Commonly held false data

Please don't shoot the messenger, we didn't invent the facts below. Political opinions are labeled when stated.

(last update November 2007 - CRMPG addition)
False data     True data

It's different this time, or _____ always goes up and I can't lose.       That was said in the late 1920's and the late 1990s in the US stock markets (Why Bull Markets Go Up Forever), as well as many times in history like the Tulip Mania in Holland in the 1600s, the South Sea Mania in the 1700s, the banking sector stock issue in Israel in 1983, Coins in the late 1980s in the US, or even California real estate and especially Japanese stocks in the late 1980s. Nothing goes up (or down for that matter) forever in the material universe.

Legendary investor Warren Buffet once remarked, “it wasn’t raining when Noah built the ark.”

And this one from John Maynard Keynes, the economist, also seems to apply and in both up and down moves - "Markets can remain irrational longer than you can remain solvent".

Another way to state it is to be very wary when its fashionable or trendy for the delusional to refer to their fellows as those who ‘get it’ and to dismiss everyone else.

"Speculative asset price bubbles" have been around a long time, per Medieval Booms and Historical and Economic Amnesia.

The average income in the US is way up since the 1970s.       Per Fortune magazine in 1999, the average annual individual salary in the US went from $32,522 in 1970 to $35,864 in 1999. Both numbers are expressed in 1998 dollars (in other words, corrected for inflation as of 1998). See inflation data here.

Big secrets can't be kept, someone will always talk.     The Manhattan Project, the extremely large U.S. government project to develop the atomic bomb, was kept secret for many years. The point here is not that this was a wartime project and national security and patriotism was strongly involved, but rather that given enough motivation any secret can be kept.

The explosive Pentagon Papers, completed in 1968, were kept secret for over four years (and the data within them went back over 23 years to 1945) and only revealed by truly extraordinary means. The point here is that they were kept secret for over twenty three years in spite of Daniel Ellsberg's comment that they "demonstrated unconstitutional behavior by a succession of presidents, the violation of their oath and the violation of the oath of every one of their subordinates."

"Only the small secrets need to be protected. The big ones are kept secret by public incredulity."
-- Marshall McCluhan

Secrecy (Wikipedia)

Regarding privacy:

"Why worry if you're not doing anything wrong?"
    Because it assumes a trust and faith in people who are presumed to be always honest, diligent and conscientious - many times in history shows that not to be a correct approach. It also assumes that our government or bosses, etc. always have our best interests at heart, and would never seek to harm us for their own greed or avarice or other reasons. Some more and much shorter answers:
  • "If I'm not doing anything wrong, then there is no reason to watch me."
  • "Why is there a problem with privacy?"
  • "Because someone might do something wrong with my information, on purpose or not."
  • "Because the government is the one that defines wrong, and they aren't always right."
  • "Because the government is the one that defines wrong, and the definitions change."
  • "Who watches the watchers?"
  • It's based on a false premise that "privacy is about hiding a wrong". (Schneier)
  • Widespread surveillance is the actual definition of a police state.
  • Please post your full name, address, pictures of yourself and your family, and a full log of everything you've done in the last month. Don't want to? What are you trying to hide?
  • "If you give me six lines written by the hand of the most honest man, I would find something in them to have him hanged." -- Cardinal Richelieu
  • 'I've Got Nothing to Hide' and Other Misunderstandings of Privacy Also here
  • Data Retention Effectively Changes the Behavior of Citizens in Germany
  • "Arguing that you don't care about the right to privacy because you have nothing to hide is no different than saying you don't care about free speech because you have nothing to say"
    -- Edward Snowden
  • There's also: "I don’t care about freedom of speech because I have nothing to say."

Rising interest rates are bad for gold & silver long term prices.        See the popup chart here (regular link here). It shows 10 year bond rates going from 5% to 15% while gold went from $35 to $850 during the period 1971 to 1980, and then rates going down from 15% to 5% while gold dropped to $255 in 2001.

You can only lose money or stand aside in cash if the stock market is moving down.     With options, ETFs or futures one can make profits in a down market. There are also more than a few mutual funds that gain when the market falls - some symbols of those funds are (no recommendation intended): USPIX, URPIX, RRPIX, RYJUX, RYURX, RYVNX, PSAFX, GRZZX, CPFAX, DRCVX, SHPIX, POTSX, PDOSX, RYAIX, RYTPX, RRPIX & BEARX.

The ETF or option symbol for the Dow is DIA, the S&P 500 is SPY & QQQQ for the NASDAQ 100 (An option contract is for 100 shares of the underlying asset. A put is an option to sell, a call is an option to buy).

