Friday, May 28, 2010

Some Friday Observations Before The Long Holiday Weekend

Ever notice how many times over the past several years that gold/silver move higher overnight in the Asian and European markets (primarily physically traded bullion markets) and then takes a cliff-dive right at, or thereabout, the 8:20 a.m. EST Comex open (paper fiat futures market)? Here's a 10-min. chart of today's trading in the August Comex future:
(click to enlarge)

Let's take a look at why they hit the paper price of gold today. As usual, the key is to follow the money. The magic number today is 11,356. That's the open interest on June Comex gold going into first notice day. Theoretically, every one of those contracts could receive notice of delivery today and that would entail the delivery of 1,356,000 ounces of gold.  That number represents 40% of the gold available to be delivered on the Comex.  Let's take this 1 step further.  Scotia Mocatta has been repeatedly accused of having in custody far less gold than they report - an accusation they have never denied.  Currently Scotia is reporting to hold 1.4 millon of the 3.2 million "dealer" or registered gold - that which can be delivered (the other 7+ mm ounces is investor gold kept in custody at the Comex).  Let's just say that if Scotia only has half of its reported available to deliver, then today's June open interest represents 55% of deliverable Comex gold. 

Needless to say, if the market senses that a large porition of the June open interest stands for actual physical delivery (as opposed to tendering for cash or GLD in lieu of taking possession of gold), then the next month could get very interesting for the price of gold (hint:  Apollo moonshot).

On another note, anyone holding their eyes closed and keeping their underwater position in BP stock should start thinking about heading for the exits.  BP was down 6% at one point today, indicating that its latest "top kill" attempt to plug the well is not working.  Yesterday they told us they would need 24 hours to know if it was working.  Today they are telling us they need another 48 hours to know.  Conveniently, how many people will actually be paying attention to the news on Sunday?  Here's is a chart of BP's stock price over the last 6 months:
(click to enlarge)

BP stock is starting to take on the same chart characteristics that so many bankrupted companies before it have followed.  Plunge, followed by optimism based on upper management lies, followed by an irreversible death spiral. 

Based on what I've read to date, plus chatting with some colleagues who have good insight, this situation in the Gulf, best case, is going to be a multi-100 billion dollar disaster, and, worst case, could end up being by far the worst environmental catastrophe in history. Either way BP equity is in trouble. It has been pointed out by the hopeful still clutching onto their BP shares - and of course by the financial advisors that put them into BP - that we need oil so we need BP. But, we need BP's oil properties, not BP the corporation. If the Obama Administration handles this disaster in a way the forces BP to pay as much of this as possible, and minimizes the amount the taxpayers end up having to pay, then BP the corporation will go bankrupt.

Let's see if BHO the POTUS will do the right thing.  If he does, you don't want to be holding BP stock.

On an optimistic note, this weekend kicks off summer, it looks like Denver is finally shaking off the horrible weather of the last 6 months and my view of the front range mountains is spectacular.  I hope everyone has been accumulating gold and silver, because my colleagues and I believe we could see a very big, unexpectedly strong and unseasonal move higher during the course of the summer.  And for those you who eschew precious metals or insist on holding on to your BP stock, here's something for you -  bon appetit! LINK 

Wednesday, May 26, 2010

Two Must-Watch Videos:

"Central Banks stand ready to lease gold in increasing quantities should the price rise"
 - Alan Greenspan, July 1998

Many of you may have already watched these. They are worth watching twice. The first one is Mike Maloney, who does a great job explaining "why gold/silver?" In this quick video, he discusses the Central Bank gold leasing operations and why it is leading into one of the biggest short squeezes ever. Here's some of his salient quotes

- GATA "has compiled a body of evidence that is just so overwhelming that any sane person that looks at it comes to the conclusion the world's Central Banks have been doing this process of leasing gold and selling it into the markets to suppress the price"

- "if [the Central Banks and ETFs like GLD] had to go out and buy the gold and silver in the open market to replace it, the price would go to the moon."  But even if they don't, just being publicly exposed as being short irreplaceable gold/silver will make the price explode.

- "they're getting caught in one fo the world's most gigantic short squeezes and one day we will see thse prices just absolutely explode"'s the video:

The CB and ETF leasing schemes have created the illusion that there's a lot more physical gold and silver in the market than really exists and these entities have created a short position in the metals that will ultimately be very difficult, if not impossible, to cover. The price of gold and silver do a moonshot and the prices of ETFs like GLD and SLV will plummet like Enron/Refco/Bear Stearns et al.

And here's a 12 minute interview with Marc Faber.  Just for the record, Faber for the last 5 years has been way too conservative in his gold price projection.  But he's getting warmer - Here's his defining quote:  "when I look at all the asset classes in the world and I look at the forthcoming disaster that I envision in the next few years, I am quite happy to be holding physical gold:"

Tuesday, May 25, 2010

Quote Of The Year And Must-Read Analysis From Reg Howe

You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.

George Bernard Shaw, 1928

Linked below is among the most well-written and brilliant analysis of how the Central Banks conspire to suppress the price of gold and how they are using GLD for this purpose. Reports about the fraudulent business structure of GLD have been published ad nauseum, including one by me, but this forensic accounting anlysis by Reg Howe is nothing short of remarkable and he clearly lays out the argument, supported by data taken directly from BIS (Bank for International Settlements - the global Central Bank of Central Banks) quarterly documents.  Here is one of the salient quotes, to wet your appetite and stroke your curiosity: 
In recent months, while GLD has generally sold at a slight discount to net asset value, other bullion funds with more transparent and credible custodial and auditing procedures have commanded significant premiums. E.g., Central Fund of Canada (CEF), Central Gold Trust (GTU), Sprott Physical Gold Trust (PHYS). Anecdotal evidence also continues to surface of premiums for spot delivery of physical metal or cash settlement in lieu of physical.

