Trade With Dave

z equals z squared plus c

Hugh Hendry emerges from a two year hiatus with a new yet constant exclamation initiating from the Gospel of Mark.  In his own Jerry Maguire version of Jean Claude Junker’s now infamous statement: “When it gets serious you have to lie,” Hugh summarizes with his trinitarian premise of “God is dead, life is absurd and there are no rules.” 

Dave’s response to Hugh’s existential expose’ would be to say, yes, Hugh… who would have thought it.  Is that a question or a statement?  While we’re at it, who thought up you?  Who would have thought that a Mandelbrot Set would show up in a 13th century illustration as an April Fool’s joke?  Indeed discontinuities are either fresh material or a nuisance among worrisome soccer players, hedge fund managers and joke writers depending on your perspective.  

Having well-trimmed hedges doesn’t make it any more secure living trapped between a Gaussian and Cauchy curve.  The markets ain’t misbehavin’, but that doesn’t mean the people aren’t.  And when it comes to acts of God the goal of “Show me the money” in the context of the words of Benoit Mandelbrot, “it’s rough out there.”  Please allow Dave to take the fractal view of your statement; “You are on your own and you must take ownership of your own destiny.”  When you give up ownership of your destiny to your Creator, you are never on your own.  He will never leave you or forsake you.     

In regard to your agitated soccer-playing soulmate who you suspect is also hoping to find more peace, goals and profits, might I suggest the same reference material you chose as the launchpad for your eclectic communique’.   Simply turn a few pages forward from Mark to Phillipians 4:6.  Be anxious for nothing, but in everything by prayer and supplication with thanksgiving let your requests be made known to God.

April 2012 TEF Commentary

 Hugh way back when there were still rules to be broken:

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Dave admits it.  He looks at things backwards.  I never was smart enough to figure things out the way really smart people do.  I’m just not that smart.  Don’t get me wrong, I’m smart but I have had the pleasure of knowing some really smart people, so I know I’m not one of them.  They’re different.

I remember this one guy I went to college with.  This was just before the personal computer came out.  You could go to the computer lab at the university but nobody had their own computer.  This guy, the super-smart one, had a Texas Instruments calculator and it had these little magnetic strips that were programmable that you could slide in and out of the calculator. It was  the strips that were programmable, not the calculator itself.

One time I’m hanging out in his room and I’m looking at the calculator and asking him how it works.  He tells me how he just made 100% on an exam.  He was a dual degree engineering and finance at U Penn.  He said he programmed all the formulas into the calculator before the test.  I asked him if that was cheating.  He said “You’re allowed to bring a calculator to the exam, but none of the professors even know that these type of calculators exist or that they’re programmable.”  At that point, I didn’t even know what a “program” was.

This same guy went on to be CEO of numerous tech start-ups and made millions in initial public offerings.  He was that smart.  Dave’s not.  What Dave is good at is pattern recognition and not by using a computer program.  Dave just uses his eyes and his brain and looks at stuff and sees patterns.  A big part of my career has been in the fashion business (clothing, textiles, home fashions) and all that is pattern recognition.  You notice trends emerging before they emerge.  Probably the best thing I ever read about fashion was the saying “Fashion is merely the education of the eye.”  What that means is educating your eye to notice pattern recognition.

Dave’s definitely not “fashionable” but Dave’s job is to know what’s becoming fashionable and what’s going out of fashion.  Like blogging.  Dave noticed a pattern. There were websites that were growing (like Amazon and E-Bay) but their growth was requiring massive amounts of capital.  They were growing like Sear or K-Mart grew fifty years ago and they were making money but they were sucking up money too.  Then there were other sites that were growing because they had fresh material everyday.  These sites (the blogger ones) were killing the newspapers because of what Clay Shirky calls cognitive surplus.  So Dave started blogging and you started reading.  Dave’s thankful for you and your emails, but Dave didn’t have a plan.  Dave’s not like that guy in college with the programmable calculator.  Dave just tries to answer the question with what he knows, not what the computer tells him.

That’s why Dave stuck his neck out the past couple of days suggesting that the price of gold would retract temporarily.  Dave didn’t have any technical basis for his claim.  It was a wild guess.  Dave doesn’t like doing that, but it’s what he does and can’t seem to stop doing it, but it has worked out great so far.  Back to the gold guess.  So Dave is feeling that awkward feeling when you climb out on a limb with a handsaw and start sawing, so he starts digging around to find the objective justification for the subjective feelings he has… and I think I found it.

ETFs.  Exchange traded funds and the CME Group.  Dave’s been writing for a couple of years and had my share of posts about gold and the possible rise to $7,500+ as measure in USD.  Then why would Dave come out and say gold is going to have a correction back to $1,500?  That’s when it hit me.  There needs to be a very thorough campaign to support the price of gold as the holders of the ETF move out of the ETF and into physical.  If not, the price of the ETF will collapse before the sellers of the ETF can get out, thereby having a negative impact on the value of their paper gold holdings.

Dave’s written extensively that he feels that the CME Group is a ticking bomb.  The arrangements that have been made via the CLS Banks for LCH Clearnet to by-pass Dodd-Frank when combined with the power of the Depository Trust and Clearing Corporation to invoke a flash crash at will (with your Cede & Co. street name brokerage account by the way) have the potential to impose an intra-day counterparty nightmare scenario for the Comex.  At least that’s the way Dave sees it and when websites like the Motley Fool come out with articles saying the CME is potentially “the perfect stock” that just adds to Dave’s pattern recognition:  http://www.fool.com/investing/brokerage/2012/03/29/has-cme-group-become-the-perfect-stock.aspx

If the plan is to move out of the GLD and leave the CME holding the BAG, the one thing you need to do is to support the price of gold whilst you unload your paper gold ultimately resulting in the collapse of the paper gold price while exploding upward the physical price.  I guess you could call that the bifurcation of the gold market.  How do you feel exactly about buying a U.S. mint gold eagle coin for say $5,000 while the price of GLD is say $500?

