THE VIX FIX: First there was gold, then there was Libor, now there is Vix. Very soon, only citizen wealth-appropriation will be left….

…but then what happens to consumption?

timmytoys

The Slog offers further reasons why ‘middle-squeezing’ will continue, America is in a corner, gold must rise dramatically before long, and the VIX is being cynically repressed by the US Federal Reserve.

VIX is the accepted acronym among stock market traders and other commentators for the Chicago Board Options Exchange Market Volatility Index, a popular measure of implied volatility. CHEBOOMVIX would’ve been more aptly onomatopoaeic but less memorable, so Vix it is. Basically, the VIX is a warning signal people use to suggest actual or approaching volatility, because it has norms. It is often referred to as the “investor fear gauge”. If there’s one thing sovereign States and bankers can’t abide, it’s fearful investors: cautious investors are bad for business.

Top-heavy US brain and enduring Slogger Butch Cassidy (it’s a pseudonym, like Tyler Durden or Dora the Elf) writes to point out something to me.  The New York Stock Exchange records that in recent months, margin debt has sky-rocketed to $327 billion, passing the levels seen just prior to the collapse of Lehman Brothers. It’s not so much that the frontal-driven lunatics have wrested back control of the asylum, but rather that the Black Dude in the white coat never took it off them in the first place. It was a textbook case of “No I can’t”.

The US market players are now unsustainably over-leveraged (just like Wall Street firms in general) and there’s enough speculative money in there to ensure that only a rampant bull-market forever can stave off what I’ve taken to calling Panicollapse. I believe the term translates into Greek as Panikolopoulus, which is also the brand name of a small taxi firm in Thessalonika.

But here’s a funny thing missus: the Vix futures warning line was going up at a sharp rate during April/May 2012, and then inexplicably went south when it should’ve been heading north to Emergency Klaxon Sound III. There’s a brilliant piece on this at Zero Hedge for those of you who enjoy terrifying yourselves with 1 in 1 wiggly black schüss slopes on charts. But what it all adds up to is directionalising, aka Keeping the Mugs Calm.

This is what happened. At the end of May, the US Fed Reserve’s trading desk acquired a new Supreme Leader called Simon Potter. His style seems to involve 24/7 selling of VIX to keep the market high, happy and hyped. Mr Potter (who bears the same surname as the megalomaniac Scrooge in Frank Capra’s A Wonderful Life) is a former Brit and former Economics Prof. He is also an old crony of the Fed Reserve’s boss, Timothy ‘Bazooka’ Geithner. During 2007, Tim’s diary has an inexplicably indiscreet item headed ‘Fixing Libor’, and a key attendee at that meeting was none other than…..Simon Potter.

Potter is a 14-years Fed Reserve veteran who designed the 2009 US bank stress tests – which were almost (but not quite) as pointless, selective and optimistic as the ezone’s 2011 stress tests. He also produced a solid and honest report on the Fed’s failure to see the US housing bubble wobbling about like a giant soapy dirigible above America: but as he was on the team at the time, we have to consider him at least implicated. The VIX measure of volatility is being suppressed (ie, manipulated) to disguise the natural level of instability in an over-leveraged and over-risk-exposed Bourse. It really is that simple.

There’s no place these bastards won’t go to stitch up the American Dreamer, or even British pisceans like me. But if you think all of them are making it up as they go along, you need to do more historical research. In 1975, Fed Chairman Arthur Burns, sent a “Memorandum For The President” to Gerald Ford, in which several VIPs like Kissinger and the later Fed Chairman Alan Greenspan were included. Declassified in 2004, the memo discussed gold in great detail, especially in relation to what Burns called its ‘fair value’. The trick here is to ask the question, “Fair to whom exactly, Keemosabe?”

