Category: zerohedge

Submitted by Jan Nieuwenhuijs of Voima Gold

In my previous post, from March 2018, on the audits of US official gold reserves, I have exposed that during the audit procedures of the US official gold reserves from 1974 through 2008, repeatedly audit staff deviated from the auditing protocol, while internal control meant to prevent this was failing. Many audits and assay reports have been destroyed. For decades a significant share of the metal was excluded from verifications for no apparent reason. And, the US government went to great lengths in withholding information and spreading false information about the audits, among other findings in documents obtained through Freedom of Information Act (FOIA) requests. All in all, these findings made me question the integrity of the auditor.

After my last publication, I have obtained more documents from the US Treasury through FOIA requests, which expose another falsehood that puts the auditor in an even more peculiar position. In conflict with the audit protocol, the permanent seals of the vault compartments have been broken, time and again. In addition, the auditor has lied about these events, and when confronted, it’s unable to explain its actions. By now, I have lost faith in the auditor fully.

Prologue

It’s been a very long investigative journey that has led me to make bold statements, such as the ones above, about the auditor of the world’s largest gold holding. I wouldn’t claim anything of this magnitude if I didn’t thoroughly do my homework and research every single possibility that could have caused the auditor to have accidentally spread inaccurate material, including asking the auditor for an explanation.

If any of their statements appeared to be false, surely, they would be able to explain what I was missing. The head auditor said during a congressional hearing in 2011 (source video 42:50):

Transparency is our business.  

Who would disagree? The US official gold reserves, weighing over 8,000 metric tonnes, deserve nothing less than an accurate audit.

My journey started in 2014, when I first discovered—in contrast to what I was accustomed to reading on blogs and in newspapers—that the US official gold reserves are audited every year. I published an article on my discoveries, titled A First Glance At US Official Gold Reserves Audits, which was basically a summary of all publicly available documents about the audits. Logically, these documents present a narrative that looks to be credible at the surface, but I found some questions left unanswered, and wrote in my article “this post will be part one of a series.” (Little did I know what I got myself into.) Given the importance of the subject, I intended to submit FOIA requests at the US government, in an open-minded attempt to have my concerns removed.

Since 2014 I have been prosecuting the US government. I have emailed staff of all related institutions—the US Treasury, The Office of Inspector General of the Treasury, the US Mint, and National Archives—that were initially replied, but as I got closer to the details, ceased altogether. I have submitted several dozen FOIA requests to all related institutions, some of which were honored, some not. In search of answers, I repeatedly called the Inspector General. In one of those calls, my contact simply hung up while I was talking. This incident is emblematic of this whole investigation.

On one occasion, the Mint wrote me a specific FOIA request would cost $3,145 “based on an estimate of 1,200 pages of responsive documentation and the duplication costs associated with the requested documents. This estimate also includes 40 hours of estimated search time and 8 hours of estimated review time…” The costs seemed outrages to me, but I got financed through a crowdfunding campaign and paid the Mint. A few months late(r), I received 223 redacted pages that contained 68 pages of reports I didn’t ask for and 21 pages that were copied twice. Effectively, I got 134 pages for $3,145. After some pressure on the Mint, they agreed the costs had been estimated too high, and I got the full amount refunded. (And I ordered my crowdfunding platform to refund all my donors.) The barrier of the costs was used to keep me at bay. To no avail, instead, I got some essential pages in my possession.

In total, I have written nine articles to inform my audience about the developments (I, II, III, IV, V, VI, VII, VIII, IX). After the last one, which was a comprehensive overview of every piece of information I had found (published on March 28, 2018, at the BullionStar website), a reply to another FOIA request came into my mailbox. I received a document that irrefutable reveals a lie by the auditor.

Today’s article is about this falsehood, and numerous other false statements by the auditor, that all have one thing in common: they hide the fact that most vault compartments have been re-opened multiple times after being put under permanent seals, which were meant to prevent re-opening of the doors. Upon request, the auditor provided me one argument for these actions—the “re-opening” of compartments. Alas the argument is in conflict with another statement by them, made under oath, so the auditor still stands as unable to answer a critical question.

Unfortunately, and contrary to how it could have been done, the entire audit process from 1974 until 2008 is extremely complicated. The account below is simplified—I can’t discuss every detail in every article—but for the ones that want to know the details I have added external sources (in parentheses with hyperlinks), which can be used to cross-check my statements. (Also, you can read my previous posts, and if anything is still unclear, I invite anyone to ask me to expand on my conclusions in the comment section below this article. I’m willing to substantiate any findings—as one should when making bold claims.) 

Let’s start with some background information, and then we will discuss the heart of the matter.

Introduction

The US official gold reserves are the largest globally at 8,134 metric tonnes (owned by the US Treasury). Although this gold does not back the US dollar at a fixed parity as it did before 1971, it does provide essential support as a final backstop to the dollar and thus credibility to the present world reserve currency.

The majority of the gold is located at the US Mint depository at Fort Knox. Smaller amounts are stored at US Mint depositories in Denver and West Point. Aggregated this metal is referred to as Deep Storage gold and is captured within 42 sealed vault compartments. The remainder is at the Federal Reserve Bank of New York.

When the audits commenced in 1974, the protocol designed was simple (page 534). The following excerpt is from the first auditing committee:

In performing the audit, the gold bars are physically moved from one vault compartment to another. During this operations [sic], the melt numbers and the number of bars in each melt are verified with an inventory listing, and one in fifty melts is randomly selected for weighing and test assay.

One melt averages about twenty bars cast from one crucible of molten gold.