If you have 100,000 units of GLD, Dave thinks you can probably redeem it through the trust via one of the bullion banks for actual physical.  That would equate to $16 million+ dollar holding to qualify for a withdrawal.  That is assuming you can get one of the bullion banks to cooperate and that you’re not calling on one of the days when there’s a run on the gold vault.

To summarize, Dave believes the price of gold is going to go down for two primary reasons; untenable counter-party risk at the Comex and the general liquidation of GLD units.  Dave believes the coordinated public relations campaign on everything from Jim Rickard’s Currency Wars and Matthew Bishops’s In Gold We Trust to the most recent release of John Butler’s The Golden Revolution is a coordinated effort to get the masses interested in buying gold (of the paper variety) in an effort to provide price support for the re-hypothecated precious metal as those in the know unload their paper.

The thing about this that has been bugging Dave the most is GoldMoney.com.  The GoldMoney.com model really highlights this issue and somewhat provides the convenience of the ETF while being structured as a bailee/bailor model rather than a creditor/debtor model.  Last year when the regulatory folks in the Netherlands decided to shut down GoldMoney.com under a premise that their product was an “investment object”, the result was that GoldMoney closed all their accounts in the Netherlands.

Could the same thing happen here that happened at Kitco when they were raided by Revenue Quebec?  How about what happened when MF Global collapsed?  Dave may not see dead people, but he does see a pattern and the pattern is one of dead companies that got in the way.  Is there a mass financial funeral planned in conjunction with the June 4 extended bank holiday?  Who knows.  Maybe so.  If there’s one other thing that Dave has noticed about patterns, its that anytime there is a holiday or an options expiration or any other opportunity to game the system, the system is gamed.  If gold is going to these outrageous levels as predicted, then the opportunity to take big losses to get out of the paper is all the more compelling.  I was the one who wrote right here that silver would fall $15 from $50 to $35 due to the great opportunity that JP Morgan had due to their Bear Stearns position.  How much more GLD if the full monetization of the CME is now in play courtesy of Dodd-Frank and the CLS Bank quarantine.

GoldMoney.com shut down in the Netherlands: http://www.scribd.com/nick_derks/d/66528750-Untitled

http://www.goldmoney.com/faq/why-can-t-people-resident-in-the-netherlands-open-a-holding-with-goldmoney.html

With the ballot set, is it time to hit the reset switch?: http://tradewithdave.com/?p=9901

Is the CME Group next in line for the butcher shop: http://tradewithdave.com/?p=9344

http://tradewithdave.com/?p=9358

Pump With Dave: http://tradewithdave.com/?p=9358

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Is the internet to market manipulation what the mobile phone is to Gresham’s law?  What role does friction play in a compass in a multi-polar world?

Sometime last week Dave was rummaging around looking for congressional testimony and stumbled across that classic video when Ron Paul asks Federal Reserve Chairman Ben Bernanke the proverbial question; “Why do central banks hold gold?”  Mr. Bernanke answered with essentially the same empty response as Zero Mostel does in the movie Fiddler On The Roof when he confidently answers his own rhetorical question of “I’ll tell you where traditions come from?” with the vacuous reply of “I don’t know.”

Dave knows a thing or two about tradition.  As a matter of fact, this entire website is about tradition.  You see the word “trading” or “to trade” is the basis of this website.  The Latin traditus is the basis for the word tradition and handing over money in a transaction, making a delivery and passing something down to your children are all based on the same idea.  Trade With Dave and the idea behind the site was based entirely on this concept of handing over ideas to the readership in exchange for their handing over their time to read the content all the while creating a written record that will stay up on the web as long as the CISPA act doesn’t shut down the site.  Hey, my grandkids will be able to read it, but I’m not counting on it.

There is an implication when you “trade” with someone that is based on trust.  You can’t trade without a counterparty and most folks won’t engage with a counterparty without some basis of trust.  The actual “traditus” from Dave’s standpoint occurs between the time you hand the cashier the money at the grocery store and she hands you your groceries or vice versa.  Maybe at the cafeteria they hand you your plate of turkey and dressing with the round slice of “cranberry” sauce still showing the outlines of the can it came out of and it may be another few minutes before you reach the cashier with the automatic coin dispenser.  The traditus happens between when you get the turkey and the cafeteria gets your greens.  What’s to keep a person from making a run for it?  Tradition.

When you read stories like the MF Global collapse and discover that supposedly JP Morgan slowed down payments back to MF Global while accelerating payments in from MF Global, you can imagine that it is similar to one of those drug deals where the buyer asks to see the drugs and the seller asks to see the money.  Without a good measure of traditus cut into the deal, the first one that shows their cards may lose everything.  Dave was in the retail business for nearly twenty years and he used to train the sales associates on how to avoid being scammed at the cash register.  Dave learned a few tricks from a veteran loss prevention pro and Dave could confuse a salesperson to the point of tears while they attempted to figure out how exactly Dave ended up with the merchandise and an extra $80 of cash from their drawer all while they are still trying to figure out what happened.

