Today In Silver

I’m assuming the danger will be coming from the mountain of derivative contracts insuring against credit default. One counter party default begets another as the dominoes fall. How does even $700 billion stop all of this?

Danger Will Rogers! Danger!

Ok, here’s my theory. Foreign creditors are p**sed that they were sold a bunch of junk, the US is trying a stealth default, and they’re not so sure that the US can pay their current debt, let alone anymore.

So they push the guvment to take over Fannie and Freddie and protect the bondholders. Then they push the guvment to take back all their toxic MBS’ et al. They agree to lend the US 700billion (or to not dump treasuries) and Paulson is to take back securities, try an figure out which are bad, and which are decent. Resell the decent securities and let the bad ones explode on US turf. Rotating through them as quickly as possible.

Finally, and this is the danger, the foreign creditors, ie. The East, will try and force the next government to live within it’s means and to start to seriously try and pay back it’s debt with real money. Somehow the US is going to have to try and reverse the twin deficits, and fast or the creditors will pull their support.

Steve….you state a good question…..this was answered on Jim Sinclairs website:

Jim,

Isn’t the major issue with respect to WaMu’s failure which institutions are on the hook for credit default swaps, and whether they can make good? I haven’t been able to find a single article addressing this.

Respectfully yours,
CIGA Richard B.

Dear Richard,

Media blackouts are always over the major problem area. You are 100% correct, making the circus over $700 billion almost a joke. The Fed loaned a trillion this week to financial entities.

Credit default derivatives are being written even today.

Regards,
Jim

Furthermore:

What more can be said? The amount of money being discussed today along with the argument of why should the average American have to take on OTC derivative losses (can you imagine anyone reluctant to pay off Wall Street losses?) is not even scratching at the funds that are going to be required. Monty’s estimates range from a low of $5 trillion to a high of $20 trillion. Some think the amount might even be higher than Monty’s upper estimate. The public is quickly getting the idea of just how bad the problem is while the Wall Street types are still being paid huge bonuses for doing things like creating bankruptcy.

And Lastly:

Dear Mr. Sinclair:

From American Banker’s website this evening:

Discount Window Borrowing Jumps to $262 Billion
American Banker | Friday, September 26, 2008
By Steven Sloan

WASHINGTON During another turbulent week on Wall Street, lending through the Federal Reserve Board’s discount window skyrocketed to $262.3 billion on Wednesday, thanks to new lending programs unveiled during the week.

It was the second record in as many weeks and more than double from the previous high water mark.

The heaviest lending was centered on the primary dealer credit facility, which was established in March to give investment banks access to the discount window. The Fed eased terms on the facility on Sunday when it approved requests from Goldman Sachs and Morgan Stanley to convert to bank holding companies.

The Fed said Goldman and Morgan, the last of the major investment banks, could borrow on the same terms as commercial banks and with the same collateral. In response, lending through the PDCF totalled $105.662 billion on Wednesday, from $59.8 billion a week earlier.

http://www.jsmineset.com/

As we can see….it is quite possible that over 1 TRILLION DOLLARS was already LOANED OUT…..700 BILLION is just a way to get the MORONS to SIGN THE BILL…and the FLOODGATES will OPEN.

Gosh. we’ve done such a good job morphing our Nation into
a Banana Republic, all we need now to complete the transformation
is the landing of foreign troops “to protect their interests”.
Might even give a boost to “multicultualism”, a few hundred thousand
Chinese Marines patroling the streets of Washington and
New York. A ticker tape parade on Wall Street to welcome them,
complete with a shower of shredded $100 bills!
OH Oh say can you Pay…by the Feds fading light. How so sadly
we failed in its twilight’s last gleaming….

I’m learning Mandarin as we speak.

Oh yeah, the banking system? Insolvent. There’s plenty of moola out there. It has been raided and skimmed off the top for the past decade and more. The rich people have plenty of money, but there is no way they are going ot put their money into a losing cause. They know what’s in all those CDO’s, after all, they created them. 700billion is the starting amount.

There is a perfectly sound reason why both Gold and Silver have not raced ahead in a northerly direction. The funamentals remain bullish, this has not changed or diminished in spite of the large sell-off which both metals endured. There are basically two reasons, first, markets do not necessarily fly out in one direction or another when a bullish event emerges *unless* the technical setup also coincides with that particular event. Too often you will see a particular market not advance on super bullish news, or in contrast advance on what is deemed bearish developments. Short to the point, the technical arena has to marry up with the fundamentals. Fundamentals will lead and it just takes time for price to catch up. When PM’s decide it is time to explode out of the gates, it will be techncially induced.

