Tuesday, November 30, 2010

Comex Open Interest Update...

As I mentioned in my late day addendum to yesterday's Comex post, I misread the product calendar in my haste to get a post written and jumped the gun on when first notice day is.  Today is first notice day so anyone not capable of receiving delivery of their position has to be out. 

Yesterday saw a bigger liquidation of December gold/silver than I would have expected given that gold/silver were pretty strong, relatively speaking.  With that said, the open gold o/i for December now stands at 15,195 contracts or 1.51mm ounces.  Given that the total available-to-deliver amount of gold stands at 2.6mm ozs, if even half of the open contracts take delivery, it will stress the Comex and likely push the price of gold higher.

In silver the open interest is 5,428 contracts.  This is 27.1mm ounces vs. the 48mm ounces available to deliver.  This is 56% of deliverable silver.  Again, if even half of the contracts demand delivery, the Comex will feel stress and the price of silver should squeeze higher.

Just for the record, many of us believe that the Comex is fraudulently reporting its actual amount of physical inventory in gold/silver.  Ted Butler has pointed out that SLV had a 6 million ounce withdrawal of silver last week and is speculating that this silver may be possibly intended to help cover silver deliveries on the Comex.  JP Morgan, not coincidentally, is the custodian (safekeeper) of the silver in SLV and just happens to be the largest short interest in paper silver on the planet, both via Comex futures and OTC derivatives.  You can make your own assumptions there.  It also just so happens that only 56 delivery notices were posted in silver yesterday - about 1% of the open interest - compared to gold notices which totalled 5,016 - about 33% of the open gold interest.

Again, the banks who are on the hook for deliveries have until the end of December to deliver.  Typically most of the deliveries occur early in the delivery period.  There's really not any good reason to not deliver the goods as soon as possible - that is, unless you don't have it in hand.  I will point out that our fund, twice in the past 18 months, did not receive our silver delivery until well after the contractual delivery period.  HSBC was the counterparty both times.  I have received emails from readers over the past year describing the same experience.  I think we can all see what is going on here and I believe it's part of the reason the metals are flying today.

Monday, November 29, 2010

Must-Read Here On Ireland/Europe...

This guy writes great commentary which is succinct, provides keen analysis and is 100% on the money.  The bottom line is that the "financial" crisis unfolding in both the Europe and the U.S. is of a banking nature.  That is, big banks fueled by absurdly easy monetary policy by Central Banks, have loaned impossibly excessive levels of debt to both Governments and the private sector:
So we must focus on the banks, because they are at the heart of the real crisis...The importance of Ireland is that is the biggest cross-border banking debtor of all the PIIGS.  If the Irish banks are not saved, the European banking system will probably go under, and soon, without waiting for the pressure to mount on Portugal Spain and Italy...
Here is the link:  Bad bank loans

In other words, the U.S./Euro solution to the financial meltdown occurring behind the scenes is one of excessive credit and catastrophic public policies being implemented by the U.S./EU.  To paraphrase a famous quote:  "it's the banks' money but it's the public's problem."  This is was TARP/QE round 1 did in the U.S., shifting a massive amount of money from bank balance sheets to the Treasury.  QE2 is doing the same and soon we will get TARP2.

Understanding the truth behind the rhetoric will enable everyone to understand why gold/silver is so resilient in the face of a big dollar dead-cat-bounce-rally.  At some point the markets will realize this and gold/silver will begin another meteoric rise. Sooner rather than later would be my bet...

The Comex May Have A Problem...

Note:  a commentor pointed out that tomorrow is first notice. I made an error in reading the product calendar on the CME website, which can be found HERE.  My bad.  The analysis below is still relevant, as I bet there was not a lot of liquidation today.  We'll find out for sure tomorrow.  Thanks to the reader who pointed out my mistake.

I have to allow for the typical accounting revisions that the Comex sometimes makes a day later. BUT, right now based on the o/i for gold and silver, the Comex is potentially insolvent.

Friday being the day before first notice, anyone with an account not funded to take delivery of a long position has to either sell or be liquidated by the end of last Friday's access session. I know this because I had a silver position liquidated a few years ago when I forgot what day it was lol. Any open long positions as of this morning are capable of taking delivery of gold and silver.

With that said, the open gold o/i as of this morning is 59,412 contracts. This translates into 5.9 million ounces. The Comex gold inventory shows only 2.6 million ounces of gold registered and approved for delivery. There is a total of 11.4mm ounces.

In silver, there are 17,208 open contracts. This translates into 86 million ounces. The Comex reports 48.5 million ounces available and approved for delivery, 107.2 million total ounces.

What does this mean, in the context of the cartel being unable to force liqidate a majority of the open gold/silver positions? Everyone reading this can use their imagination and I'm not willing to predict how this will unfold, but right now the Comex has a problem.

