Monday, May 30, 2011

The 'Decade of Debt' Story continues

Faithful readers know that this blog is fond of saying that the 2008 Financial Crisis was a profound financial earthquake, the depth and breadth of which we still do no fully understand nor appreciate.

And that viewpoint was reinforced a couple of times this past few days.

Dr. Joseph Mark Mobius, a leading global investor and emerging markets fund manager, warned yesterday that "another financial crisis is inevitable because the causes of the previous one haven’t been resolved" .

Speaking to the Foreign Correspondents’ Club of Japan in Tokyo, Mobius said that this was because the massive 'Over-the-Counter' (OTC) derivatives problem has not been dealt with yet.

“Are the derivatives regulated? No. Are you still getting growth in derivatives? Yes."

Many believe that  the $600 trillion or so in OTC derivatives will be the next source of systemic jeopardy.

Said Mobius:
  • "The total value of derivatives in the world exceeds total global gross domestic product by a factor of 10. With that volume of bets in different directions, volatility and equity market crises will occur."
The global financial crisis three years ago was caused in part by the proliferation of derivative products tied to U.S. home loans that ceased performing, triggering hundreds of billions of dollars in write downs and leading to the collapse of Lehman Brothers Holdings Inc. in September 2008. The MSCI AC World Index of developed and emerging market stocks tumbled 46% between Lehman’s downfall and the market bottom on March 9, 2009.

Mobius's warnings come the day after similar warnings from hedge fund titan Carl Icahn, who not only warns that the current levels of leverage are as bad as they ever have been and that the entire "system is not working properly." 
  • "I do think that there could be another major problem... I don't think that the system is working properly. I really find it amazing that we're almost back to where it was, where there's so much leverage going on in the investment banks today. There's just way too much leverage and way too much risk-taking, with other people's money... I think we're going back in the same trap, and i will tell you that very few people understood how toxic and how risky those derivatives were."
In the last post we mentioned famed commodities investor Jim Sinclair.  Sinclair has long identified the OTC derivatives problem as the primary reason we will have QE to infinity and soaring Gold/Silver prices.  Last week Sinclair sent out the following message:

  • Long speculated upon in our community, the rock and the hard place has finally become a reality. An economy not accelerating at an accelerating rate is declining at an accelerating rate. The mirage of a recovery is getting harder and harder to MOPE about. It simply is not there. We are entering a declining phase that will not end in any kind of a soft landing.
  • Stimulation monetarily, QE, and fiscal are like controlled substances in that the real high is on the first injection. After that, each additional stimulation of an economy must be multiples of the first stimulation in ever increasing size just in order to hold the line. QE3 is guaranteed unless the powers that be want to see a depression that will make the Great Depression look like kindergarten in the pain department.
  • This week we saw a European Bank forced to sell their US mortgage derivatives and the loss was a shocker. These pieces of crap are not worth the digital bits they are written on. Smart money has not let this event pass their view, and know now how broke the US financial system really is. This event broke the camouflage of FASB’s selling their souls out to politics by allowing the banks to value their mortgage derivatives at any price the bank wanted on the bank’s cartoon balance sheets. The western balance sheets of their financial institutions are raging misstatements. The system is broke. This is why there is no recovery of merit but rather a statistical aberration, which was until recently only holding the line.
  • Here we are at that place we have anticipated for the past 45 years knowing that all the games being played had to play out at that point where super stimulation had no effect and it became totally appreciated that even many trillions of printed money will only impact the currency and not business.
  • The rock and the hard place is a time when the Western World is simply screwed.
  • The risk of not stimulating is stagflation at a spiritual level. The risk of stimulating is stagflation at a spiritual level. The risk of doing nothing is both an economic and currency collapse of biblical proportions.
  • Should the Fed lose control of this, which is predictable, then currency induced cost push inflation would take gold to Martin Armstrong’s $12,500.
  • The odds are 70/30 right now that hyperinflation occurs. That takes gold over $1650. If the odds shift then gold starts a run to balance the International Balance Sheet of the USA and will secure Martin Armstrong’s target of $12,500.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Saturday, May 28, 2011

Where is the price of Gold going?

In a mid-year review of the world economy, the UN warned of a possible crisis of confidence in, and even a “collapse” of, the U.S. dollar if its value against other currencies continued to decline.

The report, an update of the UN “World Economic Situation and Prospects 2011” report first issued in December, noted that the dollar exchange rate against a basket of other key currencies had reached its lowest level since the 1970s.

This trend, it said, had recently been driven in part by interest rate differentials between the United States and other major economies and growing concern about the sustainability of the U.S. public debt, half of which is held by foreigners.

At another point the report referred to the “still looming risk of a collapse of the United States dollar.”

As this blog has stated on numerous occasions, the next decade is going to be all about debt. Specifically 'soverign debt'.

And it is the looming spectre of massive sovereign debt that drives our iron-clad belief that Gold and Silver will be going up significantly in value in the coming years.