Secondly, though sentiment is now favoring Gold / Silver and it appears fundamentals are shifting from the US dollar link to inflationary stranglehold, these markets are coming off 2 - yr lows. Unless Ag/Au are in the midst of tracing out a V bottom, (which is rare), the techncial indicators have to establish momentum, (short term, intermediate and long term trends), though Silver/Gold have bounced well off the lows (specifically Gold), there is still overhead resistance which needs to be conquered.

Gold is obviously the stonger of the two, as for Silver, it is in the final stages of completing an “inverse head & shoulders pattern”, this formation will turn both short/intermediate trend back up, in addition there is a long term (falling wedge) pattern which commenced at the peak of the March high. This dominant pattern (unlike Gold) is keeping Silver hostage but another 3/4 pt move to the upside should confirm a breakout and a run to the 17’s for short term target, $21 is still in the cards as minimum target based on Falling Wedge.

Oddly, there is still a fair amount of bullish sentiment out there waiting for a stock market bear rally to get going with the announcement of a deal in congress.

So there is just not enough buying interest right now to get PM’s going.

I think this is actually a good thing for PM’s in the long run. We don’t really want a rocket shot to $21. We need this thing to build slowly and steadily. But any more banks go down and I think we’re in for a ride.
Are there any left in your neighborhood?

Oddly, there is still a fair amount of bullish sentiment out there waiting for a stock market bear rally to get going with the announcement of a deal in congress.

So there is just not enough buying interest right now to get PM’s going.

I think this is actually a good thing for PM’s in the long run. We don’t really want a rocket shot to $21. We need this thing to build slowly and steadily. But any more banks go down and I think we’re in for a ride.
Are there any left in your neighborhood?

100orbust: You summed it up perfectly.

Open interest at COMEX is falling rapidly. Meanwhile the ETF’s keep increasing their holdings to record levels. Physical PM’s are only available at a high premium to spot, if at all. The reign of the paper gold and silver market is coming to an end. This can only be extremely bullish for PM’s. In time the spot price should increase towards the real world price. If not then fundamental shortages will lead to default of COMEX and the market will be broken. This may happen at the same time as hyperinflation.

I think the really big buyers that can move the gold market are treading lightly for fear of causing even more financial damage, and they’ree hoarding cash and deleveraging. Yhey all still have a vested interest in the survival of the current system. I’m talking both very wealthy individuals and SWFs. Meanwhile they can accumulate at lower prices without creating a panic run. I think gold is doing fine in the near term while silver is a bit dissapointing. Sentiment is changing and momentum is building to the upside. History has I think shown that the PM do better in the long run with steady gains rather than quick spikes up and back down. We don’t need that.

100orbust: Lets put on a tin-foiled hat - If I wished to manipulate the PM prices down I would generate all kinds of price patterns which would result in charts which display negative tendencies or trends and thus would generate a negative sentiment towards the PMs.

I agree with you that these charts may be the reason for the PMs to remain at the current low levels, but if you accept the possibility of a price manipulation these charts and their analysis become worthless. When you follow these trends you are manipulated.

As a manipulator I would also read any market analysis regarding the PMs and break the widely accepted “supports”. Thus, in a manipulated market a market analyst becomes an aide to the manipulator.

SilverAx: Did you ever imagine that the publishing of your “supports” etc. could help the manipulators? I suggest that all PM market analysts refrain from publishing hard numbers and refrain from commenting on negative (or all kinds of) chart formations until a vast majority among them agrees that the market is not manipulated (I understand that they do not!).

Is there danger?

Yes, my wife.

When things work regarding my risk taking - all is well.
When things don?t work ? danger!

Real consequences.

The finance boys (mostly) who profited so nicely on the way up are now facing their wives on the way down.

I think the rest of us are toast.

DiscreetSilverBug: Whether the price is manipulated or not Technical Analysis still seems to work perfectly well in this market. Its interesting that despite ‘the manipulation’ a chart of the PM’s now and a price chart of the run up in the 70’s still look quite similar. Are the manipulators waiting for the same technical set up as the 70’s before they start their short selling, or market interventions? Or maybe in the overall scheme of things the manipulation matters little anyway due to the fact pyshology has changed little.?

What nobody seems to be talking about is TRUST. It is trust, or rather the lack of it, that is preventing Western W(B)ankers from lending to each other, and as for those in the East, how much trust can they have in people who have sold them so many defective goods?

$700 billion is not going to restore trust. I somehow doubt if $7 trillion would either. If you had several billions to invest, would you trust these people with it? A tarnished reputation takes time to turn around - it isn’t done at a weekend meeting of Congress.

I agree with the points that 100orbust makes, but i haven’t yet seen anybody put up a chart of the degree of trust in the banking system, and in my own view, i think that the lack of trust is a hidden bullish factor in the PMs markets. You might argue that BKX etc. are proxies for the impossible-to-construct charts i’m talking about, but we all know that they only reflect short-term profit opportunities to the black box brigade, and say nothing of whether traders would actually deposit in these institutions.

