Gold: Look Out Above...

One very reliable directional indicator for the price of gold is The Privateer 5x3 point and figure chart, the one below goes back to 1985. I was in a lazy mood today and I think this chart pretty much speaks for itself. The P&F pattern is a double-top breakout and the odds are high that the price of gold will soon challenge the $-based all-time high, following right behind the persistent all-time highs for euro-gold that have been hit repeatedly over that past few weeks. Here's the source for this venerable chart. I am not a current subscriber to the The Privateer but was for several years: LINK

(click on chart to enlarge)

On another note, several people have remarked to me that it now appears, based on this week's action on the Comex, that some big money may be challenging the fraudulently massive short positions in gold and silver. Hard to say for sure, but in the face of increasingly aggressive attempts by the likes of JPM and HSBC to beat down the price of gold and silver, especially silver, the futures have been rebounding sharply almost every day. I'm not sure I would want to be short the precious metals market right now...

Physical Gold Buying vs. Paper Fraud

An unlikely source, given HSBC's well-known manipulation of the gold/silver futures market AND the problems with their physical silver deliveries on the Comex and in London, the gold analyst from HSBC had this say regarding the character of yesterday's gold/silver market:

“For most of this year during periods of elevated sovereign risk and falling investor risk sentiment, investors tended to move into US Treasuries, which supported the USD. This in turn weighed on gold. More recently, heightened investor risk aversion associated with growing sovereign risk in the euro zone has been supportive of gold. This may indicate that gold’s safe-haven attributes are beginning to trump its currency-hedge attributes. This may be an important development, as sovereign risk until now has acted as a drag on goldprices. If continuing sovereign risk concerns are more likely to elicit stronger safe-haven buying in gold than currency-related selling, then further sovereign risk concerns may be bullish for the bullion market.”

It is becoming more readily apparent to anyone observing and participating in the trading/investing of gold and silver that the physical market is beginning to overwhelm the fraudulent, fractional bullion practices of the Big Wall Street Banks.  This is a scandal that ultimately looms much larger than anyone realizes and will take gold and silver to prices that will shock even astute, long-time precious metals market participants.

Gold Is Finally Transforming Into the Ultimate Currency Once Again

The stock market plunged hard after S&P downgraded Greek debt to junk status and cut its ratings on Portugal sovereign paper.  What may have taken most observors by surprise is the spike up in gold that occurred, even with a move higher in the U.S. dollar.  Gold has been transitioning this year into its 5000 year historical role as the ultmate currency and the ultimate wealth preservation tool. 

This chart below from http://www.kitco.com/, which shows the trading action gold vs. major global currencies over the last 24 hours:

(click on chart to enlarge)

The redline on the chart shows that even though the U.S. dollar is higher today, primarily against the euro, gold is outperforming even the U.S. dollar.  This is very bullish.

I've linked a quick interview with Marc Faber, in which Faber remarked 5 days ago: 

“If you have $100 today, you buy that much less in terms of a basket of goods and services then you did ten years ago – paper money has already lost a lot of value and in my view it will continue to lose value. The price of gold will adjust on the upside according to the loss of the purchasing power of money...If someone is rich they should buy a ton every month."

Here is the link to the interview - it's brief and well worth reading:  Faber on Gold, the Fed

If I were the U.S. policy-makers sitting in Congress, the Fed and the White House, I'd be careful about asking for whom the bell is tolling - it's not Greece, Europe or Goldman Sachs...

Brace Yourself For Another Plunge in Housing

According to LPS - Lender Processing Services - the leading provider of data processing, servicing and default manangement services to the mortgage industry - there is a 9 year inventory of foreclosed homes sitting on bank balance sheets. This figure includes the number of homes likely to end up in foreclosure over the next couple of years and is based on a three-month average of foreclosed homes sold by banks:

As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier...Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. (Here's the article link: LINK)

(click on chart to enlarge)

As home values continue to decline, high unemployment persists and more homeowners resort to strategic default (or "jingle mail"), the number of foreclosures will likely accelerate this year. In addion, Congress does not appear willing to extend the home buyer tax credit program when it expires in 4 days. To make matters worse, 58% of all modified mortgages re-default after just 8 months - a glaring failure of Obama's taxpayer-financed mortgage modification programs.

This in turn will lead to another massive heart attack in the banking system, which no doubt will again be paid for by taxpayers. The moral of this story is that if you are contemplating buying a home, your best move will be to hold off for at least another couple of years to see where this is going. I have said since 2003 that we could see a 75-85% decline in housing prices before a real bottom is hit. I still maintain that view and it would appear that the data may well validate my conviction.

Don't Ever Buy Into the Warren Buffett Myth

He's not a down-home simple guy who lives in the original home he had before he made his fortune.  It's well-known that he has at least one mistress and he has expensive real estate in several glamour locations, including Sun Valley and Santa Fe.

Follow his money and sphere of influence. Don't forget he has a big stake in Goldman Sachs and he recently expressed full support for the Company and it's antics. He also controls Nebraska Senator Ben Nelson: 

Anyway, WSJ reports that while the Democrats are making real progress on derivatives reform, the bill could contain a big pro-Berkshire loophole. And of course, the loophole was placed by Nebraska Senator Ben Nelson. Here's the nut of it: The provision, sought by Berkshire and pushed by Nebraska Sen. Ben Nelson in the Senate Agriculture Committee, would largely exempt existing derivatives contracts from the proposed rules. Previously, the legislation could have allowed regulators to require that companies such as Nebraska-based Berkshire put aside large sums to cover potential losses. The change thus would aid Berkshire, which has a $63 billion derivatives portfolio, according to Barclays Capital.

Here's the link from Clusterstock.com:  The Buffett Rule

If this provision remains intact, it will enable Buffett's Berkshire Hathaway to escape expensing up front the massive cost of potential derivatives losses embedded throughout the Berkshire empire. Kick the can down the road at the expense of shareholders who might otherwise sell the stock in anticipation of lower reported earnings OR new buyers of the stock who get lured in by GAAP earnings that are essentially fictitious.

Lest we forget, Buffett also owns 10% of Wells Fargo, which is defiantly overstating the value of its toxic real estate-related assets, is sitting on a powder keg of subprime pay-option ARM mortgages (which currently have a 45% default rate, but you wouldn't know that from looking at WFC's balance sheet valuations) and has not even come close addressing the reality of the commercial real estate to which its exposed.

Just remember, there's rules for Warren Buffett and then there's rules for the rest of us. Just like in a Banana Republic. Buffett said it himself a couple years ago: the U.S. will become a country of serfs (and he'll be King). Oh ya, his frumpy "sack suits" designed to look inexpensive are actually very expensive Italian suits tailored to give the look he's known for.

If Germany Is Forcing Fiscal Restraint on Greece

Which Country Will Force Fiscal Restraint On The United States?

