“Judge things by how statistically likely they are, not how they appear.” ~James Montier

By Catherine Austin Fitts

This week, I will be speaking with Chuck Gibson – managing member of Financial Perspectives and my partner at Sea Lane Advisory, LLC.

First, we will review events and performance in the global equity markets for the second quarter. The strength of the equity markets into July has continued to surprise investors, even inspiring Fed Chairman Yellen to describe valuations in some market sectors as “substantially stretched.”

Then, Chuck has a technical analysis on “finding bottoms.” While US equities have been strong, other parts of the equity markets have been weaker and commodities have been in a consolidation pattern.  Buying equities at market highs has historically not been a strategy for attractive long term gains. When investors find themselves facing all time highs in one market, how do you identify when it is time to take advantage of markets that have been consolidating or are low? How do you identify a so-called market bottom? How do you know when to shift?

Chuck has prepared a presentation using precious metals as an his example. A discussion of relative values in the two markets will be good background for our discussion with Franklin Sanders on the Precious Metals Market Report in August – August and early September are a traditionally low season for gold.

In Let’s Go to the Movies, I will review George Clooney’s latest movie The Monuments Men and what it tells us about the spoils of war. Stories of war time looting, seizures and the various economic spoils of war are on our minds these days as a new round of economic sanctions trigger asset transfers and resulting winners and losers.

Talk to you Thursday!

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By Catherine Austin Fitts

Unbelievable. Low interest rates continue to support MORE growing dependency on debt. Check out some of the latest reports:

Total NYSE margin debt is spiking

Corporate debt (net of those big cash piles) is high and rising – no doubt in part to support stock repurchases

Europe’s sovereign bond yields are reported lowest “since 15th century Genoa

We have a new financial asset class emerging – financial flypaper.

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By Ambrose Evans-Pritchard

Bond yields have fallen to the lowest level in modern history in Germany, France and the eurozone’s core states, signalling a high risk of deflation and mounting concerns about sanctions against Russia.

The yield on German 10-year bonds fell to a record low of 1.11pc in intra-day trading, partly on safe-haven flows. French yields dropped in tandem to 1.5pc. These levels are far below rates hit during the 1930s or even during the deflationary episodes of the 19th Century.

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“What is relevant is what solves the problem. If we had thought through real relevancies, we would be on Sirius by now.” ~Sir Peter Medawar

By Catherine Austin Fitts

The news informs us this morning that Angola has delayed the launch of their stock market until 2017 so that the companies in Angola have more time to get their accounting in order. This is a reminder that the world is still building out its equity market infrastructure and we have a long way to go in doing so.

I remember in the early 1990′s when the SEC set up an emerging markets task force and asked me to participate. Teams from the SEC were traveling around the world to help people set up their stock markets. In 1997, I was in Shanghai as the new Shanghai exchange was getting off the ground. To say it was basic is an understatement. Yet, the interest and learning speeds were astonishing. So it is not surprising where Shanghai is today and where it is expected to be in decades to come.

One of the challenges that the emerging and frontier markets face is building the intellectual capital necessary to maintain public equity markets – this includes a trustworthy accounting profession.

One of the strengths of the Anglo-American world has been our investment in the legal and financial tools that make markets go – including accounting. However, increasingly the question is not whether the developed world’s accounting is more trustworthy – but whether it is just better at keeping rigged accounts rigged and floating along.

I worked closely with three of the world’s top accounting firms when I ran the Federal Housing Administration and then ran the company that served as their lead financial advisor. I don’t believe a word that comes out of the mouth of two of them – now merged. Their signature on a piece of paper is entirely worthless, other than testifying that any lies involved carry official weight.  The third was Arthur Anderson and we know what happened there.

What gives me comfort when I review the financial statements of companies is not the auditor name – it is the quality of the board of directors, the management and the lead investors. Nothing supports the successful management of a company like the integrity of financial communication and reporting. So in businesses that operate in the general economy, there are strong incentives for keeping things accurate. Timely feedback is a force multiplier that keeps success grounded in the marketplace serving real customers.

Businesses that derive the majority of their revenues from serving the federal government as contractors are another matter. The National Security Council can give waivers that allow companies to report accounts and financial statements that are not in compliance with SEC rules.

The US government has refused for 20 years to comply with the laws requiring audited financial statements. The official reality of the US governments operations and finances has become so different than the reality that it is impossible for the US government to comply with the law or pass an audit. And even if it did, the accounting profession’s audit statement is not to be trusted.

For an audit to have meaning the auditor has to have the ability to say “no” without having his or her life threatened, or for that matter, the lives of their family and children.