Finally, thanks to DiscreetSilverBug for giving a voice to something i’ve been thinking for some time now, although i also think that those who are “interested” in seeing lower PM prices are precisely those who are stocking up big-time - again, it seems fairly obvious to me that in a time of economic danger, those with most to lose will be keenest to protect themselves in any way necessary. If you had the means, the motive and the opportunity to do so, wouldn’t you?

Tom, i think you hit the answer here “Does anybody even know from which direction is the danger approaching?”
I think many are confused. They also believe all the losses & bailouts are “deflationary” Therefore deleverage to cash,t-bills etc. Now add in hedge funds, investment banks and you have what happened. Now, as Dan on sinclairs’s site has noted, open interest is droping. Without the specs buying we have stalled here after the big V bottom. I believe once the bailout is passed or not, then the direction will be clear.

Tom : I agree with DiscreetSilverBug when he says that you should not publish hard numbers for predicting the silver market. This would aid the manipulators. They would like to strike when nobody is looking like e.g, when gold had hit 1000 USD and many chartists were super-bullish. TA is usesless for heavily manipulated PM markets.

Your PM lease rate which depends on LIBOR is suspect since LIBOR is suspect under the present conditions.

I have one doubt about the basis : if it is in a secular declining trend how do you trade it - particularly when it goes into backwardation. for me, buy early & hold has worked. i don’t care what PM USD price is today. whenever it is low according to my fancy i bought some. no regrets. haven’t lost any money till date with this strat.

I am in the manipulation camp. There is no way to explain the disconnect between the paper market and the physical market. Don’t give me the commercial market stuff.

IMO, it is the commercial market that has sucked up all the available supply. They are supplying this market to keep them from panic mode. When the public panic’s, they just get cut off, no problem. A commercial panic is an entirely different animal.

Either way, I think we are very close to all out panic everywhere and a rush into our 6,000 year old market will ensue. Human nature is an absolute, just like Gold and Silver.

Gold will hit $2000 and Silver will hit $100 before the end of this year. This is my low-ball estimate.

Hitler Gets A Margin Call

This is slightly off topic [and Tom, please kill this post if you think it is too much of a copyright violation], but I had a good laugh when this YouTube video was brought to my attention. Surely one of the things that keeps us PM investors going through the long painful trudge many of us have endured has been a sense of humor.

YouTube lists it as being posted 15 September, and it obviously reflects the world as it existed just before the recent recovery in PM prices.

I suspect most of us on this site DO know the historical context, but for those who are NOT history buffs, a brief background is needed. The movie Downfall showed Hitler’s last days. The scene the YouTube artist adapts involved Hitler finally admitting to himself that his war was lost (and therefore that he himself would soon have to commit suicide).

http://www.youtube.com/watch?v=eVB-SSkkLnY

Although the creator was obviously a card-carrying gold-bug, it is probably true that many non-gold-bugs view us as fanatical misfits in metaphorical bunkers, overcome with rage and paranoia as our investment strategies sputter. Oh well, events will demonstrate who the deluded investors really are soon enough. A good warning against excessive leverage, at any rate.

Tom, I’m sorry to see you didn’t get a mention in Hitler’s rant, but I guess we here are a rare subset even of PM investors, at least so far.

Whoa JoeM! Rome was neither built nor destroyed in 3 months.

I think that d’Casco is on the right track. The average person while aware that a crisis is in full force is still ready to trust the “system”. We have gone through many crises before and have always emerged stronger. They are not ready to bet that it will be different this time. Who knows … maybe the powers that be will in fact pull this one off. If so the system will heal for a while and the day of reckoning will be put off for another few months or years. The point is that you can be absolutely right in your fundamental analysis but totally wrong in your timing. If you believe as I do that the financial system is fundamentally flawed then place your bets conservatively. Don’t use leverage. The crash will come but in its own time and not yours.

“Rome was neither built nor destroyed in 3 months.”

That is correct but this destruction has been on going since 1913, when the FED was created. The USD has been devalued by 97% and the last 3% is now going down on the Wall Street flash fire in progress.

The USD is burnt toast. As Jim Sinclair says, “This is it and it is now!”

Joe M. That is not even one century in this latest experiment with fiat currency. It may seem like a long time to us but is insignificant in historical terms. The USD, as all fiat currencies, is dommed but when? It may yet live to see another day. Patience my friend and good luck.

Thanks for the support Frogger. Did anyone else notice the bump in lease rates lately? This seems like an indication that silver is in hiding. Am I missing something (else?) ? Anyway, hang in there, lads and ladies. The party’s just getting started.

Thanks for the support Frogger. Did anyone else notice the bump in lease rates lately? This seems like an indication that silver is in hiding. Am I missing something (else?) ? Anyway, hang in there, lads and ladies. The party’s just getting started.

