Manipulated Stock & Gold Markets? 1998 post by John Crudele : LUSENET : TimeBomb 2000 (Y2000) : One Thread

I thought this older article was interesting in light comments made about my earlier posting of a current Crudele article


[May 16th 1998, Rev. Sep 8, 1999 (Some NY Post/John Crudele links fixed)] Gold, Brazil & Greenspan April 13, 1999: After a stunning rise the previous day, the major US stock markets flatline (Dow up 55.5 points or 0.54 pct at 10395.01, Nasdaq down 15.33 points, or 0.59 pct, at 2583.48, S&P down 8.81 points, or 0.65 pct at 1349.83) and Reuters reports that U.S. urges IMF gold sales to fund debt relief.

WASHINGTON, April 13 (Reuters) - The U.S. Treasury on Tuesday urged Congress to clear the way for Washington to approve selling gold from International Monetary Fund reserves and said this would fund essential programs of debt relief... ''In consultation with Congress and within the framework of our balanced budget, the administration will press for IMF gold sales to do its help meet the cost of this initiative,'' Schuerch told a Congressional panel in prepared testimony.

Rules introduced some 15 years ago when Congress approved extra funding for the IMF mean that Congress must authorize any administration plea to sell some of the IMF's 103 million ounces of gold and other IMF member states would also have to approve the sale.

Funny how that story didn't surface on Monday 12th April when the Dow closed up 165.67 at 10,339.51 setting records as did the Nasdaq and S&P 500 at 2,598.81 and 1,358.63. Back to Jan 13 1999, when Brazil sparks a major market crisis and, seemingly coincidentally, reports appear that are bearish on gold:

"LONDON, Jan 13 (Reuters) - Gold continued lower in Europe on Wednesday, dragged down by a stronger dollar and bearish sentiment, dealers said. Dealers said the market was still absorbing two bearish industry reports, by J.P. Morgan and Gold Fields Mineral Services, which saw gold pushed sharply lower overnight.

I think people got themselves very bearish this morning... I wouldn't be at all surprised if New York gives it a good pasting... ...the possibility of producers sales from Australia and South Africa...

The GFMS report predicted a range for gold of $270.00-$310.00 but the report's outlook was very bearish..."

In this light, we should remember that Alan Greenspan testified that: "Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise"

The Privateer Market Letter [Jan 13] explains well why the rising price of gold should prompt intervention in the event of a market crisis:

"...the first thing that must be realized is that Gold is a political metal. In the true meaning of the word, its price is "governed". This is true for the very simple reason that Gold in its historical role as a currency is fundamentally incompatible with the modern worldwide financial system..." "The global paper currency system is very young. It depends for its continued functioning on the belief that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold."

See also articles on gold at: The Daily Barkerletter, e.g. Mar-31-1999 and Feb-09-1999: "The latest on gold", and last but by no means least Jan-13-1999: "More on gold..." "Here's a piece for all you gold conspiracy theorists out there... Inflation Manipulation By A. Canon Bryan". (Thanks crazytimes)

The Stock Market John Crudele, NEW YORK FED NEARLY ADMITS RIGGING THE MARKET - New York Post, November 6th 1998 (broken link):

"I asked to talk with Fisher. I said I wanted to know about his interest in the stock market and the swapping of information The Fed wouldn't allow it. I'm sorry but we've not going to make Peter available, said a spokesman in New York. He's kinda busy. I think the spotlight on him right now is a little too bright..."

What is a free market? Is there any such thing, in the real world? Should there be a Plunge Protection Team in a free market? Doesn't that raise the question of "moral hazard"? Many investors follow the markets carefully placing their investments on the long side or the short side according to news and technical trends in the price chart of the stock or commodity. But if there is intervention in the market, these calculations are upset and the careful investor who has taken the trouble to research the market is tripped up and robbed. The lazy investor however, who merely expects the market to go up forever, is rewarded. How can such interference in free markets be widely tolerated in the "free world"? We have heard much from Japan about intervention with Japanese politicians openly calling for the stock market to be propped up, for example with the Postal Savings fund. It is also well known that countries intervene in the currency markets on a regular basis.

John Crudele, MARKET-RIGGING: SHORT-TERM FIX, LONG-TERM DISASTER - New York Post, October 12th 1998 (broken link):

"First, I'll tell you how the stock market is being rigged. Then I'll tell you what's even more important - what's going to happen in Washington and why you should get out of stocks before this rigging adventure leads to disaster... How do I know the market is being rigged? I really don't. But I am very suspicious.

Take last Thursday, when the Dow was down more than 200 points and the House was passing a resolution to investigate the President of the United States. Exactly when the debate was going on in Congress, the S&P 500 futures contracts shot up in price like someone needed a market rally awfully bad..."

