skip to main |
skip to sidebar
Gold was the lead today and in style.
Why?
Because the dollar was thrown under the bus by Bernanke yesterday, and gold is still the primary alternative currency.
Silver had a bit of a cheap pullback at end of day, but after the huge turnaround this week there should be few complaints.
The shorts are impaled.
Divergence between the SP and Tech continues unresolved.
I think this is the point of make or break for this rally in stocks.
The US economy is faltering from the ground up. The dollar continues to slide.
I am not so constructive on the valuations of bonds and equities here for the short term, but will try not to underestimate the power of the bubble-onians.
The dollar, along with the middle class, is being sacrificed for the benefit of the few, the monied interests and the governing elite. And of course their pliant followers and those most easily led.
Gold and silver offer a refuge because they withstand the test of time.
I took risk and profits off the table in the early morning trade, and then watched the action for the rest of the day, adding some broad index shorts into the close to balance out the remaining longs on the metals.
There is a divergence between the SP 500 and the tech sector. There is also a strong indication that the US economy is sluggish, not only in terms of GDP, but also in median wage and consumer spending.
RIMM lowered guidance after the bell, and P&G lowered expectations.
I shifted quite a bit of risk off the table this morning, and went into the close with new short positions on US broad equities, to offset some longs and bring my portfolio to a more neutral to bearish stance. I will probably lose the short positions if the techs can rally tomorrow and hold it into the weekend.
Where are Canada, the UK, and Australia?
Chart:
The Economist
Yesterday was options expiration and the precious metals were clubbed mercilessly and clumsily, with little attempt to hide it.
Today the metals markets rebounded strongly after a somewhat weak start and some late Comex headfakes.
As I had mentioned I had come out of cash and bought the dip in the precious metals sector yesterday, rather heavily, running cash levels to effectively zero. There was even some picking from the fallen stocks among those wild tigers, the silver miners, and in some size at end of day. Their beta is pretty impressive, and nice when it runs your way.
The buys in the stocks that had fallen to long term support were big fat targets. And they bounced with a vicious flourish today, going up even faster than they had fallen, gaining momentum steadily after the FOMC announcement.
I flipped the hedges early, and just let the metals run into the afternoon, trimming back into the close to raise some cash back again for more opportunistic buys. I like to get my money off the table and let the profits run.
So what next? The formation on the gold chart looks good, and the support on the correction helped to draw the cup of the inverse head and shoulders a little more firmly. Yes there will be draw downs and corrections along the way, but gold looks headed for 1590 and probably beyond, but one leg at a time.
Silver is a juggernaut. I had to force myself to buy beta heavily in that rugby scrum of a market yesterday and it paid off extraordinarily well.
If they want to be really Machiavellian they'll hit the metals tonight and tomorrow again, but its getting so old it might not work, and they'll have to retreat to try and defend another level higher.
And thanks Blythe. You're the best, baby.
Zicke zacke zicke zacke hoi hoi hoi
Ben and the Fed did almost exactly what I thought that they would do, especially given the statements that I highlighted yesterday in the piece from Eisenbeis.
The Fed is not going to do anything at all to roil the markets unless their back is absolutely against the wall.
It will be interesting to see if we get confirmed breakouts from the potentential inverse head and shoulders formations in the stock indices.
Highlights
Gold’s long-term supply and demand dynamics and several macro-economic factors ensured gold remained a sought-after asset in Q1 2011. Following a consolidation in January, gold ended the quarter on a firm footing.
The gold price rose by 2.4% during Q1 to US$1,439.00/oz by 31 March 2011, on the London PM fix, a more modest rise relative to average gains of 6.2% per quarter over the past two years.
By the end of Q1, ETFs held a total of 2,110.3 tonnes of gold worth US$97.6 billion, compared with the high of 2,167.4 tonnes at 31 December 2010, or US$97 billion – a modest net outflow in the quarter.
Central banks continued to be net buyers of gold in Q1 2011 with emerging market countries, including Russia and Bolivia, being among the key net buyers. As a group, the official sector holds 18% of all above ground stocks of gold.
Investor activity in the gold market during Q1 2011 differed by region. ETFs in the US and the UK experienced net redemptions on the back of year-end rebalancing and some profit-taking, while continental European and Indian investors increased allocations. Recent data shows a resumption of net inflows in the latter half of March and early part of April. Coin and bar purchases remained high, while activity in the futures and OTC markets was buoyant.
You may download the entire report here: Gold Investment Digest - World Gold Council
In short, Avery Goodman has come to the conclusion that silver is rising because a long term suppression racket has been exposed.
I came to this same conclusion some time ago, and recently restated it: What I Think the Fluctuations in the Comex Silver Inventory Mean.
There are probably quite a few securities attorneys have their eyes set on this one. But one also has to wonder if Obama will challenge Bill Clinton's record in selling pardons at the end of his Presidency.
Seeking Alpha
Short Sellers Now Screaming about a Buy-Side Silver Conspiracy
By Avery Goodman
Tuesday, April 26, 2011
It was only a matter of time. Now the talk of silver price conspiracies has shifted from long buyers to those on the other side of the fence. On April 21st, the historically anti-precious metals editorial staff of the London Financial Times ran an article titled "Silver Surge Prompts Conspiracy Theorists". Meanwhile, order was reestablished among the short side conspirators once the COMEX trading floor opened on Monday morning.
After silver prices had temporarily risen to over $49 per ounce during Asian trading, they were beaten down again to about $47 in a flood of newly opened short positions. From this return to discipline within the bullion bank ranks, we can assume that the Federal Reserve probably will temporarily halt QE-2 at the end of June or before.
