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The Mysterious Vancouver Affair
10p EDT Monday, September 13, 1999
Dear Friend of GATA and Gold:
You probably first learned from GATA Chairman Bill
Murphy's quot;Midasquot; commentary about the brewing troubles
of Martin Armstrong's Princeton Economics International
Inc. Tonight's Midas reports Armstrong's arrest on
federal securities fraud charges.
While Armstrong disparaged GATA a few months ago, we
take no pleasure in his troubles. But what those
troubles signify for the markets and for gold in
particular may be of great importance.
If this comes to you as an attached file and, like me,
you don't like downloading attached files, you can find
this dispatch on the Internet at:
a href=http://www.egroups.com/group/gata/198.html?http://www.egroups.com/group/...
Please post this as seems useful.
CHRIS POWELL, Secretary
Gold Anti-Trust Action Committee Inc.
* * *
quot;Midasquot; commentary by Bill Murphy
September 13, 1999
Spot gold $256.30 a big unchanged
Spot silver $5.15 down 4 cents
quot;Two-man army wins!quot; quot;Two-man army wins!quot;
All said in the spirit of the famous Chicago Cubs
broadcaster, Harey Carey (God rest his soul). The Cubs
have not had many victories over the years. Neither
have gold bulls. But this may be a big one as the gold
loanquot; picture unfolds in the months ahead.
* * *
Technicals
Stopped dead in its tracks. With oil crossing $24 per
barrel with ease, the gold market managed to crawl back
to unchanged after being down most of the day. The CRB
was up nicely again too and finished at 203.35. Bonds
refuse to go down as yields spent most of the day
around 6.06 percent, while the yen exploded against the
dollar once again, rising to three-year highs.
Yet gold, which should be the beneficiary of all of
this positive news, just sits there doing nothing like
Dicky the Dunce. La La Land thinking continues to rule
the day. It is perverse. The one-month gold lease rate,
which has now been higher longer than anyone can
remember, shot up above 4 percent again today, up some
60 basis points. Yet gold sits there.
Day after day it becomes more apparent the gold market
is being controlled. That is the bad news. The good
news is that the big shorts know they are in big
trouble. At some point one of them will bolt from the
cartel and the big move up in the gold price will be
under way.
Silver continues to meander and build a larger base.
* * *
Fundamentals
From our point of view, the big fundamental story of
the day is this:
quot;Princeton Economics Director
Charged in Multi-Billion Fraud
quot;New York, Sept 13 (Bloomberg) -- An officer of
Princeton Economics International Inc., a money-
management firm, has been arrested and charged with
cheating Japanese investors in a multi-billion Ponzi
scheme that was allegedly aided by a top executive of
Republic New York Securities Corp., prosecutors said.
quot;Princeton Economics director Martin Armstrong cheated
Japanese clients of the firm, which sold more than $3
billion of notes, U.S. prosecutors charged. Of that
money, about $1 billion is still owed to investors of
Princeton Economics, according to a criminal complaint
filed in federal court in New York.
quot;The president of Republic New York Securities' futures
division at the time of the alleged wrongdoing provided
Armstrong with false confirmation letters purporting to
show that the clients' investments were worth far more
than they actually were, prosecutors alleged. The
charges didn't name the Republic executive.
quot;Princeton, New Jersey-based Princeton Economics and its
units maintained Princeton Economics investors'
accounts at Republic New York Securities, the charges
said.
quot;Republic Securities and its parent company, Republic New
York Corp., weren't charged, according to the U.S.
attorney's office in New York.
quot;Armstrong, Princeton Economics, and another company
Armstrong controlled -- Princeton Global Management
Ltd. -- were also sued for fraud by the U.S. Securities
and Exchange Commission.
quot;Princeton covered up $500 million in trading losses in
accounts held for some 300 Japanese investors,
prosecutors said. In fact, the officials charge,
accounts were commingled using funds in one to pay off
interest due in another. In addition, Armstrong ran up
trading losses of more than $504 million. The U.S.
attorney's office and the SEC estimate that Armstrong
owes investors a total of $1 billion against a
remaining balance of $46 million in his funds.
quot;Armstrong faces up to 10 years in jail and a fine of
$1 million or twice the gain or loss resulting from the
crime.quot;
This is the same Martin Armstrong that a few months ago
had this to say to the secretary of the Gold Anti-Trust
Action Committee, Chris Powell:
quot;I understand your frustration that gold has been
perhaps the worst investment for the past 20 years. But
to argue that it is being manipulated due to large
short positions is not justified. There is no interest
in gold at this time, and the central banks are all
sellers. After they sell their gold, then we will see a
bull market. Once those supplies are gone, no one will
be able to lean on that supply and your bull market
will begin.
