Must-Read from Jesse

"What's burning a city - compared to tearing the lid off hell and letting men see it" (Atlas Shrugged)

My friend and colleague, "Jesse," penned an incredibly insightful treatise on the epic wealth theft going on in this country:  "The bailout of AIG is near the core of the great fraud. Crack that nut, and we may learn something about financial fascism and the Fed. That is why they may dance around it, but they will never take down the principals and bring the truth out into the light of day."

What's going on is everyone's hell, except for those who are involved in seizing your wealth and freedom. I recommend everyone read this and put some thought into what can be done to derail what may be inexorably, tragically irreversible: LINK

The Golden Truth isn't always where the light is shining - sometimes you have to work hard to find it.

The Housing Market Continues Its Plunge

"The power of accurate observation is frequently called cynicism by those who don't have it."

- George Bernard Shaw (1856-1950)

Let me start first by addressing yesterday's release of the monthly Case-Shiller index of home prices, which showed a gain for April.  But if you take a look underneath the hood at how CS is calculated you'll understand why that "gain" is illusory.  CS is based on a home sale price survey of the 20 larges metro areas, and it emphasizes "organic" sales vs. forclosure sales.  Because of the homebuyer tax credit and seasonal factors, the data pool used by CS de-emphasizes transactions which occur at "distressed" sale prices in favor of the fully-loaded, tax-benefit propped up "organic" sales transactions.  In other words, the CS index is statistically skewed to upside, unless you believe that foreclosures are going away and the tax credit had no effect on prices.  Mark Hanson did an analysis on the CS flaws last year if you are interested:  LINK.

So let's toss out the Case-Shiller price report and look at two other very significant developments.  Yesterday the nation's third largest homebuilder, Lennar, announced that it was cutting prices on its new homes by up to 15%.  Last week Lennar reported its earnings and it also reported that new orders for May fell by an unexpectedly large 10%.  KB Homes, the 8th largest homebuilder, reported last week that new orders for its homes plunged 23% in its most recent quarter.  And the Commerce Dept reported last week that new home sales took a 32% cliff dive in May.  Starting to get the picture?

Today the Mortgage Bankers Association reported its weekly mortgage applications index, which is comprised of purchase and refinance mortgage applications.  Once again the purchase applications index dropped another 3.8% from the previous week and was 36% lower than the same week last year.  Here's the link to the report if you are interested: MBAA Mortgage Index.

The point here is that the housing market is in a serious freefall.  Yesterday's widespread sell-off in the stock market, for sure, reflects the growing understanding by those who are paying attention that the economy is in serious trouble, with housing being one of the major components of U.S. GDP ever since World War Two.  Given that the mortgage market is over $12 trillion, as housing economics go into a tailspin, big bank balance sheets are sure to follow.  In other words, we are barrelling head-first toward a credit collapse that will make the one in 2008 seem insignificant.

The even bigger underlying implication here is that it is increasingly becoming apparent - and is even being reflected in mass financial media commentary - that the Fed has only one policy choice left to try and address this problem and that's to engage in "crank" economics - i.e. "crank" up that printing press.  Unless the Government/Fed is wiling to allow the whole system to crater, we can expect a big stimulus/quantitative easing/printing press program to be implemented, likely before year-end and possibly in time to jump-start the system ahead of November's elections.  I hope everyone understands that the only way to protect yourself from the collateral damages this will cause is to load up on gold/silver/mining stocks.  Anyone want to operate a hot dog stand?

Question Of The Day - Courtesy Of Florida John

We were discussing Obama's ability as a leader and a manager, and John asked rhetorically, if you owned 50 hot dog stands in and around your city, would you let Obama run one of them?

I know what my answer is...

James Turk: The U.S. Is Following The Same Path As Weimar Germany

I've emphasized many times the striking similarities between the U.S. today and Germany during the Weimar period (1918 - 1933).  I just listened to Turk's interview on King World News and I thought it would be useful to hear the "U.S. is Weimar" pontification from someone who I consider to be more educationally useful than were any of my professors at the University of Chicago Business School.  This quote should wet your appetite: 

We're following what happened in Weimar Germany very very closely. Before the hyperinflation actually occurred, they went thru a period that they actually thought was deflation [note: sound familiar?] because it felt like deflation. But the currency continued to lose purchasing power and ultimately the Government continued to spend [sound familiar?]. What the Government did under Havenstein's [head of the Reichsbank] command is they basically bought that Government paper and turned it into currency [today's Quantitative Easing]...The U.S. Government believes it can spend money and jump-start the economy...Bernanke thinks he can jump-start economic activity by making money cheap...

Ultimately what Turk refers to as "crank economics," implemented in Germany and being implemented by Bernanke, will lead to serious hyperinflation.  Turk points out, as I did last week, that at this point the only choice the Fed has is to crank up the printing press and devalue the currency. 

Here's the link to the interview.  It's only about 10 minutes and well worth your time:  James Turk

A Must-Read Blog Post From Eric King

Eric King dissected the recently released BIS (Bank For International Settlements), which is a secretive and powerful organization that functions as a "central bank" for all Central Banks. As has been discussed on this blog, the underlying structural problems which led to a de facto collapse of the U.S. banking system in September 2008 were never addressed - they were papered over in a move that functioned to transfer a massive amount of wealth from U.S. taxpayers to the "too big to fail big banks" and the people who run them.

Based on all the indicators I track, the global financial system is headed toward a financial collision which will make the 2008 event look tame by comparison. As King highlights from the BIS report:

Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago...

Quite frankly, I find that statement from the BIS to be an extraordinary admission of failure by the world's Central Banks in their attempt to apply Keynesian economic principles to "fix" the global economic problems.  It is a brutal assassination of Bernanke's self-proclaimed expertise on having the ability to use his toolbag of economic voo-doo in order to avoid the next Depression (I didn't think it was possible, but Bernanke is even more arrogant than Greenspan and will eventually be regarded as equally incompetent).

As Eric King asserts, and I completely agree this assessment:

The very fabric and the seams of the financial system are coming apart. Who knows what the timetable is for the implosion of the current monetary system? We are witnessing the greatest wealth transfer in history, and the horrors of the aftermath of this tragedy will not be forgotten for decades...You must own gold to be on the right side of the greatest wealth transfer in history.

Here is the link to King's blog entry:  Got gold?  Here's the link to the BIS report:  BIS Annual Report

You actually don't need to read those two items in order to understand what is going.  The trading action in the gold/silver is market is sending a VERY LOUD signal.  The one remaining "policy" tool which has yet to be applied in full force - and which isn't really a policy tool, but rather one last mechanism to effect the final transfer of wealth from the public to the wealthy elite - is the outright cranking up of the fiat currency printing presses.  Make no mistake, whether it's implemented under some sort of cloak and dagger disguise or with outright "helicopter drops of money," it's coming soon and the ONLY way to have any hope of seeing the other side with your wealth somewhat intact is to own gold and silver in substantial quantities.

A Comex Paper Manipulation Price Raid: In A Picture and Reader Comments

I'm not sure how anyone can look at this chart and not understand or believe that the Government, via the big bullion banks (JPM, HSBC, Scotia, Goldman etc) manipulates the precious metals market.  I could show examples of many charts that look just like this from the past 9 years:

(click on chart to enlarge)

Don't take if from me, here's some reader comments (a lot of excellent comments/observations have been added to the comment section):

Anonymous said...B*stards in for another hit. Something strange here, last week was options expiry..is something happening in the near future that we don't know about? Gensler and his staff should be crucified...slowly, leastways some legal action...same with JPM, HSBC, etc Or is this a set up to drag out all the naked shorts, and then stand for delivery? - break the b*stards - maybe?

