Bubble/No Bubble - And Happy 2012

I don't know that it happens right away, but I think the "snap-back" move we get in the sector will shock a lot of people, even long-time metals and mining stock participants.

I have never ever in close to 30 years of observing, studying and participating in all aspects of the financial markets seen an investment opportunity in which the fundamentals that support the undervaluation of an investment sector permeate every aspect of the system AND in which these fundamentals are right out in the open for everyone to examine - and yet, the same fundamentals and evidence are ignored by the vast majority of investors and analysts. It's beyond stunning. It's also the unequivocal exact opposite of the conditions that would support the view that the precious metals sector is in a bubble. Right? When a sector is in a bubble you have almost EVERYONE in every part of the investment universe looking for literally insane reasons to justify paying a ridiculous valuation level for a stock/asset. "Clicks and eyeballs?" Please.  Facebook is a bubble. In fact, we are several factors removed from even thinking about the term "bubble" or "perma-bull" in connection with the precious metals sector. The facts and evidence just do not support the assertion, not the least of which is the FACT that less than 10% of the investment universe has ANY money invested in the metals sector. But that will change over time and the price levels we are evaluating for gold/silver/mining stocks today will be a mere fraction of the level at which these investments will be trading once the term "bubble" can be justifiably discussed in connection with this sector.

I was on a blog yesterday linked by a commenter that referred to James Turk and John Embry as "perma bulls." So I started thinking about that in the context of the technology/internet and finance sector perma-bull phenomenon that has littered CNBC etc for most of the last 12 years. There is a significant difference: the perma-bullishness we saw during the internet/housing/finance bubble was NEVER NEVER NEVER supported by justifiable fundamentals. Remember "clicks and eyeballs?" Ask Clusterstock's Henry Blodget about that because that was his mental masturbatory slogan. There were never any real true economic fundamentals underpinning any of the actual investment bubbles that destroyed our system. Moreover, the valuations became insane. There were internet stocks trading with $10 billion market caps that never had one dime of revenue or owned balance sheet assets that could be logically valued. What the hell is "intellectual" capital? And banks? If we were to apply the accounting standards that were used 30 years ago, every too big to fail bank would be reporting millions in losses every quarter and would have a balance sheet net worth that goes negative by 100's of millions. I've done that latter exercise and have posted the proof on this blog. What we see on CNBC is perma-bullishness.

But we don't get to see the Turks and Embrys on CNBC. The media does not want the masses to start thinking about the Truth. And the "truth" is that the fundamentals underpinning the precious metals as "value" investments would be a Ben Graham wet dream. Not only that, but the true fundamentals, if thoroughly analyzed and understood, would dictate that every money manager and investor out there should dump all of their tech and banking stocks and move everything into the metals and mining stocks. That's how undervalued the precious metals sector is in relation to the fundamentals. And I'm not going to run down the list. Sort through this blog and every other website that discusses these issues ad nauseum. Is the fact that Embry and Turk are willing to stake their reputation by continuously pounding the table on the sector mean they are perma-bulls?  It would but ONLY if the fundamentals did not justify the assertions. 

Gold has in no way topped. The gold reaction per day in terms of percentage was nothing whatsoever. We have in no way reached the level called “thrilling with bullish bliss” common of a top. Every dollar we have won has been paid for in blood. All the short of gold wunderkin Masters of the Universe will have to be destroyed before gold is fully priced. The community, if you can still call it that, is in a psychotic episode that is soon to end.  - Jim Sinclair

Love him or hate him, Sinclair has been as right as anyone in calling the path of the precious metals bull.  And although I believe his public price target for gold is too conservative, as it has been over the past 10 years, he's playing the high probability part of the game as he learned it from his father's friend, Jesse Livermore.  Sinclair's public target for now is $4500.  He will be wrong, but only because he is too low.  His level is 99.9% certain.  If gold goes beyond that level, we will not care how high it goes because it also means that life has gotten to be quite painful.

I'm taking the bus and you will not see me at the pancake social tomorrow!

On that cheery note, I thought I would leave you all with what I think is the funniest commercial this holiday season.  I started thinking about this ad playing tennis yesterday and I dropped 5 straight games after going up 2-0.  (I won 7-6 in a tiebreak lol):

The Bottom Is Either Here Or Near

Dave, thanks as ever for your posts and the great blog. We're dying out here and need the encouragement of someone who's lived through it before - Comment yesterday

I don't have much more to say about the current price correction in the metals/miners.  Please keep in mind that most of the damage has been inflicted since Christmas Eve, when most traders and money managers are on vacation and the volume is extremely light.  This is the ideal type of market for someone to manipulate.  But having said that, and we'll know more tomorrow, I'm pretty confident that most of the selling this week has been coming from the "large spec" COT category - the hedge funds - who have sold down a substantial portion of their long position and are piling into the short side.  I believe these traders are chasing the downward momentum of the market with aggressive short-selling in a very thin market.  They will pay dearly, like they have every time they have engaged in this strategy over the last 10 years.  Conversely, the "commercial" COT category has substantially reduced their short interest, especially in silver where the net short interest position of the big banks is as low as its been since 2001.  In other words, the sellers are largely washed out of their longs and the short-side manipulators have largely covered their short position and have been taking on a bigger long position.   The large specs will soon be squeezed into covering. This is uber-bullish.  Those of us who have been involved in this sector since the inception of the bull over 10 years ago have seen this pattern repeated several times.  Wash. Rinse. Repeat...then on to a new high in gold and silver.

As for the mining stocks, I received an email from a colleague this morning who, like all of us, likes to track the $BPGDM index on http://www.stockcharts.com/.  Based on today's downdraft at the open, this index hit single digits, which reflects extreme bearish sentiment and an extremely oversold condition in the mining stocks.  You can see the 3-yr chart HERE  He timed a big move back into the mining stocks in October 2008 using this index and he's moving a lot of money back in now.

Beyond that, I thought I would post some quick comments from some highly respected analysts who study the market as much or more than me:

Ted Butler:  "It’s no fun for silver investors to have to live through the current slam down in prices. Knowing that the sell-off is intentional makes the pain more acute. The sell-off this week, in particular, has taken on the characteristics of an historic bottom. Since the predominance of the evidence indicates that silver is oversold on an absolute basis and relative to just about everything else, the most logical investment approach is to treat it as a bottom. A deliberately created bottom, but a bottom nevertheless. That means holding or buying, not selling."

John Hathaway:  “I think it’s games being played and you can always play games in thin markets. The bigger picture is, first of all, we are in a bottoming process for the stocks and the metal. Sentiment is rock bottom. I think we are seeing a number of different things that are indicative of a bottom."

John Embry:  "It’s interesting, I’ve just been writing something internally here for our people. It really focuses the mind when you have to put this down for posterity. I was just going over it and when you do that exercise, the fundamentals are so compelling for gold and silver going forward. It amazes me the degree of human stupidity here, that people are parting company with the one thing that is going to save them in the future.”


Egon Von Grayerz:  "I’m not really surprised because last time I talked to you I did say gold could go down to $1,550 support and maybe even $1,420.  In my view that would be quite normal in a very thin market and I said that would probably happen by the year end...I wouldn’t be surprised to see several thousand dollars (for gold), let’s say between $3,000 and $5,000 next year. I see that as the next move and fundamentally everything supports that.”

I can't say it any better than that.  I will say once again that the selling I'm seeing out there is coming from the amateurs who are afraid of their own shadow when it comes to the markets and it makes absolutely no sense to me - or any of the above market pros - to be moving from physical to cash.  I can guarantee you that the professionals are buying (I'm one of them).

Couch Time For Precious Metals Investors

There is no doubt in my mind that the degree to which the bullion banks/Fed are hammering the precious metals reflects the relative severity underlying hidden problems in our system that will have to be papered over with printed money.  But it also reflects the degree to which the metals will rebound once that printing gameplan is revealed.