Saturday, November 27, 2010

Silver (and Gold) May Be Set-Up To Launch and the HUI To Do A Moonshot

Friday's action in the metals was quite predictable and a look "behind the headlines" reveals some interesting information.  I had mentioned to several colleagues after this week's option expiry, in which the cartel failed to slam the metals below key call option strike prices, that if a lot of the in-the-money call holders exercised and took delivery of their contracts the metals might get slammed during Wed/Fri low volumn trading.  I guess it was another lucky guess on my part per yesterday's ambush.

As it turns out, Monday is "first notice" day for December gold/silver.  What this means is that anyone with a long position has to either sell their position by yesterday's access close OR have an account that can 1) to accept delivery (most online trading futures accounts to not allow this) and 2) if the account can take delivery, it has to be fully funded to accept a delivery notice as of Friday evening.  What typically happens leading into the day before first notice is that the cartel will make an aggressive attempt to force the market lower knowing that many smaller traders will be natural sellers going into the day before first notice.  Moreover, the thin volumn on Wed/Fri makes this task a lot easier - ergo yesterday's action.

With this as the context, a couple of data points in silver and gold could make next week very interesting - to the upside.  First, as of Wednesday, there were 28,000 open silver contracts.  Yesterday's ambush may have forced most of those to sell (see the previous paragraph).  Preliminarily, and I do not put a lot of faith in the Comex "prelimary" open interest report, only about 7900 December silver contracts liquidated.  That would mean about 105 million ounces are standing for potential delivery.  The Comex would default if this were to play out like that.  It is likely that the silver contract liquidation was closer 20,000 contracts.  We'll find out Monday mid-morning.  That would leave 8k contracts standing, or 40mm ounces.  That is still about 80% of the silver reported to be available for delivery. If that scenario plays out, the price of silver is going to explode over the next couple of weeks.

The second interesting piece of data was reported yesterday evening by zerohedge.com.  Right at the close of the afternoon electronic trading session, someone bought 2000 contracts of February gold.  I don't think I've ever seen something like that in 9 years of doing this sector exclusively.   That is an enormous purchase.  It was either desperate short-covering ahead of news that could propel the metals higher next week or a very big player has decided to square off against the egregiously corrupt maneuvers of JPM/HSBC.  You can read about that trade and some interesting volatility color here:  LINK

Are gold stocks poised to stage a big move higher?

The answer to this depends on which the way metals move.  I've posted a chart which shows the ratio of the HUI to gold over the past year.  The chart shows the relative price performance between mining stocks and gold.  As you can see, the ratio is roughly in the middle of its trading range for the past year.  It has bumped up against resistance again and appears to be headed lower.  If this is the case, the mining stocks are likely to outperform gold/silver for awhile.

(click on chart to enlarge)

If my trading scenario for higher gold/silver outlined above plays out, the mining stocks should really start to move higher in December.  From a technical/fundamental standpoint, I would argue that the metals are set up to rally big-time.  We have already seen that the Fed/Treasury are willing to do whatever it takes in terms of monetizing the system in order to stimulate a big holiday season and keep the economy from collapsing.  Furthermore, the Fed typically injects a lot of extra short-term liquidity into the banking system via repos in December for several reasons, not the least of which is to fuel a year-end/January-effect rally in the stock market.  Gold and silver will smell this if it occurs again and will outperform the stock market to the upside.  The mining stocks will do that times-2.  

In addition, with Europe melting down again and the geopolitical climate heating up (see the Koreas, the U.S./China battleship tension and the China/Russia currency announcement), I think we can expect a considerable flood of global money to seek shelter from fiat currencies and reckless Government policies everywhere.  Layer on top of that the Islamic world returning from an extended religious hiatus, which will likely create a bullish influence on the metals.  And finally, the sentiment indicators in the precious metals, using several metrics, have plummeted in the past week.  From a contrarian perspective, this is usually quite bullish.

So, will the metals/mining stocks move a lot higher in December?  I have no idea - anything can happen.  I would suggest though that the conditions are set up for a possible significant move higher.  If that is the case, you want to be positioned accordingly because once this freight train leaves the station, you will have a hard time convincing yourself to jump on board.

Tuesday, November 23, 2010

Ssssssss...They're Slowly Letting All The Air Out Of Bank Of America

Here's the chart:

BAC had another ugly day today on very large volumn relative to its average volumn over the past 30/90 days.  Some of the biggest holders have folded their tent and it sounds like more are following.  Right now BAC's price is being "managed" lower in that neatly defined downtrend channel above.  Check out the TRIX indicator, a momentum indicator which "slows" down the direction the trend oscillations.  It's good to use when looking for clues to longer term trends. 