Hopium said...
I would say the Fed is scared Shit-less to be honest. http://www.zerohedge.com/article/second-gold-price-intervention-hour
The obvious manipulation as come to the fore front. No I am not a Gold bug claiming manipulation it is BLATANTLY OBVIOUS. But as Dave notes use it to your advantage

Joe said...Just saw Gartman on CNBC saying Gold is on the verge of a parabolic move up. It appears CNBC is starting to leak some truth.

What I will add is that the the path of least resistance right now is "up."  The physical demand for gold/silver - and the demand for delivery - is starting to take its toll on the attempt by the Fed/Treasury to hold down the price.

Silver: "Looking Good Billy Ray - Feeling Good Lewis!"

The bullish set up in silver (and gold) has turned insanely bullish. An astonishing amount of silver has been removed from the Comex warehouses over the past two weeks. Most of it from Scotia - who has unrefutedly been accused by many, including me, of operating a "fractional" bullion custodian operation - and from HSBC - who has by far the 2nd largest paper short position in silver, on the Comex and via OTC derivatives as per the latest Comptroller of the Currency's Q1/2010 Report on Bank Trading and Derivatives Activities.

Every day last week silver (and gold) traded up in the physical buying markets of Asia and India, only to undergo massive paper selling in London and on the Comex. What was incredibly bullish was the way silver recovered from repeated paper price attacks during the paper-only Comex trading sessions every day last week. I can't recall seeing price "snap-back" action like this in nearly nine years of trading silver. Silver closed the week slightly lower than a week ago, but closed nearly a dollar above it's intra-day trading low last week. This is an even more remarkable feat considering that the Dow and the SPX were demolished for the week.

The trading action I observed and participated in, combined with the amount of silver leaving the Comex, tells me that the paper shorts are having a hard time triggering any meaningful stop-loss selling, which is how the big Comex shorts (JPM, HSBC) have historically covered their short positions.  Here is Ted Butler's comments from his weekly King News World radio interview: 

There's not a lot of people out there looking to dump physical metal right now...and I can see situation developing where a lot people wake up and say they want to acquire big physical positions and that mismatch of no big physical supply and potential physical demand is what the doctor ordered for a big price explosion.

Here's the link to the entire interview - it's about 10 minutes and worth hearing:  Ted Butler on silver

I can't really add much to my commentary above, but they say (whoever the hell "they" is - who is John Galt?) a picture says a 1000 words:

About all that's left to be said about the situation in silver is this:

China Accumulates Gold While Americans Waste Away Watching Reality TV

Here is what the Chinese are doing:

China is already the world's largest gold miner, and many analysts now assume - following the country's announcement last year that it had been building up its gold reserves for six years unknown to the West - that it is still expanding its gold holdings in a way that does not necessarily show the gold going into official reserves. And now it appears to be looking elsewhere to purchase supplies of the yellow metal without overtly impacting the market.

What is significant, perhaps, is that this suggests that China's commitment to gold is both ongoing - and likely to increase. The country, through its financial institutions and state television advertising, has been persuading its ever growing middle classes to purchase gold (and silver) as a good investment. There seems little doubt that the state is doing the same thing itself as a means of diversifying its huge reserves.

Here is a link to the full article, which I recommend reading:  China Loads Up On Gold

Here is what the typical American is doing, while the world financial system melts down:

Wonder What The Fed's Next Move Is?

“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.”

-Ben Bernanke, Remarks to the National Economists Club, 11/21/2002.

Bernanke's raision d'etre - his whole reason to exist - is to fight deflation. He also is a self-proclaimed "expert" on the Great Depression. The reasons for which he high-fives himself for this I have yet to see revealed. In fact, I would argue that Bernanke's greatest strength as a human being is as operating as a purely political animal and performing sycophantic oral sex on those who control him politically and financially.

Now, if you dissect the infamous passage from his infamous speech back in 2002, when he had clearly thrust his own hat aggressively into the Greenspan-replacement ring, you can understand why all through the ages that paper/fiat money ALWAYS, WITHOUT EXCEPTION, "returns to its intrinsic value - zero."

Deflation can be considered as bad, or worse, than its inflation foil for many reasons, not the least of which that it penalizes debtors to the benefit of creditors. The United States - the Government and private sector combined - is by FAR the largest debtor entity in the world. The ONLY way the U.S. has any hope of an attempted fix of this is to inflate its way out of this predicament by printing money or a direct overnight massive devaluation of its currency - or both. Deflation, therefore, is the mortal enemy of the U.S. Government.

Up to this point in time, the Fed/Treasury have engaged in a little of both (money printing/dollar devaluation). Let's take a look at a couple of data points since Beranke assumed the Chairmanship of the Fed in 2006.  Since that time, the Fed has eliminated its reporting of M3, which is the most encompassing measure of the money supply. We are the ONLY major country in the world that does not report M3. Wonder why?

That being the case, we can use a couple other statistics which are still being reported.  Currency in circulation has increased 26% since 2006. The money stock, or MZM - considered by by many to be the most relevant surrogate for M3 - has increased by 46%.  These two facts would not be problematic if they were accompanied by a concomitant and commensurate increase in the country's economic output - the GDP. I can assure you that just off of the top of my head the GDP since 2006 has been flat at best. This money supply increase thereby serves as a subtle means of devaluing the dollar.  Most significantly, the outright monetary base - also known as "high powered" money and consists of currency in circulation plus commercial bank reserves held at the Fed - has skyrocketed an astonishing 262% since Bernanke's reign at the Fed. All this data can be found at St. Louis Fed.

This was largely achieved by the Fed's QE program, in which Bernanke went out and bought about $1.5 trillion in toxic assets off of big bank balance sheets, with that money being kept in these banks' "excess reserve" account at the Fed. This is exactly how the Fed prevented the banking system from collapsing in 2008. However, and this is crucial, not only have the underlying factors for bank insolvency not been fixed, they have grown worse as the global credit crisis has spread from the private sector to the Governmental level. And wrapped around this massive debt problem, and looming ever-present like nuclear financial weapons, are the OTC derivatives - which have actually grown in the amount outstanding since September of 2008. These derivatives function in a way that "turbo-charges" by several multples the degree of risk embedded in the global debt/insolvency problem. The outcome ultimately could be the financial equivalent of a nuclear holocaust.

In what will ultimately be a hopelessly futile attempt to prevent a global nuclear financial meltdown, the Fed, in conjunction with other western Central Banks (European Government austerity lip-service notwithstanding) plus Japan, will begin the coup de grace of hyperinflating the money supply - aka Weimar German currency printing/devaluation. If you want to see how this process developed and unfolded in Germany, take a look at this link: Crank Up That Printing Press, Ben.

Bernanke, in his speech referenced above, went on to explain that in order to combat deflation and stimulate consumption, the Fed could inject money into the system with policy tools that would achieve Milton Friedman's "helicopter drop" of money into the hands of the citizens. This would serve to disincentivize savings, stimulate consumption and be effective monetary policy to jump-start the economy.  Of course, a massive increase in the supply of dollars would only be, nominally and for all practical purposes, only effective in reducing the value of the dollar. And that brings us full circle to the methodology that I would argue is going to be used in an attempt to address the U.S. Government's seemingly hopeless debt problem.

The first round of Quantitative Easing ended in March. I would bet that we will see a more significant second round of QE that will be announced sometime in the next six months. Since the first attempt of taking printed money from the Fed and exchanging it for worthless bank assets has not worked, I am betting that we will see policy tools implemented which will encompass the outright printing and distribution of money.  For a description of these tools you can read Bernanke's speech here: Fire Up The Helicopters!