A lot of metals/miners investors are starting to freak out.  It's not easy watching an investment seemingly melt down the way the metals have in the last few weeks.  Of course, if you take a slightly longer perspective than the one that the instant gratification Americans who have been trained like a bunch of monkeys by the media to take, this current metals correction started at the end of April.  And so far this correction is not even close to the severity of the 2008 correction.  Look at the charts to see for yourself, but I'll quickly recap the numbers. 

In March 2008 silver peaked ever so briefly at $21 and gold around $1030.  By late October that year, silver had hit a bottom just below $9 and gold just below $700.  That's a 57% decline for silver top to bottom and 33% for gold - in a 7 month correction period.  Imagine paying $19 for silver and $1000 for gold back then and then watching as it sold off over the next seven months.  I don't have to imagine that because my partners and I seeded our investment fund with 100% silver bullion right about $19/oz.

If the current price correction gets that severe,  and I really don't think it will, it would take silver down to about $21 and gold down to around $1273.  This time around I've reserved some money to invest if the market offers up a gift like this. 

I pointed this out before, and I'll point it out again:  Even if you happened to have high-ticked the market back in 2008 (like we pretty much did with our own money), if you rode it out you are still up 33% over the three and half year period (March '08 - today) in silver.  You are up over 50% in gold (based on buying at $1030 in March '08).  Does anyone seriously have any investments that have fared better over the period?  The S&P 500 is down about 7.6% over the same time period.  And your house is down well over 30% from then.  And I'm basing these comparisons on the assumption that you high-ticked the metals market.  I bought silver at $19 back then, so I'm actually up 42% over the time period.  And actually I happened to buy some "personal stash" silver for $9 (silver eagles from Tulving).  I'm up 300% on those. 

My point is that, while this current price action feels bad and looks ugly, it is likely setting up the next move to even higher levels.  Please do not overlook the fact that the last big price correction in 2008 preceded the massive QE and Government stimulus programs at the end of 2008 - ERGO (therefore) my opening quote above.  And do not overlook that the printing and Government stimulus has already commenced with the $500 billion to potentially $1 trillion Fed currency swap facility - which is a de facto bailout of EU banks - and the fact that Obama has extended the payroll tax cut AND he's asked for permission to take the Treasury debt load up to within $100 billion of the debt limit hike passed just 4 months ago.

What happens next?  I can't say for sure if this is the bottom of the current price correction in metals or not.  I will say that anyone selling now will wish they hadn't a year from now and anyone who is thinking about buying but didn't will wish they had.   What I find interesting is that my thinking on this is not quite unique.  While I was writing this post, I happened to see the latest freebie piece issued by Casey Research.  They have come to the same conclusion I just laid out.  You can what their version HERE  I don't always agree with Doug Casey and Jeff Clark, but when they see the same dynamic as I do it reinforces the strength of my own conviction.  I know Jim Turk and John Embry also have the same view.

And finally, the one guy to whom everyone should listen is Jim Rogers.  This interview was aired on Australia's Finance News Network.  Rogers makes comments that would NEVER be aired in American mainstream media.  Rogers is short stocks, long commodities, farm land and precious metals:

Countdown To 2012

How does everyone like reading about Nancy Pelosi taking her vacation at a $10,000/night place in Hawaii?  She purports to defend the well-being of the poor and needy, but in reality she is a reverse Robin Hood:   she uses her power to take from the Taxpayers and give to her family and wealthy supporters.  I can't wait until she finally drops dead.

I have a feeling the fears people have about the Mayan calendar prophecies will be unfounded.  HOWEVER, everyone should have a lot of fear over what is coming our way economically and politically.  The MF Global disaster and all of the fraud, corruption and Government enablement connected with that event should have people scrambling for physical gold and silver and making sure their weapons are well-oiled and easily accessible.

I want to say that gold and silver are setting up for a big move higher in 2012.  Again, the reasons underlying this move are the kinds of things that we can actually touch, feel and see - as opposed to the voo doo of the Mayan warnings.  One of the big drivers of gold going forward will be the accelerating accumulation by China - it's Central Bank and the population.  In fact, just today a senior official of the PBOC (China's Central Bank) made a statement urging the Government to increase its gold holdings on price declines: 

The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation  LINK

There are several other factors that lead me to conclude that the metals are getting ready to move a lot higher.  Not the least of which is the fact that the net short position in Comex silver futures of the bullion banks in silver is at a low level not seen since 2001.  As those of you who follow the COT report on a weekly basis know, when the big banks cover their shorts and increase their net long positions, it always leads to a big move higher: 

(click on chart to enlarge)

In addition, the sentiment levels in silver are a low as they were back in October 2008 at the lows of the last big, painful correction.  The sentiment indicator is one of the best indicators I know of in predicting the next move in the metals, especially at points of extreme readings.  I also know of some precious metals investors who are new to the game over the last couple of years who are throwing in the towel and moving back into cash.  This is something that makes absolutely no sense to me, especially given that we know for a fact that the Fed/Bernanke/Geithner are engaged in devaluing the U.S. dollar on a daily basis.  Of course, weaker-handed investors who exit are typically my number one contrarian indicator, COT reports notwithstanding. 

One more point of note:  the bottom of the last major correction in precious metals - October 2008 - also happened to precede the first massive round of money printing and Government bailouts.  I would argue that - given what we know about the financial condition of the Treasury, declining tax revenues, bigger Government expenditures than budgeted just 3 months ago and collapsing bank balance sheets - we are on the cusp of another big round of QE.  I don't know exactly when it will come and what form it will take, but it is coming.  I would suggest that this is the reason that the big bullion banks are covering up their short positions and Fed is working overtime to keep a lid on the metals. 

The last indicator that I wanted to point out - one that is over and above the obvious indicators - is the Austrian True Money Supply graph.  This metric measures the true supply of cash that is readily available in the financial system and is subject to less manipulation and more transparency than some of the other usual metrics.  You can read about it  HERE 

(click on chart to enlarge)

This chart is telling me that I should be fearful of inflation in 2012.  I will point out that the prime rib I purchased last December for $35 cost me $60 this year (roughly same weight, same store).   So the next time Bernanke or Geithner try to tell you there's no inflation in the system you can tell them to shove it up their ass by adding to your physical gold and silver holdings.  This chart is not something you will find on CNBC, CNN, Bloomberg, Fox News, Fox Business or in your local newspaper.  But this chart tells me that gold and silver are getting ready to make a big move.

Happy Happy Merry Merry!!!

         
To Jon Corzine, Obama, Geithner, Bernanke, et al:

To All Tebow Doubters:

And for everyone else (caution:  don't listen to this with kids around):

Andrew Dice Clay - The Diceman Cometh - The most amazing home videos are here

Think Your IRA Is Safe? Better Think Again...

 The MF Global bankruptcy is a blueprint for how the Government and wealthy bankers will begin to take everything that is kept within the confines of the financial system.

 Ten years ago I tried to tell many friends and acquaintances that housing prices would collapse and this country was headed for disaster and that the only only way to protect themselves financially was to load up on gold and silver.  Almost everyone looked at me like I needed my own floor in the mental health wing at Belleview Hospital in NYC.  Of course, that was back when gold was around $300/oz. and housing prices were on average about 50% higher than they are now.

As I run into these folks these days, they compliment me for my ability to see into the future and immediately want to know what I think will happen next.  My only logical response is to say that they don't want to know what I think because, just like 10 years ago, they'll think I'm crazy.  I add that I hope I'm wrong this time about what I think is coming but that I doubt that I am.

I bring this up because one of the things that I believe will eventually happen is that the Government will find a way to confiscate all retirement assets (IRA's/401k's).  But rather than outright taking them, they'll substitute them with some kind of retirement "annuity" that is funded with good old Treasury bonds.  Of course, by that point in time, the Treasury bond printing press will be working overtime to print currency the Government can use to stay afloat. 

