goldmap

UPDATE: BBC News interview of independent trader -- 9/26/11

 

 "I have a confession, which is: I go to bed each night -- I dream of another recession."

 

Dear All,

He's an independent trader identified as Alessio Rastani and BBC News interviewed him this morning. His candor moved his interviewer to this: "If you could see the people around me, jaws have collectively dropped at what you've just said."  

He never mentions metals but draw your own conclusions.  Remember, he is a trader, not an investor. I admire this type of market agnosticism.  This is not the type of interview you'll see on U.S. television.  Its making the rounds today and I thought you should see it: BBC interviews independent trader

Jeff

 

Masquerade - 9/26/11

"I think the worst in the financial system is yet to come, a possible cataclysm and if that happens the gold price could go (higher) to a number that we simply cannot, at this moment, even imagine. Gold is in an uptrend and professional traders should be buying the dips.” -- Nigel Farage, Member of the European Parliament, 9/23/11

 

Dear All,

In this July post I discussed the fact that the five largest U.S. money-market mutual funds had at that time over 40% of their assets invested in European debt (something I suspect has evaded the attention of the vast majority of those funds' individual shareholders.) Although these funds have been reducing their exposure to European banks the banks have found it increasingly difficult to borrow dollars to repay maturing dollar-denominated debt. Had the Fed on Sept 14th not again bailed out Europe by announcing an extension of dollar swap lines with these banks they would have defaulted, triggering among other things untenable credit default swap obligations by the largest U.S. banks, runs on U.S. money-market funds which would have broken the $1.00 per share level, European bank holidays... Ah heck -- you get the picture. The Fed was faced with the choice of directly supporting European banks or dealing with a global financial collapse.

From the Sept. 22nd  Fed statement: "Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable."

Say what?  Even the U.S. Bureau of Labor Statistics reported that the CPI increased from 1.6% in January to 3.2% in April.  Why does the financial media let the Fed get away with this?

 

How rich. He's learned from other successful TV evangelists and with fellow charlatans has taken his ministry to the airwaves.  Reuters: Al Gore in 24-hour broadcast to convert climate skeptics  In one segment Gore compares his movement to the anti-communists who toppled the Berlin Wall. 

Al Gore refuses to engage scientists in debate. One would think he'd welcome the opportunity to play the Clarence Darrow role in this century's version of the Scopes Trial. Al Gore's preferred tactic is to demean and propagandize, claiming that all 'reputable' scientists are in agreement on climate change, when in fact the scientific community is split fairly evenly, to wit, Nobel Prize-Winning Physicist Resigns Over Global Warming 

The unfolding Solyndra scandal is facilitating a greater questioning of the myth that "The Green Movement," as the environmental industry prefers to label itself lately is some altruistic populist crusade. It is big business and most of it has no viability other than the narrow enterprise of exploiting the availability of public funds for ostensible public purpose and extracting it for private gain.  There is also the matter of human beings in poor countries being exploited and terrorized in the name of environmentalism:

NYTimes: In Scramble for Land, Group Says, Company Pushed Ugandans Out

Infowars: Armed Troops Burn Down Homes, Kill Children To Evict Ugandans In Name Of Global Warming

Please take the time to read this judge's comments: NYTimes: More Interior Scientists Are Taking Heat

UKDailyMail: Global warming and the twisting of our children's minds

 

klep·toc·ra·cy  noun\klep-ˈtä-krə-sē\  :government by those who seek chiefly status and personal gain at the expense of the governed; also : a particular government of this kind  

A Solyndra ex-employee calling in to a radio show revealed the company's lack of viability from the outset:  "Everyone knew that the plant wouldn’t work. But they still did it. They still built it." Money is the driving force in politics and therein lays the dirty truth about what politicians like to refer to as "public service." Boobus americanus seems perpetually distressed by the revelation of public sector corruption, never grasping that with few exceptions, the entire purpose of "public service" is the pursuit of self-interest through the influence or control of public funds. Time and again boobus shows up to vote, naively believing that this or that fellow actually intends to represent boobus's interests once elected. DailyBeast: Gen. William Shelton said White House tried to pressure him to change testimony to help big donor

 

The lock hold that the two-party Republicrat regime has on our country assures that populist representative government will remain a faint memory. Labor, corporate, and special moneyed interests own candidates and if an individual candidate prefers not to be purchased, the Fourth Estate plays co-conspirator. This Yahoo headline of a story reporting the results of a New Hampshire poll in which Ron Paul placed second speaks volumes on the subject.

