Friday, December 31, 2010

Happy New Year Everyone (Felice Anno Nuovo A Tutti)

And here's to an even better year in 2011 for gold and silver - ENJOY:

Thursday, December 30, 2010

Was The Jobless Claims Number Good? Don't Get Too Excited...

Of course, the seasonally adjusted headline number over which every talking moron in the financial media is doing an end zone dance over looks great.  But here's the golden truth, direct from the Dept of Labor press release:  The advance number of actual initial claims under state programs, unadjusted, totaled 521,834 in the week ending Dec. 25, an increase of 24,879 from the previous week.

Here's the press release if you want to peruse the report:  LINK

So there you have it.  Just more Government and financial media Orwellian/Randian garbage.  The fact of the matter is that our economy is starting to fall of a cliff again.  Expect more QE and higher precious metals prices in 2011.  That will be my only 2011 prediction.

Wednesday, December 29, 2010

The U.S. Mint Has Suspended Production Of Silver Eagles - Again

I was not aware of this until today, but the press release reads like silver eagle production has been suspended for awhile.  Here's the press release:  LINK

I was told a while ago by someone who is in a position to know that the Mint was under instructions to produce as many gold and silver eagles as possible this year in order to avoid the perception that silver supplies are tight.  This is why big coin dealers like Tulving seem to have an endless supply of silver eagles.

However, this same source also said that he expected, based on thorough knowledge of the entire industry, that there would be a severe silver shortage starting sometime in 2011.

I guess that shortage may have started a bit early...

Monday, December 27, 2010

Is The U.S. Dollar About Ready To Take Another Spill?

Despite a determined, concerted effort by the bullion banks to push the price of gold/silver lower, the precious metals have managed to maintain a surprising degree of buoyancy.  In fact, many of us have been discussing this departure from the usual pattern in which the price of the metals historically during this bull market have typically succumbed to to a painful beating when the cartel decides to work on liquidating the COT open interest. 

As such, i'm wondering if the dollar is getting ready to roll over start heading south again.  Here's a chart (daily, spot basis):

Certainly the fundamentals which underpin the dollar continue to deteriorate pretty quickly. In today's 2-yr Treasury note auction, the primary dealers had to swallow 57% of the deal. That's an unusually large amount for a shorter-duration note auction. The economic data, despite the colorful lipstick being slapped on the pig by the media, is showing some deterioration. And of course the dollar is responding today to the China's interest rate hike.

Having said all that, it is clear to anyone who puts a little thought into it that the only hope the U.S. Government has of financing its deficit spending and possibly stimulating economic activity is to print a lot of money and take the dollar a lot lower.

Thursday, December 23, 2010

Gold Has Been A Terrible Investment?

How many of you hear these financial advisor morons get on CNBC and discuss what a lousy investment has been over the years?  What?  Oh, it doesn't pay interest?  Junk bonds paid tremendous interest all thru the 1980's and then the market crashed hard.  99% of the world lost substantially more in capital loss than they earned from the coupon payments.  If you chart U.S. Treasury Bills since 1991, adjusted for inflation, that interest-bearing investment is actually negative.  How many your genius registered reps have you sitting in T-Bills?  Well, here's how this "lousy" investment has done since 1970 - I borrowed this chart from Casey's Reasearch, the edit in red is mine:

The next time your ignorant, idiotic "financial advisor" calls you up to tell you what a lousy investment gold is and what a great opportunity is being presented in the muni bond and mortgage-backed bond market, YOU are the idiot if you don't hang up the phone and find an advisor who knows the facts/truth.

If I find more inspiring material to post I will do so, otherwise I'm off to do some back-country sno-cat skiing tomorrow.  Have a great Christmas/Boxing Day/Holiday weekend!   BUON NATALE A TUTTI!

Wednesday, December 22, 2010

IMF Done Selling Gold - Look Out Above?

Here's the press release LINK.  The IMF has been unloading an average of 20 tonnes of gold per month into the market since September 2009.  And a lot more than that over the past few months.  If the powers-that-be do not come up with another source of gold to replace the IMF sales, gold will potentially move a lot higher in the near future.

Tuesday, December 21, 2010

The U.S. Dollar: Backed By The FULL FAITH AND CREDIT Of The Federal Reserve Printing Press

And print money is what the Fed has been doing best - really since 1971 after Nixon closed the gold window:

(click on chart to enlarge)

And really this chart just shows M2, since the Fed has removed its reporting of M3 since March 2006.  The missing component is large eurodollar deposits.  My friend and colleague "Jessie" wrote an excellent summary of how the Fed is exploiting this category to really ramp up the money supply off the books.  His essay can be found HERE

As a follow-up to my commentary yesterday on the looming State/municipal catastrophe, check out this post on Clusterstock today - LINK.  Not only are most large cities strapped with massive budget deficits, but as the analysis in the Clusterstock piece demonstrates, municipal property tax receipts are going to take a big dive.  This will just add gasoline to the fire.  Expect the Federal Government to bail out this situation via even more Fed printing.

Finally, check out this King World News interview with James Turk, who explains why we are in the incipient stages of hyperinflation: 
Rising interest rates along with the surge in commodity prices that we have been seeing in the back half of this year is writing on the wall that hyperinflation is very near.  If anyone needs further proof just look at what QE2 is already doing.  The Fed is turning government debt that the market doesn’t want into currency which is the cause of all hyperinflation.
The link to this quickie is HERE.  Essentially, if you are not accumulating precious metals right now, expect that your financial well-being eventually will be tragically compromised.  I'm thinking the new slogan on U.S. currency should be:  "In the printing press we trust."

Monday, December 20, 2010

Will The U.S. Hit The Wall In 2011?

I have been pointing out for quite some time now that the real systemic problems in the U.S. completely dwarf the financial/economic problems confronting the EU.  It could even be argued that the media and Wall Street are incessantly shoving the news on Europe in front of us everyday in order to deflect the hoi polloi's attention from domestic realities. 

But the truth of the matter is that the budgetary and financial disaster swirling around California or Illinois individually is bigger than that of the PIIGS collectively.  In fact, without Government help, there are several States that would likely be bankrupt.

Here's a quote from John Williams' which I sourced from Jim Sinclair ( 
Economist John Williams has been warning of an economic collapse for a few years. In his latest report, he says, “. . . the U.S. remains the proverbial elephant in the bathtub in terms of pending effective sovereign bankruptcies.” Williams thinks it will all hit the fan within 6 months and is predicting a dollar catastrophe. Europe is a sideshow to the coming main event. Williams says, “The various European crises remain an intermittent foil for the U.S. dollar, pulling market attention away from the unfolding solvency crisis in the United States and a likely move to massive selling against the U.S. currency. Accordingly, high risk of the early stages of a hyperinflation (see Hyperinflation Special Report) beginning to unfold by mid-2011 continues.”

I'm sure most of you have seen the segment on 60 Minutes this past Sunday which focused on the financial catastrophe facing several States.Meredith Whitney stated that she believes there will be several State bankruptcies and municipal bond defaults in 2011.

I personally think the Fed will accelerate the printing press and the Government will implement another stimulus plan in order to avert the collapse of several States. This will feed into the John Williams scenario of a massive sell-off in the dollar and precipitate the early stages of hyperinflation. 

And with that holiday cheer, I thought I would leave you with a good chuckle from "Family Guy," in honor of my completing the first unit (11 weeks) of Italian at the Italian Institute in Denver:

Wednesday, December 15, 2010

The Most Important Commentary You Will Read All Year

Now that the Asians have begun to convert their dollar-based reserves and assets into physical gold and silver, the world will soon understand the degree to which U.S. and European banking systems have issued to investors an absurd amount of paper claims on gold/silver which does not exist to be delivered.  This imbalance - of which the paper amount outstanding is several 100 multiples (including OTC derivatives per the BIS quarterly bank reports) the amount of actual supply of gold/silver - will be resolved such that price of gold/silver in all currencies will soar to levels that take even the most ardent goldbugs by surprise...

