Thursday, March 31, 2011

Fed Transparency? And Here Comes Inflation...

The media has been happily reporting that the Fed is making itself "more transparent" with the news that Bernanke will now give quarterly press conferences AND that today the Fed releases the names of the banks who borrowed from the discount window during the 2008 banking system collapse.  The quarterly press conference is a bunch of b.s. because Bernanke, following in the footsteps of Greenspan, really doesn't say much when his lips are moving and he has for sure issued many non-truths.  And disclosure of the names of banks that took discount window money should not be news to anyone who is paying attention.

To begin with, the Fed is releasing today's information after spending three years fighting the court system in an attempt to prevent today's disclosure.  It took a Supreme Court decision to force the issue.  More "transparent?"  Hardly.  Who gives a crap which banks borrowed from the discount window because it is safe to assume that every single large too-big-to-fail bank in some way or another had become completely insolvent during the course of 2008's systemic financial collapse.  I don't need the Supreme Court to force to the Fed to tell me which banks took discount window money BECAUSE ALL THEM DE FACTO COLLAPSED. And it was only with slick maneuvering that pushed all of that liability - trillions - onto the Taxpayer that enabled the system to be re-liquified and enabled all of the big bank CEO's to continue handing out $100's of millions in compensation to their employees and to themselves.

It is an absolute absurd joke if the citizens of this country believe that the Fed is now willing to be more open about their operations just because the Supreme Court forced today's disclosure and because Bernanke is going to give us a quarterly press conference loaded with worthless grandiosities and literal bullshit.  I would like to see detailed information about the Fed's daily open market operations, which seem to correlate almost perfectly with directional movements in the stocks market and also serve to partially manipulate the precious metals markets.  How about giving us some detailed information about all of the toxic assets the Fed purchased, what they paid and from whom they purchased them?  Why am I entitled to this information?  Because President Obama and Treasury Secretary Tim Geithner have authorized the use YOUR tax money to guarantee that the privately owned Fed does not lose money on the above operations.

Now on to the matter of inflation.  Every single Federal Reserve and Government official is denying that inflation is becoming a problem in this country.  But how about taking that medicine from the CEO of Walmart, the world's largest largest retailer?
inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."
Walmart is responsible for about 10% of all retail sales in this country and the majority of what they sell here comes from China.  Still want a weaker dollar?  If this guy says inflation is coming, better get prepared for it.  Here's the article LINK

Rest assured that the Goverment statisticians will continue to issue reports which have manipulated away most of the damage you feel at the cash register and in your savings accounts.  But this is going to become a serious problem for everyone who is not prepared.  The best way to get ready is to move as much of your liquid investment funds into physical gold and silver as you can.  You can also put some money into the stock market, which should keep pace with inflation until the dollar collapses, but you will still be left holding dollars.  When the music stops on the dollar game, if all you have is dollars you will be broke because no one will want to take your dollars in exchange for goods and services.  Foretold is forewarned...

Tuesday, March 29, 2011

More Economic Fairy Tales And Robert Gibbs Joins The Circus...

The 20-30% of the people across the country who actually bother to read/listen to the news were greeted this morning with yesterday's "good news" about consumer spending and existing home sales.  Of course, mainstream media only regurgitates headline data and Wall Street/industry apologists throw in bullish spin for good measure.  And thus, Americans go about their day living the illusion. 

Consumer spending was reported to have increased .7% for February and was the "fastest" growth in four months.  HOWEVER, the news reports never analyzed a breakdown of the source of that "growth."  Well, I'm here to report that the "growth" was price inflation, primarily at the gas pump, and that if we had a way to measure "unit" volumn then sales growth on an inflation-adjusted basis would have shown a decline.  It's the unit volumn that contributes to real economic growth, not price inflation.  I don't have time to dig
up the data to prove my point, but here's a good analysis I did happen to stumble upon on’s no wonder consumers are turning cautious again: After taking higher prices into account, consumers’ purchasing power fell in February. More and more of their income is going to pay to fill up the car and the pantry, expenses that can’t be ignored, leaving them with less to spend on other things. Meanwhile, wages aren’t rising as fast as prices are.   LINK
The second piece of home-spun economic data was the "pending home sales" index, which is compiled and released by the National Association of Realtors.  By their measure, pending home sales (i.e. contracts to purchase existing homes) increased by 2.1% in February, although they are down nearly 10% from Feb 2010.  While I will say that it is likely that, with banks looking to unload foreclosed inventory to make room for even more foreclosures, there was a marginal increase from January's depressed levels, this data is extraordinarily inconsistent with the purchase mortgage application data released on a weekly basis by the Mortgage Bankers or America Association, which has been plummeting almost every week.  If you are looking for a reason to question the reliability of the NAR's data, besides applications for mortgages to purchase a home, then take a look at this remark by Lawrence Yun, the chief economist for the NAR and perpetual cheerleader/data-spinner:  “We may not see notable gains in existing-home sales in the near term, but they’re expected to rise 5 to 10 percent this year with the economic recovery, job creation and excellent affordability.”  LOL

Here's the  LINK from Bloomberg news.

If you want good insight to what is really going on in the economy, here is the Bloomberg summary of the Goldman Sachs weekly same-store-sales index, which was up .2%:  "the report says March has been a tough month for retailers but ties the weekly gain to strength at supermarkets and drug stores offsetting weakness for seasonal spring goods."

Please note two things: 1) the weekly "strength" was tied to supermarkets/drug stores, which I would argue is inflation-based, not unit volumn-based and 2) there was noted weakness for seasonal spring goods, which I would argue is indicative of declining "discretionary" spending.  Both observations lead me to conclude that the economy is double-dipping...

And then there was this Case-Shiller monthly 20-city home price index, which showed an across-the-board decline in home values in January, except of course in Washington, DC.  Here's the LINK  This is really bad news because, as I have demonstrated in previous posts, the C-S index is skewed away from the price-effect of foreclosures, and thus understates the true decline in home prices going on out there.  This is horrible news not only for current home owners, but also for the banks and investors who are invested in mortgage paper, which is losing its "equity" cushion on a steady basis. 