In that I believe - as do many others - that this outcome is fait accompli, we can expect to see inflation which transitions into hyperinflation, a stock market which levitates beyond belief, a substantial devaluation of the standard of living in this country and upward movement in the price of gold and silver that will take 90% of the U.S. population by complete surprise. The Germans and French will not be taken by surprise. They have lived through this and are currently - as several people have reported in the comment section of this blog - literally buying up all of the gold and silver they can find. For 5,000 years of human history, gold has been, is and always will be the ultimate and truest form of honest currency.

The only way you have as a means of defending your financial well-being against what is going to be delivered by Bernanke is to move as much of your fungible assets as possible into gold, silver and mining stocks. Institutions and large sovereign wealth funds are just now moving into precious metals and related assets. This means that the second stage of the precious metals bull market is just beginning and the best returns are yet to come from this investment sector.

"The Housing Market Appears To Be In Trouble" - Bloomberg News...

Note - this just in: "WASHINGTON (AP) -- Sales of new homes collapsed last month, sinking 33 percent to the lowest level on record as potential buyers stopped shopping for homes once they could no longer get government incentives."  The housing market is in full collapse.

Of course, the Golden Truth has been explaining why the housing market is in trouble since the absurd taxpayer subsidy of the housing market ended April 30th.

The Mortgage Bankers Association weekly mortgage applications index showed another steep decline last week, falling seasonally adjusted 5.9% from the previous week.  On a nominally calculated unadjusted basis, the purchase index dropped 2.3% (vs. 1.2% as adjusted) and has plunged 36.8% from the same week a year ago.  Here's the MBAA press release:  OOPS.

And yesterday it was reported that existing home sales dropped 2.2% from April to May. What is stunning about the nominal magnitude of the serial declines being reported for all aspects of the housing market is that this time of year is supposed to be the seasonally strong period for housing. It can be argued with a high degree of credibility that Obama's taxpayer subsidy of the last year has served no purpose other than to "pull forward" home sales and prop up prices - both are unsustainable given the deteriorating underlying fundamentals.

The other big problem facing the housing market, and a problem which has had an incredible amount beauty salon treatment to the real numbers, is that the total inventory of homes building up in the system is massive. When I say "total," I am including not only MLA listings, but also bank REO (foreclosed homes owned by banks) and homes currently in the foreclosure process.

Foreclosures hit a new record high last month, climbing an astonishing 44% from May 2009. Foreclosures increased in every State. Not only that, but Zillow reported that a full 25% of all homes with mortgages are now worth less than the amount of the outstanding mortgage on the home. I would bet good money that the real number is higher, as it is likely that - on average - owner-perceived and appraised home values are higher than actual market values. I would bet the number is more like 30%.

I have seen estimates that use this "total" inventory calculation that show the true inventory of homes out there to be 8 years, based on trailing twelve month sales rates. But as we go forward and the rate of sales decline, obviously the number of years worth of inventory climbs even higher.

There's not much I can opine about this beyond what I've suggested in previous blogs.  So I'll will summarize this situation with a quote from the great Austrian economist, Ludwig Von Mises:  “

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternaitve is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved.

Obama and Larry Summers can throw as much taxpayer money as they want at the housing market in order to buy votes.  But ultimately all this does is create a massive transfer of wealth from the middle class to the banks, real estate brokers and sellers of the homes.  Just like water eventually finds its own level, the housing market will eventually settle at a sales rate and price level which is substantially lower than where it is today.

Rest assured that the Govt/Fed will attempt to fight this process by printing massive amounts of money and creating even larger fiscal deficits.  But the process is doomed.  The ONLY way to protect yourself from this is with gold/silver/mining stocks.  I can only lead a horse to water...

Looks Like Obama Is Going To Have Taxpayers Pay For Laid Off Oil Rig Workers

It's starting and the ulitmate cost to the U.S. Taxpayer will be enormous:  "President Barack Obama has asked Congress for legislation for a program to provide unemployment assistance for such workers." Here's the article link:  Take That, Taxpayers. 

While the Administration is posturing as if they are going to seek compensation from BP for the expense of supporting the laid-off rig workers, we all know how this is going to end.  Quite frankly, it now appears that Obama's Presidency is in the full downward spiral of failure.  His management of the oil spill disaster could well be, to this point, his coup de grace.

I have maintained from the beginning that:  1)  BP would lie and cover-up for as long as possible the true amount of damage occurring - so far this view is supported by many facts that have emerged;  2) the cost of the is disaster would ulitmately be in the several hundreds of billions, all things considered - like the economic damage to the Gulf States and ultimately to the U.S.; 3) that Obama should have seized BP's assets and assumed the management of the operations for the sole purpose of paying for this disaster;  4) ultimately, the U.S. taxpayer would bare most of the expense.  So far I have yet to see any indication that any part of my view is wrong.

On an unrelated note, the last Englishman to win Wimbeldon:  Fred Perry in 1936.

Can Obama Shut Down The Internet?

If this Bill racing through Congress passes, and it sounds like it will, Obama will be able to shut down internet access in this country for reasons that could be entirely at his discretion:  "the bill could give the White House the ability to effectively shut down portions of the Internet for reasons that could prove to be politically inspired."  Here's the link:  Congress Is Giving Obama An Internet Kill-Switch.

I would urge you to contact your Congressmen about this, but I doubt it will do any good.  The movement toward destroying the Bill of Rights and our civil liberties began with the passage of the Patriot Acts (1 and 2), the Homeland Security Act and the Detainee Bill.  Now you can be thrown in jail without a hearing if someone hears something you say that they don't like and reports you to the FBI, you can be put on a no-fly list if you have the wrong last name and Obama will be able to control your access to the internet.

Someone remind me:  wasn't Obama elected on the promises of more Government transparency and the willingness to reverse all of the destruction to the Constitution and our democratic rights inflicted by the Bush people?  Let me remind you that Obama took Bush's cell-phone eavesdropping powers and expanded them.  Is this what you voted for?  Not only is our economic/financial system starting to look like that of Weimar Germany in the 1920's, but our political system is starting to look like Germany circa 1932...

Sunday Precious Metals Porn...

The massive bull continuation pattern on silver bullion has a target of around $30-33, and gold could easily leap to $1700 while that occurs - Stewart Thomson, http://www.gracelandupdates.com/.

Couldn't have said it better myself.  I thought the silver bulls out there might enjoy this centerfold picture:

Per my post on silver Friday, this techinical picture is fully supported by market fundamentals.

Russian Central Bank Gold Purchases Soar In May - China Too?

Russia's Central Bank reported purchasing 1.1 million ounces of gold in May.  This is a staggering 31.21 tonnes.  The chart below is from Richard Nachbar at http://www.coinexpert.com/:

Separately, a member of the finance committee of China's National People's Congress has called on the Government to increase its holdings of precious metals and oil: "China should adjust the asset structure of its foreign reserves and achieve the goals of making the investment safe, liquid, and preserving and adding value" - here's the link:  LINK.

Gold set a new all-time weekly high close against the dollar this past week.  The was preceeded by all-time highs in gold in the Swiss franc, British pound and euro.  James Turk wrote commentary with some excellent charts to show how the price of gold is beginning to accelerate against global fiat currencies:  Gold Starts To Gallop.  Mr. Turk sent me the following comment in response to my Friday posting on silver:

A short squeeze is inevitable I believe, and this is a good time to expect one to happen. There seems to be an unusually large focus at present on the precious metal seasonals - summer is normally a weak period for the precious metals. It doesn't always happen that way of course (like in 1982). So a short squeeze could catch a lot of normal longs off-guard if they are waiting to buy the dip that never comes.