Germany's Prime Minister, Angela Merkel, was in the news today defining the conditions upon which Germany would provide financial assistance to Greece.  Included in the list of requirements is a plan of action in which Greece would need to reduce its spending deficit and implement a viable savings plan. Here's the link: Conditions For Greece Bailout.

While I fully expect that ultimately Greece will be bailed out by a combination of the EU and the IMF (aka the U.S. Fed/Treasury/Taxapayer), it also appears that Germany is going to force Greece to implement a well-delineated plan of fiscal austerity, which will also require some material sacrifice from the Greek populace.

Having said that, I continue to be highly amused at the all the attention Greece is getting, which seems to be nothing more than a big Orwellian smoke screen designed to cover up the massive fiscal/financial timebomb called the United States. Greece contributes 3% to the overall EU GDP.  It has about $400 billion in Government debt. On the other hand, California represents 13% of U.S. GDP, is the world's 7th largest economy, and with close $600 billion in State/Municipal debt, and not including the State Pension that is underfunded by $500 billion, and is so hopelessly insolvent and in fiscal distress that it makes the Greek problem look like little more than a global economic toothache. And that's just California...

So, my question is, if Germany has the leverage to force some financial/fiscal discipline on little Greece, which country out there can do the same to the U.S.?  The problem here is that eventually the market will impose its will on our country - and that will yield results that will be exceedingly more painful than most people in this country understand....Got gold?

Got Gold Get Silver - The Coming Short Squeeze in Silver

One way to measure the potential investment upside of silver is to measure it against gold.  Right now the gold/silver ratio is around 63.5.  In the last couple years years it's been in the 80's and as low as 48.  At the peak of the last precious metals bull market in 1980, the ratio touched down around 17.  I fully expect that the gold/silver ratio will once again go at least as low as 16, which is a long term historical norm (i.e. 100's of years).  In Rome before The Fall, gold and silver were exchangeable at a ratio of 8.

Why is this you might ask?  Silver is poor man's gold, making it the 2nd best ultimate form of currency.  When gold is over $2000/oz, it will be unaffordable for most people to buy much gold to protect themselves.  But at that point if the gold/silver ratio is still around 60, the price of silver will be a much more affordable $33/oz.  I suspect that the ratio will be a lot lower by then. Furthermore, because the relative price of silver is much lower than gold, it is more "fungible," meaning it's more practical as a currency for everyday mundane use. 

The chart below - inspired by DC from NJ - is another way of measuring the relative strength of silver vs. gold.  As you can see, silver  has been in a steady climb in price relative to gold and is currently chewing thru a lot of "resistance," as defined by the two horizontal black lines.  Hedge funds currently like to "game" the gold/silver ratio, which may slow down the ultimate price movement of silver against gold.  However, given that the total market value of all the available silver in the world is small compared to gold, when the "poor man's gold" effect really takes hold, expect the price of silver to really rocket higher.  Eventually that ratio will decline to a level that is much more consistent with the ratio that held for centuries.

(click on chart to enlarge)

Here's two charts to add some historical perspective:

One other thought to keep in mind.  The Big Wall Street Banks are short paper silver in an unbelievably insane amount.  For instance, look JUST at the silver futures short position on the Comex, most of which is held by JP Morgan.  As of last week, the total net short position reported by the "commercial" category - largely a handful of NY banks - was 58,235 contracts.  This represents 291 million ounces of silver.  Against this, as of today, the Comex has 50 million ounces of deliverable silver.  If a little less than 20% of those holding long positions ask for delivery, the Comex will default.  The price of silver will do a moonshot. 

Now think about the ramifications if what the Comex reports as inventory is really part of the fractional bullion system in place that has been verified by lawsuits, GATA and even LBMA operators...I'll leave the rest up to you.  Suffice it to say that the last two times my fund took delivery of Comex silver, we had to wait several weeks before the bars showed up.

Russia and China Are Selling Treasuries and Buying Gold...

Fred Hickey of the High Tech Strategist newsletter fame gave a brutally honest interview with The Wall Street Cheat Sheet about the financial/economic condition of the United States and how China and Russia, two of the largest financiers of our Government, are protecting themselves from the reckless policies of Obama and Bernanke.  Here's is a quote:

No one seems to be talking about this, but in a recent US Treasury foreign holdings report I saw a flat line where the mainland Chinese were not buying our treasuries anymore. Their position was holding; meaning, they were buying just enough to offset the maturing bonds. Now we’re seeing outright declines. This has gone on for several months and now it’s an outright decline...The Russians are also reducing their positions. They reduced $10 billion in December and it’s dropped from a $140 billion almost to $118 billion over the last few months.

Here is a link to the interview and a must-read: Sell Paper - Buy Gold.  Here's another insightful snippet:

I never loose sleep with my big gold position, but I do loose sleep when I have a big dollar position. I always see pullbacks in gold as buying opportunities because what I’ve discussed are the big forces really moving things. There are very few people on this planet that understand the big macro picture behind the movement to gold. We’re now in a 10 year bull market in gold. We ran a twenty year bear market, so it might be a twenty year bull market. We may be only halfway through.

We know that China is voraciously accumulating a lot of gold.  Recently a senior researcher recommended that China buy a lot more gold in order to raise its gold holdings up to at least 10% of its foreign reserves. They have 1000's of tonnes to buy in order to accomplish this. Here is what Russia is doing, chart courstesy of Richard Nachbar:

(click on chart to enlarge)

Large Central Banks, big institutions and wealthy individuals are just now beginning to direct paper money flows into physical gold and silver. Liberty Coins, a very large coin dealer, reported its 2nd biggest day in silver sales and 5th largest day in gold sales in 30 years of business last Friday after gold and silver were taken down in price on the Goldman/SEC news. This is direct evidence that more people are beginning to understand the golden truth.

The ECB has barely sold any gold so far this year - the first time the last 10 years that European Central Banks have not unloaded a steady supply onto the market. Politicians, Wall Street and CNBC can blow all the smoke they want up our collective ass, but they CAN'T hide the growing movement of funds from fraudulent paper money into gold and silver - honest money for 5,000 years.

U.S. Dollar Update

(click on chart to enlarge)

The Truth vs. Ben Bernanke - How Do You Know Bernanke Is Lying?

A: His lips are moving.   Here's a direct quote from a speech Bernanke gave to the National Economists Club in 2002, when he was jockeying to become Greenspan's successor:

“U.S. Dollars have value only to the extent that they are strictly limited in supply. But the U.S. Government has a technology, called a printing press or, today, its electronic equivalent, that allows it to produce as many U.S. Dollars as it wishes at essentially no cost.”

The golden truth is that hyperinflation is a response to deflation and a Government's attempt to prevent deflation.  That is exactly what Banana Ben Bernanke is doing now. Gold has gone up in dollar terms 452% since its 2001 bottom at $250 - 16%/yr on average every year - without the benefit of any perceived price inflation. Imagine the move gold will make when Bernanke's monetary policies begin to translate into price inflation - imagine the move the mining stocks will make...