And one of the clearest signs that this belief is not misplaced is that Central banks (who were net sellers of gold a decade ago) are now buying vast amounts of the precious metal to reduce their reliance on the dollar as a reserve currency.

In April the Gold price reached a record level 15 times different times month on demand from investors seeking an alternative to the US dollar.

China's Central Bank is one of the largest buyers of Gold.  China has already stated they are out to have more gold than America. China wants to show its currency has more backing than the U.S.

Russia is aspiring to the same, having purchased more than 8 tons in the first quarter of 2010.

India is also well known as having a voracious appetite for Gold.

In fact in 2010 central banks added 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data.

And, as Zero Hedge notes today, the middle east is ramping up it's purchases of Gold too.

Jim Sinclair, perhaps the most successful commodities trader of all time and a frequent CNN and CNBC commentator, was one of the few who recognized what Gold was going to do in the 1980's.

Based on a simple formula, he predicted early in the the 70's (when Gold was at $35/ounce) that Gold would probably go to about $900 (the high was actually $873).

He has been predicting another Gold resurgence for the past 15 years.  The metal has already sourced from about $220/ounce in 2001 to over $1,500 an ounce today.

Where does Sinclair see Gold going this time around?
  • Because gold is held by many central banks, once as a reserve currency but now as an inventory currency, it functions as a swing asset to balance the International Balance sheet of the US.
  • Central banks are sellers of dollars but still hold, by default, large dollar inventories.
  • China has hedged its dollar position 50% through commitments to long term dollar commercial agreements, pay in, mineral, and energy deals internationally. That is an act of pure genius.
  • We can assume other central banks still hold 90% of their reported dollar positions, on average unhedged by commercial obligation positions.
  • In crisis times, the US dollar price of gold ALWAYS seeks to balance the International Balance Sheet of the USA.
  • Therefore: Take 90% of international US dollar debt less China and then add 50% of the US debt owned by China. Then divide that number by the ounces supposed to be owned by the US Treasury. The result is where gold wants to go.
  • In 1974 this gave me $900 gold.
So what do we get if you believe Jim Sinclair is, once again, correct about Gold?

From the most current TIC report:

Total Foreign Holdings of Treasury Securities: $4,479.2 Billion
-Less : China – Mainland (1,144.9)
-Plus: 50% of China – Mainland 572.5

Adjusted Foreign Holdings of Treasury Securities $3,906.8 Billion

Number of Fine Troy Ounces held in Custody by the US Mint for the US Treasury:

Note to Financial Statements 6, "Custodial Gold and Silver Bullion Reserves", page 59
Statutory value @ $42.2222 per FTO $10,574,053,000
Number of FTO 250,438,229

Valuation of Gold required to equal Adjusted Foreign Holdings of Treasury Securities
Adj Fgn Holdings $3,906,800,000,000
Number of FTO Gold at US Mint 250,438,229

Therefore Sinclair's formulat gives us a Gold price Valuation of: $15,600 per ounce

This is the level at which Sinclair believes Gold wants to go. And if Gold goes to that level, what about Silver? If Silver remains at it's approximate 37:1 ratio to Gold, we would then have a Silver price of $421/ounce.

If Silver goes back to it's historic average ratio of 16:1 to Gold, we would have a Silver price of $970/ounce.

If Silver overshoots to a ratio of 10:1 to Gold (as many predict), we would have a Silver price of $1,560/ounce.

In 1974 everyone thought Jim Sinclair was absolutely bonkers for predicting a $900/ounce price for Gold. By 1980 he was hailed as a genius. I am pretty confident even more people will dismiss his current prediction of a Gold price of over  $15,000/ounce.

It's all about Sovereign Debt. It's going to be an interesting decade.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Friday, May 27, 2011

Fraser Valley Region of Greater Vancouver in deep Real Estate trouble?

Back on May 7th, reference was made to the April Real Estate numbers in our fair Province of British Columbia.

In that post we noted that while Vancouver proper ramps up in it's combustible intense heat, the periphery continues to languish. We observed that the Fraser Valley had stalled and any comment that sales were flat would be generous in the extreme.

Reinforcing this is an article in the local Fraser Valley newspaper, the Langley Advance.

After property sales in the two communities dropped substantially in April, the Advance is reporting that Realtors in the Fraser Valley are warning people in Abbotsford and Mission not to panic.

And why would they 'panic'?

Sales of detached houses in Abbotsford fell last month by 33% compared to sales in April 2010. 

In Mission the plunged down 42% from April of 2010 and crated 48% when compared to March of 2011.

But that's nothing compared to townhouse and apartment sales.

In Abbotsford they are down 43.5% and 7.1%  respectively from where they were a year ago.

And in Mission they have utterly collapsed by 77.8% and 71.4% each compared to April 2010.

The collapse in sales hasn't started to affect prices yet, however, as they have soared 11.5% since last year.

But it's only a matter of time.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Thursday, May 26, 2011

The Celebration at the end of Game 5 of the Western Conference Finals...

