SP 500 and NDX March Futures Daily Charts

"To anticipate the market is to gamble. To be patient and react only when the market gives the signal is to speculate."

Jesse Livermore

Well I have to confess to a little more than speculation perhaps, as I read a signal from this market that it had reached bubble territory, and that the 'rally' into option expiration last week was hollow, and went heavily short US stocks into the close on Friday.

Flat now, and waiting for the market to tell us which way next. The support is fairly obvious. I will be looking at the short term indicators later on.  So far we do not have a general 'sell' signal on more than the short term.

Gold and Silver and SP 500 Futures at Noon - Emperor On Holiday

Gold and Silver Options Expiration At the Comex This Week

As a caution, not all option expirations are created equal, in terms of the shenanigans and market moves that they precipitate.

The breakout in gold and silver came off an option expiration.

Silver Bankers May Be Sitting on Big Derivatives Losses and the Fed May Be Funding Them

My question is simple. What are bankers like J.P. Morgan and HSBC doing playing in such size in this market? What is the economic and productive benefit? Perhaps there is a good answer. The taxpaying public certainly deserves to know. The CFTC says they have looked into this, but the detailed results of their findings remain less than forthcoming.

IF this is legitimate hedging for producers then all well and good, but then there is no justification for secrecy. If these are trading positions held by the bank, or by the bank as agent for speculators, then there may be a greater reason for secrecy, but the magnitude of the shorts is far out of bounds in size. Ten years of production is not a short position, but the entire market and then some.

The CFTC certainly appears to be acting poorly as the market regulator for the people. Given the regulatory failures of the past ten years that lead to the financial crisis, it would be useful if the Congress were to make very pointed inquiries regarding this situation. But given the performance of the Congress, and their affinity for the deep pockets and big contributions of the financial sector, that may be too much to hope for.

I think it is worth noting that the BIS data, which I use myself, is very good, but normally six months in arrears or more.  I tend to use it to track the float in eurodollars which the Fed stopped publishing when it also halted the production of M3 data.  But this is not Harvey's fault, but merely another sign of the opaque nature of the US markets.  There is no reason not to demand monthly disclosure.  Investors and depositors are always expected to make informed decisions, and then they are denied the information from large market participants using their positional advantage.

The comment and analysis below is from Harvey Organ's most recent commentary.

"The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November (www.goldexsextant.com) shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.

Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of:

7 billion oz of silver( 32.30-15.00) = 7 billion x $17.30 = 121.1 billion dollars of losses.

This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.

If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:

4 billion x 17.30 or 69 billion dollars.

Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation."

This situation merely highlights Obama's failure as a reformer, and the general failure of both parties to act in positions of trust for the American people, rather than the special interests that provide them money and sincecures after they leave office.

As I noted on my own silver chart, I am no longer will to forecast anything but intermediate targets for silver, given what appears to be widespread imbalances and crisis-inducing leverage in the market, especially given the strong demands on the bullion market from the sovereign and individual buyers in the BRIC countries.

It is never pretty when a fraud collapses, and this one in particular is difficult because it seems to encompass those stewards of the market upon whom one generally relies for information and some measure of confidence in the data.

The market will clear when it clears, and seems to be defying 50% margin requirements increases and well placed disinformation campaigns in the process.

Gold Daily and Silver Weekly Charts

The short squeeze in silver is fairly remarkable and obvious to all but the most pig-headed or willfully misdirecting.  Looking at the Comex warehouse, SUPPLY is consistently and smoothly decreasing even while PRICES are increasing sharply.

Silver does appear to have hit a bit of a 'high note' here perhaps, and has once again come far and fast. A consolidation or a pullback might not be unexpected, depending on what US equities might do. For now many things are riding on the dollar liquidity bubble, including those who are merely fleeing it and seeking safer stores of wealth, particularly in Asia.  Silver is outperforming gold as demonstrated by the decreasing gold to silver price ratio, no doubt influenced by the fact that the central bankers have access to gold in their national treasuries, but few have any silver. Silver is in a short squeeze, and so volatility and upside surprises are to be expected.

Intraday comments on the Comex Silver market were given here.

As for gold, the Financial Times notes that the world demand for gold is doing better than you might have gathered from the mainstream media.

"Unbelievable. Explosive. Insatiable. These are some of the words bankers are using to describe the gold market. That may come as a surprise, as the gold price has had an uncharacteristically quiet start to the year, for the most part trading either side of $1,350 an ounce.

The dramatic language is being applied to the strength of Chinese demand. Many have been truly shocked by the level of Chinese buying in the first few weeks of the year. As one senior banker (who is not prone to hyperbole) put it: “The demand in China is vast. It’s unbelievable. Whatever you think the demand is it’s much bigger… I’m really staggered.”