The audit protocol follows that “these actions, having once been performed by an authorized committee, in accordance with established procedures, will not have to be repeated as long as the assets verified remain under an unimpaired joint seal.” Compartments physically verified were placed under Official Joint Seal (OJS) to “avoid the necessity of verifying all assets in each annual or special settlement (audit).” The US Treasury pledged to do a “periodic, cyclical inventory” to “ensure that about 10 percent of the gold” was physically inspected annually, eventually to have audited “all the gold for which the US government is accountable” “by 1984.” The essence of the “established procedures” was to open, audit and seal each compartment once. We will return to this fundamental topic later on.

Since the stated purpose of joint sealing was to avoid the need of “re-audits,” all the gold could (after 1984) be verified by simply checking if the seals were unimpaired. Great intentions, but this is not what happened.

The current auditor of the US monetary gold is the Department of the Treasury’s Office of Inspector General (OIG). Representing the OIG, Eric M. Thorson attended the congressional hearing for the Gold Transparency Act (not enacted) that was initiated by Ron Paul in 2011. Mr. Thorson’s testimony at the hearing serves as the official statement by the government on the audits. Having weighed his words carefully, Thorson spoke under oath:

… 100 percent of the U.S. Government’s gold reserves in the custody of the Mint has been inventoried and audited. … I can say that without any hesitation, because I have observed the gold and the security of the gold reserves myself.

… the Committee for Continuing Audit of the U.S. Government-owned Gold [The Committee that started the audits] performed annual audits of Treasury’s gold reserves from 1974[*] to 1986. … by 1986, 97 percent of the Government-owned gold held by the Mint had been audited and placed under joint seal. So once you have done that, and that seal remains unbroken, then I am not sure what other benefit there would be to going back into it at that point. …

Since 1993, when we [OIG] assumed responsibility for the audit, my office has continued to directly observe the inventory and test the gold. In fact, my auditors signed the official joint seals … placed on those compartments, inventoried and tested in their presence. At the end of Fiscal Year of 2008, all 42 compartments had been audited by … the Committee for Continuing Audit of the U.S. Government-owned Gold, or my office, and placed under official joint seals.

Thus, in summary:

• From 1974 until 1986, 97 percent of the gold at the Mint had been verified by the Committee for Continuing Audit.
• In 1993 the OIG became responsible for the audits, and by 2008 all compartments had been verified and sealed.

The conclusions we derive from Thorson’s testimony:

• From 1987 until 1992, there were no audits.
• From 1993 until 2008, the remaining 3 percent of the gold was verified.

Thorson doesn’t mention anything about vault compartments having been re-opened.

The Problem

First of all, the OIG did not assume responsibility for the audits since 1993, but since 1982 as disclosed in one of the few documents that survived the 1980s (page 2).

Effective October 1, 1982, the Internal Audit Staffs of BGFO and the United States Mint [Committee for Continuing Audit] were reorganized under the Department of the Treasury, Office of the Inspector General [OIG]. 

Ever since the OIG became part of the audits in 1982, exactly what was not supposed to happen, did happen: vault compartments that had been physically verified and sealed were re-opened. Read with me, from the 1986 audit report regarding the Fort Knox (page 8) and Denver (page 9) depositories:

For some reason, starting in 1983, “re-audits” were performed over 1,929 tonnes “in accordance with the plan approved by the Treasurer.” However, in 1983, both depositories had already been fully audited, while West Point had not. Why were these compartments re-opened when the protocol stated that, “these actions” (physical verification) “having once been performed … will not have to be repeated as long as the assets verified remain under an unimpaired joint seal”? The OIG can’t explain this to me, and neither can it explain to me what “the plan approved by the Treasurer” was.

What Thorson carefully refrained from mentioning under oath, he mentions in a written statement for the Gold Transparency Act. At the surface, his official testimony seems identical to his written statement, but when I compared both word for word, the latter crosses a topic that’s excluded in the former. Thorson never spoke about this in the congressional hearing (page 45):

From 1987[**] to 1992, the Mint continued to perform an annual inventory and verification of the gold reserves in accordance with its own policies over those compartments that had not been placed under Official Joint Seal…

Note that from the quote above, we learn that the US Mint—mind you, the custodian of the gold—audited the US monetary gold “in accordance with its own policies” from 1987 through 1992. This is arguably like a bank opening its customers’ safety deposit boxes. According to universal auditing principles, a custodian is not authorized to audit its client’s assets. An independent entity should audit custodial gold. This might explain why Thorson failed to mention this in the congressional hearing.

Note also that Thorson writes that the Mint exclusively opened “those compartments that had not been placed under Official Joint Seal.” This is false, and I can prove it.

I have obtained copies of the seals that were placed by the Mint on 5 Deep Storage compartments (together containing 795 tonnes of gold) between 1987 and 1992 (download here). Thorson’s written statement is false, as these compartments had, for a fact, already been verified and sealed, because they were all at Fort Knox and Denver, which were fully audited by 1982. Let’s have a look at one of the seal copies.

We can see the “date sealed” at the top, “July 25, 1990,” and the depository is “Fort Knox, Kentucky.” Thus, Thorson lied to us when he said that the Mint was only verifying “those compartments that had not been placed under Official Joint Seal,” because we know Fort Knox was fully audited, and thus all of its compartments put under Official Joint Seal, by 1982.

We can also see on the seal when this compartment was “sealed previously.” It was in 1976 (underlined in red). Confirming it was a “re-audit.” If it was the first audit, the “sealed previously” date had to be prior to 1974, before any audits were performed.

Last but not least, at the very bottom of the seal, we see a date, “February 16, 1993” (in the red oval), which is when this seal was removed by the OIG (presumably for yet another “re-audit”). More evidence that the OIG must have known what happened to these compartments in between 1987 and 1992. As, removing the seal in 1993 by the OIG, clearly would have shown the history of this compartment. Attentive readers might see a pattern emerging.