If stealing wasn’t a tradition of the human condition, then there would have been only 9 commandments and number 8 would have been unnecessary.  Thou shalt not steal is in four words the most complete explanation of Adam Smith’s invisible hand and the entire basis for doing business in the anglosphere since… well… since there was an anglosphere.  Without that basis you got nothing.

Trident… four out of five dentists may agree on gum, but do two out of three gold buyers still fall for falsification?

According to University of Tennessee Professor John R. Garret, “A gold flow falsification was over two-thirds as effective as an open-market operation” from an historical perspective in reference to the Bank of England’s price manipulation during 1925 – 1931.  Back then we didn’t have an internet, but we did have Gresham’s law.  Dave is wondering if in our current environment (let’s call it the financial blogosphere) that actions taken by market manipulators may have the exaggeratingly opposite effect due to the risk that they will be found out.  The entire operation becomes one of disinformation entirely void of traditus.

Here’s another example.  As mobile phones remove friction from the transactional portion of money’s ability to satisfy the double coincidence of wants is it possible that we will see a reverse of Gresham’s law whereby good money drives out bad money rather than the opposite which we have experienced in the past.  Dave has written a lot about this and you can read the articles by simply searching the site for the word Gresham.

It seems to Dave that the entire market manipulation model is not so much one of actual trading, but more importantly one of disinformation.  Whether you are talking about the friction between Paul Krugman v. Steve Keene on John Maynard Keynes, Jeffrey Christian v. Bill Murphy on Andrew Maguire or Janet Tavakoli v. Blythe Master on credit default swaps who can you trust?  The Federal Reserve is already montoring the web as shown in this document:  http://www.scribd.com/doc/66281284/Frbny-Social-Media-Rfp .  How much of what you read is real and who publishes the single biggest financial research website on the internet?  That’s right… ZeroHedge.com.

The people in the know, know that friction is on the decline relative to alternative forms of currency.  Whether you’re talking about Zynga, Level Up or Starbucks mobile phone glyph scanning payment system (http://tradewithdave.com/?p=9556), when you talk about Yochai Benkler’s Wealth of Networks you’re talking about an environment where friction is dropping like rain… precipitously.  What does this mean for gold?  Relative to what?  Relative to dollars?  What kind of dollars exactly?  In the trident of  deflated dollars, inflated dollars and Dave dollars as a reflection of the wealth dollars, convenience dollars and the Bank of Davemerica, you’ve got your multi-polar world.  Which one of these poles will your compass point to?  I guess that depends on the friction inherent in your compass.

http://www.scribd.com/doc/26833294/John-Garrett-Gold-Monetary-Policy-Expectations-and-the-BOE

special thanks to Bob English of http://english.economicpolicyjournal.com/.  Check out Bob’s latest on MF Global and much more.

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When it’s getting hot here, it’s getting colder somwhere else.

Gold to hit $7,000 – Bank of America: http://www.commodityonline.com/news/gold-to-hit-$7000oz-bank-of-america-47690-3-47691.html

Gold to hit $10,000 – Reuters on John Butler’s The Golden Revolution:  http://www.youtube.com/watch?v=BvBQE1xR4MU

Economist Magazine:  Reuters TV on Matthew Bishop’s In Gold We Trust:  http://tradewithdave.com/?p=9629

Goldman Sachs:  $1940 price prediction for gold:  http://www.ibtimes.com/articles/322132/20120330/goldman-gold-2012.htm

When Dave sees a list of predictions like this, all he can think is one thing.  Interest rates are getting ready to rise and the price of gold is going to fall.  Could it have anything to do with the fact that three out of four of these projects listed above are Rothschild controlled… that is assuming Goldman Sachs is not.

I don’t do this very often and it comes with significant risk.  Dave’s making a near-term $1,500 approximate call today on gold.  Yep.  Talk to your advisor or listen to what the Rothschilds are saying by watching what they are doing.  Dave’s no advisor… he’s just a blogger.

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In my week of watching television, I saw what I thought was a new Frontline special the other night.  I feel asleep before it was over and I wasn’t sure whether it was a re-run or yet another attempt to spin the causes of the global financial meltdown like so much sugar and pink food coloring into a manageable cloud of cotton candy with an easy-to-grip handle. 

It appears that it was indeed a new version to be added to Dave’s library along with Zeitgeist: Moving Forward, Inside Job, Too Big To Fail, The Last Days of Lehman Brothers and Margin Call, none of which have resulted in any significant change except the big banks getting bigger.  When Dave considered the challenge of absorbing yet another attempt to explain the variety of theft that occured, all I could think about was the Rosses. 

First there is Ross Ashby’s law of requisite variety; only variety absorbs variety.  They will make as many movies as necessary to absorb the negative feedback loop.  Secondly there is Ross Sorkin, the producer of the TBTF movie and the industry’s poster child for the mainstream media.  He sits in the center of CNBC’s  roundtable attempt to extend and pretend that there is actual price discovery in this marketplace.   

Too Big To Fail:  http://www.youtube.com/watch?v=wVV6dzDOgQ0

Zeitgeist Moving Forward:  http://tradewithdave.com/?p=5282

Inside Job: http://tradewithdave.com/?p=4819

Margin Call:  http://www.youtube.com/watch?v=YlDr8HBdk4A

The Last Days of Lehman Brothers: http://www.youtube.com/watch?v=RLWIPyQXcRE

Watch Money, Power and Wall Street: Part One on PBS. See more from FRONTLINE.

