Thursday afternoon, following yet another day in Fantasyland, Neverland, the Underworld, or whatever you want to call the sorry excuse for “markets” we observe each day. Each day the same thing – more PRINTING MONEY, more MARKET MANIPULATION, and an increasingly compliant mainstream media that no longer attempts to understand the contradictory environment around it. A hundred straight “horrible headlines” with nary a market reaction, then one “positive” such as falling jobless claims and the world is agog with excitement. No matter that when dissected, such “good news” is not so good at all, as I noted in yesterday’s RANT regarding the “seasonal adjustments” and “survivor bias” of BLS employment calculations.
Next up, the quarterly reality ignore-a-thon each time the zombie banks report earnings. Scum like Bank of America and Morgan Stanley report “in line” numbers and the stocks rocket up in thin pre-opening sessions (care of the PPT), although nothing particularly positive was announced. To the contrary, yet another statistical game of manipulating earnings with government-sanctioned FASB accounting rules allowing banks to value assets at whatever they’d like. Bank of America, for example, is marking its real estate assets at vastly higher values than they are worth, and avoiding loan losses that traditional GAAP accounting would require.
Bank of America earnings comedy – truthingold
Then again, no industry has as much entrenched fraud and corruption in its system than banking, excepting, of course, military contractors. It’s no coincidence these two sectors are the heaviest Washington lobbyers, as “if you want to play, you’ve got to pay.”
Deutsche Bank Again Under Fire From Internal Whistleblower Accusing Bank Of Fudging Numbers
Despite all the hype about so-called “great” bank earnings, the Dow opened barely higher, and names like Bank of America rapidly deteriorated from minute one. Yesterday I noted that in 20 years of financial analyst experience, I have NEVER “hype” about companies reporting in-line earnings. To see the excitement on CNBC (while at the gym, muted of course) about BAC reporting a tainted $0.15 of EPS versus the $0.15 estimate is truly amazing, the ULTIMATE in government propaganda and PPT market support.
Anyhow, as you can see by the chart below, the Dow was allowed to decline for a total of TEN MINUTES on Thursday, to the tune of a whopping 15 POINTS, before the PPT jumped in to save the day. The Dow’s daily movements are the polar opposite of what we see in Precious Metals, with ALL declines immediately reversed, no volatility, and the required rise to highs at the close, including yet another mini-“HAIL MARY” rally of 20 points in the day’s closing minutes. We can’t have the Dow go down EVER, let alone when the nation’s most bankrupt company reports earnings!
Then again, Bank of America is NOT, at least for the day, the “nation’s most bankrupt company.” That would go to Eastman Kodak, the second iconic American industrial to file Chapter 11 bankruptcy in the past month. Ironically, “American” (Airlines) typed three words from EK in the prior sentence, was the first. Once one of the U.S.’s strongest firms, and a Dow component until 2004, EK’s stock is now halted forever, completely worthless. Its bonds, however, are still trading, and the “ISDA” determined its filing to be a “default event,” as it should.
Interestingly, EK’s bonds trade at valuations 27% higher than Greece, which has stopped outlaying cash yet is not deemed by the ISDA to be in default! In other words, the accounting rules utilized by U.S. banks are pristine compared to those used by sovereign nations. And I won’t even go into the IMF rules for Central Bank gold, not just permitting but mandating leased and swapped gold to remain on CB balance sheets!
ISDA Finds An Event Of Default At Eastman Kodak, Whose Bonds Are Trading 27% Higher Than Greece
Speaking of gold, who’s up for another round of “gold baseball?” Going into today, the Cartel was on a RECORD eleven “at-bat” hitting streak, striking at all four key attack times in each of the past two days, as well as the last three on Monday. UNPRECEDENTED in my Cartel watching career spanning nearly a decade, as they turn up the heat in a DESPARATE attempt to “paper” over reality before it inevitably sets in. If you don’t believe me, listen to Bill Murphy of GATA, perhaps the only person on Earth, aside from his partner Chris Powell, who has spent more time watching Cartel activities, per the quote headlining his daily piece TODAY.
“GATA has been in existence for 12 years now, and NEVER have I seen day to day intervention in the gold and silver markets so consistent and blatant.”
