Atlas Shrugs, Orwell Yawns

The Obama Justice Department is the worst in the history of this country.  It's an absolute joke. It makes the old Soviet Politburo look like a system based on rule of law.  Eric Holder is one of the most corrupt Federal officials that I have witnessed in my lifetime, starting with the pardon letter that he drafted, to pardon infamous tax evader Marc Rich, for Clinton to sign as Clinton was walking out of the Oval Office for the final time.  - Dave in Denver

The Orwellian cloud of Government deceit that is hanging over our system is now thicker than the 420 cloud that will hang over most cities where people are having big 420 celebrations, like the one in Denver at Civic Park.  Civic Park sits between the Colorado State Capitol and the Denver City and County Courthouse.

It was reported today that the SEC has decided to pursue enforcement actions against the Egan Jones credit rating agency for making "material misstatements" on its 2008 application to begin rating asset-backed and sovereign (e.g. U.S. Government bonds) LINK

Egan Jones is the least well known of the major credit rating agencies (Moody's, S&P, Fitch, Egan Jones).   But anyone who has been around the credit markets for a long time knows that Egan Jones is the most honest and forthright.  To be sure, Egan Jones is not influenced by the undo monetary and political persuasion that is successfully exerted on, and happily received by, Moodys and S&P.

Literally two weeks ago, Egan Jones downgraded the credit rating of the U.S. Government from AA+ to AA:  LINK  Of course, anyone who understands the factors that go into assessing any entity's credit rating knows that the U.S. Government, in reality, has a C credit rating for being on the verge of default.  If it weren't for the U.S. Government's unfettered ability to print money, it would have already defaulted.  So a AA credit rating by any standard of measurement should be welcomed with a red carpet by the Obama Administration.  And really, the move in gold from $250 to $1650, despite the considerable headwinds presented by Central Bank manipulation, is telling us that the U.S. is in de facto default.

Be all of that as it may, the SEC has decided to go after Egan Jones for these "misstatements" from 2008.  Why all of a sudden did the SEC decide that Egan Jones committed violations four years after the fact?  Having been through SEC/FINRA regulatory application processes several times over the past 25 years, I can say with certainty that, at most, the Egan Jones "misstatements" were most likely nothing more than clerical errors or general oversight.  I'm sure 90% of all regulatory applications have these issues.  It was certainly, to be sure, nothing to do with Egan Jones' ability and competency to analyze and assess credit ratings.

What really blows my mind is that the SEC looks the other way when Jon Corzine, MF Global, JP Morgan, Goldman Sachs, Bank of America et al, ad nauseum commit grave and obvious crimes of theft and fraud.  Why isn't the SEC scouring over these firms' regulatory applications in order to come up with meaningless filing violations? 

Anyone who truly believes that this action by the SEC is merely coincidental to Egan's ratings downgrade of Treasury bonds two weeks ago has been spending too much time at too many 420 celebrations.  It's getting worse by the day, as the Government enables the big wealthy entities who fund elections and Presidencies to get away with murder and capriciously enforces rules and laws against those who are not always in a position to properly defend themselves.  Hopefully Sean Egan owns his own politician or Government official who is in a position to deflect this nonsense, although I doubt he does because this would not have happened in the first place if he did.

And Obama was supposed to change all of this.   Everyone remember his mantra of "Hope" and "Change?"  Has there been any real, material change created by Obama?  I was at lunch yesterday with two attorneys who are staunch, dogmatic Democrats.  I mentioned to them that Obama had not delivered on one single campaign promise he issued during his campaign.  I also reminded them that I attended his campaign rally as a supporter in October 2008, so I heard these promises firsthand.  My lunch friends were not there.  (I subsequently withdrew my support for Obama as soon as he nominated Geithner for Treasury Secretary - it's been all downhill since then...).  I explained to them that Obama had not delivered on ONE single promise that I heard, firsthand, in person that day.  Not one.  Even the health care bill, which is one giant clusterfuck and does not even come close to delivering on the health care agenda set by Obama during his campaign, can not be used as an example of something Obama has achieved (one of them threw that at me).

