MARKETS: Gold, $, Euro, & Shadow Banking

Gold is down after breaking out of a massive symmetrical triangle formation to the down side.   How long will it last?   First off, and technically, markets always retest the break out point of any symmetrical triangle formation.   Fundamentally, all of Europe (especially French banks), have been scrambling for liquidity to maintain solvency as the losses from credit default swaps (CDS) evaporate dollars and euros from sight.
This is because the shadow banking industry has been fleeing the sovereign debt market into the dollar as a haven.   If you’ll recall, the Coup of 2008 was marked by this same evaporation of the short-term shadow banking industry that was kicked off by the lynch pin of all CDS obligations, AIG, based in London.    This time, it is Jon Corzine filling the roll of AIG, with his bankrupting performance as head of MF Global,… out of London.

In 2008, the big 5 investment bankers, Bear Stearns, Merrill, Lehman, Morgan Stanley, and Goldman were fractaled by 30 %to 40%, allowing for 2.5% to 3% losses before they became insolvent.   In Europe today, they are 36% to 61% fractaled out and just starting to be recapitalized (nationalized), by their governments (Source: David Stockman). 

This gives a 2.8% to 1.67% cushion against loss before major European banks become insolvent, and they're carrying the soveriegn paper of Greece, Italy, and Spain.   In Greece alone, a 50% hair cut in equity of debt has become an accepted eventuallity.  Europe is a train wreck in a slow, kick the can down the road, lingering death spiral.   It's hopeless.   The euro as we know it is toast.

Back to the MFGlobal debacle that has set the wheels in motion.   It was their RE-HYPOTHECATON (collateralization of segregated customer accounts) that was exposed to CDS trading losses, that sent MFG to bankruptcy.   But this is just the tip of the iceberg.

Re-hypothecation outstanding in major trading companies and banks include Jefferies ($22.3 billion), Goldman ($28.7), Canadian Imperial Bank ($72), Royal Bank of Canada ($53.8), Oppenheimer Holdings ($15.3), Credit Suisse (CHF 332 billion), Wells Fargo ($19.6), Morgan Stanley ($410 billion), and the mother of all disasters, JPMorgan ($546.2billiion). (Source: Tyler Durden, Zerohedge)

And whereas the total estimate of derivatives, CDS’s and CDO’s in 2008 were in the vicinity of $75 trillion; today that figure is somewhere between $0.5 and $1.5 QUADRILLION DOLLARS, no one really knows.  Ultimately, its all the rats on the same sinking ship that the central banks are keeping afloat on the backs of its citizens,… unless we stop them.
The U.S. is in better shape than China right now, and China is better than Europe.   Heck, almost everyone is better off then Europe, even India, kind of, but it's not a pretty picture anywhere, the economies of the world are too interconnected.

The euro has been described as 17 individuals sharing the same checking account, which is a pretty accurate summary of the euro.   And it is no more possible for the euro to remain as it is, than it would be for 17 individuals to maintain a group checking account for any length of time.   The euro is doomed.

The central banks of America, England, and BIS have been selling gold (in America, it is the governments, i.e. the peoples gold), in order to take advantage of technical and short-term fundamental issues in order to create the illusion of a world that is not exploding, but imploding.   And for a short time, the world is imploding.   But this won’t last.

Eventually, things will have to be bailed out, they always are, they have to be, because if the central banks do not, the entire monetary system collapses.   FED chair Baranke says he won't bail out Europe,... but he will bail out U.S. 2B2Fail banks when they start having troubles with the contagion of Europe.   Eventually, he'll drag America into backstopping the world.

Eventually, the system will fail, at which point the central banks fall back position will be a “Phony Gold Standard”, which is explained in Chapter 5 of New American Revolution.   It's not much better than the current fractal banking monetary system that has left the world teetering on the edge of the abyss these last 4 years, but it is the fall back position of the worlds central banks.  You can hear talk about a gold standard now, but you can rest assured that it will be the "Phony" one.

The Federal Reserve Bank has spent $29.616 trillion since 2008 bailing out the worlds monetary system (Source: Levy Economics Institute).   How much do you think the FED will spend on the growing systemic monetary failure of Europe?

As of this writing, gold has just about bottomed out, as indicated by the surge in volume, which indicates the final capitulation of the “weak hands” in gold.   It is here that the central banks are buying, because they know that come the 1st half of 2012, the bailout begins, because the crash will be spectacular.

This will lead to inflation (stagflation) and increased unemployment, and the economic climate going into the 2012 elections will create a new political environment the the likes of which is seldom seen.   Anything can happen.

Hopefully, the Public Forum will become a primary issue in the campaign if New American Revolution and this website can catch onto the battle for Congress.   If we fail to take Congress now, by 2015, the dollar will likely collapse and we can expect a new "Phony" gold standard.   Then it's more of the new boss, same as the old boss.

In the meantime, you can look for weakness everywhere except in the dollar.   The Dow and S&P read 9500 and 950 respectively, and the euro reads somewhere around the 113. euro's to the dollar sometime during the 1st Qtr. Gold should rebound to $1730 (the vector of the symmetrical triangle formation), and then we shall see about the upper channel trend line in gold, at $2050.   I do believe gold is going quite a bit higher in 2012.

Things are very tight out there right now, but I don’t have to tell you that, you already know.