I have expressed to colleagues for a while now that I thought there was chance that gold/silver might, contrary to the typical seasonal pattern, stage a surprise move higher in June/July.  Sensing that the physical demand in the market is starting to overwhelm the paper selling (just ask Russia), I have been thinking that the market would be set up to take advantage of a price correction that doesn't happen and scramble to re-establish long positions.  We'll see how the next 6 weeks play out, but I always feel good about my views when they correlate independently with Mr. Turk's.

Finally, a commentor sent me this article from Canada's Globe and Mail about California being on the verge of systemic failure/total insolvency:  California On The Financial Precipice.  Interesting that Canada is reporting the kind of truth that gets buried by the U.S. media.  The fact of the matter is that what is occurring in Greece, Spain et al is a mere prelude to the kind of financial tsunami that will hit the United States.  Perhaps this is why Russia and China are hastening their Central Bank diversification into gold...et tu Brute?

The Bell Tolls For The U.S. Dollar

Check this out - no commentary needed - you all can interpret these golden nuggets as you see fit.  I know what I think is happening....The first two are from Bloomberg:

Medvedev Talks Up Ruble as World Reserve Currency of the Future:  Move Aside Uncle Buck
Russia to Buy Canadian, Aussie Dollars for First Time:  Not So Loonie

Here's someone else who has figured out that China is buying a lot more gold than disclosed.  What this commentary did not mention is that it is suspected that China is buying a lot through its sovereign wealth funds, which do not report reserve positions to the BIS:  The Anti-Dollar Trade

Silver: Is A Physical Squeeze Starting To Bubble Up?

(Note: I pulled yesterday's post about the Russian scientist/BP after enough commentors presented enough evidence which calls into the question the credibility of the news source I used. I originally found the article link on the Financial Times blog, FTAlphaville, which led me to assume the news source was good. It may or it may not be, but after doing a little more due diligence - thanks to commentor suggestions - I decided I would rather let FT rest on shakey foundations, but not The Golden Truth!)

The Comex had two large silver withdrawals this week. Yesterday's warehouse stock report showed 1.2mm ounces were removed, 900k of it from the "eligible" inventory, which is the investor inventory being "safekept" at Comex depositories but not available to be delivered.  480k of that 900k was removed from Scotia. With all the discussion and unrefuted (by Scotia) accusations about Scotia's depository safekeeping methodologies, it wouldn't surprise me to see even more gold and silver going forward being taken out of Scotia's customer inventory.

But here's an even more glaring issue: as of last Friday, the net commercial short position in silver, as per the COT report, was 55,329 contracts.  At 5,000 ozs/contract, that's 276,645,000 ounces of silver sold short by the big bullion banks (Mostly JP Morgan, HSBC and BNS - and mostly JPM at that). What's the problem?  The total silver inventory being reported by the Comex is 118 million ounces. But of that, 66 million is customer inventory not available for delivery, leaving 52 million ounces of silver that can be delivered vs. 276 million of short paper silver.

Let's break it down to just July silver. The July silver open interest is 47,921, which means that there is 239 million ounces of silver that has been shorted for July vs. the 52 million available for delivery. See the problem?  Historically JPM could count on the longs to sell their position before first notice of delivery day or tender for cash. If the Comex silver longs start correlating with the trend in the actual physical market, the Comex will default on silver deliveries...

A reader related to me yesterday that he had a silver bar delivery problem with the Comex about three months ago that had to be resolved using his broker's lawyer. Our fund has experienced several delays in getting silver delivered from the Comex - with HSBC as the counterparty - over the past year.  This includes last year, when our April silver was not delivered until June 20th (7 weeks past contractual last delivery day).

Furthermore, I know that my friend who is a bullion trader here in Denver is having a hard time sourcing any kind of real supply of silver bullion on the "bid side" of the market, which means he's having a hard time finding retail sellers in any kind of size AND his buyers want silver right now. He was definitely postured as a much better buyer and was beating me up to sell him some silver eagles.

That the physical market in gold and silver is getting tight is not new news. But the above withdrawals from the Comex customer silver inventories this week, in the context of the anectdotal events as described above, can only lead one to believe that an enormous amount of pressure is being created by the trend of big investors demanding physical delivery into private depositories that are trustworthy and not connected to the bullion banks, who are likely leasing out some portion of the bullion in their depositories.

One more interesting development has to do with scrap supplies of gold.  In the past, when gold breaks out to new highs, European bullion dealers report the emergence of a large supplies of scrap selling that hits the market.  Last January (2009) the flow of scrap into the market was credited with causing the subsequent pullback in price.  So far in this latest move, very little scrap supply is being reported.

GATA has maintained for over 11 years that eventually the physical market demand would completely overwhelm the ability of the paper short interest to satisfy delivery demands.  I would argue that the market is starting to transition into that process and it will lead to much higher prices.  In fact, I believe all but the most knowledgeable gold investors will be stunned by coming price movements.  What will be even more shocking to many is the premium over spot that the market will pay for deliverable physical bullion.

Thanks BP - Here's Some More Truth

A commentor posted this analysis. It is a very grim, yet insightful view of what has transpired and what is likely to unfold.  Do not believe anything that you hear coming from the perpetrators of this ultimate crime against humanity OR from the Government that is covering up the truth in order to cover its ass.  There is no Golden Truth coming from either Tony Hayward or Barak Obama. Everyone should read this:

We can only hope the race against that eventuality is one we can win, but my assessment I am sad to say is that we will not. The system will collapse or fail substantially before we reach the finish line ahead of the well and the worst is yet to come. Sorry to bring you that news, I know it is grim, but that is the way I see it....I sincerely hope I am wrong.

We need to prepare for the possibility of this blow out sending more oil into the gulf per week then what we already have now, because that is what a collapse of the system will cause. All the collection efforts that have captured oil will be erased in short order. The magnitude of this disaster will increase exponentially by the time we can do anything to halt it and our odds of actually even being able to halt it will go down.

The magnitude and impact of this disaster will eclipse anything we have known in our life times if the worst or even near worst happens...

Here is the link to the whole piece:  Show No Mercy For The Wicked

If you don't live in the South and therefore believe that you are likely safe from the chemically corrosive rainfall that will come with hurricane season (and which is setting up to be a doozy based on the extraordinarily warm water circulating in the Gulf right now), don't get too complacent, because the economy is getting ready to take a big tumble.  Housing starts fell quite a bit more than expected.  This on the heels of the homebuilding sentiment index tanking several points to a near-record low.  With Europe reeling, expect exports to start tanking.  And don't think for a minute that the Gulf situation won't affect GDP.  I expect auto sales to start heading south again.  If someone can explain to me how on earth our economy is going to generate real, organic economic growth, please throw out suggestions.  I'm open to anything.  But in the meantime rest easy knowing that Obama is making rock-solid certain that he prints enough money to keep all public employees at their mostly useless jobs and their pension coffers full.

BP's Irreverisible Death Spiral - If You Own The Stock: Good Luck, But Good Night

Fitch today downgraded BP's credit rating by SIX notches, from AA- to BBB-, one notch above junk status. The bonds plummeted in price, catapulting the yields on BP solidly into middle junk bond range. I have to say, I spent nine years trading junk bonds on Wall Street and another 11 years following the market. I can't ever recall seeing a company receive a downgrade of this magnitude and not eventually go tits up.  I'm sure it's happened, but I can't think of an example. This is serious shit. Remember Enron? Fitch was the first credit rating agency to finally downgrade Enron debt, even though it had been apparent well before the downgrade that Enron was a zombie. Astonishingly, Moody's and S&P never downgraded Enron until just before it filed. We'll know how much whore and whiskey money BP has bestowed on those two rating firms based on how long it takes them to follow Fitch. I would bet whore and whiskey money that the scumbags at BP lobbied Fitch long and hard in order to avoid a downgrade to full junk status (yes this does happen and I've witnessed the process first-hand).

