14 May 2011
Silver Could Eclipse $450, Gold $12,000
With gold over $1,500 and silver around the $35 level, today King World News interviewed one of the top strategists in the world, Robin Griffiths of Cazenove. Cazenove is one of the oldest financial firms on the planet and is widely believed to be the appointed stockbroker to Her Majesty The Queen.
When asked if this time around silver will eclipse the 38 fold up-move which took place in the 70’s Griffiths replied, “Yes, I think getting to $50 was a slam dunk certainty, you test the old all-time high. We now have a consolidation for let’s call it two months and I think then we are going to go on up because the paper monies are still being printed.”
When asked if this time around silver will eclipse the 38 fold up-move which took place in the 70’s Griffiths replied, “Yes, I think getting to $50 was a slam dunk certainty, you test the old all-time high. We now have a consolidation for let’s call it two months and I think then we are going to go on up because the paper monies are still being printed.”
“I’ve got it (silver) as a ten bagger from current levels. You don’t want to be wobbled out here because of a few champagne bubbles. You want to be able to stay with and add to your long-term holdings. Bulls (bull markets) are very successful at wobbling people out at the wrong time.”
When asked if his $350 target was a realistic price level for silver Griffiths stated, “That is absolutely not unrealistic. If you adjust the old all-time high for inflation...that gives you $450 for silver. Then you add in the fact that they are printing money, you can take it higher than that without any difficulty at all.”
When asked about gold specifically Griffiths remarked, “The run-up to the peak in markets like gold is between now and 2015. I think it will all be over by 2015, a lot of it depends on how aggressively paper monies get printed from here on in. I think $3,000 is an absolute minimum target. I can believe in targets certainly above $5,000 and it’s theoretically possible to go to $12,000, that’s dollars an ounce for gold.
If Mr. Bernanke stays on his current agenda I think those higher numbers will be what you will see. We’re looking at the trashing of the dollar. As Marx pointed out, it’s the most assured way of destroying your economy.
There’s a book called ‘The Road to Serfdom’ by Hayek, pointing out that when a country is in debt, getting deeper into debt as Lord Keynes said, ‘Doesn’t work.’ All it does it make the problem worse and it takes longer to solve.
We’re moving away from the dollar being the main reserve currency on the planet...We’re going to move into an era where world trade is done in mixes of renmenbi, rupees and baskets, and the baskets of currencies will need to be weighted by something can’t be printed like gold.”
The KWN Robin Griffiths audio segment will be out shortly, you can listen to the interview by CLICKING HERE.
John Embry Discusses Gold and Silver with James Turk
In this video, John Embry – Chief Investment Strategist at the Canadian firm Sprott Asset Management – discusses the recent correction in the silver price with James Turk, Director of the GoldMoney Foundation.
John argues that long-term savers and investors in precious metals should not panic in the face of such corrections, and also discusses the growing divergence between the paper and the physical silver market, and how we are in the early stages of a big rise in precious metals prices.
Embry also argues how the gold-silver price ratio is likely to move back in favour of silver. He is surprised by how bearish the mainstream media is in its assessment of silver. John and James also comment on the consistent purchasing power of precious metals, in contrast to the ever-diminishing purchasing power of paper money.
They also discuss the worsening fiscal position of the US government. In John’s view, America is likely heading for hyperinflation thanks to the current fiscal policies of the Federal Reserve. John and James notice the growing problem of rising prices, and how the US authorities remain determined not to notice growing inflationary pressures.
Furthermore they talk about the problems that still exist in the international banking system. Given the astonishing quadrillion-dollars worth of OTC derivatives still lying on banks’ balance sheets, in Embry’s view, quantitative easing was implemented primarily in order to ease the pressure on banks. As he points out though, the derivatives problem has not been solved
They also talk about the reasons for the relative underperformance of shares in gold and silver mining companies versus the performance of the metals, and offer some reasons for why this has been the case. John and James address how “hot money” flows into commodity producing nations are driving up the value of currencies like the Australian and Canadian dollars, resulting in booming housing markets in these countries.
At the end, they talk about the recent Canadian election that saw Prime Minister Stephen Harper’s Conservative Party triumphant. James quizzes John about the likely trajectory of Canadian politics and whether or not anti-government Tea Party-style politics is gaining a foothold in Canada.
'US economy under cartels' control'
The US Federal Reserve and Wall Street cartels manipulate the US economy to control it based on their own interests, a financial analyst says.
“Anytime [US President Barack] Obama tries to put forward a policy to reform the [economic] system or to do something for increasing wages, Wall Street crashes the system,” Max Keiser told Press TV.
He pointed to last year's Flash Crash as an example of Wall Street cartels' "act of sabotage" that “was engineered to get Congress to defer any reform of Wall Street.”
On May 6, 2010, the Dow Jones Industrial Average plunged about nine percent and recovered its losses within minutes.
Keiser also warned that US Federal Reserve Chairman Ben Bernanke is holding Obama “captive,” by sticking to his policy of keeping the interest rate “as cheap as possible to make the cost for borrowing and speculating as cheap as possible,” without considering high unemployment and low payment levels.
The Federal Reserve and Wall Street cartels go ahead with their policy by “creating a false reality and data” and spreading it via “state-owned media outlets like Fox news,” the analyst pointed out.
In March, 13.5 million of the Americans were unemployed, with 6.1 million of them considered long-term unemployed, reports say.
This is while the outlook for the near-term job growth still remains gloomy.
Economists believe the housing downturn, high prices of oil and commodities, austerity measures and limited consumer spending will prevent US from having a robust gross domestic product growth.
Source
“Anytime [US President Barack] Obama tries to put forward a policy to reform the [economic] system or to do something for increasing wages, Wall Street crashes the system,” Max Keiser told Press TV.
He pointed to last year's Flash Crash as an example of Wall Street cartels' "act of sabotage" that “was engineered to get Congress to defer any reform of Wall Street.”
On May 6, 2010, the Dow Jones Industrial Average plunged about nine percent and recovered its losses within minutes.
Keiser also warned that US Federal Reserve Chairman Ben Bernanke is holding Obama “captive,” by sticking to his policy of keeping the interest rate “as cheap as possible to make the cost for borrowing and speculating as cheap as possible,” without considering high unemployment and low payment levels.
The Federal Reserve and Wall Street cartels go ahead with their policy by “creating a false reality and data” and spreading it via “state-owned media outlets like Fox news,” the analyst pointed out.
In March, 13.5 million of the Americans were unemployed, with 6.1 million of them considered long-term unemployed, reports say.
This is while the outlook for the near-term job growth still remains gloomy.
Economists believe the housing downturn, high prices of oil and commodities, austerity measures and limited consumer spending will prevent US from having a robust gross domestic product growth.
Source
12 May 2011
Wow, This Stuff Can Turn Around Quickly!
I expected the mid-month weakness to begin last Friday. It began, instead, a week earlier.
I expected a dip of 10% or so. Instead, the dip was over 30%.
I saw a turnaround bottom on Cinqo de Bottomo and looked for a rally to 1520 and 39.50.
I expected a gradually steepening, 4-day selloff back down toward 35 in silver and 1495 in gold. Instead, my gradually steepening selloff took only 4 hours and here we are. What's next?
How the hell should I know? Seriously.
The only thing that I can see is a POSX that has maxxed out its Calvin bounce and commodities that are being intentionally driven off a cliff to give the Fed room to posture. It's all bs. However, IF you are attempting to trade this nonsense, you'd better be buying yourself some time and, once you get long, you'd better have the courage of your convictions to hang in there. You'd also better have some significant capital reserves.
For now, here are updates of the exact same four charts I gave you a scant six hours ago. First up, our fearless leader. In percentage terms, gold continues to hang tough. If it were moving like silver and crude, it would be down $75-150. I told you this morning that I want to buy some June calls at $1500 but there is no sense in getting in a hurry. I'm going to sit idly by again tomorrow and wait for Friday. If Lady Luck smiles upon me, I'll get a chance to buy then near 1490.