Gold forward rates as reported by the London Bullion Market Association ( have remained positive territory, but accompanied by sporadic negative lease rates at the shorter maturities. See Gold Derivatives: The Tide Turns (5/25/2009), and materials cited. At the LBMA, therefore, gold continues to avoid backwardation, but only because central banks continue to lend at historically very low lease rates.

It is a strange situation. Gold for spot delivery and bullion funds with high credibility for physical possession of metal in the amounts claimed are selling at premiums over paper of lesser reliability. But where gold is arbitraged against currencies on the basis of relative interest rates, it remains in contango. Freer private markets are increasingly disconnecting from more regulated and controlled official markets. Backwardation is arriving in gold, but ass backwards. Of course, nobody should be surprised. That is the way central banks typically operate.
Here is the link to the full report - please take the time read it thoroughly:  LINK

For the record, until GLD can prove that its Custodian AND the subcustodians possess every single bar of gold listed on GLD's website - that these bars are not just paper swap transactions with U.S. and European Central Banks, GLD shareholders are highly exposed to an Enron/Refco/Bear Stearns type of price collapse.  The instant a big holder of GLD tries to exchange its shares for a couple hundered tonnes of GLD's gold -and GLD blinks and hesitates on the delivery - the price of spot gold will shoot to the moon and the price of GLD will have an "air pocket" plummet. 

A long-time investment advisor colleague of mine remarked that he had put his clients in GLD today.  I replied, I hope you are not holding GLD when it's exposed.  He replied that he needed the relative liquidity of GLD for the size he was buying.  I replied that the second GLD is exposed, GLD will go "no bid" and the only thing liquid will be the brown substance in your boxer shorts. Not only that, your phone will start ringing off the hook from lawyers who are filing "breach of fiduciary duty" lawsuits.

For all you GLD loyalists, I have just one question:  "Do you feel lucky, punk?"

Monday, May 24, 2010

This Is Not A Good Sign:

From Bloomberg:  Banks Seek $10 Billion of Bids in Effort to Sell Bad Mortgages
As more banks explore selling soured housing debt, a smaller share of the loans that they are considering off-loading are actually being sold, Daurio and Goodwin said. Instead of one in five potential deals turning into DebtX auctions, “that ratio has gotten worse recently,” Goodwin said during the session. LINK
Despite the lipstick put on this pig by "experts" quoted in the article, the reality is that mortgage delinquencies and defaults continue to climb and banks are looking to unload as much of this crap-ass paper as they can before they have to start tapping into their excess reserves at the Fed in order to monetize the problem.  Let's not forget that a large part of bank profits since last year have been derived from marking up the holding value of assets like distressed mortgages.

Although the banking sector was slammed today - the BKX bank index was down 3.2% - Wells Fargo stock was hammered for 4.6%.  WFC is a large purveyor and holder of the nuclear explosion mortgages known as pay-option ARMs.  The stock performance today in the financial sector likely reflects the deteriorating financial condition of the United States.

On a related note, some idiot disguised as a financial expert on CNN Headline News, Clark Howard, was on today gleeflully explaining to viewers that the housing market was going lower now that the housing tax credit expired and it was great time to buy because prices were dropping by as much as 10% in some areas, as people who weren't able to sell to tax credit buyers now look just to sell before they default.  How would you like to be one of those poor slobs who was aggressively cajoled into buying some beater of a home by his broker in order to take advantage of the tax credit and "good prices," and and then turn on CNN to hear that now your purchase closed, the value of your home has probably already dropped by about 10% - which factors in 8.5% for the tax credit plus another 1.5% because of the inventory that is now flooding the market.  Many homes around my area in Denver are now sporting "price reduced" signs on top the realtor sign in front.

The housing market is on the edge of another cliff dive.  The policy makers have completely misjudged the effectiveness of the tax credit program as a means of "jump starting" the housing market.  Expect the Fed to roll out another massive money printing program, using Europe's woes as the cover excuse.  But we all know by now that the problems in Europe pale compared to the brewing financial/economic disaster in this country.

Compelling Evidence For A Big Move In Gold This Summer?

Trader Dan Norcini has outstanding commentary on the gold/silver markets (and other commodities), which can be found at  One aspect he monitors is the weekly Commitment of Traders report. Over the past few weeks he has uncovered a potentially extraordinary development which could support a very big move higher in the price of gold.

In summary, the swap dealers - the bona fide trading desks at banks that make markets in gold, paper vs. physical, for bona fide commercial users/hedgers - have been aggressively covering their net short position, in contrast to the proprietary "cartel" desks at banks, which have been increasing their paper short positions in an attempt to cap the price of gold/silver. In my view, based on Trader Dan's empirical analysis, I believe this is more evidence that the Comex paper fraud is moving closer to GATA's "commercial signal failure," which occurs when the demand for physical gold completely overwhelms the ability of the paper shorts to deliver the actual goods. Here's Dan's excellent analysis:  Gold: Look Out Above?

One possible interpretation of this is that the swap desks, because they deal in both paper and physical gold, have a first-hand view of physical availability and are attempting to reduce their exposure to the growing shortage of physical bars in both London and NY by reducing their net position and actually increasing their long position in later months, as pointed out by Dan.  This would be consistent with the ever persistent reports out of London, and the actual delivery experience of our bullion fund, of delivery delays and an increasing tightness of physical supply.

