Five Facts You Need to Know About the Financial System

 

By Graham Summers    

www.gainspainscapital.com

Let’s connect the dots on the ENTIRE financial system right now.

Fact #1: Banks are Insolvent.

The only reason they’re still in business is because they are permitted to value their balance sheet at whatever price they choose. I could privately value my car at $500 TRILLION, but that doesn’t mean I’ll get that price for it when it comes time to sell.

Ditto for the banks and their garbage saturated balance sheets.

Fact #2: Countries are Insolvent

Europe, a union of broke countries, recently announced it is bailing itself out. This is a bit like your bankrupt friend announcing he is gifting himself $1 million: it DOESN’T SOLVE ANYTHING. As I’ve stated time and again, you CANNOT solve a debt problem by issuing more debt.

Fact #3: Wall Street is Crooked

Anyone who even wants to debate this can look at Goldman Sachs’ latest trading results: Goldie made money EVERY SINGLE DAY of last quarter. As if that wasn’t statistically impossible enough, the firm pulled in $100 million+ on 35 out of 63 days. This simply cannot be done ethically. The only way your trading is that good is because you’re cheating (front-running your clients or manipulating the market).

Fact #4: The Central Bankers Cannot “SAVE” Anything

The world’s central bankers are clueless about fixing the debt problems (see Europe). If a private business employed the same tactics as Ben Bernanke and pals, it would be bankrupt. Leaving a paperweight on the “print” button is not a policy. Neither is buying garbage debt (something of NO value) at 100 cents on the dollar. Indeed, there’s a word for someone willing to the latter action; it’s “sucker.”

Fact #5: The Stock Market is Controlled by Computers

The stock market has rallied courtesy of outright manipulation and fraud. Bailout Ben’s money didn’t go to Mom and Pop America, it went to Wall Street where they gunned the stock market higher on next to no volume using algorithmic computer programs to front-run their clients (see Goldman above).

So markets today are not moving based on real investors, they are moving based on computers that trade back and forth in nanoseconds if not faster. These programs were created to reap a ¼ penny profit for each transaction the make (a policy the NYSE created to induce investors to continue trading and provide “liquidity”). However, as last Wednesday showed, when things start to get ugly all these “liquidity providers” seem to vanish in a hurry.

What It All Adds Up To

All of the above are facts that have been staring us in the face for well over six months, if not a year. If you suspected that something was “strange” about the market, you’re absolutely right, it’s that our entire financial system is based on fraud, lies, and BS.

So how to you play this?

It’s really quite simple:

  1. Buy some physical bullion
  2. Have some Crisis Trades (shorts) lined up for the next collapse (see below)
  3. Don’t listen to anyone who missed Round One of the Crisis

Speaking of Crisis…

Europe officially joined the Moral Hazard club in a big way over the weekend. Having put off the “Greek” issue for five months they finally caved, launching a $1 trillion bailout AND their own variation on the Fed’s Quantitative Easing Program at the same time.

The implications of this are two-fold:

  1. The Euro is going to parity with the US Dollar
  2. Gold is now the top currency in the world

Regarding #1, the Euro only bounced for a brief 24 hours before continuing its slide. It is now clear that the world markets are like a drug addict, needing a bigger and bigger “fix” just to stay “high.”

The fact that Europe launched the largest single bailout in history and only bought a day’s worth of gains tells you all you need to know about just how saturated with debt the entire world is.

bad times euro.gif

Regarding #2, Gold has broken out to a new all time high in both the US Dollar AND the Euro. In plain terms, Gold is no longer an inflation hedge or anti-Dollar trade. It is a stand-alone currency. In fact, it has traded higher at the same time as the Dollar!

gold.gif

If you do not already own Gold, you should strongly consider buying some now. Europe’s moves were a clear signal to the world that it’s a “race to the bottom” in terms of currency devaluation. With every central bank in the world willing to turn their currency into toilet paper, why not own a currency that you CAN’T wipe with?

Which brings us to my final point.

The final conclusion to draw from this is that there is not one politician in power worldwide with a set of cajones. When it comes time to choose between doing the right thing (default, clear the junk, start over from a fresh base) our “leaders” have shown time and again that they’d rather throw more taxpayer money at the problem. 

In plain terms, no one wants to actually solve anything. All they want to do is put a band-aid on the issue and hope they can make it to their next election retaining their corporate backers without pissing off voters too much.

It’s a heck of a tight rope act. I don’t know how it will play out. I don’t care too much for politicians, but I sure as heck wouldn’t want to be in their position. On one hand you have increasingly pissed off voters. On the other hand you have banking Oligarchs who implode the market anytime they’re threatened.

Whoever tries to fix all this better have a pair of Gold-plated Cojones!

Good Investing!

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