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Back on July 4, 2011 in an effort to get people to carry on, while at the same time hoping that they would remain calm, Dave issued the clarion call that “The Fed Is Dead… Long Live The Fed.”  Dave’s entire approach to an attempt to gain understanding of what is happening beyond the edge of his property line is to think about people… living people. 

Dave doesn’t put much stock in those oil paintings of dead guys hanging in the hallways of corporations, museums or universities.  The way Dave looks at it, those guys (and gals too) can’t do anything because… well… they’re dead.  I know that may seem like an oversimplification, especially when Dave is quite interested in what Socrates had to say on ethics, Alexis de Tocqueville about the ticking time bombs of democracy or Ben Franklin on beer.  The one guy’s name you probably hear the most these days in the realm of economics is John Maynard Keynes.  Dave first heard his name sitting in an econ class in Dietrich Hall just off Locust Walk.  The first time Dave heard about the idea that even the window glass repairman makes money when rioting kids throw rocks through the window, he wasn’t buying what Keynes was selling.

You see, by the age of fourteen Dave had already started his first business… lawn mowing.  Dave cut a lot of lawns and Dave had guys who cut lawns for him.  This is where Dave cut his teeth on the economics of supply and demand and believe me when I say that business (and economics for that matter) are not about supply and demand.  They are about people and if you think you’re going to nail down people as a particle on a chart or a wave on a frequency, well you’re wrong.  Outside of imprisoning them in the private prison industrial complex, people are, to modify the words of singer Robert Palmer… simply unpredictable. 

So Dave never bought into the ideas that economics was anything more than a pseudo-psycho-scientific version of political science which was political and not scientific.  Dave learned this when his Poli-Sci professor who had 800 people in his lecture and a waiting list to sign up for the class got fired from the University of Pennsylvania because he wouldn’t write books.  That’s when Dave knew for sure, this game was politics, not business and the business of politics is the business of show business and we all know what P. T. Barnum had to say about that.  There’s no business like it because frankly, as confirmed by Robert Wenzel, it isn’t business… it’s pleasure for the politicians with the keys to the building and in this instance the building supposedly has a basement filled with $42 per ounce gold.

When Dave lays in bed at night, he doesn’t dream of candlestick charts or high frequency algorithms or about M1, M2, but more likely about M-16′s.  You see Dave is thinking people and what tools and weapons they may possess both from a military, political or financial perspective and how as human beings they will deploy their assets.  Their assets may even be an idea or as in the case of the latest progressive economic movement, a reinvention of a previous idea such as libertarian paternalism.  You see any discussion about economics can be viewed through the false dichotomy of Keynes vs. Mises or fiscalists vs. monetarists or Paul Krugman vs. Milton Friedman.  This is the same dichotomy of Democrat vs. Republican that has been so effective in lullling the American electorate into believing that there are checks and balances in our governnment.  You don’t need a sixth sense to understand that the construct of left vs. right is nothing more than political theater.  Enter behavioral economics or as Dave likes to call it an individual kernel for everyone who needs a bucket of chicken from the Colonel. 

Dave has never seen the TV show Mad Men, but he thinks he knows what it is about; advertising in the heyday of the 1960′s.  You know Dave’s mom was an actress in two of those TV commercials from the 1960′s.  One for the Chevy II wagon and one for a Ford Fairlane wagon.  In those days, ideas and information flowed from the top down.  Find a mom that looked like the mom that other mom’s wanted to emulate and then show her driving the station wagon every mom wanted and that’s how Motor City rolls.  Today not so much, as automobiles become a form of self-expression as rebellious in nature as Charlie Sheen driving his Fiat through your foyer (remember Dave’s been in a hotel for a week so he’s loading up on cable TV advertising). 

Today advertising is based on the information you feed into the system.  Dave writes a blog post about Jack Dorsey’s Square and Square starts showing up on Dave’s Google search pages.  Dave’s in control… or at least it seems that way.  Behavioral economics is the quintessential political party for one.  It’s up-to-date, relevant and authentic.  Dave can tell when his wife has been using his laptop because suddenly my Google searches start showing pages like “Free trip to the Bahama’s” or “How to trade your frequent flier points for a 5 star hotel stay.”  The entire idea behind behavioral economics is to make you believe that your behavior is based on free will while carefully nudging you in the direction that the economists (i.e. the salesmen) want you to travel.  You probably never even thought about buying fish oil until the fish oil salesman showed up in town anyway.  Before he got there, it was your grandmother trying to shove castor oil down your throat.  Add a little alcohol, caffeine or cocaine to the mix and you really had something that “Adds Life” and “Things Go Better With.”  Sounds refreshing doesn’t it.  Never mind the high fructose corn syrup, we’ll change it’s name to Splenda, Syngenta, Verizon or Bearing Point.  You can call it KPMG or PwC, just don’t put a real name on it. 

The point of this post is to say that the Fed is Dead but the people that run it aren’t.  Although you wouldn’t know it by reading Robert Wenzel’s plea for them to follow him out of their proverbially burning building or in this case Adam’s Family or The Munsters mansions.  He got about as many takers as John Belushi’s Bluto speech in Animal House following his claim that nothing is over till we say it is: http://www.youtube.com/watch?v=MsmybQKpmTw . 