BAC is now solidly below its 50 and 200 day moving averages.  That is also very bearish.  Fundamentally it would appear as if this fraud-riddled carcas is getting ready to be snuffed.  They ("they" being Geithner and Bernanke and Henry Paulson) stuffed Countrywide and Merrill Lynch - two hugely fraudulent Wall Street creations - into BAC in order to shift the burden of monetizing the fraud onto the Government.  Now they'll go in for the kill and bury all the evidence, just like so many before it:  Enron, Refco, Amaranth, Lehman, and Bear Stearns.  Of course, first they'll let the Pimpcos of the world flip fraudulent mortagage paper back into BAC as per the terms of the mortgaging servicing agreements under which BAC is liable.

I am playing this using May 2011 8-strike puts. If you are invested in any mutual funds which list BAC in the top-10 holdings, you should get rid of those funds now - the managers do not know what they are doing.

Monday, November 22, 2010

Quote of the Decade?

The question most often asked of gold bulls is, “At what price will you take your profits?” It is a question that betrays a lack of understanding about why anyone should own gold. Nevertheless, the simple answer must be, “When paper money stops losing its value”. This response should alert anyone who asks this question to the idea that owning fiat cash is the speculative position, not ownership of precious metals.

That one gets my vote. The author is Alasdair Macleod, and his must-read commentary can be found
HERE. I highly recommend bookmarking his website. I recently discovered this Scotsman's commentary and have found it to be among the most value-added material in cyberspace.

On another note, as I have previously suggested and per the observations of several other long-time precious metals market participants, the "character" of this market seems to have significicantly transformed since August.  By this I mean that it would appear, at least for now, that the usual suspects who have been suppressing the price of gold/silver for over 30 years seem to have lost, to a high degree, their ability to keep the metals from moving higher. This, despite an avalanche of bearish articles and commentary which have deluged the mainstream media.

With tomorrow's Comex options expiry looming, the open interest in gold/silver calls/puts is set up to keep silver below $27 and gold below $1350.  At this point it looks likely, barring some kind market torpedo tomorrow, that they will fail.  I have to believe GATA is getting the hospital stretchers and body bags ready for delivery to the Comex trading floor tomorrow...

Saturday, November 20, 2010

While The U.S. Prints And Spends, Russia Loads The Boat With Gold...

This chart is sourced from Casey Research, Ed Steer's Gold and Silver Daily.  The Russian Central Bank purchased another 600k ozs of gold in October (some is purchased on the open market, some is purchased from internal mining production).  I think the message of this chart, combined with China's demure announcement about accumulating a lot more gold, is pretty clear:  get ready for some kind of gold-based currency standard at some point down the road.

(click on chart to enlarge)

Year-to-date Russia has accumulated 4.6 million ounces.  That's roughly 131 tonnes.  That's a lot of gold, especially considering that the ECB sold barely any of the 400 tonnes permitted under the Washington Agreement.  Now we know why the IMF decided to unload 404 tonnes.  Think about where the price of gold might be if the IMF had not supplied the world this year.

I mentioned earlier in this week in the comment section that it was my belief that, other than France, the EU Central Banks are largely out of gold - either via leasing or outright sales.  Anyone who has studied this topic thoroughly, of course, knows that it is likely that most if not all of the U.S. gold is either sold or leased.  Given the aggressive and large-scale accumulation underway by China, Russia, Iran, et al, 2011 should prove to be a very interesting year for anyone who has already positioned themselves ahead of what will inevitably be a substantial move higher in the price of gold, especially as valued in U.S. dollars.

Thursday, November 18, 2010

While American Hoi Polloi Sneer At Gold, China Hoovers It Up...

This comment was sent to me from a long-time colleague who is over in Beijing right now.  He himself has been accumulating gold and silver for several years: 
Went to a major dept store that sells gold. 100 oz bars selling for cash. 3 or 4 deep lines of people buying. No photo taking allowed unfortunately. Mob scenes. Food up sixty percent in two months. Talk about deflation and people laugh at you as an idiot. Prechter would be stoned to death here.
The media dismissed the threat of inflation in the U.S. by rationalizing that the U.S. is "exporting" inflation to China. There is just no basis in fact or truth to that nonsense.  Inflation is starting here and will become unmanageable, especially for those on fixed incomes and social security.  Good luck.  Got gold?  It's your only shot at protecting yourself and your family from our Government.

Wednesday, November 17, 2010

Is The Dollar Rolling Over Already?

Gold and silver have spiked inexplicably this evening.  I can't find any news that would have triggered the sudden, unusual early evening action.  Typically the early evening action is low volumn and the manipulators like JPM tend to try and swat the metals lower until Bombay and Hong Kong open up.  Then the physical accumulators take over.  This is actually a tradeable pattern. 

At any rate, given no news, I took a quick perusal of hourly and daily charts of the USDX.  Here's the daily (the hourly looks bearish, but that's obviously of shorter term significance):

(click on chart to enlarge)

I am not willing to commit to calling a resumption of the downtrend.  But I do think the message of the action in gold/silver tonight reflects the market's expectation of a possible rollover.  I thought the Fed's QE2 monetization of $8.2 billion in 10-yr Treasuries - a staggering size for this duration - sent the unimistakable signal to the market that the Government is going to start having problems selling longer duration paper, especially with $104 billion in total Treasuries on deck to be issued next week.

