Wednesday, November 30, 2011

You Know How You Get To Carnegie Hall?

Practice.  After practicing short term gold and silver forecasting for 10 years, I tend to shy away from posting my short term views on here because it only leads to readers busting my balls when my calls are wrong.  It's safe to assume that - in general - my longer term outlook (3-5 years) is for at least $200-300/oz. silver.  Likely higher but that's what I'll go on record publicly with.

Having said that,  I do believe that the silver market - after the vicious manipulated take down that took silver from $50 in April to a recent intra-day low of $26 and change on Sept 26, I am confident that silver is ready to take-off again.  Now, having said that, we will still get a lot volatility because of the market manipulation to which even CFTC board member Bart Chilton publicly admitted (note: of course, he did not explain why the CFTC does not crack down on it).  I know many of you have read the recent uber-bullish price calls by James Turk and John Embry.  I purposely have not read those yet because I like to form my own convictions before I see how they match up against the trading convictions of people whom I highly respect.  After looking at hourly and daily silver charts yesterday before the market closed, I decided that most of the downside risk has been washed out and that there is a high probability silver will begin to make a big mover higher.  We started accumulating AGQ in our fund and we lifted all of our bullion hedges.

While the risk of a manipulated take down always exists, if silver can grind thru the mid-40's it should easly and - as John Embry termed it - "cleanly" move well above $50.  I know Turk is calling for $70 silver and Embry is looking for high $60's in the "short term."  I won't put out a specific price target but I will say that I believe the price outlook of both Turk and Embry are achievable - if they do occur - by May.  Now, if I'm wrong about this go ahead and bust my balls and I'll post those comments unedited.

I wanted to comment quickly on the currency swap deal announced by the Fed today.  In a nutshell, what this facility does is make available a massive quantity of U.S. dollars to non-U.S. banks who have immediate dollar liability requirements (payments) that are not being funded by their income producing assets (i.e. they are insolvent, for the most part).  To cut through the spin, it is likely that there were one or more very large European banks that were close to collapsing and the Fed bailed out the situation.  From the Fed statement today: 
[T]hese central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant. At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar...
That tells me that one or more big banks were on the brink of default.  The Fed also cut the interest rate charged for use of the swap facility from 1% to 1/2%.  This really underscores the severity and immediacy of the problem.  Interestingly, a friend from NYC called me this morning and told me that Deutsche Bank is trying to sell its asset management division.  This is a cash cow asset and it tells me that, not only is DB desperate to raise liquidity, but it has to resort to unloading good, core assets because there is no bid in the market for its crappy assets.  In other words, Deutsche Bank is running out of room with which to hang itself...these problems are also impending in the U.S.  The stock price of Bank of America nearly lost the $5 level yesterday and I fully expect Bank of America to either be bailed out by the Taxpayer or collapse within 12 months.

One more little tidbit for those watching for history to either rhyme or repeat:  when the Fed initiated a massive global dollar liquidity credit line like this in December 2007, it was followed by the collapse of Bear Stearns three months later in March 2008.  The entire U.S. banking system nearly collapsed a few months after that.  The point here is that this Federal Reserve - ultimately U.S. Taxpayer back-stopped - liquidity bailout is nothing more than kicking the can down the road.  The question is, for how long?

One more point of note:  China announced just prior to the Fed action that they were lowering their bank lending reserve requirements.  Both the move by the Fed and by China are moves that will likely have to be followed up sometime soon (i.e. within 2-4 months) by a very massive Quantitative Easing - aka money printing - program.  The money printing - aka currency devaluation - is on the verge of becoming globally viral.  This is why gold and silver are moving very strongly today, as well as fiat/risk-based assets like stocks and junk bonds.

It's on the basis of this fundamental back-drop that I am confidant that my outlook for silver (and gold) is quite justified and highly probabilistic.


  1. Silver will stay under $45 until early 2013.

    It hits $1500 per ounce by late 2015.

    Great Depression begins in March 2014.

  2. In the macro picture there are really only two choices left. World austerity and the resultant lynch mobs- or print. Print is the only way out. There truly is no other alternative left for the worlds politicians and central bankers.

    Thanks Dave, love your blog. I put it on my blogroll

  3. (Dave)

    Thanks for the feedback Brian. I appreciate it as much as I'm sure you do with your blog. I just added your's to my blogroll, although I'm not sure how many people actually scroll down that far on here LOL

  4. (Dave)

    "wtfdik" - hmmmm...someone knows my initials LOL

  5. I own a fair amount of AGQ myself, but in case you didn't know Dave, Deutsche Bank is a major counterparty to it.

  6. (Dave)

    Ya. When I use metal ETF's it's for shorter term directional plays or hedgins. Imagine being short a shitload of GLD (or having a shitload of puts on it) when HSBC defaults on delivering gold to some big holder that turns in its shares....

  7. If no one did anything could this ever occur?..I still don't get it...what am I missing?

    Bank Funds Won't Cover MF Global Shortfall

    MF Global Inc., the futures brokerage that collapsed on Oct. 31, will have a shortfall in customer funds even if all the money in customer accounts at U.S. depository institutions is recovered, the trustee overseeing the firm's bankruptcy said.