If you think I'm Belleview-bound, then I would urge you to consider what is happening with the MF Global collapse and bankruptcy situation right now.  I preface this by saying that the theft of private property that is taking place with this is enabled because so very few people are paying attention to what is happening and how it is taking place.  But this is fundamental to understanding exactly why this is likely just the beginning of the Government/Wall Street partnership effort to steal everything they can before the country collapses.

If you are interested in understanding how JP Morgan, the court system and Government regulators are stealing private property in broad daylight, please take the time (18 minutes for the first part) to listen to this interview by Peter Schiff of a woman, Ann Barnhardt, who closed down her commodities advisory business and returned client money in response to the MF Global disaster.  Here's the LINK

As I have written previously, the handling of the MF Global liquidation is riddled with conflict of interest and a complete lack of transparency at the expense of the clients who kept investment accounts at MF Global.  These accounts were supposed to be legally immune to the problems that took MF down.  For instance, let's say you had $100,000 in only cash sitting in your account at MF Global - no market exposure or securities risk.  When everything is settled, it is likely that you'll only get $50-60,000 returned.  How is this possible?  Listen to the interview and read some of my previous posts.  But, make no mistake about it, the Government and court system is completely complicit with the illegal methods that are being employed by the bankruptcy trustee.  Completely complicit.

In my inherent appreciation of the absurd, I commented to a long-time colleague that "the best part about this MF Global situation is that most people aren't paying attention because they think that the illegal liquidation of a commodities and futures broker doesn't apply to them because they don't have investment accounts at commodities brokers.  But the real issue is the legal system enabling the people who control the MF Global disaster to confiscate private property (listen to the interview if you don't understand why this is so).  Furthermore, anyone who thinks that this can't happen with their IRA's and 401k's is completely ignorant of the facts and fails to understand exactly what is going here."

Someone asked me earlier today if our clients understand just how bad everything is.  I responded by saying that many of our clients do not really understand just how bad it is. I also think most people - i.e. 90% of the country - maintain some thread of faith that somehow everything will be fixed. After all, we have lived, breathed and eaten nothing but "America is the greatest, jerk off with the red white and blue" for the last 60 years.

In my experience, very few people truly understand why you should have most of your investable net worth in the metals and miners. How many people do you think are actually trying to follow and understand what exactly is going on with MF Global? Anyone who understands that will be liquidating their IRA's and 401k's tomorrow.

Either people get it or they don't. By the time most people get it, it will be too late to jump on the metals train. I think most of our clients have a small portion of their money in our fund "just in case." They will lose everything not in our fund. But they will be Biblically thankful that they have the metal in our fund when that time comes AND that the metal is being safe-kept outside of the financial system in a private depository.
 
I said about 8 years ago to a colleague at the time, after I really started to grasp just how fraudulent and corrupt the entire financial and political system was becoming, that the people who are in a position to do so will confiscate every last crumb of middle class wealth on the table.  I said the biggest "crumb" was IRAs and 401k's.  For definitional purposes, "middle class" means anyone who does not have enough cash to buy their own Senator or House Rep - that means 99.5% of the country.  The MF Global bankruptcy is a blueprint for how the Government and wealthy bankers will begin to take everything that is kept within the confines of the financial system.

The Comex Exposed

I just saw another "worse than 2008" post linked on Zerohedge.com.  I don't know about anyone else, but I just don't find that commentary helpful.  That's old news.  It's no-value-added to comment on that. 

I was going to post on the ECB Long Term Refinancing Operation (LTRO) today and explain why it's just another "back door" QE operation, but I'm too busy to get into that at the moment.  I'll try to post something on it tomorrow.  I explained in a comment response under yesterday's post what the basics are. 

At any rate, celebrity hedge fund manager Kyle Bass has been commenting lately on the reasons to be diversifying heavily into physical gold and silver and why it is important to avoid using Comex futures contracts and ETFs for this purpose.  The bottom line is that they are derivatives of owning real gold, not valid substitutes.  In fact, they are fraudulent substitutes and we have seen from the MF Global abortion that even owning warehouse receipts entitling you to delivery of bars is no longer a valid claim on Comex gold.

Bass' firm apparently went to do an informal audit of the Comex:    The Comex had $80 billion of open interest vs. $2.7 billion of actual gold inventory. That means that actual gold at the Comex is less than 4% of the potential outstanding claims. It will only take one big delivery month 4% of the open interest decides to stand for delivery and the Comex is busted.  You'll see he also comments that the bars that were owned and supposedly allocated for Bass' firm were scattered all over the vaults.  This is bad. 

If this concept doesnt' horrify you, then carry on watching reality TV and worry about Kate Middleton's pregnancy. Those are the important topics anyway, right? Who cares about the fact that bankers and politicians are openly stealing your wealth.

Here's the video and it's well worth taking a 2-minute break from MTV to watch:

Time To Jump On Board The Gold Train - It's Warming Up To Leave The Station

After an 8 month price correction that has been mistakenly taken to be a new bear market by those who are clueless, like Dennis Gartman, it appears that the gold bull is kicking at the gate:

Interestingly, so many people are bearish on gold right now and looking for a collapse in the price of gold.  They don’t understand what is happening in the physical market.  The bullish fundamentals I just described to you have enormous implications  -  London bullion trader

Here's the short interview which is the source of that quote:  LINK  It is a must-read and the report of large "entities" going directly to gold producers in order to source large quantities of bullion is consistent with other industry insider accounts of this.  I linked one a couple weeks ago.

"Interesting" from my viewpoint because I have pointed to some indicators that likely signal that we are near or at a bottom and that the next extended move higher in gold will likely take us to a new record nominal high in gold. 

One of these signals as discussed yesterday is gold breaking its 200 dma to the downside.  Currently the 200 dma is around $1618 using the Comex continuous futures contract (this would correlate to around $1615 on a spot price basis).

Another signal would be the current long/short Commitment of Traders (COT) structure of the hedge funds (large specs) and the big banks (commercials).  For the duration of the gold bull market, market bottoms have been associated with a low relative net long position being taken by the large specs and a low relative net short position being taken by the price manipulating bullion banks.  That this is the case is indisputable.  Currently the large specs have a very low net long position and the banks have low net short position.  I rehypothecated Ted Butler's latest remark on the COT structure from Ed Steer's Gold & Silver Daily: 

I think the gold COT structure is back to a bullish set up, especially if the improvements after the cut-off are what I think them to be. As such, gold may also be at a price bottom, especially considering the bullish signals (or lack of bearish signals) coming from the gold physical market (ETF holdings, etc.). But to be fair, while gold is near bullish COT readings over the past year or so, on a much longer historical basis there may still be room for further liquidation. My personal sense is that we probably shouldn’t see big further speculative long liquidation in gold and may, in fact, be good to go to the upside. But if the COT structure in gold is bullish (as I think), then silver’s structure is screamingly, super-duper bullish.

Combined, the 200 dma plus the COT signals are quite bullish for gold.

One indicator that I have not seen commentary on is the COT set-up in the euro, and tautologically, the inverse set-up in the dollar.  Currently, the large spec hedge funds are record short the euro, which means they also are very long the dollar vs. the euro.  Conversely, the big banks are primarily the entities which would take the other side of the hedge fund bet, meaning the big banks are very long the euro and very short the dollar.  This is very very bullish for gold. Take a look at this chart rehypothecated from http://www.barchart.com/

(click on chart to enlarge)

The green line that goes below zero starting in May is the short position of the large specs.  You can see how the hedge fund position has shifted from long to short this year.  The red line is the long position of the big banks.  Why would the euro begin to move higher again rather than collapse, like everyone seems to think will happen?  Because I have said all along that I wouldn't be surprised if the EU figures out a way to save itself from extinction.  Hell the U.S. is already printing money to bail out Europe via the up to $1 trillion currency swap facility arranged by the Fed.  This is a de facto QE because it increases the size of the Fed balance sheet until the swap unwinds, if it ever does.  This is printing and this is dollar bearish.  Just wait until the Fed has to start printing to fund 2012 Government spending programs...Don't forget, what's bearish for the dollar is bullish for gold...

