September 29, 2011

By Kevin Michael Grace

Until this week, one was only dimly aware of what a “viral video” is. Apparently, these Internet sensations that so captivate the kiddies always seemed to involve cats eating spaghetti, Hitler ranting about some current controversy or cats that look like Hitler. On Monday, however, a TV interview involving global finance, of all things, went viral within minutes, and within days had shocked, angered and frightened millions.

BBC News presenter Martine Croxall had asked trader Alessio Rastani about the prospects for the Euro bailout. Instead of dispensing the usual soothing balm, Rastani lowered the boom. The bailout was dead, he said. Why? “The economic crisis is like a cancer. If you just wait and wait, thinking this is going to go away, just like a cancer it’s going to grow, and it’s going to be too late.” It got better—or worse. As Croxall gaped in horror, Rastani declared, “The market is toast.” When asked for a solution, he replied that he didn’t care, as averting disaster was not his job: “Our job is to make money from it.” In any event, “This is not a time for wishful thinking that the governments are going to sort things out. Governments don’t rule the world; Goldman Sachs rules the world.”

Directly after the interview, it was asserted that Rastani must be a hoaxer. It turned out that this was not so, although he is a part-time trader, at best, and something of a fantasist. But what if he is right? Back in April, this space quoted Marshall McLuhan, “Only puny secrets need protection. Big discoveries are protected by public incredulity.” This explains the extraordinary reaction to Rastani’s statements—he spoke the unspeakable.

Traders of the past were not as coy as those of today. Consider this story from the Chicago Daily Tribune, January 1, 1894, “It is related that in the old days of the Commune in Paris a panic-stricken investor turned up in the office of M de Rothschild and exclaimed, ‘You advise me to buy securities now. You are my enemy. The streets of Paris run with blood.’ And Rothschild’s answer was this, ‘My dear friend, if the streets of Paris were not running with blood, do you think you would be able to buy at the present prices?’”

Does Goldman Sachs rule the world? No, not by itself, of course not. But if one considers that name as shorthand for the magic circle of bankers and allied economists whose practices (zero interest rates, “liar loans,” derivatives, etc) engendered the present crisis and whose advice is the only counsel taken by our leaders in their efforts to ameliorate that crisis, it is hard to disagree with Rastani. Indeed, one suspects that some of the more ebullient Goldman traders are even now ordering T-shirts brandished with the new corporate motto Rastani provided.

Is the market toast? Impossible to say. However, Goldman Sachs predicts that many of the major economies face a high probability of stagnation: “sluggish growth and joblessness” over an eight-year period. In its report, Goldman provides its usual guidance: “It is still far from clear whether enough has been done to jolt economic growth upward and outside the zone where prolonged stagnation is a serious risk.”

Is the Euro bailout dead? Even the newly bolstered European Financial Stability Facility might not be enough, according to experts quoted by Ambrose Evans-Pritchard. “We think the Eurozone is falling into recession and this is a big risk. It will call into question the budget consolidations of Italy, Spain and even France,” Silvio Peruzzi from RBS says. “The EFSF in its current guise is too little, too late,” Suki Mann from Societe Generale says.

Keep in mind that every voice baying for more stimulus and bigger bailouts belongs to a member of the magic circle. Attila Szalay-Berzeviczy, another banker, Global Head of Global Securities Services at UniCredit Group in Milan, says, “A Greek default will trigger an immediate ‘magnitude 10′ earthquake across Europe.” Or it might simply force bankers to “take haircuts” for their foolishness in Greece and elsewhere. As the submarine captain in The Hunt For Red October said, “The hard part of playing chicken is knowing when to flinch.”

There was certainly “blood in the streets” in precious metals this week. At press time, gold had fallen $128 (from September 22) to $1,617.10, and silver had fallen $5.80 to $30.56. Reasons suggested for the falls include profit-taking and a flight to liquidity and further margin raises by both the Chicago Mercantile Exchange and the Shanghai Gold Exchange. At GATA, Pat Heller points to manipulation by the European Central Banks and the US Government colluding with China. At the Globe and Mail, David Berman argues, “What’s more likely is that, far from being a haven investment, gold has become a speculative, high-risk investment that just doesn’t cut it when investors become nervous. In other words, it behaves a lot like a stock.”

Perhaps gold and silver are behaving like stocks because they are traded as highly-leveraged ETFs. Larisa Sprott, President of Sprott Money, tells King World News that her company has run out of physical silver: “People are trading in their paper money for gold and silver, but we are seeing more purchases of silver net. In fact the buying has been really skewed in favor of silver, there is tremendous demand.”

The woes of gold and silver equities continue, but in welcome contrast to her predecessor, BC’s new premier is bullish on mining. Robert Matas of the Globe reports, “A seismic change is taking place across BC… Exploration spending has never been as high as this year, exceeding $500 million. British Columbia’s Environmental Assessment Office is currently reviewing 25 mining projects with a potential capital investment of $11 billion.” Specifically, Christy Clark promises her government will expedite eight new mines and the expansion of nine others by 2015.

At the National Post, Stewart Bell struggles manfully to draw comparisons between the trade in “blood diamonds” and Nevsun Resources’ TSX:NSU Bisha gold-silver-copper-zinc project in Eritrea.

At Seeking Alpha, Cigamarc describes Tanzanian Royalty Exploration Corp TSX:TNX as “a company with a bright future.” From the same source, Hyperinflation says, “A new group of premier junior miners are ready to take the title of emerging intermediate-intermediate producers.” These include AuRico TSX:AUQ, Detour Gold TSX:DGC, New Gold TSX:NGD and Osisko TSX:OSK. While Marc Courtenay, in his search for stocks to see investors through a correction, finds Alexco Resource TSX:AXR, “which admittedly is the most speculative of the four but potentially the most rewarding.”

And at the Gold Report, David Christensen, head of ASA Gold and Precious Metals, talks up the virtues of Alacer Gold TSX:ASR, NovaGold Resources TSX:NG and Tahoe Resources TSX:THO.

Finally, in a sobering Globe essay, distinguished historian Michael Bliss argues that a financial reckoning is truly at hand, and few will escape unscathed. Bliss declares that our “obese and addicted societ[y],” will “eventually have to face up to the need to live with fewer pleasures of the moment, hard though that may be.” He concludes, “The longer we avoid accepting complex, unmanageable realities and the real discomforts involved in convalescence and recovery, the more we risk the long-term future for our children and grandchildren.” In related news, the authoritative Star tabloid reports that actor, entrepreneur, humanitarian and professional imbecile Ashton Kutcher is worth 140 million dollars.