Perhaps the Federal Reserve and Wall Street Banks can send some one of their missionaries to China to educate them on what constitutes real wealth. Timmy may be ready to give it another go.

SP 500 and NDX March Futures Daily Charts

Isn't American crony capitalism marvelous?

Third bubble in eleven years.

Registered Silver Ounces Available For Delivery at the Comex: The Emperor's Errant Knavery

Here is a chart of registered silver ounces available for delivery in the Comex warehouse. Nine out of ten Americans may notice a trend.

If it seems somewhat counter-intuitive that the available supply continuously declines even as the price soars, you may begin to obtain some sense of the true nature of the management, regulation, and character of this market.

Comex has two categories of silver in its warehouse.

The eligible category merely means that the silver is in a condition to conform 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.

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. There are a little over 60 million ounces of eligible silver being stored by customers at the Comex, in addition to the registered dealer inventory.

The registered inventory of silver at the Comex, 42 million ounces, is worth about 1.34 billion dollars at today's prices.

The entire silver inventory at the Comex warehouse, roughly one hundred million ounces of silver, is worth about 3.2 billion dollars at today's prices.

There are some rules passed a few years ago, delivery limits sanctioned by the CFTC, that prevent a large entity from taking too much physical bullion in a single month, and enforcing a paper settlement. I think that is why the inventory is undergoing a slow but very steady drain.

In other words, THEY can SELL as much as they wish, but YOU can only TAKE as much as they allow you to take at the current prices. That might sound like a con by any other name, but it is certainly no definition of market pricing of a physical commodity when you can sell what you wish at whatever prices you set, but then refuse delivery at those prices.

When and if this market leverage breaks, the silver on the periphery, the non-eligible supply of smaller bars and coins, is going to evaporate given the large amount of leverage in the unallocated silver bullion that people believe that they own, and the realization that the confidence which investors have had in the integrity of US markets has been abused. The silver on the periphery is a relative drop in the bucket compared to the growing demand from millions of buyers, however relatively smaller than the bullion banks which each individual buyer may be.

Gold Daily and Silver Weekly Charts

Next week is March options expiration for gold and silver on the Comex.

US equities are looking fully valued and entering bubble territory fueled by Benny's handouts to the banks. Thin volumes and short holding times in markets where price is set at the margin by the last transaction is a setup for a flash crash.

Watch VIX and try not to get out in front, but perhaps its time to take out some insurance and bring in some profits.

On the global front, the Arab unrest is spreading amongst the oil dictators and western client state regimes.

Remarkable that, outside of Iceland and Greece, the put upon people of the West seem to be very quiet. In particular the people of Ireland are surprising in their acceptance of a new form of tyranny, not by the gun and the jackboot, but by the pen and the ledger book, and of course the cooperation of local political corruption.

SP 500 and NDX March Futures Daily Charts

Tomorrow is equity option expiration on the US stock exchanges, and also the last trading day before a three day holiday (President's Day) weekend.

Stocks are quite overvalued, and probably ready for a correction, or at least a consolidation. Any macro exogenous event could trigger a five percent correction.

I hate to keep saying that this is a momentum fueled melt up on light volumes, with Benny's banks leading the charge, but that is exactly what is happening. And they seem to be getting increasingly edgy about handing this off to mom and pop and the institutions.

However until VIX turns, which could be happening soon, I would not step out in front of this. But as of the last hour of trading I started getting defensive and battening down the hatches.

As for the real economy, nothing will improve until 'the truth is found to be lies,' as the song says.

Net Asset Value Premiums of Certain Precious Metals Trusts and Funds

Gold Daily and Silver Weekly Charts, and a Tribute to Blythe Masters

In 1991, Blythe Masters read in economics (presumably with a heavy influence from H.P. Lovecraft and Stephen King) at Trintity College, Cambridge. In 1997, Blythe headed a small team of economists at J.P. Morgan bank in New York which developed the concept of the Credit Default Swaps as a means of insuring loans. This has led to Masters being described by The Guardian newspaper as "the woman who invented financial weapons of mass destruction." Regrettably, the quote from the Bhagavad-Gita about Shiva, destroyer of worlds, had already been taken by J. Robert Oppenheimer.

In April 2010 Masters told the Economic and Monetary Affairs Committee of the European Parliament that "there are definitely lessons that have to be learnt. I for one feel that I have learnt from that experience and there are things I may like to have seen done differently." There is nothing better than on-the-job training when manipulating the world's economy, as Ben Bernanke can attest. Theory is all well and good, but there is something to be said for the good old trial and error method.