On privacy: "If you are not doing anything wrong, why should you worry about it?"     The simple answer and concern is "Who defines wrong?". For example, did you know that, per an interpretation of a law called the DMCA (Digital Millenium Copyright Act) that its illegal to copy a music CD you bought to your iPod or computer for personal listening?
Another one - what if the people who are tracking you tell some business details to your competition, who might just be some bureaucrat's relative?

U.S. unemployment figures are accurate.     The actual explanation of what the Bureau of Labor Statistics is doing is here and here. If it makes sense to you as far as increasing accuracy, so be it but we sure don't see it. The chance for abuse and inaccuracy is too high for our taste.

Click here for a chart of unemployment rates since 1948.

Gold is more rare than silver.     While it is true that the average ratio of silver to gold is about 26:1 in Earth's crustal rock, actual above ground stocks and ownership show a very different picture. Per the World Gold Council, somewhere around 4-5 billion ounces of gold exist. Per the Silver Institute and others, .5-1 billion ounces of silver exist in the world. Our best guess is that the gold to silver mined and existing ratio is around 10:1 to 13:1.

Using average 2004 prices, the gold to silver ratio for available inventory (the amounts actually availble for sale) is over 30:1. On an historical basis, silver is severely undervalued.

Crustal rock, parts per billion of various metals
Metal ppb, by weight ratio to gold
Iridium (ir) .4 .1
Rhodium (rh) .7 .2
Tellurium (te) 1.0 .3
Ruthenium (ru) 1.0 .3
Neon (ne) 3.0 1.0
Gold (au) 3.1 1.0
Helium (he) 5.5 1.8
Palladium (pd) 6.3 2.0
Bismuth (bi) 25 8.1
Platinum (pt) 37 11.9
Mercury (hg) 67 21.6
Silver (ag) 80 25.8
Cadmium (cd) 150 48.4
Molybdenum (mo) 1,100 354.8
Uranium (u) 1,800-2,900 580.6
Lead (pb) 10,000 3,325.8
Copper (cu) 68,000 21,935.5
Nickel (ni) 90,000 29,032.3

Note also that some believe the naturally occurring silver to gold ratio is 17.5:1. See the American Geological Institute Data Sheets for Geology in the Field, Laboratory, and Office, Third Edition, Data Sheet 57.1, “Abundance of Elements".

Also see Is the Old Gold/Silver Ratio of 16 Still Alive Today? for another view.

You can't eat gold.     It reflect a cynical materialism. You can't eat paper money, stocks, bonds or Rembrandts either.

The Treasury can't sell gold when it wants to.     TITLE 31 > SUBTITLE IV > CHAPTER 51 > SUBCHAPTER II > #5116 (as of Jan. 2, 2006)

5116. Buying and selling gold and silver

(1) With the approval of the President, the Secretary of the Treasury may—

(A) buy and sell gold in the way, in amounts, at rates, and on conditions the Secretary considers most advantageous to the public interest; and

(B) buy the gold with any direct obligations of the United States Government or United States coins and currency authorized by law, or with amounts in the Treasury not otherwise appropriated.

(2) Amounts received from the purchase of gold are an asset of the general fund of the Treasury. Amounts received from the sale of gold shall be deposited by the Secretary in the general fund of the Treasury and shall be used for the sole purpose of reducing the national debt.

(3) The Secretary shall acquire gold for the coins issued under section 5112 (i) of this title by purchase of gold mined from natural deposits in the United States, or in a territory or possession of the United States, within one year after the month in which the ore from which it is derived was mined. The Secretary shall pay not more than the average world price for the gold. In the absence of available supplies of such gold at the average world price, the Secretary may use gold from reserves held by the United States to mint the coins issued under section 5112 (i) of this title. The Secretary shall issue such regulations as may be necessary to carry out this paragraph.

(1) The Secretary may buy silver mined from natural deposits in the United States, or in a territory or possession of the United States, that is brought to a United States mint or assay office within one year after the month in which the ore from which it is derived was mined. The Secretary may use the coinage metal fund under section 5111 (b) of this title to buy silver under this subsection.

(2) The Secretary may sell or use Government silver to mint coins, except silver transferred to stockpiles established under the Strategic and Critical Materials Stock Piling Act (50 U.S.C. 98 et seq.). The Secretary shall obtain the silver for the coins authorized under section 5112 (e) of this title by purchase from stockpiles established under the Strategic and Critical Materials Stock Piling Act (50 U.S.C. 98 et seq.). At such time as the silver stockpile is depleted, the Secretary shall obtain silver as described in paragraph (1) to mint coins authorized under section 5112 (e). If it is not economically feasible to obtain such silver, the Secretary may obtain silver for coins authorized under section 5112 (e) from other available sources. The Secretary shall not pay more than the average world price for silver under any circumstances. As used in this paragraph, the term “average world price” means the price determined by a widely recognized commodity exchange at the time the silver is obtained by the Secretary. The Secretary shall sell silver under conditions the Secretary considers appropriate for at least $1.292929292 a fine troy ounce.