Gold vs. The 200 Day Moving Average

Let's set the record straight.  I really didn't want to spend time on a post today but I've been inundated with a lot of really reckless, ignorant research over the past few days about the "technicals" of the gold market.  Lately there's been many many blogs and research reports which make the claim that once gold breaches its 200 dma to the downside, the party is over.  But let's look at the 10-year track record of gold vs. its 200 dma, after all there's nothing like showing the hard data in all of its glorious golden truth:

(click on the chart to enlarge)

That chart pretty much speaks for itself.  Gold has breached its 200 dma to the downside many times over the last 10 years.  Ironically, once that has occurred - in each and every occurrence - gold has always resumed its bull trend and powered to new nominal record highs.  That evidence is indisputable.  Any research that forecasts bad news for gold based on it breaking its 200 dma is unequivocally incorrect and therefore useless to the goal of making money and preserving wealth in the precious metals market.  Unequivocally.

Let me repost the rGold metric chart, which shows the daily price of gold relative to its 200 dma.  Whenever this metric has gone below 1, which means that the price of gold is below its 200 dma, it has signalled a table-pounding - unequivocal - "buy" signal.  Here's the chart, which unfortunately ends in 2008 and I don't have the time right now make it current, but you'll get the picture:

(click on the chart to enlarge) 

Currently the rGold metric is around .94.  That is super-bullish for gold.

Any questions?  Any research on the gold market that is worth spending time on will instead focus on analyzing the fundamentals which are unpinning this ongoing historic bull market in gold.  Is there any indication that Governments are reigning in spending and debt issuance and fixing their financial markets and economies anywhere in the world?  As point of reference, let me just reiterate that the U.S. Government is on track to issue close $2 trillion in new debt this year.  The only way this will get funded, barring some Moses-parting-the-Red-Sea event - is for the Fed to fund that new debt issuance using the printing press.  That is uber-bullish for gold.  Similarly, real interest rates are negative by a record amount here and globally.  That is rocket fuel for gold.

And the best short-term indicator for gold is the current sentiment.  The investment sentiment for gold right now is at the low end of its range over the last 10 years:  LINK   Again, this indicator has always marked a turning point in the direction of gold.  I expect it will this time as well.  Furthermore, the Indians and Chinese have been out of the market for the past couple of weeks, but per that linked report, they are starting to buy again. One more thing.  On Friday the COT report showed that hedge funds are record short the euro.  The big bullion banks are taking the other side of this trade, which means they are very long the euro.   Would you bet on the hedge funds or the banks, who have inside info?  I would suggest that this is one of the reasons that JP Morgan and HSBC have been working hard to reduce their short positions in the gold and silver futures market.  I would further suggest - although don't expect gold to all of a sudden rebound straight up - that all of the technical and fundamental indicators are pointing toward the genesis of gold's next big move higher.

All bull markets end when with a massive parabolic blow-out to the upside in which almost everyone has thrown their money into the market.  Currently less than 10% of ALL institutional and retail investors will even consider investing in gold, especially gold of the physical variety.  I rest my case.

More Proof That The Gold Sell-Off Was Manipulated

This will be a quickie today.  Kudos to the commenter who alerted me that the OCC - Office of the Comptroller of the Currency - released its quarterly report on bank trading and derivative activity for the 3rd quarter of 2011 today.  Here's the LINK  Please note that the "precious metals" category is primarily silver derivatives.  So the report is largely about gold and silver. There is very little if any trading in platinum and palladium OTC derivatives.

It has been documented by over time that a large increase in the amount of gold and precious metals derivatives outstanding for the 5 largest banks is highly correlated with a big price "correction" in gold and silver.   Interestingly, JP Morgan and HSBC are considered to be the primary metals market manipulator in this country  Even more interesting, you can see from the latest OCC report that over 99.6% of the precious metals OTC derivatives positions held by all banks is attributable to JP Morgan and HSBC.  Hmmm...

Looking at the quarter-end end outstanding amount from Q2 to Q3 this year, you'll see that the JP Morgan's gold and precious metals OTC derivatives positions increased from Q2 to Q3 by 15.2%.  Even more interesting, JPM's gold derivatives position with a maturity of less than 1 year increased by 28.5%.  HSBC's derivatives position in gold and precious metals increased by 24.8%.   It's needless to say - but I'll say it anyway - JPM and HSBC made millions for their proprietary trading positions on their derivatives postions in gold and silver in the last two weeks.

Please note that the OTC derivatives market, thanks to Robert Rubin, Bill Clinton, Alan Greenspan and the current Treasury Secretary Tim Geithner is largely unregulated and unsupervised and is riddled with a high degree of illegal activity.

There's not much more to say about this other than the fact that this high correlation between large increases in the derivatives positions in gold and silver derivatives by JPM and HSBC and the extreme downward price movements in gold and silver has persisted for a long time.  Anyone who looks at this data and does not admit that the big market corrections we experience in gold and silver are the product of illegal manipulation is an idiot. 

Eventually the sheer force of demand in the physical gold and silver markets will prevent JPM and HSBC from manipulating the market using paper securities.  That's when the real fun begins for those us of who truly understand what is going on and own a lot of gold and silver.  When this does happen, GLD and SLV won't be of help as they will perish in fraud.  Having traded and lived through several other manipulated market sell-offs like this over the last 11 years, I can say with conviction that the counter-move to this manipulated sell-off will be new highs in both gold and silver within 12 months. Have a good weekend.  Go Broncos...

Rgold Is Golden: Sit Tight And Be Right (Or Add To Your Positions)

"This is my favorite time of the year and I'm in a great mood for receiving this year"  - Mike Greenberg, Mike and Mike in the Morning on ESPN.

I'm in a great mood right now to receive any news whatsoever that the CFTC is going to crack down on the illegal manipulation that has been going on in gold and silver futures trading on the Comex for a couple decades now.  But I know that won't happen - just ask the customers of MF Global what they think about the willingness of the CFTC to enforce the law.  And so the saga of the United States of Banana Republic continues.  I'm really excited to receive the eventual newscast that shows Jon Corzine walking away from his MF Global crime with little or no consequences.

I don't want this post to be a rant about the Government's complicity with the massive manipulation of the markets, especially gold and silver, but anyone who does not understand that this plays a big factor in the short term movements of gold and silver is unequivocally a complete idiot. The golden truth is that on a longer term basis, the manipulation doesn't work other than to scare the shit out of most people and keep them from taking advantage of the enormous wealth-building opportunities it presents.  Here's a quick comment from Ted Butler on the matter - I've included a chart below that shows the technical aspect of the market Butler describes:

What I didn’t explain in my weekend commentary on Saturday was that the next logical downside trigger point in gold for selling by the technical funds and traders was the 200 day moving average ($1610). This particular moving average had not been broken in gold for almost three years, back to when gold was under $900. The longer a moving average remains unbroken, the more significance it holds to technical traders. This level has now been broken as well, encouraging those holding gold on technical or price movement grounds to sell. This selling begets other selling as fear of further losses resonates through the market as prices plunge. The price declines step up demands for more margin, prompting further long liquidation.

Given human nature and our collective demand for easy to understand explanations for why prices are falling there will be, for sure, all manner of supply/demand explanations given to justify the price rout. But there have been scant signals from the real world of supply and demand to account for the decline in gold and silver prices. At the core, this is strictly another COMEX-commercial rig job. That it has been highly successful for the commercial crooks is unfortunate in many ways, but encouraging in other ways. The proof that it is another COMEX rig job is fairly easy to demonstrate in past and future Commitment of Traders Reports (COT), as the commercials are always big buyers on these price smashes. We have only gone down in price so that the commercial could buy. It’s not possible that the commercials can always be big buyers on such declines for any other plausible explanation. That the CFTC sits by, even though it has been armed with new anti-manipulative regulations is as shameful as it gets.

