Derivatives Association (ISDA) on Friday, which reads:

The Determinations Committee determined that the invoking of the collective action clauses by Greece to force all holders to accept the exchange offer for existing Greek debt constituted a credit event under the 2003 ISDA Credit Derivatives Definitions.

According to the Depository Trust & Clearing Corporation’s CDS data warehouse, the total net exposure of market participants who have sold CDS credit protection on Greek sovereign debt is approximately $3.2bn as of March 2, 2012.

The net cash payout on CDS when a credit event occurs is the face amount of the CDS contract less the recovery value of the underlying obligations as determined at a CDS auction. For example, if the CDS auction showed the recovery value of debt to be (hypothetically) 25%, the aggregate amount payable would, in Greece’s case, be 75% of $3.2bn: $2.4bn.

Furthermore, statistics indicate that, on average, 70% of derivatives exposure is collateralized and the level of CDS collateralization is likely to be even higher as over 90% of CDS transactions (by numbers of trades) are collateralized. [emphasis added]

In essence, the ISDA said Greece cheated in an attempt to forestall a default on $3.2 billion of its debt.  The nation has defaulted, and now the credit default contracts issued against the debt must pay off.

However, there’s some curious verbiage of the ISDA statement that sticks out like a sore thumb.  Why would the ISDA gratuitously include the emphasized text (above) within its official statement?

The details added to the decision to declare a credit event is akin to a judge handing down a ruling, then embarking upon an explanation into the details and ramifications of the ruling, of which he cannot possibly know in advance.

Just as Fed Chairman Ben Bernanke stated confidently in early 2008 that the sub-prime mortgage crisis was “contained,” the ISDA somehow knows that the trillions of dollars in CDS’s attached to the Greek debt in question, which are not registered with its data source, DTCC, have no bearing to the total exposure of the banks and other institutions to the writedown.

In fact, we now know, what was labeled by Bernanke as a sub-prime mortgage crisis turned out to be instead the start of a full-blown real estate crash.  ALL mortgages became sub-prime and the cascading bankruptcies and bailouts ensued.

And that’s exactly what we have here, a Lehman II, according to “Mr. Gold” James Sinclair—who, incidentally, was one of a handful who said from the beginning of the ‘sub-prime’ defaults that Bernanke was downplaying a much larger problem.

“The release made by the International Swaps & Derivatives Association (ISDA), for the average Mensa member or genius, is totally incomprehensible,” Sinclair told King World News.  “The press is using the word default, but the ISDA is using the word ‘auction.’ Clearly, the amount of CDS’s outstanding is infinitely more than the $3.5 billion that is being quoted.”

Sinclair added, ““The BIS confirms, in the area of CDS’s the total outstanding is approximately $37 trillion. So I believe the reports being given about this just being a small and modest market event is false.  As a market observer and having more than 50 years in the business, the real number is at least 50% or more of the existing $37 trillion that is related to Greece.”

Of the $37 trillion reported by the Bank of International Settlements (BIS), CDS’s written on Greek debt must total into the trillions of dollars, according to Sinclair, who had also said on several occasions that the Lehman meltdown is a mere a warmup to the main event—a conclusion also drawn by George Soros and many others outside the officialdom and Wall Street complicities.

And Swiss money manager Egon von Greyerz of Matterhorn Asset Management agrees, but takes Sinclair one step further.  With the other PIIGS countries mired in a similar debt default spiral, Greece serves as a template for the other beleaguered nations, not the exception.  The market will discount equivalent debt owed by Ireland, Portugal, Spain and Italy at some point during the crisis, von Greyerz reckons.

“It’s not just the $200 billion, we are talking about consequences for the other countries in southern Europe, Italy, Spain and Portugal,” von Greyerz told Eric King of KWN.  “So, if the Greek deal collapses, the ECB will have to come up with a package of over $1 trillion euros just to ring fence the rest of Europe.

“Then, on top of that you would have all of the CDS’s and that’s another few trillion euros because then it would be a proper default.”

von Greyerz continued, intimating that the next QE will most likely total into the the multiple of trillions of dollars, not the more modest hundreds of billion of dollars injected into the banking system in previous central bank operations (not including the Fed’s covert currency swaps window scheme) between the Fed and ECB.

“Of course, the U.S. would also be involved through a lot of the CDS’s and there will be a few trillion dollars the U.S. will need to come in and support,” von Greyerz said.  “So, whether the money printing starts this week or whether it starts in a few weeks time, it will start.”

Echoing Sinclair’s long-time assertion that central banks will undertake “QE to infinity” as a significant portion of approximately $700 trillion of tier-three assets (BIS statistics) default in a similar manner to Greece, von Greyerz stated, “Hyperinflation is very likely to happen. . . I’m absolutely convinced we will be right.  The world is not expecting this.” Sign-up for my 100% FREE Alerts

Hey Silver Bugs, Start Buying!

