April 3, 2013
The Beating Continues
Unless you’ve been living in a remote cave somewhere, you know that a couple things have happened. One is that the DOW hit an all time new high. Second is that the S&P beat its own all time closing high. Third is that Gold and silver have both been sent “down” again. For months on end now, both the famous precious metals have been very weak, unable to muster any rallies and when they do gain some ground they are punched back down. This obviously has a lot of folks wondering if the whole “gold and silver” thing is done, over kaput.
What you have to ask in times like this is a simple question. Are the things that pushed gold to 1900 the ounce, and Silver to almost 50, still valid or are they cured? So what indeed is the “surface view” of why gold and silver got to where they were in the first place? Well, the simple answer would be that initially folks feared a major economic meltdown, and they rushed to the safety of Precious metals ( which from here on out I’m going to call PM’s) Then when the financial system was really creaking and groaning during the 2008 meltdown, they saw the Fed rush to the rescue with trillions of dollars and figured that inflation would be a problem and they pushed the PM’s even higher.
Gold and Silver don’t do a lot of different things, they basically just “sit there”. They don’t go out and harvest interest or dividends. They don’t “create” more money for the owners. They’re not used for “money” any more. They’re pretty boring investments. They have only ONE job. To keep your wealth safe from being stolen by crazed central bankers. At that, they are very very good. I usually use the suit analogy, but suffice it to say that what ever the price of an ounce of gold could buy in 1920 ( about 30 dollars) it will buy today. Despite the US dollar crashing from the value of “one dollar” in 1920 to today’s value of approximately 6 cents, gold will continue to buy you the goods it would have bought you in the 20′s. ( The suit analogy is simply that in 1920 you could buy a hand made mans suit for about 30 dollars, the basic price of an ounce of gold at the time. Today an ounce of gold will again still buy you a nicely made tailored suit, the gold “held your purchasing power)
While we’ve been accumulating gold since 2001, not many cared to listen to our rants back then. But when we were screaming that the housing bubble was going to crash and take the system along with it, “some” started paying attention. When the crap hit the fan, all of a sudden there was a panic rush into the PM’s. From there, they just walked their way higher and higher, partly because of the dangers ( Europe imploding, our economy in the toilet, war in the Middle East, etc) and partly because of the specter of inflation. But since late 2011 the PM’s have been stuck in a rut. They can’t seem to gain any headway and when they do perk up, waves of selling hit. So the first thing we have to do is figure out if the things that drove gold from 300 in 2001 to 1900 in 2011 are still viable. Let’s take a look at JUST TODAY’S REAL NEWS…..
U.S. General: NKorea ‘Volatile,’ ‘Dangerous’…HAGEL CITES ‘GROWING THREAT’ FROM NUKES…Standoff with South escalates as North shuts border…China voices ‘serious concern’…
Wow. A country with nuclear capabilities, telling the world it not only doesn’t like the US, it wants to blow it up, along with those pesky folks to the south of them. Could anything go wrong there, even if this is just bluff? What about some nervous soldier who scared to death shoots something by accident and triggers a snowball effect? It’s possible. How about Iran and Israel? Any possibility of a problem there? The world is a dangerous place.
How about Cyprus and Europe as a whole? Raiding depositors to pay for insolvent banks? You bet and it’s going to happen throughout the region. Just Tuesday night the Dutch bank ING has been having a “technical glitch” as their online banking is showing “ZERO” balances for people, and they can’t use their bank cards at shops. Isn’t that the area that Mr. “diesel-boom” resides? It is. Funny how the Dutch banks are creaking and groaning while the idiots in Brussels try and run things from central command. How is all that going? Not well I’d say.
4:52 PM Oil tanker operator Frontline (FRO) says it is rejecting some cargoes with the market in a “state of panic” as excess ship supply continues to drive down charter rates. Earnings for VLCCs, the industry’s biggest ships, have plunged 75% Y/Y to $11,624/day, according to ship broker Clarkson; VLCCs are losing $3,012/day on the benchmark Saudi Arabia-to-Japan voyage.