Burns must have been a smart bloke, because he worked out that what I posted last week in relation to gold would happen one day unless “the money-gold equivalency is controlled”. Except that he knew that 37 years ago. Nixon having taken the US quietly off the Gold Standard in 1971, Burns made the following points among others:
1. Failure to disguise the equivalency of gold and money, could easily frustrate our efforts to control world liquidity”. Valuing gold at its real market value, he opined, carried “the risk of massive liquidity creation…..of such extraordinary magnitude, it would seriously endanger” the control of inflation.
Thus, controlling global liquidity and inflation was good for US business, and this alone was a strong enough argument to artificially depress the value of gold.  Those Sloggers who don’t believe in gold market manipulation should look away now….
2. The memo openly accepted the near-universal gold price manipulation by central banks even after the gold standard had been formally abolished. It was neither deplored nor supported, but merely accepted as a necessary way to stop freely available gold becoming an investment alternative – dare I say superior alternative – to the US Dollar and the NYSE.
But here’s a specific from the Burns paper that I find rivetting:

“I have a secret understanding in writing with the Bundesbank – concurred in by Mr Schmidt [the BundesKänzler] – that Germany will not buy gold, either from the market or from another government, at a price above the official price.”

The official price being, of course, a repressive fix. It was then $42.22 an oz, but the real value was estimated to be at least $120.

So here we have the US enjoying a cosily dominant relationship with Germany (then West Germany). This was very different to its diplomatic status with the French, however, described by Burns as something of a pain in the arse: ‘…a large measure of freedom for governments to trade in gold at a market related price’ would screw things up because ‘such freedom would provide an incentive for governments to revalue their official gold holding….In fact, there are reasons for believing that the French are seeking such an outcome’.

The important point here is not really that the US had the two founding architects of the EU following entirely opposed gold diplomacy with itself: given later events, it’s hysterically funny, but not exactly unusual. The key point for me is that it shows the much higher degree of global power and control enjoyed by the American State back then compared to now. Several things have happened during those four decades since:

1. The eurozone has emerged with a more powerful and united anti-US policy.

2. China awoke with an insatiable demand for gold, and no willingness to accede to blatant American price controls….except when it favoured Beijing’s collectible hobby.

3. As globalist mercantilism and mad investment paper rocketed ahead, America’s deficit grew…and the amount of US debt owned by China went stratospheric after Wall Street lost the will to invest in anything not made of paper.

Where all of this leads is to a more profound understanding of what the American financial élite is up to in 2012. The chief factor to note, I suspect, is option close-down: the US is running out of fingers to put into pies.

It can no longer depress the price of gold at will, or informally devalue the Dollar beyond a certain point. It can no longer fob off those emerging Powers who want their gold back. More frightening still for them, both gold as a crypto-currency and the Yuan as the forerunner of a global means of exchange threaten to doom the Dollar’s status as the pre-eminent purchasing currency. It will one day run out of QE funds with which to manipulate the NYSE – and is anyway scaring folks with that degree of currency compromising.

But what it has left, for the time being, is the VIX. Smarter minds than mine cottoned on to this some time ago. But you don’t have to be smart to see that this is last-ditch stuff for the United States of America.

Be warned: stay out of the Stock market, and keep a close eye on gold….but don’t jump in too early.

Related: Is Draghi the new Goldfinger?

 

 

47 thoughts on “THE VIX FIX: First there was gold, then there was Libor, now there is Vix. Very soon, only citizen wealth-appropriation will be left….

  1. You’re pretty good at commenting on politicians & the media, but you have a woeful grasp of matters economic I’m afraid. Best stick to what you know!

  2. Think supertanker.
    Think the hold of a supertanker, a kind of Plato’s cave.
    On the bridge the captain is taking orders from ‘the owners’.
    There are four or five supertankers and they are converging for a rendez vous.
    The American supertanker is the biggest the best armed, but perhaps the most Frankenstein fragile.
    The European supertanker is the richest.
    The future Muslim Brotherhood supertanker encompassing all Sunnis is already a bit leaky.
    The Chinese supertanker,..
    They will rendez vous.
    The Russians will choose BoatEurope.
    Some rough seas ahead perhaps, before they sort out the pecking order.
    Once the Confederation of Shipowners is firmly in place maybe they’ll do the ‘long knives’ between themselves..
    And us old guys why read books before Kindle?
    As the Chinese said about the Dalai Lama irritant.
    ‘Wait a bit, he’ll die.’
    So . We live in the hold of a supertanker listening to our words bouncing off the hull, as the ship we happen to be in advances to the rendez vous.
    Do you really see the people in the hold leaving their toys and shadows to wrest power from the captain to redirect the ship?
    No hope?
    Maybe Plato gave us a clue. Something to do with light.
    Otherwise, a very Dark Knight.