BP's debt plunged on this downgrade. According to this news report, it sounds like large blocks of BP paper were put out to the market on a "bid wanted" basis: Someone Please Buy My Bonds. What this means is that the market for BP bonds has become very illiquid and there are large institutions who will be forced to sell once the bonds get an official junk rating. Clearly the market sees this coming based on where the yields are now, and some big funds are hoping to beat the sell rush. This is the kind of activity we started to see in the spring/summer of 2008 as the credit collapse was developing.  Typically the bond market is a much better tool to use than the stock market in forecasting the direction of a company's solvency status.  Right now I would interpret the Fitch/bond market activity as putting a 50/50 probability on the likelihood of BP filing bankruptcy.

In addition, BP announced yesterday afternoon that it had hired Goldman, Blackstone and Credit Suisse for financial advisory services.  No doubt BP selected Goldman for its deep and extensive inside connections to the Obama Administration. Blackstone and Credit Suisse are big M&A and restructuring players. My bet is that BP wants to see what a hail mary play involving putting lipstick and a gown on the pig in order to auction it off might look like.

The fact of the matter is that I just can't see any Company in the world taking on the potential liability facing BP. As more and more information leaks out that Obama/BP are trying to cover up, it is looking like this blown well is taking on Armegeddon-like proportions. Yesterday an article appeared in the San Francisco Chronicle in which "a BP engineer described the doomed rig as a 'nightmare well,' according to internal documents released Monday." LINK.   And Clusterstock.com carried an article today in which Matthew Simmons, arguably the most respected oil industry analyst, professed that an attempted relief well will fail and that there is a possibility that a giant undersea lake may already be covering the floor of the Gulf: "The Road" in real life?

I have also had conversations with a couple people who have chatted with industry insiders. Independently, both offered the same type of assessment:  this situation is completely out of control and Obama/BP are trying to cover up as much of the truth as they can; there is no way BP has a shot at containing this - the pressure that has built up in the deep rock formations is much greater than the ability of available technology to contain; the well-head will likely be blown apart; fissures are forming on the Gulf floor from which oil is already leaking into the water (as described: "BP has cracked the earth with this well"); in addition to the obvious and immediate annihilation of the Gulf ecology and environment, if this problem develops into its full potential, the effect on the ocean will have a global effect on the atmosphere and the food supplied to the world by the ocean.

And in summary, I offer two rhetoricals: 1) In his Armageddon vision presented in "The Road," everyone assumes that a nuclear war had occurred, but author Cormac McCarthy never specifically identifies what happened; 2) Do you really still want to own BP stock?

Et Tu, Spain? Et Al...

The G7, inexplicably, announced that member finance ministers would convene for a conference call this afternoon.  No other details emerged, but this seemed a bit unusual on the heels of the most recent G20 meeting a couple weeks ago.  The Wall Street Journal reports that:  "News of the conference call comes amid speculation that Spain might tap the EUR750 billion euro rescue fund set up to help euro-zone countries."  And then Reuters published this report:  "Spain sees credit squeeze but denies EU rescue bid" - here's the link:  "You as well, Spain?"

The key feature of that news report is adamant denial by Spain's Treasury Secretary, Carlos Ocana. I believe that is at least the second or third time that Spain has officially denied the need to be financially bailed out.  As per the old political adage:  a rumor is just that until it's been officially denied three times - then it becomes fact.   This is probably why gold was slammed from its overnight high of $1235.50 (August future) as soon as London trading commenced (usually they don't hit gold until the a.m. fixing, two hours into trading).  It's also why gold was hit another $6 as soon as Comex trading commenced.  The key event in this whole sequence is that gold rallied $7 from Friday's Comex settlement last night in Asian trading, indicating that Asia/India have resumed their physical buying.

In another Weimar-esque development, Obama asked Congress for $50 billion to give to the States in order to help keep public employees employed.  This development of course occurred on Sunday, when very few people actually pay attention to the news.  Please note that this $50 billion would be tossed on top of the more than $37 billion already given to States in order to fund jobless claims.

Can someone please explain to me why Obama is willing to spend $50 billion of printed taxpayer money to keep Government employees well-fed, while the private sector workers continue to face massive job losses? It grows more absurd by the day.  At this point, I'm not sure what the bigger disaster is:  the BP castastrophe or Obama's Presidency?  Speaking of BP and Obama disasters...

It sounds like BP/Obama are negotiating to put some kind "fence" around BP's total liability for cleaning up the Gulf.  I have yet to see any estimates of the cost, so I'm not sure why Obama would be willing to cap BP's exposure.  Rest assurred, the Taxpayer will be paying for the rest, and thus probably the bulk of the clean-up cost.  This is one time that I'm really cheering for the class-action lawyers to bury a big corporation in damage litigation. 

Quote Of The Year

GOLD IS MONEY AND NOTHING ELSE

-  J.P. Morgan, 1912

Every fiat currency system in history has ended in ruins. Our current experiment seems to be headed down the same disastrous path, thus allowing gold to reemerge as a currency once again.

- John Embry, 2010

Is The Perfect Storm Brewing For Gold And Silver?

The truth is incontrovertible: malice may attack it, ignorance may

deride it, but in the end, there it is.   Winston S. Churchill

Retail sales plunged 1.2% for the month of May, which came as a complete surprise to the herd of cattle on Wall Street's cattle ranch, which was looking for more gains. We also saw a surprise increase in unemployment claims yesterday and housing purchase mortgage applications have been in freefall since the home purchase tax credit expired at the end of April. I also made the case earlier this week that we should start to see auto sales start dropping hard again, as the number of people who are taking advantage of the Government subsidized lease financing for GM and Chrysler begins to taper off, like it did with the cash for clunkers program. And I have yet to see any of the above-mentioned cattle discuss or try to quantify the GDP effect of the Gulf oil catastrophe on the economy.

George Soros was in the news today with speech he gave in Vienna yesterday in which he states that "Stage 2" of the financial crisis is starting:

we have just entered Act II of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession...The collapse of the financial system as we know it is real, and the crisis is far from over LINK

While Mr. Soros refers to Europe in his comments, I would suggest that his view applies even more strongly to the United States. In fact, I think it can be strongly argued that several disasterous events are unfolding which are making Obama's Presidency completely unmanageable (not that anyone else would fare any better, but Obama is not handling this well and has absolutely no experience running anything bigger than a community activist organization).

My view is that, in the event that Bernanke does not want to see an economic collapse this year, the Fed will be forced to implement a second Quantitative Easing program which will be a couple multiples larger than the last one ($1.25 trillion in mortgage monetization + $300 billion of direct Treasury purchases + $200 billion in agency paper - FRE/FNM/GNMA). Bernanke can use the oil disaster plus the melt-down in Europe as his cover story and excuse for cranking up the printing press like this again. When you think about it, he pretty much has no choice unless he wants to see a new President elected by a landslide, in which case the first decision that happens is Bernanke would be sacked - probably the first phone call made after the inauguration ceremony.

If my view is correct, look for gold/silver to start making a big move higher as NFL training camps approach. The metals are holding up extremely well in the context of gold's typical seasonal weakness right now;  China/Russia seem to be persistingly buying up the yellow dog with inexorable demand; and all indicators are pointing toward a growing shortage of actual deliverable bars which are unemcumbered by multiple paper claims, like leases, futures and forwards (please see these comments from Eric Sprott, one of the most highly respected participants in the gold investing community: Deliverable Gold Shortage Brewing).

If gold/silver start to move higher like I expect, the mining shares - which have been lagging gold and are plagued by some of the worst investor sentiment I have seen bull-market-to-date - will make a move to new all time highs.

Tim Geithner And The Theatre Of The Utterly Ridiculous...