I have been discussing with long-time colleagues the possibility that this summer may experience a big move higher in gold, contrary to the seasonals, as Europe and the U.S. continue to melt-down fiscally and economically, and the world continues to shift from fraudulent paper currencies into the safe haven of physical gold and silver.  The COT report, as per Trader Dan, adds more evidence to support the view of a big move in gold soon.

UPDATE:  This highly esteemed James Turk published commentary which echoes the view about a possible summer rally:  "Few people expect silver prices to rise during the summer, which is normally considered a quiet period for precious metal prices. Maybe the big surprise this year will be a spectacular summer rally for the precious metals. After all, that is what the silver chart is telling us."  I recommend reading his commentary HERE

Friday, May 21, 2010

Russia Adds 5.7 Tonnes of Gold In April; Golden Truth 1 - BAC 0...

Just in:  Bloomberg posted an article that reports Central Banks expanded their gold holdings the most since 1964:  LINK  Wonder what that means?  The world was on a fractional gold standard per Bretton Woods back then...

Russia's insatiable appetite for gold accumulation continues in April:

(Chart courtesy of Richard Nachbar, - click to enlarge)

On another note, last Friday Bank of America poo poo'd the massive, record outflow of capital from the high yield market.  I commented HERE that historically it was a bad omen for the stock market when hedge fund money races out of the junk bond market.  Since last Thurday's close thru right now, the Dow is down 6.7% and the SPX has dropped 7.3%.  

And today Bloomberg reports this:  "The loss in junk bonds this month is on pace to exceed the 3.47 percent drop in February 2009, which was last year’s worst. It is on course to be the biggest drop in the market since the debt tumbled 8.43 percent in November 2008" LINK.  Wall Street analysts typically suck in their market assessments.  B of A sucked in junk bonds back in the 1990's and it's good to see that nothing has changed since then.

Have a great weekend.  If I get off my lazy ass I'm going to put together a post on the housing market.  In the meantime Happy Friday

Thursday, May 20, 2010

WTF? - Here's the Deal...

Follow the money. I like to track the price spread between the SPX 500 and gold. It gives me easy information about the directional flow of smart money, which operates behind the smoke blown by the turd-brains on CNBC, Bloomberg and trading chatboards. On April 1, the SPX closed at 1173 and gold closed at 1127 (front-month futures basis for both) - a 46 point spread. Today, the SPX closed at 1070 and gold closed at 1182. Between April 1st and today, gold has outperformed the SPX by 158 points. The SPX is down 8.8% and gold is up 4.9% in this time period. Hmmmm, the numbers show a much different story about the markets than is being portrayed by the pathetic Wall Street apologists.

Hear that sucking sound? That's the sound of Asia, specifically the Chinese, sucking all of the gold and silver that the reality tv watching American zombies are selling into cash for gold companies and now an operation being set up in Sears/Kmart by an affiliated Chinese company. And by many accounts, including this one from LINK, the Chinese people can't exchange their fiat currency for gold and silver fast enough. I find it fascinating that both Europe and Asia, two civilizations with several centuries more history and experience with the precious metals than America, are buying the stuff hand over fist, while the consumption-happy Americans are all too willing to unload their last vestiges of real money in exchange for fraudulent pieces of paper that allow them to go buy faux-luxury goods and appliances at Sears and Kmart.

The dollar. I know I've been early on this call, but I now believe the dollar has finally rolled over:

(click on the chart to enlarge)

A recent poll reported on Bloomberg showed 97% of all money managers were STILL bearish on the euro and bullish on the dollar. How come no one is talking about the short euro/long dollar trade being too crowded? Given that the big banks have been buying all the euros being sold by funds, and selling dollars to all the buyers, the higher probability bet here is to get long the euro and short the dollar. I can't recall since the internet stock bubble when fund manager/public sentiment was this massively skewed in one direction.

And finally, we all know that Goldman Sachs has taken it upon itself to fund the bailout of Obama's favorite ghetto-home-mortgaging bank, ShoreBank, in Chicago. But is this really a bailout with good intent by Goldman or does the firm look at it as an investment with a huge payoff? Obama apparently has close ties with this bank. Let's say that the Government originally were to settle its SEC lawsuit against GS for $1.5 billion. But now Obama steps in and works out a $1 billion settlement. Goldman effectively "earns" $500 million in exchange for the roughly $50 million that it is thought to be ponying up to save the failed bank. A 10x payout. Helluva deal there. My only question, and it's strictly rhetorical, would Goldman have saved this bank if McCain were in the White House instead of Obama?

Wednesday, May 19, 2010

Update On The Gold/Silver Buying Operation Being Set Up At Sears/Kmart

My friend DC from New Jersey called Pro Gold, the company setting up the gold/silver buying operation at Sears/Kmart.  They are associated with this Chinese company:  Combine International.   Anyone still wondering how the Chinese are diversifying out of the dollar?  I've been saying all along that Chinese are hedging and diversifying away from their problematic exposure to the U.S. dollars in some very subtle and clever ways.  How ironic that mindless, American Idol worshipping consumption-happy Americans are dumping the one thing of value they own to the Chinese in exchange for U.S. dollar confetti.  Talk about being given rope to hang one's self with...

Look Out Below - Mortgage Purchase Applications Crash...

Applications for mortgages to purchase homes plunged 27.1% last week vs. the previous week.  This follows a 9.5% plunge the week before that.  The purchase index is now 24% below the same week last year and is the lowest in the survey since May 1997.  The refinancing index increased, benefitting from the lower mortgage rates which have resulted from the massive flow of money out of the stocks and into the bond market (out of the fire and into the frying pan?).   Here's the news link from the Mortgage Bankers Association:  Yikes.