Shipping has been dismal for years. The Baltic dry index has been crawling along the bottom with just the occasional bump higher. Now we see oil tanker companies rejecting cargo, and pricing so low it costs them money to move goods. Is this the sign of a strong global economy?
7:50 AM Generating chatter from Fed critics is this Reuters report on the return of subprime lending in the auto business. Santander’s (SAN) U.S. unit is one of the biggest sellers of securities backed by subprime auto loans. Less well-known is Exeter – originally backed by Goldman, now by Blackstone (BX) – the auto-finance company did $100M in business in 2010, $1B last year, and expects to hit $2.2B in 2015.
Consider that in 2012, lenders sold $18.5 billion in securities backed by subprime auto loans, compared with $11.75 billion in 2011, according to ratings firm Standard & Poor’s. The pace has continued so far this year, with $5.7 billion of the securities issued, compared with $4.4 billion for the same period last year, according to Deutsche Bank AG. On Monday alone, three deals totaling $1.6 billion of subprime auto securities were announced by Wall Street banks.
Ghee, it’s a shame we didn’t have any real world experience to see what kind of effect this might have, ( joke) Isn’t this exactly what they were doing with housing back in 2004 – 07? packaging up garbage loans and selling them off? How well did that turn out? Not very. Last week I talked to you about the “rental backed securities” that the big investment houses are pushing on people. Again I ask, didn’t we get in big trouble taking these tranches of junk and putting them together in a pretty binder and selling them as investments? We did.
POVERTY SPIKES TO 1960S LEVEL Nearly 50 Million Americans Below the Line…Child Hunger Rates ‘Alarmingly High’…
Each day my brain is mentally raped by analysts telling me how big and broad the “recovery” is. Yet almost every month we see record numbers of folks on food stamps, we see record number of folks falling into the poverty level. We see more and more “hungry kids” right here in our own backyards, not over in Africa or South Asia. Does having the amount of people falling under the poverty line denote strength to you? Me neither.
Obama admin pushes banks to make home loans to people with weak credit…The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. – Washington Post
Uhm excuse me? Obama is pushing banks to make housing loans to folks with impaired credit? OH MY. Didn’t we see them do the “alive and breathing, no doc, no income check” loans in 2004 – 2007 and it created the worlds largest bubble to date? Yes we did. Didn’t it end horribly as 8 dollar an hour folks couldn’t afford to make the payments on 600K dollar homes? It did. So here’s Obama and his cronies pushing to “loosen the standards” again. I wonder how that all ends? Oh and by the way, you know all those student loans that are now amounting to something like 1 TRILLION dollars? Well there’s talk about “forgiving” that debt because it hinders young people’s attempts to buy their first house. Are you catching on here? None of Bernanke’s schemes are working, the economy is still in the pits and they’re reaching back to the bubble days to come up with ideas to make things happen. Do you think it will end any differently than last time? Me neither.
But wait, I think this next one sums up the insanity about as well as anything could. You really should pour yourself a good single malt scotch before trying to understand this one…
(Reuters) – Thanks largely to the U.S. Federal Reserve, Jeffrey Nelson was able to put up a shotgun as down payment on a car. Money was tight last year for the school-bus driver and neighborhood constable in Jasper, Alabama, a beaten-down town of 14,000 people. One car had already been repossessed. Medical bills were piling up. And still, though Nelson’s credit history was an unhappy one, local car dealer Maloy Chrysler Dodge Jeep had no problem arranging a $10,294 loan from Wall Street-backed subprime lender Exeter Finance Corp so Nelson and his wife could buy a charcoal gray 2007 Suzuki Grand Vitara. All the Nelsons had to do was cover the $1,000 down payment. For most of that amount, Maloy accepted Jeffrey’s 12-gauge Mossberg & Sons shotgun, valued at about $700 online.
In the ensuing months, Nelson and his wife divorced, he moved into a mobile home, and, unable to cover mounting debts, he filed for personal bankruptcy. His ex-wife, who assumed responsibility for the $324-a-month car payment, said she will probably file for bankruptcy in a couple of months. When they got the Exeter loan, Jeffrey, 44 years old, was happy “someone took a chance on us.” Now, he sees it as a contributor to his financial downfall. “Was it feasible? No,” he said.
