China Warns About The Dollar

(I know a lot of you saw this article already, but I am compelled to add my  2 cents, especially since the reader who has incessantly busted my stones over my bearish dollar call has disappeared)

When China speaks, the U.S. should listen: 

Any appreciation of the dollar is “really temporary” and a devaluation of the currency is inevitable as U.S. debt rises, Yu said in a speech in Singapore today...Such a huge amount of debt is terrible,” Yu said. “The situation will be worsening day by day. I think we are one step nearer to a U.S.-dollar crisis.

Here's the link if you have not seen the article by now:  LINK

This guy also goes on to say that "China should reduce its holdings of U.S.-dollar assets to diversify risks of 'sharp depreciation...'” Essentially this is a statement telling the world that continued support of the U.S. dollar by China will be limited at best.  Translation:  the dollar is going a lot lower.

Make no mistake about it, even though the comment above came from "a former advisor to China's central bank," when the Chinese Government wants to make a policy statement, it's usually done through "representatives" like this.

As per the graph below, you can see that the dollar has broken a head-and-shoulders chart formation, which usually implies much lower price levels are to be expected:

(click on chart to enlarge)

To be sure, the dollar is technically a bit "oversold" and can bounce at any time.  But the weekly chart is not reflecting an oversold condition, which means any corrective "bounce" will be brief.  Of course, this also means that gold and silver will going much higher.  Got any?

Here's The Problem - And Why Gold Will Go MUCH Higher...

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence.  Destroyers seize gold and leave to its owners a counterfeit pile of paper.  This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values."   - Atlas Shrugged

August 15, 1971.  That date should be etched in everyone's mind and it should be tattooed on the forehead of ass-absolutes like "Mish," Prechter, Denninger and every other imbecilic deflationista out there. Here's the chart, which I took from the free access to Nick Laird's http://www.sharelynx.com/ and added the two date-markers:

This is the key to the understanding the root cause of the collapse of the United States - economically, politically, morally, spiritually.

The Bretton Woods agreement in 1944 established the U.S. dollar as the world reserve currency.  The proviso was that all U.S. debt obligations were to be backed 1:1 with the gold owned by the United States.  While this was only a partial currency anchor, you can see that from 1944 - 1971, the amount of Treasury debt outstanding barely increased.

Then, on August 15, 1971, all hell breaks loose.  The terms of BW allowed foreign sovereign holders of U.S. debt to exchange that paper for gold at the Fed "window."  The U.S., in order to pay for the largesse of 8 years of Democratic socialist programs and Viet Nam, had issued a lot  more paper to foreigners than was backed by gold in Ft. Knox.  Charles deGaulle had figured this out and decided to turn in all of the U.S. debt held by France in exchange for gold.  Nixon had no choice but to close the gold window or risk an unmanageable political and economic crisis:  it prevented a run on gold that U.S. did not have.  Wars are started over issues like this.

For whatever reason for which I have yet to find a plausible explanation, the rest of the world accepted this U.S. Government default under Bretton Woods and continued to accept the U.S. dollar as the global reserve currency.  The only thing I can think of is that at the time the U.S. was by far the strongest economy, had military presence in close to 200 countries and by far had the most nukes to fling.

Now, if I were to dig up a long-term chart of M3 thru March 2006 and extended it with M2 + assumptions thru today, you would see a similar chart pattern to the one in the Treasury debt chart above.  Serious price inflation is percolating in the system and will soon be felt by everyone.

And now our system is mired in an irreversible debt/death spiral.  At some point our Asian/Anglo financiers will say "NO MAS" and then we'll really see the meaning of Bernanke's infamous "helicopter" speech.  The Fed will have no choice but to hyperinflate the money supply in order to fund the Government and keep our system from collapsing.  I'm not sure where Bernanke is coming from, because for a supposedly educated PhD economics expert, he sure is ignorant.  I guess the joke's on us...

Richard Nixon and every subsequent President, Arthur Burns, G. William Miller, Paul Volker, Alan Greenspan and now Helicopter Ben Bernanke are ALL destroyers of money.  Do you know where your gold is?

Obama Is Worse Than Bush: Looks To Control Cross-Border Money Flows

Under the thinly disguised excuse of trying to control organized crime and terrorism, Obama's Polituburo has introduced a proposal that would require all banks and Western Union to report all cross-border financial transactions.  Here's the news report:  LINK

Let's cut to the chase here.  To begin with, it can probaby be argued that this further violates the Constitutional implied right to privacy, which was established with Griswold v. Connecticut, a landmark decision which led to the Roe v.  Wade decision.  If this proposal becomes law, BHO will have once again lifted his leg and urinated on the Constitution, one of the favorite activities of his predecessor and seemingly a source of great satisfaction as well for the current POTUS.

