Wednesday, August 31, 2011

...And The Golden Truth Is Revealed:

Kudos to a commentor who dug this story up.  It turns out that the owner of Solyndra was a big source of campaign contributions to Obama AND Obama cut corners around the rules in place to get over $500 million in funding to Solyndra.  Here's the report:  LINK

Since this company just pissed away public money, I would suggest that we get to see a detailed look at the inside books so we can see just how much of that $500 million went into the bank accounts of the upper management. 

Moreover, it sounds like many of Obama's political allies and fundraisers were beneficiaries of "green" loans from the Taxpayers.  I don't know who the Obama supporters think they voted for, but I guarantee you that Obama is at least as corrupt as most of his predecessors.  One of my biggest worries about him was that he was a product of the Chicago political "machine," which means there isn't an honest bone in his body...Please note that the story is from ABC News and not some conspiracy-theory addled source.

Another Obama Spending Idea Fails - Badly

And the Taxpayers get to take on the financial burden.  Or at least the Taxpayers who have children and grandchildren get to let those poor souls pay for Obama's massively failed spending agenda.  First it was the healthcare legislation, which has made healthcare a LOT more expensive for all other than for those who qualify for free emergency room care because they can't afford healt insurance.  Then it was the $800+ billion stimulus program, which succeded in putting a lot of low-IQ people to work who stand around in bright orange vests and watch while one or two of their nicely compensated/benefitted colleagues work on putting in new gutters and curbs along streets that don't need them.  And now Obama's alternative energy program takes a big blow as Solyndra, a solar energy company that received over $500 million in taxpayer money, filed bankruptcy.  Here's the LINK

What I would love to know is how much the upper management of Solyndra paid itself from the time it got Obama's Taxpayer largesse donation and until it went into the tank.  Because what Obama's faithful see as Government programs designed to make the world a better place are nothing more than the massive transfer of public wealth into the pockets of the upper management at the private companies who get Government contracts and public union employees, without any offsetting economic benefit.  In fact, the only things Obama's grand designs have done for those who pay for them - the Taxpayer - has been the devaluation of the dollar and the massive increase in public debt.

Thanks Barack!  And I'm sure the enriched to CEO of Solyndra has thanked you with campaign donations.

On another note, in a move that is increasingly becoming a trend for China and its big trading partners, it looks like China is in the process using the China yuan instead of the dollar in its trade with African countries.  Here's the news report:  LINK  Anyone who thinks the dollar can't collapse because it has the full faith and credit of the U.S. Government is blind to reality.  Just look at the above report - why would anyone put "faith" in that Government?

Tuesday, August 30, 2011

Things That Make You Go "WTF?"

I heard a funny joke today:  Q:  How do you starve an Obama supporter?   A: Hide his food stamps under his work boots...Jobs are out there for many of those who want them, otherwise there wouldn't be people from Mexico sneaking into this country in order to work.  But why work if the Government makes it possible for you to not work?...I wanted to point out that, per the most recent Government report on personal income report, LINK, that 18% of all personal income is derived from Government transfer payments.  One way to think about this is to consider that a large percentage of the taxes you pay are taken and distributed back to certain segments of the population and counted as their income.  I don't know about you but I believe that's just wrong.  I suppose I could dig up the portion of my income that is taken from me and given to others, who contribute nothing to our system, but I'm not ready to move out of the country to an island somewhere yet and I might do that if I knew that number.

Einstein once said that the definition of "insanity" is to keep doing the same thing, over and over again, but expecting different results.  I was reminded of this when I read comments by Gerald Celente in the King World News Blog LINK  Celente has huge respect from me because his vision is very similar to mine.  Sometimes I like to think he must have had my phone conversations taped back in the early 2000's, even though I think he's been a super-bear long before I saw the light.  Anyway, Celente referenced the fact that a couple of years ago Nouriel "Gold is in a bubble" Roubini had said that gold would never reach $1,100.  How's that forecast looking?  Now Roubini is out pounding the gold bubble table once again.  At some point you have to consider that maybe, according to Einstein's definition, Roubini is insane...Reminds of 2002 timeframe when gold was around $375 and Robert Prechter said that the gold was move over and that it was going to collapse to $50.  Haven't heard from Prechter on gold in a LONG time.  Maybe he's saving a bed for Roubini in the mental ward of Bellvue Hospital in NYC... 

More On The Gold "Bubble" And Why It Isn't

I wanted to share a comment from a reader who happens to be a gold dealer.  The other day I opined that the ratio of public sellers to buyers was about 9 to 1.  This person says in his business the seller/buyer ratio is 10 to1.  He also refutes the notion that just because gold dealers are advertising their business, it doesn't signify that it's a bubble indicator.  I refuted this idea proposed by another blogger by explaining that grocery stores advertise aggressively everyday - is food in a bubble?  Finally, he agrees with me that Glenn Beck is jack-ass.  Here's his commentary: 
As a professional numismatist of 24 years, we have been buying huge amounts of scrap alongside some serious coin collections. Last Wednesday, our New York office spent $250,000 buying. More than half of it from one client selling gold coins.

As for a bubble, definitely not. In London I have 10 sellers for one buyer.  That will not reverse until the economy picks up and people start making money again.  Then they will return and buy the coins they sold to buy food or pay the mortgage or meet their payrolls.

But what I really want to say is the amount of people we have saved from ruin. It is all well and good being high and mighty about us misleading people to sell, but you do not sit in front of the people whose houses, and business we saved, using my savings, my children’s inheritance. Are we not allowed to make a profit?
I personally had a lady last week with eyes brimming with tears selling literally everything she had to pay bills. We worked on the thinnest of margins to help her out, about $2 a gram profit. I AM LOSING MONEY ALREADY.  Money that is my family's, my children’s future and everything I worked to save. Ten years ago we couldn’t give gold away at $250 an ounce, now everybody is an expert and we are parasites.
According to 24Hourgold the premium on silver is 30% above spot, yet it will never ever be bought for such a premium, so fools are listening to idiots like Glenn Beck and just giving money away. When they sell, and I give 10- 20% below spot I am again called a parasite and Beck is the hero.

Gold and rare coins are financial insurance. Quality, physical assets that provide emergency funding when you need it most. The market is functioning exactly as it should, and we are providing liquidity-for-a-profit to people who need it most.
I also wanted to highlight a very significant factor driving up the price of gold - Indian and Asian buying.  The Central Banks and populations of these countries are loaded down with paper currency and they are aggressively converting it into gold.  Given that these civilizations have been around and doing this for a couple thousand years, as opposed to the meager 240 years of U.S. civilization, I have to believe that they are on to something.  Here's two excerpts from the "JBGJ" report, which can be sourced in the nightly "Midas" report at
(this one is from a London-based bullion bank) “Our sales to India were more than twice the average daily volume, but then again at higher prices we'd seen good demand this week overall. Indeed, even if India didn't buy anything today, this would be the best week for Indian physical sales since May. Yesterday was also a holiday in India, and this likely depressed demand; we expect a stronger buying response today.”
(And this one is JB's comment with regard to the very high premiums being observed right now in Asia, which is indicative of huge demand) Possibly the Chinese public is more enthusiastic than others about the recent gold pull back being a buying opportunity. But JBGJ cannot forget that the unprecedented appearance of double digit premiums last year heralded the huge Chinese gold import binge at the end of the year. That seemed to be associated with an inflation scare in China. This concern seems to be picking up momentum again – see today’s Reuters story China plans to mop up bank liquidity to battle inflation . The world has little experience of China as a major gold importer – until last year, imports although much hyped were quite modest.
And finally, two more Fed Governors have announced that they are not opposed to more Quantitative Easing by the Fed, including one - Kocherlakota - who had been one of the three dissenters at the most recent FOMC policy meeting.  Here's the news links:  QE3; And More QE3

The fundamentals and news keep piling up in favor of my view that there is a very high probability that we will get a big move in gold between now and year-end.  Again, this won't come without opposition from the banking establishment, which means big moves in both directions.  Furthermore, just as Bernanke has his "tools" to stimulate growth, the CME still has its tool - margin hikes - to try and temporarily suppress the move higher in gold.  If you trade this market, tread carefully.  If you are simply converting fiat monopoly paper into physical gold and silver, just buy now and buy more on every price smack.  If you think you own gold because your brilliant financial advisor has some small part of your investments in GLD and SLV - you don't - you own fiat monopoly paper and eventually those two "trusts" will be "Enronized."

