My Happy New Year Present To All

The Fiscal Cliff farce will be "fixed" one way or another.  All you have to do is look at where the carrots are hanging in front of the Asses and Elephants.  In fact, Obama just gave the children in Congress a nice pay raise, but they won't get any pay if the "Cliff" kicks in and the debt ceiling limit isn't raised/eliminated.

In the meantime,  most serious students of value/fundamental investing like to focus on long term trends.  The long term trend for gold has been 12 years in a row of gains.  And we all know the fundamentals become stronger by the day to support several more years of gains.

With that in mind, I recently went to the Van Gogh exhibition at the Denver Art Museum.  It is probably one of the best art exhibitions I've ever seen (after spending time in museums in NYC, Chicago, Paris, Italy, etc).  The exhibit uniquely spans Van Gogh's entire artistic career and I learned aspects of his artwork and its development about which I had no prior knowledge (like a heavy influence of Japanese art underlying his color scheme and strokes).  The exhibition truly blew me away in depth, scope AND the fact that it was assembled in Denver (not exactly an art mecca).

In honor of one of the greatest master artists of all time, I have to say that I don't think even Van Gogh could reproduce this 12-year, weekly visual of a raging bull market in process:

(click on chart to enlarge)

Not much to say about that chart - it's pretty much self-explanatory.

Have a safe and happy New Year celebration.  I suspect that the 2013 will be a very happy year for precious metals and mining stock investors.

While "The Cliff" Approaches, Congress/All Federal Workers Get A Nice Pay Raise

According to disclosure forms, Biden made a cool $225,521 last year. After the pay increase, he'll now make $231,900 per year.  (link below)

While most of us watch in complete disgust as our leaders in Government grandstand and play politics before inevitably kicking the can down the road on meaningful fiscal reform, Obama signed an Executive Order this weekend mandating nice pay raises for all Federal employees.   Think about that the next time you are in a Government office waiting for some moron to finish up his/her personal phone call before to do their job and help you:  Obama Orders Federal Pay Hikes 

I suggested about a month ago that the "Cliff" issue would be settled and that spending and debt borrowing would continue to increase at an accelerating pace.  Next up, either a large increase in, or total elimination of, the debt limit ceiling.

To hear some Truth about this whole situation, take the time to listen to what outgoing Congressman, Ron Paul had to say on CNBC on Friday:

What Gold Bubble? Mining Stocks Are Dirt Cheap

When the people fear their government, there is tyranny; when the government fears the people, there is liberty  - Thomas Jefferson

I thought of that quote when I read yesterday that the U.S. Senate has extended the law enabling the Government to search our emails and monitor our cellphones without a warrant.  This country is collapsing...

I wanted to revisit briefly the notion that gold might be in some kind of bubble.  A lot of people have contacted me expressing disappointment with gold's recent behavior and many have dumped their mining stocks or plan to do so.  This is a  mistake.

First, assuming it doesn't drop around $95 on Monday, gold will have completed its 12th straight year of year-over-year gains.  Name one other asset class that has done that.  In terms of reaching a new high, gold did that in August 2011 and the new high was followed by the current price correction cycle.  These cycles typically last an average of 18 months, so we are nearing the end of this correction cycle.

Finally, I was struck by a chart posted by Chartsrus.com which shows the serial decline of gold demand in the western hemisphere.  I wrote about that  HERE  As you can see, based on demand metrics gold is decidedly not in an investment "bubble."

From a fundamental standpoint, the mining stocks, as represented by the HUI Amex Gold Bugs Index of unhedged mining stocks, are as cheap relative to the price of gold as at any time over the last three years. This is actually true going back 10 years. As you can see from the HUI/gold chart I posted in the linked article, the HUI/gold ratio chart has consolidated just above a 3-yr low, after testing the 3-yr low twice. To reinforce the potential bullishness of the mining stocks, the momentum indicators represented by the RSI and MACD are moving higher from an "oversold" condition.

My prediction for 2013 is that it will be a very happy year indeed for anyone aggressively invested in the precious metals and mining stock sector. 
 

Wash, Rinse, Repeat: Is The Latest Pullback In Gold/Silver Over?

You play to win the game...You don't play to just play it  - Herm Edwards, when he was head coach of the NY Jets LINK

In order to win the gold/silver game, spotting critical information and knowing how to use can give us an edge over the rest of the market.  Using the COT report as source of information has proved useful over the last 10 years.

Last  week I suggested that the COT report might show that hedge funds have started to chase the momentum of the gold market lower by shorting gold contracts, while the bullion bank cartel used the extra selling from hedge fund short-selling to cover their shorts. I suggested this dynamic would likely mark a bottoming of this latest bullion bank paper market take-down of the price of gold/silver.

The CME/Comex Commitment of Traders report released Friday, which shows long/short open interest positions by trader category through the previous Tuesday, shows that indeed the hedge funds began to short Comex gold futures in decent size and the bullion banks continued to aggressively cover their short positions.