Discreet: My tinfoil hat is double-grade and can stand the test of time. There continues to be indepth discussion and controversy regarding manipulation practices with gold & silver, however they are just like any other market and can be subject to extreme volatility. They are afterall commodities and highly leveraged. If you look at the grains, the currencies, the bond markets, then all could be grouped as being manipulated.

There is no big secret where all the key support and resistance levels are. An experienced trader can pinpoint exactly on a daily chart where these areas reside, likewise certain alogrithms will kick out the same stops. Having a large cluster of hard stops will obviously trigger an exaggerated move, and though prices have seen sharp spikes to the downside, the true can be said of the upside. The $110 pt daily gain in Gold is a good example.

I will sum up by saying, short term trends can be pushed around due to the above conditions, but long term manipulation? No. Silver / Gold are highly liquid. Secondly, Silver (since ‘01), has traced out 3 bonafide chart patterns, a descending formation which reversed the lateral congestion inot a strong bull market, then followed by two (1.5 yr) symmetrical triangles. All 3 of these patterns turned out to be bonafide and hit their minimum upside targets. If manipulation was taking place, it was not very effective to allow $4 Silver to move 500% over a 5 yr period.

Most investors do not trust chart patterns because they simply do not understand the pattern or how it correlates with price action. Lastly, even a pattern identified has the right to change into another pattern as is often the case, until all the criteria has been met, and then confirmed breakout.

As I’ve mentioned in my previous comment, Silver is tracing out both short term inver H&S which targets $17ish, then the dominant pattern (Falling Wedge) which points to $21. A close above $22 will likely confirm a new bull leg, otherwise we could still move into a multi month consolidation pattern, even in spite of such bullish fundamentals which underpin the PM’s.

I think the most basic reason that PMs haven’t as yet shot to the moon is because, despite all the big boys preaching buy-and-hold, the big money is trading with an extremely short term view. The quick kill, regain some losses before the dreaded end of year performance comparisons. And most importantly, don’t lose anymore! This psychology partially explains the volatility we’ve seen in everything since the Bear Stearns takedown. Simply, the big money doesn’t see the PMs(or commodities in general) as a good place to make a quick profit right now.
As PM lovers we have no doubt of eventual success. The fundamentals reveal one of the best “no brainer” opportunities ever, but the big money moves on technicals and a breakout will have to be confirmed before they start piling in again.

For purposes of comparison, if we substitute the Price for the nearest expiring delivery contract for Silver (Dec) for the ACTUAL PRICES at which physical is exchanging hands for right now (lowest I could find is still about $2 premium to spot), can we say that we are now in backwardation with respect to the longer dated contracts?

I don’t know (obviously) how many of you watched some of the Senate Banking Committee’s hearings this past week. Senator Barbara Dole asked Ben Bernanke if he thought the $700 B would be at all inflationary. Of course he couldn’t say, to the nation and the world, that “you’re G/D right it’ll be inflationary…” so he said very politely (and I’m paraphrasing again) “No.” (Have you ever used a translator? You ask a complicated question like “Have your closest relatives had any contact with any pets, pests, poisons or people that could be carrying a contagious virus?” After twenty minutes of back and forth in a language with which you’re not familiar the interpreter gives the Bernanke “No” and you’re wondering if you missed something…)

So I’m thinking to myself: What am I missing here? And of course I think I don’t understand enough about economics to understand his answer. Or the question. Or the reason we’re all here in the first place…anyway…I’m thinking about this for a couple of days and then I realize that what he said was true. The $700 Billion is not going to “cause” inflation. We already have inflation built into the system of a fiat currency whereby “money” is generated by one institution “kiting” the checks of another. No. He’s not worried about inflation. They killed that awhile ago. Look at what they did to interest rates. And as money leaves the commodity markets where does it go? Bingo: the bond market. Bond prices up, rates down. And when rates plunge, prices follow. They’re tied inexorably together, the yin and yang of interest and price levels.

So, no, Ben’s not worried about inflation at all. He scared shitless of DEFLATION, however, and she allowed him, by the way she asked the question, to dodge that issue completely. Deflation takes Treasuries and the dollar into the abyss. And once Treasuries go, without massive support from their diasporized relatives living in Japan and China, everything valued in dollars is toast.