"[T]he basic problem is that government and banking debt around the world are both rapidly moving towards default, and since governments are guaranteeing the lot, the pace of monetary creation is accelerating The consequence is that the gold suppression schemes, which have existed for the last one hundred years in one form or another, are finally coming to an end. We are trying to guess how dramatic that end will be. It will be difficult enough to stop a run by unallocated account holders on the bullion banks, without forcing a cash-payout amnesty. But if the central banks themselves cannot supply the necessary bullion to prevent this, the prospect of a total collapse of paper money will be staring us all in the face."

Here's the link:  MUST READ MATERIAL

That essay should be read in conjunction with this:
It’s [meaning the paper manipulation vs. physical bullion supply] eventually going to blow because at some point these buyers will say, ‘I’m indexed, but I actually want to get all of this physical gold and silver now.’  When that happens, the game is over.
Here's the LINK

...for anyone long gold and silver that is actually in their possession - or appropriately safekept at a safe distance from all Governments - the shock and awe of the upward price revaluation will be breathtaking.

Tuesday, December 14, 2010

Muni Update: If You Are Still In Them, You Can Still Get Out Alive...

(click on chart to enlarge)

We've seen this chart pattern many times over the last 9 years, starting with Enron.  The last time I posted on November 16, I thought that ultimately Congress would force an extension of the Build America Bond program into the Bill which will extend the Bush tax cuts, jobless bennies and other welfare state entitlement goodies.  For some reason Congress is drawing the line on the BAB program. 

It will start with California and Illinois and then set off a daisy-chain of muni bond defaults.  I know that Califiornia has been using the BAB tag in order to issue new bonds which refinance maturing paper.  What happens now?  I'd love to hear some opinions/solutions.  My guess is that this rout in the muni market will soon turn into a bloodbath. If you decide to ride this out, good luck!  I'd say you are flirting with missing the last transport plane out of Viet Nam...

Inflation And The Retail Sales Fantasy...

Once again this morning the markets were greeted by the bubblehead's in the media victoriously announcing that November's retail sales were better than expected and October's were revised higher.

And once again, we have to look behind the Government wizard's curtain to see the golden truth about what is really going on with the numbers.  If you dissect the numbers today, you'll find the biggest boost came from gasoline sales.  Within a certain range of tolerance, I consider gasoline to be of inelastic demand, which means people will consume at least a constant amount until the price goes over a certain price level, of which we are not there yet.  We know the price of gasoline rose in November, which means that a big portion of the retail sales increase from October to November was from gasoline inflation.

The first chart below shows the dollar level of monthly retail sales as tracked by the Fed.  The second chart below show the CRB Index, which is an index that consists of a basket of diversified commodities.  As you can see from comparing the two charts, the level of retail sales is HIGHLY correlated with the level of prices in the system (click on the charts to enlarge):

My point is that most of the gleefully reported retail sales increase in November was derived from price increases - retail sales includes food and Walmart is a big componenent as it sells food and gas but does not break out gas sales on a monthly basis.  Specifically, in November, gasoline prices were the primary stimulant for the better sales reported. 

Make no mistake, there's no question that the Black Friday weekend sales were much better than expected. However, I have been of the view that the extreme discounting, especially at places like Macy's, essentially "pulled forward" a substantial amount of future retail sales, as polls indicated that shoppers took advantage of pricing deals to purchase both discretionary holiday items PLUS necessities.

If you think I'm off base, you can read about Best Buy's earnings report for its quarter ending Nov 30, which was released, ironically, just before the retail sales report.  Best Buy stock is down 15% right now because its sales came in well below expectations and the company reduced its full-year forecast for sales and profits.  Even more stunning, its U.S. same-store-sales fell 5% in the quarter.  In retail that kind of number is an unequivocal disaster.  Here's a summary:  Best Buy Link

The moral of the story is that the economy is much weaker than the highly manipulated Government reported numbers would have you believe.  With true unemployment continuing to increase and price inflation starting to rear its ugly head, we can expect a further deterioration in the condition of the real economy.

The good news is that gold and silver are still inexpensive relative to the dollar-price levels to which they are headed.

Monday, December 13, 2010

That Rush Into Gold/Silver You Hear Is Not Coming From The U.S.

The gold rush mania that drives the price of gold to unbelievable price levels may well come from a global stampede into the world's oldest currency that leaves the American hoi polloi left holding worthless U.S. monopoly paper and little else.

The best part about the action the in metals is that CNBC/Wall St. Journal/et al have the average American convinced that gold is in a bubble. Ironically, the classic signs of an investment bubble are nowhere to be found - the biggest signal being that gold/silver is only held/being purchased by easily less than 5% of the mass investment community. Contrast this with the internet/tech bubble when large mutual funds were heavily overweighted in the sector, Americans were stampeding like cattle into these funds and every day CNBC was promoting the whole sector. In fact, I recall vividly in 1999 that all Maria Bartiromo had to do was mention the name of an internet stock and it would spike heavily in volumn and rapidly in price. That phenomenon will eventually occur in the mining stock sector, but certainly not any time soon.

Outside of the type of investors who read blogs like my mine, why don't you go out and ask randomly if any of your friends know the name of more than maybe 1 or 2 junior mining companies.

The real gold rush is occurring in Europe - mostly Germany - and in the eastern hemispere countries. China in that last year changed its laws to allow its citizens to buy silver and has put in programs which encourage the growing middle class to invest in and accumulate gold/silver. India has historically been the largest buyer of gold. Now they are not only continuing aggressively to accumulate gold at these price levels but they are also now voraciously accumulating silver. That is the "poor man's gold" income and substitution law of economics.

The inflation that the U.S. has been "exporting" to China is now starting to show up in food prices over there. posted this chart this morning:

Food inflation is ramping up quickly in China.  Same with India.  This will trigger an even more aggressive push into gold/silver by the Chinese and Indians.  We're seeing evidence of that every day.  Eventually that food inflation is going to hit the U.S.  I don't know if anyone noticed, but the Governor of Florida has declared a state of emergency with the orange crop because of the weather:  LINK.  This situation will affect all of Florida's crop production.  Prices are going higher.  Eventually this reality will sink in and more investors in this country will start to look at gold and silver, only at higher prices.  My view is that silver will continue to outperform gold because of the "poor man's gold"/income and substitution effect as people here eventually scramble to move into precious metals.

And finally, I believe recent action in the metals is highly related to the situation with the Swiss banks, in which several anectdotes have surfaced about investors having problems getting their Swiss bank to deliver gold and silver that they were safekeeping there.  One particular individual had $40 million in gold bars he wanted and it took him a month plus the threat of legal action before he received his bars.  Another investor with $500k of silver bars is still trying to get his metal delivered and the Swiss bank involved is lobbying hard to convince him to take cash instead.  If these banks were actually keeping the metal on hand like they are paid to do, they should be able to have the bars delivered within a week. 

Not in this country of course, but globally precious metals investors are looking at these stories and deciding to get their metal out of the banking system. The knowledge that paper claims on gold/silver outnumber the actual amount of physical gold and silver available to be delivered by insane multiples is finally being widely circulated and those who understand this situation are going to ask for the delivery of their metal.  In other words, in my view, there is a scramble going on internationally for investors to take delivery of gold/silver and this is part of why we are seeing the metals trade inexorably higher.  This could get very interesting...

Friday, December 10, 2010


November federal budget deficit highest on record


Got gold?  Silver?  If not, good luck!

Two Great (Quick) Reads For Your Weekend Pleasure

The first one is sourced from the King World News Blog.  The author makes the argument that, on a relative basis, Europe will begin to appear "stable" relative to the U.S.  What's interesting about this that I was meeting with prospective client who was relating a presentation he heard from some fancy economist who talked about a stronger dollar vs. all the problems in Europe.  My response was, "huh?"  California alone is a bigger problem for the U.S. than Greece, Ireland, Spain, Italy and Portugal combined.  Then layer in Califorinia, New York, New Jersery, The Rust Belt..." 