quot;I hate to tell you, but gold will drop to under $200
before it turns. I find it extremely one-sided how a
Buffett and company of tagalongs is not a manipulation
because they buy, while selling is a manipulation. The
very guys you argue are manipulating gold down were big
sellers of gold and buyers of silver during the Buffett
rally. Goldman Sachs or not, the economy simply does
not support your position. And I do not want to hear
how I am short or some nonsense to try to discredit my
views, because it is not true. PEI owns a 51 percent
stake in a public gold mine in Australia. That is my
long-term view; it does not change my short-term view.quot;
In June Armstrong also wrote this public commentary
involving GATA:
quot;A two-man army calling itself GATA has begun to
besiege the media attempting to gain a lot of press on
the platform that gold is being 'manipulated' by a
cartel of investment banks. They constantly point to
what they call the huge 'carry trade' in gold, where
there is far more gold sold than exists.quot;
* * *
I am not sure where to begin here. First, I hate to see
anybody go down, but this man has no concept of reality
and has mocked us in public. This is what GATA has been
fighting -- so many like him. How many other accepted
mainstream gold shorts are feeding the public the same
drivel? So let us get to what this might mean.
First, even bullion dealers who dispute that Armstrong
is short hundreds of tonnes of gold say they believe
that believe that he is heavily short silver. One
called tonight and wanted to know what the price of
silver was doing.
Second, we have heard now from two very good sources
that Armstrong is short 24 million ounces of gold. That
is right -- 746 tonnes of gold. How is that going to be
covered if Armstrong is wiped out? The Bloomberg news
story says $1 billion is owed to Princeton Economics
investors. Where is the money? Did it all go down the
drain in a short crude oil/short yen/long bond
position?
Will the Fed pull another Long-Term Capital Management
maneuver to bail out another loser? The LTCM bailout
happened in part because the investors involved were
part of the establishment. Armstrong is an outsider and
now that law enforcement is involved, a bailout does
not seem likely. So if we are correct about his huge
borrowed gold short position, how does that get
covered? What will Republic Bank do about the matter?
We will stay on top of the situation for you.
What this may do is to shed some light on what we at
www.lemetropolecafe.com have been telling you month
after month. The gold loans are much, much bigger than
any of the mainstream crowd understands or is letting
on. We now think they are 10,000-13,000 tonnes. We
think the specs have borrowed more gold than most
analysts can imagine. We believe that just four hedge
funds are short 50 million ounces of gold, or almost
1,500 tonnes. What about all the spec gold borrowers
combined?
All that physical borrowed gold supply that has hit the
market is what has kept the gold price so low. The
Hannibal Cannibals have been trying to keep that fact
from the gold community and press. The Cafe and GATA
have been trying to bring the truth out -- and few will
listen. The next few months could be incredibly
exciting as the gold market scam becomes evident.
I leave for Vancouver tomorrow morning and will be back
Wednesday night. I'm sure that I will have much to say
by Thursday.
Today platinum was up $7.30 and finished at a rocking
$373.50. Palladium was up $5.60 and finished at
$368.25. Word around town was that Armstrong was doing
some short covering. Just the word.
The media continue to elaborate on central bank
selling. But which banks are these besides the Bank of
England? In times past central banks would conduct a
selling program and then announce it when they
finished. The months and years are going by with word
of massive central bank selling, but where are the
announcements?
So it's nice to see some public commentary about some
potential central bank BUYING. Dow Jones reported the
following from India last week:
quot;The Reserve Bank of India should utilize the current
trough in gold prices to buy gold and increase
reserves, Indian banking and gold market experts told
Dow Jones newswires.
quot;At a time when leading central banks around the world
are questioning the need to hold gold as a reserve
asset -- indeed, some have gone ahead and sold -- the
market experts say that, if nothing else, India's
central bank should take a more active interest in
managing its gold assets.
quot;'Reserve Bank mustn't jump on the bandwagon and sell,'
said S.S. Tarapore, former deputy governor of Reserve
Bank.
quot;'The time to sell is when you anticipate a fall in
gold price, not after the gold price has fallen steeply
and the next cycle of gold rise is going to come,'
Tarapore said.
quot;Tarapore said he wants the central bank to buy gold.
Reserve's Bank's stock of about 357 tonnes, valued at
$2.65 billion, is small and can be 'safely doubled.'quot;
How come the Indians make so much sense, while the
British tried so hard to give away their cents?
