Bet on Fraud: A Natural Component of the Global Banking System
Glen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
That headline is a mouthful. It also contradicts everything you likely believe and you probably decided to read this article to see what I was wrong about. I have been wrong in the past. I will be wrong in the future. I could be wrong now. I am a reasonable man, if I am wrong, put me right. There are implications to what I am about to say to your ability to retire or to make above market average returns. Have I got your attention? This is the most important article you'll read all year. There are a lot of links here and I advise you read them all.
The Fed
To understand what is actually going on, the most difficult part is seeing through the garbage that is provided by the mass media. I'm here to help you do this. The first piece of garbage is that the Fed tries to increase transparency. I've been studying the Fed for years. I think that Ben Bernanke knows exactly what he is doing. Not only that, but I think that he purposely misleads the public and this makes him look like he has no idea what he is talking about to those who know what is actually going on. I support MMT/MMR. I support it because it works. So, that's my interpretation of the Fed. I think they are doing an incredible job under the help of Bernanke. Things could have been much, much worse.
The Gold Bug is Flawed
Kyle Bass, Ron Paul, Peter Schiff, and Eric Sprott are all in the precious metals camp. Eric has the upper hand of the club, since he not only is selling his at a premium to market, but he is also going out and issuing new shares above spot price to increase his wealth through arbitrage due to investor ignorance. There are inherent flaws in the Gold Standard. Also, when I consider the thought of owning Gold, I wonder if it ever makes sense from a sustainability standpoint to pay people outside of every gold dealer in America to wave signs around advertising that Americans can go and sell their gold at their store. There are many other commodities that aren't in a complete bubble. Gold is like tulipmania for central banks. If the entire system implodes, gold is going with it.
Global Currency Wars
"Yes, our present monetary system is intrinsically supported by fraud. Globally, European nations are currency users. The United States is a currency issuer and a lot of trade is based on a few rich nations run by a few rich people outsmarting everybody else. China artificially "keeps their currency undervalued," but if the levels of fraud and incorrect assessments of valuations of empty cities there ever were unearthed, their currency would be discovered to be overvalued. Greece has been in default for over a year and the entire EU is in reality insolvent and could collapse any second due to a bank run on the banks, by the banks. China sees this and is pulling money out. If you look at the net beneficiaries of the currency wars over the past decade, Germany and China take the stage, front and center, since they have kept their currencies low and consequently boosted their exports. The Eurozone was structured so that this would happen from the beginning.
If not the Gold Standard, Then What?
So, while everyone else is preaching the end of the world, runs to gold, and the collapse of the EU, I am going to predict something else. Things are going to be about the same and there will be more volatility and in fact, things may be undervalued. Part of my prediction is that these gloomers don't understand the golden rule: "There are no rules." Only by understanding that there are no rules will you learn that at every point in the future, the fraud will be renegotiated and there will be larger amount of it.
With so much fraud out there floating around, who owns it and how do you bet on it? In the past I've identified the most systemically risky financials. More recently, I've changed my stance that it does not make sense to bet against them with this new perspective.
The Conclusion - Bet on The Top 5
Five banks write 97 percent of all credit-default swaps in the U.S. These 5 banks are: Bank of America (NYSE: BAC), JP Morgan Chase (NYSE: JPM), Citigroup (NYSE: C), Goldman Sachs (NYSE: GS), Morgan Stanley(NYSE: MS). This is the present system. Yes, I think that some of these are debatably insolvent. Yes, I think that there is rampant mortgage fraud. Yes, this recommendation flies in the face of trying to value businesses based on their terms of doing business. This is a bet that is driven by my belief that housing is bottoming. The economics of the situation and the global monetary authorities will not let these banks collapse into insolvency and thus, they do have an intrinsic valuation where larger, unnecessary risks actually do create shareholder value because they aren't REAL risks because they are backstopped by society.
This is me, saying that as a previously self-professed disgusted with banks hater: "since insolvency isn't an option, short no more and go long."
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