Anyone think QE2 will be it for the time being?  Better think again because with collateral value shrinking in this country and the economy headed back into the tank, if the Fed were to stop printing money it would likely lead to economic armageddon, not to mention the fact that the Government would lose its primary source of funding...

And now for what you would think is a joke, but falls into the "so absurd that I couldn't have made this up" category, it was announced yesterday that Obama's former press secretary, Robert Gibbs, is going to sign a major league employment agreement with Facebook, to help them with communications.  Here's the LINK I guess one would have hoped that anyone associated with Obama's Presidency would devote their career to making America a better place to live. But then again, Obama and his clan completely shed their campaign skins once they got into office, so I guess I shouldn't be surprised that Gibbs decided to whore himself out like this for the sake of his bank account.

Friday, March 25, 2011

The Comex Goes "Extend And Pretend" On JP Morgan's Paper Silver Short

And in the process has likely perpetrated and enabled the continuation of the biggest fraud in the financial markets.  By now everyone knows about the absurd imbalance between JPM's short position in the silver futures market and the availability of physical silver at the Comex/SLV.  To review, JPM's short position is several multiples of the amount of reported physical silver that is available for delivery at the Comex. For purposes of this commentary, I will set aside any discussion about whether or not the reported inventory is actually there or not.  Of course, you would have to be either ignorant of the facts or an idiot to believe that it is.

It was announced 10 days ago that JPM was approved by the CME to operate a Comex metals storage vault.  While on the surface this is no big deal, the manner in which JPM managed to get around the full review process has raised a lot of knowledgeable eyebrows in the precious metals market, especially in the context that JPM - by far - has the largest short position in paper silver in the universe, in addition to also having the largest proprietary position in OTC gold and silver derivatives.  Again, both states of existence would be no big deal as long as the world could verify with its own eyes that JPM actually has the ability to deliver the underlying physical metal represented by the firm's absurdly massive short position.  That is the crux of the problem.  Show me the metal you can deliver and feel free to make markets and short away. Otherwise there needs to legally enforced scrutiny.  The CME, with its hastened approval of JPM as a vault operator has demonstrated that it is unwilling to enforce legal scrutiny. Furthermore, The JPM Comex vault news tells us all we need to know about the extent to which the bullion banks and their mafia inside the regulatory agencies and even the oval office (Obama's new chief of staff is an ex-JPM guy) will go to fight their problem with precious metals.

Operating a gold and silver vault will now enable JPM to exploit the fact that most metals players who take delivery of their metal typically let it remain at Comex vaults for safekeeping.  Again no big deal, because it is convenient and saves delivery fees, as long as the owners of the metal hold the vault operators accountable.  In other words, if more players stand for delivery than JPM has available to actually physically deliver, JPM can just notify the owner that delivery has been made to its vault without ever having to make the actual delivery unless the owner asks for delivery into a private depository off the Comex.  It has long been suspected that all of the current vault operators, especially HSBC and Scotia, engage in this "fractional" bullion banking scheme, but now that JPM has entered the vault storage game, there is no doubt in my mind that the Comex is running low on deliverable metal.

And by extension, it also serves to reason that SLV is running low on metal (JPM is the vault custodian for SLV - hmmm...), although I do not, like many, believe that SLV is empty.  Again, a lot of commentators out there squawk about SLV being empty without ever having bona fide actual proof.  I think from the standpoint of probability analysis, SLV is at least 1/3 covered (at any given time a large holder can exchange his SLV shares for delivery of metal - my bet is that SLV has enough to cover this present value of this possibility).  I believe the Comex is less than 1/3 covered and this is why JPM had to rush into the vaulting business and jammed thru its approval by skirting the standard rules.

You can read about what just happened here:  LINK  I would recommend that everyone read through that because it is well-written, factual and educational.  Let me just put some meat on the bones there by explaining the signficance of this event.  Everyone who trades this stuff knows that there is a massively inordinantly large amount of outstanding April silver contracts still open with last delivery day being next Thurs, 3/31.  As of today there were still 632 open contracts representing 3.16 million ounces of silver.  I have never seen this large amount of open contracts so late in the delivery process.  And given that the Comex is reporting as of yesterday that over 41 million ounces of silver are available for delivery, it tends to raise a lot of skepticism about the amount of silver that is actually physically there to be delivered. Historically, most open contracts in a delivery month get filled within the first two weeks of that month.  If this view is correct, it would make sense then that JPM wanted to rush through the approval of a licensed vault that it make phantom deliveries into and no one would know the difference unless they ask for delivery out of the vault.  Again, probability analysis would say that very little of that silver will be called upon like that (by the way, anyone can track the reported flows of silver in and out of Comex vaults at the CME website:  LINK - you can also track daily changes in open interest, etc on that site, that's how I know that very little metal that is delivered actually is demanded from the Comex vaults). 

JPM's Game Of Chicken 

As you can see, JPM likely does not have the resources to make good on the actual phsyical delivery of all of the silver that is standing for delivery.  So the next best alternative is to play the odds and deliver electronic silver into a surrepetitiously approved vault and anticipate that most, if not all, of the deliverees (the "stoppers") will never ask for private delivery. 

Our fund, however, stood for delivery of 3 contracts this month.  We were given notice on one of them right after first notice day and that silver was made available by HSBC to be picked up by our carrier and delivered to our private depository within the appropriate timeframe.  HSBC, however, changed the rules on the other 2 contracts.  We were notified that the silver for the other two contracts was being delivered last week.  Why they waited 3 weeks to notifiy us on the other two is open for conjecture.  HOWEVER, this time HSBC informed my partner that in order for us to send a carrier to pick up the bars he had to fill out a bunch of paperwork and send a copy of his driver's license and that it would take HSBC five days to process everything.  Today being the 5th day, we called for a status update. They informed him that he had to send them a copy of his passport because his driver's license had expired.  I'm not sure how long it would have been before they notified us of that fact if we had not called. 