That in and of itself is bad enough.  But what's really going on here is a movement by Government to control capital flows in and out of the country.  This is one of the hallmarks of a failing system and one in which devaluation of the currency is about to go parabolic.

As Barak continues the shift of our system from freedom to fascism, there are a lot of reasons to move as much of your wealth as possible into gold/silver and a lot of reasons to regard Obama as a complete scumbag and a failure.  This proposal, should it become law, is yet another reason for both.

South Korea Joins The Global Race To Devalue Fiat Currencies

Bank of Korea intervenes overnight, selling won and buying U.S. dollars.  Here's the news story:  Link

This is just more fuel to support the next move higher in gold/silver.  On a related note, Tulving http://www.tulving.com/ is the most sold out of gold/silver sku's as I can ever recall seeing.  Other than gold/silver eagles and maple leafs, it looks like physical supply is growing thin...

Gold Setting Up For A Big Move Higher

Gold and silver have had a big price run since the beginning of August.  I'm not prepared to argue that gold will move higher from here without some kind of corrective pullback or sideways consolidation.  In fact, I would argue that this would be healthy way for the market to set up another big price run during the 4th quarter.

From a fundamental perspective, the seasonal demand for gold in India will play a big factor in supporting higher gold prices. It is apparent that India has adjusted to these higher prices and has been aggressively buying gold on any price dips.  This is somewhat contrary to its buying behavior since the gold bull began, in which Indian buying disappeared on big moves higher and did not re-emerge until big price corrections.  As such, I wanted to post a comment by a reader from India:

There is Deepavali approching, a festival of lights, celebrated for Victory of Good over Evil. So it is considered to be auspicious (as per Hindu mythology) to buy PM's during this time. By the way Deepavali is celebrated in Thailand, Indonesia, Malaysia, Vietnam etc moreover all over south-east-asia region. Even Whitehouse is celebrating Deepavali from last few years. Would they buy Gold? ; )

Let's hope this physical buying could bring in end to price manipulation by the Bullion banks.

I consider Gartman, Soros, Nadler, Jeff Cristian, all are linked (to the right places) players. Take the case of Soros, No one has balls to take on a central bank like Bank of England, without insider knowledge. I can even put Berkshire into this league, did you see the rant by Munger recently? They all feed on their connections in right places.

On a lighter note, let everyone in the world celebrate Deepavali, buy into PM's hand over fist during this time and bring an end to the evil designs.

From India

The Indians are paying attention to the corrupt market manipulation of the western bulllion banks.  And the surge in individual wealth there is fueling India's huge appetite for gold and silver.

In addition to Indian buying, it looks like Vietnam is once again going to become a factor in the physical gold market.  Local market premiums went positive last night after being quite negative since late July.  There have been media reports of accelerating price inflation in Vietnam plus a growing distrust of the U.S. dollar, to which the local Vietnamese currency, the dong, is pegged.  As JB commented today regarding the Vietnamese gold market:  "...it will be remembered that high Vietnamese premiums preceded the world gold rise of last Fall."

I want to end by posting the latest and highly regarded 5x3 point and figure chart of gold published by the-privateer.com:

(click on chart to enlarge)

Per my commentary earlier, this chart shows the likelihood of some degree of price pullback/correction. But it's hard to imagine a chart looking any more bullish that this.

Currency Wars Set To Escalate

Between the idea
And the reality
Between the motion
And the act
Falls the Shadow...T.S. Elliot, "The Hollow Men"
 
In what could be possibly the worst piece of legislation to move through Congress - after the healthcare catastrophe of course - during Obama's failing reign, a House panel is set to approve a bill which would deem China's currency, the yuan, as "undervalued" and allow the U.S. to slap import duties on Chinese goods coming into the U.S. Here's the link: Confederacy of Dunces

The aspect that I find most problematic with this legislation is how exactly can anyone determine the "correct" value for any country's currency?  Perhaps the U.S. dollar is substantially overvalued.  In the absence of free markets, there is absolutely no way to determine "fair" valuation for anything.  How about if China threatens to sanction the U.S. if the Fed/Treasury does not cease and desist from capping the price of gold?

If the U.S. were to succeed in forcing China to revalue its currency higher, however, two huge problems will result.  First, this will drive up the cost of imported Chinese goods for the U.S. consumer and fuel the already percolating price inflation.  Walmart has already raised prices on average by over 5% this summer.  Prices will escalate even more if Congress is arrogant enough to slap import duties on Chinese imports.

Even more problematic, at least for our borrow-and-spend Government, is the effect this will have on China's appetite for buying Treasury paper.  If China were to "artificially" revalue its currency higher vs. the dollar, the net effect would be to create massive currency translation losses on its holdings of U.S. Treasury bonds.  And perhaps this is part of Congress' motive.  Create a mechanism in which to repay large Treasury bond holders with "cheaper" dollars.  Of course, it's also a way to discourage further foreign participation in financing the the U.S. Government's rapidly escalating borrowing requirements.