Monday, August 29, 2011

Economy In A Tailspin; Get Ready For Some Serious Socialism From Team Teleprompter

Pending home sales for July were reported down 1.3% in July this morning.  The "spin" put on this was that the index was 14% above last July and the NAR chief idiot, Lawrence Yun, commented that it was above the "low" for April.  I almost don't want to shred that statement because it is so stupid.  To begin with, April is still part of the "dead" season for housing.  Conversely, July should be one of the peak selling months.  Moreover, a trend of high contract cancellations began in May and June, and I expect it to continue in July.  July will thus be worse than initially expected as indicated by the Pending Sales index.  Quite frankly, it looks like the entire 2011 selling season will be dead.  Here's the news report:  LINK

In addition, the Dallas Fed released its regional manufacturing index for August this morning.  It declined substantially from July and is close to going negative.  And it was well below the consensus Einsteinian group of highly paid Wall Street economic clan, who can't seem to hit the broad side of Adam Smith's barn with their forecasting.  Here's the report:  LINK  As you can see, almost every single input variable was negative, indicating the likelihood of serious economic contraction in the region.  This report is consistent with those from Chicago, Philly and Richmond.  Collectively I would expect, short of some incredible David Copperfield-esque perception manipulation from the Government, that we will see a negative GDP print for Q3.  I also think we could see a negative print for Q2 when the Government reports its final revision on September 29th.

To address the above situation, I expect at some point that the Fed will roll out some sort of massive money printing program in conjunction with a massive "stimulus" program to be unveiled by the Teleprompter early September.  Expect that we are going too see a MASSIVE transfer of wealth from Taxpayers to the housing sector.  As an example, take a look at this article from Bloomberg detailing how the Government is now largest home seller.  Here's the kind of policy response we'll get from the Teleprompter and his Big Government solution:  
The government’s housing inventory is just one challenge facing President Barack Obama as he prepares to run for re- election next year. The administration also is exploring ways to help hard-hit neighborhoods, unemployed homeowners and underwater borrowers whose houses are worth less than what they owe -- many of them concentrated in battleground states including Florida, Ohio and Nevada
Here's the link and try not to weep while you read it:  LINK

In order to justify his Big Government policies, the Teleprompter has announced the appointment of Bernanke's academic colleague, Alan Krueger, to be his chief economic advisor.  I couldn't find a lot about Krueger's economic views other than he's some kind of expert on education and minimum wages.  Given that he's a Princeton economist, I would also suspect that he heavily buys into Keynesian policies, which have demonstrated utter failure in practice.   Krueger has never had to work in the real world and thus has no grounding in reality.  Expect  a very heavy dose of Government programs designed to spend Taxpayer money putting people to work building a lot more useless infrastructure projects and bridges to nowhere.  Also expect a heavy dose of education subsidies and bigger student loan programs.  All of this, mind you, paid for using printed money and much higher Government borrowing.  Here's summary from Bloomberg on Krueger, which is consistent with the information I found using google:  LINK

It's getting nice and cozy in the Oval Office now, with the Teleprompter doing a great job reading the scripts  prepared for him by his chief of staff, ex-JPM director William Daley, and now his new chief economic advisor whispering sweet nothings into his ear about spending a lot of borrowed money for infrastructure projects and student loans.  Based on his academic background I expect Krueger - in a move right out of Atlas Shrugged - to lobby hard for a big increase in the minimum wage as well.  I'm shrugging right now because Big Government always fails and it transfers a lot of wealth to the elitists in the process.

It's getting really ugly out there on Main Street and in DC.  With all this coming money printing and Government "stimulus," I expect to see - on balance - a big rally in the price of gold and silver, especially as we now entering the prime Indian buying season and the Chinese demand for gold is accelerating.  This won't come without a lot of volatility, which will include some aggressive by attempts by the Fed and its bishops - the bullion banks - to force some big down days.  Buy these as best you can.

Sunday, August 28, 2011

The Idea That Gold Is In A Bubble Is Idiotic

And the promoters of this idea are complete morons or completely corrupt.  This morning I heard an ad on the radio by an outfit called Empire Diamond explaining that they wanted to pay the best price in the market to by your gold and silver in any form (i.e. jewelry, silverware, junk, etc).  Their tagline was "Don't wait for the price of gold to drop before you sell."  LOL.  Then I open the front section of the Denver Post and the center pages featured a full-color ad from The Great Estate Roadshow, which will be set up in 4 locations around Denver all next week and it wants to buy any and all scraps of gold/silver that you want to sell them.  The ad was like a Playboy centerfold featuring a very detailed reproduction of all the items the outfit will buy.   This ad is not cheap and neither is the event being staged, meaning that some outfit is spending a LOT of money to try and coax the public into unloading their gold and silver in any form.  The question is, who wants to buy it so badly?  It also indcates that public is still selling a lot of gold and silver and has a lot left to sell.  That is not the sign of an asset in an investment bubble.

Every time I turn on the news media or open the newspaper I encounter "experts" and gold/silver buyers counselling the public that price of gold is going to fall.  They never ever suggest that the price might actually go up.  Contrast this with the internet/tech stock bubble and then the subsequent catastrophic housing bubble:  how many promoters were telling the public that the price of these "investments" could actually drop? 

It never ceases to amaze me the extent to which profit-seekers will go to in order to separate the public the from their money.  For anyone questioning the strength and longevity of the gold bull, I ask you to consider that the marquee indicator of an investment product in the peak frenzy of a bubble is the endless aggressive promotion to seduce YOU into buying THEIR investment - not THEM seducing YOU to sell them your's.  Some things will never change and snake-oil salesmen fleecing the public in one way or another is one them and the idea that an investment can be considered a "bubble" when the public is still being aggressively seduced to sell is another.

That so few of people in this country understand why gold and silver are doing what they are doing further adds to the basic fundamental factors pushing the precious metals higher.  This is reinforced by the fact that so few large institutional investors understand the dynamics driving metals higher and fiat currencies lower.  In fact, I saw one "expert" mutual fund manager recommend getting long the dollar last week.  Next time you hear that gold and mining stocks have peaked and the bubble has popped, open up the quarterly report from your favorite mutual fund and see what percent of the fund is invested in mining stocks.  I would bet it has no exposure.  Until you see your mutual fund investments heavily invested in precious metals and mining stocks, you can be assured that the bull market in this sector has a long way to go.

Friday, August 26, 2011

Russia Moves Closer To A Gold Standard And A Quick Comment On Bernanke

Kudos to "Ranting Andy" for sourcing this story.  Russia's Central Bank has announced a program to offer short term, gold-backed loans LINK  It's not clear to me if this facility will will be available only to Russian banks or if non-Russian banks will have access to the program.  What IS clear to me is that the Russian Central Bank, which has been an aggressive monthly accumulator of physical gold, has decided to include gold, along with high-quality bonds, as part of its acceptable collateral policy.  It would not surprise me to see more eastern Central Banks offer gold-backed loans.  And eventually I suspect that these Central Banks will no longer accept sovereign-issued bonds, like Treasuries, as loan collateral.

As for Bernanke's speech at Jackson Hole today, I thought it was a pathetic attempt to vindicate himself and place the failure of his monetary policies squarely on the shoulders of Congress and the White House.  To blame the current economic weakness on the debt-limit debacle is utterly absurd.  And in the epitome of hypocrisy and disingenuousness, he lectured that Congress needed to be more "transparent" with and accountable for its legislative procedures and objectives.  I really can't believe he made a statement like that considering the fact that the Fed spent millions lobbying Congress to kill Ron Paul's audit the Fed bill.   Quite frankly, and quite alarmingly I find Bernanke to be one of the more deceitful and spineless public figures in my lifetime.  Nixon would be embarrassed by Bernanke's antics.

Looks like BP's oil well in the Gulf of Mexico is leaking again:  LINK   We can only hope, contrary to what is likely the case, that Obama did not negotiate a "fence" around BP's liability and that the corrupt oil company will be held financially accountable for its crimes.  Of course, given that the Teleprompter's track record has been to alleviate corporate accountability, I'm sure he gave BP a get-out-of-full-liability card last time around the monopoly board.

On a final note, I hope anyone reading this who owns/owned Bank of America stock took yesterday's price action as an opportunity to unload their shares or any mutual funds that have a big holding in BAC.   BAC is desperate for liquidity and I would bet a 1 oz. gold eagle that Buffet's deal with the 5% takeout premium was structured as a short term "bridge" deal to keep BAC liquid until a bigger bailout can be put in place, at a time that makes it politically feasible, and takes Buffet out at that 5% premium plus accrued information.  God bless crony-capitalistic insider trading!

Thursday, August 25, 2011

Wow. If I Go On Strike, Can I Get Jobless Benefits?

Obama decides to hand out jobless benefits to striking Verizon workers:   LINK   Obama is the worst...

Think The Buffet Investment In BAC Is Investing Savvy?