I will commit to saying that I believe that we are at a point in the global systemic unravelling in which gold is likely to start "disconnecting" from its correlation to the US Dollar and begin to move a lot higher against anything fiat.

It's About F-ING Time: Ron Paul Introduces The American Traveler Dignity Act

Thank you Congressman Paul!  Molto Bravissimo!!  It's time for the citizens of this country to seize back our Bill of Rights from the totalitarian neocons - Democrats and Republican - who have taken over our Government and this leglislation is a step in that direction:
My legislation is simple. It establishes that airport security screeners are not immune from any US law regarding physical contact with another person, making images of another person, or causing physical harm through the use of radiation-emitting machinery on another person. It means they are subject to the same laws as the rest of us.
Here is a link to this announcement from Congressmen Paul's website:  Daily Paul

I have to say that ever since the Government handed over our Rights to the Transportation Security Administration, I have spent a LOT less money travelling by airplane.  I'm sure many others have as well.  Just another example of our Randian/Orwellian Goverment telling us how to live and controlling our lives.

Thank You again Congressman Paul. 

On another note, I almost had to have my blood checked to see if anyone had slipped LSD into my Starbucks tall latte, extra hot this afternoon after I saw this headline:  "Palin says she could defeat Obama in 2012."  Here's a link to the story ROFLMAO.  I have two comments regarding that:  1)  If she's the best the Republicans can put on the table, then we're in for another really long, brutal second term of Obama; 2)  Saturday Night Live will likely be all over this on Saturday.

Tuesday, November 16, 2010

Muni Update

A reader linked a chart to the general Nuveen Muni Tax-Free Closed End Fund, which has dropped something like 10% in the last two days:

(click on chart to enlarge)

I want to bring this to your attention because, contrary to the comment in the NY Times by that dope from McDonnell Investment Management, this fund is a well diversified portfolio with an investment grade weighting (64% AA or higher) and geographically diversified.  Yet, this thing is getting killed.  Here's the link to that fund if you want to see the details:  NPX.

The point is, get out of your munis while your portfolio is still alive and move that money into real money - gold and silver.  Avete oro?

PIIG Syndrome Comes To The U.S.: Time To Dump Your Munis

It was only a matter of time.  The PIIG disease has come to this country, infecting the States and municipalities with huge budget defiicts and impossible public employee benefit and pension plans.  Check this out - this is Pimpco's general Municipal Income Fund, with the top 5 State positions noted:

This thing has lost 15.3% since its peak in early September - less than 2 months.  I'd say that fund has trichinosis. If you happen to have a decent portion of your wealth tied up in muni paper, lose sleep assurred that many individual munical issues have lost a lot more, given that the above atrocity is a highly diversified fund, which "shelters" the fund from the ravages of any one individual municipal issuer's disaster.

I got the idea for this post from an article in Saturday's NY Times, which I happened to peruse during my long weekend in La Cittá.  Some imbecile from McDonnell Investment Management tried to explain away the performance of the muni market by "explaining" that the cliff-dive was concentrated among bonds with longer maturities and lower credit ratings.  You can read the NY Times article HERE.

To be sure, longer-dated issues in the muni market have fared worse than their shorter-duration brethren.  But that's a function of duration and correlation with the overall bond market - NOT with credit risk.  As the graph above of a highly divesified muni surrogate illustrates, the PIIG disease is one largely of credit risk, not reinvestment risk. 

The fact of the matter is that wealthy investors - the ones typical of those who invest in munis - piled into the muni market in the insatiable quest of tax benefits.  In other words, a "bubble" developed in the muni market in which prices were driven inexorably higher (and tax-equivalent yields were driven lower) in a frenzy of too much cash chasing after-tax returns and income.  THAT is a bubble.

Please be advised that this is a catastrophe developing that you want to avoid.  At least when a sovereign entity loses its ability to make payments from revenues (i.e. the U.S. Government or an EU satellite country), the sovereign entity can print money to make sure bond payments can be fulfilled.  Not the same with municipal bond issuers.  At this stage in the game, many States are borrowing the money from other sources for now to make payments.  But, as the chart above shows, the perceived risk of default is starting to soar.  As States and municipalities face much higher yields in order to attract yield-hog investors, your existing muni bond portfolio will get crushed.

We all know - that is, "we" who are willingly looking at the reality of the situation - the variables which are strangling the cash flow and budgets of States and municipalities are only going to get worse - a lot worse - as the underlying factors which are squeezing States deteriorate.  And muni paper is typically secured only by the ability of the issuer to fund repayment out of revenues derived from some form of taxation.  As that source of revenue dissipates, so does the value of your muni bond.

