Back from holiday in sunny Zimbabwe and saw this. While I was away, the
South African currency was beat up massively, falling from around 6 Rand to
the US$ in January 2000 to R13.85/US$ at the low point in late December 2001
(now back to a bit less than R11/US$).
The main villains behind the crash (far worse than Argentina's) are the
local rich white bastards - mainly Anglo American Corp and DeBeers - taking
their apartheid-era money out, but the spectacular falls (9% on December 9
2001) are apparently due to currency shorting teams from JP Morgan and
Deutsche Bank, according to our stunned Reserve Bank governor.
I'm no gold bug. But is there anything to the raid on South Africa, from the
standpoint that our production costs for what remains the world's largest
gold stock, have now effectively been cut in half, with the worst damage
coming in the weeks immediately after Enron's downfall? Gold won't rise
under those supply-inducing circumstances. Anglo American gold is even
trying to take over Newmont in Australia with its new-found cash hoard.
----- Original Message -----
From: "Michael Perelman" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>
Sent: Saturday, December 22, 2001 1:27 AM
Subject: [PEN-L:20858] Mark Jones on JP Morgan
> With a rigged gold market and a constantly strong dollar, J.P.
> Morgan Chase built up a 23 trillion dollar derivative rate position that
> is
> ON THEIR BOOKS RIGHT NOW!
> That unfathomable mega-position is one that cannot tolerate interest
> rate
> and general market VOLATILITY as they are SHORT volatility. That is why
> the
> dollar stays around 116.22 and gold is not allowed to rise no matter
> what
> happens in the world. Morgan and fellow bullion bankers that are short
> thousands of tonnes of gold have serious problems at the moment, which
> no
> one in Wall Street is talking about. If the dollar gets hit and gold
> rockets, some of these institutions will be "tapicoa." Sound Taps!
> The short gold positions could do some in, but it is increased
> gold/dollar
> and interest rate volatility that could spell doom for J.P. Morgan
> Chase.
> As is, the interest rate volatility in the long bond is higher now than
> it
> was during the LTCM crisis. The highly regarded Jim Bianco of Bianco
> Research in Barrington, Illinois points out the volatility on 30 day
> Treasury options is higher than during the UAL failed buyout in 1989,
> the
> Gulf War in 1991 and during the Orange County risis in 1994.
> In his December report, Bianco also rolls out a chart comparing Primary
> Treasury Dealer Net Borrowings to Equity Margin Debt (he phrases it Net
> Borrowing over Net Lending). In 1990, they were both 20 billion. Around
> midyear 1999, they were both around 275 billion. Today, the Net
> Borrowing
> number has risen to 550 billion, while the Net Lending number has
> dropped
> to 150 billion. Quite a contrast.
> Bianco titled the chart: Speculators: Bonds Vs Stocks with the following
>
> commentary:
> This means that the Treasury market is a lot more leveraged than it was
> just 10 years earlier. How did this happen? A significant part of this
> leveraging has occurred in the last two years. This coincides with the
> Treasury's buyback operations, which we believe to be no coincidence.
> The
> buy back operations contributed to this leveraging.
> As the deficit started turning into surpluses in the late 1990's, the
> Treasury issued new securities and used this money to back
> higher-yielding
> Treasury securities issued in the late 1970's/early 1980's. This
> operation
> makes economic sense. However, it also has the effect of subsidizing the
>
> bond dealing community ("welfare for bond dealers"). The buyback
> operations
> meant issuance was higher than it would be without it. Furthermore,
> investors began to allocate more money to the equity and credit markets
> throughout the bull market of the 1990s. In an attempt to "make up" for
> these lost investors, the U.S. Treasury further increased their buyback
> operations. In effect, this increase in buybacks kept the number of
> dealers
> higher than it would have been had the Treasury cut back even further on
>
> their auction schedule. Nonetheless, the number of primary dealers is
> currently at an 18 year low.
> Dealer operations are similar to leveraged hedge funds. This means they
> have a great need to borrow securities. Since the Treasury was
> subsidizing
> the dealer community, the number of dealers grew in relation to the
> amount
> of Treasury securities outstanding. The leverage associated with these
> dealer operations also increased.
> Th effect of this leveraging means that the Federal Reserve are now
> hypersensitive to anything that effects the leverage community,
> including
> the dealer community.
> -END-
>
>
> www.lemetropolecafe.com
>
>
>
> --
>
> Michael Perelman
> Economics Department
> California State University
> [EMAIL PROTECTED]
> Chico, CA 95929
> 530-898-5321
> fax 530-898-5901
>
>