I appreciate the challenge that Angola is facing. Prosperity depends on financial liquidity, which depends on integrity in accounting. From the time that the Franciscan friar Luca Pacioli blessed us with double-entry bookkeeping, achieving that integrity has been an inter-generational journey that is far from over.

When you look at the financial statements for a company or organization, first look at the pictures and resumes of the people who govern, manage and own or fund it and ask yourselves, “Do I believe these people to have integrity and be competent at what they are doing?” If the answer is “no,” don’t bother to read the financial statements. As a practical matter, they are probably meaningless.

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(Photo Credit: Michael Appleton for The New York Times)

By William Alden

Regulators on Wednesday imposed new restrictions on a vast market that played a significant role in the 2008 financial crisis.

The Securities and Exchange Commission voted 3 to 2 to adopt a set of new rules for money market funds, a $2.6 trillion industry where ordinary individuals and sophisticated institutions alike park their money. The rules come after years of debate among regulators and lobbying from Wall Street.

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By Catherine Austin Fitts

One of the points made to me at last month’s conference in San Mateo by some of the most respected researchers who have studied black budget operations for many years is that they think a significant portion of the monies that have gone missing from the US government could be explained by the cost of building and maintaining underground facilities and transportation systems. So I went back and reviewed the topic and made an attempt to estimate what it would cost to build out the facilities that are alleged to exist.

I wonder if the dramatic increase of mortgage fraud in the 1990′s did not coincide with a sizeable increase in underground construction. Yes, we did invest in infrastructure over the last twenty years, just “upside down” or “topside down.” Not surprisingly, the best introduction that I found was a lecture given by Richard Dolan several years ago on Richard Sauders research in this area.

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Related Reading:

Above and Beyond’s Official Website

Above and Beyond on Wikipedia

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“You’ll see some very interesting changes in your conception of reality. But you have to remain grounded at the same time. Because you are living in this world, in this form of reality.  That’s the trick, to remain grounded.” Jack True, in interview with Jon Rappoport

By Catherine Austin Fitts

This week on The Solari Report, more on “breaking away” as I present my 2nd Quarter Wrap Up.

The first half of 2014 has been profoundly power shifting. I will review the most important events in the financial markets and geopolitical stories that highlight the primary trends impacting your time and finances. My goal is to help you see the strategic areas of investment opportunity and risk as they unfold within the events around us.

In Let’s Go to the Movies, I will review the Belgian police thriller Salamander. Salamander has been been purchased by the BBC and is scheduled for an English-speaking remake. A fascinating case study in the nature of political governance and control in the 21st century, Salamander underscores the power and importance of “control files.” For those of you trying to understand the latest round of pedophilia scandals in England and how compromising pictures in the wrong hands can drive people to extremes, this one is for you.

Please make sure to post or e-mail your questions and comments. “Talk” to you Thursday!

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By Catherine Austin Fitts

Here is the bottom line from our “2nd Quarter 2014 Wrap-Up”.

Slower US and global growth in the first half of 2014 means the slow burn is fraying. This means that the reduction of liquidity that results from Fed’s continued taper through the end of October is going to increase financial risk and geopolitical tensions. As the Fed Chairman and IMF heads have pointed out, their authority and tools can not address the growth or challenges in the shadow banking system.

I said at the beginning of the year that our big risk if the slow burn wears thin is not global financial collapse, but war – in all its varied forms.

From the genocide in Gaza to the fighting and economic collapse in the Ukraine, from the drought in parts of North America to the disappearance and crashing of commercial planes around the world, from enforcement actions against European banks to enormous tensions facing mid-term election campaigns, the managers of the global economy are scrambling to keep the slow burn going.

With the Fed taper ending in October, G-7 risks the WWI equivalent of landing on Normandy Beach with water pistols. That is, unless they call in the military.

Of course, all the fighting only shrinks the global pie, just as continual centralization has been shrinking it for a long long time. Control of the global currency and investment model – this is the end game.

Say a prayer for world peace and for peaceful hearts and minds for global leadership.

Related Reading:

2nd Quarter Wrap Up

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“The Post World War II System of Hidden Finance” with Dr. Joseph Farrell

The National Security Finance Intelligence Military Industrial Complex

“Guns & Butter” investigates the relationships among capitalism, militarism and politics. Maintaining a radical perspective in the aftermath of the September 11th attacks, “Guns & Butter: The Economics of Politics” reports on who wins and who loses when the economic resources of civil society are diverted toward global corporatization, war, and the furtherance of a national security state.

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