July 15, 1997
My Dear Sons:
This is about "The Sting". This is about the sting that
will smash the Great Bull Market. This is about the sting that
will derail the gravy train. The sting is already in place and
its trigger has already been pulled. The sting merely has to
unfold. The public suspects nothing.
A sting is a confidence game in which the victim is deliberately
set up to believe that he cannot lose, that he has a bird’s nest
on the ground. Then at the last moment the trap is sprung, and
his dreams of riches turn to rags. This sting was made in Japan,
with a strong assist from Switzerland.
To get a better idea of the Swiss Connection, we have to
look at the Bank for International Settlements (BIS) in
Basel. The BIS is the Central Bank’s central bank. It was
formed in 1930 to handle the collection of German war debt
following World War I. Its members are the central banks of the
industrial world, such as the Bank of England, the German
Bundesbank, the Federal Reserve Bank, the Bank of Japan, and so
on. It is almost certainly the most powerful financial
institution in the world. Never once in its long history has it
ever had to ask for help from any government.
A definite coolness exists between the BIS and the
United States. This goes back to the Bretton Woods
Conference in 1944, held to set up the machinery for
resuming world business after World War II. Even though this
conference established the gold-backed U.S. dollar as the only
reserve currency, the U.S. did everything it could to torpedo
the BIS and give sole power to the American sponsored
International Monetary Fund. The war was not over in 1944, but
the combatants still got together and defeated this U.S. grab.
In the final showdown, the Europeans and Japan
never completely trusted the U.S.
As the years went by, the BIS suspicions were justified.
The U.S. began to abuse its reserve currency role by simply
printing dollars. American companies began to buy control of
businesses all over the world. In 1971, President Nixon
took the dollar off the gold standard, and introduced the novel
idea of floating currencies. Meanwhile, the U.S. national debt
began to increase each year, until it now stands at about $5.5
Trillion, an astronomic amount that can ever, ever be repaid. It
was clear that the U.S. was out of control.
Along about 1972, I began to spend a great deal of time
and effort in studying the BIS and its agenda. The first
thing I found was that although the U.S. had turned its back on
gold, the BIS were aggressively buying it. By 1990,
the BIS were by far the largest holder of gold,
with more than one billion ounces. This amounts to an outright
corner on gold.
The next thing I learned is that the BIS are extremely
closemouthed. It keeps a low profile. Its favorite M/O is the
sneak attack. They have their own word for this – "coup". Their
ideal coup is one where the victim is taken by surprise, and
does not even know what hit him. The BIS tries to leave
no fingerprints. Thus their coups often become perfect crimes.
The third thing I learned was that the BIS had two ironclad
objectives. Both were so bold that they would take your breath
1) To destroy the
Soviet Union, as a threat to world peace
2) To destroy the dollar as the worlds reserve
We all know that the Soviet Union
collapsed in 1989. This was done by the BIS
without firing a shot. They simply loaned large sums of
money to the Soviets, and then called the loans. Just a routine
castration! A simple foreclosure. This is how they got the
The second goal, of bringing down the dollar as a reserve
currency, has not yet been reached, but I believe it soon will
be. This brings us to the present sting operation.
If you are going to derail the dollar and the Great Bull
Market, you better bring a pretty big checkbook. The new
money coming into the mutual funds is running about $20 billion
a month. Unless you can top that kind of buying pressure, you
don’t have a chance. How in the world do you shoot down an
animal that big and that powerful? In my opinion, the BIS
and its Japanese partners have come up with an ingenious
answer. It is big enough to work. It goes like this:
The sting began two years ago,
in August 1995, when a rash of bad loans and insider
scandals brought the Japanese banks to their knees. The
BIS became alarmed, and advised the Japanese to lower
their loan rates to ˝%. This created an enormous gap between
the low Japanese rate and the 6-˝% U.S. rate. Into this gap
poured speculators from Japan and everywhere else. The
speculators would borrow yen in huge amounts. They would
then sell the yen, and put the proceeds into U.S. paper,
thus making an enormous, guaranteed return. This came to be
known as the "Yen – Carry Trade". This yen – carry
trade has been going on for over two years, in virtually
unlimited volume. It created a huge demand for U.S. bonds,
which in turn sustained a huge and unprecedented bull market
In a similar fashion, the Japanese
and others found that they could do the same thing with gold and
this came to be known as the "Gold – Carry Trade". The
speculators could borrow gold at about 1%, sell the gold, and
then invest the proceeds in U.S. paper, with a huge guaranteed
return. How delightful! How delicious! But how lethal!