Cafe member Steve H. writes as follows on a revolting
development:
quot;Reuters is reporting that British Chancellor of the
Exchequer Gordon Brown will chair the IMF policy-making
Interim Committee. If Brown is influencing policy at
IMF, that explains the convoluted and strange
machinations surrounding the new gold policy at the
international institution. It should also put gold
advocates around the globe at the ready. Brown is a
well-known advocate of gold sales.quot;
* * *
Potpourri and the Gold Shares
How high will the price of oil go? According to Russian
experts it is almost certain that the Russian natural
gas pipeline that supplies both Eastern and Western
Europe will be interrupted.
The Lawrence quot;of Americaquot; Kudlows of the world say how
all is so well in financial land. After all, he always
says, quot;Just look at the gold market.quot; Our camp says
things are not what they seem -- and contrary to what
Kudlow has to say, our evidence of that is also the low
price of gold. If all were well, the powers-that-be
would have no fear of it rising to a proper equilibrium
price.
Cafe member J.R. sent me a most revealing letter about
the state of financial affairs in middle America. You
can draw your own conclusions of what is what out
there.
quot;I wrote to you the other day with a question about
Warren Buffett and his silver position. I thank you
very much for your quick response concerning the
matter.
quot;My occupation is dentistry, which means I need to
apologize in advance for my writing skills and my lack
of knowledge about financial affairs.
quot;But I would like to pass on to you some interesting
observations about our local economy.
quot;First, I live in a county that until recently had the
highest per-capita income in Indiana. The county has
70,000 people and we are heavy into the automotive
industry, both foreign and domestic companies. You
would think that we have a reasonably sound economy.
But the following is what I have been able to ascertain
from local business owners with whom I am acquainted,
and from my own practice.
quot;Several years ago we had $250-300 of credit card use
per month in our office. Now it is 10 times that
amount. As of a year ago we were writing off about 6
percent of our receivables and sending them to
collection. We are now at 12-14 percent. My bookkeeper
informs me that the average writeoffs for the
businesses she deals with also have an average of 12
percent. These figures are double what they were a year
ago. I am hearing this from the physicians and the
lawyers too.
quot;Just two days ago I spoke with my independent
insurance agent and he is singing the blues too. This
morning I was at the auto body repair shop and and the
owner was telling me that in the last 30 days he has
had a huge increase in the number of people wanting him
to inflate the estimate to encompass the deductible.
quot;These people don't have any money!
quot;Now the last thing, which I can't hardly believe, are
those people financing their groceries at 18 percent
with their credit cards. I realize that some are paying
off the balance but I suspect that the majority are
not.
quot;We are a debt-ridden society and peple are almost, if
not already, at their limit.
quot;With private, corporate, and government debt so high,
I see no way out except for a crash. I hope this gives
you a perspective on small-town America, although there
is probably nothing in here you didn't already know or
suspect.quot;
* * *
We are very wary of the New York Fed and have told you so.
Here is the latest on its recent announcement. U.S.
Rep. Ron Paul does not miss a trick.
quot;Wednesday's announcement by the Federal Reserve Bank
of New York that it will expand the collateral accepted
in repurchase transactions to include pass-through
mortgage securities of GNMA, FHLMC, and FNMA, STRIP
securities of the U.S. Treasury and 'stripped'
securities of other government agencies raises
troubling questions,quot; U.S. Rep. Ron Paul (R-Texas)
said.
quot;'I have contacted the office of Rep. Spencer Bachus,
the chairman of the Subcommittee on Domestic and
International Monetary Policy of the House Committee on
Banking and Financial Services, to call for hearings on
this important question,' said Rep. Paul, vice chairman
of the subcommittee. 'Hopefully, hearings would put to
rest serious questions raised by this announcement.'
quot;Paul said the decision -- which the Federal Reserve
said was made because of 'century date change' concerns
-- sets a risky precedent, especially in light of
Deputy Secretary of the Treasury Stuart Eizenstat's
earlier suggestion to monetize not only government
sponsored enterprises' debt but corporate debt as well.
quot;Paul added, 'I commend Rep. Richard Baker's call for
greater oversight of the GSEs and to eliminate their
line of credit to the Treasury.' Baker is the chairman
of the Subcommittee on Capitol Markets, Securities, and
Government-Sponsored Enterprises of the House Banking
Committee.
quot;This decision, though approved only through April
2000, bolsters the value of the implied government
guarantee. This action is highly risky when viewed from
the perspective of potential taxpayer liability. These
highly-leveraged institutions are already leveraged off
the Treasury balance sheet. A further expansion of
collateral with mortgage securities, which the Fed can
use as collateral for monetary expansion, must be
closely scrutinized.quot;
Stay tuned. Let the good times roll.
Midas