"A few analysts believe that this form of market rigging is already going on in America, quietly, using a $40 billion (#24 billion) slush fund" - The Telegraph, Sep. 2nd, 1998: 'Plunge team' ready to spring into action Thanks to Petronius

Nick Chase, The Contrarian's View, April 28, 1998:

"But a crash does not mean a straight line to hell. I've been very puzzled as to why the Federal Reserve has allowed this mania to get so out of hand.... until I concluded that the Fed probably thinks it has the ability to prop up the market by manipulating futures, as it belatedly did in 1987 and successfully did last October (in my opinion). Thus, the Fed can (it thinks) keep stock prices afloat until the economy catches up, allowing it to manipulate money according to the health of the economy and ignore the financial bubble. Well, that remains to be seen; but it is a recipe for the greenhorns to lose a lot of money before the bear market even gets underway."

John Crudele, New York Post, August 28 1998:

"Some strange things have been happening in U.S. markets lately as well. Anytime prices are down substantially, there are mystery rallies. Yesterday, for instance, the Dow Jones industrial average staged massive 100-point rallies twice that didn't hold. The same thing happened on Wednesday when a 135-point drop was turned into a manageable loss of just 79 points. This sort of thing has been happening regularly.

Is Washington already intervening in the market?"

John Crudele, New York Post, October 1997:

HOW IBM AND THE FUTURES MARKET SAVED THE DAY FOR THE DOW "We also know that in 1989 former Federal Reserve governor Robert Heller proposed precisely what should be done in the event of another market collapse. Heller, who left the Fed just months before making his thoughts known, suggested rigging the markets through the massive purchase of stock index futures contracts."

"Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole," wrote Heller in an op-ed piece in the Oct. 27, 1989 Wall Street Journal."

"These derivatives can be purchased cheaply and they tend to pull up the cash market on Wall Street along with them."

According to The Economist, October 18-24, 1997:

"The crash of 1987 was relatively painless largely because, unlike the Bank of Japan, the American Fed moved quickly to reassure banks and to stave off a slump in investment and demand by easing monetary policy." "At todays valuations a similar drop in New York would destroy some $2 trillion of wealth. There is no guarantee, if this happened, that the Fed would be able to repeat its damage-averting trick in the present looser monetary conditions without setting fire to inflation. In that case, history would repeat itself as tragedy, and plummeting investors would find no helpful coil of elastic wrapped around their feet."

Exchange Stabilization Funds The United States' Exchange Stabilization Fund was created as part of the 1934 Gold Reserve Act, to be used for "stabilizing the exchange value of the dollar", apparently under the exclusive control of the Treasury secretary, subject to approval of the president. It, and similar arrangements in other countries, can be traced back to a common source; the British Exchange Equalisation Fund.

The Exchange Equalisation Fund was instituted by the British Government in 1932 for the buying and selling of foreign currencies in order to keep the pound sterling stable. The necessity for such a fund arose out of the abandonment of the gold standard in 1931. Parliament sanctioned the creation of the Exchange Equalisation Fund with power to borrow 150,000,000 pounds sterling. This sum was in 1933 increased to #350,000,000 and in 1937 to #550,000,000. The Fund was controlled by the Treasury through the Bank of England. The policy was to buy when prices of currencies are falling, to sell when they are rising, thus market tendencies are counteracted, speculation is curbed and stability results. In 1934 the U.S.A., and later France established similar funds, so that these three nations acting in concert could ensure some degree of stability in the international exchanges. Source: Harold Wheeler, "How Much Do You Know?", Odhams Press

In 1941, ex-governor of the Bank of England Vincent C. Vickers wrote:

"Cheap money and the exchange equalisation fund have well fulfilled their peacetime objectives, and the nation has thrown off for ever the restrictions of the Gold Standard; but such steps are not in themselves enough. The supply and issue of money and the creation of credit still remain almost entirely outside the control of the Government, and are still managed by Banking and Finance and by the Bank of England with its intimate associations with the Bank for International Settlements; whilst, until our actual declaration of war, Foreign Exchange speculators were permitted at all times to gamble with the nation's credit, untrammelled by any sense of patriotic duty and thinking only of their own profit..." Amongst other things, Vickers recommended:

"Fixation of foreign exchanges by foreign exchange equalisation funds, and agreement with Empire countries and all other countries willing to fall into line; and, once this was accomplished, the removal or diminution of trade barriers which to-day protect the countries from the results of a bad monetary system." An Exchange Equalisation Fund in Thailand failed to prevent the baht crisis in 1997, one of Thailand's worst ever economic crises.

Further information on (alleged?) market manipulation may be found at these links:

SI Posting: Odd S&P Futures activity TREASURY FUND BECOMING DEADBEATS' DELIVERANCE [John Crudele comments on the Exchange Stabilization Fund, 10 Nov '97] Dollars and Nonsense [Exchange Stabilization Fund] The GOP needs the courage of its convictions [Exchange Stabilization Fund etc.] ASIA'S TIN CUP NATIONS SEND $O$ TO UNCLE SAM [John Crudele, 21 Nov '97] SECRET U.S.- JAPAN PACT COMES BACK TO HAUNT US [John Crudele, 25 Nov '97] Secret U.S.- Japan Pact Comes Back to Haunt US [With commentary] MARKET RIGGING STILL CAN'T MAKE THE OLD BULL CHARGE [John Crudele, 22 June '98]

The Gold Market On the 27th of May 1998, a newswire report stated: "Gold down further in Europe, silver steadies", as a Swiss proposal to halve the Swiss National Bank's required store of gold from 2,600 tonnes was aired. They said that for monetary policy, around half is sufficient, while the other half can be used for other purposes. Parliamentary approval has now been given for draft legislation to enable this to happen.