Anyway, this commentary alludes to all of that:
In no way do we see the Build America Bonds program as a panacea for what ills Municipals, rather we see it as the duct tape holding states together until growth in whatever guise comes its way. With no growth and no duct tape, we see the problems of state and local governments coming to the fore. Given California, New York, and Illinois comprise 25 percent of the US GDP, we believe headlines regarding their budget deficits will soon overtake those regarding Ireland, a country that makes up only 1.8 percent of Euro-Zone GDP.
More interestingly, he makes the argument that the best way for China to revalue its yuan vs. the U.S. dollar is to continue buying a lot more euros, which they are doing anyway in order to diversify out its increasingly worthless dollar position.  It's the first time I had thought of this issue this way and I believe he's dead right.  Here's the link and it's definitely worth reading:  Buy Euros On Dips

The second article is about silver from Sprott.  Like most of us who understand the how/what/why of the precious metals market, Sprott as an institution - and the principals of the firm individually - have overweighted silver in their investment portfolio.  I know both Eric Sprott and John Embry have 90% of their net worth in the precious metals sector because they have stated that on several occassions.  It made me feel a lot better about having 90% of my net worth in the sector as well.  At any rate, if you want to read an excellent summary on why silver is poised to provide breathtaking investment returns just click HERE.

As an aside, I was out to dinner last night with a good friend going back to 1st grade.  At one point in his career he was a Federal prosecutor at the Justice Dept who prosecuted RICO cases.  I told him about the RICO lawsuit filed against JP Morgan for manipulating the silver market.  His only response is that JPM is likely in a lot of trouble at this point...

Thursday, December 9, 2010

Che Cosa Ora? What Now?

The bond market and the precious metals market over the past few days have experienced a pretty big price correction.  In fact, the tone of financial media reporting about the action in the bond market has reflected a high degree of shock and fear.  Interestingly, the free-fall in the bond market was triggered after Bernanke was on 60 Minutes stating that he had mo problem expanding the size of the recent $600 billion QE2 program.

Rather than analyze the technicals in the Treasury market ad nauseum, on top of every other market Einstein who has offered their 2 cents, I'd first like to serve up one of the primary and basic reasons the Treasury market is selling off. Reuters released this report yesterday in which an academic member of China's central bank monetary policy committee stated that "America's fiscal health is worse than Europe's...[and] that U.S. bond prices and the dollar would fall when the European economic situation stabilized."  Here's the LINK

Well, there you have it.  China, after the Fed, is the largest holder of Treasury bonds. I don't care what anyone out there in the land of financial analysis has to say, the Chinese are either directly selling, or indirectly hedging, their massive position in the U.S. dollar/Treasury bonds.  That statment confirms this.  Let's see, he says the dollar and T-bonds will be stable/rally for a year. ROFLMAO. This guy clearly has borrowed a page from Bill Gross' script in which he expresses a view via CNBC to the world on the bond market while at the same time selling into the bid his comments create.  I've witnessed this first-hand as a bond trader in the 1990's. The indirect hedging would be via China's well-known aggressive purchasing of basic commodities, especially industrial metals, and its now well-understood aggressive accumulation of gold and silver.

I'd like to end this segment with a quote from a well-informed trader in London about the game going on in the Treasury bond market with the Fed and JP Morgan:
“It’s all about the bond auctions, the bond fell off a cliff. In the derivatives market you’ve got JP Morgan playing the bond market at the behest of the Fed, going long 30 years versus selling short-term paper. They buy 30 year paper and then immediately hedge themselves by selling the 30, 60 and 90 day paper. It’s how they keep interest rates down, it’s how you do it. The only reason interest rates are not in double digits in the US is because of this game. These guys are short front month paper. If this (the bond market) actually fell much longer, JP Morgan could be wiped out, I mean they would be liquidated. The Fed cannot allow them to do that. We’re witnessing history here.
Here's the link to this from the King World News daily blog:  Buy Gold, Dump Bonds

This reinforces my view that nominal interest rates in the U.S. are completely under the manipulation of the Fed/Wall Street in order to try and stimulate an economic recovery.  Unfortunately this will fail badly. Real interest rates (nominal rates minus true inflation) are extraordinarily negative.  That fact is the fuel powering the precious metals inexorably higher.  As the rate of real price inflation accelerates (NOTE: true inflation vs. Government reported/manipulated CPI price measures), this rally in precious metals will also accelerate and leave many behind.

Update on Munis

In brief, if you respect the value of your investment portfolio, get the hell out of your muni bonds.  The only munis I would even think about owning are defeased munis (munis which have their call-date or maturity pre-funded with cash in trust).  Here's the latest chart as of yesterday's close:

(click on chart to enlarge)

I have to be honest - just between us girls - I don't know too many traders who would look at that chart and declare it to be a table-pounding buy.  We may get a bounce in the muni market once the Democrats strong-arm an extension of the Build America Bond program.  In fact, I have to believe that there are many wealthy investors loaded up on munis who are on the phone with their Republican reps aggressively lobbying for that extension as well.  If I am correct and the BAB program is extended, I urge you to sell into the ensuing rally.  If it is not extended, then may that portion of your muni portfolio R.I.P...

Housing Market Update

I actually want to do an somewhat in-depth analysis of the housing market.  I will get to that this week if I can find the time.  However, I want to quickly refute comments made by the CEO of Toll Brothers this week that the housing market would stabilize and rebound over the next year and into 2012.  No way.  He first needs to explain two things before I will even think about his logic: 1) where is the job growth and credit going to come from in order to create real housing demand?  2) why has he been one of the most aggressive homebuilding CEO's in terms of dumping his stock holdings in TOL?

The fact of the matter is that housing inventories are rapidly rising again, especially actual bank-owned REO and the "shadow" inventory of potential foreclosures and people who would like to sell but want to wait until the mythical "spring/summer" bounce.  Inventory alone will smother any possibility of price stabilization.  I expect housing prices to drop another 5% at least this year.  Mortgage rates are rapidly climbing and, despite the ridiculously manipulated Government employment reports, the real unemployment rate continues to rise.

With that I would like to link a news item from today's Denver Post which reports that existing home sales for November in Denver fell 26% vs. last year and 6.2% from October.  Here's the LINK.  Denver has one of the healthier regional economies and lower unemployment rates.  In fact, the decline in home values in Denver has substantially lagged that of several other large cities.  This is not good news for the overall demographic trend for housing for the whole country...

Note:  ex post facto this post, the Dems rejected the tax extension bill.  As expected, the rumor is that they are going to fight to have the BAB program included and the muni market spiked:  LINK.  I would be selling into this.

Monday, December 6, 2010

You Have To Be Kidding Me...

The Washington Post reported this evening that Obama and congressional Republicans have reached an agreement for the extension of all tax breaks set to expire on Dec. 31, AND a 13 month extension of jobless benefits.

I believe now that those who qualify for jobless bennies can now get them for 3 years and 7 months.  What the heck is the difference between welfare and unemployment insurance?  Seriously.  And how do our policy-makers propose to pay for this?  Oh wait, Bernanke was on 60 Minutes last night explaining how our Government's excessive spending will be funded:  MORE MONEY PRINTING.

It just amazes me when I still get comments like "isn't gold too high to buy now?" LOL.  Let's see, would I rather hold something that has been used as honest currency for the better part of 5,000 years or a piece of paper that loses value everyday because its supply increases everyday.  As long all global fiat currencies continue to increase rapidly in supply, it will take more of each of those currencies to buy an ounce of gold.  It's really that simple. 

The bull market in gold/silver will be over when both metals are reinstated as the global reserve currency.  This will likely entail a significant upward revaluation of the price of gold/silver to a level which is representative of the marginal level of global wealth.  I've seen estimates from well-respected analysts of what this price level could be that range from $8,000-$38,000/oz. 