While the net result was a decline of just three bucks, today was as bad as it gets on the gold manipulation front, though quite uneventful if you don’t own MINING STOCKS, as I’ll discuss shortly. If this were indeed a baseball game, we’d need an “official scorer” to determine if the 3:00 AM attack occurred, given gold had WATERFALL DECLINES at both 2:00 AM and 4:00 AM, achieving the same affect.
Then another brutal smash at the COMEX open at EXACTLY 8:20 AM EST, and yet another need for the official scorer. Gold actually jumped a few bucks at EXACTLY 10:00 AM EST, but doggone it, WATERFALL DECLINED less than an hour later, as well as at the “cap of last resort” at EXACTLY 12:00 PM EST, and even the later hour of 2:00 PM EST for good measure. Encouragingly, gold actually rose in the last hour of trading, a rarely allowed event, yet again making the KEY ROUND NUMBER of $1,650 look more like support than resistance.
Even more so for SILVER, which refused to fall by more than a dime despite obvious Cartel pressure all day long (note the ten distinctive caps). As noted in yesterday’s RANT, I believe the PSLV offering – likely to close at $349 million because the stock is trading above its offering price – could be a MAJOR positive catalyst in the coming weeks, as it was in November 2010. Not only is $30.00/oz moving further into the rear-view mirror, but $30.50 is building a support foundation as well.
Not that “they” won’t try to reverse the positive action with blitzkrieg PAPER attacks, as we all anticipate. However, the price was driven to such incredibly oversold levels in the high $20s this Fall, and again in late December, that I find it hard to believe it will stay down here much longer, particularly with all the other base metals rising sharply, such as copper. Miles Franklin experienced HUGE demand when PMs were driven down this Fall, and the articles I’ve posted in recent RANTS validate similar demand strength in early January.
Unfortunately, if you own MINING SHARES, you are not only losing your battle to PROTECT YOURSELF from the surrounding evils, but for the second straight year underperforming essentially EVERY market sector – thanks to Cartel naked shorting, of course. And get this, for those that still believe MINING STOCKS will be your savior. Over the past FIVE YEARS, the benchmark HUI “Goldbugs Index” of the world’s largest public mining companies is up just 48% and the XAU Gold and Silver Index 40%, compared to 270% for PHYSICAL gold and 250% for PHYSICAL silver!
Today’s (Thursday’s) action in the MINING SHARES – following two horrific days Tuesday and Wednesday – was as bad as it gets, with the HUI ending the day down more than 2% despite higher silver and flat gold, at one point down more than 3% while the Dow meandered in a narrow 15 point range and other commodity stocks flat-lined.
In the past, such a dramatic divergence with the metal was a blatant Cartel signal of a PM smash the following day, but I no longer pay attention to such moves as the rules appear to have changed. In today’s post- “OPERATION PM ANNIHILATION I and II” world, the Cartel now attacks EVERY DAY, at essentially EVERY KEY ATTACK TIME. I also believe the PM shares have recently been targeted for extinction by the Cartel, WAY ABOVE AND BEYOND the stair-step surge in naked shorting commencing on “D-DAY” in November 2010. In other words, the naked shorting has so badly dislocated the mining shares’ connection to PM prices, that they no longer signal anything!
In fact, here’s the early tally for 2012, where once again gold and silver lead the way despite non-stop Cartel suppression, followed by the PPT-supported stock market, and at the rear – as always – the bleeping MINING STOCKS, both large and small.
I am still amazed that – after all these years – so many avid PM observers still expect a moonshot in the mining stocks. I, too, believe they will eventually have a nice move when the Cartel is BROKEN, but not any sooner, as the Cartel will continue to naked short this targeted for extermination sector each and every day. Since “D-DAY” in November 2010, naked shorting pressure has accelerated dramatically on the hapless PM shares, to the point that essentially HALF of all senior mining stock trades represent new shorts, likely most of them illegal, unregulated naked trades. And you don’t even want to know about the JUNIOR miners, which as a group trade at essentially the same depressed levels as the lows of late 2008, when gold was below $700/ounce, silver below $9/ounce, and the “sky falling.”
