I started out the morning by reading two interesting articles on Zero Hedge. The first headline was, 7Y Yield Jumps 30% In A Week To 25 Month Highs.
An ominous trend may be developing here. This makes five out of the last six days that US Treasuries sold off. 10Y rates hit 2.89% and 30Y hit 3.90%, both pushing back to the pre-US-downgrade (debt-ceiling) levels of summer 2011. The 10Y yield joined the 30Y trading wider than they did when stocks hit their lows in March 2009. It seems like it’s only a matter of time before the 10Y pushed through 3%. And to put it into context… 10s and 30s are now higher in yield from the March 2009 lows
Now 3% doesn’t seem that high, but just three and a half months ago, the 10Y rate was around 1.6%. I sent in papers to re-finance my house on June 27. By then the rate had already risen to 2.2%. That was a 27% increase but the rising interest rate trend had me concerned and I had waited long enough. The rates continued to rise and are now up an additional 24% since I locked in my rate. I am still waiting for approval, but Citi is so swamped with requests that it is taking them a full 60 days to process the loan.
Rest assured, this will affect the housing market and the new car market. Higher interest means higher monthly prices and that means fewer buyers will be able to qualify for the loan. And to make matters even worse, the stock market is ready to tip over and fall. Rising interest rates here is all it would take to kick off a painful correction. How do you cut back on QE in this environment?
Warnings to avoid Treasury Bonds and Munis are popping up almost every day now. I take them seriously. Anytime Bill Gross is leading the choir, it’s time to pay close attention.
Treasury purchases from Russia, China and Japan (the largest buyers) are falling off so it puts the Fed in an awkward position and makes it nearly impossible to cut back on QE at this time.
The TBTF banks are taking in hundreds of billions of newly printed Fed money in exchange for their lowest quality MBSs. (Reminds me of Bernanke’s promise to drop hundred dollar bills from helicopters.) In fact, I just read that the Fed purchased over $50 billion on MBS (Mortgage Backed Securities) in ONE WEEK in August. The Fed is still spending hundreds of billions on these toxic derivatives to support the big banks. Jim Sinclair warned about the derivatives monster many years ago and he pegged the problem at one quadrillion worth. We’re dealing with a problem that is still so large, the amount of MBS bonds purchased by the Fed is but a drop in the bucket of what still remains on the banks’ books. It’s a meaningless number against the total. It is an endless process and it must be necessary for the survival of the banks or the program would not still be in progress.
What do the banks do with all that money? I don’t get any of it and no one I know gets any of it. No, it stays at the very top of the wealth pyramid. I imagine that the large super-funded hedge funds get a crack at it first at very low interest rates. Then they use these funds to terrorize the commodity markets, and never miss a chance to take a whack at gold and silver. But there is always “the other side of the trade” and that’s where the Chinese, Indians and Russians enter the game. Huge money is involved on both sides. But the tipping point is the ability to deliver physical gold. The Asians want physical gold, not profits on paper contracts. They want to divest themselves of dollars and trade them for physical gold and silver.
It must be getting very tight now because gold is in backwardation in London and that is a surefire indicator of shortages. The London banks are offering higher interest rates to borrow gold NOW and lower rates in the future months. It is almost always the other way around. If you lease gold for three months or six months, you expect to be paid more interest for the use of it than if you lease it for just 30 days. We have heard rumors of shortages and delays but the sudden backwardation lends credibility to the rumors.
It was the second headline on Zero Hedge that really piqued my interest. Meeting with POTUS tomorrow are heads of the CFPB, FHFA, the Fed, CFTC, FDIC, NCUA, the SEC & Comptroller of the Currency. They write, “Correlation is not causation (but suggests you are on the right path).” Remember what happened the last time the President, somewhat unexpectedly, met with the CEOs of all the big banks. That was in mid April when someone, and the name JPMorgan easily pops into my mind here, crushed gold by $200/oz. Gold was down yesterday and the follow up in the after market was down another $8. Do we have to worry about another “April Shower?”