Here's a 6-year daily chart of the Comex gold futures continuous contract:

(click on chart to enlarge)

THAT, my friends, is a snapshot of one of the most perfect bull market charts that you will ever see.  You really couldn't make one up that was better.  The red line is the 200 day moving average (200 dma) to which Butler refers.  You'll note that the corrections in 2006 and 2008 on a percentage basis were much worse than what we are in right now.  That's not to say that I'm calling a definitive bottom here, but the data suggests that IF gold does break the 200 dma to the downside, it doesn't stay there very long.  I have been lucky enough to start adding to my positions every time this happens in the last 11 years and feel that it's a bit more than luck that it's worked out for me. 

Now we've all heard the Dennis Gartmans and CNBC retards and others proclaim the end of the gold bull market.  I can't tell you have many times I've heard that in the last 11 years.  I remember vividly when gold ran thru $350 in early 2003 and started to correct.  Robert Prechter of Elliot Wave fame issued a definitive warning that the gold bull market was over and gold was going to fall back to $50.  Hmmm...The common theme between Prechter and Gartman is that NEITHER of them manage a fund or commit their own money.  They make a lot of money selling newsletters with shitty advice in them to ignorant financial advisers and frightened, lemming investors.  Neither of them has any skin the game.

Here's a "technical" chart that you won't find in Gartman's letter but I will give it to you for free.  Unfortunately Eric Hommelberg does not freely publish his work anymore but he follows a metric known as Rgold.  This is the spot price of gold divided by the 200 dma of gold.  The chart I have only shows 2004-2008, but you'll note that whenever the Rgold metric goes above 1.20 it is a definitive "sell" signal AND whenever it goes below 1.00 it is a definitive "buy" signal.  Right now that measurement is .93.  .93 = BUY with both hands.  Here's the chart: 

(click on chart to enlarge)

I have several articles to cite in my argument that gold is likely close to reaching a bottom in this price correction, which actually began at the end of April.  To keep this post reasonably short, I'm going link the articles with very little commentary.  

The highly respected Peter Grandich has issued a $1mm bet challenge to Dennis Gartman, Jon Nadler and Jeffrey Christian - three morons who routinely issue doom warnings about gold and yet who are always wrong in their market calls.  None of them have skin in the game but Grandich is giving them an easy opportunity.  Please read this link in its entirety - Grandich has arranged for a law firm to set up an escrow account if any of these three dopes decide to show some conviction behind their drool:  LINK

Zerohedge has posted an excerpt from a Citicorp market research report that explains why they see gold going anywhere from $3400 to $6000 over the next two years.  They cite technical as well as the usual fundamental reasons for this.  This is very significant because it is the first time in 11 years that a large, Too Big To Fail Wall Street bank has issued a bullish call like this on gold:  LINK (no, this isn't the end of a bubble because Citi has become bullish - there's still 10 other Too Big Big To Fails that are extremely bearish on gold).

This could be one of the best signals yet that gold is getting ready to form a bottom and turn around:   the sentiment index as measured by Marketwatch's Mark Hulbert is registering very high levels of negativity.  Please note that Hulbert points out this contrarian indicator is right more often than it's wrong, which means that the negativity of investors toward gold is actually very bullish:  LINK  I can confirm this measurement because there's been an usually high number of commentors lately on this blog who are thinking about dumping their holdings.  I will buy what they sell.

Whenever I need a little "conviction-check" - some "couch time" - with regard to my fear levels, I like to spend time reading what Jim Sinclair has to say.  Eric King made it easy with this interview of Sinclair.  Please note that he thinks this high volatility in gold right now indicates that gold will go higher than he expects. This quick interview is well worth reading:  LINK

Finally, please keep in mind that ALL the fundamental variables that are driving the gold bull market keep getting stronger by the day.   Congress and Obama are getting ready to pass a huge spending bill which extends the payroll tax cuts and extends jobless claims.  This means that the spending deficit for 2012 will be much larger than projected back in September and the amount of debt the U.S. Treasury has to issue will be even greater than projected when the debt ceiling was lifted.  Expect another debt limit ceiling extension fight before the November 2012 elections or just after.  This means that Fed will be forced to roll the printing presses or the Government will not be able to fund all of this new debt issuance.  Hell, we didn't even have debt ceiling limits and massive deficit spending  and high unemployment as problems when the gold bull market began.  As these problems get worse, the case for gold going several multiples higher from here gets better.

One more thing to think about:  how many of you have financial advisers calling you to tell you that it's time to sell your gold?  How many of you have advisers calling you and telling you it's time to buy or add?  I would bet my last nickel that over 90% of all advisers are calling and telling their clients to sell.  I would also bet that those are the very same advisers who advised their clients to stay away from gold for the last 11 years.  If I had an adviser like that, I would hang up the phone and find a new one.

Full Faith And Credit?

As I see it, if you don’t own some physical gold and silver, you are going to be in a bad way as the impact of the MF Global collapse continues to ripple through the markets. All of us are facing some difficult times in the weeks and months ahead as this global financial bust plays itself out, but trying to contend with this fallout without owning physical gold and silver is like going into a war without any bullets.   - James Turk

This current market "correction" in gold and silver is an absolute gift.  I say "correction" because there is no doubt that the Fed/Wall Street is piling on in order to make the metals look undesirable to the unsuspecting.  Time and again they've done this over the last 10 years.  But to be able to go out and move more of your increasingly devalued U.S. dollars to acquire physical gold and silver at prices that are 15% cheaper for gold and 40% cheaper for silver cheaper than 8 months ago is an absolute gift.

I had an interesting conversation with a good friend earlier this week. He was thinking about liquidating all of his investment accounts and moving everything to cash, fearing that all "investments" were going to get annihilated. My response was, why would you move into a pile of cash that you keep in a bank? Do you really trust the banking system? Just like customer cash accounts at MF Global vaporized overnight, your bank account is nothing more than an electronic entry in a bank computer that is not really any more secure than an a cash account at a brokerage firm. Seriously.

But even more troubling would be the idea that someone would want to move into cash - into U.S. dollars. By law - a law which is in direct violation of the U.S. Constitution, mind you - all money issued by the Government is backed by the "full faith and credit of United states Government." Think about that statement for a moment. Let's break it down to its basic meaning.

"Full credit" of the Government. The credit rating of the U.S. Government was recently downgraded from triple-AAA by S&P. This means that the credit rating of the U.S. Government is deteriorating. It is actually deteriorating quite rapidly. In fact, if it weren't for the fact that the U.S. Government - unlike the individual countries of the EU - has the ability to print money in unlimited quantities, the actual credit rating of the U.S. Government would be "CCC-," which means that it is on the cusp of default. So when you keep your wealth in the form of U.S. dollar "cash," on a de facto basis you are storing your "wealth" in an "investment" that is on the verge of bankruptcy.

Now, let's examine the idea of "full faith" in the U.S. Government. This implies the notion that we collectively have complete "faith" in our Government and the leaders that implement our Government. Is that true for you? Do you have "faith" in the Obama administration? Would you have "faith" in a Gingrich or Romney administration? How about Congress? We know from recent polls that the approval rating for Obama is at an all-time record low for any President with one year remaining in his first term. Record low. We also know that the approval rating for Congress is now well below 10%. Do those ratings convey the idea that Americans have "faith" in their Government?

Now, I'm dead serious about this. IF the implicit credit rating of the U.S. Government is, realistically, near the level of default and IF the overwhelming majority of the people in this country have little or no faith in our Government, the HOW THE HELL CAN THE U.S. DOLLAR HAVE ANY REAL LONG TERM VALUE AND HOW CAN IT BE CONSIDERED A STORE OF WEALTH? Seriously? Why the hell would you want to move your wealth into U.S. dollar-based "cash?"