Money is called currency for a reason because if it doesn’t flow, then it’s not money.  When the velocity stops the value evaporates.  That is why Dave is under the distinct impression that somewhere buried within the VIX is the final beating heart of a dying economy and if you can hook a heart monitor up to it you can game this system like never before.  If force = mass x velocity, then wouldn’t it be reasonable to say that you could measure the torque (not the horsepower) of the economy by understanding the relationship between velocity and volatility as the overall market shrinks while the so-called global economy grows?  It’s torque not horsepower that allows you to monkey with the money and not break the drive train.  What are the implications for a cam shaft that is increasingly made from “twisted” lighter weight materials and since only living (and laughing) people have their foot on the Fed’s gas pedal, how good do you have to be to avoid hitting the hyperinflation wall and ending up like Dale Earnhardt (may he rest in peace) or fiddling with the low-end jack shaft like I did with my kid’s go-kart until it wouldn’t get off the dime without spinning?

Whoever said history repeats itself got their copyright confused with their human rights.  No two people are the same and no two sets of circumstances are going to have the exact same outcome.  I don’t really care what Keynes or Mises had to say about the economy because they’re not here today and they don’t have their foot on the gas or their hands on the wheel.  What I want to know is what does Ben Bernanke’s son plan to do about his student loans and what does Rand Paul think about the recent legislative actions in the State of Utah to return to a sound money system.  We may not all have the opportunity to trade places with Mortimer and Randolph Duke and have our mugs enshrined in oil on along the hallways of power, but we are all actors and agents in the marketplace today.  What are you going to do about it?  Tell Dave your plan.  Send me an email and most likely you’ll be telling Google and the government too assuming they’re making copies of all your emails and in return they’ll offer you products and services to assist you in achieving your plan.

Here’s a link to the entire Bob Wenzel speech to the New York Fed delivered yesterday before the final supper to be followed by rats, spiders and moths: http://www.economicpolicyjournal.com/2012/04/my-speech-delivered-at-new-york-federal.html

Here’s a link to Dave’s original Eulogy for the Federal Reserve System.  You’ll notice that this funeral was based on the actions of living people, not dead economists:  http://tradewithdave.com/?p=7173

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Dave has been a vocal critic of the financial regulators and has gone so far as to write that the fine folks at the CFTC don’t have a clue about integrity.  Dave couldn’t have been more shocked yesterday when he returned to his hotel room and turned on the TV in the middle of the day to see what appeared to be a live congressional hearing on the MF Global scandal and commissioner Jill Sommers at the microphone. 

You see Dave doesn’t have cable.  That’s another story, but it may be one of the key reasons why I am able to make the time to regularly post entires to the blog.  Not only do I not waste time watching television, I don’t get influenced very much by the mainstream media.  Another side effect is that when my nine year old son gets asked what he wants as a gift, he has no idea how to answer because he doesn’t know what products are being pushed on kids. 

There’s Dave sitting on the edge of his bed with the remote control in one hand and a bottle of Snapple ice tea in the other having a hard time believing that of all the times and all the cable tv channels that I could have stumbled upon, what are the odds that such a topic of interest to me was right before my eyes on LIVE television.  Dave was only able to watch for about twenty minutes, but this is what he learned.  It wasn’t Miss Scarlet with a revolver in the conservatory that is the primary suspect in the killing of MF Global.  It was a bookkeeper in the back office with Microsoft Windows.  At least that’s what they are attempting to convince you is what happened.

During the twenty minutes Dave was riveted to C-Span, this is what he learned:

1.  The government is going to sponsor classes for back office clerical, administrative and bookeeping staff of brokerage firms to teach them not to inadvertently transfer $1 billion + dollars of client money out of their accounts.

2.  A fund is being set up for family famers to bridge the gap for them the next time a major commodities firm collapses. 

3.  MF Global’s computers couldn’t keep up.

4.  And finally, according to Terrence Duffy of the CME Group, there are no conflicts of interest in the realm of the commodities industry. 

So there  you have it.  It looks like MF Global was brought down by a few “mistakes” (that was a word I heard mentioned several times) that were caused by back office clerical staff and the big losers were family farmers.  Remedial classes for the bookkeepers and an emergency fund for the farmers will be forthcoming as a remedy.  There you have it.  Suddenly Dave remembered something.

For over thirty years Dave has run businesses.  Nothing on the scope of MF Global mind you, but nothing so small that you could say there was no back office staff.  Dave has even turned around a few troubled companies and done bankruptcy acquisitions and workouts.  In those environments there is big pressure on the finances of the business and plenty of opportunities for foul-ups.  Dave distinctly remembers one acquisition where we only went back one year in due diligence on the target company’s payroll taxes only to get whacked for $40k in unpaid payroll taxes from two years prior that were covered up by the controller pre-closing.  That surprise came in the form of an unexpected bank levy to the company’s payroll account on the same day we had issued payroll to 65 people on that same bank account.  That kind of thing gets the direct attention of the CEO just like the struggling financial situation at MF Global got the direct attention of the CEO Jon Corzine. 

You may have been involved in bigger businesses, smaller businesses or no businesses at all.  Dave can tell you one thing after working with hundreds of people, no one, including the CFO, pulls the trigger on big financial transactions without the direct involvement of the CEO.  Anyone who believes that a back office staff person, even an Assistant Treasurer, can release the hounds on one of the biggest bankruptcies in history is playing games with you in hopes that you’ll get bored.

I’m not saying that an individual can’t embezzle massive amounts of money over time ala Bernie Madoff.  I’m not saying that significant errors and losses are not made by staff depending on the heirarchy and the particular levels of financial approval those individuals have.  Those things happen everday.  To think that an assistant treasurer was capable of single-handedly bringing down MF Global by drawing out client money from their accounts without the full knowledge of the company’s C-Suite is preposterous. 