The point here is that we are now seeing all kinds of tactics being legally - and illegally - employed in order to make the process of taking delivery of metal from the Comex more burdensome and further enabling the big ponzi scheme to keep going on there.  But the fact of the matter stands that events like the JPM vault and the sudden new delivery requirements of HSBC serve to further amplify the fact that the Comex and SLV are running out of actual physical silver and the desperation to hide this fact is growing stronger.

While I still don't expect that a Comex delivery default will occur this month, or even this year, the cracks in the system are growing wider and one of these days we will wake up in the morning to find gold and silver prices that are several multiples higher than the day before and the bid/ask spread in the markets for these products will be a country mile wide.  THAT is a day that will fun watch...

Thursday, March 24, 2011

The Pictures Tell The Story

My friend and colleague "Jesse" posted this commentary on his site yesterday.  I wanted to link for the benefit of anyone who has not yet seen it.  This pictorial explains why you need to move as much as you can into gold and silver. Here's the LINK I would also suggest reading his "Money Supply: A Primer" link as well.

Wednesday, March 23, 2011

Housing Is Done

I don't want to beat a dead horse but I took a lot of crap from everyone I know when I sold my home in 2004.  It took a few years but my conviction was correct.  The dopes who bought my home used 100% financing in the form of a 1st mortgage and a home equity loan to pay for it. LOL.  They are at least 30% underwater right now (30% of a big number, by the way).

As most have seen by now, new home sales absolutely collapsed by 16.9% in February to a record low.  I just want to point out how pathetic our media is by showing you the Bloomberg news headline BEFORE the news hit - Blooberg was anticipating a strong number based on Wall Street-Einstein forecasting:  Sales of New Homes in U.S. Probably Climbed in February" - here's the LINK  I wanted to post that in order to exemplify how important it is to to do your own due diligence and research in order to get closer to the truth.  Our media in general is a complete failure at this.

Here's the details from today's new home sales report:  New-home sales reach record low; Feb. median new-home price down 13.9% to $202.1K; Feb. median new-home price drop biggest on record; Northeast new-home sales fall 57% on month; Every region but the West saw record lows.  Here is a pretty good news report of the details: LINK

What's even funnier is that Goldman Sachs issued a strong buy recommendation on Pulte Homes early this morning.  I'm sure they have a priority client looking to unload its position in PHM.  If PHM were a double-digit stock I would be shorting it right now.

The price-cutting new homebuilders will feed into the price levels of existing homes, and bank foreclosure inventory will further fuel the downward price-spiral.  About a year ago several people asked my view on housing prices and when I said "lower," they insisted that it was a good time to buy.  Oh well...

Dallas Fed-Head Richard Fisher has been in the media today and yesterday whining about all of the money-printing and insisting that it will end with the expiration of QE2 on June 30.  This is pure Fed-official rhetoric.  In fact, a long-time colleague of mine referred to Fisher as "a douche" when I asked his view on where Fisher was getting his evidence that the economy was improving.  I'm still chuckling over that response and agree.

Anyway, I would like Fisher to explain to me how the U.S. Government will finance its Treasury issuance if the QE program terminates on June 30th.  It would be impossible to replace the Fed right now as pretty much the sole-source of funding for new Treasury debt.  Let's be realistic about this.  And the housing market collapse is the surest indication that the economy is going back into a tail-spin.  In fact, most of the positive numbers in all of the economic data being released is coming from price increases at all stages of production, imports and exports.  Any real, marginal production increases are coming from Government-supported industries like autos and defense/aerospace.  The consumer, when you strip inflation out of the retail numbers, is still in retraction.  Employment, when you strip out the manipulation of the numbers, is still contracting. 

Make no mistake about it, QE3 in some form, overt or disguised, will happen.  This is why the dollar can't sustain any kind of rally right now and it's why gold and silver continue their inexorable climb.

Tuesday, March 22, 2011

Data Confirms My Outlook For The Housing Market

Nice to see Obama sipping champagne and enjoying himself in South America while he unConstitutionally puts American lives at risk in Libya and further imperils our future financially, eh?

But back to the mundane matter of the housing market.  As per the National Association of Realtors' report yesterday, existing home sales plunged 9.6% (annualized) in February and the number was substantially below the Wall Street-Einstein consensus estimate.  Prices declined 5.2% to their lowest level in nearly nine years.  That's a big price drop and, contrary to the views of the rather pedestrian mainstream analysts, lower prices are not stimulating sales.  Here is yesterday's report from Bloomberg news:  LINK

Today the Federal Housing Finance Authority reported a .3% price decline for January, BUT revised December's previously reported .3% to a 1% decline.  Here is that report:  LINK  Don't forget that is Government reported data, so the pig has probably been dressed up manipulatively with rose-colored lipstick.

Although real estate professionals and Wall Street will figure out a way to spin this data in a positive manner, the housing market still has a long to way to fall in order to correct from the massive bubble inflated by Greenspan and the related lending fraud enabled by the system.  While Govt/industry inventory shows relatively flat growth projections, the shadow inventory of foreclosures, impending foreclosures, unreported bank REO and potential existing homeowners who would like to sell but want to "wait for the market to come back a bit" has created a massive glut of inventory (and potential inventory) that it is going take substantially lower prices and a much stronger economy in order to restore supply/demand stability.  Of course, the Government and Wall Street would like you to believe that the shadow inventory is not really there, just like the Constitution...

I have been saying for quite some time that I expect to see prices decline to at least the average price levels from the early 1990's, before Greenspan's money printing mechanisms spawned successive asset bubbles and subsequent busts.

Here's two interesting graphs which show why I believe our economy is doomed - and therefore housing prices will continue to collapse - and why people are crazy to not move as much of their wealth as possible into gold and silver and out of dollar-based "assets," especially housing.  The first graph shows the Fed policy being implemented to try and prop up the economy/housing (you can enlarge the charts by clicking on them):

This graph reflects the liquidity being pumped into the system that supposedly is not leading to price inflation.  The next graph shows the ONLY result of this policy that the Government can't hide using manipulated data - the price level of the U.S. dollar index:

AND #1 and #2 causes #3 - the price of gold:

If the Fed does not continue #1, the economy collapses.  If #1 continues, #2 goes into cliff-dive.  If #1 and #2 continue to happen, gold and silver will move up to price levels that will shock and awe even well-seasoned gold-bugs.

