Thursday, April 28, 2011
Quote Of The Month - From James Turk
The dollar is in trouble and the Federal Reserve has its head buried in the sand. Washington's politicians are spending money they don't have and the federal government's credit rating is being called into question, I could go on, but you get the point. We're at an historic moment. Years from now we will look back and point to 2011 as the moment in time when the flight out of the US dollar accelerated leading to its eventual collapse. A simple and safe way KWN readers can prepare for this catastrophe is to own physical gold and physical silver. LINK
To QE3 Or Not To QE3 and Mining Stocks vs. Gold
I have been arguing - since it became "in vogue" to believe that the Fed is done printing money on June 30th - that the Fed would indeed continue printing, in some form or another. To me, the most revealing comment in yesterday's FOMC statement was this:
Then we get today's economic evidence: Q1 GDP estimate was well below the consensus Wall Street Einstein forecast and is showing quick deceleration in the Fed/Obama stimulus-fueled small "hop" in economic growth AND jobless claims on a weekly basis are trending higher again. Also, despite the Goverment-manipulated jobs reports showing a declining unemployment rate, we know for a fact that buried in that same report is a continued decline in the size of the labor force, because people have given up looking. I know of several in that category.
And then we get this little "gem" from Walmart's CEO (Money magazine, sourced from zerohedge.com):
And then there's this, sourced from clusterstock.com: a Gallup Poll shows that 55% of Americans believe the economy is in a recession or depression, vs 27% who think the economy is growing. I can guarantee you that a good portion of that 27% likely work for the Government in some capacity and their paychecks are funded with prining press economics, not REAL economics. Here's the LINK
Bottom line for me is that all the evidence, including words from the FOMC policy statement released yesterday, point toward a reality that shows either the Fed continues to print money and expand its balance sheet or the Government loses a substantial source of funding and the economy collapses. Got gold?
Speaking of gold, for all of those pulling their hair out over a perceived underperformance in the mining shares vs. the performance of gold/silver, please take a look at this chart which shows the performance of the HUI index (15 unhedged large-cap mining stocks) vs. gold for the last 2 years. This chart shows us that since last February, the trend has been that mining stocks are indeed outperforming the metal:
[The Fed]...is prepared to adjust those holdings as needed to best foster maximum employment and price stabilityI don't know about anyone else, but I think it would be a mistake to read "adjust" to mean that the Fed would "reduce" its portfolio. To begin with, we know that Bernanke, and Vice Chairman Yellen, has stated repeatedly and explicitly that the Fed's number 1 goal is employment growth. NY Fed Chair Dudley has said that even growth of 300,000 jobs per month is not enough to pick up the slack.
Then we get today's economic evidence: Q1 GDP estimate was well below the consensus Wall Street Einstein forecast and is showing quick deceleration in the Fed/Obama stimulus-fueled small "hop" in economic growth AND jobless claims on a weekly basis are trending higher again. Also, despite the Goverment-manipulated jobs reports showing a declining unemployment rate, we know for a fact that buried in that same report is a continued decline in the size of the labor force, because people have given up looking. I know of several in that category.
And then we get this little "gem" from Walmart's CEO (Money magazine, sourced from zerohedge.com):
Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday...they're "running out of money" at a faster clip, he said. "Purchases are really dropping off by the end of the month even more than last year," Duke said. "This end-of-month [purchases] cycle is growing to be a concern.Here's the article: LINK Who are you going to believe when you read what's being said about the economy? The Government people who sponge off the taxpayers or a private-sector businessman who gets paid based on how well the economy is really doing? I know my answer. Also, if you parse thru the GDP report released today, you see the consumer fueled most of the 1.8% estimated growth. This is very problematic because I can guarantee you that non-food/energy consumer consumption will be largely wiped out by $4/gallon gas. The Government will have to spend more money to pick up that loss and that will mean even larger deficits that have to financed with money printing from the Fed.
And then there's this, sourced from clusterstock.com: a Gallup Poll shows that 55% of Americans believe the economy is in a recession or depression, vs 27% who think the economy is growing. I can guarantee you that a good portion of that 27% likely work for the Government in some capacity and their paychecks are funded with prining press economics, not REAL economics. Here's the LINK
Bottom line for me is that all the evidence, including words from the FOMC policy statement released yesterday, point toward a reality that shows either the Fed continues to print money and expand its balance sheet or the Government loses a substantial source of funding and the economy collapses. Got gold?
Speaking of gold, for all of those pulling their hair out over a perceived underperformance in the mining shares vs. the performance of gold/silver, please take a look at this chart which shows the performance of the HUI index (15 unhedged large-cap mining stocks) vs. gold for the last 2 years. This chart shows us that since last February, the trend has been that mining stocks are indeed outperforming the metal:
This chart also suggests that the mining shares have a LOT of room to move higher relative to gold, and I do expect the mining stocks in general to start making some big - albeit volatile - moves higher soon.
Wednesday, April 27, 2011
Let's Talk About A REAL Bubble: AMZN
I love this quote from the Amazon.com CEO in the Company's press release that accompanied the earnings report: “We love inventing on behalf of customers and have never been more excited about the long-term opportunities.”
He's probably thinking to himself also: "We love inventing earnings reports on behalf of investors and have never been more excited about the opportunities for this enabled by GAAP and our Government."
It boggles my mind that the only investment "bubble" that the financial media sees right now is gold and silver. I'm bored of explaining to people why gold is not even remotely in a bubble. So let's look at what a real investment bubble looks like.
AMZN's total market cap is $90.4 billion. Now, AMZN announced that its latest operating income was $322 million vs. $394 million in Q1 2010. That's an 18% decline. Based the latest trailing 12 month cash flow just over $3 billion, AMZN is trading at 30x cash flow. When a normal company trades at anything over 5x cash flow, you expect that to be because you expect a very high rate of cash flow growth. BUT, AMZN's operating income, the largest component of cash flow, dropped 18%. Think the market is being insane about the prospects for AMZN's growth?
AMZN also announced that the operating income for next quarter would be between $94 million and $245 million. This is an incredibly wide variance in guidance and it blows my mind that the market has tacked on over $3 billion in market cap to AMZN for a company that can't project its cash flow expecation for Q2, which already 33% over! This is insane. Let's give Bezos the benefit of assuming Q2 operating income will come in at the midpoint of $170 million and annualize that number, which is generous considering that operating income is now declining at double digits. This yields a forward operating income projection of $680 million. The stock thus trades at 132x operating income! THAT MY FRIENDS IS A BUBBLE.
Please note, we're not even talking about net income and p/e ratios here. Amazon's accounting is so obsfuscated by GAAP exploitation that I would more likely believe in the Easter bunny than I would Amazon's reported numbers.
So what's the deal? I used to track and untangle Amazon's accounting pretty closely up until about 8 years ago. I fatigued waiting for the SEC and NASD to crack down on AMZN's accounting shenanigans. Of course the employees in those two organizations spend more time surfing porn than they do enforcing the law. The basic "crux" of Amazon's accounting exploitations has to do with how they account for fulfillment, marketing and shipping expenses. These are major major expenses for Amazon. Now, I don't have time to dissect its last 10K today, but I assume that they are still doing the same thing they were doing 8 years ago, especially since the source of their operating income cliff dive will be from these expenses.
In a nutshell, Amazon "buys" revenues by spending a massive amount on the process of getting you to buy from them. This includes subsidizing the price you pay by charging less than competitors and offering huge shipping deals, often extending free shipping. To be sure, they have negotiated favorable shipping deals with the big shippers. HOWEVER, they do not recognize the costs involved in all of this as they incur them, choosing instead to "capitalize" the majority of these costs. It's a "cost accounting" manipulation that is far too complicated for the regulators to understand. I don't have to go thru the footnotes of their financials because all I had to do was read their press release to know they still do this. Feel free to see what I mean HERE In the 7th paragraph they detail the nature of what I call their ramped up "revenue buying" programs.
The fact of the matter is that Amazon is one big ponzi scheme and as long as they can continue growing revenues, even at the expense of reporting declining operating income and cash flow, and as long as the stock market keeps inflating the AMZN bubble, then this scheme will continue. But believe me, the fact that their revenues are still growing at double digits AND their operating income is plummeting by double digits, tells me that they are getting a lot more desperate and aggressive at "buying" revenues.
Eventually this will come to an unhappy ending for everyone except the CEO Jeff Bezos, who sells millions of shares every quarter. I would too if I were him. In the meantime, I often buy from Amazon because it is convenient and, if they want to subsized the cost of getting a product to my house, it is a lot cheaper in terms of what I pay plus the time involved and I love a "free lunch."
The bottom line for me is that I know that if I had time I could show you how Amazon likely loses money every quarter on a net income basis. I focus on operating income and cash flow because those are the numbers AMZN highlights in its press release. This harkens back to the tech bubble days when "pro forma" accounting was inserted in the financial media in place of true GAAP accounting. Now all tech companies use "pro forma" accounting and the stock market is conditioned to use it too. But even the operating income numbers they report are manipulated and dirty. If anyone is interested, the footnotes in the last 10K will give you the keys to backing into somewhat real numbers. But we would need to see the inside books to see the golden truth.
He's probably thinking to himself also: "We love inventing earnings reports on behalf of investors and have never been more excited about the opportunities for this enabled by GAAP and our Government."
It boggles my mind that the only investment "bubble" that the financial media sees right now is gold and silver. I'm bored of explaining to people why gold is not even remotely in a bubble. So let's look at what a real investment bubble looks like.
AMZN's total market cap is $90.4 billion. Now, AMZN announced that its latest operating income was $322 million vs. $394 million in Q1 2010. That's an 18% decline. Based the latest trailing 12 month cash flow just over $3 billion, AMZN is trading at 30x cash flow. When a normal company trades at anything over 5x cash flow, you expect that to be because you expect a very high rate of cash flow growth. BUT, AMZN's operating income, the largest component of cash flow, dropped 18%. Think the market is being insane about the prospects for AMZN's growth?
AMZN also announced that the operating income for next quarter would be between $94 million and $245 million. This is an incredibly wide variance in guidance and it blows my mind that the market has tacked on over $3 billion in market cap to AMZN for a company that can't project its cash flow expecation for Q2, which already 33% over! This is insane. Let's give Bezos the benefit of assuming Q2 operating income will come in at the midpoint of $170 million and annualize that number, which is generous considering that operating income is now declining at double digits. This yields a forward operating income projection of $680 million. The stock thus trades at 132x operating income! THAT MY FRIENDS IS A BUBBLE.
Please note, we're not even talking about net income and p/e ratios here. Amazon's accounting is so obsfuscated by GAAP exploitation that I would more likely believe in the Easter bunny than I would Amazon's reported numbers.
So what's the deal? I used to track and untangle Amazon's accounting pretty closely up until about 8 years ago. I fatigued waiting for the SEC and NASD to crack down on AMZN's accounting shenanigans. Of course the employees in those two organizations spend more time surfing porn than they do enforcing the law. The basic "crux" of Amazon's accounting exploitations has to do with how they account for fulfillment, marketing and shipping expenses. These are major major expenses for Amazon. Now, I don't have time to dissect its last 10K today, but I assume that they are still doing the same thing they were doing 8 years ago, especially since the source of their operating income cliff dive will be from these expenses.
In a nutshell, Amazon "buys" revenues by spending a massive amount on the process of getting you to buy from them. This includes subsidizing the price you pay by charging less than competitors and offering huge shipping deals, often extending free shipping. To be sure, they have negotiated favorable shipping deals with the big shippers. HOWEVER, they do not recognize the costs involved in all of this as they incur them, choosing instead to "capitalize" the majority of these costs. It's a "cost accounting" manipulation that is far too complicated for the regulators to understand. I don't have to go thru the footnotes of their financials because all I had to do was read their press release to know they still do this. Feel free to see what I mean HERE In the 7th paragraph they detail the nature of what I call their ramped up "revenue buying" programs.
The fact of the matter is that Amazon is one big ponzi scheme and as long as they can continue growing revenues, even at the expense of reporting declining operating income and cash flow, and as long as the stock market keeps inflating the AMZN bubble, then this scheme will continue. But believe me, the fact that their revenues are still growing at double digits AND their operating income is plummeting by double digits, tells me that they are getting a lot more desperate and aggressive at "buying" revenues.