We've watched the banks cover their shorts quite aggressively for the past few weeks, but when the short-covering by the banks continues, aided by additional hedge fund shorting, it has over the past couple of years signaled that the metals are bottoming and getting to move a lot higher.  You can find my analysis, with data links, here:  LINK

It might not happen quickly, and this next week or two is usually characterized by low-volume, directionless trading, but it is likely that gold and silver are now set up technically to move a lot higher.  As we all know, this technical set-up is reinforced by unprecedented fundamentals.

I've been doing my best to not gloat about the Denver Broncos' season, but it now looks like the Denver will likely emerge as the odds-favorite in Vegas to win the Super Bowl after that total thrashing San Francisco took last night (SF had been the prior odds favorite, Denver was #2).  Have a Merry Christmas/Happy Holiday. 

In Case You're Wondering About Gold And Silver

There is no subtler, or surer means of overturning the existing basis of society than to debase the currency.  The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which only one man in a million is able to diagnose  - John Maynard Keynes, "The Economic Consequences of Peace"

 That quote right there is the foundation of Keynesian  economics. 

In response to several email inquiries, I wrote an explanation for the current price correction in gold and silver, since we might have expected that gold and silver would take off to the upside after the FOMC expanded its QE program.

The fact of the matter is that we saw very similar price action in mid-December last year, prior to a big rally in the entire precious metals/mining stock sector in January.  There's a lot of reasons for this and I don't want to pontificate about the illegal manipulation and corrupt nature of our financial system.  Instead, I wanted to focus on a little-known technical aspect of the paper trading on the Comex - tied in explicitly with said manipulation, as has been affirmed by Bart Chilton, one of the CFTC commissioners. 

I highly recommend reading this article.  You will understand an aspect of the gold and silver market that very few people are aware of and even fewer understand:  Comex Open Interest Liquidation Manipulation

The Gold/Silver Hit Is A Trap - This Too Shall Pass

Just because the future you expect and have prepared for hasn't yet materialized, don't think it won't. The very structure of the world's financial system has been fractured beyond repair, as have the foundations of the largest economies. The only thing holding it together is the fiat-currency system that was behind the fracturing in the first place and that is now being taken to an extreme and extraordinary level in an attempt to keep the whole shebang from literally collapsing.  - David Galland, Casey Research

Before I get started on my topic du jour, I wanted to link a stock investing article I wrote on Gold Resource Corporation (GORO) that was published on www.seekingalpha.com today:  LINK  I think GORO is a particularly attractive risk/return mining stock play right now and my write-up goes into detail on that view.

As for this latest take-down in the precious metals, it's more wash, rinse, repeat.  What makes this latest charade so transparent is the fact that the SPX has gone straight up for past two days and the dollar has tanked.  Sorry.  There's just no fundamental basis for this and it can't and won't last.

This action in gold and silver reminds me of the action in October 2008 when the sector was being mercilessly pounded with Comex paper.  Recall, that bottom in the metals preceded the banking system collapse and new era of QE and Government deficit "stimulus" spending.  I believe we're on the cusp of a lot more of that than the market is expecting and the big paper shorts in gold/silver are desperately trying to get the illegally large short positions covered before the market takes off again.

Think about the the Fiscal Cliff situation for a moment, outside of all of the rhetoric and media blow-hards.  They are going to come to an agreement sooner or later.  There's no way in hell that agreement possibly does not entail more deficit spending.  The Government spending deficit has already hit close $300 billion for the first two months of fiscal 2013:  LINK  That was as of the end of November, so the Government is well over $300 billion by now.

The economy, despite the b.s. being reported by homebuilders and the Government, is tanking - hard:

(click on chart to enlarge)

That chart shows the business "sentiment" of independent businesses in this country.  It's a literal cliff-dive in November and it's consistent with true unemployment, the real wage decline and real retail sales declines.  It is worth reading the accompanying commentary on Zerohedge:  LINK

My point here is that even if the Cliff agreement includes higher taxes, that won't raise more revenues to cover increases in deficit spending.  That means the Treasury is going to have to issue even more debt.  Who is going to buy that debt, given that the Fed has been buying close 100% of all new issuance over the last 18 months?  China and Japan are not going to make up the difference.  The debt ceiling is going to be raised significantly, if not entirely removed, and the Fed will have to print even more money in order to prevent the market from driving interest rates to the moon in order to attract new marginal buyers.

Bottom line:  Gold and silver are going a lot higher, as are the mining stocks.  Just like in late 2008.  In the context of big price corrections that we get in this sector, this one isn't close to being as severe as the one in 2008.   That one took silver down almost 60% from top to bottom.  This one so far has been 47% top to bottom for silver.  In the context of duration, this one so far isn't as long as the one in 2008, which lasted over 2 years before silver climbed over its 2008 peak.

BUT, the undisputed fact remains that, If you had bought silver at the top of the 2008 market ($21) and held til now ($32.20), you are still up 53% over 4 years.   That's worst case.  Unless the Fed and the Govt have decided to address the real deficit spending variables and will stop printing money and issuing debt, the smart money is buying the metals here and will be holding when the metals make another run at a new all-time high.