Blythe has been the head of Morgan's commodity trading since 2006, and was reponsible for notably heavy losses in the firm's portfolio last year. JPM does not specifically disclose its own market positions, but is rumoured to be short a multiple of the solar system's estimated reserves in the silver market. The positions are said to be 'almost as volatile as Lindsay Lohan's personal life' and 'about as far underwater as the Titanic.'

SP 500 and NDX March Futures

Thin volume melt up.

Get the big picture yet?

Wall Street and the Financial Crisis: Nobody Goes to Jail - And Therein Lies the Problem

It all comes back to the credibility trap, much more intractable than a liquidity trap. The US government cannot perform effective change without admitting the corruption and placing the powerful status quo at risk. So this malaise and period of selective recovery will continue until there is a another, more destructive crisis.

In a partnership of Wall Street and Government, justice is a scarce commodity. As Jeffrey Sachs of Columbia said, both political parties are on the take, and the political process is horribly compromised.

Unfortunately this prevents the discovery of root cause, and the necessary systemic reform and reconstruction that would allow for a sustainable recovery.

As all reform efforts are co-opted by Big Money, the lies are coming thick and fast, often modulated only by people's specific self-interests in a continual drumbeat of slogans and propaganda. This is a fairly accurate description of a social system in decline. There will be a bull market in hysteria and demagoguery, a very bad time to be weak or a minority. 

And if the people rise en masse, the very powerful will throw their lesser fellows to the wolves.  This is why it is important to understand your real place in the hierarchy.  If you have less than five millions per year in net income, there is little difference between you and a day worker in the eyes of the truly rich and powerful, except for your value as a useful idiot, cannon fodder, and finally as prey.  A cow is only valuable while it provides milk. You do not understand the will to power if you think otherwise.

I am no longer surprised that some people are willing to give themselves over to the power of this world, and to sell their honor and sometimes even their souls to its cause.  The recent cases of the politicians, economists, regulators, and rating agencies is a fairly good example.  The real surprise is how readily they do it, and so cheaply. And the pretenses they are willing to suffer to hide their complicity.

"Why Richard, it profits a man nothing to give his soul for the whole world--

But for Wales."

Thomas More, on the occasion of the perjury at his trial of Sir Richard Rich

Nice piece from Taibbi worth reading.

Why Isn't Wall Street in Jail?
By Matt Taibbi

...Nobody goes to jail. This is the mantra of the financial-crisis era, one that saw virtually every major bank and financial company on Wall Street embroiled in obscene criminal scandals that impoverished millions and collectively destroyed hundreds of billions, in fact, trillions of dollars of the world's wealth — and nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant and pathological celebrity con artist, whose victims happened to be other rich and famous people...

Read the rest here.

The Next Two Years in the Financial Asset Markets - Emperadores en Fuego

As Ozzie Osbourne says, "All Aboard!" lol

The good news is that it will not be as straight down as this.

Joe Saluzzi gave a very good description of the character of this market today on Bloomberg.

Keep your hands and head inside the train at all times.

Don't worry. Trust in Ben and Tim.

And meanwhile in the Mideast...

Note:  Most people think of stocks as the be all and end all of dollar financial assets.  In the case of a burst of inflation or a hyperinflation, the equity market will soar for a time, although its gains will be illusory. So stocks are an insurance but not so much as you might expect if that is the outcome.  Try not to get in front of it, as phony as you might think it may be. But the stock market is of much less consequence as compared to the bonds and currency markets.   It is the three card monte to the bond and currency numbers rackets. The stock markets are the pretty lights and buildings that the tourists stare at while the carnies pick their pockets.



"Higher and Higher. What Could Go Wrong?"

 


"What a Beautiful View At the Top. We're the King of the World."





"Who Could Have Foreseen This?  Remain Calm.  All Is Well."



"Mommy!"

And if the Fed should make a mistake, the efficient electronic trading markets are designed to be self-correcting.

US Budget Expenditures - CBO Long Term Outlook

Obviously one can question their growth assumptions, and therefore tax revenue assumptions.

However bear in mind that this chart is for the expenditures as a percentage of GDP, and is therefore tied to the growth.

Personally I would think that they would lowball the interest payments, which are not so tied to the CPI as COLA increases in things like Social Security.  Bondholders are not as captive an audience as your old people.  

But as I always say, until the financial system is reformed and the economy is brought back into balance, nothing will 'work,'  whatever combination of austerity, stimulation, growth, and tax changes it may include.  This discussion is the misdirection and distraction, the financial magician's tools, from the actual transfers of wealth being conducted, those transfers being a nice way of saying 'looting.' 

The US resembles post Soviet Russia just prior to its currency collapse and the rise of the oligarchs who sought to monopolize productive assets which they bought with paper and financial manipulation.    Communism died, and it ended in oligarchy.  Democracy is dying, and it too will end in oligarchy, unless something is done to change the outcome. 