Now chew on that for a few minutes. Here’s a guy who had little income. A guy that already had a car repossessed. He had Medical bills piling up. Yet the car dealer found Exeter lending for him, a place that charted him 22% for the loan. All he needed was the down payment. But he didn’t have 1000 dollars. So, he gave his shotgun as collateral for the loan. Shotguns for cars? Am I in a parallel universe somewhere? Did my wife slip me some hallucinogens?
Okay, so if this is just the insanity from ONE DAYS NEWS, you can pretty much assume that each day brings us such marvels. You can also safely assume that the vaunted recovery they scream about on TV every day is horse hockey. Of course cars are selling, they’re letting people with FICO scores that are lower than their IQ buy credit. Of course housing is moving, big institutions are buying them up, renting them out and selling the rents as “securities”. Folks, our “recovery” is a fraud. Notice I didn’t even mention Bernanke’s 85 BILLION a month yet. So, as far as our economy being less than stellar and the potential for it to fail miserably, Gold and Silver’s role as a safe haven is still intact. The PM’s dual mandate of creating a safe haven, and guarding against inflation has passed part one. What about part two?
Inflation. In a technical sense, everyone looks at rising prices as inflation. But I’m going to toss you a little eco-jargon here for a second. Do you know what inflation “really” is? Lets have Websters dictionary define it for us.
Inflation – A rise in the money supply. 2) a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services
Okay, if inflation is a rise in the money supply ( volume/amount) and rising prices are the result of this activity, can we say that we have inflation? Absolutely, Bernanke is printing 85 billion a month out of thin air. If that’s not a rise in the volume of money, I am speechless to consider what is. Thus, we should have the resultant increase in prices because of this. is this true also? You bet it is.
November 26, 2008 NEW YORK (CNNMoney.com) — Gasoline prices declined for the 70th straight day, falling below the $1.87 per gallon mark, according to a national survey of credit card swipes at gasoline stations
$1.87? I’m paying 3.89 here in Sarasota. That’s a rise of 108%.
In its newest corn supply and demand estimates, the USDA reported the estimated average farm price for corn in 2008 at $4/bu
On August 9th of 2012? let’s look
On Thursday, corn prices spike nearly 14% to a record high of $8.28 per bushel on the Chicago Board of Trade, before pulling back to about $8.23 per bushel.
That’s a rise of 100.1%
How about Beef?
From February 2012 – Prices for beef, which have been climbing for months, hit a record high in December – an average of $5 a pound and analysts predict they could climb 5 to 8 percent higher this year.
Shall I go on? No I don’t have to. Medical, Insurance, food, gasoline, oil, Education, recreation and a host of other items are bulging at the seams with inflation driven price hikes. Since these are just the items the Government can’t hide as well as other things when calculating inflation, they simply ignore them, they aren’t included in the readings. Thus I have to think that the PM’s have fulfilled their second part of the dual mandate, they have hedged against this inflation.
Okay, so if the two main reasons for the PM’s to rise has been shown to still be in effect, why on earth are they seemingly “capped” here? Ahh, the plot thickens. This is where you either have to believe what I’m saying, or believe the folks telling you that everything is just fine and the recovery is roaring. That choice is yours to make. I think the examples I just posted from Today’s news shows the folks hyping the economy are full of BEEE EEESSS, but again, the choice is yours.
Bernake is a liar. He is also Incredibly bright. You don’t get to head the biggest central bank on earth by being a dolt. The bankers know the “real deal” and all across the world central banks are buying up gold. China has been very active, and judging by the way the BRIC countries just shrugged off using the dollar for trade between them, the days of the US dollar being the world reserve currency is limited. Bernanke knows this as does Draghi in Europe and Abe in Japan and everyone else. So at the central bank level, they are in accumulation mode big time. Now, why would they be so hot for gold, but send their minions out to mock it, disrespect it and push it down? Many reasons, and none of them good.
