Ranting Andy: Too Many Financial Instruments Have Destroyed the World

RANTING ANDY – Last Thursday’s RANT, “OUTING GLD AND SLV, AND ‘INNING’ ALTERNATIVE FORMS OF PHYSICAL GOLD AND SILVER INVESTMENT” was inspired by the significant increase in PUBLIC interest I’ve observed this month, the most I’ve seen in the 9½ years I’ve been involved in Precious Metals.  Not that such “interest” has necessarily yielded new BUYING, but the inquirers are certainly WATCHING gold inexorably rise and WONDERING what it means.  As we all are well aware, human nature dictates that any investment class that is rising will eventually attract the masses, some who ultimately buy for the right reasons, and most who buy simply because it’s going up.

After its publication, I had many discussions with the public about GLD and SLV, as well as the alternative Precious Metal vehicles discussed.  Some investors appeared affected by my pleas regarding the potential (and highly likely) fraud behind these securities, but most showed not the slightest inclination to question their complex, dubious natures, much less believe my conclusions.  In fact, more than ever I believe the investing public, AS A WHOLE, believes GLD IS gold (at least the roughly 1% of the population that even WATCHES the gold market).

The point of this RANT is that those who still remain in the financial markets (the minority who weren’t wiped out by the internet or real estate bubbles, the 2008-09 meltdown, unemployment, or personal bankruptcy) have been so desensitized to the criminality that has permeated daily market operations that they don’t even think to QUESTION it.  Sort of an advanced stage of “Stockholm Syndrome”, in which one not only identifies with his captors, but in this case are will to BUY from them the criminal products they are selling.

Regardless of age, people refer to the “good old days” as simpler times, whether they were actually “good” or not.  Technology is an ongoing fact of human existence, neither good nor bad until judged in hindsight.  I’d say that MOST new technology is beneficial to mankind, EXCEPT when referring to FINANCIAL MARKETS.  In fact, I’d venture to say the great majority of financial products created in recent decades have greatly abetted the criminal takeover of society by the bankers and politicians, at the expense of the masses.

Yes, we have seen some beneficial financial products, aside from the ATM which itself has become obsolete in a world run nearly entirely on credit.  For instance, the mutual fund was a fantastic invention, whose growth helped many investors to cost-effectively benefit from the stock bull market of the 1980s and 1990s.  And when ETFs emerged roughly ten years ago, it appeared these products had improved upon the mutual fund concept, enabling the same benefits of diverse sector ownership less the onerous management costs.  In fact, I’d argue that ETFs simultaneously put a nail in the coffin of the hedge fund industry, exposing its usurious fees to the light of day.  Few investors in history have generated the type of long-term returns that would justify receiving such ridiculous fees, yet the investing public piled into them en masse until they had lost as much of their precious capital as possible.

However, as it turns out, the ETF itself is a flawed product, in many cases bordering on fraudulent, attributing its value PRINCIPALLY to the same CONFIDENCE game that keeps fiat currencies such as the U.S. dollar afloat. 

Simple ETFs such as SPY, which purports to maintain an accurately weighted portfolio of the stocks in the S&P 500, require investors to TRUST that high frequency trading computers can simultaneously trade 500 stocks in a manner consistent with the fund’s investment thesis, not to mention the custody issues related to holding a constantly changing $93 billion fund.

However, many ETFs are VASTLY more complex, such as AGQ (double long silver) and DZZ (double short gold), which purport to move by twice the amount of the underlying security.  Some may consider me of above average intelligence (while others don’t, of course), but nearly no level of intelligence would enable me to understand HOW these funds work, and HOW they are maintained.  In other words, without reading such prospectuses AT ALL, I feel quite confident there are significant, potentially dangerous issues with owning these stocks.  Yet no one seems to care, they just take it on TRUST that they will always perform as expected.

In the case of GLD and SLV, which are far less complex than AGQ and DZZ, I have not the slightest idea how they MAINTAIN the prices targeted by their prospectuses, particularly in light of the obvious naked shorting algorithms that are so obviously present in their trading activity each day.  Again, no one seems to care, even when JP Morgan, the CUSTODIAN of SLV, also happens to be the subject of numerous lawsuits  alleging naked shorting behavior in the silver markets!

But ETFs, which now comprise roughly one-third of ALL U.S. stock trading (http://www.efinancialnews.com/story/2011-08-22/demand-for-etfs-continues-to-soar), are child’s play compared to the vicious, banker-controlled products that have destroyed the global financial system for the past decade, and continue to do so unabated today.  To me, the core of these evil “securities” (which give you anything but security) come from three simple, seemingly anachronistic products from the “good old days”; the mortgage-backed bond, the stock option, and the short sale.  Each of these three products are historically remembered as beneficial to the efficiency of trading markets, yet all are both highly flawed and massively destructive. 

The patriarch of “derivatives” trading is the simple short sale, by far the most destructive tool ever created for financial markets.  Frankly, I see absolutely ZERO benefit from the concept of short-selling, other to enrich brokerage firms with dramatically increased commissions.  To start, the concept of betting AGAINST something, as opposed to FOR it, not only reeks of being unethical, but is more often than not used maliciously, for the purpose of (often fatally) injuring a business for one’s own personal gain.  This occurs every day in every market, and I’d bet INSTITUTIONS are responsible for at least 90% of ALL global short sales, aiming to destroy every type of counterparty possible, be it a wealthy individual, corporation, municipality or, thanks to the proliferation of satanic “Credit Default Swaps”, sovereign nations themselves. 