SP 500 and NDX March Futures Daily Charts

As a reminder this is an option expiration week in US equity markets.

Volumes remain thin.

A friend Lee Adler thinks that the sale of the NYSE to the Deutsche Bourse could mark a top in equities. And he might be right. He cites some precedents for this sort of deal capping a big run in stocks.

As I mentioned yesterday I believe that US equities are now in bubble territory and vulnerable to a 5 to 10 percent pullback. However, with Uncle Thug plying its favorite Banks with paper, I would not wish to get out in front of this. Still, it would be typical to see something start around an option expiration.

Gold Daily and Silver Weekly Charts

As I have said, I expect there to be some 'action' around the option expiration this Friday.

A Big Money Playah Hammered PHYS Into the Close

What up?

Just when I thought I was out... they pull me BACK IN!

Silver Open Interest just ballooned from 142,520 yesterday to 147,465 today.

The all important March 2011 silver contract, which should be rolling over to future months,
actually GAINED from 61,237 to 61,720 contracts today.

Asians Buying SLV to Take Possession of Silver Bullion

As an aside, there may be a hedge fund 'raid' on the Yen or Gold coming. Or perhaps word of official action has leaked. I am not sure what a 'watershed event' implies here.
"In an important development, The Gartman Letter – which not only has an excellent nose for major currency trends but which is also very well informed – declared a “Watershed” event for the yen, and increased its yen short positions, including adding another yen/gold “unit”. "

From Japan: An Interesting Comment On US Economic Planning, the Dollar, and Peak Cheap Oil

I shared a copy of this video with a friend in Japan earlier today.

Prof. Jeffrey Sachs of Columbia University on the Obama Budget

I received his reply, and it was much more interesting and insightful than I had hoped it would be.  Certainly a perspective that I have heard in none of the US based commentary today, a much longer term and more strategic view. 

I am sure there are plenty of problems which Japan faces that we could discuss.  It has an aging population, very low birth rates, heavy dependence on imports, and a weak military capability.  Its ability to attract and successfully assimilate immigrants is a challenge.  Every country has problems.

I am not quite sure I know the answers about peak cheap oil. But what I think I know is that the challenge to the US is an inability or an unwillingness to think and execute strategically, ie. long term, in non-military matters.  I believe this is a result of its system which is heavily oriented towards short term economic incentives, regional military conflicts, and financial speculation. 

The idea that you would allow what are essentially short term financial speculators to make important public policy decisions with far-reaching, long term consequences seems unusual or even lunatic in most parts of the world, and is certainly not a trend in historically successful organizations.

Within the metrics of energy and infrastructure, the US government is playing checkers in a game of Go.   Its greatest leverage now appears to be an ability to kick over the global economic playing table in an act of self-destruction.  And that threat is wearing thin.


A Japanese perspective on the US budget:

"Unfortunately, the risk of the whole ponzi scheme crashing sooner rather than later is going way up, rapidly.

They want the dollar to go down by 40%, but I think they are going to lose control, and they might wind up with a 90% panic drop in a few months.

As I said, Japan, around 1995, went into a full peak cheap oil panic. A lot of the government borrowing went to what is characterized as "building bridges to nowhere", but I would characterize it as building some bridges to nowhere, building some airports in nowhere, and fixing the entire rail and road infrastructure of the country.

All the bridges and tunnels have been steel plated reinforced, all the bridges are in perfect repair, and the Shinkansen system will next month be extended all the way from Aomori to Kagoshima.

In other words, I think they knew this 15 years ago and did everything that requires a lot of energy, such as steel, asphalt, cement, and completely the public transit infrastructure. The per capital floor space in Tokyo was doubled.

So, if we really do have a decade of serious energy problems coming, Japan has become about as energy efficient as it can be, with further improvements coming as appliances are replaced, etc.

The US has done nearly nothing, although I did note that the gasoline use declined by 7% in one year. There really is a lot of squandering going on. Now, however, the US needs to completely reconstruct its infrastructure, and it doesn't have the money or energy to do it.

This is why I have thought for more than a decade that the trigger for a really nasty collapse of the dollar would be peak cheap oil.

Do they realize that if the dollar drops by half that oil becomes $200 a barrel? Gasoline would be over $5, and the country would be paralyzed. If the dollar drops more than that, the existing infrastructure would become nearly useless and worthless.

I am afraid that the US has already passed the point of no return.  Had the cheap oil continued, the ponzi could have continued for a good while longer.

I think the realization that the cheap oil is gone is the primary motivation for the smash-and-grab behavior we are seeing in the US."

Perhaps, and it might also be the rationale for the increased military presence surrounding the largest known cheap oil reserves in the world.