From 1993 until 2008, additional compartments were “re-audited.” Thorson, again, did not mention these “re-audits” under oath, but in this specific period, more than 2,000 tonnes*** of gold saw the light of day again. I know through an excel sheet (download here) the OIG sent me in response to a FOIA request. When I asked the OIG for confirmation on how much they audited since 1993 they replied (source):

[Since 1993]…we observed the counting of 246,203 bars, which equates to 81,638,569 FTOs (or 2,539 tonnes).

When I asked my contact at the OIG why thousands of tonnes had been “re-audited” in periods from 1983 until 2008, he replied:

Unfortunately, the OIG stopped responding to my emails by late 2016. Everything had to be submitted through FOIA requests, I was told, which made my investigations take a few years extra.

Notice that the OIG doesn’t mention “the plan approved by the Treasurer,” which at least could have explained the “re-audits” from 1983 until 1986.

An explanation of why so many compartments had been “re-verified (in some cases) was because occasionally vault contents would have to be moved.” However, this argument makes no sense. It is true that since 1974, when the audits started, gold has been moved. Roughly 1,900 tonnes were moved from the New York Assay Office to West Point. But this movement occurred in 1982 before any “re-audits” began. There have been no other substantial movements of gold (read the chapter “Problem 11”).

Additional evidence indicating there hasn’t been any movement of Deep Storage gold comes, ironically, from Thorson. Let’s go back to the congressional hearing with Paul and Thorson in 2011. After Thorson’s testimony, a Q&A follows wherein Paul asks Thorson about the audits from 1974 until 1986, and if it would be “worthwhile to inventory and assay [audit] this portion of the gold” again. Thorson replies that would be unnecessary because (39:00):

. . . there is no movement. Those doors aren’t opened. There is nothing there that can happen. Because once those doors are sealed … it’s very obvious if those seals are ever broken. … There is no movement. Those doors are not opened.

A strange thing to say, for Thorson, as this is exactly what he was continuously doing: re-opening the compartment doors. With this statement, Thorson confirms that any compartment should never have been re-opened. Not only is this what happened time and time again, but it also started precisely from the moment Thorson’s department (OIG) became involved with the audits in 1983.

In trying to think of any legitimate reason why compartments have been re-opened, ever, I decided to submit a FOIA request for the audit protocols that prevailed after 1992. Maybe the audit approach had changed? If the OIG can’t explain it to me, maybe I can find the answers in some documents? What if I’m still missing something?

Eventually, I received the Mint’s 2005 audit directive that shows us whenever a compartment has been “verified. . . the annual verification [i.e., audit] will be limited to inspection of the Seals.” Put differently: once physically verified the doors remain closed (from page 11):

Makes sense as this auditing approach matches the one from the 1970s. Like Thorson said during the congressional hearing in 2011: “So once you have done that [physical verification], and that seal remains unbroken, then I am not sure what other benefit there would be to going back into it at that point. . . . There is no movement. Those doors are not opened.” (Note in the quote above that “An OIG Representative must be present for any subsequent opening.” The issue isn’t whether it’s possible to re-open a compartment. Gold inside a compartment that can never be opened again has no value. You might as well put it in a rocket a blast it into the sun. The point is that barring legitimate reasons to re-open a compartment (e.g., selling the metal inside), they should remain closed.)      

Conclusion

Altogether, the vast majority of Deep Storage vault compartments have been re-opened for dubious reasons. (For exact data on “re-audits,” see my article “Audits Of US Monetary Gold Severely Lack Credibility.”)

After years of prosecuting, these are the facts as they lay in front of us:

• The majority of Deep Storage vault compartments have been “re-opened” for unknown or dubious reasons. (Again, for details, see “Audits Of US Monetary Gold Severely Lack Credibility.”)
• Under oath, the auditor, Thorson, carefully avoided the subject of “re-opening” compartments.
• In another written statement, the same auditor lied about the subject of “re-opening” compartments.
• When this auditor was asked for an explanation regarding the “re-opening” of compartments, it could only muster an unfitting one.

I find it astonishing that all falsehoods the auditor (OIG) has spread have in common that they hide the fact compartments have been “re-opened.”

My investigation concerns the audits, which appear to have been executed with an inadequate degree of integrity. Accordingly, there should be a new audit authorized by Congress, which, incidentally, is also the opinion of former US Mint Director Edmund C. Moy (see tweet below).

@NotoriousCLO @HereTizz @KoosJansen Not much but wouldn’t satisfy him. IMO there should be a comprehensive audit authorized by Congress.

— Edmund Moy (@EdmundCMoy) January 19, 2015

Naturally, if the OIG or Treasury wants to respond to my findings, that would be more than welcome, and I would be happy to engage with them.

Notes

*: The original documents states “1975” but for the sake of simplicity I have changed it into “1974”. Officially, the Committee for Continuing Audit of the U.S. Government-owned Gold started in 1975, but because they accepted the audit performed in 1974 in their program effectively their program started in 1974.

**: The original documents states “1986” but to improve the readability of this post I have changed it into “1987.”

***: An overview of the “re-audits”:

– From 1983 until 1986, 1,929 tonnes were “re-audited.”
– From 1987 until 1992, 796 tonnes were “re-audited.”
– From 1993 until 2008, 2,296 tonnes were “re-audited.” (By 1986 only 243 tonnes at West Point were not audited. According to the OIG, from 1993 until 2008, 2,539 tonnes were audited. 2,539 minus 243 is 2,296, which is the amount “re-audited” from 1993 until 2008.)

Altogether from 1983 until 2008, 5,021 tonnes have been “re-audited” for unclear reasons.

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The U.S. Senate has joined the House of Representatives in passing the National Defense Authorization Act (NDAA) for Fiscal Year 2020, and it will now go to the White House where President Trump is expected to sign it into law.

The Senate passed the massive $738 billion defense spending bill on Tuesday, which as we previously noted when it cleared the House last week, also officially establishes the president’s much sought after ‘Space Force’ as a sixth branch of the military.

