From: lepatron at lemetropolecafe.com X-Sent: 24 Jul 1999 03:38:29 GMT To: dhenwood at panix.com Subject: Charles Peabody and some scuttlebutt Date: Fri, 23 Jul 1999 23:33:32 -0400
Le Metropole members,
I spoke with Charles Peabody today and I want to convey his thinking to you because there is no hotter bond analyst around than Charles. In addition, the CafÈ has a new webmaster who is devising a way to get Charles's charts up at the Hemingway Table so that you can see his work in the near future. In the meantime, a bit of razzle dazzle.
We have been telling CafÈ members for weeks that something is very amiss in the financial arena and Midas has expressed his opinion that it is part of the reason for the gold market manipulation. As Murray Pollitt says, when you go hunting and all of a sudden the little animals come running of the bush, you know there is something ferocious that has scared them out. That is clear, but you just do not know what it is - at least for awhile!
Well, Charles points out in a Cafe note, that 10 year swap spreads just went to 10 year highs. This term was new to me but Charles said in the fixed income world it signifies liquidity fears. The spreads are higher now than at any time in the 90's. You may check out the dramatic move of this spread by going to this chart:
http://cognite.com/swapspread/SwapSpread.htm
Down and dirty for the rest of this conversation. "Little Bear", my dog that you see at the James Joyce Table, is whining to go for a summer night, Texas walk.
1) The word in the bond world today is that there is some big financial event about to unfold that will shake up investor confidence to some degree. Today, the South Korean market was down 7% and we also have heard of rumors of panic type buying of Hong Kong dollars. This "event" that is coming may be related to "Daewoo", the South Korean chaebol, that is supposedly having difficulty. This "hidden financial problem" that Midas has discussed for months may also be of a different nature. Hard to say.
2) Corporate Treasurer's are rushing to the issuance window. Charles Peabody said they listened to Greenspan and word is spreading that interest rates are going up and they want to raise money before the credit window on money at this level closes.
3) The widening swap spreads are telling us another LTCM may be right around the corner. How so? Interest rates are going up. Credit spreads are widening and loan originations are declining. The probability of that is 1%. That kind of incredibly low probability is what blew up Long Term Capital Management! There is a logical reason the probability is so low. Almost always, when credit spreads widen, there is a flight to safety and bonds go up in price, not down, like the last two days. As a result, some "black box" hedge fund trading operations may be in deep trouble again.
YES, all of this reinforces our gold market manipulation claims - BIG TIME. Today, oil was up some 60 cents, the CRB was up over 2 points and about to make multi-month highs, base metals in London were all very strong, beans and corn were almost limit up, silver was up, bonds were down, etc. YET, gold goes $1.30 lower with Goldman Sachs a late seller.
I am not going to belabor Midas' and GATA's views, but how clear can this be about what this crowd is doing and has fostered. Along that line, more people called me today than ever asking how could gold - priced in the $250's - not go up when it is plain as day that times are changing and it is so cheap?
You already know what I told them. On a positive note, we are stepping up our effort to advise Congress of the gold market manipulation and have more Congressional "ears". It is now clear to GATA that the Clinton administration, The Tony Blair administration in England, the bullion dealers, and, most likely, some gold producers are all "colluding" to hold down the price of gold to some degree.
GATA has no political axe to grind, but we are shifting strategy to become involved in the political arena to a much greater degree and it began with the document/letter to Senator Gramm. We will let you know more about this in the weeks to come. But, in essence, it is a "take no prisoners" philosophy. Today's gold action is just one example of the lengths the other side will go to suppress the price of gold to protect all their other financial interests. This devastation must end. "This is War!". Period.
The response to the letter/document Senator Phil Gramm, Chairman of the Senate Banking Committee was a quiet smoldering one at first, but today, responses about what we revealed in that letter have triggered revelations that are politically "explosive". We have gone to Congress again and disclosed what we know to them. This is not CafÈ hype, but please do not ask about the nature of what we know because the next time we hope that you will hear about this will be from someone in "Congress" itself.
All of Charles Peabody's commentary ( there is more ) can be viewed at the Hemingway Table.
<http://www.lemetropolecafe.com/scripts/products.cfm>
All the best,
Bill Murphy Le Patron