Over just the last 2 or 3 weeks I have had the same question asked of me over and over again. Maybe it’s just a reflection of a year’s plus frustration of watching the prices of gold and silver act counter intuitively no matter what the news or economic report. To wit, “If the markets are rigged then why can’t they just continue to be rigged forever? What will change or stop the riggers from doing what they do?”
First, the fact that the question is being asked so frequently by so many should tell us several things. People sense that “something” is not quite right or is even wrong when it comes to the economy, economic reports and the markets. They may not know exactly what it is but more and more people do have that nagging feeling that something is askew. The fact that this question is being asked more often and by more and more people makes me think that from a “timing” standpoint we are much closer to an end than the beginning and the little kid pointing at a naked king won’t be far off.
Secondly and more importantly, markets can be rigged for a time but the major directions of markets can only be delayed, not reversed. “Rigging” markets is the same thing as “lying.” The problem that liars come up against is that after the first lie is told, other lies by definition must be told to explain the first or previous lies. As more and more lies are told, the “liar” must remember all past lies so that future lies can be “credible” or make sense. This is where we are today and why over the past month I have written several pieces that pertained to “credibility” or the lack thereof.
I do want to point out that the “lies” are the underlying reason for a derivatives market that has grown over $1 quadrillion in size. The original lies had to be supported by “market action.” Market action had to be pointed to with the press saying, “See, just look at what the markets have done, ‘it’ must be true.” As Bill Murphy of GATA fame has always said, “Market action makes commentary.” While I’m at it I might as well quote Chris Powell also of GATA, “There are no markets anymore, only interventions.” My point is this, the markets have been pushed, shoved and forcibly “made” to do things that are unnatural, the “tool” used has been derivatives of all sorts that are not marked to market “so no one will be the wiser” and the losses hidden under the portfolio rugs. If you recall, President Bush signed an executive order that basically said the big banks did not have to report losses “if” they threatened national security, you must ask yourself why? Because derivatives with 100-1 leverage, have been used over and over again to “paint the picture” and to keep it “painted.” If you don’t have to report the losses then…like I said, “Who is the wiser?”
OK, so to answer the question “why can’t this go on forever?” there are several reasons. First and foremost obvious is just plain “reality.” Someone can tell you that the sun is the moon or vice versa but it doesn’t make it so. They can put you in a room cloaked with curtains at noon and tell you that its pitch black outside and its midnight… this also doesn’t make it so. They can make interest rates, stock prices, currency rates or the prices of any commodities whatever they’d like, it DOES make it so in the immediate but this is what makes the markets themselves the Achilles heel to the riggers. People (investors) will walk away just as they will from a casino when they figure out that they are being cheated. Have you wondered “why” the volumes on the stock markets have dried up so ferociously? Have you wondered why the Federal Reserve has had to step up and buy almost 70% of new Treasury paper issued? Have you wondered why the demand for physical gold and silver has exploded while COMEX open interest has dropped close to 40%? Have you wondered why inventories are depleting at a historical rate? Investors are “voting” in their own self best interests.
Another area that prevents a “rig” from becoming permanent reality are the “unintended consequences” that occur. In this case the unintended consequences are investors stepping up, buying gold and silver followed by asking for delivery. The “price” is deemed too low by the buyers and thus demand has exploded. The supply cannot keep up and previously hoarded gold has been released to meet the demand…this however is a finite source of supply. Another example could be the real estate markets, how much sense does it make if real estate “goes up” to a point where it is neither economically feasible nor affordable? When the costs to rent far outweigh the purchase price or when very few can even think about buying because of “costs,” what good does continuing to prop prices do? This example is just like stepping full force on the brakes and gas at the same time.
I think the perfect example is “what” the rigging is all about anyway. The rigging of markets has one central and core reason…to prop and prolong the value of pieces of paper called “money.” This “money” is intrinsically valueless but for the time being it “spends.” The derivatives markets have become so large that now they are larger than central banks and treasuries can manage when they finally do go off sides. The “tool” (derivatives) used to create or make prices will be the very instruments that destroy the financial system itself. They have worked so far and judging by the mass of counterintuitive pricing of assets they have worked well. The problem (and the answer to this often asked question) is that you cannot make clothing with cotton futures, heat your home with fuel oil futures, build your house with lumber futures nor eat cattle or soybean futures. The Chinese, Indians and the rest of the world cannot and will not “stack” gold or silver futures which are why the rigging will not go on forever. There is a concept called “reality” that will trump any and all lies put forth…it has always been this way even if the technology of derivatives did not exist previously. “Lies” in the market place have always ended badly, this time is no different!