Gold doesn't pay interest.     Neither do non dividend paying stocks or housing or gemstones or art or antiques, etc., all of which have done quite well. And in our odd finanical system as of 2012, one can actually make an income on one's gold via covered selling.

The central bank of the U.S., the Federal Reserve Bank, is part of and owned by the U.S. government and its people.     The Federal Reserve Bank is a private company, authorized in 1913 by a Congressional Act called the Federal Reserve Act of 1913. In a very real sense, it outsourced the control of U.S. money and banking to bankers themselves. Some of its large (officially) non-voting stockholders as of 2006 are:
  • Citibank
  • Bank of America
  • UBS Warburg
  • JP Morgan/Chase
  • Wells Fargo
In order for any U.S. bank to belong to the Federal Reserve System, it must put up 6% of its capital stock (per the Federal Reserve Act of 1913 itself - Section 2, paragraph 3), so basically and in a broad sense the Fed is owned by its member banks. In our opinion, that is called a cartel. For balance, here is the Federal Reserve's position.

Political opinions follow:
James Madison in 1808 said "History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible, to maintain their control over governments, by controlling money and its issuance."

Thomas Jefferson, another one of the founding fathers of the U.S., had this to say about private central banks: ""I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." and "The issuing power (of money) should be taken from the banks and restored to the people, to whom it properly belongs/"

More data and specifics are available here. We do not agree with all of its facts or conclusions, but do believe that its more correct than not and think its deserves a link.
Do your own research and make up your own mind, as usual. If you think we're conspiracy nuts, that's fine too.

One last note in the false data area - there is a list floating around the internet listing the supposed owners of the Fed that is quite incorrect. As examples, it includes a totally false bank called the "Israel Moses Sieff" bank, "Kuhn Loeb" which hasn't existed for many years and "Goldman Sachs" which is an investment bank (only commercial banks can currently be Fed members. Goldman Sachs is, however, a primary dealer of the Fed per this list).
The whole idea of this entry is to point out that the Federal Reserve is not part of the US Government but rather a privately owned cartel with motives and purposes that do not exactly always match up with the best actions for the country as a whole on a long term basis.

Federal Reserve Board members can't trade stocks     The seven members of the Federal Reserve System's Board of Governors are allowed to trade stocks, said Susan Stawick, a spokeswoman for the board. But they are prohibited from owning bank stocks or stocks in primary government securities.

Banning shorts     SEC chairman Brian Cox, 2008:
However, Cox said he had some regrets over a drastic action the agency took as markets were hurtling downward in September. For a few weeks, the SEC stopped investors from making bearish bets on financial stocks like Morgan Stanley and Citigroup. The SEC's office of economic analysis is still evaluating data from the temporary ban on short-selling. Preliminary findings point to several unintended market consequences and side effects caused by the ban, he said.

"While the actual effects of this temporary action will not be fully understood for many more months, if not years, knowing what we know now, I believe on balance the commission would not do it again," Cox told Reuters in a telephone interview from the SEC's Los Angeles office late on Tuesday.

"The costs appear to outweigh the benefits."

Source 1, Source 2

Trade with China is a major mess and they're messing up our economy.     While there are very real imbalances and issues, the total yearly trade deficit of the U.S. is about $700 billion as of early 2005. As of April 2005 China's total yearly exports to the U.S. are about $155 billion, less than 25% of the total. Those numbers do not take into account any exports from the U.S. to China, which would lower the total to about $135 billion. Nor do they include the $40 billion that the Chinese government has invested in U.S. Government Treasury Bonds in 2004. The total U.S. economy is about $12 Trillion, just for perspective.
Plus, all they're doing with their currency is locking it to the value of the U.S. dollar, exactly as every other currency was locked to the dollar between 1945 and 1971, and the Chinese yuan has been locked since 1994.

All we're saying is that there's much more to the issue than just the currency value lock, and it has more to do with the U.S. itself and the dollar than China or its policies. After all, the U.S. economy is around 12 trillion dollars and the net China trade deficit is about 1% of the total US economy. One last politically based thought usually attributed to Frederic Bastiat: "When goods don't cross borders, armies often do.".