Silver is simply remarkable. Notice something potentially important, however. Take a close look at the two areas I've circled. They are today's action and last Thursday's. Note that they are almost identical. Since I am "pattern recognition boy", this immediately caught my eye. Let's watch this thing very closely overnight. IF we consolidate this afternoon and evening around 35 and then dip tomorrow morning toward 34, it may very well be an opportunity to do some bottom fishing. We'll see.
Crude reeks of manipulation. Not the Cartel-type we see in the PM pits where paper contract issuance overwhelms the bid and drives price lower. No, this is the heavy hand of government manipulation.
1) President and dipshit AG declare economic "war" on evil speculators.
2) Start rumors to scare longs and create volatility.
3) Raise margins ostensibly to "control volatility" YOU created.
4) Start fresh batch of rumors.
5) Longs rush out, fearing more margin hikes.
6) Halt trading to really freak out longs.
7) Raise margins again to "control volatility" YOU continue to create.
Did the crude market see 4-5% daily moves before or after O'bottom got involved? Answer this question and you'll have your answer as to why commodities are moving the way they are.
And here's an updated picture of the POSX:
OK, seriously. It's gone about as far as I can see it going on this bounce.
Hang in there. The next 24-48 hours are going to be rough and crazy volatile. Do not be foolish and try to impress your friends by calling a bottom. Let this nonsense play out and I'll try to tell you when its safe to get back in the water.
Source
I expected a dip of 10% or so. Instead, the dip was over 30%.
I saw a turnaround bottom on Cinqo de Bottomo and looked for a rally to 1520 and 39.50.
I expected a gradually steepening, 4-day selloff back down toward 35 in silver and 1495 in gold. Instead, my gradually steepening selloff took only 4 hours and here we are. What's next?
How the hell should I know? Seriously.
The only thing that I can see is a POSX that has maxxed out its Calvin bounce and commodities that are being intentionally driven off a cliff to give the Fed room to posture. It's all bs. However, IF you are attempting to trade this nonsense, you'd better be buying yourself some time and, once you get long, you'd better have the courage of your convictions to hang in there. You'd also better have some significant capital reserves.
For now, here are updates of the exact same four charts I gave you a scant six hours ago. First up, our fearless leader. In percentage terms, gold continues to hang tough. If it were moving like silver and crude, it would be down $75-150. I told you this morning that I want to buy some June calls at $1500 but there is no sense in getting in a hurry. I'm going to sit idly by again tomorrow and wait for Friday. If Lady Luck smiles upon me, I'll get a chance to buy then near 1490.
1) President and dipshit AG declare economic "war" on evil speculators.
2) Start rumors to scare longs and create volatility.
3) Raise margins ostensibly to "control volatility" YOU created.
4) Start fresh batch of rumors.
5) Longs rush out, fearing more margin hikes.
6) Halt trading to really freak out longs.
7) Raise margins again to "control volatility" YOU continue to create.
Did the crude market see 4-5% daily moves before or after O'bottom got involved? Answer this question and you'll have your answer as to why commodities are moving the way they are.
The Living Dead.
OK, seriously. It's gone about as far as I can see it going on this bounce.
Source
Tipping Point to Trigger $ Destruction & Hyperinflation- James Turk
With tremendous volatility in gold, silver and the US dollar, today King World News interviewed James Turk.
When asked about the volatility Turk stated, “In a bull market there are a lot of opportunities to be shaken out. News comes up, downdrafts occur and you will see a lot of emotional reactions, but you really have to focus on the long haul. It’s been the same thing Eric, we’ve dealt with this many times before. Over the past ten years, back in the $320’s (on gold), back in the $400’s, the $700 area, it wasn’t going to get over $1,000 and then it finally did and here we are again. But at the end of the day gold is still holding above $1,500 and that in my mind is very, very important.”
Turk continues:
“It’s just bad news, these deficits just continue to grow and grow. We are seven months into the current fiscal year and we’ve added $870 billion in seven months to the US government’s debt. But here is the really frightening thing Eric, 40% of what the US government is spending is coming from borrowed money. In other words there is a 40% shortfall between what the US government is spending and what they are actually receiving in revenue.
This is clearly not sustainable and this is the thing that is driving the precious metals markets and I think is going to drive these markets much higher. I have been hearing they are going to increase it (US debt ceiling) $2 trillion, and from August of 2011 that is going to provide sufficient capacity to borrow up and through November 2012...What’s clear is that they are not addressing the debt problems and this uncontrollable spending.
They are just kicking the can down the road and I think enough is enough. The market is going to say, ‘We don’t believe you’ and you are going to see a tremendous move into precious metals as people exit the dollar.”
When asked if he remembers other countries with 40% shortfalls in their spending Turk replied, “Oh yeah, Zimbabwe, Argentina in 1991, and the Weimar Republic in Germany in the early 1920’s (all resulted in hyperinflation).
Without gold acting as discipline, politicians have no constraints on spending. They will spend and spend and spend until they are borrowing so much money that the market refuses to lend the money to the government and that’s where we are at the moment.
So what the government has to do is either stop spending or get the central bank to turn that debt into currency, and this is what destroyed the Continental (First official US paper currency). And what the Fed is doing with its so-called quantitative easing is no different that what happened during the period of the Continental. The central bank was basically turning government debt into currency and that’s what the Federal Reserve is doing....and it’s ultimately putting the dollar on the path to hyperinflation.”
When asked what will trigger the hyperinflation Turk responded, “What actually happens and what is quite clear is that there is usually some kind of event, it’s a tipping point. And the event causes people’s confidence in the currency pretty much to evaporate, and once that event occurs you’ve basically got six months before the currency is history.”
Tune in to James Turk’s KWN interview to find out what event Turk believes may cause this break in confidence setting off a chain reaction resulting in a collapse of the US dollar. The Turk interview covers gold, silver, the mining shares & more, it will be released today. You can listen to it by CLICKING HERE.
Source
“It’s just bad news, these deficits just continue to grow and grow. We are seven months into the current fiscal year and we’ve added $870 billion in seven months to the US government’s debt. But here is the really frightening thing Eric, 40% of what the US government is spending is coming from borrowed money. In other words there is a 40% shortfall between what the US government is spending and what they are actually receiving in revenue.
This is clearly not sustainable and this is the thing that is driving the precious metals markets and I think is going to drive these markets much higher. I have been hearing they are going to increase it (US debt ceiling) $2 trillion, and from August of 2011 that is going to provide sufficient capacity to borrow up and through November 2012...What’s clear is that they are not addressing the debt problems and this uncontrollable spending.
They are just kicking the can down the road and I think enough is enough. The market is going to say, ‘We don’t believe you’ and you are going to see a tremendous move into precious metals as people exit the dollar.”
When asked if he remembers other countries with 40% shortfalls in their spending Turk replied, “Oh yeah, Zimbabwe, Argentina in 1991, and the Weimar Republic in Germany in the early 1920’s (all resulted in hyperinflation).
Without gold acting as discipline, politicians have no constraints on spending. They will spend and spend and spend until they are borrowing so much money that the market refuses to lend the money to the government and that’s where we are at the moment.
So what the government has to do is either stop spending or get the central bank to turn that debt into currency, and this is what destroyed the Continental (First official US paper currency). And what the Fed is doing with its so-called quantitative easing is no different that what happened during the period of the Continental. The central bank was basically turning government debt into currency and that’s what the Federal Reserve is doing....and it’s ultimately putting the dollar on the path to hyperinflation.”
When asked what will trigger the hyperinflation Turk responded, “What actually happens and what is quite clear is that there is usually some kind of event, it’s a tipping point. And the event causes people’s confidence in the currency pretty much to evaporate, and once that event occurs you’ve basically got six months before the currency is history.”
