CNBC Rant by Rick Santelli

This is one aggressive rant from a major news source, CNBC by Rick Santelli.
But then again, who cares, summer is here, time to think happy things.  For those who want to ignore the negative, click here for funny videos.

Skip to 3:30 into video.

How deep does the rabbit hole go.

JP Morgan is ranked as worlds largest publicly traded company, according to Wikipedia, and US largest bank.

It is estimate the the global GDP 61T total output is exceeded by JP Morgan's off balance sheet investment exposure by topping 70 Trillion.

A few weeks ago, the mass media reported a 2 billion dollar loss linked to "bad trades".   Now Bloomberg reports "JPMorgan CIO Swaps Pricing Said To Differ From Bank".

On the surface this tells me that the amount of money and liabilities are so great, the the "pennies on the dollar" of risk is what these companies are reaping money from.  But how can these companies ensure a positive outcome?  Why manipulating the market of course.  And since the markets are unregulated, I am not even sure it is illegal.  Lets assume it isn't illegal, what it does mean is the valuation of these off-balance sheet assets cannot be valued correctly.

And that is exactly what Bloomberg is suggesting, that the assets are manipulated and valued in a questionable manner.  Combine this with the change in FDIC insurance laws in place since the great depression to insure ONLY low risk savings accounts.   Now the FDIC is exposed to higher risk assets.

UPDATE: Market Ticker post on this topic, top quote:
The net amount of credit-swaps protection sold by JPMorgan soared eight-fold to $97.4 billion in the three months ended March 31, Federal Reserve data show. The bank held total credit swaps contracts on $6.05 trillion, the biggest among the six-largest U.S. bank holding companies, the data show.
So if you're making a "mistake" in the value of those positions by just one percent you would show a $60 billion difference against reality -- or roughly half of JP Morgan's market capitalization!
UPDATE:  Senator Mike Lee Luxury home who's valuation dropped below what he owed, was absorbed by JP Morgan.  I am not sure what the difference is between this and giving $$ to Mike Lee.

Referring back to 2008 to today, I now believe we have crossed over into realm of "all in" for the US economy and currency crisis.  What could have been dealt with decades ago has been continually kicked the can into a larger disaster.   Now the only question is how this plays out.

For more on JPMorgan, the FFIEC removed the public documentation on JP Morgan's finances, but you can still find it on google's cache here.

What I have issue is the off-balance sheet casino that the US entire financial system is based upon.  JP Morgan's off-balance sheet direct dealings tops over 6 trillion in accordance to federal PDF.

I am adding this to financial Ground Zero, as this is cracks in the largest ponzi scheme ever, off balance sheet liabilities totaling over 200 trillion across US banks.   And nothing material has been done since 2008, so it is safe to say nothing will be done until after there is no other choice but to reconstruct from the next disaster.

Currency Reform, not using Gold

I am NOT for reforming currency flows by moving to a gold based standard.

A gold base standard is changing from money creation from central banks to money creation by metal miners &  central banks.

Such "reform" is smoke and mirror of no reform.  In fact, it centralizes money creation into countries that have large gold mining producers and cripples countries without any gold mining.

I am in favor of freeing money creation from the few to the many PROVIDING the methodology is sound and prevents devaluation of currency.  This is a tricky issue, and I plan to cover it eventually as a follow up to my "what is money" series.

In any event, this is a great watch from Bill Still, someone who I have been covering for quite a while.
He covers his concept of true currency reform, granted some large gaps in the solution.

Truth on Money from Canada

This video is awesome, Paul Hellyer talks directly on what is root cause, money creation with interest rates attached.  Also how the entire financial system is fraudulently high risk currently.

I don't agree 100% with everything said, but much more so than reverting money to be made of gold or current system trajectory.  Please see my series What is Money for my view of money.

Goldman Sachs accused of shorting more shares than available

Rolling stones reports that Goldman Sachs made available 107% of the shares of Overstock.com available to short.

A couple of ground rules should be explained.  Rule 1 is stocks CANNOT be shorted unless you "borrow" someone's existing shares to short with.  so 107% is impossible unless breaking the law, intentional or not.

Second, shares that are held by others CANNOT be used to short unless the stock is made available TO short.  Typically investment firms, mutual funds, etc all lend their shares to be short.  So I find it hard to believe that legally 100% of the shares where available to short, since SOME shares would not be eligible for shorting.

Since the start of the financial ground zero events, I do not know of any prosecutions due to the actions by any major investment firm stakeholders.  I am not counting side people like Bernie Madoff, they are small time outright crooks that are easy to take on. (and should be)

My FAVORITE quote is:
"Fuck the compliance area – procedures, schmecedures," chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales. 