A gold backed currency is the answer to the problems with the dollar and inflation, or any other fiat currency.     Political opinions follow:
It appears at first glance that locking a currency value to an amount of gold is a great way to limit the ability of government or central banks to print too much money and create inflation, and of course there's some truth to that... and a partial truth can be very dangerous.
  1. The primary economic point, and based on the definition of inflation and deflation is since there's a very limited total amount of gold on Earth and there's virtually no limit to how much man can produce (as witness the huge standard of living increase in the last 100 years), the amount of production would either have to be limited to the amount of gold available OR the value of gold would have to increase every year to keep up with production levels.
  2. The idea of course is to keep the dollar or any currency at a stable value.... and guess who own 25-50% of the gold on Earth - central banks and world banking organizations. They would get rewarded for doing almost nothing, which isn't our idea of fair.
  3. If nothing was done, and the currency increased in value on a regular basis, why would someone invest in something to raise the standard of living when by doing nothing and holding the currency, it gets more valuable every year? Sure, there would be some investing going on but it sure would severely lower the incentive if doing nothing paid well.
  4. Better than a gold or silver backed currency is a constitutional amendment, along with at the very least removing the Federal Reserve Banks from private hands.
  5. "The greatest error of the money supply being fixed to the gold standard, was that the discovery of gold determined the supply of money altering policies of government and subjecting the private sector to swings in the boom and bust sense that would be influenced with respect to amplitude incresing volatility. We can see such periods following the Gold Rush of 1849 in California and the consequences of the deliberate inflation created by the 'Silver Democrats' that led to virtual bank¬ruptcy requiring J.P. Morgan to bail out the government in 1896."
    -- Martin Armstrong, "Its just time" page 69
Also see William Jennings Bryan's "Cross of Gold" speech from 1896 when the country was still on a gold standard, as well as an article by Ben Bernanke, Money, Gold, and the Great Depression. Another fine article in the area - Production: The True Money Standard

"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"
-- Kenneth J. Gerbino, investment manager

A nuclear strike on the U.S. is impossible.     As incredibly horrific as it would be and even to contemplate, here's a small extract of what former Secretary of Defense Robert S. McNamara had to say in the May/June 2005 issue of Foreign Policy magazine:

"Indeed, just last summer, at a meeting of the National Academy of Sciences, former Secretary of Defense William J. Perry said, “I have never been more fearful of a nuclear detonation than now.… There is a greater than 50 percent probability of a nuclear strike on U.S. targets within a decade.”

The Federal Reserve has never even considered stock market control or manipulation, or considers it impossible.     Former Federal Reserve governor, Robert Heller, had this to say in the Wall Street Journal on October 27, 1989:

"The stock market is certainly not too big for the Fed to handle. The foreign exchange and government securities markets are vastly larger. Daily trading volume in the New York foreign exchange market is $130 billion. The daily volume for Treasury Securities is about $110 billion. The combined value of daily equity trading on the New York Exchange, the American Stock Exchange and the NASDAQ over-the-counter market ranges between $7 billion and $10 billion."
"An appropriate institution should be charged with the job of preventing chaos in the market: the Federal Reserve....The Fed already buys and sells foreign exchange to prevent disorderly conditions in foreign exchange markets. The Fed has assumed a similar responsibility in the market for government securities. The stock market is the only major market without a marketmaker of unchallenged liquidity or a buyer of last resort." ... "The Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole."

“Owing to persistent advances in information and computing technologies, the structure of our financial institutions is continuously changing, I trust for the better. But that evolution in financial structure has also meant that supervision and regulation must be continually changing in order to respond adequately to these developments. In today's markets, for example, there is an increased reliance on private counterparty surveillance as the primary means of financial control. Governments supplement private surveillance when they judge that market imperfections could lead to sub-optimal economic performance.”
Source, Alan Greenspan speech in 2002

"...the Federal Reserve has the capacity to operate in domestic money markets to maintain interest rates at a level consistent with our economic goals” Ben Bernanke, Fed Chairman, March 26th 2007 to the Senate Banking Committee.

"There is some evidence that central bank communications can help to shape public expectations of future policy actions and that asset purchases in large volume by a central bank would be able to affect the price or yield of the targeted asset."

Source: Monetary Policy Alternatives at the Zero Bound, Ben Bernanke

"Central banks stand ready to lease gold in increasing quantities should the price rise."
-- Alan Greenspan, testimony to Congress on July 24, 1998

Other clear admissions from various central banks that they intervene in the gold market.

"the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful." - Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005. "And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold."
-- Alan Greenspan, May 1999, before Congress

Re: Gold intervention:
"MR. MATTINGLY. It's pretty clear that these ESF operations are authorized. I don't think there is a legal problem in terms of the authority. The statute is very broadly worded in terms of words like "credit - it has covered things like the gold swaps - and it confers broad authority."
"MR. MATTINGLY. The statute says that with the permission of the President they can make loans."
Source, 1/31/1995 meeting

More on manipulation and a shadowy group called the CRMPG     Moral Hazard

For the last several months I have been doing a good bit of research trying to obtain some insight into inter-relationship between the Federal Reserve, the government, and the large money center NYSE member banks. In my reading I kept coming upon the phrase 'moral hazard'- as in “we want to avoid a moral hazard". I tried to find the definition as they defined within the context of what I was reading - no luck. These guys seem to have their own code words.