Tune in to James Turk’s KWN interview to find out what event Turk believes may cause this break in confidence setting off a chain reaction resulting in a collapse of the US dollar. The Turk interview covers gold, silver, the mining shares & more, it will be released today. You can listen to it by CLICKING HERE.
Source
U.S. Gold Standard Within 5 Years
A return to the gold standard by the United States within the next five years now seems likely, because that move would help the nation solve a variety of economic, fiscal, and monetary ills, Steve Forbes predicted during an exclusive interview this week with HUMAN EVENTS.
“What seems astonishing today could become conventional wisdom in a short period of time,” Forbes said.
Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending, the media mogul and former presidential candidate said. The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now, Forbes added.
If the gold standard had been in place in recent years, the value of the U.S. dollar would not have weakened as it has and excessive federal spending would have been curbed, Forbes told HUMAN EVENTS. The constantly changing value of the U.S. dollar leads to marketplace uncertainty and consequently spurs speculation in commodity investing as a hedge against inflation.
The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.). But the idea “makes too much sense” not to gain popularity as the U.S. economy struggles to create jobs, recover from a housing bubble induced by the Federal Reserve’s easy-money policies, stop rising gasoline prices, and restore fiscal responsibility to U.S. government’s budget, Forbes insisted.
With a stable currency, it is “much harder” for governments to borrow excessively, Forbes said. Without lax Federal Reserve System monetary policies that led to the printing of too much money, the housing bubble would not have been nearly as severe, he added.
“When it comes to exchange rates and monetary policy, people often don’t grasp” what is at stake for the economy, Forbes said. By restoring the gold standard, the United States would shift away from “less responsible policies” and toward a stronger dollar and a stronger America, he said. “If the dollar was as good as gold, other countries would want to buy it.”
An encouraging sign for Forbes is that key lawmakers besides Rep. Paul are recognizing that the Fed is straying well beyond its intended role of promoting stable prices and full employment with its monetary policies.
Forbes cited Rep. Paul Ryan (R.-Wis.), who, he believes, understands monetary policy better than most lawmakers and has shown a willingness to ask tough but necessary questions. For example, when Federal Reserve Chairman Ben Bernanke appeared before the House Budget Committee in February, Ryan, who chairs the panel, asked Bernanke bluntly how many jobs the Fed’s quantitative-easing program had helped to create.
Politicians need to “get over” the notion that the Fed can guide the economy with monetary policy. The Fed is like a “bull in a China shop," Forbes said. “It can’t help but knock things down.”
“People know that something is wrong with the dollar," Forbes concluded. "You cannot trash your money without repercussions.”
Source
“What seems astonishing today could become conventional wisdom in a short period of time,” Forbes said.
Such a move would help to stabilize the value of the dollar, restore confidence among foreign investors in U.S. government bonds, and discourage reckless federal spending, the media mogul and former presidential candidate said. The United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment to end the practice in the 1970s that has contributed to a number of woes that the country is suffering from now, Forbes added.
If the gold standard had been in place in recent years, the value of the U.S. dollar would not have weakened as it has and excessive federal spending would have been curbed, Forbes told HUMAN EVENTS. The constantly changing value of the U.S. dollar leads to marketplace uncertainty and consequently spurs speculation in commodity investing as a hedge against inflation.
The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.). But the idea “makes too much sense” not to gain popularity as the U.S. economy struggles to create jobs, recover from a housing bubble induced by the Federal Reserve’s easy-money policies, stop rising gasoline prices, and restore fiscal responsibility to U.S. government’s budget, Forbes insisted.
With a stable currency, it is “much harder” for governments to borrow excessively, Forbes said. Without lax Federal Reserve System monetary policies that led to the printing of too much money, the housing bubble would not have been nearly as severe, he added.
“When it comes to exchange rates and monetary policy, people often don’t grasp” what is at stake for the economy, Forbes said. By restoring the gold standard, the United States would shift away from “less responsible policies” and toward a stronger dollar and a stronger America, he said. “If the dollar was as good as gold, other countries would want to buy it.”
An encouraging sign for Forbes is that key lawmakers besides Rep. Paul are recognizing that the Fed is straying well beyond its intended role of promoting stable prices and full employment with its monetary policies.
Forbes cited Rep. Paul Ryan (R.-Wis.), who, he believes, understands monetary policy better than most lawmakers and has shown a willingness to ask tough but necessary questions. For example, when Federal Reserve Chairman Ben Bernanke appeared before the House Budget Committee in February, Ryan, who chairs the panel, asked Bernanke bluntly how many jobs the Fed’s quantitative-easing program had helped to create.
Politicians need to “get over” the notion that the Fed can guide the economy with monetary policy. The Fed is like a “bull in a China shop," Forbes said. “It can’t help but knock things down.”
“People know that something is wrong with the dollar," Forbes concluded. "You cannot trash your money without repercussions.”
Source
11 May 2011
“We’re Nowhere Near a Top in Gold!”- Jim sinclair
With gold and silver still recovering, today KWN interviewed the legendary Jim Sinclair.
When asked about the volatility in gold and silver Sinclair replied, “The bonds are indicating that the psychology which is most supportive to gold is returning to the market place. And the action in gold after the recent reaction in gold, is so stout, so strong, as is silver itself, so stout, so strong in its recovery, that the only conclusion that you can come to is that we have not established a top in silver and clearly we’re nowhere near a top in gold. The recovery in silver, the fact that it got plowed down, but its character now seems to deny the recent break, I think silver is acting very, very well and as previously stated, I don’t believe we’ve seen a top in silver yet."
When asked about gold specifically Sinclair stated, “$1,764 is calling on gold now and the market is reacting to it. It is calling, it is the magnet pulling most heavily on gold right now.”
When asked about the shares Sinclair had this to say, “I know what kind of money these companies are going to make. I understand what kind of cash flow that can be generated from this type of price on gold. There is no way on earth at this point that the hedge funds (short miners) are going to be correct. In fact they are the ostriches with their heads in the sand. No share will remain under pressure of a hedge fund when it begins to put out the type of cash flow that the price of gold now will result in.”
When asked if $5,000 gold was unreasonable Sinclair replied, “It’s not unreasonable because there’s nothing that you need to add to the present problem, it’s all done. You really don’t need a QE3, QE1 & QE2 have taken care of everything that would be necessary to put gold at those kind of prices. It’s (gold) is going to eclipse that (1980) mania, but it’s not going to do the pratfall that took place in 1980. This time gold is finding its way back into the monetary system.
...This market isn’t the average guy, this market isn’t the average multi-millionaire, this market is giants and those giants are not bearish.”
The KWN Jim Sinclair audio segment will be released today, you can listen to the interview by CLICKING HERE.
The Global Dollar Dump Is Already in Progress
The following quotes signal the beginning of the End Game for the US Dollar:
“We hope the U.S. government will take responsible policies and measures to safeguard investors’ interests,” [China’s ministry] said in a statement.
“Foreign-exchange reserves have exceeded the reasonable levels that we actually need,” [China’s central bank governor] said. “The rapid increase in reserves may have led to excessive liquidity and has exerted significant sterilization pressure. If the government doesn’t strike the right balance with its policies, the build-up could cause big risks,” he said, without elaborating.
These two statements, in plain terms, are China saying it’s sick of the US Dollar. Remember, the US Dollar and Dollar-denominated assets (Treasuries etc) are China’s single largest holding. So the reference to “foreign-exchange reserves,” is synonymous with “US Dollar denominated assets.”
On the surface, it will be easy to chalk all of this up to politician speak. After all, China has been issuing warnings to the US regarding the latter’s financial condition since 2009.
However, a few key developments have occurred that make it clear this latest round of statements are the real deal.
First and foremost, China and Russia agreed late last year to begin trading with one another in their own currencies, NOT the US Dollar. In that step alone, two of the largest emerging markets (and economies) in the world moved away from the US Dollar. Add to this the fact that China just agreed to expedite trade relations with Brazil and you’ve got the beginnings of a flight from the US Dollar and the end of the Dollar’s reserve currency status.