Eventually this will come to an unhappy ending for everyone except the CEO Jeff Bezos, who sells millions of shares every quarter. I would too if I were him. In the meantime, I often buy from Amazon because it is convenient and, if they want to subsized the cost of getting a product to my house, it is a lot cheaper in terms of what I pay plus the time involved and I love a "free lunch."
The bottom line for me is that I know that if I had time I could show you how Amazon likely loses money every quarter on a net income basis. I focus on operating income and cash flow because those are the numbers AMZN highlights in its press release. This harkens back to the tech bubble days when "pro forma" accounting was inserted in the financial media in place of true GAAP accounting. Now all tech companies use "pro forma" accounting and the stock market is conditioned to use it too. But even the operating income numbers they report are manipulated and dirty. If anyone is interested, the footnotes in the last 10K will give you the keys to backing into somewhat real numbers. But we would need to see the inside books to see the golden truth.
Tuesday, April 26, 2011
Un Po' di Questo e Un Po' di Quello (A little of this and a litte of that)
I was chatting with a colleague this morning and reminiscing back to 2002, when I stated to whomever could tolerate listening to me that I believed that the powers-that-be would hold the system to together until they had thoroughly cleaned out all of the middle class wealth. For the record, I'm defining middle class here as anyone who doesn't have enough liquid wealth to buy at least one tenured Congressman or Senator. At the time, the vultures had finished collecting their winnings from taking the other side of the tech bubble (by selling IPOs and selling stockholdings in stocks like CSCO and MSFT after massive stock price inflation based on fraudulent accounting) and were getting ready to create the housing bubble. Obviously this has been one unbelievably massive transfer of wealth from most of America to the priveledged few who build homes or financed the fraudulent escalation in housing prices (i.e Wall Street and bank executives). What's left? Well, large public and private pensions/401-k's are likely at least 50% underfunded after enormous losses from failed real estate, mortgage security and stock market losses. Now that all these genius fund mangers have moved mostly into Treasuries and are starting to venture back into the cyanide-laced waters of asset-backed securities, I'm sure the next financial/dollar crisis will incinerate most of the rest of your retirement money. One big massive transfer of paper wealth from you to those who run the system. Why do I bring this up?
On Saturday I saw this news item on Bloomberg news about a judge who had dismissed a lawsuit against Bank of America which was connected to massive losses suffered by the Maine State Retirement System from investing in Countrywide toxic garbage. Here's the LINK At first I was irritated and assumed foul-play. But in dissecting the details of the case with my father, a retired attorney, I realized that this was a frivolous suit devised by the plaintiff's attorney to generate massive legal fees. The plaintiff was arguing that the deal was a "de facto" merger rather than a bona fide "asset purchase." The difference being that legacy liability would be transferred to B of A in a merger vs. the liability being limited to just the wholly purchased subsidiary in an asset purchase. Now let me ask this question: does anyone out there think that Hank Paulson and Ben Bernanke - the architects of this transaction - would be careless enough to leave any doubt as to whether this deal was structured as anything other than an "asset purchase?" There were plenty of skilled legal eyeballs going over the nuts and bolts of this transfaction on behalf of those two plus BofA and Countrywide. Not surprisingly, the judge ruled that plaintiff failed to prove its case. To me, this part of the lawsuit was nothing more than a greedy lawyer throwing straws in the wind and raping the State of Main retirement fund for millions in frivolous legal fees. Perhaps there are aspects of the entire lawsuit that have merit, but this did not.
To be sure, there are many aspects of this deal that should be investigated and the culprits should be prosecuted and sent to jail. That would include Angelo Mozillo, former Countrywide CEO who is living happily on $100's of millions of fraudulently derived wealth after getting a small "wrist-slap" fine, the former CEO of B of A, and of course, Bernanke, Paulson, Geithner, et al. BUT WHAT ABOUT THE MORONS RUNNING MAINE'S PUBLIC PENSION FUND? I could have told any fund manager who bothered to ask me back in 2002 that the mortgage market was going to blow up. Hell I received a no-income verification mortgage from Wash Mutual in 2000! LOL. It was all about the underlying assets - housing - which blew up into a bubble far larger than myself or any of my colleagues at the time thought was possible. But, as a supposedly well-educated/accoladed invesment advisor, you would have to be a complete idiot not to see what was going on, let alone invest money that's not your's in the absolute garbage that Countrywide was underwriting. So much for the so-called "institutional" experts running the rest of your retirement money.
What I would really like to see is an investigation into the travel and entertainment itineraries of the managers running the big State pension funds and how much of their decision-making was influenced by the "side benefits" thrown at them by Wall Street. I was on the "throwing" side of that party for 9 years and witnessed the incredible magic of the expense account, which included influencing the rating agencies as well. My point is that it takes two to tango and the idiots buying the nuclear waste being sold by Wall Street need to be held just as accountable as the thieves selling it.
Un po' di piu su alloggi (a little more on housing). The Case-Shiller index of home prices released today showed another 1.1% decline in housing prices for February. This is the seventh straight monthly decline. It's funny because if it were a 1.1% increase, I'm sure the headines would advertise the annualized rate, which would be 12.7%, rather than the month to month 1.1%. Remember that this is a broad "swathe" of prices from 20 major metro areas and the data massaging skews away from "distressed" sales, so you will likely find this price decline estimation to be low if you decide to list your house thinking that you can list at the same price you could have listed it for in January...on to Berlin...even more amusing was that the "Conference Board" consumer confidence index showed an increase for April. But the headline for this followed the headlines for the housing price decline and the damage being inflicted to the consumer by high gasoline prices. The Conference Board "is a global, independent business membership and research association working in the public interest." LOL. I don't think I need to elaborate on the reliability of that metric...
"Fleeing the Dollar Flood" - I would recommend taking the time to read this article from last week's Wall Street Journal. Here's the LINK (if you get something that requests subscription registration, type the article headline into google and click on the similar article link that comes up and you should get the whole article). Despite "strong dollar" rhetoric coming from the mentally challenged Tim Geithner (someone must set this guy up to look stupid: LINK LOL), the only course of action open to the Fed and the Government - and really to everyone - is for the continued debasement of the dollar as a mechanism to keep the system alive. You can protect yourself from this by moving as much as you can into gold and silver. Don't worry about the price relative to where it was 10 years ago. This game has a long way to go despite signs emerging that China is getting ready to pull the plug. All I can say is one day those of you content with millions in the bank in dollars will wake up one day to discover that your millions of dollars have no value to anyone looking to exchange goods and services in kind. Don't believe me? Just ask anyone who might still be around from Germany in November 1923. Those who forget the past are condemned to repeat it...Ciao a tutti!
On Saturday I saw this news item on Bloomberg news about a judge who had dismissed a lawsuit against Bank of America which was connected to massive losses suffered by the Maine State Retirement System from investing in Countrywide toxic garbage. Here's the LINK At first I was irritated and assumed foul-play. But in dissecting the details of the case with my father, a retired attorney, I realized that this was a frivolous suit devised by the plaintiff's attorney to generate massive legal fees. The plaintiff was arguing that the deal was a "de facto" merger rather than a bona fide "asset purchase." The difference being that legacy liability would be transferred to B of A in a merger vs. the liability being limited to just the wholly purchased subsidiary in an asset purchase. Now let me ask this question: does anyone out there think that Hank Paulson and Ben Bernanke - the architects of this transaction - would be careless enough to leave any doubt as to whether this deal was structured as anything other than an "asset purchase?" There were plenty of skilled legal eyeballs going over the nuts and bolts of this transfaction on behalf of those two plus BofA and Countrywide. Not surprisingly, the judge ruled that plaintiff failed to prove its case. To me, this part of the lawsuit was nothing more than a greedy lawyer throwing straws in the wind and raping the State of Main retirement fund for millions in frivolous legal fees. Perhaps there are aspects of the entire lawsuit that have merit, but this did not.
To be sure, there are many aspects of this deal that should be investigated and the culprits should be prosecuted and sent to jail. That would include Angelo Mozillo, former Countrywide CEO who is living happily on $100's of millions of fraudulently derived wealth after getting a small "wrist-slap" fine, the former CEO of B of A, and of course, Bernanke, Paulson, Geithner, et al. BUT WHAT ABOUT THE MORONS RUNNING MAINE'S PUBLIC PENSION FUND? I could have told any fund manager who bothered to ask me back in 2002 that the mortgage market was going to blow up. Hell I received a no-income verification mortgage from Wash Mutual in 2000! LOL. It was all about the underlying assets - housing - which blew up into a bubble far larger than myself or any of my colleagues at the time thought was possible. But, as a supposedly well-educated/accoladed invesment advisor, you would have to be a complete idiot not to see what was going on, let alone invest money that's not your's in the absolute garbage that Countrywide was underwriting. So much for the so-called "institutional" experts running the rest of your retirement money.
What I would really like to see is an investigation into the travel and entertainment itineraries of the managers running the big State pension funds and how much of their decision-making was influenced by the "side benefits" thrown at them by Wall Street. I was on the "throwing" side of that party for 9 years and witnessed the incredible magic of the expense account, which included influencing the rating agencies as well. My point is that it takes two to tango and the idiots buying the nuclear waste being sold by Wall Street need to be held just as accountable as the thieves selling it.
Un po' di piu su alloggi (a little more on housing). The Case-Shiller index of home prices released today showed another 1.1% decline in housing prices for February. This is the seventh straight monthly decline. It's funny because if it were a 1.1% increase, I'm sure the headines would advertise the annualized rate, which would be 12.7%, rather than the month to month 1.1%. Remember that this is a broad "swathe" of prices from 20 major metro areas and the data massaging skews away from "distressed" sales, so you will likely find this price decline estimation to be low if you decide to list your house thinking that you can list at the same price you could have listed it for in January...on to Berlin...even more amusing was that the "Conference Board" consumer confidence index showed an increase for April. But the headline for this followed the headlines for the housing price decline and the damage being inflicted to the consumer by high gasoline prices. The Conference Board "is a global, independent business membership and research association working in the public interest." LOL. I don't think I need to elaborate on the reliability of that metric...
"Fleeing the Dollar Flood" - I would recommend taking the time to read this article from last week's Wall Street Journal. Here's the LINK (if you get something that requests subscription registration, type the article headline into google and click on the similar article link that comes up and you should get the whole article). Despite "strong dollar" rhetoric coming from the mentally challenged Tim Geithner (someone must set this guy up to look stupid: LINK LOL), the only course of action open to the Fed and the Government - and really to everyone - is for the continued debasement of the dollar as a mechanism to keep the system alive. You can protect yourself from this by moving as much as you can into gold and silver. Don't worry about the price relative to where it was 10 years ago. This game has a long way to go despite signs emerging that China is getting ready to pull the plug. All I can say is one day those of you content with millions in the bank in dollars will wake up one day to discover that your millions of dollars have no value to anyone looking to exchange goods and services in kind. Don't believe me? Just ask anyone who might still be around from Germany in November 1923. Those who forget the past are condemned to repeat it...Ciao a tutti!
Saturday, April 23, 2011
Housing vs. Gold
Okay then, when you price the value of the average house in terms of gold, or real money, the average house has lost 47% in value:
There is also a good comparison chart in that link above showing the performance of the Dow vs. gold over the last 10 years. That the Dow has barely moved higher over that time period, and has plummetted vs. gold, will likely shock anyone who sees those charts.
I probably should start to focus more on the two bubbles that have yet to really blow up and crash - the dollar and Treasury bonds - rather than on housing. But there are still many people who ask me about housing and most of them refuse to believe that housing can go lower from here. Oh well. I guess you can look at it terms of gold like this: the dollar is going to go a LOT lower which, tautologically speaking, means that gold will go a LOT higher. So if you buy enough gold to fund 50% of a home purchase today, eventually - and possibly sooner that anyone thinks can happen - you will be able to fund the entire purchase of your dream home with gold you buy today.
To understand why the dollar is going to plummet, please read this quick commentary by James Turk in Eric King's blog: LINK Capire a tutti?