Think again.  This sequence of events is not a coincidence, and it's going to utilize your tax dollars to turn it into a quick home run for guys like Buffet:   Monday:  Buffet "discusses" the economy with Obama;  Tues/Wed:  Bank of America looks ready to collapse;  Thursday very early:  Buffet announces a $5 billion preferred stock investment in Bank of America, thereby addressing BAC's immediate liquidity crisis;  Thursday right after the Buffet announcement:  the White House announces it is looking at a plan to bail out distressed residential mortgages.  BAC just happens to be one of the largest holders of distressed residential mortgages.  Think this is all a coincidence and Buffet is some kind of genius?  If you do then I might be able interest you buying a really nice bridge that connects the upper east side of NYC to Long Island.  Really, I have the title to it in my desk drawer...

The coup de grace of all of this will be if the rumors are true and JP Morgan eventually takes over BAC with the help of a $100 billion preferred investment by the Treasury/Taxpayer.  Buffet ponies up $5 billion to keep BAC solvent, in the meantime he gets a 6% cumulative dividend and gets taken out at a 5% premium to face value if a deal like the JPM rumor actually occurs.  Free money for all involved financed by the taxpaying middle class.  Please note:  a lot of Obama's support base do not pay taxes but do benefit from entitlement programs.  Buffet's comment is that "BAC is plenty profitable."  Anyone who knows basic accounting can look at BAC's financials and see that all the profits are generated by GAAP accounting manipulations are not based on cash economics.  So no, Warren, BAC is not profitable and I think you know that.  But it will be very profitable for you thanks to the generosity of the Taxpaying middle class and the straw-man President that you control.

Not only did the above sequence of events unfold like clockwork, but the NY Attorney General who is trying to hold the big banks accountable for their role in the mortgage fraud has been removed from the settlement negotiations after very heavy influence to do so by Obama because the AG wants the banks to pay a lot more more money.  You think this guy in the White House is working for the people who elected him?  NO.  He's working for guys like Buffet, who coincidentally, is also now hosting a big $38k per head fundraiser for Obama in NYC.  And DO NOT forget that Obama's White House Chief of Staff, Bill Daley, used to be a senior executive at JP Morgan...see how this works?  The above sequence of events is NOT a coincidence...

This system has become completely corrupted and is being run for the benefit of the billionaires and banking CEO's who have control of the politicians.  I said back in 2002 that the elitists would keep the system from collapsing until they've swept every last crumb of middle class wealth off the table and into their pockets.  The above deal is a perfect example of this, as the Taxpayers will ultimately be bailing out the banks again and guys like Buffet who are in a position to reap billions from this will be taking full advantage.  And your beloved Obama will appear to be helping the homeowner who can't make his mortgage payment, when in fact what he is doing is using the Taxpayer wealth to bail out the the corrupt banks who made it possible for the idiots in this country to take on a house they couldn't afford.

This time around Dave in Denver shrugs.  The system is going down the toilet and it's going to get a lot more overtly corrupt and lot more painful for all those who maintain their slavish faith in Uncle Sam and red, white and blue.  If you want some kind of revenge, convert as much of your paper dollar confetti into physical gold and silver.

Wednesday, August 24, 2011

It Should Be Obvious To Everyone By Now:

The system in this country is in big trouble again and the banking system is at high risk of seizing up like it did in 2008.  There is no question in my mind that Bank of America is on the verge of insolvency and I also believe that there is some truth to the rumor that JP Morgan may be circling around BAC.  A source of mine who provides consulting services to BAC told me this morning that internally BAC has slashed expense and procurement budgets to the bone.  It's obvious that the "non-core" businesses being auctioned off by BAC to raise cash are the businesses being sold because they are the businesses that have a bid in the market.  The majority of BAC's "core" assets are commercial and residential mortgages, "goodwill," and who knows what off-balance-sheet elephant diarrhea (variable interest entities - an Enron specialty, credit default swaps, other toxic waste).

I did a quick glance at BAC's financials and if I ever get the time I will dissect them to the best of my ability.  But essentially BAC has $2.2 trillion in assets.  It also reports $222 billion of book value.  Of this, $80 billion is "goodwill and intangibles."  Henry Blodget rightfully asserted that we can safely assume that $80 billion is worthless.  So partially "adjusted" book value is down to $140 billion.  Also please note that in response to Blodget's quickie liquidity analysis yesterday, the BAC spokesman avoided addressing Blodget's goodwill assumption and instead attacked Blodget's legal problems from the internet bubble era.  THAT confirms that Blodget's assumption is accurate.  And actually it's my assumption now that I'm looking  and I know it's accurate.

So, subtracting goodwill from the asset tally, we're left with $2.1 trillion, of which $139 billion is home equity loans.  Now, in all sincerity, it is likely that BAC's home equity loans are worthless.  But let's assume they could unload them for 50 cents.  That's another $69 billion of impairment, thereby reducing "book" value to $71 billion. Everyone follow me here?  And, I might add, I will bet my last silver eagle that the assumption that BAC's home equity paper is worth 50% of book is true welfare. This asset class in all probability is a big goose egg.

After accounting for home equity, the remaining asset base would be a shade under $2 trillion.  For sake of brevity and simplicity - and given that nearly 50% of the remaining asset base is commercial/residential mortgage paper, let's assume that BAC has over-estimated the book value of its assets by a mere 10%.  Again, if we could sift thru each loan - or even statistically sample the loan pools - I can assure you that using only 10% is giving BAC a free lunch for the next decade.  At any rate, that's another $200 billion of impairment, thereby taking BAC's "book" value to a negative $129 billion.  Conclusion:  BAC is technically insolvent.

Please understand that this analysis does not include any work on the off-balance-sheet garbage, which would only make the case against BAC's solvency worse.  If I can find the time, which will require digging up BAC's 10K plus using the latest 10Q and going thru all of the footnotes with a fine-tooth comb, I'm sure I can make the case that BAC's true net worth is at least double the negative $129 billion estimate.  And even then I can only make some very educated assumptions.  But I can guarantee that the off-balance-sheet mess makes the stated balance sheet look like a walk thru a candy factory at Christmas time.

I actually meant to talk about why the system is in trouble and I got off on this BAC tangent because, in fact, BAC is the poster-child for what is going on beneath surface in our system right now.  The system is even more embedded with fraud, corruption and grand-scale taxpayer theft right now than it was in 2008.  And the economy is in the toilet, per the latest round of economic numbers, most notably housing plus all the regional Fed bank reports.

What's going to happen here is that eventually the Fed is going to have to roll out a massive QE3 program in order to keep the banks from collapsing.  This will include some sort of plan for either the Treasury or JP Morgan to assume responsibility for BAC.  If it's structured like last time around in 2008, expect that JP Morgan will cherry-pick at 10 cents on the dollar any assets that it can make a fortune on based on paying 10 cents, just like it was set up to do with Bear Stearns and Wash Mutual, and the rest of the garbage will be off-loaded on the Taxpayer via the Treasury, Fannie Mae and Freddie Mac.  Back in 2002, one of my original colleagues and I speculated that eventually the Fed/Treasury would use JP Morgan and Fannie Mae/Freddie Mac as conduits to monetize the massive mortgage/housing/debt bubbles that Greenspan was blowing.  I'd say that call looks pretty good right about now.

Anyone pissed off yet?  Don't get pissed, there's nothing you can do about any of the above.  I expect the precious metals market to get very volatile over the next couple of weeks and maybe even into mid-September.  This volatility will work both ways.  What you can do is not get scared off by this and slowly buy the heart-stopping drops in the market and hold onto to what you have when it climbs higher.  Please do not sell what you have.   Dagen McDowell, who's never been accused of being intelligent, was on Fox Business earlier today cheerily proclaiming an end to the gold bubble.  Not only that, CNBC is now overlaying charts of gold on top of a chart of the NASDAQ from 1999-2001 and other miscellaneous bubble market comparisons and suggesting that the gold bubble has popped.  This is coming from a news organization who failed to see the internet bubble and the housing bubble.  And now all of a sudden they have the ability to see a gold bubble?  LOL.  Both of these anectdotes are great indicators that things have yet to get interesting to the upside in the precious metals.

P.S.  Do yourself a favor and check to see if any of the mutual funds you own have a big position in BAC and get rid of those funds.  The obvious ones are the funds run by that dip-shit Bruce Berkowitz at Fairholme Capital Management, who is one of the largest holders and recently (like 30% higher) added to his doomed position.

Monday, August 22, 2011

The Devil Is In The Details...Speaking Of The Devil (per my earlier post)

"Nobody lawyers up like this unless they are in deep shit" - my anonymous Wall Street source

There's no honor among thieves and when rats are trapped in the corner, they fight back.  Lloyd Blankfein just removed from "services available" one of the best DC-insider-connected defense attorneys, indicating some real shit could be hitting the fan at Goldman Sachs.  This particular lawyer - who must be a serious piece of work if he's willing to prostitute his services defending servants of the devil - worked out deals for some real beauts:  Bernie Ebbers of WorldCom, Enron's chief accountant and Roman Polanski. The speculation ranges from Justice Department inquiries into Goldman's highly fraudulent role in the mortgage market meltdown to likelihood that Blankfein and Goldman are both under heavy legal siege on both the civil and criminal fronts.  Goldman stock plunged another 2.5% after the close, when that news report was released (conveniently) and is down roughly 40% year-to-date.