A second package of bills is expected to also go speedily through both bodies of Congress before the Senate leaves for the holiday, with the White House indicating Trump will sign them both into law.

The Senate vote was 86-8 in favor of the mammoth NDAA, which passed after a significant compromise, as The Hill summarizes:

The $738 billion bill — which authorizes spending and lays out policy guidelines for the Pentagon — includes a high-profile deal that grants federal employees 12 weeks of paid parental leave in exchange for creating Trump’s “Space Force.”

The bloated budget did receive backlash from senate fiscal conservatives, however. The Hill continues:

But the trade off for paid parental leave — and the large tab — earned the defense policy bill backlash from fiscal conservatives in the Senate. 

Sen. Rand Paul (R-Ky.) argued that the bill included “bad compromises” that had “nothing to do with the national defense.” 

Though the DoD initially requested $72 million for the Space Force in 2020, and the NDAA authorized that, the spending bill actually only allocates $40 million.

The administration previously said it expects the newly established Space Force to cost $8 billion over the next 5 years, so clearly the NDAA funding appears severely “limited” in that regard. 

It’s part of a broader $1.4 trillion spending plan approved by the House also on Tuesday that appropriates approximately the same $738 billion spending for defense. 

Last week Trump let it be known he plans to sign the legislation “immediately” upon it coming across his desk.

The president has also tweeted last week: “Wow! All of our priorities have made it into the final NDAA: Pay Raise for our Troops, Rebuilding our Military, Paid Parental Leave, Border Security, and Space Force! Congress – don’t delay this anymore!” 

Authored by Daisy Luther via The Organic Prepper blog,

As Virginia lawmakers prepare to pass a draconian gun control bill that would make most guns in the state illegal, Tazewell County has formed an official active militia as per the Second Amendment to the Constitution.

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

To all of those who like to mock gun owners and ask if they’re going to fight tyranny in a militia, Virginia’s answer is a clear and adamant “yes.” That’s exactly what they’re planning to do.

A Quick Recap of What’s Happened So Far

Here’s a little bit of background on the proposed weapons ban from my last article.

After the most recent election, the state’s House and Senate are both Democrat majorities and they haven’t wasted a moment in attempting to gut the gun laws in what has historically been a permissive state.

The so-called “assault weapon ban” is SB16 and has that perilously vague wording we all know to be incredibly dangerous. In some interpretations, this law, if it passes, could make illegal the ownership or transportation of any semi-automatic gun because extendable magazines are available for it – and you don’t even have to have the extendable mags. (source)

Unsurprisingly, a lot of Virginians are outraged by the idea of this and discussion of a “grandfather clause” that allows you to keep your semi-autos as long as you register them has done nothing to assuage the ire of gun owners.

Counties across the state quickly organized into Second Amendment sanctuaries – as of Dec. 16, 89 counties, cities, or municipalities have passed “sanctuary” resolutions and 6 have passed resolutions to protect the Second Amendment rights of citizens, but refuse to use the word “sanctuary.” Other locations are still debating their stances.

Map from Gun Rights Watch

Then to really stir the pot, State Representative Donald MacEachin had the bright idea of calling up the National Guard to squelch the rebellion.

McEachin also noted that Democratic Virginia Gov. Ralph Northam could call the National Guard, if necessary.

“And ultimately, I’m not the governor, but the governor may have to nationalize the National Guard to enforce the law,” he said. “That’s his call, because I don’t know how serious these counties are and how severe the violations of law will be. But that’s obviously an option he has.” (source)

As you can imagine, that didn’t go over well.

The National Guard’s Response

Maj. Gen. Timothy P. Williams, the Adjutant General of Virginia’s National Guard responded rather vaguely via Twitter.

We have received multiple questions regarding proposed legislation for the 2020 General Assembly session and the authority of the Governor of Virginia to employ the Virginia National Guard in a law enforcement role.

We understand and respect the passion people feel for the U.S. Constitution and 2nd Amendment rights. We will not speculate about the possible use of the Virginia National Guard.

We understand and respect the passion people feel for the U.S. Constitution and 2nd Amendment rights. We will not speculate about the possible use of the Virginia National Guard.

— Va. National Guard (@VaNationalGuard) December 13, 2019

Based on the responses in the Twitter thread, folks found Maj. Gen. Williams’ lackluster response less than comforting.

So now, a militia is forming in Virginia

Tazewell County is taking this threat to the Second Amendment very seriously. Not only did they pass a Second Amendment Sanctuary resolution, but they’ve also officially begun to form a militia. Law Enforcement Today reports:

Just this past Tuesday, on December 10th, the Board of Supervisors from Tazewell County passed two different resolutions in light of controversy circling those who are pro-gun. The first resolution declared the county to be a second amendment sanctuary. This is not at all surprising to see, as 76 out of 95 counties, 9 out of 38 independent cities, and 13 towns have adopted second amendment sanctuary resolutions.

The second item on the agenda was the proposition of establishing a militia in the county. When both of the resolutions passed, the crowd cheered loudly in support of the decisions.  Also, the resolutions didn’t exactly pass by a small margin; the votes were unanimous, with more than 200 citizens standing by in support. (source)

County Administrator Eric Young explained why the county has opted to form a militia.

“Our position is that Article I, Section 13, of the Constitution of Virginia reserves the right to ‘order’ militia to the localities. Therefore, counties, not the state, determine what types of arms may be carried in their territory and by whom. So, we are ‘ordering’ the militia by making sure everyone can own a weapon.”

Thus, if anyone from the state tries to remove the Sheriff from their elected office because they refuse to enforce unjust laws, those state officials will be faced with a lawful militia composed of citizens within the state. (source)

This article explains the extensive training being offered by Tazewell County to its citizens in order to make sure everyone is acting safely and responsibly.

I suspect Tazewell County will not be the only one that forms an official militia. The legislature of Virginia may have bitten off more than it can chew when they decided to come after the guns of rural citizens.

