Thursday, April 19, 2012

Moron Bubbles

The bubble is in paper assets, particularly sovereign debt. Historic lows in interest rates mean that prices are at historic highs as rates and prices move inversely. Take into account the solvency factor, and the conclusion is inescapable that such paper assets are in the biggest bubble in history. Sadly, the vast majority of people will not understand this until it is too late and their savings have been destroyed.  - Robert Fitzwilson on King World News (link below)
First I quickly want to point out that yesterday, despite the rosy headlines reported with regard to weekly mortgage applications, which increased due to refinancing applications, the purchase index absolutely plunged by over 11%.  This follows a big decline the previous week.  In addition, today the annualized, seasonally adjusted existing home sales number came in well below the Wall Street consensus expected number.  Wall Street, the media and the National Association of Realtors are doing what they can to shamelessly slather lipstick on the pig, but the truth is that the housing market is collapsing again.

To be sure, it would appear that there might have been a slight bounce in the housing market in the early part of 2012, but as I've demonstrated in previous posts, with the data to back it up, the majority of that "bounce" was fueled by in an influx of "investors" buying homes to rent out, a brief decline in mortgage rates which was stimulated by the Fed's "Operation Twist" money printing scheme and a liberalized, tax-payer subsidized mortgage finance initiative extended by the FHA, which includes the ability to buy a home with no money down.  Given the amount of Government intervention in this marketplace, you would have thought that the dollar devaluation operation conducted by the Fed and the taxpayer-financed lending by the Obama Clan would have sparked a bounce in the housing market that we actually noticed...

This leads me back to the quote above, which comes from a must-read interview with Robert Fitzwilson by Eric King.  Fitzwilson explains why the biggest bubble in the history of the world is the bubble in paper assets and specifically, the bubble in sovereign debt.  To illustrate his point, I took the liberty of sourcing a chart of total credit market debt (Government plus private sector debt) for just the U.S.:

(click on graph to enlarge)

THAT, my friends and colleagues, is what a REAL bubble looks like!  I would also like to point out that the slight decline shown starting around 2009 is not a true decline, per se.  Rather, it represents the amount of mortgage and other private market debt that has been either written off by the banks or written off by the banks and monetized by the Fed - primarily the latter.

Finally, Fitzwilson contrasts the debt bubble with the media-induced idea that gold is in a bubble: 
Nothing could be further from the truth. The perception is so far below the reality that we effectively have a negative bubble. Buyers of these three assets are speculating fools according to the mainstream media. The only thing that is foolish is not holding onto positions and not adding as nominal prices periodically come down.
Here's the LINK

Judging from what looks to be like possibly the worst sentiment I have seen in eleven years of my involvement in the precious metals sector, I have to concur with Mr. Fitzwilson.  Bubbles do not culminate with extreme negative sentiment toward an investment.  In fact, the hallmark of a bubble is the exact opposite.  And for the most part the general public has been largely sellers of the their gold and silver (witness the mania in cash for gold - this is you selling, not buying).  How can there possibly be a bubble in something which the public has yet to participate?


  1. Syria forced to liquidate gold assets
    Western, Arab sanctions have caused Damascus' currency to sink, depleting cash reserves
    Published: 17 hours ago

    (ISRAEL NATIONAL NEWS) — Syria is moving to liquidate its gold reserves to raise revenue as Western and Arab sanctions targeting its central bank and oil exports cut into its cash reserves.

    Syria’s foreign exchange reserves have been halved from about $17 billion, French Foreign Minister Alain Juppe said on Tuesday.

    “Syria is selling its gold at rock bottom prices,” he said after a meeting with about 60 nations aimed at coordinating measures against President Bashar al-Assad’s government.

    1. Israeli chutzpah probably believes that if it print will come true. Selling gold for WHAT? DOLLARS? CATTLE? MARBLES?

    2. I find this whole story extremely suspicious. I first heard about it at Reuters:

      Syria selling gold reserves as sanctions bite: sources

      But lets not forget that the Rothschilds purchased Reuters back in the 1800s....I agree with Anonymous above me when he/she said, "Selling gold for WHAT? DOLLARS? CATTLE? MARBLES?" I kept asking myself this same question. If Syria was really selling its gold then what the heck would they sell it for?! Guns? more paper money? It just doesn't make sense.