 

A zero-cost jobs program...A simple but blatant example of how government distorts private free-market behavior and hurts the very people it claims to protect are minimum wage laws. Instead of allowing the private market to engage in wage price discovery, 'central planners' decide the minimum price any and every job is worth. With the federal minimum wage at $7.25 (higher still in some states) and teen unemployment at 25%, eliminating minimum wage laws would enable businesses to offer more low paying jobs to people desperate for work. Potential hires, none of whom would have guns held to their heads, would be free to choose to work at a lower wage or remain unemployed, a choice the government now denies them.

 

Readers know that I have long eschewed owning the gold and silver ETF's, strongly recommending physical gold and silver bullion coins over this highly flawed paper version due to the loosey-goosey custodial practices and their ability to engage in derivative transactions. I have now reached the conclusion that all ETF's of every type should be avoided. This would include the gold and silver stock ETF's such as GDX and GDXJ. The wide latitude that the management of ETF's have to make use of complicated transactions that deviate from the actual simple index that investors believe they own is a risk for which shareholders are not compensated. The lure is the "convenience" that Wall Street markets. It is possible that I'm being overly cautious but I don't believe in taking risk without commensurate compensation. For diversification, create your own basket of good precious metals companies (or for that matter, in whatever market sector you're invested in) and own companies outright. You'll achieve the same upside without the risks of an ETF.

 

The trend...

FinancialTimes: Central banks return as gold buyers

LBMA campaigns for gold to be Tier 1 asset for banks under Basel III

ChinaBusinessNews: Central banks getting nervous about their gold reserves

Swiss first to use gold in securities payments

 

On to gold and silver...

From my last post: "I reiterate something emphasized here many times before; if you do not accept that gold and silver are highly manipulated you will fail to make sense of the price action."

This past week saw one of the sharpest declines of gold, silver and the shares in a good number of years. The ostensible trigger was the Fed's announcement of Operation Twist, which purports to employ no new stimulus, but rather a 'sterilization' operation whereby its buying of long-dated debt issues is funded entirely by the sale of short-dated ones. I employ the word ostensible for reason. I'll leave aside the question of how much of the decline was the result of official orchestration, the Fed announcement, or hedge funds piling out of the sole investment which has been profitable this year (as I write gold remains up 15% for the year) in order to meet margin calls on just about everything else.  It matters little.  It is a blip. There is an ongoing bank run in Europe and the global financial system is as diseased as at any point thus-far. If the market believes that the Fed is going to curtail liquidity it will very shortly find out otherwise. Liquidity blasts are coming either formally or by stealth. 

The Lehman collapse is wrongly viewed as the low-point in the multi-year financial crackup, when in fact it is merely an illustrative event. The system was no worse off in September 2008 when Lehman declared bankruptcy than it is today.  The fallout that resulted from Lehman's collapse is a demonstration of what happens when any of the large insolvent financial institutions are not bailed out. 

There are dozens of other Lehman's sitting in the wings in Europe and the U.S. and any one of their failures will trigger cross-border spillover deposit runs, credit default performance calls, money market collapses and general financial market carnage. The just released OCC 2011 2nd Quarter Report on Derivatives  illustrates that the belly of the system continues to distend with the five largest U.S. banks now holding an all-time high $250 trillion in gross notional derivative contracts.  These contracts produce very real profits for the banks which absent the implicit TBTF status these institutions enjoy, provide worthless contractual obligation to their counter-parties. If any chain in the link of these five insolvent institutions were to break through deserved failure, the entire systemic derivative fraud goes nuclear.

