I do not pretend to know what many ignorant men are sure of.
This is the biggest block in our series on market manipulation. We’re working toward an answer. How do international banks manipulate the markets to service the U.S. war debt? Make no mistake about the crash on Thursday. That was no “fat finger” trader or an “M” accidentally being a “B” nonsense. Unless you hear “international banks” and “leverage” and “unwind” in the same sentence, it’s not a valid explanation. It takes hundreds of billions to make a wave in the equities market like that. It was the fastest point drop in the history of the market. Only something an international bank is capable of. The rest of us are just trying not to drown in their wake.
How to Lose Money Betting the Market Will Crash on the Day it Crashes
If George Carlin could could have designed an ETF it would be FAZ. Maybe even with the same name. It’s an ultra bear’s dream come true. A way to profit as America circles the drain with Armageddon banker zombies roaming the streets while cities burn. FAZ is a stock that can make +15% while the banks crash -5%. You’d think it was the perfect stock to trade last Thursday. It’s one of the fewer and fewer ways a retail trader can profit during a market crash. There’s a catch. The crash locked out anyone trying to exit with profit. By the end of the day, if you bought FAZ right before the crash, you actually had a loss.
How could this happen? NASDAQ is the market maker for retail brokers in FAZ. They control the bid/ask and retail orders go through them. The problem is NASDAQ froze all exits on FAZ until the market closed. They canceled trading in . What is suspect is FAZ, and many other frozen stocks, are not on that list. The only way to exit FAZ was to sell in the after hours market on Thursday or wait for Friday’s open. Essentially, Thursday’s crash created a no-bid market for FAZ and many other stocks. How do you get zero bids on a stock that trades 165M shares in a day?
Max Keiser, the man who invented high frequency trading (HFT) source code, explains:
Remove all the buy orders that you control (since HFT traffic is 70% of the order flow, if you simply pull your HFT buy orders, you remove a huge chunk of the market – in a heartbeat – leaving a sudden price vacuum). If you wanted to scare congress to vote the way you wanted them to vote – a congress that is directly invested in stocks trading on the exchange and ETF’s tied to the prices on the exchange – just pull your buys. When they do what you want them to do–replace your buys. If you want to make the market go up–pull your sell orders. It works both ways. (It’s all detailed in my Virtual Specialist Technology patent–how to make markets in an ‘infinite inventory environment.’) ()
Keiser is describing a perpetual cash machine for market manipulators. We’ll cover that later in this story. Another method to lockout FAZ is this:
- A swap blows up
- The counterparty exposed to the swap blows up
- All swaps in that tranche are frozen
- The market crashes
- ETFs trading those swaps are locked out
The over-the-counter derivatives market could be a contributing reason why FAZ wouldn’t sell on Thursday. Most ETFs are derivative products that mimic an index, which happen to trade on stock exchanges. So you have an unregulated OTC instrument moonlighting on a regulated exchange. If a swap blows up (as the Euro made a new low) it would logically effect ETFs. Virtually none of the stock ETFs trade in equities. They don’t own baskets of stocks. They own baskets in swaps and futures contracts.
Fidelity has been marketing some 20 ETFs which their clients can trade for “free.” How many of their clients got bent over a barrel this week? The fine print is full of escape clauses. These things aren’t insured and there’s no recourse if the exchange or the product fails.
Euro and Swaps
We’re facing a perfect storm loss/loss scenario from hedging activity. It’s the same AIG shell game, just played on a different street corner that no one is watching. It took people nearly a year to catchup and understand what subprime mortgage blow ups were doing. Last week gave us a new bomb ripple in the subbasement of international banks.
Eurodollars are deposits denominated in U.S. dollars at banks outside the United States, and thus are not under the jurisdiction of the Federal Reserve. Consequently, such deposits are subject to much less regulation than similar deposits within the U.S., allowing for higher margins.
The Eurodollar futures contract refers to the financial futures contract based upon these deposits, traded at the Chicago Mercantile Exchange (CME) in Chicago. Eurodollar futures are a way for companies and banks to lock in an interest rate today, for money it intends to borrow or lend in the future. Each CME Eurodollar futures contract has a notional or “face value” of $1,000,000, though the leverage used in futures allows one contract to be traded with a margin of about one thousand dollars. Trading in Eurodollar futures is extensive, and the market for them tends to be very liquid. The prices of Eurodollars are quite responsive to FED Policy, inflation, and economic indicators.
