Dear CIGAs,

"MOPE Redefines Legality" is the subject of this excellent piece sent to me today by CIGA Richard B.

The end of MOPE comes in the form outlined by Martin Armstrong as the end of MOPE is the ends of confidence in the political and economic leadership resulting in the now inevitable dollar collapse when one day the bottom simply falls out.

If you think for a moment that gold was not opposed today by the gold banks with everything they and their fair weather friends in the halls of ivy, the Fed, had, you are kidding yourself.

This is in fact the first time in this entire drama since $248 that the gold banks and the Fed failed on a weekly basis to "hold back the troops," as Trader Dan put it. There will be many more battles, but one day the fair weather friends will not be there. Gold will jump hundreds of points and the poor old dollar will fall to .7200, .6200 and then .5200.

Dear Jim,

There are Federal and State laws addressing Unfair Business Practices. In general terms, engaging in an unfair business practice means doing something deceptive, fraudulent or illegal that gives one business a competitive advantage over another.  Take, for example, a waste disposal business that cuts costs by illegally dumping toxic waste on public land.  This business would certainly be violating any number of laws prohibiting pollution and the endangering of public health, but separately, it is realizing a much lower cost of doing business compared to its competitor that is disposing of waste properly.

This is what the Unfair Business Practices laws are meant to address.  You want to avoid a worst case scenario where the company acting improperly also squeezes out its competitors that are doing the right thing.  The flip side of this analysis is that you want to encourage businesses that are acting legally and ethically to succeed.

Earlier today you posted news of the American Bankers’ Association calling for the G-20 to fight against fair value accounting of financial entities’ "illiquid" assets (code for over the counter derivatives).  This is just the latest salvo in a battle that has going on since the earliest days of the financial crisis.  Pressure has come from all ends of the political spectrum.  It seems that the only thing all politicians can agree on is that it’s a good idea to lie to the American public.

The point always lost in these discussions is that some companies had the good judgment not to load their balance sheets with impossible-to-value, impossible-to-sell assets.  Some companies recognized that over the counter derivatives were inherently fraudulent and decided to have nothing to do with them.  These companies have assets on their balance sheets that are easy to value and can be sold quickly when the companies need to raise money.  As a result, these companies should now be in a position to edge out their foolish, dishonest competitors.  Right?

Welcome to the new world of Management Of Perception Economics ("MOPE").  MOPE says we can’t risk people believing the banking system is vulnerable, so we can’t permit any upheaval of the established players. Instead of preventing entities that acted illegally from gaining a competitive advantage over competitors that did not, we need to make sure that the companies that acted ethically do not gain a competitive advantage over the companies that engaged in fraud.

MOPE is an "end justifies the means" economic philosophy.  That’s a very troubling fact in itself; it’s much worse, however, in light of the reality that the MOPErs will never be able to bring about the "end" they assume they will.  They never have been able to do so historically and there is more than ample evidence already that they will fail this time as well.

In my opinion there is no major player that believes MOPE will succeed.  For them it is a useful fantasy that permits them to exit from unfavorable positions at the public’s expense.

In the end, when the MOPErs are discredited and proven wrong they will probably not suffer any significant consequences.  Look at Mr. Greenspan.  All he had to say was, "it never occurred to me that the management of financial corporations would take actions so detrimental to their shareholders."  Oops.  Better luck next time.  He still gets millions of dollars for giving speeches.

We have to protect ourselves because nobody in government is going to.

Respectfully yours,
CIGA Richard B.

Dear Jim,

Chinese government banks are selling gold and silver to the general public. Thus they will feel a responsibility to support the gold and silver prices by continued long term purchases, now that they have recommended the purchase to buyers.

Respectfully yours,
Monty Guild
www.GuildInvestment.com

Dear Monty,

We both recall what the final downfall of the gold banks was in the 70s. They had their way with the market in the day to day sense, not trend sense from 1968 to 1977. That came to an end in early 78 when the Saudi’s took over the market. Gold Banks have no way to compete with governments. Even if the gold banks have the Fed and the Treasury as fine weather friends, a gold war between the US and China is both unlikely and would drain the US of gold and open a much larger risk than the occasional gold lease between the US Treasury and the Gold bank.

In short the China support is, as you point out, REAL.

Gold/silver bullion (the hard stuff) replaces a very important cultural need for the Chinese. Normally before a man marries he demonstrates that he has the financial capacity to be a good provider by having a house, as modest as it may be. Housing costs all over China, of all types, have risen to prohibitive levels for the average young Chinese man.

I am informed that one of the reasons for educating the public about gold and silver bullion (the hard stuff) is that it is now relatively affordable and may replace a house in demonstrating a young man has means and can therefore satisfy the parents that he is qualified to be a good husband for their daughter.

Your pal,

Jim

China Bank President tells it like it is (click here to view the video) ^[1]

China can no longer afford to let gold or silver price slump
Chinese state endorsement of gold and silver as good investments means the country can no longer afford to let precious metals prices drop by any significant amount.
Author: Lawrence Williams
Posted: Wednesday , 09 Sep 2009

LONDON – With Chinese state institutions hawking gold and silver to the general populace as a good investment (see China pushes silver and gold investment to the masses) – the latest news on this front being that the biggest Chinese bank, the Industrial and Commercial Bank of China (ICBC), is setting up a special precious metals department to handle growing investor demand for gold and silver within the country, the corollary is that therefore the country cannot afford to let precious metals prices fall substantially and thus alienate millions of its citizens who have been taking state advice to buy them.

In a Reuters report the ICBC is quoted as saying ""China is the world’s largest gold producer and the second-biggest gold consumer, and Chinese always have a custom to keep gold as personal wealth. China’s gold market is growing rapidly and has a huge potential with the growth of individual incomes." Surely yet another endorsement of gold as an investment by a Chinese state concern?

