Pfft... Fox News Strikes again!

Saw this on Zero Hedge and couldn't resist posting.

What's wrong with this map?

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New Mortgage Rules as explained on Global TV

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How about a Central Bank interest rate of 11.25%?

Here's a quick thought to send chills down the spine of anyone with a 5/35 mortgage on half a mil plus in our little hamlet.

Brazil's central bank raised its key interest rate half a percentage point to 11.25% late Wednesday, amid fears that inflation was getting out of hand.

Last year inflation in Brazil quickened to 5.91%, well above the government's target of 4.5%.

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Silver demand continues to increase

Been very busy but a quick post with a few quick notes about Silver.

As of today the US Mint has sold a massive 4,588,00 ounces of silver during the month of January.

How significant is this total?

The month isn't over yet and already the US Mint is on track for the biggest monthly total of silver sales going back to 1986 when the Mint disclosed its first monthly sales record.

Yes... the US Mint is going to sell more silver this month than in any month in its history.

Scotiabank continues to be sold out of 1 oz and 100 oz bars and Europe's BullionVault (which has been sold out for the past week) has only just received more inventory for sale.

Reuters reported shortages of 1 kilo gold bars in Asia last week. Sprott Asset Management reported that it was experiencing difficulty sourcing 1,000 oz silver bars. Sprott said they were concerned about the “illiquidity in the physical silver market" and said delays in being able to source physical silver highlights the “disconnect that exists between the paper and physical markets for silver."

So reports of shortages of silver bullion continue to grow. Having said that it is important to note that are no widespread shortages yet. Dealers with extensive supplier networks like mints and large refiners are not experiencing difficulties sourcing bullion inventory, but it would be wise to keep an eye on this.

Yet in the midsts of all of this, those o you who have been following silver lately know that the price has been dropping drmatically lately and almost dipped down to $28 (althought it surged upward today on a raid free Tuesday).

Both gold and silver have really been seriously clobbered since late in the afternoon on January 13.

Price drops of this magnitude don’t just happen by accident. And there is some interesting speculation which is worth paying attention to.

On Thursday, January 13, Moody’s Investor Services issued a report stating that the current fiscal situation in the US is such that, if not reversed, it will result in a lower credit rating for US government debt. Sarah Carlson, senior analyst at Moody’s, said, “We have become increasingly clear about the fact that if there are not offsetting measures to reverse the deterioration in negative fundamentals in the US, the likelihood of a negative outlook over the next two years will increase.”

The same day Carol Sirou, who heads Standard & Poors in France, said in a speech, “The view of markets is that the US will continue to benefit from the exorbitant privilege linked to the US dollar” to fund deficits. “But that may change. We can’t rule out changing the outlook” on US government debt. She later said, “No triple-A rating is forever.”

These twin announcements had the expected effect on the value of the US dollar, which dropped in value against other currencies about 1% last Thursday afternoon and that drop has continued.

Normally, when a currency declines like that, alternative safe haven assets rise in price.

Gold and silver would typically experience higher demand and higher prices. However, rising precious metals prices would reinforce the decline of the US dollar. Therefore, the US government had a huge incentive to prevent gold and silver prices from rising.

That appears to be almost exactly what happened. Usually, when gold and silver prices are falling, the number of open contracts on the COMEX declines as traders sell off their long positions. Short buyers who purchase such contracts then close out their position.

In the past 72 hours, there has been a significant increase in the open interest, which is a sign that one or more parties (say hi to JPMorgan Chase and HSBC) have sold as many short contracts as it took to push down the prices of both metals.

The plausible reason for the decline in gold and silver prices over the past 10 days is that the sharp increase in gold and silver prices at the end of 2010, especially late in December, is that there was a supply squeeze in COMEX inventories.

Of total COMEX silver inventories, about 50 million ounces is currently registered, meaning that it is automatically available to cover delivery commitments of maturing contracts. That amount could be absorbed by fulfilling only 10,000 contracts. Today the open interest silver contracts rose from 73,626 to 75,575, no doubt sending shivers through the banking front offices.

There are extensive rumors flying that an unusually large number of December 2010 contracts were held for delivery of silver, which was not physically possible.

Instead, many of them were supposedly settled for cash, often at a premium to “spot” price (estimated at 30%). This certainly would explain why the price of silver rose almost 50% in the last three months of 2010.

Apparently this tactic was so profitable for hedge funds and other deep-pockets investors that they are gearing up to repeat the process with the March 2011 silver contract on a much larger scale.

At current prices, $1.5 billion could purchase the 10,000 contracts needed to deplete the entire stockpile of COMEX registered silver.

The rumors are that these buyers are looking to jump in to make purchases during February and eventually force the price of silver up to about $45 before the end of March. Obviously, there are many hedge funds, private investors, and sovereign wealth funds that could raise enough cash to handle this raid on the COMEX silver market all alone.

However, you can be sure that the traders for banks that hold huge short positions (did I mention JPMorgan Chase and HSBC?) are hearing of these plans.

One defensive tactic to hold off the onslaught would be to dump a lot of paper contracts on the gold and silver markets to force down prices before the buyers start making their purchases in February. Then, when prices have fallen significantly, the short sellers could purchase lots of contracts and physical metal to help them fight back against the supply squeeze effort and also to discourage a planned raid on the COMEX inventories.

Hence the significant drop in gold and silver prices right about now!

Is this true?

Who knows. But it bears watching.

Finally there is this story on SeekingAlpha on silver which is interesting.