“Coincidentally,” there’s an anti-paramilitary bill on the table.

It’s probably no coincidence that at the same time militias are forming, there’s also a bill to make them illegal. SB64 has caused a huge hullabaloo.

Here’s some of the text of that bill.

§ 18.2-433.2. Paramilitary activity prohibited; penalty.

A person shall be is guilty of unlawful paramilitary activity, punishable as a Class 5 felony if he:

1. Teaches or demonstrates to any other person the use, application, or making of any firearm, explosive, or incendiary device, or technique capable of causing injury or death to persons, knowing or having reason to know or intending that such training will be employed for use in, or in furtherance of, a civil disorder; or

2. Assembles with one or more persons for the purpose of training with, practicing with, or being instructed in the use of any firearm, explosive, or incendiary device, or technique capable of causing injury or death to persons, intending to employ such training for use in, or in furtherance of, a civil disorder; or

3. Assembles with one or more persons with the intent of intimidating any person or group of persons by drilling, parading, or marching with any firearm, any explosive or incendiary device, or any components or combination thereof. (source)

Obviously, this is not a coincidence. They predicted how rural Virginians would respond to their gun-grabbing shenanigans. The plan all along was to confiscate guns and turn any organized resistance into a felony.

A Reminder for Virginia Legislators

There could hardly be anything more unconstitutional than SB64.  I know I already quoted this, but just as a refresher for any legislator that might happen to be reading this:

A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.

Our guiding doctrines are the Constitution and the Bill of Rights. At this point, everything the laughable Virginia Congress is proposing is an affront to the principles upon which this nation was founded.

Another reminder – this is the pledge these legislators swore:

“I do solemnly swear (or affirm) that I will support the Constitution of the United States, and the Constitution of the Commonwealth of Virginia,  and that I will faithfully and impartially discharge all the duties incumbent upon me as ………. according to the best of my ability, (so help me God).” (source)

Every person in the government who has sworn this oath yet supports these unconstitutional bills should be immediately recalled and possibly even tried criminally to set an example that we will no longer tolerate the systematic dismantling of our rights. (Congressional privilege from arrest is only applicable in civil court, not in criminal court.)

This strategy was orchestrated by someone with a lot of money and power.

This is something that has been thought through, perhaps even by gun control advocate and presidential candidate Michael Bloomberg. The reason I’m suggesting Bloomberg specifically is that his PAC donated millions and millions of dollars to turn the legislatures of 24 states to a Democrat majority. His millions worked in 21 of those cases, and Virginia is one of them. Packing the state legislatures with allies would help his agenda should he actually become the next president.

Records filed so far show that organizations controlled and funded by Mr. Bloomberg spent more than $41 million on 24 House races, much of it on eye-catching ads rolled out on social media and broadcast on television in the crucial final days of the campaign.

And while it’s impossible to conclude that any one factor tipped the balance in a race, Mr. Bloomberg appears to have reaped the benefits of his millions in giving. Democrats won 21 of the 24 races he sought to influence. Of those, 12 had been considered either tossups or in Republican districts.

“The mission was to flip the House. Success or failure would be defined by that,” said Howard Wolfson, a senior adviser to Mr. Bloomberg. (source)

Bloomberg is rabidly anti-gun and has said that ending “the nationwide madness of U.S. gun violence” is the impetus behind his run for the White House. If he were to be elected, may God help America, because he will destroy everything for which our nation has ever stood.

Here’s the summary on what’s happening in Virginia

Let’s look at all these facts together.

• With Michael Bloomberg’s help, the Democrats took over the Virginia state congress.

• There’s an anti-paramilitary bill that would disallow armed people to gather or teach others how to use firearms or any technique that could cause injury or death.

• There’s a bill that would make semi-automatic weapons illegal.

• Nearly the entire state (aside from the highly populated areas that elected these yahoos) has balked and formed Second Amendment sanctuaries.

• A legislator threatened the sanctuaries with the National Guard.

• The sanctuaries responded by activating an organized militia.

The only real way to prevent bloodshed and save face for the congress and governor is for these bills not to pass.

That would be difficult, though, given the fact that Bloomberg dumped millions of dollars into getting people elected who promised to pass strict gun control bills. If they suddenly vote against the bill, they will have to face their angry constituents and the wrath of Bloomberg.

Rural Virginians seem unlikely to back down and are willing to fight. They have another month to get organized to defend their communities.

Remember that in situations such as these, the rumor mill works overtime. There are a lot of reports that are hysterical and exaggerated. The truth is bad enough that we don’t need to add far-fetched theories to the mix. This article is a very good, common-sense breakdown of fact vs. fiction.

What will happen next remains to be seen, but it is no exaggeration to say that the future of our country is now riding on the response of Virginians, should these unconstitutional laws pass.

“Own risk assets…everywhere… everywhere” says Embark Group’s CIO Peter Toogood, exclaiming that “this is nothing to do with fundamentals anymore, fill your boots, why not?”

After The Fed entirely flip-flopped from last year, the clearly frustrated manager notes the facts behind the so-called market, “flooding the repo market with $400, $500 billion from The Fed to stop it collapsing after it reversed course massively from last year…”

“..we’ll just keep pumping… and we’ll just keep pumping… and it’s not QE they tell us, definitely not QE… and its worked for the last 8 years so we’ll just keep pumping more…”

It’s quit simple, Toogood notes, “all CTAs have gone long, most macro funds are long, the biggest engines in London are as long as they can be… and vol is on the floor…”

“Just keep going…” he chides sarcastically:

“…until you don’t, until the music stops… I’m being incredibly flippant but for a very good reason…  there is no logic to [buying risk assets like equities] other than to chase the gilded lily… it’s nuts!”

The anchor attempted to get the conversation back on track, by mentioning earnings, to which Toogood scoffed –

“Earnings! Earnings? Are they relevant?”