As the vast majority of you know, the main focus in the Village on the Edge of the Rainforest right now is on the City's National Hockey League franchise, the Vancouver Canucks.

In what is rapidly becoming a storybook year, the Canucks are celebrating their 40th Anniversary season and it has been 40 unremarkable years.  But this year has been special and is culminating with an appearance in the Stanley Cup final.

Vancouver last won the Stanley Cup in 1915, 96 years ago, when the Vancouver Millionaires accomplished the feat.  In the 40 year history of the Vancouver Canucks, the team made it to the Stanley Cup finals in 1982, 1994 and now... 2011.

And as this charmed season progresses, here is an obscure trivia fact for you.

Canada has hosted 3 Olympic Games; 1976 in Montreal, 1988 in Calgary and 2010 in Vancouver.

A year after Montreal hosted the 1976 Games, the Montreal Canadiens won the 1977 Stanley Cup. 

A year after Calgary hosted the 1988 Games, the Calgary Flames won the 1989 Stanley Cup.

And a year after Vancouver hosted the 2010 Games, will the Vancouver Canucks win the 2011 Stanley Cup?


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Wednesday, May 25, 2011

It's been 17 long years, but we've made it back...

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tuesday, May 24, 2011

UK government committee launches investigation into monopolistic trading practices by JP Morgan on London Bullion Exchange

Interesting item has come across Reuters earlier today. 

As many of the manipulative silver practices utilized by JP Morgan have been shifted away from the CFTC's reach at the COMEX and onto the London Bullion Exchange, news comes out that a UK government committee asking the UK Office of Fair Trading to launch an investigation into the activities of large dealers on the London Metal Exchange.

The allegations are that the four large companies that own LME registered warehouses are engaging in 'restrictive' business practices.  JP Morgan, as owner of warehouser Henry Bath, is specifically named in the allegations.

The UK Committee's allegations can be found here. From the link:
  • 79. We heard that there were large companies dealing metals within the UK and an allegation was made by the MMTA that a company through a subsidiary may be behaving in an anti-competitive manner: on the London Metal Exchange there are four very large companies that own the very warehouses that people deliver metal into, J.P. Morgan is one of them.
  • They own a company called Henry Bath. They are, therefore, a ring-dealing member of the exchange and they also own the warehouse. That is restrictive. They were also reported, at one point, to have had 50% of the stock of the metal on the London Metal Exchange.[113]
  • 80. We would be concerned if the ownership of metals storage warehouses by a dominant dealer on the London Metals Exchange were to be anti-competitive. We would also be concerned if a dealer who had the resources to own over 50% of stock on the London Metals Exchange impeded the correct functioning of the market.
  • 81. We use this report to bring the alleged activities of large dealers on the London Metals Exchange to the attention of the Office of Fair Trading. We would be concerned if a dealer were undermining the effective functioning of the market and we look for assurance that the market is functioning satisfactorily.
The LME's initial response is that the assertion is "unjustified and completely out of context".

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Monday, May 23, 2011

Been away for the long weekend...

... hope to post again tomorrow.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Thursday, May 19, 2011

The End of QE?

Michael Krieger was formerly a macro analyst at Bernstein Research (widely recognized as Wall Street's premier sell-side research firm) and currently runs his own fund, KAM LP.

He has come out with some thoughts on the US Federal Reserve's on going money printing and the ensuing current propaganda that is flooding the financial news waves.

Kreiger classifies US Federal Reserve Chairman Ben Bernanke as a misguided Keynesian witch doctor central planner who is attempting a grand experiment based on completely insane and nonsensical theories that have no chance at success.

He argues that Bernanke claims to have all sorts of “tools” but in reality he has nothing.

When faced with a complete credit collapse of proportions never seen before in recorded history there were and are only two “tools.” And those 'tools' are the two P’s: Printing and Propaganda.

And Kreiger laments the propaganda tool is in full vigor right now.

He reminds us of that which we alreday know: that the central planners believe the tail wags the dog.

To them, the economy doesn’t lead to higher stock prices but higher stock prices will lead to a better economy.


Absolutely. But it is the religion of the central planners... 100%.

And Kreiger cautions that investors need to be aware that - when they are comparing the current state of affairs to what many lived through in the 1970’s - that the central planners have learned some lessons.

Central planners will never renege on their core philosophy which is that an elite academic and political class in their wisdom are better stewards than free humans interacting in a marketplace.

That said, most people do not share their worldview for obvious reasons (who wants their lives micromanaged) so the trick of the central planners is to micromanage your life while you think you are in charge.

As Goethe said “None are more hopelessly enslaved than those who falsely believe they are free.”

He didn’t just make up this clever quote, it is a tried a true method of the most successful control systems throughout history. 

Price controls were tried in the 1970’s and failed. We also know why. Therefore, the last thing the current group of central planners will want to do is announce price controls. That doesn’t mean they don’t attempt them anyway.