People ask me all the time how high I think gold can go.  I refuse to put a price on it because most would think I'm nuts.  But let's just say that my price target is higher than that of  Jim Rickards or John Embry.  But if #1 and #2 continue the way I expect, I believe that my price views will prove correct....Gold, got any?

Monday, March 21, 2011

A War We Can't Afford And Have No Constitutional Authority To Conduct

Does anyone besides me remember that part of Obama's "Change" campaign for the Presidency was predicated on restoring Rule of Law and adherence by our Government to the Constitution?  I remember it vividly.  Well once again Obama has proved to be as big, or bigger, of a liar as his predecessor. 

Let's look at the first and foremost reason that the U.S. should not be engaged militarily in Libya.  Who better to state the case than Congressman Ron Paul: 
A no-fly zone is an Act of War.  Now, what moral right do we have to participate in war activity against Libya?  Libya hasn't done anything to the United States.  They are not a threat to our national security.  There's been no aggression.  There's no Constitutional Authority for [Obama] to willy nilly go and start placing no-fly zones over countries around the world

Bottom line:  Obama has lied to us once again and he does not have Constitutional Authority to engage militarily against Libya.  Of course, the American public has been allowing the U.S. Government to ignore the Constitution for several decades now.  But between Bush and Obama, the remaining shreds have been used as, in Bush's words, toilet paper.

But this war is also about the U.S. economy and oil.  The former is an immediate gratification attempt to use war as a means to keep propping up our econmic system.  The latter is to keep Libyan oil flowing to Europe, so that Europe does not "crowd out" the U.S. need to for oil from all of the other sources (the U.S. imports very little oil from Libya but most of Libya's exports flow to Europe, especially Italy).

And the bottom-bottom line for this country, Constitution-be-damned as Presidential toilet paper - is that we are already fighting fraudulent wars of terrorism in Iraq and Afghanistan that are financially bankrupting our future.  I saw an estimate earlier that what is estimated to be a 3-month campaign will cost our taxpayers $9 billion.  Because we are running a massive deficit already, the cost of this war will end up being  financed with borrowed/printed money.  An unConstitutional war with no real purpose or provocation being waged by a country which can't even afford to pay for its own domestic spending habits.

Obama is digging a deeper grave for this country while he and his wife hob-nob around Rio de Janeiro in 5-star hotels, spending even more taxpayer money on ridiculous amounts of luxury and personal security.  The only Hope I have at this point is that someone like Ron Paul steps up in 2012 to get elected and really starts the long, painful road to reform and recovery. 

Please keep in mind that the timeless historical formula for the collapse of a great empire is fractional banking, fiat currency and global imperialism.  The U.S. is firmly on that path...

Thursday, March 17, 2011

Some Commentary On The Metals And Coffee With Jesse

I am sensing a lot of "nervousness" in the precious metals and mining stock investing community which is connected with the recent volatility in the metals.  I must say that some type of correction/pullback should be expected given the run in gold and silver since early August (silver was on a double since August 1, at one point).  It's only natural that traders and investors will take some profits after a run like that and preserve some profits with the hope of reloading positions at a lower level.  To an extent, that action makes price correction a self-fulfilling prophesy.  Having said that, the geopolitical, economic and natural disasters ("disaster" is pluralized because I consider the growing food shortages globally to be a natural disaster) are serving to make the arguments for owning gold and silver even more compelling.  We have yet to see large institutions and the public pile into this sector, which means some of the most thrilling gains are yet to happen.  Of course, none of us will be thrilled with the associated systemic problems that will accompany the move in the metals...

I wanted to highlight some brief comments by John Embry posted on Eric King's blog.  Here is the LINK  I'll add to that my view that the fact that the banks who are manipulating the metals can't engineer a more substantial sell-off in the metals given the technical condition is testament to the voracious demand for physical gold and silver globally.  In the past, a big move in silver has always been followed with 20-40% price correction (even bigger in July 2008).  As I watch the metals trade all day, every day, it is becoming apparent to me that the entities manipulating the market - CFTC be damned - are losing their ability to do so.  Currently there are 1054 open silver contracts for this March delivery period.  This is a very large number of open contracts at this point in the month.  What's even more remarkable is the fact that the aggressive attempts to push the metals lower have not caused the liquidation of a large portion of the open March contracts.  I'm sure JP Morgan is stunned by this unexpected development.  I do not believe that the Comex will default on deliveries this month.  In fact, I have a big bet with a colleague who does think the Comex will default on silver this month.  While I'm not worried that I will lose the bet,  the inability of JPM to force liquidation - plus the fact that those contracts have not been closed out by deliveries - is raising my eyebrows.

Finally, for anyone reading this who does not stop by Jesse's Cafe Americain on a regular basis, I highly recommend reading this interview with Jesse:  LINK  "Jesse" offers some very well-articulated insight into why our system is, well, screwed.

LATE ADDITION:  HSBC makes it more difficult to take delivery and remove the silver from their Comex vault.  Our fund is taking delivery of silver from Comex, with HSBC as the counterparty.  In the past, we were always able to make arrangements to have our depository representative swing by the HSBC vault and pick up the metal on our behalf after we received notice.  NOW, my partner has to fill out some forms and send those plus a copy of his driver's license to HSBC's compliance department and, best case, we will be approved in 5 days to make arrangements for pick-up.  This will cost us time and money.  My view is that the Comex counterparties are making every attempt to discourage investors from not only standing for delivery of silver but removing those bars from Comex depositories..."Houston, we have a problem in the silver pits at the Comex."