The Golden Truth is that not only has Obama failed as a leader and has turned out to be just another straw man, farce of a human being, but he's continued down the path set by his predecessors of ignoring and shredding the Constitution and completely eliminating habeus corpas and Rule of Law.  Our system as we've known it for 236 years just can not survive without habeus corpas and Rule of Law.  Obama will be written about by historians who are motivated to present the facts and the truth as the President who ushered in totalitarianism and Rule of Privilege.

Happy 420 day, if that's your thing.  Please try to enjoy what you can, while you can, as much as you can.  I plan on enjoying playing in a big tennis tournament this weekend, starting this afternoon.

Moron Bubbles

The bubble is in paper assets, particularly sovereign debt. Historic lows in interest rates mean that prices are at historic highs as rates and prices move inversely. Take into account the solvency factor, and the conclusion is inescapable that such paper assets are in the biggest bubble in history. Sadly, the vast majority of people will not understand this until it is too late and their savings have been destroyed.  - Robert Fitzwilson on King World News (link below)

First I quickly want to point out that yesterday, despite the rosy headlines reported with regard to weekly mortgage applications, which increased due to refinancing applications, the purchase index absolutely plunged by over 11%.  This follows a big decline the previous week.  In addition, today the annualized, seasonally adjusted existing home sales number came in well below the Wall Street consensus expected number.  Wall Street, the media and the National Association of Realtors are doing what they can to shamelessly slather lipstick on the pig, but the truth is that the housing market is collapsing again.

To be sure, it would appear that there might have been a slight bounce in the housing market in the early part of 2012, but as I've demonstrated in previous posts, with the data to back it up, the majority of that "bounce" was fueled by in an influx of "investors" buying homes to rent out, a brief decline in mortgage rates which was stimulated by the Fed's "Operation Twist" money printing scheme and a liberalized, tax-payer subsidized mortgage finance initiative extended by the FHA, which includes the ability to buy a home with no money down.  Given the amount of Government intervention in this marketplace, you would have thought that the dollar devaluation operation conducted by the Fed and the taxpayer-financed lending by the Obama Clan would have sparked a bounce in the housing market that we actually noticed...

This leads me back to the quote above, which comes from a must-read interview with Robert Fitzwilson by Eric King.  Fitzwilson explains why the biggest bubble in the history of the world is the bubble in paper assets and specifically, the bubble in sovereign debt.  To illustrate his point, I took the liberty of sourcing a chart of total credit market debt (Government plus private sector debt) for just the U.S.:

(click on graph to enlarge)

THAT, my friends and colleagues, is what a REAL bubble looks like!  I would also like to point out that the slight decline shown starting around 2009 is not a true decline, per se.  Rather, it represents the amount of mortgage and other private market debt that has been either written off by the banks or written off by the banks and monetized by the Fed - primarily the latter.

Finally, Fitzwilson contrasts the debt bubble with the media-induced idea that gold is in a bubble: 

Nothing could be further from the truth. The perception is so far below the reality that we effectively have a negative bubble. Buyers of these three assets are speculating fools according to the mainstream media. The only thing that is foolish is not holding onto positions and not adding as nominal prices periodically come down.

Here's the LINK

Judging from what looks to be like possibly the worst sentiment I have seen in eleven years of my involvement in the precious metals sector, I have to concur with Mr. Fitzwilson.  Bubbles do not culminate with extreme negative sentiment toward an investment.  In fact, the hallmark of a bubble is the exact opposite.  And for the most part the general public has been largely sellers of the their gold and silver (witness the mania in cash for gold - this is you selling, not buying).  How can there possibly be a bubble in something which the public has yet to participate?

Stay In The Trade

Men who can both be right and sit tight are uncommon.  I found it one of the hardest things to learn.  But it is only after a stock operator has firmly grasped this that he can make big money.  -  Jesse Livermore

I don't have time produce some of my own work, so I wanted to highlight Eric King's interview with Rick Rule at King World News:

You know, Eric, for investors who are frustrated, past is probably prologue. They need to have a sense of what happened in the 1970s market. If you go back to that bull market, you will remember there were numerous occasions, probably 25 or 30 in that decade, where the precious metals prices fell 10% or 15%. The equities associated with gold and silver fell even further.

