In Part I, I discussed the world's largest and most obvious asset-bubble (excluding the derivatives market): the U.S. Treasuries market. While I pointed out that this market was an obvious target for “shorting�, I also explained to readers why there were simply too many risks associated with shorting this opaque, and highly-manipulated market.
I explained that investing in bullion (“long�) was a good “proxy� for shorting U.S. Treasuries, and concluded that this proxy was a safer, superior substitute for that short-position. In this installment, I will apply that analysis to other U.S. asset-classes: the financial sector, and the U.S. dollar, itself.
When Wall Street's multi-trillion dollar Ponzi-schemes imploded (based upon the U.S. housing-bubble, which they also created), it was common knowledge that the entire U.S. financial sector was leveraged by an average of 30:1. It is a matter of simple arithmetic to observe that with such extreme leverage, it only takes a loss of a little over 3% on the underlying assets to take all “bets� at 30:1 leverage to zero.
Given that most of Wall Street's leverage was based upon the U.S. housing market, and given that the U.S. housing market plunged by roughly 30% (in its first collapse), you don't have to be a “mathematician� to figure out that this was ten times the decline necessary to take the entire, U.S. financial sector to zero.
Clearly, most U.S. banks (and all the Wall Street Oligarchs) are hopelessly insolvent. The “mark to fantasy� accounting rules, conveniently created just before the much-hyped “stress tests� of U.S. banks, can hide the bankrupt status of these corporate shells, but it certainly does nothing to change that reality.
Because these bankrupt entities (collectively) have market capitalizations in the trillions of dollars, once again we see a U.S. asset-class where shorting the market would seem like a “no-brainer�. However, as with the U.S. Treasuries market, as soon as we take a closer look at this sector, we see a saturation-level of corruption, and a total disconnect from all market fundamentals.
Not only does the U.S. financial sector benefit from the “24/7� market-pumping activities of the Plunge Protection Team, but it has been allowed to rig markets to a much, much greater degree through its “trading algorithms�. This “high-frequency trading� allows the Wall Street Oligarchs to lead around market-sheep by the nose, even more successfully than the legendary “Pied Piper� was able to lead astray children.
And when these trading-algorithms “blow up�, and cause all these manipulated equities to begin to revert to “fair market value�, the so-called regulators simply cancel any trades they don't like – and give Wall Street a “do-over�. Given that level of market fraud, it's easy to see how some of these fraud-factories could go an entire quarter where they “made money� in markets every day.
However, even this extreme level of market-rigging isn't enough to satisfy (and protect) these financial Oligarchs. As the Crash of '08 intensified, and these bankrupt-banks plunged closer and closer to their “fair market value� (i.e. zero), the Oligarchs ran crying to the SEC, hid under its skirt, and demanded “protection�.
The primary perpetrators of countless billions of dollars of “naked shorting� (i.e. counterfeiting shares) demanded that not only should they (and only the Oligarchs) be protected from naked shorting (which was/is already illegal), but that they should be “protected� from all shorting (i.e. a total ban on shorting the stocks of these bankrupt banks).
With a level of market-rigging which exceeds anything seen in the most-crooked casinos, clearly it is much more perilous to short U.S. financial stocks than to short U.S. Treasuries. Once again, we must ask ourselves “is there a good proxy� for this short-position?
We can answer this question by envisioning what would happen if these banks were successfully shorted, or just look at the simpler scenario of what would happen if/when investors desert this sector. As with U.S. Treasuries, it seems very obvious that those deserting U.S. bank stocks and those looking to capitalize on the exodus out of this sector would both be drawn to bullion.
About Jeff Nielson