Q: What would Jesse Livermore and Sun Tzu be doing in today’s gold market?
A: Lusting for blood. Both would understand that there is a historic opportunity to make serious money in the next few years. Civil unrest is coming.
The Art of Speculation during Civil War
Sun Tzu Meets Jesse Livermore
The people controlling corporations have insider information and can therefore trade their company’s stock at an advantage to the general public. In most jurisdictions this is a violation of criminal law. However, there are groups to whom the prohibition against insider trading does not apply, for instance, members of the USA Senate and House of Representatives. They are exempt from this prohibition. They have information concerning what laws will be adopted and therefore who will benefit and who will be harmed by their action in passing laws and regulations affecting business enterprises. According to publicly disclosed reports, the performance of US senators’ and representatives’ portfolio investments compared to investment norms is spectacular. On average, when the market is down 10 percent for the year, their portfolios are up 10 percent. It certainly pays to be the law maker. How much of the gain is based on superior information vs. indirect payoff is impossible to decipher. There are many other examples.
It is against the law in most countries for a person deemed to be an insider to short sell his company’s shares. Public company officers and directors are insiders and have a fiduciary obligation to look after the financial interests of the company and its shareholder owners. To make money on selling the shares short violates this duty in appearance and fact. In addition to criminal penalties, it is generally the rule that any profits an insider makes from such short selling activity must be paid over to the company for the benefit of all shareholders. Some of the owners do not accept that they should be constrained by the law as it applies to the public. Since they are the real owners, they feel they should be able to profit from knowing their company will be issuing a bad report in the near future. One method of compromising these short selling rules is as follows.
An issuing bank in another jurisdiction sells its midterm notes with the interest rate and/or principal repayment tied to the price of the first bank’s share price. So if the shares of the first bank are now say 50 and the price at the end of the term of the notes is 65, the holder of the note gets a premium of 30 percent. If the share price is higher than 65, the premium is still limited to 30 percent. If however the price of the shares dips to 5, the holder of the note only gets back 10 percent and the issuer bank keeps the difference: 90 percent. Economically this is a short sale with a limitation of possible loss to the short seller of 30 percent. The owners apparently feel that since the profit is taken out through a midterm note and not through the direct short sale of the first bank’s shares and, that the mechanism for the short sale is in a second jurisdiction in the form of a debt instrument, that the law against profiting from short selling your company’s shares does not apply. Or, they may simply feel that laws do not apply to them since they own both countries through controlling the major banks in both jurisdictions, meaning they control the regulators, police, politicians, prosecutors, judges and jailers in both jurisdictions. If you are offered a very large block of the midterm notes, nine months before the due date and the shares of the first bank are trading at 50, what should you do? What should you do if the number of notes in the block that is offered exceeds the number of issued and outstanding notes?
In the foregoing example, the most likely situation is that the insiders have shorted and want to short more shares of the first bank. In view of the complexity woven and the amount of securities for sale, it is very likely the securities are being offered by insiders. If the insiders wish to be massively short the shares, what is the likely direction of the share price? If the insiders have erected an elaborate structure that is at best borderline legal in order to short the shares of their company, what is the likely direction of the share price over the next nine months? All of the names and some of the facts have been withheld or changed to protect the less than innocent. The game appears to have been fixed. Insiders are short the shares and want to short more. The incremental cost of being short is the expense of issuing the midterm notes and maintaining their ownership of two countries. Were they to lose that control, they might be subject to criminal prosecution for their scheme.
What will be the market price of the first bank’s shares nine months out? If we are correct in our analysis that the game is fixed, we can surmise it will be less than today’s price and the cost of maintaining the short position.
Extraordinary speculative profits are possible with minor risk if you verify the truth, properly use logic and keep it private. The establishment will continue to make war and milk the public. If you understand how they are doing this, you can protect yourself and profit far beyond the norm. If you are short selling shares that the establishment is short, your risk level is low and potential for profit high. This is not investment activity or undertaking a market risk. It is speculative profit in time of civil war.