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Mortgage rules to change tomorrow

So the big news today is that Ottawa is going to finally tighten up on mortgage rules. According to the Globe and Mail newspaper the government will announce tomorrow that CMHC will not longer support mortgages with amortization periods longer than 30 years.

The newspaper also reports that Finance Minister Jim Flaherty will announce that the government is going to take action to reduce the rapid rise in home equity lines of credit by clamping down on the insurance that CMHC offers to the lines of credit. Basically it will be withdrawn.

Finally Ottawa will also reduce how much Canadians can draw on their home equity. Last February the Finance Department announced that it would lower the maximum amount Canadians could withdraw in refinancing their mortgages to 90% from 95% of the value of their homes. It is now expected to reduce that maximum to 85% from 90%.

Says the Globe:

• "Ottawa's recent actions have been moving policy in the opposite direction that it was headed prior to the U.S. subprime crisis. As the subprime crisis morphed into an economic recession, the federal government took steps to make it easier and cheaper for banks to lend mortgages in Canada in order to keep credit flowing and the economy strong. In 2006, the maximum amortization period in Canada was extended to 40 years from 25. Now the government is trying to cool a market that it helped to fuel."

It will be interesting to watch the impact the changes have.

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Time for the government to get out of the mortgage game?

Neil Mohindra of the Financial Post came out today with a great article titled Canada's Mortgage Hazard.

As you know, Bank of Canada Governor Mark Carney has been sounding warnings about Canadian debt levels. The concern? Escalation of household debt is a risk to Canadian financial stability when interest rates begin to rise.

This was followed by the International Monetary Fund weighing in and identifying Canada's stretched household balance sheets as a near-term risk to our nation's financial system.

Not only were average Canadians scolded for taking on too much debt in this era of emergency interest rates, but banks were cautioned to curtail lending.

The response by some bank CEO's was to call on Finance Minister Jim Flaherty to tighten lending standards for residential mortgages, such as a reduction in amortization periods.

The banks claimed they were unable to individually take action because of the competition between them for that debt business.

In a year-end interview Flaherty countered:

• "I find it just strange that I get some of the financial institutions telling me to mind my own business on regulatory matters - and then we have some worries about the level of consumer debt, and the banks are saying the government needs to move in and tighten standards."

The Financial Post article summarizes the problem which the blogosphere has been harping on now for several years.

Banks won't curtail lending because they are protected by the Canadian Mortgage and Housing Corporation (CMHC). The government-backed mortgage insurance is mandatory for all mortgages with a loan-to-value ratio in excess of 80%. Because of that, the conventional incentive for banks to set their own underwriting standards and monitor risk exposure has simply been washed away.

Rather than screening mortgage applications for risk, bank staff simply tick the boxes required by government. At most, banks have an indirect interest in assessing credit risk since households with too much mortgage debt may be more at risk of defaulting on other loans such as credit cards.

This is why the bloggers laugh at the assertions about Canada's 'sound banking system'.

The Financial Post article cuts right to the heart of the matter with a succinct observation:

• “If the Canadian government sees rising household debt levels as a real concern and bank underwriting standards as the solution, the logical course is to exit the business of mortgage insurance and stop guaranteeing residential mortgages with public money. Such a move would protect taxpayers from a business they do not need to be in.”
  
  “As long as the government insists on backstopping the risk of high-ratio mortgages with taxpayers’ money, banks simply won’t have any skin in the game and will react half heartedly at most to calls for them to tighten lending standards to address concerns over rising household debt. Instead, the banks will simply sell as many high-ratio mortgages as they can, knowing that taxpayers will ultimately pay the price if rising household debt creates problems in the future”

This is exactly what the problem was in the United States with Freddie Mac and Fannie Mae.

As long as the government insists on backstopping the risk of high-ratio mortgages with taxpayers' money, banks won't take action. The banks will continue to sell as many high-ratio mortgages as they can, knowing that taxpayers will ultimately pay the price if rising household debt creates problems in the future.

The Financial Post suggests the time may have come for the government to begin exiting the business of insuring mortgages and providing government guarantees.

But will the voting public, now addicted to the crack cocaine of low interest debt, allow them to?

Sounds to me like we're back to square one with everyone pointing fingers and nobody taking any action.

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$500,000 just doesn't go as far anymore

On the topic of 'Tulip Mania', let's take a quick tour and see what it would take to get into the housing market with a single family home in some Vancouver municipalities.

These are the lowest priced single family detached homes on the market in their respective areas at the start of 2011.

First up is the suburb immediately to the south of Vancouver, the City of Richmond.

The lowest priced single family home in Richmond is this 1 bedroom, 1 bathroom 600 square foot beauty situated on 4026 sq ft at 2931 Smith St. Asking price: $499,000.

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Let's wander over to the suburb just east of Vancouver, the City of Burnaby.

The lowest priced single family home in Burnaby at the moment is this dream home at 5983 Marine Dr. with an asking price of $499,900. From the realor's listing:

• Fantastic Opportunity. At this price, why rent when you can own? This home sits on a 37 X 127 lot close to Metrotown and Bryne Rd. shopping and tons of entertainment. Main floor has a large entertainment size kitchen complete with eating /dining area, three spacious bedrooms and a bright open living room. Basement has its own separate entrance and bathroom making it an ideal mortgage helper. Loads of renovations and updates have been done including roof and hot water tank. Don't miss one of the best priced investments in South Slope.

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Now if you think that borders on unlivable, how about this beauty in Vancouver East.