Bernanke has already publicly proclaimed he is attempting to inflate the stock market through direct intervention.  They have been rigging stocks in the United States consistently for the past two years and most people get this and accept it as a part of the current state of emergency economic action we are in.

Kreiger now argues we have now entered Phase 2 of that action. This was represented by the recent raid on commodities. 
  • A tried and true strategy that the powers that be have used in precious metals for years has been to create such tremendous volatility in gold and silver and especially the shares that most investors stay away since they can’t stomach it. This strategy is now seemingly being employed to a much wider spectrum of commodities.  Unfortunately, this battle between finding a safe haven and the authorities’ desire to render it ‘unsafe’ is only in its earliest stages. Our manta since 2007 – governments can and will do anything to survive.
Kreiger asks you to put yourself in The Bernank’s shoes for a moment. This guy loves printing more than Hewlett Packard. He is despondent beyond belief that the markets and an increasing amount of financial commentators have criticized his precious QE insanity.

Meanwhile, the economic data is starting to roll over and housing looks set to launch into another spiral lower. So what is a Bernank to do? Bluff the heck out of the markets.

He knows that the only way he can have cover for his printing party is to smash commodities because the rise in commodities is the biggest point of contention amongst the masses.
  • Unfortunately, most people don’t delve deep enough into how the system works to have the serious moral and philosophical issues with the central planning system as I and many others do. The Bernank knows this. Bread and circus is a tried and true method. Problems emerge when the bread runs out. So the period we are in right now is huge for the Bernank and his merry band of mental patients. They don’t have to make any decision on more printing until June when the current fiasco ends. It is during this window when they think they can have their cake and eat it too. They can print like mad yet at the same time claim they are about to stop and maybe even tighten. Yeah, and the Easter Bunny is sitting next to me trading LinkedIn shares.
Kreiger contends this is The Bernank Bluff and he is milking it for all it is worth while at the same time orchestrating raids on commodity futures.

Kreiger further contends that this is just a massive psychological game against the investors class to keep them from the assets that will actually provide protection.
  • Well Bernank you’ve got a month left. Make the most of it because after that you need to act. I can’t wait to see you try to tighten as the economy rolls over.
The reality is QE 2 is not the end of the money printing.

But then... you knew that already, right?
Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tuesday, May 17, 2011

Peter Schiff on Quantitative Easing and QE to infinity

 Great analysis by Peter Schiff on the ending of QE2 and QE to infinity.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Monday, May 16, 2011

$118 Billion per month

The story of this decade is debt.  More specifically, government debt.

We've said it time and time again.

And the biggest story within the story is US government debt.

Right now America is spending $118 Billion per month more than it takes in.  That is an astounding figure.

Today all the talk is of America 'officially' hitting the debt ceiling today. And prospects for the future are bleak.  Increasing revenue is going to be almost impossible. Despite talk of a recovery, the economy is badly under performing. Growth last quarter came in at just 1.8%. America isn't even creating enough jobs to employ new workers entering the job market, let alone the six million workers who lost their jobs during the recession.

Most importantly, the unsustainable trajectory of government spending is accelerating the America's ruinous debt crisis.

This trajectory is catastrophic.

By the end of the decade, America will be spending 20% of it's tax revenue simply paying interest on the debt – and that’s according to optimistic projections.

This course is not sustainable. That isn’t an opinion; it’s a mathematical certainty.

The big news is that the US Treasury will now start dipping into federal retirement funds to give the country more room to borrow.

Treasury Secretary Tim Geithner sent a letter to Congress alerting them to actions that have be taken to create additional headroom under the debt limit so that Treasury can continue funding obligations made by Congresses past and present. 

Last week Geithner also warned about the fiscal and economic consequences of failing to increase the debt limit.

Geithner continues to urge Congress to raise the debt limit in a timely manner in order to uphold the full faith and credit of the United States.

Debt... and the concurrent solution of money printing.

The issues have not changed.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Sunday, May 15, 2011

Youtube Video: College Conspiracy

Some interesting points made in this 62 minute youtube production on University and College funding and government loans, particularly by Gerald Celente (he calls it the 'college industrial complex'). Unfortunately, as with any NIA video, it goes off on certain tangents.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Saturday, May 14, 2011

Northern Okanagan Snapshot (Sat. Post #2)

The North Okanagan region of our home province of British Columbia is situated in the B.C interior, between the Okanagan Valley and the Shuswap.  The region stretches from the City of Vernon in the south to community of Grindrod in the north.

With a moderate climate producing warm spring weather, hot and sunny summers, mild autumns and temperate winters, the North Okanagan boasts a limitless variety of year-round recreational activities and is considered a vacation playground for both those in the Village on the Edge of the Rainforest... and for oil-rich investors from our next door neighbour province of Alberta.

In fact, one of the most popular ski resorts in BC is the Silver Star Mountain Resort located just north of Vernon.

And Vernon itself is surrounded by 3 beautiful lakes; Kalamalka Lake, Okanagan Lake and Swan Lake.  Many say that the beauty of the surrounding countryside and the excellent recreational facilities such as Silver Star ski resort, have made Vernon a major year-round vacation spot

But as we have covered in other posts, the periphery of Vancouver is suffering mightily from a dramatic real estate downturn.

And the Northern Okanagan region is being hit particularly hard. 

Real Estate statistics are out for the month of April and sales are down 70% from the boom years. Even during the slowdown in 2008/2009, total unit sales were much higher than this past month:
  • 2006: 265
  • 2007: 266
  • 2008: 179
  • 2009: 127
  • 2010: 189
  • 2011:   86
The Northern Okanagan is considered a vacation playground and as the local R/E advertisement photo posted above states, you buy here to 'live it up'.

The problem is... when a financial crunch begins in earnest, the first luxuries to be sacrificed are the vacation homes.

The Northern Okanagan, along with the entire periphery of Vancouver, is clearly being sacrificed by both buyers in BC and in Alberta.

Is this a simple downturn?

Or is the decline so much sharper than what we saw in 2008/2009 because what we are witnessing is actually the proverbial canary in the coal mine?

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Eric Sprott on what happened to Silver last week... (Sat. Post #1)

And Bloomberg on a Gold/Silver outlook...

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Friday, May 13, 2011

Richmond continues to suffer

Back after a couple of days away.

I see Silver has been up and down the past couple of days.  Just today it has hit lows of around $33.90 and highs of around $36.50. As I have mentioned before, we are in for a period of high volatility and Silver will continue to have a wild roller coaster ride for the next little while.  But make no mistake, Silver will go over $100 per ounce.  More on the topic another day.

I note that real estate in Richmond has been gaining some attention this week.

As faithful readers will recall, this blog did a post back on March 27th titled 'The Fickle Winds of Change'.

It was two weeks after the devastatingly massive Japan earthquakes/Tsunami and we noted that the repercussions from that little 'shake and slosh' would be felt in the Vancouver suburb of Richmond.

Several months after the quake, that is clearly the case.

Richmond, which has seen massive real estate gains from Asian buying, has the potential to replicate that Japanese countryside which was destoryed as Tsunami waves ripped across flat lands and bulldozed houses and buildings like matchsticks.

And the impact would not be lost on Chinese home buyers.

Well today the Richmond News, a Richmond community newspaper, headlined that the 'Shine off Richmond Market: number of listings grow as Chinese investors shy away'. This follows a similar story from one of our regions major daily newspapers, the Vancouver Sun.  The Sun story ran on May 7th and headlined that 'Japan's quake has Chinese investors wary of Richmond'.

People aren't stupid. After watching the devastating images from Japan, nervous eyes are glancing at Richmond, which sits below sea level with only a rinky dink little two foot dyke as protection. The predicted 30 metre Tsunami triggered by a 9.0 earthquake would wipe Richmond houses off the face of the earth.

  • "Richmond is located on a floodplain. A ‘floodplain’ is: 'land adjacent to a watercourse that is susceptible to flooding', such as from periods of high tide. In addition, isolated instances of flooding can occur in any community as a result of unanticipated weather events. To protect Richmond from the possibility of flooding due to high tides or river floods, the City has constructed a comprehensive system of dykes on Lulu Island. These dykes are over 49 km in length and protect an area of 12,805 ha."
It will be interesting to watch Richmond to see just what sort of impact this will have six months from now.  Memories can be short so we are keen to see how long this trend lasts. 

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Tuesday, May 10, 2011

Silver starts it's climb back up.

On Friday, Silver fell as low as $33.10.

Five CME margin hikes (and other margin hikes from Brokerage houses) in 8 days did their job.  Traders speculating with borrowed money were forced out, the liquidation causing just over a 30% plunge in the paper price of Silver which allowed those holding huge short positions in Silver to cover a large number of their shorts.

But as we have said, the fundamentals that drove Silver to these heights still remain.  As the Bank of Montreal declared in an investment report in April, 2011, there is a new paradigm for Silver.

And the vast number of investors recognize this too.

As a result, the artificially manipulated collapse in paper Silver price - while temporarily successful in driving that price downward - did little to deter demand.

As we noted on the weekend, ScotiaBank quickly sold out of their Silver stock as buyers lept at the chance to buy Silver 'on sale'.

Or at least as buyers tried to buy Silver at that price.

The problem was finding it, and if you could find it... buy it at $33/ounce. Many dealers simply wouldn't sell it at that price.

Even large mining companies like Canada's First Majestic Silver, who sell bullion directly to customers, were having nothing to do with the artificial price drop.  Majestic simply refused to sell a 1 ounce Round for below $40 ($7 over the 'supposed' price of an ounce of Silver).

Not surprisingly Silver has rebounded almost 20% from Friday's low.  The spot price now sits just below $39. 

With the spot price up almost $6 from Friday morning, how much has First Majestic increased the price of their 1 ounce Round by?

50 cents.  The price is now $40.50.