Recently I started reading Robert Rubin's book, 'In an Uncertain World'. As Secretary of the Treasury during the Clinton Administration, I thought I would try to get in the mind of one of the principals of the group we call the Plunge Protection Team (PPT). In the book he writes about his service at the White House. The book starts off with the Mexican Bailout and discusses that bailout and those that followed from the perspective of Mr. Rubin. After the first few pages he uses the term and defines 'moral hazard'.

MORAL HAZARD - A problem whereas investors, after being insulated from the consequences of risk by intervention, might pay insufficient attention to similar risk the next time, or operate on the expectation of official intervention.

We traders know this government intervention more as the 'Greenspan Put'.

'Private Counterparty Surveillance' is another phrase that I read several times. This is basically the large NYSE member banks, a couple of well connected hedge funds, and that form the 'Counterparty Risk Management Policy Group'. The one financial member of this group that is not a bank or a hedge fund is General Motors Asset Management. I guess with $300 billion in outstanding paper they want to be sure GM has a seat at the table.

Now bailouts have been around for a long time. Going back a bit I remember the Chrysler bailout. Did you know that Alan Greenspan was against the government bailing them out. Wow! Did he change his tune in later years or what!

What we also know is that we had a series of bailouts in the mid to late 90's that started out with the Mexican bailout. Robert Rubin of Goldman Sachs was sworn in as Secretary of the Treasury on the evening of January 10th, 1995. That same evening an emergency meeting was held to finalize a plan to bail out Mexico. I guess this could not be done until the well connected Rubin was in office. The administration waited until Rubin was confirmed and sworn in to move ahead.

We also had Greenspan's "irrational exuberance" speech, Long Term Capital Management (LTCM) bailout, the "Asian Flu" economic crisis and Y2K followed. All contributed to what we all now know as a 'moral hazard'. In 1999 the 'Counterparty Risk Management Policy Group' (CRMPG) was formed to address the issues with LTCM and to develop policy that would protect the financial world from another threat to the financial markets such as the LTCM incident.

Now fast forward to 2002. In May of 2002 the SEC appears to have fears that a major bank – one of two that clear government paper – may become insolvent due to derivative issues. The possible problem bank is JP Morgan. By the end of the year CRMPG recommends the foundation of a new bank be put in place just in case. The new bank would be a coordinated effort of the members of the CRMPG. The Federal Reserve and the SEC approve.

Also in 2002 it just so happens that we see a big jump in the use of program trades. The major players are also members of the CRMPG. Those without large proprietary trading units such as Citigroup, start them. Citigroup is quoted as saying something along the lines that due to ‘new’ innovations they see less risk in trading.

Remember JPM’s “problems”. Suddenly they went away. A ‘stealth bailout’ is put in place. About year later the Wall Street Journal reported concerns that JPM was making a lot of money in the "risky" business of trading their own capital. They said, "Profits have been increasing recently due to a small and low profile group of traders making big bets with the firm's money. Apparently, an eight man New York team has pulled in more than $100M of trading profit with the company suggesting it is a result of better market conditions and not greater risk."

Program trading was running at about 25% of all shares traded on the NYSE in early 2002. Today program trading is running near 60%.

Then, in September of 2002 Alan Greenspan gave this speech ( Link ).

Here is an excerpt;
Greenspan: “Owing to persistent advances in information and computing technologies, the structure of our financial institutions is continuously changing, I trust for the better. But that evolution in financial structure has also meant that supervision and regulation must be continually changing in order to respond adequately to these developments. In today's markets, for example, there is an increased reliance on private counterparty surveillance as the primary means of financial control. Governments supplement private surveillance when they judge that market imperfections could lead to sub-optimal economic performance.”

“I trust for the better.” Sounds like he is not real sure.

“increased reliance on private counterparty surveillance as the primary means of financial control.” Greenspan here acknowledges the CRMPG and endorses their actions to control the markets.

“Governments supplement private surveillance…” Governments – as in more than one? If you look at the members of the CRMPG you will find some foreign banks included. We are not looking at a group that deals solely with the US markets. Any market that could be contagious to the greater good is subject to control by the CRMPG.

In 2004 Greenspan acknowledged concerns about derivative growth. All markets had seen strong growth in the previous five years. In the OTC market, the notional outstanding of equity-linked derivatives was $4.5 trillion in June 2004, having tripled in size over the previously five years (source: BIS). The listed options market has also shown strong growth. For example, in 2004 the combined open interest of equity index options contracts on was around $3 trillion notional, double that of 1999. Turnover, at $200 billion notional per day in 2004, was triple that of 1999 (source: BIS). Data for the retail structured product markets is less comprehensive. Estimated issuance in Europe was around €100 billion in 2004. Around half of the issuance was in Italy, Spain and the UK (the other major European markets are France, Germany and Switzerland).

