Gold News

Financial Drug Pushers

Why you're left taking the lion's share of the risk...

IT TOOK a while, but yesterday the S&P500 just broke out to new, all-time high, writes Greg Canavan for the Daily Reckoning Australia.

What took the market higher?

What, do you really need a reason?

Well, if you must. There's always a reason. But a word of warning first...none of the 'reasons' really mean anything. In fact, the whole idea of the market being a 'market' in the true sense is a fraud. The place is a wild, debauched casino run by the house, for the house.

It reminds us of a show we watched last night. It's the one where British actor Ross Kemp goes to some of the world's most dangerous places. Aptly, it's called Extreme World.

Last night he was in the French Mediterranean port city of Marseilles, going into housing estates with poor immigrant populations. These estates are conduits for massive illicit drug flows. Millions of Euros pass through them daily, yet the inhabitants are still poor.

That's because most of the profits go to the rich and well protected — the Corsican drug families, as it turns out — who take little to no risk. The scraps go to the poor inhabitants, who take all the risk.

A bit like the stock market, really. The big banks and the individuals that run these organizations take absolutely no risk in terms of their personal position. They take MASSIVE risks with other people's money, but there is no flow on effect, no ramifications for their reckless behavior. They are a protected species...the beneficiaries of a 'heads I win, tails you lose' system.

You, on the other hand, are the drug runner. You're taking a big risk in an attempt to scrape together a few extra percent here and there. If you get it wrong, you won't receive a bailout. Or worse, if someone else gets it wrong, you may receive the pleasure of a 'bail-in', as happened recently to 'savers' in Cyprus. Drug barons are are bankers.

But the big daddy in all this, the 'patron', is the Federal Reserve. It procures the drugs (from nowhere) and hands them on down the line. It's a dirty and corrupt system, and overnight we received further confirmation of this grimy little sham we call the market. From the Financial Times:

'The Federal Reserve leaked the minutes of its last rate-setting meeting to bank lobbyists as well as congressional aides and trade associations.

'On Wednesday the Fed published its March minutes in the morning rather than the afternoon as had been scheduled. The central bank said it was doing so because they had already been accidentally released on Tuesday afternoon to a distribution list, comprising "mostly congressional staffers and trade association members in Washington".

'However, on Wednesday afternoon, the Fed published that list, which included lobbyists at Goldman Sachs, JPMorgan Chase and Citigroup, among other banks.

'Though the list was predominantly comprised of staffers to members of Congress, it also included a significant number of employees working for banks, opening the possibility that they could have passed on the information to traders.'

We're not going to make a big deal out of this. It's hardly surprising. Rather than feel outrage, take it for what it is: confirmation that the financial system where you deposit your savings and accumulated wealth is in the late stages of degeneration and decline.

To keep you in servitude, the pushers see to it that the big indexes move to new highs. First the Dow Jones...then the S&P500. Meanwhile, your salvation, your detox and your ticket to financial freedom, gold, falls in PRICE (not value) to discourage you from breaking free, from getting your assets and wealth out of the system.

For history buffs, if you ever wanted to know what the decline of the Roman Empire looked like, you have a front row seat...

But we digress...we were looking for 'reasons' why the market rallied to a new high last night. Apparently, it had something to do with Bank of Japan (BoJ) governor Kuroda telling everyone what they already knew, that Japan will go ahead with its stimulus. It also had to do with China's March trade figures, which the market liked (or just ignored) even though export growth missed forecasts and the data itself was widely laughed at.

China watchers were critical of the trade data. Exports to the US and Europe both fell year-on-year while exports to Hong Kong jumped errr....92%, bumping up overall export growth to a respectable 10%. Imports, apparently, rose 14%. The use of trade invoices to hide inflows of capital and fake export orders to gain government rebates were cited as reasons for the wild data spray.

Does anyone believe what China says about its economy anymore? More degeneration.

But don't let dubious data get in the way of a rushing herd of bulls. Or stories about China's first credit rating downgrade in 14 years. Journalists have to come up with something to explain the unexplainable. But the easiest explanation is that global central banks have provided party-goers with so many drugs that the party is getting out of control.

The punchbowl analogy no longer does it. And anyway, alcohol is a depressant. The Federal Reserve and its central banking pushers are administering stimulants all around. They have all the class and moral authority of a drug baron, rolling in riches while spreading addiction and misery to millions.

Misery, it seems, which is falling on those who conduct trade in Australian Dollars. The persistent strength of the Aussie is killing manufacturing in Australia and even hurting the companies that are supposed to be the reason behind the strong currency — the miners.

US Dollar commodity prices have been weak (underscoring the point that central bank efforts are doing little to improve the 'real' economy) and combined with a strong Australian Dollar, the effect on Aussie miners has been significant.

Both Rio and BHP have pulled back on their expansion plans and are actively communicating to the market their strategies to cut costs over the next few years. It's a far cry from the pre-2008 crisis era. Which is why we made the point yesterday that this current round of market craziness is very different to the last era.

We don't know when it will end. But we stand in awe of the collective stupidity, ignorance or arrogance (we're not sure which) of our ruling classes and moneyed elites, who have managed to get us all back to a much worse place than we were six years ago, all the while patting themselves on the back for a job well done in fostering 'recovery'.

Greg Canavan is editorial director of Fat Tail Investment Research and has been a regular guest on CNBC, ABC and BoardRoomRadio, as well as a contributor to publications as diverse as and the Sydney Morning Herald.

See the full archive of Greg Canavan.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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