I see Geithner is on the stump today bestowing his infinite wisdom on the world and exercising his belief that he has the right to explain to China how they should manage their monetary policy: 

“The distortions caused by China’s exchange rate spread far beyond China’s borders and are an impediment to the global rebalancing we need,” Geithner said in prepared testimony before the Senate Finance Committee today. A more flexible yuan would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.”   Here's the link:  Absurd Grandiosity

The fact of the matter is that the primary "distortion" in the global economy - and one that FAR dwarfs any other imbalance - is being caused by the massive imbalance between spending and savings in the United States. Not only does every level of Government in the U.S. operate on a massive spending deficit, but U.S. citizens also, as per net debt levels, engage in deficit spending. I believe Hemingway's bell is tolling for Tim, not China.

I'm not sure how seriously the Chinese will regard Geithner's comments, considering this the same person who cheats on his income taxes, was so upside-down on his home mortgage that he was forced to rent his house rather than sell it and has helped create and enable the biggest financial catastrophe in history.

My best guess is that, best case, Geithner's comments will be rightfully ignored.  Worst case, it might trigger some sort of subtle adverse response in order to remind Geithner/Obama/Summers/Bernanke that China controls the U.S. financial destiny via its massive Treasury holdings and its willingness to hold them - for now.

Personally, I would love it if China let its currency revalue to a much higher level because it will have the effect of making gold a lot less expensive in terms of yuan, and thereby turbo-charge China's already massive appetite for gold and silver.  In the meantime, I can say with complete conviction that Tim Geithner is one of the biggest baffoons to ever have served in the U.S. Government.

While Banana Ben Fiddles, More Doo Doo Hits The Fan

Looks like Ambac - the bond insurer that has been savaged by it's very poor investment decisions, incompetent management and credit default swaps - is getting ready to go tits up, while Bernanke cheerleads the lemmings off the cliff in front of Congress.  ABK's stock is currently down 37% on volumn that will end up today well over 3x the average daily volumn for the past 10 trading days.

Here's the article link courtesy of a commentor:   ABK = R.I.P.  The collateral effect of this situation could be quite staggering - the financial equivalent of the BP oil catastrophe - as this will potentially trigger $100's of billions in related credit default swaps and other toxic derivative transactions.  Muni paper, the largest beneficiary of ABK credit protection, could face staggering losses.

Ambac was one of the major beneficiaries from the $800 billion TARP and $1.25 trillion in toxic bond purchases by the Fed, as that monetization prevented the triggering of ABK's absurdly large portfolio of credit default swaps related to the Company's horrific investment decisions over the past 10 years.  I guess Banana Ben is too busy working out the details of his next helicopter drop to be bothered with specific details about why he looked like an utter idiot in front of the public today.  Got gold?

Regarding Ben And His Credibility As An Economist

A commentor posted these little gems of wisdom straight from Helicopter Ben's mouth.  Remember these the next time you hear him report that there is no risk of a double-dip recession and the U.S. dollar is the Rock of Gibralter:

March 28, 2007: “The impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained.”

May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

 Feb. 28, 2008, on the potential for bank failures: “Among the largest banks, the capital ratios remain good and I don’t expect any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”

 June 9, 2008: “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

July 16, 2008: Fannie Mae and Freddie Mac are “adequately capitalized” and “in no danger of failing.”

Golden Truth Commentor June 10, 2010:  "Why does anyone still listen to this guy?"

Housing Goes Into A Tailspin...Mortgage Finance Index Plunges

This post connects with my post below, which argues that the Fed/Govt will be forced into massive monetary and fiscal stimulation or risk having the economy drop into a brutal depression.  The mortgage application index fell 12.2% on an "adjusted" basis and 21.1% unadjusted.  The purchase index dropped an adjusted 5.7% and plunged 16.3% unadjusted.  The seasonal adjustments incorporated  the holiday-shortened week last week.  The purchase index is 30.4% lower than the same week last year.  Get the picture?  Here's what the MBA had to say: 

Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April...Although rates remained essentially flat, refinance applications dropped this past week for the first time in a month. Despite the historically low rates, many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance.

Here's the link:  Look Out Below.  Not sure this news requires any commentary, other than do not be misled by Banana Ben's theatre of the absurd today when he testifies in front of Congress.  Gold/silver should be aggressively accumulated on all pullbacks.

Theatre Of The Absurd (with apologies to Albert Camus)

I see Banana Ben Bernanke doesn't see a double-dip recession:

Federal Reserve board chairman Ben Bernanke said Monday he didn't think that the U.S. economy would slip back in to recession, saying that consumer spending and business investment seem strong enough to keep the economy growing, albeit at a relatively subdued rate.  LINK

Set aside all debate about the accuracy of the Government's GDP calculation (there are several problems) and recall that Bernanke is the expert who said as recently as 2007 that housing prices are not too high, there is no housing bubble and everything in the mortgage market is fine.  The fact of the matter is, I'm not sure I can ever recall Bernanke issuing an accurate economic assessment. The persistence of the public's faith in Bernanke's garbage is absolutely astonishing.

I'm not sure where Banana Ben sees growth coming from other than from massive Government stimulation.  The housing market was propped with several hundred billion in tax and mortagage subsidies (actually $1.25 trillion in direct Fed intervention).  Not much of a bounce for all of that money.
And I recently found out how the bounce in sales at GM and Chrysler was engineered. GMAC has been issuing car leases with an unusually high residual value. What this does is lower the monthly payment of the lessee. However, at the end of the lease, the "residual value of the car will be substantially higher than its market value. Guess who pays for that? The Government aka the Taxpayer.  At some point everyone who is willing to buy an American-made car in exchange for a lower monthly payment - AND fog a mirror from a credit-worthy standpoint - will have made their move. And just like with the cash 4 clunkers program, the sales of GM/Chrysler (and probably Ford) cars will stall out.

So with housing and autos hitting a wall, where is Bernanke envisioning real economic growth? I have no idea and notice that he does not offer any ideas.

With that as a backdrop, and in the context of Germany and the UK calling for budget cuts and Obama today demanding that all Govt agencies cut their budgets by 5%, does anyone really believe budgets will be cut and spending reduced?

How is it at all possible for these Governments to implement "austerity" programs, cut Government spending AND service their debt? The majority of European and U.S. economic activity has been created by trillions in Government stimulus (direct and indirect). If the Governments take away this punch bowl, the economies tank - hard. Then how do these Governments feed their people and service their debt without printing massive amounts of money?

Does ANYONE really believe that the leaders in power right now will commit this political suicide and actually cut spending? Conversely, if they refuse to cut spending, where is the organic, private sector economic growth going to come from?

It's no secret that a second stimulus Bill is working its way thru the bowels of Congress right now.  The only question is how large it will end up being.  My best guess is that something substantial (i.e. several hundred billion) will be passed in time for it to create some kind of economic dead cat bounce ahead of the November elections. 

Of more significance and likely of much larger size, will be an eventual QE2 program announced by the Fed, in conjunction with the EU Central Bank.  I am guessing several trillion.  This will allow the U.S. and EU to cover another big bank bailout, which will be necessary as the collapse in commercial real estate converges with the next wave of big mortgage defaults/housing foreclosures about to hit the U.S.

I would suggest that the recent price action in gold, which has inexorably risen in price along with the U.S. dollar, is forecasting both increased Government spending deficits and round two of the Fed's money printing program.

Thoughts On BP And Some Great Quotes On Gold:

BP originally stated that the blown well was releasing 5,000 barrels per day into the Gulf.  Not once did I ever hear them revise that number.  Now all of a sudden they are "capturing" over 10,000 barrels per day?  What's the truth?  I have no idea but I do know that several scientists have published estimates that range anywhere from 20,000/day to 100,000/day. What I also know is that BOTH BP and the Obama Admistration are hiding the truth from us.  Can it get any more Orwellian...?