I'll leave off with an email inquiry to Jim Sinclair (www.jsmineset.com) from a worried reader:

Dear Jim:  How should I read the negative pressure over gold and gold stocks? What’s going to change this negative scenario?

Dear reader:  This is capitulation everywhere. This event has been a manufactured market move since $1800, with clearly planned and executed intervention. The gold price take downs during low volume periods internationally is a known price moving only tactic. I simply shut off the machine because all the regular causes for the gold price will make themselves effective with time. A manufactured market event will not change the trend. Even the most professional can be reduced to sheeple by their emotions.  I refuse emotions and emotional people in a market context. To save yourself from all this that has happened and will continue to happen requires commitment and courage. You have it or you do not. Admit who you are and act accordingly. Like every mistake made by Westerners, what you see today is simply driving gold into Asian control.

Industrial Production, The Fiscal Cliff And Socialism

It has become crystal clear that Detroit automobile manufacturing employees who live in a home in which the mortgage is underwater are going to be in an economically advantageous position when the Fiscal Cliff is resolved.

The Federal Reserve released its monthly industrial production report for November today.  It came in at a "hot" up 1.1% vs. .3% expected.  As has been the pattern for almost all economic reports this year, October's number was revised lower from -.4% to -.7%.   It high highly probable that today's report will also be revised lower next month.  Here the actual report:   LINK

It is always important to analyze the "sub-index" components that go into producing the headline-grabbing overall index that has the financial media doing cartwheels.  Once you look at the "guts" of the report, you'll see that the overall number is of low quality and not sustainable without a lot more Government spending.  On a side note:  this is one reason I fully expect that one way or another a Fiscal Cliff agreement will be hatched to kick the spending deficit/debt accumulation catastrophe down the road some more.

If you pull up that report and scroll down, you'll find a section called "market groups."  There you'll find this note in reference to automotive products: "the index for automotive products rose 3.4 percent, its first increase in five months."  If you scan through the rest of the footnote, it's obvious that auto parts were the most significant factor in fueling the November over October gain in industrial production.  The November number that will be revised lower next month.  I say this because if you look at this chart posted by Zerohedge earlier this month, you'll see that General Motors has essentially "stuffed" its dealer inventories with a record amount of inventory in November:  LINK

Please understand that General Motors is controlled by the Government and therefore is incentivized to use taxpayer dollars to support sales at General Motors in order keep the massive union labor force employed.  In fact, the Government subsidizes every part of GM auto production from the factory floor to the end buyer.  GM subsidizes production by subsidizing sales.  It does this because the floor financing used by dealers to take delivery of unsold cars is provided by the old GMAC.  GMAC is owned by the Government.  A sale at GM is recorded when the car leaves the factory floor and goes to the dealer, not when the end user buys it.  After the sale is recorded, GM could give a crap what happens because it has received a transfer of money from  GMAC (Ally financial which is owned by the Treasury) and now the dealer is on the hook for unsold cars.

Then, the dealer uses floor financing from GMAC.  If the car never gets sold, GMAC  the Treasury  the Taxpayer is on the hook.  You see how this works?  The fact that there's record inventories of GM cars piled up on the dealer floors is likely the result of the Government triggering production in excess of end user demand.  This is why, in my view, a big part of the reason that the industrial production number looks so robust for November.  I only have the dealer inventory data for GM because that's all Zerohedge tracks and I don't have time to hunt down numbers for Chysler.  But  I would bet that there's a similar dynamic for Chrysler, which is 6% owned by the Government.

This is all part of the insidious socialism that is engulfing our system.  It's a massive transfer of taxpayer wealth that is going into the bank accounts of the upper management at GM and to the giant auto union at GM.  This is not an anti-Obama/Democrat or anti-union rant.  I'm just pulling back the thick cloud of gray smoke away from the headline data to show you what's going on.   Not only does the economy look stronger from a production standpoint, but monthly auto sales also appear to be a lot more robust.

There's a lot more issues with the data in this latest IP report that are highly problematic.  If you are interested you can surf around the site in the "About" section and see what I mean.  I did that and it would put you to sleep if I wrote about it here.

In addition to the massive wealth transfer going on in Detroit, I found a news item earlier this week that I did not see widely reported by the mainstream media.  It turns out that House Democrats are trying to attach legislation to the Fiscal Cliff agreement that would provide mortgage principal reductions for underwater homeowners:  LINK

Interestingly, the biggest impediment to Obama's implementing FNM/FRE mortgage principal reductions, Edward DeMarco, head of the Federal Housing Finance Agency, is about to get replaced by Obama:  LINK  Make no mistake about it, Obama wants this guy around about as much he wants his Portuguese water dog to take a dump in the Oval Office

I don't really know what to say about this other than if everyone wants socialism and a massive transfer of privately earned and taxed wealth to go to underwater homeowners and Detroit auto manufacturing executives and union workers, so be it. But regardless of how you want to view this issue from a public policy standpoint, if they implement widespread FNM/FRE mortgage principal reductions it will be a huge negative for economy and our entire system.