Friday Music:  "U.S. Blues"  I'm Uncle Sam/That's who I am/Been hiding out/In a rock n roll band

Metals Action Leaves The Ignorant Scratching Their Head...

Someone sent me an email mentioning that Dennis Gartman may have finally re-entered gold (later denied by Gartman).  My response was "who gives a shit what Gartman does?  He's irrelevant, especially when it comes to gold - and he can't even spell 'silver.'"

The key to the kingdom is to understand what is happening in the physical market.  GATA layed out the trail map over 10 years ago when Bill Murphy presciently declared that eventually the demand for actual physical gold would completely overwhelm the ability of the bullion banks/Central Banks to manipulate the price using paper. 

Are we there now?  I don't know.  But the character of the current market certainly reflects the obvious inability of the manipulators to keep a lid on the metals at key price points.  If you read the invaluable report produced daily by "JB" (and accessible at http://www.lemetropolecafe.com/) on the condition of the global physical market, you will understand that the eastern hemisphere central banks and population are buying physical gold and silver much more aggressively than in the past. Here's an excerpt from today:

UBS has an important comment: “When gold pulled back to $1270.75 on Tuesday, Indian buying interest returned: flows noted by our Swiss sales desk were the strongest since late July, and twice the year-to-date average. Given current lofty prices, demand is understandably inconsistent - but the Indian market has sent a clear signal that it is prepared to raise its price threshold…Importantly for gold, scrap supply has not risen to significant levels, ensuring that this potential rally dampener is not playing a major role right now.”

That tells a big part of the story.  India has become a lot less price sensitive than in the past and is aggressively buying gold on every pullback.  That we know of, and the caveat is that we have no idea what China is really doing other than buying hand-over-fist, India is the largest importer/consumer of gold in the world.  Turkey has resumed its importing in the last several months.  Russia accumulates several tonnes every month. And the southeast Asian countries are voraciously accumulating (Bangladesh just bought 10 tonnes from the IMF). 

JB's report also references that India's second largest gold importer sees the Oct-Dec imports potentially being 37% above that of last year's levels.  Not only are the Indians hoovering up gold, they have acquired an avaricious desire for silver.  Here's the article, worth reading  India's Gold/Silver Vaccum

Also note that another aspect that distinguishes this year's market from the past is the dearth of scrap gold/silver flowing into the market as the price rises.  JB has reported on this several times over the course of the last 6 months.

Another indicator which is followed closely by my friend and colleague, "Ranting" Andy, is the premiums being paid on Ebay for rolls of 1 oz silver eagles.  Yesterday he commented on the fact that there are very few sell listings on Ebay right now compared to the past.  And just today he reported that silver eagle rolls were being sold for $25-28/oz.  That's a $4-7 premium over spot.  Premiums like this on Ebay are indicative of growing scarcity of supply in the small-lot/retail market and the coin dealer network.  This market is defined as the buyers who can only afford to buy silver in small amounts.

The point of all of this is that it would appear that the demand globally for physical gold and silver is such that, at this current moment, the price manipulators are struggling to keep the metals from grinding higher.  Technically this is readily apparent in the action on the "tape."  Every sell-off is met with buying and a subsequent high-volumn move higher.  Higher lows and higher highs.  Classic indication of a market that wants to go higher. 

I don't know if we're at Bill "Midas" Murphy's point-of-no-return in which the bullion banks are carted off the Comex floor on stretchers, but I do know that this market wants to go higher for now.  And this is being supported by the easy money banking policy that has been implemented by the global Central Banks (some of you might refer to this as "the global race to devalue fiat currencies").

Since it's my birthday today, I'm cutting the day a bit short.  I'd like to sign off with the lyrics of the Grateful Dead's "Deal" in tribute to all those who have no fucking clue what is going (we all know who they are):

Since it cost a lot to win
and even more to lose
You and me bound to spend some time
wondring what to choose
Goes to show you don't ever know
Watch each card you play
and play it slow
Wait until your deal come round
Don't you let that deal go down

I been gambling here abouts
for ten good solid years
If I told you all that went down
it would burn off both your ears
It goes to show you don't ever know
Watch each card you play
and play it slow
Wait until your deal come round
Don't you let that deal go down

Since you poured the wine for me
and tightend up my shoes
I hate to leave you sittin there
composin lonesome blues
It goes to show you don't ever know
Watch each card you play
and play it slow
Wait until your deal come round
Don't you let that deal go down

Dennis, CNBC et al:  Thanks for pouring my wine and tightening up my shoes!