I don’t know (obviously) how many of you watched some of the Senate Banking Committee’s hearings this past week. Senator Barbara Dole asked Ben Bernanke if he thought the $700 B would be at all inflationary. Of course he couldn’t say, to the nation and the world, that “you’re G/D right it’ll be inflationary…” so he said very politely (and I’m paraphrasing again) “No.” (Have you ever used a translator? You ask a complicated question like “Have your closest relatives had any contact with any pets, pests, poisons or people that could be carrying a contagious virus?” After twenty minutes of back and forth in a language with which you’re not familiar the interpreter gives the Bernanke “No” and you’re wondering if you missed something…)

So I’m thinking to myself: What am I missing here? And of course I think I don’t understand enough about economics to understand his answer. Or the question. Or the reason we’re all here in the first place…anyway…I’m thinking about this for a couple of days and then I realize that what he said was true. The $700 Billion is not going to “cause” inflation. We already have inflation built into the system of a fiat currency whereby “money” is generated by one institution “kiting” the checks of another. No. He’s not worried about inflation. They killed that awhile ago. Look at what they did to interest rates. And as money leaves the commodity markets where does it go? Bingo: the bond market. Bond prices up, rates down. And when rates plunge, prices follow. They’re tied inexorably together, the yin and yang of interest and price levels.

So, no, Ben’s not worried about inflation at all. He scared shitless of DEFLATION, however, and she allowed him, by the way she asked the question, to dodge that issue completely. Deflation takes Treasuries and the dollar into the abyss. And once Treasuries go, without massive support from their diasporized relatives living in Japan and China, everything valued in dollars is toast.

I think Jon you would have to compare paper to paper. The physical silver market is not the same as the paper market anymore. However I would agree that the retail physcial market is in backwardation. If you want to buy and take immediate delivery you will have to pay about a $4.50 premium for silver eagles but if you’re willing to wait 2-3 months for delivery you can get them for under a $2 premium. Similarly with 10 or 100 oz. bars. Many of us here would contend that is the real silver market not the paper one. BTW looks like gold is headed in the same direction.

One more speculative comment before I retire this evening: I think the central banks of China and Japan will fiercely defend the dollar, as they’ve got a whole pile of Treasuries rotting in their vaults. This will float the very leaky dollar boat for some time, hence PM’s will wander around until the Asians decide we’re unsalvageable.

I heard from my sister that Peru is going to continue their mine taxation. However, the locals are very sensitive to the idea of layoffs, and can be cajoled into working the mines in order to feed themselves.

I also heard that China is going to blow everyone away with their technology-based enterprises: manufacturing, distribution, you name it. Eventually that market has to begin to go the other direction.

One more speculative comment before I retire this evening: I think the central banks of China and Japan will fiercely defend the dollar, as they’ve got a whole pile of Treasuries rotting in their vaults. This will float the very leaky dollar boat for some time, hence PM’s will wander around until the Asians decide we’re unsalvageable.

I heard from my sister that Peru is going to continue their mine taxation. However, the locals are very sensitive to the idea of layoffs, and can be cajoled into working the mines in order to feed themselves.

I also heard that China is going to blow everyone away with their technology-based enterprises: manufacturing, distribution, you name it. Eventually that market has to begin to go the other direction.

What bugs me is why silver is the worst performer among commodities. If it is an industrial commodity, it should move with crude and copper. If it is monetary metal, it should go along with gold. Perhaps it is both, and also the most touted by the gold bugs, and hence, contrarian play suggests it should also be beaten down most. Also, while the expected bailout might be nominal in the face of huge derivative exposure, is it not likely to restore normalcy in the system? Once the fear is out, are not gold and silver likely to crash once more?

A bond market crisis is next. Finding no buyers for US government debt is probably going to be the end of this sitcom. The whole world will throw in the towel on treasuries and the dollar. The snake oil salesmen insurance brainiacs with their derivatives are going to get their day in the sun.

I think many underestimate the possibility of deflation.

As Prof Fekete explains the Great Depression was caused because of a massive bull market in bonds, orchestrated by the Banks. This bull market in the 30’s of bonds was even bigger as the enormous bull market of stocks in the 20’s.

It was this bull market of bonds that caused to deflate all other markets and go bust our producers and companies.

This could happen again.

In this case having bonds would be far better than having precious metals.

I find this possible route to be underrepresented here.

Or am I missing something?

Tom’s original question was: Does anybody know from which direction the danger is approaching? My opinion, as I do not know, is Paulson and Bernanke think a Creditanstalt event is approaching. And unlike 1931, it won’t take months to unfold. Computers let the speed of such an event occur in days or weeks.

Would 700 billion stop such an event? I don’t think so, but it might have gotten Paulson out of office before it hit or such was his hope. Bernanke, the man who made himself an expert on the Great Depression, now sees himself presiding over the Greater Depression. Not the career path he was aiming for as I’m pretty sure he wanted the role of savior instead and that’s why he looks so bad in the hearings. His new role in history is becoming clearer to him.

Interbank lending is drying up around the world. China won’t let their banks play with the West. European and US banks won’t play with one another, just with their central banks. But the government of China is starting a trend that others will copy: Protect our system. The global supply base of many companies will not react well to this. Just-in-time inventory practices also will not react well and production losses may well start to occur.