      -Sicilian Gold

  2. Friday, April 13, 2012
    Sprott Market Insights - John Embry (Pt.1)
    John Budden speaks with John Embry, Chief Investment Strategist at Sprott Asset Management, about manipulation of precious metals markets by governments in an effort to make paper currencies look good. Meanwhile, all the evidence indicates that virtually all currencies are in devaluation.

    Friday, April 13, 2012
    Sprott Market Insights - John Embry (Pt.2)
    John and John talk about the incredible value in gold and silver mining shares. They reference their experience in the 1970 Bull Market in precious metals when they made a lot of money. They concluded by saying that investors consider a compliment of bullion and a diversified portfolio of shares.

  3. Michael Krieger

    The world is a very dangerous place at the moment and it is becoming more treacherous with each passing day. The reason for this is because the self-proclaimed “global elite” or TPTB, whatever you want to call them, have declared war on the rest of us. It is not just financial and economic war but it is also a moral and spiritual one. The game is being played on many levels and most of humanity remains completely unaware of it (although I would say a higher percentage of us are aware than ever before in recorded history thanks to the internet). When people look back at what has happened in the past decade or so and wonder why the welfare-warfare state continues to grow despite who sits in the Presidency the answer becomes clear. The leadership in the United States of America, and in reality pretty much every government on the planet, could care less about the advancement of their people.

  4. Wall street mafia bubble?

    In the second half of the show Max talks to Rolling Stone journalist,
    Matt Taibbi, about the Wall Street mafia, their small and big time
    rackets and the process of writing these crime stories for a wide

  5. Hi Dave. I saw this message today on InvestorsHub. What do you think about this as a solution or at least fighting back against this seemingly never-ending shorting of junior mining stocks?

    "All you do is to phone your broker and put an order in saying that you wish to place your shares for sale at, for arguments sake, double today’s price. As they are 'on order' they cannot be lent out by your broker and in turn you are reducing the amount of 'free shares' out there that can be used for shorting purposes. And don't forget to move your limit order up when the price starts to recover, then, that way your shares can't be shorted - not much but helps."

    1. My view is that will do nothing. The shares are still held in street name and they can still be lent out. Broker doesn't have to worry about covering them until the order is executed.

      Naked shorting is an even bigger problem, especially in Canadian stocks.

      The only way to try and fight legitimate borrow/short-selling is to take physical delivery of your shares. That's no big deal if they're a long term investment. It's a bit of a pain to sell them, however.

      The naked shorting will never be fixed/addressed until this country collapses because the people who are voted into power now openly do not enforce the laws they were elected to enforce.

      The Obama Justice Department is the worst in the history of this country. It's an absolute joke. It makes the old Soviet Politburo look like a system based on rule of law.

  6. You had me darling at "moron bubble". What a title for a post! I love it! If nothing else, reading it made me feel better about myself.

  7. Sprott On Biderman On Paper Vs Physical Gold

    While Eric Sprott obviously has a modest axe to grind, his open and honest discussion with Charles Biderman on the difference between gold ETFs methods of owning gold, so-called physical vs paper gold, is noteworthy given the depth he goes into. After explaining the concerns of GLD, Pisani's putterings, and tax-related differences, Eric goes on to discuss his and other physical trusts and how he started down this route. The latter end of the discussion shifts from the practicalities of owning 'sound money' or 'hard assets' to the thesis for doing so - the debasement of fiat currency and the printing press fanaticism being exhibited globally. Concluding with his thoughts on what could change this thesis, he sees the greatest risk that "we come to our financial senses" - a highly unlikely scenario given the dominoes likely to fall should that occur.

  8. Chris Whalen: The Fallacy of “Too Big To Fail”–Why the Big Banks Will Eventually Break Up
    Why politicians let MF Global investors get taken

    .good conversation on cds, cash settlement, etc

  9. Turk - The Most Important & Extraordinary Chart for 2012

    We’re making history here. Gold stocks have never been this undervalued before. We’ve had a 12 year bull market in gold, but we’ve also had a 15 year bear market in the mining shares that began with the Bre-X collapse.

    It’s very rare in market history to see an outlier like this. This is an extraordinary event. Years from now we are going to look back and shake our heads in disbelief at how undervalued gold stocks were in 2012.