Here are some great quotes I wanted to share.  The first one was sent to me by a reader of this blog:

"...silver and gold have their value from the matter itself, they have first this privilege; that the value of them cannot be altered by the power of one nor of a few Commonwealths; as being a common measure of the commodities of all places. But base money may easily be enhanced or abased." - Thomas Hobbes

"Building gold as the basis of solvency has been used through history...Having a corresponding amount of solvency is a necessary precondition and indispensible safeguard in the long-term strategy for the internationalization of the yuan,"  -Xia Bin, advisor to the Peoples Bank of China

"The printing of money makes gold more valuable. You don’t have to be a genius to figure this out...I think gold is the reserve currency today. There is not a currency in the world that it hasn’t appreciated against by at least 300 per cent. And it has beaten every stock market. You can’t even rent a safety deposit box in Germany because they are all full of gold and silver."  Eric Sprott, Srott Asset Management.

Friday, December 3, 2010

OOPS: Employment Report vs. Expected Number

Much worse than expected...Even the prozac-overdosed idiots on CNBC are saying "nothing positive in this number."  Anyone want to put an over/under date on QE3?

Some Random Musings/Thoughts Late Thursday Night...

I have been busy during the day trading the crap out of the intra-day market volatility for both my fund and my own account.  As such, I've been a bit too preoccupied to post during the day.  In addition, as I was discussing with a friend tonight, I'm a bit burned out from spending the last three years researching/reading/analyzing etc in order to set up the fund I co-manage to be positioned to take advantage of what I believe will unfold financially/economically/politically in this country. I think we are entering the early stages of what will be a monster run in the metals/miners.  This is great for anyone positioned for what is happening - but really bad news for the well-being of the hoi polloi.

Of particular note, it looks like sophisticated institutional money is rushing into the large-cap, liquid mining stocks like SLW and AEM.  More significantly, real money is starting to sniff at the better quality, more visible junior mining stocks.  Some of the holdings in our fund have more than doubled over the last 2 months.  As such, this is still the early stage of what could be a breath-taking move in this segment of the mining stock universe.  As an example, ECU has moved from the high .50's to a recent intra-day high of $1.41.  It has pulled back and is consolidating this move.  I think it is now "coiling" for an even bigger move.  The last time around, starting in mid-2005 when I bought into the name personally at .34, it ran from my entry point to a little over $3.30 before the whole sector was manipulated into a crash by Bernanke/Paulson. I'm not saying that magnitude of a move will occur this time around - but it sure as hell could.

Let's work out some conceptual math using rough numbers to demontrate the possibilities using ECU.  Back in 2005, ECU had around 40 million ounces of 43-101 silver.  As my colleague Andy pointed out today in an email to our group, right now the juniors are being cap'd by the market at $1-1.25 per silver equivalent ounce.  In early '07 at the last valuation peak for juniors, the average valuation was anywhere from $4-7 per silver equivalent ounce.  Currently, ECU's share base has doubled since early '07 but its 43-101 silver has increased more than 10-fold to over 400 million ounces.  I'll let anyone interested in calculating possible price targets using ECU's current share base, 43-101 silver ounces and potential market cap targets.  In other words, stocks like ECU have quite a move ahead if we get a run like the market had the last time around.  And remember, back then the small cap mining stocks were largely fueled by the individual investor.  Contrast that with now, when it looks like bigger, more sophisticated capital pools are starting to discover the junior segment of the mining share sector...

George Orwell is smiling

If you just read the headlines, you would be led to believe that the U.S. economy is well on the road to recovery.  Black Friday weekend sales showed ebullient gains over last year, housing bounced a bit in October and the employment picture is improving. 

Of course, as Shakespeare penned thru "Macbeth," "nothing is but what is not."  What is "not" is any real data to support the fantasy being painted by Wall Street and its well-oiled media machine. It is my view, based on consumer polling and my analysis of the sales trends last weekend that, at this point, it would appear that very aggressive price discounting and marketing by the retail industry has "pulled forward" a substantial amount of holiday sales into the Black Friday weekend. 

As an example of media manipulation with the housing data, let's look at Toll Brothers.  The headline earnings release for TOL, one of the largest homebuilders, reported an unexpectedly big jump in earnings for the latest quarter.  Of course, if you look behind the proverbial curtain, you will discover that this gain was "manufactured" using a one-time tax benefit and some generous assumptions about the value of Toll's inventory - on and off-balance sheet. 

The fact of the matter is that new home sales continue to plummet and, overall, housing prices and true market real estate valuations continue to tank.  Furthermore, despite today's glossy headline announcing a record gain in the pending sales index for October, the bounce was generated from September's unexpectedly low index level and the index itself is still trending substantially lower vs. last year.  In addition, the actual and "shadow" inventory of homes for sale is spiking significantly higher.  As I dig through the "footnotes" that get completely ignored by the media, I can't help but conclude that a lot more pain is ahead for the housing market. 

The employment data is similarly chimerical.  If you just go by recent Government-generated employment reports and jobless claim data, you would think that the job market is gaining strength.  But I think by now everyone who cares enough to dig for the truth knows that the real unemployment rate is substantially higher than is being reported by headlines.   By "real" I mean the "real" workforce number, which would include not just the Government defined "labor market" - those employed plus those actively looking for employment - but would also include the rather large pool of workers who have given up looking but would still love to find a job.  The most conservative estimate of this can actually be found buried in the BLS employment report, which shows a "real" unemployment rate of 17%.  Private services like John Williams' Shadow Statistics estimate the "real" real unemployment rate is now over 20%. Lets also not overlook the Government's magical "seasonal adjustments" and other feats of data massaging.  In other words, welcome to the "Animal Farm" and the Ministry of Truth...

I'll conclude by linking  Alisdair Macleod's latest brilliantly and methodical calculations for where the price of gold is headed. This is a brief and concise must-read:  Gold is headed MUCH higher.

And I'm too fatigued right now to elaborate on the rapidly escalating fiscal catastrophies at all levels of Government (local, State, federal).  Not to mention the impending 2 million+ who will fall off the jobless benefit entitlements if Congress does not implement another emergency extension by the end of December. Suffice it for me to say with complete confidence that the golden truth of the matter is that the economy continues its death spiral into a massive depression and the price of gold and silver are set up to move up to price levels that will stagger the minds of all but the most informed of the precious metals community. 

Tuesday, November 30, 2010

Comex Open Interest Update...

As I mentioned in my late day addendum to yesterday's Comex post, I misread the product calendar in my haste to get a post written and jumped the gun on when first notice day is.  Today is first notice day so anyone not capable of receiving delivery of their position has to be out. 

Yesterday saw a bigger liquidation of December gold/silver than I would have expected given that gold/silver were pretty strong, relatively speaking.  With that said, the open gold o/i for December now stands at 15,195 contracts or 1.51mm ounces.  Given that the total available-to-deliver amount of gold stands at 2.6mm ozs, if even half of the open contracts take delivery, it will stress the Comex and likely push the price of gold higher.

In silver the open interest is 5,428 contracts.  This is 27.1mm ounces vs. the 48mm ounces available to deliver.  This is 56% of deliverable silver.  Again, if even half of the contracts demand delivery, the Comex will feel stress and the price of silver should squeeze higher.

Just for the record, many of us believe that the Comex is fraudulently reporting its actual amount of physical inventory in gold/silver.  Ted Butler has pointed out that SLV had a 6 million ounce withdrawal of silver last week and is speculating that this silver may be possibly intended to help cover silver deliveries on the Comex.  JP Morgan, not coincidentally, is the custodian (safekeeper) of the silver in SLV and just happens to be the largest short interest in paper silver on the planet, both via Comex futures and OTC derivatives.  You can make your own assumptions there.  It also just so happens that only 56 delivery notices were posted in silver yesterday - about 1% of the open interest - compared to gold notices which totalled 5,016 - about 33% of the open gold interest.

Again, the banks who are on the hook for deliveries have until the end of December to deliver.  Typically most of the deliveries occur early in the delivery period.  There's really not any good reason to not deliver the goods as soon as possible - that is, unless you don't have it in hand.  I will point out that our fund, twice in the past 18 months, did not receive our silver delivery until well after the contractual delivery period.  HSBC was the counterparty both times.  I have received emails from readers over the past year describing the same experience.  I think we can all see what is going on here and I believe it's part of the reason the metals are flying today.