At its peak, the housing market in March 2007, the median U.S. home was $262,600, which was equivalent to 340.6 ounces of gold. Today's median income price is $186,100 or 109.2 ounces of gold. So in terms of real money, gold, the U.S. median home price has lost 47% since 2007 (Richard Russell from 321gold.com - Source LINK).Please read the entire commentary I linked. It's short. Back in 2002 I suggested to anyone who asked me that housing would lose 75-90% of its value before the coming bear market in housing was finished. Some of those people are probably still thinking that I was overdosing on LSD. The good news is that I've never taken LSD (I know that's hard to believe for anyone who knows me, but it's true lol) and my prediction for housing is more than halfway home, so to speak, when viewed in terms of real money (uh, gold). I must admit that I wasn't thinking about using gold to measure the price of a home - I was using $dollars to measure home value. I know in many areas, distressed sales are occuring at more than 75% below the peak valuation level for homes. Having said that, I still believe that the average house will eventually drop at least 75% as measured in dollars and 90% as measured in gold.
There is also a good comparison chart in that link above showing the performance of the Dow vs. gold over the last 10 years. That the Dow has barely moved higher over that time period, and has plummetted vs. gold, will likely shock anyone who sees those charts.
I probably should start to focus more on the two bubbles that have yet to really blow up and crash - the dollar and Treasury bonds - rather than on housing. But there are still many people who ask me about housing and most of them refuse to believe that housing can go lower from here. Oh well. I guess you can look at it terms of gold like this: the dollar is going to go a LOT lower which, tautologically speaking, means that gold will go a LOT higher. So if you buy enough gold to fund 50% of a home purchase today, eventually - and possibly sooner that anyone thinks can happen - you will be able to fund the entire purchase of your dream home with gold you buy today.
To understand why the dollar is going to plummet, please read this quick commentary by James Turk in Eric King's blog: LINK Capire a tutti?
Thursday, April 21, 2011
I'll Take A Crack At Explaining The Performance Of The Mining Shares
There's been reams of discussion recently about the performance of the mining shares relative to the price of gold/silver. I believe a lot of the disappointment in the performance of the shares is because the metals have been hitting new highs almost every day now. But there are a lot of "levers," or variables, that drive mining share valuation - not just metal in the ground multiplied out by the price of gold/silver. And make no mistake about it, the HUI and XAU have been hitting new all-time highs during this period, so anyone not making money in the mining shares should reassess their strategies and anyone not happy with their bounty will probably always be a malcontent.
But rather than let our views get overwhelmed by conpiracy theories and childish whining, let's cut to the chase and just look at some numbers and market theory. I'm going to keep this simple for illustrative purposes. To begin with, the price of a stock at any given time largely reflects the current fundamental value, or instrinsic value, of the company plus some expection of the company's future prospects. So if a mining stock is priced at $50, that value reflects everything that is currently known about the company and its industry fundamentals PLUS it contains some value that reflects what the market thinks will happen in the future. So for a solid mining stock at $50, that price contains the public knowledge that gold is at $1500 PLUS some "discounted value" for the expectation/probability that the price of gold will be higher in the future. So just because gold goes from $1400 to $1500, if the market thinks that $1500 is all we'll see, the price of the stock won't move. This is "rational expectations" theory in a nutshell and is good for explaining a large part of stock market valuations, everything else being equal.
Now, what I believe, and what has been the case for the duration of this 10+ year bull market, is that MOST of the market players do not understand gold or why it's moving higher AND they believe gold has topped out every time it hits a new high. This is GREAT news for the minority contingency who DO understand the dynamics, because at some point the size of the market that does come to understand the market will grow larger and the cash pools flowing into the sector will grow at a geometric rate, accelerating the push higher in these mining stocks. I personally believe that we will see at least $5000 gold. But think about the small percentage of market players that actually believe $2000 is even possible. Probably less than 5%. The price of mining stocks reflects this huge imbalance between the "knowers" - gold bulls - and the skeptics - the 95% who think I'm nuts. This dynamic is part of what is known as the "efficient markets" hypothesis and I believe that the market is being very "inefficient" in its understanding of the precious metals. Because of this, and this view of the market has been proved correct for the past 10 years because the metals sector has substantially outperformed ALL other asset classes, I believe that there are still huge profits to be made in this sector up until the entire market has knowledge and understanding. THAT is when we will be in the bubble phase. Until then I believe there is still a lot of easy "information arbitrage" profits to be had.
There's a lot of other factors at play as well. As my good friend and colleague "Jesse" has pointed out, there is a 50% correlation between the SPX and gold and a very high correlation between the SPX and the mining stocks. The SPX is about 3% below the high it hit in mid February. So if the mining stocks are lagging the performance of gold, a meaningful part of this lag can be attributed to the overall weakness in the stock market. You are doing yourself a disservice if you do not read his work on this: LINK
From a technical perspective, Dan Norcini wrote an excellent description of a "ratio" trade that is being played en masse in the hedge fund community, in which they go long a gold ETF and short the mining shares. This is an excellent piece that I believe explains a lot about what is going on: LINK Because I know from experience that big NYC hedge funds all travel in herds, I know that there is a "herd" of cash playing this trade and that most of the players do NOT know about, and could care less about, what gold is doing and why. Suffice it to say that there is a large pool of capital that is long gold/silver and short the mining stocks. Because the universe of mining stock shares is very illiquid compared to the broad stock market, the effect of a lot of cash shorting the shares will "exaggerate" the price pressure put on them. But of course, as Norcini points out, the reversal of this trade en masse will send the mining shares higher very quickly in violent fashion. So get ready for that ride because it will come.
Finally, there's some other important "levers" that go into valuing mining stocks besides the price of gold and the amount of metal in the ground. The two biggest factors are cost and risk. Energy represents about 50% of the cost of actual mining. So a high production mining company's expenses increase rapidly when the dollar declines rapidly and the price of oil appreciates rapidly. This fact is not lost on the market and is reflected in a lesser valuation multiple assigned to stocks in this industry. In addition, the cost of labor increases AND so do regulatory costs. Regulatory costs include taxes and environmental legislation.
And finally, and especially relative to 10 years ago, the political risk and costs associated with that factor have escalated substantially over the last 10 years. Just ask any mining company with operations in Venezuela or Bolivia. Although you can't quantify this risk on paper, I guarantee anyone reading this that the market collectively will assign a discount factor to the sector based on political risk expectations. So, for example, the price of gold can move from $1000 to $1500, but if the market thinks a couple of countries in South America and Africa will either massively increase mining tariffs OR outright nationalize operations, this expectation will be reflected with relatively lower valuations in relation to a big move higher in gold. And trust me, as the price of gold continues to escalate, the risk that "have not" Governments seize the bounty increases. I promise you this is a factor in the performance of the shares.
Now having said all that - and please make no mistake about it - I am NOT saying that manipulation is not a sizable factor in the mining shares, it is my view that the price of gold/silver will continue to appreciate a LOT more rapidly than the true cost of energy, labor, regulation and geopolitical risk. AND if you have a carefully selected portfolio of large cap and small cap mining shares, you will make a fortune.
I will say that our fund has been weighted about 60/40 metal/miners since the beginning of the year because we felt that the price of the metal would outperform the shares on a risk/return basis. I will also say that if you have a VERY carefully picked selection of junior exploration mining stocks that you might get wealthy off of them. Most people, even those heavily involved in this sector, are not at all aware of the degree to which penny mining stocks shot up during the 1970's. Many of the today's junior mining stocks will have breath-taking moves over the next five years. Because junior miners do not have the cost of mining attached to their operations, the hope of the next massive discovery will eventually capture the imagination of the investing public and speculative money will eventually flood into the juniors. This is a wave that I know is coming and that I want to ride, especially since I believe we have picked some companies that have a good shot at actually finding some big discoveries (you learn a lot about selection and whom to talk to and whom to trust after doing this sector exclusively for 10 years).
We have the stock side of our fund weighted about 50/50 between juniors and large caps. The percentage in juniors will likely increase when we decide that the risks mentioned above have been overly discounted by the stock market and the miners are ready for another big move. In other words, we hope to get a little lucky with market timing but if we don't we still will make a lot of money for our investors because of our junior mining stock exposure.
I hope this helps clarify what I believe is going on right now.
But rather than let our views get overwhelmed by conpiracy theories and childish whining, let's cut to the chase and just look at some numbers and market theory. I'm going to keep this simple for illustrative purposes. To begin with, the price of a stock at any given time largely reflects the current fundamental value, or instrinsic value, of the company plus some expection of the company's future prospects. So if a mining stock is priced at $50, that value reflects everything that is currently known about the company and its industry fundamentals PLUS it contains some value that reflects what the market thinks will happen in the future. So for a solid mining stock at $50, that price contains the public knowledge that gold is at $1500 PLUS some "discounted value" for the expectation/probability that the price of gold will be higher in the future. So just because gold goes from $1400 to $1500, if the market thinks that $1500 is all we'll see, the price of the stock won't move. This is "rational expectations" theory in a nutshell and is good for explaining a large part of stock market valuations, everything else being equal.
Now, what I believe, and what has been the case for the duration of this 10+ year bull market, is that MOST of the market players do not understand gold or why it's moving higher AND they believe gold has topped out every time it hits a new high. This is GREAT news for the minority contingency who DO understand the dynamics, because at some point the size of the market that does come to understand the market will grow larger and the cash pools flowing into the sector will grow at a geometric rate, accelerating the push higher in these mining stocks. I personally believe that we will see at least $5000 gold. But think about the small percentage of market players that actually believe $2000 is even possible. Probably less than 5%. The price of mining stocks reflects this huge imbalance between the "knowers" - gold bulls - and the skeptics - the 95% who think I'm nuts. This dynamic is part of what is known as the "efficient markets" hypothesis and I believe that the market is being very "inefficient" in its understanding of the precious metals. Because of this, and this view of the market has been proved correct for the past 10 years because the metals sector has substantially outperformed ALL other asset classes, I believe that there are still huge profits to be made in this sector up until the entire market has knowledge and understanding. THAT is when we will be in the bubble phase. Until then I believe there is still a lot of easy "information arbitrage" profits to be had.
There's a lot of other factors at play as well. As my good friend and colleague "Jesse" has pointed out, there is a 50% correlation between the SPX and gold and a very high correlation between the SPX and the mining stocks. The SPX is about 3% below the high it hit in mid February. So if the mining stocks are lagging the performance of gold, a meaningful part of this lag can be attributed to the overall weakness in the stock market. You are doing yourself a disservice if you do not read his work on this: LINK
From a technical perspective, Dan Norcini wrote an excellent description of a "ratio" trade that is being played en masse in the hedge fund community, in which they go long a gold ETF and short the mining shares. This is an excellent piece that I believe explains a lot about what is going on: LINK Because I know from experience that big NYC hedge funds all travel in herds, I know that there is a "herd" of cash playing this trade and that most of the players do NOT know about, and could care less about, what gold is doing and why. Suffice it to say that there is a large pool of capital that is long gold/silver and short the mining stocks. Because the universe of mining stock shares is very illiquid compared to the broad stock market, the effect of a lot of cash shorting the shares will "exaggerate" the price pressure put on them. But of course, as Norcini points out, the reversal of this trade en masse will send the mining shares higher very quickly in violent fashion. So get ready for that ride because it will come.
Finally, there's some other important "levers" that go into valuing mining stocks besides the price of gold and the amount of metal in the ground. The two biggest factors are cost and risk. Energy represents about 50% of the cost of actual mining. So a high production mining company's expenses increase rapidly when the dollar declines rapidly and the price of oil appreciates rapidly. This fact is not lost on the market and is reflected in a lesser valuation multiple assigned to stocks in this industry. In addition, the cost of labor increases AND so do regulatory costs. Regulatory costs include taxes and environmental legislation.
And finally, and especially relative to 10 years ago, the political risk and costs associated with that factor have escalated substantially over the last 10 years. Just ask any mining company with operations in Venezuela or Bolivia. Although you can't quantify this risk on paper, I guarantee anyone reading this that the market collectively will assign a discount factor to the sector based on political risk expectations. So, for example, the price of gold can move from $1000 to $1500, but if the market thinks a couple of countries in South America and Africa will either massively increase mining tariffs OR outright nationalize operations, this expectation will be reflected with relatively lower valuations in relation to a big move higher in gold. And trust me, as the price of gold continues to escalate, the risk that "have not" Governments seize the bounty increases. I promise you this is a factor in the performance of the shares.