On this basis, the market has doubled in size from 2000 to 2004. Greenspan called on the major players to meet with the Fed and discuss their exposure. Out of this meeting came the request for the CRMPG to report what actions it felt necessary for the markets to remain stable.

The CRMPG filed their report in July of 2005. Here are some selected excerpts with my comments. The report can be found here (PDF file).

CRMPG: “The primary purpose of CRMPG II — building on the 1999 report of CRMPG I — is to examine what additional steps should be taken by the private sector to promote the efficiency, effectiveness and stability of the global financial system. As practitioners, the members of CRMPG II recognize that periodic financial disruptions and shocks are inevitable. However, the Policy Group also believes that it is possible to take steps that would be capable of reducing the frequency of such shocks and, especially, to reduce the risk that such shocks would take on the contagion features that can produce systemic damage to the financial system and the real economy.”

Again it appears the CRMPG mandate is to control the markets. How else are they to reduce the frequency of periodic financial disruptions.

CRMPG: “since we know that financial disturbances and even financial shocks will occur in the future, and we know that no approaches to risk management or official supervision are fail-safe, we also know that we must preserve and strengthen the institutional arrangements whereby, at the point of crisis, industry groups and industry leaders, as well as supervisors, are prepared to work together in order to serve the larger and shared goal of financial stability.”

If you read through this whole document it is all about working together for the greater good. On the surface, that sounds all well and good. However, free markets do not work this way. Their collusion at their highest ranks to secure the financial stability of the largest financial institutions could be at odds with the investments of smaller institutions and may be at odds with the small investor’s long term investments and goals. When LTCM failed many of us could have not cared less if you were not a shareholder of one on the banks that bailed them out. The bailout was simply put in place to save their own skins and the investors they serve.

CRMPG: “It is acceptable market practice for a financial intermediary’s sales and trading personnel to provide their sophisticated counterparties with general market levels or “indications,” including inputs and variables that may be used by the counterparty to calculate a value for a complex transaction. Additionally, if a counterparty requests a price or level for purposes of unwinding a specific complex transaction, and the financial intermediary is willing to provide such price or level, it is appropriate for the financial intermediary’s sales and trading personnel to furnish this information.”

Sounds like a formula for collusion and manipulation to me. How would you like to be the other side of the trade with these guys in one of the pre-arranged trades.

CRMPG: “Following execution of a complex transaction, the financial intermediary will often maintain communication with the counterparty in the interest of maintaining good client relations. As part of this communication, the financial intermediary, although under no legal obligation to do so, may wish to alert its counterparty to any observed market change that it determines may challenge the underlying assumptions or principal drivers that motivated the counterparty to establish the original position.”

No, I did not make this up. We know from above that the big banks are being encouraged to share information. We know there are two sides to each trade. Again, how would you like to be the less connected investor.

Let’s read Greenspan’s thoughts excerpted from the same speech as referenced earlier;

Greenspan: “There should not be much dispute that markets function best when the participants are fully informed. Yet, paradoxically, the full disclosure of what some participants know can undermine incentives to take risk, a precondition to economic growth. No one can deny that fully informed market participants will generate the most efficient pricing of resources and the most efficient allocation of capital. Moreover, it could be argued that, if all information held by individual buyers or sellers became available to all participants, the pricing structure would more closely reflect the underlying balance of supply and demand. Thus full information would appear to be the unambiguous objective. But should it be?”

But should it be? Who is he trying to kid! As a small investor I would like to have as much of an equal footing through the knowledge available as the next guy, no matter how connected they are. We require public corporations to provide open and full disclosure with the public, why should the CRMPG be allowed to collude to rig the market against free market principles?

In closing – the CRMPG has to be in the market daily. Current derivative exposure of the major NYSE banks makes it necessary. The CRMPG report gives them the outline to execute their strategy in collusion at the expense of ultimately the small investor that gives them the fuel to increase that trading returns.

Moral hazard has led to moral decay at the highest ranks of our financial institutions.

Move over PPT – the CRMPG is at the wheel now.

A link for the most current CRMPG report is here.

Note: Notice how the report is addressed to the chairman of Goldman Sachs. Notice that Goldman Sachs had much imput into the report and the CRMPG is Chaired by a Goldman Sachs guy. Also make note that the current Secretary of the Treasury just came over from GS as well as an new appointee.

Stock charts, and a big hat tip to 'Joe Stocks' for permission to post and for the excellent work.

Oil companies are making obscenely high profits.     We're no big fans of multi-national oil companies but the recent large price increases have caused an outcry - it's time for a few facts too. Yes of course it's true that profits have been in the range of many tens of billions of dollars, but did you know that their net profit is about 9% as of September 2005? Throughout the '90s, the average oil company was making about 5-6% net profit, less than what was being earned on a CD with very little risk and certainly was way less than what was earned in the average stock market account. Or, did you know that Coca-Cola makes about 22% and Microsoft makes about 32% net profit? How about the Disney amusement parks at over 30%, Intel at 20%, or Google at 24%+? Many more industries than just oil make more than 10% net profit. Where's the outcry on them? Please note that in 1999 when oil was about $22 per barrel, oil company profits were about 6%.