Monday, November 29, 2010

Must-Read Here On Ireland/Europe...

This guy writes great commentary which is succinct, provides keen analysis and is 100% on the money.  The bottom line is that the "financial" crisis unfolding in both the Europe and the U.S. is of a banking nature.  That is, big banks fueled by absurdly easy monetary policy by Central Banks, have loaned impossibly excessive levels of debt to both Governments and the private sector:
So we must focus on the banks, because they are at the heart of the real crisis...The importance of Ireland is that is the biggest cross-border banking debtor of all the PIIGS.  If the Irish banks are not saved, the European banking system will probably go under, and soon, without waiting for the pressure to mount on Portugal Spain and Italy...
Here is the link:  Bad bank loans

In other words, the U.S./Euro solution to the financial meltdown occurring behind the scenes is one of excessive credit and catastrophic public policies being implemented by the U.S./EU.  To paraphrase a famous quote:  "it's the banks' money but it's the public's problem."  This is was TARP/QE round 1 did in the U.S., shifting a massive amount of money from bank balance sheets to the Treasury.  QE2 is doing the same and soon we will get TARP2.

Understanding the truth behind the rhetoric will enable everyone to understand why gold/silver is so resilient in the face of a big dollar dead-cat-bounce-rally.  At some point the markets will realize this and gold/silver will begin another meteoric rise. Sooner rather than later would be my bet...

The Comex May Have A Problem...

Note:  a commentor pointed out that tomorrow is first notice. I made an error in reading the product calendar on the CME website, which can be found HERE.  My bad.  The analysis below is still relevant, as I bet there was not a lot of liquidation today.  We'll find out for sure tomorrow.  Thanks to the reader who pointed out my mistake.

I have to allow for the typical accounting revisions that the Comex sometimes makes a day later. BUT, right now based on the o/i for gold and silver, the Comex is potentially insolvent.

Friday being the day before first notice, anyone with an account not funded to take delivery of a long position has to either sell or be liquidated by the end of last Friday's access session. I know this because I had a silver position liquidated a few years ago when I forgot what day it was lol. Any open long positions as of this morning are capable of taking delivery of gold and silver.

With that said, the open gold o/i as of this morning is 59,412 contracts. This translates into 5.9 million ounces. The Comex gold inventory shows only 2.6 million ounces of gold registered and approved for delivery. There is a total of 11.4mm ounces.

In silver, there are 17,208 open contracts. This translates into 86 million ounces. The Comex reports 48.5 million ounces available and approved for delivery, 107.2 million total ounces.

What does this mean, in the context of the cartel being unable to force liqidate a majority of the open gold/silver positions? Everyone reading this can use their imagination and I'm not willing to predict how this will unfold, but right now the Comex has a problem.

Saturday, November 27, 2010

Silver (and Gold) May Be Set-Up To Launch and the HUI To Do A Moonshot

Friday's action in the metals was quite predictable and a look "behind the headlines" reveals some interesting information.  I had mentioned to several colleagues after this week's option expiry, in which the cartel failed to slam the metals below key call option strike prices, that if a lot of the in-the-money call holders exercised and took delivery of their contracts the metals might get slammed during Wed/Fri low volumn trading.  I guess it was another lucky guess on my part per yesterday's ambush.

As it turns out, Monday is "first notice" day for December gold/silver.  What this means is that anyone with a long position has to either sell their position by yesterday's access close OR have an account that can 1) to accept delivery (most online trading futures accounts to not allow this) and 2) if the account can take delivery, it has to be fully funded to accept a delivery notice as of Friday evening.  What typically happens leading into the day before first notice is that the cartel will make an aggressive attempt to force the market lower knowing that many smaller traders will be natural sellers going into the day before first notice.  Moreover, the thin volumn on Wed/Fri makes this task a lot easier - ergo yesterday's action.

With this as the context, a couple of data points in silver and gold could make next week very interesting - to the upside.  First, as of Wednesday, there were 28,000 open silver contracts.  Yesterday's ambush may have forced most of those to sell (see the previous paragraph).  Preliminarily, and I do not put a lot of faith in the Comex "prelimary" open interest report, only about 7900 December silver contracts liquidated.  That would mean about 105 million ounces are standing for potential delivery.  The Comex would default if this were to play out like that.  It is likely that the silver contract liquidation was closer 20,000 contracts.  We'll find out Monday mid-morning.  That would leave 8k contracts standing, or 40mm ounces.  That is still about 80% of the silver reported to be available for delivery. If that scenario plays out, the price of silver is going to explode over the next couple of weeks.

The second interesting piece of data was reported yesterday evening by  Right at the close of the afternoon electronic trading session, someone bought 2000 contracts of February gold.  I don't think I've ever seen something like that in 9 years of doing this sector exclusively.   That is an enormous purchase.  It was either desperate short-covering ahead of news that could propel the metals higher next week or a very big player has decided to square off against the egregiously corrupt maneuvers of JPM/HSBC.  You can read about that trade and some interesting volatility color here:  LINK

Are gold stocks poised to stage a big move higher?

The answer to this depends on which the way metals move.  I've posted a chart which shows the ratio of the HUI to gold over the past year.  The chart shows the relative price performance between mining stocks and gold.  As you can see, the ratio is roughly in the middle of its trading range for the past year.  It has bumped up against resistance again and appears to be headed lower.  If this is the case, the mining stocks are likely to outperform gold/silver for awhile.

(click on chart to enlarge)

If my trading scenario for higher gold/silver outlined above plays out, the mining stocks should really start to move higher in December.  From a technical/fundamental standpoint, I would argue that the metals are set up to rally big-time.  We have already seen that the Fed/Treasury are willing to do whatever it takes in terms of monetizing the system in order to stimulate a big holiday season and keep the economy from collapsing.  Furthermore, the Fed typically injects a lot of extra short-term liquidity into the banking system via repos in December for several reasons, not the least of which is to fuel a year-end/January-effect rally in the stock market.  Gold and silver will smell this if it occurs again and will outperform the stock market to the upside.  The mining stocks will do that times-2.  

In addition, with Europe melting down again and the geopolitical climate heating up (see the Koreas, the U.S./China battleship tension and the China/Russia currency announcement), I think we can expect a considerable flood of global money to seek shelter from fiat currencies and reckless Government policies everywhere.  Layer on top of that the Islamic world returning from an extended religious hiatus, which will likely create a bullish influence on the metals.  And finally, the sentiment indicators in the precious metals, using several metrics, have plummeted in the past week.  From a contrarian perspective, this is usually quite bullish.

So, will the metals/mining stocks move a lot higher in December?  I have no idea - anything can happen.  I would suggest though that the conditions are set up for a possible significant move higher.  If that is the case, you want to be positioned accordingly because once this freight train leaves the station, you will have a hard time convincing yourself to jump on board.

Tuesday, November 23, 2010

Ssssssss...They're Slowly Letting All The Air Out Of Bank Of America

Here's the chart:

BAC had another ugly day today on very large volumn relative to its average volumn over the past 30/90 days.  Some of the biggest holders have folded their tent and it sounds like more are following.  Right now BAC's price is being "managed" lower in that neatly defined downtrend channel above.  Check out the TRIX indicator, a momentum indicator which "slows" down the direction the trend oscillations.  It's good to use when looking for clues to longer term trends. 

BAC is now solidly below its 50 and 200 day moving averages.  That is also very bearish.  Fundamentally it would appear as if this fraud-riddled carcas is getting ready to be snuffed.  They ("they" being Geithner and Bernanke and Henry Paulson) stuffed Countrywide and Merrill Lynch - two hugely fraudulent Wall Street creations - into BAC in order to shift the burden of monetizing the fraud onto the Government.  Now they'll go in for the kill and bury all the evidence, just like so many before it:  Enron, Refco, Amaranth, Lehman, and Bear Stearns.  Of course, first they'll let the Pimpcos of the world flip fraudulent mortagage paper back into BAC as per the terms of the mortgaging servicing agreements under which BAC is liable.