Obviously this does not support the increase in housing starts reported earlier in the week.  It leads one to wonder if the National Association of Homebuilders numbers are fraudulent, or if new homebuilders are taking advantage of the extreme moral hazard that the policies of the Obama Administration (Geithner, Summers, et al), in conjunction with the Federal Reserve, have injected into our system with their massive tax subsidies for homebuyers and trillions in "quantitative easing."

Don't believe any of the data being released by the National Association of Realtors, the Census Bureau or the Obama people about housing inventories.  Recent data from several sources (more on this later) show that bank owned real estate inventories are ballooning up to record levels.  By one estimate (more later) shows at least 7 years of housing inventory building up in the system.  Draw your own conclusions...

Two other notes:  It would appear that retail bullion inventory is starting to wear thin.  Tulving is sold out of bags of 90% silver coins and RCM 100 oz. silver bars.  He's also out of 1 oz. gold Austrian Philharmonics and has jacked up his bid/offer on most 1 oz. sovereign-minted bullion coins.  Reports from Germany about coin dealers over there temporarily shutting due to empty shelves have been confirmed by two different people from Germany in the comment section of this blog.

And is anyone completely horrified, besides me, from the reports that BOTH Attorney General Eric Holder AND Dept of Homeland Security El Jefe (and a heavy one at that) Janet Napolitano have NOT even bothered to read the Arizona immigration law recently passed?  What the hell are they doing if they're not protecting our Constitutional rights and protecting our borders?

Monday, May 17, 2010

How Can ANYONE Claim A Top In Gold

when the masses are just hitting their stride in selling the gold and silver they own?  Sears and Kmart are now marketing a service that allows customers to sell their gold and silver jewelry to help pay for purchases: Sears, Kmart and Pro Gold To Help Separate People From Their Gold

Remember, the classic signal that a bull market has reached its bubble-ified zenith is when the masses can't get enough and chase prices into the stratosphere.  Think:  Dutch tulip bulbs, internet/tech stocks, Florida swam real estate...The gold market is not only NOT exhibiting ANY of the classic topping signs, the above program being rolled out by Sears/Kmart, the ultimate middle class heaven, is indicative more of a bull market still in its early stages.  In fact, while watching the Rockies/Cubs game tonight, cash for gold ads ran several times.  Classic early bull market characteristic:  the smart money accumulates what the masses happily sell, waiting for several years and several multiples higher to re-sell it back to the same dopes who sold it years earlier at much lower prices.  If anything can be said right now, it's that the bull market in mindless American consumption is still intact, albeit running on fumes.

Just as telling is the fact that big, supposedly smart, hedge fund money has barely scratched the surface in the metals/mining stock sector.  There's no telling how high gold, silver and mining stocks will be by the time the hoi polloi want in.

GM's Earnings: More Orwell and Less Truth

How real are GM's earnings?  I don't know.  I can't find any information other than brief news summaries announcing an operating profit based on better sales and cost-cutting.  I would really like to find a GAAP-prepared financial statement.  If anyone can come up with one please link it in the comment section.

Personally, given that we know that the Government is looking to unload its 60% stake in GM, I don't believe the numbers released today.  Put faith in them at your own risk - caveat emptor.  We do know that GM is looking to get back into subprime auto loans and that Toyota sales are rebounding.  I would suspect that the numbers released today are about as reliable as any other the Government reports.  In other words the believability factor is zero unless the Government/GM is willing to publish full financials with an independent auditor's report attached.
Regarding today's Empire State manufacturing index:  it came in much lower than expected BUT the prices paid component reached its highest level in a year...

Friday, May 14, 2010

This Could Be A Bad Sign For The Paper Markets

High yield funds see 3rd highest fund outflow since 1992. Bank of America sugar-coats this by saying: "The disconnect between the two indicates to us that it was mostly hot money shorting the market that were responsible for ETF withdrawals, as opposed to the mainstream long-term HY investor base. Otherwise, the distribution between the two segments should not differ much, just as it usually relates over most other intervals. This, in turn, gives us one more reason to believe that such outflows could be temporary" sourced from

But that's utter garbage. In the 9 years that I was trading junk bonds, when the hot money pulled out junk bond funds, it almost invariably pre-saged a big stock market sell-off. Given the action in gold/silver today, I'm wondering if market sensitive money is starting to move into gold as a flight to safety...GOT GOLD?  (two links worth reading).

A Couple of Friday Morning Observations...

"Advance" retails sales estimates for April were released by the Commerce Department today.  The "adjusted" headline number showed a .4% "seasonally adjusted" increase in total retail sales over March and an 8.8% "adjusted" increase over April 2009.  Looking at the unadjusted numbers, however, April sales took a drop from March (maybe because April has one less day), and if you strip out the gain in building materials/hardware, April sales plunged vs. March.  I suspect a large part of the building materials gains were price increases.

How realistic are the "adjustments" and are they to be trusted?  Doubtful.  Here's what the Census Bureau says about the adjustments: 
Adjustment of estimates is an approximation based on current and past experiences. Therefore the adjustments could become less precise if current competitive pressures, changes in consumer buying patterns during holiday periods, and other elements introduce significant changes in seasonal, trading-day and holiday patterns.

They give us a table of the adjustment factors but do not go into detail about how the factors are derived. You can explore the issue with this link:  Orwell Smiles.  Here's the full blown Census Bureau retail sales reports:  Orwell Giggles.  You decide.