Reason one of course is that they’re buying the stuff, so the cheaper the better for them. But that’s just the surface reason, the “easy one to figure” reason. Reason number two is a bit more nefarious. Gold has always been the “safety haven” and inflation fighter. Well it surely doesn’t look too good when you’re bailing out Cyprus by stealing customer deposits if Gold and silver are soaring. It would show the world that the system has broken down and that you NEED the safety of the PM’s. If they can keep the PM’s down, it broadcasts the feeling that “hey things must not be bad because gold isn’t soaring”. In fact we hear such garbage every week on outfits like CNBC or what passes as financial newspapers. Do NOT dismiss that as meaning nothing. Don’t forget the reason they’re pushing the stock market higher is “perception of wealth”. People see the markets rise and “think” that the economy is doing well. Perception and “feelings” are very important. If they can get people thinking that “if ” things were really bad gold would have gone higher, they have won the psychological game.
But there’s more to it than them buying it and trying to make it look unattractive at the same time. Over the past few years, to keep gold from going nuts in price, the very central bankers that have been accumulating the stuff have also at the very same time been “leasing” gold to the bullion banks that sell it into the markets. Now if it was just one or two of these criminals doing this, it wouldn’t have mattered much. But as we look around the globe we see that no less than ALL of the recognized Central banks have forward leased out somewhere between 25 and 35% of their gold. This is huge. Pay attention.
To keep gold from rising like crazy, what they do is “lease it” or in other words literally “rent it” out to bullion banks. Because it’s rented, not sold, they get to keep it on the balance sheet despite it physically not being there. So the bullion banks rent it from the Centrals, but then what do they do? They SELL IT. Now, what is the basic idea of pricing? Supply and demand right? Right. Well, the reason that the market is capped is because the bullion banks are selling into the market all the gold necessary to meet the demand. Despite demand being incredibly strong, they’ve met the demand with more gold than is necessary to meet that demand. Thus, gold has drifted lower and is just “hovering”.
Now you might wish to ask the question, “if the central banks have rented it out, but the bullion banks have sold it into the market, isn’t keeping the gold on the balance sheet as an asset a ponzi scheme?” It surely is. As long as there’s no tremendous rush by any one Central Bank to get their “leased” gold back, then it goes on and on. But what happens if say the Central bank of Venezuela says “I want our gold back, we want to repatriate our gold to our own shores, not some vaults in London and NY?” Uh Oh. Now there’s a problem. Because some portion of that reserve currency gold has been leased out. Now the calls have to go out to the bullion bank “get the gold back”. Well they can’t just “get it back” what they do is take the next round of leased gold from some other country and satisfy the Venezuelans demands for physical. Okay, problem averted. Why? Because Venezuela doesn’t have huge reserves of the metal.
But what happens when Germany demands some of their gold to come home? Or Switzerland? or New Zealand? All hell breaks loose. If you remember I told you weeks ago that Germany had requested that a huge lot of their gold reserves being held in NY be returned to the Mother land. The result was that it is going to take 7 years. Why? The gold isn’t there. It’s going to take that long to amass it and then deliver it. Are you starting to see the situation here? What if they got “mean” and said “no, we want it now?” Gold would soar to 2500 dollars overnight.
The way gold is dealt with at the Central bank is basically the same as any fractional banking is done. They only keep a “fraction” of the deposit on hand the rest is loaned out. All is fine until everyone wants their gold back at the same time. I tend to think that every day we get closer and closer to a gold panic. Right now, the Central bankers are being “gentlemanly” with each other and giving ample time for the bullion banks to get their act together and raise the physical metals. All is “working” so far. But, can we really believe that they’ll pull all this off without something going bump in the night?
For now they’ve done a pretty good job of keeping the lid on the PM’s. I have to give credit where it’s due. It isn’t easy to keep a fractional banking ponzi alive while the world is springing leaks all over it. So far, so good is about all you can say. But it is my guess that as all these insane printing schemes are found to be death spirals and Europe and the US and Japan and other places go hyper inflation, gold will push higher. Then if any one of the major Central bank Countries panics and demands their gold back immediately, there’s going to be a “gold war” for possession and at that point the metal could go nuts. Keep an eye on China. They want their currency to be either the new global reserve or at least a major part of it. They’ve got a lot of gold to back it.