CME Eurodollar futures prices are determined by the market’s forecast of the 3-month USD LIBOR interest rate expected to prevail on the settlement date. The settlement price of a contract is defined to be 100.00 minus the official British Bankers Association fixing of 3-month LIBOR on the contract settlement date. For example, if 3-month LIBOR sets at 5.00% on the contract settlement date, the contract settles at a price of 95.00. ()
On Thursday hit 0.373% the highest since last August. On Friday it hit 0.428% while the Euro crashed to a 14-month low against the dollar. The gigantic market is based on LIBOR. When the spread jumps 14% overnight someone is taking a massive hit. This concept is to today’s market what subprime was to the crash in 2008. Let’s explore why derivatives are so important.
As the unregulated derivatives market grew the money that was in equities left for greener pastures. Basically, the U.S. stock market is like the post-apocalyptic landscape in the movie Terminator. It’s wounded, illiquid, and controlled by Skynet’s hunter-killer HFT drones who prowl for resistance money. On Thursday the computers drove the market into a no-bid situation that blew out tons of retail money. In the vacuum of the program trading nuclear blast Skynet computers, doing one million orders per second, jumped into the void making billions of dollars at our expense.
Swap Market Size
The European derivatives market is a complex mass that’s difficult to understand. This is precisely why you never get an explanation about it from the media–until it’s too late. Let’s go through some basics. This is the largest cash market in the world. It is growing exponentially as European governments fall. And it can take the U.S. equities market down with .
NYSE Euronext European derivatives products ADV in April 2010 increased 51.5% compared to April 2009
NYSE Euronext U.S. cash products handled ADV in April 2010 decreased 26.6% compared to April 2009. Year-to-date, U.S. cash products handled was down 34.3% from prior year levels.
NYSE Euronext U.S. matched exchange-traded products decreased 42.8% compared to April 2009. Year-to-date, NYSE Euronext U.S. matched exchange-traded products was 45.9% below prior year levels. ()
Money is flowing out of U.S. equities and ETFs and into European interest rate swaps. It’s now the biggest game in town. The following graph shows who the main players are in OTC derivatives, which are mainly interest rate, commodity, and currency swaps.
Large firms like Goldman Sachs are taking on more risk while smaller firms are cutting back. Right now 41% of all swaps are backed by $USD. This is a massive market that can react violently to ripples in interest rates.
The global equities markets are currently worth $45T. Roughly half the value prior to the 2008 crash. That money did not come back. Compare that to amounts outstanding of OTC single-currency interest rate derivatives by currency ():
Notional amounts outstanding
US dollar $154,167B
Gross market values
US dollar $6,473B
2009 Interest rate futures
N. America $600T
The Number of Collateral Agreements in use in the OTC derivative market grew 14 percent over the past year. ()
What are Swaps
Essentially, it’s the revamped bond market from the ’80s. Instead of being long Euro bonds banks turn them into insurance contracts at reduced cost and risk. If you can borrow Euros cheaply and think the Euro is going up, and LIBOR will stay low, you sell that interest rate swap, or currency futures swap, or options swap, or you name it. There’s dozens and dozens of ways to game the market with swaps.
In an interest rate swap, each counterparty agrees to pay either a fixed or floating rate denominated in a particular currency to the other counterparty. The fixed or floating rate is multiplied by a notional principal amount (say, USD 1 million). This notional amount is generally not exchanged between counterparties, but is used only for calculating the size of cashflows to be exchanged.
The most common interest rate swap is one where one counterparty A pays a fixed rate (the swap rate) to counterparty B, while receiving a floating rate (usually pegged to a reference rate such as LIBOR).
At the point of initiation of the swap, the swap is priced so that it has a net present value of zero. If one party wants to pay 50 bps above the par swap rate, the other party has to pay approximately 50 bps over LIBOR to compensate for this.
The interest rate swap market is closely linked to the futures market which trades at the . ()
How LIBOR is Created
Each cash desk in a contributor bank has a Thomson Reuters application installed. Each morning between 11.00 and 11.20 [London time] an individual at each bank, typically the currency dealer, takes their own rates for the day and inputs them into this, which links directly to the fixings team at Thomson Reuters. Banks cannot see each others’ rates as they submit, only after final publication.