As silver continues to slide from Wednesday’s mini massacre, with today’s trade already dropping silver below its 20-month moving average of $32.74, accumulators of the white metal should immediately begin scaling into the metal in preparation for the next assault on $50, according to precious metals bulls.

The brightest minds of the bullion markets agree that a coordinated take down of the PM complex was orchestrated in advance of an upcoming big event—or two.  James Sinclair, Goldmoney’s James Turk and Sprott Asset Management’s Eric Sprott agree that central banks were behind Wednesday’s assault. Sign-up for my 100% FREE Alerts

Moreover, many within the PM community, as well as those outside of the relatively small bullion market clique, believe that the recent rally from last December’s lows foreshadows something big anticipated this year.

Marc Faber of the Gloom Boom Doom Report and Jim Rogers of Rogers Holdings place strong odds that Iran will be attacked—but, by whom and when, are unclear.  But an attack is “almost inevitable,” Faber told Reuters on Tuesday.

Two weeks ago, Rogers told India-based Economic Times an attack on Iran is “madness” on the part of the U.S. or Israel, as a threat to the world’s fifth-largest oil by the West (or allies) would most likely escalate a confrontation with Iranian allies, Russia and China.  Crazy? Yes, “but it looks like it will” happen, he said.

Though Iran’s threat to close the Strait of Hormuz could soar oil to $200, taking already-disintegrating Western economies down harder, still, both Faber and Rogers believe that the Fed and ECB would then be forced to openly announce more ‘quantitative easing’—though Rogers has said on several occasions that the Fed hasn’t stopped QE2.

“Say war breaks out in the Middle East or anywhere else, (Fed chairman) Mr Bernanke will just print even more money.  They have no option; they haven’t got the money to finance a war,” said Faber.

Roger’s hasn’t offered a plausible reason for the U.S. (or Israel) to attempt a geopolitical move against Iran so outrageous as to characterize it by him as “madness.”

But Faber does proffer a strong enough motive to make sense of such a bizarre plan—a plan that threatens to draw two Asian nuclear powers in defense of Iran.

“The Americans and the Western powers know very well they cannot contain China economically, but one way to contain China is to switch on and switch off the oil tap from the Middle East,” Faber said.

The lesser-discussed issue in the Middle East, which, by proxy, would most likely draw Russia and China into a military confrontation with the West, revolves around Syria and its known reciprocal defense treaty with Iran.  An attack on Syria equates to an attack on Iran—which brings back again the likelihood of Russia and China as defenders of Syria.

Last week at the United Nations, Russia and China vetoed proposed sanctions by Europe and the U.S. against Syria.

“Some countries submitted a draft resolution to blindly impose pressure and even threatened sanctions against Syria. This would not help to ease the situation,” Chinese foreign ministry spokesman Ma Zhaoxu said, according to Agence France-Presse (AFP)

Russia’s envoy to the United Nations, Vitaly Churkin, said the UN draft was “based on a philosophy of confrontation,” and added that sanctions imposed on Syria were “unacceptable” to Russia.

In response to the veto from Security Council members, Russia and China, American Ambassador Susan Rice said she is “disgusted” at Russia and China’s decision to veto the UN resolution to sanction Syria.

Russia’s Churkin struck back.  “Unfortunately, some of our colleagues choose to make rather bizarre interpretations of the Russian proposals,” said the Russian UN Ambassador.

After last week’s war of words between the U.S., Russia and China over the U.S. Security Council vetoes, Faber cannot help but to believe that the next step could include unilateral action by the U.S. in the region.

He told Reuters, “I happen to think the Middle East will go up in flames,” and added, “You have to be in precious metals and equities . . .”

On Friday, Faber told The Gold Report, “If you don’t own any gold, I would start buying some right away . . . ” Sign-up for my 100% FREE Alerts

Silver price: Hey Silver Bugs, You Cryin’ Yet?

The more silver bugs cry as they watch the latest breakdown in the silver price the better it is for the rest who will make it through to the other side of the biggest financial crisis since the Civil War.  Sign-up for my 100% FREE Alerts

Take in the economic scenario the Fed faces, then ask yourself what the Fed will do about it and which planet will the silver price orbit after the dust settles.  Here are the facts that should calm investor fears:

“Let us be honest. The U.S. is still trapped in a depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP,” The Telegraph’s Ambrose Evans-Pritchard penned in a Jul. 4, 2010 article.

Now look at Shadowstats economist John Williams’ chart, below.  GDP is again dropping, 18 more months later, from Evan-Pritchard’s last year’s Independence Day article. (The real GDP is calculated by Williams, shown by the blue line.)