The U.S. Dollar Index Loses Key Support At 81

The U.S. dollar looks to be even weaker than I expected when I posted on this topic a few weeks ago.  I'm actually surprised and now believe the outlook is even more bearish.   At the time, USDX had "rolled over" after losing 81 briefly and bouncing.  I also opined that a technical/trading bounce into the 84-86 area was possible.  The dollar bounced up to 83.55 and has now lost key support at 81.

(click on chart to enlarge)

Of course, anything can happen on a day to day basis in terms of Central Bank intervention and movements associated with technically-oriented trading funds.  But we know that Fed is in the middle of engaging in record amounts of POMO (permanent open market operations), in which it goes directly into the market via the primary dealer system and injects funds into the banking system by purchasing Treasuries on a permanent basis (as opposed to the temporary basis of the more typical repo operations).

This is direct currency debasement.  In fact this week the Fed injected $5.2 billion, a record amount, into the system via Monday's POMO.  It is on deck to inject another $7-8 billion today and Friday.  I was chatting with a long-time colleague yesterday who remarked that he remembered when an occassional bi-weekly POMO of $750 million each would raise eyebrows.

The bottom line here is that the world is now officially engaged in currency devaluation wars and the U.S. is firing is its paper nukes into the global financial system this week with reckless abandon.  This is why every attempted takedown of gold and silver over the last week by the Fed/Treasury is failing.  Yesterday is the perfect example.  In fact my fund partner, who operated a commodities trading firm in the 1970's and lived through the last gold rush back then, remarked late last week that the "character" of the gold/silver trading right now is very similar to the market of the late 1970's, which was very volatile but seemed to move higher after every brief pullback.

I don't know where this current sell-off in the USDX will find support and bounce.  But I do know that when the dollar loses 80, and stays below 80 for while, it could trigger an avalanche of selling and possibly ignite a vicious sell-off in the bond market.  And anyone who says that gold is in a bubble and topping out here knows absolutely nothing about which they are talking.  Gold/silver are headed much higher before the end of the year.

Friday Music

This one is dedicated to Obama, Geithner and everyone out there who is buying into the smoke being blown by the Government, Wall Street and the media about an economic recovery and no threat of inflation.



We know for a fact that inflation is starting run rampant in Asia, especially in India.  Not coincidentally, the Central Banks and citizens of those countries are buying gold hand-over-fist.  Here's where inflation will start to really creep into our system:

(click on chart to enlarge)

The Fed's quantitative easing and the weaker dollar and what is being seen as a growing global shortage of agricultural products will soon translate into price inflation in this country.  And all of the data connected to the housing market and the automobile market suggest that production and sales of both are going to fall off of a cliff, which means our economy is in trouble again.

Have a great weekend! I'm out Monday.

Speaking Of Eunuchs, Tim Geithner Fires More Blanks At China

As a follow-up to yesterday's post, I wake up to this headline on Bloomberg News: "Geithner Says U.S. Examining Ways to Push China on Yuan Rise"  You've got to be kidding me.  Let's see, if I'm China and I'm facing someone like Tim Geithner making an attempt to force-feed me financial policy, I'd say "bring it on, eunich."  A serial tax-cheater sitting on top of the world's largest amount of Government debt, a large part of which is financed by those whom Geithner attacks, issued by a corrupted, ponzi-scheme system in collapse...If I were the Chinese, I would send Geithner a little note wrapped around some medical marijuana that said "smoke a little more of this with your boss."

Talk about the "emperor has no clothes" syndrome.  I'm not really sure where the U.S. has any leverage to enforce its will anymore on the rest of the world.  Especially upon those - China - who have been enabling the U.S. Government to continue digging the hole for its own coffin by recycling paper trade dollars back into the financial heroin of Treasury debt to which this country is addicted.

Here's the link to article: Geithner's Farce  About all I can say is that I wish Charles Dickens were around for this, because this is kind of material that fueled his great literary legacy.  The fact of the matter is that all Geithner will accomplish is to further irritate the Chinese, likely exacerbating the eventual consequences when the Chinese pull the plug on the U.S. financial life-line.

Global Economic Power Is Shifting From The West To the East

And concomitantly the currency devaluation wars escalate.  I missed these two news items.  Thankfully my friend and colleague "Jesse" of Jesse's Cafe Americain posted a must-read commentary today around these two news items.

First, two weeks ago France announced that it would leverage its presidency of the G20 next year into opening up discussions about reducing/replacing the U.S. dollar as the global reserve currency.  This movement has been visibly gathering momentum for at least a year now and it underscores the fact that the world has fatigued of being economically controlled by an increasingly corrupted U.S. Government and banking system.

The second news event that grabbed my attention was that yesterday Germany announced that it wants the U.S. to relinquish IMF veto power in exchange for Europe doing the same.  This to me is a velvet hammer request for the U.S. to cede a substantial amount of economic/political control over world affairs.  This is huge.  This is a subtle yet explicit acknowledgement of a transformational shift in the global balance of power from the West to the East. 