This was first developed in the 1980s as demand grew for an accurate measure of the real rate at which banks would lend money to each other. This became increasingly important as London’s status grew as an international financial centre. More than 20 per cent of all international bank lending and more than 30 per cent of all foreign exchange transactions now take place in London. ()
There’s tons of white papers presented to the Fed’s board of directors (prior to 2008) that say risk in swaps is low because it’s a new market and nothing has blown up yet. This was an interesting statement:
The interest swap market has been increasingly taking on a benchmark role in the broader fixed income market that had previously virtually been the exclusive domain of U.S. Treasury debt securities. Given its greater prominence for the financial markets as a whole, the question of assessing the ability of the swaps market to continue to function without major impediments–such as heightened concerns about counterparty credit risk–when other (less liquid) markets are disrupted gains special significance. ()
Here’s where Greece comes in. It’s been on the verge of bankruptcy for two years, but was able to maintain a reasonable credit rating until last week. Much of the swap market is built on the assumption of equal liquidity. A practice called “netting” is used to mitigate risk.
Netting: Rather than exchanging fixed and floating payments on the dates specied in the swap contract, the values of the two payments are netted, and only the party with a net amount due transfers funds to its counterparty. ()
This is good in theory, but the reality is most firms rehypothecate. Basically they take all the money that netting is supposed to protect and often bet it against that same contract as a hedge. Division A does one thing and Division B bets against it, and neither knows. Such was the case with AIG blowing up. In the case of Goldman Sachs, they know and decide to commit fraud anyway.
Rehypothecate: Involves the re-use of securities delivered. A dealer receiving securities as collateral may re-use the same security, to collateralize its own exposure with its counterparties for example. In the case of cash collateral, rehypothecation involves either using the cash received as collateral to buy investment securities, or to lend on to others, or to collateralize other derivatives exposures.
Forty-four percent of all respondents and 93 percent of large dealers report rehypothecating collateral. Over 80 percent of collateral is in the form of cash deposits. ()
Counterparties depend on the solvency of each other. That solvency is put into question when the cash deposits are used to place more bets. Risk is layered on more risk. Then when a credit rating is dropped it triggers termination clauses. This creates a run on the banks. This happened in the mortgage backed securities market a couple years ago. It’s a perfect example.
What Blow Ups Sound Like
One of the best authors on bond market blow ups is Michael Lewis. He just wrote a great article in about Michael Burry, the first man to short subprime. Here’s an excerpt.
On June 14, 2007 the pair of subprime-mortgage-bond hedge funds effectively owned by Bear Stearns were in freefall. In the ensuing two weeks, the publicly traded index of triple-B-rated subprime-mortgage bonds fell by nearly 20 percent.
Just then Goldman Sachs appeared to Burry to be experiencing a nervous breakdown. His biggest positions were with Goldman, and Goldman was newly unable, or unwilling, to determine the value of those positions, and so could not say how much collateral should be shifted back and forth. On Friday, June 15, Burry’s Goldman Sachs saleswoman, Veronica Grinstein, vanished. He called and e-mailed her, but she didn’t respond until late the following Monday—to tell him that she was “out for the day.”
“This is a recurrent theme whenever the market moves our way,” wrote Burry. “People get sick, people are off for unspecified reasons.”
On June 20, Grinstein finally returned to tell him that Goldman Sachs had experienced “systems failure.”
That was funny, Burry replied, because Morgan Stanley had said more or less the same thing. And his salesman at Bank of America claimed they’d had a “power outage.”
“I viewed these ‘systems problems’ as excuses for buying time to sort out a mess behind the scenes,” he said. The Goldman saleswoman made a weak effort to claim that, even as the index of subprime-mortgage bonds collapsed, the market for insuring them hadn’t budged.
What this Means
See the parallels here? Subprime bonds fell 20% creating a squeeze on credit. We have LIBOR rising which is putting a squeeze on–basically everything. Instead of power outages we have lockouts and canceled orders. The same ridiculous excuses are given to obscure reality. Fat fingers with Bs and Ms? Thursday’s crash is wake up call for complacency. However, it’s being sold as an opportunity for dip buying.
The stock market is a perpetual cash machine for international banks (IBs). It’s a game invented in the 1700s by London stock manipulators (see story). Make the market go parabolic, then crash it to pay off war debt and protect Treasuries. Dr. Ellen Brown has one of the best explanations for what’s going on:
The Wall Street Ponzi Scheme
The Ponzi scheme that has gone bad is not just another misguided investment strategy. It is at the very heart of the banking business, the thing that has propped it up over the course of three centuries. A Ponzi scheme is a form of pyramid scheme in which new investors must continually be sucked in at the bottom to support the investors at the top. In this case, new borrowers must continually be sucked in to support the creditors at the top.
The Wall Street Ponzi scheme is built on “fractional reserve” lending, which allows banks to create “credit” (or “debt”) with accounting entries. Banks are now allowed to lend from 10 to 30 times their “reserves,” essentially counterfeiting the money they lend. Over 97 percent of the U.S. money supply (M3) has been created by banks in this way.
