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Back in early March, 2011 – PIMCO’s Bill
Gross were calling for much higher rates and telling the world that they were
selling
U.S. Government Bonds.
PIMCO's
Bill Gross Says to Sell U.S. Treasuries Now
03/03/2011
……To wit, he predicts
that when the Fed’s QE2 bond-buying binge ends at the end of June,
there will be nobody to take the Fed’s place as last-resort buyer of
U.S. Treasuries at artificially low rates. Treasury yields will need to ramp
up sharply by 1.5 percentage points to attract private buyers. Given that the
ten-year U.S. Treasury is currently yielding only 3.5%, a 1.5 percentage
point jump would equal a 43% increase in interest rates (1.5/3.5).
That’s a big move in interest-rate land and would have a significantly
negative effect on bond prices.
As you can see, not only did the anticipated rise in
interest rates NOT materialize – rates have actually fallen:
 
Remember folks, Bill Gross [PIMCO] is reputed to run
the world’s largest bond fund. Not only was Gross wrong – in
investment terms he was SERIOUSLY WRONG – a great many percentage
points wrong. Not only did 10 yr. bond rates not go up by 150 basis points
– they have indeed FALLEN by more than 50 basis points.
This illustrates a point; namely, that being the
biggest in your space [and having former Fed Chairman Alan Greenspan acting
as advisor to your company] doesn’t ensure that you NEVER, EVER make a
poor market call and “lose-your-shirt” – so to speak.
Accordingly, it sure is a good thing that the
world’s biggest derivatives player - J.P. Morgan - has
“seemingly” NEVER, EVER made a bet even “1 % wrong”
with their 80 Trillion derivatives book. The Morgue has a Market Cap of
roughly $180 billion. A wrong bet of a mere 1% on their ‘book’
would translate to a loss of $800 billion dollars eviscerating their entire
capital base more than four times over. The knock on effect from such an
event would trigger multiple tsunamis reverberating through the global
financial system. Sounds absurd, but it’s pure
math.
Either J.P. Morgan NEVER makes a mistake or they get
a pass if / when they do make a mistake. Back in early
2006, Business
Week reported,
President George
W. Bush has bestowed on his intelligence czar, John Negroponte, broad
authority, in the name of national security, to excuse publicly traded
companies from their usual accounting and securities-disclosure obligations.
Notice of the development came in a brief entry in the Federal Register,
dated May 5, 2006,
What that means folks, is:
J.P. Morgan’s derivatives book constitutes national and international
security and they along with other large derivatives player are NECESSARILY
excused from wrong way bets. The obscenely large derivatives books of J.P.
Morgan and other select money center banks are being used to execute U.S.
monetary policy and to achieve other arbitrary financial market outcomes.
This has been occurring since at least the mid 1990’s and severely
ramped-up in the mid 2000’s.
Additionally, what can be said for J.P. Morgan can
also be said for the likes of B of A, Citibank, Goldman Sachs – all
with derivatives books [currently] ranging from 44+ to 79+ Trillion in size.
Take note of the TOTAL derivatives for Commercial Banks at 243 Trillion:
TABLE 1 excerpted from: OCC Quarterly
Derivatives Report Q1/11
Commercial Banks Vs. Bank
Holding Companies
The Office of the Comptroller of the Currency [OCC] tells us, in the Executive Summary of the Q1/11 Report that derivative contracts
remain concentrated in interest rate products, which comprise 82% of total
derivative notional values. Credit derivatives, which represent 6.1% of total
derivatives notionals, increased 5.3% to $14.9
trillion. It is the settlement of these interest rate derivatives –
specifically int. rate swaps of duration between 3 and 10 years – that
creates artificial scarcity of physical U.S. government bonds.
The OCC’s quarterly derivatives report is
published three months in arrears and typically runs about 30 – 35
pages in length. All but one page of this reporting deals with data on the
Commercial Bank level. Commercial Bank reporting falls under the purview of
the Office of the Comptroller of the Currency. It’s in the Commercial
Bank reportage ONLY where we get a glimpse of bank activity in precious
metals:
excerpted from: OCC Quarterly
Derivatives Report Q1/11
ONLY one page of the quarterly derivatives report
[table 2] gives us a high level view of derivatives at the Holding Company
Level. Bank Holding Com pany reporting falls under
the purview of the Federal Reserve and DOES NOT INCLUDE any breakout or
reveal on precious metals derivatives holdings. Take note how – at the
Holding Company Level, Morgan Stanley’s Derivatives book swells to over
51 TRILLION – vaulting them from a rather insignificant 8th
place on the Commercial Bank list into 4th place on the Holding
Company list below. :
TABLE 2 excerpted from: OCC Quarterly
Derivatives Report Q1/11
Historically it is VERY WELL DOCUMENTED that Central
Banks the world over have illustrated a large propensity to hide / veil /
obfuscate all their activities relating to precious metals and specifically
gold. Note the disparity between the transparency
offered by the OCC with their Commercial Bank reportage versus the Holding
Company data with falls under the purview of the Federal Reserve. This
amounts to 80 Trillion worth of derivatives that the public knows
“sweet nothing” about.