Bernanke's entire monetary foundation is based on the devaluation of the U.S. dollar. That's why gold has done what it's done over the last 9 years...Got Gold?

Anyone Invested in MGIC Is A Moron

MGIC is the largest U.S. mortgage insurer - outside of the U.S. Government, of course. They released horrible results, forecast massive future losses, and will issue $700 million of new stock on top of $300 million in junk bonds. Perhaps - with much emphasis on that modifier - there might be asset coverage for the bonds. The stock is worthless. Hey but fear not - Goldman Sachs is managing BOTH offerings - "c'mon in guys, the water is perfect!" Here's the link: In Goldman We Trust.  The underwriting syndicate will probably make about $50 million in fees.

Einstein said the definition of "insanity" is making the same mistake over and over again - and expecting a different result. Do you really want to take the other side of something Goldman Sachs is selling?

I heard from a associate yesterday who told me one his client's called him to inform that is house in Florida, formerly worth $1.4 million, now might be worth $450k. His neighbor's house, formerly worth $1.5 million, was appraised for $500k. 66% decline in value for non-distressed homes. This type of real estate revaluation will spread to the whole country.

I'm sure that if I went thru MGIC's financials with a fine-tooth comb, I could demonstrat that even the debt on MGIC worth, at best 50 cents on the dollar, assuming today's real estate prices.  It will only get worse...

Laissez les bon temps rouler - Let the good times roll!

Citigroup's Mark to Fantasy Profits: Is Vik Pandit Dealing Medical Marijuana?

Because that's what you would have to be smoking in order to believe the garbage coming from Citigroup today with regard to its earnings report. Citi reported $4.4 billion in net income today, handily topping Wall Street's estimates. But let's just say that if you pick through Citi's 8-k filing today and combine it with some information not filed but available from its 10-k, then you would understand that to believe Vik Pandit with regard to his earnings report, you would also be vulnerable to believing that he could fly you on a magic carpet over to visit the Taj Mahal.

For the sake of brevity, and the understanding that really picking thru the 8-k and 10-k with a microscope would yield much more precise results, but not add to the analysis, I have isolated the critical page from the 8-k in order to show that Citi's results were largely the result of marking up the toxic assets held on the Citi balance sheet because there is no real bid for them. (To be sure, this is the same accounting scam utilized by all the banks, but the Taxpayers own Citigroup and should see the truth). Here's a link to the Citi 8-k:  Vik's Magic Carpet

Here's is how Citi explains its results: "The sequential improvement reflected strong results in Securities and Banking (“S&B”), a positive CVA in the quarter ($289 million in the quarter compared to negative $1.9 billion in the fourth quarter of 2009) and higher positive net revenue marks in the Special Asset Pool (“SAP”)."  "CVA" is what they call "Credit Value Adjustments."  This is a fancy term for "mark up an asset that is so toxic we can't sell it and accrete the mark-up to net income."

I had to go to the 10-k in order to understand what the Special Asset Pool is.  This should really be labelled, "Citi's Cesspool of Garbage That We Marked Down Enormously and Now We Mark It Back Up Pool." The SAP contributed $1.25 billion in revenues with very little expense attribution, which means that most of that $1.25 fell to the bottom line. If there were no mark-ups in SAP, Citi's net income would have been lower by $1.25 billion, or would have been $3.2 billion instead of $4.4 billion.  Here's a link to the 2009 10-k if anyone wants it:  Citi 10-k

Now, if you click on the Magic Carpet link above and scroll down to page 18, you'll find the numbers for Citi's "Institutional Clients Group" (ICG), which houses Citi's Investment Banking and Principal Transactions business segments. If you compare 4Q '09 with 1Q '10, you'll see that ALMOST the entire revenue differential between '09 and '10 is attributable to "Principal Transactions." That segment had a $5.1 billion swing in revenues.

For those who do not know, principal transaction business is trading business that is generated by using a firm's capital to try and generate revenues by buying low and selling high. When the trade doesn't work out like that, it becomes either "securities available for sale" or "securities held to maturity." The crap assets not stuffed into the SAP are housed in the Principal Transactions segment. Granted, we would need much further detail to know for sure, but it is highly likely that a large portion of the revenues attributed to the PT segment were generated by mark to fantasy asset mark-ups.

The Fixed Income segment contributed the bulk of the revenues to the ICG business. This is the business in which we would expect to see the mark to fantasy asset write-ups, When you strip out every other business segment under ICG, risk-based trading/positions contributed almost the entire profit difference between 4Q '09 and 1Q '10. Investment banking was down 28%, Private Banking was down 12% and Transaction Services were down 2%.

Let's look at the Citi pie another way. Here is the definition of SAP from the annual report: "Special Asset Pool (SAP), which constituted approximately 28% of Citi Holdings by assets as of December 31, 2009, is a portfolio of securities, loans and other assets that Citigroup intends to actively reduce over time through asset sales and portfolio run-off. At December 31, 2009, SAP had $154 billion of assets. SAP assets have declined by $197 billion or 56% from peak levels in 2007 reflecting cumulative write-downs, asset sales and portfolio run-off. Assets have been reduced by $87 billion from year-ago levels. Approximately 60% of SAP assets are now accounted for on an accrual basis."  That last sentence is the GAAP terminology for "mark to fantasy."

The SAP has $154 billion in assets. To generate $4.4 billion in asset mark-ups that would "create" net income would only require marking the whole portfolio up 2.8%. That's a such a small amount among friends (i.e. between Vik, his board of directors and the SEC) that it would be easy to make the adjustment in asset valuations and no one would notice or question it.  Remember that Citi specifically attributed its net income results to better results in it SAP segment.  This can only mean "asset mark-ups."

At the end of 2009, Citi's "Trading Account Assets" were $342 billion. If you wanted to create $4.4 billion of fantasy mark-ups, all you would have to do is mark up that portfolio a mere 1.3%. Of this $342 billion, $38 billion were mortgage-back securities - $10 billion of that were subprime - and $58 billion were derivatives. There's A LOT of leeway according the loose accounting standards now enforced for marking up those asset classes.

If you strip out the SAP mark-ups AND the ICG mark-ups, Citi would have LOST money this quarter.

Here's one of the considerations the Company uses to determine where to mark a security being held: "the Company’s ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery." That's from the 10-k and it clearly leaves a lot of "wiggle room" for discretion. Of course, we know that Wall Street is not known for discretion when it comes to being honest.

The bottom line is that, in the context of the $4.4 billion of net income Citi reported today, it is very hard for someone to look at where that number was likely derived and believe anything other than that it was based on mark-to-fantasy accounting indiscretions (re: fraud), and that to believe any differently is severe denial or a refusal to look that facts as presented above.

