Bear Raid in the Metals? - Front Running Sharks with Lasers

Metals plunged along with stocks in reaction to a worse than expected Philly Fed reading of -10.7. What was unusual was that the plunge preceded the official release by twenty minutes.

November 2012 Business Outlook Survey

Firms responding to the November Business Outlook Survey reported declines in business activity this month following the disruptive effects of Hurricane Sandy on the region. The survey’s indicators for general activity, which had shown improvement in October, fell back into negative territory this month. Firms reported slight declines in shipments, employment, and hours worked. Indicators for the firms’ expectations over the next six months were near their levels in the previous month, but expectations for future employment and capital spending have weakened in the last two months.

Indicators Suggest Diminished Activity

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased 16 points, to a reading of ‑10.7. The fallback of the general activity index followed a single positive reading in October that was preceded by five negative monthly readings (see Chart).

Nearly 32 percent of firms reported declines in activity this month, while 21 percent reported increases. The demand for manufactured goods, as measured by the current new orders index, declined 4 points from last month and remains in negative territory.

Shipments also fell this month: The current shipments index fell 7 points, to ‑6.7. Declines in inventories were also more widespread this month; 31 percent of firms reported declines compared with 21 percent in October.

As one might expect, the sharp drop in activity was related to the effects of Hurricane Sandy. I have been expecting this, but I did not know that the Philly Fed survey would pick it up so quickly.

What was initially confusing was that stocks began to decline sharply around 9:35 AM. Gold had a waterfall plunge from 1722 to 1705 from 9:35 to 9:45.   I had already completed the initial post of this before the Fed report hit the news.

The Philly Fed was officially released at 10:00 AM. I have not discovered if it was officially released prematurely, or if the markets were just front running the data for a quick 'wash and rinse.'  They would suspect that the data would be a 'miss' because of the devastating effect of the hurricane on the region.

In the long run markets are a discounting mechanism, but in the short term they are a pinball game, especially in these days of large leveraged players and lax regulation.

So I think it was either a leak, or a 'trading idea' shared amongst several of the trading desks, or a bit of both. The revolving door also has an intercom.

I had the opportunity to add to a growing silver position. I am sure the wiseguys did much the same. I was not prepared for it, just lucky to be watching it as it happened.

We may wish to bear in mind the knock on effect of Hurricane Sandy on subsequent economic report for the fourth quarter. The devastation on this most populated region of the US was profound. The data will no doubt provide fresh opportunities to game the markets.

Knowledge is power.

Gold Daily and Silver Weekly Charts

"The voice of protest, of warning, of appeal is never more needed than when the clamor of fife and drum, echoed by the press and too often by the pulpit, is bidding all men fall in and keep step and obey in silence the tyrannous word of command. Then, more than ever, it is the duty of the good citizen not to be silent."

Charles Eliot Norton

In my opinion the bulk of the market action is being driven by tax selling, the taking of profits this year before the expected tax changes which will occur next year either with 'the fiscal cliff' or 'the grand bargain.'

The negotiations around this 'fiscal cliff' are fascinating. I am still wondering how Obama managed to box the Republicans in so thoroughly. Was the GOP just that confident of a big win in the election, or is Boehner playing hardball with the Tea Party wing of the House? One can only wonder.

Gold and silver continue to coil for a move.

Genuine reform remains a distant goal.

SP 500 and NDX Futures Daily Charts - VIX Finally Rises

One of the things that has been puzzling about this decline is the relatively low number on the VIX.

That means that this entire decline has been accompanied by much less 'fear' than one would expect. This is consistent with my prediction that an Obama election win would result in a fairly stiff selloff as profits are taken this year in anticipation of a tax increase for those making over $250,000 per year beginning in January.

Let's see how the VIX goes from here. The selling is very orderly and if it is tax related at some point the selling becomes self defeating, which is when the small speculators will be joining in by design, selling out of fear at the bottom.

IF this is true, and nothing develops in the Middle East for example, I would expect to see prices stabilize and even rally in December.

I do think the fiscal cliff is bollocks. I could be wrong, but I do not think so.

Bart Chilton On Silver Manipulation - Gold and Silver Coiling For a Major Move - The Next Disaster

In discussing the government's lack of reaction in reforming the high frequency trading developments in the market, the CFTC's Bart Chilton remarks in the video below about the unfortunate tendency of regulators not to act until something unfortunate happens as being a:

"...tombstone mentality, when you wait for a disaster before you put something in place."

The CFTC is hampered and opposed at every step of the way by the financial powers and their exchanges, who unfortunately wield a powerful and well-funded lobbying effort that tends to lead the political element in Washington by the nose, or their wallets, as you prefer.

I have come to believe that the US government will do nothing effective to reform the gold and silver markets and the equity exchanges until there is a MAJOR dislocation in the markets, and a virtual 'run on the exchange.'

Change will come after the US financial system is threatened by a major solvency or liquidity event.

Whether it originates from a failure to deliver in gold and silver markets that exposes them as a highly artificial and overleveraged house of cards, or another 'flash crash' that brings down a major exchange or trading house through counter party failures, I now believe that this sort of failure and scandal is what it will take to bring meaningful reform to this highly unstable Anglo-American financial system.

Change will be not voluntary with these greedy, self-destructive jackals, especially after the moral hazard that was introduced by the unfortunate policy error of 'no-strings' bailouts from the last financial crisis.   And the lack of regulation and accountability that has ensued is corrosive.