My point?  In the face of the foregoing and the threat of a deflationary meltdown the governors of the U.S. Federal Reserve have only two choices:

1) Acknowledge on behalf of their predecessors and themselves their contributions to the predicament the western world finds itself in and announce: "We have learned our lesson and will no longer interfere in free market activity.  We shall aim to freeze the monetary base and restore credibility to this nation's currency. From this point forward the markets must clear themselves truthfully.  Large financial entities will be permitted to fail; housing prices will be allowed to fall to their natural clearing prices without artificially low financing terms. Debt burdened companies and municipalities will fail. So be it. So be it as well that pension and money market funds will lose major percentages of their assets.  The stock market is on its own. Everyone in fact, is on his/her own.  We're terribly sorry for what we've done, and you must now alas, start anew. Each of us fully expects to be publicly hung in the lobby of the Marriner Eccles Building. Thank you."

2) Debase the dollar.

Time and time again, in order to create the illusion that all is not so bad after all, and to promote questioning of its safe haven status the central banks attack the gold price at opportune times, such as the Fed's announcement this week,  All they need to do is give a helpful push or two and let the market do the work.  Hedge funds -- Wall Street's aggregate dumb money which like bulls in a china shop pile in and out at always the wrong time -- create an avalanche of selling as sell stops are triggered and selling begets selling.

It is all a great masquerade which will not succeed in preventing the prices of silver and gold from making successive new highs.  Gold must be revalued dramatically higher; the Fed has no choice in the matter.  It is that simple. Can the market correct further before it re-ascends?  Anything can happen in the short-term, particularly in a manipulated market -- but so what if it does?  Do not attempt to trade the gold market -- you will regret it. Leave your emotions out of this. If you want an uplifting and feel-good experience rent a chick-flick.

The goldmap index plummeted this week to 16.0, while the goi recorded an all-time low reading of 2.46. 

It is critical that you not allow your clear vision of what is occurring to be influenced by the media and manipulative short term price action....

You don't need a weatherman to know which way the wind blows. -- Bob Dylan, Subterranean Homesick Blues, 1965

 

All the best,

Jeff

 

 

And then there was one... 9/12/11

 

"We did a calculation and we valued all of the gold shares that are available to buy today, from Barrick to GoldCorp, even including GLD (the gold ETF) and we came up with a number that is maybe a little bit higher than the valuation of Apple. One stock basically matches the value of all of the gold that you can buy on the public market in the United States."

-- Stephen Leeb, 9/9/11

 

Dear All,

Europe continues its flirtation with a continental meltdown. Deposits are dropping and liquidity is tightening markedly at the sickly European banks holding so much of the continent's toxic sovereign debt. Gold reflected this stress by making new highs against the Euro, Swiss franc and British pound this past week. In the face of the potential for collapse of the banking system Central Bank President Jean Claude Trichet assured the world that European banking liquidity is "not an issue." and that the ECB's goal is "price stability." Translation: Liquidity is the issue, they'll be expanding their balance sheet and all paper currencies will remain unstable for the foreseeable future.

A comment this past week by Deutsche Bank CEO Josef Ackerman made in broad daylight summarizes the make-believe and blatant fraud that underlies official policy in the western banking system: "It's obvious that many European banks would not be able to handle writing down the sovereign bonds they hold on their banking books to market levels."

Opening another front in the global currency war, the Swiss National Bank (SNB) announced on Tuesday that it would intervene in currency markets to prevent a further rise in the franc, pegging it against the Euro. This now leaves gold as the only currency immune from the antics of government bureaucrats (not that there was ever much doubt). The franc promptly plunged. Minutes prior to the announcement however -- gold, which should have catapulted higher on the news was hit hard, immediately dropping $50 and ultimately as much as $100 before recovering. It was a blatant coordinated effort among western central banks to seek to blunt the effect of the Swiss announcement by hammering the gold price on this extremely gold bullish development. With time the devaluation will prove to be, as all such interventions are, a wasteful and costly exercise for the Swiss. In any event, as gold investors our role is to profit from the folly of the academic lightweights who populate government and central banking.

 

I reiterate something emphasized here many times before; if you do not accept that gold and silver are highly manipulated you will fail to make sense of the price action. Last week's Swiss announcement provided a perfect example of the often counter-intuitive price-action that characterizes the gold market, which thoroughly confuses and often frightens the uninitiated.