And make no mistake, China has quietly and efficiently maneuvered itself into a position of economic and financial dominance.  All that remains is for China to start wielding political power, something upon which it has demured every time the U.S. sends its eunuchs like Geither and Bernanke over to China to brow beat them over their currency valuation policy.

Here is the link to Jesse's blog post - I would urge everyone to read it carefully:  LINK

I would also like to add that IF this shift of dominance that is occurring does not ultimately unfold into some kind of global military conflict, it would make this event a unique data point in human history.

AngloGold Ashanti Throws In The Towel On Its Massive Gold Hedge

AngloGold Ashanit (AU) announced this morning that it will raise $1.2 billion, which will be used in conjunction with cash on hand plus credit lines, in order to eliminate its gold hedges, thereby indicating that its management obviously sees much higher gold prices ahead.

Recall that Barrick Gold last September at the Denver Gold Show announced a similar move to remove its massive hedges.  At the time gold was just below $1000/oz and the Einsteins on Wall Street criticized this decision.  CNBC reported that it likely marked the top of the gold market.  With gold at $1270, now how does this decision look?

I applaud this move by AU because those hedges were one of the factors which prevented me from investing in the Company.  As one of the world's largest gold producers, AU has an enormous resource base - and therefore substantial leverage to the price of gold as well as the benefits of economies of scale - all of which were severely limited by its large, value-destroying gold hedge.

And I will reiterate the same comment that I made when ABX implemented its move de-hedge.  ABX and AU are not creating short term shareholder dilution and spending billions to de-hedge because they think gold has maybe another 10-20% of upside. After all, these hedges were put on a decade ago when gold had been stagnating around $300/oz. Both companies have already suffered the damage incurred by a 400% rise in the price of gold. Make no mistake in your interpretation, this decision to spend the capital needed to remove these hedges is no doubt based on industry-insider conviction that the price of gold will eventually increase by several multiples.

“What we see here is one of the greatest, least loved, and least recognized primary bull markets in history…. This great gold bull market is something that one sees maybe once or twice in a lifetime.”
                                                          - Richard Russell, September 2010

Retail Sales Report Not As Ebullient As Reported

August retail sales were reported to be .4% above the July metric. However, July's number was revised down, making whatever increase in August there was from back-to-school buying appear to be more significant arithmetically in the headline than the overall nominal increase month to month.

In addition, as Bloomberg reports, 17 States engaged in "no sales tax holidays" during August.  As we have seen with Government subsidized sales programs in autos and housing, all this does is "pull" future sales into the present, creating large drops in sales in subsequent months.

As per one of my earlier posts, a recent survey of the population indicates that over 2/3's of the country sees worse economic conditions going forward and over 75% plan to cut back on holiday spending. Programs like "sales tax holidays" will likely exacerbate this future reduction in spending.

Weekly Silver - A Picture Says 1000 Words...

Not much I can add to this - you draw your own conclusions:

"Take no prisoners !"

The U.S. Dollar Is In Trouble

“Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar.”

This quote comes from a Bloomberg article last week which reported that China and Russia will bypass the U.S. dollar and engage in trade with each other using yuan and rubles.  This could start freely occurring sometime this month.

In the words of one analyst: “Given the risk to the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency...” Here's the link to the article:  Dollar R.I.P?

Here's a chart of the U.S. Dollar thru today.  It does not look good:

(click on chart to enlarge)

This bearish chart is reinforced by the poor fundamentals supporting the dollar.  The latest of which is an arguably de facto failure of last Thursday's 30-yr Treasury bond auction.  Although this factoid received very little media commentary, the Primary Dealers (Wall Street banks) were forced to buy 62% of the long bond auction last week.  In and of itself, this means that the traditional buyers of long-dated Treasury bonds - the Japanese, foreign Central Banks and institutional asset/liability fund managers - were reluctant to make a long term bet on the dollar.

The weak dollar may be supporting the surprising strength in the precious metals market, especially among big foreign buyers, who are vacuuming up physical gold and silver right now.  In one of his daily "quickie" reports which can be accessed in the Midas report at http://www.lemetropolecafe.com/, "JB" reports:  "India is booming and the “wealth effect” for the world's largest gold buyer cannot be ignored."  In addition, per JB, Standard Bank of London reports:

Demand for physical gold remains robust out of Asia and India ahead of Q4:10. Our Standard Bank Physical Gold Flow Index remains in positive territory indicating that buying in the physical market continues to outpace selling, even at this near-record high gold price.