Now having said all that - and please make no mistake about it - I am NOT saying that manipulation is not a sizable factor in the mining shares, it is my view that the price of gold/silver will continue to appreciate a LOT more rapidly than the true cost of energy, labor, regulation and geopolitical risk. AND if you have a carefully selected portfolio of large cap and small cap mining shares, you will make a fortune.
I will say that our fund has been weighted about 60/40 metal/miners since the beginning of the year because we felt that the price of the metal would outperform the shares on a risk/return basis. I will also say that if you have a VERY carefully picked selection of junior exploration mining stocks that you might get wealthy off of them. Most people, even those heavily involved in this sector, are not at all aware of the degree to which penny mining stocks shot up during the 1970's. Many of the today's junior mining stocks will have breath-taking moves over the next five years. Because junior miners do not have the cost of mining attached to their operations, the hope of the next massive discovery will eventually capture the imagination of the investing public and speculative money will eventually flood into the juniors. This is a wave that I know is coming and that I want to ride, especially since I believe we have picked some companies that have a good shot at actually finding some big discoveries (you learn a lot about selection and whom to talk to and whom to trust after doing this sector exclusively for 10 years).
We have the stock side of our fund weighted about 50/50 between juniors and large caps. The percentage in juniors will likely increase when we decide that the risks mentioned above have been overly discounted by the stock market and the miners are ready for another big move. In other words, we hope to get a little lucky with market timing but if we don't we still will make a lot of money for our investors because of our junior mining stock exposure.
I hope this helps clarify what I believe is going on right now.
Wednesday, April 20, 2011
There's Just NO Reason To Be Long The U.S. Dollar
Unless someone has a gun to your head. China has been firing warning shots at the U.S. Government/Tim Geithner for a while now and they are starting to come from higher up the food chain in the Chinese Ruling Party and more frequently as well. Here's the latest: PBOC governor says foreign reserves excessive. The "PBOC" of course is the People's Bank of China, or China's Federal Reserve, if you will. In so many words, this fine gentleman is telling us that China is going to accelerate its U.S. dollar selling:
Here's the chart of the U.S. dollar:
Oh, and don't be surprised if at sometime down the road the Government does indeed hold a "rule of law" gun to our collective heads and forces us to use the dollar and invests our retirement funds for us into Treasuries, as I believe that the retirement fund asset base in this country will be the "buyer of last resort" to keep your Government operating and well-fed.
Foreign exchange reserves have exceeded our country's rational demand, and too much accumulation has caused excessive liquidity in our markets, adding to the pressure of the central bank's sterilization," Zhou was quoted by the official Shanghai Securities News as saying "The State Council has required a cut in excessive accumulation and good management of the funds accumulated, including diversification of investments," Zhou was quoted as telling a forum at Tsinghua University in Beijing.Here's the link to the article: http://www.chinadaily.com.cn/bizchina/2011-04/19/content_12355149.htm
Here's the chart of the U.S. dollar:
I actually thought that we would get more of a "trading bounce" at the 75 level, but we have not. In fact, the index today even lower, currently at 74.64 and has been as low as 74.46.
The price action in precious metals and in the U.S. dollar is sending us the signal that the United States financial system and economy is in big trouble. The fact that China and some of the Middle East "rogue" countries so openly defy U.S. geopolitical will is telling us that our Government is losing credibilty quickly. The fact that countries like Iran and Libya no longer run away from U.S. military force tells me that either the U.S. is losing its super power status quickly or that the U.S. will soon intensify its military pursuits in order to defend its "right" to contol oil and global commerce using the Fed confetti known as the dollar.
I worry quite a bit about the former two issues - economic/political collapse - I live in fear of the latter (world war). If you have read "Atlas Shrugged," please go see the movie. It is a brilliant screenplay adapatation of the book, as it condenses a very complicated "text" and plot scheme efficiently and with good direction and projects this "text" onto the screen in a manner that reflects the "essence" of the story. The acting is superb. If you have not read the book, it will make a good project for you if you decide to save your money for food and gas instead of taking a vacation this summer, as I do believe the movie is lost on anyone who has not read the book and understands it. Many of the reviewers of the movie have not read the book. I can't wait for Part 2 of the movie.
Oh, and don't be surprised if at sometime down the road the Government does indeed hold a "rule of law" gun to our collective heads and forces us to use the dollar and invests our retirement funds for us into Treasuries, as I believe that the retirement fund asset base in this country will be the "buyer of last resort" to keep your Government operating and well-fed.
Tuesday, April 19, 2011
Tim Geithner Is A Complete Joke Of A Human
Now that everyone out there has had a chance to put their "spin" on the S&P ratings downgrade, let's talk about the truth. The truth is that the U.S. deserves a triple-A rating only because it can print enough money to guarantee debt repayment. So in a nominal sense, there's no risk of default. But in a "real" sense, the U.S. is effecting a "de facto" default because it is effectively guaranteeing debt repayment via dollar devaluation. And Obama is going around the country now giving "town hall" speeches designed to summons public support for his reckless spending and for Congress to increase the debt limit. As you'll note from this news report, LINK, he's trying to discredit the message being sent by S&P when, in fact, that message should be the PRIMARY focus of policy implementation. The fact of the matter is that our Government spending and deficit and debt level will continue to increase and the S&P warning will soon be forgotten. Until it's too late...
The golden truth, if you will, is that I'm now wondering why the U.S. Government even bothers creating the facade of debt limit legislation. Seriously. What's the point? Has Congress ever failed ultimately to not raise the debt limit? I love the juxtaposition of statements coming from Geithner in this regard and with respect to the S&P action. This was a headline in Sunday's NY Times: Debt Ceiling Increase Is Expected, Geithner Says LINK and this was a headline from Geithner after yesterday's ratings downgrade: Treasury: S&P misreading political will to cut debt LINK
Is this some kind of joke? How many of you actually believe that the Government will figure out a way to cut spending and raise revenues? The Congressional Budget Office, a non-partisan Federal agency - has prepared a report that shows the degree to which Obama's budget for 2012 will increase our deficit over the next decade. Anyone still wondering why S&P put the Treasury debt on downgrade watch? Apparently Geithner is still wondering. Here's a link to that a report LINK (source: zerohedge.com).
For Geithner to spend his time and our money over the last 4 days trying to convince us that the Obama Government will be able to cut the deficit - when the CBO, a non-partisan part OF the Government, is issuing a report showing mathematically that the Obama Government is in fact substantially inreasing the deficit over the next decade - is analogous to Geithner telling us that he doesn't have to use the bathroom when in fact he's concomitantly deficating in his underwear.
I haven't decided if Geithner is dumb enough to believe that the we are dumb enough to believe him or, worse, if he's dumb enough to believe himself. But I suppose that, when we're talking about someone who is as dumb as Geithner seems to be, degrees of relativity are irrelevant. At best, for Geithner to overlook such obvious back-to-back incongruity in his highly visible public statements reflects the sloppiness of a child. I guess he does strike me as the type of kid who's mom wiped his ass for him until he was about 10.
And what does all this mean? It means that one would have be financially suicidal to invest in U.S. Government debt, or let their financial advisor invest their retirement funds in Treasury securities. I know of many advisers who are doing that for their clients now. It's absolutely stunning to me how many financial markets professionals are still ignoring or denouncing gold (it's actually great for me because it tells me we are a long way from the "bubble" phase in gold).
But gold hit $1500 today for the first time in history. Why? Because gold is the ultimate arbiter of truth, of what's right and what's wrong. And when gold is going higher, like it has been for the last 10 years, something/many things is/are wrong in the sytstem. And the number one problem, first and foremost, is that the Government of the world's reserve currency is technically bankrupt. If that is not the case, then why has the value of the of the U.S. dollar - as measured against a basket of global currencies - been nearly cut in half since 2000 while the price of gold has increased 600% as measured in U.S. dollars over that same time period?
The golden truth, if you will, is that I'm now wondering why the U.S. Government even bothers creating the facade of debt limit legislation. Seriously. What's the point? Has Congress ever failed ultimately to not raise the debt limit? I love the juxtaposition of statements coming from Geithner in this regard and with respect to the S&P action. This was a headline in Sunday's NY Times: Debt Ceiling Increase Is Expected, Geithner Says LINK and this was a headline from Geithner after yesterday's ratings downgrade: Treasury: S&P misreading political will to cut debt LINK
Is this some kind of joke? How many of you actually believe that the Government will figure out a way to cut spending and raise revenues? The Congressional Budget Office, a non-partisan Federal agency - has prepared a report that shows the degree to which Obama's budget for 2012 will increase our deficit over the next decade. Anyone still wondering why S&P put the Treasury debt on downgrade watch? Apparently Geithner is still wondering. Here's a link to that a report LINK (source: zerohedge.com).
For Geithner to spend his time and our money over the last 4 days trying to convince us that the Obama Government will be able to cut the deficit - when the CBO, a non-partisan part OF the Government, is issuing a report showing mathematically that the Obama Government is in fact substantially inreasing the deficit over the next decade - is analogous to Geithner telling us that he doesn't have to use the bathroom when in fact he's concomitantly deficating in his underwear.
I haven't decided if Geithner is dumb enough to believe that the we are dumb enough to believe him or, worse, if he's dumb enough to believe himself. But I suppose that, when we're talking about someone who is as dumb as Geithner seems to be, degrees of relativity are irrelevant. At best, for Geithner to overlook such obvious back-to-back incongruity in his highly visible public statements reflects the sloppiness of a child. I guess he does strike me as the type of kid who's mom wiped his ass for him until he was about 10.
And what does all this mean? It means that one would have be financially suicidal to invest in U.S. Government debt, or let their financial advisor invest their retirement funds in Treasury securities. I know of many advisers who are doing that for their clients now. It's absolutely stunning to me how many financial markets professionals are still ignoring or denouncing gold (it's actually great for me because it tells me we are a long way from the "bubble" phase in gold).
But gold hit $1500 today for the first time in history. Why? Because gold is the ultimate arbiter of truth, of what's right and what's wrong. And when gold is going higher, like it has been for the last 10 years, something/many things is/are wrong in the sytstem. And the number one problem, first and foremost, is that the Government of the world's reserve currency is technically bankrupt. If that is not the case, then why has the value of the of the U.S. dollar - as measured against a basket of global currencies - been nearly cut in half since 2000 while the price of gold has increased 600% as measured in U.S. dollars over that same time period?
Monday, April 18, 2011
Anyone Doubt That The Fed Manipulates The Markets?
That video is PHENOMENAL and is a MUST-LISTEN for everyone, but especially for ANYONE who doubts that the Fed manipulates the markets intentionally. This guy lays it all out with PROOF using excerpts from actual meetings. It's worth taking the time to understand exactly what is being presented in the first couple of minutes.
LIES AND FRAUD AT THE FED
Bernanke is just as corrupt and Angelo Mozillo, Bernie Madoff and Wall Street - make no mistake about that.
LIES AND FRAUD AT THE FED
Bernanke is just as corrupt and Angelo Mozillo, Bernie Madoff and Wall Street - make no mistake about that.
Hey University of Texas Investment Management: TAKE POSSESSION OF YOUR GOLD
One of the main reasons to buy gold and silver is because you know not to trust the Government or the banking system. If you let Wall Street "safekeep" your metal, you are fundamentally undermining the very reason to buy the stuff in the first place.
By now most of you have seen the news that the University of Texas Investment Management Co, the 2nd largest U.S. academic endowment, has taken delivery of $1 billion in gold bullion. Unfortunately they are storing the gold in a NY vault depository owned by HSBC. HSBC is a notorious gold-leasing bullion bank and therefore can not be trusted.
I've got news for UTIMCo: just because HSBC has signed over title to these gold bars, it does not mean that you actually own them until you take POSSESSION. In other words: MAKE THEM DELIVER THE BARS TO A PRIVATE DEPOSITORY off Wall Street and outside of the control of any part of the gold cartel. Until you do that, your investment is still at significant of risk of ultimately not being there when you want it.