At the close of business on Tuesday, April 26, 2011, the COMEX performance bond committee will, yet again, significantly raise silver margin requirements. We believe that this is an attempt to suppress prices and delay the inevitable reckoning. With the end of QE-2, short-sellers hope the exponential rise in the price of silver will also end. But, in our view, artificial price attacks in the futures markets are unlikely to help short sellers in the long run. The nexus of price appreciation is NOT at COMEX, but in the physical market. Physical silver buyers pay cash, and it doesn't matter to them how high or low COMEX committees set performance bonds.
If the performance bond committee is successful, they will manage to reduce the so-called "spot" price. In practical terms, however, the only thing they will have accomplished is to cause a few speculators to lose money while helping well-financed market vigilantes to buy more bars of physical silver for the same money. The bankers will then need to deliver even more physical silver than they would if the committee had done nothing. These futile attempts to fight back illustrate that a market manipulation cannot be effective in a market that is well aware of it.
The massive losses that short sellers have been taken has naturally led to some new urban myths. Some now claim that "evil" long side billionaires are out to "ruin" the market. Yet, even the Financial Times article points out the ridiculously paranoid nature of this theory. The author notes that silver prices were rising even as speculative positions at COMEX were reduced by 8.4%. This illustrates that the COMEX is now just a sideshow. A lot of people are simply buying physical silver.
The silver buyers do include some billionaires, undoubtedly, but most of them are simply folks who watched Jeffrey Christian's testimony at the well publicized CFTC position limits hearing back on March 25, 2010, and came away with the distinct impression that a small group of London banks have been creating alchemic silver. The banks were ostensibly "selling" and then "storing" so-called "unallocated silver bars" for silver investors. In reality, they seem to have been maintaining a fractional banking system in which only one physical ounce is really purchased for every 100 ounces they supposedly sell.
Let's go over that again...because once you understand the particulars, the reaction of the price of silver becomes perfectly understandable.
1) Bank sells silver, a very precious item, for big money;
2) Bank doesn't buy the silver it sells, or, if it does buy it, leases out or sells 99 ounces for every 1 ounce in the vault;
3) Bank gets paid "storage fees" from all its customers, even though their silver is not in the vault;
4) Bank profits are equal to 99 times what it sells initially, and then, the value of the stream of storage fees after that. Nice work if you can get it.
But, then there's the downside.
1) The market might discover your scam and you'll need to deal with investigations;
2) Leverage so high that, if discovered, it is a recipe for disaster;
3) Courts may deem the arrangement a fraud, in spite of disclaimers that say otherwise, and whereby customers waive liability for fraud;
4) The market will inevitably punish you severely with heavy losses after discovery of the scam.
For more information on "unallocated storage" in London, see our previous article.
Had the worldwide silver scam remained a secret, suppression of precious metals prices might have gone on forever. But the genie is now out of the bottle and mortal men, not even those who run casino-banks, cannot hope to put him back in. Once it became clear that the bullion banks were leveraged 100 to 1 in a silver based fractional banking scheme, it was only a matter of time before the market clobbered them. That is what is happening.
People have only begun to scratch the surface of the precious metals markets, and few fully understand how undervalued all of them are. Silver has always been worth far more than it had been selling for in the last 30 years. People are starting to see not only this, but also how that corrupt pricing situation came to pass. The whole world now understands that the silver trade has been carried out in a deceitful manner for many years. So, naturally, many people are starting to buy physical silver again, just as they did for 10,000 years before COMEX began trading it. Those people happen to include, in all likelihood, a few billionaires, a few sovereign wealth funds, and a few Asian bankers. Many are politely refusing offers of "unallocated" bullion bank "storage".
The silver market is not rising because of a conspiracy. If so, it would be the most disorganized conspiracy that has ever existed. On the contrary. What we are seeing is the massive unwinding of a silver price control conspiracy that many of us predicted, in public or private for many years. The biggest scam in world history is ending. Sellers are now desperately trying to find metal. A lot of banks that were supposed to be storing silver are really storing air. Converting large amounts of air to large amounts of silver is difficult and bound to be costly. The process, once completed, will permanently increase the price of silver.
Intense upward pressure on silver prices is evident because physical silver is being purchased as never before. It is not stemming from trading on COMEX. In fact, deliveries at COMEX have been relatively small for several months. The process that is now ongoing is one that no performance bond committee can stop. COMEX could declare liquidation-only, as they did in 1980. The only end result would be to catapult the demand for and price of silver even higher. COMEX is now irrelevant except as a way for banks to bankrupt themselves if they continue to try to reduce the price of physical silver by manipulating futures prices there and taking on more short positions to do it. They can crash the paper futures price as much as they wish. It won't stop buyers from demanding physical silver in the real market outside COMEX.
The old prices were a result of a naive market, overwhelming short positions at the futures exchanges, manipulative trading techniques and a deceitful unallocated storage arrangement. The current silver pricing surge may look like a typical short squeeze, but it is nothing of the kind. It represents a permanent change in market perceptions. That is not to say that silver prices cannot fall, but the pressure to buy physical silver will continue to mount. When silver prices finally reach equilibrium, $50 per ounce might be the floor, rather than the ceiling. We don't know how high the price will climb under these circumstances.
One thing is clear. Buyers have discovered that they hold the power to defeat the largest financial firms in the world at their own game. But they still don't recognize the extent of their victory. Silver is the beginning, not the end. It is only one of the precious metals, but not the only one. The same unethical practices have been used for years to suppress the price of gold and platinum, for example. Both metals have been traded in a naive market, with overwhelming short positions at the futures exchanges, manipulative trading techniques and deceitful "unallocated" storage arrangements. There is no fundamental difference except that the metals have different names and appear at different locations on the periodic table.
Central bankers may be able to supply large amounts of the gold, for a while, to assist their minions in the commercial banking sector in the artificial suppression of gold prices. But, with emerging market central banks, the developed world's pension funds and university endowments, hedge funds and sovereign wealth funds all heavily buying gold, that resistance to the market cannot last forever. The most effective way to suppress gold would be to take steps to crash the entire world economy by cutting off most of the current flood of liquidity. However, even that would be only a temporary measure.
