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: