Goldman Sachs Manipulation of Commodity Prices - Gasoline and Crude Oil
Commodities / Market Manipulation Nov 01, 2007 - 05:38 PMBy: Jim_Willie_CB
It is still open season on Goldman Sachs. Ditto for JP Morgan and the clique of Wall Street firms, who enjoy untold tremendous privilege. Well, Goldman is at it again, playing games, abusing their role, and making money, all legally. One should say, rather, all without prosecution. One puts life and career at risk when revealing the hidden actions of the military and security organizations running in this land. However, taking aim at the Wall Street bank sector parasites is deemed a harmless exercise, regarded much the same as a fly or mosquito flirting around the USGovt torso. The ugliest example of illicit publicly noticed activity by Goldman Sachs in my opinion was the late summer 2006 change to the GS Commodity Index. They lowered the unleaded gasoline weight from 9% to 2%, forcing the sale of $7 billion in gasoline contracts. Nevermind motive, focus on execution. With $100 billion in indexed funds invested in the GSCI, Goldman knew what would happen. Gasoline fell sharply in price. GSax profited heavily, all legal, not even a prosecutable violation.
The latest shameful event is the call by Goldman Sachs to sell crude oil. First of all, it was a blatant attempt to steer the oil market lower for their profit. GSax surely had huge short positions or at least planned to soon unload profitable long positions. Second, they only cited the factors pertaining to the sell (bear) side, each tied to fundamentals for the energy market. My point here is that GSax omitted the primary reason why crude oil is rising. The weak USDollar has an excellent hedge in the crude oil investment generally, in particular oil contracts and energy stocks.
In my Hat Trick Letter September report, the crude oil price chart was shown as a vividly clear indicator that the US Federal Reserve would cut the official interest rate at its FOMC September 18 meeting. They did exactly that. Leading up to the October 31 meeting of the FOMC, the same phenomenon occurred, explained in my article last week. The crude oil price broke out in a powerful move. Shame on Goldman Sachs again! They issued a sell call on crude oil, but without mentioning even the major reason why it broke out: THE FALLING USDOLLAR.
The investment community has been offered misdirection, deception, even possibly loaded data, tied to the energy market and this deceitful Goldman Sachs call. The quoted comment issued by GSax was plain and even they were disputable. “The downside risks we have embedded in our end of first quarter 2008 oil price target of $80 a barrel are beginning to gain momentum. These include increasing exports, a slowing US economy, and adequate levels of heating oil inventories.” One should question how increasing exports is a negative for the crude oil price. Sounds like padding to me. A more stern unorthodox position should be made immediately.
THE US ECONOMY IS NO LONGER THE DRIVING FORCE, THE GLOBAL ECONOMIC ENGINE, BUT RATHER ASIA . A slower economy in the Untied States will be perhaps the only bearish factor for crude oil in future months, maybe the next year. Pay little heed to any 3.8% GDP gain in 2Q2007 and 3.9% GDP gain in 3Q2007, which are aided by a powerful 6% LIE from improper inadequate price inflation removal, coupled by hedonic quality adjustment hokus pokus nonsense. We have stagflation, marred by stagnant growth and heavy price inflation. Then lastly, heating oil inventories are every bit as important as gasoline and diesel inventories, all of which are in trouble from sorely lacking refinery capacity. GSax is a market leader, an orchestrator, a controller of the billboards, the designated shepherd. The market tends to follow their lead and their calls.
OIL HEDGES CURRENCY BREAKOUTS
The Goldman Sachs call was a bold attempt to paint the wrong factors as driving the crude oil price. Since when do exports, economic growth, and heating oil matter more than the USDollar exchange rate under siege globally??? Check the euro on Tuesday at over 145, the British pound sterling over 208, the Aussie over 93, the Canadian over 105. The crippled USDollar is following a script expected in my analysis, a slow bleed without a panicky sudden collapse. The US DX index has yet to hit my intermediate 75 target, within visible reach now. The crude oil price vaulted from 70 toward 80 as the September 18 FOMC meeting approached. That was a strong signal of a USFed rate cut. The crude oil price fluctuated between 76 and 82 in the month afterward. Then suddenly the crude oil price jumped to 95 as the next FOMC meeting approached on October 31. In my article last week, this quintessential energy price gave clear indication of another rate cut by the USFed.
My thinking stated to friends and colleagues was that an absent rate cut would cause a sizeable stock market mini-panic, perhaps a 1000 point selloff. A 50 basis point rate cut would raise alarm, lead to curiosity of a weaker USEconomy than the falsified Q3 GDP statistic would reveal, and set a precedent for another 50 bpt rate cut in December to be expected. The 25 bpt rate cut would be perfect, and we were given exactly that. Few pundits seem to point to the crude oil breakout as being directly related to the USDollar weakness. The oil market is perfect for such hedges, with enormous liquidity, heavy trading in forward months, and energy stocks with huge capitalization with which to employ those hedges. When one does hear of the crude oil price in the same sentence with the USDollar, it is often a comment that the OPEC nations can earn constant revenue if the global economy experiences a slowdown , NOT the US $ hedge factor.