Not only that, but an analyst report on Bank of America was circulated today that speculated that BAC needs to raise $40-50 billion in capital to remain solvent.  If that report has merit, it will be interesting to see how BAC pulls that off because it's current market cap is around $65 billion.  Short of Obama borrowing from Michelle's travel fund and using Taxpayer largess to fund BAC, I don't see smart money lending that kind of jake to BAC unless it were on a "super" senior secured DIP basis - Debtor-In-Possession bankruptcy financing.

The above two events are marquee indicators of the disaster coming our way from the financial system...

Is Another Big Bank Collapse Brewing?

Take a look at the financials today.  The BKX bank stock index initially spiked higher with the Dow/SPX and has since faded into negative territory today.  Almost every big bank stock that I track is red.  Bank of America stock opened briefly to the plus side and is now down over 6%.  Despite the half-assed salesmanship on behalf of BAC done by its lame CEO last week, BAC is in an irreversible death spiral.  BAC credit default swaps are trading +342 basis points above Treasury bonds, indicating a mid double-BB implied credit rating, which is a junk bond rating.

But the real story in the banking sector is about asset quality, or lack thereof, on the big bank balance sheets.  Everyone knows that for most of the last two years, the big banks like JP Morgan and Wells Fargo have generated most of their GAAP/accounting earnings by marking up the carried position of the largely illiquid assets they hold on their balance sheet.  And now that the "mark-em-up" game has run out of room, the same banks generated accounting earnings last quarter by reducing the size of their reserves held against loan losses.  Please note that both games, the mark-up game and the loss-reserve release game, the "earnings" are nothing more than paper earnings and do not generate cash or reflect true economic rent (economic rent is otherwise know as cash profits). 

What got me thinking that we may be heading toward another credit collapse like in 2008 again is that I had noticed that the stock of MGIC (MTG) was down like 18% one day last week and has taken a 66% beating since July 15.  MTG provides mortgatge insurance to the home mortgage mortgage, primarily single-family home mortgages.  And the stock of MBIA (MBI) was hammered last week and is down over 40% since July 15.  MBI provides insurance for municpal, asset-backed (credit cards, cars, student loans, housing) and mortgage bonds.  And AIG stock, despite being heavily supported by Tim Geithner and the Fed on behalf of the U.S. Taxpayer, was hammered last week and is down over 21% since August 3.  A large component of AIG's "insurance" business is residential mortgage guaranty insurance.

Although it's next to impossible to get any kind of truth reported by our nation's leaders, corporate leaders or the media, it is hard over the long run to hide the truth from the stock market.  And right now the stock market is telling me that 1)  the big banks, led by Bank of America, are in trouble again; and 2) the root of the trouble is the poor quality of the assets held by these banks is rapidly deteriorating.   The fact that the stock price of the big mortgage insurance companies is getting hammered reflects the expectation that companies are going to be on the hook soon for some huge losses by the holders of the insurance.  The holders of the insurance are - in large part - the big banks who still have a lot of impaired and defaulted mortgages - and other asset-backed garbage - on their balance sheets. 

Just like in 2008, it would be my expectation that the mortgage insurers will never in this lifetime be able to pay out the enormous claims that are going to be issued against the insurance they've underwritten.  This is EXACTLY what happened in 2008 with AIG before Tim Geithner (and Henry Paulson, and Bush and Obama) stepped in to use Taxpayer money to pay off the enormous credit default claims in 2008.   Clearly, based on the performance of its stock, BAC is in the worst position now, which makes sense since the Paulson and Bernanke tandem stuffed BAC with Countrywide and Merrill Lynch.  Both of those firms were among the most aggressive originators of subprime mortgages (and other subprime garbage, in the case of Merrill).

The other big banks that I would expect to see thrown against the ropes of illiquidity again are Goldman, JP Morgan, Morgan Stanley,  Citi and Wells Fargo.  If I have time, I plan on dissecting WFC's balance sheet and seeing what's really going on there 1) because I hate Warren Buffet and I think he's complete hypocritical, disingenuous scumbag and 2) John Paulson has recently added to his big position in WFC after he got his ass kicked in the stocks of BAC and Citi.  I am betting he is going to eventually have to regurgitate his WFC stock just like he recently did with BAC and C.

At any rate, I ultimately think we are going to see another big bailout of the banking system.  But more on that at a later date.  In the meantime, here's some charts for your viewing pleasure - you can click on each chart to make them bigger:




Friday, August 19, 2011

Friday Funnies: This Is Just Tremendous

Link: Rick Perry is masculine, but is he on the other team too?

I hope it's true too becaue Rick Perry is a jack-ass.  Everyone better hope and pray that Ron Paul can start gaining traction with the hoi polloi because otherwise it's four more years of having a Teleprompter for President that turns off and leaves the country or goes on vacation while the shit hits the fan.  I wonder where Michelle will take her entourage next courtesy of the Taxpayer...

Friday Quickie!

A colleague alerted me to the recent bloodbath in the high yield market the other day (thanks JR) and then zerohedge happened to post that day that the high yield market had its worst monthly sell-off in its 25-year history:  LINK  I wanted to put some attention on this because - and zerohedge did not report this aspect because Durden was probably still in high school back in the 1990's - when I was trading the high yield market on Wall Street back in the 1990's, large directional movements in the high yield market always preceded the same kind of directional movement in the stock market.  So now that we've had a big drop in the Dow/SPX which was preceded by a big drop in the junk bond market, it will be interesting to see if "hot" money piles back into the junk market, which would likely precede a big bounce in stocks.

One other point of note about the statistics as reported in the zerohedge link.  The credit spread between BBB and BB bonds has blown out to over 300 basis points.  To me this indicates that the underlying economy is in much worse shape than is being acknowledged by the Fed, Obama and the media.  I would also argue that the stock market is not discounting this degree of economic deterioration, which means the risk of a big stock market "accident" is still very high.  To put this credit spread widening in perspective, at the height of the credit/housing bubble, single-B rated credits were trading tighter than 300 bps to Treasuries.  In other words, the "handicapping" of financial risk in our system has more than doubled over the last month. 

The implications of this massive repricing of credit risk points to a developing liquidity crisis in our financial system, similar to 2008, and reflects the overall dismal economic condition of the real economy.  I'm sure you won't hear this from the Teleprompter that sits in the White House and pretends to lead the country, but those two facts are what the big-money odds makers of the U.S. financial casino are telling us.

As this situation further develops, you can be sure that a lot of the "hot" money that has left the high yield market and that is mispricing the stock market will continue to flow into the precious metals and mining stocks.  Recently the idea that gold is in some kind of investment "bubble" has been promoted all over the imbecilic media, including a widely circulated report from the Einsteins at Wells Fargo that reads more like some kind flamboyant yellow journalism from the National Enquirer in that is was very poorly researched - if any bona fide statistical research was done at all - and its premise and assertions lacked any basis in fact.   Need I remind any Wells Fargo employee/analyst that the bank's balance sheet is connected to one of the greatest bubbles of all time and Wells Fargo would have been liquidated in 2008 had it not been for the generosity of Tim Geithner, on behalf of the U.S. Taxpayers...

So I wanted to link a must-read commentary from John Embry, one of the investing patriarchs of the current precious metals bull market.  Specifically, I wanted to highlight his comment about the nascent transition globally that is occurring from a fiat currency based system to the restoration of a gold-backed currency system (which has been the currency basis for 90% of the last 5,000 years): 
The unfortunate result of these machinations will be the destruction of the existing debt, the end of this experiment with pure fiat currency and the implementation of an entirely new monetary system.  Assets that will see investors through this traumatic transition will be gold and silver just as they have done in every previous example of fiat currency destruction. 
The very fact that the average citizen has little or no understanding of this phenomenon virtually ensures its outcome. Those who do hold the precious metals and other hard assets instead of paper instruments of wealth will be the beneficiaries of the what will likely be the greatest transfer of wealth in history.
The bold emphasis is mine.  I want to highlight that because it is either extreme stupidity or motivated deceit on the part of the bubble-promoters to label and define an investment bubble when the primary ingredient of dumb public money is so notably absent from the market.  Here's Embry's piece:  LINK

The next two weeks are usually among the slowest trading days of the year besides the year-end holiday period.  I will try to post daily but most of my attention will focused on managing our fund and watching/playing a lot tennis.

Wednesday, August 17, 2011

High Crimes At The SEC: Time To Fire and Prosecute Mary Shapiro

When the subject of how many files were destroyed came up, Storch answered: "18,000 MUIs destroyed, including Madoff."