Indeed, not three months after China signed this deal with Russia, China’s president visited Washington and delivered a speech in which he stated that, “the current international currency system is the product of the past” (edits mine).
Consider the “past” comment in relation to China’s decision shutting the US Dollar out of its trade with Russia (and other items I’m about to detail). In this sense, the “past” is the US Dollar as the world’s reserve currency.
Indeed, China has been actively moving to distance its reliance on the US as a trade partner.
As you can see, in just four years, the US has gone from accounting for nearly a third of China’s exports to less than a quarter. That is a MASSIVE shift in less than a decade (at this pace the US will be down to just 15% of China’s exports by 2015).
China is literally putting its money where its mouth is. And its mouth is now openly telling the world that it’s no longer interested in US Dollars or Dollar denominated assets.
In plain terms a US Dollar collapse is on the way. What follows will be a hyperinflationary disaster that will shred savings and paper assets to nothing.
“We hope the U.S. government will take responsible policies and measures to safeguard investors’ interests,” [China’s ministry] said in a statement.
“Foreign-exchange reserves have exceeded the reasonable levels that we actually need,” [China’s central bank governor] said. “The rapid increase in reserves may have led to excessive liquidity and has exerted significant sterilization pressure. If the government doesn’t strike the right balance with its policies, the build-up could cause big risks,” he said, without elaborating.
These two statements, in plain terms, are China saying it’s sick of the US Dollar. Remember, the US Dollar and Dollar-denominated assets (Treasuries etc) are China’s single largest holding. So the reference to “foreign-exchange reserves,” is synonymous with “US Dollar denominated assets.”
On the surface, it will be easy to chalk all of this up to politician speak. After all, China has been issuing warnings to the US regarding the latter’s financial condition since 2009.
However, a few key developments have occurred that make it clear this latest round of statements are the real deal.
First and foremost, China and Russia agreed late last year to begin trading with one another in their own currencies, NOT the US Dollar. In that step alone, two of the largest emerging markets (and economies) in the world moved away from the US Dollar. Add to this the fact that China just agreed to expedite trade relations with Brazil and you’ve got the beginnings of a flight from the US Dollar and the end of the Dollar’s reserve currency status.
Indeed, not three months after China signed this deal with Russia, China’s president visited Washington and delivered a speech in which he stated that, “the current international currency system is the product of the past” (edits mine).
Consider the “past” comment in relation to China’s decision shutting the US Dollar out of its trade with Russia (and other items I’m about to detail). In this sense, the “past” is the US Dollar as the world’s reserve currency.
Indeed, China has been actively moving to distance its reliance on the US as a trade partner.
As you can see, in just four years, the US has gone from accounting for nearly a third of China’s exports to less than a quarter. That is a MASSIVE shift in less than a decade (at this pace the US will be down to just 15% of China’s exports by 2015).
China is literally putting its money where its mouth is. And its mouth is now openly telling the world that it’s no longer interested in US Dollars or Dollar denominated assets.
In plain terms a US Dollar collapse is on the way. What follows will be a hyperinflationary disaster that will shred savings and paper assets to nothing.
In part we noted how China has already begun moving away from the US as a major trading partner. This move has set in motion a series of events that will result in the US Dollar losing its status as reserve currency of the world.
Indeed, we are now seeing various other nations preparing for the end of the US Dollar as reserve currency. Consider that Saudi Arabia becoming so fed up with the US that it is sending trade representatives to China and Russia to strengthen trade ties.
Saudi Arabia is the single largest oil producing country in the world. Saudi Arabia IS oil in some regard. Whatever currency Saudi Arabia chooses to denominate its oil exports in will be the world’s reserve currency.
So Saudi Arabia’s decision to send trade representatives to China and Russia should be seen as Saudia Arabia seeing the writing on the wall, (death of the US Dollar) and starting the process of moving away from the greenback.
Saudi Arabia is not the only one. Singapore announced today that it will begin trading Yuan. The significance of this is enormous. Singapore is one of the four largest financial hubs in the world (the others are New York, London, and Tokyo). It’s also the second largest private banking center behind Switzerland. With its English-speaking population, first-world accounting standards, and close proximity to China, Singapore is literally a “gateway to the east” through which world capital flows into Asia.
In simple terms, the world is beginning to shift away from the US Dollar as a reserve currency. This is not idle conjecture. This is fact. The writing is clearly on the wall for those who can read between the lines of the media’s US-centric focus.
Indeed, officials from China, India, Brazil, Russia, and South Africa (the latest addition to the BRIC acronym, now to be called BRICS) recently met in southern China to discuss expanding the use of their own currencies in foreign trade (yet another move away from the US Dollar).
To recap:
- China and Russia have removed the US Dollar from their trade
- China is rushing its trade agreement with Brazil
- China, Russia, Brazil, India, and now South Africa are moving to trade more in their own currencies (not the US Dollar)
- Saudi Arabia is moving to formalize trade with China and Russia
- Singapore is moving to trade yuan
The process will not be linear in fashion: the Greenback will not simply collapse in one go. Moreover, it will not be obvious at first. Remember, the US Dollar is currently priced against a basket of currencies primarily comprised of garbage paper currencies backed by insolvent nations or broken unions (the Japanese Yen and the Euro).
However, ultimately the US Dollar will be losing some 50% of its value in the future. The US Dollar chart is already forecasting this.
Source
10 May 2011
....And just like That Silver Rebounds
Investors ploughed their money back into commodities Monday with oil, gold and silver prices all recovering from last week's rout.
Crude oil for June delivery settled up $5.51 at $102.69 a barrel on the New York Mercantile Exchange as bargain hunters moved in. Crude touched an intra-day high of $103.40 late in the session.
Oil prices surged 5%, gold added just over 1% while silver prices charged 6% higher.
Gold futures for June delivery rose $16.70 to close above $1,500 at $1,507.90 an ounce on renewed concern about euro zone sovereign debt.
Fears were heightened after Standard & Poor's downgraded Greece's credit rating by two notches and Moody's placed the debt on review for a possible downgrade.
Silver for July delivery rose $2.18 to end at $38.47 an ounce as bargain hunters moved in after last week's dramatic plunge after the grey metal was badly hit by higher margin requirements.
All I can say is keep Buying those dips!
Goldman Sachs Sells First Kangaroo Bonds in Five Years: Australia Credit
Goldman Sachs Group Inc. (GS) is returning to Australia’s bond market for the first time since 2006 to take advantage of relative yields on financial debt hovering at about the lowest level in three years.
The fifth-largest U.S. bank by assets sold A$1.25 billion ($1.35 billion) of 5 1/2-year notes yesterday, including A$500 million of floating-rate bonds priced to yield 205 basis points more than the bank bill swap rate, according to data compiled by Bloomberg. The extra yield investors demand to own Australian dollar bank bonds instead of government debt has shrunk 37 basis points this year to 157, compared with a drop of 31 on U.S. financial securities to 175, Bank of America Merrill Lynch indexes show.
The New York-based bank follows JPMorgan Chase & Co. and Bank of America Corp. (BAC) in returning to the so-called kangaroo bond market, which shut to financial issuers in 2008 after the collapse of Lehman Brothers Holdings Inc. spurred investors to shun all but the safest debt.
“It is a sign of market health that Goldman can consider issuing in Australia,” said John Sorrell, head of credit at Tyndall Investment Management Australia Ltd. in Sydney, who helps manage about A$14 billion of fixed-income assets. “I expect more financial kangaroo sales.”
Basis Swaps
While Australia’s benchmark interest rate of 4.75 percent compares with near zero in the U.S., the currency swaps market is offering discounts to borrowers as they switch the proceeds into U.S. dollars.
The five-year Australian dollar basis swap, which measures the cost of switching interest based on the London interbank offered rate, or Libor, for payments linked to Australia’s bank bill swap rate, was at 20.3 basis points in Sydney today.