They knew exactly what we had been saying... the manipulated price last week was artificial and would be coming back up.  Therefore they refused to sell their physical at such ridiculous prices.

A colleague emailed to report that he went to the Vancouver Bullion Exchange at Broadway/Granville on Monday in an attempt to buy some physical silver at fire sale prices.

They didn't have any Silver to sell. No rounds, no 100 oz bars, nothing between.
  • "I was in a line up of 20 people, about the average of the office during my visit (twenty-five minutes). Interestingly, with no Silver to buy, most of the patrons were trading in US dollars to convert to Canadian dollars.  The amounts ranged from $5,000 down to $300."
Make no mistake.  The Silver commodity market will end in a bubble.  There will come a time when this blog writes about the irrationality of the market and tells you that you shouldn't be investing in it.

Most bull markets and most sectors, whether it is stocks, real estate, or whatever it happens to be, lands in a bubble.

We are far-far-far from a bubble so far.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Sunday, May 8, 2011

It's there for all to see...

The eagerly awaited Commitment of Traders (COT) Report came out on Friday.  When the data is combined with the May Bank Participation Report (BPR), the stunning story of what happened in Silver this past week is all there for everyone to see.

Starting on April 29th, a co-ordinated attack was launched against Silver to drive the price down and allow the banking cabal to cover some of their massive short position.

And the depth and breadth of what has occurred is stunning.

As you know by now, it has been a tumultuous week.

When Silver was originally touching $50, a host of stories started popping up in the media warning the Silver was due for a crash. 'A bubble ready to burst' the headlines screamed.

By dumping unprecedented volume in paper contracts on the market, a 'double top' had been painted on Silver charts, an unmistakable sign of an impending collapse to 'chartists'.

But it wasn't a bubble that was bursting, it was a carefully scripted attack on the metal. 

And that attack began in earnest with two hikes to trading margins in the last week of April.  As Silver went into the weekend, investors trading on margin were squeezed. With some markets closed on Monday, positions that had to be liqudated were done so in a market that was trading on thin volume at the opening of trading on the Globex.

The result? Silver dropped by $6.10 in four minutes.

And the attack continued.

By the close of business tomorrow Silver will have been sacked with 5 seperate margin hikes in 9 days. Never before has this been done. In addition to these hikes, significant margin hikes were also raised at brokerage firms for silver traders. Margins at brokerage firms were doubled from what margins were at the CME.  What this ultimately meant for traders is that you had to have five times as much money as last week in order to carry Silver contracts.

This intensive attack on those trading silver on margin was devestating. It wiped out all the small investors trading in Silver and many of the mid-sized ones. As those margin accounts were desperately liquidated, the price of Silver was hammered down from it's high of $49.75 to it's low two days ago of $33.10... an almost 35% cascading waterfall of a drop.

On Monday and Tuesday alone, Silver dropped an astonishing $7.10.

Looking at the COT report you can see that, in the Non-Commercial category - where the technical funds trade - the large traders net long position is now down to a tiny 23,354 contracts. This is the lowest number in that category in a long, long time.

They are the ones who got hit bad; well and truly squeezed until there is very little blood left in this stone.

Meanwhile the data extracted from the May Bank Participation report, which was also issued Friday, and from the COT report for positions held of as this past Tuesday show that 4 U.S. Banks (probably only 2 that matter: JPMorgan and HSBC) decreased their net short position by a whopping 5,757 Comex futures contracts.

They are now down to 18,830 contracts held short (and remember... each contract represents 5,000 ounces).

This is the lowest Comex futures short position that JPMorgan has had in silver since they took over Bear Stearns' short position back in 2008.

The 12 non-U.S. banks reduced their net short position in silver by 1,157 Comex contracts and are now down 3,608 contracts held short. The speculation here is that the bulk of these short contracts are held by just one foreign bank... our own Bank of Nova Scotia (ScotiaBank).

[And just to emphasize the concentration,  note that JPMorgan's short position (18,830 contracts) is almost five times the size of the entire short position of the 12 non-U.S. banks combined (which is 3,608 contracts).  That is astonishing.]

In a nutshell, the BPR shows that the world's bullion banks decreased their Comex short positions in silver by almost 7,000 contracts up until the close of trading on Tuesday.

7,000 contracts representing 35 million ounces in 1 week!!!!

And it goes without saying that if you could factor in the last three days of this past week (Wednesday, Thursday and Friday), the final totals would be massively higher than 7,000.

This has been a down-side clean-out of biblical proportions in Silver.

This tells you everything you need to know about where the Silver market is going.  If Silver were in a bubble, if Silver was on it's way to crashing to $22 and below, would the Banking Cabal cover off so much at between $33 - $40?

This was nothing more than an act of desperation. The bankers are in dire straights and desperate times demand desperate measures.

And that's what this past week was... an act of desperation.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Saturday, May 7, 2011

April Real Estate Numbers

Last week we mentioned how we expected the April Real Estate statistics would continue to show that Vancouver proper R/E would remain hot, but that the larger periphery around the Village on the Edge of the Rainforest is NOT selling at all.