Reform will be accomplished, but only under the duress of the next financial disaster.  

Gold Daily and Silver Weekly Charts - Eric Sprott on Gold - JPM Backstops NJ Debt Offering

Gold and silver moved sideways today, as stocks remained weak and treasuries gained.

Trading remained quiet. There is an intraday post on the sort of commentary about gold that was 'popular' in 1999.

In the monetization of official debt department, JPM Agrees to Fully Backstop NJ $2.6 Billion Debt Offering. Just in case you were wondering who the 'house bank' is and why they keep it around.

All the Fed and Treasury need are a few cooperative intermediaries in the private sector willing to take the vig, and they can run the money machine day and night through the wonderful price discovery mechanism of market 'auctions.'

I wonder if they will have an open bar and jumbo shrimp at this prix fixe bond event? Maybe a nice ice sculpture of the queen of the silver market?

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - 200 DMA Weighs on Stock Indices

Stocks opened weakly and then rallied throughout most of the day, giving up their gains into the close.

Techs weighed all day, and in the last hour the financials joined in and took the SP 500 down as well.

CSCO beat on its earnings report after the bell. The stock was up almost 8 percent on the news in the aftermarket.

Light volumes. Next week is a holiday short (Thanksgiving) trading week.

WayBack Machine 1999: Who Needs Gold When We Have Greenspan?

The irony in this piece is just too good.  

This is almost a template for the anti-gold 'hit pieces' that have appeared almost every year since 1999, put out by the gold bogeys. 

I wonder what people will be saying ten years and five or six more iterations of QE from now?

NY Times
Who Needs Gold When We Have Greenspan?
By Floyd Norris
May 04, 1999

Is gold on its way to becoming just another commodity? The people who run the world's financial system are doing their best to secure that fate for the metal that once was viewed as the only ''real'' money.

"I want to say one word to you. Just one word. Derivatives."

The process of removing the glitter from gold has been a gradual but inexorable one, and is one of the most telling counters to the argument that national governments are less important in this era of globalization. Much of the world is now quite happy to accept the idea that a greenback backed by Alan Greenspan is just as good as one backed by gold.  (And if they are not happy, send in the drones.  The bombings will continue until they are giddy with joy. - Jesse)

Certainly gold's reputation as a store of value has eroded. At the peak of the gold frenzy in 1980, an ounce of gold cost $873, precisely that day's level of the Dow Jones industrial average. Now the Dow is at 11,014.69, about 38 times higher than the $287.60 price of gold.  (and today the Dow is 12, 830 and gold is $1,730. - Jesse)

Actually, that measurement understates the amount by which stocks have outperformed gold. If you had owned stocks all those years, you would have received substantial dividends. If you owned a lot of gold, you got no dividends but did have to pay storage fees for the stuff.  (And if you do business with Wall Street you may be paying storage fees on gold that is not even there. - Jesse)

That is, in fact, how the central bankers of the world look at gold these days. Michel Camdessus, the managing director of the International Monetary Fund, said last week he expected the fund to sell gold for the first time in two decades.  (And how many more times have they said this in the past twelve years?  Jesse)  The Clinton Administration is pushing for such sales by the I.M.F. to help finance a laudable program to forgive debts owed by very poor countries. 

The money received from the gold sales is to be invested in Government securities that will provide income, and that income will pay off the loans. The implicit assumption is that gold, which does not pay interest, is a lousy investment.

A couple of weeks ago, the Swiss electorate voted to begin untying the Swiss franc from its gold backing. The Swiss central bank could begin selling gold as early as next year. Once again, the argument was that selling gold was a way to find easy money for good deeds. To those who still view gold as the only real money, having the Swiss defect is a bit like discovering that Rome is embracing Protestantism. It is the last place that should happen.

But it is happening, and it seems likely that more central banks -- like the Australian and Dutch banks -- will join those that have already begun selling gold.

We have taken the risk out of trading (for ourselves).

The argument against retaining gold is that its day is past. Once it was useful as a hedge against inflation that would hold its value when paper currencies did not. Now financial markets have their own sophisticated ways, using exotic derivative securities, to hedge against inflation.  (Gold bad, CDS good.  Nice trade...if the government is backstopping your enormous losses. - Jesse)

Once gold served as protection for investors against governments that debased their currencies. Now there is plenty of debasing going on -- the Brazilian real is down 27 percent this year -- but the lesson people have drawn is to believe in the dollar. There is growing support for the idea that all of Latin America should adopt the dollar as a currency.

Dollarization, as that idea is called, amounts to a sort of a gold standard without gold. There would be a universal money whose value was based not on gold in the vaults, but on the wisdom of Mr. Greenspan and his successors at the Federal Reserve. (In cyberspace, no one can hear you screaming - Jesse)  Few fear that one of those successors might resemble G. William Miller, the Fed chairman in the late 1970's who seemed to have no idea how to slow inflation.

If the demonetization of gold continues, the price is likely to keep falling as central-bank sales more than offset any increase in demand from jewelers or industrial users. That could change if it turns out that central bankers are not the geniuses they are now deemed to be. But for now, the world believes in Mr. Greenspan and sees little need for gold.  (And now you can sleep well and believe in Timmy and Ben. Got gold, bitchez? - Jesse)

Money For Nothing Exclusive Clip - "Maestro" from Liberty Street Films on Vimeo.