More from a 2004 New York Times article: "...profit margins at financial companies in the first quarter of 2004 stood at 32.6 percent of all corporate output, around 11 percent higher than their average since 1929..."

There's lots more to the full story than what we've stated above and the over simplification from the outcry and comments on obscene profits does little except help to obscure the truth even more, and cause more upset.

There is a lot more data to take into account to achieve understanding of the full truth.
(last update Oct 2005)

Click here to see a picture of major oil company profits versus taxes and government income.

Oil companies are controlling the price and made it go up since 2001.     If they're that powerful and able to control the price, why did they let the price go down from $40 per barrel in 1980 to $10 in 1998?

Oil and gasoline prices are too high.     Its hard to disagree with that, but let's try some perspective and some real world comparisons.
  • Gasoline prices have gone up about 10 times since the mid '60s.
  • The average home price has gone up about 12 times since the mid '60s.
  • The average stock price (per the Dow Jones) has gone up about 11 times since the mid '60s.
  • The average new car price has gone up about 9 times since the mid '60s.
  • The Consumer Price Index (CPI) has gone up about 10 times since the mid '60s.
The basic point we're attempting to make here is that all of the above have one thing in common - inflation. The primary cause of high prices is inflation, not greedy oil companies or real estate agents, etc.

Price and wage controls work     All the way back in 301 AD, Diocletian attempted to control inflation with his Edict on Maximum Prices. It specified strict prices for about a thousand items plus wages, and even threatened the death penalty for violations. It didn't work and was eventually ignored by the majority. Closer to modern times, it didn't work when President Nixon tried it in the '70s after the OPEC oil price shock. See the definition of inflation for the real reason. Wage and price increases are an effect, not a cause of inflation. They only appear to work on a very short term basis, and then fail... and have always done so throughout history.

The Fed doesn't try to pop any 'bubbles'.     "When we moved on February 4th, I think our expectation was that we would prick the bubble in the equity markets. What in fact occurred is that, as evidence of the dramatic shift in the economic outlook began to emerge after we moved and long-term rates began to move up, we were also clearly getting a major upward increase in expectations of corporate earnings. While the stock market went down after our actions on February 4th, it has gone down really quite marginally on net over this period. So what has occurred is that while this capital gains bubble in all financial assets had to come down, instead of the decline being concentrated in the stock area, it shifted over into the bond area. But the effects are the same. These are major capital losses, which have required very dramatic changes in the actions and activities on the part of individuals and institutions.

"So the question is, having very consciously and purposely tried to break the bubble and upset the markets in order to sort of break the cocoon of capital gains speculation, we are now in a position—having done that and in a sense succeeded perhaps more than we had intended—to try to restore some degree of confidence in the System." (emphasis ours)
-- Alan Greenspan, Chairman of the Federal Reserve

Source: Federal Open Market Committee (FOMC) meeting minutes from March 22, 1994

Blaming China, etc.     "Who is to blame for America’s negative personal saving rate? For its newfound asset-based saving strategies? For record levels of household sector indebtedness that are required to convert such saving into spendable purchasing power? In my view, the responsibility for these behavioral shifts rests solely on the back of the American consumer. It would be ludicrous to place the blame for the excesses of US consumerism on foreign economies."

-- Stephen Roach, Chief Economist, Morgan Stanley

Gold is a barbarous relic.     "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

-- Alan Greenspan, Federal Reserve Chairman 1987-2006, from a 1966 article

"Gold has worked down from Alexander's time... When something holds good for two thousand years,I do not believe it can be so because of prejudice or mistaken theory."
-- Bernard Baruch, one of Wall Street's legends

Inflation is a much more barbarous relic than gold or silver.

There is no gold backed money anymore.     The European Central Bank, which stands behind the Euro, is required to maintain at least 15% of its reserves in gold.

Stock manipulations aren't legal, and haven't been since the 1930s     SEC Rule 10b-18
There is an argument that buybacks cannot influence stock prices, because to do so would be against the law.

American securities law has prohibited stock manipulation since the 1930s.

The market manipulation that went on in the 1920s, with tricks such as wash sales, round-robin trading, and pump-and-dump schemes, inspired these rules.

SEC Rule 10b-18, however, provides corporations with a safe harbor from charges of manipulation when the issuer follows certain guidelines on timing, price, volume, and the method of repurchasing stock.

This rule does not stop a company from forcing prices up, which is bound to happen when stocks are taken from the market.

The SEC grants safe harbor for executives to manipulate the market with buybacks.