Every day in businesses both large and small financial staff will print checks, arrange for wires and even post transactions that they are comfortable with without the involvement of upper management.  Think of the bank teller that cashes your check or makes your deposit.  These people make mistakes, but there are provisions for minimizing the impact and keeping the risk within a reasonable measure.  MF Global had these same type of controls.  If they didn’t they wouldn’t have been able to have audited financial statements. 

Congress can develop all the training classes it wants to for back office staff.  They can make financial companies update their computer systems.  They can set up an emergency fund for family farmers who hedge their crops with futures contracts.  They can tell us that there are no conflicts of interest and that the Chinese Wall of Wall Street cannot be breached (what does Chris Whalen know about walls anyway?).  The problem is that when people break the law and get away with it, then you have a government that is of men rather than a government that is of laws. 

Take a look at this footage from Fox News of former Senator Corzine and current President Barrack Obama and then tell me that it’s what you know and not who you know that wins big in the Milton Bradley of markets that we call capitalism. 

Here is a list of clues that may help you uncover the integrity of the markets that’s long been dead and buried. Maybe the folks at Parker Brothers can be convinced to make a little tiny shovel as a game piece.

http://tradewithdave.com/?p=9883

On the conflict over whether or not there are conflicts of interest:  http://tradewithdave.com/?p=9905

Watch the hearing for yourself and see how your tax dollars are spent:

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No one would say you have gone mad if you suggested the following.  First of all, you have an Iphone.  Secondly, you have one of those little plastic doohickey’s that you can use to swipe credit cards into your Iphone from Jack Dorsey’s company called Square.  Thirdly, you go out to a retailer and in our example let’s say it is an independent music shop, the kind that sells electric guitars, in your town.  Fourthly, you buy a guitar.  This is where it gets interesting.

You walk up to the cash register and instead of handing the merchant your credit card, the merchant hands you their debit card.  You take the merchant’s debit card and swipe it through your Jack Dorsey enabled Iphone.  You then hand your Iphone over to the merchant who types in their secret pin verification number and then you click the transmit payment button on your phone.  Transaction complete. 

This is what Dave coined as “the coincinet.”  It’s a non-fractionally reserved payment system that is designed to satisfy the double coincidence of wants (you have cash, they have guitars).  What would it take for this to become a reality?  We’re close already when it comes to the technology, but we are still lacking one thing… The Dave Bank & Trust or in the latest internet parody, Your Bank of America.  Before everyone from Jim Cramer to Dave Harrison can have their own bank (not just their own bank account), the current fiat money system has to go through a divorce between the double coincidence forms of money and the wealth-building forms of money. 

An electric guitar falls uniquely in that space between consumer goods, wealth building items and currency itself.  You can generally tell if something is a durable asset and an alternative form of funds  if there is any market for that particular item in pawn shops.  Think circular saws, window air conditioners, gold watches and Gibson Guitars and you have uncovered the space between Starbucks (convenience items) and big bucks (wealth items) such as the balance in your MF Global account. 

Speaking of pawn shops, coin dealers and the millions of other “independent retailers” out there dealing in cash who are tough to regulate, the Coincinet takes care of that problem for the one world government for good.  You see today if you do business with a pawn shop and they fail to report your sale or transmit stolen merchandise, they’re the ones that get in trouble.  In a Coincinet world, the tables are turned.  The consumer carries the technology and the retailer’s data is static in a reversal of fortunes.  Rather than the Patriot Act role that banks must play in “know they customer” the onus rests on the consumer to “know thy retailer” and if they do business with anyone questionable in nature, they bear the burden of accountability.  What better way to build a surveillance society than turning everyone into a security-camera-carrying-data-collectiton-point?

Think of it as a mobile phone verion of Adolf Hitler’s SS where every Iphone-packing consumer is a snitch.  On top of that, the consumer gets the brunt of any legal action should a retailer not be in full government compliance.  Is this model of deregulation starting to remind you not only of Steve Jobs, but also of our most recent beltway business move known as the Jobs Act?  The irony of the “I” in Iphone is that the eye of the watchdog is both on you and fed by you and this dog most certainly bites the hand that feeds it.  Just picture yourself being arrested and the first thing they do is to download your mobile phone including every purchase you ever made including that collectible Gibson Guitar you failed to submit to the office of foreign assets control. 

 Does it seem completely far-fetched to you that the individual would become the credit card carrying terminal equivalent of Action Jackson of the self-banking transactions?  Well, did you ever think that Lowe’s (the big box home improvement retailer) would be accepting PayPal as a form of payment?  I was just there and I heard it myself over the p/a system.  The basis of this argument is that to remove systemic risk, they must remove the fractional reserve aspect of the system and in the process your sovereignty along with it.  A crucial aspect to this is the voluntary submission into the surveillance system.  Think of it as a pan-global panopticon where Captain Hook comes dressed in a sleek case that you carry on your hip disguised as a distribution system for entertainment as freeing for shoppers as Wendy flying about the room. 