Wednesday, March 16, 2011

Not To Belabor The Obvious

But the housing market is crashing again.  The MBAA mortgage purchase index tanked hard again after a 1-week bounce from historically low levels.  The purchase index is 15% lower than a year ago.  Forget the refi index because because refi's do not create new production/growth.  So that you don't have to sift thru the well-spun garbage from Bloomberg or CNBC, here's the report from the source:  LINK

This mortgage indicator is confirmed by today's release of new housing starts, which fell to its lowest level since April 2009.  It's not good that homebuilders and buyers are not ramping up their activity as we go into what should be the seasonally strong period for the housing market.  Of course, if I get time to sift thru the next round homebuilder 10Q's, I'm sure I'll find a lot of accounting grey area manipulation that is hiding cash flow problems and bloated inventories.  Here's the housing starts article:  LINK

The relative activity in the housing market is and has always been considered one of the 3 pillars of major economic activity in this country (the other two being autos and Govt/defense).  Even at its apex, technology only produced 10% of the GDP.  I am predicting that the housing emporer will prove to have no clothing on and there will be some problems in the banking industry and at FNM/FRE that will precipitate a new round of QE - QE-whatever-they-call-it to try and obsfuscate the truth about what they're really doing - in order to attempt to prop up the mortgage market PLUS continue feeding the ever increasingly voracious spending appetite of Obama's Government. 

Greenspan is in the news with a speech in which he blames the current housing woes on the Government.  He is partially correct.  Here's the LINK  But the Truth is that if Greenspan were to abide by the golden truth ("the dude abides"), he would blame himself for 90% of the mess, because he was the "Maestro" who inflated the damn housing bubble in the first place.

I have said since 2002 that Greenspan will hopefully live long enough to see his name go down in infamy once the mainstream media and hoi polloi understand just how catastrophically destructive Greenspan's Fed was to the system (of course, we can debate whether or not he was just following orders from his banking masters, but now here, not now).  There are some comments in that above article which suggest that some people are having that epiphany.

Do yourself, and your family a favor, go buy as much gold and silver as you can and make sure you see the "Atlas Shrugged" movie when it opens.  Here's a link to pre-purchase tickets:  Who's John Galt?

Tuesday, March 15, 2011

Quote Of The Year So Far - From Marc Faber:

"We may drop 10 to 15 percent. Then QE 2 will come, (then) QE 4, QE 5, QE 6, QE 7—whatever you want. The money printer will continue to print, that I'm sure. Actually I made a mistake. I meant to say QE 18."  (I sourced this from

That is almost verbatim the conversation I had with my business partner this morning.  Hedge funds are dumping everything in sight in order to avoid catastrophic margin calls.  The selling may come in waves as margin calls are issued.  But, use this volatility to add to good quality mining stock positions, especially junior miners.  Also make sure you add to your physical gold/silver holdings.

I expect the Fed to ease the fiat paper spigot even more today, although they may not explicitly make that clear when they release their FOMC meeting policy decision later today.  However, there is no doubt whatsoever in my mind, and I made this call in a post last week, that the Fed will use the Japan catastrophe as a "cover" to continue with its QE sequence.  I also expect them at some point to include mortgage-backed garbage (FNM/FRE crap) and eventually muni paper.  Get out of all fixed income paper - inflation isn't coming, it's here now - and move your money into hard assets.

Through a combination of luck and instinct, we moved our stock portfolio into a 33% cash position yesterday morning and we are now moving some of that cash back into our favorite positions.

Monday, March 14, 2011

Do You Prefer A Financial or Nuclear Apocalypse?

In the novel "The Road," Cormac McCarthy presents a vision of what a post-nuclear apocaplypse dystopia would look like in this country.  Interestingly, he never offers any clue about how it happens.  I'm sure most readers like myself assume it was the result of a global military conflict.  In fact, we never see anything beyond what life might look like along the east coast of the U.S.  If we look at what is happening in Japan post-tsunami with the country's nuclear plant meltdowns, it doesn't take much imagination to envision how something like "The Road" could happen without World War 3 breaking out.  Of course, with the geopolitical meltdowns occurring in north Africa, the middle east, southern Europe and - on a very small scale so far - in the U.S., it's still easier to see WW3 erupting and triggering "The Road."

The more imminent and likely event that will hit the globe, and hit the U.S. especially hard, is some kind of financial holocaust.  In a chilling statement that received no mainstream media attention, investment guru Carl Icahn announced recently that he's returning investor funds and pulling out of the market.  His reason is that the next big crisis about to hit.  I'm guessing his timing is a bit early, but when you have to liquidate billions, you can't wait until the obvious become obvious to everyone.  Although he doesn't have the notoreity of Warren Buffet, in my view Icahn is a more shrewd investor and has demonstrated over the years an acute ability to think "outside of the box."

Here's just one of the many fiscal problems hitting this country:  "Welfare State: Handouts Make Up One-Third of U.S. Wages."  Here's the LINK to the article.  Combined, defense and entitlement spending represent something like 80% of the Federal budget.  Until the Government is willing to make enough cuts to make the revenue/expense equation balance out, our spending deficits and debt load will continue to increase at a geometric rate until the dollar collapses.  That is a plain fact. Let's hope that the test of history does not withstand this event and the financial apocalypse does not lead to a global military conflict.  I pray every day that Cormac McCarthy's vision is wrong.

Here is an excerpt from an article of the situation facing the U.S. that is a must-read:   
The myth of American Exceptionalism will not protect the country from the revolutionary tsunami that is sweeping the globe. America was not chosen by God as the country that would lead the world for eternity. The hubris and overreach of the American empire has bankrupted the nation. Greed, corruption and arrogance are not limited to North African dictatorships. Crony capitalism supporting a vast military empire, financed by a banker controlled Federal Reserve has failed. 
Here's the LINK

Many people have asked me over the years about the best way to protect themselves from the brewing financial and political disasters in this country.  My answer is always the same:  I can explain what you need to do to get to the other side of what's coming. BUT, you have to decide if you want to see what it looks like...either way, buy a lot of gold and silver.

Thursday, March 10, 2011

The Pimco Treasury Sale Conundrum...Or Is It?