The grandaddy of all of those declines was in 1975. Now, what’s instructive to know is that nothing changed with regards to the fundamentals for gold and silver. What changed was the official sector’s interest rates and people’s perceptions of the value of gold and silver.

If you were in the market and had the cash and the courage to stay in the market from peak to trough, that is from the bottom of 1975 decline, five years later you were up eight-fold. It’s tragic that some people had the idea behind the bull market, but didn’t have the cash or the courage to stay the trade. Can you imagine getting shaken out of a trade where you were right, and then missing five years of an eight-fold advance?

So, for people who are frustrated with the volatility in this market, especially the downside volatility, simply remember that what is changing are people’s attitudes, not the fundamentals. The market doesn’t care if you are frustrated. The market doesn’t care about your time frame.

The market doesn’t care about anything. The market is merely a facility for buying and selling assets. If you have the courage of your convictions, if you believe, as an example, that gold is a better store of wealth than fiat currencies, then stay the trade.

That's most of the interview and here's the rest: LINK

Not much to add to that other than that I have found in that in twenty years of trading, which encompassed being an institutional junk bond trader/market maker, a trader of my own capital and the manager/trader of a small hedge fund, the worst time to bail out of a trade that I know is right is when I feel the most uncomfortable holding it.  Right now the sentiment in the metals and mining sector is about as putrid as I've observed it for close to eleven years of doing this sector exclusively. 

I can say with complete conviction and confidence that the best gains in this sector are still ahead of us. 

There's No "BS" Like Government "BS"

The Government reports garbage and the morons in the financial media reports that garbage as hard facts - Charles Biderman, Trim Tabs Independent Research

Mr. Biderman didn't exactly discover plutonium here with this revelation, but he provides excellent analyis of why the Government-released retail sales report this week is a complete farce.  Yesterday's retail sales report for March was reported to be up strongly led by auto sales.  However, as Biderman details in the brief video presentation linked below, the Government numbers on auto sales for March are at an extreme divergence from the numbers reported by the auto manufacturers themselves, which showed an unexpected and precipitous drop for March.  Biderman's 4 1/2 minute rant is well worth watching, and he offers realistic replacements to track retail sales data and employment simply by tracking credit card sales and tax revenues.  Not only would that be more accurate, but it would enable to the Government to get rid of part of its Census Bureau and BLS bureaucracy, cut expenses and take a step toward reducing wasteful, useless Government spending:  LINK

On to housing.  Yesterday the National Association of Homebuilder's builder sentiment index was released.  It plunged 3 points from the previous month to 25 and was 4 points below consensus expectations.  Note: any reading below 50 is negative.  Then today housing starts for March were released and those plummeted nearly 6% from the previous month and were substantially below the Wall Street consensus estimate.  Of course, the media had to spin a positive on this so it was highlighted that building permits jumped.  But this was entirely for multifamily/apartment dwellings.  Here's a LINK  An increase in the number of apartment units is another variable that will put downward pressure on home values.  In fact, for most of the last year, any perceived strength in the housing market has been due primarily to an increase in demand for rental units.  We also know that foreclosures are quickly ramping up again and this will further depress home values. 

It's going to get a lot worse in the housing market.  Make no mistake about that, despite any Orwellian attempt by the media and industry pimps to put lipstick on the pig and despite the enormous amount of taxpayer-subsidized support that the Fed and the Obama Government are throwing at the housing market.  In fact, this chart below pretty much will explain the basic problem with the housing market - and for the entire economic system for that matter.  I sourced this chart from the daily King Report and the numbers were compiled by Sentient Research from the Government (BLS).  Just to clarify this data series, it is MUCH uglier if you strip out Government entitlement/transfer payments (social security, welfare, etc), which are included in the Government calculation of household income:

(click on chart to enlarge)

Living Off Your Tax Money And Hard Work: Atlas Shrugs...