And I just wanted to remind people, regarding the character credibilty of Vik Pandit, when he became CEO of Citigroup, the bank paid him $800 million for his hedge fund firm. THAT hedge fund business was shut down - worthless - about a year later. Since we're all shareholders of Citi, this a fact that should be considered when deciding if my analysis is accurate, or if Pandit's "word" is accurate.

Worried About Europe? Take a Look at Yourself:

Countries/States in glass houses should not throw stones: 

The unemployment insurance system is in crisis due to a combination skyrocketing unemployment and – in some cases – poor planning. A record 20 million Americans collected unemployment benefits last year, and twenty-six states have run out of funds and been forced to borrow from the federal government, raise taxes, or cut benefits

Source:  ProPublica.org Link

Who The Hell Is Bill Clinton Kidding?

"Clinton Says He Had Bad Advice on Derivatives" - Bloomberg reports that Bill Clinton is placing blame for the derivatives fraud squarely on the shoulders of Robert Rubin and Larry Summers:

"Former President Bill Clinton said he should have pushed for regulation of financial derivatives when he was president, rejecting the advice of top economic advisers Robert Rubin and Larry Summers."

 Here's the link: BILL CLINTON PROUDLY PASSES THE BUCK.

Before we forget history, let's recall the President Bill Clinton signed into the law the legislation that removed Glass-Steagall. This was THE ACT of Government that fostered and allowed the banking system to completely spin out of control with fraud, corruption and grand theft of this country's wealth by a handful of bankers and the politicians they purchased, INCULDING BILL CLINTON.

The collapse of the banking system in September 2008 rests squarely on Clinton's signature in 1999 and his policies with regard to financial regulation.  To be sure, the Bush Administration further enabled the financial devastation created by the Clinton Administration.  And the Obama Administration has pressed the accelerator thru the floorboard.

Currently the Obama Cabinet/Administration has several of the people who worked for Bill Clinton. This includes Larry Summers - Obama's chief economic policy guru; Tim Geithner - serial tax dodger; SEC Chief Mary Shapiro - who was head of the CFTC under Clinton and directly responsible for derailing derivatives legislation; and several of Robert Rubin's "mini-me's" who sit in "counsel" positions inside the Oval Office and under Tim Geithner.

If Clinton is willing to throw his own people under the bus - and many of those people are now Obama's people, what does that say about the policies and character of our current White House?

Goldman Sachs Fraud Charges and the Effect on Physical Gold and Silver

I suggested to some colleagues earlier that, ulitmately, this Goldman Sachs derivatives scandal will further hasten investor distrust of paper "assets" and most likely accelerate the ongoing large flow of capital into phsyical gold and silver (and the movement toward investing strictly in gold/silver vehicles that offer verifiable, authentic custody) and ultimately cause the price of gold and silver move a lot higher.

The market itself has offered us an interesting way in which to measure this view today.  Take a look at the price of GLD and PHYS.  I'm basing this on market prices at 12 p.m. Denver time today.  GLD is down about 2.5% and PHYS is down about .6% from yesterday's close.  Why would this be the case?  They both are vehicles which invest exclusively in gold (or so GLD claims), they both permit big investors to exchange their shares for delivery of gold and therefore they should both perform in-line with the price of gold AND in-line with each other.

But we know better than that about GLD.  GLD is a paper Ponzi scheme and all credible allegations of this have gone completely unchallenged by the sponser and trustee of GLD (see my report on this here:  GLD is dubious.  On the other hand, Sprott's PHYS buys 400 oz. LBMA gold bars and safekeeps them at the Royal Canadian Mint.  If you go through their prospectus, PHYS prospectus, you will find that the bullion is held exclusively in a segregated account and Sprott can go inspect it pretty much on demand.  That is not at all possible with GLD and the GLD prospectus prevents that from happening.

Anyway, let's go to the true test, which is the market.  The PHYS stock price trades at a premium to its underlying Net Asset Value.  You can track this here:  NAV.  GLD simply indexes the price of gold, less some concession for the expense of running the trust.  As of yesterday, the PHYS stock closed at an 11% premium to its NAV (there are several reasons for this, but mostly because of the way the prospectus is structured).  At noon Denver time, when the price of gold was getting slammed with the stock market, GLD was down 2.5% on the day, while PHYS was down only .6%.  The reason for this is that the premium on PHYS expanded to 16%.  The only explanation for this is that investor money flowed into an asset that is verifiably backed by physical gold.  It's the only explanation because, all other things being held contstant ("ceteris paribus" for you economics jockeys), GLD and PHYS should have declined by the same percentage.

This is a perfect market laboratory in which to measure the true differentiation between GLD and PHYS - between a paper Ponzi asset and REAL GOLD.  Remember:

THIS IS REAL GOLD

THIS IS NOT:

As a matter of fact, a good friend of mine yesterday sold his GLD position and bought PHYS at exactly the same time.  Today his PHYS is actaully up 10 cents from where he bought it yesterday, whereas GLD is getting decimated.  Got gold?  Are you sure it's the real thing???

The Comex and The Fractional Bullion System

Everyone knows the concept behind a "fractional" banking system, right? You have $1 in deposits and you lend out $10. The Romans invented the concept and it is widely understood to have been one of the ingredients that led to Rome's demise.

As per the electrifying CFTC hearings on March 26, and a fact that GATA has long understood, the Big Banks which deal in gold and silver, also known as "Bullion Banks," apply and utilize the fractional banking system to bullion dealings.

In 2007 Morgan Stanley settled a class-action lawsuit in which Morgan Stanley was selling silver to customers and charging them for storage. It turned out that Morgan Stanley was selling and storing silver that didn't exist.  One of MS's defense arguments was that it was common industry practice to sell and store metal that didn't exist. And as long as the customer buys and sells thru MS without asking for the metal to be delivered, MS can get away with it because the round-trip transaction is cash in/cash out. The scheme crumbled when some investors asked for serial numbers and weights. Details are here, if you are interested: LINK

Let's apply this to the Comex. As of the most recent COT report, which shows open interest, long and short positions for speculators and commercials (primarily bullion banks), the total net short position for the bullion banks in gold was 244,900 contracts and in silver 51,700 contracts. This translates into 24.9 million ounces of gold and 258.5 million ounces of silver. Here's the problem, as of today, April 15, the total amount of gold reported by the Comex that is available to be delivered, the "registered" inventory, was 2.4 million ounces. In other words, the total paper short position of the bullion banks in gold was more than 10 times the amount of gold available to be delivered. Similarly in silver, the amount of registered silver was 48.9 million ounces. The bullion banks are short 5.3 times the amount of silver available. No other futures-traded commodity, in the history of the earth, has ever had this kind of imbalance between the paper-traded open interest and the amount of the underlying amount of the physical commodity that could be delivered.