So what are the alternatives? Other than gold and silver, I really don't know of any alternatives. Actually, again I'm being serious, guns, ammunition, canned food and other "hard usables" would also maintain their value if things get really bad. But gold and silver have been "transaction/barter currencies" for the better part of 5000 years. This is not going to change. Despite what looks like a lot of volatility, or risk, with gold and silver, over the last 10 years the U.S. dollar has gone down in value 80% against gold and silver. 80%. It has another 20% to go before it goes where every other paper fiat currency in history has gone - extinct. On that obvious basis, why would you put your wealth in the U.S. dollar?
 
We have seen much worse market corrections/manipulated hits in the precious metals over the last 10 years.  And yet, over that time period, gold and silver have outperformed every other possible investment.  Every single one, without exception.   But we're getting to the point at which you need to start looking at gold and silver as being the best shot you can have at financially surviving what is coming our way.  2008 was bad but what is about to happen globally will be even worse.  Don't take it from me, consider what James Turk has to say.  James Turk is one of the smartest, most forward-looking market commentators that I have ever come across.  It just so happens that his views have paralleled mine over the last 10 years.  Although I don't know what his "off the record" true assessment would be, his vision publicly is not as gloomy as mine.  I think I'm going to be right.  But here's Turk's latest comments from Eric King's daily blog interviews:  LINK
 
Consider that, if you had a billion marks in the bank in Germany on November 13, 1923, when you woke up the next day you had one mark.  That is the power of a Government that issues fiat currency by enforcement of law and that is trying to survive.  But also consider that if you had all of your wealth in gold and silver, on November 14th your wealth position was the same as it was the day before.  Our Government is trying to survive right now and yet it keeps increasing its deficits and debt load.  Soon enough the Fed will be firing up its printing press yet again and your dollar in hand will become worth even less.  Gold will soon be probing new highs even though it may not seem like it at this exact moment.
 
I have laid out the truth and the facts today as they are.  My statements are backed by the events of history for 5000 years.  If you think that it's going to be different this time, then go ahead and keep your wealth in U.S. dollars and Government bonds.  But if you think and know, like I do, that eventually the ability of the U.S. Government to maintain any value in the dollar is going to disappear, then you need to use opportunities like the current one to move even more of your paper wealth into physical gold and silver.  Not GLD, not SLV, not any other ETF.

Upon Further Review

The bottom line is that the money needed to bail out Europe and to fund America’s spiraling debt and future unfunded obligations is in the ten of trillions. IT DOES NOT EXIST. It has to be created by printing money in massive quantities, and despite all the rhetoric you will hear against such policies, in the end it’s the path of least resistance. Printing money is an invisible tax on savings, much easier to initiate, than, say, raising taxes or cutting back on services and entitlements.   - Frank Guistra, founder of Silver Wheaton

Here's the link for the source of that quote, it's a very good article on gold and negative real interest rates:  LINK 

Remember how "jiggy" everyone got over the reports of incredibly robust Black Friday weekend sales?  Recall that those initial reports were based on subjective measurements such as "foot traffic" recorded at malls.  Well, the retail sales report released for November today came in well below the Wall Street Einstein analyst consensus forecast of .6%.  In fact, it is likely that retail sales for all of November may have gone negative had it not been for the very heavily price-discounted and advertised push for Black Friday weekend sales.  Here's the LINK  Even more foreboding for the economy, a poll out last week of consumers suggests that the majority of people have already made their holiday purchases for the year, suggesting that the bounce we get the week for Christmas will likely be a lot less than expectations and initial hyped-up indications.

And here's another key economic indicator that needs to be further reviewed.  The existing home sales report - a well-spun, highly massaged data series published by the hyper-promotional National Association of Realtors -  will be downwardly revised going all the way back to 2007.  Hmmm.  This particular economic report in the last few months has been giving many "hope" that a rebound in the housing market is developing.  However, I have noticed - because I tend to read the whole news release and not just the headline plus the first few sentences - that the NAR chief economist has actually been uncharacteristically demur in the comments he issues that usually get buried toward the bottom of the press release.  Now we know why.  As you'll see in this news release, which I have not seen anyone mention, especially in the mainstream media, the NAR issues a well-spun "cover" explanation for the fact that their systems have "double-counted"  home sales in many areas:

The NAR said the "up-drift in sales projections developed over time between the fixed model for calculating sales rates and the actual marketplace, including growth in multiple listing service coverage areas, geographic population shifts, a decline in for-sale-by-owner transactions, some new-home sales trickling into MLS data and some individual sales being recorded in more than one MLS." 

Here's the LINK  Obviously, they don't use the term "double counted" in that explanation but that is what that convoluted statement says.

With regard to the opening quote above, I have been wondering now since the summer how the U.S. Government is going to find buyers for the - at minimum - $2 trillion in new debt issuance it will have to do this fiscal year.  Why do I say $2 trillion when the published deficit forecast is something like $1.8 trillion?   Because I saw a report last week - sorry I don't have the link - that said that the Government is already running behind forecast in tax revenues and is already running above estimates in deficit spending.  The former metric - tax revenues - is black and white evidence that the economy is much weaker than is being promoted by Wall Street, politicians and mainstream media.  

But that said, who the hell is going to buy all the new Treasury debt?  I'm not.  I wouldn't touch a Treasury or muni bond even if I had a gun held to my head.  It sounds like China isn't interested in doing that either.  The answer is that one way or another the Fed is going to be the buyer of last resort.  And that means a lot more QE.  More than is already being floated by those who know that the Fed is going to start buying several hundred billion in mortgage paper soon. 

And THIS is why the price of gold is weak right now. The paper money promoters do not want gold moving higher going into the roll-out of big money printing programs in Europe and here.  There was a report last Friday from a European media source that the Bank of England and the ECB were selling gold.  They retracted that report yesterday but it turns out that is it half-true.  It turns out that these two Central Banks were likely "leasing" gold out to member banks in order to enable these banks to raise much-need liquidity without having dump crap assets that have little or no bid.  How do we know that the CB's were leasing gold?  Take a look at the lease rates for gold, which can be found here:  www.kitco.com  You'll see that there are two distance downward spikes into negative territory.  This indicates that Central Banks are making a large supply of gold available for lease to member banks.  Imagine that, borrowing gold AND getting paid a small rate of interest to borrow that gold so you can sell it into the market place and use that money to pay your bills...  

central banks stand ready to lease gold in increasing quantities should the price rise.

That quote is from Alan Greenspan's testimony to the House Banking and Finance Committee on derivatives from 1998.  Here's the LINK  I threw that in there for anyone who doesn't believe that the gold market is manipulated.

Silver Investors Will Make A Lot Of Money

I MF Global'd (i.e. embezzled) this video from http://www.zerohedge.com/ this morning.  For those who have not watched it yet, it is a great explanation of why there will be a massive move higher in silver at some point in the near future (don't ask me for a timeframe). 

We know the market for large deliveries of physical silver is getting very tight per the Sprott Asset comments that they have to wait several months for delivery when they buy a large amount of silver.  It certainly calls into the question the reliability of the "reported" silver inventories on the Comex.  Currently the U.S. Mint is producing enough silver to meet investor demand.  But all of the silver used in silver eagles has to come from U.S.-based mines.  The annual demand for silver eagles is getting close to exceeding the annual output of U.S. silver.  Once this happens, I expect all hell to break out in the price of silver.  Silver mining stocks will move up many multiples in price in just a few days.  Here's the video (about 4 mins.):

QUOTE OF THE YEAR

Gold is cheap relative to the idea that you could have a life’s fortune on a statement from a clearing agent [your brokerage account] and find out that you don’t have a penny left anywhere.  Which should you have had, physical gold or that clearing house statement?  Gold is cheap because of the condition of other things 

                                                   - Jim Sinclair www.jsmineset.com

How can you have your money anywhere...and expect and feel certain that this money will be returned to you when you see the inner workings of finance and Wall Street through the eyes of the collapse of MF (Global)?  LINK

Moral Hazard

There will be no private sector involvement. In other words, the banks are too big to fail and public sector wealth will be expropriated for the use of bailing out the catastrophic investment decisions of the wealthy individuals who operate the world's largest banks.   -  Dave in Denver

Moral Hazard - In general:  Circumstance that increases the probability of occurrence of a loss, or a larger than normal loss, because of a change in an insurance policy applicant's behavior after the issuance of policy. It may be due to the presence of incentives that induce the insured to act in ways that incur costs the insurer (but not the insured) has to bear.