Offered at $449,000 is this house at 1017 Keefer Street. There is no pretense you can actually live it this one. But hey, Gelato! So it's worth the asking price right there alone:

• One of the oldest character homes in Strathcona,(pre 1900)! The City would love to have it restored. The house is not in liveable condition, RT-3, needs to be taken down to original structure. City would offer incentives eg coach hse, bsmt.Value mainly in the land, buy 'as is where is'. Drive by first! Excellent location, close to schools, downtown, 'The Drive' and the best gelato in town at 'La Casa Gelato'

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Finally we come to Vancouver West. Vancouver West is where all the Hot Asian Money is flowing into so regretfully half a mil doesn't get you on the dance card.

For $699,000 this ranks as the lowest price single family house on the market. It is a 2117 sq ft. 5 Bedroom, 3 bathroom palace at 8508 Oak Street (which is essentially the end of Hwy 99 as it enters Vancouver).

And remember... buy now or be priced out forever.

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Speaking of 'Tulip Mania'

It's 2011 and there is definitely an emerging 'theme' to real estate for the early part of this year.

As you know, for the past six months there has been a dramatic decline in the number of real estate sales. Yet the average price of houses seems to be rising - huh?

Realtor Larry Yatkowsky commented on this right off the bat as the New Year started.

• "Vancouver real estate’s New Year is starting off with a bang. For the first time in many months, the aggregate number of properties for sale in the lower mainland has tumbled below the 17,000 mark. Vancouver Realtors® began whispering in the early part of December that it was becoming more difficult to find quality homes for their buyers."

Declining inventory leads to bidding wars as buyers fight over a shrinking pool of available inventory.

Interestingly a similar situation has been developing in Australia.

Australia has also gone through a stretch where listings have been declining. Predictions by realtors Down Under have called for R/E prices to remain stable or grow by 5-6% in 2011 due to an underlying shortage of properties.

But new figures suggest that the Aussie shortage has been overblown and that the figures "dispel the myth of property undersupply in most cities, and says certain capitals such as Brisbane are actually recording a dangerously high level of properties on the market."

And just who do you think propagated that 'myth'?

During the 2008/2009 slowdown, the local real estate industry urged sellers to pull listings off the market. This was a strategy, done on purpose in order to create 'demand' and stave off further declines.

The same strategy was urged by the Industry during the Fall months as the media was besieged with month after month of negative press regarding declining sales.

In Australia, the Reserve Bank is contemplating another rate increase and it is suggested that such a move could accelerate a downturn just as the pent up supply from a contrived 'shortage' hits the Spring market.

Is the lack of supply a R/E fueled lie? Is the truth more a case of the fact that there is no lack of supply, just speculators sitting on a lot of inventory that can/will be put on the market in short order?

American blogger Mike "Mish" Shedlock thinks so and examines the Australian developments in this eerily familiar sounding post title: Australia's "Tulip Mania" About To Crash, As Housing Shortage Proves A Massive Myth.

I say 'eerily familiar' because it was just yesterday I was comparing the situation in the Vancouver suburb of Richmond in the same 'Tulip Mania' fashion.

Mish concludes that:

• "The day of reckoning has finally arrived for Australia. A day of reckoning awaits Canada, China, and the UK as well. It's too late now to do much of anything except:
  
  * Exit the Australian stock market
  * Get out of the Australian dollar
  * Pick up some popcorn
  * Stay on the sidelines and watch the collapse unfold"

I'd personally recommend getting the Costco size case of 'Jiffy Pop' myself.

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Tulip Mania in Richmond

Last night I was talking to a colleague about Tulip Mania.

Tulip Mania was a period in the Dutch Golden Age when the tulip flower was introduced.

A mania gripped the Dutch and contract prices for bulbs of the tulip reached extraordinarily high levels and then suddenly collapsed. The era has become known as one of the first 'economic bubbles'. At the peak of tulip mania, in February 1637, tulips known as ""the Viceroy" (which is pictured above) would fetch between 3000 and 4200 florins depending on size.

A skilled craftsman at the time earned about 300 florins a year. Thus some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.

The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

Which brings us to Richmond.

Once most famously known as the home of former Premier (and gardener) Bill Vander Zalm and his Fantasy Gardens attraction/mall, the Vancouver suburb is now one of the Lower Mainland hotspots for what has infamously come to be known as Hot Asian Money.

So crazy is the housing market in Richmond right now, that one house near Gilbert and Francis Road at 6531 Dunsany Place recently sold for $300,000 above asking price.

From the listing description:

• Lovely 4 bedrooms plus den, 2 1/2 bathroom family home situated in the sought after desirable "Woodwards area". Perfectly located on a quiet cul de sac - steps away from Blundell Elementary, London Secondary, and conveniently located to Blundell Elementary, London Secondary, and conveniently located to Blundell Shopping Centre. A comfortable, warm home surrounded by a community of new families. Well maintained with newer roof, exterior paint, renovated bathroom with soaker tub. Garage is wired with 220 and perfect for those wishing a workshop area.

The house was listed for $798,000 on Nov. 29. After receiving an astonishing 49 offers the house sold on December 6th for $1,111,111.

No word on whether or not the Realtor threw in a complimentary bag of tulip bulbs on behalf of the seller.

But that example isn't unique. Check out this beauty:

This little 1,100 square foot mansion is located at 7480 Petts Road in the Broadmoor area of Richmond.

It was listed at $1,080,000 and sold for $1.22 million!

A contributor to Garth Turner's blog recently commented:

• "Buying at these prices you’d have to be the greatest fool indeed. Sorry Vancouver, but you’re just not worth it. Trying to create wealth by lowering interest rates is a short term ponzi scheme at best. This equates to printing money. Wouldn’t it be nice if governments could print their way to prosperity? You can’t fool all the people all the time. I don’t wish this on my fellow Canadians but I can smell the reckoning day.”