Now, take a look at the number of U.S. food stamps recipients?  Does the graph, below, square with an employment rebound?

If the economy has been on the mend, slowly creating jobs for nearly a year now, why have there been 4 million more food stamps recipients in the U.S. since July 4, 2010?

Note the blue line in John Williams’ graph, below.  That’s the real unemployment rate (approximately 22.5 percent)—the rate that would have been reported by the BLS during President Ronald Reagan’s first term (1981-85).

And the jobs created which blunted a crashing jobs market have been the throwaway kind.  See BER article, Gerald Celente:  Brace for Economic 9/11.  The trends forecaster describes the type of jobs created, mostly the type of local jobs that you would find on the tropical island of Fiji, not the high quality jobs found in Germany or Switzerland.

And it’s about to get worse, as Celente predicts.

The U.S. is “tipping into a new recession,” ECRI’s Lakshman Achuthan told Bloomberg Radio on Sept. 30  “We don’t make these calls lightly. When we make them, it’s because there’s an overwhelming objective message coming out of our forward-looking indicators. What is going on with the leading indicators is wildfire; it’s not reversible.”

Since Sept. 30, Achuthan hasn’t budged from his dire forecast.  (See Economic Cycle Research Institute—ECRI, here and, of Dec. 9, here.)

Okay, the Fed faces a U.S. economy that’s rolling over—again—from an already negative GDP, according to John Williams.

So, what will the Fed print to prevent an economic collapse?

Watch it; it’s a trick question!  Jim Rogers explains in a Dec. 14 interview with TheStreet:

TheStreet Reporter: What should the Fed do at their upcoming meeting, aside from QE3?  We’ve seen more Fed presidents come out and call for more monetary easing.  What should they really do?

Jim Rogers: They’re already, Alex, they’re already . . . QE3 is already here, Alex.  Get out the numbers for non-seasonally adjusted M2, and you will see that Mr. Bernanke said, in the summer, we’re going to keep rates artificially low. You can’t just say the words, you got to do something.

Rogers goes on to say that the Fed hasn’t stopped printing money since QE2; it just wants people to think it has.  And thanks to a complicit media, whose been told to repeat the con over and over in an effort to prevent a bona fide run on currencies, some investors still believe the Fed has stopped printing.

Look at the chart, below.  A couple of months ago, the Fed was expanding M2 money supply by 20 percent!  That’s a rate that even former Fed Chairman under President Nixon, Arthur Burns, would blush at, as the maestro of the 60s and 70s presided over the highest U.S. inflation rate since the Civil War.

The Fed never stopped printing!

Silver investors now wait for Bernanke to announce even more printing! That’s when the top blows off the gold and silver market, according to Jim Rogers, Peter Schiff, Jim Rickards, Marc Faber, James Turk, James Sinclair and FX Concepts John Taylor.

That signal could come in late January, maybe tomorrow, or next week, but it’s coming.  Let’s see what more Fed money printing will be called this time.

Back to the Rogers interview.  Notice how the scripted question by TheStreet reporter was written in a way to fool the public into thinking that the Fed hasn’t been printing money since so-called QE2 ended on June 30?

It’s the ol’ leading the witness trick, with a false premise to plant a lie in the minds of the observers, to throw them off the track to the truth.   At least TheStreet reporter didn’t stoop to the, “Well, of course you’re going to say that, Jim, you sell your Rogers Commodity Fund” line, or something along those lines.

Here’s another example of the vicious propaganda thrown at some pretty smart guys who warn of a coming tsunami of commodities price inflation in 2012:  Witness the Marc Faber interview on CNBC, last week.

In his interview with CNBC’s ‘working girl’, Maria Bartiromo, Marc Faber got the better of the dullard Bartiromo, working her over pretty well (if she noticed).  Faber’s had 20+ years experience dealing with such nonsense during his time living in Thailand.

Do a Google Images search on the term, “Maria Bartiromo.”  You’ll see endless poses in the search results.  That’s what CNBC thinks of you—a 20-year-old drunk on a Thai vacation.

Bartiromo, after hearing Faber’s gruesome assessment of the world economy, said, “Okay, you think the world is ending, so which five stocks would you buy?”

By the way, if you didn’t listen to the Bartiromo interview, Faber outdid himself with yet another one his great Faberism.  He retorted, “I Have A Very Special Stock Tip For You. The Symbol Is G-O-L-D.”  Now, that’s a great Faberism!

And finally, and more dramatically, The Hat Trick Letter’s Jim Willie explains the Fed con in a really classic Jim Willie style—his style is the rambling and information-packed rant!  See BER article and link to audio interview here.  Willie covers almost everything in this interview that silver investors should know.