While the government struggles to save one crumbling enterprise at the expense of the crumbling of another, it accelerates the process of juggling debts, switching losses, piling loans on loans, mortgaging the future and the future’s future.  As things grow worse, the government protects itself not by contracting this process, but by expanding it. - Ayn Rand

For those of you who advocate a generous Welfare State, you should know that general reliance on Government handouts is bankrupting this country.  And the rate at which it is doing so is accelerating.  Defense spending is also contributing to the demise of our system, but right now the ranks of those who take from those who produce is growing quickly.  Obama's Administration has been instrumental in expanding the base of people who suck from the system.

This scenario is very similar to the scenario that unfolded in "Atlas Shrugged."  I wanted to link an excellent blog post from Economic Collapse that details just how egregious the situation has become.  Caution, only read this if you are prepared to get angry or sick.  I read it this morning and I've had a case of stomach flu ever since:  LINK

To make matters worse, I'm sure many of you have now heard about the unbelievable spending junket that a GSA conference in Vegas turned into.  Apparently the GSA spent close $150 grand on food and drinks and $6300 on commemorative coins for participants.  Gee, I guess those coins really help GSA personnel do their jobs.  It turns out that the regional commissioner who planned this conference was subpoenaed to testify before Congress and, of course, he invoked the 5th Amendment.  He did this even in response to a a basic question about whether he attended.  LINK  If I lived near this Jeff Neely, I would make sure that I left a big pile of my dog's shit on his front porch every morning.  If I were on the House panel that was grilling him, I would have asked him he if patronized a prostitute while he was there and whether or not that cost was expensed. 

This is YOUR taxpayer people.  It really makes me feel good about getting out of bed everyday early and working late most week nights in order to make a living to pay for my housing and food AND to pay for Jeff Neely's commemorative coin and hooker at a Vegas junket that pissed away close $1 million in taxpayer money.

Thanks Barack!

JP Morgan To World: Heads We Win, Tails You Lose

Once you start quantitative easing, such as we have, $17 trillion, how in the world do you pull back from it? How do you stop without having everything collapse behind you? Truth be known, Bernanke didn’t have a choice. If Bernanke did not do QE, this place would look like the day after (the movie) ‘Mad Max.’  - Jim Sinclair, link below

Happy Friday everyone!  I only wanted to link the Sinclair interview on King World News but I decided it was important to blog about what JP Morgan is doing.

To begin with, they reported earnings today and all the media fell in love JPM's reported bottom line.  The expected number was $1.17, they reported $1.31.  HOWEVER, if you strip out the 28 cents they recorded by reducing their loan loss reserve, they actually did $1.03, and missed big time.  This is not a valid decreasing of their loan loss reserve a) because we know the housing market is plunging again and JPM will soon have to write down a lot more mortgage debt, b) their non-performing loan disclosure showed that their non-performing loans increased by $600 million to $10.6 billion and c) we know the economy is tanking again so JPM will likely suffer big loan write-downs across all of its lending lines.

But then again, if you know that the President will sign off on using Taxpayer money to bail you out, it's a wonder they don't take their loan loss reserve to zero and really show some paper GAAP b.s. earnings per share!

It turns out Blythe Masters, JPM's head of commodities trading, lied her ass off on CNBC last week when she explained on CNBC that JPM's trading business is client-driven (most of knew she was full of shit).  But I thought everyone on Wall Street told the truth when they were on TV (wink wink).  Here's the report that explains how JPM has simply moved its proprietary (the in-house hedge fund aka "prop trading") functions into the office of the CIO.   This maneuver was done in order to move the risk-based capital trading out of the securities unit and into the bank holding unit.  Why?  Twofold:  1) it removes the proprietary trading away from the eyeballs of the securities regulators and the Volker Rule AND 2) it shifts this risky trading into a  business unit that would be covered by the FDIC.  It's what Bank of America did when it moved something like $52 trillion in gross derivative positions from its Merrill Lynch securities unit to its holding company.

Here's the report:  LINK  That article only mentions currency trading in passing but I would bet BOTH of my testicles that the CIO prop positions include a heavy does of gold and silver COMEX short positions.  In fact, I recall about 18 months ago JPM announced that it would be moving its precious metals prop positions up to its bank holding company.  You can google it to verify that I am correct.