I am playing this using May 2011 8-strike puts. If you are invested in any mutual funds which list BAC in the top-10 holdings, you should get rid of those funds now - the managers do not know what they are doing.

Monday, November 22, 2010

Quote of the Decade?

The question most often asked of gold bulls is, “At what price will you take your profits?” It is a question that betrays a lack of understanding about why anyone should own gold. Nevertheless, the simple answer must be, “When paper money stops losing its value”. This response should alert anyone who asks this question to the idea that owning fiat cash is the speculative position, not ownership of precious metals.

That one gets my vote. The author is Alasdair Macleod, and his must-read commentary can be found
HERE. I highly recommend bookmarking his website. I recently discovered this Scotsman's commentary and have found it to be among the most value-added material in cyberspace.

On another note, as I have previously suggested and per the observations of several other long-time precious metals market participants, the "character" of this market seems to have significicantly transformed since August.  By this I mean that it would appear, at least for now, that the usual suspects who have been suppressing the price of gold/silver for over 30 years seem to have lost, to a high degree, their ability to keep the metals from moving higher. This, despite an avalanche of bearish articles and commentary which have deluged the mainstream media.

With tomorrow's Comex options expiry looming, the open interest in gold/silver calls/puts is set up to keep silver below $27 and gold below $1350.  At this point it looks likely, barring some kind market torpedo tomorrow, that they will fail.  I have to believe GATA is getting the hospital stretchers and body bags ready for delivery to the Comex trading floor tomorrow...

Saturday, November 20, 2010

While The U.S. Prints And Spends, Russia Loads The Boat With Gold...

This chart is sourced from Casey Research, Ed Steer's Gold and Silver Daily.  The Russian Central Bank purchased another 600k ozs of gold in October (some is purchased on the open market, some is purchased from internal mining production).  I think the message of this chart, combined with China's demure announcement about accumulating a lot more gold, is pretty clear:  get ready for some kind of gold-based currency standard at some point down the road.

(click on chart to enlarge)

Year-to-date Russia has accumulated 4.6 million ounces.  That's roughly 131 tonnes.  That's a lot of gold, especially considering that the ECB sold barely any of the 400 tonnes permitted under the Washington Agreement.  Now we know why the IMF decided to unload 404 tonnes.  Think about where the price of gold might be if the IMF had not supplied the world this year.

I mentioned earlier in this week in the comment section that it was my belief that, other than France, the EU Central Banks are largely out of gold - either via leasing or outright sales.  Anyone who has studied this topic thoroughly, of course, knows that it is likely that most if not all of the U.S. gold is either sold or leased.  Given the aggressive and large-scale accumulation underway by China, Russia, Iran, et al, 2011 should prove to be a very interesting year for anyone who has already positioned themselves ahead of what will inevitably be a substantial move higher in the price of gold, especially as valued in U.S. dollars.

Thursday, November 18, 2010

While American Hoi Polloi Sneer At Gold, China Hoovers It Up...

This comment was sent to me from a long-time colleague who is over in Beijing right now.  He himself has been accumulating gold and silver for several years: 
Went to a major dept store that sells gold. 100 oz bars selling for cash. 3 or 4 deep lines of people buying. No photo taking allowed unfortunately. Mob scenes. Food up sixty percent in two months. Talk about deflation and people laugh at you as an idiot. Prechter would be stoned to death here.
The media dismissed the threat of inflation in the U.S. by rationalizing that the U.S. is "exporting" inflation to China. There is just no basis in fact or truth to that nonsense.  Inflation is starting here and will become unmanageable, especially for those on fixed incomes and social security.  Good luck.  Got gold?  It's your only shot at protecting yourself and your family from our Government.

Wednesday, November 17, 2010

Is The Dollar Rolling Over Already?

Gold and silver have spiked inexplicably this evening.  I can't find any news that would have triggered the sudden, unusual early evening action.  Typically the early evening action is low volumn and the manipulators like JPM tend to try and swat the metals lower until Bombay and Hong Kong open up.  Then the physical accumulators take over.  This is actually a tradeable pattern. 

At any rate, given no news, I took a quick perusal of hourly and daily charts of the USDX.  Here's the daily (the hourly looks bearish, but that's obviously of shorter term significance):

(click on chart to enlarge)

I am not willing to commit to calling a resumption of the downtrend.  But I do think the message of the action in gold/silver tonight reflects the market's expectation of a possible rollover.  I thought the Fed's QE2 monetization of $8.2 billion in 10-yr Treasuries - a staggering size for this duration - sent the unimistakable signal to the market that the Government is going to start having problems selling longer duration paper, especially with $104 billion in total Treasuries on deck to be issued next week.

I will commit to saying that I believe that we are at a point in the global systemic unravelling in which gold is likely to start "disconnecting" from its correlation to the US Dollar and begin to move a lot higher against anything fiat.

It's About F-ING Time: Ron Paul Introduces The American Traveler Dignity Act

Thank you Congressman Paul!  Molto Bravissimo!!  It's time for the citizens of this country to seize back our Bill of Rights from the totalitarian neocons - Democrats and Republican - who have taken over our Government and this leglislation is a step in that direction:
My legislation is simple. It establishes that airport security screeners are not immune from any US law regarding physical contact with another person, making images of another person, or causing physical harm through the use of radiation-emitting machinery on another person. It means they are subject to the same laws as the rest of us.
Here is a link to this announcement from Congressmen Paul's website:  Daily Paul

I have to say that ever since the Government handed over our Rights to the Transportation Security Administration, I have spent a LOT less money travelling by airplane.  I'm sure many others have as well.  Just another example of our Randian/Orwellian Goverment telling us how to live and controlling our lives.

Thank You again Congressman Paul. 

On another note, I almost had to have my blood checked to see if anyone had slipped LSD into my Starbucks tall latte, extra hot this afternoon after I saw this headline:  "Palin says she could defeat Obama in 2012."  Here's a link to the story ROFLMAO.  I have two comments regarding that:  1)  If she's the best the Republicans can put on the table, then we're in for another really long, brutal second term of Obama; 2)  Saturday Night Live will likely be all over this on Saturday.

Tuesday, November 16, 2010

Muni Update

A reader linked a chart to the general Nuveen Muni Tax-Free Closed End Fund, which has dropped something like 10% in the last two days:

(click on chart to enlarge)

I want to bring this to your attention because, contrary to the comment in the NY Times by that dope from McDonnell Investment Management, this fund is a well diversified portfolio with an investment grade weighting (64% AA or higher) and geographically diversified.  Yet, this thing is getting killed.  Here's the link to that fund if you want to see the details:  NPX.

The point is, get out of your munis while your portfolio is still alive and move that money into real money - gold and silver.  Avete oro?

PIIG Syndrome Comes To The U.S.: Time To Dump Your Munis

It was only a matter of time.  The PIIG disease has come to this country, infecting the States and municipalities with huge budget defiicts and impossible public employee benefit and pension plans.  Check this out - this is Pimpco's general Municipal Income Fund, with the top 5 State positions noted:

This thing has lost 15.3% since its peak in early September - less than 2 months.  I'd say that fund has trichinosis. If you happen to have a decent portion of your wealth tied up in muni paper, lose sleep assurred that many individual munical issues have lost a lot more, given that the above atrocity is a highly diversified fund, which "shelters" the fund from the ravages of any one individual municipal issuer's disaster.

I got the idea for this post from an article in Saturday's NY Times, which I happened to peruse during my long weekend in La Cittá.  Some imbecile from McDonnell Investment Management tried to explain away the performance of the muni market by "explaining" that the cliff-dive was concentrated among bonds with longer maturities and lower credit ratings.  You can read the NY Times article HERE.

