Thursday, December 1, 2011

David vs. Goliath

I wanted to bring to your attention how the SEC goes after small investment advisory firms and then issues grand press releases which announce the fines and punishment doled out to these "criminals."  As you are reading thru this, keep in mind that while the SEC and other financial markets regulatory offices, like the CFTC for instance, are looking the other way while big investment firms rape and pillage freely, the big bad SEC is clamping down on small firms that fail to "adopt and implement written compliance policies and procedures."  Oh boy, it's okay to embezzle $1.2 billion in customer assets to make margin calls on your firm trading account, but if you don't have your internal written policies handy for the SEC to walk in and look at whenever they want you get in big trouble.  Here's the LINK

I can guarantee you that this fact has a lot to do with how, and against whom, the Government decides to enforce the laws:
Lobbying outlays by the five biggest spenders in the commercial banking sector increased 12 percent in the first three quarters of 2011 over the same period last year, a McClatchy/Tribune analysis of federal lobbying disclosure records shows.
Here's the LINK

This is just more evidence that is piling up which points the fact that this country is deteriorating into a large-scale banana republic.  I can vividly recall in the 1970's reading countless stories about the way in which Governments and businesess operated in Central and South American "banana republic" countries.  If you were wealthy and owned your own politician, you could essentially operate your enterprise with absolutely no regard for the laws or fear of prosecution.  All it took was big "donations" to the politicians.  How is that any different from what is now happening in this country?  Seriously. Why does Jon Corzine get wait a month before he has to appear before Congress to answer questions about MF Global?  Why is he not in District Court right NOW answering questions from a judge?   He hasn't even issued any public statements?  Leads me to wonder if he's hiding in the closet of his good buddy Barack Obama and peeling bananas to feed to the politicians...

On another note, I have been fielding several inquiries about silver and the recent price action of silver vs. gold.  Well this comment from Ted Butler sums it up as well anything and rather than reinvent the wheel and create my own similar comment, I embezzled this from Ed Steers Gold & Silver Daily (which you can get for free everyday by email): 
The recent underperformance of silver relative to gold and other commodities presents an added reason to consider silver as undervalued. While many investors view relative price weakness as a reason to avoid purchase, that reaction is incorrect for a market already manipulated to the downside, like silver. In fact, an objective analysis of the relative price moves this year in gold and silver should bring that out. Silver and gold have more in common than any other commodity, making them an ideal relative comparison. As I write this, gold is up $325 (23%) year to date, while silver is up $2 (6.5%). (Admittedly, silver has generally outperformed gold on different time spans). Since there are 3 billion ounces of gold bullion in the world (out of 5 billion oz total), the value of those bullion ounces have increased this year by almost $1 trillion, to over $5.2 trillion. The total value of the world’s one billion ounces of silver bullion has increase ed by $2 billion to $33 billion. In other words, the increase alone in the value of the world’s gold bullion this year is 30 times greater than the total value of all the world’s silver bullion. Please think about that for a moment.

My point is that there is not much difference in the investment merits of gold and silver to warrant such a mismatch in the value of each. Both are precious metals valued by world investors in times of economic stress and loss of confidence. That the dollar value of gold is almost 175 times greater than the dollar value of silver is absurd. Let me be clear in what I am saying. I am not saying that gold is valued at absurd levels; I am saying that silver is being valued at absurdly low levels relative to gold. It is absurd that a ten dollar change in the gold price is equal to the total value of all the world’s silver bullion. The true absurdity is that this mismatch in relative values is not yet recognized by the world’s investors, even the big and sharp hedge fund operators. As and when it is recognized, those investors will rush to buy silver. In a very real sense, the higher gold prices climb, the better it is for silver. A higher gold price is the silver investor’s best friend.
That pretty much says what needs to be said.  And since I said yesterday that I felt that silver would minimally go to $200-300/oz., and on the assumption that we will ultimately see the gold/silver ratio regress back to at least 16, you can back into an implied price target $3200 - $4800 for gold.  But remember, $200-300 is only my publicly disclosed view...

Finally, I realized last night that I had made a comment about Bank of America's stock nearly breaching $5/share to the downside and that the comment might have puzzled a few people.  Typically once a big cap stock goes below $5 and holds there it is because it is less than 12 months from filing bankruptcy.  But this comment sums it up, and I forget the source from which I embezzled this early today (apologies in advance to the source):
If BAC had fallen below $5, there could have been avalanche selling because some institutions cannot buy or hold a stock that is less than $5 per share. A cascading BAC could have generated an ‘Emperor has no clothes’ moment for BAC. Buffett would have been chagrined. So it was imperative that someone closed BAC above $5 on Tuesday and that some scheme had to be implemented to drive the price higher on Wednesday.


  1. major hedge funds/pension plans likely will not/cannot invest in gold/silver let alone the actual physical metal...instead, they buy the world class safe haven US bonds yielding around 2%...oh wait, they're losing money in real terms? who cares, the fund managers just have to perform nominally...everyone would be much the wiser if they took their funds out and protected themselves by buying physical gold and silver.

  2. This is a Case of Systemic Solvency & Control

    With gold strengthening this week, today KWN wanted to speak with the firm that is calling for $10,000 gold to get their take on yesterday’s coordinated central bank actions. Paul Brodsky, who co-founded QB Asset Management Company, had some candid and rather scary comments about where the world is today, “This is drawing back the curtain to reveal exactly who is sovereign – the global banking system. There is no German banking system or Euro banking system or American banking system. When we strip out community and regional domestic banks around the world and consider the world’s largest 30 bank holding companies, then we must recognize there’s a global lending organism holding sovereign sway over G7 governments and populations.”