Moral Hazard - As it applies to the growing financial crisis:   refers to a situation in which a party makes a decision about how much risk to take, while another party bears the costs if things go badly, and the party insulated from risk behaves differently from how it would if it were fully exposed to the risk.  Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would, leaving another party to hold some responsibility for the consequences of those actions. (Wikipedia)

Moral Hazard is embedded deeply in the root, the very core, of the global catastrophic financial crisis that continues to accelerate in scope and severity on a daily basis.  Specifically as applied to the United States, the fact that our Government has created and enabled the idea of a bank that is "too big to fail" that will always be bailed out by the public sector - really, each individual Taxpayer in this country - is the perfect embodiment of that exact nature of moral hazard as it applies to the ongoing financial collapse of the United States.

And the contagion is indeed spreading, though not from the Greek source that is readily identified and blamed by most.  Rather, the EU member countries have adopted principles to facilitate the use of public sector money, ultimately to be enabled by additional debt issuance and money creation - aka "QE" - in order to bailout the big banks which control the political process here and in Europe.  In other words, the "contagion" is spreading because moral hazard has been allowed to infect and permeate every aspect of the global financial industry to the point at which it threatens to cause systemic collapse throughout Europe and the United States (and in Canada, from what I'm now hearing).

 "EU Leaders Drop Demands for Investor Write-Offs"

As regards private-sector involvement, we have made a major change in our doctrine: from now on we will strictly adhere to the IMF principles and doctrines,” EU President Herman Van Rompuy told reporters at a briefing. “Or, to put it more bluntly, our first approach to PSI, which had a very negative effect on debt markets is now officially over.

This report from Bloomberg related to the agreement reached by the EU members to "save" the euro describes the decision to use additional debt and public sector funds (taxpayer money) in order to bailout the failed risk-taking endeavors of the largest global financial institutions.  The "spin" put on this by the politicians and establishment-controlled media uses the term "private sector involvement" to describe what is ultimately a decision made by the bank-controlled politicians that the big banks will be bailed out.  Here's the report from Bloomberg:  LINK This is the epitome of moral hazard - the moral hazard which is the terminal cancer destroying the global financial system and ultimately will destroy many countries including the United States.

Please make no mistake about this, the reason that Tim Geithner is over in Europe to participate in the agreement reached last night by the EU leaders is that the biggest U.S. banks are not only exposed to many tens of billion of dollars in actual European sovereign loans, but the risk exposure is magnified into the trillions because of the off-balance-sheet derivatives issued and underwritten by the biggest firms on Wall Street.  For instance, Morgan Stanley's derivatives book grew by $9 trillion in the latest reporting period. This is why Morgan Stanley's stock was down nearly 10% yesterday.  JP Morgan and Goldman Sachs have even bigger derivatives exposure to Europe than Morgan Stanley.  THIS is why the U.S. Government has been involved in the agreement reached last night and THIS is why the Federal Reserve, unilaterally and without any Congressional oversight OR approval, has extended $500 billion in U.S. taxpayer money to help prevent the collapse of the too big to fail banks using the "cover page" of a seemingly complicated tool labelled "currency swap agreement."

This is moral hazard in the extreme.  It's why Long Term Capital, Enron, Worldcom, Global Crossing, Enron, Refco, Amaranth, Bear Stearns, Lehman, Washington Mutual, Countrywide, Wachovia, Merrill Lynch, etc. all collapsed.  One would have thought at the very least that after Enron the system would have been drastically amended, reformed and fixed.  But it was not.  And now the Jon Corzines, Henry Paulsons, Jamie Dimons and Lloyd Blankfeins of the world have figured out how to steal billions from the system and get away with it.  That was the message from yesterday's shit-show on Capitol Hill.  THAT is why our system is collapsing.  THAT is why, if you will, Atlas shrugs.

Have good weekend.  And remember:  try to enjoy what you can, as much as you can, while you can because life in this world at some point is going to become very unpleasant for most people.

Jon Corzine Is Full Of Shit And A Liar

Jon Corzine has released the written testimony that he will make before Congress today.  It has been highly polished up by his legal advisers and contains so many "I can't recall's" that even Bill Clinton would blush. While the entire testimony has very little credibility with regard to substantive issues,   I just want to address one specific quote from the testimony because I know - for a fact - that Corzine is lying. From page 17 of the prepared testimony:

I did not, however, generally involve myself in the mechanics of the clearing and settlement of trades, or in the movement of cash and collateral. Nor was I an expert on the complicated rules and regulations governing the various different operating businesses that comprised MF Global. I had little expertise or experience in those operational aspects of the business.

Here's the full testimony:  LINK  If you take the time to read the full testimony, please try not to puke like I nearly did over the obvious lies and legally refined statements which are designed to obfuscate and cover-up the truth.

Now, earlier in the testimony, Corzine lays out his history of employment and experience in the securities industry.  For much of his career, he was in oversight and management roles which would have required that he passed certain industry exams. One of them is the Series 24 principal's exam.  Having just studied for and passed this particular exam, I know for a fact that the material covers the rules regarding "movement of cash and collateral."  I spent a few hours making sure I understood exactly what the regulations prescribe.  For Corzine to have been promoted into the positions he lays out in his testimony, it means he had to pass the Series 24 exam and he spent part of his time at Goldman having to deal with the issues from a practical standpoint covered by the material in the Series 24.  In other words, he knows the regulations and mechanics and he's lying in his testimony.

Moreover, having worked as a trader on a big bond trading desk, as Corzine did at Goldman (he ultimately ran the Government bond trading operations at one point), I know for a fact he had to have been intimately aware of and knowledgeable about "back office" (the functions to which he refers to as "clearing and settlement") functions and mechanics.  It would be impossible that he would have risen through the ranks at Goldman in the bond trading business and not have spent a good part of his of time understanding and dealing the "back office operations" of the securities trading business.  Impossible.

Unfortunately for justice - but fortunately to prove my contention that he will extract himself from facing prison by exploiting the inability of Congress to ask the right questions - the people who will be grilling him, Senators and Reps, have no knowledge of how Wall Street functions and they will not take the time to figure out the right questions to ask. Nor will they make an earnest attempt to hold him accountable.

There's plenty of other statements that can likely be proved to be false.  For instance he claims to have not made contact with NY Fed Chairman Bill Dudley during his time at MF Global.  Those two worked together at Goldman Sachs. MF Global was admitted to the Fed as a primary dealer under Corzine.  I find Corzine's statement therefore exceedingly difficult to believe.  Let's see the phone and email records.  But the best shot this country has seeing justice served against Corzine is having private lawsuits waged against him which will bring in expert witnesses to educate the courtroom and jury as to exactly why Corzine's testimony today is one big lie.  Let's hope and pray that happens.

Austrian Economics vs. Keynes

Why is Keynes tragically and horrifyingly wrong?  Here's why: 

THERE IS NO MEANS OF AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS A RESULT OF A VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION, OR LATER AS A FINAL OR TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED  (Ludwid Von Mises)

And that explanation is why the Austrian School of economics is correct.