So, is gold and silver “done?” Nope. Is it depressing to see how well they’ve managed to cap it? Yup. Can they do it for ever? My guess is no. My guess is that when the dust settles, Gold will be well over 2500. I don’t buy the “gold/silver” ratio stuff, but I still believe silver sees 70 – 100. So yes, in my twisted mind, Gold and Silver are still buyable and certainly worth holding.
Day after day we’ve been hearing about how the “public’ is now desperate to get back in the market. They tell us on TV that the market has miles to go because John Q public is itching to dump his remains in the cesspool of Wall Street. They’re drooling over the idea of more money pouring into funds and pushing stocks forever higher. Well, that might be, but I have my doubts. The trends have changed folks.
The people with the most money are the parents of baby boomers and the first of the retiring baby boomers. They’ve both gone through the 1998 – 2000 bubble and then the 2004 – 2007 bubble. They both did what Wall Street told them and “held through it all”. Well that’s fine. But as the market took all those years to get back to “even”, they’ve become older. They need money to carry them through old age, and looking at the changes in medical because of Obama care, they’ve got a lot of worry on their hands.
If they don’t put their money in the stock market, they make no returns. But if they do and the market pulls another bubble pop, they lose their most prised possession, just as they need it the most. So, as a “whole” they are NOT terribly excited to get back in the muck and mire of the Street. Sure there’s some, there’s always the risk takers. But this isn’t 1999. This isn’t 2006. The boomers and their parents are “X” years closer to a major life change. Instead of making money and saving and investing, they’re going to be consuming it.
Judging by the numbers, if the millions of baby boomers that are heading into their late 60′s decide that return OF their money is more important then a return ON their money, Wall street might be hoping for something that will not develop. In the meantime, Bernanke is giving them all the fuel to push the stocks. So far he’s played his hand well.
We just had a stunning quarter. Why no one on CNBC tells you that the only other time we gained so much in the first quarter was during the TECH BUBBLE which as you know, didn’t end all that well. 12 years later the NASDAQ is still thousands of points off the highs. So, it is impossible to consider that we’re going to put in quarter after quarter like that one. Sorry, markets don’t usually gain 50% a year, not even Bernanke fueled fraud markets.
When we talked Sunday, we laid out a plan that “could” work out. We suggested that early in the week the market might make gains on the “new money of the new quarter/month” but then later in the week fade off. Then if the non farm payroll report ( the jobs report) is poor on Friday, they could use that as the excuse to finally allow some profit taking correction to show up. So far the plot has followed the script. We were flat Monday, up big Tuesday and down big Wednesday. The “net net” is that we’ve gone nowhere, as they look to Friday.
But today was interesting on a few fronts. One of course was North Korea. Around early afternoon, we heard that North Korea was rattling sabres again. But heading into the close we got two pieces of “news” that really threw things in a funk. First off a Fed head came out saying that the Fed could end it’s asset buying THIS YEAR! Not curtail it, END IT!. I almost fell out of my chair laughing. He said that with housing perking up and cars selling it’s time this summer to start pulling back. Really? Like “shotguns for clunkers” I wrote about above? Or investment houses buying up homes for rent and already smothering the rental markets driving prices down? Give me a break, this was simply a statement to keep the market from overheating.
The “other” news was a Dow Jones piece that stated “the North Korean military has confirmed they have the okay to launch nuclear attacks on the US”. Now this isn’t a game any more. It’s one thing to rattle the sabres and tell the world how much you’ll fight if cornered. It is something different to put out news saying we’ve got the okay to go. This guy is playing harder than his dad did, and let’s all hope he’s not nuts enough to do something stupid. While we would crush the little country, just one little nuke in the wrong area will kill many. I’d rather not think of it.
The big question is this….if we were to finally get a real pull back, say 7%, would everyone rush back in? Probably. While I don’t think the public is going to get involved like Wall Street wants, Bernanke has no choice but to print.
This letter has become mondo long for a Wednesday so I’ll leave it where it is for now. Be careful out there folks, this is a very crazy time.
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