Bigtime volatility has entered the crude oil market. This means the USDollar is due for a bigger decline, or the big players (USFed, JPMorgan, Goldman Sachs) will exert heavier influence to enable a noteworthy USDollar bounce recovery. That would require assistance by the Euro Central Bank, the Bank of England, the Bank of Japan, even the Bank of Canada. A certain resilience can be seen in the crude oil price, as some analysts have perceived a relentless rise toward $100. Any meaningful bounce in the USDollar or correction in the crude oil price might not occur until oil hits the 100 level.
The lesson learned is that crude oil is directing traffic in the currency FOREX market, now that the central banks are acting predictably. Foreign central banks are hamstrung, rendered monetary doves at the point of a ( US subprime slime) gun. Watch the oil price for future price signals on the USDollar. It cannot be controlled like the gold price, with absurdly large and uneconomical futures contracts. Using the Bank of Baghdad, deploying Iraqi oil funds, managed by JPMorgan seems to have stopped in suppressing the crude oil price. Perhaps the project angered the Saudis too much. If truth be known, both the Persian Gulf clan and the Chinese are hedging against the USDollar decline with usage of oil positions .
Enter the exaggerated story of conflict at the Turkish border with Iraq in the Kurdistan disputed territory. Not to minimize the gravity of the deeply rooted conflict, but oil production on Kurdish lands are hardly threatened, deep inside the country in Kirkuk . Furthermore, as Roger Weigand aptly assessed, the Turkish conflict at the Iraqi border “is worth no more than $1 to the oil price” when we talked at the Toronto Gold Show last week. The story actually pumped by the dutiful lapdog press was that the Turkish conflict lifted the oil price by at least $5 and perhaps even $10. So one should ask why the story made such headlines day after day, but is not heard anymore even though the conflict continues. My answer is: to divert attention from the real reason: THE FALLING USDOLLAR.
The Goldman Sachs ploy was blatant and transparent, but with sure reinforcements to aid and abet the effort. Being the quasi Dept of Treasury, acting as their agent, GSax has access to physical crude oil supply from offshore oil platform production. Royalties in offshore production are paid in physical crude oil shipments to the USGovt. They can put in place outsized positions on the way up during the oil price rise, and remove them in order to instigate an oil price decline. To cast further ugly light on this parasitic successful firm, my suspicion is that GSax had access to the EIA energy inventory data released on Wednesday. It showed a “surprising” drawdown of 3.9 million barrels of oil, when the forecast was for a build increase of 300 thousand barrels. The GSax ploy succeeded to take down the crude oil price by $3 on Tuesday, mission accomplished. On Wednesday, with a highly anticipated USFed rate cut, crude oil rallied to retrieve all Tuesday losses. Today Thursday, the crude oil initially sold off, but has recovered much of the intra-day losses. Resilience is vividly clear in the oil price.
My guess is that GSax knew in advance about the opposite bullish EIA inventory data, which motivated them to quiet reverse position and go long to profit from a quick rebound. My guess is that also GSax knew the exact nature of the USFed interest rate cut. Refer to the 25 bpt cut (not zero, not 50 bpt), and knew about the risk statement putting equal emphasis on growth versus price inflation. This enabled GSax to profit from crude oil gyrating at each turn this week. Such is the privilege and ugly advantage granted to agents within the Fascist Business Model, otherwise labeled by me as the Knights of the Oval Office. Regard them as parasites on the system, abusing privilege. My gut suspicion is that GSax might have influenced the Turkish border warfare story so as to gussy up that news item as it related to the crude oil market, emphasizing it to an undue degree. Now that the EIA story is out, the USFed has made a rate cut, notice how the Turkish story has vanished. Like many before it, the story served its purpose to muddy the waters on the USDollar crisis.
The crude oil price has risen over 50% in the calendar 2007 year. Has anybody noticed that a concerted public relations plan has begun to execute? The public and investment community have begun to be indoctrinated so as to expect and accept $100 oil. Simulation games have been conducted to assess the impact of $100 oil, or $150 oil, or even $300 oil. Robert Rubin participates in the simulation. The same former Clinton Administration Treasury Secy Rubin who presided over the raid of the USTreasury gold supply, exploited by Wall Street and the Ruling Elite. That 1% gold leasing rate enabled a huge gold carry trade in the 1990 decade. The gold reserve loss should be looked upon as an raid of the national till, in a manner that might be described as treason. Amazingly, Rubin is cited as a possible key member of the next Clinton Administration.