So we see sub-$30 silver.

Now for the question that’s on everyone’s mind . . . drum roll please. . . how far will the silver fall?

And the answer is the same as it has been since the bull market began in 2002: When every last ripe apple falls from the shaken tree.  That’s when the price will stop falling.

And right now, the tree needs to be shaken as hard as the Fed can shake it, because the next move up in silver will most likely be akin to the last one.

You remember, the move from $17.50 to $49.94, from August 2010 to April 2011, a 177 percent price explosion higher within 8 months?!

The Fed would just prefer the base of the next move for silver (gold, too, as well as oil and other commodities) is lower before the massive catapult higher.  Also, remember, north of $50 in the price of silver unleashes the metal; there is no resistance levels above that price.  This is the last stand for the Fed, and it will make the best of it.

On Gold: Team Sinclair-Turk 1, Marc Faber 0

Unless the gold price tumbles $400 in response to a surprise 500,000 rise in the Labor Department’s Non-farm Payroll Report, scheduled to be released prior to the NY open today, it appears the team of James Sinclair and James Turk have won the gold in the fight to be right on the move in gold this summer.

On June 23, as gold settled at $1,511, Sinclair stated, “Be prepared for covert QE between July 1st and late August when stimulation goes wild.  Be prepared for gold to take out $1,650 on the upside as magnets at $12,544 come into play.”

At that time, the gold community opined that Sinclair’s multi-year $1,650 gold price prediction may not be reached this year, after all.  Not only was the Sinclair call a gutsy one in the wake of 30+ years of seasonal data which suggested otherwise, it showed a man who’s willing to put his reputation on the line for the greater good of the investment community.  He sells nothing on his Web site, takes calls from anyone seeking his advice at all hours of the day—gratis, and doesn’t grumble or seek credit for his deeds.

And the other man of the gold medal team, James Turk, a man whose knowledge base and, more importantly, integrity, within the global bullion community, had said repeatedly the move in gold during the summer of 2011 will emulate the 50 percent move in the precious metal during the summer of 1982—the time of the Mexican peso devaluation.  He warned traders in June to hold gold during strength, not sell into the seasonal low period as is the custom.

James Turk is founder of bullion storage service GoldMoney.com.

On June 14, Turk told King World News to expect the unexpected in the price of gold during the summer’s intermission period of June-August.

“Everything is all set for new record high prices in both metals this summer, which is going to surprise a lot of people,” he said.  “I just think that people don’t really understand what can happen this summer.  We’ve spoken before about the summer of 1982 when the gold price rose 50% from June to September, propelled back then by the Mexican debt default.”

Turk added, “This summer, you could see a move higher in gold and silver that literally shakes the world.”
And shake the world they did.

For the first time in the infomercial CNBC’s 20-year history, the echo chamber of Wall Street’s tread-worn stock hucksters such as the likes of Morgan Stanley’s David Darst, decided it’s best to hedge its bet against plunging into the credibility abyss along side Morgan Stanley, or worse, Standard & Poor’s, by finally covering gold’s 11-year rally and by beginning to admit that the world may not be flat after all.

Gold’s emergence as a bona fide asset at CNBC is especially telling, as the duped legion of Lord Haw-Haws for the 40-year “in-crowd” intellectual dictatorship presently ruled by economist icons Paul Krugman, Ben Bernanke, Alan Krueger and other pseudo intellectuals at Princeton’s Woodrow Wilson School appear to sense that these despicable frauds will soon be exposed as a two-bit pack of 15th century shamans—at the very least!

And it could turn out that the year 2011 will be seen as the turning point of tyrannical rule of the U.S. dollar, in smaller part, in Libya and Egypt, but in a much more meaningful way in the fall of the evilest of empires of them all, The Fed—and just maybe a mass movement back to the principles of the U.S. Constitution is underway.

Jim Sinclair and James Turk are due some credit for their parts in exposing the most ruthless of tyrannies, The Fed, over the many years, and luckily have been afforded a mic now that the decade-long bull rally in gold has made their points illustrative.

And for the runner up to this inconsequential sideshow “bet” among raging gold bulls, Marc Faber, he is, indeed, not only the most entertaining money manager of the planet, he’s woken up more people to gold as the ultimate form of money than both Sinclair and Turk over the past several years through his made-for-television personality and cover of his Swiss-national status.  Americans can’t get away with making fun of the dollar like a Swiss can.  Ask U.S.-born Peter Schiff, another one who’s gotten it right.

These three man have gotten the overall trend in gold right for a decade, which is really all that investors need to know.  Long-term investors of gold did equally well irrespective of the hard-money advocate you follow.