As for the price action in gold and silver, today is the second trading day in the last 6 that we've had a disconnect between the action in the stock futures and gold/silver.  This is extraordinarily significant.  Historically during this bull market in metals, when I would wake up to see the SPX, Dow and oil futures all getting hammered, I would have expected to see gold down $20 and silver down 50 cents.  But not today and not last Thursday.  The world is finally starting to understand the true nature of real currency vs. fiat paper and this view is being expressed in today's price action (and last Thursday's).  As this disconnect becomes more frequent, look out above for the metals.  And on a gold/XAU or HUI ratio basis, the mining stocks have room to at least double vs. gold here. 

If the dollar starts to rollover, we are going to see a very violent and extended move higher in gold, silver and the mining stocks that will make believers out of all but the very worst charlatans on CNBC and Bloomberg.  And the junior mining stocks will rip off 300-1000% gains.  Got gold?  Orwell is laughing uncontrollably now.

Wednesday, May 12, 2010

Mortgage Finance Index: There's More Than the CNBC Headline

CNBC reported this morning that the Mortgage Bankers applications index jumped 3.9% last week.  On the surface this looks healthy.  If you bother to go to the MBA website and read their actual press release - CNBC and Bloomberg don't typically bother with this, especially if the details belie the headline - you'll find that the purchase applications actually dropped 9.5%.  The increase in the index was from refi applications, which jumped nearly 15% as interest rates dropped last week.  Here's the link:  MBA Finance Index.

The housing market is about to take another cliff-dive, as home buyer tax credit expired on April 30, foreclosures and bank owned housing inventory spike and the "jingle mail" phenomenon - where underwater homeowners hand the house over the bank - becomes more pervasive.  I saw a statistic last night which reported that 23% of all homeowners are now underwater.

While not many actually believe the Government reports and White House smoke-blowing about a recovering economy and improving job market, it's difficult to hide the decaying housing market, especially when "for sale" and "for rent" signs continue to proliferate on a daily basis.  The big banks have marked most of their unsaleable credit paper up to fantasy.  As the underlying asset base - housing and commercial real estate - continues to decline in value, expect that either the Fed will engage in a massive QE2 program or we'll have another big credit market accident later this year. 

Tuesday, May 11, 2010

One of Life's Bittersweet Ironies...

Fitting that Gordon Brown - the very man who unloaded half of the Bank of England's gold at $250/oz - resigns as Prime Minister of England on a day when gold hits an all-time high in U.S. dollars. To be frank, Brown should have been beheaded by sword, like ex-Queen (1533-1536) Anne Boleyn, rather than rewarded with the Prime Ministership. I wonder how Shakespeare would have portrayed this era in England...and I'm even more curious to know who bought the 400 tonnes of BOE gold...

"Time shall unfold what plaited cunning hides." Shakespeare, King Lear

I had to add this, with regard to the news that GM may buy back GMAC:  Jesse of Jesse's Cafe Americain remarks:  "It's the equivalent of a dog returning to eat its vomit."

"Pictures At An Exhibition" - of a Bull Market in Gold and Silver

With complete apologies to Modest Mussorgsky...

(click to enlarge - source:  Richard Russell - Dow Theory Letters)

It will take the Government quite some time I'm sure to figure out how JP Morgan has been fraudulently manipulating the silver market with extreme impudence and recklessness.  But perhaps the market will extract a lot of pain out the rogue bank before the Government catches up with insight of its own.  My best guess is that Dimon will throw his metals trading unit to the wolves and plead ignorance.

In the meantime, the bulls are loose and there's no rush like a gold rush.  And here's the sucking sound of physical bullion being drained from the LBMA:  CEF to Issue $350 million to Buy Physical Bullion  Central Fund Increases Equity Offering to U.S.$376 Million

Monday, May 10, 2010

Federal Agents Investigating JP Morgan's Silver Market Manipulation

In case readers missed this, Sunday's New York Post - the only major newspaper to report this, despite ALL major media outlets having been made aware of this - reported a wide-ranging investigation into JP Morgan's silver market corruption.  The Antitrust Divsion of the Justice Dept is looking into criminal behavior and the CFTC is investigating civil charges.  The investigation is all-encompassing, including JP Morgan's trading activity both on the NY Comex and the London Bullion Market Association.

(click on image to enlarge - source:  GATA)

The article pretty much explains the details.  As we all know, there is a major disconnect between the extreme paper and derivatives short in silver amassed by JP Morgan vs. the amount of silver available to deliver should the buyers of JPM's fraudulent paper decide to ask for actual delivery of the metal, and especially if they decide to ask for private delivery out of JPM's custodial warehouses.

For the record, and to highlight the degree of cover-up here, I know that the Financial Times was invited to participate in the fact-gathering and reporting of this investigation, but pulled out at the last minute.  Recall that former British PM Tony Blair is now a highly paid "advior" to JPM - no doubt he pulled strings to scare off the FT.  My hat's off to the NY Post for doing its job in reporting the Truth.

Friday, May 7, 2010

Silver Finally Launches...

Quote of the day in reference to the vertical move in silver this morning: 
Maybe a trader typed in a million unit buy order for GOOGLE and accidentally typed in SILVER instead.
I recommend reading the author's commentary on the silver action today:  Jesse's Cafe Americain

Global Investors Turning to Physical Gold...