It peaked at 48 basis points in November 2009, and has averaged 21.7 this month, compared with an average 8.6 for the five years to 2007. The higher the level, the greater the discount for overseas borrowers selling debt in Australia.
The spread paid by Goldman Sachs, rated A by Standard & Poor’s, compares with the 113 basis points that Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. each paid on five-year bonds last week, data compiled by Bloomberg show. Both Australian companies are ranked AA, three rungs higher than Goldman Sachs.
Previous Sale
Goldman Sachs paid a 51-basis-point spread over swap rates when it issued A$200 million of 10-year 6.35 percent kangaroo notes in March 2006, part of an offering that totaled A$1.65 billion and was the lender’s last sale of the securities, the data show. The notes were last quoted at a spread of 182 basis points, ANZ prices show.
Kangaroo bond sales surged to a record A$37.3 billion last year as the swaps market cut funding costs for issuers once proceeds were exchanged into U.S. dollars. The World Bank and Germany’s Landwirtschaftliche Rentenbank were among the top borrowers.
The World Bank’s International Bank for Reconstruction and Development sold A$600 million of 5.5 percent October 2014 notes on Jan. 18. The securities were priced to yield 49.25 basis points more than similar-maturity government debt, Bloomberg data show.
That rate equated to about 10 basis points less than Libor, once swapped into U.S. dollars, the data show. In June, the IBRD priced $2 billion of floating-rate bonds due July 2011 to yield 5 basis points more than Libor.
Hayley Morris, a Sydney-based spokeswoman for Goldman Sachs, didn’t immediately respond to two telephone requests for comment on yesterday’s sale.
Growth Forecast
The Reserve Bank of Australia, which kept its target rate at 4.75 percent last week, expects the economy to expand 4.25 percent this year, the fastest pace since 1999. It’s banking on a rising currency to help curb inflation.
Australian Treasurer Wayne Swan will release the government’s budget later today amid promises of “substantial” spending cuts. Swan, who delivers the budget to Parliament beginning at 7:30 p.m. local time, said earlier this week that the deficit in the government’s finances will widen in the fiscal year ending June 30 before increased mining revenue and an improving economy help bring about a surplus in 2012-13.
Australia’s dollar climbed 20 percent over the past year to $1.0786 at 8:18 a.m. in Sydney today, and touched $1.1012 on May 2, the highest since exchange controls were scrapped in 1983.
Consumer Prices
Consumer prices may rise an annual 3.11 percent in the next five years, according to the gap between yields on government bonds and inflation-indexed notes. The RBA aims to hold inflation between 2 and 3 percent on average.
The yield on the benchmark 10-year government bond dropped 1 basis point to 5.42 percent yesterday, or 225 basis points more than similar-maturity Treasuries.
The extra yield investors demand to hold Australian-dollar bank bonds instead of government debt fell to 154 basis points in March, the lowest since January 2008, Bank of America Merrill Lynch indexes show.
Kangaroo bond sales, which total A$16.2 billion this year, slowed from a record start after Australia’s banking regulator ruled that notes sold by top-rated borrowers such as the World Bank don’t qualify as assets lenders need to hold under Basel Committee on Banking Supervision rules.
RBC Capital Markets leads underwriter rankings with an 18 percent market share, followed by Commonwealth Bank of Australia with 11 percent, Bloomberg data show.
JPMorgan paid 135 basis points more than swap rates when it sold A$600 million of five-year kangaroo bonds in March, Bloomberg data show. It’s rated A+ by S&P, the fifth-highest investment grade.
Demand for the Goldman Sachs notes was “very strong” and the spread was fair, said Mark Mitchell, a portfolio manager and head of credit at Sydney-based Kapstream Capital, which manages about A$3.9 billion and bought the bonds.
“We would classify Goldman Sachs as being too big to fail in terms of their systemic importance in the U.S.,” he said. “We’re pretty comfortable having exposure to it.”
Source
The fifth-largest U.S. bank by assets sold A$1.25 billion ($1.35 billion) of 5 1/2-year notes yesterday, including A$500 million of floating-rate bonds priced to yield 205 basis points more than the bank bill swap rate, according to data compiled by Bloomberg. The extra yield investors demand to own Australian dollar bank bonds instead of government debt has shrunk 37 basis points this year to 157, compared with a drop of 31 on U.S. financial securities to 175, Bank of America Merrill Lynch indexes show.
The New York-based bank follows JPMorgan Chase & Co. and Bank of America Corp. (BAC) in returning to the so-called kangaroo bond market, which shut to financial issuers in 2008 after the collapse of Lehman Brothers Holdings Inc. spurred investors to shun all but the safest debt.
“It is a sign of market health that Goldman can consider issuing in Australia,” said John Sorrell, head of credit at Tyndall Investment Management Australia Ltd. in Sydney, who helps manage about A$14 billion of fixed-income assets. “I expect more financial kangaroo sales.”
Basis Swaps
While Australia’s benchmark interest rate of 4.75 percent compares with near zero in the U.S., the currency swaps market is offering discounts to borrowers as they switch the proceeds into U.S. dollars.
The five-year Australian dollar basis swap, which measures the cost of switching interest based on the London interbank offered rate, or Libor, for payments linked to Australia’s bank bill swap rate, was at 20.3 basis points in Sydney today.
It peaked at 48 basis points in November 2009, and has averaged 21.7 this month, compared with an average 8.6 for the five years to 2007. The higher the level, the greater the discount for overseas borrowers selling debt in Australia.
The spread paid by Goldman Sachs, rated A by Standard & Poor’s, compares with the 113 basis points that Australia & New Zealand Banking Group Ltd. (ANZ) and Westpac Banking Corp. each paid on five-year bonds last week, data compiled by Bloomberg show. Both Australian companies are ranked AA, three rungs higher than Goldman Sachs.
Previous Sale
Goldman Sachs paid a 51-basis-point spread over swap rates when it issued A$200 million of 10-year 6.35 percent kangaroo notes in March 2006, part of an offering that totaled A$1.65 billion and was the lender’s last sale of the securities, the data show. The notes were last quoted at a spread of 182 basis points, ANZ prices show.
Kangaroo bond sales surged to a record A$37.3 billion last year as the swaps market cut funding costs for issuers once proceeds were exchanged into U.S. dollars. The World Bank and Germany’s Landwirtschaftliche Rentenbank were among the top borrowers.
The World Bank’s International Bank for Reconstruction and Development sold A$600 million of 5.5 percent October 2014 notes on Jan. 18. The securities were priced to yield 49.25 basis points more than similar-maturity government debt, Bloomberg data show.
That rate equated to about 10 basis points less than Libor, once swapped into U.S. dollars, the data show. In June, the IBRD priced $2 billion of floating-rate bonds due July 2011 to yield 5 basis points more than Libor.
Hayley Morris, a Sydney-based spokeswoman for Goldman Sachs, didn’t immediately respond to two telephone requests for comment on yesterday’s sale.
Growth Forecast
The Reserve Bank of Australia, which kept its target rate at 4.75 percent last week, expects the economy to expand 4.25 percent this year, the fastest pace since 1999. It’s banking on a rising currency to help curb inflation.
Australian Treasurer Wayne Swan will release the government’s budget later today amid promises of “substantial” spending cuts. Swan, who delivers the budget to Parliament beginning at 7:30 p.m. local time, said earlier this week that the deficit in the government’s finances will widen in the fiscal year ending June 30 before increased mining revenue and an improving economy help bring about a surplus in 2012-13.
Australia’s dollar climbed 20 percent over the past year to $1.0786 at 8:18 a.m. in Sydney today, and touched $1.1012 on May 2, the highest since exchange controls were scrapped in 1983.
Consumer Prices
Consumer prices may rise an annual 3.11 percent in the next five years, according to the gap between yields on government bonds and inflation-indexed notes. The RBA aims to hold inflation between 2 and 3 percent on average.