The SEC Rule 10b-18 restrictions focus on a small set of manipulative practices that might mislead investors.

For example, the SEC bars buybacks in the last thirty minutes of a trading session, because speculators often refer to closing prices when opening the market the next day.

Issuers also may not buy their own stocks at prices higher than the previous trade, nor may they use more than one broker on any day, since such tactics might be used to fake transactions.

Rule 10b-18 says that company purchases of company stock on the exchange may not exceed twenty-five percent of the average trading volume in the last month, but there is no limit to large block purchases.

An issuer can privately purchase large blocks off the market and still buy twenty-five percent of the stock traded before the last half-hour of the session, as long as each trade is not higher than the last independent price.

SEC Rule 10b-18 has many loopholes.

With excess supply removed, an independent investor trying to acquire stock will have to pay a higher price, and once a higher independent price is established, the issuer may move back into the market and force prices even higher.

After September 11, 2001, the SEC loosened even these lax requirements, with the intent of encouraging issuers to manipulate prices upwards following the terrorist attack on America.

Obviously, if the SEC has bothered to issue a safe harbor rule on buybacks, the government must recognize that buybacks are indeed manipulative.

The SEC seems to be saying, manipulation is OK, as long as it is orderly and brokers get their commissions.


The financial condition of the U.S. and world is fine.    
  • Total US credit market debt, both financial and non-financial, has expanded 40.4% and 48.9% since the end of 2000, respectively. In the meantime, over this same period nominal national income has risen 24.4%, roughly half the rate of total debt increases. Remarkably, many insist that these developments are the basis for a robust, riskfree future.
  • More international debt has been issued in the third millennium this far (BIS Table A85 which carries statistics up to June 30, 2005) than in the entirety of human financial history that has gone before. The total outstanding stock of these international debt instruments (exclusive of domestic bonds) figured in US dollars more than doubled to a total of $14 trillion USD between end- 2000 and June 30, 2005 ... a period of only 4½ years!
  • While the average income of everyone on the planet between 1982 to 2004 (according to the World Bank) has risen from $2,147 per capita to approximately $6,440, the total "financial position value" has risen from $1,920 per capita to $61,443 by the end of December 2004, almost 10X underlying annual income... Is that trend sustainable? Only if everyone in the world becomes a trader or broker.
Source data, Source article
(last update mid 2005)

There's nothing wrong with a little inflation.     There has never in recorded history been a paper currency that eventually was not inflated/devalued so much that it became worthless.

“Paper money eventually goes down to its intrinsic value – zero.”
-- Voltaire, 1729

"Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

-- John Maynard Keynes, "Economic Consequences of the Peace" (1919)

The Federal Reserve didn't create the Great Depression.     “...let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton: regarding the Great Depression, you’re right; we did it. We’re very sorry. But thanks to you, we won’t do it again.”
-- Ben Bernanke, current chairman of the Federal Reserve during a speech on November 8th, 2002 Source

Also see this chart, which shows the actions and lack of actions of the Fed quite clearly, along with their effects.

My Social Security is secure.     "We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."

- Alan Greenspan (Chairman of the Federal Reserve US Central Bank), appearing before the Senate Banking Committee on February 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.

Abiotic oil is a good theory     No Free Lunch:
Part 1: A Critique of Thomas Gold's Claims for Abiotic Oil
Part 2: If abiotic oil exists, where is it?
Part 3 of 3: Proof

Presidential powers may be expanded in wartime (after all, Lincoln did)     Note the remarks by Supreme Court Justice David Davis - a personal friend of Lincoln - in the 1866 case Ex Parte Milligan: "The constitution of the United States is a law for rulers and people, equally in war and peace, and covers with the shield of its protection all classes of men, at all times, and under all circumstances. No doctrine, involving more pernicious consequences, was ever invented by the wit of man than that any of its provisions can be suspended during any of the great exigencies of government."

Charlton Heston is nothing but a gun nut     Read his speech entitled "Winning the Cultural War" here.

Chemotherapy extends life     "In the end, there is no proof that chemotherapy actually extends life in the vast majority of cases, and this is the great lie about chemotherapy, that somehow there is a correlation between shrinking a tumor and extending the life of a patient."

-- Ralph Moss, former assistant director of public affairs at the Memorial Sloan-Kettering Cancer Center (MSKCC) and author of the book The Cancer Industry

Social Security is safe     "We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."

-- Alan Greenspan, appearing before the Senate Banking Committee on Feb. 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.

There is no major manipulation being done by governments or businesses.     Four part, four hour documentary by the BBC on the evolution of methods of influence of public behavior by governments and corporations since the 1920s - "The Century of the Self". Both excellent and disturbing - recommended.
Search Google for the 4 part video

Test your own gullibility factor
Ten myths about nuclear power