This isn't just about Rome burning burning while Nero fiddles or Obama riding a bus through Podunk, Iowa while his wife travels abroad with an entourage of friends on the Taxpayer dime.  This is about criminal liability at the SEC and those responsible for enabling corrupt Wall Street enterprises and thieves like Madoff to operate without fear of prosecution.  If Obama does not take leadership in this situation and really shake up the SEC, including getting rid of Mary Shapiro, he may well go down as the worst President in history.

As one former SEC staffer describes it, the agency is now filled with so many Wall Street hotshots from oft-investigated banks that it has been "infected with the Goldman mindset from within."

Matt Taibbi of Rolling Stone has published an excellent report detailing how an SEC whistleblower has exposed the SEC's practice of destroying all documents connected to any investigative inquiries about possible illegal activities on Wall Street.  As it turns out, there is a long legacy of SEC officials who are hired away into lucrative positions at big Wall Street firms as a means to squash any potential investigations into fraud and corruption based on these inquiries:
In at least one case, according to Flynn, investigators at the SEC found their desire to bring a case against an influential bank thwarted by senior officials in the enforcement division – whose director turned around and accepted a lucrative job from the very same bank they had been prevented from investigating.
This SEC practice has been ongoing since 1993 and is in direct violation of a requirement that all SEC documents are to be maintained for 25 years and any disposition of this material is to be handled only by the National Archives and Records Administration.

It is clear to anyone who reads this entire article that the lack of responsible, competent and ethical oversight by the SEC over Wall Street has played a significant role in the complete corruption of our banking and securities industry, leading up to the de facto systemic collapse of 2008.  More significantly, it can now be argued that the SEC has been instrumental in the systemic failure that has cost the Taxpayers of this country trillions.
By whitewashing the files of some of the nation's worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – "18,000 ... including Madoff," as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
 Here's the link to the article and I would urge everyone to read it in its entirety and then send it around to as many people as you think will give a shit:  LINK

Senator Charles Grassley of Iowa is leading an investigation into this mess:  LINK   Unfortunately, like every other Congressional investigation into the corruption and fraud embedded in both Wall Street and the Government, I would bet big money that this will be a tool for Grassley to achieve some selfish political goal and then it will be swept into a sewer hole and disappear without any consequences for those who are guilty.

This country is collapsing financially, economically, politically, socially and morally.  I have been saying for several years that DC and Wall Street need to be burned to ground and then we need to take the Constitution and rebuild the Governmental center of the country as far from the east coast as possible.  That not likely to be the case, just expect that it is going to get a lot worse in every respect...

Tuesday, August 16, 2011

JP Morgan's Fractional Gold Scheme Is Working

The real reason JP Morgan recently decided to open and operate a Comex gold vault is now in full view. A close friend of mine in the NYC hedge fund community informed me today that hedge funds are now buying gold from JP Morgan, who turns around and "safekeeps" it for them for 15 basis points (that's .15%) on the market value of the gold being stored. My friend referred to this as "allocated" gold. On the surface it looks like the smart money "gold rush" is on.

But, in the wisdom of Shakespeare via Macbeth: "nothing is but what is not." The "what is not" part of the above business transaction is the full, 100% allocation of the gold being purchased. In other words, just as those of us who understand how the game is being played - and have pointed this out explicitly with proof from the GLD prospectus and other examples - JP Morgan is employing the traditional Wall Street/banking business model of fractional gold ownership. This is not new, as Morgan Stanley was successfully prosecuted for this same scheme several years ago when the firm was exposed for selling physical silver to high net worth clients - and "safekeeping" it for a fee.  The scheme was exposed when a few of them demanded delivery and Morgan Stanley was unable to deliver the actual silver on a timely basis.  Please use google to find the case if you are curious about the details. Only those of us intimately involved in the precious metals market at the time even bothered to care about this case.

Here's how it works. JP Morgan sells Comex gold to hedge funds, who then opt to safekeep it at JP Morgan's Comex depository for a 15 basis point fee. It makes the purchase very simple, the "storage" inexpensive and enables the hedge fund to seemingly have possession of physical gold. But in reality all the hedge fund gains is a "security interest" - or paper documentation - in the gold rather than the actual gold. Here's why:  how many of those hedge funds will actually ever ask for delivery of the gold into a private depository or go visit the vault to make sure that the gold it purchased is physically sitting in a separate, allocated bin?  JP Morgan is "banking" on the fact that none of them will. This enables JP Morgan to make an electronic ledger entry and create an account statement showing the market value of the gold purchased, but it never has to actually produce the physical bars and deliver them. This dynamic permits JP Morgan to sell gold that the bank is never held accountable for. This is exactly the scheme Morgan Stanley used with their silver fraud on a much smaller scale, that GLD and SLV use and that the Comex and the LBMA bullion banks use for their futures/forwards business.

The best part of this is that JP Morgan is "storing" the gold for substantially less than the rate charged by the private depositories in Delaware, which generically charge 50 basis points (that's .5%) for the same service. On millions of dollars of market value, this 35 basis point differential is heavy incentive for these hedge funds to take JP Morgan up on this generous storage offer. I say "storing" the gold because really what JP Morgan is doing is creating a 15 basis point income stream for itself and the only risk the bank is taking is the risk that all of the customers don't ask to have the gold delivered off-Comex at the same time.  This is something that has never occurred since the Comex started trading gold futures in the mid-1970's.  But we'll see how "generous" this offer really is when the shit hits the fan and the real scramble to take possession of the physical metal begins.  JP Morgan also gets to use the money that these funds put up to "buy" the gold.

The real beauty of what JP Morgan is doing - from a market manipulation standpoint - is the removal of tens of millions of dollars of demand for real physical metal and diverting it into this fractional gold banking scheme in order to prevent/delay an inevitable market squeeze for physical gold.  GLD serves the same manipulative purpose. It also shields the Comex, and banks like JP Morgan, from facing the potential of defaulting on contract performance, which would likely happen if even less than half of the long side of the gold and silver market demanded the delivery of their gold/silver away from the Comex and into private, independent depositories like the ones in Delaware.  It's a good bet from this perspective because very little gold has actually been demanded to be delivered off-Comex since gold futures started trading in the mid-1970's.

Back when I first started doing this sector in 2001, it was only the hardest of the hard core goldbugs who preached that the only way to truly invest in gold is to buy the actual physical metal and keep it yourself (with all the necessary safeguards, of course). They won't even invest in mining stocks. As I've watched the landscape evolve over the last 10 years with developments like I describe above, I fully understand the significance of keeping your own metal.

Most of you probably don't remember, or even know at all, that David Einhorn, the proprietor of one of the bigger NYC hedge funds, had announced in July 2009 that his fund had sold all of its GLD stock and replaced it with physical gold that the fund was taking delivery of and was safekeeping in a private storage facility. At the time Einhorn's fund was the largest holder of GLD. It was clear to me at the time that Einhorn had finally read the GLD prospectus from front to back and probably nearly shit his pants when he realized the Ponzi scheme potential created by the SEC-approved document. I doubt any of the funds buying gold from JP Morgan will be as diligent...

My fund partner actually travelled to Delaware a couple of months ago to take inventory of the gold and silver owned by our fund and safekept with a private depository in Delaware. We know where our gold is - how about you?

Sunday, August 14, 2011

You CAN'T Be Serious About Michele Bachmann

The media is all over the fact that Bachmann won the Ames, Iowa Straw Poll yesterday, edging out Ron Paul by a mere 152 votes.  It would have been surprising if she didn't win this podunk political version of a bingo game given that Bachmann is an Iowa native.  Even more telling, Bachmann handed out 6,000 $30 Straw Poll tickets, representing roughly 38% of the meager 16,000 votes cast.  This hollow event is likely an indication of the number of people in Ames that are bored of watching the corn grow rather than a serious barometer of the true percent of the population who would actually vote for Bachmann.

The truth of the matter is that Bachmann has a background and an IQ that is suited quite well to be a teacher of special education students.  Her "J.D." law degree is from the former Christian law school at Oral Roberts University, which eventually lost its accreditation from the American Bar Association and had to close in 1986.  It generously donated its law library material to the Pat Robertson University.  While at ORU, Bachmann worked as a research assistant to help a "professor" there publish a book which argues that the United States was founded as a Christian theocracy and should be become one again. 

Given this academic/intellectual basis for Bachmann's political beliefs, it's hard to take her seriously when she claims to support a Government based on the Constitution.  Her entire political and educational indoctrination completely demolishes the primary Constitutional principle requiring the unmitigated separation of Church and State.  I highly doubt that she is intelligent enough to understand this incongruity in her political platform as do I highly doubt that she knows what "incongruous" even means.  In short, her political beliefs are just as empty and absurd as her law degree.