With stock prices collapsing, a mega shift from demand for stocks and bonds to demand for gold, silver and platinum would occur. One way or another, the current management of gold prices, which currently includes allowing a slow upward trend to relieve buying pressure without collapsing fiat currencies, will change into an explosion. This will happen with or without the help of market vigilantes.
So what will be the vigilante target after they are finished with normalizing the price of silver? Central banks like low platinum prices almost as much as low gold and silver prices. Manipulating platinum prices up and down helps bank profits. Since it has proven impossible to fully suppress price increases, the next best thing is to orient the manipulation process to create artificial high volatility, and thereby discourage conservative investors from buying the metal. This leaves more for industry at cheaper prices.
Platinum is an important metal in so many industries, not the least of which is the auto industry, that it seems to us that the Orwellian Ministry of Truth (aka, the New York Branch of the Federal Reserve) would strongly prefer a low, or at least, a very volatile price. Platinum, like gold and silver, also has a history of being used as money (in Russia) and possesses sufficient monetary qualities to be a significant threat to central bank emissions of fiat money. But, similar to silver and unlike gold, central bankers have no platinum reserves. Russia has large palladium reserves, but is unlikely to sell much, going forward, unless it is pressed against the wall by a steep drop in oil prices below its budgetary minimum (about $65 per barrel).
The platinum market is smaller than the silver market. The percentage of above-ground platinum is smaller, compared to consumption, than the percentage of above-ground silver. When the silver price revaluation runs its course, and silver is finally sell for a normalized value based upon its 16 to 1 ratio in the earth's crust, versus gold, we believe that vigilantes are most likely to turn toward platinum. We believe that J.P. Morgan Chase (JPM), accused of being one of the New York Federal Reserve's primary agents in manipulating stock, commodities and precious metals prices, knows this. It is actively buying huge amounts of physical platinum bars. Being 14.7 times rarer than gold, if platinum prices normalize to the metal's abundance, one troy ounce would be worth $22,000 right now, 14.7 times more than the current price of gold.
In a typical London Financial Times fashion, the silver long-side "conspiracy" article ends by saying that:
"History may be informative. After the Hunt brothers’ squeeze in 1980, the price of silver collapsed 80 per cent in four months."
Wishful thinking. We don't know where silver's price explosion will end. However, as more and more people realize that they have been duped into accepting fake prices for silver, bullion banks may need to buy 100 ounces of silver for every one ounce that is withdrawn. How high is that going to drive the price of silver? We'll leave that to you to decide.
Recently, we read an article published by Minyanville, which is usually a good source of information. But this particular Minyanville article advises buying U.S. dollars and selling silver short. The author claims not to be interested in past performance in making his decisions, but, then presents a chart of 1970s era silver prices to support his claim that the white metal is set up for a price collapse. There is great danger in blind adherence to charts. They are rear view mirrors, and cannot be used in the absence of common sense. If the focus of a driver's attention is on the rear view mirror, he will surely crash.
The first part of the Minyanville article recommended trade might work, because the U.S. dollar may rise for a while, if the Fed stops counterfeiting (aka quantitative easing) June. However, the second part of the trade will fail. At best, there will be a few weeks or a few months of fallout from the end of QE-2 if it happens. It is true that during that time the price could fall substantially, especially if helped along by the members of the silver price conspiracy. After that, however, it will be back to the races.
Assets in a collapsing stock market will eventually be shifted into precious metals. Since the silver vigilantes are extremely well capitalized, the main achievement of the price manipulators will simply be to allow them to buy more silver with the same money. In the end, their delivery obligations will simply be larger. Simply put, the old methods of price manipulation will no longer work against an informed market.
The question of where precious metals vigilantes' attention will turn after mopping the floor with the silver short sellers may be a moot point. If they manage to bankrupt the bullion banks (and associated hedge funds, shadow banking system entities, etc.), it will be game over. Free of price management, gold and platinum will join silver in a price explosion to the stratosphere, and they won't need any help from vigilantes. But private profit appears to be only one of the motives for silver market manipulators.
Another motive is to support irredeemable fiat paper money issued by central banks. Therefore, a massive bailout may save them from bankruptcy. After the short-side manipulators finally give up, many contracts for silver delivery will be settled for astronomical sums of fiat money. As schemes and scams continue to unwind, the next few years are going to be very interesting.
---
Avery B. Goodman is a securities lawyer in Colorado.
I thought this was a fairly nice thumbnail sketch of the problem facing the world's central banks vis à vis the US dollar as reserve currency and globalization. I have to add that this current impasse was not unforeseen.
I suggest you take a look at a very brief description of Triffin's Dilemma.
The Triffin dilemma is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country whose currency foreign nations wish to hold (i.e. the global reserve currency) must be willing to supply the world with an extra supply of its currency to fulfil world demand for this 'reserve' currency (foreign exchange reserves) and thus cause a trade deficit.
The use of a national currency as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: some goals require an overall flow of dollars out of the United States, while others require an overall flow of dollars in to the United States. Currency inflows and outflows of equal magnitudes cannot both happen at once.
The Triffin dilemma is usually used to articulate the problems with the US dollar's role as the reserve currency under the Bretton Woods system, or more generally of using any national currency as an international reserve currency.
The problems with any domestic currency operating as the world's reserve currency are well known, and yet the United States decided to pursue this after Nixon closed the gold window. Perhaps that is because the risks to the many were outweighed by the benefits to a few.
I enjoyed the author's flat out statement that "it is undeniable that the world's central banks collectively have flooded world financial markets with liquidity by printing money."
