View Full Version : Best Quotes of August 2008

9th September 2008, 12:12
by John Rubino

Gene Arensberg, Resource Investor
Everyone can look at the data and form their own conclusions. But when silver is in short physical supply, commanding injuriously high premiums and difficult to locate; when investors are piling into the silver ETF in droves, a 40% silver price plunge is not only not warranted, it smells.

It is difficult to imagine a legitimate reason that two U.S. banks could quickly and systematically amass a net short position on the COMEX which amounts to over a quarter of the entire action on that bourse. It will not be surprising at all if we learn that these two U.S. banks are taken to task by regulators for their actions. It will be even less surprising to learn that they have become the target of multi-billion dollar class action lawsuits by hungry lawyers representing silver investors everywhere.

Futures markets are supposed to answer the actual physical markets, not the other way around. In other words, futures markets are supposed to be a place where producers or large holders of a commodity can lay off price risk to speculators and thereby hedge against unforeseen adverse movements in the price of the commodity. Futures markets are definitely not supposed to be a place where a couple of well connected and well funded entities can bully the market with their own heavy handed trading.

If silver really was just taken down by a couple of very big U.S. banks to irrationally low levels, it won’t be long before the laws of supply and demand reassert themselves. Got silver?

Frank Barbera, Gold Stock Technician
Even more to that point, we wonder at what point does an institution such as the Fed lose its credibility? At what point does an institution become irrelevant? The answer to that question is when events have taken on a life of their own, and when their words no longer have any real impact. We have fortunately not reached this point yet, but for all appearances seem to be heading in this direction at a rapid pace. The socialization of financial market bad debts has forced the Fed to act as the lender of last resort, placing its own balance sheet on the line for the ineptitudes which were sewn over so many years of the Greenspan Fed. How dare Mr. Greenspan comment on perils of the current collapse when he was the chief architect of the events now unfolding each and every week.

Bob Chapman, International Forecaster
Why should gold go down if the dollar goes up? If the dollar goes up substantially, that means the euro is going down substantially, so gold should be exploding in the Euro Zone. If anything, a weaker euro should be more supportive of gold than a weaker dollar as there are just as many euros out there as there are dollars now, and because the people of Europe are far more attuned to the uses and purposes of precious metals than are their US counterparts. We sure hope the people in the Euro Zone loaded up on precious metals, which are now skyrocketing in their currency as the euro has gone from 1.60 dollars to 1.50 dollars in rather rapid succession. All fiat currencies will continue to lose against gold, including the dollar, so it is time to load up on the bargains you have been so graciously gifted with by your evil government and the Wall Street fraudsters!!!

Another scheme that financial companies have employed during the crisis is to regularly reclassify assets from Level 2 to Level 3 and vice versa. Level 3 assets have no market so values have to be guessed. Level 2 assets are ‘marked by model according to tangible data.’ Ergo if you have a beneficial model you move assets from Level 3 to Level 2 to generate better marks and earnings.

Which leads us to JP Morgan – For most of the US financial crisis the media and pundits hailed JP Morgan as having a ‘fortress-like balance sheet’ even though it has over $80 trillion of derivatives. JP Morgan CEO Jamie Dimon has been portrayed as the Financial Wizard of Oz.

So for the past several months most investors and people assumed that JP Morgan somehow managed to avoid all the crappy paper and ancillary problems that plague the industry. One group that thought otherwise averred that the Bear Stearns bailout was engineered to help JP Morgan obfuscate its problems and borrow massively from the Fed without public concern.

But the revelation of a relatively miniscule $1.5B write-down has destroyed the illusion of JP Morgan’s imperviousness to the financial mess. This has led analysts, investors and wise guys to re-examine JPM.

One disconcerting JPM fundamental is the amount of its Level 2 assets. An astute money manager alerted us that, “The market is obsessed with Level 3 assets levels but forgot to notice that of JPM's total $1.775 trillion in assets, $1.575 trillion are Level 2 or mark to model. The whole loan, MBS and Level 2 are what presents the real danger when the raters finally get there.”

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