I mentioned on Wednesday that I probably wouldn't post anything until Tuesday unless I saw something that pissed me off.  Well, I happened to see part of an interview of Bachmann by David Gregory on NBC this morning.  He was directly and pointedly attempting to get her to answer a blunt question about her position on homosexuality.   Bachmann uncomfortably managed to avoid giving a direct answer, but it was quite apparent what those beliefs are when she stated that she believed that "marriage is between a man and a woman."  She twice completely avoided a direct question as to whether or not she would appoint a gay or lesbian person to her Administration. Gregory loses my respect for not demanding a direct answer on the question.  The failure to hold politicians accountable is a major problem in our system and is one of the reasons our system is collapsing.  Contrary to her claim, Bachmann's political postions in truth substantially deviates from her claims of supporting civil liberties and the restoration of the Bill of Rights. 

Quite frankly, I hope Bachmann becomes little more than an irritation after a couple of primaries.  The interview with Gregory reminded me a little of the Katie Couric interview of Sarah Palin, in which Palin pretty much sunk the McCain campaign.  I'm still waiting to see video footage of Putin sticking his head over the State of Alaska.  In fact, I might go as far as to say that Bachmann is really nothing more than Sarah Palin without the hunting rifle and camo clothing...

Please watch, listen and learn about what Ron Paul has to say and WHY he says what he says.

Wednesday, August 10, 2011

Taxpayers ALREADY Bailing Bank of America

"No U.S. bank is more exposed to troubled real estate than Bank of America"

The bailout of Bank of America begins, courtesy of Tim Geithner.  I don't know why the headline on this article doesn't say "BofA Sells Part Of Mortgage Portfolio To The Taxpayers" instead of "to Fannie Mae."  Here's the news report (if you can't pull up the whole article, google the headline and you'll get a link to the entire article)  LINK

Rest assurred knowing that most of those mortgages are under water and will default and the Taxpayer will get to pay the costs involved.  The Taxpayer's money will also be used to pay the upper management their bonuses for all their hard work in arranging deals like this.

Just a quick comment on whether it's too late to buy into gold and silver or whether or not you should take some profits.  The reason to own gold gets stronger everyday. Take yesterday for instance. The Fed has guaranteed zero interest rates for 2 more years. Real interest rates (nominal rates which are zero - less the inflation rate) will be negative for at least two years. Gold ALWAYS ALWAYS ALWAYS goes hgher when real interest rates are negative. Always. Negative real interest rates are like rocket fuel for gold/silver.  So the Fed has now guaranteed higher gold for at least 2 years. Wait until QE3 kicks in...

Here's great commentary on the meaing of yesterday's policy announcement from the Fed:  LINK  Essentially this article explains why the language being used by Bernanke means that the gate is wide open for him to engage eventually in some type of QE3 program. 

I'll be out of town for the next few days, so I probably won't have a post until Tuesday unless I see something over the weekend that really pisses me off.

Tuesday, August 9, 2011

Beyond Absurd: The Senate Moves To Investigate The S&P Downgrade

This is truly right out of the Randian Playbook as presented in "Atlas Shrugged."  If I didn't think the actions of our leaders were so ridiculously funny as they lead our country into collapse, I would be crying...The TRUTH is that the Senate should hold up a mirror to itself and look at the obvious reasons why Congress and the White House are complete failures.  The public approval of Congress is at an all-time low and this will take it even lower. But since the name of the game in DC is "Blame Someone Else/Pass The Buck" (note: Obama now blaming previous administration completely for his failure to deliver on his campaign promises), we may as well watch the Senate fiddle - and spend more Taxpayer money on a useless investigation - while the country burns. 

I really can't believe that the Senate wants to shoot the messenger rather than spend productive time trying to solve the real problems destroying our system.  Why don't we start by cutting Congressional salaries and benefits across the board?  And I would like to call for an investigation of every Senator expressing interest in investigating S&P.  Let's start with a complete audit of every Congressman's campaign donation bank account and generate a detailed report on who is donating and how much.  Then reconcile those donations with each Congressman's voting record.  THEN let's get a detailed audit of each Congressman's personal bank account.  They work for us, right?  The Government can now audit any citizen and monitor cellphone calls.  Let's demand quid pro quo.

This really is a modest proposal and I would urge Ron Paul to incorporate it in his campaign platform.

“When you see that trading is done, not by consent, but by compulsion – when you see that in order to produce, you need to obtain permission from men who produce nothing – when you see money flowing to those who deal, not in goods, but in favors – when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you – when you see corruption being rewarded and honesty becoming a self sacrifice - you may know that your society is doomed.” (Francisco D'Anconia, "Atlas Shrugged")

Monday, August 8, 2011

Wow! It Does Get Funnier...

I just found out that the widely followed and highly-visible-on-CNBC Dennis Gartman cut his gold holdings in half on Friday!  Those of us in the precious metals investing arena have been saying for years that Dennis Gartman is the ultimate contrarian indicator!  Reminds me of when he dumped his gold holdings at $550 in the summer of 2005 and missed the entire run up to $735!  Another 34% run without Gartman on board will take us to $2250 (based on Friday's close)!!!

Bank of America Dies and JP Morgan Calls For $2500 Gold By Year-End

Wow.  What a day.   The Fed didn't step in to support the stock market to the extent that I expected, but then again who knows how much intervention it took to prevent the Dow from falling 1000 points...Now the corporate and municipal bond ratings downgrades will pile up like paper marks during the Weimar period in Germany, beginning with downgrade of Fannie Mae and Freddie Mac debt to AA+ (this is, after all really Treasury debt) and Warren Buffet's Berkshire Hathaway put on watch for further downgrade.  Isn't this fun?  (It is if you own physical gold and silver).

Now Bank of America is on death watch, as bankruptcy rumors are starting to circulate.  Here's why:

(click on the chart to enlarge)

Here were my thoughts on BAC to some colleagues earlier this morning:  
BAC was set up to be the garbage disposal for all of Goldman's and JPM's fraudulent mortgage and derivatives underwritings related to Countrywide plus to cleanse the footprints of Merrill Lynch and the people who made $10's of millions ripping off investors in that area.  I know from someone who worked at Lehman at the time that MER's balance sheet was as ugly as Countrywide's and MER was working on securitizing all of it and dumping it into their high net worth account base (that should make all of you who trust your financial advisor and big Wall Street brokerages feel good!).  It's no coincidence that John Thain was moved from Goldman to MER in order to merge MER into BAC.  I mentioned in one of my blog posts 2 years ago that BAC was set up as an entity designed to wash Wall Street's dirty laundry and cover up the footprints of fraud left by Goldman, et al.  Next on deck:  the taxpayers will monetize BAC's balance sheet.
Rest assured, fellow Taxpayers, Tim Geithner, Ben Bernanke and William Dudley (NY Fed President and ex-Goldman partner) will devise a way to move all of Bank of America's liabilities - and all of the related legal liabilities of those running Bank of America who made $10's of millions off of that fraud - onto the Taxpayer balance sheet.  They did it with AIG and all of the Too Big To Fail Banks in 2008 and it worked so well with no public opposition that there's not reason to think that it won't happen again...

And the most "precious" news of the day:  the biggest illegal manipulator of silver, JP Morgan, has now revised its year-end target for gold from $1800 to $2500, as reported in 
Before the downgrade, our view was that cash gold could average $1800 per oz by year end. This view will likely now prove to be too conservative: spot gold could drive to $2500 per oz or higher, albeit on very high volatility  LINK
It doesn't get any better than that!  I don't think the master of the English language himself - Shakespeare - could create a farce this beautiful...

Sunday, August 7, 2011

Some Thoughts On The Debt Downgrade Plus "No, Virginia, There Is No Santa Clause"

A lot of people have been asking me what I think will happen on Monday when the markets open.  And the fact of the matter is that I do believe that some people in the market knew sometime last week before Friday's close that the downgrade was coming and I think it was partially priced in to the Thursday/Friday action.  But we don't know how the stock market will react because we don't know to what extent Fed will intervene to prop up the markets.   For those who refuse to believe that the Fed/Government manipulates the markets to the extent that they can, consider this:  just last week the central banks in Japan and Switzerland openly admitted that they intervened in their respective currency markets and the ECB stated that it would buy sovereign bonds in the open market.  That's intervention.  And Reagan signed into law legislation that made it legal for the Government -  via the Working Group on Financial Markets - to intervene and prop up our markets.   So those inclined to believe that intervention does not occur are also those that still believe in Santa Claus...

Bottom line:  I don't know in the short term how the markets will respond to the debt rating downgrade because I don't  know to what extent the Fed will try to prevent the markets from accurately pricing in the event.  But I do know with absolute certainty that over the next three months gold and silver will go substantially higher and the availability of physical supply will become very tight again, as investors begin to really understand how essential it is to actually own and possess the physical metal in order to achieve the wealth protection benefits they have provided for over 5,000 years.