And that is the case.

Above (click on image to enlarge) are the statistics for Vancouver in a chart from realtor Larry Yatkowsky. The Euphoric Stage of the bubble is playing out in almost perfect chart form now and the climb is almost breathtaking.

But while Vancouver proper ramps up in it's combustible intense heat, the  periphery continues to languish.

The Fraser Valley has stalled. It would be polite to only say that sales and prices are flat. From the Fraser Valley Real Estate Board:
  • "The Fraser Valley Real Estate Board processed 1,516 property sales on its Multiple Listing Service in April, a decrease of 15% compared to 1,793 sold during April of last year, and a decrease of 17% compared to March’s 1,818 sales."
Across the water, our Province's capital city is a 'washout' according to the City's main daily newspaper. Victoria had it's lowest April R/E sales totals in over a decade.

Meanwhile in the Okanagan region of the Province, the sales to listings percentage is sitting at 5-8%.  When you have a 5% sales/list ratio it means there is almost two years of inventory waiting to be sold.

A complete list of the BC region can be seen here.

They say a 'watched pot never boils' and for many of the local R/E bubble watchers, the playing out of the Vancouver Housing Bubble has been agonizingly slow. The bubble watchers all know that the fundamentals point to a bubble, they all know values have out-stripped local incomes, and they all know all the signs of an imminent bubble collapse are there.

And now conditions are, in fact, unwinding.

Do a google search of the term "real estate bubble the periphery collapses first"  and you get link after link detailing how this is one of the warning signs of a collapsing property bubble.

Do not revel in this.  The pain we will feel in the years ahead will be significant. Even those who have been wise enough to protect their equity gains, even those who have avoided the 'debt trap' by not succumbing to the buying pressure; all will be significantly impacted by the collapse.

Perhaps the only good thing is that, in recent months, the warnings have been well publicized by the mainstream media as well as the blogosphere.

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Friday, May 6, 2011

Silver is on sale... end result: Sold Out!

At one point today the spot price of Silver dipped down to almost $33.00.

Time to panic?

Seems there are a lot of others out there with my Alfred E. Newman attitude to this phase of the Great Silver Bull Run.

Physical silver buying is going crazy.  And the screen shot above (click to enlarge) is perhaps the best evidence.

ScotiaBank's precious metals e-store is completely sold out of all denominations of Silver on their website.

Now... bars and rounds have been sold out in the past, but Scotia has ALWAYS had Silver Maple Leaf coins available.

Today... nothing.

The bubble hasn't been bursting, Silver has been on a fire-sale this week.

If last week was desperation time for the banking cabal, next week could see the panic level raised to DEFCON 4.

If anyone is out trying to buy physical Silver, come on back to this blog and post what you find at your local bullion store.  It would be interesting to see who is able to source physical Silver, where and at what price.


Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Thursday, May 5, 2011

Couple of quick links on Silver for you...

Busy day and not much time for a big post.

Great article on the blog Financial Sense titled: The Silver Bull Market Will Zig-Zag to $100 and Beyond. It gives a great review of the price of Silver over the last few years and reinforces many of the strong points in the case for Silver.

And then on Casey Research (scroll down page to second item) there is this post examining  How Far Does Silver Fall?

Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.

Wednesday, May 4, 2011

1, 2, 3, 4... I declare a paper war (Updated 2)

For almost two weeks now, I have have told you to expect a great deal of volatility in Silver and that we would be in for a wild roller coaster ride.

Closer to home I have cautioned many colleagues that I expected a huge beat-down of Silver at some point which could see the price brought down as much as $15 - $30 per ounce. Is this that beat-down?

I was convinced that event wouldn't come until the broader investment community started to move significantly into Silver. 

That hasn't happened yet.

Has it come early because the short squeeze on the COMEX is even greater than we think?

Or is this, as the naysayers are trumpeting, simply a bursting of bubble conditions in the precious metals?

The fact of the matter is that Silver is down dramatically this week.  From almost $49.80, the shiny metal is now hovering around $39.35 after dropping to almost $39.

So is the bubble bursting? Or is there another, definitive reason that Silver has dropped so dramatically in price?

If you have any doubts about what's going on, ask yourself two key questions:
  1. Why did you originally believe Silver was going to rise exponentially in value?
  2. Have those reasons changed?
Let's look at them.