To be sure, longer-dated issues in the muni market have fared worse than their shorter-duration brethren.  But that's a function of duration and correlation with the overall bond market - NOT with credit risk.  As the graph above of a highly divesified muni surrogate illustrates, the PIIG disease is one largely of credit risk, not reinvestment risk. 

The fact of the matter is that wealthy investors - the ones typical of those who invest in munis - piled into the muni market in the insatiable quest of tax benefits.  In other words, a "bubble" developed in the muni market in which prices were driven inexorably higher (and tax-equivalent yields were driven lower) in a frenzy of too much cash chasing after-tax returns and income.  THAT is a bubble.

Please be advised that this is a catastrophe developing that you want to avoid.  At least when a sovereign entity loses its ability to make payments from revenues (i.e. the U.S. Government or an EU satellite country), the sovereign entity can print money to make sure bond payments can be fulfilled.  Not the same with municipal bond issuers.  At this stage in the game, many States are borrowing the money from other sources for now to make payments.  But, as the chart above shows, the perceived risk of default is starting to soar.  As States and municipalities face much higher yields in order to attract yield-hog investors, your existing muni bond portfolio will get crushed.

We all know - that is, "we" who are willingly looking at the reality of the situation - the variables which are strangling the cash flow and budgets of States and municipalities are only going to get worse - a lot worse - as the underlying factors which are squeezing States deteriorate.  And muni paper is typically secured only by the ability of the issuer to fund repayment out of revenues derived from some form of taxation.  As that source of revenue dissipates, so does the value of your muni bond.

If you truly believe that the economy is getting better, then have fun riding your muni bonds into the ground.  But just like the PIIGS, this situation is going to exacerbate. 

Fortunately, there is a solution.  Got gold?

Wednesday, November 10, 2010

Additional Thoughts: Look Out Below...Plus, Are Asian Silver Traders Taking On JP Morgan?

Housing - Zillow was out with a report today in which - well, I'll let the headline from the Housing Wire speak for itself:
Home price depreciation to worsen market into 2011

Zillow's catalyst for this is higher foreclosure liquidations based on current delinquencies and the high degree negative equity embedded across home ownership. They forecast a price bottom in mid-2011.  I will beg humbly to differ. They do not mention rising unemployment or higher interest rates. Throw that into the mix and I would argue that another big, long leg down is getting ready to commence. Here's the link to The Housing Wire's report on the Zillow report:  Look out below.

Interest Rates - Today's 30yr Treasury auction was very ugly.  It required an over 50% takedown by the Wall Street banks (Primary Dealers) to get it done and it printed outside of the expected yield range.  It looks like a couple western CB's also helped get the deal over the finish line.  This ties into housing because it is going to require increasingly higher interest rates in order for the rest of the world to choke down our Government's insatiable spending appetite.  Unless of course the Fed continues monetizing...

Inflation - In conjunction with a couple of my posts on inflation over the past week or two, this one doesn't need much elaboration.  From today's Financial Times: 

Food price fears as US warns on crop yields

You can read the whole article HERE.  It may require a free registration.  Here's the salient quote:
The agriculture department on Tuesday cut estimates of US corn yields for a third successive month, forecast record soyabean exports to China and warned of the slimmest cotton stocks since 1925. “The combined production shortfalls and dramatic potential stock drawdowns mean a much tighter supply picture than just a few months ago,” the agency said in a separate grains report.
Bottom line:  it will cost a lot more to feed your family this winter...

Is the BIG silver squeeze finally on? 

“Of course they are. $30 is just going to be a small pause along the way to much higher prices.”
Since 2002, I've been wondering when deep pockets would start taking on the massively illegal paper Comex/LBMA shorts in silver.  Apparently that squeeze is being implemented by a group of Asian traders operating out of London.  If you have not read this blog entry from Eric King's King World News, go grab yourself a cocktail and get ready to let this information grip your imagination.  Here's the LINK.

It would appear that this group of traders are not just using futures to fight the big banks who are short silver, they are backing it up with massive purchases of physical silver.  I've always thought that this occur when the big accumulators of physical gold and silver could no longer buy what they want at these artifiicially low and highly manipulated price levels.  That is, when a big perceived imbalance develops between demand and supply. The initiation of a paper squeeze would be designed to take the market up to a price level which would induce profit-taking sellers of large quantities.  It will be interesting to see how the price goes before large scale selling emerges.  It will likey be significantly higher than where the price is today. 

This afternoon we reloaded a lot of stock positions that we had liquidated on yesterday morning's bounce. If this intel is bona fide - and my gut instinct plus 9 years of experiencing in investing/researching/trading exclusively this sector tells me this is good information - then this move in silver is just beginning and the silver stocks - especially the juniors - will spike up to trading levels that will make Dennis Gartman pass out with shame.

I'm off to NYC tomorrow for a long weekend.  If you leave a comment after mid-day tomorrow, it likely won't get posted until Sunday evening. 

Tuesday, November 9, 2010

Tuesday Ramblings...

(Editorial update:  I wrote this last night.  This morning the Sept trade deficit was released and showed a slight decline from consensus expectation and a slight decline from September.  The source of the decline was mostly the value of imported non-petroleum goods.  The message?  The U.S. consumer is gasping for air)

It felt naked to not post something today, especially since I was a slackard about posting yesterday. I spent most of the trading day doing a lot of portfolio "repositioning" and flow trading/scalping. And Thursday I'm going to NYC for a long weekend so I won't be posting anything probably until Sunday night or Monday. So here's a flimsy brain-dump that I hope is somewhat value-added...

I've noticed that there is a lot of "noise" coming from Wall Street, the media and even David Rosenberg about "no double dip" and "a strengthening economy."  I'm not really sure what kind of hallucinogens these people are ingesting before they look at the evidence.

One strategist who supposedly had called the current recession/depression - which is supposedly no longer a recession - said that he expects an economic bounce based on data that shows bank lending to small businesses is no longer contracting. Of course, it's not expanding but why argue over minor complications like that? After all, his firm High Frequency Economics, has to keep their investors invested or they don't earn fees.  The fact of the matter is that the consumer is still largely dead (there is a very small bounce in the retail sales numbers ONLY if you look at the current data compared to the hideously low comparable numbers from a year ago).  Given the destitute consumer, can anyone think of a business to which they would lend money, except maybe precious metals dealers?

I'm not sure why Rosenberg has changed his mind. I just saw the headline and I wasn't interested in his view. I'm sure there was some pressure from his partners because his bearish tone was scaring off fee-paying clients.

The fact of the matter is that the jobs report last Friday was very ugly, once you looked at the actual BLS statistics and read the full press release rather than relying on the headline number plus some CNBC b.s. The worst element of the jobs report was that the labor force, defined as those working plus those actively looking for a job, contracted to a 25 year low. So of course the unemployment rate (those working divided by the defined work force) held below 10%. But what if you added back all of the people who have given up looking? What if you did some kind of "hedonic" adjustment to account for the part-timers who want to be full-timers? The real unemployment rate is easily in the high teens and creeping higher every month.

How about that factoid that came out yesterday which disclosed that California is borrowing $40 million per day in order to fund unemployment insurance? Talk about a massive transfer of wealth from everyone in the 49 other States to the the state of California. It's horrifying and the wealth transfer effect is one which sucks economic lifeblood from everyone.

Another statistic which hit the news blogs today showed that home prices, measured using a much more comprehensive data pool than Case-Schiller or the National Association of Realtors, started falling again in October. This isn't hard to believe as the "reverberations" from the home-buyer tax credit fade, foreclosure inventories rise (FNM/FRE both announced much higher REO inventories and forecast more weakness for the housing market) and interest rates on the longer end of the Treasury curve climb.

Maybe these economic bulls want to believe that the lower dollar will stimulate exports and curtail imports, thereby creating some kind of "positive" feedback cycle which will create domestic business expansion. Unfortunately that idea is not supported by the trade deficit trend, which has been climbing again despite a weak economy and tanking dollar. That fact of the matter is that it will take a much lower dollar in order to enable the "J-curve" effect to trigger.