Here's some great quotes on our favorite topic. The first one is from the highly esteemed, erudite and veteran market analyst Harry Schultz:

Bullion’s capacity to shrug off the shackles of intervention at this crucial chart point suggests that demand for physical metal is overwhelming the anti gold cartel’s capacity to cap & manipulate the gold price, and invites a near term re-test of the May 2010 high -- with a possible overshoot towards the $1345.00 measured target of bullion’s March 2008–Oct 2009 reverse Head and Shoulder… and $1425.00 theoretical upside target. On the downside, a sustained break below bullion’s March uptrend line (now $1178.50) would be necessary to destabilize what appears to be the energetic resumption of gold’s primary uptrend.

There were many great comments to my post from yesterday, on both sides the of the fence.  Here are two samplings: 

Opposition to precious metals, particularly recalcitrance against owning physical gold and silver, is nothing more or less than an example of the triumph of a certain sort of monetary propaganda that has tributaries leading back to pretty much every economic doctrine that has been in vogue in the west for generations.

The only things that are keeping prices from rising nowadays are bankster shenanigans (like the Fed 'holding' over a trillion banksterbucks (2 trillion in excess reserves) and paying interest on it, reducing the velocity of money, etc) and demand destruction (folks who lose their jobs aren't buying discretionary items, just necessities). I see inflation in the things I need, deflation in the things I want...

Great debate yesterday over my post.  I will say that the sentiment toward gold, silver and the mining shares, even in the amateur gold investing community, is probably as negative as I can ever recall seeing it, even after the Governmental mafia hit in July 2008.  This can only mean that we are on the cusp of a really big, exciting move higher. But of course this is a double-edged sword, because it also means that the financial, economic and political conditions in this country are deteriorating beyond the ability of the policy implementers to contain them.  Perhaps the BP disaster is a the perfect metaphor for the much larger economic disaster facing the United States...

You All Worried About The Action In Silver?

Please sell what you have because supply is getting extremely tight and I need to buy more. Judging from the comments on this blog, the amateur gold investing community is freaked out and in panic mode right now, letting absolute morons like Prechter and "Mish" lure them into thinking the bull market in the metals is over and ready to crash.  Why do people pay attention to those two anyway? The first one had a lucky call in 1987. What's he done since then? He's been pounding the table for $50 gold since 2002. And Mish? He couldn't analyze himself out of a paper bag to save his flower garden from aphids. It's absolutely astonishing that anyone listens to either of those two clowns. Knowledge without experience is not really knowledge. Neither of those two have any real experience trading the markets with real capital.

Ted Butler alluded to the fact that the Central Fund of Canada (CEF), which just did a huge stock deal and purchased a massive amount of gold and silver, has to wait 5-6 months for the silver to be delivered.  Anyone see the problem there?  A friend and colleague of mine with a good call into the managers of the fund confirmed this.  If silver was in bounteous supplies, how come CEF can't get its silver delivered right away?

While I differ with Mr. Butler on his view that the CFTC will ultimately do the right thing and clean up the corruption in the gold/silver futures market, I have to say - in following his work for over 8 years - that he knows more about the dynamics of the silver market than ANY market professional I've ever been exposed to knows about any market, and that includes the Nobel professors I had at U of Chicago. His "bullish" meter for silver right now is 90%. If JPM takes silver below its 200 dma this week (around the $17.40 area), his meter will hit 100%. Historically his bullish meter is remarkably accurate.

The Denver Post ran an article on the front page of its business section about gold being in a bubble. I have never in 9 years of doing this sector of the market, exclusively, ever read anything so factually devoid and lacking any real analysis. I was absolutely stunned that the business editor permitted the article to run. Seriously, the article contained almost nothing factual, lacked any kind of real analysis and thought and didn't even really make a case for gold being in a bubble. Just one question: In the context of any market bubble being defined as when every single market participate is buying as much of that investment as they can get and is willing to pay any price, how can gold possibly be in a bubble when only about 2% of the U.S. population owns gold, very few insitutional funds are buying gold and "sell your gold for cash" ads are permeating every possible media outlet? Shouldn't all these sellers be buying gold to fit the most basic characteristic of a bubble? I can come up with many other reasons as to why it's a waste of time to mention "gold" and "bubble" in the same article. But I will note for the record that the Denver Post article featured the George Soros comment about gold being the next big bubble. Yet, it failed to report the fact that within two weeks of Soros making that comment, it was revealed that his hedge fund had quietly become one of the largest holders of the GLD trust. If George bothered to read my work on GLD, maybe he would have been busy accumulating actual physical gold and had it delivered to a private depository where he could verify that it really exists.

And let me end with this quote from Mark Lundeen, posted by "Joe" in the comment section:

Monetary Policy is being managed by a moron. What else should I call someone who is trying to save a financial system by destroying its unit of trade?

Quote of the Day?

"Like I said earlier, my wrong call on the dollar - so far - is analogous to being a foot or two off the mark in horseshoes and handgrenades. But I could care less. You see gold today? That's the effect of the euro collapsing and every European who can fog a mirror trying to buy some gold. If the dollar spikes up because the euro is being used to fuel furnaces in northern Germany, that's not good even for dollar holders."

WHOOPS! I Thought Obama Said To Expect A Strong Employment Report

Based on today's true picture of the economy and employment, what we can expect is a massive new stimulus Bill to make its way through Congress, to be followed by an even more massive Quantitative Easing (aka printing press/helicopter drop operation) to be announced by the Fed.  Obviously this will be hugely bullish for gold and silver and is probably why gold is currently up the day despite the bloodbath in the stock market.

Let's look at the facts and figures.  The headline number reported that U.S. payrolls rose by 431,000 in May.  BUT, 411,000 of that number was from the temporary employment of Census workers.  I know someone who took a Census job and his work is finished and he can't find a private sector job to save his life.

The Government is reporting that the private sector added 41,000 jobs.  Hmmm...By now everyone probably at least has heard about the nefarious Birth/Death model of jobs creation used by the BLS.  This fraudulent metric is used to calculate the number jobs they THINK has been created by new businesses formed during the month less businesses that closed during the month.  Interesting theory to say the least.  The Birth/Death model for the month of May estimates that 215,000 net new jobs were created by new business start-ups.  Anyone know of anyone who has started a new business and hired people?  I don't.

Here's a sampling of the business sectors which the Govt purports to have created the most jobs based on new business formation:   78k in Leisure and Hospitality (medical marijuana shops and liquor stores?), 27k in Business and Professional Services (prostitutes maybe?), and 41k in Construction (???).  Go figure.  For accounting purposes, it's not accurate just to subtract the 215k birth/death jobs from the headline number to figure out the real jobs picture.  But what we can say with 100% certainty is that, given the fantasy number of 215k birth/death jobs, the private sector absolutely did not create 41k payroll jobs.  In fact, we can generalize that if you subtract the 411k census jobs from 431k total jobs, the private sector payroll actually declined, probably by about 100k (I will assume some new jobs actually were created by existing and new businesses).  Here's a link to the Birth/Death data:  Govt Fantasy.

The unemployment rate is another matter altogether.  The Govt claims that the jobless rate fell to 9.7% from 9.9% the month before.  BUT, the overall labor force declined by 322k.  What that number represents is people who want jobs but have given up looking.  If you go by the Govt "U6" report, which shows the number of people who are working part-time but want to work full-time or who stopped looking but want to work, the unemployment rate is more like 17%.  If you use the method of unemployment calculation used when Clinton was President - a number that John Williams of shadowstats.com calculates, the jobless rate is more like 22%.