Dave is working on a new book.  I’m not going to reveal the title yet, but the subject is focused on how we are evolving into a society of individuals who are networked, but not connected.  As we each experience the Let Them Eat Cake economy, the key distinction this time around is that its a cupcake of individualism that goes beyond self-expression and crosses over into isolation.  That’s why this most recent parody on the Bank of America really got Dave’s attention.  You see, Dave believes that part of the plan is to give your own bank.  In the website parody on B of A, the creators position the bank as one where you get to decide which little old lady to foreclose upon, or to simply give a life tile to in the Game of Life as depicted on the website.  In this scenario, you get to hand the get out of jail free cards to the Jon Corzine of your choosing.  You get a blank check at being your own Lloyd Blankfein when you are Jim Cramer the CEO of Cramerica.  What could be better?  All that’s required is the separation of the wealth component of money from the convenience component and then the items you purchase each month run through your personal Coincinet through a non-fractionally reserved system and your wealth portion of your money is redirected into a fractionally gold-backed currency courtest of the IMF.

Dave has believed for some time that the Too Big To Fail bank roll-up is rolling your way.  The most recent series of events, especially those of JP Morgan’s Chief Investment Office have really set the stage for the end game in the conversion of the Fed into nothing more than a hedge fund where you get your fair share of the TBTF banks rolled into your new and improved mobile payment system.

Take a look at this list of growing and dying jobs from Barry Ritholtz.  You will notice they all share something in common.  They all appear to support the outward expression of individualism while at their core they are an abdication of your independence.: http://www.ritholtz.com/blog/2012/04/fastest-growing-dying-us-industriess/

Now take a look at this parody website on Bank of America.  Imagine how appealing it would be for you to have your own bank.  One that gave you the appearance of control.  One where you decided what the policies where and one where the only money in that bank was your money.  The irony of this parody is that it’s more than an April Fools joke.  It’s the plan.  All you have to do is be prepared to give over control of the network to someone else (think Siri for example) like Dave did when he bought his new Iphone last month.  Wonder if she knows about the Coincinet?  Hey Siri…

www.yourbofa.com

For other posts on the coincidence of needs and how surveillance networks will be used to change your mind about what you think you need thereby arranging for coincidences to be even easier, you may want to read these article:

http://tradewithdave.com/?s=coincinet

http://tradewithdave.com/?s=pepsi+challenge

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One of the easiest ways Dave knows of to trick people into believing something that’s not necessarily true is to make them feel like they are making a choice themselves.  Dave’s been through dozens of training programs and read books about sales and negotiations for years.  For example if the idea is to sell you some fast food at Wendy’s in the Windy City, it’s a proven strategy for Dave Thomas to say would you like a single, a double or a triple?  It’s your choice.  You’re in charge. 

Dave has written a lot about the Pepsi Challenge and how behavioral economists find the greatest success when they can narrow the field down to UPS vs. Fedex, ATT vs. Verizon or America running on Dunkin’ rather than Starbucks.  The entire idea behind Schroedinger’s Cat or the double slit experiment is to isolate the state of choice which exists within human consciousness down to a choice of one, or in the example of The Billy Goat Tavern in Chicago… “No Coke… Pepsi”, if you are John Belushi.

If your vocation is to head out to Chicago for the May 1st Occupation in Chicago, you may want to sharpen your neoclassical understanding of rationality as an economic agent because you are one.  You will be choosing between Wendy’s and the Billy Goat Tavern and Pepsi vs. rainwater, so it may be helpful for you to refer to the recent debate between economists Paul Krugman and Steve Keen.  If you’ve ever seen one of those action thriller movies, then you know about the diversion.  It’s when a bomb goes off in another corner of the building or a someone throws a pebble to distract a security guard into turning their back.  A distraction isn’t the main event and that’s the point of economics.

You see economics is based on scarcity and you have to buy into the scarcity belief system to buy into economics.  Sure you can say that peak oil or that the IMF’s Christine Lagarde’s Louis Vuitton money bag is about scarcity of resources.  Instead if you look at energy rather than oil or the abundance sprouting up from your garden rather than debt as money, then you begin to understand that economics is based on a lie, but a good lie nonetheless because it’s based on the supply and demand assumption of rational actors. It assumes you would never freely share the abundance of your garden if you could sell it for fiat.

If Monsieurs Keen and Krugman can get us to focus on the sideshow  rather than the mainstage, then the goal of those who would steal the truth right from under your nose by convincing you that the only drink choices that are avaible are caffeine injected high fructose corn syrup laden products that “add life” for a “new generation” then their game has been a success.  Dave got very suspicious when he was listening to Steve Keen’s latest presentation when he kept slipping in the words a priori.  If you’re not familiar with the Latin term a priori, it essentially means conceived beforehand.  It can have a lot of different meaning, but essentially it means “prior to” or ”before.”  Whereas the Latin posteriori means “after” or “posterior” as in your posterior follows behind you.   

Why is a priori and posteriori such a big deal in life or in economics.  It’s important because it is your foundation, the point of beginning, the Genesis 1:1 of your belief system.  Where did everything come from and why are you here? 

Here’s how Steve Keen explains his manifesto:

The debt and asset price bubbles were ignored by conventional “Neoclassical” economists on the basis of a set of a priori beliefs about the nature of a market economy that are spurious, but deeply entrenched. Understanding how this crisis came about will require a new, dynamic, monetary approach to economic theory that contradicts the neat, plausible and false Neoclassical model that currently dominates academic economics and popular political debate.

Escaping from the debt trap we are now in will require either a “Lost Generation”, or policies that run counter to conventional economic thought and the short-term interests of the financial sector.

Preventing a future crisis will require a redefinition of financial claims upon the real economy which eliminates the appeal of leveraged speculation.