The yield on the benchmark 10-year government bond dropped 1 basis point to 5.42 percent yesterday, or 225 basis points more than similar-maturity Treasuries.
The extra yield investors demand to hold Australian-dollar bank bonds instead of government debt fell to 154 basis points in March, the lowest since January 2008, Bank of America Merrill Lynch indexes show.
Kangaroo bond sales, which total A$16.2 billion this year, slowed from a record start after Australia’s banking regulator ruled that notes sold by top-rated borrowers such as the World Bank don’t qualify as assets lenders need to hold under Basel Committee on Banking Supervision rules.
RBC Capital Markets leads underwriter rankings with an 18 percent market share, followed by Commonwealth Bank of Australia with 11 percent, Bloomberg data show.
JPMorgan paid 135 basis points more than swap rates when it sold A$600 million of five-year kangaroo bonds in March, Bloomberg data show. It’s rated A+ by S&P, the fifth-highest investment grade.
Demand for the Goldman Sachs notes was “very strong” and the spread was fair, said Mark Mitchell, a portfolio manager and head of credit at Sydney-based Kapstream Capital, which manages about A$3.9 billion and bought the bonds.
“We would classify Goldman Sachs as being too big to fail in terms of their systemic importance in the U.S.,” he said. “We’re pretty comfortable having exposure to it.”
Source
“Silver Will Hit New Highs in a Matter of Weeks”= James Turk
With tremendous volatility in gold and silver, today King World News interviewed James Turk out of Spain, and subsequently Turk sent the following piece below exclusively for the KWN blog. When asked about gold Turk remarked, “I’m taking my cue here from the mining stocks. The XAU once again held above the 200 level which has been the bottom of its trading range. That suggests to me that both the mining shares and gold are sold out here and due for a big bounce.”
Turk continues:
“The action in gold this week will be important as strength here will indicate the beginning of a move back toward its record high. I expect that high to be probed by the end of this month. After all Eric, nothing has fundamentally changed. The dead cat bounce in the dollar has not altered the bullish outlook for gold.”
When asked about silver specifically Turk stated, “At times like this it is important to stand back and take a look at the big picture. So the key point here Eric is to focus on the chart (above) which does a great job of illustrating this. If we put last week’s price drop into context and focus on all of the factors that have been driving silver higher for ten years, it’s logical to conclude that the big price jump in silver is still ahead of us.
Eventually there will be a mania in silver, but in the fullness of time what we just witnessed will be seen as a first act. The fact is that the final parabola in silver during the climax of the third stage or manic phase will be one for the history books.”
Turk continues:
“The action in gold this week will be important as strength here will indicate the beginning of a move back toward its record high. I expect that high to be probed by the end of this month. After all Eric, nothing has fundamentally changed. The dead cat bounce in the dollar has not altered the bullish outlook for gold.”
When asked about silver specifically Turk stated, “At times like this it is important to stand back and take a look at the big picture. So the key point here Eric is to focus on the chart (above) which does a great job of illustrating this. If we put last week’s price drop into context and focus on all of the factors that have been driving silver higher for ten years, it’s logical to conclude that the big price jump in silver is still ahead of us.
Eventually there will be a mania in silver, but in the fullness of time what we just witnessed will be seen as a first act. The fact is that the final parabola in silver during the climax of the third stage or manic phase will be one for the history books.”
9 May 2011
Silver - The Bloodbath Is Over
The silver price continued its freefall on Friday, getting right down to $33.25 on Friday night.
And to think that it was $49.80 two weeks ago today. That's a fall of 33%! That is still only two months of gains however.
There was more to this fall than panic selling and profit taking though.
This fall was predominantly due to Chicago and New York commodity exchanges raising margins. This effectively means traders suddenly faced much higher trading costs - the price of trading silver futuresjumped 84% in a fortnight. It's as though your broker suddenly doubled your brokerage - you'd think twice about each trade. This was intentional and was designed to chuck the silver market in a bath of ice water for a bit, to protect it from overheating and exploding!
It seems to have worked - I'd say that a 33% fall in the silver price is enough!
Yet silver has started recovering already. It is already up 9% from its Friday-night low, and has gone through $36 today.
Silver - support at the 90-day moving average and bouncing already
Source: Stockcharts
So what happens next?
The fundamentals of the silver market will push the price up.
Any more interventions or other forms of market meddling will only have a kind of short-term effect. Fundamentals will win over.
Investor demand for silver has grown from a stream into a river. You can try and build a dam in front of this, but the river will go right over it. It's happening already.
How a 1980 copy of Playboy Predicts the Future for Silver
Last night I lay back on my couch and had a couple of glasses of red, while reading an article from 1980 about the Hunt brothers and the events that surrounded the last spike in Silver to $50.
I found the article while surfing the web for financial news so I take no responsibility for the fact the original article was found in Playboy. Everyone reads Playboy for the articles, right?
It was a fascinating article and well worth the read for anyone interested in the markets.
A short synopsis of the story – if you don’t know it – is that the Hunt brothers – and in particular, Nelson Bunker Hunt – bought so much silver in the mid to late 70s that they nearly cornered the market.
They bought 55 million ounces in late 1973 and early 1974 at around $3–4 an ounce and sent 40 million ounces of it by chartered plane to Switzerland because they feared the US government would confiscate silver in the same way it had stolen gold from US citizens in the 1930s.
The rationale for their buying made perfect sense. Nixon had gone off the gold standard so the US dollar was now a purely fiat currency. The Hunts feared that their wealth was going to be stolen by the printing presses and they wanted to protect their immense inheritance (their father made billions in oil).
They continued buying over the ensuing years and even went into partnership with some Saudi Sheiks. They set up a Bermuda-based trading company called International Metals Investment Company Ltd. The firm listed four principals: Nelson Bunker Hunt, William Herbert Hunt, Sheik Mohammed Aboud Al-Amoudi and Sheik Ali Bin Mussalem. Rumours were that they were also backed by some very wealthy Sheiks who didn’t want to be named.
This firm was incorporated in the summer of 1979 just prior to the immense spike in silver. They bought 90 million ounces of silver through the partnership and also wanted to take delivery of the silver. Over the next few months the silver price spiked hard (from $8 to $16 during August and September 1979) and there were fears of a squeeze on Comex silver supplies. This means the exchanges were worried that they would not be able to meet delivery of contracts in silver bullion when they fell due.
This is where it gets really interesting. And we can see some parallels to the current price action in silver...
As stated in the article, ‘The boards of both the Chicago and the New York exchanges were composed not only of “outside” directors but also of representatives of the major, usually Eastern-based brokerage houses. Later testimony would reveal that nine of the 23 Comex board members held short contracts on 38,000,000 ounces of silver. With their 1.88 billion dollar collective interest in having the price go down, it is easy to see why Bunker did not view them as objective regulators.’
As the price of silver continued to climb the regulators began changing the rules. First the Chicago Board of Trade (CBOT) raised the margin requirement and declared that silver traders would be limited to 3 million ounces of futures contracts. Traders with more than that would have to divest themselves of their excess futures holdings by mid-February 1980.
The price of silver really started to shoot to the sky now because there was a perceived silver shortage. By the end of 1979 the price stood at $34.45.
On 7 January 1980 the Comex changed the rules. The exchange announced new position limits for futures contracts of 10 million ounces. The effective date for the limits was 18 February 1980.
After this announcement, the price climbed higher and the Hunts kept buying. On 17 January silver hit $50 an ounce.
On 21 January the Comex announced its coup de grace, saying that trading would be limited to liquidation orders only. No, I’m not kidding. The exchange changed the rules so that no one was allowed to open any new positions from that point on. You could only liquidate open positions.
The next day silver fell off a cliff and plunged from $44 to $34.
To cut a long story short the price kept falling and the Hunts couldn’t cover their margins on the futures they had bought. The Fed stepped in for fear that a huge financial panic was about to ensue and lent $1.1 billion to the Hunts to cover their margins but demanded huge collateral for the loans.