Remember
folks, it was none other than former Federal Reserve Vice Chairman Alan
Blinder – while appearing on the Nightly Business Report back in 1994
– issued these prescient words,
“the last duty of a central banker
is to tell the public the truth”
By comparing Total Derivatives in TABLE 1
[Commercial] versus TABLE 2 [Holding Co.] we can identify that Morgan
Stanley’s derivatives book stands as a 50 TRILLION BLACK HOLE where
reporting of precious metals are concerned; Goldman’s 5+ TRILLION, B of
A’s 20 TRILLION, J.P. Morgue’s about 1 TRILLION.
Now everyone should appreciate the fact that Morgan
Stanley’s “book” grew from 42.1 Trillion at Dec. 31/10 to
51.2 Trillion at Mar. 31/11 – THAT’S an increase of 9.1 TRILLION
in three months at an institution with a market capitalization of 35 billion.
Even if you’re asleep and have your head buried in the sand,
you’ve got to admit that 9.1 TRILLION ramp in business in 3 months for
a company with a 35 billion market cap is quite a feat, eh? Remember folks,
interest rate derivates – BY THEIR VERY
NATURE, DO HAVE 2-WAY CREDIT / COUNTERPARTY RISK.
The feat performed by Morgan Stanley, outlined
above, becomes even more unbelievable when you stop and consider that –
according to the OCC – there are virtually NO DECLARED or IDENTIFIABLE END
USERS [counterparties] for these products:
excerpted from: OCC Quarterly
Derivatives Report Q1/11
Now we must ask who Morgan Stanley did their
impressive 9.1 TRILLION trade in 3 months with? Just
because they remain anonymous doesn’t mean they don’t exist
– but they are certainly known to the Federal Reserve because the Fed
has purview, as regulator, over Bank Holding Companies. So, by extension
– the Fed is comfortable [from a credit standpoint] with “whoever
it is” that Morgan Stanley is doing this mind boggling business with.
What we can say about the nature of this business is this: in the absence of
identifiable end users [counterparties], this trade creates artificial demand
for U.S. Government bonds.
So who would Morgan Stanley [and the Fed by
extension] accept as a secretive counterparty on this scale - in credit
sensitive transactions that serve to create artificial demand for U.S.
government securities? Embodied in the answer to this question IS THE REASON
why the world’s largest bond fund – Bill Gross/ PIMCO – got
it ALL [counter-intuitively] WRONG on interest rates. It also happens to be
the EXACT same reason why Amaranth got
it ALL [counter-intuitively] WRONG with Natural Gas back in 2006.
How many ways can you say Exchange Stabilization
Fund? It’s the Exchange Stabilization Fund acting through the New York
Fed – utilizing agents J.P. Morgan, Citibank, B of A, Goldman Sachs and
Morgan Stanley as proxies to implement imperialist U.S. monetary policy.
Let us forget for a moment that natural gas trades
in Europe for 2 – 3 times what it trades for in North America –
with the reasoning most often given by mainstream pundits that “natural
gas is a local market” and let’s move on to crude oil and
specifically let’s take a closer look at the price spread between North
Sea [Brent] Crude @ 108.30 and West Texas Intermediate [WTI] @ 91.72:
Crude Truth
Historically and until VERY recently, WTI has traded
at a premium to North Sea Brent Crude. This historic relationship has now
“flipped” and grown to PERVERTED inverted-ness [today to the tune
of 16.58 per barrel] and we have been fed a line by “officialdom”
for the past couple of years that this is mainly due to storage constrains or “a glut of crude” centered on
Cushing, Oklahoma.
Well guess what folks? The BIG LIE that the
perversion of global crude oil prices were due to a “glut” at
Cushing, Oklahoma were laid bare by a PANICKING U.S. administration last week
when they announced that 60 million barrels of crude were to be released from
the Strategic Petroleum Reserve. If there truly was a “glut” of
any kind – which according to the lies told to the world by officialdom
there must be with Brent trading at a 16.58 premium to WTI – there
would be no release of crude from the Strategic Petroleum Reserve.
Many market pundits wrongly refer to or reference
the derivatives complex as a “DEBT” that the world has been
stuffed with. This is WRONG. What the derivatives complex really is –
it’s a price control grid which enables its handlers to harvest the
fruits of the world’s labor at arbitrary prices.
The reality – the U.S. Fed and Treasury have
become increasingly desperate to make their lies about low inflation
believable and provide cover for their increasing monetary debasement by
attacking and rigging the most visible, go-to alternatives to failing fiat
currency.
In doing so, global financial stewardship provided
by America has turned our global capital markets into a sleazy GONG SHOW.
It’s high time these dirt-bags had their bells
rung.
Subscribers are getting this plus a whole lot more.
Rob Kirby
Subscribe here.
Rob Kirby
KirbyAnalytics.com
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