Looking back through time it’s easy to laugh at the foolish Dutch, paying such prices for simple tulip bulbs, but an economic bubble was nothing new even then.

We are no different. Real Estate has become our tulip bulb.

Human beings have always been prone to want things that are difficult to get, especially if everyone else seems to be doing it. Nutty behavior becomes commonplace when enough people are following along.

It’s only afterwards that we stand back and shake our heads and wonder what came over us.

And there is going to be one hell of a lot of head shaking going on before long.

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Battle of the Form Letters

Yesterday we made reference to the CREA's campaign to keep Finance Minister Jim Flaherty from changing the mortgage rules.

As part of that campaign, Realtors are being urged to fill out this form letter and send it off to their local Member of Parliament (click on image to enlarge).

In a blogosphere response, one of the contributors to the Vancouver Condo Info website (Jessie) has put together a form letter to urge your Member of Parliament to encourage the Finance Minister to follow through with mortgage changes. Here is the content of the form letter:

• To: Hon. Jim Flaherty
  Your MP's name here
  
  Sirs,
  
  I am writing you supporting potential changes to mortgage financing rules in the upcoming year. As you are undoubtedly aware, the average Canadian household debt to household income ratio has increased significantly in the past number of years and has now exceeded that of the United States. This was made possible by historically, and unsustainably, low interest rates on mortgages. As has been shown in other OECD countries, there is some evidence to suggest that households are primarily concerned with their short-term financial health -- the ability to service today's debt with low interest rates -- and less concerned with their long-term financial health -- the inability to service service tomorrow's debt with high interest rates. I have not seen any data or arguments to suggest that household debt will start decreasing in the coming year as long as interest rates remain low. My concern is that without further tightening of mortgage financing rules, Canadians will continue to take on debts that are unsustainable in the long-term.
  
  While I am a believer in free markets, the growth in household debt is not sustainable when interest rates rise and I am not confident households will start saving while debt is so "cheap". If measures are not taken sooner rather than later, the resulting overhang of debt will put Canada at a distinct disadvantage relative to its trading partners, whose households have started to rebuild their balance sheets and will be in a much better position to weather the inevitable interest rate rises in the coming years.
  
  Sincerely
  Your Name
  Your Address

Choose your weapon.

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Today's letter is M: As in Media and Manipulation

Garth Turner covered this yesterday and I wanted to take the time to point it out to my colleagues who read this blog.

The battle over mortgage terms is starting to heat up. As many of you know Mark Carney, Governor of the Bank of Canada came out in December with another salvo of debt warnings. This was followed up by a couple of Banks (TD, BMO) calling on the government to take the initiative because they could not be expected to curb debt lending for competition reasons.

The concern? The vast majority of new home loans are being written are 5/35ers and the debt loads are becoming alarming amongst Canadians.

Carney has been urging Ottawa to do something about it as well and Finance Minister Jim Flaherty has hinted changes might be coming.

Enter the Canadian Real Estate Association (which represents Realtors).

Real estate agents and brokers are being urged to write their MPs immediately to counteract this move. They argue that mortgage debt isn't the same as other consumer debt. It's “the foundation of household equity and a gateway to financial security.”

More importantly, it's the foundation and gateway to Realtor financial security (aka paycheques).

• “Additional changes to mortgage financing rules would raise the barrier to home ownership excessively and destabilize housing markets and the economy. In particular, we are concerned about the negative impact modifications to the allowable amortization period or minimum down payment requirements would have. These changes would create affordability problems, especially for first-time buyers. First-time buyers are the first link in a chain reaction of real estate activity. They allow existing home owners to change properties or rent.
  
  “Creating burdensome barriers for first time buyers will seriously impact the rest of the market, including retirees looking to downsize. Further tightening of mortgage rules would have other far reaching consequences for the economy. It risks causing a home price correction, a drop in the net worth of Canadian households, lowered economic growth and reduced tax revenues. Consumer confidence would be damaged, labour mobility would be impeded, and unemployment would stay elevated.”

In a desperate attempt to save paycheques, this urgent communication has been sent out to all member Realtors (click on image to enlarge):

Meanwhile, despite concerns that these moves could kill the real estate market, the full court press is being applied to get the general public to BUY, BUY, BUY before they are priced out forever.

Royal LePage has come out with a report predicting real estate prices increasing in Canada in 2011 far more than expected. The report is titled, "Strengthening Economic Recovery and Low Interest Rates Point to a Stronger Than Anticipated 2011 for Housing Market".

This is in conjunction with the R/E industry's own version of the Art of Media Manipulation. Newspaper articles touting the R/E line magically appear at the same time.

The Globe and Mail tells us "House prices to see steady climb", the Toronto Star tells us "Canadian housing prices set to rise in 2011" and the Toronto Star warns that a looming "Buying frenzy to push up house prices".

Seems to me if the government simply tightens regulations, prices will fall and then people can buy houses at affordable prices, a move which will make Carney happy and keep Realtors employed as more houses trade hands.

But I guess if you eliminate the huge commission from the sale of multi-million dollar homes, Realtors will have to work harder.

Silly me.

Over in the Silver Corner

Two interesting items for you from yesterday in Silver.

First from Zero Hedgee comes this announcement that the CFTC will be voting on 10% position limits next week in an attempt to control the rampant manipulation going on in precious metals.