But short-sales alone are just half the problem, with the bigger issue of course being NAKED shorting, i.e. selling products that do not exist.  A decade ago, regulatory agencies such as the SEC and CFTC had some semblance of interest in enforcing short-selling rules, but frankly today I not only see ZERO enforcement, but ZERO interest in even WATCHING.  The cancer that is naked shorting, coupled with OFFICIAL market manipulation schemes such as the Gold Cartel, PPT, and ESF, have caused more damage to the once proud concept of capitalism than all other evils combined, robbing the innocent, destroying millions of jobs, causing gross misallocation of capital, and, of course, enabling criminal banks to take over the management of America and other Western nations.

Likewise, the plain vanilla stock option has given rise to every form of cancerous derivative imaginable, particularly the aforementioned credit default swap but many other “synthetic” securities or “trading programs” so sinister and complex that only a handful of computer PHDs have the know-how to decipher how they work, let alone a bunch of paid-off government bureaucrats whose supposed job is to protect investors from such naked shorting schemes.

And finally, the mortgage-backed bond, invented with good intentions (promoting home ownership) but ultimately unlocking the Pandora’s Box of modern era financial fraud, enabling complex computer programs, again only decipherable to a few, to break up securities into pieces that have, in many cases, not the slightest semblance of the original, and even less ability to be understood and regulated.  In today’s world of criminal finance, the mortgage-backed bond has been used as a tool to destroy millions of real estate investors alone, and millions of others in any sector the bankers could sink their asset-backed, and segregated, teeth into.

With all these evils simultaneously turning wine to water, and water to sewage, I am frankly amazed that ANYONE dares to trade in most markets.  I, as much as anyone, understand the need to invest, so it would be ridiculous to advise otherwise.  HOWEVER, the point of this RANT is that today’s financial markets are as corrupt and vile as anything you can imagine in your deepest, darkest thoughts.  The bankers and politicians RUN the financial markets in nearly every aspect, causing descriptions such as “lion’s den” and “viper’s pit” to GROSSLY understate the risks to investing.

That is why you need to keep things SIMPLE, to first and foremost AVOID LOSSES.  Making PROFITS in today’s environment of economic and currency collapse should be secondary, as the global financial condition is the  worst of our lifetime, and will only grow worse in the coming months and years.

Thus, my advice, as always, is to start with a CORE portfolio of ACTUAL precious metals, either in PHYSICAL form or via the proxies discussed in last week’s RANT, “OUTING GLD and SLV…”  Secondly, stick ONLY to long stock purchases (preferably in the PM mining sector), avoiding MARGIN, SHORT SELLING, and especially OPTIONS entirely, which EMPIRICALLY have been PROVEN to be LOSING LONG-TERM STRATEGIES.

And for god’s sake, AVOID ANY AND ALL DERIVATIVES INSTRUMENTS, as a rule RUNNING from ANY security in which you can neither UNDERSTAND the prospectus nor the mechanism for its pricing.

As pertains to my area of interest, PRECIOUS METALS, no securities FAIL this litmus test more miserably than GLD and SLV, particularly as their CUSTODIANS are none other than JP Morgan and HSBC, both of whom are involved in countless lawsuits alleging illegal naked shorting of PAPER silver!  In other words, MAKE SURE that you are not only RIGHT in believing in Precious Metals, but that you invest WISELY in uncorrupted investment vehicles that will ensure that you also PROFIT from your correct conclusions!

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2 Responses to Ranting Andy: Too Many Financial Instruments Have Destroyed the World

  1. Radek says:

    Hi Andy,

    I was reading you for a while thanks to David Miles newsletter. The most enjoyable rants you can read on the internet ;).

    I fully agree with most of your points and especially this one conveyed in this rant ;). This is why I post this comment.

    I am 70% of all my assets in PM (50-50 gold/silver) for two years now, so I am fresh gold bull. However, as soon as I realized that I need to run away from fraudulent financial markets I did it and I never looked back. Many gold bulls advocate precious metals derivatives, but I think this is a big mistake.

    I did a concious decision to have zero in stocks (potential nationalization due to spoiled public demanding free cookies and bankrupt governments looking for easy money), zero in options (the issuing party will most likely not exist when the options will be in big money). Only physical gold and silver in different storing options and one of them being GoldMoney.

    I see rats running on the sinking titanic of paper financial markets looking for a better position/placement. If you truly understand why you need precious metals you will only buy physical precious metals and store them in a fashion that you can be almost certain you will have it when frauds are brought to the daylight.

    I do not understand why people tolerate fraud and think they can stil win in this rigged game. I was always running away from shady characters/shady deals and it was always the right tactic.

    It is nice to see that there is at least one well known gold-bug that agrees with me on my approach of only physical precious metals ;).

    all the best,
    Radek

  2. Ranting Andy says:

    God bless, Radek!

    a

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