By now everyone knows that Bill Gross/Pimco has sold down his/its Treasury exposure to zero.  Rather than ask "why," quite frankly, my question has been "why did it take so long?"   In other words, anyone who knows anything about the bond market knows that it would be sheer stupidity to own Treasury bonds in a rising interest rate, inflationary and dollar devaluation environment.  Furthermore, there's way too many "analysts" out there reading way too much into the decision.  And speculation that Gross has some kind of insight into whether or not the Fed will move onto QE3 is absurd.  I even laughed at the letter from the former Pimco employee posted on explaining how serious and complicated this decision was.  That commentary was grandiosity at its epitome.  Again, as a total rate of return fund manager and a former junk bond trader in The Show on Wall Street, the decision to own a big position or to not own a particular position is nothing more than making a decision as to whether or not that position has better return/risk potential vs. every other alternative or vs. holding just cash.

Please keep in mind that the flagship Pimco fund is a "total rate of return" fund, which means that the objective is to maximize return and minimize risk in the context of managing fixed income investment risk.  In order to achieve the first objective, total rate of return, it requires having concentrated positions - i.e. big bets - vs. having a highly diversified portfolio.  I've never believed in having diversified holdings unless you just want to achieve average returns, and below average after all the fund managers and brokers take their cut.  Diversification does nothing more than diversify away total rate of return and any potential to outperform.

Any fund manager who manages for return will "tilt" - or overweight - his holdings at any given time within the context of the asset class objective of the fund.  Over time, Gross will shift the weightings in his fund largely between mortgages and Treasuries, overweighting one vs. the other depending on his market view. 

With that in mind, let's look at why Gross might have - or more like "likely has" - unloaded all of his Treasuries.  Reasons 1-10 have to do with his view of the total rate of return potential of holding a big Treasury position.  And this is why I was wondering why it took so long for him to dump everything.  With rates where they are, the probabilty that rates will go lower are close to zero.  This interest rate cycle has been in place since like 1990 or so.  In a historical context, not only is the bull market in bonds (i.e. rates going lower) not only over, the probability is very high that interest rates are going to start moving a lot higher.  This is pure cyanide for fixed income securities, since the price of a bond goes lower when interest rates rise.  Even if you have a high coupon bond, the total rate of return for a bond in a rising rate environment is going to be negative.  I would suggest that this simple determination was the primary reason Gross unloaded all of his Treasuries.

To me this is a very obvious decision because clearly inflation is accelerating and with the Fed spending 100's of billions to buy Treasuries, interest rates can not be held down - period.  Why own any bond in this context?  So the only sure thing we know about Gross' decision is that he thinks interest rates/inflation are headed higher.  Doesn't take a rocket scientist to conclude that.  Only an idiot would hold Treasuries in that case.

I read with amusement on that Gross is making a bet on a huge rally in the dollar because he's holding so much cash.  That view is retarded.  Right now I'm sure Gross is just happy to have maneuvered a big Treasury position to zero without the market knowing until it was disclosed and now he will take time to decide how to redeploy the cash in order to maximize return and minimize risk.  Gross has actually publicly stated that he thinks the dollar is going a lot lower.  Again, rocket science is not required to figure that out.  So, if the dollar goes lower and inflation moves higher, that's a double-whammy for holding Treasuries vs. holding just cash (although holding dollars is not good either lol).  But at least in that context, cash will outperform Treasuries since the price of Treasuries goes lower and you get less cash for them if you have to sell them before maturity vs. just holding cash now.  Everyone got that concept?  If not, think about owing a car that just sits in your garage vs. owning a car that you drive hard everyday.  Time value will decay the value of the car that just sits, but time plus hard road usage will act on the car the same way higher rates and dollar devaluation acts on Treasuries.

Finally, QE3.  Let's keep this one simple.  I'm sure Gross has his view on whether or not QE3 will happen.  But to think that just because Greenspan is a paid advisor to Pimco gives Gross special insight to the Fed is ridiculous.  Greenspan has proved to be a senile old man now with less than half a brain.  Not that he had much of a brain as Fed Chairman, but he's gone off the deep-end in his old age.  Regarding whether or not QE is to be or not to be, answer me this:  if Pimco and the Chinese are not buying the 100's of billions in new Treasuries that will be issued this year, and if the Fed stops buying them, then who the hell will buy all this new paper?  Seriously.  The Fed HAS to keep printing and buying Treasuries or our Government/system will financially collapse.  It's absurd to think that the Government will let this happen as long as it has the ability to keep printing paper.  So unless Bill Gross has some kind of insight into a conspiracy to let the our system collapse, I doubt he has any doubt about whether or not QE3 will occur.  And more QE will hasten the devaluation of the dollar and accelerate inflation, thereby completely hammering bond prices - bonds of all flavors and credit risks.  So the Gross/Pimco decision again circles back to the binomial decision of "rates higher or rates lower?"

Again, to make a big bet on fixed income securities is nothing more complicated than deciding whether or not interest rates will be go higher or lower, especially since default risk with Treasuries is not in play for the reason I just gave (we will not include the complication of debating wether or not a determined, motivated currency devaluation constitutes a "de facto" default in order to keep this discussion focused on the binomial decision process of owning or not owning Treasuries).  In fact, right about now I bet Gross is wishing that he had the abilty to buy a lot of physical gold and silver for his fund, because in this environment gold and silver will continue to provide the best total rate of return of any asset class.  And I bet Gross also wished that mining companies were not throwing off so much cash flow right now and that they had to issue a lot of bonds in which he could throw that cash hoard into...

Tuesday, March 8, 2011

No inflation?

(Note:  I wrote this last night.  This morning I found a great post from James Turk on Eric King's blog: "I’m often asked by people when do I think they should sell their gold? I tell them this time around it’s going to be easy because you are not going to sell your gold, you’re going to spend it. In other words, gold will once again become currency.” Here's the LINK  Turk expresses the same view I have about the dollar, which is that it will sooner or later plummet quickly into worthlessness)

Hmmmm....this week is going to be a light posting week for me.  I moved apartments and I'll be skiing Wednesday.  I wanted to mention that a continual source of irritation for me is the pervasive commentary and economic analysis pointing to a strengthening economy based on an improving job market, higher wages and low inflation.  What planet are these people from?  Every labor market-related headline data is based on heavily manipulated, faulty data.  All you have to do is read through the details and footnotes of the reports to see that.  If the labor market is improving, how come the long term jobless benefits number AND the number of people on food stamps increases nearly every week?