In reading Jim Willie’s newest article today – which I highly recommend to all as he is the best newsletter writer in the business – I came across a quote from an analyst named Izabella Kaminska of FT Alphaville. THIS is why MINING SHARES have been so devastated for so many years, so for those of you expecting this group to soar, consider the ENDLESS “shadow” and “dark” PAPER supply entering the sector. In my view, by the time enough demand arrives to swamp the shorts, the U.S. will be in such a dire political, economic, and social straits that the government will start issuing draconian orders that could hurt not just mining stocks, but all stocks – such as dramatic increases in capital gains taxes, for starters.
“Dark Inventory: Inventory that is out there, but which no-one else can see. Both shadow and dark inventory phenomena pervert their respective markets, as well as the entire free market system as a whole, where everyone is supposed to have full access to information. Something both dark and shadow inventories make impossible. Something the 99% general public is not aware of, at all. The best way to make the connection between dark inventory in commodities and shadow inventory in real estate is to look at zombie money that pays for it.”
Which brings me to a corollary article, from my good friend and fellow ex-New Yorker Mike Krieger. This excellent piece summarizes much of what I have been writing of recently, including the utter destruction of any remaining vestiges of “free markets” since September, the mass lethargy such market control has engendered, and consequently, his emerging fears of the hopeless nature of investing in equities. I have for some time espoused the avoidance of ALL financial investments – stocks, bonds, and “alternative” investments such as Real Estate, to name a few – , as ALL are in primary bear markets, masqueraded by QE and PPT interventions. Treacherous to say the least, and if such investments are in targeted for extinction sectors such as PM mining shares, dramatically more so.
Michael Krieger Summarizes “The Building Tension”
You see, it’s always best to do what the BIG MONEY is doing, and no money is bigger than the world’s largest governments. Unfortunately for mining stocks, governments are NOT buying them, and conversely, the U.S. government is naked shorting them to oblivion. However, regarding PHYSICAL gold and silver, the polar opposite is true. Central banks around the world are buying PHYSICAL PMs hand over fist, and the U.S. government likely has NONE LEFT to sell. Not only is the Chinese government likely buying dramatically more PHYSICAL gold than it purports, it is actively pleading with its citizens to do so as well.
China’s banks urge man on the street to invest in gold
And speaking of Chinese citizens buying gold, JUST WAIT until the Pan Asian Gold Exchange, or PAGE, starts trading in June 2012. I have heard presentations from the top experts in the world about PAGE, expected to eventually take over the global pricing mechanism with its REAL, GOLD-BACKED futures contracts, available in small denominations to the public!
How will China’s Pan Asian Gold Exchange Revolutionize Gold and Silver Trading?
As you well know from recent RANTS, PM sentiment has plunged to levels last seen at the BOTTOM of Global Meltdown I in late 2008, when the Cartel forced gold below $700/oz. and silver below $9. As for PM stocks, per my earlier comments, sentiment today is FAR LOWER than the late 2008 bottom, despite the HUI being roughly 500 today compared to a low of 193 then. Yep, THAT is what I’m talking about regarding the PM shares being targeted for extinction!
Back to PM sentiment in general, the below chart is an excellent depiction of silver sentiment, culled from analysis of the COMEX “Commitment of Traders” report, pulled from Jim Willie’s world-class monthly newsletter.
Per the table below, each of the red circled bottoms of the past six years have resulted in dramatic silver surges in the ensuing months. Given the current supply/demand fundamentals, particularly in light of this week’s PSLV deal – requiring immediate delivery of TEN MILLION OUNCES – I would be surprised if silver is not challenging $40/oz later this year, and potentially the 31-year “double top” at $50/ounce. Mark my words, when $50/oz finally breaks -and it WILL – it will mark an historic moment in financial market history.
And I’m far from alone in that assertion, agreed upon this week by some of the most respected names in the sector, including John Embry, James Turk, and Stephen Leeb below.
Stephen Leeb – Why Gold & Silver are About to Soar
Spurred by last week’s news that the Netherlands will likely repatriate its 613 tonnes of internationally-held gold reserves (presumably at the NY Fed, if it hasn’t been leased or swapped away), Jim Sinclair espoused this will be a major near-term trend. International TRUST in sovereign Central Banks is rapidly waning, particularly the Federal Reserve given the U.S.’s blatant anti-gold posture. Do not be surprised if numerous banks demand gold from the Fed and other Central Banks, a replay of the market dynamics resulting in a force majeure closing of the “gold window” in August 1971.