The key to this scheme is that for each delivery month, a small percentage of the long position, relative to open interest and relative to the short positions, actually stands for delivery. That being the case, the CFTC and the powers that be at the Comex look the other way with regard to the absurd amount of paper gold and silver sold short in relation to the amount of underlying physical gold and silver that can be delivered. It's a complete "fractional" bullion banking system. But what will happen if some large investors - or sovereign funds or foreign Central Banks - decide to take long positions in gold in silver with the intent to take delivery? I expect that eventually this will happen and we'll see the Comex-equivalent of a catastrophic bank run.

Another interesting event has been occuring with SLV. Since February 26 thru today, 16.7 million ounces of silver has been removed from the SLV trust. At first glance, this might not seem unusual. However, a quick perusal of the data over the last two years (data history is available on the SLV website), reveals that this is an unusually large amount of silver to be withdrawn over a 6 week period.  What makes it even more unusual is that since Feb 26, the price of silver has risen from $16.46 to $18.41 - nearly 12%.  Typically, drops in the gold and silver held in GLD and SLV correlate with price declines and market sell-offs.

We can only speculate about what is going on.  However, I would like to point out that JP Morgan is by far the predominant holder of the massive silver short position on the Comex. They are also the custodian (i.e. the keeper of the silver) for SLV. And to add one more layer of intrigue, over the past couple weeks, there has been an unusually large amount of silver which has moved in and out of the Comex warehouses. That data can be tracked here: LINK. You'll note that today ScotiaMocatta experienced a very large withdrawal from its "eligible" category. This category is the silver that Scotia safekeeps for investors and which is not available for futures delivery. Scotia's reliability as a bullion depository has recently come under intense scrutiny.

Coincidence?  Only time will tell. But it is now becoming much more widely recognized by big bullion investors that it is crucial to make sure that the bullion you are invested in is being held on an "on demand" verifiable basis and that it has not been misplaced by the fractional system that is an accepted industry practice among the bullion banks.

I know exactly where my gold and silver is and I know exactly where the gold and silver (and the weights and serial numbers of the bars) owned by the fund I manage is. Do you? Are you sure you really own gold and silver, or is it a worthless paper certificate with little or no metal backing the claim?

THIS IS REAL GOLD:

THIS IS NOT:

The Recovery That Isn't: Jobless Claims Going the Wrong Way

I don't care what that monkey Steve Liesman on CNBC says, the jobless claims numbers are getting bad again.  The headline number was 484,000, seasonally adjusted. The raw, unadjusted number was 514,742 an increase of 99,730 from a week earlier. The Extended Unemployment Claims jumped 261,817 to 5,855,301 from the previous week. That number represents the number of people who are on the 2 1/2 year jobless benefits payroll.  Here's the link: BLS Raw vs. CNBC BS

Now, here's a chart that CNBC DIDN'T show you this morning. I borrowed this from Casey's Daily Dispatch. This chart shows the amount of money States now have borrowed in order to hand out jobless benefits:

Take a good look at that chart.  It shows 10's of billions in extra deficit spending that does not show up in Obama's Budget Mathematics. Note that California has borrowed nearly $10 billion to keep food on the tables of its unemployed. See the chart in a post below for another view on the unemployment numbers.

This economy is NOT improving.  I combed thru JP Morgan's SEC filed 8-k report yesterday.  It's much more revealing than what you might have seen reported on CNBC or the WSJ.  JP Morgan's earnings yesterday reflected largely mark to market mark-ups on balance sheet positions that it can't get rid of.  Paper profits - not cash.

In fact, most of the earnings that will be reported this month for last quarter will be the result of GAAP garbage. The truth is found by taking the extra step to dig up the real "grassroots" numbers which get egregiously distorted by the Government and mainstream financial media. Please note that's a polite way to say that the Government and CNBC are full of sh!t.

Rahm Emanuel Is Dirty and Needs To Be Investigated

It looks like Rahm Emanuel raised a huge amount of money from the hedge fund operator who is thought to be the most responsible for engendering the subprime credit crisis.  The entire article can be found at http://www.nakedcapitalism.com/ and the direct link is here:  Dirty Rahm

I wanted to provide a few "snippets" for those who don't want to read the entire piece.  Magnetar is the hedge fund in question:  "Our studies indicate that Magnetar alone accounted for between 35% and 60% of demand for subprime mortgages in the year 2006:"

[T]he sponsors of this toxic trade did bother to make sure they had a powerful friend. The head of the firm in question gave substantial amounts of money by political contribution standards to Rahm Emanuel’s PACs, and only his PACs, over the period when these transactions were in play...

And the hedge fund’s cagey bet on Rahm? Litowitz and his wife had never before made significant political donations. In 2005, they started giving to Rahm and his PACs, and only PACs connected to Rahm, just before the Magnetar CDO program began, and continued through the first quarter of 2008, when the trade would have started to pay out handsomely. The Litowitzs gave a total of $8,000 to Emanuel and $10,000 to his Our Common Values PAC in May 2005. In 2006 and 2007, they contributed $51,700 to the Democratic Congressional Campaign Committee, while Emanuel was chairman. We have been advised by individuals involved in political fundraising that the amounts given would be considered significant, and the way the payments were distributed across the PACs is sophisticated. Put it another way: this money was not given impersonally...

But this troubling connection should be no surprise. Rahm has long been a favorite of the hedge funds, having raised more money from them than any Senator not running for President. Not surprisingly, he has been a staunch supporter of the financial services industry, and is widely credited with playing a key role in securing passage of the TARP after its initial defeat.

So Rahm - and Obama - have been huge beneficiaries of the very firms who helped propagate the subprime/financial crisis:  "As the Magnetar-Rahm connection highlights, Obama raised more money from financial services players than any previous presidential candidate, so it can hardly be a surprise that he and his minions are happy to give the industry a free pass."

What this article points to is that Rahm Emanuel should immediately be under the investigation of a Special Prosecutor appointed by someone other than the Attorney General (that same person who drafted the Marc Rich pardon letter that Clinton signed on his way to catch his final helicopter ride from the White House lawn).  And forget about using Patrick Fitzgerald (the person who investigated Scooter Libby) because he is a Chicago Democrat.

What does all of this say about Obama?  I'll leave it for the reader to decide.

Dollar Update...Weekly Euro Chart is Uber Bullish...

I'm not sure you want to short this chart.  But it sure explains the motive behind the massive long position in the euro taken by the "commercials" aka Big Banks:

(click on char to enlarge)

A big rally in the euro should translate into a big move higher in gold

The Recovery That Isn't...

The National Federation of Independent Business posted its Small Business Optimism Index today and it wasn't pretty:

The National Federation of Independent Business Index of Small Business Optimism lost 1.2 points in March, falling to 86.8. The persistence of index readings below 90 is unprecedented in survey history...“The March reading is very low and headed in the wrong direction,” said Bill Dunkelberg, NFIB chief economist. “Something isn’t sitting well with small business owners. Poor sales and uncertainty continue to overwhelm any other good news about the economy”...The index has posted 18 consecutive monthly readings below 90. In March, nine of the 10 Index components fell or were unchanged from February’s not-so-great readings.