Two days ago Obama gave a speech at Carnegie Mellon in which he proudly proclaimed that we should expect a strong jobs report today:  HUH?  I didn't know Obama had any economics classes in college or grad school.  But does anyone consider today's jobs report to be strong?  We better HOPE and pray that Obama can CHANGE course and become the leader and reformer that he marketed himself to be during his campaign.  If he's no better as a President than he is as an economist, we're screwed.

The Purchasing Power Preservation Of Precious Metals

My business partner, Dean, came up with this example of how silver has maintained its purchasing power over time.  This is a picture of pre-1965 silver quarter, which was made from 90% silver and 10% copper:

In 1964, this coin was worth 25 cents.  Back then you could use this coin to buy a gallon of gasoline.  Today, if you take this same coin to a gas station, you can buy about 1/10th of a gallon of gas. HOWEVER, if you stop by your local coin dealer, he will pay you roughly the silver-melt value of this coin, which is $3.24 with spot silver a $17.95.  You can then take the proceeds to the gas station and buy a little more than a gallon of gasoline.

As you can see, the face value of a quarter has declined since 1964 by 90%.  But the silver-melt value of that same quarter has maintained its purchasing power over those 46 years. 

With an ounce of gold, this example is even more dramatic.  Back in 1964, the price of an ounce of gold was fixed at $35.  Today, that same ounce of gold is worth $1210.  If you do the math, you will find that the value of the U.S. dollar in relation to gold has declined by nearly 98% since 1964.  Got gold?  Got silver?

JPM Does This With Cash But Not Gold/Silver? Give Me A Break...

JP Morgan was nailed in the UK for commingling client cash with bank cash in its futures and options business.  Here's the link from Clusterstock.com:  $48 Million Fine for Commingling.  Please note that, as the report points out, the biggest problem with a big bank commingling assets in a general bank account is that client assets are in jeopardy in the event of insolvency.

This is exactly what is going on with the fractional bullion depository system at the big bullion bank depositories.  With depositories, you have "allocated" and "unallocated" bullion accounts.  If you read through the GLD prospectus (HSBC is the custodian), you'll see that it is specifically stated that one of the risks to the shareholders of the Trust is the possibility that HSBC commingles the gold (in fact, there are times when the bullion becomes commingled when it is being moved around).  In the event of insolvency, the "allocated" account, which would be analogous to a "client" account, is at risk for becoming a general unsecured creditor of HSBC if allocated and unallocated bullion become commingled.  The reason being is that the creditors will challenge custody if bullion that should be sitting in an allocated bin is sitting in the unallocated bin.  The prospectus specifically warns of this risk. 

For the record, JP Morgan is the Custodian for SLV.  As such, the whole world, or at least that which is paying attention to the potential fraud embedded in these paper bullion ETFs, has been looking with extreme prejudice at JPM's custodianship of SLV and JPM's extreme paper short in silver on the Comex.

The bottom line here is that where there's smoke, there's usually fire.  JPM was nailed for a record fine in the UK for commingling cash accounts.  Anyone who thinks it doesn't happen in bullion accounts at these big banks is either naive, and idiot or both.  You better think again if you think your investment in GLD, SLV, IAU or any of these bullion investment products sold by the likes of Kitco, Monex et al is really an investment in bona fide physically allocated bullion.

Mortgage Purchase Index And Other Nuggets Of Golden Truth

The Mortgage Bankers Association index of mortgage applications showed, on an unadjusted basis (I don't recall CNBC or Bloomberg reporting the raw, unadjusted number) was down 5.2% from week before. In the MBA's words: "The Purchase Index decreased for the fourth consecutive week and is currently at the lowest level since April 1997." Not only that, the index is down 40% from its level four weeks ago. Here's the link:  Mortgage Purchase Applications In A Cliff Dive

Anyone see a problem here?  The housing purchase tax credit had the effect of pulling a lot of home sales forward into March and April from the summer months.  Unless they resurrect the tax credit (can the Treasury really afford to use taxpayer funds to pay for home sales with all the other trillion dollar problems), expect to see home sales go off of a cliff this summer, right in the heart of the home selling season.  I know of a couple of  formerly successful real estate brokers who are now struggling to make ends meet.   I am also, anectdotally, seeing a LOT of "for sale" and "price reduced" signs pop up all over Denver...

Does anyone besides me find it to be rediculous that Warren Buffet, who owns Moody's stock, was defending the rating agencies today in front of the Financial Crisis Inquiry Commission and defending the agencies' failure to anticipate the subprime crisis?  You have to be kidding me.  Talk about disingenuous.  How can Buffet take credit for being an investment genius and yet feign ignorance over this matter?

The rating agencies have been engaging in fraudulent ratings, in collusion with Wall Street, for over a decade that I'm aware of.  Back in 1995 I was on a junk bond desk and I watched an ex-Drexel salesman take his buddy from Moody's out to Chanterelle for lunch and then to a fancy New Jersey country club for a round of golf in exchange for Moody's giving a bond deal we were doing a B3 rating instead of a Caa rating.  That rating allowed the deal to get done.  Make no mistake about it, rating agencies were fraudulent entities long before the subprime catastrophe became its coup de grace.  Here's a link to Buffet's puke if anyone is interested:  Yeah right!

And finally, I'm linking an excellent commentary by my colleage "Jesse" of  Jesse's Cafe Americain.  He opines that based on Obama's patronizingly populist speech today that we can expected another "hot" employment report on Friday and then goes on to point out Obama's words belie the golden truth: 

He speech sounded good. And if you do not look too closely at what is going on, and how things are being run, and the lack of actual reform, you might have had a feel good moment. It was about as effectively staged as the case that George W made to the American people for the invasion of Iraq. And it was probably just as phony and self-serving.

Here's the link and I recommend reading it:  Obama And Staging Appearance vs. Reality

Here's Why Some People Think Gold Can Easily Hit $10,000/oz:

This chart shows the annual Federal spending surplus/deficit. I'm still waiting for someone to explain to me how the Government can possibly stop the freefall pattern in this chart. Cut entitlements and defense spending back 50% each? We would still be in deficit spending. Raise taxes? That's the last thing that needs to happen if the Government at all wants to try and stimulate any meaningful, "organic" economic growth.

Please keep in mind that the numbers behind the chart represent ONLY "on-budget" spending items. It does not include the 100's of billions being spent to keep FNM, FRE, FHA, GNMA, FDIC, GM, GMAC, unemployment claims loans to States ($38 billion so far) etc alive. Obama said he was going to put the expenditures in "the war on terror" back on budget, but I have not read any references to him doing that.  In other words, the REAL deficit spending number is more like $2.5-3 trillion this year. We'll know at year-end when we see the year-over-year increase in outstanding Treasury debt exactly what the real deficit spending number is.

Here's one scenario that would take gold to $15,000/oz: the world demands a gold-backed reserve currency; the U.S. reveals and prooves to everyone that it still has 8100 tonnes of unencumbered gold sitting in "deep storage" at West Point and in other Federal depositories; the U.S. then revalues the price of gold up to $15,000, which would be the price level required to restore the full gold backing of all outstanding Treasury debt, per Bretton Woods.  My bet is that there will be another world war before that scenario plays out (nothing like a good old fashioned war to get the economies of the world jump-started and people employed).

BP update:  Get out while it still has market value.  As one who rode Enron short from the low $40's to $10, this situation and the chart pattern is eerily similar.  This disaster is way worse than BP and the Obama people are revealing, if they even know just how bad it is, and the impending tropical storm/hurricane season will have the effect of throwing "gasoline" on this "inferno."  This is one for the ages and so far Obama's handling of the matter makes Bush's handling of Katrina look brilliant.