Second is this thread on a Yahoo messageboard. This could be interesting just for the speculative value if this goes viral on the internet:

• New Year Strategy from Blythe's Former Traders 5-Jan-11 02:04 pm
  
  Blythe,
  
  This is what I am hearing from your former traders (who made "very interesting career decisions"). Well it seem that they are on to a new scheme to corner the Comex and drive the price of silver up $10 to $15 dollars in a matter of weeks.
  
  The strategy is as follows. We know that Comex only has 105 million ounces of silver of which only 50 million ounces are available for delivery. (I personally don't believe the Comex numbers are anywhere near that high, but that is neither here nor there for now.) Well, all it would take is 10,000 contracts on the Comex to buy up all the "available silver" at the Comex and 20,000 contracts to deplete it completely. The current front month March OI is north of 78,000.
  
  Watch the OI closely. Blythe's former traders are advising major hedgefunds and billionaire investors to buy up as many contracts as possible as March 1 approaches and deposit the cash needed to stand for delivery for the month of March. The purpose is not necessarily to bust the Comex but to force the Comex to pay a premium (some as much as 30 percent) for cash settlement. Think about it. If a group of hedgefund gets together and bankroll $1 billion, they can buy more than 30 million ounces of silver. Of course, the contract sellers like The Morgue cant deliver the silver so a cash settlement is the only recourse. So what's wrong with $200 million in profit on a $1 billion investment that takes less than 4 weeks total?
  
  Guess what Blythe? Your former traders are advising everyone they know to put on this trade come the first week of February. Is this what happened in the December contracts? Is this why silver went from $22 on September 30 to $29 by December 1? How much do you think silver will spike in February as we approach March 1? The traders think silver will be north of $45. Heck it went over $9 as we approached December and everyone who got a pay off in terms of a premium cash settlement will be back for more. And they are all gonna be bringing friends to partake in the bounty.
  
  Your former traders are telling everyone who would listen that all they need to do is purchase a huge amount of March contracts near the end of February and stand for delivery and they will all make 20 percent in a matter of days. Is this what you are hearing Blythe? If so, shouldn't you let the price of silver move up so that you can get some physical to deliver before March 1?
  
  Either way
  
  You're going home in a body bag, do-da, do-da...

Ahh fun times everywhere, eh?

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Foreclosure in Washington and Sprott on Silver

Interesting article in the Seattle Times.

Seems the largest condo development ever undertaken in the American Pacific Northwest, basically a two hour drive from Vancouver, has been foreclosed on.

Portland-based Gerding Edlen, the developer of Bellevue Towers, has turned over the development to their lenders, an entity led by investment bank Morgan Stanley. If the development wasn't turned over, Morgan Stanley would have moved to foreclosure.

The new owners announced price cuts to help spur sales at the 539-unit development, where just 118 sales have closed since the two towers were completed nearly two years ago.

The development is two towers of 43 and 42 stories. Gerding Edlen built them in large part with $275 million borrowed in January 2007 from a consortium of lenders led by Morgan Stanley.

"This is an acknowledgment that prices today aren't what they were," Ira Glasser, an adviser to Morgan Stanley, said Monday.

When Bellevue Towers opened in February 2009, condo prices ranged from $399,000 to $4.4 million. A Gerding Edlen principal predicted the project, at Northeast Fourth Street and 106th Avenue Northeast, would sell out in two years.

Five months later, with less than 10% of the units sold, Gerding Edlen cut prices an average 20%. With the additional reductions announced last week, average prices are 30$ lower than two years ago, Glasser said.

County records indicate just three condos have sold over the last three months.

Meanwhile 2 hours north, Vancouver preens about it's resilient housing bubble.

Sprott Asset Management and Silver

Silver trading continues to be incredibly strong despite the raids from the last two days. From the source who follows the Comex:

• "The total open interest on silver remained resolute at 136,931 up a huge 645 contracts with a huge pummelling of silver by almost $1.60 yesterday. I think the bankers were more frightened with this figure than with gold. I may be mistaken but the bankers have been trying for the past month to shake the silver leaves from the comex tree and they have failed time after time. The front options delivery month of January saw its open interest mysteriously rise from 55 to 59. The estimated volume on the comex today was a monstrous 83,889. The confirmed volume for yesterday was 88,172. This is a far cry from the 16,000 contracts traded during the last week of 2010."

But the big silver story of the day comes from Sprott Asset Management.

Sprott runs a silver fund that is completely backed by Silver assets. And Eric Sprott is having trouble getting silver. Yesterday his chief lieutenant John Embry was on Eric King and predicted, based on the difficulty in acquiring physical silver, that he see's the price of silver rising above $50 in 2011 (he sees Gold going to $2000 for the same reason).

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It's Winter... but things are heating up.

So what the hell happened yesterday?

Last week you will recall this post I made and how I commented that the precious metal markets have become almost comically predictable lately and that Tuesdays were raid-free days.

You have JP Morgan (with their massive buying of shorts to drive down price) squaring off against some very large buyers who step in and counter the downward manipulation with strong buying.

These two forces are the primary drivers of price right now and there is almost a predictable pattern to what goes on. Lately JP Morgan raids the market twice daily between approximately 8:00am EST and 9:00am EST. Once that happens, the large buyers step in and buy the dips driving the price of silver back up.

In that post last week, I showed you Wednesday Dec 29th, 2010. Silver was raided at precisely 8:20 EST, taking $0.11 out of the price in under a minute. As usual, they sat back and watched for five minutes and then struck again at 8:25am, taking out another $0.11 in about 30 seconds. Then the large buyers stepped in and silver rebounded. (click on all charts to show an enlarged version)

Then I showed you, Dec. 30th, 2010. Silver shot up to $30.93 on the overnight trading. Silver was driven down from $30.93 and suffered two significant raids (just like December 29th) at 8:26am EST and then again at 8:31am. Silver was ultimately driven down to $30.30. Then the strong buyers stepped in again.