Finally, in connection with the above quote from Jim Sinclair, every single person reading this, if they don't read anything else today or this weekend, NEEDS to read this brief interview with Sinclair on Eric King's King World News blog: LINK  I agree with every single word and punctuation mark in the interview, except that he didn't predict QE to infinity before anyone.  Myself and many of my colleagues understood that this is how things would unfold in the U.S. and globally right around the same time Sinclair started ranting about it.

Have a great weekend.

Subprime Bubble Being Reinflated

Anyone who uses Goldman, JP Morgan or Bank of America/Merill  as their investment custodian is either ignorant, stupid or completely insane.  - Dave in Denver

IMF: Gold Is Scarce “Safe Asset” And “Rising Demand for Safe Assets”..."In the future there will be rising demand for safe assets, but fewer of them will be available, increasing the price for safety in global markets.”  - quote sourced from http://www.goldcore.com/   LINK

Well, there ya go.  In fact, that quote ties into the subject of my title, but first I wanted to comment on potential for the bottom of this vicious precious metals correction that began in late April last year.  The sentiment indicators are at rock bottom.  I can say from some of the comments that have been posted on my blog over the past few weeks that even some pretty long time gold bulls have thrown in the towel on the mining stocks.   Usually this type of sentiment marks the bottom of the next big move higher. 
Also, Dennis Gartman,who happens to be singularly one of the best contrarian indicators of the gold market - and this fact has been close 100% consistent over the last seven years that I've been aware of Gartman mentioning gold in his newsletter - declared the end of the gold bull market about a week ago.  Gold is up 5% since he advised his readers to dump gold.  This so reminds of late 2005, when gold had a very difficult time breaking through $500.  Gartman sold everything.  Gold then proceeded to make a huge run up to $1000 before the next nasty correction.  Gartman missed most of it. 

(Click on the chart to enlarge)

That chart reveals the golden truth.  Gold has now corrected and consolidated into a seriously bullish technical formation.  Given that the fundamental backdrop - all of the factors constantly discussed on this blog - is significantly stronger than at the end of the last two nasty corrections, per the red circles above, the next move up in the metals/miners could be breathtaking.

Finally, for some icing on the cake, take a look at this article from Marketwatch on the Hulbert Gold Newsletter Sentiment Index:  LINK  The index reading now is -15.  Historically, as Hulbert points out, extreme negative indicators for this index have signalled a big move higher in gold.  In fact, to quote from the article:   "analysis of gold market sentiment over the last three decades has shown that, at the 95% confidence level that statisticians often use to assess whether a pattern is most likely genuine, gold tends to do better in the wake of low levels of bullish sentiment (like now)."  95% confidence level is a very high level of confidence in which to invest...

The subprime bubble is being reinflated with your help.  This should scare the shit out of everyone, because Taxpayer money was used freely by Obama and Geithner to bail out the big banks the first time around.  You can be sure that it will be again.  Just as an anecdotal aside, I heard an ad on the radio yesterday for a mortgage broker here in Denver, First Option Lending - who was promoting 0% down payment mortgages.  There's no doubt that this program is coming from the FHA and therefore is a taxpayer subsidized program.

Here's an article from the New York Times which describes how lenders are once again loaning to high risk borrowers:  LINK  Even worse, AIG is back to investing in real estate again:  LINK  I guess inflating and blowing up AIG the first time around, with about a trillion in taxpayer assistance,  was so profitable for AIG insiders, Goldman Sachs and JP Morgan that all the players are coming back for round two.  This should first make the hair on the back of your neck stand up and, second, make you move as much of your paper wealth into gold and silver as you can.  NOT GLD, SLV, GTU, CEF etc. (PHYS and PSLV are exceptions to this). 

Remember the invisible 2x4 that is now being swung at the collective heads of the middle class?  This reinflating of subprime is added fuel to the speed and power of that swing.  And it's the epitome of the moral hazard that is embedded in the system.  Make no mistake, the people who are doing the "swinging" are going to get even wealthier when the 2x4 connects with your head, unless you know how to "duck."  Got gold?