UBS comments on the very heavy demand from European investors for physical bars and coins (from JB's daily gold market commentary, which can be read every evening at

“…our Zurich and Geneva sales desk experienced exceptionally strong demand for small bars and coins. All size bars up to 1kg are wanted by retail investors. Buying has been evident all week, but demand yesterday was the greatest that we have experienced since 2008…Coin demand is so intense that supply is struggling to match, even as premiums rise. Capacity constraints, greatly evident last year, are once again a feature. We saw particularly strong demand for Kruggerands, but all coins are being sought right now….Physical demand has been most obvious in Germany this week. Considering their primary role in the Greek bail out and the near borderless European debt problem, with few viable investment alternatives Germany investors have turned to gold.”

UBS officially raised precious metals to overweight this morning.  In the surprising - perhaps Freudian? - words of Larry Kudlow - the interminable CNBC defender/apologist of fiat currency and the U.S. financial system - "GOLD IS THE NEW RESERVE CURRENCY..."

Thursday, May 6, 2010

Looks Like My Call To Nationalize BP In Order To Ensure Full Compensation

for damages from the oil catastrophe was not so outrageous after all: 
Critics of the deal being worked out between Obama and Hayward point out that $10 billion is a mere drop in the bucket for a trillion dollar disaster but also note that BP, if its assets were nationalized, could fetch almost a trillion dollars for compensation purposes. There is talk in some government circles, including FEMA, of the need to nationalize BP in order to compensate those who will ultimately be affected by the worst oil disaster in the history of the world.
Here's the link from Zero Hedge:  LINK

I have been told that the shrimp industry in the Gulf will be wiped out for several years after this year.  That's just for starters.  The National Oceanic and Atmospheric Administration issued a report in which they estimated that in 2006 the Gulf fishing industry produced $7.8 billion in totals sales to the region's economy.  Here's the link to that report:  LINK.

If you read the Zero Hedge post, it is clear that BP is doing its best to try and cover-up as much as they can about the severity and cost of this disaster.  Last week NPR reported that right after the rig blew, BP representatives were swarming the coastal towns trying to persuade local fisherman to take a $5,000 check in return for signing a waiver which would prevent the signee from suing BP for damages.  Apparently Obama halted that effort.

What I find to be most ironic is how quickly the media has taken this story largely off the radar.  I guess people would rather read about more important things like what's happening on American Idol or Jennifer Aniston's feeding habits...I would like to know why Obama is so quickly trying to negotiate a cap on BP's liability exposure.  Hasn't he given enough taxpayer largesse to the Big Banks?  After all, beyond BP's liability, the Taxpayer will be the deep pockets paying for this one.

Physical Bullion vs. Paper: Get Your Paper Bullion Converted to Physical ASAP

Below is an email that went out from a Canadian bullion dealer:

"Sold almost a half tonne of silver on Friday. Bought 3,000 maple leafs in two orders over the last couple of days to replenish shop inventory...I am doing my best to add to my personal holdings but so much is coming in I can't really afford to buy it all. I don't have any personal bullion but I try to keep all the silver dollars offered to the shop. We have full page newspaper ads as well as radio ads running so a great deal of material is coming in.

On Friday I sold over 150 gold maple leafs as well as the silver I mentioned. I am seeing more affluent buyers who are cashing out certificates and converting to physical. The banks are getting weird about bullion here in Canada. They are refusing to buy bullion unless it is fully documented. I get the feeling they are trying to imply your specie would be worthless if you loose the documentation so stick with certificates which are registered. One client tried to convert certificates from Scotia Bank into bullion but the bank said the type of certificate did not allow for that. He sold it and found the premiums to buy physical there to be prohibitive so came to me. It's very easy to do well when your competitors are the banks

I am also selling lots of silver over the last few weeks. With the current lower prices I am seeing many people add to positions which is very unusual. In the past many sold corrections."

GATA has always warned for over a decade that eventually the physical bullion market would blow up the fraudulent paper market. If you have ANY paper/certificate/leveraged account "investments in gold/silver - GET OUT OF IT NOW AND BUY THE REAL THING. This includes GLD, IAU, SLV, Kitco, Monex, BMG or any Wall Street bank cerificate products. Even Perth Mint certificates. And especially if you have ANY exposure to Bank Nova Scotia/Scotia Mocatta, HSBC, JP Morgan or Barclays as a custodian.

"Alea iacta est - Let the die be cast"  - Julius Caesar upon crossing the River Rubicon with army.  Today was just a taste of what is to come with the markets.

Wednesday, May 5, 2010

Freddie Mac Lifts Its Leg on the U.S. Taxpayer - Again

This quarter to the tune of $10.6 billion:
WASHINGTON/NEW YORK, May 5 (Reuters) - Freddie Mac (FRE.N), the second-largest provider of U.S. residential mortgage funds, on Wednesday asked for an additional $10.6 billion in federal aid after it lost $8 billion in the first quarter...LINK.
"No problem," reflects Whirlybird Ben Bernanke and Tiny Brain Tim Geithner, just crank up the printing press and issue some more "I'll Never" IOU's to the dopes in China, Japan and the UK.  Don't forget that on Christmas Eve, late, Geithner released news announcing that the $400 billion cap on Govt injections into FNM and FRE had been removed.  You can see where this is going...

Just consider this: the CEO, CFO and Sr. VP of Capital Markets each made $2.03 million, $1.14 million and $2.92 million respectively. Please note: that's money taken from your bank account and handed to these morons who are making seven figures in order to ask for billions each quarter, which is then used to pay the employees at FRE and subsidize the collapsing housing and mortgage industry.