If you truly believe that the economy is getting better, then have fun riding your muni bonds into the ground.  But just like the PIIGS, this situation is going to exacerbate. 

Fortunately, there is a solution.  Got gold?

Wednesday, November 10, 2010

Additional Thoughts: Look Out Below...Plus, Are Asian Silver Traders Taking On JP Morgan?

Housing - Zillow was out with a report today in which - well, I'll let the headline from the Housing Wire speak for itself:
Home price depreciation to worsen market into 2011

Zillow's catalyst for this is higher foreclosure liquidations based on current delinquencies and the high degree negative equity embedded across home ownership. They forecast a price bottom in mid-2011.  I will beg humbly to differ. They do not mention rising unemployment or higher interest rates. Throw that into the mix and I would argue that another big, long leg down is getting ready to commence. Here's the link to The Housing Wire's report on the Zillow report:  Look out below.

Interest Rates - Today's 30yr Treasury auction was very ugly.  It required an over 50% takedown by the Wall Street banks (Primary Dealers) to get it done and it printed outside of the expected yield range.  It looks like a couple western CB's also helped get the deal over the finish line.  This ties into housing because it is going to require increasingly higher interest rates in order for the rest of the world to choke down our Government's insatiable spending appetite.  Unless of course the Fed continues monetizing...

Inflation - In conjunction with a couple of my posts on inflation over the past week or two, this one doesn't need much elaboration.  From today's Financial Times: 

Food price fears as US warns on crop yields

You can read the whole article HERE.  It may require a free registration.  Here's the salient quote:
The agriculture department on Tuesday cut estimates of US corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925. “The combined production shortfalls and dramatic potential stock drawdowns mean a much tighter supply picture than just a few months ago,” the agency said in a separate grains report.
Bottom line:  it will cost a lot more to feed your family this winter...

Is the BIG silver squeeze finally on? 

“Of course they are. $30 is just going to be a small pause along the way to much higher prices.”
Since 2002, I've been wondering when deep pockets would start taking on the massively illegal paper Comex/LBMA shorts in silver.  Apparently that squeeze is being implemented by a group of Asian traders operating out of London.  If you have not read this blog entry from Eric King's King World News, go grab yourself a cocktail and get ready to let this information grip your imagination.  Here's the LINK.

It would appear that this group of traders are not just using futures to fight the big banks who are short silver, they are backing it up with massive purchases of physical silver.  I've always thought that this occur when the big accumulators of physical gold and silver could no longer buy what they want at these artifiicially low and highly manipulated price levels.  That is, when a big perceived imbalance develops between demand and supply. The initiation of a paper squeeze would be designed to take the market up to a price level which would induce profit-taking sellers of large quantities.  It will be interesting to see how the price goes before large scale selling emerges.  It will likey be significantly higher than where the price is today. 

This afternoon we reloaded a lot of stock positions that we had liquidated on yesterday morning's bounce. If this intel is bona fide - and my gut instinct plus 9 years of experiencing in investing/researching/trading exclusively this sector tells me this is good information - then this move in silver is just beginning and the silver stocks - especially the juniors - will spike up to trading levels that will make Dennis Gartman pass out with shame.

I'm off to NYC tomorrow for a long weekend.  If you leave a comment after mid-day tomorrow, it likely won't get posted until Sunday evening. 

Tuesday, November 9, 2010

Tuesday Ramblings...

(Editorial update:  I wrote this last night.  This morning the Sept trade deficit was released and showed a slight decline from consensus expectation and a slight decline from September.  The source of the decline was mostly the value of imported non-petroleum goods.  The message?  The U.S. consumer is gasping for air)

It felt naked to not post something today, especially since I was a slackard about posting yesterday. I spent most of the trading day doing a lot of portfolio "repositioning" and flow trading/scalping. And Thursday I'm going to NYC for a long weekend so I won't be posting anything probably until Sunday night or Monday. So here's a flimsy brain-dump that I hope is somewhat value-added...

I've noticed that there is a lot of "noise" coming from Wall Street, the media and even David Rosenberg about "no double dip" and "a strengthening economy."  I'm not really sure what kind of hallucinogens these people are ingesting before they look at the evidence.

One strategist who supposedly had called the current recession/depression - which is supposedly no longer a recession - said that he expects an economic bounce based on data that shows bank lending to small businesses is no longer contracting. Of course, it's not expanding but why argue over minor complications like that? After all, his firm High Frequency Economics, has to keep their investors invested or they don't earn fees.  The fact of the matter is that the consumer is still largely dead (there is a very small bounce in the retail sales numbers ONLY if you look at the current data compared to the hideously low comparable numbers from a year ago).  Given the destitute consumer, can anyone think of a business to which they would lend money, except maybe precious metals dealers?

I'm not sure why Rosenberg has changed his mind. I just saw the headline and I wasn't interested in his view. I'm sure there was some pressure from his partners because his bearish tone was scaring off fee-paying clients.