And how about inflation.  I just paid $3.45/gallon for gasoline.  In late November I was paying 2.80 for the same octane from the same gas station.  That's a 23% increase.  Fortunately for me my gasoline expenditure is not yet a meaningful portion of my weekly income.  But for many millions in this country it is.  And it's not just gasoline.  All of my utility plus cable bills are increasing and so is my weekly food tab.  All you have to do is look at any commodities index chart to see that inflation is accelerating.  Ditto for the comments coming from any company that produces human necessities.  All of these so-called economic and Wall Street experts have to either be complete idiots or psychopathic liars to not see the accelerating trend in price inflation. 

And one of the biggest sources of inflation is the inflation of the Government spending deficit:  The federal government posted its largest monthly deficit in history in February, a $223 billion shortfall.  Here's the article, which was reported by several media sources:  LINK  Despite the rhetoric, the Obama Government will continue the growth of deficit spending and the growth in outstanding Treasury debt.  It is true that drastic cuts in spending will hurl our system into a nasty economic contraction.  But the alternative will make the eventual and inevitable economic bust even worse.  The dollar will collapse and everyone holding only paper currency will be pauperized (is that a word? lol). 

One of my best friends in NYC called me today asking for the best source to buy silver from.  I sent him to Tulving and told him to put as much as he can into silver and gold.  All of the major coin dealers are running thin on sovereign-minted silver coins and soon the premiums will be even higher.  I tried to convince him to cash out of some of his IRA and buy even more metal, but he can't get his mind around the idea of paying the penalty and taxes.  Of course, the alternative will be a mandatory force-feeding of Treasury annuities by the Government, which will eventually seize everyone's retirement plans and exchange the assets for worthless Government paper (not mine, I cashed out of mine slowly over the past 5 years and moved most of it into gold and silver that is held outside of the system).  Hopefully over the next several months I'll be able to convince my friend to start converting his IRAs into gold/silver.

In nearly 10 years of doing exclusively this sector, I've never seen gold/silver remain so resilient to the constant attacks of the big bank bullion cartels. Having traded all aspects of this sector during this time, it makes it difficult to not take profits and wait for a pullback. But we don't even have stops on our positions right now because all that will accomplish is to get stopped out by the volatility and then be left contemplating chasing the price higher in order to re-enter positions.  We are daytrading the volatility and making some nice trading profits, but we put everything back in place before the market closes each day.  My best advice for playing this market if you are unable to spend time trading it is to put on a thick pair of blinders and hold on tight!

Friday, March 4, 2011

Birth/Death Fantasy

gave us 112,000 of the 192,000 reported payroll jobs added last month.  The real number is likely zero jobs added, per my jobless benefits claims post yesterday.  And now Obama is contemplating attacking Libya.  We are on the access path to The Road.  Proceed forward at your own stupidity without gold and silver in your possession...There's 8" of new powder at Winter Park/Mary Jane and I'm going to enjoy what I can, as much as I can, while I can, so I'm off on weekend ski trip as of now...Have a great weekend all!

Thursday, March 3, 2011

Some General Analytic Commentary...Today's Jobless Claims Number Was

Total B.S.  Today's jobless claims report from the Dept of Labor is being celebrated all over the media and by perma-bull idiots as proof the labor market is recovering.  But let's look at the details, shall we? Please keep in mind that the headline number is a "seasonally adjusted" mathematic manipulation, the calculation of which no one outside of the DOL can figure out.  The headline number reported 368k claims, a decline of 20k from the previous week.  But let's look at what is really going on.  Has anyone bothered to look at the "extended benefits" number.  The extended program moves people from the weekly claims program to a program which enables jobless claimees to file for up to an additional 52 weeks, with a total of 104 weeks available.  The details are LINK

The golden truth is that the number of people filing extended benefits increased to 850,372 - or an increase of 88,689 from the previous week.  In effect, the number of total jobless claims actually increased by 68,689, the difference between weekly and extended.  But in true Orwellian fashion the Government and media only report the weekly number in the headline and anyone paying attention to local news - print and television - will only hear about the headline number and worry that everyone else, other than themselves, is finding good jobs.  Feel better now?  Here's the report if you need to verify my math:  LINK (there's actually several thousand additional claims in other categories but I'm too lazy  to do the math).

The housing market.  Yesterday the Mortgage Bankers Association reported its weekly mortgage applications index.  The purchase index - the one that's relevant to assessing the health of the housing market, showed another decline of 6.5% from the previous week and a 19.6% decline from the same week a year ago.  Double digit declines in this number from last year's already low index base indicates to me that the truth about the housing market is that it is starting to collapse again.  It's also interesting to note that I'm finally starting to see some "non-conformist" mainstream analysts admit that housing is in trouble. Here's the report:  LINK

QE_how_many?  While media morons and Wall Street permabulls discuss the timing of the Fed potentially tightening its monetary policy and unwinding its QE programs - based on the logic of a strengthening economy based on arguably fraudulent data, but unarguably wrong data - the real question hanging out there is "who will buy all of the new Treasury issuance once QE2 is done?"  This is given that, effectively, the Fed has monetized nearly all of the recent new Treasury issuance with QE2.  If QE3 doesn't happen, where will the funding for our Government come from?  Assume tax revenue continues to decline, especially inflation-adjusted, and that the Federal Government will never cut actual spending.  Until someone can present me with a fully-supported argument explaining how this will happen, expect QE3, then QE4, etc ad nauseum ad dollar gold?

No Country For Old Men/The Road.  Hate to say it, but the geopolitical vision of Cormac McCarthy as expressed in those two novels is starting to crystalize into a frightening reality.  If you think I'm nuts, just take a look at these news reports from from around the world yesterday:

Will The U.S. Attack Libya?   Civil Unrest In Bahrain   2 U.S. Soldiers Slain In Germany
Texas Warns Students To Stay Away From Mexico

If you have not read those two novels, I highly recommend doing so this month.  They are extraordinarily engaging stories, with what I believe contain highly prescient visions of what could unfold in our world. And Cormac McCarthy is a brilliant writer, both stylistically and cognitively.