On precisely this topic, after more than a decade of enduring ridicule for believing such a thing and as a long time GATA supporter, I find it extremely uncomfortable to now have Wall Street's elite supporting the notion that gold is manipulated, let alone to find myself on the same side of the trade as these people. Goldman Sachs it should be pointed out profited handsomely for years as a central co-conspirator in the gold price suppression. As was inevitable, as the physical market is now overtaking the criminal paper market and the manipulation opportunity is unwinding, it has re-emerged as a "whistle-blower" and switched sides. I feel the urge to take a shower: Zerohedge: Goldman Head Gold Trader Speculates About "Authority" Intervention in Gold, Sees Gold Pushing Higher

 

As reported by Zerohedge early last week, Wikileaks has released a 2009 U.S. State Dept. cable which reveals that China has been aware of the U.S. suppression of the gold price, and which by the cable's very existence implies that U.S. had at a minimum an interest in monitoring the Chinese in regard thereto. The cable from the US Embassy in Beijing to Washington reports on a Chinese government sponsored newspaper, Shijie Xinwenbao (World News Journal) commentary -- in effect, official Chinese opinion.   From the cable:

“"According to China's National Foreign Exchanges Administration...The US and Europe have always suppressed the rising price of gold. They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the US dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the US in maintaining the US dollar’s role as the international reserve currency.”

 

Sorry, Charlie...The Prince says these things while globe-hopping with Camilla and staff on a private Airbus A319 which seats 29 (As a commercial aircraft it carries 134): TheTelegraph: Prince Charles warns of 'sixth extinction event' “We are, of course, witnessing what some people call the sixth great extinction event – the continued erosion of much of the Earth’s vital biodiversity caused by a whole host of pressures, from the rising demand for land to the corrosive effects of all kinds of pollution" -- Prince Charles

Such speeches, intended to create the illusion of a purposeful life, are merely a string of words assembled for the inbred featherbrain to read. Heirs to plunderers, the Royals would be well advised to carry on with their business of extravagant self-indulgence without lecturing the world about moderating its ways.

The following is a Brazilian reaction to Charles's 2009 'environmental tour' of South America:

 

 

If you don't know what a 'filter bubble' is this TED video will enlighten you. Your web searches are not benign activities: TED: Eli Pariser - Beware of Filter Bubbles

 

Gold...

Europe has the potential to break. Break or not, global Quantitative Easing is on the permanent menu. All western currencies are falling against gold and the trend is not going to reverse any time soon. The inflation that is coming will be viewed by most as rising prices but in fact it is a wholesale re-pricing of currency. Gold and silver are the front line in that re-pricing.

Ignore the artificial capping attempts on the metals -- they will continue to fail. The precious metal stocks have decisively broken out of the trend begun in early 2009 wherein they have traded in sympathy with the general stock market, notwithstanding the superior performance of gold and silver. The goldmap Index has risen to 22.6, within 6% of its all time high. The GOI has bottomed but has barely begun to catch up, sitting at a mere 3.6 -- evidencing the powerful upside still to come in the mining shares as the relationship between the metals and the shares mean reverts. 

All of the many drivers for higher gold and silver prices discussed here for the past several years remain in place.  They will climb higher with increasing drama and volatility but up they will go. The political leadership and monetary authorities are in entirely over their heads. Things will get worse before getting better.  We're early in the game.  There are more shocks to come. Count on it.

 

Jeff

La crise du dollar -- "quelle base?" - 9/2/11

 

Dear All,

Nothing will change the fact that all the major banks are insolvent, including Warren Buffet's purchase last week of $5 billion in newly issued preferred shares in a TBTF bank which less than 24 hours prior thereto, had insisted it needed no new capital. Finance dilettantes hailed Buffet's investment as a "vote of confidence" in Bank of America. Hardly. Had Buffet purchased BOA common stock that might have been a legitimate characterization but the deal is in reality a current 6% yielding quasi-debt issue juiced with free stock options and a premium takeout requirement.