We use Diamond State Depository for the the gold and silver and we buy for our fund. We have been advised by a long-time precious metals professional who is in a position to know the facts that Diamond State is the most reliable and trustworthy of the private depositories. If you want a bigger depository, Delaware Depository is probably the next best alternative, although I have been advised that they do not pay for full insurance coverage, which isn't necessarily a bad bet EXCEPT for the fact that Delaware Depository also serves as one of the Comex depositories and you risk having your gold mingled with unallocated gold or "accidentally" borrowed.
Bottom line: Anyone trusting a Wall Street bank with the safekeeping of their metal is making a potentially catastrophic error in judgement. With the sleaze and corruption embedded in our entire system, especially on Wall Street, the only way you can be certain that you have full control of the gold and silver you purchase, or take delivery of from the Comex, is to make the counterparty delivery it to you or to your own private depository. Anything short of that is still a paper investment.
I will say that this move by the Texas institution is likely to trigger, over time, a new flood of institutional capital into investing in physical gold and silver. This is obviously extraordinarily bullish for gold and silver, and even more so if many of these institutions wise up and actually force true delivery. One of the main pillars in my thesis for thinking that gold and silver would be the best investment assets for a long time was based on the idea that eventually big institions like pensions and insurance companies would eventually move 5-10% of their capital into the sector. As of the 4th qtr of 2010, total retirement assets in just the United States were estimated to be $17.5 trillion. 5% of that is $875 billion. As of Friday, there was about $3.5 billion worth of gold available for delivery on the Comex and about $13 billion in total gold holdings. You get the idea...
The institutional move into gold actually started with Northwest Mutual about 2 years ago, which invested in $400 million of physical gold. Now the next big institution has started with $1 billion. Expect this to flow of institutionally managed capital to start accelerating over the next 6-12 months. Perhaps maybe even at a rate that is higher than the geometric growth rate in Treasury debt? LOL. If I'm right, look out above...
By now most of you have seen the news that the University of Texas Investment Management Co, the 2nd largest U.S. academic endowment, has taken delivery of $1 billion in gold bullion. Unfortunately they are storing the gold in a NY vault depository owned by HSBC. HSBC is a notorious gold-leasing bullion bank and therefore can not be trusted.
I've got news for UTIMCo: just because HSBC has signed over title to these gold bars, it does not mean that you actually own them until you take POSSESSION. In other words: MAKE THEM DELIVER THE BARS TO A PRIVATE DEPOSITORY off Wall Street and outside of the control of any part of the gold cartel. Until you do that, your investment is still at significant of risk of ultimately not being there when you want it.
We use Diamond State Depository for the the gold and silver and we buy for our fund. We have been advised by a long-time precious metals professional who is in a position to know the facts that Diamond State is the most reliable and trustworthy of the private depositories. If you want a bigger depository, Delaware Depository is probably the next best alternative, although I have been advised that they do not pay for full insurance coverage, which isn't necessarily a bad bet EXCEPT for the fact that Delaware Depository also serves as one of the Comex depositories and you risk having your gold mingled with unallocated gold or "accidentally" borrowed.
Bottom line: Anyone trusting a Wall Street bank with the safekeeping of their metal is making a potentially catastrophic error in judgement. With the sleaze and corruption embedded in our entire system, especially on Wall Street, the only way you can be certain that you have full control of the gold and silver you purchase, or take delivery of from the Comex, is to make the counterparty delivery it to you or to your own private depository. Anything short of that is still a paper investment.
I will say that this move by the Texas institution is likely to trigger, over time, a new flood of institutional capital into investing in physical gold and silver. This is obviously extraordinarily bullish for gold and silver, and even more so if many of these institutions wise up and actually force true delivery. One of the main pillars in my thesis for thinking that gold and silver would be the best investment assets for a long time was based on the idea that eventually big institions like pensions and insurance companies would eventually move 5-10% of their capital into the sector. As of the 4th qtr of 2010, total retirement assets in just the United States were estimated to be $17.5 trillion. 5% of that is $875 billion. As of Friday, there was about $3.5 billion worth of gold available for delivery on the Comex and about $13 billion in total gold holdings. You get the idea...
The institutional move into gold actually started with Northwest Mutual about 2 years ago, which invested in $400 million of physical gold. Now the next big institution has started with $1 billion. Expect this to flow of institutionally managed capital to start accelerating over the next 6-12 months. Perhaps maybe even at a rate that is higher than the geometric growth rate in Treasury debt? LOL. If I'm right, look out above...
Friday, April 15, 2011
More QE3 Serum
No time to do a big post today, but we are now seeing some Wall Street firms cut their Q2 GDP estimates PLUS a non-Wall Street firm with more credibility just cut its Q2 GDP forecast. I got this from zerohedge:
"But what about the great economic reports today and earlier this week that show manufacturing growth and lower than expected inflation?" you might ask. I promise you that nominal growth in these economic indexes are highly skewed by real inflation. And please note that today's CPI report, to begin with, is a highly manipulated Government prepared report and it's widely acknowledged, accepted and proven that the Govt-CPI is recklessly and tragically incorrect. And furthermore the only number that was better than expected was the "core," which excludes food and energy. ROFLMAO. How many of you spend at least 30-50% of your after-tax income on food and energy (gas, heating, a/c, electric)? Most Americans do.
So toss these b.s. economic reports out the window and start looking at what is really going on around you. The total level of Americans actually working as % of the population is in continuous decline - the Govt just changes the definition of what constitutes the "labor force." The number of Americans dependent on food stamps increases every month. Those "robust" auto sales for March? Check again and please note that they were a product of the auto manufacturers "stuffing" dealer inventories. Search zerohedge for that report if you need to see the proof for yourself. Dealer inventories are at record levels, but auto manufacturers book a sale once a vehicle is shipped to a dealer. Oh and the auto maker happily finances that sale with your money (at least GM and Chrysler use your money). And I don't even need to mention the fact that the housing market is absolutely falling off a cliff plus prices are tanking again.
Speaking of housing, Bank of America, one of the BIGGEST homebuyer financiers on the planet, is now saying that homeowners should not look at their home as an asset. What the hell? I'm not making this up, see for yourself: LINK That truly blows my mind. Don't forget that for the past decade, mortgage finance has been the largest part of BAC's revenues, income and bonus pools. ROFLMAO. This is an absolute tragic farce. The number ONE sales pitch used in a housing transaction is that "a house is a great investment!" Bankers all over the country got rich on this battle cry. Now we find out that it was one big lie? I'll give BAC CEO Brian Moynihan the "asshole criminal of the year" award for the one.
Please take time to read or reread "Atlas Shrugged." The movie opens tonight and I'm going to see it. The media that has reviewed it so far, is panning it. That does not surprise me. The Denver Post didn't even review it. The review I saw was posted on the online Denver Post. I'm sure the media, heavily controlled by the Corporate/Government Big Brothership, has been told to dampen its reception of the movie. Why? Because the subject matter as presented by Ayn Rand is exactly what is going down in our country right now. That plus a heavy does of George Orwell.
Before you go get your "Atlas Shrugged" tickets, please read this: Brazil, Russia, India and China, collectively known as "the BRICs," understand what Rand/Orwell understood and they understand what is happening right now in this country. And thus, THIS is why they are systematically and methodically getting the hell OUT of the U.S. dollar. Please read this for reference: Arrivedercie Dollaro!
Will U.S. economic output be affected by the supply disruptions to the Japanese auto manufacturers? The answer is unequivocally yes and the economic impact will be quite severe in April and for Q2 as a wholeHere's the LINK Goldman has also been busy lowering its outlook for Q2 and the full year. You can google to find reference to that, or zerohedge has been chronicalling it. Some people are of the view that the chief economist at Goldman gets "special" insight into what the Fed is thinking, and thus believe that Goldman is prepping the markets for the eventual capitulation on the QE2-extension aka QE3 call from Fed. Also recall that I have averred in my commentaries that the renewed money printing programs would be justified by the economic effects globally of Japan and Libya.
"But what about the great economic reports today and earlier this week that show manufacturing growth and lower than expected inflation?" you might ask. I promise you that nominal growth in these economic indexes are highly skewed by real inflation. And please note that today's CPI report, to begin with, is a highly manipulated Government prepared report and it's widely acknowledged, accepted and proven that the Govt-CPI is recklessly and tragically incorrect. And furthermore the only number that was better than expected was the "core," which excludes food and energy. ROFLMAO. How many of you spend at least 30-50% of your after-tax income on food and energy (gas, heating, a/c, electric)? Most Americans do.
So toss these b.s. economic reports out the window and start looking at what is really going on around you. The total level of Americans actually working as % of the population is in continuous decline - the Govt just changes the definition of what constitutes the "labor force." The number of Americans dependent on food stamps increases every month. Those "robust" auto sales for March? Check again and please note that they were a product of the auto manufacturers "stuffing" dealer inventories. Search zerohedge for that report if you need to see the proof for yourself. Dealer inventories are at record levels, but auto manufacturers book a sale once a vehicle is shipped to a dealer. Oh and the auto maker happily finances that sale with your money (at least GM and Chrysler use your money). And I don't even need to mention the fact that the housing market is absolutely falling off a cliff plus prices are tanking again.
Speaking of housing, Bank of America, one of the BIGGEST homebuyer financiers on the planet, is now saying that homeowners should not look at their home as an asset. What the hell? I'm not making this up, see for yourself: LINK That truly blows my mind. Don't forget that for the past decade, mortgage finance has been the largest part of BAC's revenues, income and bonus pools. ROFLMAO. This is an absolute tragic farce. The number ONE sales pitch used in a housing transaction is that "a house is a great investment!" Bankers all over the country got rich on this battle cry. Now we find out that it was one big lie? I'll give BAC CEO Brian Moynihan the "asshole criminal of the year" award for the one.
Please take time to read or reread "Atlas Shrugged." The movie opens tonight and I'm going to see it. The media that has reviewed it so far, is panning it. That does not surprise me. The Denver Post didn't even review it. The review I saw was posted on the online Denver Post. I'm sure the media, heavily controlled by the Corporate/Government Big Brothership, has been told to dampen its reception of the movie. Why? Because the subject matter as presented by Ayn Rand is exactly what is going down in our country right now. That plus a heavy does of George Orwell.
Before you go get your "Atlas Shrugged" tickets, please read this: Brazil, Russia, India and China, collectively known as "the BRICs," understand what Rand/Orwell understood and they understand what is happening right now in this country. And thus, THIS is why they are systematically and methodically getting the hell OUT of the U.S. dollar. Please read this for reference: Arrivedercie Dollaro!
Thursday, April 14, 2011
This Should Piss Everyone Off
While our Government makes sure that our airlines are safe from 6 yr old girls who might be toting plutonium-laced sippy-cups through security, Congress lays out over 5,000 pages of evidence of pre-meditated fraud and theft by Wall Street firms, most notably Goldman Sachs, and the Wall Street Journal apologizes for the complete lack of eventual criminal prosecutions by patronizingly explaining that the report lacks "evidence of outright fraud." ROFLMAO. Here's the link: Let The Big Crooks Go Free Says Congress The whole lot of Wall Street CEO's and CFO's should be thrown in jail. They should be joining Angelo Mozillo - former Countrywide CEO - but he was never prosecuted either.
This is just beyond an outrage and it unequivocably demonstrates how corrupt our whole system of banking and Government has become (the head of the CFTC is a former Goldman executive). I can't even begin to express how infuriating this is. Unfortunately, and it really makes me seethe to admit this, Karl Marx was 100% correct when he stated that - to paraphrase - the capitalist system would destroy itself through widespread corporate corruption and fraud. Think I'm kidding? Look at that article above and then understand that the massive Glencore IPO about to commence in London is Marc Rich's former company, with one of its senior directors as ex-British Petroleum CEO and crook, Tony Heyward. Just can't make this shit up...anyone wondering why gold and silver keep hitting multi-decade highs everyday is an idiot for wondering...