The fact of the matter is that the jobs report last Friday was very ugly, once you looked at the actual BLS statistics and read the full press release rather than relying on the headline number plus some CNBC b.s. The worst element of the jobs report was that the labor force, defined as those working plus those actively looking for a job, contracted to a 25 year low. So of course the unemployment rate (those working divided by the defined work force) held below 10%. But what if you added back all of the people who have given up looking? What if you did some kind of "hedonic" adjustment to account for the part-timers who want to be full-timers? The real unemployment rate is easily in the high teens and creeping higher every month.

How about that factoid that came out yesterday which disclosed that California is borrowing $40 million per day in order to fund unemployment insurance? Talk about a massive transfer of wealth from everyone in the 49 other States to the the state of California. It's horrifying and the wealth transfer effect is one which sucks economic lifeblood from everyone.

Another statistic which hit the news blogs today showed that home prices, measured using a much more comprehensive data pool than Case-Schiller or the National Association of Realtors, started falling again in October. This isn't hard to believe as the "reverberations" from the home-buyer tax credit fade, foreclosure inventories rise (FNM/FRE both announced much higher REO inventories and forecast more weakness for the housing market) and interest rates on the longer end of the Treasury curve climb.

Maybe these economic bulls want to believe that the lower dollar will stimulate exports and curtail imports, thereby creating some kind of "positive" feedback cycle which will create domestic business expansion. Unfortunately that idea is not supported by the trade deficit trend, which has been climbing again despite a weak economy and tanking dollar. That fact of the matter is that it will take a much lower dollar in order to enable the "J-curve" effect to trigger.

Quite frankly I see continued economic and social decay, a lot more downside in housing values and inflation beginning to accelerate. The imported goods upon which our whole country rely will soon climb sharply in price. Ditto for the price of gasoline at the pump. In fact, I would argue that the steepening yield curve (the yield on the 30 yr. Treasury has blown out over 75 basis points in the last couple of months) reflects the market's expectation of accelerating inflation AND the risk of a lot more QE/dollar devaluation. This too is not good for housing.

Of course, we can always hope my view is wrong...

Saturday, November 6, 2010

Atlas Shrugs - Again

This commentary by John Browne from Peter Shiff's firm is an excellent summary of what happened last with the Fed.  I love this comment: " Chairman Ben Bernanke's unusual (and clumsy) Washington Post op-ed follow up ," because it's a lot more diplomatic than my reaction to Bernanke's WashPo op-ed on Thurs - which I called "retarded."

The reason I am bringing this piece to your attention is because it not only efficiently describes the failure already embedded in the Fed's actions, but it also subtly describes the state of existence as portrayed in "Atlas Shrugged."  The fate of our country is unfolding on a startling parallel path as decribed in Rand's epic treatise:
What the Fed is doing, essentially, is forcing consumers to spend their cash hoardings. Until the economic and financial policies of the government change dramatically, those who are tempted to invest their savings within the United States risk increasing regime uncertainty. So, much of our domestic capital is flowing into hard assets and overseas markets...This will do nothing to help the festering wounds underlying the US economy.
I recommend reading Browne's commentary, linked HERE.  And then go out and buy as much gold and silver as you can in order to get your paper wealth away from the criminals who are running our country.

Friday, November 5, 2010

How Far Can The Current Move In Gold Run?

I have stopped putting out price targets and timeframes for the precious metals.  What I tell anyone who asks is that I don't know where the price will be next week or next month, but I will guarantee you that the price two years from now will be significantly higher than where it is now.

I wanted to highlight a commentary posted on Zerohedge by J.S. Kim.  He addresses the growing awareness and understanding globally by investors of Anglo-European Central Bank gold price suppression.  The growing permeation of this knowledge is enabling the price-action in gold/silver right now to behave a bit diffently than during periods of extreme intervention over the past 10 years: 
Now that the price suppression schemes against gold and silver are gaining mainstream recognition around the world, I believe that the type of frothy price action we have just witnessed in the PM markets since Mr. Chilton’s announcement will serve as a sneak peak into the massive leaps higher in gold/silver prices in the years to come as the criminal banking cartel loses its grip over gold/silver prices.
I think we all pretty much get this.  What I wanted to really highlight was a comment he makes concerning whether or not the metals are technically overbought.  Quite frankly, measurements of overbought/oversold technical conditions are simply derived from psuedo-fancy statistical formulations, all of which pretty much calculate some kind of average and then measure the deviation of the current price/volumn/etc action from the mean metric calculated.