  3. Pingback: John Ward – The VIX FIX : First There Was Gold, Then There Was LIBOR, NOw THere Is Vix. Very Soon, Only Citizen Wealth-Apporpiation Will be Left… But What Happens To Consumption? – 31 December 2012 | Lucas 2012 Infos

    • You are right, but so is John. They will continue to waste money by suppressing the POG and POS for as long as they can… until the day that it all collapses around their ankles in an embarrassing heap. On that day, Gold and Silver will show their true value.

      There is one problem; there are thousands of industrial processes for which Silver is vital, and has no replacement. That smartphone you are holding, being one of them. The Chinese had a trial run in refusing to supply rare earths to Japan, to see how twitchy the West would get about it; as we did nothing to support Japan, I think you can whistle for those vital industrial ingredients, when the time eventually comes.

      I have seen some comments that Silver might eventually overtake the value of Gold; every year, I feel this possibility is less and less of an exaggeration.

      • You may well be right, it might be that silver surprises us all. I certainly think it is more suitable for currency, it being easier to manage smaller denominations for everyday transactions.

      • Yes, it’s still going to be good for everyday transactions, but this will only add to the upward pressure on Silver from all directions.

      • The manipulation is of the paper price of Gold. There could come a point where the paper PoG goes very low (e.g when holders of paper gold realize they only have a claim and there are multiple claims on each physical oz of gold) then what becomes of the price of physical?

        Is paper Au money? Is physical? Paper is just a claim. Physical is not an investment or ‘money’ it is a SoV. Perhaps different questions need to be posed, what is money and what are the functions of money?

        Due to Silver’s industrial usage, it seems unlikely to rival Gold as a SoV,

  4. ”Where Hitler came from”

    Steve Keen on the debt crisis

    37.40 ”Austerity sounds sensible because if you think about your own situation as a household, if you had debt you couldn’t sustain then the only way you can cope with that is by reducing your consumption. But if you live in a complex social system, an entire economy, and the entire economy imposes austerity upon itself what that means is that the rate of turnover of money in the economy slows down. The rate of economic activity slows down and therefore the income will fall. Austerity is self-defeating.”

    38.45 ”You can barely manage Greece which is one of the smallest economies in Europe. Now Spain… getting bigger and bigger countries that are going to continue falling over. And therefore in all these cases what you’re saying is we have to create more money at the Central Bank, ”give” it to these countries and tell them to pay the banks back. Debts that can’t be repaid won’t be repaid. All you have to do is work out how you’re not going to repay them. And instead if you continue to pretend that you are going to repay them, then all you do is accumulate more debt because you have to service the additional debt that you’ve created.”

    ”So long as this austerity is forced upon the public, they’re the ones who are going to have to feel the pain. And they’re going to be told by the elites who actually benefited from the bubble in the first place that they need to suffer to overcome the mistakes the elites made. That is a recipe for demagoguery. This is where Hitler came from.”

  5. I dont believe the VIX is being depressed it is the whole market…. There is no volatility in the bonds, currency and equity markets due to the Fed flooding the markets with $85bn per month…. That is why the VIX is down

  6. O/T but pertaining to your post on Bunga Bunga payouts a couple of days ago……….. and my associated posting…….. the most important thing you can know as a man…….. as mentioned back then…. Briffaults law…
    20 minutes well spent….

    Briffault’s Law
    “The female, not the male, determines all the conditions of the animal family. Where the female can derive no benefit from association with the male, no such association takes place.” — Robert Briffault, The Mothers, I, 191

    Apologies for the O/T post.

  7. ‘…..Where all of this leads is to a more profound understanding of what the American financial élite is up to in 2012……’

    Obama just got re-elected.

  8. I believe the price of gold is fixed but then again so is everything else. The LIBOR scandal is proof of that. As to the PM bulls I think you will be disappointed. Should your predictions come true then society will have broken down to the point it isn’t worth living in.

    I think that the cashless bank (a la Sweden of all places) is the next stage of the plan. All transactions on a card, or more likely mobile phone, and cash will be a thing of the past.

    Think of the degree of central control possible here. The technology is there, it’s only a matter of time now.