Here's the link:  NFIB Index.

Please note that small business is the backbone and muscle of jobs creation in this country. In fact, given the data being reported from the field, one has to wonder how in the hell the Government can keep painting the non-farm payroll report every month with 10's of thousand of job additions from the birth/death model, which calculates the addition and deletion of jobs based on assumptions about new businesses created and dying every month. Sounds more like one Grimm's Fairy Tales.

This chart should lay to rest any belief in the Government's ability to create credible data:

(click on chart to enlarge)

U.S. Dollar Index Update...

The U.S. dollar appears to be breaking down now.  The chart has a very bearish set-up formation and the Big Banks have a big short position in the dollar and a corresponding big long position in the euro.  With regard to currencies, it's usually - though not always (see Soros vs. the British Pound circa 1992) - a bad bet to bet against Big Banks.

Gold is behaving similarly to the way it did in late 2005, when it moved for a short period higher in tandem with the dollar and then ran up another 33% from early 2006 to May 2006 while the dollar went into an inexorable decline.

(click on image to enlarge)

Hu Tells Obama to Take a Hike w/Regard to the Yuan

The next time the U.S. tries to jam currency policy down China's throat, China should tell the U.S. that it is going to take a sabbatical leave from participating in Treasury bond auctions. Rightfully, Hu says that China will determine its currency policy on its own accord:

LOS ANGELES (MarketWatch) -- Chinese President Hu Jintao said Monday that any reform to his nation's currency exchange rate will be based on China's own economic interests, according to a state-media report. Hu's remarks, carried by China's Xinhua news agency, came on the sidelines of the Nuclear Security Summit in Washington D.C., in which Hu met with U.S. counterpart Barack Obama. Xinhua separately reported that Obama said the U.S. respects China's sovereignty in determining its currency policy and hoped a solution could be found through dialogue...LINK

Meanwhile, as http://www.zerohedge.com/ reports, Treasury tax withholdings plunge this year vs. last year LINK, and the Treasury is burning through cash like a drunk in Vegas so far during April and added $53 billion in debt so far LINK.  Geithner may break the law to avoid paying his own taxes, but he sure likes spending other people's money!

National Bureau of Economic Research Says Recession Ain't Over...

Is NIRP on the horizon (Negative Interest Rate Policy)?

The NBER statement premeditatively provides justification for the continuation of Bernake's zero interest rate policy, flooding of bank reserves with easy cash and continued Treasury expansion of entitlement programs for BOTH the unemployed and the big banks. Here's the link: NBER Says Premature to Declare End of U.S. Recession

It will be interesting indeed to see if the Fed implements a negative interest rate policy once Janet Yellen is firmly in place as the Vice Idiot of the FOMC. Here is a quote from her on February 22:  "If it were possible to take interest rates into negative territory I would be voting for that." Well, it is possible to take interest rates negative. We've seen negative interest rates in short term Treasury paper a few times in the last two years.

Negative interest policy would send the long end of the yield curve AND gold to the moon.

The Sunday New York Post Publishes the Andrew Maguire Silver Manipulation Story

I have been telling Bill Murphy, Chairman of GATA, repeatedly that his email bombshell at the CFTC silver market hearings two weeks ago ripped the tightly sealed lid off of Pandora's Box with regard to the extreme fraud and manipulation in the gold and silver markets.

Although the whole episode, and the implications of what was revealed, has been overtly covered up by the mainstream financial media in this country, the story and the related facts backing up this story have been getting widespread attention globally.  In fact, Murphy was scheduled to have interviews with Bloomberg and CNBC Asia after the CFTC hearings, and those interviews were abruptly cancelled by those two networks.

Well the Rubicon has been crossed - "alea iacta est" - "the die has been cast" (Julius Caesar) - we have reached the point of no return and what is about to unfold cannot be stopped.

The New York Post has published the Andrew Maguire silver manipulation story, including some of the emails Maguire exchanged with the CFTC outlining exactly how and when JP Morgan silver traders would manipulate the market and create huge windfall, albeit illegal, profits. The CFTC was going to bury those emails. But Maguire sent them to GATA after it was made clear to him that the CFTC was going to bury them. Bill Murphy then read them verbatim at the CFTC hearing two weeks ago, much to the obvious surprise and horror of Gary Gensler, chairman of the CFTC.

Here is the NY Post story in all its glory. Word to me from a very good friend of mine in NYC who knows someone at the NY Post is that JP Morgan went "all out" to try and prevent this story from being published. I guess it's true that we're as guilty as our darkest secrets:

Metal$ are in the pits -Trader blows whistle on gold & silver price manipulation

"There is no silver lining to the activities of JPMorgan Chase and HSBC in the precious-metals market here and in London, says a 40-year veteran of the metal pits.

The banks, which do the Federal Reserve's bidding in the metals markets, have long been the government's lead actors in keeping down the prices of gold and silver, according to a former Goldman Sachs trader working at the London Bullion Market Association.

Maguire was scheduled to testify last week before the Commodities Futures Trade Commission, which is looking into the activities of large banks in the metals market, but was knocked off the list at the last moment. So, he went public..."

Here is the link to the full story:  JP Morgan and Illegal Silver Market Manipulation

Anyone who has looked at all the evidence compiled by GATA over the past 12 years http://www.gata.org/, and who reads this story in the NY Post and STILL does not believe that the gold and silver markets are fraudulently operated by the big NY and London banks is also the same person who believes that OJ Simpson is innocent.

"Veni, vidi, vici" - "I came, I saw, I conquered" - Julius Caesar

Demand For Physical Gold is Quite Extraordinary

As has been reflected by gold's ascent against the dollar, and recently even on days when the dollar is moving higher, it has been reported from sources all over the globe that money is aggessively flowing into physical gold, with many investors demanding delivery of the metal. Here is commentary on the subject from Standard Bank in London, which provides daily color on precious metals trading:

Late last week, the Standard Bank physical gold flow index recorded its highest level since we started tracking flows. Although the index declines slightly when gold approaches $1,150, overall, the index continues to confirm healthy physical demand.

I will note that Standard is usually pretty demure in its commentary on market activity in precious metals. For them to get excited to the extent reflected in the above statement is unusual.

I also thought I would post some comments made to me by a local bullion trader who typically operates by finding private sellers and paying more than the big coin shops here, but usually at or below the spot price of gold and silver, and sells to private buyers who pay cash and do not want a paper trail. He has an excellent "nose" for supply and demand and, as per my experience trading bonds on Wall Street, there's nothing like getting market information from a bona fide market maker:

I feel that we are in the beginning of an upward move. I can only guess at what price the market will move to. What I am finding out is that new buyers are coming into the market and they do not mind paying the premium. My past buyers are not buying as much and are looking for the market to pass $1,200, before they start to invest. The physical supply of one oz. bars and coins are readily available if you are willing to pay the premium. The supply gets smaller the closer you want it to spot. The only large quantity of gold coins in the uncirculated arena are scratched or nicked items.

