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Everything was bouncing today, at least those things that had sold during the margin squeeze precipitated by the CME and the CFTC which affected most asset classes except bonds.
Of course they had to relent. Crashing the stock market is probably too high a price to pay in order to save a small clique of traders who are trapped in the silver pits.
But I would not count these fellows out of the game yet. Goldman and their ilk helped to crash an economy in order to loot AIG and the mortage markets. Their perfidy has few bounds.
"Our government...teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy." Supreme Court Justice Louis D. Brandeis
This morning I added a lengthy intraday commentary here.
A fifth margin increase in silver is baked into the cake for Monday May 9th. Let it not be said that the CME does not care about its biggest customers.
There was a bounce today, and sighs of relief from the beleaguered metals bulls. My own portfolio was exhibiting some fairly impressive G forces today, that made up for the faux pas of coming back in a day early. Adjustments have been made, and thank God for hedges.
So what next. Nothing goes straight up or down, and silver certainly had gotten far ahead of itself. But as noted yesterday, I do not think that we are seeing an analog of the 1980 Hunt Brothers market corner rally which was fairly specific.
But who can say what will happen? Certainly not most of the commentators whom I have read, or the people who took the time to write in and tell me what a dope I am, and how silver is going to $22.
I cannot say it enough. It is not about predicting and making one way bets. It is all about managing risk in the short term, and paying attention to the market. I signalled my own sell within a day of the top, and came back in a day and a half before the bounce, for a trade. I would have preferred to have waited longer, but the CME surprised me with the extra margin requirements. And so I adjusted my strategy and came out without taking 'the big hit.'
I think what bothers some people who write in is that I am still a long term holder of the metals. They send the oddest messages, feigning personal omniscience, and assuming some sort of undeserved pride in finally not being as wrong as they have been for a long time.
Well, sorry, but until the fundamentals change I don't change that long term portfolio, and certainly not in response to big moves either down or up, that are here and gone like flashes in the pan. That is for the short term trading portfolio.
It bothers me a bit that the Comex does not seem to be addressing the very low levels of deliverable silver in their warehouse, and the incredibly large short position held by a few of the TBTF banks who are playing with public monies as far as I can tell. That remains a potential problem even if they raise margins to 100%. And lower prices through rules changes do not help supply problems, the last time I checked. It tends to dampen supply and make the problems even worse given enough time.
I have a bias to gold, I admit. But if you want to flee a manipulated market, I am not so sure that gold is so much different than silver, but certainly quite a bit less volatile, and more widely held as a a form of wealth by sovereign nations.
I still cannot get over the fellow blogger who claimed that gold cannot be money because its value fluctuates, and some people hold it using leverage. I don't suppose the forex market is familiar territory to someone who could say this. Everything is subject to speculation. The crux of the matter is counter party risk and the ability, or lack thereof to manipulate supply in the long term.
Bart Chilton has indicated that the CFTC should look into the recent market action. To what end? They never release any of the pertinent data, and certainly don't do anything about it. And I suspect they won't until the aftermath of this latest banking fraud, after something breaks and a crisis ensues. I like Bart, and think he wants to do the right thing. I have also been in management situations that I think are similar to the one he is in now, so he has all my sympathy and good feelings as a lonely voice for truth, a pillar in the stream.
Greece is threatening to leave the EU, and I am sure that many of ther others in the EU will say, "Well let them." And yet it is not quite that simple, because the reason for leaving would be to default on their debts. Perhaps of benefit for Greece, but very bad for their creditors.
Would this extinction of euro debt result in a stronger euro as in the model of the monetary deflationists? Sometimes it is instructive to take your assumptions and apply them to someone else, to see if they are self-serving.
Greece's euro debts are held to a large degree by German banks. And a Greek default would encourage Ireland to do the same, and its debt is largely held by English banks. And in turn these banks are highly interconnected to the multinational banks. The financial market is still a mine field of counter party risk, and the Anglo-Americans and the rest are in a currency war.
The banks and their servants in office are fighting and gutting regulation every day, and there is little doubt in my mind that there will be a new financial crisis, worse than the last, that will shake the dollar denominated debt to its very foundations. But that's just my opinion, and I cannot tell what the time frames might be. However, I think I know what to look for. I also still believe that the UK will lead the way in the downward spiral of the western financial oligarchy.
The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.
"The extreme volatility seen in the price of silver—exacerbated by tightened margin requirements—and the la large swings in the price of gold, price of oil and in certain U.S. dollar exchange rates, do not in any way change the long-term outlooks for the U.S. dollar or for the long-term hedges against a collapse in U.S. dollar purchasing power. The current markets leave open the potential for near-term jawboning (official or through market intermediaries) and government intervention (overt or covert) to encourage relative U.S. dollar strength.
Despite whatever volatility there may be, the U.S. dollar remains on track for an eventual complete collapse in a hyperinflation, and the roots of that hyperinflation remain embedded in the system. The primary hedge against losing U.S. dollar purchasing power remains physical gold (and silver), with some funds outside the U.S. dollar. As discussed in the Hyperinflation Special Report (2011), I still like the Swiss franc, Canadian dollar and Australian dollar."