But the basic danger is the systems’ interconnectedness. As trust is lost, and the US has burned a big pile of its former trust, the worldwide system will start to seize. Paulson and Bernanke only have one real trick (printing) and the figure of 700 billion was probably picked to be big enough to restore trust. The trouble is trust is typically earned, not bought.

That’s the danger direction I see.

Tarun Gupta : The cat is out of the bag. bailout or no bailout the authorities have exposed the system to the public for all its rottenness. the market is naturally reacting by building up cash position. this is highly deflationary & dollar strengthening in the short term.

PM would also be affected. however they have behaved admirably so far. look at silver. it should have been at 10 USD depending on the dollar index, but no - it is doing great.

Do you really propound that $ 700 b would calm that huge monster called the derivatives market. you just haven’t seen hell letting loose. there is no way outta the scourge of Exter. every debt has to be paid back - this is principle of karma in action - either in kind or in default. since you can’t payout the huge derivative debt - yes leverage is debt - the US would default. the best way out, as the US govt figures out is default through dollar devaluation versus gold.

the public were numbed down about the seriousness of the credit crunch at its outset. “sub-prime? what sub-prime. no problem……” but now see what Bush et al are propounding. We, were laughed as the gloomers & doomers. now what is mainstream media upto ?

ultimately the one property that the metals have which the public at large are going to discover is lack of counter-party risk. they dont depend on someone’s promise, kindness, word or edict for deriving their value. this is not true for the banks, the US govt or USD. this is also not true for “cash”.

there is an old adage that rings for all investments - there is never a single cockroach out there; there has to be huge nest underneath.

Marc : The 30s were a different era - a totally different character of people lived and walked the earth. you had the gold standard then. The US was a hard-working, honest & cultured place to inhabit. and most importantly raw capitalism existed in some form. fiat money destroyed all that. hasn’t it?

the bull market in stocks as you say was followed by the bull market in bonds because banks were allowed by a capitalist framework to protect their interests in the face of a crumbling stock market. today which bank is equipped to do it ? and even if it has the cash to do it which bank would be allowed to do it ? today the dominant players aren’t private US banks - but participating govts & SWFs.

and the US’s worry is/should be the opposite of what it had in the 30s. it should be - how to keep Asians & the Arabs invested in the bond market. okay, no worries here. Current geo-politics & the power of the US military would protect these govt investors to stay invested in the T-bill market. so far. and believe me the party can go on despite many nay-sayers who believe that the bond market could break, kind-ness of strangers would end, etc. etc.

the problem came because the party stalled with the real estate crash in mid 2005 & the mortgage derivative crisis. thus, began the famous credit crunch in Feb-Mar 2007. when RE crashed they said - no-way it isn’t a crash, only a blip. when mortgage products became trash they said no-problem, only a blip. Now when the CDS market is on fire, it is just a new “challenge in financial markets”. the point I want to drive is the powers to be are very successful in stage managing the mass psychology. meanwhile you had a nice bull run in stocks. now Dow 10,800 is nicely holding (except for a minor one day abberration). my guess is this level will mostly hold (otherwise expect deflation). meanwhile the dollar will once more form a double/triple top at 80 (on breakout expect deflation).

Marc,
How can you have deflation with massive increase in the money supply ?
Surely massive money printing = superinflation= increasing actual PM prices.

We are at the end of the system as we know it. It is over. Get tangible with everything you can.

cooma, I think they call it “pushing on a string.”

The Fed can inject all the cash they want, but if they can’t get the banks to lend, the money doesn’t reach the economy.

Pushing on a string is the correct term. The Fed cannot control where the new liquidity goes. Typically it goes into the speculators favoured asset class at any given time to create a bubble.

Lately banks have been reluctant to lend to each other. They are hoarding short term US treasuries. Falling interest rates on treasuries for an extended period of time creates deflation. The mechanism is called “linkage” or Gibson’s Paradox. Short term US treasuries have become the bubble asset class of choice now because of the credit crisis. During a credit crisis, Fed Open Market Operations provide a risk free trade for the speculator. Bond speculators purchase the US treasuries before the Fed does.

Until the US bond market breaks convincingly, these deflationary forces will remain dominant. Until then the assets at the bottom of Exter’s Pyramid are the place to be. When it breaks, it will be time to rush back into commodities and any other hard asset available.

Off the subject, it appears that the retail bullion availability situation is getting worse, not better, as time passes. News articles and testimonies from would be buyers worldwide indicate that the “little guy” is being denied access to government fabricated bullion at any price. How hard is it to ramp up production in two months time!? The prices I’ve seen for “preorders” are absurd! $17/OZ for a Mint box of 500!?
Supposedly, the Canadian Mint doesn’t depend on outside contractors for any part of the process; all they need is the metal. Show me the Maples if there isn’t some serious hoarding going on! What a bunch of crap! Free market my ass!

