SP Daily Chart: Bubble Bubble Toil and Trouble

Expanding the money supply, commonly called 'printing,' cannot result in a genuine economic recovery without significant reform and restructuring, with a net result in an increasing real median wage. We see no indications in that direction yet.

Otherwise, what we will see at best is another false but perhaps impressive nominal recovery in financial assets and equities, with a bigger and more deadly bubble somewhere in the real economy. The last two times the Fed tried this we saw bubbles in tech stocks and the housing market respectively.

What will the next bubble be, besides very painful? Commodities seem a likely candidate.

If the bubble attempt fails, then we will revisit the lows, and experience stagflation. Those who still cling to the deflation prospect are holding on to a narrow thread of true belief indeed. It is possible, but now improbable.

We have some small optimism that the Obama Administration will let go of their cronyism and self-dealing corruption in their decision-making, but not much.

The removal of Larry Summers from the administration team would be the key indicator that would keep that slim hope alive. He is a significant impediment to our national prospects, even moreso than his colleagues Ben Bernanke and Tim Geithner.

Eventually all three will be given their walking papers, it is merely a question of how much damage their bad decisions will make before they leave.

The stench of crony capitalism and corruption is almost as thick as a Chicago style pizza crust in what was supposed to be a reform government.

Silver Rockets to a Record Gain

There were delivery strains at the Comex this month.

A few more months like this and they will be taking the metal bears out of the pits on stretchers.

Remember, nothing ever goes straight up.

Silver posts biggest monthly gain in 22 years; gold rallies
By Moming Zhou, MarketWatch
May 29, 2009, 2:29 p.m. EST

NEW YORK (MarketWatch) -- Silver futures gained 3% Friday, ending May with their biggest monthly gain in 22 years as inflation worries and hopes for an economic recovery boosted the metal. Gold rose to three-month highs as the dollar slipped.

Silver for July delivery, the most active contract, gained 45 cents to end at $15.61 an ounce on the Comex division of the New York Mercantile Exchange. The front-month June contract closed at $15.60 an ounce.

Meanwhile, gold for June delivery rose $17.30, or 1.8%, to close at $978.80 an ounce, the highest settlement since Feb. 23.

Silver has gained 26.6% this month, the biggest since April 1987. The metal has many industrial uses but is also seen as a hedge against a weaker dollar and inflation. In contrast, gold, which has limited industrial uses, has gained 9.8% in the month, the biggest monthly gain since November.

"What you may now be seeing is people think we are moving toward a recovery, and maybe we should be less pessimistic about the future of the metal, that may be factoring in the prices," said Jeffery Christian, managing director of New York-based precious metals consultancy CPM Group.

Silver, whose biggest single industrial use is in photography, is also used in medical applications and solar-energy devices.

Friday's economic news reinforced economic recovery hopes. The U.S. economy contracted at a revised 5.7% annual rate in the first quarter, a decline that's smaller than the 6.3% drop in the fourth quarter, the Commerce Department reported Friday.

More volatile

CPM's Christian also pointed out that silver had declined sharply in the second half of last year, when the global economy was entering into a sharp downturn. Its prices had fallen more than the price of gold.

"Silver is playing catch-up to some extent," said Christian.

The silver investment market is traditionally more volatile than gold, because the market is smaller than the gold market.

"The gold market is more participated, involved more money, and more liquid, and it tends to see lower volatility," said Christian. "In silver, you have few people with less money. It's a much more illiquid market and prices are always more volatile than gold."

In exchange-traded funds, iShares Silver Trust ETF has gained 38% this year, following its 40% decline in the second half of last year.

SPDR Gold Trust , meanwhile, has risen 11% this year. It fell 6% in the second half of last year.

In other metals Friday, July copper gained 6.05 cents, or 2.8%, to $2.1975 a pound. Copper rose 7% in May.

The June palladium contract rose $4.05, or 1.7%, to $236.05 an ounce, while July platinum rose $46.20, or 4%, to $1,196 an ounce.

Among metals-sector equities, shares of Barrick Gold Corp. rose 2.2% to $37.98 and South Africa's Gold Fields Ltd. was up 2% at $13.34, while Newmont Mining Corp. gained 2.1% to $48.35.

The Amex Gold Bugs Index , which tracks the share prices of major gold companies, rose 2.6% to 395.52.

SP Futures Hourly Chart at 1 PM

Wax on. Wax off. Generate brokerage fees and skin the small speculators.

The fundamentals continue to deteriorate but volumes are so light its a shadow puppet market slithering into the end of the month. Sell in May and go away.

Unless Ben has the guts to ignite a serious inflation this market will go back down to test the lows before the end of the year. We *might* be in for a long hot zombie summer.

It is interesting to watch these US financial markets on charts which have been deflated by some other measure of value such as gold or silver.

Ten Year Note Yield

While a steeper yield curve is good for the financial sector and those other folks who borrow short and lend longer term, it does no good if those higher rates choke off growth in the real economy. that is an overlooked detail in the Bankers' grand plans for financially engineering a recovery. This is a nation by the Banks, for the Banks, and of the Banks and their demimonde in Washington and the media.

It reminds this blogger of days gone by, when Jesse was a boy programmer writing assembler level code for IBM mainframes and other tedious tasks befitting his junior status.

A group of systems guys had been working long hours to bring up a large mainframe running VM 360 including the operating system, the peripherals, the FEP and coms, storage for a major university.

When they finally got all the bugs worked out and the system was up they quite seriously celebrated their success, saying: "Now if only we could keep the users off the machine all our problems would be solved."

Indeed. Watch the consumer along with the bond and the dollar, for those are the weakest links. From where we sit, the consumer has rolled over and won't be getting up anytime soon ahead of a rising median wage or some other sort of income increasing faster than their expenses and debt servicing.

And the rest of the world appears to be gorged on US debt and their reserve currency, at least the non-official segments that still care about spending and profit in the real world.