Let’s use some logic
from
http://www.lemetropolecafe.com,
by Adrian Douglas in today's MIDAS dispatch.
A little logic and we get some truly scary stuff...
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Let’s use some logic. The BSC financial deterioration was so rapid that it threatened a daisy chain of major bank failures. This is because a fire sale of BSC derivatives in illiquid markets would have required other institutions to mark their derivatives to a newly discovered market price considerably below their mark-to-model price. On a Sunday afternoon the situation was so desperate a shot gun wedding was hastily arranged at 94% discount to the previous Friday closing price. If you receive such a pittance for your shares of BSC it is the same as the company going bankrupt as far as the shareholders are concerned. So clearly the rescue was NOT for the shareholders, but there was a burning urgency to do it before Monday morning. They were staring into the abyss again!
The rescue was similar to the LTCM bail-out in that there was a looming systemic risk. I am also wondering if there wasn’t another similarity such as a very large gold short position? Now if the game of the Central Bankers is truly to stabilize markets and prevent systemic failure then you would think that in the aftermath of coming back from the abyss they would want a tranquil mill-pond environment in the markets. Any major dislocation could have unwanted consequences and again threaten to collapse the system.
So what is happening in the PM’s and the commodity markets? We know that the massive sell off in gold and silver was NOT small investors thinking that the BSC bail-out had made the world so safe that they could now jettison their gold! The sell off was induced by the shorts and the ring leader of the shorts is the Gold Cartel. The Cartel is the agent of the Federal Reserve and the US Government. Why would they want to induce a massive market dislocation instead of low volatility when the system has just been on the edge of collapse? They know the highly leveraged hedge funds on the long side of precious metals and commodities could go belly up and set off another string of bankruptcies. The only logical conclusion is that they have no choice. They are now more concerned about saving themselves than saving the system!
Take a deep breath and absorb that statement. If I am right the consequences are profound. It means that this induced sell off is a last ditch attempt for the Cartel to cover as much as possible of their short position. They do not give a damn what the consequences are. They of course can not cover all their shorts but they are trying to defuse as many bombs as possible.
The implications are huge and will mean that by the very nature of the operation it will not last long because there is a lot of competition for the long side as they are not the only ones who realize the extent of the systemic problem.
Cheers
Adrian