Fannie Mae, Freddie Mac, Ginnie Mae and the FHA are among the biggest wastes of wealth in the history of the planet...Since Fannie is quite a bit larger than Freddie, expect that FNM will soon announce demands for an even bigger hand-out from the Taxpayers...Got gold? I hope so because Banana Ben is on the verge of being forced to punch the button on his famous electronic printing press and gold will go parabolic in price....speaking of lifting one's leg and urinating, I wonder if FRE CEO Charles Edgar Haldeman can lick his own balls...

Busy Re-deploying Cash We Raised Last Week

before the sell-off. Scaling in on my favorite positions. Here are some articles that should be read. I wanted to add some commentary to these links but the articles speak for themselves - bon appetit:

From Clusterstock: Gold to $3000?  (Rosenberg is quick to point out the debt problems throughout Europe, bet let's not forget that the debt bubble in the United States makes Europe look like a day at the beach).

China Buys Physical Gold vs The West Dumping Paper Gold (make no mistake about it, China is voraciously accumulating physical gold - a lot of it is via their sovereign wealth funds, like China Investment Corp, and does not get reported to the IMF as "official" gold holdings. I know for a first-hand fact that CIC is accumulating gold).

Bill Clinton Slips, Admits Closing Gold Window Caused Our  (Bill Clinton is a closet goldbug).

Middle East Banks Going "de facto" Gold Standard? (We buy their oil with dollars, they turnaround and buy our gold with those same dollars).

As Europe continues to melt down, keep an eye on the growing civil unrest in Greece. There is a real risk that it will spread over Europe and even to the United States, as the controlled demolition of paper currencies spins out of control.

Remember - THIS is real money:

This is NOT:

Monday, May 3, 2010

Federal, State and Local Debt/Deficits Keep on Growing Larger

"May 3 (Bloomberg) -- Construction spending in the U.S. unexpectedly increased in March, propelled by gains in state and local government projects." Here's the story link: Debt Makes You Free?

Rather than help States and Municipalities balance their spending budgets and reduce their outstanding debt, the Federal Govt gave local contruction spending a boost in March by giving States stimulus money to spend on construction projects. This is non-recurring, unsustainable economic activity and perhaps it will help incumbents - mainly Democrats - gain some traction with the voters.

I would like to point out for those who missed the press release Friday, the Lt. Governor of NY State announced that next year's NY State budget deficit would likely hit $15 billion, on top of this year's $9 billion deficit...Add in California's $20+ billion deficit and the red ink of some other big States like Illinois, Texas and New Jersey and the world wants Greece to cut back spending?

If you want to put the "lense" of truth on the above news, please read this commentary from James Turk. Here is a quote from his commentary that is directly from the BIS (Bank for International Settlements - the global Central Bank of Central banks) report entitled  "The future of public debt: prospects and implications:" 
First, fiscal problems confronting industrial economies are bigger than suggested by official debt figures…As frightening as it is to consider public debt increasing to more than 100% of GDP, an even greater danger arises from a rapidly ageing population. The related unfunded liabilities are large and growing...looming long-term fiscal imbalances pose significant risk to the prospects for future monetary stability...unstable debt dynamics could lead to higher inflation: direct debt monetisation, and the temptation to reduce the real value of government debt through higher inflation.
Here is the link to Turk's commentary - a must-read:  Gold Needed More Than Ever

There is no question that the recent move higher in gold, while the dollar has been moving higher, is directly related to a large flow of European money out of paper and into physical gold. Imagine what the price of gold will do when the world finally wakes up to the massive fiscal/monetary disaster brewing in the United States - a problem which by sheer size makes Europe's problems look somewhat insignificant. Please note, you can not go by Wall Street's reported Debt/GDP figures. The U.S. has a lot of hidden pockets of debt ($2.5 trillion in the Social Security trust) and massive debt guarantees that will eventually kick in ($6 trillion in guranteed FNM/FRE debt, not including FHA and FDIC debt problems).

As the BIS points out, the biggest risk is that Governments will start to address their debt repayment problems by printing money. This is how it's always been done throughout history. The ONLY way to protect your wealth here is to move as much as you can into physical gold and silver - not paper gold frauds like GLD and SLV.

Sunday, May 2, 2010

The Gulf Oil Spill Tragedy - A Nuclear Accident Equivalent

All I can say about this is that the unintended consequences will be enormous. Presumably British Petroleum is carrying full insurance coverage. The costs involved - all encompassing, not just the direct clean-up costs - will run into the $100's of billions. If you think I'm nuts, please read this analysis:  Beyond Catastrophic.

Not factored into that author's cost analysis is the likelihood that massive insurance company OTC derivatives - credit default swaps, etc. - will likely be triggered as insurance coverage is maxed out.  I'm positive none of BP's insurers ever anticipated or reserved properly for something like this. This disaster will trigger many bankruptcies, large and small.  BP itself is likely toast, if the U.S. Government exercises proper justice.

The market cap of BP as of Friday's close was $165 billion.  If Obama is doing the job he should be doing here, he should seize BP's operations, freeze all of its bank accounts and those of its senior management and board of directors.  The U.S. Government should effectively takeover the BP and seek to manage it for the goal of squeezing all possible economic value out of the Company and use that money to manage this disaster. 

Take a look at the graphic in the above-linked article.  If you own real estate anywhere along the Gulf Coast or the East Coast, your property has just lost a lot of value.  That this happened is beyond unimaginable, especially since the technology to prevent this was available and widely used throughout Europe.  There should be no mercy for BP and it's senior executives.

Sunday Observations on the Economy, Inflation, Gold, etc...