Jim Sinclair – There Will Be a Run on Gold Stored in the US
Friday morning, and “the streak” continues. The Cartel is on a Ted Williams-like batting streak this week, batting something like 15-for-17 in KEY ATTACK TIME blitzkriegs, such as at EXACTLY 3:00 AM EST this morning, on the dot. Within hours, gold has already retaken the KEY ROUND NUMBER $1,650/oz, making it look more and more like support, rather than resistance…
…as is the case with the KEY ROUND NUMBER of $30.50/oz in the silver market, where Cartel sources are desperately searching for TEN MILLION potentially non-existent ounces to deliver to Eric Sprott’s PSLV silver trust.
Remember, next week will likely feature MAJOR PM-positive news, starting with the FOMC policy decision on Wednesday the 25th, followed up on Friday the 27th with a scheduled $1.2 TRILLION increase in the U.S. debt ceiling, to $16.4 TRILLION. Below I am republishing one of my favorite long-term charts, depicting the correlation between gold prices and the debt ceiling. Take a guess which direction gold is likely to go…
As for the Dow, I was in utter SHOCK to see futures down 13 points when I walked into the gym, but no worries it shot up to +40 the second the market opened. Thanks to the aforementioned PPT/QE/Cartel-inspired mass lethargy, we couldn’t have a quieter morning if we tried, the veritable “calm before the storm” of next week’s potentially major market moving developments. For now, let’s continue to ignore the likelihood of a Greek default in March, as there’s NO WAY it could cause any problems – LOL!
Sentiment Slipping As Greek Debt “Deal” Elusive For Third Day
As we head into the weekend – I want to expound on my October 28th RANT, “HALF-LIFE,” where I discussed the “DIMINISHING RETURNS” of accelerated MONEY PRINTING.
I’m not re-inventing the wheel, as I’ve spoken exhaustively of debt saturation, manipulation saturation, propaganda saturation, and essentially all Washington/Wall Street/Mainstream Media schemes to “kick the can down the road,” ALL of which have proven unmitigated failures. Once again, the simple rules of MATHEMATICS – or “mathematical physics” to be more metaphysical – state that such “pushing on a strong” has increasingly marginal benefits, and eventually none at all.
The reason I bring this topic up again is the current lockdown strategy of TPTB, which commenced this Fall, accelerating in recent weeks. In essence, they are PRINTING MONEY at an exponential pace – sometimes OVERT, usually COVERT – to paper over essentially everything as long as possible.
They care not if the plan works – it WON’T – only that they buy as much time possible; in the case of Sarkozy and Obama, for example, until the French and American Presidential elections in April and November, respectively. TPTB believe they have created a “zen-like” world where the powers of PROPAGANDA and MANIPULATION supersede the laws of “Financial Mother Nature,” but will be painfully wrong, just as they have been with every MONEY PRINTING scheme dating back to the Federal Reserve’s initial response to 9/11.
I know I have discussed this topic ad nauseum, but the combination of market lockdown and Bob Chapman’s suggestion last week that “the can” will successfully be kicked into 2013 due to the Fed’s “swap facility,” the ECB’s “LTRO” operation, and a slew of other MONEY PRINTING schemes drove me to re-address it. The last thing I want is my readers deceived by what even the great Bob Chapman says, lest you abandon or even “ease up” on investment (and life) strategies aimed at PROTECTING YOURSELVES for the inevitable, systemic crash that could commence any day.
Once again, I cannot emphasize enough the danger of paying too much heed to newsletter writers, as few have a grasp of the key fundamentals, many have ulterior motives related to selling subscriptions, and others are classic “flip floppers,” confusing their readers with unexplained or irrational changes in short-term views. I have found the ONLY way to avoid financial destruction is to seek out the PRIMARY TREND – to borrow a term from Richard Russell – and stick with it, continually searching for the low-risk alternative of exploiting it. This process has been my mantra for my entire career, and in the case of the “gold up/economy down” theme, has many, many years remaining. If you own PHYSICAL gold and silver – by far, the low-risk option for exploiting this trend, you WILL protect your wealth, SURVIVING the historical crisis, and position yourself to THRIVE when it ends.