Silver ended the week, the month and the year at $31.90, the highest year end level ever.

This was NOT how the year was supposed to play out. In June, 2010 (when silver was sitting at $18 an ounce) J.P. Morgan analysts gave silver a long-term price forecast of $13 an ounce.

Then along came the CFTC with their investigations into manipulation of the markets.

It is no small coincidence that, with the scrutiny of the CFTC, the pattern of shorting silver by J.P. Morgan was restricted.

Silver went on a 4 month tear, rising 70%.

As mentioned last week, an analyst I follow observed that gains in silver are often made early in the week and selling usually occurs later in the week. The pattern repeats so frequently that it was clear it was not coincidence.

He concluded that J.P. Morgan was trying to hide their malicious intent from the weekly Commitment of Traders report. This is a report on the market that comes out every Friday but it is based on the previous Tuesday. So, any new short positions initiated JP Morgan on a Wednesday will not show up on the CoT until the next Friday. Thus JP Morgan has until the next Tuesday to cover any brand new shorts they just initiated if their raids fail.

So every week, down go metals mid-late week on fresh paper-metal selling; up go metals early the following week. If shenanigans fail, the shorts are covered before new CoT survey.

Tuesdays are almost regularly raid free days.

This week that pattern changed.

While Canadian stock markets were closed on January 3rd, the precious metal markets were open. As you would expect, Silver was raided right on time at approx 8:25am EST and then again 5 minutes later (times are not marked on the chart for Jan 3rd). There was also a third significant hit at approx 8:55am EST:

As the day wore on, some very significant developments emerged.

Scotia Mocatta's latest technical note forecast came out and stated that "the next major [Silver Price] target remains the 1980 high of $49.50."

Combine that sort of speculative fervour with what happened at the US Mint on Monday.

As I mentioned last week, the US Mint suspended the production of American Eagle Silver Uncirculated Silver Coins because of unprecedented demand for American Eagle Silver Bullion Coins. As it has been pointed out to me, there are 3 types of silver eagle programs initiated by the mint:

1. highly polished and specialized proofs.
2. uncirculated silver oz eagles.
3. regular 1 0z bullion which is not highly polished or uncirculated.

The mint can suspend the first 2 but cannot by law stop the 3rd as it is compulsory for them to mint bullion coins with available silver from the USA.

Well... Monday was the first day of the New Year for coin sales. And sell coins they did. The US Mint reported it sold nearly 1.7 million Silver Bullion coins on Monday, the first day of American Eagle 2011 sales – equal to almost 5% of 2010's entire silver coin sales.

Talk about silver fervour!

But all that is only fodder for the big news on Monday.

Rumours started circulating that CFTC Commissioner Bart Chilton had changed his position on the position limit question.

On December 16, 2010 the Commodity Futures Trading Commission introduced its plan to curb speculation in metals, agriculture, and energy markets. But at the meeting, Chairman Gary Gensler abruptly postponed a vote on the proposal.

Commissioner Chilton, the most vocal proponent of cracking down on speculators, was key to the postponement as he told Reuters he would have voted against the plan. It would have included a two-step approach to allow more time for the agency to gather information on the opaque swaps market.

Confirmation that he had, indeed, changed his position was announced Tuesday.

"While I will now support publishing a position limit proposal for public comment, I will continue to make the case that we need to address excessive speculation in these markets immediately," Chilton said in a statement.

Chilton's decision will now allow the CFTC to go ahead with a 60 day period of public input (which will solve nothing, but is part of the process).

The key element here is that it allows J.P. Morgan to become a little more bold in their attacks, knowing that they have another 60 days to carry out their nefarious activities.

And with Silver and Gold catching fire, urgent action was needed.

That boldness started on Monday with the three attacks on Silver.

In the overnight trading, Silver was also attacked in the Globex.

And then - for the first time in 4 months - Silver had raids on a Tuesday.

Naturally they came during the 8:25ish EST time frame. They came at 8:20, 8:21, 8:23 and 8:42-44.

Really? Seriously? I mean... c'mon... a monkey can see the break from regular trading patterns as the paper shorts attack. The fact these come at almost the exact same time each day only makes it that more obvious.

As I have said, 2011 will set the stage for some violent swings in the price of silver and gold (gold was hit the same way).

And now we get to the signal that things are really getting desperate.

Besides these shenanigans, what really caught my eye yesterday was the placement in yesterday's media of a series of anti-metal news articles like this one from Bloomberg.

This is no coincidence that these articles came out today. They are timed placements.

When the BC Liberals were in opposition at the end of the 1990s, I was involved in several presentations to the BC Liberal Caucus.

It was an educational experience... watching the way the media process and political game was played.

On four seperate occasions we were invited to attend the Legislature. Our presence in the gallery would be announced at the start of the session as part of the Question Period introductions. We had been tasked the week before with meeting certain media reporters with the theme of our issue. The morning of our apppearance in Victoria, several articles about our issue would 'appear' in Victoria and Vancouver newspapers. After Question Period, after government Minister's had been grilled on our issue, the press would follow up on what had happened in the Legislature. Coverage of our issue would splash across the newspapers for the next 3 days in articles and Op Ed columns as a result of the interest generated from Question Period.

It was all part of the highly scripted art of media manipulation.

I saw some of the same thing happening in precious metals yesterday.