    A couple years ago I thought the decision would come down to whether Angela Merkel would choose to save Deutschebank and other German banks with PIIG exposure, or whether she would side with the German taxpayer. I think what has become obvious very recently is that the decision is not hers to make.

    The largest banks do not belong to sovereign economies with which they’re usually associated. (After all, DB’s US subsidiary – it’s called Taunus – is the eighth largest US bank by assets.) In fact, it should be pretty obvious to all observers by now that there really are no sovereign nations when these nations don’t have their own currencies.

    I think it is a safe assumption that the Fed, through its swap lines, will ensure the world’s largest banks remain solvent regardless of provenance. These banks are the conduit through which global currencies are created and maintained. Controlling the currencies is where the power lies....

  3. (David a different one)
    Do the fundamentals support a g/s ratio of 16? Historically, yes. But that was before the many modern industrial uses. If silver goes way up, some industries will go with alternatives or give up. But with panic investment buying and silver being a smaller market than gold it may go to 10. Or 30. I dunno. Waiting for it to go up though.

  4. This guy's funnier than the sheriff in blazing saddles...

    Att Gen asks Americans to report IP violations on their neighbors but not 1 prosecution of Wall Street

    Seriously? Not a single prosecution against Wall Street for the collapse of 2008 but he wants people to give a damn about IP violations for Hollywood and the recording industry? Instead of boot-licking for the 1%, maybe he could find some time to prosecute the real trouble makers. Wake me up when there's a Democrat who is significantly different from a Republican so I can vote for real change. What we're getting now is not change and not worthy of support.

  5. At least David could see Goliath...we're all in the dark!

    Wall Street Journal: Corzine and his regulators

    MF Global customers are still waiting to be made whole, but the
    larger importance of this story relates to the effectiveness of the
    Dodd-Frank, Sarbanes-Oxley regulatory model. Americans have been told
    that, in response to the 2008 financial crisis that regulators failed to
    predict or prevent, regulators needed to have vast new powers to
    prevent the next crisis. But in MF Global the regulators failed the
    law's first serious test.

    MF Global also shows how this new era of regulatory power puts a
    premium on political connections. Mr. Corzine was named CEO of the
    company in part—maybe in substantial part—because he had close ties to
    regulators and could help MF Global navigate the many new rules. This is
    the new financial crony capitalism, and it also failed its first test.
    The mistake is to believe in regulator prescience, as opposed to
    simpler, straightforward rules on, say, leverage or capital.

    Mr. Gensler, for his part, has a response to the cronyism charge.
    Since the firm went bankrupt he has announced that he will recuse
    himself from issues affecting MF Global.


    Congressman Randy Neugebauer sent a letter to Mr. Gensler this week,
    and Wednesday night Senator Richard Shelby contacted the CFTC's
    inspector general seeking an answer to the question of how and when Mr.
    Gensler decided that recusal was appropriate. This is another answer Mr.
    Gensler should bring to today's hearing.

  6. Too Small (cheap) to Swindle is the diametric opposite of Too Big To Fail. In the mob they called it a protection racket, but if you think they ran organized crime out of Sicily, just look at what they're running out of Washington. The General is rolling in his grave.
    As far as silver and gold, the scale of appreciation differs in that one has an undervalued commodity utility and the other has a unique SETTLEMENT function. The busy central bank bees of the BIS hive are not storing up silver honey. When the truth (in gold) breaks free, we shall see who sits atop mountains of it, when governments scramble to settle with the only unencumbered money in the world.

  7. Had it out with a bunch of traders last night about the Fed move. Why do people find it hard to believe that the Fed move was for B of A, and no other reason. If it was for a European Bank, I would guess the ECB would have led the charge. Actually, this move accomplished two things.

    1. Kept B of A from spiraling down the financial toilet and giving them enough time to prepare a reverse split to take care of the $5 problem. If they crossed $5 so close to the end of the year, they would have been done.

    2. Allowed countless funds to post positive returns for the year, further continuing the illusion of recovery.

    Completely shameful. Almost as shameful as this piece of legislation the president is about to sign:

    The first Jones Act waiver in over 90 years...enacted, ostensibly, for the support vessels in connection with the America's Cup challenge but allowing for other exemptions, including a Made in China Dry-Dock for Alaska. This legislation just drove the first nail in the coffin of an almost dead shipbuilding industry in this country. I read that piece of legislation like I was the Indian in the old pollution commercial.

    I am Sofa King...tired.

  8. Do you think they add sedatives to our public water?

    How do you think the money managers tipped off by Paulson were positioned?

    I'd like to take Paulson to task in the strongest possible way for
    dereliction of duty, violating the public trust and for generally
    screwing over the American taxpayer.

    As reported by Bloomberg,
    Paulson's meeting and alleged comments did not violate insider trading
    laws; technically it was legal. But just as insider trading by sitting
    members of Congress is wrong and offensive, Paulson's gift to his hedge
    fund buddies - including several alum of Goldman Sachs, where he was CEO
    prior to becoming Treasury Secretary -- is so grotesque and wrong it
    boggles the mind; more especially considering what Paulson told the
    press about Fannie and Freddie that same week was in stark contrast to
    what he told the money managers.