Sorry, but I'm just outlining the truth - and it's the truth whether or not it's interpreted as "doom and gloom."  My philosophy is that everyone should enjoy what they can, as much as they can, while they can.  Capire tutti?

Tuesday, March 1, 2011

Don't Believe The Hype

Don't believe a word Bernanke says even though he is under oath in front of Congress and don't believe the manipulated economic reports spewing out of the Government, or even the hyperbolic data coming from private "research" organizations and many corporations.  Here are some good examples:

1) Yesterday the Institute of Supply Management released its monthly Purchasing Managers Index and it showed unexpected strength.  The media did cartwheels over the headline number and then moved on.  HOWEVER, if you are like me, you want to see the details right?  Here's the details and the data is heavily skewed to the upside by price inflation:  LINK  Now, please read the wikipedia description of how this index is constructed, and you will discover that it is constructed based on subjective questioning and response choices by industrial managers - i.e. very "touchy, feelie" (I would use the word for excrement but many of my clients read this blog and don't appreciate my foul mouth to the extent that I like to flaunt it lol).  Here's the LINK  The point here is that what looks like a strong number in the headline is largely a product of inflation and subjective adjectives.

2) Today the ISM released its manufacturing index.  It came in a few points higher than expected and CNBC went bonkers.  BUT, here are some comments from the respondents to this survey:
•"A continued weak dollar is increasing the cost of components purchased overseas. It is going to force us to increase our selling prices to our customers." (Transportation Equipment)
•"We continue to see significant inflation across nearly every type of chemical raw material we purchase." (Chemical Products)
•"Our plants are working 24/7 to meet production demands." (Fabricated Metal Products)
•"Prices continue to rise, while business limps along at last year's pace." (Nonmetallic Mineral Products)
•"Overall demand is off 10 percent." (Plastics & Rubber Products)
For sure there will be some growth in demand for industrial products.  The lower dollar is helping exports limp along and GM and Chrysler, the two automobile wards of the Taxpayer, are pumping out production that is mostly sold to and sitting on dealer lots.  Both companies are getting some help from Government-subsidized lease-finance deals but that won't last.  I know in January that a large % of GM's sales were still sitting in dealer inventory when the numbers were released on Feb 1 (see my blog post around then for the data).  GM stuffed its dealer channel once again.  Here's the report, with the dealer inventory information about halfway down:  LINK
3)  This one really cracked me up.  Geithner made a speech today in which he said that we can't reform the housing market and related financing frauds too quickly because it will hurt the "recovery" in housing.  Well, first there is no recovery.  See previous recent posts of mine on this for truth and proof.   BUT, essentially what Geithner is saying is that it's okay for financing fraud to linger as long as it helps hold up the value of housing.  I can't say what I really want to say about and still be perceived as a gentleman.  Here's a news report of his comments:  LINK Suffice it to say that Geithner is an idiot.
4) Finally, Bernanke was in front of the Senate today pontificating about the low risk of inflation and promising that any inflation would be temporary.  The golden truth is that the Fed officials are already setting us up for QE3 - more on that in a minute - and we are on the cusp of hyperinflation that will eventually hit the system, completely taking most people by surprise, and which will destroy the net worth of anyone not invested heavily in precious metals.  Here is a quote from Ben Davies that I couldn't have said it better myself: 
By June, the US will have monetized 100% of all of the debt issuance. This will lead to continued debasement of the US dollar. Fed Chairman Bernanke refers to commodity strength as a derivative of emerging market demand. This is the same man that suggested a savings glut from emerging markets was exporting deflation to the rest of the world a few years ago.
Here's the LINK - please read that.  Bernanke is outright full of shit and I'm sure he must know it.  
Regarding QE3.  Already a couple of regional Fed heads have made comments alluding to its possibility and even Bernanke has made comments which indirectly allude to its possibility. I've already counted QE3 as in the books and am taking over/under bets on when QE4 will hit.  If anyone disagrees, then please tell me how the Government plans on raising more debt financing if the Fed does not print money and buy it?  Anyone?  I've been waiting for close to 10 years for someone to explain the solution to that math problem to me and the problem gets worse by the day.  The alternative?  Hyperinflation - it's coming but I won't stick a calendar date on when it hits.  Just be prepared.
Anyone who does not have at least 50% of their assets in physical gold, silver and mining stocks right now has absolutely no understanding of what is going to hit the globe financially and geopolitically.  I have over 90% in the sector and so do the high profile investors who have been communicating and accurately predicting what is unfolding for more than a decade (John Embry, Eric Sprott, Bill Murphy, James Turk, etc.).  Hell, even the Ben Davies and John Paulsons and David Einhorns didn't get involved and start pontificating about this sector until the last couple of years.  They have NOTHING on those of us who have analyzed and predicted the now-unfolding demise of our system. Even Jim Rogers and Marc Faber were poo-poo'ing gold until the mid-2000s.

"I think we are all doomed."  I will end with a great quote on from Marc Faber.  I don't always agree with his market views but I am in full agreement with this statement of his:
I think we are all doomed. I think what will happen is that we are in the midst of a kind of a crack-up boom that is not sustainable, that eventually the economy will deteriorate, that there will be more money-printing, and then you have inflation, and a poor economy, an extreme form of stagflation, and, eventually, in that situation, countries go to war, and, as a whole, derivatives, the market, and everything will collapse, and like a computer when it crashes, you will have to reboot it.
Here's the LINK 

What is most perplexing is that there are still many paper millionaires out there who I chat with about my fund and they think that having cash in the bank is bulletproof.  But, just like in Weimar Germany, when the dollar finally collapses the value of that paper will be close to zero (it will have value as furnace fuel) and these fiat dollar millionaires will be fiat dollar paupers.  Gold and silver are bulletproof, as they have been for over 5,000 years...