***Late edition*** I had no choice but to add this quote just sent to me from a colleague:
This is just beyond an outrage and it unequivocably demonstrates how corrupt our whole system of banking and Government has become (the head of the CFTC is a former Goldman executive). I can't even begin to express how infuriating this is. Unfortunately, and it really makes me seethe to admit this, Karl Marx was 100% correct when he stated that - to paraphrase - the capitalist system would destroy itself through widespread corporate corruption and fraud. Think I'm kidding? Look at that article above and then understand that the massive Glencore IPO about to commence in London is Marc Rich's former company, with one of its senior directors as ex-British Petroleum CEO and crook, Tony Heyward. Just can't make this shit up...anyone wondering why gold and silver keep hitting multi-decade highs everyday is an idiot for wondering...
***Late edition*** I had no choice but to add this quote just sent to me from a colleague:
What will REALLY piss people off is when all their dopey deflation trades fail, and they are standing out in front of the train stations and home depots vying for day labor paying a silver dollar a week, do menial jobs that even immigrants will not take.
Wednesday, April 13, 2011
JP Morgan Earnings? Nothing Is But What Is Not...
My apologies to Shakespeare there...I have not done this type of analysis for quite some time for many reasons, largely time-related. But this is the kind of "forensic accounting" that I truly enjoy. The accounting standards used by public companies today have become a complete joke, and what standards remain go unenforced by the FASB/SEC/NASDAQ/FED etc. When I saw JPM's earnings headlines this morning, my doubt about the "quality" of those earnings was triggered to the point at which I felt motivated to do a cursory examination of JPM's 8-K (preliminary 10-Q) filing. I literally spent about 40 mins. just going thru the credit section located in the bowels of the 8-K, since this was the source of most of JPM's earnings boost. I would like to qualify my work by saying that I would literally need all day to go thru this report plus the footnotes of the latest 10K in order to figure out exactly where JPM is exploiting the grey areas of FASB and pushing the envelope with accounting assumptions (like loan charge-off standards, deliquency period standards, interest rate assumptions, etc). There is also a lot of information behind these numbers that would never be revealed to the public, so we have to make some assumptions about what is being manipulated on the "inside" books. There is absolutely no doubt in my mind that there is serious manipulation of accounting standards and exploitation of the fact that these standards are rarely enforced, especially on a big, too-big-to-fail bank.
Why is this important and why does the whole earnings circus on Wall Street piss me off? Because most investment money managers (big fund managers, etc), financial advisors, stockbrokers and media morons look only at the headlines reported and assume that a company like JPM is telling the truth and they grab onto the headline information and spread it as gospel. 99% of all money managers and financial advisors, even the ones with fancy initials of accolade after their names, do not understand how to thoroughly dissect an SEC financial filing. That skill is not required for them to be licensed to lose your money and take a lot fees in the process. To be sure, some Wall Street analysts will go thru JPM's numbers like I just did and put together an analytic report that might highlight some red flags, but 99% of them will reiterate a "buy" recommendation and the portfolio managers, financial advisors and stockbrokers will grab onto those reports without reading them and justify loading up on JPM stock. The whole circus is really a complete tragedy that will not end well in the long run.
So with that as a preface, let's jump into a "drive-by" look at what JPM reported and see if it makes sense and if the quality of earnings is solid or fraudulent. Everything will be compared on a 1st quarter 2011 vs. 1st quarter 2010 basis. Total revenues declined by 8.7%. Not sure I would call that positive. Net income, however, surged to $5.6 billion this quarter from $3.3 billion in 2010. Well, when you are looking at a trillion dollar balance sheet, it only takes a small "adjustment" of bad loan assumptions to generate a couple billion in accounting income. I am sure many of the assets JPM holds because they can't unload them - i.e. the toxic assets - were marked up in price to generate even more "paper income." The disclosure on that latter source of "income" in the 8-K is very poor. So how the hell did they report a huge jump in net income which was in excess of consensus expectations?
For purposes of this exercise I am just evaluating the credit statistics at a macro level. My work is not precise but it's for sure within the bounds of "horseshoes and handgrenades." To begin with, the "provision for credit losses" was $7 billion in Q1 2010 vs. only $1.2 billion this quarter. Is this reasonable? To be sure, if the 2010 number was large relative to the actual amount of losses experienced, it makes a lot of sense to reduce the provision recorded this year. "Provision" means an "estimate" of "potential" losses. You can imagine that there's a lot of "wiggle" room in the assumptions made to calculate this "estimate," especially if Jamie Dimon leans heavily on his lieutenants to come up with some accounting earnings so they can beat the street and justify Dimon's HUGE bonus this year. Let's just say that IF they had used a more reasonable 50% of the provision taken last year, it would have created a $3.5 billion accounting provision and that would have produced, roughly, only $3.3 billion of net income this year, which would have been a huge earnings miss. I think it's safe to assume that if they "over reserved" for losses last year, they "under reserved" this year. To be frank, if the Fed were not buying up toxic assets and if the Government were not guaranteeing a lot of bank assets, these provisions would much higher. Especially given that we know for sure that deliquency and default rates on mortgages are still climbing. Roughly 30% of JPM's assets are home-related loans (primary mortgages, home equity loans, home equity secured non-credit card loans, etc). It's up to you to decide if JPM is being honest here, but I will unequivocally state that they did not take a high enough provision against credit losses by a couple multiples.
Here's another interesting source of earnings management that I found. They have mortgage repurchase liability on a lot of the mortgages they underwrote and then sold off to mortgage trusts. That liability increased in 2011 to $3.3 billion from $2.3 billion last year. This despite the mortgage foreclosure moratorium we have had. That statistic alone justifies my statement in last sentence of the previous paragraph. HOWEVER, despite an increase in this liability, the provision against this liability, i.e. the amount JPM has reserved for GAAP accounting purposes, was only $420 million vs. $1.4 billion last year. That's a whopping $1.04 billion dollar swing in the expense line (lowering expenses by that much) and thus boosted net income by a little less than that, adjusting for taxes. That number is about 26 cents of the 29 cents of earnings generated from lower write-offs referenced in the headline earnings summary (see any press release). As you can see, it takes a very small change in bad-loan write-off assumptions to generate a big increase in GAAP-reported accounting earnings.
One more little statistic that will never be reported in the press or analyzed by your financial advisor or retirement fund money manager is the percentage of non-performing loans as a percent of the total amount of outstanding loans plus deriviatives. This is a HUGE area of earnings manipulation because it's data that gets buried in the bowels of financial filings and Wall Street analyst reports. This number for JPM is absurdly low, as I'm sure it is for all banks. But we know that JPM has an inordinate market share of entire derivatives market, and thus should probably be using higher assumptions for non-performing loans. Ha ha haaa. For this year, JPM is reporting $15 billion in non-performing assets vs. total loans outstanding of $685 billion. This would be 2% of total loans. They are reporting a total balance sheet of $1.2 trillion, which includes loans plus derivatives. So it's total reported non-performing loans represents only 1.3% of the entire balance sheet.
Does this make sense? You tell me. I find that number to be retarded, especially given the highly volatile nature of derivatives. But let's say they are only light .5%. Again, that is retarded. But if they became only .5% less retarded and .5% more honest, that would create a $6 billion charge against earnings on a $1.2 trillion portfolio. If this was their only mea culpa to the accounting gods - and none of the above mentioned areas of manipulation were adjusted toward the truth - they would have reported, roughly, a small loss for the quarter. Imagine how big shareholders would howl in that case given the recently reported massive bonus Jamie Dimon awarded himself. And believe me, I've been involved in quarter end games with trading desk assets in which we hid positions and had some positions marked way too high in order to increase the size of our bonus pool. This was just on one small desk in the 1990's. Imagine how large that fraud is across a big $1.2 trillion bank.
I could go on forever with this analysis but I would have to spend a week going thru JPM's public disclosures to ferret out some part of the golden truth. Rest assured that what is disclosed publicly and can be put together with some forensic accounting is still based on "massaged fraud." I would bet my last nickel that JPM is technically insolvent and that a very large percentage of its balance sheet is worth less than 50% on the dollar.
Here is the link to the latest 8-K if anyone wants to peruse it for themselves Fraud-K Since I don't get paid to do this work, I have to get back to doing what I do get paid for. Ciao.
Why is this important and why does the whole earnings circus on Wall Street piss me off? Because most investment money managers (big fund managers, etc), financial advisors, stockbrokers and media morons look only at the headlines reported and assume that a company like JPM is telling the truth and they grab onto the headline information and spread it as gospel. 99% of all money managers and financial advisors, even the ones with fancy initials of accolade after their names, do not understand how to thoroughly dissect an SEC financial filing. That skill is not required for them to be licensed to lose your money and take a lot fees in the process. To be sure, some Wall Street analysts will go thru JPM's numbers like I just did and put together an analytic report that might highlight some red flags, but 99% of them will reiterate a "buy" recommendation and the portfolio managers, financial advisors and stockbrokers will grab onto those reports without reading them and justify loading up on JPM stock. The whole circus is really a complete tragedy that will not end well in the long run.
So with that as a preface, let's jump into a "drive-by" look at what JPM reported and see if it makes sense and if the quality of earnings is solid or fraudulent. Everything will be compared on a 1st quarter 2011 vs. 1st quarter 2010 basis. Total revenues declined by 8.7%. Not sure I would call that positive. Net income, however, surged to $5.6 billion this quarter from $3.3 billion in 2010. Well, when you are looking at a trillion dollar balance sheet, it only takes a small "adjustment" of bad loan assumptions to generate a couple billion in accounting income. I am sure many of the assets JPM holds because they can't unload them - i.e. the toxic assets - were marked up in price to generate even more "paper income." The disclosure on that latter source of "income" in the 8-K is very poor. So how the hell did they report a huge jump in net income which was in excess of consensus expectations?
For purposes of this exercise I am just evaluating the credit statistics at a macro level. My work is not precise but it's for sure within the bounds of "horseshoes and handgrenades." To begin with, the "provision for credit losses" was $7 billion in Q1 2010 vs. only $1.2 billion this quarter. Is this reasonable? To be sure, if the 2010 number was large relative to the actual amount of losses experienced, it makes a lot of sense to reduce the provision recorded this year. "Provision" means an "estimate" of "potential" losses. You can imagine that there's a lot of "wiggle" room in the assumptions made to calculate this "estimate," especially if Jamie Dimon leans heavily on his lieutenants to come up with some accounting earnings so they can beat the street and justify Dimon's HUGE bonus this year. Let's just say that IF they had used a more reasonable 50% of the provision taken last year, it would have created a $3.5 billion accounting provision and that would have produced, roughly, only $3.3 billion of net income this year, which would have been a huge earnings miss. I think it's safe to assume that if they "over reserved" for losses last year, they "under reserved" this year. To be frank, if the Fed were not buying up toxic assets and if the Government were not guaranteeing a lot of bank assets, these provisions would much higher. Especially given that we know for sure that deliquency and default rates on mortgages are still climbing. Roughly 30% of JPM's assets are home-related loans (primary mortgages, home equity loans, home equity secured non-credit card loans, etc). It's up to you to decide if JPM is being honest here, but I will unequivocally state that they did not take a high enough provision against credit losses by a couple multiples.
Here's another interesting source of earnings management that I found. They have mortgage repurchase liability on a lot of the mortgages they underwrote and then sold off to mortgage trusts. That liability increased in 2011 to $3.3 billion from $2.3 billion last year. This despite the mortgage foreclosure moratorium we have had. That statistic alone justifies my statement in last sentence of the previous paragraph. HOWEVER, despite an increase in this liability, the provision against this liability, i.e. the amount JPM has reserved for GAAP accounting purposes, was only $420 million vs. $1.4 billion last year. That's a whopping $1.04 billion dollar swing in the expense line (lowering expenses by that much) and thus boosted net income by a little less than that, adjusting for taxes. That number is about 26 cents of the 29 cents of earnings generated from lower write-offs referenced in the headline earnings summary (see any press release). As you can see, it takes a very small change in bad-loan write-off assumptions to generate a big increase in GAAP-reported accounting earnings.
One more little statistic that will never be reported in the press or analyzed by your financial advisor or retirement fund money manager is the percentage of non-performing loans as a percent of the total amount of outstanding loans plus deriviatives. This is a HUGE area of earnings manipulation because it's data that gets buried in the bowels of financial filings and Wall Street analyst reports. This number for JPM is absurdly low, as I'm sure it is for all banks. But we know that JPM has an inordinate market share of entire derivatives market, and thus should probably be using higher assumptions for non-performing loans. Ha ha haaa. For this year, JPM is reporting $15 billion in non-performing assets vs. total loans outstanding of $685 billion. This would be 2% of total loans. They are reporting a total balance sheet of $1.2 trillion, which includes loans plus derivatives. So it's total reported non-performing loans represents only 1.3% of the entire balance sheet.