We all get that too.  But Kim asserts a concept to which I have given a lot of thought in the past, have discussed at length with colleagues and of which I believe is the case underlying the price-action in the metals today.  This idea is that, given that CB's have been massively suppressing the price of gold/silver for at least the better part of two decades (and likely a lot longer), it is likely that there is some kind of calculus which could be derived which would show that gold/silver are massively "oversold" in the context of the the last two decades.  To be sure, just using an inflation-adjusted measurement for the price of gold now vs its peak in 1980 would support this thesis.  There are plenty of other relative valuation metrics which yield the same result.  Here is Kim's quote:  
While is true that gold/silver are heavily overbought now and PM stocks are either in heavily overbought territory or rapidly approaching heavily overbought territory, during strong runs in past gold/silver bulls, the underlying metal prices and stock prices have remained in overbought territory for months on end. This alone is not a reason for a correction as Central Bankers have been fighting the fundamental weaknesses in their fraudulent global monetary system daily for quite some time now. When bankers legalize fraud through the legislation they sponsor/endorse, technical analysis is insufficient to ascertain the short-term direction of not only stock markets but also gold/silver markets. One must understand the history of Central Banker engineered attacks and price suppression schemes against gold and silver to estimate the probabilities of short-term corrections in addition to the use of technical analysis.
Essentially that comment supports my thesis by discussing the fact that long term Central Bank price suppression and paper bullion fraud schemes have distorted the true market dynamics of the bullion market AND that the growing awareness of this fact by global players might cause the gold/silver market to behave differently from a technical standpoint than it has over the duration of this bull market to date.

Ultimately it can be argued that, for the past 2 decades at least, the manipulation and artificial price suppression of gold/silver have rendered the metals extremely oversold in the context of a longer timeframes.  Accordingly, at some point, I have always suspected that we would eventually go through an extended period of time in which the metals appear to be overbought on dailies and weeklies and monthlies.  But what about decades? 

The Kim commentary, linked HERE, essentially makes the same argument and it's the first time I've really seen this idea given a full public viewing.  The other aspect to consider is that, while the manipulated "oversold" condition festered over decades, it is quite likely that this "oversold" condition will be corrected in a much shorter timeframe.  Could this be what is occuring now?  We'll know when we know...

Thursday, November 4, 2010

Quote Of The Month (So Far)

Bill Murphy in tonight's Midas at http://www.lemetropolecafe.com/:.
Something is going to have to give big time down the road re deflation/inflation in the US, and it is not going to be the precious metals … meaning either gold/silver are telling the real story or bonds are … and it’s not bonds 

Wednesday, November 3, 2010

On A Clear Day You Can See Inflation

Food Sellers Grit Teeth, Raise Prices

That's the headline from a Wall Street Journal article posted online tonight that you can read HERE Funny how the deflationistas conveniently overlook the issue of rapidly rising food prices when they spew out their reckless views.  They also ignore the following (click on the charts to enlarge):

Sugar up 114% since June

Corn up 79% since June

Wheat up 54% since June

A perusal of several other neccesitous consumption items like oil and healthcare insurance will reveal similar stories.  And with the significantly weaker dollar, get used to paying more for your basket of general imported goods at Walmart going forward.

Aside from the price behavior of gold and silver, there are plenty of other overt indicators which reflect a growing market perception of higher inflation ahead.  Today, for instance, the long bond experienced a 3-point price reversal to the downside from this morning after the QE announcement.  The yield on the long bond shot up to 4.07%. It was around 3.90% just a couple of days ago and was approaching 3.5% a few months ago.  The long end of the yield curve typically reflects market expectations of both sovereign U.S. credit risk and inflation risk.  Since it is now apparent to all that the Fed is willing to print enough money to prevent a U.S. Govt bond default, we have to assume that the higher yields on the long end of the Treasury curve are starting to reflect inflation expectations.

The other rediculous deflationista argument is based on the absurd idea that there is some sort of debt contraction going on in the U.S. financial system.  That is just plain wrong.  For sure the level of private debt has declined somewhat.  However this debt has been "shifted" from the private sector balance sheets to the Fed and the Taxpayer. In fact, the overall gross level of debt in our system is rapidly expanding.  As of the end of this month, the Fed will supplant China as the largest holder of U.S. Treasury debt.  In addition, the outstanding Treasury debt is increasing at nearly a geometric rate.  In fact, by the last estimate I saw, the U.S. Treasury debt will exceed $14 trillion by March.  By then the amount of outstanding Federal Debt explicitly reported (there is at least another $7-10 trillion "off balance sheet") will have increased 55% in the first 26 months of Obama's Presidency:

(click on chart to enlarge)

It's going to start to get ugly.  Please read this quick interview of Jim Sinclair posted today by King World News, which explains why gold/silver is the only way you can protect yourself from what is unfolding in this country: 
We are in unchartered waters with business folding over.  We don’t know what the name will be for this.  One thing we do know is it’s not dollar positive and that the only insurance out there that would react positively to things we can’t control such as Fed decisions is gold
Here's the link: Got Gold? The next time you run across some cybergarbage analysis of why we are entering into a deflationary death spiral, you only have yourself to blame if you decide to waste brain cells reading it...