Nelson Bunker Hunt eventually went bankrupt in 1988.
Fast forward 30 years and the silver price has once again scaled the heights to $50 an ounce. The exchanges changed the rules to increase the margin requirements and the price of silver has plunged 27% in a week. There are rumours that JP Morgan holds an immense short position in silver that was feeling the pinch.
What better way for them to relieve the pressure than to turn the screws on the long positions by raising the margin requirements substantially and then pick up the pieces at their leisure?
After reading the history of the Hunt brothers and seeing that the futures exchanges create the rules of the game – and can change them at will to suit their own purposes – you have to view the current price action in silver with a little more scepticism.
In 1980, the fall was due to the exchange’s desire to hurt a big player who was long. Today’s move I believe is more about protecting the position of an insider who is short and hurting.
Therefore I think you would have to say that chances are high that the price of silver will once again scale the heights if the players who are short use this sell off to cover their short positions. There is still a lot of pent up demand for precious metals and central banks continue to print.
I would not be surprised to see silver flat line for a few months during this seasonally weak period for metals and after taking such a hammering, but there will be a time in the next few months when silver will be a bargain.
I found the article while surfing the web for financial news so I take no responsibility for the fact the original article was found in Playboy. Everyone reads Playboy for the articles, right?
It was a fascinating article and well worth the read for anyone interested in the markets.
A short synopsis of the story – if you don’t know it – is that the Hunt brothers – and in particular, Nelson Bunker Hunt – bought so much silver in the mid to late 70s that they nearly cornered the market.
They bought 55 million ounces in late 1973 and early 1974 at around $3–4 an ounce and sent 40 million ounces of it by chartered plane to Switzerland because they feared the US government would confiscate silver in the same way it had stolen gold from US citizens in the 1930s.
The rationale for their buying made perfect sense. Nixon had gone off the gold standard so the US dollar was now a purely fiat currency. The Hunts feared that their wealth was going to be stolen by the printing presses and they wanted to protect their immense inheritance (their father made billions in oil).
They continued buying over the ensuing years and even went into partnership with some Saudi Sheiks. They set up a Bermuda-based trading company called International Metals Investment Company Ltd. The firm listed four principals: Nelson Bunker Hunt, William Herbert Hunt, Sheik Mohammed Aboud Al-Amoudi and Sheik Ali Bin Mussalem. Rumours were that they were also backed by some very wealthy Sheiks who didn’t want to be named.
This firm was incorporated in the summer of 1979 just prior to the immense spike in silver. They bought 90 million ounces of silver through the partnership and also wanted to take delivery of the silver. Over the next few months the silver price spiked hard (from $8 to $16 during August and September 1979) and there were fears of a squeeze on Comex silver supplies. This means the exchanges were worried that they would not be able to meet delivery of contracts in silver bullion when they fell due.
This is where it gets really interesting. And we can see some parallels to the current price action in silver...
As stated in the article, ‘The boards of both the Chicago and the New York exchanges were composed not only of “outside” directors but also of representatives of the major, usually Eastern-based brokerage houses. Later testimony would reveal that nine of the 23 Comex board members held short contracts on 38,000,000 ounces of silver. With their 1.88 billion dollar collective interest in having the price go down, it is easy to see why Bunker did not view them as objective regulators.’
As the price of silver continued to climb the regulators began changing the rules. First the Chicago Board of Trade (CBOT) raised the margin requirement and declared that silver traders would be limited to 3 million ounces of futures contracts. Traders with more than that would have to divest themselves of their excess futures holdings by mid-February 1980.
The price of silver really started to shoot to the sky now because there was a perceived silver shortage. By the end of 1979 the price stood at $34.45.
On 7 January 1980 the Comex changed the rules. The exchange announced new position limits for futures contracts of 10 million ounces. The effective date for the limits was 18 February 1980.
After this announcement, the price climbed higher and the Hunts kept buying. On 17 January silver hit $50 an ounce.
On 21 January the Comex announced its coup de grace, saying that trading would be limited to liquidation orders only. No, I’m not kidding. The exchange changed the rules so that no one was allowed to open any new positions from that point on. You could only liquidate open positions.
The next day silver fell off a cliff and plunged from $44 to $34.
To cut a long story short the price kept falling and the Hunts couldn’t cover their margins on the futures they had bought. The Fed stepped in for fear that a huge financial panic was about to ensue and lent $1.1 billion to the Hunts to cover their margins but demanded huge collateral for the loans.
Nelson Bunker Hunt eventually went bankrupt in 1988.
Fast forward 30 years and the silver price has once again scaled the heights to $50 an ounce. The exchanges changed the rules to increase the margin requirements and the price of silver has plunged 27% in a week. There are rumours that JP Morgan holds an immense short position in silver that was feeling the pinch.
What better way for them to relieve the pressure than to turn the screws on the long positions by raising the margin requirements substantially and then pick up the pieces at their leisure?
After reading the history of the Hunt brothers and seeing that the futures exchanges create the rules of the game – and can change them at will to suit their own purposes – you have to view the current price action in silver with a little more scepticism.
In 1980, the fall was due to the exchange’s desire to hurt a big player who was long. Today’s move I believe is more about protecting the position of an insider who is short and hurting.
Therefore I think you would have to say that chances are high that the price of silver will once again scale the heights if the players who are short use this sell off to cover their short positions. There is still a lot of pent up demand for precious metals and central banks continue to print.
I would not be surprised to see silver flat line for a few months during this seasonally weak period for metals and after taking such a hammering, but there will be a time in the next few months when silver will be a bargain.
8 May 2011
Why You Shouldn’t Trust This Market Rally
“Dow Rises 187 Points As Profits Look Rosy”
So says The Wall Street Journal.
“Investors have grown increasingly confident in the global economic recovery, despite a series of market-rattling events that has tested investors’ nerves. The gains have defied skeptics, who have for months been declaring a correction is nigh.”
It’s pretty easy to get excited when the market gains 1.5%. And the Aussie market is looking pretty good in early trade too.
But before we start hanging up the bunting royal-wedding style, you’ll forgive us if we bring the bulls back down to earth a little.
Here’s a chart for the US S&P500 going back to 2007:
Source: Google Finance
And here’s a chart for the Aussie S&P/ASX 200 for the same period:
Source: Google Finance
Look, it’s fair enough if the experts want to get excited about the market now. But look at the performance of the Aussie market since late 2009. That’s right, it’s gone almost nowhere.
The time to get excited about the market was late 2008 and early 2009. That’s when we took the bold move of telling Australian Small-Cap Investigator subscribers to buy into a high-risk market.
The easy gains are behind you
By late 2009, after the market had piled on 50% quick-smart, we became more cautious.
We suggested punters lock in gains. We also warned that due to investor psychology, future returns would be harder. Why?
Simply because of the fund manager mentality.
From late 2007 to early 2009, most fund managers had lost their clients a lot of money – mostly from being invested in so-called safe and secure blue-chip stocks.
But here’s the thing. Not only did they lose money for their clients, but they missed out on something more important to them – a big fat bonus.
So, by the time the market had turned around and gained 50% in just a few short months, fund managers could see the numbers on their bonus cheque adding up.
If you’ve just gone through a period without a bonus, the last thing you’ll want to do is give back the big gains you’ve just made. So, just as we told Australian Small-Cap Investigator subscribers to take money off the table, Australia’s fund managers were starting to wind back their exposure to the market.
That’s why for the past eighteen months, stocks have flat-lined.
But what it also means is that for every month the market doesn’t go up, the cumulative return since early 2009 is getting worse. Let me show you what I mean…
Good returns getting worse
If you bought into the market in March 2009, by October 2009 you’d have made a 50% gain. If you annualise that figure it works out as an 85% gain.
Roll forward three months to January 2010 and the market was up 53% from the low. That’s still good. But annualised, the return has fallen to 64%. Still pretty good.
