For several months there have been constant rumors that the financial markets would be clobbered by some kind of unexpected horrible development in September. Several commentators have referred to this expected coming bad news as the “September Surprise.” The expected result of this bad news is that the prices of gold and silver would soar while the value of paper assets plummeted.
Well, we have gone more the first half of the month without such an exciting development. Jim Willie, who writes the Hat Trick Letter, has information from his sources that the September Surprise could happen as early as next week.
Willie quotes one unnamed source as saying, “Watch out for a trigger event incident, like the assassination of Archduke Franz Ferdinand in Sarajevo which led to WWI. It will appear to be insignificant but will trigger an avalanche that will make the entire system collapse onto itself. I have strong indications that this is only a week away from happening, in any case before this year draws to an end.”
Willie sent this source a list of nine possible events to see if he could get an indication which would be the most likely to occur. This source answered cryptically, saying, “Regarding your list of potential events, any combination thereof is likely.”
Here are the nine possible calamities that Willie listed:
- A debt default by an EU member nation
- A big bank failure within an EU member nation
- A big bank failure in the US
- A story (almost certainly phony) about a major theft from the London Metals Exchange to cover up the shortage of physical metal to cover contract commitments
- The revelation of a major fraud within the US government, with Fannie Mae being a major candidate
- A decision to let certain markets find the proper equilibrium level
- A lawsuit against the SPDR Gold exchange traded fund for fraudulent leasing
- A credit derivative breakdown centered upon the Interest Rate Swap
- Arrests of some respected US bankers for bond fraud
Unfortunately for the current global economic woes, none of these potential crises have such a remote possibility that they could be ignored.
Willie suspects that the big US bank teetering on the brink of failure is Bank of America. By his analysis, Bank of America was on the brink of failure on July 24, 2010 and was bailed out by the Federal Reserve. For the time being, a run on this bank was averted, but the underlying problems have not been solved. Apparently Bank of America has been aggressively trying to shed billions of dollars worth of assets (without drawing attention to such transactions to try to shore up its finances, with inadequate success. Willie expects that either JPMorgan Chase or Goldman Sachs will end up owning Bank of America.
Willie has another source that told him that major Swiss bankers have enacted a force majeure rule in that country. This rule has not been disclosed to other Swiss bankers, most members of the government, and certainly not to bank customers. The force majeure provision enables the banks to seize customer bullion accounts. Willie reports that billions of dollars of gold bullion are being pulled out of Switzerland every week, particularly by Arab and Chinese owners, mostly destined to storage vaults in Dubai or Hong Kong.
Keep in mind that all of the above have to be considered rumors right now, as the sources cannot be independently verified. Still, it would only take one or maybe two of them to be true to bring on a horrendous cataclysm.
Other news notes.
The US Departments of Labor and Treasury held their two day hearing on Lifetime Income Options. As far as I can tell, the hearing proceeded exactly along the lines of the script outlined during the October 7, 2008 hearings by the House Education & Labor Committee. Advocates realize that an outright attempt to nationalize all private retirement account assets and replacing them the US government bonds would face too much public resistance. So, as was planned all along, the first step was to propose a voluntary program for the public to exchange their retirement assets for a lifetime annuity—the purpose of this week’s hearing.
The politicians put on a masterful performance. I watched brief snippets of the hearing. It seemed that the speakers uniformly were proposing small modifications to the program rather than opposing the proposed new government rules altogether. As a result, there was virtually no news coverage of the event.
An added stroke of brilliant staging occurred on September 15, the second day of the hearing. Retirement USA, a coalition organized by labor unions with enough retiree rights advocates added to mask that this is basically a union effort, held a press conference in Washington, DC to announce that retirement plans had $6.6 trillion too little in assets to cover what the beneficiaries “needed.” It has been known since at least the 1990s that retirement plan assets, especially for government and education employees, are severely inadequate to cover actuarial liabilities to the employees. The size of the shortage varies, depending on which set of assumptions about the future state of the US economy you use, but it is a huge number no matter who does the figuring.
As best I can tell, the purpose of Retirement USA was not to bring up stale news, but rather it was meant to put fear into people that their retirement plans were inadequate, with the intervention of the US government required to “protect” people’s retirement assets. The coordinated timing was too coincidental to be an accident.
Some readers have commented that I am overstating the problem when I say that this week’s hearing about allowing people to convert their private retirement assets into an annuity necessarily implies the nationalization (confiscation) of all private retirement accounts. This is not my interpretation at all. I am simply repeating the strategy outlined in the October 7, 2008 Congressional hearing about the steps to take to seize all private retirement accounts. The hearing this week was the first of multiple steps to be taken, with the ultimate goal of 100% of all private retirement assets being taken by the US government.
Today, the price of gold set a new record high US close (if you ignore inflation) at $1,272.00. Silver reached its highest price in more than 30 years at $20.75, again ignoring inflation. However, these records were specific to the US dollar. The US dollar has fallen so far in the past few weeks that gold and silver prices in other currencies such as the euro, yen, pound, Swiss franc, and Canadian dollar were 5-10% below their recent peaks.
The US dollar does not decline in a vacuum. As the dollar tanks, that makes imports into the US more expensive, discouraging American consumers. As imports tail off, foreign exporters suffer. This week the dollar had fallen so much that a multitude of central banks began to intervene to support the value of the dollar. Yesterday alone, the Bank of Japan bought more than $11 billion worth of dollars, Peru’s central bank bought $21 million, and Colombia’s central bank bought $20 million (plus announced that it would be buying $20 million each day for the next four months). Brazil had already been active at buying US dollars.
With such strong international support for the US dollar you might expect that the dollar would stop falling. That might happen for a short time, but it seems like almost everyone is starting to realize that the US dollar will continue to decline in the near future, no matter what.
By the way, gold and silver prices have been rising this week in the face of extraordinary efforts to suppress prices. On Tuesday alone, for instance, more than 16 million ounces of silver were sold short on the COMEX, increasing total short positions by more than 2%! A few years ago, much smaller amounts of shorted silver would clobber the price. The widespread support for the US dollar would also normally cause precious metals prices to drop. But the market has changed.
Yesterday Anglogold Ashanti threw in the towel. Anglogold, one of the world’s largest gold mining companies, announced that it would be issuing a huge amount of new stock to raise cash flow for the sole purpose of buying back the nearing 3 million ounces of pre-sold gold contracts. It will take almost $4 billion dollars at current prices to clear off these profit-limiting contracts. I don’t know the average price at which Anglogold Ashanti pre-sold this gold production, but it has almost certainly reduced company profitability by at least $1-2 billion because of long delay in closing out the position.
Perhaps the best way to be protect against a September Surprise is to establish your physical gold and silver beforehand. If you do so now, you won’t have to worry whether the Surprise comes next week, in October, November, or December.
Patrick A. Heller owns Liberty Coin Service in Lansing, Michigan and writes “Liberty’s Outlook,” a monthly newsletter covering rare coins and precious metals. Past issues can be found online at http://www.libertycoinservice.com/ Pat Heller is also the gold market commentator for Numismatic News. Past columns online at http://numismaster.com/ under “News & Articles”. His radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.