If someone tells you that central banks, in a fiat regime, cannot create money out of nothing, then they simply do not know what they are talking about, no matter how many rhetorical flourishes and convoluted rationales they may produce. They can do it, they are doing it, and they will keep doing it until they reach what they consider to be a sustainable equilibrium, or they exhaust their ability to print based on the limits I have previously described.
The problem is that none of the equilibria they have produced in the last twenty years have been sustainable, except for a few years, and the half life of the monetary bubbles appears to be contracting.
The US dollar is at the end of its rope as the reserve currency for the world. Nothing could be more clear. What will be done about this is another matter. The Anglo-American banking cartel will enter the next phase of the evolution of money resisting change every step of the way. What they most desire is to maintain and extend their control of a worldwide fiat currency, not even in the interests of their own people, but for the benefit of a few.
Institutional Risk Analyst
What's a Central Bank to Do?
By Bob Eisenbeis, Cumberland Advisors
April 25, 2011
Faced with largely the same set of facts when it comes to their inflation outlook, some of the world's major central banks have come to markedly different conclusions about the appropriate policy.
The ECB began to exit from its accommodative policy by increasing its policy rate by 25 basis points to 1.25% on April 7. The ECB noted that growth was improving moderately, but inflation had increased to 2.6% and was up from 2.45% the previous month. The rise was largely due to increases in energy, food, and commodity prices. The concern was the potential second round effects and that these increases could become embedded in inflation expectations.
The same day, the Bank of England kept its policy rate at 0.5%, despite the fact that inflation had been running well above its target rate of 2% for more than a year and was likely to remain so through 2011. Again, the Committee noted that the near term path for inflation was higher due to energy, imported commodities and other goods. Concern was also expressed about inflation expectations having risen in the UK, the US and the euro area relative to what they had been before the financial crisis. Finally the UK real economy was softer than that of the EU generally with output having declined by 0.5% in the fourth quarter of 2010.
While the FOMC will meet this week, Fed Chairman Ben Bernanke and Vice-Chair Janet Yellen have already signaled that they view the recent increases in commodity, energy and food prices as transitory. Governor Yellen in particular provided an extremely thorough and detailed dissection of the inflation data and her views on the real economy and employment in her April 11th speech in New York. She indicated clearly that the causes of the run-up in food, energy and commodity prices were rooted in increases in global demand, combined with energy supply shocks and uncertainty about oil flow from the Middle East. Like the Chairman, she expressed the view that the increases were transitory.
Most notably she attempted to debunk the widely discussed view that accommodative policies in the US were the cause of the increase in global prices. She was very clear that the main concern was for the US expansion and employment situation, that the current stance of policy was appropriate, and that QE II would be completed as scheduled. So we don't expect any notable news coming from this week's FOMC meeting.
These three views on the appropriate stance of policy and how individual-country central banks may think about policy shows a growing disconnect between traditional approaches to monetary policy and globalization. For example, the US economy historically has been largely isolated from the rest of the world. International markets were not particularly significant (exports and imports were roughly balanced and accounted for less than 13% of GDP). Inflation was largely a domestic issue and could be directly affected by changes in US policy rates. From the 50s through 70s, the main channel for monetary policy was through housing: when interest rates exceeded the Reg Q ceilings that banks and thrifts could pay for funds, the supply of funding to housing was cut off. Then construction declined and the effects rippled through the rest of the economy. Most of the economic models have that structure and international isolation embedded within them. Yet this is not the world that policy makers are now dealing with, as the above descriptions of the causes of the current inflation aptly illustrate.
If the major causes of inflation are external to an economy, and policy makers have domestic tools and targets for inflation and local employment, either explicitly or implicitly, then how should they respond to externally generated causes of inflation? What is the link between the central bank's domestic policy interest rate tool and the external causes of price increases? These key questions are not currently addressed within contemporary policy frameworks employed by the FOMC, the ECB, or the Bank of England, as best one can determine.
In the current inflation environment, one can justify any one of three alternatives, and some of these are clearly being adopted. Furthermore, all can be mostly right or mostly wrong.
First, a policy maker could attempt, as the US did during the 1970s oil crisis, to insulate the real domestic economy from the contraction supply shock by keeping rates low. This policy seemed appropriate and was politically acceptable, especially since the price increases were viewed as temporary. But it clearly failed, and we paid the cost with higher inflation.
Second, if one believes that the energy, food and commodities price increases are transitory, then no response is called for; and this can justify focusing on domestic employment, as is currently being done in both the US and UK. Even if the increases are permanent, doing nothing may be the appropriate policy. Permanent increases in energy, commodity, and food prices will shift these prices relative to other goods and services and generate substitution and accommodative responses by business and consumers. We may, for example, drive less and adopt more hybrid transportation alternatives -- moves that are already beginning to take place -- than we would if the energy price increases were viewed as being temporary.
But doing nothing also has its own risks. Maintaining an accommodative policy too long risk overheating an economy and fueling both an increase in domestically-produced goods and services prices and passing along the increased prices of external goods and energy prices as second round effects. As always, timing is everything when it comes to exiting from an accommodative policy.
Third, a central bank can move to increase its policy rate to choke off inflation, as the ECB has begun to do. But this policy has certain risks associated with it. If the causes of the inflation are external to the economy, then one would not expect those prices to be responsive to a policy move by a domestic central bank. But the increase in rates will clearly impact those domestic and non-international activities that are affected by rising interest rates. Economic activity in those areas will contract, including production, employment, and prices. So the impact of responding to an external inflation source is to force a decline in an aggregate price index by contracting domestic economic activity. This seems a risky path indeed. Right now it may appear less so because policy, as ECB President Trichet stated, is still viewed as being extremely accommodative.
So what is a central bank to do, especially when policy is overly accommodative? While Vice-Chair Yellen may argue that the increase in world prices is not our fault, it is undeniable that the world's central banks collectively have flooded world financial markets with liquidity by printing money.