    • Yes, cashless society has been on the cards for a long time, a very like next step, once the physical is taken out of circulation then, the world is their oyster for we would have no way of auditing anything.
      Digital debt dissolution, has a ring about it, doesn’t it?

    • There have been articles recently citing Swedes using cash a lot more.Seems Brits are not the only bloody minded- excellent!

  9. VIX suppression doesn’t fix the problem, it only helps to postpone the reckoning… for a while longer. Either way it all ends at the business end of a rope for the perpetrators.

    As far as gold goes, I’m wondering if 2013 will be the year that the Chinese update their official holdings. Rest assured it will be a truly earth shattering and game-changing number. And just to clarify, paper gold isn’t gold. Beijing will confirm this fact.

    And a happy new year to all sloggers and to you as well John. Your opinion and journalistic integrity is something I have thoroughly enjoyed for more than the last year. Your immense efforts leave me more informed and hopefully a little better prepared for the unknown future, so thankyou.

    And to all those who add huge value and insight to the comment threads (and help to keep the trolls on check!) I hope 2013 brings you all good fortune and good times.

    • As long as the Chinese are honest about their holdings, let’s be honest, it isn’t a trend that most are following (honesty), gold is moving into an unknown arena, nobody knows which way it’s going or why.

  10. John, for the purposes of heading-off the troll-pedants, Tim Geithner is Treasury Secretary not Fed boss and it was his predecessor Treasury Sec Hank Paulson who was famous for his ‘bazooka’.
    Feel free to delete this after reading.

  11. Happy new year John and thank you for all your hard work on this blog. The markets of course are not a level playing field, everything is manipulated. Every thing that counts anyway. Gold should be £8000 per troy ounce by now given the scale of the counterfeiting by nation states, but a blur of fingers over the keyboard and it’s 600 next week haha. Gold will only go to the moon if the Chinese get upset and that’s it.

  12. Happy New Year and thanks for the blogg through 2012 and long may it continue.

    Your article. It’s all a manipulation / construct but it rotates through 3 degrees of manipulation for me (I could be wrong).

    1. Fiat money, a notional idea of value, created at will.
    2. Gold it is property but very different, so small you can hide it.
    3. Asset values like land, etc. these are manipuated also.

    Then what you do over time is distort one, then switch to the next continually siphoning out wealth to maintain your position. Creating the next bubble if you have enough wealth whilst ordinary people cannot get out of the trap forever on the back foot financially.

    Where I think they made a big mistake or serious oversight in the manipulation of the three above is there are two distinct types of economy, subsistence and industrial. The former does not need swathes of consumption whereas an industrial economy contracts and if severe enough it can physically die.

    Greece is in the latter position and me thinks terminal now as the economy has contracted too much. The UK / USA is currently borderline and manipulating the 3 markets mentioned above they kill the prime necessity for an industrial society the consumption levels. Everyone says China or India they are trapped the same and Japan is goosed to ever pay its debt as it has to furnish internal consumption to just stand still.

    Just my thoughts on it.

  13. A small point for all those thinking of investing in bullion The historical ratio between gold and silver, going back to Roman times has been between 12-16. The present ratio is approx 55;1. Silver is massivelly undervalued. It is an essential ingredient in many industrial products and It is easier to trade ,because of its lower value.
    When the reset comes,silver could get up to approx $400/oz. and beyond. Present value is approx $32/oz

  14. At all times in history gold has been a true reflection of monetary value and the state of an economy. Gold is therefore an appropriate (though still imperfect) long-term standard of pricing, with its history as a store of value dating back to the ancients.
    The graph shows the appropriate data on gold prices, population, and GDP in the United States since 1791 and plotted in GDP per capita, denominated in ounces of gold.