So there you have it, direct from the "trenches." This is just the start of a trend that will accelerate as the investing world begins to understand the problems associated with fiat paper money and with massive sovereign/U.S. Government debts, budget deficits and overall fiscal recklessness.

Big Wall Street Banks Hide Their True Debt Levels Every Quarter Now

Well it looks like the Wall Street Journal only took a little over three weeks to report what I suggested in mid-March:  Lehmangate Part 2: What Is the Rest of Wall Street Hiding?  Here's the link to my post in which I suggested that Lehman was one of many using similar fraudulent accounting in order to dress up their balance sheet:  LINK.

The Wall Street Journal today reports  Big Banks Mask Risk Levels:  Quarter-End Loan Figures Sit 42% Below Peak, Then Rise as New Period Progresses.  I don't have a subscription to the Wall Street Journal, but here's a Reuters news report:  "Major U.S. banks temporarily lowered their debt levels just before reporting in the past five quarters, making it appear their balance sheets were less risky, the Wall Street Journal said, citing data from the Federal Reserve Bank of New York" - Link:  Reuters

This should not surprise readers of this blog.  Wall Street is notoriously "Monkey see, Monkey do."  So it only made sense that every other big Wall Street bank would be using accounting manipulations to accomplish the same fabulous results as Lehman, before Lehman collapsed.  The only difference is that the remaining Wall Street banks have been deemed by the Fed/Treasury as "too big to fail."  We have monkeys running the big banks and we have monkeys overseeing and regulating the big banks.  I think Bernanke and Geithner deserve a Big Banana award.  But what about the citizenry who enable these people to remain in power?

(courtesy of Jesse's Cafe Americain)

China Takes Another Step Toward Ridding Itself of the U.S. Dollar

For anyone who doubts my view, please review this quote made by Zhou Xiaochuan - Chairman, Monetary Policy Committee of the Peoples Bank of China last year in March 2009 (hat tip to DC in NJ): "AN INTERNATIONAL RESERVE CURRENCY SHOULD FIRST BE ANCHORED TO A STABLE BENCHMARK ".

Follow the money, not U.S. politicians blowing smoke and bubbles...Just as Tiny-Brain Tim Geithner makes a pathetic pilgrimmage over to China in order to beg them to let their yuan rise in value against the U.S. dollar, this news report from Bloomberg hitting the tape today is no doubt not coincidental to Geithner's visit: "China is considering allowing the yuan to trade against the Russian ruble, South Korean won and Malaysian ringgit to promote its use in cross-border trade, an official at the China Foreign Exchange Trade System said."  Here's the link: LINK

I have maintained that China has been promoting trade using the yuan with many countries as a move to shift global trade from being dollar-based to yuan-based. It makes sense now that China is the largest exporting country. In addition to the above move, China has engaged in multi-billion currency swap transactions in the past with several countries in order to promote trade with those countries using the yuan instead of the dollar. Here is the key statement by China as referenced in the article by Chinese Premier Wen Jiaboa: "China is seeking greater use of the yuan to reduce reliance on the U.S. dollar after Premier Wen Jiabao said last month he is “worried” about holdings of assets denominated in the greenback."

For some reason, it is convenient for policy makers and politicians in this country to blame global economic imbalances and this country's extreme current account deficit on the relative value of the Chinese yuan. Perhaps the U.S. should look in the mirror at itself and understand that a large part of the massive economic and financial problems here come from the catastrophic spending deficits and debt accumulation by both the Government AND the private sector. It's popular to assess just U.S.Government debt vs. GDP and say the U.S. is not the worst offender. But when you combine all public and private debt in this country, the Total U.S. Debt/GDP ratio is the highest in the history of the universe. And this doesn't include the trillions in "hidden" debt liablities, like the $500 billon underfunding of the California State Pension Fund which was disclosed yesterday by the NY Times.

Perhaps the Obama Administration should consider that there may be some painful unintended consequences from trying to get China to do what Obama wants them to do, as per this comment from Zhang Yanling, vice chairman of Beijing-based Bank of China Ltd: “If the yuan is expected to be a strong currency, neighboring countries will prefer to hold the yuan instead of the dollar,” she said. And don't forget, the U.S. Government has been the world's largest currency manipulator since the Bretton Woods Agreement, which established the U.S. dollar as the global reserve currency...If the Obama Administration would confront the vast economic and financial problems right under its own nose with real change and reform, it would go long way toward solving the issues that Obama is conveniently blaming on China...

It recalls the famous quote from Pogo from the 1950's: "we have met the enemy...and he is us."

Throw Another $14.5 in Liabilities Onto the Govt Debt Logpile...

Sounds like the Taxpayers will be stuck with at least $14.5 billion in GM/Chrysler pension obligations, especially if Geithner believes that both Companies will be around long enough to honor their retirement benefit commitments. Geithner probably expects us to believe in the tooth fairy as well, since it's so easy for him to take from the Taxpayers and give to the Big Banks.

But the General Accounting Office, the accounting "watchdog" unit of the Congressional Branch of Government, and typically the least politically biased/motivated and therefore the most (on a relative scale) honest in assessing this country's fiscal catastrophe, would beg to differ with Turbo Tax Timmy: "The Pension Benefit Guaranty Corp., however, could be on the hook for about $14.5 billion if the two domestic automakers remain mired in losses and move to terminate plans, the GAO said in a statement, citing prior estimates." Here's the link to the article: What's $14.5 billion among friends?

Please note that the degree to which these pensions are underfunded is based on typically overzealous actuarial assessments of the expected rate of return over time on assets. As an example, a good friend of mine who liquidated a midwest auto supply company and transferred the pensions over to the PBGC told me that most big company pension funds are underfunded by at least 50% and that the rate of return assumptions being used are way too high at 8% - 9%. Moreover, big companies like GM and Chrysler historically used accounting schemes to enable minimum annual pension fund contributions in order to manage earnings higher. Basic accounting that seems to have escaped the scrutiny of the big accounting firms like Price Waterhouse and Ernst & Young AND the scrutiny of the SEC (see the picture at the top right of the blog).

The bottom line is that, not only is the PBGC one massive underfunded black hole of pension guarantees that have been shifted to the Taxpayer - as of September 2009, it was estimated that the PBGC was already underfunded by $33.5 billion LINK - but it now looks like that black hole will be getting bigger by at least another $14.5 billion.

Obama To Let AIG Fraud Go Unpunished

I can't summarize this story any better than my friend and colleague "Jesse" of Jesse's Cafe Americain, so here is the link to story:   Another Broken Obama Campaign Promise

I will say that, with my securities industry background, training, knowledge and experience, AIG and Goldman Sachs and Henry Paulson and Tim Geithner and Ben Bernanke are being  permitted to get away with the largest fraud, theft and Ponzi scheme in the history of the planet. 