And China certainly has the power to manipulate the gold price in ways maybe not undreamt of by GATA which has long believed that there has been gold price suppression by western governments, central banks and financial institutions. This time the boot could be veritably on the other foot.

More… ^[2]

Dear Jim,

Your analysis of the Saudi 1978 acquisition is of course the lynchpin at that time as the China gold and silver mandate is the lynchpin now.  Also Gold and silver purchases by the Chinese public allow the Chinese to mop up excess liquidity in their market, and diversify from two investment alternatives (real estate and stocks) to three alternatives, gold and silver. Further, China has no bond market so they need a mechanism to put conservative long term money to work and gold and silver fill the bill.

Your old friend,
Monty

 

Jim Sinclair’s Commentary

Courtesy of CIGA Eric

Click chart to enlarge

^[3]

Dear Mr. Sinclair,

Another reminder of how hard-earned tax dollars were (are!) being doled out. I’m at a loss for words as to how this makes me feel.

Best regards,
CIGA Annette

Excerpt:

<<<< It’s impossible to overstate how casual the process was, or how little Treasury asked of the banks it targeted. Like most bankers, Ray Davis, the C.E.O. of Umpqua Bank, a solid, respectable local bank in Portland, Oregon, followed with great interest all the news out of Washington last fall. But he didn’t see that tarp had much relevance to his own bank. Umpqua was well run. It wasn’t bogged down by a portfolio of bad loans. It had healthy reserves.

Then he got a call from a Treasury Department representative asking if Umpqua would like to participate in the Treasury program and suggesting it would be a good thing for Umpqua to do. Davis listened politely, but the fact was, he says, that Umpqua “didn’t need the funds. Our capital resources were very high.”

The next day, Davis was in his office when another call came through from the same Treasury representative. “Basically what he said was that the secretary of the Treasury would like to have your application on his desk by five o’clock tomorrow afternoon,” Davis recalls.

The “application” was the paperwork for a capital infusion, and Davis was told it would be faxed over right away. By now he was sold on participating. “Here was somebody from the secretary of the Treasury calling,” Davis says, “and complimenting us on the strength of our company and saying you need to do this, to help the government, to be a good American citizen—all that stuff—and I’m saying, ‘That’s good. You’ve got me. I’m in.’”

The most urgent task was to complete the application and get it back to Treasury the next day, and this had Davis in a sweat: “I pictured this 200-page fax that would take me three weeks of work crammed into one evening.” Imagine Davis’s surprise when a staff member walked in soon afterward with the official “Application for tarp Capital Purchase Program.” It consisted of two pages, most of it white space.

If tarp accomplishes nothing else, it has struck a mighty blow for simplicity in government. The application was only 24 lines long, and asked such tough questions as the name and address of the bank, the name of the primary contact, the amount of its common and preferred stock, and how much money the bank wanted. Anyone who has filled out the voluminous federal forms required in order to be eligible for a college loan would die for such an application. Davis recalls that, when the two faxed pages were brought to him, all he could say was “Really?” As soon as Umpqua’s application was approved, Treasury wired $214 million to Umpqua’s account.

What happened in Portland happened elsewhere across the country. Peter Skillern, who heads the Community Reinvestment Association, a nonprofit group in North Carolina, describes a conference he attended where bankers explained that they had been “contacted by their regulators and told by them that they would be taking tarp.”…>>>>

More… ^[4]

 

Dear Jim,

Regarding "It’s getting close to 12PM in New York, time for gold to tank."

Wake up SEC, this has been happening for months and months. It sure looks like manipulation to me.

Regards,
CIGA Joe

Dear Joe,

It makes no difference at all as gold is going to $1224 then $1650 and on the Alf’s numbers.

Your emails is exactly like the 20,000 or more I have received about the gold bank’s manipulation since gold was at $248.

Respectfully yours,
Jim

Jim,

Merrill is calling for a stronger renminbi.

Monty Guild
www.GuildInvestment.com

Trading the cycle
Link to full report including important disclosures*
http://research1.ml.com/C/?q=LHbtx8cyTXLltljEpgrEYA%3D%3D&r=guilmo ^[5]

Hot topic
 Despite concerns about inflation and policy tightening, Asia remains near the sweet spot of the cycle for stocks, currencies, and corporate credit.
 Over the next 2-3 quarters, we expect growth to accelerate, inflation to remain below target levels, and policy to remain supportive for the economy.
 Ranked by Sharpe ratio, our call on Asian FX – the renminbi in particular – is perhaps the strongest view we can put in front of investors over the next year.
 China’s effective peg against the USD is one of the biggest macro inconsistencies in the region. We think macro tightening in China – and Asia more generally – needs to include currency appreciation and more flexible FX regimes.
- TJ Bond

Asian snapshot: China’s growth-a geographic perspective

Inland China is relatively less exposed to the slump in external demand due to the current global financial crisis. But this very crisis has forced China to ramp up infrastructure spend in its less-developed inland areas. In our view, this coast-to-inland shift in the use of national savings is set to drive China’s future growth. The 1H09 GDP data is the first set of reliable numbers that reveal such trends in what we believe is China’s new growth phase.

What to watch: Singapore’s NoDX, Hong Kong’s employment

It’s a quiet week for Asian macro data. In Singapore, watch non-oil domestic exports. The headline figure has become more difficult to predict as it is heavily affected by the lumpy pharmaceutical outputs. In general, we expect continued sequential recovery of major products, especially electronic items.

In Hong Kong, employment and job vacancies should increase on the back of the economic recovery. However, increase in the labor force from fresh summer graduates should keep the unemployment rate near the current high level.