As was the case with his prior Goldman Sachs and General Electric preferred stock purchases, Buffet provided emergency bridge liquidity by purchasing preferred dividend paying shares in insolvent entities with the tacit knowledge that the U.S. Treasury and Fed were backstopping his private facilitation of what otherwise would have necessitated a public bailout. Without their TBTF status Buffet would not have touched these companies, all of which were incapable of surviving without government backstopping. Observers misinterpret these investments as something akin to Buffet's purchases of the common shares of what he terms "sensibly priced," well run companies with great franchises. Two significant things occurred immediately prior to the BOA deal's announcement; 1) Buffet had a conversation with President Obama, and 2) NY State Attorney General  and BOA nemesis Eric Schneiderman was promptly removed from the national panel of investigators of sub-prime lending abuse. Schneiderman has vigorously opposed a pending windfall settlement for BOA and the other major banks that will provide them broad immunity from further legal action in connection with their massive mortgage fraud.

Warren Buffet well understands the true condition of BOA's assets. He recognizes however the intangible value that a zombie institution provides a large capital allocator such as himself in structuring a low-risk transaction when said zombie has TBTF status. On behalf of Berkshire Hathaway, the agile Buffet has been shrewdly capitalizing on his prestige, elite government relationships and quick turnaround abilities to create sweetheart minimal-risk preferred share opportunities in distressed TBTF companies.

Barry Ritholtz: Big Banks: Under-Capitalized, Overexposed, Opaque" There is a fundamental misunderstanding about the Wall Street bailouts amongst the public, and quite a few policy makers at Treasury and the Federal Reserve: Somehow, they “fixed” the banking system....In fact, they did nothing of the sort."

U.S. financial institutions are overstating their assets to the point of absurdity. The FASB, having suspended the reporting integrity that mark-to-market accounting imposes upon banks, enables them to feign solvency by fabricating asset valuations on their balance sheets.  The best evidence of this are the re-stated FDIC valuations in the continuing parade of failed institutions. Immediately upon seizure, the FDIC has been restating bank assets at between 50% and 70% of carrying value.

With the massive private derivatives market magnifying the ills in the banking system nothing can be repaired in nominal terms absent the most brutal of deflationary depressions. There is no political or populist appetite for facing the music head-on and enduring in real time, misery that can alternatively be passed on to another generation. The "cures" will be more of the failed Keynesian remedies that facilitated the credit bust in the first place -- the unavoidable consequence of which is dilution of the currencies in which the ills are denominated. The unprecedented overhang of debt that needs to be inflated away mandates a corresponding unprecedented devaluation of the dollar, Euro and other western currencies against gold and silver.

The New York Sun published a wonderful editorial last week which includes a video of a prescient Charles De Gaulle in 1965 expounding on the inherent problem of one country being able to print the world's reserve currency, and the inevitability of a resulting crisis. Nearly half a century later it has come to pass -- quelle base! la crise du dollar -- NYSun: Waiting for De Gaulle

 

The trend...

WSJ: Scrap Gold Sales Peter Out in India

DowJones: Kazakhstan Central Bank to Buy All Locally Produced Gold

Reuters: Analysis: Record prices spawn new wave of China gold bugs

 

Beware of Certified Financial Planners.  This article is rich with gold cliches. NYTimes: The Hidden Dangers In Safe Havens “Gold doesn’t have any intrinsic value,” said Larry M. Elkin, president of the Palisades Hudson Financial Group in Scarsdale, N.Y. “It’s this era’s wampum. At one point you could buy Manhattan for beads.”

Be particularly wary of Certified Financial Planners brandishing statistics:  "Mr. Fisher calculated that over a 43-year period ending in June 2011, the average annual increase for gold, accounting for inflation, was 3.82 percent compared with 4.92 percent for the Standard & Poor’s 500-stock index."

Gee, how convenient. Why 43 years? Choose a different starting point and you'll get very different results. Moreover, as discussed in my last post, 43 years far exceeds a person's investment lifetime. Short term market-timing is something no investor should attempt but getting the big secular trends right is imperative, something these CFP's apparently aren't taught at CFP School.

I've known both in my life and if I were forced to turn over all of my assets to one or the other to manage, I believe I'd choose a wedding planner over a Certified Financial Planner.