So there you have it.  Many newsletters writers issued bearish short term trading calls this past weekend on gold based on the technical patterns of the charts.  Absurdly, there are still a lot of lemmings who live and die by their favorite newsletter writer.  Newsletter peddlers are usually wrong, by the way.  It is with dry humor that JB's report today is titled:  "NY Chart anxiety = Happy Indians."

My best advice would be to start unloading your bond portfolio holdings before the dollar really starts to flush down the toilet and use the proceeds to buy a lot more physical gold and silver.  I would like to point out that premiums for 1 oz. silver eagles on Ebay are back over $3/oz.  This is indicative of strong retail demand and waning supply.

A Very Interesting Economic Survey

"Two-Thirds of Americans Expect Double-Dip Recession, Brace for Second Hit Worse Than the First"

This is a quick read, and I sourced this LINK from Ed Steer's Gold and Silver Daily report.  The polling results show that an overwhelming percentage of Americans are planning to cut way back on their spending between now and the end of the year, including 79% of the respondents saying they planned on spending less money for the holidays.

70% of all economic activity over the last decade was derived from consumption. The only possible way to stimulate more consumption is to have Bernanke engage in his infamous "helicopter drop" of cash and to have the Government borrow and spend a massive amount of money. 

Short of this we face systemic collapse.  And for the record, anyone still living in the delusion being fed to us by the mass media is clearly not looking at the Truth, which is contained in the numbers from the survey linked above.

Quote Of The Weekend

So far in the first 19 months of Obama’s presidency he’s raised the national debt by $2.5260 Trillion. That’s more than all the debt combined from George Washington all the way to the end of Ronald Reagan’s presidency.

That’s 200 years.

Warren Bevan LINK

Time For Some Friday Fun!

Man, there's not a cloud in the sky here in Zeus' country - colorful Colorado.  I have a direct view of Pikes Peak from my trading desk, football season started, the Rockies are back in the playoff hunt and the silver market is about give JP Morgan a nitro-glycerine enema.  Sounds like an Iko Iko day to me.  Here's the Grateful Dead covering Iko at Giants Stadium with the Neville Brothers!  July, 10 1989.  Yes, I was at this show:



Have great weekend everybody!  GO BRONCOS!  Silver is getting ready to do a moonshot.

BLS BS: Jobless Claims Data Released Today Was A Complete Farce

"Nothing is but what is not" (Macbeth, Act 1, Scene 3).

True Orwellian deception once again rules the day.  The stock market is bouncing with vigor on the weekly jobless claims report, which showed about 27k less new jobless claim filings than was expected. 

But let's examine the report itself to see what's going on.  Because of the holiday week, NINE States ended up not reporting their jobless claims, including California.  The jobless claims number reported was estimated for these 9 States.  That completely invalidates, from a statistical sampling context, anything reported and celebrated (how the hell do you celebrate a few less claims for unemployment welfare than was expected anyway?).   As Bloomberg reports: 

For the latest reporting week, nine states didn’t file claims data to the Labor Department in Washington because of the federal holiday earlier this week, a Labor Department official told reporters. As a result, California and Virginia estimated their figures and the U.S. government estimated the other seven, the official said.   (Here's the article link:  Another Govt Joke)

I really don't think this situation requires my editorial rhetoric.  It stands out by itself as yet another example of the ways in which our Government goes to great lengths in order to hide the truth and proliferate deception and lies.  As a matter fact, the Truth about this jobless claims report was not even contained in the actual BLS news release, as you can see for yourself:  BLS BS.  As you can see from the Bloomberg news release, the Truth was revealed in the media interview of the BLS official.  Very few people who follow the news will ever see this subtely.

The most irritating and absurd aspect of this is that Obama was elected on a platform in which he promised more transparency and truth in Goverment.  Not only has Obama completely failed in this regard, he is actually more deceitful than his predecessor.  It just gets worse as time goes on.  The system is completely broken and the continuous and inexorable descent into complete Orwellian Totalitarianism is occurring irrespective of which political party is in power. 

Please do have Hope for anything to Change when the voters hand Congress back to the Republicans in November.  The best outcome of that will be to neutralize Obama.  President Obama becomes Lame Duck Obama and good riddance to Nancy as the capo di tutti capi of the House.

More On Housing...

Per the data reported in this article, 40% of all subprime mortgages are delinquent - LINK According to the data being reported by banks, 16% of prime mortgages are delinquent.  I'm going to run some math using total numbers that are a bit stale, but still relevant enough to prove a point that a large part of the credit crisis in 2008 was fueled by the collapse of the subprime market.  "Prime" time is still to come.

Roughly, the total mortgage market is around $12 trillion, of which $500 billion is subprime and $1 trillion is "Alt-A."  The latter is a fancy label for mortgages which are really subprime but issued based on non-documented input from the borrower and the regulators allowed them be regarded as better quality that subprime.  "Alt-A" are the liar loans.  Finally, the "prime" mortgage market is roughly $10.5 trillion. 