John Williams, 6 May 2011
Hardly an auspicious day for the equity bulls as the rally from the Non-Farm Payrolls reported faded hard into the weekend close.
The NFP report came in on the high side of estimates. I looked over all the usual aspects to the number, and it appears that the usual suspects like Birth-Death and Seasonality are in line. And as a reminder, one should never substract the Birth Death imaginary jobs directly from the headline number. It goes into the unadjusted gross number which is then subject to seasonal adjustment, which in some months is quite impressively large.
One thing that struck me is that this was, because of the way in which the calendar dates fell, a five week reporting interval rather than four. It was not clear to me that the BLS adjusted properly for this.
On the other hand, there was some thought that agricultural hiring for planting has been late this year because of weather. Well, I cannot speak to that.
No matter, it is the longer term trend that is of more interest and meaning. And it seems to indicate that the US is adding low paying jobs, judging by the very slack median wage. Hardly the stuff of a recovery for Main Street.
The money printing bonuses for Wall Street continue. This is the set of ingredients one might expect to bake a stagflationary cake.
Have a pleasant weekend.
The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.
The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don't trade.
Trading for the short gain is a thing unto itself. This is why I say that one does not ask traders what to do when shaping their long term public policy, or draw serious economic conclusions from short term market movements. I have to admit that economists themselves, joining the ranks of most politicians and regulators, have a fairly poor track record of late on influencing public policy, but that is a matter for disgraced professions to mull over while they try to talk their way around another financial mess which many of their members actively helped to create.
If you wish, take well thought out long term investments and hold them in a reasonably constructed portfolio appropriate for your objectives. The markets are particularly dangerous now because they are awash with easy money and wilder than the statistics show due to complacent regulation. Everything in this life involves risk. These days things are often not as they appear, and even cash is not without risk. Life is a school of probability.
It is particularly hard to describe currency risk to Americans because most of them have never been outside their country except perhaps for an insulated holiday on the Pax Americana. A surprisingly large number of the Yanks do not own passports, except lately perhaps for purposes of domestic identification. Quite an innovation, to need a passport to go about your business in your own country.
I am not saying that this insularity is a bad thing necessarily, but a phenomenon that subtly but profoundly influences group thinking, the cultural weltanschauung.
And it can be the strength of a nation when it mobilizes to action, but also the weakness, the downside of a relatively isolated and homogenous society, as in the case of an island, ethnic group, or otherwise relatively inward looking society, easier prey for demagogues, and psy ops, and the flattery of frauds. Care for another helping of freedom fries?
But this self-containment is understandable. After all, it is a big and very diverse country, full of natural beauty, much given to the rewards of exploration and travel, a study in itself. And the people are on the whole hospitable, remarkably unpretentious, easy going, and friendly. The country has the gift of virtual self-sufficiency if it were to once again seek it. And it would be the world's loss.
This idea of education and experience is not to say that people need to be geniuses to be people. One of our girls is not quite the sharpest tool in the shed, but she is undoubtedly wise beyond her years, in an almost wonderful way, because she has been gifted with an enormous power of empathy and common sense. Each one can be beautiful in their own ways if you have an eye to see them as they have been created. Every flower has its own enchantments, varieties, and value in God's economy.
But as for a knowledge of money, unless one's profession has exposed them to practical currency exchange situations, they often have only a cartoon like concept of currency fluctuations and relative values as digits on a screen, an intellectual abstraction.
As one of my old professors used to remark, it smells of the lamp, ie hasty and academic without practical understanding. And give them a little power or good luck, and they can quickly become almost unbearable. One of the greatest benefit of an education is that it will teach you what you do not yet know, it will show you the distant horizons.
"And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy." Hamlet Act 1, sc. 5, 159–167
When a reasonably intelligent person remarks that gold cannot be money because its value fluctuates, while their own currency is doing loop de loops to the downside, and their bonds provide negative returns, you have to wonder, until you realize that they are captive to their self-imposed limitations, their limited personal experience, and education and wisdom have not been allowed to lift them out of their deep wells of subjectivity.
educare, Latin from ex ducare, 'to lead out of, to bring forth'
And this I think is the interpretation I prefer for Dürer's Melencolia I. The exhaustion of knowledge, mechanical prowess without humanity or wisdom, which becomes frustrated by its inability to understand life, and to achieve contentment.
Granted, volatility is unusually high in the markets. But we are in a global currency war. Governments are in the markets, which themselves are awash with cheap liquidity and leverage. What else would you expect?
These are big events, and they will not be resolved in a day, a week, or even months.. Try to maintain your equilibrium, and you may wish to stay out of the way of the giants as they contend with one another. That is easier said than done, because the next financial crisis will be of a much greater magnitude, and everyone will be a participant, one way or the other.
US Ten Year Note does not include interest payments.