This situation is likely to become even worse in the near term if Japan resorts to inflation as a means to finance the cleanup and rebuilding necessitated by the recent earthquake, tsunami, and nuclear disasters. When domestic economies are no longer insulated from international markets and forces, individual central banks can no longer go-it-alone with their policy decisions. In such a world, perhaps the best policy is to remove the distortions cause by current policies, and then attempt to avoid extremes. Unfortunately, how to get from here to there in a non-disruptive way is not at all obvious, as the ECB may soon find out..
What this means for investors is that market uncertainty is likely to remain high for some time to come, and attempting to play in international markets carries with it huge foreign-exchange and real risks that need to be hedged.
Although I may say uncomplimentary things occasionally about Messrs. Bernanke and Greenspan and their colleagues on Wall Street and in government, I most definitely do not think they are fools, or naive, or uncomprehending of what they are doing. Therefore I find their actions difficult to square with a sincere fulfillment of their stated objectives, and the oaths of their offices, unless there is another dimension to their plans which has not been disclosed, and which I do not yet understand.
"And some of us who have already begun to break the silence of the night have found that the calling to speak is often a vocation of agony, but we must speak. We must speak with all the humility that is appropriate to our limited vision, but we must speak...Perhaps a new spirit is rising among us. If it is, let us trace its movements and pray that our own inner being may be sensitive to its guidance, for we are deeply in need of a new way beyond the darkness that seems so close around us."
Martin Luther King
The very obvious bear raid does not surprise me so much as the worthlessness of most commentary I have seen about it.
Silver has support down to about 42, maybe even 41, and still maintain its long term trend. I don't think it will go that far unless stocks sell off hard, or the JPMorganites pull out the stops. More likely is a snap back rally after the short term market rigging is done.
Who exactly would trade options on the Comex these days anyway? They are the distillation of all that is wrong in the futures markets.
Gold held like a champ today in the 1500-1520 range. I'll be curious to see if it can continue to hold 1500. If it does I consider that extremely bullish, setting up a move to 1590 unless there is a liquidity panic.
The FOMC is meeting and will announce their decision tomorrow. If they signal an end to QE it will likely be a red herring, but an excuse for more trading shenanigans.
The dollar continued to slump. It has not yet broken down in its steady decline, so I do not see the waterfall drop that so many have been predicting. It is possible but not probable unless something happens.
This metals action was market manipulation pure and simple, and a black mark on the regulators. See the intraday commentary here, especially the video from James Cramer about how trading desks manipulate markets.
On the other hand we have a flash of insight from Avery Goodman here, who suggests that silver (and gold) are rising because the suppression racket is falling apart.
The major export of the States these days is financial paper assets. And here are their production charts on the equity side.
I thought it was remarkable that stocks and bonds both rallied today, while the dollar continued to slump.
The FOMC is meeting, and will make their announcement tomorrow. Benny will be throwing a bone to the protesters, in the manner of Mubarak or Gadaffi, and holding a press conference in the spirit of transparency.
I wonder if he has the the nerve to fake an end to QE while continuing to blow an asset bubble in stocks and bonds? Well, not so much the nerve, as perhaps the luck.
I had reminded you repeatedly for the past few weeks that today would be an option expiration on the Comex.
While it is hard to know specifically beforehand which way it would go, I urged caution, and gave the example of going flat myself in my own trading account. I will never tell anyone what to do, as I am no advisor, and each person's situation is unique.
But the direction for most option expirations is down, and the momentum traders are playing it. If enough of them jump in short ahead of time, it could go up because manipulation has no friends, but normally it is a period of retracement.
That big run up on Sunday night seemed odd, like a setup. It is easier to run something up on thin volumes, and then smack it down hard, gaining momentum as it were as fellows lift their trailing stops. This is a very calucated bear raid. As I recall, Andrew Maguire purported to give the CFTC the details on how certain actors in the market were coordinating their moves. But this is nothing new, is it?
Jim Cramer on how hedge funds manipulate the market.
Some of the panicked messages and talk of a crash in the metals is a bit ironic. Did you expect silver to go up endlessly without a pullback? Some of the pieces coming out seem like shameless propaganda, but one must never ascribe to bad intentions what can be attributed to stupidity. But still the funds have many allies in the media, and one needs to take note of them and remember.
I have to admit the miners have been getting hit rather hard, but this is just another characteristic of the way in which the trading desks and hedge funds have a relatively free hand in the US to manipulate the market for their own benefit, naked shorting, whatever they wish to do with no uptick rule. If you wish to reform the markets, look to the regulators and their backgrounds, and the actions they have taken with investigations. If Obama replaced Gary Gensler with Eliot Spitzer then we might see something done, but the banks would not like that, and Obama is in the process of collecting a billion dollars in campaign funds.
I have come back into the market buying selectively and with hedges. They were throwing away some decent holdings in the first half hour for example. That is a bit hard to resist, and so I didn't. Could it go lower? Yes, it could. If enough calls are converted to futures positions then we might as well expect another hit on the metals to test those new hands tomorrow and later this week.
The Fed is also meeting, which is another negative to the metals. As even Paul Volcker is reported to have said, "Gold is the enemy." Yes it is, and the statists and financial engineers and one-worlders hate it. It restrains their will to power, because they cannot create anything real, substantial, only lies and illusions.
And the dollar continues to decline, following its trend lower.
"Therefore have I have set my face like flint..." Is 50:7
Gold and especially silver did moonshots in the overnight Asian trade, but ran into very determined and targeted selling on the New York open. London was closed today.
Tomorrow is the actual option expiration. The trade play between the bulls and bears seems to be in the 1500 to 1520 range.
Let's see what happens.
Thin volumes, drift higher.
Stocks must break up and out of these formations or face a tumble.
"God beholds you individually, whoever you are. He calls you by your name. He sees you and understands you, as He made you. He knows what is in you, all your own peculiar feelings and thoughts, your dispositions and likings, your strength, your weakness.