Looks like the Big Short is at it again. Silver is down 5%, gold is almost even. The bigger JM gets, the tougher it gets for SLV. The CTFC investigation is just a cover, as they see more people realize JPM is manipulating the market. I think it;s a sign that another big move down is being planned.

The last CTFC statement in May, was pre-cover for the last big manipulation in July. Realize, when you’re stealing from people the way JPM is, and you’re responsible for it, the way the CTFC is, they need to work together and coordinate their moves.

tom,
There are lots of factors in play here. There is no simple answer or solution.

1. There are modest amounts of real estate defaults and payment delays by borrowers. This would probably be OK if the lending system hadn’t been so leveraged that a 3% default would knock it out. Anytime you have massive defaults on debt and credit contractions you will see DEFLATION. Such deflation will hit everything including scarce commodities. Panic sellers bring all kinds of assets to market and just dump them at what ever price they can get. The $700 billion is government loans - I prefer to call them loans, at this point rather than ‘bailout’, is an attempt by the banker of ‘last resort’ to restore order to the system. Given the level of defaults and deflation, the government loans are NOT likely to be inflationary in the near term (next year), but will likely cause a massive explosion of credit creation when the economy recovers. At this point, gold and silver will start rising.

2. If the loans are not approved or delayed greatly, the system is likely to deflate down to a point where government loans will be like dust in the wind - irrelevant. If huge amounts of loans go into default, not even Uncle Sugar will have enough money to save all of the creditors. 70 years of boom and inflation will go down the toilet.

3. Physical silver and gold are in short supply because they have always been in short supply. Until recently NO ONE CARED! except a relatively few gold and silver bugs. There is a reason why the government stopped making coins out of silver in 1965. The reason is: because they didn’t have enough silver even back then! There certainly isn’t more of it available now.

A few more long sighted American’s are now buying silver for protection and the silver bugs are likely buying more for speculation. I bought 3 bags of silver coins a few years ago. Now I understand I can’t get anymore. Clearly, there isn’t enough silver for anything but a very small portion of American’s to own enough to protect their wealth.

I urge all who read this to buy some metals for protection. Make them physical supplies rather than ‘paper’ supplies. If you can’t buy silver, then buy pallidium, if you can’t buy pallidium - buy platinum. if you can’t buy these - buy gold. If you can’t buy bullion, buy selected nuimismatics. If you can’t buy physical, buy the ETFs or CEF. Avoid futures.

In the next four years there may not be too many places to hide.

a. Real estate may continue to fall - slowly. Even if it does stabilize, real estate needs to continually appreciate inorder to be a good investment because of the real costs of upkeep.

b. Under either a deflationary or inflationary scenario, most stocks are no place to hide. Although, I would prefer ‘good’ ones’ to real estate.

c. Bonds are a loser’s game. Default is possible under deflation and the low interest rates make them unsuitable for an inflationary scenario.

d. Cash suffers from the same problems as bonds if held in shaky banks. Cash will be OK in an inflationary scenario if interest rates are allowed to rise.

4. The USA will likely impose capital controls in the next four years. So getting your money to ‘flee’ may be impossible.

The average American will not have any silver or gold, will be stuck with an unsalable and deflated home price, low interest rates on cash, rising prices for energy (Peak Oil problems) and no way to escape.

5. The disconnect between physical silver and gold is the massive liquidation in traders positions in future markets. Plot a chart of the trader’s net position and the price of silver. It is remarkably correlated! Silver is truely in short supply - physically. but the trend following - technical analysts just don’t get it.

If silver is truly in short, how could SLV continue to offer shares at or near the COMEX or London Fix price? SLV has to add real physical silver to the trust and sells shares very near the spot price. If they couldn’t get the silver at the price it’s selling, the price would simply rise to a premium over the paper price.

SLV is NOT paper and they’re putting real silver bars with real serial numbers on them into their vaults everyday. If the paper price is being manipulated below spot, the SLV would trade a premium to spot, but it isn’t. It’s trading at a slight discount due to management fees.

I believe SLV will be the true indicator of a real industrial shortage of silver as SLV has to compete with industrial users for those huge 1000 oz bars, not to mention the Comex warehouse.

Here is what I don’t understand: How does SLV maintain it’s price? Is it based on bids and asks as a normal stock, or is it set by the trustees?

T Rob Read the prospectus for SLV the price is maintained via arbitrage with the physical market by the designated MMs.. So if SLV rises they immediately buy physical silver and vice versa. However CEF fits in better with your analysis as it is truly a closed end fund that holds physcial silver and gold. It recently was trading at over a 20% premium to net asset value. So thye issued more shares and bought more PM. What does that tell you?

T.Rob: Are you in a camp which believes that silver price is not manipulated at all? Isn’t it possible that large demand centers for physical bullion like SUA & SLV are diverting all the available physical at comex prices so that the retail supply is virtually cut off to zilch?