Does this make sense? You tell me. I find that number to be retarded, especially given the highly volatile nature of derivatives. But let's say they are only light .5%. Again, that is retarded. But if they became only .5% less retarded and .5% more honest, that would create a $6 billion charge against earnings on a $1.2 trillion portfolio. If this was their only mea culpa to the accounting gods - and none of the above mentioned areas of manipulation were adjusted toward the truth - they would have reported, roughly, a small loss for the quarter. Imagine how big shareholders would howl in that case given the recently reported massive bonus Jamie Dimon awarded himself. And believe me, I've been involved in quarter end games with trading desk assets in which we hid positions and had some positions marked way too high in order to increase the size of our bonus pool. This was just on one small desk in the 1990's. Imagine how large that fraud is across a big $1.2 trillion bank.
I could go on forever with this analysis but I would have to spend a week going thru JPM's public disclosures to ferret out some part of the golden truth. Rest assured that what is disclosed publicly and can be put together with some forensic accounting is still based on "massaged fraud." I would bet my last nickel that JPM is technically insolvent and that a very large percentage of its balance sheet is worth less than 50% on the dollar.
Here is the link to the latest 8-K if anyone wants to peruse it for themselves Fraud-K Since I don't get paid to do this work, I have to get back to doing what I do get paid for. Ciao.
Tuesday, April 12, 2011
More Anectdotal Evidence That The Fed Printing Will Not End With QE2
Again, I get back to my thesis that the Treausury will not be able to fund the inexorable spending appetite of the Obama Administration (the $38 billion in cuts is a complete joke and all it does is ever-so-slightly reduce the growth trajectory of the spending).
I've been waiting for someone to step up to the plate and show me the mathematices on how the Treasury will fund its spending needs if the Fed stops printing more money after June 30. Jim Rickards is all over the blogosphere like famine in Africa explaining that the Fed can fund Treasury auctions without increasing its balance sheet. I would like him to show me the math on that. HERE is the math on my view, as clearly and articularly elucidated by zerohedge:
So if the Fed does not step up to the plate and print more money to fund Obama's Government, then who will? The Japanese? LOL. I think they have their hands full right now and probably need any excess liquidity to fund their own current problems. Capisci? How about the Chinese? Read this article which had almost no real media exposure:
And if you still want to suspend your disbelief and buy into the garbage coming from many Fed officials plus Rickards, please take the time to read this extraordinarily well-written analysis from Alisdair Macloed:
So there you have it. I suggest everyone ignore the flatulence coming from NYC and DC and start looking at their own finances and move some assets into gold and silver. Silver supplies are starting to dry up and the mining supply is not coming close to covering the demand globally. And if you really want to be irritated, check out the nice gift that Geithner, Hank Paulson (and de facto Bush and Obama) gave to their good friends on Wall Street using your money: The Real Housewives Of Wall Street
I've been waiting for someone to step up to the plate and show me the mathematices on how the Treasury will fund its spending needs if the Fed stops printing more money after June 30. Jim Rickards is all over the blogosphere like famine in Africa explaining that the Fed can fund Treasury auctions without increasing its balance sheet. I would like him to show me the math on that. HERE is the math on my view, as clearly and articularly elucidated by zerohedge:
So putting it all together: assuming no QE3, and just continued rolling and transforming MBS in UST purchases, means that the Fed will have about $12 billion in average UST purchases per month from maturity extension, and about $20 billion from MBS prepays. This is at best one quarter of the amount the Fed monetizes per month currently and is largely inadequate to continue funding the US deficit.Here's the link to the article with links to the reference sites so you can check their math if you so desire: TO QE3 or NOT TO QE3
So if the Fed does not step up to the plate and print more money to fund Obama's Government, then who will? The Japanese? LOL. I think they have their hands full right now and probably need any excess liquidity to fund their own current problems. Capisci? How about the Chinese? Read this article which had almost no real media exposure:
A former adviser to China's central bank said on Monday that China should have retreated from the U.S. government-bond market and instead allowed the yuan to appreciate more freely, warning that U.S. sovereign debt was akin to a giant Ponzi schemeHere's the link for that news item, which actually came out yesterday: LINK I think it's safe to say that the Chinese probably won't increase their Treasury holdings, have been systematically hedging them out with gold and silver and the real risk is that they start dumping them, like Pimpco's Bill Gross. Oh ya, the world's largest bond investment fund is not a likely candidate to fund Obama since he's now net short the Treasury market.
And if you still want to suspend your disbelief and buy into the garbage coming from many Fed officials plus Rickards, please take the time to read this extraordinarily well-written analysis from Alisdair Macloed:
One of the stark alternatives is to end quantitative easing and permit far higher interest rates, plunging the Obama administration into bankruptcy and the US economy into deep economic cleansing. The other is more ZIRP plus QE3 resulting in accelerating stagflation, made worse by a rapidly depreciating dollar. LINKHe argues that the Fed will pay lip service to being inflation-vigilant by delivering a gratuitous 1/4 point hike in the Fed funds rate, but will be forced to continue printing money or else Obama's spending dreams die and the Govt goes insolvent. I have made that same argument, in terms of the Fed justifying more printing by patronizing the M2 critics with a tiny, useless hike in interest rates.
So there you have it. I suggest everyone ignore the flatulence coming from NYC and DC and start looking at their own finances and move some assets into gold and silver. Silver supplies are starting to dry up and the mining supply is not coming close to covering the demand globally. And if you really want to be irritated, check out the nice gift that Geithner, Hank Paulson (and de facto Bush and Obama) gave to their good friends on Wall Street using your money: The Real Housewives Of Wall Street
Friday, April 8, 2011
Someone Please Explain To My How There Can Be A Bubble In Gold And Silver
The idea is absurd. In today's Denver Post, just like everyday, there are two outfits running full page ads asking/begging to buy your gold and silver. These ads are not cheap to run, which means there are plenty of people out there unloading their bounty. DEFINITIONALLY, an asset class is in a "bubble" state of being when the masses can't buy enough of an asset class. The most recent and obvious examples are the internet stocks of the late 1990's thru April 2000 and the housing market. With housing, there were bidding wars among buyers of crappy homes that had already quadrupled in price, buyers typically owned multiple homes and were looking to buy and flip and leverage was being used to the fullest possible extent. THAT is a bubble. THAT state of being does not exist in the metals markets. It's that simple.
Here's some support for my view from James Turk, one of best market analysts I have ever come across in 30 years of involvement in finance:
In fact, not only is the general public a better seller of gold and silver, rather than chasing the prices higher as buyers in true bubble form, but big institutions have not yet moved into the sector. GLD exposure does not count - or any ETF for that matter except the Sprott trusts - because the ETF's are nothing more than paper investements. You need to have the ability to take delivery of the physical metal at your command in order for it to be considered a true purchase, or transfer of ownership/title transaction. Anything else is fiat paper. Here is a perfect, factual illustration of my point - I sourced this chart from Casey Research (edit in red is mine):
Here's some support for my view from James Turk, one of best market analysts I have ever come across in 30 years of involvement in finance:
We finally broke through resistance of $1,440 and in my opinion we’re starting to see the beginning stages of an upside explosion in gold. It’s sort of amazing to think Eric that here we have gold at record highs and it still hasn’t yet caught the public’s attention.Here's the LINK to the full text of Turk's comments.
In fact, not only is the general public a better seller of gold and silver, rather than chasing the prices higher as buyers in true bubble form, but big institutions have not yet moved into the sector. GLD exposure does not count - or any ETF for that matter except the Sprott trusts - because the ETF's are nothing more than paper investements. You need to have the ability to take delivery of the physical metal at your command in order for it to be considered a true purchase, or transfer of ownership/title transaction. Anything else is fiat paper. Here is a perfect, factual illustration of my point - I sourced this chart from Casey Research (edit in red is mine):
This chart shows the value of gold as percent of total global investment assets. Still under 1%. As you can see, back in 1968, before anyone even knew what an investment bubble was, gold represented just under 5% of global financial assets. Now, historically it has been an accepted tenet of portfolio management that gold should represent 5-10% of any investment portfolio, if just for the reason that it has a negative market beta. That chart shows me that, at best and on average, gold is less than 1% of investment portfolios, institutional and individual. How the hell can this possibly be the statistical profile of an asset that is in a bubble? This chart tells me that there is an absolute tsunami-sized flood of capital that still has yet to flow into the sector before we can even begin to whisper the "B" word.
Thus, not only is gold NOT in a bubble state, but it BARELY registers as an investment with big institutions AND the public is still dumping it. The day that I open up the Denver Post and I see several full-page ads of companies offering to SELL me THEIR gold and silver is the day that I start to unwind my investment in gold/silver/mining stocks and come up with a new investing paradigm (rest-assured, I will likely have already formulated a gameplan before that happens).
So, for all of you who want to believe that the gold trade is "too crowded" and is in a bubble, I am happy to buy everything you want to sell....buon fine settimana a tutti!
Thursday, April 7, 2011
Oops! Looks Like My New Year's Housing Call Is Going To Be Right
Please do not mistake this post as being some sort of celebratory "end zone" or "grave" dancing. But I have been criticized and mocked for my views on housing and the economy for the better part of the last decade and even now people think I'm nuts for thinking housing has not bottomed. BUT, here's the lastest data:
This will get worse as foreclosures pile up and real unemployment persists. I have read numerous accounts of people with contacts at banks telling them that delinquency and default rates keep getting worse, despite the seemingly cheery economic news that is shovelled at us from NYC and DC.
Here is my early January post, for your reading leisure: LINK
How does this relate to my QE3 view? I do believe that the Fed will jerk us around and maybe even play "chicken" with reality by following thru with the signals it is sending right now and will temporarily cease implementing the QE programs. We may go for a few months without any overt money printing, although I'm not sure how the Government Treasury auctions will be funded (see this report from zerohedge if you wonder why I say this: LINK).
But you need to ask yourself, if you do fall into the mistaken view of believing the garbage coming from the Fed and Obama, have any of the problems that created the banking system collapse in 2008 been solved? The answer is unequivocally "NO." In fact, the papering over of the problems and shifting a substantial amount of bad financial industry debt onto the Government balance sheet have served to exacerbate and magnify the true endemic/systemic problems. Ultimately the Fed will "blink" as the economy collapses again and we'll get served up a huge helping of QE3, justified by the "problems" inflicted upon us by the "evil-doers" in the Middle East and the collateral economic damage caused by the Japan disaster.
And if the market truly believed that QE3 would not happen, wouldn't that be reflected with a big rally in the dollar? Got or getting gold/silver everyone????
Home prices fell for a seventh straight month in February as a wave of distressed properties continued to wash over the U.S. market, real-estate data company CoreLogic Inc. said ThursdayAnd here's the article link: HOME PRICE INDEX DROPS 6.7% IN FEB
This will get worse as foreclosures pile up and real unemployment persists. I have read numerous accounts of people with contacts at banks telling them that delinquency and default rates keep getting worse, despite the seemingly cheery economic news that is shovelled at us from NYC and DC.
Here is my early January post, for your reading leisure: LINK
How does this relate to my QE3 view? I do believe that the Fed will jerk us around and maybe even play "chicken" with reality by following thru with the signals it is sending right now and will temporarily cease implementing the QE programs. We may go for a few months without any overt money printing, although I'm not sure how the Government Treasury auctions will be funded (see this report from zerohedge if you wonder why I say this: LINK).
But you need to ask yourself, if you do fall into the mistaken view of believing the garbage coming from the Fed and Obama, have any of the problems that created the banking system collapse in 2008 been solved? The answer is unequivocally "NO." In fact, the papering over of the problems and shifting a substantial amount of bad financial industry debt onto the Government balance sheet have served to exacerbate and magnify the true endemic/systemic problems. Ultimately the Fed will "blink" as the economy collapses again and we'll get served up a huge helping of QE3, justified by the "problems" inflicted upon us by the "evil-doers" in the Middle East and the collateral economic damage caused by the Japan disaster.