Moving forward to the next high in April 2010, the market was 56% higher than the March 2009 low. However, on an annualised basis the return was just 52%.
Do you see a pattern here?
Let’s keep going…
By July 2010 the market had fallen. The return from the March 2009 low had dropped to 34%, and the annualised return was just 25%.
And finally, today. Over two years since the March 2009 low, the market has gained 52% (see what I mean about it going nowhere in eighteen months?), but annualised since the March 2009 low it’s just 25%.
Now, don’t get me wrong. That’s still a good return. The point is, for most investors, you would have been better off selling your stocks in late 2009 and holding cash.
And of course, cash is a protected investment whereas stocks can fall as well as rise.
That’s why since late 2009 we’ve maintained our asset allocation of holding cash, gold and silver, a small number of dividend-paying stocks, and a small number of high-risk small-cap stocks for explosive growth.
Looking ahead, personally I see no reason to change that allocation.
You should have some exposure to the stock market. But if you’re investing in blue-chip growth stocks it should only be trading stock – in other words, not buying and holding. Trade in, bag some gains and then trade out again.
Buying and holding should only be for dividend payers and precious metals.
The most important thing with all this is to remember that the global economy hasn’t been fixed by governments and central bankers. To use an analogy, they’ve merely used sticky tape to patch up a wrecked car. It may work like a car for a while, but at some point the sticky tape will give way and the car will fall apart.
When that happens, you don’t want to be fully invested in stocks… or property.
So, play along with the excitement while it lasts, but as we’ve warned investors since late 2009, make sure you’ve got an exit plan.
Source
So says The Wall Street Journal.
“Investors have grown increasingly confident in the global economic recovery, despite a series of market-rattling events that has tested investors’ nerves. The gains have defied skeptics, who have for months been declaring a correction is nigh.”
It’s pretty easy to get excited when the market gains 1.5%. And the Aussie market is looking pretty good in early trade too.
But before we start hanging up the bunting royal-wedding style, you’ll forgive us if we bring the bulls back down to earth a little.
Here’s a chart for the US S&P500 going back to 2007:
Source: Google Finance
And here’s a chart for the Aussie S&P/ASX 200 for the same period:
Source: Google Finance
Look, it’s fair enough if the experts want to get excited about the market now. But look at the performance of the Aussie market since late 2009. That’s right, it’s gone almost nowhere.
The time to get excited about the market was late 2008 and early 2009. That’s when we took the bold move of telling Australian Small-Cap Investigator subscribers to buy into a high-risk market.
The easy gains are behind you
By late 2009, after the market had piled on 50% quick-smart, we became more cautious.
We suggested punters lock in gains. We also warned that due to investor psychology, future returns would be harder. Why?
Simply because of the fund manager mentality.
From late 2007 to early 2009, most fund managers had lost their clients a lot of money – mostly from being invested in so-called safe and secure blue-chip stocks.
But here’s the thing. Not only did they lose money for their clients, but they missed out on something more important to them – a big fat bonus.
So, by the time the market had turned around and gained 50% in just a few short months, fund managers could see the numbers on their bonus cheque adding up.
If you’ve just gone through a period without a bonus, the last thing you’ll want to do is give back the big gains you’ve just made. So, just as we told Australian Small-Cap Investigator subscribers to take money off the table, Australia’s fund managers were starting to wind back their exposure to the market.
That’s why for the past eighteen months, stocks have flat-lined.
But what it also means is that for every month the market doesn’t go up, the cumulative return since early 2009 is getting worse. Let me show you what I mean…
Good returns getting worse
If you bought into the market in March 2009, by October 2009 you’d have made a 50% gain. If you annualise that figure it works out as an 85% gain.
Roll forward three months to January 2010 and the market was up 53% from the low. That’s still good. But annualised, the return has fallen to 64%. Still pretty good.
Moving forward to the next high in April 2010, the market was 56% higher than the March 2009 low. However, on an annualised basis the return was just 52%.
Do you see a pattern here?
Let’s keep going…
By July 2010 the market had fallen. The return from the March 2009 low had dropped to 34%, and the annualised return was just 25%.
And finally, today. Over two years since the March 2009 low, the market has gained 52% (see what I mean about it going nowhere in eighteen months?), but annualised since the March 2009 low it’s just 25%.
Now, don’t get me wrong. That’s still a good return. The point is, for most investors, you would have been better off selling your stocks in late 2009 and holding cash.
And of course, cash is a protected investment whereas stocks can fall as well as rise.
That’s why since late 2009 we’ve maintained our asset allocation of holding cash, gold and silver, a small number of dividend-paying stocks, and a small number of high-risk small-cap stocks for explosive growth.
Looking ahead, personally I see no reason to change that allocation.
You should have some exposure to the stock market. But if you’re investing in blue-chip growth stocks it should only be trading stock – in other words, not buying and holding. Trade in, bag some gains and then trade out again.
Buying and holding should only be for dividend payers and precious metals.
The most important thing with all this is to remember that the global economy hasn’t been fixed by governments and central bankers. To use an analogy, they’ve merely used sticky tape to patch up a wrecked car. It may work like a car for a while, but at some point the sticky tape will give way and the car will fall apart.
When that happens, you don’t want to be fully invested in stocks… or property.
So, play along with the excitement while it lasts, but as we’ve warned investors since late 2009, make sure you’ve got an exit plan.
Source
Volcker warns of danger from U.S. deficits
Former Federal Reserve Chairman Paul Volcker warned on Friday that trillion-dollar deficits posed a threat to the stability of the U.S. economy and the dollar, and said he is frustrated by the gridlock in Washington.
Speaking before the World Affairs Council of Oregon, Volcker said that “prolonging trillion dollar deficits can’t be a reality” and that the United States is on course to have its public debt exceed the size of its gross domestic product.
“One way or another, we do have to return to a balanced budget,” he said in prepared remarks.
Volcker’s speech came on the same day that the Congressional Budget Office said the U.S. budget deficit had totaled $871 billion for the first seven months of the year, which is significantly above the previous year’s pace. On Thursday, Vice President Joe Biden led a bipartisan meeting in an effort to strike a deal with Republicans on cutting the growing federal deficit and averting a default.
They face an August 2 deadline to raise the country’s $14.3 trillion debt limit.
Volcker, who stepped down early this year as the chairman of President Barack Obama’s Economic Recovery Advisory Board, said he was concerned about how the U.S. consumes and borrows “to the point that China, Japan and other foreign countries hold more than 5 trillion dollars of U.S. government obligations.”
“Consider that statistic in the light of prospects for continuing deficits, doubts about future inflation and the international stability of the dollar,” he said, noting that the U.S. is running out of time to fix things.
In order to address the deficit, Volcker said he agrees lawmakers need to tackle discretionary spending, an area that could help the U.S. save $300 billion from present projections by 2020. But that alone, he said, will not be enough to address the trillion dollar deficits.
“I will put the point bluntly,” he said. “It is simply unrealistic and irresponsible to believe budgetary balance can be achieved without higher revenues relative to GDP. We won’t generate those higher revenues without tax reform.
Separately, Volcker also discussed his views on the progress made so far on the Dodd-Frank Wall Street overhaul legislation and other efforts around the world to bolster regulation of the financial markets.
Volcker was the driving force behind a pillar of the Dodd-Frank law known as the Volcker rule, which cracks down on proprietary trading by big banks. Although he no longer has a formal advisory role in the administration, he still visits the White House on occasion.
In particular, he said he was concerned about a failure to properly address certain key areas including credit-rating agencies, accounting issues and money market funds — an issue the Securities and Exchange Commission plans to explore in a roundtable discussion next week.
“Taken all together, my personal grade on financial reform is incomplete,” he said, noting that it is even more lacking abroad than in the U.S. “I do not equate incomplete with out of time, but I fear that momentum in the reform effort is waning.”
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