He views you in your day of rejoicing, and your day of sorrow. He sympathises in your hopes and your temptations. He interests Himself in all your anxieties and remembrances, all the rising and failings of your spirit. He has numbered the very hairs of your head and the height of your stature.
He compasses you round and bears you in His arms; He takes you up and sets you down. He notes your very countenance, whether smiling or in tears, whether healthful or sickly. He looks tenderly upon your hands and your feet; He hears your voice, the beating of your heart, and your very breathing.
You do not love yourself better than He loves you. You cannot shrink from pain more than He dislikes your bearing it; and if He puts it on you, it is as you would put it on yourself, if you would be wise, for a greater good afterwards....
God has created you to do Him some definite service; He has committed some work to you which He has not committed to another. You have your mission -- you may never know it in this life but you shall be told it in the next.
You are a link in a chain, a bond of connection between persons. He has not created you for naught. You shall do good, you shall do His work. You shall be an angel of peace, a preacher of truth in your own place while not intending it if you do but keep His commandments.
Therefore I will trust Him. Whatever I am, I can never be thrown away. If I am in sickness, my sickness may serve Him; in perplexity, my perplexity may serve Him. If I am in sorrow, my sorrow may serve Him. He does nothing in vain. He knows what He is about. He may take away my friends. He may throw me among strangers. He may make me feel desolate, make my spirits sink, hide my future from me -- still He knows what He is about."
John Henry Newman, The Heart of Newman
The DX Index I normally show is the continuous futures contract on the DX index. The front month is now June.
The Fed also publishes two other dollar indices: major currency index, and the broad currency index. The major currency index is essentially the basis for the Wall Street DX futures index.
I have included charts of both of these Fed dollar indices below.
“If those in charge of our society - politicians, corporate executives, and owners of press and television - can dominate our ideas, they will be secure in their power. They will not need soldiers patrolling the streets. We will control ourselves.”
Howard Zinn
Wow.
Silver is amazing. Its upward moves are iconic, a short squeeze that doesn't know when to quit. And the equity markets are no slouches either. Is that you blowing a bubble again Benny?
The miners are lagging and at some point soon they should catch up, especially the juniors. I think a lot of people do not believe the metals move is for real and so are playing paired trades and some assets become individually mispriced.
I feel like we are in the Jurassic Park movie, seeing the water glasses on the dashboard shaking, with the heavy footfalls of T-Rex and the sounds of its breathing moving around us in the night. We just do not know which direction it is coming from, and where it is going.
I took some paired positions into the weekend, I just could not resist. I have a weak spot for long holiday weekends in which Asia is open and the west is closed. Let's see if any of the China rumours with regard to the reminbi are valid.
Have a happy holiday weekend everyone, and see you at the late show Sunday night.
Metal's breaking out. Timmy's at the wheel, with Jamie and Blythe in the back seat. Ben is the goat.
There are some potentially monster bull formations on the index charts, with inverse head and shoulders abounding, targeting SP 1450 if we get the breakout and confirmation for example.
So, get long the market? My inner bear is growling. I can't really get long with conviction, so I'm back to playing pair trades and playing it on the edges until I get a better feel for which way things are going to break.
The real economy seems sluggish, but the presses are rolling. So we could see things break out nominally, or we at least have to allow for it.
Have a happy holiday weekend. See you Sunday night.
I am not talking about the specifics, about which individual holder of bullion changed the status of a very large portion of the remaining registered silver inventory at the Comex, and what their particular motivation might have been. I imagine that the details of that transaction and its short term intent will become known at some point. I am not even sure yet whether it is bullish or bearish. It could be part of a short term trading gambit tied in with the coming option expiration.
I wanted to step back and get the significance of this in the 'big picture.' So I looked at the interactive Comex silver inventory chart over at 24hourgold to see what the big withdrawal from the registered ounces looked like in context. The chart goes back to middle 2008.
Several things stand out for me. First, there are definitely big declines in the past, certainly on the order of the most recent decline this week.
There is one significant difference. Two of the biggest declines occurred at year end, and are indicated on this chart as circles.
There are another two large declines in inventory comparable to this week in April time frames, marked on the chart by rectangles.
So its just a normal thing, right?
Not really. The prior two declines in April occurred after significant builds in inventory from the first of the year. This year that simply did not happen. There was no bounce.
For me the most significant aspect of the chart is the steady decline in inventory over the past three years, stepwise at times, but getting dangerously low compared to the open interest in the futures market which that inventory supports which continues to increase. That is known in the trade as 'leverage.'
I am sure that the exchange principals will pass along rumours about a short squeeze and an attempted market corner, and try to paint this as some insidious anomaly. Yes there are speculators becoming involved, those who see what is happening. As the British government attempted to hold the pound to an artificial value, and was hammered down by traders, famously George Soros but primarily the faceless acting through the Swiss, so too the metals manipulation by the Anglo-American banking cartel is staggered, and is probably going to go down hard, capitulate with a revaluation and partial disclosure, and move on from there. I think the episode of cheap gold and silver is over, until a new cycle of money begins.
I prefer to view it as the natural outcome of a long term manipulated market, in which artificial shortages have been introduced by protracted interference. If you artificially depress the price of most things for a long enough period, in a market based system you will introduce underinvestment and systemic shortfalls that will only be corrected by either higher prices and investment in production, sometimes with long lead times, and/or with 'rationing' either overtly, or through public relations campaigns that seek to discourage demand from a group of the people while other segments take the remaining supply.
They keep warning about bubbles, and silver 'correcting.' Well, the establishment pundits have no credibility on noticing bubbles, that is for certain. Their hypocrisy knows no bounds.
And what this trend seems to be implying is that silver is already correcting, higher, back to its real long term trend after decades of under performance due to artificial constructions and leverage.