One more thought on gold.   The widely followed Jim Rickards offered his thoughts on who owns the U.S. gold - technically the Taxpayers' gold -  in an interview on King World News Blog.  You can read it HERE  Now, I have issues with a lot of Rickards' views and I believe that he is erroneously glorified by many.  But nothing is more infuriating than when he discusses the U.S. gold holdings as if the U.S. actually still owns it unencumbered by derivatives and leases and as if it actually is still in the possession of the U.S.  He has always completely ignored the entire body of research that has been presented in many forums which shows that it is likely the U.S. does not actually hold title to most of the gold as reported by the Treasury.  The Government is caught lying all the time and why people continue to believe in key financial reports from the Government is beyond me. 

Now, the first part of the interview with Rickards is quite informative.  But I lost interest when he starts discussing the gold as if it is still there.  Part of that is Eric King's fault.  I would like someone to ask Rickards why the actual gold itself has not been audited independently and completely accounted for since Eisenhower was President.  Even a powerful, long-term Congressman like Ron Paul has requested this audit and yet the Government refuses.  IF the gold is there, then there's nothing to hide and the Government should be willing to let all of us see it.  So, until we have actual proof that the gold is still there AND unencumbered by nefarious financial transactions, the Government is guilty until proven innocent and Rickards looks like an idiot for trying to intelligently discuss something that may in fact be a myth.

Now onto the downgrade itself.  The entire discussion in the public media forums - all of them - has focused on whether or not S&P's math agrees with the Government's.  This is complete political bullshit being tossed out there in order to deflect attention from being focused on the REAL problems, which are the REAL reasons for the downgrade.  Let's put the math discrepancy issue to bed quickly:  the Government's forward projections for our debt levels, spending deficits and GDP growth have been tragically wrong for decades.  As points out:  back in 2001, the Government projected that "net US indebtedness in 2011 would be negative $2.436 trillion, the ratio of debt held by the public to GDP would be 4.8%, total budget surplus would be $889 billion, and GDP would be $16.9 trillion."

Hmmm...just looking at that dismal forecasting, and knowing that GDP is light from the projections by about $3 trillion - or about 25% - the indebted level is off by over 500% - and the budget surplus forecast was retarded, do Obama and Geithner really have any credibility by which to question S&P's mathematical prowess?  And what really kills me is that everyone is discussing just the new debt levels AFTER the debt-limit deal.  Why are we not including the $7 trillion in GSE (FNM/FRE/FHA) debt that the Government has guaranteed?  This IS part of our debt load.  The new debt level therefore is NOT $16 trillion, it's $23 TRILLION.  So Obama and Geithner can take their arguments and shove them up their respective asses.

The Truth of the matter is that Obama should rightfully be wearing this rating downgrade because he was elected on promises to try and change and fix all the damage done by previous Administrations.  But Obama has done nothing because he has failed to exercise any leadership.  He is probably one of the weakest Presidents in the history of this country.  He campaigned by gloriously reading a bunch of grandiosities off of a teleprompter and made himself out to be some sort of reincarnation of FDR and Martin Luther King.  Instead, he's proved to be nothing more than a dirty dish rag for the corporate, banking and defense industry interests that control our Government.  The only CHANGE that Obama helped usher in is a rapid decline in the American standard of living.  Obama never really had a true plan of action to address the real problems facing this country.  Or if he did, he failed to exercise the true leadership that his idols - FDR and Dr. King - exercised in order to make those plans happen.  Instead we are left with a President who is really what was voted in to office:  someone who has never been in a position of leadership and someone who lacked a demonstrable track record of achievement.  In other words, we voted for failure and that's what we have.  And those who still hold faith in Obama are the ones who believe in Santa Claus, the Easter Bunny AND the tooth fairy.

As for the ratings downgrade itself, we got what we deserved, only we deserved to have it happen a lot sooner and we deserved a much more severe downgrade.  I saw this coming 10 years ago and started buying gold and silver back then.  Many people saw this and warned of this many years before I figured it out.  We were all laughed at and ridiculed by all the Santa Claus believers.  Well, now we - the Santa Claus disbelievers - are having the loudest laugh, but not the last laugh.  The last laugh will be reserved for when the U.S. dollar finally collapses.  As I've said many times in this blog, Orwell is smiling in his grave...

Friday, August 5, 2011

Learning And Labor

That's the school motto of my alma mater, Oberlin College.  Everyone has seen the headline jobs report number, which looked just peachy on the surface.  But I thought I would highlight a couple of data points which show the horrifying golden Truth lurking beneath the shiny albeit highly manipulated headline number that Obama will no doubt do an endzone dance over later on t.v. that would make Terrell Owens blush.  Also, I had an interesting conversation yesterday at the tennis club with a partner at a major law firm here in Denver who was asking me why gold didn't move up higher yesterday as a flight-to-safety harbor during the stock market storm.

On an aside, before I get to the jobs report and gold, I see Fannie Mae is back asking the Taxpayers for ANOTHER $5 billion in Government subsidy.  THIS after Tim Geithner said a few months ago that Fannie Mae and Freddie Mac were no longer a burden on the Treasury.  Geithner is not only a tax-dodging idiot, he's a liar.  Obama is now a worse President than Bush in my mind since he won't fire Geithner, who should've never been appointed in the first place.  By the way, the FNM/FRE bailout plan was brought to you, the Taxpayer, courtesy of Tiny-brain Tim.  If there's a hell, Geithner will burn there after he dies.

Everyone now knows that the mainstream media just loves the jobs report today.  But here's some statistics that most Americans will not see (not to mention the fact that Government headline number itself is highly manipulated):  Although the unemployment rate was reported as "dropping" to 9.1%, the Labor Force Participation Rate dropped to 63.9%, which is the lowest it's been since 1984;  the average length of unemployment jumped to over 40 weeks, a new all-time high.

Recall that those who have dropped off unemployment benefits and those who have given up looking for a job are no longer counted in the Government's definition of Labor Force.  So not only is the total size of the workforce declining, thereby significantly undermining the accuracy of the actual rate of joblessness, but those still looking for a job are finding it even more difficult and taking a record amount of time.  In short, there are a LOT more unemployed than is being counted by the Government AND the unemployment rate is a substantially higher than is being reported in the headlines.

Now for the kicker:  There are 3.7 million "workers" who are on the 99 week jobless benefits bandwagon who will be losing those benefits over the next couple of months.  Here's the report:  LINK   What this means is that either Obama tries to get Congress to extend the benefits again or expect to see rising unemployment and a lower jobless rate - lower because the Labor Force could decline as those millions drop off the jobless welfare program.   Good work Obama!

Now for gold.  Is gold, or is it not, delivering it's flight-to-safety characteristics this year?  Here's a series of three charts that show gold is indeed shining (you can click on each chart to enlarge):




As you can see, not only is gold up this year while the Dow Jones Industrial index is down, when you express the level the Dow index using the dollar price of gold, the Dow is down a whopping 28.6%.  Another way of looking at this is if you started with $100,000 invested in both the Dow and Gold, your Dow investment would be worth $71,400 while your gold maintained it's $100k value. 

To circle back to my conversation with this white-shoe law firm partner, with markets you can't look at one day and use that as your barometer for whether or not something is doing what you think it should be doing.  As my charts show, gold is not only sparkling, it is functioning perfectly as an investment that's designed to preserve your wealth.

Wednesday, August 3, 2011

Our Government Gets More Absurd By The Day

"U.S. Treasury considering selling less debt" - that was a headline that scrolled across news this morning.  Seriously, is Tim Geithner retarded?  Here's the article if anyone wants to try and make sense of it:  LINK  The math is pretty easy.  Government spending will continue to increase even under the new debt-limit deal.  The economy is tanking hard and I wouldn't be surprised to see a negative GDP print this year even with the ridiculous Government hedonic adjustments used to inflate the headline GDP number.  This means declining tax revenues.  So how the hell can Geithner expect to be taken seriously when he issues a statement like that?  This gets more surreal by the day.

Many of you have probably seen this by now, but for those who haven't, several countries have announced significant central bank gold purchases.  The most significant of which is South Korea, which purchased 25 tonnes in June and July.  Why is this significant?  "JB," who's global gold market reporting can be found every night in the Midas report at - and is invaluable I might add - sums it up the best: 
South Korea is emphatically an American client state and to see it defying the well-known US hostility to the use of gold in FX reserves is arresting. Furthermore Korea has been struggling to restrain the Won: buying gold is a stratagem which logically would answer the similar Swiss problem as well. This is not just a matter of another CB joining the list of gold buyers. Korea has $300B in FX reserves, the 7th largest in the world.
Thailand, Russia and Kazakhstan all added signficantly to their central bank gold reserves as well:  LINK  These purchases make Bernanke's statement that gold isn't money and that central banks hold gold out tradition look retarded.  I doubt these central banks would be spending $10's of billions on "tradition."  I might also add that Russia has been the most outspoken about the U.S. debt problem and has been backing up those words by substantially reducing its Treasury holdings over the last 6 months.  I'm still trying to figure out who is going to collectively pony-up $2.5 trillion over the next 18 months to finance Geithner's Treasury auctions...