As the chart below shows, no!

Source: Bloomberg

Everything has changed, “we’ve gone from tightening mode to loosening mode, extremely loose… The Fed says ‘rates are on hold’ but we’ll just keep this ‘little’ repo thing going a little while longer…“

Source: Bloomberg

Toogood then took aim at the farcical “phase one” trade deal with China that “doesn’t actually mean anything” and warned that the next year will be full of “phase two talks are going well” jawboning.

This is not reality, “the world was slowing down long before this trade deal became the biggest issue.”

It’s bonds that make more sense, he concludes, reflecting the massive total debt in the world and the consumer being loaded with personal debt as a tamper on overall economic growth.

“It’s Insane… but it’s gonna carry on because The Fed is absolutely in hock to what they created… which is a monstrous beast of over-inflated valuation.”

We could not have said it better.

Via SchiffGold.com,

Peter Schiff recently appeared on Kitco news with Daniela Cambone to talk politics, the economy and the Fed. He said that no matter what Jerome Powell is saying, the Fed central bank isn’t finished with rate cuts.

Lisa started out the interview asking Peter what he thought about the impeachment hearings and Trump’s prospects for reelection. Peter said it certainly looks like the House will impeach Trump. He doesn’t think it’s likely the Senate will remove him from office, but he also doesn’t think the president will be reelected in 2020 unless the economy can hold together.

I thought it was far more likely that he was elected originally, but I don’t think his prospects are as great now as they were then, although the conventional wisdom is the opposite. Most people thought he had no chance of winning last time and they think he can’t lose this time because they think we have this great economy, but we don’t. We just have another stock market bubble.”

Lisa pointed out that unemployment is supposedly at 50-year lows.

Well, sure. The unemployment rate was very low when Obama left office. I mean, the unemployment rate, at least the official rate, was declining for almost the entirety of the Obama presidency, and when Donald Trump ran against low unemployment, he said that the numbers were fake. That they were phony. That it was a fraud. That it was a hoax, and if you look at the real unemployment rate, where you look at all the people that were working part-time that wanted to work full-time, all the discouraged workers who had dropped out of the workforce, that the real unemployment rate was much higher. And that’s still the case today. We still have a lot of people with part-time jobs that want full-time jobs. We still have a lot of discouraged workers who are not in the labor force. So, you could certainly make the same argument against Trump that Trump made against Obama.

The reason that Trump won is because… Hillary Clinton was selling a lie that we had a real recovery under Obama. Well, the voters knew that there was no real recovery. Well, we’ll see if they have the same realization in 2020, because Trump made a lot of promises that he hasn’t kept about raising the standard of living of average Americans, about revitalizing manufacturing, about making America great again, about paying off the national debt, about making government smaller. There are a lot of boasts that Trump had but the only thing he can really claim credit for is a record high in the stock market. But again, we had record highs under Obama and Trump said, ‘Well, who cares about the stock market because that’s just a bubble.’ Well, now the only thing he does care about really is the stock market and the same fake unemployment numbers that he once criticized. Because the GDP growth under Trump is not measurably different than it was in Obama’s second term.”

Peter said that if the economy slips into a recession before the election, it won’t matter who the Democrats nominate. He said if the economy holds together, Mayor Bloomberg might have the best chance of knocking off Trump, but he probably won’t get the nomination.

As far as the Fed goes, Peter said despite projections that the central bank will hold rates steady through 2020, it is not finished cutting.

No, they’re not done until they get to zero, and then we’ll see if they’re done or if they want to try to go negative … What the Fed has assured the markets is that under no circumstances will they raise rates. That no matter what the data is, the only decision that the Fed has to make is do rates stay the same or do they go down. And I think that’s the only reason that the stock market has rallied. It’s based on that ‘Powell Put,’ where the fear of a rate hike is no longer in the market. But I do think at some point next year, the economy will be weakening, or maybe we will get a sell-off in the stock market, and the only way for the Fed to try to prop the market back up would be to start doing more rate cuts. And they will supply them as soon as the market demands them.”

It is unclear exactly when we entered bizarro world, but we are well and truly in it now. How else does one explain that Horseman Global, the fund which we first dubbed “the world’s most bearish hedge fund” and which has only gotten more so with time, most recently clocking in at a near record -100% net short exposure…

… is shutting its European hedge fund, which despite being up 28% YTD has shrunk over the years to manage just $66 million, even as the larger Horseman Global Fund continues to operate despite being down a record 33% YTD?.

According to Bloomberg, the Horseman European Select fund will close at the end of February after returning 28% through November this year. With the fund “set to be one of the most successful European hedge funds of 2019, I feel that this is an opportune time to change course,” manager Stephen Roberts told investors Tuesday. “I will continue to invest by managing my own family office.”

Whether Roberts is indeed merely seeking the quiet and stability of a family office, or simply no longer wishes to be packaged alongside the far more controversial (and underperforming) Global Fund, is unknown but it does add to the already unprecedented pressure crushing Horseman Global CIO, Russell Clark, who as he writes in his latest letter to investors (reposted below) is about to suffer his “worst year ever” following an 8.1% drop in November and a 33% drop YTD, and whose only hope “is a huge plunge in markets at year end.“

Below we repost Clark’s latest, November letter to investors, even as the fund’s AUM has collapsed from $525MM in Dec 2018 to just $138MM currently. While the future of the fund can at best be described as a “going concern”, it does not detract from Clark’s ideas – traditionally some of the best in the financial realm when it comes to contrarian originality – especially as relates to his continued bearish view of shale and semis, as well as his doomsday idea that Clearinghouses will implode during the next crisis, resulting in a Fed bailout of large, leveraged funds. While it’s only a matter of when, not if, that happens, it remains unclear if Clark will be around to trade it.

Your fund lost 8.06% this month. The short book, bond book and forex books all lost money.