Tuesday, November 2, 2010

The PIIGS Are Squealing And Yet The Dollar Is Still Tanking Today...

The spread between Ireland's bonds and German bonds is blowing out again today.  I believe the bonds of Greece and Spain widened considerably yesterday.  A good chart of today's action can be found HERE (this is a decent site to keep track of FX news during the day, by the way).

Given the above, we would have expected the US dollar to firm up today, right?  Here's a 5-minute chart of the overnight action in the USDX:

(click on chart to enlarge)

As you can see, the dollar has been in "el-cliffo" mode ever since London opened and HK was winding down.  Since I've been awake today, the dollar inexplicably dropped another 400 basis points, from 77.08 to as low as 76.68. 

Not sure exactly what is occurring (yes, I know the euro broke thru 140 resistance, but this is not supported by the action in PIIGS bonds).  Given that the last time around when PIIGS paper blew out into a full-blown EU "crisis," and the dollar's response was a big rally, the action today suggests something is also "brewing" behind the scenes in the U.S.

Not good but we will know when we know what is going on...

Monday, November 1, 2010

The Truth Will Set Warren Free

By now everyone knows that Warren Buffet stated a couple weeks ago that he would recommend avoiding gold and buying stocks.  Here's why:

See the problem?   "Hat tip" to my colleague Hal for this chart.  As you can see, Buffet's primary wealth vehicle (that we know of) has substantially underperformed gold for the past 10 years.

To have a great understanding of why gold/silver will start to accelerate in price vs. everything, please read the latest posting from Jim Willie:  LINK  This essay does an epic job of explaining why the U.S. banking/financial system is on a catastropic precipice and what to watch for in terms of the impending massive monetization that is about to be implemented by the Fed/U.S. Government.

JW explains the Fannie Mae will be used as the vehicle to monetize the mortgage fraud.  For the record myself, along with a couple long-time colleagues, have been predicting that this would occur since 2002.

Ambac Bond Default

Anyone besides me find it fascinating that the market is ignoring the Ambac bond default announcement? This could have significant ramifications in the financial derivatives and fixed income structured finance markets. Problems with Ambac and MBIA helped precipitate the first leg of the U.S. financial nuclear meltdown back in 2008. Ambac/AIG/MBIA et al were quickly "papered over" by the Fed and the U.S. Taxpayer. It was merely kicking the can down the road. The can in the road is now back in sight and it's named "Ambac."

This morning Ambac announced that it would not make the interest payment on some of its bonds today.  It also announced that if it can not agree to a pre-pack restructuring, that it will file Chapter 11.  Here's the press release:  LINK

This is not good.  Ambac provides credit default insurance to the structured finance markets.  We know a large portion of this is riddled with extreme fraud.  Ambac has payment liabilities to the extent that investors experience losses on their structured finance investments. 
All these transactions are entangled with derivatives.  From the above link:  Hedge funds that say they own more than $1 billion of residential mortgage debt insured by Ambac Assurance are suing Ambac to prevent it from siphoning assets from that unit.
Ambac also provides credit insurance to the municipal bond industry.  This situation with Ambac could well cause big problems with Ambac's ability to fulfill, not only its structured finance obligations, but its municipal bond market obligations as well.  From the same article:  Fabian said Ambac can "at least for now" still cover most claims in the municipal market, but may have trouble in the longer term.

A Chapter 11 filing will create complete legal and financial chaos that will ripple throughout the market. It will hammer the housing market again.  Possibly the proverbial "straw/camel's back"  that we all know is coming.   I would pay close attention to this Ambac development.  I have said for quite some time now that anyone who has a lot of their wealth tied up on muni paper is taking on a massive amount of risk that is impossible assess. 

This stiuation will hasten the capital flow out of paper and into gold/silver/mining stocks.

Silver Squeeze Coming?

Take this intel any way you want to take it, I'm just passing on the information.  This is from the highly recommended daily reading of the King World News blog: 
A King World News contact out of London has confirmed that, “Massive Asian buying is going to squeeze the shorts in the silver market. Any reactions in the price of silver will be heavily purchased, and these buyers will take delivery of physical silver.” The source who wishes to remain anonymous agreed with Eric Sprott that this squeeze could take the price of silver to $50 in a matter of months.
Here is the link - I recommend bookmarking this site:  LINK

My take:  I have been wondering for the better part of 9 years when a big fund/funds/foreign central bank might take a shot at squeezing the living hell out of JP Morgan's absurd paper silver short and the U.S. Governement's absurd short position in gold (via leasing and its "fractional" bullion system - see Rome for verification that the "fractional" method of bulliion ownership/lending has been in place for thousands of years).

Is the Big Squeeze finally coming.  All I can say is that we'll know when when we know and that I would not want to be short any part of the precious metals market when the Big Squeeze arrives.