Quite frankly I see continued economic and social decay, a lot more downside in housing values and inflation beginning to accelerate. The imported goods upon which our whole country rely will soon climb sharply in price. Ditto for the price of gasoline at the pump. In fact, I would argue that the steepening yield curve (the yield on the 30 yr. Treasury has blown out over 75 basis points in the last couple of months) reflects the market's expectation of accelerating inflation AND the risk of a lot more QE/dollar devaluation. This too is not good for housing.

Of course, we can always hope my view is wrong...

Saturday, November 6, 2010

Atlas Shrugs - Again

This commentary by John Browne from Peter Shiff's firm is an excellent summary of what happened last with the Fed.  I love this comment: " Chairman Ben Bernanke's unusual (and clumsy) Washington Post op-ed follow up ," because it's a lot more diplomatic than my reaction to Bernanke's WashPo op-ed on Thurs - which I called "retarded."

The reason I am bringing this piece to your attention is because it not only efficiently describes the failure already embedded in the Fed's actions, but it also subtly describes the state of existence as portrayed in "Atlas Shrugged."  The fate of our country is unfolding on a startling parallel path as decribed in Rand's epic treatise:
What the Fed is doing, essentially, is forcing consumers to spend their cash hoardings. Until the economic and financial policies of the government change dramatically, those who are tempted to invest their savings within the United States risk increasing regime uncertainty. So, much of our domestic capital is flowing into hard assets and overseas markets...This will do nothing to help the festering wounds underlying the US economy.
I recommend reading Browne's commentary, linked HERE.  And then go out and buy as much gold and silver as you can in order to get your paper wealth away from the criminals who are running our country.

Friday, November 5, 2010

How Far Can The Current Move In Gold Run?

I have stopped putting out price targets and timeframes for the precious metals.  What I tell anyone who asks is that I don't know where the price will be next week or next month, but I will guarantee you that the price two years from now will be significantly higher than where it is now.

I wanted to highlight a commentary posted on Zerohedge by J.S. Kim.  He addresses the growing awareness and understanding globally by investors of Anglo-European Central Bank gold price suppression.  The growing permeation of this knowledge is enabling the price-action in gold/silver right now to behave a bit diffently than during periods of extreme intervention over the past 10 years: 
Now that the price suppression schemes against gold and silver are gaining mainstream recognition around the world, I believe that the type of frothy price action we have just witnessed in the PM markets since Mr. Chilton’s announcement will serve as a sneak peak into the massive leaps higher in gold/silver prices in the years to come as the criminal banking cartel loses its grip over gold/silver prices.
I think we all pretty much get this.  What I wanted to really highlight was a comment he makes concerning whether or not the metals are technically overbought.  Quite frankly, measurements of overbought/oversold technical conditions are simply derived from psuedo-fancy statistical formulations, all of which pretty much calculate some kind of average and then measure the deviation of the current price/volumn/etc action from the mean metric calculated.

We all get that too.  But Kim asserts a concept to which I have given a lot of thought in the past, have discussed at length with colleagues and of which I believe is the case underlying the price-action in the metals today.  This idea is that, given that CB's have been massively suppressing the price of gold/silver for at least the better part of two decades (and likely a lot longer), it is likely that there is some kind of calculus which could be derived which would show that gold/silver are massively "oversold" in the context of the the last two decades.  To be sure, just using an inflation-adjusted measurement for the price of gold now vs its peak in 1980 would support this thesis.  There are plenty of other relative valuation metrics which yield the same result.  Here is Kim's quote:  
While is true that gold/silver are heavily overbought now and PM stocks are either in heavily overbought territory or rapidly approaching heavily overbought territory, during strong runs in past gold/silver bulls, the underlying metal prices and stock prices have remained in overbought territory for months on end. This alone is not a reason for a correction as Central Bankers have been fighting the fundamental weaknesses in their fraudulent global monetary system daily for quite some time now. When bankers legalize fraud through the legislation they sponsor/endorse, technical analysis is insufficient to ascertain the short-term direction of not only stock markets but also gold/silver markets. One must understand the history of Central Banker engineered attacks and price suppression schemes against gold and silver to estimate the probabilities of short-term corrections in addition to the use of technical analysis.
Essentially that comment supports my thesis by discussing the fact that long term Central Bank price suppression and paper bullion fraud schemes have distorted the true market dynamics of the bullion market AND that the growing awareness of this fact by global players might cause the gold/silver market to behave differently from a technical standpoint than it has over the duration of this bull market to date.

Ultimately it can be argued that, for the past 2 decades at least, the manipulation and artificial price suppression of gold/silver have rendered the metals extremely oversold in the context of a longer timeframes.  Accordingly, at some point, I have always suspected that we would eventually go through an extended period of time in which the metals appear to be overbought on dailies and weeklies and monthlies.  But what about decades? 

The Kim commentary, linked HERE, essentially makes the same argument and it's the first time I've really seen this idea given a full public viewing.  The other aspect to consider is that, while the manipulated "oversold" condition festered over decades, it is quite likely that this "oversold" condition will be corrected in a much shorter timeframe.  Could this be what is occuring now?  We'll know when we know...

Thursday, November 4, 2010

Quote Of The Month (So Far)

Bill Murphy in tonight's Midas at
Something is going to have to give big time down the road re deflation/inflation in the US, and it is not going to be the precious metals … meaning either gold/silver are telling the real story or bonds are … and it’s not bonds 

Wednesday, November 3, 2010

On A Clear Day You Can See Inflation

Food Sellers Grit Teeth, Raise Prices

That's the headline from a Wall Street Journal article posted online tonight that you can read HERE Funny how the deflationistas conveniently overlook the issue of rapidly rising food prices when they spew out their reckless views.  They also ignore the following (click on the charts to enlarge):

Sugar up 114% since June

Corn up 79% since June

Wheat up 54% since June

A perusal of several other neccesitous consumption items like oil and healthcare insurance will reveal similar stories.  And with the significantly weaker dollar, get used to paying more for your basket of general imported goods at Walmart going forward.

Aside from the price behavior of gold and silver, there are plenty of other overt indicators which reflect a growing market perception of higher inflation ahead.  Today, for instance, the long bond experienced a 3-point price reversal to the downside from this morning after the QE announcement.  The yield on the long bond shot up to 4.07%. It was around 3.90% just a couple of days ago and was approaching 3.5% a few months ago.  The long end of the yield curve typically reflects market expectations of both sovereign U.S. credit risk and inflation risk.  Since it is now apparent to all that the Fed is willing to print enough money to prevent a U.S. Govt bond default, we have to assume that the higher yields on the long end of the Treasury curve are starting to reflect inflation expectations.

The other rediculous deflationista argument is based on the absurd idea that there is some sort of debt contraction going on in the U.S. financial system.  That is just plain wrong.  For sure the level of private debt has declined somewhat.  However this debt has been "shifted" from the private sector balance sheets to the Fed and the Taxpayer. In fact, the overall gross level of debt in our system is rapidly expanding.  As of the end of this month, the Fed will supplant China as the largest holder of U.S. Treasury debt.  In addition, the outstanding Treasury debt is increasing at nearly a geometric rate.  In fact, by the last estimate I saw, the U.S. Treasury debt will exceed $14 trillion by March.  By then the amount of outstanding Federal Debt explicitly reported (there is at least another $7-10 trillion "off balance sheet") will have increased 55% in the first 26 months of Obama's Presidency:

(click on chart to enlarge)

It's going to start to get ugly.  Please read this quick interview of Jim Sinclair posted today by King World News, which explains why gold/silver is the only way you can protect yourself from what is unfolding in this country: 
We are in unchartered waters with business folding over.  We don’t know what the name will be for this.  One thing we do know is it’s not dollar positive and that the only insurance out there that would react positively to things we can’t control such as Fed decisions is gold
Here's the link: Got Gold? The next time you run across some cybergarbage analysis of why we are entering into a deflationary death spiral, you only have yourself to blame if you decide to waste brain cells reading it...