    James W. Giddens, the trustee, has said there may be as much as $1.2 billion in missing funds. MF Global Inc. was a subsidiary of MF Global Holdings Ltd., the New York-based firm run by Jon S. Corzine that failed after making $6.3 billion in wrong-way bets on European sovereign debt.

    "The trustee has determined that even if he could recover everything that is at U.S. depositories, there will be a shortfall in what MF Global management should have segregated at U.S. depositories," according to a document, dated today, from Giddens's office that was obtained by Bloomberg News. Kent Jarrell, a spokesman for the trustee, confirmed the authenticity of the document, and said it was part of a briefing Giddens gave today in Washington with congressional aides and a lawmaker.

  8. James Koutoulas Co-Founder Commodity Customer Coalition - MF Global Bankruptcy
    Warren Pollock (wepollock) out foxes CNN and Reuters (Bloomberg CNBC did not attend at all) by asking hard questions of James Koutoulas regarding MF Global, in front of US Bankruptcy court, Bowling Green Manhattan. CNN tried to push him out of the way, a Reuters "reporter" scoffed, yet I bulldog to the real issues and concerns on this important issue as the mainstream media dozes in a coma. While the CME may back peddle; Warren talks to a retiree who lost all her money. We talk about JPM trying to run the show during bankruptcy as a fox in the henhouse; the CFTC, the CME and roles and responsibility. Items CNN won't cover include the two MF Global bankruptcies and balance sheets in play. One balance sheet containing customer money; the other used for speculation. If the speculative side dipped into customer funds a clawback must occur! I am sure JMP would not like that outcome. Was there fraudulent conveyance? Why is speculation still occurring if customer funds were at play in the speculative side of the house. JPM delaying motions with continuances.

  9. New word:

    Ineptocracy (in-ep-toc’-ra-cy): A system of government where the least capable to lead are elected by the least capable of producing, and where the members of society are least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of an ever diminishing number of producers.

    Read more:

  10. Where in the World Is Jon Corzine?

    When was the last time anybody saw Jon Corzine?

    For several days following the bankruptcy of MF Global, Corzine was regularly appearing in the office. Sources at MF Global told me he spent his days in conference rooms with teams of lawyers and accountants. Then he abruptly resigned as chief executive.

    And for his next act, he vanished.

    Corzine is not an ordinary chief executive. As a former US Senator and former Governor of New Jersey, he is a public figure. He was even under consideration to be the next Treasury Secretary.

    Corzine may be able to hide from cameras. Perhaps even from the Senate's panel investigating the collapse of MF Global. But he can't hide from public suspicion. And silence will never save his reputation.

    Here he is...he's

  11. “MF Global – Hoisted on a Petard of Arrogance” by Sydney M. Williams

    Wall Street has a maze of rules and, despite the hoots and hollers from “occupiers” and populist politicians, most are designed to protect investors. Perhaps the most fundamental of these is thou shalt not comingle customer cash with company cash. MF Global, which traces its roots back 228 years and which for the last 19 months had been run by Jon Corzine, former CEO of Goldman Sachs and a former U.S. Senator and Governor of New Jersey, allegedly did just that, according to James Giddens, trustee for the firm that filed for bankruptcy on October 31.

    How complicit Mr. Corzine actually was in what would be a criminal act of using client funds for the firm’s purposes will be determined by the courts. But the act also highlights the too-cozy relationship – cronyism – between politicians and Wall Street. MF Global’s chief regulator, the Commodity Future’s Trading Commission (CFTC), which obviously did not perform the oversight they should have, is run by Gary Gensler, a former Goldman Sachs partner. Last February, MF Global was named as one of twenty-two primary dealers by the New York Federal Reserve, joining a select group that includes banks such as BNP Paribas, Goldman Sachs, J.P. Morgan and UBS Securities. The head of the New York Fed is another former Goldman partner, William Dudley. This smacks of crony capitalism at its worse, benefitting a small contingency at the expense of the people.

  12. The Fed’s European “Rescue”: Another back-door US Bank / Goldman bailout?
    DateWednesday, November 30, 2011 at 7:53PM

    Perhaps at that point, Goldman thought they had it all under control, but Germany's bailout-resistence was still a thorn, which is why its bonds got hammered in the last auction, proving that big Finance will get what it wants, no matter how dirty it needs to play. Nothing from the Fed, except a small increase in funding to the IMF.

    Rating agency, Moody’s announced it was looking at possibly downgrading 87 European banks. Still the Fed waited with open lines. And then, S&P downgraded the US banks again, including Goldman ,making their own financing costs more expensive and the funding of their seismic derivatives positions more tenuous. The Fed found the right moment. Bingo.

    Now, consider this: the top four US banks (JPM Chase, Citibank, Bank of America and Goldman Sachs) control nearly 95% of the US derivatives market, which has grown by 20% since last year to $235 trillion. That figure is a third of all global derivatives of $707 trillion (up from $601 trillion in December, 2010 and $583 trillion mid-year 2010. )

    But, Goldman has something the others don’t – a lot fewer assets beneath its derivatives stockpile. It has 537 times as many (from 440 times last year) derivatives as assets. Think of a 537 story skyscraper on a one story see-saw. Goldman has $88 billon in assets, and $48 trillion in notional derivatives exposure. This is by FAR the highest ratio of derivatives to assets of any so-called bank backed by a government.