So 40% - or $200 billion - of the subprime market is delinquent or in default.  According to the article 16% of the prime market is delinquent.  That's $1.68 trillion.  The amount of troubled prime mortgages is nearly 7 times the total amount of subprime toxicity.  I don't think that needs any rhetorical commentary.  Alt-A, last time I noticed, was running around 25%, or $250 billion, delinquent. 

Right now the foreclosure rate on prime paper is running a little over 2%.  The real question is, to what extent are banks now dragging their feet on foreclosing on prime mortgages and just how ugly with the prime market bloodbath get?  We all know, or have heard of, people who have not made a mortgage payment in the last year and have yet to be contacted by their bank.  But given all of the mortgage market fraud that we know about - and I'm sure there's plenty we don't - what percentage of prime mortgages should have been classified as subprime/alt-a? Time will certainly tell, but if the foreclosure rate on prime paper approaches 10% - over $1 trillion - which it easily could, the financial system is in serious trouble.  And this doesn't include any analysis of the $3.5 trillion commercial real estate disaster brewing.

And then there's this:  "Scarcity of jobs puts more at risk of foreclosure" 

The jobs crisis is putting more Americans at risk of losing their homes. One in 10 households has missed at least one mortgage payment, and more than 2 million homes have been repossessed since the recession began. Few expect the outlook to improve until companies start to hire steadily again and layoffs ease.

Here's the article LINK

Again, the numbers cited in that article could be a lot worse if banks were held to formal regulatory standards with regard to declaring delinquencies/defaults/foreclosures. I don't think I need to add any more commentary other than to say that the housing situation in this country is much worse than any of us understands and will likely lead to a much bigger credit crisis in the near future. Perhaps we should be fearing the Ides of October...

Reckless Fed/Government Policy Could Re-ignite The Housing Bubble Inferno

thereby ulitmately inflicting even more long-term destruction to our economic system.

As we have seen with the home-buyer tax credit, Obama succeeded in nothing more than "pulling forward" home buyer demand into the periods covered by the tax credit. He also managed to temporarily prop up housing prices.  But if you think about what really occurred there, you will see that propping up housing prices using tax subsidies only resulted in the transfer of wealth from the taxpayers and home buyers to the home sellers, real estate brokers and mortgage banks (Get it?  Home buyers paid more than they should have using taxpayer wealth vs. home sellers, who got paid more than they should have; real estate agents received more fees on the higher price basis of the transaction;  mortgage banks were more likely to get paid fully on the mortgage sitting on their books plus were able to earn higher fees on the higher principal basis of the new loan).  Once again Obama screwed the taxpayers for the benefit of those who did nothing to earn that economic largesse.

NOW, thru the magic of Fed-induced, artificially low interest rates, Fed money printing and Government guarantees, Freddie Mac (FRE) is rolling out the 95% refinancing mortgage and homebuilders are re-starting previously abandoned housing projects.  Check this out from FRE's website:  "Reach more borrowers with an easy refinance mortgage" LINK

And then there's this story from Bloomberg News detailing how homebuilding companies are reviving old, abandoned projects in the major bubble States: LINK This phenomenon is a by-product of absurdly easy monetary policy and the availability, given that the Government guarantees about 95% of all mortgages now issued, of easy, low down-payment loans.

Take a look at this chart from calculatedriskblog.com and tell me if you think the market really needs any more new housing projects:

(click on chart to enlarge)

This chart shows the number of vacant properties as a percent of total inventory vs. housing starts. Does that  chart reflect the need for new housing units to be added to the housing stock?  And just imagine what that chart would look like if the banks were stop delaying the foreclosure process in order to avoid ballooning their REO (bank-owned homes), as has been documented by many analysts.  That red line would be "off" the charts, so to speak.

The fact of the matter is that the best way to "fix" the housing market would be for the policy makers to just let prices/supply/demand be determined by the free market. Obviously this would result with much lower housing prices for quite some time. But eventually the excess inventory would clear the market, necessitating a "natural" revival of the homebuilding industry. 

Of course instead, in a quest to buy votes, the Government is once again in the process of engaging short term greed/long term destructive policy implementation.  Can't say I blame Obama, because according to the latest Rasmussen polling, not only is Obama's approval index lower than that of any President who is two years into his term, but it also looks like the voters are going to hand the keys to Congress back to the Republicans, for better or for worse.  Good riddance Nancy...

Some Weekend Scenery

Is The Dollar Rolling Over Already?

I decided to check in with the chart of the US Dollar index this morning.  When the dollar bounced from a rediculously oversold "technical" condition in early August, I was thinking it would move back somewhere into the 84-86 area.  I'm too lazy to run a fibo analysis, but I'm sure that area correlates with some magic, pre-programmed "black box" fibonacci lines.