    This 15 year downtrend and historic low has effectively destroyed the morale of virtually the entire gold mining investment community. Psychologically, this has also had a tremendous dampening effect on the morale of those watching the gold bullion market.

  10. Free $10 Million Loans For All! and Other Wall Street Notes

    In it, Bair points out that since we’ve been giving zero-interest
    loans to all of the big banks, why don’t we do the same thing for
    actual people, to solve the income inequality program? If the Fed
    handed out $10 million to every person, and then got each of those
    people to invest, say, in foreign debt, we could all be back on our
    feet in no time:

    Under my plan, each American household could borrow $10 million
    from the Fed at zero interest. The more conservative among us can take
    that money and buy 10-year Treasury bonds. At the current 2 percent
    annual interest rate, we can pocket a nice $200,000 a year to live on.
    The more adventuresome can buy 10-year Greek debt at 21 percent, for
    an annual income of $2.1 million. Or if Greece is a little too risky
    for you, go with Portugal, at about 12 percent, or $1.2 million
    dollars a year. (No sense in getting greedy.)

    Every time I watch a Republican debate, and hear these supposedly
    anti-welfare crowds booing the idea of stiffer regulation of Wall
    Street, I wonder how many audience members know that Bair's plan is
    more or less exactly the revenue model for all of America’s biggest
    banks. You go to the Fed, get a buttload of free money, lend it out at
    interest (perversely enough, including loans right back to the U.S.
    government), then pocket the profit.

    Read more:

  11. michael schumacherFriday, 20 April, 2012

    day three of four where commodities have not followed equity's. Something must be coming soon.

    1. QE is definitely coming but I doubt next week.

      Next week is roll week for May silver. It's alredy started. Yesterday 2k May contracts dropped, but 2.2k July contracts added

      Unless major money moves into silver next week, we could chop for another week.

    2. michael schumacherFriday, 20 April, 2012

      We all know they are already doing QE. I was speaking to something else....don't know what that may be but I can't be the only one to notice this recent development. Regarding silver I expect a smack down late next week-early the following. It has been somewhat of a pattern to see the metals rise just after the roll (convincing people it will continue) and then they smack it down.

  12. Should We Kill The Dollar Bill?

    This being Washington, there's a back story. The $70,000 ad blitz was
    part of a small lobbying war over the fate of the dollar bill. On one
    side, leading a legislative charge to eliminate the dollar bill and
    replace it with a dollar coin, are Sens. Tom Harkin, D-Iowa, and John
    McCain, R-Ariz.

    "The most important thing is it's just more efficient. It's way more
    efficient than a paper dollar," Harkin says. "Canada has a coin that's
    worth $2 ... Switzerland has one worth about $5... And yet, what have
    we got? We got a 25-cent piece."

    It's worth noting that Harkin and McCain both represent states that
    are home to businesses that profit from the production of dollar

    In Harkin's case, it's PMX Industries Inc., of Cedar Rapids. The
    company provides metal sheets the U.S. Mint uses to make coins. Harkin
    says he was pro-coin before PMX was doing business with the U.S. Mint,
    and so comes to the issue "with clean hands."

    McCain's state, Arizona, has the nation's most productive copper
    mines, and dollar coins are made mostly of copper. McCain declined
    NPR's request for an interview for this story.

    Now a coin-versus-bill cage match is on. Harkin's bill would require
    Federal Reserve banks to stop putting $1 bills into circulation in as
    little as four years.

    hmmm....notice the economists reaction? but they don't talk about the real difference..coin(asset)...dollar note(liability)

  13. Vote Ron Paul...

    OUTRAGE: “The NSA Is Lying”: U.S. Government Has Copies of Most of Your Emails Says NSA Whistleblower

    National Security Agency whistleblower William Binney reveals he believes domestic surveillance has become more expansive under President Obama than President George W. Bush. He estimates the NSA has assembled 20 trillion “transactions” — phone calls, emails and other forms of data — from Americans. This likely includes copies of almost all of the emails sent and received from most people living in the United States. Binney talks about Section 215 of the USA PATRIOT Act and challenges NSA Director Keith Alexander’s assertion that the NSA is not intercepting information about U.S. citizens.