Many of you have read commentary by Egon von Grayerz.  He is the chief strategist for a Swiss asset management firm and his writing is not only highly insightful and polished, but should be examined carefully.  I've strung together some quotes from his latest interspersed with my own commentary.  But I hope everyone reads the von Grazerz piece its entirety (linked below - it's not long).

The reason that Keynes' model does not works is that "governments worldwide are totally incapable of stopping the money printing. This is their only means of staying in power and buying votes. But not only that, this is the only method they know. This has been their patent solution to all economic problems in the last decades. Not that this is new in history."

Politicians and government organizations are one massive drag on the economy:   "The transfer of capital from private enterprise to government by massive taxation is approaching 50% in many countries. The average for 18 industrialised countries is almost 40%. This means that on average 40% of the productive economy is transferred to a non-producing entity (government) which wastes most of the money in the process of redistribution."

In addition, despite the repeated promises of austerity and fiscal restraint, the governments here and in Europe have proven repeatedly to be completely incapable of cutting spending and reigning in deficits:   "There will be no lasting austerity programmes in any country that can print money. Governments are incapable of sticking to austerity measures since in the end that is a guaranteed way of losing power. As power is the main purpose of all governments, they will use any method to retain it."

This Keynesian system has created a gigantic welfare class that gets bigger by the day.  Every god damn month in the United States the percentage of people who get food stamps increases:  "For a great many people it is now totally natural to rely on the state for their needs rather than on themselves."

Fool me once, shame on you.  Fool me twice, shame on me.  Fool me three times...you are a criminal and I'm insane.  Anyone who continues to have faith in the United States Government and buys into the promises being delivered by our leaders is certifiably insane.  Absurdly, Obama was on national television yesterday giving a "fiery" (as it was described by the media) speech which contained a reconstituted version of the same f*%king promises he issued in 2008, but on which he has resoundingly failed to deliver.  You want to believe him yet again? 

There is nothing we can do - unless we do something collectively that goes well beyond voting - to change this.  If you want to give yourself the best shot at surviving what is coming financially, then the ONLY way to achieve this is by moving as much of your wealth as you can into physical gold and silver.  As von Grayerz puts it:

In order to preserve wealth and keep capital intact, it is critical to keep a major part of investment assets in precious metals held outside the banking system. But for investors who continue to follow conventional wisdom, they will sadly find that their investment strategy was merely conventional and contained no wisdom.

But be prepared to hold your gold for the long haul and expect that there will be vicious corrections (like the current one):

Governments are creating credit and paper money and consequently through their fraudulent actions “stealing” from the people whilst at the same time increasing the people’s dependence on the state. And the people does not understand that the value of paper money is declining continuously. But gold reveals the deceitful destruction of paper money. This is why governments do not like gold and try to suppress the gold price.

Use these corrections to move even more paper fiat currency into physical metal.  And don't listen to your idiotic investment advisor when tries to tell you that gold is risky and is in a bubble.  That is utter bullshit.  Ironically, gold is the safest thing you can hold on to right now.  Want proof?  If gold was risky and at the top of a bubble, why aren't the European countries who are in a state of collapse selling their gold to raise money?  Italy is one of the larger sovereign holders of gold in the world...As von Grayerz states: 

Gold is money and reflects the total destruction of paper money. But most investors do not understand gold. Common arguments I hear is that “you can’t eat gold” or that “gold pays no return.” It seems that these investors prefer to eat paper money. And as to the argument that there is no yield on gold, who needs yield on an asset that has massively outperformed all major asset classes in the last 11 years.

Here's von Grayerz's piece:  LINK - Deus Ex Machina 

The reality is that - and forget about Europe for a moment - the United States has created a debt and spending bomb that gets worse by the day.  Our banks are still technically insolvent - after the Taxpayers shelled out a few trillion to bail them out in 2008 - and are headed for another collapse.  Europe is being used as the excuse but it's really just part of the problem - the problem of which the United States is the largest component. 

You can sit by and hope and pray that things turn around in this country.  But that's insane thinking because they won't.  The spending deficits, economic decay and corruption will continue to get worse until the U.S. dollar collapses.  Your best "hope" is to continue or commence accumulating as much physical gold and silver as you can - not GLD, not CEF and not PHYS (unless you have enough money to convert your PHYS into 400 oz. bars of gold).  At least PHYS can make good on that delivery.  GLD and CEF can not.

MF Global And The Safety Of Brokerage Accounts

Anyone who thinks the MF Global situation can't happen to whatever custodian their financial advisor uses is brain-dead.  The integrity of our system is eroding.  As it further erodes there is going to be a serious flood of money into physical gold and silver - Dave in Denver

I'll try to make this my last post on MF for awhile.  It's really yesterday's news and, as I said back when the initial details were first released, this is substantially more fraudulent than is being reported.  It turns out that Jon Corzine kept doubling down on bad bets on European sovereign paper - largely Greece and Italy I would bet - despite the protests of the chief risk officer, who resigned in March over this:  LINK  At least a few people on Wall Street still have scruples. 

There's a more comprehensive story about this in the Wall Street Journal, but the WSJ will not the report the behind-the-scenes truth.  That truth is that Corzine illegally used customer funds to shore up big margin calls on MF's principal trading account.  Furthermore, because of Corzine's relationship with the CFTC Chairman, Gary Gensler - who reported directly to Corzine and was promoted by Corzine and likely let Corzine sleep with his wife (you get the idea of the nature of the relationship) when Corzine was CEO of Goldman - Corzine was able to halt the CFTC from passing regulations that would have made it more explicitly illegal for Corzine to even think about touching customer funds for the purposes of short-term firm use.

This relationship with Gensler - and the exertion of influence on Gensler - should be immediately investigated by Attorney General Eric Holder.  But it won't be.  I truly hope that some investors file big class-action lawsuits against Gensler and the CFTC.  I really would love to see what kind of documents, emails and phone records that would be unearthed in the due process of discovery and document production.  Gensler does not want that to happen, and neither does Obama after the Solyndra abortion and the mess Eric Holder is in with the Fast and Furious scandal.  Unfortunately Big Bank Wall Street will be exerting its influence to prevent the truth from coming out because that will expose some of the underbelly of fraud that is occurring on a daily basis.  Furthermore, IF the MF Global trustee claws back customer funds who got their money out of MF before MF filed, then the trustee should ALSO clawback the money JP Morgan received as collateral against MF's positions.  I suspect this won't happen either though.

This brings me to my quote above.  I have said in the past that Wall Street is a monkey-see/monkey-do type of place.  As such, if Corzine decided that it was okay to illegally "borrow" customer funds and use them to make high-risk bets in the markets, then it tells me that this is actually a common practice on Wall Street.  I know from direct experience as a junk bond trader that it is not difficult to work around compliance and risk management (we called them "the risk Nazis").  And if it was being done back in the 1990's, it's being done on a much larger-scale basis now.  I don't care about Dodd-Frank because it is nothing more than "window dressing" for the most part.

Having said this, I want to make it crystal clear that eventually we are going to see the MF Global event at much bigger firms.  In fact, in a way, that's what the 2008 near-collapse was all about.  The ONLY difference is that Henry Paulson (another Goldman guy), Tim Geithner (a Goldman brainless puppet) and a few others decided that those banks were too big to fail so Taxpayer funds would be used to cover up the fraud and massive defaults.   But just like Refco was a prelude to MF Global - and we never did get to see what the real story was behind the Refco default - this MF situation is a prelude to much bigger securities industry scandals.  And it will involve the massive expropriation of customer money and securities at big Wall Street firms.  If you don't think this can and will happen, you are either ignorant of the facts or interminably naive.

At some point a lot more people who are becoming informed and willing to look at the truth will start moving their paper assets from these criminal enterprises known as Too Big To Fail banks and brokerages and move that money into physical gold and silver that is safekept with a verifiable trustworthy custodian.  Right now is as good of time as any to get in ahead of the eventual mad scramble for real safety and security.