Finally, for all you out there thinking that you can seek safety in Swiss francs, we were greeted this morning with the news that the Swiss central bank is making an aggressive attempt to devalue the Swiss franc, which has move up substantially vs. the euro and the dollar.  Please note that the Swiss franc is a fiat currency and the Swiss banking system is nearly as bloated with bad debt as that of the EU and the United States.  Here's good color on action being taken by the Swiss:  LINK

People scratching their head over the recent strength in gold and silver this summer will soon be scratching their ass.  Many of us have suggested that we might see a large, surprising upside move in the metals this summer, contrary to the typical seasonal summer pattern for the metals.  And for those still scratching their head and not their ass yet, Ben Davies sums up the reality of the sentiment/bubble situation: 
Sentiment may be high, actually I had a main stream reporter call me from a newspaper and said, ‘Hey I’m going to write this piece about popular culture and you know it’s all the talk at cocktail parties’. And that’s just it, it may be all the talk, but it’s all hot air, nobody really owns it (gold). I mean I’ve just come back from a meeting where a very large UK allocator said they’ve had their portfolios short gold, actually short gold for the last 18 months.

Then I went to another one, again very large private bank in the UK and they told me they had cut from 6% to 4% their holdings in gold over the last ten months. So for my mind there is no participation. The market is going to be higher over the next four months. The market is making it very difficult, it feels like it is going to make that move with not many people on board
Here's a link to his interview on King World News:  LINK

With that I'll finish by mentioning that today the front section of The Denver Post has two 3/4 page ads and one full-page ad soliciting readers to sell their gold.  Remember, it's not an investment bubble when the majority of retail and institutional investors/people are selling an asset/investment.  It will be a bubble when these people looking to buy your gold now begin to solicit you to purchase their gold because you have turned from a skeptic to buyer at any price - like with internet stocks and houses...

Tuesday, August 2, 2011

Today Was Ugly For The Stock Market

If financial systemic disasters frighten you, today should have scared the crap out of you.  Gold and silver have been dislocating from their directional correlation with the stock market and today gold and silver decisively moved higher while the S&P 500 index shit the bed.  Just as troubling of an indicator is the collapse in the Treasury bond yield curve, which is has been falling in yield and, over the last couple of days, has been flattening.  The latter is a signal that big money finally understands that the economy has fallen off of a cliff.  Plunging short-term yields and the flight to gold/silver are the ultimate flight-to-safety safety flags.  Cash has been piling up in money market funds and in banks.  The banking stocks themselves are collapsing similar to the way they tanked in 2008 before all hell broke loose.

These indicators are potentially symptomatic of the onset of an economic depression and an imminent acceleration in inflation.  To be sure, I have always believed that the second great depression started in 2008 and the trillions thrown at the system (with most of it gushing into the pockets of the banking and political elite) created the brief illusion of economic stability and growth.  But really all that occurred was the massive transfer of banking system debt onto the public via people like Hank Paulson, Tim Geithner, Ben Bernanke and, likely unwittingly, Obama.

Now all of the problems that were momentarily papered over are now resurfacing and the paper used to cover them up will begin to manifest in accelerating price inflation.  The debt-limit extension circus was really nothing more than a distraction and a menial part of the overall larger catastrophe that is percolating.  Greece has financially collapsed.  Italy, Ireland, Portugal and Spain are next.  The real money will be made betting on how long it will take for the U.S. to collapse.  You make this money by loading up on gold, silver and mining stocks and getting the F%$K out of any dollar-based investments (except the mining stocks).

The mining stocks have been badly lagging gold and silver.  HOWEVER, the mining stocks are very very cheap in relation to the price of gold and silver when compared to where they have been valued vs. gold/silver for most of this 10-yr. precious metals bull market. I think part of the drag on the mining stocks is a general fear of a stock market collapse. I don't know what the miners will do, short term, if the stock market craps out.  But gold/silver have dislocated from the stock market in a flight to safety flood and eventually the mining stocks will follow the metals.  The mining stocks could see high two-way volatility for awhile if the stock market continues to tank, but it's one of those things where you have to be in them when they take off or you will end up running to try and catch a runaway freight train.

So other than that, Mrs. Lincoln, how did you like the play?

Monday, August 1, 2011

The Great Satan Sandwich

Now, that doesn't sound very good.  Congressman Emanuel Cleaver of Kansas City has termed the debt limit deal "a satan sandwich:"  “This deal is a sugar-coated satan sandwich. If you lift the bun, you will not like what you see.” LINK

Hmmm...I'm not sure what he's trying to communicate there other than that Mr. Cleaver doesn't have any solutions to the tragic problem of Government spending.  Let's be clear:  this is a spending problem, not a borrowing problem.

However, as to Cleaver's remark, this is how the Urban Dictionary defines a satan sandwich:  "The chiefest of hell's dark delights, it is said that just one bite of it arouses an unspeakable lust of terrific potency." LINK

Well then, that sounds pretty good.  I'll take mine with barbecue sauce, please.

OK, We Have A Debt-Limit Deal. Now What?

The whole world was expecting gold and silver to get hammered today.  First thing this morning  I actually covered the bullion hedge we had put on last week because I thought that the market had already priced in a debt-deal metals hit.  Of course, the bullion banks tried to hammer the metals the second they opened up yesterday in the very thin Sunday afternoon globex electronic market.  Looks like their plan backfired...

So now the Government basically has a blank check to spend another $2.4 trillion in excess of the revenues the Government takes in over the next 17 months.  I just LOVE that fact the terms of the deal include extending the debt-limit term until AFTER the 2012 election and NONE of the so-called "spending cuts" kick-in until 2013.  In fact, most of the "cuts" are back-end loaded, meaning the $917 billion of the hard-coded spending cuts happen over a 10-year term and another supposed $1.5 trillion cuts - which aren't even mandatory at this point - will be explored by some b.s. Congressional committee. 

This whole situation is so absurd that all you can do is laugh your ass at off how ridiculous our system has become.  We have supposedly well-educated men acting like complete juvenile morons.  $917 billion in spending "cuts" against a budget that is running at close to a $2 trillion deficit annually now?  Is this some kind of joke? 

Let's make one thing clear:  the revenue projections by all these economic and accounting Einsteins in DC make the assumption that economy will not go into recession and will actually grow.  I would argue that we never truly came out of a recession.  That notwithstanding, the economy is getting hit hard right now and there's no way in hell that the revenue assumptions underlying the genius math by our Government will come even close to what is being projected.  This means even bigger deficits going forward.  And how many of you out there actually believe that the Government will ever truly cut spending?

The even bigger problem in my mind is, "who is going to lend this extra $2.4 trillion to the Government?"  Has anyone in Congress - or has Obama - even asked this question?  Seriously.  We know that some our largest lenders, like the Chinese, are starting to be openly critical of the U.S. fiscal policy and have already started to reduce their Treasury holdings and purchases.  I wouldn't touch a Treasury bond anymore than I would invest in a Goldman Sachs mortgage-backed deal or a JP Morgan-underwritten municipal bond.  So where is the $2.4 trillion needed to finance the additional Treasury issuance going to come from?  (Hint:  money falling from helicopters).

The Truth of the matter is that the only way to try and solve our fiscal and economic problems is to take a chain-saw to the entire Government, including - and especially - defense spending, social security, medicare and welfare.  This country has been living far too long on borrowed wealth and broken promises and the day of reckoning is getting closer.  Nearly everyone except the truly wealthy (those wealthy enough to own their own Congressman or Senator) are going to have to get used to a substantially lower standard of living.  It's going to happen whether we want it to or not.  Sure, the Government can attempt to raise revenues by raising taxes across the board, but the wealthy elite will find more ways to dodge that bullet and raising taxes on a shrinking labor force will only serve to further depress the economy, thereby causing an even further decline in revenues..

If our policy leaders really want to fix this mess, they have to start first with a massive devaluation of the dollar, which will enable the Government and the Federal Reserve to engineer a balance sheet "do over."  That will also stimulate the re-building of our industrial base - by making U.S. produced goods price-competitive globally - and incentivize real capital formation - by creating substantially higher short term interest rates thereby attracting real investment capital.

In the meantime, and given that the solution outlined above will never occur, anyone who wants to cushion the blow from the eventual collapse and hyperinflation that is coming - sooner or later - should continue accumulating physical gold and silver - not ETFs - and mining stocks.  The physical metal preserves what you got and the mining stocks will give you a shot at outperforming inflation.