We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for “our more powerful enemies,” i.e. would work with Overstock on the company’s lawsuit.

"He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding," the lobbyist writes, "while resistance results in isolation."

Since this is a clear case of someone, somewhere, intentional or accidentally breaking the law in trading stocks, I will wait for the prosecution.  Also I will wait for pigs to fly, and for me to live to 300 years old.  Since this happened back in 2005-2006, I am sure a prosecution is going to happen any day now.

This entry goes into Financial Ground Zero series.  This event is small potatoes and irrelevant.  What isn't irrelevant is lack of law enforcement (corruption) which will ultimately take down the US dollar if the law continues to be ignored.  If this isn't a clear cut case of Moral Hazard is waaaay past a theory and fact, i don't know what it will take to prove that lack of prosecutions directly influences risk takers to cross the line to take on more risk.

Northern Dynasty falls apart - NAK

Northern Dynasty had a great run in Feb 2011, reaching a high of 21.
It has had a steady decline since then, but the stock character changed starting early March.
The stock flatlined in March and April, and resumed a decline in May.
Yesterday it completely fell apart, due to EPA announcement of possible damage to worlds largest Salmon fishery, closing at 2.55.

The stock may bounce a little, but I can't see any substantial recovery (above 6 bucks) until this matter is resolved.  And worst case, could go to zero if fined heavy enough.

I posted on NAK before, last I could find mention is April 2011, as part of basket of miner stocks.

My last overall post on stocks was negative, and has been since September 2011.  Granted the market didn't comply and moved up further, but I remain cautious.

Canary in Coal Mine - Japan

I have posted before that when Japan's economy becomes unmanageable, it will be the canary in the coal mine for the USA.   Sure Greece, Ireland, Spain, Portugal, Iceland, and others can be viewed as warnings.  But most of those countries have centuries of history of periodic economic resets.  Japan however is a different story, it is regarded as a conservative society and as the picture of stability.

So if Japan goes south, America better hear that message.

Yesterday Japan's Sovereign debt was downgraded

Fitch Ratings cut Japan's long-term foreign currency rating by two levels from AA to A plus, the fifth highest investment grade. It cut the more important local currency rating by one notch from AA minus to A plus. Both were given a negative outlook. - Reuters

Japan faces what most western countries face and China faces, a demographic nightmare.  See my post "Demographics is driver for economic growth", where I have a couple of odd suggestions on solutions.

There is a strong possibility the deal with China made in 2011 to buy US bonds directly was partially done to prolong America's ability to avoid a bond run.  However, I also believe that corruption never wins, and will delay the eventual same result.

Interesting times.

USA Circumvents Bond Markets for China

It is very evident by the actions by the US government since 2008 that preserving capitalism is not at the priority list.

International accounting standards were changed in 2009, as it remains today, with mark to fantasy accounting.

The Federal Reserve bank outwardly admits manipulation of capital markets to achieve it's goals.

It is now discovered that since June 2011 China has been given ability to circumvent open trading of US bonds and allowed a "direct bid" with the US for bonds.

This is new, and I am unsure if bad, but my gut says bad.  Why? Anytime there is large transactions without transparency it leads to corruption.   A liquid bond market where all US bonds are traded openly is less prone to manipulation.

All of this has become necessary as the system is no longer regarded as a system of respect, but of changing process to serve not the people, but the minority self interests.  In effect, the system is breaking.  Another hint of corruption is we find out about this in May 2012, and not June 2011.  Wonder why it wasn't proudly announced coupled with a transparent published trading record........

I am adding this to my series "Financial Ground Zero" of events that will lead up to the final event with US Financial and Currency system.

Decent Entry for Miners

Its no secret the market has taken a beating, and resource stocks have been brutalized.

Some like Gary are calling for a near term bottom in gold miners.  For me the jury is out.
There are many factors at play, and one of them is the Fed's reaction to the deflationary collapse that is gaining steam.

Assuming the Fed announces a new Quantitative easing "rebranded" announcement, gold may be poised for a nice leg up, along with it the Gold Miners.

If you haven't already, consider adding - yet again just a little - GDX at 41.50 range, and GDXJ at 18.50 range right now.  Put some stink bids in at 39 & 17, and see if we get a down-up day for a good price.

Make sure you have margin left over, for this rabbit hole could go much deeper.
I wouldn't buy anything else right here and now.  We could have a nice 2008 deflationary collapse again.
China's real estate is cracking so is Australia.
In a deflationary collapse gold miners and gold could repeat 2008.
Isn't this fun?   The bets are not on business cycle, but on what is the reaction of world banks.

I am selling some of the inverse funds, DXD and VIXY right here, and putting stops in.  Too much down too quick for not to take it off the table.

Good luck.