The problem is that banks create only the principal and not the interest necessary to pay back their loans, so new borrowers must continually be found to take out new loans just to create enough “money” (or “credit”) to service the old loans composing the money supply. The scramble to find new debtors has now gone on for over 300 years – ever since the founding of the Bank of England in 1694 – until the whole world has become mired in debt to the bankers’ private money monopoly. The Ponzi scheme has finally reached its mathematical limits: we are “all borrowed up.” ()
First time home buyer credits are now expired. The Fed can’t lend money for free indefinitely. Soon the U.S. will be forced to raise cash. The Fed will have to raise the prime rate and it will stress the system. Unless prime dealers (IBs) unload their leverage without tanking the market. This is the cornerstone. Banks are levered up on low interest rates. Those swap positions have to unwind without creating cascading sell-offs.
Much of the recent rally was short covering. New highs on very low volume. That’s not new money buying up the market. We know European derivatives volume is up 50% and U.S. stocks and ETFs are down 50%. The 2010 rally was a short squeeze used to cover real distribution by large banks. They have to unwind before interest rates are raised.
Think GLD is Safe?
There’s one last concept that is important in this pyramid. People invested in GLD/SLV in lieu of owning the real metal are directly exposed to blow ups in the OTC derivatives market. Another no-bid scenario like Thursday could wreak havoc in commodity ETFs. This is a partial list of the major ETFs that were locked out:
Earlier Sunday, Nasdaq OMX announced it has canceled trades made Thursday in 12 additional stocks in which prices were at least 60% above the prior number, or at least 60% less than the earlier price. The additional names mostly included exchange-traded funds and notes, following estimates of 4,000 canceled trades across nearly 300 symbols previously announced. ()
The largest gold ETF is GLD with their vaults sitting in London. It’s run by a mining consortium, backed by HSBC London, and Bank of NY Mellon as trustee. Between 1999 and 2002 Gordon Brown sold 60% of the UK’s gold reserves at $275 an ounce. The year he sold that final ounce the World Gold Council formed. It’s difficult to find out exactly who they are. It reads like the early history of the Council on Foreign Relations.
So GLD is sponsored by World Gold Trust Services, LLC, or WGTS, which is wholly-owned by the World Gold Council, or WGC, a not-for-profit association registered under Swiss law. The Sponsor is a Delaware limited liability company and was formed on July 17, 2002. Two years later they create GLD investment trust, formed on November 12, 2004. The closing price on GLD that year was $44/shr.
The Trust Indenture was amended on November 26, 2007 to reflect the transfer of the listing of the Shares to NYSE Arca. The close that year was $83. Today it’s at $118 with a gain of 275% in six years. In the same period, since Gordon Brown sold his last ounce, gold has gained 440%.
Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust (NYSE:GLD), jumped nearly 20 tons to a record 1,185.787 tons on Thursday. Year to date, however, (GLD) holdings has gained just 50 tons. (
They sucker retail investors by marketing GLD as the paper equivalent of owning real gold. This is a misconception held by gold/silver ETF owners. In GLD you need to own $11.8M in shares to convert the certificates into deliverable gold. With SLV the number is $850k. The primary banks holding GLD/SLV use it for collateral to short futures. How many GLD owners know their position is bet against them in a leveraged market? Their $1 in GLD can turn into $15 COMEX shorts suppressing the price of gold.
The indisputable conclusion is that these three banks dominated the market to the extent they represented two thirds of the entire net short position of the commercials and as such they controlled the price of gold which is illegal…
When the derivative positions of the banks are examined it becomes clear that JPMorgan Chase and HSBC together dominate the market. In 2008 they held close to 100% of the entire bank derivatives market in gold and precious metals. -
How JPM Crashed Silver
The manipulation of SLV is more egregious, due to a smaller market, and primarily done by JP Morgan. The DoJ is in active anti-trust investigation of JPM right now, which they named publicly (). JPM has a reported $70T in silver derivatives shorting their own product (SLV) which has a value of $5.2B. During the Bear Sterns take down JP Morgan bought control of Bear’s silver positions. Silver was nearing $21/oz. and about to bankrupt Bear with their short position.
Andrew McGuire, an independent London silver trader, became a whistleblower on silver manipulation. In March, just prior to a CFTC hearing on gold/silver position limits, he and his wife were victims to a hit and run driver in a London shopping district. They survived and the perp was caught after a high speed chase. Testimony was given of this being an assassination attempt. Few details have been published.