Otherwise how do you explain the huge premiums for retail silver while there is little for SLV? so called “fabrication bottleneck” is bunk since it is not that difficult to forge/mould 1000oz bars into 100oz bars. Any alloy-smith would gladly divert his capacity from base metal fabrication to silver fabrication if such mouth watering premiums exist along with metal availability. problem is the metal is not available for retail investment at the moment.

One more thing, I am amazed at how many deflationists are prowling around this water-hole. reading too much of Mish. “when lenders are unwilling to lend and borrowers are unwilling to borrow” blah blah blah. this has been happening since Feb 2007. that is called the “credit crunch”. but where is the famed deflation accompanying this infamous event? where is the commodities bust? does it take 1.5 years for the markets to figure this out in an era of internet & e-trading ?

yes bank failure & movement into cash has taken place. but where is the 30s kind of crash in the Dow ? where is the massive bull market in ALL bonds? where are those massive suicides, pain etc etc. ? this is certainly not your daddy’s deflation - it is called an “inflationary deflation” if you believe the Austrians.

Actually, I do believe there is something strange going on in the silver market. I just don’t know what it is. The only real evidence I’ve seen is the 2 banks being massively short from July to August, but I don’t know what that means. Are they “manipulating?” Sure. Are they illegally doing so? I don’t know. What I REALLY want to know is what the SLV can tell us. I’ve looked over the SLV prospectus pretty carefully and I don’t believe there is any “arbitrage” going on as the other Rob indicates. SLV has a NAV based on how much the trust holds and the London fix. The prospectus clearly states that the shares may trade at, above, or below the NAV, telling me it’s based entirely on silver supply and demand based on MARKET price. I don’t think the manipulators can manipulate SLV like they can with the low margin products like Comex silver.
So, that tells me that the SLV price IS the market price in spite of small physical trading at a large premium.

Tom: I hope we see some discussion on the SLV basis as you’ve discussed in the past. I’m very interested in what this can tell us.

Between the sudden ending of 100 oz bar production by Johnson Matthey (even though they were weeks behind in filling existing orders), and the US Mint’s (illegal) suspension of minting gold and silver eagles, it looks to me like an effort is being undertaken to kill the retail silver bullion market, before it kills the paper market.

Is a 1000 oz bar going to be the smallest physical available at “market” prices? Will new and existing laws prevent someone else from turning 1000 oz bars into 100 and 10 oz bars? Will this cause all 1000 oz bars to gravitate to the SLV’s vault, as it will be the only remaining play for the small-time investors?

Something tells me that before that paper market dies, I’m going to see am incredible “premium” on physical. Even a multiple, perhaps?

It is obvious and illegal.

Is it possible that a run on FRNs could happen this week? Even though the gov through FDIC guarantees deposits, any temporary suspension of withdrawals at any financial insitution could cause many citizens to try to get the cash you can fold. Yikes! I’m going to the ATM right now!

Found this on another site:

from lemetropole again:

“Below is a table of COMEX silver deliveries for last Thursday. I don?t know if you will be able to integrate the table into Midas since it has a wide format. What the table shows is that 450,000 oz of eligible silver was removed from the Brinks depository and 100,000 ounces was switched from eligible to registered at the Scotia Mocatta depository. The bars stored at the COMEX warehouses are 1,000 ounce bars, but I have frequently read that people who take delivery say the actual weights vary from 920 to 1080 ounces as the bars are not milled to exactly 1,000 oz. Also generally when silver is received or withdrawn from COMEX warehouses the amount is not a round number but is precise like 587,241 ounces. If the COMEX bars are not exactly 1,000 oz, which I believe they are not, then Thursday?s 450,000 ounce withdraw could have been 450 bars, or 449, or 451 etc., but the chance of its weight being an exact round number is 1 in 1,000. The same applies to the 100,000 ounce transfer; it has a 1 in 1,000 probability of being this round number. Hence the probability of two silver movements in one day of amounts ending in 000 is one in a million. Assuming COMEX is open 250 days a year, this should happen less than once every 4,000 years.

If this evaluation is correct, it means that silver is being moved from COMEX warehouses electronically. This opens the barn door to all kinds of possibilities. One is that this electronic silver is being pledged to Barclay?s silver trust. Another is that the silver was leased, can not be returned and has been electronically removed from COMEX. Whatever is going on, something smells at the same time things are rotten from Washington to New York.”

keseri,
That the House of Representatives didn’t pass the bill, shows two things- Bernanke and company have not so much influence as to do as they wish, and the House doesn’t deem the world coming to an end. The normal markets can proceed without any problem. Now, this should be very bullish for gold, once the overhead resistance at $921 is overcome. The next target I presume should be $1009.