The Comex is headed for a default unless they can secure a large new supply of silver and increase their inventories. Or allow the price to climb higher until the market finally clears and existing supply re-enters the market. Where will that be? From the looks of things, higher, probably where the trend price with inflation would have been, barring sufficient new investment in production. When flagrantly betrayed, the market can be a harsh mistress.
And the same thing is happening, in relative slow motion, in the gold market which was the real point of this all along. But the difference is that in the gold market the bullion banks have been able to turn to the central banks for protection and supply over many years, drawing down their sovereign inventories and masking it at times with accounting tricks. That is, until that trend changed a few years ago, and the central banks became net buyers after twenty five years of selling, motivated primarily by the BRICs and the much abused and crumbling dollar reserve currency arrangement.
I wonder if the bankers can find a willing seller, a new source of silver. And at what price. And with what will they offer payment, what depreciating paper promise?
Someone asked me again today, have you ever seen a market go up like this without a correction? Well, of course not. Nothing ever goes straight up. They are asking the question to get the answer they want, ie. consolation for an existing opinion. The real questions to ask are WHY something is going higher, and to think about how much it might correct, and what it will do after that. Saying something will go down after it goes up is not an investment strategy, it is a sucker play. People go broke following these faux contrarian plays.
Yes, I am cautious on silver in the short term, and yesterday I did take all my trading positions off the table, without touching long term positions. Let that action speak for itself, within the context of my goals and needs. And I am especially cautious now in most US markets because of lax regulation. But I liked and respected the perspective Jim Rogers had to offer. And yet he will be the first to tell you he does not know the future, and neither do I. But I think it is going to take a liquidity panic sell off in broad assets to break the silver bull. I hope it does not go parabolic and at least consolidates here somewhere, to set up a more orderly appreciation such as is happening in gold.
But I am not assuming that these are normal market conditions. I think that the financial engineers and their bankers are becoming very concerned, and even afraid, for good reasons. What has been hidden will be revealed, what has been whispered will be shouted from the rooftops. They will spin stories to hide it, and probably engage in scapegoating, blaming Islam or China or high profile speculators like Soros, or some other group for what is in reality the direct result of their perfidy.
As we have seen in the past three years, the markets have been made a sham, riddled with fraud, puffed up but lacking substance. And in each case there is a violent correction that exposes the graft and corruption. And this is ongoing, because as William K. Black recently said, they have 'left the felons in charge of the system for the sake of stability.'
But at the end of the day, the result remains the same, no matter how they try to shift the blame and the pain.
As the Americans like to say, 'the jig is up.'
"They have sown the wind, and will reap the whirlwind. Their stalks of grain wither and produce nothing to eat. And even if there is any grain left, foreigners will consume it." Hosea 8:7
I try not to react to a single month's number, and instead keep an eye on the trend.
Still, the Philly Fed came in at 18.5 versus a consensus expectation 33, and that is enough of a miss to make me spill my coffee.
The taxes on the real economy from the unreformed financial sector and the gasoline spike are taking their toll. There were also supply chain disruptions associated with the Japan earthquake that may have played a part. The price paid section of the report showed rising prices.
The data are looking and quacking like stagflation to me. And I think stagflation is the result of an exogenous shock or egregious policy error. I'll take that second door, Alex, for a lower 90 percent of the public strangled by corrupt fiscal and monetary policy, and unfortunately, their own gullibility.
Let's see how the trends continue to develop.
Let's refresh our understanding of the difference between registered and eligible status at the Comex.
"Comex has two categories of silver in its warehouse.
The eligible category means that the silver is in a condition that conforms to the standards of delivery. Size and quality of the bar in other words. It is being stored at the Comex warehouse, but is not offered for delivery into contracts.
Registered means that the silver is available for delivery to those who demand bullion by being registered as such with a bullion dealer, in addition to being in a fit condition to satisfy the contract.
Eligible silver can become registered and deliverable if the owner of the silver declares it saleable at some price. And of course if it is there, and otherwise unemcumbered by senior obligations or conspicuous absence."
Registered Ounces Available for Delivery at the Comex
The eligible silver stocks and that of the daily metal warehouse statistics are limited to silver bars that meet the Exchange's criteria for delivery. This criteria specifies that a silver bar must weigh 1,000 troy ounces, plus or minus 10% and be on the Exchange's Official List of Approved Refiners and Brands for silver.
In order for eligible metal to become registered metal, the owner of the metal must have an Exchange Licensed Depository (like Scotia Mocatta) issue a Depository Receipt (Warrant) on those silver bars meeting Exchange standards comprising 5,000 troy ounces (plus or minus 6%) stored at its facility.
It is not a particularly difficult operation to change bars from eligible to registered status, and vice versa. It is a matter of the actual owner's intent. It is a little more difficult to have a new bar introduced to the warehouse and certified as eligible, meeting the criteria of the exchange as stated above.
Some traders use the term dealer to mean deliverable, and customer to signify eligible.
There may be other types of bullion in non-standard forms, such as coins or odd or smaller bars, stored for a fee at Comex, but these are not of interest to us here.
Here is Harvey Organ's take on the silver inventory at the Comex this evening.
"We have just received tonight's inventory changes and it is a dandy. First of all, there were no deposits of silver into the dealer and no deposits into the customer.
There was a rather large withdrawal of silver from one customer of 119,400 oz ( from Scotia). We had another 999 oz from the Delaware vault. Thus total withdrawal: 120,399 oz.
Now the fun begins: We had a massive 5,287,142 oz adjustment whereby the dealer repaid a customer for a prior commitment or a seller had cold feet and decided not to sell his silver and it returned to eligible silver (not for sale) or this is a settlement whereby silver is finally delivered to a patiently waiting long. Ladies and gentlemen..something is up!! The adjustment was in the Scotia vault. Let us see if this silver leaves the Scotia vault."