McGuire wrote numerous emails to the warning and explaining how gold/silver manipulation worked during the February low. He had evidence that JPM and HSBC were driving out long call option holders (). The above chart shows a 20% drop in SLV in the two weeks during McGuire’s warnings. Here is an excerpt:
Thought it may be helpful to your investigation if I gave you the heads up for a manipulative event signaled for Friday, 5th Feb. The non-farm payrolls number will be announced at 8.30 ET. There will be one of two scenarios occurring, and both will result in silver (and gold) being taken down with a wave of short selling designed to take out obvious support levels and trip stops below. While I will no doubt be able to profit from this upcoming trade, it is an example of just how easy it is to manipulate a market if a concentrated position is allowed by a very small group of traders.
Scenario 1. The news is bad (employment is worse). This will have a bullish effect on gold and silver as the U.S. dollar weakens and the precious metals draw bids, spiking them higher. This will be sold into within a very short time (1-5 mins) with thousands of new short contracts being added, overcoming any new bids and spiking the precious metals down hard, targeting key technical support levels.
Scenario 2. The news is good (employment is better than expected). This will result in a massive short position being instigated almost immediately with no move up. This will not initially be liquidation of long positions but will result in stops being triggered, again targeting key support levels.
Both scenarios will spell an attempt by the two main short holders to illegally drive the market down and reap very large profits. Locals such as myself will be “invited” on board, which will further add downward pressure.
The question I would expect you might ask is: Who is behind the sudden selling and is it the entity/entities holding a concentrated position? How is it possible for me to know what will occur days before it will happen?
Only if a market is manipulated could this possibly occur.
I would ask you watch the “market depth” live as this event occurs and tag who instigates the move. This would surly help you to pose questions to the parties involved.
This kind of “not-for-profit selling” will end badly and risks the integrity of the COMEX and OTC markets.
I am aware that physical buyers in large size are awaiting this event to scoop up as much “discounted” gold and silver as possible. These are sophisticated entities, mainly foreign, who know how to play the short sellers and turn this paper gold into real delivered physical.
Given that the OTC market (where a lot of the selling occurs) runs on a fractional reserve basis and is not backed up by 1-1 physical gold, this leveraged short selling, where ownership of each ounce of gold has multi claims, poses a very large risk. ()
JP Morgan controls 80% of the world’s gold and precious metals derivatives. Through monopoly control of the market they took silver under $15/oz. JPM is the custodian for SLV, the silver exchange-traded fund. People who own shares in SLV think they own certificates representing silver for delivery. This has been proven to be a fraud. JPM does not have the actual silver deposits for delivery. What they have is $70T in silver derivatives. Nothing real is exchanged. At one point, COMEX silver short contracts totaled twenty times the value of the world’s entire silver supply. ()
Hopefully this lengthy article placed some bricks in alignment. Bricks that form the foundation of the ongoing Wall Street . We learned that the U.S. stock market is illiquid and run by computers that can crash it faster and farther than ever. We learned that ETFs designed to profit from those crashes don’t work. They don’t work because they’re based on interest rates products so massive the slightest spike causes market instability. We also learned that gold and silver products, used for such protection, are manipulated by the very same banks selling them.
There are two main power structures in the U.S. The formal power resting in D.C. and the real power resting in NYC. Most people are unaware of how the real power structure works. We’re talking about shadow banking, the Council on Foreign Relations, old money families, corporations profiting off terrorism, secret global meetings, etc. Policies and programs designed to squeeze credit and game the system in every way imaginable.
It is a mistake to look to the formal power structure for solutions. Fundamental problems can never be resolved in that system. It’s a total illusion to depend on a corrupt political system to solve problems it is complicit in creating. The solution is to attack the real power structure. Their power can be marginalized. The more people educate themselves and their friends the less that power is held over us.
Illegal manipulation of capital markets is done in concert with central banks to suppress precious metals, which supports a “strong” dollar. It’s part of the larger matrix of control in Western finance. A staggering amount of arbitrage, naked shorts, and other cross trades are designed to support the velocity of credit. When that velocity nearly stopped in 2008, and credit dealers issued margin calls, it brought the financial system to the edge.
We are living with the same power structure America fought for independence against. Sam Adams, John Hancock, and much of the Continental Congress were at times violently opposed to New York stock jobbers, the Crown’s money influence, and international bankers. They did everything they could to insure fellow citizens would not be owned by international banks. How would they respond to, “We’re all borrowed up.”