 

Defenders of the oppressive domestic Security State will claim that the fact that the chance of an American dying in a terrorist type attack is smaller than her being struck by lightning is "proof" that being forced to walk barefoot in airports saves lives. What a colossal waste of money. Government authority expands, individual liberty erodes, deficits increase, productivity decreases and nobody is any safer: Salon: The decade's biggest scam

"The number of people worldwide who are killed by Muslim-type terrorists, Al Qaeda wannabes, is maybe a few hundred outside of war zones. It's basically the same number of people who die drowning in the bathtub each year"

 

What a classy way to elevate the discussion. Roughly half of the scientific community disagrees with his conclusions, which makes for an awful lot of racists: Al Gore equates global warming skepticism to racism

 

Gold and silver...

Although disconcerting to the uninitiated, the violent action in gold is something you'll need to get used to for the next few years. Much of it has to do with the tug-of-war between the paper market which is being used to attempt to protect short positions -- and physical demand, which is gradually overpowering the paper market in the price discovery war. The confluence of systemic financial stress, currency debasement, short covering and physical demand will continue to push the price upward, albeit in an often volatile fashion.  In the past, large take-downs of gold such as occurred last week required weeks for the market to stabilize. It is now recovering within days. To those of us who have been observing this market for many years, this is very telling. The parade of gold arravistes and quite notably, the pompous Dennis Gartman were all over CNBC last week pronouncing a bursting of the gold bubble and warning that gold could slide hundreds of dollars further still. The market was in fact bottoming as they yapped.

What a farce. Under the pretense of journalism CNBC cheerleader/sycophant (and in this case, blindfloded) Bob Pisani unwittingly shot an infomercial for SPDR Gold Shares, the largest gold ETF (GLD), whose loosey-goosey prospectus and questionable operation gives rise to the belief that GLD is nothing more than a paper derivative scheme. Pisani was shown a "secret vault" allegedly operated by custodian HSBC for the exclusive benefit of GLD.  Pisani, having no idea where he was or whose gold he was actually shown presents all that was represented to him as fact.  Comically, his one attempt to establish "cred" blows up when he holds up a bar whose serial number does not match with any on the list of GLD gold bars owned. Zerohedge provided an excellent critique of the "journalism" which includes the video of the reporting the dimly lit Pisani undertook. Pisani's piece establishes nothing other than the fact that he was videoed standing in a room somewhere containing gold bars, yet addresses none of the legitimate concerns about the integrity of GLD's custodial practices.

CNBC colleague Sue Herrera's introduction of the piece was interesting as well: "Well the GLD has been literally a gold mine for investors..." Actually Sue, no.  GLD does not literally own any gold mines. A gold mine is a hole in the ground with machinery and people moving about that extracts gold from the earth along with other metal by-products and usually lots of rock and dirt in the process.  GLD rather, is a company that runs a fractional (it claims otherwise) custodial gold bar operation and issues pieces of paper (known as shares) as claims on them. Did you mean "figuratively," Sue?

Stay away from GLD and any of Wall Street's ETF's alleging to back paper claims with real physical gold or silver. Gold and silver ETF's offer you no greater upside than having physical gold coins in your own possession, but impose considerably greater risk.

Silver is a sleeper. When I read analysis of industrial silver demand I yawn. Once it clears $50 in price silver's industrial role will yield entirely to its monetary attribute. It's all time high will be taken out and once it does there will be no looking back.  Wall Street simply does not understand the dynamics driving precious metals.  When it finally does the opportunity to buy cheap gold and silver will cease to exist.  After 13 years in the sector I remain committed with 100% of my capital in gold, silver and the precious metals shares.  The metals shares incidentally appear to have now decisively reversed their trend of underperforming the physical metals. 

The financial system has never looked worse in the U.S and Europe and the prospects for the prices of gold and silver never brighter.   The trends have been in place for years for those who have had the ability to observe with clarity, tune out Wall Street and look to the other side of the mountain.  Most have refused to see or been in denial.  Many are finally waking up which is creating the physical demand for the monetary metals. 

Often in In investing one needs to stake their position and then patiently wait for the rest of the world to catch on.

All my best,

Jeff