Turmoil in Silver and Gold at the Comex - Harvey Organ
I suspect the silver has been taken off the market for delivery into some obligation, for example, delivery to an outstanding purchase from a fund like the Central Fund of Canada, Sprott, or some other large customer, perhaps even a sovereign entity (hint here be rumours). But perhaps it is just a customer who has changed their mind about the prospects for silver.
This is what happened. It could be quite bullish depending on what happens to it, as Harvey indicated.
Here is Adrian Douglas' Marketforce Analysis summary of changes to the Comex Inventories.
SILVER
ZERO ozs withdrawn from the dealer’s (registered) inventory
120,399 ozs withdrawn from the customer (eligible) inventory
Total dealer inventory 35.76 Mozs
Total customer inventory 67.24 Mozs
Combined Total 103.00 Mozs
GOLD
139,996 ozs withdrawn from the dealers (registered) category
70,796 ozs deposited in the customer (eligible) category
Total dealer inventory 2.11 Mozs
Total customer inventory 8.90 Mozs
Combined Total 11.01 Mozs
Adrian's analysis appears each day after the market close in Bill Murphy's metals discussion at LeMetropole Cafe. This is where I first learned about the lesser known aspects of the metals markets in 2001 before gold and silver started to rally, and it remains a must read for me every day.
Remember we are entering a period of May option expiration at Comex, on Tuesday April 26th.
As I mentioned earlier today, something is obviously up. I am trying to get to some level of understanding of it, and am wading through rumours, innuendo, and speculation. But there is something happening behind the scenes, I am now sure of it. And it might be big, because the usual trading desk chatterers don't seem to know what it is. Or aren't talking.
But I am wondering, are the BRICs going to make their move? Or is it something else.
“Rise and rise again, until lambs become lions.”
The move in silver is remarkable, not only in its magnitude, but in the relatively small notice of it being taken outside of trading circles.
We understood the big move in silver back in the day, as a result of the Hunt brothers attempt to corner the market. But what exactly is driving it now? Where is this buying coming from, and what does it mean?
I think there is a an untold story here, and I will be spending a little more time trying to get my mind around it, sifting through the rumours and other stories, to try and get to the bottom of it.
Yeah yeah silver is overextended. There will likely be a correction at some point. And every nitwit in the peanut gallery is going to say "I told you so" even though they told us so when silver was $20.
I have to admit I am absolutely in awe of this move. I would have never expected it to go this far, this fast. I would really like it to take a break, or for some news to come out to explain what is driving this. Silver is even leaving AAPL behind in the dust. It seems to be inversely correlated to Obama's popularity, and the Congress' integrity. Hm, maybe something to that.
I am holding all long term positions and am flat on the short term for the holiday weekend. I could be persuaded to take a position or two for the weekend but only if I see something worthwhile.
Risk? We don't see no stinkin' risk. The dollar was taken to the woodshed.
Corporate profits are just peachy. Let me take most of my profits tax free, keep two sets of books, and I'll show you a good time too.
AAPL crushed its numbers after the bell.
In short, the answer is yes. That seems to be the case to some degree.
The reasons for this are roughly as follow.
From past analysis, the mining sector seems to be roughly correlated 50 percent to the underlying metal, and 50 percent to the SP 500. Obviously this varies over time because of related factors, lags and correlations, but it is not a bad rule of thumb.
Right now the SP 500 is underperforming the metals. I am showing the SP 500 compared to gold, because silver is in such a powerful short squeeze that almost everything is underperforming it.
In addition, the correlation of the miners to the SP 500 has been a little more variable of late because of the 'risk on, risk off' sector rotations. The miners seem to be affected greatly by this.
I have noticed in the past that the miners, particularly the juniors, tend to get their biggest moves near the end of tops in legs of the metals moves, playing a sort of 'catch up.' I have not done any rigorous analysis on that lately.
But it is important to note that the reason why the metals are moving is a significant factor on the miners. If it is a risk off flight to safety, chances seem to be good that the miners will underperform. If it is more of an inflation trade, the miners may catch up in relative valuations and their leverage seems to work in one's favor.
To make things even a little more complicated, various pair trades and arbitrages come in and out of fashion amongst the speculating crowd in the hedge funds, who swing a big stick on short term pricing these days. Long metals and short miners is a trade that temporarily distorts for example.
Someone just sent me this piece by my friend Dan Norcini and I think he makes some great points on the arb trades to which I allude above.
Again I have to caution that I have not done the kind of recent rigorous analysis on this that I have done in the past, because for my own purposes it is 'working' for me. Perhaps I shall have another look at it.
As a special note, I want to thank all the kind people who bring things to my attention by email. I cannot look at everything, and even if I may have seen it, I am always grateful, just a little less so perhaps if I have an active link to it on my site. lol.
I am busy making preparations for some special meals on the holiday and it has me on the run. Prime Rib, ham, turkey, fresh and smoked sausages, and all the sides, and even the children have been helping, learning along with the adults, with some special treats and cakes.
Try to remember the poor in these times, because many families are enduring their private hells and hardships, despite all the griping by those who imagine that the poor are lazy people living in luxury. I don't see many of them volunteering for that. If it were true, Goldman Sachs would be living in homeless shelters. People say, why doesn't God do something about this, why doesn't he help the poor and straighten these things out. Well, He did do something. He sent you.
Spring is in the air, and life is resilient. We are not in thrall to any morose doctrine, nor bound by hopeless despair. Let's remember that one of the early names for the Christians were 'the Easter people,' and hallelujah and our Father was their song. And this is our legacy, our life. Not the dried bones of those who are already dead, scuttling around in darkness, grasping for things and the lives of others, desperately trying to fill their emptiness. These are no great souls but the husks of men, destined to the trash, nameless, the leavings of Gehenna.
The tomb is empty and death is overthrown, and there is nothing for us there.