This proposal is well known to the gold market, and reiteres what was essentially the same news, announced on Friday 24th April 1998, and previously on Friday 24th October, 1997. These proposals as well as requiring approval in Parliament, must also be submitted to a popular referendum.

According to Bill Murphy of Veneroso Associates, posting on the Silicon Investor bulletin board on May 28th, the head of one of the biggest gold companies was told by the President of Switzerland that the odds are only one in three that the plan will pass the referendum.

Although opinion polls have shown support for Swiss gold sales, on a much smaller scale, to support charitable funds to compensate for Nazi gold hoarding, the sale of large quantities of gold in abandonment of a Swiss tradition of gold backed currency is an entirely different matter. This was addressed on 5th November, 1997, by USA Gold who reported that "recent polling in Switzerland over the gold issue showed the Swiss people are opposed by a comfortable margin".

USA Gold also commented then that any potential Swiss gold sales are likely to be much less than 1400 tons and will be made over a 5-10 year period starting from year 2000.

An April 1999 article:

Switzerland's gold: Ten key questions about Switzerland's gold [USAGOLD, Apr 14] "There are several complicated legislative and political hurdles before any gold can be sold..." by the Public Policy Centre of the World Gold Council (WGC) discusses Swiss gold issues in detail. The timing of the original Swiss gold sale announcement coincided with that occasion, on the 23rd October 1997, when the Hong Kong Hang Seng Index closed down -1211.47 points or 10.41% at 10426.30, as a result of currency speculator attacks on the HK currency peg against the U.S. dollar. The intraday drop of 14.6 percent was the biggest recorded since the 1989 Tiananmen Square massacre in Beijing.

The very day after this major event in world markets, i.e. Friday 24th October 1997, the Swiss National Bank and the Swiss Finance Ministry made the original "disposal of 1,400 metric tons of gold" statement. Then, gold dropped $16.10/oz to $308.60 after a group of experts appointed by Swiss National Bank and the Swiss finance ministry proposed selling 1,400 tonnes.

Just a few days after the HK drop and the original Swiss gold announcement, we had the "mini crash" of October 1997! The Dow Jones ended October 27th down -554.26 ( a record points drop ) at 7161.15. On the way it triggered not one but two of the larger market curbs ( halts in trading ) that were put in place after 1987 to prevent another crash- the first time that these levels had been triggered.

With "Asian markets on their knees" overnight on May 27th, falls of 2% in the FTSE100, 1.49% in the Nasdaq composite and 1.65% in the Dow Jones Industrial Average on May 26th, can it be any coincidence that the Swiss trotted out news of this gold sale plan once more just when world markets look weak?

There is no doubt that gold is a political metal, and has been since ancient times. "This is true for the very simple reason that Gold in its historical role as a currency is fundamentally incompatible with the modern worldwide financial system" - See The Privateer. The Privateer also commented in a past editorial that "It should be pointed out that the Swiss people hardly ever agree to anything via a referendum."

When gold rises, the risk of inflation is seen, which would be a plus for interest rates and returns on bonds, and a negative for stocks. A rising gold price would suggest that there is another place for "flight to safety" funds to go to. A lower gold price also benefits those with short positions in gold, of which there are approximately 8000 Tonnes outstanding, according to noted analyst Frank Veneroso. With a "flight to marks and Sfr" also being reported on May 27th, could it be that the US and the Swiss are cooperating to limit the flow from dollars to Swiss (gold-backed) francs?

If you wanted to sell an asset that you didn't need any more, would you trumpet your attentions in a way that would obviously depress the market price, when you had already announced much the same thing already, and on both previous occasions you knew by experience that the market price would be depressed? Wouldn't you want to get the best possible price- and wouldn't the best way to do that be to sell slowly over a period of time, without alerting the market to a large addition to the supply side? When Warren Buffett decided to accumulate silver, he did so slowly and quietly. It was only after he had acquired his position that the news leaked, whereupon the price shot up. Of course, if you wanted to buy more of an asset, it might be worth your while to have the price fall! Especially if there was a longer term potential rise in price! Or perhaps keeping the price low at this particular point in time would ultimately lead to a higher price when the time comes to sell! How could this happen? Perhaps through a "great sucking sound" whereby supply at ultra-low prices is absorbed by investors and jewellers, eventually exposing the supply-demand imbalance and causing those with short positions to cover. These and other considerations demand much thought.

So why did the Swiss bring up the gold sale question on May 27th? You are invited to make your own conclusions!

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