When I looked at a daily and weekly chart this morning, I was somewhat startled to see the dollar "rolling over," accompanied by a bearish formation in the macd and slow stochastic momentum indicators - especially the slow stochastic.  Here's the daily chart:

(click on chart to enlarge)

As you can see, the dollar dropped down to its 200 dma in early August, accompanied by a very "oversold" reading on the technical indicators.  A bounce was to be expected.  But what has been unexpected is what appears to be the brevity of this trading bounce.  At this point it looks like the next move is for the dollar to sell off down its 200 dma and that will be a key "test" level.  That should occur in the high 81 area.

The fundamentals point to an eventual collapse in the dollar.  At some point the Treasury/Fed are going to have start really printing money to cover all of the terminal cancers festering and growing in the system:  State insolvencies, massively underfunded public pensions,  the obviously the massive Federal spending deficit and related Treasury bond funding requirements (with one month left the Govt has issued $1.5 trillion in new debt this year, which is the true measure of the spending deficit), and obviously the deteriorating economic conditions.  The list is bigger and many of us know what the variables are.

Furthermore, expect that gold and silver will show surprising strength as the dollar continues on its downward path.  Many people are scratching their heads over the surprising strength in the metals during the last two weeks, traditionally a period when the bullion banks send the metals lower ahead of the Indian seasonal buying and while trading volumn is low prior to Labor Day. I suspect this strength is forecasting a lower dollar.  This is underscored by the fact that most sentiment indicators are still showing very negative sentiment in the gold investment community, including the "Gartman" indicator.  Gartman has been one of the best contrarian indicators during the last 5 years and about 3 weeks ago he issued a veiled "go short" call on gold. LOL.  Thanks Dennis - remember, those who can do, those who can't publish market newsletters (the exception being Richard Russell, of course).

Finally, I'm not ruling out a possible continuation of this bounce in the dollar.  All it will take is some hefty intervention in the yen by the Bank of Japan (something that has been hinted at, as Japan is getting nervous over the big move higher in the yen) to send the yen lower and the dollar index higher.  But then again, if the BOJ manipulates this, it will likely send Japanese investors to seek refuge in gold, just like the Europeans have been doing for the last six months.

ISM Manufacturing Report Deceptively Not Very Strong

Although it came in higher than expected, the August Purchasing Managers Index report was not as strong as the headlines would have you believe. The components of the index which had the greatest positive effect on the overall index level (and their indicated trend) were:  Prices +4% (increasing faster), Imports 4% (growing faster), and Customer Inventories +4.5% (low but slowing).  Here is the source of this information:  LINK

As I suspected, pricing pressure is building in the system, inventory build is slowing down and imports are increasing, which is not really value-added in terms of putting U.S. workers to work or creating much-needed growth in our domestic capital base.

Once again the Truth is to be found somewhere other than where the media spotlight is shining...

J.P. Morgan Shutters Prop Trading: Much Ado About Not Much

Yesterday the news hit that JPM would be closing down its proprietary trading operations, including the proprietary commodities trading operations, in order to comply the "Volcker Rule" provisions of the new FinReg legislation.  Before everyone in the gold and silver world gives each other high-five's, let's take apart what is really going on here.

According to the WSJ, JP Morgan hasn't really focused on proprietary trading.  Specifically with respect to commodities, the decision affects 20 employees, one in the U.S. and the rest in London. 

However, I believe this WILL NOT AFFECT the gold and silver trading operations, including all derivatives-based precious metals trading.  Why?  Here's the language from Section 716 of the legislation:

Under the agreement banks would only spin off their riskiest derivatives trades. Banks get to keep some of their lucrative business based on trades in derivatives related to interest rates, foreign changes, gold and silver. They could even arrange credit default swaps, the notorious instruments blamed for the meltdown, as long as they were traded through clearing houses. Banks also would be allowed to trade in derivatives with their own money to hedge against market fluctuations.  (source link:  LINK)

Just to be clear, here is the direct language from the legislation, which I sourced from seekingalpha.com:

To exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; (here's the link:  LINK)

Does it get any more clear than that?  What this tells me is that JP Morgan is shutting down a smallish operation that makes money some quarters and loses money some quarters and affects in total something like 50-70 traders globally and only 20 with respect to commodities.

This is not really big news other than the noise being reverberated across the internet about the evil Voclker Rule.  In fact, if you read this analysis from Reuters, banks with much larger proprietary trading/investing operations are going to find some ways to work around the legislation - and if they choose to completely comply, they have three years in which to do so - Impact of Volcker Rule?

So there you have it.  Do not expect that this move by JP Morgan will have much, if any, affect on JP Morgan's ability to manipulate the precious metals market using derivatives (both Comex and OTC).  Anyone who thinks it will is not paying attention to the Truth.