A hard core, co-ordinated attack on precious metals combined yesterday with a timed media blitz that attempted to create a gold/silver selling frenzy.

It's a sign of how concerned the cartel is becoming.

One analyst of the Comex I follow had this to say last night:

• "For the past week, we have seen an equilibrium between buyers and sellers in gold at around 75,000 contracts. Today the estimated volume at the gold comex was 240,871 and when the confirmed volume comes in I can assure you it will be much higher. The modus operandi of the crooked bankers is simple. They withhold all bids to buy as they tell would be purchasers to hold off as they will get their metal cheaper. Then they bombard with over 100,000 contracts that are totally un-backed and they trip some of the longs who have stop losses below the spot price. This trips other stop losses as the price goes lower until it reaches its nadir and the bankers slowly try to cover all their shorts. This is collusion, as all the bankers are told in advance when the raid is to be expected. Then they supply paper with no backing to gold or silver whatsoever."

The paper short raids trigger dramatic immediate drops in the silver price. These drops trigger selling by investors who have placed automatic stop loss levels on their investments. The selling induced by the stop losses trigger a further drop in metal prices. And as a the media simultaneously floods the medium with stories that gold/silver are ready to crash, panic selling triggers further losses and - the cartel hopes - more selling.

Personally I wasn't expecting this until February. But for the reasons I have outlined above, the fireworks are getting started right off the bat with the New Year.

Ultimately the fact of the matter is the $14 Trillion US debt is still there. The $3Trillion US deficit is still there. The US Federal Reserve is still printing money even though Bernanke says he's not. The US Dollar is still a huge matter of concern to China, Russia et al and the real US unemployment rate is still 20% or so.

The problems have not gone away.

And neither will the interest in both gold and silver.

We do live in interesting times.

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The author(s) of the posts on this site are not investment advisors and they do not offer investment advice. They try to provide some hopefully useful data with sources - especially concerning real estate - and then add their own analysis.

All the content on this website is solely an expression of the author's personal interests and is posted as free-of-charge opinion and commentary. Nothing here is intended as investment advice. If you seek investment advice, consult a registered, qualified investment advisor.

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Comment on today's precious metals

My comments on today's Silver markets will come out later tonight or early tomorrow.

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The Secret of Oz

Yesterday I referenced Bill Still's 'The Secret of Oz'. I received an email advising that you can now view 'The Secret of Oz' on youtube. It's embedded above.

It an excellent explanation of the evolution of the money sytem and goes in depth where yesterday's cartoon could not. I encourage everyone to check it out (heads up, it's almost 2 hours long). It also covers the Panic of 1873, and 1893 mentioned in yesterday's comments section.

If you like, this is a 4 minute trailer of 'The Secret of Oz'.

I may have an additional post later in the day if I am able.

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Great little cartoon

Above is a creative 30 minute cartoon I came across while reading ZeroHedge today.

You may recall a post I made on December 21, 2009 that detailed an excellent video called the Secret of Oz.

The Secret of Oz is a follow up film by Ben Still to an earlier work titled, "The Money Masters: How Banks Create the World's Money".

In 'The Secret of Oz', Still argues that the United States is headed for a deep depression unless lawmakers address the root of the problem: mounting interest payments on the national debt.

America once abolished their central bank after a massive debate and political battle. The reasons bare stark similarity to many of the economic problems currently being encountered.

From 1836 to 1913 there was no central bank. This is also a period of massive American prosperity.

America could fund it's economic system without incurring any Federal debt.

In 1913 the bankers won the political battle and the concept of a central bank was restored: The US Federal Reserve was born.

Every time a dollar is created, it is a loan to the Federal Government... a debt that must be repaid with interest, money acquired through income tax (it's no coincidence the IRS and the concept of income tax was also created in 1913).

Above is an interesting little cartoon that attempts to explain the battle over the concept of the central bank... and the role of banks in the housing collapse and credit bubble of the last few decades.

All money is created out of debt, but it doesn't have to be that way. Nations don't have to borrow money from banks. Sovereign nations can create their own money - debt free - just as it was done from 1836-1913.

It's a broad, difficult concept to fully appreciate.

But as this new decade dawns, I believe - in review come 2021 - this topic will be seen as one of the BIGGEST issues of this decade.

This cartoon attempts to examine the issue. I encourage you to track down a copy of the Secret of Oz and check out this cartoon if the topic interests you.

From the description of this cartoon video:

• The AMERICAN DREAM is a 30 minute animated film that shows you how you've been scammed by the most basic elements of our government system. All of us Americans strive for the American Dream, and this film shows you why your dream is getting farther and farther away. Do you know how your money is created? Or how banking works? Why did housing prices skyrocket and then plunge? Do you really know what the Federal Reserve System is and how it affects you every single day? THE AMERICAN DREAM takes an entertaining but hard hitting look at how the problems we have today are nothing new, and why leaders throughout our history have warned us and fought against the current type of financial system we have in America today. You will be challenged to investigate some very entrenched and powerful institutions in this nation, and hopefully encouraged to help get our nation back on track.

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Real Estate vs Gold/Silver/Mining Stocks

As the year came to an end, I made a whole series of posts about the topic of Silver. I have also said that the road ahead is going to be rocky with some very violent swings up and down.

So I was asked by a colleague... do I think Silver will still be a far better investment in 2011 than real estate?

2011 is the start of the boomer retirement wave. Every single day this year, 1,000 Canadian boomers and 10,000 American boomers will be retiring.

That's each and every day.