And if the market truly believed that QE3 would not happen, wouldn't that be reflected with a big rally in the dollar? Got or getting gold/silver everyone????
Wednesday, April 6, 2011
Here Is The Bullion Bank Cartel's Worst Nightmare...
Competition from one around the world. Gold futures volumes on the Dubai Gold and Commodities Exchange is rapidly growing. In time it will provide free market competition to the Comex and limit the ability of the big U.S./European bullion banks' ability to manipulate the gold and silver markets. While not even close yet in scale to Comex volumns, the growth is robust:
On another note, I'm seeing a lot of signs that the banking gods are trying to reinflate the housing bubble. I heard an ad on the radio last week by some bank promoting low-interest home equity loans. And I just received this note in my email from one of the banks I with which I do business: HELOC promotion, and have a really good rate of 3.75 Variable APY, no points, no annual fees, no appraisal fee only $100 application fee.
I have to laugh at this. I've been meaning to do a blog post discussing the fact that credit standards in the banking system have collapsed again. There are all kinds of examples, but the coup de grace is the revival of home equity loans. Banks have capital available and risk-appetite for this because the Fed/Government inteferred with free market process by saving the big banks. Not only did they not have to suffer for their sins, but they survived and are taking our system down the same path that led to the 2008 banking system collapse. Twain was wrong, sort of, history rhymes AND repeats.
A key highlight of March 2011 was the strong performance of DGCX Gold futures, which grew 51% year-on-year and 57% on February 2011 to reach 49,011 contracts. Silver futures also witnessed robust growth rising 84% year-on-year and 102 % from last month to reach 4,370 contracts. LINKTo me it's also indicative of the fact that OPEC countries are increasingly looking for ways to swap out of all of the dollars they take in from selling oil. The demand for physical gold being reported by these countries supports that premise.
On another note, I'm seeing a lot of signs that the banking gods are trying to reinflate the housing bubble. I heard an ad on the radio last week by some bank promoting low-interest home equity loans. And I just received this note in my email from one of the banks I with which I do business: HELOC promotion, and have a really good rate of 3.75 Variable APY, no points, no annual fees, no appraisal fee only $100 application fee.
I have to laugh at this. I've been meaning to do a blog post discussing the fact that credit standards in the banking system have collapsed again. There are all kinds of examples, but the coup de grace is the revival of home equity loans. Banks have capital available and risk-appetite for this because the Fed/Government inteferred with free market process by saving the big banks. Not only did they not have to suffer for their sins, but they survived and are taking our system down the same path that led to the 2008 banking system collapse. Twain was wrong, sort of, history rhymes AND repeats.
Tuesday, April 5, 2011
Gold And Silver Got Nuts Again
Anyone bother to ask why? I saw this headline a few minutes ago on cnn.com: "Oil, gold, silver are 'uncertainty magnets'." The is pure b.s. Oil, gold and silver are "magnets" for all of the paper currency that has been, is being and will be manufactured by global Central Banks and Governments. If there is "uncertainty" out there, it is derived from the instability of fiat paper monetary systems and the real fear of not knowing how extreme CB and Govt monetary/fiscal policies will become. It's really that simple.
The biggest source of instability and uncertainty is right here in the United States and is reflected in the value of the U.S. dollar - a currency that may be approaching a state of collapse. Eric King posted an excellent piece from Faros Trading on his blog last week. The Faros guy points out that OPEC countries will take in $1 trillion in dollars from oil sales this year. He also points out that these Arab nations have no interest in keeping these dollars and have been aggressively stepping in front of the Chinese to swap them for euros. Here is the LINK It's really a must-read.
The highly respected and well-weathered Richard Russell also posted commentary on the potential for the dollar collapsing today on the King blog. You might not know who Faros Trading is, but trust me that Richard Russell is someone who has been around longer than just about anyone. Here is RR's thoughts on the subject: LINK
Gold and silver are moving a lot higher here, despite the headwinds being tossed at them by the idiots in the media, because the possibility U.S. dollar instability, and even collapse, becomes more real by the day. The thing about whether or not QE3 will happen has become quite a boring debate in my mind. If someone can explain to me how the Government is going to finance its Treasury issuance if the Fed printing stops at the end of June, then I will accept that we will not get QE3 in one form or another. But here is the latest proof that the Fed has been largely responsible for keeping our Government funded since the start of the QE program: This comes from http://www.zerohedge.com/, which has done a great job of tabulating the Fed's accumulation of new Treasury issues: LINK The fact of the matter is, per zerohedge's accounting, the Fed has provided 83% of the Treasury's cash since QE2 started: LINK While I'm willing to believe that our policy leaders would like to stop the printing presses, until someone can show me how the mathetics to keep the Government funded without QE3 will work, I'm still confident that QE3, in some form - overt or disguised - will happen.
I will leave you all with the comment of a close friend and advisor to our fund. This is someone who served as the director of the Denver Branch of the Kansas City Federal Reserve Bank for six years. In other words, he has valuable insight into the "thinking" of the Fed:
The biggest source of instability and uncertainty is right here in the United States and is reflected in the value of the U.S. dollar - a currency that may be approaching a state of collapse. Eric King posted an excellent piece from Faros Trading on his blog last week. The Faros guy points out that OPEC countries will take in $1 trillion in dollars from oil sales this year. He also points out that these Arab nations have no interest in keeping these dollars and have been aggressively stepping in front of the Chinese to swap them for euros. Here is the LINK It's really a must-read.
The highly respected and well-weathered Richard Russell also posted commentary on the potential for the dollar collapsing today on the King blog. You might not know who Faros Trading is, but trust me that Richard Russell is someone who has been around longer than just about anyone. Here is RR's thoughts on the subject: LINK
Gold and silver are moving a lot higher here, despite the headwinds being tossed at them by the idiots in the media, because the possibility U.S. dollar instability, and even collapse, becomes more real by the day. The thing about whether or not QE3 will happen has become quite a boring debate in my mind. If someone can explain to me how the Government is going to finance its Treasury issuance if the Fed printing stops at the end of June, then I will accept that we will not get QE3 in one form or another. But here is the latest proof that the Fed has been largely responsible for keeping our Government funded since the start of the QE program: This comes from http://www.zerohedge.com/, which has done a great job of tabulating the Fed's accumulation of new Treasury issues: LINK The fact of the matter is, per zerohedge's accounting, the Fed has provided 83% of the Treasury's cash since QE2 started: LINK While I'm willing to believe that our policy leaders would like to stop the printing presses, until someone can show me how the mathetics to keep the Government funded without QE3 will work, I'm still confident that QE3, in some form - overt or disguised - will happen.
I will leave you all with the comment of a close friend and advisor to our fund. This is someone who served as the director of the Denver Branch of the Kansas City Federal Reserve Bank for six years. In other words, he has valuable insight into the "thinking" of the Fed:
The Fed will pay lip service to stopping at QE2 but there is no way to unwind at this point given the economy and they will go into QE3 and use Japan and Middle East as cover for it..........there is a huge problem creeping up around forex carry trade that will need to be unwound concerning the YenThis is why gold and silver are going higher.
Monday, April 4, 2011
Robert Prechter - aka Mr. Elliott Wave - Is An Idiot
Prechter announced to the world last week that he shorted gold and silver. I don't recall the entry levels, but his stop-loss on silver was set at 38.50. That position was stopped out this morning at a nice loss for his loyal followers. Rest assurred that Prechter, like Gartman, was only issuing a subscription newsletter recommendation and not using his own money.
I remember back in 2002 when Prechter announced to the world that he was shorting gold just below $400, boasting that he would be covering his short at $50. How's that trade looking? In fact, Prechter has been making short calls quite frequently during this entire 10-yr, so far, bull market. We haven't even really started Stage 2, which is when the big institutions finally pile into gold and silver and mining stocks. In fact, John Embry was commenting last week that he was seeing money flowing out of major mining stock funds during March. Thus, not only have we not really started the middle phase of a classic bull market, all signals are pointing to much higher prices in gold and silver before pre-bubble Stage 2 really gets underway.
Prechter and Gartman will continue to lose money for their subscription faithful and a lot of other hacks will come onto CNBC and Bloomberg and Fox Business and make themselves look like idiots with their lack of knowledge of this market. As long as Governments globally continue to print and spend money, gold and silver will continue to move inexorably higher.
I remember back in 2002 when Prechter announced to the world that he was shorting gold just below $400, boasting that he would be covering his short at $50. How's that trade looking? In fact, Prechter has been making short calls quite frequently during this entire 10-yr, so far, bull market. We haven't even really started Stage 2, which is when the big institutions finally pile into gold and silver and mining stocks. In fact, John Embry was commenting last week that he was seeing money flowing out of major mining stock funds during March. Thus, not only have we not really started the middle phase of a classic bull market, all signals are pointing to much higher prices in gold and silver before pre-bubble Stage 2 really gets underway.
Prechter and Gartman will continue to lose money for their subscription faithful and a lot of other hacks will come onto CNBC and Bloomberg and Fox Business and make themselves look like idiots with their lack of knowledge of this market. As long as Governments globally continue to print and spend money, gold and silver will continue to move inexorably higher.
Sunday, April 3, 2011
Must-Watch "Inside Job" - The Public Got Screwed And We Haven't Held Them Accountable
Courtesy of http://www.openculture.com/ you can watch the movie "Inside Job," narrated by Matt Damon. The movie does a good job, generally, in translating into layman's terms how the financial bubble was perpetrated by Wall Street, in collusion with the Government - both Republican and Democratic administrations.
It's great that the public can see some of the truth and facts laid out like this. And it's great that Congress forced some of the CEO's to be publicly humiliated, somewhat. But the bottom line is that many people, from Hank Paulson to Angelo Mozillo to the regulators who moved from DC to Wall Street, made $100's of millions derived from willing and motivated corruption and fraud and were never held accountable. Congress has not held these people accountable. The Bush and Obama adiminstrations have not held them accountable. The people of this country have not held them accountable. These are people who would have been thrown in jail and forced to disgorge their wealth in another era of this country.
Here is the link: INSIDE JOB
The corruption and lack of accountability stretches from Alan Greenspan dating back to when he worked for Charles Keating and defended Keating's fraudulent use of S&L money - the losses of which were paid for by the taxpayer ultimately - to today's Wall Street CEO's and even Ben Bernanke. Watch the movie and you'll see what I'm alluding to with regard to Bernanke and his henchmen at the Fed.
One of these days there will be accountability demanded in this country, only it will like take the form of social uprisings similar to what we are witnessing in the Africa and the Middle East. Until then, the best way to profit and take advantage of this mess is to continue accumulating gold and silver and mining stocks. Becuause as long as the fiscal and financial policies of this country continue to enable this fraud and corruption and lack of accountability, more and more capital will flow into gold and silver, which both have been honest money for over 5000 years.
It's great that the public can see some of the truth and facts laid out like this. And it's great that Congress forced some of the CEO's to be publicly humiliated, somewhat. But the bottom line is that many people, from Hank Paulson to Angelo Mozillo to the regulators who moved from DC to Wall Street, made $100's of millions derived from willing and motivated corruption and fraud and were never held accountable. Congress has not held these people accountable. The Bush and Obama adiminstrations have not held them accountable. The people of this country have not held them accountable. These are people who would have been thrown in jail and forced to disgorge their wealth in another era of this country.
Here is the link: INSIDE JOB
The corruption and lack of accountability stretches from Alan Greenspan dating back to when he worked for Charles Keating and defended Keating's fraudulent use of S&L money - the losses of which were paid for by the taxpayer ultimately - to today's Wall Street CEO's and even Ben Bernanke. Watch the movie and you'll see what I'm alluding to with regard to Bernanke and his henchmen at the Fed.
One of these days there will be accountability demanded in this country, only it will like take the form of social uprisings similar to what we are witnessing in the Africa and the Middle East. Until then, the best way to profit and take advantage of this mess is to continue accumulating gold and silver and mining stocks. Becuause as long as the fiscal and financial policies of this country continue to enable this fraud and corruption and lack of accountability, more and more capital will flow into gold and silver, which both have been honest money for over 5000 years.
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