This year has not worked out as planned and, unless there is a huge plunge in markets at year end, will end up being my worst year ever. Coming into this year there were a huge number of reasons to be bearish. Credit spreads were widening. The market was beginning to understand the capital destructive nature of the US shale industry. Japanese machine tool orders were plunging and continue to plunge. Auto sales were declining, and global trade was, and is, in decline. On top of that there still exists a huge amount of autocallables that would act as an accelerant to any sell off.

If there was one big misjudgement this year, it was that US restrictions on Huawei would reduce Chinese demand for US technology, given the risks of being blacklisted. What seems to have happened instead is that Chinese firms have front-loaded demand for semiconductors and semiconductor making equipment, so that they have inventory on hand, just in case they get blacklisted. This had led to a very large dislocation between traditional lead indicators for the semiconductor stocks. We have been reducing this short area all year, but despite the current dislocation, the problems of rising Chinese competition are increasing. There are signs that Chinese makers of semiconductor equipment are beginning to gain share among domestic semiconductor producers. Semiconductors are priced as if there will be no down cycle again, much like the view given to commodity stocks not so long ago.

The BIS Quarterly Report was issued on 8th December. While much commentary was on the analysis the BIS gave to the repo market, the much more interesting part of the Quarterly Review comes later, when it discusses portfolio compression. Compression and netting have allowed notional outstanding to stay stable, but the trading volume would be suggestive of a market that is taking 4 times more risk. Regulators (and the BIS) do not focus on this, but JP Morgan and other big members of clearinghouses plainly agree with me.

Clearinghouses have become the center of the financial system, but they do not bear the cost of any mistakes they make in pricing risks. This is borne by other clearinghouse members. But what the BIS note and the note issued by the banks and other users of clearinghouses makes clear is that the market has become very directional, with banks supplying liquidity to the repo market, while leveraged funds are taking liquidity (until 2017 banks were taking liquidity from the system). As the near bankruptcy of a clearinghouse highlighted last year, it is other members that bear the risk when things go wrong, and hence big US banks have acted rationally in looking to reduce liquidity to the repo market, which of course forced the Federal Reserve to act. Unfortunately, this does not solve the problem that risk is mispriced, and the banks will still be on the hook if other members default.

So what do you do if you run a major US bank, and you are feeling uncomfortable about the risks that clearinghouses are taking, but your efforts to reprice risk are thwarted? Well if it was me, I would have to start to think about nuclear options to force the issue. What would that nuclear option be? Namely to threaten to cancel membership to the clearinghouse, and hence get rid of the potential liability you might face. From the documents I have seen, this only requires 10 days notice. Ultimately if risks were priced correctly, leverage fund unwinding trades would cause a market dislocation. The only way to calm markets sustainably, would be for the Federal Reserve to lend directly to large leveraged funds. I guess this is possible, but I would assume you need a crisis first to cross that Rubicon.

I increasingly hear talk that central bank and government activism has ended recessions and possibly bear markets. Maybe this is true, but it seems to me that we are at a turning point. Large financial institutions have been willing to go along with central bank policy since the financial crisis, but risks to big banks and pension funds are all becoming more and more apparent. In a strange twist of fate, private banks might end up taking away the punchbowl from the Federal Reserve and other central banks. Your fund is short equities, long G7 government bonds.

Finally, for those asking, here is a list of Horseman’s Top 10 long positions by NAV:

Authored by Charles Hugh Smith via OfTwoMinds blog,

Eventually the younger generations will connect all the economic injustices implicit in ‘OK Boomer’ with the Fed.

Much of the cluelessness and economic inequality behind the OK Boomer meme is the result of Federal Reserve policies that have favored those who already own the assets (Boomers) that the Fed has relentlessly pumped higher, to the extreme disadvantage of younger generations who were not given the opportunity to buy assets cheap and ride the Fed wave higher.

OK Fed: you’ve destroyed price discovery, driven housing out of reach of all but the wealthy and hollowed out the economy, all the while patting yourselves on the back for being so smart and fabulous.

OK Fed: you’ve waged generational war without even acknowledging how disastrous your policies have been for younger generations. You’ve bloated the paper wealth of everyone old enough to have bought a home 20, 30 or 40 years ago and who’s had a Corporate America or government job who’s seen their 401K or pension soar because “the Fed has our back” and Fed policies have inflated one bubble in stocks and bonds after another for 25 years.

OK Fed: as a direct consequence of your free-money-for-financiers policies, inflation has gutted the purchasing power of younger generations. As the bogus consumer price (CPI) claims inflation is near-zero year after year, two generations of Americans have been crushed by student loan debt that tops $1.5 trillion– a debt serfdom that would have been impossible had interest rates been settled by market forces.

The clueless higher education cartel would have been forced to innovate decades ago rather than pass on their administrative bloat to those least able to pay, the students. Without the Fed and other federal agencies, student debt would not have exploded.

OK Fed: as a direct consequence of your pump-up-speculative-excess policies, speculation has ruined the U.S. economy as banks, financiers and corporations all skim hundreds of billions of dollars via leveraging Fed cheap money while younger generations get credit cards with nosebleed interest rates and rapacious banks that charge $25 and up for every overdraft that they engineer by manipulating when deposits are credited.

OK Fed: while you’ve been hectoring young people to buy assets so they can join your speculative asset-bubble party, they’ve been dealing with the broken mess of an economy you’ve created while patting yourself on the back, an economy where only the already-wealthy can buy a house in hot job market regions, where young workers have to work crazy-hard to keep their precarious jobs or get by on the gig economy, a happy-story code phrase for an economy in which corporations have transferred the risk to their workers while they get rich buying back their own shares with cheap Fed money.