I say lethal because this yen – carry, gold – carry Ponzi
scheme has created a "potential short squeeze of colossal
magnitude". (Michael Belkin, "Strategic Investments",
May 14, 1997) Sooner or later, these fantastic leveraged schemes
must be unwound. The gold and the yen which were borrowed and
sold short will have to be bought back; and the bonds that were
bought with borrowed money will have to be sold. The totals
involved are probably well over a trillion dollars, or far
beyond the mutual funds yearly take. Anything could trigger the
debacle. As long as gold keeps going down or the yen keeps going
down, no problem. As long as bonds keep going up, no problem.
But once gold starts to rise, or the yen starts to rise,
or once bonds start to fall, these huge positions would
be unwound. There would be a run for the exits, and the panic
would feed on itself. Margin calls would ruin the leveraged
speculator in short order. There would be no way to stop the
carnage. All it will take is a coup to start the waterfall.
We had the coup on June 24, 1997, though it was only
vaguely understood at that time. The Japanese Prime Minister,
Ryutaro Hashimoto, told a luncheon meeting at Columbia
"I hope the U.S. will engage in
efforts and in cooperation maintain exchange stability so we
will not succumb to the temptation to sell off
Treasury bills and switch our funds to gold".
In a matter of minutes, the NYSE
collapsed, and the Dow-Jones closed down 192 points in a
mini-panic. The victim’s saw the trap for the first time! Then
the media and Wall Street fell all over each other trying to
control the damage, saying Hashimoto was misquoted, etc., etc.
The various exchanges staged a desperate anti-gold raid, and
soon had gold down to 12-year lows. The Street breathed a sigh
of relief and returned to its summertime siesta.
But the damage was done. Now look at the mess that confronts the
big-time gamblers. We now have gold at new lows and the bonds at
new highs. Surely, this is a speculator’s dream come true –
well, isn’t it? No, this is The Sting. The yen – carry and the
gold – carry is still in place, and they still have to be
unwound. The temptation Hashimoto mentioned now
becomes unbearable. The Japanese cannot resist the chance to
sell the bonds near their highs, or the chance to buy gold near
its low. Do you imagine that the bonds will stay high or that
gold will stay low? No way! The unwinding begins to feed on
itself, and the 5000 mutual funds and all their friends will be
unable to do a single thing about it. That’s what you mean by
I have no idea whether Mr. Hashimoto was acting on his
own, or whether his words were part of a larger plan. I know one
thing, though. This guy is no innocent babe in the woods. Before
he became the Prime Minister, he was Japan’s Finance Minister.
He knew the ropes. He knew the big wheels at BIS. He knew
all about yen – carry and gold – carry. He was telling his
people that the game was over. Remember that these are the
friendly little folks who gave us Pearl Harbor and the kamikaze!
For just a fleeting second there, when Hashimoto spoke,
the thought flashed across my mind that the Japs had just won
World War II.
Another thought – the Japs could acquire gold in a different
way. They could sell our bonds and buy the EMU, the new
European currency that the BIS are sponsoring to replace
the dollar. The EMU is expected to be a package
combination of gold and paper.
So there you have the anatomy of the greatest sting in
history. It is real. It is in place. It cannot be stopped.
It can only feed on itself and get more and more desperate as
the shorts are squeezed to death. And best of all for the BIS,
the fingerprints on it are not Swiss – they are Japanese.
Call this the "Karate Chop".
Think about this, and call me with your reactions. There is more
to this story. Stay tuned.
Much love, Dad"