    This measurement smooths out changes in economic growth due to currency inflation and changes in the population, making it much easier to compares apples to apples.
    The results are rather startling. In its earliest days, US GDP per capita was a mere 2.6 ounces of gold per person per year. But this grew quickly, effectively doubling in the 20 year period from 1791 to 1811.
    Most of the 19th century proved difficult for growth, as it took another seven decades (over three times as long) for GDP per capita to double again. This makes sense given that the 19th century was marked by several costly wars (War of 1812, Mexican War, Civil War, etc.)
    An industrialized American economy began to take off in the 20th century; GDP doubled from 12.00 ounces of gold per capita in 1892 to 23.55 ounces of gold per capita in 1916. And by 1929, it had almost doubled again to 41.12 ounces of gold per capita.
    After that– years of depression and economic stagnation. The US economy bottomed in 1934 at 14.93 ounces of gold per capita, and then it began a multi-decade rise, peaking at 139.05 ounces of gold per capita in… 1970. This was right before Nixon closed the gold window. And the economy never touched that level again.
    Since 1970, it’s been a series of peaks and troughs. The US economy boomed during the 1990s, then ran out of steam quickly in the ensuring dot-com/housing/sovereign bust.
    The US has just ended the year at 28.40 ounces of gold per capita (based on trailing twelve month GDP data). This is an astoundingly low figure.
    To put it in perspective, since the end of the Great Depression, US GDP per capita has only been under 30 ounces of gold two times– this year, and 1980. That’s it.
    In fact, the post-war average for the US economy is 72.83 ounces of gold per capita, so the US economy today is an amazing 61% off this historical average.
    Right now, the largest economy in the world is producing as much as it did in 1931, almost at the peak of the Great Depression. And no matter what the MSM and politicians say, the data show that the trend is getting worse. Today’s figure is worse than last year, which was worse the year before. This trend of economic contraction goes back to 2001.
    Curiously, this time period also coincides with the greatest expansion of debt and the monetary base in history.
    This is truly incredible. With all of the modern advances in technology and productivity, the criminal Ponzi scheme debt-based fiat monetary system is so destructive that it’s turned the clock back seven decades on the US and European economies.

    • Salford Lad,

      If you had prefaced your blog with acknowledgements in plenty for the Zerohedge article you have plagerised IMO I would admire your minor additions.

      The Zerohedge article was an new, to me, way of examining the ever more manipulated government statistics we the plebs are expected to believe.

  15. Pingback: TORY CRIME CLAIMS: Why ’10% down’ simply doesn’t add up | A diary of deception and distortion

  16. Happy New Year & apologies for lateish response to the requests above re VIX comment explanation. It’s simple enough really – the VIX measures the levels of complacency/worry in the world of options traders. The more complacent these folk are, the more likely will be a market correction/fall. Nobody can possibly manipulate how people feel about such things, & to suggest that kind of manipulation exists, displays a degree of ignorance about how markets actually operate. Anyway, 2013 will prove me right or wrong – so no need for nastiness, thanks!

      • no problem. I really, really hope to be wrong, but I suspect stock markets, together with gold and silver, will crash this year.
        We’ll see!

  17. So, Mr Slog, I seem to remember only a few months ago that you were going to buy gold at around $1680/oz. HA!HA!HA!HA!. BULL SHAT. Now you write “stay out of the Stock market, and keep a close eye on gold….but don’t jump in too early”

    So what’s too early?? $1oz ??

    You might as well buy a lottery ticket; seems better to be invested in the good old stocks.

    All fu*king bull fu*k.

  18. Pingback: Happy — Global-Debt-Jubilee — New Year to All | FrenchNewsOnline

  19. Pingback: CURRENCY WARS: Switzerland’s franc fire-sale in favour of the Pound-rush | The Slog. 3-D bollocks deconstruction

  20. Pingback: John Ward – Currency Wars : Switzerland’s Franc Fire-Sale In Favour Of The Pound-Rush – 4 January 2013 | Lucas 2012 Infos

  21. Pingback: John Ward – Currency Wars : Switzerland’s Franc Fire-Sale In Favour Of The Pound-Rush – 4 January 2013 | 2012: What's the 'real' truth?

  22. ‘ . . The VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized . . Only when investors perceive neither significant downside risk nor significant upside potential will the VIX be low . . Between 1990 and October 2008, the average value of VIX was 19.0 . . It closed at 13.8 on Jan 04, at the bottom of its 52-week range; its 2-year range is 13.3 – 45.5 and it reached 79.1in October 2008 . . ‘

    http://en.wikipedia.org/wiki/VIX

    Chart from 1990: http://tinyurl.com/bywjd7w

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