OK Fed: eventually the younger generations will connect all the economic injustices implicit in OK Boomer with the Fed that created the ever-widening wealth and income inequality between the generations: those who effortlessly rode the Fed’s asset-bubbles to wealth and those who have been priced out of the assets and left the shards of a once-functioning economy, an economy destroyed by the Fed’s toxic worship of speculative exploitation and serial asset-bubbles.

As I have repeatedly observed here: if we don’t change the way money is created and distributed by the Fed, we change nothing.

*  *  *

My recent books:

Will You Be Richer or Poorer? Profit, Power and A.I. in a Traumatized World (Kindle $6.95, print $11.95) Read the first section for free (PDF).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($6.95 (Kindle), $12 (print), $13.08 ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 (Kindle), $15 (print) Read the first section for free (PDF).

*  *  *

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Oil prices jumped notably intraday (near three-month highs at $61 for WTI) as US manufacturing data printed better than expected, building on post-trade-deal optimism.

“The conditions for a rising oil price appear favorable at present,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt.

But that could all change after inventory data

API

• Crude +4.7mm (-1.5mm exp)

• Cushing -0.3mm

• Gasoline +5.6mm

• Distillates +3.7mm

Crude inventories rose unexpectedly in the prior week but were expected to draw again this week. However a 4.7mm build was a big surprise relative to the 1.5mm draw expected…

Source: Bloomberg

 

WTI hovered just below $61 ahead of the data, but dropped on the surprise build…

 

And all of this is occurring as Oil ‘VIX’ drops to its lowest in 8 months…

Source: Bloomberg

Traders will be hard-pressed to recall when was the last time Fedex reported earnings that sent its stock higher. And while they are thinking, we can be certain that it won’t be today because one day after FedEx got a kick in the groin from Amazon which stopped using the company’s ground shipping services for its various third party sellers, the company was hit with a one-two punch when it reported yet another disastrous earnings report, in which it not only missed earnings but also cut profits.

First, the historicals, which were for lack of a better word, deplorable (relative to already lowered expectations). Specifically, Fedex reported 2Q numbers as follows:

• Adjusted EPS $2.51 vs. $4.03 y/y, estimate $2.78 (range $2.57 to $3.21) (BD)
• Adjusted operating margin 3.9% vs. 7.50% y/y, estimate 5.35% (Bloomberg MODL)
• Revenue $17.3 billion, estimate $17.66 billion (range $16.22 billion to $18.13 billion) (BD)

But if the historicals were ugly, it was the forecast that was downright disastrous:

• FedEx now forecasts fiscal 2020 earnings of $9.10 to $10.35 per diluted share, and earnings of $10.25 to $11.50 per diluted share before the year-end MTM retirement plan accounting adjustment. Previously, the company had seen $11-$13, while the sellside estimate is $12.05.
• In other words, the midline of the company guidance is almost a dollar below both its own and the street’s estimates.
• Additionally, and less importantly, FedEx also sees full year capex of $5.9 billion, the same as its prior forecast and just above the sellside estimate $5.88 billion. Here one could ask if earnings are set to slide, why the company didn’t also cut its CapEx, and the likely answer is it can’t as it has to spend more and more just to keep EPS in roughly the same place.

Commenting on the ugly forecast, FedEx CFO Alan B. Graf said that “our revised guidance reflects lower-than-expected revenue at each of our transportation segments and higher-than-expected expenses driven by continued mix shift to residential delivery services. In response, we are implementing reductions to the global FedEx Express air network to better match capacity with demand. We are also further restricting hiring and pursuing opportunities to optimize our networks, including investments in technology aimed at improving our productivity and lowering our costs.”

Finally, it just may turn out that the company’s forecast may have to be cut again, as FedEx writes that “these forecasts assume moderate U.S. economic growth, the company’s current fuel price expectations, no further weakening in  international economic conditions from the company’s current forecast and no additional adverse developments in international trade policies and relations.”

Good luck with all those assumptions, guys.

It was not immediately clear how much of an impact Amazon’s decision to fully phase out FedEx would have, but the market didnt care to find out, and FedEx stock tumbled over 7% after hours, in the process dragging UPS shares some 2% lower as well.

“The only way is up…”

China continued to surge after the ‘deal…

Source: Bloomberg

Mixed picture in Europe today with the FTSE tumbling along with DAX as Italy managed gains…

Source: Bloomberg

US markets were broadly higher led by Small Caps…

 

Since “Phase One” of the US-China deal was supposedly complete on Oct 11th, can you spot the odd one out?

Source: Bloomberg

All of which began when The Fed started expanding the balance sheet dramatically…

Source: Bloomberg

Another day, another mega short squeeze…

Source: Bloomberg

Cyclicals outperformed on the day but the gains were all at the open…

Source: Bloomberg

US equities seem a lot more excited about the trade deal than yuan…

Source: Bloomberg

Credit markets have compressed dramatically in the last few days…

Source: Bloomberg

Treasury yields were higher across the curve, marginally at the short-end and around 2bps at the long-end…

Source: Bloomberg

The yield curve steepened back to pre-FOMC Minutes levels…

Source: Bloomberg

Despite President Trump’s exclamations this morning, the dollar closed marginally higher…

Source: Bloomberg

Pushing the dollar back to unchanged on the year…

Source: Bloomberg

Cable erased all the post-election gains…

Source: Bloomberg

Cryptos were clubbed like baby seals again today with altcoins notably underperforming Bitcoin…

Source: Bloomberg

Oil was the day’s big winner as Silver slumped along with copper and gold…

Source: Bloomberg

Oil prices surged intraday extending gains after better than expected manufacturing production data (ahead of tonight’s API inventory data) testing within a tick of $61…

And as oil rallied, silver sank…

 

 

Finally, as a reminder, the S&P is up almost 28% YTD while earnings expectations have tumbled around 5%…

Source: Bloomberg

And the market – if that’s what you want to call it – has surged back to “extreme greed” once again…

Source: CNN

Thanks to The Fed only…

Source: Bloomberg