The first "cut" of Q1 2010 estimated GDP was released on Friday. It came in slighly below expectations at a 3.2% annualized rate. This number will be revised a couple times over the next of couple months. Don't forget that because the Govt underestimates true inflation, any estimated GDP statistic is mathematically skewed too high. That said, Q1 GDP was mostly fueled by consumer spending, which was financed by the trillions tossed into the system by the Government over the past 18 months. This is low-grade, unsustainable growth, given the persistence of rising unemployment, flat disposable income, and the ongoing deterioration in basic manufacturing and homebuilding:
Real disposable incomes were flat, the data showed. And after having risen in the third and fourth quarters, investments in homes reverted, falling at a 10.9% annual rate. Investments in business structures dropped at a 14% rate, the seventh straight decline. Spending by state and local governments fell 3.8%, the largest decline in 29 years. Export growth slowed.  LINK
It is becoming more apparent that basic economic indicators are starting to head south again. It will be interesting to watch how the expiration of the homebuyer tax credit affects the real estate industry. Watch out for rising foreclosures, bank failures and a concerted Govt/Wall Street attempt to hide the mushrooming credit problems endemic in our system.

High quality, sustainable economic growth is fueled by capital formation - high savings, basic industrial investing, jobs formation - none of which is occurring in this country right now, nor can it occur in an environment of high Government deficits, massive Government debt issuance and continued Government/Central Bank policy which incentivizes businesses to move offshore and offers the banking system the ability to create huge paper profits by engaging in broad financial manipulation (carry-trade, derivatives, mark-to-fantasy accounting). And the middle class is disappearing: A Country of Growing Serfdom.

What was NOT being reported - either out of ignorance, denial or suppression of the facts - was the incipient price inflation that is building in the system - inflation in food and energy, both of which the Government considers "non-core" items. On April 22, the Producer Price Index was released and was substantially higher than consensus estimates.  Food and energy were the culprits. Of course Bloomberg reported that "at the core level, inflation is almost nonexistent outside of commodities related gains."

And on Friday the Chicago Purchasing Managers Index was higher than expected. While CNBC and Bloomberg cheered on the overall number, if you looked at the components you would find that "input prices" are rising with prices paid up nearly 5 points to 71.4 (on the index). Little attention paid to the rising prices at the grocery store and gas pump, but expect that inflation will begin to accelerate, regardless of whether or not the Government accurately and honestly reports it. I wonder what affect the British Petroleum oil disaster will have on gasoline prices - anyone notice gasoline prices climbing over $3/gallon for premium octanes?

Then there's gold/silver. Gold has been in a remarkable and persistent bull market since 2000, after England's Gordon Brown dumped 400 tonnes of British gold onto the market in order to supress the price. Nice trade, Gordie! LOL. This bull market has received little attention outside of the narrow world of financial blogs and chatboards - and it has been aggressively denied by the financial advisory industry (i.e. your trusty little golf ball/fancy dinner investment advisor). 

As Europe and the United States put increasing stress on the ability of the rest of the world to continue funding the massive spending deficits, reckless Government/Central Bank fiscal and monetary policies and financial fraud, many countries are aggressively accumulating large amounts of physical gold and silver. My guess is that CNBC or your local newspaper did not report this story, but the demand for gold by India for its spring festival season this year is up 25-30% over last year. Here's the link: India Hoovers Gold.

And you have seen from previous posts on this blog, Russia and China have been accumulating a massive amount of gold - the Governments of both countries and now the citizens in China (gold and silver). China has implemented public policy measures which encourage and incentivize its citizens to use their savings to buy gold and silver. In the United States, on the other hand, "cash for gold" ads proliferate and can been seen especially during expensive advertising time slots on prime time t.v., indicating that the hoi polloi in this country are still eagerly selling their precious metals.

The price of gold has been hitting new all-time highs in the euro and the British pound on a persistent basis. It just hit a new dollar high for 2010 in the on Friday. Gold has gone up over 450% since 2001, 16% per year on average every year, and it has done this without the benefit of much inflation - price inflation that is. As the financial/economic problems of the west (Europe/United States) continue to accelerate, so too will the creation of paper money as the expedient method chosen to try and address them. In turn that will fuel the increasing distrust of Governments and their fiat currencies and throw gasoline on the flames of inflation - both of which will result in a price move by gold, silver and mining stocks that will completely shock all but the most ardent proponents of using gold as the backbone of the global economic/financial system.

Think about the affect on the price of gold and silver as the big institutional pools of money in the United States begin to move just 5-10% of their money into physical gold and silver (Northwest Mutual announced the purchase fo $400 million of gold bullion last year). This will occur as the sophisticated investment managers in this country begin to understand the fundamental problems with GLD and SLV (one large, sophisticated hedge fund with gold as its 2nd largest position announced that it sold its GLD and purchased physical gold instead last summer). The biggest moves in gold and silver are yet come.

Saturday, May 1, 2010

Anti-Trust Division of the Justice Deptartment To Look At The Silver Market Manipulation

In a stunning development, Ted Butler has shared information he received about an investigation by the Anti-Trust Division of the U.S. Department of Justice into the massive manipulation of the silver market by J.P. Morgan . This is huge and way overdue. This could well effect the market value of the SLV silver ETF, as JP Morgan is the custodian and has been suspected by many of implementing a "fractional bullion" method of silver storage at SLV.

Here is the interview with Ted Butler from  Click on the link and then click on the "MP3" link in the lower left:

DOJ to investigate silver mkt manipulation

Obviously the ramifications of this for the upside potential for the price of silver are very significant. It will likely take some time for the investigation to happen and conclude. Silver is already substantially undervalued using kind of historical metric and the upside potential has now been turbo-charged. Got gold? Better get a lot of silver while it's still cheap and readily available.