As for the theory of DIMINISHING RETURNS, it has historically worked under all scenarios in which artificial stimulus was introduced into an economic system, be it fiscal or monetary. Fiscal stimulus at least has the potential to improve the situation, if utilized wisely and NOT implemented with borrowed money (which, in essence, makes it a disguised version of monetary stimulus). However, when such stimulus is due solely to MONEY PRINTING, it has ZERO chance of helping the situation, as all it guarantees is increased debt, inflation, and production costs.
PROVING this theory couldn’t be easier, and no chart does it better than the one below, depicting marginal GDP growth for each additional dollar of U.S. government debt. Debt is not the only factor contributing to reduced GDP, but by far the largest component – and don’t forget that in recent years, the government has understated inflation in an attempt to overstate economic growth (for example, analyst Mish Shedlock has reported, by means of Bureau of Economic Analysis data, that the US GDP is artificially lifted by a whopping $2.257 trillion in hedonic adjustments, equal to 22% of the entire GDP)! Per the below chart, marginal productivity has been declining since the end of World War, peaking in the early 1970s when the gold standard was abandoned.
Once the U.S. economic peak occurred circa 2000, MONEY PRINTING exponentially increased, pushing marginal GDP productivity close to ZERO, until it finally PLUNGED into oblivion following Global Meltdown I in late 2008. Mind you, this chart was created in mid-2010, and since then $2 TRILLION of debt has been added, while even “fudged GDP” has barely blipped up.
To further emphasize the potency of this relationship, see the chart below. Note that the above chart starts in 1966, when the U.S. national debt was essentially ZERO. The marginal productivity of new debt was roughly 90% in the 1960s, prompting Lyndon Johnson’s ambitious, ill-fated “Guns and Butter” policy of dramatic fiscal spending growth, and eventually the end of the gold standard less than a decade later. At that point, the chart at the bottom started dramatically rising, and the one on top materially declining. And take a look at the projection of exponential debt growth over the next four years, from $15 trillion today (“on balance sheet” only) to $25 trillion in 2016!
The chart below depicts the exact statistical correlation between marginal debt and GDP, with an astounding R-squared of 76.9%. In other words, roughly 77% of the decline in GDP is attributed to debt oversaturation. Moreover, the above charts were produced in 2010, but this one in 2009. Thus, it does not incorporate the impact of $2+ TRILLION of new debt, with nothing to show for it.
Taking it one step further, this table depicts the typical asymptotic relationship of trying to “push on a string” with increased debt. Currently, PRINTING MONEY is actually reducing GDP – even if the BEA fudges the data. Furthermore, I haven’t even mentioned what will happen when the ongoing “QE” programs – OVERT and COVERT – yield visible, negative effects, such as dramatically higher interest rates and debt service costs, and thus exponentially lower GDP.
Readers, think long and hard of what has been accomplished with the $10 TRILLLION of U.S. debt added over the past decade – including a whopping $4 TRILLION since Obama took office – and consider the potentially deleterious impact of QE3, the Fed “swap facility” (“off balance sheet,” by the way), and other MONEY PRINTING INITIATIVES that will surely be attempted to see if “the road” has any tar left to kick the can down.
The aforementioned $4 TRILLION of debt, plus tens of trillions of additional, COVERT money printing operations such as the $16 TRILLION lent by the Fed to the world’s banks, bought TPTB roughly two years of market calm before Global Meltdown II started with a vengeance this summer, bigger and badder than ever. TPTB are hoping to buy additional time via this Fall’s new, global MONEY PRINTING initiatives, coupled with a level of market manipulation unparalleled in history. But given the charts above, depicting the LAWS of “Financial Mother Nature,” do you believe another two years can be “bought” without causing a debt/currency crisis and surging inflation fears?
As for me, I’ll take “THE UNDER.”
PROTECT YOURSELF, and do it NOW
Great Column Andy!
Your conviction regarding GOLD and convincing data charts bring me comfort and the courage to continue converting dollars to gold.