These three observations lead to the three primary objectives of Debtwatch:

1. To develop a realistic, empirically based, dynamic monetary approach to economic theory and policy;
2. To develop and promote a “modern Jubilee” by which private debt can be reduced while doing the minimum possible harm to aggregate demand and social equity; and
3. To develop and promote new definitions of shares and property ownership that will minimize the destructive instabilities of capitalism and promote its creative instabilities.

Dave would say that Steve Keen seems like a nice enough fellow and Paul Krugman is probably a nice guy too.  What Dave wants readers to consider is that Steve’s attack on the a priori basis of neoclassical economics is an attempt to separate you from economics.  In other words, it’s throwing the a priori baby out with the neoclassical bathwater.  Dave doesn’t accept the basic premise of economics, but Dave’s entire basis is that we are a priori beings and that God made each of us with a purpose.  If Keen can convince you that neoclassical economics are false, can he also convince you to throw out the calling on your life and allow you to simply hand that over to the behavioral economists who have more supposed information on the rationality of you as an agent than you have yourself?

Here’s Steve Keen’s presentation:

 Here are a few of Dave’s posts on the importance of your a priori status as being created in God’s image.  This issue of the calling on your life and the power of forgiveness is the basis of all of these deceptions such as Marxism, existentialism and libertarian paternalism:   

http://tradewithdave.com/?s=posteriori

http://tradewithdave.com/?s=sartre

http://tradewithdave.com/?s=libertarian+paternalism

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I saw this video on BusinessInsider.com.  It basically summarizes everything I have ever learned about business and negotiation and boils it down to three minutes.  I can’t even begin to remember how many times I have been in this exact situation in a business negotiation.  Some people call this a tough love solution where other people would call it lying. 

If you have studied quantum physics, Heisenberg, Rosenthal or read the book of Genesis, you understand the power of choice.  If you study the latest rounds of behavioral economics, choice architecture and folks like Cass Sunstein, Yochai Benkler and Clay Shirky’s approach to the prisoner’s dilemma, then you know that there’s a big database being built that will help those sitting on the other side of the table from you to anticipate what you’re going to do.

If this is your kind of thing and you dig into it, then you may find it interesting to consider just how this scenario stacks up against one of the Ten Commandments in particular; Thou shalt not lie.  In this scenario, the gentleman on the right lied.  He did so because he felt like he could be convincing enough to manipulate the other gentleman on the left not to choose “steal.”  Interesting Thou shat not steal, would be another commandment.  That you would find in the Ten Commandments.

In this scenario the fellow on the right lied while the fellow on the left didn’t.  The fellow on the right could justify that he lied to the fellow on the left because he thought it was his best chance of getting something and that by doing so the fellow on the left benefited, but only because the fellow on the left didn’t lie.  If the fellow on the left had also lied, then he would have lost.  So to recap, the fellow on the right lied and didn’t steal and the fellow on the left didn’t lie and didn’t steal.  The result is the money is split.

So, the fellow on the right can say to the fellow on the left as they walk out to the parking lot “Hey man, I told I would split it with you and I did what I said.”  Then the fellow on the left could say “Not exactly, you told me you were going to steal and you ended up splitting, so yes you did split the money with me, but you lied as a means to improve your odds.”  In a similar Hank Paulson scenario of the story the guy on the right could be portrayed as a “suicide banker” and the guy on the right is a congressman and the conversation happening in the parking lot would be “Did you hear from Fox News’ Erin Burnett and Treasury Secretary Tim Geithner that the government made money when AIG paid back the tarp loans so it’s all okay in the end. 

Here’s the part that they don’t show you.  The guy on the left, no longer trusts the guy on the right.  Sure he got to split the money but the guy on the right still lied.  They may never see each other again, but the point is that the guy on the right monetized his trust and cashed it in.  You could say “It’s not personal, it’s just business.”  Well, what is life?  Is it personal or is it business or is it both. 

If you keep peeling the onion back one more layer, you will come to understand just why the guy on the left didn’t get all the money and only got half. He lost half the money because he was greedy. You see, in the game they called taking all the money “steal” when it wasn’t stealing… that’s just what they called it. They offer it to you free and clear. If the guy on the left hadn’t been greedy and fearful of losing the money (the guy on the right accurately anticipated that the guy on the left was fearful and greedy), then he would have simply chosen “steal” and would have received all of he money. So, the guy on the left’s greed actually cost him half the money.

Want to go one layer deeper? Let’s say the guy on the left wasn’t greedy but rather was sharing and knew what the guy on the right was thinking, then the guy on the left may have used this tactic to split the money with the guy on the right. Want to go yet another layer deeper? The guy on the left could have chosen steal, got all the money and then either split it or given all of the money to the guy on the right out in the parking lot if the guy on the left was a giving person. How deep do you want to go? Dave’s with you.

Dave loves these games because it boils down to a few minutes what value people put on their integrity and on trust.  Is anyone capable of living up to a perfect standard of integrity and trust?  Only one person that Dave can think of.  For the rest of us, there’s forgiveness and how much is that worth? For everything else, there’s MasterCard. From the Master there’s forgiveness.

At the core of this entire subject matter is the fact that we were made in God’s image. What does that mean? It means we are empowered with choice. We can choose to lie, we can to choose to steal or we can choose to love the Lord our God with all our heart, soul and mind. He doesn’t make that choice for us and that’s the core of the problem with all constructs be they economics, politics or money.

Here’s a few of the other blg posts on the subject matter:

http://tradewithdave.com/?p=2064

http://tradewithdave.com/?p=778

http://tradewithdave.com/?p=1727

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