Bix Weir expects that we will experience violent moves in gold and silver prices for a while.
There are a few things that are pointing to something big hitting this week or next. This would be OFFICIAL market manipulation moves and not necessarily the handy work the banking cabal working on their own. Obama is calling in all the heads of the big financial regulators for meetings tomorrow…in which he usually gives them “stand down” orders on market surveillance for an upcoming operation.
Also, the silver COT’s are showing that SOMEONE is massively shorting on the latest rise in the price of silver. Although in the past it has usually been JP Morgan, I believe that it may be someone else this time…a non-regulated hedge fund like BLACKROCK. This would be part of their takeover plans of the silver rigging reigns.
Not sure if they will spike the price up or down but in the past it has been down. Again, my advice to everyone is to sit on the sidelines with physical metal in hand and wait out the manipulations.
FYI – You should be excited about these moves because this is all part of the END GAME. The more action we see….the closer we are to the END.
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Many of our readers follow Larry Edelson. Larry is making another bold call. He says:
…[A]lthough gold and silver have indeed rallied, importantly, neither one has given a major buy signal — and both metals remain vulnerable to sliding back down heading into September. New lows in both gold and silver — below $1,178 in gold and $18.15 in silver — remain quite possible.
So what to do then in gold and silver bullion? Wait for my signals. The coast is not clear yet in the metals, but will become very clear as we head into September.
–MoneyandMarkets.com, August 19 2013
Jim Sinclair says the bottom is in. Edelson says maybe not, we still could see new lows, but the bull market will be back with a vengeance by the end of September. Who’s wrong, who’s right? We won’t have to wait long to find out now will we?
In the worst case, we are only six weeks away from the end of the bear market. Gold and silver will either launch from here or very soon from a lower level. I plan to wait a few days and see if a “trend” appears and which way it is headed. I have a fair amount of capital on the sidelines waiting to go into SILVER. That’s right, silver, not gold. The silver/gold ratio is currently sitting around 60 to 1. That’s right, one ounce of gold will purchase 60 ounces of silver. That relationship is way off kilter, in favor of silver. Also, silver has recently decoupled from gold and is leading gold on the way up. It is much easier for me to envision silver trading at $45 than gold trading at $2700. The last time silver was at $45 gold was trading at $1900. Using those numbers, silver is undervalued by one-third. I am getting ready to buy another six monster boxes of Silver Maples and have them shipped up to our storage program at Brinks in Montreal.
I am also seriously considering trading 100 ounces of gold for another 11 mint boxes of Silver Eagles or Maple Leafs. I don’t “rebalance” my portfolio very often, but at 60/1 it makes a lot of sense. I really do agree with Ted Butler that silver will outperform gold by a long shot. And it is not in the government’s cross hairs the way gold is.
Last week the silver/gold price ratio tumbled almost five full handles to just over 59 to 1. While silver is now more fully valued to gold than any time in the past four months, the ratio is still midrange of where it had been over the past couple of years. In other words, silver is still a compelling better relative buy than gold based upon all the actual data I look at for the long run. For the short run, as always I plead the fifth, but owning silver over gold is a no-brainer for me.
I don’t think there is anyone in our industry who knows more about silver. His bullishness on silver really does catch my attention.
Finally, my son Andy was in San Diego last week and assisted a client in packing up and shipping off a large order of Gold Maple Leafs to our Brinks storage program in Canada. When Brinks received the box and opened it and inventoried the contents, they found that the client had miscounted and shipped 98 ounces of gold more than he thought. We immediately notified him and needless to say, we made his day. That represented approximately $140,000 that a less honorable firm could have kept. It does happen in this industry so you should only do business with well-respected major firms. Firms that you can trust. You won’t find two firms with a better reputation than Miles Franklin and Brinks. This is just an example of the service that I promise to all of our clients. Our Better Bureau A+ rating is well deserved.