THE CRIPPLED USDOLLAR
The USDollar has entered uncharted territory. Where are those technical analysts who claimed the DX index showed a bullish wedge pattern at 79.5 over a month ago? That was a fakeout signal bitten hard by some analysts who probably expected more success by the bankers to hold ground. Not here, not in my analysis! My forecast for the US DX index is for a gradual bleed to 75. The pathetic bounce off 77.5 could not even muster enough strength to reach the old support level at the 80 level. Notice the bearish single-week pattern of a “bear hammer” last week (shown in green circle), identified by a low open and low close, with higher intra-week price movement. The irksome and lame refrain by Treasury Secy Paulson for a strong dollar policy is not genuine. The USGovt ministries want a lower USDollar.
They realize the grotesque trade imbalances cannot be remedied with a much lower USDollar exchange rate. Another ugly motive might be to permit the USDollar to fall significantly until the Chinese Summer Olympics are completed. The Chinese Govt might have their hands tied, not to use the “nuclear threat” of a massive USTreasury Bond sale until after autumn 2008. If Chinese reacts harshly with an aggressive response to both the USDollar decline and US Congress trade sanction legislation, then the Chinese economy and financial markets would be adversely affected. The USGovt ministries have an open window for one more year. While the US forces send the USDollar lower, the Chinese are able to send US long-term interest rates higher. Each side has engaged in a high jinks game.
The 3Q2007 report on economic growth, measured by the Gross Domestic Product, highlights the revival of the export trade. HOW MUCH WILL WE HEAR MAINLY THE POSITIVE TRADE ANGLE OF A TRADE EXPORT ADVANTAGE, AND PLAY DOWN THE HUGE PAIN TO BE IMPOSED BY COST INFLATION ACROSS THE ENTIRE SPECTRUM ??? The spin on exports is one tenth of the story. In fact, one can make the argument that the export advantage is primarily a financial sector boon, not a labor market boon. Do you as a reader know of many friends who proclaim “My company is doing great, since we are exporting tons of products to foreign customers” ??? Besides, how much of Caterpillar or Cisco or General Electric exports come from products made outside the US by their foreign subsidiaries? By the way, expect gasoline prices to march toward $4 per gallon in the coming months! Only when gasoline becomes this costly and perhaps unavailable will the lapdog press cite the huge factor of cost inflation as a dire USDollar negative factor. With further refinery outages and other problems, look for rationing of gasoline along with long lines.
SUPER RESILIENT GOLD
Gold has shown great resilience, fighting off declines. The most important aspect of the gold market in coming months in my view will be how the gold price will rise independently of the US $ exchange rate. Expect gold to rise when the USDollar falls, the gold price to rise when the USDollar stabilizes, and possibly even the gold price to rise when the USDollar bounces. Or at worst, the gold price will be relatively stable despite US$ movement. The driving factor for the gold price will be mammoth monetary inflation and worsening price inflation.
Translated, that means US$ money supply is growing at extraordinary if not crisis levels, over 14% annually, and price inflation is over 10% with extraordinary efforts to distort its official reporting under 4%. Notice how the USTreasury yield spread remains steady at 60 basis points, the spread between the 2-year TBill yield and the 10-year TNote yield. That signals market estimation of rising price inflation. The Shadow Govt Statistics folks report the true CPI to be over 10% after nonsensical gimmicks are removed, and the statistic is calculated like before 1994. Notice the strong bullish signal of rising moving averages, and price movement increasing above those stable supporting series. My forecast is for the gold price to reach the 800 level in the next two weeks, perhaps two days, probably well before two months (end of year).
A conversation with a very bright colleague took place this morning on Thursday. At the time, the gold price had been dragged down by $10. The prevailing story was that the USFed would not cut interest rates again anytime soon. To begin with, regard that construct as pure spin. The Euro Central Bank made the same deceptive statement three rate hikes ago. This colleague wondered how much the Powers That Be would hammer gold down. After the next lower support levels were cited by him, my response was simple. That was to wait to see how the gold price closed on the day. The bank sector distress on Wall Street in particular is the riding story of the day, with Citigroup declared insolvent and bankrupt, WITHOUT USING THOSE WORDS. Here at 1:30pm eastern time, gold is only down a little, still above 790.
My point was reinforced by the fact that in the last couple months, the gold price has staged a great many recoveries to eliminate intra-day damage, and close with considerable strength.
Such was not the case in the last three years. This gold price smells 800, then will want 1000, and will possibly see the 1000 mark before the daffodils sprout in the spring. We will be forced to listen to propaganda, hear about exaggerated factors, and endure the nonsense of the corrupted craftsmen controllers who attempt to engineer the gold, crude oil, and USDollar markets. All three markets (gold, oil, US$) are intimately connected. To claim they are free markets is an exercise in ignorance or stupidity. The futures contract arena offers loud evidence to the contrary. Amazingly, even Treasury Secy Paulson admits the Working Group for Financial Markets has been busy intervening (read interference, manipulation, rigging) these markets. Of course, they do so for the greater good and national security. The first beneficiaries are clearly Goldman Sachs, JPMorgan, and other Knights who sit at the Oval Office table.
EDITOR NOTE: BOSTON RED SOX SWEEP TO WIN WORLD SERIES (booyah)
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By Jim Willie CB
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