Obama promised to go after the Wall Street thieves and punish the guilty.  The American public has been bamboozled first by Wall Street and its enablers, and now by the man who promised "change and reform" of the way in which DC and Wall Street function.  By the way, does anyone realize that the Democrats extended the Patriot Act, secretly, by slipping its extension into the Healthcare Bill?  Anyone who voted for Obama and still supports his Presidency is either in complete denial of the Truth, completely naive or simply refuses to look at the facts.

Can the Plunge Protection Team Save the Treasury Market?

This commentary actually is highly correlated to my last post about housing prices.  You might say: "as go bond prices, so go housing prices."  Because the housing market is nearly 100% financed with bonds of some sort, housing prices assume the price movement characteristics of bond prices.  When bond prices tank and interest rates go up, housing prices will tank, as higher interest rates will directly affect the amount of money someone can pay for a home (let's leave aside the growing shadow supply of homes) and focus on the growing supply of Treasury debt. 

The Fed can keep short term rates low by leaving the Fed funds rate at zero (or even take them negative by paying banks to borrow - something we may see once Janet Yellen is safely deposited as Vice Chairman of the FOMC) and by using policy tools to create a flood of short term liquidity (see the $2+ trillion in excess bank reserves sitting at the Fed, which is being used to monetize Treasury auctions right now).

HOWEVER, the long end of the Treasury curve is beyond the control of the mighty U.S. policy makers and Wall Street Mafia thugs.   As our foreign creditors shy away from new Treasury auctions (see the previous 2/5/7yr Treasury auction in which Wall Street had to swallow over 50% of the bonds issued), interest rates will start to move higher quickly.

As you can see from the chart below, the ETF which represents a 20-yr Treasury bond price, is teetering on the brink of a freefall as it flirts with breaking a multi-year head and shoulders formation:

This is not a chart that you want to own and the breach of the head and shoulders formation portends much higher interest rates at the long end of the curve.  And do NOT be bamboozled again by the financial media crowd, namely CNBC and Bloomberg.  Rising interest rates are NOT an indication that the economy is picking up steam.  Rates are rising against the desires and efforts of U.S. policy makers because of the sheer unsustainability of the U.S. spending deficits AND the related MASSIVE supply of U.S. Treasury bonds coming this year.

Oh, there is another way for the Treasury to raise money thru bond issuance:  the Fed can monetize them with the printing press.  Either way the implications are for a much weaker U.S. dollar, much higher interest rates and much higher gold/silver prices.  In fact, I believe that we will see upward movement in the price of gold during the rest of this year that will take almost everyone by surprise.

How Far Will Housing Prices Drop?

I've always maintained, since 2002, that housing prices would fall 75-85% from top to bottom.  This is an "on average" number and it will vary across regions.  We're already seeing some properties on the market in Florida being offered 75% below their peak valuations.  Some areas will see 90% declines.  You can assume ownership of homes in Detroit by taking over the real estate tax liens, and you can probably negotiate a big reduction in the liability. 

But don't take it from me, take it from the late Sir John Templeton, one of the grandfather-figures of the mutual fund and modern investment industry (I would like to thank my friend and colleague "Jesse" of Jesse's Cafe Americain, who dug this up after I reminded some people of Templeton's comment):

Sir John also had a few words about debt — a four-letter word that folks seem not to care about: “Emphasize in your magazine how big the debt is. . . . The total debt of America is now $31 trillion. That is three times the GNP of the U.S. That is unprecedented in a major nation. No nation has ever had such a big debt as America has, and it’s bigger than it was at the peak of the stock market boom. Think of the dangers involved. Almost everyone has a home mortgage, and some are 89% of the value of the home (and yes, some are more). If home prices start down, there will be bankruptcies, and in bankruptcy, houses are sold at lower prices, pushing home prices down further.” On that note, he has a word of advice: “After home prices go down to one-tenth of the highest price homeowners paid, then buy.”

Here's the link to the source for that comment - which was made in an interview with Bill Fleckenstein back in 2003 LINK.

We are edging into the next stage of the popped credit bubble/financial system collapse.  The $23 trillion in direct and indirect support flooded into the system since September 2008 by the Fed and Treasury has prevented total devastation.  I expect that we'll start see some form of QE2, a further extension and expansion of the homebuyer tax credit program and other goodies which will enable the Big Banks to continue sucking wealth from the Taxpayers via Tim Geithner and Obama's policy implementation.

The next leg down will probably be the most painful for everyone because those who are either clinging to the comfort of denial or are hanging on to their home/job/savings by a thin thread, will be brutally affected by what is coming.  It's still not too late to unload your home if you have an equity cushion in it and there's still time to accumulate gold and silver before another big move higher - a move that will take many by surprise and shock everyone else who still disparage gold as a "barbarous relic (John Maynard Keynes)."  It looks like the only thinking that is barbaric are the theories derived from the originator of that phrase...Got Gold?

Dollar Decline Update...

(click to enlarge)

Is the U.S. Gold Stock Really There?

Funny how life comes full circle.  I used to explain to anyone willing to listen years ago that the 8100 tonnes of gold reported as owned by the U.S. Treasury was not there - that it had been plundered thru leasing and sale transactions designed to keep a lid on the price of gold and prop up the value of the U.S. dollar.

Well now the favorite psuedo-congnoscenti blog of the market hoi polloi, Zerohedge.com, presents this:

Forget the LBMA and the threat of physical dilution - a much more relevant question is just how much of the alleged US gold holdings of 8133.5 tonnes is actually real. Surely, the question of just how much gold is there below the HSBC building in New York's Bryant Park, and below the FRBNY has never been more relevant.

Here's a link to the entire story:  LINK

Those of us who have been thoroughly studying the precious metals market over the last decade have understood for many years that the U.S. Government, via the complex web of swap and lease transactions implemented by the Fed, has depleted most, if not all, of its gold reserve.  And if Zerohedge knew what it ws talking about, it would know that the bulk of the supposed stock of U.S. gold was moved into "deep storage" at West Point several years ago, safely removed from sight and audit.

If the courts would ever uphold GATA's Freedom Of Information Act request and force the Fed to release all of the related documents that the Fed refuses to release, we would be able to get to The Golden Truth of this issue.  For now, it's nothing but a joke, as our policy makers - and Obama himself - make a complete mockery of Obama's promise to make Government more transparent.

"There must be some way out of here," said the joker to the thief,

"There's too much confusion, I can't get no relief.

Businessmen, they drink my wine, plowmen dig my earth,

None of them along the line know what any of it is worth."

"No reason to get excited," the thief, he kindly spoke,

"There are many here among us who feel that life is but a joke."

(Robert Allen Zimmerman aka Boy Dylan)