Silver was going to rise exponentially in value because of increased demand as a result of Sovereign Debt. Have the answers to any of these issues changed?
  • Has the US suddenly resolved their deficit woes? 
  • Has the US federal government found a way to avoid raising the debt ceiling of $14.3 Trillion?
  • Has the U.S. government discovered spending restraint and move toward a balanced budget?
  • Have the individual US States resolved their massive debt funding issues? Are California, Illinois, New York, Michigan and about 30 other states suddenly solvent and prosperous?
  •  Has the US found a way to fund the outstanding liabilities of Social Security, medicare, etc which bring the actual debt totals to over $70 Trillion?
  • Has the massive derivative problem been solved?
  •  Did the too big to fail banks suddenly become solvent, their CDOs and loan portfolios truly valued at par?
  • Has Europe become solvent or have Portugal, Iceland, Ireland, Greece and Spain suddenly resolved their severe debt problems?
  • Is China suddenly buying US Treasuries again?
  • Are the world's Central Banks buying up more US dollars or are they still dumping US dollars to buy Gold?
  • Has the COMEX suddenly sourced 1 billion ounces of physical silver, tested and ready for immediate delivery (because they sold that many paper contracts on Monday)?
NOTHING has changed.  None of these conditions have been altered.

If fact, conditions are quite the opposite.  Reuters is reporting that the US Treasury wants a $2 trillion debt cap raise just to keep government operations going until the end of 2012. Meanwhile the budget deficit hasn't been resolved, so government revenue can't operate on the cash that is coming in... therefore that debt can only be added to after 2012.

Unemployment remains stubbornly high. Various budget constraints have limited the scope for easy solutions, even if these were desirable. The debt and deficit dynamics are bad and deteriorating at both state and federal levels. A major rating agency, Standard & Poor's, has already taken the previously unthinkable step of placing the US's AAA credit rating on negative outlook.

There there is this Bloomberg report that came out today reporting that Mexico, Russia and Thailand added gold now valued at about $6 billion to their reserves in February and March as the dollar weakened and Treasuries lost investors money.

Which brings us to the main contradiction... if the bubble is bursting in Gold and Silver, why isn't the US dollar rising?

The fact of the matter is that Silver isn't dropping in price because the underlying support for it's dramatic rise has collapsed.

Silver is dropping in price because an all out paper war has been launched against it in a desperate attempt to suppress it's value and support the US dollar.

We have already talked about how, in the last week of April, the COMEX attempted to engineer a liquidation of silver holdings by those who trade with highly leveraged positions.

And you need to understand that this represents a significant amount of trading.

During that week the COMEX raised margins on Silver traders twice... first by 9%, then by another 10%... in just one week!!

Unable to meet margin requirements when trading opened on Sunday night, delinquent accounts were liquidated. It just so happened that trading in London was closed for a local May 2nd holiday... which meant trading volume was very low. In about four minutes, Silver plummeted $6.10.

This was followed on Monday by MF Global raising their silver trading margin to 175% of the COMEX margin.  More liquidation's were triggered.

On Tuesday the paper war intensified as Interactive Brokers warned traders of a yet unknown (but certainly scary) looming margin increase:



Wed May 4 10:50:37 2011 EST

Margin Increase: Silver Derivatives

In light of the recent unprecedented volatility in silver markets, the exchanges that offer trading in silver derivative contracts are increasing the margin requirements on these products. In an effort to adequately address the inherent risk resulting from this volatility, we are increasing margin requirements on silver derivative contracts to a level exceeding that which the exchanges are implementing.

You will be notified as more information becomes available.

Please monitor and manage your risk accordingly.


What the margin hike's have done is it has forced all the newcomers to the game to have to liquidate their positions or ante up the new margin. Given that most trade futures on margin, liquidation is the only option. For long time Gold/Silver investors, these tactics are reminiscent of the actions taken to suppress Gold/Silver in the late 1970s.

You have to keep this in perspective. No asset has risen so sharply so quickly without meaningful and necessary pauses in price to establish a new base. Even gold, during its run paused now and then to allow for normal ebbs and flows to take place, new bases to form and new launching pads to be built.

Silver didn’t do that. It shot straight up like a rocket. That rocket, thanks in large part to the CME margin hikes has now run out of fuel for a spell.  Will Silver crumble? No way. The fundamentals as to why it ran haven’t changed. The reality is that it just ran too fast with everyone scrambling to try to buy physical or find a vehicle to play the game with.

This is another reason why junior mining stocks have not taken flight like the price of Silver. Rather than being a bad thing, the juniors have been a shield from the recent volatility and risk of the futures market.

In truth, these margin actions are ultimately beneficial to the ability of Silver to push higher and higher.

In the meantime you are being presented with an outstanding buying opportunity.

Remember... the key question to ask yourself is: what has changed?

It isn't the Sovereign Debt issue, that's for sure. Which means this take down can only reverse sharply when it's done.  And that is going to present us with a gift-wrapped buying opportunity.


The paper war continues.  The CME has just announced that margins have been raised for the 4th time in 8 days.  This latest hike is 17%!!!


Not only has the CME hiked margins for the 4th time in 8 days, but closer inspection of their announcement (see above) reveals that there are actually TWO rate hikes in the announcement.  Rate hike #4 is effective May 5th and rate hike #5 is effective May 9th.

Two concurrent margin hikes are a move never implimented before.

The paper war continues.
Click 'comments' below to contribute to this post.
Please read disclaimer at bottom of blog.