And statistics show that 70% of Boomers do not have adequate funds set aside for retirement. Their plan? Sell their massively inflated housing asset, downsize and live off the difference.

In that sort of environment, can the forecast for Real Estate be anything but bearish?

Meanwhile the United States government is rapidly approaching the debt limit. By early March the Americans will be forced to once again extend the $14.294 trillion debt limit.

In 2011 the two key traditional drivers of economic growth and prosperity, employment and housing, will likely continue deteriorating (US employment ended the year over 9%). In other words, all growth in 2011 will be predicated upon very much more of the same as in 2010: transfer payments and government stimulus (not to mention inventory accumulation) especially in the form of incremental debt to offset consumer deleveraging.

In that sort of environment, can the forecast for rising precious metals be anything but bullish?

So, of course, the answer to my colleague's silver vs real estate question is, Yes... investing in silver is still the way to go.

With that in mind, let's start with a comparison to start 2011 and check back on it over the course of the year.

As put together by Realtor Larry Yatkowsky, here is the chart for the Vancouver Real Estate Average price for year end 2010:

The average detached home sales price is $1,046,348.

Let's pretend that one investors buys a house for $1,046,348 (we won't factor in taxes, commissions, etc).

Another investor purchases $1,046,348 of physical gold at the year end closing price of $1,421 per ounce. He obtained 736.346235 ounces of physical gold (we won't factor in buyer's premium on gold).

Another investor purchases $1,046,348 of physical silver at the year end closing price of $30.91 per ounce. He obtained 33,851.4397 ounces of physical silver (we won't factor in buyer's premium on silver).

Finally let's also select three Canadian mining stocks of the basket I follow.

Let's buy $1,046,348 of First Majestic Silver (FR) at the year end closing price of $14.40 per share. That investor obtains 72,663.0556 shares of FR (we won't factor is the commission fee).

Another investor buys $1,046,348 of Almaden Minerals Ltd (AMM) at $4.73 per share. He obtains 221,215.222 shares of AMM.

Finally our last investor buys $1,046,348 of ECU Mining Inc (ECU) at #1.34 per share. he obtains 780,856.716 shares of ECU.

Real Estate, Physical Gold/Silver or Gold/Silver Mining stocks... which will do better in 2011?

it's a simplified comparison, but we'll check back periodically throughout the year to compare them.

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Shanghai Daily: It's only a matter of time before China's housing bubble bursts

Excellent post today regarding China on the Australian blog, The Unconventional Economist. It articulates the issue succinctly.

China has, on a per captia basis, pumped more money into their economy than the Americans.

While most are viewing the results as the growth of an emerging economic superpower, the reality is that China's economy has become over-dependent on fixed asset investment - i.e. the building of infrastructure, real estate and manufacturing plants.

This over-investment in fixed assets, which now comprises a whopping 60% of China's annual GDP, has caused China to build far too many things (apartments, factories, etc) that are not needed, resulting in significant over-capacity.

We have seen this time and time again in bubbles everywhere.

One only has to view footage of China's empty cities on youtube to understand the extent of this malinvestment.

Jim Chanos, founder and president of New York investment company Kynikos Associates, famously described China's fixed asset malinvestment and manufactured growth earlier this year as "a treadmill to hell".

China has a massive over dependence on real estate construction. They have built entire cities that are now sitting empty. Yet, despite this over building, construction is continuing, with 12 million to 15 million residential units this year.

These units, which are priced similar to those for US residents, are intended for Chinese workers who earn about $3,500 annually and are in the bottom 20% of wage earners. To make matters worse, many of the Chinese who have moved to cities from the country are construction workers. So when the construction slows, many will likely move back to the country-side, leaving a construction ghost town and one massive financial black hole.

• “Construction is 60-plus percent of GDP, compared to exports of 5 percent... The problem is that consumption as a percentage of Chinese economy has declined in the last 10 years, from 40 to 35 percent. It’s all real estate...When construction is 60 percent of your economy, and you are building lots of things that people don’t need, the state may let this get out of control... It’s hard to manage this type of bubble".

Now Business Insider has provided proof of China's over-building and malinvestment with alarming satellite photos of entire cities laying vacant. From their article:

• "The hottest market in the hottest economy in the world is Chinese real estate. The big question is how vulnerable is this market to a crash.
  
  One red flag is the vast number of vacant homes spread through China, by some estimates up to 64 million vacant homes.
  
  We've tracked down satellite photos of these unnerving places, based on a report from Forensic Asia Limited. They call it a clear sign of a bubble: 'There’s city after city full of empty streets and vast government buildings, some in the most inhospitable locations. It is the modern equivalent of building pyramids. With 20 new cities being built every year, we hope to be able to expand our list going forward.'"

Last week Yu Yongding - a prominent economist from within the Chinese establishment - published a scathing attack on China's economic model in the state-run China Daily. This article supported the concerns voiced by external commentators over the Chinese economy.

Now the Shanghai Daily has published an explosive article entitled: It's only a matter of time before China's housing bubble bursts.

The Unconventional Economist notes that China's housing bubble is approaching Japanese proportions. Back in the 1980s, Japan's residential housing values reached a stratospheric 3.8 times GDP at the peak of its bubble. As of February 2010, China's housing values were 3.5 times GDP.

In the heyday of Japanese prosperity, the land value of Tokyo alone exceeded that of the entire United State. This 'wealth effect' had Japanese tycoons considering buying up America.

What happened to Japan is well known history.

Will China follow a similar pattern?

The Unconventional Economist speculates on how a collapse in China could devastate Australia.

The ramifications are no different for the Village on the Edge of the Rainforest.

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